Ghana - Volta River Hydroelectric Expansion Project

RESTRICTED JItLE COPY Report No. P-703 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE VOLTA RIVER AUTHORITY WITH THE GUARANTEE OF THE REPUBLIC OF GHANA May 22, 1969  I' .M2O, A r; TOTA 3ANh .FOR RECOt',.ST CJ:'r,- T,jJ PM.,E'3Pfl,TT REPORT AND RECOI,MNDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE VOLTA RIVER AUJTHORITY WITH THE GUARANTEE OF THE REPUBLIC OF GHANA 1. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to US$6.0 million to the Volta River Authority (VRA), to be guaranteed by the Republic of Ghana. PART I - HISTORICAL 2. In February 1962, the Bank made a loan of US$47 million to assist in financing the construction of a major hydroelectric project on the Volta River, which included the construction of a dam, power station (with four units installed totaling 588 liM) and transmission facilities to permit bulk sales of power to an aluminum smelter, several large mining enterprises and the Electricity Corporation of Ghana (EGG), which provides power supply for 7eneral consumption. Agencies of the United Kingdom (iXport Credit Guarantee a-Lpartment) and the United States (iz:port-Inport Bank and Agency for International Development) partici- pated in the financing of the project. The project was completed in early 1966 about one year ahead of schedule and at considerable savings on the original cost estimates. 3. The viability of the original Volta project rested to a large extent on the construction of an aluminum reduction plant (smelter) at Tema by the Volta Aluminium Company Limited (Valco), which is jointly ow<ned by Kaiser Aluminum and Chemical Corporation and Reynolds Hetals Companyr. Valco utilizes the bulk of Volta power and is VRA's principal consumer, currently accounting for 75 per cent of its sales and 52 per cent of its revenues. At the time of the original loan, VRA and Valco entered into a power contract which provides, among other things, that Valco would purchase or pay for a specified msinimum amount of power and that such minimum amount would escalate with the increased power that VR.A was to provide in future under the contract. To meet the increased power requirements of Valco under the terms of this contract, VRA needs to install additional generating capacity by April 1972 at the latest, and work on the expansion project must begin now if VRA is to meet its contractual obligations. 4. In view of this, VRA approached the Bankc in 1967 for assis- tance in financing the fifth and sixth generating units which would increase the installed capacity of the power plant to 882 .>IW and enable VRA to meet its contractual obligation to provide additional power to the smelter as well as provide needed power for domestic consumption  - 2 - and for the e yortung of power f-om Ghana to Togo an" Dahomey over a transmission line to be constructed with assistance from the Canadian Government. The proposed expansion project was appraised in July-August 1968, and negrotiations were held in W.iashington in ivairch 1969. The negotiators for the VThS and the Fepublic of Ghana were i@k. E. L. Quartey, Chief &cecutive, VRA; His T-cellency _. M. Debrah, Armbassador of Ghana to the United States; Hr. E. A. X. Kalitsi, Director of Finance, VRA; S. i. -. I. izeble, Counsel, VPA, and Ar. G. K. G. Aiwnyo, Attorney General's 0Ojfice. 5. The folloiring is a summry statement of Bank Loans and IDA Credits to Ghana as of April 30, 1969: Loan or Amount (US$ million) Credit .To. Year Borrower Purpose Bank IDA Undisbursed 310 G.i 1962 VRA Power 47.0 .1 llo GI 1968 Republic of Power distri- 10.0 7.6 Gliana bution Total (less cancellations) 47.0 lOo0 of which has been repaid to Bank and others 2.1 Total now outstanding 44.) Amoumt soldl .1 of which has been repaid .1 -- Total now hcld by Bank and IDA 4).9 10.0 Total undisbursed .1 7.6 7.7 The construction work for the poweer distribution project financed by C:_edit 'o. 11 G&-I is progressing satisfactorily. The ECG had had difficulties on its accounting and financial side, but has now taken remedial measures suggested by IDA including employment of a firm of consultants and a oualified chief accountant. 6. The proposed loan ould be the third Bank Group financing in Ghana. Three other projects are currently in an advanced stage of ne_otiation and preparation and are expected to be presented to tile L-ecutive Directors w-ithin the next few months; these Jnclude a fisheries project, a higlhway engineering project and a wiater supply and sewerage project.  - 3 - PA-IT II - DESCRIPTION OF THE PROPOSED LOA1 7. BORROITL2'S: Volta River Authority GUARA`TTO'i: itepublic of Ghana AiHOIMTT: Equivalent in various currencies of us$6.0 raillion PURPOSE: To assist in financing the foreign exchange cost of the expansion of the Volta Project, which consists of two additional generating units and ancillary facilities ATO,RMTIZATIOK: In 25 years including a 10-year period of :race, throu,h semiannual installments beginning on June 15, 1979 and endin;- June 15, 1994 1iT-RIST RATE: Six and one-half per cent per annum C.L=,Ty:- CHARGE: Three-quarters of one per cent PART III - TH?, PROJECT 8. An appraisal report entitled "Appraisal of Volta Expansion Project" (PU-8a) is attached. 9. The project to wihich the Bank would contribute forms the major portion of VLIA's US$21.9 million overall expansion program for 1969-72, which, in adclition to the project, includes the constiruction o- a transmission line to the Togo border as part of an international scheme to e,port power from Ghana to Togo andl Dahomey (to be financed b,v Canada) and third double circuit transmission line from Akosombo to Volta (Tema) Substation (to be financed by an Italian loan). 10. The proJect consists of the purchase and installation of the fifth and si,cth generating units, which would bringZ the Akosombo powqer plant to its ultimate planned capacity of 882 1%T, auxiliary equipment ancd necessa-y consulting services. The total cost of the project is estimated at US$144. million, of which the foreign e.change component is about US$12.2 million. VRA will contribute the equivalent of US$2.21 million from its own resources, while the remainder would come from external sources as indicated in the follolang paragraphs.  11. The purchase of generators, step-up transformers, ancillary electrical and substation equipment and the foreign erchange costs of the installation of such eqtuipment would be financed by a Canadian loan equivalent to US$5.43 million. The four existing generators at Akosornbo, w,hich wrere procure d on the basis of international competitive bidding, are of Canadian manufacture. The additional generators would be pur- chased in Canada from the same manufacturer. The Canadian contribution would be made available to the Government of Ghana on concessional terms (50 years repayment free of interest) and would be onlent to the VIA at 2-1/2 per cent for 30 years. These terms are in accordance with Thana Government's normal. practice in making loans to statutory corporations. The entry into force of the Canadian loan wiill be a condition of effec- tiveness of the Bank loan. 12. VRA has en.a-ed the services of Kaiser Engineers and Contrac- tors, Incorporated, the consultants for the original project, to provide consulting engineering services related to the installation of the two additional generating units. The foreign exchange cost of these services (US$0.65 riillion) will be financed by the United States A:;ency for Intertnational Development out of the undisbursed portion of its original Volta loan. 1.3. The proposed Bank loan would finance the purchase and installa- tion of the turbines and ancillaiy equipment such as valves and gover- nors. It would also provide finance for substation equipment at Volta (Tema), Sekondi-Takoradi and i'winasi, transforfiieis, maintenance vehicles and consulting services for review of future expansion plans and for ranagement and training assistance. Procurement o