Afghanistan - Power Project

Report No. 1140-AF FILE Clf PY Appraisal of a Power Project Afghanistan April 13, 1976 Projects Department Europe, Middle East and North 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.  CURRENCY EQUIVALENTS Currency Unit = Afghani (Af) Af 1 = US$0.01759 Afs 56.86 = US$1.00 Afs 1,000 = US$17.59 Afs 1,000,000 = US$17,587.06 WEIGHTS AND MEASURES kW = kilowatt MW = 1,000 kW kWh = kilowatt hour GWh (Gigawatt hour) = 1,000,000 kWh kV (kilovolt) = 1,000 volts One meter (m) = 3.28 feet One kilometer (km) = 0.624 mile One kilogram (kg) (1,000 grams) = 2.2 pounds One ton (metric ton) (1,000 kg) = 2,205 pounds GLOSSARY OF ABBREVIATIONS CIDA = Canadian International Development Agency DABM = Da Afghanistan Breshna Moassessa FAO = Food & Agriculture Organization Uarza = Harza Engineering Company International UNDP United Nations Development Programme USSR = Union of Soviet Socialist Republics WAPA = Water and Power Authority The Afghan calendar and fiscal year is March 21 to March 20, e.g.,1973/74 refers to March 21, 1973 to March 20, 1974.  FOR OFFICIAL USE ONLY APPRAISAL OF A POWER PROJECT AFGHANISTAN TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ......................... i-ii I. INTRODUCTION ........................................ 1 II. THE POWER AND ENERGY SECTOR .....................1* ... 1 A. Power and Energy Resources ..................... 1 B. Organization of the Electric Power Sector ...... 3 C. The Development Program ........................ 4 III. THE PROJECT ......................................... 4 A. Objectives ..................................... 4 B. Description ................. 4 C. Status of Engineering .......................... 5 D. Cost Estimate .................................. 5 E. Financing ......... ............................. 6 F. Implementation ................................. 6 G. Disbursements .................................. 7 H. Environmental Impact ........................... 7 IV. THE PROJECT ENTITY ......................... . 7 A. Background ......... ............................ 7 B. Charter of DABM ...................., 7 C. Technical Assistance Program ................... 8 D. Organization and Management .................... 9 E. Staff .......................................... 10 F. Training Program ............................... 11 V. FINANCES ........... ................................. 11 A. Highlights of Financial Position .... ........... 11 B. Accounting System .............................. 12 C. Absence of Financial Data ...................... 13 D. Energy Losses .................................. 13 E. Tariffs ........................................ 14 This report has been prepared by Messrs. I. Mathai- E. Moore and V. Antonescu. It is based on information obtained by a mission to Afghanistan in June 1975 consisting of Messrs. I. Mathai and V. Antonescu. 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 disciosd without World Bank authorization.  TABLE OF CONTENTS (Cont'd) Page No. F. Past Performance and Present Position .......... 15 G. Financing Plan ................................. 15 H. Future Performance ............................. 16 I. Proposed Financial Covenant ..... ............... 17 J. Depreciation ................................... 17 K. Audit ........... ............................... 17 L. Insurance ...................................... 18 VI. BENEFITS AND JUSTIFICATION .......................... 18 A. Forecast of Power Requirements .... ............. 18 B. Generating Plant Program ..... .................. 19 C. Return on Investment ........................... 20 VII. MONITORING SYSTFM ...... ........... .................. 21 1tTTr. AGREEMENTS REACHED AND RECOMMENDATIONS .............. 21 LIST OF ANNEXES 1. Historic and Forecast Sales, Generation and Plant Capacities 2. Estimate of Project Costs 3. Schedule of Estimated Disbursements 4. Cabinet Approval of Establishment of WAPA 5. Charter of DABM 6. Proposed Principles for Charter of DABM 7. Organization Charts of WAPA and DABM 8. Statement of Permanent Positions and Salaries in DABM 9. DABM's Tariffs 10. Income Statements for the Years Ending March 20, 1968-1979 11. Balance Sheets as of March 20, 1968-1979 12. Estimated Sources and Applications of Funds for the Years Ending March 20, 1976-1979 13. Suggested Depreciation Rates 14. Power Balance for the Kabul System 15. Calculation of Return on Investment 16. Suggested Key Indicators of Performance MAPS IBRD-11864 AFGHANISTAN, Main Power Stations Transmission Systems and Fuel Deposits IBRD-11865 AFGHANISTAN, Kabul Power System  APPRAISAL OF A POWER PROJECT AFGHANISTAN SUMMARY AND CONCLUSIONS i. Power supply in Kabul, the capital city of Afghanistan, is critical in dry years because the present generating facilities though adequate in normal years to meet demand through 1980 would produce only about half the requirements in a dry year. To help alleviate this problem of energy shortage a gas turbine station with two units of 20 MW is proposed for erection by October 1977. It is the only feasible option within the available time frame. ii. The estimated cost of the Project excluding interest during con- struction is US$11.0 million comprising foreign exchange costs of US$10.0 million and local costs of US$1.0 million equivalent. An IDA credit of US$10.0 million, the first Bank Group assistance for the Afghanistan power sector, is proposed towards the foreign exchange costs. The Project is based on a feasibility study conducted by Harza Engineering Company Inter- national (Harza) with UNDP financing and the Bank as executing agency. Engine- ering and supervision during construction and commissioning would be provided either by Harza or by another consultant. The Project includes training for Afghan staff in operation of the gas turbines. iii. The Project would be executed by Da Afghanistan Breshna Moassessa (DABM), the national power authority, operating as a separate entity within the Water and Power Authority (WAPA), a new department of Government created in April 1975 to merge the country's power and water resource development functions and having at its head a General President of ministerial rank working directly under the Deputy Prime Minister. The power functions were previously vested in DABM, a corporate body with separate legal status, and the water resources were administered by another Government ministry. iv. DABM's current charter, which sets no financial objectives and under which it has functioned more or less like a government department, is not suited to its role as the national power authority responsible for generation, transmission and distribution facilities in the country. Its staff is governed by civil service salary scales, and the minister, not the General President, used to discharge all important duties and responsibilities. Government has agreed to establish by end of June 1976 a revised charter on the basis of principles already agreed with IDA and providing for DABM's functioning as a semi-autonomous enterprise within WAPA with autonomy in personnel matters and in day-to-day operations. v. DABM is beset by a host of problems. Its staff is of low caliber, the bulk of whom do not have the needed educational qualifications. Its salary scales, which are the civil service salary scales, are very low, and only the absence of employment opportunities prevents any large exodus of  - ii - staff; this handicap in the matter of salaries will however be removed when under the new charter DABM will be permitted to frame its own personnel poli- cies. It does not have the financial and accounting systems and procedures associated with a utility. Its accounts, such as they are, have been compiled only through 1968/69 so there is no financial information on which to base management decisions. Its energy losses, about one half of which are esti- mated to be due to thefts and unmetered and unbilled consumption, were 45% or more in the four years from 1970/71 but have decreased to 39.6% in 1974/75 as a result of corrective measures. It has suffered operating losses ever since its creation in 1966/67 (Af 95 million in 1968/69, when revenues failed to cover a third of operating expenses); an estimate of present annual operating loss would be around Af 75-85 million. Its tariffs, set about 20 years ago, need revision. How best to effect the needed institutional improvements in DABM has engaged the Bank Group's attention since 1971. vi. In a technical assistance program (costing about US$1.1 million) mounted by the Canadian International Development Agency in close coordina- tion with the Bank Group, utility experts are being provided to help DABM im- prove its operations. DABM has agreed to develop and implement in consultation with IDA various systems, procedures and programs on the advice of these ex- perts or other consultants. Specifically these would cover areas such as re- organization, salary administration, training, financial and accounting systems and long-range power development planning. vii. DABM will adopt not later than July 31, 1976, and thereafter imple- ment without delay, a five-year plan for limiting energy losses to not more than 20% of generation. Government and DABM will also take a combination of measures including an average tariff increase of at least 20% so as to enable DABM to obtain at least 20% more revenues in 1976/77. DABM has undertaken to achieve an annual return of 8% beginning with 1980/81 and will reach this ob- jective through a phased program during 1977/78 through 1979/80. viii. Except for minor civil works which will be accomplished by WAPA's forces, procurement of IDA-financed items will be under international competi- tive bidding according to IDA's procurement guidelines. There are no domestic suppliers who are likely to compete in the bidding. ix. In view of the agreements reached as set forth in Section VIII, the Project is suitable for an IDA credit of US$10.0 million to Government on the usual terms, IDA's agreements with DABM being incorporated in a Project Agreement. Execution of an on-lending agreement with DABM satis- factory to IDA (not more than 20 years with three years of grace and 8.5% p.a. rate of interest) and completion of action including implementation of an average tariff increase of at least 20% so as to obtain 20% more revenues in 1976/77 through such action would be conditions of effectiveness. The Credit could be effective within three months of signing of the Credit Agreement.  APPRAISAL OF A POWER PROJECT AFGHANISTAN I. INTRODUCTION 1.01 This report appraises a project of two 20-MW gas turbine units, to be installed in the Kabul area in order to meet a critical shortage of energy during dry years. 1.02 The estimated cost of the Project excluding interest during con- struction is Af 625.46 million (US$11.0 million) comprising foreign costs of Af 568.60 million (US$10.0 million) and local costs of Af 56.86 million (US$ 1.0 million). An IDA credit of US$10.0 million is proposed towards the foreign exchange costs. The project is based on a feasibility study, which was prepared at the request of the Afghan Government, by Harza Engineering Companv International (Harza), with UNDP financing and the Bank acting as executing agency. 1.03 The Project presents an opportunity for Bank Group involvement in the Afghanistan power sector, to which no financial support has so far been given. 1.04 This report is based on the findings of a Bank mission consisting of Messrs. I. Mathai (financial analyst) and V. Antonescu (engineer) which visited Afghanistan in June 1975. II. THE POWER AND ENERGY SECTOR A. Power and Energy Resources 2.01 The Republic of Afghanistan is a landlocked country between Iran, Pakistan, and the USSR, with an area of about 630,000 km2 (250,000 square miles). The population, estimated at between 15 and 18 million inhabitants, of which over 15% is nomadic. is mainly engaged in agriculture and small scale industry. Only 13% of the population lives in the cities. The climate is dry, with a mean annual precipitation of 326 mm, of which half may occur as snow. The main transport needs are met by trucks, since there are no railways in the country. 2.02 The economy is dominated by agriculture which contributes about 60% of GNP. Only 5% of GNP is provided by mining and large scale industry comprising sugar, cement, fertilizer, pulp and textile plants. The remainder of GNP is made up by transportation, services and small scale industry.  - 2 - 2.03 Kabul, the capital of Afghanistan and its largest city, is situated at the junction of the Kabul and Logar Rivers, at an altitude of 1,800 meters (5,500 feet). It is the main commercial and communication center in the country, and contains government institutions, a university, a polytechnic school, major hospitals, and important manufacturing facilities. Its popu- lation, estimated at over 600,000, is expected to rise to 750,000 by 1979; future expansion is predicted at a 4% growth rate. (see maps). 2.04 Afghanistan's main energy resources are hydropower, natural gas, oil and coal. No detailed survey of the hydroelectric potential has been carried out, but it is estimated to total about 100,000 GWh in an average year, of which less than 1% has been developed, mainly in the Kabul area and in the Helmand Valley. The remaining resources are largely represented by the potential of very large projects on the Amu Darya (Oxus river) which forms the northern border with the USSR. 2.05 Natural gas deposits are in the north, near Sheberghan and Mazar-i-Sharif, estimated reserves being 40-50 billion m3. The gas contains about 94% methane and has a calorific value of 7800 kcal/m3 (865 Btu/cu. ft.). The 1975/76 production is estimated at 2.8 billion m3 of which more than 2.5 billion m3 are exported by pipelines to the USSR. Only 0.25 billion m3 is used for internal consumption in a fertilizer plant and a thermal power station (36 MW), both located at Mazar-i-Sharif. Present plans are to increase the gas production and exports (all to the USSR) to 4 billion m3 by 1977/78. 2.06 Proven reserves of coal are estimated at about 50 million tons and probable reserves at several hundred million tons. The best quality deposits, with a reported calorific value of 9,400 kcal/kg (14,000 Btu/lb) are located near the town of Dara-i-Soof, northwest of Kabul, between Mazar-i-Sharif and the capital. Other deposits with a lower calorific value are located east and south of Pul-i-Khumri and a small amount east of Herat. The coal mines are state-owned and are operated by the Coal Exploitation Department of the Ministry of Mines and Industries. Yearly production has fluctuated in recent years between 125,000 and 195,000 tons. Coal is available in Kabul In briquette form at a price of Af 900/ton ($1/106 Btu) which is estimated to be less than one fourth of the production cost. Despite this low price, electricity is still widely used for domestic heating (para. 6.01). 2.07 Exploration for oil has been under way since 1930. To date two small fields have been discovered in the northern part of the country--the Koh-i-Angot field with 2.5 million tons of reserves discovered about 1967 and the Agh-Darya field with 9 million tons discovered in the fall of 1975. Continuing investigations in the southeastern part of the country by a French company also have prospects of being successful. Except for 6000 tons of crude oil from the Koh-i-Angot field used annually for general heating, all oil requirements are imported as oil products, since there is no local refinery. Demand has been growing by about 15%/year and 1974/75 imports were about 230,000 tons at a reported cost in foreign exchange of some US$30 million. The USSR supplies about 85% and Iran the rest. Of the 1974/75 total, over 70% is used in transport, about 20% ir industry and the rest in households. The State Oil  - 3 - Monopoly, under the Ministry of Finance, imports and markets all oil products, except for lubricating oils, kerosene and some gasoline. The cost of gasoline and diesel oil is US$133/ton at the Soviet border and US$110/ton at the Iranian border. The selling price in Kabul, Af 8,000/ton (US$141/ton), in- cludes transport cost by trucks of Af 2/ton km. B. Organization of the Electric Power Sector 2.08 Although electric power generation commenced in Afghanistaa in 1893, the power sector remained fragmented, with separate private co:npanies operating isolated systems throughout the country, until 1966/67 when Da Afghanistan Breshna Moassessa (DABM) was formed as a government enterprise under a special charter for construction and operation of generation, trans- mission and distribution facilities. Its staff was (and is) governed by civil service salaries, and the Minister of Mines and Industries diszharged all important duties and responsibilities, such as approval of budgets and financial statements, framing of tariffs, appointment of staff in higher grades, etc. In April 1975, Government set up a new department calliad the Water & Power Authority (IWAPA), merging the country's water-resource develop- ment and power functions, under a General President with the rank of a Minister and working directly under the Deputy Prime Minister. 2.09 Installed generating capacity in the public sector is 267 14W, of which 207 Mn. is operated bv WAPA. The total is made up of 218 MW of hydro- electric stations, 39 MW in coal-fired stear plants and 10 MW in diesel stations. Privately--ox.med generating plants account for another 20 MW, in- cluding 6 ^T in hydro stations, 3 MIJ ir steam stations and 11 tNW ir (diesel stations. Almost 70% of the installed capacitv in the public sector is corcentrated in the Kabul area, and forms a separate power svstem. The rest is dispersed in over 20 isolated centers, of which the largest are the northern system centered on the 36-rMW gas-fired station at Mazar-i-Sharif and the lielmand Valley network supplied from the 33-EN' USAID-financed Kajakai multi-purpose hydro project. 2.10 Power generation in the Kabul area is based on three hydroelectric stations, located on the Kabul River totalirg 178 MJ. Sarobi (22 nW), Naghlu (90 NW) and Mahipar (66 MW). These power stations are interconnected through 110-kV transmission lines. Their output is highly dependent on water condi- tions in the Kabul basin since there is no significant water storage capacity at any of the hydro plants and no upstream storage reservoir. The Kabul system also includes a small and obsolete hydro station (Jabul-us-Seraj, 1 T1W), a diesel station (Breshna Kot, 1 MW) and a small coal-fired steam station (2.8 MW), which serves the Gulbahar textile mill. Their importance for tlte power balance is insignificant. The Kabul system is due to be interconnected in 1978 with the Nagarhar system, whose major power source is the Darunta hydropower station (11.5 M1)).  -4- C. The Development Program 2.11 Development Dlanning at the national level has formally existed in Afghanistan since the mid-fifties. The Draft Fourth Plan (1972/73-1976/77) was prepared in 1972, but had not been approved when the change of government took place in July 1973. All these short range plans have been little more than a collection of projects and have not reflected a clearly perceived de- velopment strategv. The first Seven Year Plan (1976/77-1982/83), covering all sectors of the economy, is to he prepared by mid-1976. 2.12 Planning and development of the power sector has been haphazard in the past with numerous ministries and organizations involved in the task and no clear coordination between them. However, two studies related to the power development of the northern and central parts of Afghanistan are now under way: (i) FAO's study for developing a master plan for the Kabul River Basin, and (ii) a UJSSR study for electrification of northern and central Afghanistan (including Kabul) through 1985 under a credit agreement of February 1975. The most promising major project for the Kabul system, which would be eval- uated by the FAO study, is upstream storage on the Panjsher River estimated by Harza to provide 1279 GWh. Based on these and other studies the Government has agreed to formulate not later than March 20, 1977 a power sector develop- ment plan based on a forecast of market growth and a survey of potential hvdro- electric sites and thermal alternatives, and their likely costs and benefits. Government also intends to send to IDA a copy of the proposed plan to enable it to make its comments. III. THE PROJECT A,. bj ectives 3.01 The objectives of the facilities included in the Project are: (a) to improve, in the shortest possible time, the power balance of the Kabul electric system, which since 1971 has been in- adequate to meet the demand, and (b) to meet the growing power needs of the Kabul area until other power projects can be studied and implemented. Annex 1 pro- vides historic and forecast power requirements. B. DescriDtion 3.02 The Project consists of a gas turbine power statior. of the package type, comprising ttNo tnits of about 20 1W each. The gas ti,rbines will be installed for dual ofl/gas firing, but fitted initially for oil firing with crude oil as the normal fuel and diesel oil as the unit cleansing and standby fuel. Fuel facilities will provide for unloading, storage and treatment of the oil. The gas turbines will be equipped with intake air filters, lubric- ating oil cooling systems, and other usual components. The gas turbine units  - 5 - will be installed at the East substation, one of the three 110/15-kV substations serving Kabul. Provision for later conversion to a combined cycle plant will be included. The conversion would require the addition of a heat recovery boiler to supply a steam turbine unit of about 20 MW capacity, without sup- plemental firing. However since various alternative development schemes may be available for exploitation in the northern region of Afghanistan, which will be known after completion of present on-going studies, DABM has agreed to demonstrate to the satisfaction of IDA the justification for the additional investment before exercising the option for the combined cycle in the contract for the proposed gas turbines. C. Status of Engineerin 3.03 Through an extension of the original UNDP project, arrangements have been made for the preparation of bidding documents and receipt and eval- tion of bids for the gas turbine power station by Harza. The consultant also will provide assistance to Government in reviewing the evaluation and award- ing supply contracts. Contracts are expected to be awarded by August 1976. Following approval of the IDA credit, appropriate arrangements would be made, either with Harza or with another consultant, to provide engineering and supervision during construction and commissioning of the gas turbine power station. DABM has agreed to make such arrangements. D. Cost Estimate 3.04 The estimated cost of the Project (Annex 2) is US$11.0 million, of which US$10.0 million would be in foreign exchange. Cost estimates are sum- marized as follows: ----Af million----- ----