Tanzania - Kidatu Hydroelectric Project

Document of The World Bank FOR OFFICIAL USE ONLY FILE COPY Report No. 2765 PROJECT PERFORMANCE AUDIT REPORT TANZANIA: KIDATU HYDROELECTRIC PROJECT (FIRST STAGE) (LOAN 715-TA AND LOAN 715-2TA) December 19, 1979 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT TANZANIA: KIDATU HYDROELECTRIC PROJECT (FIRST STAGE) (LOAN 715-TA AND LOAN 715-2TA) Table of Contents Page No. Preface (i) Project Performance Audit Basic Data Sheet (ii) Highlights (iii) Project Performance Audit Memorandum I. Project Summary 1 II. Supplementary Comments 4 Problems with Diesel Units 4 Kidatu Civil Construction 5 220-KV Transmission Line 7 Ecology 7 Institutional Development 7 The Staffing of Kidatu Station 9 Tanesco's Training Programs 10 III. Conclusions 11 Appendice_ 1 - Rural Electrification 14 2 - Role of and Problems with Gas Turbine 15 3 - Borrower's Comments 16 Attachment: Project Completion Report I - Introduction 17 II - Project Preparation and Appraisal 19 III - Project Implementation, Operation and Cost 22 IV - Operating and Financial Performance 28 V - Project Justification 30 VI - Bank Performance 31 VII - Conclusion and Important Lessons to be Learned 32 Annexes 1 - Statistics (1965-1976 Actual) 33 2 - Major Changes in Original Design and Schedule 34 3 - Original and Final Project Implementation Schedule 49 4 - Cost of IBRD/SIDA Financed Portion 51 5 - Schedule of Disbursements (SIDA and CIDA Loan Excluded) 52 6 - Notes on Operation of Ubungo Diesel Station 53 7 - Major Contractors Claims 55 8 - Comparative Income Statements (1970-1976) 60 9 - Comparative Balance Sh6ets (1970-1976) 61 10 - Comparative Funds Flows Statements 1970-1976 62 11 - Incremental Financial Rate of Return 63 IThis 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.  (i) PROJECT PERFORMANCE AUDIT REPORT TANZANIA: KIDATU HYDROELECTRIC PROJECT (FIRST STAGE) (LOAN 715-TA AND LOAN 715-2TA) Preface This report presents the results of a performance audit of the Kidatu Hydroelectric Project (First Stage), for which Loan 715-TA of US$30.0 million and a supplementary Loan 715-2TA of US$5.0 million were made in December 1970 and June 1974 respectively to Tanzania Electric Supply Company (TANESCO). The project was co-financed by a credit of US$12.0 million equi- valent from the Swedish International Development Agency (SIDA) made in December 1970 and by a supplemental grant of US$4.5 million equivalent from the Swedish Government in June 1974. Another Bank loan (Loan 1306-TA) of US$30.0 million was made to the same Borrower in August 1976 for the second stage of the Kidatu Hydroelectric Project. A mission from the Operations Evaluation Department (OED) visited Tanzania for a brief period in June 1978 and held discussions with officials of the Borrower and the Government. The mission also had discussions on the project with officials of SIDA and TANESCO's consultants. The cooperation extended by these officials is gratefully acknowledged. The report consists of a Project Performance Audit Memorandum (PPAM) prepared by OED and a Project Completion Report (PCR) prepared by the Eastern Africa Regional Office. The PPAM is based on the discussions with the above officials, a review of the Appraisal Report, the PCR and material in Bank files, and discussions with Bank staff. The PPAM provides a brief summary of the project experience. It also presents a fuller version than the one in the PCR on the problems between the Borrower and its consultants and particularly on the role of the Bank at the time of the consultants' handling of the earlier claims from the civil works contractor. Furthermore, the PPAM examines in greater detail and draws lessons from: a) the institutional development of the Borrower, including the staffing problems and their impact on operations, and the role of training programs; b) the experience in the use of expatriates; and c) the problems encountered by the Borrower with the diesel engines and with the civil con- tractor's claims. Following normal OED procedures, a draft copy of this report was sent to the Government and the Borrower for their comments; copies were also sent to SIDA and to TANESCO's consultants. The Borrower and its consultants have sent their comments which have been taken into account in finalizing this report. The comments from the Borrower are also reproduced in Appendix 3.  (ii) PROJECT PERFORMANCE AUDIT BASIC DATA SHEET TANZANIA: KIDATU HYDROELECTRIC PROJECT (FIRST STAGE) (LOANS 715-TA AND 715-2TA) Key Project Data Item Original Plan Actual Total Project Cost 1/ (US$ million) Loan 715-TA 50.4 66.6 2/ Loan 715-2TA 75.6 66.6 2/ Cost Overrun (Underrun) Loan 715-TA - 32% Loan 715-2TA (12%) Loan Amount (US$ million) Loan 715-TA 30.0 Loan 715-2TA 5.0 Disbursed (US$ million) 35.0 Cancelled (US$ million) nil Repaid (US$ million) nil Outstanding (US$ million) 35.0 Joint Financing (US$ million equivalent) 3/ - 12.0 Date Physical Components Completed 6/75 5/75 Proportion of Time Overrun (%) - nil Incremental Financial Rate of Return 162 12% Cumulative Estigated and Actual Disbursements on Loan 715-TA Only (USS million) 1971 1972 1973 1974 1975 1976 (i) Appraisal Estimate (4th qtr.) 1.4 6.6 13.2 21.9 27.3 30.0 (ii) Actual 0.2 10.6 17.8 28.2 30.0 30.0 (ii) as % of (i) 14% 161% 135% 129% 110% 100% Other Project Data First Mention in Files 1966 Government's Application 1968 Board Approval Loan 715-TA 12/08/70 Loan 715-2TA 6/06/74 Loan Agreement Loan 715-TA 12/14/70 Loan 715-2TA 6/24/74 Effectiveness Loan 715-TA 3/31/71 Loan 715-2TA 9/26/74 Closing Date Loan 715-TA 6/30/76 Loan 715-2TA 12/31/76 Borrower Tanzania Electric Supply Company Limited (TANESCO) Executing Agency Tanzania Electric Supply Company Limited (TANESCO) Fiscal Year of Borrower Calendar Year Follow-on Project Name Kidatu Hydroelectric Project Second Stage Develop- ment (Ln. 1306-7A) Mission Data Month, No. of No. of Date of Year Weeks Persons Manweeks Report Identification 12/1969 Appraisal 4/1970 6 3 2.6 10/8/70 Sub Total Supervision I 3/71 2 2 4.0 4/7/71 Supervision II 9/71 2 2 4.0 11/19/71 Supervision III 3/72 2 2 4.0 5/04/72 Supervision IV 8/72 1 2 2.0 11/02/72 Supervision V 5/73 1 2 2.0 7/24/73 Supervision VI 10/73 2 2 4.0 12/13/73 Supervision VII 6/74 2 2 4.0 6/28/74 Supervision VIII 2/75 2 2 4.0 2/06/75 Supervision IX 3/75 1 1 1.0 3/21/75 Sub Total 27.0 Currency Exchange Rate for Tanzania Shillings (T Sh) Appraisal Year Average US$1 - 7.14 Intervening Years' Average US$1 - 7.14 (from 1970 through 1973) 1974 US$1 - 7.42 1975 (completion year) US$1 - 8.30 1970-1975 (average) US$1 - 7.38 1/ Excludes transmission component which was subsequently taken out of the original Bank-SIDA project and financed by CIDA, 2/ Based on the average exchange rate between 1970 and 1975 of US$1 - T Sb. 7.38. 3/ By Swedish International Development Agency (SIDA) who subsequently provided an additional US$4.5 million.  (iii) PROJECT PERFORMANCE AUDIT REPORT TANZANIA: KIDATU HYDROELECTRIC PROJECT (FIRST STAGE) (LOAN 715-TA AND LOAN 715-2TA) Highlights The project was implemented on schedule and broadly as planned. However, it incurred a substantial cost overrun which led to the Canadian Government financing one of the project components, and to the Bank and the Swedish Government providing supplemental funds. The diesel component had serious problems and its operating per- formance has been lower than expected (PPAM paras. 11-14). The geologi- cal conditions encountered during excavations of the hydroelectric com- ponent were worse than anticipated at the time of appraisal (PPAM para. 17 and PCR paras. 3.20, 3.22). This component has been operating satis- factorily. Mainly due to the unforeseen slow-down in the expected growth rate of the country's economy, the actual demand for electricity was lower than projected (PPAM para. 7 and PCR paras. 5.01-5.03). As a result, the gene- rating capacity on the system has been greater than the peak power demand plus the normal reserve capacity. On the other hand, due to serious breakdowns of several thermal units on the system, there were power outages on the system until the commissioning of the hydro-electric station. (PPAM para. 8 and PCR para. 5.04). The financial results of the utility have been unsatisfactory during the second half of the project period mainly because energy sales were lower than projected and tariff increases were inadequate to meet rising opera- ting costs. The utility also had liquidity problems which were compound- ed by delays in the Government's contribution to the utility's equity and by larger than expected increases in the utility's construction expenditures (PPAM para. 9 and PCR paras. 4.01-4.06). The recalculated incremental financial rate of return on the project is 12% compared to 16% estimated at the time of appraisal. The institutional performance of the utility declined during part of the project period because of shortage of staff in the senior management positions created by the departure of expatriates and non-citizens. The utility is now a reasonably well-managed entity and all the senior management positions are held by nationals (PPAM para. 28). The following points may be of particular interest: - several factors, including more difficult than anticipated geological conditions, caused project cost overruns (PPAM paras. 17-21 and PCR paras. 3.10-3.13); - the Borrower believes that the favorable terms of the tied aid from the Canadian Government offset the higher price paid for the transmission lines (PPAM para. 5); (iv) - a closer monitoring by Bank supervision missions of the con- tractor's work and the associated claims, at an earlier stage, might have helped the Borrower (PPAM para. 39); - the appointment of a panel of experts to oversee the project from design to implementation could be useful to a Borrower who does not have 'in house' expertise to review the work of con- sultants and contractors (PPAM para. 41); - several transmission towers constructed under this project will need to be re-located because of the construction of a reservoir for a water supply project. (PPAM para. 21); - the purchase of a gas turbine unit without a proper check on the suitability of the intended fuel led to serious breakdown of the unit (PPAM para. 27 and Appendix II); - the Borrower might have had fewer problems with the project's diesel units had he insisted on purchasing well-proven units (PPAM para. 42); - availability of manpower with the necessary skills to operate and maintain the plant should be an important consideration in the choice between different types of plant (PPAM para. 42); - manifestly large differentials in salaries/fringe benefits between groups of expatriates from different countries is not conducive to the development of a harmonious relationship be- tween the staff and to the building up of a team spirit (PPAM para. 44); - competent leadership, and suitable recruitment and training pro- grams for the staff, supported by revision in salary structure, have led to improvement in the utility's operations (PPAM para. 45). PROJECT PERFORMANCE AUDIT MEMORANDUM TANZANIA: KIDATU HYDROELECTRIC PROJECT (FIRST STAGE) (LOAN 715-TA AND LOAN 715-2TA) 1. Project Summary 1. Loan 715-TA of US$30.0 million signed in December, 1970, supple- mented by Loan 715-2TA of US$5.0 million signed in June, 1974, was the second of the three Bank loans to the Tanzania Electric Supply Company Ltd. (TANESCO). The first loan (518-TA) of US$5.2 million and the third loan (1306-TA) of US$30.0 million were made in November 1967, and August 1976, respectively. TANESCO, an autonomous, Government-owned utility, is respon- sible for all public generation, transmission and distribution of electricity throughout mainland Tanzania. In 1970, TANESCO accounted for about 80% (102 MW) of the mainland's total installed generating capacity, the remaining 20% being owned by private power users who are out of reach of TANESCO's supply lines or find it more economical to generate their own power from industrial by-products. A major proportion of TANESCO's generating capacity is interconnected on a 132KV transmission system in the coastal region, i.e., Dar-es-Salaam, Tanga, and Morogoro (the interconnection was subsequently extended to Arusha and Moshi); the rest of its capacity, comprising small sets, provides power supply at some 20 isolated locations (See Appendix I for TANESCO's role in rural electrification). 2. The original loan of US$30.0 million, together with a credit of US$12.0 million equivalent from the Swedish International Development Agency (SIDA) 1/, was intended to finance the total foreign exchange cost of a power project estimated to cost US$59.0 million equivalent. The project was expected to be fully completed by mid-1975, and the loan to be fully disbursed by, and closed on June 30, 1976. 3. The project constituted part of a long-term development program to meet the growing power needs on the interconnected (coastal) system and comprised: a) the construction of a hydroelectric project at Kidatu (with a first stage capacity of two 50 MW units and an ultimate capacity of 200 MW); b) construction of a single circuit 220 KV, 306 km. transmission line; and c) addition of two 7.5 MW units (Nos.7 and 8) at Ubungo diesel generating station (PCR para. 2.09). 4. The project was implemented on schedule and generally as designed. Its actual cost, however, was substantially greater than the appraisal esti- mate, mainly because of revaluation of some European currencies and the general escalation of prices for civil works and equipment since 1969. Furthermore, geological conditions at Kidatu were more difficult than antici- pated, thus increasing its civil construction costs (paras. 12-18 and PCR paras. 3.10-3.13). During the course of implementation, when it was realized that the actual construction costs would greatly exceed the costs estimated at 1/ The SIDA credit was channelled through the Government of Tanzania. - 2 - the time of appraisal, two actions were taken. First, in 1972, the transmis- sion/substation component was taken out of the project and financed by a tied credit of US$13 million equivalent from the Canadian International Development Agency (CIDA). Later, in 1974, the Bank made a supplemental loan of US$5.0 million and the Government of Sweden a grant of US$4.5 million equivalent to cover cost overruns. 5. The actual cost of the eventual Bank/SIDA financed project was about 40% higher than the appraisal estimates 1/. The actual cost of trans- mission equipment was estimated to be about 23% higher than the price TANESCO would have paid under international competitive bidding. TANESCO, however, considers that the favourable credit terms from CIDA offset the higher price of equipment. Because of cost overruns, the actual disbursement rate on the Bank loan was faster than the appraisal projection. By June 1974, when the supplemental loan was made, US$28.2 million (about 94% of the original loan) had been disbursed, while the appraisal report had projected 73% dis- bursement. The original and the supplemental loans were disbursed by October 1974 and September 1976, respectively. 6. The hydroelectric station has been operating successfully after overcoming some initial problems 2/. The two 7.5 MW diesel units have had a series of problems - some of them serious - including breakdowns. Some of the problems seem to have been overcome, but others, notably those related to the engine cooling system, still persist. As a result, the maximum loading on each of the two units at present does not exceed 6 MW, in contrast to the rated power of 7.5 MW (paras.12-14). The diesel units financed by the first loan also developed serious faults in 1972 which put them out of action for long periods. In order to avoid interruption of power supplies TANESCO, with a loan from the Dutch Government, purchased and installed a 15 MW gas turbine in Ubungo and commissioned it in August 1973. The gas turbine also had serious breakdowns attributed to the use of unsuitable fuel oil. Presently, this unit uses the much more expensive light fuel oil instead of a distillate fuel blended with crude oil, which TANESCO, at the time of its ordering had envis- aged using (Appendix II). 7. The actual growth rates in energy sales and peak demand throughout the period 1973-1977 have been substantially lower than projected. In fact, in 1977 both were lower than the projections for 1974. As a result, the total installed capacity has been substantially greater than the peak power demand, though, prior to the commissioning of the Kidatu units, there were power out- ages because of the failure of the diesel units and gas turbine. This lower than projected growth rate in energy sales and power demand has been mainly due to the unforeseen slow-down in economic growth in the country from late 1973 onwards. I/ After excluding duties and taxes. 2/ See PCR para. 3.28. - 3 - 8. The commissioning of Kidatu led to a substantial reduction in TANESCO's thermal generation (from 247 GWh to 106 GWh between 1974 and 1977), and consequently to a large reduction in fuel costs. Despite the increase in construction costs, Kidatu remains the least cost solution over any thermal alternative. Indeed, because of the quadrupling in fuel oil prices between 1970 and 1975, Kidatu has now become a more attractive alterna- tive than at the time of its appraisal. Even though the actual load growth has been lower than projected, the installation of the two diesel units at Ubungo is also justified partly because of the breakdown of several older diesel units at Ubungo and at other power stations on the interconnected system. Mainly because of lower than expected load growth, the recalculated incremental financial rate of return on the project is 12%, compared with the appraisal estimate of 16% (PCR para. 5.08). 9. TANESCO's financial performance through 1973 was satisfactory. Thereafter, TANESCO's rate of return on historically valued assets was lower than that stipulated in the loan covenant and also lower than the appraisal projections. In addition, TANESCO had liquidity problems during the project period. These unsatisfactory financial results arose mainly because growth in energy sales was lower than projected, tariff increases were inadequate to meet rising operating costs, and Government contributions to TANESCO's equity were not always timely. A comparison between-actual and projected key finan- cial parameters for 1975 indicates that unit generation cost and unit operat- ing cost had increased by some 200% and 100% respectively, while average revenue had increased by only 60% and sales were about 20% lower. The total construction expenditure over the project period 1971-76 exceeded the appraisal estimate by 70%. This increase was met mainly by substantially larger than projected Government contributions towards TANESCO's equity (from T Sh 135 million to T Sh 508 million), and also by an increase in long term borrowings (from T Sh 359 million to T Sh 508 million). A tariff increase of some 40% in 1976 has improved TANESCO's financial results and the rate of return on revalued assets was estimated at 4.0% in 1977. 10. TANESCO was re-organized in 1973 with the assistance of management consultants. Presently it is a reasonably well-managed entity, and Tanzanians hold all 14 senior management positions and 46 of the 69 middle management positions. By comparison, at the time of appraisal they held only 2 of the 11 senior management positions and 9 of the 45 middle management positions. In the intermediate period 1971-73, TANESCO's management performance declined because the expatriates, who constituted a large proportion of management, left the company at the expiry of their contracts. TANESCO was unable to recruit suitable replacements either from overseas or from the limited domes- tic market. As a result, the total number of individuals in senior and middle managment positions dropped to 41 by comparison with 56 at the time of appraisal, and the position of the Chief Executive i.e., General Manager, was vacant for more than a year at a time when the company had a large investment program under way (paras. 25-27). A number of technicians also left the com- pany in the early 70's and TANESCO was unable to find replacements. This -4- adversely affected the operation and maintenance of the plant, particularly the diesel units. TANESCO has been operating a technical training school for young people, who are subsequently inducted as technicians. This has been upgraded to an institute and assisted by SIDA funds. In addition, TANESCO has other training programs, one of which is assisted by Bank Loan 1306-TA. These measures should eventually reduce even further TANESCO's dependence on expatriates (paras. 35, 36 and 43). II. SUPPLEMENTARY COMMENTS Problems with Diesel Units 11. The two diesel units were commissioned almost on schedule 1/. From the time of their commissioning, these units have had a number of prob- lems which have led to several outages, some of them extensive (PCR Annex 6). 12. During the commissioning of No.8 unit, cracks were noticed in the engine foundation, which consists of a base slab and an upper concrete block. To prevent further deterioration of the foundations, two measures were taken on both the units. One was to pre-stress the foundations by a laborious process (including drilling through the concrete foundations) and the other was to tighten the engine bolts to the foundations by a new procedure. 13. Some of the problems encountered in the course of operation were: fractures or cracks in fuel and lubricating oil pipes due to engine vibration; breakdown of the lubricating oil pump which later was understood to require modifications; cracks in the-crankshaft attributable to flaws in the crank- shaft material and to failure of overspeed controls and consequent over- speeding; cracks in the engine cylinder heads - the manufacturer supplied new cylinder heads of a modified design free of charge; frequent and extensive, burning of exhaust valves, despite modification to the valve rotating equip- ment; and an inadequate engine cooling system. The problem with the cooling system has been attributed to the high level of impurities in the cooling water (which at one time was drawn from boreholes) and to the limitations in the existing water treatment plant. Start-up of the engines sometimes poses a difficulty attributed to moisture condensation in the air starting valves. Because some of the problems have not yet been fully solved, the loading on each of the units in recent years has been limited to under 6 MW 2/. Further- more, the successful operation of Kidatu and the lower than projected load 1/ All diesel units at Ubungo Generating Station operated at 'medium speed'. 2/ TANESCO's records indicate that these units have provided the rated output of 7.5 MW through 1974 and 7.0 MW in 1975. It is not possible, however, to determine whether these units had or could have provided these levels of output over a continuous period of several hours. - 5 - growth has meant that these units are required on the power system for only short periods. 14. In view of the number and variety of problems encountered, and the the type of corrective measures taken, it would seem that these units were a comparatively new type of engine 1/. TANESCO's consultants have stated that the manufacturer had offered a different type of engine in his tender but between the time he submitted his tender and the time he received the order, he found that he could not meet the original delivery date. He therefore offered this engine (i.e. the one eventually installed), which TANESCO accepted because the price was favourable and the delivery date reasonable. Kidatu Civil Construction 15. Only 6 firms submitted bids for the civil works tender out of 32 who applied for bid documents. This somewhat low response is attributed to the possible dependence of the successful contractor on Tanzania Railway for transportation of plant and equipment to Kidatu. Furthermore, the contract was sent out to tender at a time when construction prices had started escalating after a period of stability. The combined effect of low response and escalat- ing prices is believed to have been the reason for the lowest bid price being about 23% higher than the appraisal estimate, which itself had been increased by about 17% at the time of appraisal from the estimate provided by the consultants. 16. The two lowest responsive bidders, both qualified to do the work, were Consortium A and Consortium B. Consortium A's bid price, as opened, was about 0.5% lower than Consortium B's. During the bid evaluation, in accordance with normal practice, TANESCO's consultants made a technical and economic evaluation of the qualifications and assumptions put forward in the bids, in order to make these equally comparable. The Bank did not agree with some aspects of the evaluation - which resulted in a reversal of the original role, Consortium B's bid being now about 1% lower than Consortium A's - and informed the Borrower and the consultants accordingly. On the other hand, the consultants, the Borrower and the Government of Tanzania exhibited a strong 1/ The same manufacturer has supplied four 7.0 MW diesel units for a project financed by Bank Loan 948-PAN. The Borrower has reported several problems with these units (including reduced output), which seem to bear a close resemblance to the problems TANESCO has experienced. The Borrower believes that the installed units were manufactured from a relatively new design and expected the supplier to provide modifications to the cooling system and a solution to the problems in starting sequence. - 6 - preference for awarding the contract to Consortium B. After much discussion within the Bank (since, according to the Bank, Consortium A was still the lowest bidder), and taking into account that the difference between the offers of the two firms was very small, the Bank agreed with SIDA's suggestion to permit TANESCO to select whichever firm it preferred. TANESCO selected Consortium B for the contract. 17. The initial phase of construction proceeded satisfactorily and the contractor was ahead of schedule. Thereafter, during underground excavations, the contractor encountered unfavourable rock conditions. This led to some design changes to the tunnels and to the dam, which, in turn, created interim delays and contributed substantially to cost overruns. Some of the cost overruns arose from payments to the contractor by way of his claims for the additional expenses he had incurred as a result of poor rock conditions. 18. By mid-1973, when nearly 70% of the estimated total expenditure on the Kidatu component had already been incurred, TANESCO, which was now assisted by a CIDA-sponsored engineer, expressed dissatisfaction at the consultants' handling of the contractor's claims. TANESCO also expressed concern at the consultants' handling of the project, particularly with regard to their inability to provide adequate cost information despite several requests. 19. Following extensive discussions between TANESCO and its consultants: a) TANESCO stipulated that, "with regard to the handling of all future claims TANESCO will require documentary evidence that the consultants had carried out a thorough and independent investigation to establish valid contractual obligations in the matter and to determine the proper effect on the contract in terms of time and money"; and b) the consultants made some major organiza- tional changes in the management of the Kidatu Project. These actions, combined with TANESCO's increased 'in-house' technical expertise, have led to an improvement in the relationship between TANESCO and its consultants, and in the latter's handling of contractor's subsequent claims to TANESCO's satis- faction. The same firm has been retained as consultants for the second stage of Kidatu Project financed by Loan 1306-TA, and also by loans from KfW of Germany and SIDA. 20. The Bank had been kept informed of these discussions. In October 1973, a Bank supervision mission visited Tanzania. The supervision mission report, among other things: (a) reiterated TANESCO's dissatisfaction with its consultants on the latter's handling of the civil contractor's claims; b) commented favorably on the consultants on-site supervision and on the con- tractor's work; and c) recommended that the Bank suggest to TANESCO to employ a tunnel expert and a claims expert to carry out several tunnel inspec- tions and to review all future claims before settlement, respectively. The report also recommended that the Bank closely supervise the contract to its conclusion. TANESCO subsequently employed the two experts. -7- 220-KV Transmission Line 21. The transmission line has been operating successfully after mea- sures were taken to counteract the interruptions caused by lightning strikes and other minor factors. This line traverses an area which will be part of the reservoir when the construction of a dam (under Tanzania Urban Water Sup- ply Project, Loan 1354-TA of January 1977) is completed. As a result, some 18 transmission towers will need re-location. The whole re-routing process of the affected section of the line is currently estimated to cost around US$1.5 million equivalent and would take 18 months to complete 1/. Ecology 22. A general ecological review of Kidatu and Mtera (the dam site for the second project, upstream of Kidatu) developments was carried out in 1972. The review concludes that the Kidatu dan and the reservoir are too small to create any significant ecological impact on the environment. A section of the 220 KV transmission line passes through Mikumi Game Park. The route taken by this section of the line was aimed at reducing its adverse effects on the environment. Institutional Development 23. It has been the Government's objective since independence to develop its citizens in order to take over management positions, both in public and in private sector enterprises, which were then held mainly by expa- triates and non-citizens. In order to achieve this objective the Govern- ment had encouraged enterprises to develop training programs for citizens and had itself introduced several measures which included: a) enlargement of the education system with a consequent increase in output of students at secondary and at higher education levels; b) provision for assistance (through the Ministry of Labor) to the employer in establishing training programs and in obtaining citizen trainees for the job; and c) greater restrictions in granting permits to new expatriates and in renewing the contracts of existing ones. These measures were -leading to a gradual but slow replacement of expatriates/non-citizens by qualified citizens. 24. In order to accelerate the transition from management by expatri- ates/non-citizens (i.e., aliens) to management by citizens, in 1971 the Government imposed further restrictions on the employment of aliens by placing ceilings on their salaries; increasing income and other taxes; reducing or 1/ TANESCO's consultants have stated that, at an early stage during the survey for the transmission line, they had tried in vain to find out from the authorities whether the water reservoir would be constructed, and if so, what were to be its location and dimensions. This transmission line was taken out of the Bank - SIDA financed project and financed by a tied credit from the Canadian International Development Agency. - 8 - eliminating several existing fringe benefits; and limiting their remittances abroad. These restrictions resulted in a rapid decrease in the number of aliens both in private and in public sector enterprises. However, since the country did not have an adequate number of qualified citizens to replace the departing expatriates, senior management and professional positions were left vacant, in some enterprises for long periods 1/. 25. At the time of project appraisal, about 80% of TANESCO's senior and middle management (including professional) positions were held by expatriates and other non-citizen residents. But, even at that time, there were already indications of a decline, albeit slow, in the number of expatriates/non- citizens holding the higher management positions. For instance, in 1968 expatriates and non-citizens held 10 of the 11 senior management and 39 of the 46 middle management positions, while in 1970 they held 9 and 36 senior and middle management positions respectively. 26. The restrictions imposed by the Government in 1971 on expatriates' terms and conditions of employment caused a rapid decline in the number of expatriates in TANESCO between 1972 and 1973. During this period there were only 6 non-citizens holding senior management positions and 15 holding middle management positions. TANESCO was unable to fill the vacant positions by recruiting new expatriates because its prevailing terms and conditions of contract for expatriates were inferior to those offered in other neighboring countries. Nor could TANESCO recruit qualified citizens because the domestic market had a limited supply and the remuneration which TANESCO could offer was believed to be much lower than that which private sector enterprises would offer. Some of the key positions, e.g., the Company Secretary and Chief Internal Auditor, were therefore vacant for long periods, the former for over a year, and the total complement of senior and middle management dropped to 41 by early 1973 compared with 56 in 1970. Furthermore, between late 1971 and early 1973, the position of Chief Executive had been vacant. TANESCO also lost staff at the lower management and semi-professional level, particularly, the technicians responsible for operation and maintenance of its diesel units. 27. Deprived of leadership and lacking adequate technical and managerial staff at a time when the utility had a large investment program underway, certain areas of TANESCO's operations were adversely affected until mid-1973. For instance, during this period, TANESCO, lacked an adequate in-house technical expertise to seriously question the consultant's approval of the civil contractor's claims (paras. 19-20). It was also around this time that TANESCO went ahead with the purchase of the gas turbine unit without making a further check, as a precautionary measure, on the fuel oil consti- tuents despite the fact that the gas turbine manufacturer had pointed out to TANESCO that the specifications received from the fuel oil supplier were incomplete (Appendix II). 1/ Somewhat similar measures were taken by the Kenya Government around the same period. These measures led to staffing problems in a water utility. See OED's Project Performance Audit Report No. 2605 of July 18, 1979 on Kenya: First Nairobi Water Supply Project (Loan 714-KE). -9- 28. From late 1973 onwards, TANESCO's staffing situation started to improve due to a combination of several factors. The most important of these factors was the appointment of the Chief Executive in early 1973 1/. He, in turn, appointed management consultants to review the organization of TANESCO and, based on their recommendations, reorganized the utility. Secondly, TANESCO obtained the services of some professionals, sponsored by SIDA and CIDA, to fill up some of the senior management positions left vacant by expatriates. Thirdly, TANESCO recruited some twenty-eight engineers from India to fill the professional positions left vacant or newly created follow- ing reorganization. Lastly, TANESCO, was able to fill other vacancies by citizens, mainly, through its several programs for staff training and develop- ment - one of these is the TANESCO Training Institute (TTI) - and the upward revision in TANESCO's salary scales helped to attract and to retain these individuals. In 1978 citizens, who have already replaced the SIDA and CIDA sponsored senior management personnel, held all 14 senior management positions and 46 of the 69 middle management and professional positions, the rest of the 23 positions being held almost entirely by Indian engineers. 29. The leadership and direction provided by the appointment of the Chief Executive and the general improvement in the staffing situation have resulted in an improvement in TANESCO's overall operation as well as in cer- tain specific areas, e.g., maintaining cost control on civil works contracts. The Staffing of Kidatu Station 30. Kidatu first unit was scheduled for commissioning in April 1975. The station operation was to be headed by a SIDA -financed Swedish engineer, who was, according to TANESCO, also expected to draw up the staff requirements for the station. TANESCO had assigned some of its technicians for Kidatu operation and had also sent 10 of them for a one-year training at Kafue hydroelectric station in Zambia. After giving notice, the SIDA-financed engineer left in late-1974. At that time, it was also realized that the staffing requirements were yet to be drawn. This task was then assigned to the consultants, who subsequently recruited a group of Swedish staff including three shift change operators. The group reported at Kidatu by end-February, in time to avoid delay in commissioning of Kidatu. The position of the head of Kidatu operation (i.e., station superintendent) was also filled in time by recruiting a qualified and experienced engineer from India. 31. The services of the Swedish staff at Kidatu were very costly for TANESCO 2/. For instance, the cost to TANESCO for the services of each of the three Swedish shift charge operators was over US$140,000 p.a., while the cost to TANESCO for the services of the station superintendent was several-fold less than that of his Swedish subordinates. 1/ This is a presidential appointment reviewed by the Bank. 2/ Payment to the Swedish staff was made partly from Swedish (untied) grants to Tanzania. About 40% of the total cost was taxes paid by TANESCO to the Tanzanian Government on the salaries of the Swedish staff. - 10 - 32. Because of the heavy cost of employing the Swedish staff at Kidatu, in late 1977 TANESCO decided not to renew the contracts of the three Swedish shift charge operators (their other colleagues had already left or were leaving TANESCO), but instead to investigate less costly staffing alter- natives. When the Bank came to know of this decision it sent a lengthy communication to TANESCO expressing its concern on the possible delay in recruiting suitable personnel and emphasizing the financial and economic loss to TANESCO and to the country from mal-operation of the power station. 33. TANESCO perceived the contents and tone of the Bank's communication as a pressure to renew the contracts of the Swedish operators. By this time, however, TANESCO had already appointed three engineers (one from India and two from Tanzania) and was in the process of appointing additional experienced Tanzanian engineers to replace the Swedish operators, and to fill other positions at Kidatu. TANESCO was quite satisfied with Kidatu's operation, and informed the Bank accordingly. 34. A Bank supervision mission, which visited Kidatu in July 1978, has commented favourably on Kidatu's operation. An OED mission which also visited Kidatu in June 1978, concurs with this assessment. However, in the opinion of the OED mission, TANESCO may find it difficult to attract and to retain suitably qualified operations staff because Kidatu is a remote and, for security reasons, also a restricted area, offering little of the basic social and cultural facilities and opportunities for the staff and their families. TANESCO's Training Programs 35. For several years TANESCO has been giving attention to training and development of its citizen staff at all levels. Some of these programs include sending suitable staff on courses and training programs ranging from a couple of months to three years, both within the country and abroad. Under one such training program, assisted by Bank Loan 1306-TA, TANESCO has been sending its staff for training with the Electricity Supply Board of Ireland (ESB) in the areas of planning, design and operations of the power system. In 1974, TANESCO successfully completed the- first phase of its literacy program which resulted in every employee being able to read and write. 36. In 1968 TANESCO established a full-time training school for stu- dents. The program consisted of two years study (after secondary school) followed by one year practical training in TANESCO's plants. On successful completion of the program, the students are absorbed in TANESCO at a techni- cian level. The training school was subsequently upgraded to the level of an institute and is now known as TANESCO Technical Institute (TTI). Over the last few years TTI has been assisted by SIDA funds. Hitherto, the education and training of TTI students had been geared to meet the needs of TANESCO. According to TANESCO's senior operations staff, the ex-students have demon- strated that they had appropriate training for the job. At present, however, there is a concern that TTI's curriculum and orientation seem to be tending - 11 - more towards those of other general training institutes in the country rather than to training the students in order to meet the future needs of TANESCO. 37. In the mid-1970's TTI was moved to Kidatu to avail of the power station for the students' practical training and also to avail of the build- ings and other structures left vacant by the civil contractor on completion of the civil works. The arrangement is now found to be unsatisfactory for two reasons. Firstly, Kidatu is a remote and restricted area, thus making it dif- ficult to recruit and retain suitable staff and even students. Secondly, the buildings, which were mainly temporary structures, will soon require extensive repairs or replacement. Presently, a plan to move the institute to Morogoro (the nearest town to Kidatu, and some 70 miles away) is under consideration. III. CONCLUSIONS 38. The project was completed on schedule and broadly as planned but with cost overruns. The operating performance of the diesel plant has been lower than expected and geological conditions encountered during the con- struction of the civil works for the hydro plant were more difficult than those anticipated. The actual load growth was lower than projected. Neverthe- less, the commissioning of the diesel units at Ubungo in 1973 and of Kidatu in 1975 was necessary to overcome the power interruptions which were taking place on the system due to breakdown of the older units and also to meet the load growth. The commissioning of Kidatu also led to a substantial reduction in TANESCO's thermal generation and consequently to a large reduction in fuel costs. 39. The consultants handling of the civil contractor's claims became an issue between the Borrower and the consultants during the earlier part of project implementation. The Bank did not agree with some aspects of the con- sultant's evaluation of bids which had resulted in Consortium B, instead of Consortium A, being the lowest evaluated bidder (para. 16). Furthermore, the Bank knew that TANESCO did not have an adequate 'in-house' technical expertise to oversee the work of the consultants. Given these factors, a closer monito- ring by Bank supervision missions of the contractor's work and the associated claims at an earlier stage, might have helped the Borrower in his handling of the earlier claims. However, the Bank supervision missions began showing considerable interest in the matter in the latter half of 1973, when TANESCO (which by then had appointed the General Manager and a CIDA-sponsored tech- nical advisor) had already started to question the consultants on the con- tractor's claims. Thereafter, the Bank missions have helped the Borrower in several ways including recommendations to employ a claims expert and a tunnel expert. The report from the Bank consultant in 1973 and the work of the claims expert must have provided additional and objective strength to the Borrower in his handling of the contractor's subsequent claims. The earlier Bank super- vision missions, however, did make several representations to the Government and to the utility in order to fill the vacant position of the Chief Executive - 12 - and also the positions which were to be left vacant with the departure of the incumbent expatriates/ non-citizens. 40. Throughout the project period the Bank supervision missions have shown considerable interest in the financial situation of the Borrower, and have made representations to the Government for* equity contributions when TANESCO was faced with liquidity problems. During negotiations for Loan 1306-TA, the Borrower and the Government agreed to take some specific measures (e.g., revaluation of assets, and timely tariff adjustments to maintain a rate of return of 7% on revalued assets), to improve TANESCO's financial situation. 41. The experience on Kidatu civil works suggests that where the employer does not have adequate 'in-house' expertise to undertake some form of supervision over the contractors and consultants, an acceptable course of action could be to appoint a panel of experts to review the design, construction, contractor's claims, etc. 1/. Such a course of action has been adopted in the Second Stage of Kidatu Hydroelectric Project supported by Loan 1306-TA. 42. The diesel units and the gas turbine created a number of problems for TANESCO. In retrospect, these problems might have been reduced had TANESC& : a) insisted on purchasing diesel units which were identical to those having a good operating record in a comparable environment; and b) made an independent check on the level of undesirable constituents in the fuel oil which was intended for use in the gas turbine. As a further general point, the choice between medium speed and slow speed 'marine' diesel units for base load operation should take into account: a) the use of fuel which contains a high percentage of impurities, particularly vanadium, since these attack the the exhaust valves of medium speed units; and b) a situation where the entity may have difficulty in recruiting and retaining suitably skilled personnel. Slow speed units seldom have exhaust valves. Furthermore, these units are gen- erally known: a) to provide higher reliability and greater availability than the medium speed units; and b) to require less frequent and probably less stringent maintenance. All these factors lead to the need for a lesser number of skilled personnel2/. 43. TANESCO's various staff training programs, together with the revision in its salary structure, appear to be paying rich dividends. The utility has been able not only to replace all the expatriates and other non-citizens in senior management positions but also to fill all the senior management positions created following the reorganization in 1973. TANESCO 1/ In connection with adverse geological conditions encountered with some projects, OED's Fifth Annual Review of Project Performance Audit Results states that "The establishment of a board of consultants is usually required in hydro projects; if established early, these could be valuable in resolving problems as they arose and keeping to a minimum the time and cost overruns". 2/ The Bank has initiated a study by consultants on a comparative operating experience between slow and medium speed diesel engines. - 13 - 44. In the operation of the Kidatu station there were, for a period of time, two groups of expatriates from two different countries, one group comprising mainly engineers holding the more senior positions and the other mainly technicians serving as shift charge operators. Yet the salary and fringe benefits of the technicians were much higher than those of the engi- neers. Such manifest differences in salaries, etc., among groups of expatri- ates from different countries are not conducive to the development of a harmonious relationship between the staff and to the building up of team spirit within an organization, particularly where all these individuals generally have to work and live in a somewhat confined environment. 45. The single most important lesson emerging from this project experi- ence is that the operations and other institutional aspects of a utility start showing improvements only after the utility acquires competent leader- ship and direction, and also an adequate and suitably qualified staff. In TANESCO, improvements in and retention of staffing have been achieved by the development of various staff training programs and by the upward revision in the staff's salary structure. - 14 - APPENDIX I TANZANIA: KIDATU HYDROELECTRIC PROJECT (FIRST STAGE) (LOAN 715-TA AND LOAN 715-2TA) Rural Electrification TANESCO has been providing electricity supply to smaller popu- lation centres in rural areas (e.g.,townships and ujamaa villages), but the level of this activity has been dictated by the location and the com- mercial prospects of the particular population centres and by TANESCO's financial situation. To improve upon this haphazard progress in rural electrification, the Government planned to create a new organization, Rural Electrification Corporation (REC) in 1974. REC was to be responsible for the development of rural electrification and this development was not to be based on commercial principles. TANESCO, on the other hand, was to retain the responsibility for construction and operation of the electricity systems in these areas, and to receive subsidy for such operations where necessary. REC has not yet been created, and the Government, faced with diffi- cult economic conditions, has not made provisions for electrification of ujamaa villages in its recent five-year development program. TANESCO continues with electrification of population centres which are in the vicinity of its existing system when such centres show prospects of commercial justification and when it is possible to obtain funds for capital costs from the Government or from other international development agencies. During these last few years, several such population centres have been or are in the process of being electrified with aid from the Governments of Tanzania, Germany, Denmark, and Finland 1/. The demand for electricity in some of the ujamaa villages, however, has been low. For instance, two or three villages which have been .provided with electricity for well over a year had only 10-15 customers (i.e., connections) each, while one village had no customers at all. The low demand probably reflects the choice of specific villages rather than the demand for electricity in ujamaa villages as a whole. 1/ Some four diesel generating units prov44ed by aid from the Finnish Government were in storage for 2 years awaiting funds for the con- struction of the complementary sub-transmission and distribution system. - 15 - APPENDIX II TANZANIA: KIDATU HYDROELECTRIC PROJECT (FIRST STAGE) (LOAN 715-TA AND LOAN 715-2TA) Role of and Problems with Gas Turbine The mechanical problems developed by the diesel units at Ubungo in 1972 seriously reduced the available plant capacity on the interconnected system and created a distinct possibility of load shedding for an extended period. In order to avoid this situation, TANESCO purchased a gas turbine unit, since repair on the diesel units or replacement of some of their damaged components would have taken much longer. Furthermore, TANESCO, in the throes of maintenance and staffing problems, was attracted by the offer made by the gas turbine manufacturer to sponsor two experienced engineers for the opera- tion of the unit for two years. With a loan from the Dutch Government and with the Bank's guarded approval to increase the generating capacity, TANESCO on its own, and according to consultants, without their assistance, ordered the gas turbine unit and had it installed within a period of some 6-9 months. This short period suggests that the unit was bought 'off the shelf'. After the gas turbine unit had been ordered, TANESCO had provided the manufacturer with the specifications on the fuel oil was to be used on the unit. This fuel is known as East African Class B fuel and consists of a distillate fuel blended with crude oil. The specifications, which had been received from the fuel oil supplier, indicated the level of only some out of the several impurities normally found in such fuels. The manufacturer had approved the fuel. He had, however, pointed out that the specifications on fuel were incomplete since they had omitted to indicate the content of other relevant impurities e.g., vanadium, potassium, calcuim and lead. He had also informed TANESCO that these impurities should not exceed certain levels. It was not evident that TANESCO had pursued the matter on fuel oil specifications again until the unit sustained damage to all combustor baskets and some turbine blades after about 2,000 hours of operation. On the other hand, evidence in the files suggests that, prior to commissioning the unit, the manufacturer had tested samples of fuel and, though the results of the tests had shown traces of metals in a higher proportion than desired, had approved the fuel. The failure of the unit has been attributed by the manu- facturer and by TANESCO's consultants (who got involved in this unit after the damage) to a higher than permitted level of vanadium, potassium and lead in fuel oil 1/. Necessary repairs have been carried out on the gas turbine and, since then, the unit operates only on light fuel oil which is presently over three times the price of Class B fuel. However, because of adequate capacity on the system, the gas turbine is operated only for very short periods - for example, in 1977 it generated about 1 GWh - and the maximum load on the unit is limited to around 13 MW. TANESCO now has three different types of plant on its system - hydro, diesel and gas turbine - and two different types of fuel for power generation at Ubungo. 1/ A theory put forward by TANESCO's consultants after the breakdown of the unit was that the gas turbine manufacturer's experience with blended fuels was very limited and his approval of such fuel might have been based on extrapolation of the generally accepted distillates for gas turbines. APPEDIX III T,' 'IA 22/10/79 1210HRS ATT: WR. S. KAPOR -f-is- PLEASE REFER YOUR LETTER OF 17 AUGUST ENCLOSING REPORT ON KIDATU-1 AA 1;E ARE VERY SORRY FOR THE DELAY IN REPLYING TO YOU. WE ARE IN GENERAL AGREEMENT WITH VARIOUS FACTS AND CONCLUSIONS PRESENTED IN THE REPORT. B3 HOWEVER ON PAGE All OF PCR IN ADDITION TO KICON PERFORMANCE OF ASEA KABLE (CONTRACT 38) AND INGRA-CADE KONCAR (CONTRACT 7) ShDULD BE MEN-4TIONtf.- OIL OF 220KV CABLES (DIFFERiNT PHASES OF BOTH UNITS) HAVE BEEN LEAKING SINCF MAY 1978 AND NO SATIScACTORY SOLUTION HAS BEEN FOUND BY ASEA KABLE TIL TODAY. GENERATOR THRUST BEARING WAS LEAKING SINCE IOSTALLATION. THE DEFFECTS WERE RECTIFIED BY RADE KONqAR AFTER SOME MODIFICATION AT SITE. IN END AUGUST 19:79 , STATOR LAMINATIONS OF UNIT NO.1 WERE FOUND CORRODED. RADE KONCAR STATED THAT THIS WAS A FAULT MF RARE NATURE. THEY HAVE REPAIRED IT WITHIN ABOUT A MONTH. CC CORRECT POSITION OF SOME CLAIMS MENTIONED ON PAGES 4 AND 5 OF ANkEXUt%E 7 OF PCR IS AS UNDER: COkTRACT -5 (IV A,8), CONTRACT 6 (II, III, IV), CONTRACT 7 (II, III) THE CLAIMS HAVE BEEN REJE CTED BY OUR CLAIM ADVISOR Ai) CONTRACTOR ADVISED TMROUGH SVECO. r - 17 - Attachment TANZANIA: KIDATU HYDROELECTRIC PROJECT (FIRST STAGE) (Loan 715-TA and 715-2TA) PROJECT COMPLETION REPORT I. INTRODUCTION The Power Sector 1.01 Tanzania Electric Supply Company Limited (TANESCO), established in 1964 and a Government-owned organization enjoying a considerable degree of autonomy, is the sole organization responsible for the public generation, transmission and distribution of electricity throughout mainland Tanzania (i.e., excluding Zanzibar). 1.02 Since independence in 1961, the power sector has been growing much more rapidly than the economy as a whole. Over the past decade, TANESCO's sales, number of consumers and installed generation capacity have more than doubled. Statistical data on the power sector covering the period 1964-1975 are shown in Annex 1. Existing Facilities 1.03 Tanzania's current total installed generating capacity is about 270 MW including 155 MW of hydro, about 100 MW of diesel and steam, and 15 MW of gas turbine. About 95% of the total installed capacity belongs to TANESCO; the remaining 5% belongs to power users who are out of reach of TANESCO's supply lines. Major power facilities are shown in the attached map. Development Objectives and Energy Resources 1.04 The Government's policy in the sector consists of interconnecting the large consumption centers and of developing the country's hydroelectric resources for meeting the growing demand of accelerated industrialization. However, for smaller centers where the load has not yet grown to a high enough level, the policy has been to use diesel sets. The Government's policy also includes extending of electric service to smaller population centers, urban poor and also to ujamaa villages. Based on this policy, TANESCO has constructed a 132-kV transmission line between the coastal and Arusha-Moshi systems. The electric energy produced by the Project is being fed into this combined system through a 220-kV transmission line. 1.05 Tanzania has limited known fossil fuels but rather abundant indi- genous hydro potential for power production. The lower cost principle of the Bank was endorsed by the Government and this led to the development of hydro resources. Bank Involvement 1.06 The Bank has made three lending operations to the sector: one, for the construction of a diesel station; and two, for the construction of Kidatu hydroelectric project and its extension. The Project was the second lending operation of the Bank Group to TANESCO. The first Loan 518-TA for US$5.2 million was made in 1967 primarily for an extension of the Ubungo diesel power station and for the construction of some transmission/distribution facilities to cover part of TANESCO's development program for the years 1967 through 1970. The second Loan 715-TA for US$30 million was made in 1970, and a supplementary Loan 715-2TA for US$5 million to cover part of the construction of the Project was made in 1974. A third lending operation in the power sector was made - 18 - through Loan 1306-T-TA for US$30 million for the construction of the second stage of the Kidatu Hydroelectric Scheme in 1976. This last stage of Kidatu Scheme will be completed in 1980. 1.07 Important objectives of the Bank's lending operations to the sector were firstly to provide additional generating capacity to cope with the develop- ing load in the interconnected system, and secondly, to improve TANESCO's operations and to ensure its financial viability. The first objective has substantially been achieved through timely construction of the Project. The second objective remains as important today as it was in 1970, although substantial improvement has been made through organizational changes and several tariff increases. Highlights of Project 1.08 The Project covering the construction of the Kidatu Hydroelectric Scheme First Stage and the extension of the Ubungo diesel station was carried out broadly in accordance with the original project description. Aside from some minor teething problems, the two 50-MW hydro units have been operating satisfactorily since mid-1975. 1.09 Although the Project went into operation as originally scheduled, several physical, financial and also management problems came up during the course of the construction. All these problems have been solved and details of them are given in relevant parts of this report. 1.10 The Project was a problem project from the beginning of the construction up to the effectiveness of the supplementary loan due mainly to reasons of cost overruns. Apart from the lessons to be learned from the cost overruns, probably the most useful lesson arising from the Project is the importance of project supervision, cost control and monitoring, - 19 - II. PROJECT PREPARATION AND APPRAISAL Origin 2.01 The Project first came to the attention of the Bank in February 1966 when the Government, on behalf of TANESCO, requested the Bank's assistance in financing the foreign exchange costs of TANESCO's 10-year development program covering the period from 1966 through 1975. The Bank's economic mission in 1966 found that preliminary studies of alternative power sources, including thermal developments and possible hydroelectric sites, had already been undertaken by a firm of consultants, and a h_ydroelectric station at Kidatu on the Great Ruaha River had been selected as the most economic project for the subject of a feasibility report. 2.02 Parallel with the above studies, the Water Development and Irrigation Division of the Government with the assistance of another firm of consultants had investigated and was preparing a multi-purpose irrigation/hydro power development on the Wami River based on different assumptions, making direct comparison with the Kidatu Project impossible. The Bank economic mission in 1966 recommended that a study of the rival schemes be prepared on a strictly comparable basis, and it was agreed during negotiations for Loan 518-TA in July 1967 that consultants would be engaged for this purpose. This study, jointly undertaken by the above two consulting firms, was completed in July 1968 and recommended the Kidatu Scheme as the most economic development. Preparation, Appraisal, Negotiation and Approval 2.03 The feasibility report on the Kidatu Project was received by the Bank in December 1969. A Bank mission visited Tanzania in April 1970 to appraise the Project. The report was based on the load forecast which was submitted in the report of May 1968 by a third firm of consultants 1/ and extensive field investigations which were carried out by the first firm. This report was far from satisfactory for appraisal purpose due mainly to the absence of detailed project cost estimates and the inadequate economic comparisons bet- ween alternative thermal development programs and the Project. Many important data were collected by the Bank mission during the appraisal. 2.04 The Bank asked TANESCO's consultants (i.e. the second firm) retained to design and supervise the construction of the Project, whether additional field investigations at the site were necessary to firm up the cost estimates regarding the construction of underground facilities. In view of this question, the consultants with some external assistance of engineers and geologists, re- studied the documents and the comprehensiveness of the drillings and subsequently concluded that all logical investigations had been done and that additional field investigations requested by the Bank would not have given additional infor- mation to obtain better estimates. Although the Bank also reviewed the design and was of the opinion that the risks were no greater than could have normally been expected with similar underground constructions, the appraisal mission increased the consultants estimated costs for civil works by about 40% to cover unforeseen risks for the underground excavations and price contingencies based on the experience gained from similar works elsewhere. 1/ Report titled "Tanganyika Electric Supply Co., Ltd.: Report on Market for Electricity". - 20 - 2.05 No major changes were made in the original designs of the dam, the power plant at Kidatu, and the Ubungo diesel station during the appraisal, but excavation of power house and penstocks for the future extension was added to the Project. However, during construction several changes were made in the designs of the main dam, headrace tunnel, and the equipment due mainly to bad rock conditions experienced during the excavation of underground facilities and to difficulties in transportation of equipment. Information on these changes is given in Chapter II in greater detail. 2.06 Before and also during loan negotiations, many issues were discussed and agreed upon with the Government and TANESCO. Major issues were related to the satisfactory completion and operation of the Project and the financial viability of TANESCO. Agreement was reached on the following issues which appeared in Loan Documents as covenants: (a) The Government of Tanzania shall not permit any abstraction of water from the Great Ruaha River or its tributaries upstream of Kidatu that will in any way reduce the potential output of the Kidatu generating station; (b) TANESCO shall extend the Kidatu scheme so long as studies show to the satisfaction of Tanzania and the Bank that such course would be the most economic means of producing additional power for the system to which Kidatu is interconnected; (c) Except as the Bank shall otherwise agree, (i) revenues will be sufficient to earn an annual rate of return of not less than 10;, except for the years 1975 through 1981, when the rate of return may not be less than 7%; and (ii) the presently prevail- ing tariffs shall not be reduced through the year 1981. 2.07 Furthermore, the Bank requested TANESCO to employ an engineering consulting firm to supervise project construction and a full-time adviser/ expert to work at the site in TAYNESCO's construction unit to monitor pro- gress of the works. TANESCO hired the services of consultants for construction supervision. Filling the post of adviser/expert proved to be difficult and the position never functioned quite as originally intended. The expert hired was not posted at the site and did not provide a review of progress independent of that provided by the engineer and contractors. Instead, he was working as the head of the construction and planning unit at TANESCO's headquarter in Dar es Salaam and left the company in early 1973. Project's Role in the Long-Term Plan 2.08 The Project achieved its objective of meeting the generation require- ments of TANESCO's costal system up to 1980. Apart from the Project, - 21 - TANESCO's development program for 1970-1975 included only extensions of existing distribution facilities and construction of three small diesel stations in the townships of Mofia, Nansico and Nijombe. The extension of distribution facilities together with the existing system were capable of transporting and distributing the generation of the Project. A number of projects were being considered under long-term planning including a major hydroelectric project with an ultimate capacity of about 1,000 MW at Stiegler's Gorge on the Rufiji River to supply the coastal system in the late 1980's and 132-kV transmission line from Hale to Kikuletwa. The latter line was completed by TANESCO in 1975 together with the construction of the Project due to system reliability requirements and also to better service for power supply. Construction of Stiegler's Gorge, however, has been postponed due to the very big optimized plant capacity compared to Tanzania's energy requirements. Project Description 2.09 The principal features of the original Project are described below: (a) Construction of the first stage (2 x 50 MW) of a hydroelectric development at Kidatu on the Great Ruaha River with the related step-up substation to be commissioned in 1975. The principal elements of the development included a regulating dam with a storage capacity of about 125 million m3, a headrace and a tailrace tunnel, and an underground generating station. The storage capacity was to be sufficient to provide at least 85 MW during peak load hours under drought conditions; (b) A 15-MW extension of the existing Ubungo diesel generating station near Dar es Salaam to avoid a power shortage between 1972 and the commissioning of the Kidatu Project; (c) Construction of a single circuit 220-kV, 306-km transmission line from Kidatu to Dar es Salaam, with the related step-down substation at Ubungo; and (d) Consulting services for construction supervision and comple- mentary studies covering the ecological effects resulting from the work under part (a) above and subsequent stages of development. 2.10 The water intake, headrace tunnel, powerhouse, control room, tailrace tunnel, and switchyard were to be excavated and constructed (except foundations for future hydro units) according to the ultimate design which included provision for the second stage. The second stage of development was expected to be commissioned in 1980 and would consist of a concrete dam at Mtera (175 km upstream of Kidatu); installation of two additional 50-MW hydro units at the Kidatu powerhouse and a 220/132-kV transformer station at Morogoro. 2.11 The Project was carried out broadly in accordance with the original project description. Major physical changes are described in Chapter III. - 22 - III. PROJECT IMPLEMENTATION, OPERATION AND COST Project Start-up 3.01 There were no unusual delays in the loan effectiveness, the start-up and the general implementation schedule. However, due to bad rock conditions, there were substantial delays and then acceleration of the civil works regarding the construction of underground facilities just after the beginning of excavation of the headrace tunnel. Most Important Changes in Original Design 3.02 As was mentioned before site investigations, including the drilling of boreholes, were made during the feasibility stage; however, the true extent of the bad rock was not discovered at that time. Consequently, the length of the headrace tunnel was later extended by about 50 m due to realignment and about 800 m (about 7%) of the total of 11 km headrace tunnel was concrete lined and more than 2,000 m (about 20%) were heavily gunited and bolted. These modifications caused substantial cost overruns. 3.03 Kidatu dam was originally designed as an earth and rock-filled dam. Rockfill would have been obtained from the excavation of the headrace tunnel. Due to the unsuitability of rocks obtained from the excavation of the headrace tunnel, the original dam design was changed and the dam was constructed as an earth-fill dam with extended semi-impervious fill. This design modification was reviewed By the, Bank and discussed with the consultants' chief engineer in charge of dam design. It was agreed that this change was technically acceptable. The major changes in design together with the reasons are listed in Annex 2. Implementation Schedule 3.04 The original implementation schedule was relatively tight. In 1972 the Project was substantially behind schedule due to bad rock conditions experienced in the excavation of underground facilities. 3.05 Bad rock conditions, in fact, had come as a surprise to everybody and almost all excavation works were stopped for about three months to review the situation and to find the most appropriate solution. The consultant arranged a panel of experts to inspect the excavation at site. This panel suggested changing the original axis of the tunnel to take the construction out of the bad rock zone. On the basis of the panel's recommendation, the contractor excavated the tunnel satisfactorily and expedited the works to complete the construction as originally scheduled. In fact, the whole Project was completed on May 17, 1975 about two months ahead of original schedule. Units were put into service just in time as TANESCO had started to shed load all over the system due to lack of generation capacity. A comparative construction schedule is given in Annex 3. - 23 - Cost and Disbursements 3.06 The project costs covering the construction of the Kidatu Hydro- electric Scheme Stage I and the extension of the Ubungo diesel station were increased due mainly to three major reasons. Firstly, the bidding process for the main items in 1971 coincided with an era of high interest rates and abnormal escalation of prices. The cost estimates, made at the end of 1969, a time of comparative stability, were less than actual bid results by about 19%. Secondly, subsequent currency fluctuations and world-wide economic crises in 1973/74 further raised the project cost by about 13%. Finally, unfavorable rock conditions encountered during the underground excavation caused a substantial increase in the cost of about 25%. 3.07 The total original cost estimate for the Project including the cost of transmission line was T Sh 422 million (US$59 million 1/) of which T Sh 300 million (US$42 million 1/) was in foreign exchange. This original foreign cost estimate of US$42 million was financed under a joint financing agreement, consisting of a Bank loan of US$30 million (Loan 715-TA) and a SIDA loan of Skr 63 million (US$12 million) in December 1970. 3.08 Due to these cost overruns, a credit of US$13 million was secured from CIDA to cover the cost of transmission facilities in 1972. 3.09 In addition to the CIDA credit, a joint supplementary loan of US$9.5 million from the Bank and SIDA to cover the cost overrun on the main civil works and equipment was made in 1974. The supplementary Bank loan (715-2TA) of US$5.0 million was approved by the Board on June 6, 1974 and a grant of Skr 20 million (US$4.5 million) was approved by the Government of Sweden on the same date, both to cover the foreign cost overruns. The supplementary Bank loan became effective on September 26, 1974, just in time when available funds of original loan (715-TA) were fully disbursed. The supplementary loan is also fully disbursed now. 3.10 The original and current total cost estimates are given in Annex 4. The original total cost estimates for IBRD/SIDA-financed portion in 1969 was T Sh 360.70 million (US$50.3 million 1/) with a foreign exchange cost of T Sh 248.83 million (US$34.86 million 1/). The estimated present total cost at completion (for IBRD/SIDA portion) is T Sh 491.36 million (US$66.6 million 2/) with a foreign exchange cost of T Sh 336.12 million (US$45.6 million 2/). The differences between the two total cost estimates and foreign exchange costs are T Sh 130.68 million and T Sh 87.34 million, respectively. These figures represent a cost overrun of about 36% in total project and 35% in foreign exchange costs. 3/ 3.11 The breakdown of the cost overruns according to the causes is as follows: 1/ On the basis of 1970 exchange rate (US$1 = T Sh 7.14). 2/ On the basis of average exchange rate (1970-75) of US$1 = T Sh 7.38. 3/ IBRD/SIDA-financed portion. - 24 - T Sh Million L/C F/E Total % of Total Bad Rock Conditions 24.71 21.29 46.00 35 Price Escalation 15.18 24.20 39.38 31 Currency Fluctuations - 31.58 31.58 24 Others 3.45 10.27 14.72 10 Total 43.34 87.34 130.68 100 3.12 35% of cost overruns are related to the bad rock conditions which were encountered during the excavation of the underground facilities which make up the major part of the civil engineering works. 31% of cost overruns are related to the direct effect of price escalation and are in line with the unanticipated rapid price rise on the world market for civil works and also power equipment between 1970 and 1974. About 24% of the cost overruns are due to realignment of several currencies, Deutsche Mark, Dutch Guilders, and Swedish Kroner. 10% cost overruns, due to other factors, include design changes explained in previous sections of this report and some minor additions regarding the water supply and fencing. 3.13 The original price contingencies for the IBRD/SIDA-financed portions were about T Sh 35 million. Actual price escalation reached about T Sh 80 million, which is about 128% higher than the appraisal estimate. 3.14 The original and final disbursement schedule for the IBRD-financed portion of the Project is given in Annex 5. Disbursements were ahead of appraisal forecast mainly because of the escalation of project costs. Operations 3.15 Although the two diesel sets at Ubungo station (7.5 MW each) were put into service in 1972 as originally scheduled, some failures have happened. Resides several outages due to these failures, these units have been loaded only for short periods up to their full loads because of unsuitable cooling water obtained from a well drilled at the site. More studies and investi- gations are still being carried out. More information is given in Annex 6. 3.16 The first 504MW hydro unit at Kidatu was put into operation on March 27, 1975 and the second 50-1W unit on May 17, 1975, about two months ahead of the original schedule. The start-up test was carried out by a group of engineers from TANESCO, from its consultants and from the- manufacturer, and the hydro units were- found satisfactory. Since- then, the power plant and Kidatu dam have Been operating under the responsibility of an expatriate superintendent (an experienced Indian engineer) and five TANESCO/SIDA-financed shift engineers. Although there were some teething problems such as oil leakages from thrust bearings, inappropriate relay settings, false operation of some mechanical times and indicators, and guide vane shear - pin failures, both units have been operating quite satisfactorily since-June 1975. Since then, all diesel plants in the interconnected system (i.e., Ubungo and Kurasini) have been removed from service and the system is being supplied essentially by hydro production (by the hydro plants of Kidatu, Hale, Pangani and Nuyumba Ya Mungo). - 25 - 3.17 During the initial operation, a number of short power interruptions (5 to 10 minutes) were experienced mostly due to lightning strikes on the 312-km of 220-kV Kidatu-Ubango line and unavailability of line reclosers. Recloser units were attached to the main terminal relays and power interrup- tions, due to electric arcs between the conductors and/or ground caused by lighting strikes and to other temporary faults, have been almost entirely eliminated. 3.18 The expected operation performance, efficiency and reliability of the hydro facilities seem to have been achieved. Performance 6f-the.Consulant 3.19 TANESCO's consultants for the project-did some field and office work for the transmission line from Kidatu to Ubango,-but when this work was dropped from the Project in 1972 as financing for it-became available from CIDA, the transmission work was turned over to another firm and thus excluded from the project. 3.20 The overall performance of the consultants has been satisfactory though, at the beginning of the civil works construction, the expectations of the Bank and of TANESCO were- not fully met. For instance, while a precise investigation of a 10-km tunnel is- not practical, the geological conditions encountered during excavations were very- different from those anticipated by the consultants based on the drillings already carried out, It was known that there was a deep lateritic soil and deeply weathered rock, but the con- sultants had never thought that the excavation would have- given a lot of trouble during the construction and would had led to substantial cost overruns, 3.21 The content of civil works contract was based on FIDIC conditions of contract and prepared by the consultants in June 1970. The main civil con- tractor, made claims for additional payments and extensions of time for a number of reasons (Annex 7). As was suggested by the Bankts supervision mission, TANESCO hired the services of an independent claims expert to review the claims, Later, towards the end of construction, the consultants made substantial changes in their organization and improved their practices, Under the new project management the consultants have, on several occasions, successfully negotiated on contractorst claims and together with owner's support has reduced the claims substantially. 3.22 The consultantst design for the tunnel was unlined and gunited with the use of some anchors and wire mesh and, if necessary, in limited lengths some cast-in-place concrete. The poor rock at the upstream end came as a surprise to everybody. As was later recommended by the experts of the consul- tant of TANESCO, the first 800 m of the tunnel was lined and about 2,000 m heavily gunited and bolted. In the downstream half of the tunnel, rock condi- tions were much better and in the powerhouse area, they were especially good. Up to this point, no further design changes were made. Due to the prime importance of the long tunnel, it was thoroughly inspected by the experts fiom the consultants, and also by the expert hired by TANESCO before it was put into - 26 - service. Their reports were favorable and all recommendations of experts were carried out by the contractor. The design also included a short steel pile cut-off from the spillway structure into the impervious core of the embankment dam. It has been proved long ago that sheet piles are not effec- tive water-stops and they interfere with good compactness of the fill. The taintor gate anchorages on the spillway gates were not pre-stressed although most designers have adopted this to assure long life for anchors. 3.23 The technical part of the tender documents and specifications prepared by the consultants was of the usual European type which does not show complete design for most structures and does not give clear definitions for major works and dimensions for principal components. Some examples are given below: (a) The specification indicates that impervious fill and filter material at the correct gradation may be obtained by proper and simple excavation in the borrow pits. This was an open invitation for claims; (b) The plans for the tunnel are very sketchy as to its size and shape. The only definite thing about it was its cross- sectional area. What little was shown was an unusual shape for a water tunnel; no dimensions were indicated and tenderers were able to shape it as they please. 3.24 The consultants' supervision at the job site was goQd, The quality of the work being obtained was good and it was about as clean and safe as a job of this nature could he. However, there were fatalities in the tunnel from rock falls. 3.25 The actual costs of the civil works contract was about 53% higher than that estimated in the appraisal report. 1/ About 35% of the actual cost increase is attributed to increase in physical quantities. Therefore, the contingencies allowed to cover uncertain conditions during underground excavations were insufficient. Contractors' Performance 3.26 Almost all contractors have worked with competence and they have carried out all their contracted obligations except one. The contractor for contract No, 17 (Water Supply and Sanitation), having failed to carry out the work had to sublet it after causing a lot of inconvenience. Soon afterwards the company went bankrupt and to date, payment to the local sub-contractors in winding up outstanding items is still slow. 3.27 The contractor for the main civil works was a consortium made up of firms from several countries. Most of the works of the contractor are of good quality, well organized, and efficiently operated. He did, however, overshoot 1/ The estimated total project cost given in the. consultants' feasibility study of November 1969 was US$443 million equivalent. This cost estimate was increased to US$59.1 million equivalent (an increase.of 33%) after discus- sions between the consultants, the Borrower and Bank mission at the time of project appraisal. - 27 - the tunnel in the bad rock zone, thereby adding to the problem of roof support in the large tunnel. And he overpriced gunite two or three times, thereby making it expensive to stabilize rock by that efficient method. His work in good rock was of high quality. He had generous support from the engineer and completed the work well before the schedule although there were physical difficulties in construction. While the work of the contractor may have fully been competent in respect to quality of works, it was very expensive. The consultant claimed that some of its actions in favor of the contractor were for the purpose of expediting the work or keeping the contractor on the job. Whether the contrac- tor would have placed himself in legal or financial jeopardy by slowing down or quitting with only less than one third of the work remaining is a question which can be raised. 3.28 TANESCO has had some operational problems with other equipment. Oil from 220-KV cables has been leaking since May 1978 and no satisfactory solution has yet been found. In the other hand, the leak in the generator thrust bearing, which had been taking place since installation, has recently been rectified, and stator laminations of Kidatu unit no. 1, which were found corroded, have been repaired. Performance of the Borrower 3.29 The company's licenses were issued in 1957 under Electricity Ordinance No. 3 and will expire in 2012. They provide for it to have the first refusal of any additional areas to be licensed for public supplies of electricity 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 T Sh 1.20 per kWh for lighting. These maximum rates would be either abolished or raised when necessary. 3.30 TANESCO is a parastatal under the sponsorship of the Ministry of Energy, Water and Minerals (MEWM). The Board of Directors consists of a chairman, who is the Minister of MEWM, and ten other members: three represen- tatives 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. 3.31 At the time of appraisal in 1970, TANESCO's top management and almost all key positions in the company were occupied by about 50 European expatriates. In accordance with the Government's general Africanization policy, the percentage of Tanzanian citizens in senior staff posts increased from 20 percent in 1964 to about 85 percent today. TANESCO replaced all managers in charge of regions and divisions by Tanzanians and reduced the number of European expatriates to three by the time of project completion in 1975. However, between 1974 and 1976, TANESCO reorganized along functional lines based on the recommendations of a study carried out by a European firm, and also recruited about 30 qualified Indian engineers to work in its divisions of planning, construction and operation. .It appears that TANESCO's management under the leadership of existing Tanzanian general manager, who has ably served since 1973, is effective and efficient. TANESCOts success 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 3,500-work force, which is adequate. IV. OPERATING AND FINANCIAL PERFORMANCE Operating and Financial Results 4.01 TANESCO's actual Income Statements for 1970 through 1975 and provisional Income Statements for 1976, together with comparative appraisal estimates, are given in Annex 7. A comparison of the actual and estimated operating results shows the following variations: % Variation from Appraisal Estimates 1970 191 1972 1973 1974 1975 1976 Total Sales (GWh) 0 -3.2 -10.7 -13.8 -16.3 -19.5 -26.5 Average Revenue/kWK 0 +3.7 +12.8 +26.8 +50.9 +58.6 +94.8 Revenues +1.5 +0.5 -0.3 +9.5 +22.5 +26.2 +41.2 Operating Expenses +3.1 +3.0 +0.9 +10.5 +52.7 +69.7 +66.9 (Generation Cost) (+0.5) (+3.7) (+2.6) (23.8) (174.4) (133.6) (87.8) Net Operating Income -1.3 -5.2 -3.3 +5.9 -50.1 -37.6 +1.4 4.02 The actual unit sales were increasingly lower than forecast, reflecting the country's general economic slowdown from late 1973 to early 1976. Generally speaking, the actual operating results followed closely the appraisal estimates during 1970-1973, but departed substantially thereafter mainly due to drastic increases in oil prices in early 1974. 4.03 Section 5.07 of the Joint Financing Agreement requires a minimum rate of return on net operating assets of 10%, except for the years 1975 through 1981 when the annual return should be at least 7%. TANESCO's actual rate of return improved from 10.1% in 1970 to 13.4% in 1973, but deteriorated to 6.3% in 1974, 4.6% in 1975 and 4.2% in 1976, despite tariffs increase of 30% in 1974. A recent tariff increase of 40% effective July 1976 should ameliorate the rate of return situation in subsequent years. Financial Position 4.04 TANESCO's financial position was generally satisfactory, although there were at times serious liquidity problems, particularly during 1974/75, as indicated in the comparative balance sheets given in Annex 9. The cash shortages were caused mainly by the poor operating results mentioned in paragraphs 4.01 to 4.03 and delays in the receipt of certain equity contri- butions from the Government for meeting the increased Project cost. Timely equity contributions by the Government could have averted these difficulties. Financing Plan 4,05 The following estimated and actual financing plans for 1970-1976 have been extracted from the comparative Funds Flow Statements given in Annex 10. - 29 - 1970 - 1976 Aaisai Estimate4t Actualv1 T Sh Million % T Sh Million % Sources of Funds Internal Cash Generation 400.4 57.2 361.3 30.8 Less: Debt Service (119.1) (17.0) (122.7) (10.3) Dividends (87.0) (12.4) (53.2) (4.5) Net Internal Cash Generation 194.3 27.8 185.4 15.6 Long-Term Borrowings 359.4 51.4 508.4 42.7 Government Equity Contributions 134.8 19.4 464.3 39.0 Miscellaneous receipts 9.8 1.4 20.3 1.7 698.3 100.0 L,178.4 100.0 Appraisal Estimates Actual T Sh Million % T Sh Million % Application of Funds Construction Expenditures Kidatu I Project 419.0 60.0 655.0 55.0 Other Capital Works 212.2 30.3 401.0 33.7 Interest During Consturetion 47.9 6.8 87.0 7.3 Total Construction Expenditures 679.1 97.1 1,143.0 96.0 Increase in Working Capital 19.2 2.8 35.4 4.0 698.3- 100.0 12178.4 100.0 I Equivalent amounts in U$$. ae not gien in the above summary due to the fact that the Tanania Shilllng, which had previously been pegged to the US$ at the exchange rate of T Sh 7.14286 = US$1.0, was pegged to the SDR effective October 27, 1975 at the exchange rate of T SH 9.66 to SDR 1,00, representing a devaluation of the Tanzanian Shilling by about 12% at that point in time. - 30 - 4,06 The above comparison indicates that TANESCO's actual capital expenditures during 1970-1976 exceeded the appraisal estimates by about 68% C60% of the increase was accounted for by the higher Project costl, one-third of which was financed by additional loans and two-thirds by contributions from the Government in the form of equity. V. PROJECT JUSTIFICATION Project Achievements 5.01 Power problems were one of the major causes of the industrial decline in the early 70's. The Project, however, has helped reverse this trend by providing sufficient and reliable power for the entire interconnected system. 5.02 Project objectives have substantially been achieved except sales and rate of return on net operating assets. Reason for these two deficiencies was explained in Chapter IV in greater detail. 5.03 Increased demand (from 53 MW in 1970 to 80 MW in 1975) has satisfac- torily been met by the completion of the Project. Although the reserve capacity, about 30 to 50%, provided to ensure quality and continuity of power supply is too great, it is the result of optimum dimensioning of the Project and will be reduced to normal values as the demand increases. Economic Considerations 5.04 Hydro and diesel have been the main sources of electric power generation in Tanzania. In 1966, hydro supplied about 87% of the total electricity demands. However. since that year till 1975. this percentage steadily reduced and in 1973 pnly about 57% of the total consump- tion was met by hydro and the balance 43% was met by diesel. The result has been continuous rise in the cost of electric power generation due to high cost of diesel generation. The problem was accentuated particularly during the year 1974 due to substantial increase in oil prices. With the completion of Stage I of Kidatu, there has been substantial reduction in oil consumption. In 1975 diesel contribution to energy generation was reduced to about 25%, the balance 75% coming from hydro. During 1975, the total generation from Kidatu was 226 million units. Had these units been generated from diesel about 50,000 tons of oil would have been required, costing about 23 million Shillings. The result would have been for TANESCO to have a much higher tariff level to realize the required rate of return and subsequently industrial production costs would go up. Saving of this large quantity of oil has been the largest single contribution from Kidatu Project, particularly having regard to the tight foreign exchange position. 5.05 The feasibility -study was about the economic comparison between the Project and its alternatives. The appraisal mission in 1970 compared the proposed hydro development scheme with an alternative thermal development scheme. The thermal alternative would have consisted of a steam station at Dar es Salaam, using residual fuel oil from,the refinery, with about 200-MW steam capacity to be installed in 30-MW stages in accordance with the projected growth of demand up to 1983. For the purpose of that calculation, the hydro - 31 - development included the Project and its proposed Second stage (ultimate capacity is 200 MW, with 100 MW each stage). The hydro development was more attractive than the thermal development, and the equalizing discount rate between the two alternatives was estimated at 13.4%. 5.06 A number of calculations have since been made to determine whether the present Project would have been selected over the thermal alternative had the cost estimates at completion been known at the time of the investment decision. With the recent upward escalation in fuel-oil prices, the equalizing discount rate is now estimated to be about 22%. The Project remains, therefore, the most attractive alternative. 5.07 The internal financial rate of return on investment for the Project is defined as the discount rate at which the present worth of the estimated capital and operating costs of the Kidatu Hydroelectric Development Scheme, Ubungo diesel station and of related transmission and distribution plant, over the life of the Project, equals the present worth of attributable revenues. At the time that the Project was appraised in 1970, a discounted cash flow calculation regarding the above rate of return was also undertaken on the basis of project estimated costs and sales. In that calculation, average revenue from the Project was assumed about Te 18.3 per kWh. On this basis, rate of return for the entire hydro development scheme (which includes Kidatu First and Second Stages, Ubungo plant and related transmission/distribution) was estimated at 16%. 5.08 A number of calculations have since been made to determine the revised rate of return on investment by taking actual Kidatu I cost and actual sales into consideration. Despite the increased revenues for generated energy (Te 45 per kWh), the rate of return for the development scheme is now estimated to be about 12% which is lower than the appraisal estimate (Annex 11). VI. BANK PERFORMANCE 6.01 The institutional, technical and policy roles of the Bank have been particularly significant in the power sector. An expatriate-dominated organization at the time of the Loan (1970), today over 90% of TANESCO's senior management is Tanzanian. 6.02 The Bank supervision missions have made strong efforts to help the Borrower to adopt appropriate tariff policies and structures to assure viable financial situation and to set up vigorous departments of planning, construction, operation, accounting, etc. They also provided assistance through Bank consultants during difficult periods of heavy claims from the main civil engineering contractor. The Bank objectives have essentially been achieved. 6.03 The level of working relationship between the Bank and the Borrower was very good and supervision missions were very effective and efficient. - 32 - VII. CONCLUSION AND IMPORTANT LESSONS TO BE LEARNED 7.01 There are a number of areas described in this report which are lessons to be learned to obtain better achievement from future Bank projects. 7.02 Apart from lessons to be learned from the cost overruns, probably the most useful lesson arising from the Project is the importance of project supervision, cost control and monitoring. Bank supervision missions believe all consultants and contractors and borrowers should be supervised regardless of their qualification and experience. They have strongly supported the Borrow- er in the technical, financial and legal areas to solve the problems of the Project. 7.03 Unlimited authority should not be given to the consultants or contractors regardless of their qualification and experience. They should be supervised appropriately by borrower. Therefore, each borrower should have a supervision unit to monitor the projects. In addition to borrower's engineer- ing consultant, a panel of experts or an expert depending on the size of the project, should be arranged to review the design and supervise the implementa- tion of project on a continuous basis or at least from time to time whenever a third opinion is necessary. Eastern Africa Regional Office June 30, 1977 33 - ANNEX 1 TANEANIA PROJECT CCMPLETION REPORT TANZANIA ELECTRIC SUPPLY COMPANY Statistics (1965 - 1975 Actual) Years 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1. Power Production (GWh) Rydro Production 202 213 233 249 274 305 309 321 296 286 430 Diesel Production 24 39 48 64 84 90 113 147 203 226 127 Gas Turbine - - - - - - 13 21 1 Subtotal 226 252 281 313 -358 35 422 468 -512 533 558 Purchased 1 1 2 2 2 2 3 3 3 3 3 Total 27 -2-53 283 315 -360 ___97 42 471 515 536 561 2. Power Consumption (GWh) Industrial Sector 125 139 154 174 203 230 254 281 300 322 339 Domestic Sector 36 43 49 52 58 61 63 68 74 75 86 Commercial Sector 28 30 34 37 42 46 49 51 53 57 57 Street Lighting 2 3 3 3 4 4 4 5 5 Subtotal (1) 191 215 240 266 307 341 370 404 431 459 487 Power Plant Auxiliaries 3 3 3 4 6 7 7 7 9 10 7 Net Work Losses 33 36 40 45 48 50 48 60 75 67 64 Subtotal (2) 36 39 -43 -49 55 -57 -55 67 84 77 -71 Total 227 238 283 315 361 397 425 471 515 536 558 3. System Demand (MW) Coastal System 40 42 43 44 50 53 55 61 66 67 80 Arusha-Moshi System 3 4 5 5 6 7 8 9 10 12 12 4. Power Generation Capacity (Name Plate Ratings in MW) Hydro 49 49 49 49 49 49 49 49 49 49 149 Diesel 36 40 45 50 53 56 62 74 89 89 94 Gas Turbine - - - - 15 15 15 Total 85 89 94 99 102 105 il1 123 153 153 258 5. Average Tariff In Tanzanian cents/kWh 25.70 25.32 24.94 24.72 23.65 22.83 22.82 23.72 26.14 30.72 32,00 In USC/kWh 3.10 3.05 3.00 2.98 2.85 2.75 2.75 2.86 3.15 3.70 3.85 6. Staff Total Staff 2,800 3,000 3,000 3,400 Percentage of Tanzanian citizens: In Total Staff 83 95 99 99 58 60 75 75 7. Number of Connections 19,571 46.073 71,563 75,991 ANNEX 2 Page 1 of 15 PROJECT COMPLETION REPORT TANZANIA KIDATU HYDROELECTRIC PROJECT FIRST STAGE Major Changes in Original Design and Schedule 1. Contract 1 - Access Road to Dam-Site 1.01 Original physical description of the works was construction of an 11 km long road from the Mehumi-Ifakara road at Kidatu up to the proposed Kidatu dam site on the Great Ruaha river. The construction was to be com- pleted by January 1, 1971. 1.02 The work was generally carried out as envisaged. However, it was found that substantial extra quantities had to be handled, in particular during excavation in hard. The first 4 km of road proved considerably more difficult to construct than anticipated. Whereas in the Tender, the anticipated volume of rock excavation was 24,000 m3 the final quantities were measured to be 136.522 m3. The construction was completed in accordance with the program. This had started prior to appraisal and was not included in Bank financing. 2. Contract 2A - Civil Works Ubungo 2.01 The work to be carried out consisted of civil engineering works for the extension of the existing diesel power plant at Ubungo. Major work sectors were piling for engine-bed foundations and building and construction of engine-beds and building. The date of completion was March 1, 1972. 2.02 The work was carried out as envisaged but erection works were delayed by about 8 weeks. However, it was deemed that because of the volume of additional works ordered and due to other difficulties experienced in connection with importation of materials into Tanzania etc., an extension of time equal to the delay was justified. Hence, liquidated damages for delayed completion were not imposed. 2.03 Extra costs totalling T Sh 272,720/- in respect of additional works such as roads, drainage, cooling tower, site investigations, access for heavy transport and miscellaneous minor works have been paid. As the concrete in the piles not fully meeting the specified strength, it was agreed that the piling guarantee ghould he extended by 2 years thehyb exVUiLng on July 1, 1977. There has been no problem to date,- 3. Contract 2B - Diesel Engines and Generators, Ubungo 3.01 The work to be carried out consisted of supply and erection of 2 no. 7.5 MW diesel powered generators and the scheduled date of completion was August 1, 1972 and January 1, 1973. - 35 - ANNEX 2 Page 2 of 15 3.02 The work was carried out as envisaged except in so far as dates of commissioning were concerned. Due to delays in Civil engineering work, the commissioning dates were agreed to as follows: Unit No. 7 January 1, 1973 (same) Unit No. 8 October 15, 1972 (changed) 3.03 However, these commissioning requirements could not be met and actual dates of commissioning were: Unit No. 7 February 14, 1973 Unit No. 8 November 29, 1972 (i) In view of above-mentioned delays, liquidated damages have been withheld in respect of unit no. 8 in an amount of T Sh 306,736 corresponding to delay of 2.4 weeks. As regards no. 7, it was found that the delay was beyond the control of the Contractor and thus no liquidated damages have been deducted. (ii) During trial-running of unit no. 8, the engine-bed developed cracks. In order to remedy this defect, it was decided to pre- stress the foundations with iron bars placed in holes drilled through the engine-bed. It was deemed that the Contractor was partly responsible for the development of cracks and an amount of T Sh 40,000/ - has been withheld. (iii) During the Maintenance Period, the performance of the two units was less satisfactory. The result was that the plant was at a standstill for 5,120 hours. The corresponding value at the rate of T Sh 150/- per hour is T Sh 768,000/- which amount has been withheld. 4. Contract 2C - Electrical Equipment for Diesel Plant, Ubungo 4.01 The work to be carried out consisted of supply, erection, etc. of electrical and control equipment for the diesel power plant at Ubungo, provided under Contract 2B. The works were to be commissioned on August 1, 1972 and January 1, 1973, respectively. 4.02 The work was carried out as envisaged. However, due to delays in the construction of related works (Contracts 2A, 2B and 2C) new commission- ing dates were agreed upon as follows: Unit No. 7 January 1, 1973 (same) Unit No. 8 October 15, 1972 (changed) Actual commissioning of Unit No. 8 was delayed until November 19, 1972. Liquidated damages amounting to T Sh 29,058/- were assessed by the Engineer. - 36 - ANNEX 2 Page 3 of 15 In agreement with the Employer, this amount was, however, not deducted in the Final Certificate. 4.03 As regards the delay in commissioning of Unit No. 7 this is explained by the work of pre-stressing of the foundation and thus was outside the control of the contractor for Contract 2C. Therefore, liquidated damages have not been imposed. At the time of the Contract negotiations, it was foreseen that cables at an estimated value of T Sh 300,000 would be supplied, but it was agreed that final cost would be assessed according to actual quantity required. In addition to these cables, the following equipment was supplied: (i) equipment in the 400 V board (ii) control devices (iii) one spare rectifier The total cost of cables and additional equipment is T Sh 344,873/-. 5. Contract 3 - Main Civil Works (Contractor: A Consortium of civil engineering firms) 5.01 The Works as originally envisaged consisted of the following main parts: A. An earth and rockfill dam, having a volume of approximately 800,000 m3. B. A concrete spillway with three openings and a maximum dis- charge capacity of 6,000 m3/sec. C. A 70 m2 headrace tunnel, 10 km long with concrete intake structure, surge gallery, penstock intakes and penstocks. D. Powerhouse, comprising access and entrance tunnels, machinery hall, control block, transformer hall and shafts for cables and ventilation. E. A 70 m2 tailrace tunnel with surge gallery. F. Pothead yard and 220 kV switchyard. The Works were to be completed on the following dates in order that: (i) partial filling of the reservoir up to the minimum supply level would be completed not later than December 1, 1974. (ii) final filling of the reservoir up to full supply level could commence not later than December 1, 1975. (iii) filling of the headrace tunnel could commence not later than February 14, 1975. ANNEX 2 Page 4 of 15 (iv) filling of the tailrace tunnel could commence not later than February 14, 1975. (v) trial running could commence on March 1, 1975 for Unit 1 and June 1, 1975 for Unit 2. 5.02 The above-mentioned completion dates were kept and no liquidated damages have been imposed. The work was carried out as envisaged with the following exceptions: (1) Section 1 - Temporary Works Under the terms of the Contract, various Temporary Works were erected on the Site. They consisted mainly of Contractor's Camps with infrastructural facilities, Workshop, Store-buildings, construction of new roads and also maintenance of these. The Contract provided for complete removal of all Temporary Works but at the option of the Employer all or certain parts might be taken over. At the end of the Works the Employer used his option and almost all buildings as well as services were retained and compensation was paid to the Contractor. At present the buildings are occupied by the Operation Staff or otherwise for the purpose of operating and maintaining the Plant. In addition to taking over Temporary Works, the Employer also purchased from the Contractor suitable plant and equipment for maintenance on Site all at a total cost of about T Sh 3.4 million. (2) Section 3 - Main Dam (i) In the original design and planning it was foreseen that grouting of the soil over-burden should be carried out. In his Tender, the Contractor proposed an alternative solution, which at the time was considered to result in savings to the Employer. The proposal was accepted and the construction was planned according to these changes. Briefly, the alternative may be described as follows: (a) The soil under the dam should be removed and rock-grouting carried out from exposed surface, thus the soil-grouting operation would be unnecessary. (b) Activities under (a) above to be made possible by diversion of the river through the upper 1 km of the head-race tunnel and additional short diversion tunnel. Diversion period from June to December 1973. (c) After rock grouting from exposed surface, the dam would be filled up to level 420 and the surface covered with rock to allow the river to pass over from December 1973 to June 1974. (d) From June to December 1974 the river would again be diverted through the tunnel and the dam would be filled up to level 445. From 1975 the river might be discharged through the Spillway completed by then. - 38 - ANNEX 2 Page 5 of 15 The above scheme failed, however, due to the fact that poor rock was encountered in the tunnel which made it impossible to complete the tunnel in time to permit diversion from June 1973. In view of this failure, the originally planned soil-grouting had to be reintroduced, at this stage, however, resulting in substantial extra costs, totalling approximately T Sh 18 million. (i) The projected requirements of rock for the dam-fill was some 500,000 m3 of rock. It was planned that rock should be taken from the excavations for the Spillway and the Headrace Tunnel. As mentioned under (i) above, it was found that the quality of the rock was poor, especially in the upstream part of the tunnel excavations where to some extent it was unsuitable as rock-fill. In order to com ensate for the loss of suitable rock amounting to about 100,000 m , the Dam was redesigned and a semiprevious material was introduced as substitute for part of the rock. The final cost of the Dam is some T Sh 2.4 million higher than foreseen. (3) Section 5 - Headrace Tunnel (i) As mentioned above under Section 3, the quality of the rock in the upstream part of the tunnel was found to be of poor quality, which caused delays in the excavation works. In order to remedy this situation, it was decided to concrete line the tunnel bottom and walls and consequently, because of the improved hydraulic conditions, the tunnel area could be decreased from 70 m2 to 43 m2. The tunnel was lined over a length of approximately 600 m and gunite was applied in the roof over a length of about 800 a. The total cost on account of this extra work is approximately T Sh 7.5 million. (ii) The quality of rock at the downstream of the tunnel was also bad. It was impossible to excavate with full-face method. Therefore top-heading and bench method was adapted and used satisfactorily to excavate remaining portion of the tunnel which was about 2,300 m. The total extra cost incurred due to this change of excavation method is about T Sh 5.5 million. No further difficulties worth mentioning were encountered during the remain- ing tunnelling works. 6. Contract 5 - Penstock Steel Linings and Gates 6.01 The work to be carried out under the Contract consisted of design, manufacture, erection, etc. of penstock steel-linings and gates and all works required under the Contract should be completed in order to enable the following operations to be performed: (i) Partial filling of the reservoir at least up to minimum supply level not later than December 1, 1974. (ii) Final filling of the reservoir up to full supply level not later than December 1, 1975. - 39 - ANNEX 2 Page 6 of 15 (ii) Final filling of the reservoir up to full supply level not later than December 1, 1975. (iii) Filling of the headrace tunnel may commence not later than February 14, 1975. (iv) Filling of the tailrace tunnel may commence not later than February 14, 1975. (v) Trial running may commence for: (a) Unit No. 1 on March 1, 1975 (b) Unit No. 2 on June 1, 1975 (vi) Completion of the whole of the Works not later than February 1, 1976. 6.02 The bulk of the plant was installed and ready for operation on the above mentioned dates and although some delays were experienced in a few sections, this did not adversely affect the over-all completion of the power plant. The work was executed according to the Contract except for the following changes: (i) The signalling system for draft tube gates in correctly closed position was originally based on magnets and electrical contacts. In order to get a more reliable system, it was exchanged for a system based on pressurized air. The extra cost for this alteration is T Sh 6,341/-. (ii) To reinforce the spare parts supply for the mobile crane, some additional spares were ordered at a cost of T Sh 8,785/-. (iii) In order to get a 'better corrosion protection of the trash-racks, inside protection treatment of the frames was ordered as well as a general reinforcement of all corrosion protection. The extra cost on account of this alteration is T Sh 19,934/-. (iv) The quality of the wires on the gantry crane for the sliding gate were changed from stainless to galvanized. As a result of this change, a deduction of T Sh 14,286/- has been made. (v) In order to simplify the access to the cylinder gate seats, ladders welded to the outside of the gates were ordered at an extra cost of T Sh 13,700/-. (vi) Amining at speeding up and ensuring safe filling of the penstocks, jet dividers for the cylinder gates were ordered. The total extra cost is T Sh 63,500/-. (vii) In order to reduce the loads on the trash-rack frames, some modifications of the design were ordered. The extra cost is T Sh 17,914/-. - 40 - ANNEX 2 Page 7 of 15 (viii) The rails for the trash-rack cleaning machine were originally located above the concrete level. In order to improve the accessibility of the headrace intake, the rails were lowered and the top surface placed level with the embedding concrete. Total extra cost is T Sh 8,486/-. (ix) Prior to installation of the permanent power supply for the spill- way gates, temporary cables were provided by the Contractor. Total cost is T Sh 11,240/-. 7. Contract 6 - Turbines Cranes 7.01 The work to be carried out under the Contract consisted of design, manufacture, erection, etc. of two turbine units with governors and auxiliary equipment as well as one overhead travelling crane and spare parts. The Plant was to be commissioned on the following dates: Crane November 1, 1973 Turbine Unit 1 April 1, 1975 Turbine Unit 2 July 1, 1975 7.02 Both units were commissioned ahead of the contractual dates of commissioning. The work was mainly carried out as envisaged with the exception of the following: (i) Five extra pressure switches were ordered to form part of the automatic start-up of the turbine units. The switches give indication of filled penstocks and start impulse for continued opening of the Cylinder Gates. The extra cost on account of this addition is T Sh 16,150/-. (ii) In order to reinforce the spare part delivery for the governors, extra spare parts were ordered. Also, an extra test of the governor for unit 2 was carried out at the workshop. (iii) The Contractor was instructed to drill holes in the Draft Tube Lining to facilitate grouting of possible hollows in the embedd- ing concrete. After grouting the holes were plugged. The extra cost is T Sh 11,342/-. 8. Contract 7 - Generators 8.01 The work to be carried out under the Contract consisted of design, manufacture, erection, etc. of two nos. three-phase vertical generators of a rated capacity of 50 MW each with complete equipment for exitation, de- exitation and voltage regulation. The Plant was to be commissioned on the following dates: - 41 - ANNEX 2 Page 8 of 15 Unit No. 1 April 1, 1975 Unit No. 2 July 1, 1975 8.02 As may be seen from above, both generator units were timely commissioned. The work was carried out as envisaged with the exception of the following: (i) In order to ensure a more efficient cooling of the generators, the cooling equipment was extended. The equipment including the extension was tested in May 1976 and was found to comply with the specified values. The extra costs on account of this addition is 2 x T Sh 110,000/- or T Sh 220,000/-. (ii) During concreting-in of the steel-rings for the lower brackets, the Contractor was instructed to be present in order to ensure an exact installation. In accordance with point 7 of Contract Negotiations this erection work would be paid for as extra. The total extra cost is T Sh 21,066/-. 9. Contract 8B - 220-kV Cables 9.01 The work to be carried out under the Contract consisted of design, manufacture, erection, etc. of 220-kV cables between the transformers in the Powerhouse and the surface Pothead yard via a 200 m long vertical cable shaft. The cables were to be commissioned on the following dates: Unit No. 1 March 1, 1975 Unit No. 2 June 1, 1975 9.02 All cables were commissioned on time according to the dates given above. The work was carried out as envisaged with the exception of the following: (i) Actual length of cabling required was 24 m extra over the length included in the Tender. The rate per meter of the cable had been given in the Tender and the total additional cost was T Sh 6,552/-. (ii) On account of a simplified test of the potheads, a.deduction of T Sh 7,042/- has been made. (iii) During conttact negotiations, it was agreed that one of several tests of the cables should be chosen at a later stage. The prices for various test alternatives were agreed to during the contract negotiations. As the DC test was chosen, the addition is T Sh 50,000/-. (iv) During taking-ever procedures, it was deemed advantageous to the Employer that certain erection equipment, brought by the Con- tractor, should be purchased. The Additional cost is T Sh 4,200/-. - 42 - ANNEX 2 Page 9 of 15 (v) The Contractor offered for purchase additional spare-parts to those supplied according to the Contract. The additional cost agreed to by the Employer is T Sh 5,493/-. (vi) During manufacture of the cables, it was agreed that the trans- former flanges, for connection to the cable flanges, should be manufactured by the Contractor and supplied to the transformer manufacturer for erection. This arrangement was made in order to ensure perfect connection. The additional cost is T Sh 11,040/-. 10. Contract 12 - 132-kV Substation 10.01 The Works to be carried out consisted of three separate parts viz: 1) Electrical installations and control equipment 2) Civil Works 3) Air-conditioning equipment The contractual dates of completion were: All works for connection of the first transformer June 9, 1972 All remaining works December 9, 1972 10.2 The date of completion was considerably delayed and taking over was not effected until May 22, 1973. The works were completed in accordance with the Contract, with the addition of the following: (i) Additional electrical equipment, mainly cables, were required and consequently installed. The extra cost on account of this additiof is T Sh 63,575/80. (ii) In view of the fact that the provisional sum in the Contract for supply of air-conditioning was too low, this sum had to be increased and the extra cost incurred is T Sh 122,629/-. (iii) The Civil Works were more extensive than originally foreseen and the extra cost on account thereof is T Sh 712,013/-. (iv) It was jointly agreed by the Contractor and the Employer that a small portion of the works should be omitted and later on be carried out by the Employer. A deduction from the Contract price of T Sh 10,000/- has been made on account of this omittance. 11. Contract 13 - Air-Conditioning Plant 11.01 The work to be carried out under the Contract consisted of design, manufacture, erection, etc. of air-conditioning equipment for the operation of the generating units in the power station. The Plant was to be commissioned on the following dates: - 43 - ANNEX 2 Page 10 of 15 The whole of the Plant March 1, 1975 11.02 Contractual commissioning of the Plant was delayed for approximately three months, and all works were completed at the end of 1975. The work was carried out as envisaged with the exception of the following: (i) In order to simplify embedding some ducting was added to the contractual quantities. The extra cost, therefore, is T Sh 3,315/-. Other changes of minor importance were made but as they did not have any economic effect on the Contract sum, we have omitted to include them in this report. 12. Contract 14 - Cooling Water Plant 12.01 The work to be carried out under the Contract consisted of design, manufacture, erection, etc. of cooling plant for the two generators and six transformers, cholorination equipment and drainage and dewatering system for the power station. The work was to be completed on the following dates: Unit No. 1 April 1, 1975 Unit No. 2 July 1, 1975 12.02 The Work was completed in accordance with above-mentioned dates. The contract was mainly executed as envisaged with the following exceptions: (i) An electrical hoist was ordered to simplify overhaul of the rotating cooling strainers as well as for the handling of the chemicals. The extra cost is T Sh 57,140/-. (ii) Minor additions and adjustments to the original design has been ordered, such as cable protection pipes for the drainage pumps at the future units 3 and 4, stop-logs for outlet at cooling water basin, new location of PVC pipes in chlorination plant, installa- tion of valve in sewage line, changed pipe installation at the collecting tank, installation of flushing pipe in chlorination plant and timers for strainers, all at a total cost of T Sh 24,323/-. (iii) In order to simplify operation of the cooling water system, the Contractor was instructed to mark all pipes at different places in the powerhouse. The extra cost for this work is T Sh 5,T79/-. (iv) Due to unforeseen pressure variations in a borehole leading to the tailrace tunnel, the Contractor was instructed to extend the drainage pipe coming from the cable shaft, to draft tube shaft No. 1. The extra cost is T Sh 7,075/-. (v) The material in the pump casings for cooling water pumps and spray water pumps was changed from nodular cast iron to cast iron. The resulting deduction is T Sh 15,000/-. (vi) Gate valves with rising spindles were substituted with non-rising spindles. The decreased cost is T Sh 12,731/-. -44 - ANNEX 2 Page 11 of 15 (vii) As a result of reduced water leakage in the cable shaft, the size of the drainage pipe was reduced. The decreased cost is T Sh 6,233/-. (viii) In order to complete and strengthen the tool outfit, some used lifting equipment and tools were purchased. The total price is T Sh 15,256/-. 13. Contract 15 - Control Equipment, Local Power and Lighting 13.01 The work to be carried out consisted of design, supply and erection, etc. of the following permanent planti (i) 11-kV switching stations for Kidatu (ii) Control equipment for Kidatu and Ubungo (iii) Telecommunication equipment for Kidatu and Ubungo (iv) Local power and lighting installation for Kidatu and Ubungo The contractual dates of completion were as follows: Unit No. 1 April 1, 1975 Unit No. 2 July 1, 1975 13.02 The essential parts of the Works were completed in accordance with the above-mentioned dates but a considerable volume of work remained and to-date there is still some important work left. The work was in principle carried out as envisaged but with the following main alterations: (i) As a result of changing from three-phase to single-phase trans- formers (Canadian supply) re-designing and changing of control equipment became necessary. The total extra cost is T Sh 356,210/-. (ii) Due to changes of the neutral resistors for the station transformers the extra cost is T Sh 30,714/-. (iii) In order to connect the TANESCO main office to the.permanent Kidatu plant telecommunication system additional equipment was ordered at a total cost of T Sh 321,983/-. (iv) Other additional costs have been incurred in respect of purchase of extra cables, T Sh 173,215/-, purchase of testing equipment, T Sh 72,877/50, purchase of ladders, modifications of Switchyard equipment and cable racks at CO2 equipment and a few other minor additional works, the total value being T Sh 288,150/50. 14. Contract 16 - Bush Clearing of Kidatu Reservoir 14.01 The work to be carried out consisted of cutting and disposing of trees ald bushes within the reservoir area. All trees and bushes were to be 45 - ANNEX 2 Page 12 of 15 burned to ashes. The area was assessed to be 1,000 hectares and the date of completion was September 1, 1974. 14.02 The work was carried out as planned with the exception that certain areas were left uncleared to act as breeding-grounds for fish, as it was planned to use the reservoir for fishery purposes. On account of this change, the Contract price was reduced by T Sh 26,000/-. The work was com- pleted almost two months behind the scheduled completion date, which, how- ever, did not delay the filling of the reservoir. 15. Contract 17 - Water Supply and Sanitation 15.01 The work to be carried out consisted of design, provision, erection, etc. of all plant and equipment for permanent water supply and sanitation in the power station as well as fire fighting system and the date of completion was March 1, 1975. 15.02 The Contractor failed to carry out the work and abandoned the Site in early 1975. A local Contractor was engaged to finalize the remaining work but as the material, which was to be provided by Messrs. Robertson, never came to the Site, actual completion was delayed until end of 1975. Through the efforts of the Employer, the Engineer and the local Contractor all material and plant required were provided and installed in conformity with the Contract Documents. 16. Contract 18 - Security Fencing 16.01 The work to be carried out consisted of erection of a chain-link fence with barbed wires, at prescribed locations within the site: (a) Employer's Village and Main Gate (b) Pothead Yard (c) Entrance to Power Station (d) Dam site 16.02 The work was carried out as outlined above except for the follow- ing changes: (i) Security Posts, consisting of concrete block-work buildings, were erected at the following places: Ca) 220-kV Switchyard (b) Main Gate entrance (c) Pothead yard Cd) Entrance to Power Station (e) Damsite entrance gate - 46 - ANNEX2 Page 13 of 15 The extra cost on account of these additions is T Sh 69,000/-, (ii) The steep, sloping terrain, extra deep holes were dug for the fence posts, The extra cost for this work is T Sh 47,3O0/-. The Works were completed in December 1975. 17. Contract 19A - Staff Houses, Civil Works 17.01 The work to be carried out consisted of the following: (a) Construction of access road to and within the housing compound. (b) Excavations to form terraces for the houses. (c) Provide and construct complete main fresh water pipe system within the compound. 17.02 The work was carried out as described under para. 17.01. However, the terraces became substantially smaller than envisaged probably due to the Contractor's inaccurate levelling of the area prior to construction which gave the impression that larger space was available. Completion was delayed by approximately one year. 18. Contract 19B - Staff Houses Buildings 18.01 The work to be carried out consisted of the following main parts: (a) Architectural design of buildings and preparation of detailed drawings and specifications. (b) Construction of all buildings totalling 60 staff-quarters and 1 guest-house. (c) Construction of swimming pool and tennis court (d) Provide hard and soft furnishing and electrical appliances. The Contract was a turn-key project with the understanding that the actual construction works would be carried out by a sub-contractor. The date of completion for the whole of the project was December 1, 1971. 18.02 Departures from the original scope were made in the following respects: (i) The grade 1 house, as well as the tennis court were deleted from the scope of the works, the reason being to cut expenditures. The work was completed with delays ranging from four months up to one year. Some of the delays can be attributed to shortage of building materials and lack of management on the part of the Contractor, Some minor changes were made at Site which, however, did not change the Contract price. After awards of Contract, an increase of 7% on the Contract price was agreed. This addition was to compensate the Contractor for increases which occurred soon afterward. The lump sum price for the Guesthouse was inclusive of costs for provision of soft and hard furnishing as well as electrical appliances. These items were, however, purchased by the Employer and the cost - 47 - ANNEX 2 Page 14 of 15 T Sh 53,000/- was deducted from the Contract price. 19. Engineering - TANESCO's consultants 19.01 The services to be rendered consisted of the following activities: (i), issuing of tender documents and report of tenders. (ii) contract negotiations and preparation of contracts. (iii) complete detailed design, coordination of contractor's activities and site supervision. (iv) inspection of plant manufacture and start-up assistance, all related to works for the Kidatu Power Plant, the Transmission Line, Kidatu-Dar es Salaam, and for the extension of the Ubungo Diesel Power Plant at Dar es Salaam. (v) all other engineering services related to the Great Ruaha Power Project as may be advised by the Client. 19.02 The services rendered under the engineering agreement were as envisaged. However, during the course of construction, changes occurred which resulted in increased costs. The main reasons were: (i) effects of devaluation (ii) exceptional general increase of costs (iii) extra services rendered due to changes in design The total extra cost of T Sh 20.5 million refers to: (1) devaluation effects SKr/T Sh 7 million. (2) exceptional general increase of costs and extra services rendered, T Sh 12.5 million, viz.: (i) taking over of works related to Transmission Line and Transformers by CIDA. However, main part of engineering and design for these Contracts have been carried out by TANESCO's consultanis, while mainly site supervision was deleted from their scope of works. (ii) additional engineering works as a result of unexpected bad rock conditions (re-design of dam foundation, etc.) (iii) re-design of transformer hall due to change from three-phase to siAgle-phase transformers. (iv) additional work in connection with extensive claim-appraisals, mainly under Contract 3, Civil Works. - 48- ANNE= 2 Page 15 of 15 (v) additional work on account of request by Client to prepare maintenance manuals and operating instructions. (3) services rendered and to be rendered during the maintenance period, estimated cost T WBh 1 million. TANZANIA PRDJkCT COMPLETION REPORT KIDATU HYDROELECTRIC PROJECT STAGE I ORIGINAL AND FINAL PROJECT IMPLEMENTATION SCHEDULE YEAR 1971 1972 1973 1974 1975 1976 QUARTERS 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 KIDATU CIVIL WORKS TEMP. WORKS SPILLWAY CHANNEL mmem m ga mm m m eem ige00 ROCKF ILL DAM / wAV rAA VFr W/A F/A I /WA "AA r/0A", F/ d 100% HEAD-RACE Inmmmomommim mm =Iammmmnmlf0% POWER-HOUSE TAIL-RACE MISCELLANEOUS rAo IrAwA0 KIDATU MECHANICAL WORKS m m 0 - CD 5 GATES RA A I 0WA CO 6 TURBINES 100% KIDATU ELECTRICAL WORKS CD 7 GENERATORS CD 8 CABLES - -) CD 16 CONTROL EQUIP. 100 H -I- I LEGEND Sm am Estuated Phymcml Prommemm of Works m0 Pmmcent Stmpm iiiiiiiiiiiiActuall Phvsk:sI Progress of Works (10 Percent Steps) ammmsmemRevsed Estimmm Prmgrem m Commmmonmng Estimmated V ComissonIg AcualWorld ftnk-17596 TANZANIA PROJECT COMPLETION REPORT KIDATU HYDROELECTRIC PROJECT STAGE I ORIGINAL AND FINAL PROJECT IMPLEMENTATION SCHEDULE YEAR 1971 1972 1973 1974 1975 QUARTERS 1 2 3 4 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 UBUNGO =mo m m mm m m mm MM 100% CD 2A CIVIL al ma gammime mamm as 100% CD 28 DIESEL in mam mmm mmm e m10 CD 2C ELECTR. mm mm N mmmm =I mem 100% CD 11 TRANSF. ME 100% NMm=m emmm m mm 9100: CD 12 SUB-STATION KI0ATU MISCELLANEOUS WORKS mmmmm m -mmms ir 0% CD 13 VENTILAT. t M E 100% CD 14 COOL WAT. uIle- m m a 130% NMI =M moamin 110% CD 15 BUSCHL. No in m s mi00% 0% CD 17 W. SUPPLY 100% LEGEND 00 mm IgEstimated Physical Progress of Work (10 Percent Steps) BAmmgActual Physical Progress of Work (10 Percent Steps) V Commissioning Estlnated 0 V Commissioning Actual World Bank-1756 WorldBank1760 PROJECT COMPLETION REPORT TANZANIA TANESCO: Kidatu Hydroelectric Project - Loan 715-TA and 715-2TA Cost for IBRD/SIDA-Financed Portion (in T Sh Million) Original Estimated Costs Costs at Completion 1969 1975/76 Local Foreign Total Local Foreign Total CD 1 Kidatu Access Road 7.00 - 7.00 8.73 - 8.73 CD 2A Civil Works 1.10 1.10 2.20 0.76 1.61 2.37 CD 2B Diesel Engine and Generator 1.05 9.40 10.45 0.53 11.12 11.65 CD 2C Electrical Equipment 0.16 1.49 1.65 0.15 1.57 1.72 CD 3 & 10 Kidatu Main Civil Works 2/ 71.30 121.20 192.50 112.65 210.10 322.75 CD 4 220-kV Transmission Line 7.50 33.50 41.00 - - - CD 5 Kidatu, Penstock and Gates 2.26 20.34 22.60 2.13 20.89 23.02 CD 6 Kidatu, Turbines and Crane 0.81 7.29 8.10 0.55 8.99 9.54 CD 7 Kidatu Generators 0.77 6.93 7.70 0.94 11.47 12.41 CD 8A Kidatu & Ubungo Transformers 0.60 5.40 6.00 - - - CD 8B Kidatu, 220-kV Cables 0.08 0.72 0.80 0.09 2.43 2.52 CD 9 Kidatu & Ubungo 220-kV Switchyards 0.93 8.37 9.30 - - - CD 11 Ubungo 132-kV Transformers 0.28 2.52 2.80 0.16 2.53 2.69 CD 12 Ubungo 132-kV Switchyard 0.61 5.49 6.10 1.45 5.76 7.21 CD 13 Kidatu Ventilation Equipment 0.39 3.51 3.90 1.02 2.08 3.10 CD 14 Kidatu Cooling Water Plant 0.23 2.07 2.30 0.21 3.86 4.07 CD 15 Kidatu Control Equipment, Local Power, Light 0.86 7.74 8.60 0.88 8.22 9.10 CD 16 Kidatu Clearing of Reservoir - - - 1.25 - 1.25 CD 17 Kidatu Water Supply and Sanitation - - - 0.24 0.19 0.43 CD 18 & 19 Kidatu Staff Houses 0.80 1.20 2.00 6.30 - 6.30 Contingencies 1/ 8.77 1/ 26.23 1/ 35.00 1/ - - - Engineering and Supervision 4.50 35.50 40.00 17.20 45.30 62.50 Duties and Taxes 12.00 - 12.00 - - - 122.00 300.00 422.00 155.24 336.12 491.36 Deduct Contracts CD 4, CD 8A and CD 9 and related contingency estimate now to be financed by the Government of Canada 10.13 1/ 51.17 1/ 61.30 1/ Cost Estimate for IBRD/SIDA-financed portion 111.87 248.83 360.70 155.24 336.12 491.36 I/ Including CIDA-financed contingencies of T Sh 5.0 million, of which T Sh 1.10 million in local currency and T Sh 3.90 million in foreign exchange. 2/ CD 10 is Transportation of Equipment. It is originally estimated at T Sh 6.5 million. Cost at completion is T Sh 9.5 million - 52 - PROJECT COMPLETION REPORT ANNEX 5 TANZANIA TANZANIA ELECTRIC SUPPLY COMPANY LIMITED Loan 715-TA (and 715-2TA1) Schedule of Disbursements (SIDA and CIDA Loan Excluded) Accumulated Disbursements in Millions of US Dollars Equivalent IBRD/IDA Latest New Actual Disbursements Fiscal Actual Total Appraisal Revised Disbursement as a Percentage of Year Disbursements Estimate Estimate Estimate Appraisal Estimate and (on 3/31/73) (up to latest quarter) Quarter 1 2 3 4 (1-2) x 100 1971 let 2nd 3rd 0.5 4th 0.2 1.4 14 1972 1st 5.0 2.5 200 2nd 6.3 3.8 166 3rd 8.5 5.2 163 4th 10.6 6.6 161 1973 1st 13.0 8.1 160 2nd 15.1 9.7 156 3rd 16.7 11.4 146 4th 17.8 13.2 135 1974 1st 21.6 15.2 142 2nd 23.7 17.4 136 3rd 26.4 19.7 134 4th 28.2 21.9 129 1975 let 29.8 24.0 124 2nd 30.0 26.1 115 3rd 32.1 26.7 120 4th 32.8 27.3 120 1976 1st 33.1 27.8 119 2nd 33.7 28.2 119 3rd 34.2 28.8 118 4th 35.0 30.0 117 Closing Date: 12/31/76 6/30/76 1/ Disbursements over $30.00 million; commencing from 3rd quarter of 1975. 12/31/76 - 53 - ANNEX 6 Page 1 of 2 PROJECT COMPLETION REPORT TANZANIA KIDATU HYDROELECTRIC PROJECT FIRST STAGE Notes on Operation of Ubungo Diesel Station 1. Extension of Ubungo diesel station (Dar es Salaam) by two 7.5 MW diesel sets was part of the Project. This extension was included in the Project to avoid expected power shortage between 1972 and commissioning of the Kidatu hydro station. As was envisaged, these two sets were constructed just in time and avoid a country-wide load shedding and/or black-out. 2. However, TANESCO faced several operational problems immediately after commissioning of these two diesel sets. These problems could not be solved since Ubungo station was working as a base-load plant during the cons- truction of Kidatu hydro station. These problems might be classified into two groups as follow: (i) Manufacturers' shortcomings in specification. (ii) Quality of cooling water. Manufacturers' Shortcomings (a) Although the engines (set Nos. 7 and 8) are rated as prime mover for a load of 7.5 MW, TANESCO has seldom, if ever, been able to generate at a machine load factor in excess of 80%, i.e., 6 MW. Several fractures of fuel/lubricating oil pipes resulting from vibration were experienced and constraint in applying load had to be exercised in order to ensure a reasonable surety of supply up to a maximum of 6 MW. (b) The failure of the main lubricating oil pumps due to faulty manufacture necessitated the installation of temporary pumps. There were of different*specification although physically the same in size and the net result was a most unhealthy situation (existing to this day). of being the cause of fracturing of the main lubricating oil pipes. The original pumps are still awaiting following modification. (c) Failure of No. 8 set including broken crankshaft in 1973. The failure resulted from overspeeding which indicated that the system of overspeed control was lacking. The air inlet manifold had faulted the fuel system and so preventing the shutdown action of the fuel mechanism. The machine was repaired under contractual obligation. (d) The modification of cylinder heads became necessary after a consistent pattern of cracking developed. New type heads were supplied free of charge to overcome the problem. - 54 - ANNEX 6 Page 2 of 2 (e) Similarly, valve rotating equipment had to be modified when it was found that ineffective action resulted in exhaust valve burnout. (f) Water treatment plant on both machines was completely inadequate for prolonged application. Perhaps, the original specification for cooling should have been air to air. (g) Design change for air intercooler supports was necessary to overcome insistent fracture of aluminium transition piece leading to scavenge belt. (h) Extreme vigilance and cleaning of lubrication system is required at all times to avoid engine automatic shutdown on low lubricating oil pressure. It is thought that this particular application is unsuitable. (i) The master air starting valve and the individual cylinder air starting valves are very prone to failure due to moisture from condensation. In spite of draining the air receivers, TANESCO was embarrassed on numerous occasions in being unable to start a machine because the starting valves were stuck. The situation exists today and is overcome only by weekly cleaning of the parts. (j) In both cases, flash burns at alternator tails occurred. This was attributed to support insulator failure resulting in all insulators. (k) Further electrical failure developed to alarming rate to contactors of water pumps. For the size of the motors, the contactors appear to be grossly undersized and TANESCO's only option is a costly replacement exercise. Quality of Cooling Water Broadly speaking, the poor quality of cooling water has been largely responsible for many of the ailments at Ubungo including, of course, the performance of the engines. All coolers were affected resulting in poor performance from increased temperatures. Little or no relief was gained from the water treatment plant and the situation was somewhat aggravated by the introduction of borehole water. Therefore, in consideration of the manufacturer's short- comings already mentioned, some exoneration is due in full assessment. 3. Due to completion of Kidatu Hydroelectric Project, however, TANESCO and experts of manufacturers will definitely find enough time to solve these problems since diesel units at Ubungo station will only work for peaking and/or during emergency. - 55 - ANNEX 7 Page 1 of 5 ' PROJECT COMPLETION REPORT TANZANIA Kidatu Hydroelectric Project STAGE I Major Contractors Claims 1. Contract 2A: Civil Works, Ubungo Diesel Station 1.01 The contractor forwarded two claims for reimbursement of alleged extra costs. These were: (M) reimbursement of bank charges (dealer's charge) deleted by the contractor's bank upon receipt of certified amounts. The value was KShs 1,140.09; and (ii) reimbursement of excess customs duty paid for ventilators. The amount claimed is unknown. 1.02 These two claims were rejected as in the case of (i), the fee was charged by the contractor's own bank and thus beyond the control of the employer and in the case of (ii) the items imported were wrongly described in the importing documents and were subsequently charged with a higher duty. 2. Contract 3: Main Civil Works 2.01 The contractor was a Consortium, made.up of firms from several countries. 2.02 The contractor forwarded a great number of claims for extra cost out of which the following accepted major ones may be mentioned: (i) extra difficulties in the upstream part of the headrace tunnel; value TShs 8 million; (ii) increased cost for temporary works, overheads and profit; value TShs 5.4 million; and (iii) price escalation claim; value TShs 2 million. 2.03 TANESCO expressed dissatisfaction with its consultants on the latter's handling of the civil contractor's claims. The Bank supervision mission in late 1973, noting TANESCO's dissatisfaction suggested the need for an independent claims expert to advise TANESCO. Acting on this suggestion, TANESCO hired the services of a claims expert to review the claims. On the basis of the recommendations from the claims expert, TANESCO called the civil contractor for negotiation and reduced the sub- sequent claims by about 50%. ANNEX 7 - 56 - Page 2 of 5 2.04 The civil contractor also made several other claims, due to various reasons (variation orders, custom duties and taxes, purchase of plant and equipment, daywork orders, etc.). Their total value was about TShs 30 million. Most of them were rejected by TANESCO. 2.05 Variation orders were the orders to the contractor to do extra work or to change the design of certain features which the engineer had been able to issue as peremptorily as he had settled the claim. Many of them were not controversial but they led to higher than estimated costs. Furthermore, some variations orders appeared to reflect techno- economic procedures and practices which could be considered less than opti- mal. Two of them are described as follows: Variation Order No. 15 This involved a substantial change in the design of the dam due to the poor rock conditions mentioned in the text. The poor rock was not suitable for a rock-fill dam on account of the possibilities of settlement. Although the specifications said rock would be available from the excavating headrace tunnel and there was good rock at the headrace adit six kilometers away, the consultant decided to substitute a silty-sand fill for rock in the upsteam half of the dam from a borrow pit immediate- ly adjacent to the dam. This change increased project costs by way of claims from the contractor, since the consultant's pro- posed method of settling the claim was to provide an embankment costing no more than the original. This type of settlement ignores actual costs. It also ignores the fact that it left TANESCO with a slightly inferior type of dam. Furthermore, TANESCO was charged for the haul of some rock from the 6 km tunnel adit, although the specification said the haul cost was included in the price of rock. Again this change increased pro- ject costs by way of claims from the contractor. Variation Order 1 As a preliminary work,another contractor built an access road to the site at a cost of TSh 8.7 million. The road was damaged by rain before the present contractor came on the job and V.0. No. 1 was issued to settle a claim for repairs and delays at a cost of TSh 4.85 million. The consultants' reason for high repair bill was that there were not enough funds available to do a good job in the first instance and they expected consider- able damage. This was not the optimum procedure, considering the known severity of the rainy seasons. The procedure led to the main contractor making a claim and TANESCO agreed to pay. If it were important to expedite the start of construction, a better way would have been to build a good road for part of the distance. 2.06 One major expense under the contract remains unsettled and it appears difficult to finalize this issue to the satisfaction of the parties to the contract. The matter concerned refers to increased and new taxes which the contractor has had to pay to the Income Tax Department. Under the terms of the contract there is a provision that if changes in laws and regulations resulting in extra costs are effected during the contract period, the net amount shall be credited or debited to the contractor as the case may be. During the course of construction a withholding tax was introduced - 57 - ANNEX 7 Page 3 of 5 and the company tax was increased. The net affect of these changes were assessed by the Income Tax Department to T Shs 5,171,833 out of which T Shs 420,080 has been reimbursed by the employer. The net amount at present remaining unpaid is thus T Sha 4,751,753. 3. Contract 5 - Penstock Steel Linings and Gates 3.01 The Contractor forwarded the following claims for reimburse- ment of extra costs. (i) Repair of damage to penstock steel lining caused by falling stone in penstock no. 1. The incident took place during works by the Civil Works Contractor and the cost for the repair has been deducted in Contract 3. The amount awarded is T Shs 19,193/-. (ii) As a result of incorrect casting of parts of the concrete in the intake front, the Contractor incurred extra expenses due to jack- ing-in and out operations of the trash-racks. This extra cost has been deducted in Contract 3. The amount awarded is T Shs 15,181/-. (iii) Due to incorrect setting out of the concrete structure and during embedding of frames for trash-racks, it became necessary to cut away bolt-heads on the trash-racks. The extra cost on account of this work is T Shs 7,665/-. The value of above claims have been deducted from the Contract price of Contract 3. (iv) The Contractor has forwarded three more claims which are being dealt with at present. The following matters are concerned: a) delayed payment of Interim Certificates, Clause 3:40.2. I/ b) delayed return of guarantees provided for advance payments certified in accordance with Clause 3:37.5. 1/ c) delayed return of Performance Bond. It has been found that in principle the claims have contractual support and have provisionally assessed the total value of the above-mentioned claims to be T Shs 120,000/-, against a total claimed amount of approximately T Shs 173,654/-. 4. Contract 6 - Turbine and Crane 4.01. The Contractor has forwarded a number of claims which are being dealt with at present. The following matters are concerned: (i) delayed payment of Interim Certificates, Clause 3:40.2; (ii) delayed return of guarantees provided for advance payments certified in accordance with Clause 3:37.5; 1/ (iii) delayed return of Performance Bond; 1/ l/_ TANESCO states that it has rejected this claim and the contractor has been informed accordingly through TANESCO's conantants. - 58 - ANNEX 7 Page 4 of 5 (iv) reimbursement of costs in connection with repairs of guide-vanes in June, 1976. 1/ 4.02 It has been found that in principle the claims have contractual support and have provisionally assessed the total value of the above- mentioned claims to be T Shs 128,000/-, against a total claimed amount of approximately T Shs 181,000/-. 5. Contract 7 - Generator 5.01 The Contractor has forwarded claims for reimbursement of-extra costs in the following matters: (i) delayed payment of Interim Certificates, Clause 3:40.2. (ii) delayed return of guarantees provided for advance payments certified in accordance with Clause 3:37.5. 1/ (iii) delayed return of Performance Bond. 1! 5.02 It has been found that in principle the claims have contractual support and are at present in the process of evaluating the contractor's entitlements which we have provisionally assessed to be of the order of T Shs 34,000/- against a total claimed amount of 55,530/-. 6. Contract 8B - 220-kV Cables 6.01 The Contractor forwarded for reimbursement of extra costs caused by the irregular shape of the vertical cable-shaft. The claim was settled in the amount of T Shs 42,590/-. As the defect in the cable- shift was caused by incorrect concreting on the part of the Civil Works Contractor, the same amount was deducted from the Contract sum for CD3. 6.02 The contractor claimed reimbursement of costs due to increased cost for local labor, all in accordance with clause 3:48.2. The amount on this account is T Shs 3,454/-. 7. Contract 11 - Transformer, Ubungo 7.01 Some defective Darts had to be replaced during the main- tenance period. The contractor provided new parts and the employer erected the same. In view of this erection work being carried out by the employer, which rightly should have been done by the contractor, a deduction of T Shs 35,420/- from the contract sum was made. 8. Contract 12 - 132 kV Substation 8.01 In accordance with the contract, the employer shall reimburse the contractor for taxes and duties if imposed. The total amount paid in this respect is T Shs 157,057/-. 1/ TANESCO states that it has rejected this claim and the contractor has been informed accordingly through TANESCO's consultants. - 59 - ANNEX 7 Page 5 of 5 8.02 Due to the considerable delay in completion, Liquidated Damages amounting to T Shs 278,799/- have been deducted from payments due to the Contractor. 9. Contract 13 - Air Conditioning Plant 9.01 One claim has been forwarded by the contractor and this in respect of price adjustment for labor wages in accordance with Clause 3:48.2. The claim has been rejected on grounds of being based on incorrect assumptions and being totally unrealistic. The amount claimed is T Sh 152,801/- (later on revised to T Shs 86,397/90) whereas the probable size of adjustment is about 15,000/-. Since rejection of the claim no comments have been received from the contractor and at this late stage it is not likely that the matter will be brought up again. 9.02 On account of a mistake in preparation of Interlim Certificate No. 14 an overpayment of T Shs 35,610/-, due in local currency, has been made. The Contractor has been instructed to repay this amount to the employer. The outstanding amount is covered by the Bank Guarantee. 10. Contract 14 - Cooling Water Plant 10.01 In accordance with Clause 3:48.2 the contractor 'claimed compensation for increased costs of labor wages. The total cost is T Shs 6,170/-. No other claims have been fowarded. 11. Contract 16 - Bush Clearing of Kidatu Reservoir 11.01 The contractor forwarded a claim in respect of compensation for increased labor wages, all in accordance with the Conditions of Con- tract. The total cost is T Shs 13,140/-. 12. Contract 18 - Security Financing 12.01 The contractor has forwarded one claim in respect of extra costs incurred due to not being given access to the whole of the site in time to complete the works according to the program. In principle the claim is justified and is now being considered by the employer. A reasonable final amount is about T Shs 50,000/-. 13. Contract 19 - Staff Houses, Civil Works 13.01 One claim was submitted, referring to work items for which rates had been given but which were never used as the work in question was not deemed necessary for completion of the works. The amount awarded is T Shs 12,000/-. TANZANIA TANZANIA ELECTRIC SUPPLY COMPANY LIMITED Comparative Income Statements 1970-1976 (T Sh Thougand) 1970 1971 1972 1973 1974 1975 1976 Appraisal Appraisal Appraisal Appraisal Appraisal Appraisal Appraisal Year Ending December 31 Estimate Actual Estimate Actual Estirate Actual Estimate Actual Estimate Actual Estimate Actual Estimate Provisional Units generated (million kWh) 399 398 450 426 529 472 585 515 641 536 706 558 796 590 Units sold (million kWh) 340 341 382 370 452 404 500 431 548 459 603 486 680 500 Average Revenue per kWh (T cent) 22.61 22.83 22.00 22.82 21.02 23.72 20.61 26.14 20.35 30.72 20.07 31.84 19.60 38.20 Operating Revenue Sale of Energy 76,866 77,748 84,038 84,417 95,031 95,814 103,030 112,778 111,535 141,044 121,019 154,849 133,275 191,000 Other Operating Revenue 1 1 1 1 2 1 2 2,73 2,58 (1,184) 2,880 1,587 3 1 Total Operating Revenue 7 7973 85.868 8 97,111 96,861 105,360 115,451 114,115 139,860 1, 156,436 136.455 12745 Operating Expenses Generation 14,637 14,718 15,080 15,643 18,193 18,668 20,351 25,210 24,235 66,517 23,071 53,901 23,043 43,290 Transmission and Distribution 5,361 5,386 5,646 5,177 5,769 5,377 6,288 5,473 6,639 7,352 7,014 9,341 7,414 10,275 Administration 10,754 11,844 11,399 13,433 12,015 14,317 12,821 17,796 13,798 26,173 15,183 35,666 15,297 40,293 Depreciation 14,278 13,795 16,000 14,701 17,263 14,849 18,406 15,824 19,935 17,012 26,884 21,842 34,702 44,108 Income Tax 7,910 8,855 9,776 11,011 13,298 13,961 15,438 16,755 16,150 6,323 2,120 2,428 2,181 - Exchange Losses - - - - - - - - 2,891 - - Total Operating Expenses 5 5 5 6 6,17 7 8 8075 1 74,272 126,069 82.637 137.966 0 Operating Income 2 2 27,967 240 3 2 3 3 3 1 496 30,367 53,818 54,779 Other Income 320 405 400 497 600 471 500 91 200 287 - 563 200 - Total Income Before Interest Charges 2576 2 28,367 2,0 31,353 30,16 3 3 33,558 1 4 30.930 54,018 54779 Interest Charges 5,733 5,618 9,811 6,574 12,204 12,394 16,160 25,093 21,554 33,947 25,602 43,639 27,694 35,698 Less Interest charged to Construction - - 3 847 6 6 1,61 1 16.522 2 9 30,733 735 622 Interest charged to Operation 5 5 6 527 5,781 5 5,399 5,413 50 5 1569 12,906 2 9 35,076 NET INCOME 20,143 19,925 22,032 21,173 25,572 24,198 27,157 29,071 28,526 11,544 33,937 18,024 27,059 19,703 Less Net Income Allocation - Dividends - 7,839 7,507 8,872 7,839 10,339 8,435 12,306 11,356 15,106 - 16,106 - 16,390 18,025 Provisions or deferred Income Taxes 3,6 2,882 31 2 2 2 1 2,999 1,942 6 1 1 9 Balance to Surplus 8 9 9 1 1 1 1 14,716 1 4,0 5,239 24 676 (19.993) Rate of Return % (operating income to average net fixed assets in operation valued at historical costs) 10.1 10.3 10.1 10.4 10.8 11.7 11.3 13.4 11.7 6.3 9.3 4.6 6.9 4.2 Operating Ratio % 67.4 69.5 67.4 69.4 68.5 69.3 69.6 70.2 70.8 88.2 59.9 80.6 60.6 80.6 IBRD March 1977 TANZANIA TANZANIA ELECTRIC SUPPLY COMPANY LIMITED Comparative Balance Sheets 1970-1976 (T Sh Thousand) 1970 1971 1972 1973 1974 1975 1976 Appraisal Appraisal Appraisal Appraisal Appraisal Appraisal Appraisal Year Ending December 31 Estimate Actual Estimate Actual Eattmate Actual Ectimate Actual Estimate Actual Estimate Actual Estinate Provisional ASSETS Fixed Assets Gross Fixed Assets in Operation 395,097 374,367 423,461 390,027 441,561 406,752 461,361 425,321 482,961 444,815 1,001,838 1,228,249 1,038,049 1,373,777 Less: Accumulated Depreciation 125.295 123.760 141,25 138,133 158,558 152.748 176,964 168.143 196.899 1 223.783 200.618 2,8,485 250,726 Net Fixed Assets in Operation 269,802 250,607 282,166 251,894 283,003 254,004 284,397 257,178 286,062 259,983 778,055 1,021,631 779,564 1,123,051 Work in Progress 25.922 29,112 6 1 1720 254,066 274.011 415,970 429,033 706.718 114 11,2 1716 131.273 Total Fixed Assets 295.724 279.719 351.993 367.672 440.253 508,070 558.408 6 715.095 96d71 789,198 1 796.731 1,254.324 Current Assets Cash 5,089 15,806 15,200 5,311 19,514 5,633 18,969 11,163 10,105 4,456 500 21,044 643 - Accounts Receivable 8,549 11,111 9,457 14,765 10,577 19,629 11,414 22,051 12,292 31,173 13,251 40,392 14,467 55,528 Inventories 18,000 21,117 20,500 34,964 23,000 35,198 25,500 34,702 28,000 46,903 35,000 65,587 39,000 72,025 Others 100 269 100 339 100 218 100 904 100 55 100 1.682 100 1,682 Total Current Assets 128,705 54.210 129.235 TOTAL ASSETS 327,660 328,022 397,250 423,051 493,444 568,748 614,391 741,968 765,592 1,049,288 838,049 1,262,765 850,941 1,383,559 EQUITY AND LIABILITIES Equity Share Capital 117,586 112,598 133,086 117,586 155,086 170,693 184,586 225,153 226,586 357,098 241,586 511,131 245,846 570,415 Surplus 10,387 1,186 20,355 1,462 32,975 1,121 45,987 837 57,465 698 62,704 721 63,380 (19,272) Capital Reserve 3,140 3,140 3,140 6,331 3,140 6,331 3,140 6,331 3,140 6,331 3,140 8,907 3,140 8,907 3 Development Reserve 20,000 30,000 20,000 41,000 20,000 55,000 20,000 70,000 20,000 75,000 20,000 75,000 20,000 75,000 Currency Revaluation 10.643 10.643 1 2.484 1 5.54 10.643 5,3 10.643 1.711 10.643 1 - Total Equity 161,756 157,567 187,224 168,863 221,844 238,689 264,356 308,256 317,834 440,838 338,073 595,759 343,009 635,050 Long-Term Debt Long-Term Debt Gross 98,271 89,011 133,914 159,357 187,352 242,916 258,431 323,867 349,800 449,889 377,060 522,353 395,748 559,646 Less: Current Maturities 7.556 7.541 5 5.402 54 4.974 5.131 4 5 5,034 13.052 13.650 13.887 20.965 Long-Term Debt Net 90.715 81.470 128,352 153.955 181.931 237.942 253.300 9 3 444.855 364,008 508,703 381.86 5861 Current Liabilities Accounts Payable 22,540 37,920 27,027 51,031 31,830 39,051 36,347 57,803 39,659 91,340 46,100 65,498 28,800 69,619 Current Maturities 7,556 7,541 5,562 5,402 .5.421 4.974 5,131 4,906 5.240 5,034 13,052 13,650 13,887 20.965 Bank Overdraft - - . - - -15,876 Total Current Liabilities 30.096 45.461 32.589 5 37.251 44.025 4 6 4 10397 63.877 79.148 42.687 106,460 Contribution in Aid of Construction 16.464 15,579 17.264 13.797 18,164 15.895 19,164 1 20,264 17.714 21.464 1 22.764 21.787 Accumulated Deferred Income Taxes 28,629 27.945 31.821 30,003 34,254 3 36,093 35.226 3 491 50.627 5 60,620 81.581 TOTAL EQUITY AND LIABILITIES 327,660 328,022 397,250 423,051 493,444 568,778 614,391 741,968 765,592 1,049,288 838,049 1,262,765 850,941 1,383,559 Debt/Equity 38/62 36/64 42/58 48/52 46/54 50/50 49/51 51/49 52/48 50/50 53/47 46/54 54/46 46/54 Current Ratio 1.06 1.06 1.38 0.98 1.42 1.37 1.34 1.09 1.12 0.79 0.76 1.62 1.26 1.21 j Valued at Historial Costs. IBRD March 1977 TANZANIA TANZANIA ELECTRIC SUPPLY COMPANY LIMITED Comparative Funds Flows Statements 1970-1976 (T Sh Thousand) TOTAL 1970 1971 1972 1973 1974 1975 1976 1970-1976 Appraisal Appraisal Appraisal Appraisal Appraisal Appraisal Appraisal Provi- Appraisal Year Ending December 31 Estimate Actual Estimate Actual Estimate Actual Estimate Actual Estimate Actual Estimate Actual Estimate sional Estimate Provisional SOURCESOOF FUNDS Internal Cash Generation Operating Income 25,556 24,759 27,967 27,521 30,573 29,689 32,056 34,484 33,358 16,770 49,627 30,930 53,818 54,779 252,955 218,932 Depreciation 14.278 13.931 16.000 14,787 17,2 14,849 18,406 15,824 19.935 17.012 2 142 Sub-Total 3,834 38i690 4,967 42,308 47,836 44.538 5,42 5,308 5,23 33.782 7,511 5,772 8,520 98,887 400,423 361,285 Long-Term Borrowings ZERO Loan 715-TA & 2TA/Kidatu I - - 27,232 44,645 42,126 63,385 54,621 63,900 62,475 80,725 14,994 44,095 12,752 11,967 214,200 308,717 SIDA Loan/Kidatu I - - 10,908 17,980 16,874 25,289 21,879 22,320 25,025 44,052 6,006 23,830 4,988 17,967 85,680 151,438 Others 19.908 10.879 5.059 7,269 - ,613 - 000 1.981 11.2 4,67 ,000 19,942 ,467 48,355 Sub-Total 19,908 10,879 43,199 69,894 59,000 92,287 76,500 86,220 96,500 126,758 23,500 72,596 31,740 49,876 359,347 508,5ii Government Equity Contribution ,500 ,500 .1Q500 .4, 22L000 53,107 295 54.460 42,000 131.946 15J000 154,02 ,260 59,284 134,760 464,317 Other Receipts 1 1,033 1.200 2,223 1,500 ,569 1.500 921 1.300 898 1.IZQ ,031 ,500 ,541 ,87 17216 TOTAL 67,859 57,102 103,866 119,413 130,336 192,501 157,962 191,909 193,093 293,384 125,211 286,431 126,020 210,588 904,347 1,351,256 APPLICATION OF FUNDS Construction Expenditures Kidatu I Project 12,097 5,393 46,500 76,999 81,000 132,751 106,000 129,980 123,500 155,606 30,000 122,444 20,000 31,883 419,097 655,056 Other Capital Works 32,794 22,792 22,293 24,392 18,100 28,328 19,800 31,324 36,600 126,236 41,075 36,059 41,500 131,867 212,162 400,998 Interest During Construction - - 3.476 847 ,42 6.432 10,761 168 16.522 28.721 9,912 ,73 735 622 4,829 87,035 Sub-Total 44,091 2 72,269 102.238 105,523 167211 136.561 180,984 176.622 310.563 80.987 189,236 7.235 164.372 679,088 1.143.089 Debt Service Exluding IDC Amortization 6,235 6,384 7,556 7,565 5,562 5,312 5,421 5,198 5,131 4,960 5,240 4,733 13,052 12,582 48,197 46,734 Interest Charged to Operation ,733 ,18 ,335 5,727 ,781 ,962 5,399 5413 5.032 5.226 15.690 1290 225 35.076 70.929 ,928 Sub-Total 11,968 12, 13.891 13.29 11,343 11.274 10.820 ,611 10.163 10.186 2,930 1,639 40,011 47,658 119,126 122,662 IncreAse in Working Capital 3.161 9.409 8,834 (4,027 3,131 841 11725 (11.042 (8.798) (27.365) 7.188 79255 7,384 (19.467) 19,175 35A40 Dividends Paid 7-839 7-506 ,872 7.839 10233 435 ,306 11.356 15-106 - - 16.390 18.025 86,958 53,161 Others - - - - (3-60 - - - - -- - - - - (3060) TOTAL 67,859 57,102 103,866 119,342 130,336 192,501 157,962 191,909 193,093 293,384 125,211 286,431 126,020 210,588 904,347 1,351,256 -=-- --- ---.......-- - - - - - - = ...=... --=-- =_- - -.. Debt Service Coverage 3.3 3.2 2.5 3.0 2.7 2.5 2.3 1.7 2.0 0.9 2.5 1.1 2.2 2.0 IBrD March 1977 INCREMENTAL FINANCIAL RATE OF RETURNI/ (All figures in T Sh. millions unless otherwise stated) ----- Capital Costs ----- Add'l Oper. & Total Energy Revenues Puel Net Year Kidatu I Kidatu II Transmission Maint. Costs SOld From Energy Cost- Revenues Distrib Costs (GWh) Sales Savings (A) (B) (B) (B) (B) (B) (B) (B) (B) 1970 5 10.0 10 - 10 71 77 147.4 147 - 147 72 133 236.5 237 - 237 73 130 209.5 9 219 43 (19 - 200 74 156 210.2 12 222 64 (29 - 193 75 122 130.4 12 142 86 (39 10 - 93 76 32 32.0 53 145 20 118 53 18 - 179 77 115 - 20 135 146 66 25 - 44 78 222 - 20 242 214 96 25 - 121 79 222 20 20 262 280 126 20 - 116 80 137 25 182 366 165 10 - 27 81 45 454 204 - 159 82 544 245 - 200 83 614 276 231 m 84 684 308 263 85 754 339 294 86 824 371 326 87 894 402 357 88 964 434 389 89 20 4' 45 1032 464 419 .12990-2004 25 439 2005 60 85 379 2006-2009 25 ' 439 2010 60 85 379 2011-2020 25 25 439 (Equalizing Discount Rate -'; 12% ) 1/ Costs and Revenues are actual through 1976 and estimated thereafter. Tariff @ TC 45/kWh throughout. (A) Current prices. (B) 1976 prices. s U G A N D A 32 TANZANIA 40* -- VTANZANIA ELECTRIC SUPPLY CO., LTD. KENY A LICENSED SUPPLY AREAS TRANSMISSION LINES POWER STATIONS k 4 - ---.. Exustmg 132KV A Ex,st,ng the,mai stations R W A N D A Exsting 66KV E Existing hydro stations - - E-st,ng 33KV Existing bulk purchose ---- Pr,o cted 220KV O Projecled ihermal stotions - A ProI@estes Loke Nolron Future extensjon to prolect - Olher potentiol hydroelectr c sres B UR U N D ,,.I,, Loke · - - M . Ey ( .- I_ -2 :'- m. 4 Urombo S n-!-o- ,r .. p r . Rungy a ."I"' DEMOCRATIC REPUBLIC \ AE- OF THE \RuKWÅ -- 8~CONGO TGLR ý;MAI -ILE CO¯KINGENEENA RGE .---S---URI Njornb alny, NYANGAZI NMKASA A F R l C A uTAE A ratwara 100 200 300 KILOMETERS Tunduru O 50 100 150 200 3.. MILES 32MALAW11 MOZAMBIQUE JUL 369 40R JULY 1970 IBRO 2995R1 (PCR)