Sri Lanka - Power Distribution and Transmission Project

Document of The World Bank FOR OFFICIAL USE ONLY Repwt No. 7192-CE STAFF APPRAISAL REPORT SRI LANKA POWER DISTRIBUTION AND TRANSMISSION PROJECT June 2, '988 Industry and Energy Division Country Department I Asia Region This document bas a restricted distribution and may be used by recipients only in the performance of * . * 2 2 a * I - ''  SRI LANKA POWER DISTRIBUTION AND TRANSMISSION PROJECT CURRENCY EQUIVALENTS US$1.0 = SL Rs 32.0 SL Rs 1.0 = US$0.031 MEASURES AND EQUIVALENT 1 kilometer (km) = 0.6214 mile 1 megavolt ampere (MVA) = 1 million volt amperes - 1,000 kilovolt amperes 1 kilowatt (kW) = 1,000 watts 1 megawatt (MW) 1 million watts = 1,000 kilowatts 1 kilowatt hour (kWh) = 1,000 watt hours 1 gigawatt hour (GWh) = 1 million kilowatt hours kgoe = kilogram oil equivalent toe = ton oil equivalent ABBREVIATIONS AND ACRONYMS ADB = Asian Development Bank AMP = Accelerated Mahaweli Program CEB = Ceylon Electricity Board DDRB = Distribution Development and Rehabilitation Branch ECT = Energy Coordinating Team EIRR = Economic Internal Rate of Return ESMAP = Energy Sector Management Assistance Program GOSL = Government of Sri Lanka GTZ = German Agency for Technical Cooperation ICB = International Competitive Bidding KGMP = Kalu Ganga Multipurpose Project LECO = Lanka Electricity Company (Private) Limited LRC = L oss Reduction Cell LRMC = Long Run Marginal Cost LV = Low Voltage MIS = Management Information System MPE = Ministry of Power and Energy MV = Medium Voltage ODA = Overseas Development Administration (UK) USAID = United States Agency for Iaternational Development WTP = Willingness to Pay CEB PISCAL YEAR January 1 - December 31  aE. JW ., A. tIA , L.I SRI LANKA POWER DISTRIBUTION AND TRANSMISSION PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. . ENERY SECTOR ..........................................1 A. Energy Sector Organization ............................. 1 B. Energy Resources and Supply.......... 2 C. Energy Pricing. ............ ........... 3 D. Energy Consumption.......... 4 E. GOSL's Energy Sector Strategy ........ ..4 F. The Bank Group's Involvement in the Energy Sector 4 C. The Bank Croup's Strategy in the Power Subsector ...... 5 II. THE IMPLEMENTING AGENCY . .. ...... .. ....... . 6 A. Organization of CEB .................. .. 6 B. CEB Staffing and Training. 8 C. System Losses . . 10 D. Existing Facilities .......... . . 11 E. Generation Planning and Development. . 11 F. Transmission Planning and Development . . . 12 C. Distribution Planning and Development. 12 H. Consumer Relations Unit. ...... .... . .. ...... 13 III. THE PROJECT. ... o..*. ... .. ............ 14 A. Project Features ........ . ... .... .......... 14 Project Setting . . ...... . ........ 14 Project Objectives ....... ............ 14 Project Description . ... ................. 15 Project Costs *....*.*. 15 Project Financing .. ... ........ ..... 16 Onlending Terms ......... . ...... 17 Project Engineering and Consulting Services 17 Kalu Ganga Multipurpose Project (KGMP) 18 B. Project Implementation . 18 C. Procurement .... ..... .....19 D. Disbursement ........... O... .... .. .............. . 21 E. Project Monitoring ............... ....... .. . 21 F. Environmental Effects . 22 C. Risk ........22 This report is based on the findings of missions to Sri Lanka in December 1987- February 1988. Mission members included M.C. Webb ( Senior Economist), L. Gazoni (Senior Power Engineer), I. Aleem (Economist), P. Helmink (Operations Assistant) and H. Wu (Consultant, Financial Analyst). 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.  -ii- Page No. IV. FINANCES ................... 23 A. Background 23 Accounting Systems and ut.anization ......23 Audit Arrangements ......23 Fixed Assets Accounting 24 Insurance Arrangements 24 B. Past Results and Present Position 25 C. Future Financial Performance 27 Investment Program .... 27 Financing Plan .... 28 Financial Projections 29 D. Other Matters ..........31 Accounts Receivable 31 Tariff Study 32 Transfer of Licensees' Assets to CEB 32 V. JUSTIFICATION ................ 4 ..4.44444..............*. 34 A. Electricity Demand Forecast 34 B. Least Cost Alternative 35 C. Economic Internal Rate of Return 35 D. Justification for Bank Group Involvement 36 VI. AGREEMENTS AND RECOMMENDATION . ..................38  -lll- Page No. ANNEXES 1.1 Energy Sector Organization Chart .... 1.2 Analysis of Licensees' Distribution Systems 2.1 CEB's Organization Chart ................. e0@**6. ......... 2.2 Staffing Implications of CEB Takeover of Licensees ........ 2.3 Details of Generation and Plant Capacities 1976-1987 ...... 2.4 Energy and Capacity Balances 1976-1987 2.5 Number of Consumers and Revenue 1976-1987 ................. 2.6 CEB's Least Cost Generation Expansion Plan, 1988-2002 ..... 2.7 Forecast Power and Energy Balances 1988-2002 .......... 3.1 Project Description ................................ 3.2 Detailed Cost Estimates .......................... 3.3 Project Implementation Schedule 3.4 Disbursement Profile ............. 4.1 CEB Historical Financial Performance 4.2 CEB Projected Financial Performance 4.3 Assumptions used in the Financial Projections 4.4 CEB's 1988 Tariffs 5.1 Planning Forecast for Electricity Sales, 1987-2002 5.2 Forecast Number of Accounts and Average Consumption, 1987-2002 ................................. 5.3 Economic Internal Rate of Return 6.1 Data and Documents available in Project File MAPS IBRD Nos. 20551 and 20860.  -iv- SRI LANKA POWER DISTRIBUTION AND TRANSMISSION PROJECT Credit and Project Summary Borrower: Democratic Socialist Republic of Sri Lanka Beneficiary: Ceylon Electricity Board (CEB) Amount: SDR 29.2 million (US$40.5 million equivalent) Terms: Standard, with 40 years maturity Onlending Terms: The Government of Sri Lanka (GOSL) would relend SDR 15.1 million (US$20.9 million) out of the proceeds of the credit to CEB at an interest rate of ten percent per annum, repayable over 20 years, including a five-year grace period; the remaining SDR 14.1 million (US$19.6 million) would be relent to CEB for financing the distribution component of the proposed project at an interest rate of ten percent per annum, repayable over 25 years, including seven years of grace. The Borrower would bear the foreign exchange risk in accordance with the provisions of the 1969 CEB Act. Project Description: The principal objectives of the Project are to ration- alize the organization of power distribution in Sri Lanka and reduce system losses in distribution systems presently managed by licensees to economic levels. It would also expand the transmission system to meet projected demand at least cost and strengthen CEB. The Project consists of a five-year time slice of CEB's program to take over licensees' power dis- tribution systems and rehabilitate and expand those systems, and the development of its transmission system. It would comprise about 230 km of 132-kV lines, the island wide rehabilitation and extension of low voltage distribution networks, and technical assistance to CEB. Risks: Although the proposed Project involves a major institutional reorganization, no unusual risks are foreseen. The major risk concerns possible delays in the passage of the legislation enabling CEB to take over licensees' distribution systems. This risk would be minimized by the passage of the required legisla- tion before credit effectiveness.  Local Foreign Total - --------US$ million----------- Estimated Cost: A. Distribution Rehabilitation 23.8 17.3 41.1 B. Transmission System Expansion 13.4 24.3 37.7 C. Decentralized Computerized Billing System 0.2 1.8 2.0 D. Consultancy, Project Administration and Training 3.8 3.4 7.2 E. Kalu Ganga Studies 0.6 2.3 2.9 Total Base Costs 41.8 49.1 90.9 Physical Contingencies 4.2 4.9 9.1 Price Contingencies 6.0 7.0 13.0 Total Project Cost a/ 52.0 61.0 113.0 Financing Plan : IDA 4.5 36.0 40.5 Cofinancing b/ 6.0 25.0 31.0 CEB 41.5 - 41.5 52.0 61.0 113.0 Estimated Disbursements IDA FY89 FY90 FY91 FY92 FY93 FY94 FY95