Sri Lanka - Second Power Distribution and Transmission Project

c<~ aZ- Z' ?7 --7 Document of The World Bank FOR OFFICIAL l)SE ONLY 1:*, 1 > i a : ,1' , m ; a ',1 : iReport No. 9525-CE STAFF APPRAISAL REPORT SRI LANKA SECOND POWER DISTRIBUTION AND TRANSMISSION PROJECT JUNE 28, 1991 Industry and Energy Division Country Department I Asia Region This document has a restricted distribution and may be used by recipients only in tlre performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (As of May 22, 1991) Currncy Unit - Sri Lankan Rupee (SLRs) US$1.0 - SLRs 41.0 SLRs 1.0 - US$0.024 MEASURES AND EQUIVALENTS 1 kilometer (km) - 0.6214 mile 1 megavolt-ampere (MVA) - 1 million volt-amperes - 1,000 kilovolt-amperes I megavolt-ampere reactive (MVAR) - 1 million volt-amperes reactive 1 kilowatt (kW) - 1,000 watts 1 megaVatt (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 PRINCIPAL ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank AGSL - Auditor General of Sri Lanka AMP - Accelerated Mahaweli Program CEB - Ceylon Electricity Board DMP - Distribution Master Plan ERR - Economic Rate of Return GOSL Government of Sri Lanka GTZ Gesellshaft fur Techn4sche Zusammenarbeit ICB - International Competi .ve Bidding LECO Lanka Electricity Company (Private) Limited LRMC - Long Run Marginal Cost MIS Management Information System MLIMD Ministry of Lands, Irrigation, and Mahaweli Development MPE Ministry of Power and Energy ODA - Overseas Development Administration (UK) USAID - United States Agency for International Development WTP - Willingness to Pay FISCAL YEARS GOSL January 1 - December 31 CEB January 1 - December 31  FOR OFFICAL USE ONLY SRI IN CREP SMM IROJECT-SH Borrowers Democratic Socialiot Republic of Sri Lanka Beneficiary: Ceylon Electricity Board (CEB) Amount: SDR 37.5 million (US$50.0 milliou equivalent) I Standard, with 40 years aturity Onlendinz Terms: The Government of Sri Lanka (GOSL) would onlend the proceeds of tho credit to CEB at an interest rate of 12.5Z por annum, repayable over 20 years, including a five-year grace period. O OSL would bear the foreign exchange risk. Prleet De42Sciions The principal objectives of the Project are to support further rationalization of the organization of power distribution in Sri Lanka to reduce paver system losses and provide additional transmission capacity to help meot projected demand at least cost. The Project would also assist in the preparation of selected hydropower project and CEB's further institutional development. The Project would financet (a) rehabilitation and expansion of distribution systems to be taken over by CEB during 1992-95; (b) a slica of CEB's loast-cost trans- mission investments comprising the construction of about 152 km of 220-kV line, about 45 km of 132-kV lines and related substations; and (c) technical assistance to CEB. Benefits and Riaks: Benefits would include increased availability and improved quality of power supply and resourea savings from reduction of system losses. The institutional support would improve CEB's performance as an effective and efficient utility. The Project would a,.so contribute to the development of the remaining hydropower potential in an environmentally sound manner. The Project would not pose any special technical risks. The potential risks for the Project are delays in procurement and shortfalls in CEB's project management capacity. To minimize these risks, advance procurement actions have been initiated and adequate technical assistance is provided to assist CEi in the implementation and construction supervision of transmission works. Distribution rehabilitation in the Northern province faces risk of implementation delays if civil unrest in the area continues. This risk is considered limited and will be addressed through the agreed procurement and disbursement arrangements. 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.  - il - Estimated Costsa a/ Local Poreian Total -(US$ Million) ------- Distribution Rehabilitation 13.4 9.2 22.6 Transmission System Expansion 16.6 21.6 38.2 Consulting Services 0.4 3.9 4.3 Training 0.1 , 0.60. Base Cost 30.5 35.3 65.8 Physical Contingencies 3.0 3.5 6.5 Price Contingencies 3.0 3.6.7 Total Project Cost 36.5 42.5 79.0 Financing Plan: Local Foreign Total ------- (US$ Million) - IDA 7.5 42.5 50.0 CEB 29.0 - 29.0 Total 36.5 42.5 79.0 Estimated IDA Disbursements: - US$ Million ----------- IDA FY 92 93 94 5 96 97 98 Annual 4.0 9.0 12.2 12.2 5.2 5.2 2.2 Cumulative 4.0 13.0 25.2 37.4 42.6 47.8 50.0 Economic Rate of Return: About 16X Mass: IBRD 22860 {.nd 22861 _/ Including US$10.0 million in taxes and duties.  SRILANK SECOND POWER DISTRIBUTION AND TRANSMISSION PROEBCT STAFF APPRAISAL REPORT Table of Contents Pare So. Credit and Project Summary . . .. . . . . . . . . i I. THE ENERGY SECTOR . . . . . . . . . . . . . . . . . I . Energy Resources and Supply ......... ... . . I Energy Consumption . ............ *.... 2 Energy Sector Organization .......... 2 GOSL's Energy Sector Strategy . . . . . . . . . . . . . . 3 Energy Pricing . . . . . . . . . . . . . . . . 4 II. THE BANK GROUP'S ENERGY SEW-CR STRATEGY. . . . . . . . . . .S Past Operations . . . . . . . a . . . * . . . .. . . 5 Sectoral Strategy ...... ........ .** 6 Rationale for IDA Involvement .. .. ...... . . 6 III. THE BENEFICIARY . . * * . . . . . . . . . . . . . 7 Organization and Management ... o ..... o o . . 7 Staffing . . . . 9 9 * . . * *. . . .. . . . * 7 Training.. . . . . . . . . . .* . .. 8 Existing Facilities . . . . . . . . . . . 8 Development Programs . . . .9 o . . . . . . . . . . 9 Billing and Collection . ............. 10 Accounting and Financial Management . . . . . . . . . . . H Atidit . . . . 9 . .9 ..... . *....... . . . . . . 12 Insurance .... . . .. . . .. o o ... . . . . . . . 12 IV. THE PROJECT . . . . . . . . . . . . . . . . . 13 Project Concept . . . . . . . . . . . . . . . a 13 Project Objectives . . . . . . . . . . . . . . * . 13 Project Description . . . . . . . . . . . . . . . . . . . 13 Project Cost .o .... . . . . . . . . . . . . . . . . ..9.9 14 Project Financing and Terms . . . . . . . . . . . . . . . 15 Project Engineering and Status of Preparation . . . . . . 16 Procurement . . . . . . . . 9 . . . . . . . . . . . 17 Disbursement . . 9 * 9 9 9 9 9 9 9 9 9 9 9 a 9 9 9 .. 18 Project Implementation . . . . . ... . . . . . * . . 19 Environmental Effects . ........ ......... 20 Project Monitoring ..... .o. .. . ... . . . . . . 20 Project Risks . ..9.9.9.9.9.9..9..9.99. . . . . . 21 This report was prepared by Ms. H. Wu and Mr. M.P. Manrai (ASI1E) following an appraisal mission to Sri Lanka in February 1991. The report has been endorsed by Messrs. S. Asanuma, Director, AS1DR and F. Temple, Chief, ASlIE. Peer reviewers of the project are Messrs. J. Besant Jones (IENED) and A. Gulstone (AETIE) who reviewed the economic, financial, institutional and engineering aspects respectively. Secretarial support was provided by Mmes. B. Duggal and L.F. Goh.  ."dJi- V. FINANCE . . a . a . . , . a . . . a a . a . . . . . . . . 21 Background . . . . . . . a . a . . a a a a . a . . e . e a 21 Past Results and Present Posltion* a . a a a a . a . a . 21 Projected Financial Performance . . . a a . . . a . 23 VI. JUSTIFICATION . . . . a . . . . . . . . . . * * a a * * * a a 25 Load Forecast . . . . . . . . . . . . . a a . a a a . a a 25 Benef its a a a a a a a a a a a a * a * a a a * a a a a 26 Development Impact . a . . a. . . a .* a a.. a a 26 Economic Rato oo Return . . . ..... . * a . .. 27 VII. AGREEMENTS AND RECOMMENDATION . . . . . . . . . . . 28 ANERXES 1.1 Petroleum Product Price Changes Since 1975 3.1 CEB's Organization Chart 3.2 Absorption of Affected Local Authority Staff 3.3 Energy and Capacity Balances 1981-1990 3.4 Existing and Planned Transmission and Distribution Networks 3.5 CEB's Generation Expansion Plan 1991-2001 3.6 Forecast Energy and Capacity Balances 1991-2001 3.7 Number of Consumers 1981-1990 4.1 Project Description 4.2 Detailed Cost Estimates 4.3 Disbursement Profile 4.4 Project Implementation Schedule 4.5 Projecc Reporting Requirements 4.6 Performance Indicators 5.1 Historical Financial Statements 5.2 Projected Financial Statements 5.3 Assumptions Used in the Financial Projections 5.4 CEB's Tariffs 6.1 Clectricity Demand Forecast 6.2 Economic Analysis 7.1 Selected Documents and Data Available in the Project File NAP-S IBRD Nos. 22860 and 22861  STAFF? APRABISAL MEOR 1. THEMERGY SCTA Eneraw Recources Snd SmuDD 1.01 Sri Lanka ha. few indigenous energy resources, the most important of which are hydropower end fuelvood. There are nco known hydrocarbon resarves, and thb prospects for discovering fossil fuels remain poor. Domestic energy use is based on fuelvood which accounted for 702 of primary energy supply in 1990, with the balance being met by imported oil (191) and hydroelectricity (IIZ). Net oil imports accounted for 131 of non-petroleum export earnings in 1990. 1.02 Hvdropower Resources. Sri Lanka's major hydropower resources are concentrated in four river systems: Mahaweli Ganga, Kelani Ganga, Kalu Ganga, and Walawoe Ganga. The country's hydropower potential is estimated to be about 7,600 GWh a year, with an aggregate capacity of about 2,300 MW, of which 1,115 MW has already been developed. The centerpiece of hydropower development has been the Accelerat_I Mahaweli Program (AMP) which contributed 582 MW capacity to the national grid during 1984-90. Given the country's poor energy resource base, optimal development of the remaining hydropower potential to meet increasing demand for electricity is critical. In early 19869 the Government of Germany through the Gesellschaft fur Technische Zusamenarbeit (GTZ) provided technical assistance for an Electricity Supply Master Plan study to prepare an Inventory of the country's remaining hydropower potential and a long term power system development plan. The three-year Master Plan study conducted by Lahmeyer International of Germany ranked 20 medium-scale hydro projects with a combined average annual energy generation of about 3,200 GWh that could provide electricity at average costs ranging from US$0.03 to US$0.09 per kWh. To ensure timely commissioning of about 200 MW additional hydro generating capacity needed during 1996-2000, preparation of feasibility studies for the most promising candidate projects to establish the optimal sequencing for implementing new hydro projects is an important and urgent task. The feasibility study for the Kukule Project, one of the candidates, is under preparation with assistance of consultants financed under IDA's Power Distribution and Transmission Project (Cr. 1933-CE). The proposed Project would include technical assistance to update the feasibility study and prepare detailed engineering designs for the Upper Kotmale Project (pari. 4.03(c) (iv)). Assistance is also being sought separately from the Asian Development Bank (ADB) and the British and French bilateral sources for the preparation of the Uppeir Uma Oya and Broadlands Projects. 1.03 Fuelwood. Despite fuelvood's dominant importance in the country's enorgy supply, data on consumption and supply patterns remain poor, partly because the bulk of fuelwood supply is non-traded. In addition to fuelwood from the natural forest, agricultural ane ?lantation crop wastes (notably rubber wood) supply a large amount of fuelwood requirements. Based on a 1984 survey of 518 households and population growth trc.de, consumption of fuelwood was estimated at around 10 million tons in 1990. During the paot two decades, fuelwood rubber  -2- replanting, etc., wa estimated to have fallen bosh