Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4661 PROJECT PERFORMANCE AUDIT REPORT ZAMBIA: KARIBA NORTH HYDROELECTRIC PROJECT (LOAN 701-ZA) August 12, 1983 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT ZAMBIA: KARIBA NORTH HYDROELECTRIC PROJECT (LOAN 701-ZA) TABLE OF CONTENTS Page No. Preface ............................................. .............. i Basic Data Sheet .. .. ................. ......................... ii Highlights .............................. . iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. PROJECT SUMMARY ..1 II. SUPPLEMENTARY COMMENTS .................... 2 III. CONCLUSIONS ...... ........... 5 Annexes: A & B: Comments from the Central African Power Corporation . 6 PROJECT COMPLETION REPORT I. Introduction ............................................. 14 II. Project Preparation and Appraisal ......... .......... 16 III. Project Implementation, Operation and Cost ............... 20 IV. Project Justification .................................... 30 V. Financial Performance ....................... 32 VI. Bank Performance ......................................... 36 VII. Lessons to be Learned ....... ....... ........ 37 Annexes: 1. Major Covenants in the Original and Amended Loan and Guarantee Agreements ...................... 39 2. Project Cost .......... ............. 40 3. Disbursement Schedules, 1970-81 .......................... 41 4. Appraisal and Actual System Demand and Energy Requirement for CAPC System, 1970-80 ................... 42 5. Analysis of Disposition of Kariba North Output for Calculation of Economic Rate of Return, 1976-95 ........ 43 6. Benefits, 1976-85 ....... 44 7. Costs, 1970-82 ........................... .. 45 8. Cost/Benefit Streams, 1976-96 ....... ...... 46 9. Forecast Demands and Energy Requirements for Zimbabwe and Zambia, 1980-90 .................................... 47 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 (cont.) Annexes (cont.) Page No. 10. CAPC-KNBC-ZESCO Financial Agreement for Electrical Power Generated in Zambia, 1970-80............. ....... 48 11. CAPC Appraisal Estimate and Actual Balance Sheets, 1970-80 ........... 50 12. CAPC Appraisal Estimate and Actual Income Statements, 1970-80 ..... 51 13. KNBC Balance Sheets, 1971-81 ....................... ... 52 14. KNBC Income Statements, 1976-78 ............ ...... 53 15. CAPC and KNBC Consolidated Balance Sheets, 1970-78 ....... 54 16. CAPC and KNBC Appraisal Estimate and Actual Consolidated. Income Statements, 1970-80 . ....... .55 Map - 1 - PROJECT PERFORMANCE AUDIT REPORT ZAMBIA: KARIBA NORTH HYDROELECTRIC PROJECT (LOAN 701-ZA) PREFACE This report presents the results of a performance audit of the Kariba North Hydroelectric Project for which the Bank provided two loans totalling US$82.1 million: Loan 701-ZA for US$40.0 million on July 29, 1970, and a supplementary loan for US$42.1 million on August 16, 1974. These amounts were fully disbursed on September 5, 1980. The report consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED), and a Project Completion Report (PCR) prepared on July 8, 1981, but updated to reflect recent developments. Although the PCR is comprehensive, the audit has examined the following points in some depth: - the electricity demand, - competing objectives, - the regional system, and - implementation problems. The PCR has been prepared by the Eastern Africa Region's Energy Division, based on the study of a Bank consultant. In reviewing it, the audit has looked into Bank reports, records and files !/. Further, the Bank staff associated with the project have been interviewed. The draft audit report was sent to the borrower, and the Central African Power Corporation for comments. The Corporation's comments are reproduced as an annex to the PPAM. No separate comments were received from the borrower. 1/ Including the Appraisal Report (No. PU44) dated June 23, 1970; the President's Reports (No. P-843, and No. Pl380a-ZA) of June 24, 1970 and June 14, 1974; the Loan and Guarantee Agreements dated July 29, 1970; the Amendments of August 16, 1974; correspondence with the bor- rower; and internal Bank memoranda on project issues contained in the Bank files. - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET ZAMBIA: KARIBA NORTH HYDROELECTRIC PROJECT (LOAN 701-ZA) KEY PROJECT DATA Actual or Original Plan Amended Plan Current Estimate Item June 1970 June 1974 (1K=US$ 1.24) Total Project Cost (US$ million) 50.6 107.8 130.3 Overrun (%) - - 21 Loan Amount (US$ million) 40.0 82.1 82.L/a Disbursed 40.0 82.1 82.1/.a Cancelled - 0 Repaid to March 1981 (US$ million) 9.96 Outstanding at March 1981 including currency fluctuations (US$ million) - - 81.88 Date for Completion of Physical Components 06/75 07/76 05/77 Proportion Completed by Target Date (%) 70 95 - Internal Economic Rate of Return (%) 17 14 8.9.Lb Cumulative Estimated and Actual Disbursements (US$ millions) FY 74/75 75/76 76/77 77/78 78/79 79/80 80/81 (i) Appraisal Estimate (06/74) 64.9 81.4 82.1 - - - - (ii) Actual 50.7 69.1 75.1 80.7 81.6 82.0 82.1 (ii) as % of (i) 78 84.9 91.5 - - - - OTHER PAOJECT DATA Item Original Supplement First Mention in Files or Timetable 12/13/65 12/13/65 Negotiations 05/17/70 02/13/74 Board Approval Date 07/07/70 07/05/74 Loan Agreement (signed) 07/29/70 08/16/74 Effectiveness Date 01/07/71 12/02/74 Closing Date 07/01/76 12/31/80 Borrower Kariba North Bank Company Kariba North Bank Company (KNBC) (KNBC) Fiscal Year of Borrower July 1 - June 30 Follow-on Project Kariba North Supplement Loan No.: 701-ZA Total Amt. of Loan: US$ 40.0 million (first tranche) & US$42.1 million (second tranche) Loan Agreement Dates: 07/29/70 and 08/16/74 Footnotes on following page. - iii - MISSION DATA Month/ No. of No. of Man- Date of Item Year Weeks Persons weeks Report Preappraisal 04/69 2 3 9 06/69 Preappraisal 07/69 1/2 2 1 08/69 Appraisal Mission 11/69 4 2 38 05/70 Supervision I 09/71 2 1 2 10/71 Supervision II 02/72 2 1 2 03/72 Supervision III 05/73 6 2 9 07/73 Supervision IV 09/73 5 2 7-1/2 11/73 Supervision V 09/74 4 2 7 11/74 Supervision VI 11/74 2 2 6 02/75 Supervision VII 06/75 4 2 10 08/75 Supervision VIII 01/76 2 2 6 03/76 Supervision IX 06/76 2 3 9 07/76 Supervision X 01/77 2 2 6 02/77 Supervision XI 04/78 3 2 8 05/78 Supervision XII 03/79 1/2 1 1/2 05/79 Supervision XIII 04/80 1/2 1 1/2 07/80 Completion 06/81 1 1 1 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Kwacha (K) = 100 ngwee (N) Appraisal Year Average US$1.00 = K 0.71 Intervention years average US$1.00 = K 0.81 Completion Year US$1.00 = K 0.81 Rhodesian Dollar (Appraisal) R$1.00 = K 1.00 Rhodesian Dollar (Completion) R$1.00 = K 1.21 /a A supplementary IBRD loan of US$42.1 million was approved July 5, 1974. /b IERR was calculated with respect to tariff levels prevailing at the end of 1982 (PCR, para. 4.05). Fuel savings are included in the calcula- tion of the IRR. - iv - PROJECT PERFORMANCE AUDIT REPORT ZAMBIA: KARIBA NORTH HYDROELECTRIC PROJECT (LOAN 701-ZA) HIGHLIGHTS Kariba North was the second stage of the Kariba hydroelectric development program on the Zambezi River. The project has provided additional generating capacity (600 MW) to Zambia and Zimbabwe..!/ Although the Kafue River had already made Zambia self-sufficient in power generation, Kariba North secured additional sources of local supplies. However, the main objective, which is to develop least cost programs for Zambia and Zimbabwe (and possibly Malawi and Zaire), has been endangered by the unresolved issues pre-occupying the two governments. These issues concern the export price of electricity and the structure and operation of the Central African Power Corporation (CAPC). The Corporation, owned jointly by Zambia and Zimbabwe, was estab- lished to develop Kariba on a transnational basis. Moreover, CAPC is em- powered to direct the public utilities of the two nations to operate their generating capacity, connected to its grid, at the least cost. Because of Zimbabwe's dependence on power imports from Zambia, and the low cost of such imports, this objective seems to have been met. The Corporation's governing body is the Higher Authority for Power (HAP) in which Zambia and Zimbabwe are equally represented. The two nations had agreed in 1963 to follow certain general policies. They also had agreed to refer unresolved disputes to arbitration. Because of the Unilateral Declaration of Independence by Southern Rhodesia in 1965 and the ensuing regional discord, HAP lost its effectiveness. But since the re-establishment of legal government in Zimbabwe in 1979, HAP met in February 1982, and set up a panel of experts to review CAPC's status. The completion of Kariba North was delayed by two years; the final cost being two and a half times the appraisal estimate (PCR, para. 3.17). The cost overrun was financed, in part, by a supplementary loan from the Bank. Cost escalations and market uncertainties had undermined the Corporation's financial prospects. But an interim arrangement between Zambia and Zimbabwe reached in 1977 improved them; the 1980 balance sheet being quite sound (PCR, para. 5.13). 1/ During the implementation period the country was called Southern Rhodesia. - v - Main reasons for the implementation delay were the difficulties experienced by, and eventually the financial collapse of, the first civil works contractor. Despite cost overruns Kariba North electricity is cheap, and until recently had been underutilized. Other points of interest concern the competing objectives, the regional system, and the implementation difficulties. The audit has concluded that although the security of supply and the least cost electricity are reconcilable objectives, the interested countries (Zambia, Zimbabwe and possibly Malawi and Zaire) can achieve them only if they agree on major policy issues, including an equitable pricing arrangement (PPAM, para. 21), and a competent regional authority (PPAM, para. 14). Such a regional system by ensuring access to a diversified market could also allay load growth un- certainties (PPAM, para. 11). - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM ZAMBIA: KARIBA NORTH HYDROELECTRIC PROJECT (LOAN 701-ZA) I. PROJECT SUMMARY 1. Kariba North is part of a unified transnational system which has been experiencing difficulties because of political changes in the area. The project consists of an underground power station on the North Bank of the Zambezi River at Kariba in Zambia, with an installed capacity of 600 MW. The station has been designed to allow a further 300 MW addition to its capacity. The project's four generating units (150 MW each), scheduled for service during June 1974 to June 1975, were delayed by about two years. 2. Kariba North was built to satisfy the growing demand for electri- city in Zambia and Zimbabwe. However, after 1974 the Zambian demand stag- nated; the 1980 level being only 2% above the 1974 level. Power Market Annual rate of Zambia Zimbabwe growth in power demand (%) Forecast/a Actual/ Forecast.& Actuaj/b 1969-74 10.0 9.8 13.1 13.5 1974-80 5.8 1.0 6.3 4.3 Demand in MW 1974 740 710 963 799 1980 1,038 754 1,116 1,028 /a Appraisal Report, 1970. /b PCR. 3. Besides satisfying demand, the project aimed to promote the develop- ment of least cost power expansion programs for Zambia, Zimbabwe and possibly Malawi and Zaire. The further reinforcement of the security of power supply to Zambia by building plants under its control was also implicit in Zambia's development strategy in the 1960s and the early 1970s. The achievement of the first objective depended on arrangements for a strong regional authority (CAPC), and a satisfactory export price. Whereas the project has given Zambia additional local supplies, issues surrounding the regional system remain unresolved. - 2 - 4. Kariba North's cost of K105 million (US$146.9 million) was two and a half times the appraisal estimate made in 1970 (PCR, para. 3.17). Changes in the project content were minimal; the construction of a tailrace channel (K2.9 million) being the only major modification. About 49% of the cost overrun was caused by price escalation and exchange rate appreciations, 25% by implementation problems, 10% by re-routing imports, and the balance by increases in interest during construction, supervision and other costs. However, implementation problems of the first civil works contractor were mainly responsible for the increases in other cost items. 5. Despite cost overruns the Kariba North power is inexpensive: 1.1 USJ/kWh, in 1980 prices, which is cheaper than the cost of any possible thermal power. But the project's capacity had been underutilized because electricity demand in Zambia did not grow as expected due to the decline in world copper market. Also, the growth in power demand in Zimbabwe slowed down after 1977/78 because of internal disorder and war. Consequently, the implementation delays caused little direct economic losses as there was no power shortage during this period. However, some foreign exchange earnings were lost because of lower sales to Zimbabwe, which could have bought Kariba North power in substitution for its coal-based electricity. 6. Since CAPC was responsiblel/ for the implementation and operation of Kariba North, its financial performance is of relevance to this review. During the appraisal the Bank was satisfied with the Corporation's cash flows. No financial problems were expected to emerge through FY76. But the need for a tariff increase became urgent as costs escalated and power markets remained depressed. Zambia also questioned the equity of the pricing system, and the CAPC-A structure and operations. An interim arrangement reached in 1977 while strengthening the Corporation's financial position left unresolved the fol- lowing issues: the equitable sharing of costs and benefits of Kariba Complex and the Zambian sovereignty and control over electricity export to Zimbabwe. II. SUPPLEMENTARY COMMENTS 7. Issues that emerge from this review concern: the electricity demand, competing objectives (least cost expansion vs. security of supply), the regional system, and implementation problems. 1/ In June 1970, Zambia created the Kariba North Bank Company (KNBC) to build the project (PCR, para. 1.05). By an earlier arrangement reached between Zambia and the U.K., KNBC appointed CAPC as its agent to under- take.the project. The arrangement also envisaged that KNBC would lease the station to CAPC for an amount equivalent to debt service plus KNBC's administrative expenses (PCR, para. 2.07). -3- Electricity Demand 8. The commanding position of copper mines in Zambia greatly influences the size and the growth of the power market. This is because the mines consume the bulk of electricity supply, and through their income effect largely determine the non-copper component of demand. 9. The Zambian economy and power market suffered because of the sharp drop in the contribution of copper to the GDP from about 40% in the mid-1960s to 20% in the mid-1970s. Since the industry is governed by external forces, demand for electricity has also become largely dependent on copper export prospects, which have been unfavorable since 1974. 10. Given this background, could Zambia have hedged against an uncertain growth in demand? Although the answer to the question can be equivocal at best, the regional market in Zimbabwe.! by providing a more diversified outlet has reduced the risks. However, because of the unresolved issues referred to in para. 6, this opportunity of power export to Zimbabwe may be restricted in the future. Competing Objectives 11. Considering the importance of copper to the Zambian economy, and of electricity to the copper sector, the security of electricity supply became a major national objective. The cheap hydro resources of the Kafue and Zambezi Rivers provided advantageous means of reaching this goal. There- fore, whereas about one-third of the power demand was being satisfied by plants located in Zambia in 1969, the country achieved appreciable export surplus by the year 1977. However, Zimbabwe also wants secure sources of power supply. 12. The region has abundant natural endowments. The Zambezi river still has considerable potential - about 4,000 MW. The Zimbabwean coal is plentiful. Zaire is also rich in energy resources. Based on these natural endowments the two competing objectives (security of supply vs. least-cost expansion) are reconcilable provided these nations agree to support an equit- able pricing formula and a strong regional authority. 13. In contrast, the self-reliance objective seems to have gained the upper hand. A least cost expansion program for Zambia and Zimbabwe would have continued to exploit the region's hydro resources. Instead, Zimbabwe is building thermal plants. The shift from hydro- to thermal power has been justified because of the growing Zimbabwean demand. It is argued that the hydro schemes cannot be completed on time, although a more effective CAPC, which had foreseen the problem, might have acted earlier. 1/ Zaire and Malawi also provide export outlets. However, Zaire's economy has been depressed and the size of Malawi market is limited. -4- Regional System 14. As noted elsewhere (PPAM, p. vi), HAP has established a panel to study the regional system. Before the study can begin, HAP needs to decide on CAPC's long-term objectives. For achieving the Kariba North goals, any changes affecting the Corporation should maintain its technical competence and reinforce its non-political character. While HAP focuses on policy issues, the QAPC must attempt to provide efficiently and at the least-cost reliable power to Zambia, Zimbabwe, and possibly Malawi and Zaire. Implementation PKoblems 15. The project ran into serious implementation problems which have been discussed in PCR paras. 3.06-3.11. The audit reviewed these problems, but found them to be controversial. Further, the legal battle over contract problems ended in May 1980 in a secret out-of-court settlement. According to a press report, none of the parties conceded any liabilities. The first civil works contractor, who started work in February 1971, went into receiver- ship early in 1973. 16. Two questions stand out: (a) Since only one borehole was drilled on the site of the power house, could a more intensive geological investiga- tion have prevented excavation problems? (b) Considering the implementation problems, was the prequalification of bidders rigorous? 17. Site Investigations. Were they enough? No credible answer can be given. The exploratory work for the underground power station, done in 1961, included a number of boreholes and adits. Later, when the site of the machine room was relocated, no additional geological investigation accompanied the shift. As a result, only one borehole coincided with the new location; two others and two adits were in the general vicinity. There is no evidence that further pre-bid site investigation was suggested by the consultant, the Bank or the local authorities. However, the key question is whether the data pertaining to the earlier boreholes were substantially different from those found on the site. 18. Since no major differences in the data have been reported, the enquiry should focus on the accurate presentation and interpretation of borehole logs rather than the adequacy of site investigation. The records show that the consultant's expert failed to report the occurrence of biotite schist and structural weaknesses.-/ The document included in the bid de- scribed the rock as sound with few anomalous features. Further, a clause in the contract said that the employer warranted the factual accuracy of the borehole records as presented. The contractor was, however, expected to carry out site investigation after the award of the contract.V I/ No second opinion on the analysis of the rock cores was obtained prior to bidding. 2/ There is no evidence that the first contractor performed any site - 5 - 19. Further, interested contractors visited the site. Rock cores were made available to them; the intention being to allow them to use their judge- ment in evaluating the site and cores. Based on these visits, bidders could possibly have detected or become suspicious of the faulty interpretation of the rock cores. Presumably, had rock conditions been known, the specifica- tions would have required some type of support system; the work presenting no serious problem when planned in advance. 20. The Prequalification of Bidders. Skepticism about the rigor applied in prequalifying contractors is probably justified. A more detailed scrutiny of the first contractor's experience, financial position, and implementation capacity would probably have uncovered deficiencies encountered during imple- mentation. Therefore, at the prequalification and bidding stages, the Bank should have insisted that the borrower and his consultant be more rigorous in specifying the minimum conditions for qualification and in checking the experience, financial position, implementation capacityl/, and skills of the firms that applied. In addition, the Bank could have suggested requalifica- tion at the time of the contract award decision. III. CONCLUSIONS 21. The continuity and expansion of a transnational system depends on the equitable distribution of benefits among participants. 22. The efficient expansion and operation of the system presupposes the existence of a strong and self-reliant entity. 23. For a less troublesome implementation, the pre-qualification of contractors requires a more rigorous scrutiny than revealed by the Kariba North experience. (For specific comments see PPAM, para. 20.) 1/ The evaluation should compare the projected work load and a contractor's capacity (personnel, equipment, and material), other project commitments, and potential for doing additional works which might arise. - 6 - ANNEX A Page 1 of 6 WORLDBANK440098 4230 CAPCO ZW TO: WORLDBANK, WASHINGTON DC, SX 14967 26.5.83 FOR ATTENTION MR. SHIV S. KAPUR DIRECTOR, OPERATIONS EVALUATION DEPARTMENT THANK YOU FOR YOUR 9874230:32903 / 5 MAY 1983. SOME COMMENTS ON TEXT OF DRAFT REPORT AND ELECTRICAL STATISTICS FOLLOW: PAGE 1 PROJECT SUMMARY: THE "ACTU L" COLUMNS IN THE POWER MARKET TABLE SHOULD BE AMENDED AS FOLLOWS: ZAMBIA - ACTUAL ZIMBABWE - ACTUAL 9,8 PERCENT 13,5 PERCENT OED Notes: 1,0 PERCENT 4,3/S Corrections made to PPAM, 710MW 799MW para. 2. 754MW 1028MW THE MW FIGURES ARE FOR SIMULTANEOUS DEMAND EXCLUDING TRANSMISSION LOSSES. PAGE 2 PARAGRAPH 5: THE POWER DEMAND IN ZIMBABWE DID NOT STAGNATE Correction made to PPAM, UNTIL THE YEAR 1977/78 para. 5. 7 ANNEX A Page 2 of 6 PROJECT COMPLETION REPORT SECTION 1.02: THE ORIGINAL RATING OF THE SOUTH BANK Footnote added to STATION WAS 600MW WHICH WAS INCREASED TO 705MW. THE PCR, para. 1.02 PRESENT RATING FOR THE PURPOSES OF THE ZAMBIA/ZIMBABWE POWER SHARING AGREEMENT IS 666MW. SECTION 1.03: FOR CENTRAL AFRICAN POWER-COMPANY Corrections made. SUBSTITUTE CENTRAL AFRICAN POWER CORPORATION ALSO IN SECTION 1.07. SECTION 2.04: SUGGEST AMENDING THIS TO READ 'CAUSED EROSION OF THE SIDES AND BOTTOM OF THE STILLING POOL WHICH THREATENED THE STABILITY OF THE DAM AND AN PCR, para. EXCESSIVE AMOUNT OF SPRAY WHICH THREATENED THE STABILITY 2.04 revised. OF THE BANKS IN THE NEIGHBOURHOOD OF THE KARIBA SOUTH TAIL RACE TUNNELS....' SECTION 2.10: THE PRESENT PLANS ENVISAGE AN EXTENSION OF 300MW AT BOTH KARIBA NORTH AND KARIBA SOUTH. PLANS FOR EXTENSION BEYOND THIS CAPACITY ARE ONLY TENTATIVE. Footnote to PCR, REGARDING FOOTNOTE A THE FIRST UNIT OF HWANGE 1 IS para. 2.10 NOT EXPECTED TO BE OPERATIONAL UNTIL JUNE/JULY 1983. revised. 8- ANNEX A Page 3 of 6 SECTION 3.05:THE FIRST UNIT WAS COMMISSIONED ON MAY Correction made to PCR, 24TH 1976 para. 3.05 SECTION 3.28: SUGGEST AMENDING LINE 9 TO READ: 'MAIN THRUST BEARING ON ALL 4 MACHINES WERE LIABLE PCR, para. 3.28 TO OVERHEAT PARTICULARLY DURING STARTING. amended. SECTION 3.29: LINE 4: THE CONSULTANTS REPORT OF JUNE 1980 ON THE GENERATORS THRUST BEARINGS STATES CATEGORICALLY 'THE PCR, para. 3.29 HISTORY OF BEARING TROUBLES INDICATES CLEARLY THAT amended. THE THRUST BEARINGS OF THE KARIBA NORTH GENERATORS ARE NOT RELIABLE'. SEE PAGE 30. SECTION 4.05: LINE 3 AMEND TO READ 'POWER FROM PCR, para. 4.05 THE E.S.C. amended. AND HARARE (SALISBURY) ' ETC..... SECTION 6.02: THE CORPORATION DOES NOT OF COURSE AGREE PCR, para. 6.02 WITH THE STATEMENT IN THE FINAL SENTENCE: amended. ANNEX 4 PAGE 1: THE FIGURES IN TABLES A AND B SHOULD BE AMENDED AS FOLLOWS: - ANNEX A - 9 - Page 4 of 6 ACTUAL MW: (SIM. DEMAND EXCLUDING TRANSMISSION LOSSES) ZIMBABWE ZAMBIA TOTAL 1970 462 504 947 1971 509 559 1059 PCR, Annex 1, 1972 635 584 1203 page 1 has been 1973 735 644 1370 amended. 1974 799 710 1510 1975 858 724 1582 1976 956 754 1682 1977 988 743 1690 1978 936 749 1661 1979 944 748 1689 1980 1028 754 1760 1981 1084 804 1869 1982 1131 833 1946 SALES GWH: ACTUAL: ZAMBIA ZAIRE TOTAL 1976 5420 103 11674 1978 5238 - 11334 1979 5307 11455 1982 5905 13445 ANNEX A - 10 - Page 5 of 6 ANNEX 5: PAGE 1: GWH ACTUAL: WE DO NOT UNDERSTAND COLUMN 2 FIGURES OF 5999 SHOWN FOR ALL YEARS NOR THE FIGURES DERIVED FROM IT IN Amend- COLUMNS 4, 5 and 8. WE AGREE COLUMN 3 EXCEPT 1976 - ments made to 117 GWH AND AGREE COLUMN 7 EXCEPT 1976 - 5420GWH. PCR, Annex 5. IF COLUMN 10 IS MEANT TO BE THE TOTAL ENERGY FLOW ACROSS THE ZAMBESI FROM N TO S THE FIGURES SHOULD READ 2227, 2437, 2894, 3221, 3844 FROM 1978 TO 1982 IN- CLUSIVE. THERE WERE NO ACTUAL SALES TO ZIMBABWE IN 1976 OR 1977. IN THE NOTES THE REFERENCES TO COLUMN NUMBERS NEED CORRECTING. ALSO THE REFERENCE IN NOTE 3 SHOULD BE TO CAPC AND ZESCO 330KV LINES. ANNEX 6: PAGE 1: RE +SALES TO ZIMBABWE (GWH). THERE WERE NO SALES IN 1976 AND 1977 YEARS. FROM 1978 TO Amend ments 1982 INCLUSIVE THE FIGURES WERE: 1101, 1165, 1637, 2320 meto ade to AND 2612 GWH. NOTE: THESE FIGURES ARE THE SALES IN PCR, Annex 6, EXCESS OF THE ZIMBABWE ENTITLEMENT OF 5000GWH -EXCEPT page 1. IN 1978 AND 1979 WHEN ENTITLEMENTS WERE REDUCED TO 4351 AND 4835 GWH BECAUSE OF REDUCED PLANT AVAILABILITY. ANNEX 12 AND 16: THE ACTUAL ENERGY SALES FOR 1976 Amend- ments SHOULD BE 11,674 GWH. made to PCR, FURTHER COMMENTS ON THE FINANCIAL ANALYSES IN THE VARIOUS Annexes 12 and 16. TABLES ARE NOT YET AVAILABLE AND WILL HAVE TO FOLLOW WHEN COMPILED - AS WELL AS COMMENTS ON SOME CIVIL ENGINEERING ASPECTS. IN PASSING WE HAVE NOTICED THAT THE NET REVENUE FIGURES SHOWN IN ANNEX 12 DIFFER FROM THOSE IN THE CORPORATION'S ANNUAL REPORTS FOR THE YEARS 1976 ONWARD. ANNEX A - 11 - Page 6 of 6 FROM: SLACK FOR: SHEPHERD CENTRAL AFRICAN POWER CORPORATION TELEX 4230 CAPCO ZW WORLDBNK440098 REPLY VIA ITT - 12 - ANNEX B Page 1 of 2 0857 EST WORLD BANK 440099 4230 CAPCO ZW 27/6/83 WORLDBNK 4400550 TO: WORLD BANK, WASHINGTON, D.C. UNITED STATES OF AMERICA FORTHEATTENTION OF: MR. SHIV S. KAPUR, DIRECTOR OPERATIONS EVALUATION DEPARTMENT DRAFT PROJECT PERFORMANCE AUDIT REPORT, KARIBA NORTH FURTHER TO ENGINEER BLACK'S COMMENTS OF 26 MAY I HAVE NOW HAD THE OPPORTUNITY TO EXAMINE FINANCE FIGURES RE- LATING TO CENTRAL AFRICAN POWERCORPORATION AND HAVE THE FOLLOWING COMMENTS TO MAKE: ANNEXURE 11: CURRENT LIABILITIES: OVERDRAFT IN SOUTHERN RHODESIA: OED Note: THIS LINE OF FIGURES DUPLICATES THE MEDIUM TERM DEBT Line FIGURES TWO LINES ABOVE AND DOES NOT ADD INTO THE deleted in PCR, CURRENT LIABILITIES TOTAL. SHOULD BE DELETED? Annex 11. ANNEXURE 15: ACTUALS: FIXED ASSETS IN OPERATION: FROM 1976-8 TOTAL OF TWO BALANCE SHEETS EXCEEDS TOTAL OF CONSOLIDATED BALANCE SHEET BY K 4 699 OTHER ASSETS: 1977 FIGURE SHOULD BE 5 197 ) EITHER ) Amendments NOT 5 097 COMPEN- made in ) SATING PCR, ACCOUNTS RECEIVABLE: 1977 FIGURE SHOULD ) Annex 15. ERRORS BE 6 765 NOT 6 865 ) OR )ADJUSTMENT ANNEX B - 13 - Page 2 of 2 LONG TERM DEBT: 1977 FIGURE SHOULD BE 9 767 NOT 2 767. TOTALLED AS IF 9 767 OTHER DEBT 1973 FIGURE SHOULD BE 78 676 NOT 78 706. TOTALLED AS IF 78 676. OTHER IBRD 1977 FIGURE SHOULD BE 59 785 NOT 57 985. TOTALLED AS IF 59 785. TOTAL EQUITY: 1975 TOTAL EQUITY SHOULD BE 88 502 NOT 85 bu2. TOTALLED AS IF 88 502. FROM: SILVERSIDES, FORSHEPHERD CENTRAL AFRICAN POWER CORPORATION, ZIMBABWE - 14 - ZAMBIA KARIBA NORTH HYDROELECTRIC PROJECT LOAN 701-ZA PROJECT COMPLETION REPORT I. Introduction Background 1.01 In reviewing the performance of the parties to this project it must be seen in the context of events beyond the influence of any of the partici- pants. Zambia is a landlocked country bordered by seven neighbouring states on whom it is entirely dependent for its communications with the outside world. In 1970 when the Bank loan was made, relations with its southern neighbour, .Southern Rhodesia now Zimbabwe, which hitherto had been its main channel of communication, were strained to near breaking point because of the Smith regime's unilateral declaration of independence (UDI). Zaire, its largest neighbour to the north, had been in a state of civil war for many years. During the course of the project civil war broke out in Angola'making commu- nications very difficult and unreliable. Further afield, the 8iafran war in Nigeria had had its impact on international companies operating in that country. These factors had a strong influence on the bidding for large civil engineering works extending over a number of years. For such works contrac- tors were obliged to commit very considerable resources in men, equipment and money and for truly competitive bidding they needed the assurance of a stable environment. That many of them did not consider such conditions to exist in this region of Africa at this time was evidenced by a marked reluctance by many firms to bid for civil contracts or if they did bid, their prices con- tained a very large element of contingencies. These difficulties were further compounded half way through the project by the OPEC decision to greatly in- 6rease crude oil prices in November 1973, which had an immediate effect on transport costs and set off an inflationary spiral which ultimately increased all other costs. The Power Sector 1.02 In 1955 the Federation of Northern Rhodesia (became Zambia, October 24, 1964), Southern Rhodesia (became Zimbabwe, April 18, 1980) and Nyasaland (became Malawi, July 6, 1964) formed a Federal Power Board (FPB) for the purpose of buying and selling bulk power in two or more of the terri- tories. The FPB was also formed to build the Kariba Dam project on the Zambesi River together with a major transmission network connecting it to all other major power stations. Later in 1955 work was commenced on construction of the Kariba Dam together with a 600 MW 1/ power station on the South Bank (1.07). By December of 1979 the first Kariba power was being distributed in Northern and Southern Rhodesia and by mid 1962 the Kariba South Bank Power Station was completed and operating at full capacity. 1/ The original rating of the power station was 600 MW which was increased to 705 MW. The present rating for the purposes of the Zambia/Zimbabwe power sharing agreement is 666 MW. - 15 - 1.03 At the end of 1963 the Federation of Rhodesia and Nyasaland was dissolved and the Central African Power Corporation (CAPC) was formed by a UK Order in Council to take over the assets, staff and functions of the Federal Power Board. The CAPC was jointly owned by Northern and Southern Rhodesia and by that time supplied virtually all the electric power consumed in both countries. All major generating stations in both countries were connected to the CAPC Grid and, except for Kariba South which it owned, were operated by CAPC under leasing arrangements. The whole of its output was sold to five distributing companies - two in Northern Rhodesia (the Copperbelt Power Company, CPC, and the Central Electricity Corporation) and three in Southern Rhodesia. The UK Government also created a Higher Authority for Power (HAP) comprising two members from Northern and two from Southern Rhodesia, to review all capital expenditure, borrowing and major policy decisions of CAPC. Without HAP's unanimous approval, CAPC could not proceed in such matters. 1.04 In October 1964 Northern Rhodesia became independent and changed its name to the Republic of Zambia. A year later in November 1965 a group of politicians in Southern Rhodesia made a unilateral declaration of independence and took over the government of the country (which they termed Rhodesia). In December 1965 it attempted to appoint two members to HAP. Since the Govern- ment of Zambia (GRZ) did not accept the legality of these appointments, HAP in effect ceased to function. 1.05 According to a report commissioned from CAPC's consultants in 1965, the least cost solution for meeting the increased power demand on the CAPC system in Zambia and Southern Rhodesia in 1970 was the completion of the Kariba Project by construction of a power station on the North Bank. This proposal could not be implemented as HAP was not functioning, and without its authority CAPC could not proceed. Subsequently when the terms of office of the Chairman of the CAPC, the HAP nomiftee and the three "Rhodesian" Board members expired the CAPC Board was without the necessary quorum of five members, since Zambia could not accept replacements appointed by the Smith regime. To overcome the immediate difficulty the Chairman and previous Board members formed themselves into a Committee which continued to direct the day to day operations of CAPC. This arrangement worked smoothly until 1970 when the need for additional generating plant on the North Bank at the Kariba Dam was perceived by Zambia, Southern Rhodesia and the Bank to be the least cost solution for meeting the power demands of both countries to 1974. With both the HAP and the CAPC Board inoperative, there was no legally recognized body to authorize such capital expenditure, borrow money or enter into agreement with other parties for lease of generating stations or purchase of power from Zambia. To overcome this difficulty the UK Government, which was still the legal government of Southern Rhodesia, obtained powers by Order-in-Council to appoint two members to HAP. Thus legally constituted, HAP appointed a Chairman and member to the Board of CAPC, who together with the three Zambian members formed a quorum, thus enabling-the Board to function once more. It was at this point, June 1970, that the GRZ created the Kariba North Bank Company Limited (KNBC) to construct the first 600 MW stage of the North Bank Power Station Project which was the subject of Loan 701-ZA. 1.06 In December 1979 the UK reasserted its legal authority in Southern Rhodesia, which enabled the HAP and CAPC once again to operate in accordance - 16 - with the 1963 UK Order in Council. In April 1980 the UK relinquished its authority and Southern Rhodesia became the independent state of Zimbabwe. Bank Lending to the Power Sector 1.07 The Bank made a loan of US$80 million (Loan 145-RN) in 1956 to the Federal Power Board (FPB) of the Federation of Rhodesia and Nyasaland, to finance part of the cost of the first stage of Kariba, consisting of a dam across the Zambesi River, a 705-MW power station on the South Bank in Southern Rhodesia, and a 330-Kv transmission system extending to all principal centers of demand in both Northern and Southern Rhodesia. It made a second loan of US$7.7 million (Loan 392-RNS) in 1964 to the Central African Power Corporation (CAPC) to finance part of the cost of transmission expansion in Zambia. Both loans were guaranteed by the UK Government as prime guarantor, and subsequently 50% each by Zambia's and Southern Rhodesia's respective authorities as secondary guarantors. II. PROJECT PREPARATION AND APPRAISAL Origin 2.01 The project is the second stage of the Kariba Project which was completed in 1962 with the assistance of Bank Loan 145-RN. Preparation, Appraisal, Negotiation and Effectiveness 2.02 Studies carried out by consultants to CAPC in 1965 indicated that more generating capacity would be needed to meet the power demand in Zambia and Southern Rhodesia in 1970. Their report showed that the construction of a 600-MW power station on the North Bank at the Kariba Dam with provision for extension to 900 MW, would be the least cost method of obtaining this power. 2.03 Because of the institutional problems arising from Southern Rhodesia's UDI it was not possible for CAPC to proceed with the project at that time, and Zambia, anxious to reduce its dependency on Rhodesia for supplies of power vital to its copper industry, went ahead with the development of two hydro- electric schemes totalling 100 MW at Victoria Falls and the first 600 MW (200 MW firm) stage of the Kafue Hydro-Electric Project. Kafue is situated in Zambia on a major tributary of the Zambesi, about 65 miles north west of Kariba. Zambia requested a Bank loan for Kafue and the Bank indicated its willingness to consider it, provided the project was reduced to the firm power capacity of 200 MW and providing Zambia proceeded with the building of the North Bank Power Station. These conditions were not acceptable to Zambia, which then obtained-financing from other sources for the Kafue project which was subsequently commissioned in 1971. 2.04 The continued spillage of water over the Kariba Dam which would otherwise have passed through the Kariba North Bank power station turbines, caused erosion of the sides and bottom of the stilling pool which threatened the stability of the dam and an excessive amount of spray which threatened the - 17 - banks in the neighbourhood of the Kariba South tailrace tunnels, with the consequent risk of landslides. By 1967 this matter was causing serious con- cern to CAPC, the Bank (whose investment in Kariba was involved) and to GRZ. For a while, all parties explored the possibility of building bypass tunnels in the North Bank with Bank financing, at a cost of about K 3 million, until May 1968 when ,GRZ indicated that it would prefer the early construe- tion of Kariba North Power Station. 2.05 Because the first stage of Kafue was already well advanced, further studies by CAPC's consultants were necessary to determine whether the Kariba North Project or Kafue Stage II, which consisted of the construction of an upstream.dam for storage at Itezhitezhi and addition of 300 MW of generating plant in Kafue, was the least cost development. The consultant-s report was published in February 1969 and showed that the least cost solution would be Kariba North followed at a later date by Kafue Stage II. 2.06 In anticipation of the outcome of the consultant's report the Bank, CAPC and the Governments of Zambia and UK were, from mid 1968 until late 1969, engaged in intensive discussions towards establishing a legal framework and financing plan acceptable to all parties. The Bank played an important part in these discussions which ended in November 1969 with the signing of a "Draft Summary of Proposed Arrangements". 2.07 The principal features of the agreed arrangements were: (a) A company wholly owned by the Zambian government to be called "Kariba North Bank Company Limited" (KNBC) would be created to raise funds and construct the Kariba North Project. (b) KNBC would appoint the CAPC as agent for construction of the project. (c) On completion of the project, KNBC would lease the power station to CAPC for an amount equivalent to debt service plus KNC's administrative expenses. (d) The project would be financed by means of loans to KNBC from the Bank for foreign costs, and from CAPC for local costs. A condition of CAPC's participation was agreement on a tariff for bulk power purchased by CAPC from Kafue. (e) Existing Loans 145-RN and 392-RNS, for Kariba South and asso- ciated transmission lines, were guaranteed by the UK as prime guarantor and also by Zambia and Southern Rhodesia as secondary guarantors. At some future date (after the complete drawdown of Loan 701-ZA), when the value of the outstanding debt services on Loan 701-ZA discounted at 7%, equalled the value of the combined debt services on Loans 145-RN and 392-RNS also discounted at 7%, the Bank, with the agreement of the UK, would release Zambia from its secondary guarantee on the 50% of Loans 145-RN and 392-RNS in return for its 100% - 18 - guarantee of 701-ZA. Since the discounted values on their respective outstanding debt services would be equal, Zambia would, in effect, remain guarantor for only 50% of the total Kariba complex loans. (f) Subject to the UK being satisfied that the Southern Rhodesian regime would not frustrate the proposed arrangements, the UK Government would take legislative action to amend the 1963 (para 1.03) Order-in-Council establishing the Higher Authority for Power, so as to enable the UK Government to appoint two "Rhodesian" members who would be legally acceptable to the Zambian Government. 2.08 On the basis of the above agreement a Bank appraisal mission visited the area in March 1970. In April the-GRZ informed the UN Security Council of its intention to proceed with the project and .since the Council raised no objections negotiations were held in May. 2.09 The UK took the agreed legislative action to reconstitute the Higher Authority for Power and by so doing restored the legal status of the CAPC Board; the loan was presented to the Bank's Board on July 7, 1970 and approved. The Project's Role in the Planned Development of Hydroelectric Resources 2.10 The project is part of a long term plan for the development of hydroelectric resources on the Zambezi River and its tributaries. Four other sites on the Zambezi with an estimated installed capacity of about 4,000 MW have been the subject of preliminary investigation. Installation of an additional 600 MW of generating plant in both Kariba North and South Power Stations is also envisaged as well as a significant increase in the capacity of Kafue. The Electricity Supply Commission of Zimbabwe'(ESC, previously Electricity Supply Commission of Southern Rhodesia), which is the sole distributor of power in Zimbabwe outside the major centres of Harare (Salisbury), Bulawayo, Mutare (Umtali) and Gweru (Gwelo), is proceeding with the construction of four 120-MW coal fired generating units at Hwange (Wankie) coal field, the construction of which was suspended in 1975. Work on this project is currently underway and the first 120 MW unit of Hwange Phase I is expected to be completed in 1983. The Government of Zimbabwe commissioned consultants early in 1981, to carry out a detailed study to determine the least cost power sector development program over the next 20 years. This program assuming agreement is reached with Zambia on the development of Kariba extension and the other sites on the Zambezi River is summarized as follows: Installed Capacity Commissioning Plant MW Year Hwange I (Thermal Coal) 480 FY83/84 a/ Hwange II (Thermal Coal) 440 FY86 Kariba South and North Hydro Extensions 600 FY87/88 Hwange III (Thermal Coal) 400 FY89 Batoka Dam and South Bank Power Station 800 FY91 Batoka North Bank Power Station 800 FY94 Mupata Gorge Dam and South Bank Power Station 600 FY96 Mupata North Bank Power Station 600 FY98 Sengwa (Thermal Coal) 600 FY2000 a/ The first unit of Hwange I will be operational in June/July 1983 and the other units will be commissioned in the second half of 1983. - 19 - The Government of Zimbabwe has authorized the implementation of Hwange II and Kariba South Extension Projects and associated 330 kV transmission lines and is seeking the agreement of HAP to the Kariba South Extension. A US$105 million loan for the construction of the 2 x 220 MW Hwange II thermal power station was approved by the Board of Executive Directors of the Bank in December 7, 1982. All the projects in the investment program, except for Hwange I and II, including extensions at Kariba, need to be further optimized with regard to installed capacity, load growth, economic ranking and technical considerations prior to a decision being taken to implement construction. The optimization studies would also cover the comparative economics of extending the power stations 'on each bank at Kariba or building one large station on the Zimbabwean or Zambian bank of the river. During negotiations the Government of Zimbabwe agreed to review the specific plans for expanding the Kariba hydroelectric complex particularly whether two stations of 300 MW each is the optimum solution. Project Description 2.11 The project as described in the loan agreement consisted of the construction of an underground power station on the north Bank of the Zambezi River at Kariba, with an installed capacity of 600MW. The station was to be designed so that the capacity could be subsequently increased to 900 MW. The initial generating plant would consist of four 150 MW turbo-generator units. The turbines would be of the vertical shaft Francis type and would utilize an average net operating head of about 305 feet. The project also included the construction of a short length of transmission line connecting the power station with the nearby main Kariba substation in Zambia. The first generator was scheduled to be in service by July 1974 and the fourth generator in*June 1975. Covenants 2.12 Although there were no unusual covenants in the Loan Agreement 701-ZA or the Amended Loan Agreement, there were important covenants in the Guarantee Agreement and the Amended Guarantee Agreement, which are described in Annex 1. 2.13 The Government adhered to the terms of these agreements with the possible exception of Section 3.02. This section required GRZ to ensure that none of its agencies should take any action which would unreasonably prevent or interfere with the performance by KNBC or CAPC of its obligations under the Agency Agreement. The total closure of the road over the dam by the military for a period of twelve months in 1973 and the subsequent delays of a week or more in obtaining permission for CAPC to obtain access to the site on each occasion undoubtedly did prevent, and later interfere with the performance of CAPC's obligations under the Agency Agreement. Whether this was reasonable in the context of events at that time is a matter of opinion, however the default was not formally reported as required under Section 8.02 of the Loan Agreement, and the Bank took no formal action with regard to the default, although it was aware of it. Evidently GRZ thought it was being reasonable, but CAPC equally did not. It is difficult to believe that more flexible arrangements could not have been made for known personnel of cAPC to have been given immediate access to the site on request to an officer of appropriate authority on site. - 20 - 2.14 Section 3.03 of the Guarantee Agreement required that the Guarantor should not permit the lariff Agreement governing sales to CAPC from generating stations in Zambia to be amended, abrogated or waived. In fact, after many months of discussion, in which the Bank was deeply involved, the agreement was radically changed by a new agreement which came into effect with the Bank's consent on July 1, 1977. The changes are discussed in the financial section of this report (para 5.09). III. PROJECT IMPLEHENTATION, OPERATION AND COST Loan Effectiveness and Start-ub 3.01 A principal condition of effectiveness was that the Agency Agreement, the Lease Agreement, the CA'C Loan Agreement and the Tariff Agreement in form and substance satisfactory to the Bank should have been duly executed, author- ized, ratified and put -into effect. The required logistics, which involved many legal documents and the participation of the UK and Zambian Governments, CAPC, KNBC, the Zambian Electricity Supply Corporation (ZESCO) 1/ and the Bank were time consuming. The loan became effective on January 7, 1971, six months after signing. 3.02 Prior to effectiveness, design work and preparation of tender documents were underway, and a contract for preliminary works such as access roads and tunnels was awarded on October 1, 1970. None of the permanent housing had yet been provided by the Zambian Housing Board, but contracts for construction of the housing and ancillary buildings such as schools, clinics, canteens and housing for temporary labor had been awarded. The main civil. contract was awarded to the lowest bidder for an amount of K20,504,337 on January 28, and in February the contractor began to establish himself on site. Changes to the Project 3.03 The only substantial change in the project was the construction of a tailrace channel along the North Bank to a point below the tailrace of the South Bank power station. The reason for this was that the divrsion would prevent a rise in the level of the stilling pond at the outfall of the South Bank Station which would reduce the net head on the turbines and therefore the output of the generators. The capitalized gain in benefits from this modifica- tion was expected to exceed the K2.9 million cost of its construction. 3.04 The only other change of significance was the addition of housing. At the time of appraisal it was expected that the existing housing on the South Bank would be used for the project, but in the circumstances prevailing at the time when the project came to be constructed this was not acceptable to GRZ and housing had to be provided on the North Bank. The cost of this addi- tional work was KO.9 million financed by grants from GRZ. 1/ - ZESCO was established in 1969 as an entity wholly owned by GRZ to be responsible for all power production in Zambia, except from the Kariba North Bank power station, by which it is supplied power in bulk which it distributes throughout Zambia. -21 - Implementation Schedule 3.05 At appraisal, the date for comissioning the first 150 'W unit was June 1974 and for the last unit, June 1975. These were later changed to October 1975 and July 1976. In fact the first unit was commissioned on May 24, 1976 and the last unit on May 5, 1977 nearly two years after the originally scheduled dates. The principal reasons for this delay were the bankruptcy of the original civil engineering contractor after two years on site with only 30% of the contract completed, and closure of the Zambian/Southern Rhodesian border necessitating rerouting delivery of most of the major items of mechani- cal and electrical equipment. 3.06 The original civil engineering contractor got off to a good start in February 1970 and by June had begun excavation of the machine hall, in spite of having to take over the completion of access tunnels from the preliminary works contractor, whose work was behind schedule. By agreement, the latters contract was terminated. By the end of June 1970 some 400 cubic meters of the machine hall had been excavated, but already at this early date the contractor was experiencing difficulties due to the failure of the Zambian Housing Board to provide the necessary housing and facilities for the contractors labour force. By the end of the year the Zambian Housing Board's contractor's had not started on the provision of a clinic or primary school, seventeen high cost housing units and one hundred and forty rooms for labour were still incomplete, nor had an adequate water supply system been provided to the housing area. These delays in providing accommodation,and services raised many problems for the contractor and caused discontent among his staff. In December, these difficulties were reported to be affecting progress of the work. 3.07 In,October 1971 a blasting accident in the machine hall caused the death of one miner and seriously injured three others. In November following a series of minor rockfalls in the machine vault area there was a major rock fall followed by a number of other falls. To ensure safety of personnel a program of rock bolting was introduced which caused further delays. In Harch, as a result of the intervention of the Zambian Inspector of mines there was a cemporary suspension of work. By early April 1972 it was apparent that the civil engineering contractor would be about five months late in providing access to the mechanical and electrical plant contractors, scheduled for June 1, 1972. Rescheduling of the ptogram was delayed by a series of events. Another rockfall from the machine hall vault killed one of the contractor's men working below. In June 1972, the Zambian Inspector of Mines who had increasingly influenced the conduct of works since the unexpected application of the Mines and Minerals Act to the project, issued a series of instructions relating to temporary works, rockbolting and concreting which made it virtually impossible for the contractor to implement his work program. At about the same time, the contractor's principals in UK presented the agent (CAPC) with a claim for underpayment and changed contractual conditions. Following a meeting with the consultants and the contractorat the end of June the KNBC agreed to additional financial assistance on account of outstanding claims, and a change in procedures to enable the contractor to obtain rapid payment for works directed by the Mining Inspector. The claim that the contractual conditions had changed was not -so easily resolved as it related to the geologi- cal conditions in the machine hall area and put in question the expert opinions of the consultant's geologists. 3.08 During the geological exploration of the-site by the consultants, in 1961 a borehole was drilled through the machine hall site. The log of the borehole recorded the rock as "sound gneiss", and on the strength of this evidence, a clause was inserted in the civil contract which read: - 22 - "As to the borehole records ... the employer warrants the factual accuracy thereof and should there be any inaccuracy therein the same shall be treated as a matter which an experienced contractor could not have foreseen". The contractor claimed in the light of his experience with rockfalls and the necessity for rock bolting, that the borehole record was inaccurate. The consultants, supported by their geologists who had examined the site in detail in the previous March where access tunnels had been provided in the preliminary works, denied this and still insisted the rock was sound gneiss. Despite the fact that the consultants agreed to submit the question to an independent opinion the contractor was not entirely satisfied, but the measures required by the Zambian Inspector of Mines were adopted in an attempt to keep the project progressing. These measures, however, which cut across the normal procedures for administering a civil contract, were partly necessitated by the introduction of external influences, the more predominant and far-reaching of these being the application of the Zambian Mines and Minerals Act after the contract was awarded. The essence of the dispute however was the quality of the rock, which hinged mainly on the interpretation of the borehole core. 3.09 The Zambian Geological Survey Department had mapped the Kariba Geology following fatal accidents during the construction of the nearby Kafue hydroelectric project, with a view to locating any problems likely to cause difficulty in construction of Kariba North Bank Power Station. Their report was given to the consultants and to KNBC in 1971, but not to the contractor. The report warned that biotite schist bands and amphibolite horizons were common throughout thd area, and could be expected in all underground workings and were potentially dangerous. It was not until May 1972 that the contractor obtained a copy of this report and then only after a further report by the Geological Survey Department confirmed the findings of the original report. With some reluctance the contractor eventually agreed to interpretation of the geology being referred to an independent panel consisting of a barrister as chairman and two experts in rock mechanics nominated respectively by the consultants and the contractor. The panel's report, issued in August, un- animously upheld the contractor-s contentions regarding rock conditions being encountered and the geological information made available in the contract. The panel also critized the flat arch design of the machine hall and recommended changes. No changes in design were made however, and the machine hall was later completed to the original design by the second civil contractor without incident. As to the description of the rock, leading experts in metamorphic rocks, supported by chemical analysis of the disputed sections of the borehole core, have subsequently refuted the conclusions of the panel and maintain that the rock was correctly described as sound gneiss. 3.10 Although the consultants did not agree with the panel's conclusions, they suggested payment of all the contractor's costs to date based on an audit of his accounts, and a new form of contract for completion-of the works based on direct costs, which the contractor had been advocating for some time. The contractor refused to cooperate in the finalization of this proposal nor would he agree to an audit of his accounts. A protracted series of discussions took place between October and the end of the year in which the Bank participated along with the GRZ, the consultants, the contractor, KNBC and CAPC. Proposals and counter proposals were exchanged a number of times without success. During these discussions it appeared that the contractor was partly blaming his fail- ure to meet his contractual obligations on the application of the Mines and Minerals Act after the award of his contract. Accordingly in order to meet him on this point GRZ terminated the application of the Act to the Kariba - 23 - North Project on November 28, 1972. On December 27, 1972, GRZ made a final proposal to the contractor which was met with an unacceptable counter proposal by the contractor. Negotiations continued without success through January until GRZ repeated its final offer of December 27 and demanded an acceptance or refusal by February 1. No reply was received and the contractor went into receivership on January 31, 1973. On February 1, the Zambian military authorities took possession of the site and KNBC recruited a number of the contractor's staff to guard the site and to prepare for the advent of a new contractor. 3.11 Early in February the consultants recommended that considerable time and money could be saved by opening negotiations with a single reputable contractor rather than by inviting fresh bids. The Government agreed and suggested the third lowest of the original bidders who-had just satisfactorily completed the nearby Kafue project. The Bank raised no objections to this proposal and with the consent of CAPC, the consultants opened negotiations with the bidder on March 19. Agreement in principal was reached by April 12 and on the 26th a chartered aircraft arrived in Lusaka with about 60 contractors personnel. By June 30, the new contractor had 159 expatriates and 719 local staff working on the site and work was proceeding apace. The agreed work program provided for the start of turbine erection on December 15, 1973 and this was achieved - eighteen months after the original date of June 1, 1972. 3.12 From the time that Zambian militia took over the site from the original contractor on February 1, 1973, the border with Southern Rhodesia was closed and access across the dam for CAPC personnel, or equipment despatched to site via Southern Rhodesia, was refused until August 24 when the first consignment of equipment which had been stockpiled on the South Bank was allowed through. Access to the agent's personnel was still refused until January 1974. in March GRZ commissioned a study by consultants of alterna- tive transport routes for goods not already in transit via Southern Rhodesia. These goods included most of the heavy items such as the main transformers, turbine shafts and runners, stator segments and alternator rotors. The study recommended two routes; one via Dar es Salaam in Tanzania over about 1,300 miles of roads, hazardous for excessively large loads, and the other, via Lobito in Angola, over about 1,500 miles of rail subject to loading gauge restrictions. Because of the lack of heavy lifting equipment and transport vehicles in the country a contract was awarded to a UK firm of transport specialists to transport the goods to site. A ship with.heavy lifting gear capable of offloading 100 ton loads directly on to road transport trailers was chartered to bring the large generator parts from Europe to Dar es Salaam. The four generator transformers were intended to be shipped via Lobito, but after the first two transformers had been shipped, war broke out in Angola and a special dispensation was obtained from the GRZ to ship the remaining two via Beira in Mozambique and Southern Rhodesia,- which took only six weeks, compared with six months via Lobito. This rerouting of the main items of equipment, coupled with the delayed delivery and erection of the generator, was mainly responsible for the delay in commissioning of the first machine by nearly eight months beyond the revised program date of October 1, 1975, prepared at the time when the second civil engineering contract was nego- tiated. By the time the fourth machine was commissioned this delay had stretched to ten months. - 24 - Procurement 3.13 In the case of the initial main civil contract the bidding was in accordance with the Bank's guidelines. Of the twelve qualified bidders who applied for bidding documents only five submitted bids. The lowest bid received in October 1970 was 47% higher than the consultant's estimates based on costs for similar works in 1968 with some allowance for inflation. The next.lowest bids from the two contractors who won the main civil contracts at Kariba South and Kafue were 73% and 78% respectively higher than the consultants estimates. These very large increases over the estimates reflect both an awareness of the difficulties involved in working under the conditions then prevailing in Zambia, and the expected rates of inflation (para. 1.01). 3.14 After the collapse of the original civil cohtractors it was-estimated that the cost of delays in proceeding with another round of bidding would be about K1.2 million per month. Since this was expected to exceed any increase likely to result from a negotiated bid the Bank raised no objection to negotia- tions being entered into with the third lowest of the original bidders, who had proved their competence at the recently completed nearby project at Kafue. 3.15 All other procurement conformed to the Bank's guidelines. Costs and Disbursements 3.16 The appraisal report estimate of July 1970, the revised estimate for the increase in the loan in June 1974, and the actual cost as determined in December 1977 are compared in Annex 2. Although there are some minor payments still outstanding at this time, all known commitments have been included and any subsequent residual-payments will be insignificant. No adjustments have been made with respect to the settlement out of court in May 1980 of the dispute between the borrower and the original civil contractor. 3.17 The final financial cost of the project was K104.9 million (US$146.9 million) which was some two and a half times the original estimate of K40.8 million (US$57.1 million). 1/ If deflated to constant 1970 Kwachas, the final cost would be K45.6 million (US$63.8 million 1/). The final overexpenditure of some K64.1 million (US$90 million 1/) only included K3.8 million attributable to additions or alterations to the original project, of which K3 million com- prised additions to the spillway channel along the North Bank (para 3.03). Overexpenditure on the original project was therefore K60.3 million. 3.18 The main components of the over-expenditure of K60.3 million (US$84.4 million) is detailed in paras 3.19 through 3.25, but may be summarized as follows: 1/ At the exchange rate of K1 - US$1.4, used in the appraisal report. - 25 - Million Kwacha Million US$ Change in Civil Contractor 14.9 20.8 Price Escalation 17.0 23.8 Interest During Construction 6.2 8.7 Rerouting and Delays 6.4 9.0 Changes in Currency Exchange Rates 12.5 17.5 Miscellaneous 3.3 4.6 60.3 84.4 The closing date of the loan was extended for two years from December 31, 1978 to December 31, 1980, mainly in order to give the borrower time to settle a dispute over the cost of modifications to the generator thrust bearings. Change in Civil Contractors 3.19 The cost of the change in civil engineering contractors early in.1973, two years after the start of the project, has been taken to be the difference between the two contractors' tenders, plus the amount paid to the original contractors, before they went bankrupt. Thus calculated the sum amounts to K14.9 million (US$20.8 million). The second contractor was in a very strong position to negotiate in 1973 having just satisfactorily completed the Kafue project not far from Kariba. In fact his contract price of K25 million for finishing the works was almost identical to his original bid of K24.9 million for the whole job. However, the two year interval 1971 to 1973 during a period of rapidly escalating prices world wide, accounted for some of the increase. Another factor which increased contractor's costs in the two year interval, was the increasing tension between Zambia and Rhodesia, which resulted in the closure of the border at the end of 1972. It is probable also, that the original contractors bid was marginally unrealistic even though it was 47% higher than the consultant's original estimate. In the original bidding, the lowest bid was almost 20% below that of the third lowest bidder who having just completed a large hydroelectric project only a few miles away at Kafue"in 1972 was more familiar with real costs on site, and because of his proximity and the similarity of work, would have had much lower establishment costs than any other bidder. Price Escalation 3.20 Although the orig1nal estimates included a figure of K2.9 million, or 9.4% of total costs for escalation, on the assumption that the work would be completed in three and one quarter years, this proved to be totally inade- quate for reasons which could not have been foreseen, and the actual sum was K17 million (US$23.8 million). Largely because of the change in civil con- tractors and the major delays caused by the closing of the border with Southern Rhodesia in 1972, the work extended over an additional two years from 1974 to 1976. This in itself would have caused a substantial increase since disburse- ments at .the originally estimated completion date of June 1974 were only K37.5 million, but the effect of the delay was greatly increased by th OPEC oil price increases which started in November 1973. In 1970 when the appraisal report - 26 - was written, the Bank was only just beginning to notice the effect of rapidly escalating prices for heavy machinery internationally. Interest During Construction 3.21 The increase of 193% over the appraisal estimate is due to the increase in the loan, the extended construction period and, to a lesser extent, the higher rate of interest (0.25%) on the supplemental loan. The actual sum was K6.2 million (US$8.7 million). Rerouting and Delays 3.22 The problems involved in rerouting the major items of equipment have been described (para 3.12). The cost of the special contract for transport of goods through Dar es Salaam was K2.7 million. Other rerouting costs raised the total to K3.8 million, for example the cost of transporting the first two transformers via Lobito was K423,334 compared with a cost of K59,819 for the second two dispatched via Beira and Southern Rhodesia. The total sum attributed tA these factors was K6.4 million (US$9.0 million). 3.23 Because of the considerable delays in carrying out the civil works making it impossible for the other contractors to start work on the agreed dates, some adjustment to fixed price erection contracts was necesssary to provide for escalation and extra interest on account of delays. These costs amounted in total to K2.6 million and but for clauses in the tender documents for the major items of equipment limiting contract price adjustments to 10% of the FOB/FOR price, the amount would have been much greater. Changes in Currency Exchange Rates 3.24 Changes in currency exchange'rates totalled K12.5 million (US$17.5 million). Of this sum, K11.2 million is due to devaluation of the Kwacha and K1.3 million due to fluctuations in exchange rate. Miscellaneous 3.25 K3.3 million (US$4.6 million) was attributed miscellaneously. Of this amount, K2.5 million was for the additional cost of engineering and site supervision arising from the delay in completion of the project and the abnor- mal amount of work undertaken by the consultants due to the extraordinarily difficult conditions prevailing at the site. The remaining K1.1 million is made up of additional administrative costs, site maintenance and other small items resulting from the additional two years duration of the works. Financing for the Project 3.26 A comparison of the actual and estimated financing of the project in millions of Kwacha and US dollars converted at 1K-US$1.24, the average exchange rate for the loan, and at the appraisal rate of 1K-US$1.4, were as follows: - 27 - Appraisal Estimate Actual Cost Kwacha US$ Kwacha US$ US$ 9-1.4 @ 1.24 @ 1.4 IBRD 28.6 40.0 66.1 82.1a/ 92.5 CAPC 12.2 17.1 20.0 24.8 28.0 GRZ Local Currency - - 16.6 20.6 23.2 GRZ Foreign Currency - - 1.3 1.6 1.8 GRZ Grant - - 0.9 1.2 1.3 Cost of Project 40.8 57.1 104.9 130.3 146.8 a/ Comprises original IBRD Loan of US$40.0 million and a supple- mentary IBRD Loan of.US$42.1 million in 1974. The Grant from GRZ was specifically for staff housing (KO.7 million) and lowering of the intakes .(KO.2 aillion). 3.27 A schedule comparing estimated disburseients of Loan 701-ZA with the actual disbursements is given in Annex 3. These include both the original loan and the subsequent supplementary loan. Operations 3.28 Commercial operation of the first unit began on May 24, 1976, twenty three months after the original schedule date and eight months after the revised date following the change in civil contractors. Some early defects from water leakage in the grouting of the penstock steel linings and from cracks at the corners of the .turbine draught tube access door frames, were satisfactorily rectified. Loss of guidance rubber sealing strips on the turbines also gave trouble for some time until modified strips were obtained. More serious trouble with the main thrust bearings of all four machines has not been entirely eliminated. Main thrust bearings on all four machines were liable to overheat, particularly during starting. An investigation in November 1979 disclosed that the hydraulic thrust of the turbine was about 50% higher than specified for design purposes. Although this was partly compensated for by a saving in the weight'of rotating turbine and generator parts, the net effect is an overload of about 10% on the bearing. All attempts to persuade the supplier to bear the US$400,000 cost of repairs and rehabilitation on the grounds that there was some deficiency in design have so far failed. The borrower has therefore withheld payment of US$263,000 retention money to the generator suppliers and a solution to the problem is still being sought. - 28 - 3.29 The electrical and mechanical consultants did some research into the causes of the trouble and produced a report in June 1980. The consultants state that 'the history of bearing troubles indicate clearly that the thrust bearings of the Kariba North generators are not reliable.' Performance of Consultants 3.30 Two consultants were employed, one for the civil works and another for the electrical and mechanical (E&M) works. Both consultants were highly reputable firms previously employed on the original Kariba Dam project, but unlike that project, where the civil engineering consultant was the principal consultant responsible for coordination of all consultants, the electrical consultants were the principals responsible for coordination at Kariba North. Whether this was a wise choice or not is difficult to say. The civil works comprised the majority of the expenditure and were potentially more likely to have unforeseen difficulties than the more straightforward E & M works. This would seem to be a good reason for making the civil consultant principal. Moreover, their staff were on site many months before those of the E & M consultant. With hindsight it is probably fair to say that if the civil consultant had been given sole responsibility for the project with the E & M consultant responsible to them, and a more senior site representative had been appointed, then some of the problems might have been avoided. However, any improvement this might have effected in performance of the consultants would have been insignificant in relation to the other problems which beset the project. 3.31 The electrical consultants performed well on the whole. There was some minor underestimating in the design stage but their handling of procurement was good and dates for placing all the important contracts were achieved. Where there were delays they were not the fault of the consultants. Their inspection and expediting of plant during manufacture was excellent in the face of considerable difficulties with some non-cooperation on the part of the suppliers of the main generators and machine hall crane. They coped extremely well with the rerouting situation and saved much time by expeditiously arranging alternative transport, which was not an easy task. Their programming was sound but their efforts were sometimes frustrated by lack of cooperation from contractor's staff. Both the agent and the borrower implied in their project completion reports that the appointment of a more senior site engineer might have avoided some of the problems. 3.32 The civil consultant's performance on procurement was satisfactory. With regard to the subsequent failure of the civil contractor it is unlikely that more thorough investigation of their finances in 1970, when their standing was still high, would have led to rejection at the prequalification stage. In cost estimating there was some reluctance at first to accept the rapid changes which were taking place in world prices generally. In the event, revised estimates were too low and in most cases expenditure under provisional sum - 29 - items for local contracts, substantially exceeded the estimates. Their handling of contractors on site was generally adequate, but matters of overall adminis- tration and financial control were dealt with by more senior headquarters staff during their visits from overseas. There is no doubt the consultant's staff were required to deal with some very unusual and difficult situations and it is possible that if the coordinating function had been given to the civil engineering consultant, they would have had more senior and experienced engineers on site, which might have helped to resolve, or may even have pre- vented, some of the difficulties. The technical experts differ heatedly on the question of the interpretation of the geological investigation (paras 3.08 - 3.10). It was the subject of large claims and counter claims but since these were all settled out of court in May 1980, there is no basis on which the Bank can draw any firm conclusion as to the competence, or other- wise, of the consultant's geologists. Peformance of Contractors 3.33 Performance of the civil engineering contractors has been largely dealt with in paragraphs 3.05 to 3.12. The first civil engineering contractor had very considerable difficulties to contend with, which he could not have foreseen and which he was unable to overcome. His staff and labor force were demoralized by the lack or inadequacy of staff housing, clinics, schools, shops and other facilities which the Zambian authorities had contracted to provide. His inability to deal adequately with the rock conditions led to a number of fatalities, and he was continually harrassed in the early stages by the Zambian Mining Inspector insisting on the strict application of a law which was not made applicable to the project until after he had signed the contract. On the other hand, his mining methods were open to criticism. Because the con- sultants were having doubts about the contractor's competence in this field, two American engineers with recent and specialized experience were brought in to advise on the contractor's performance in mid 1972. The contractor refused to cooperate in this exercise, but the gist of the Americans' report, which was highly critical of the contractor's methods, was passed on to the contractor in the hope that it would lead to an improvement. The quality of the contrac- tor's work, as might be expected, depended very much on the quality of the site supervision. Where this was good, progress and quality were good, but he lacked adequate competent staff for site supervision on mining activities. This conclusion which was later substantiated when the second civil contractor completed works without trouble or incidents in areas which the previous con- tractor had abandoned on the grounds that the rock was dangerous. Apart from a continuing lack of adequate facilities for his staff and labor, the second contractor was not faced with these problems. When he negotiated his con- tract, the nature of the rock was well known and the application of the Mining Act had been withdrawn from the site. His performance was generally satis- factory and he achieved all his performance bonuses for meeting critical dates. In meeting other datelines, however, his performance was less satis- factory and this could have contributed to delays in completion of some electrical and mechanical works, which ultimately added to the final delay. The agent and the borrower implied in their project completion reports that the appointment of a more senior site engineer might have avoided some of the problems. - 30 - Performance of Suppliers 3.34 The performance of suppliers was generally good, but this was not difficult as regards delivery dates because of delays in the civil contract. Many suppliers had to be asked to delay delivery and store items in their own works. An exception to this, was the supplier of the main generators who seemed unwilling to cooperate with the consultants in the design, manufacture and erection stages. The first generator was shipped four months late, erec- tion was delayed by late arrival of staff on site and some items had to be airfreighted from Europe because they were not manufactured on time. There was a general lack of coordination between the supplier's own departments and their site management was poor. 3.35 The source of the serious trouble with overloads on the main thrust bearings of the generators referred to in paragraph 3:28 has not yet been fully explained, but the indications are that it arises from a defect in the design of the bearing pads and their supporting springs (para 3.29). Performance of the Borrower (KNBC) and his Agent (CAPC) 3.36 The borrower being little more than a "paper company" during the construction of the project, was not in a position to have much iifluence on events other than through its agent, CAPC. CAPC's powers to influence events, as required under the terms of its agency agreement, were severely handicapped from the outset by the difficult political situation, and for a period of one year were made entirely impossible by the Zambian military authorities refusal of site access. In the circumstances the agent seems to have done a remark- ably good job on behalf of the borrower. His reporting of progress to the borrower and the Bank were excellent, and his relations with the Bank, the consultants and the contractors were good. 3.37 It is apparent from the borrower's comments on the project comple- tion report prepared by the agent and the consultants, that the borrower's staff did not fully appreciate the need for the agent to have ready access to the site works at all times in order to carry out his function effectively. Had they realized this need they might have been able to use their influence with the GRZ to improve matters. IV. PROJECT JUSTIFICATION Demand for Power 4.01 The objective of the Kariba North Power Station was primarily to provide Zambia and Southern Rhodesia with the least cost alternative for meeting the expected increases. in demand from the two countries. In the eyes of GRZ it also added to the security of the country's electricity supplies since it was to be constructed in Zambian territory. Both these objectives have been met by the project. - 31 - 4:02 Total bulk sales of electricity in the two countries was slightly higher than the appraisal estimates until 1976, however, this was only because the growth in Southern Rhodesia was considerably higher than expected and this offset virtually static sales in Zambia from 1974 onwards (Annex 4). Since 1976 sales in Southern Rhodesia have only increased by 11.3% and in Zambia by 1.1%. However, the increase in Zimbabwe in 1980, following independence, was 11.4% whilst Zambia achieved only 3.2% in the last year. Copper mining and related activities account for nearly 85% of the demand for electricity in Zambia. Since 1974 the depressed state of the copper market and the diff- iculties and high cost of finding routes other than through Southern Rhodesia for exporting cooper, have caused a reduction in electricity sales to the copper industry. This was approximately offset by increases in other sales until 1980, when there was a slight recovery in mining activity. With Zimbabwe's independence and the end of hostilities, it is expected that growth of demand in Zimbabwe will average about 9% per annum, and in Zambia about 5% per annum for the next five years to 1985 and thereafter about 4% per annum. Least Cost Alternative 4.03 At the time of appraisal the project was compared with the costs for: a) a thermal station in Zambia b) the second stage of Kafue. It was estimated that the capital costs of the thermal station would be 89% higher than the estimated cost of the project. Even allowing for the slight degree of underestimation in the cost of the project in terms of constant dollars, the project would still be the least cost alternative, even without taking into account the massive increases in fuel prices since then. In the case of Kafue the estimated cost was 33.5% higher than that of the project for the same output, and there is no reason to suppose that the major factors which caused the increases in project costs would not have caused similar increases in Kafue costs. At the time it was calculated that the project would be the least cost alternative-at all discount rates, and at 7% would show a saving of US$8.8 million. These were very low cost hydroelectric developments - US$80 per kW and US$106 per kW installed for the project and Kafue respectively, compared with an estimated capital cost of US$150 per Kw installed for a thermal plant. Internal Rate of Return 4.04 The appraisal report estimated a rate of return of 17% after includ- ing related transmission costs. Benefits were taken as the incremental sales attributable to the project multiplied by the average price per KWh sold. At that time almost 100% of the electrical energy generated in Southern Rhodesia and Zambia was generated or purchased by the CAPC and sold in bulk from their 330-kV transmission lines to five distributing companies. It was intended that the-Kariba North Project would feed into this same system and be sold in bulk in the same way. Since then very complicated power and cost sharing - 32 - arrangements have been entered into betweer: Ziribabwe and Zambia. Although the 330-kV transmission lines in Zambia are still owned znd operated by CA-PC at Zambia's cost, the bulk power from them is sold by ZESCO (para 3.01). The Kariba North Pow2r Station, which is owned by Zambia, is operated by CAPC, which is entitled to half the Kariba 'North output. Equally the Kariba South power station and dam which is also operated by CAPk is half owned by Zarbia, and ZESCO is entitled to half its output. The 330 kV transmission system which extends thcoughout Zambia and Zimbabwe (although the majority of it lies in Zimbabwe) is owned equally by Zambia and Zimbabwe through their joint ownership of CAPC. M1oreover, each country sells its power in bulk at differ- ent rates. Under the circumstaaces it is not possible to arrive at a single bulk rate per kWh for incremental sales supplied from the project in order to repeat the appraisal calculation, using actual b-nefits. 4.05 At the time when the first hydroelectric unit was commissioned at Kariba North, CAPC was purchasing considerable quantities of thermal power from the ESC, and the Harare (Salisbury) and Bulawayo municipalities. Copperbelt Power Company was also running its waste heat plant and its thermal station at Nchanga to reduce the demand on the CAPC system. At times the only reserve plant on the system was the 60 MW of gas turbines belonging to the Copperbelt Company. There were, therefore, immediate benefits from the reduction in thermal output as soon as the first hydroelectric unit at Kariba North was commissioned. By the time the fourth unit was commission in May 1977, the station was producing about 50% of its capability and by 1980 was producing at 83% of its estimated average capability. The whole of its output is fed into the CAPC 330 kV transmission system. For purposes of the internal rate of return calculation, it has been assumed that Zambia has a first call on the output of Kariba North and any excess is exported to Zimbabwe to meet its requirements over and above the capability of Kariba South (Annex 5). These exports are sold to Zimbabwe according to the agreement between the two Governments. The latest agreement lapsed in June 30, 1981, but as there has been no new agreement, Zimbabwe is continuing to pay Zambia K 24 million a year. Sales to Zambia were calculated with respect to the average tariff. In the calculation of the internal rate of return, the tariff levels prevailing at the end of 1982 were taken into account. The details for calculation of the cost/benefit streams are shown in Annexes 6 to 8. On the basis of these assumptions, the internal rate of return is 8.9%. The true rate of return, however, is higher than this since the bulk rate tariffs used do not represent the full value of the electricity sold. The iow rate of return points to the need to increase the tariffs in Zambia and export price to Zimbabwe. V. FINANCIAL PERFORMANCE Financial Back:zround 5.01 The borrower is KNBC (para. 2.07), a company with an issued capital of K 100 wholly owned by GRZ. KNBC was only created in June 1970 in connec- tion with this Loan 701-ZA, with the sole purpose of owning the Kariba North assets which were to be constructed by CAPC as agent of KNBC. It was never the intention that KNBC would act as an operating power company. The appraisal envisaged, and CAPC signed a 35-year lease with KNBC under which it would operate Kariba North (using staff seconded to CAPC from KNBC) and, as rental would pay the KNBC administrative expenses and all the debt service relating to the project, including the debt service on 701-ZA and on its own loans to - 33 - KNBC for the project. For this reason, the financial viability and perfor- mance of CAPC is of major relevance in both the appraisal report and in this report. 5.02 CAPC is a corporation established in 1963 by a United Kingdom Order in Council, without formal share capital, and is owned jointly and equally by the Governments of Zambia and Zimbabwe (Southern Rhodesia) (para 1.03). The function of CAPC was primarily to provide and administer services common to Zambia and Southern Rhodesia for the bulk supply of electricity to both countries. To this end CAPC owns and operates Kariba South and, under the provision of its lease with KNBC, is entitled to the output of Kariba North. Currency Transferability Problem 5.03 CAPC's accounts, as described in the appraisal report, do not ade- quately reflect the fact that since 1964 the former territories of Northern and Southern Rhodesia have had their own non-transferable currencies, and the transfer of funds from one country to the other was subject to approval by the respective authorities. Since 1965, funds had been transferred from Zambia to Southern Rhodesia by apportioning the operating expenses of CAPC in relation to the sales in each country 1/. In a side letter to the CAPC-KNBC loan agreement the Zambian Government undertook to authorize transfers on the above basis until June 30, 1975. 5.04 During appraisal a review of CAPC's cash flows in the two countries satisfied the Bank that CAPC would be able to meet its financial obligations in Southern Rhodesia and Zambia until FY1976. The release of Zambia from its guarantees on the first two IBRD loans, in December 1972 (see para. 2.07) did not affect the situation, as the method of calculation of transfers from Zambia to Southern Rhodesia took into account the servicing of CAPC debt. In 1973-1974, CAPC was initially reluctant to make a supplementary loan of K7 million to KNBC as it had doubts whether its revenues in Zambia in FY1975 and FY1976 would suffice to meet its obligations in Zambia while simultaneously making a loan to KNBC of this amount. CAPC however eventually agreed to making the supplementary loans. 2/ 5.05 By the end of 1973, however, it became apparent that CAPC would face financial difficulties in Zambia from FY1977 onwards, essentially because it would have to pay the debt service on Kariba North, and additional charges for Kafue power, after commissioning of the Kafue II project. 1/ Most of CAPC's operating expenses were incurred in Southern Rhodesia (Kariba South Hydroelectric Station, System Control Office, Headquarters, and large purchases of thermal power). Sales however were higher in Zambia until 1974. 2/ A side letter to the CAPC-KNBC supplementary loan agreement states that . .* . it is acknowledged that the amount (of the loan) depends upon the realization of the forecasts of the Corporation's financial results and that these amounts may vary. In the event of unforeseen circumstances affecting the financial results, GRZ and the Corporation shall consult and examine the problems involved with a view to resolving the matter." - 34 - Revenues from Zambia alone would not suffice to meet these additional charges at the then prevailing .tariffs. CAPC management was well aware of the problem, and suggested that a common committee be set up to find a solution. 5.06 Early in 1975 the Bank became concerned by CAPC's lack of initiative, and a mission visited Salisbury in June 1975. CAPC;s Chairman then agreed that during August/September 1975, a study of the problem would be undertaken, and a "working paper" was produced by CAPC towards the end of 1975 which however did not suggest any new solution. 5.07 In October 1975, ZESCO's Chief Accountant produced a report entitled "Central African Power Corporation - a Service or a Liability?" which concluded that the existing financial framework was to the disadvantage of Zambia since (i) including Zambia's share of the Kariba South power -station, Zambia had not only been self sufficient in power since FY1972 but had been a net exporter of power to Southern Rhodesia; (ii) CAPC had maintained a uniform tariff in the two countries although the cost of generation in Zambia was about a third of that in Southern Rhodesia 1/ and (iii) had the agreement on transfers of funds been "fair", Southern Rhodesia should have transferred funds to Zambia from FY1973/74 onwards (Southern Rhodesia had never committed itself to transfer funds to Zambia on any basis). The author concluded that CAPC ought to be split, each country taking control of CAPC-s facilities on its territory with Zambia exporting its surpluses of power. 2/ 5.08 The Bank invited representatives of the Zambian Government and CAPC to Washington, in February 1976. The Bank reasserted its support for CAPC with its twin objectives of facilitating interchanges of electrical energy between the two countries and of investigating future joint projects on the Zambezi, however the Bank also recognized the need to change the financial framework of CAPC's operations. The Bank then suggested that a new charging formula be determined for power transfers whereby both Zambia and Southern Rhodesia would seek to meet as much as possible of its demand from the most economical source of energy available to it. Any remaining demand in either country would be met by using higher-cost local generation sources and/or by importing any available surplus energy from the other. Such a framework would recognize that the two countries no longer formed a single economic block, and therefore the price of electricity in each country would depend on the cost of supply in each market. Zambian/Southern Rhodesian Financial Arrangements for Power Interchange 5.09 Following intergovernmental discussions, agreement was reached between Zambia and Southern Rhodesia and as a result the provision of the bulk 1/ Apart from Kariba South, CAPC purchased thermal power in Southern Rhodesia, and hydroelectric power in Zambia. 2/ The Bank was aware that a split of CAPC was a likely possibility but, in view of CAPC's successful technical record, considered that it should be maintained, while new financial arrangements would be introduced. More- over, CAPC had an important role to play in developing joint projects on the Zambezi river. - 35 - supply of electricity within Zambia became the responsibility of ZESCO. ZESCO had previously sold virtually all of the output of its Kafue and Victoria Falls hydroelectric generating stations to CAPC, and had, in turn, purchased its requirements for distribution or other sales, within Zambia from the CAPC grid. From July 1st, 1977 through June 30th, 1980, CAPC continued to pay rent for Kariba North under its lease (para. 5.01) but, under the new agreement between Zambia and Southern Rhodesia with which the Bank concurred was required to pay for all energy exported from the Kariba Complex to Southern Rhodesia in excess of 50% of the costs of the complex and the costs and debt service of the transmission system within Zambia. Further details of the Kariba North Lease and of the new agreement and of the three part bulk export tariff from Zambia are given in Annex 10. 5.10 On July 1, 1980 the HAP, being once again able to operate in accordance with the original 1963 UK Order in Council (para. 1.05), directed CAPC to give effect as of July 1, 1980 through June 30, 1981 to another new interim intergovernmental agreement under which ZESCO is paid K2 million per month for power exported to Zimbabwe. Future arrangements for the export of power from Zambia to Zimbabwe are still to be agreed between the two governments. Comparison of Appraisal and Actual Financial Results. 5.11 Annexes 11 through 16 compare actual and forecast balance sheets and income statements for CAPC, KNBC, and for CAPC/KNBC consolidated for the year 1971 through 1976, the last year in the appraisal forecasts. Actual financial data is continued for 1977 and 1978 and for CAPC alone through 1980. 5.12 Although the 'actual' figures.are those shown in CAPC and KNBC audited accounts, meaningful comparisons with the appraisal forecasts can not be made because the appraisal forecasts were predicated on a continuing 1:1 parity rate between the Zambian Kwacha and the (then) Rhodesian dollar. Thus CAPC's accounts were the same in either currency at the time of the appraisal. CAPC operates and owns assets in both countries, and maintians separate records for each country in the appro- priate currency. CAPC's annual accounts are consolidated and are presented in the currencies of both countries, except for the operating account which is in Zimbabwe (Rhodesian) dollars only. Assets, liabilities, costs and expenses are normally converted into Zimbabwe (Rhodesian) dollars at the exchange rate ruling on the date of the balance sheet unless there are reasons for using another rate. The operating accounts have also been converted into Kwacha for the purpose of this report at the rate ruling on the date of the equivalent balance sheet. The year-end exchange rate fluctuated widely from year to year ranging, for example, from 1.17 Kwachas to the Zimbabwe (Rhodesian) dollar for 1975, up to 1.03 for 1976 and down again to 1.28 for 1977. Because of these conversion variations even year to year comparisons within CAPC accounts are distorted, and comparisons with the appraisal forecasts are of course similarly dis- torted. CAPC sources and application of funds statements have been prepared but are not presented in this report since they have no consistent meaning in view of the wide year to year fluctuations in conversion rates. A comparison of the estimated and actual KNBC financing plan for the project is given in para 3.26. - 36 - CAPC's Financial Performance 5.13 CAPC's accounting and financial control is effective and it has constantly forwarded both quarterly accounts and audited final accounts to the Bank in a timely manner. CAPC's balance sheet as at June 30, 1980 continues to reflect a healthy financial situation with a positive current ratio of about 1.5. Prior to 1980, current ratios had been negative and from 1973 through 1976 CAPC had required medium term financing from the Southern Rhodesian regime. This financing had reached K 10.3 million in 1974 before being repaid in 1977 when the current ratio dropped to 0.75. 5.14 A rate of return for CAPC is not significant since the bulk of the generation assets in Zambia and Zimbabwe do not belong to CAPC. CAPC's balance sheet for Fiscal Year 1980 showed a sound financial position with a debt:equity ratio of 29:71. Its debt service was covered 1.37 times by its net cash generation, but this excludes debt services on Loan 701-ZA which is part of the rental paid by CAPC for Kariba North to KNBC. 5.15 In 1978, the latest year available for KNBC accounts, the consolidated KNBC and CAPC accounts also showed a sound financial position with a consolidated rate of return on average net fixed assets (not revalued) of 4.4% after adjusting for the change in the Zimbabwe (Rhodesian) dollar: Kwacha rate of exchange from K 1.28 per Zimbabwe (Rhodesian) dollar in 1977 to K 1.19 in 1978. VI. BANK PERFORMANCE Bank Performance 6.01 The role played by the Bank in this project went far beyond the usual routine supervision of procurement, construction and subsequent operations of power projects. Before the loan was made, the Bank was largely instrumental in bringing the parties together and reaching agreements among them which overcame the legal impediments arising from the Southern Rhodesian UDI. Then, early on in the construction period when problems arose with the civil contractor, the Bank played a major role, not entirely successfully, in trying to resolve the contractors' difficulties. Later, it increased the amount of the Bank loan from $40 million to $82.1 million in order to meet the rapidly escalating cost of the project. Finally the Bank played a major role in bringing about and to some extent contributing to the discussions which took place in 19i6 and 1977, leading to new financial arrangements for interchange of power between Zambia and Southern Rhodesia, as it then was. 6.02 In all these discussions, the Bank's position as an intermediary undoubtedly had an important influence on the outcome. The Bank attempted to introduce an equitable financial framework to which both parties had agreed in principle at the time (para.5.06), and helped Zambia formulate comprehensive and specific proposals which it put forward to CAPC. CAPC's - 37 - counter-proposals of 1977, to which Zambia agreed at a meeting or meetings to which the Bank was not invited, did not satisfy the Bank, of which it informed both parties. However, the Bank decided, if anything, the matter should be pursued by Zambia. The suggestion has been made in retrospect, that the Bank unduly favoured- CAPC's bargaining stance, in its desire to preserve CAPC's position as an efficient international institution well suited to facilitate the interchange of power between the two countries, and also develop new sources of hydropower on the Zambezi River in the future. It was, however, the Bank which initiated these discussions and urged CAPC as far back as 1973/74 to review the financial arrangements at a time when the status quo favoured CAPC. The new arrangements which came into power in July 1977 consisted of a new lease agreement and revised tariff levels and provided a more equitable basis for sharing the available power although the agreed tariff was below the Bank's recommendations. 6.03 The issue of sharing the benefits from Kariba Complex and the issue of tariff to implement for the exchange of such benefits are not fully settled to the satisfaction of both parties and are currently being discussed. VII. LESSONS TO BE LEARNED 7.01 The objective of the Bank in financing developmcnt of Kariba North Bank power station was to make it possible for CAPC to develop the least cost alternative power source for meeting the electricity requirements- of both Zambia and Southern Rhodesia. In meeting this objective, the Bank was successful. 7.02 Without the Bank's assistance in financing the project, there is little doubt thnt Zambia would have gone ahead with the more expensive (US$63.7 million compared with US$47.7 million) Kafue Stage II project, the output of which would be the same as Kariba North. 7.03 The Bank was also influenced by a desire to retain and build on the CAPC as the main source of bulk power in both countries. The CAPC had borrored from the Bank for construction of the original Kariba DamProject and had developed into a very efficient utility supplying cheap power in bulk to both countries. In trying to preserve the integrity of the CAPC, the Bank was not entirely successful. In recent years Zambia and Zimbabwe have tended to develop their power resources more with an eye to ensuring that each would be self-sufficient in the event of a complete break. The two systems are, however, interlocked both by financial and management agreement as well as by physical structure that complete separation would be difficult. 7.04 Since the project was completed, relations between the two countries have entered a new phase, but it is too early to say whether it will be possible to reunite the two systems under a reconstituted CAPC, which would almost certainly to be the economic advantage of both countries. - 38 - 7.05 The lessons of this project are unlikely to uniformly perceived. A conventional hydro power project, developing an earlier investment in the Kariba South power station, the project's chief complexity lay in the relationship between the two countries which, for their respective reasons, supported its implementation. One lesson must be that the support of an international lending agency such as the Bank was crucial to the maintenance of an overall successful transactional relationship between the two estranged countries. In the case of this loan the Bank appears to have been indispensable to the process of establishing and maintaining a dialogue which, despite continuing political problems, enabled a formula to be agreed and the project to be completed with relativeiy little delay. 7.06 The causes of the cost overrun have been fully explained in financial terms and overall the project remains justified. However, a lesson from this loan is that for projacts which provide substantial benefits to more than one country, individual analyses to calculate the economic benefits for each country are relevant to the appraisal. A further lessons that when considerating the financial arrangements for a project in which more than one country is involved, the degree to which their currencies are freely convertible must be taken into account. Eastern Africa Regional Office July 8, 1981 Revised: June 8, 1983 Revised: June 27, 1983 Revised: August 1, 1983 ANNEX 1 ZAMBIA LOAN 701-ZA KARIBA NORTH HYDRO-ELECTRIC PROJECT Major Covenants in the Original (dated July 29, 1970) and Amended (dated August 16, 1974) Loan and Guarantee Agreements. 1. There were no special covenants in the Loan Agreements. 2. Section 2.03 of the Guarantee Agreement, as amended at the time of making the supplemnetary loan, specifically required the GRZ, if so required by the KNBC, to provide an amount equivalent to $5 million in foreign currency in addition to the proceeds of the Bank loan to fill an estimated gap in the foreign currency financing. This-was without the prejudice to GRZ's general obligation under this section, to make up any deficiency in funds required to enable KNBC. to carry out the project. In the event GRZ was required to provide only $1.6 million equivalent, and this it did. 3. Section 3.02 of the Guarantee Agreement reads as follows: 'The Guarantor covenants that it will not take, or cause or permit any of its political subdivisions or any of its agencies or any agency of any political subdivisions to take; any action which would, unreasonable, prevent or interfere with the performance by the borrower or by the Central African Power Corporation of any of their obligations, covenants or agreements under the Agency Agreement, the Lease Agreement,and the CAPC Loan Agreement and will take or cause to be taken all reasonable action necessary or appropriate to enable the Borrower and the Central African Power Corporation to perform such obligations, covenants and agreements'. 4. Section 3.03 of the Guarantee Agreement requires that the government shall not permit the Tariff Agreement to be amended, abrogated or waived except as the Bank shall otherwise agree. - 40 - ANNEX 2 ZAMBIA KARIBA NORTH HYDROELECIRIC PRaJECI PR(JECT COST (Kwacha thousand) Appraisal Estimate Increased Loan Estimate Actual Cost June 1970 June 1974 December 1977 Local Foreign Total Local Foreign Total Local Foreign Total Civil Works Preliminary Works 387 100 487 1,160 60 1,220 1,156 72 1,228 Housing 1,410 30 1,440 3,250 - 3,250 3,362 - 3,362 Main Civil Works 4,312 7,328 11,640 17,870 19,280 37,150 21,236 26,779 48,015 North Bank Spillmay Channel - - - - - . - 2,247 665 2,912 Engineering 82 820 902 300 1,700 2,000 326 2,226 2,552 Site Supervision 246 164 410 600 350 950 715 433 1,148 Contingencies and Escalation 1,219 1,494 2,713 2,930 2,960 5,890 - - - 7,656 9,936 17,592 26,110 24,350 50,460 29,042 30,175 59,217 Electrical & Mechanical Works Generating Plant & Equipment 1,351 10,666 12,017 1,590 15,810 17,400 2,487 28,186 30,673 Engineering 5 624 629 10 720 730 - 1,152 1,152 Site Supervision 91 87 178 140 130 270 248 144 392 Contingencies and Escalation 81 639 720 850 3,880 4,730 - - - 1,528 12,016 13,544 2,590 20,540 23,130 2,735 29,482 32,217 Administration (KNBC) - - - 270 - 270 580 - 580 Total Project Cost 9,184 21,952 31,136 28,970 44,890 73,860 32,357 59,657 92,014 Interest during Construction 2,110 4,570 6,680 5,180 7,900 13,080 5,122 7,737 12,859 Total Project Cost including Interest during Construction 11,294 26,522 37,816 34,150 52,790 86,940 37,479 67,394 104,873 NOES: 1. The provisions for Contingencies and Escalation shown in the KNBC accounts for local and foreign exchange under Civil and Mechanical and Electrical Works have been added to the total of Main Civil Works and Generating Plant and Equipment, respectively. 2. The foreign exchange costs include an adjustment of K 12,548,000 in respect of devaluation of the Kwacha and currency fluctuations in the course of the project. Sources: KNBC, CAPC and consultants' reports. - 41 - KARIBA NORTH HYDROELECTRIC PROJEC- Disbursement Schedules Accumulated Disbursements in Thousands IURD Fiscal Quarters of LS Dollars quivalenr Original Supplemencary Accual Appraisal Loan Disbursements Esetimae Escimate July 1970 July 1974 1970/71 December 31, 1970 700 March 31, 1971 900 215 June 30, 1971 1.300 3.300 3,290 1971/72 Septemaer 31. 1971 2.600 4,400 4,363 December 31, 1971 4.100 4,900 4,941 March 31, 1972 5.400 5,900 5.944 June 30, 1972 7.000 8,400 3.335 1972/73 September 30, 1972 10.100 10,100 10.096 December 31, 1972 13,500 13,100 13,128 March 31. 1973 16,700 15.400 15,397 June 30, 1973 20,400 18,000 17.968 1973/74 September 30, 1973 23,000 21.600 21,563 March 31, 1973 26,600 23,000 :.977 March 31. 1974 29.200 27,000 Z7,046 June 30, 1974 32,900 29.700 29,673 1974/75 September 30, 1974 33,800 33,400 33.370 December 31, 1974 35,900 43.900 39,367 March 31, 1974 36.800 54,400 45,795 June 30. 1975 39,000 66.900 SO.681 1975/76 September 30, 1975 40,000 69.000 57.467 Deceamber 31, 1975 73,100 61,316 March 31, 1976 77,200 66.325 June 30. 1976 81.00 69,056 1976/77 September 30, 1976 82,100 '1,453 December 31, 1976 73,685 March 31. 1977 74,595 June 30. 1977 75,097 1977/78 September 30, 1977 77,657 December 31, 1977 77,660 March 31, 1978 79.764 June 30. 1978 80,662 19l78/79 September 30, 1978 80,662 December 31. 1978 80,662 March 31, 1979 81,590 June 30. 1979 61,606 1979/80 September 30, 1979 S1,606 December 31, 1979 81. 790 March 31, 1980 81, 790 June 30, 1980 S2,032 1980/81 September 30. 1980 82,100 ANNEK 4 - 42 - ZAMBIA KARIBA NORTH HYDROELECMRIC PRWECT Appraisal and Actual System Demand and Energy Requirements for CAPC System A. Demand (Excluding Transmission Losses) (MW) Year axiing APPRAISAL ACTUAL June 30 Zimbabwe Zambia Zaire Total Zimbabwe Zambia Zaire Simultaneous System Demand 1970 470 529 999 462 504 947 1971 501 587 1,088 509 559 1,059 1972 614 644 1,258 635 584 1,203 1973 731 692 25 1,448 735 644 1,370 1974 775 740 37 1,552 799 710 1,510 1975 830 789 58 1,677 858 724 1,582 1976 913 837 86 1,836 956 754 1,682 1977 963 885 105 1,953 988 743 1,690 1978 1,015 941 1,956 936 749 1,661 1979 1,063 989 2,052 944 748 1,689 1980 1,116 1,038 2,154 1,028 754 1,760 1981 1,084 804 1,869 1982 1,131 833 1,946 B. Energy Requirements (Sales in G4h) 1970 2,584 3,636 6,200 2,813 3,607 6,420 1971 2,784 3,934 6,718 3,080 3,809 6,889 1972 3,486 4,292 7,778 3,490 4,215 7,705 1973 4,350 4,824 50 9,224 4,563 4,567 9,130 1974 4,684 5,150 211 10,045 5,066 5,367 10,433 1975 4,960 5,517 332 10,809 5,600 5,334 445 11,379 1976 5,423 5,873 489 11,785 6,151 5,420 103 11,674 1977 5,711 6,193 680 12,584 6,420 5,217 11,637 1978 6,015 6,545 12,560 6,097 5,238 11,335 1979 6,326 6,911 13,237 6,148 5,307 11,455 1980 6,649 7,274 13,923 6,849 5,478 12,327 1981 7,147 5,650 12,797 1982 7,540 5,904 13,445 Source: CAPC Annual Reports ANNEK 5 - 43 - ZAMBIA KARIBA NORTH HIMEOELECIC PROJECT Analysis of Disposition of Kariba North Outputs for Calculation of Economic Rate of Return (for years Ending June 30th) (GWh) Net Kariba North Gh Produced Production 1, ZESO Losses Net Delivered Available Sold Other Kariba in Trans- Delivery by to for in Year Hydro North Total mission 330kV Grid Zambia Export Zambia Exported (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Actual 2/ 3 3 5 1976 5,999 217 6,116 249 5,867 5,420 449 - - 1977 5,999 2,378 8,377 335 8,042 5,217 2,825 - - 1978 5,999 3,110 9,109 364 8,745 5,238 3,507 - 1,101 1979 5,999 3,400 9,399 376 9,023 5,308 3,715 - 1,165 1980 5,999 3,945 9,944 398 9,546 5,478 4,068 - 1,637 1981 5,999 3,846 9,845 394 9,451 5,650 3,801 - 2,320 1982 5,999 3,958 9,957 398 9,559 5,905 3,654 - 2,612 Forecast 4/ 1983 5,999 4,900 10,899 436 10,463 6,463 4,000 704 4,000 1984 5,999 4,900 10,899 436 10,463 6,580 3,883 821 3,883 1985 5,999 4,900 10,899 436 10,463 6,724 3,793 965 3,739 1986 5,999 4,900 10,899 436 10,463 6,967 3,496 1,208 3,496 1987 5,999 4,900 10,899 436 10,463 7,261 3,202 1,502 3,202 1988 5,999 4,900 10,899 436 10,463 7,625 2,838 1,866. 2,838 1989 5,999 4,900 10,899 436 10,463 8,006 2,457 2,247 2,457 1990 5,999 4,900 10,899 436 10,463 8,406 2,057 2,647 2,057 1991 5,999 4,900 10,399 436 10,463 8,828 1,635 3,069 1,635 1992 5,999 4,900 10,899 436 10,463 9,269 1,194 3,510 1,194 1993 5,999 4,900 10,899 436 10,463 9,730 733 3,971 733 1994 5,999 4,900 10,899 436 10,463 10,218 245 4,459 245 1995 5,999 4,900 10,899 436 10,463 10,729 (266) 4,704 - 1/ The net production of Kariba North (4,704 GWh/a) is the production capability (4,900 GWh/a) less 4% transmission losses. 2/ Annual energy generation capability for Kafue (5,230 GWh) and Victoria Falls (769 GWh) hydro power stations. 3/ The energy produced by Kariba North (Column 3) and the energy delivered to Zambia (Column 7) in the years 1976 through 1982 are actual figures taken fran the CAPC Annual Report and Accounts, Appexdix 1. 4/ The energy delivered to Zambia (Column 6) represents the total denand fran the CAPC and ZES00 330 kV lines and is taken fran the Staff Appraisal Report for the Zimbabwe Power Project (Report No. 3884-ZIML, November 16, 1982). 5/ Actual sales are sales in excess of the Zimbabwe entitlement of 5,000 GWh except in 1978 and 1979 when entitlements were reduced to 4851 and 4835 GWh because of reduced plant availability. Source: CAPC and ZESOD reports. ANNEK 6 ZAMBIA KARIBA NORTH HYDROELECRIC PR(1ECI BENEFITS (Kwacha mLlion) Sales to to Total Zimbabwe Zambia Benefits from Total Benefits (CAPCO) (ZESM0) -----CAPCO----- - ZES00---- Animal Deflator Adjusted to Year (Owh) (GWh) N/GWh K N/GWh K Benefits 1970=-100% 1970 Prices 1976 - - 0.41 1/ - 0.431/ - - 164.7 - 1977 - - 0.47 1/ - 0.391/ - - 192.9 - 1978 1,101 - 0.60 1/ 6,060 0.332/ - 6,060 216.4 2,800 1979 1,165 - 0.32 1/ 3,728 0.312/ - 3,728 240.8 1,548 1980 1,637 - 0.56 1/ 9,167 0.31 - 9,167 268.6 3,412 1981 2,320 - 0.81 1/ 18,792 0.31 - 18,792 296.6 4,336 1982 2,612 - 0.88 22,986 0.31 - 22,986 296.6 7,749 1983 4,000 704 0.88 35,200 0.31 2,182 37,382 296.6 12,604 1984 3,883 821 0.88 34,170 0.31 2,545 36,715 296.6 12,379 1985 3,739 965 0.88 32,903 0.31 2,991 35,894 296.6 12,102 1986 3,496 1,208 0.88 30,765 0.31 3,745 34,510 296.6 11,635 1987 3,202 1,502 0.88 28,178 0.31 4,656 32,834 296.6 11,070 1988 2,838 1,866 0.88 24,974 0.31 5,785 30,759 296.6 10,371 1989 2,457 2,247 0.88 21,622 0.31 6,966 28,588 296.6 9,639 1990 2,057 2,647 0.88 18,102 0.31 8,206 26,308 296.6 8,870 1991 1,635 3,069 0.88 14,388 0.31 9,514 23,902 296.6 8,059 1992 1,194 3,510 0.88 10,507 0.31 10,881 21,388 296.6 7,211 1993 733 3,971 0.88 6,450 0.31 12,310 18,760 296.6 6,325 1994 245 4,459 0.88 2,156 0.31 13,823 15,979 296.6 5,387 1995 - 4,704 0.88 - 0.31 14,592 14,592 296.6 4,920 1996-2015 - 4,704 0.88 - 0.31 14,592 14,592 296.6 4,900 1/ Price per KWh obtained from CAPC Annual Reports and Accounts using apropriate exchange rate. 2/ Price per WH obtained from ZESCO Annual Reports and Accounts. Note: Deflator used is Consumer Prices in Urban Areas High Income Group for all itens taken from Zambian bnthly Statistical Review, October 1980. ZAMBIA KARIBA NORTH HYDRO-ELECTRIC PROJECT Costs (Kwacha Million) Power Adjusted Expenditure Total Expenditure Station Power on Related Adjusted to Adjusted Total Construction Deflator Station Trans- 1970 Operating Deflator Operating Adjusted Year Expenditure 1970=100.0 Expenditure mission Prices Costs 1970=100.0 Costs Costs 1970 - 100.0 - 0.6 0.6 - 0.6 1971 5.8 108.4 5.3 3.7 9.0 - 9.0 1972 8.9 118.6 7.5 1.9 9.4 - 9.4 1973 8.6 127.0 6.8 5.2 12.0 - 12.0 1974 10.0 143.9 6.9 1.0 7.9 - 7.9 L 1975 17.8 175.0 10.2 0.9 11.1 - 141.8 11.1 1976 15.1 232.5 6.5 0.9 7.4 - 164.7 7.4 1977 7.2 294.1 2.4 - 2.4 1.0 192.9 0.5 2.9 1978 - 379.4 - - - 1.1 216.4 0.5 0.5 1979 - 447.0 - - 1.2 240.8 0.5 0.5 1980 - 499.8 - - 1.5 268.6 0.6 0.6 1981 - 550.0 - - 1.5 296.6 0.5 0.5 Note 1. Transmission Expenditure is taken from Appraisal Report, Annex 7 without adjustment since the estimates contained an allowance of (June 23, 1980) only 8.5% for escalation over the period of construction. The costs in later years are therefore close enough to 1980 prices as to make no significant difference in the rate of return. 2. Deflator used for Power Station Construction costs is "Goods for fixed Capital Formation" taken from Zambian Digest of Statistics for October 1980. 3. Deflator used for Operating Costs is "Consuner Prices in Urban areas High Income Group" for all items. Source as for Note 2. 4. Operating costs are actual figures from CAPC annual accounts divided between Kariba North and South in the ratio of the number of machines i.e. 4.6. ANNEX 8 - 46 - ZAMBIA KARIBA NORTH HYDRO-ELECTRIC PROJECT Cost/Benefit Stream (Kwacha Million) Costs Benefits Net Benefits Adjusted from Sales from Sales to 1970 Adjusted to 1970 Adjusted Prices from Prices from to 1970 Years Annex 7 Annex 6 Prices 1970 0.6 - -0.6 1971 9.0 - -9.0 1972 9.4 - -9.4 1973 12.0 - -12.0 1974 7.9 - -7.9 1975 11.1 - -11.1 1976 7.4 - -7.4 1977 2.9 - -2.9 1978 0.5 2.8 2.3 1979 0.5 1.5 1.0 1980 0.6 3.4 2.8 1981 0.5 6.3 5.8 1982 0.5 7.7 7.2 1983 0.5 12.6 12.1 1984 0.5 12.4 11.9 1985 0.5 12.1 11.6 1986 0.5 11.6 11.1 1987 0.5 10.1 9.6 1988 0.5 10.4 9.9 1989 0.5 9.6 9.1 1990 0.5 8.9 8.4 1991 0.5 8.1 7.6 1992 0.5 7.2 6.7 1993 0.5 6.3 5.8 1994 0.5 5.4 4.9 1995 0.5 4.9 4.4 1996-2015 0.5 4.9 4.4 Internal Economic Rate of Return: 8.9% ZAMBIA KARIBA NRIH HYRo-EECRC PRFJECr Forecast Demands and Energy Requirenmts for Zimbabwe and Zambia Year Ending June 30th 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Power, MW Sent out MBdnun Demand 1/ - Zambia 915 932 961 999 1,050 1,102 1,157 1,215 1,276 1,340 1,406 1,477 1,551 - Zimbabwe 1,412 1,532 1,649 1,762 1,880 2,005 2,139 2,278 2,420 2,565 2,719 2,882 3,054 - Subtotal 2,327 2,464 2,610 2,761 2,930 3,107 3,2% 3,493 3,696 3,905 4,125 4,359 4,605 1 Reserved Required 381 422 446 476 499 542 589 615 637 699 721 820 854 Total Capacity Required 2,708 2,886 3,056 3,237 3,429 3,649 3,885 4,108 4,333 4,604 4,846 5,179 5,459 Energy, GWh Sent Out - Zambia 6,463 6,580 6,724 6,967 7,261 7,625 8,006 8,406 8,828 9,269 9,730 10,218 10,729 - Zimbabwe 8,840 9,568 10,330 11,027 11,774 12,566 13,400 14,291 15,220 16,171 17,141 18,170 19,260 - Total System Requirement 15,303 16,148 17,054 17,994 19,035 20,191 21,406 22,697 24,048 25,440 26,871 28,388 29,989 z z 1/ In July, including losses in the transmission system. Source: Zimbabwe Power Project - Staff Appraisal Report - IN. 3884-ZIM - 48 - ANNEX 10 Page 1 of 2 CAPC-KNBC-ZESCO Financial Arrangement for Electrical Power Generated in Zambia KNBC or ZESCO 1. Under the terms of Loan 701-ZA, KNBC entered into a Lease Agreement with CAPC, and could not alter the terms of this Lease Agreement without the prior agreement of the Bank. 2. Under the terms of the Lease Agreement, all of Kariba North's output would be available to CAPC in return for CAPC's operating Kariba North (using staff seconded to CAPC from KNBC), and paying a lease rental equal to KNBC's administrative costs and its debt service on all debt incurred by KNBC for the construction of the project, i.e. IBRD Loan 701-ZA, CAPC's loan to KNBC and the GRZ loans. The lease was for 35 years as from April 1, 1976. 3. The Lease Agreement came into operation on May 24, 1976, when Kariba North's first unit was commissioned for commercial service, and continued until July 1, 1977 when a new financial agreement covering bulk electricity transfers from Zambia to Southern Rhodesia was implemented with the agree- ment of the Bank. The new agreement, which was ratified by GRZ and Southern Rhodesia, included the following provisions: (a) Zambia and Southern Rhodesia would each be entitled to 50% of the available output from the Kariba complex comprising the Kariba dam, Kariba North and Kariba South generating stations, the 330-kV transmission lines connecting Kariba North and Kariba South, all telemetering stations on the Zambesi river and the Sherwood control center (in Southern Rhodesia), until such time as the Zambian Lusaka control center was fully operational; (b) The costs of the Kariba complex would be shared equally by Zambia and Southern Rhodesia, and such costs would include the rental payable by CAPC to KNBC for the lease of Kariba North (para. 5.01); operating administrative costs of the Kariba complex; 50% of CAPC's and ZESCO-s administration expenses; debt service on all Kariba complex loans (excluding those for Kariba North already included in the above lease rental) and excluding IBRD Loan 392-RNS (see (d) below); (c) Operating costs of the 330-kV transmission line in Zambia would be borne entirely by ZESCO; (d) Debt service on IBRD Loan 392-RNS for extensions to the 330-kV lines in Zambia would be paid entirely by ZESCO as agents of the GRZ; (e) CAPC would import bulk electricity for Zimbabwe from Zambia and would pay for any import in excess of Zimbabwe's 50% share - 49 - ANNEX 10 Page 2 of 2 of the Kariba.complex output under the following three-part tariff: 1/ - up to 250 MW @ K 40 kW - excess of 250 MW I K 36 kW - energy @ K 0.008 kWh 4. Coincidental with the new bulk tariff agreement, CAPC also-agreed to pay a lump sum of K 7.8 million in FY1977, and a further K 3.775 million payable in 16 equal monthly installments of approximately K 236 thousand from September 1977 through December 1978, in settlement of Zambia's claim for underpayment of generation costs through June 1977. These payments have bfen made by CAPC in accordance with this CAPC agreement. 1/ The above initial change rates for the three-part tariff was increased annually by about 15% through June 30, 1980. ZAHalA KARIBA NRIII HYDRECI.ECTUfC PRdJECr AINEI ll CAPC Appratual Eutl,aO and ACtul balance Sheets ¥ear godina June 30 1970 1971 1972 1973 1974 1975 1976 1977 598 _197 19804 Appraigal Actual Appraisal Actual Appratsal Actuel Appraisal Actual Appralal Actual Appraisål Actual Appralal Actual Actual Aal Actual AcaUl ASSETS Fixed Asget Gross p$ant in operation 161.570 167,248 173,358 171,646 181.024 189,672 191,926 210.455 196,677 213,694 200,998 226.114 202,543 203,508 249,05 235,ö44 212,18 242,951 Lass: Depreciation reserve 25.512 25,499 29,217 29,å68 33,834 36 218 186 42,711 43,718 46,442 49023 58,401 54.840 61255 84 671 .4 . L!9 Net Plant in operation 142.058 141.749 144,32i 542,478 147,190 154,434 153265 k67,744 152,959 167,252 151,975 167,713 147,703 142,252 CM; 553,004 147,452 550,851 Administration assete etc. 882 1,050 897 1,107 912 1,547 927 1,797 942 2,404 957 1,20% 972 1,319 1,751 1,564 1,624 1,793 Loan to KusC - - 2,481 2,905 4.510 8,800 7.451 12,881 10,270 13.000 11,576 18.29 11,570 19.765 i9,270 , '740 18,170 17,5d0 Current Assets Accounts eceivable 3,000 2,762 3,100 3,592 3.200 3,567 3,100 5,309 3,400 5,025 3,500 6,646 3,600 5,538 6,2 0 4931 499u 6,06 Bank Balpucea and Tr.asury Billa 11,120 12,030 7,256 10,340 5.164 6,071 1,813 8,921 2,206 10,105 6.147 9.995 11,021 l4,131 8,3,5 6,425 8,268 1,836 Current portion of KlibC Loan - - - - - - - - - - 295 - 315 235 495 - 1ju --_510 _590 Total Current AsDets 14120 14,792 10356 13932 8364 9658 4.230 5,606 15130 9,942 16,641 16,936 19,904 F5,<020 V] 458-8! -148 2,4 TOTA. ASSETS 157,060 157,591 157,855 16422 160_976 j_33 1 1,67 ]6 196 652 169,777 197 786 174 450 24,084 *77, be 3,240 200, , 18074 1%9ä92 LIABILITIES Equity &arned Surplus 24,295 24.465 29.498 30,395 36,047 38, 7187 44,489 49,584 51,686 52,920 63,452 63,410. 74,552 61,123 75,726 74,081 M,410 88.161 Eac<ana anor. ~ ~ *~* ~ ~ ~ ~ * ~ 21* *87*8 8.506 23.592 8.506 27.439 8,506 21,3i1 5,2 539 n3,3 I~. 3,0 Exchange adjustaent seerve 8,506 8 623 8 0()6 8,-b18 8.506 1I 591 853 2,7 8a__3_ ,5 2 37 2._3 5 037 31,46 3,408 Total EquIty 32,801 33,088 38,004 39,013 44,553 50,384 52,995 71,462 60,192 76,119 7.958 90,869 83,058 88,440 107,865 104: 108,014 525,569 0 kong Tara peb. IBRD 40,262 40,411 37,470 40,411 34,535 33,229 11,449 <9,633 28.209 26,642 24.809 21,003 25,235 21,003 18.199 4,517 5.1154 1.152 5 Other longterm d1bt 76,305 76,305 74_475 76.31 72,558 74 847 7 o_2 340 647 42 _67.950 66 030 58 129 65499 58 529 54,34- 5a1,21 46,564 44,12 Total Lsog Term D'ht 116,567 116,712 111,945 116,712 107,093 108,076 102,011 99,933 96,681 94,552 90,839 79,132 82,130 79,532 72,542 6 5 9 , Kd,1 Turms Dubt Covernumot of 6. Rhodeat - - - - 1.194 - 4-384 .176 4,290 1,289 2,527 6,435 - 1,654 - Curr.nt g.1sS,65Stiga Accounte paYAble 1,814 1,882 5,874 2,558 1,934 2,771 1,984 6,639 2,044 9,122 2,154 10,216 2.264 52.380 8,115 5,880 5,101 4,126 Retentio Monles - 153 - 693 - 843 - o65 - 961 - 730 - 365 3Da 154 16 23 Finace chartg e e atcrued 1,470 1,49d 1,410 1.446 1,350 1,564 1.300 1,434 1,240 1,362 1,130 1.282 1,020 1,071 1, 586 - - Current portion of debt 4,408 4 258 4,622 - _j 8_5 9 _S,tt 1j43 _5 310 _5,11 5,842 15,420 8,109 - 9 761 7 z .L 2 .. .051. Total currunt Liab,liti,es 7,692 7,791 7,906 4,697 8,136 14,979 8,366 16,881 8,614 16,826 9,126 27,648 11,393 13,814 19,998 16,30 15,590 13,804 TOTAL LIABILITIES 157,0ö0 157.591 57,855 16,422 60,_1976 7 9 1_49 6 1_96652 169 117204084 177,.81 8345 20,0 96 I ul4 90,_69 Converslon Mate: R $1 - K 1.00 1.00 1.04 I.Md 5.4 ..12 1.17 1.03 1.28 1. H 1.1b 5.21 ./ The appraisi t.ruct extended ~ntik 1976. Source: IBR) and CA'C Annual Reports Kareh 1981 ANNEX 12 ZAJIIA KARIBA NORTH IYPREiF.EMI(C PROIlECT AYS Apraiql Eatimate and Actual Inconme Statements (K th oulnds) year Ending June.30 1970 __ 1911 1972 1973 1974 1915 1916 9971 3918 1979 3980 Appraisal Actual Appraisal Actual Appraisl Actual Apprasal Actual Appraisal Actual Appraisal Actual Appraisal Actual Actual Actual Actual Actual ctlh Sales 6.177 6,420 6,644 6.889 7.682 7.705 9.068 9,130 9.718 10.433 10.352 1,3179 1I,161 11,674 1.637 6, 097A 6.147 6.849 Average Price per hit% (Il) 0.484 0.465 0.470 0.455 0.442 0.449 0.339 0.424 0.424 0.413 0.383 0.437 0.378 0.42- o.07-'2 0.6M4 0. Y 0.800 Crose Operating Nevenue 29.919 29.845 31.225 31.338 33,939 34.591 36,211 38,711 37,891 43.10S 39.690 49,719 42.193 49.612 59,049 39.88L4'A3.792 S4.769 Cost of Operotido 1ectricity Purchases Thermal 11.741 12.461 12.902 12.053 10.864 12.606 8.876 11.501 10,449 35.509 6,311 13.574 5,833 15.935 1,069 11.105 1I.686 14.272 Victoria Fails 233 261 700 715 1.630 784 1.610 977 1.590 2.050 1,560 2,816 1.540 2.8135 3.014 - - - Kafeu - - - - 1.800 1,669 4.000 4.588 5.200 7.870 6,200 7.627 6.200 8,568 9,749 - - - Kariba North - - - - - - o. - - - * - o 10,81S2s090 ,5,596!L Other 44 - 439 838 302 537 224 - 224 224 - 224 - 6,8753 - - - OperatIo and HaitGaSace 2.300 1,996 2.400 2.345 2.600 2.703 2.800 2.917 3.000 2.899 3.600 3.537 3.800 4,776 5,833 4.762 6,148 6.636 Depreciation 2,900 2.892 3,750 3,808 4,622 4,717 4,852 4,790 5,082 4,681 5.330 9.850 5,842 9.554 1I.680 7,299 6.861 7134 Earthe Complex Cost Rquallastol,/ - -- - - - L- i eq:i- '6 TOTAL OPERATIGS REPElSES 17,608 17.610 20,191 19,739 21,818 23.016 22,362 24.779 25,545 33.811 23,225 37,604 27.259 43,679 56,435 35,719 39,132 46,531 UNT O1E1ATiG INCONZ 12.311 12,235 11,034 11,599 12,121 11,575 33,849 13,932 12.346 9,294 16,465 12.115 14,934 7.933 2,614 4,168 4.660 8.238 Other Net Income/(EpeoSsa) - - * - - - - - - - - - - ( 13) 91 - 271 3 Interest Charged to Operations (6,560) (6.582) (6,320) (6,380) (6,126) (6.486) (6.013) (5,969) (5,878) (6.023) (5,660) (5,804) (5.106) (4,605) (4,768) (2,336) (2.028) (1.791) Interest earned * KNBC - - 89 44 239 425 411 786 609 930 761 1.151 847 1,383 1,411 1,371 1,341 1,301 - Other 310 485 400 612 315 475 195 262 120 414 200 462 425 614 537 380 225 447 ULT ICV9196J 6AI38 I 203 8 6 549 SA989 B442 9.031 4.195 ll.766 1 924 34.100 5 11 680 34.98 8466 tI The appraisal forecasts extended until 1976, Ll On 10/01/76. a surcharge was imposed on Zimbabwe sales of 207., increased to 302 from 08/01/77. to 35% on 07101 78 and to 501 on 01/0 '79 when it was consolidated into a revised tariff. I3 Lump-sue payment to TESCO for additional charges for generation in Zaebi. L As of 07/16/77, ZESCO took over all sales of energy in Zambia. ZESCO is responsible for all operating and administrative costs of Kafue, Victoria Falls, Lusaka and CPC generating stations; 501 of Kariba Complex costs. operating and administrative costs of CAPC's 3130 kV transslooon system in Zambia including debt service on loan 192-INs. hu: Karii 0--rrh equaliastion to the balance between the CAPC and ZESCO expenditure (including the Kariba North rental). A As of 07/01/77, CAPC purchases (fram ZESCo) at an agreed three part tariff, all the power it uses from the Kariba Comples in excess of 51 of the capacity of the Cumplex. /6 CAPC and ZESO each are responsible for 501 of the cost of the Maribe Complex. ZESCO disagrees with the method of calculating the cost. As of 06/30179. this matter remained in dispute. - 52 - -~~ =1~ I.Ig s -1 1 -%- ; -k iii - - Mp. 3 1 1I - . tit II eæ.'-l- I | 2½ col 1...0 å!I .& 3 ',44 - 0%I% e 1J4 0-]- I- * i . 4 i h[ i x 4 - 53- ANNEX 14 ZAMBIA KARIBA NORTH HYDROELECTRIC PROJECT KNBC Income Statements (Kw4acha thousands) Expenditure and Debt Service 1976 1977 1978 Administration *1/ - 62 178 Depreciation 2/ - 1841 3270 Debt Service - Interest 2600 6832 7549 Subtotal (2600) (8735) (10997) Rental for Kariba North for year 3/ 2600 9061 10272 Sundry Income - - 52 Balance - 326 (673) Add principal portion of Debt Service - - Net Profit/Loss - 326 (673) Calculation of Kariba North Rental per Agreement 4/ Debt Service Interest 2600 6832 7549 Principal - 1171 2542 Total 2600 8003 10091 Administrative Expenses - 62 178 Kariba North Rent due (excluding Depr.) 2600 8063 10269 Rent payable in CAPC accounts 5/ - 8215 9863 Difference in CAPC accounts (2600) 150 (406) Kariba North rental on above 2600 8065 10269 Kariba North rental in CAPC accounts 2600 9061 10272 Difference in Kariba accounts - 996 3 Kariba Rentals difference between Kariba and CAPC Accounts Kariba North rental in KNBC accounts 2600 9061 10272 Kariba North rental in CAPC accounts - 8215 9863 Excess in IBC accounts 6/ 2600 846 409 1/ Through 1977 administration expenses (including K 17,000 depreciation an Sundry Assets) was capitalized. 2/ CAPC disagreed that depreciation should be included in adzinistration expenses. 3/ KNBC's calculation of rental has only included interest on loans, not principal repayments, but has included depreciation. 4/ Rental calculationper agreement and excluding depreciation (see 2/). 5/ Kariba North first unit was put into commercial operation on 5/247/1976, and CAPC's accounts show nil rental for 1976 and,K 31,000 for operating expenses for the peridd 5/24/1976 through 6/30/1976. 6/ The differences between the rentals in CAPC and KNBC accounts have been included in the Consolidated Balance Sheet as a suspense asset. ZAMBIA KARIBA NORM HYO-EI IRIC PROJICI CAPC & MNC 0a)SQLID)TED BAIANE SHIEIS (K thousands) 1970 1971 1972 1973 1974 1975 1976 1977 1/ 1978 Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Actual Actual Thousands of 1wacha ASSETS Fixed Assets in operation 167570 167248 173358 171670 181024 189716 191926 210526 196677 213785 238591 226226 241185 278859 344029 343%3 less Depreciation 25512 25499 29237 29168 33834 36238 38661 42711 43718 46442 49023 58401 55825 61273 86529 879% Net Fixed Assets in operation 142058 141749 144121 142502 147190 153478 153265 167815 152959 167343 189568 167825 185360 217586 257500 255%7 Work in Progress - - 3342 7139 9171 16912 21278 27292 32435 40344 - 61733 - - - - Other Assets 882 1050 879 1107 912 1547 927 1797 942 2404 957 1201 972 3919 5097 5419 Total Fied Assets 142940 142799 148360 150748 157273 171937 175470 196904 186336 210091 190525 230759 186332 221505 262597 261386 CURRI ASSETS Cash and Banks 11120 12030 7256 10397 5164 6304 1813 8936 2206 5598 6147 10067 13021 14232 9236 7539 Accounts receivable 3000 2762 3100 3594 3200 3589 3300 5321 3400 54% 3500 6667 3600 5577 6765 5508 Sub-total Current Assets 14120 14792 10356 13991 8364 9893 5133 14257 5606 11094 9647 16734 16621 19809 16101 13047 CURII LIABILITIES Accounts Payable 1814 1882 1874 2558 1934 2950 1984 6739 2044 9127 2154 10238 2264 12380 8715 5880 Retentions - 153 - 1966 - 2574 - 2304 - 5497 - 6290 - 5544 6242 5035 Accrued Finance (harges 1470 1498 1410 1446 1350 1564 1300 1434 1240 1362 1130 1282 1020 1071 1186 - Current Portion of Lng-Term debt 4408 4258 4622 - 4852 9801 5082 8143 5330 5381 5842 15420 8109 - 2767 10276 Sub-total Current Liabilities (7692) (7791) (7906) (5970) (8136) -(16889) (8366) (18620) (8614) (21367) (9126) (33230) (11393) 18995 (25910) (21191) Net Current Assets 6428 7001 2450 8021 228 (6996) (3253) (4363) (3008) (10273) 521 (164%) 5228 814 (9809) (8144) TOTAL NET ASSETS 149368 149800 150810 158769 157501 (164941) 172217 192541 183328 199818 191046 214263 191560 222319 252788 253242 EQUITY & LIaiT DEBT Share Capital2/ - - - - - - - - - - - - - - - - Fetaitd Surpl1 24295 24465 29409 30351 25719 38338 43750 48329 50338 50762 61343 60094 72443 %424 71353 69036 Exchange Adjustuent Reserve 8506 8623 8506 8618 8506 11597 8506 21878 8506 23192 8506 27459 8506 27317 32139 30037 Grants to KBC - - - 738 - 738 - 849 - 949 - 949 - 949 932 904 Total Equity 32801 33088 37915 39707 44225 50653 52256 71056 58844 74903 69849 88502 80949 84690 104424 94977 DNG-TR4 DEBT IBRD 701-ZA - - 950 2350 4989 6212 14566 13176 23513 20074 27831 33794 27881 43743 59785 71870 Other IBRD 40262 40411 37470 40411 34535 33229 31449 29633 28209 26642 24809 21003 21231 21003 18199 14517 Other 3] 76305 76301 74475 76301 73752 74847 73946 78676 72762 78199 68557 70964 61499 72883 70380 66878 Total Long-Term Debt 116567 116712 112895 119062 113276 114288 119961 121485 124484 124918 121197 125761 110611 137629 148364 153265 TOMt EQUITY & tIC-TER4 IEBT 149368 149800 150810 158769 157501 164941 172217 192541 183328 199819 191046 214263 191560 222319 252788 253242 Exchange conversion rates used in 1.04 1.08 1.14 1.12 1.17 1.03 1.28 1.19 CAPC accounts: RS1 - K 1 1/ The appraisal forecasts extended until 1976 only; 2/ Equity share of KNBC is only nominal (K 100) and CAPC has no equity share capital; 3/ Includes mediun term teaporary financing fran the Rhodesian governoEnt. 4/ The actual figures for 1976, 77, 78 of total fied assets have not been reconciled with those of 1NB aid CAPC. ZAMBIA KARIBA IRH HIRIILECIRIC PRET COntral African Ier Corporation 6 Kariba North Bank Co., Ltd. CAIC & lBC Appraisal Estinate and Actual Consolidated Inxe Stateaents (K tinusands) Year Ending June 30 1970 1971 1972 1973 1974 1975 1976 1977 1/ 1978 1979 1980 Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Actual Actual Actual Actual (Uih 6,177 6,420 6,644 6,889 7,682 7,705 9,068 9,130 9,718 10,433 10,352 11,379 11,161 11,661 11,637 6,097 4/ 6,147 4/ 6,849 Average price per kWh (N) 0.484 0.465 0.470 0.455 0.442 0.449 0.399 0.424 0.424 0.413 0.383 0.437 0.378 0.425 1/ 0.507 2/ 0.654 4/ 0.614 4/ 0.661 Gros operating revenue 29,919 29,845 31,225 31,338 33,939 34,591 36,211 38,711 37,891 43,105 39,690 49,719 42,193 49,612 59,049 39,8B7 4/ 37,752 45,264 Cost of Operations Electricity purchasea Thernal 11,741 12,461 12,902 12,053 10,864 12,606 8,876 11,507 10,449 15,509 6,311 13,574 5,833 15,935 11,069 11,105 10,074 11,795 Victoria Falls 233 261 700 715 1,630 787 1,610 977 1,590 2,850 1,560 2,816 1,540 2,815 3,014 - - - Kafue - - - - 1,800 1,669 4,000 4,588 5,200 7,870 6,200 7,827 6,200 8,568 9,749 - - - Kariba North - - - - - - - - - - - - - - - 10,816 5/ 10,423 5/ 12,890 Other 434 - 439 818 302 537 224 - 224 - 224 - 224 - 6,875 3/ - - - Operation aid mintenanmce 2,300 1,996 2,400 2,345 2,600 2,703 - 2,800 2,917 3,000 2,899 3,600 3,537 3,800 4,807 5,895 4,940 5,306 5,484 U Iepreciation 2,900 2,892 3,750 3,808 4,622 4,717 4,852 4,790 5,082 4,683 5,330 9,850 6,827 9,554 13,521 10,569 5,915 5,896 Kariba North oet equalization 6/ - - - - - - - - - - - - - - - (8,126) 6/ 2,023 6/ 2,391 6/ Total Operating Expenes 17,60 17,610 20,191 19,739 21,818 23,016 22,362 24,779 25,545 33,811 23,225 37,604 24,424 41,679 50,123 29,304 33,735 38,456 isputed Kar North rent. capital'd 7/ - 2,606 846 409 - - Net operating Incame 12311 12-235 11,034 11,-599 -12,121 11,575 13,849 1392 1,4T,9 1,6 215 1,69 1,3 ,7 0992 -4,017 6,8038 Other Net Income (Expenses) ( 11) 143 Interest charged to operations (6,560) (6,582) (6,320) (6,380) (6,126) (6,486) (6,013) (5,969) (5,878) (6,023) (5,660) (5,804) (7,094) (4,605) (10,189) (8,508) (1,748) (1,480) Interest earned - Oter 370 485 406 612 315 475 195 262 120 414 206 462 425 614 537 380 108 198 NET IEVENLE 6,121 6,138 5,114 5,831 6,310 5,564 8,031 8,225 6,588 3,685 11,005 6,773 11,100 6,542 109 3,007 2,377 5,526 1/ The appraisal forecast extended until 1976 2/ tb 10/01/76 a surcharge was inposed on Zinbabe sales of 20%, increased to 30% fran 08/01/77, to 35% on 07/01/78 and to 50% on 01/01/79 when it was cnsolidated into a revised tariff. 3/ Imp sun payment to ZESE) for additional charges for generation in Zbia. 4/ As of 07/16/77 ZESOD took over all sales of energy in Zarbia. ZES(D is responsible for all operating and adinistrative costs of Kafue Victoria Falls, Lusaka and CFC generating stations; 50% of Kariba oomplex csts, operating and arinistrative costs of CAPC's 330 kV transmission systen in Zambia including debt service on 392 RNS. The Kariba North equalization is the balan between the CAPC and ZESCO expenditure (including the Kariba North rental). 5/ As of 07/01/77 CAIC purchases (froa ZESOD) at an agreed 3-part tariff, all the power it uses from the Karita couplex in excess of 50% of the capacity of the caplex. 6/ CAPC and ZES(D each are responsible for 5(8 of the cost of the Kariba coplex. ZES(D disagrees with ti nethod of calculating the cost. As of 06/30/79 this uatter remained in dispute. 7/ In 1976 camercial operations started on 5/24/76 and CAPC did not accept a rental charge of K 2,600,000 for interest paid by KNC. Rental charges in 1977 and 1978 accepted by CAPC were K 846,000 and K 409,000 less than charged by KNBC in their accounts. Pending a resolution of the dispute, the differences have been transferred to a suspense asset acount in this report, and the lower rentals only treated as inter-company transaction. The difference is sha as a negative expense since it has been capitalized in KNBC accounts. IBRD 2965R2 FEBRUARY 1973 A F RI C A CENTRAL AFRICAN PO' ER CORPORATION <> INTERCONNECTEDý SYSTEM REPUBLIC O 'hlIKASI A N 0 0 LA NCHANGA VFULIRA . LUANO NKANA rfl ROAN ANTELOPE 7- A M l A ABWE 0 BROKEN HILL USAKA 3LEOPARDS HILL > . -ABZ (ITEZHl TEZH- KAýFUE AFE STAGE II HY LCR KARIBA NORTH\ \TTO KARIBA SOUTH HYDROELECTRIC STATIONS APAMBA VI TORIA FALLSALAKA H DROELECTRIALAAic STATION - IC VINGS ONE NORT -CSALISBURY s 0 U T H E N H 0 D s I HYDROELECTRIC STATIONUMA H XTISTING -N Q NER CONSTRUCTION WOC) BANK PROJECTGWL THERMAL GENERATING STATIONS CAPC .330KV TRANSMISSION SYSTEM: 4r BULAWAYO EXISTING TRANSMISSION LINES 0 EY1TI S BSTATIONS ,fps c,,,e''F N l~ i,, > If RANSMISSION LINES UNDER 'ONSTRUCTIONl AND PROJECTED oSVSTATIONSITO BE CONSTRUCTED DORIILG 1972 75 OTHER TRANSMISSION LINES O OT HE R S USST ATIONMS Th oiaisso ote» unt. - R A ILW AY 1r,d 8ank anda i-flihawes 0 10 200REPUBlIC OF MLSo 2- SOUTH AFRICA \I
Группа Всемирного банка · Project Performance Assessment Report
Zambia - Kariba North Hydroelectric Project
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