Document of The World Bank FOR OFFICIAL USE ONLY CAS /s7@- L5 Report No. 5329-TUG STAFF APPRAISAL REPORT UGANDA SECOND POWER PROJECT February 28, 1985 Eastern and Southern Africa Projects Department Energy Division This document has a restricted distribution and mray be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT Currency Unit = Shilling US$1.0 = USh 520 (as at January 1, 1985) WEIGHTS AND MEASURES 1 kilometer (km) = 0.621 miles 1 square meter (m2) = 0.386 square miles 1 kilovolt (kV) = 1,000 volts 1 megawatt (MW) = 1,000 kilowatts 1 megavolt ampere (MVA) = 1,000 kilovolt amperes 1 gigawatt hour (GWh) = 1 million kilowatt hours 1 ton of oil equivalent (toe) = 10,500,000 kilocalories ABBREVIATIONS AND ACRONYMS CDC Commonwealth Development Corporation EEC European Economic Community ESMAP Energy Sector Management Assistance Program FAO Food and Agriculture Organization GSMD Geological Survey and Mines Department ICB International Competitive Bidding ILO international Labor Organization IRR Internal Rate of Return LRMC Long-run Marginal Cost KP&L Kenya Power and Lighting Company Limited MIPED Ministry of Planning and Economic Development MPPT Ministry of Power, Posts and Telecommunications ODA Overseas Development Administration (UK) UEB Uganda Electricity Board UEB's Financial Year = Calendar Year UGANDA FOR 0CUL USE ONLY SECOND POWER PROJECT Credit and Project Summary Borrower: The Republic of Uganda. Beneficiary: Uganda Electricity Board (UEB). Amount: SDR 29.5 million (US$28.8 million equivalent). Terms: Standard. Onlending Terms: 20 years, including 5 years of grace, at 10% annual interest; the foreign exchange risk to be borne by UEB. Project Description: The project consists of four main parts: (i) At the Owen Falls Power Station, ten turbo- generator units would be rehabilitated, and structural repairs would be implemented to the daam and to the power house. Furthermore, electrical and mechanical equipment would be rehabilitated, the workshop would be refurbished, and tools and equipment for maintenance would be provided. (ii) The Transmission and Distribution Network would be rehabilitated, one of the transmis- sion lines between Owen Falls and Kampala would be uprated, and the transmission lines between Kampala and Nkenda, and between Tororo and Lira would be strengthened. (iii) These components would be supported through the provision of vehicles, tools and equipment for maintenance and repair services and through the rehabilitation of UEB's Staff Training Center and UEB's operational build- ings and staff housing and the implementation of a Training Study. Engineering and consult- ing services for construction supervision would also be provided. (iv) The Project would also include studies of UEB's tariff structure and level and billing and collection system, and the provision of a computer for UEB. In addition, technical assistance would be provided focusing on the new Energy Department, on a forest and fuelwood plantation inventory, on fuelwood marketing, and on a household energy survey in major towns of Uganda. This document as a restriced distbution and may be used by recipients only in the performance of their official dudies Its contents may not otherwise be discsoed without World Bank authorization. - ii - Project Benefits: The proposed Project would prevent the development of a bottleneck in power supplies that would hinder economic recovery in the medium term. It would also strengthen UEB's operational capability and contri- bute to future development of the power system through engineering and design work for the next hydroelectric project to be built in Uganda. Project Risks: The main risk affecting the Project is the ability of the Government to maintain security in the areas that will be traversed by transmission and distribution system to be rehabilitated under the Project. In addition to the physical security risk for work crews and equipment, there is also the risk that prospec- tive contractors might add a risk premium to their bids or that they may suffer losses in case of security incidents. In order to keep this risk low, contracts will contain provisions to protect contractors adequately. Estimated Project Costs: Foreign Local Total (USS million) Owen Falls Power Station: (a) Civil Works 4.4 - 4.4 (b) Equipment 9.2 0.6 9.8 Transmission & Distribution Equipment 17.9 3.6 21.5 Tools, Workshop Equipment, Vehicles & Taxes - 0.9 0.9 Engineering & Supervision 2.9 0.8 3.7 Training Center & Study 0.3 0.4 0.7 Other Studies 4.1 1.4 5.5 Base Costs 38.8 7.7 46.5 Physical Contingencies 4.7 0.6 5.3 Price Contingencies 5.8 0.9 6.7 Total Project Costs 49.3 9.2 58.5 Interest Financed 3.1 11.8 14.9 Total Financing Required 52.4 21.0 73.4 - -=_ - iii - Financing Plan: Foreign Local Total --(US$ million) IDA 27.6 1.2 28.8 CDC 12.8 0.2 13.0 ODA 12.0 - 12.0 UEB - 19.6 19.6 Total 52.4 21.0 73.4 Estimated Disbursements: IDA FY86 FY87 FY88 FY89 FY90 - - (US$ million) Annual 8.5 15.0 4.0 0.9 0.4 Cumulative 8.5 23.5 27.5 28.4 28.8 Rate of Return: 16.7% Staff Appraisal Report: No. 5329-UG dated February 28, 1985 map: IBRD 18542. UGANDA STAFF APPRAISAL REPORT SECOND POWER PROJECT Table of Contents I. THE ENERGY SECTOR Page No. Introduction .......................................... 1 Principal Sector Issues .......... ......................... 1 Energy Resources .......................................... 1 Renewable Energy Resources ........ ......................... 2 Fuelwood ................... 2 Hydroelectric Resources ......... ......................... 2 Other Renewable Energy Resources ........................... 3 Energy Demand and Supply ......... ...................... 3 Imported Energy: Petroleum .............................. 4 Petroleum Exploration .. . ............... 5 Energy Prices and Pricing Policy ........................... 5 Petroleum Products .....................-........*....c.... 5 Electricity .............................................. 5 Woodfuels ......................6 Energy Sector Organization ................ 6 Government Strategy in the Energy Sector ....o 6............. 6 Bank Strategy in the Energy Sector ......................... 7 II. THE POWER SUBSECTOR Background ......................8 Uganda Electricity Board (UEB) ..................... 8 Generation ................... 8 Transmission and Distribution .............................. 9 Power System Rehabilitation .cc...m...................mm ...m 10 Connections to the UEB System .............................. 11 Access to Service ....... ....................... 11 Sales to Kenya .................m.......mcecm 12 Sales to Tanzania m. m........................... 12 Previous Bank Lending in the Power Sector ...... ............ 13 Government Strategy in the Power Sector .................... 13 Bank Strategy in the Power Sector .......................... 13 Historic Demand ... ........ ................ mmm ........ 14 Forecast Demand ....cm.......m.cmm..mmccm...mmcm..mmcm. 15 UEB's Development Program ....mmc... mmcmccm.mcmccmmcmmmmmm 16 This report was prepared by Messrs. R. Mitchell (mission leader), J. Besant-Jones (economist), H. Chaves (engineer) and L. Swahn (training adviser) and is based on the findings of the appraisal mission which visited Uganda in July-August 1984. - /1l - III. THE BORRWER AND THE EXECUTING AGENCY The Borrower .g...... ......................... ............ 18 The Beneficiary and Executing Agency.......................... . 18 Management and Staffing ................... .......... .. 18 Training and Institutional Development ...................... 19 Insurance .g...... ...........me.......emce..... ecu.....me.. 20 Accounts and Auditing .... ........... 20 BiLling and Collection ccc ... ..ce ecececeecee. 20 Stores and Workshop Procedures ............................. 22 IV. THE PROJECT Project Objectives and Bank's Role ........ ................. 23 Condition of the Power System ......c ....................... 23 Project Description .ceceecceemc.ce.ee.eeeeeeceemccec...... 24 Owen Falls Power Station . . .eeccce2 Transmission and Distribution .............................24 General ....................................................25 Technical Assistance for Ministry of Power, Posts and Telecommunications ..................................... .... 25 Environmental Considerations eecec..ce.ce.eeceecemm.cece.cce 25 Cost Estimates .....e........emce...ec. 26 Financing Plan ......ce...c.cm.ecec.eee.c.eeeeeeeeeemeccecc 27 Engineering Services ....................................... 27 Project Implementation ...emc......cee.eece.ce. ............. 28 Procureent ............................ ee...... 28 Disbursement ......................................... 30 Project Monitoring and Evaluation .......................... 30 V. FINANCIAL ASPECTS AND COST RECOVERY Past Financial Performance ............ .........c 32 Financial Position .......................... 33 Retail Tariffs ....... e.................. 33 Tariff - Bulk Supply to Kenya and Tanzania ..... ............ 35 Proposed Financing Plan mm...........e....c.......e..c...ec....36 Financing Terms .....c eec...... ccc...... ................ 38 Revaluation of Assets ..c......e.c.ee.c. emcee. ............ 38 Future Operations and Financial Performance . 38 VI. PROJECT JUSTIFICATION AND RISKS Project Need eeceeceeec.............. 40 Least Cost Development Program ............................. 41 Economic Rate of Return ........................... eec. 43 Tariffs, Long-run Marginal Costs and Consumers Willingness to Pay ..... ...............................e 44 Project Risks ..e...eeee.e..eecm.cm.eeeeeeceeeee.meeee...... 45 VII. AGREEMENTS BEACHED AND RECOMMENDATIONS ......... ............ 46 - iii - List of Annexes 1 Hajor Sites with Hydroelectric Potential 2 Estimated Energy Balance for 1980 3 Installed Capacity 4 Generation, Demand and Billings on UEB System to 1983 5 Forecast Total Demand on the UEB System 6 Organization Chart 7 Project Description 8 Cost Estimates 9 Implementation Schedule 10 Estimated Schedule of Disbursement 11 Monitoring Guidelines 12 Income Statement for UEB, years ending Dec. 31, 1982-91 13 Balance Sheets for UEB, years ending Dec. 31, 1982-91 14 Funds Flow Statement for UEB, years ending Dec. 31, 1982-91 15 Income Statements for years ending December 31, 1984-1991 16 Balance Sheets as of December 31, 1984-91 17 Funds Flow Statements for the years ending December 31, 1984-91 18 Notes and Assumptions for Financial Statements 19 Projected Balances of Capacity and Energy on UEB's System 20 Internal Rate of Return on UEB's Investment Program 21 Estimate of Consumers Willingness to Pay for Electricity 22 Selected Documents and Data Available in Project File IBRD Map No. 18542 I. THE ENERGY SECTOR Introduction 1.01 Eight years of military government followed by war devastated the Ugandan economy. A concerted international effort in which the Bank participated was launched after the end of hostilities in 1979 to help reconstruct the economy. Initially the unsettled political situation and administrative inertia hampered the reconstruction efforts. In 1981 a major devaluation of the exchange rate was introduced and was accompanied by the removal of most price controls and by the introduction of various measures to improve monetary and fiscal discipline. Building on these reforms, the Government established a recovery program from July 1982 to June 1984 which mapped out a coherent strategy, embracing macroeconomic and sectorial policies as well as individual projects. This program was revised in October 1983 and has as its basic objective the rehabilitation of the productive sectors and the improvement of the utilization of existing productive capacities. Principal Sector Issues 1.02 The UNDP/World Bank Energy Assessment Report 1/ identified the issues and made recommendations for the sector policies and development which were endorsed by the Government. This constituted the first step toward the implementation of a national strategy in the energy sector since the end of the civil war. 1.03 The main issues identified were: (a) the high cost of petroleum imports; (b) relatively low efficiency in the use of petroleum products and woodfuels; (c) distortions in retail prices of petroleum products and shortcomings in the retail pricing formula; (d) unreliability of power supply and high power system losses; (e) shortfall in power generation capacity to meet forecast demand beyond the mid-1980s; (f) low level of power tariffs and inappropriate tariff structure; (g) insufficient supply of fuelwood, especially in the Kampala/Entebbe region; (h) inadequate level of stumpage fees; and (i) lack of sectorwide coordination and planning. Energy Resources 1.04 Uganda has ample water and forest resources for energy develop- ment. It has the disadvantages common to many African countries which import all of their petroleum products. No petroleum or gas has been discovered but the Government is promoting prospects for exploration by oil companies. There is no coal; peat exists but has not justified exploitation. Geothermal sources and uranium prospects have been identified, but the former has low priority because of the great hydroelectric potential; assessment of the uranium potential is in progress. 1/ Uganda: Issues and Options in the Energy Sector, dated July 1983, a report of the Joint UNDP/World Bank Energy Assessment Program. -2- Renewable Energy Resources Fuelvood 1.05 In Uganda, as in many African countries, woodfuels contribute the main supply of energy to the population. Uganda's forests and woodlands are estimated to cover 2.76 million hectares, or 12% of the country's total area. The energy assessment report recommended that a national inventory be made, complemented by a survey of consumption trends and projections for all wood products in order to identify the areas of critical shortage. Funds have been secured for an inventory of forest plantations in southwest Uganda, and are forthcoming for an inventory of natural forest reserves in the same area. The two inventories would cover about 40Z of Uganda's forest resources. An inventory of natural forest resources is included in the proposed project. Agreement was reached during negotiations on the program for this inventory to be conducted according to terms of reference acceptable to the Association. 1.06 The energy assessment report made several other recommendations, including the following: (i) that fuelwood plantations be expanded on the basis of a supply and demand forecast - Care International (US$447,000), the Food and Agriculture Organization (FAO) (US$53,000), the European Economic Community (EEC) and International Labor Organization (ILO) have rural social forestry projects toward this goal; (ii) that fuelvood and industrial support plantations be established in the Kampala/Entebbe region - no action has been taken; (iii) that extension services in fuelwood plantations be improved - Government is seeking EEC assistance and (iv) that the stumpage fee be raised to reflect the economic value of wood - a proposal has been prepared by the Forestry Department (para. 1.17). One of the priorities for Government is the preparation of a household energy strategy. The proposed project includes a provision for two surveys covering fuelwood marketing arrangements and urban household energy demand to complement the forest inventory work (para. 1.05) as inputs for the preparation of a household energy strategy. Agreement was reached during negotiations on the program for executing these studies according to terms of reference acceptable to the Association. Hydroelectric Resources 1.07 Uganda is well-endowed with hydroelectric potential. Although sites on a number of rivers have been studied, the potential is concentrated on the Victoria Nile with its unlimited storage provided by Lake Victoria. The Nile falls into three sections in Uganda, namely Lake Victoria to Lake Kyoga and Lake Kyoga to Lake Albert (Victoria Nile), and Lake Albert to the Sudanese border at Nimule (Albert Nile). The last section is remote from the load centers and has the least power potential. The difference in elevation between Lakes Victoria and Albert is about 516 meters, of which 103 meters lie between Lake Victoria and Kyoga and 413 meters between Lakes Kyoga and Albert. The available head is concentrated in seven locations, with a total potential capacity of about 1,745 MW and annual firm generation capability of about 10,200 GWh (Annex 1). Although the hydroelectric potential is substantial and relatively low-cost by world standards, the potential can be developed only in increments that are large -3- relative to the size of the Ugandan demand, and therefore the potential for substantial exports to neighboring countries is a significant factor in determining the economics of development. Other Renewable Energy Resources 1.08 The assessment report recommended that studies should be made of the economics of new renewable energy options such as geothermal and solar energy, use of crop residues, alcohol, biogas, wind, peat and papyrus. 1.09 Uganda's geothermal potential has not been studied since 1971 when a UNDP study concluded that it might be about 450 MW. Hydropower has taken priority over further geothermal activities due to relative ease of exploitation, greater potential and therefore, cost advantage. To promote the use of crop residues, a USAID-funded pilot project for producing charcoal from coffee husks has been commissioned recently near Jinja. Makerere University is involved in a number of research programs in various forms of renewable energy: biogas production and utilization; solar water heating for industrial and commercial applications; solar drying for food preservation; and solar crop drying. In addition, the Forest Research Center is engaged in research on charcoal production techniques. These modest programs were originally financed by the Overseas Development Administration (ODA, United Kingdom) and attempts are now being made by the National Research Council to obtain additional funds to continue the work under a restructured program. Although most of the projects described above are still in the research stage, there are indications that some, such as biogas production, have reached a stage where initiation of field trials may be justified as a prerequisite to dissemination of the techntology, for which appropriate extension mechanisms would need to be developed. Energy Demand and Supplv 1.10 Per capita energy consumption in Uganda is estimated to have been 0.35 toe during 1980, of which only 0.06 toe was commercial, i.e. petroleum products, electricity and marketed wood fuels exclusive of woodfuels gathered as a free good. This level of commercial energy consumption, while exceptionally low by world standards, is comparable to estimates for some other low-income countries in Sub-Saharan Africa. In Uganda's case, the low level of commercial energy consumption reflects not only the country's low per capita income, but also the dominance of the subsistence sector and the significant decline in the industrial and transport sectors during the 1970s. For the same reasons, energy consumption is concentrated in the household sector and supplied primarily from woodfuels. Electricity, which is the major area of government involvement in the energy sector, has never supplied more than 4X of commercial energy consumption. In terms of primary supply, in 1980, 76% of Uganda's commercial energy was domestically produced from woodfuels, with the balance coming from imported petroleum products. The energy balance for 1980 is summarized below and detailed in Annex 2. -4- Energy Balance (toe thousands) Household Commercial Industry Transport Total Commercial Petroleum products 67 - 41 248 356 Electricity 31 20 27 - 78 Fuelvood 429 216 302 - 947 Charcoal 279 166 - - 445 Total Commercial 806 402 370 248 1826 Non-commercial Fuelwood 5067 676 81 - 5824 Total 5873 1078 451 248 7650 1.11 Since mid-1981 the Government has introduced a number of major policy reforms, including devaluation of the Ugandan shilling and related price adjustments. These measures have contributed towards a recovery in economic performance over the past two years. The impact of this recovery on commercial energy consumption has so far been constrained principally by higher energy prices. The declining trend of commercial energy consumption which has been evident since 1970 is now reversing. Even with pessimistic assumptions on the pace of recovery, the forecast growth rate of commercial energy demand averages 4.8% per year over the remainder of the 1980s. Total imports of energy-related petroleum products increased at an average annual rate of 3.6% between 1981 and 1983. 1.12 Imported Energy: Petroleum. Uganda imports all of its petroleum requirements, either by refining crude through the Mombasa refinery or by direct purchases on the Keayan and Middle East markets. White products are transported to Nairobi by pipeline and on to Kampala by rail or road (more than 90% were transported by road in 1982 compared to only 20% in the early 1970s). The six oil companies operating in Uganda maintain their own storage facilities as well as retail outlets. In line with the pattern of economic activity, distribution and consumption of petroleum products is concentrated around Kampala (which accounts for 60% of all gasoline and auto diesel sales) and Jinja (which accounts for 80% of fuel oil sales). In 1983, the transport sector accounted for 75% of consumption of petroleum products while the industrial and domestic sectors consumed 14% and 11% respectively. The complex import and marketing arrangements for petroleum products were reviewed in the energy aseessment report, and four alternatives were recommended to minimize the foreign exchange costs of these supplies: diversification of supply sources, reduction in transport costs to the Ugandan border, development of new supply routes and maintenance of a product stockpile. 1.13 The Petroleum Desk was established in 1982 in the Bank of Uganda as a subsector unit responsible for monitoring petroleum imports. The Ministry of Power, Posts and Telecommunmications (MPPT) is responsible for formulation of policy. The Government and the oil companies operating in Uganda have diversified supply sources for petroleum products through purchases on the Middle East market as well as processing crude oil through the Mombasa Refinery. A second route through Tanzania in addition to the -5- Kenyan route has been tried and determined to be viable. The minimum safety stockpile has been increased from about two weeks consumption to the equivalent of four to five weeks based on present consumption levels. Petroleum Exploration 1.14 An air-mag survey recommended in the assessment report, has identified prospective areas of petroleum excploration and Government has offered prospective acreage to oil companies interested in exploration in Uganda. The proposed Petroleum Exploration Promotion Project which has been appraised for Bank financing would help Government build a Petroleum Unit that could competently deal with the oil companies, evaluate exploration bids, negotiate agreements and monitor exploration activities. Energy Prices and Pricing Policy 1.15 Petroleum Products. Retail prices for all energy sources in Uganda declined in real terms during the 1970s and contributed to a general deterioration of efficiency in the sector, and escalated the smuggling of petroleum products to neighboring countries. The assessment report recommended that the prices of petroleum products should be adjusted with major changes in the exchange rate to reflect their economic cost of supply. This has been done regularly since late 1982 and after the price increases announced in December 1984, petroleum prices at that time corresponded to the economic cost of supply. 1.16 Electricity. Up to mid-1984, tariffs were among the lowest in the world and far below the long run economic costs of supply (para. 6.12) despite three 50% increases since early 1982. In 1983 the average sales price to Ugandan consumers was equivalent to about US cents l/kWh. However by the time of appraisal of the proposed power rehabilitation project in mid 1984 the average price had declined to the equivalent of US cents 0.5/kWh due to devaluation of the Ugandan currency, and it was determined that without an immediate tariff increase of between 400% and 500%, the Ugandan Electricity Board (UEB) would not be able to meet its operating costs and service its debt for the remainder of 1984 and 1985. The Government subsequently authorized and UEB has put into effect as of August 1, 1984 tariffs that were considcred to be sufficient to meet these needs. The tariff rate still remains low by world standards, yielding an average revenue from Ugandan consumers equivalent to US cents 1.5/kWh in late 1984. The tariff rate is also still well below the long-run marginal cost of meeting increases in demand above existing supply capacity in Uganda. A firm estimate of the long-run marginal cost will not be available until the ongoing Power Development Study on future hydroelectric development in Uganda (para. 2.27) and the proposed tariff study included in this project (para. 6.13) have been completed. However, a broad estimate of this cost, equivalent to about US cents 5/kWh, was derived in the energy assessment report. The bulk tariff for supplies to Kenya, which are fixed by a fifty year supply contract executed in 1955, is also far below the long run marginal costs (paras.2.11 and 5.12). In 1983 Uganda exported 218 GWh to Kenya - 46% of its total power sales. 1.17 Woodfuels. In the woodfuels subsector the Government's major concern is the high level of retail prices for households, especially in Kampala. The assessment report recommended raising the stumpage fee for forests serving urban areas from USh 200/m3 to at least USh 1,000/m3 (equivalent to about US cents 0.5 to 2.5/,m3 at 1984 prices). Since the stumpage fee is such a small component of total costs, no significant impact on retail prices was envisioned and, in the final analysis, the most effective way to reduce retail prices for woodfuels would be to improve supply. The Forestry Department has partially accepted this recommendation and is preparing a proposal to raise the fee to USh 500/m3 (US cents 1.25/30). Energy Sector Organization 1.18 The major institutions of the sector are the MPPT, UEB, (para. 2.03), the Bank of Uganda (petroleum importation and marketing, para. 1.13), the Forestry Department in the Ministry of Agriculture and Forestry, the Geological Survey and Mines Department (GSMD) in the Ministry of Lands, Minerals and Water Resources, and the National Research Council in the Ministry of Planning and Economic Developoent (MPED). The importation and marketing of petroleum products in Uganda is handled by six oil companies in three of which the Government has equal shareholdings with non-government partners. 1.19 To facilitate energy policy coordination and .ntegrated sector planning, the Government has established an Energy Department in MPPT. Sufficient staff positions to allow the start of operations have been approved, and recruitment of staff for the Department has been initiated. In the interim, energy policy will be coordinated by a nucleus staff within MPPT, MPED and the subsector institutions. To assist in putting the Department on a sound footing, the Government requested technical assistance under the joint UNDP/World Bank Energy Sector Management Assistance Program (ESMAP) for an Energy Sector Institutional Review focussing primarily on the formation and operation of the Department. The Bank mission visited Uganda in June 1984 and has prepared a report 2/ outlining the technical assistance which is proposed to be a part of this project and which has been approved by Government. During negotiations, agreement was obtained that Government will take measures to strengthen the Energy Department along the lines recommended by the ESMAP report. 1.20 In conjunction with this review, a proposal has been made for specialists in the areas of petroleum supply, pricing and forecasting to support the Petroleum Section of the proposed Energy Department. The Petroleum Desk in the Bank of Uganda and the Ministry of Finance would also be involved (para. 1.13). Government Strategy in the Energy Sector 1.21 On the basis of the Energy Assessment Report, the Government has embarked on a strategy for the energy sector which includes the following activities. (a) It is attempting energy efficiency improvements under the Bank's Industrial Rehabilitation Credit (Credit 1248-UG of May 18, 1982). 2/ UGANDA: Institutional Strengthening in the Energy Sector", January, 1985, a report prepared under ESMAP (UNDP/World Bank Energy Sector Management Assistance Program). -7- During the last year and a half, these efforts have remained largely in the study phase, although in a few cases implementation has been initiated, including a number of fuel substitution efforts involving conversion to heavier fuel oil and bagasse; (b) Energy-related rehabilitation efforts in the transport sector aimed at reducing specific fuel consumption through improvements in vehicle maintenance and repair facilities, training of drivers and mechanics, railway track repair and regrading, and rehabilitation of road networks; (c) the Goverament has also taken steps to strengthen the institutional capability of the energy sector (para. 1.19) and to seek technical assistance for priority activities in the energy sector. Bank Strategy in the Energy Sector 1.22 The Bank's lending strategy for Uganda is to concentrate on rehabilitation needs in the short term to finance immediate import requirements and to support the Government's efforts to reform economic policies and institutions, and to focus this assistance increasingly on projects designed to restore the country's productive capacity, basic infrastructure and institutions. Energy is one of the main targets of the Bank's sectoral coverage. 1.23 The background to the proposed project and the terms of reference for the Power Development Study and the feasibility study for the next generation site (para. 2.27) were included in the assessment report. The report also proposed technical assistance in other energy subsectors; follow up of these proposals has been described above (paras. 1.13-1.15). Other areas identified in the report have been discussed with the Government for assistance from ESMAP, particularly the institutional review of the requirements for establishment of an Energy Department in the MPPT (para. 1.19). A petroleum exploration and promotion project based on the results of the air-mag survey has been appraised (para. 1.14). -8- II. THE POWER SUBSECTOR Background 2.01 Uganda's considerable hydroelectric potential was first assessed seriously during the 1930s and 1940s. Construction of the first and only major hydroelectric development in the country was started in 1948, and consisted of a dam and power station at Owen Falls located at Jinja on the Victoria Nile river near to the only outlet of Lake Victoria (Map IBRD 18542). The lake provides a reservoir of almost infinite capacity to the dam. The planned ten 15 MW turbo-generating sets were commissioned from 1954 to 1968 (two each in years 1954, 1955 and 1957 and one each in 1958, 1959, 1966 and 1968), bringing the total installed capacity at the station to 150 MW. The initial transmission system was also commissioned in 1954, consisting of a line westwards from Jinja to Kampala. Another line going eastwards to Tororo and Mbale was constructed in 1957. 2.02 On its establishment in 1948, UEB acquired small steam generating sets installed by rhe East African Power and Lighting Company to serve Kampala, Entebbe and Jinja. Consumption during the Board's first year of operation was less than 7 GWh, and this was distributed to 3,000 consumers. Following the commissioning of the Owen Falls station, UEB has extended the supply area of the main power system westwards from Kampala and northwards from Tororo, often displacing isolated diesel-powered generating units which were relocated to serve new isolated load centers. Uganda Electricity Board (UEB) 2.03 UEB was established in 1948 by the Uganda Electricity Ordinance to acquire and operate existing electricity undertakings and to generate, transmit, distribute and supply electricity for Uganda. This Ordinance was replaced by the Electricity Ordinance, 1961, the administrative and financial provisions of which took into account the amendments required by the loan agreement with IBRD (Loan 279-UG of March 28, 1961, para. 2.14). After Uganda attained independence, this Ordinance was reenacted by the Electricity Act 1964 which is presently in operation. In accordance with the provisions of the Act, the functions and duties of UEB are to generate, transmit, distribute and supply electricity and to establish, acquire, maintain and operate undertakings for that purpose. The Act provides adequate autonomy to UEB to serve the country of Uganda and to export power to neighboring countries. Generation 2.04 Uganda's public installed generation capacity is operated by UEB, and presently totals 154.9 14W of which 150 MW is provided by the Owen Falls hydroelectric station. The balance is made up of small diesel stations (total 3.9 MW) in the northern and western regions and one small hydroelectric station at Kabale (1.0 MW) (Annex 3). The diesel units in the West Nile region are not in service because of lack of spare parts. The remaining four diesel stations generated 4.2 GWh in 1981. In addition, there are some small hydro and diesel power stations installed, owned and operated by industries. These captive plants are very small (except for -9- the hydro station at Kilembe Mines which currently is out of operation but is being uprated from 7 MW to 12 MW), and due to lack of spare parts most of them have been inoperative in recent years. The country's average annual generation capability is about 900 GWh and is almost wholly provided by the Owen Falls hydroelectric station. 2.05 The Owen Falls power station contains 10 turbines of 21,000 HP rating and umbrella type alternators of 16.7 MYA each which have a design capability of 15 MW at a design head of 18.9 m and at a power factor of 0.9. One unit is considered to be the system reserve requirement, and thus the firm capacity of the station is considered to be 135 MW. Due to the difficulties of the past decade, UEB has only been able to carry out routine maintenance, and the turbo-generating units bave not had a major overhaul since installation (the units are 16 to 30 years old). Thus, the present firm capacity of the station is substantially below its rated firm capacity of 135 MW. At the time of the appraisal mission in mid 1984, four of the ten units were not in operation, and two of these four units require major overhaul before they can be restored to service. The proposed rehabilitation project includes measures to restore these units to service without which UEB would be unable to fully meet the demand on its system in the near future. Transmission and Distribution 2.06 The transmission network in Uganda (Map IBRD 18542) consists of overhead transmission lines and substations operated at 132, 66 and 33 kV, and is supplied from the Owen Falls power station. The 132 kV lines connect Owen Falls power station to Nkenda in the west (near Kasese) passing by Kampala, Masaka in the southwest, Tororo in the east and Lira in the north. A 132 kV line connects the Kenyan system to the Ugandan system at Tororo substation where sales to Kenya are metered. The double circuit 132 kV line between the Kenyan border and Kampala (via Tororo and Owen Falls) and the 66 kV line between Owen Falls and Kampala are carried on steel towers.0ther overhead lines are carried on wooden poles. The distribution system in towns is mainly by means of 33 and 11 kV transmission lines on wooden poles except in the major towns of Kampala, Jinja and Mbale where a small part of the system is carried by underground cables. Major consumers are supplied at 11 kV and 33 kV, while local supplies to small consuners and individual houses are derived from 33/11 kV primary substations and from 11 kV/430V 3-phase distribution transformers. Distribution in the isolated areas is from 11 kV lines on wooden poles. The total length of the transmission and distribution lines at the end of 1981 was 9,951 km made up as follows: Overhead Underground Total - km 132 and 66 kV 1,203 - 1,203 33 and 11 kV 6,051 80 6,131 Low voltage 2,485 132 2,617 Total 9,739 212 9,951 - 10 - The total transmission transformer capacity was 395 MVA, made up as follows: Installed Primary Transformer Voltage Capacity (kV) (MVA) 132 222.5 66 42.5 33 130.0 Total 395.0 2.07 The transmission system is controlled from the control center located at Owen Falls Power Station. As the system is supplied by one source, any fault in the power station results in total loss of supply throughout the country and to Kenya. Total loss of generation at the Owen Falls power station has been experienced many times, although the duration has never exceeded about two hours. The transmission system has no loops, which reduces the security of supply to outlying areas. Some transmission lines are very long and pass through unpopulated areas; this makes them difficult to maintain, expecially with UEB's presently depleted transport and bush-clearing facilities, and operationally unreliable. The 132 kV lines between Kampala and Nkenda and between Tororo and Lira have been subject to numerous breakdowns causing substantial economic cost to industrial and agroindustrial plants served from these lines. The project would assist to remedy these problems through strengthening of the lines and provision of transport and bush-clearing equipment. The distribution networks of the main towns such as Kampala and Tororo are reaching their capacities and voltage drops affect the operation of equipment such as motors and TV sets. Local overloading of the distribution systems occurs due to rising domestic demand, including illegal connections. Total system losses have averaged about 16% of UEB's billings to Ugandan consumers for 1981-83. UEB is presently instituting some measures to reduce this level through reduction of unaccounted consumption apart from technical losses, and the proposed project includes additional measures (para. 3.18). The power factor is low (about 65%). Since the system has not been loaded to its capacity (except for some towns), these features have not been significant so far for system operations. However, this situation has to be remedied before system demand rises beyond the present rated level of system supply capability, estimated to occur about 1988 or sooner if the generating units at Owen Falls Power Station are not rehabilitated in time, in order to avoid serious power shortages. After rehabilitation is completed, system supply capability will meet demand through 1991. Power System Rehabilitation 2.08 Due to scarcity of financial resources, both local and foreign, UEB's construction and maintenance program has been very limited since 1968. In recent years priority has been given to repairing the system, using whatever materials were available. This repair service was under- taken on a small scale. Despite reasonable success in maintaining power supply, UEB has not been able to undertake a major system reconstruction program. UEB has been assisted in transmission system repairs, especially in areac; hit by war, by grants under the Government's recovery program, totalling US$6.9 million, which have been used for i) the procurement of spare parts for maintenance of generating units; ii) repairs to destroyed - 11 - iv) repairs to the communication system. However, these -inancial resources were not enough to cover all rehabilitation requirements. UEB's need for vehicles, communication equipment and spares for the system is so acute that a list of emergency materials and equipment has been prepared for financing from IDA's Second Reconstruction Credit. Connections to the UEB System 2.09 The total number of connections in mid-1984 on UEB's billing records was about 106,000. Of this total, connections to domestic consumers accounted for about 75,000, commercial consumers about 30,200 and industrial and other consumers about 800. However, these totals include a category which UEB terms "nil consumers", which represents connections for which there has been no consumption registered on meters on successive readings. Such meters, according to UEB, are generally in deserted buildings. The billing record shows about 49,000 'nil consumers" in mid-1984, about 46% of total connections. This situation is a legacy of the disturbances in Uganda during 1979-81 and of the lack of accountability of certain sections of the population during the military regime. UEB has set up a special section to check whether these connections are genuinely defunct accounts and, if so, to disconnect the supply. A review of the billing and connection records is included in the proposed project (para. 3.19). Access to Service 2.10 Analysis of UEB's billing records indicate that the active connections to residential consumers totaled about 40,000 in mid-1984. Assuming an average household size of six, the number of people having access to electricity is estimated to be about 250,000, which is only 2% of the total population. However, the proportion of the population in the major urban centers that is connected to the UEB system ranges from 15 to 20%. Per capita consumption of electricity in 1982 was only 23 kWh, one of the lowest levels in the world. 3/ However, this reflects not only the limited access to electricity but also the impact of declining economic activity over the previous decade. In the late 1960s, for example, per capita consumption of electricity was more than double the present level. 3/ Data for a sample of other countries in Sub-Saharan Africa are as follows: Population Per Capita Year with access Consumption tX) (kWh) Uganda 1982 2 23 Kenya 1980 6 92 Tanzania 1980 4 44 Malawi 1980 2 64 Zambia 1980 10 172 Zimbabwe 1980 16 928 Ethiopia 1981 5 21 Source: World Bank/UNDP Energy Assessment Reports. - 12 - Sales to Kenya 2.11 In 1955 Uganda contracted to supply Kenya with firm power of 45 MW for 50 years starting in 1958. The incentive for Uganda was a substantial excess of generation capacity over Ugandan demand. The export of Ugandan power provides a needed source of foreign exchange while providing low cost power to Kenya. This agreement was modified in 1964 under which the contracted supply of firm power was reduced to 30 MW and Kenya was committed to maintaining a minimum load factor of 90X. Since 1981, Kenya has altered its pattern of demand on the Ugandan system, taking substantially less than 30 MW during the period of peak daily load on the Ugandan system from Ugandan demand, while drawing a maximum load of substantially more than 33 MW during the nightly off-peak period. In 1981, which was a year of low Kenya hydroelectric output, maximum Kenyan demand reached 71 MW during the Ugandan off-peak period. During 1984, maximum Kenyan demand has reached 63 MW at night. There has been a noticeable increase in Kenyan maximum demand from March 1984 due to the effect of the present drought in Kenya on its hydropower production. The use of Ugandan power limits the drawdown of Kenya's steadily declining reservoir storage as well as the need for costly thermal generation. This practice, while never put on a formal basis, has worked to the advantage of both countries. For Uganda, it has reduced the possibility of demand exceeding system supply capability during the peak load periods, and it has allowed Uganda to earn sales revenue from hydroelectric energy generated at nighttime that would otherwise be spilled. Exports to Kenya have accounted for a substantial proportion of UEB's revenues (44% in 1983), even though the contract price for this power is very low (para. 5.12). During 1984, Kenya may have had to reduce its demand on the UEB system during the Ugandan peak periods due to capacity limitations at the Owen Falls station (para. 2.23) which could indicate that demand on the UEB system is already being constrained. 2.12 Ugandan power exports to Kenya remained within 260 and 300 GWh per year between 1971 and 1978, except for 1976 when it dropped to 237 GWh, thus showing remarkable consistency during a period of strained relations between Uganda and Kenya. Currently imports from Uganda account for about 11% of total supply in Kenya and 44% of total output in Uganda. Power exports to Kenya fluctuated substantially between 1978 and 1983, with the lowest levels of 165 GWh and 186 GWh occurring in 1979 and 1981, and the highest level of 300 GWh occurring in 1980. The explanation for these fluctuations is the variation in availability of energy from hydropower stations in Kenya, which produced their highest levels of output in 1979 and 1981, and substantially lower levels in 1978 and 1980. These observations support the conclusion that Kenya has recently used Ugandan imports as a balancing source between its own demand and supply. Sales to Tanzania 2.13 The Government has recently agreed to construct a transmission link with a capacity of 16 MW (126 GWh/year) for export to Tanzania along the west side of Lake Victoria as far as Bukoba. Financing is being negotiated and the new transmission line and transformer station will be completed during 1987 at the earliest, and the demand on the Uganda system from this region is forecast to be substantially below the transmission line capacity for some years after commissioning. TLie cost of the - 13 - this transmission line will be financed by the Italian Government. Uganda is negotiating a bulk tariff with Tanzania and will use data from the Power Development Study for this purpose. Previous Bank Lending in the Power Sector 2.14 The Bank made a loan to UEB in 1961 of US$8.4 million equivalent (Loan 279-UG) for the expansion and improvement of the transmission and distribution system and construction of small hydroelectric and diesel plants and distribution networks to supply isolated areas. Government Strategy in the Power Sector 2.15 Government is presently implementing an economic rehabilitation program. Due to the presence of resource constraints, this program has to be based on low levels of investment in new production capacity. Instead, the emphasis in resource allocation is on recurrent financing of maintenance and operations, and on priority rehabilitation projects. To counteract inflationary pressures and strangulation of economic recovery, it will be necessary to concentrate on the removal of bottlenecks in infrastructure that will develop with growth in economic activity. In the case of power, the Government plans to develop the country's advantage of abundant and relatively low-cost hydroelectric potential for export to neighboring countries. 2.16 The proposed project is designed as part of the rehabilitation component of this strategy, together with the emerge;.cy assistance provided ahead of this project (para. 2.08). The groundwork for implementing the second part of the strategy, namely development of infrastructure, is currently underway with the preparation of the Power Development Study (para. 2.27). This study will determine the least-cost power development program, taking into account Uganda's comparative advantage in power production in the region, and it will identify the economically optimum location of the next major hydroelectric development in Uganda. Bank Strategy in the Power Sector 2.17 The Bank has an important role to play in promoting policy and institutional reform as well as providing additional resources for the power sector. The Bank's role is to bring about improvements to power system reliability and efficiency, to strengthen UEB's management, to promote rational pricing policies and sound financial performance, to ensure power system development in accordance with the least-cost option and to assist Uganda in exploiting its comparative advantage in hydroelectric resources for developing power exports. 2.18 The Bank is also following a strategy of encouraging the development of regional projects where these projects have the potential to benefit all the countries concerned. Funds (US$2 million) have been included in the loan to Kenya for the Olkaria Geothermal Power Expansion Project (LN 2237-KE of January 22, 1980) for the revision of the long-term development program, considering among other options the future role of imports from neighboring countries for the benefit of both importing and exporting countries. The Power Development Study (para. 2.27) will examine the costs to Uganda of such developments and provide a basis for discussions with neighboring governments. - 14 - Historic Demand 2.19 Demand for electrical energy in Uganda declined steadily at nearly 7% per year between 1971 and 1979, dropping from 452 GWh to 235 &Wh, and remained at that level in 1980 as economic activity was disrupted by the war of liberation and its aftermath. Demand increased by 20% in 1981 and remained at the 1981 level during 1982, declining in 1983 by 12X (Annex 4). Preliminary data indicate that demand in 1984 will be 15 to 20% higher than in 1983, and is at an equivalent annual level of nearly 300 GWh. The maximum load from Ugandan consumers decreased by about 4% per year from 97.0 MW in 1971 to 69.4 MW in 1979, and then increased at about 6% per year to 88.4 MW in 1983. The maximum load had increased further to about 95 MW by mid-1984. Thus Ugandan energy demand (GWh) is currently only about 65% of the level reached in 1971, whereas the maximum load (MW) from Ugandan consumers has recovered almost to the 1971 level. 2.20 Industrial demand suffered the greatest decline out of the major consumption categories during the period of economic decline, dropping by 1979 to 35% of its level in 1971. Commercial demand declined by 37Z between 1971 and 1979, and residential demand in 1979 was at the same level as in 1971. Conversely, during the subsequent period of economic recovery (1981-83), industrial demand increased by 26%,commercial demand declined by 29% and residential demand declined by 22%. The decline in consumption in the residential and commercial categories may reflect the squeeze on real household incomes which accompanied measures to remove massive price distortions throughout the economy that were inherited from the military regime. In 1983 the sectoral composition of demand was 37% industrial, 22% commercial, 40% residential and 1% street lighting, compared to 64%, 17%, 18% and 1% respectively in 1971. 2.21 The average annual consumption of power per active residential connection (specific consumption) in Uganda is estimated to be about 3,000 kWh in 1984. This rate is high by African urban standards. Analysis of UEB's billing records for 1982 (Annex 4) shows that the 15% of connections with the highest specific consumption (over 6,000 kWh/year) accounted for about 70% of total residential consumption. This group of consumers numbers about 6,000 and has an average specific consumption of about 15,000 kWh/year which is high even by the standards of industrialized economies. The probable explanation is that this group is composed of consumers whose consumption is not sensitive to the cost of electricity, such as consumers whose electricity bills are paid by their employers or by Government. The remaining 30% of residential consumption is supplied through about 34,000 active connections which have an average specific consumption of about 1,000 kWh per year. However, the expenditure on electricity by this group is estimated to average less than 4% of household income at the tariff rates in force after the increase effective from August 1984. Thus the increase to this tariff level is unlikely to have a significant impact on residential consumption. Most of the consumption by commercial and industrial consumers is not significantly sensitive to the price of electricity since power costs will remain a small portion of operating costs. 2.22 The maximum output of power from Owen Falls hydroelectric station to serve the simultaneous maximum demand from Uganda and exports to Kenya occurred in 1968 and amounted to 132 MW, equalling 86% of installed capacity and 98% of firm capacity. The maximum energy generated from the - 15 - station totalled 816 GWh in 1971. The station has an annual generation capacity of 900 GWh based on an installed capacity of 150 MW and the firm flow rate of the Victoria Nile adopted for planning purposes of 630 m3/sec. Thus in 1971, the maximum energy output of the station had reached 91% of the generation capacity. 2.23 At the 1983 levels of output, the plant factor of Owen Falls power station was 80% of its firm capacity and 57% of annual firm energy availability, assuming that nine of the ten generating units were always in operation. In practice, the average availability of units during 1983 was less than nine, and the plant factor was higher than 80%. During 1984, when only six units have been available with a combined rated output of 90 MW, the station has produced up to 97 MW, giving a plant factor of over 100%. The units were able to deliver an output above their rating without suffering damage because their delivery capability is greater than their rating. 4/ Nevertheless, the supply/demand balance is critical, and UEB has to restore to operation the units that are out of service to meet any increase in demand even in the short term. Forecast Demand 2.24 Demand for electrical energy in Uganda is forecast to increase at an average annual rate of about 9% between 1983 and 1991 (Annex 5), with sales rising from 251 GWh to 537 GWh. Including projected export sales to Kenya and Tanzania, based on present supply commitments total demand for energy on the UEB system is forecast to increase at an average annual rate of about 7%, with sales rising from 516 GWh in 1983 to 926 GWh in 1991. The maximum load on the UEB system from Ugandan consumers is forecast to increase at 5% annually, rising from 85 MW in 1983 to 132 MW in 1991. The lower growth rate in forecast maximum load compared to energy demand reflects the assumption that commercial and industrial growth will be achieved in the next few years largely through increasing the utilization of existing capacity rather than the introduction of new production capacity, in accordance with the strategy of the Government's Recovery Program. There is considerable uncertainty about the future degree of coincidence of the timing of the load from Kenya with the maximum daily load from Ugandan consumers, since at present the Kenya Power and Light Company (KP&L) appears to be following a policy of using Ugandan power primarily during off-peak periods (para. 2.11). 2.25 The forecast of steadily increasing demand from 1984 onwards is based on the assumption that the Ugandan economy is on a recovery course that will lead into sustained growth in the medium term, and that the long-term decline in electricity consumption has been reversed. The evidence for the reversal of economic decline is provided by a number of indicators, particularly GD? which since 1980 has increased at an average annual rate of 6.5%. The main source of growth in the past few years has 4/ From non-destructive testing of a turbo-generator unit soon after its commissioning in the mid-1960's, the manufacturers of the units established that the generators had the capability to deliver up to nearly 18 MW for short periods, although the design rating was limited to 15 MW. - 16 - been the increased output of export crops which has not had a marked effect on electricity consumption. Continuation of GDP growth requires substantial contribution from other sectors, particularly in industrial output which suffered proportionately the greatest sectoral decline In electricity consumption between 1971 and 1983. Demand for electricity in Industrial and commercial sectors is closely related to the level of activity in these sectors. Nevertheless, the relative importance of industrial demand in total system demand is likely to remain less than during the historical peak period of economic development in Uganda around 1970. As a result, when demand once again reaches the historic peak level, forecast to occur by 1987/88, the geographical distribution of demand in Uganda will be significantly different, with a marked displacement westward due to the relative increase in importance of the Government, residential and commercial demands of Kampala/Entebbe region, and the relative decline in the importance of the industrial demand in the Jinja area. The need for additional transmission capacity west of Kampala depends on the future of the Kilembe mining complex. One consequence will be the need to increase the capacity of the transmission link from Jinja to Kampala, and the proposed project includes a provision for uprating the existing 66 kV transmission line between Jinja and Kampala to 132 kV. UEB's Development Program 2.26 Although the proposed works at the Owen Falls hydroelectric station are for rehabilitation, they will result in an uprating of capacity by 20% (30 NW). The manufacturers of the turbo-generations carried out field inspections and it is their opinion that the rehabilitation of the generators should enable the machines to be given a nameplate rating of 18 MW, compared to the present rating of 15 MW. However, the rating of the turbo-generators is dictated by the cavitation limits on turbine operation under prevailing hydraulic conditions, which refers to the level of Lake Victoria and the hydraulic head in the case of the plant at Owen Falls. The machines would have the capability of delivering 18 MW continuously under appropriate hydraulic conditions, but actual rating of the machines would be limited to 15-16 MW. If hydraulic conditions permit, the machines zould be driven at 18 MW, but a close watch would have to be maintained for the occurrence of cavitation. Thus, the firm capacity of the station after rehabilitation (with nine units in service and one unit under maintenance) would be considered as 162 MW for the short-term (until the next hydro station is commissioned) and would remain at 135 MW for long-term planning purposes. 2.27 To date Uganda does not have a least-cost development plan for the power sector. However, it is clear that the least-cost option for timely development of generation capacity is the rehabilitation of Owen Falls Station (para. 6.07). This option constitutes one of the main components of the proposed Power II project. The least-cost long-term development program needs to be determined soon since demand is forecast to exceed supply capability after rehabilitation of Owen Falls Station by the end of 1991 (para. 6.01). 5/ The earliest date by which a new hydro 5/ The estimated date by which demand is forecast to exceed supply capability is end 1991 on the assumption that the minimum contracted supply (30 MW) to Kenya has to be delivered at the time of Ugandan peak system demand. In the stuation that this requirement is relaxed so that Kenyan demand at the time of peak Ugandan system demand is limited to Ugandan system supply capability, the uprated supply capability of Owen Falls would be adequate up to 1994 to meet forecast demand. - 17 - station could be brought on-stream is about 1991. 6/ Government has accepted an offer of assistance from ODA for the preparation of such a long-term development plan in a Power Development Study. The draft final report is due to be delivered In mid 1985. Funds for the engineering work for developing the site selected for the next hydroelectric station are included in the proposed Power II project. 2.28 The location of the next major hydroelectric development is an important issue for the Ugandan Government in view of the Government's desire to promote developments in the northern part of the country and to increase power exports. The economic justification for development of one of the sites (para. 1.07) in the north of the country (Kabalega, Ayago or Kamdini) rather than a site in the south (Bujagali, Busovoko or Kaligala) would be enhanced if a substantial export contract for power is obtained from Kenya, the only prospective market for a major export contract. Government has decided in principle to proceed with Ayago as the site of the next hydroelectric project. However, the Association will be consulted on the development of the next hydroelectric development and the findings of the Power Development Study (para. 2.27) will be taken into account to ensure that the next project will be in accordance with the least-cost development program for the power system. The release of funds for the engineering work for the next hydroelectric station from the proposed Credit will be conditional on the Association's approval of the proposed development. 2.29 UEB has prepared 14 projects with the aim of extending the interconnected system to the main population centers which presently have limited service supplied from inefficient diesel units or have no electricity at all. The primary objective is to establish the infrastructural basis to stimulate economic development in those isolated population centers and to provide amenities so as to curb emigration to the towns. EEC is presently considering seven of these schemes for financing. 6/ This would allow two years for site selection, preparation of feasibility studies, resource mobilization, final design, preparation of bid documents and contracting arrangements, and up to five years for construction. - 18 - III. THE BORROWER AND THE EXECUTING AGENCY The Borrower 3.01 The Government of Uganda would be the Borrower. The proceeds of the proposed IDA Credit would be onlent to UEB (para. 5.19). The Beneficiary and Executing Agency 3.02 The beneficiary and executing agency would be UEB, an autonomous corporation established by the Uganda Electricity Board Ordinance of 1947 and reestablished by the Electricity Act of 1964. UEB is accountable to MPPT and responsible for the production, transmission and distribution of public electricity supply in Uganda and, in accordance with agreement, the export of electricity outside Uganda. UEB has reasonable autonomy to perform its functions. 3.03 The Board of Directors of UEB consists of a chairman who is chief executive officer, and not less than five or more than eight other members, who are appointed by the Minister of Power, Posts and Telecommunications. Management and Staffing 3.04 UEB has remained a relatively effective institution when compared with other Ugandan parastatals which experienced the same period of particularly difficult problems. However, during the last ten to fifteen years due to lack of funds, UEB has had difficulty in conducting its construction and maintenance programs. It has successfully maintained the power supply without adequate resoulrces and has become accustomed to performing a limited program under close supervision of top management. IDA and the other co-financiers have some concern that the present organizational structure (Annex 6) will be adequate to effectively administer a major program, as is envisioned in the proposed project, and will be able to meet the challe-iges which will be encountered in the implementation of a second major generating facility which is now under consideration. There also appears to be no planned succession for key management positions. An in-depth study of the organizational requirements of UEB is required to initiate major organizational changes, and it is proposed that this study be financed through the Association's Second Technical Assistance Credit (Credit 1434-UG of December 22, 1983). The request for use of technical assistance funds is being prepared so that the study can be completed early in the p'-ject implementation period. During negotiations agreement was obtained to implement the findings of the organizational study as soon as these findings have been determined and agreed by Government, UEB and IDA. 3.05 UEE has a staff of about 2,600, of which about 150 are professional level, 650 are intermediate technical level and 1,800 are junior, skilled and unskilled workers. With the exception of the chairman/managing director, all staff are Ugandan. 3.06 Since the early 1960's, UEB has followed a routine two-year review and selective training program of staff for all higher level positions and most technicians to prepare them for higher management - 19 - responsibilities and to improve efficieucy. This program has included training abroad for 40 engineers and technicians since 1975. As a result, UE2 is effectively staffed for the present level of operations. This has been made possible through an adequate supply of personnel including engineers from the Faculty of Technology at Makerere University, technicians from the Uganda Technical Institute and artisans from a number of trade schools. Thus for thie immediate future, including the implementation of the proposed project, the staffing situation is satisfactory. Training and Institutional Development 3.07 For the future, the staffing situation is less certain. Recruitment does not appear to pose a problem, but training of recruits and existing staff in the modern technology that will be required to operate the future new generating facilities involving more than one plant and to initiate modern management techaiques in operations will require an enlarged and upgraded training program and rehabilitation of the training center at Owen Falls. 3.08 The emergency situation which has prevailed over the last ten to fifteen years has constrained UEB to concentrate only on keeping the system operating. Planniing and keeping abreast of development of new technologies has been neglected. The present system has continued to be operated at a technology level that is 20-30 years old. The main trainers of engineers and technicians have also stagnated at a technology level that is far from adequate with little training in computerized operations or techniques. UEB internal and external training programs will have to be increased and improved in scope, administration and organization. It is therefore proposed that a study of UEB's training needs up to the year 1995 be included in the project and financed by the IDA Credit. The study would complement the Power Development Study (para. 2.27) and should include: - an assessment of manpower requirements until 1995 giving special attention to senior and intermediate levels; - an assessment of the future sources of engineers, technicians and artisans relative to both quantity and quality; - an assessment of UEB's training program as to its capacity to provide upgraded training to new recruits and existing staff in the new skills required; - make recommendations on the organization of a cost-effective training program; and - make recommendations on the establishment of a manpower management Information system. During negotiations agreement was obtained on the terms of reference for the training study to be completed by June 30, 1986, and submitted for Association comments by July 31, 1986. Implementation of the studies findings will be in accordance with a timetable whch will be acceptable to UEB, GOU and the Association. - 20 - Iasurance 3.09 UEB's insurance coverage is adequate. It includes fire and extended coverage, burglary, cash fidelity guarantee, personal accident, workmen's compensation and public liability. Accounts and Auditing 3.10 UEB is audited by the Kampala office of the iaternational auditing firm of Coopers and Lybrand. The most recent report which has been issued by the auditors is for the year ended December 31, 1982. The auditors expect the audit report for the year 1983 to be available in early 1985. 3.11 The reasons for the delay in receiving the audit report on UEB's accounts are that Coopers and Lybrand have a backlog of work stemming from the unsettled conditions folloving the war and UEB's inability to provide supporting data to the auditors on a timely basis. Currently, UEB's general accounting system appears to be functioning reasonably and is able to produce accurate normal accounting reports in a timely manner. Both the auditors and UEB believe that the difficulties are now past and in the future their cooperative efforts will produce audited financial statements on a more reasonable schedule. During negotiations agreement was obtained that UEB will submit its accounts to IDA, certified by an independent auditor acceptable to IDA, within six months following the end of the year. 3.12 The monitoring requirements of the proposed credit will put an additional burden on the accounting system of UEB - that of producing the data needed to measure UEB's performance in accordance with dollar equivalent goals (para. 5.08). A small amount of funds adequate to finance consulting services for the development of the required acounting procedures will be available in the proposed credit if UEB desires to avail itself of this assistance. Billing and Collection 3.13 UEB has experienced considerable difficulties in customer billing and account collection due, in some degree, to security problems, lack of transport and periodic computer failure. Recent data show that UEB is collecting only 80% of the revenues billed. As of December 31, 1983 Customer Accounts Receivable amounted to 43% of 1983 revenues or over five months of the current year's billings. 3.14 Due primarily to computer breakdowns, billings have not consistently been carried out on a timely basis. Errors in the billing records due to failure to receive change in service data when customers moved have resulted in bills being incorrectly addressed and subsequently returned unpaid. Inefficiencies of the Ugandan postal system added to these difficulties. UEB maintains a 'f lying squad" which hand delivers bills which have been returned by the Post Office, but lack of transport has restricted its activities. - 21 - 3.15 UEB's customers have difficulty coming to UEB offices to pay their bills since public transport is limited. UEB has been sending its staff to the customers' residences to collect, but these collection activities are also restricted by lack of transport. This practice also makes collectors very vulnerable to robbery. There have been several cases in which UEB representatives have been physically assaulted while on bill delivery or collection efforts. 3.16 Many government ministries, departments and parastatals do not pay the bills for power used promptly and a few never pay. UEB spends considerable high-level management time discussing arrears with government agencies, but has had limited success in obtaining payments. 3.17 Another problem is illegal connections, which occur when customers who are unable to obtain service due to UEB's lack of required connection materials, connect themselves to the network using various devices. Customers which have been disconnected due to non-payment also reconnect themselves. UEB fines offenders USh 3,000 (US$5.7) plus a USh 300 fee for reconnection. Persistent offenders have their service disconnected at the pole and are charged a minimum of USh 6,000 (US$11.5) for reconnection. Again, lack of vehicles and security hinder the effectiveness of these efforts. 3.18 The project includes several components which should improve this situation. A new computer will make billings more timely and accurate. The additional transport will improve the effectiveness of the meter reading, bill delivery and collection efforts. Availability of connection materials will improve UEB's responsiveness to customer demand and decrease illegal connections. 3.19 However, a complete in-depth study of the billing and collection problem is necessary before the new computer billing system is implemented. The project includes funds for consulting services for this study which should include, in addition to a review of the billing system, a complete review of the data base (para. 2.09) including field checks where necessary. The timing of the effort should be: Appointment of Consultants September 30, 1985 Completion of Study March 31, 1986 Begin the Implementation of Recommendations September 30, 1986 During negotiations agreement was obtained to conduct this study according to terms of reference acceptable to Association in adherence with the above timetable and that the agreed recommendations will be implemented in accordance with a program agreed with the Association. 3.20 The problem of collection from Government ministries and departments accounts should be resolved by authorizing UEB to receive payment directly from the budget for all delinquent accounts. Government will authorize UEB to apply appropriate measures to parastatals for failure to pay their bills in a timely manner. The initiation of this program was agreed with the Government during negotiations. - 22 - 3.21 Collection goals should be established for UEB, and reporting of the status of their efforts should be required semi-annually. The goals should be established as follows: Customer Accounts Receivable as a Z of Annual Revenues December 31, 1985 30 December 31, 1986 25 December 31, 1987 20 December 31, 1988 & subsequently 17 The semi-annual report should include an aged schedule of arrears by major customer category, i.e. government, domestic, industry as of June 30 and December 31, and the actual percentage relationship of accounts receivable to the last twelve months' revenues at the reporting date. These goals were agreed during negotiations. Stores and Workshop Procedures 3.22 UEB's warehouses and workshops are in very poor condition due to past lack of materials and effective transport. With the initiation of the proposed project, significant quantities of materials, spare parts and transport vehicles will have to be handled ia these facilities. The existing practices and these facilities will not be adequate to handle this expected volume of operations. It was agreed that ODA would finance a short study to determine what could be done as soon as possible; in any event the study should be completed before project materials and spare parts begin to be delivered in early 1986. ODA believes this study could be conducted in 1985 and the recommendations could be available in early 1986. Therefore, during negotiations agreement was obtained that UEB will implement the recommendations of the study by March 31, 1986. - 23 - IV. THE PROJECT Project Objectives and Bank's Role 4.01 The primary objective of the proposed Power II project is to prevent the development of a bottleneck in power supplies that would hinder economic recovery in the medium term. This objective would be achieved through uprating and rehabilitation of existing generation capacity at the Owen Falls power station aud the capacity of the existing transmission and distribution system. The proposed project also has the objective of strengthening UEB's operational capability. Assistance would be given under the proposed project for studying UEB's electricity tariff levels and structure, planning and project implementation capability and training needs. The project also contributes to future development of the power system through inclusion of funds for carrying out a detailed feasibility study for the next hydroelectric project to be built in Uganda (para. 2.27). 4.02 The proposed project would be one of the first Bank operations in the energy sector since the resumption of the Bank's activities in Uganda. This operation would establish the Bank's position as a major participant in the dialogue on Uganda energy sector development. The Bank's involvement in this project has enabled a firm financing plan to be arranged by encouraging other donor agencies to contribute expeditiously substantial foreign exchange resources. The Bank will also use its i-avolvement in the project to provide technical assistance in line with the Bank's power sector strategy (para. 2.17). The Bank will assist UEB in ensuring that the project is implemented efficiently through adoption of optimal procedures for procurement and management of physical resources (para. 4.14). The Bank will also assist Government and UEB to strengthen UEB's financial situation through implementation of sound policies on tariffs and investment planning. Condition of the Power System 4.03 The Uganda power system is in poor operational condition as described in paras. 2.05-2.08. Regular maintenance has been neglected in the past due to lack of transportation and foreign currency for the purchase of spare parts. In July 1984 four of the ten units at Owen Falls were out of service. All units must be thoroughly tested and reconditioned. The gates, gantries, and intake screens are also in need of repair. A spare generator transformer is required for the main substation. 4.04 The transmission and distribution networks are also in very poor condition. Limited clearance of brush along the transmission lines has been undertaken during the past five years. At least half of the installed wooden poles need to be replaced. The distribution networks need to be updated and overhauled, and several distribution transformers should be relocated. There is a shortage of fuse switches and transformers on the system. 4.05 Cracks in the dam and power house structure at Owen Falls have been visible since 1964. A wide crack extends through the generator floor slab and smaller cracks are visible in the spiral casing and the intake dam. - 24 - The downstream wall of the power house has moved slightly downstream. The explanation favored by UEB's consulting civil engineers is that from 1961 to 1964 when the level of Lake Victoria rose above the top water levels adopted for the design of the facility, unprecedented high discharges were required and high downstream water levels were created. This phenomenon produced increased uplift on the power station foundations and within the horizontal construction joints in the power station concrete, which caused a reduction in pressure between the power station and its foundations. Under horizontal pressure from the headwaters, movement occurred along the construction joints which resulted in elongation of the spiral casing. This explanation appears to account satisfactorily for most of the main cracks. Other cracks such as the horizontal cracks and the vertical cracks in the generation floor and the movement in the downstream wall could have been caused by concrete growth from alkali/aggregate reaction. No single hypothesis appears to explain all the cracks. 4.06 Regardless of the causes of the cracks and movement, the only remedial action that will prevent further deterioration is the installation of pre-stressed tendons around each of the spiral casings. The exact nnmber of tendons required will not be known until the results of the test borings are available at the outset of the repair program. The contract documents for this work will be written with sufficient flexibility to allow for necesssary changes in the scope of the work to accommodate the findings of the tests. Project Description 4.07 A brief description of the components of the proposed project is given below with details in Annex 7. Owen Falls Power Station - structural repairs to the dam and power house; - rehabilitation of the ten turbo-generator units; - rehabilitation of electrical and mechanical equipment such as main cables, switchgear and control equipment, auxiliaries, intake and draft tube equipment, and service gates; and - workshop refurbishment and provision of tools and equipment for maintenance. Transmission and Distribution - reconductoring and cable repairs, replacing wooden poles and brush clearance for overhead lines; - rehabilitation of underground networks; - rehabilitation of substations; - uprating of the existing 66 kV transmission line between Kampala and Owen Falls to 132 kV; and - 25 - - workshops refurbishing and supplying tools and equipment for maintenance and repairs. General - provision of vehicles for maintenance and repair services; - refurbishment and rehabilitation of electrical and mechanical workshops; - provision of a computer; - rehabilitation of UEB's training center; - rehabilitation of UEB's staff housing; - engineering and consulting services for supervision of construction; and - consultancy for carrying out studies of (i) UEB's tariff structure and levels (para. 4.01), (ii) training needs (para. 3.08), (iii) the billing and collection system (para.3.19), and (iv) engineering work for the next hydroelectric project(para. 2.27). Technical Assistance for Ministry of Power, Posts and Telecommunications - technical assistance, focusing primarily on the formation and operation of the Energy Deparetment (para. 1.19). The establishment of the Energy Department was a recommendation of the energy assessment report; - technical assistance for carrying out a forest and plantation inventory in Uganda (para. 1.05); and - technical assistance for a fuelvood marketing survey as well as an urban household energy survey in the major towns of Uganda (para. 1.06). Environmental Considerations 4.08 The services and works proposed under the proposed credit include mainly repair and replacement of equipment in the existing Owen Falls power station which relies on Lake Victoria as its reservoir and in the transmis- sion and distribution systems. Most of the civil construction work on the power plant would be performed indoors. Minor civil works would be done on substations and operational buildings. The environment would therefore remain unaffected by the rehabilitation. In respect of water rights on the River Nile, the Ugandan Government will notify the governments of other riparian states that no modification is expecred to the river flow as a result of the rehabilitation works. - 26 - Cost Estimates 4.09 The project cost is estimated to total US$58.4 million of which 84Z (US$49.3 million equivalent) is the foreign exchange component. The total financing requirements, including financed interest, is estimated to be US$73.4 million equivalent. The local costs of US$21.0 million equivalent include a component for duties and taxes primarily applied to vehicles, tools and workshop equipment, and to interest financed. 4.10 The detailed cost estimate for the project is given in Annex 8 and is summarized as follows: Summary of Project Cost (US$ millions) Project Components a/ Foreign Local Total Total 1. Owen Falls Power Station Civil Constr. 4.4 - 4.4 6.0 2. Owen Falls Power Station Equipment b/ 9.2 0.6 9.8 13.4 3. Transmission & Distr. Equipment b/ 17.9 3.6 21.5 29.3 4. Tools, workshops equipmt & veh. taxes c/ - 0.9 0.9 1.2 5. Engineering & Supervision 2.9 0.8 3.7 5.0 6. Training Center Rehabilitation and Training Study 0.3 0.4 0.7 1.0 7. Other Studies 4.1 1.4 5.5 7.5 Subtotal 38.8 7.7 46.5 63.4 Contingencies 7. Physical Contingency d/ 4.7 0.6 5.3 7.2 8. Price Contingency 5.8 0.9 6.7 9.1 PROJECT TOTAL 49.3 9.2 58.5 79.7 10. Interest Financed e/ 3.1f/ 11.8 14.9 20.3 Total Financing Requirement 52.4 21.0 73.4 100 a/ Base costs at January 1985 level. b/ Cost estimate includes supervision by manufacturers. Equipment erection would be done by UEB staff assisted by consultants. c/ Taxes are primarily on vehicles, tools and equipment. d/ No physical contingencies have been calculated for engineering and supervision and studies. Physical contingencies of 15Z for civil works and 10% for equipment are assumed. e/ Tentative estimates. f/ CDC financed. - 27 - The project cost estimate is based on current quotations from various equipment manufacturers and contractors in Europe. The base costs are expressed in January 1985 price terms. UEB is exempt from taxes and duties on power system equipment only; taxes and duties are applied for vehicles, tools and workshop equipment. Physical contingencies for different project components range from 10 to 15% on the base cost. Adequate physical contingencies were assumed for post tensioning in Owen Falls Power Station. The number of tendons suggested by consultants may have to be increased as further site investigations during the first stage of the works are completed. Price contingencies for foreign and local costs have been calculated using the following annual escalation rates (international inflation): 1985 - 8.0%; 1986 to 1988 - 9.0%; 1989 - 7.5%. Financing Plan 4.11 The local costs of the project (US$21.0 million equivalent) would be funded by UEB (US$19.6 million including US$11.8 of interest during construction related to the onlending of the IDA Credit and the ODA Grant) using resources generated from its operations (para. 5.17), by IDA (component of US$1.2 million equivalent for technical assistance), and by ODA (US$ 0.2 million). UEB's requirement will affect the tariff level required throughout the implementation period. For the total foreign cost component, estimated at US$52.4 million equivalent, IDA would make available US$28.8 million equivalent, CDC US$13.0 million equivalent and ODA US$12.0 million equivalent. The prospective financing plan is therefore as follows: Financing Plan (US$ millions) Foreign Local Total Z IDA 27.6 1.2 28.8 39 CDC 12.8 .2 13.0 18 ODA 12.0 12.0 16 UEB - 19.6 19.6 27 Total 52.4 21.0 73.4 100 _ _ _ Engineering Services 4.12 Despite the difficulties of the past decade with big constraints mainly in obtaining spares, tools and vehicles, UEB has been relatively effective in providing power to the country. However, UEB has not recently undertaken any major construction since building the Owen Falls Power Station. Therefore it is proposed that the project include engineering and consulting services for design and equipment specification works as well as for construction supervision for both the power plant and the transmission and distribution systems. These services have been estimated at US$8,500 per manmonth, 232 manmonths for Owen Falls and 265 manmonths for transmission and distribution. Agreement was obtained during negotiations that UEB will appoint consulting engineers acceptable to the Association for project engineering and supervision services. It is likely that UEB would continue to use the services of the consultants who prepared the feasibility study for the proposed rehabilitation project and are producing the long-term power development study (para. 2.27). - 28 - Project Implementation 4.13 UEB has enough skilled staff to undertake the major tasks of this project; however, they would require contractors for civil works on the dam and power house at Owen Falls, and for the uprating of the 66 kV line between Kampala and Jinja and the strengthening of the lines between Kampala and Nkenda and between Tororo and Lira. UEB would provide the labor for rehabilitation of the electrical and mechanical equipment at Owen Falls under the supervision of the equipment and material suppliers as well as the consulting engineers. The transmission and distribution system rehabilitation works would be undertaken by UEB personnel under the supervision of consulting engineers. The consultants would provide technical assistance in planning, procurement, design and construction standards, project implementation and control. The proposed project includes funds for implementation of the findings of the stores and workshop study (para. 3.22). It is also important that UEB be supplied with sufficient transport and tools before starting the works. Vehicles financed from the IDA Second Reconstruction Credit (Credit 1252-UG of June 14, 1982) are in transit from Mombasa (Kenya) and should be available well in advance of project implementation. Additional vehicles and tools are included in the project. The successful equipment bidder for the main equipment would provide erection supervision; the successful bidder on communication equipment would provide the necessary training. Therefore, with reliable workshops, stores, vehicles, tools and assistance from a consulting engineer, UEB would be capable of carrying out the rehabilitation works. The project would require five years to be completed because the rehabilitation of the ten generating units at Owen Falls has to be carried out one at a time in order to minimize the risks of power shortages by reducing the in-service generation capacity, and because space constraints inside the power house limit the working space available for rewinding the generators. The Project Implementation Schedule is shown in Annex 9. 4.14 However, it is necessary for UEB to strengthen the managerial structure of the technicql sectors involved. In the past there was a chief electrical engineer supervising all technical services in UEB. Also there were four area engineers for coordinating UEB district services. Once the design is done and material and equipment received, the success of transmission and distribution rehabilitation works will depend mainly on the coordination and supervision of the job. A general coordinator would be assigned by UEB to supervise the total project, including Owen Falls power station works, transmission and distribution rehabilitation, training center construction and the various studies. During negotiations, agreement was reached that UEB would establish the post or posts of Project Coordinator and fill these posts with persons acceptable to the Association by June 30, 1985. UEB would also fill the posts of the four regional engineers/managers by December 31, 1985. Procurement 4.15 Since UEB has not undertaken a major project for many years, it will need to coordinate closely with the consulting engineers in the procurement process. All procurement would be evaluated by the consulting engineers prior to submission to the Central Tender Board of the Ugandan - 29 - Government for final approval. During negotiations agreement was obtained that UEB would be responsible for bid evaluation and contract award in consultation with the consulting engineers. All major components of the project which would be financed from the proceeds of the IDA credit would be procured in accordance with the Bank Guidelines for Procurement under World Bank Loans and IDA Credits. These components are mainly the civil works at the dam and powerhouse of Owen Falls, electrical components of the project such as generator transformers, cables, transmission and distribution transformers, control and protection equipment, communication equipment and transmission and distribution hardware. The minor civil works on transmission installation would be performed by UEB staff. However, the civil works for the training center and the local offices reconstruction (at Masaka and at Kbarara) would be carried out by local contractors and thus local competitive bidding should be used. Only the consulting engineering services and rehabilitation of the generating units, funded by ODA (para. 4.11), would have negotiated contracts. As the generators were supplied by British firms, it is advisable that they carry out the rehabilitation services. ODA is financing this part of the project and would negotiate the contract with the suppliers. It is considered that negotiated contracts with the suppliers of the turbo-generator units would achieve the best contract conditions for UEB in terms of price, equipment performance and contract program. The CDC funds would be made available to UEB in cofinancing arrangements with the IDA. Thus all CDC-financed items would be procured in accordance with Bank procurement guidelines. Procurement Method a/ (US$ millions) Total Other Estimated ICB Methods Costs Owen Falls Power Station Civil Works 5.8 - 5.8 (4.0) (4.0) Turbo-generators equip. - 11.2 11.2 Other equipment 2.0 - 2.0 (1.4) (1.4) Transmission & Distribution equipment 18.6 - 18.6 (9.6) (9.6) Uprating and strengthening of Transmission Lines 7.7 - 7.7 (5.8) (5.8) Consulting Engineering for the Project - 4.2 4.2 (2.3) (2.3) Vehicles 1.7 - 1.7 (1.2) (1.2) Technical Assistance - 6.4 6.4 (4.5) (4.5) Total 35.8 21.8 57.6 b/ (22.0) (6.8) (28.8) a/ Figures in parentheses are the respective amounts financed by IDA. bI No taxes and interest financed included. - 30 - Disbursement 4.16 The IDA credit would be disbursed over a period of four years and used for: (i) the Owen Falls Power Station: 69.5% (US$5.4 million) of foreign cost for civil works at the dam and power house, gates and associated equipment, main cables, transformers, and workshops; (ii) the transmission and distribution system: 69.5% (US$15.9 million) of foreign cost for the uprating of the Kampala-Owen Falls transmission line, strengthening of the Kampala-Nkenda and Tororo-Lira transmission lines, substation equipment, distribution transformers, transmission and distribution cables and hardware, transmission steel towers, civil works at operational buildings and staff housing, tools and test equipment, pole treatment plant, communication and control equipment, engineering and supervision for transmission and distribution works; 95% (US$1.6 million) of local costs for the uprating of the Kampala-Owen Falls transmission line and the strengthening of the Kampala-Nkenda and Tororo-Lira transmission lines; Ciii) 69.5% (US$4.5 million) of foreign costs for vehicles, a computer, training facilities, and technical assistance. (iv) 95% (US$1.4 million) of local costs for technical assistance. ODA funds would be used to finance the total foreign cost for the turbo-generator work and the associated engineering and supervision. CDC funds would be used for financing 30.5% of foreigr. costs of all items financed by IDA plus the total foreign cost of interest during construction on the CDC loan. The foreign cost of the technical assistance for the studies is estimated to average US$13,000 per manmonth. 4.17 The disbursement schedule for the IDA Credit summarized in Annex 10 would be at a quicker rate than the standard profile for power projects in the Eastern Africa Region because most equipment would be procured within the first few years in order to be available for the transmission and distribution rehabilitation works. The project does not include the usual construction of new facilities, and all foreign currrency expenditures are for the purchase of equipment and erection materials. Project Monitoring and Evaluation 4.18 The records and reports necessary to monitor progress of the project and its evaluation were agreed upon during negotiations. The proposed detailed guidelines for a project monitoring system are given in Annex 11. Preparation of a project completion report not later than six months after project completion was agreed during negotiations. Some key performance indicators for UEB during the project implementation period follow: - 31 - 1985 1986 1987 1988 1989 Transmission and Distribution losses to Generation (domestic) (X) 15 14 12 11 10 Major outages (each) a/ 250 225 200 175 150 Average diration of outages (hours) 4.5 4.0 3.5 3.0 2.5 Connections per employee (each) 24 26 28 30 32 a/ Distribution system outages in the distribution area with more than 1,000 connections at low voltage. -32 - V. FINANCIAL ASPECTS AND COST RECOVERY Past Financial Performance 5.01 In accordance with the Electricity Act of 1964, the tariffs charged for electricity service supplied bv UEB should be adequate to cover operating costs (excluding depreciation), debt service and normal capital expenditures. This requirement was satisfied through 1973, when UEB was earning a rate of return on fixed assets (historical cost) of around 12%. However, since this period UEB's financial performance has deteriorated due to only marginal tariff adjustments, difficulties with billings and collections and declining demand. In 1978 and 1979, UEB operated at a loss. Beginning in 1980 the situation improved due to a series of tariff adjustments and additional revenues from sales to Kenya. Even so, UEB has had difficulty in providing sufficient funds to meet the costs of imported spares and materials for routine maintenance and has been unable to generate any significant contributioa towards capital development. 5.02 The results of operations of UE3 from 1982 through 1984 are summarized below: 1982 1983 1984 Audited Preliminazy Estimted Historical Revalued Historical Reval.ued ____ Tnits Sold (Oh) 499 499 546 Feveues (USh nIUlonas) Domestic 243.2 243.2 322.7 32.7 1,167.9 Exort 225.0 225.0 278.6 278.6 322.6 468.2 468.2 601.3 601.3 1,490.5 OperatitEg Epese 296.8 874.6 462.5 1,168.4 1,840.8 Operating Incoae (Loss) 171.4 (406.4) 138.8 (567.1) (14.3) Less: Interest Exnse 89.4 89.4 69.7 69.7 90.9 Exmchar Lxos (GCi) 57.0 57.0 (15.5) (15.5) - Net Income (tISS) 25.0 (552.8) 84.6 (621.3) (441.2) Internal Cash Ganeraticn 12.8 12.8 131.4 131.4 409.8 _ = ...= 5.03 The significant improvement in cash gene:ation in 1984 resulted from the tariff measures implemented August 1 1984 which included conversion to a flat rate tariff structure and an increase in rates which raised the average tariff yield by about 430% and more than compensated for the nearly 500% wage and salary increases granted July 1, 1984. Details are shown in Annexes 12 and 13. Debt service coverage was acceptable at 2.4 times. - 33 - Financial Position 5.04 Annex 14 details the Balance Sheets based on preliminary actual accounts for December 31, 1983 and the current estimate for December 31, 1984. 1983 1984 Assets - USh millions - Net plant in operation (historical cost) 14,435.4 23,081.7 Other Assets 5.0 5.0 Current Assets (includes receivables of USh 286.8 and 260.7) 908.7 1,150.3 Total Assets 15,349.1 24,237.0 Equity and Liabilities Equity 14,475.4 22,817.4 Long-term Debt 399.8 784.3 Other Liabilities 78.3 93.8 Current Liabilities 395.6 541.5 Total Equity and Liabilities 15,349.1 24,237.0 Current Ratio 2.3 2.1 Debt-Equity Ratio Historical 41/59 39/61 Revalued 3/97 3/97 5.05 The working capital position as of December 31, 1983 and 1984 appears to be acceptable with a current ratio of at least 2.1. However, current assets include customer accounts receivable balances which reflect about five months of sales, and the 1983 ratio reflects a bank overdraft of USh 84.5 million. Therefore UEB's current position was very weak but will improve as a result of the tariff increase effected on August 1, 1984. 5.06 UEB's debt-equity ratio based on figures appearing in UEB's accounts as of December 31, 1983 and 1984 is misleading and shows a substantial debt position of 41% and 39%, respectively. However, if assets are revalued and revaluation surplus is reflected in equity, the ratio changes to 3197, which more correctly reflects UEB's current position with its insignificant amount of debt. Retail Tariffs 5.07 In 1961 UEB established the retail tariff structure, which was based on a declining charge for successive blocks of energy consumption in a billing period. Such a structure was promotional and reflected the considerable surplus in generation capacity over demand that existed - 34 - shortly after eight of the ten generating units at Owen Falls Power Station had been installed. The tariff level remained unchanged until 1979 despite considerable inflation during the intervening period. This was largely made possible by the absence of any major capital expenditure program. However, by 1979 UEB was faced with rapidly increasing costs due to inflation and the need to import substantial quantities of materials, spares and equipment to repair the transmission and distribution system which had been poorly maintained for years and had been damaged during 1979. UEB embarked on a series of 50% increases in July 1580, J.anuary 1982, July 1982 and March 1984. Despite this program, UEB's financial performance continued to deteriorate (para. 5.01). Effective August 1, 1984, UEB revised its tariff structure, abolishing the declining block tariff and establishing a flat rate averaging Ush7.0/kWh. This revision resulted in an annual revenue increase of about 430%. 5.08 Inflation in Uganda which apoeared to be diminishing and coming under control in recent years after a long period of high double digit magnitude, again soared after the implementation of the over-all wage and salary increase in July 1984 (para 5.03). It is now anticipated that by the end of 1984 the inflation rate will be about 60% on an annualized basis and that the level of inflation in the innediate future will be difficult to predict. Therefore, for the purposes of this report, it has been necessary to project future operating results and financial positions of liEB in US$ terms (Annexes 15, 16, and 17). Thus the financial performance shown in these projections reflect only the anticipated international inflation in United States currency, and tariff increases shown in these projections must be augmented by increases relative to the movement of the USh against the US$ to derive the corresponding tariff rate in Ugandan currency terms, assuming that exchange fluctuations will be consistent with local inflation. Additional corrections will have to be made where there is a lack of consistency. If inflation remains near the 1984 level during the project implementation period, significant tariff increases will be required to compensate for the related movement in the exchange rate. Since the financial projections are expressed in US$, these tariff increase requirements are not evident. However, the requirements detailed in para. 5.09 will provide UEB with the mechanism to adjust its revenue as necessary and will provide IDA with the data to monitor UEB's performance. 5.09 Based on these US$ projections, UEB would have positive earnings throughout the 1985-1991 period with rates of return based on a revalued asset-base of 1% in 1985, 5% in 1986, 6% in 1987, 7Z in 1988 and 1989 and 8% thereafter. This performance anticipates tariff increases in US$ terms of 50% in 1986, 24% 4n 1987, 112 in 1989 and 16% in 1990. The tariff increase percentages for 1986 and 1987 apply to Ugandan sales; the increase percentages for 1989 and 1990 apply to all sales including the bulk sales to Kenya and Tanzania. Revenues in 1991 based on this tariff program would be USt3.37/kWh for Ugandan services and USt2.77/kWh overall compared with the preliminary estimate for LRIC of about USt5/kWh (para. 6.12). Additional increases throughout the period would be required if the rate of inflation in Uganda exceeds the international rate (which is very likely to occur in the inmnediate future based on recent performance) or the exchange rate between the USh and the US$ varies from that at December 31, 1984 (US$1 USh 520). During negotiations, agreement was reached that IJEB will earn these annual rates-of-return on average net revalued plant in - 35 - operation and that these measures of performance will be based on the US$ equivalent of UEB's operating performance and financial position. It was also agreed that UEB will review the adequacy of its tariffs to meet these earnings requirements at least quarterly and revise the tariffs expeditiously as required. 5.10 The performance measures detailed in para 5.09 will require special financial reporting quarterly and annually showing UEB's operations in U.S. dollar equivalents and reflecting the revaluation of UEB's fixed assets (para 5.20). It was agreed that UEB will submit a report on its quarterly review and related tariff action within one month of the close of the calender quarter. 5.11 The financial projections exclude the requirements for a second hydroelectric generating station since the decision on the size and plans for its financing have not been taken. It would appear that construction of this facility should begin about 1987 if it is to be completed by 1991 when present demand forecasts show a need for additional generating capacity. Higher revenues and rates of return than those reflected in the projections will probably be required to provide at least the local fund compenent for the financing of the facility. This situation will be initially monitored through the application of the debt service covenant. Therefore, during negotiations agreement was obtained that UEB would not incuir any new debt without IDA's agreement unless historical twelve month net revenues of UEB cover future maximum debt service, including that related to the new debt, at least 1.5 times. Tariff - Bulk Supply to Kenya and Tanzania 5.12 The agreement to provide a bulk power supply to Kenya was signed on June 15, 1955. This agreement was for a term of 50 years and had no explicit provision for renegotiation of rates or volume of supply during the term of the contract. However, in 1980 this contract was voluntarily renegotiated. Under the terms of the renegotiation, Kenya was to pay KSh 0.075/kWh for supplies up to 30 MW at 90% load factor and KSh 0.135/kWh for additional units (USt 0.25 per kWh compared to the Ugandan consumption average of USt 0.75/kWh in 1984). The agreement also contains a capacity charge of KSh 30.25/kW per annum with a minimum payment for 30 MW. In the past, when Uganda had substantial surplus capacity, sales to Kenya at even lower rates than the present levels were justified as extra income for power supplied at zero marginal cost, and these sales were an important source of income to UEB and foreign exchange to Uganda. However, when the demand on the Ugandan system surpasses existing generating capacity, which is projected to occur about 1991 if this proposed rehabilitation project is implemented, power supplies to Kenya will have an opportunity cost for Uganda equal to the long-run marginal cost of installing new capacity, estimated at about US$.05/kWh in 1984 prices. - 36 - 5.13 UEB has been discussing the level of the Kenya bulk supply tariff with KP&L and anticipates anotber increase in the near future, since even if the tariff was increased to reflect the cost of installing new capacity, Ugandan power would remain a low-cost source of supply to Kenya, and Kenya has unofficially indicated its willingness to review the situation . Uganda should persuade Kenya to agree to an increase since additional funds are required to maintain the existing generating facility and prevent the loss of this supply to Kenya. Formal discussions are scheduled to be initiated when the supporting data is available from the Power Development Study (para. 2.27). 5.14 In 1983 the Government agreed to export 16 KW (126 GWh/year) to Tanzania along the west side of Lake Victoria as far as Bukoba, and UEB has agreed to construct the transmission line to connect with the Tanzanian transmission facilities to provide this service. This construction is unlikely to be completed before sometime in 1987 and revenue `rom this source has been reflected in the financial projections beginning in 1988. For projection purposes the revenues from this service and from that provided to Kenya have been estimated from 1988 reflecting a rate which approximates 50% of the average retail rate for service to Ugandan consumers. The magnitude of the rate charged for this bulk service would naturally affect the magnitude of the rate required to be charged for retail service in Uganda to maintain UEB's financial viability. An additional increase in the Ugandan tariffs of 25% would be required in 1988 to compensate for the additional revenue projected from Kenyan sales if the 520% increase reflected in the export tariff cannot be negotiated. Therefore, the timing and amount of bulk tariff increases which can be obtained will influence what increases might be required to comply with the earnings requirements detailed in para. 5.09. Proposed Financing Plan 5.15 A detailed funds flow statement for UEB is showa in Annex 17. A summary of UEB's projected financing plan for 1990 through 1990 is given on the following page. 5.16 During the project implemeatation period (1985-1990), UEB's construction program anticipates expenditure of US$97.6 million including interest financed of US$14.9 million. About 71% or US$69.4 million of the total construction program during this period relates to the proposed project. Based on the financing plan detailed in para. 5.15 and assuming tariff increases detailed in paras. 5.09 and 5.14, this program would be feasible. 5.17 internal generation would cover the direct local cost of the project construction, the interest requirement on the project debt after the interest financing periods have expired, the debt repayment requirements on the project debt after the grace periods have expired (paras. 5,A18 and 5.19), and the debt servicing requirements on all other debt. Internal generation after covering debt services produces 39% of the funds required for construction during the project implementation period, which is reasonable. - 37 - UEB's Financing Plan 1985 - 1990 Requirements for Funds US$ thousands % Construction Program a/ Ongoing Works 23,081 20 Tanzanian Transmission Line 5,211 5 Proposed Project 54,503 48 Total construction costs 82,795 73 Interest During Construction 14,850 13 Total Construction Program 97,645 86 Working Capital Increases 16,158 14 Total Requirements 113,803 100 Sources of Funds Internal Generation 59,129 52 Less: Debt Service 15,157 13 Net Internal Generation 43,992 39 Borrowings Proposed IDA Creditb! 24,800 22 Proposed Other Project Financing 24,996 22 Proposed Government Financing of Interest on Relent Funds 11,760 10 Other Loans 6,250 5 Total Borrowings 67,806 59 Contributions EEC Grant for Rural Development 1,429 1 Consumers 576 1 Total Contributions 2,005 2 Total Sources 113,803 100 = = a/ Excludes funds required for the construction of a new hydroelectric power facility. b/ The proposed credit is for US$28.8 million of which US$4.0 million will be utilized by the MPPT for studies and technical assistance. - 38 - Financing Terms 5.18 CDC would provide about US$13 million for a term of 20 years including a grace period on principal repayment of 5 years. CDC would finance the interest requirement during the five year grace period adding this requirement to the principal amount of the loan. UEB would bear the exchange risk. 5.19 ODA funds and US$24.8 million of IDA funds would be onlent to UEB for a term of 20 years including a grace period of 5 years at an interest rate of 10%. The Government would finance the interest requirement during the five years of the project implementation, and UEB would bear the exchange risk. The onlending rate and terms were agreed during negotiations. Revaluation of Assets 5.20 UEB has not revalued its assets since 1971 and consequently has asset values in its accounts which are significantly below replacement costs. Thus the rehabilitation of the plant proposed in the project is estimated to cost over 15 times the total book value of the plant. This undervaluation is evident in the level of the charge for annual depreciation which is computed on historical costs. During the year 1983 the depreciation charged was only about 8% of the total operating expenses, which is extremely low for a hydroelectric system where the largest single expense is normally depreciation. The undervaluation of fixed assets is also evident in the debt-equity ratio (para. 5.06). 5.21 The appraisal mission revalued the plant in service and the accumulated depreciation using an index which was composed of a combination of the consumer price indexes for Uganda and the UK and weighted 60-40, Uganda-UK, to reflect the composition by origin of the plant. The rate of return computations (para. 5.09) and the proposed earning requirements which UEB would be expected to attain are based on the revalued asset base arrived at by using this index. UEB agrees to using a revalued asset base for earning requirement purposes but opposes reflecting this base in its accounts. During negotiations the application of the above revaluation formula was agreed for application in computation of the Rate of Return requirement (para. 5.09). This asset valuation will be used in the special financial reporting referred to in para 5.10. Future Operations and Financial Performance 5.22 The projected results of operations for UEB in US$ equivalent for the 1984-1991 period are shown in Annex 15. The projections indicate that UEB's financial performance and condition would be satisfactory throughout the period. This performance is based on the estimated average annual rate of increase in sales of about 7%, tariff increases of 50% (1986), 24% (1987), 11% (1989) and 16% (1990) in addition to that made effective August 1, 1984 (para. 5.03) and the revision of the bulk tariff in 1988 (para. 5.14). Assumptions used in the financial projections are detailed in Annex 18. Key financial indicators for measuring UEB's performance are given on the following page. - 39 - 1985 1986 1987 1988 1989 1990 Rate of return (Z) 1 5 6 7 7 8 Current ratio 2.3 2.6 2,9 4.5 5.9 5.7 Debt/equity ratio 27/73 40/60 45/55 42/58 39/61 35/65 Debt service coverage 3.2 5.5 8.2 9.8 20.1 1.7 Internal Contrib. to Construction (Z) 10 14 29 8Oa/ 89a/ 262a/ a/ Does no, reflect the costs of construction of a second hydroelectric generating facility. - 40 - VI. PROJECT JUSTIFICATION AND RISKS Project Need 6.01 The need for the proposed power system rehabilitation project rests largely on the judgement of experts that rajor components of the system are in a condition that could result in a major reduction of system capability in the next few years (para. 4.03). Such an occurrence would be disastrous for the Ugandan economy, and therefore the proposed project is vital to the recovery of the economy. The project would also provide an increase of about 20% in generation capacity from 150 to 180 MW through uprating the Owen Falls power station, although this would not increase the firm energy capability of the station. This capacity could supply fully the forecast demand for power ap to about 1991, which is the earliest possible year for commissioning new hydroelectric generation facilities. Without the proposed uprating, the rehabilitated capacity of the station would be able to supply fully the forecast demand for power to about 1988, and thus the proposed uprating would bridge the forecast gap between demand and supply until new generating capacity is commissioned. 7/ The proposed project includes provision for uprating the existing 66 kV transmission line between Jinja and Kampala to 132 kV to meet increases in demand from 1988 onwards (para. 2.25), and for the st:engthening of the existing 132 kV transmission lines from Kampala to Nkenda (near Kasese) and from Tororo to Lira (para. 2.07). The proposed project also includes components required in preparation for a new hydroelectric station (engineering work for the selected site and manpower training) and to improve UEB's efficiency in collecting revenues. 6.02 The balance between generation capacity and system demand during the next few years will eepend on the program for rehabilitation of the turbo-generator units relative to growth in demand on the UEB system and to the rate at which units cease operation due to major breakdown before rehabilitation. The monthly balances to end 1991 have been projected based on t1e demand forecast (para. 2.24), the scheduled rehabilitation program (para. 4.13) and estimates provided by UEB's consulting engineers of the rate of outages of units in the absence of rehabilitation. These estimates are based largely on judgement and should not be considered as firm predictions; they have been provided only for purposes of project justification. 6.03 The projections show that the balance is most sensitive to the coincidence of Kenyan demand on the UEB system ar the time of peak Ugandan demand. Two limiting cases for the coincidence of Kenyan demand are relevant for projecting the balance of supply and demand during and immediately following the proposed rehabilitation program. In both cases it is assumed that Kenya would continue to draw its energy entitlement from the Ugandan system (252 GWh/year). In one case, it is assumed that the Kenyan system attempts to draw the contracted -minimum supply of 30 MW at the time of the peak Ugandan demand. This is the most severe condition and it would force UEB to shed intermittently up to 20 MW of load in 1986, 1987 and 1988 out of a forecast total peak demand that rises from 133 MW in 1986 to 148 MW in 1988 under the proposed rehabilitation schedule. The 7/ There would be minor load shedding from 1986 to 1988 during the scheduled rehabilitation program while generating units are taken out of service. - 41 - associated unserved energy demand would not be substantial, amounting to less than one GWh per year which is equivalent to about 1.5% of total demand, since this load shedding would take place only for short durations during periods of daily peak demand. In the second case it is assumed that the coincident Kenyan demand is restricted to taking up the available capacity in the UEB system at the times of peak Ugandan demand. This is the least severe case acceptable for planning purposes, and it represents the pattern that appears to have been occurring for the past few years (para. 2.11). Under this scenario, there would be negligible load shedding up to 1991 with the rehabilitation program implemented according to schedule. Although this scenario would benefit Uganda, it could impose costs on Kenya in the form of supply constraints. The supply/demand balances under various scenarios are summarized in Annex 19. 6.04 In the absence of rehabilitation, generating units at the Owen Falls power station would progressively cease operating in a series of breakdowns. The likelihood of breakdowns on operating units would increase as more units break down due to the transfer of additional load onto the units remaining in operation. The schedule of outages adopted for project justification if units are not rehabilitated assumes that turbo-generating unit number 3 would be the first unit to break down and would occur in mid-1986. Subsequently it is assumed that units would break down at the rate of one every six months, and there would be no generating capacity available from the beginning of 1990. According to the schedule the station would be able to supply the forecast demand apart from a low level of unserved energy demand up to 1987, but the level of unserved demand would rise to about 40% of total energy demand in 1988, 75% in 1989 and 100% thereafter. If Uganda ceased power exports to Kenya entirely in such a situation, an event which would produce economic costs for Kenya, the proportion of unserved Ugandan energy demand would be low (less than 10X) in 1988, but would rise rapidly to about 65% in 1989 and 100% thereafter. Least Cost Development Program 6.05 The alternative generation sources to the rehabilitated hydroelectric station at Owen Falls are a new hydroelectric station elsewhere on the Victoria Nile river (para. 1.07) and thermal capacity. Preparation work for a new hydroelectric station has already been startel (para. 2.27), but the earliest commissioning date would be 1991, which is about two years after the Owen Falls station would cease to be an effective source of power in the absence of rehabilitation. Therefore, a new hydroelectric station would not be a timely alternative to rehabilitation of the Owen Falls power station, and interim sources of power based on new thermal capacity would have to be installed to avoid major disruption to the Ugandan economy before the commissiortng of new hydroelectric capacity. Rehabilitation of the Owen Falls p:. 'er station provides a much lower cost source of power than a new hydroelectric station, averaging about US$100/kW installed 8; compared to a probable range of US$800 to 1,000/kW installed in 1985 price terms for a new station plus the cost of interim thermal capacity. Rehabilitation would extend the working life of 8/ The average cost of about US$100/kW installed for rehabilitation of Owen Falls station is derived from estimated base cost plus physical contingencies of US$18 million for this component (including engineering and supervision) to restore to service generating units with a combined rated capacity of 180 KW. - 42 - the Oven Falls power station by about 30 years, provided that adequate maintenance is carried out, which is equivalent to the life of a new hydroelectric power station. 6.06 Thermal types of generation capacity are also much higher-cost options than rehabilitation of the Owen Falls power station. At the margin, a gas turbine would be the lowest cost thermal alternative to rehabilitation of one of the turbo-generating sets at Owen Falls, in which case it would be used only during periods of peak load to minimize the high fuel costs of operating gas turbines. However, the capital cost of a gas turbine, at about US$500/kW installed, is many times the average capital cost of rehabilitating the units at the Owen Falls station. The lowest-cost alternative thermal plant for total replacement of the Owen Falls station would be diesel generators with a capital cost of about US$800/kW installed and a specific fuel cost of at least US$.05/kWh. The cost of meeting demand by using this alternative is still many times greater than by rehabilitating the Owen Falls station at an average capital cost of US$100/kW and zero energy cost. In general, the cost of a thermal plant is much higher than the cost of either rehabilitation of the Owen Falls station or of a new hydroelectric station in Uganda. 6.07 The least cost power development program for Uganda is thus clearly based on indigenous hydroelectric resources, with rehabilitation of Owen Falls station as the first stage followed by a new hydroelectric station in 1991. The main issue for the rehabilitation project is the optimal timing, although this does not affect the date when the new station is required. The economic benefit of rehabilitation is the incremental demand for electrical energy that is served as a result of the project. The economic cost of rehabilitation is the commitment of economic resources to the project at a particular time expressed through the estimated opportunity cost of capital of 12% per year. Delaying the rehabilitation project reduces the present value of both benefits and costs; the optimal timing for the project is the program that gives the maximum net present value for the investment in the project. The criteria for comparison is the cost of meeting incremental rnergy demand against the economic value of power in Uganda. 9/ The evaluation would show that advancing the timing of the rehabilitation project would be justified as long as this cost remained below the economic value of power in Uganda. 6.08 The costs and benefits of carrying out the rehabilitation project have been compared according to the scheduled program, which is the sconest that can be achieved, with delays of one year and two years respectively to the start of the program. The cost of meeting incremental energy demand (avoiding an energy shortage) that would be served by avoiding a one year delay in starting the rehabilitation program is estimated (Annex 19) to range between US cents 0.8/kWh generated and US cents 1.6/kWh generated at January 1985 prices according to the degree of coincidence of exports 91 The cost of meeting incremental energy demand from the rehabilitation project is defined as the ratio of the difference in present values of served energy demand to the difference in present values of rehabilitation costs between the scheduled and delayed programs. This cost is expressed in terms of the U.S. currency instead of Ugandan currency due to the uncertainties in predicting Ugandan inflation and exchange rate movements (para. 5.08). - 43 - to Kenya with Ugandan peak demand. The cost of meeting incremental devmand falls significantly to about US cents 0.4/kWh generated by avoiding a two year delay in starting the rehabilitation program. These costs do not take account of the possibility of increases in rehabilitation costs arising from further deterioration with delay in rehabilitation. The minimum estimate of the economic value of power is the average electricity tariff yield, which demonstrates a minimum amount that consumers are willing to pay. The tariff in January, 1985 was the equivalent of US cents 1.4/kWh, and the projected yield to meet UEB's financial objectives (para. 5.09) in January 1985 price terms varies between 1.4 and 2.24 US cents/kWh sold during the period 1985 to 1991, which is equivalent to between 1.2 and 1.95 US cents/kWh generated. 10/ The actual economic value of power to the Ugandan economy is substantially higher, which the mission estimates to be about US cents 8/kWh in January 19C5 prices in terms of consumer willingness-to-pay (para. 6.12). Therefore the range of estimates for the cost of meeting incremental demand is well below the economic value of power and is generally below the tariff yield. The comparison shows that carrying out the rehabilitation project as soon as possible, as proposed, is economically justified. 6.09 The sensitivity of the mission's analysis of the cost of meeting incremental energy demand is given in Annex 19 for a range of values for the main parameters in the evaluation. These ranges are (a) variation in the coincidence of Kenyan demand at the time of Ugandan maximum demand between full coincidence and variable coincidence according to UEB's available capacity; (b) a range of levels of Lake Victoria 11/; and (c) the growth rate of Ugandan demand (including new exports to Tanzania) in the range of 80 to 120% of the forecast growth rate (para. 2.24). The sensitivity of the estimates of the cost of meeting incremental energy demand to discount rate for the opportunity of capital is also tested at rates of 8% and 16%. The analysis shows that the coincidence factor of Kenyan demand is the most sensitive variable, and that the level of Lake Victoria is the least sensitive variable. However, the cost of meeting incremental energy demand is well below the economic value of power for all sensitivity cases analyzed, thus confirming the justification for proceeding with the rehabilitation project as soon as possible according to the scheduled program. Internal Rate of Return 6.10 The internal rate of return (IRR) of UEB's present investment program, of which the proposed rehabilitation project is the major component, is estimated to be 16.7% (Annex 20). The IRR is derived from comparison of the costs of the program with the benefits in terms of demand that will be served from the rehabilitated facilities. The estimated IRR 10/ Allowing for power system technical losses of 15%. 11/ The level of Lake Victoria determines the hydraulic head and hence the output capability of the turbines at the Owen Falls power station. The basic case for the economic evaluation assumes that the lake level will be in accordance with the median forecast from the hydrological study carried out as part of the Power Development Study (para. 2.27). The sensitivity analysis examines the incremental cost of meeting energy demand at high and low forecast lake levels which have probabilities of 90Z and 10% respectively of not being exceeded during the next 30 years. - 44 - does not include investments required to meet major increases in demand, specifically a new power station. Benefits are defined by incremental energy demand served by reference to the case in which the rehabilitation program is not undertaken (para. 6.04) valued at the prevailing tariff level in January, 1985 (US cents 1.4/kWh), which is low by world standards and in comparison to economic costs (para. 6.12). At the higher average tariff yield required to meet financial objectives (para. 5.09) (averaging US cents 2.1/kWh in 1985 price terms), the IRR is estimated to be 21.6%, which is well above the estimated value for the opportunity cost of capital in Uganda (12%). 6.11 Both these estimates give financial rates of return adjusted for price inflation and excluding duties and taxes. These rates are underestimates for the economic rate of return since they do not take account of the substantial consumer surplus above these low tariff rates that consumers derive from the use of electric power. Since the increment of energy demand under consideration constitutes a large proportion of the total demand in some years, the element of consumer surplus is a substantial source of benefit for the project. Tariffs, Long-run Marginal Costs and Consumers Willingness to Pay 6.12 A firm estimate of the long run marginal cost (LRMC) of meeting increasing demand for power from the UEB system based on hydroelectric generating capacity is not yet available. An estimate of the LRMC would be derived in the tariff study included in the proposed project based on the findings of the Power Development Study (para. 2.27). A preliminary estimate for the LRMC of US cents 5/kWh was derived in the energy assessment report. The present tariff yield of US cents 1.4/kWh in January 1985 price terms is thus only about 30% of the estimated LRMC. Once a firm estimate of LRMC has been derived, Government policy should be to raise tariffs to be in accordance with LRMC before the next hydroelectric station is commissioned to ensure that electricity consumers pay the full economic cost of meeting their demand. Although such a policy implies a multifold increase in the tariff level in constant price terms, the mission considers that consumers willingness to pay for power substantially exceeds even the LRMC. The mission has made its own order-of-magnitude estimate of consumers willingness to pay for the forecast demand for power from the public system to be about US cents 9.6/kWh as an average for all consumer categories (Annex 21). This estimate considerably exceeds the estimated LRMC of supply and illustrates the scope Government has for tariff reform. 6.13 The proposed tariff study (para. 4.01) would also make recommendations on revisions to the tariff structure. UEB has just abolished a declining block rate structure for residential tariffs in favor of a flat charge for energy for all consumer categories. However, this structure and levels do not take account of the costs of providing additional generating capacity to meet peak demands. The differences in rates between consumer categories need to be reviewed to ensure that they reflect correctly the differences in supply costs. During negotiations agreement was reached on the program for implementing the tariff study - 45 - based on terms of reference acceptable to the Association, and that this study should be based on the conclusions of the Power Development Study (para. 2.27) and the definition of the next major hydroelectric development in Uganda. The program should aim for implementation of the new tariff structure and levels by January 1, 1987. Project Risks 6.14 The major project risk is the ability of Ugandan Government to maintain a secure environment. There are many areas in the country in which the rehabilitation work on the transmission and distribution systems could be delayed and even suspended due to difficulties experienced by the local authorities in maintaining publlic security. Most problems have occurred in the area located about ten to fifteen miles from Kampala. No problems are anticipated at Owen Falls, the locale for most of the project works. Where necessary, contracts will contain provisions to protect contractors against losses resulting from security factlities. - 46 - VII. AGREEMENTS REACHED AND RECOMMENDATIONS 7.01 During negotiations agreement was reached on the following: (a) Government will carry a national forestry inventory and conduct studies into urban household energy utilization and fuelwood marketing according to terms of reference and time tables acceptable to the Association (paras 1.05 and 1.06); (b) Government will strengthen the Energy Department in MPPT along the lines recommended in the UNDP/World Bank ESMAP Report (para. 1.19). (c) Government and UEB will consult with the Association on the development of the next hydroelectric station (para. 2.28); (d) UEB will implement the findings of the organization study (para. 3.04); (e) UEB will perform a training and manpower study under agreed terms of reference and implement the findings of the study (para. 3.08); Cf) UEB will submit audited annual accounts to IDA by June 30 of each year (para. 3.11); (g) UEB will conduct a study of billing and collection practices to be performed by consultants according to terms of referen-ce acceptable to the Association and will implement the findings oi the study by September 30, 1986 (para. 3.19); Ch) Government will authorize the direct payment from budget authorizations for electricity services when a ministry or department is delinquent and will authorize UEB to take appropriate measures to collect payments from parastatals when their accounts are delinquent (para.3.20); (1) UEB will provide IDA with a semi-annual schedule of outstanding accounts receivable and will maintain an agreed relationship between outstanding accounts receivable and annual operating revenues (para. 3.21); (j) UEB will implement the recommendations of the stores and workshop study by March 31, 1986 (3.22); (k) UEB will appoint consulting engineers acceptable to the Association for project engineering and supervision services (para. 4.12); (1) UEB will establish the post or posts of Project Coordinator and fill the post or posts as well as those of the four regional engineers (para. 4.14); - 47 - Cm) UEB will be responsible for bid evaluation and contract award (para. 4.15); (n) UEB will prepare a project completion report (para. 4.18); (o) UEB and Government will implement the necessary measures to earn a rate of return of 5% in 1986, 6% in 1987, 7% in 1988 and 1989 and 8% thereafter. To meet these earnings requirements UEB and the Government will review UEB's tariffs quarterly and revise tariffs expeaitiously as required (para. 5.09); (p) UEB will submit a quarterly report on tariff review and actions within one month of the close of the quarter (para. 5.10); (q) UEB will not incur long-term debt without IDA's approval (para. 5.11). (r) the terms for onlending the proceeds of the IDA Credit to UEB (para. 5.19); (s) the method to be used to compute the revalued assets base including the index to be used and the maintainance of a memo record by UEB of its revalued assets for rate return computation (para. 5.21); and (t) UEB will conduct a tariff study according to terms of reference acceptable to Association and will implement the findings of the study by January 1, 1987 (para. 6.12). 7.02 With the above agreements, the project would be suitable for an IDA Credit of US$28.8 million. The Credit would be made available to Government for a term of 50 years, including a grace period of 10 years. US$24.8 million would be lent to UEB through a subsidiary loan agreement acceptable to the Association. The remaining US$4 million would be allocated to MPPT for technical assistance. -48 - ANNEX UGANDA SECOND POWER PROJECT Kajor Sites With Hydroelectric Potential Annual Potential Generation Capacity Capacity Site (MW) (Gwh/year) Between Lake Victoria and Lake Kyoga: Owen Falls a/ Existing (150) (900) Rehabilitated 180 900 Bujagali 180 925 Busowoko 160 840 Kaligala 115 585 635 3250 Between Lake Kyoga and Lake Albert: Kamdini 230 527 Ayago 360 b/ 3150 Kabalega 520 b/ 3300 1110 6977 Total 1,745 10,227 a/ Based on firm flow available for power at 630m3/s. b/ Total output limited at times of low flow. UGANDA SECOND POWER PROJECT Estimated Energy Balance for 1980 (toe thousands) SUPPLY CONSUMPTION tAl t 9wSuply 1Tu i8S & Not Suly bt 0Xwigy lmmy Am tar MItMelibun AwtIabl. for Smirm Pru 1an In2orts uWly Trnfa6 Ua t ame Coiutptloan lm old COmrce Iztry Tkxnport Cmuqptim Exrts A. Oamfhal mr I Aula*on fw. - 13 l i 13 - 13 - - - 13 13 - Clnm - 89 89 89 - 89 - _ _ 89 89 Manmm - 48 46 418 - 2 - - 929 1 c/ Ao. dliil - 72 72 72 - 72 - 56 58 14 lzkutrial diel - I 1 1 - I - - I - 1 - pa au - 23 23 22 - 22 - - 22 - 22 - LeP" ~ ~~- 1 1 l 1 - 1 I - - - 1 - IcIty - td:<o 159 - 159 53 9W 44) 7 6 8 _ 21 24 - tbufti- - I - 1) lA-'Nod 1,121 - 1,121 393 _ 393 146 96 141 - 383 - j aasl - --- 1 7 177 - 177 112 65 - - 177 - 0 _w .1,280 247 1,527 860 9 851 235 167 172 160 794 57 - metacity 106 1 he | 561 lbtul cmrdal ezwy 1,280 247 1,527 1,527 851 35 167 V2 160 79% 57 is. Nu-vrcia.1 SWE& ruablow 3,662 - 3,662 3,662 3,662 3,267 351 AA - 3,662 - C. 4i,92 247 5,189 5,189 4,513 3,562 518 216 160 4,456 57 3 SW fiat o Irqot for coawmiam to TM. / In1d L1k1 cmiup*Loa. - 50- ANNEX 3 UGUA SECOND POWER PROJECr Installed Capacity - Installed Capacity - CGmissioning Iype Plant Name Unit Size Namber Total Z Dates (MW) (MW) Hydro Oweu Falls 15.0 10 150.0 a/ Kabale 1.0 1 1.0 1963 Subtotal: Rydro 151.0 97.5 tiesel Kitgm 3 0.375 1969 RuBungiri 2 0.360 1970 Kabs.le 6 1.350 1964-1977 Mayo 2 0.330 1969 A-na 3 0.580 1965 Moroto 4 0.s20 1966 capdhorwa 2 0.115 1973 Subtotal: Diesel 3.930 2.5 Total Installed Capacity 154.930 100.0 a/ CmLssioning dates of the Owe FaLls units: Unit No. 1: April 1954 Unit No. 2: May 1954 Unit No. 3: January 1955 Unit No. 4: August 1955 Unit No. 5: Janaary 1957 Unit No. 6: February 1957 Unit No. 7: May 1958 Unit No. 8: January 1959 Unit No. 9: May 1966 Unit No. 10: July 1968 51 - ~~~~~~~AN=E 4 - 51 - Page 1 of 2 GAD& SECOND POWER PRUJECTI GEUfERtMION, DEMAND AND BIILINGS ON UEB SYSTE1 TO 1983 1/ 1971 1975 1979 1980 1981 1982 1983 2/ Generation (GWhs.o.) Hydro 813 722 457 633 513 555 514 Thermal 3 5 2 1 4 5 2 Total 816 727 4.59 634 517 560 35IT Supply to Keya 3/(GWhs.o.) 306 271 165 300 186 222 226 Supply to Uganda (GWhs.o.) 510 456 294 334 331 338 290 BillMngs in Uganda (GWh) Residential 83 82 81 81 130 119 102 Conmmercial 76 71 48 51 78 61 55 Industrial 287 223 1i)0 100 74 99 93 Street Lighting 6 7 6 8 7 7 1 Total 452 38 235 240 289 286 251 Uganda System Losses and Unbilled Supply (GWhs.o.) 58 73 59 94 42 52 39 (Z of billings) 12.8 19.1 25.1 39.2 14.5 18.2 15.5 KaxdInrm Power Generated by UEB (MIs.o.) Coincident MbSaxinm Demand 126.0 120.8 117.8 119.0 100.9 99.8 108.2 of which to - Kenya 32.0 4/ 32.8 48.4 48.4 21.9 22.3 22.4 - Uganda 94.0 Wf 88.0 69.4 70.6 79.0 77.5 85.8 MaxiUimz Ugandan Demand 97.0 W/ 89.6 69.4 75.0 83.8 80.6 88.4 Anmnal System Load Factor on UEB System (x) - including Kenya Supply 73.9 68.7 44.5 60.8 58.5 64.1 54.4 - Ugandan demand only 60.0 58.1 48.4 50.8 45.1 47.9 37.4 Number of Connections on LEB System DxDestic 44205 54195 43792 64384 65721 72058 73977 kxumercialf 24463 28443 16500 27804 27027 29136 29955 Industrial 761 828 336 304 301 297 291 Street Lighting 105 108 108 107 107 107 107 Total 69534 83574 60737 92599 93156 101598 104-33 52- ANNE 4 Page 2 of 2 UGANDA SECOND POWER PROJECT ANALYSIS OF UGANDAN POWER DEMAND IN 1982 ('a Toral Number of Connections on UEB System 1/ (end 1982) 101389 100 of which - -nil consumers- 45682 45 - active meters 55707 55 Number of Total Connections by Consumer Category (end 1982) Domestic 71462 70 Commercial 28900 27 Industrial 771) Street Lighting 256) 3 Total 101389 100 Distribution of 1982 Consumption of Residential Connections with Active Meters Specific Consumption Proportion of Proportion of Total BiUed Average Specific _ RaLne) Total Connections Residential Consumption Consumption vKWhJmonth/connection) (x) (%) (kWh/year/connection) 1 - 50 41.6 2.5 51 - 250 32.7 12.2 1008 251 - 500 11.8 13.5 Over 500 13.9 71.8 14800 Total 100.0 100.0 3048 1/ UEB financial year coincides with the calendar year. 2/ UEB quoted in "Background to the Budget 1984-1985" Table 27. 3/ Including an allowance of 4X for transmission losses. 4/ Estimated. 5/ According to UEB's billing records. Source: UEB statistics. - 53- ANNEX 5 UGANDA SECOND POWER PROJECT FS AT TOTAL Ou 0 TR LE SaU m 1 19 M5 1996 1937 19l 139 199 1"9 Average Increase- Dowm SALU(GU) - -S-W- _ _ 1983-91 (Z/year) mgmu I(ACTLUAL ESIDENTIAL 102 122 131 140 150 362 174 117 205 8.0 tO01SCIN. 55 60 65 71 71 i5 92 1ol 109 8.6 MI"FUAUINS 42 4* 56 60 6 69 74 30 3 8.5 MUeR INDUSIRiAL 51 56 1 72 70 96 93 101 8.5 ITREET LIGHTINS I 0 a a 9 9 10 10 36.6 IRIM ELECTRIFIC. 0 0 0 0 0 1 16 25 27. TOTAL 251 m 321 346 374 411 452 495 537 9.1 EOT SALES(SUNH) KEN1A 218 252 252 252 252 252 252 252 252 TANZMNIA 0 0 0 0 0 30 35.0 40 45.0 TOTAL SALES(A11 469 545 573 590 626 693 739 7 834 6.9 ARRISHISSII ISTUUT IOS LOSSS (GM) AIIH SALES 1lS 39 44 48 52 56 62 69 74 90 EPORT SALEB 1 8 10 10 10 10 11 11 12 12 ENRS DERAI AT STATIE (6Mso) 516 600 631 660 692 766 ate 073 926 6.9 COINCIDENT ICNS15TRAINED NAXIRhI OMD AT CINSUOER 11N) -OSA SALES 72 91 94 96 89 94 n 105 113 5.0 -EIPORT SALES 22 30 30 30 30 37 39 39 40 POIO LOSSES10 -TOTAL UEI SUES 15.2 14.5 14.4 14.3 14.2 13.6 13.5 13.4 13.5 -U6NDA SALES 10.6 18.4 18.1 17.9 17.6 17.4 17.2 17.0 16.9 1I101.1COMSTRADIED 1Oo 127 130 133 136 14U 156 164 174 5.2 DEWID AT STATION(NMi) NAI.UANDA kllAND 9 95 99 101 105 110 116 123 132 4.9 (Elo) IO LOAD FACTE (X -TOTAL DEl SALES -Uncastrainud 54.9 54.0 55.3 56.7 57.9 58.9 59.9 60.3 60.6 -2 rO COiWei1cu 69.3 71.8 72.9 74.3 75.3 79.6 00.5 81.1 79.8 of Expert ka.vlSystu ax.On. -USAN1A SALES 3.9 40.4 42.6 44.0 46.9 49.1 51.1 52.? 53.2 1/ Based on least-squares curve fitting to a demand (d)/time (t) equation of the form d = a.e.bt , where a and b are constants. Source: Appraisal mission estimate. UGANDA Uganda EIcIty Board (UEB) Organizaon Chad I MMlor of FO. | fPcs re oww ,gcka"= I Mm kVh Dketa I | S ~~~~~~~~~~~~~~~~~~hi X ir i i zrz Di 9_r_I cwae e EWCWai ~ ~ Taw~i1 Scut c omcw 9ailm4Erigmno.I irginuw c~giE wwf -2 ~ 55 - ANNEX 7 Page 1 of 3 UGANDA SECOND POWER PROJECT Project Description 1. The main project components are rehabilitation of the Owen Falls power plant, transmission and distribution rehabilitation, and studies and training. Owen Falls Rehabilitation 2. The Owen Falls rehabilitation component consists of civil works to the dam and power house and rehabilitation of its main equipment, such as generators and turbines, and related equipment. The civil works will include repairs to the dam to stop leakage and post tensioning to the structure in order to close cracks. Minor works are required to the power house roofing and ceiling. The rehabilitation of the generators will consist mainly of rewinding all units, overhaul of the electrical components, and supply of new cabling and control equipment. The generator transformers are in acceptable condition; two spare units will be supplied as well as extensive maintenance services. The turbines are generally in good condition but modification to the sealing is necessary as well as an overall review and rehabilitation of its auxiliaries. A general review of all power station equipment will be undertaken with the objective of rehabilitation to the original capacity. It should be noted that due to the modern design concepts for generators, the rehabilitation of the Owen Falls units will provide an increase in rated capacity of 3 MW per unit, resulting in a total new design rating of 18 MW per unit. Transmission and Distribution 4. Substation equipment. The project will cover the supply of traasmission transformers of 132 kV and 33 kV and control and switchgear equipment. 5. Transmission and distribution lines. Conductors and hardware will be covered by project cost estimates as well as the supply of wood poles, transmission towers, distribution transformers and underground line material. This item also includes supply of consumer connection materials. 6. Kamala - Owen Falls transmission line. Also included in the project is uprating of the existing 66 kV transmission line between Kampala and Owen Falls to 132 kV. The existing steel towers will be retained. 7. Kampala - Nkenda and Tororo - Lira Transmission Lines. These existing 132 kV lines will be strengthened by the replacement of existing wooden angled structures by steel structures, thus increasing security of supply . - 56 - ANNEX 7 Page 2 of 3 8. Communication and control. New PLC (Power Line Carrier) SCADA, telephone and radio components will be supplied. The main objective is to provide UEB with operational and maintenance communication capability between all interconnected system substations, the main district offices and vehicles. 9. Vehicles and tools. The supply of a new fleet of 30 vehicles is envisaged, as weLl as special vehicles such as forklift trucks aad cranes. Tools and workshop equipment will be supplied for all UEB transmission and distribution crewmembers as well as for the existing electrical, mechanical, communication, metering and protection workshops in Kampala. 10. Other components of the transmission and distribution rehabilitation services will be civil works repair for all operational buildings, the reconstruction of the district offices of Mbarara and Masaka, and the supply of a new computer to UEB. Training and Studies 11. The project envisages the reconstruction of the Jinja Training School and supply of educational equipment, with a target of regular courses for training 300 technicians during the next five-year period as well as intermittent refresher courses, management seminars, briefing for new staff, job safety, meter readers, and installation inspectors. An overall training needs study is also included in the project. The reconstruction of hostel facilities for the courses is also included in the project. 12. A tariff structure study, a billing and collection system study, a training needs study, and a feasibility study for the next power plant are included in the project. 13. Technical assistance to the Ministry of Power, Posts and Tele- communications. Funds are available in the project for specific technical assistance to the Ministry for: (i) helping to organize the Energy Department (ii) to carry out a forest and plantation inventory and (iii) to conduct household energy and fuelwood marketing surveys. 14. The UNDP/World Bank Energy Assessment Report on Uganda (Uganda: Issues and Options in the Energy Sector, July 1983) recommended setting up an Energy Department in MPPT. The follow-up Energy Assessment Status Report (August 1984) noted that further steps have been taken by Government to provide sufficient staff positions and begin personnel recruitment to allow a start to the Energy Department operations in mid-1984. Furthermore Government has asked for technical assistance focusing primarily on the formation and operation of the Energy Department. 15. A forestry and plantation inventory of Uganda (districts and total areas to be discussed with the Forestry Department) needs to be carried out to determine species, volume per hectare, adequacy of regeneration, and long-term potential output of fuelwood, building poles and other forest products in each district. -57- ANNEX 7 Page 3 of 3 16. As part of energy sector planning, surveys of fuelvood marketing and distribution channels and of household energy consumption in the main towns are required. The survey on fuelwood should examine efficiency of marketing and distribution channels, profit margins, and recommend possible incentive to bring about improvements in marketing efficiency for the supply of fuelwood to urban areas. The household energy survey in the main towns should include studies on consumption of wood, charcoal, kerosene and electricity and its relation to household size and income, expected future trends, transport distance and supply regions. It is envisaged that these three surveys will form the basis for the preparation of an urban household energy strategy by the Energy Department in KPPT. -58- ANNEX 8 Page 1 of 5 UGANDA SECOND POWER PROJECT Cost Estimates (US$ thousands) I. Owen Falls Power Station Foreign Local Total Power Station Post Tensioning Base Costs 2,736.0 25.1 2,761.1 Physical Contingency 414.2 - 414.2 Price Contingency 457.9 3.6 461.5 Total 3,608.1 28.7 3,636.8 Dam and General Civil Works Base Costs 1,639.5 53.8 1,693.3 Physical Contingency 245.9 8.1 254.0 Price Contingency 187.2 6.1 193.3 Total 2,072.6 68.0 2,140.6 Gates and Associated Equipment Base Costs 1,069.4 21.8 1,291.2 Physical Contfrigency 160.6 1.9 162.5 Price Contingency 132.0 2.5 134.5 Total 1,362.0 26.2 1,388.2 Turbines and Coumon Plant Base Costs 1,176.6 113.5 1,290.1 Physical Contingency 176.4 16.1 192.5 Price Contingency 301.0 28.8 329.8 Total 1,654.0 158.4 1,812.4 Generators and Control Equipat. Base Costs 6,063.9 372.0 6,435.9 Physical Contingency 909.6 49.4 959.0 Price Contingency 1,429.8 86.3 1,516.1 Total 8,403.3 507.7 8,911.0 Main Cables Base Costs 249.5 2.2 251.7 Physical Contingency 37.7 - 37.7 Price Contingency 32.0 0.3 32.3 Total 319.2 2.5 321.7 Transformers Base Costs 485.6 4.6 490.2 Physical Contingency 73.5 - 73.5 Price Contingency 62.2 0.5 62.7 Total 671.3 5.1 626.4 Workshops Base Costs 164.2 1.5 165.7 Physical Contingency 24.8 - 24.8 Price Contingency 7.6 0.1 7.7 Total 196.6 1.6 198.2 -59 - ANNEX 8 Page 2 of 5 II. Transmission & Distribution Works and Auxiliary Items Foreign Local Total Uprating and Strengthening of Transmission Lines Base Costs 4,347.0 1,196.1 5,543.1 Physical Contingency 653.0 169.7 822.7 Price Contingency 1,000.0 314.2 1,314.2 Total 6,000.0 1,680.0 7,680.0 Substation Equipment Base Costs 3,162.7 124.6 3,287.3 Physical Contingency 474.5 18.7 493.2 Price Contingency 538.6 21.2 559.8 Total 4,175.8 164.5 4,340.3 Distribution Transformers Base Costs 526.0 34.8 560.8 Physical Contingency 79.0 5.2 84.2 Price Contingency 89.6 6.0 95.6 Total 694.6 46.0 740.6 Trans. & Dist. Lines Base Costs 2,021.6 368.8 2,390.4 Physical Contingency 303.7 55.3 359.0 Price Contingency 272.4 49.7 322.1 Total 2,597.7 473.8 3,071.5 Transmission Towers Base Costs 25.1 - 25.1 Physical Contingency 3.7 - 3.7 Price Contingency 1.2 _ 1.2 Total 30.0 - 30.0 Civil Works (Buildings) Base Costs 416.0 212.1 628.1 Physical Contingency 62.4 31.9 94.3 Price Contingency 31.6 16.2 47.8 Total 510.0 260.2 770.2 Tools & Test Equipment Base Costs 1,838.7 16.9 1,855.6 Physical Contingency 275.8 - 275.8 Price Contingency 125.6 1.2 126.6 Total 2,240.1 17.9 2,758.0 Duties and Taxes on Tools, etc. Base Costs - 84.1 84.1 Physical Contingency - Price Contingency 5.0 5.0 Total - 89.1 89.1 UEB Staff Housing Base Costs 350.0 1,050.0 1,400.0 Physical Contingency 55.0 150.0 205.0 Price Contingency 95.0 300.0 395.0 Total 500.0 1,500.0 2,000.0 60 - ANNEX 8 Page 3 of 5 Foreign Local Total Vehicles Base Costs 1,368.0 12.6 1,380.6 Physical Contingency 205.2 - 205.2 Price Contingency 87.8 0.7 88.5 Total 1,661.0 13.3 1,674.3 Duties and Taxes on Vehicles Base Costs - 754.3 754.3 Physical Contingency - - - Price Contingency - 42.0 42.0 Total - 796.3 796.3 Pole Treatment Plant Base Costs 627.5 5.6 624.1 Physical Contingency 94.2 - 94.2 Price Contingency 80.2 0.6 80.8 Total 801.9 6.2 809.1 Comm. & Control Equipment Base Costs 1,785.6 130.0 1,915.6 Physical Contingency 224.6 17.5 242.1 Price Contingency 235.8 17.3 253.1 Total 2,246.0 164.8 2,410.8 Radio Base Costs 1,145.9 311.7 1,457.6 Physical Contingency 99.8 45.8 145.6 Price Contingency 146.0 42.1 188.1 Total 1,391.7 399.6 1,791.3 Computer Base Costs 259.8 2.5 262.3 Physical Contingency 38.9 - 38.9 Price Contingency 33.0 0.3 33.3 Total 331.7 2.8 334.5 III. Engineering & Supervision Owen Falls Power Station Base Costs 1,405.5 321.1 1,726.6 Physical Contingency - - - Price Contingency 204.0 367.7 1,977.2 Total 1,609.5 367.7 1,977.2 Trans. & Distribution Base Costs 1,501.6 456.8 1,958.4 Physical Contingency - - - Price Contingency 223.6 73.5 297.1 Total 1,725.2 530.3 2,255.5 -61 - ANNX 8 Page 4 of 5 Foreign Local Total IV. Studies and Training Computer Systems Study Base Costs 218.2 93.5 311.7 Physicalr Contingency - - Price ContingeLcy 32.8 14.1 46.9 Total 251.0 107.6 358.6 Tariff Study Base Costs 124.6 53.4 178.0 Physical Contingency Price Contingency 13.8 5.9 19.7 Total 138.4 59.3 197.7 Training Center & Study Base Costs 336.4 396.1 732.5 Physical Contingency 40.4 47.6 88.0 Price Contingency 15.0 17.7 32.7 Total 391.8 461.4 853.2 Next Power Station Engineering Base Costs 800.0 200.0 1,000.0 Physical Contingency Price Contingency - - Total 800.0 200.0 1,000.0 Energy Dept. Technical Assistance Base Costs 700.0 100.0 800.0 Physical Contingency - - - Price Contingency - - Total 700.0 100.0 800.0 Fuelwood Surveys Base Costs 490.0 210.0 700.0 Physical ConLtngency Price Contingency Total 490.0 210.0 700.0 Forestry Inventory Base Costs 1,750.0 750.0 2,500.0 Physical Contingency Price Contingency - _ _ Total 1,750.0 750.0 2,500.0 Assumptions: Mid-year 1985 1986 1987 1988 1989 L F L F L F L F L F International inflation 104.0 104.0 113.0 113.0 123.4 123.4 134.1 134.1 145.1 145.1 - 62 - ANNEX 8 Page 5 of 5 UGANDA SECOND POWER PROJECI Cost Estimate Suinary (US$ thousands) Foreiga local Total Project Items 0,7en Falls Pbwer Station Base Costs 13,584.7 594.5 14,179.2 Pbysical Contingency 2,042.7 75.5 2,118.2 Price Contingency 2,609.7 128.2 2,737.9 Total 18,237.1 798.2 19,035.3 Transmission & Distribution 4 Auxiliary Items Base Costs 17,914.7 3,585.7 21,500.4 Physical Contingency 2,574.0 524.1 3,098.1 Price Contingency 2,691.8 619.3 3,311.1 Total 23,180.5 4,731.1 27,909.6 Engineering & Supervision Base Costs 2,907.1 777.9 3,685.0 Physical Contingency - - - Price Contingency 427.6 120.1 547.7 Total 3,334.7 898.0 4,232.7 Studies and Training Base Costs 4,419.2 1,833.0 6,252.2 Physical Contingency 40.4 47.6 88.0 Price Contingency 61.6 37.7 99.3 Total 4,521.2 1,918.3 6,439.5 Power II Project Total Base Costs 38,825.7 6,791.1 45,616.8 Physical Contingency 4,657.1 647.2 5,304.3 Price Contingency 5,790.7 905.3 6,696.0 Total 49,273.5 8,343.6 57,617.1 Taxes and Duties Base Costs - 838.4 838.4 Physical Contingency - - Price Contingency - 47.0 47.0 Total - 885.4 885.4 Interest Daring Construction 591.3 13,345.7 13,937.0 Total Financing Requirements 49,864.8 22,574.7 72,439.5 UGANDA SECOND POWER PROJECT Implementation Schedule EAR 1914 1966 1966 1967 19 1969 1990 QUARER 3 4 1 2 3 4_ 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 OWEN FALLS CML V~i(S- - - - - - OWEN FALLS ELECTROC ANMECHANKAL . _ _ _ - _ _ -_ _ 3 KMPALCIAOWEN FALLS TRANSMI590N LINE N - - - - _ RwIMISSION & DISTlnlBON a m - - _ - m _ _ - - WAREHOLSE & WOfKSOPS REHABILITAMON VEHICLES SLIPPLY Logond. * Bidding DcourGenhs Ise * Rocelpl Of Bids v Contfaci Awotd Work In Progress 4 Work Complelion W WottdBonk-26801 64- ANNEX 10 UGANDA SECOND POWER PROJECT Estimated Schedule of Disbursement (US$ millions) IDA Fiscal Year Quarterly Cumulative Quarter Ending Disbursement Disbursement 1985/1986 September 30, 1985 1.5 1.5 December 31, 1985 2.0 3.5 March 31, 1986 2.0 5.5 Jume 10, 1986 3.0 8.5 1986/1987 September 30, 1986 3.5 12.0 December 31, 1986 4.5 16.5 March 31, 1987 3.0 19.5 June 30, 1987 4.0 23.5 1987/1988 September 30, 1987 1.0 24.5 December 31, 1987 1.0 25.5 March 31, 1988 1.0 26.5 June 30, 1988 1.0 27.5 1988/1989 September 30 1988 0.3 27.8 December 31, 1988 0.2 28.0 March 31, 1989 0.2 28.2 June 30, 1989 0.2 28.4 1989/1990 September 30, 1989 0.2 28.6 December 31, 1989 0.1 28.7 March 31, 1990 0.1 28.8 - 65 - ANNEX 11 Page 1 of 2 UGANDA SECOND POWER PROJECT Monitoring Guidelines 1. In addition to the items listed in paras. 4.17 and 5.09, many other factors would affect project implementation and its completion. These factors are listed below and should be compared with planned target dates as follows: Rehabilitation works - warehouse rehabilitation - start: June 30, 1985 - completion: Dec. 31, 1985 construction of training facilities - start: Oct. 31, 1985 - completion: Dec. 31, 1986 - transmission and distribution equipment procurement contract award March 1986 beginning delivery June 30, 1986 tools and maintenance equipment delivery May 31, 1986 vehicles delivery May 31, 1986 - Oven Falls powerhouse civil works: award contract Oct. 31, 1985 turbo generation works: start June 30, 1986 completion Feb. 28, 1990 - 132 kV transmission lines receipt of bids Jan. 31, 1986 start construction June 30, 1986 construction completion Dec. 31, 1987 - technical assistance training study - study start Sept. 30, 1985 - study completion Mar. 31, 1986 tariff study - study start Dec. 31, 1985 - study completion Sept. 30, 1986 billing and collection study - study start Sept. 30, 1985 - study completion Mar. 31, 1986 - begin implementation June 30, 1986 power plant feasibility study - study start Sept. 30, 1985 - study completion June 30, 1986 forest inventory - inventory start Jan. 1, 1986 - inventory complete Dec. 31, 1988 fuelwood marketing survey - survey start Jan. 1, 1986 - survey complete Dec. 31, 1986 household energy survey - survey start Jan. 1, 1986 - survey complete Dec. 31, 1986 -66 -ANNEX 11 Page 2 of 2 2. Records will be maintained on the following items: General (a) hydro production (in kWh) (b) diesel station production (in kWh) (c) supply to Kenya (in kWh) (d) power consumption (in kWh, by classification) (e) losses (by classification) (f) equipment and transmission line failures (g) number of interruptLons and their duration together with their reasons (transmission and distribution) (h) number of consumers (by classification) Admiuistrative and Financial (i) number of staff (j) average tariff level (in USh/kWh and USeents equivalent/kWh and by classification) (k) revision ro project cost estimate and related financing _67 - ANM12 VGAM SECOND PO CT UGANDA EIECRICIET BOAD (IEB) INaIIE 5R!2L FOR THE YEARS ENDING JElNE 31, 1982-84 (Millions of USh) -Actual- Estimated 1982 1983 1984 SALES (GWh) DOWESTIC 119.0 102.0 122.0 COMtIERCIAL 61.0 56.0 60.0 STfET LIQITING 7.0 7.0 8.0 fDlSTRIES 99.0 86.0 104.0 TOTAL RETAIL 286.0 251.0 294.0 BULK 1ENY 213.0 218.0 252.0 TUO4L SALES 499.0 469.0 546.0 TARIM (USh/kWh) DOMESTIC 0.71 1.01 1.43 CQGIIRCIAL 1.47 2.02 2.87 STREET LIQITING 0.76 0.91 1.29 INDUSTRIES 0.57 0.83 1.18 BULK KENYA 1.06 1.28 1.28 REVENUS cESTIC 84.6 103.2 174.5 QCM4RCIAL 89.8 113.1 172.2 STREET LIGHTING 5.3 6.4 10.3 ItNAJSTRIES 56.3 71.5 122.7 TOTAL RETAIL 236.0 294.2 479.7 BML KENyA 225.0 278.6 322.6 TARIFF INCREASE 663.2 TOTAL PCWER SUpPLY 461.0 572.8 1465.5 MEMER RENTAL & OTHER 7.2 28.5 25.0 TOTAL REVENUES 468.2 601.3 1490.5 oPERtTING EXPENSES PUEL 42.5 48.7 60.0 SALARIES & WAGES 42.2 56.5 210.0 REPAIR & MAINT. 80.7 140.4 228.8 TRANSPORT & TRAVEL 21.2 65.9 112.0 OTHER 85.2 124.0 198.4 DEPRECIATICN (HIST COST) 602.8 732.9 1031.6 TOTAL OP EXPENSES 874.6 1168.4 1840.8 NET OPERAXING INCWME (LOSS) (406.4) (567.1) (350.3) II1TEREST EXPESES 89.4 69.7 90.9 NET OP INCOME AFETR INTEREST (495.8) (636.8) (441.2) EXCEANGE LOSS 57.0 (15.5) NET INCCZE (LOSS) (552.8) (621.3) (441.2) _68 - ANNEX 13 UGANDA SECOND POWER PROJECT UGANDA ELEC!RICITY BOARD (UEB) FuNDS FLOW STATEMENTS FOR YEARS ENDING DEC 31, 1982-84 (Millions of USh) -ACTUAL- EST1D. 1982 1983 1984 INTERNAL GENERATION NET OPERATING INCOME (LOSS) (406.4) (567.1) (350.3) DEPRECIATION 602.8 732.9 1031.6 EXCHANGE GAIN (LOSS) (57.0) 15.5 PENSION FUND INCREASE 10.9 14.8 15.5 OT.lER (INCLDNG CLEARING ACC DEP) 7.5 9.7 TOTAL INTERNAL GENERATION 157.8 205.8 696.8 OPERATING REQUIREMENTS DEBT SERVICE 145.0 74.4 287.0 INCR (DECR) IN NON CASH WKG CAP 177.4 155.7 2.6 TOTAL OPERATION REQUIREM4ENTS 22.4 230.1 289.6 AVAILABLE FROM OPERATIONS -164.6 -24.3 407.2 CONSTRUCtION REQUIREMENTS ONWOING PROGRAM 117.5 162.2 944.7 RURAL DEVELOPMENT 122.0 TOTAL CONSTRUCTION 117.5 162.2 1066.7 BALANCE TO FINANCE 282.1 186.5 659.5 FINANCED BY: EXCEEQUER LOAN 53.2 IDA RECONSTR. I 163.1 80.6 CONSUMER CONTRIBUTIONS 53.7 124.2 50.0 DECREASE IN INVESTMENT 0.1 UGANDA GOVERM 1.4 EEC GRANT 122.0 IDA RECDNSTRLJCTION II 500.0 TOTAL FINANCING 270.0 125.7 752.6 INC (DECR) IN CASH (12.1) (60.8) 93.1 CASH BALANCE - BEGINNING 53.0 40.9 (19.9) - ENDING 40.9 (19.9) 73.2 DEBT SERVICE COVERAGE 1.1 2.8 2.4 INTERNAL CONTR TO CDNSTR PROGRAM 0 0 38 ANNEX 14 _69_ UGANDA SECONtD POE PROJECT UGANDA ELECTRICIMY BOARD (UEB) BALANCE SMEETS AS OF EEC. 31, FOR THE YEARS 1982-84 (Millions of USh) ACSTUALT. ESTI. 198i 1983 1984 ASSETS FIXED ASSETS PLANT IN OPERATION 24422.2 27930.2 45755.0 LESS ACC. DEPECIATION 11114.8 13494.8 22673.3 NET PLANT IN OPERATION 13307.4 14435.4 23081.7 INVESTMENTS 5.1 5.0 5.0 CURRENT ASSETS CASH 66.8 64.6 73.2 ACCOUNTS RECEIVABLES 286.8 260.7 596.2 STORES 357.0 583.4 480.9 TOTAL CURRENT ASSETS 710.6 908.7 1150.3 TOTAL ASSETS 14023.1 15349.1 24237.0 EQUITY AND LIABILITIES EQUIT RETAINED EARNINGS (DEFIc.F ) -492.4 577.8 1238.0 REV. SURPLUS 12772.3 13897.6 21579.4 TOTAL EQUIrY 12279.9 14475.4 22817.4 LONG-TERM DEBT 1285.7 399.8 784.3 PENSION FUN1D 63.5 78.3 93.8 CURRENT LIABILITIES CREDITORS & ACCRUALS 158.6 134.5 469.0 CCNSUMER DEPOSITS 23.5 34.8 40.0 ACCRUED INTEREST 176.2 132.0 22.7 ACCRUED TAXES 9.8 9.8 9.8 BANK OVERDRAFT 25.9 84.5 IOTAL CURRENT LIABILITIES 394.0 395.6 541.5 TOTAL EQUITY & LIABILrTIES 14023.1 15349.1 24237.0 -_ __- CURRENT RkTIO 1.8 2.3 2.1 DEBT EQUTIY RATIO 9/91 3/97 3/97 - 70 - AN= 15 UGV SW=X Pa FUEC= UGND EicrM BAD (UB) INXX1Sn=40al{NMsiH OEL MM END1N WMM2
Группа Всемирного банка · Staff Appraisal Report
Uganda - Second Power Project
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