India - First and Second Rural Electrification Corporation Projects

Doemot of The World Bank FOR OFFICIAL USE ONLY Report No. 6307 PROJECT PERFORMANCE AUDIT REPORT INDIA FIRST AND SECOND RURAL ELECTRIFICATION PROJECTS (CREDITS 572-IN AND 911-IN) June 26, 1986 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency unit = Rupee (Ra) Rs 1 Paise 100 US $1 = Rs 12.0 ABBREVIATIONS AND ACRONYMS BANK - Bank Group, especially IDA ERR - Economic Rate of Return FRR - Financial Rate of Return GOI - Government of India GW - Gigawatt (billion watt) GWh - Gigawatt-hour HP (hp) - Horsepower HT - High Tension IDA - International Development Association kW - Kilowatt kWh - Kilowatt-hour LT - Low Tension MH - Special Project for Health Centers MNP - Minimum Needs Program MW - Megawatt NABARD - The National Bank for Agriculture and Rural Development O&M - Operation and Maintenance P - Paise PCR - Project Completion Report PEO - Program Evaluation Organization, Planning Commission, GOI PPAM - Project Performance Audit Memorandum PPAR - Project Performance Audit Report RE - Rural Electrification REC - Rural Electrification Corporation (the Corporation) RMNP - Revised Minimum Needs Program SAR - Staff Appraisal Report SEB - State Electricity Board (the Board) SI - System Improvement Schemes SPA - Special Project, Agriculture SPD - Special Project, Drinking Water SPI - Special Project, Industry ST - Special Scheme, Transmission T&D - Transmission and Distribution TW - Tera watt (1012 watt) TWh - Tera watt-hour FOR OFFICAL USE ONLY THE WORLD SANK Washington. D.C. 20433 U.S.A. a01ce of Dector-CWal Operatoft Ivaluat June 26, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on India - First and Second Rural Electrification Projects (Credits 572-IN and 911-IN) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on India - First and Second Rural Electrification Projects (Credits 572-IN and 911-IN)" prepared by the Operations Evaluation Department. ~4 Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. PROJECT PERFORMANCE AUDIT REPORT INDIA: FIRST AND SECOND RURAL ELECTRIFICATION PROJECTS (CREDITS 572-IN AND 911-IN) TABLE OF CONTENTS Pae No. Preface ..................................................... i Basic Data Sheet ....................................... iii Evaluation Summary .......................................... vii PROJECT PERFORMANCE AUDIT MEMORANDUM I, PROJECT SUMMARY ....................................... 1 Introduction .......................................... 1 Program and its Objectives ............................ I Conditions ...................................... 3 Project Implementation ........................... 4 Achievements ......................6 Financial Performance ......................... 9 Procurement ........................................... 10 II. SUPPLEMENTARY COMMENTS ................................ 11 Introduction .......................................... 11 RE Strategy Reconsidered .............................. 12 REC: The Task Ahead .................................. 21 Power Sector Efficiency ............................... 25 Power Rates and the Electricity Tariff Commission ..... 26 Managing the Groundwater Usage ........................ 27 Consumers' Services ................................... 28 Sustainability of RE and the Electricity Supply Industry .................................... 29 III. CONCLUSIONS ............... 30 Institutional Reforms ...........................<..... 31 Resource Mobilization ............................... 31 Sector Imbalances .................................... 32 The Bank's Lending Policy ............................. 32 This document has a restricted distribution and may be used by recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (continued) Page No. ANNEXES: 1. List of Places Visited and References Used by the Audit Mission .................................. 33 2. Disbursement Record of the Bank's, Three Credits/Loan... 39 3. Irrigation Potential.............00000***.......... 40 4. India: Area under Irrigation........................ 41 5. Changes Associated with the RE Program.................. 42 6. REC's Income Statement and Balance Sheet ............... 43 7, REC's Loan Terms, Viability criteria, and Poverty Focus .............................. 45 8. Energy Cost, The Required Return from the RE Program, and the Program's ERR ................................ 47 9. Beneficiaries and Non-beneficiaries of RE Program ...... 55 10. All-India Transmission and Distribution Losses ......... 56 11. All-India Thermal Plant Utilization Factor *o.. *........ 57 12. Agricultural Tariffs/Power Rates for Rural Consumers ... 58 APPENDIX I - Comments from the Government of India and Planning Commission ............................... 66 PROJECT COMPLETION REPORT (CREDIT 572-IN) I. Introduction ........................................... 73 II. Project Identification, Preparation and Appraisal 0..... 78 III. Implementation ......................................... 83 IV. Power Sector Operating Performance ..................... 90 V. Financial Performance .................................. 93 VI. Institutional Performance .......... ................ 99 VII. Economic Reevaluation ................................. 103 VIII. Bank Performance ....................... 106 IX. Conclusions .......................................... 109 ANNEXES -1 to 21 .............******************************** 111 EVALUATION OF THE RURAL ELECTRIFICATION PROGRAM I. Summary: Volume I, Program Evaluation Organization, Planning Commission, GOI, January 1982 ............... 147 II. Summary and Suggestions: Volume II, Program Evaluation Organization, Planning Commission, GO, November 1983 .............. 152 PROJECT PERFORMANCE AUDIT REPORT INDIA: FIRST AND SECOND RURAL ELECTRIFICATION PROJECTS (CREDITS 572-IN AND 911-IN) PREFACE This report presents the results of a performance audit of the First and the Second Rural Electrification (RE) projects in India. Issues surrounding the third RE project (Loan 2165-IN), which is still incomplete, have also been reviewed. The Rural Electrification Corporation (REC) is the program's main development finance company. The State Electricity Boards (SEBs) are the beneficiaries and the implementation agencies. During 1969-85, the Corporation approved over 10,000 RE projects, but the audit was unable to separate the Bankl/ from the non-Bank schemes, and reclassify the former under the three Bank projects. REC also found it difficult to provide aggregative information about the socio-economic impact, the status, the problems, and the prospects of schemes partially financed by the Bank. This report has, therefore, reviewed the Bank projects within the context of India's RE program. The Bank's assistance has included: a US$57.0 million credit (572-IN) for India's 1976-79 RE program; a US$175.0 million credit (911-IN) for the 1980/81-1981/82 program; and a US$304.5 million loan (2165-IN) for the 1983/84-1984/85 program. These funds were provided to the Government of India (GOI) for relending to SEBs, mostly through REC. The first development credit was fully disbursed and closed in December 1980, one year behind schedule. US$171.75 million of the second credit were disbursed, $3.25 million cancelled, and the credit closed on schedule in March 1984. In 1983, OED sent an audit mission to India to review the first RE project. But because of the program's complex socio-economic issues, it was felt that more detailed study was required before a PPAR could be completed for Board presentation. It was, therefore, decided to examine the performance of both the first and the second RE projects in the wider context of India's RE program. This report consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED), and a Project Completion Report (PCR) on the first RE project, prepared by the South Asia Region. A PCR on the second project, for which disbursements were completed in January 1985, is being finalized by the South Asia Region. In addition, the report has reproduced summaries and suggestions contained in GOI's Evaluation of the Rural Electrification Program, published in 1982/83. 1/ Means Bank Group, especially IDA. The PPAM is based on a two-month -.ssion to New Delhi and the following fourteen states: Punjab, Haryana, Rajasthan, Maharashtra, Gujarat, Karnataka, Kerala, Tamil Nadu, Andhra Pradesh, Orissa, West Bengal, dihar, Uttar Pradesh (U.P.) and Maehya Pradesh (M.P.). The mission visited several villages in each state,2/ discussed the program's impact, problems, and prospects with rural beneficiaries, village panchayat / representatives, REC/SEB officials, universities and research institute7, state government officials, SEB Chairmen, credit institutions, and the Planning Commission. In preparing the audit, many reports were reviewed including: Staff Appraisal Reports (SAR); President's Reports; Development Credit Agreements; supervi- sion mission reports; correspondence with the borrower; and internal Bank memoranda on project issues in the Bank files. Annex 1 lists the places visited and the main documents and research centers that were consulted. The .dission is grateful to the 001, the REC, and SEBs for the assistance they provided to it. Following standard OED procedures, copies of the draft PPAR were sent to the Government for comments. Those have been reproduced in Appendix 1, and the report suitably amended. 2/ Except in Punjab. 3/ Local elective bodies. PROJECT PERFORMANCE AUDIT BASIC DATA SHEET INDIA: FIRST RURAL ELECTRIFICATION PROJECT (CREDIT 572-IN) KEY PROJECT DATA Original Actual Project Cost (US! illion) 114.1 114.1 Loan Amount (US$ million) 57.0 57.0 Disbursed 57.0 57.0 Date for Completion of Physical Components 06/79 /a Proportion Completed by Target Date (%) /a Ta Economic Rate of Return 1-27% 10% Tb Financial Performance Improving Institutional Performance Satisfactory CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million) 06/76 06/77 06/78 06/79 06/80 06/81 Appraisal Estimatv 1 23.5 57.0 -- -- -- Actual 0 3.1 12.2 27.4 49.3 57.0 Actual as % of Estimate -- 13.2 21.4 48.0 86.4 100.0 OTHER PROJECT DATA Original Plan Revisions Actual Concept in Bank 1972 - - Negotiations 05/75 - 05/75 Board Approval 06/75 - 07/75 Credit Agreement 07/75 - 07/75 Effectiveness 09/75 1 10/75 Final Disbursement 06/78 - 03/81 Closing Date 12/79 1 12/80 Borrower Government of India Executing Agency Rural Electrification Corporation of India Fiscal Year of Borrower April 1 - March 31 Follow-up Project Name Rural Electrification Project II Credit No. 911-IN /a Although disbursements on items procured by the SEBs were completed by December 1980, the audit is unable to determine the physical completion dates of hundreds of sub-projects that received IDA supplies. /b PPAM, para. 67. - iv - MISSION DATA Month/ No. of No. of Man- Date of Year Weeks Persons weeks Report Appraisal 02/75 - - - - Supervision 1 12/75 1.0 1 1.0 02/76 Supervision 2 07/76 1.7 2 3.4 09/76 Supervision 3 02/77 0.9 3 2.7 04/77 Supervision 4 01/78 0.4 2 0.8 03/78 Supervision 5 11/78 1.4 3 4.2 01/79 Supervision 6 12/79 1.1 2 2.2 01/80 Supervision 7 03/80 2.9 3 8.7 05/80 Supervision 8 10/80 2.3 5 11.5 01/81 STAFF INPUT (Staff-Weeks froi. Time Recording System) 1973 1974 1975 1976 1977 1978 1979 Preappraisal 26.3 .5 .7 - - - - Appraisal 14.0 16.1 21,3. - - - - Negotiation - - 5.7 .4 - - - Supervision .1 - - 3.7 10.4 4.0 5.0 Other - - - - - - - Total 40.4 16.6 27.7 4.1 10.4 4.0 5.0 1980 1981 1982 1983 Total Preappraisal - - - - 27.5 Appraisal - - - - 51.4 Negotiation - - - - 6.1 Supervision 8.5 3.0 5.6 - 40.3 Other - - - .1 .1 Total 8.5 3.0 5.6 .1 125.4 COUNTRY EXCHANGE RATE Name of Currency Rupees (Rs) Appraisal Year (1975) Average US$1 - Re. 8.0 Completion Year (1981) Average US$1 - Re. 8.9 - V - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET INDIA: SECOND RURAL ELECTRIFICATION PROJECT (CREDIT 911-IN) KEY PROJECT DATA Original Actual Project Cost (US$ million) 400 650 Loan Amount (US$ million) 175 175 Disbursed 175 171.75 Cancelled - 3.25 Date for Completion of Physical Components 06/83 /a Proportion Completed by Target Date (%) /a Economic Rate of Return 40% 10% Financial Performance Improving Institutional Performance Satisfactory CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million) 03/81 03/82 03/83 03/84 03/85 Appraisal Estimate 16 110 166 175 -- Actual 36.3 112.5 146.0 157.9 171.75 Actual as % of Estimate 227 102 88 90 98 OTHER PROJECT DATA Original Plan Revisions Actual Concept in Bank 02/77 - 02/77 Negotiations 04/79 - 04/79 Board Approval 05/79 - 05/79 Credit Agreement 06/79 - 06/79 Effectiveness 10/79 - 10/79 Final Disbursement 03/84 - 01/85 Closing Date 03/84 1 03/84 Borrower Government of India Executing Agency Rural Electrification Corporation of India Fiscal Year of Borrower April 1 - March 31 Follow-up Project Name Rural Electrification Project III Credit No. 2165-IN /a Although disbursements on items procured by the SEBs were completed by 1985, the audit cannot determine the physical completion dates of hundreds of sub-projects that received IDA supplies. /b PPAM, para. 67. * vi - MISSION DATA Month/ No. of No. of Man- Date of Year Weeks Persons weeks Report Appraisal 10/78 5 4 20 12/78 Supervision 1 12/79 1.6 2 3.2 01/80 Supervision 2 03/80 4 3 12.0 05/80 Supervision 3 10/80 3.2 5 16.0 01/81 Supervision 4 05/81 3.6 4 14.4 10/82 Supervision 5 02/82 2.8 3 8.4 04/82 Supervision 6 10/82 4.0 4 16.0 11/82 Supervision 7 11/83 3.0 1 3.0 02/84 STAFF INPUT (Staff-Weeks from Time Recording System) 1973-77 1978 1979 1980 1981 1982 Preappraisal .4 12.3 21.2 - - - Appraisal .1 - 64.7 - - - Negotiation - - 14.6 - - - Supervision - - - 17.9 10.5 5.7 Total .5 12.3 100.5 17.9 10.5 5.7 1983 1984 1985 Total Preappraisal - - - 33.9 Appraisal 3.1 - - 67.9 Negotiation - - - 14.6 Supervision 2.7 6.1 1.4 44.3 Total 5.8 6.1 1.4 160.7 COUNTRY EXCHANGE RATE Name of Currency Rupees (Rs) Appraisal Year (1978) Average US$1 = Rs. 8.6 Completion Year (1985) Average US$1 - Rs. 11.9 - V11 - PROJECT PERFORMANCE AUDIT REPORT INDIA: FIRST AND SECOND RURAL ELECTRIFICATION PROJECTS (CREDITS 572-IN AND 911-IN) EVALUATION SUMMARY Introduction The Corporation is the main development finance company for SEBs' RE projects. Since 1969 REC has sanctioned about 10,000 schemes, committing over US$3.0 billion in loans. The Bank has supported the program with US$536.5 million in credits and loan. The program's development pace has been fast; its scale, prodi- gious; and its emphasis on improving village productivity has been well- suited to India's needs. India's RE is a significant pioneering work among the low-income countries. Objectives The program has helped to achieve food self-sufficiency, alleviate poverty, and transform the rural economy. With continuing population pressure, RE is trying to sustain growth in food production, particular'y in the Northeastl/ Region, and also focus on job creation to mitigate rural poverty. Implementation Experience No precise estimates of time and cost overruns are available for the roughly 5,300 RE schemes assisted by the Bank. But the Bank had already decided against, "getting involved in many small sub-projects" (PPAM, para. 3). The primary concerns of RE supervision missions were: connection rates (villages and pumps), procurement issues, and SEBs' eligibility (PPAM, para. 11) for use of Bank resources. Field visits suggest that time and cost overruns are particularly striking in the Northeast. SEBs operating In other areas often face administrative obstacles, detailed in PPAM, para. 15, but they can usually achieve the program's quantitative objectives for connecting pumps and villages to the power grids. Given that REC provides considerable financial advances to SEBs, amounting to 30%-40% of most approved loans, the slow disbursements of the Bank's credits/loan do not mirror RE schemes' implementation delays. 1/ Assam, West Bengal, Bihar, M.P., Orissa, and U.P. - excluding the western part. - vill - Moreover, as the Bank's financial support is relatively modest, disbursement delays from this source have been unimportant (PPAM, para. 18). The recent lags are due to a significant increase in suppliers' costs owing to raw material price increases, and the SEBs' inability to commit funds as envisag- ed in the appraisal report, which is caused mainly by poor procurement plann- ing and processing (PPAM, para. 19). As for procurement, SEBs have adhered to competitive bidding pro- cedures acceptable to the Bank. Suppliers are almost all local manufac- turers.2 Field visits also strongly indicate the emerging dangers from the excessive use of ground water resources (PPAM, paras. 105-109). Results Following the 1966/67 food crisis, the GO focused on pump energi- zation. RE has had a critical share in, at least, 20% of the incremental agricultural output over 1969-84 (PPAM, para. 27). The program has secured an estimated 10% ERR from the energized pumps (PPAM, para. 67). Infrastructure for larger gains has also been built in 64% of Indian villages. When realized, these gains would exceed the 12% minimum acceptable ERR for pump irrigation. Since the manufacturing sector incurs losses 3/ because of the unavailability of and the disruption to power supplies, tfie 12% ERR would be satisfactory only if electrical energy shortages are overcome. Concern with poverty problems in the 1970s is reflected in attempts to extend service to many low-income groups and underdeveloped areas. But farmers with above average landholdings have reaped most of the benefits. Without RE the poverty problem would have been more acute: the program has promoted labor intensive farming and a modest growth in rural industries (PPAM, Annex 5). Because of low tariffs and the rapid rate of village electrifica- tion, SEBs operate under severe financial pressure, impeding reform and supply expansion. According to the audit, rural electricity costs, at least, Rs. 2.0/kWh.4/ Irrigation tariffs recover 10% of the cost. The States' reluctance tointroduce tariffs that would capture a significant part of the cost from the relatively affluent farmers has not helped to narrow income disparity among India's rural communities. Without significant tariff 2/ Adjusted to reflect GOI's comments, Appendix I, p. 2. 3/ Modified to reflect GOI's comments, Appendix I, p. 2. 4/ GOI's estimate of financial cost is much lower, 70 paise in 1983-84 (Appendix I, p. 2). adjustment, and institutional and other reforms, reviewed in this report, the Bank's financial covenants will have limited benefits. According to the PCR, financial covenants "affecting SEBs are not easy to monitor". Since preparation of accounts "takes an unusually long time", it prevents "swift remedial action under a quickly disbursing project" (para. 9.05). RE consumer services are currently inadequate. An improved service partly depends on the public's participation in, for example, electric cooperative societies or village panchaysts, and on the consumers financial support through these agencies (PPAM, para. 110-111). Sustainability Since Independence in 1947, India has raised its investment and domestic savings rates markedly. Self-reliance in resource generation, manpower development, and in the local production of capital and essential goods and services has established the foundation for a sustained economic growth. But because of the low productivity of investment, the economy's growth rate, although well sustained, has been unspectacular. The RE program and the power supply industry illustrate the considerable scope that exists for upgrading investment and operational efficiences in one of India's most critical sectors. The country's economy, its power sector, and the RE program are interdependent. The program, despite its many accomplishments, has created imbalances in the electricity supply industry: SEBs' RE losses run annually into hundreds of millions of dollars; strains on power supply, caused by irrigation load, disrupt supplies to the industrial sector during peak demand periods; and the rural service, especially in the Northeast, is inadequate.5/ Sustainability of RE services and the power sector, without dependence on GOI resources, hinges ultimately on the sector achieving self-reliance, autonomy, and a suitable measure of accountability (PPAM paras. 112-115). Supportive institutional, tariff, and other reforms are presented in the ensuing paragraphs. Findings and Lessons Field visits show that: (a) farmers with above average landholdings have reaped most of RE's benefits; and (b) the Northeast is significantly behind the rest of India in RE and in socio-economic development. Besides helping to sustain India's food self-sufficiency, RE's next major task is to create rural jobs and develop human resources. For this a multi-pronged strategy is needed: 5/ Modified to reflect GOI's comments, Appendix I, p. 2. - x - - in the relatively developed states like Punjab, Haryana, Tamil Nadu, and Maharashtra, RE needs to emphasize: energy conservation, system improvement, special projects in industry (SPI), agriculture (SPA), and the social sectors such as education, health, and family planning; - in the underdeveloped regions, a moratorium6/ needs to be imposed on further village electrification, and efforts intensified to implement SPA-type schemes until socio-economic norms, outlined in PPAM paras. 63-65, are satisfied; and - in all states, REC/SEBs should strive to integrate different ele- ments of rural development programs in their SPA, SPI, and similar innovative and participative schemes (PPAM, paras. 77-78). Although the less-advanced and the more advanced areas need to have different development strategies, they must satisfy a unified system of norms, reflect- ing the country's socio-economic preferences (PPAM, para. 42). Field visits confirm that to achieve these objectives, REC/SEBs' catalytic role should be considerably strengthened by: (a) mobilizing sector resources -- the audit recommends establishing a permanent Power Tariff Commission,j/ primarily because of the States' inability to raise tariffs, and the complex issues that surround the agricultural incentive package and the resource allocations to SEBs and the REC (PPAM para. 104); (b) strengthening REC's management, and reinforcing its talents, train- ing, and research centers (PPAM, paras. 78-94); (c) mandating the Corporation to encourage SEBs to reform their systems by complying with suitable REC loan covenants (PPAM, para. 93); (d) revising RE strategy (PPAM, paras. 46-55 and 61), improving the quality of Corporation's loan portfolio through participative and coordinated efforts (PPAM, paras. 74-77), and rigorous screening tests (PPAM, para. 72); (e) applying a more flexible approach regarding areas and items to be financed, including small rural energy schemes (PPAM, paras. 73 and 94); (f) encouraging institutional development; SEBs' management teams should be given more permanent status (PPAM, paras. 97-99); and 6/ GOI's comments on the proposed moratorium are given in Appendix I, pp. 2 and 5. 7/ GOI's comments on the proposed Tariff Commission are given in Appendix I, pp. 6 and 7. - xx - (g) reassessing the Bank's lending approach, summarized in PPAM, para. 132. Other findings, meriting GOI scrutiny, include the need for: - a large training program for linemen to improve consumer services (PPAM, para. 87); and - all-India legislation for managing groundwater exploitation (PPAM, para. 109). PROJECT PERFORMANCE AUDIT MEMORANDUM INDIA: FIRST AND SECOND RURAL ELECTRIFICATION PROJECTS (CREDITS 572-IN AND 911-IN) I. PROJECT SUMMARY Introduction 1. This section reviews the RE program and its objectives; loan/credit conditions; project implementation; achievements; and financial, and procure- ment performance. Program and Its Objectives 2. Most Indian states have electricity boards, which generate, trans- mit, and distribute electrical energy. SEBs also implement, operate, and manage India's RE program. 3. The Corporation, established in 1969, is RE's main development finance company. The Bank has been refinancing, through the GOI, tranches of REC loans to SEBs. According to the PCR: "Internal discussion in the Bank during 1972 concluded that emphasis should be placed on the thorough evalua- tion of REC procedures for extending loans to SEBs rather than on getting involved in many small sub-projects. This approach facilitated the early definition of the project as a time-slice support for ongoing REC leading program." (para. 2.01). The Bank has provided: a US$57.0 million credit (572-IN) for the 1976-79 program; a US$175.0 million credit (911-IN) for the 1980/81-1981/82 program; and a US$304.5 million loan (2165-IN) for the 1983/84-1984/85 program. 4. The first RE project was envisaged, "as part of the Fifth Plan, covering two years' requirements within the plan period for selected schemes and states" (PCR, para. 2.11). The share of the first RE project in the overall rural electrification effort was modest; the project being intended to strengthen REC's position and to establish that its, "scheme appraisal procedure was an improved way to conduct rural electrification" (PCR, para. 2.11). Although similar in design as the first RE project, the second and the third projects have some new features. The second project, for example, envisaged US$1.5 million for a single phase distribution scheme in Rajasthan, and a power factor (HT1/ capacitor) pilot project in Karnataka. The third RE project also provided US$1.0 million, for building and equipment, at the Central Training Institute in Hyderabad, and has been promoting system improvement (SI) schemes. The Bank's SI loans to GOI are channelled through SEBs, but the Corporation continues to appraise and supervise them. 1/ HT: high tension, LT: low tension. 5. Appraisal missions' estimate of the REC's financial and material needs were derived from schemes that the Corporation had sanctioned, and the expected schemes over the ensuing two to three years. Past records indicated RE's material requirements, consisting mainly of conductors, transformers, insulators, switchgears, lightning arrestors, and poles.2/ The three projects and the material supplies support RE's objectives of securing self- sufficiency in food production, mitigating poverty, and transforming India's rural economy. 6. RE's program focus has shifted over time. Following the food crisis of the mid-1960s, GOI drastically revised its strategy to emphasize: "energization of pump sets for attaining self-sufficiency ig food production rather than mere electrification of villages" (PEO Report, / Vol. I, p. 1). The Reserve Bank of India's Rural Credit Committee (1966-691, established to devise programs for increased food output, concluded that: "a greatly accel- erated program for rural electrification" was "of critical importance" (PEO Report, Vol. I, p. 5). Two major hurdles impeded progress: the poor state of SEBs' finances, and the RE schemes' negative financial rates of return (FRR). The Committee, therefore, recommended that the RE program be financed from "US-use funds" with matching GOI contributions. To administer the fund, the Committee proposed that an autonomous body be established in the Ministry of Irrigation and Power (now the Ministry of Energy). 7. The REC was, therefore, established to administer the plan expendi- tures funded by the Union Government (Center), and to lend to SEBs and Rural Electric Cooperatives. To achieve its objectives, GOI requires that the Corporation follow a "project approach", and coordinate electrification with other rural development programs. 8. Concern with poverty problems grew in the early 1970s. In their well-known study on poverty in India, Dandekar and Rath concluded that in the 1960s the condition of the bottom 20% of rural poor had remained more or less stagnant, but the condition of the bottom 20% of urban poor had definitely deteriorated. Even "a high rate of growth, probably beyond the range of feasibility, cannot lift the bottom of the society to the desirable minimum within the foreseeable future. This is not a plea for a lower rate of growth but a warning that a higher rate of growth is not a suibstitute for deliberate policies to ensure equitable distribution of the gains of develop- ment".4/ To address the problem, G01 introduced, in the 1970s, a number of 2/ Staff Appraisal Reports (SARs): F'rst RE Project, para. 4.02; Second RE Project, Annex 12, p. 2; and Third RE project, para. 4.08 and Annex 13. 3/ The Program Evaluation Organization (PEO) of the Planning Commission, GOI, has published a two-volume report on "Evaluation of Rural Electri- fication Program", 1982-83. Given the study's wide coverage and sampling technique, the Bank cannot replicate it. The audit mission has, however, reviewed the report and has checked its conclusions while visiting various states in India. 4/ "Poverty in India", V. M. Dandekar and Nilakantha Rath, Indian School of Political Economy, 1971, pp. 35 and 55. -3- "Area Development" and "Target Group"-oriented programs (PPAM, para. 50). The new strategy tried to create incomes and jobs for people in underdevel- oped areas. Likewise, the RE schemes have been designed to serve identified areas and target-groups, "remove agricultural imbalances through accelerated electrification in states which are lagging behind in rural electrification", provide "special concessional finance for RE schemes especially in handi- capped areas, such as tribal, desert and other backward regions", and speed up the "elfctrification of areas inhabited by Scheduled Castes and Scheduled Tribes.. ." _/ Conditions 9. GOI has agreed that Bank-financed REC loans to SEBs would be restricted to schemes that meet specific viability criteria, and to SEBs that satisfy prescribed financial norms. The Bank had accepted the Corporation's lending criteria, under the first RE project. The second RE project6/, however, required improved appraisal techniques, namely: discounted c7sh flow, and economic rates of return (ERR). Cost saving benefits from replac- ing non-electric with electric energy7/ were to form the basis of ERR. No change in the appraisal technique was iinvisaged under the third RE project. 10. As SEBs amortize and service REC loans much earlier than their RE schemes generate financial surpluses, they face severe financial shortages. The Bank had required, under IDA credits, that the State Governments compen- sate SEBs for these losses. Such payments were considered sustainable, because the estimated ERR were: 23% in the first RE project; 40% in the second RE project; and 53% in the third RE project8/. The audit considers these rates to reflect potentials, which are unfralizable without major reforms (PPAM, paras. 67 and 116-131). Even if they are achieved, a part of ERR must be captured through higher tariffs for reimbursing SEBs' RE costs. Recognizing the seriousness of mounting deficits, the Bank has required, under the third RE project, that the State Governments limit their SEB subsidies. 11. To promote financial reforms, the Bank had restricted, under the first two RE projects, its assistance to Boards that were able to achieve a 9.5% FRR, or to Boards that could secure the States' subsidies equal to their RE losses, or enough supports to enable them attain a 9-1/2% FRR (PCR, para. 3.05). These targets were converted, under the third RE project, to a cash generation objective. SEBs' eligibility for drawing on the Bank's resources depends, now, on contributing at least 20% to their investment program by 1982/83, or by a specified later year, and on introducing by 1984/85 a com- mercial system of account satisfactory to the Bank. In 1985, GOI amended its 5/ Reflecting GOI's comments, Appendix I, p. 1. 6/ SAR, Second RE Project, para. 3.15. 7/ SAR, Third RE Project, para. 3.12. 8/ SAR, First RE, para. 5.03; Second RE, para. 4.09; and Third RE, para. - 6.05. -4 electricity legislation, requiring that SEBs earn at least 3% rate of return on their net fixed assets after paying for operating expenses, taxes, depre- ciation, and interest. Further, a "proposal has been made to the Bank to change to this 3% surplus concept to judge the financial performance of the SEBs"--Appendix I, p. 3. Project Implementation 12. The Bank did not intend to deal with individual RE schemes (PPAM, para. 3). Its supervision missions have, therefore, been mainly concerned with consumer connections (villages and pumps), procurement issues, and SEBs' eligibility to draw on the Bank resources. Further, according to the PCR, "physical quantities of materials to be bought under the project were not stated and cannot be compared with quantities actually procured" (PCR, para. 3.04). An attempt was made, under the second RE project, to quantify supplies (SAR, Annex 12). The third RE project gave up the effort (SAR, Annex 13). Since RE schemes are numerous, and because an empirical socio- economic analysis of a representative sample of Bank-financed schemes is unavailable and REC has yet to establish an adequate monitoring and evalua- tion system, the mission's review of implementation problems had to be based on field visits and discussions with SEB/REC officials. To illustrate the program's scale, the Corporation, since its inception in 1969, has approved 10,000 schemes9/, and sanctioned over US$3.0 billion in loans, of which US$2.0 billion-have so far been disbursed. The Bank has had a 15% share in REC loans, and a 53% participation in REC schemes--or a total of 5,300 projects. 13. No precise estimate of time and cost overruns is available for the 5,300 schemes. An overview has, therefore, been attempted. The states whose SEBs draw on the Bank credits/loans fall in two broad categories: (a) States with good implementation records, including: Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu, and Uttar Pradesh (western part); and (b) States with slow implementation records: Assam, Bihar, Orissa, Uttar Pradesh (central and eastern parts), and West Bengal. RE projects' time and cost overruns are striking in the Northeast. Other SEBs often face administrative obstacles that brake the pace of progress, but are able to approximate the program's overall quantitative objectives. 14. Many states that have attained a high rate of village electrifica- tion, such as Haryana, Punjab, and Tamil Nadu, have also overfulfilled their pump energization targets (PPAM, Table 4). In contrast, the Northeast SEBs have electrified villages faster than they have energized irrigation pumps; the private sector has been unwilling, or unable to invest. 9/ For presenting an overall picture, the figures in this para. are rounded; they are not precise numbers. -5- 15. Administrative hurdles that impede progress include: excessive paper work concerning guarantees that the commercial banks demand for funding one-third of the RE's special projects in agriculture (SPA); time lapse bet- ween phases of project cycles, particularly between preparation and approval; approval and disbursement; and resource shortfalls at various levels -- the Center, States, and SEBs. Because of administrative hurdles, farmers' inability to invest, poor coordination, and other causes (PPAM, para. 59), a significant portion of the RE schemes in the Northeast and parts of some other States experience time and cost overruns. Many REC loans are, there- fore, closed without fully achieving their objectives. 16. Besides, the Northeast SEBs, in particular, are unable to provide electrical energy for farming. They are often incapable of maintaining an over-extended distribution network. Unrealistic targets also result in project implementation being spread over wide areas. Delays aggravate cost overruns, and materials originally acquired for the program are reallocated, probably for urban projects. REC/SEBs need to do much more in preparatory works for this group of projects. 17. Disbursements were slow under the first RE project. This was because of the beneficiaries' unfamiliarity with the Bank's procurement procedures; SEBs' difficulty in fulfilling the eligibility condition (PPAM, para. 11); and large increases in the price of aluminum and steel used in the manufacture of conductors, resulting in several contract cancellations (PCR, para. 3.18). Disbursements lagged 32 months behind the SAR forecast (PCR, para. 3.16, Table 3.4). 'ie first RE credit's closing date was, however, extended by only one year PCR, para. 3.19). This was because the SAR had envisaged slow disbursement under a scenario that assumed few SEBs being able to fulfill the eligibility idition. The disbursement record of the Bank's three credits and loan is shos in PPAM, Annex 2. 18. REC's advance payment to SEBs isolates them from the adverse effect of any lags in Bank resource use. The Corporation disburses 35%-40% of its approved loans as advances for area related schemes; the balance is provided in four unequal installments, depending on physical achievements. Such schemes account for about 70% of REC loans. Funds for two-year schemes are also disbursed in two equal instalments (SAR, third RE project, para. 3.15). 19. Since SEBs, except in the Eastern Region, achieve their quantita- tive targets (PPAM, para. 13), slow disbursements of the Bank's credits/loans do not reflect RE schemes' implementation delays. These lags are largely due to difficulties experienced by material suppliers. The audit mission's discussions with SEB officials did not reveal any significant problems trace- able to delays in Bank disbursements. The slow utilization of the third RE loan is largely due to an increase in raw material prices chiefly reflecting the rise in the exchange rate over the rate envisaged in the third RE proj- ect. Material suppliers, who are local manufacturers, have contracts payable in Indian rupees. But their supplies have significant aluminum content, a commodity which is traded internationally. As the domestic aluminum price is greatly influenced by variations of foreign exchange parity which was in 1985 Rs.12/US dollar rather than Rs.8/US dollar -- the original SAR rate, the -6- suppliers' rupee expenditures have considerably increased. New terms had, therefore, to be negotiated with individual SEBs,10/ Achievements 20. Water dominates life in India. As irrigated areas had formed a small part of croplands in the 1950s, a farmer's fortunes depended largely on rainfalls, which in many parts, are concentrated in a few monsoon months. Rains often fail, so do crops. But because of significant additions to the country's irrigation facilities, crop failures are now less severe and less frequent than in the past. 21. To overcome crop losses and mass starvation, and to augment water and food supplies, India has striven to exploit, since Independence, its rich irrigation potential, estimated at 113 million hectares (PPAM, Annex 3). Food self-sufficiency requires managed water supply. Improved crop yields from modern farm inputs depend greatly on reliRble, and regulated water flows. To expand such supplies, India has been developing its large, medium, and small irrigation potentials. But large and medium projects are not, in many instances, as adaptable to the small farmers' needs as minor irrigation schemes. Large projects require cultivators to invest in tertiary canals, maintain them, and to level their lands for receiving water through gravity flow--tasks which are often burdensome and beyond the financial means of an average peasant family. That is why irrigation, through electric pumps, which are well-suited to farmers' needs, has transformed India's agriculture wherever it is being effectively utilized. 22. In reviewing progress towards food self-sufficiency, the audit has chosen 1969 as the starting point--the year when REC was established. Because of expanding irrigation and modern farm inputs, India has had a sus- tained 3.2% agricultural growth rate during 1969-84. Farm output grew 2.9% a year between 1951 and 1969, and increased moderately to 3.2% a year in 1969-84. As population grew at a rate of 2.3% a year, per capita farm output increased somewhat. Still, per capita foodgrain availability remains un- changed today, at around 440 grams,1/ as in the 1960s. 23. But severe droughts are now manageable, and India's granaries are full. Yet, demand for farm outputs will remain robust owing to popula- tion pressure, and possibly to sustain a higher future rate of economic expansion. 24. RE has been a significant catalyst in augmenting farm output. PPAM, Annex 4 shows that during 1969-84, the area under minor irrigation schemes expanded by 16.6 million hectares (ha.), and that under large and medium irrigation projects by 8.1 million ha. 10/ Amended to reflect GOI's comments, Appendix I, p. 3. 11/ In 1984, per capita foodgrain availability was 478 grams--Appendix I, p. 3. -7- 25. The following table tries to quantify RE's contribution to in- creased farm production during 1969-84. The crop area expanded by 13 million ha. in this period, including the area under multiple-crops. A 15 million ha. fall in rainfed cropland was accompanied by a 28-million ha. increase in irrigated farmland. As RE promoted the use of underground water resources, pump irrigation replaced a part of rainfed agriculture. Table 1: RE's CONTRIBUTION TO INCREASED FARM OUTPUT Incremental Shares of Rain- fed /a and Irrigated Cropland in ieTping increase farm Increase in Croplands (in ha) production (%) 1951-69 1969-84 1951-84 1951-69 1969-84 1951-84 Additions to: 1.Rainfed area 21 (-) 15 6 40 (-) 27 6 2.Irrigated cropland 13 28 41 60 127 94 (gross), of which electric pump irrigation (2) (8) (10) (10) (36) (23) Total 34 13 47 100 100 100 /a The relative shares of rainfed and irrigated croplands reflect the yield ratio between rainfed and irrigated agriculture; the ratio being 2.5 to 1. 26. The 5.8 million electric pumps, currently in use, can irrigate about 19 million ha., 12/ of which about 15 million ha. (potential) were harnessed during 1969-8. According to PEO's recent report, 47% of the area under electric pump irrigation is not additional, but a switch from diesel- pump (40%) and traditional (60%) irrigation, to lands served by electric pumps (PEO, Vol. II, p. 20; Table 3.9). Table I reflects this adjustment. Currently, over 3 1/2 million diesel pumps also operate in India, many as standbys. -27. Table 1 and other indicators suggest, however, that RE has had a critical share in, at least, 20% of the incremental farm output over 1969-84. According to the Sen Committee Report,13/ "Tubewells in Haryana and Punjab are operationally more efficient as the"Tulk of them are under the control of farmers and are also energized with electricity. The energization of tube- 12/ Based on 3.24 ha/electric pump, PEO Report, Vol. II, p. 21. 13/ A two-volume report: Committee on Agricultural Productivity in Eastern India, Reserve Bank of India, 1984; Chairman, S. R. Sen, Vol. 1, para. 2.1.11. According to the Committee, Eastern Region comprises:West Bengal, Bihar, Orissa, and Eastern Uttar Pradesh. -8- wells, in turn, has been facilitated by the availability of electric power in all villages. In fact, the tubewell boom in Haryana and Punjab is due to rapid spread of rural electrification. The situation is different in the Eastern Region. Rural electrification has not made much progress and, as a result, development of tubewells has been slow. Private tubewells are few in number and even these are underutilized due to uncertain and erratic power supply." 28. Irrigation has been a significant element determining regional variation in agricultural productivity. In high growth states (PPAM, Table 4), the major part of the net sown area is under irrigation, ane among dif- ferent sources of irrigation, privately controlled irrigation, such as ener- gized tubewells, has expanded enormously. The question arises as to why the Northwest performance is not being replicated in the Northeastl4/. This issue is important because India's long-term food self-suf ficieiiey depends greatly on raising the Eastern Region's low rate of agricultural producti- vity. Some of the reasons are summarized in ?PAM, para. 59. Nonetheless, the Eastern Region has the potential of sustaining India's long-run agricultural growth rate. The area is endowed with rich soil, abundant man- power, and plenty of water, including large untapped groundwater resources. 29. Low agricultural productivity can be greatly improved by inten- sifying farming through advanced techniques and linkages with modern science and industry. Such a development depends on the additional supply of a managed and reliable water flow, as well as on coordinated and collective efforts. Although the threshold of agricultural breakthrough may now be near in the Eastern Region, it will need a big push in investment and managerial efforts during the next ten years. 30. In addition to inter-state and inter-regional disparities, income differences among households in electrified villages have also been exacer- bated. Field visits show that farmers who have above average landholdings and can get financial assistance to construct a well, buy a pump, and ener- gize it, have largely reaped RE's benefits. As water is scarce in many parts, for example in Rajasthan, Karnataka, Madhya Pradesh, Maharashtra, and Gujarat, SEBs' selection of RE beneficiaries invest SEBs with considerable power over the distribution of "rags and riches". The mission has compared results of its field interviews with surveys done by competent Indian econo- mists. C.T. Kurien, for example, concludes that "the rural scene is far from static. Some of these changes have moved in desired directions. Extensive cultivation through the use of major irrigation schemes, intensive cultiva- tion through the use of modern implements, increase in output through the use of better seeds, new kinds of inputs and systematic production patterns, and more organized efforts through cooperatives and the like were all as they were intended to be. But these processes have also created changes that are not desired. The pressure on small farmers to leave their land and to become agricultural laborers is one of them. The decline in the real wages of the agricultural laborers is another, and the tendency of mass poverty to 14/ Land, Labor and Rural Poverty, Essays in Development Economics, Pranab K. Bardhan, Columbia University Press, 1984, see pp. 212-219 on: Private Property as a Growth Constraint in a Hydraulic Economy. - 9 - continue and increase is yet another. Thus, the development processes of the past have generated growth and affluence for the few and poverty and insecu- rity for the many..." 15/ The broad conclusions of his study are supp:rted by similar surveys sponsored by the Indian Council of Social Science Research (ICSSR).16/ Again, the four REC-sponsored studies, done at the Gokhale Institute for Maharashtra, the Indian Statistical Institute for West Bengal, the Administrative Staff College of India for Andhra Pradesh, and the Sinha Institute of Social Studies for Bihar, confirm the audit mission's broad conclusions that RE's impact on income distribution has been uneven. 31. Rural poverty is severe in India. The village poor have grown in numbers and constitute over 50% of the rural population. Lacking in skills, they are mainly landless laborers, marginal farmers with less than 2-1/2 acres of land, and small cultivators with 2-1/2 to 5 acres of land. "Sched- uled castes and tribes"17/ belong predominantly to this group. 32. RE can help these groups by creating jobs. So far, the program's employment impact has been insufficient, and its impact on rural industries and tertiary sectors, quite modest. But without RE, the poverty problem would have been more acute. The program has promoted labor-intensive farming and has also helped to establish some local industries. Therefore, greater agricultural production, especially in the Eastern Region, and employment creation should remain RE's main concern. PPAM, Annex 5, based on PEO's sample survey, shows some of the changes associated with the RE program. Financial Performance 33. Assessment of the financial performance of agencies engaged in RE covers REC and fifteen participating SEBs. Since the Corporation is a devel- opment bank, enjoying GOI's support, it has met the Bank covenants with rela- tive ease. SEBs' finances have, generally, been unhealthy. This is partly because of low power prices (PPAM, paras. 100-102), especially those for agriculture. But an increase in rates, although neceesary, will hardly address managerial, institutional and operational problems. As argued else- where (PPAM, paras. 85-86), each SEB is a large organization, and it covers a population of the size of many major- or medium-size sovereign states. The average population of an Indian state is over 30 million. These major 15/ Dynamics of Rural Transformation, A Study of Tamil Nadu 1950-1975", C. T. Kurien, 1981, p. 145. GOI's and audit's comments are given in Appendix I, p. 3. 16/ "Structural Changes in Income Distribution-A Study of the Impact of Green Revolution in the Punjab", Bhalla, G.S. and Chadha, G. K.; "Dynamics of Rural Transformation, A Study of Andhra Pradesh, 1956-76", K. S. Upadhyay; "Structural Changes in Rural Rajasthan", Kanth Ahuja; and "Dynamics of Rural Transformation--The Kerala Experience", M. A. Oommen and P. P. Pillai. 17/ They are the less-advanced among India's population. Scheduled castes and tribes are specified by Presidential orders under provisions of India's Constitution. According to the 1981 census, over 160 million people (24% of the population) comprised scheduled castes and tribes. The successive five year plans have regarded their progress as a major national objective. Harijans belong to the scheduled caste. - 10 - utilities are engaged in one of the boldest rural development efforts among the developing nations. In future lending operations, the Bank should study the SEBs' problems and help them individually to resolve these within an all- India framework. To group SEBs is useful to gain a global perspective. But a collective approach will hardly lead to an understanding of India's regional problems, or to a meaningful dialogue with State Governments which hold the key to resolving issues. The Bank should, therefore, be prepared to devote resources for the preparation and supervision of SEB projects, which are warranted by the size and the complexity of these entities. In the rest of this section, the audit reviews REC's and SEBs' financial performance. 34. REC. The Corporation's financial position, through FY1985, has been satisfactory. It has met credit/loan covenants: its internally gene- rated funds have been at least 1.2 times its debt-service requirement, and its administrative costs and interest payments below 90% of its interest receipts (PPAM, Annex 6). REC's debt/equity ratio has increased to 81/19, which still satisfies the Bank's covenant. The Corporation relies heavily on Government loans, including proceeds of the Bank credits/loan. 35. SEBs. The State Electricity Boards' RE losses, which were about Re. 5.0 billion in FY1979/80, are now much larger. In Tamil Nadu alone, where electricity is a "free good" for small and marginal farmers, the RE deficit is estimated at Rs.2.0 billion a year. Many States visited by the mission, incur sizable losses. The mission was, however, unable to obtain an aggregate all-India estimate. 36. Several State Governments have tried to meet the Bank's financial covenants (PPAM, para. 11). They sanctioned rate increases in 1985. Addi- tional revenues are estimated at Rs. 5.0 billion (US$416 million) for FY 1985/86 and Rs. 9.3 billion (US$775 million) for FY 1986/87. Roughly 70% of the additional revenues are expected from four States: Maharashtra, Uttar Pradesh, Gujarat, and Madhya Pradesh. Nonetheless, the Boards continue to be, generally, under severe financial pressure which has impeded their reform and expansion programs. 37. Because of inflation, the covenant requiring a 9-1/2% FRR on non- revalued assets, had outlived its usefulness. As GO objected to asset revaluation for a more realistic FRR covenant, the Bank suggested a 20% self-financing (cash generation) objective (SAR, Third RE project, paras. 5.17-5.18); consumers' capital contributions and State subsidies are treated, under the revised covenant, as a part of internal cash generation. Without tariff reforms, many SEBs will continue to experience difficulties in meet- ing the Bank's financial covenant. Improvements in SEBs' accounting prac- tices have also been the subject of continuing dialogue. Procurement 38. SEBs procure materials, under the Bank assistance, using REC's standard specifications and standard General Conditions of Contract (PCR, para. 3.12). The Corporation helps SEBs in preparing bid documents, and ensures that quantities specified in the bids are those needed for eligible schemes. The Corporation also reviews SEBs' bid evaluations before seeking Bank approval for placing orders. Under the first RE project, "all the - 11 - orders except one for $185 000 worth of capacitors went to Indian manufacturers" (PCR, para. 3.115. 39. SEBs use international competitive bidding procedures to invite tenders. Local manufacturers receive a 15% margin of preference or the current rate of customs duty, whichever is lower. In determining the preference margin, the Bank does not consider non-discriminatory fiscal and financial incentives, or other subsidies, enjoyed by local producers. Development incentives, which vary from State to State, include interest rate subsidies, tax concessions for "infant industries", low electricity rates, industrial park facilities, and similar promotional measures. The package is complex and its review by the Bank in India, for example, requires a similar examination of complicated systems in many supplier countries. But the key issue is whether the preference margin is in the borrower's interest. Further study of this matter by GOI an, Bank staff seems warranted. II. SUPPPLEMENTARY COMMENTS Introduction 40. India's RE program has many unique attributes: its pace has been fast; its scale, prodigious; and its emphasis on improving village producti- vity, well-suited to the country's needs. RE has, however, been unable to contribute to distributive justice. According to GOI, before "coming to any conclusion on the success of a program of this nature, it has to be borne in mind that the initial benefits are likely to go to those sections of the society which are willing and able to pay for it. As the program gathers momentum and its benefits tend to be perceived, its area of impact widens. Our experience of this program in areas which have been electrified for a fairly long period, say 10 years, is that the benefits have percolated down to the weaker sections of the society. In conjunction with our anti-poverty programs such as Integrated Rural Development Program, the rural electri- fication plays a key role in raising the standard of living in the rural areas. An appraisal of this program should not be confined to direct bene- fits, but also take into account the multiplier effects in the economy. Thus, contribution of the program to distributive justice has been significant"--Appendix I, p. 4. 41. To bring about rapid socio-economic change, GOI must sharpen the program's catalytic edge to sustain agricultural growth, promote rural employment, and assist in human resource development. Since the Center, the States, and various public agencies support many types of rural development schemes, REC/SEBs must strive to redirect these efforts to locations where electricity is being provided, or will be. REC/SEBs can accomplish this goal while preparing and implementing special projects in agriculture (SPA), industry (SPI), and for drinking water supply (SPD), for example. 42. Given India's diversity, a multi-pronged strategy is required: one emphasizing primarily agriculture for the Northeast, and one consistirg of conservation, system improvement, and other special programs (PPAM, par-. 59) for the rest of India. This differentiated strategy must satisfy a unified - 12 - system of norms, reflecting the country's socio-economic preferences. REC has, for example, devised many financial and socio-economic tests. They need to be applied uniformly to all projects, and throughout India. 43. GOI and the States have followed a mix of divergent rural develop- ment policies, consisting partly of a direct attack and partly of an indirect attack on poverty. Owing to India's democratic institutions, the Center and the States have spread their efforts thinly over the subcontinent. 44. REC, however, needs to pursue an indirect and a well-focused devel- opment strategy. This means that the Corporation should address poverty problems by helping to create jobs rather than distribute assets (free or highly subsidized electricity among the low-income families, for example). It must also achieve a minimum level of power load in the electrified vil- lages before extending the network to remote areas. 45. Given the scale and importance of food self-sufficiency, employment creation, and human resource development, GOI needs to help strengthen REC; raise power sector efficiency; mobilize sector resources; manage the exploi- tation of ground water resources; provide consumer services; and ensure the substainability of the power supply industry and its institutions. The ensu- ing paragraphs review these themes, after considering RE's focus. RE Strategy Reconsidered 46. Drawing on field experience, the audit has reviewed RE's program priorities; regional distribution; socio-economic rationale; minimum load requirement; and integration with rural development programs. 47. Program Priorities. 001, the States, the legislators, and REC determine, at the planning and funding stages, RE's size, program contents, and regional orientation. Besides, the Planning Commission sets detailed targets for the villages and the pumps that must be energized. 48. RE schemes draw on many financial sources. Up to FY1972/73, pro- gram's resources consisted of the Central and the State plan outlays and SEBa' internal savings, including institutional finance. Since the early 1970s, RE has also been using funds for the minimum needs program (MNP) and the revised minimum needs program (RMNP). SEBs prepare two types of schemes: SEB-financed, and REC-financed. State plan outlays and SEBs' savings support the SEB-financed projects. The National Bank for Agriculture and Rural Development (NABARD), the commercial banks, and REC have developed a partici- pative financial program for agriculture (SPA), with the NABARD, commercial banks, and REC contributing to it equally. To illustrate, the Sixth Plan (1980-85) has provided Rs. 18.6 billion for RE. In addition, Rs. 4.2 billion has been estimated to come from institutional finance. Although GOI has borrowed from the Bank for RE schemes, the proceeds are relent to REC in support of plan outlays. Given SEBs considerable resource shortfall, the Corporation is now RE's main source of finance. 49. To achieve the plan targets, SEBs prepare RE schemes, which are implemented in one to five years. REC's field staff help the SEBs'. - 13 - 50. To relieve poverty, GO began in the 1970s to rank, define, and combine program parts, such as: areas, beneficiaries, and agencies. Areas are grouped as backward, ordinary, or advanced. Programs for low-income beneficiaries include: minimum needs (MNP); revised minimum needs (RMNP); integrated rural development (IRDP); national rural employment (NREP); and food for work (FWP). Target groups are identified such as marginal farmers and agricultural laborers (MFAL), scheduled castes, and tribes. Hybrid programs combine areas, target groups, and specific programs. These are: tribal area development (TAD); command areas development (CAD) for irrigation works in river basins; and drought prone area development (DPAD). Special- ized institutions are also organized or reorganized like NABARD. 51. The emphasis on low-income groups, implicit in this programming approach, and the proliferation of rural development and poverty alleviation programs have influenced REC's strategy and regional emphasis. The following table shows the poverty focus of REC's loans: Table 2: POVERTY FOCUS OF REC'S LOANS (Percent) Composition of REC's Loans (1979/80-1983/84) Schemes for low-income beneficiaries 60 Ordinary advanced areas 9 Special projects, 28 of which agriculture (SPA) (21) Projects for electric cooperatives 3 Total 100 Source: PPAM, Annex 7. 52. About 60% of the loans have been sanctioned for low-income groups. Aside from agriculture, special projects for industry (SPI), drinking water (SPD), health centers (MH), transmission (ST), and system improvement (SI) have received scant attention. 53. In contrast, no clear pattern emerges from the State-wide distribu- tion of REC loans. The largest sums have been allocated, on a per capita basis, to Assam, Madhya Pradesh, and Punjab; the lowest, to Kerala, Karna- taka, Tamil Nadu, and West Bengal. Table 3 presents REC's regional emphasis. - 14 - Table 3: REGIONAL DISTRIBUTION OF REC LOANS Per Capita Allocation of Sanctioned Loans, 1979/80-1983/84 (In Rs.) States 5 - 9 Kerala 10 - 14 Karnataka, Tamil Nadu, West Bengal 15 - 19 Gujarat, Maharashtra, Uttar Pradesh 20 - 21 Andhra Pradesh, Bihar 22 National Average 22 - 29 30 - 39 Haryana, Orissa, Rajasthan 40 - 45 Assam, Madhya Pradesh, Punjab Source: REC's Annual Reports The table shows that, on a per capita basis, Kerala, which is socially the most advanced state, has received the least; Punjab, the most economically advanced state, has received the most. This pattern does not hold for other States. Some slow growing States like Madhya Pradesh and Rajasthan have obtained larger allocations than some fast growing States like Maharashtra, Tamil Nadu, and Andhra Pradesh. Madhya Pradesh and Rajasthan have a better capacity for utilizing funds than States like U.P. and Bihar. Yet, absorp- tive capacity of the Eastern Region must increase if agricultural development is to be sustained. 54. REC alone cannot overcome obstacles that impede socio-economic change. The Planning Commission, however, considers RE to be a major devel- opment catalyst, and it sets achievement targets.18/ Partly because of this, the socio-economic tests, applied to sort out good from bad schemes, lack rigor. The Bank covenants requiring satisfactory socio-economic rates of return cannot be met, for example, in the Eastern Region. 18/ Mbdified to reflect GOI's comments, Appendix I, p. 5. - 15 - 55. If rigorous tests are applied, the RE schemes' priority order would be: Priority Rank Type of Schemes 1 Conservation 2 SI and ST 3 SPA, SPI, SPD, and MH in existing electrified villages. 4 Intensive use of electricity in villages until the minimum load requirement is fully satisfied (see PPAM, para. 63) According to studies done by the Institute of Cooperative Management in Ahmedabad, 80% of irrigation pumps waste electrical energy; consumption rates in some areas exceed 50% of the normal level. Other studies for U.P. show tubewell efficiencies ranging from 20%-30%; the achievable efficiency rate being 55%-60%. A countrywide study by NABARD discloses that most pumps operate at 40% below the efficiency rate. Conservation measures are often simple, requiring small investments. At Rs. 1,000 investment per pump and a modest 15% savings in energy, 600 kWh could be saved a year. Valued at the incremental cost of power supply (Rs. 2/kWh), the investment would be recov- ered in less than one year. Moreover, system improvement is important because of high T&D losses, and the need for more reliable supplies. T&D losses, which were 14% in 1965/66, have now reached 19%.19/ About two- thirds of these losses are due to rural loads; 80% of them occur in 33 kV-11 kV subtransmission grids. The main reason for the high rate of loss is inadequate investment in subtransmission lines. Mbreoever, PPAM, Annex 8 has provided the rationale for the Intensive use of power in the electrified vil- lages. In contrast, REC's loan allocations (PPAM, para. 52) hardly reflect the audit's program priorities. 56. Regional Distribution. The plan's emphasis on rapid village electrification has been advantageous to some States, but costly to others. Table 4 summarizes RE's impact, and the States' main attributes. The table separates advanced from the less-advanced States, with others occupying an intermediate zone. 57. The advanced States have, generally, connected most of their vil- lages to the power grid and have enjoyed a relatively high rate of economic expansion. Their infrastructural base is also more developed than in other States. Yet, population pressure on arable lands is growing, and landless labor abounds everywhere. 58. The mission's visit to Haryana villages demonstrated RE's substan- tial agricultural impact, notwithstanding the severe power shortage in the area. But farm mechanization has displaced much labor. The landless 19/ Appendix I, p. 5. - 16 - Harijans continue to live separately in fairly large numbers, without appre- ciably sharing the benefits of RE. Agricultural development, although imper- ative, will bypass them. They need productive employment and jobs. 59. The less-developed States, mainly in the Northeast, accounting for over 40% of India's population, have experienced a slow rate of economic growth. They have rich groundwater resources, since they are the main part of the vast Sindha-Ganges-Brahmaputra alluvial tract, and this potential remains largely untapped. The main regional problems affecting RE are: scar- city of power supply; scantiness of the socio-economic base; absence of coordinated efforts by public agencies to promote ground water use and agri- cultural development; severe population pressure resulting in large-scale fragmentation of farm-lands; and prevalence of share-cropping and a hierarchy of intermediaries who have thwarted agricultural growth. 60. Although 40%-60% of the villages in the Northeast are connected to the grid, these figures convey a wrong message. As stated earlier (PPAM, para. 16), since SEBs must approximate plan targets power lines are extended without adequate power and supportive services.26/ Table 4 clearly shows that REC's program for this area lacks socio-economlc rationale. SEBs have spent, since the early 1980s, Rs. 125,000 from the REC loans to connect a village to the power grid. Their customers during 1969-84 have grown to an average of 4 electric pump owners, 6 residential and commercial consumers, and 0.3 small industrial shop operators. Even these few rural customers are unable to use much of the service, because of maintenance problems or the unavailability of power supply (except in Madhya Pradesh). They are the poor examples of RE efforts. SEBs in these areas have little incentive to borrow REC funds to extend and operate a highly unremunerative service. 61. A reconsideration of RF strategy would, therefore, be to India's arl,antage. In the relatively advanced and semi-developed States, which have achieved a high rate of village electrification, REC/SEBs need to assist in conserving energy and upgrading the quality of service. A dependable and efficient power supply is needed to create large-scale job opportunities through rapid industrialization and development of the tertiary sector. The program meriting REC's emphasis is summarized in PPAM, para. 55. GOI needs to arrange for the active participation of other agencies, similar to the support NABARD and commercial banks provide for SPA. For example, SPI should be supported by industrial funding agencies, including agencies concerned with industrial estate development. 62. In less-developed States, with the exception of western U.P., but including Rajasthan, a moratorium2l/ on further village electrification needs to be imposed until the minimum required load is satisfied, as discussed in the following paragraph. Without the development of a minimum 20/ Partly modified to reflect GOI's comments, Appendix I, p. 5. 21/ GOI's comments on the proposed moratorium are given in Appendix 1, pp. 2 and 5. Twz 4: vnlL z!ggnirCATm« A16) 8 AI DIVEleNr PImIg~ m hevets: R pr until Mch 31. 1984 l?saber of l&arber of 3m~er of Sll Vilae 1981 Area tnder 1EC Energimd Dmestic/ his~a Eletri- e anked ftpia- lectric Rff ås% of ~ret l ?Wa Per O ercial Gmtomers ~mpnatte fication According to 1heir tio Irtigatin, per Vi~ p !C Ener- atomer Per Ener- Index of Annt Gr'wth Rates, State D~ic Prodamt (SP) Rte vi~ Electrift- (in Erig ed Electri- Fhergi- ned Vilage P er- gaeloent SDv wer 61ta () catim lerfon~c Ulnim) Vlge (In ha.) fication zation (1969-84) g d Vill CD 1950H0 19(0CM0 190 195(HK) 19- I0 196Ö-76 1970- 19~HD 90-100 lirymna 13 163 100 113 917 1,586 78.11 131 3.4 4.4 5.3 2.8 2.0 2.5 Nerala 25 51 106 101 226 874 19.32 147 2.8 3.8 2.5 3.3 0.7 1.4 (-)0.2 0.8 Nkuhraanmua 63 35 90 99 21 20 1.32 149 4.6 2.9 5.4 4.0 2.5 0.5 3.2 1.7 Pijab 17 107 100 125 43 8) 1.15 181 3.2 5.2 4.9 5.1 0.9 2.0 3.3 3.0 1~1 ~adu 48 122 87 118 140 228 16.00 133 4.6 2.8 1.9 2.6 3.4 0.8 1.6 1.2 8>w åndhra Prash 54 35 100 104 21 27 0.93 86 2.6 2.6 3.7 3.1 1.2 0.7 1.6 1.1 GMjarat 34 115 90 59 14 46 3.18 123 2.9 3.6 3.9 3.4 0.6 0.7 9.5 0.8 Kraraka 37 26 81 143 24 39 1.26 106 2.8 4.5 2.5 3.6 0.9 1.7 5.4 1.1 W0-a Fajasthec. 34 56 98 84 11 18 1.31 75 2.9 2.9 2.8 2.9 0.6 0.5 f).3 0.4 4-O ,ssa 20 NA 112 12 0.2 5 0.08 69 2.8 4.2 3.3 3.8 (-)0.2 1.0 0.3 0.7 bar 70 36 66 22 2 3 0.35 67 3.9 2.1 2.7 2.3 2.1 0.8 0.7 0.8 7dhya Praeh 52 28 107 D 9 8 0.36 73 4.3 1.0 1.3 2.2 2.2 0.4 (-)0.8 (-)0.1 cissa 26 2 91 27 1 8 0.27 69 2.4 3.4 2.5 3.1 0.6 1.2 0.5 0.9 Uttar Pradesh 111 47 99 62 5 5 0.32 77 2.3 2.2 2.6 2.4 0.8 0.6 0.7 0.6 Wet ~engal 55 3 67 31 2 6 0.55 211 2.6 2.3 2.2 2.3 (-)0.2 ()0.1 19.1 0.0 64 1~tal/A., 15 State 659 48 1btal/km., India 685 89 82 10 18 0.74 100 3.2 3.4 3.6 3.4 1.3 1.2 1.4 1.3 SMrce: 1I s ram is ~ nM o m y sourœs. ka undin electric pf, irrigation per energiasd village has been band o official data onerni.g :~uber of electric ups and nmbr of energid vi~nan, ad PD's estimte of "area irrigated per electric puets during 1977-7" - see PEO's evaluatio of RE prga-, Vol. II, o. 21. ee~ue of electrification, farmers switch over from xc-electric to electric irrigation ethods. Accordig to PED's survey (cf, p. 2< a:d p. 21) of the 3.24 hecta:e~ irrigated by electric p~as, 47% represe.t a shift f~m the non-eletric to electric. In this table the irrigated area is the gross .s land. It is mt correcte for suitch~me. L-formatim presented under; -Adievement: REC Progra, is frm REC's annual reports. Opsite Index of D leIo~lant (RID): MW. M. Reo hus deeoped the L3dex from a series ot eecror indicators, which broadly reflect regional distribution of socto-ecooc Infrastructure La Inda (see Te~anni Structu:e of Deveos~ent and ~rowth i: Indla, Vol. 1, Gåiri stitute, G. Nlishra, 1985). The CD iDex is basd ao a table Li p. 78. Annual Grot Rates. SDP: Mr. A. K. SLh hes eviewed, in the mm volut, inter-state differences i the level and rates of goth of incom IL: Lnia: 1951-81 (pp. 53-7). SPW g~wt rates 1. this rable are from p. 57. Stacistical information on ~hich the rates are based are official. - 18 - load, RE will have little catalytic impact in transforming the less developed regions. 63. Minimum Load Requirement. The audit has estimated the required load for an RE scheme (PPAM, Annex 8). Besides, electricity supply must be fairly reliable, requiring that SEBs upgrade system efficiency, provide satisfactory customer service, and supply power for at least 12 hours a day. If, in addi- tion, SEBs adjust tariffs to recover the bulk of supply cost and help con- serve energy, and if crop yields on irrigated lands increase 3% a year (in value-added terms), the minimum load growth would ensure the socio-economic soundness of RE schemes (PPAM, Annex 8). 64. The minimum required load--a non-diversified and aggregate target-- is 85-90 kW per village. The following table illustrates the load norm. Irrigation: 18 pumps, 5 horsepower (hp) each, to be energized for a minimum of 12 hours, mostly off-peak. To justify RE, the pumps need to irrigate about 60 ha. per village. Modern agricultural and multi- ple-cropping practices must be used on these lands to augment crop yields by 3% a year, on a sustained basis for 20-25 years (PPAM, Annex 8, Table 2). Industry: 10-15 hp industrial load. Tertiary sector and residential load: 6-8 kW load. This consumption level is required for human resource development, water supply, and health services. At least 20% of households (30-35 units) should also be served. 65. The load norm should vary from State to State, and within each State, from district to district. Local needs must determine the mix. In a state like Assam, where an average of 18 pumps per village is not immediately required because of heavy rains in two seasons, RE's emphasis should be on electricity use for industrial, tertiary, and household sectors. 66. Socio-economic Rationale. India has built an extensive base for an effective rural development program. Compared to the audit's norm of 60 irrigated ha. per electrified village, India's overall average is 48 ha. (PPAM, Table 4). To raise the all India average to the norm level, 1.4 million new pumps need to be installed in the 370,000 energized villages, or an average of four additional pumps a village. These pumps should be installed in States where groundwater potentials exist, and achievements have been below the norm. The task can be accomplished in seven to eight years provided that the program of extending power lines to non-electrified vil- lages is de-emphasized, effective conservation measures are introduced, and the quality of service is improved. - 20 - estimates of cost savings and the marginal cost of energy supply. Savings are overstated, and electrical energy's marginal costs are understated. 73. RE schemes must also be the least costly. The audit mission's field visits disclosed many least-cost development possibilities. Apart from energy conservation and SI schemes (PPAM, para. 54), other possibilities include: investment in small hydro and bio-gas schemes through private sector participation. For promoting a least-cost development strategy, REC needs to finance flexibly an integrated rural energy program, both electric and non- electric. 74. Towards an Integrated RE and Rural Development Program. Since Independence, India has been laying the foundation for transforming gradually its rural economy. Remarkable progress has been achieved in many areas. Despite several problems, cooperative societies function in many villages, so do village governments, known as "Panchayati Raj". Although less emphasized now than in the 1950s and the early 1960s, the Community Development (CD) program, backstops rural works and village governments through 5,000 CD blocks. According to a recent PEO evaluation report, these blocks need to be better supported by sectoral and subject-matter specialists. Besides, block- level technical officers remain under the control of 'line' departments, hampering inter-sectoral linkages. 75. Further, India's literacy rate has greatly improved, the rate has risen from 17% in 1951 to 36% in 1981. For males, the improvement has been from 25% to 47%, and for females from 8% to 25%. Almost every village has a school and a hand-pump for drinking water. Primary Health Centers (PUC) operate in every CD block, with about 50,000 subcenters for health and family welfare programs. Despite skill and material shortages, great progress has been achieved in eradicating cholera, small pox, leprosy, trachoma, and blindness. Malaria has, however, made a partial comeback. Moreover, despite the failure of the family planning program to lower population growth rates appreciably, the required infrastructure for a major effort is being estab- lished so that suitable choices are provided to families, including the program's current focus on sterilization. The RE program has helped to introduce television in many community centers, which are supported by village panchayats. With good educational programs, TV could help change social attitudes towards family planning, train rural teachers, and introduce know-how at the grass-roots level. PPAM, Annex 9 shows that RE beneficiaries are mostly literate, relatively rich, and largely in agriculture. They have benefitted considerably from cooperative societies' financial support (PEO's Report, Vol. II, p. 22). 76. The GOI is acutely aware of the need for an integrated approach to rural development. The RE program's potentials can be fully tapped and maximized only if it is supported by a package which promotes: (a) agricul- tural growth; (b) human resource development (education, health, and popula- tion control); (c) institution building and reforms at the local level (cooperatives, Panchayati Raj, and community development); (d) poverty alle- viation and peaceful and equitable management of social tension (job creation, especially through industrialization and land reforms); and (e) advancement of rural youth, women and the landless. - 19 - 67. According tQ audit's estimate, the RE program, if re-enacted, will secure a 10% ERR22/ from the existing energized pumps (PPAM, Annex 8, Table 1). Cost savingithat ensue from replacing diesel fuel with electrical energy merely indicate that the power supply is least costly. But the elec- trical energy use in agriculture may still be economically disadvantageous. With prevailing farm practices in the Eastern Region, for example, the addi- tional agricultural output might not recover the electricity cost. The audit has, therefore, attempted to measure RE's possible benefits to agriculture. These benefits are, however, in value-added terms, which means the incremen- tal labor cost is assumed to be zero and the benefits are probably overesti- mated. The assumption can be defended, however, for 20-25 years because of the increasing population pressure and the difficulty of creating new jobs. Moreover, infrastructure for a much larger gain has been built in 64% of Indian villages (PPAM, Table 4). The audit estimates that for securing an economically acceptable ERR (12%), the RE program needs to establish an average of 18-unit energized pumps in an electrified village (PPAM Annex 8, Table 2), and other loads should grow as detailed in PPAM, paras. 63-64. Agriculture must also greatly augment its production through the adoption of modern practices. Since the manufacturing sector has incurred significant losses because of the unavailability or disruption of power supplies, the 12% ERR will be satisfactory only if the electrical energy shortages are overcome and power sector efficiency is improved (PPAM, paras. 95-99). 68. The audit mission has reviewed REC's screening tests: FRR and ERR. They require benefit, revenue, and cost estimates. 69. Benefit and revenue forecasts need to analyze power demand for irrigation pumps, and for industrial, tertiary, and residential sectors, including street lights. Each consumer group is expected to gain from a lower cost because a more expensive fuel is being replaced by electricity. The economic test requires that cost savings be estimated for each consumer group, the estimates being derived from a set of all India REC schedules. Financial tests use prevailing tariffs to estimate revenues. 70. As for cost estimates, capital expenditures are from the RE schemes, and operation and maintenance (0&M) outlays are 3% of fixed asset values. For economic evaluation, the marginal cost of energy ranges from Rs. 0.65/kWh in Karnataka to a maximum of Rs. 0.90/kWh in Kerala, the audit's estimate being Ra. 2.0/kWh (PPAM, Annex 8). For financial assessment, the energy cost is around Rs. 0.20/kWh, or about one-tenth of the incremental cost of power supply. 71. These tests require that different RE schemes satisfy different FRR and ERR criteria. PPAM, Annex 7 presents ERR rates for the main programs. 72. With qualifications noted in PPAM, para. 67, the tests are concep- tually sound. Based on field visits the audit is, however, dissatisfied with the rigor of demand forecast, particular' in the Northeast, and with REC's 22/ GOI's comments are given in Appendix I, p. 5. - 22 - President of India, therefore, appointed the management team and determined the manager's powers, functions, and salaries. The REC's Fourteenth General Meeting (September 29, 1983) had, however, a resolution before it to annul this provision. But according to, the GO, "appointment to top level posts in the REC is still being made by the President on the basis of recommendations made by a high level selection board."--Appendix I, p. 5. Nonetheless, REC is a weaker institution now than in the 1970s. The Corporation changed three chairmen/managing directors in the first half of the 1980s. In contrast, it had only a single chief throughout the 1970s. Given REC's key lead role as a development catalyst the GOI needs to upgrade the Corporation's status. 83. As frr RE's manpower requirements in the strategic centers, this review restricts its focus to areas that influence the planning strategy, improve the quality of RE schemes, and determine the success of India's rural development efforts. From this perspective, four strategic centers have critical manpower needs. They are strategic because they can influence the nature and the quality of the entire operation. Their inevitable demand for a high standard of performance would also help strengthen broadly RE's admin- istration. The four strategic centers are: (a) Nucleus of REC's New Delhi Office, people who determine RE's plan- ning strategy, review schemes, and monitor progress; (b) Regional REC Teams, people who prepare, evaluate, and monitor schemes at the grass-roots; (c) State Electricity Board's RE staff, people who work as counterparts of Regional REC Teams; and (d) Central Training Institute, Hyderabad, people who can introduce innovative and fresh ideas. 84. Of the 1,100 REC staff, over 60 percent work in New Delhi. The Corporation recognizes that it does not need a large staff in New Delhi and has started assigning some to regional offices. The move is understandably unpopular. But the Delhi office needs highly qualified staff in social sciences, financial disciplines and engineering: people who are perceptive, analytical, and tactful taskmasters. REC should offer improved terms to attract and retain them. In-house training will not greatly increase their numbers. But when they are on board, they can introduce fresh thinking and help the Hyderabad training institute to provide an effective program. 85. The audit mission discussed the RE program with almost all the top officials of REC/SEBs' regional teams. Many of REC's regional staff are experienced and dedicated individuals. But they need to prepare high quality schemes for industry, agriculture, social and other tertiary sectors,espe- cially in the Northeast. They must work with government agencies, banks, and other institutions to coordinate and integrate supportive programs. Good planning needs to be introduced at this level. The Planning Commission's numerical benchmarks are no substitute for pragmatic analysis of problems and solutions. Nor is REC's standardized tables of costs and benefits a - 21 - 77. As a development catalyst, RE can help support zritical elements of such a package. RE's success, in turn, depends on support from other rural development schemes. By increasing manageable water supply, for example, RE has enabled farmers to augment agricultural production. But the program's benefits can only be replicated in the Northeast if investment is made in digging wells; buying, installing, and maintaining the pumps; using modern farm inputs, and ensuring that the producer, and not the middleman, gets most of the benefits. RE's relative success in the Northwest and its lackluster performance in the Northeast rest on the strength or the weakness of the supporting institutional, human, and physical resources. 78. Although programs for human resource development have advanced markedly since Independence, they have not been on a scale to tap RE's full potential through, for example, educational TV and night schools; to slow India's population growth; and to motivate rural youth, women, and landless labor. For these efforts to succeed, REC/SEBs must strive to integrate different elements of the social programs through innovative and participa- tive schemes, similar to the special project in agriculture. REC/SEBs have a large pool of skills, with an organizational network that touches the grass- roots. A well-organized and efficient power sector has a good chance of pio- neering major socio-economic changes successfully in India's rural economy. REC: The Task Ahead 79. Introduction. Since its establishment in 1969, REC has assisted in speeding up groundwater use and in expanding India's food supply (PPAM, paras. 25-27). The Corporation's role in poverty alleviation program has, however, been limited. Yet, a key institution for transforming the country's rural economy now exists. 80. REC has the experience and .he staff to initiate major development efforts. To review the policy and institutional underpinnings for India's rural transformation, the audit has examined: the Corporation's main func- tions, the need for institutional and policy reforms, and suitable REC cove- nants for SEB loans. 81. Functions. The Corporation's efforts to promote rural development have been critical to RE's considerable achievements in the past sixteen years. The Corporation, which owes part of its success to a forceful leader in the 1970s, has attempted to determine the program's development strategy; mobilize financial resources, mainly through borrowings; coordinate RE with other agencies' rural development works; provide technical assistance for preparing and implementing RE schemes; standardize equipment and facilities; impart training; develop REC/SEBs' manpower resources; monitor progress; and evaluate performance. The audit has focused, in this part, on the need to strengthen the Corporation's leadership role, and to reorganize and develop its manpower resources. 82. The GOI had recognized, in 1969, that REC's manager must have national stature and be a skillful innovator, a forceful administrator, and enjoy a long tenure for accomplishing the Corporation's objectives. The - 23 - substitute for rigorous socio-economic evaluation of RE schemes. These regional officers serve an entire State, many as populous as major nations such as Nigeria, Pakistan, and the Philippines. REC's regional offices should, therefore, be suitably staffed to address rural development problems seriously. They also need the support of Hyderabad's training institute. 86. Some 700,000 to 800,000 people wurk in the State Electricity Boards. SEB's are highly organized with widespread networks in 64% of India's villages. A relatively small part of this large workforce is cur- rently serving the rural economy. 87. The Planning Commission had envisioned a separate RE planning cell in each SEB to be administered by a senior officer with direct access to top management. Few Boards have so far established such cells, which are needed in all States. They must form strong counterpart teams to work with REC's regional staff and with other agencies as development catalysts (PPAM, paras. 74-78). Hyderabad's training institute needs to support these teams, including groups involved in participative development schemes. 88. A good part of SEBs' manpower should also be assigned to work on RE programs. Already many REC-financed centers operate for the training of SEBs' linemen. More training is, however, needed. According to PEO's evalu- ation of RE program: "for large number of villages, repair facilities are available beyond 5 km." This is more pronounced for repair facilities of motors and accessories. If repair facilities are located away from the villages, the equipment would remain idle because of minor faults. "A repair crew for two or three electrified villages would be ideal so that the power consumers need not travel long distances. This requires many trained per- sons. REC has sanctioned several schemes for the training of linemen. More of such facilities are needed in rural areas for training of repair crew. Moreover, the possibility of taking up a massive program under the National Scheme of Training of Rural Youth for Self Employment (TRYSEM) need to be explored" - Vol. II, p. 10. 89. The audit considers the development of Hyderabad's training insti- tute to be an important determinant of RE's future success. The center has a competent director, but given the tasks envisaged for it, the institute's resources are severely limited. 90. Besides, surveys and research works need to be done at the center, and at various Indian institutes. These studies should, however, be coor- dinated, each with appropriate terms of reference. Studies so far completed on RE's performance have been experimental. A more systematic23/ approach should be adopted, and RE's rich data base organized for ex postevaluation and analysis. The institute must also develop skills to examine issues per- taining to rural energy demands and the best way of coping with them. 23/ Appendix I, top of p. 2. - 24 - 91. Institutional and Policy Reforms. REC must become a strong and autonomous development lending agency. Financial self-reliance is essential for its autonomy and effectiveness. PPAM, Annex 6 shows that REC's outstand- ing borrowings, on March 31, 1985, was Ra. 11.7 billion from the GO and Rs. 2.2 billion from the market. The Corporation's equity capital was Rs. 1.4 billion. Thus, REC's ability to mobilize market resources has been limited. To provide the Corporation with a strong capital base, GOI needs to convert a sizable part of its REC lending to equity capital. Further, the Corporation should receive regular contribution from the proposed Power Tariff Commission (PPAM, para. 104) as equity capital, the objective being to secure and main- tain a 60:40 debt-equity ratio. When REC's market penetration and the qua- lity of its loans improve, the debt-equity ratio can gradually be lowered. A strong capital base should enable REC to negotiate directly for domestic and foreign loans. The Bank must also lend directly to the Corporation. 92. For periodic monitoring and evaluation of RE schemes, their numbers should be greatly reduced. REC also needs a strong center to tabulate mean- ingful socio-economic information, and for performance evaluation of comp- leted and problem projects. 93. REC's Covenants for Its SEB Loans. Currently, REC does not nego- tiate loan covenants with SEBs. But REC is a development agency which should strive to improve SEBs' performance. The Corporation needs, therefore, to consider the following covenants: (a) tariff levels for a satisfactory FRR; (b) system improvement to reduce T&D losses; (c) energy conservation, especially for irrigation pumps; (d) satisfactory maintenance service for distribution networks; and (e) institutional reforms concerning RE cells; coordination with other agencies; and cofinancing arrangements, for example, for industrial and human resource development. 94. To respond to the SEBs' needs for major reforms, the Corporation must get engaged, as a lending agency, in rehabilitation, system improvement, and conservation programs, and adapt its lending strategy to the requirements of a massive rehabilitation and reform program. Specifically, REC should: (a) broaden and modify the RE definition (PPAM, para. 73); (b) consider lending for rural industries located in the proximity of urban centers; (c) finance items such as 66 kV transmission lines, 66/11, and 66/33 substations necessary for SPA, and 130/33 or 130/11 substations necessary for SPI; and - 25 - (d) promote small rural energy schemes, including micro-hydro, bio-gas, and wind-mill projects. Power Sector Efficiency 95. India's agricultural demand for power supply is one of the largest among the developing nations. It is currently around 19% of the energy gene- rated. The maximum load is still higher. The 5.8 million energized pumps have 20,000-25,000 MW connected load which is equal to 50%-60% of the coun- try's installed generating capacity. During drought, when pumps operate at maximum capacity, the agricultural load in, for example, Gujarat and Tamil Nadu can easily disrupt supplies to the industrial sector, which currently absorbs 55% of the country's electrical energy outputs. The Bank was aware of this problem when it decided to support India's RE program: "the stresses which would be imposed on the country's power supply were acceptable in order to obtain the extra food production resulting from the added irrigation pumps. GOI was, in any case, determined to pursue its RE program whether or not the Bank decided to participate in it" (PCR, para. 4.02). 96. Yet, because of the acute scarcity of power in most parts of India, the electric pumps are underutilized. Concurrently, a large part of power supplies to agriculture is wasted because of unsuitable pumps, and the culti- vators' lack of incentive to conserve energy. Besides, transmission and dis- tribution losses are high (PPAM, Annex 10); and the thermal plant utilization rate is low, especially in the Eastern States, Haryana, and Tamil Nadu (PPAM, Annex 11). 97. The major reasons for the power sector's inefficiencies are: frequent changes in most SEBs' management teams, and severe resource short- ages. The audit has reviewed India's National Power Plan,24/ which recog- nizes the technical problems raised here. 98. The Bank should seriously study the power sector issues at nation- al, regional, and state levels and discuss the results with the GOL The National Power Plan needs to be refined in, for example, demand forecasts, and fuel prices. It should also be updated periodically. The SEBs' plans need, then, to be reviewed within the broad frame of the national plan. The Bank should also work closely with most SEBs to rehabilitate and reform their systems. 99. The audit mission discussed the RE program and the sector issues with most SEB chairmen, who are men of exceptional talents. But aside from two chairmen, others have short-term tenures. Yet, each SEB chairman pre- sides over a vast and important organization. He cannot function effectively if his tenure is short, and if political rather than managerial and technical considerations determine his future within the organization. Given the urgency of major institutional reforms in SEBs, GOI needs to make the appointments of SEBs' management teams permanent. 24/ National Power Plan, Central Electricity Authority, Ministry of Energy, in Two Volumes, April 1983. - 26 - Power Rates and the Electricity Tariff Commission 100. According to this audit the electricity supply cost is, at least, Rs 2.0/kWh in rural areas; the average cost for country being Rs 1.5/kWh (PPAM, Annex 8). Our analysis also shows that crop yields from irrigated lands must appreciably increase over current levels to enable agriculture-to recoup the incremental cost of power inputs. 101. The electricity unit cost for rural areas can be stabilized around Rs 2.0/kWh at 1985 prices. But this depends on rehabilitation and reform, including retrofitting of electric pumps, to make them energy efficient; curtailing T&D losses; increasing thermal plant utilization rate; investing in cost-effective hydro-electric options; and greatly improving the coal mines' operations. 102. A major conclusion of the audit emphasizes RE's great benefit to a small group of farmers, who are able to pay for much of their electricity consumption. The reluctance to introduce a tariff that would recover a sig- nificant part of RE's cost has not helped to narrow income disparity within India's rural communities. A review of agricultural rates shows that culti- vators' pay negligible sums to SEBs - around 10% of the supply cost. In Tamil Nadu, for example, electricity has recently become a "free good" for small and marginal farmers and their consumption accounts for one-third of the agricultural load in that State. PPAM, Annex 12, summarizes the highly subsidized agricultural rates in representative States. 103. Prices do vary. Some consumers are metered, but many are charged flat rates. In U.P., where service is poor, the SEB charges Re. 270 per hp a year, or 5 times the level in Karnataka. Even so, U.P.'s rate is about 10-15% of the incremental cost of power supply. 104. The main issues and the audit's recommendations are as follows: - According to India's Constitution electricity is in the Concurrent List, which means the Center and the States both have a say in determining its price, production, and distribution. - The Center has, under the Indian Constitution, the power to impose differentiating excise duties on locally produced goods and ser- vices, including electricity. Since the State Governments are unwilling to raise SEBs' revenues, the Center can raise them through an excise tax.25/ The proceeds should go to the proposed Power Tariff Commission-to be allocated to SEBs for financing their expansion, rehabilitation, and reform programs. 25/ According to the Planning Commission, "to bridge the gap between exist- ing rates and incremental cost of energy supply, varying amounts of excise duties would have to be levied. This may not be legally possi- ble. Hence, suggestion needs further examination".--Appendix I, p. 8. - 27 - - Incentives for sustained efforts to increase food production must continue. Since the issue is complex, the Agricultural Price Com- mission reviews the incentive package, including power subsidies. - Given the importance of supplying an adequate and cost-effective power service to India's agriculture and the manufacturing sector, and considering the complex systems of rates in 22 states as well as the intricate issues surrounding incentive package for agricul- ture, the audit has concluded that a permanent Power Tariff Commis- sion is needed at the Center to determine tariffs and to enforce them through central excise duties on electricity outputs,the duties being transferrable to power consumers according to the Commission's recommendation. These duties, which can be announced as a part of the national budget, must narrow the gap between existing rates and the incremental cost of energy supply. The objective of the Commission would, therefore, be: to make the power supply industry financially self-reliant; to upgrade its operation significantly; and to enable it to cater to an expanding market. Managing Groundwater Usage 105. The overexploitation of groundwater resources is becoming a major problem in some states. The medium and large farmers are eager tn acquire irrigation pumps where the results of the Green Revolution are wiely felt. Demand for more pumps is also promoted by financial subsidies and low elec- tricity rates. The Government's agricultural price policy has also provided a safety net. Many states in India have a long waiting list for pump energi- zation. In Maharashtra, 300,000 applicants are wait-listed; the average waiting period is 5 years. The long waiting period obtains also in Tamil Nadu, Haryana, Andhra Pradesh, and Karnataka. 106. Examples of groundwater overexploitation are becoming numerous; the danger would intensify as power shortage becomes less acute. Damage to underground water resources is, sometimes, irreversible. Sea water has intruded, for example, in some coastal regions, filling space created by the overexploitation of non-saline water. Saurashtra in Gujarat and south Calcutta in West Bengal are examples of areas damaged by sea water intrusion. 107. Moreover, falling groundwater levels have hurt cultivators who are dependent on shallow wells; most of them being small and marginal farmers. In democratic India, rich farV rs are a major political force. They dominate in many village communities.6/ Their political clout and agitation for more pumps put pressure on-Ttate administrations, which often disregard groundwater limitations. The audit mission has witnessed significant discre- pancies between the Center and the States regarding the number of pumps that can be energized in some States. The number of potential pumps in Maharash- tra and Tamil Nadu were, for example, increased substantially. Again, in the Tumkur district in Karnataka, pump energization is proceeding rapidly despite falling groundwater levels. 26/ Modified to reflect GOI's comments, Appendix I, p. 5. - 28 - 108. Individual States have groundwater units that survey water poten- tials and determine whether a district falls in white (promising), grey (uncertain), or dark (overexploited) categories. These units also periodic- ally monitor goundwater levels. They do not, however, have any independent legal status. / Currently, NABARD reviews applications for new wells and determines thF-humber of wells that it can reasonably finance. REC's proj- ects also require prior NABARD approval. But affluent farmers can always finance their wells without asking for NABARD or REC support. 109. The need for regulations on the use of groundwater resources is, therefore, gaining urgency in many parts. It is highly desirable that GOI consider urgently an all-India groundwater legislation 8/ to ensure that: (a) the state groundwater units become independent i-tities, performing technically competent jobs; (b) the Center provides suitable guidelines for water resource assessment, and for monitoring of water usage, including changes in groundwater potentials;(c) the pumps are suitably spaced; and (d) the drilling of wells, or pump sales, is prohibited without a permit. Consumers' Services 110. Rural consumers need reasonable service, which can be discontinuous provided the timings are announced in advance. Reasonable service requires suitable maintenance of subtransmission lines and distribution network. Bad roads often prevent prompt remedial action; the burning of transformers is, therefore, a frequent occurrence. The audit also witnessed, between Ranchi and Patna in Bihar, conductor theft (11 kV, 33 kV, and LT lines) over wide areas. Since farmers receive inadequate service in Bihar they are not keen to police the lines. 111. Cultivators also require advice regarding the suitability and the type of pumps they need to acquire. The pumps require prompt maintenance service. SEBs have not, generally, been able to provide adequate consumer services, especially since they are hard pressed for funds and the rural service is unremunerative. To cope with the problem, SEBs have been trying to use their own linemen and service network, to help establish electric cooperatives and to pay for a part of helpers' wages, the helpers being attached to village panchayats. Currently, SEBs' service networks predomi- nate. Village panchayats can help to ease SEBs' burden by sharing in the 27/ Modified to reflect GOI's comments, Appendix I, p. 5. 28/ Regulations concerning the mining of water, under India's constitution, are in the Union List, provided the parliament declares them to be in the public interest. Since underground wat:r tables are interconnected, they transcend state boundaries. Overe- itation could affect other States' interests, a subject which is in tne Union List. Furthermore, environmental issues resulting from salt water intrusion or the lowering of water tables that adversely affect small and marginal farmers' well beings are excluded from the Union, State, or Concurrent Lists. They are residual subjects that fall within parliament's jurisdiction. - 29 - cost. With the development of a minimum power load (PPAM, para. 63) and roads, the problem could ease. Nonetheless, beneficiary participation and a much larger training effort (PPAM, para. 88) are essential for satisfactory service. Sustainability of RE and the Electricity Supply Industry 112. Since Independence, India has raised its investment and domestic savings rates considerably. Self-reliance in resource generation, manpower development, and the production of capital and essential goods and services locally has established the foundation for sustained economic expansion. India has, therefore, been able to weather the recent adverse world economic environment. 113. But because of the low productivity of investment, the economic growth rate, although well-sustained, has been unspectacular. Investment resources have been inefficiently applied. Investments in RE and the power sector are good examples of the enormous scope which exists to improve investment and operational efficiencies. India's economy, its power sector, and the RE pro6ram are interdependent. They have been mutually supportive, have helped the production of essential food, and the extension of electric supply infrastructure to over 370,000 villages. Having laid the basis for a self-sustained development, India needs to speed socio-economic growth by cutting costs and by upgrading efficiency. 114. The RE program, despite its many accomplishments, has created severe imbalances in the electric supply industry. RE losses run annually into hundreds of millions of dollars. The deficits need to be limited and then greatly curtailed. The audit has strongly argued for a moratorium on further village -electrification in non-performing states until a certain level of productive load, in the existing electrified villages, is achieved (PPAM, para. 63). The severe strain caused by irrigation loads is yet an- other imbalance that frequently disrupts supplies to the industrial sector. The industries' dependence on SEB, although falling, is still 55% of public supplies. Industrial auto generators are wasteful and not a satisfactory solution in the long-term. This is not, however, an argument against power cogeneration, which must be encouraged where steam byproducts exist and are cost-effective.29/ 115. Sustainability of the RE services and the electricity supply indus- try, without dependence on GOI resources, hinges ultimately on the sector achieving self-reliance, autonomy and a suitable measure of accountability. The audit's recommendation concerning the establishment of an Electricity Tariff Commission, if accepted, will promote these objectives. Other suppor- tive institutional reforms, including manpower resource development, are summarized in PPAM, paras. 124-131. 29/ India has considerable scope for cogenerating electricity in sugar, pulp and paper, refinery, chemical, fertilizer, and rayon industries. - 30 - III. CONCLUSIONS 116. Following the 1966/67 food crisis, GOI emphasized pump energization to help overcome food shortages. RE has helped the GO to achieve food self- sufficiency and has had a critical share in, at least, 20% of the incremental agricultural output over 1969-84 (PPAM, para. 27). 117. The program has an enduring socio-economic rationale: the large investment and operating RE losses are a small price to pay for thousands of lives which were saved as RE helped to augment food supply and prevent drought. Diesel pumps would have done part of the job. But RE's pace was too vigorous and its advantages to farmers too great for an alternative diesel pump program to rival its accomplishments. Moreover, diesel pump sales have also advanced and have complemented the drive. 118. Besides, the program has an estimated 10% ERR from irrigation pumps. Such a rate of return is possible from the 15 1/2-unit energized pumps in an electrified village, the size being the current all India average (PPAM, Annex 8, Table 1). 119. But for an economically acceptable ERR (12%), the program needs to establish an average of 18-unit energized pumps per electrified village (PPAM Annex 8, Table 2). Such an ERR requires that pumps irrigate 60 ha. a vil- lage, and land yields continue to increase by at least 3% a year. The required growth rate concerns value-added in agriculture per ha. of irrigated cropland and is in accord with past performance. A significant part of the increase must he secured from the Northeast Region (PPAM, para. 28). 120. Infrastructure, which could help realize a much larger gain, has also been built in 64% of Indian villages. The additional benefits will accrue when the power sector efficiency improves, energy waste is eliminated through conservation and system improvement, and SEBs prepare lucrative RE schemes in industrial, social, and residential sectors, and help to mitigate rural poverty. 121. The program has tried to address the poverty problem by emphasizing service to low-income groups and underdeveloped areas. The audit mission's field visits show that farmers with above average landholdings who could mobilize resources for pump irrigation have reaped most of the benefits (PPAM, para. 30). 122. But the program can help the poor by creating jobs. Moreover, the poverty problem would have been more acute without RE. The program has promoted labor-intensive farming and a modest rate of rural industrial growth (PPAM, Annex, Table 5). 123. Besides food, RE's other challenges are rural employment creation, and human resource development. To achieve these objectives, the GOI should strengthen RE's catalytic functions through institutional reforms, help mobilize sector resources, and correct financial and electricity supply imbalances. -31 - Institutional Reforms 124. To achieve RE's objectives, the Corporation must gain national stature (PPAM, para. 82) and display wide-ranging initiatives in, for exam- ple, organizing SPA, SPI, SPD, and similar participative and socio-economic programs. The Corporation must also operate efficiently.30/ Besides, REC requires new talents, financial resources (PPAM, paras. 91-94), and the support of a strong training and research center to address the critical issues outlined in PPAM, paras. 83-90. With improvement in the quality of its loan portfolio and a comfortable equity base, the Corporation should directly negotiate for loans, and help mobilize capital resources for the sector's rehabilitation programs. 125. REC should be mandated to encourage SEBs to reform their systems by complying with loan covenants outlined in PPAM, paras. 93-94. 126. SEBs need to develop institutionally, gaining in financial self- reliance and autonomy. Their management teams should be made more perma- nent31/ (PPAM, paras. 97-99). Resource Mobilization 127. The electricity supply cost is at least Rs. 2.0/kWh in rural areas (PPAM, Annex 8) and actual irrigation tariffs are around 10% of the cost (PPAM, para. 103). RE has greatly benefitted a small group of farmers who are able to pay, but, the States' reluctance to introduce tariffs that could recover a significant part of the cost has not helped to narrow income dispa- rity within India's rural communities. 128. Given that the power sector is highly capital intensive, large resources will be required for improving system reliability, curtailing T&D losses, upgrading SEBs' operations, and coping with the rapid growth of elec- tricity demand. Power rates must, therefore, be substantially raised.32/ 129. Further, considering a diverse system of complex tariffs in 22 states, the intricate issues surrounding agricultural incentives and the need for a mechanism to mobilize and allocate resources to the SEBs, the REC and other power sector entities, the audit recommends that GOI establish a perma- nent Power Tariff Commission to determine rates and to enforce them through central excise duties. The rate could be annually announced as a part of the national budget (PPAM, para. 104). The Commission should try to narrow the gap between prevailing rates and incremental supply costs; make the sector financially self-reliant; support agricultural and industrial expansion; and enable the sector to provide reliable and least-costly power for an expanding market. The GOI, however, considers the centralization of these functions in 30/ Modified to reflect GOI's comments, Appendix I, p. 6. 31/ Modified to reflect GOI's comments, Appendix 1, p. 6. 32/ GOI's and audit's comments are presented in Appendix 1, p. 6. - 32 - one authority to be undesirable. Also, since the new legislation "has already laid down a uniform framework for performance of SEBs, the need for a power tariff commission is not felt" --Appendix I, p. 6. Sector Imbalances 130. Despite its many accomplishments, the program has created imbal- ances: SEBs' RE losses run annually into hundreds of millions of dollars (PPAM, para. 35), and the strain caused by irrigation loads disrupts supplies, to the industrial sector during peak demand periods. The proposed Power Tariff Commission should help to correct both imbalances by mobilizing resources and funding rehabilitation and expansion programs. 131. The power shortage has hurt the manufacturing sector badly, and it is wasteful to force industries to establish auto-generating units. This is not, however, an argument against cogeneration (PPAM, para. 114). Since the manufacturing sector incurs significant losses because of the unavailability of, and the disruption to, power supplies, a 12% ERR would be satisfactory (PPAM, para. 119), only if the power shortage is eliminated. This is because industries' share of 55% of public supplies in SEB sales is still consider- able. Reliable and adequate supply must, therefore, be a part of RE's objec- tive. Otherwise, the program's ERR would be eroded by losses incurred else- where (PPAM, paras. 95-96). The Bank's Lending Policy 132. The Bank needs to reassess its lending policy as follows: - Further village electrification should be restrained until the norms described in PPAM, para. 64 are approximated nationally, and a much higher load growth is achieved in the Northeast; - Because SEBs are large and diverse organizations, the Bank should devote the resources to deal with them individually as it deals with similar public entities in Pakistan, Nigeria, and the Philip- pines (PPAM, para. 33); and - The Bank should raise issues with GOI about the quality of material supplies and appropriate designs, ground water legislation, and consumer services (PPAM, paras. 105-111). 133. Further conclusions about time and cost overruns, disbursements, procurement, and financial performance are presented in the evaluation summary. - 33 - Annex 1 Pge I of 6 LIST OF PLACES VISITED AND REFERENCES USED BY THE AUDIT MISSION I. Research Centers Visited 1. Indian Institute of Science, Bangalore 2. Center for Development Studies, Ulloor, Trivandrum 3. Madras Institute of Development Studies, Madras 4. Institute of Financial Management and Research (Kothari Group)# Madras 5. Small Industry Extension Training (SIET) Institute, Hyderabad 6. Center for Economic and Social Studies, Hyderabad 7. Administrative Staff College of India, Hyderabad 8. Indian Statistical Institute, Calcutta 9. Cessida, Calcutta 10. A. N. Sinha Institute, Patna 11. Girt Institute, lucknow 12. School of Social Sciences, Javaharlal Nehru University, Delhi 13. Indian Council of Social Sciences, New Delhi 14. Institute of Economic Growth, Delhi 15. Agro-Industrial Research Center, Jabalpur 34 - Annex I Page 2 of 6 II. Places Visited 1. New Delhi (Planning Commission, REC, CEA, Research Centers). 2. Chandigarh (Punjab/Haryana): Discussion with REC/SEB officials. Places visited: Mandour Umri. 3. Jaipur (Rajasthan): Discussion with REC/SEB officials. Places visited: Charenwas Syari Vimalpura: Discussion with Sarpanch, representing eight villages. 4. Bombay/Pune (Maharashtra): Discussion with MSEB chairman, NABARD, Reserve Bank of India, REC, Groundwater Unit in Pune). Places visited: Theur Village : Yeshwant Cooperative Sugar Factory. Khanapur Village: A center of NGO, founder-member Dr. G.M. Modak, working in 109 villages. 5. Vadovada (Gujarat): Discussion with chairman GEB, other GEB/REC officials. Places visited: Ananad Vogast Sarsa SusVa1 (Tribal village) Phandhora (Tribal village) 6. Bangalore (Karnataka): Discussion with REC/SEB officials, and Research Institute officials, etc. Places visited: Honnena Halli Tomkur Division Honudike Satayamagalea industrial estate Hirehalli industrial estate 7. Trivandrum (Kerala): Discussion with KSEB chairman, REC/SEB officials, Research Institute officials, chief secretary, etc. Places visited: Pothencode Chiranikara 8. Madras (Tamil Nadu): Discussion with TNSEB chairman, REC/SEB officials, and Research Institute officials. in35 - Annex I Page 3 of 6 Places visited: Sipcot Industrial Estate, Ranipat Center for Rural Development, Model Farm Chingleput Division Chittamoor Pulampakkam 9. Hyderabad (Andhra Pradesh): Discussion with chairman APSEB, Secretary of Energy, SEB/REC officials, Director; Central Training Institute, and Research Institute officials. Places visited: Devara Yamijal 10. Bhubaneshwar (Orissa): Discussion with OSEB chairman, SEB/REC officials, NABARD, and Agro-industrial Corporation. Places visited: Kuspalla Vinod Pada Kuiripada (Tribal village) Majuribeda (Trihal village) Visvanathpur Narada (T%rintita Cooperative Society) 11. Calcutta (West Bengal): Discussion with WBSEB chairman and Board members, SEB/REC officials, Research Institute officials, - Agriculture, etc. Places visited: Narasinghanagar Chandra Sinet 12. Patna/Ranchi (Bihar): Discussion with BSEB chairman, REC/SEB officials, and Research Institute officials. Places visited: Gadaisara Vaisali Aradih Area Bundu Block Hazaribagh Division Karma 13. Lucknow (Uttar Pradesh): Discussion with UPSEB chairman, REC/SEB officials, Research Institute officials, etc. Places visited: Cooperative Electric Supply Society Ltd., Lcknow Kurani ainthra KhasarWara ailWr -36 - Annex 1 Page 4 of 6 14. Jabalpur/Bhopal (Madhya Pradesh): Discussion with MPSEB/REC officials and visit to a Research Center. Places visited: Dagdaga-Hanota Sucri Singod Ill. References Used: 1. World Bank Documents: SARs, PCR, Economic Reports, Loan/Credit documents, project files, and correspondence. 2. Annual Reports, Rural Electrification Corporation, 1lth-15th. 3. Seventh Plan Perspective, Malcolms Adideshiah, 1985 4. Evaluation of Rural Electrification Program, Program Evaluation Organization, Planning Commission, Vols. I and II, 1982/83. 5. Report of the Committee on Agricultural Productivity in Eastern India, Reserve Bank of India, 1984, Vols. I and II. 6. Poverty in India, V.M. Dandekar and N. Rath, Indian School of Political Economy, 1971. 7. 'Garibi Hatao': Can IRDP Do It?, N. Rath, Economic and Political Weekly, February 9, 1985. 8. Dynamics of Rural Transformation, A Study of Tamil Nadu, 1950-1975, C.T. Kurien, 1981. 9. "Evaluation Report on Integrated Rural Development Program", Program Evaluation Organization, Planning Commission, 1985. 10. Developing Human Resources for Rural Electrification, REC, 1984. 11. Priority Sector Lending and the 20-Point Economic Program - Role of Banks, Report of the Working Group, RBI. 12. National Power Plan, A Perspective, Central Electricity Authority, April 1983, Vols. I and II. 13. Regional Structure of Development and Growth in India, G.P. Mishra (editor), Giri Institute of Development Economics, Lucknow, 1985, Vols. I and II. 14. Groundwater Development in India, T. G. K. Charlu, and D. K. Dutt, REC, 1982. 15. Industrial Growth in India: Stagnation Since the Mid-Sixties, Isher Judge Alhuwalia, 1985. -37 - Annex I Pagoe 5 f 6 16. The Reserve Bank and Rural Credit, RBI 1985. 17. Land, Labor, and Rural Poverty - Essays in Development Economics, Pranab K. Bardhan, 1984. 18. The Political Economy of Development in India, Pranab K. Bardhan, 1984. 19. Developing Rural India, Mellor, Weaver, Lete, Simon, 1968. 20. Seminar on Agro Power Profile - Bihar, Vols. I, II, III, REC, 1983. 21. Electricity and Social Change, Sachchdridananda, Verma, 1982. 22. Directional Strategies and Action Plan - A Policy Approach: West Bengal, REC, 1985. 23. Directional Policy Strategies and Action Plan - An Approach: Uttar Pradesh, REC, 1984. 24. Operational Strategies and Action Plan - An Approach: Orissa, REC, 1984. 25. Economic Benefits of Rural Electrification in Maharashtra - A Study of Four Districts, Ashok K. Mitra and S. W. Muranjan, Gxokhle Institute of Politics and Economics, Pune, 1980. 26. A Study of Costs and Benefits of Rural Electrification in Andhra Pradesh, Administrative Staff College of India, Hyderabad, 1980. 27. Costs and Benefits of Rural Electrification - A Study of Four Projects in West Bangal, J. Roy, S.K. Pal, S.K. Roy, Indian Statistical Institute, 1980. 28. Role of RE in Drought Affected Areas: An Evaluation, Center for Research, Planning and Action, 1982. 29. Impact Study of Sircilla Rural Electric Cooperative, Mukherjee and Sharma, Council for Social Development, 1981. 30. Impact of Rural Electrification on Employment, Semanta & Varma, 1980. 31. Energy Development in India, Mahajan, Department of Economics, Punjab University, 1983. 32. Direct Attacks on Rural Poverty, Prabhu Ghate, 1984. 33. Employment, Poverty and Public Policy, Sardar Patel Institute of Economic and Social Research, 1981. 34. Growth Theory and Strategy: New Direction, L.C. Gupta, 1983. -38 - Annex I Page 6 of 6 38. Changing Patterns of Development in India, R. T. Tewari, Girt Institute of Development Studies, LIcknow, 1984. 39. Village Development in India - A Sociological Approach, Madan, 1983. 40. Rural Development Policies and Programs - A Sociological Perspective, S. R. Mehta, 1984. 41. Labor Absoprtion in Agriculture, Booth and Sundrum, 1984. 42. India's Changing Rural Scene, 1963-1979, Etienne, 1984. 43. Income Distribution, Growth and Basic Needs in India, Sinha, Pearson, Kadekodi, and Gregory, 1979. 44. Rural Development in India, Lakshman and Narayan. 45. Report of the Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development, Reserve Bank of India, 1981. 46. Reserve Bank of India - Fifty years, 1935-85, da Costa, 1985. 47. Report of the Working Group on the Role of Banks in Implementation of New 20-Point Program, Reserve Bank of India, 1984. 48. Assets of Rural Households, All India Debt and Investment Survey, 1971-72, RBI, 1976. 49. Report of the Working Group to Review The Working of the Lead Bank Scheme, RBI, 1982. 50. Integrated Rural Development Program, Important Circulars Issued by RBI, RBI, 1984. 51. REC - Loan Policy Circulars, Supplementary Vol. I, issued from 1980 to March 1984, REC, 1984. 52. Development of Agriculture and Allied Sectors: An Integrated Area Approach, Arora, 1976. 53. CRESSIDA, Transactions, Vols. I, II, and III, 1981-83, Calcutta. -39- DISBURSEMENT RECORD OF THE BANK'S THREE CREDITS/LOAN Original Loan/ Amounts Effective Credit Amounts Disbursed Closing Undisbursed Loan/Credit (US$ millions) (US$ millions) Date (US$ millions) First RE Project 57.0 57.0 12/31/80 0.00 Second RE Project 175.0 171.75 03/31/84 3.25 Third RE Project 304.5 95.75 06/30/86 208.75 Source: Statement of Loan, October 1985; and Statement of Development Credit, October 1985 - World Bank. ANNEX 3 -40- IRRIGATION POTENTIAL (Million hectares) Irrigation Feasible Utilized % Utilized Major and medium 58 30 52 Minor 55 34 62 Surface water (15) (9) (60) Ground water (40) (25) (63) Total 113 64 57 Source: Exploitation of Ground Water Resources through Pump Set Energization, Dr. D. K. Dutt, REC, 1984. -41- ANNEX 4 INDIA: AREA UNDER IRRIGATION (Million hectares) Large and Minor Schemes Medium Surface Ground Schemes Water Water Total Pre-1951 position 9.7 6.4 6.5 22.6 Increments during: 1951-69 7.1 0.1 6.0 13.2 1969-84 8.1 2.3 14.3 24.7 Total 24.9 8.8 26.8 60.5 Source: India, 1984, Ministry of Information and Broadcasting, GOI, pp. 276-77; and other sources. -42- ANNEX 5 CHANGES ASSOCIATED WITH THE RE PROGRAM Number of Position Reporting Before After a/ Percent Beneficiaries Elec. Elec. Change 1. Area sown (ha.) 805 4,789 5,511 15 2. Area Irrigated (ha.) 816 1,484 2,852 92 item I as X of item 2 101 31 52 - 3. Sources of irrigation (ha.) 1,016 2,650 - Well, diesel pump 509 181 - Well, electric pump 0 2,445 - Traditional well 493 12 - Other 14 12 4. Area covered by High 817 475 1,712 260 Yielding Variety (HYV) seeds (ha.) 5. Percent of beneficiaries 817 NA 75 adopting HYV seeds 6. Area covered by 817 NA NA 53 improved seeds 7. Percent increase in 817 NA NA 122 area using chemical fertilizers 8. Number of mechanical 165 466 180 devices owned 9. Yield per ha (metric ton) - Paddy 1.8 2.7 49 - Wheat 1.6 2.2 37 - Barley 1.2 2.6 21 - Ragi 1.5 1.7 12 - Jowar 0.6 0.7 23 10. Mandays employed per 74 81 10 ha. of cropped area 11. Rural industries - Number of industrial 397 0.1 0.8 670 units b/ per reporting village - Manyear of industrial 397 0.M 2.1 610 employment per reporting village a/ For 1977/78 k/ About 80% of units had motors of 10 horsepower (hp) or more. Source: PEO's RE Evaluation Report, Vol. II, pp. 14-41. -43- Page 1 of 2 REC's INCOME STATEMENT (Million Rupees) Year to March 31 1984 1985 Revenues 978 1,152 Interest on loans disbursed 968 1,140 Interest on investments 10 12 Expenses 773 932 Administration 45 54 Interest on borrowings 728 878 Operating income (before tax) 205 220 Income tax provision 83 87 Profit, after tax 122 133 Ratios 1. Operating ratio (admin. & interest as % 79 81 of revenues) 2. Debt service coverage 1.3 1.2 Source: REC's 1984/85 Annual Report. ANNEX 6 -44- Page 2 of 2 REC BALANCE SHEET (Million Rupees) March 31, 1984 March 31, 1985 ASSETS 15,263 16,992 Fixed assets 37 46 Loans 15,360 17,143 Miscellaneous 5 6 Current assets/investments 89 87 Less Current liabilities 228 290 (-)139 (-)203 FINANCED FROM 15,263 16,992 Equity: 2,950 3,180 Paid-up capital )3O 1,410 Reserves 1,650 1,770 Loans: 12,313 13,812 GOI ) 11,651 Market ) 12,117 2,161 Secured 196 - Ratio: Debt/Equity 81/19 81/19 Source: REC's 1984/85 Annual Report. ANNEX 1 -45- Page 1 of 2 POVERTY FOCUS OF REC'S LOANS Composition of REC's Sanctioned Loans - 1979/80- Code 1983/84 (%) Schemes for Low-income 60 Beneficiaries - Ordinary backward areas OB, MB 13 - Revised minimum needs program RMNP 25 - Harijan Basti 2 - Specially underdeveloped areas Su, MU 20 Ordinary Advanced Areas OA, MA 9 28 Special Projects - Agriculture SPA 21 - Industry SPI 2 - Drinking Water SPD 0 - Health centers MH 0 - Transmission ST 2 - System Improvement SI 2 - Others I Ordinary Cooperative Projects OC 3 Total 100 Source: REC's Annual Reports REC'S LOAN TERMS AND VIABILITY CRITERIA Viability Normal Interest rates, percent a year Criteria, Types of Loan Loan Monitoring Years ERR to be Loans Outlay Period Period 1-5 6-10 11-15 16-20 21-25 26-30 Achieved (million Rs) (years) (in percent) OA 7.5-8 15 5 8* --9*---- 20 7* a/ OB 7.5-8 20 5 81 V/--9 ------ 15 OC 15 30 5 4* 51 6* 7t 8* 9* - SU 7.5-8 25 7 7* c 6* &/--8 10 RHNP 7.5-8 30 5 64 64 7 7 7 7* 10 HB 1.5 15 - - 5-- SL 2.5 5 - 8 - SPA I 4 8 2 --9 -- 25 II 5-6 14 2 ---9 25 SPI I 2.5 8 2 -9*- - II 4 14 2 - 9* Inventory Loan 11% - a/ For infrastructure part b/ For load development part C/ For infrastructure part (1-7 years) W/ For load development part (1-7 years) Source: REC Annual Report, 1983/84 A"LIA 0 -47- Page 1 of 8 ENERGY COST, THE REQUIRED RETURN FROM THE RURAL ELECTRIFICATION PROGRAM, AND THE PROGRAM'S ERR 1. Average Electrified Village in India Current Load Profile Energy Percent Type of Beneficiaries No. Consumption Distribution (MWh) Residential/Commercial 20.0 1,050 1.9 consumers Electric pump owners 15.5 50,0001/ 87.6 Industrial consumers 0.74 6,000 10.5 Total 57,050 100 Electric pump-irrigated areas2/ (ha): Gross 48.0 Net 25.4 2. Estimated Rural Load About 370,000 villages have been electrified. At 57,000 kWh/village consumption, sales total 21.1 TWh/year. With 21% T&D losses, demand for generation would be 26.7 TWh/year, or 19% of the energy supply. At 20% load factor, the maximum demand would be 15.2 GW, or 38% of India's installed generation capacity. Village Electrification Cost 3. REC disbursed during 1969-84 Rs 17,531 million, and electrified 152,572 villages and 1,463,072 pumps. That is: Ra 115,000 a village; the incremental pump-village ratio being 9.6 to 1. 4. NABARD/Commercial banks also financed special projects in agriculture. The overall investment, including REC's, during the 15 years averaged around Rs 120,000 - Rs 125,000 a village. 1/ According to the National Power Plan, Vol. I, p. 23, Table 3.15, energy consumption per pump has been in the early 1980s around 3,000-3,500 kWh a year. 2/ PEO's Evaluation Report, Volume II, gives average figures per energized pump. ANNEX 8 -48- Page 2 of 8 5. During 1980/81 to 1983/84, REC's disbursements and achievements were as follows: Disbursements (an Ra) Achievements NABARD/Commercial No. of Newly Energized Year REC Banks Villages Pumps 1980/81 1,832 368 19,243 191,694 1981/82 1,915 404 19,765 200,508 1982/83 2,515 453 21,587 232,370 1983/84 2,956 611 20,183 280,434 Total 9,218 1,836 80,778 905,006 Source: REC's Annual Reports REC/NABARD/Commercial Banks' investment per village amounted to Rs 136,844. But at 1985 prices the cost would be Ra 170,000 a village, or $14,000. 6. To summarize, the capital cost for village electrification at 12% would be Rs 20,400/village/year; O&M cost at 3% of the incremental capital asset, Rs 5,100/village/ year; and total cost Rs 25,500/village/year. Since 57,000 kWh energy is consumed in a village/year, O&M plus capital cost of energy is: 44.74 paise/kWh or 3.73 US4/kWh For an average of 33 kW load per village RE's annual capital and O&M cost would be $64.4/kW. Energy Cost 7. Overall estimates: - Hydro-thermal mix in expansion plan (Z) 50 : 503 - Utilization rate of thermal plants (%) 50 - Utilization rate of hydro plants (%) 40 - Ratio between investments in generation and in T&D (%) 50 : 504/ - T&D losses (%) 21 - Cost of coal in 1985 prices (paise/000 kcal) 4.55/ - O&M as percent of capital investment 3.0 - Opportunity cost of capital (OCC, %) 12.0 3/ National Power Plan, CEA, Vol. II, pp. 491-92. 4/ National Power Plan, CEA, Vol. II, p. 467, Table 11.7. 5/ Dudhichua Coal Project, Report No. 4714-IN, p. 68. ANNEX 8 .49 Page 3 of 8 - Investment Costs: Hydro (US$/kW) 1,0006/ Gestation period in years 8 Thermal (US$/kW) 1,0007 Gestation period in years 8. Hydro energy cost (kW capacity), in US dollars: OCC: Hydro (Investment cost: $1,575) 189 T&D, in dollars 120 0&M (Hydro and T&D) 60 Total 369 Energy at retail level (kWh/year) 2,770 Unit energy cost (USc/kWh) 13.32 (Rs/kWh) 1.60 9. Thermal energy cost (per kW capacity), in US dollars: OCC: Thermal ($1,400) 168 T&D 120 0&M 60 Total 348 Energy at wholesale level (kWh/year) 4,380 Fuel cost (US$) 58 Total cost (US$) 406 Energy at retail level (kWh/year) 3,460 Unit energy cost (US$/kWh) 11.73 (Rs/kWh) 1.41 10. Unit Cost: Hydro-thermal-mix (US dollars) Hydro cost 369 Thermal cost 406 Total 775 Energy at retail level (kWh/year) Hydro 2,770 Thermal 3,460 Total 6,230 6/ National Power Plan, CEA, Vol. I, p. 87. 7/ National Power Plan, CEA, Vol. I, p. 142. ANNEX 8 -50- Page 4 of 8 Unit energy cost: US$/kWh 12.44 Rs/kWh 1.49 or Re 1.5/kWh 11. As noted in para. 6 of this Annex, because of additional investment in subtransmission and distribution system for the RE program, energy will have an additional cost of 45 paise/kWh for rural areas. The unit energy cost in rural areas is, therefore, around Rs 1.8 - 2.0/kWh. Required RE Returns for Recovering Energy Cost 12. With an improvement in crop yields, farmers can recover Rs 2/kWh of the incremental energy cost. Following is an illustrative analysis of cost recovery. 1! crop yields increase more than 25% over the current level, RE's benefits could be sizable. 13. Valued added in agriculture in India was Rs 595.3 billion (1983/84) - Report No. 5593-IN, Vol. 2, p. 15. This figure excludes value added of forestry and fishery products, but includes that in livestock subsector. Value added in agriculture at 1985 prices is currently about Rs 700 billion (Agriculture's deflator increased 25% during 1982/83-1984/85). 14. Irrigated area in India is 60 mn ha and gross area sown, 130 mn ha. 15. Taking 2.5 : 1 to be yield ratio between irrigated and non-irrigated farming, the relative weights of the tdo types in contributing to value added in agriculture are: Bectares (an) % - Irrigated area 150 55.56 - non-irrigated area 120 44.44 Total - 270 100.00 That is, 60 million irrigated hectares accounted for Rs 389 billion in value added, or Rs. 6,481/ha. 16. On non-irrigated land, value added contribution is about Rs 311 billion, or Rs. 2,593/ha. 17. The net gain of switching over from non-irrigated to irrigated farming is Rs. 3,888/ha (i.e., 15 minus 16). 18. It costs India (farmers, Government, NABARD, Commercial Banks, etc.) Rs. 30,000 to install an electric pump, including the drilling and other costs. With a 12% OCC and 3% 0&M cost, operating and capital expenses, which must be recovered, aggregate Rs. 4,500/pump. ANNEX 8 -51- Page 5 of 8 19. Given that farm yields in India can be considerably augmented, a 252 yield increase is needed for farmers to recover the incremental cost of power supply (Re 2/kWh). This additional yield is assumed to be in irrigated areas. Based on para. 16, we, therefore, have a value-added return of Rs 8,100/ha. The farmers' gain from an electric pump would be: 1.73 ha (Ra 8,100 - Rs 12,593) - Ra 9,527 20. Average energy consumption per pump is about 3,500 kWh/year. Incremental supply cost of power is Rs 7,000/year/pump. Since the pump will be irrigating 3.24 hectares, 1.73 ha new and 1.51 ha switch-overs from wells (602), and diesel pumps (40%), the energy cost is divided proportionately: 46.6% for switch-over loads and 53.4% for net increase in irrigated areas (cost Rs/pump). - Energy cost 7,000 - Cost payable for switch-over areas 3,262 - Cost of incremental irrigation 3,738 21. Benefits, before operating and capital cost To summarize (in Rs): - Increase in value added (para. 19) 9,527/pump - Annual cost of pump (para. 18) 4,500/pump - Energy cost (para. 20) 3,738 Balance 1,289 22. In para. 6, we calculated the cost of connecting a village ;o the grid (Rs 25,500/village). The nonagricultural consumers for 12% village load can be assumed to pay for their share in consumption. Village cultivators have, therefore, to recover Rs 22,338 (in Rs): - nonagricultural consumers 3,162 - agricultural consumers 22,338 Total 25,500 23. Since gains from an electric pump is about Rs 1,289 (para. 21) an average village must have 17.3 pumps, and 56 ha with electric pump irrigation to recover the energy cost. Crop yield per hectare must also appreciably increase, at least 25% over the current level. Tables 1 and 2 illustrate, under similar assumptions, ERRs from a 15.5 unit and 18.0 unit pump per village. The Economic Rate of Return (ERR) 24. The benefits are in value-added terms. This means, the incremental labor cost is assumed to be zero. The assumption can be defended over ANNEX 8 -52- Pge 6 OFT 20-25 years because of the increasing pressure of population, and the difficulty of creating enough jobs in rural India. Benefit streams assume, further, that value-added would increase 3% a year, meaning a doubling of return over 25 years. This rate of increase is in line with the overall agricultural growth rate in India. A good part of the increase must, however, come from the Eastern Region. 25. Table I shows that the electrification of a village with 15+ irrigation pumps will secure a 10% ERR. Table 2 shows that the RE's ERR increases to 122 in an 18 unit pump village. Table 1: ECONOMIC RATE OF RETURN FROM A 151 UMIT PUMP OPERATING IN A VILLAGE (In Constant 1985 is) Met Benefits, Village Electrification Pump-related Expenditure Energy 4/ iotal Net Present Value fear Investment I/ 0sm ?/ Investment 3/ O&M 2T Cost Cost Benefits 5/ Benefits (102 Discount) 1 30,600 30,600 - (-) 30,600 (-) 27,818 2 45,900 45,900 - (-) 45,900 (-) 37,934 3 76,500 90,000 166,500 - (-)166,500 (-)125,094 4 4,590 90,000 2,700 11,214 108,504 28,581 (-) 79,923 (-) 54,588 5 4,590 90,000 5,400 22,428 122,418 58,019 (-) 64,399 (-) 39,987 6 4,590 90,000 8,100 33,642 136,332 88.341 (-) 47,991 (-) 27,090 7 4,590 90,000 10,800 44,856 150,246 119,572 C-) 30,674 (-) 15,741 8 4,590 15,000 13,500 56,070 89,160 151,740 62,580 29,194 s 9 4.590 13,950 57,939 76,479 161,056 84,577 35,869 10 4,590 13,950 57,939 76,479 165,887 89,408 34,471 11 4,590 13,950 57,939 76,479 170,864 94,385 33,081 12 4,590 13,500 57,939 76,479 175,990 99,511 31,707 13 4,590 13,950 57,939 76,479 181,270 104,791 30.354 14 4,590 13,950 57,939 76,479 186,708 110,229 29,027 15 4,590 13,950 57,939 76,479 192,309 115,830 27,729 16 4,590 90,000 13,500 57,939 166,479 198,078 31,599 6,877 17 4,590 90,000 13,950 57,939 166,479 204,021 37,542 7,427 18 4,590 90,000 13,950 57,939 166,479 210,141 43,622 7,846 19 4,590 90,000 13,950 57,939 166,479 216,445 49,966 8.170 20 4,590 90,000 13,500 57,939 166,479 222,939 56,460 8,392 21 4,590 15,000 13,950 57,939 91,479 229,627 138,148 18,668 22 4,590 13,950 57,939 76,479 236,516 160,037 19,660 Tocal - (+) 220 1/ 90f of investment cost, as estimated in para. 5; the 902 is the share of irrigtion pump in energy consumption (para. 1). cm T1 3% of the value of fixed assets. I/ Re 30,000 investment/pump (para. 18). on W/ Re 2/kWh (para. 11) and energy consumption as estimated in para. 20. S/ Para. 19 estimates farmers' gain per pump at Rs 9,527 (value-added). Table 2: ECONOMIC RATE OF RETURN FROM AN 18-UNIT PUNP OPERATING IN A VILLAGE (In Constant 1985 Ra) Z/ Net Benefits Village Electrification Pump-related Expenditure Energy Total Net Present Value Year Investment 06M- Investment OM Cost Cost Benefits Benefits (12% Discount) 1 30,600 - - - 30,600 - (-) 30,600 (-) 27,321 2 45,900 - - - 45,900 - (-) 45,900 (-) 36,59 3 76,500 - 90,000 - - 166,500 - (-)166,500 (-)118,511 4 - 4,590 90,000 2,700 11,214 108,504 28,581 (-) 79,923 (-) 50,793 5 - 4,590 90,000 5,400 22,428 122,418 58,019 (-) 64,399 (-) 36,542 6 - 4,590 90,000 8,100 33,642 136,332 88,341 (-) 47,991 (-) 24,314 7 - 4,590 90,000 10,800 44,856 150,246 119,572 (-) 30,674 (*) 13,875 8 - 4,590 90,000 13,500 56,070 164,160 151,740 (-) 12,420 (-) 5,016 9 - 4,590 - 16,200 67,284 88,074 184,874 96,800 34,907 10 - 4,590 - 16,200 67.284 88,074 190,420 102,346 32,953 11 - 4,590 - 16,200 67,284 88,074 196,132 108,058 31,064 12 - 4,590 - 16,200 67,284 88,074 202,016 113,942 29,246 13 - 4,590 - 16,200 67,284 88,074 208,077 120,003 27,502 14 - 4,590 - 16,200 67,284 88,074 214,319 126,245 25,832 15 - 4,590 - 16,200 67,284 88,074 220,479 132,405 24,190 16 - 4,590 90,000 16,200 67,284 178,074 227,371 49,297 8,041 17 - 4,590 90,000 16,200 67,284 178,074 234,192 56,118 8,173 18 - 4,590 90,000 16,200 67,284 178,074 241,218 63,144 8,211 19 - 4,590 90,000 16,200 67,284 178,074 248,455 70,381 8,172 20 - 4,590 90,000 16,200 67.284 178,074 255,908 77,834 8,069 21 - 4,590 90,000 16,200 67,284 178,074 263,585 85,511 7,915 22 - 4,590 - 16,200 67.284 88,074 271,493 183,419 15,158 23 - 4,590 - 16,200 67,284 88,074 279,638 191,564 14,135 24 - 4,590 - 16,200 67,284 88,074 288,027 199,953 13,173 25 - 4,590 - 16,200 67,294 88,074 296,668 208,594 12,270 (-)3,952 as I/ Assumptions same as In Table 1. 0 -55- BENEFICIARIES ANT) NON-BENEFICIARIES a/ OF THE RE PROGRAN (In Percent) Literacy Rate Occupation Household Income Non- Non- Non- Benefi- benefi- Benefi- Beneft- Benefi- Beneft- ciaries ciaries ciaries ciaries claries ciaries Illiterates 53 28 Farmers 57 70 Household Literates: 47 72 Village 1 7 Income: industrial - up to work R9. 5,000 74 38 - Below Primary 16 16 Laborer 21 2 School - Up to High 30 51 Other 18 16 - Above School Rs. 5,000 26 62 - Undergraduates, 1 5 graduates, and above Total 100 100 100 100 100 100 a Living in the same village as beneficiaries. Source: PEO's Evaluation of RE Program, Vol. II, pp. 56-57. -56- ANNEX 10 ALL INDIA TRANSMISSION AND DISTRIBUTION LOSSES Region/State 1979-80 1980-81 1981-82 1982-83 1983-84 (percent) NORTHERN REGION Haryana 28.14 23.63 19.76 19.63 - Himachal Pradesh 18.55 19.34 17.30 18.07 - Jammu & Kashmir 47.01 48.05 44.69 41.40 - Punjab 22.50 19.58 19.95 17.17 - Rajasthan 24.40 26.59 25.40 23.58 - Utter Pradesh 19.00 15.64 18.67 19.78 - Chandigarh - - - - - Delhi (DESU) 13.69 16.88 19.25 - - WESTERN REGION Gujarat 16.71 19.78 19.93 20.06 - Maharashtra 16.10 16.21 15.30 15.14 - Madhya Pradesh 22.40 22,33 22.57 20.47 19.45 SOUTHERN REGION Andhra Pradesh 22.39 22.55 23.41 23.10 - Karnataka 20.97 24.58 21.98 21.00 - Kerala 15.90 14.86 15.16 12.47 - Tamil Nadu 19.58 19.12 18.51 18.84 - EASTERN REGION Bihar 24.53 22.07 23.14 23.15 - Orissa 18.29 19.19 18.97 17.96 - West Bengal 12.29 13.68 16.24 17.00 - DVC 1.37 1.96 1.59 1.84 - Sikkim 20.51 - - - - NORTHERN EASTERN REGION Assam 19.23 19.32 21.31 19.98 - Manipur 47.24 45.76 - - - Meghalaya 4.32 9.08 8.04 7.00 - Nagaland 32.42 26.59 - - - Tr ipur a 31.95 33.97 - - - INDIA 21.56 20.50 20.77 20.80 - Source: Central Electricity Authority: (1) General Review, 1979-80 to 1981-82; (ii) Electricity Supply Industry-Salient Data, 1982-83. Note: Figures for the year 1982-83 are tentative and subject to revision after reconciliation of interstate sale purchase of energy. (-) - not available -57- ANNEX 11 ALL INDIA THERMAL PLANT UTILIZATION FACTOR Region/State 1979-80 1980-81 1981-82 1982-83 1983-84 (percent) NORTHERN REGION Haryana 25.7 31.7 37.3 32.2 31.1 Jamnu & Kashmir NA 2.0 9.1 1.0 1.5 Punjab 29.6 37.8 41.3 51.0 57.0 Uttar Pradesh 43.8 39.6 37.6 39.6 35.1 Delhi 46.7 51.1 50.0 51.0 47.7 WESTERN REGION Gujarat 48.4 51.1 53.6 57.9 55.3 Madhya Pradesh 53.1 52.4 49.9 58.5 53.1 Maharashtra 55.0 55.3 49.4 50.2 51.0 SOUTHERN REGION Andhra Pradesh 40.9 36.3 46.8 51.1 54.6 Tamil Nadu 38.8 45.5 37.8 44.0 39.4 EASTERN REGION Bihar 37.8 31.4 35.5 38.5 32.8 Orissa 31.8 34.0 35.9 35.2 33.3 West Bengal 43.5 43.0 37.6 38.5 35.9 Damadar Valley Corp. (DVC) 40.1 37.6 51.4 49.6 48.1 NORTHERN EASTERN REGION Assam 41.1 36.5 34.8 36.9 34.2 INDIA 44.7 44.6 46.8 49.8 47.9 Source: Central Electricity Authority: Thermal Performance Review, March, 1982 and March, 1984. Note: Data for 1979-80 and 1980-81 relate to the thermal system of the State as a whole and for 1981-82 to 1983-84 to state electricity boards. -58 ANNEX 12 Page 1 of 8 AGRICULTURAL TARIFFS Fixed Energy Minimum SEBs Description Charges Charges Charges Andhra Pradesh Agriculture Rs5/month Re 50/hp -- irrigation Haryana Irrigation: - up to 20 kW, Ra2/hp/ 25 P/kWh a/ .. metered month unmetered Ra2/hp/ Rs20 hp/ -- month month Karnataka Irrigation: - up to 10 hp R50/hp/ - -- month - above 10 hp 17 P/kWh - Kerala Irrigation: - up to 10 kW Ws5-10 12 P/kWh -- a mouth - 11-40 kW Re3/kW 12 P/kWh - a month - above 40 kW a5/kW 12 P/kWh -- a month Rajasthan Irrigation -- 23 P/kWh 90-175 Rs per year Uttar Pradesh Irrigation: - up to 25 hp Rs270/hp/ -- Rs 22.5/ year hp/month a/ Paise (P) Source: Attachment POWER RATES FOR RURAL CONSUMERS SEBs Applicable To Fixed Charges Energy Charges Minimum Charges Effective From Andhra Pradesh Agriculture and Irrigation Rs. 5/month Rs.50/HP/Annum 15-01-84 Bihar Agriculture, including pro- 35P/kWh cessing of agricultural produce other than rice mills, flour mills, oil mills and dal mills. Also private tubewells and lift irrigation schemes in Chota Nagpur and Santhal Parganas. State Tubevells 35P/kWh 01-05-83 Qujarat Motive power used in agriculture:1/ Contracted Rs/HP/ All Consumption 07-04-84 Load Month 14P/kWh Rs 35/HP/year of PLUS: contracted load, excluding fixed Option I First 5 HP 1.55 Installation having charges. Next 10 HP 1.80 contracted load up Next I0 HP 2.05 to and including All in excess 2.30 7.5 HP-16P/kWh; and Installation having contracted load exceeding 7.5 HP-11P/kWh. 1/ Agricultural connection can he used for comhined agriculturAl and small industrial loads, water works, etc. s Sue Applicable To Fixed Charges Energy Charges Minimum Charges Effective From Option II First 50 units/HP - do - First 5 HP 1.55 of contracted load- Next 10 UP 1.80 19PIkWh. Next 10 UP 2.05 All in excess 2.30 Next 1000 units/ *onth-15P/kUh All in excess- 9P/kVh. PLUS M-SFallations having contracted load up to and including 7.5 RP- 16P/kwh; and Installations having contracted toad exceeding 7.5 RP-IIP/kWh.2/ Haryana TrXistion pumping up to 20 kWh: Metered Rs 2/HP/month 25P/kWh - 14-09-82 Unmetered Flat rate Rs 20/HP/onth - Rs 2/HP/month Karnataka Irrigation pumps used for lifting water only: -10RP and below metered. Rs. 50/H?Iannum Rs .50/HPlannum 24-10-83 2/ 50/kMh rebate is allowed for use of electricity exclusively during night hours (10PM to S AM next day). SEBs Applicable To Fixed Charges Energy Charges Minimum Charges Effective From Unmetered Rx. 67/kWh/annum Ras. 67/kW/annm Above 10HP 17P/kWh - do - Agricultural operations 25P/kWh Rs. 10/month/kW vith sanctioned load of of sanctioned load. 7.5 kW and above. Water supply and sewerage pumps of: - Village and town panchayats 20P/kWh KCil - 4unicipalities/Corporations 28P/kWh Rs. 12/month/kW Government/Railways, etc. of sanctioned load. Kerala Cultivations having con- nected loads. t) up to 5 kW Rs. 5/month 12P/kWh Fixed charges Ii) above 5 kW to 10 kW Rs.10/month 12P/kWh - do - Iti) above 10 kW to 40 kW Rs. 3/tonth[kW 12P/kWh - do - tv) above 40 kW Rs. 5/month/kW 12P/kWh - do - Madhya Pradesh Agriculture 01-04-84 For single phase pumps 16P/Unit Nil for July to not exceeding IHP Sert. Other months: Pur.s not exceeding 4PP Rs. 3.75/month Pumps exceeding 4HP up to IMP Rs. 6.25/month. Sis Applicable To Fixed Charges Energy Charges Minimum Charges Effective From ALTERNATIVE I Agricultural consumers who 16P/Unit 360 Units/annum/HP give 12.5% annual guarantee concerning extension costs. ALTERNATIVE II Consumers who do not give 16P/Unit, plus 360 units/annum/HP, guarantee concerning exten- maintenance payable after the slon costs. charges for first fifth year. 12 months.3/ Maharashtra Consumers with connected load below 1OUP - metered 25P/kWh Rs.40/HP/Annum - unmetered Rs.150/HP/Annum - Rs.150/HP/Annum Consumers with connected 30P/kWh Rs.40/HP/Annum Orissa Agricultural pumps4/ 16P/kWh For months 01-08-83 June to Oct. Re.1/HP of connected load, and for other months Rs.3/HP of con- nected load. .T/ Maintenance charges shall be payable for five years after the first 12 months. 4/ For connected loads less than I H? the standard tariff for small industries shall apply. SEks Applicable To Fixed Charges Energy Charges Minimum Charges Effective From Punjab Irrigation up to a 01-07-81 connected load of 20 kW (26HP) - metered 19P/kWh plus Rs.9/HP/month 01-07-81 Rs.3/HP per month (out of this a as demand charge rebate of Ra.3/HP/ in lieu of service month is allowed). rentals.5/ - unmetered Rs.17.50/HPfmonth - PLUS Rs.3.00/HP/ month as demand charge in lieu of service rentals.6/ Tubewells where the 15P/kW expenditure on H.T./ L.T. line and dis- tribution transformers are incurred by the Irrieation Department Rajasthan Agricultural pumps All consumption i) up to 3HP 907/ 01-04-82 for Public Gardens 23P/kWh (for HT ii) above 3HP 10V)7/ belonging to the supply rebate of to SRP Government or to a '42). 111) above 5HP 1407/ local hodv, to 7.5uP Iv) above 7.SHP 1607/ to 10HP v) above 1MP 1757/ 5/ Out of this 6.5P/kWh are reimbursed by the State Government. / Out of this Rs.6/HP are reimbursed by the State Government. Yl Ra/HP/Annum. om SERs Applicable To Fixed Charges Energy Charges Minimum Charges Effective From rami Nadu Small farmers8/ 12P/kWh Rs.5/month/service - Big farmers9/ 15P/kWh - do - ttar Pradesh Irrigation load up to Rs.270/HP/Year -R.22.50/HP/month 25HP Agricultural operations: fs.22.50/HP/month Chaffcutter, thrasher cane-crusher and rice-huller. Connected load up to Rs.50/HP/month Rs.50/HP/month 01-11-82 100HP: state tubevells pumped canals, and lift Irrigation. lest Bengal Installation having 3NP 35P/kWh Rs.75.00/HP/year 09-25-83 hut not exceeding 50MP. Lssam Agriculture 30P/kWh Rs.10/kW of 01-01-81 connected load 1eghalaya For irrigation pumps and 30P/kWh Rs.100/kN of 01-08-82 agricultural purposes connected load per year limachal Pradesh Agricultural pumps with All consumption - 01-09-82 connected load not 20P/kWh exceeding 20kW I Whose total holding does not exceed 2j acres of vet land or 5 acres of dry land. / Agricultural consumers will be permitted lighting up to 50 watts of 100C watts of motive power connected subject to a max. of 150 watts. Extra lighting over the permissible limit will be charged at general purpose tariff if metered and at Rs.2/40 watts lamp if unmetered. Cottage industries to be eligible for this tariff shall ordinarily not have a connected horse power exceeding five. SEBs Applicable To Fixed Charges Energy Charges "inimum Charges Effective From Jammu and a) Agricultural load & loP/kWhl('/ Rs.24/IHP/year n1-04-RI Kashmir lift irrigation demand Rs. 15/HP/month h) For agricultural loads Re.15/HP/month up to IfMHP 0 10/ 252 rehate allowed if supply it taken fror !')t*1 to 6AM only. Source: stFC. 7~z -66- APPENDIX I Page 1 of 7 COMMENTS FROM THE GOVERNMENT OF INDIA AND PLANNING COMMISSION OED Notes: * Comments of GDI on the Project Ferformance Audit Report - Iat and 2nd aUX6l tlectrification Frojecte ( Cradits 572-Ir as 911-ZN ) * The rural electrifibotion pro;ramte has received high priority.in the develoPnt efforts of QD1 and has the following main objectivess., i) increase in agricultural proluetivity through,' exploitation of ground water potdntiali 1i) provision of elactricity as infrastructure for the development of industry in usal ares and as a tool for improving the quality of life Of -rural population in a vari-ty of wayst ii) creation of additional nmployment op-ortunit;aL * . in mual areast 10) removal of tegional imbalances throa1h accelcrated Reflected in PPAM, elsctrifichtion in .States which are la3gin7 behind para. 8. in rural electrification* v) affCording dpacial concissional finance. for M scher-as aycially in handica ed areas* such as tribal, desert and other backward regiona vi) accelerted programme of electrification of areas inhabit34 by Scheduled casts and scheduled Tribes andy vii) to raise the level of household electrification# . which at present is rather low. The first ana second rural electrifiation projects (credit 572-IN/911-1f) aimed at supporting a time slice of the R pro1rame in the 5th and 6th Five year plans -respactively. REC's special projects I Performance audit ia intendas to asess the impact of agriculture, industry, i the projoct in tAmabf its objectives. While we rcognise that similar rural developmet evaluation of the two projects coul-d have been dond only in sc e a e cotvert f the the context of a review of M programme as-a whole, in thea Ia' catal present ease audit appears to have gone bejoad these parameters ecnoy A raass to attempt an overview of In%ss rural economy. Ceoysequentlyo A broa i 13ecaase of the constraints impsed by tha vety nature of such aprEc spcal precs 1 reconsider the policy approach to RE program. Xlw'..2* reosdrteplc -67- APPENDIX I Page 2 of 7 OED Notes: ~., ~**REC has sponsored many S studies, assessing RE's an evaluation, them have been ssvoe4 general observations ihich objectives, They are are not sup.orted by facts, We feel that a different methodology listed in PPA, Annex 1, could have been adopted by audit with a sh&sVer t a Part III, Items 25-30. * project objectives. The evaluations then would have been ee useful. OuJ% comsents on an of the specific observations of conentao the need the PM ae as slows* for a systematic ~ ~ approach to such studies. m1ge-VII wd isee with observation that many M fields engineers axe concernsed w4th the quality *bf these supplies@ 969* hae stringent procedbires for me"rial tispction and the Inference Amented. of-tte Bank is not based an facts. Furthite any isolated Annsex1, made by an enginaer can not be takeq to be "~presentative of th* prevailing situation. ae VIII While, it is true that ap"nd exceeds the supplye the losse Modified. suffeicd by toge manufacturing sector on account of disruption of power supply are only marzginal and not %sicnificanto as suggestee by the lank, The cost estimate of rural electricity at %62 per PFA's supply cost esti- mate of Rt. 2/kh uc an lgeV m apea eto be exagervtedi laoed on the bonclusions made rm ecomic cost (LRMC). In Annuel Swmmar Financier qAport being sumitted to the ank the Annex 8, the audit has wadsestmateia 70isetn aFUrther, *iee the * refered to sources of its cost in 1983-84 no taed at aiter information. Further, the idea of liffereintial tariffs for di ffe rent economic groups aplears alsRion 41scunsed with the nd it anengnee r can nt ibelf taken to bespvinstitute of oinafhial *Management and Research the reluctance of the thtto do so. in Madras studies that they sufewehad done or had revieed. Ig pX While th power supply cne under strain AV In some of th Their estimated Lsg t was States Baring peht deand period, with better caacity utilisation, demand management as.wall as Incsae, in genoetion, the prgblom N Modifited. Is no longer as severe s made out in the report. The inatiel sAetor is by end lang assured of uninterupted poer supy ?ge o The sujgestion to imased a mortorim on further village electrification ap?l to ignore the spirit of pt!e gusalopeat s Progretne Whilo the thrust of = in the 60a end early 709 wae Reference to GOI's on increasing fa o proAction, thatr has been a grmdual shift i comments is footnoted. emkpas" an houeh d eleatification and gmproveent in the quality lie in ual areas through electrification., At the mat ofRa.2/klh o a end of the 6th Plan about 64' of the villages were/fanrxbo8t 47,5% of the total potenilial of 1-20 lath pwprets weer energoesd. inoraton urhe,*h -68- APPENDIX I Page 3 of 7 Any morRtorium would therofore not only hamper exploitation of jmind wate potential but also 1o;rive a large section of our rural pDiulation from the benefits of electrification thus de+ating the socie-economic goal of the u pograme. (a) The audit's rcom3n1ation .for establishment of a permanent Reference to GOI's power tariff commission is not considered desirable in view of the comments is footnoted , position explained later. . 4) The imputation about political pressure on the SI is not Modified. based on facts. FcOcT st'itA * Reflected in PPAM, Faxre11 Tha financial criteria as stiNulatel in the Third IC P= ject para. has been found to be unworkable in practice. An ameniment to the Zlectricity(Supply) Act 1948 notified in 1985 require SBe to ear an annual retarn after meeting operating expenses, tkes, deprcciation and interest, of at leaqt 3% on their n& fixed assets. See OED Note, App.1, a proposal has been made to the Bank to chena to this 3% surplus Pe 6* conce.t to jul;e the f1hancial performance of the Sa. Para-19 The report does not bring out any draV-baqks in the proc;rmnt planning* Delays were largely due to procurement Footnoted. problams as explained. in the abs7nce of any significant avi Unce to suj7ast that procur3ment ;lanning and processing was faulty, we would request that apropriate amendm3nts may be made. Ift =_22 V.ar-capital foo-Uain availability in 1984 was 478 grammes* Footnoted. Vare 28-30 he feel that the audit memorandum is not the correct forum to discuss the findings of the Sen Committees Report, and would Deleted/amended. therefore, requaft that reference to this report may be deleted. ftra-31 It may be noted that the First WB Project financed by the Dedrspmnttue vt Bank commenced in 1976 whereas the Study of the C.T. irian which Mr. C.T. Kurien is pertains to the period 1950-75 i.e- before the projects got ted. has sponsored perain number of village resurvays ,underway. we, therefore, feel that the reference does not have In Tamil Nadu io the recent past. The Audit Mission . any direct relevance to these projects. What is more, the checked the results of its Omn field visits with scenario has changed considerably in the intervaning period and Mr C.T. Kurten who prowi- the observations are no longer valid.- This para may therefote be d*d som of the resurvey Sreports. Prof. Kurien con- elders his earlier findings n4/. as ltrgeY valid today. -69-Mg raa 9 U& I Sras 42.43 The report sumises that as the supplies are largely Deleted. being procuted fron Indigenous sourres, the quality is not satisfactory and suggests that a certain portion of procurement should be reserved for foreign manufacturers. Procurement unler the projects has been done strictly according to Bank guidelines which leave no room for procurement of equi9nant fran advanced countries alone. Since this observation is not supported by the Bank itself* it would be best left out of the report which is the Bank's of.icial document. Further tis inference that the quality * of local proucts is unsatisfactory is not based on facts and we feel that undie weightage has been given to the * opinion of some field engineers who It may not be even fully aware of the facts. It nay be noted that the material supplies are subject to stringent inspection proce ares of the state tlectricity Boar ds and they leave little ream for acceptance of sub-standard material. dUPizLE WAa COMCM3a lere*44 . It is not correct to Bay that the IS has failed to. Modified, and contribute to distributive justice. Before coming to any coIls coments * conclusion on the success ok a prograne of this nature, quoted. . it has to be borne In mind that the initial benefita'are likely to go to those sections of the society who are . willing and able to pay for it. As the progranme gathers . monentum and its benefits/tend to be perceived, its are of impact widense Our experience of this progranmne in * areas which have been electrified for a fairly long tim . . say 10 years, is that the benefits have percolated dwn to the weaker sections of the society. In conjunction with our anti-poverty programes such as the Integrated aWral Development Programme# mel electrification plays a key role in raising the standard of living in rural areas An appraLsal of such a proyame shaoul.d not be confined to direct benefits but also take into account the multiplier effects in the econany, This, the pegomA contribution to distributive justice has been significent. ...5/-. -70- APPENDIX I Page 5 of 7 Partially amended pare-Sa. We do not agree with the observation that the reference to 00' Planning Commission sets rigid achievement targets* coments is footn These targets are based on peat performance and present PPAM, para. 54. needs. 'Prograine implementation is monitored at verions' levels to ensure that the quality of implementation does not get VilUted.. gor4_59 The cost of power supply may be shown at 70 pais. See OED's commnt and not a a b.2/.per Kw and appropriate corrections be power supply cost made. T&D losses in 1984-85 were 19W and not 21% as ..* (App. I.p.2). The reported. This may please be corrected. lose figure is corrected, PPAM, 1a8.44 we do not agree with the observation that in order 55. to achieve plan targets, pwer lines are extend4without much power and supportive service. As already explained Footnoted, para. against para 5, the targets aze fixed as realistically as possible. Para-66 Ae already explained above any moratortm on fartir village elactrificztion would run comtrary to our policy Footnoted, para. of Socio-economic development of all sections ,of the socioty and hence is not considered desirable. Pare-71 The programme has been analysed purely from economic angle which presents a distorted picture in as much an it Footnoted, para. has a social content as well. For a batter appraisal of the impact of the M programme, a detailed stuly of the socio- economic benefits is called for. Para-86 The inference that the provision of appointment Acordin to RC's 14tb of Chairman and others by the Prestent has been annualled Report (192-83). Articl of tb* Articles of LAW is not correct. Agpointment to the top level posts in the of the Corporation ws t deleted. LW*r a am sm .C is still being made by the Pr3sident on the basis c V P Co wo recomendations made by a high level selection board. the member of the Bard AicorgtsECs1t Va rf 109-114 PAt present, st.ates have their Gound Water Boards which survey and date2mino the availability of ground water and how it should be exploited. Since the bulk of PPAM, paras. 104- farmers rely on institutional finance to f64 new wellsp were partly modi they come under the purview of these boarM and have h and reference to Pace ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ GV co09e114 Aipeetsttshv terGudwtrBad obtain their clearances. It would wither be fair nor correct fotnote. to say that these Boar3s are amenable to pressae and io not psrfozm thier function. -71- APPENDIX I Page 6 of 7 **' ', " ***#~ CICMUSION SOai 12 Ah regards the suggestion that the torporation Modified and reference should operate mbs efficiently, and be free of footnoted, PPM, political intervention, it is clarified that the para. 124. is an ontonamous body and functions independently under . the overall administrative control of*the ministry of anergy.. Further, these are no instances of political iAntervention in its functioninge Vara 130 The 8a8s also are autonomous bodies and function indepenently. The imputation that they voec under footnoted, PPM, political pressure was avoiSable. . Vras 131- The sungestion that power tariff oul be The beies that a 133 substantially to cover the losses of W-9a ignores the fact nunber of Ms, due to that T&D systeme inefficient generation and' other factors 10vestmat requivsas, sed to achieve returns hiamer contribute substantialy to these losses. It has beeq our than stipulated In the stand that it would be unfair to Vass on this burden to rect acat n ( l t, the consurrar and that attention has to be paid to a mord 1984 -al, tudia: Chandrapur efficient management of the system.. The.Amphasis on Theral Power Project, April 24, 1985, para. 1.06, increase in power tariff, therefore; appcars to be miisplaced. The audit supports the Bank's Position. Reference to Gotts Aw regards the suggested permanont power tariff COments is footnoted, commission, it may be noted that both the Union and the State Gov6rnment have Concurrent juris.iction over the matters pertaining to generation an4 distribution of power. It is ncd considered desirable to cen*calise this function in one A Permanent Tariff authority. ecognising the need for Jenaretion of suicient Commission would resources in the power sector, the r%2cbnt amen&ant ip complement these Ilectricity (Supply) Act makes it incumbent upon the SB. efforts. G's to t4ke up such action as to ensure adhievement of the comments are re- .financial criteria of 3% surplus. Since this Act has alreadi flected in PPAM, laid down do unifop frxame-wodk for performance of San para. 129 the need for a powet tariff Commoission is not felt. -72- APPENDIX I Page 7 of 7 ZCZC DIST 7633 JWS0137 NEW 1191 OEDD2 ASPEN ASAIN INTBAFRAD NEW DELHI, INDIA, APRIL 10, 1986 ATTN MAISS INFO ELWAN, RIX OED Notes RE AUDIT REPORT CREDITS 572-IN AND 911-IN The Planning Commissio S.L. KHOSLA, ENERGY ADVISOR, PLANNING COMMISSION, HAS GIVEN main comments are footnoted, PPAM, pars ME FOLLOWING WRITTEN COMMENT: QUOTE IN PARA 108 A SUGGESTION HAS BEEN MADE FOR A PERMANENT POWER TARIFF COMMISSION TO DETERMINE TARIFFS AND TO ENFORCE THEM THROUGH CENTRAL EXCISE DUTIES ON ELECTRICITY OUTPUTS WITH THE OBJECTIVE TO NARROW THE GAP BETWEEN THE EXISTING RATES AND THE INCREMENTAL COST OF ENERGY SUPPLY. AS YOU ARE AWARE THE PERFORMANCE OF ELECTRICITY BOARDS VARY FROM BOARD TO BOARD. SOME BOARDS ARE PROMPT IN ADJUSTING TARIFFS WHEREAS OTHER BOARDS ARE NOT, TO BRIDGE THE GAP BETWEEN EXISTING RATES AND INCREMENTAL COST OF ENERGY SUPPLY VARYING AMOUNTS OF EXCISE DUTIES WOULD HAVE TO BE LEVIED. THIS MAY NOT BE LEGALLY POSSIBLE. HENCE SUGGESTION NEEDS FURTHER EXAMINATION. NO OTHER COMMENTS. UNQUOTE REGARDS BENTJERODT -04100854 ALT RTD FROM :OE2M NNNN -73- INDIA CREDIT 572-IN RURAL ELECTRIFICATION PROJECT Project Completion Report I. INTRODUCTION The Project 1.01 This project was the initial rural electrification project in India. The appraisal report "India - Appraisal of Rural Electrification Project" (No. 688a-IN) is dated June 23, 1975. The Development Credit Agreement and Project Agreement for the Credit (IDA Credit 572-IN) were signed July 23, 1975. The Credit amount was US$57 million equivalent. The borrower is the Government of India, the beneficiary the Rural Electrification Corporation, Ltd. The Credit was closed on December 31, 1980, after an extension of the original closing date by one year. The Power Sector 1.02 The performance of the Indian power supply industry and the economy as a whole are closely related, and economic growth and improvement of the standard of living depend to a large degree on the development of the power sector. Since alternative sources of energy are not readily available in the amounts needed, shortage of power has an immediate impact on virtually all activities of the economy. Indeed, the direct loss of value added to the economy attributed to power shortages has been estimated at about 3% of GDP. 1/ Tn recent years, energy matters have been receiving top priority consideration in Central and State Government policy planning, and the power sector now takes the largest share of India's public investment resources (12% of the Sixth Five-Year Plan outlay). In spite of this emphasis, demand for power has continued to outstrip supply. Power Supply and Demand 1.03 In the 1950s and 1960s, installed capacity and power generation managed to keep pace with the nation's demand for power, both growing at an average annual rate of 10 - 12%. Since 1970, the situation has deteriorated; delays in commissioning new power projects, operating and maintenance problems, and insufficient investment under severe budget constraints have led to a critical situation in which demand for power consistently outstrips supply. This 1/ India: Economic Issues in the Power Sector (World Bank Report No. 2335-IN, April 1979). -74- situation was exacerbated by below-average monsoon rains (particularly in the early 1970s and in 1979) which affected hydro-electric power generation, and an unstable coal supply caused by disruptions in coal mining and transport, as well as the poor quality of the coal itself. Between 1970/71 and 1974/75, growth in power generation averaged only 5% annually. The situation improved considerably over the period 1975/76 through 1979/80, with growth in both generation and capacity averaging 7 - 9% annually. This improvement was brought about as the result of successive good monsoons in 1975/76 and 1976/77, improved coal supply, and a concerted effort to improve project implementation, thermal capacity utilization and overall power system management. In 1979/80, however, generation increased by only about 2% in spite of a 7% increase in capacity, due mainly to lower hydro plant availability than normal and longer periods required for commissioning new plants. Data for 1980/81 indicate an ine-ease of about 6.5% over the previous year for both power generation and capp Aty. Power shortages have persisted in many parts of the country, particularly in the Eastern Region. Total installed generating capacity as of March 1981 was about 33,000 MW, including non-utility plant. Of this total generating capacity, about 62% was conventional thermal, 36% hydro, and the 2% balance nuclear. Although additional new utility generating capacity of about 3,212 MW was expected to be commissioned in 1981/82, power shortages will continue. 1.04 Industry consumes about 60% of all electricity sold, while agriculture (mainly irrigation) accounts for another 17%, and domestic use for only about 11%. As a result of accelerated agricultural development programs, there has been a marked growth of power consumption in the rural areas where more than 80% of India's population live. The number of electrified villages, for example, grew from just over 3,000 in 1950/51 to some 275,000, or about 48% of all the villages in India, by June 1981. CEA projections indicate that during the ten-year period 1980/81-1989/90, new utility generating capacity will grow at an annual rate of just under 11% to total some 79,000 MW, of which about 46,000 MW (58%) would be thermal, 31,000 MW (40%) hydro and 1,800 MW (2%) nuclear. The construction of an additional 15,000 km of 400 kV transmission line is planned for this period to distribute the power output through integrated grid transmission systems. Sector Institutions 1.05 The institutional structure of the Indian power sector is complex. Under the Indian Constitution, the responsibility for supplying power is shared between the Central Government and the State Governments, and full agreement between the Center and the States is required for the implementation of most actions. With the rapid expansion of the power sector, there has been an increasing need to coordinate the activities in the power industry beyond State boundaries, and various agencies have been established with a view to promoting integrated power development in the country. The principal agencies in the sector are: (1) the State Electricity Boards (SERs); (ii) the Regional Electricity Boards (REBs); (iii) the Central Electricity Authority (CEA); (iv) the two Central power corporations - the National Thermal Power Corporation -75- (NTPC) and the National Hydro Power Corporation (NHPC); and (v) the Rural Electrification Corporation (REC). Rural Electrification Corporation (REC) 1.06 To help SERs undertake the task of rural electrification, the REC was established in 1969 under the Companies Act, 1Q56, as a public corporation wholly owned by GO. Its main institutional objective is to finance rural electrification schemes prepared by SEe throughout India, functioning as a financial intermediary with technical expertise, and ensuring the efficient on-lending of funds drawn primarily from OI. In undertaking the task, REC is directed to coordinate its lending operations with the activities of other agencies, such as the Agricultural Refinance and Development Corporation (ARDC), which provide financing for rural development. Although the amount of REC financial support is small in relation to total SEB operations in the power sector, REC today finances more than half of the total rural electrification expenditures, and supervises schemes accounting for about 70% of the total expenditures. Bank Group 0perations in the Power Sector 1.07 Since 1954, the Bank has made eleven loans to India for power projects amounting to US$658.5 million and IDA fifteen credits totalling US$2,096 million. Of these amounts, US$2,120 million is for generating plant and associated transmission; US$23 million for construction equipment for the Beas hydro-electric project; US$380 million for the provision of high voltage transmission; and USS232 million for the support of rural electrification schemes. Fourteen loans and credits have been completed: nine for generating plant, the Peas Project, the first three Power Transmission Projects, and the First Rural Electrification Project. The Fourth Power Transmission (Credit 604-IN of January 1976), First Singrauli (Credit 685-IN of April 1977), First Korba (Credit 793-IN of May 1978), Third Trombay (Loan 1549-IN of June 1978), and First Ramagundam (Credit 874-IN and Loan 1648-IN of February 1979) Thermal Power Projects, and the Second Rural Electrification Project (Credit 911-IN of June 1979), are all in an advanced stages of implementation. The credit for the Second Singrauli Thermal Power Project (Credit 1027-IN) and the credit/loan for the first stage of the Farakka Thermal Power Project (C*edit 1053-IN and Loan 1887-IN) were approved in May and June 1980, respectively. The loan/credit for the second stage of the Korba Thermal Power Project and the second stage of the Ramagundam Thermal Power Project were approved in July and December, 1981. The First and Second Singrauli, First Korba, and Trombay projects are on schedule. The Farakka and Ramagundam projects and the Fourth Power Transmission Project are proceeding satisfactorly after initial delays. Disbursements for the Second Rural Electrification Corporation Project are ahead of schedule: US$115.5 million had been disbursed by March 31, 1982, compared to the appraisal estimate of US$110 million. -76- Rural Electrification 1.08 The primary objective of 001 in its drive for rural electrification is to ensure increased agricultural output by providing reliable and economic power for irrigation pumps. Secondary objectives are the provision of electricity for donestic, commercial and small industrial consumers in the villages, and to improve employment possibilities and the quality of life in rural areas. 1.09 The demand for electricity for agricultural pumping accounts for about 17% of Tndia's total demand, up from about 9% ten years ago. Consumption for agricultural pumping has been growing at a rate of about 13% per year, reflecting the rapid increase in the connection of irrigation pumps to the grid. By June 1981, over four million irrigation pumps had been electrified, most of these in the States of Tamil Nadu, Maharashtra, Tittar Pradesh, Madhya Pradeph, and Andhra Pradesh. A continuing high growth rate in the numbers of irrigation pump connections, amounting to about 10% per year, is projected by GOI for the coming decade; the emphasis on rural electrification as a vehicle for increasing agricultural production is to be maintained and intensified, a desirable development, as, dectric pump irrigation provided needed food production during drought years and saved some imports of oil. 1.10 In June 1981, about 275,000 (48%) of the 576,000 villages in India had been electrified, the percentages of villages electrified in each State ranging from about 15% to 100%. The number of villages connected to the grid has grown at - rate of about 10% per year since 1970. In the coming decade, the rate will be reduced to about 6% per year to reach a nationwide level of 80% of villages having access to electricity by 1990. 1.11 The Sixth Five-Year Plan, 1980/81-1984/85, provides for the connection of about 100,000 new villages to the grid, and the energization of about 2.5 million additional pumps. Of this total, 90% of villages and 63% of pumps are to be connected with REC finance or supervision. All rural electrification investments and operations in each State are carried out by the SERBs. The SEBs finance their rural electrification expenditures from a number of sources, the major sources being ARDC and REC, both of which utilize GOI funds. ARDC's contribution is used primarily to refinance commercirl bank lending to SEBs for irrigation pump connections. Commercial banks themselves also provide funds. Total expenditure on rural electrification under the Sixth Plan is expected to amount to about Ps 23,000 million (US$2,900 million), of which REC's direct financing share is about 51%. -77- Sources of Information 1.12 Data for this completion report were obtained during a series of missions between January and October, 1I81, after the closing of the Credit. REC prepared a draft completion report by October, 1981, which, together with other information, forms the basis for this report. REC' draft report is comprehensive and contains most of the necessary information. -78- II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL Origin 2.01 During the late 1960's and early 1970's, emphasis in rural electrification in India began to swing away from scattered village electrification to comprehensive irrigation pump electrification. After the establishment of REC in 1969, this organization rapidly expanded its influence in the rural electrification sector, and developed guidelines and standards for the selection of sub-projects (schemes) and their implementation. REC loans to SEBs were tied to schemes and were closely supervised by REC. In this environment, the Bank Group and GOI explored the possibility to introduce Bank assistance for the growing rural electrification sector as a link between the power and agriculture lending programs. 2.02 While early Bank considerations in 1072 concentrated on the identification of specific rural electrification projects, it soon became evident that the best approach was a DFC-type operation through the increasingly important REC. By the end of 1972, identification missions had started to work closely with REC, and had determined that REC was an efficient intermediary for Bank assistance. Internal discussion in the Bank during 1972 concluded that emphasis should be placed on the thorough evaluation of REC procedures for extending loans to SEBs rather than on getting involved in many small sub-projects. This approach facilitated the early definition of the project as a time-slice support for the ongoing REC lending program. Preparation and Appraisal 2.03 The project was prepared by the beneficiary, REC, in consultation with Bank preparation mission teams. The preparatory work was adequate with respect to detail and Bank Group requirements, as the project constituted a two-year slice of REC's ongoing lending program which had been formulated as part of the Fifth Five-Year Plan. Preparation of project scope, definition cost components, corporate information on the beneficiary, and related matters was carried out expeditiously by REC's staff which proved to be efficient in data submission and acquired knowledge of Bank Group procedures quickly. 2.04 Originally, the project was conceived as a straight intermediary operation, essentially as a vehicle for transfer of funds to a large number of small schemes, and without excessively sophisticated corporate performance criteria for REC, or significant treatment of general power sector issues. However, as processing progressed, three issues became prominent: (i) the continuing shortage of generating capacity in India; (ii) the need to establish financial performance criteria for REC as a financing institution; and (iii) the need to formally address the problem of low agricultural tariffs charged by SEBs by insisting on mandatory State Government subsidization of rural electrification. The first issue led to significant delays in project processing between appraisal and Loan Committee review stages, as the initial -79- response of GOI to the Bank's concerns in this matter was not satisfactory in demonstrating that a rural distribution project would and should receive supply priority in a situation of capacity shortage. Although appraisal was substantially completed by early 1473, negotiations did not take place until 1975 when 001 demonstrated that measures were being taken that would decrease and eventually eliminate the shortfall. 2.5 The financial situation of SMBs also gave rise to concern. In particular, power tariffs for irrigation pumps were held artificially low because of political pressures, and as general government policy to grant favorable terms to the agricultural sector to encourage food production. In order to bring this drain on SEB finances into the open, a covenant under previous transmission projects (Credit 242-IN and 377-IN) provided for open mandatory subsidization of rural electrification losses (according to an agreed formula) of six beneficiary SEPs by their respective State Governments. For - purposes of this Rural Electrification Project, it was decided that onlending of Credit proceeds by REC would only be admissible for such SEBs who either reached a 9.5% rate of return on assets (in accordance with Loan 416-IN), or whose State Governments provided an automatic subsidy covering the rural electrification losses either fully or up to the level needed to reach a 9.5% rate of return. This provison was to extend to any potential participating SEB beyond the first six. A further concern was the weakness of the Central Electricity Authority in allocating priorities to components of the power sector investment program according to national considerations. A strengthening of the CEA was sought as a condition of further processing of the Credit. -80- Negotiation and Approval 2.06 The negotiations for the project took place in May, 1975. The only major change in the project as compared to previous processing was the increase of the Credit amount from the initially conceived US$40 million to US$57 million equivalent to procure more materials from the Credit proceeds. Major covenants agreed during negotiations were the financial performance criteria for REC, and the limiting of the onlending of Credit proceeds by REC to these SEBs which satisfied the rate of return and loss subsidization requirements. 2.07 The financial covenants for REC included provisions for REC (1) to generate each year internal funds at least 1.2 times its debt service requirements, and (ii) to ensure that its administrative expenses and interest payments each year did not exceed 90% of the aggregate interest received. The eligibility criterion for participating SEBs was either the achievement of a 9.5% rate of return on assets, or the agreement by the State Government to subsidize rural electrification losses of SEBs fully or to the extent required to meet rate of return obligation, whichever was lower. Other covenants included the adherence by REC to specified financial viability criteria for schemes, and a provision for a 15% cost escalation reserve for scheme loans. The covenants agreed during negotiatons adequately covered the main issues discussed during project processing. 2.08 As PEC was found to be an efficient organization, the only institutional development goals pursued under the Credit were of a financial nature, to safeguard REC's financial basis of operations, and to improve monitoring of financial discipline. In retrospect, the preparation and appraisal process concentrated on the relevant issues, although the expected significant improvement in the national generating capacity balance (committed to by GOI) did not materialize eventually to the extent envisaged (paras 4.01 to 4.03). Targets and Goals 2.09 At the time of appraisal and processing (March 1974, the end of the Fourth Plan), about Rs 8.65 billion had been invested in the rural electrification sector, and about 2.4 million electric irrigation pumps and 148,000 villages had been connected to the grid. During the Fifth Five-Year Plan (1974/75 to 1978/79), it was originally expected that an investment of about Rs 11 billion would permit the energization of an additional 1.5 million irrigation pumps and the electrification of 110,000 villages. Of this total, 760,000 pumps and 78,000 villages were to be connected to the grid with REC finance, the remainder financed by SEBs out of other funds. These expectations entered into the appraisal report (Annex 1). The Plan targets were revised downwards later, and total actual achievements during the shortened Plan and the following year (1974/75 to 1978/79) were as follows: -81- Revised Target Achievement Villages electrified 82,000 76,000 Pumps energized 1,270,000 1,157,000 .10 At the beginning of the Fifth Plan, about 267 of Indian villages were considered "electrified", i.e. having at least one consumer connection and the potential for further connections. The cumulative revised target for March, 1479, was to be about 447 of all villages. The actual Plan achievement resulted in a share of electrified villages of about 34%. By June, 1981, the share had risen to about 48 (Annex 2). REC's share in the total rural electrification activity has risen steadily throughout these years, from about ?37 of total annual pump connections in 1975/76 to about 57' in 1980/81, and from about 52% of annual villages electrified in 197%/76 to about 88% in 1979/80 (Annex 3). This developnent was foreseen in the appraisal report's estimate of a 60% share of REC in total rural electrification expenditure during the Plan. Although the appraisal report is based on the original Draft Fifth Plan which was later revised, the general trend of an increasing involvement of REC was forecast correctly. 2.11 The project was envisaged to be defined as part of the Fifth Plan, covering two years' requirements within the Plan period for selected schemes and States. The project benefits outlined in the appraisal report were the connection of about 6,250 villages (against a draft Plan target of 22,000, a revised Plan target of 16,400, and actual achievements of about 15,000 villages per year), and the energizatIon of 55,000 pumps (draft Plan 300,000, revised Plan 254,000, and actual 231,000 pumps per year). The share of the project in the overall planned rural electrification effort, therefore, was modest. However, it was intended as a catalyst to strengthen the position of REC and to acknowledge that the scheme appraisal procedure adopted by REC was an improved way to conduct rural electrification. 2.12 At the time of appraisal, REC was closely coordinating its activities with those of SEDs. As the REC lending program was based on the same agreed Five-Year Plan that formed the guideline for SFPs, no sipnificant source of conflict between the agencies' activities was to be expected. Pural electrification investment financed by non-PrC sources was to tale place in areas not covered by PEC as integrated schenes. Project Description 2.13 The project as envisaged in the appraisal report was to consist of the implementation of a tranche of about 140 rural electrification schemes in eligible SEBs. These schemes were to become identified only as SE1s would request REC financing, and were to involve the construction of primary and -82- secondary distribution lines, the provision of distribution transformers, and the connection of consumers. 2.14 The main financial provisions of the project included financial performance criteria for REC (para 2.07), the obligation for REC to adhere to the existing scheme viability criteria, and the limiting of SER participation to those whose State Governments had undertaken to subsidize the SEBs' rural electrification losses according to the agreed formula. The design of the project provided a flexible basis for follow-up projects. -83- III. IMPLEMENTATION The Project 3.01 As envisaged at appraisal, the project would comprise the equivalent of about 140 complete schemes, requiring 40,000 km of primary and secondary distribution lines, 500 MVA of distribution transformers, and an unspecified quantity of miscellaneous equipment. More than half of the load to be connected under the project would be irrigation pumps. It was expected that a total of about 300,000 consumers, comprising about 55,000 farmers, 210,000 domestic and commercial consumers, and 35,000 street lights would be connected. The total cost of the project was estimated at US$114 million, implying an average cost per consumer of US$380 (R93,040). 3.02 The number of consumers now calculated to have been connected to schemes in which IDA materials played a part is actually 50% greater than foreseen at appraisal. The total is about 449,700 connections, made up of 94,900 agricultural, 282,600 domestic and commercial, and 72,200 itreet lights. The numbers of consumer services estimated to have been connected in each State in schemes using materials procured under the Credit are given in Annex 4. Project Cost 3.03 The costs estimated at appraisal were as shown in Table 3.1. Table 3.1 ESTIMATED PROJECT COST AT TIME OF APPRAISAL (US$ million equivalent) Local Foreign Total % Conductor 9.2 19.4 28.6 25.0 Transformers, Circuit Breakers 4.8 6.6 11.4 10.0 Poles 17.1 - 17.1 15.0 Capacitors, Insulators, Meters 4.8 3.7 8.5 7.5 Miscellaneous 20.0 - 20.0 17.5 Transport and erection 11.4 - 11.4 10.0 Overhead, contingency, etc. 17.1 - 17.1 15.0 84.4 29.7 114.1 100.0 3.04 The estimated cost of US$114 million equivalent included a physical contingency at the rate of 3% of the total cost of each scheme. Price contingencies were not added because the project consisted of a slice of the REC program, and purchases under the Credit were to be limited to the funds available. The Credit covered 50% of the estimated project cost, and was -84- intended to pay the full cost of conductors, transformers, circuit breakers, capacitors, insulators and meters, and 50% of the coat of poles. The expected allocation of the Credit between these different materials was derived by analysing the cost pattern typical at the time for SEB schemes reviewed by REC. Physical quantities of materials to be bought under the project were not stated and thus cannot be compared with quantities actually procured. Utilization of the Credit 3.05 The Project Agreement permitted REC to make sub loans to an SEB only if its State Government had agreed to provide a subsidy equal to its losses on RE operations, or a subsidy sufficient to enable the SEB to earn a return of not less than 9.5% on its capital base. At the time of Credit signing, six States, namely Assam, Karnataka, Kerala, Madhya Pradesh, Orissa and Tamil Nadu had given the necessary undertakings, thus making their SEBs eligible to participate in the Credit in FY1975-76. In the following year, five more States-Bihar, Gujarat, Maharashtra, Rajasthan and West Bengal-became eligible. Two others--Andhra Pradesh and Punjab--became eligible in FY1977/78. 3.06 The amounts disbursed under the Credit in respect of each State are shown In Table 3.2. For disbursements year by year see Annex 5. Table 3.2 AMOUNTS DISBURSED UNDER CREDIT 572-IN (Rs million) (US$ million equivalent) Andhra Pradesh 44.3 5.4 Assam 22.9 2.8 Bihar 102.0 12.6 Gujarat 23.7 2.9 Karnataka 40.4 4.9 Kerala 12.0 1.4 Madhya Pradesh 61.2 7.4 Maharashtra 18.6 2.3 Orissa 12.7 1.6 Punjab 29.6 3.7 Rajasthan 23.4 2.9 Tamil Nadu 43.4 5.5 West Bengal 29.3 3.6 463.5 57.0 -85- 3.07 The types of schemes eligible for funding under the Credit were known as Ordinary Advanced (OA), Ordinary Backward (OB), Specially Underdeveloped (SU), Minimum Needs Program (MNP), System Improvement (SI), and Mini Farm (MF). The number of schemes, by type and by State, sanctioned up to March 31, 1981 is given in Annex 6. The achievements under all REC-financed schemes during the period of the Credit, in terms of villages electrified, lines built, pumps energized and services connected are detailed year by year in Annex 7. Allocation of the Credit 3.08 The items to which it was expected at appraisal that the Credit would be applied are shown in Table 3.3 below. Also shown are the revised figures that were agreed in December 1979, when it had become clear that expenditure under the Credit on poles would be much less than anticipated (para 3.14), and the price of conductor had risen sharply (para 3.13). The allocation to poles was reduced by 82%, whilst that to conductor was increased by 28%. In a third column are shown the actual disbursements to February 28, 1981. Table 3.3 ALLOCATION OF CREDIT 572-IN (US$ million equivalent) Agreed Disbursed DCA December 1979 February 1981 Conductor 28.6 36.5 35.8 Transformers and switchgear 11.4 10.0 10.1 Insulators, meters and capacitors 8.5 9.0 9.2 Poles 8.5 1.5 1.9 57.0 57.0 57.0 3.09 The materials other than poles purchased under the Credit by the individual States are listed in Annex 8. Beginning in 1976/77, REC encouraged SEBe to account separately for materials acquired under the Credit, and accounting and recording procedures for the Credit at all levels of storage were established. In many instances these materials were indistinguishable from those used in non-IDA schemes, and in local stores the accuracy of the recording was not always good. Since more than 1,800 schemes in 13 States benefitted under the Credit, some of them to only a very small extent, it was inevitable that allocations were sometimes wrongly made or recorded. REC was aware of this and succeded in improving storekeeping and accounting methods. Later, under the ongoing Second REC Project (Credit -86- 911-IN), the labelling of equipment such as transformers and meters was introduced, permitting IDA equipment to be traced and inspected where installed in the field. In most SEBs, recording of IDA-financed material from central storage to scheme level is now well in hand. 3.10 It was thus not possible to be sure that materials procured under the Credit were always installed in schemes that were eligible for them. In nearly all instances, however, the quantities of materials incorporated into REC-approved schemes far exceeded the quantities obtained under the Credit. The quantities of materials received under the Credit are compared with those calculated to have been used, in Annex 8. Procurement 3.11 All materials supplied under the Credit were subject to international competitive bidding, except poles, which it was intended should be bought after local competitive bidding. It was estimated that, in view of pricea prevailing in India and the 15% preference for domestic manufacturers, 80% of the conductor and 70% of other equipment would be supplied by domestic manufacturers. In the event, all the orders except one for $185,000 worth of capacitors went to Indian manufacturers. Most goods financed under the Credit contain imported materials; the cost of the foreign exchange components, expressed as part of the selling price, is 40% for conductors, 25% for distribution transformers, and 8% for meters and switchgear. 3.12 Each SEB was responsible for its own procurement, using standard technical specifications and general conditions of contract approved by IDA. REC assisted the SEBs to prepare tender documents and in the evaluation of tenders. Except for Assam and Kerala, items were grouped so that where feasible each contract was for about $1 million equivalent. REC made a significant contribution to improving the SEBOs procurement procedures during the course of the project, when a process of screening and review was evolved which ensured efficient procurement. 3.13 Certain contracts for conductor ran into difficulty in 1978 when the prices of steel and aluminum were increased. The contracts provided for escalation in the price of conductors of 15%, but the increases in the prices of metals were such that the conductor price actually rose by 23-27%. The contracts were rendered void, and new tenders had to be called. 3.14 At the time of appraisal it was expected that 50% of the cost of large numbers of concrete poles would be financed from the Credit under local competitive bidding (LCB) procedures. It emerged, however, that many SEBs were making these poles in their own shops, and these were said to be cheaper than poles offered by contractors. IDA was asked to permit reimbursement to SEBs for poles manufactured by themselves. IDA agreed to this, provided that the orders were won in LCB, but the condition was not accepted by the SEBs. Where poles were being supplied to SEBs by contractors, there was often no -87- competitive bidding, but contracts were awarded at prices set by State Governments, and in quantities tailored to suit the capacities of individual contractors. In the event, only five SEBs1/ procured poles under the Credit and the allocation for poles was reduced from $8.5 to $1.9 million, the balance being employed for other categories of material under the Credit. 3.15 The function of this Credit uis to finance certain materials to be used in selected schemes during a time slice of REC's program. A list of materials suitable for ICB was assembled such that its cost would closely match the funds available under the Credit. The actual schemes which would be built, and in which materials from the Credit would play some part, were individually quite small and numbered in the thousands. Most of these had to be identified and their costs estimated during the course of the project. The cost estimate at the time of appraisal thus could not be a project cost estimate in the sense of being an estimate of the cost of performing a clearly defined and specified scope of work. In the Staff Appraisal Report, neither quantities of materials nor unit prices current at the time were given, so it is difficult to make any satisfactory comparison between the estimated cost of the work envisaged at appraisal and its actual cost. Had such data been included (as it was in the ongoing Second and proposed Third Rural Electrification Projects) it would have been possible to see whether the Credit succeeded in financing more or less material than expected. Implementation and Disbursement 3.16 Table 3.4 compares cumulative disbursements expected at appraisal with what actually happened. 1/ Gujarat, Orissa, Punjab, Rajasthan, West Bengal -8W Table 3.4 CUMULATIVE DISBURSEMENTS (US$ million) Forecast Actual June 30, 1976 1.0 December 31, 1976 10.0 June 30, 1977 23.5 3.1 December 31, 1977 46.5 6.1 June 30, 1978 57.0 12.2 December 31, 1978 15.93 June 30, 1979 27.41 December 31, 1979 40.71 June 30, 1980 49.29 December 31, 1980 56.07 February 28, 1981 57.00 3.17 The Development Credit Agreement was dated July 23, 1975 and the Effective Date was tentatively expected to be three months later, on September 23, 1975. Because of a hitch in delivery of the Subsidiary Loan Agreement between GOI and REC, the Effective Date was delayed a month to October 23, 1975. 3.18 Disbursements were slow in starting because this was the Bank's first rural electrification project in India and SEBs were unfamiliar with the Bank's procedures for procurement. They had to develop new contract documents and adopt tendering procedures complying with IDA's Guidelines. This took some time, and it was 6 months after effectiveness before the first tenders were opened. Other delays arose because of the time taken by some of the SEBs to fulfill the conditions for eligibility to participate in the project, which in some instances was as much as three years. Still further delays were caused when large increases in the price of aluminum and steel used in the manufacture of conductors meant that a number of procurement contracts had to be cancelled and new contracts let in their stead. 3.19 The Closing Date stated in the DCA was December 31, 1979. By that date, $40.71 million (71% of the Credit) had been disbursed, and the closing date of the Credit was extended by one year to December 31, 1980. At that date, the Credit was more than 98% disbursed, and by the end of February 1981 it had been fully disbursed. Nearly all the materials received under the Credit had been installed by March 1981, and it was expected that by June 1981 all would have been used (Annex 8). -89- 3.20 A letter setting out the Bank's requirements for half-yearly progress reports was sent to REC in February 1976. The first report containing the information requested for the six monthe ending March 31, 1976 was duly received, and well prepared reports continued to be made throughout the project. REC were also prompt to furnish supplementary information required for this PCR. -90- IV, POWER SECTOR OPERATING PERFORMANCE 4.01 At the time of appraisal in 1973, there was serious concern in 001 and the Bank about the unreliability of bulk power supply and the lack of comprehensive sector planning in India. Power shortages were attributed to lack of long term planning, imbalance between generation and transmission facilities, slippage in construction schedules, delays in procurement, unreliable fuel supplies, and poor operational availability of existing plant. There were widespread power cuts, and it was expected that despite plans to double the sector's generating capacity by 1980, powfer shortages would continue throughout the decade. 4.02 Against this background the merits of further increasing the already fast growing rural load were debated at length. It was eventually concluded that the stresses which would be imposed on the country's power supply were acceptable in order to obtain the extra food production resulting from the added irrigation pumps. GOI was in any case determined to pursue its RE program whether or not the Bank decided to participate in it. India did become self sufficient in food production in the late 1970's. 4.03 The growth of the Indian power sector is detailed in Annex 9. Installed utility generating plant increased from 18,317 MW in 1975 to 30,271 MW in 1981, and the total installed in the country in March 1981 was just over 33,000 MW. The addition of about 12,000 MW in six years does not measure up to the 16,350 MW that was planned to be installed during the Fifth Plan ending 1979, although it was foreseen at appraisal that the Fifth Plan target of 36,000 MW would not be achieved. 4.04 Electricity consumption per capita grew from 90 kWh in 1975 to 120 in 1980. The shares of sales taken by agricultural, irrigation, domestic and miscellaneous consumers increased, while those of industry and commerce declined: - -91- Table 4.1 SHARES OF SALES BY CLASS OF CONSUMER Percentage of Sales 1974/75 1979/80 Agriculture and Irrigation 14.5 16.9 Railway Traction 2.9 2.9 Industry 62.1 59.7 Commerce 8.5 5.3 Domestic 8.5 10.8 Other (lighting, waterworks) 3.5 4.4 100.0 100.0 4.05 Indian power systems and their consumers have for a number of years lived with shortages of capacity and energy, and they have adapted their operations accordingly. Industries resort to staggered hours and shift systems, operating as and when they can, and in many cases installing captive generation. Because of priority given to agricultural consumers, industrial loads are often shed, particularly in the dry season. System load factors tend to be high because peaks are constrained, and night loads are sustained at relatively high levels. Rationing of rural consumption is often effected by switching feeders out for long periods. In some States, in time of drought, rural feeders are off more than they are on, service sometimes being restricted to as little as 6 hours per day. Thus, although the electricity available to industry is certainly diminished because of RE, efforts are made to minimize adverse effects. 4.06 The problems in the power sector were addressed during the project with varying success. Although power shortages will continue in parts of the country for years to come, GOI has moved forcefully to improve supplies. In 1975, NTPC and NHPC were incorporated to construct and operate large central power stations. NTPC is building four thermal stations aggregating 8,300 MW, whilst NHPC is building 975 MW of hydro plant, and both organisations are building high voltage transmission facilities. 4.07 The Central Electricity Authority was given increased powers and scope in 1976 when it assumed responsibilities for planning, coordination and monitoring of the electrical supply industry for the whole country. Regional Electricity Boards have been set up to improve collaboration between States, to form and operate Regional power grids, and to point the way toward an eventual national power grid. Because of these strong measures to reinforce generation and transmission, in support of which the Bank is financing -92- numerous projects, the position of generation and transmission is expected to improve continually in most parts of the country in coming years. 4.08 Progress has been less than satisfactory in one important area despite efforts by GOI. The availability of steam power stations, with certain notable exceptions, generally remains low, owing to irregular maintenance, lack of spare parts, and poor quality and erratic supply of coal. These problems have proved most difficult and their solution will come only slowly. 4.09 System planning has improved, and CEA now ensures that State and Regional plans are compatible and that both will fit into a national grid when it eventually materializes. CEA also monitors generation planning and development undertaken by the States and by private licensees. CEA is now preparing a long term national master plan for generation and transmission development, to be completed b% aid 1982. 4.10 Included among the materials purchased under the Credit were capacitors used to improve system power factor and thus reduce power and energy losses (para 3.04). Rural distribution system improvements including the reduction of losses by means of capacitors, and the enforcement of standards to improve rural line design and construction were further pursued in the ongoing second and the proposed Third Rural Electrification Projects. -93- V. FINANCIAL PERFORMANCE (A) RURAL ELECTRIFICATION CORPORATION (REC) LTD 5.01 REC is a financial lending institution rather than a public utility and the conventional Bank Group measures of financial performance (rate of return or cash generation) are inappropriate. The following financial covenants were designed to maintain REC's solvency and require REC to ensure that, in any fiscal year: a) internally generated funds are not less than 1.2 times debt service; and b) operating expenses - administration and interest - do not exceed 90% of total revenue. 5.02 From FY1975 through FY1981 REC has consistently met the above requirements, athieving better results than forecast. Debt service coverage has remai"ed at 1.7 times since FY1977, and, while operating (administration and interest) expenses have risen from 34% (FY1975) to 77% (PY1981) of revenue, REC's administration costs have declined as a percentage of revenue from 10% to 5% of revenue over the period. Past Financial Performance 5.03 Statements of Annual Income, Debt Service Coverage and Sources and Application of Funds and Balance Sheets for the period FYs 1975 through 1981 are set out in Annexes 10 to 13. Salient features of RECos finances in PY 1975 and in the period FYs 1979 through 1981 are summarized in Table 5.1. -94- 5.04 REC's financial performance has been generally satisfactory. While the value of loans sanctioned increased somewhat faster than forecast through FY1979, loan disbursements to SEBs were slower than forecast as a result of the slower expenditures by SEBs on sanctioned schemes. However, loans out- standing have increased by about 470% over the period FYs 1975-1981. Year-end loan commitments to SEBs have increased to an average of about 5% of loans outstanding in recent years. REC's gross interest spread between lending and borrowing rates fell from 3.3% in FY1975 to 1.7% in FY1979 as a result of a shift in REC's capital structure to loan financing. This spread has since been maintained: In September 1-R1 REC increased its lending rates to SEBes to offset higher 001 lending rates and to enable it to maintain a satisfactory spread of about 1.7% in future years. REC has maintained satis- factory debt/equity and current ratios. The return on total capitalization, while increasing more slowly than forecast, has nevertheless doubled from 2.5% in FY1975 to 5.17 in FY1981. REC's loan portfolio with SEBs has remained satisfactory .hroughout the period and REC has experienced no problem with receivables. Financing Plan (FYs 1975-1979) 5.05 REC's actual financing plan for the period FYs 1975 through 1979 (the forecast Credit disbursement period) as compared to that forecast at appraisal, is summarized in Table 5.2. Loans disbursed to SEBes were only 70% of the amount forecast as a result of the slower rate of expenditure, and this resulted in a reduction in the required level of GOI funding. Further- more, REC expected to obtain about 92% of its requirements from GO but improved internal cash generation and greater access to the bond market, with a 001 guarantee, reduced its dependence on GOI funding to about 78% between FYs 1975 and 1979. -95- TABLE 5.1 REC Financial Indicators FY 1975 FY 1979 FY 1980 FY 1981 Forecast- Actual Forecastl/Actual Actual Actual 1. Loans Sanctioned (Rs million) 1,200 1,381 2,050 2,230 2,104 2,605 2. Loans Disbursed (Rs million) 770 782 2,110 1,561 1,671 1,844 3. Revenue (Rs million) 112 96 430 332 431 549 4. Operating Income (before tax) (Rs million) 66 63 67 84 103 125 5. Operating Ratio (Interest and Admin as % of Revenue) 41 34 84 75 76 77 6. Debt Service Coverage 1.7 2.0 1.2 1.7 1.7 1.7 7. Percentage (%) of Average Total Assets a) Revenue 5.1 4.4 5.7 5.3 5.7 6.0 b) Interest on borrowings 1.6 1.1 4.6 3.6 4.0 4.3 c) Gross Spread 3.5 3.3 1.1 1.7 1.7 1.7 8. Return (%) on Average Total Capitalization 3.2 2.5 5.1 4.4 4.8 5.1 9. Debt/Equity ratio 35/65 35/65 74/26 69/31 73/27 76/24 10. Current Ratio 3.2 2.5 6.9 2.0 2.3 3.4 11. Percentage of SEB loan commitments to loans outstanding at year end 76 82 24 46 51 51 First Rural Electrification Project - Credit 572-IN -96- Table 5.2 REC Financing Plan (FYs 1975-1979) Forecast Actual (Rs million) (%) (Rs million) (%) Requirements Loan disbursements to SEBs 6,090 99.5 4,307 99.2 Dividends 28 0.5 31 0.7 Capital Expenditure 1 - 3 0.1 6,119 100.0 4,341 160.0 Sources of Funds Net Cash Generation 137 2.2 161 3.7 Loan repayments by SEBs 168 2.8 302 7.0 Working capital - - 6 0.1 TO-5 TW W T ". less Loan repayments to GOI (31) (0.5) (4.1) (1.0) Short-term deposits (153) (25) (11.8) (2.7) 121- 2.0 310 7.1 001 Equity 500 8.2 270 6.2 001 Loans a/ 5,098 83.3 3,130 72.1 Market Loans 400 6.5 631 14.6 6,11T Tif. 431 100.0 Accounting and Audit 5.06 Arrangements are satisfactory. REC agreed to submit audited finan- cial statements together with the Auditor's report within six months of the financial year end. Satisfactory and timely information has been received to date. Future Financial Performance 5.07 REC's loan portfolio will double by FY1986 as a result of the high priority accorded rural electrification in the Sixth Plan period. REC's latest financial projections through FY1986, prepared in support of the proposed Third Rural Electrification Project, indicate the ongoing financial strength of the institution. REC is expected to continue to meet the Bank Group covenants while other financial indicators are satisfactory. The a/ Includes IDA Credit US$57 million onlent to REC. -97- operating ratio will remain well within the agreed 90% and, while debt serv- ice coverage will fall to 1.3 times by FY1986, reflecting a greater reliance upon loan capital, this is within the agreed 1.2 times. A satisfactory interest spread of 1.7% will be maintained while the return on average capitalization will increase to about 6%. (B) STATE ELECTRICITY BOARDS (SEBs) 5.08 Rural electrification investment imposes a heavy burden upon all SEBes in the form of recurrent losses; in FY1979, total RE losses of the 14 major SEBs were calculated at Rs 3,542 million. Losses are attributable to insuf- ficient revenues in the early years of operation and to the general unwill- ingness of States to allow SEBs to charge higher agricultural tariffs. In an effort to offset the impact of RE losses on SEBs and thereby assist SEBEs in achieving the 9 1/2% rate of return on net fixed assets agreed under the three earlier transmission projects 1/ the Bank Group made SEB participation in the first RE project conditional upon: (a) the achievement of a 9 1/2% rate of return with the benefit of a State subsidy to its SEB not exceeding the full loss on rural electrification, calculated in accordance with a formula agreed earlier with the Bank Group; or (b) the achievement of a lower rate of return than 9 1/2% but subject to a State providing a subsidy covering RE losses in full. 5.09 The financial performance of SEBs between FY1976, the year in which the first RE project was approved and FY1981, the last year for which finan- cial results are available, is set out in Annex 14. Statements of RE losses and rates of return in FY1979, the last year for which full audited data is available, are at Annexes 15 and 16. While the overall level of financial performance is still not entirely satisfactory, it is subject to continuing dialogue with GO. 2/ While, there has been a marked improvement in the financial position of SEBs since FY 1976 as a result of the payment of the RE subsidy, recent date indicates that in FY1981, all SEBs but Kerala would require a subsidy to retain their eligibility under the ongoing Second REC Project. Whereas in FY1976, the subsidy amounted to Rs.466 million (4% of 1/ Loan 416-IN and Credits 242-IN and 377-IN. 2/ Under the proposed Third Rural Electrification project the Bank Group is seeking to achieve better overall performance for SEBs by replacing the 9 1/2% rate of return with a cash generation requirement. -98- sales revenue), it had reached Rs.5,886 million (24% of sales revenue) by FY1981, in six SEBes exceeding 25%. In order to discourage this trend and induce agricultural tariff increases, emphasis in the processing of the proposed Third REC Project is being placed on limiting the subsidy to the lesser of the RE loss or 10% of SEB sales revenues. Table 5.3 summarises the position: 5.10 In FY1977, two SEBs, Andhra Pradesh and Punjab, did not meet the eligibility criteria but in both cases RE subsidies were paid in later years to achieve at least a 9 1/2% rate of return. IN FY1978, Karnataka fell short of 9 1/2% but the State has since agreed to pay the RE subsidy; in all other years Karnatakaos rate of return has exceeded 9 1/2% without RE subsidy. Prior to FY1980, Gujarat had achieved a 9 1/2% rate of return without RE subsidy but for FY9 1980/81 subsidy will be needed and is under negotiation. West Bengal has since FY1978 subsidized RE losses to the extent of a 9.4% rate of return; the reason for this small shortfall is under investigation. 5.11 The Bank Group has on several occassions, both in writing or during supervision missions, sought to establish the continuing eligibility of the following SEBs to participate in RE projects: (a) Assam: internal difficulties in this State have prevented the obtaining of relevent data since FY1977; forecasts indicate a declining rate of return but the RE subsidy position is unclear. (b) Orissa: the SEB has not yet received sufficient subsidy to achieve the 9 1/2% in the three years FYs 1978-1980. Again, this is under discussion with the State. (c) Uttar Pradesh: State has agreed to pay subsidy from FY1980 but the basis of accounting for RE sales and operations is in dispute. 5.12 Further efforts are being made by GOI to resolve these outstanding matters. Under the proposed Third Rural Electrification project, improve- ments will be sought to the system of monitoring SEB eligibility. However, progress will be hindered until SEBEs have introduced improved accounting arrangements to ensure the timeliness of year-end accounting information. The introduction of commercial accounting systems by SEBs is is being sought but is unlikely to be fully implemented before end FY1985. -99- VI. INSTITUTIONAL PERFORMANCE REC Structure 6.01 At the end of March 1975, the organization of the REC consisted of 9 Divisions/Cells at Headquarters. There were three Regional Offices at Calcutta, Jabalpur and Lucknow. With a view to ensuring closer contact with the field, closer association with the formulation and implementation of the schemes, and better liaison with the State Governments and the SEBs, 8 more Regional Offices have been opened since then. All 11 Regional Offices are functioning now. 6.02 Evolving an appropriate organizational structure, so as to cope with its expanding operations and its growing complexity, has continued to be the major concern of REC. In 1981, the organizational structure of REC was rationalized, the line functions relating particularly to appraisal and monitoring of schemes and evaluation of their implementation being brought under the unified control of single authorities on a zonal basis. The supervision of the work of Regional Offices is entrusted to Zonal Chief Engineers under this revised organizational structure (Annex 17). 6.03 A separate cell, headed by a Chief Project Engineer of senior rank with four engineers of middle management level, has been created in REC Headquarters to handle the IDA Credits. As the volume of work involved in the handling of the Credits expanded, the cell was strengthened adequately to handle the increased work load. Initially, the introduction of international competitive bidding procedures was slow, but the IDA Cell in REC and the purchase wings in SEBEs gained the necessary expertise in preparation, processing and evaluation of bid documents and all matters relating to reimbursement claims quickly. 6.04 The previous arrangement of a part-time Chairman, supported by a Technical Director and a Managing Director, has been replaced by the full-time poiition of one chief executive, the "Chairman and Managing Director", assisted by a Technical and a Financial Director. This development has led to better central decision-making and policy direction. To accommodate the higher demand for skills in economic evaluation of schemes, a cell for economic appraisal methodology and related studies, headed by a Joint Director, has been established. This cell caters to the requirement for a changeover from previously used financial rate of return on assets criteria for scheme viability to new economic internal rate of return criteria that have been introduced gradually since 1980. The cell also organizes training of SEB staff in these matters. 6.05 In view of the expanding lending program, REC has its efforts to strengthen its staff. At the end of March 1981, it had on its payroll 812 employees, 82% of whom are permanently employed by REC. The balance (18%) -100- are mostly seconded from other organizations, principally the SEBs. This compares to a total number of employees of 357 in January 1975. The growth in staff is adequate in relation to REC's lending activity. Although REC already was an efficient organization at the time of appraisal, corporate performance has improved and been streamlined during the period of Credit disbursement. SEBs 6.06 At the SEBs' level, the procurement of materials is handled by their respective stores and purchase wings which are usually headed by a Chief Engineer of senior rank. These wings have been suitably strengthened to handle all matters pertaining to procurement of materials under the Credit. Similarly, the machinery for formulation and execution of schemes has been strengthened to discharge these responsibilities more efficiently. To enstre close coordination, monitoring cells have been created in many SEBs under direct control of a senior officer of the rank of Chief Engineer or Additional Chief Engineer (Annex 18). General Implementation Performance 6.07 The record of target achievement in the implementation of REC-financed schemes by most weaker SEBs is improving consistently. REC distinguishes (1) original scheme appraisal targets; (ii) "phased scheme targets" which "hange according to the amounts of the REC loan withdrawn; and (Ii1) annual global plan targets, which are arrived at in annual plan discussions independently of individual schemes. While original appraisal targets and phased scheme targets are useful in assessing individual schemes' progress, the annual plan targets show the SEB0s overall performance according to realistic short-term expectations. During the Fifth Five-Year Plan (1974/75 to 1978/79), REC-financed activity was dominated by electrification of new villages, resulting in a 112% target achievement as compared to only 46% achievement in terms of new pump connections. The shifting emphasis towards productive use in recent years has increased the REC-financed pump connection achievement rate to more than 80% by 1980, while the good performance in REC-financed village electrification was maintained. In comparison, the SEB performance in non-REC pump connections was much better (about 100% target achievement) than their record in non-REC village electrification (43%). This may be due to the relative ease of adding connections to an existing system (Annex 19). 6.08 The performance of individual SEBs varies widely. Consistently good performers such as Maharashtra, Gujarat, Haryana, and Punjab are counterbalanced by SEBs with poor implementation records such as Assam, Bihar, Orissa, Uttar Pradesh, and West Bengal. The main reasons for delayed achievement are: (i) initially over-optimistic forecasts of future load demand in REC scheme areas; (ii) inefficiency and delays in -101- the construction activity of many SEBs; (iii) shortages of materials required for rural distribution; and (iv) bottlenecks in providing other essential inputs for successful rural electrification, such as credit for farmers for wells, pumps, etc. The improvement observed in recent years appears to be the result of progress in all these fields: one important contributing factor has been REC's learning process in forecasting load and consumption growth in scheme areas, which has led to more realistic expectations. 6.09 Most weak performers among the SEBs have improved their implementation records with respect to pump connections significantly in 1980/81, due to intensive REC monitoring and pressure. This is particularly noticeable in Uttar Pradesh, Bihar, and Orissa. In Assam, plan targets were too optimistic, and pump irrigation has not been easily accepted by farmers. Consequently, Assam will not be a beneficiary under the proposed third project, now being processed. Karnataka and Kerala are slipping i.n implementation, but are expected to recover because of the temporary nature of the delays. West Bengal, although improving its village electrification performance, is lagging behind in pump connections. This matter is under review in the course of.supervision of the ongoing Second REC Credit (911-IN). Staff Recruitment and Training 6.10 Although the majority of REC staff are recruited on a permanent basis, a significant portion is drawn from SEBs, Central and State Government Departments, and other similar institutions on a secordment basis. This is particularly important in the case of senior technical staff such as Chief Engineers and other senior electrical engineers. At the time of appraisal, the ratio of seconded to permanent staff was high. However, the share of seconded personnel has been declining, and in 1981 only 10% of total staff of headquarters and 24% in regional offices were seconded. Among senior staff, the share has declined to 31% at headquarters, and 57% at regional offices. The increase in the share of permanent REC employees has resulted in less turnover in the Corporation and greater continuity. 6.11 REC operates a comprehensive training program for its own staff and SEB staff engaged in rural electrification. This includes seminars and courses in the Central Institute for Rural Electrification in Hyderabad (operated entirely by REC) and in institutions such as the Administrative Staff College, sponsoring of key staff members for training programs in India and abroad, and sending of staff to conferences and meetings dealing with rural electrification. Since appraisal of the project, RECos training activity has increased significantly, and now includes a seminar program for SEB staff that familiarizes them with the methods of economic analysis of schemes. The training program has maintained a consistently high quality of staff of REC, and has benefitted -102- SE staff to an increasing degree. In addition to the formal training effort, newly recruited or promoted staff members receive informal on-the-job training by experienced senior staff. -103- VII. ECONOMIC REEVALUATION 7.01 At the time of appraisal, the approach to economic justification of the project reflected the switch of emphasis from residential to agricultural use of electricity in Indian rural electrification. The method chosen was a least-cost comparison of electric and diesel pumping, combined with a cost/benefit analysis of a typical representative REC-financed scheme (broken down into irrigation and village electrification components). The cost/benefit analysis attempted to quantify benefits as the net value of incremental output in agriculture and industry, and the revenues recovered from commercial and domestic consumers. Costs included SEB investment and recurrent costs, as well as capital and recurrent cost incurred by consumers for electricity-using equipment. Least-cost solution 7.02 The results of the least-cost analysis at appraisal show a present- value-based cost advantage for the electric pump solution of about Rs 1,300 per 5-H.P. pump connection, based on a 30-year discounting period with reinvestment, and a 50% premium on foreign exchange. If the shadow pricing of foreign exchange is removed, the result is a cost advantage for the diesel pump solution of about Rs 660 per connection. Recent recalculations (Annex 20), based on annuitization of investment cost, and using marginal cost of power supply to agricultural consumers, as well as latest international fuel costs for diesel pumping, yield a much clearer cost advantage for the electric pumping solution. The present estimated economic cost advantage for electric pumping amounts to about Rs 2,350 per connection per year. This result is sensitive only to very large increases in marginal cost of power supply. Internal Rate of Return 7.03 At appraisal, economic internal rates of return for representative types of REC-financed schemes were estimated as follows: Electric pumping scheme only: 27.1% Village electrification component: 8.1% Total representative scheme: 23.4% During the implementation of the project, it became evident that several distinct types of representative schemes should be distinguished. Accordingly, the recalculation of economic internal rates of return has been performed based on representative REC-financed scheme categories that are approximately equivalent to those considered at appraisal. They are: (i) Ordinary Advanced (OA) Scheme, consisting of area electrification and connection of all types of rural consumers in economically advanced areas; (ii) Ordinary Backward (OB) Scheme, consisting of area electrification as under (i) but in economically less advanced areas; and -104- (iii) Special Project Agriculture (SPA), consisting of electrification of irrigation pumps in a specified area, with very few other connections. 7.04 The cost/benefit calculations follow the method used at appraisal (Annex 21), and yield the following economic internal rates of return: SPA: 51% OA: 35% OB: 17% Scheme types OA and OB, equivalent to the previously assumed "total representative scheme", show an average rate of return reasonably comparable to that estimated at appraisal. The scheme dealing predominantly with electric pumping has a recalculated rate of return significantly higher than that estimated at appraisal, although marginal cost of power supply rather than the previous low cost of bulk power was used. 7.05 In subsequent appraisals, the benefit valuation has been revised to reflect the fact that no clear causality exists between electrification per se an4 incremental output. Benefits of rural electrification were expressed as the willingness to pay of consumers, represented by the cost of the non-electric alternative at the maximum, and the private 'cost of using electricity as the minimum. This cost saving approach is used in an alternative reevaluation of the project's rate of return (Annex 21), and is applied to the major categories of REC-financed schemes eligible under the project. Apart from OA and OB schemes, the third major scheme category is a composite of schemes under the Minimum Needs Program (MNP) and Specially Underdeveloped (SU) scheme areas. Both categories deal with area electrification in particularly backward areas with low load potential. The base case results for economic rates of return are as follows: OA: 70% OB: 27% MNP/SU: 18% 7.06 While OA and OB schemes appear well justified under both cost/benefit methods, the MNP and SU categories are marginal. They exhibit strong sensitivity to relatively small changes in the level of marginal cost of power supply to the scheme, resulting in a rate of return below 10%. In subsequent appraisals, MNP and SU schemes were excluded from eligibility under follow-up projects. 7.07 In summary, the irrigation pumping component of rural electrification has proved economically even more attractive than expected at the time of appraisal. This is mainly due to the relative development of costs and benefits, the net value of incremental agricultural output being higher than expected, while costs of constructing and operating the scheme are comparable -105- with appraisal estimates. As far as representative area electrification schemes are concerned, the typical sche-ne considered at appraisal is compatible with the more advanced schemes in REC's lending portfolio, and yields similar rates of return. However, the backward-area schemes (MNP and SU) that were to become a major part of REC's lending program were only beginning to be sanctioned at the time of appraisal, and did not enter into appraisal considerations as a separate category, although they became eligible under the project. These schemes have proved to be only marginally viable, and their justification must rest on social equity or political reasons, -106- VIII. BANK PERFORMANCE Project Objectives and Design 8.01 The project was the Bank's first involvement in the rural electrification subsector of the Indian power sector, although a series of other power projects had been approved before. The bulk of preparation and appraisal work was done during the early years of REC activity in the early 1970's, at a time when the shape, content and degree of REC's involvement in Indian rural electrification was only beginning to emerge. Under these circumstances, the Bank's assessment of the priorities in the sector, the role of REC, and the nature of rural electrification schemes was remarkably accurate. Although the definition of the project originally assumed the implementation of a small number of schemes fully (para 3.01), the subsequent change in application of IDA-financed equipment to a large number of schemes partially (para 3.09) due to the nature of the REC lending process did not affect the project significantly. It remained defined as support for the REC lending program for a specified period, and the number of consumer connections anticipated was only distributed over a larger number of individual eligible schemes. e8.02 The Bank's emphasis on the maintenance of appropriate financial viability criteria of rural electrification schemes was useful in terms of the institutional target of establishing firmly in REC the principle of a logical system of scheme approval. The actual financial criteria used by REC for schemes, however, proved to be inadequate to ensure an appropriate return to SEBs. Scheme criteria required break-even only at a late stage in implementation, leading to an overall negative financial 'nternal rate of return of schemes on a discounted cash flow basis. To a large part, this was due to low tariffs for irrigation pumping. In subsequent appraisals, a change to economic viability criteria, together with appropriate financial analysis of schemes, was introduced. 8.03 To safeguard against the drain on SEBs' finances if political considerations kept irrigation tariffs low, a subsidization requirement for SEBW' losses in rural electrification coupled with a minimum rate of return was introduced to highlight the cost of the program compared to the low rates of cost recovery (para 5.08). This covenant proved valuable in ensuring a minimum financial viability of SEBs (in spite of continuing low agricultural tariffs and rising subsidies, and was one of the major vehicles to improve sector performance over a considerable period of time. Implementation 8.04 At the time of appraisal, judgement on the timing and quality of project Implementation was hampered by the uncertainty about the number of participating SEBs. Participation was dependent on the submission of an undertaking by State Governments to comply with the rate-of-return/ subsidization covenant. Because of this uncertainty, and the gradual introduction of unfamiliar procurement procedures satisfactory to IDA, procurement and implementation took longer than -107- anticipated. In the appraisal of the follow-up project, the number of eligible States was fixed at negotiations, leading to a smoother procurement process. Similarly, the SEBes participating under the second project are familiar with procurement procedures and able to implement the project at least at the pace envisaged at appraisal. 8.05 REC's implementation capacity as intermediary was assessed adequately at the time of appraisal. The performance of REC in terms of supervision, monitoring, introduction of standards, and communication with the Bank, has exceeded expectations. Within the limits set for it by the institutional structure of the Indian power sector, REC has fulfilled the expectations expressed at the time of project processing. It has proved difficult, however, to monitor the performance of the actual beneficiaries, the SEBs. Because of the large number of individual schemes receiving IDA-financed equipment, and the delays arising from slow data collection and preparation methods by SERs, the Bank had to rely fully on REC to compile and summarize the achievements and progress under the project. This difficulty may not have been fully anticipated at appraisal, but its effect was mitigated by the efficient performance of REC. Supervision and Working Relationships 8.06 Initially, Bank supervision of the project concentrated heavily on procurement matters, as SEBs and REC were familiarizing themselves with appropriate procedures. At a later stage in project implementation, emphasis was partly shifted to the utilization of the procured equipment in the field. However, this approach was limited to sample visits and the requirement that REC demonstrate appropriate achievement of overall scheme targets in its program, broken down by SEB and by scheme category. The number of eligible schemes made it impossible to supervise all construction and connection achievements physically. REC was relied on to perform adequate field supervision through its regional offices, and to keep the Bank informed. Spot checks were conducted by Bank staff in the field. 8.07 The overall working relationship with the borrower was excellent. REC made a good effort to fulfill institutional and intermediary functions between the Bank and the SEBs, and created separate sections to deal with IDA matters. The connection with the Bank reinforced REC's role in the power sector and may have facilitated their dealing with M0I in expanding their degree of involvement in rural electrification. Bank Contribution 8.08 The main contribution of the Bank's involvement in Indian rural electrification to date (under the project and in the follow-up second project) has been of an institutional nature, both with respect to REC and to SEBs. The strengthening of REC has led to a wider acceptance among SEBs of a logical system of assessing the viability of rural electrification schemes. Similarly, -108- a stronger role for REC has meant Increasing standardization of design and equipment in rural electrification, and specialized training for SEB staff. A.09 The second major institutional contribution was the use of the project as vehicle for safeguarding minimum financial performance levels in SEBs. The rate-of-return/subsidy covenant has served to (I) highlight the cost of keeping agricultural tariffs low, and (ii) courage SEBs to reach an acceptable rate of return on assets. -109- IX. CONCLUSIONS 9.01 The project was defined as support for REC's lending program during a specific time period. The envisaged construction work has been completed, and the consumer connections achieved. However, the distribution systems installed have a life considerable longer than the project implementation period, making accurate judgement on the full effects of the project impossible at this time. The approach taken in this report is to compare the assessment of representative schemes at the time of appraisal with that at the time of project completion. The experience and learning process about the nature of such representative schemes are reflected in the changed assumptions underlying the assessment. 9.02 In general, the project has achieved the targets set for it at the time of appraisal. Although an accurate physical measurement of consumer connections achieved purely as a result of IDA support for the program is not possible, estimates indicate that it is likely that project targets relating to this most important yardstick have been exceeded. While there may have been instances of individual schemes eligible under the project significantly underachieving their targets (due to optimistic forecasts, inefficient implementation, or exogenous effects), these cases appear to have been more than outweighed by other schemes exceeding the targets. 9.03 In terms of institutional development, the strengthening of REC has been progressing as anticipated, and the rate-of-return/subsidy financial requirement for SEBs has highlighted the cost recovery gap in rural electrification as intended. Although this gap has been recognized, it has not served well as an incentive to increase tariffs but has led to increasing amounts of subsidization of the SEBs by State Governments (para 5.09). As a ensequence, the discussions during the processing of the proposed Third Rural Electrification Project are aiming at a substantial reform of SEB financial performance criteria. 9.04 Goals at the time of appraisal were only defined in relatively general terms, as it was not known how many SEBs would eventually participate, and which shape the REC lending program would take during project implementation. In addition, it was the first project in the Indian power sector that was using a financial intermediary, REC, as the onlending agent. Given these uncertainties, the appraisal expectations were realistic, and the strategy adopted was appropriate, concentrating on sector issues of immediate relevance for rural electrification. The project description, referring to the equivalent of 140 fully financed schemes, changed in the course of implementation to a large number of partially financed schemes, but did not affect the implementation results. The project being a time-slice of a defined and agreed ongoing program, risks inherent in the project were not large. This anticipation proved correct. Although unforeseen price increases and procurement difficulties disturbed the smooth flow of materials, the project itself did not suffer. Any possible shortfalls were made good by GOI with relatively short delays. 9.05 The major lessons learned during project implementation were the following: -110- (i) In a project of this type, it is important to maintain and increase the capability of the intermediary to perform its duties in scheme appraisal, approval, monitoring, and financing satisfactorily. Direct supervision of sub-projects is only feasible on a limited sample basis. (ii) Leverage of REC (a minority lender) with SEBs is limited. Any influence that is intended to be exerted on the SEBs as a defined number of borrowers for sub-projects has to be carefully designed to be within the powers of the intermediary and not to reduce its effectiveness. (iii) Financial covenants affecting SEBs are not easy to monitor because of the large number of SEBs, and since the preparation of accounts takes an unusually long time, thus preventing effectively swift remedial action under a quickly-disbursing project. An improvement in accounting methods must accompany such covenants. INDIA CREDIT 572-IN RURAL ELECTRWICATION PROJECT Fural Electrification Development Envisaged in the Draft Fifth Plan Pwmp Energisation Program . Village Electrification Program -Yrrigation Additional Irrigation Total *Mlectrified Additional Total pumps ener- pumps to pumps ener- Census -illages as -illages to eletried gized as be ener- gised as on villages on 3-31-74 be elec- villages on 3-31-74 gized 3-31-79 trified as on during V during V 3-31-79 p lan r_an No Andhra Pradesh 253,000 97t070 350,000 27,084 10,750 h81 5,300 16,531 Assam 150 9,540 9,690 20,565 830 2,800 510 . 4,140 Bihar 100,500 28,620 129,120 67,665 9,600 7,500 1,542 18,642 Oujarat 105,000 15,500 120,500 18,584 5,850 - 1,030 6,880 Haryana 135,0Cc," 51,500 186,500 6,669 6,669 - - 6,669 Himachal Pradesh 800" 990 1,790 13,060 4,000 800 130 4,930 Jammu Kashmir 450 - 450 6,559 930 1,000 - . 1,930 Karnataka 190,000 59,880 249,880 26,377 12,200 736 3,211 16,147 Kerala 38,000 30,000 68,000 1,573 1,423 - 150 1,573 Madhya Pradesh 130,000 38,160 168,160 70,414 10*700 6,948 2,055 '19,703 Maharashtra 335,000 64,320 319,320 35,851 16,000 - 3,110 19,110 Manipur - - - 1,866 210 650 - 860 Meghalaya - - 4,407 80 1,000 - 1,080 Nagaland 2 - 2 814 100 200 - 300 Orissa 2,000 47,240 49,240 46,466 5,350 2,312 2,314 9,976 Punjab 125,000 39,160 164,160 11,947 7,100 - 2,132 9,232 Uajasthan 75,000 28,620 103,620 32,241 5,200 2,000 1,542 8,742 Tanil Nadu 715,000 143,000 858,000 14,124 14,124 - - 14,124 Tripura 35 - 35 4,932 110 1,000 - 1,100 Uttar Pradesh 235,000 114,480 349,480 112,624 28,390 5,250 6,166 39,806 West Bengal 2,000 43000 . 45000 38t45 7t500 3.800 2 860 14 160 Sub-Total -States 2 421 937 3,233,017 562,276 147,1 36,477 j 2 Union Territories 13,063 3,720 16,783 4,602 1,034 74 497 1,605 R.E.C. - 763,200 763,200 - - * 41,108 41,108 Total-all India 2435,000 1,578 000 4 0l3j000 566 878 148,lg 36,551 73 657 258t358 Y Anticipated. 'Source s REC -112- ANNR 2 INDIA CREDIT 572-IN RURAL ELECTRIFICATION PROJECT Villages Electrified and Pumps Energized (REC & SEB Programs) No. of Villages Villages Else- Existing in trified as Pumps Energized States States on 6/30/81 as on 6/30/81 Nos. Z Nos. Andh.a Pradesh 27,221 17,854 65.6 455,196 Asses 21,995 5,759 26.2 1,889 Bihar 67,566 20,907(a) 30.9 157,198(a) Gujarat 18,275 12,703 69.5 237,311 Haryana 6,731 6,731 100.0 226,863 Himachal Pradesh 16,916 10,186 60.2 1,749 Jamu & Kashmir 6,503 5059b) 77.8 1,010tb) Karnataka 26,826 16,884 62.9 312*483 Kerala 1,268 1,268- 100.0 94,014 Madhya Pradesh 70,883 26,411 37.3 316,988(b) Maharashtra 35,778 27,823 77.8 682,901 Manipur 1,949 334(b) 17.1 10(b) Meghalaya 4,583 700(c) 15.3 47(c) Nagaland 960 384 40.0 Nil Orissa 46,992 18,860 40.1 16,443 Punjab 12,188 12,126(+) 100.0 285,620 Rajasthan 33,305 15,162(4) 45:5 2C9,700(d) Sikkim 405(8) 67(b) 16.5 Nil Tamil Nadu 15,735 15,587 * 99.1 925,069 Tripura 4,727 991(d) 21.0 372(d) Uttar Pradesh 112,561 42,558 37.8 409,063 West Bengal 38,074 14,830 39.0 25,047 Total (States) 571,441 273,184 47.8 4,358,973 Total (Union Territores) 4,685 1,519 32.4 23,014 . Total (All India) 576,126 274,703 47.7 4,381,987 * Figure provisional. (a) As on 12/31/80. (b) As on 3/31/81. (c) As on 4/30/81. (4) As on 5/31/81. (+) 62 villages have been declared uninhabited. (0) The revenue block has been reckoned as the smallest administrative unit by the census authorities. Source: REC INDIA CREDIT 572-IN RURAL ELECTRIFICATION PROJECT Villages Electrified Year-wise 1975-76 1976-77 1977-78 1978-79 1979-80 State Total REC Total REC Total REC Total REC Total REC Andhra Pradesh 892 582 2,112 897 1,157 666 1,272 640 1,014 912 Assam 410 165 228 162 179 151 825 741 1,225 1,130 Bihar 6,419 1,049 N.A. 1,753 N.A. 535 499 346 1,012 715 Gujarat 281 119 801 442 1,013 421 1,343 406 1,403 503 Karnataka 479 240 494 251 457 349 576 407 546 513 Kerala N.A. 27 10 7 12 8 24 21 20 15 Madhya Pradesh N.A. 730 2,007 1,154 2,521 1,525 3,000 1,175 2,700 2,029 Maharashtra 490 415 897 442 1,274 488 1,904 700 2,073 954 Orissa 1,379 765 1,554 1,409 1,100 1,100 1,407 616 N.A. 2,191 Punjab 2,209 1,310 2,200 1,343 - - - - - - Rajasthan 729 701 1,308 1,175 1,638 1,200 2,312 1,259 1,531 894 Tamil Nadu 36 3 7 1 6 - 3 - 25 - West Bengal N.A. 543 1,156 1,047 688 674 N.A. 597 N.A. 749 Total for the Country (includ- 15,522 8,093 15,438 12,260 13,976 9,852 15,413 8,763 14,977 13,217 ing U.Ts and all other States) O Pumsets Energised Year-wise 1975-76 1976-77 1973-78 1978-79 1979-80 State Total REC Total REC Total REC Total REC Total REC Andhra Pradesh 18,285 2,685 12,778 6,188 21,989 7,742 30,219 7,606 28,728 13,621 Assam 236 7 42 12 - 13 196 157 428 376 Bibar 14,021 1,943 14,267 4,101 7,660 1,431 3,633 941 8,370 1,920 Gujarat 8,131 2,145 16,062 4,112 18,112 4,508 21,770 4,454 25,055 8,727 Karnataka 17,243 3,399 17,561 3,462 19,891 4,935 15,120 3,160 12,826 3,773 Kerala 5,976 535 5,623 913 5,774 2,478 7,318 1,652 12,056 2,316 Madhya Pradesh 13,444 4,799 33,543 7,087 35,643 12,176 28,928 10,725 34,578 19,205 Maharashtra 31,224 6,296 36,728 8,339 39,910 10,253 48,589 11,730 60,179 18,240 Orissa 1,034 379 904 570 999 652 2,839 1,137 3,635 1,786 Punjab 7,573 5,157 21,340 8,071 28,733 9,280 36,670 16,182 29,049 25,154 4 Rajasthan 7,033 4,685 14,254 9,011 20,298 9,702 26,720 13,162 28,828 17,766 Tamil Nadu 42,946 4,942 34,783 12,665 24,963 9,883 33,440 9,079 44,181 11,570 West Bengal 2,386 1,697 7,052 3,743 3,214 2,300 2,080 1,156 1,642 996 Sub-total for IDA-eligible 169,532 38,669 214,937 68,274 227,186 75,353 257,522 81,141 289,555 125,450 States Total for th, country 189,796 43,367 240,651 75,529 266,911 88,814 298,874 94,161 349,733 144,900 (including UTs. and all other States) 0 -115- ANNEX 4 INDIA CREDIT 572-IN RURAL ELECTRIPICATION PROJECT Estimated Numbers of Consumers Connected Using Materials Procured Under the Credit Domestic/ Street SEB Agricultural Industrial Commercial Lights 1. Andhra Pradesh 15,480 1,726 47,866 169161 2. Assam 201 99 7,518 386 3. Bihar 7,005 3,103 20,296 552 4. Gujarat 4,637 538 20,580 6,028 5. Karnataka 8,786 1,141 37,938 20,186 6. Kerala 4,268 535 26,687 3,745 7. Madhya Pradesh 13,010 1022 24,147 10,054 8. Maharashtra 7,939 773 14,737 6,675 9. Orissa 645 256 7,723 316 10. Punjab 12,127 396 29,043 NA 11. Rajasthan 3,575 380 7,196 807 12. Tamil Nadu 15,944 1,250 31,642 7,308 13. West Bengal 1,306 649 7,262 - TOTAL: 94,923 11,868 282,635 72,218 Total Estimated at Appraisal 55,000 NA 210,000 35,000 Source: REC INDIA CREDIT 572-1N RURAL ELECTRIFICATION PROJECT Amounts Credited by IDA to Government bf Ifidia by Financial Year (In millions of Re & $) SEB 1976-77 1977-78 1978-79 1979-80 1980-81 Total Rs $ RS $ Rs $ Re $ Rs $ Rs $ 1. Andhra Pradesh - - - - 16.421 2.007 10.989 1.357 16.856 2.062 44.266 5.426 2. Assam - 8.977 1.020 2.696 0.330 10.956 1.366 0.323 0.040 22.952 2.756 3. Bihar - - 11.854 1.442 10.435 1.279 54.556 6.701 25.114 3.190 101.959 12.612 4. Gujarat - - 12.356 1.495 7.513 0.923 0.522 0.064 3.319 0.403 23.710 2.885 5. Karnataka - - 18.617 2.169 5.369 0.654 11.626 1.442 4.780 0.609 40.392 4.874 6. Kerala 3.371 0.382 4.573 0.527 - - 3.006 0.367 1.088 0.140 12.038 1.416 7. Madhya Pradesh 6.014 0.682 6.768 0.785 13.259 1.604 22.255 2.754 12.935 1.635 61.231 7.460 8. Maharashtra - - 7.103 0.868 4.719 0.585 2.223 0.274 4.515 0.568 18.560 2.295 9. Orissa - - 2.251 0.275 5.935 0.748 2.624 0.327 1.850 0.244 12.66u 1.594 10. Punjab - - - - 2.884 0.352 17.759 2.193 8.943 1.136 29.586 3.681 11. Ra4asthan - - 6.820 0.829 8.877 1.089 5.371 0.664 2.296 0.295 23.364 2.877 12. Tamil Nadu - - 4.158 0.513 10.590 1.351 20.667 2.574 7.998 1.056 43.413 5.494 13. West Bengal - - - - 2.408 0.290 18.002 2.262 8.928 1.078 29.338 3.630 9.385 1.064 83.477 9.923 91.106 11.212 180.556 22.345 98.945 12.456 463.469 57.000 INDIA CREDIT 572-IN RURAL ELECTRIFICATION PROJECT Schemes Sanctioned Upto March 31. 1981 SEB OA OB SU MNP SS MF Total 1. Andhra Pradesh 27 51 5 27 10 8 128 2. Assam 1 20 - 44 - - 65 3. Bihar 7 94 5 78 1 6 191 4. Gujarat 25 22 33 7 7 32 126 5. Karnataka 31 37 4 8 3 2 85 6. Kerala 24 1 2 - - 3 30 7. Madhya Pradesh 39 52 54 145 3 60 353 8. Mharashtra 29 59 37 - 2 11 138 9. Orissa 17 47 29 102 - - 195 10. Punjab 81 6 - - 5 13 105 11. Rajasthan 34 60 9 73 1 14 191 12. Tamil Nadu 45 6 2 - 17 10 80 13. West Bengal 43 56 4 54 1 11 169 TOTAL: 403 511 184 538 50 170 1A856 Source: REC -118- ANNEX 6 Page 2 of 2 Types of Schemes Financed by REC Ordinary Advanced (AO) - Electrification of groups of villages in economically advanced areas. Ordinary Backward (OB) - Electrification of groups of villages in somewhat less advanced areas. Special: Underdeveloped (SU) - Electrification of groups of villages in economically backward areas. Minimum Needs Program (MNP) - Electrification of groups of villages out of a special GOI fund earmarked for specific particularly backward areas. Mini Farm (MF) - Connection of irrigation pumps in a group of villages. Special System Improvement (SS) - System Improvement by capacity increase and reinforcement of distribution syste INDIA CREDIT 572-IN RURAL ELECTRIFICATION PROJECT Achievements by Year under all REC Schemes during the period of the Credit Item 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 Total Villages Electrified 8,093 12,260 9,852 8,763 13,217 19,243 71,428 H.T. Lines (kas) 15,743 24,723 23,211 22,540 33,198 40,033 159,448 L.T. Lines (kma) 18,912 32,297 32,502 33,711 55,173 56,928 229,523 Q Distribution Transformers (kVA) 470,361 828,482 784,687 662,144 1,151,647 1,347,566 5,244,887 Pumpsets energised 43,367 75,529 87,981 94,161 144,937 191,694 637,669 Agricultural Industries 5,207 7,597 9,641 11,857 15,706 16,748 66,756 Domestic & Commercial Services 140,428 222,982 235,669 228,456 336,574 399,692 1,563,801 Street Lights 28,070 42,200 45,937 36,112 45,606 68,840 266,765 Note: There has been a steady increase in the achievements of REC over the years. The sudden increases in 1976-77 are due to corrections made when it was discovered that in previous years some SEBs were mis-classifying REC works as their own. CREDIT 572-13 RURAL ELECTRIFICATION PROJECT Materials received under the Credit compared with materials calculated to have been used CONDUCTOR (kR) TRANSFOl01ER (IVA) INSUtATORS HT 1VSULATORS IT METERS CAPACITORS SEB Received Used 2 Received Used I Received Used 2 Received Used 2 Received Used 2 Received Used 2 1. Andhra Pradesh 30.043 41,250 137 71.700 106.898 149 30.150 173.268 575 - 407.083 - 77.500 90.255 116 - - - 2. Asses 12.534 40.145 320 53.225 109.097 205 52.150 162.136 311 172,695 501.733 291 14.750 25.082 170 - - - 3. Bibar 6,058 52.393 93 241.710 215.420 89 277.976 786,164 103 705.000 447.993 64 86,900 28.302 33 4,150 8.350 201 4. Gujarat 10,664 40.256 377 48.200 227.170 471 84,180 253.470 301 127.305 258.30 203 24.783 98.237 396 - - - 5. Karnataka :7,697 38.663 140 45.890 68.636 150 106.500 187.258 176 184.000 343,817 187 50.300 68.423 136 8.500 12.761 150 6. Kerala 8.895 16.605 187 25.630 40.885 160 28.000 22.059 79 92.700 260.495 281 9.700 59.237 613 - - - 7. Madhya Pradesh 42.1?8 164,624 390 78.325 432.999 553 376,970 750.312 199 104.226 1.665.687 1.406 96.835 150.861 156 - - - 8. Kaharashtra 13.264 63.245 473 35.565 179.636 505 71.875 279.!52 389 76,000 1,134.896 1*4?: 21.850 112,495 515 24.150 35,483 147 9. Orissa 5,656 42,368 749 33.087 127.979 387 15.000 194.940 1,300 - 354,600 - - 64.714 - - - - 10. Punjab 15,294 50.271 229 70.750 139.512 197 52.500 117.180 223 115,000 578.231 503 54.700 136.753 250 - - - 11. Rajasthan 6,835 79.563 1,164 85.030 204.983 241 125,640 366,702 292 222.000 812.746 366 16.900 130.269 771 7,872 37.201 472 12. Tamil Nadu 135,53 34.707 218 120,950 134,611 111 18,790 151,945 809 - - - - 107.260 - 37,000 35.895 97 13. iest Sengal 7,444 22.978 309 79.650 145.265 182 21000 360 717 '75 300,000 ?49,74 50 23,554 28,482 121 - - - 252,515 67.068 989,712 2.133.093 1,449.731 3,311,688 2.098.926 6,715.435 477.772 1,100.370 81.677 129.694 Note In six instances the material calculated to have been used is less than that received, but at the time of writing (December 1961) the figures are only pruvisional. When the final igures are received in 1982 they are expected to soho that all materials procured under the Credit were used by June 30, 1981. IIA CREDIT 572-15 RURAL ELECTRIFICATION PROJECT All India Sales and Enersy Data 1969/70.- 1979/80 1969-70 1974-75 1975-76 1976-77 1977-78 1978-79 1 19 Installed Capacity (excl. non-utility plant W 14,102 18,317 20,117 21,814 23,770 26,681 28,448 30.271 Electricity Generated GWh 57,988 70,191 79,231 88,333 91,206 102,432 104,716 111,514 Electricity sold Wh 41,061 52,682 60,246 66,608 68,693 77,293 78,226 a.a. Electricity Generation per capita kWh 96.2 119.2 132.5 147.2 146.7 159.6 163.6 u.a. Electricity Consumption per capita kWh 76.0 89.9 100.3 111.0 110.9 120.7 319.6 u.a. S Proportion of Sales m Agricultural and Irrigation 9.2 14.5 14.5 14.4 14.5 15.6 16.9 u.a. Railway Traction 3.5 2.9 3.1 3.3 3.5 2.8 2.9 a.a. Industry 69.1 62.1 62.4 62.5 61.6 61.7 59.7 n.a. Comerce 6.5 8.5 7.3 7.3 7.3 5.6 5.3 n.a. Domestic 8.6 8.5 9.7 9.5 10.0 9.8 10.8 a.a. other (Public LightIng, Waterworks etc.) 3.1 3.5 3.2 3.0 3.0 4.5 4.4 u.s. Average Annual Growth of Sales (2) 9.9 5.3 14.5 10.5 3.2 12.5 1.2 a.a. Losses as percentage of kWh sent out 16.8 20.5 19.4 19.7 19.6 20.0 20.5 a.a. noa.t not available INDIA CREDIT 572-IN RURAL ELECTRIFICATION PROJECT RURAL ELECTRIFICATION CORPORATION Income Statement for FYsl975-1981 (Forecast and Actual) (Rupees millions) Tear to March 31 1975 1976 1977 1978 1979 1980 1981 Fore- Fore- Fore- Fore- Fore- cast Actual cast Actual cast Actual cast Actual cast Actual Actual Actual Revenue Interest on Loans Disbursed 110.9 90.3 153.8 138.7 212.9 188.6 308.3 242.2 429.6 31).4 409.9 514.0 Interest on Investments 1.4 5.4 0.9 7.9 0.6 8.1 0.8 8.3 0.6 18.8 20.7 35.3 Total Revenue 112.3 95.7 154.7 146.6 213.5 196.7 309.1 250.5 430.2 332.2 430.6 549.3 Expenses Administration 11.0 9.5 13.0 11.7 15.0 14.9 17.0 19.1 19.0 19.7 22.5 25.5 Interest on Borrowings 35.5 23.2 70.9 62.9 126.2 103.7 221.5 152.6 344.5 228.7 3051 39.6 Total Expenses 46.5 32.7 83.9 74.6 1.2 118.6 238.5 171. 7 T63.5 327.6 424.1 Operating Income (before tax) 65.8 63.0 70.8 72.0 72.3 78.1 70.6 78.8 66.7 83.8 103.0 125.2 Less Income Tax Provision (33.4) (32.8) (36.3) (38.1) (37.2) (39.2) (36.2) (36.5) (34.3) (38.9) (43.8) (53.6) Dividend (3.1) .1 .o (5.0) (6.3) (11.5) (7.6) (6.7) (8.8) (7.7) ....) (10..) Earned Surplus for year 29.3 27.1 29.5 28.9 28.8 27.4 26.8 35.6 23.6 37.2 50.5 61.6 Percentage (I) of Revenue Interest 32 24 46 43 59 53 72 61 80 69 71 72 Administration 9 10 8 8 7 8 5 8 4 6 5 5 41 34 S 3- 6 _ 77 TF 75 76 77 % of Average Total Assets: Revenue 5.1 4.4 5.3 5.1 5.5 5.3 5.6 5.3 5.7 5.3 5.7 6.0 Interest on Borrowings 1.6 1.1 2.4 2.2 3.2 2.8 4.0 3.2 4.6 3.6 4.0 4.3 Gross Spread 3.5 3.3 2.9 2.9 2.3 2.5 1.6 2.1 1.1 1.7 1.; 1.7 Return (%) on Average Total Capitalizationl 3.2 2.5 3.7 3.4 4.2 3.9 4.7 4.2 5.1 4.4 4.8 5.1 Operating Income, after tax and after adding back interest on borrowings. INDIA CREDIT 572-IN RURAL ELECTRIFICATION PROJECT RURAL ELECTRIFICATION CORPORATION Statement of Debt Service Coverage for FYs 1975-1981 (Forecast and Actual) (Rupees million) Year to March 31 1975 1976 1977 1978 1979 1980 1981 Fore- Fore- Fore- Fore- Fore- cast Actual cast Actual cast Actual cast Actual cast Actual Actual Actual Total Revenue 112.3 95.7 154.7 146.6 213.5 196.7 309.1 250.5 430.2 332.2 430.6 549.3 Less: Administration 11.0 9.5 13.0 11.7 15.0 14.9 17.0 19.1 19.0 19.7 22.5 25.5 Income Tax 33.4 32.8 36.3 38.1 37.2 39.2 36.2 36.5 34.3 38.9 43.8 53.6 Dividend 3.1 3.1 5.0 5.0 6.3 11.5 7.6 6.7 8.8 7.7 8.7 10.0 Total 47.5 5.4 54.3 54.8 58.5 65.6 60.8 62.3 62.1 66.3 75.0 89.1 Net Revenue 64.8 50.3 100.4 91.8 155.0 131.1 248.3 188.2 368.1 265.9 355.6 460.2 Add: Depreciation 0.1 0.1 0.1 0.2 0.2 0.3 0.2 0.4 0.2 0.4 0.5 0.6 Loan Repayments (by SEBs) 2.1 2.1. 6.3 8.4 27.8 47.0 53.4 84.0 80.3 162.228.379 Internally Generated Funds W7. 52.5 1f06.8 10 0.4 183.0 178.4 301.9 272.6 48.6 428.5 585.0 78 8. 7 Debt Service: Interest on Borrowing 35.5 23.2 70.9 62.9 126.2 103.7 221.5 152.6 344.5 228.7 305.1 398.6 Repayment of GOI Loans 3.0 3.0 3.0 3.0 3.0 3.0 9.7 9.7 15.4 25.3 33.7 71.1 38.5 26_.2 73.9 W-. 129.2 106.7 231.2 162.3 35_9.9 254.0 338.8 4619.7. Times Debt Service Covered by Internally Generated Funds 1.7 2.0 1.4 1.5 1.4 1.7 1.3 1.7 1.2 1.7 1.7 1.7 1 INDIA CREDIT 572-IN RURAL ELECTRIFICATION PROJECT RURAL ELECTRIFICATION CORPORATION Source & Application of Funds Statement for FYs 1975-1981 (Forecast and Actual) 1975 1976 1977 1978 1979 1980 1981 Fore- Fore- Fore- fore- Fore- cast Actual cast Actual cast Actual cast Actual cast Actual Actual Actual SOURCES Internal Cash Generation: Operating Income (after interest) 65.6 63.0 70.8 72.0 72.3 78.1 70.6 78.8 66.7 83.8 103.0 125.2 Depreciation 0.1 0.1 0.1 0.2 0.2 0.3 0.2 0.4 0.2 o.5 0.5 0.6 65.7 63.1 70.9 72.2 72.5 78.4 70.8 79.2 66.9 84.3 103.5 125.8 Less Income Tax 33.4 32.8 36.3 38.1 37.2 39.2 36.2 36.5 34.3 38.9 43.8 53.6 Dividend 3.1 3.1 5.0 5.0 6.3 11.5 7.6 6.7 8.8 7.7 8.7 10.0 36.5 35.9 41.3 43.1 43.5 50.7 43.8 43.2 43.1 46.6 52.5 63.6 Net Cash Generat on 29.2 27.2 29.6 29.1 29.0 27.7 27.0 . 23.8 37.6 51.0 62.2 Loan Repayments by SEBs *H? 2.1 6.3 8.4 27.8 47.0 5S.4 oa.0 80.3 162.2 228.9 327.9 Capital: GOI Equity 190.0 190.0 130.0 50.0 130.0 50.0 120.0 70.0 120.0 100.0 100.0 130.0 001 Loans 440.0 427.6 470.0 526.7 1,030.0 651.9 1,690.0 1,074.8 1,907.5 876.8 1,228.7 1,332.3 Bank Loan - - - - - - - - - 99.4 - - Market Loan 82.5 83.2 100.0 111.0 100.0 110.2 100.0 110.0 100.0 200.7 200.8 250.3 12.5 o70.8 700.0 687.7 1,260.0 8fY.l 1,910.0 1,254.8 2,127.5 1,276.9 1,529.5 1,712.6 Working Capital(Increase)/Decrease- 29.4 55.1 57.3 12.2 - 9.4 - (87.9) - 110.1 20.2 (3.1 TOTAL SOURCES 773.2 785.2 793.2 737.4 896.2 1 990.4 1,286.9 2,231.6 1 586.9 1 829.6 APPLICATIONS Capital Expenditure 0.2 0.3 0.2 0.1 0.2 1.4 0.2 0.8 0.2 0.6 0.5 0.8 G0I Loan repayments 3.0 3.0 3.0 3.0 3.0 3.0 9.7 9.7 15.4 25.3 59.7 144.5 Loan Disbursements(to SEBs). 770.0 781.9 790.0 734.3 1,300.0 881.9 1,890.0 1,129.9 2,110.0 1,561.0 1,670.5 1,843.5 Short-term Deposits - - - - 13.6 9.9 90.5 146.5 106.0 - 98.9 110.0 TOTAL APPLICATIONS 773.2 785.2 793.2 737.4 1&316.8 896.2 19990.4 19286.9 2 231.6 1A586.9 1A829.6 2j098.8 Including short-term deposits maturing. RURAL ELECTRIFICATION PROJECT RURAL ELECTRIFICATION CORP(RATION Balance Sheets for the eriod FYa 1975-1981 (Forecast and Actual) (Rupees million) 1975 1976 1977 1978 1979 Fore- Fore- Fore- Fore- Fore- 1980 1981 cast Actual cast Actual cast Actual cast Actual cast Actual Actual Actual ASSETS Fixed Assets 1.1 1.2 1.3 1.3 1.5 2.7 1.7 3.5 1.9 4.2 4.7 5.5 Less: Depreciation 0.4 0..4 0.5 0.6 0.7 0.9 0.9 1.3 1.1 1.8 2.3 2.9 Net Fixed Assets 0.7 0.8 0.8 0.7 0.8 1.8 0.8 2 2 0.8 2.4 2.4 T._ Deferred Expenditure - 1.1 - 2.4 - 3.6 - 4.6 - 4.7 4.8 4.9 Loans Outstanding 2,410.4 2,422.7 3,194.1 3,148.1 4,466.3 3,983.1 6,302.9 5,029.0 8,332.6 6,427.8 7,869.1 9,384.7 Short-term deposits 61.7 62.9 4.6 53.1 18.4 62.8 108.9 209.3 214.9 181.1 280.0 390.0 Current Assets 67.7 38.3 68.2 46.6 66.5 54.3 66.3 182.7 67.9 155.6 161.0 128.3 Total Assets 2,540.5 21525.8.3j267.7 3,250.9 4,552.0 4,105.6 6,478.9 5,427.8 8,616.2 6j771.6 8317.3 -9,910.5 LIABILITIES Share Capital 500.0 500.0 630.0 550.0 760.0 600.0 880.0 670.0 1,000.0 770.0 870.0 1,000.0 Capital Reserve 1,050.0 1,050.0 1,050.0 1,050.0 1,050.0 1,050.0 1,050.0 1,050.0 1,050.0 1,050.0 1,050.0 1,050.0 a Retained Earnings 77.6 74.9 107.1 103.8 135.9 131.1 162.7 166.6 186.3 204.2 255.2 316.8 1,627.6 1,624.9 1,787.1 1,703.8 1,945.9 1,781.1 2,092.7 1,886.6 2,236.3 2,024.2 2,175.2 2,366.8 Borrowings 001 Loans 790.4 777.9 1,257.4 1,301.6 2,284.4 1,950.5 3,964.7 3,015.7 5,856.8 3,867.2 5,062.3 6.323.5 Market Loans 82.5 83.2 182.5 194.2 282.5 304.4 382.5 414.4 482.5 615.0 815.7 1,066.0 Bank Loan - - - - - - - - - 99.4 73.4 - 872.9 861.1 1,439.9 1,495.8 2,566.9 2,254.9 4,347.2 3,430.f 6,339.3 4,581.6 5,951.4 73Y Current Liabilities 40.0 39.8 40.7 51.3 39.2 69.6 39.0 111.1 40.6 165.8 190.7 154.2 Total Liabilities 2,540.5 2 525.8 3,267.7 3,250.9 4,552.0 4,105.6 6,478.9 5,427.8 8,616.2 6,771.6 8 317.3 29A9105 loan Commitments (Sanctions not disbursed) 1,835.5 1,993.6 2,245.5 2,429.3 2,345.5 2,682.9 2,105.5 3,129.6 2,045.5 3,583.6 4,011.5 4,766.2 Debt/Equity Ratio 35/65 35/65 45/55 47/53 57/43 56/44 67/33 65/35 74/26 69/31 73/27 76/24 Current Ratio 1/ 3.2 2.5 1.8 2.0 2.2 1.7 4.5 3.5 6.9 2.0 2.3 3.4 Zf Current assets and short term deposits divided by current liabilities. INDIA CREDIT 572-31 RURAL ELECTRIFICATION PROJECT Rates of Return of SESs FY 1976 - FT 1981 (based on audited data, unless otherwise stated) FY 1976 FY 1977 FY 1978 FY 1979 FY 1980 FY 1981 Forecast; _ Raturn Return Return Return Return Return Return Return Return Return TRturn Return to SEB Incl. to SEB incl. to SEB incl. to SEB incl. to SEB incl. Ito SEB incl. State State State State State State Duties Duties Duties Duties Duties Duties z2 % % % % % % Andhra Pradesh 7.7 7.7 9.0 9.0 9.5 9.5 9.5 9.5 9.5 9.5 9.5A 9.5A Assam 6.4 7.4 12.3 13.9 9.3 10.4 7.1F 8.2F 3.9F 4.8F 1.9 2.5 Bihar 7.0 8.5 8.1 9.5 8.0 9.4 1.4 2.6 5.2 6.3 1.4A 2.4A Gujarat 7.9 11.0 9.7 13.9 9.7 13.5 9.7 14.0 8.34/ 12.4 6.4A' 10.3 a Baryana- 7.2 11.4 6.4 10.9 6.6 10.6 10.0 14.4 5.5 9.2 0.3A 3.4A 3/3 Karnataka 10.0 14.9 15.8 20.7 8.7 13.4 15.7 20.6 12.5 16.7 13.3 17.4 Kerala 5.9 8.1 8.5 10.5 8.6 10.5 15.7 18.0 13.9F 15.8F 14.3 16.2 hdhya Pradesh 12.8 15.4 13.1 15.3 14.7 16.7 11.2 14.1 13.4 16.9 8.2A 11.2A Maharashtra 10.0 11.5 13.0 14.5 15.5 17.0 14.2 15.7 9.5 11.0 9.5A 12.2A Orissa 5.8 9.1 I 6.3 9.9 4.4 8.3 1.6 7.2 3.9F 8.OF 9.5 14.5 Punjab 7.4 10.1 8.2 11.4 9.5 11.9 9.5 11.9 9.5 11.7 9.5A 11.7A Rajasthan 8.7 9.9 9.2 10.5 7.9 9.0 8.6 9.7 9.5 10.7 5.3 6.4 TaaL1 Nadu 9.7 10.4 9.5 10.3 9.5 10.3 9.5 10.4 9.5 9.9 9.5 9.8 Uttar Pradesh 4.6 5.4 5.8 6.6 0.9 1.6 1.8 2.4 9.5 10.1 6.4 7.2 West Bengal 6.0 8.0 9.5 11.1 9.4 11.0 9.4 11.0 9AF 10.7F 9.5 10.8 F Forecast A - Audited Actual Target rate of return in general is 9.5%. When this was established in 1964, it was also conceived that an average electricity auty equivalent to a return of 1.5% would be applied, making the total expected re-Arn 11%. Effective March 1978, 001 levied an additional excise tax of 2 paise/kWh on generation which is not included above. This would add an esti2ated 2-3 percentage points to the returns noted1 2./ Not eligible for assistance under Credit 572-IN. 31/ CREDIT 572-IN RURAL ELECTRIFICATION PROJECT SEBs Operating Performance RE Activities (F1979) (Re million) Andra Karna- Madhya Maharash- Tamil Uttar eat Pradesh Bihar arat Haryana taka Kerala Pradesh tra Orissa Punjab RajasthanjNadu iPradesh,leaVl Sales: Units (Gwb) 868 466 1560 1346 391 375 1181 2958 712 1716 1081 2362 2647 13V Sales Revenue 185 179 456 260 106 64 336 680 159 249 277 446 528 54 Other Operating . Revenue 38 6 42 32 3 6 28 97 6 30 28 35 42 - Total Revenue 223 185 498 292 109 70 364 777 165 279 305 481 570 54 Operating Ecpenses Energy Cost 183 142 369 198 39 30 259 529 104 276 162 493 816 33 Other 137 115 141 118 134 61 185 308 91 121 181 389 250 95 Depreciation 61 44 39 38 28 9 55 84 23 43 47 101 97 14 Total 381 301 549 354 201 100 499 921 218 440 390 983 1163 142 Deficit Before Interest 158 116 51 62 92 30 135 144 53 161 85 502 593 88 Add: Interest 33 56 88 85 55 14 124 207 67 96 79 142 203 23 Deficit After Interest 191 172 139 147 147 44 259 351 120 257 164 644 796 111 Less: State Govt. Subsidy 43 172 - - - 44 191 - 19 143 146 264 - 84 Net Deficit for Year 148 139 147 147 - 68 351 lul 114 18 380 796 27 Overall Rate of Return 9.5 1.4 9.7 10.0 15.7 '15.7 11.2 16.2 A 9.5 8.6 9.5 .R 9.4 OR 3/ Subsidy Formula OK OK oO 2/ 0K 01 OK 01. ; OK NO K 2/ / Excluding Assam for which no RE accounts available. / aryana and Uttar Pradesh not elivible under Credit 572-IN. / Should have been subsidized to 9.5%. INDIA CREDIT 572-TN RURAL ELECTRIFICATON PROJECT SEBs'1/ Rates of Return for FY1979: analyzed between RE Activities and Other Operations SEBs Average Surplus/ Surplus/ Total Rates of Return Rate Base (Deficit) (Deficit) Surplus from other RE Total . Operations Operations Total Andhra Pradesh 4,574 (115) 552 437 (2.5) 12.0 9.5 Bihar 3,414 56 (8) 48 1.6 (0.2) 1.4 Gujarat 3,861 (51) 425 374 (1.3) 11.0 9.7 Haryana 2,536 (62) 315 253 (2.5) 12.5 10.0 Karnataka 1,839 (92) 380 288 (5.0) 20.7 15.7 Kerala 2,581 14 391 405 0.5 15.2 15.7 Madhya Pradesh 3,604 56 348 404 1.5 9.7 11.2 Maharashtra 5,441 (144) 917 773 (2.6) 16.8 14.2 Orissa 1,734 (34) 62 28 (2.0) 3.6 1.6 Punjab 4,965 (18) 490 472 0.4 8.5 9.5 Rajasthan 3,281 61 221 282 ? 1.8 6.8 8.6 Tamil Nadu 4,400 (238) 656 418 (5.4) 14.9 9.5 Uttar Pradesh 9,763 (593) 774 181 (6.1) 7.9 1.8 West Bengal 1,610 (4) 156 152 (0.3) 9.7 9.4 If Excluding Assam for which no RE accounts available. 2/ RE surplus (deficit) is after taking credit for State Government subsidies of RE losses. Re surpluses shown are due to those portions of subsidies which reimburse interest costs - the rates of return being calculated before interest. -129- ANNPX 17 Page 1 of 2 F~nnc Division Corporate Planning, Coordinatio and Personnel Administration Secretariat Information and Publicity 0 Cooperative Organisation, Planning and Training Division 2 an 4 Project Appraisal, 44 -<Coordination and Evaluation (current) Division Planning, Evaluation,' Research and Training Division Engineering Research, Development, and Standardisation Technical Appraisal and ~ontoring (Zone III) Tehicl pria on- )G $ Nonitoring (Zone II)ea Ja 0 ri .Technical Appraisal and Monitoring (Zone I) & --{Spleencial Scheme organizational Structure of REC '-Kf- U_ meam me LM =aha - 131 - M|¡IAMlx1 (CREIT 572-1N) se 1 Of RUPAL ELECTRIPICATION PROJECT oraanizational Set UD for aotLeoentatlon of REC Schmes P o trmulsäton W C et Nnn a O 1. Andhra Pradesh By Commrcial Normally by 0&1 Sub- 06M S*divisioRn/Divisioa Chief Eniner(RE) Chief ier Subdivision division /Division operating in the area. at Readquarters. (Nateri a attached to 0f and In som cases by anagement) DiviOion/0*M separate construction Circl/Chief s=division. Engineer (08M) 2. Assam Statt under a O*M Sub-divisions -do- Addi. Chief Controller of separate ådl. under Zonal Addl. Engineer (RE) at Stores. Chief Engineer Chief Engineers umder headquarters. (R). Chief EngIneer (Ra). 3. Bihar Subdivision8/ Same as for formula- -do- Chief Engineer(R~) Chief Engineer diviosono under tion of ochemes. at headquartera. (Stores & Chief Engineer Works are executad Puvrcbase). (4) with 5 through contractors. Circlos. 4. Gujarat Foraulatad by Construction Sub-Division -do- Addi. Chief Engin- controter of 0M Sdivisin/ under the 0M Division eer(RZ)/auperinten- Store. Division and %ich formulated the ding EngIneer(R0) roceed by the 9cheme. Where work at Readquarters. ä Circle at load warrants separat* headquarters. construction Division* are st up. M¥rk are dom throuh contr4ctors. 5. Maryana uperinteding om. Sedivision/Divisicn -do- Cireia at Road. Centrol2jer of ICner and his in the cile under quarters. #Una. stäff at foad- the Chief Xglner(0Eö) quarters. 6. Karnatska RE Cell at .Q. 0m Divisions under -do- Superintendig Chisf gincer under a WrInt- the 0M Ciroles. Engineer (B) at (G~neral) ending er. headquarters. 7. Kerala 0*1 SbdviiOnS/S as for tormulation -do. ra Cel at head. Chief nmser Divsions under of scheme. quarters mder (GeMrl . the 0*1 Cire20s. superIntendlng Méineer, 8. Radhya Pradesh Cirelas at Raipur,6Circles/30 Divisions/ -do- Deputy Chief Ccntroller of ar, Ehopal. and 152 GYdiviieo upder antner (RC) ra m m under Chief Enginter (RE) at headquarters. Deputy ChIef Ei|"nee***EuC). 9. Maharashtra 00 SftdiviMsis/ Dputy Ex#cutive Engineer -do- rlntending Chief Enginaer Divisics/Circe3s Consgtrution under 0&M Méinesr (Mu,der (Stores) under the 5 Zena Division Orere work load Chief Enginr Chief Engineer.. wrrants. OtherwIse by Casmercial) at =rt Egineer Ineharge Seadquarters. of 0m. 10. Orissa 3 DivisionWCircn Constrution Division -do- Chief Egineer(RM) Chief Engiee der a separate attached to o*1 Circie. at Readuarters. Nansmtsaien, Chief %ngineer. Distributn an CO toal). 11. Punjab superintending Constructlon Divisions -do- RB CirOle at Chief ----r ä iner R al under 0m Cicles headquarters. (Nater zleotriflcatimn mnagemnt). (Projeet) with to Divisions at headquarters. 12. Rajasthan Srey and ones- A separate construction The constrUtln cub- Chief Engåneer Chief InDer tigation CIrc2 sub-division is formed division, on co~sttion (RE) at head- (ater~. mder Chief E¥- tor execution of each of works i cenWrted quarters. chnagemeent. inser (RB) at scheme. They are mer Into 0M Siision headquarter with the 08X CIre f % Divisions at Egineer (00*). where different places. ther are 4 0r y ocest- rution subdivisions 9 oanstruwtion diviain is forzod. 13. Tavil Nadu Ast . DIvisioal 0m Subdivisirns/ om Subdivisins/ Superintendng Chief r Engineer in es Divisions under 0m Divisfins operatng in Engineer (E) at (ater~ 0m Cirele Circle. the srea. headquartors. PanMgeMnt). ...2 /- -132 * Oraniatioal Set Up for Ieeentation of MEC Schems (Cont'd) 11o. Utar Pradesh Separrte Additional 7 Chief Zonal Engineers/ O Subdiviaions/ Adl. Chief Engineer Chief So Chief Sngineer at OAW Circles/00M Divisians Divisions operating (IS) at headquartts (Materia headquarters. Each 0AN Division baa in the area. Managea separat*emostruction 1, West Bengal Additional Chief Addl. Chief Enqinser (AS)/ .o. Ad. Chief Engineer Materil Dngineer(B)/DADty Deputy Chief 1neerM(ilf) (S) at headquarters Controll Chief Enginer R 4 construction Cirles/ and Planning) at Construction Divisions/ beadqarters. Sub4ivisions. RURAL ELECTRIFICATION PROJECT Achievement of Villege Electrification Plan Targets (Nos.) --- ' Plaui Ysant 4ehtevmen . ea Tre Maeesn Wian Taraat £ch-amesen j Andhra tradee 5,781 2,063 3,210 1,220 912 900 1,087 n 3,310 609 1,246 1,000 1,130 1,000 1,400 9Ihar 9,042 5,097 4,001 2,200 715 2,500 1,987 cajarat 1.030 2,226 1,582 460 503 600 650 Uatyana - - - - - - - E~æChal tadesh 930 1,704 2.125 1,100 596 850 1,129 JØMm1 1,000 972 2,121 590 337 450 125 Karnataka 3,947 1,586 1,490 925 513 550 243 Kerala * 150 1 74 - 15 - - madhya proash 9,003 3,564 5,083 2,120 2,029 2,100 4,026 Naharasbtra 3,110 3,755 2,858 450 964 750 1,289 Nanipar 650 61 - 70 41 30 20 Neghalaya 1.000 11 295 160 78 90 140 Magaland 200 52 82 20 33 40 47 Orissa 4,626 2.566 4,925 1,018 2,191 1,350 1,601 Punjah 2.132 1,670 3,378 - - - - tajasthan 3.542 1,555 4,978 1,400 894 1,000 927 Tamil Madø - 2 88 - - 40 21 Tripøra 1,000 6i 402 200 187 200 240 Uttar Padesh 11,416 1,957 4,576 1,380 1,340 2,500 2,487 est Beugat 6,660 50 3,598 1.350 749 1.600 1,156 All-India stamtetr 68,529 W,Us Achievesent 43Z All-India IEC MjPagm , 41,1 46,112 15,663 1?,217 16.500 18,575 Achievefet 12 U39 1/ State Proram taraete statø~.., SUG program targetS glbl. E ProMasely. Source: RC; Aciment of Pump Connection Plan Targets (We.) Fift h Pla w 2/ _98_ _80_ (1974/75 to 1978179) 197980= 1980/812/ s State Plan Target Achievement Plan Target Achievement Plan Target Achieves State State REC Andhra Pradesh 97,070 52,512 36,287 20,400 13,621 27,500 16,850 Assam 9,540 352 193 1,600 .376 2,500 210 Bihar 28.620 36,236 10,457 9,700 1,920 19,000 7,000 Cujarat 15,500 56,590 18,525 9,200 8,727 13,500 10,000 Haryana 51,500 26,800 26,485 9,400 10,618 4,700 6,466 Himachal Pradesh 990 157 359 100 88 70 77 Ja mu & Kashmir - 344 101 125 5 50 201 xarnataka 59,880 70,591 17,203 6,650 3,773 6,500 3,655 Kerala 30,000 22,233 6,346 2,500 2,316 4,600 1,402 Madhya Pradesh 38,160 90,429 38,864 26,350 19,205 25,000 28,777 Maharashtra 64,320 152,477 42,553 17,000 22,240 19,500 26,856 Manipur - - - 35. - 50 - Neghalaya - 6 41 140 - 30 - Nagaland - - - - Orissa 47,240 3,406 3,099 2,570 1,786 6,100 3,129 Punjab 39,160 61,039 42,541 13,000 25,244 13,000 11,058 Bajasthan 28,620 38,467 - 43,001 14,000 17,766 15,000 17,685 Tamil Nadu 143,000 119,869 41,972 21,000 11,510 10,000 8,146 Tripura - 105 39 100 26 300 120 Uttar Pradesh 114,480 75,374 15,323 10,750 8,750 14,000 14,151 West Bengal 43.000 6.312 9,579 10000 996 9,100 752 All-India State!Prograw 811,080 813,301 Achievement 100z in % All-India REC Program 763,200 352,968 1,74,620 1,48,967 1,90,500 1,56,535 Achievement 46% 85% 822 in I 1/ State Program targets statetse*. IMC prgram targets global. 2/ REC Program only. Provisional. Sources REC -135- ANNEX 20 Page 1 of 2 INDIA CREDIT 572-IN RURAL ELECTRIFICATION PROJECT Irrigation Pumping: Comparative Cost of Electricity and Diesel The following parameters and costs provided by REC were assumed to be representative for India as a whole. (a) Cost Data (1) Pump Costs Electric Diesel H.P. Cost of Pump H.P. Cost of Pump 3 Rs 1,800 5 Re 3,700 5 Re 2,000 6.5 Re 3,900 7.5 Re 2,700 10 Rs 8,000 10 Re 3,330 14 RslO,350 (ii) Cost of diesel, exclusive of taxes and duties, is Rs 1.85 per litre. (iii) Cost of lubricant, exclusive of taxes and duties, is Rs 8.35 per litre. (iv) Annual repair and maintenance cost for electric and diesel pumps are Re 400 and Re 1,600 per pump respectively. (v) Annual labor cost for the operation of electric and diesel pumps are Re 350 and Rs 500 per pump respectively. (b) The life of an electric pump is 15 years, that of a diesel pump is 10 years. (c) Average fuel cost for diesel pump is Re 0.64 per H.P/hour. (d) Average number of operating hours per year is 800 per pump. (e) Average electric irrigation pump has a rating of 5 H.P. and is used to lift wate: from an open, relatively shallow well. For the same output of water, a diesel pump with a higher R.P. rating of 6.5 is necessary. -136- ANNEX 20 Page 2 of 2 The average cost saving per connection for replacement of diesel by electric can be illustrated as follows: Rupees per year per pump Electric Diesel Annual charge for private investment per pump 262 632 Annual private 0 & M cost 400 1,600 Annual labor cost for operation 350 500 Marginal cost of electricity (Rs 0.90/kWh) and fuel cost per pump per year 2,700 3,328 Total cost per year of operation 39712 6,,6O Cost saving per pump per year: Rs 2,348. -137-21 i 10 INDIA CREDIT 572-IN RURAL ELECTRIFICATION PROJECT Economic åAalysis A. Appraisal iethod ma*n paramtéra og Typical aEC irojecta (Rs. l, 000) Cate- Year Capital oper. Ener- Cafeåorv-iX dLio.. of connecti»s gory Expenti- ation gy Agri- Imau- Doms- Str. of ture and consu- gulture stry ttc 4 *.t Schee R.* Mainte- mption No. No. ommr- 14ht nance 1000 cOial No. Expend- unit& No0* iture Rs. CA 1 2073 31 492 246 10 317 91 2 1507 35 1422 184 13 339 65 3. 986 122 2146 124 13 340 68 4 952 151 2764 121 10 309 50 5 539 174 3285 76 6 157 13 7 251 193 3951 31 4 14 - 15 245 252 5538 31 4 14 ~- - fl f----- - - -l - - - - -l - - -- -- -- -- -- - -- - - - -l æ 1 1682 25 354 49 16 206 30 2 1292 70 311 68 17 188 44 3 861 102 1354 93 18 203 o5 4 748 126 1982 102 20 217 74 5 567 146 2623 86 18 192 55 10 154 175 4232 30 5 71 20 196 233 6598 29 5 38 10 fl fifi fl ~- - f lf lf - - - -- - - - -l - fl- fllfll-fl-lfll SPA 1 1427 21 293 203 3 111 11 2 1048 59 783 158 2 88 9 3 736 95 1186 136 1 89 9 4 536 104 1493 99 2 32 9 A~1 21 Lconomic "ae of Rturn fx a ty-Jical --.C Fnanced v>roject urger js n.Lepgry (Rs. 1,000) Year Investmn y __ Mm by Cost of Value ot Prgducto SEB Consumers SEB Pouer Agri. lrdustry Jqri. Indus- (Margina try Cost) (a) (b) (c) () (() (h), r 2W3 3084 139 - 1369 2016 57 2 1507 2306 182 85 1068 3524 124 3 986 1554 182 122 1*10 4540 206 4 952 1567 139 151 2073 5532 265 5 539 953 84 174 2464 6155 298 6 251 953 84 184 2713 6409 321 7 251 389 56 193 2963 6663 344 8 245 389 56 200 3112 6917 367 9 245 389 56 207 3201 7171 390 10 245 389 56 215 3410 7425 413 11 245 389 56 222 3559 7629 436 12 245 389 56 229 3708 7933 459 13 245 389 Sh 237 3856 8187 482 14 245 339 So 245 4006 3481 505 15 245 339 5 252 4153 8695 528 16 1264 /0 256 4209 ~05 528 17 946 91 256 4209 8695 528 18 637 91 256 4209 8695 528 19 621 70 25o 4209 8695 528 20 391 42 ts 4209 å695 528 21-30 lix 159 28 25* 4209 8ö95 528 ECONOMIC RATE OF REUURN a 35% (a) Data derived from thc ach.mes. (b) Initial Investment of -.12535 yer pumset Including accessories ar wells x no. of gýum.,!sets for yeers 1 to 5 (246, 184, 124, 121, 76) en for years o to 15 ö 31 Nos. Åenewal investment 0 is.5140 eer ku~gset x no. of mmjjsets comin9 for L finvestment odtween years lu to 20 (24 184, 124, 121, 76) enn y-;ars 21 to 30 (31 nos.) -139- AWW 21 Page 3 of 10 10m./7Com. oa 'tluu Yeon nMcti>ns cst n.!tii .er.f its Year ..~~u e -venue 9 1o 12h 1 62 5696 2135 (3561) 2 129 5146 3777 (1369) 3 195 4454 4941 4a7 4 256 4882 6051 1169 5 287 4214 o740 2526 6 301 4185 7031 2846 7 316 3852 7323 3471 a 331 4002 7615 3613 9 346 4158 7907 3749 10 361 4315 8199 3884 11 376 4471 8441 3970 12 391 4627 8783 4156 13 406 4783 9075 4292 14 421 4939 9407 4468 15 436 5095 9659 4564 16 436 5799 9659 3860 17 436 5502 9659 4157 1a 436 5193 9659 4466 19 436 5156 9659 4503 20 436 4898 959 4761 21-30 436 4652 9o59 5007 (C) Initial investment of U.13,972 x no. of inuustries in years 1 to 5 (10,13,13,10,6) and years 6 to 15 4 4 nos. Ranewal investment 4 b.700( per induary x nos. of in"urial connections (10,13,13,10,6) and year. 21 to 30 a.. the rae of 4 nos. (d) Derivel data from the scheme re.orts. (a) Marginal cost at one r,*a of 19..75 KWH W No. of units onuumeo in years concerneu (1st to 5th years 4,92, 14-22, 2146, 27.6 anu 32.85 Lai units res,ectively; 7th year; 39.51, 16th year 55.38 anu loth year onwards 56.12 lakhs units). (W) Net of oierating ex.enses other, tnan power cobts. (g) U.8196 x No. of agricultural connections (years 1 to 5; 246,184,124,1; 76 respectively; otn to 15th year 31 aaoitional connections per year) (h) Is.5730 x No. of inaustrial connections (yeas 1 to 5; 10,13,13,10,o respectively ana year 16th to 15, at tae rata of 4 anuitional connec- tions per year) -140 21 W-g 4of 11 'Economic t, .f .eýtÅrn tur a ï;ia s !iiaqcec éroicct * JB cgr (>s. 1,000o) Year Investmenyy 0&BX Cost of Value of &Jro-. JoV Total Total SEB Consumer. By ýower n Com. cost Bene-. i Jgr1. Indu- SEB (Mcgi- (f) Reve- fits stry nal Agrl. Indus- nues cost) try ()(o) (c) (a) () (q ()(1 S 2 3 4 I 6 7 8 9 10 1 1 1682 614 224 25 265 402 924 2810 534 (2 2 1292 852 237 70 608 959 189 77 3059 1225 (1 3. 861 1166 251 102 1015 1721 292 117 3395 2130 (1 4 748 ·1279• 279 126- 1486 2557 -407 159 3918 3123 ( 5 567 1078 251 146 1967 3262 510 197 4009 3969 6 154 376 78 152 2208 3508 539 211 2968 4258. I 7 154 376 70 158 2449 3754 568 225 3207 4547 1 8 154 376 70 163 2691 4000 597 239 3454 4836 1 9 154 376 70 169 2932 4246 626 253 3701 5125 1 10 154 376 70 175 3174 4492 655 267 3949 5414 1 11 196 363 70 181 3351 4730 684 274 4161 5688 1 12 196 363 70 187 3529 4968 713 281 4345 5962 1 13 196 363 70 192 3706 5206 742 288 4527 6236 1 14 196 363 70 198 3884 5444 771 295 4711 6510 1 15 196 363 70 204 4061 .5632 800 302 4894 6784 1 16 196 615 182 210 4238 5920 829 309 5441 3058 1 17 196 712 189 216 4416 6158 358 31o 5729 7332 1 18 196 841 196 221 4593 6396 887 323 6047 7o06 1 19 196 887 210 227 4771 6634 916 330 6291 7880 1 20 196 805 196 233 4948 6872 94 337 6378 8454 1 21-25 154 35 233 4948 <872 945 $37 5370 8154 2 26.-30 149 35 233 4948 6872 945 337 5365 3154 2 £CONOXIC RXTE OF RErURN - aoout 17% -141. ANNE 21 Paef 10 .otes (a) Data aerivea fron CB cneme re.orts. (W) Initial investment @ A. 12,535 per pumpset + accessories + well for the years 1 to S. the no. of connectiont being 49, 68, 93, 102 and 86 respectively. Between years 6 to 10, the no. of aonnections were 4 30 each year ana ce.tween 11 ti 20 years, the no. of connections were * 29 each year. Renewal investment was 4 0.5$40 per pumpset between the year 16 b 20, the no. of renewals being same as in the initlal investment period i.e.. 49, 68, 93* 10- xspec tively. For the years 21 to 25, the renewal investment was for 30 pumpsets each year a,; the samtate mentionea earlier* f*om 26th year onwards, 29 pumpsets were expected to come up for renewal each year at the same rate (Rg. 5,140/pumpset). (c) Initial investment @ n. 13972 per inuustry between the years 1 to 5 the no. of inaustries being 16, 17, 18, 20 anc 18 res,ec- tively. Between the years 6th to 20th, the no. of expected industrial connections is 5 each year, rate of investment being the same mentioned earlier i.e. :d. 13,972 per inaustry. Between the years 16 to 20, renewal investment 4 ft.7,000 per inoustry takeiplace, the no. of industries meing 16* 17, 18* 20 ano 18 respectively. Between the years 21 to 30 the renewal investment .. at the same rate out for 5 industries each. (d Data derived from OB bCheme reports. (e) Marginal cost of is. 0,,75 paise/kwh*estimatea energy consumption Lneing 3.54, 8.11, 13,54, 19.82 and 26.23 laKhs units netween the years 1 to 5. 42.32 lakhs units to tne end of 10th year and 65.98 lakhs unitE of the end of 20th years. (f) Net of operating exjewnses other than power cost. (g) q s.8,196/pumpset, the no. of connections oeing as already mentioned i.e. joetween 1 to 5 years 49, 68, 93, 102 and 86 connections respectively and 30 connections for eacn of the years between 6th to 10th year and 29 connections for each of the year 11th to 20th. (h) Q -a.5,730 per industry during the period 1 to 5, the no. of connections being 16. 170 18, 20 and 18 respectively ano 5 industrial connections for each of the years between 6th to 20th years. (i) At a connected loaa of 0.4 kw per connection x 1,000 x 0.49 paise/kwh per connections, the no. of connections being 206# 188, 203, 217 and 192 for the years 1 to 5 res,ectively. Between the years 6th to 10th, the no. oE connections being 71 for each year and between 11th to 20th year, the no. of connections were 38 each year. -142- ag ~ 21 £conomic iate ot Aeturn t:r a ty.,cal &siC i i.nancedi Pro lect unaer >i'A Category Year O&K Cost Vk&ue of Dong Total Total C by Of ucm. Costa Bene- gr t Ina SEB Åower Agr* I U Ser* fits stry (Marg- stry5vices I I *inal Vice-*I ( (b) (c) A(d 9 ( - ( * (h) 1 2 3 4 5 6 7 8 9. 10 1 1 1427 2545 42 21 212 1664 17 22 4247 1703 (2 2 1048 1980 28 59 587 2959 29 39 3702 3027 < 3 736 1705 14 85 889 4075 34 56 3429 4163 4 536 1241 28 104 1120 4885 46 63 3029 4994 1 5 112 1229 4885 46 63 1341 4994 4 6 112 1229 4885 46 63 1341 4994 3 7 112 1229 4885 46 63 1341 4994 3 8 122 1229 4885 46 63 1341 4994 3 9 112 1229 4885 46 63 1341 4994 1 10 112 1229 4885 46 63 1341 4994 2 11 112 1229 4885 46 63 1341 4994 % 12 112 1229 4885 46 63 1341 4994 2 13 112 1229 4885 46 63 1341 4994 14 112 1229 4885 46 63 1341 4994 . 15 112 1229 4385 46 63 1341 4994 2 16 1043 21 112 1229 4885 46 63 2405 4994 17 312 14 112 1229 4885 46 63 2167 4994 18 699 7 112 1229 4885 46 63 2047 4994 19 509 14 112 1229 4885 46 63 1864 4994 20 to 112 1229 4885 46 63 1341 4994 30 E R R u 51% approximuately -1 ANR 21 Page Y of 10 Jotes I a' ta derivea from Lne s-A sC:.emes. b) li,ir-ial investnent. s. 12,535/,um,set + accessorid6 + well over the year 1 to 4, no. of connections ceang 203: 158; 13o ana 99 respectively, and reneval investment between 16 to 19th years being 0ta.5140 for 2031 1581 136 anQ 99 connections respectively. C) Initial invebtment au 13,972/- per inaustry ptpread over the years, 1 to 4, no. of connections beoing 3sZ1, and 2 respectively and renewal investment between 16th to 19th year being @ R.s7,000 for 3s211 and 2 connections respectively*. d) Derived from the SPA schemes reports, e) At a m,rginal cost of 0.75 paise/kwh for energy consumption of 2.83, 7.83, 11.86 and 14.93 lakhe units during years 1 to 4 respectively and 16.39 lakhe units from 5th year onwads# f) Net of operating exvenses excluding power costs;@ ?. 8,196/ pumpbets over the period 1 to 4,no. of connections being 203, 158, 136 and 99 respectively. g) * R. 5,730/- per industry over the period 1 to 4; no. of connections being 3: 2; 1 and 2 respectively. h) Connected load of 0.4 KK x 1,000 hrs. x 0.49 raise -er connection, for 111. 88, 89 an 32 connections over the year 1 to 4 respectively. -144- ANNEX 21 Page 8 of 10 B. Revised Cost/Benefit Method Methodology 1. The method selected for economic analysis is a cost saving approach that attempts to quantify net benefits for users of the supply system. In this approach, electricity is considered as one alternative source of energy and compared to other energy surces yielding the same result, such as diesel motors for industry, diesel pumps for irrigation, and kerosene for domestic lighting. Typical average schemes were examined with respect to economic internal rate of return, and net present value. OA, OB, MNP and SU schemes were examined. Costs, achievements, and specific assumptions were derived from REC reports. 2. The cost saving approach implies that new electricity consumers in rural areas are switching from alternative energy to electricity, or if electricity would not be supplied, many would obtain alternative energy sources. It is possible that, had electricity not been provided in the area, some rural elec- tricit consumers who have obtained electric connections might not have purchased an alternative power source. The underlying assumption is a downward sloping demand curve for rural energy inputs with respect to price. 3. The cost streams consist of the SEB investment cost, recurrent cost in SEB-installed facilities, marginal cost of energy, and private costs (excluding tariff) associated with the proposed project and incurred by retail consumers, including house wiring investment in electricity-using facilities and equipment, ad their maintenance. Thirty years was chosen as an apropriate lifetime of the schemes. The demand growth and associated SEB capital investment required were obtained from REC reports. The bulk of the SEB investment is concentrated in the first five years of the schemes. Further growth is possible in schemes witt further investment after the fifth year, until the fifteenth to twentieth year when full demand is met. 4. The benefit stream is represented by the total cost of the alternative, adjusted to reflect a realistic mix of valuation of energy supply by the con- sumer. If a significant part of expected electricity demand is due to conver- sion of existing or expected alternative energy sources, this share of project output is vaued at full alternative cost. The remainder, i.e. demand that woul not be present in the absence of the project, should be vaued at less than full alternative cost, the upper value limit, but more than the minimum value of electricity depending on the shape of the demand curve. The minimum value of electricity as seen by the consumers is the total cost of running the electric alternative, which consists of capital, 0 & M and tariff costs. -145- ANNEX 21 Page 9 of 10 5. Shadow Prices (a) SEB Investment: Standard conversion factor of 0.80 was used to revalue costs in border prices. (b) SEB 0 & M Costs: The assumption of 80% labor and 20% materials content (valued at the shadow wage rate and using standard conversion factor) yields a weighted conversion factor of 0.70. (c) Marginal Cost of Electricity: Recent SEB and REC calculations to determine marginal cost of power supply 11 kV (the point of entry for the schemes) were utilized. Assuming that the cost elements entering into total marginal cost are adequately represented by the basket of goods underlying the calculation of the standard conversion factor, a conversion factor of 0.80 was used. (d) Private Cost and Benefits: Private investment and the cost of diesel fuel and lubricant were valued at border prices, the remaining cost and benefit items were converted to border prices using the standard conversion factor. For rural unskilled labor, the shadow/market wage ratio of 0.6 was used. (e) Discount Rate: The discount rate (the opportunity cost of capital) used to annuitize capital costs is 10%, as specified in the REC economic analysis. Benefits 6. The economic analysis is performed under three different demand curve assumptions. They are as follows: Case 1: The energy demand is inelastic with respect to price, or the area has reached saturation by using alternative energy. The demand for the project output is fully due to conversion of xisting or expected alternative energy source users. (Maximum value of benefits). -146- ANNEX 21 Page 10 of 10 Case 2: The energy demand is due solely to first time users of any form of energy and the observed value of electricity to these consumers is their total cost of running the electric alternative. (Minimum value of benefits). Case 3: 50% of demand is due to replacement (value as in Case 1), and the remainder is represented by a linear downward sloping demand curve, showing a value declining from the upper limit of full cost of the alternative (Case 1) to a lower limit of cost of electricity use (Case 2). Table 2 Economic Rate of Return and Net Present Value OA OB MNP/SU ERR (%) Case 1 146 46 35 Case 2 None None None Case 3 (Base case) 70 27 18 Net Present Value of Case 3 (Rs'000) Discount Rate 8% 16,596 7,421 4,300 10% 12,889 5,392 2,860 12% 10,194 3,934 1,820 ERR Sensitivity of Case 3 to Marginal Cost of Electricity (%) MC + 25% 47 13 8 MC + 50% 24 None None -147- SUMMARY VOLUME I: EVALUATION OF RURAL ELECTRIFICATION PROGRAM PROGRAM EVALUATION ORGANIZATION, PLANNING COMMISSION, 001 JANUARY, 1982 11 Rural electrification has an important role loans to State Electricity Boards and Rural to play in stimulating all-round changes int Electric Cooperatives for implementing agriculture and in agro-based small and stheme of rural electrification in addition to medium sized industries besides setting in a that proposed under the State Plan outlays. chain reaction affecting the social and cultural 1.4 The Committee on Unemployment lives of the =ole in villages in a variety of ways. Be inmereasing "on-farm" employ. (17)udrte imnhpoShiB ment, rural electrifcati ctes vat potential bagwa recommended in its Report "that for "off-farm" employment. It was only assesie impact o he rgre of after Independence that rural electrifcation rural electrifica on employment in rural began receivi some degree of attention when The Committee urged the Planning the responsiblity of power generation, trans. CMm mission and distribution was taken over by evaluation o eplohment te thOugh the Government and State Electricity Boards evlainoem " gp rtdthuh the fovrment nd tte Electricity upoyAds rural electrification since r965. The Planning were formed under the Electricity Supply Actstudy 1948. should cover not only employment but also 1.2 During the various Plan periods rural other impacts of the progamm. The main electrification (RE) received varing aegrees objectives of the preeI study ane- (i) to of emphasis and the investment ot Rs. 8 crores examine relative orical trends in the spread on rural electrification during the First Plan of rural electrifiation and to invetigate in was stepped up to Rs. 75 crores in the Second dmil the factors influencing the spread and Plan and to Rs. il crores in the Third Plan. use of power in rural aa; (ii) to study The three Annual Plans (:966-69) in which supply and demand of power and to examine emphasis shifted from village electrification to the reason for lag in reasing the potential; pumpset energisation were responsible for an investment of the order of Rs. 238 crores. (iv) to study the impact of rural electrification This amount rose to nearly Rs. Go7 crores in on agriculture, rural industry, sociocultutal the Fourth Plan in addition to Rs. 129 crores life, etc. ; (v) to study the terms and conditions utilised from institutional agencies. In the for giving connections and to study the tariff Fifth Plan (1974.78), an investment of rates prevailing in different States/regions in Rs. 743 crores was made in addition to the country and problems of realising arrears; Rs. 99 crores utilised from institutional and (vi) to investigate the problems faced by agencies. An investment of Rs. 265 crores the users. each was made in the years :978-79 and 1.5 The present study was conducted at 1979-80. A total Plan outlay of Rs. t86i crores is available for Rural Electrification violevels-State, Tc sectiondosigc Programme during the Sixth Plan. This will ag be further supplemented by Rs. 420 crores by adpe for the Stys a strataae ARDC and commercial banks. apigwt h Sae ssrt n ARDCandcommrcil baks.districts as primary units of the sampling. 1.3 In pursuance of the recommendations Lower Administrative Units (LAU's) of State of the All India Rural Credit Review Com. Electricity Boards i.e. section offices/sub-divi. mittee set up by the Reserve Bank of India sions of the State Electricity Boards, feeder (t966.69). Rural Electrification Corporation lines with LAUs, villag served by the feeder was formed in July, :96q. REC was en- lines and households benefited by rural electri- tru4ted with the responsibility to administer fication programme Were taken a mwequent the Central sector plan outlay and provide sampling un to. In ordr tio investigate the -148- reasons for not extending electrification to the operaton and maintenance of REC financed adjoining or near the electrified villages, one sdiemes in addition to their normal duties, non-electrified village with the largest irrigated their staft was over-worked. This resulted in area by wells which was nearest to the earliest slippageb and under-achievement of targets in electrified village among the selected villages on a number of cases. In some States, particularly the first selected feeder line was selected. The Nurth Eastern States and States having hilly sampling design generated a sample of bene- areas, experienced and qualified engineers ficiary and non-beneficiary households from were not coining forward to work in remote 397 electrified villages located in 48 districts are:,s and difficult terrain. It was observed at the i9 States covered by the study. Besides that REC was also seized of the problem and 79 non-electrified villages were selected, to had sanctioned a number of schemes during serve as control. 1977-79 in almost all the States for trainiig the linemen. Important findings of the study 1.8 Delay in clearance of technical and 1.6 The Rural Electrification Programme is Administrative sanctions for schemes cleared confronted with a number of problems like by REC was reported by many States as one wide scatter of villages, pumpsets not clustered ut the reasons for slow progress of clectrifica- but scattered all round and poor load factor, tion. Acute shortage of construction material eto. There is, therefore, an immense need for like conductors, RW poles, transformers, etc. a very wide network of transmission lines, was reported to have considerably impeded the involving huge capital outlay. Pumpsets are piogress of rural electrification schemes in scattered all over the villages which involve almost all the States. Divisions/sub-divibions huge expenditure in laying sub-traismission in almost all the States were reported to be lines. The load factor is poor since consump- ill-equippe_d with transport facilities like tion of electricity for agricultural purposes is trucks, tractors, jeeps, etc. for timely trans- seasonal. Returns from agricultural connec- portation of material and men from stores or tions are low because of low tarift and indus- divisional headquarters to sites. Financial trial demand is rather low. power delegated to the field officers was 1.7 The State Electricity Boards suffered reported to be inadequate. This also retarded from organisational inadequacies. After the the spread of rural electrification. Suitable Third Plan, when emphasis of rural electri- syste f colle on seri s d on fication shifted to energisation of tubewells/. sumbr o urs, cnd s to an ila pumpsets for which electricity had to be ar aly for urban and rsi extended to growth centres having load ae esnial reurd for nin and i- potential, RE Programme not only involved ang fansv huge expenditure but required careful plan- ning and execution, and as such, could not be 1.9 Since various development agencies like managed with normal strength of the staff SFDA, MFAL, RIP, etc. have a vital role to of the State Electricity Boards. The Com- play in load devel4ment and to even out mittees set up by the Ministry of Energy in seasonal variations, the Planning Comn 1972 for groups of States and again in 1974 mission in the Third Plan, emphasised the for North Eastern States recommended that need for preparing a carefully formulated rural electrification wings/cells be set up development programme for each area covering within State Electricity Boards under the activities in different fields like agriculture, chairmanship of senior officers who in the case industry and other service facilities. REC also of major States should be of the rank tif Chief advised the State Governments and the Engineer. However, it was seen that there chairmen of the State Electricity Boards to set was no uniformity in the set-up of rural up Coordination Committees at the State electrification cells among States. Inadequacies level as well as at the district level to help in and lack of technical competence of staff formulation of schemes of rural electrification employed on rural electrification was also one with reference to potential demand for power of the reasons for slow progress of the imple- in the fields of agriculture and small industries mentation of Rural Electrification Programme. and also to review the progress of implementa. Many State Electricity Boards complained tion of the schemes at fixed intervals. The that with the assigning of the construction and Coordination Committees at State level were -149- Lported to have been set up in Assam, Gujarat, lays; and (iii) interna resources of Sns Madhya Pradesh, Meghalaya, Rajasthan, Uttar includin institutional finances. In the Fifth Pradesh and West Bengal. Also, the district Plan and onwards additional funds for Rural level Coordination Committees were set up in Electrification were provided under the outlay all the States except Haryana, Punjab, Megha- for minimum needs Programme (MNP) and laya and Nagaland. In Punjab and Haryana, Revised Minimum Needs Programme instead of Coordination Committees, Agricul. (RMNP). Administration of funds under tural Production Committees and Public the Central Plan outlay (RE) and MNP and Relations and Grievances Committees were RMNP had rested with the Rural Electrifica- reported to be in existance. However, Coordi- tion Corporation while the funds tnder the nation Committees were not found to be remaining two sources were to be administered effective to the desired extent in getting RE by State Electricity Boards. The State schemes executed very expeditiously. Electricity Boards, therefore, planned two types 1.10 Punjab, Haryana and Kerala bad of schemes viz., (i) schemes to be financed out extended electricity to all their villages while of the SEBs' own resources ; and (ii) schemes Tamil Nadu was nearing this stage. The o e e w nser e E h- remaining States are scheduled to achieve gory (i) a ioo% electrific"tion by the end of the century. gradually reduced after the setting up of the Excepting a few, none of the States had REC achieved intensification of electrification to 1.13 It was observed that all States availed the desired level. Besides lack of coordi- to the maximum, the loan facility from REC. nation, the other reasons were high cost of Project Reports of RE schemes prepared by material and exorbitant rates of securities and SEbs for submission to REC for sanction of other charegs levied by State Electricity Boards. loan were in accordance with the set While formulating the schemes, the cost of procedure. It was, however, found that in works in many States were under estimated and some States, some of the scheme formulated physical targets were overrated so as to show in the initial years were executed without financial viability of the schemes and to get conducting actual surveys as required. For clearance of the sanction of loan. Such avoidance of any objection from REC and thus schemes could not be executed in full and to secure early sanction, some States like desired level of load development remained Punjab, Tamil Nadu, Madhya Pradesh, etc. unrealised. The uncertainty of power supply prepared schemes to show higher profitability during the last few years and consequent by underestimating the cost of constuc6o imposition of restrictions on release of certain works and projecting targets optimistically. types of connections, frequent load-shedding In such cases, sanctioned amount was adreostn schedule on an extensive scale and rosteringshdl onaexeivsce exhausted even before the completion of works, were reported to have dampened the demand thus delaying the release of services. In almost for power in rural areas. Inadequate promo- all the States, RE schemes were formulated tional efforts and non-availability of facilities without active consultation with the agencies for domestic connections acted as a deterrent to having or likely to have their development intensification of electrification. schemes in the scheme areas. Extension of RE 1.11 Preferential terms of assistance were schemes was in many cas sporadic leaving introduced by R.E.C. in the year 1970-71 in sometimes pockets of unlectrifed ilae respect of rural electrification schemes in the within the scheme area including adjoining backward areas, where it takes longr for villages with potential in no way less than that developmental schemes to become viable. In of the adjoining villages. the year 1972-73, a special programme of 1.14 For fixing the target of rural electri electrification of Harijan Bastis adjoining fication and for measuring the level of achieve. electrified villages was also taken up. Specific ment, the norm used s the percentage of allocations were made from 1975-76 for the electrification of Tribal areas byR.E.C. vlae lcrfe.Tenr sdi o elecrifiatin ofTrial aea y R..C.sophisticated one as it suffers from a number 1.12 Upto the end of the Fourth Plan, the of defects. The principal ones: (i) ambiguity sources to finance RE schemes were: and lack of uniformi- in the definitin of (i) Central Plan outlay; (ii) State Plan out village as adopted by p Registrde Gener of -150- tndia for Census purposes in t96r and 197r Tamil Nadu to z in Orissa. Tamil Nadu and by the Central Electricity Authority to with i z pumpsets per ioo hectares of gross determine the number of villages electrified; cropped arca is followed with a yawning and (ii) large variation in the size of villages. gap-Punjab (36.4), Harya ) Maha- There was also no suitable definition of an electrified village till 1971. It was further rashtra (27.1), Karnataka (25A), Andhra observed that despite the definition having been Pradesh (24.9) and Kerala (22-3). The prescribed by the Central Electricity Authority remaining States were below all-India level. (CEA) in 1971, most of the States continued 1 16 It was observed that no data was to follow their own definition. Because of lack of uniformity in definition of a village as suc4 and definition of an electrified village, number of rural industries set up since electri- there is difficulty in arriving at correct percen- fication. During the present study, the tage of villages electrified. Duplication in number of industrial units existing in the reporting of villages electrified was also noticed selected villages, before and after electrification, in some States where a revenue village in sme tats whre reenuevilage was collected from 397 villages located in 48 comprises the main village and a number of hamlets. On electrification of a hamlet subse- quent to that of the main village or vice versa, selected villages was 76 before electrification. electrification of an additional village was This had risen to 546 at the time of enquiry reported. Because of ambiguity and inconsis- giving about 3 industrial units for every two tency of definition of a village and of a village villages. Out 'f thes 546 industrial units in electrified adopted by the States for progress sample villages, 88 (x6%) were still operating reporting, inter-State comparison of progress of electrification may not be entirely realistic. Due to large variation in the size of villages 546 units 452 (82.8%) were agro-based, also, the percentage of villages electrified can 80 (14.6%) were non agro-based and 14 only be accepted as a rough indicator of the (2.6%) service units. Of 452 agro-bad trend. Since the beginning of the Annual 1 (43-%) and 179 (39.6%) were wheat Plans, the objective of rural electrification and rice mills respetivel known ularl shifted from electrification of villages to as y p o energisation of pumps/ tubewells. The Plan- ning Commission, in consultation with the the increase in number from 76 units to 546 States, Ministry of Power and Rural Electri- units may not be the exclusive effect of ecc- fication Corporation started giving State-wise tricity and the effect of time factor may be targets for energisation of tubewells/pumpscts more dominant. during the First Annual Plan (1966-67) and continued thereafter. During the Annual 1.17 After setting up of Rural Electri- Plans and the Fourth Plan, there was over- fication Corporation, State Electricity Boards achievement of targets by about 6i %and 7% started leaning heavily on REC for extension respectively at the all-India level. Targets were of rural electrification. During the Fourth under-achieved during the period 1974-79. Plan, the REC financed electrification of Under-achievement of targets indicated lack of interest on the part of the implementing 15x1% of the total villages electrified which agencies or faulty planning done at the time increased to 62.3% in the Fifth Plan (x974- of setting up of targets. Over-achievement of 78) and 5 in 1978-79. The position in targets to the extent of 2 to 4 times is also not regard to energisation of pumpsets was almost a happy sign. 6tuilar to that of electrification of villages. 1. 15 In almost all the States except North 1.18 On the basis of sample villages from Eastem States, the progress of energisation of where data was collected, connected load per pumpsets was more or less satifactory. About village works out to 96 kws; there was 21 pumpsets per xooo hectares of gross crop- variation in connected load among the States ped area were energised in 1979, at all-India level. Variation in the number of pumpsets varying from 4-17.7 kWS iA Tamil Nadu to malrgised between States is from iii in u1.T kws in Orissa. Immediately following -151- Iail Nadu were Kanra (311.7 kws), Gujarat about 4765 kwhs and 73 kwhs per month. (a8o.o kws) and Andhra Pradesh Of the total consumption, about 64% was (1304 kws). The States at the other extreme utilised for agriculture, 14% for industry and were Orissa (11.5 kws), Jammu & Kashmir 13% for domestic use. For commercial and (14.6 kws, Meghalaya (t6.5 Iws) and street lighting, only 4% and 2% respectively Uttar Pradesh (17.6 kws). were utilised. Total consumnption (kwh) per unit of connected load worked Out to 536 in 1976-77 for the entire rural system of electri. 1. 19 During 976-77 annual consumption fication. In other words, in that year load per village and per consumer was 57200 kwhs was utilised only for about 6.1% of the total and 881 kwhs respectively which works out to time available in the year. -152- SUMMARY AND SUGGESTIONS VOLUME II: EVALUATION OF RURAL ELECTRTFICATION PROGRAM PROGRAM EVALUATION ORGANIZATION, PLANNING COMMISSION, GOI NOVEMBER 1983 2.1 The present per capita commercial agriculturv, rural industry and employment in energy consumption in India is only about a rural areas. Thc important findings of the tenth of the global average reflecting the Report arc as tnder. country's low level of income and develop. ment. The consumption of electricity in rural Electrification of Villages India is a recent phenomenon and most of 2.4 State-wisc examination showcd that all this power is consumed by agriculturc sector the sclccd villgc% in Assam. Gujarat, which provides relief to farmers from the Haryana, Himachal Pridesh, Jamnu and gamble of monsoon. During the First Five Kashmir, Karnataka, Kerala, Meghalaya, Year Plan rural electrification was confined to Nagaland, Puniab and West Rengil were also a very limited number of states; in the subse- covered by various other dcvclofment quent plans, it made a rapid progress and by pu 1980, 2.50 lakh villages were electrified. improvement since rural electrification alone During the Sixth Plan a provision of Rs. 176 cannot dlivr th goods unless other develop- crores is made and an additional outlay of mcnt programmes and schemes ilso converge Rs. 285 crores is also provided for Special on the same villages for exploiting the poten- Project Agriculture (SPA) (REC's share), tials for development created by electrification Rural Cooperatives, Systems Improvement programmes. Schemes and Harijan Bastis. With the ground 2.5 The majority of scheduleJ castes/ water potential available, 25 lakh pumpsets scheduled tribes who form one-fourth of the will be energised during the Sixth Plan in r)pulation are below the poverty line and addition to nearly 40 lakh electric pumpsets cc in operation at the commencement of the Plan. e states a el r th tero o In addition, the target for village electrification o ic iat of r l Eectriiato has been fixed at one lakh villages. It is chems it backw r are trandcarias expected that before the end of the century all predominantly populated by scheduled castes the villages in the country would be electrified. a 2.2 Keeping in view the competing claims tion Corporation is also operating a special of the various sectors of the economy for the poam e a or thectry. o H re share of the limited resources available to the efotis ed one r the state oe country, continuous programmes like that of ments to provide electricity to villages where Rural Electrification would have to be evalua- scheduled castes and scheduled tribes popula- ted at regular intervals of time so that tion dominate and also to give more incen- inadequacies of planning and implementation tives to the wiaker sections so that benefits of can be identified and steps can be taken for electricitv are available to them. qualitative improvement in the formulation and implementation of the programme. 2.6 Due to long and cumbersome proce. dure, there was delay in getting oonnections 2.3 The report on the evaluation of Rural by the consumers and thereby they were put to Electrification Programme is being brought out lotofdifficulesandhardships.Itissuted in to vlume. Te VlumeI o thereprt, that efforts should be made to reduce the time in two volumes. The Volume I of the report, Ii oteeotyeup published in January, 1982, dealt with the minimum so that di Organisation, Growth and Coverage of the ment does not remain unutilised and the users Programme. The present report, presented are not put to any hardship due to dolay in as Volume I covers, among other things, getting connections. views and problems faced by the beneficiaries 2.7 Bill Collection Centres in 3 numbez of and non-beneficiaries and also throws some states particulirly in Bihar, Haryana. Madhya light on the impact of the programme ( Pradesh, Punjab, Rajasthan, Tamil Nadu, -153- Maharashtra and Wct Bengal were at a Electrificatin and Agrictutm distance of over 5 Kms. from the selected villages. It is suggested that there should be 1 ciaris who were idher ownin a sufficient number of Bill Collection Centrcs ectrio pumpsets or had a share in it, reported located within a district/zonc/elctricity sub- that they faced problems in submission of division in such a way that the rural consumers applications for getting electric connections, have not to travel long distances to pay clectri- procuring punipsts and other electric material, city bills. This would also help in reducing electric httings, ec. Some of the beneficiaries the arrears with the consumers cowards pa repoted difficulties even at the stage of sub- ment of electricity bills, and this may improve iission of applications for getting connection. financial position of the Statc Electricity These difficulties were in the nature of appli- Boards. cation forms not easily available and too much technical details were required in the forms. 2.8 It was observed that every sixth village Shortagc of pumpsets and other electric had reported about two interruptions per day. equipments was reported mainly from It is essential that the electricity department Karnataka, Madhya Pradesh and Maharashtra. should make concerted cffortq to reduce the In the states of Gujarat, Maharashtra, Punjab number of interruptions as it affects planning and Uttar Pradesh the services of licensed of operations, production and also cause dis- contractors were reported to be not available comfort to the users of clectricity at reasonable rates for undertaking wiring and 2.9 For large number of villages, irrespc-etent can tive o r re village iresece be mitigated if State Electricity Boards could avilbe ofl hod5Kis rmde village sz,rpi aiiis.r adopt more helpful attitude towards applicants available only beyond Kms. from the villagesofficial If repair facilities are located away from the procedure, it is recommended, should be villages, the equipment would remain idle even simplified and watchful eye need to be kept on for minor faults. It is, therefore, suggested that repair facilities should be made available ting the situation, so that their services are within a reasonable distance from the villages. made available to the consumers at reasonable A repair crew for two or three electrified rates. villages would be ideal so that the consumers of electricity need not travel long distances for 2.13 Motors of about 6 percent pumpsets repair facilities. This would require an were replaced either for higher or lower horse adequate number of trained persons for p carrying opt repair work in the villages. Rural poe.Idcingdeorewrofhe ca i V arwr n h ilgs ua motor, about 33 percent pumpset owners had Electrifcation Corporation had also sanctioned taken the decision based on their own epe a number of schemes during 1977-79 in almost rience and other 32.2percent were consultang all the states for training the linemen. More progressive cultivators and only 14.5 percent training facilities are needed in rural areas had consulted State Electricity Board officials. for training of repair crew. It is suggested that the respective State Electri- 2.10 Ground water availability is the most city Boads may make suitable arrangements important prerequisite for energisation of for providing advice to the farmers on techni- pumpsets.cal matters regarding the horse-power of the taken in only 71 (7*9rs villages outof motor etc., so that the farmers may invest ilag in lece for the516 s iagedOuO their meagre resources available to them 397 villages selected for the study.optimally. 2.11 The number of diesel purmpsets after electrification in the sample villages had 2.14 Beneficiaries of pumpsets (x8.9%) increased in almost all the states as farmers had switched over from diesel to electrici. prefer to go in for a diesel set in order to get The reasons for changing over were, electri- an assured supply of water for the crops. cally operated sets were more economical Nevertheless at the overall level, the share of (92.2%), convenient to operate (68.7%) and electric pumpsets in the total is much more scarcity of diesel ( About 40 r nt than that of diesel pumpsets; and if the un- of the selected bericiaries each from ujarat interrupted supply of electricity is assured, and Punjab reported to have retained their there will be l demand for diesel pumpsets. diesel pumpsets as stand by. -154- 2.15 After electrification the net area irri. Maharashtra (45-()"00, Uttar Pradesh gated i 1977-78 by the same beneficiaries was (45-2') and Rajasthan (307,). repored to have increased by 145.7 percent. Al%o, it was observed that there was decrease 2.21 The main reasons reloxted ior not in area irrigated by diesel pumpsets, wells and istalling an electric pumpset by ili non-owner by the other sources. users (17.870) were that thcir Lind holdings were citmer too small in sizv: or not 2.16 For smaller sizes of horse-power, ecc- con,.lidated. tric pumpsets were used more for own opera- tional holding; as the size of the horsepower 2.22 Only a few of the state governnents ncreased, the farmers were able to spare their had banned the sale of water froi elctri-lly pumpsets for irrigating the other farmer's land. operated pumpsets. Some State Ekcaricity lioards were of the view that sale of surplus 2.17 Of the 817 beneficiaries, 253 (31 water tentaMounts to resale of energy and beneficiaries availed loans for installation oi such a resale of energy was only an inormal electric pumpsets. Beneficiaries availing loans arrangement betwee4n fellow cultivators. The were mainly from Bihar, Madhya Pradesh, State Electricity Boards did not take a very Maharashtra, Rajasthan, Tamil Nadu and serious view of such resale provided the consu- West Bengal. Over 58 percent loans were mers were regular in payment as p:r meter taken from cooperative institutions and these reading. Cultivators who had opted for flat institutions were instrumental in providing rate system of payment were sometimes prohi- 6.3 percent of total amount of loan. bited to sell the water. Non-owner users of 2.18 It as os,.-ve tha 4oo pecen of electric pumpseti p urchased water for irriga- 2.18 It was obsved that 40.0 percent ofcultivator who own the beneficiaries reporting irrigation in kharif electric pumpsets. About 6o.8% beneficiaries and 50.9 percent in rabi, stated that untimely reported that the irrigation rates charged by and inadequate supply of power had adversely the fellow cultivators owning electric pump. affected the yield. sets as fair and the remaining 39.2 pe.cent 2.19 Abou 87percnt bnefciares onsidered as high. It is suggested that as a 2.19 About 87 percent beneficiaries repor- poicy for better utilisation of electricall ted interruptions in power supply. These Y interruptions caused damage to the agricultural oiera pu ti an t i ouethe all prodction, labourers remained either idle or atEc rcity the ctallte were diverted toments may relax the ban on sale of water and could not be employed. Similarly, 93.1 per- cent beneficiaries reported fluctuations in nourage those, particularly under-utlliscd voltage. Only 32 percent of beneficiaries pumpv.ts, to sell water at reasonable rates to reported that they were detecting fluctuations the neighbouring cultivators. in voltage by the use of voltmetres. Motors 2.23 Beneficiaries (7.7%) :!omentcd their of pumpsets (38.0%) got damaged due to land to the extent of 68.6 hectares which voltage fluctuations. Out of these, 68.7 worked out to an average of x.o9 hectares per percent were damaged once, 24.1 percent beneficiary. Of the land augmented, 547 twice, 6.1 percent thrice and i.i percent more percent was by purchase of land, 22.6 p:rcent than three times during 1977-78. It was by reclamation and 22.7 percent by other also observed that the percentage of break- means including bringing old fallows under downs lasting over five days was about 66 per- cultivation. About 75 Percent of the bene: cent due to defects in electrical fittings, motors, ficiaries who augmented land were having and the operation of pumpsets as the service operational holding of over 2 hectares. and the repair facilities were not available in 2.24 Water is one of the essential inputs the vicinity. the icinty.for high yielding variety crops which require 2.20 Two systems of power tariff are in scientific water management. With the the villages. It was observed that 90 percent availability of adequate irrigation facilities, the or more beneficiaries in most of the states were farmers are expected to use fertilizers ard take in favour of meter rate system of billing. other measures for improving agricultural However, flat rate system was preferred by the productivity. It was obered that 7 per- beneficiaries in the states of Punjab (92.1%), Cent beneficiaries owning electric pumpsets had -155- adopted Hi V seeds. The area covered under varinu% alricultural operations was ohscrved H1 l' %ecb showed substntial increase after at thc grcgitc level. doctrific"tion. In the stites of Tamd Nadu, Harya1a aild Himadhal Pradesh there w-s almoit no or negligible area under HYV seeds 28 Electricity plays a crucial rolc in the before electrification but adopted after clectri- "rowth of rural industries. Not only that it fication. Similarly, the incrcac in area under permits the growth of new industrics but also improved sceds after electrification. In allows the existing units which are using 1977-78 wxs also observcd to IV 53-.3 pwTccln conwntional source of nergy, to swten over at thc aggregate lcvcl. Tue kaiaced do5age to the use of clctric power, thereby, resulting of chemical fertiliscrs is ano:her inportaot in overall reduction in oPerati cost% and input in agriculture. The percentage increase airei The in in arca under chemical feriiizers N, P, K and that Id come up in rural areas were mostly. their various combinations after encrgization a-ro-bascd, b- idr a feiiirim-agro-43sed and of punipsets was reportcd in all the States. srvio.c unim These units were mainly att Increase in area under prophylactic and curi.t hakkici rice hullers, few oil cxpcllcrs, tive measures was also notical. khintasari, saw mills etc. By anu large, very 5litti industrial diversification in rurt o areas 2.5: ihteitouto fteUCo wis obscrvcJl. Some of those units were under- electricity in agriculture, the farmers get tilised due to power shortage. gradually acquainted to the use of mechanical devices in farming. The number of devices 2.29. There was no industrial unit in the owned by these beneficiaries also had increased selected villages of Nagaland. The percentage sbtantially. The trend towards the increase sb;tial.Tetndtwrstencae distribution of the various components 4f in use and possession of these mechanical investment per industrial Luit, at the ag te devices by the beneficiaries indicates that more cvel, worked out for land and ng as farmers are inclined for the adoption of 46.0 percent, plant, machinery and tols 45.0 modern appliances in cultivation for increasing p;rcent and the remaining 9.o percent towards productivity. installation charges, electric material, fittin 2..2&. 'After energisation, there was a change charges etc. Very few owners of the industri in the cropping pattern. The area under cereal units crops had increased by z8.6 percent after energisation of pumpsets especially under 2.3( Diesel was widely used as motive paddy (25.x ' and wheat (59.2%). The power before electrification. The reasons for increase in area under paddy cultivation was change over to electric power were mainly about seven fold in Punjab and under wheat stated as electricity economical, convenient to cultivation it was over hve-fold in Haryana operate and scarcity of diesel. Thetimelag and thre-fold in Rajasthan. The cultivators bctween the date of application and sanctinn of had switched on to more remunerative crops connection was less than 3 months for 71 per. like sugarcane, vegetables, plantations and cent of tie units and it was more than 3 months fruits after energisition and introduced changes for the remaining 29 percent of the units. It is in the cropping pattern. The yield rtes of therefore, suggested that the department and principal crops on irriga-ed lands also increased agencies responsible for sanctioning or affec- after electrification. ting the connections should make concerted efforts in providing service connectons with 2.27 To quantify th- effect of electrification minimum delay. Th industrial connctuons on rural economy is a very tricky issue since Of 10.7 percent units were also being used for the rural economy is a complex oine, affected other purposes like agriculture, commercial by various factors. Beneficiaries (79.7,%) nd domestic. At the aggregate level, 78.6 reported an increase in employment after percent units had motors o jo.o horse power energisation and the main reasons stated for and above. While deciding the horse power increase were, changes in cropping pattern, of unit, the owners of the industrial units increase in cropping intensity, augmentation of sought the advice from fellow industri unit holdings, etc. After electrification about ownen, State Electricity Board officialt, deallm io percent increase in mandays employed in of motors ek. The iuajority of units had -156- either changed or shown inclination to change decrease in wholetime employment after to lower horse power of their units due to electrification and it was attributed to the under-utilisation of the capacities of their growth of similar and smaller units, employing motors because of lack of demand as large only a few persons, and their limited coverage. number of similar type of units had sprung However, the part-time employment per unit up in the vicinity. remained constant even after electrification. 2.31 The owners of the industrial units 2.35 It is suggested that there is need for opined that due to interruptions in power divcrsificaion of industries and providing supply the industrial production as well as necessary intra-structural facilities to te entrc. employment of labour was affected. Due to preneurs in order to develop thc rural fluctuations in voltage, the motors of 21.9 industries in an organised manner. Concerted percent units got damaged. These difficulties efforts are to be made by the State Electricity resulted in under-utilisation of the production Boards to ensure timely, adequate and un. capacity of the units. The other reasons for interrupted supply of power to the rural under-utilisation were inadequate demand for industries for their speedy growth. produce/services, stiff competition from similar units, frequent breakdowns of power, Street lighting non-availability of repair facilities and spare 2.36 People in the villa are interested in parts in the nearby areas, besides financial street lighting as it provides sifety, free and difficulties. easy movement in the night ; however, it was 2.32 The owners of 83.4 percent o observed that they were seldom willing to industrial units had set up the units in the pay their share of energy consumption charges. villages as electricity was available in these In most of the Sues, street lighting was villages. The initial problems faced by 28.2 rovided at the request of Gram Panchaat, percen units in setting up of the industrial however, the main problem was the financial percnt uitsin sttin upinabilities of the local bodies to meet the units were that application forms not available, "recurrmn exploitation by licensed contractors as to much g exter oflectcith co s details were re uired in the forms, in different to a Ttobem was thatwthenbule attitude of the SEB/Department officials, bulb. demand for illegal gratification, official proce- dure oumbersome, sanction of connections 2.37 In the sample villages, street lighti help-up for power shortage etc. The problems was available in 150 villages (37.8%) o faced by 62.0 percent units in the working of 14 Out Of j9 States. There was no street the industrial units were in the nature of Iighti in too sample villages of Haryana, frequent breakdowns, power shortage, shortage M alPradesh, J mmu & Kashmir, Uttr of raw material, spare parts and repair faci- Pradesh and West Bengal. Percentage of lities not available and financial difficulties. villages having street lights in all the strees 2.33 Almost all the units selected, bad reported that the tariff rates were on high side. 2.38 Out Of 150 villages which had Stre Meter system of billing was preferred by lighting, u18 villages were with streets 96.2 percent of owners of the units as the pay- redominantly inhabited by Scheduled Castes/ ment of charges was based on actual consump- Sheduled Tribes. Of these, tot villages tion of power. About 5o percent of the (85.6!) reported street lightin in all lbe owners of the units were of the view that streets. In 76.8 percent of change in tariff rates had a parallel effect on lights were maintained by Panchtyats, and 8.5 the pricing pattern of the products. About percent villages by Panchayats and public 75 percent units were of the view that there contributions. Street lighting in Harijan Basti would be no effect on level of production and areas was also maintained by Panchayats in expansion programmes. 83.5 precent villages. 2.34 Of the units surveyed, 87 percent had 2.39 Expenditure on street ihting per started after electrification of the villages, bulb per year was above is. s in 855 per where these units were located. Employment CnC Of 124 villages for which such data were per unit at the aggregate level, showed a slight available. Problem faced an the operation and -157- maintenance of street lights in the villages life style of rural masscs. D s affecti were generally related to breaking and stealing agriulture and industries, it has also change of bulbs, fusing of bulbs frequently, paucity the pattern of working of commet-lal e,ta- of funds for payment of electricity charges. blishints. The owners Of 219 seleCted commercial units had switched over to elctrl- 2.40 Of 247 villages which were not provi- city and the reasons given were, cotvcnent to ded with street lighting, 2.12 (85.8%) use, more economical, better display of villages had not made proposal for street ligfts. Eroducts. longcr working hours, non-availa- The main reasons were that the financial posi- ility of kcrosenc oil etc. Before electrifica- tion of panchayats was unsound, people not tion. 64.4 percent of t!Csc establishment$ were inclined favourably for street lighting, expen- existing in thc villages. After electrification, diture on replacement of- bulbs heavy, etc. thc rirccotagc increase in establishment and nuniber of persons cmploycd was 55.3 percent 2.41 Out of 1388 beneficiaries, 840 and 58.4 percent respectively. 1owevcr, the (6o.5%) belon to the villages which had average employment per cstablishnint street lights and the remainin(y 548 to the stretliht ad hereaiin 58 o he remained constant at 1.7 persons over the two villages which had no street lighting. Out of periods. The increase in sales was also 840 beneficiaries, 793 (83.70) reported that reported by 45.2 percent owners of the.c units the streets where they lived had street lights ofter electrification. and the remaining 137 (16.3%) had no street lights in the streets inhabited by them. It was 2.45 bf the selected 1388 domestic bent. reported by 49 (35.8%) out of 137 beneficia- ficiarics, 98.2 percent had their own premises. ries that they would be willing to contribute About 73 percent of the rooms in the houses towards electricity consumption and mainte- occupied by the beneficiaries were 'pucca'. nance charges if the street lighting was provi- The initial expenditure for domestic connection ded in the streets where they live. The at the aggregate level worked out to Rs. 341/- remaining beneficiaries were indiferent or per beneficiary. This amount varied consi. unwilling to contribute towards these charges. derably from state to state. Higher cost and Out of 548 beneficiaries (which belong to the scarcity of the material used for internal villages which had no street ligbting), 317 wiring and service connections was reported (57.8%) were willing to pay for street lighting from Assam and Meghalaya. It was also if only it was provided in the streets where reported from Meghalaya that contractors were they live. charging exhorbitantly for internal fittings 2.42 Street lighting in vilages has resultedthat the 2.42 Stret ighingin vjlaes as esuted State Electricity Boards in such States should in a large range of benefits-about 90 percent undertake the work of providing internal villages had reported better security, reduced wiring to all prospective consumers and recover chances of crime, improvement in the quality the cost in easy instalments. Also due to of life. As far as beneficiaries were concerned, large number of kutcha houses still existing about 81 percent reported more safety, in the villages, which are unsuitable for electri- 75 percent reported convenient to move at fication due to risk of fire, the Boards should night, 38 percent lesser number of thefts consider providing conduit pipes at subsidised because of street lighting. Only a small per- rates to encourage domestic consumers to come centage of beneficiaries reported disturbances forward. at night. 2.46 About 34.1 percent beneficiarie were 2.43 It is suggested that the State Govern- using electricity for other purposes like radio ments should augment the resources of the (64.6*1) and fan (59.1*/). The use of local bodies for meeting expenditure on street electricity in villages for refrigerators, heating/ lighting, keeping in view the importance of cooling, ironing, water supply etc. was stil social and cultural changes that it extends to restrictive. Electrification also yields a large the villagers. number of indirect benefits to the individuals Changesand to the community. These indirect bene. Chanes n Rual ifefits were in the nature of gZainful activities 2.44 Electricity is powerful instrument in carried out by the beneficiaries such as changing socio-economic life in rural areas marketing/shopping late in the evening, s and is supposed to bring basic changes in the ning and knitting late at home, working te -158- ill tl fi(k attinding to houehold work l.atc 2.50 (If the I non I,- Il( Owning inl the niht. reading.studi1% upto late h10urs dt, pipilt1w ( pciient ruported that (tc. There was a con-idcrabic increasc inl would like to m-iich ovvr t. fletric reading hbits rep)rtecd h% (.4 percent bw- 'Tr. and 49 (14.1 ItC.'dV ;-lllllicd Ici.u I I. Iincrcae inl cltertainimnWitt, (48.0 ),8-1)' powcr coicttiin, but thlir ipcations P.1nh.vat group imeetings .o .), pastime VC1C Pendino di%posal "Atl thc Statc Vectri. (32.8 , sports (21.t Boards for over scvchao neths. The (I I.7 .) was reported after electrification. remaining non-beneficiaries re rted that Rural cictrification has also played an impor- tily could not switch over to c Varic power tant role in reducing the drudgry of women duc to lack of financc, irrigation already folk as they need not perform the unpleaiant Provided by ocher sources, fragmented jobs like cleaning kerosene lantcrns/earthern holding", frt4icnt breakdowns in powr I'ihti, pouring kerosene and working undcr supply etc. inade-Iuate lighting conditions etc. Improve. ment in security (80.80) and reduction in 2 O 123 non-beneficiaries having crime (60.4%) were reported by the bIc. l ill for irrigation. 6t.8 percent rported ficiaries. It has also resulted in reduction of that they would lik to install pumpsets on migration of youth from rural areas. their wdls. They were already aware of the advantag~es h"k assured and timely, irrigation 2.47 Electrification has broadened the base ti of economic activities h,* creating n-re cmployment avenues and thereby changed the Put they had expressed iir diculties for socialoant not installing a punipset on their irrigation socil ad cltual ive ofthe~wO.C.souices due to lack of finance (77.60%). Supply pont far' off (21.10/%), Well no Non-users of electricity suitable or installation (r.8%), fragmented 2.44 'For exploring the reawns tor not holdings (9.2%) etc. switching over to electric power for agricul- 2.52... Of the 176 non-beneficiaries having ture, industrial, commercial and domestic we, irrigated land but not owning a well/diel in the villages where electricity was available, fumPset, 58.0 Percent had expressed their a sample of 2120 non-beneficiaries from the willingness to own an independent source o above four categories was selected. From the irrigation and 64.7 percent of them would like background information of both the selected to install a pumpset on the source. Majority beneficiaries and non-beneficiaries, it was of them Preferred electric numosets. Ile observed that both education and inc-;mie levels remaining non-beneficiaries had not inclina- of the non-beneficiarics of electricity were tion to own a source due to reasons like much lower than that of the beneficiaries. a%ailable facilities satisfactory, change too Cultivation was the principal occup:tion of coitlv, holding too small and fragmented and 57.5 percent of non-beneficiaries as against land not suitable for irrigation. 70.2 percent beneficiaries. Similarly, labour was the occupation of 21.1 percent non- 2.53 - The non-beneficiaries with unirrigated beneficiaries as against 2.2 percent of land (;r5) had their holdings fragmented beneficiaries. too. The reasons reported for not going in for irrigation were irrigation facility not 2.49 The majority of non-beneficiaries avail;hlc (58.7%), holding too smal (85.4%) could not switch over to electricity (32-7-), not in position to pay irrigation for ny urpse ue t lak o fianc charges (16.8%), ground water table too low for any purpose due to lack of finance 065'anriflldeut (71.0), house not suitable (28.30) and supply point far off ( .44). For eliciting 2.54 About two-thirds of tie industrial the views and problems faced, the agricultural units, which could run on electric power, had non-beneficiaries were further categorised into indicated their inclination to change over to four groups : (i) owning diesel pumpsets: electricity due to the advantages likt less (ii) owning well; (iii) using other sources of operating costs (8o.oo/-), coavvnicaf to irrigation; and (iv) with unirrigated land operate (75.00/0 and no more pr,.,,'m of holding only. diesel shortage (550%). The owners of the remaining industrial units were of the view lack of finance, not advantageous to the esta- that change over to electricity was not being blishment, premises not suigable and too costly advantageous to their units. to adopt. 2.56 Of the non-beneficiiries of electricity 2.55 The owners of 46.o percent of com- for domestic Purposes, 45.6 percent had shown mercial establishments bad expressed theit their desire to the use of electricity and 1 3.9 willingness to change over to electricity because percent of them had applied for electric con- of its convenience in use (60.8%'), economical nection. Some respondents expressed diffi. (48.6%) and would help in increasing the culties due to indifferent attitude of the officials working hours (40.5%). Of these, 12.2 of the department and also found the official percent units had applied for electric connec- procedure as too cumbersome. The remaining tion and their applications were pending with non-beneficiaries who did not wish to change the electricity department for several months. over to electricity had reported difficulties like The other owners of the units did not show lack of finance, premises not suitable, costly interest in change over to electricity due to to adopt etc.