Romania - Turceni Thermal Power Project

Document of The World Bank FOR oMCIAL USE ONLY Report No. 5838 PROJECT PERFORMANCE AUDIT REPORT THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) August 30, 1985 Operations Evaluation Department IT1is doeument Ass a restrlete isribu sad may be aed by recplemts aely in the prfra=ne of their effic dutie. Its coemi may met oherwise be dlsmd without World Bank uhasdto. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT , THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) TABLE OF CONTENTS Page No. Preface ............ ....... ........ ........ ............... i Basic Data Sheet ........................ *...... .... ..* ....... ii Highlights -o .......... oo ...... .......... o ................ iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. PROJECT SUMMARY ............. ......... 1 Procurement .... ................. .. .......... ... 2 Energy Sales o.......... ...................... 4 Tariffs .......... ...... ... .... .........-...... 5 II. SUPPLEMENTARY COMMENTS ....... ... ............. 6 Prices ............................................ 6 Exchange Rates .......... ...... .... .......... 7 Impact on Procurement ............... ......... 7 Financial and Economic Analysis ..................... 8 Least-Cost Solution ................... .-. . ... .-.... 8 Lignite o........................................... 8 Economir Rate of Return ................ ... ........ 9 III. CONCURRENT POWER LENDING EXPERIENCE .. .............. 9 Ruil Mare Hydroelectric Project ...................... 9 Second Turceni Project . ............. ......... 10 Power IV Project ...................... ......... 10 Sustainability ............... .... ...... 11 Appendix - Comments by Banca de Investiti . 1............ .... 13 PROJECT COMPLETION REPORT I. Introduction ......... .................. 23 II. Project Appraisal and Description .................. 23 III. Project Implementation ............. - ...... 25 IV. Operating Performance ......oo........ ............. 29 V. Financial Performance .-.................. .... . 30 VI. Institutional Performance...... .... ......... 31 VII. Bank Performance ...- ........ ....... .. ..... 31 VIII. Economic Evaluation ..... ................... 32 IX. Conclusions and Lessons Learned ... 33 This document has a restricted distrbuton and may be used by recipients only in the performace of the ofrcal duties. Its contents may not othewe be disclosed without World Baak authorization. TABLE OF CONTENTS (continued) Page No. Annexes 1. Contracts Financed under the Loan ........................ 34 2. Comparison of Estimated and Actual Cumulative Disbursements .............................. 3 3. Comparison of Appraisal Estimate and Actual Project Cost ........................................... 37 4. Status of Compliance with Major Loan Covenants ........... 38 5. Comparison of Estimated and Actual Operating Results and Plant Capacity .e......................... 40 6. Actual Fuel Consumption and Expense ...................... 41 7. Economic Rate of Return on the First Turceni Thermal Power Project ............................ ... 42 8. Summary and Background Information from Draft Project Completion Report by the Investment Bank and the Turceni Enterprise .................. 43 Mp- IBRD No. 10830RI (PCR) PROJECT PERFORMAiCE AUDIT REPORT THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) PREFACE This is a Project Performance Audit Report (PPAR) on the First Turceni Thermal Power Project (Loan 1028-RO for US$ 60 million to Banca de Investita), one of three loans1/ made simultaneously in 1974, the first loans to Romania. The project was scheduled for completion in March 1979 but was in fact completed in December 1983. The closing date was June 30, 1979, and the loan was fully disbursed on July 13, 1979. There were subsequently three additional power loans, all of which have been fully disbursed, and the projects are nearing completion. Since no further Bank loans for power have been requested by the Government, and inas- much as the factors which affected the project, until its completion in December 1983, were sometimes common to the other three power projects, this PPAR includes a retrospective of the Bank's power sector role in Romania, including consideration of aspects of the national economy which influenced sector operations. The PPAR comprises the Project Completion Report (PCR) dated June 29, 1984, prepared by the Europe, Middle East and North Africa Regional Office and an Audit Memorandum (PPAM). The PPAM is intended to complement the PCR and not to repeat it. The PPAM is based on the Bank's PCR, a Project Completion Report dated October 1983, prepared by the Borrower, the Appraisal Report, No. 391a-RO dated June 17, 1974, the President's Report, No. P-1416a-RO dated June 29, 1974, the Loan Agreement dated July 10, 1974, the project correspondence files and the Minutes of the Meeting of the Executive Directors at which the loan was approved. Information on the other power projects was briefly reviewed for commonality with the main issues arising under the project. In particular, the Economic Memorandum, Romania, dated March 5, 1984, was reviewed to obtain the current perspective on economic related issues arising during the project's history. The engineers, finan- cial analysts and economists associated with the project have been inter- viewed to the extent possible. Finally, an audit mission visited Romania in September 1984 and discussed the project with the Borrower, specifically with the Investment Bank and representives of the Ministry of Electrical Energy, the Ministry of Mines, the Industrial Centrals and ROMELECTRO (procurement). Following standard procedures, OED sent a copy of the draft report to the Borrower for its comments. The comments which were received have been taken into account in preparing the final report and they are reproduced as an Appendix to the PPAM. l/ The other two loans were for fertilizer (Loan 1020-RO) and steel (Loan 1027-RO) plants. PROJECT PERFORMANCE AUDIT REPOT THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (USS million) 353.5 378.2 /a Overrun (%) - 7% /a Loan Amount (USS million) 60.0 60.0 Disbursed ) 60 60 Cancelled )- - Date Physical Components Completed 3/79 12/83 Proportion Completed by Appraisal Target 100% 90% Proportion of Time Overrun - 79% Economic Rate of Return 92 /b 6% /b Financial Performance - - /c Institutional Performance Cumulative Estimated and Actual Disbursements (USS million" Year Ending 12/31 1974 1975 1976 1977 1978 1979 /d (i) Appraisal Estimate 2.4 24.0 40.7 54.1 60.0 60.0 (ii) Actual - 6.8 36.0 54.2 59.0 60.0 (iii) (ii) as Z of (i) - 28 88 100 99 100 OTHER PROJECT DATA Actual or Item Original Plan Current Estimate First Mention in Files 05/31/73 Negotiations 04/25/74 Board Approval 6/04/74 07105/74 Loan Agreement Signed 07/10/74 Effectiveness Date 10/08/74 11/06/74 Closing Date 06/30/79 /d Borrower Investment Bank of S.R. of Roman5a Guarantor Socialist Republic of Romania Executing Agencies Turceni Enterprise; construction trusts of Ministry of Electrical Energy; Romene~rgo Follow on Project Second Turceni Thermal Project (Loan 2652-RO) /a Meaningfulness of costs in dollars (US) uncertain because of probable undervaluation of local currency and the Romanian pricing system (PPAM, paras. 15-17). b Figures from appraisal report and PC do not represent actual ERRs as conventionally calculated because of Roanian controlled pricing system and the manner of setting tariffs (PPAM, para. 19). /c Meaningfulness of financial performance uncertain, for same reasons as given in footnote A c /d thile disbursements were completed 07/13/79, project was completed in 1983. MISSION DATA Month/ No. of No. of Date of Item Year Weeks Persons Man-Weeks Report Identification 06/73 1.0 1 1 06/22/73 Appraisal 11/73 3.0 4 12 06/17/74 Supervision I 07/75 3.0 2 6 09/18/75 Supervision II 11/75 1.0 1 1 12/05/75 Supervision III 05/76 1.0 2 2 06/15/76 Supervision IV 05/77 0.5 2 1 06/22/77 Supervision V 06/78 1.0 3 3 06/16/78 Supervision VI 08/79 1.5 3 4.5 08/10/79 /a Supervision VII 05/81 1.0 2 2 08/21/81 Supervision VIII 09/81 0.5 2 1 10/15/81 Supervision IX 10/82 1.0 2 2 12/15/82 Supervision X 05/83 0.5 2 1 07/13/83 Supervision XI 10/83 0.5 2 1 11/02/83 COUNTRY EXCHANGE RATES (Lei/US$) Appraisal Estimate 20 Actual 1974 - 1977 20 1978 19 1979 - 1980 18 1981 - 1983 15 /a All mission beginning in 1979 include some time spent suparvising Loan 1652-RO, Second Turceni Thermal Project. - iv - PROJECT PERFORMANCE AUDIT REPORT THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) HIGHLIGHTS The 1320 KW First Turceni Thermal Power project (Loan 1028-RO, US$60 million), for the provision of generation infrastructure, was a quali- fied success. The thermal plant was designed to burn low-quality lignite from the extensive deposits found in Romania and was a mine-mouth plant. After Turceni's installation was completed the operating trials disclosed problems with the boilers, associated with burning the supplied lignite, which led to a two-year delay for redesign and modification (PCR, para. 3.04). Altogether, Turceni was delayed about four years. The lack of Turceni during this period did not create a basic capacity shortage as load growth was substantially less than had been expected. Indeed, the load growth was negligible during the 1979-84 period following institution of structural adjustments by the Government. There were power limitations resulting in load shedding, however, because the structural adjustments also restricted the use of oil-fired plants to reduce fuel oil imports (PPAM, para. 9). Turceni was completed in 1983 and since then has operated satisfactorily. The project experienced difficulties with procurement (PPAM, paras. 6-8, 17-18 and 29) which were continued to some extent in the three power loans which followed. The lignite mining development associated with Turceni proceeded, and is providing the requisite fuel. However, the mining program has been slowed down in the past and it will have to be given high priority if the generation needs of Turceni, following the doubling of its size under the Second Turceni Project (Loan 1562-RO), are to be met (PPAM, paras. 23-25). A number of deviations from the usual experiences on Bank-financed projects developed in conjunction with this project. Primarily, they were a product of Romania's centrally planned economy as demonstrated by: - tariffs for electric energy which did not reflect the cost of power but were set well below economic prices in the interest inter alia of industrial development (PPAM, paras. 11, 12); - energy sales did not nearly reach forecast level, lagging through the first few years of the forecast due to constraints originating in the Government-controlled economy (PCR, para. 4.05) and being virtually frozen at the 1978 level following structural adjustments by the Government. In the circumstances, comparison between fore- cast and actual load is hardly meaningful as would be a discussion -v - of whether the Turceni project was, premature. This is not to suggest that Government was mistaken. Rather, it was taking economic measures it thought necessary or advisable; - the calculation of Lhe IRR and/or ERR were not necessarily indica- tive of economic utility in this centrally planned economy as the prices underlying raw materials and manufacturing processes during project implementation were not determined by market forces (PPAM, paras. 15-16); likewise electric utility financial analysis did not have the same meaningfulness, or usefulness as it does in market economy countries and therefore played little role in the project (PPAM, para. 19). Procurement was a major problem. The priorities and practices of the agencies involved were inconsistent with the spirit and intent of the Bank's Guidelines for Procurement, and in a number of cases, differences were settled with considerable difficulty through mutual concessions. In the end, the Bank accepted the contract awards and disbursed against them. There is no way to determine whether the Bank could have forestalled procurement irregularities, some very serions, by being firm about the use of the Bank's guidelines and refusal to finance the relevant awards, or prospective awards. Had it been possible, earlier Bank involvement in project planning might have resulted in better understanding and fewer problems (PPAM, para. 6-8). The completion of the project was prolonged to the extent that two of the three subsequent Bank financed power projects were fully disbursed, and largely implemented, concurrently with it. It is evident that there were somewhat similar experiences and problems, with all four projects (PPAM, paras. 29-32). Conventional market economy economic analysis is not readily appli- cable to the Romanian centrally planned economy. Nor are the Bank's conven- tions with respect to project financial analysis meaningful in the Romanian situation. The result was that Bank evaluations and expectations regarding pricing, financial and economic performance were unrealistic and of limited value (PPAM, paras. 3, 6-12, 14, 15, 17, 19-22 and 27). In deference to the Government's views, some of the Bank's conven- tions routinely formulated in loan agreements were omitted from the loan documents. In addition, most of the conventional utility financial covenants were excluded as being inapplicable to Romania's systems of dealing with assets, revenues and profits (PPAM, para. 3; PCR, paras. 2.03, 2.04 and 5.01). PROJECT PERFORMANCE AUDIT MEMORANDUM THE SOCIALIST REPUBLIC OF ROMANIA FIRST TURCENI THERMAL POWER PROJECT (LOAN 1028-RO) I. PROJECT SUMMARY 1. The construction of the Turceni Thermal project was well underway when the Bank appraised the project in November 1973, reflecting the strong desire of Government and Bank to mount a first lending operation. Romania had joined the Bank in January 1973, and the loan was approved by the Executive Directors in July 1974, so that the relationship between the Bank and Government had been a short one up to that point (PCR, para. 2.01). 2. The project comprised the construction of a very large thermal station, Turceni, with a capacity of 1320 MW, provided by four 330 MW thermal units, and of 600 km of 400 kv and 110 kv transmission lines. The project was designed to assist in meeting the future growth in power system demand. Construction was scheduled in four years, about standard for this type of plant. Turceni was to burn lignite, a very low heat content coal, and the thermal plant was therefore to be located near a large lignite mining site, which was to be further developed. However, the mine was not part of the Bank assisted project. 3. Several loan provisions of usually a boiler-plate character were, after lengthy discussions, either dropped or modified (PCR, paras. 2.03, 2.04 and 5.01). For example: - the Bank asked for a power sector study to be made to enable it to assess Turceni and other prospective projects in context but it was not forthcoming for several years (PCR, para. 2.03(c));I - the Investment Bank of Romania was ultimately determined to be the most appropriate borrower, although this entity did not have direct involvement in the technical aspects of project preparation and would not be responsible for operation) following commissioning2/ (PCR, para 2.03 (d)); 1/ The Borrower has stated (Appendix, page 5, item 7) that a sector study was furnished to the Bank in 1977 and updated in 1984, but Bank staff consider that the documents furnished did not constitute a complete and fully adequate study. 2/ The power sector is under the authority of the Ministry of Electric Energy, which has a sector planning unit under its direct authority. The electric utility facilities are designed, built and operated by autonomous agencies under the purview of the Ministry. Procurement is handled by a separate agency. The Turceni Generation Enterprise, established at the outset of the project, functioned as the owner and operates Turceni. -2- at negotiations, the Government was concerned that the contents of the loan documents address, solely, the project itself, and and that there should be no sector binding conditions. The loan agreement was drafted accordingly (PCR, para. 2.04). 4. The project experienced serious delays. In 1977 an earthquake devastated Bucharest. The project, which was under construction, was distant from the shock and was not affected. However, two thermal plants in the fault zone had their roofs cave in. Turceni's work was halted for six months pending technical investigation. Eventually the design and support of its roof were modified. A second factor in the delays, to be experienced in other power loans as well, was the shortage of skilled labor. Bank staff consider that the turnover in general directors appointed to manage the Turceni project (three in 18 months) also was a major cause of delay (PCR, para. 3.03), but the Borrower denies the importance of these changes (Appen- dix, page 7, item 1). Delays in the delivery of equipment were largely due to manufacturing problems. Much of the equipment, for example, valves, was manufactured under license in Romania from imported parts and materials and, while baseJ on foreign design, was often first-of-a-kind (that is prototype) equipment. 5. The most important delay occurred when the plant was being commissioned and the boilers were found to be inefficient. One of the most serious consequences was that the oil/lignite ratio was almost six times the design ratio of 7%. Boilers burning low heat content lignite fuel are of a much larger size and substantially modified design compared with conventional large thermal plant boilers.3/ At the time, there were a number of lignite burning thermal plpnts in Europe including two In Germany and, approaching in size the Turceni boilers, one in Yugoslavia. In this case, the boiler manufacture was based on a foreign manufacturer's license, taking into consideration changed conditions. There is some difference of opinion on the causes of the initial problems with the Turceni plant; the Borrower states that the licensor had inadequate experience in milling and burning Romanian lignite and therefore implies that the licensor's design was deficient, while Bank staff state that the problem arose also because the lignite supplied was at the low end of the design calorific value. It is beyond the scnpe of the audit to decide which opinion is correct, but more communication might have avoided such a disagreement. In any case, the Turceni boilers were shut down and, in consultation with the manufacturers, a number of changes proposed by the Romanians agreed, and the boilers modified successfully. The process covered about two years (PCR, paras. 3.04-3.05 and 4.01-4.02). The boilers are now operating satisfactorily. The high ash content, is very corrosive, and the resulting corrosion of refractory material, evaporators and tubes increases boiler maintenance. So far, this condition has been dealt with during the ariual thermal unit maintenance shutdown of about one month but could prove eventually a serious problem. About 5,000 GWR were generated in 1983 corresponding to a plant factor of 43%. 3/ The Borrower noted that for the same heat production a conventional large thermal boiler burns I t of Pennsylvania hard (coal) whereas 3.75 t of lignite is needed, with ash content of 6% and 27% respectively. -3- Procurement 6. The loan was to be disbursed against imported goods, divided into equipment and components for Turceni station (US$25.5 million) and supplies for the manufacture of the plant (US$34.5 million). A list of the contract awards is given in the PCR, Annex 1. The actual amounts disbursed were, respectively, US$17.9 million for equipment/components and US$42.1 million for imported supplies. Indeed half the supplies, US$20 million, were not procured under the Bank Guidelines, but had already been purchased, and it was only after long argument that the Bank agreed to disburse against them. According to the authorities, from the analysis made at the Heavy Machinery Producing Enterprises in question, it was found that US$40 million of sup- plies had been already purchased from the West for the production of equip- ment for Turceni, with borrowed foreign funds. This was a striking example of a series of procurements which were not consistent with what the Bank usually found acceptable and which, in the opinion of the audit, the Bank might have refused to finance in some cases. 7. The Bank had in fact made a special effort to initiate the Borrower into the Guidelines for procurement (PCR, para. 2.03-b). Nevertheless, there was much difficulty in trying to reconcile the Borrower's normal procedure with the Bank's guidelines, and mutual concessions were made. Procurement devolved into a considerable variety of procedures which, in the end, the Bank accepted, sometimes ex-post, lacking a practical alternative and/or being faced with a fait accompli.4/ The following was not untypical: - very long delays by the Borrower in sending bid evaluation reports, contracts ard applications for disbursement;5/ - in some of the 17 bids for cranes and equipment for the boilers, only two firms of those invited submitted bids, bometimes only one of them complying with the tender; the Bank queried the reason for such poor response, but eventually gave its approval to proceed to direct negotiations of the price or of direct purchase;6/ - in a few cases, of obtaining bids under ICB, and Bank agreement on the award, and then deciding (sometimes much later) to manufacture in Romania the bulk of equipment bid upon because of the imputed high cost of the t!ndered equipment, and/or the finding that it 4/ The Borrower has asked (Appendix, page 2, item 3) for the PPAM to point out that procurement on this first project generated extensive dialogue in an effort to secure better mutual understanding of procedures used and means of observing the Bank's guidelines taking into account the specifics of the Romanian socialist planned economy. Also, that it was the Borrower's firm wish to observe the spirit of the guidelines irre- spective of their restricted and sometimes limited framework. 5/ See Appendix, page 3, item 7. The records clearly show long delays. 6/ Appendix, page 3. -4- could be manufactured domestically and, therefore, of rejecting all bids and calling new tenders on a greatly reduced contract (e.g., the fuel handling plant bids for about US$22.2 million were rejected and retendering eventually celled for a contract of US$1.3 million, an outstanding example);6f/ - the calling into play, ex-post, of import restrictions7/ to limit or reduce the amount of the award of contracts already agreed or committed (e.g., to apply an import limit of US$20 million to bids aggregating US$32.5 million). 8. The Borrower's explanation of some procurement actions might appear justifiable. But, taken in their entirety, the result of these actions was that the Borrower generally followed his usual practices, which involved a much different set of considerations. The Borrower and Bank staff are of the opinion that there were no irregularities in the procurement, the Bank having approved all the awards.8/ In the opinion of the audit, however, some of the approvals resulted, at best, from very exceptive application of the procurement guidelines. There was little improvement in procurement in the subsequent three power projects, contrary to the opinion of the Borrower (Appendix, page 4, item 8). In spite of the difficulties, however, there were possible long-term benefits from this experience in that it brought the Romanian export agencies into contact with international competitive bidding practices (PCR, para. 9.01). Procurement is further discussed in paras. 17-18 in the context of national pricing policy, the rate of exchange and Romanian competitiveness in the international market. Energy Sales 9. Actual power sales on the national system proved much less than appraisal estimate: SALES - GWR 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 Appraisal 37.7 43.5 47.8 54.3 59.7 65.4 71.6 78.3 Actual 35.5 38.7 43.4 47.6 49.6 52.1 53.1 54.5 55.0 57.9 57.2 57.7 The flat demand experienced in 1981-1983 was the result of structural adjust- ments made by the Government to cope with the severe balance of payments problems which began to develop in 1979/80. Among other consequences, 6/ Appendix, page 3. 7/ The Borrower has stated (Appendix, page 3, item 7) that national import restrictions were not a factor. However, Bank records show that such restrictions were cited by the Borrower at the time. 8/ See Appendix, page 4, item 8. - 5 - imports were all but halted, and industries using large amounts of imported materials curtailed, e.g., chromium smelters, and the import of oil and its . use in heating applications restricted. Indeed thermal power generator units burning oil were not allowed to operate. In effect, the electric power load was not allowed to grow, whereas, a growth in electric power of 9% per year . was experienced in 1973-79. 10. Power and energy growth were succinctly reviewed in the Bank's Economic Memorandum (1984) in which the following conclusions were reached. The ratio of primary energy consu1ption to GNP in Romania is about twice as high as in Western countries and higiter than other Eastern European countries due to the large share of industry in GNP and the energy intensive structure of industry. Energy prices have traditionally been low and to improve energy efficiency, major u;ward adjustments in energy prices have been made in recent years. However in 1984, they still remained below world equivalent levels; e.g., natural gas is priced at 50% of the world equivalent oil price. Tariffs 11. The tradition of price stability in Romania led to a t ndency for prices to be fixe4 for extended periods. Electricity tariffs remained fixed throughout 1963-75. They were increased in 1975 but in 1977, the Government made a significant reduction in the prices of goods and services, national- ly. The intention of the Government, it was said, was to increase the profits of industry, particularly the less viable ones, and make them more competitive. Electricity tariffs were reduced as well, lowering utility earnings and profits. The tariff reduction was overtaken by the subsequent increases in 1981 and 1982 in conjunction with the structural adjustments made by the Government and a move toward less energy intensive industry: Domestic Industrial Commercial (lei/kwh) 1975 0.40 0.25 0.30 1977 tariff reduction (figures not available) 1981 0.50 0.27 0.34 1982 0.75 0.40 0.51 12. The low cost of electric energy, and the fact that it was less- than-marginal, raises the question whether tariffs were driving the demand in Romania. The PPAR for two Romanian irrigation projects (Loan 1247-RO and 1368-RO) queries whether off-peak rates were appropriate for energy used in irrigation components and what the economic cost of electricity is by conven- tional Bank standards. It states that the Rasova-Vederoasa irrigation proj- ect (Loan 1247-RO) uses 35 million KWh monthly during April-September, with peak use in July, and that the consumption of about 3600 KWh per ha is much higher than the national average for irrigation schemes. It questions the meaningfulness of irrigation project evaluation lacking knowledge of the eco- nomic cost of electricity and given the use of a commercial exchange rate which undervalues the local currency. It implies that irrigation projects of - 6 - the type analyzed in the audit might be less economic than other agriculture options, or even uneconomic, if power were coated at its economic worth. 13. Bank supervision was in a sense a learning experience, given that Romania's economic regime was fundamentally different from those of the Bank's market economy borrowers. In this respect, the following illustrates the changing Bank thinking from appraisal to the present, some 10 years later: - Project Appraisal (1974): the exposition and calculation of the Economic Rate of Return was done on a conventional basis, the financial analysis on a quasi-conventional one - "the forecast financial performance is satisfactory,- "however, the debt/equity ratio concept is not relevant.- The position in the balance sheet is sound" and "in view of the satisfactory performance of the entire power sector, no financial covenants have been sought". - Appraisal Report, Riul Mare Hydro (1976): "the IRR of 6-1/2 is not susceptible to the interpretation that could be placed upon it in a market economy in which it could be compared with the opportunity cost of capital;" and - President's Report, Turceni II project (1979): "with the changes (reductioa) in prices and power tariffs in 1977, power sector profits were reduced in essence, and part of the former power sector benefits were being transferred to industry. For this reason performance of the pc-er sector must not be viewed in isolation from the rest of the economy. Since it is impossible to separate these former benefits from the total benefit accruing to electricity it is not possible to calculate the ERR (or IRR)-; (also in 1979) "in Romania, tariff levels do not convey to major power consumers the value of the resource inputs used for electric- ity production, nor do they affect the level of electricity con- sumption, which is controlled by strong and effective penalties, and which encourage conservation." II. SUPPLEMENTARY COMMENTS 14. Compared with the average Bank power project, there were striking differences which to some extent would be factors in other Bank operations in Romania. These were the result of the manifestations of Romania's controlled economic system on the Bank's standard approach to projects, with regard to ERR, financial targets, procurement, least cost solutions and the like. Distortions existed as the result of fixed prices and their control, multiple exchange rates, the quest to be a major industrial exporter, the building-up of foreign exchange reserves and, in part, constraints about providing infor- mation to 'outsiders', including the Bank. -7- Prices * 15. Prices of goods, supplies and services, including electricity tariffs, were kept stationary in Romania through much of the sixties and seventies through the process of centralized planning and were low compared . with those in market economy countries. This necessitated considerable subsidization. While the policy kept the price of Romanian products low, giving an export advantage over the products of other countries, where prices rose sharply in the seventies, it entailed indirect subsidization of many imports, which led to the massive balance of payments problem experienced at the start of the eighties. Exchange Rates 16. In association with price control and import export objectives, Romania maintained a complex foreign exchange rate system. The Economic Memorandum observes that prior to the economic reforms in the early eighties there were 35 different exchange rates, 20 for imports and 15 for exports, covering nearly all major commodities and types of transaction, the margin between the highest and lowest of the import rates being 18 Lei, and of exports rates, 10 Lei. Under the exchange rate reform in 1981 in response to the economic crisis, the combined number of import and export rates were reduced to 16 then 10, etc., over 1981-83, and the spread to 3 Lei. By 1984, there were but two exchange rates, the commercial and non-commercial, the former being by far the most important. The Economic Memorandum also observes that the average of the export rates appeared to have substantially undervalued the hard currencies in the later part of the seventies. Impact on Procurement 17. The apparent overvaluation of the Lei when the project loan was made likely continued through the procurement phase of other Bank financed projects. The unit cost per KW of Turceni, about US$ 245 would have been extraordinarily low for a thermal plant manufactured at the time the estimate was prepared, and undervaluation of the lei in converting the local currency component was likely a contributing factor, as would have been the indirect foreign exchange subsidies on import goods going into the plant and Romania's pricing system.9/ 9/ Thus the comparison given in the PCR (paras. 3.11 and 3.12) to the effect that the thermal station cost was 22% above estimate--the civil works being 75% lower than estimate, cost of equipment, 39% higher, and that prices were reset three different times--have not the same signifi- cance as price comparisons in a market economy and cannot be interpreted in the same way. This applies to the comparison of total costs as well. The increase in total costs of only 7% also reflects the fact that the bulk of the transmission component was not found necessary at that time. - 8 - 18. This was in a sense academic in the case of the project, since the Bank financed only foreign exchange. But it may have had an important impact on subsequent Bank financed power projects where procurement was open to Romanian bidders. In the Riul Hare Hydro Project the turbine and generator contract awards were won by Romanian suppliers, as were nearly all the awards. A Bank analysis in 1984 of procurement under all Bank loans to Romania disclosed that only 5% of the total amount was disbursed against foreign contracts, 95% going to domestic contractors . Part of the explana- tion is that the bulk of disbursements were for agriculture projects which fall largely into the domestic category. Even so this is not sufficient to explain the small amount of foreign procurement. At any rate, this situation led the Bank to advise Government in 1983 of its discomfiture, and indicate that future loan size would be determined by the extent of the direct foreign imports to be financed, i.e., loans would be predominantly for direct foreign imports. Financial and Economic Analysis 19. In view of the numerous differences between the economic system in Romania and those of the countries with which the Bank was accustomed to lending at that time, the financial analysis and statements prepared by the Bank at appraisal and during supervision appear to have been of relatively notional significance. The comparison of yearly statements shows changing directions but individual statements of themselves, are not as meaningful as they are in a market economy. The situation is much the same for the ERR calculation, as the Bank came to perceive (para. 13). 20. In fact, the Economic Memorandum expresses some doubt about the economic justification of the lignite mining program of which Turceni is the major user (para. 25). It observes that a comprehensive review of the energy sector, complemented by studies of the coal and power subsector, is necessary to make a more definite assessment of Romania's energy sector. 21. The question may arise whether the Bank at appraisal should have taken the time to methodically explore the country's economic universe and come to know the situation better before making the loan (and the two others made almost simultaneously). However, the consensus appears to be that it would be very difficult in practice to ascertain the underlying economic mechanisms and parameters, even over a long period, without first having an active lending relationship. Least-Cost Solution 22. The Bank continually asked the Borrower for "least-cost" project analyses and least-cost development programs to enable the Bank to consider proposed loans for power in context. As far as can be seen, the Bank was never provided with a 'least-cost" exposition. The Government had a power development program which most likely took into account its own form of eco- nomic analysis, and was responsive to the perceived priorites and political considerarions. But the Bank's emphasis on conventional 'least-cost' - 9 - appears debatable. A least-cost analysis in conventional Bank terms could have had little significance when prices, costs and tariffs that could be used-the actual ones--were not set by the market or responsive to it, as described heretofore. Lignite 23. Two questions arise about the lignite mining program: how economic it is and whether the development of the mines will be carried out as planned, that is, to enable sufficient lignite to be provided to operate Turceni II, an extension of Turceni I of the same size (1,320 MW) when it is completed. The cost of mine develcpment is known to be very large but has not been estimated. The issue is a matter of Government financal priori- ties, and of the availability of labor and materials, as the mining extension proceeds. Experiences elewhere illustrate the scale of possible problems. Unforeseen difficulties in developing the mine could limit the production of lignite so much that operation of the new thermal plant at needed capacity could be del?yed for years, with consequent very substantial monetary losses from having to use oil imports tc operate thermal plants.10/ 24. riduction of liguite is now plann-d to reach 95 million tcas (t) per year in Romania in 1990, cf which 15 millLun t is not bultaole f!r uti.- ity purposes. Production of 51 million t is planned in 1985. lirceai I and II will use 25 million t, and other existing thermal plants, abnut 24 million t annually. Under the 1980-8i plan, lignite production was to have cxpanded from 27 million t to 74 million t. The 1985 target of 74 million t was lowered to 70 million t In 1982, and now, again, to 51 millic,- t as noted. The reductions were caused by changes in investment p-iorities, equipment difficulties and labor shortages, but in any case the plan was much too ambitious. In the event, oil and gas production had to be ircroased to offset the reductions. The Government expects to meet the most recently established targets, but the question is whether there will continue to be an erosion. 25. The Government's objective is to substitute the use of oil and gas for fuel in ele-' icity generation by lignite in the interest of conserving its hydrocarbon taerves and limiting their import. The objective has been to reduce the share of oil and gas used in electricity production from over 50% in 1980 to 28% in 1985 and 5% in 1990, increasing lignite based produc- tion of electricity correspondingly from 26% in 1980 to 44% in 1985. This is a massive program and must be viewed as a longer term goal. Economic Rate of Return 26. As noted, the Economic Memorandum considers that the economic justification for the development of lignite is still unclear (para. 20), a view the audit shares. However the only practical substitute for lignite for 10/ See Appendix, page 7, item 10. - 10 - power production would be gas and oil. It is conceivable that imported oil might be found, in real terms, to be cheaper than lignite and that imported high grade coal burned in thermal plant located on the Black Sea coast could be an option. But the deciding factor in the Government's strategy is the conservation of foreign exchange, to which imports would be inimical. The audit considers that the project probably was the proper course of develop- ment even if a reliable economic calculation justifying this view is not feasible at this juncture. III. CONCURRENT POWER LENDING EXPERIENCE 27. The current (1985) status of the three other power projects is as follows: Riul Mare Hydroelectric Project (Loan 1242-RO), with a capacity of 335 MW and associated transmission, will become operable in 1985, two years behind schedule, but the dam will only be comp..eted in 1987. Much difficulty was experienced constructing the 18.4 km long pressure tunnel which should be completed ea7ly in 1985. However, the main delay, 18 months, was due to the flood in 1978, which attained a one in 100 year peak discharge (the basis of design), overtopping the cofferdam. Construction equipment was destroyed and, further downstream, the equipment park and construction workmen's housing cnlony were destroyed. Second Turceni Project (Loan 1652-RO), with the same power capacity as Turceni I, should also be completed about mid-1985, three years behind schedule. Whereas the main delay in Turceni I was due to redesign and modification of the boilers, Turceni II boilers were duplicates of the re- designed units. Rather, the Turceni II delay was due to sequencing problems in conjunction with Turceni I, delayed deliveries of main equipment, such as boilers, coal handling mills, and materials (for example, the extremely large volume of insulation which had to be manufactured for high temperature piping and boilers).11/ Power IV Project (Loan 1936-RO), a time slice of the 1980-85 power investment program, is much behind schedule due to insufficient or delayed construction equipment and materials, availability of funds, and changing priorities. 28. The four power projects are marked by some commonality of experi- ence. All have been fully disbursed long before project completion. This reflects the lengthy delays in completion and the fact that Bank financing 11/ The Borrower states (Appendix, item 11 and page 8, item 5) that the high volume of insulating materials was not a cause of delay. Bank staff, supported by the files, maintain that the provision and installation was a major problem due to sheer volume and, probably, insufficient quali- fied installation personnel. - 11 - was for equipment and supplies rather than for civil works. The procurement experience was similar as well. The remarks made about ERR, the Least-cost investment program and the relevance of financial statements with respect to Turceni I are generally applicable to the other projects as well. Moreover, the projects' implementation has been similar in that all have experienced delays of about three years. Common to the delays was the effect of late deliveries of equipment, materials and supplies, which had their source in shortages of labor, money and shifting priorities in industry. Notable are the two most acute problems of implementation, the boiler redesign and modification of Turceni I, which impacted in a secondary manner to delay Turceni II, and the major problems at the Riul Mare Hydro plant. These expe- riences suggest that, while much credit may be given to the technical experts for eventually solving the problems, the projects as planned tended to involve very advanced technology or were at the limits of experience and practice in the country. Therefore, there were risks of major delays, sub- stantial increases in project costs and revenues foregone. 29. The project did not include an institution building component which is understandable in view of the advanced state of Romanian power facilities and supply and the different structure of the industry. This was likewise the case in the other power projeLts and, for the most part, in other sectors. Sustainability 30. There is no reason to expect that the Turceni I will not fulfill its function of operating at a high plant factor to provide energy for load growth, as well as energy which displaces oil fired thermal generators at less cost. The power sector itself, long established, can be expected to continue to grow and function consistent with the already high standards. While problems could arise in the development of the lignite mines, lignite for Turceni I is well provided for. ./ 2 . 片零軫 Z夕亡 綽쟈닒孑’ 13 APPENDIX Page I of 9 MWESTUNT BANK Foreign Relations Department Mr.Yukinori Watanabe Director Operations Evaluation Department Re:Project Performance Audit 10part, Turceni Thermal Power I . Loan lo28-RO Dear Mr.Watanebe: 0E) Notes: iWe acknowledge with thanks receipt of your March 13,1985 letter submitting the first draft of the Project Performance Audit Report(PPAR) for Turceni Thermal Power I Project. In drawing up the final draft of the above mentioned report we would kindly ask you to take into account our comments introduced further and aiming at better reflecting tte actual realities related to the implementation of the PJ oject and the owall economic climate during the several stages.from the identification to the Project's commiasionning. and Back- The Table of Contents of PPAR,Annex S,stetes that the Project summary Completion Haport(PCRI for Turceni I,prepared by the Investment Bank ground Infomation and Turceni Bnterprlze,is enclosed,while the material you furmished reproduced in us contains only 4 pages of this Report.To that end,with a view to Aunex B. Bulk of offering a balanced Image of the realities concerning the Implement- draft report is in Bank ftles. tation of the Project,we would kindly ask you to Inelude In the final PPAR,integrally the PCR prepared by the Investment Bonk In cooperation with the Ministry of Electricity and Turceni Enterprise. With reference to the PPAR we are surprised by the approach of the staff furnishing the elements required for the Hoport,in preasn, ting thm RDmanian economic realities as wall as the unusual language used when considering the mechanisms of operation of a centrally planned economy.1t is well known the fact that Romania, socialist country.nagptisted with the World 3ank also Projects in other fields. the Bank being aware of ftmanials planned econoaW specific and the results of the Projects s2-ready complated.favourably appreciated - 14 - APPENDIX Page 2 of 9 OED Notes: we do not accordingly understandthe criticism and unsubstantiated Evaluation of any Im- comments uaed in the PPAR with reference to the Romanian economy.We portant power project era otherwise surprised finding out that the PPAR Is mostly considering cannot be made in iso- the problems at the macroeconomic level while the share,in our opinion, lation; in this case, had to deal with issues directly connected with the implementation of eviroen o be Turceni I Project.ae shown very clearly in your letter stating that eni nt aco in "These performance audits are intended to evaluate the extent of an effort to understand achievements of project objectives.reasons for lhortfalls or outstan- and explain the project ding achievements,and the general effectiveness of the World Bank experience. support for the lending operation". In this constructive and of a good cooperation spirit we would like to ask you,and insist to that end,reviaing the PPAR for Turceni I Project,taking into account our comments as follows: 1.The references to an 'austerity program" introduced in Romania Text of Preface, High- (Preface.page i,pere.2,line 9;Highlights,page v,pera.l.lines 11-12 and lights, and PPAM paras. page vi,par.],line 12;FPAM,Chapter I,Project Summary.Bnergy Salee,item 9 and 11, amended. 9,line 4 and TarrIffe,item 11.1ine 9)ahould be deleted since there could not be the case of an austerity program undcr the conditions of Romania's maintaining a high rate of economic development,experiencing iL 1984 en important increase as compared to 1983: national income 7%. iindstatrial production 6,4_,gross agricultural production 13.3 %,total inveatments voluue 6.1%. The evolution of the Romanian economy during the last years could Lot be characterized by an austerity prograc as erroneously mentioned in the PPAR but,by several structural adjustemets due to the impact of the world energy and economic crisia,affording the further echievement of high growth rates. 2.IL Preface,papei.pare.2.lines4--,the phrase "One of the Text of Preface amended. decisions..." should be deleted since Romania didn't take such a decision of discontinuing borrowing from the borld Bank and we consider we have allways had a good cooperation with the Bank.The fact that Romania didn't requested orld Bank Loans during the last few years,is the expression of the difficult situation in the international financia markets and high level of the intereat rates,including for the World Bank Loans. 3.In relation to Procurement,we kindly request your reconsidering the comments in order to avoid exaggerations and to reflect the reality,as follows : in the Highlighte,pag v.per.2,we kindly ask you to delete the The records show clearly first phrase "The project txperienced difficulties with procurerent..." that there were diffi- since this unilateral point of view does not effectively express the culties with procure- realities of procurement process for botn Tarceri I and the other ment. tae.nt1couti -15 - APPENDIX Page 3 of 9 OED Notes: power projects financed by the Bank.If during the procurement process for the Project occured situations requiring dialogue and cooperation between the Borrower and the Bank,we consider these did not represen- ted difficulties but effective ways of solving the issues between institutions just beginning their cooperation with this Project. At peg! vii.pare.1,we would suggest to integrally reword this ot ofgfoigth paragraph as follows :"Procurement inittiated an extensive dialogue of andh fotntt between the Bank and the Borrower for this first Project beginning aeded an fott the activity with the Bank,with a view to securing better mutual arde t. knowledges of the procedures used and observance of Bank's Procurement Guidelines.Awarding of contracts and disbursements of Loan amounts, constituted in some situations the object of this constructive dialogue aiming at the requirement of adaptability with a view to observing the procedures imposed by the Bank,taking into account the specific of the Romanian socialist planned economy".We consider this is the spirit in wording the above mentioned paragraph,the Borrower's firm wish being to abserve the spirit of the Bank's Procurement Guidelines irrespective of their restrictive and sometimes limited framework,and not to allow "irregularities" in procurement as shown by the staff supplying the information for the PPAR. At Chapter I,Project SumaryProcurement,item 6,kindly request to Text of PPAK, pars. 6 delete the last phrase "This marked the culmination of ..." and reword the item 7 as follows: "7. The Bank and the Borrower undertook efforts to mutually initiate Text of PPAM, pars. 7 on the procurement procedurea used and finding the adequate solutions amended and footnotes to the situations resulted during the procurement process,such as: added. - in the case of the bidding for cranes and equipment for the boilere,only two firms of those invited submitted bida,due to the specific character of the equipment;under the circumstances, the Bank gave its approval to proceed to direct price negotiations or direct purchase; - there were cases whn,after the approval of the award by the Bank, the volume of the supply was reduced due to the high price of the bids submitted by the foreign cvmpaniea,the decision being taken to manufacture them locally;under the circumstances, the volume of the supplies was broken down,the Romanian industry participating to a larger extent in delivering the equipment required for the implementation of the Project;the Romanian supplies were not financed out of the proceeds of the Loan,uaed integrally for paymeate related to imported supplies". In rewording this item,we have in mind that the Borrower constantly undertook efforts in timely submitting the bid evaluation Tetoffurhpaa - 16 - APPENDIX Page 4 of 9 OED Notes: reports. contracts and withdrawal applicatione,the delays encountered being irrelevant to justify the appreciation that thes were not submitted "over a long time"-page 49itam 7;t the same time ,when restructuring the categories of the Loangone took into accoun the financing of imports already made,used for manufacturing the equipment required for Waroeni I and not fnational government import restriotion,to limit or reduce ... . At the same Chapter.we would request the complete rewording of Footnote referring the item easn follows I to this para. " 8.The detailed documentation supplied by the Borrower for the added to PPAM, justification of procurement,and also the reply furnished for the para. 7. Justification requested by the Bank,offered the Bank the elements required to approve the bid evaluation reports and the contracts coanded. The Borrower undertook special efforts to met all the requeste of the Bank regarding procurement, the promptness in solving the aspects occured during procurement being a common feature for the Bank and the Borrower as well. In this context, is surprisingly exaggerated and nonralist Text of PPAM, the wording of this item which stating that "The Bozrower was alloed para. 8, Amended to follow his usual practices . . . ", and the procurement have and footnote been performed under the conditions of ". . . many irregularities referring to this and the Bank could well have refused to finance some of the con- para added. tracts", an inacceptable wording for us. Also, the statement that ". . . There was little improvement in procurement in the subsequent three power projects. . .", is not according to reality; the mea- sures have been according taken in cooperation with the Bank for the observance of the fundamental conditions of the Bank in this respect. 4. In the chapter "Highlights" it is mentioned that the Text aMended. mining program was reduced and slow down. This statement is meaning- less: as the request for coal increased, through the commissioning of the power units, it was not possible to simultaneously take measures to "reduce and slow down the mining program". The IRD missions, which visited our country, could see on the site and actually positively appreciated the measures taken for the increase of the production at the open mines, the activities to open new mine, commissioning, in a rapid growth rate the bucket wheel equipment and other similar measures. adedtoPPM - 17 - APPENDIX Page 5 of 9 OED Notes: 5. As concerns the refferenoes to "manomalies" and "obvious Texts amended. an-malies regarding the tariffs control and price setting for raw materials and manitfactured products, which would not be "economical" and would be " the result of the manifestations of Romania's controlled economic system" (Bighlights, page VI. pare 2v chapter II supplementary comments, page lo,item 14, lines 1-2 and page 12, Pinancial and Rconomic Analysis,item 19,1ine 1), we request to delete such a wording because does not reflect the reality. We woul; like to mention that the tariffs for electric power as well as the prices for raw materials and manufactured products are based on rational economic criteria, following up the balanced and harmonious development of different branches of the Romanien national economy, and also the stead increase of the efficiency in all the sectors of activities. We are convinced that yourself will reach the conclusion that these unrealistic appreciations are not to be included in the wording of the final form of PEAR. An additional argument will be, of course, the fact the commitment to the Bank concerning the ensurance by the power sector of the agreed level of self-financing of the investments within the sector, shd been always observed. 6. Highlightex page viii, we suggest that the paragraph of Text amended. this page should be reworded as follows: "The Government and the Bank proved mutual understanding on the terms and provisions which were to be included in the loan documents adopting to that end the working systems with a view to allowing a reasonable reflection of the standard requests of the Bank at the conclusion of the Loan and Guaratee Agreements and the Supplemental Letters thereto." ie consider that this wordin- cor- rectly shows the arguments which have been taken into considez,%tion by both parties. 7. Chapter I "Project Summary",page 1 we kindly ask you to delete the item 3 or to be reworded, taking into account the fol- lowing: - being at the beginning of their activities, the Romanian Text amended. agencies involved and the Bank as well, needed time and work together to better know the working system of both, exploring all the time modes for mutual agreement ; to that end the statement - 18 .PPENDIx Page 6 of 9 OED Notes: that "the Government was clearly under some apprehension in dealing with the Bank . . . ", is totally unjustified and we wan not agree to such an idea; - a study concerning the development of the sector on See footnote to the basis of least costs was furnished to the Bank in 1977 PPAM, pars. 3. and updated in 1984; the statement that this study was not furnished to the Bank is not according.y based on real facts, and to that and the item 22 - Least Cost Solution,Chapter II - Supplementary Commente,page 13, and also the item 2.03 (c) of PCR drawn up by the Bank should be revised, - with reference to the wish of the Bank to "deal directly PPAM, par. 3 with the Project implementing body", we consider that this has amended. been satisfied; the Bank had always been offered direct access to all the bodies involved in the Project implementation, There- fore, kindly accept the revision of para 2.03 (d) of the Project Completion Report drawn up by the Bank; - with reference to affirmation that during the negotia- tions the Government was preocupied to limit the content of the documents only to the Project, in our opinion, this does not reflect the reality eince the Bank has been offered all the opportunities to have a deep and fruitful exchange of views in the Power sector; in this respect kindly review item 2.04 of the Bank's Project Completion Ieport. 8. Prom chapter I.pars 5, it results that the design of Text amended. Turceni boilers was not well understood. The boiler was manufac- tured on basis of foreign manufactures license rather than on "extrapolation of foreign designs under license. Although the Romanian coal burned in the boilers was within the standards communicated to the licensor, in practice it was proved that the licensor did not posseeed enough experience in milling and burning Romanian lignite, the nominal flow being less than esta- blished and the fuel oil consumption much too high. Under these circumstances, the Romanian researchers and designers were compelled to find solution to improve the boiler in order to reach the nominal flow for any quality of coal rhich was within limits communicated to the licensor and to reduce substantially the consumption of fuel oil. - 19 - APPENDIX Page 7 of 9 OED Notes: 9. In Chapter "Energy Sales" - para 9 it is specified that Text amended. the imports of spare parts had been stopped. We have to underline that the domestic manufacturing of spare parts, mainly of worn out ones, has always been a feature of the Romanian energetics. As a matter of fact, all the serious firms, make available to their clients together with the supply the designs for spare parts which were out rapidly. lo. In Chapter "lignite" - pare 23 the concern to the Footnote added to lignite production and the lignite requirements of the power PPAt, para. 23. stations is expressed. A basic feature of the planned economy is the correlation of the coal produc4ion with the power stations and other consumptions; we consider the affirmation from the PCR are exaggerated. 11. Chapter III,"Concurrent power lending experience", as Footnote added to mentioned above, should not have been included in the PPAR for PPAt, para. 27. Turceni I Project. However, please note that the example regarding the extremly high volume of insulating materials for high pressure pipes and boilers which had not been a cause for delaying the commissioning. Moreover, we consider necessary to delete from the PCR the referaces to the irrigation projects from Chapter "Tariffs" since the Investment Bank is not the Borrower for these projects. In respect of the PCR drawn up by the Bank we have the following comments: 1. We propose the deletion of item 3.03, because the PPAK, para. 4 turnover of the Turceni Enterprise management could not have been amended. a "main factor" in delaying the Broject commissioning. 2. In sub-chapter "Change in Project Design" - item 3.04 Footnote added to the average heat content of the lignite is not 1,400 kcol/kg. PCE, pam. 3.04. The tests performed have shown 1,400 - 1,600 kcal/kg and even higher; one cannot say that this was the low end of the range provided for in the design. 3. Item 3.05 - The high fuel oil consumption at the beginning of the operation was caused by the possible atop of fire in the boiler because of the nonomogenous mixture of the coal introduced in a furnace with low temperature. The change of fuel oil injectors with miniinjectors and the introduction of - 20 - APPENDIX fage 8 of 9 OED Notes: the post-burning grill,1eading to the increase of the temperature Footnote added to in the furnace and ensuring the stability of the burning process PCR, para. 3.05. in the furnace. created the conditions for reducing the fuel oil consumption to les then 7%. 4. Item 3.06 - the phrase "The reconstruction of Bucharest after the 1977 earthquake led to a aubstantial shortage of skilled construction workers at the Turceni project eite" should be deleted being not realistic. 5. Item 3.07 - it was 'he volume of ine:slating material Footnote added to constituting a problem, but the concentration - during certain PPM, para. 27. periods - of skilled workers in carrying out insulating works. 6. Item 4.02 - Besides the explanations furnished at item 3 above, as concerns the so-called "inadequate lignite qualityO we have to underline that the rea- -uality of the lignite fram=d within the initial date of the project, so that the "major changes" did represented nothing but the improvement of the initial boiler's design. 7. Item 4.04 - The excess of sulphur dioxide and fly PCR does not exLra- ash, found out during the measurements, depended also on the meteo- polate data over rologycal oconditions at that time. The extrapolation of these project life. values over the Project'a life is not scientifically based. 8. Item 4.05 - references are made again to t!e lack of Footnote added to spare parts. One has to underline the high degree of waring out PCR, Was 4.05. of some arts, mainly in the coal milling plant, due to the erro- neous conception of the licensing firm, inadequate to the coals indicated in the design, and the inadequate material supplied by the same firm. As concerns the "poor maintenance " we are surprised how the Bank's missions could have reached this unsubstantiated conclusion. 9. Item 6.02 - the conclusions concerning the so-called Footnote added to "dificulties in coordination between the mining and the power PCR, para. 6.02. enterprises" are erroneous. The coordination between the coal production and consump- tion is a problem permanently controlled by the coordinating minis- tries and there was never the case of Turceni I having to reduce electricity productpion due to the lack of coal. proecIlfe - 21 APPENDIX Page 9 of 9 OED Notes: lo. Item 7.01 - in relation to the Bank's suggestion aiming at "inducing Romanis to modernise its system expansion planning by the use of modern date processing modelling techniques", we could make available to the Bank additional data and demonstra- tions in order to convince that such a recomandation is neither required or opportune. 11. As concerns the reduction of the volume of high voltage Footnote added to lines constructed and operated, it is to be mentioned that their PcR, para. 3.01. construction took into account the implementation of the lines required to deliver electricity to the system, adopting an optimum and very economical solutions. Besides our comments above, we would like to draw your attention to the following general comments - The references to the Government in the PPAR and the PCR should be replaced by "agencies involved", thereby meaning: the Borrower, the Ministry, the Design Institute,etc. - Starting 1981, updated production and delivery price. Amendments made to and tariffs were introduced in Romania, established on the basis nighlights and of economic principles, taking into account the level of the pPA1, paras. 12, 19 production cost, 'the foreign prices for raw materials and im- and 22. porsed materials, so that prices and tariffs would really exprese the efforts and results of the enterprises. The World Bank's missions have been accordingly informed about these modi- fications. We do accordingly consider that the comments in the PPAR, stating that prices and tariff. would not have an economical basis, as well as the conclusions reaebod in connection with Project's economic and financial analysis, do not have a real basis and are unsubstantiated. We would accordingly request revision of the PPAR and the PCR in the light of our comments above, as well as the full reproduction of our letter in the document to be submitted to the Ezecutive Directors, with a view to eliminating some errore and exaggerations and more accurately reflecting the reality. We would appreciate your letting us have the final form of the revised PPAR, accordingly enabling us to inform our agencies involved. With our thanks for your coope tion, 4-Alexa=r teanu Director 、夕夕一 必《，&＇→。二多了知＇ 23 - ROMANIA LOAN 1028-RO FIRST TURCENI THERMAL POWER PROJECT PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 Since the mid 1960s, the Government's electric energy policy emphasizes the use of indigeneous energy resources - lignite and hydropower - in the production of electric energy. The First Turceni Thermal Power Project is one of several projects designed to burn lignite from Romania's extensive lignite deposits. The Project introduced Romania to advances in technology in the manufacture of boilers designed to burn low-quality lignite. Similarly, the development of the associated lignite mines (though not part of the Project) involved the manufacture of large bucket-wheel excavators. II. PROJECT ORIGIN, DESCRIPTION AND PROCESSING Proiect Origin 2.01 Soon after Romania joined the Bank (January 2, 1973), identification of a project for a possible first loan to Romania for the power sector began. At the Government's suggestion, the Bank first considered as possible candidates the Iron Gates II hydroelectric power plant on the Danube River (432 MW), a multi-purpose power and irrigation project on the Lower Olt River, and a nuclear power plant. However, feasibility studies for the projects originally proposed were not yet available in early 1973. Furthermore, agreement had not yet been reached between Romania and Yugoslavia on the approach to construction of Iron Gates II, which would span the river at the border. Although the Bank had limited access to data on the power sector it had found the Romanian agencies and trusts involved in electric energy to be highly competent. Also both the Bank and the Government were eager to proceed with the first lending operation in the sector. The Turceni project was then suggested by the Government as another candidate for a Bank loan, the power plant being already in the detailed design stage and being of significant importance to Romania's strategy of building increased electricity generating capacity based on the use of domestic resources. At the time of appraisal, site works were well advanced (work at site had commenced in November 1972). - 24 - Project Description 2.02 The Project originally consisted of the following: Part A: Construction of the first stage of a thermal power station at Turceni in the Gorg district with four 330-MW lignite-fired units, complete with a realignment of the Jiu River for cooling water intake purposes and flood control, and road and rail links required for construction. Part B: Construction of 400-kV and 110-kV transmission lines with a combined length of about 600 km, connecting the station with Mintia and Brazi substations, including a switching station and interconnection with the existing 400-kV system out of Iron Gates I power station. During project implementation, some changes were made in the definition of Part B of the Project; these changes are explained in para 3.01 below. Appraisal 2.0. Once the project had been identified, most of the issues at appraisal arose out of the fact that the Bank and the Government had little experience working together. These issues were: (a) whether the mine should be included in the project definition, (b) procurement, (c) the economic analysis carried out in Romania to establish the electric power investment program, and (d) deciding which entity would be the borrower. These issues were resolved as follows: (a) Regarding project definition, the Bank had proposed including the adjacent mine which would feed the Turceni plant as part of the project because mining equipment would need to be imported, whereas for much of the equipment required for the power plant local suppliers could be expected to bid and win following ICB procedures. However, because the Government preferred to take advantage of German financing available for mining equipment, the direct foreign financing for the project would be necessarily reduced. The definition of the project was also important in that the Bank sought to indicate to the Government the importance of evaluating the power plant and mine as a whole even though Bank financing was not being sought for the mine. In the event, the mine was not included in the Project; (b) A separate mission was held following the appraisal mission to review in detail the Bank's procurement guidelines and assist with the drafting of the bidding documents which would be used for the project (para. 3.09). (c) At the time of the Bank's first reconnaissance mission in Romania in early 1973, the Bank requested an economic study of the development program for the power sector showing the effect on the system of the - 25 - different projects proposed for Bank financing. In the absence of such a study, the Bank instead proceeded to evaluate the proposed project in relation to alternative generating possibilities, while still continuing to seek further information on the sector which would be needed to justify future projects; and (d) The Bank sought to identify a borrower which would be directly involved in assuring successful implementation of the project as well as being experienced in handling disbursement and procurement matters. The Investment Bank was ultimately determined to be the most appropriate borrower, although this entity did not have direct involvement in the technical aspects of project preparation and would not be responsible for operation following commissioning. This became a precedent for future Bank lending to Romania in all sectors except agriculture. Negotiations 2.04 Negotiations for the Project were carried out in April/May, 1974, in parallel with those for two other projects, the Otelinox Special Steel Project and the Tecuci Fertilizer Project. While the Bank had originally proposed having a Project Agreement to assure full and open exchange of technical and sector information with the Industrial Centrals, the agreement to carry out this exchange was instead established in a supplemental letter to the Loan Agreement. Emphasis was given to uniformity between the provisions of the legal documents for the three projects. The Government sought to assure that the legal documents addressed only the project being financed, and did not establish any binding guidelines related to the sector (e.g., a commitment to follow "sound public utility practices"). Effectiveness 2.05 Because of delays in preparation of a complete legal opinion, and in approval by the Council of Ministers of the technical and economic indicators of the project, including the authorized amount of imports, the effectiveness date was postponed by one month to November, 1974. III. PROJECT IMPLEMENTATIO4 Change of Project Scope 3.01 During project implementation, the scope of Part B of the Project was reduced, namely, the length of the transmission lines was reduced to 169 km of 400 kV and 110 kV lines instead of the 600 km originally planned. The balance of lines has been deferred to the 1981/85 Five-Year Investment Program to be ready by the time all units of the second phase of Turceni (Second Turceni Thermal Power Project - Loan 1652-RO). The transmission lines built during the first phase of the Turceni program adequately tie in the power station to the national Romanian electric grid. I/ 1/ OED Note: See also Appendix, page 9, item 11. - 26 - .Implementation Schedule 3.02 Although actual disbursements followed the estimated schedule closely (para 3.10), physical completion was significantly delayed. CommissioninR Date Completion of Boiler Estimated Actual Modification Unit 1 9/77 12/78 82 Unit 2 3/78 2/79 83 Unit 3 9/78 2/81 83 Unit 4 3/79 3/82 82 Transmission Lines 77-78 9/79 (partial) Delays in project construction and commissioning are attributable to the following factors: (a) skilled labor shortage; (b) late deliveries of equipment (e.g. boiler feed pumps, valves) mainly because of manufacturing problems since these were prototypes for the Romanian manufacturers; (c) required modifications to the boilers and lignite handling equipment (see para. 3.04); and (d) the need to review structural design of the power station after Zhe March 1977 earthquake. 3.03 Another major contributing factor for the slow-down of project execution was the turnover in the mane,ement of the Turceni enterprise. For example, from mid-1979 to early 1981, three different general directors were appointed. ./ Channe in Project Deagn 3.04 According to information supplied to Bank missions and confirmed in the Borrower's PCR, the average heat content of the lignite supplied to the Turceni plant has been 1,400 kcal/kg, the low end of the 1,400-1,800 range provided for in the original design. 3/ The modifications introduced to the boilers and peripheral equipment, developed largely by the Romanian Design Institute for Thermal Studies (ISPE), were extremely successful, leading to improved operating efficiency and stabilization of the flame in the furnaces. The major changes consisted of: (i) installation of traveling grates below the furnace hopper. This device reduced the amount of unburned fuel reaching the furnace hopper and guaranteed a controlled flow of ash into the ash conveyor, thus preventing the development of explosive pressures and overloading of the ash conveyor; (ii) elimination of the coal dust separator originally provided to separate the coarser lignite particles; (iii) reinforcement of the driving gears for the ash conveyors; 2/ OED Note: See PPAM, para. 4 and Appendix, page 7, item 1. 31 OED Note: The Borrower contends that tests have shown higher values (Appendix, page 7, item 2). 27 - (iv) increase in the capacity of the motors driving the grinding mills from 1,150 kW to 1,400 kW; and (v) installation of larger pumps (50% additional capacity) to pump the ash from the power plant to the ash disposal pit. 3.05 The long duration tests conducted on unit No. 4 did show that the full output of 330 MI can be sustained continuusly. The tests also indicated that fuel oil consumption was around 7% during a three-month period for loads averaging 200 MW. Before the modifications were installed in the boiler, consumption of fuel oil was as high as 40% for the same level of loads. The lack of ability to produce components of the needed quality which were novel to the Romanian manufacturing enterprises is probably the principal reason why ISPE, responsible for the design, had to find alternative design solutions to make use of certain components which would match the high technology equipment which the Romanian industry was capable of supplying at that time. 4/ 3.06 Because the Turceni site is in an area of potentially large earthquakes, ISPE had to redesign the structures and foundations in view of the need to revise the criteria and standards for earthquake proof designs. This caused delay in delivery of structural elements leading to work stoppage at the site for some 7 months. The reconstruction of Bucharest after the 1977 earthquake led to a substantial shortage of skilled construction workers at the Turceni project site. 3.07 Another problem area has been the provision and installation of suitable insulation of the boilers, gas ducts, and high temperature piping because of the very large volume of insulation required. 3.08 Other changes in project design introduced early on (1978) included the elimination of one of the four cooling towers originally planned, a redesign of the turbine hall, and reduced standards for the finish of the power station building. These changes led to a savings of 50 million lei. Procurement 3.09 A number of corrections were required to the draft bidding documents in order for them to comply with Bank procurement requirements. (For more discussion see the draft PCR prepared by the Borrower, para. 4.01-4.05). The list of contracts financed under the loan is shown in Annex 1. Disbursement 3.10 Disbursements were for components of the thermal power station (Category 1) and for supplies for manufacturing equipment in Romania (Category 2), for contracts as listed in Annex 1. Disbursements began about a year later, and were completed about nine months later, than originally forecast (Annex 2). As shown in Table 3.1 below, Bank funds were reallocated from Category 1 to Category 2 of the project due to the procurement of a relatively larger proportion of equipment manufactured in Romania than originally envisaged. About 70% of the loan proceeds were disbursed to German suppliers; the remainder of the contracts were with other Erropean and American suppliers. 4/ OED Note: The Borrower has noted (Appendix, page 7, item 3), and Bank staff agree, ttat the reduction in fuel oil consumption was the direct result of the boiler improvements. - 28 - Table 3.1: Disbursements Category 1/ Original Allocation Actual --- US9 Million -- I. Components of the thermal power station and related 25.5 17.9 works II. Supplies for manufacture of thermal power station equipment 34.5 42.1 1/ Loan Agreement, Schedule 1. Project Cost 3.11 A detailed breakdown of estimated and actual project cost in both lei and dollars is shown in Annex 3, and a summary appears in Table 3.2. Table 3.2: Project Cost (USt million) (1) Thermal Power Appraisal Estimate Actual Statior Local Foreign Total Local Foreign Total Civil Works 63.0 0.4 63.4 56.5 1.2 57.7 Equipment 128.4 62.4 190.8 227.4 60.9 288.3 Modifications - - - 13.2 - 13.2 Base Cost 191.4 62.8 254.2 297.1 62.1 359.2 Physical Contingencies 13.0 - 13.0 - - - Price Contingencies - 26.2 26.2 - - - Total (1) 204.4 89.0 293.4 297.1 62.1 359.2 (2) Transmission Lines and Associated Works 57.4 0.2 57.6 18.9 0.1 19.0 Physical Contingencies 2.4 - 2.4 - - - Price Contingencies - 0.1 0.1 - - - Total (2) 59.8 6.3 60.1 18.9 0.1 19.0 TOTAL PROJECT CSr(1)+(2) 264.2 89.3 353.5 316.0 62.2 378.2 - 29 - For the thermal power station, the actual cost was 22% over the estimated cost. While the cost of civil works was lower than estimated (75%), the cost of equipment was much higher (1391). No price contingencies had been added to the base estimate of local costs because of the fixed price regime in Romania. However, prices were reset in 1976, 1981, and 1982 and as a result inflation did have an impact on local costs. Most of the increase in project costs is due to the changes in the project design. The cost of the design improvements added during project implementation amounted to 316 million lei or about US$16.6 million. 3.12 The actual cost shown in Table 3.2 for transmission lines and associated works was considerably lower than the estimated cost. The installation of several 400-kV sections, originally expected to be part of the project, was postponed (para. 3.01). These sections were the Slatina-Brazi line and the Rovinari-Mintia line, which are being built in association with Turceni Thermal Station II, as part of the 1981-85 investment program. IV. OPERATING PERFORMANCE Lignite Quality and Supply 4.01 Initial operating problems at the Turceni power plant occurred due to the poor quality of the lignite supplied by the mining enterprises, which was inferior to the quality for which the Turceni boilers had been designed (para. 3.04). 4.02 Some of the problems of inadequate lignite quality originated from the thin size of the lignite seams in relation to the original size of the excavator buckets. Furthermore, the xylite 5/ content of the lignite was higher than had been apparent from the geological surveys done at the time of appraisal. Because of the quality of lignite supplied and its inconsistent composition, a higher amount of fuel oil was needed than was planned for stabilizing the boiler flame produced by the lignite which is pulverized in mills at the last stage of preparation. The design oil/lignite ratio was 7%, but ratios of up to 40% were needed because of poor lignite quality, which also caused some of the lignite pulverizing mills to fail. This poor quality necessitated the major changes in boiler design for all Turceni units. Progress Reporting 4.03 The quarterly progress reports were submitted on a timely basis. However, the Bank found these reports often contained inadequate information to monitor the project carefully. This point was stressed regularly by the supervision missions, but no real progress was achieved. IV Xylite is a fibrous mineral reflecting the lignite vegetable origin. -30- Environmental Impact 4.04 In accordance with the agreement reached with the Bank, the Turceni Enterprise was to carry out baseline miasurements of air pollution in preparation for monitoring and controlling any harmful environmental effect of Turceni plant discharges. These measurements were to be carried out before starting operation on lignite fuel and, in fact, they were done in a timely fashion. Concentrations of nitrogen oxides and fly ash were found to be within the safety levels. Concentrations of sulphur dioxide and depositable fly ash exceeded the health norms by 10-301. Growth of Energy and Capacity Demand 4.05 Annex 5 gives a comparison of the actual and estimated plant capacity and load growth through 1980. Although in 1980, the installed capacity exceeded the estimate made at time of appraisal, actual supply was constrained by the decision of the Government to stop operation of a number of oil-fired power stations and by poor maintenance and lack of spare parts. 6/ Sales of electric energy were thus affected by tais policy and by 1980 had only reached 70Z of the appraisal estimate. V. FINANCIAL PERFORMANCE Debt Service Coverage 5.01 At the time of project appraisal, it was difficult for the Bank to determine which financial covenants would be appropriate to the Romanian economic environment and the structure of the power sector. Allocations from the State Budget were said by the Government to be unconstrained for this sector and would thus be available as needed to meet any funds requirements of the Industrial Centrals and its Enterprises which could not be met by inLernally generated funds. The Investment Bank was responsible for meeting the debt service obligations on the loan. Ultimately, the only financial covenant consisted of a commitment to assure that the sum of the net income and provision for depreciation of the Turceni Enterprise would be sufficient to cover the debt service payments on the loan. While, according to the Loan agreement, this covenant was to apply after 1979, in fact debt service coverage could not be monitored until 1983, the first year of commercial operation of the Turceni I plant. If the actual results of the first six months of 1983 are prorated, debt service coverage appears to have been inadequate in 1983, largely due to the low sales volume and the relatively high fuel oil/lignite mix. For 1984 and afterwards, annual net income plus depreciation is forecast to be about 300 million lei, compared with 85 million lei (US$5.7 million) in debt service on the loan. Debt service coverage is thus expected to be about 3.5 times, in compliance with the covenant. Internal Cash Generation 5.02 In a side letter (No. 1), the Government indicated its intention to ensure that from 1970 to 1980 more than 40% of the investments in the sector would be financed from funds generated by power sector enterprises (net income 6/ OED Note: The Borrower denies that there is poor maintenance (Appendix, page 8, item 8), but Bank staff insist that this is a factor in constraining the availability of power. - 31 - plus depreciation). Between 1970 and 1980, annual internal cash generation f-inanced a substantial share of investments, generally ranging between 40% and 60% of capital expenditures, dropping below 40Z in 1979 and 1980 (Annex 4, page 2). Following 1980, with the continued expansion of the sector investment program, this ratio dropped to an average of 30%. VI. .NSTITUTIONAL PERFORMANCE 6.01 The power sector of Romania is controlled by the Ministry of Electric Energy (MEE), which is responsible for the overall performance of the subsector and which translates national economic objectives and policies for electrical .nergy and heat into specific physical, financial, and efficiency targets for its organizational units 77 Through its research, design and engineering institutes, and construction trusts MEE is also responsible for the design and execution of its projects to provide for the future public demand for electric energy and heat. Generally the staff of the enterprise is capable and experienced and competently exercises delegated authority and responsibility. The very rapid growth of the Romanian power system over the last decade has somewhat strained the staff of the enterprisess Nevertheless, their performance in solving the difficult technical problems posed by the burning of low quality lignite at Turceni can be considered outstanding. 6.02 Some difficulties did develop in coordination between the mining and the power enterprises. The mining enterprises in Romania are responsible for extracting, loading and delivering the lignite to the power plant. The Turceni enterprise is then responsible for the unloading, storing or feeding directly to coal crushers or mills, and for other lignite handling and preparation. Initially, the mining enterprise failed to notify the power plant in advance of the characteristics of the lignite being shipped; this problem has now been remedied. 8/ 6.03 The staffing for the plant numbers about 1,900, 25% higher than the appraisal estimate, largely due to greater than anticipated need for repair and coal handling personnel. VII. BANK PERFORMANCE 7.01 The Bank's assistance to the Romanian power sector, although relatively modest as the lending is to a relatively sophisticated sector, nevertheless has: (a) introduced the sector's associated supply industries to international competition and international competitive bidding; (b) helped, and should continue to help, transfer of up-to-date technology; and (c) made, aad should continue to make, a useful contribution to planning by inducing 7/ CIPEET (Industrial Central for the Production of Electric Energy and Heat). CIRE (Industrial Central for Power Distribution). DEN (National Electric Dispatch System). 8/ OED Note: The Borrower denies that there were coordination problems (Appendix, page 8, item 9), but the problem did exist at one time according to statements made by Turceni Enterprise personnel to Bank staff. - 32 - Romania to modernize its system expansion planning by the use of modern data processing modelling techniques. The Bank could possibly have assisted more in recommending systems for better coordination between the Turceni enterprise and the mining enterprise with regard to lignite delivery. VIII. ECONOMIC EVALUATION Economic Rate of Return 8.01 The calculation of the economic rate of return of the Project takes into account the sales attributable to Turceni I as set out in Annex 7 on the assumption that operating efficiency would improve gradually to reach the design level of 34% by 1989. Energy used by the power station's auxiliaries has been taken at 17% of gross generation, which was the level experienced in the first half of 1983, and the same level assumed at appraisal. Energy losses in transmission and distribution are expected to continue at the current level of 6%. The lignite price used in the calculation - Lei 187 per ton (US$40 per ton coal equivalent) -- corresponds to the average purchase price for lignite having an average calorific value of 1,629 kcal per kg as furnished to the power station by a combination of open-cast and underground lines. As proxy for benefits it uses the current average tariff for the entire power supply in Romania, both at high and low voltages. The computed rate of return under this assumption is 6%, while at appraisal the rate of return was 8.6%. The lower rate of return reflects the longer than estimated project implementation period, and consequently, the delay in reaping the benefits from the Project. However, the incremental revenue understates the benefits consumers receive from the Project. The incremental revenue also does not take into consideration the impact of the Project in fostering expanded industrial employment through adequate power supply and the mining of indigenous lignite resources. Comparison of Alternatives 8.02 The Turceni Power Station operating at its design efficiency will be able to deliver electricity to the Romanian national grid at a cost of Lei 0.46 per kWh (equivalent to US$0.025/kWh). Tne cost of generati-n is lower than the cost of generation in an equivalent oil-fired power station using imported fuel oil at US$170 per ton (US$0.0454/kWh), or imported oal at US$65 per ton (US$0.032/kWh), 9/ compared with US$40 per ton coal equivalent for the lignite used at Turceni. 9/ While no data is available on the cost of imported coal to Romania, the estimates used in the analysis are based upon known contracts for coal delivered to other EMENA countries. For example: (i) Portugal is currently importing coal from the USA at $45/ton (FOB USA) + $14/ton (freight) + $6/ton (port handling); and (ii) Ireland is currently importing coal from Colombia at $55/ton (CIF Bantry Bay, Ireland) + $5/ton (internal handling). - 33 - IX. CONCLUSIONS AND LESSONS LEARNED Conclusions 9.01 The Project has successfully achieved its major objective of expanding Romania's electric power generating capacity using an indigeneous resource: low-quality lignite. It has furthermore introduced up-to-date technology into the machine building industry of Romania. Another aspect in which the Project has had a significant impact is the introduction of competitive bidding in the procurement of equipment for large infrastructure projects. This aspect of the Project is particularly important since it has brought the Romanian export agencies into contact with international competitive bidding processes. Lessons Learned 9.02 Although Romania possesses a sophisticated power sector, the introduction of new technologies is bound to cause difficulties in the learning phase as exemplified by the Project's initial technical problems. The following two lessons emerge from the Project. The implementation schedule for a Project such as this involving the introduction of new technologies should recognize the difficulties attendant on the introduction of such technologies and provide adequate time for commissioning and possible modifications to novel equipment. In addition, ample physical contingencies should be provided in the Project cost estimate to cover the sort of eventualities that affected the Project. Finally, price contingencies should be estimated even under the conditions of a centrally planned economy in which prices are administered. June 29, 1984 (1714P) ,i}:l！一，,,&,,& 挨 l刈”‘當當‘&&& ‘馴”&&&&&&& 。，11謝，響奮響豐。響豐當 l尸，I―盪煙―!―寫熙馨豐鑿栽妝妝 ,{&,,&!,&!,!&&;,,&! 中1．露l 馴I蠶。i…― 1 11〕111，氫，!111！【111〔―。＿ 興‘―籰二；＇誡J、‘捶―眉邑 ．斤 AM= 1 35 - Page 2 of 2 ROMANIA LOAN 1028-RD FIRST TURCENI THERMAL POWER PROJECT PROJECT COMPLETION RSPORT Contracts Financed Under the Loan Item Amounts Paid -No. Descripti From The Loan (US$ thousands) Category 11: Supplies for manufacturinz the equipment of the thermoeower station 1. Special steel plates and pipes alloy steel and stainless steel, additional materials for boilers, measuring and control devices, different deliveries. 35,500 2. Expansion compensators 200 3. Fittings 100 4. Vacuum pumps 100 5. Low Pressure by-pass 2,200 6. Excilation static system 100 7. Hydraulic couplings 1,000 8. Industrial Fittings 2,900 9. Additional Materials TOTAL CATEGORY 11 42,100 TOTAL FOR PROJECT 60,000 June 1984 (1714P) ANEX 2 ROMANIA LOAN 1028-R0 FIRST TURCENI THERMAL POWER PROJECT PROJECT COMPLETION REPORT Estimated and Actual Disbursements Schedule US$ Million Fiscal Cumulative Disbursements at End of Quarter Year/Quarter Original Forecast Actual 1975 Sept. 30, 1974 - - Dec. 31, 1974 2.4 - March 31, 1975 7.0 - June 30, 1975 13.0 - 1976 Sept. 30, 1975 19.7 - Dec. 31, 1975 24.0 6.80 March 31, 1976 27.6 10.40 June 30, 1976 32.4 28.30 1977 Sept. 30, 1976 37.1 35.00 Dec. 31, 1976 40.7 36.00 March 31, 1977 44.0 41.50 June 30, 1977 47.6 44.20 1978 Sept. 30, 1977 50.9 48.80 Dec. 31, 1977 54.1 54.20 March 31, 1978 56.5 57.10 June 30, 1978 58.8 57.90 1979 Sept. 30, 1978 60.0 59.10 Dec. 31, 1978 - 59.90 March 31, 1979 59.95 June 30, 1979 60.00 June 1984 (1714P) 認＇;！·。·’·？ &&’〕〕‘〕‘〕’〕〕〕〕〕〕〕’&―。 AIR= 4 38 - page 1 of 2 ROMANIA LOAN 1028-RO FIRST TURCENI THERMAL POWER PROJECT PROJECT COMPLETION REPORT COMPLIANCE WITH LOAN CONDITIONS Reference Financial Conditions Date Due Compliance L.A. Annual net income plus Annually. starting Not applicable until 4.01(h) depreciation provision in 1980 delayed start-up of of Turceni Enterprise commercial activity in to be at least 1983. Not complied with in sufficient to cover 1983. According to debt service for this forecast, coverage adequate loan during each year. from 1984 on. Side Letter Internal cash Annually Complied with (see p.2 of No. 1 generation for sector this Annex). to finance at least 40% of power investments. Reporti L.A. Financial statements Annual audit report Reports for Turceni 6.01(e) of Turceni Enterprise due 3 months after Enterprise received on end of fiscal year; irregular basis, incomplete. quarterly unaudited Financial statements of reports due 60 days Industrial Centrals after end of each received 6 mouths after end quarter. of fiscal year. L.A. Audit report and Due 3 months after Received with delays. 6.01(f) financial statements end of each fiscal of Investment Bank year. Attachment Technical and 45 days after close Received regularly, on to Side financial progress of each Tiarter time. Letters reports Atacbment Environmental Report 2 months after Covered in 12/80 letter to Side close of each from Investment Bank. Letters semester Conclusions shown in Borrower's PCR, 10/83. Attachment Fuel Supply Report 2 mouths after Not received. Some to Side close of each information received during Letters semester Bank missions. June 1984 (1714P) -39 - poe 2 af 2 LNO 1028-R0 PFIR CIE w Re!fE P~K ECr PIEzær aae1ia,I liR IRIE1ECL GASEEMERUIK (F IIKUSIl[ GREI.S (1970-19M) (millions of lei) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Net Iaan 1,563 1,640 2,127 2,287 1,631 1,950 2,036 1,519 1,964 855 1,702 Plus 1pe,im _ 1.735 1,Y 2.231 2466 2 2 9 2 M Gross Internal Cash Geneatia» 3,078 3,375 4,061 4,518 4,097 4,654 4,%2 3,907 4,583 3,754 4,823 Less Pd Paymts 34 56 64 52 40 41 29 37 49 65 816 (A) Net Intrnal Cas Genetic 3,04 3,319 3,997 4,466 4,CS7 4,613 4,913 3,870 4,5.% 3,69 4,007 (B) Capital Epenlitares in Por Se:tor (irm1hng inteest durn conistrztian) 5,788 6,332 6,458 7,329 8,463 9,839 10,059 9,640 9,539 10,963 11,532 % Intmrna Cas Geatim (A/B) 53 52 62 61 48 47 49 40 48 34 35 J 1984 (1714P) ~40- 5 LON 1028-D FIRSr 'IICN 'lERMfL 10M! P wKL PmmUlcr cxlf13IWz xrHER cM!Måisi æ KIAL A10 ESEDftED PLAMr CæACI1Y A10 æEIMSB 1EaSIL 1973 1974 1975 1976 1977 1978 19-19 1980 FiPrC=MitTa Estimated - - 10,332 11,234 12,450 13,356 14,493 15,623 Actual - - - 11,914 13,184 13,620 - 16,012 Mariu De~an (M Einst r - - 9,917 11,077 11,960 12,880 13,855 14,900 Actual - - - 8,719 9,102 9,460 9,900 10,043 !E Sals (Gih) Esifie 37,740 43,520 47,780 54,340 59,720 65,440 71,Lo 78,3|) Actuul 35,501 38,741 43,435 47,589 49,6490 52,521 - 54,Y47 _a ntermcted Mz = Ministry of Electric Enrgy June 1984 (1714P) -41- Ata6 Im~N 1028-æ FIRSr 1U1IE1![ 31.DIL !1E PEOJET PEGEcT (D!RE19 HI!R AIUAL 5U!L 00SJKrzEl AE 1!PEE FIsR SER i 8 Fuel Oil LgieNahbm1 Gas Ttll Geeratiæ (Glï) ---1,380 Fuel Conswiption 62,363 tons 3,001,5æ tons 55,456 103 m3 (46,028 tons) /1 Awrelal/lig 9,52) 1,600 8,565- CnswptiLo in millions of kcal 593.7 4,82.5 394*.2 5,790.4 Finsræ-al Cost to Tureemni Enterprise (1,000 1ei) 159,337 516,270 %6,62271,2 Uinit Price 2,555 leitn 172 lei/ton 1,742 lei/103 m3 /1For dry natnmal gas, 106 2 = .83 x 10æmtric tæs. JSEm 1984 (1714P) - 42 - åS 7 F It~m in~m ~!mi PENr Tabulatim fr Rate c .trn Cffi ~ Net Invue~t in Cm. Sals Pouer Subtnaw- Operati~ ikel Toal Net Clu Year Cainr u ffi Lei x UP Statin & Distrib. .6 Maint. Cost Osts Flw No. Yer a/ b/ c/ d/ e/ -- -- -- -- - - -Leix 106- - -- -- -- ----- 1 1972 8 8 (8) 2 1973 88 88 (88) 3 1974 237 237 (237) 4 1975 440 440 (440) 5 1976 1,0L2 1,012 (1,012) 6 1977 1,468 1,468 (1,468) 7 1978 1,602 1,602 (1,602) 8 1979 600 564 298 878 60 148 1,086 (788) 9 1980 1,517 1,426 756 230 169 328 727 29 10 1981 2,072 1,98 1,032 192 750 348 791 1,290 (258) 11 1982 2,455 2,338 1,223 86 750 195 1,185 2,OB (85) 12 1983 4,700 4,418 2,342 47 750 524 2,171 3,492 (1,150) 13 1984 7,150 6,721 3,562 89 750 590 2,728 3,902 (340) 14 1985 7,150 6,721 3,562 - 590 2,600 3,190 372 15 1986 7,150 6,721 3,562 590 2,472 3,062 500 16 1987 7,150 6,721 3,562 590 2,364 2,936 628 17 1988 7,150 6,721 3,562 590 2,216 2,86 756 18-43 190- (25 yrs) 2014 7,150 6,721 3,%2 590 2,O8 2,678 884 RATE OF RETURN - 6 a/ Stmtion ue 172. b/ Lses in tUe i cnaimn distributin: 6. / Amerae revenue per Mau Lei 0.53 per MIuh. Ntiona imesUt in "btisasin ad distributwi: US$150 per 1W aE peak d~xnr (.quivalt to Lei 3,000~/. e/ Lignite at Lei 187 per te (US$40 per tn cmal equivale~t). MME. Full eperetion of the pmer static started in 1986. It is assed for this calclation that full efficiency (34%) vill be atteinad gradally in fiv years startirg in 198<. (1714P) - ANNEX 8 Page 1 of 4 TURCERI TEENW0WPO STA!T3DN -I.t STAGE fl0JE0T 09MPLU110N IBFORT LOAN 1e28-20 1. DATA ELATED TO TE BEK LOAX 1.el. The general data related te the ak len for the Impemeate- tion of Turoeni Theraepower Projeot - lat stage bre summarised hereinwfter: zorrwor :Iavestment Bank of the S.Rof lEeada (13) ~uarater :S~ialies Repablie of Ibmanla Loen omoun t US$ Go millien equlvaleat Dlatv of signing the Leen Agreemeat· tuly 1.,1974 Date of loa effectivenem: November 6,1974 Cloging dat@ g June 30,1979 lean period s 25 yeare,ef which: Gra e perled : 5 years an munthe lterest rate 7.25 % Comittemcet hrge 1 0,75 5 Lean repaymeat : in 39 semi-annsl payment a startig January 15,1980 xchange rete u 8at Opprisal tlas: US&I. Lol 20 sterting March 6,1978: 28$ 1 5 Lei 38 starting January 1,1981: Vs$ 1 a l 15 IBRD Appralaal Bport & W 391e, dated Junt 17,1974 Piol year *tart& January let endIng December 31. II. 4(CIMGUWD IKPORMATOF 2.ol. The US$ 6o millien equivalent Bank leen made in 1974 tor tb implemntotion ef the lat stage of Tumeni Therppewor Stelan, represented the Sauk's sesad loan in Romania sinoe the eeuntry joinmd the 3Mak,being the first lean for flaanoiag a power project, followed by three other loeea,amounting to US$ 245 million equivaleat, for uapperting the developmeat of power &eter. ANINkK 5 Page 2 of 4 2.02. e ?rejeot ensled ef : a) the implemeatistln of a thermoPwer atatiea wlth 4 Got* of 33n I esh burnigg ligite,iLnoinig related freil- *is and alos related rallwa and ro~ad toneotieni b) bulding *f 400 an 110 Xy tranmission ilin0 with a total leagth fr Go b, wenmecting the power stetien with ntina and Babi ustations,lfonding a swit.hiag and L'faanooting etatlen wlth the 400 IT system fr~m Irom ates I powmr station. 2.e3. The Bank's Loan was ased soording to the provialonø of thw Loan Agreement Omd gubsquent agreomatø between the Bank and the Sorrower for flaMinIg foreign ezpenditure relmted to the preocuremen Of Geveral oDEponents Of the thermepower atation *ad uMpplies require for mauf8oaring ln bmana the 1035 t/k bollers end th~ 330 M tur'1ines Ad gnars (>are.401 - 4.04 ).Diursemnt of e an amounte is shown under Annezes 1.1. -1.3. III. sun 3.01. y the time the preent report Wan drafted (June 3,1983) all 330 N alt provided ts be imtalled vere omiss1eed,a tollows 8 aIt no.1 Deoenber 1978 unit Se.2 * OstOber 1979 Milt LO.3 a Pebruary 1981 ult ao.4 a Mareh 1982 Commisslinig of tho 330 Ki nit& was deløyed *a oapared to the target dateg foremegn whmn s00luding the Loea Agreemant and provided for ia the P^å*otta appraial r*port,he seasons or the delays being explansed nder para.4.o9. TM experiene« ganed In the operation of fhm first 3 Mitg o 330 ]m ad noveral te~hnical modificetton lmplemented at =nit no.4a wel, afrded ebtaiaing a higher fiabIllty a th~ perlod af .peratiøn by the time of tis report better resute sa oared to the unltd o. 1-3,amlX due to r AMNEX 8 n - ?U of 4 - 45 - u eIntredmsolem of the post burni~g grill @nd fbtaL~ni b higher effisioney la Operate n and stabilislis sf the burning at the burners,ee..rtiagly atsbilisag the Operatis et the uniti that 91 lead te the pegaibility et Operatiea witheat ödding tuel eil for stabilising the flge,st wpercting rtas reagig betweea 6o-le %uvalues whieh prov* to be higher than othera experine ta the world for thi qua1ity cf lignite * . - giviMg up te the 8e«l dust separaters la the grindig sirouit ba aooordigly cbtainng 9a ubutantial inorcsas the mils' sapaaity,the =nit 4 rsehing levele ot 3*9-319 EN with enly 4 ills in GpeutiOn ( eah boller being equipped with 6 ill* this was an approech affording the epeation ef the a It et higher rates burning low salerifio pwer 0sal (12*o koal/kg) compared ta the lever lilt provided for tn the das~ of the Project (149o kecA/kg). 3.e2. The atual lavestet *est ef the thersposer statien ta of 14 6,258,5 8ilin1 (GUMetG atually spenat as of jme .3,1983, are et let 6,128.7 millien) ma epared te the emot estisted by the appraisl misiean ( 1*i 5,9e millien la 1973 prise). TakiUg als* ate osceunt the laventwmat expeaditures related to the improvement aohieved and under way for lcrenasing the fiabi- lity In operatin,a uating to Lai 316 milliM ( et hish by Jne 3e, 1983 the mmonts opend ar et Lai 162 millien),ths total seat et the therwpower statio is at i1 6,574.6 mllion,the ameunta motually spant as of Jun* 3 ,1983, inluding expenditures lurred tor increasing the flability,rais to li 6,29e.6 milllen (Amer@* 4 and 4.1). The diterens betwena the laitial 0sta estiMated by the ]bnk at apparisal,is de te the prieo resetting motions aMoeediag in 1976,1981 and 1988. 3.o3. The provisions included in the lan Agreement and related Supplemwatal letters,have been generelly met. Thert have been informatien not aubnitted te the 3enk given the Project's implementation status at that time,mot requiring subission et such informtion. Such inforation have been såbeitted ANNEX 8 Page 4 of 4 - 46 - te the Mank Mn other eesion,»during the analysio ter ether preet (*g. data senserna,g lignite produotion tor ftr»e«i po- jet,an *sel baeiag.ubmitted te the lank with the gppgrtunity et rinulising the appraisal mnlysis for pewer IT projeet. In Gonneotia with the information requested by the ~ank, there wer* Deveral aigundertanings between the Bank the the Borrower enoernig the pellatien mnétoxing informtin and their subission to the Bank.he maln aisunderetanding wea du@ to the feet that the Appreisal Iport specified that " the Teroken RnterpriNe will establish pellution mnitorlng stationa an will report te the Bank the resulta and corrective mseasures takn" while the loan Areement provided only the obligation of reporting information enoermifg pollut2on monitoring.he misunderstuding ocoured was fully elerified with the oppartunity of the diaouanins the Bank's upecilist in pollutim Ienitering,Nr.Tixhon,ked in September and December 198o,with relåted R£maian authorities: Na tional Counoil for Eavironemnt Pro teot ien, the Intitute tfr Eydrology Institute.Tis was a good pportunity 99 olerf1y th way pollution »onitori~g is performed ln territerial profile throtgh above meationed institutions for Turoeni Therumopewer gtutima,the Dank's specialiet being supplied with all information rometed la oonnection with pollution mnitorng for this Projecta urther information en this subject concerning pollution monitoring for the firgt otage of Turoeni Preject are detailed under ~hpter VI of the present repert. .W1 lav ~fl et-,. -s--a.-m nas~ res mm - - ~/ SIOHETU MARMATIEI -- 1 -- - aSEINI- - U - - - -HUA RIT'A TG. MURES RKJI MARE RETEZAT LOTU -GES BELGRDE NINAINA .-f-N GATES SECOND TUCENITHER AL LPT LU ARO TG UE D. SE" v INR REES. CHAAOV <RON GATES... SECOND REP. CTT SEt. PN.AN una ulin~ cat AFA T TfUG~SLVWA, ..- IPR ~ - Q Vmair XUSTING" 4.- . .:3 :NOVEMBEtt 1980 .T9ERMALFOWER STATION EXTENSIN S TERMALP.WER STAIONS- HHDROOWER STAT INS - - SUSTATIONS T 400kY TRANSMISSION LINES- 220kV TRANSMISSION LINES 110kV TRANSMISSION LINES EUROPEAN HIGHWAYS MAJOR NATrDNALIølHWAYS -------RAILROADS - - INTERNATIONAL citNDA RIES PROVIN CIAL CAPITA.LS P~TRA NEAMT-- -- -- MUNICIPALITIES ROMAN- X 7 RIVERS VASLUI 0 20 40 Un -* too GIU KILOMETERS ROMANIA POWER. TRANSMISSION SYSTEM EICUCI 1 FOCSANI', ÇýE5-n A ØUZAU1 TIRGOVtM| o. - SITORMAN REST 4 - NSTANTA - - - - ..- - - PALAS D JRI- GIURGIU 2AV.