India - National Capital Power Supply Project - Phase I

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16003 IMPLEMENTATION COMPLETION REPORT INDIA NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I (LOAN 2844-IN) September 13, 1996 Energy and Infrastructure Operations Division Country Department TI South Asia Region This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  COUNTRY EXCHANGE RATES AND ABBREVIATIONS Currency Unit= Rupee (Rs.) Rs. I = Paise 100 RUPEE (Rs.)/US $ EXCHANGE RATES AND CPI (Yearly Averages) Exchange Rate Fiscal Year Rupees/US$ Rate at appraisal 13.00 FY 89/90 17.50 FY 90/91 22.74 FY 91/92 26.20 FY 92/93 31.20 FY93/94 31.46 FY 94/95 32.30 FY 95/96 34.50 Average Rate during project implementation penrod: US$I Rs. 27.19 NTPC Fiscal Year: April I - March 31 Measures and Equivalents I Ton (t) = I metric tonne= 1,000 Kg =2,204 Ibs. I Kilovolt = 1,000 volts (V) 1 Kilovolt ampere (kVA) = 1,000 volt-amperes (VA) 1 Kilowatt-hour (kWh) = 1,000 watt-hours I Megawatt-hour (MWh) = 1,000 kilowatt-hours I Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours ABBREVIATIONS AND ACRONYMS CA : Central Appropriations DESU : Delhi Electric Supply Undertaking ESP Electrostatic Precipitator GOI : Government of India IBRD : International Bank for Reconstruction and Development ICB Intemational Competitive Bidding ICR Implementation Completion Report IERR Internal Economic Rate of Return LC Letter of Credit NERC North American Energy Reliability Council NTPC : National Themial Power Corporation O & M Operation and Maintenance PAP Project Affected Persons PLF : Plant Load Factor The Project The National Capital Power Supply Project - Phase I RBI : Reserve Bank of India SEB : State Electricity Board TPP : Thermal Power Plant  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT INDIA NATIONAL CAPITAL POWER SllPPLY PROJEcT (LOAN 2844-IN) Table of Contents P R E F A C E .................................................. ........ ..... .............................. EVALUATION SUMMARY .......................... ii PART I: PRO.IECT IMPLEMENTATION ASSESSMENT A. Statement/Evaluation of Objectives ...... .................... .. . . ...................I B . A chievem ent of O bjectives ..... ................... ... ............................................4 C. Major Factors Affecting the Project ...................................... 5 NTPC Component ...................................... 5 Procurement ...................................... .6 Delays Caused by Contractors and Suppliers .....................................6 Land Acquisition, Resettlement and Rehabilitation ...................................7 GOI and NTPC's Financial Difficulties in 1991-1992 ...................................8 Implementation Results ........8............................8 Costs ......................... 8 Savings and Cancellations .............. . .... 9 Closing Date and Disbursements ................... . . 9 R ate o f return ........... ....... ... . . ..... . ..... ....... . . .........9 DESU Component ..........9 D. Project Sustainability ................... 10 NTPC Component .................. 10 The Project .................. 10 E. Bank Performance .................. .................... 10 NTPC Component ................. ...................... 10 DESU Component ................. . 1 2 T h e P ro je ct ..........................1................... .. ... .. ..... . ... .. .. ... . . .. . .. .... 12 F. Borrower Performance ...... ................... ...... ......... .. ..... . ...... 13 NTPC Component . ..........................3........... .. ......... . ....................... 13 D E S U C om ponent ..........................1........... ...... ..... . ... ........ ... .......... .... 13 The Project ............................... ...... .... . . .. ....... 13 G. Summary Assessment of Outcome ..... ..................... 13 H. Future Operation.. .......................... 14 1. Key Lessons Learned ..... .......................... ......... 14 Ths document has a restricted distribution and may be used by recipients only in the performance of their I ofcial duties. Its contents may not othemise be disclosed AiLhout World Bank authorization.  PART II: STATISTICAL TABLES Table IA - Summary of Assessments for Original Project ................................................. 16 Table lB - Summary of Assessments for the Restructured Project . . 17 Table 2 - Related Bank Loans/Credits ........................................................... 18 Table 3 - Project Timetable .......................................................... 19 Table 4A - Loan Disbursements (for NTPC) ........................................... 19 Table 4B - Loan Disbursements (for DESU) ........................................................... 19 Table 5 - Key Indicators for Project Implementation ...................................................... 20 Table 6 - Key Indicators for Project Operation ........................................................... 20 Table 7A - Project Costs ........................................................... 21 Table 7B - Project Financing ........................................................... 21 Table 8 - Economic Costs and Benefits ........................................................... 22 Table 9 - Status of Legal Covenants ........................................................... 23 Table 10 - Bank Resources: Staff Inputs ........................................................... 24 Table 11 - Bank Resources: Missions ........................................................... 24 ANNEX-A: Highlights of the ICR Mission .......................................................... 25 ANNEX-B: Project Review from the Borrower's Perspective ........................... ....................... 27 ANNEX-C: NTPC - Financial Overview .......................................................... 34 ANNEX-D: Supply of Coal and Economic Opportunities for Improving the Quality of Coal ........................................................... 37 ANNEX-E: Mitigation of Environmental Pollution in Dadri TPP ............................................... 38 ANNEX-F: Dadri TPP - Retrofit Socio-Economic Survey - Sumrmary of Actions .................... 39 ANNEX-G: Dadri and Badarpur TPPs - Allocation and Sales of Energy Generated .................. 41 ANNEX-H: Comments by coal India Ltd. On the Supply of Coal to the Dadri and Badarpur TPPs .......................................................... 42  IMPLEMENTATION COMPLETION REPORT INDIA NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I (LOAN 2844-IN) Preface This is the Implementation Completion Report (ICR) for the National Capital Power Supply Project - Phase I (the Project) for the National Thermal Power Corporation (NTPC) and the Delhi Electric Supply Undertaking (DESU) in India, for which Loan 2844-IN in the amount of US$485 million equivalent was approved on June 17, 1987, signed on December 21, 1987, and made effective on March 21, 1988. The Borrower was India, acting by its President. The DESU component (US$60 million equivalent) was canceled on August 1, 1990, because of the failure of the Govermment of India (GOI) to present to the Bank an acceptable financial recovery plan. The project was thus de facto restructured. The restructured project (comprising the NTPC component only -- US$425 million equivalent) was implemented, albeit with delays. The loan closed after one extension by six months on December 31, 1995. A total of US$162.2 million from the original loan amount was canceled. The balance of the loan amounting to US$322.8 million, was fully disbursed by May 3, 1996. Even though not envisaged under the original financing plan, financing to the tune of about US$37.4 million equivalent was provided by the Intemational Bank of Japan. The balance amount was met by GOI's contributions, domestic loans and from NTPC's own intemal resources. The ICR was prepared by Mihir Mitra (Consultant) and Argun Ceyhan (Task Manager) of the Energy and Infrastructure Operations Division (SA2EI) of the South Asia Region Country Department 2 (SA2) and reviewed by Jean-Francois Bauer, Division Chief, SA2EI and Kazuko Uchimura, Project Adviser, SA2. Preparation of this ICR was started during the Bank's mission in September 1995 and was finalized during a follow-up mission in February 1996. It is based on material in the project file and site-specific information gathered during the Implementation Completion Mission. The implementing agency, NTPC, contributed to the preparation of the ICR for their part of the project, by providing timely input for the statistical data. NTPC's comments endorsed by GO6 with their letter dated June 11, 1996, are given in Annex B of the ICR.   IMPLEMENTATION COMPLETION REPORT INDIA NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I (LOAN 2844-IN) Evaluation Summary A. STATEMENT/EVALUATION OF OBJECTIVES AND THE PROJECT Introduction i. At the time the project was appraised in May 1986, consumption of electricity in India had grown at an average annual rate of eight percent during the past two decades. Although a number of hydro and coal-fired thermal power stations had been built, power shortages prevailed throughout the country. In particular, the national capital, New Delhi, was severely affected due to suboptimal planning, accentuated by non-performing power plants and insufficient transmission capacity in the area, while its demand was growing at more than 10% per annum. In addition to the physical limitations in the supply of power to the capital, the complex administration of the Union Territory of Delhi restricted DESU's autonomy and hindered its efficient operation. It was in dire need of restructuring of its finances and improvement of its power supply facilities coupled with comprehensive streamlining of its operations and massive infusion of cash to pull it out of the disorderly condition. Objectives of the Project ii. Against this backdrop, the objectives of the project were to: a. augment power supplies to the capital; b. improve the reliability of transmission and reduce system losses; c. reduce environmental pollution from power generation; d. move towards more efficient use of existing assets in the power supply system; e. identify economic opportunities for improving the quality of coal use in power generation; and, f effect a program of administrative, financial and operational improvements in DESU. In addition to the physical and other institutional objectives, it has been an express goal of the Bank to transform NTPC into a model utility based on a sound financial footing. These objectives were consistent with the strategy GOI and the Bank were following at the time and were, in general, well-defined.  - III - The Scope of the Project iii. The physical components and other services included in the project were consistent with the above project objectives. The NTPC component comprised the construction of the first stage (4x210 MW) of a coal-fired power station at Dadri and rehabilitation of the Badarpur Thermal Power Plant (TPP). Consulting services for the Dadri plant and a study on improvement of the quality of coal used in power generation were also included. The DESU component comprised the construction of about 110 km of double-circuit 400-kV transmission line and related 400-kV and 220-kV substations, and consulting services for institutional and technical strengthening of DESU (Part I; para. 6). The Loan iv. Ln. 2844-IN for US$485 million equivalent was approved on June 17, 1987, signed on December 21, 1987, and became effective on March 21, 1988. NTPC's share for the implementation of its components was US$425 million, and DESU's share US$60 million equivalent. B. ACHIEVEMENT OF OBJECTIVES v. The objectives of the original project (NTPC and DESU components) were not achieved due to the failure and cancellation of the DESU component. The objectives of the restructured project, including institutional objectives for NTPC, were substantially achieved. C. MAJOR FACTORS AFFECTING THE PROJECT vi. NTPC Component. The component was implemented satisfactorily but with delays which were due to: * lengthy procurement by NTPC (Part I; para. 9); * significant delays by the contractors and suppliers (Part I; para. 10); * substantial difficulties experienced by NTPC in acquiring the land for the ash disposal area and the railway connection to Indian Railways mainline (Part I; para. 11); and, * financial difficulties experienced by GOI and NTPC in 1991-1992 (Part I; para. 12). Other factors which affected the NTPC component were: (i) lower initial bid prices but high inflation levels during the first years of implementation, which resulted in costs in Rupee terms higher than the estimates by about 24% (Part I; para. 14); and, (ii) depreciation of the Rupee vis- a-vis the US Dollar which resulted in large savings under the Loan which were canceled (Part I; para. 15). vii. DESU Component. GOI had agreed that no later than February 29, 1988, it would furnish to the Bank a satisfactory plan for the financial strengthening of DESU and thereafter implement it. GOI took an inordinately long time to present the said plan. When the plan was finally presented it was deemed unsatisfactory from the Bank's perspective. Disbursement against  - iv - the DESU component was suspended on January 6, 1989. Despite several attempts by the Bank, there was no progress on this front, while the financial situation of DESU continued to deteriorate. Finally, the DESU component of the loan, amounting to US$60 million equivalent, was canceled on August 1, 1990. Thus this component was not implemented. viii. Savings and Cancellations. Due to the devaluation of the Rupee, costs in US Dollar terms were significantly lower than the estimates. Although part of the loan was utilized for the rehabilitation of Badarpur TPP as well as for the procurement of urgently needed spare parts (part I; para. 12), large savings occurred and they were later canceled (US$102.2 million equivalent - under the NTPC component). In total US$162.2 million was canceled (Part I; para. 15). ix. Closing Date and Disbursements. In order to complete the implementation of the project, the closing date of the loan was extended by six months. The loan was finally closed on December 31, 1995, and the loan amount, revised to US$322.8 million following the cancellation of a total of US$162.2 million, was fully disbursed on May 6, 1996. Out of this amount, about US$316.3 million which were spent for the Dadri TPP and other NTPC investments were onlent by GOI to NTPC, while about US$6.5 million spent for the rehabilitation of the Badarpur TPP were assumed by GOI. Because NTPC was not in compliance with the accounts receivable covenant, the Bank agreed vith GOI and NTPC on an informal suspension of disbursements under the Loan, which lasted from February 28 to June 3, 1994 (Part I, para. 16). x. Rate of Return. The internal economic rate of return (IERR) of the Northern Region investment program, of which the project is a part, has been computed as 18.7% compared with the appraisal estimate of 11% (Part I; para. 17). D. PROJECT SUSTAINABILITY xi. The achievements of the restructured project are likely to be sustainable under the condition that coal of proper quality and in required quantities is provided (Part I; paras. 19 and 20). Operational plans to ensure the sustainability of results achieved under the project have been agreed with NTPC (Part II; Table 6). E. BANK PERFORMANCE xii. NTPC Component. For this component the performance of the Bank from project preparation through project completion was satisfactory (Part I; para. 21). xiii. DESU Component. The component was designed to provide funds for DESU's investments and for technical assistance to address its institutional, managerial, engineering and financial problems. Agreement with the Bank on a satisfactory financial strengthening action plan was at first a condition for negotiations. After waiting for about one year, the Bank proceeded with loan negotiations based on a conceptual approach addressing the need for technical  v - assistance in those specific areas, with details to be worked out later as a dated condition, instead of pinning down specific action plans. This approach was unsuccessful and led to the ultimate cancellation of this component. The need to put the utility back on a sound financial footing having been fully identified, a specific action plan should have been developed before negotiations. The performance of the Bank in respect of project preparation and appraisal concerning the DESU component was, therefore, deficient (Part l; para. 22). xiv. The Project. Because of the failure of the DESU component, the performance of the Bank for the original project was deficient. However, the performance of the Bank with respect to the restructured project wvas satisfactory (Part 1, para. 23). F. BORROWER PERFORMANCE xv. NTPC Component. GOI's and NTPC's performances in respect of the NTPC component were satisfactory. Compliance with the covenants of the loan was satisfactory, except for the one requiring NTPC to reduce its accounts receivable to within 2 months of equivalent monthly billing. It was only towards the end of the implementation of the project, and following various interventions by GOI and close dialogue between GOI, the Bank and NTPC on the subject, that NTPC was finally in compliance with this covenant (Annex C). NTPC's performance in the design and engineering of the construction of the Dadri TPP and rehabilitation of the Badarpur TPP was also satisfactory (Part I, para. 24). xvi. DESU Component. GOI's and DESU's performances in respect of the DESU component were unsatisfactory. The commitments made by GOI during the negotiations of the loan were not kept. GOI was given adequate time to present the financial recovery plan for DESU. It was only after repeated attempts failed to extract a viable plan did the Bank finally cancel the loan amount of US$60 million allocated for the DESU component (Part I; para. 25). xvii. The Project. Due to the failure of the DESU component the performance of the Borrower for the original project was deficient. The performances of the Borrower and NTPC with respect to the restructured project were satisfactory (Part f, para. 26). G. SUMMARY ASSESSMENT OF OUTCOME xviii. The outcome expected for the original project was not obtained due to the cancellation of the DESU component. Thus the outcome of the project is assessed as deficient. However, the results of the restructured project are satisfactory. NTPC has been able to increase its generating capacity in the Northern Region with the commissioning of the 4 x 210 MW Dadri as well as the rehabilitation of the 720 MW Badarpur TPPs. With the upgrading of the electro-static precipitators (ESPs) at Badarpur TPP, the overall air quality in the area has improved. Institutionally, the project has assisted NTPC to continue to improve its finances and achieve success with commercial objectives. This policy has indeed helped NTPC improve its tariff structures and load management procedures as well as mobilize additional resources from outside the public sector to strengthen its financial and economic efficiency (Part I, para. 27)  - vi - H. FUTURE OPERATION xix. NTPC's operational performance at the Dadri TPP will be monitored against the standards of the North American Energy Reliability Council (NERC). The corresponding availability of the plant is expected to be 70% during the first two years of operation at 63% capacity factor and 79% thereafter at 75% capacity factor (Part I, para. 28). However, achieving these targets is contingent upon the plant receiving coal, as required. 1. KEY LESSONS LEARNED xx. Several specific lessons can be drawn from this project that have both operational and strategic implications for the design of similar projects in the future: a) The Dadri and Badarpur TPPs should receive coal of proper quality and in required quantities in order to operate in a sustainable manner at their respective full capacities (Part I; para. 19, and Annex D). b) A sound financial health is a key element to the success of a utility. NTPC's willingness to follow commercial practices has greatly improved its financial position. GOI/Bank/NTPC dialogue on NTPC's financial situation and its application of the commercial policies (in particular, cutting off supply to non-paying customers) should be continued. (Part I, para. 24, and Annex C) c) The successful completion of the first phase of rehabilitation of the Badarpur TPP clearly serves to establish that power plant rehabilitation is indeed an economically viable proposition. Projects such as these which assure optimal utilization of existing assets should continue to be supported (Part I; para. 19). d) GOI intervention through the Central Appropriations (CA) helped NTPC resolve its accounts receivable problem, even though for a limited period of time. It is doubtful whether GOI's actions have led to the SEBs improving their operational efficiency and their billing and collection procedures and practices. What is equally important, but so far received little attention, is the need for energy conservation on the customer (SEBs) side and demand management by the utility through the adoption of appropriate tariffs and tariff structure at SEBs and through end-use efficiencies. GOI/Bank/ States dialogue on the restructuring by the states of their respective power sectors is a step forward and should be continued (Part I; para. 24). e) Project preparation, with all its components, should be completed in detail well ahead of loan negotiations. A conceptual project description for the purpose of completing loan negotiations, with details to be worked out later, is no proxy for fulfilling the requirements of project appraisal as the DESU component of the project clearly serves to demonstrate (Part I; para. 22).  - VIi - f) The procurement cycle, starting from bid issue to contract award, should be significantly shortened (Part l; para. 9). g) Local manufacturing capability, cheaper labor, deemed export benefits and the provision for domestic preference in accordance with Bank guidelines for procurement, weigh in favor of local bidders enabling them to win contracts over foreign competition. However, the existing backlog of the winning bidders, vis-a-vis their manufacturing capability, should be strictly evaluated to determine whether they would be capable of performing the contracts on schedule, if awarded through the bidding process. Failure by reputed local manufacturers to deliver critical equipment on time has caused the project long delays, as was the case for the supplier of the ash handling plant (Part I; para. 10).  - I - IMPLEMENTATION COMPLETION REPORT INDIA NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I (LOAN 2844-IN) PART I. Project Implementation Assessment A. Statement/Evaluation of Objectives 1. In the 1 950s and 1 960s, the responsibility for power development in India was entrusted almost entirely to the states. This led to suboptimal development planning as each state strove to serve its own interests, resulting in acute shortages of power in most parts of India. The situation prompted GOI, in the 1970s, to change the thrust of its power policy to focus on least-cost regional development, emphasizing construction of central power stations close to indigenous energy resources, and rehabilitation of non-performing power plants, along with a more liberal policy towards captive generation, as well as improving the quality and reliability of coal supplies. In 1975, GOI established NTPC making it responsible for the design, construction and operation of large thermal power stations and transmission lines, and for sale of power generated to the State Electricity Boards (SEBs). The Bank has supported GOI's actions under six IDA and 10 IBRD operations to finance 14 thermal power plant (usually with their associated transmission facilities) and two transmission projects implemented by NTPC. Twelve thermal power plants and the two transmission projects have been satisfactorily completed.' These projects have assisted NTPC to expand at least-cost and also helped enhance NTPC's institutional capabilities. 2. At the time the project was appraised in May 1986, consumption of electricity in India had grown at an average annual rate of eight percent during the past two decades. Although GOI (through NTPC and other GOI-owned entities) and State Governments had built a number of hydro and coal-fired thermal power stations, power shortages prevailed throughout the country. In particular, the national capital, New Delhi, was severely affected due to suboptimal planning, accentuated by non-performing power plants and insufficient transmission capacity in the area, while its demand was growing at more than 10% per annum. The capital had to rely primarily on the Indraprastha (owned and operated by DESU) and Badarpur (owned by GOI, and operated by NTPC)2 coal fired thermal power plants (TPPs). Both had suffered from inadequate maintenance, at least in part, due to shortages of power, and extensive wear and tear of boiler components caused by poor quality of coal. Although environmental concerns were limited when they were built, both plants represented unacceptable sources of pollution. GOI's response to the critical power supply position in the capital had been to have NTPC build a high voltage direct current l Since April 1, 1993. the said transmission projects and the transmission facilities associated with the thermal power plants have been transferred to the Power Grid Corporation of India Ltd. (POWERGRID). 2 The operation and management of the Badarpur TPP has been entrusted by GOI to NTPC on a management contract basis. NTPC has been operating and managing the power plant since April 1, 1978. Until that date, the plant was operated by the Central Electricity Authority of GOI.  - 2 - transmission line from the Rihand Area in the State of Uttar Pradesh,3 sanction the installation in Indraprastha of 6x30 MW gas turbines to be operated on open cycle using middle distillates and to devise a program for the rehabilitation of the Badarpur TPP. The initial planning was that the gas turbines at Indraprastha would operate only for very short periods, but at appraisal it appeared likely that extended operation would be required. There was thus a strong case for retrofitting these gas turbines with waste heat recovery boilers and steam turbine generators to allow them to operate in combined cycle with much higher fuel efficiency.4 3. The least-cost development program for the region required the installation in two phases of a 1,840 MW coal fired power plant around Delhi to augment the generating capacity in the area, along with complementary improvement in the reliability of power transmission by creating a 400 kV ring around the capital.5 GOI had decided to have this power plant built at Dadri by NTPC. It was also envisaged that the proposed power plant would have the capability of operating and supplying electricity to Delhi as an independent source, quite apart from other sources that would supply the capital region via the transmission network of the Northern Region Interconnected System. For this reason, GOI and NTPC adopted a cautious approach and selected the 200 MW unit size to ensure greater reliability of supply.6 4. In addition to the physical limitations in the supply of power to the capital, the complex administration of the Union Territory of Delhi7 restricted DESU's autonomy and hindered its efficient operation. Concurrently, inadequate funding and excessive restraints on its tariffs constrained DESU's ability to develop its transmission and distribution networks. DESU was not able to recover its costs owing to the high costs of power generation, high system losses and the burden of interest on accumulated debt. It was in dire need of restructuring of its finances and improvement of its power supply facilities, coupled with comprehensive streamlining of its operations and massive infusion of cash to pull it out of the disorderly condition. 5 . Against this backdrop, the objectives of the project were to: a. augment power supplies to the capital; b. improve the reliability of transmission and reduce system losses; c. reduce environmental pollution from power generation; d. move towards more efficient use of existing assets in the power supply system; Funded under Ln. 2555-IN (FY85) for the Rihand Power Transmission Project. 4 Only a study was included in the project under the DESU component. As this component was cancelled, the study was not conducted. 5The choice of a load center power station around Delhi was recommended by a Committee constituted by the Ministry of Energy in 1982 to review the options available to meet the future requirements of the National Capital Region. The Committee comprised of representatives from NTPC, Northern Railways, Department of Coal, CEA and Department of Environment. The Committee, in its report submitted in December 1982, had recommended a site near Muradnagar in UP opposite the UPSEB 400 kV substation as the most suitable location for the National Capital Region thennal power project. Due to environmental considerations, the site was subsequently shifted to Dadri. 6 Unit down time for a 200 MW unit would have a smaller effect on the total generating capacity of the plant than a 500 MW unit. Phase II of the plant, in future, would include the installation of 2xS00 MW units. 7 The Union Territory of Delhi became the State of New Delhi in 1993.  e. identify economic opportunities for improving the quality of coal used in power generation; and, f. effect a program of administrative, financial and operational improvements in DESU. In addition to the physical and other institutional objectives, it has been an express goal of the Bank to transform NTPC into a model utility based on a sound financial footing. These objectives were consistent with the strategy GOI and the Bank were following at the time, and were in general, well-defined. 6. The physical components and other services included in the project were consistent with the above project objectives: I. NTPC component: i. construction of the first stage (4x210 MW) of a coal-fired power station at Dadri; ii. rehabilitation of the Badarpur TPP to improve its efficiency and reduce the impact of its future operations on the environment; iii. consulting services for the Dadri plant; and, iv. a study on improvement of the quality of coal used in power generation. II. DESU component: i. construction of about 110 km of double-circuit 400-kV transmission line and related 400-kV and 220-kV substations; and, ii. consulting services for: a) the preparation of a least-cost plan for the extension and reinforcement of the distribution network in Delhi; b) the design and implementation of a system for the compilation, storage and retrieval of technical data on the distribution network, c) the assessment of the economic viability of equipping the gas turbines in the Indraprastha power plant with waste heat recovery boilers and steam turbogenerators; d) the preparation of a plan for the rehabilitation of the Indraprastha TPP, e) the finalization of DESU's financial statements for each of the fiscal years 1 983/84/85/86; f) the implementation of a new commercial accounting system; and, g) the completion of an organization and management study.  - 4 - B. Achievement of Objectives 7. The objectives of the original project (NTPC and DESU components) were not achieved due to the failure and cancellation of the DESU component. The objectives of the restructured project, including institutional objectives for NTPC, were substantially achieved. Objectives a, c, d and e were fully achieved, while objectives b and f were not, summarized as follows: - Objective a: With the commissioning of the four generating units at Dadri and rehabilitation of the Badarpur TPP, the power supply to the capital has been augmented.8 This objective has been fully achieved. - Objective b: Investments to improve the reliability of transmission and reduce DESU's losses were under the DESU component which was canceled. The DESU 400 kV ring9 is still under construction. Thus the transmission capacity did not keep pace with generation, and the power situation in the Delhi area continues to remain unsatisfactory. This objective has not been achieved. - Objective c: The Dadri TPP was designed to use beneficiated coal; its ash is kept dry through a special ash handling plant and stocked on a mound, avoiding water pollution 8 However, overall supply to the Capital is not sufficient to meet the demand at peak hours. The peak demand of Delhi region was approximately 2150 MW (un-restricted) during 1996 summer season. This was met with internal generation of 700 - 800 MW from Indraprastha (DESU), Rajghat (DESU) and Badarpur (NTPC). The balance requirement was drawn from central sector shares of Delhi, through 400 kV Mandola, 400 kV Ballabgarh and 220 kV Narela substations. The restricted peak demand of Delhi region was of the order of 1900 MW during the season. DESU and the Uttar Pradesh State Electricity Board (UPSEB) were allocated 90% and I0%, respectively, of the generation of the Dadri TPP. In FY96, 63% and 4%, respectively, of the plant's generation were sold to DESU and UPSEB. The balance was sold to other SEBs. All the generation of the Badarpur TPP was sold to DESU (Annex G). Dadri and Badarpur TPPs occasionally contribute to the shortage of supply when they cannot generate at their respective full capacities due to coal shortages or supply of coal of a quality inferior to what the one the plants (in particular the Dadri TPP) were designed for. 9 The 400 kV ring around the National Capital consists of: - Transmission lines: * Owned and operated by POWERGRID: i. 400 kV Dadri - Ballabgarh (PG) - D/c line - in operation ii. 400 kV Dadri - Mandola (PG) - D/c line - in operation * Being built and to be owned and operated by DESU: iii. 400 kV Mandola-Bawana D/c line - 21.4 Kms (2x2000 MVA Cap.) (nearing completion) IV. 400 kV Bawana-Bamanoli D/c line - 34.1 Kms (2x2000 MVA Cap.) v. 400 kV Bamanoli-Ballabgarh-D/c line - 42.3 Kms (2x2000 MVA Cap.) - Substations: i. 400/220 kV Bawana-4X315 MVA - (2 Present + 2 Future) ii. 400/220 kV Bamanoli-4x315 MVA - (2 Present + 2 Future) iii. Extension of 400 kV S/s at Ballabgarh to 4x315 NMVA capacity iv. Extension of 400 kV S/s at Mandola to 4x315 MVA capacity (The Bawana and Mandola substations are formed of parts owned and operated by POWERGRID and DESU. POWERGRID's bays are in operation. Bays being installed by DESU are planned to be completed by October 1996.)  - 5 - risks through the ash slurry. Upgrading and retrofitting of the electrostatic precipitators (ESPs) of the Badarpur TPP has increased their collection efficiency to 99.5%, reducing environmental pollution from this power plant. This objective has been fully achieved. 10 - Objective d: Following rehabilitation, the plant load factor (PLF) of Badarpur TPP has improved from 64% to 74% and the availability of the plant has exceeded 85%, while in the past it was around 70-75%. The plant average heat rate has been reduced to about 2,900 kcallkWh from 3,100 kcallkWh. This objective has been fully achieved. - Objective e: A study confirmed that coal beneficiation was a viable economic proposition that would significantly reduce transportation costs, as well as wear and tear of the power plant equipment in addition to reducing environmental pollution associated with the burning of coal. Consequently, the construction of a coal washing facility was undertaken by Coal India (outside the scope of the project). It is expected that it will be operational around June 1997. As only the study was included in the project, this objective has been fully achieved. - Objective f: Due to the cancellation of the DESU component this objective was not achieved. - Financial Objectives for NTPC: Through all Bank-financed NTPC projects, including this project, the Bank has endeavored, through constant policy dialogue and discreet financial covenants, to advance NTPC towards a sound financial footing. At appraisal, NTPC's overall financial position was generally satisfactory, but accounts receivable already imposed serious burden on NTPC's finances (para. 24). By project completion, in 1995, improvements in collection and accounts receivables had helped NTPC achieve returns well in excess of the rates required under the financial covenants (Annex C). Institutional objectives for NTPC have been substantially achieved. C. Major Factors Affecting the Project 8. NTPC Component. The component was implemented satisfactorily but with delays which were due to: * lengthy procurement by NTPC (para. 9); * significant delays by the contractors and suppliers (para. 10); * substantial difficulties experienced by NTPC in acquiring the land for the ash disposal area and the railway connection to Indian Railways mainline (para. 11); and, * financial difficulties experienced by GOI and NTPC in 1991-1992 (para. 12). 10 Only the preparation of a plan for the rehabilitation of the Indraprastha power plant was included in the project as a part of the DESU component, which was canceled.  - 6 - Other factors which affected the NTPC component were: (i) lower initial bid prices but high inflation levels during the first years of implementation, which resulted in costs in Rupee terms higher than the estimates by about 24% (para. 14); and, (ii) depreciation of the Rupee vis-a-vis the US Dollar which resulted in large savings under the Loan which were canceled (para. 15). 9. Procurement. NTPC's procurement cycle, between bid issue and contract award was too long. For the two major contract packages, viz., those for the boilers and turbine generators, the time taken to complete procurement was close to 11 months. Typically, the procurement cycle from bid opening to contract award should have taken no more than 6-7 months. " There were, in total 54 contracts, procured on the basis of international competitive bidding (ICB), in accordance with Bank guidelines and funded under the Loan for the construction of Dadri and the rehabilitation of Badarpur TPPs. 12 The major contracts for the mechanical and electrical equipment were procured on a supply-and-erect basis. Some contracts also included civil works, which was done to ensure better contract coordination during implementation. Most of the contracts were won by Indian bidders. However, Indian contractors and manufacturers had to use imported machinery, materials, equipment or instruments (para. 10). 10. Delays Caused by Contractors and Suppliers. Contractors and suppliers caused significant delays in project implementation by failing to complete on time some critical civil works (such as piling and foundations) and to deliver on time critical pieces of plant equipment, such as, air preheaters, cooling towers, coal handling plant, ash handling plant, etc. Most of the construction and manufacturing work was carried out in 1989-1992 during which period India experienced an economic and financial crisis. GOI put restrictions on imports, made permission of the Reserve Bank of India (RBI) mandatory and increased the margins for opening a letter of credit (LC) first to 50% (in October 1990), then to 110% (in March 1991). To arrange such high margins for the LCs and to obtain RBI's permission, contractors had to devote more resources and much longer time. Import restrictions were further aggravated with the steep devaluation of the Rupee. In July 1991, GOI withdrew some of the deemed export benefits which were previously provided for contracts awarded under ICB procedures of the Bank. The fact that the Trade Agreement between India and Poland ceased with effect from July 1991, affected the 1 l Allowing for 4 months for actual bidding on such complex procurement, and another 2 montlhs for bid evaluation. Summary data about the principal contracts is as follows: Dadri TPP Number of Number of Bids Bids Opening B. nk No Contract Award Bidders who Submitted Date Objection Date Date Bought Bid Documents Turbine Generators 12 3 Jan.27.87 Nov.3.87 Nov.20,87 Boilers 16 l Jan.27,87 Nov.24,87 Dec.2,87 Cooling Towers 9 6 June 12,87 June 12,88 Dec.7,88 CHP 14 13 Feb. 1,88 Oct. 12,88 Dec.2,88 AHP 8 4 Oct.3,89 Oct. 1 5,91 Nov.'91 12 Out of the said 54 contracts, 41 were for the Dadri TPP of which 33 now pertain to NTPC and eight to POWERGRID and 13 were for the Badarpur TPP. In addition to the above, 36 smaller contracts were procured under local competitive bidding. The Bank also agreed to fund the last payments for 32 contracts originally procured under the Korba 11 and Ramagundam II projects, after the respective loans were closed.  - 7 - import of equipment for the ash transportation system. 13 GOI's decision in March 1992 to liberalize steel prices resulted in a steep rise in the price of steel which could not have been foreseen when the contracts were awarded. Since the contracts were covered under the general escalation formula, compensation to contractors for such high price increases had to be separately discussed and negotiated. Thus further delays were experienced. Delays by the contractor of the cooling towers directly affected the unit synchronization/commissioning program. NTPC's actions dealing with the contractors and suppliers were satisfactory. Otherwise, delays could have been much longer. However, local manufacturing capability, cheaper labor, deemed export benefits and the provision for domestic preference in accordance with Bank guidelines for procurement, weigh in favor of local bidders enabling them to win contracts over foreign competition. It is important to strictly evaluate the existing backlog of the winning bidders vis-a- vis their manufacturing capability to determine if they would be capable of performing the contracts on schedule, if awarded through the bidding process. Failure by reputed local manufacturers to deliver critical equipment on time has caused the project long delays, as was the case for the supplier of the ash handling plant. In this respect, i.e., evaluation of the existing backlog of the winning bidder, NTPC's performance could have been better. 11. Land Acquisition. Resettlement and Rehabilitation. A total area of about 1,000 ha was acquired for the power plant, ash disposal area (which is adjacent to the plant) and railway link. A very low percentage of the land was of semi-agricultural type; the rest was classified as barren non-agricultural land. Some 2,630 families were affected by the project, representing 14,160 persons; however, none had to be resettled. NTPC provided jobs to 135 project-affected persons (PAPs); another 58 PAPs were economically rehabilitated. The balance of 2,167 PAPs received cash compensation. No baseline survey was made before land acquisition and no rehabilitation action plan was prepared. Acquisition of some parts of the land to be used for the disposal of ash and construction of the railway link proved to be very difficult where villagers physically obstructed access. Many PAPs took NTPC to the courts and obtained stay orders which prevented NTPC and its contractors from working in the area. Problems arose from the fact that all PAPs were interested in direct employment; most of PAPs who lost part or whole of their land had been agriculturists without any formal/technical education so they were not eligible for technical jobs in an industrial set up. Most of them were not keen on being sponsored for vocational courses related to trades like carpentry, air conditioning and refrigeration mechanics, etc., and the political situation in the district was (and still is) different because of its proximity to the Capital so people are not interested in government-sponsored welfare schemes. In the end, NTPC has resolved all the cases in accordance with the decisions of the court, but the completion of the power station, and in particular, railway link, suffered significant delays. Under the NTPC Power Generation Project (Loan 3632-IN; FY93) and in accordance with NTPC's most recent l 3The principal contractor for the ash handling package for Dadri TPP was an Indian company which ordered equipment under the package from a Polish manufacturer to be imported to India through Rupee trade under the said trade agreement. The agreement ceased to exist with effect from Julv 19, 1991. The contractor had to apply for a fresh import license after July 1991 and this could be obtained from the GOI only in 1993 for importing the equipment components from Gennany. Due to the effect of devaluation and other economic measures taken by the GOI, unprecedented rise in prices occurred. The contractor had to incur much higher expenditures as compared to the billing breakup for procurement of imported and bought out items provided with their bids. NTPC. as a special case, agreed to pay the differential cost between the billing breakup cost and the actual cost of imported items incurred by the contractor, based on documentary evidence The total additional liabilitv on this account amounted to Rs.12.9 million (about US$0.4 million).  - 8 - Resettlement and Rehabilitation Policy, NTPC initiated socio-economic studies of the PAPs of all Bank-funded projects, including those under the project, to assess the need for any further help these PAPs might require to ensure that their living standards were at least the same as before. This study is now complete and various recommended actions are being implemented. Summary information about the study and actions is given in Annex F. 12. GOI and NTPC's Financial Difficulties in 1991-1992. The Badarpur TPP is owned by GOI. Since 1978, it has been operated by NTPC on GOI's behalf During negotiations, it was agreed that its rehabilitation would be funded by GOI. Due to economic and financial constraints experienced by GOI, the work could not be undertaken. In December 1991, the Bank agreed to fund, from the proceeds of Ln. 2844-IN, the first phase of the rehabilitation works. ESPs have been retrofitted and several other critical components of the power plant have been replaced or rehabilitated. The rehabilitation of the Badarpur TPP has dramatically improved its performance, with the PLF improving from 64% to 74% and the availability exceeding 85%. During the same period, due to the substantial financial difficulties NTPC was experiencing, the operation and maintenance (O & M) of its power plants began to be adversely affected due to lack of spare parts and inadequate maintenance. The Bank agreed to fund: (i) the procurement of urgently needed spares for NTPC projects built under previous Bank assistance;14 (ii) expenditures made by NTPC for civil works contracts awarded under NTPC's local competitive bidding procedures; and, (iii) completion of disbursements for the Korba II and Ramagundam II TPP projects following closing of the respective IBRD Loans (Part II; Table 2). 0 & M of NTPC plants are back to their satisfactory levels. 13. Implementation Results. Due to the above, the units in Dadri TPP were put into commercial operation with substantial delays. A comparison of actual commercial operation dates of the units vis-a-vis appraisal dates is as follows: Synchronization Coal Firing Commercial Operation Planned Planned Delay Delay at at w/r to w/r to Contract Contract SAR Award SAR Award Actual SAR Actual SAR Award Actual (Months) (Months) Unit 1 10/91 03/92 10/91 11/91 08/92* 03/92 09/92 01/93 10 4 Unit 2 04/92 09/92 12/92 05/92 12/93 09/92 03/93 03/94 18 12 Unit 3 10/92 03/93 03/93 11/92 10/94 03/93 09/93 04/95 25 19 Unit 4 0)4/93 09/93 03/94 05/93 03/95 09/93 03/94 12/95 27 21 * Unit I was coal-fired in August 1992. only by arranging coal supply through road transportation from another railway station. 14. Costs. Project cost estimates were prepared, at appraisal, on the basis of international prices of various plant components. Prices of components quoted under ICB were, in Indian Rupee terms, lower than the estimates. Due to the high inflation levels which occurred in 1989- 1992, costs in Rupee terms increased more than those projected during appraisal. The actual cost 14 At the time, NTPC was operating 22 coal-fired units, 200 MW and 500 MW each; 7 gas turbines and 3 combined cycle units, all built under previous Bank assistance  -9- of the NTPC component was Rs. 19,433 million compared with the appraisal estimate of Rs. 15,702 million, an increase of about 24% (Part II; Table 7A). 15. Savings and Cancellations. Due to the devaluation of the Rupee, costs in US Dollar terms were significantly lower than the estimates. Although part of the loan was utilized for the rehabilitation of Badarpur TPP, as well as for the procurement of urgently needed spare parts, large savings occurred and they were later canceled (US$102.2 million equivalent - under the NTPC component). 16. Closing Date and Disbursements. In order to complete the implementation of the project, the closing date of the loan was extended by six months. The loan was finally closed on December 31, 1995, and the loan amount revised to US$322.8 million following the cancellation of a total of US$162.2 million,'5 was fully disbursed on May 3, 1996. Out of this amount, about US$3 16.3 million which were spent for the Dadri TPP and other NTPC investments were onlent by GOI to NTPC, while about US$6.5 million spent for the rehabilitation of the Badarpur TPP were assumed by GOI. Because NTPC was not in compliance with the accounts receivable covenant, the Bank agreed with GOI and NTPC on an informal suspension of disbursements under the Loan, which lasted from February 28 to June 3, 1994. 17. Rate of Return. At appraisal, the IERR of the Northern Region investment program, of which the project is a part, was estimated to be about 11%. Using the same methodology, actual capital costs of the investment program (covering generation, transmission and distribution components) and incremental operating and fuel costs, the minimum IERR is computed to be about 18.7% (Part II; Table 8). The benefits of the investment program relate mainly to the incremental consumption which they make possible. They were derived from the incremental sales revenue based on the average retail tariffs of NTPC (Rs. 0.87/kWh). Both computations did not take into account consumer surplus; the IERRs given above are deemed to be the minimum values. 18. DESU Component. GOI had agreed that no later than February 29, 1988, it would furnish to the Bank a satisfactory plan for the financial strengthening of DESU and thereafter implement it. 6 GOI took an inordinately long time to present the said plan. The Bank served notice on GOI in November 1988 that unless a satisfactory financial recovery plan for DESU was received by December 31, 1988, the Bank wouid be obliged to seek remedies under the loan and suspend disbursements on the DESU component of the project. A financial recovery plan, when finally presented, was deemed unsatisfactory from the Bank's perspective. Disbursement against the DESU component was suspended on January 6, 1989. Despite several attempts by the Bank, 15 Cancellations: August 1, 1990: US$ 60.0 million (DESU Component) May 1, 1993: US$ 17.0 million (Savings) December 9, 1993: US$ 35.0 million (Savings) June 30, 1995: US$ 50.17 million (Savings) Total: US$162.17 million 16 The Loan was declared effective on March 21, 1988, upon completion by GOI, NTPC and DESU of the conditions of effectiveness. By that date, the dated condition for DESU's financial recovery plan had become a condition of effectiveness. In the Project Files, there are no documents indicating that the Bank postponed this condition.  - 10- there was no progress on this front, while the financial situation of DESU continued to deteriorate. Finally, the DESU component of the loan, amounting to US$ 60 million equivalent, was canceled on August 1, 1990. Thus this component was not implemented. D. Project Sustainability 19. NTPC Component. The achievements of the NTPC component are likely to be sustainable. The Badarpur TPP has significantly improved its PLF and given the increased awareness of the plant management and staff for preventive maintenance, it is highly likely that the plant would be able to sustain its improved performance and reliability. This plant and the Dadri TPP are capable of producing power at their respective design capacities provided they are assured of coal supplies in the right quantities and of proper quality. 17 It is expected that with the commissioning in 1997 of the coal washery being built by Coal India, supply and transport of the washed coal to the power stations would be significantly improved. However, NTPC has to keep a satisfactory payment record"8 and sign a long-term commercial contract with Coal India for the supply of beneficiated coal. Institutionally, NTPC has grown much stronger, leading to its increased self-reliance as the largest, and the most modern public utility in India. 20. The Project. The achievements of the restructured project are likely to be sustainable under the condition that coal of proper quality and in required quantities is provided (para. 19). Operational plans to ensure the sustainability of results achieved under the project have been agreed with NTPC (Part II; Table 6). E. Bank Performance 21. NTPC Component. For this component the performance of the Bank from project preparation through project completion was satisfactory. In particular, the Bank has successfully maintained a good working relationship with NTPC, identified and appraised the project, assisted NTPC in completing procurements under the project, and supervised the project over a seven year period. Project preparation included all necessary conditions to ensure sustainability of results as well as enhance NTPC's project management, planning and implementation capability. A total of 15 supervision missions were fielded during the project implementation period. Problems encountered were identified, solutions were developed, action plans were agreed and advice on problems were provided to those concerned. Suitable follow-up actions were taken as needed and mid-course corrections were made as project implementation progressed. When, in 1991- 17 The coal stocks at both power stations were almost nil durinig the ICR mission's visit. 18 The paymenits tor coal for the Dadri TPP are made on a "cash and car>," basis withi advance payments to Coal India. Coal supplied to Badarpur T'P is paid for by GOI from funds paid by DESU for the payment of the energy purchased from this power plant. DESU is the sole customer of Badarpur TPP. However, DESU's payment perfonnance for the power purchased is poor. This affected the position of Badarpur TPP's working capital, resulting in the plant management not being able to pay regularly/fully for the coal purchased till recent past. In order to partially recover dues from DESU, GOI introduced recovery through Central Appropriation in May 1994. This has facilitated payment of current dues to Coal India for the past few months.  - Il - 1992, GOI and NTPC faced economic and financial difficulties, the Bank assisted them with the rehabilitation of the Badarpur TPP, funding of some civil works and procurement of urgently needed spares. However, there were periods of tensions between the Bank and GOI and NTPC during the period actions were taken by GOI and NTPC to remedy NTPC's accounts receivable problems and to comply with the accounts receivable covenant which had been agreed under the ongoing Rihand Power Transmission (Ln. 2555-IN; FY85) and Combined Cycle Power (Ln. 2674-IN; FY86) Projects. The covenant was repeated in Ln. 2844-IN, but until March 1993, NTPC was not able to fully comply. The Bank's actions in this respect are summarized as follows: * when the project was presented to the Executive Directors on June 17, 1987, NTPC was not in full compliance with the accounts receivable covenant it had agreed under the ongoing Rihand Power Transmission and Combined Cycle Power Projects;'9 * when at the end of FY90 (March 31, 1990), NTPC's level of accounts receivable had risen to seven months of sales equivalent, Bank management decided not to exercise the remedies available under the loan agreement such as suspension of disbursements, partly because of concern about jeopardizing India's ongoing development program. Other non-power reasons might be that the Bank was also worried about the impact of such a suspension of disbursements on the overall India-Bank relations and on the level of disbursements to India, when India was experiencing an economic crisis; * however, the Bank decided to cancel in mid-1990, the processing of a new loan of US$375 million to NTPC after completion of negotiations; * following many drastic measures taken by GOI and NTPC,20 NTPC was, as of March 31, 1993 (end of FY93), in compliance with the modified21 accounts receivable covenant. Then, based on this data, the Board of Executive Directors approved in June 1993, Ln. 3632-IN for the NTPC Power Generation Project; * when the Bank realized that, during the first three months of FY94 (April to June 1993), NTPC bill collection performance had dropped again to about 72% and there was little evidence that NTPC was applying the newly adopted commercial policies by regulating power to defaulting SEBs, on October 21, 1993, the Bank advised GOI that unless NTPC's level of accounts receivable was brought down to two months of sales equivalent by January 15, 1994, the Bank would, in effect from that date, suspend 19 It is stated in para. 4.05 of the SAR dated May 28, 1987, that "the outstanding receivables .... have recently dropped further to about 2.8 months in May 1987 . .... Afler the remaining amounts are paid to NTPC [through central appropriations], the overall level of accounts receivable would be below the equivalent of two months sales." On the same day, the Executive Directors approved Ln. 2845-IN for an amount of US$ 375 million, for the Talcher Thermal Power Project to be built by NTPC. This project is still under construction. 20 During the 1990-1993 period, GOI allowed NTPC: (i) to recover over a period of four years through the Central Appropriations (CA) the arrears accumulated as of the end of May 1990; (ii) to acquire the Unchahar power station from the Government of Uttar Pradesh in lieu of arrears accumulated by the Uttar Pradesh SEB; and, (iii) to shut-off or restrict supply of power to the SEBs in case of non-compliance with agreed terms of supply. 21 As part of conditionality of the then proposed NTPC Power Generation Project, the Bank agreed that for the purpose of monitoring compliance with the two months accounts receivable covenant, the amounts still due from CA were to be excluded.  - 12 - India's rights to make withdrawals from Ln. 2844-lN and Ln. 2845-IN (Talcher Thermal Power Project) until NTPC was in compliance with the agreed receivable covenant, * the Bank also informed NTPC that Ln. 3632-lN would not be declared effective until NTPC was in compliance with the receivable covenant; * on February 2, 1994, the Bank agreed to keep the formal suspension in abeyance up to May 1994, in recognition of NTPC's progress in dealing with its bill collection problems and its applications of the new commercial policies, while GOI and NTPC agreed to refrain from submitting withdrawal applications under Ln. 2844-UN and Ln. 2845-lN from March 1, 1994; * following further actions by GOI and NTPC, in early June 1994, NTPC was in compliance with its commitments. On June 6, 1994, the Bank lifted the above mentioned informal suspension of disbursements and declared Ln. 3632-IN effective. Although relations between the Bank and GOI and NTPC were tense at times, the Bank's persistence on commercial behavior by NTPC has led to positive results and is, in fact, much appreciated now by NTPC. 22. DESU Component. The component was designed to provide funds for its investments and for technical assistance to address DESU's institutional, managerial, engineering and financial problems. Even during the project preparation stage it had been established that, with debts exceeding assets by more than Rs. 3.4 billion (about US$261 million equivalent)22 and short of working capital, DESU was in dire financial straits. Agreement with the Bank on a satisfactory financial strengthening action plan was at first a condition for negotiations. After waiting for about one year, the Bank proceeded with loan negotiations based on a conceptual approach addressing the need for technical assistance in those specific areas, with details to be worked out later as a dated condition, instead of pinning down specific action plans.23 This approach was unsuccessful and led to the ultimate cancellation of this component. 23. The Project. The need to put DESU back on a sound financial footing having been fully identified, a specific action plan should have been developed before negotiations. The performance of the Bank in respect of project preparation and appraisal concerning the DESU component was, therefore, deficient. However, the performance of the Bank with respect to the restructured project was satisfactory. 22 With the exchange rate of Rs. 1 3.00/US$, prevailing at appraisal. 23 GOI committed to furnish to the Bank, not later than February 29, 1988, a satisfactory plan for the financial strengthening of DESU, and thereatler to implement the said plan. The plan was furnished in early 1989. It wvas not satisfactory.  - 13 - F. Borrower Performance 24. NTPC Component. GOI's and NTPC's performances in respect of the NTPC component were satisfactory. Compliance with the covenants of the loan was satisfactory, except for the one requiring NTPC to reduce its accounts receivable to within 2 months of equivalent monthly billing. It was only towards the end of the implementation of the project that GOI and NTPC realized that a sound financial health is a key element to the success of a utility and NTPC was finally in compliance with this covenant. NTPC's willingness to follow commercial practices has greatly improved its financial position. GOI's intervention through the CA helped NTPC avert financial crises and resolve, for limited periods, its accounts receivable problem. These interventions aimed at having NTPC operate efficiently and thus keep the energy supply in the country at an adequate level. However, it is doubtful that GOI's actions have resulted in improving the operational efficiency as well as the billing and collection practices and procedures of SEBs which buy power from NTPC. What is equally important, but so far received little attention, is the need for energy conservation on the customer (SEBs) side and demand management through the adoption of appropriate tariffs and tariff structures and through end-use efficiencies. NTPC's performance in the design and engineering of the construction of the Dadri TPP and rehabilitation of the Badarpur TPP was commendable. NTPC used the knowledge it had transferred from consultants and experience it had gained during the implementation of the previous projects. Limited support from consultants was utilized in few areas such as coal handling, transportation, storage and disposal of dry ash in Dadri, railway link and tubewell network system. 25. DESU Component. GOI's and DESU's performances in respect of the DESU component were unsatisfactory. The commitments made by GOI during the negotiations of the loan were not kept. GOI was given adequate time to present the financial recovery plan for DESU. It was only after repeated attempts failed to extract a viable plan did the Bank finally cancel the loan amount of US$60 million allocated for the DESU component. 26. The Project. Due to the failure of the DESU component the performance of the Borrower for the original project was deficient. The performances of the Borrower and NTPC with respect to the restructured project were satisfactory. G. Summary Assessment of Outcome 27. The outcome expected for the original project was not obtained due to the cancellation of the DESU component. Thus the outcome of the project is assessed as deficient (Part II; Table IA). However, the results of the restructured project are satisfactory (Part II; Table I B). NTPC has been able to increase its generating capacity in the Northern Region with the commissioning of the 4 x 210 MW Dadri as well as the rehabilitation of the 720 MW Badarpur TPPs. With the upgrading of the ESPs at Badarpur TPP, the overall air quality in the area has improved. Institutionally, the project has assisted NTPC to continue to improve its finances and achieve success with commercial objectives. This policy has indeed helped NTPC improve its  - 14 - tariff structures and load management procedures as well as mobilize additional resources from outside the public sector to strengthen its financial and economic efficiency. H. Future Operation 28. The NERC standard for a coal-fired power station specify that a power plant such as the one at Dadri should achieve a minimum PLF of 63% in the first two years of its operation, and 75% PLF thereafter for the next 8 years. Although most power plants outperform the NERC standard, Dadri TPP's performance would be monitored against the standard specified by NERC. The corresponding availability of the plant is expected to be 70% during the first two years of operation24 and 79% thereafter. The PLF equates to a generation of about 1.6 TWh of energy by each unit per annum. However, achieving these targets is contingent upon the plant receiving coal, as required. 1. Key Lessons Learned 29. Several specific lessons can be drawn from this project that have both operational and strategic implications for the design of similar projects in the future: a) The Dadri and Badarpur TPPs should receive coal of proper quality and in required quantities in order to operate in a sustainable manner at their respective full capacities (para. 19, and Annex D). b) A sound financial health is a key element to the success of a utility. NTPC's willingness to follow commercial practices has greatly improved its financial position. GOI/Bank/NTPC dialogue on NTPC's financial situation and its application of the commercial policies (in particular, cutting off supply to non-paying customers) should be continued (para. 24, and Annex C). c) The successful completion of the first phase of rehabilitation of the Badarpur TPP clearly serves to establish that power plant rehabilitation is indeed an economically viable proposition. Projects such as these which assure optimal utilization of existing assets should continue to be supported (para. 19). d) GOI intervention through the Central Appropriations (CA) helped NTPC resolve its accounts receivable problem, even though for a limited period of time. It is doubtful whether GOI's actions have led to the SEBs improving their operational efficiency and their billing and collection procedures and practices. What is equally important, but so far receiving little attention, is the need for energy conservation on the customer (SEBs) side and demand management by the utility through the adoption of appropriate tariffs and tariff structure at SEBs and through end-use efficiencies. GOI/Bank/ States dialogue on 24 All four units have been in commercial operation since December 1995. Therefore, the first year would be NTPC's fiscal year 1996/97.  - 15 - the restructuring by the states of their respective power sectors is a step forward and should be continued (para. 24). e) Project preparation, with all its components, should be completed in detail well ahead of loan negotiations. A conceptual project description for the purpose of completing loan negotiations, with details to be worked out later, is no proxy for fulfilling the requirements of project appraisal as the DESU component of the project clearly serves to demonstrate (para. 22). f) The procurement cycle, starting from bid issue to contract award, should be significantly shortened (para. 9). g) Local manufacturing capability, cheaper labor, deemed export benefits and the provision for domestic preference in accordance with Bank guidelines for procurement, weigh in favor of local bidders enabling them to win contracts over foreign competition. However, the existing backlog of the winning bidders, vis-a-vis their manufacturing capability, should be strictly evaluated to determine whether they would be capable of performing the contracts on schedule, if awarded through the bidding process. Failure by reputed local manufacturers to deliver critical equipment on time has caused the project long delays, as was the case for the supplier of the ash handling plant (para. 10).   - 16 - PART II: Statistical Tables Table IA: Summary of Assessments for the Original Project (NTPC and DESU Components) A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macroeconomic policies * 1/ Sector policies * 2/ Financial objectives * 2/ Institutional development * 2/ Physical objectives * 3/ Poverty reduction *l1 Gender concerns *li Other social objectives * 4/ Environmental objective *3/ Public sector management * 2/ Private sector development *li Other B. Project Sustainability Likelv Unlikelv Uncertain .5/ C. Bank Performance Highly satisfactory Satisfactory Deficient Identification * 6/ Preparation assistance * 6/ Appraisal * 6/ Supervision * 6/ D. Borrower Performance Highly satisfactory Satisfactory Dcficient Preparation * 7/ Implementation * 7/ Covenant compliance * 7/ Operation V 7/ E. Assessment of Outcome Highly satisfactory Satisfactory Deficient * 81 I/ The objectives did not include any specific action for malcroeconomic policies, poverty reduction, gender concern issues and private sector development. 2/ Sector policy and public sector management objectives were partially achieved throtuglh financial and institutional strengthening of NTPC, while those for DESU were not, due to the cancellation 3/ Physical and environmental objectives were substantially achieved with the completion of the conistnictioni of the Dadri TPP and rehabilitation of the Badarpur TPP. Such objectives for the DESU component were not achieved. 4/ There were no special social objectives in the project. However, satisfactor-y resettlement and rehabilitation of the people affected by the Dadri TPP was an objective and has been partially achieved. Follow up is being canied out under the NTPC Power Generation Project. 5/ Paras. 19 and 20 - The sustainability of the NTPC componenlt wlhiclh was implemenited is likely 6 Paras. 21-23. 7/ Paras. 24-26. 8/ The outcome expected for the original project was not obtained (para 27)  - 17 - Table IB: Summary of Assessments for the Restructured Project (NTPC Component) A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macroeconomic policies El1 Sector policies * 2/ Financial objectives E 2/ Institutional development E 2/ Physical objectives * 3/ Poverty reduction *l1 Gender concerns Eli Other social objectives * 41 Environmental objective * 3i Public sector management E 2/ Private sector development E l/ Other U B. Project Sustainability Likely Unlikely Uncertain .5/ C. Bank Performance Highly satisfactory Satisfactory Deficient Identification * 6i Preparation assistance * 61 Appraisal *J6 Supervision * 6/ D. Borrower Performance Highly satisfactory Satisfactory Deficient Preparation E 7/ Implementation * 7/ Covenant compliance E 8/ Operation * 7/ E. Assessment of Outcome Highly satisfactory Satisfactory Deficient * 91 1/ The objectives did not include any specific action for macroeconomic policies, poverty reduction, gender concern issues and private sector development. 2/ Sector policy and public sector management objectives were partially achieved through financial and institutional strengthening of NTPC. 3/ Physical and environmental objectives were substantially achieved with the completion of the construction of the Dadri TPP and rehabilitation of the Badarpur TPP. 4/ There were no special social objectives in the restructured project. However, satisfactory resettlement and rehabilitation of the people affected by the Dadri TPP was an objective and has been partially achieved. Follow up is being carried out under the NTPC Power Generation Project. 5/ Para. 19 - Availability of coal of proper quality and required quantities must be ensured. 6/ Para. 21. 7/ Para. 24. 8/ Because of NTPC's non-compliance for most of the implementation period vith the accounts receivable covenant, covenant compliance is assessed as "deficient" (para. 21). 9/ Para. 27.  - 18 - Table 2: Related Bank Loans/Credits Loan/Credit title Purpose Year of approval Status IBRD Loans Preceding Operations Ramagundam Thermal 3x200 MW thermal 1/79 Complete Farakka Thermal 3x200 MW thermal 6/80 Complete Second Ramagundam Thermal 3x500 MW thermal 12/81 Complete Central Power Transmission 400kV + 220 kV transmission 5/83 Complete Second Farakka Thermal 2x500 MW thermal 6/84 Complete Rihand Power Transmission 500kV HVDC+400kV AC 5/85 Complete Combined Cycle Power 413 MW (Anta) 4/86 Complete 652 MW (Auraiya) 644 MW (Kawas) National Capital Power Supply 4x210 MW thermal 6/87 Complete Following Operations Talcher Thermal 2x500 MW thermal 6/87 Under Construction NTPC Power Generation Improve commercial 6/93 Under discipline, environmental and Construction R&R management capability, increase generation capacity (as of date of this ICR, the following TPPs have been declared eligible for funding under this project: (a) 2x500 MW coal-fired Vindhyachal II TPP; and (b) 400 MW Kayamkulam naphta-based combined cycle TPP) Total IBRD Loans 10 IDA Credits Preceding Operations Singrauli Thermal 3x200 MW+400kV AC 4/77 Complete Ramagundam Thermal 3x200 MW thermal 1/79 Complete Korba Thermal 3x200 MW thermal 4/80 Complete Second Singrauli Thermal 2x500 MW thermal 5/80 Complete Farakka Thermal 3x200 MW thermal 6/80 Complete Second Korba Thermal 3x500 MW thermal 7/81 Complete Total IDA Credits 6 Sectoral Obiectives Common to the Above Projects In addition to the above project-specific objectives, the sectoral objective was to assist NTPC become a model utility for the poorly performing SEBs.  -19 - Table 3: Project Timetable Steps in project cycle Date lanned Date actual Identification 1983 Preparation 6-7/84 Preappraisal 11-12/84 Appraisal 5/86 Negotiations 2/87 Board presentation 6/87 Signing 12/87 Effectiveness 11/87 3/88 Cancellation of DESU component - 8/90 Restructuring of the Project Project completion (restructured project) 12/94 12/31/95 Loan closing 6/30/95 12/31/95 Table 4A: Loan disbursements: Cumulative Estimated and Actual (NTPC Component) FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 Appraisal Estimate: Annual 34(0 46.0 73.0 85.0 76.0 55.0 39.0 17.0 Cumulative 34.0 80.0 153.0 238.0 314.0 369.0 408.0 425.0 Actual: Annual 38.5 37.1 49.9 60.2 59.6 24.8 25.4 1.2 26.1 Cumulative 38.5 75.6 125.5 185.7 245.3 270.1 295.5 296.7 322.8 Actual as % of estimate 113 80 68 71 78 45 65 7 Date of final disbursement IMay 3, 1996 Notes: 1. Appraisal disbursement estLmates correspond to Bank FY July through June 2. Out of US$425 million for the NTFPC Component, US$102.2 million was canceled as not required Table 4B: Loan disbursements: Cumulative Estimated and Actual (DESU Component) FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 Appraisal Estimate 3.0 11.0 23.0 36.0 46.0 53.0 58.0 60.0 (Cumulative) _ Actual Actual as % of estimate Date of final Disbursement This component was canceled in 1990 as GOI and DESU were in default of their commitments  - 20 - Table 5: Key Indicators for Project Implementation (for NTPC Component) I. Key Implementation Indicators in SAR/President's Report Package Bid Issue Evaluation Bank Approval Contract Complete Award Boiler Planned 04/87 03/88 Actual 10/86 10/87 11/87 12/87 Turbine- Planned 04/87 03/88 Generator Actual 10/86 10/87 11/87 11/87 Generator Planned 09/87 09/88 Transformer Actual 09/87 12/88 12/88 01/89 Cooling Planned 10/87 7/88 Towers Actual 09/87 05/88 11/88 Coal Planned 11/87 10/88 Handling Actual 10/87 09/88 10/88 11/88 Ash Planned 02/88 10/88 Handling Actual 07/88 7/89 09/89 11/89 400 kV Planned 01/87 5/88 Substation Actual 11/87 09/88 09/88 9/88 Table 6: Key Indicators for Project Operation (for NTPC Component) Indicator Unit I Unit 2 Unit 3 Unit 4 P/I A P A P A P A Erection Start (Boiler) 5/89 2/89 11/89 9/89 5/90 5/90 11/90 2/91 Light Off 8/91 2/91 2/92 3/92 8/92 11/92 2/93 11/93 Synchronize 3/92 10/91 9/92 12/92 3/93 3/93 9/93 3/94 Commercial Operation 9/92 1/93 3/93 3/94 9/93 4/95 3/94 12/95 Generation, GWh /2 3.7 3.6 2.1 2.4 0.67 1.2 0.1 0.15 Availability, % 70/79 79.8 70/79 80.8 70/79 8(.8 70/79 /3 ____ /3. /3 /3 Plant Load Factor, % 63/75 62.2 63/75 63.2 63/75 73.8 63/75 /3 _ _ _ __/3 /3 _ _ _ _ /3 /I P: Planned at the time of award of the boiler and turbine generators contracts (Part H; Tablc 5) A Actual /2 Based on expected generation in accordance with NERC standard for coal-fired power plants. Calculated from date of commercial operation. /3 First 2 years/next 3-10 years  - 21 - Table 7A: Project Costs Appraisal estimate (USSM) Actual (USSM) ** Local Foreign Total Local Foreign Total A. NTPC Preliminary Works 24.8 - 24.8 28.6 - 28.6 Civil Works 109.6 7.7 117.4 99.4 - 99.4 Main Plant Equipment 176.0 171.4 347.4 134.4 99.9 234.3 Other Mechanical Equipment 60.9 61.0 121.9 82.0 25.9 107.9 Coal Handling & Transportation 89.7 45.4 135.1 40.8 2.7 43.5 Electrical Equipment 15.2 41.3 56.5 44.6 1.5 46.1 Precommissioning Expenses 1.9 - 1.9 Equipment and Materials for 12.7 10.5 23.2 6.5 - 6.5 Badarpur Power Station Consulting Services, Engineering and Administration 54.2 2.1 56.3 35.6 35.6 Total for NTPC 543.1 339.4 882.6 473.8 130.0 603.8 B. DESU Transmission Lines and 63.7 38.8 102.5 - - - Substations Consulting Services for DESU 3.0 0.7 3.7 Total for DESU 66.7 39.5 106.2 Total Base Cost 609.9 378.9 988.8 473.8 130.0 603.8 Physical Contingencies 37.2 19.3 56.5 Price Contingencies 217.7 90.1 307.8 Total Project Cost 864.8 488.4 1,353.2 473.8 130.0 603.8 Interest During Construction 68.4 120.5 188.9 110.9 - 110.9 Total Financing Required 933.2 608.9 1,542.1 584.7 130.0 714.7 NOTE: In terns of Rupees, financing requirements estimated at appraisal equate to Rs.20,046 million, with the exchange rate of Rs.13.00/UJS$. Actual cost is Rs.19,433 million at the average exchange rate of Rs.27.19/US$, during the project implementation period. (*) Original project (NTPC and DESU components are shown separately). (**) Restructured project (DESU component not implemented). Table 7B: Project Financing Appraisal Estimate (USSM Actual (US$M) Source Local costs Foreign costs Total Local costs Foreign Total costs NTPC: IBRD - 425.0 425.0 192.8 130.0 322.8 GOI/NTPC 841.3 123.9 965.2 146.3 - 146.3 /1 DESU: IBRD - 60.0 60.0 - GOI/DESU 91.9 - 91.9 - - IBJ-11 - - 37.4 37.4 NTPC: DOMESTIC LOANS 98.3 98.3 INTERNAL RESOURCES 109.9 109.9 Total 933.2 608.9 1,542.1 584.7 130.0 714.7 /I GOI Loan & Equity  - 22 - Table 8: Economic Costs and Benefits (Rs. Million) Fin. Year Capital O&M Fuel Total Cost Incr. Sales Net Benefit Exp. 1984 2.4 - - 2.4 - -2.4 1985 45.6 - - 45.6 - -45.6 1986 47.6 - - 47.6 - -47.6 1987 70.3 - - 70.3 - -70.3 1988 598.1 - - 598.1 - -598.1 1989 633.6 - - 633.6 - -633.6 1990 1804.1 - - 1804.1 - -1804.1 1991 2634.2 - - 2634.2 - -2634.2 1992 1984.3 - - 1984.3 - -1984.3 1993 1558.0 - - 1558.0 - -1558.0 1994 1817.6 1049.0 137.9 3004.6 2135.4 -869.2 1995 1088.8 1642.1 250.8 2981.7 3717.2 735.5 1996 389.6 2672.6 380.6 3442.8 5057.5 1614.7 1997 219.0 3142.8 377.6 3739.4 7752.7 4013.4 1998 - 3142.8 377.6 3520.4 7752.7 4232.3 1999 3142.8 377.6 3520.4 7752.7 4232.3 2000 3142.8 377.6 3520.4 7752.7 4232.3 2001 3142.8 377.6 3520.4 7752.7 4232.3 2002 3142.8 377.6 3520.4 7752.7 4232.3 2003 3142.8 377.6 3520.4 7752.7 4232.3 2004 3142.8 377.6 3520.4 7752.7 4232.3 2006 3142.8 377.6 3520.4 7752.7 4232.3 2007 3142.8 377.6 3520.4 7752.7 4232.3 2008 3142.8 377.6 3520.4 7752.7 4232.3 2009 3142.8 377.6 3520.4 7752.7 4232.3 2010 3142.8 377.6 3520.4 7752.7 4232.3 2011 3142.8 377.6 3520.4 7752.7 4232.3 2012 3142.8 377.6 3520.4 7752.7 4232.3 2013 3142.8 377.6 3520.4 7752.7 4232.3 2014 3142.8 377.6 3520.4 7752.7 4232.3 2015 3142.8 377.6 3520.4 7752.7 4232.3 2016 3142.8 377.6 3520.4 7752.7 4232.3 2017 3142.8 377.6 3520.4 7752.7 4232.3 2018 3142.8 377.6 3520.4 7752.7 4232.3 2019 3142.8 377.6 3520.4 7752.7 4232.3 IRR = 18.7% (para. 17)  - 23 - Table 9: Status of Legal Covenants Ref. COVENANT COMPLIED Loan Aireement: LA 3.01(b) GOI will enter into a subsidiary loan agreement with NTPC yes under terms satisfactory to the Bank (condition of effectiveness) 3.01 (c) GOI will enter into a Financial Arrangement with DESU under yes terms s satisfactory to the Bank (condition of effectiveness) 3.01(d) GOI to provide NTPC amounts from loan account, on specified yes (1) terms and conditions, in the first month of the quarter following the quarter in which amounts are withdrawn by GOI 4.01(b) GOI/NTPC to furnish Audit on SOEs (due within 7 months of yes (1) FY end) 4.02 GOI to furnish to the Bank not later than 6 months after the end yes of FY the auditor's report in respect of the Special Account 4.03 GOI to furnish to the Bank, not later than February 29, 1988, no (2) a satisfactory plan for the financial strengthening of DESU, and thereafter to implement the said plan. NTPC Project Aareement: PA 3.04 NTPC to contract for coal supplies not later than one year prior yes to commissioning power station under the project 4.01(b)(ii) NTPC to furnish audited statements, along with the audit report, yes not later than 7 months after end of FY 4.02 NTPC to take all necessary measures to maintain its accounts no (3) receivable (excluding amounts to be recovered through Central Appropriations) at a level not exceeding an amount equivalent to the proceeds of its sales of power in the preceding two months. 4.03 NTPC shall achieve an annual ROR of not less than 7% in 1984/85 yes through 1989/90 and not less than 9.5% in 1990/91 through 1994/95 and thereafter at satisfactory levels to ensure financial viability Schedule 2 NTPC to implement Technical File Management system by yes December31, 1988 As the DESU Component was not implemented, covenants of the DESU Project Agreement are not listed. 1) Sections 3.01 (d) and 4.01 (b) of the Loan Agreement covered DESU as well. However, no disbursements were made under the DESU Component. As this component was not implemented and canceled, GOI and DESU did not need to furnish audits reports for DESU. 2) The plan, furnished to the Bank in early 1989 was not satisfactory to the Bank. The Bank used its remedies and canceled the DESU Component. 3) It was towards the end of implementation of the project that NTPC was in compliance with this covenant (para. 24 and Annex C).  - 24 - Table 10: Bank Resources: Staff Inputs Stage of Project Cycle Planned Revised Actual Weeks US$ Weeks US$ Weeks US$ ________ 000) Through Appraisal 26.5 61.8 Appraisal-Board 83.9 163.4 Board-Effectiveness 6.3 14.7 Supervision _ _ 56.9 160.4 Completion 8.5 30.8 6.5 22.7 9.0 23.3 TOTAL 182.6 423.6 Table 11: Bank Resources: Missions Stage of Month! No. of Days Specialized Performance Rating Project Cycle year Persons infield staff skills Implemen- Development Types of represented tation status impact problems Through appraisal _ Appraisal throughBoard |_l _ l_l Board approval through effectiveness Supervision 1 2/88 5 4 E, FA, PR 1 HS 1, IN Supervision 2 5/88 3 3 E,FA,EN 2 S Supervision 3 10/88 4 3 E,FA,EC 2 S I Supervision 4 8/89 4 3 E,FA,EC 2 S PR Supervision 5 9/90 Supervision 6 2/91 1 2 E 2 S PR Supervision 7 7/91 3 3 E,FA,EN 2 S I Supervision 8 2/92 Supervision 9 10/92 2 3 E,FA 2 S I Supervision 10 6/93 4 3 E,FA,EN 2 S I Supervision 11 9/93 7 5 E,FA,EC, 2 S I EN Supervision 12 1/94 5 3 E,FA,EN 2 S I Supervision 13 6/94 5 3 E,FA,EN 2 S I Supervision 14 10/94 4 3 E,EN 2 S I Supervision 15 11/95 1 4 E 2 S I Completion 11/95 1 6 E 2 S I and 2/96 Legend: E: Engineer; FA: Financial Analyst; EC: Economist; EN: Enviromnental Specialist; S: Specialist I= No or minor problems; 2 = Moderate problems; 3 = Major problems I = Implementation delays; IN = Institutional Problems; PR = Procurement Delays  - 25 - ANNEX A HIGHLIGHTS OF THE ICR MISSION A. The ICR Mission of the Bank met with the Chairman/Managing Director and other senior officials of NTPC on February 29, 1996 and discussed the following: 1. Even though the Dadri power plant was in commercial operation, one generating unit was out of service because there was no coal. The same situation prevailed at the Badarpur thermal power station where one of the generating units was also out of service for want of coal. Even though NTPC was not responsible for the situation, it was unconscionable in view of the fact that regular load shedding, especiallv at peak hours, was being carried out in Delhi to balance supplv and demand of electricity. The mission emphasized that full economic benefits of the project were not being realized and that the matter called for a satisfactory resolution as soon as possible. 2. The coal linkage policy of GOI was obviously not working. NTPC should be prepared to procure its own fuel from the least-cost source and arrange for its transportation to the respective sites in a free market environment, while meeting the agreed minimum rate of return on its investments. This matter should be taken up with GOI under a policy dialogue. 3. Rehabilitation of the Badarpur power plant had yielded very encouraging results. The PLF had gone up from 64% to 74%, and the plant availability had improved to above 85%. NTPC informed that the results had encouraged them to prepare a Phase 11 rehabilitation scheme. 4. The ICR was already under preparation, but there were several missing pieces of information. Specifically, NTPC's contribution to the ICR from the Borrower's perspective had to be written and submitted to the Bank. The mission requested NTPC to submit the missing information for the completion of the ICR, as soon as possible (Annex B). B. The ICR Mission also met with Coal India at Calcutta on March 1, 1996. The following points were discussed: I . It was noted that although the Dadri power plant was linked to the Piparwar coal mines in North Bihar, the plant was actually receiving coal from a basket being filled by several coal mines in the vicinity. The result was a mixture of coal that was significantly different from the quality of coal for which the Dadri plant was designed. For instance, ash was in excess of 40%, instead of 28% for which the boiler and its components were designed. The volatile matter was less than 20%. NTPC was paying the penalty for this inferior coal by way of faster wear and tear of the boiler components, lower equipment availability and frequent forced outages. Under the project, a coal washery was to have been set up at the coal mines to improve the quality of coal by washing and the mission inquired of its status. 2. Coal India informed that the coal washery was under construction and expected to be commissioned into service by December 1996 (During later communications with Coal India, it was stated that commissioning of the washery was delayed to June 1997). Piparwar coal mines was currently raising about 6.5 million metric tons (MT) per year. Coal India had  - 26 - approached NTPC to enter into a long term contract (- 15 years) for the beneficiated coal, the price of which was likely to be Rs. 120-140/MT higher than the current coal price. This matter had been pending for a long time and a contract was yet to be signed. Coal India stated that if a contract was not signed soon, it would divert the clean coal to other interested parties. 3. In so far as coal linkage, Coal India in January 1996 had delivered, 316,000 MT to Dadri against an allocation of 300,000 MT and 276,000 MT to Badarpur against an allocation of 270,000 MT. Clearly, allocation by the Coal Linkage Committee was far too short of requirements because one generating unit at each plant was out of servicc for want of coal. 4. Coal India was not aware of any equipment difficulties at the NTPC power plants as a result of inferior quality of coal being supplied. Coal India requested that NTPC be advised to write to the Marketing Department of Coal India explaining in detail the nature of the operating difficulties due to faster wear and tear of the boiler components, higher ash loading. increased incidences of forced outage, etc.  - 27 - ANNEX B PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE' A. STATEMENT/EVALUATION OF OBJECTIVES 1. The main objectives of the National Capital Power Supply Project-Phase I (IBRD Loan 2488-N) were to: (a) provide additional least-cost thermal capacity in the capital city of India through the addition of 840 MW (comprising four coal-fired 210 MW units); (b) improve the reliability of transmission and reduce system losses; (c) reduce environmental pollution from power generation; (d) move towards more efficient use of existing assets in the power supply system; (e) identify economic opportunities for improving the quality of coal used in power generation; and, (f) effect a program of administrative, financial and operational improvements in DESU. 2. As was brought out in the SAR, power development in the Northem Region has been concentrated on coal-fired plants close to the coal fields in the east of Uttar Pradesh and on hydro-electric power plants in the far north of the Region. Both the areas are remote from the rapidly growing load center of the capital city of Delhi. Also, transmission development has not always kept pace with generation. Moreover, even where transmission capacity was adequate because of the acute power shortages in the country, areas with proportionately less generation are unable to maintain reasonable power supplies. Under the circumstances, the only feasible way to maintain an adequate power supply to Delhi was to build more capacity in the area. B. ACHIEVEMENT OF OBJECTIVES 3 . So far as the first and the prime objective is concerned, all the four units (4x2 10 MW) have been synchronized and have already started supplying much needed power to the capital on a sustained basis. Ninety per cent of the power from the National Capital Power Supply Project has been allocated to Delhi and the power supply position in Delhi has greatly improved in the last couple of years due to National Capital Power Supply Project as well as increased and more reliable availability of power from Badarpur Thermal Power Station after the renovation and modernization of the plant. 4. The National Capital Thermal Project is thus on its way to achieve the main objectives of supplying additional least cost power to the capital through commercial operation of the four 210 MW units. 5. Through the renovation of electrostatic precipitators (ESPs) at Badarpur and the use of savings from the loan in other air quality improvement programs, the objective of reducing environmental pollution from power generation has also been greatly achieved. 6. The National Capital Power Supply Project has been designed to use beneficiated coal and is one of the first power projects in India which has recognized the need for improving the quality of coal used in power generation. 1 Perspective provided by NTPC and endorsed by GOI with their letter dated June I1, 1996.  - 28 - C. PROJECT DESIGN 7. Right from the inception of NTPC, the achievement of self sufficiency in the design and engineering of large thermal power stations was adopted as an organizational objective. In this respect, NTPC has already acquired adequate experience in the area of design and engineering of 210 MW units at its various operating projects like Singrauli, Korba and Ramagundam, Farakka, etc. This experience was gainfully utilized by NTPC by way of successful design and engineering of the National Capital Thermal Power Project in-house, with very limited support from consultants in few areas such as the dry ash handling, transportation, storage and disposal, railway siding and tubewell network systems. 8. The technical specification for various packages and detailed design review of the project were similar to those followed in other NTPC stations and were also in line with the general practice followed by other power utilities the world over for construction of such projects. D. PROJECT IMPLEMENTATION (*) D.I. General 9. Although there was no delay in the synchronization of the first unit, various circumstances, mostly economic in the domestic as well as international fronts, contributed greatly to the non-performance of the various contractors. As has been detailed below, the major delays could be attributed to: - initial delays in the piling and foundation work resulting in delays in structural steel work. - delays in supply of critical boilers parts and ash handling system - policy changes imposing various restrictions on imports - high rate of inflation and rupee devaluation, etc. D.II. Reasons For Delay In Synchronization Unit # Scheduled Actual Delay in Synchronize (+) Synchronize Months Unit I Mar. '92 Oct. '91 5 Unit II Sep. '92 Dec.'92 2 Unit III Mar.'93 Mar.'93 0 Unit IV Sep.'93 Mar.'94 6 (+)Scheduled at the time of award of boilers and turbine generators. (E) IBRD's Note: NTPC compares the actual dates with the dates set at the time the contracts for the main plant equipment (boilers and turbine generators) were awarded in December 1987.  - 29 - (i) The delay in synchronization of Units 11 & IV was because of delays in Piling and Foundation work by NBCC. For Unit 11, there was a delay of eight months in SG foundation and sixteen months in TG foundation. NTPC crashed the subsequent activities by way of off-loading part of the work to other agencies and overall delay in the synchronization of Unit 1I was brought down to 2 months. By off-loading the works of Units III and IV to other agencies, delay in Units IV was contained to 6 months, which might have otherwise been more. (ii) Non-readiness of the Cooling Towers also affected the synchronization program. D.1II. Reasons For Delay In Commissioning Of Units (a) Political And Economic Environment. The project had to steer through times wvhen the country faced environmental imbalance in the areas of economy and infrastructure causing high inflation and imposing serious constraints on the progress of the project. (b) Increase In Margin Money For Imports. Due to adverse balance of trade payment prevailing in 1989, Government imposed conditions of 100 per cent Bank Guarantee for fulfillment of export obligation in Ma' 90. To put further restriction on imports, the Government prescribed 50 per cent margin for opening of Letter of Credit (LC) in October 1990, which was further raised to 110 per cent in March 1991. Further, the Government directed that for anv LC valued at more than Rs. 50 lacs, permission of the Reserve Bank of India's Central Office was mandatory. To arrange such high margins and to obtain permission of the RBI was very time consuming for most of the contractors. (c) Rupee Devaluation & Withdrawal Of Cash Compensatory Support. Import restrictions were further aggravated with the steep devaluation of rupee by almost 26 per cent in two stages in July 1991. Simultaneously, the Government had withdrawn cash compensatory support available for World Bank financed contracts with effect from July 1991 which affected the performance of contractors. (d) Effect Of The Gulf War On Project Imports. Most of the major contracts covered under the World Bank financing had envisaged large import content for the execution of the contracts. The general economic condition of the country after the Gulf War between the beginning of 1990 and the end of 1992 was of great uncertainty coupled with issues related to social and civil disorder. All these uncertainties affected the timely execution of these contracts to a great extent. (e) Disintegration Of The Eastern Block Countries In Europe. Consequent to the disintegration of the Eastem Block countries in Europe, the Trade Agreement between the Government of India and Poland ceased with effect from July, 1991 and this affected the import of equipment's for ash transportation system. (f) Decontrol Of Steel. Steel prices in India were decontrolled from March, 1992 and as a result there was steep rise in the price of steel which could not have been foreseen when the contracts were awarded. Since the contracts were covered under the general escalation formula, compensation to contractors for such high price increases was not covered under the framework of the contract and had to be separately discussed and negotiated which caused certain delays.  - 30 - (g) High Inflation. There was unprecedented price increase in this period which can be seen from different published economic indices of the Government of India. These uncertainties had prevailed up to the end of 1992 till economy could stabilize. These contracts were awarded mostly during the period 1988 and 1989. Though NTPC had extended all possible help to the contractors delays resulting from such changes could not be arrested. D.IV Delay In Coal Firing Of Units Unit # Scheduled Actual Delay in Coal Firing (-) Coal Firing Months UNIT - I June '92 Aug. '92 2 UNIT - II Dec. '92 Dec. '93 12 UNIT - III June '93 Oct. '94 16 UNIT - IV Dec '93 Mar '95 15 (+) Scheduled at the time of award of boilers and turbine generators. (a) Ash Handling Spstemn The delay in coal firing is attributable to delay in readiness of the ash handling system in case of Units I & II, delay in commissioning of fly ash and bottom ash in case of Units III & IV. Inordinate delay in supplies by vendor due to heavy order booking, shortage of pig from coupled with prevailing uncertainties in the economic environment delayed the coal firing program. (b) Coal Handling System. The coal handling system was awarded to M/s. Aling. Delay of four months in site mobilization. delay in supplies of major equipment, organization instability and poor site managemcnt by the contractor led to delay in readiness of the coal handling system. Even after extcnding help, the vendor could not perform satisfactorily. (c) Ash Disposal Systemn The Ash Disposal System by M/s. MAMC could not be made ready in time due to delay in design stage as the technical collaboration of M/s. MAMC with M/s. KOPEX, Poland had failed. Further, the vendor could not come out of the financial crisis faced by them. (d) Railway Siding Work M/S. Ircon. This package was severely affected due to delayed availability of land. frequent obstruction by villagers and stay orders taken by them during construction. Against scheduled completion of May 1991, the downstream works could be completed in September 1993 and upstream in June 1995. Unit I was coal fired in August 1992, only by arranging coal through road transportation. E. OPERATIONAL EXPERIENCE 10. Presently, all the four units are available for generation and during 1995-96, the plant has been operating at an availability factor of 76.5 per cent with a Plant Load Factor of 60.8 per cent. The generation from Dadri would have been much higher but for losses due inadequate supply of coal because of which it has lost over 750 MU already (almost 20 per cent of total generation). The present coal linkage is not sufficient to run all the four units at a PLF (Plant Load Factor) of 75 per cent. Another factor which has contributed to lower generation is the restriction from the grid due to which the plant has lost almost 400 MU (over 10 per cent of total generation).  -31- 11. Except for the above two major constraints in generation, the plant does not have any major operational problems. Some of the minor operational constraints are with respect to the ash handling, evacuation and transportation systems which have been aggravated by the quality of coal. The Dadri power plant was designed for washed coal from the Piparwar mines. However, the plant has not been receiving any washed coal since the coal washery at the mine end is delayed and is likely to be ready only by June, 1997. 12. There were some failures of the boiler feed pump shafts but the problem has now been identified and rectification is being done by the manufacturers. The paddle feeders in the coal handling plant were found to be of under-capacity and modifications have been done in three of the four paddle feeders. F. EVALUATION OF BORROWER'S OWN PERFORMANCE 13. As in other projects of NTPC where it commissioned the projects on schedule and, in many cases, even ahead of schedule, adequate advance planning was done even in case of National Capital Power Supply Project. Against the SAR schedule of synchronizing the first unit in November, 1991, it was synchronized five months ahead of schedule. To achieve this objective, NTPC applied its Integrated Project Management and Control System (IPMCS) in this project. 14. While the use of the project management system and close monitoring did assist NTPC in commissioning its units in other projects either on time or in some cases, even ahead of schedule, in the case of the National Capital Power Supply Project (Phase 1), even though the proven project management system was adopted and critical contracts were awarded to experienced contractors, who had carried out similar jobs on other projects, there were delays in commissioning of the units due to reasons beyond the control of NTPC as discussed above under project implementation. 15. Leaving aside the delays in completion of the project, the performance of NTPC is considered to be satisfactory in meeting the basic objective of ameliorating the power supply in the capital and posting a positive rate of return on investment as outlined in the Bank's appraisal report. G. EVALUATION OF PERFORMANCE OF THE BANK AND COFINANCIERS 16. National Capital Thermal Power Project was taken up for implementation by NTPC after a series of large thermal power project such as Singrauli, Korba, Ramagundam, Farakka, etc. The assistance extended by the Bank contributed substantially in bringing the project to fruition. The project was supervised closely and an adequate number of site visits under supervision missions were made. Excellent cooperation existed between the Bank staff and NTPC during the implementation of the project. In fact this relationship continues to grow and to date Bank group has extended financial assistance to NTPC for the implementation of 15 projects. This includes the assistance provided by the Bank for NTPC Power Generation Project under the time-slice concept. 17. Thus it may be seen that after the initial decade of development, the Bank and NTPC have developed an intimate relationship which goes much beyond the substantial financial assistance extended to support NTPC's expansion plans. 18. Other than the Bank, financing was also provided by Industrial Bank of Japan. The balance of the project cost was met from GOI loans and equity contributions as well by NTPOC from its own internal resources.  - 32 - H. PLAN FOR THE OPERATIONAL PHASE OF THE PLANT 19. NTPC gives utmost importance to operational performance of its power plants. Several performance indicators covering efficiency aspects, leading to high level of generation are used to monitor the operations of the power stations. The heat rate, specific oil and specific coal consumption (i.e., fuel consumed per unit generation of electricity), auxiliary power consumption, etc. for efficiency monitoring, and availability factor and plant load factor are used for monitoring the availability aspects. Annual targets are set station wise and unit wise and performance is monitored with respect to the targets. NTPC has been performing at much high level as compared to All India performance of thermnal power sector. 20. Availability of the units and all associated auxiliaries and sub-systems is one of the main advantages of National Capital Power Supply Project for ensuring high PLF and low partial loading. However, the station is presently facing shortages in coal supply since the coal linkage is not sufficient to run all the four units even at a PLF of 75 per cent. 21. National Capital Thermal Power Project has been planned to supply 90 percent of the power generated to Delhi and the balance to states in the Northern Region. Power generated at the station will be transmitted over transmission lines of DESU and Power Grid associated with the project and the interconnected transmission networks of the DESU and the State Electricity Boards in the region. It is expected that the regional transmission systems will operate in an interconnected manner with each state limiting its drawl to the extent of its allocations from the various central generating stations. I. ADEQUACY AND ACCURACY OF INFORMATION IN PART 11 22. Part 11 of the ICR prepared by the Bank includes statistical data covering various aspects of construction and operation of the project. The factual information relating to NTPC, contained in this section is generally based on the Staff Appraisal Reports (SAR) prepared by the Bank for the project, discussions between the Bank and NTPC during various supervision missions and quarterly project progress reports submitted by NTPC. The project cost details are based on actual expenditures already incurred and estimates of the expenditure on balance works to be completed. J. KEY LESSONS LEARNED FROM THE PROJECT 23. The National Capital Power Supply Project is the first project of NTPC which was located far away from a coal mine keeping the load center of Delhi in mind. The experience so far in operating the plant has been that considering the inadequacies in the infrastructure sectors like the railways and coal in India, there is a need for NTPC to examine the possibility of having greater control over movement of coal and the development of captive mining facilities. 24. The contract package list and its procurement procedures need to be reviewed for future projects in order to facilitate curtailment of avoidable delays in procurement and reduced inter-package interface activities. 25. Renovation and Modernization of Badarpur has been a successful experience for NTPC which can help in achieving the national objective or more efficient use of existing assets through R&M of old/under- performing units of the State Electricity Boards.  - 33 - 26. National Capital Power Supply Project at Dadri houses within the same complex a gas based combined cycle power project with a capacity of 817 MW as well as a switchyard for the evacuation of all power. This has ensured the reliability of generation and flexibility of optimal operation of the units.  - 34 - ANNEX C NTPC - FINANCIAL OVERVIEW 1. NTPC at Project Appraisal. NTPC started its commercial operation in February 1982. From 1982 to the time of appraisal, NTPC's financial performance had been satisfactory, except for the accounts receivable, which required many interventions on the part of GOI. NTPC's net earnings in FY87' exceeded forecasts and yielded a rate of return (ROR) of 17.2% based on historically valued assets. The equivalent ROR on revalued assets, calculated on a proforma basis, was slightly more than 13.4%. Cash generation measured as a percentage of average annual capital investment requirements was about 10.7%. NTPC's debt-equity ratio at the end of 1986/87 was 34:66: however, its overall bill collection performance had been very poor. Large uncollected amounts imposed a serious burden on NTPC's finances. Despite this situation, the overall financial performance of NTPC in FY87, by and large, and its financial position at year end were generally satisfactory. 2. NTPC From Loan Approval to Project Completion. Bill collection and accounts receivable have been persistent problems for NTPC, because of the poor financial situation of many SEBs. NTPC's accounts receivable increased at a far greater pace than its revenues and operating income in successive years. The receivables, which represented some 5.2 months of billing in FY87, steadily increased to 7.5 months in FY91. A covenant specifying the level of accounts receivable not to exceed an amount equivalent to the proceeds of its sales of power for the two preceding months was first introduced for NTPC under Loan 2555-IN for the Rihand Power Transmission Project approved in May 1985, with effect from the end of FY86. The covenant was repeated in four subsequent Bank loans.2 NTPC has had great difficulty in complying with the covenant. 3. The accounts receivable as of March 1990 were about Rs. 11.5 billion (some US$500 million equivalent, and represented over six months of current billings). Increasing bill collection and accounts receivable problems led to several interventions by GOI on behalf of NTPC beginning in June 1990. At each of these interventions, GOI assumed the responsibility to clear some of the arrears from SEBs by transferring to NTPC corresponding amounts from its central allocations (CA) to the respective states. Such payments were carried out over a period of four years. In February 1992, NTPC acquired the Unchahar power station in lieu of arrears of the Uttar Pradesh SEB. NTPC has received over Rs. 31 billion from the transfers through the central appropriations from June 1990 to December 1995. Combined with other bill collection efforts, NTPC was able to reduce its level of accounts receivable despite the rapid increase in sales. At the end of FY93, the overall level of accounts receivable was 3.3 months of sales equivalent, but excluding the amount still to be paid through the central appropriations, it was 1.4 months of sales equivalent. During the negotiations of the NTPC Power Generation Project (Ln.3632-IN), agreement was reached that NTPC would maintain the level of its accounts receivable at two months of sales equivalent excluding the amount still to be paid through the central appropriations for which a specific payment schedule was also agreed. On June 29, 1993, when Ln. 3632-TN was approved, NTPC was in compliance with the covenant as clarified. 4. GOI's interventions through the central appropriations helped NTPC avert financial crises and resolve, for limited periods, its accounts receivable problem. These interventions aimed at having NTPC operate efficiently, thus keeping the electricity supply in the country at an adequate level. 5. GOI's policies, directed at increasing commercialization and the efficiency of the power system, have had a substantial impact on NTPC. In October 1992, NTPC adopted new investment and commercial policies. They are designed to introduce better commercial discipline at SEBs, along with improving NTPC's own operational and financial performance, including revenue collection. New two-part bulk supply tariffs  - 35 - for NTPC coal fired stations became effective in November 1992. A study for further reforms in bulk power and transmission tariffs has been completed by consultants to Powergrid (financed by ADB) and recommendations will be implemented in accordance with a plan agreed with GOI as part of ongoing and new Bank operations with Powergrid and NTPC. The process of establishing commercial contracts between the SEBs and the central utilities is cumbersome, but progress is being made with strong Bank support under Loan 3577-TN and the NTPC Power Generation Project. 6. During the first three months of FY94, NTPC's bill collection performance dropped again to about 72% and there was little evidence that NTPC was applying the newly adopted commercial policies by regulating power to the defaulting SEBs. At the end of various communications between the Bank, GOI and NTPC, it was agreed that an informal suspension of disbursements would be in effect with the understanding that GOI and NTPC would refrain from submitting withdrawal applications to the Bank after February 28, 1994 until NTPC was in compliance with the receivable covenant.3 Following further remedial actions by GOI and NTPC, the latter was, as of May 31, 1994, able to comply with the covenant, as amended. The informal suspension was lifted on June 3, 1994 and GOI began once again to submit disbursement applications. NTPC's accounts receivable is being monitored on a monthly basis. 7. NTPC's Financial Status at Project Completion. By the end of FY95, on March 31, 1995, NTPC operated about 22.5% of India's total installed generating capacity and 31 % of the thermal capacity. As a part of the Bank's ongoing dialogue with GOI and NTPC, a number of policy reforms had been introduced which aimed at: (a) improvement of generating efficiency; (b) introduction of commercial policies; (c) entering into undertakings with foreign and local private partners to develop power projects; and (d) introducing two-part bulk tariff, which allowed NTPC to set its tariffs under the fixed cost part in line with the LRMC and pass fuel price variations to the consumers under the variable part. These measures helped NTPC to be in a relatively strong financial position at the end of FY95. NTPC's debt- equity ratio was 42:58, as compared with most power utilities around the world with debt-equity ratios around 80:20. A tabulation of NTPC's actual financial performance, as compared to the SAR projections made at the time of appraisal, is given in Table I of this Annex. The returns achieved by NTPC were well in excess of the rates required under the financial covenants. At the end of FY95, NTPC's debt service coverage was 2.14 and its current ratio 2.75, indicating the availability of adequate resources to service its long-term debt and to meet its current obligations. However, NTPC was unable to comply with its accounts receivable covenant for FY95; the overall level of (net) accounts receivable at the end of March 1996 was about 2.5 months, but 2.0 months excluding the amounts being disputed by the SEBs. 8. NTPC's operating data, summarized in the table below, reflect the spectacular growth the Corporation has experienced during the last seven years. From FY88 to FY95, electricity sales grew at an average annual rate of 22% and the value of average net fixed assets grew at an annual average rate of 26%. The pace of growth, however, is declining. The level of capital investment has been stagnant since FY91 (except for an increase in FY92 due to the transfer of Unchahar assets to NTPC). During FY88-95, capital investment grew annually at a rate of 5%, but in real terms the growth rate was negative (-5%). Capital works in progress remained flat from FY88-91, but there has been some modest increase since FY92. I NTPC's Fiscal Year Ending March 31, 1987 2 Ln. 2674-IN for the Gas Based Combined Cycle Power Project (FY86); Ln. 2844-IN for the National Capital Power Project (FY87); Ln. 2845-IN for the Talcher Thermal Power Project (FY87); and Ln. 3632-IN for the NTPC Power Generation Project (FY93). The other Bank actions until NTPC was in compliance with the agreed receivable covenant were: (i) suspension of India's rights to make withdrawals from the generation component of Ln. 2845-IN (Talcher Thermal Power Project); and, (ii) decision of not to declare Ln. 3632-IN (NTPC Power Generation Project) effective.  - 36 - Annex C - Table ITable 1 - NTPC's Operating and Financial Performance, FY88-95 HOW TO ADD FY95 Comparison of Actual Data and National Capital Power Project SAR Forecasts Fiscal Year Ending March 31 1988 1989 1990 1991 1992 1993 1994 1995 DESCRIPTION SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast NetFixedAssetsinOperation(Rs 47782 28439 97413 41716 112477 65417 134906 85546 152532 120344 166494 105839 197501 112120 245576 124598 Million) Capital Works in Progress (Rs 64890 52187 44697 57062 57243 52360 61160 56039 76302 70080 95564 68870 103366 80798 91142 78867 Million) Installed Capacity (MW) - 3600 - 5220 - 9813 - 10125 - 11333 -- 13054 - 14529 - 15625 Electricity Generation (GWh) 16395 17533 27723 24875 39907 38595 50566 43965 59489 61197 66231 65418 71318 75861 78837 76470 Average Bulk Tariff(P/kWh) 57 41 61 46 64 52 68 53 74 61 78 73 83 84 88 89 (Generation) NetProfitaflerTax&Provision(Rs 2373 3024 4613 3308 7635 5366 11340 7009 14571 10171 16778 8866 19364 10580 23211 11246 Million) AverageNetFixedAssets (Historic) 35902 23856 72598 35078 104945 53567 123692 75482 143719 102945 159513 99406 181998 108980 221539 118359 RateofRetumron H istoricAssets(%/o) 116 16.4 11.6 14.8 13.0 15.0 15.4 12.8 16.7 15.3 17.6 13.7 17.7 16.5 17.1 15.47 RetumnonCapitalEmployed/(%) 9.1 11.5 6.2 10.6 6.2 10.6 7.2 10.6 10.4 9.7 11.7 11.9 13.0 9.7 13.6 11.8 Operating Ratio (%) 55.2 54.7 49.6 59.3 46.5 61.1 45.1 60.2 45.5 60.4 45.6 70.3 45.3 69.8 45.5 71.8 Debt:Equity Ratio 41/59 43/57 41/59 47/53 44/56 47/53 44/56 43/57 41/59 48/52 41/59 47/53 40/60 45/55 42/58 42/58 Current Ratio 0.9 1.68 1.5 1.81 2.0 1.79 2.5 1.90 2.0 1.54 1.9 2.47 1.8 2.57 3.2 2.24 Accounts Receivable (# ofdays) 61 177 61 175 61 210 61 233 61 154 61 168 61 138 61 127 ContrtoConstruction(Annual)0o 7.9% 39.8% 14.8% -1.8% 28.5% 18.8% 43.0% 17.0% 49.3% 31.3% 51.6% 16.2% 49.6% 46.5% 58.6% 48.5% Contrto Construction (3 year 9.0% 38.6%/o 7.3% -1.8% 9.8% 17.5% 25.9% 14.2% 41.3% 45.7% 40.4% 12.2% 49.2% 47.6% 53.3% 47.6% Average) % DebtServiceCoverage 2.8 3.9 2.6 2.4 2.7 2.5 2.90 2.5 2.9 2.4 2.60 2.1 2.4 2.0 2.5 2.1  - 37 - ANNEX D SUPPLY OF COAL AND ECONOMIC OPPORTUNITIES FOR IMPROVING THE QUALITY OF COAL 1. The coal linkage committee of GOI that oversees allocation of coal to various power plants in India decided that the Dadri TPP would be supplied from the Piparwar block of the North Karanpura Coalfields in the Ranchi District of the State of Bihar. However, the coal currently received is from a basket group of coal mines near Piparwar, having properties significantly different from the quality of coal for which the plant was designed. This somewhat affects the performance of the plant. 2. However, this is not a problem limited to Dadri TPP. A continuing problem vitiating the performance of thermal power plants in India is the timely supply of coal of appropriate quality used for power generation. The power sector suffers from the deteriorating quality of coal due mainly to the exhaustion of better grades and of the heavy burden put on the railways by the transport of large quantities of coal. Greater selectivity of mining, improvement in coal handling and possibly, beneficiation, could economically improve coal quality and decrease the quantities to be transported. The poor quality of coal not only increases transportation costs, owing to the volume that needs to be transported, but also results in higher capital costs for the power stations as well as increased rates of wear and tear of the plant components as well as erosion of their useful life. 3. It is therefore, imperative to seek opportunities to improve the quality of coal used in power generation. Preliminary studies by the Central Mining Planning & Design Institute indicated that there was a case for beneficiation of coal at the mine from which the proposed Dadri TPP project would be supplied. To complement these studies and help confirm whether beneficiation would be economic in this case, the project included a detailed study of the benefits to be derived from improvements in the quality and consistency of coal for power generation. This study confirmed that coal beneficiation was a viable economic proposition that would significantly reduce transportation costs, as well as wear and tear of the power plant equipment in addition to reducing environmental pollution associated with the burning of coal. Consequently, the construction of a coal washing facility has been undertaken by Coal India (outside the project). It is expected that it will be operational around June 1997. 4. However, Coal India and NTPC have not so far signed a long-term contract about the supply of washed coal to NTPC on a commercial basis. Unless a commercial agreement is signed, Coal India will not deliver washed coal to Dadri TPP. This matter needs to be settled as soon as possible.  - 38 - ANNEX E MITIGATION OF ENVIRONMENTAL POLLUTION IN DADRI TPP The measures implemented in the Dadri TPP for the mitigation of environmental pollution to meet GOI/Bank regulations consisted of the following: * Emission: 225-meter high stacks were constructed to limit ground level concentrations of SOx and NOx to within allowable limits. In addition, space has been provided for the future installation of a flue gas desulfurization plant, should it be necessary, when the power plant is expanded to its ultimate generating capacity of 1,800 MW; * Liquid Wastes: The plant utilizes a closed circuit cooling water system, with the help of cooling towers. Liquid discharges from the plant, specifically from the demineralizer plant, as well as from boiler blowdown, cooling tower blowdown and boiler cleaning wastes, are treated and neutralized. The neutralized effluent, along with coal storage area runoff, is directed to a sedimentation basin. The overflow from the basin is discharged into the main plant drain; * Solid Wastes: Electrostatic precipitators, with collection efficiencies over 99%, limit particulate emission from flue gases to comply with emission standards. Fugitive coal dust is controlled by spraying water over the coal pile. Ash disposal area is also sprayed with water and bitumen emulsion to control fugitive dust in that area. The ultimate plan calls for compacting the ash mounds, covering them with fertile soil and seeding.  - 39 - ANNEX F DADRI TPP - RETROFIT SOCIO-ECONOMIC SURVEY Summary of Actions Retrofit socio-economic survey was carried out in 1994-1995 by a Professor of Economics with IIT Kanpur. The major actions identified in the studv were: 1. Village Communitv Development Work: a. Primarv School b. Dispensary on Cluster of Villages c. Panchavat Ghar d. Drainage c. Approach Road f. Village Electrification g. School of Girls on Cluster of Villages h. Industrial Training Institute 1. ITraining 11. Income Generation Schemes: a. Dairy b. Poultry C. Handicrafts d. Shops e. Improved Agriculture 111. Jobs: a. With NTPC b. With Contractors C. Award of Petty Contracts NTPC has initiated actions on the following points suggested in the above survey: Primary Schools - 2 Primary schools constructed in Gulawathi and Salarpur Village. Primary school proposed for Patadi and Muthivani. Drains - Drains have been constructed in various villages. Roads - Work on Sidipur. Pali. Kailashpur. Shyoraj Pur, Khodna Kalan, and Roopbas roads completed. Brick Paving lanes were built inside the villages for various villages. Village Electrification - Extension of village electrification to Khangora village, Shyoraj Pur, Rasoolpur and Solarpur Kalan. Electrification of Sidipur and Muthiyani done by UP Government. School for Girls: One school constructed for Uncha Amipur, Rasoolpur, Sidipur, Tatarpur and Chouna Village governments were approached to make teaching arrangements.  - 40 - Training: First batch comprising of 20 trainees has completed computer training. Also, training in typing and shorthand has been imparted to 28 candidates and training in motor driving to 73 candidates. Income Generation Schemes: Various schemes under discussion with PAFs: Shops - 16 shops allotted to PAFs in Township area. Handicrafts - 3 sewing centres proposed for 3 villages. Jobs - With NTPC: 181 Nos. - With contractors 250 Nos. - Award of petty contracts: 10 Nos. - Vehicle on hire: 22 Nos.  - 41 - ANNEX G DADRI AND BADARPUR TPPs - ALLOCATION AND SALES OF ENERGY GENERATED Power Allocated from the Dadri TPP and Drawn in FY95-96 Region/SEB NCTPP Share (GWh) Actual Drawn (GWh) UPSEB 403.0 152.9 RSEB 0.0 548.6 DESU 3627.2 2541.0 PSEB 0.0 49.5 HSEB 0.0 669.5 HPSEB 0.0 33.9 J&K 0.0 29.5 U.T.C 0.0 2.1 WR 0.0 0.3 POWERGRJD 0.0 2.8 TOTAL 4030.2 4030.2 Power Sold from Badarpur TPP to DESU FY GWh 93-94 3991.972 94-95 4648.695 95-96 3646.066  - 42 - ANNEX H COMMENTS BY COAL INDIA LIMITED (CIL) ON THE SUPPLY OF COAL TO THE DADRI AND BADARPUR TPPs Excerpt from CIL's Letter dated September 5, 1996 Our comments on the various issues raised in the said ICR are given below: I. Availability of Coal: The coal linkage vis-a-vis quantity supplied to Dadri and Badarpur Thermal Power during the last 5 years is as given below: Ouantitv in million tonnes Power House 1991-92 1992-93 1993-94 1994-95 1995-96 Dadri: Linkage 0.018 0.48 1.38 2.13 3.12 Despatch 0.027 0.43 1.37 1.63 2.96 Badarpur: Linkage 3.84 3.96 3.75 3.84 3.48 Despatch 3.29 3.79 4.36 4.41 3.07 From the above, it can be seen that CIL has more or less fulfilled its commitment in spite of the poor payment position by the above two power houses. However, it may also be mentioned that despatch to these plants have also been, at times, affected due to constraints from Railway side. In "pit-head" power plants -- where no third agency is involved -- supply has mostly been more than the linkage. II. Payment for supply of coal to Dadri and Badarpur Thermal Power Station: As of July 31, 1996, payment to the tune of Rs. 162.40 crores is due from NTPC and Rs.349.29 crores is due from Badarpur Power plant. Unless the payments are received in time coal companies cannot make any commitment for assured supply of coal.  - 43 - III. Supply of Washed Coal to Dadri Power Plant: A coal washery with a throughput capacity of 6.5 MTY is under construction at Piparwar. The salient features of the washery are given below: a) Raw coal input 6.5 MTY b) Clean coal production 5.25 MTY c) Ash % of clean coal 34 + 2 d) Yield 87.7% e) Top size clean coal 100 mm The commissioning of the washery will ensure consistency in both ash and size, with respect to coal supplies to Dadri Power plant. However, inspite of its initial positive response, NTPC is yet to sign an agreement with Coal India for supply of washed coal. In case NTPC is not interested in washed coal from Piparwar, Coal India will have to look for other customers interested in using washed coal.