Tanzania - Second Kidatu Hydroelectric Power Project

Report No. 927a-TA Tanzania: Appraisal of the Kidatu Hydroelectric Project Second Stage Development June 2, 1976 Energy and Water Supply Division 0 3" Eastern Africa Regional Office FOR OFFICIAL USE ONLY Document of the World Bank 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.  TANZANIA APPRAISAL OF THE KIDATU HYDROELECTRIC PROJECT SECOND STAGE DEVELOPMENT Currency Equivalents Currency Unit Shilling (T Sh) Tanzania Cents 100 T Sh 1 T Sh 1 US$0.124 T Sh 1 DM 0.310 T Sh 1 SKr 0.535 US$1 T Sh 8.05 US$1 DM 2.50 US$1 SKr 4.30 DM 1 T Sh 3.22 SKr 1 T Sh 1.87 Abreviations and Acronyms kV = Kilovolt = 1,000 Volts kW = Kilowatt = 1,000 Watts kWh = Kilowatt-hour = 1,000 Watt-hours GWh = Gigawatt-hour = 1,000,000 Kilowatt hours kVa = Kilovolt Ampere 1,000 Volt Amperes MVA = Megavolt Ampere = 1,000 Kilovolt Amperes MW = Megawatt = 1,000 Kilowatts m = Meter m3 = cubic meter m3/sec = cubic meter per second km - Kilometer = 1,000 meter CIDA = Canadian International Development Authority GDP = Gross Domestic Product Government = Government of Tanzania KfW = Kreditanstalt fur Wiederaufbau MWDEM = Ministry of Water Development, Energy and Minerals SIDA = Swedish International Development Authority SWECO = Swedish Consulting Group TANESCO = Tanzania E:Lectric Supply Company Limited TANU = Tanganyika African National Union TANESCO's Financial Year = Calendar Year  FOR OFFICIAL USE ONLY TANZANIA APPRAISAL OF THE KIDATU HYDROELECTRIC PROJECT SECOND STAGE DEVELOPMENT Table of Contents Page No. SUMMARY AND CONCLUSIONS ....... ...................... i-ii I. INTRODUCTION ........................................ 1 II. GENERAL ECONOMY AND THE POWER SECTOR. 2 The Country and the Economy . . 2 Energy Resources ........ 2 The Power Sector .. 3 Existing Power Facilities . . 3 Access to Electricity. 4 Power Development Program . . 4 Rural Electrification .. 5 III. THE PROJECT. 5 Description ..... .... .... 5 Estimated Cost .. 6 B sis for Estimates ................. . ...... 7 Loan Amounts .... 7 Disbursements .. 7 Detail Design and Construction Supervision . . 8 Procurement .. 8 Environmental Studies...... 9 IV. JUSTIFICATION OF THE PROJECT. 9 Market Growth . . 9 Need for Additional Capacity . . 9 Comparison of Alternatives. 10 Return on Investment. 11 V. THE BENEFICIARY - TANZANIA ELECTRIC SUPPLY COMPANY LIMITED .12 The Borrower.and Beneficiary .12 Company's Memorandum of Association and Licenses 12 Organization, Management and Staff .12 This report was prepared by Messrs. I. Tuncay and N. Tin. 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.  Table of Contents continued Page No. Accounting and Audit .. ....... ....... .. ............. . 13 Billing and Collection .. ....................... 13 Insurance . ......................................... 14 Project Monitoring System ............ .. ............. 14 Risks ................................................ 14 VI. FINANCIAL ASPECTS ........................... 14 Present Financial Position ....... - ..... ............. 14 Past Operating Results ................. 16 Revaluation of Assets ........................... 17 Tariffs ....................... ...................... 17 Financing Plan ................... ................... 18 Future Operations and Financial Pos:ition ...... ...... 19 VII. AGREEMENTS REACHED AND RECOMMENDATIONS .... .......... 20  LIST OF ANNEXES ANNEX 1. Statistical Data on Power Sector 1964-1975 2. TAN7ESCO's Existing Power Facilities 3. Description of Kidatu Hydroelectric Development 4. Project Cost Estimate 5. Capital Works Program 1975-1982 6. Estimated Schedule of Disbursements 7. Construction Works Schedule 8. Environmental Aspects of the Project 9. Projected Sales and Maximum Demand 10. Interconnected System Installed and Firm Capacity and Maximum Demand 11. Interconnected System Energy Requirement and Average Water Year Production Capability 12. Interconnected System Energy Requirement and Dry Year Production Capability 13. Comparison of Project with Alternative Thermal and Thermal-Hydro Blend Developments 14. Return on Investment 15. Organizational Structure -).16. Actual Balance Sheets 1970-1974 M-17. Actual Income Statements 1970-1974 18. Actual Funds Flow Statements 1970-1974 19. Revaluation of Assets 20. Estimated Income Statements 1975-1982 21. Estimated Fund Flow Statements 1975-1982 22. Estimated Balance Sheets 1975-1982 23. Notes and Assumptions on Financial Projections 24. Project Monitoring MAP IBRD 2995R2: TANESCO - Area of Electricity Supply   TANZANIA APPRAISAL OF THE KIDATU HYDROELECTRIC PROJECT SECOND STAGE DEVELOPMENT SUMMARY AND CONCLUSIONS i. This report covers the appraisal of a project required to enable the Tanzania Electric Supply Company Limited (TANESCO) to meet the rapidly growing demand for power in its interconnected system, which provides service to the Dar es Salaam, Morogoro, Tanga, Arusha and Moshi areas where most of Tanzania's economic activity and 60% of the population are concentrated. ii. The Project comprises the construction of a dam at Mtera Site; installation of two additional 50-MW units at the existing Kidatu Powerhouse (as the second and final stage of the development of Kidatu Hydroelectric Scheme) on the Great Ruaha River and a 90 MVA transformer substation at Morogoro; and management and engineering consulting services. Construction of the Project would take about four years from 1976 to 1980. iii. The Government of Tanzania has requested assistance from the Bank, the Swedish International Development Authority (SIDA) and the Kreditanstalt fur Wiederaufbau (KfW) in financing the Proiect, which d gtitated cost US$49i4X million equivalent, with a foraign exchange component of US$63.6 mil- lion_g4uivalent. These_coss interest and oiimmitment charges during construction. The Project would be financed by a Tilrd-Window loan of US$30 million equivalent, SIDA grant-of SKr-80 million (US$18.6 million equivalent) on joint basis, a KfW loan of DM 60 million (US$24.0 million equivalent) on parallel basis, and TANESCO's internally generated funds (US$18.4 million equivalent). iv. This would be the Bank's third lending operation in the power sector of Tanzania; the first was Loan 518-TA for US$5.2 million to cover part of TANESCO's development program for the years 1967 through 1970; the second Loan 715-TA for US$30 million and a supplementary loan for US$5 million to cover part of construction of the First Stage of the Kidatu Hydroelectric Scheme which was completed in 1975. Implementation of TANESCO's construction program for the past nine years has been satisfactory. v. The Borrower would be the Government of Tanzania, which would onlend the proceeds of the loan to TANESCO, which is a stock company with limited liability established in 1931. TANESCO is responsible for the generation and distribution of electricity throughout the country (except Zanzibar). 1/ The Government has held all the company shares since 1964. The management and about 80% of the senior staff in TANESCO are Tanzanians. The utility is reasonably well managed and efficient. The help of consultants is required for the design and construction of all major works. 1/ Interconnection of the TANESCO and Zanzibar systems and power supply to Zanzibar by TANESCO are under consideration.  -W ii - vi. All contracts to be financed from the proposed joint Third Window loan and SIDA grant would be awar<led on the basis of international competi- tive bidding consistent with the Bank/IDA Guidelines for Procurement. Con- tracts to be financed from the proposed KfW loan are expected to be also awarded on the basis of international competitive bidding. vii. TANESCO's operating results had been satisfactory until 1974, when full effect of fuel oil prices was felt. It became necessary for TANESCO to implement in June 1976 a 40% incr,ease in average tariff. Tariffs will be further adjusted as necessary to 1iaintain a rate of return on average reva- lued net fixed assets in operation of at least 7% in 1977 and thereafter. Projected financial results indicate that TANESCO would be financially viable. viii. If benefits are valued on the basis of electricity tariffs of June 1976 and foreign exchange shadow-priced at 1.35, the returns on the Project and on the entire Kidatu Scheme would be 19% and 16%, respectively. ix. The Project is suitable for a Third Window loan of US$30 million equivalent.  TANZANIA APPRAISAL OF THE KIDATU HYDROELECTRIC PROJECT SECOND STAGE DEVELOPMENT I. INTRODUCTION 1.01 The Government of the United Republic of Tanzania has requested the Bank, the Swedish International Development Authority (SIDA) and the Kreditanstalt fur Wiederaufbau (KfW) of the Federal Republic of Germany to help finance a US$91.0 million power project, which is a major part of the 1975-1980 development program of the Tanzania Electric Supply Company Limited (TANESCO). A Third Window loan of US$30.0 million is proposed to be made to TANESCO. Additionally, a SKr 80.0 million (US$18.6 million equivalent) grant and a DM 60.0 million (US$24.0 million equivalent) loan are being considered by SIDA and KfW. 1.02 The Project is basically a continuation of the First Stage Kidatu Hydroelectric Project, which was appraised in 1970 and jointly financed by the Bank (Loan 715-TA), SIDA and the Canadian International Development Authority (CIDA). The First Stage has been completed according to the original schedule although with substantial cost overruns and has operated satisfactorily since May 1975. The water intake, headrace tunnel, powerhouse, control room, tailrace tunnel, switchyard, and all related civil works of the accessories and auxiliaries had been excavated and constructed according to the ultimate design which includes provision for the Second Stage. 1.03 The history of the construction of the Kidatu Hydroelectric Scheme began almost ten years ago when the Government asked the Bank for assistance in financing the First Stage. A comparative study of the Wami River and the Great Ruaha River developments, which was jointly undertaken by Balfour Beatty and Co. Limited of the U.K. and the Swedish Consulting Group (SWECO) and completed in July 1968, recommended the Kidatu development as the most economic scheme. 1.04 The Project has been prepared following reconnaissance and pre- appraisal missions in May and December 1974, a report on the geological situation and design by a Bank consultant, and a feasibility study dated February 1975 by SWECO. The Project was appraised in April 1975 by a Bank mission which consisted of Messrs. I. Tuncay, N. Tin, E. Bolte and R. Bloor (consultant). The mission was joined by SIDA representatives led by Mr. G. Hiagnuss on.  II. GENERAL ECONOMY AND THE POIER SECTOR The Country and the Economy 2.01 The United Republic of TarLzania comprises mainland Tanzania and Zanzibar. Tanzania has a total area of about 937,000 km . The population of 14.3 million (in 1974), which is increasing at about 3% annually, is concentrated in a few regions, with about two-thirds of the people concen- trated in 10% of the land. Urban population has been growing at over 5% per annum. 2.02 Tanzania is one of the 25 "least developed" countries; per capita income was estimated at US$130 in 1973. The economy is based primarily on agriculture, in which over 90% of the population is engaged, much of it at the subsistence level. Total GDP in 1974 was estimated to be US$1,494 million, of which agricultural output accounted for approximately 40%, manufacturing and mining for over 16%, and services for nearly 44%. Between 1968 and 1973, GDP increased 4.8% per annum in real terms. 2.03 In 1973/74, the economy was hard hit by sharp rising import prices, most particularly oil prices, and by a prolonged drought which substantially reduced food production and required large increases in imports of basic food items. The upward trend of import prices and stagnant agricultural exports should further deteriorate the balance of payments. The Government has secured financing of the gap through US$30 million Bank Program Loan of December 20, 1974 (Loan No. 1063-TA) and other multilateral and bilateral sources. 2.04 The balance of payments problem is likely to persist through the end of this decade in spite of concentrated Government actions in restructur- ing its investment program and reducing the growth rate of consumption. Energy Resources 2.05 The main indigenous energy resource is hydro power. Most of the potential is in the basins of eighLt rivers draining into the Indian Ocean, although there is also scope for hIydro development on three of the rivers of the Nile system within Tanzania. 2.06 A small quantity of coal is mined in the Songwe-Kiwiri area but commercially exploitable bulk deposits have yet to be proven. Sizeable deposits of bituminous coal have been discovered in the north of Lake Nyasa and the possibility to exploiting them in association with nearby deposits of iron ore is under study. 1/ Tae rerwteness of this coal field (about 1/ An interest-free loan of T Sh 525 million (US$65.2 million) was provided in 1974 by the People's Republic of Chi.na, which will be used to finance the exploitation of coal in Tukuyu and Iron ore deposits in Chunya as well as a rail link from the area to the Tan-Zam Railway.  - 3 - 750 km from Dar) makes it unlikely that the coal would be economic for electricity generation in the coastal region in the foreseeable future. 2.07 Firewood is the main fuel in the subsistence sector but is also used by industry for generating steam. The main commercial form of energy, however, is oil, some of which is imported as crude and processed in the refinery at Dar es Salaam, which has a capacity of about one million tons per annum. The existing diesel power stations and gas turbine use oil fuel partly supplied from this refinery; their total consumption in 1974 was about 75,000 tons. Oil prospecting, which has been carried on for many years without success, is continuing in the several areas by AGIP, an Italian oil company which has exclusive prospecting rights in the coastal sedimentary belt and the continental shelf. The Power Sector 2.08 Because it operates almost exclusively in the areas of most inten- sive development, the power sector has been growing much more rapidly than the economy as a whole. Sales by TANESCO, which is responsible for power supplies throughout the country, rose at an average rate of 10% per annum between 1964-1975. Total investment by TANESCO during 1964-1969 amounted to T Sh 276 million (US$39 million 1/) or about 5.7% of the national total of T Sh 4,840 (US$678 million 1/). Power investment in the Government's 1969-1974 plan was projected at T Sh 457 million (US$64 million 1/) at constant 1968-1969 prices, which represented about 5.6% of the total planned national investment of T Sh 8,085 million (US$1,132 million 1/) during the same period. 2.09 Industrial sector accounts for the bulk of electricity consumption. During 1970-1975, industrial users accounted for about 69% of total energy sales, followed by the domestic sector with about 18% and the commercial sector with about 13%. Statistical data on the power sector covering the period 1964-1975 are shown in Annex 1. Existing Power Facilities 2.10 Tanzania's current total installed generating capacity is about 266 MW, including 151 MW of hydro, about 100 MW of diesel and steam, and 15 MW of gas turbine. About 95% of the total installed capacitv belong to TANESCO; the remaining 5% belong to power users who are out of reach of TANESCO's supply lines. Plants already under construction and scheduled for commis- sioning in the period of 1975-1980 will bring TANESCO's installed capacity to about 355 MW and the country's total to about 375 MW. I/ Converted at then prevailing exchange rate of T Sh 7.14 to the US dollar.  - 4 - 2.11 TANESCO has an interconnected power system operating at 220 and 132 kV in the Coastal and Arusha-Moshi regions, 1/ and supplies energy to Dar es Salaam, Tanga, Morogoro, Arusha and Moshi. Generation in the system is provided by four major hydroelectric stations on the Pangani and Great Ruaha Rivers totalling 146.5 MW, and two diesel stations close to Dar es Salaam totalling 60 MW, which together account for 75'/ of the company's total generating capacity. One of the diesel stations (Ubungo) includes an extension of 33 MW financed under Bank Loans 518-TA and 715-TA. 2.12 The remaining 89 MW capacity owned by TANESCO is provided by thermal generating sets which are mostly diesel and are located at different parts of the country and 15 hydroelectric sets at five :Locations. Diesel units vary in size from 40 kW to 7.8 MW and there is a gas-turbine set of 15 MW. TANESCO's existing facilities are described in greater detail in Annex 2, and are shown on the map attached to this report. Access to Electricity 2.13 Of the total population of 14.3 million, about 13.3 million (93%) live in rural areas, about 600,000 (,4%) in towns and 419,000 (3%) in the city of Dar es Salaam. Only 950,000 persons (less than 7% of total population) have access to electricity through 71,570 connections, although about 12% of the population live in the towns and villages where electricity is avail- able. Present overall per connection consumption of about 5,500 kWh per annum and annual per capita consumption of about 70 kWh for domestic users are low. Connection density is about 0.25 per 1,000 population in rural areas and about 65 per 1,000 population in urban areas. Power Development Program 2.14 Apart from proposed Project which will meet the growing demand in the interconnected system, TANESCO's development program in the period 1975- 1980 (Annex 5) includes extensions of existing distribution facilities and construction of a new 18-MW diesel station (financed partly by British Aid) ten miles from the old diesel plant: at Mwanza, a hydroelectric project (first stage 10 NW, ultimate capacity about 16 IW) at Kiwira (financed by Russian Aid), and construction of about twenty small diesel stations in the several townships. 2.15 A number of projects are under long-term planning, including a major hydroelectric project with an ultimate capacity of about 600 MW to 1,000 MW at Stiegler's Gorge on the Rufiji River. This project, however, is intended mainly for very large consumption levels presently beyond Tanzania's normal requirement and for international power exchanges. TANESCO is considering possibilities of exporting power to Zanzibar, which has an existing demand of about 10 IW, and to Kenya. 1/ Coastal and Arusha-Moshi systems were originally constructed separately. The systems were connected by a 132-kV line (financed by the Government of Canada) in 1975.  -5- Rural Electrification 2.16 The Government's program for the electrification of rural areas basically covers the electrification of "ujamaa villages" (cooperative villages) with bilateral assistance. Since this operation is generally expected to be unprofitable, a new organization (Rural Electrification Corporation) is being established for this purpose. According to a draft study on the duties and responsibilities for the corporation (prepared by TANESCO and approved in principle by Ministry of Water Development and Power (MWDP) and sent to the prime minister's office for consideration), it would be involved in planning village electrification In connection with the general power planning of the country by TANESCO. It is intended that TANESCO would assist in the construction and operation of these village power systems, but that these facilities would be owned by the new organization and that all expenditures in excess of revenues would be covered by Government subsidies. It is also intended that these installations would be turned over to TANESCO whenever they become commercially viable. This arrangement is satisfactory as it would not impair TANESCO's principle of commercial viability and would also make the expertise of the cost-conscious management of TANESCO available to the subsidized operations of rural electrification. III. THE PROJECT Description 3.01 The Project consists of: (a) a concrete dam about 45 meters high, which would form a reservoir adequate for yearly regulation of river water at Mtera; (b) an extension of the existing Kidatu Hydroelectric generating station by two 50-MW units (Nos. 3 and 4); (c) a 220/132-kV, 90-MVA transformer substation at Morogoro; (d) consulting services; and (e) training for TANESCO's middle management and professional staff. 3.02 The dam is to be constructed 6 km downstream of the Mtera Bridge, 175 km upstream of the existing Kidatu dam. The selection of the site was based on favorable ground conditions and reservoir capacity. 3.03 Although there are no competing claims for the waters of the Great Ruaha River upstream of Kidatu continued availability of water in sufficient r7. quantities for the Project would be essential. The Government has agreed j YJ4 that it will not permit substantial abstractions of water from the Great Ruaha River or its tributaries upstream of Kidatu that would reduce the  potential generating output of the Kidatu station. A more detailed descrip- tion of the Project is given in Annex 3. Estimated Cost 3.04 The estimated total cost of the Project: is about T Sh 626 million (US$77.8 million equivalent) of which T Sh 476 million (US$59.1 million) or 76% would be foreign exchange. These costs are before interest and commitment charges during construction. The cost estimates are detailed in Annex 4 and summarized as follows: T Sh Million US$ Million Local Foreign Total Local Foreign Total Civil Works 38 117 155 4.7 14.5 19.2 Mechanical & Electrical Works 22 157 179 2.8 19.5 22.3 Engineering Consultants 7 35 42 0.9 4.3 5.2 Contingencies: Physical 14 52 66 1.7 6.6 8.3 Price 43 113 156 5.3 14.0 19.3 Sub-Total 124 474 598 15.4 58.9 74.3 Training 1 2 3 0.2 0.2 0.4 Taxes (on salaries and wages) 25 - 25 3.1 - 3.1 Total Cost of Project 150 476 626 18.7 59.1 77.8 Interest during Constructiou on Bank Loan 20 28 48 2.5 3.5 6.0 Interest during Construction on SIDA Grant /1 27 - 27 3.4 - 3.4 Interest during Construction on KfW Loan /2 23 8 31 2.8 1.0 3.8 Total 220 512 732 27.4 63.6 91.0 /1 Assuming that the Government will onlend the Third Window loan and the SIDA grant to TANESCO at Bank terms. /2 Assuming that the Government will onlend the 2Z interest KfW loan to TANESCO at Bank terms.  3.05 The above cost estimates are exclusive of custom duties, from which TANESCO would be exempted as in the case of the first-stage Kidatu Project. The costs of preliminary investigations, which amount to about T Sb 450,000 (US$56,000) and have been covered by a previous SIDA grant, have also been excluded. Basis for Estimates 3.06 The above costs are based on SWECO's estimates as revised by the mission and base costs are stated as of the end of 1975. Physical contingen- cies of 25% on civil works and 15% on equipment have been added. On the basis of price escalation estimated by the Bank and in view of the high rate of inflation in Tanzania, price contingency allowances of 42% on civil works and 29% on equipment have been provided (see Annex 4 for yearly breakdowns). On the basis of these estimates, the Project would cost about US$900 per kW. 3.07 The proportion of foreign exchange content in the cost of civil works (76%) is relatively high and is due to the fact that local contribution would consist almost entirely of unskilled and semi-skilled manpower and timber. 3.08 The location and dimension of the dam, waterways, sizes of the plant and individual generating units, and dimensions of the other major equipment (such as transformers), have all been determined by SWECO, as a result of a series of cost optimization studies based on the estimated load growth in the power system, the prevailing local conditions (hydrological, geological and topographical), and sound engineering principles. Loan Amounts 3.09 The proposed Third Window loan of US$30 million equivalent, together with the SIDA grant of SKr 80 million equivalent and KfW loan of DM 60 million equivalent would cover about 79% of the total cost of the Project, including interest and commitment charges during construction to TANESCO. TANESCO will finance internally the remaining 21%. The available external financing as a percentage of total cost is high; nevertheless, it is justifiable in view of the country economic grounds (paragraph 2.04) and the fact that the proposed Project represents only about 40% of TANESCO's capital works program during 1975-1980 (Annex 5). The Third Window loan would include about US$600,000 for retroactive financing of consulting services. Disbursements 3.10 KfW will finance on,a parallel basis the supply and installation of the turbines, generators and electrical anduiiiecanlfcal equipment at Kidatu and the transformer substation at Morogoro (Parts A2, A3, A5 and B shown in Annex 4). The Bank will finance the interest and commitment charges related to its loan during the project construction period (estimated at about US$3.5 million equivalent) and will jointly disburse with SIDA on the basis of 10:7 1/ ratio, 1/ (30.0 - 3.5)/18.6 = 26.5/18.6 = 10/7.  - 8 -1 against (1) 100% of the foreign costs of mechanical and electrical equipment at Mtera, consulting services and training (Parts A4 and C shown in Annex 4), and (2) 75% of civil works (Part Al excluding consulting services shown in Annex 4). The estimated disbursement schedule for the proposed loan is shown in Annex 6. 3.11 In the event that Project costs are lower than estimated, resulting in total disbursements less than the amount of the proposed loan, the unused balance of the loan may be used to finance possible expansion of TANESCO's distribution systems and training facilities. Otherwise, the unused balance should be cancelled. The Project is expected tc be completed by the end of 1980; the proposed closing date would be December 31, 1981 to allow for final guarantee payments. Detail Design and Construction Supervision 3.12 TANESCO has appointed SWECO as engineetring consultants for the design, preparation of bidding documents, bid evaluation and supervision of all the works included in the Project. SWECO's performance under Kidatu First Stage gave rise to difficulties and differences with TANESCO, but corrective measures have been instituted and TA4ESCO has asked for SWECO to continue. TANESCO has agreed to strengthen its construction management -Aa and supervision capability which would be possible with the appointment of two full-time experts - one to assist the TANESCO construction supervision unit at the site and the other at the Planning Divis'ion in Dar - and the use of an ,advisor on contractor's claims and a panel of experts for critical review i}'of detailed engineering design and supervision of construction progress from time to time as requested by TANESCO and/or Bank. TANESCO has agreed to employ the aforementioned two full-time experts by August 1, 1976, appoint a panel of experts acceptable to the Bank and employ a claims advisor if and when necessary. J X /i o E (\3.13 It has been agreed that corLsultants acceptable to the Bank would continue to be engaged to assist TANESCO in carrying out and supervising the Project. Procurement 3.14 All contracts to be financed from the proposed joint Third Window loan and SIDA grant would be awarded on the basis of international compe- titive bidding consistent with the Bank/IDA Guidelines for Procurement. Con- tracts to be financed from the proposed KfW loan are expected to be also awarded on the basis of international competitive bidding. Bid documents will be issued within June 1976 for major items of power equipment and for main civil works related to the construction of the dam. The construction schedule is given in Annex 7.  -9- Environmental Studies 3.15 A general ecological review of the Kidatu site and Mtera reservoir was completed in 1970. Following this general review, an in-depth study of some aspects of the ecology was completed in 1972 during the course of the construction of Kidatu dam. These studies did not indicate any negative effects of such magnitude as to impair the feasibility of the damming. A further in-depth study of the Mtera reservoir is underway. This study, which is estimated to take about a year, is expected to lead to the development of measures required to ameliorate any adverse effects and make recommendations with regard to further development of beneficial effects in the fields of game preservation, fishing, etc. (see Annex 8). Agreement has been obtained that the recommendations resulting from this study will be discussed with t<)J>_ the Bank and appropriate measures will be taken accordingly. IV. JUSTIFICATION OF THE PROJECT Market Growth 4.01 The Project would supply additional energy to TANESCO's interconnected system which includes Dar es Salaam (population 419,000), where most of the commercial and industrial development in the country is located, as well as the important urban centers of Tanga (population 77,000), Morogoro (population 34,000), and Arusha (population 38,000). This system accounted for about 90% of total TANESCO sales in 1974. The average rate of growth of electricity sales in the system since 1966 has been 10.5% per annum with industrial sales growing at 14% per annum, commercial sales at 9% per annum and domestic sales at 8% per annum. Detailed sales figures by consumer category for the main load centers are shown in Annex 9 together with corresponding trends in maximum demand and generation. 4.02 The Bank mission prepared a load forecast, which indicates that the kWh sales growth from the interconnected system would rise from a sup- pressed 5.6% in 1974 to 7.7% in 1975 and 8.3% in 1976, and would reach an average of about 102 per annum from 1977 through 1985. This load forecast, which is detailed in Annex 9, has been based on the expectation that the Tanzanian economy will recover from the impact of the oil crisis and the effect of the drought within the next couple of years; that the entire inter- connected system will maintain a load factor of about 68%; and that transmis- sion and distribution losses will not exceed the present 15%. Need for Additional Capacity 4.03 The existing generating facilities comprise a blend of diesel and hydro generating plants and, since the hydroelectric power stations are all basically "run of river" developments with the limited pondage Drovided by Kidatu and Nyumba ya Mungu dams, the flow available for power generation would be lowest during the dry months (June-October) of the year.  - 10 - 4.04 The projected maximum demand together with the installed and firm capacity are shown in Annex 10, which demonstrates that, with the recent commissioning of the first-stage Kidatu Project:, the interconnected svstem would be capable of meeting capacity requirements until 1980. The average water year production capability (Annex 11) as well as the dry year produc- tion capability (Annex 12), together with the lJbungo station generating capa- bility should also be able to meet the energy demand until 1980. Additional generating capacity will, therefore, be required to meet the growing power demand of the interconnected system in 1980. Comparison of Alternatives 4.05 The alternative to the Project would be another hydro scheme or a thermal station. Some alternative hydro scheres were examined by the consult- ants in a series of studies carried out over the past ten years. Most of these were eliminated from detailed consideration because they were too remote, too small, or geologically unsatisfactory. The choice was finally narrowed down to three schemes: (1) Pongwe hydro plant: on the Wami River; (2) Stiegler's Gorge on Rufiji River; and (3) a Second Stage Development of Kidatu Project. 4.06 Stiegler's Gorge was eliminated because the site could only be economically developed with much higher capacLty than the TANESCO system could absorb for many years to come. Wami Scheme had been eliminated by the comparative study which was jointly prepared lby Balfour, Beatty and Co. Ltd. of U.K. and SWECO of Sweden in 1971 because of higher cost. In fact, the Kidatu scheme has been developed and all main civil works (such as headrace and tailrace tunnels, penstocks ancl cable shaft, large underground powerhouse and transformer hall, control room and all other auxiliaries except the Mtera dam) have already been constructed for the ultimate capacity which includes the proposed second stage Project. 4.07 The Second Stage Kidatu Scheme was therefore chosen as the prefer- red hydro development and compared with an alternative thermal development based on a diesel station followed by steam units at Dar es Salaam using residual fuel oil. The alternative of delaying the construction of the proposed Project by an interim installation of thermal sets (diesel units) were also considered. 4.08 Annex 13 gives a comparison of three alternatives, summarized as follows: Alternative 1: The proposed Project; Alternative 2: Thermal--hydro blend with a postoonement of the proposed Project by two years: and Alternative 3: Thermal alternative.  4.09 The analyses indicate that Alternative 1 (the proposed Project) would be preferred over Alternative 2 (thermal-hydro blend) at discount rates up to 14% and that Alternative 3 (thermal) is the most expensive and would only be economic at discount rates higher than 23%. The sensitivity of these discount rates to different assumptions about the main variables (capital costs, oil price, load growth) has been tested and described in Annex 13. An increase of 50% in civil works costs or a slow drop in fuel prices of 2% per annum in real terms from end-1974 through 1980 would reduce the equalizing discount rates between Alternatives 1 and 2 to 12% and between Alternatives 1 and 3 to about 18%. A reduction in load growth by 10% would also lower the equalizing discount rate between Alternatives 1 and 3 to 20% but would not materially affect the equalizing discount rate between Alter- natives 1 and 2. Return on Investment 4.10 The return on the Project, taken to be the discount rate at which the present worth of all capital and operating costs (excluding taxes) equals the present worth of all revenues associated with the Project over its life- time, has been found to be 23% (Annex 14). Since the Project is the second and final stage of the Kidatu hydroelectric development scheme and major excavation and civil works at Kidatu have already been completed under the first-stage Project, it would be appropriate to consider the return on the entire Kidatu scheme (i.e., two stages combined), which has been calculated to be 21%. 4.11 If foreign exchange is shadow-priced at 1.35, the returns on the Project and on the entire Kidatu scheme would be 19% and 16%, respectively. These returns do not measure adequately the merit of the Project, but do provide a rough indication of the appropriateness of the average tariff level. The 16% is higher than the probable opportunity cost of capital to Tanzania and, therefore, indicates that tariffs on the average exceed the long-run marginal cost of power supply. While this tariff level is necessary for TANESCO to meet its financial needs (paragraphs 6.10 and 6.11), changes in tariff structure may be justified, so that the incremental costs of different cate- gories of consumption should be reflected in the prices charged. Such a pricing policy would help to bring about an optimal rate of system expansion in the future.  - 12 - V. THE BENEFICIARY - TANZANIA ELECTRIC SUPPLY COMPANY LIMITED The Borrower and Beneficiary 5.01 The Government of Tanzania will be the borrower. The proceeds of the proposed Third Window loan will be onlent to the Tanzania Electric Supply Company Limited (TANESCO). TANESCO was founded as a private company in 1931 and was acquired by the Government of Tanzania in 1964 through purchase from the East African Power and Lighting ('ompany Limited (EAP&L) of Kenya of all issued shares other than those alreacly held by the Government. Payments for these shares were made over a twelve--year period and completed by the end of 1975. TANESCO has been made responsible for the development of the country's power industry; it has functioned as the sole organization for the public generation and distribution of electricity throughout mainland Tanzania. It operates in accordance with commercial principles. Company's Memorandum of Association and Licenses 5.02 The Company's licenses were issued in 1957 under Electricity Ordinance No. 3 and expire in 2012. They provide for it to have the first refusal of any additional areas to be licensed for public supplies of elec- tricity in Tanzania. The licenses define areas of "compulsory supply" within which the Company is obliged to provide a supply upon payment of the required charges by the consumers, and lay down maximum rates for the sale of energy for lighting and power. The maximum rates prescribed in the 1957 license are T Sh 0.60 per kWh for power and r Sh 1.20 per kWh for lighting. These maximum rates would be either abolished or raised when necessary. Organization, Management and Staff 5.03 In 1973, TANESCO was reorganized along functional lines based on the recommendations of a study carried out by Scandiaconsult, a Swedish firm. This reorganization also aimed at giving more operational and construction responsibilities to regional levels. The present organizational structure is shown in Annex 15. 5.04 TANESCO is a parastatal under the sponsorship of the Ministry of Water Development, Energy and Minerals (MWDEM). The Board of Directors consists of a chairman, who is the Minister of MWDEM, arLd ten other members: three rep- resentatives of various ministries, two representatives of the industrial and banking sectors, two members of the Parliament, one university professor, one representative of the Tanganyika African National Union (TANU), and the general manager of TANESCO. The Board meets about every two months. Day-to-day operations are under the direction of a general manager, who is assisted by a deputy general manager and six division managers.  - 13 - 5.05 The present general manager, who has ably served since early 1973, is the first Tanzanian appointed to this position. As TANESCO's general manager is a presidential appointment, it has been agreed that the Govern- ment and the Bank would review from time to time the qualifications and experience that would be regarded as appropriate for appointments to this position. 5.06 TANESCO is reasonably well-managed and, at the same time, has been quite successful in filling most of its senior and managerial positions with qualified Tanzanian staff in accordance with the government's general Tanza- nianization policy. TANESCO employed 17 expatriates at the time of appraisal, two on a permanent basis and the rest on two-year contracts, as compared to a total of 50 five years ago. This has been brought about by a well-planned training and sponsorship program which has been initiated, administered and partly funded by TANESCO during the past ten years. TANESCO currently has a 3,000-work force, which is adequate. 5.07 With a view to further strengthening TANESCO, the proposed Project includes provision (US$400,000) for the training of its middle-management and professional staff in the areas of power systems planning, design and opera- tions, accounting and financial management. It has been agreed that TANESCO will submit to the Bank a training program by June 30, 1976. The Bank is ex- pected to assist in the selection of candidates and in the preparation and arrangement of individual training programs. Accounting and Audit 5.08 TANESCO's accounts, which are presented in accordance with public utility practice and maintained on a current basis, are computerized. Audited annual statements have been prepared more or less within the period (four months after the close of the financial year) required under Loan 715- TA. It has been agreed that TANESCO will submit its audited annual accounts > within five months after the close of the financial year. \-,N 9- /5.09 Since 1971, the government-owned Tanzania Audit Corporation (TAC) ' has been auditing TANESCO's accounts. The quality of TAC's audits has improved markedly during the past two years, when TAC succeeded in recruiting a number of qualified staff with bilateral assistance. It has been agreed '1--,,that TANESCO will continue to employ auditors satisfactory to the Bank. Billing and Collection 5.10 Meter readings are made monthly and sent to the head office in Dar for processing of bills by computer. Payments of bills are made through a number of offices and collecting agents. TANESCO has maintained an acceptable collection record during the past four years; its accounts receivable has been equivalent to about 70 average day's billings.  - 14 - Insurance 5.11 Insurance of TANESCO's major assets against the hazards of fire, etc. is considered adequate. It is effected through the National Insurance Corporation, the sole government-owned insurance company. This company in turn reinsures through European insurance market. Project Monitoring System 5.12 Important project monitoring aspects will be progress of construction against a CPM (to be submitted by the consultants by December 1976) and implementation of new cost reflecting tariff structure against set target dates for installation of new metering equipment. Proposed guidelines for a project monitoring system are given in Annex 24. Risks 5.13 No major risks have so far been identified with regard to the physical execution of the Project. However, on financial and managerial aspects there could be problems. On the financial side, there is some danger that the 40% tariff increase (paragraph 6.10) may depress the electri- city demand and, as a result, TANESCO's internal cash generation may be less than projected. However, this risk would be minimized because the tariff structure allows cross-subsidization between the poor domestic consumers and others - most notably the industrial consumers, which presently account for 69% of TANESCO's total energy salets. On the management side, the problem lies in middle echelons of the hierarchy; staff in these positions may not yet have sufficient experiences to cope with unusual difficulties without close supervision of present top management. Continuation of effective top management is, therefore, essential. The training component of the Project should in time improve the situat:Lon. VI. FINANCIAL ASPECTS Present Financial Position 6.01 TANESCO's actual balance sheets for 1970 to 1974 are shown in Annex 16. The financial position at December 31, 1974 is summarized as follows:  - 15 - Summary Balance Sheet as of December 31, 1974 ASSETS Fixed Assets T Sh Thousand Gross Fixed Assets in Operation 444,815 Less: Accumulated Depreciation 184,832 Net Fixed Assets in Operation 259,983A Work in Progress 706,718/_ Total Fixed Assets 966,701 Current Assets 82,587 TOTAL ASSETS 1,049,288 EQUITY AND LIABILITIES Equity Share Capital 357,098 Surplus 698 Reserves 83,042 Total Equity 440,838 Long-Term Debt 44A,855/2 Current Liabilities 103,971 - Contribution in Aid of Construction 17,714 Accumulated Deferred Income Taxes 41,910 TOTAL EQUITY AND LIABILITIES 1,049,288 /1 Including Kidatu Stage I which will be capitalized as of December 31, 1975. /2 Including a debenture stock of T Sh 32.6 million held by the Commonwealth Development Coporation. 6.02 TANESCO's debt-equity ratio of 50/50 as of December 31, 1974 in- dicated a satisfactory capital structure. Its current position at the same date was weak, as evidenced by a current ratio of 0.79 and a negative cash balance of T Sh 3.1 million, which was mainly caused by the inadequate operat- ing results during 1974 (paragraphs 6.04 and 6.05) and the Government's delay  - 16 - in providing TANESCO with certain equity funds (totalling T Sh 23.6 million toward meeting the local costs of the Kidatu/Ubungo and Hale/Moshi trans- mission lines as required under agreements with CIDA). TANESCO's liquidity problem was further aggravated as overdrafts subsequently rose to nearly T Sh 19 million, but was completely liquidated in May 1975 when the Government agreed to inject the equity funds. 6.03 The long-term debt shown in paragraph 6.01 includes a debenture stock of T Sh 32.6 million held by the Commonwealth Development Corporation. This debt was incurred in 1961 in connection with the construction of the liale Hydroelectric station and is repayable in 17 annual installments ending in 1985 and secured by a first mortgage on al:L then existing freehold and leasehold properties of TANESCO and on all such property acquired in connec- tion with the Hale project, plus a floating charge over all other properties of TANESCO owned at that time or subsequently acquired. In order to provide adequate security under these conditions for Bank Loans Nos. 518-TA and 715-TA, it was necessary to open up the exist:Lng mortgage deed so as to in- clude the Bank Loans in the security on a pari passu basis. It would not be necessary, however, to include the proposed loan in the existing mortgage in view of the fact that the proposed loan will be made to, and hence guaranteed by the Government. Past Operating Results 6.04 TANESCO's income statements for the five years ending December 31, 1974 are given in Annex 17 and sumnarized below: T Sh Million Year Ending December 31 1970 1971 1972 1973 1974 Operating Revenues 79.7 86.4 96.9 115.5 139.9 Operatina Expenses 54.6 60.0 67.2 81.1 123.4 Operating Income 25.1 26.4 29.7 34.4 16.5 Rate of Return/i (M) 10.3 10.4 11.7 13.4 6.3 Operating Ratio (%) 69.5 69.4 69.3 70.2 88.2 (after depreciation) /1 Fixed assets valued at historical costs.. 6.05 The above table indicates clearly that TA.NESCO enjoyed a period of adequate earnings until 1974 when fuel prices sharply increased (diesel oil by 1407% and furnace oil by 200%). A dry spe:Ll limited hydro generation and repeated failures of the diesel units and the gas turbine at the Ubungo sta- tion also contributed to the deterioration of TANESCO's profitability in that "ear. As a result, the rate of return on average net operating assets dropped  - 17 - from 13.4% in 1973 to 6.3%, or 3.7% if based on revalued assets (paragraph 6.07) in 1974, in spite of a 30% across the-board tariff surcharge effective April 1, 1974. Section 5.07 (a) (ii) the Joint n np_ Agreement for Loan 715-TA requires a minimum antiKl r-eturn of 10% UD through 19774 iU7%g thereafter. 6.06 TANESCO's cash flow statements for 1970-1974, shown in Annex 18, indicate that its net internally generated cash accounted for about 16.5% of the total financing required during this five-year period. This is satis- factory, particularly in view of the fact that its total assets more than doubled in real terms during these five years. Revaluation of Assets 6.07 The fixed assets, which are shown in paragraph 6.01, are stated at historical costs. In 1975 TANESCO has agreed and, with Bank assistance, prepared a study concerning the revaluation of these assets to take account of rising replacement costs. The proposed revaluation, which is summarized in Annex 19, has been based on changes in price levels; the price index used for the revaluation purpose is the average of the "Retail Price Index - Wage Earners" and the "Cost of Living Index - Middle Grade Civil Servants", both of which are published on a current basis bv the Bank of Tanzania in its Quarterly Economic Bulletins. As a result of this revaluation, TANESCO's fixed assets as of December 31, 1974 are as follows, when expressed in 1974 prices: Historical Costs Revalued (T Sh Thousand) Cross Fixed Assets in Operation 444,815 732,552 Less: Accumulated Depreciation 184,832 285,018 Net Fixed Assets in Operation 259,983 447,534 N 6.08 The above revaluation has been confirmed in a supplementary letter. It has been agreed that TANESCO's fixed assets would be revalued bi-annually > based on the average price index for non-food items described in paragraph 6.07, or a similar index agreeable to the Bank. Tariffs 6.09 TANESCO requested Government approval of a 12% tariff increase in December 1974 in an attempt to meet the 7% minimum rate of return required for 1975 under Loan 715-TA, but decision was postponed repeatedly. 6.10 The Government finally approved a tariff increase of 40%' e&fective June 1976. In order to enable TANESCO to generate sufficient funds for its  -18 - needs, agreement has been reached that tariffs will be adjusted from time to time for TANESCO to maintain a rate of return on average revalued net fixed assets in operation of at least 7% in 1977 and thereafter. 6.11 A tariff study is being undertaken with Bank assistance with a view to recommending a cost-reflecting tariff structure. Agreement has been reached that the recommended tariff structure will be reviewed with the Bank and implemented as agreed by December 1, 1976. Financing Plan 6.12 The financing plan for the six-year period 1975 through 1980, which is extracted from the detailed cash flow projections shown in Annex 21, is as follows: 1975-1980 r Sh Million US$ Million % Application of Funds Proposed Project 626.0 77.8 36.0 Ongoing Projects 240.0 29.8 13.8 Other Construction 624.4 77.6 36.0 1,490.4 185.2 85.8 Interest during Construction 177.2 22.0 10.2 Total Construction Expenditures 1,667.6 207.2 96.0 Increase in Working Capital 69.2 8.5 4.0 Total Application of Funds 1,736.8 215.7 100.0 Sources of Funds Internal Cash Generation 1,049.4 130.3 60.4 Less: Debt Service (356.3) (44.2) (20.5) Dividends (134.2) (16.7) ( 7.7) Net Internal Cash Generation 558.9 69.4 32.2 Proposed Third Window Loan 241.5 30.0 14.0 Proposed SIDA Credit (SKr 80 Million) 149.7 18.6 8.6 Proposed KfW Loan (DM 60 Million) 193.2 24.0 11.1 Existing Loans 53.4 6.6 3.1 Other Borrowings 299.7 37.2 17.2 Total Borrowings 937.5 116.4 54.0 Equity Contribution 226.7 28.2 13.0 Consumer Contribution 13.7 1.7 0.8 Total Sources of Funds 1,736.8 215.7 100.0  - 19 - 6.13 The proposed Third Window loan of US$30.0 million, SIDA grant of US$18.6 million equivalent and KfW loan of US$24.0 million equivalent will provide about 33.7% of the financing required. Government's equity contri- bution of US$28.2 million equivalent, together with consumer contribution and other borrowings totalling US$45.5 million equivalent, account for 34.1% of the financing required. The balance of the financing required, which amounts to US$69.4 million equivalent or 32.2% will be provided from TANESCO's net internal cash generation. This financing plan is satisfactory. However, to *- t> assure that the Project will not be delayed because of unexpected shortage of Xfunds, agreements have been reached (a) that the present dividend rate of 86-2/3% paid to Government on the ordinary stock will not be increased and b) that, in the event of a shortage of funds, the Government will supply t W 5iTAINESCO with such funds as necessary to carry out the timely completion of the Project, on terms and conditions satisfactory to the Bank. 6.14 It has been assumed that the Third Window loan will be onlent to TANESCO at interest rate of 8.85% for 25 years including five years of grace. It has also been assumed that the Government wi4i onlend to TANESCO the pro- ceeds-of -the -SIDA grant and the KfW loan at Bank terms. The Third Window loan, SIDA grant and KfW loan would be mutually effective. Future Operations and Financial Position 6.15 The projected Income Statements and Balance Sheets for the years 1975 through 1982 are shown in Annexes 20 and 22. The assumptions for these financial projections are given in Annex 23. It should be noted that fixed assets have been revalued bi-annually on the basis of the price index men- tioned in paragraph 6.07, which has been estimated to increase by 20% in 1975, 18% in 1976, 15% in 1977 and 12% each year from 1978 through 1980. There- after, prices are assumed to remain constant. 6.16 The income projections shown in Annex 20 indicatps that, with future nominal increases of about 17% in 1978 and 16% in 1980, TANESCO would earn rates of return on revalued net operating assets between 6.6% and 7.7% during 1977-1982. 6.17 TANESCO's debt-equity ratio will improve from 44:56 in 1975 to 38:62 in 1980, when the Project is commissioned and to 34:66 in 1982. Debt service coverage is expected to vary between 1.5 and 2.3 during 1975-1982. Nevertheless, to ensure that adequate debt service coverage will be maintained, (f 1 agreement has been reached that TANESCO will not incur any debts other than those included in financing plan (paragraph 6.12) unless internal cash gene- / ration is at least 1.5 times maximum future debt service, including debt V' service on the proposed borrowings.  - 20 - VII. AGREEMENTS REACHED UND RECOMME:NDATION 7.01 Agreements have been reached with the Government that: (a) The Government would not permit substantial abstractions of water from the Great Ruaha River or its tributaries upstream of Kidatu that would reduce the potential generat:ing output of the Kidatu station (paragraph 3.03); and P-'(b) The Government will supply such funds as necessary to complete the Project on terms and conditions satisfactory to the Bank (paragraph 6.13). vI\ 4 7.02 Agreements have been reached with the Government and TANESC0 that: (a) TANESCO would appoint two full-time experts - one to assist its con- struction supervision unit at the site and the other at the Planning Division in Dar es salaam - by August I., 1976; appoint a pannel of experts acceptable to Bank; and employ a claims advisor if and when necessary (paragraph 3.12); \ (b) Engineering consultants and experts acceptable to the Bank would continue to be engaged by TANESCO to assist in carrying out and supervising the Project (paragraplh 3.1:3); s\ (c) The recommendations resulting from the on-going ecological study will be discussed with the Bank and implemented accordingly (para- graph 3.15);yN (d) The Government and the Bank would from time to time review the qualifications and experience that would be regarded as appropriate for appointment to the position of General Manager of TANESCO (paragraph 5.05); (e) TANESCO will submit a training program by June 30, 1976 (paragraph 5.07); ^< (f) TANESCO will continue to employ external auditors satisfactory to the Bank and submit audited annual accounts within five months after the close of financial year (paragraphs 5.08 and 5.09); (g) All fixed assets would be revalued bi-annually on the basis of a specific price index (paragraph 6.08);V\ (h) Tariffs would be adjusted from time to time to maintain a rate of return on average revalued net fixed assets in operation of at least 7% in 1977 and thereafter (paragraph 6.10);s, (i) A cost-reflecting tariff structure would be reviewed with the Bank and implemented as agreed by December 1, 1976 (paragraph 6.11);y'ta  - 21 - (j) The present dividend rate of 6-2/3X paid by TANESCO to the Govern- ment on the ordinary stock would not be increased (paragraph 6.13); and (k) TANESCO would not incur any debts other than those included in the financing plan unless internal cash generation is at least 1.5 times maximum future debt service (paragraph 6.17). f\ 7.03 Conditions of effectiveness of the proposed loan are that the on- lending agreement between the Government and TANESCO, the SIDA grant agree- ment and the KfW agreement have been duly authorized or ratified and executed. , 7.04 With the above agreement and assurances, the Project is suitable for a Third Window loan of US$30 million equivalent. June 2, 1976   ANNEX 1 TANZANIA KIDATU HYDROELECTRIC PROJECT - SECOND STAGE DEVELOPMEIT TANZANIA ELECTRIC SUPPLY COMPANY Statistics (1964 - 1974 Actual, 1975 Estimated) Years 1975 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Estimated 1. Power Production (CWh) Hydro Production 184 202 213 233 249 274 305 309 321 296 286 385 Diesel Production 19 24 39 48 64 84 90 113 147 203 226 190 Gas Turbine - - - - - - - 13 21 1 Subtotal 203 226 252 281 313 358 395 422 468 512 533 576 Purchased 1 1 1 2 2 2 2 3 3 3 3 3 Total 204 227 253 283 315 360 397 425 471 515 536 79 2. Power Consumption (GVh) Industrial Sector 110 125 139 154 174 203 230 254 281 300 322 353 Domestic Sector 33 36 43 49 52 58 61 63 68 74 75 79 Commercial Sector 26 28 30 34 37 42 46 49 51 53 57 59 Street Lighting 2 2 3 3 3 3 3 4 4 4 5 5 Subtotal (1) 171 193 215 240 266 307 341 370 404 431 459 496 Power Plant Auxiliaries 3 3 3 3 4 6 7 7 7 9 10 7 Net Work Losses 30 33 36 40 45 48 50 48 60 75 67 76 Subtotal (2) 33 36 39 43 49 55 57 55 67 84 77 83 Total 204 227 238 283 315 361 397 425 471 515 536 579 3. System Demand (MW) Coastal System 36 40 42 43 44 50 53 55 61 66 67 72 Arusha-Noshi System 3 3 4 5 5 6 7 8 9 10 2 12 4. Power Ger.eration Capacity (Name Plate Ratings in NW) Hydro 29 49 49 49 49 49 49 49 49 49 49 151 Diesel 35 36 40 45 50 53 56 62 74 89 89 89 Gas Turbine - - - - - - - - - 15 15 15 Total 64 85 89 94 99 102 105 111 123 153 153 255 r S. Average Tariff In Tanzanian cents/kWh 76.70 25.70 25.32 24.94 24.72 23.65 22.83 22.82 23.72 26.14 30.72 33.4 L In USO/kWh 3.67 3.60 3.54 3.49 3.46 3.31 3.20 3.20 3.32 3.66 4.30 4.69 6. Staff Total Staff 2,800 3,000 3,000 3,00u Percentage of Tanzanian citizens: In Total 'taff 93 95 99 99 7. Number of Connections 35.462 46,073 71,563 75,QoU  ANNEX 2 Page 1 of 3 TANZANIA KIDATU HYDROELECTRIC PROJECT - SECOND STAGE DEVELOPMENT TANZANIA ELECTRIC SUPPLY (OMPANY LIMITED TANESCO's Existing Power- Facilities 1. TANESCO has an interconnected power system operating at 220 kV and 132 kV, which comprises the Coastal and Arusha-Moshi systems connected to each other by a 270 km of 132-kV tie-line between Hale and Moshi in 1975. This system accounts for 89% of the Company's installed generating capacity, 75% of its 71,563 electricity consumers, and about 86% of its total 1974 sales of 459 million kWh. These figures reflect the concentration of urban population and general economic activity irL the Coastal and Arusha-Moshi regions. Other population centers with considerable economic activity are: the Mwanza area in the Lake Victoria region (7 MW) and the Dodoma area (3 MW). Ten other pop- ulation centers have public supplies of electricity, with generating equipment ranging from 105 kM to 2,000 kW installed capacity. The locations of the interconnected power system and of the other centers with public supplies are shown on the map attached to thet report. 2. Hydroelectric power pLant owned by TANESCO has a total capacity of 151 MW, consisting mainly of 100 MW at Kidatu, 21 MW at Hale, 17.5 MW at Pangani Falls, 8 MW at Nyumba-ya-Mungu and 5 MW at other four locations. Kidatu is on the Great Ruaha River; Hale and Pagani are the Pagani River. The Pagani Falls station built in 1934 and the Hale Station built in 1964 are run-of-river tpe with limited pondage, but Kidatu has a larger reservoir (125 million m ) built in 1975, capable of monthly regulation. The flow of Pangani River is controlled upstream at Nyum a-ya-Mungu where a dam creating a multi-purpose reservoir of 1,500 million m was constructed in 1967. The Nyumba-ya-Mungu Power Station was added in 1969. A small hydro-electric sta- tion of 1.2 MW built in 1935 at Kikuletwa on the Pangani River is connected to the town of Moshi network. Another small hydroelectric plant of 0.3 MW on the Mwanya River has been supplying the town cf Mbeya since 1958. 3. The remaining 100 MW capacity owmed by TANESCO is provided by many diesel generating sets, at different locations. These units vary in size from 40 kW to 7,500 kW. Under Bank Loans 518-TA and 715-TA, the Ubungo station has been extended with three 6,100 kW and two 7,500 kW units respectively. The installed capacity, maximum demands and kWh sales for 1974 at all major towns are shown on page 3 of this Annex.  ANNEX 2 Page 2 of 3 4. The coastal system is interconnected by means of 132-kV and 220-kV single circuit transmission lines on galvanized steel towers totalling about 700 km and 312 km in length respectively. In the interconnected system a 66-kV line and 118 km in length carries power from the stations to the load centers in the North. The operating voltages for the bulk power transmission system are 220 kV and 132 kV and for the secondary transmission lines are stan- dardized at 33 kV. For distribution networks two standard voltages (11,000 and 400/200 volts) are adopted. Total length of transmission line is about 5,110 Km. In spite of long transmission distances and high incidence of light- ing, the reliability of supply is well maintained; reactors and capacitors have been provided for better voltage regulation and stability. Transmission and distribution losses, expressed as a fraction of units sent out, are 15%, which is satisfactory. 5. TANESCO's transmission system is shown on the map attached to the report.  ANNEX 2 Page 3 of 3 TANZANrIA KIDATU HYDROELECTRIC PROJECT - SECOND STAGE DEVELOPMENT TANZANIA ELECIRIC SUPPLY COMPAITY LIMITED List of Capacity, Demand and Sales 1974 1974 Branches Capacity (kW) Demand (kW) Sales (Thousand/kWh) Dar es Salaam 1/ 55,000 259.7 Arusha 1/ 7,000 32.2 Bukoba 800 700 2.5 Dodoma 2,560 1,500 6.0 Iringa 1,970 1,300 4.8 Kigoma 720 420 1.5 Lindi 440 240 1.3 Mbeya 1,520 900 3.9 Mafia 780 280 0.7 Morogoro 1/ 4,200 16.8 Hioshi 1/ 4,500 16.8 Mpwapwa 290 150 0.4 Mtwara 2,135 1,240 2.5 Musoma 650 470 1.4 Mwanza 9,660 5,800 30.4 Nachingwea 400 300 0.8 Shinyanga 2/ 855 2.7 Singida 360 330 0.9 Songea 360 256 0.6 Tabora 2,000 1,260 4.7 Tanga 1/ 16,000 68.2 Tukuyu 1,965 400 1.2 TOTAL 254,610 103,100 460.0 1/ Interconnected system 22S,000 kW. 2/ Power is purchased from Williamson Diamond Mines. IBRD August 1975  ANNEX 3 Page 1 of 4 TANZANIA KIDATU hYDROELECTRIC PROJECT - SECOND STAGE DEVELOPMENT TANZANIA ELECTRIC SUPPLY COMPANY LIMITED Description of Kidatu Hydroelectric Development Topography and Hydrology 1. The Great Ruaha River, an important tributary of the Rufiji River, rises in the mountainous southwestern region of Tanzania, close to the northern tip of Lake Nyasa where the rainfall is one of the heaviest in the country. From there it flows in a northeasterly direction until it reaches Mtera, where other major tributaries join it and the flow turns in a southeasterly direc- tion. The river falls 175 m over a distance of 34 km before it reaches the Mikumi-Ifakara road bridge at Kidatu and then it enters a long flat plain flowing at a gentle gradient in mainly easterly direction until it joins the Rufiji River. 2. At Kidatu, wherI the power station is located, the average flow of Great Ruaha River is 191 m /sec which corresponds to a theoretical annual flow of 6,025 million i3. However, direct discharge measurements obtained over a period of 14 years, from 1954 to 1968 (and supplemented by earlier rainfall measurements), show that the annual flow varies from year to year between 1,665 million m3 and 17,650 million m3. In addition to these annual variations, the discharge figures show a greater seasonal variation. Between wet and dry months of the same year, the discharge variations may show a ratio of as high as 100 to 1. Dam and Spillway 3. The first stage of the Kidatu Hydroelectric development, based on these topographic and hydrological conditions, consists of an earth-fill dam 11 km upstream of the Mikumi-Ifakara road bridge, with a maximum height above the river bed of 37 m and a total crest length of 350 m. The dam provides a live storage of 125 million m3 at a drawdown of 17 m. On the river s right bank, a concrete spillway has been constructed with radial gates capable of passing a discharge of 7,500 m3/sec, which is the calculated 10,000 year flood. 4. The proposed second stage of the Kidatu Hydroelectric development includes the construction of a concrete dam located 6 km downstream of the Mftera bridge on Dodoma-Iringa highway, with a maximum height above the river bed of 47 m and a total crest length of 260 m. The dam would provide a live  ANNEX 3 Page 2 of 4 storage of 3,200 million m3 at a drawdown of 8.5 m, which in turn would pro- vide a regulated river flow during dry seasons sufficient for the requirements of the project. On the river's leEt bank, a concrete spillway would 3be con- structed with radial gates capable of passing a discharge of 4,000 m /sec, which is the calculated 10,000 year flood. Reservoir 5. The reservoir created by the dam at Mtera would be2a sprawling, shallow body of water which would shrink in area from 610 km to 190 km during the proposed 8.5 m drawndown. Aside from power generation purpose, the Mtera reservoir is also expected to be of value for fishery development. The water from this reservoir and the runoff from the catchment between Mtera and Kidatu would provide an average monthly flow of at least 85 m /sec for Kidatu plant even during dry years. Power Plant 6. At the existing Kidatu station, the water is being conveyed from the Kidatu reservoir to the turbines through a concrete intake structure, a head- race tunnel, and two vertical pens tocks. Thie intake structure is located on the right bank of the river just upstream of the dam and has been provided with trash racks and a vertical lift gate. The headrade tunnel is 10 km in length, partially lined and heavily gunited and bolted. At the downstream end of the tunnel, a surge gallery has; been provided. Only two of the penstocks have been provided with steel lining and cylindrical gates during the first stage construction and the other two shafts would be so provided in the pro- ject. 7. The two existing Francis type turbines, which are being operated under a maximum net head of about 172 n in an underground station 200 m below ground, have been coupled to two generators, each of 50 MW rating. Two addi- tional turbine-generator units similar to the existing ones 'ould be provided for the under the Project. Water discharges (nominally 38 m /slc for each set) from the turbines to a tailrace tunnel 900 m in length and 80 m in cross- sectional area. This tunnel joins the river via a short tailrace canal just upstream of the road bridge. 8. In the Kidatu powerhouse, two additional sets of 3-single phase, 220-kV, 60 WVA transformers, one set for each generating unit, would also be placed underground in separate rojms adjacent to the main machinery hall. Power from the new transformers would be carried by a set of 220 kV cables to be located in the existing vertical shaft to the existing pothead arrange- ment at ground surface, where it would be transmitted by the existing outdoor switchyard situated near the Kidatu bridge. The existing single circuit, 312-km, 220-kV transmission line would also transmit the additional power (to be supplied by the project) to a stepdoxm substation to be constructed at Ubungo on the outskirt of Dar es Salaan.  ANNEX 3 Page 3 of 4 9. Although the capacity of the above-mentioned 220-kV Kidatu-Ubungo line is sufficient to carry additional power, load flow and transient stabil- ity studies have shown that a 220/132-kV, 90-MVA transformer station at Morogoro would be necessary for better reactive load distribution and system voltage regulation to obtain better stability for higher load transportation and to reduce system losses. Such a transformer station has, therefore, been included in the project. Utilization 10. The useable kWh units to be generated by the Kidatu first stage (first and second units) and Kidatu second stage (third and fourth units - the project during the years 1975 to 1989 are shown in the table below. SWECO has made extensive simulation studies for each of the years included in this table to determine the number of units that may be generated from the Kidatu power plant to meet the corresponding estimated load (forecast by the Bank mission). This was done by applying the water flow conditions of the Great Ruaha River during the observed 20 year-period (1954 to 1974), which included considerably wet as well as considerably dry conditions. The table shows, for each year, the average value of the 20 different annual production figures so calculated.  ANN4EX 3 Page 4 of 4 Installed Units Generated Time of Utilization Years Capacity (ON) (GWh/year) /1 (hours/year) 1975 100 /2 240 2,400 76 100 280 2,800 77 100 340 3,400 78 100 400 4,000 79 100 450 4,500 1980 200 /3 580 2,900 81 200 660 3,300 82 200 750 3,750 83 200 840 4,200 84 200 950 4,750 1985 200 1,050 5,250 86 200 1,100 5,500 87 200 1,150 5,750 88 200 1,200 6,000 1989 200 1,250 /4 6,250 /1 Generation on the high voltage bus bars of Kidatu station (units sent- out). /2 F^rst and second units with a storage reservoir volume of 125 million m at Kidatu. /3 Third and fourth units with aii additional water storage capacity of 3,200 million m at Mtera. /4 Estimated maximum average annual generation.  ANNEX 4 Page 1 of 4 TANZANIA KIDATU HYDROELECTRIC PROJECT - SECOND STAGE DEVELOPMENT Project Cost Estimate Description Local Foreign Total Local Foreign Total ---- In T Sh Million-- -