India - Farakka Thermal Power Project

Document of The World Bank FOR OFFICIAL USE ONLY I Report No. 2976a-IN INDIA FARAKKA THERMAL POWER PROJECT STAFF APPRAISAL REPORT May 27, 1980 Regional Projects Department South Asia Projects 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.  CURRENCY EQUIVALENTS Currency Unit Rupee (Rs) Rs 1 = Paise 100 US$1 = Rs 8.4 1/ Rs 1 = US$0.1190 1/ Rs 1 million US$119,047.62 1/ MEASURES AND EQUIVALENTS 1 Kilometer (km) = 1,000 meters (m) = 0.6214 miles (mi) 1 Meter (m) = 39.37 inches (in) 1 Cubic meter (m3) 1.31 cubic yard (cu yd) = 35.35 cubic feet (ft) 1 Hectare (ha) = 10,000 m = 2.471 acres (ac) 1 Kilogram (kg) = 2.2046 pounds (lb) 1 Tonne 1 metric ton = 2,200 lbs 1, Kilocalorie (kcal) = 3.968 British thermal unit (Btu) 1 Kilovolt (kV) = 1,000 volts (V) 1 Kilovolt-ampere (kVA) = 1,000 volt-amperes (VA) 1 Megawatt (MW) = 1,000 kilowatts (kW) = 1 million watts 1 Gigawatt hour (GWh) 1,000,000 kilowatt hours ABBREVIATIONS AND ACRONYMS APS - Annual Power Survey ARDC - Agriculture Refinance and Development Corporation BHEL - Bharat Heavy Electricals Limited BSEB - Bihar State Electricity Board CANDU - Canadian Deuterium Uranium (Natural Uranium, Heavy Water Reactor) CEA - Central Electricity Authority CESC - Calcutta Electricity Supply Corporation CWPC - Central Water and Power Commission DPL - Durgapur Products Limited DVC - Damodar Valley Corporation GDP - Gross Domestic Product GOI - Government of India HVDC - High Voltage Direct Current LICI - Life Insurance Corporation of India NHPC - National Hydro Power Corporation NTPC - National Thermal Power Corporation OSEB - Orissa State Electricity Board PERT - Program Evaluation and Review Technique RAPS - Rajasthan Atomic Power Station REB - Regional Electricity Board REC - Rural Electrification Corporation Limited SEB - State Electricity Board TDO - Thermal Design Organization UNDP - United Nations Development Program VGB - Verein Grosser Betriebe WBSEB - West Bengal State Electricity Board NTPC's FISCAL YEAR (FY) April 1 - March 31 1/ Since September 25, 1975, the Rupee has been officially valued relative to a basket of currencies. As these currencies are floating, the US$/Rs exchange rate is subject to change. Conversions in this report have been made at US$1 to Rs 8.4.  INDIA FOR OFFICIAL USE ONLY FARAKKA THERMAL POWER PROJECT STAFF APPRAISAL REPORT Table of Coutents Page No. I. THE POWER SECTOR ....................................... 1 Background ............................................. 1 Energy Resources ...................................... 1 Past Bank Group Involvement in the Sector .... .......... 2 Sector Institutions .................................... 3 Existing Facilities - All India ........................ 5 Power Supply/Demand Balance - All India .... ............ 6 Future Development - All India ......................... 7 Regional Demand and Supply - Eastern Region .... ........ 8 Future Integrated System Operation ..................... 10 Bank Group's Strategy in the Sector .................... 11 II. THE BENEFICIARY - NATIONAL THERMAL POWER CORPORATION LIMITED ................................................ 15 Legal Status and Authorities ........................... 15 Organization and Management ............................ 16 Training ............................................... 16 Sale of Power from the Project ......................... 18 Accounting Organization and Systems .................... 18 Audit .................................................. 18 III. THE PROGRAM AND THE PROJECT ............................ 18 The Program ............................................ 18 The Project ............................................ 19 Estimated Cost ......................................... 20 Project Financing ...................................... 21 Engineering and Construction ........................... 22 Procurement ............................................ 22 Disbursements .......................................... 23 Ecological Aspects ..................................... 23 Project Risks .......................................... 24 IV. FINANCIAL ANALYSIS ..................................... 25 Introduction ........................................... 25 Future Earnings ........................................ 25 Taxation ............................................... 26 This report is based on information provided by CEA, Department of Power in the Ministry of Energy, NTPC and SEBs during an appraisal carried out by Messrs. B.C. Lynch, V. Antonescu, K.G. Jechoutek and A.E. Bailey (consultant) during May/June 1979. This document has a restricted distribution ad may be used by recipients only in the performance of their ofcial duties. Its contents nay not otherwise be disclosed without World Bank authorization.  Table of Contents (continuation) Page No. F.nancing Plan FY1977-FY1987 .............................. 26 Internal Cash Generation ................................. 28 Future Finances .......................................... 28 Borrowing Powers ......................................... 30 NTPC's Bulk Tariff ....................................... 30 Regional Tariffs ......................................... 30- Commercial Arrangements for Sale of NTPC Power .... ....... 31 Tariff Level and Marginal Cost ........................... 31 V. JUSTIFICATION ............................................ 32 Project Definition ....................................... 32 Comparison of Alternative ................................ 32 Benefits ................................................. 33 VI. AGREEMENTS REACHED AND RECOMMENDATION .................... 34 ANNEXES 1. All India-Sales and Energy Data for 1969/70, 1974/75, 1975/76, 1976/77, 1977/78 and 1978/79 .... ............. 36 2. Regional Demand and Supply; Energy Exchanges Among Various Systems 1978/79; Schedule of Yearly Additions to Thermal Generating Capacity - Eastern Region .................. 37 3. Sales and Energy Data for 1974/75 - 1978/79 - SEBs of Eastern Region ........................................ 42 4. Power Supply Position 1976/77-1984/85 - Eastern Region 45 5. Tentative Demand Forecasts 1984/85 to 1988/89 - Eastern Region ................................................ 46 6. Financial Position of the State Electricity Boards and DVC ......................................... 47 7. Organization Chart of NTPC .............................. 53 8. Organization Charts of NTPC's Finance and Accounting Organization .......................................... 56 9. Description of the Farakka Development .................. 58 10. Project Cost Estimates .................................. 61 11. Estimated Construction Schedule ......................... 63 12. Estimated Schedule of Disbursements ..................... 65 13. NTPC - Income Statements FY1979 through FY1991 .... ...... 66 14. NTPC - Source and Application of Funds FY1977 through FY1991 ................................................ 68 15. NTPC - Condensed Balance Sheets FY1977 through FY1991 ... 70 16. Assumptions on Financial Projections .................... 71 17. Annual Rates of Return in Real Terms .................... 76 18. NTPC's Bulk Tariff (Eastern Region) and Bulk Exchange Tariffs in Eastern Region ............................. 77  - iii - Table of Contents (continuation) 19. Regional Marginal Cost Analysis of NTPC Operations ...... 79 20. Definition and Cost of Alternative to the Project ....... 85 21. Additional Transmission and Distribution Cost .... ....... 86 22. Economic Costs-Farakka Project and Alternative .... ...... 87 23. Shadow Pricing of Costs and Benefits .... ................ 89 24. Structure of Operation and Maintenance Costs .... ........ 91 25. Economic Justification: Results ........................ 92 26. Economic Benefits ....................................... 94 27. Documents Available in the Project File .... ............. 96 MAPS IBRD - 14743 IBRD - 14518   INDIA FARAKKA THERMAL POWER PROJECT I. THE POWER SECTOR Background 1.01 Economic growth and improvement of the standard of living in India depend critically on the development of the power sector. In the present stage of economic development, the demand for power grows roughly twice as fast as the economy. Because the power industry is relatively capital inten- sive, its share in total fixed asset formation is increasing rapidly: the power sector, which has made great strides in the last two decades, is today the largest economic sector in the country in terms of investment. The sheer size and increasing complexity of India's power sector, as well as economic considerations, necessitate an approach to system planning which, to a much larger extent than in the past, should concentrate on nationwide power devel- opment and aim at making use of economies of scale through construction of larger, more efficient power stations and interconnected high voltage trans- mission systems. 1.02 The strategy of the Government of India (GOI) is to intensify cen- tralized planning of generation and high voltage transmission with a view to ultimately centralize control through a national grid with the operation of generating plant on a merit order basis. To this end, GOI established in 1975 two power generating companies, the National Thermal Power Corporation (NTPC) and the National Hydro Power Corporation (NHPC) to construct and operate large thermal and hydro power stations and associated transmission. Consultants have been engaged to assist the Central Electricity Authority (CEA) in undertaking a 400 kV system study to determine the configuration and parameters of the future interconnected national power system. GOI also decided to proceed with the construction of four large thermal power stations of 1,100 MW to 2,100 MW capacity located at coal fields and supplying bulk power to the States via an interconnected 400 kV transmission system. Construction of three such developments, the 2,000 MW Singrauli, the 2,100 MW Korba and the 2,100 MW Ramagundam projects, has been started with IDA/Bank financial assistance, each project consisting initially of 600 MW of generating plant and transmission (Credits 685-IN Singrauli, 793-IN Korba, 874-IN and Loan 1648-IN Ramagundam). An IDA credit of US$300 million has recently been approved for the second stage of Singrauli, comprising two additional 200 MW units and two 500 MW units. NTPC's fourth large thermal power plant is the 1,100 MW Farakka plant, located in the Eastern part of the country about 250 kms north of Calcutta. The first stage of this power plant, comprising three units of 200 MW each, is the subject of this report. Bank Group finance of US$250 million is proposed comprising a loan of US$25 million and a credit of US$225 million. Energy Resources 1.03 India's main commercial energy resources are coal, oil, natural gas and hydro power. There are also resources of nuclear fuels, principally uranium and thorium, and India's power program includes the construction of  -2- further "CANDU" type heavy water reactors using domestically produced natural uranium as fuel. Two nuclear power stations have been constructed to date and a third is under construction. Some geothermal energy sites have also been identified, but the potential appears to be limited. 1.04 coal is by far the most extensive indigenous fossil fuel; reserves are estimated at 83 billion tons of which some 21 billion tons have been proven. Additionally, total reserves of lignite at the Neyveli field in Tamil Nadu are estimated at around 2 billion tons. If low quality coal, e.g., coal with high ash and moisture content, is excluded, the estimate of commercially usable coal and lignite is reduced to approximately 24 billion tons which, on a forecast countrywide usage, would be adequate for about 50 years under current assumptions of economic growth. 1.05 By comparison with coal, proven reserves of oil are small. However, oil and gas exploration programs continue. Exploration and drilling activities to date have already proven an estimated 230 million tons on shore, and recent off-shore discoveries west of Bombay in the Arabian Sea have led to delinea- tion of fields with proven recoverable reserves of about 250 million tons of crude oil and 30 billion cubic meters of natural gas. Other reserves of natural gas, which are found in India both alone and in association with crude oil, are estimated at over 100 billion cubic meters. 1.06 The potential of hydroelectric power resources is estimated at 70,000 MW of which some 11,000 MW has already been developed. A further 4,700 MW is scheduled for commissioning by FY1984 (see Table 1.2) and some 23,000 MW is currently under investigation or scheduled for investigation. Some 70% of the total potential is in the Northern and Northeastern regions. Greater emphasis on hydro-power investments is planned. 1.07 Oil and natural gas have important alternative uses and it is un- likely that they will be a significant factor in the generation of electric power. The Government intends, therefore, to base the development of generat- ing facilities for the foreseeable future on coal or lignite burning thermal stations and hydroelectric power stations and to gradually develop a small nuclear program. Past Bank Group Involvement in the Sector 1.08 The Bank has made nine loans to India for power projects amounting to US$334.5 million and IDA thirteen credits totalling US$1,471 million. Of this amount US$1,170.5 million involves financing of generating plant; US$23 million the purchase of construction equipment for the Beas hydroelectric project; US$380 million the provision of high voltage transmission; and US$232 million the purchase of rural electrification equipment. Nine loans and credits for generating plant, the Beas project (Credit 89-IN) and the first three transmission projects (Loan 416-IN Credits 242-IN and 377-IN) have been completed. The Fourth Transmission Project (Credit 604-IN) is nearing completion and the whole credit amount of US$150 million has been committed. The third Trombay Thermal Power Project (Loan 1549-IN) was approved in April 1978. The Ramagundam Thermal Power Project (Credit 874-IN and Loan 1648-IN) and the Second Rural Electrification Project (Credit 911-IN)  are still in the preliminary implementation stage. The credit for the Second Singrauli Thermal Power Project (Credit 1027-IN) was approved in May 1980. Commitments to April 30, 1980 totalled some US$500 million on the four thermal power plant projects (Singrauli, Korba, Ramagundam and Trombay) and US$150 million on the two Rural Electrification Projects (Credits 572-IN and 911-IN). 1.09 The Singrauli, Korba and Trombay projects are on schedule. The Ramagundam project, the Fourth Power Transmission Project and the First Rural Electrification Project are proceeding satisfactorily notwithstanding initial delays in implementation and the substantial delay in preparation of specifications and review of tenders for the more sophisticated load dis- patch equipment in the case of the transmission project. Sector Institutions 1.10 The principal agencies in the industry are: (i) the State Elec- tricity Boards (SEBs); (ii) the Atomic Energy Commission; (iii) the Central Electricity Authority (CEA); (iv) Regional Electricity Boards; (v) the two central power corporations (NTPC and NHPC); and (vi) the Rural Electrification Corporation Ltd (REC). 1.11 The SEBs are constituted by the State Governments under the provi- sions of the Electricity (Supply) Act, 1948, to promote the coordinated development of the generation, supply and distribution of electricity within their respective States in the most efficient and economical manner, and for the control and regulation of other supply undertakings which are private licensees. These comprise municipal utilities such as Bombay Suburban Elec- tric Supply Undertaking, and private utilities, the largest of which are the Tata Electric Companies, (Bombay), the Calcutta Electric Supply Company (CESC), and the Ahmedabad Electric Supply Company. At the present time, the States effectively own or control well over 90% of electricity supply facilities. While the SEBs are corporate entities in their own right and enjoy some autonomy in the management of their day-to-day operations, they are under the control of their State Governments in such matters as policy, capital investment, tariff changes, borrowings, pay scales and personnel policies. 1.12 The CEA was formally created in 1950 with responsibility for devel- oping a national policy for power development and coordinating the activities of the various planning agencies involved in electricity supply. At that time, it came under the Power Wing of the Central Water and Power Commission (CWPC). As a result of administrative changes introduced in October 1974, responsibility for power was transferred to the Ministry of Energy, which was created at that time to bring together ministerial responsibility for coal and power. This involved the transfer of the Power Wing of the former CWPC to the CEA, which now comes under the Department of Power of the Ministry of Energy and is responsible for developing a sound national policy for the electricity supply industry. The Department of Atomic Energy, which is directly responsi- ble to the Prime Minister, deals with nuclear power generation. 1.13 CEA's powers were enlarged through amendments to the general provisions of the Electricity (Supply) Act, 1948, which were enacted on  -4 - November 30, 1976. In addition to its general responsibilities for national power policies, it is now responsible for the formulation and coordination of plans for power development, optimization of investments in the power sector for the whole country, development of interconnected system operation, training of personnel and research and development. It includes specialist engineering organizations which provide comprehensive project engineering services to the electricity supply industry. The Thermal Department also takes responsibility for monitoring the performance and maintenance records of thermal power stations and for organizing the training of power station personnel. The Economic and Commercial Department accumulates data on econo- mic, finance and accounting aspects of the power industry in India, both at Center and State levels, with particular reference to the operations of the SEBs. The emerging role of CEA in financial affairs is evidenced by the conveying of statutory authority 1/ on it to formulate, in conjunction with GOI, policy for the accounting treatment of depreciation of fixed assets in the power sector in India. CEA is also playing a leading role in advising State Governments on the measures to be taken to implement the amendments to the financial provisions of the Electricity (Supply) Act, 1948, and is also providing information to the various working panels of the Rajadhyaksha Committee (para 1.42). A recent major achievement for the CEA was the adop- tion by the SEBs of a uniform system of commercial accounting, devised by it over a period of time. This system, which applies to all SEB accounts from April 1979, brings uniformity to the procedures relating to the maintenance of accounts, and, for the first time, enables direct inter-Board comparison of financial results. 1.14 The SEBs and the other licensed electricity undertakings are required to submit their investment proposals to the CEA for technical and economic appraisal and to the Energy Division of the Planning Commission for inclusion in the Five Year Plan. The Planning Commission is responsible for the alloca- tion of Plan funds among the States and among sectors. Planning of generation, transmission, and distribution development has traditionally been undertaken by each SEB for its own State rather than on a regional or national basis. However, with the rapid growth of the power sector and with the resultant increasing complexity of operation, GOI sees the necessity for an integrated national approach to sector development. 1.15 As a means of improving collaboration between the SEBs and estab- lishing power systems on a regional rather than a State basis, Regional Elec- tricity Boards (REBs) have been set up for the Northern, Southern, Eastern and Western regions. The chairmanship of each REB is assumed in rotation by the Chairmen of the SEBs within the region and they are staffed by engineers seconded from their constituent SEBs. The general functions of the REBs are to plan integrated operation of the power systems in the region for the maximum benefit of the region as a whole, coordinate overhaul and maintenance programs, determine generation schedules to be followed and the power available for transfer between States and determine a suitable tariff structure for the transfer of power within the region. At present, the Boards function mainly 1/ Amendment of Section 68 of the Electricity (Supply) Act, 1948.  in an advisory role in relation to the SEBs. As mentioned, the REBs were established between 1964 and 1966 by common resolution of the State and Central Governments, to help develop integrated power systems in the respec- tive regions, and thus prepare for the transition from separate power systems at State level to regional systems and finally to an interconnected national grid. 1.16 NTPC and NHPC are at present not intended to take a leading role in the generation and sale of power in the States. At the present time, the construction of four large central thermal power stations has been started as mentioned in paragraph 1.02. All of these developments are being constructed and will be operated by NTPC. NHPC will construct and operate large hydro- electric projects. A transmission wing has also been established in NHPC to design and construct the 220 kV and 400 kV overhead transmission associated with hydro-projects, and any other transmission work which it might be commis- sioned to undertake. In most States, the SEB will continue for some time to be the largest power undertaking. 1.17 REC was incorporated in July 1969 under the Indian Companies Act, 1965, as a company wholly owned by GOI, under the general supervision of the then Ministry of Irrigation and Power (now under the Ministry of Energy). REC's chief objective is to finance rural electrification schemes throughout the country, acting as a financial intermediary with technical expertise, and administering funds received primarily from GOI. It is REC's function to ensure efficient allocation of these funds by establishing policies, procedures, and criteria for the formulation, approval and implementation of such schemes. In doing so, REC is directed to adopt a "project approach," coordinating electrification with other inputs in rural development in order to achieve increased agricultural production and overall economic development. Existing Facilities - All India 1.18 The total installed generating capacity in the whole of India as of March 31, 1979 was just under 29,000 MW, including about 2,225 MW of non- utility capacity, mostly thermal, which is owned by major industrial consumers to meet their own needs. The generating capacity is shown in Table 1.1 below: Table 1.1: INSTALLED GENERATING CAPACITY AS OF MARCH 31, 1979 (MW) Region Conventional Thermal Nuclear Hydro Total Northern 3,773 220 3,718 7,711 Western 5,204 420 1,770 7,394 Southern 2,193 - 4,303 6,496 Eastern 3,854 - 895 4,749 North-eastern 188 - 146 334 Andaman and Nicobar Lakshadweep 6 - - 6 Non-utility Capacity 2,225 - - 2,225 Total 17,443 640 10,832 28,915 Source: CEA.  - 6 - 1.19 Transmission is at 132 kV and 220 kV and, general'ly, lod ce are interconnected by 132 kV and 33 kV subtransmission lines. Distribution voltages are 11 kV and 415/240 V. The supply, in general, is reliable, but power shortages, especially during the summer months, necessitate shutdowns and brownouts. System losses have been reduced in recent years but they are still high accounting for about 20% of units sent out. This subject is under examination by the "Committee on Power" (see para 1.42). Power Supply/Demand Balance - All India 1.20 India's installed power generating capacity increased at an annual rate of 10.3% during the 1950s and 1960s while gross electricity generation grew at just under 12% during this 20-year period due to better utilization of generating capacity. Although local and intermittent shortages occured during this period, system failures did not present a major problem. However, by the early 1970s, the supply situation had grown more serious and potential demand consistently outpaced supply in a number of states. This situation was due to several factors such as: failure to impleme.at projects in accordance with planned schedules; inadequate transmission development; operating and maintenance problems leading to a low plant availability factor of around 72%; inadequate budget allocations and; the absence of monsoon rains, particularly during the early 1970s, leading to lower hydro output. 1.21 The shortage situation was most serious in 1974/75 and 1977/78 and is again extremely serious now, particularly in the Eastern Region. The estimated deficit of energy throughout India in 1974/75 was about 11,000 GWh (14.1%); this fell to 8,600 GWh (10.3%) in 1975/76 and to 5,100 GWh (5.8%) in 1976/77, but increased to 15,800 GWh (15.5%) in 1977/78. Data for 1978/79 indicate that the deficit was of the order of 10%. 1.22 Power shortages, particularly in the industrial sector, have affected the output of the country and the cost in terms of industrial production fore- gone has been substantial (generally, energy restrictions fall on industry and there is relatively little loss to the economy on account of power shortages in either the residential or agricultural sectors). Lost value-added due to lost industrial production because of power restrictions, could weil be in the neighborhood of 3% of GDP. 1/ 1.23 The growth of the power sector during the last 10 years and the pattern of consumption during this period is shown in Annex 1. Sales to agri- culture and irrigation have increased substantially during the 1970s, mainly because of the rural development programs. Industrial demand as a proportion of the total demand has declined, and there has been a small but steady increase in domestic demand. It is expected that this pattern of demand will continue with a gradual improvement in the annual load factor. 1/ See: India, Economic Issues in the Power Sector, 1979 (World Bank Report No. 2335-IN, paragraph 68).  -7- Future Development - All India 1.24 The countrywide peak demand in 1977/78 was 15,520 MW. According to CEA's estimates, unconstrained demand is expected to be about 20,300 MW in 1979/80, 18,600 MW of which is expected to be met by available plant capacity. Installed capacity in 1979/80 is expected to reach about 31,900 MW of which 29,700 MW would be utility plant with the balance of 2,200 MW non-utility. 1.25 The development program provides for an expansion of generating capacity by about 19,000 MW during the five-year period 1979/80-1983/84, including the nuclear power plants which are scheduled to come into operation, bringing the total planned installed capacity to 45,000 MW. The additional capacity scheduled for commissioning during this period is shown in more detail in Table 1.2. Furthermore, the construction of some 15,000 km of 400 kV transmission lines is planned to enable full integration of the regional systems and the evacuation of the output from the proposed large thermal power stations. Table 1.2: SCHEDULE OF PLANNED ADDITIONS TO CAPACITY DURING THE PERIOD 1979/80-1983/84 /a Conventional Thermal Nuclear Hydro Total -(-______W)___----- (mw) -------------- Northern 2,900 455 1,300 4,655 Western 5,270 - 521 5,791 Southern 2,100 470 2,310 4,880 Eastern 2,710 - 305 3,015 North-eastern 298 - 261 559 Total 13,278 925 4,697 18,900 /a Excludes non-utility capacity. Source: CEA. 1.26 Table 1.3 shows the planned annual installed capacity aggregating about 45,600 MW in 1983/84, the available capacity, the peak load and the forecast of energy requirements and availability (not taking into account diversity). The data referring to the peak load and energy requirement in 1978/79 show that demand was constrained by supply. The estimated unsuppressed power and energy demand would have been about 10% higher (see para 1.21). The forecasts of peak load and energy requirements are based upon continuous mon- itoring of development trends during the preparation of the annual electric power surveys of India. If the program of generation development can be achieved on time, the present shortage of energy would be eliminated from 1982/83 on, but there would still be a capacity deficit through the five-year period due to a low availability factor of generating plants. The peak avail- ability in India under present operating conditions, is around 60% of installed capacity. This availability factor is expected to improve gradually as a  - 8 - result of the development of system interconnection and the improvement of maintenance practices. Table 1.3: INSTALLED CAPACITY, PEAK AVAILABILITY, PEAK LOAD, ENERGY AVAILABILITY, AND ENERGY REQUIREMENT ALL-INDIA 1978/79-1983/84 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 Installed Capacity (MW) /a 26,741 29,734 33,009 35,585 40,804 45,590 Peak Availability (MW) 16,268 18,566 20,968 22,171 25,443 28,822 Peak Availability Factor (%) 61 62 64 62 /c 62 63 Peak Load (MW) 16,268 /b 20,348 22,443 24,717 27,334 30,068 Surplus (Deficit) (MW) - (1,782) (1,475) (2,546) (1,891) (1,246) Energy Availability (GWh) 97,376 103,549 117,855 131,496 151,036 171,949 Energy Requirement (GWh) 97,376 /b 112,700 124,408 137,089 150,819 166,298 Surplus/(Deficit) (GWh) - (9,151) (6,553) (5,593) 217 5,651 /a Excludes non-utility capacity. /b Demand constrained by supply. Tc Reduction in availability factor due to commissioning of hydro plant. Source: CEA. 1.27 Table 1.3 also indicates that both peak load and energy requirement are estimated to grow at an average annual rate of around 10% during the five year period 1978/79-1983/84. The forecast capacity deficit decreases from around 10% of the system load in 1979/80 to 4% in 1983/84 and the energy availability exceeds energy demand by some 3% in 1983/84. These are varia- tions which are less than the accuracy of any of the forecast data inputs, but they demonstrate that, if anything, a case could be made for sanctioning more capacity than presently planned for commissioning during the five-year period ending 1983/84, particularly since all-India data mask shortages in specific regions, which may develop due to insufficient interconnection. Regional Demand and Supply - Eastern Region 1.28 The major Eastern Region supplying authorities are the Bihar State Electricity Board (BSEB), the West Bengal State Electricity Board (WBSEB), the Orissa State Electricity Board (OSEB), the Damodar Valley Corporation (DVC), the Calcutta Electricity Supply Corporation (CESC), and Durgapur Products Limited (DPL). Each of these authorities (publicly owned boards and corpora- tions with the exception of CESC) has generating facilities and supplies electricity to final consumers. 1.29 The three SEBs and CESC supply all final consumers of all categories in their areas of jurisdiction. DVC's supply to final consumers is limited mainly to industrial consumers in the Damodar Valley. OSEB usually supplies surplus energy from its hydro generation to BSEB and some to Andhra Pradesh. Of the total energy flows in the region, about 20% are accounted for by inter-authority exchanges. Similarly, about one-third of total capacity demand  - 9 - at peak is made available between authorities (Annex 2). Total energy supplied (and consumed) in the region in 1978/79 was 12,800 GWh; maximum regional coin- cident peak demand covered during the same fiscal year was 2,342 MW. This represents only a minimal increase in terms of energy, and a decrease by almost 100 MW in terms of availability over the previous year. This disappointing performance is mainly due to significantly lower availability of firm capacity in West Bengal in spite of an increase in installed capacity, and has led to restrictions on demand. At present, WBSEB (including CESC) and DVC are the authorities with the largest available capacity in the region, together accounting for more than 50% at peak. BSEB and OSEB together account for about one-third of peak capacity in the region. In 1978/79, the net import from outside the region was negligible. In effect, the region operates as a self-contained system. 1.30 In March 1979, 81% of installed regional capacity consisted of thermal plant, the remainder being hydro. Orissa, with its higher developed hydroelectric resources, had a thermal capacity of only 18% but the other SEBs rely almost entirely on thermal plant. The high dependence on thermal plant makes the region vulnerable to unplanned outages of thermal equipment, a situation that arose frequently in West Bengal in 1978/79. No change in this regional pattern is expected to take place in the short term. 1.31 The pattern of electricity consumption in the region shows a pre- dominance of industrial use accounting for about 70% of total consumption (about 62% nationwide). Railway traction takes a larger share than nationally. Overall, therefore, the region is even more industrially oriented than the Indian average (Annex 3). No major changes in the shares of individual con- sumer groups are expected in the future. 1.32 During the five years 1975-79, installed capacity in the region increased by about 4.5% per year to reach 4,750 MW in March 1979. The avail- able capacity, however, deteriorated in absolute terms during 1977/78 and 1978/79, falling from 55% of installed capacity to about 49%. An increase in this percentage is expected in coming years, after expected correction of present difficulties. Energy consumption has been growing at approximately 7.5% per year for the five years up to 1978/79, with particularly high growth in Bihar and Orissa. West Bengal recorded an annual growth of consumption of only 4.5% per year, again due to the drop in available energy in the WBSEB system in recent years (Annex 4). 1.33 By 1983/84, an additional 3,015 MW (increase of 64%) is expected to be added. About 50% of this increase will be accounted for by WBSEB and CESC together. Presently available information indicates that a further 1,975 MW of new capacity has been approved to come onstream between 1984 and 1988, about 30% of this increase being attributable to the proposed project. About 53% of this increase beyond 1984 will be thermal capacity. The basis for this capacity extension plan is the demand forecast conducted in the form of the periodical comprehensive power surveys (Annual Power Surveys-APS) by the CEA, and amended by deliberations of the Planning Commission, SEBs, and the National Development Council. At the time of publication of the Tenth APS in 1977, it was envisaged that about 3,140 MW of an unconstrained potential peak demand  - 10 - of more than 3,300 MW in 1978/79 would be met. However, preliminary data on peak availability in 1978/79 indicate that it was only 2,342 MW. The demand forecasts have been scaled down subsequently by the CEA and the Planning Com- mission's Working Group: unconstrained potential peak demand in 1983/84 is now estimated to be about 4,850 MW (a reduction by 10% from the Tenth APS estimate), 4,463 MW of which is expected to be met by available plant. The estimated capacity shortfall in the years until 1984 will reach almost 650 MW in 1981/82, then decrease to about 400 MW in 1984/85. GOI general policy with respect to this deficit is to resort to demand restrictions rather than to meet demand by installing thermal capacity with short gestation periods (e.g. gas turbines). 1.34 Tentative projections of demand beyond 1984/85 indicate a growth of potential peak demand in the region by about 9% per year to reach an estimated 7,480 MW by 1988/89. Similarly, the potential energy requirement is expected to grow by 9% per year to about 43,170 GWh (Annex 5). Expected resource constraints and possible slippage in project implementation make it doubtful that these requirements can be met. It is likely, therefore, that persistent shortages at peak will continue well beyond 1984, even under conservative assumptions of demand growth. Future Integrated System Operation 1.35 With the increasing size of the power sector in India and its far- reaching impact on the country's economy, annual surveys and Five-Year Plans at the State level have become insufficient as a basis for power development planning. The larger size of power plants, their consequent longer construc- tion period--in average six to eight years for thermal plants and eight to ten years for hydro plants--as well as their gradual interconnection require a long-range perspective for investment decisions on a regional and national level. 1.36 Recognizing the need for coordinated power development throughout the country, provision was made in Credit 604-IN to help finance the cost of consultants to study the technical, financial and economic aspects of a long- term national plan for the sector. Such a plan should include, inter alia, detailed demand forecasts, investigation of power generation schemes to meet load growth requirements for a 15-20 year period (indicating costs and sequenc- ing of investments to optimize resources), development of primary grid confi- gurations, including the 400 kV system study which CEA has started but which has come to a temporary standstill mainly due to lack of overall planning, coordination of power plans with plans for other sectors (determining resource requirements), and recommendations on responsibilities and needed operational policies at the State, regional and national levels. Such a study is an essential prerequisite for formulating sound policies for future development of the sector and GOI has indicated its intention to complete such a study by April 1982, based on the terms of reference suggested by the Association (see para 1.47). 1.37 The operation of regional systems, which will be integrated in the future into a national grid, requires large numbers of personnel who would have to be trained in the use of sophisticated load dispatch equipment and inter- connected systems operation. A UNDP project designed to assist CEA in devel- oping programs for training staff to operate the future load dispatch centers  - 11 - came to a halt in 1977, primarily because of personnel problems, and lack of counterpart staff. However, GOI plans to reactivate the project during the first half of 1980, and is currently finalizing proposals for program imple- mentation for submission to UNDP. The Association will be kept informed about the development of the program. Bank Group's Strategy in the Sector 1.38 The Bank Group's strategy in its involvement in the Indian power sector, has been one of cooperation with GOI in seeking solutions to the many difficult and politically sensitive problems which have confronted the Indian electricity supply industry since Independence. The sensitivity of Center- State relations, because of concurrent jurisdiction over the electricity supply industry, has dictated that a policy of persuasion rather than one of explicit leverage would produce better results. 1.39 The Bank Group's main objectives in the sector are: (a) assistance in accelerating the installation of gene- rating and transmission capacity and promoting measures to improve the operation and maintenance of existing plant, in order to gradually eliminate the prevailing power shortages in the country; (b) assistance in introducing long-range system plan- ning on a nationwide basis which would assure imple- mentation of a least-cost power development program; (c) promotion of appropriate measures with respect to improving the sector organization and training; and (d) strengthening of the finances of the institutions involved in the sector, particularly of the State Electricity Boards (SEBs), through setting of rate- of-return targets or levels of self-financing and advising in designing of appropriate tariff systems. 1.40 Progress'towards achieving the above goals has been hindered by con- stitutional factors. Under the Electricity (Supply) Act 1948, power supply is a "concurrent" subject. This means that the responsibility for supplying electricity is shared between the Central Government and the State Governments, requiring full agreement between the Center and the States for the implement- ation of most actions. The States operate, and develop, through their Elec- tricity Boards, most of the power facilities. The consequence of this arrange- ment in many instances has been a parochial approach where a national or at least regional approach would have been more beneficial. On the other hand, it is debatable whether Central initiative could have been taken much further in the time available. The radical proposal that would have enabled power system generation and bulk supply to be exclusively a Central responsibility, would have meant a considerable upheaval and would have raised fundamental political and constitutional issues going well beyond efficiency considerations.  - 12 - 1.41 Given these difficulties, results achieved so far have been encouraging. They are the following: (a) with the establishment of the Regional Electricity Boards (REBs, para 1.15) and later of NTPC and NHPC, the first important steps towards an improved organizational structure of the power sector have been made. GOI intends to gradually strengthen the authority of the REBs and to increase their role of coordinating the SEBs in matters of power development and operations; (b) CEA was reorganized and had its powers enlarged through the amendment in 1976 of the Electricity (Supply) Act 1948 (paras 1.12 and 1.13); (c) a recent amendment of the financial provisions of the Elec- tricity (Supply) Act 1948 requires that tariffs be set at levels sufficient to enable the SEBs to finance a reason- able proportion of their investment program from internal sources; (d) recently, SEBs in the Eastern Region have been developing and partially implementing plans designed to improve their financial performance. These plans consist of tariff increases, rationalization of manpower requirements and other cost effective measures; (e) with a view to the reassessment of tariff policies, the major- ity of the SEBs have recently completed tariff studies based on marginal cost pricing principles. The Bank Group's review of these studies recommended the standardization of certain assumptions so as to produce a uniform methodology for general application by all SEBs. To assist in this standardization process, CEA is establishing a specialist department to inter- act with the SEBs and to keep the Bank Group advised of future developments; (f) NTPC's generation/transmission construction program (paras 3.01 and 3.02), which is in the process of staged implementation with Bank Group assistance, will make an important contribution to the gradual elimination of the present deficit in the coun- try's power balance and is planned in the national interest, a move away from the provincial as was present in the past with State/SEB operations. The proposed project would help to con- tinue this program. 1.42 Going beyond these achievements, Indian authorities have recognized that with the rapidly expanding power sector in the country, all aspects of the sector have to be reviewed and that satisfactory solutions have to be found for the various sector problems. Consequently, GOI established a high-level committee in November 1978, called the "Committee on Power" under  - 13 - the chairmanship of V.G. Rajadhyaksha, former member of the Planning Comr- mission. This committee has been assigned the task to examine and make recommendations for improvement of the following aspects of the power sector: (a) power planning; (b) project formulation and implementation; (c) operation and maintenance; (d) organization and management; (e) finance, financial management and tariffs; (f) rural electrification; and (g) research and development. Draft reports by the seven expert panels assembled for this purpose have been completed and have been reviewed by the committee. The committee is expected to submit its findings to GOI in May 1980. The Bank Group will continue to take an active interest in the committee's progress. 1.43 There are two specific remaining areas which have been the cause of concern to the Bank Group and also have been the subject of continuing dia- logue with GOI. They are: (a) the weakness of nationwide long-range planning for power development; and (b) the weak financial position of some SEBs which, for instance, have not always been able to achieve the covenanted rate of return of 9-1/2%. 1.44 The growing recognition by GOI of the high priority which needs to be accorded to the power sector has been reflected in a rising share of investment resources being allocated to power generation and transmission --from 16% of total public sector outlays during the Fourth Plan to 19% in the Fifth Plan and an estimated 23% tentatively earmarked in the draft Sixth Plan. 1.45 More realistic planning and improved construction monitoring pro- moted by CEA has already led to quicker gestation of power projects. During the Fourth Plan (1969-74) installed capacity rose from 14,300 MW to 18,500 MW, involving a shortfall of some 50% against targets set. By contrast, the Fifth Plan (1974-78) witnessed an increase from 18,500 MW to 26,000 MW, a shortfall of only 18% against the target. Standardized layouts and stream- lined construction procedures have already brought down implementation time for new thermal projects from an average of 71 months in 1974-75 to 53 months in 1978-79. Further progress in accelerating the generation program should result from the installation of larger thermal units (200 MW and 500 MW).  - 14 - 1.46 Better capacity utilization is another major sectoral planning objective. Poor coal quality has imposed design constraints which are gradually being mastered. A daily monitoring system has been established by CEA to monitor generation from 150 major and medium power stations. Measures are in hand to accelerate the stabilization of newly installed thermal power units, to better monitor breakdowns, to ensure adequate supplies of spares and to initiate rehabilitation programs for units which require it. Train- ing programs at all levels are being strengthened with the assistance of the Central Electricity Generation Board (UK) and the VGB of West Germany. 1.47 In the continued effort of the Bank Group in dealing with the long- range problems of the power sector in India, it was decided to concentrate on the two areas at para 1.43 above. During appraisal of this project and negotiations for the Second Singrauli Thermal Project discussions were held with CEA, NTPC and NHPC on the content of a long-range power development study designed to prepare a least-cost power development program as well as CEA's capability to undertake such study with its own staff. GOI agreed with the terms of reference suggested by IDA. The study has been commenced and is to be completed by April 1982 (para 1.36). 1.48 From a commercial point of view, the financial performance of several SEBs, the sole customers of NTPC, has been marginal (for detailed explanation see Annex 6) and even in years where 9-1/2% rates of return were achieved, a number of SEBs were not able to meet their debt service requirements. 1/ There are several reasons for this unsatisfactory performance, such as insufficient generating capacity which does not permit utilization of the market potential to the fullest extent, less than efficient operating of existing plant, lack of monsoon rains leading to severe load shedding and blackouts, railroad and coal mine strikes resulting in insufficient coal supply, and low tariff levels. Overall, sector institutions have been contributing less than 10% towards sector investment. Interest bearing loans 2/ from State Governments have up to now provided about 80% of investment requirements with the balance of funds coming from outside borrowing sources such as, public subscriptions, REC, ARDC and LICI. 1.49 In the context of this project, special attention was directed to the Eastern States, the beneficiaries of Farakka power. The Eastern Region power sector comprises the States of Bihar, Orissa and West Bengal. It is characterized by many important and sensitive load centers, involving major infrastructure industries, such as steel and coal mining. About 40% of the installed capacity is operated by the Damodar Valley Corporation (DVC), a GOI statutory body. Another 10% is operated by a private license (CESC) in the Calcutta metropolitan area. The balance is shared by the SEBs of the 1/ However, in all States except one, duties are levied on electricity sales. Including such taxes as a benefit to the States/SEBs increases the returns by up to 5 percentage points. Furthermore, a recently enacted GOI tax on kWh generated is also equivalent to a return of about 2-3 percentage points. The total return in economic terms is therefore substantially higher than the commercial return to the SEBs. 2/ Onlending of State electricity duties, Central excise tax on electricity generation and other budget allocations.  - 15 - three States concerned. With State duties and Central excise tax on power viewed as integral part of power revenues, the rates of return for the public power agencies of the Eastern Region are estimated at the following levels (1980): West Bengal, 11.4%; Orissa, 12.1%; Bihar, 4% and DVC, 25.2%. In all cases, there is scope for improvement in finances of the agencies concerned through increased generation and sales, reduced auxiliary consumption and lower transmission losses. There is also scope for more stringent cost con- trols and more effective management, particularly in Bihar. Recognizing the need to enhance financial performance of the Eastern Region SEBs, GOI through CEA held discussions with the State Governments concerned in late 1979 and agreement was reached about enhanced monitoring and improved accountability to achieve improved financial management of the SEBs. II. THE BENEFICIARY - NATIONAL THERMAL POWER CORPORATION LIMITED Legal Status and Authorities 2.01 NTPC, the beneficiary of the proposed credit was established in 1975 under the Companies Act, 1956. The Electricity (Supply) Act, 1948, has been amended to give the Corporation statutory recognition. NTPC is a company wholly owned by GOI under the general supervision of the Ministry of Energy. Its initial authorized share capital of Rs 1,250 million (US$149 million) was increased in May 1979 to Rs 3,000 (US$357 million). The Corporation has a Board of Directors which should consist of not less than four and not more than fifteen, some of whom are part-time. At present there are seven Directors. 2.02 The Companies Act, 1956, confers broad powers on NTPC to carry out its work. However, the tariffs to be applied as well as any changes in such tariffs, its investment plans and annual capital budgets, have to be approved by the Government. NTPC is also subject to periodic examination by the Committee on Public Undertakings--a body established by GOI to monitor the performance of public sector enterprises. 2.03 The main objectives for which the Corporation was established are: (i) to design, construct, and operate large central thermal power stations and projects; and (ii) to transmit and sell the power generated. NTPC will initially own and operate the associated 400 kV transmission system over which power will be distributed from each plant and sold in bulk to State Electricity Boards. Later these systems will be part of the 400 kV intercon- nected regional systems which, still later, will-be integrated into the national grid. 2.04 NTPC's present program provides for the construction of four thermal power stations (Singrauli, Korba, Ramagundam and Farakka). It is also possi- ble that NTPC might ultimately take over the 510 MW Badarpur station near Delhi (ultimate planned capacity 720 MW). Presently, NTPC is in charge of the operation of Badarpur on a management fee basis.  - 16 - Organization and Management 2.05 NTPC's organization which at present is necessarily construction oriented is shown in Annex 7, page 1. The complete range of management systems for all disciplines now under formulation are shown in Annex 7, pages 2 and 3. These are based on the philosophies explained in the NTPC publication "Framework for Project Management" which was first discussed with NTPC during negotiations for the Ramagundam project and further reviewed by the mission during appraisal. The organization is adequate. 2.06 NTPC has adopted a two-tier organizational structure: one at the central/corporate level and the other for the projects. In addition to normal corporate level responsibilities, activities such as the development and form- ulation of policies, and other services relevant to the projects, have been centralized. These are Technical Services, Contract and Procurement Services, Quality Assurance and Expediting, and Project Management Services. Other departments at the central level are Corporate Planning and Marketing, Corporate Finance, Personnel and Administration. 2.07 The second tier, which embraces project activities, consists of a project organization for each of the four power plants under construction. Each project organization is headed by a General Manager who is entrusted with total responsibility for implementation of all aspects of the project's construction program. 2.08 Good progress has been made in building up the organization since 1975 when NTPC was established. The Chairman and Managing Director was appointed in early 1976 and the number of staff appointed by February 29, 1980, was 2,658 comprising 521 executives, 131 executives in training and 2,006 non-executives. These include 17 executives and 35 non-executives for the Farakka power station. NTPC has also taken over the majority of the employees of the Badarpur Project and Power Station (see para 2.04). 2.09 Present indications are that NTPC is developing along sound lines. It has a Chairman and Managing Director who is a competent administrator with an established reputation in the formation and development of large industrial undertakings. He has taken a great personal interest in developing a compre- hensive project management system as well as designing the organization and procedures, while building up an establishment of highly motivated engineers and staff. Remarkable progress has been made in all activities in the four years since his appointment and providing this impetus can be maintained with no deterioration in management, NTPC should, with the assistance of consultants, be capable of handling the present large development program. Site organiza- tions are effectively functioning at the Singrauli, Korba and Ramagundam proj- ects. The centralized functions which, in addition to the corporate personnel, are planning and finance, provide the engineering, contracting and project management input. They are organized to meet the project requirements and to ensure an effective coordination of the projects under construction. Training 2.10 NTPC is a young organization which is growing rapidly to meet the demands of its large construction program. The next phase of expansion will  - 17 - involve the need to recruit and train operating staff. When all current developments have been completed and commissioned, NTPC's establishment will have grown from a present 2,658 to a figure in the neighborhood of 10,000. The importance, therefore, of implementing training programs for the various expertises required during the construction and operational phases cannot be too highly stressed. 2.11 Fortunately, NTPC has placed special importance on this aspect of its organization, and training programs are being developed by the Corporation which will, in due course, be backed by a training school equipped with simu- lators, financed both from the proceeds of Credit 793-IN and from the proposed loan and credit, and other modern facilities for instructing and training the operating staff. 2.12 NTPC's training programs which so far have concentrated on pre- operational spheres of activity such as Planning, Design, Construction and Management, are now additionally being aimed at its operational sphere. Some of the current major activities are: (a) Professional engineering training for Executive Trainees (Engineering). (b) Professional engineering training for Supervisory Trainees (Engineering). (c) Management development programs. (d) Seminars and lectures on selected topics. (e) Familiarization courses for both accounting and managerial staff on the accounting systems and procedures being imple- mented by NTPC's consultants. Recruitment of young executive trainees is mainly from engineering graduates belonging to mechanical, electrical and civil disciplines on appointment, who are inducted into a one-year training program. The first group of young executive trainees was recruited in February 1977, the second in December 1977 and the third by mid-1978 comprising 35, 45 and 84 members respectively. The fourth group comprising 131 trainees was recruited in 1979 and training commenced on November 25, 1979. The training programs have been well designed to provide exposure to power stations under construction and operation, equip- ment manufacturing plants, engineering descriptions and project management services. For these purposes, assistance is taken from a large faculty of experienced engineers and managers selected from all over the country. 2.13 With the first 200 MW generating unit scheduled to commence commer- cial operation in FY1982, NTPC has finalized comprehensive plans for training operational staff, particularly the non-supervisory staff in the various tech- nical and non-technical trades, to provide foremen for the first two units at Singrauli. The manpower for these is being drawn from experienced staff as well as from fresh recruitment. Recruitment of manpower has commenced and key personnel, such as the station superintendent, are already in position. 2.14 On-the-job training has high priority. The methodology includes classroom lectures, participation in group exercises and discussions supported  - 18 - by direct reading, audio-visual presentations and plant visits. Overall training plans and arrangements at this time are satisfactory. Sale of Power from the Project 2.15 As in the case of NTPC's other projects being financed with Bank Group assistance, GOI has undertaken to allocate at least 85% of Farakka's power to the Eastern Region States, the remaining 15% will be sold in accord- ance with priorities to be determined by CEA to States with the greatest need. During negotiations, GOI confirmed that allocation of 85% of the output of power from the project to the SEBs of Bihar, West Bengal and Orissa and the DVC had been agreed in principle. Undertakings to this effect from these organizations would be forwarded to the Bank Group by October 10, 1980. Accounting Organization and Systems 2.16 NTPC and its management consultants report good progress in the planning of NTPC's finance and accounting organization (Annex 8) and in the design and implementation of accounting systems and procedures. The design of accounting systems for both the construction and operational phases of NTPC's activities has been completed. Implementation of systems for the construction phase is either complete or at an advanced stage both at the corporate center at headquarters, and also at the sites, while the consul- tants' proposals for the operational phase are at an advanced stage of discussion with management. To familiarize staff with the systems and procedures, training courses are being conducted by the consultants in conjunction with staff members from NTPC's corporate center. Audit 2.17 The audit of NTPC's accounts and records is undertaken by a profes- sional auditor appointed by the Company Law Audit Board, on the recommendation of the Comptroller and Auditor General of India. The auditor is normally a member of the Indian Institute of Chartered Accountants, and his audit report on NTPC's financial statements is subject to comment by the Auditor General. The current auditor Messrs. V. K. Mehta and Company, Chartered Accountants, Delhi, has audited NTPC's accounts since its incorporation and their audit reports have expressed satisfaction at the state of the company's affairs during this period. It should be borne in mind that NTPC's activities will cover only project construction until FY1982 when power will be sold for the first time. NTPC has already undertaken in connection with previous credits (and loan) to submit to the Association/Bank audited financial statements within seven months of the end of the fiscal year to which they relate, to- gether with a certified report by the auditor, and a review of the accounts by the Director of Commercial Audits. This has been restated in connection with the proposed loan and credit. III. THE PROGRAM AND THE PROJECT The Program 3.01 NTPC's present development program comprising the four central thermal power stations Singrauli, Korba, Ramagundam and Farakka, with asso- ciated 400 kV transmission, is part of India's power development program  - 19 - which is described in paragraphs 1.24 through 1.27. The four power plants, totalling 7,300 MW, have been located at coal fields, since it is more eco- nomical to transport electricity than coal to the load centers. 3.02 The first stages of the four central power stations consisting in each case of three 200 MW generating units and associated transmission are under construction. The commissioning of the power plant units is scheduled between February 1982 (first 200 MW unit at Singrauli) and July 1989 (last 500 MW unit at Ramagundam). The Project 3.03 The project represents the first stage of the Farakka development comprising three 200 MW units with associated transmission totalling about 410 km of 400 kV lines. 3.04 Farakka is NTPC's fourth plant in the series of large thermal power stations to be constructed by NTPC, to feed into a 400 kV system and supply bulk power to the SEBs. The present planned capacity of Farakka is 1,100 MW; however GOI is considering its extension to a final capacity of 2,100 MW. 3.05 The proposed site of the Farakka power station is in the Murshidabad District of West Bengal. The station is to be located on the west bank of the Farakka feeder canal and will utilize coal from the Hurra block of mines of the Rajmahal coal fields in Bihar. 3.06 The unit size of 200 MW rather than 500 MW was adopted for the first stage of the power plant so that each unit would represent only about 4% of the expected peak load in the Eastern Regional grid at the time of commissioning. A 500 MW unit would represent over 10% and would limit the flexibility of operation of the power grid. In addition, with the regional 400 kV network not yet being fully developed by that time, the sudden outage of a 500 MW unit could create system stability problems. The second stage would be designed for three 500 MW generating units although only one such unit is planned at this time. 3.07 The main criteria for site selection were availability of coal and cooling water. The Hurra basin of the Rajmahal coal fields contains an area earmarked for open-cast mining with about 340 million tonnes of proven mine- able coal reserves. The mines would have a productive life of about 85 years, supplying the amount of coal needed by the power plant with a capacity of 1,100 MW. The present production program for the new mines to supply the project envisages a build up from 1.1 million tonnes per year in 1983/84 to 4.2 million tonnes per year by 1985/86 and 5 million tonnes from 1986/87 onwards. The mine will be operated by Eastern Coalfields Ltd., GOI's mining company for the Eastern Region, an experienced company which has developed and operates a substantial number of other mines. During negotiations GOI agreed that necessary steps will be taken to ensure adequate coal supplies for the efficient operation of the project. Coal will be transported from the Hurra mines some 50 km from the power station by a captive rail transportation system which is to be installed for this purpose. As in the case of NTPC's  - 20 - other three power plants under construction, a merry-go-round system would be constructed, in this case with a total length of 87 km. The rail system will be owned and operated by NTPC. 3.08 The power station's cooling water requirements would be met from the Farakka feeder canal where an abundance of water is available. The mini- mum flow in the canal is estimated at over 25,000 cu. ft./sec, and the esti- mated requirements of cooling water for the 1,100 MW power station is less than 8% of the canals minimum flow. The cooling water will be returned to the canal some 1.5 km below the intake point. The Farakka Barrage Authority has given gn undertaking, confirmed by the Central Water Commission, to supply up to 84 m (3,000 cu. ft.)/sec for consumptive use. Availability of water for the project should therefore present no problems. 3.09 The operation of the Farakka power station will be integrated with the Eastern Regional System and its power output will be allocated to the States in the Eastern Region. For the first 600 MW phase the associated transmission to evacuate power from the power station will comprise 400 kV single circuit transmission lines between Farakka and Durgapur and Farakka- and Jeerhat aggregating 410 km. In the second phase, an additional 230 km of 400 kV line will be added between Farakka and Mokamah. 3.10 The project consists of: (a) acquisition of land, civil works comprised of roads, cul- verts and other miscellaneous preliminary works, power station and residential buildings, plant foundations, railways, canals, ducts and other works associated with the circulating water systems; (b) three 680 tonnes/hour boilers and three 200 MW turbo- generating units complete with all auxiliaries and ancillary electrical and mechanical equipment including the switchyard; and (c) the 400 kV transmission lines comprising one 165 km single circuit line from Farakka to Durgapur and one 245 km single circuit line from Farakka to Jeerhat. (d) a training simulator. The project is described in greater detail in Annex 9. Estimated Cost 3.11 The estimated cost of the project, excluding interest during con- struction and duties and taxes, is about Rs 4,119 million (US$490 million). On the assumption that most of the contracts will be won by Indian suppliers, the direct and indirect foreign currency costs are estimated at about Rs 521 million (US$62 million) and the local currency costs at Rs 3,598 million (US$428 million). The estimated cost of the project is set out in Annex 10 and summarized in Table 3.1 below:  - 21 - Table 3.1: ESTIMATED COSTS Local Foreign Total Local Foreign Total ------Rs million