India - Talcher Thermal Power Project

Document of The World Bank FOR OFFICIAL USE ONLY 0./ A=l Report No. P-4575-IN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN USS375 MILLION TO INDIA FOR THE TALCHER THERMAL POWER PROJECT May 28, 1987 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 Worid Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Rupees (Rs) Rs 1.00 = Paise 100 US$1.00 Rs 13.00 Rs 1.00 = US$0.0769 Rs 1,000,000 = US$76,923 MEASURES AND EQUIVALENTS 1 Kilometer (km) 1,000 meLers (m) = 0.6214 miles (mi) 1 Meter (m) = 39.37 inches (in) 1 Cubic Meter (i3) = 1.31 cubic yard (cu yd) = 35.35 cubic feet (cu ft) 1 Thousand Cubic Meter (MCM) = 1,000 cubic meters 1 Thousand Cubic Meter (MCM) = 1,000 cubic meter 1 Barrel (Bbl) = 0.159 cubic meter 1 Normal Cubic Meter = 37.32 Standard Cubic Feet (SCF) of Natural Gas (Nm3) 1 Ton (t) 1,000 kilograms (kg) = 2,200 pounds (lbs) 1 Metric Ton of Oil = 7.60 barrels (39 API) 1 Kilocalorie (kcal) = 3.97 British Thermal units (BTU) 1 Kilovolt (kV) 1,000 volts (V) 1 Kilovolt ampere (kVA) = 1,000 volt-amperes (VA) 1 Megawatt (MW) 1,000 kilowatts (kW) = 1 million watts 1 Kilowatt-hour (kWh) 1,000 watt-hours 1 Megawatt-hour (MWh) 1,000 kilowatt-hours 1 Gigawatt-hour (GWh) 1,000,000 kilowatt-hours 1 Ton of Oil Equivalent (toe)= 10 million kilocalories ABBREVIATIONS AND ACRONYMS CEA - Central Electricity Authority GOI - Government of India EDF - Electricite de France ICB - International Competitive Bidding IDC - Interest During Construction LCB - Local Competitive Bidding LSHS - Low Sulphur Heavy Stock LPG - Liquefied Petroleum Gas LRMC - Long Run Marginal Cost MMCMD - Million Cubic Meter per Day MOU - Memorandum of Understanding NGL - Natural Gas Liquids NHPC - National Hydro Electric Power Corporation, Ltd. NPP - National Power Plan NREB - Northern Region Electricity Board NTPC - National Thermal Power Corporation, Ltd. PFC - Power Finance Corporation, Ltd. PIB - Public Investment Board REB - Regional Electricity Board REC - Rural Electrification Corporation SEB - State Electricity Board STG - Steam Turbo-Generator Beneficiary's financial year ends March 31  FOR OFFICIAL USE ONLY INDIA TALCHER THERMAL POWER PROJECT Loan and Project Summary Borrower : India, acting by its President. Beneficiary : National Thermal Power Corporation, Ltd. Amount : US$375 million equivalent. Terms : Repayment over 20 years, including 5 years grace, at the applicable rate of interest. Onlending Terms : Government of India (GOI) to the National Thermal Power Corporation, Ltd., an amount of US$375 million, repayment over 20 years, including five years grace, at an interest rate of not less than 14Z per annum. GOI will bear the foreign exchange and interest rate risks. Financing Plan : GOI/External Borrowing $ 657.3 million NTPC $ 343.0 million IBRD $ 375.0 million TOTAL $1,375.3 million Economic Rate of Return: 10% Staff Appraisal Report : No. 6402-IN, Kay 28, 1987 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INDIA FOR THE TALCHER THERMAL POWER PROJECT 1. The following report on a proposed loan to India for US$375.0 million is submitted for approval. The proposed loan would be at the standard IBRD variable interest rate and would be repayable over 20 years incLuding 5 years grace. It would assist in financing a coal-fired power station in the State of Orissa and a satellite communications network for the National Thermal Power Corporation (NTPC). 2. Background. India continues to face severe power shortages and the Government of India (GOI)'s strategy for the power subsector, outlined in the Seventh Plan, calls for the accelerated exploitation of indigenous energy resources to alleviate these shortages. The Eastern Region, comprising Bihar, West Bengal and Orissa, three of the poorest states in India, con- tinues to suffer from chronic shortages of power. This has led to substan- tial pressures to postpone maintenance of equipment in order to keep plants in operation. Consequently, plant availability is now substantially lower than in any other region in India. The Central Electricity Authority (CEA) has prepared a rehabilitation program to improve the efficiency and increase the output of existing power plants and this is currently being implemented. However, despite this program, the Eastern Region still needs substantial new generating capacity to meet the forecast demand ior electricity. The proposed Talcher thermal power station is the first phase of a 3,aOO MW power generation complex, which forms part of the least cost power development plan for the Eastern Region. The power station would utilize coal from the exten- sive reserves of the Talcher coalfield, which will be cheap to exploit but which, in common with many other coals in India, have a rather high and abrasive ash content. The executing agency for the project would be the National Thermal Power Corporation (NTPC), which is owned by GOI and would therefore be less subject than State Electricity Boards to local .ressures to maximise present generation at the expense of future plant performance. NTPC's power stations and lines, both existing and planned, are generally in remote areas which have inadequate communication facilities. NTPC's project implementation and operational capabilities are seriously hampered by this constraint. In order to address this problem the proposed Project includes a satellite-based data processing and communications network. 3. Project Objectives. The principal objectives of the proposed Project are to: a} increase power generation capacity and hence alleviate power shortages in the Eastern Region; (b) introduce to India the technology of "tower boilers" which are suited to the abrasive high ash coals prevalent in India; and (c) improve the operational performance of NTPC by providing on-line communications between NTPC's power stations and its headquarters in Delhi.  -2- 4. Project Description. The proposed Project comprises: (a) the con- struction of the first stage (2x500 MW) of a 3,000 MW coal-fired steam power station in Talcher, Orissa, including boilers, turbogenerators, electrical and mechanical auxiliaries, associated civil works and switchyard; (b) con- struction of about 230 km of double circuit 400-kV transmission lines to link the power station with the Eastern Region grid at Rengali and Rourkela and 40 km of 220-kY transmission line for the start-up of the power station; (c) installation of the earth stations, microwave links and data processing equipment for a satellite-based data communications network connecting NTPC's corporate offices in Delhi with its power stations; and (d) consulting serv- ices to review the engineering of the proposed power station. The total cost of the Project is estimated at US$1,375.3 million equivalent, with a foreign exchange component of US$524.2 million (38%). A breakdown of costs, the financing plan and retroactive financing arrangements are shown in Schedule A. Amounts and methods of procurement and disbursement, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of the Bank Group operations in India are given in Schedules C and D, respectively. A map, IBRD No. 19618R, is attached. The Staff Appraisal Report, No. 6402-IN dated May 28, 1987, is being distributed separately. 5. Rationale for Bank Involvement. The power plant is a component of the least-cost power expansion plan for the Eastern Region and its construc- tion by NTPC is consistent with the Bank's sector development strategy of supporting the expansion of the central sector in parallel with assistance to individual SEBs. Through its participation in the project, the Bank would: (a) help to improve the power supply to the Eastern Region, one of the poorest areas in India and one whose industrial base is currently being crippled by power shortages; (b) assist India to accelerate exploitation of cheap indigenous coal reserves; (c) assist in the transfer of technology through the introduction of tower boilers; and (d) support improvements in the operational performance of NTPC through the provision of on-line com- munications between NTPC's power stations and its headquarters in Delhi. In addition the Bank has already, through involvement in this Project, helped to stimulate an effective mechanism for recovery of NTPC's receivables, i.e. diversion of central assistance to the states. 6. Agreed Actions. The Government has agreed that: (a) signature of a subsidiary loan agreement with, specifying a minimum interest rate of 14Z and repayment over 20 years including 5 years grace, would be a condition of effectiveness; (b) clearance of the Department of the Environment would be a condition of effectiveness; (c) absence of Department of Forests and Wildlife clearance for the transmission lines after December 31, 1989 would be an event of suspension. NTPC has agreed to: (a) provide the Bank with a satis- factory resettlement plan by December 31, 1987, and, thereafter, ensure the timely execution of the plan; (b) enter into a contract for the supply of coal to proposed power station, at least one year prior to the first unit's  -3- operation; the contract would be subject to prior review and comment by the Bank; (c) complete route surveys for the transmission lines and submit an application for forest clearance by March 31, 1988; (d) maintain its accounts receivable at a level not exceeding an amount equivalent to the proceeds of its power sales for the two preceding months; (e) achieve annual rates of return on unrevalued net assets in operation of not less than 7% through 1989/90, 9.5% in 1990/91 through 1994/95, and thereafter annual rates of return it levels satisfactory to ensure the financial viability of NTPC; and (f) submit to the Bank audited financial statements within seven months of the end of the financial year. 7. Justification. The proposed Project is justified as part of the least-cost plan of power supply to the Eastern Region. The economic rate of return of the expansion program for the Eastern Region, of which the the proposed Project is an integral part, is about 10% according to benefits based on incremental revenues at retail tariffs and quantifiable industrial and agricultural consumer' surplus. The actual rate of return would be considerably higher if domestic consumer surplus and other external benefits were taken into consideration. 8. Risks. No unusual risks are foreseen in the execution of the Project. Risk of damage due to fire, explosion, and other accidents would be covered by the respective contractors dtiring the construction phase, and, after commissioning, by NTPC through its insurance policies. Technical risks would be minimized by the use of consultants where NTPC has inadequate experience e.g. in the review of the design of tower boilers. 9. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve it. Barber B. Conable President Attachments Washington, D.C. May 28, 1987  I Schedule A INDIA TALCHER THERMAL POWER PROJECT Estimated Cost: a/ Local Foreign Total