Jordan - Third Power Project

Document of The World Bank fE cm" FOR OFFICIAL USE ONLY Report No. 2366-Jo STAFF APPRAISAL REPORT JORDAN THIRD POWER PROJECT March 23, 1979 Projects Department Europe, Middle East and North Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Jordan Dinars (JD) JD 1 = 1,000 fils JD 0.30 = US$1.00 JD 1.00 = US$3.30 WEIGHTS AND MEASURES 1 meter (m) = 3.281 feet (ft) 1 kilometer = 0.621 mile 1 square kilometer (km2) = 0.386 square mile (mi2) 1 cubic meter (m3) = 35.315 cubic feet (ft3) 1 kilogram (kg) - 2.205 pounds (lb) 1 ton (1,000 kg) = 1.102 short ton (sh ton) 0.984 long ton (lg ton) 1 barrel (bbl; 0.159 m3) = 42 US gallons (gal) 1 kilowatt (kW) = 1,000 Watts (W) 1 Megawatt (MW) = 1,000 kW 1 kilowatt hour (kWh) = 1,000 Watthours (Wh) 1 Gigawatt hour (GWh) = 1,000,000 kWh = 1,000 MWh (=106kWh) 1 kilovolt (kV) = 1,000 volts (V) 1 kilovolt ampere = 1,000 volt amperes (1 kVA) 1 Megavolt ampere = 1,000 kVA 1 kilocalorie (kcal) - 3.969 British thermal units (4.2 kilojoules) (Btu; 1 Btu 0.293xl0-3kWh) GLOSSARY OF ABBREVIATIONS JEA - Jordan Electricity Authority IDECO Irbid District Electricity Company JEPCO - Jordanian Electric Power Company JNEC - Jordan National Energy Committee NPC - National Planning Council JVA - Jordan Valley Authority NEEB - North Eastern Electricity Board of UK PCR - Preece, Cardew & Rider UK - United Kingdom Financial Year = Calendar Year  FOR OFFICIAL USE ON LI JORDAN THIRD POWER PROJECT Table of Contents Page No. I. THE POWER AND ENERGY SECTOR ............ ..1............ A. Energy Resources ................................ 1 Indigenous Resources .................. ...1....... Oil Imports ...........................1.......... Consumption Trends ...... ..................... 2 Organization ....... ........................ 2 Energy Policy ................................... 2 B. The Power Subsector ............................. 3 General ....................................... 3 Organization .................................... 4 The Jordan Electricity Authority (JEA) .......... 4 The Jordanian Electric Power Company (JEPCO) .... 5 The Irbid District Electricity Company (IDECO) .. 5 Historical Development ...... .................. 5 Development Program ...... .................... 7 Generation . .......................... 8 Interconnection with Syria and Transmission Network ....................................... 8 Rural Electrification . . ....................' 9 Development Program Costs ..... ................. 9 Role of IDA/Bank ....... ......................... 10 C. The Beneficiary ................................. 10 Organization and Management .................. ... 10 Manpower ... 11 Training ... 11 Tariffs ......................................... 11 This report was prepared by Messrs. V. Mastilovic' (Engineer), W.G. Hamlet (Financial Analyst) and T.B. Russell (Economist). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (Continued) Page No. II. THE PROJECT ......................................... 13 Objectives .......................................... 13 Description .......................................... 13 Transmission Lines .................................. 13 Substations ......................................... 14 System Operations Control Center .... ................ 15 Rural Electrification ............................... 15 Status of Engineering ............................... 15 Training Program .................................... 16 Projet Cost Estimate ................................ 16 Project Financing Plan .............................. 17 Implementation ...................................... 18 Procurement ......................................... 18 Disbursements ....................................... 19 Environmental Aspects ............................... 19 III. FINANCE .20 Introduction .20 Past Performance and Present Position .20 Accounting .20 Billing .21 Accounts Receivable .21 Auditing .21 JEA's Financing Plan and Fund Statement .22 Financial Forecast .23 Revaluation of Assets .23 JEA's Debt Service Coverage .24 Insurance .24 JEPCO's Financial Statements .25 IV. PROJECT JUSTIFICATION ..26 A. The Power Market .26 Past Trends ....... ............................. 26 Load Forecast ..... ............................. 26 Northern Region .27 Central Region .27 Northern/Central Regions Interconnected 28 B. Comparison of Alternatives .28 Northern Region .28 Central Region .29 Northern and Central Regions Combined 29 C. Return on Investment .29 V. AGREEMENTS REACHED ..30  Table of Contents (Continued) ANNEXES 1.1 Generation, Consumption and Peak Loads (1971-1977) 1.2 JEPCO - Basic Statistical Data 1.3 IDECO - Basic Statistical Data 1.4 Access to Electricity Supply 1.5 Existing Generating Plants 1.6 Forecast Energy Balances (Total Power System) 1.7 Forecast Balances of Energy and Capacity (Interconnected System) 1.8 Forecast of Sales per Consumer Categories 1.9 Development Program Costs 1.10 (W.B. 19609) JEA's Organization Structure 1.11 Staffing Situation 1.12 Electricity Bulk Supply Tariffs 1.13 Retail Electricity Tariffs 2.1 Project Cost Estimate 2.2 (W.B. 19608) Transmission and Distribution Department Organization Chart 2.3 (W.B. 19708) Project Implementation Schedule 2.4 Estimated Schedule of Disbursements 3.1 Combined Income and Expense Statement 3.2 Combined Balance Sheet 3.3 Sources and Applications of Funds (1978-1985) 3.4 JEPCO's Income and Expense Statement 3.5 JEPCO's Balance Sheet 3.6 JEPCO's Sources and Applications of Funds (1978-1983) 3.7 Forecasts of Revenues for Electricity Sales 3.8 Existing Loan Agreements 3.9 Assumptions for Financial Forecasts 4.1 Load Forecast for Northern and Central Regions 1981-1995 4.2 Low Forecast of Required Generation for Northern and Central Regions, 1981-1995 4.3 Technical and Economic Assumptions 4.4 Return on Project 5 Selected Documents Available in the Project File MAP - IBRD 13999R  I. THE POWER AND ENERGY SECTOR A. Energy Resources Indigenous Resources 1.01 Jordan has no coal deposits nor any known reserves of oil or natural gas. The only indigenous energy resources consist of oil shales, a small hydropower potential, and geothermal and solar energy. There are an estimated 10,000 million tons of oil shale rocks, particularly in the area of Al-Lajjoun near El Hasa, with a potential oil content of 65-70 liters per ton. There is no commercially proven technology for the extrac- tion of oil from these shales and there are also serious environmental and financial obstacles to their development. However, a program of work aimed at a full-scale feasibility study of their exploitation is under discussion with German aid. The hydro potential is confined to about 2 MW at the King Talal Dam on the River Zarqa and a possible 20 MW at the proposed Maqarin Dam near the Syrian border. There are geothermal occurrences, particularly in the north of the country, but no estimate of the potential exploitable geothermal resources. The first phase of a UNDP study of two promising areas is under way, to be followed by exploratory drilling and, if this is sufficiently pro- mising, by a development program. Solar energy is another potential resource, in view of the favorable climatic conditions. The Royal Scientific Society of Jordan is carrying out some solar energy research, and an experimental solar research station has been established at Aqaba. Three firms have started production on a small scale of solar water heaters, for which there could be a considerable internal market. 1.02 A search is under way for possible uranium deposits, including a scintillometer survey (with the help of the International Atomic Energy Agency) of all phosphate areas, and a radiometric survey to be carried out as part of a geophysical survey with USAID financing. It is too early to judge the prospects of exploitable discoveries. Oil Imports 1.03 At present Jordan is entirely dependent on imported oil for its commercial energy needs (non-commercial energy sources, such as firewood, and animal and vegetable wastes are relatively insignificant). Under the agreement with the Trans-Arabian Pipeline Company for the transit by pipe- line across North Jordan of crude oil from Saudi Arabia to the Mediterranean, Jordan is entitled to draw crude oil for its own requirements through two connecting pipelines to a refinery at Zarqa. The refinery has a present maximum capacity of 1.3 million tons annually, but expansion currently under way will increase this to 3.75 million tons in 1979. The output of the expanded refinery is expected to meet local requirements to beyond 1985.  -2- Consumption Trends 1.04 The crude oil is processed at the refinery into petroleum products, the great bulk of which are consumed internally, including fuel oil and gas oil for electricity generation. Consumption has been expanding rapidly, from 659,000 tons in 1973 to 1.135 million tons in 1977 (14.6% p.a.) and, according to a Jordanian forecast, is projected to reach nearly 3 million tons by 1985 (12.6% p.a.). About 100,000 - 150,000 tons p.a. of products, mainly gasoline, kerosene and gas oil, are expected to be available for export in the early 1980s. 1.05 Per capita consumption of commercial energy in Jordan reached 527 kilograms of standard coal equivalent 1/ (kgce) in 1976 (the latest year for which comparable international data are available). This compares with 744 kgce for Syria, 456 kgce for Tunisia, 533 kgce for Lebanon and an average for all developing countries of 426 kgce. Organization 1.06 The two main organizations in the energy sector are the Jordan Oil Refinery Company and the Jordan Electricity Authority (JEA). JEA's organiza- tion and responsibilities are described below (para 1.12). The Jordan Oil Refinery Company is a private company, subject to Government control over policy and planning, which is responsible for importing crude oil and for processing, distribution and marketing of petroleum products in Jordan. 1.07 Other institutions concerned with energy matters are the National Planning Council (NPC), the National Resources Authority, the Royal Scientific Society and the universities of Jordan and Yarmouk. The National Resources Authority's activities include exploration for oil and gas, and for other energy sources including nuclear materials. The Royal Scientific Society carries out research on solar energy (para 1.01), and the universities also do some energy research, notably on oil shales. Energy Policy 1.08 The Government is aware of the importance of the energy sector in the national economy and of the need for a sound development strategy for the sector to meet future energy requirements. Following a review of national energy problems in 1977, the Jordan National Energy Committee (JNEC) was established to coordinate and direct national energy plans and policies. Its membership includes representatives of all the institutions concerned with energy matters referred to above, and the chairman is the Minister of Industry and Commerce. JNEC has an important role to play in the development of a national energy policy, including verification of the appropriateness of the proposed power development program. 1.09 The proper management of imported energy, including internal pricing policy, and active exploration for exploitable indigenous energy resources deserve particular attention. The exploration already carried out (para 1.07) 1/ 1 kg standard coal equivalent = 7,000 kilo calories.  -3- has not produced enough information to assess the prospects of discovering energy resources suitable for development, and their possible impact on future sectoral strategy. However, a recent Bank paper 1/ put Jordan in the category of countries with 'low' potential petroleum resources (i.e., less than 100 million barrels), although it suggested that there was scope for increased exploration and additional geophysical surveys to verify this. With regard to fuel pricing policy, JNEC is expected to address this issue as one of its first priorities. The internal prices of petroleum products, which are con- trolled by the Government, are not necessarily related to international prices, although the price paid by Jordan for imported crude oil (about $12.70/barrel at the time of appraisal) is based on the world market price. In accordance with Government policy to keep down the cost of essential fuels to domestic, commercial and industrial consumers, the prices of kerosene, gas oil and residual fuel oil are heavily subsidized compared with international levels, whereas the prices of gasoline and jet fuel are well above world market prices. This policy was discussed during negotiations and the Borrower confirmed that JNEC would complete proposals for energy sector development strategy, including an energy conservation program and fuel pricing policies by the end of 1979. As a part of the Bank's continuing dialogue with the Government on energy sector development strategy and fuel pricing policy, the Government would inform the Bank when JNEC has completed its work and would discuss in due course JNEC's findings and proposals with the Bank. B. The Power Subsector General 1.10 The generation of electricity in Jordan was started by a number of private and municipal organizations. Prior to the creation of JEA in 1967, two investor-owned power companies, the Jordanian Electric Power Company (JEPCO) and the Irbid District Electricity Company (IDECO), were responsible for major power supply in the Northern region of Jordan. This region includes the areas supplied by JEPCO, IDECO, the Jordan Valley Authority (JVA) and some areas supplied directly by JEA. The Central region of Jordan has two main load centers in the town of Karak and at the phosphate mine at El Hasa, each supplied by its own power plant. The Southern region has one main load center in Aqaba which is to be developed as a tourist center and as the only seaport for Jordan. Power system integration, which has been almost completed in the Northern region of Jordan, will further expand southwards to interconnect the Central and Southern regions subsequently (see Map 13999). Several small towns and villages in the Central and Southern regions have their own generating sets, which operate a few hours a day to supply mostly lighting loads. 1/ "A Program to Accelerate Petroleum Production in the Developing Countries".  -4- Organization 1.11 The Ministry of Industry and Commerce controls the power subsector. The General Electricity Law, passed in 1976, defines the principles and basic regulations for generation, transmission and distribution of power in Jordan and also specifies the procedures for tariff approval, inspections, procure- ment, granting of licences for power facilities, collection of statistical data and preparation of technical information. Although the law deals primarily with JEA's responsibilities, it also defines the basic rights and obligations of JEPCO and IDECO concerning their public power supply activities. The Jordan Electricity Authority (JEA) 1.12 JEA was established by Law No. 21 in 1967 to foster the coordinated development of the country's power subsector. Its role was reinforced by the General Electricity Law No. 8 (1976). According to this law, JEA is respon- sible for power generation, transmission and distribution as well as the regulation of the power consumption in the country. The law provides that JEA should be independent both financially and administratively. JEA has a board of eight directors appointed by the Government for a period of three years. The Minister of Industry and Commerce is the Chairman of the Board and the President of NPC the Vice-Chairman. The Director General of JEA is an ex- officio member of the Board. The Board is responsible for formulating JEA's general policy, securing internal and external loans with the Government's approval, employing experts, advisors and agents, proposing JEA's yearly budgets for the Government's approval, awarding contracts and proposing regulations for the power subsector. 1.13 JEA is authorized under the General Electricity Law to grant licences for the generation, transmission and distribution of electricity in the country, to supervise all power facilities and to issue instructions and rules related to the generation, transmission, distribution, consumption and sale of power in all areas of Jordan. JEA is also authorized to manu- facture electrical and other equipment needed for its system. JEA has already proved its competence in carrying out its responsibilities. 1.14 Distribution systems may continue to be owned by investors though JEA may take these over by mutual agreement, subject to the Government's approval. It is probable that JEA will take over IDECO (para 1.16) and some other small municipal enterprises which cannot perform their power supply role adequately and that it will ultimately assume responsibility for all power supply in Jordan except in the Amman area, where JEPCO will remain responsible for power distribution. JEA's organization has developed along sound lines and is moving in the right direction. JEA's partial involvement in distribu- tion activities, outside the Amman area, and its more active role in promoting rural electrification schemes is justified. It would not be sensible to have many small separate enterprises in charge of small towns and village electri- fication, where Government's financial support is still required. The present set-up in the power subsector, with JEPCO continuing to exist alongside JEA, is considered to be satisfactory for the foreseeable future. The Government also support this judgement.  -5- The Jordanian Electric Power Company (JEPCO) 1.15 JEPCO used to be the largest power generating and distributing enterprise in Jordan. With the creation of JEA, JEPCO has ceased its activi- ties in power generation. JEPCO's main generating plant at Marqa with 11 diesel units (about 40 MW) was transferred to JEA in 1976. Two other generating plants, old and inefficient, were retired. JEPCO's distribution system fol- lows the British pattern; power is distributed at 33, 6.6 and 0.4 kV. The networks are mostly underground cable and substations are very modern, but in spite of this, the quality of service is rather poor for lack of skilled labor and material shortages. JEPCO and its consultants (Kennedy & Donkin, UK) estimate that load demand in Amman is suppressed by about 5% due mainly to inadequate coordination of planning to meet loads and low voltage levels. In general, coordination of public services in Amman (electricity, telephones water supply and sewerage, roads, etc.) is difficult. There are about 2,000 domestic and 60 larger customers at present waiting for power supply. JEPCO accounted for about 85% of JEA electricity sales in 1978. JEPCO is, in general, well organized and managed. Since JEPCO is the major power distri- butor in Jordan, its sound future development is very important for the effectiveness of the power subsector. JEPCO needs access to foreign bor- rowings and Government support in improving the company's financial situation (para 3.15). The Irbid District Electricity Company (IDECO) 1.16 IDECO, the other major company, operates a diesel power plant (9 MW) in Irbid and distributes power in the Irbid area, in part of the Jordan Valley and in some rural areas. IDECO has major managerial and financial problems. It is not properly staffed and organized. The company seems incapable of carrying out its development programs, particularly the rural electrification schemes which it is responsible for implementing. In order to resolve these problems, the Government intends to ask JEA to take over in the near future all IDECO's power supply activities, a course of action which IDECO's manage- ment supports and which would be appropriate in the circumstances. Since IDECO's share in the total power consumption is less than 10%, it is not expected that its takeover by JEA would have a significantly adverse impact on JEA's financial situation. Historical Development 1.17 National power sector statistical data for the period 1971-1977 are shown in Annex 1.1. Total generation increased from 230.4 GWh in 1971 to 594.9 in 1977. The consumption of electricity rose from 204 GWh in 1971 to 512.8 GWh in 1977 (trend growth rate 17% p.a.). Electricity consumption in 1977 is summarized below by customer categories and administrative districts.  -6 - Administrative Districts Customer Category % Total Amman Irbid Karak Ma'an - ---------GWh ----------------- Industrial 34.1 174.8 148.6 4.7 21.1 0.4 Domestic 33.9 173.9 152.7 15.4 2.0 3.8 Commercial 12.0 61.3 50.4 3.3 0.3 7.3 Water Pumping 8.8 44.9 27.7 15.0 0.4 1.8 Hospitals & Charities 4.5 23.3 18.2 4.4 0.5 0.2 Streetlighting 2.4 12.3 9.3 1.7 0.4 0.9 Broadcasting & T.V. 1.1 5.8 5.8 - - - Others 3.2 16.5 7.8 6.2 0.1 2.4 TOTAL 100.0 512.8 420.5 50.7 24.8 16.8 The Northern region of Jordan (Amman and Irbid Districts) accounts for 92% of the total consumption. The Central and Southern regions are relatively undeveloped and the Government is endeavoring to accelerate their development by locating future major industrial projects there. The pattern of electri- city consumption is reasonably well balanced. Industrial consumption has increased in the last five years and now slightly exceeds domestic consump- tion. By penalizing inefficient and excessive use of electricity (para 1.35) the tariff policy has helped reduce peak demand. The total electricity losses in generation and distribution are in the order of 15% of generation. 1.18 Basic statistical data for JEPCO (1963-1977) and IDECO (1968-1977) are given in Annexes 1.2 and 1.3. The maximum demand of the Amman area (JEPCO & JEA) reached 90 MW in 1977. Electricity consumption per capita amounted to 247 kWh in 1977 compared to 162 kWh in 1974. Thus, by 1977 Jordan had achieved about the same level of per capita consumption of electricity as Egypt had in 1975 or Portugal in 1950. About 50% of the total population, mostly in rural areas, still has no access to public electricity supply (details in Annex 1.4). Rapid increase in rural electrification is expected by the end of 1982 (para 1.27). 1.19 The power system has at present a large number of small diesel generating sets, two steam and four combustion turbine units. Details of generating capacities are given in Annex 1.5. The Hussein thermal power plant at Zarqa has two 33-MW units in operation and two combustion turbines (13 and 18 MW). The Marqa diesel-electric power plant after its recondition- ing (Credit 570-JO) will have an available capacity of 40 MW. Two 18-MW combustion turbines were installed near this plant in 1978. The old 4.2 MW (rated) Aqaba power plant, with actual output of only 3.6 MW, was taken over by JEA in 1976. Two new mobile diesel units of 1.125 MW each were put into operation during 1977 to meet the urgent power requirements in Aqaba. The largest captive plant is that of the Jordan Phosphate Company at El Hasa (22 MW) which supplies the company's needs. There are a number of small diesel sets, which are used mainly for emergency standby power supplies.  - 7 - 1.20 The first stage of the national transmission network was completed in 1977, comprising 37 km of double-circuit 132-kV transmission lines from the Zarqa steam plant to load centers in the Amman area with three 132/33-kV sub- stations at Zarqa, Marqa and Bayader. The second stage, nearing completion, includes 60 km of transmission lines from the Zarqa steam plant to Irbid and 8 km from the Bayader substation to the Fuheis Cement Works together with sub- stations at Irbid and Fuheis. The Syrian and Jordanian power systems were connected in 1977 through a 66 kV transmission line between Damascus and Irbid with a 10-MVA, 66/33-kV substation at Irbid. Operation and maintenance of power plants and transmission network is satisfactory. 1.21 JEA has started implementing distribution and rural electrification schemes in Aqaba, Karak and the Jordan valley. The distribution networks in Aqaba and Karak were rehabilitated and extended in 1978. In the Jordan valley, where the object is to provide power supply to towns, villages, water pumping stations and population centers, work on the erection of a 33-kV network of about 190 km and 52 (33/0.4 kV) substations feeding into 27 villages and 5 water pumping stations started during 1977. Development Program 1.22 The national load forecast for the period 1978-1985 (Annex 1.6) shows total system sales increasing from 520.6 GWh in 1978 to 2,370.5 GWh in 1985, with an annual growth rate of 24.2% p.a. The power system is expected to be mostly interconnected in 1983. Details of the interconnected system are given in Annex 1.7. The maximum demand would increase from 110 MW in 1978 to 488 MW in 1985. The available generation capacity is expected to grow from 161 MW in 1978 to 598 MW in 1985. Except in 1984, when the available capacity margin appears low because no new large generating plant comes on stream in that year, the capacity margin, taking into account interconnection with Syria (para 1.26), looks reasonable for the rather small Jordanian system. The forecast of sales by consumer categories in the period 1978-1985 is given in Annex 1.8. Sales to JEPCO and IDECO would represent 82% of JEA's total sales in 1979 and 62% in 1985. A rapid increase is expected in sales to large industries, whose share in JEA's total sales will increase from 11% in 1979 to 24% in 1985. The national load forecast also implies that per capita consump- tion would rise from the 1977 level of 247 kWh to some 932 kWh in 1985. 1.23 The most important industrial and mining developments are a potash complex (estimated cost $430 million) of 1.2 million tons annual capacity at Ghor Safi in Central Jordan; a phosphate fertilizer plant at Aqaba (costing around $320 million); expansion of the Zarqa oil refinery; further development of phosphate mining at El Hasa; and a new cement factory in Central Jordan near Rashadiya. According to the five-year plan, industrial output is expected to grow at 26% p.a. over the period to 1980 and output of the manufacturing and mining sectors would amount to 28% of GDP by 1980, compared to 16% in 1975. Despite increased emphasis on social and regional objectives, there would be continuing investment in industry and the rate of growth of indus- trial output over the period 1980-1985 might be around 20% p.a. This would  - 8 - be accompanied by rapid growth of industrial power consumption. The load projection looks reasonable in relation to Jordan's present stage of develop- ment and its general economic prospects. The previous JEA load forecasts have been reasonably accurate. Some of the projected major new industrial loads (Annex 1.8) may be delayed and there may also be deviations from the forecasts for other customer categories. Therefore, for the sensitivity analysis of the power sector development, JEA uses annual growth rates + 10% of the basic forecast, which are judged to cover the likely range of possibilities. 1.24 JEA's Planning Department, in association with the consultants, usually updates at least once a year the load forecast and medium-term invest- ment program. The power system planning, though in general satisfactory, needs to be further improved. JEA depends largely on consultants services for its planning and should develop more its own planning capabilities. JEA has agreed to take appropriate action by December 31, 1979 to strengthen its Planning Department and after consultations with the Government, inform the bank, for its review and comments, of actions proposed to be taken to develop adequate power subsector planning capabilities within JEA. Generation 1.25 The Hussein steam power plant at Zarqa is being extended by a third 33-MW unit originally scheduled for commissioning by the end of 1978. The contract for the supply and erection of 3 x 66 MW units at this site, to be put into operation in the years 1981 and 1982, has been awarded. New diesel power plants are under construction at Aqaba and Karak. The first two units of the Aqaba diesel power plant (2 x 3.48 MW) were put into operation in 1978 and the other three units (3 x 5 MW) are expected to be ordered in 1979 for commissioning in 1981. The Karak diesel power plant (3 x 1.5 MW) is expected to be in commercial operation in 1979. A new steam power plant would be built in Aqaba with an initial installation of 3 x 120 MW reheat steam units to be brought into service in 1985, 1986, and 1987. This plant would burn residual fuel oil and would be connected through the high voltage transmission network with the Central and Northern regions of Jordan. An additional gas turbine unit with a capacity of 18 MW is expected to be brought into service in 1984. A new diesel generating plant (4 x 1.5 MW) is to be installed in Ma'an in 1980-81. For generation planning purposes, the interconnection with Syria has been treated as a generating plant with an output of 50 MW. Interconnection with Syria and Transmission Network 1.26 The Syrian and Jordanian power system will be interconnected via a 230-kV transmission line from Damascus to Irbid (20 km long within Jordanian territory) with a 100-MVA transformer substation at Irbid. This interconnec- tion, which is expected to be brought into operation in 1979, will provide many benefits. The main benefits are improved economy by better utilization of power system generating facilities through coordinated operation and main- tenance, as well as improved reliability of supply by giving the Jordanian power system access to the reserve generation capability of the Syrian system.  Reserve-sharing will allow JEA to reduce its generating capacity by 50 MW which otherwise may be viewed as an idle investment. According to contract arrangements with the Etablissement Public d'Electricite, Syria, JEA will import up to 28 GWh annually. The new transmission network to be constructed in the period 1979-82 is described in para 2.02. A 132-kV transmission line from Rashadiya to Aqaba will be brought into service in 1983. This line will complete the transmission link between the Northern and Southern regions, which detailed consultants' studies have demonstrated is required to ensure an economic and reliable power supply in Jordan. Rural Electrification 1.27 JEA, assisted by its consultants, has prepared a national rural electrification plan covering all villages with more than 500 inhabitants. Financing arrangements for part of the plan have been made and site survey works have already started. The plan is scheduled for completion in 1982. When this plan is completed about 70% of the total population will have access to public power supply. A loan agreement with USAID in the value of US$9 million covering the supply of materials for the electrification of 37 villages and suburban areas in Amman District was signed in September 1977. Another loan agreement with USSR for about 10 million rubles covering the supply of materials and supervision of erection works for the electrifi- cation of 100 villages in Irbid District and 37 villages in Amman District was signed in October 1977. These projects will be implemented by JEPCO and IDECO. Relending agreements for both loans have been signed between JEA and JEPCO/IDECO. 1.28 A loan agreement was signed with the Government of Denmark for the supply of 21 small mobile diesel generating units to be installed in 12 remote villages and to reinforce existing diesel plants in some towns in the Southern region of Jordan. Two of the larger units (500 kW each) will be installed in the towns of Shaubak and Tafileh to provide power for these towns and seven nearby villages. A loan agreement for three million pounds is expected to be signed with the Ministry of Overseas Development, UK to cover the electrifica- tion of 30 villages in the Northern parts of Irbid District. The total number of villages to be electrified by the end of 1982 under the above loans is 223. In addition, the electrification of 33 villages near Karak, Ghor Safi and Qatrana is also envisaged under the proposed Project (para 2.08). Development Program Costs 1.29 JEA's total investment in the period 1979-1985 is estimated to be about 185 million JD (US$610 million) at late 1978 prices. Details of the development program and its costs are given in Annex 1.9. The proposed Project represents about 9% of the total investment costs. The investment program is considered reasonable in relation to the forecast demand to be met. While the power sector investment program is based on the expected demand and consumption growth in an unconstrained situation, the financial implications for Jordan so far as finding the needed capital is concerned have not been studied in sufficient depth. JEA's investments have in the past been financed  - 10 - primarily from the national budget and foreign borrowings. Although future investments are much larger, it is assumed that needed funds would be secured through Government contributions, JEA's internal cash generation and borrow- ings. JEA's power development program represents about 15% of the total public investment. In view of the Government's firm plans for development of major industries (para 1.23) no significant changes are expected in the fore- cast demand and consequently in the investment program costs. Role of IDA/Bank 1.30 IDA has made two credits to the Government of Jordan for the devel- opment of the power subsector. IDA Credit 386-JO (1973) for US$10.2 million together with an equal amount from the Kuwait Fund was used to finance two 33-MW steam power units and one 13-MW combustion-turbine at the Hussein thermal power plant at Zarqa near Amman. The power generating facilities have been completed and are operating satisfactorily; however, a claim by the electro-mechanical contractor is still under arbitration. IDA Credit 570-JO (1975) for US$5 million with co-financing from the Arab Fund loan in the amount of US$13.4 million was used to finance the second power project in Jordan, comprising the addition of a third 33-MW steam power unit at the Hussein thermal power plant, reconditioning of the diesel-electric power plant at Marqa and the Southern Jordan Power Development Study. The second power project is progressing satisfactorily and its completion is expected by mid-1979. Important achievements under these credits were the establishment of an economical and reliable power supply service, the development of JEA as an autonomous and financially viable entity responsible for the whole power sector and the establishment of a tariff structure based on marginal costs enabling JEA to earn a rate of return of a minimum 9% on assets. The Credits were also instrumental in attracting investments in the power subsector by both the Kuwait and Arab Funds. A joint project completion report covering the First and Second Power Projects is expected to be submitted by JEA in 1979. The proposed loan would enable the Bank to continue the institution- building efforts in furtherance of the established objectives for the sector (para 2.01). C. The Beneficiary Organization and Management 1.31 JEA's present organization structure based on the recommendations of the management consultants (Peat, Marwick and Mitchell) appointed under Credit 386-JO is shown in Annex 1.10 (WB19609). The Director General is responsible for conducting the activities of the Authority in accordance with the deci- sions of the Board of Directors. He is supported at the head office by the Chief Engineer and a corporate staff comprising the managers of the Finance,  Supplies and Contracts, Internal Audit and Administration and Personnel depart- ments. The Chief Engineer is responsible for generation, transmission and dis- tribution, planning, and standards and regulations, as well as for the pole plant. He also supervises the regional offices at Karak and Aqaba. 1.32 JEA's concrete pole spinning plant has been in operation since 1968/ 69. After initial teething problems, the plant has settled down to steady production of various types of poles; production has now reached about 2,500 poles per year. JEA has decided to build a new plant with an output of about 8,000 poles which would meet JEA and JEPCO's needs in the near future. The cost of producing concrete poles is less than the cost of importing steel or wood poles up to 15 m lengths. Bids for civil works and equipment have been invited. The new plant would supply poles needed for the rural electrifica- tion component of the project. Manpower 1.33 In October 1978, JEA had 1,069 employees, including 96 engineers and 551 technicians (Annex 1.11), and also 295 unfilled vacancies. The vacancies are almost all in the Hussein Thermal Plant, Transmission and Distribution, and Diesel Departments. JEA's staff appear to be well qualified. Many senior staff members have studied abroad. Although staff salaries are competitive considering other employment opportunities in Jordan, there is a continuous movement of staff to oil-rich Arab Gulf countries where salaries are much higher. The Government is well aware of this problem and is taking remedial actions, mainly through its education and training plans for skilled labor. Training 1.34 JEA pays adequate attention to the training of its staff. All key personnel have been trained abroad, mostly in the UK. During 1977, 16 engineers were sent on training to foreign countries for periods of up to 6 months. The training covered maintenance and operation of power plants and transmission networks including microwave and telecommunication systems. Four technicians and five administrators were also trained abroad in 1977 for periods of one month to a year. JEA is implementing a general training program drawn up by an expert of the North Eastern Electricity Board (NEEB) of the UK. Foreign experts, usually financed by their governments, also assist JEA in various fields of activities. JEA will need one man-year of foreign expert services in transmission network operation and power line carriers. Overseas training of JEA's staff has been satisfactory, as has on-the-job training in connection with the construction of new power facili- ties, during which the constructors are required to provide for training of JEA's operation and maintenance staff. Tariffs 1.35 A tariff study covering the main supply areas of Amman, Irbid and Karak, financed by the UK and prepared by NEEB, under terms of reference accept- able to the Association, was completed in 1976. The study took into account  - 12 - marginal costs of generating, transmitting and distributing electricity and recommended tariffs, including a fuel adjustment clause, to secure a 9% finan- cial rate of return. Tariffs based on NEEB's recommendations were approved by the Government effective March 1, 1977, which resulted in an average increase of JEA's bulk supply tariffs of about 75% from an average of 7.4 fils per kWh to 13 fils per KWh. JEA's tariffs for the bulk supply of electricity to JEPCO and IDECO, engaged in distribution activity in the areas of Amman and Irbid respectively (Annex 1.12), consist of a maxium demand charge, a kWh charge for on-peak (day use) and off-peak (night use) consumption, a power factor penalty, fuel adjustment clause, and a 1 fil per kWh charge for all electricity sold by JEA to establish a fund for rural electrification. Retail electricity tariffs for different categories of customers in Amman, Irbid and the Jordan valley served by JEPCO, and IDECO were also raised effective March 1, 1977 commensu- rate with the increases in the bulk supply tariffs of JEA; these are summarized in Annex 1.13. 1.36 Credit 570-JO provided for a further review of electricity tariffs after the revised tariffs had been in effect for about one year to determine if any changes would be required to meet the financial requirements of JEA, JEPCO and IDECO. Government and JEA agreed with the Association and the Arab Fund that such a review would be completed by December 31, 1977, with any tariff changes to be implemented by March 31, 1979. British Electricity International who conducted the review concluded that the electricity tariffs effective March 1, 1977 would meet the financial requirements of JEA for 1978 and 1979, that JEPCO's electricity tariffs were adequate for 1978 and would require revision in 1979, and that IDECO's electricity tariffs are adequate provided operating costs are controlled. JEA's electricity tariffs are ade- quate through 1979 but increases would be required in 1980 and thereafter and are discussed in para 3.11. Also, JEPCO has reported that the introduction of maximum demand charges to large industrial consumers has met with serious con- sumer resistance. Agreement was reached that the Government would cause JEA to review tariffs by March 31, 1980 and inform the Bank by April 30, 1980, for its review and comment, of any proposed changes in tariffs. 1.37 JEA serves as a regulatory body of Government regulating the elec- tricity supply rates that may be set by the privately owned electric utilities such as JEPCO. These utilities are permitted to set such electricity tariffs as will cover reasonable operating expenses plus interest on debt and provide for at least a 7% return on shares. JEPCO's sales amount to about 85% of the total sales in Jordan (para 1.15) and consequently, the electricity tariffs of JEPCO are very important to the power sector as a whole in view of their impact on the generation of funds for financing the expansion of JEPCO's dis- tribution system. JEPCO's electricity tariffs were increased about 50% effec- tive March 1, 1977 to an average of about 23 fils from an average of 15.3 fils per kWh. 1.38 The 1 fil per kWh (para 1.35) collected by JEA is intended to finance rural electrification by JEA, JEPCO and other institutions concerned with rural electrification such as the Municipal and Rural Development Bank. However, no guidelines have been established for the allocation of this revenue amongst these agencies. In order to ensure satisfactory allocation of  - 13 - these collections amongst the agencies engaged in rural electrification, Government agreed to cause JEA to establish by December 31, 1979 guidelines for utilization of surcharges received by JEA in respect of rural electrifi- cation and to inform the Bank of the details of such guidelines. II. THE PROJECT Objectives 2.01 The Project marks an important stage towards the long range sectoral objective of progressively interconnecting the Northern, Central and Southern regions of Jordan and creating an economic and reliable electric power system serving the whole country. The primary objective of the physical facilities of the Project is to supply from the main public power system part of the power needs of a potash complex (Bank Loan No. 1617-JO), phosphate mining works, a cement plant and rural distribution loads in the Central region of Jordan. Further objectives of the Project are the continuation of the institution-building effort started with the establishment of JEA in 1967, and the improvement of power sector planning. Description 2.02 The Project covers part of the 4-year (1979-1982) Development Program of JEA and consists of: (a) about 225 km of 132-kV double-circuit transmission lines; (b) five 132/33(11) kV-substations, with a total power transformer capacity of 221 MVA, and extension of two existing substations; (c) a system operations control center, with power line carrier (PLC) and related communication equipment; (d) electrification of 33 villages in the Central region of Jordan; (e) consulting services for Project engineering and construction; and (f) a training program for JEA's engineering and accounting staff. Transmission Lines 2.03 The transmission lines represent the extension of the existing 132- kV transmission network around Amman. A double-circuit 132-kV transmission line, about 72 km long, between Amman South and Qatrana will interconnect the Northern and Central regions. A line between Qatrana and Ghor Safi, via Karak, about 44 km long, will supply the Ghor Safi Potash Complex, increased  - 14 - power requirements of Karak Town and nearby rural areas. In order to supply the El Hasa Phosphate Works and Rashadiya cement plant as well as small towns and rural loads, a transmission line Qatrana-El Hasa-Rashadiya, about 88 km long, would be built. A double-circuit 132-kV line between Amman South and Bayader, about 11 km long, which would close the ring encircling Amman City, would significantly increase the security of power supply to Amman and the loads in the Central region. 2.04 JEA has determined, with the help of consultants, the specific system requirements to meet industrial, urban and rural loads in the Central region of Jordan. The most suitable voltage level for the supply of the Central and Southern regions is 132 kV, already used in the Northern region. Important industrial customers would be supplied by 132-kV double-circuit overhead transmission lines both for security of supply, and for economic reasons. Calculations taking into account capital costs, operation and maintenance, power losses and some technical aspects of the transmission system indicate that 400 mm2 conductors are appropriate for all transmission lines. The proposed transmission lines would provide adequate supply to the industrial loads in the Central region and a substantial power transfer capability in the long range development of the transmission network in Jordan. Substations 2.05 The Project comprises the construction of five transformer sub- stations; Qatrana, Karak, Ghor Safi, El Hasa and Rashadiya, and extension of existing Amman South and Bayader substations. At Qatrana substation, local loads, irrigation and small rural loads would be fed through a 10-MVA, 132/33-kV transformer. The Karak substation equippped with 16-MVA, 132/33-kV and 10-MVA, 33/11-kV transformers, would supply the Karak town consumers and irrigation and rural loads in the area, including part of the Project rural electrification scheme. The Ghor Safi 132/33-kV substation with two 40-MVA transformers would supply the potash complex and some rural loads. The 132/33-kV substation at El Hasa with a 25-MVA transformer would supply the phosphate works. The 132/33 kV Rashadiya substation with two 40-MVA transformers would supply the cement works and local rural areas and serve as a main interconnecting point for further extension of 132-kV lines to Ma'an and Aqaba. The extension of Amman South and Bayader substations is needed in connection with the completion of the transmission ring around Amman City. 2.06 Substation site investigations were carried out to determine suit- able locations and to obtain data for the selection of switchgear and other equipment for the substations. Suitable sites of adequate size with easy access and beyond cultivated areas have been found and reserved for all substations. There are no problems in acquisition of the sites.  System Operations Control Center 2.07 In order that the operation staff can carry out the tasks of load dispatching to meet the consumer's demand and perform necessary switching manipulation in the transmission network under both normal and emergency conditions, as well as to observe the system state and behavior, it would be necessary to establish a System Control Center. The Center would be connected by reliable communication links to power plants and 132 kV sub- stations for the transfer of speech, data, some remote control and tele- protection signals. This initial Control Center would be located in Amman South substation presently under construction. The power line carrier (PLC) equipment for the permanent links to the substations would be supplemented by the mimic diagram relocated from the Hussein Power plant and extended to include transmission facilities contained in the Project. The communication and control system would be centered at Amman South substation and JEA's System Operations Department would be located there by 1981 to supervise transmission and generation operations of the whole power system. JEA plans to build the National Control Center after 1985 which would also be located at Amman South substation. All communication links and basic equipment of the initial System Control Center would be so designed and installed as to enable their easy transfer to the National Control Center when built. Rural Electrification 2.08 The rural electrification component of the Project includes a power distribution network to electrify 33 villages with a total population of about 46,000 in the Central region (26 in the Karak area, 6 near Ghor Safi and 1 at Qatrana) where the population has the lowest access to the electricity supply in Jordan (Annex 1.4). After completion of the Project, access to public electricity supply in the Central region would increase from the present 30% to about 50%. The average cost per connected consumer would be in the order of JD 290 (US$960), which is reasonable for Jordan. The proposed rural electrification scheme would include 33-kV lines, substations and low voltage distribution. Prestressed concrete poles produced by the JEA pole-spinning plant would be used for overhead distribution lines. The rural electrification component of the Project would comprise about 250 km of distribution lines and 3.2 MVA substation capacity. JEA's distribution department, which is well organized and equipped, would operate and maintain the rural electrification facilities. Status of Engineering 2.09 JEA has engaged the services of Preece, Cardew & Rider (PCR), England to prepare the feasibility study of the Project. The Report on the Electrical Power Supply Developments of Jordan, Part 1-Developments up to 1982, gives the scope of the Project and shows its economic viability. JEA and NPC have reviewed the report and approved its recommendations concerning the proposed Project. 2.10 Detailed engineering of the Project components was practically completed in 1978. The consultants have investigated in detail all line  - 16 - routes and substations sites and prepared the draft bidding documents for transmission lines, substations and power transformers to be financed by the proposed loan. The consultants will assist JEA in the supervision of construction and in procurement, manufacturing control, erection and inspec- tion of permanent equipment. The assistance would also include making recom- mendations in solving technical matters, in establishing operating rules for the transmission network and system control center. JEA has agreed to continue to employ consultants, whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank, for engineering services, procurement and supervision of the Project. Training Program 2.11 The Project includes training abroad of staff from JEA's Transmis- sion and Distribution Department, which is directly responsible for the Project implementation, and from the Accounting Department. JEA plans about 40 man-months for training for Project construction and operation and for accounting training. This training is needed for efficient Project imple- mentation and for further improvements in JEA's accounting services. The general training program (para 1.34), which does not deal with JEA's problem in retaining trained staff, needs to be reviewed and updated to cover JEA's longer-term staff training needs in the light of its rapidly growing system. JEA has agreed to submit to the Bank by December 31, 1979 a detailed staff training program and implementation schedule covering all training needs and proposed measures for the long-term retention of trained staff. Project Cost Estimate 2.12 The estimated cost of the Project, excluding interest during con- struction, is US$53.5 million equivalent, of which US$31.6 million would be in foreign exchange, based on the exchange rate at the time of appraisal of JD 1 = US$3.3. Annex 2.1 shows the estimated costs of the Project, which are summarized as follows: Local Foreign Total Local Foreign Total ---- JD Thousand -- ---- US$ Thousand