India - Kerala Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15546 IMPLEMENTATION COMPLETION REPORT INDIA KERALA POWER PROJECT (LOAN NO.2582-IN) APRIL 15, 1996 Energy and Infrastructure Operations Division (SA2EI) South Asia Country Department II This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Rupees (Rs) Exchange Rate used in Staff Appraisal Report: Rs 12.00 = US$ 1.00 Indian Fiscal Average Annual Calendar Year Average Annual Year Exchange Rate (Rs/US$ exchange Rate (Rs/US$ 1.00) 1.00) 1982/83 9.63 1982 9.46 1983/84 10.31 1983 10.10 1984/85 11.89 1984 11.36 1985/86 12.24 1985 12.37 1986/87 12.79 1986 12.61 1987/88 12.97 1987 12.96 1988/89 14.48 1988 13.92 1989/90 16.66 1989 16.23 1990/91 17.95 1990 17.50 1991/92 24.52 1991 22.74 1992/93 26.41 1992 25.92 1993/94 31.36 1993 30.49 1994/95 31.40 1994 31.37 WEIGHTS AND MEASURES Metric System I Kilometer (km) = 1,000 meters (m) 1 Hectare (ha) = 10,000 square meters 1 Ton (t) = 1,000 kilograms (kg) 1 Kilovolt (kV) = 1,000 volts (V) 1 Megavolt-ampere (MVA) = 1,000 kilovolt-ampere (kVA) I Megawatt (MW) = 1,000 kilowatts (kW) = 1,000,000 watts 1 Kilowatt-hour (kWh) = 1,000 watt-hour 1 Gigawatt-hour (GWh) = 1,000,000 kilowatt-hour ABBREVIATIONS AND ACRONYMS CEA : Central Electricity Authority CIDA : Canadian Intemational Development Agency CMO : Construction Management Organization CWC Central Water Commission GOI Government of India GOK : Government of Kerala IBRD : International Bank for Reconstruction and Development ICB International Competitive Bidding KSEB : Kerala State Electnrcity Board LCB Local Competitive Bidding PFC : Power Finance Corporation POE : Panel of Experts FISCAL YEAR April 1 - March 31  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT INDIA KERALA POWER PROJECT (LOAN NO. 2582-IN) TABLE OF CONTENTS Preface ......................................................i Evaluation Summary ..................................................... ii Part I: Project Implementation Assessment A. Evaluation of Project Objectives ................................................1 B. Achievement of Objectives ...............................................3 C. Major Factors Affecting the Project ................................................4 D. Project Sustainability ................................................8 E. Bank Performance ................................................8 F. Borrower/Beneficiary Performance ................................................ 10 G. Assessment of Outcome ............................................... 10 H. Future Operation ............................................... 10 1. Key Lessons Learned ............................................... 10 Part II: Statistical Tables Table 1: Summary of Assessment ............................................... 13 Table 2: Related Bank Loans/Credits ............................................... 14 Table 3: Project Timetable ............................................... 14 Table 4: Loan Disbursements: Cumulative Estimated and Actual .................................. 15 Table 5: Key Indicators for Project Implementation ............................................... 16 Table 6: Key Indicators for Project Operation ............................................... 16 Table 7: Studies Included in Project .......................... 17 Table 8A: Project Costs ........................ . . .. . . . . . 18 Table 8B: Project Financing Plan .,,,, 18 Table 9: Economic Costs and Benefits ........................................... 18 Table 10: Status of Legal Covenants ........................................... 19 Table 11: Compliance with Operational Manual Statements ........................................... 20 Table 12: Bank Resources: Staff Inputs ........................................... 20 Table 13: Bank Resources: Missions ........................................... 21 Appendices: Appendix A: Mission's Aide Memoire ................................................. 22 Appendix B: Borrower's Contribution to the Implementation Completion Report ....................... 25 Ms document has a restricted distribution and may be used by recipients onry in the performance of their official duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.   I IMPLEMENTATION COMPLETION REPORT INDIA rKERALA POWER PROJECT (LOAN NO. 2582-IN) PREFACE 1. This is the Implementation Completion Report (ICR) for the Kerala Power Project in India for which loan No. 2582-IN in the amount of US$ 176 million equivalent was approved on June 13, 1985, was signed on December 5, 1985, and made effective on March 5, 1986. 2. The loan was closed on December 31, 1994 compared to the original closing date of September 30, 1991. Upon mutual agreement between the Government of India (GOI) and the Bank, US$ 20.0 million was canceled on May 1, 1993, and US$ 30 million was canceled on April 15, 1994. Final disbursement took place on May 17, 1995 and the undisbursed balance of US$ 26,424,809.73 was canceled effective that date. Thus the total amount disbursed was US$ 99,575,190.27. CIDA cofinanced the project, contributing US$ 10.3 million equivalent for the reactive power compensation component. GOI, the Government of Kerala (GOK) and Kerala State Electricity Board (KSEB) also provided funds, and GOI's Power Finance Corporation (PFC) is expected to lend additional financial resources to complete the project. 3. The ICR was prepared by Mr. Ramon Lopez-Rivera (consultant) and Ms. Malaine Manzo (Task Manager) of the Energy and Infrastructure Operations Division (SA2EI), South Asia Country Department II (SA2). It was reviewed by Mr. J. F. Bauer, Chief, SA2EI and Ms. K. Uchimura, Project Advisor, SA2. 4. Preparation of this ICR by the Bank and the Beneficiary was commenced during the Bank's missions of October 1994 and May 1995. It is based on materials in the project file as well as on discussions with KSEB officials and Bank staff. The borrower contributed to preparation of the ICR by submitting its own evaluation which is attached to this report unedited.   ii IMPLEMENTATION COMPLETION REPORT INDIA KERALA POWER PROJECT (LOAN NO. 2582-IN) EVALUATION SUMMARY Project Objectives and Description I. As stated in the SAR, in addition to the primary objective of increasing the installed generating capacity in Kerala and the Southern Region Power System of which Kerala is part, the project when completed, will help to: (a) make more intensive use of India's hydropower potential; (b) improve the performance of the existing system; and (c) strengthen the managerial, commercial and financial practices of KSEB. 2 The project comprises: (a) the implementation of the Lower Periyar hydroelectric power plant with a nominal installed capacity of 180 MW in three generating units with an estimated average annual production of 604 GWh; (b) the construction of 525 km (413 km SAR estimate) of 220 kV transmission lines and six substations with a transforming capacity of 2,310 MVA (1,180 MVA SAR estimate); (c) installation of 500 MVAR (762 MVAR SAR estimate); (d) the reinforcement of secondary transmission and distribution networks in three major cities in Kerala; (e) the provision of training, technical assistance, and consulting services for project construction management; and (f) the implementation of an institutional development program including consulting and training services to KSEB. Evaluation of Objectives 3. The primary project objective will only be achieved upon completion of the project in March 1997, after considerable delay. Systems improvement was partially achieved with the commissioning of a key substation and energizing of some transmission lines. 4. As of loan closing date, the institutional and financial objectives were partially achieved with respect to: (a) improvement of KSEB's commercial accounting systems; (b) maintenance of rates of return of at least three per cent; (c) regular tariff review and adjustments; (d) improved revenue collections; (e) timely release of annual accounts, and (f) upgrading of its personnel information system. Except for the creation of a separate intemal audit function, objectives on management changes were not met due to reluctance of KSEB management and staff to change the organizational and reporting structures within its engineering and operations units. Implementation Experience and Results 5. The project was to be implemented over a seven-year period beginning in 1984 and was scheduled to be completed by December 1990. The Lower Periyar power plant units were programmed to be commissioned between April 1989 and February 1990, transmission works in April 1990 and distribution works in December 1990. Project completion is now forecasted for  iii March 1997. At the end of 1994, progress was about 70% for the Lower Perivar hvdro electric power plant and 40% for the transmission and distribution component. 6. The major factors affecting the project include: (a) Factors not subject to GOK's control. Neither GOK nor KSEB had control over the performance of the Central Water Commission (CWC) and Central Electricitv Conimission (CEA). Their consulting services were ineffective and untimely. CEA's review of procurement documents was unduly long. (b) Factors subject to state government control: (i) Authorization for KSEB to implement tariff increases to enable KSEB to eam adequate returns were withheld for several years. KSEB was unable to comply with the rate of return covenant from FY 1985/86 to FY 1992/93. The State Government subsequently agreed to a regular review and multi-year adjustments in KSEB's tariffs which significantly helped the Board towards financial recoverv, obviate the need for State subsidy, improve its credit standing and meet its financial covenants with the Bank and other creditors. (ii) Delays in securing forest clearances and land acquisition for the transmission works were major stumbling blocks in project implementation. (c) Factors subject to implementing agency control included: (i) Project Management. The project was ill-managed. KSEB's project management capability was overestimated at time of appraisal. The high turnover of KSEB's Board members and executives in charge of the project weakened management resolve to address deficiencies in project administration. In December 1990, the Bank recommended that KSEB appoint a consulting firm for project construction management. The establishment of a new construction management organization in 1993 resulted in improvements in construction planning, cost and quality control, interfacing of contractors, and expediting of procurement. (ii) Inexperienced contractors and subcontractors. The number of unsatisfactory contractors was high. KSEB terminated two major works contracts for the Lower Periyar hydroelectric power plant, and it took two years to replace the contractor. To avoid similar experience, responsibility and accountability for addressing problems in contractors' performance should be delegated to appropriate staff, including those at the site. In addition, more stringent prequalification or postqualification of contractors should be set so that inexperienced or overextended contractors or those who lack the physical and financial resources to execute the work are disqualified at this first stage. Low cost bids should be scrutinized carefully and unless they prove to be the lowest responsive bid, award should not be made. (iii) Procurement. There was an excessive number of contract packages, whereas half the number would have been sufficient. The Bank processed 95 procurement contracts for civil works and for supply of equipment and materials, and three contracts for consulting firms. In all cases, the procurement cycle took longer than planned, ranging from two to three years. The delavs were caused bv several factors such as the excessivc- numnber of tenders. slow preparation and issuance of tender documents. extension of the tendering period, low quality of the bid evaluation  Iv reports, and the protracted time involved in KSEB's internal approval system. Recommended improvements include: better planning and monitoring of the procurcment process; packaging of larger contracts; use of turn-key contracts especiallv in transmission works; and closer follow-up with CEA and other agencies. Project Cost 7. The project cost, including physical and price contingencies, was estimated in May 1985 at Rs. 3,999 million or US$ 333.3 millionl equivalent. The total project financing required, i.e., project cost plus interest during construction, was Rs. 4,796 million or US$ 399.8 million. At the end of 1994, the total project cost estimate was Rs. 10,062 million, and actual expenditures were Rs. 4.486 million, for a balance of Rs. 5,576 million (about US$ 178 million) to complete the project. Project Financing X The IBRD loan of US$ 176 million was to finance about 44% of the project cost. The balance was to be met by GOI, GOK loans to KSEB, and from KSEB's internal cash generation. Assurances from GOI to seek cofinancing through suppliers or export credits or commercial banks were given at the time of negotiations. CIDA agreed to cofinance US$ 10.3 million equivalent for the reactive power compensation component. Only 56.5% of the US$ 176 million was applied to the project. This is a low percentage considering that the loan closing date was extended from the original September 30, 1991 to December 31, 1994. The project financing plan has yet to be finalized. Flowever. PFC has agreed with KSEB to finance about US$50 million for project completioni through thc Power Utilities Efficiency Improvement Project (Loan No. 3436-IN). Disbursemiients 9. As a consequence of the implementation delays, loan disbursement was much slower than planned. Only US$ 99.6 million. or 56.6% of the loan amount, was disbursed and US$ 76.4 million had to be canceled. Project Sustainability' I n Project sustainability is uLncertain and wouid depend on: (a) satisfactory project completion. (b) havinig adequate organization, trained personnel, equipment and spare parts for operation and maintenance; and (c) clectricitv tariffs that will ensure satisfactory financial returns. The risk of more completion delays could arise from a number of factors such as : (a) if management is not up to the task. (b) balance of project financing is not available; and (c) contractors fail to perform. Performance by the Bank and the Beneficiary I I The Bank's overall performance from project preparation through supervision was satisfactory. Bank supervision missions called attention to the need for KSEB to engage a consulting firm with international experience to handle project construction management. 12. KSEB's performance was generally unsatisfactory. KSEB and its consultants did an adequLate job in prcparing the [echniical information for the Lower Periyar power plant and the  v financial documentation during project preparation. However, KSEB's performance during implementation of the project works and of the institutional development program was deficient. Covenant compliance was mixed during the first six years, and fairly satisfactory during the balance of the period, due mainly to the 40% tariff increase in 1992 and enhanced collections. Assessment of Outcome 13. At loan closing date, project works were yet to be completed while loan repayments have commenced, yielding an unsatisfactory outcome. Future Operations 14. KSEB is responsible for the operation and maintenance of the project when completed. Staff selection and training, and issuance of manuals have to be made prior to project start-up. PFC financing is being lined up to complete the transmission and distribution component. Key Lessons Leamed 15. The kev lessons to be leamed from this project are: (a) The beneficiary's capability to undertake a project should be assessed realistically. The services of a private sector consulting firm should be included as part of the project under an adequate scope of work which include project construction management. (b) Tum-over of top executives within the implementing agency should be minimized. This problem, which is tied up to KSEB's personnel retirement policies, is aggravated by the absence of an effective project management system in the institution. (c) Proper project engineering including designs and adequate studies and investigations, and bidding documents for major works, equipment and materials should be available for review during the appraisal phase. (d) Procurement strategy should minimize the number of contracts/packages compatible with project works, location, construction schedule, and cost. Procurement schedule should be closelv adhered to. (e) Bidding of the major works, equipment and materials should start during the appraisal phase in accordance with project implementation schedule. (f) Procedures for transfer of funds from GOI and state governments to implementing agencies should be revised and more expeditious modes implemented. (g) Contractors for civil works, equipment and materials should be screened carefully and selected through a rigorous method of prequalification or postqualification. (h) All clearances, including forest, and land should have been obtained prior to issuing of bidding documents for the respective works.  vi (i) Attempting to reform the SEBs from within is not feasible. The project included a very comprehensive institutional development program and the consultants' recommendations were sound. But lack of management autonomy prevented KSEB from implementing them. () Financial indicators ensuring adequate internal fund generation for the utility's investment program should be covenanted.   IMPLEMENTATION COMPLETION REPORT INDIA KERALA POWER PROJECT (LOAN NO. 2582-IN) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. EVALUATION OF PROJECT OBJECTIVES Sectoral Context 1. As of March 1983, India's electricity sector had an installed capacity of 35,460 MW of which 61 % was thermal, 37% hydroelectric, and the balance nuclear. Annual energy generation was 130,210 GWh. Demand for electricity was estimated to grow at an average annual rate of about 11.5 % over the next decade which would have required an installed capacity of 103,100 MW and a generation of 398,410 GWh by 1993. In the Southern Region which was composed of the States of Kerala, Andhra Pradesh. Kamataka, Kerala, and Tamil Nadu, and the Union Territory of Pondicherrv and Lakshadweep Islands, the state utilities expected to expand their installed capacity from 8,705 MW in 1983 to 22,800 MW by 1993 to meet the growing energy demand. The Kerala State Electricity Board (KSEB) which then accounted for 12% of the Southern Region's installed capacitv envisaged an expansion of its facilities from 1,011 MW of hydroelectric capacity to 2,220 MW over the ten-year period. The project was part of the Region's the least cost power expansion plan. 2. However, actual additions to power supply fell significantly short of program targets at the national, regional and state levels, leading to severe power shortages. Specifically, in 1993, total installed capacity in India was onlv 69,800 MW with a generation of 300,989 GWh. The Southern Region accounted for 17,422 NMW capacity of which 1,477 MW was operated by the KSEB. The shortfall in supply resulted partly from major delays in the commissioning of power plants and subsequently from lack of budgetary resources. Project Obiectives 3 As stated in the Staff Appraisal Report (SAR), in addition to the primary objective of increasing the installed generating capacity in Kerala and the Southern Region power system, the project, when completed, will help to: (a) make more intensive use of India's hydroelectric potential: (b) improve the performance of the existing system; and (c) strengthen managerial, commercial and financial practices of KSEB 4 The implementation and physical objectives for the various project components are: (a) the construction of the Lower Perivar hydroelectric power plant consisting of a diversion dam, including a spillway, with a maximum height of 32 m and a crest length of 244 m, an intake structure, a 12.8 km long and 6 m diameter concrete-lined headrace tunnel, a surge tank, a steel-lined inclined pressure shaft branching out into three underground steel-lined penstocks, an outdoor power house equipped with three generating units of 60 MW each for a total nominal installed capacity of 180 MW, a  2 ta'irace channel discharging in the Periyar river, and a 220 kV switchyard. The estimated annual average production is 604 GWh; (b) the construction of 220 kV double circuit transmission lines with a length of 413 km (about 846 km-circuit) and four substations with a transforming capacity of 1,180 MVA to feed the load centers at Cannanore, Cochin, and Trishur. (c) the installation of 760 MVAR of reactive power capacitance in transmission substations to improve the electric system power factor; (d) reinforcement of the secondary transmission and distribution networks (110 kV to 10 kV) in the three major cities of Cochin, Kozhikode, and Trivandrum, including installation of 270 MVA of additional distribution substations and the associated distribution lines, switching stations, and distribution transformers; (e) provision for technical training, technical assistance, and consulting services to implement parts (a) to (d) above; (f) implementation of an institutional development program, including acquisition of data processing facilities and consulting and training services to KSEB for (i) design and implementation of an information system, including a commercial accounting system for management and planning; (ii) an organizational and management review, together with subsequent implementation of its recommendations; (iii) preparation of a comprehensive fixed assets inventory; and (iv) preparation of a study leading to a simpler and more efficient tariff schedule for the Board. Proiect Changes after Appraisal To facilitate project implementation, the Loan Agreement was amended to incorporate a covenant for GOI to open and maintain a US$ 10 million Special Account. In addition, as part of the Gulf Initiative to alleviate GOI's foreign exchange constraints, the disbursement percentage for civil works contract was increased from 60% to 90% to take effect retroactively from September 1, 1990. 6. In 1989 KSEB informed the Bank that the reactive power compensation for transmission and subtranismission had been included under a CIDA grant to the GOI thus satisfying the assurances given by GOI to the Bank to seek financing for this item of the project during loan negotiations. The signing of this agreement with CIDA permitted reallocation of the Bank loan funds to other projcct components. KSEB and the Bank agreed, subject to conditions that KSEB subsequently met. that the loan funds no longer needed for the reactive power compensation be used to finance extensions of the 220 kV transmission system. While not originally included in the project. they were important elements in the project transmission component to interconnect Kerala with the neiglhborinig states of Karnataka and Tamil Nadu. The project was also amended to: (a) increase transmission capability in Kerala through the addition of 140 km of 220 kV double circuit lines, onc from Trishur to Palakkad 76 km long and another one from Cannanore (Kannur) to Kasargode 64 km long, and of transforming capacity in 640 MVA at these two substations plus 490 MVA at Trichur and Cannanore substations of the original project. As a result of further studies the reactive power compensation was changed from 760 MVAR at eleven substations to 455 MVAR at the 110 kV/66 kV end of 16 transmission substations and 45 MVAR in distribution capacitors. The aforementioned changes resulted in a revised total length of double circuit lines of  3 525 km or 1,073 km-circuit, and an installed substation transforming capacity of 2,310 MVA and 500 MVAR. Evaluation of Objectives 7. The project objectives were at the time directly supportive of Government of India's initiatives in the electric power sector which called for (a) the accelerated development of hydroelectric power; (b) alleviation of power shortages in the Southern Region, (c) improvement of the quality of supply; and (d) reduction of electric power system losses. These development objectives remain as important and valid today. They are also consistent with the specific objectives of the Bank Group lending strategy for the power sector at that time which included: (a) the better use of existing facilities; (b) institution building; (c) improved planning; and (d) improved resource mobilization. 8. The Bank's involvement in the project was also viewed as part of a continuing effort to support institutional improvement at the SEB level. In recent vears, however, the Bank has recognized that such an improvement is difficult to achieve in the absence of a comprehensive restructuring of India's power sector evidenced by establishment of an independent regulatory board at the state level, private participation in generation and distribution, and commercial operation of electric utilities. In the absence of these reforms, the institutional objectives of the project were ambitious given the lack of managerial and financial autonomy of the SEB. In the case of Kerala, the task of meeting the objectives was made more arduous by the presence of strong unions which perceived any modernization of the Board's operations as a threat. 9. The financial objectives were reasonable, although the covenant selected, a rate of return on historicallv valued assets, by itself does not ensure that adequate internal funds are generated to help finance the utility's investment program. The latter eventually emerged as a kev problem faced by KSEB whlich affected project performance adversely. B. ACHIEVEMENT OF OBJECTIVES 10. The primary project objective will only be realized upon completion of the project which is currently programmed for March 1997. Improvement in system performance has been partially achieved with the commissioning of a key substation and energizing of associated transmission lines. The objectives are likely to be achieved but with considerable delay. II. As of loan closing date, the institutional and financial objectives were partially achieved with respect to improvement of KSEB's commercial accounting systems, maintenance of rates of return of at least three per cent, regular tariff review and adjustments, improved revenue collections, timely release of annual accounts and upgrading of its personnel information system. Except for the creation of a separate internal audit function, objectives on management changes were not met due to reluctance of KSEB management and staff to change the organizational and reporting structures within its engineering and operations units. 12. At the time of appraisal, the economic rate of return (ERR) was estimated for the Southern Region power development plan which includes the project. Under the assumptions made at that time, the ERR for the plan was estimated at 13 per cent. A recalculation was not made for the ICR. The completion delays have postponed the expenditures as well as accrual of benefits. Nevertheless, the project, when completed, is still expected to yield adequate returns in view of the high value of power in the region's economy.  4 Implementation Record 13. The project was to be implemented over a seven year period beginning in 1984 and was scheduled to be completed by December 1990. The commissioning of the three generating units of the Lower Periyar hydro electric power plant was programmed for the period between April 1989 and February 1990, the transmission works for April 1990, and the distribution works for December 1990. By this latter date, only the excavation of the power plant headrace tunnel and the power house had been completed and tunnel concreting showed small progress. The civil works contractors, specially the one for the darn and the powerhouse, were performing unsatisfactorily. Procurement for transmission and distribution works was proceeding slowly, and these works were about two years behind schedule. At the end of 1994, progress was about 70% for the Lower Periyar hydro electric power plant and 40% for the transmission and distribution components. Project completion is now forecasted for March 1997. 14. Project execution continuously experienced problems from the beginning and the project was rated unsatisfactory in early 1988, and later between October 1989 and March 1992, and then again during much of 1993. (See Table 13). A marked improvement in overall project progress was registered for the 12 months just prior to loan closing date in December 31, 1994. C. MAJOR FACTORS AFFECTING THE PROJECT Factors not Subject to GOK's Control 15. Neither GOK nor KSEB had control over the performance of the Central Water Commission (CWC) and the Central Electricity Authority (CEA) which are GOI agencies. The consulting services provided by CWC for civil works and by CEA for electrical and mechanical works, were ineffective and untimely. In addition, significant delays in procurement action were partly attributable to CEA's detailed scrutiny of tender evaluations particularly in the case of equipment procurement. Factors Subject to GOK's Control 16. Electricity rate adjustments. Authorization for KSEB to implement tariff increases to enable KSEB to earn adequate returns were withheld for several years. Consequently, KSEB was unable to comply with the covenant on rate of return from FY 1985/86 to 1992/93. GOK subsequently agreed to a regular review and multi-year adjustments in KSEB's tariffs which significantly helped the Board towards financial recovery, obviate the need for State subsidy, improve its credit standing and meet its financial covenants with the Bank and other creditors. 17. Forest Clearance and Acquisition of Land. Delays in securing forest clearances and in land acquisition for the transmission works were major stumbling blocks in the project's implementation. Protracted land acquisition process and inadequate land compensation also aggravated the situation. KSEB was also partly responsible for the delays as it was slow in completing land surveys and inventory of land. In some cases, the compensation was also slowed by fund unavailability to service payments. Considering that hundreds of kilometers of transmission lines need to be constructed, the concerned agencies should explore ways that would expedite the existing procedures and obtain the forest clearance sanction in line with the project implementation schedule, but prior to issuing bidding documents.  5 18. Resettlement and Environment. The project did not present major resettlement and environmental issues. Resettlement involved no more than 17 families and their claim compensation was satisfactorily met through a court award of March 1986. The families were encroachers on forest land opened up by the Idukki hydroelectric power project access road in the late 1960's. Some concerns raised on the hazards of electromagnetic field force from the transmission lines were reviewed, and it was concluded that the location and proposed operation of the transmission system were within safety norms. Factors Subject to Implementing Agency Control 19. Project Management. The project was ill-managed. While the Lower Periyar hydroelectric power plant shares the normal complexities of all hydroelectric projects, its implementation was made difficult by the lack of planning, monitoring and coordination on the part of KSEB. Similarly, poor project management in the execution of the transmission and distribution components was evidenced by delayed payments to contractors, glaring mismatch in timing of delivery of materials, late deployment of erection crews and right-of-way acquisition. KSEB was incapable of resolving quickly the claims from contractors. Some of these claims arose from: (a) the Lower Periyar site flood of July 1989; (b) contractors' underestimation of prices; (c) works stoppages caused by labor strikes; and (d) contractors' poor performance. Efforts made by KSEB to resolve these issues were not successful. The high turnover of KSEB's Board members and executives in charge of the project weakened management resolve to address deficiencies in project administration. In retrospect, KSEB's project management capacity was overestimated at the time of appraisal. 20. Major project delays were attributable to the unsatisfactory management of the civil works contractors of the Lower Periyar plant. KSEB was complacent in its contract administration and did not enforce some contractual conditions related to subcontracting. It also overlooked the application of contractual industrial safety clauses. KSEB failed to take firm and timely actions to correct the slow progress of the contractors, their use of inadequate construction equipment and construction plant, and employment of poor construction methods. The contractors submitted changes on the construction schedules, and the contractors' modified schedule became in some cases the latest "contractual" one without formal approval of KSEB. This placed KSEB in a weak position vis-a-vis the contractors. A similar situation was noted in the case of transmission works contractors. 21. In December 1990, the Bank recommended that KSEB appoint a consulting firm for project construction management. It took nearly a year to reach agreement with KSEB and the Government on the scope of work of the consultants, and another year for tendering and awarding of the contract. With the agreement of KSEB, the international consulting firm mobilized its team in February 1993 and the contract was signed in April 1993. The consultant's scope of work involves contract administration, construction inspection and quality control, engineering design and construction drawings, and training including operation and maintenance of the project facilities. While emphasis was placed initially on the Lower Periyar hydroelectric power plant, the scope was subsequently expanded to ensure proper management and to add more man-months for the transmission and distribution works. A new construction management organization was established with KSEB having administrative control and responsibilities, and the consultants having managerial and technical authority and control. Although some quarters of KSEB questioned this approach, others recognized the positive role of the consultant taking into account that an expatriate consulting firm was earlier engaged by KSEB for the successful implementation of a large hydroelectric project involving one of the highest arch dams in Asia. The establishment of a new construction management team resulted in some major improvements in construction  6 planning and monitoring, cost control, quality control, interfacing of contractors, and expediting of procurement. 22. Panel of Experts. KSEB established in June 1984, under terms of reference agreed with the Bank, a panel of experts (POE) for project review of the Lower Periyar hydroelectric power plant. KSEB reconstituted the POE in 1993 to incorporate specialists more in tune with the activities and implementation status of the power plant. The performance of the POE has been generally satisfactory. 23. Inexperienced Contractors and Subcontractors. The number of unsatisfactory contractors was rather high, resulting in delays and cost overruns. Major civil works contractors were unable to sustain performance during the implementation of their contracts. The lack of performance transcended the issue of labor rates argued by them. In the case of separate contracts for the civil works for the dam and ancillary works and powerhouse and ancillary works, a known national government-owned contractor ran into problems practically from the beginning due to, among other factors: inadequate organization, staff, construction equipment and plant; poor construction planning and execution; excessive use of subcontractors; and under pricing. Even during the dry season the rate of work progress was minimal. Finally, after nearly four years from date of the contract effectiveness, KSEB terminated both contracts. It took KSEB about two more years to award a contract through ICB for the balance of the works for the dam and power house. It should be pointed out that, in contrast, small contractors performed relatively well during the interim period of selection of a new contractor for these works. 24. To avoid similar experience, responsibility and accountability for addressing problems in contractor-s performance should be delegated to appropriate staff, including those at the site. In addition, more stringent prequalification or postqualification of contractors should be set so that inexperienced and overextended contractors or those who lack the physical and financial resources to execute the work are disqualified at this first stage. Low-cost bids should be scrutinized carefull! and unless they prove to be the lowest responsive bid, award should not be made. 25. Irocurement. There was an excessive number of contract packages, whereas half the number would have been sufficient. The Bank processed 95 procurement contracts for civil works and for supply of equipment and materials, and three contracts for consulting firms. Procurement followed the Bank guidelines. Ninety contracts were processed through international competitive bidding (IC B) out of which 12 were awarded to foreign companies while the remaining 78 contracts went to Indian firms. Goods sourced from abroad included the supply of special steel for penstocks, gas insulated switchgear, and ring main units for distribution works. Two of the consulting contracts were signed with foreign firms; one for the urban distribution studies and optimization of the reactive power compensation and another for project construction management. 26. In all cases, the procurement cycle from invitation of bids up to contract award took longer than planned. The procurement period for some contracts ranged between two and three years. Critical contracts such as turbines and generators for the Lower Periyar took 18 months to process. The delays were caused bv several factors such as the excessive number of tenders, slowness in the preparation of tender documents and issuing of bid invitations, extension of the tendering period as rcquested b- bidders and acquiesced by KSEB, the low quality of the bid evaluation reports, the protracted time taken bv KSEB-s internal approval of all procurement activities including bid evaluation reports. Some areas of improvements are: better organization, planning, execution and monitoring of the procurement process; better procurement strategy by packing larger contracts; use of tum-key contracts especially in transmission works; and closer follow-up with CEA and other agencies.  7 27. Project Cost. The project cost including physical and price contingencies was estimated in May 1985 at Rs. 3.999 million or US$ 333.3 million equivalent and the total project financing rcquircd. proNect cost plus interest during construction, was Rs. 4,796 million or US$ 399.8 million. At the end of 1994, the project cost estimate up to completion was Rs. 10,062 million and the expenditures were Rs. 4,486 million, leaving a balance of Rs. 5,576 million (about US$ 178 million) including physical and price contingencies. A constant price comparison has not been made because the annual disbursements were not available. 28. Project Financing. The IBRD loan to GOI of US$ 176 million was intended to finance about 44% of the project cost. The balance was to be met by GOI, GOK loans to KSEB, and from KSEB's internal cash generation. Assurances from GOI to seek cofinancing through suppliers or export credits or commercial banks were given at the time of negotiations. CIDA agreed to cofinance US$ 10.3 million equivalent for the reactive power compensation component. Onlv 56.5% of the US$ 176 million IBRD loan was applied to the project. This is a low percentage considering that the loan closing date was extended from the original September 30, 1991 to December 31, 1994. Table 8B presents the financing plan at time of appraisal; the financing plan until project completion has yet to be finalized. PFC has agreed to finance about US$50 million of the balance of transmission and distribution supply through the Power Utilities Efficiency Improvement Project (Loan No. 3436-IN). 29. Disbursements . Actual loan disbursements lagged far behind the appraisal estimate, as indicated in Table 4. The first disbursement was negligible and was made in the first semester of the Bank 1987 fiscal year. Disbursements were always behind actual expenditures by several months. The lag was partly due to delays in procurement and award of contracts as well as from unsatisfactory performance of the contractors. Slow disbursement was also attributable to the process by which Bank loans to GOI are transferred through the State and to the implementing agencies. To finance project expenditures, KSEB has had to use their own funds and later claim reimbursements from proceeds of the loan. Loan reimbursements in turn tended to become mixed with the normal state budgetary financing for the entity rather than earmarked for the project, and did not always flow in cash form, thus preventing the entity from maintaining revolving funds for the project. The procedures for transfer of loan funds from GOI and state governments to implementing agencies like KSEB should be revised and more expeditious modes explored. Towards the close of the loan, in order to ease the liquidity pressures faced by KSEB in having to advance finance project expenditures, and to help maximize loan utilization, the Government agreed to having direct payments made from the Bank to KSEB's suppliers. 30. KSEB s Financial Performance. Up to FY 92/93, KSEB's performance was poor, as evidenced by negative rates of return (-3.9% in FY 90/91; -3.3% in FY 91/92). This poor performance resulted in a very tight liquidity position to the point of accumulating large arrears with contractors and suppliers. In FY92/93, GOK authorized a 40% immediate tariff increase to be followed by smaller increases in subsequent years, representing the first multi-year tariff increase authorization in India. At the same time, KSEB launched an aggressive collection drive reducing receivables from about four months to 2.5 months by the end of 1993. The combined effect of these two actions was a more comfortable liquidity position for KSEB, but which nevertheless fell short of the investment requirements of the sector. 3 1 KSLB s Institutional Development. The project included the following studies: (a) implementation of commercial accounting system; (b) organization and management; (c) inventory of fixed assets; (d) data processing implementation; (e) tariff simplification and restructuring; and (f) urban distribution and optimization of reactive power compensation. With some delays the  8 commercial accounting system was implemented. The reports for the studies under ( b), ( c), (d) and ( e) were of good quality. However, most of the key recommendations were not implemented in spite of the effort of the supervision missions. It became evident that management lacked the necessary autonomy to implement the recommend changes and that there were parties opposed to the changes. These included the employee unions, which perceived some modernization as a threat to the employment of their members; some consumer groups reluctant to pay the proper price for their power consumption; and GOK which did not want to relinquish control of the Board. 32. The study for urban distribution networks in the cities of Trivandrum, Cochin and Kozhikode and optimization of reactive power compensation was completed in 1990. The study provided information on the distribution works to be incorporated in said cities as well as the works for compensation. The portion on reactive power compensation was supplemented by additional studies undertaken by the consulting firm responsible for this item under the KSEB/CIDA agreement. A portion of the works for the distribution networks was financed by the Bank loan. These works when fully implemented should eliminate operation restrictions in the system. D. PROJECT SUSTAINABILITY 33. Project sustainability depends firstly on its physical completion, for which KSEB will have to mobilize financial resources and on ensuring adequate provision for its operation and maintenance, and having trained staff in place to operate and maintain the generation, transmission and distribution facilities. 34. The risks of more completion delays could arise from a number of factors, mainly if: (a) management is not up to the task; (b) balance of project financing is not available on time; and (c) if the contractors do not perform as required to meet their commitment schedules. The Bank has agreed to assist KSEB in meeting part of the balance of funds required to complete the project through an on-going lending operation for Power Utilities Efficiency Improvement (Loan 3436-lN) with the Power Finance Corporation. E. BANK PERFORMANCE Identification and Preparation 35. The GOI's initial request to finance the project covered the Lower Periyar hydro electric project. At that time the construction of the headrace tunnel had already started with local funds. There was one identification mission, one preparation and one preparation/pre-appraisal mission with the participation of economist, engineer and financial analyst. The identification mission and KSEB agreed that in order to capture the benefits of the generation and to reduce electric power system losses, the scope of the project should be expanded to incorporate the transmission system associated to the power plant, reactive power compensation, upgrading of the distribution network at three major cities, and technical assistance. At the time of project identification, substantial preparatory work remained to be completed in both the technical and financial areas. The mnission recommended that KSEB appoint a panel of experts to review technical matters of the power plant, which KSEB did. KSEB also agreed to hire consultants to assist in the preparation of financial documentation. The emphasis of project preparation seems to have been placed on the generation works, and much less on transmission and distribution works, and financial matters. The preparatory work was substantially completed by the end of 1984. The Bank's performance in preparation was overall satisfactory.  9 Appraisal 36. The performance at appraisal was generally satisfactory, although in hindsight, the Bank should have required KSEB to contract the services of a consulting firm for project management, including engineering, contract management, supervision, and preparation of operation and maintenance manuals, from the beginning. At time of appraisal, engineering design and drawings of the major components of the Lower Periyar power plant were generally at the bidding level. No major difficulties were expected in the implementation of this power plant taking into account that KSEB had experienced staff in the execution of a more complex hydroelectric power plant which KSEB had recently completed at that time with a high level of assistance from an expatriate consulting firm. However, KSEB's managerial expertise proved inadequate for the project. 37. An urban distribution and optimization of reactive power compensation study was identified. The Bank also identified the major institutional and financial areas in need of improvement and provided technical assistance for the studies and implementation of organization and management, conmmercial accounting system, inventory of fixed assets, tariff simplification and restructuring, and data processing. Supervision 3 8. The supervision missions' performance was adequate overall. Sixteen supervision missions took place from January 1986 to October 1994 at an average of two per year. The staff utilized in supervision incorporated disciplines such as economics, engineering, environmental, institutional, financial, procurement, resettlement, and training. The supervision missions reported adequately on the implementation progress, called the attention of the Borrower, the Beneficiary and the Bank to the implementation problems, and provided follow-up advice and many suggestions. The Bank was constructive in its suggestions, in approving project modifications, and in granting loan closing date extensions. The missions helped KSEB, inter alia, in the improvement of bidding documents, bid evaluation reports, and in establishing a general procedure for bid post review in accordance with the Project Agreement. This expedited the Bank review of procurement. The rclationship between the KSEB and the Bank was cordial. 39. The expected loan closing date as per appraisal was September 30, 1991 which was extended four times until December 31, 1994. During this period, the supervision missions closely monitored implementation progress and status of compliance on a range of detailed remedial actions agreed to by KSEB, GOK and GOI. Extensions were granted only after specific actions leading to compliance with the financial covenants and project progress were taken. For instance, the Bank agreed to a first extension only after electricity rate adjustments were effected and forest clearance for transmission lines secured. The preparation and agreement between the missions and KSEB, on a detailed set of remedial actions and project implementation schedule, which was undcrwritten by the Government, proved invaluable. Significant headway in project implementation occurred during this period as evidenced by a surge in project expenditure and loan disbursement relative to earlier years. However, while satisfactory progress was noted, the Bank decided to finally close the loan. The Bank instead recommended that to finance the balance of works and supply for the transmission and distribution components, KSEB tap the on-going loan facility for the Power Utilities Efficiency Improvement with the Power Finance Corporation (Loan No. 3436-IN).  10 F. BORROWER/BENEFICIARY PERFORMANCE 40. KSEB's performance has been generally unsatisfactory. While KSEB and its consultants did an adequate job in preparing the technical information for the Lower Periyar power plant and the financial documentation during the project preparation and appraisal phase, its performance during implementation has been deficient. The major problems that have affected implementation are dealt with under section C, Implementation Record and Major Factors Affecting the Project. 41. Implementation of the institutional development program was also deficient. While management occasionally showed interest in implementing some of the key recommendations made by the consultants, they were not prepared to effect changes in the light of the opposition of some constituents. 42. Covenant compliance was mixed during the first six years, and fairly satisfactory during the balance of the period, mainly due to the 40% tariff increase of January 1992 and improved collection efforts. A remarkable improvement was also achieved in preparing the annual accounts on time. G. ASSESSMENT OF OUTCOME 43. The project outcome as of loan closing date is unsatisfactory because while the institutional and financial objectives have been partially achieved, the project works have yet to be completed. H. FUTURE OPERATION 44. KSEB is responsible for operation and maintenance of the project when completed. Staff Nvill have to be selected and trained and appropriate manuals issued before time of testing and commissioning of the installations. KSEB must have adequate electricity tariffs to cover operation and maintenance expenses. I. KEY LESSONS LEARNED 45. The fundamental lessons derived from this project are: (a) The beneficiary's capability to undertake a project should be assessed realistically. Previous experience in similar projects does not always result in good project management capacity in view of administrative constraints and high rotation or attrition of personnel. The engagement of a private consulting firm to handle project construction management should have been done much earlier in the project cycle. Inclusion of such services should be taken up during project preparation . (b) Turn-over of top executives should be minimized due to its adverse effect on implementation efficacy. This problem, which is tied to the retirement policies of KSEB, is aggravated by the absence of an effective project management system in the institution. (c) Proper project engineering including designs and adequate studies and investigations, and bidding documents for major works, equipment and materials should be available for review during the appraisal phase.  1] (d) Procurement strategy should minimize the number of contracts/packages compatible with project works, location, construction schedule, and cost. An acceptable procurement plan should be in place by appraisal and procurement schedule should be closely adhered to. (e) Bidding of the major works, equipment and materials should start during the appraisal phase in accordance with project implementation schedule. (f) Procedures for transfer of funds from GOI and state governments to implementing agencies should be revised and more expenditious modes be implemented. Lending to state entities through GOI and the states results in funding problems for the entities. Claims for reimbursements against the loan for project expenditures tend to become mixed with the normal state financing of the entity. (g) Contractors for civil works, equipment and materials should be carefully selected through a rigorous method of prequalification or postqualification. (h) All clearances, including forest, and land acquisition for project works should have been obtained prior to issuing of bidding documents. (i) Attempting to reform the SEBs from within is not feasible in the absence of basic reforms in the power sector. The project included a comprehensive institutional development program. The reports prepared by the consultants were of good quality and incorporated key recommendations that KSEB was unable to adopt. In order for KSEB to function commercially, GOK will have to distance itself from KSEB's operations. This can be achieved by establishing an independent regulatory framework for tariff setting and allowing competition in the sector through participation of the private sector in generation and distribution. (j) Financial indicators to ensure adequate intemal fund generation for the utility's investment program should be covenanted.  12 IMPLEMENTATION COMPLETION REPORT INDIA KERALA POWER PROJECT (LOAN NO. 2582-IN) PART II: STATISTICAL TABLES Table I Summary of Assessments Table 2 Related Bank Loans/Credits Table 3 : Project Timetable Table 4 Loan Disbursements: Cumulative Estimate and Actual Table 5 : Key Indicators for Project Implementation Table 6 : Key Indicators for Project Operation Table 7 : Studies Included in Project Table 8A Project Costs Table 8B : Project Financing Table 9 : Economic Costs and Benefits Table 10 : Status of Legal Covenants Table 11 : Compliance with Operational Statements Table 12 : Bank Resources: Staff Inputs Table 13 : Bank Resources: Missions  13 Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not applicable Macro Policies El E El Sector Policies [l E l E Financial Objectives E1 [El E Institutional Development E E E3 E Physical Objectives E E El 0 Poverty Reduction El E E3 Gender Issues E E E lxl Other Social Objectives E 0 E El Environmental Objectives E E El El Public Sector Management E E El [El Private Sector Development E E E mx Other (specify) E E E E B. Project Sustainability Likely Unlikely Uncertain (v') (/) (7) El El C. Bank Performance H satisfactoy Satisfactory Deficient (/) (/) (7) Identification E [EJ E Preparation Assistance E l3l El Appraisal E 3l E Supervision E l3 E HighlY D. Borrower Performance satisfactorv Satisfactory Deficient (7) (7) V/) Preparation E I E Implementation E Eli Covenant Compliance El Operation (if applicable) E E E Highly Highly E. Assessment of Outcome satisfactory Satisfactory Unsatisfactorv unsatisfactory (7) (/) (7) (7) El El[]E  14 Table 2. Related Bank Loans/Credits There were no preceding Bank operations in Kerala's Power Sector. Table 3: Project Timetable Steps in Project Cycle Date Planned T Date ActualU Latest Estimate GOI's request for financing September 1983 Identification February 1984 Preparation 1984 May 1984 Preappraisal September 1984 Appraisal October 1984 December 1984 Negotiations May 1985 May 1995 Board Presentation June 1985 June 1985 Signing of agreements December 1985 Effectiveness September 1985 March 1986 Loan amount canceled May 1993 (US$ 20.0 million) Loan amount canceled April 1994 (US$ 30.0 million) Loan amount canceled May 1995 (US$ 26.4 million) Loan closing September 30, 1991 December 31, 1994  15 Table 4: Loan Disbursements: Cumulative Estimated and Actual (US$ million) Estimated in SAR Actual Actual as % of Estimated Bank Fiscal Semi- Cumulative Semi- Cumulative Semi- Cumulative Year Semester annual annual annual 1986 1 5.4 5.4 0.0 0.0 0.0 0.0 11 3.8 9.2 0.0 0.0 0.0 0.0 1987 1 10.0 19.2 0.028 0.028 0.3 0.0 II 21.2 40.4 0.000 0.028 0.0 0.0 1988 1 20.0 60.4 0.875 0.903 4.4 0.5 11 25.4 85.8 1.477 2.380 5.8 1.4 1989 1 19.3 105.0 10.194 12.574 52.8 7.1 II 28.6 133.7 4.393 16.967 15.4 9.6 1990 1 19.7 153.4 0.078 17.045 0.4 9.7 11 13.0 166.4 6.150 23.195 47.3 13.2 1991 1 6.0 172.4 4.315 27.510 71.9 15.6 11 3.6 176.0 9.888 37.398 274.7 21.2 1992 1 0.779 38.177 21.7 11 7.039 45.216 25.7 1993 1 0.0 45.216 25.7 11 6.820 52.036 29.6 1994 1 7.972 60.008 34.1 II 11.622 71.630 40.7 1995 1 11.157 82.787 47.0 11 L 16.788 99.575 56.6  16 Table 5: Key Indicators for Project Implementation' [ 1. Key Implementation Indicators in SARI President's Report Estimated Actual/Forecasted Beginning/Completion || |POWER STATIONl A. Civil works 1. Dam, intake & div. tunnel Mar. 86/Jun 89 Dec. 1996 2. Head race tunnel Sep. 84/Feb. 89 Jun. 94 3. Surge shaft and pres. shaft Mar. 86/Apr. 88 Jun. 96 4. Power house Mar. 86/Jul. 89 Feb. 96 B. Supply and erection equip. 1. Testing and commissioning Unit No. I Apr. 86/Apr. 89 Jun. 96 Unit No. 2 Apr. 86/Sep. 89 Aug. 96 Unit No. 3 Apr. 86/Feb. 90 Mar. 97 TRANSMISSION A. 220 kV Lines 1. Idukky-Lower Periyar (35 km) Nov. 85/Jun. 86 Dec. 95 2. Lower Periyar-Trichur (101 km) Nov. 85/Jun. 86 Mar. 96 3. Trichur-Kozhikode (93 km) Feb. 88/Feb. 89 Dec. 95 4. Kozhikode-Cannanore (109 km) Feb. 88/Feb. 89 Dec. 95 5. Villanchira-Cochin (47 km) Jul. 89/Mar. 90 Dec. 95 6. Trishur-Palakkad (64 km) Dec. 96 7. Cannanore-Kasargode (76 km) Mar. 96 B. Substations 1. Trichur (400/220 kV: 630 MVA) Feb.89/Jan. 90 Dec. 95 Trichur (220/110 kV: 400MVA) Jan.89/Mar. 87 Dec. 95 2. Cannanore (220/1 10 kV: 320 Feb. 87/Jan. 89 Dec. 95 MVA) 3. Cochin (220/110 kV: 320 MVA) Jan. 88/Mar. 9 0 Mar. 96 4. Kozhikode (220/110 kV: switching Dec. 95 station 5. Palakkad (220/110 kV: 320 MVA) Mar. 96 6. Kasargode (220/110 kV: 400MVA) Mar. 96 7. Reactive power compensation 455 MVAR Aug. 94 45 NIVAR Mar. 96 DISTRIBUTION WORKS Jan. 86/Dec. 90 Jun. 96 TECHNICAL ASSISTANCE Jul. 86/Jun. 89 Jun. 90 aExcludes preparation of tender documents and bidding process. The period covers from award of contract to completion of contract. Table 6: Key Indicators for Project Operation Key indicators for project operation were not identified in the Staff Appraisal Report or the President's Report at the time of the loan approval in June 1985  .17 Table 7: Studies Included in Project Purpose as Defined Study at Appraisal/Redefined Status Impact of Study Implementation of the Training of Finance and After some delay the CAS Satisfactory. commercial accounting Accounts staff, post was implemented. Delays system (CAS). implementation assistance, were due mainly to the supervision and review of the structural organization of CAS; assistance in closing the the SEB under which books of accounts and there are no clear relation compiling annual accounts for between the accounting the first two years after the staff in the field and the system is fully implemented finance and accounts group at headquarters Organization and Recommend suitable and Very few of the Limited. management study effective organization and recommendations were management structure, policies implemented. and practices to enable KSEB to perform its functions; recommend a staffing pattern; review the internal system and procedures; develop a suitable management information system; assist KSEB in the implementation of the proposed recommendations Inventory of fixed assets Catalogue and value the fixed The job was completed Limnited. assets of KSEB; clear suspense but the records were not accounts balance to reflect true updated. A new contact and fair value of fixed assets; was signed to computerize develop a program for updating the records. engineering records for operation, inspection, and maintenance of electricity supply and related facilities Data processing Implement a data processing The implementation was Limited. implementation system in KSEB to meet its done mainly on some managerial, operational and engineering applications. planning needs Tariff simplification and Derive a tariff structure which The study was completed Limited. restructuring reflects as closely as possible but its recommendations the costs to the economy of were disregarded. meeting the demand for electricity subject to any constraints imposed by KSEB' s revenue requirements, by any subsidy or income distribution objectives established by GOI and GOK, and by administrative considerations Urban distribution and Refine the engineering of the The consultants hired by It was the basis for optimization of reactive proposed distribution and KSEB completed the establishing the works for power compensation reactive power compensation study in 1990. distribution in the three elements of the project; prepare cities of Cochin, their technical specifications; Trivandrum, and evaluate tenders; Kozhikode. It had to be supervise their construction and supplemented through installation; and additional studies for provide general advise to KSEB reactive power as needed on other project compensation. related matters.  18 Table 8A: Project Costs Appraisal Estimate Total Estimate (Dec 3 ,1994) Item Local Cost Foreign Total Total Rs US RsMillion USMI Million Million A (Genieral land, site preparation 138.9 - 138.9 11.6 1,238.92 46.52 B. Civil Works Power Station 425.6 63.5 489.1 40.8 1,523.10 63.25 l Transmissioni Lines 49.4 - 49.4 4.1 128.01 7.53 Substations 4.2 - 4.2 0.3 566.84 21.34 Distributions Works 14.8 - 14.8 1.2 260.48 8.68 Sub-lotal Civil Works 494.0 63.5 557.5 46.5 2,478.43 100.80 C. Supply and Erection of Equipment & Materials Power Station 419.3 344.3 763.7 63.6 435.14 18.90 Transmission Lines 168.3 29.7 198.0 16.5 605.64 48.14 Substations 228.0 28.1 256.1 21.3 1,248.28 48.72 Reactive Power Compensation 143.3 244.0 387.3 32.3 l )istrihLt1ion1 Workls 324.1 144.2 468.3 39.0 2,144.48 79.69 Sub-Total SupplY & Erection of Equip. & Materials 1,283.0 790.4 2,073.4 172.8 4,433.54 195.45 D. Training and Consultiing Services 20.0 18.3 38.3 3.2 195.57 6.11 E. Engineering and Administration 263.1 - 263.1 21.9 388.71 15.55 T'otal Baseline Costs 2,199.0 872.2 3,071.2 255.9 8,735.17 364.43 Physical Contingenicies 155.5 46.1 201.5 16.8 212 8.84 Price Contingenlcies 508.3 218.5 726.8 60.6 1115 46.52 TOTAL PROJECT COSTS 2,862.7 1,136.8 3,999.5 333.3 10,062 419.79 Table 8B: Project Financing Plan (US$ million) Appraisal Estimate (US$M) Actual/Latest Estimate(US$M) Local Foreign Total Local Foreign Total Source Costs Costs Costs Costs IBRD 81.0 95.0 176.0 99.6 GOI - 40.2 40.2 GOK Loans to KSEB 76.6 - 76.6 KSEB Internal Generation 107.0 - 107.0 IBRD Loan No.3436-IN to PFC 50.0 CIDA Cofinancing - 10.3 TOTAL 264.6 135.2 399.8 Table 9: Economic Costs and Benefits This exercise has not been conducted for the ICR.  19 Table 10: Status of Legal Covenants India Kerala Power Project (Loan No. 2582-IN) Agreement Covenant type Present Original Revised Description of Comments Section status fulfillment fulfillment covenant date date LA 2.02 (b) Financial C June 88 GOI to open and maintain a Complied US$ 10 million Special Account. LA 3.04 Financial C Dec. 31, 85 GOI to issue notification Complied prescribing rules for a uniform system of accounts to all SEB's. LA 3.05 Accounts/Audit rOI to have Special Account Complied with delays audited and submit Auditor's report not later than six months after FY end. PA 2 01 (b) Finanicial C GOK, on terms and conditions Complied satisfactory to the Bank, to relend to KSEB the proceeds of the loan. PA 2.05 Institutional KSEB to develop a detailed Complied training program. PA 2.06 Project C KSEB to establish and Complied implementation maintain a Project Cell. PA 3.01 (iii) Financial KSEB to take out and maintain Complied insurance as shall be consistent with appropriate practice. PA 3.02 (a) Accounts KSEB to maintain records, and Complied l (hV to furnish certified copies of its accounts and financial statements for each fiscal year PA 3.02 (c) Accounts/Audits KSEB to furnish to the Bank Complied (d) within twelve months after the end of each fiscal year its audited financial statements PA 3.03 Accounts/Audits KSEB to submit audited Complied SOE's as part of the annual audits referred to in 3.02 (c) P'A 3 0(5 Financial FY 85/86 KSEB to earn revenues to Not complied from produce a surplus as is not less 1959/86 to 1992/93. than 3% of its net fixed assets Complied afterwards. in service at the beginning of such vear. Covenant types: I= Accounts/audits 2 Finrancial performance/revenue generation from 8. Indigenous people beneficiaries 9. Monitoring, review, and reporting 3. = Flow and utilization of project funds 10. Project implementation not covered by categories 1-9 4. Counterpart funding 11. Sectoral or cross-sectoral budgetary or other resource 5. Management aspects of the project or executing allocation agcncy 12. Sectoral or cross-sectoral policy/ regulatory/institutional 6. = Environmental covenants action 7. = Involuntary resettlement 13. Other S Prescnt Stiatus: C - covenant complied with CD -complied willi after delay Cl 1 conopl ed wilth partially NC = not complied with  20 Table 11: Compliance with Operational Manual Statements Statement Number and Title Describe and comment on lack of compliance I. OMS 3.80 Safety of dams The OMS requires that experienced and competent engineers, acceptable to the Bank, be responsible for the design of the dam and its associated structures and the supervision of their construction. KSEB complied with this requirement. In June 1984, KSEB appointed an independent panel of experts under terms of reference acceptable to the Bank to oversee the technical aspects of the Lower Periyar power plant design and construction. In August 1984, the panel of experts approved the proposed power station layout with minor modifications which were incorporated as the engineering design was completed. The panel has been retained since then and has conducted periodic reviews. In accordance with Bank guidelines KSEB contracted in April 1993 a consulting firm to supervise, inter alia, the project construction. Table 12: Bank Resources: Staff Inputs Stage of Project Cycle Actual Weeks US$ thousands Through Appraisal 45 109.9 Appraisal-Board 7 17.1 Board Effectiveness 6 15.1 Supervision 195 417 Completion 6 18.0 TOTAL 259 577.1  21 Table 13: Bank Resources: Missions Performance Rating Number Specialized Implemen- Develop- Stage of Month/ of Days in Staff Skills tation ment Types of Proj ect Cycle Year Persons Field Represented I Status Objectives Problems Through Appraisal Identification mission Feb. 84 2 9 E, FA Preparation mission May 84 1 3 E Preparation/preappraisal Aug/Sep 84 2 11 E, FA Appraisal mission Dec. 84 3 10 E, EC, FA Appraisal through Board no missions Approval Board Approval through no missions Effectiveness Supervision No. I Jan. 86 2 5 E, FA 2 1 CP, FC, NP No. 2 Jun. 86 1 4 E 2 1 PM, PP2 No. 3 Oct. 86 1 5 FA 2 1 No. 4 Mar. 87 2 7 E, FA 2 1 No. 5 Feb. 88 2 5 E. FA 3 1 No. 6 Feb. 89 2 4 E, FA 2 1 No. 7 Oct. 89 3 5 E(2), FA, TS 3 2 No. 8 Nov/Dec. 90 3 22 E, E (C-2) 3 2 No 9 Mar. 91 3 5 E, FA, PO 3 2 No. 10 Aug. 91 1 10 E 3 2 No. 11 Mar. 92 2 11 E, FA 2 1 No. 12 Oct. 92 2 9 E, FA 3 1 No. 13 Apr. 93 6 7 E (C-2), EN 3 2 ES, FA No. 14 Jun. 93 3 2 E, ES, PA 3 2 No. 15 Jan/Feb. 94 5 5 E (C-I), EN 2 2 FA, 00, PA CP, FC, NP R PM, PP Completion Oct. 94 1 2 EC, C (1) 2 2 CP, FC, NP May 95 1 4 E (C-l) 2 2 PM, PP C: consultant: E: engineer; EC: economist; EN: environmental specialist; ES: energy specialist; FA: financial analyst; 00: operations officer; PA: procurement analyst; PO: project officer; R: resettlement; TS: training specialist. 2 CP: construction progress (slow); FC. forest clearance; NPC: non-performing contractors; PM: project management; PP procurement process (delays).  22 Appendix A Paze I of3 May 14, 1995 INDIA KERALA POWER PROJECT LOAN NO. 2582-IN WORLD BANK SUPERVISION MISSION May 1995 AIDE MEMOIRE I. INTRODUCTION 1. A Bank supervision mission visited Kerala from May 9 to 13, 1995 to: (i) review project implementation; and (ii) provide additional orientation to KSEB for preparing its own contribution to the Implementation Completion Report (ICR). The mission consisted of R. Lopez-Rivera (Power Engineer). 2. The mission thanks the officials of the Kerala State Electricity Board (KSEB) and the consultant SNC/Shawinigan for the excellent cooperation and hospitality extended to it and for the expeditious arrangements made for the field visit to the project site. The mission held meetings with the Chairman, Civil Member (Board), Chief Electrical Engineer (World Bank Project: WBP) and senior officials of KSEB, and with the Project Director of the Construction Management Organization (CMO) and members of the CMO staff belonging to SNC/Shawinigan. 3. This aide memoire presents the findings of the mission as given below: Section I deals with the ICR preparation. The final position of the Bank on the findings of the mission and conclusions of the mission will be confirmed from headquarters. I. IMPLEMENTATION COMPLETION REPORT (ICR) 4. The loan closing date was December 31, 1994. A Bank mission or February 1995 provided KSEB with a set of the Bank's ICR's documents comprising Operational Policies (OP 13.55), Bank Procedures (BP 13.55), and ~Good Practices (GP 13.55 TOC)) to acquaint KSEB with the procedures, and to initiate their own evaluation report. The May 1995 mission requested KSEB assign the task of organizing and overseeing the completion of the 1CR to a senior official familiar with the project, and to designate said official as the formal contact with the Bank during the ICR mission. KSEB has assigned this task to the Chief Electrical Engineer (World Bank Project) and to SNC/Shawinigan's Project Director of the Construction Management Organization. 5. The mission had meetings with the Chairman, Chief Electrical Engineer, and the Project Director, to discuss the preparation of the ICR. Annex 2 of this aide memoire suggests the basic content of KSEB's ICR. KSEB agreed to provide to the Bank any additional  23 Appendix A PaE2 2 f3 information the Bank may request for the preparation of its ICR. Considering that the project remains to be completed, an important contribution of KSEB is the presentation of the completion plan for the project that details the measures taken and to be taken -to ensure its completion. 6. KSEB has agreed to submit their ICR to the Department of Economic Affairs (DEA) of the Ministry by July 31, 1995, with copy to the Bank. The mission expects that DEA will send the ICR to the Bank by September 30, 1995.  24 Appendix A Page 3 of 3 ANNEX A BORROWER'S/KSEB'S IMPLEMENTATION COMPLETION REPORT (ICR) As an input to the Bank's ex-post evaluation of its operations, the Borrower/GOK/KSEB prepare and make available to the Bank its own evaluation report on the preparation, execution, and initial zoeration of the project. This contribution will be integrated verbatim (or in a summary if the report is longer than ten pages) into the Bank's ICR. It should include: (i) -he Borrcwer's/GOK's/KSE3's assessment of the of the projects object:ves,engineering design, implementation, and operation. (ii) an evaluation of the 3orrower's/GOK's/KSE3's own performance during project preparation,implementation, initial operation with emphasis on lessons learned that may be relevant in the future; and (iii)the Borrower's/GOK's/KSEB's evaluation of the Bank in the course of the evolution and implementation of the project, including the effectiveness of the relationship between the 3orrower/G0K/KSEB, with szecial emphasis on lessons learnea. The following table is the outline of the Bank's ICR. It would be helpful if the Borrower/GOK/KSEB would crganize its own report along similar lines: Project 7mplement.ation Assessment Project 3bjecz-v-es and evaluation tnereof IplementG-'on rExperience and Resul7s Project Success and Sustainability Institutional Arrangements Implementation Schedule Major Factors Affecting Project Schedule and Analysis thereof Assessment cf Bank Performance Assessment cf Borrower/GOK/KSEb Performance Assessment of Project Outcome Summarv of Findings and Future Operation Findings cf Project :mplementation Experience Future Project Operation Lessons Learned kerlaide.m95  Appendix B Page I of 8 25 KERALA STATE ELECTRICITY BOARD PROJECT COMPLETION REPORT INDIA KERALA POWER PROJECT (IBRD 2582-IN! PREFACE This is the project completion report (PCR) for the Kerala Power Project in India, for which loan IBRD 2582 IN in the amount of US Dollar 176 Million was approved on December 5th 1985. The loan was made to India, acting by its president. The Government of India was to make available the proceeds of the loan to Government of Kerala as part of Central assistance to Kerala State for Development projects on terms and conditions applicable at the time. GOK was to onlend the fund provided by GOI together with its own resources to KSEB. The loan was for 20 years including 5 years grace at the Banks standard variable interests. The loan from GOK to KSEB was for 20 years including 5 years grace at GOK's interest rate applicable at the time for its lending to KSEB but not less than 1 0 75% GOI would bear the foreign exchange and interest rate risks. The loan closing date was 30th September 1991. Since there was delay in starting the project work, the project could not be completed by that time. Bank has extended the closing date upto 31/12/1992 vide Bank's telex dated 5.2.1992. Again closing period extended upto 3 1/12/1993 vide telex dated 14/1/1993. Further the loan period extended upto 31/3/1994 vide telex dated 7/1/1994. Finally Bank extended the loan period upto 31/12/1994. Vide telex dated 24/5/1994. The loan amount was reduced to 156 MUS $ Vide letter dated 20/7/1993 and again the loan amount was reduced to 126 MUS $ vide letter dated 24/5/1994. Hence total of 50 MULS $ were cancelled. Disbursement under the loan were 100 MUS $ (approx.), which India will reimburse during the period from December 1990 to June 2005.  Appendix B 26 Page 2 of 8 KERALA STATE ELECTRICITY BOARD PROJECT COMNLETION REPORT INDIA KERALA POWER PROJECT (IBRD 2582-IN! EVALUATION SUMMARY OBJECTIVES The primary objective of the project was to increase the installed capacity in Kerala and the SRPS. In addition to this the project were intended to make more intensive use of India's hydro power potential, improve the performance and efficiency of the existing system and to strengthen managerial, commercial and financial practices of Kerala, in addition to this to improve the power supply position in North Kerala. Project Description The lower periyar HE Project in the Idukki District of Kerala consists of a Diversion dam in take, head race tunnel, penstocks and a power house equipment with 3 generating units of 60 MW each. The transmission line consists of the following: Length in Km. Idukki - Lower Periyar 35 (35) Lower Periyar - Thrissur 100 (100) Thrissur - Kozhikode 90 (115) Kozhikode - Kannur 108 (98) Lower Periyar - Kochi 56 (65) Thrissur - Palakkad 83 * Kannur - Kasargode 76 * 548 (413) Note:- Figures in parentheses represent the line length at the time of appraisal. * Subsequently added  Appendix B Page 3 of 8 27 KERALA STATE ELECTRICITY BOARD Substation under the project are as follows:- Thrissur (420MVA 400/220 2x3 1 5MVA 400/220 400 KV 320MVA 220/110) 2x200MVA 200/110 Kannur 220 KV (I20MVA 220/110) 2x16OMVA 220/110 Kochi 220 KV (320MVA 220/110) 2x16OMVA 220/110 Kozhikode 220KV (existing S/S need to modified to receive 220KV 220 KV switching station DC line from Thrissure) Palakkad 220KV * 2x 160MVA 220/110 Kasargode x 2x160MVA 220/110 Note.- Figures in parentheses represent the capacity of station at the time of appraisal *S,ubsequently added Since modification of the existing station at Kozhikode was found impossible due to Non-availability of land and as per court order no new lines are allowed to be constructed around the existing Substation it was proposed to construct a 220 KV Switching station at Kozhikode. Shortage of adequate transmission lines to the northern region of the state has been causing problems of low voltage, overloading and poor reliability, it was proposed to construct palakkad and kasargode 220KV Substations and connecting Thrissur palakkad and Kannur-Kasargode 220 KV lines. The loan amount available due to the transfer of reactive power compensation from World Bank to CIDA assistance, it was proposed to utilise the amount for constructing the additional transmission lines and Substations as detailed above  Appendix B Page 4 of 8 28 KERALA STATE ELECTRICITY BOARD Distribution works consists of (A) (B) (C) (D) Trivandrum 1() MVA gas 26 Switching 2x1OMVA GIS 350 RMU. 350 Dist. City Insulated Substation Station . 56 Dist. 2Nos. 2x1OMVA Transformer. 154 - 2 No. Transformer. 150 110/1 IKV KM OH. 121 KM KM Tr.&Sub Tr. Substation-I No. 11 KV UG. 44 KM 66 KV UG Kochi City IOMVA Gas 35 Switching 2xlONVA GIS- 400 RMU 400No. Insulated Substation Station 2Nos. 2x1OMVA Distn. Transf. 48 2 Nos; lx6O MVA 92 Dist. 110/ I-INo. KM OH 142KM. 11 Substation Transformer 2X25MVA 110/66- KV UG 38. KM-66 135 KM I No. 2x25MVA KVUG Transmission & 110/66 INo. Sub Transmission 2x1OMVA 110/11 INo. Koshikode IOMVA GAS 28 Switching 2x1OMVA GIS- 200 Nos RMLJ. 200 City Insulated Substation Station. 55 Dist: INo. 2x25MVA Nos. Distribution and 60MVA Transformer. 60 110/66 INo. Transformer 19 KM Substation KM Transmission 2xlOMVA 110/11 OH 86 KM. 11 KV and Sub I No. UG 20 KM. 66 KV Transmission Note:- Details ini columtns (A) & (B) represent the capacity of station and details at the time of appraisal. As per the Distribution studv conducted by the Consultant - A French Company - Changes in capacity of Stations and length of lines are necessitated for the distribution works:- The work of installation of 760 MVAR of reactive compensation to improve the system power factor subsequently transferred to CIDA assistance from World Bank Aid. Additional transmission lines and Substation included in this project to utilise the World Bank loan resulted due to the transfer. For Training, technical assistance and consulting services to implement the project, a A Human Resources Cell formed under a Chief Engineer to give training to staff. KSEB appointed consultant French Company for the study of Distribution works. KSEB appointed consultant for supervising the construction of Lower Periyar HE work. With the assistance of consultant, KSEB has introduced commercial accounting system from April 86 and accounts are prepared as per the Annual Accounts Rules 1985.  Appendix B Page 5 of 8 29 KERALA STATE ELECTRICITY BOARD Organisation and management study Phase I and Phase II was conducted by the consultant. Consultants have appointed for inventorisation and valuation of fixed assets. As a result Board is now in a position to ascertain the value of its fixed assets on a given date. Data processing study conducted by the consultant. In the account using computerisation has been carried out in a phased manner. Specification for the Hardware to be procured have been finalised and the tenders under evaluation. Orders for Hardware will be placed shortly. As per Tariff simplification and restructuring study conducted by the consultant- London Company - Tariff of KSEB revised thrice. The present tariff structure enables KSEB to evolve prospectively separate tariff upto 95-96. There is also provision for revision of rates whenever there is any enhancement in the purchase price of energy from generating companies and also due to higher cost of generation, etc. As a result of the tariff policy the R.O.R. of KSEB for the last 3 years has been higher than the statutory rate of 3%. After 1/8/88, the Board has revised the tariff on 1/1/1992, 1/6/1993 and 1/10/1994 The revision done in 1992 was a total revision for all categories except agriculture. In respect of agricultural categories, the Board continued to realise the rates prevailed in 1985 without change during revisions in 1/1/92, 1/6/93 and 1/10/94. Though the Board proposed revision of rates for the public lighting system in 1982, this could not be enforced due to social obligations. The rate proposed for the public lighting system in 1982 was made applicable during the 1992 revision. During the revision on 1/6/1993 an increase of 3 Ps. per unit in energy charge was made except for agriculture and public lighting. Till 1993 revision of all the non-domestic consumers were being changed at the same LT VI rates. From 1/6/1993, the non-domestic consumers were grouped under three categories, ie., LT VI (a), LT VI (b) and LT VI (c). During the revision on 1/10/1994, an increase of 7 Ps. per unit on energy charge has been made for all categories excepting agriculture and public lighting categories. Restructuring of non-domestic tariff and commercial tariff was also done. The additional annual revenue anticipated during the above revisions were as follows: 1. Revision effective from 1/1/1992 - Rs. 126 Crores 2. Revision effective from 1/6/1993 - Rs. 42 Crores 3. Revision effective from 1/10/1994 - Rs. 40 Crores  Appendix B Page 6 of 8 30 KERALA STATE ELECTRICITY BOARD IMPLEMENTATION EXPERIENCE Implementation of the physical components of the project started late. Mobilisation of the work started late because of various reasons. Paucity of fund was themain reasons. Sufficient machinery was not made available in time. This resulted, the procurement process longer than projected. Poor performance of the Civil Contractor for the construction of Lower Periyar LIE Project was the main reason for the delay in completing the LPHE Project in time. Delay in getting forest clearance from the Government of India was the main reason for the delay in starting the transmission line works. The delay has also resulted in rate revision request by the line contractors. Forest clearance received from Government of India on 7/90 and 8/92. There was procedure delay in state Government Department in acquiring land required for the Substations. Even now the land required for the cantonment 66 KV GIS has not been yet handed over to KSEB by the State Government. Orders placed for the supply of Transformers, Towers and power conductors were not accepted by the contractors which has resulted in revised tenders. While executing the work it was felt necessary to provide additional feeder bays to the Substations which has resulted procurement of additional equipment for the Substations. Since reactive power compensation was transferred to CIDA assistance, additional transmission lines Thrissur-Palakkad 220 KV, Kannur-Kasarogde 220 KV and Substations Palakkad 220 KV and Kasargode 220 KV were included in the project in order to stabilise the power supply position in North Kerala. This has resulted procurement of additional equipment and materials. Even now procurement of conductors and Towers required for this lines has not yet been completed due to contract failure. For implementing Institutional Development Progress studies were successfully carried out by appointing consultants for commercial accounting. Data Processing 0 & M study, and Tariff Study. Consultant appointed during 12/88 for the study of Distribution works - French Company have submitted the report on 6/90 only. This resulted in delay in starting the Distribution works. In addition to all this there was delay in obtaining timely clearance of evaluation reports and award recommendations by the Central Electricity Authority. Wide variation in exchange rate while executing the project resulted in price escalation and request from contractors for rate revision. This has resulted slow progress of work by the contractors.  Appendix B Page 7 of 8 3 1 KERALA STATE ELECTRICITY BOARD Under the above circumstances the project completion period was extended and the World Bank has extended the closing date only upto 12/94. It was expected that Bank will extend the closing period further for at least 1 year ie. upto 12/95 for enabling KSEB to partially complete the Lower Periyar H.E. Project. But since the Bank has closed the loan period at this advanced stage it will adversely affect the project implementation. Land Acquisition and Forest Clearance There was been procedure delay in acquiring land required for the station due to delay in Government Department and paucity of fund to acquire the land. Since land value was not included in the loan amount, the amount required for acquiring land had to be found out from other sources. Even today the land required for the construction of Cantonment 66 KV GIS has not been handed over to KSEB by the State Government. For such a time bound project there must be more initiation and support from the part of State Government for accelerating the process. In the case of forest clearance for transmission lines there was delay in Central Government for issuing forest clearance for the lines. Even after receiving the forest clearance, there was delay in the Forest Department for clearing in trees along the route. From all these it can be seen that this type of time bound project can be completed in time only if the Central and State Government jointly take up the work with special consideration with the State Electricity Boards. Results Even though the primary objective to increase the installed capacity of the project was not fully achieved, the power supply position in North Kerala improved by successful completion of the 400 KV Thrissure Substation, the 1 st 400 KV Substation in Kerala. By commissioning the Thrissure 400 KV Substation, Kerala is now in a position to receive the Central share of power. KSEB tariff revised 3 times which has resulted improvement in the financial status. The additional annual revenue anticipated during the revisions were as follows: Revision effective from I .1.1992 - Rs. 126 Crores -do- 1.6.1993 - Rs. 42 Crores -do- 1.10.1994 - Rs. 40 Crores Evaluation of the Bank Performance The project was supervised closely and adequate number of visits under supervision mission were made by the Bank. The assistance extended by the Bank contributed substantially in commissioning the 1 st 400 KV Substation which enables  Appendix B Page 8 of 8 32 KERALA STATE ELECTRICITY BOARD KSEB to receive the Central share of powers. For speedy implementation Bank has suggested direct payment but this was not fully accepted by the State Government. Bank took a calculated decision to retender the Lower Periyar H.E. Project civil work. This was fully accepted by KSEB and action taken based on this. Unfortunately, the Bank has closed the loan period in the middle of the project work which has adversely affected the project work. Evaluation of Borrowers Own Performance It was expected that on completing the Lower Periyar HE Project and connected transmission and Distribution works the power supply position in Kerala can be improved. But since the loan period was closed at the middle of the project work it adversely affected the project work. Initially there was some delay in starting the work. Initially there was some delay in starting the work. Paucity of fund was a main reason. Due to Banks recommendations and threat of cancellation, KSEB's tariff had been adjusted thrice to comply with the loan covenents. Hence at the time the loan was closed, KSEB's financial position was much better, and the progress of works were in an advanced stage. Even though earnest efforts were made by KSEB in adhering to the Work Bank schedule, World Bank has closed the loan period in the middle of the project work. CH~E WoI- B -     IMAG I NG Report No: 15546 Type: ICR