FOR OFFICIAL USE ONLY - World Bank · FOR OFFICIAL USE ONLY MICROFICHE COPY Report No. 10604-IN...

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The World Bank

FOR OFFICIAL USE ONLY

MICROFICHE COPY

Report No. 10604-IN Type: (SNR) ReportNo. 10604-IN

CHASSARD, // X81873 / ElO1Ol/ SA2EG

STAFF APPRAISAL REPORT

INDIA

SECOND MAHARASHTRA POWER PROJECT

JUNE 3, 1992

Energy Operations DivisionIndia Country Department

This document has a resticted distribution and may be used by reipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS(as of March, 1992)

Currency Unit = Rupees (Rs)Rs 1.00 = Paise 100Rs 1,000,000 US$39,216US$1.00 = Rs 25.5

MEASURES AND EQUIVALENTS

1 Kilometer (km) = 1,000 meters (m) = 0.6214 miles (mi)1 Meter (m) = 39.37 inches (in)1 Cubic Meter (mi) = 1.31 cubic yard (cu yd) = 35.35 cu. ft.1 Ton (t) = 1,000 kilograms (kg) = 2,200 lbs1 Kilovolt (kV) = 1,000 volts (V)1 Kilovolt-ampere (kVA) = 1,000 volts-amperes (VA)1 Megawatt (MW) - 1,000 kilowatts (kW) = 1 million watts1 Kilowatt-hour (kWh) = 1,000 watt-hours1 Megawatt-hour (MWh) = 1,000 kilowatts-hours1 Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours

ABBREVIATIONS AND ACRONYMS

ADB Asian Development BankBSES Bombay Suburban Electric Supply Ltd.CEA Central Electricity AuithorityDEA Department of Economic AffairsDOP Department of PowerEDF Electricite de FranceERR Economic Rate of ReturnGOI Government of IndiaHVDC High-Voltage Direct CurrentICB International Competitive BiddingLCB Local Competitive BiddingLICB Limited International Competitive BiddingLRMC Long-run Marginal CostLTIPS Long-Term Issues in the Power Sector studyMSEB Maharashtra State Electricity BoardMIS Management Information SystemNHPC National Hydroelectric Power CorporationNICG Net Internal Cash GenerationNPTC National Power Transmission CorporationNTPC National Thermal Power CorporationODA Overseas Development AdministrationOFAP Operational and Financial Action PlanPFC Power Finance CorporationREB Regional Electricity BoardSEB State Electricity BoardSCF Standard Conversion FactorTEC Tata Electric CompaniesThe Act Electricity Supply Act of 1948USAID United States Agency for International Development

FISCAL YEAR

April 1 - March 31

FOR OmCIAL USE ONLY

INDIA


Loar. and Project Summary

Borrowers India, acting by its President

Beneficiarys Maharashtra State Electricity Board (HSEB)

Amount: US$350 million

Terms: Repayment over 20 years, including five years grace, at theBank's standard variable interest rate.

Onlending Terms: The Government of India (GOI) will make the proceeds of theloan available to the Government of Maharashtra (GOM) under thestandard terms for central assistance to the states. GOM willretain US$1 million for part of the technical assistancecomponent, and onlend US$349 million to HSEB, at an interestrate not less than the prevailing coupon for GOI long-datedsecurities, currently 12.5Z per annum, with a repayment periodof 20 years, including a grace period of 5 years.

ProjectDescription: The proposed project comprisess (a) the construction of the

last stage of Chandrapur thermal power station by the additionof a 500 MW coal-fired unit; (b) the construction of a + 500kV, 1,500 MV HVDC line from Chandrapur to Padghe, near Bombay(about 735 km), and the related terminal stations; (c) theimplementation of an accelerated distribution reinforcementprogram aimed at reducing losses in selected areas; and (d)consulting services to be provided in the following four areas:Ci) load research and preparation of electricity demandmanagement measures; (ii) development of MSEB's environmentalmanagement capabilities at the corporate level; (iii)preparation of private power projects in Maharashtra; and (iv)institutional review of the power sector in Maharashtra.

Benefits: The main benefits of the project are: (a) an increase in powersupply and improvements in the quality of service inMaharashtra; (b) strengthening of MSEB's finances andmanagerial autonomy; (c) more economic use of generatingcapacity through better pricing policies, demand management andloss reduction measures; (d) reduced reliance on the centralgovernment for financing investment requirements by increasingMSEB's self-financing capabilities and improving externalresource mobilization as well as facilitating private sectorinvestments; and (e) strengthening of NSEB's environmentalimpact management capability.

Risks: The project does not pose any particular technical risks, inview of the proven designs and engagement of well-qualifiedconsultants to assist MSEB in project implementation. The mainproject risks relate to: (a) the availability of supplier

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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financing for the HVDC link, on reasonable terms; (b) possibledelays in the procurement process; and (c) the pace at whichtariff and other institutional reforms will be implemented.These risks will be minimized by: (a) assisting MSEB inpreparing the tender documents for the HVDC link to help obtainthe most attractive financing offers; (b) having finalizedduring project preparation a model bid document, contractpackages and the associated procurement plan; (c) having thefirst tariff adjustment, involving major improvements in thestructure of tariffs as well as a significant increase in theirlevel, implemented before Board presentation; (d) establishingrealistic targets for MSEB's financial performance and theimplementation of further tariff adjustments, demand managementmeasures and institutional reforms; and (e) providing technicalassistance to help MSEB and GOM implement these measures.

Estimated Cost: a/Local Foreign Total--------(US$ million)------

A. Chandrapur Unit 7 (500 HW) 172 236 408B. Hl")C Transmission Link 133 181 314C. Accelerated Distribution Program 65 41 106D. Consulting Services and Equipment 1 2 3

TOTAL BASE COSTS 371 460 831

Physical Contingencies 23 26 49Price Contingencies 1.7 60 77

TOTAL CONTINGENCIES 40 86 126

TOTAL PROJECT COST 411 546 957

Interest During Construction (IDC)World Bank 43 74 117Others 95 55 150

TOTAL IDC 138 129 267

TOTAL FINANCING REQUIRED 549 675 1,224

Financing Plan:

IBRD - 350 350 29Export Credits - 200 200 16GOM 305 - 305 25M3SEB 244 125 369 30

Total 549 675 1,224 100_m - =

Estimated Disbursements (US$ million):

Bank Fiscal Year FY93b/ FY94 FY95 FY96 FY97 FY98

Annual 39.8 34.9 71.8 113.2 83.1 7.2Cumulative 39.8 74.7 146.5 259.7 342.8 350.0

Economic Rates of Return: In excess of 12X.

a/ Including taxes and duties of about US$72 million equivalent.b/ Including special account initial deposit of US$19 million.

INDIA



Table of Contents

Page No.

Loan and Project Summary ................. .................. i

I. SECTORAL CONTEXT.. ................ ........... ....... 1

Overview .................. ; ;. *....-Electricity Supply, Demand and Tariffs ................ 2Organization of the Power Sector ... . .................. 3GOI Strategy in the Power Sector ............... ........4Past Bank Group Operations and Strategy ....... 5Towards a New Approach in the Power Sector ............ 8

II. THE BENEFICIARY - MAHARASHTRA STATE ELECTRICITY BOARD ...... 9

Organization and Manpower ...................................... . 9Operational and Managerial Performance ............... 10Electricity Tariffs ......................... ...... 10MSEB's Investment Plan ............ ..... ... ........ .11Institutional Development ....... ... ........ 1.-Private Sector Power Development in Maharashtra ......13

III. THE PROJECT ............ .................. 14

Project Objectives ...... .. .................. 14Project Description .1................................ 14Cost Estimates ..................... 1Project Financing . ......... .1....... *, . .. .15Project Management ..... ..... .. se ..... ... . . 17Status of Project Preparation ......... ............. 17Project Schedule ....... ..... ............. 18

This report was prepared by Mmes. Joulle Chassard (Senior Financial Analyst) andNandita Parshad (Economist) and Messrs. Argun Ceyhan (Senior Power Engineer), AkbarKhawaja (Financial Analyst), Mihir Mitra (Power Engineer), and Kari Nyman (EnergyEconomist). The report has been reviewed by Mrs. Zoubeida Ladhibi-Belk (SeniorPower Engineer, SA3EI) and Mr. John Besant-Jones (Principal Economist, IENED). Thereport has been endorsed by Mr. Heinz Vergin, Director, India Country Department,and Mr. Jean-Francois Bauer, Division Chief, Energy Operations Division, IndiaCountry Department.

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Page No.

Procurement ........................ ........... 18Disbursements ................................. ..... 19Resettlement and Land Acquisition .................... 20Environmental Aspects .... .... . .... ................. 20Benefits ....................................... 23Risks ....................... o . 23Project Monitoring and Supervision ................... 23

IV. FINANCE ... * ...... * .......... .. .. ........................ 24

Introduction . ......... ...... ........... 24Past Performance and Present Financial Situation ..... 24Billing and Collection .............................. 26Future Financial Performance ......................... 27Accounting and Auditing ... ........................ 29

V. ECONOMIC ANALYSIS ......................................... 30

Electricity Demand in the Western Region ............. 30Least-Cost Analysis ................... 31Economic Viability of the Western Region Program ..... 31Project Analysis ....... 32

VI. AGREEMENTS AND RECOMMENDATION ............................. 33

Agreements reached during Negotiations .............. 33Recommendation ......... 35

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ANNEXES

1.1 All-India: Electricity Demand and Supply1.2 Previous Loans and Credits to Indian Power Sector

2.1 MSEB's Head Office Staff Set-up as of March 19922.2 A Comparison of the Performance of MSEB and Other SEBs2.3 MSEB's Electricity Tariff

3.1 Project Description - Design Features3.2 Project Cost Summary3.3 Consultants Employed by MSEB for Project Engineering & Implementation3.4 Project Management Structure3.5 Project Implementation Schedule3.6 Key Dates for the Construction of the Project Components3.7 Procurement Arrangements3.8 Procurement Schedule3.9 Schedule of Disbursements3.10 Environmental Assessment - Summary3.11 Environmental Management Program3.12 Supervision Plan

4.1 Actual and Forecast Income Statements4.2 Actual and Forecast Balance Sheets4.3 Actual and Forecast Sources and Applications of Funds4.4 Assumptions followed for Financial Projections

5.1 Western Region: Past and Projected Power and Energy Demand5.2 Western Region: Electricity Consumption by Consumer Category5.3 Comparison of the Economic Cost of Generation5.4 Comparative Cost Analysis of HVDC and 800-kVA Options5.5 Western Region: Average Power Prices by State and Union Territory5.6 Western Region: Average Power Prices by Main Consumer Category5.7 Estimated Economic Costs of Autogeneration5.8 Estimated Financial Costs of Autogeneration5.9 Valuation of Economic Benefits for Each Consumer Category5.10 Program Benefits and Economic Rate of Return5.11 Project Benefits and Economic Rate of Return

6.1 Related Documents in the Project File

MAPS

IBRD 23691IBRD 23692

INDIA



I. SECTORAL CONTEXT

Overview

1.01 Over the past decade, electricity consumption in India increasedat ar. average annual rate of about 91. Despite significant progress in systemexpansion, power shortars continue and, in FY92, were equivalent to about 92of total energy and 1L i peak capacity requirements. Power supply is likelyto continue to constrairn economic growth in India well into the next century.As pointed out in a recent Bank study of the power sector1, unless increasedemphasis is placed on improving the efficiency of supply, consumption andpricing of electricity, continued focus on supply capacity expansion willaggravate the critical power demand/supply situation and is likely to befinancially unsustainable. A major challenge for the Government of India(GOI) in the power sector in the 1990s will thus be to attain a better balancein sector development between supply expansion and efficiency improvements.

1.02 The growing power gap (difference between potential deman4 forelectricity and available supply) is attributable to a combination ofinstitutional, pricing and operational inefficiencies. Closing it wouldrequire bold actions on institutional arrangements as well as bulk and retailpower tariffs, billing and collection, in a country where the responsibilitiesfor managing the sector are split between GOI and the states, and where, as aresult, electricity has become a highly charged political issue. Stategovernments, often at the highest political level, have effectively assumedcontrol of most major decisions of the state utilities, including those oninvestments, tariffs, borrowings, salary and personnel policies. Improvingsector efficiency will require the commercialization of the state electricityboards (SEBs), involving the establishment of a transparent regulatoryframework to provide them with operational and financial autonomy whilemaintaining accountability for performance. The proposed project addressesthese power sector efficiency issues in the state of Maharashtra.

1.03 With a per capita level of about 270 kWh per annum, electricityconsumption in India is among the lowest in the world, and demand is expectedto continue to expand at an average growth rate of 8Z per annum. Massiveinvestments in additional capacity will be required, even if GOI and the stategovernments pursue efficiency improvements in the sector. In the face of thecurrent and medium-term budgetary constraints, central government funding ofthe sector's investment program is likely to be insufficient; the state andcentral government-owned utilities will thus have to rely increasingly on

Long Term Issues in the Power Sector (LTIPS), December 1991. Thestudy was prepared in 1990-91, with financing from the OverseasDevelopment Administration (ODA) of the United Kingdom and theUnited States Agency for International Development (USAID). It wasformally discussed with GOI in February 1992.

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their own internal resources as well as private inv~estment. However, theability of the SEBs to mobilize internal resources is hampered by their poorfinancial condition.

1.04 Although GOI has opened the power sector to private investment,remaining uncertainties in the regulatory framework and the poor financialposition of most SEBs will constrain the realization of the potentialcontribution of private power. The project will assist Maharashtra indeveloping its private power policy and regulatory framework within GOI'snational guidelines and to contract with private developers for two majorpower generatiun projects.

Electricity Supply, Demand and Tariffs

1.05 India's power system has an installed capacity of over 69,000 MW.This makes its size comparable with that of France, the United Kingdom. or allof sub-Saharan Africa excluding the Republic of South Africa. In FY92, thissystem generated about 283,500 GWh, about 70? from coal-fired power stations,25Z from hydro stations, and 5? from gas, oil and nuclear stations (Annex 1.1provides additional statistics). Supply has expanded quickly: in FY82installed capacity was only 32,350 MW, and generation 114,000 GWh. Inparallel with the growth of supply, operational efficiency has improved. Forexample, the plant load factor has increased from 442 to about 55? over thelast ten years and the rate of coal consumption by power stations has been cutby about 1O0. These improvements reflect a strengthening of r.lant maintenanceand operations and are commendable in view of the deteriorating quality ofcoal the sector is receiving. However, auxiliary consumption exceeds 1OZ,technical and commercial losses in transmission and distribution are estimatedat 22? of net generation and interruptions and reductions in supply andvoltage are common. The poor quality and unrcliability of public suppliescause consumers to purchase costly back-up generating capacity.

1.06 Industry consumes about ha.f (51?) of all eleLLric power;agriculture uses 22Z; residences 15Z; ctmmerce 62; and public services thebalance (Annex 1.1). The growth in electricity demand has been accelerated byrelatively low power tariffs which have fLstered wasteful end-use of energy.Average retail tariff rates have increased only slightly since FY82 in realterms and remain at about 50? of the long-run marginal cost (LRMC). Increasesin real costs (particularly for fuel and wages) have offset the increases inefficiency and real tariffs. In the meantime, tariff differentials amongconsumer groups have widened. Industrial consumers have taken the brunt ofthe increases over the last ten years and the rates to large industrialconsumers are in most states now close to, and in some cases even above, LRMC.Agricultural tariffs, on the other hand, have fallen in absolute terms and nowcover less than 10? of their supply costs. Partly as a result of thissubsidization, agriculture's share in total consumption has grown from about17? in FY82 to 22Z in FY90. Compounding the problem is the poor collectionfrom farmers, and high transmission and distribution losses. They contributeto an increasing financial burden imposed by agriculture on the power sector.A similar situation applies to the residential uses of electr4city.

1.07 GOI's intensified pressure on the states to raise tariffs hasyielded encouraging results: since April 1990, most state governments haveauthorized their SEBs to increase their tariffs. In addition, in September

1991, the State Power Ministers agreed to implement a minimum agriculturaltariff. In their April 1992 meeting, they set the minimum rate at RB.0.50/kIWh. At the moment, two SEBs (Assam and West Bengal) comply with the newminimum agricultural rate. The tariff reform process has at best only juststarted and the challenges ahead are formidablet regular tariff adjustmentsand better collection practices, starting with but going well beyond theimplementation of the agreed minimum tariff, would be needed to restore thefinancial viability of SEBs.

Organization of the Power Sector

1.08 Central Sector. Responsibility for electricity supply is sharedconstitutionally between GOI and the states. Through the Department of Power(DOP) of the Ministry of Power and Non-Conventional Energy Sources, GOIcontrols the Centra.. Electricity Authority (CRA), the National Thermal PowerCorporation (NTPC), the National Hydroelectric Power Corporation (NHPC), theNorth Eastern Electric Power Corporation (!sEEPCO) and the newly-createdNational Power Transmission Corporation (NPTC), and, through CEA, supports theoperations of the Regional Electricity Boards (REBs). DOP also controls theEnergy Management Centre (EMC) and two financial intermediaries, the PowerFinance Corporation (PFC) and the Rural Electrification Corporation (REC).CEA's tasks are to develop a national power policy and coordinate sectordevelopment. NTPC and NEPPC are bulk supply utilities which sell power to theSEBs. REC plans and finances most investments in rural electrification. PFCmobilizes resources for and promotes operational and financial reforms in theSEBs. NPTC ie consolidating the development of the transmission system and isbeing developed to facilitate improvements in the operation of the generationand transmission system. Under the same Ministry, the Department of Non-Conventional Energy Sources administers GOI's renewable energy program, whichseeks to supplement conventional power supply with alternative energy systems,e.g., mini-hydro, biomass, wind and solar energy, as well as meet thedecentralized energy needs of the rural sector.

1.09 State Sector. The states control the SEBs and the StateGeneration Companies (SGCs), which together generate about 75Z of electricitysupply and provide most of the distribution to final consumers. Although theElectricity (Supply) Act of 1948 (the Act) grants them considerable autonomy,in practice the SEBs and SGCs must obtain state government approval (often atthe highest political level) for mast major decisions including those oninvestments, tariffs, borrowings, salary and personnel policies. The SEBs andSGCs are grouped into five regional interconnected power systems. The REBscoordinate generation and maintenance schedules including plant dispatch andinter-state power exchanges in these five regional systems. The effectivenessof REBs is, however, limited by their lack of authority on their member SEBs,severe deficiencies in system control and communication facilities andweaknesses in the structure of bulk power tariffs.

1.10 Private Utilities. At independence, private utilities andlicensed local authorities together provided about 80Z of public electricitysupply. The Act created the SEBs and entrusted them with primaryresponsibility for public power supply. The Act also made the SEBsresponsible for regulating p.-ivate utilities. The Industrial PolicyResolution of 1956 subsequently defined aspects of generation and distributionwhich were to be the exclusive responsibility of the states. Most licensees

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were taken over by the SEBs when their licenses expired, and no new licenseshave been granted since 1956. Only five private utilities remain: BombaySuburban Electric Supply Limited (BSES), Tata Electric Companies (TEC),Ahmedabad Electricity Company (AEC), Surat Electric Company (SEC), and CESCLtd. (formerly Calcutta Electric Supply Corporation). All but BSES generateat least some of the power they distribute2; their generation capacity totalsabout 2,800 MW. In addition, an estimated 6,250 MW of captive generatingfacilities are operated by industries.

GOI Stratszy in the Power Sector

1.11 The objectives of GOI's energ policy are to: (a) achieve energyself-relian:e; (b) reduce oil import dependence; (c) meet rural energy needs;and (d) improve the efficiency of energy production nnd use. Specificinvestment objectives in the power sector under the Eighth Plan (FY93-97) areexpected to include: (a) accelerating the completion of ongoing projects,particularly hydroelectric investments; (b) encouraging the construction ofenergy efficient and environmentally benign gas-based combined cycle plants;(c) rehabilitating existing plants; and (d) increasing investments intransmission and distribution relative to investments in generation.

1.12 To achieve the Plan objectives, it is essential that GOI and thestate governments tackle the sector's financial and institutional problems. InInada's federal structure it is difficult to condition central assistance tothe states as budgetary allocations are set by an automatic allocationformula. Within this framework, GOI is using more intensively the investmentselection and project implementation monitoring process to accelerateimprovements in the sector, by emphasizing investments in operationalimprovements, earmarking funds to specific projects and monitoring the use offunds and SEB performance more closely on a project-by-project basis. GOI hasalso started to promote reforms by exercising its leverage in the use ofdiscretionary funds not subject to the automatic allocation formula. Thesefunds essentially include PFC financing and funds from external assistance.PFC will lend only to utilities which have undertaken to implement anOperational and Financial Action Plan (OFAP), endorsed by their stategovernments and aimed at improving the utilities' resource mobilization andoperational efficiency. GOI's efforts to develop PFC into a viable andeffective instrument for promoting improvements in the power sector aresupported by the Bank (Loan 3436-IN: Power Utilities Efficiency ImprovementProject approved in January 1992), the Asian Development Bank (ADB) under aparallel operation approved in March 1992, and by USAID under a relatedtechnical assistance program for PFC's institutiondl development.

1.13 Faced with a growing power gap and diminishing public resourcesavailable for the sector, GOI has also taken steps towards opening the powersector to the private sector. In the July 1991 modificat!in to the IndustrialroLicy Resolution, power was remn%ed from the list of activities reserved forthe public sector. In September 1991, the Act was amended to lift many of theregulatory disincentives to private investment in the power sector. Inparticular, it allows full ownership of power companies by the private sector,

2 BSES is now in the process of constructing its first generatingplant, a 2x250-MW coal-fired unit at Dahanu.

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an extended period of license of 30 years with 20-year renewals and increasedfinancial returns. Provision is made for private generating companies andcaptive plants to sell power to the SEBs. Foreign companies are also allowedto implement power projects. A High Powered Board chaired by the CabinetSecretacy was established in October 1991 to promote private investment andaccelerate the clearance of projects. So far, a total of about 23,000 MW ofgenerating plant projects have been advertised by various states for privatesector investment. About 2,300 MW have been classified by DOP as awarded toselected developers although no agreements have yet been finalized. Inaddition to supply expansion, GOI's increased reliance on the private sectorwill also lead to improved financial discipline among the SEBs since privateinvestment would only go to states with an attractive policy environment and afinancially sound SEB. However, in the near term, the regulatoryuncertainties that remain despite GOI's policy initiatives, and the poorfinancial position of most SEBs constrain the realization of the potentialcontribution of private power. The proposed project will assist Maharashtrain developing its private power policy and regulatory framework within GOI'snational guiedelines and to contract out with private developers for two majorgeneration projects (para. 2.12).

1.14 PFC and private power initiatives are complemented by: (a) GOI'sincreased reliance on the central generating companies (NTPC, NHPC) for theexpansion of supply in order to improve cost recovery and ensure that priorityprojects are implemented efficiently; (b) the development of NPTC and relatedbulk power tariff reforms to improve the operation of India's generation andtransmission system; (c) the establishment of a National and five RegionalTariff Advisory Committees to advise GOI, state governments, SEBs and centralsector utilities on the level and structure of bulk and retail tariffs neededto ensure the financial viability of all agencies in the sector; and (d) theadoption of energy conservation measures. Following the recent approval ofamendments to the Act, GOI has now the authority to set the tariffs of thecentral utilities and has decided to improve the structure of NTPC's andNHPC's tariffs to help rationalize system operations.

Past Bank Group Operations and Strategy in the Power Sector

1.15 Lending. The Bank group has made 33 loans (US$6.3 billion) and 18credits (US$2.3 billion) for power projects in India (Annex 1.2)3.Twenty-seven loans and credits have been completed: 20 for generation; fourfor transmission; and three for rural electrification. Ongoing loans andcredits include fifteen for generation; three for transmission; and six whichinclude a mix of generation, transmission and distribution. Six loans havebeen extended to private utilities. The most recent loan was to PFC in January1992. The physical implementation of most Bank power projects in India hasproceeded slowly, but eventually, after significant initial delays, hasbroadly met expectations. Performance audits conducted for the Second PowerTransmission Project (Credit 242-IN) and the First and Second RuralElectrification projects (Credits 572-IN and 911-IN) highlighted thedifficulties of effecting institutional improvements in the absence of a cleardivision of responsibilities between the central entities and the SEBs.Project completion reports show that the Third and Fourth Transmission

8 Loan and credit amounts are net of cancellations.

projects (Credits 377-IN and 604-IN) experienced similar difficulties; despitesome progress, in general, SEBs did not respond to GOI's initiatives. Theselessons from past operations had an important bearing on the design of therecent PFC operation and have strongly influenced the Bank's current lendingstrategy.

1.16 Loan and credit disbursements continue to show large outstandingbalances (US$3,497.2 million as of April 30, 1992). These are due primarilyto the long construction periods for generation projects compounded byfrequent delays in procurement, in foreign exchange and import licenseclearances by the various ministries and in counterpart fund releases fromstate governments. Undisbursed balances have been pushed up further byfrequent cost underruns on major equipment contracts. The latter are due, insome instances, to the softening of international markets in the mid-1980sand, in others, to the depreciation of the Rupee. The Bank has reviewed thelevel of potential savings in its power loan portfolio for India and onDecember 5, 1991, canceled US$418.6 million as these funds were no longerrequired for project implementation. IFC has made five investments totallingUS$203 million to AEC and TEC in FY89, TEC and CESC in FY90, and BSES in FY91.

1.17 The Bank has had two lending operations with the Maharashtra StateElectricity Board (MSEB): the first one for the Chandrapur Thermal PowerProject (Ln. 2544-IN) in 1985, and the second for the Maharashtra PowerProject (Ln. 3096-IN) in 1989, part of which is implemented by the IrrigationDepartment of the Government of Maharashtra (GOMID). These projects arehelping MSEB expand its generation, transmission and distribution facilities,renovate and modernize existing power plants, and enhance its capabilities inmany areas of utility operation, management and project implementation. Bothprojects have encountered difficulties in the early stages of theirimplementation due, to a large extent, to the slow pace of procurement. Morerecently however, MSEB's extensive use of model bidding documents approved bythe Bank has improved the situation considerably. Funds available under Ln.2544 are now practically fully committed; two thirds have already beendisbursed and most of the remaining balance is expected to be disbursed inFY93. Bidding for the part of the Maharashtra Power Project implemented byMSEB is now almost complete and about US$70 million worth of contracts havealready been awarded, mainly in the past six months; such progress will soonbe reflected in accelerated disbursements. Furthermore, savings of aboutUS$46 million have already been identified, and GOI has requested the Bank tocancel an equivalent amount from the loan. Similar progress has been achievedin the part of the project executed by GOMID, with US$50 million worth ofcontracts awarded in February 1992 and tenders for the remaining packagesexpected to be issued at end-June 1992. Compliance with loan covenants hasgenerally been satisfactory. The lessons learned from these projects have hadan important bearing on the preparation of the proposed project, particularlyas regards the need to improve MSEB's procurement procedures and increase itsself-financing capabilities.

1.18 Past Strategy. Over the last decade, IBRD followed a three-pronged strategy in its lending to the power sector in India. Firstly, itsupported agencies owned by GOI as a means of effecting sectorwideimprovements. Secondly, it financed a selected number of SEBs whosemanagement and state government appeared to be committed to reforms. Finally,and in close cooperation with IFC, it financed existing private power

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utilities to improve their financial and economic efficiency and to encourageGOI to lower entry barriers for new investors. The success of this strategyhas been uneven.

1.19 Experience with Central Agencies. IBRD has helped NTPC becomeIndia's model utility and, in the process, improve operational efficiencynationwide. In FY92 NTPC provided about 212 of India's total power suppliesand the operational efficiency of its plants has consistently surpassed thatof the state utilities. After some delays in the pre-construction stages,NTPC generally constructed its projects on schedule and within budget,reflecting the strong project management capability it has developed. Theprocedures introduced by NTPC in quality control helped improve the qualitystandards of power equipment supplied by Indian manufacturers. However, GOI'sand the Bank's efforts to use NTPC to develop the power sector into anefficient and commercially viable part of the economy have fallen considerablyshort of the objective. The pervasive nature of the sector's financialproblems and the relative autonomy of the states in power matters limited whatcould be achieved through NTPC.

1.20 The financial health of NTPC has been threatened by the continuedaccumulation of receivables from the SEBs. At the end of May 1990 they stoodat the equivalent of about six months of sales and the Bank had to inform GOIand NTPC that support for new projects would no longer be possible unlessactions to reduce NTPC's receivables position were taken. NTPC has sinceenforced financial discipline through means such as letters of credit and in afew cases attempted to limit the supply of power to the level of paymentsreceived. In addition, a debt-equity swap with the Uttar Pradesh StateElectricity Board (UPSEB), NTPC's main debtor, has been completed. Itinvolved NTPC taking over the two existing units and an ADB loan for the thirdand fourth units of Uttar Pradesh's Unchahar Power Plant, in exchange forreceivables and increasing the value of UPSEB's letter of credit to the levelof expected sales from NTPC. With these measures NTPC's accounts receivablewere brought down to about 2 months in February 1992, in line with thecovenant under the most recent Bank loans. NTPC's collection problems willnot be permanently resolved, however, until its commercial arrangements withits clients are strengthened and the SEBs' financial performance issubstantially improved through retail tariff adjustments and collectionimprovements.

1.21 Experience with SEBs. Beginning in the mid-1980s, IBRD attemptedto improve the performance of SEBs by direct involvement at the state level.This approach, involving close lending relationship with the SEBs, has beensuccessful in a few cases, such as MSEB. Projects with institutionally andfinancially weaker SEBs have not met expectations, forcing the Bank to applyincreasingly strong remedies, up to loan cancellation in the case of the DelhiElectric Supply Undertaking (DESU) in 1989, suspension of disbursements underthe Uttar Pradesh Power Project in April 1991 and formal threat of suspensionsof loans to the SEBs in the States of Karnataka, Himachal Pradesh and Keralain June 1991. The Bank's stance has yielded positive responses from theconcerned state governments, including substantial tariff adjustments inHimachal Pradesh, Kerala and Uttar Pradesh. Continued close and frequentrupervision of the SEB loans is necessary to help ensure continued compliance,ith loan agreements, setting effectively a limit to the number of direct SEBoperations.

1.22 Experience with Private Utilities. The Bank and IFC's experiencewith the private utilities has been generally satisfactory. Unlike the SEBs,private utilities have been allowed by their respective state governments tooperate autonomously and in a technically and financially viable manner. Theyhave not suffered from the institutional and financial problems of the GOI-owned entities either, because the power they generate is largely fed intotheir own distribution networks which supply financially lucrative urbanresidential and industrial consumers.

Towards a New Approach in the Power Sector

1.23 The Bank supports GOI's recent major policy reforms in thesector, namely the creation of PFC and NPTC, the channelling of discretienaryfunds by the center only to the performing SEBs, and an increased role for theprivate sector. The key constraints to be addressed are the lack of financialautonomy and the poor financial discipline of most publicly-owned utilities,combined with the absence of commercial incentives and subsidized power pricesin most states. Physically, these constraints cause India's power system toprovide less power and of a poorer quality, at higher cost, than it otherwisewould be able to provide. The economic costs of shortages and poor quality ofsupply are exacerbated by inefficient use of power which is encouraged byinefficient pricing and non-collection of dues.

1.24 The evolving lending strategy would continue to support capacityadditions through the private sector and efficient public utilities while atthe same time giving increased attention to improvements in the utilizationand efficiency of existing operating assets. It would seek and supportactions by GOI to address fundamental issues in the power sector such asimbalances between capacity expansion and efficiency improvements in theinvestment plamning and fund allocation process, problems in the currentcentral sector power (and also coal and natural gas) allocation process, theoperational efficiency of the power system, the institutional structure of thestate utilities and poor resource mobilization in the power sector. Inaddition, issues relating to energy conservation, environmental andsociological aspects of power development will be taken up. Bank lending forpower would focus on:

(a) promoting domestic and foreign private investments, includingsupport to joint ventures between the private sector and well-managed public utilities and assistance to the states fordeveloping policy framework and contracting private power;

(b) projects implemented by either center or state utilitiesbenefiting states whose SEBs either perform in a satisfactorymanner or have started implementing credible plans underwritten bytheir states to improve their performance and finances, withemphasis on significant up-front tariff adjustments. Loans tosuch agencies would in particular support investments designed toimprove the utilization, operations and efficiency of existingpower generation, transmission and distribution facilities;

(c) investments that promote energy conservation and demand-sidemanagement; and

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(d) innovative, small-scale developments such as mini-hydro, co-generation and non-conventional energy schemes which areenvironmentally sound and cost-effective.

1.25 The first operation prepared in line with the above strategy wasapproved in January 1992, in support of GOI's efforts to develop PFC into anagent of reform in the power sector (para. 1.12). The proposed project alsofits into this strategy. It addresses key power sector issues in Maharashtraand promotes: (a) operational efficiency improvements including the reductionof transmission and distribution system losses and load management; (b)improved internal and external resource mobilization and electricity pricingreforms; and (c) institutional reforms including the enhancement of the roleof the private sector.

II. THE BENEFICIARY - MAHARASHTRA STATE ELECTRICITY BOARD

Organization and Manpower

2.01 The Maharashtra State Electricity Board (MSEB) was constituted in1954 under the Act and is responsible for generation, transmission anddistribution of electricity throughout the State of Maharashtra. Itconstructs and operates generating stations and transmission and distributionnetworks to supply electric power to final consumers and a licensee (TEC). Italso issues licenses to private power utilities in Maharashtra4 and forprivate captive generation. MSEB operates the largest state power system inIndia, with an installed generating capacity of 6,934 MW as of March 31, 1992(10Z of all India), of which 1,296 MW is hydro, 4,966 MW is coal-fired, and672 MW is gas-fired. MSEB's network consists of about 177,000 km oftransmission lines (11 kV and above) and 317,000 km of distribution lines(below 11 kV), and includes transformer substations with an aggregatedcapacity of 42,989 MVA. MSEB serves about 8.3 million customers, comprising5.6 million domestic, 1.6 million agricultural, 0.8 million commercial, and0.2 million industrial consumers.

2.02 MSEB is managed by a Board consisting of a full-time Chairman andthree full-time Members (for Accounts, Technical, and Administration). Boardmembers are appointed by the state government and define MSEB's generalpolicies as well as manage their respective sectors. At the end of FY91, MSEBhad about 106,000 regular employees and about 14,500 skilled workers employedin non-permanent positions. MSEB's organizational chart, presented in Annex2.1, reveals well-defined responsibilities for its operating units at itsheadquarters, regional divisions and project sites. Transmission anddistribution responsibilities, including commercial activities, are carriedout by six regional chief engineers who supervise twenty-four districts, eachheaded by a superintendent engineer. Generation (operations and maintenance)

4 The Tata Electric Companies (TEC) and Bombay Suburban ElectricitySupply (BSES), both operating in Bombay. TEC generate about twothirds of their peak load requirements and purchase the balancefrom MSEB; in addition, TEC transmit power through their lines toMSEB's clients and sell power to MSEB to meet the latter's energyrequirements.

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is organized in eight zones corresponding to the main power plants andtransmission substations. MSEB executes itself a considerable part of itsdevelopment program, especially transmission lines and substations.

Operational and Managerial Performance

2.03 MSEB compares favorably with other SEBs in India according to mostproductivity indicators (Annex 2.2). Labor productivity is well above theaverage for India's state electricity boards, measured both in terms of numberof employees per GWh sold (3.7 against an average of 5.8 for all SEBs) and per1,000 consumers (12.8 versus an average of 17.1). MSEB's management has sinceFY89 placed a freeze on recruitment for all lower level staff. MSEB's thermalplant load factor reached 60.6Z6 in FY91 compared to the national average ofabout 55Z; average availability was close to 77Z. While transmission anddistribution losses in FY91 were at 15.52 against a national average of about22Z, system losses have slightly increased over the last'\few years,essentially as a result of the rapid expansion of the distribution system.The proposed project will help MSEB to reverse this trend (para. 2.09).

2.04 As part of the execution of the Maharashtra Power Project (Loan3096-IN), MSEB launched in 1990 a comprehensive program of managerialdevelopment to strengthen its overall operational and managerial performance,particularly in the areas of organization, management information systems andplanning. MSEB also engaged a team of consultants to prepare a humanresources development plan, including monitorable annual staff productivitytargets, and a manpower plan; the consultants' recommendations are expected tobe available by July 1992 and will be reviewed with the Bank. While overallprogress in the implementation of the program has been satisfactory, delayshave incurred in: (a) strengthening the Internal Control Unit into anautonomous Internal Audit Unit reporting directly to the Chairman; and (b)establishing the much needed corporate planning unit. MSEB is taking steps toaccelerate the formation and staffing of such units. An Operational andFinancial Action Plan (OFAP) signed with GOM and PFC in January 1992 containsspecific actions to correct critical deficiencies in stock management, costcontrol, plant maintenance, billing and collection. In view of PFC'santicipated role as one of MSEB's major financiers and to reinforce thesignificance of the action plan, it was confirmed during negotiations thatMSEB will implement the OFAP and that its key quantified targets will beinc: 4ed in the key performance indicators to be closely monitored duringprojeLi supervision (para. 3.25).

Electricity Tariffs

2.05 Against the Indian context of heavy political interference intariff setting, the pace of tariff reform in Maharashtra has been impressivein recent years, with the tariff level increasing at an average annual rate of7.4Z in real terms in the FY85-91 period. MSEB's tariff was last adjusted inMay 1990. The adjustment raised MSEB's average tariff revenue to about Rs.

6 This indicator would have been much higher had coal supply beenadequate: the loss of generation during FY91 due to coal shortagewas 1,873 GWh, equivalent to about 112 of total thermalgeneration.

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1.09/kWh, equivalent to about 63Z of the revenue that would result from strictLRMC-based pricing. This ratio is well above the Indian average of about 502of LRMC, and along with MSEB's better than average operational efficiency, hasenabled MSEB to achieve a reasonable financial performance. State governmentsubsidies have, however, been necessary to compensate for the losses caused bythe low agricultural tariffs and meet the statutory 32 minimum after-interestreturn on net fixed assets. It should be noted that MSEB's 3Z after-interestreturn in FY90-91 corresponds to a conventional (before-interest) rate ofreturn of about 111 (Table 4.1). However, the current tariff structure stillincludes sharp divergences from the LRMC structure. While the tariff to largeindustrial and bulk supply customers is reasonably well in line with LRMC,tariffs to other industrial and commercial customers are about 50-602 of LRMC,and the rates to residential and agriculture customers, at about 25X and 52 ofLRMC respectively, are even below MSEB's average financial cost of supply.

2.06 During project preparation an intensive dialogue took placebetween GOM, MSEB and the Bank on further tariff reforms, focusing in: (a) theneed to raise MSEB's tariff revenue in order to ensure satisfactory financialperformance and increase contribution to future investment from internalresources; and (b) improvements in the tariff structure to reduce theremaining distortions. A new tariff, presented in Annex 2.3, was introducedon May 21, 1992. The adjustments made raise the average revenue by more than202 and bring MSEB's conventional (before-interest) rate of return to about122, corresponding to an after-interest rate of return of about 5Z, well aboveGOI's statutory 32 minimum. While agricultural tariffs could not be adjusteddue to the persistent severe drought conditions in Maharashtra, the new tariffincludes the following changes: (a) limit on the application of the financialsubsidy to low-income residential consumers only (defined as those consumingless than 50 kWh/month) and progressive increase in the rates applicable torelatively well-off consumers to bring them closer to their estimated LRMC;(b) significant increases in the tariff for commercial and low-voltageindustrial consumers; (c) adjustment in the level and structure of the high-voltage industrial tariff to bring the structure better in line with LRMC; and(d) introduction of an adjustment clause for the automatic recovery ofincreases in MSEB's purchased power cost, i.e., from NTPC, TEC and the TarapurAtomic Power Station. MSEB plans to pursue its power pricing reforms andinclude in its next tariff adjustment proposal the implementation of the Rs.0.50/kWh minimum agricultural tariff rate to meet the new national target(para. 1.07), the introduction of an effective time-of-day (TOD) tariff forlarge industrial consumers and MSEB's supply to TEC, and further increases inall other categories (particularly large residential and commercial consumersand low-voltage industrial consumers).

MSEB's Investment Plan

2.07 While MSEB's operational efficiency compares favorably with otherSEBs (para. 2.03), a further increase in the relative share and volume ofinvestments to reinforce MSEB's transmission and distribution system isneeded. GOM and MSEB have decided to make efficiency improvement a priorityarea for MSEB. Accordingly, proposed generation and rural electrificationinvestments have been cut in MSEB's investment plan and several major programsand projects have been initiated to reduce system losses and improveoperational efficiency. MSEB's investments in the Eighth Plan period areprojected at about Rs. 90 billion in current terms (including interest during

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construction). The plan has been reviewed during project preparation andfound to be technically, financially and economically sound. The majorcomponents of this efficiency-oriented plan are discussed below.

2.08 Generation. MSEB's investments in new generation projects havebeen reduced radically and entail only one new plant, Chandrapur Unit 7, underthe proposed project. The other two new generation projects, the extension ofthe Khaperkheda coal station and the new Nagothane combined cycle plant, havebeen taken out of MSEB's investment program and assigned to the private sector(para. 2.12). MSEB will also convert its existing Uran gas turbine plant tocombined cycle, to increase its capacity and generating efficiency. Inaddition, MSEB is implementing a comprehensive program of rehabilitation andrenovation of its other existing generation stations, for operational andenvironmental improvements.

2.09 Transmission and Distribution. The transmission system fromChandrapur (MSEB's main mine-mouth generation center in the eastern part ofMaharashtra) to the Bombay area (the main load center) will be reinforcedunder the proposed project. Projects for urban distribution rehabilitationand reinforcement, covering the major part of the 55 cities with a populationof 50,000 or higher, have already been prepared and projects for the remainingcities are under preparation. Distribution master plans for each of the 32districts in Maharashtra have also been prepared. Given the resourceconstraints, it is not, however, possible to rapidly implement a statewideprogram for distribution efficiency improvement outside the main urban areas.In order to initiate such a program and make it financially more affordable,the following actions have been agreed under the proposed project:

(a) selected district master plans (those with the highest potentialfor loss reduction) have been packaged into an AcceleratedDistribution Reinforcement Program, for implementation under theproject;

(b) a technical assistance component has been formulated to helpdesign additional efficiency improvement and demand managementmeasures. The project will help initiate the program and trainconcerned MSEB staff;

(c) the May 1992 tariff adjustment includes major increases inresidential and commercial rates (para. 2.06), to contain thedemand growth and reduce the financial burden of supply of theseconsumer groups, and will be complemented, in the next tariffrevision, by the introduction of the minimum Rs. 0.50/kWhagricultural tariff; and

(d) MSEB's target for annual pump connections has been cut from about100,000 to about 60,000 in the new investment plan. This isregarded by GOM as the absolute minimum number of new connectionsas the cut extends the average waiting time of the 300,000applicants on the waiting list from 3 years to 5 years.

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Institutional Development

2.10 As seen above, severe resource constraints limit MSEB's ability toimplement all the investments that would be required to meet fully thepotential demand and improve the quality of power supply while achieving ahigher degree of operational efficiency. The need to mobilize a significantamount of additional financing outside the traditional Plan allocations fromGOI/GOM has become paramount. HSEB's success in tapping new sources offinance (such as PFC, capital markets and export credits) will depend to alarge extent on its ability to develop from a relatively well-run SEB into aviable commercially oriented entity, with increased managerial, financial andadministrative autonomy. This would require not only that HSEB pursue itsefforts at improving its operational and managerial performance, but also thatits role, organization and modus operandi be reexamined against the backgroundof the evolving longer-term institutional development and performanceobjectives of the power sector in Haharashtra.

2.11 GOM has established a high-level committee to review the presentinstitutional setup for the sector, assess the need to adapt it to thechanging environment (financial constraints, increased number of private powersuppliers and coordination of their respective development plans), andreconmend ways to make MSEB a financially autonomous and accountable entity.On the basis of terms of reference agreed at negotiations, the committee willexamine inter alia the appropriate regulatory framework that would: (a)provide MSEB autonomy, with accountability for results; (b) reduce politicalintervention in MSEB's affairs, the tariff adjustment process in particular,and set clear technical and financial performance criteria, on the basis ofwhich the appropriateness of investment decisions and tariff revisions couldbe determined in an objective and transparent manner; (c) provide a forum forinteraction with other interested parties including electricity consumers; and(d) define MSEB's role in the development of private power in Maharashtra.Agreement was reached at negotiations that GOM will discuss the committee'sfindings and recommendations with the Bank not later than December 31, 1993(para. 6.02 (a)). Provisionis for consulting services have been included inthe project to enable the committee to benefit from the experience and adviceof internationally-renowned experts in the field of power sector regulationand organization.

Private Sector Power Development in Maharashtra

2.12 The private sector has long maintained a strong presence inMaharashtra, with TEC and BSES serving a large part of the Bombay metropolitanarea. In view of the prevailing resource constraints and in line with GOI'srecent policy initiatives, GOM and MSEB have decided to encourage the privatesector to assume an even wider presence and to allocate two of MSEB's threenew generation projects for the Eighth Plan (para. 2.09) for implementation bythe private sector: (a) the 2x210-MW extension of MSEB's existing 2x210-MWcoal-fired power station at Khaperkheda; and (b) Nagothane, stage 1 (410 MV)of an ultimate 2x410-MW gas-fired combined-cycle power station. Six potentialproject sponsors have been prequalified and requested to submit technical andprice proposals. A technical assistance grant was recently approved under theJapan Grant Facility to help GOM and HSEB in private power development, withthe Bank as the executing agency. The focus of the technical assistance ison: (a) finalizing the legal and incentive fr&mework for the implementation of

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the power generation projects by the private sector in Maharashtra withinGOI's overall framework; (b) developing an efficient and transparent frameworkfor evaluating the bids, including the preparation of detailed evaluationcriteria; and (c) helping GOM and MSEB negotiate and conclude contracts withthe selected sponsors during 1993. Given that the grant may only cover partof the work required, the proposed project will provide additional consultingservices to enable GOM to complete the contracting process, includingfinancial closure for the two power projects (para. 3.02).

III. THE PROJECT

Proiect Objectives

3.01 The main objectives of the project are to: (a) support operationalefficiency improvement; (b) improve internal and external resourcemobilization; and (c) promote institutional reforms including the enhancementof the role of the private sector.

Prolect Description

3.02 The componert., of the proposed project, described in detail inAnnex 3.1, are:

(a) the construction of the last stage of Chandrapur thermal powerstation by the addition of a 500-MW coal-fired unit (Chandrapurunit 7);

Cb) the construction of a + 500-kV, 1,500-MW HVDC line from Chandrapurto Padghe, near Bombay (about 735 km), and the related terminalstations;

tc) the implementation of an accelerated distribution reinforcementprogram aimed at reducing losses in selected areas; and

(d) consulting services in the following four areas: (i) load researchand preparation of electricity demand management measures; (ii)development of MSEB's environmental management capabilities at thecorporate level; (iii) preparation of private power projects inMaharashtra; and (iv) institutional review of the power sector inMaharashtra. Activities to be carried out under (iii) and (iv)would be implemented by GOM.

3.03 Coal for the Chandrapur power plant is mined at the nearby WardhaValley coal fields and no new coal mine will need to be developed for thepurpose of meeting the requirements of the power plant expansion under theproject. At negotiations, GOI reaffirmed that it will take all stepsnecessary to ensure adequate and timely supplies of suitable coal for theproposed power plant (para. 6.01).

Cost Estimates

3.04 The estimated cost of the proposed project is summarized in Table3.1. Details are given in Annex 3.2. Cost estimates for the civil works are

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based on available data from other projects engineered by MSEB and its variousconsultants. Cost estimates for equipment and materials are based onestimates received from a number of manufacturers and have been compared withthe cost of Chandrapur units 5 and 6 and other similar projects. Theestimated cost for consulting services is based on an estimatod 130 man-months, of which about 50 man-months are expected to be from localconsultants. Base prices were updated to Harch 1992. Physical contingenciesamount to about 5.92 of the base costs (physical contingencies of 4Z onequipment and civil works were assumed on the basis of experience with Units 5and 6 at Chandrapur and similar power plant projects; 72 on equipment andcivil works for the HVDC transmission project; and 102 for equipment and worksassociated with the accelerated distribution reinforcement program). Pricecontingencies, which amount to 32.52 and 8.82 of the base costs, in Rupee andUS Dollar terms respectively, are based on the expected annual domestic andinternational inflation rates. The domestic inflation rates used for the costestimates are as followss 10.52 for 1992, 8.52 for 1993, 7.52 for 1994, 6.5Zfor 1995, 62 for 1996, and 52 for 1997 onwards. The international inflationrates used are 3.72 for 1992 and thereafter.

Table 8.1: Estimated Pro3ect Cost. I

Projoet Components Local Foreign Total Local Foreign Total

- Re. million --------- -------USS milion--------

I. Chandrapur Unit 7 (600 MW) 4,401.8 6,012.9 10,414.2 172.6 286.8 408.4II. Chandrepur-Padgh, HVDC Trnamisoion Link 8,400.6 4,620.0 8,020.5 188.4 181.2 814.611. Accelorated Distribution

Reinforcement Progrm 1,654.8 1,086.0 2,690.8 64.9 40.6 105.5IV. Consulting Servicee and

Associated Equipmnt 17.9 51.0 68.9 0.7 2.0 2.7

Total Base Coete 9,474.5 11,719.9 21,194.4 871.6 469.6 881.2

- Physical Contingencles 581.9 669.0 1,250.9 22.8 26.2 49.0- Price Contingencies 2,684.8 4,8a0.5 7,294.8 17.7 59.5 77.2

Totel Contingnclles ,248.2 5,299.5 8,645.7 40.5 85.7 128.2

Total Project Cost 12,720.7 17,019.4 29,740.1 412.1 545.8 957.4s:c=z. e==~ e==

Interest During Construction- Bank Loan 1,882.7 2,401.1 8,788.8 42.8 74.8 117.1- Other 8,0o5.7 1,767.1 4,822.8 94,4 55.1 149.7

Total - Interest During Construction 4,488.4 4,188.2 8,606.6 187.4 129.4 266.8

Total Financing Required 17,159.1 21,187.6 88,846.7 649.5 674.7 1,224.2-_ __-E; = ==

/a Includes taxes and duties of about US872 million. Indirect foreign costs of localcontracts amount to USS881 million and are Included In total foreign costa.

Pro3ect Financing

3.05 The project is the largest component of MSEB's investment programover the next few years. The proposed Bank loan of US$350 million would coverabout 292 of the total financing requirements, net of duties and taxes. Theloan would cover part of the estimated foreign exchange requirements and partof the ex-works costs for contracts expected to be awarded to local suppliersunder international competitive bidding (ICB) and would help finance

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Chandrapur Unit 7, the HVDC line, the accelerated distribution reinforcementprogram and consulting services. Export credits would finance the major partof the foreign exchange costs of the HVDC terminals (para. 3.07). Thefinancing plan is shown in Table 3.2.

Table 3.2: Financing Plan

Local Foreign TotalCurrency Currency---------- US$ million----------- z

IBRD 350 350 29Export Credits - 200 200 16GOM 305 - 305 25MSEB 244 125 369 30

Total 549 675 1,224 100

3.06 The Bank loar would be lent to India. GOI will make the proceedsof the loan available to GOM under the standard terms for central assistanceto the states . GOM will retain US$1 million for part of the technicalassistance component (para. 3.02) and onlend US$349 million to MSEB for theimplementation of the remaining components, at an interest rate equal to theprevailing coupon rate for GOI long-dated securities, currently at 12.5?, witha repayment period of 20 years, including a grace period of 5 years. GOM andMSEB will enter into a financial arrangement that will include inter aliaprovisions for the issue of separate government orders for the release of thefunds to MSEB to ensure transparency of such lending and the submission to theBank of copies of the above-mentioned orders on a quarterly basis (para. 6.02(b)).

3.07 In order to secure foreign exchange financing for projectcomponents not financed by the Bank, such as the HVDC terminals, MSEB isseeking cofinancing from expor-,'supplier credits, and the correspondingtenders were floated on March 30, 1992. The tender documents specify that theforeign exchange financing is sought at OECD consensus terms, or better.Three major manufacturers of HVDC equipment have already purchased thedocumentation and at least one more manufacturer is expected to follow suit.Informally, the prospective bidders have indicated to MSEB their intention toalso offer financing packages. Copies of the results of such preliminaryconsultation has been provided to the Bank. In order to address fully theBank's concerns regarding the project's financing plan, MSEB has requested theprospective bidders to further ascertain their intentions to provide financingfor the terminals and obtain formal preliminary commitments, some of whichhave already been forwarded to the Bank. It was agreed at negotiations thatsatisfactory financial arrangements for the construction of the HVDC terminalswould need to be finalized before the loan is made effective (para. 6.03 (a)).Given that present GOI guidelines preclude MSEB from direct external

6 These are expected to involve GOI passing 100? of the Bank loanto GOM.

17 -

borrowing, it is envisaged that the required export credits will be channelledthrough PFC, with MSEB assuming the foreign exchange and interest rate risks.

Prolect Management

3.08 The Industries, Energy and Labor Department of GOM, through theSecretary, Energy and Environment, will be responsible for supervising theconsultants that will assist in the program for private power development andadvise the high-level committee in charge cf reviewing the institutionaldevelopment of the power sector in Maharashtra. MSEB would be responsible forimplementing all the other components of the proposed project, with theassistance of consultants, except for the distribution program. The list ofconsultants employed by MSEB for this project and their respectiveresponsibilities are given in Annex 3.3; in particular, because the technologyused for the transmission link will be new to MSEB, the latter has retainedthe services of Hydro-Quebec International/Lavalin of Canada, as well as ateam from NTPC to assist in the preparation of this component of the project.All the consultants are acceptable to the Bank. MSEB has demonstratedcompetence in project management during the construction of the previous Bank-financed projects. MSEB's proposed project management structure is shown inAnnex 3.4, detailing arrangements for Chandrapur Unit 7 and the HVDC link. Nospecial organization is required for the implementation of the accelerateddistribution reinforcement program as MSEB is adequately organized to carryout these distribution works as part of its normal distribution operations.The Distribution Department will be responsible for the engineering andmanagement of the Program. ,t has experienced engineers and upgrading of itsplanning facilities is being financed un4er Loan 3096-IN.

Status of Proiect Preparation

3.09 Bidding documents for the two major contracts of the ChandrapurUnit 7 component, viz. boiler and turbine generator, have been submitted tothe Bank for approval. These two contracts will account for about 502 of theBank loan. The documents are expected to be issued for tendering by end-July1992. Bidding documents for the other contract packages will be finalizedbased on the technical specifications from the boiler and turbine-generatorcontractors. Since unit 7 will basically be a replication of units 5 and 6 inits essential design fuatures, no difficulties are envisaged in thepreparation of bid specifications incorporating the final design. Biddingdocuments for the HVDC terminals were reviewed by the Bank althoughprocurement will be under export credits. The scope and final cost estimateof the accelerated distribution reinforcement program was agreed atnegotiations. Agreement was also reached that MSEB will submit to the Bank,no later than March 1 of each year, a work plan, including the list ofdistribution lines and substations to be financed by the Bank during thefollowing year, the list of contract packages for which tenders will beinvited, and the associated timetable for the procurement of equipment andmaterials to be financed by the Bank (para. 6.02 (c)). The implementationschedule of the load management program, described in Annex 3.1, was alsoconfirmed at negotiations.

3.10 A model bidding document for the supply of goods was agreed underLoan 3096-IN and has been updated for use under the proposed project. It wasfinalized at negotiations.

18 _

Project Schedule

3.11 The project would be implemented over a period of six years andis expected to be completed by December 1997, with the closing date for theloan to be set at June 30, 1998 (Annex 3.5). The imp:ementation schedule forthe proposed 7th unit at Chandrapur is based on experience under units 5 and 6and is substantially shorter than the Bank standard in South Asia, resultingalso in substantially faster disbursement of the Bank loan (para. 3.14). Theschedule assumes that the contracts for the boiler, turbine-generator and HVDCterminals are awarded ao later than January 1993. Chandrapur Unit 7 isscheduled to be synchronized with the Western Region Interconnected Grid inMarch 1997, and would be put into commercial operation ty June 1997. The HVDCtransmission link would be put into operation by March 1997, in accordancewith the timing for commissioning of Unit 7. Key dates for milestoneconstruction activities (Annex 3.6) were confirmed at negotiations.

Procurement

3.12 The procurement arrangements are summarized in Table 3.3 andshown in detail in Annex 3.7. This annex also shows the contracts which wouldbe financed under the proposed loan. Major milestones of the procurementprocess are given in Annex 3.8. The bulk of the equipment (totalling aboutUS$410 million) will be procured through international competitive bidding(ICB) in accordance with the Bank's procurement guidelines; some of them wouldalso include civil works (e.g., substation structure and transmission lines);this would ensure better coordination during implementation. Localmanufacturers would be expected to bid for most categories of equipment, and adomestic preference of 152 or the corresponding import duty, whichever isless, would be applied in the comparison of bids for equipment contracts.Contracts worth less than US$100,000 each and with an aggregate value ofUS$6.3 million (of which the Bank-financed portion is estimated at about US$5million) may be awarded by receiving bids from at least three suppliers.Contracts worth US$1 million or more would be sabject to prior review by theBank; this category is estimated to cover about 90Z of the value of all ICBcontracts. Smaller contracts would be subject to selective post-award review.The main consultants for the project have already been appointed and arefinanced by MSEB (para. 3.08). Consultants for the technical assistancecomponent would be appointed in accordance with the Bank guidelines for theselection of consultants. Main civil works, in multiple packages, to befinanced under non-Bank funds, will be procured under local competitivebidding (LCB) procedures. The nature of works entailed under this category isunlikely to attract foreign bidders; however, foreign contractors will not beprevented from participating in LCB. To secure satisfactory performanceguarantees, the main package for the Chandrapur and Padghe terminal statior.s(US$239 million) would be procured as a single responsibility contract, underLimited International Competitive Bidding (LICB) and on a supply-and-erectbasis and will be financed under suppliers' credit (para. 3.07). MSEB will beencouraged to procure the other non Bank-financed equipment and materialspackages under ICB procedures.

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Table 8.8: Suwmariof Proosed Procurement Arrangments g/(U3S million equivalent)

-- Procurement Method----Project Element ICB LCB Other N.B.F. Total Cost

1. Civil Works 16 0 - - 48.6 I 68.6(11 .0) -) (-)(- ) (11 .0)

2. Goods (Equlpment A 867.0 - 6.8 460.4 828.7Machinery) (802.0) ( - ) (650) ( - ) (807.0)

8. Erection Services 87. 6/ - - - 87.5(80.0) (-) (-) C-) (80.0)

4. Consulting Services4.1 Engneerlng

and Supervision - - - 29.9 29.9C-) (-) (-) (-) (-)

4.2 Technical Assistance - - 2.7 - 2.7C-_ ) ( -) (2.0) (2.0)

Total 409.5 - 9.0 688.9 957.4(848.0) ( - ) (7.0) ( - ) (850.0)

LI Contract veaues includo contingencies, taxes and duties (US871.6 million).§/ Civil works portions of the equipment contracts which will be procured under

g/ Main civil works, in multiple packages, which will be procured under LCEprocedures.

d/ Erection portiono of the equipmont contracts which wil be procured under ICD.lCs: International Competitive Bidding.LCD: Local Competitive Bidding.Other: Side from at least thre suppliers, and selection of consultants according

to Bank guidelines.N.S.F.: Not Sank-financed (including UCB).Note: Figures In parenthesis are the aounts financed by the Bank loan.

Disbursements

3.13 Disbursements from the proposed Bank loan would be made against:(a) 100? of the foreign currency expenditures (CIF), and 10O? of the localex-works cost, and 0S of other local expenditures for equipment; (b) 90? ofexpenditures for civil works and erection services; and (c) 10O of theservices rendered by consultants. Disbursements for: (a) equipment and civilworks under contracts valued less than US$200,000 equivalent, and (b) allerection services, would be made against statements of expenditures (SOE), thedocumentation of which would not be sent to the Bank, but would be retained byMSEB for inspection by supervision missions. All other disbursements would befully documented.

3.14 To facilitate disbursements, a special account will beestablished for the Bank loan with an authorized allocation of US$19 million,equivalent to four months of average disbursements under the project. Annex3.9 shows the estimated disbursement schedule as derived from the constructionprograms of the project components (para. 3.11), assuming normal terms forcommercial payments, including retention payments. The aggregated

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disbursement profile for the project is six years and does not fit IBRD'sstandard profiles because: (a) the project is at a relatively advanced stageof preparation; and (b) some of the components have particular characteristicssuch as Chandrapur 7 being the last unit of a large power plant and thedistribution reinforcement program being relatively quick to implement. Thelast payments are estimated to be made during the first half of 1998.Accordingly, the closing date for the loan would be June 30, 1998.

Resettlement and Land Acquisition

3.15 The proposed extension of the Chandrapur power station does notinvolve any new displacement of population as adequate space is alreadyavailable on the existing plant site for the installation of the seventh andlast unit and no new land needs to be acquired. The construction of units 5and 6 led to the displacement of about 800 families to whom a rehabilitationcompensation (in addition to the compensation for land/house structureacquisition, when applicable) was paid. Although this cash compensation hasenabled a large number of families to resettle in satisfactory condition, somefamilies still remain to be fully resettled and rehabilitated. The Governmentof Maharashtra issued in February 1992 an order to complete their resettlementand rehabilitation within a period of 18 months. The implementation of theresettlement and rehabilitation plan7 , which will require the identificationof the families according to specific eligibility criteria, has alreadystarted.

3.16 The land for the HVDC terminal station at Chandrapur is alreadyavailable with MSEB and no additional land will be required. The terminalstation at Padghe is being established near MSEB's existing 400/220-kVsubstation. A major portion of the land is already available with the Board.A few acres of additional land required for AC/DC interconnection adjacent tothe existing substation is being acquired and will not involve any humanresettlement or rehabilitation.

Enviroxtmental Aspectse

3.17 Status of Environmental Assessments and Clearances. MSEB'sconsultants, Associated Industrial Consultants India Private Ltd., haveprepared an environmental assessment (EA) report examining the likelyenvironmental impacts of the entire power plant at its ultimate designcapacity, with all seven units in operation. The environmental clearance forChandrapur unit 7, granted by Government of India in February 1990, iscontingent on the construction of: (a) a multi-flue stack of not less than275-meter height, and (b) the installation of a flue gas desulphurization(FGD) unit. The National Airports Authority formally issued in February 1992its no-objection to the construction of the 275-m chimney, tlus enabling MSEBto proceed with the project. MSEB commissioned additional modeling studies to

7 An action plan for the lmpl wsntation of tho RA program was submitted duringappraisal and is In tho Proj et Fi la.

S Deils to1 f the *nviron-sntal aspects of the projet are described in theEnvironmental Assessment Summary given in Annex 8.10. The Summary was distributedto the Executive Directors on February 28, Im and has been updated to reflecttho finding. of the appraisal mission.

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predict ground level concentrations of SO2 and NO at various locations aroundthe plant@. The results, reviewed by the Bank ana found satisfactory,indicate that the air emissions from the plant with all 7 units in operationat full load and burning the worst quality of coal, would remain in compliancewith the guidelines of GOI, GOH and the Bank, suggesting that installation ofan FGD unit is not warrantedl°. MSEB's request for the deletion of themakdated FGD unit is now under consideration by GOI. Pending a possiblerelaxation of GOI's requirements, MSEB is making adequate provisions for theFGD unit in the project design; these are reflected in the project costestimates and financing plan. The Bank has however indicated to MSEB that itwould not finance this facility. MSEB has prepared an environmentalassessment for the proposed HVDC transmission line and associated terminals.Forest clearance for the construction of the transmission line was issued bythe Ministry of Environment and Forests (GOI) in May 1992, subject to twoconditions: (a) land already identified for compensatory afforestation shouldbe transferred to the state forest authorities; and (b) MSEB should transferfunds to GOM to cover the cost of afforestation. It was agreed atnegotiations that compliance with these conditions would be a condition ofloan effectiveness (para. 6.03 (b)). CEA and Planning Commission approvalswill be issued immediately after the forest clearance.

3.18 Environmental Aspects of Chandrapur Unit 7. The design of theproposed unit at Chandrapur ensures that the limits imposed by the applicableenvironmental guidelines of the Bank as well as GOI are not exceeded at thefully developed plant capacity of 2,340 MW. The expected ground level airquality and the total SO and NO emissions, with all seven units inoperation, will remain within reKgulatory requirements, even without a flue gasdesulphurization unit. The proposed stack height of 275 meters will help inplume dispersion over a wider area. NO generation will be controlled in thepulverized coal-fired boiler, by property designed burners that use a low-excess air combustion system. On-line instrumentation to be installed at thestack will monitor emissions on a continuing basis. Fly ash will be removedby the electrostatic precipitators at 99.5Z collection efficiency for theentire plant with seven units11. Since the Chandrapur power plant uses aclosed cooling water circuit, the thermal pollution caused by the plant isinsignificant. As the condenser cooling water cascades down through thecooling towers, in a fine mist through a strong countercurrent of induceddraft of air, the temperature will fall to the ambient level by giving up heatto the air. The wind will quickly dissipate this heat. A waste watertreatment facility will be constructed in parallel with the proposed projectto treat all liquid effluent of the seven units of the power plant and reusethe treated water for ash-handling purposes. This recycling of water isexpected to reduce the offtake from the neighboring Erai reservoir by as muchas 65,000 ma/day which can then be released for downstream use. The wastewater treatment plant is scheduled to be in operation in December 1993.

9 Tho associated report has bean included In the Project Fila.

10 The invostigations were made assumlng a chimney height of 200 metre for Unit 7,Identical to those for unite 5 and 6. Now that the unit w.uld be equipped with a275-meter high chimney, the ground level concentrations would be further reduced.

The electrostatic precipitator. of unite 1 through 4 will be upgraded under Loan2644-IN, to ensure at loast 99.6X collection efficiency for the entire plant.

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Agreement was reached at negotiations that MSEB will implement variousenvironmental mitigatory measures at Chandrapur, including, inter alia, theimplementation of the waste water treatment and management scheme, theinstallation of dust suppression systems, the retrofitting of the ash pond,and the acquisition and installation of air quality monitoring equipment,according to an agreed implementation schedule (para. 6.02 (d)).

3.19 Environmental Aspects of the Chandrapur-Padghe HVDC Line.Transmission facilities will be designed and constructed in accordance withcurrent technological practices that will ensure minimum disturbance to theenvironment. The route for the 736-km long transmission link has beenselected so that only 7.8 km (i.e., 1.6Z of the total length of the line)infringes on forest land - mainly degraded forest - in different patches alongthe route in four districts. About 1,500 trees along these 7.8 km will befelled within two 3-meter wide corridors, corresponding to an area of 5 ha.However, MSEB will bear the cost of compensatory afforestation on 41 ha (i.e.,almost ten times the land area that will need to be cleared). Government landfor compensatory afforestation has already been identified and accepted by thestate forest authorities. Final forest clearance was issued subject tofulfilment of two conditions (para. 3.17)

3.20 Consultations with Affected People. A substantial amount ofconsult'tion has taken place with affected people by MSEB and stateauthorities concerning the environmental impact of the project, particularlyon the resettlement issues linked to the construction of the previous stage ofthe Chandrapur power station (units 5 and 6). As part of the requirements forobtaining project approval from the central government authorities, anotification was published in the government gazette and all major statenewspapers in December 1988, announcing MSEB's intention to proceed with theproposed project. In addition, MSEB will make a summary of the environmentalassessment report available to the public. To that effect, a notification wasplaced on May 15, 1992 in 16 local newspapers of the state, specifying thelocations at which this document, duly translated into Marathi, can beobtained.

3.21 Environmental Management, Monitoring and Supervision.Environmental matters are presently handled by MSEB only at plant level. Atthe corporate level, there is no central environmental unit per se responsiblefor formulating environmental policies and regulations for the whole companyas well as for monitoring their implementation, including resettlement andrehabilitation matters. The proposed project will entail a component aimed atstrengthening HSEB's environmental capability at the corporate level byestablishing a central environmental unit responsible for: (a) formulating thecompany's environmental policies; (b) establishing standards for the dispobalof effluent and emissions and the associated treating technologies; (c)setting up a company training center and establishing training programs forthe staff at v'arious management and operational levels, in the areas ofenvironment, safety, resettlement and rehabilitation; and (e) coordinating themonitoring and evaluation of MSEB's performance in implementing the company'senvironmental policies, including resettlement programs. Provisions forconsulting services for assisting in the establishment of the centralenvironmental unit have been included in the project (para. 3.02). Terms ofreference for the consu'ltants, to be appointed not later than June 30, 1993,were agreed at negotiations (Annex 3.11). It is expected that it will take

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about 18 months for the consultants to complete their assignment and enableMSEB to implement their recommendations.

3.22 At the plant level, HSEB monitors emissions and effluent qualityat each of its power station on a daily basis, with the help of contractors.The Maharashtra Pollution Control Board staff visits the power stationsperiodically and verifies measurement results recorded by MSEB and reviews alleffluent quality analysis reports. In future, to facilitate monitoring,measuring instruments will be provided at the stack, with alarm capability tosignal operation beyond acceptable parameters. An air monitoring station willbe set up at Chandrapur, with an appropriate number of satellite stations, tohelp monitor the ambient air quality on a continuing basis.

Benefits

3.23 The main benefits of the project are: (a) an increase in powersupply and improvements in the quality of service in Haharashtra; (b)strengthening of MSEB's finances and managerial autonomy; (c) more economicuse of generating capacity through better pricing policies, demand managementand loss reduction measures; (d) reduced reliance on the state government forfinancing investment requirements by increasing MSEB's self-financingcapabilities and improving external resource mobilization as well asfacilitating private sector investments; and (e) strengthening of MSEB'senvironztental impact management capability.

Risks

3.24 The project does not pose any particular technical risk as: (a)the technology used for units 5 and 6 at Chandrapur will be replicated for theseventh unit; and (b) India, through NTPC, has already acquired experiencewith the design, construction and operation of HVDC lines. The main projectrisks relate to: (a) the availability of supplier financing for the HVDCterminals, on reasonable terms; (b) possible delays in the procurementprocess; and (c) the pace at which tariff and other institutional reforms willbe implemented. These risks will be minimized hy: (a) assisting HSEB inpackaging and preparing the tender documents for the line in such a way as toobtain the most attractive financing offers; (b) agreeing on a model biddocument, a detailed implementation schedule and the associated procurementplan; (c) having the first tariff adjustment, involving major improvements inthe structure of tariffs as well as a significant increase in their level,implemented before Board presentation; (d) establishing realistic targets forHSEB''s financial performance and the implementation of further tariffadjustments, demand management measures and institutional reforms; and (e)providing technical assistance support to MSEB and GOM to help implement thesemeasures. Furthermore, HSEB will be assisted by competent consultants. Usingboth the World Bank environmental guidelines and those of GOI, the projectincluding Chandrapur unit 7 can be classified as being of low hazard.

Project Monitoring and Supervision

3.25 Under the two ongoing Bank-financed projects, MSEB preparesquarterly reports covering the work of consultants, procurement, physicalprogress, costs, disbursements, and administrative aspects of the projects.These reports need to be improved to cover more extensively progress on the

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managerial improvements underway in MSEB, include results of environmentalmonitoring and present key quantitative measures of project performance (para.2.04). The detailed content of the progress reports for the proposed projectwas agreed during loan negotiations. The reports will be sent to the Bankwithin two weeks of the conclusion of the reporting period. MSEB will alsofurnish annual financial and audit reports (para. 4.12). Project supervisionplan is detailed in Annex 3.12. Agreement was reached at negotiations for amid-term review to be carried out jointly by GOM, MSEB and the Bank, duringthe third year of the project (from the approval of the loan), to assessoverall progress in the physical execution of the project and MSEB's newefficiency-oriented investment plan, and the implementation of the programsfor electricity demand management, tariff reform and private sector powerdevelopment in Maharashtra (para. 6.02 (e)).

IV. FINANCE

Introduction

4.01 MSEB's investment program for the Eighth Plan period and beyondhas been reduced from the original plan formulated on the basis of systemexpansion requirements. The new efficiency-oriented plan (paras. 2.07-2.10)still represents a substantial increase in capital expenditures over the past.Primary reliance on traditional sources of funding (Plan allocations fromGOI/GOM) is no longer a sustainable option due to prevailing public resourceconstraints. Improvements in MSEB's financial performance will thus becrucial to enable MSEB to finance a significant share of its investments outof its o.wn resources as well as to attract new financiers. It will alsoreduce the uncertainty regarding the long-term financing strategy for itsexpansion and facilitate the efficient implementation of its investmentprogram.

Past Performance and Present Financial Situation

4.02 The main aspects of MSEB's financial performance between FY88 andFY92 are shown in Table 4.1 below. Annexes 4.1 to 4.3 present MSEB's pastincome statements, balance sheets, and sources and applications of funds.

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Table 4.1: MSED's Past Financial Performance (FY88 - FY92)(Re. million)

Flcl Year *ndina FY8s FY89 FY90 FY91 FY92arc aB1I audited audited audited audited estimated

Saee ((OWh) 28,688 24,981 26,973 27,968 29,287Average revenue (Re./kWh) 0.72 0.78 0.88 1.04 1.09Operating incom 2,964 8,087 4,288 5,600 6,898Net income 781 896 89 1,001 1,458

Internal sourcee 4,592 5,028 6,840 7,968 9,687Borrowings 6,890 10,706 9,680 18,101 9,190Tot l Sources 10,982 16,728 15,970 21,059 18,827

Capital expenditures 7,149 8,680 10,617 12,227 9,972Working capital Increase (decrease) 182 2,614 880 1,488 609Debt Service 8,652 4,538 6,078 7,864 8,246Total applications 10,982 15,728 16,970 21,069 18,827

Current asses 11,668 18,901 18,877 19,290 21,854Less current liabilitie. 9,729 11,894 15,229 15,798 17,972

1,939 2,508 1,649 8,497 8,882

Net Fixed Asset, 45,226 52,671 61,687 72,152 79,897Total sse"t 47,166 55,079 68,286 75,060 88,279

Debt 48,898 50,211 66,865 66,9s4 72,617Equity 8,767 4,868 6,680 8,696 10,682Total debt and equity 47,166 55,079 63,288 75,650 88,279

Ratios:

Rate of return (00!) 2.9X 1.4X 8.OX 8.0%X 6 sRate of return (beloro Interest) 9.6x 9.ox lO.8X MIX 1.1n.

NICO as X of capital expenditures 0.6X -21.41 12.8X -8.4X 8.1xDebt service coverage 1.14 1.1 1.2 1.1 1.2

Current ratio 1.2 1.2 1.1 1.2 1.2Debt os X of Debt + Equity 92/08 91/09 89/11 88/12 87/18

4.03 The last four years have seen moderate success in MSEB's attemptat strengthening its long-term financial position. Despite an averageincrease in sales revenue of 162 p.a. between FY88 and FY92, MSEB has not beenable to generate sufficient internal resources to help finance its investmentprogram. This has been the result of a number of factors, some of which arebeyond MSEB's control. As is the case for most SEBs in India, it has been thepractice for the state government to provide funds in the form of long-termloans, .but not as equity contributions. This translates in a weak capitalstructure for MSEB, with equity representing a very small proportion of totalcapitalization. Although it has slightly increased over the last four years,MSEB's debt:equity ratio stood at 87:13 at the end of FY92. A majorconsequence has been a heavy debt service burden for MSEB, exacerbated by theincreasing cost of borrowing. Although MSEB's debt still includes loansprovided at concessional terms (6-92 for loans from GOM before FY92), newloans are now contracted at rates ranging from 11.752 for loans from the stategovernment to 16.752 for PFC and 202 for commercial banks. While debt servicerepresented one third of total uses of funds in 1987/88 it accounted fornearly 44? in 1991/92 and has constrained HSEB's ability to contribute tocapital investments out of its own funds, albeit in varying degrees dependingon the size of its annual capital outlays. MSEB has been generally able to

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comply with the debt service coverage covenant agreed under Loan 3096-IN,namely minimum 1.0 for FY90 and 1.2 thereafter.

4.04 Sales revenues have not fully kept up with the rapid increase inoperating expenses (17X p.a. over the period), due to a large extent togrowing system losses (para. 2.03) and the rapidly increasing cost ofpurchased power (+22Z p.a.). Combined with rising interest charges on itslong-term debt, this has resulted in insufficient net earnings (beforegovernment subsidies) to enable MSEB to achieve the 31 rate of returnstipulated by the Act. Subsidies have been paid by GOM, as shown in Annex4.1, including as much as Rs. 3,477 million in FY90 au.d Rs. 1,833 million inFY89. Furthermore, under Loan 3096-IN, MSEB was committed to achieve, inFY92, a return of 3.5Z after interest on net fixed assets at historical value;to enable MSEB to comply with the financial covenant, GOM has agreed to pay anadditional subsidy of Rs. 1,700 million once MSEB's financial accounts for1991/92 have been certified by the state auditor. It will bring the totalsubsidy for FY92 to Rs. 3,695 million.

Billing and Collection

4.05 Present collection performance and procedures of MSEB are notsatisfactory. MSEB has contained the deteriorating trend observed in the mid-19808, but has not yet been able to reverse the situation in any significantmanner. Total customer receivables (including disputed amounts and amountsbilled but not yet due) represented 3.3 months of sales at the end of FY92.The analysis by consumer category indicates that receivables from agriculturalconsumers and SEBs in the neighboring states (Gujarat, Madhya Pradesh,Karnataka, and Goa) are extremely high at more than a year of electricitysales. Receivables from other consumer categories, which account for about701 of revenues, amounted to about 2 months of sales. MSEB is activelypursuing with individual states the settling of their arrears and, as recentlyas February 1992, concluded an agreement with the Gujarat Electricity Board(GEB) for the phased recovery of its arrears. As a major component of itsOperational and Financial Action Plan (para. 2.04), MSEB is taking steps toimprove billing and reduce its collection period to no more than 2 monthswithin two years. As a priority item under the ongoing data processing plan(Loan 3096-IN), MSEB has hired consultants to prepare an energy billingprogram which can be utilized on personal computers, to decentralize thebilling system. In addition, the Board is approaching variousregional/cooperative banks for collection of bills, providing cash registermachines for all collection centers, and increasing cash collection workinghours. Agreement was reached at negotiations that total consumer receivablesexcluding disputed amounts, but including consumption billed but not yetpayable, will be reduced to less than 2.5 months from FY93 onwards, as agreedunder the ongoing Maharashtra Power Project (para. 6.02 (f)).

4.06 In parallel with its efforts towards improved collection, MSEB hastried to bring its commercial payables down from the alarming level of nearly4 months of consumption it had reached in FY88. While the target of 2 monthsset for FY92 was not reached, payables have been reduced and were estimated atabout 3 months at the end of March 1992. Agreement was reached atnegotiations that MSEB will reduce commercial payables to two months from FY93onwards, as agreed under the ongoing Maharashtra Power Project (para. 6.02(f)).

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Future Financial Performance

4.07 HSEB's sales are projected to increase at an annual rate of growthof about 4.8Z, in line with increases in available supply. MSEB faces seriousfinancing issues in 'crying to meet the projected demand for electricity inMaharashtra, while reducing its dependence on public financial resources.Capital investment necessary to satisfy future demand will be much larger thanin the past, and while some of the burden will be assumed by the privatesector, MSEB will still be required to more than double its annual capitalexpenditures daring the Eighth Plan (FY93-97). HSEB's resource mobilizationstrategy will aim at balancing the financing burden of its expansion between:(a) consumers, through improved cost recovery and regular tariff adjustments;(b) MSEB, through increased productivity and efficiency; and (c) GOM, throughgovernment funding, albeit to a relatively lesser extent than in the past.Taole 4.2 below summarizes MSEB's expected financial performance for theperiod FY93-2000, including the Eighth Plan period. Projected incomestatements, balance sheets, and sources and applications of funds are given inAnnexes 4.1 to 4.3; the main underlying assumptions are detailed in Annex4.41

4.08 HSEB has assigned two of its originally proposed three new powergeneration projects to the private sector in its new efficiency-orientedinvestment strategy. Power purchases are accordingly projected to increaserapidly to account for about 27Z of total energy available for sale in FY2000,compared to 22Z in FY92. Given their importance as one of MSEB's major andfastest growing operating expenses, and to enable the Board to automaticallyrecover any increase in purchased power rates, a power purchase adjustmentclause, similar to the existing fuel adjustment clause, will be introduced aspart of the upcoming tariff adjustment (para. 2.06).

1 DPtalled supporting tables tor future capital tnvesteent, *inoncing plan and related debtschedulc and working capital schedule have been included In the Project File.

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Tablo 4.2: MSES'S Future Financial Performance (FY98 - FY20020(Ks. ml I on)

Fiscal Yer endingMarch 81 FY98 FY94 FY96 FY96 FY97 FY98 FY99 FY2000------------------ ------------------------------- Forecat -----------------------------------

Sales (GWh) 82,060 84,645 85,485 86,870 87,047 40,058 42,420 42,621Average revenue (Re./kWh) 1.81 1.44 1.60 1.69 1.79 1.85 1.99 2.09Operating Income 8,464 10,648 18,117 14,168 14,998 15,942 17,912 18,920Net Income 2,860 8,866 6,476 6,596 6,708 4,908 5,264 6,794

Internal sources 12,899 15,210 17,880 18,969 20,277 22,476 25,825 26,110Borrowings 9,896 120848 16,869 16,247 18,570 18,814 18,987 16,690Total sources 22,295 27,668 84,189 86,206 88,847 86,288 89,818 42,700

Capital expenditures 18,865 16,660 21,142 21,908 18,142 18,648 19,875 22,151Working capital change (1,191) 1,071 998 850 1,082 1,878 1,296 648Debt service 9,621 10,928 12,049 12,947 14,622 16,768 19,142 20,001Total applications 22,295 27,668 84,189 85,206 88,847 86,288 89,818 42,700

Current assets 20,704 28,741 26,820 28,021 80,508 84,800 87,895 89,678Less current liabilities 18.926 21.891 28 078 26.859 26.168 29.805 82 481 88.616

1,779 2,850 U,IT1 2,e62 4,835 4,494 5,414 5,962Net Fixod Assets 91,071 108,458 121,042 188,987 152,748 166,176 179,609 196,216Total assets 92,850 105,80A 124,288 141,649 167,079 170,671 184,928 201,178

Debt 78,078 85,980 97,826 108,762 117,695 124,989 182,086 141,781Equity 14,777 19,828 26,459 82,887 89,488 45,732 52,867 59,897Total Debt A Equity 92,850 106,803 124,288 141,649 157,079 170,671 184,928 201,178

Ratios:

Rate of return (00!) 4.8X 6.OX 8.1% 7.7X 7.0X 6.7X 4.5X 4.8XRate of return (before nt.) 12.4X 18.9% 15.8X 16.2X 15.1X 12.2X 18.2% 18.4X

NICO as X of capital exp. 8O.8X 20.0X 25.0% 26.0X 25.0X 26.0X 28.4X 25.0XDebt service coverage 1.8 1.4 1.6 1.6 1.4 1.4 1.8 1.8

Current ratio 1.1 1.1 1.1 1.1 1.2 1.2 1.2 1.2Debt as X of Debt + Equity 94/16 81/19 79/21 77/28 75/26 78/27 71/29 70/30

4.09 The Board's financial strategy focdsses on the need to self-finance a greater proportion of future investments and avoid any build-up ofunmanageable long-term debt and debt servicing, to ensure that sufficientresources are mobilized to finance the investment program in view ofincreasing public resource constraints and to strengthen MSEB's capitalstructure. Because the principle of revaluation of assets has not yet beenaccepted by GOI, the rate of return targets set in the Act and strengthenedunder existing financial covenants agreed with the Bank, do not fully capturethe financial requirements of a large capital investment program such as theone envisaged by MSEB. A more realistic and practical approach was agreedwhereby MSEB would be required to progressively generate a minimum level ofinternal resources that would cover not only its projected debt service butalso an increasing proportion of its planned capital expenditures. It wasagreed during negotiations that all necessary measures, including tariffadjustments, will be taken so that MSEB can generate funds from internalsources (excluding GOM subsidies) equivalent to not less than 2O in FY93 andFY94, and 25Z from FY95 onwards, of the annual average of its capitalexpenditures incurred, or expected to be incurred, for the previous, currentand following fiscal years. Because of unavoidable fluctuations in MSEB'sinvestment program, it was further agreed that MSEB would maintain at all

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times a financial after-interest rate of return (GOI definition) of not lessthan 4.5Z of net fixed assets in operation from FY93 onwards (para. 6.02 (g)).In addition, to ensure that necessary measures are taken on a timely basis,agreement was reached that annual revisions to the five-year revolving capitalinvestment and associated financing plan will be furnished to the Bank, byDecember 31 of each year (para. 6.02 (h)), as agreed under the ongoingMaharashtra Power Project. It has been projected that annual tariff increasesof about 102 (32 in real terms), in addition to adjustments needed to recoverreal increases in fuel and power purchase costs, would be required during theEighth Plan period to meet these targets. This corresponds to an overallincrease in HSEB's average revenue per kWh sold of about 642 over the five-year period, of which about one third has already been provided by the 20Zincrease under the May 1992 adjustment.

4.10 The impact of the proposed strategy on the Board's investmentfinancing plan for the period is presented in Table 4.3. GOM and MSEBrespectivley will provide about 302 and 252 of total financing requirementswhile most of the balance will be covered increasingly by PFC (142) and othersources (bonds, commercial bank loans and export credits). Despite the factthat 752 of the financing requirements will be covered by new borrowings,HSEB's increased profitability will ensure an adequate debt service coverageof about 1.4 over the period. The projected financing strategy will also leadto a strengthening of MSEB's capital structure with the debt:equity ratiodecreasing from 87:13 in FY92 to 70:30 in FY2000.

Table 4.8: Investment Financing Plan FY08 - FY2000(Ru. mil Ion)

FY98 - FY2000 Eiahth Plan (FY93-97)

R?. Million _ Re. Millon X

Proposed project 81,481 20.9 29,804 82.8Other Capital Expenditures(including IDC) 119.330 79.1 81,813 87.7

Total Capital Expenditures 160,791 100.0 90,617 100.0

Sources of Finance

Internal Sourc 169,685 86,176Less: Chango In working Capital 6,031 2,811

Debt Service 116.075 60.188

Not Internal cash generation 88,479 25.5 22,696 25.0

Borrowinas:

IlRo 10,88B 7.2 10,014 11.0GOM 47,280 81.8 28,016 28.7PFC 21,880 14.4 11,600 12.8Export Credit 4,058 2.7 4,068 4.5Others 28.488 16.9 18.287 17.9

Total Borrowings 112,811 74.6 67,920 75.0

Total Sources 160,791 100.0 90,617 100.0

Accounting and Auditing

4.11 Financial operations in HSEB are regulated by the Act, amended in1978 and 1985 to reorganize finances of SEBs along commercial lines. HSEB

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successfully introduced the new commercial accounting system in 1985. Withthe exception of the Internal Audit function (para. 2.05), the organization ofMSEB's financial complex at its head office is satisfactory. The AccountingDepartment has field offices in every zone and division, under theadministrative authority of the local Chief Engineer, but with permanentfunctional relations with the Directorates of Finance and Management Accounts.

4.12 The audit of MSEB's accounts is carried out annually by theComptroller and Auditor General of India through his local representative, theAuditor General of Maharashtra. Accounting procedures in MSEB have been foundsatisfactory in general by the Auditor. According to the Act, the accountsand the Auditor's report must be submitted to the state government within sixmonths of the close of the year. So far, MSEB has submitted its financialstatements to the Auditor within the 6-month limit, but increasing delays havebeen incurred in the finalization of the Auditor's report within the 9-monthperiod stipulated under Loan 3096-IN. MSEB is taking steps to close itsaccounts more rapidly so that I,hey can be submitted to the Auditor General'soffice early enough for the Auditor to submit his report on time. Agreementwas reached at negotiations that MSEB will furnish to the Bank, by no laterthan nine months after the end of each fiscal year, its audited accounts,including the special account and a separate opinion on withdrawals made onthe basis of statement of expenditures, together with the Auditor'scertificate and report (para. 6.02 (i)).

V. ECONOMIC ANALYSIS

5.01 The economic analysis focuses on the Western Region power systemand its least-cost investment program. The investment components of theproposed project, Chandrapur unit 7, the HVDC link, and the accelerateddistribution reinforcement program (ADRP), form an integral part of theprogram. This program analysis is complemented by a project-specific analysisto demonstrate that the Chandrapur 7/HVDC line project is an economiccomponent of the regional investment program. The ADRP was specificallydesigned to help accelerate MSEB's efforts to reinforce its subtransmissionand distribution system and reduce its system losses towards economicallyefficient levels.

Electricity Demand in The Western Region

5.02 Past Consumption. The maximum load met in the Western Regionincreased from 5,811 MW in FY82 to 11,542 MW in FY91, an average rate ofgrowth of 8Z per annum. The amount of energy consumed increased at an averagerate of 102 per annum during the same period. CEA estimates that in 1990/91about 102 of demand and 6% of energy remained unserved (Annex 5.1).Consumption growth has been strongest in the agricultural sector (16? perannum) followed closely by domestic consumption (132 per annum). The share ofindustry in electricity consumption has declined from over 60? in FY82 down to49? in FY91, and the substantial increase in the share of agriculture from 13Zto 22? (Annex 5.2).

5.03 Future Demand. Through FY2000, CEA expects total energy andma-imum demand will increase on average at 7Z and 8Z p.a. respectively.

- 31 -

Growth in demand will be led by domestic consumers (11 per annum) whileconsumption by agriculture will slow down to about 7Z per annum. Industrialdemand will grow at about 72 per annum. Even under optimistic assumptions ofcapacity addition through the Eighth and Ninth Plans, there will continue tobe peaking and energy shortages. In FY95 it is expected that peaking deficitswill be as high as 172 of demand and even the energy shortage will be as highas 9Z of requirement.

Least-Cost Analysis

5.04 Chandrapur Unit 7. CEA, using the optimization model EGEAS, hasprepared a least-cost system expansion plan for the Western Region. Chandrapur7, final expansion of Rn existing power station, is an integral part of thisleast-cost plan. A further analysis (Annex 5.3) incorporating the cost ofpower transmission shows that the economic cost of generation from Chandrapur7 delivered into the load center, the Bombay metropolitan area, at Rs.0.90/kWh is lower than the cost of its base-load alternatives, generation froma new coal-fired load center station (Rs. 1.17/kWh) or a combined-cycle gasstation (Rs. 1.10/kWh).

5.05 HVDC Line. The current transmission network for evacuation ofpower from Chandrapur consists of six 400-kV lines, which is barely enough forthe evacuation of current available generation. MSEB expects that by the timeChandrapur 7 is commissioned, the additional evacuation requirements from theeastern to the western part of the state would be for about 1,500 MW oftransmission capacity. Three options (400 kV, 800 kV and HVDC) wereconsidered from which the HVDC link was selected. Transmission at 400 kVwould have required the construction of an additional six circuits of 400 kV,which would have involved problems with forest clearances and land acquisitionand was not considered to be feasible to implement. The +/- 500-ky HVDC lineand double-circuit 800-kV AC lines;B would require much less right-of-wayclearances than the 400-kV option and would therefore be implementable withinthe environmental constraints. A comparative analysis of the two options,presented in Annex 5.4, demonstrates that the proposed HVDC link is the least-cost option with a present value of total costs of Rs. 13,119 million asagainst Rs. 18,699 for the 800-kV option. Given the geography of electricitysupply and demand in the Western Region, and the constraints on expansion ofthe 400-kV network along this corridor, the HVDC line is the least-cost optionfor the required evacuation of power, including that generated fromChandrapur 7.

Economic Viability of the Western Region Program

5.06 The program analysis focusses on the FY92-2002 time-slice of theWestern Region development program. This period will include the constructionand first few years of operation of Chandrapur 7 and the Chandrapur-PadgheHVDC line. Capital costs cover investments in generation, transmission anddistribution. Generation investments include only those cleared andsanctioned projects in the Western Region investment program that will bestarted and completed within the time-slice period. The analysis imputes a

i To met equIvalent systm re lIabilIty stndards, It would be necsessry to have a doublecircuit.

- 32 -

rate of 6OX of generation investments to transmission and distribution. Fuelcosts are based on the LTIPS findings. Financial costs have been converted toeconomic terms by excluding taxes and duties and by applying a standardconversion factor (SCF) of 0.8 to residual local costs.

5.07 Benefits that will be derived from the Western Region developmentprogram will mostly be in the form of incremental electricity consumption.Some benefits may be realized through reducing supply costs during off-peakperiods and through improving supply quality, but will be relatively small andso have not been included in the analysis. A minimum measure of benefit canbe derived from incremental sales revenues, by using the average revenue perkWh sold as a proxy for benefits. The economic rate of return (ERR) of theprogram is 3? with benefits valued on this basis. Tariff revenues reflectonly a portion of the total benefits of electricity supply and nnly a smallportion of benefits when tariffs are relatively low. In line with theincreases in tariff levels in the past in the Western Region (Annexes 5.5 and5.6), it can be assumed that the average tariff levels will continue to beadjusted by 31 in real terms on average in the FY93-2002 period. Thisassumption is reasonable in view of recent and forthcoming tariff adjustments:Hadhya Pradesh increased its rates by 12X; TEC, BEST and BSES raised theirsfrom 20-27Z in FY92; MSEB is about to raise its tariff rates by about 20X; andincreases of the same magnitude are expected also in Gujarat and MadhyaPradesh during FY93 under their respective OFAPs. The ERR of the programincreases to 8Z with benefits valued on this basis14.

5.08 A more accurate valuation of economic benefits of electricitysupply was necessary to establish the viability of the program in view of the3-8Z ERRs of the program when valuing benefits at tariffs. This wasundertaken in two parts: first the shares of replaced use of other energysources and energy consumption induced by electricity supply were establishedfor each category of consumer. Then the replaced use was valued at theeconomic cost of the alternative source of energy, i.e., at the economicresource cost saving (Annex 5.7). Induced consumption was valued byestimating the consumer surplus, i.e., the difference between what theconsumers would be willing to pay for their electricity and what they actuallypay. Annex 5.8 shows the financial costs of autogeneration and diesel andelectric pumping (masimum willingness to pay); Annex 5.9 details thecalculation of the total economic benefits for each consumer category. In thebase case, the average value of economic benefit is Rs. 1.94/kWh (Annex 5.10)and the ERR is satisfactory at 15Z. Sensitivity analysis, detailed in Annex5.9 and Annex 5.10, reconfirmed the economic viability and robustness of theprogram.

Project Analysis

5.09 In order to assess whether Chandrapur 7, along with the associatedtransmission and distribution investments, yields adequate economic returns,

14 Valuing the benefits of the Western Region program at tho current average tariff level InMaharashtra yields an ERR of 6%. The ERR Incroases to 1OX when the Maharashtra averagetariff Is escalated by ax per annum to FY2002. The". results show the Impact on the ERRof having higher tariffs In plco (which Is the caes In Mahareshtre compared to the otherstates In the Western Region, as shown In Annex 6.6) and givo a better Indication of theeconomic merit of the Investment program.

- 33 -

the project benefits assumed to accrue to the Bombay metropolitan area werecompared to the project costs, including all associated investments whichinclude the HVDC line. The capital and operating costs of the projectexpressed in economic terms are summarized in Annexes 5.3 and 5.4. Thecapital costs in the project analysis include a third of the capital cost ofthe 1,500-MW HVDC Chandrapur-Padghe line (as only 500 MW will be used toevacuate the power from this station), and another 25Z to be invested indistribution. The economic costs of coal and oil used are based on LTIPSestimates.

5.10 As in the program analysis, the minimum measure of benefits wasderived from the incremental sales revenues, valued at the prevailing tarifflevel in the Bombay area where the power from Chandrapur 7 will be sold. TheERR is satisfactory at 16Z even with this minimum measure of benefits. Thecomprehensive valuation of benefits detailed in Annex 5.9 yields for the basecase an ERR as high as 20Z. Sensitivity analysis (Annex 5.11) reconfirms theviability. The robustness of the project was tested and confirmed that theproject can absorb capital cost increases up to 352 and decreases in benefitsof 301 and still remain economic. The higher rate of return and greaterrobustness of the project vis-&-vis the overall program for the region isprimarily due to the following: (a) Chandrapur 7 being the extension of anexisting pithead power station has a far lower cost than the average cost ofprojects included in the investment program for the region as a whole; and (b)in the urban area of Bombay, tariff rates are much higher than in the Westernregion as a whole and heavily subsidized agricultural consumers do not burdenthe analysis.

5.11 Project analysis of the ADRP was undertaken during itspreparation, as ADRP was specifically designed to help accelerate MSEB'sefforts to reinforce its subtransmission and distribution system and reduceits system losses towards economically efficient levels. Measures to be takenunder ADRP (outlined in Annex 3.1) were designed so as to have a maximumimpact with limited resources, and thus areas with greater than averagepotential for loss reduction were targeted in the program. Such areas arethose with currently higher than average losses and/or those with higher thanaverage projected load growth. The economic returns of the investmentsincluded in ADRP exceed 121, usually by a considerable margin due to thecurrent relatively high loss levels in the areas selected for ADRP.

VI. AGREEMENTS AND RECOMMENDATION

Agreements Reached during Negotiations

6.01 During negotiations, agreement was reached with GOI that it willtake all steps necessary to ensure adequate and timely supplies of suitablecoal for the proposed power plant at Chandrapur (para. 3.03).

6.02 During negotiations, agreement was reached with GOM and MSEB that:

(a) GOM will discuss the findings and recommendations of thecommission established to review institutional arrangements in the

- 34 -

power sector in Haharashtra with the Bank no later than December31, 1993 (para. 2.11);

(b) GOH and MSEB will enter into an annual financial arrangement thatwill include provisions for the issue of separate governmentorders for the release of the funds onlent to HSEB to ensuretransparency of such onlending (para. 3.06);

(c) MSEB will submit to the Bank, no later than March 1 of each year,its annual work plan for the implementation of the accelerateddistribution reinforcement component (para. 3.09);

(d) HSEB will implement various environmental mitigatory measures atChandrapur, including, inter alia, the implementation of a wastewater treatment and management scheme, the installation of a dustsuppression system, the retrofitting of the ash pond, and theacquisition and installation of various monitoring equipment(para. 3.18).

*e) a mid-term review will be carried out jointly by GOH, MSEB and theBank, during the third year of the project, to assess overallprogress in the implementation of the project (para. 3.25);

(f) HSEB's total consumer receivables excluding disputed amounts, butincluding consumption billed but not yet payable, will be reducedto less than 2.5 months, and HSEB's commercial accounts payableswill be reduced to 2.0 months, and will thereafter not exceedthose levels, both from FY93 onwards (paras. 4.05-4.06);

(g) necessary measures, including tariff adjustments, will be taken sothat: (a) HSEB can generate funds from internal sources (excludingGOH subsidies) equivalent to not less than 20? in FY93 and FY94,and 25? from FY95 onwards, of the annual average of its capitalexpenditures incurred, or expected to be incurred, for theprevious, current and following fiscal years; and (b) MSEB'sfinancial after-interest rate of return (GOI definition) will beno less than 4.5? from FY93 onwards (para. 4.09);

(h) annual revisions to HSEB's five-year revolving capital investmentand associated financing plan will be furnished to the Bank, byDecember 31 of each year (para. 4.09); and

(i) HSEB will furnish to the Bank, no later than nine months after theend of each fiscal year, its audited accounts, including thespecial account and a separate opinion on withdrawals made on thebasis of statement of expenditures, together with the Auditor'scertificate and report (para. 4.12).

6.03 The following would be conditions of effectiveness for the loan:

(a) satisfactory financial arrangements have been finalized for theacquisition and installation of the HVDC terminals (para. 3.07);and

- 35 -

(b) arrangements have been made by GOM to transfer to its ForestDepartment compensatory land for afforestation, and by MSEB todeposit with the forest authorities (GOM) funds sufficient tocover the cost of afforestation (para. 3.17).

Recommendation

6.04 On the basis of the above agreements, the proposed projectconstitutes a suitable basis for a Bank loan of US$350 million equivalent toIndia for 20 years, including five years of grace, at the Bank's standardvariable interest rate.

- 36 -

INDIA Annex 1.1

SECOND MAHARASHTRA POWER PROJECT Page 1 of 2

Alt-India Electricity Demand and Supply

Actual a/ Estimated b/ Annual

Increase (%)

FY82 FY91 FY92 FY93 FY94 FY95 FY91-95

Installed Capacity -MW 32347 66066 69805 76355 81755 86597 7.0

Peak Availability - MW 20121 39069 41101 44306 48157 50841 6.8

Peak Load - MW 20121 50184 54481 58920 63611 68435 8.1

Deficit -MW 0 11115 13380 14614 15454 17594 12.2

Deficit (X of Peak Load) 22.1 24.6 24.8 24.3 25.7

Energy Availability - GWh 113827 258690 271270 288726 314870 337295 6.9

Energy Requirement c/ - GWh 113827 283111 307257 332343 358746 385951 8.1

Deficit d/ - GWh 0 24421 35987 43617 43876 48656 18.8

Deficit (X of Requirement) 8.6 11.7 13.1 12.2 12.6

NOTES:

a/ Constrained by supply capacity. No estimates available on the extent of suppressed demand.

b/ Power supply position is based on sanctioned schemes assuming additional capacity

during FY 91-95 of only 23307.7 Mw.

c/ An estimation of demand, based on consumptfon projections (including consumption

to be met by non-utilities) plus transmission and distribution losses. It is to be noted her

that with the substantial supply constraints it is not possible to accurately estimate full

umet demand. This figure merely captures the lowest boundary of demand.

d/ The deficit here is underestimated in light of the inability to accurately estimate unmet

demand.

Source: Fourteenth Electric Power Survey of India, CEA, March 1991

- 37 -

INDIA Annex 1.1,..... .. .. .....

SECOND tAHARASHTRA POWER PROJECT Page 2 of 2................................

Att-India Energy Consumption by Main Consumer Category. .. .. ............... .. ... ... .........

Actual (%) Estimated (X).... . . . . ... -- - - - -- - - -

Consumer Category FY82 FY90 a/ FY91 FY95------------.. .. ...... ............. ... .... .. ------ .............. ..----...

1. Domestic 11.6 14.1 15.2 17.2

2. Industry 57.7 51.5 51.1 49.8

3. Agriculture 16.9 22.1 21.9 21.3

4. Commercial 5.8 6.3 5.7 5.6

5. Traction 2.8 2.2 2.3 2.2

6. PubLic Lighting 0.9 0.8 0.8 0.8

7. Public Water 2.3 2.1 2.1 2.2

8. Others 2.0 0.9 0.9 0.9

................. ....... .....

100.0 100.0 100.0 100.0.....-- ....... ...-----

a/ Provisional as per Fourteenth Survey estimates

Source: Annual Report on the Working of SEBs and EDs, Planning Commission (September 1990)

Fourteenth Electric Power Survey of India, CEA, March 1991.

- 38 -

INDIA ANNEX 1.2..... .........

ECOM NAHRAUSHTM POMER PROJECT

Prvfous Lon and Credits to Indan Pr Sector Ca of April 30. 19M)........................................................................

(Amunt in U#S millifn)Approval ClosIng ANount

Borrower IBR Loas NIPer Date Date (a) Disbursed Status..... ........ ........ ................. ...... .......... ......... ............. ......... .................. ...........................

r IndiJ First DVC - SBckro - Konar 4/50 2/56 18.5 16.7 Complete2 India Second DVC * Nalthon - Pawchot 72 1/53 6/58 19.5 10.5 Complete3 Tate Trolbey Poer 106 11/4 9/66 16.2 13.9 Complete4 Tata Second Treobay 16" s5/5 9/66 9.8 9.7 Compltae3 India Third DVC - Ourapur 203 7/58 6/65 25.0 22.0 Complete6 India Koyne Power 223 4/59 4/65 25.0 18.7 Complete7 India Power Transmisson 416 6/65 12/70 70.0 50.0 Complete8 Tata Second Kothapudsm Power 417 6/65 12/70 14.0 13.8 Complet9 Tata Third Trosbay Thermel Power 1549 4/78 12/84 105.0 105.0 Complete

10 India Ramgundam Thermtl Power 1648 1/79 6/87 50.0 45.6 CcopLete11 India Ferakka Ther_ml Power 1887 6/80 6/89 25.0 2.5 Complete12 Irdfa Sceond R_mgunden Thermal Powr 2076 12/81 3/92 280.0 274.1 (b)13 India Third Rural Electrifieation 2165 6/82 6/88 304.5 295.5 Complete14 India Upper Indraati Hydro 2278 5/83 12/91 0.4 0.4 Complete15 India Central Power Tranemisi "on 2283 5/83 3/92 200.7 128.7 (b)16 India Indrire Serovar 2416 5/84 6/92 17.4 6.717 India Second Farakka Thermsl Power 242 6/84 12/92 278.8 219.118 Tata Fourth Trabday Thermal 2452 6/84 6/92 135.4 126.719 India Chwndrapur Thermtl Power 2546 5/85 12/92 280.0 185.220 India Rlhnnd Power Transmisson 2555 5/85 12/92 202.0 193.221 India Kersta State Powr 2582 6/85 9/92 176.0 42.622 India Cobfinsd Cyctle 2674 4/86 12/92 485.0 456.523 India Karnetak Powr 2827 6/87 12/95 260.0 62.624 India ational Capital Power Supply 2846 6/87 6/95 425.0 245.325 India Talcher Thermal Powr 2845 6/87 3/96 375.0 87.126 India Second Kernataka Power 2938 5/88 12/96 220.0 31.727 India Utter Pradmbh Power 295 6/88 12/96 350.0 47.128 India Nathpe Jhakri Power 3024 3/89 12/97 485.0 36.729 India Naharehatra Power 3096 6/89 12/96 400.0 25.3 cc)30 india Northern Region Trwnmissfon 3237 6/90 9/98 485.0 29.131 Tate Private Powr Utilities (TATA) 3239 6/90 6/95 98.0 13.332 BSES Private Powr Utilitfes CBSES) 3344 6/91 12/95 200.0 32.633 Indfa Power Utilfttes Efficiency Improveant 343 1/92 1297 265.0 14.0

Total 6301.2 2861.9

IDA Credits

1 India Fourth DVC - Durepur 19 2/62 12/69 21.9 19.9 Complete2 india Second Koyn Power 24 O/S2 9/70 21.1 21.1 Complete3 India Kothagxkud Power 37 5/63 12/6 24.1 24.1 Ceplete4 Indla Beas Equipment B9 6/6 6n4 26.6 26.3 Complete5 Indfa Second Power Transmission 242 4/71 3m 75.0 72.9 Complete6 India Third Power Transms"ion 377 3/73 9/78 85.0 85.0 Complete7 Indfa Rurat Etectrffieatfon 572 7/75 12/80 57.0 57.0 Complete8 Indla Fourth Power Transmission 604 1/76 6/83 150.0 149.9 Complete9 India Slngreutl Thermal Powr 685 3n7 6/84 150.0 150.0 Complete

10 India Korbe Thermal Power 793 4/78 3/86 200.0 199.9 Complete11 India Raaegundmn Therml Power 874 1/79 6/87 200.0 200.0 Complete12 India Second Rural Electrification 911 5/79 3/84 175.0 171.7 Complete13 Indira Second Singrauli Thermal Power 1027 5/80 3/89 300.0 m.8 Complete14 India Farrkko Therml Powr 1053 6/80 12/88 225.0 225.0 Complete15 tndis Second Korbe Thermat Power 1172 7/81 12/91 388.7 371.0 (d)16 India Upper Indravatf Hydro 1356 5/03 12/92 170.0 170.517 india Indira Sarovr SF020 5/84 6/92 13.0 0.618 Indei Indira Sarovar 1613 5/86 6/92 13.2 0.0

Total 2295.6 2237.7

(a) Net of cancoetlatonscb) Loans were closed on 03/31/92. In wacordance ulth the current prctife the lo an acount has been

left open unti 07 /31/92, to allow for the dleburnmnt oft ligible expenditures ade until 03/31/92Cc) Cancellation of USS46 miLlion ie not yet roflected In the ebov figures.td) The credit was closed on 12/31/92. In accordnce with the current prretice the credit account has been

left open until 04/30/92. to allow for the disburemeunt of eligible expeditures mrde until 12/31/91

- 39 - Annex 2.1

INDIASECOND MAHARASHTRA POWER PROJECT

MSEB's Head Office Staff Set-up as of March 1992

|CHAIRMUAN

| TECHNICAL l r MEMBER AAOM) I ACCOUNTSl _ MEMBER l | SECRE ARY MEMBER

Technical Directer Technlical Director Technical Director Director of Directo, of(Generation, (Generatlon, Project) (Distribution) Personnei Bombay

& Maintenance) Chief Engineer Chief Engineer Addb. tor ay(Generaton) (Di5tflbution), Addl. Director Olncor of

Chief Engineer Project Planning, 8ombay Es -mance$hGenerabon) Bombay Chief Engineer D ofOpastion & Chief Engineer Joint Sem ta MiraomenyMaintenance (Generation) Zone *Joincal) Acrenta

Monitodng & Chief Engineer 8ombayO,Chief Engineer Aurangabad - Joint secreteryL

ainen (Bori Naay Zone Bo-ad - Director ofOperation & Chief Engineer t a Lw OinScery Intea Audit- iJUw5l Generatlo .- Chief Engneer Somb

ChiefEngneer .Chief Engineer Chief ubiy

Soenerba n Che Enine iNazuk &ZubicReaun

maintenance ( Enei'raton-2) - Chief Engineer Relaons OflicefoKoradi Koradi Nagpurszone Bombay irector of

NaChief Engineer. (C4 v - i_iaw OfisonVigilance &*Chief ntainee Chief Engineer *Chief Engineer La fl5~Security.g~~,eration) ~~(Generation Pune Zone Bomibay B3ombay- Chiet En ion ee r Constructon),Maintenance. Koradi CeEngineer MChandrapur S________ handup Sorrbay

- Chief Enginr Op(Urban), Chief Engineer - C hief PubDldty(Hydro) Chief Engineer & Public Relaons

Bibay nOfficer, Bombay'Ibohnical Director (Urb~an)

-Chief Engineer (Extra Ml h Che n* Controller of(Trestng. lbnsio roject) Phinf _Instriumentation Pue(Uroan) Vehicles. Pune

a i ir Chief Engineer ehisnpNaggur (~~~~~~4%KVODeh

- Chief Engineer t on ton).r(Training,. NagpurNawukCheEnier*Ou

Chief Engineer Chief Egineer. sir Depty Kaa (Stores

Director usrcon). (Sores).Vgi 'ance Puns omaAn-e Advwl e&Chef Fre Chief EngineerCiefngneOfficer). (Load Dspaih). Store nee

Bombay Kaiwa ~~~~~~~ManagementBombay

w~wst2fl

INDIA

SECOND NAHARASHTRA POWER PROJECT

A Comparison of the Performnce of NSEB and other SEBs

T&D Emptoyees Employees Average Debt Service Operating Average CostLosses per per Tariff ratio ratio 0 & 8

SEB X GWh Sold 1000 constmers Paise/KWh Paise/Kwh1990/91 1988/89 1988/89 1990/91 1990/91 1990/91 1990/91

~~~~~~~~~ ....................... ....... ........... -------- .......... ........ ......... ------------... ........... .................... ...

1. Andhra Pradesh 19.00 4.70 11.00 70.60 1.07 84.90 3.962. Assam 21.20 17.50 56.30 94.45 -0.08 133.20 13.683. Bihar 21.00 8.40 33.80 95.69 -0.28 124.10 8.784. Gujarat 19.30 3.00 9.40 82.39 N.A. 111.20 3.965. Haryana 21.00 7.00 18.40 61.60 -0.40 140.70 5.626. HimachaL Pradesh 16.00 10.90 13.00 56.84 0.27 93.00 9.967. Jammu & Kashmir 45.00 12.00 26.70 40.15 -0.95 213.30 6.25 08. Karnataka Board 19.60 5.80 10.00 70.07 0.22 98.90 3.409. Kerala 20.00 6.80 10.10 56.25 0.56 90.40 3.4810. Nadhya Pradesh 18.50 7.30 18.50 84.84 0.81 86.70 5.7411. NAHARASHTRA 1/ 15.50 3.70 12.80 109.00 0.92 84.17 6.1612. Neghalya 11.50 10.80 58.60 50.60 0.43 111.10 11.9213. Orissa 23.00 8.00 40.10 71.59 0.85 77.20 4.8814. Punjab 18.00 6.50 19.40 49.90 -0.17 137.40 2.7415. Rajasthan 21.80 8.40 23.90 82.30 0.08 112.50 4.6516. Tamil Nadu 18.40 6.80 13.10 71.66 -0.65 132.60 2.8017. Uttar Pradesh 25.00 6.30 29.00 77.33 0.10 107.50 7.0018. West BengaL 20.00 8.50 33.00 99.81 -0.11 96.00 6.21

All Boards. average 19.70 5.80 17.10 76.08 0.18 106.80 5.19...........................................................................

1/ Figures for Naharashtra represent actuaL performance whereas those for the other SEBs are estimates.

Source: Anmual report on the Working of State Electricity Boards and Electricity DepartmentsPlanning Commission, 001, September 1990

- 41 -

Annex 2.3Page 1 of 2

INDIA


MSEB's Electricity Tariff

1. As part of its May 1992 revision, MSEB introduced a number ofstructural improvements in its electricitv tariffs, including the following:

(a) residential consumers: MSEB eliminated, for consumers with aconsumption higher than 50 kWh/month, the subsidy provided underthe heavily subsidized 30 kWh/month life-line rate, and broughtthe rate for large consumers much closer to their estimated long-run marginal cost of supply (LRMC). The new tariff structure isas follows:

first 30 units per month (life-line rate) - paise 60/unit (kWh)31-50 units per month - paise 100/unitfor consumption beyond 50 units but - paise 100 for allless than 170 units units (no life-line)for consumption beyond 170 units but - paise 140 for a'1less than 400 units unitsfor consumption exceeding 400 units - paise 180 for all

units

The fuel cost adjustment (FCA) clause applies to consumers with amonthly consumption exceeding 170 units.

(b) commercial consumers: in line with the residential tariff reform,MSEB increased the rates and introduced a third block forconsumption exceeding 500 units per month, to bring the rate forlarge commercial consumers reasonably well in line with LRMC. Thenew tariff structure is:

first 100 units per month - Rs. 1.55/unitfor consumption beyond 100 units but - Rs. 2.20 for all unitsless than 500 units per monthfor consumption exceeding 500 units - Rs. 2.50 for all units

FCA applies to monthly consumption exceeding 100 units.

(c) industrial/low tension (LT) consumers: MSEB introduced a fixedcharge and raised the energy rates. The new structure is:

Monthly fixed charge - Rs. 10/hpEnergy charge depends on connected load:

up to 20 hp - Rs. 1.10/unit20-67 hp - Rs. 1.40/unit andabove 67 hp - Rs. 2.50/unit

Minimum monthly and annual charges apply; FCA applies from 67 hp.

- 42 -


(d) industrial/high tension (HT) consumers: MSEB improved thestructure of its industrial tariffs by significantly increasingthe demand charges. The new tariff structures are as follows:

1. All HT consumers in the Bombay and Pune regions and consumerswith demand of 500 kVA or higher in specified other main urban andindustrial areas:

Demand charge for billing demand - Rs. 90/kVA per monthEnergy charge - Rs. 1.95-2.00 per unit

FCA and minimum monthly and annual charges apply.

2. Other consumers:

Demand charge for billing demand - Rs. 75/kVA per monthEnergy charge - Rs. 1.85-1.90 per unit

FCA and minimum monthly and annual charges apply.

3. Consumers with connected load less thar 250 kVA

Energy charge in category 1 areas - Rs. 2.20/unitEnergy charge in all other areas - Rs. 2.10/unit

FCA and minimum monthly and annual charges apply. HSEB intends todiscontinue this tariff by November 1992; thereafter one of theabove two categories will apply (depending on the location of theconsumer).

(e) agricultural consumers: No change in the current structure:

HT metered supply - paise 32/unitHT unmetered supply - Rs. 200/HP/annumLT metered supply - paise 32/unitLT unmetered supply - Rs. 200/HP/annum

FCA is not applied. As a further concession and incentive to paythe bills on time, reduced rates of paise 24/unit and Rs.150/HP/annum apply if payments are made on or before the duedates.

(g) Fuel Cost Adjustment (FCA): MSEB continues to apply the FCAclause and from Hay 1992 uses it also for the automatic recoveryof increases in power purchase rates.

43 - Annex 3.1

Page 1 of 7

INDIA


Project Description - Design Features

A. Chandrapur Unit 7

General

1. The proposed Second Maharashtra Power Project comprises, inter alia,expansion of an existing, pit head coal-fired power station at Chandrapur fromits present installed capacity of 1,840-MW to its ultimate potential of 2,340-MW by installing an additional 500-MW generating unit. The scheduled date forcommercial operation of the proposed unit is June 1997.

Fuel

2. The existing power plant uses about 3.0 million tonnes of coal per yearat 65Z capacity factor for the first four units of 210 MW each. ChandrapurUnits 5 and 6 of 500 MW each, are being financed by the Bank under loan 2544-IN, and are now undergoing comuissioning tests. The requirement of coal atthe power station will increase to about 6.2 million tonnes per year at thesame capacity factor as soon as these units go into commercial operation byMay and August of this year respectively. An additional quantity of 1.6million tonnes of coal per year will be required for Unit 7, starting fromJune 1997, when this unit would enter commercial operation. The minable coalreserve in the Chanda-Wardha coal field area, in the immediate vicinity of thepower plant, is estimated at about 850 million tonnes. The average heatingvalue of the coal will be approximately 4,200 kcal/kg. Ash content of thiscoal is in the range of 40-50Z, while the sulfur content averages 0.2Z only(0.6Z for the worst coal). The coal is trpnsported by aerial ropeway, railwayrakes, and road transport. In addition, a merry-go-round unit train system isbeing installed between the coal mine (Padanpur) and the power plant. For theamounts of coal which would be transported by railway wagons, MSEB has plannedand coordinated with the Indian Railways to optimize the movement of railwaywagons and minimize the need for transport by trucks, and at the same time, toensure that the required quantity of coal reaches the power plant as needed.

Steam Parameters

3. The steam parameters of the 500-MW turbine generator sets will be thesame as those for units 5 and 6, with throttle steam pressure of 170 kg/cm2

and final superheat and reheat temperatures of 5380 C. The condenser backpressure will be 89 mm Hg absolute, based on a cooling water design inlettemperature of 330 C.

Turbine Generator

4. Unit 7 will have a nominal capacity of 500 MW. Many units of this sizeare in satisfactory service the world over. The turbine generator will haveone high-pressure cylinder, o-ne double-flow intermediate-pressure cylinder andone double-flow low-pressure cylinder, six-stage feed water heating and

- 44 -Annex 3.1Page 2 of 7

deaerating train, generator-cooling systems, excitation system and otherancillary equipment. There will be two steam turbine driven boiler feedpumps, each of 50? capacity.

5. The design will include a turbine bypass system consisting of a high-pressure turbine bypass and a low-pressure turbine bypass to facilitatecontinued operation of the boiler and turbine after loss of export load,without having to trip the boiler or the coal mills. This will allow the loadto be reestablished rapidly soon after system restoration. The turbine willalso be capable of variable pressure operation. This will prevent sagging ofthe steam temperatures during low-load operation, so i:hat operating efficiencycan be maintained high and fast load variations can be possible withoutexposing the turbine metal to undue thermal stresses. The generators will behydrogen-cooled, with water-cooled stator windings.

Steam Generator

6. The steam generators will be of single reheat drum type, rated toproduce 1,672 tonnes of steam pet. hour at 178 kg/cm; and 5410 C at thesuperheater outlet. The reheat temperature will also be 5410 C. Eightpressurized-type coal pulverizers will be provided to ensure design capabilityof the boiler when burning the worst quality of coal. There will be twotrains of draft fans for the boiler, along with two separate air preheaters.Light fuel oil will be used for start up. Fuel oil will also be used forflame stabilization when burning excessively wet coal and/or at low loads.Electrostatic precipitators, having a minimum of 98.5? collection efficiency,will be installed to remove fly ash from the boiler flue gas.

Circulating Water System

7. The condenser circulating water will remain a closed cooling watersystem, using cooling towers, while the make-up water will be drawn from theErai Reservoir, about 12 km away, that was designed and constructed to meetthe cooling water needs of the Chandrapur power station for an ultimate plantcapacity of 2,340 MW. A separate cooling water pond has also been constructedin the power station area, along with Units 5 and 6, to provide additionalstorage. The pumping station at the cooling water pond will also supply waterto the water treatment and the demineralizer plants to treat the raw water toacceptable quality for plant service as well as for use in the boiler.Auxiliary pumps will supply cooling water for the various plant equipmentthrough designated heat exchangers. Each condenser will have a continuousball-type tube cleaning system.

Ash Handling

8. Fly ash will be collected in various ash hoppers, which will beevacuated by means of a hydrovac system, mixed with water to form slurry andcollected in the central ash slurry sump for pumping through pipe lines intothe ash disposal yard. Bottom ash from the boiler bottom hopper will betransported by water jet pumps into a separate central sump for similardisposal in the ash yard.

- 45 Annex 3.1Page 3 of 7

Instrumentation and Controls

9. The unit will use a state-of-the-art, microprocessor-based, distributedcontrol system that will permit remote operation and monitoring from thecentral control room and real-time interface with plant operating statusthrough monitors. The system will also facilitate retrieval of plantoperating data, as desired. Data loggers and sequence-of-events recorderswill automatically record plant performance at periodic intervals, and displayoperating problems, as they occur, on a first-out basis.

Environmental Issues

10. Annex 3.10 provides details of the environmental impacts as well asmitigation and control measures, associated with the proposed project.

B. Chandrapur-Padahe UVDC Transmission Link

11. The construction of a HVDC transmission link is proposed to enable theMaharashtra power transmission network to transfer power from the easternMaharashtra to the western part of the state where the largest industrialdemand center is located around metropolitan Bombay. The proposed HVDCtransmission link will be a bipole link between Chandrapur and Padghe (nearBombay) over a distance of 736 km. The proposed scheme covers the followingworks:

i) + 500-kV, 1,500-MW Chandrapur-Padghe HVDC bipoler line - 736 km;

ii) two + 500-kV, 1,500-MW HVDC bipole terminals - one each atChandrapur and Padghe;

iii) Extension of 400-kV substation works, both at Chandrapur andPadghe;

iv) Ground electrodes and electrode lines at each terminal; and

v) Optical Ground Wire (OPGW) and communication facility.

12. Brief technical particulars of the proposed link are as follows:

(a) Salient Features

i) Voltage rating t + 500 kVii) Power rating s 1,500 MWiii) Number of poles s 2iv) Length of Bipole HVDC line s 736 kmv) Locations of Terminals: s Chandrapur and Padghe

(b) General Requirements

i) Each HVDC converter station at Chandrapur and Padghe willcomprise one 12-pulse valve group per pole rated for anominal continuous rating of 750 MW each.

_ 46 -


ii) Power flow will be possible in both directions but theequipment will be designed for rated power flow fromChandrapur to Padghe only.

iii) The HVDC transmission will be designed and rated to operateins

Balanced bipolar mode in which the unbalance incurrent between the two poles shall not exceed 10A.

- Monopolar mode with earth return utilizing theelectrode lines and ground electrodes of bothterminals, for short duration.

- Monopolar mode with metallic return utilizing the linepole conductors of the blocked pole and with oneelectrode isolated.

(c) Transmission Line

Self-supporting steel towers i: horizontal formation will be usedfor supporting both the poles. Based on conductor optimizationstudies, four Bersimis (689.7 mm2) conductors with sub-conductorspacing of 457 mm per pole will be used. Ruling span of 400 mwill be kept for overhead line. The pole conductors will be kept13 meters apart. The line will have minimum ground clearance of13.5 m. Anti-fog type high-creepage DC insulators withsacrificial zinc sleeve will be provided for the line. Forelectrode lines, two Bersimis conductors will be used.

(d) Converter Transformers

Three single phase transformers with one primary and two secondarywindings will be used per pole. Out of two secondary windings,one secondary winding will be connected in star and the other indelta to achieve 30 degree phase shift for operation of 12-pulsemode. The rating of the converter transformer and requirement oftaps will be determined by the supplier after studies for maincircuit calculations are completed by him. One single phase unitwill be provided as spare at each station.

(e) Thyristor Valves

Thyristor valves will be suspended-type, indoor-mounted, water-cooled and air-insulated. For transmission of firing pulses,fibre optic cables will be used.

(f) Filter and Shunt Capacitors

The AC harmonic filters, including any conventional linear shuntconnected capacitor and reactors required for the control ofreactive power interchange will be arranged in two or more banks,as required, to meet active power interchange requirements andharmonic performance limits. Rating and quantum of reactive


compensation to be provided at the Chandrapur and Padghe terminalswill be dec_ded on the basis of reactive compensation studies tobe conducted by the supplier. The banks will be connected to the400-kV AC busbars by suitably rated circuit breakers. The bankswill be made up of sub-banks and/or branches.

(g) DC Yard

Adequate controls and switchgear will be provided to enable bipoleoperation of the DC link with monopolar mode as and when needed.Further equipments like DC smoothing reactors, filters, power linecarrier (PLC) filters, voltage dividers, etc., will be provided asper prevailing practice.

(h) AC Yard

The converter stations at Chandrapur and Padghe will be connectedto the existing 400-kV sub-stations through two feeders at eachterminal station. Separate buses will be installed for connectionof shunt capacitors and filters.

(i) Ground Electrode Station

Ground electrode stations at distance of 25 to 50 km from theconverter stations will be erected at each station. The size andrating of ground electrode will be determined after detailedcalculations to be done by MSEB's consultants on the basis ofearth resistivity and Sol' data.

(j) Telecommunications

For establishmer.t of the communications and other requirementsbetween Chandrapur and Padghe as well as with load despatchcenters at Ambazari and Kalwa, conventional PLC channels as wellas a fibre optic communication (OPGW cables) system will beestablished.

C. Accelerated Distribution Reinforcement Program

HSEB's Approach to Distribution Loss Reduction

13. The program stems from GOM's and MSEB's recognition that an increase inthe relative share and volume of investments to reinforce MSEB's distributionwith a view to reduce losses. GOM and MSEB have decided to address the issueunder two major programs: (a) urban distribution: projects covering the majorpart of the 55 cities with a population of 50,000 or higher, have beenprepared; projects for the remaining cities are under preparation. Inaddition to supply expansion, these projects also cover system reinforcementand generally result in substantial loss reduction (samples show reductionestimates from 15-20Z to below 102); (b) suburban and rural distribution:master plans for each of the 32 districts in Maharasthra are underpreparation. However, due to severe financial constraints, planning targetsdo not in most cases address loss reduction towards economic loss levels.Upon the Bank's recommendation, selected district master plans have been


revised by MSEB to also focus on loss reduction in a more significant way; ademand management and planning component has been formulated to help designadditional efficiency improvement measures.

Accelerated Distribution Reinforcement Component

14. MSEB has revised selected district master plans (those with estimatedhigher-than-average potential for loss reduction, in view of currently higher-than-average loss levels and/or expected higher-than-average load growth) andpackaged the upgraded plans into an accelerated distribution reinforcementprogram. The program will be limited to subtransmission and distributioninvestments in the selected areas. Measures to be taken under this componentinclude: (i) reinforcement of 66-132kV transmission and 33-kV subtransmission;(ii) additional 33-kV and 11-kV high-voltage distribution, and reduction inlow-voltage distribution; (iii) higher capacity lines, (I-) additional and/orhigher capacity distribution transformers; (v) capacitors; and (vi) metering.MSEB's proposed 220- and 400-kV transmission lines in the project areas willbe financed out of MSEB's other sources. Also specifically excluded from Bankfinancing under the program are MSEB's investments in rural electrificationand pumpset energization in these areas. This approach helps ensure that theBank loan will be focussed on distribution reinforcement rather than networkexpansion.

Demand Management and Planning Component

15. In addition to the investment component outlined above, the program alsoincludes a technical assistance component for the preparation of additionalelectricity demand management measures 1 and load research (on the basis ofthe report prepared for the Bank and MSEB by Electricite de France and relatedtraining. The foreign exchange requirements of this technical assistance willbe financed under the Bank loan.

16. The preparation of future demand management measures and load researchwould cover, among other things:

(a) load research, on patterns and magnitude of daily (working andnon-working days) and monthly/seasonal demand variations ofvarious consumer categories. This will require data collection atthe load dispatch center as well as special metering programs andconsumer surveys;

1 4MSEB's current load management/loss reduction measures include:(i) staggered holidays in the industrial sector (in place sincethe 1970s); (ii) once-a-week rotating supply cuts to agriculture(estimated to reduce peak demand by 200 MW); and (iii) new low-voltage connections only for small consumers. New measures to beintroduced shortly include: (i) improvements in the tariffstructure for most consumer categories; and (ii) requirement fornew agricultural pumps to meet ISI efficiency targets as acondition of network connection.

- 49 -


(b) special programs for the industrial sector, some of them in

cooperation with industrial sector associations, covering furtherimprovements in the time-or-day tariff, possibilities forinterruptible load tariffs and voluntary measures for loadmanagement, projects for use of bagasse in sugar mills for power

generation for grid supply, and investigation of the technical andfinancial possibilities of making use of industries' diesel setsand gas turbines to help give them an incentive to use suchfacilities during system peak to meet part of their own demand,perhaps even supply to grid;

(c) assess electricity conservation and demand management potential in

agricultural pumping (including pump rectification, water storage,and possibly solar pumping), residential use (e.g., lighting andwater heating) and commercial sector (lighting, air-conditioning);and examine the role MSEB could assume to help realize some of theidentified savings. MSEB intends to undertake a pilot program for

efficiency improvements in agricultural pumping, subject to

successful negotiations with suitable private sector partners for

its implementation; and

(d) on the basis of the above work, examine scope and need for furtherimprovements in the structure of the electricity tariff.

17. A small unit will be established within the Commercial section of MSEBto undertake the above program and continue the work on a permanent basis.

Consultant support for training the staff and initiating the program would be

provided under the Bank loan. Metering and other equipment needed for the

program will be purchased under the Bank loan.

- 50 -

INDIA Annex 3.2, ...... ...........

SECOND MAHARASHTRA POWER PROJECT Page 1 of 4.............. ........ ................ ....

Project Cost Summary,....................

Project Components Local Foreign Total Local Foreign Total... ... ............ ... ............ ... .... ....... . ....... -------.... ....... ........... .......

-------Rs. million U..... -------US# million-------Chandrapur Unit 7 (500 MW)

~~~~~~~,............................... Preliminary Works 10.2 0.0 10.2 0.4 0.0 0.4

Civil Works 1083.8 56.1 1139.9 42.5 2.2 44.7Boiler and Auxiliaries 494.7 1976.3 2471.0 19.4 77.5 96.9Electrostatic Precipitators 102.0 408.0 510.0 4.0 16.0 20.0Insulation 35.7 142.8 178.5 1.4 5.6 7.0Turbine and Auxiliaries 377.4 1547.9 1925.3 14.8 60.7 75.5Condensate Polishing Unit 2.6 10.2 12.8 0.1 0.4 0.5I & C and Data Acquisition System 38.3 155.6 193.8 1.5 6.1 7.6Generator Control and Relay Panel 2.6 5.1 7.7 0.1 0.2 0.3Circulating Water Pumps 10.2 25.5 35.7 0.4 1.0 1.4Stack Elevator 2.6 5.1 7.7 0.1 0.2 0.3NV Switchgear 23.0 56.1 79.1 0.9 2.2 3.1Ash Handling Plant 30.6 68.9 99.5 1.2 2.7 3.9Demineralizer Plant 38.3 86.7 125.0 1.5 3.4 4.9Fire fighting System 20.4 48.5 68.9 0.8 1.9 2.7Generator Transformpr 30.6 68.9 99.5 1.2 2.7 3.9Other Elec. & Nech. Packages 255.0 594.2 849.2 10.0 23.3 33.3Flue Gas Desulfurizatfon System 561.0 459.0 1020.0 22.0 18.0 40.0Transport,Erection.Insurance,Testing 663.0 219.3 882.3 26.0 8.6 34.6Consultancy and Training 28.1 79.1 107.1 1.1 3.1 4.2Engineerfng and Adninistration 591.6 0.0 591.6 23.2 0.0 23.2

Total Base Costs (1) 4401.3 6012.9 10414.2 172.6 235.8 408.4

- Physical Contingencies 176.1 240.5 416.6 6.9 9.4 16.3- Price Contingencies 1204.4 2273.0 3477.4 7.5 30.1 37.6

Total Contingencies 1380.5 2513.5 3894.0 14.4 39.5 53.9....... ....... ----... ... ., .,........ ..... _....._.,

Total Project Cost (1) 5781.8 8526.4 14308.2 187.0 275.3 462.3

- Taxes and Duties (2) 752.6 0.0 752.6 24.2 0.0 24.2

w ======_=================,._=======_=======_==_====.-.=====.==:.=

Chandrapur-Padhge HVDC Transmission Link.......................... ...........................................

Terminals

Preliminary Investigations, surveys,land acquisition, development,computer studies, etc. for Terminals 40.1 0.0 40.1 1.6 0.0 1.6DC Terminal, civil works + erection 1816.1 3372.7 5188.8 71.2 132.3 203.5Communication eq. for Terminals 10.2 41.1 51.3 0.4 1.6 2.0AC switchyard 25.6 6.4 31.9 1.0 0.3 1.3

…...... … _ .......…------- .......Total Base Costs for Terminals (1) 1892.0 3420.2 5312.2 74.2 134.2 208.4

Physfcal Contingencies 132.0 239.4 371.4 5.1 9.3 14.4- Price Contingencies 550.4 1355.0 1905.4 3.7 17.9 21.6

....... ....... ....... ....... ------- .......Total Contingencies 682.4 1594.4 2276.8 8.8 27.2 36.0

....... ....... … ----- ....... ....... ........Total Project Cost for Terminals (1) 2574.4 5014.6 7589.0 83.0 161.4 244.4

=====am =C-Dn c----- ====a== e======= =common

- 51 -

INDIA Annex 3.2..... ....... ......

SECOND RANARASHTRA POWER PROJECT Page 2 of 4................ .......................... _..

Project Cost Summary....................

Project Components Local Foreign Total Local Foreign Total.................. ....................... ....... ....... . ... ....... ........... ....... ....... ... .................. ...

-------Rs. million ...... -------USS million-------HVDC Line

Preliminary Investigations, surveys,land acquisition, development,computer studies, etc. for the Line 15.1 0.0 15.1 0.6 0.0 0.6Supply of towers 409.5 102.4 511.9 16.1 4.0 20.1Supply of conductors 586.4 146.6 733.0 23.0 5.7 28.7Supply of insulators 183.7 734.9 918.6 7.2 28.8 36.0Supply of earthwire 7.9 2.0 9.9 0.3 0.1 0.4Supply of hardware 32.7 8.2 40.9 1.3 0.3 1.6Supply of accessories for conductorsand earthwire 29.9 19.9 49.8 1.2 0.8 2.0Special tools 11.0 44.2 55.2 0.4 1.7 2.2Electrodes and electrode line 31.1 7.8 38.9 1.2 0.3 1.5Communication equipment for the line 31.3 125.0 156.3 1.2 4.9 6.1Foundations and erections of towers,stringing of conductors andearthwire, including supervision 169.8 8.9 178.8 6.7 0.4 7.0

.- - - -- - - ------- .. .. ... .. ..... -- - -

Total Base Costs for the Line C1) 1508.5 1199.8 2708.3 59.2 47.0 106.2


..- - -- - - ------- ....... .... ....... -------.................

Total Contingencies 544.9 559.4 1104.3 7.2 9.6 16.8_--- ........... ....... .........------- ... .........

Total Project Cost for the Line (1) 2053.4 1759.2 3812.6 66.4 56.6 123.0u=zu =u== u=== =:u=== u=-=GSI ======

Total for the HVDC Transmission Link..... ........ .. ...... _ .....

Total Base Costs for the Terminals (1) 1892.0 3420.2 5312.2 74.2 134.2 208.4Total Base Costs lor the Line (1) 1508.5 1199.8 2708.2 59.2 47.0 106.2

------- ~~~~~~~~~~....... ....... ------. ... .... .......

Total Base Costs (1) 3400.5 4620.0 8020.5 133.4 181.2 314.6


............... ............ ........... ------- ........ ....... .......... ..

Total Contingencies 1227.3 2153.8 3381.1 16.0 36.8 52.8.. ...... .............. ........... ..... .... ... ....... ........... .......

Total Project Cost (1) 4627.8 6773.8 11401.6 149.4 218.0 367.4_rm. Mann= ai 3 = in

* Taxes and Duties (2) 1315.0 0.0 1315.0 42.3 0.0 42.3

UUUU33UUUUUUUUIUUUUUZU3UUU3UUUU 3UUUU UU3S3UUU UUUZ

- 52 -

INDIA Annex 3.2... ...... ...........

SECOND MAHARASHTRA POWER PROJECT Page 3 of 4...........................

Project Cost Suuiary

Project Components Local Foreign Total Local Forefgn Total................................ . ...... ......... ....... -------.... ....... ...........

-------Rs. million ....... .......- US$ million--

Distributfon Reinforcement Program...................... ....... .............. .

Total Base Costs (t) 1654.8 1036.0 2690.8 64.9 40.6 105.5


... ..... .... ....... ............. ....... ........... -------

Total Contingencies 638.4 632.2 1270.6 10.1 9.4 19.5

Total ProJect Cost (1) 2293.2 1668.2 3961.4 75.0 50.0 125.0==nu;u m c.amull mmu a -zzum =un = m=

- Taxes and Duties (2) 155.0 0.0 155.0 5.0 0.0 5.0

Consultants and Related Monitoring Eq. 17.9 51.0 68.9 0.7 2.0 2.7

uw--v==3--z=___zt-tSS:=- 115-3_cuIunucaus

SUMMARY OF ESTIMATES.................. .......................

Chandrapur Unit 7 (500 MU) 401.3 6012.9 10414.2 172.6 235.8 408.4

Chandrapur-Padhge HVDC Transmission Link 3400.5 4620.0 8020.5 133.4 181.2 314.6

Distribution Reinforcement Program 1654.8 1036.0 2690.8 64.9 40.6 105.5

Consultants and Related Monitoring Eq. 17.9 51.0 68.9 0.7 2.0 2.7~~~~~~~~~~~~~~~~~.... ....---- ....... ....... ....... .....

Total Base Costs (1) 9474.5 11719.9 21194.4 371.6 459.6 831.2

- Physical Contingencies 581.9 669.0 1250.9 22.8 26.2 49.0- Price ContIngencies 2664.3 4630.5 7294.8 17.7 59.5 77.2

...... . ... .... ..... .. ....... ----......

Total Contingencies 3246.2 5299.5 8545.7 40.5 85.7 126.2

Total ProJect Cost (1) 12720.7 17019.4 29740.1 412.1 545.3 957.4.umum= *ammmmu aMaU =22mmu inmmmam m=u

- Taxes and Duties (2) 2222.6 0.0 2222.6 71.5 0.0 71.5

mmmmummmmugmminminminfuI:nmStInmannuuaminim:amfCin=z _ _ _Z_ _ _ _(1) Including Taxes and Dutfes.(2) Included fn the Base Costs.Total indirect foreign exchange costs are estimated at S381.0 million

- 53 -

INDIAINDIA Annex 3.2

SECOND MAHARASHTRA POWER PROJECT T-------------------------------- Page 4 of 4

Project Cost Sunary....................

Annual Investments

Project Components FY93 FY94 FY9f FY96 FY97 FY98 Total

---------------------------USS miM.io -- -- ---------------Chandrapur Unit 7 (500 MW)

- Local 9.0 27.3 46.2 56.4 9.6 19.4 186.9- Foreign 12.5 38.9 67.1 83.6 3.3 30.0 275.4

....... ....... ........... ....... ........ ...... ... ....... ....... ....... ...

- Total 21.5 66.2 113.3 140.0 71.9 49.4 462.3Chandrapur-Padhge HVDC Transmission Link

- Local 2.3 14.0 50.6 51.8 25.0 5.7 149.4- Foreign 0.0 19.6 t4. 77.1 37.6 9.4 218.0

....... ....... ........... ....... ........ ..... ..... ........... ...... ........ ...

- Total 2.3 33.6 124.9 128.9 62.6 15.1 367.4Distribution Reinforcement Program

- Local 2.5 15.0 22.5 30.0 5.0 0.0 75.0- Foreign 1.7 10.0 15.0 20.0 3.3 0.0 50.0

....... ....... ........... ....... ........... ....... -------...... ... ........ ...

- Total 4.2 25.0 37.5 50.0 8.3 0.0 125.0Consultants and Related Nonitoring Eq.

-Local 0.3 0.4 0.0 0.0 0.0 0.0 0.7- Foreign 1.0 1.0 0.0 0.0 0.0 0.0 2.0

....... ....... ........... ....... ........... ....... -------...... ... ........ ...

- Total 1.3 1.4 0.0 0.0 0.0 0.0 2.7

Total Project Costs- Local 14.1 56.7 119.3 138.2 58.6 25.1 412.0- Foreign 15.2 69.5 156.4 180.7 84.2 39.4 545.4

,....... -------.... ....... ........... ....... ------- -------...... ............

-Total 29.3 126.2 275.7 318.9 142.8 64.5 957.43=3 =,3 -= - E3 -= 3=33= .3333 5 =333 _3w3=3

Project Components FY93 FY94 FY95 FY96 FY97 FY98 Total............................... ....... ..... ......... _ ....... ....... ....... ........... ....... ........... .......

........... Rs....... Re. million.------------------.--

Chandrapur Unit 7 (500 NW)- Local 240.3 780.8 1396.3 1777.7 933.3 653.3 5781.7- Foreign 333.4 1111.2 2027.9 2632.1 1412.4 1009.4 8526.4

....... .......... ....... ........... ....... ........... ....... ....... ... .................. ...

- Total 573.7 1892.0 3424.2 4409.8 2345.7 1662.7 14308.1Chandrapur-Padhge HVDC Transmission Link

- Local 62.0 401.3 1528.7 1631.1 815.8 189.0 4627.9- Foreign 0.0 561.6 2244.3 2427.5 1225.1 315.2 6773.7

....... .......... ....... ........... ....... ........... ....... ................... ... ....... ...

- Total 62.0 962.9 3773.0 4056.6 2040.9 504.2 11401.6Distribution Reinforcement Program

- Local 66.9 429.3 679.9 953.9 163.2 0.0 2293.2- Foreign 74.6 315.2 482.5 659.0 136.9 0.0 1668.2

....... .......... ....... ........... ....... ........... ....... s ...............

- Total 141.5 744.6 1162.4 1612.9 300.0 0.0 3961.4Consultants and Related Monitoring Eq.

- Local 7.7 10.2 0.0 0.0 0.0 0.0 17.9-Foreign 25.5 25.5 0.0 0.0 0.0 0.0 51.0

....... ........ ....... ....... ....... ....... .......

- Total 33.2 35.7 0.0 0.0 0.0 0.0 68.9

Total Project Costs- Local 376.9 1621.6 3604.9 4362.7 1912.3 842.3 12720.7- Foreign 433.5 2013.5 4754.7 5718.6 2774.4 1324.6 17019.3

....... ....... ....... ....... ------- ....... .......-Total 810.4 3635.2 8359.6 i0081.3 4686.6 2166.9 29740.0

------ ---- 3=M *=a3= ==33= 3=3 33333 3=3

- 54 -

Annex 3.3

INDIA


Consultants emploved by MSEB for proiect engineering and implementation

1. Chandrapur Unit 7: MSEB's Engineering and Design Department hasconducted feasibility studies and prepared preliminary design reports on theproposed generation expansion. The detailed engineering and design of the powergenerating unit is being carried out by MSEB with the assistance of DeseinPrivate Limited, India, in association with Black and Veatch International, USA.The consortium is acceptable to the Bank. The consultants will assist inconstruction management, including manufacturing surveillance, expediting andensuring quality during the fabrication of major equipment as well as duringactual construction, and in ensuring compliance with erection specifications.

2. Chandrapur-Padahe HVDC Transmission Link: MSEB engaged in July 1991,the services of a consortium formed by NTPC of India and Hydro-Qudbec and Lavalinof Canada, as consultants for carrying out the engineering design, preparing thetender documents, specifications and drawings, providing MSEB assistance duringbidding process and bid evaluation, preparing construction drawings, supervisingequipment manufacture, erection, and civil works construction. NTPC and Hydro-Quebec carried out successfully the engineering of the Rihand-Delhi HVDCtransmission link under Bank Loan 2555-IN. The joint venture NTPC/Hydro-QuebeclLavalin is acceptable to the Bank for this project.

.$ecod Mih sio p i 5' ........e<,;:,^.i

~~~~~~~~~~~~~Ij

'.!:. 5 in otal)in Rare (5 n totl) inAdminis |trtl kVduicl (Accounts)taj t | *

.X~0s, ON gy,l 4C.~~~~~~~~~~~~~~~~

Annex 3.5-56- Page 1 of 2

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INDIA

SECOND MAHARASHTRA PO4ER PROJECT................. ................................

Project lptementation Schedule.. ............ ..................... ........

: 91992 : 1993 1994 1995 1996 1997 :Project Copcpnent and Activity --------------------------------------------..----------------..----.-----.----for Najor Packages : 1 2 1 3 1 4 : 1 2 1 3 1 4 : 1 1 3 1 4 : 1 2 1 3 1 4: 1 1 2 1 3 1 4 : 1 2 1 3 1 4:............................... . . . I ….......… I-..I..l ….--I.-.I.-........... .... I--- I-- I--- I--- I I--- --- I---…--I -I---I------ --- I---I------ I : I I---Chandrapur-Padhge HVDC Transmission Lirk: I I I : I I I : I I I : I I I I I I : I I I--------------------.---- : 11I I:1 I I I I I: I I: I I I: 1I I:Preliminary InvestigatIoam surveys, : I I I : I I I : I I I : I I : I II : I I Ilndw acquisition, development, : I I I I I I : I I I I I I : I I I :I I I : S: Speciffcatioa Readycuqputer studies etc. =GSCGG=G= I I I : I I I I I I I I I I I I : 1:Invitation to 8id: I I I : I I I I I I : I I I : I I I : I I I : 0: Opening of BidsDC Terminal Statiors PLC Commication :SlI I I E:A I I I : I I I : I I I : I I I : I I I : A: iard of Contract(Equipment. Civil Works and Erection) : =I====== == =---- =- = = s== I I

: I SII OI E:A I I I : I I I : I I : I I I : I I I : Synchronization:Stupty of tower.; I I : I I I : - Pote 1: October 96: I SII 01 : A I I I : I I I : I I : I I I : I I I : - Poae 2: February 97Supply of conductors I = = _ = _ = = = I I I : I I: I SI 11 0: EIAI I : I I I : I I I : I I I : I I I : Commercial OperationSupply of insulators I =-=:=z============ ================== I I I : I I I : - Pole 1: November 96: I Sl 01 : A I I I : I I I : I I I I I I I I I : - Pole 2: March 97Supply of earthuire : I = _ r =-==I I I : I II SIl 1 0 : Al I I I I I I I I I I I I I I :Suptly of hardware I I ==I I====u====I===I==============' I I I : I I

: I I I : I I I :1 I I I: I I I : I I I : I I I :Supply of accessories for conductors : I SI] 10 Al I I : I I I : I I I : I I I : I I Imnd earthwire : I =- =G =: ==== ============ == - _ | | I | I

: I I SI 1: O EIA I : I I I : I I I : I I I : I I ISpecial tools : I I I=cS=S: I I: I I I I I I I1 I I: I I I : I I I S:l IA I Al : I I I : I I I : I I IElectrodes and electrode line : I I I : I I I===== ====--==- I : I I I: I SI II 0: EIA I I : I I I : I I I : I I I I I IComamication equipment (OPGW Wire) I =a====sin-==S=== -=- === =======II 1 I I I:1 I I:1 I I I 1: I I: I I I :1I1 1I: I II :Foundations and erections of towers, : I I : I I : I I III IIstrlnging of conductors and I SII OI E:A I I I : I I I : I I : I I I : I I Iearthwire, including supervision I - == -= =-----I I I: I ISI I O : IA I I : II I I I I I I I I IAC suitchyard I IS .= ==========:= I I I I I I I I

Key dates for various sub-ccmpqnents of the terminals and line are given in Annex 3.6.

PID

cw0*(

INIDIA

SECOND MAJtASMYRA PCOSR PROJECT................................

Key Dates for the Construction of the Project Coqpunts........................................................

Cons. or Bolter Cons. or Bolter Conissi-ErectionAward of Delivery Delivery Erection Drum Erection Hydraulic Light oning & Cam. Synchro- Crm rciaProject Element Contract Begins Coqplled Begins Lifting Compiled Teast up CoW l'ed Campt4ed nfzation Operation....................................... ................................................. ....... .......... ....... .......... ....... .......... ....... .......... ....... .............. ..... ...................................

Chandrapur Unit 7 (500 El).............................

Civil Works Dec.93 Mar.94 C') Dec.96 (0*)

Bolter Apr.93 Jul.94 Nmr.96 Oct.94 Mar.95 Nar.96 Apr.96 Sep.96 Mar.97 Ju1.9?Electrostatic Precipitator Sep.93 Apr.94 Jan. ff ov.94 Jul.96Insulatfon (BLR,ESP.PIP) Dec.9C May 95 Apr.96 Now.9f Jul.ffTurbine-Generator Apr.93 Oct.94 Mar.96 Iar.97 Jun.97C & I and Data Acquisitlon Systm aer.94 Jan.93 Jul.96 Nov.96 Jan.97

nerator Control nd Relsy Paet oct.93 Jun.96 Nov.96Circulating Water Pulp Sep.94 May 95 Jut.96 Jan.96 Sep.96Condensate Polishing Unit Jul.96 Jun.93 Jul.96 Feb.97Flue as Deuphurizatlon Unit Jun.94 Jun.93 Sep.96 Dec.95 Dec.96 Apr.97 JAu9Stack Elevator Mar.93 Sep.96

WV S:tdcer NOv.9% Jan.96 Jul.96

Ash Nndling Plant - Sep.94 Jan.95 Jan.96 J97Dmierslizer Plant May 94 Jul.94 Dec.93 Oct.94 Nar.96 Jun.96

Firs Fighting Systm Jan.94 Jul.94 Apr.95 Nay 95 NoV.93 Feb.96Genator Trwuforwr Mar.95 Oct.96 Jan.97

C') Start of eivil works.(0** C'.pletion of civil orks.

00

0.

Y a

INDIA

SECOD NANARSNT POWER PRJECT

Key Dates for the Construction of the Project C _

Cons. or Con. or Stub Stub Coissi-ErectionAard of Delivery Delivery Erection Setting Setting StrrngingStringing oning & Ce_. Synchro- ComnarcialProject Elennt Contract Beins Compted Begins Befins Caupled Begins Coptled Compled Caetl'ed nfiatien Opeation

................................... ............................................. ....... .......... ....... -------... ---- ------ -------. ------- -------... .....------.. .. . .. .Obaadrapur-Pahe HVDC Transasain Link.. ......................................

DC TreminsL Stations, PLC Comiication PoL* 1s Pote 1:--------------------------------------- Oct.96 Nov.96(Equipsent, Civil Wlorks nd Erection) Jan.93 Pole 2: Pole 2:1. Civil Works: Feb.97 Mar.97i) Valve Hall Butlding Apr.93 Aug.95

i1) Equipmnt fouvmtiors* Sep.93 Sep.95cable trench

2. Erection:O) Cbling and Termination Oct.94 Apr.96

it) Station Auxiloarles Jan.94 Dec.95lit) HAC Equipment Jan.94 Apr.96Iv) Control Equipment Nay 95 Nay 96v) HYOC Equipment Pole 1 Feb.95 ay 96v) 0YC Equipment -- Pole 2 Aug.95 Oct.96

HNC Line Jut.96 Oct.96/ Now.9f/...........

Feb.97 Nar.97Suppty of touers Jan.93 Jan.94 Jun.95Suppty of conductors Feb.93 oar.94 JuL.96Supply of insulators Apr.93 Jan.94 May 96Supply of earthuire Feb.93 Mar.94 Jun.96Supply of hardware Har.93 Jan.94 Jun.96Saqply of accessories for cond4ctorsand earthuire Mar.93Special tools Jut.93Electrodes and electrode line Sep.94OPGQ Cable Apr.93Foundatfons rw erections of touers,

>stringing of conductors and earthuire, Including supervision Jan.93 nQAC switchrard Apr.93

|w

0.I

- 60 -

INDIA Annex 3.7

SECOND KAHARANTRA P.WER PROJECT................................

Procuremnt Arrangements

--...... * Procurement Method .-.------

ICe (a) LCB Other I.B.F. Total Cost................. .......................... ................. ..................... ................. ............................. ........

Contract Bank Contract Bank Contract Sank Contract Contract SankProject Components Value Finance Value Finance Value Finance Value Value Finance

Chandrapur Unit 7 (500 NW).............................

Preliminary Works *- *- * * 0.4 0.4 0.0Civil Works -- -- - - - - 48.6 48.6 0.0Boiler and Auxiliaries 111.6 100.3 - - -- -- -- 111.6 100.3Electrostatic Precipitators 23.0 8.6 -- - 23.0 8.6Insulation -- *- -- -- -- 8.1 8.1 0.0Turbine and Auxiliaries 86.9 78.2 -- -- 86.9 78.2Central Processing Urit 0.6 0.5 -- -- -- 0.6 0.5I & C and Data Acquisition System 8.7 7.1 -- -- 8.7 7.1Generator Control Relay Panels 0.3 0.2 -- -- 0.3 0.2Cfrculating Water Pumps 1.6 1.2 - - -- -- 1.6 1.2Stack Elevator 0.3 0.2 - 0.3 0.2NV Switchgear 3.5 2.6 *- -- -- 3.5 2.6Ash Handling Plant 4.5 3.2 -- 4.5 3.2Demineralizer Plant 5.6 4.0 -- -- -- 5.6 4.0Fire fighting System 3.1 2.2 - - -- -- -- 3.1 2.2Generator Transformer 4.5 3.2 -- - 4.5 3.2Other Elee. & Kech. Packages 17.2 12.8 -- -- -- -- 20.8 38.0 12.8Flue Gas Desulfurization System - 44.9 44.9 0.0Transport,Erectfon,tnsurance,Testing -- -- -- 38.2 38.2 0.0Consultancy -- -- -- -- 4.8 4.8 0.0Engineering and Administration * -- -- -- 25.1 25.1 0.0

Total Chandrapur Unit 7 271.4 224.3 0.0 0.0 0.0 0.0 190.9 462.3 224.3

Chandrapur-Padhge HVDC Trans. Link,....................................

Prelim. Invest., surveys, land acq.,development, computer studIes, etc. -- -- *- 2.3 2.3 0.0DC Terminals and Coffamication Eq.(Equipment, civil works, erection) -- -- -- -- -- -- 239.0 239.0 0.0supply of towers andFoundations and erections of towers,strlnging of conductors andearthwire, including supervision -- -- -- -- 30.7 30.7 0.0Supply of conductors -- (b) -- -- -- 32.7 32.7 0.0Supply of insulators 42.8 38.1 42- - - 4.8 38.1Supply of earthwire *- - * 0.4 0.4 0.0Supply of hardware * - - -- 1.8 1.8 0.0Supply of accessories for conductorsand earthwire 2.3 0.9 -- 2.3 0.9Special tools 2.6 2.0 -- -- 2.6 2.0Electrodes and electrode line -- -- 1.7 1.7 0.0Supply of OPGW Cable 9.7 7.7 .- -- -. 9.7 7.7AC switchyard - -- - -- -- 1.4 1.4 0.0

Total HVDC Link 57.4 48.7 0.0 0.0 0.0 0.0 310.0 367.4 48.7

Distribution Reinforeement Program 80.7 70.0 -- - 6.3 5.0 38.0 125.0 75.0

Consultants and Ass. Equipment *- 2.7 2.0 -- 2.7 2.0................ ...... _. ....... .. .... .. ... .... _ ....... ----- ....... _..... .......

TOTAL 409.5 343.0 0.0 0.0 9.0 7.0 538.9 957.4 350.0

ICB: International Competitive Bidding. LCB: Local Coapetitive Bidding.Other: Bids from at least three suppliers, and selection of consultants according to Bank guidelines.N.B.F.: Not Bank-Finsnced. Out of this, USS239.0 million worth of equipment and materials would be procured under

Limited International Competitive Bidding CLICB) and financed under suppliers, credits.(a): Most of the contracts will be procured under [CS on a supply-and-erect basis. Some will Include ecvil works

to ensure better etordination during ifplemmntation.(b): In case funds under the Bank loan remain, following awards of the contract packages to be procured within

the Chandrapur-Pedghe HVDC Transmission Link conponent, these funds would be used to fund part of supply ofconductors package (to be procured under [CB).

INDIA

SECOND NANARASHTRA POCER PROJECT.... ...................................... ..........

Procurement ScheduLe

........................................................... ......................................................................................

Specifications Invitation Opening Evaluation CONTRACTProJect ELement Ready AWARD....................................... ......................................................................................... ...................................................

Chandrapur 7th Unit (500 Wi). ............................

Civil Works June 93 JuLy 93 September 93 November 93 December 93

Boiler June 92 July 92 October 92 January 93 ApriL 93

Electrostatic Precipitator ianuary 93 April 93 July 93 August 93 September 93

Insutation (BLR.ESP,PIP) June 94 July 94 September 94 November 94 December 94

Turbine-Generator June 92 July 92 November 92 February 93 April 93

C & I end Data Acquisition System August 93 October 93 January 94 February 94 arch 94

Generator Control and Relay Panel February 95 Nay 95 August 95 September 95 October 95 c%

Circulating Water Puip January 94 April 94 July 94 August 94 Septewber 94

Condensate Polishing Unit October 93 February 94 Nay 94 June 94 July 94

Flue Gas Desulphurization Unit

Stack Elevator July 94 October 94 Janaury 95 February 95 arch 95

WV Suitchgear February 94 Nay 94 Septerber 94 October 94 Noveirber 94

Ash Handlng Plant January 94 April 94 July 94 August 94 September 94

Demineralizer Plant October 93 December 93 March 94 April 94 May 94

Fire Fighting System June 93 August 93 November 93 December 93 January 94

Generator Transformer August 94 Octcber 94 January 95 February 95 March 95

Consultancy and Training

lx0.

Annex 3.8-62- ~~~~~~~Page 2 of 2

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- 63 -

Annex 3.9

INDIA

SECOND MAHARASHTRA POWER PROJECT________________________________

Schedule of disbursements_________________________

(US$ million)

Bank Fiscal Year Half-yearly Cumulative

Ending Disbursements Disbursements

FY93December 31, 1992 a/ 19.0 19.0

June 30, 1993 20.8 39.8

FY94

December 31, 1993 14.5 54.3June 30, 1994 20.4 74.7

FY95

December 31, 1994 33.3 108.0

June 30, 1995 38.5 146.5

FY96

December 31, 1995 52.6 199.1

June 30, 1996 60.6 259.7

FY97December 31, 1996 61.3 321.0

June 30, 1997 21.8 342.8

FY98December 31, 1997 3.6 346.4

June 30, 1998 3.6 350.0

Subtotal 350.0

Closing Date of the Loant June 30, 1998

a/ Includes depomit into the special account (US$19 mllion).

- 64 - Annex 3.10

Page 1 of 12

INDIA


Environmental Assessment - Summary

Introduction

1. The proposed project, to be executed by the Maharashtra StateElectricity Board (MSEB), includes: (a) the construction of the seventh andlast stage of Chandrapur Thermal Power Station, by the addition of a 500 KWcoal-fired unit; (b) the extension of Manarashtra transmission system,including the construction of a ± 500 kV HVDC line from Chandrapur to Padghe(about 735 km) and the associated terminal stations; (c) the implementation ofa distribution system efficiency component; and (d) the implementation of aprogram to strengthen MSEB's environmental management capability at thecorporate level. MSEB's engineering and design department has conductedfeasibility studies and prepared preliminary design reports on the proposedgeneration and transmission expansions. An earlier Bank loan is supportingthe installation of 2 x 500 MW coal-fired units at the same site, under theChandrapur Thermal Power Project (Loan 2544-IN). MSEB's consultants,Associated Industrial Consultants India Private Ltd. have prepared anenvironmental assessment (EA) report based on the likely environmental impactsof the entire power plant at its ultimate design capacity, with all sevenunits in operation. MSEB has also prepared an environmental assessment forthe proposed HVDC transmission line and associated terminals.

2. Environmental clearance for Chandrapur 7 was granted by Governmentof India in February 1990 on the condition that: (a) a multi-flue stack of notlses than 275-meter height be constructed, and (b) a flue gas desulphurization(FGD) unit be installed. In addition, the National Airports Authorityformally issued in February 1992 its no objection to the construction of the275-m chimney, thus allowing MSEB to proceed with the project. Applicationfor forest clearance for the HVDC line is still being processed.

3. A substantial amount of consultation has taken place with affectedpeople by MSEB and state authorities concerning the environmental impact ofthe project, particularly on the resettlement issues linked to theconstruction of the previous stage of the Chandrapur power station (units 5 &6) and to which Bank staff have devoted a significant part of theirsupervision of the Chandrapur Thermal Power Project to ensure that theseissues are resolved in a manner satisfactory to the Bank. As part of therequirements for obtaining project approval from the central governmentauthorities, a notification was published in the government gazette and allmajor state newspapers in December 1988, announcing MSEB's intention toproceed with the proposed project. In addition, MSEB will make a summary ofthe environmental assessment report available to the public. To that effect,a notification will be placed in the local newspapers of the sLate specifyingthe locations at which this documer't duly translated into Marathi, can beobtained.

- 65 -Annex 3.10Page 2 of 12

I. Chandrapur Thenmal Power Station (7th Unit)

Current Status

4. At present, Chandrapur Thermal Power Station has four coal-firedgenerating units, 210 MW each, in commercial operation, and two additionalcoal-fired units, 500 MW each, under commissioning. The power generated at

this plant is conveyed by 400 kV and 220 kV transmission lines to the main

load centers around Koradi, Warora and Bombay. Coal for the power plant iemined at the Wardha Valley coal fields nearby and transported to the power

plant over aerial ropeway, railway wagons, and trucks. The presentconsumption of coal by the first four units is around 3.0 million tons peryear. When the two additional 500 MW units enter commercial operation, the

power station will require a total of 6.2 million tons of coal per year at0.65 plant capacity factor, the transportation and handling arrangements for

which are complete. With the addition of the seventh unit, the requirement ofcoal will be about 7.8 million tons per year, based on the same plant capacity

factor. Coal will continue to be provided from the Wardha Valley coal fields

and no new coal mine will need to be developed for the purpose of meeting the

requirements of the power plant.

5. Project Description. For the proposed 500 MW coal-fired unit on

the present site, the boiler will use pulverized coal as primary fuel, usinglight diesel oil for startup purposes and flame stabilization during periodsof low loads. Steam generated in the boiler at high pressure and temperaturewill drive a multi-stage steam turbine, coupled to a generator to produceelectricity. The steam would exhaust into a condenser where it would be

condensed back into water (condensate) and pumped through a series of feed

water heaters into the boiler again. A closed-circuit circulating watersystem, with a cooling tower, would supply cooling water for the condenser.Fresh water is obtained through pipes from the Erai reservoir, about 8 km away

from the plant, where a dam has been built on the Erai river for providing the

required make-up water for the cooling water system and condensate quality

water for use, after treatment, in the boiler, as necessary. An additionalwater reservoir of 200,0000m capacity has been built at the power stationalong with units 5 and 6 to cater to cooling demand fluctuations. Thecapacity of the existing water treatment and demineralization plant will be

enhanced to meet the demands of make-up water for the new unit. The liquideffluents generated from the water treatment process, as well as from boiler

and cooling tower blowdowns and wash water from other equipment, will betreated and neutralized in a waste water treatment facility to be recycled forash-sluicing. The plant instrumentation and control system will use state-of-

the-art, microprocessor-based technology.

6. The Site. Chandrapur Thermal Power Station is situated about 6 km

from Chandrapur city, a district headquarters in the State of Maharashtra; thetown of Chandrapur is about 120 km from Nagpur. Infrastructural facilities,

such as the cooling water system, coal handling, ash disposal, the electricalswitchyard, and social support facilities for the permanent staff, weredesigned to suit the ultimate station design capacity of 2,340 MW comprising

seven generating units.

7. Levelled land measuring 973 hectares has already been acquired for

the power plant site, in addition to about 336 hectares for the residential

- 66 -Annex 3.10Page 3 of 12

colony. The existing land areas are adequate for the proposed expansion ofthe power station and the residential facilities. Another approximately 2,400hectares of land has been acquired for the ash disposal area. The topographyof this region consists of alternating low-lying river plains at elevationsless than 300 meters and a series of bluffs 300 to 600 meters high. The soilthroughout the project area can be characterized as sandy loam type,consisting of sand, gravel, silt and clay. Chandrapur district, as a whole,abounds in mineral wealth. Besides large deposits of coal, there are ironores, chromite, limestone, building stone and clay. It is also the richestdistrict in the state in respect of forest wealth. The forests abound invarieties of teak. The nearest such forest is about 40 km away from the plantsite.

8. There is a large number of herbaceous members found side by sidewith forest tree species. Some cultivation of mixed crop species is also donein the district. Due to heavy rainfall and humidity, the trees are loadedwith varieties of orchids. The region is traversed by perennial rivers andendowed with many commercial varieties of fish, occurring naturally in thewater resources. Because of the presence of rich forestry, there is anabundance of wildlife in the area. The Tadoba National Forest, about 45 kmfrom the project site, boasts of tigers, wild boars, panthers, sloth bears,hyenas, bisons, wild buffalos, deer, etc. It draws tourists from far andnear.

9. The existing plant, with four units in commercial operation, hasbeen working satisfactorily without causing any significant adverse impact onthe environment. Modeling studies conducted on gaseous emissions from theplant indicate emissions well within the limits prescribed for regulatorycompliance (para. 12).

10. Displacement of Population. The proposed extension of theChandrapur power station does not involve any new displacement of populationas adequate space is already available on the existing plant site for theinstallation of the seventh and last unit. However, the construction of units5 and 6 led to the displacement of about 800 families to whom a rehabilitationcompensation (in addition to the compensation for land/house structureacquisition, when applicable) has been paid. Such cash compensation hasenabled a large number of families to resettle in satisfactory conditions.Some families, however, remain to be fully resettled and rehabilitated. TheGovernment of Maharashtra has undertaken to complete their resettlement, andrehabilitation and issued an order to that effect in February 1992. It isexpected that such R&R plan, wkich, will require the identification of suchfamilies according to specific eligibilitv criteria, will be implementedwithin a period of about 18 months, starting immediately. The Department ofrelief and Rehabilitation, in consultation with the District CollectorChandrapur, has prepared a detailed action plan and associated timetable forimplementing such R&R plan, identifying the various steps and agenciesinvolved in the process. It is envisaged that a local NGO assist in theimplementation of the plan. Adequate arrangements will be put in place tomonitor and report progress on the resettlement and rehabilitation of theconcerned families.

11. Impacts and Mitigation. The pollutants from the plant are: (a)stack emissions of particulate matter (fly ash), SO2, NO, and CO2; (b) liquid

- 67 -Annex 3.10Page 4 of 12

effluents comprising coal pile area leaching and runoff, ash disposal arearunoff, water treatment plant area wastes, demineralizer plant effluents,intermittent effluents generated by boiler blowdown chemical cleaningoperations, air preheater wash, etc., and other miscellaneous waste waters;and (c) solid wastes comprising bottom ash, fly ash, fugitive dusts from coal,ash and other chemicals used in the water treatment plant.

12. Air Quality. Ambient air quality was established by conducting a

survey over a period of one year at the project site for the gaseouspollutants (SO2 and NO,) and total solid particulates (TSP). Four-hourlysamples were collected daily for the gaseous parameters and 24-hourly samplesfor TSP. The temperature, wind speed, humidity and other climatologicalinformation were also gathered from the meteorological office to correlatemeasurements with statistical variations in the climate.

13. The average concentration of SO, in the ambient air, in the areasurrounding the plant, with the first four generating units in operation,ranged from 17 pg/am in September to 88.2 pg/im in January. The correspondingaverage NO. varied from 17.1 pg/rm in August to 75.9 pg/ia in January. Whilethese values are well within the regulatory limits for S02 and NO, emission,measured values of TSP over the same period lend themselves to carefulinterpretation. The TSP values, as measured, show a variation over a widerange of 95 to 1'1 pg/mP during the monsoon months (June through November)under the same operating parameters. At other times during the year, fugitivedust caused by vehicular traffic plying over the unpaved roads as well as overunpaved shoulders skirting the main thoroughfares, has caused erroneousreadings in the dust pollution which cannot be attributed to the power plant.Table I compares the ambient air quality levels, measured under existing base-line conditions (4 units in operation) as well as expected with all sevenunits in operation at full load against the regulatory limits of GOI and theBank.

14. Particulate Hatter. Assuming the coal to have an average ashcontent of 45 per cent, the seventh unit will add about 1,460 tons of fly ashper day at 65 per cent plant load factor. Electrostatic precipitators, to be

installed at the back end of the boiler with a particulate removal efficiencyof over 99.5Z, will remove at least 1,453 tons of ash from the stack gas. Forthe entire plant, and with all seven units in operation, the total productionof fly ash, on the same basis, will approximate 6,850 tons per day, out ofwhich at least 6,800 tons will be removed by the electrostatic precipitatorsat 99.5 per cent collection efficiency to prevent pollution of the environment(para. 28). Under the Chandrapur Thermal Power Project (Loan 2544-IN), the

electrostatic precipitators of units 1 through 4 will be upgraded to ensure atleast 99.52 collection efficiency.

15. S0. Emission. Sulfuxrous oxides are produced by chemical reaction

during the combustion process between the inherent sulfur present in the coaland oxygen in the air used for combustion. This emission can be controlled bythe procurement of low-sulfur coal or by installing stack gas scrubbers (flue

gas desulfurization) to remove the SO.. In the case of Chandrapur, thisemission is basically controlled by the procurement of low-sulfur coal.Typically, Indian sub-bituminous, bituminous and anthracite coals are allcharacterized by very low sulfur in them. The Wardha Valley coal has anaverage sulfur content of 0.2 to 0.4 per cent only (0.6Z worst coal). Model

- 68 _Annex 3.10Page 5 of 12

studies have determined that the gromnd level concentrations of SO, will notexceed regulatory limits for the whole plant even for the worst coal having0.6 per cent sulfur. The proposed stack height of 275 meters will help inplume dispersion over a wider area.

Table. l: Ambient Air Quality Measurements in the area surrounding the Plant

Pollutant Guidelines (pg/?i 8 ) With 4 units With 7 unitsBank GOI Basis (actual) (predicted)

Max. pg/n? Max. pg/rn

SO2 500/a 120 24-hr avg. 48 91

NO. 100 120 1-yr avg. 29 96

Total SolidParticulates 260 500 24-hr avg. 161/b 161 /c

Fa or unpolluted or moderately polluted background/b Maximum measured during the rainy season (see para. 9 above)/c The maximum TSP concentration is at a distance of 8 km from the plant, and

it remains the same because the chimneys of Units 5, 6 and 7 are higherthan the chimneys of Units 1 through 4.

Note: The above modeling has been done on the basis of an assumed height of200 meters for the chimney of unit 7. This height has now been increased to275 meters. Therefore, the ground level concentrations at the specificlocations will go down further due to wider dispersion.

Also, the Bank standards specify, for unpolluted or moderately pollutedbackground, an allowable limit of 500 tons per day (TPD) for total SO2emissions. It is estimated that the maximum S02 emission for the 2,340 MWChandrapur Thermal Power Plant, at 65 per cent capacity factor, could bearound 292 TPD while burning the worst coal.

16. Results of the modeling calculations have been interpreted in termsof probable plant impacts, with consideration given to local meteorology, andpossible variations in fuel characteristics. The air dispersion modelingindicates, as seen from Table I, that the expected ground level air quality.with all seven units in operation, will remain in compliance with regulatoryrequirements for all receptors, and that flue gas desulfurization (FGD) is notrequired. However, the Government of India is considering the installation ofan FGD system.

17. NO. Levels. NO, is generated by the interaction of inherentnitrogen in the fuel, as well as nitrogen in the air, during combustion atelevated temperatures. The higher the combustion temperature and the totalquantity of total air used for combustion, the more the production of NO.This pollutant in a pulverized coal-fired boiler can be basically controlledby properly designed burners that use a low-excess air combustion system.

- 69 _Annex 3.10Page 6 of 12

18. CO. Levels. An extensive tree plantation program will be undertakenaround the power plant complex along with afforestation in some of the areasin the immediate vicinity of Chandrapur to reduce the carbon dioxide levels inthe atmosphere.

19. Monitoring. On-line instrumentation installed at the stack willmonitor emissions on a continuing basis and sound an alarm for the operatingstaff to take immediate action in case any of the values should exceedspecified limits.

20. Thermal Pollution. Since the Chandrapur power plant uses a closedcooling water circuit, the thermal pollution caused by the plant isinsignificant. The condenser cooling water is drawn from the cooling towerbasin at an average temperature of 300C, and pumped through the condenser tocool the turbine exhaust steam. This exchange of heat will cause the coolingwater temperature to rise by about 7.50C. As it returns to the cooling towersand cascades down in a fine mist through a strong countercurrent of induceddraft air flowing through the towers, the temperature would fall to theambient level by giving up heat to the air. The wind would quickly dissipatethis heat.

21. The condenser circulating water will also be chlorinated in orderto prevent organic growths from building up in the cooling water system.Experience with chlorination in the running plant has established thatcontinuous presence of chlorine at relatively low concentrations is sufficientfor this purpose. The chlorination plant for the proposed additional unitwill also be designed on similar lines.

22. Liquid Effluents. The liquid effluents from the plant can belisted as: (a) those discharged from the water treatment plants; (b) coolingtower blowdown; (c) boiler blowdown; (d) air preheater wash water and boilerchemical cleaning wastes; (e) coal pile leaching and runoff; (f) ash disposalarea runoff; (g) power plant miscellaneous wastes; and (h) sanitary wastewater.

23. The effluent discharge from the water treatment and demineralizerplants is periodic in nature; the wastes could be acidic or alkaline. Theyare neutralized in a neutralization pit before being used for ash transport.The generation of waste water from the water treatment processes would bearound 12,000 m9/day for the entire plant, and the same design philosophywould be used for its neutralization and conditioning in a waste watertreatment plant facility.

24. The cooling tower is required to be blown down periodically tomaintain the water quality. This blowdown, expected to be around 11,700m3/day for all seven units, is led to a sump to be reused for the preparationand transportation of ash slurry.

25. The boiler blowdown water could be as much as 700 m!/day for allseven units. The blowdown water would be cooled in a cooling pond and thenled to the waste water treatment plant for neutralization, removal of metallicwastes, if any.

26. The air preheaters might need to be washed with water from time to

- 70 -Annex 3.10Page 7 of 12

time. The boilers will also need to be chemically cleaned duringcommissioning and, possJbly, at periodic intervals thereafter. These wasteswill be neutralized and treated in accordance with environmental acceptancecriteria. Especially, any metallic wastes, such as chromium, molybdenum,copper or zinc, trapped in the effluents would be removed in the waste watertreatment plant.

27. Water drains from the coal yard are likely to contain coal fines.Also, because of the presence of sulfur in coal, the water that leachesthrough the coal pile will tend to be acidic in nature. The leaching, as wellas the runoff from the coal pile, will be led into a settling basin, where thefines will precipitate, and the effluent will be neutralized before beingdischarged into the drains. The settling basin will be lined with clay.Instrumentation will monitor the pH of the solution on a continuing basis andadjust chemical dosages accordingly for neutralization. Any deviation fromthe control settings will be alarmed in the control room for immediateattention by plant operators.

28. The ash slurry is pumped through pipelines to the ash disposalarea, located about 12 km away from the power plant site. The ashprecipitates in the disposal area and the water is held back by a small dam,which makes the area a huge settling pond. The clean overflow from thissettling pond would be recycled for ash disposal purposes. The watermanagement plan, to be operational by December 1993, envisages that suchrecycling of water will reduce the offtake from the Brai reservoir by as muchas 65,000m/day. Under favorable condition, this quantity of water will bedischarged into the Erai river for downstream use. The recycling of the ashpond overflow will prevent possible contamination of the Erai river.

29. Power plant surface drains, comprising storm water, roof drains,etc., are piped to the site drainage ditches. Other miscellaneous drains willbe led into the waste water treatment facility where the effluents will betreated and neutralized before being discharged to meet the drainage system.Three stage gravity oil interceptors will treat the drains that might bepotentially contaminated by oil and remove the trapped oil. The capacity ofeach separation chamber will be sufficient to accept the total oil content ofone generator transformer plus three minutes of flow from the transformer fireprotection system.

30. Sanitary waste water will be treated in the sewage treatment plant,the capacity of which will be enhanced. The performance of the existingplant, using proven technology, has been satisfactory.

31. Solid Wastes. The solid wastes are: (a) fly ash; (b) bottom ash;and (c) dust in the coal handling plant, ash handling plant, and watertreatment plant facilities.

* The fly ash and bottom ash from the respective hoppers are sluiceddown with water through an open channel into the ash slurry sump.The ash slurry is then pumped through pipelines to the ash disposalarea. The overflow system will be so designed as to ensure thatthe ash is permanently covered with water. The existing ashdisposal area will be capable of accepting ash for all seven unitsfor the next 30-40 years.

- 71 -Annex 3.10Page 8 of 12

* Analysis of the water collected from different areas of the ashdisposal yard, especially from bore holes located both upstream anddownstream of the ash bund (small dam), have indicated that noleaching from the ash disposal areas is taking place. Also, therehas been no evidence of heavy metals in the water samples.

* Dust containment and suppression methods will be used in the coal-handling, ash disposal and water treatment plant facilities. Thecoal conveyors for units 5 and 6 - wagon tippler hoppers, aerialropeway loading hopper as well as truck unloading hoppers - includefacilities for water spraying to suppress fugitive dust, The samefacility is being provided for the coal conveyors of units 1through 4 and the unloading hopper of the aerial ropeway under arenovation and modernization scheme. The coal-handling plant willbe fitted with exhaust fans and cyclone or bag filters to eliminatethe dust from exhaust air. In addition, mobile trucks with watersprinklers will help keep the roadways free of fugitive dust. Thedesign of the recirculation system for the ash pond will providefor the area to remain covered with water at all times. Bagfilters and water sprays, mixed with chemical wetting agents, willhelp minimize dust nuisance in the coal, ash, lime, and alumhandling areas.

* MSEB has experimented with the manufacturing of bricks using theash from the plant. These tests have shown positive results andMSEB will explore the possibility of expanding such scheme on alarger scale.

32. Flora and Fauna. A survey of the flora and fauna has been carriedout by MSEB's consultants, as part of their overall assessment of the projectenvironmental impact. The survey was used to inventory all species ex'sting

in the study area that included forest areas, settlement areas as well asrecreational areas. While the flora is an assemblage of dry deciduous and

semi-evergreen or moist deciduous species, the special feature of the area isthe luxuriant growth of teak. The fauna include fisheries and wildlife. The

forest is the natural habitat of these species. The results of the survey

reveal no identifiable impacts on the flora and fauna of the region.

33. Risk Assessment. Using both the World Bank guidelines and those ofGOI, the Chandrapur Thermal Power Plant component of the Haharashtra Power II

Project can be classified as being of low hazard. The significant potential

risks are identified below:

(a) Failure of the chlorination plant could cause uncontrolleddischarge of this chemical into the circulating water, therebyeopardizing the cooling tower material. Appropriate personneltraining, with the chlorinator featuring an automatic shutoff,should contain this risk. Plant personnel are already used tohandling this hazardous chemical in their existing plant section;

(b) Sulfuric acid and caustic soda are used in the demineralizer plant.

The bulk chemical storage tanks will be located in bund enclosures.Any spillage will be contained and neutralized. Safety features inthe design, coupled with appropriate personnel training, are

_ 72 -Annex 3.10Page 9 of 12

usually adequate for this purpose. The plant personnel are alreadytrained in handling these chemicals.

tc) The capacity of the existing hydrogen plant to produce commercialquality hydrogen required for the cooling of the generators, willbe enhanced. Besides the fact that the plant personnel are alreadyadept at running this plant, fail-safe features in the design ofthe plant ensure automatic shutdowTn in the event of equipmentmalfunction or improper operation.

34. Monitoring and Supervision. MSEB has been monitoring emissions andeffluent quality at each of their power stations on a daily basis with thehelp of contractors. The State Pollution Control Board staff visits the powerstations periodically and verifies measurement results recorded by MSEB andreviews all effluent quality analysis reports.

35. Short-term monitoring that is required for the construction phaseof the project includes: dust, noise, odor, ground water, traffic, and effectson other underground services. The control of these will be the primaryresponsibility of the plant management. Complaints from the public, if any,would be recorded by site staff and public health officers and would be usedto identify appropriate changes in the site practices aimed at reducingnuisances.

36. Some disruption to traffic flow is expected during the constructionphase. The plant management, with help from the police department, willmanage traffic problems that may arise during the work.

37. Long-term monitoring will include air quality measurements toensure that ambient air quality guidelines are not violated. In order tofacilitate this monitoring, measuring instruments will be provided at thestack, with alarm capability to signal operation beyond acceptable parameters-.An air monitoring station will be set up at Chandrapur, with an appropriatenumber of satellite stations, to help monitor the ambient air quality on acontinuing basis.

II. Chandrapur-Padahe * 500 kV BVDC Transmission Link

Current Status

38. Project Description. The scheme covers the following works:

- a * 500 kV 1,500 MM Chandrapur-Padghe HVDC bipolar line (736 km);

- * 500 kV 1,500 MW HVDC bipole converterlinvertor terminals - oneeach at Chandrapur and Padghe;

- the extension of the 400 kV substation works at Chandrapur andPadghe;

- electrode lines at each terminals; and

- communication facilities.

- 73 -Annex 3.10Page 10 of 12

39. The Site. The Chandrapur converter/invertor terminal is planned tobe located inside the boundary of MSEB's Chandrapur Power Station and will beconnected to the A.C. system at 400-kV level. The Padghe converter/invertorterminal is planned to be located next to the existing 400/220-kV substation.The survey of the line has already been completed.

Impacts and Mitigation

40. Impacts on the Ecology due to Project Location. The land for theterminal station at Chandrapur is already available with MSEB and noadditional land will be required. The terminal station at Padghe is beingestablished nezr MSEB's existing 400/220-kV substations. A major portion ofthe land is already available with the Board. Few acres of additional landrequired for AC/DC interconnection adjacent to the existing substation isbeing acquired. It will not, however, involve any human rehabilitation, asthis is unused land from the village.

41. The final survey of the transmission line has been completed. Theline avoids wet lands and does not pass through any space reserved for publicutilities such as parks, playgrounds, etc. The scheme does not create anythreat to the survival or integrity of any community. Per the Electricity(Supply) Act, 1948, MSEB enjoys all the rights awarded to the TelegraphAuthority under the Indian Telegraph Act (1885) and is allowed to use privateland for tower erection. Thus, no land acquisition is required for theconstruction of the HVDC line. The route for the 735-km long transmissionlink has been selected such that only 7.8 km (i.e., 1.61 of the total lengthof the line) infringes on forest land - mainly degraded forest - in differentpatches along the route (four districts are concerned). About 1,500 treesalong these 7.8 km will be felled within two 3-meter wide corridors,corresponding to an area of 5 ha. However, MSEB will bear the cost ofcompensatory afforestation on 41 ha (i.e., about 1.11 of the total land areaof the 52-meter wide right-of-way and almost ten times the land area that willneed to be cleared). Government land for compensatory afforestation hasalready been identified by the District Collectors and in three out of thefour districts involved, acceptance by the concerned forest authorities hasalready been received. Once acceptance is confirmed for the fourth district(Thane district, near Bombay), the Forest Department (GOM) will submit theentire scheme to the Department of Environment and Forests (GOI) for finalforest clearance.

42. The project will not have any adverse impact on historical orcultural features, as neither Chandrapur nor Padghe is a historical orcultural place. Moreover, the transmission line does not pass through anyhistorical place, nor does it affect any rural or urban settlement. Since theland is already available with the Board for construction of the terminals,the project is not likely to depreciate land value or uses. Moreover, theland below the DC transmission belt will not hinder any agricultural activity.Hence no reduction is expected in the value of agricultural land over whichthe HVDC line will pass. Damages to crops during construction of the line willbe compensated as determined by the State Revenue Authorities.

43. Environmental Problems Due to Project Design. The scheme will nothave any significant impact on the environment. The provision forcompensation of land, trees and crops has already been made in the project

- 74 -Annex 3.10Page 11 of 12

report; compensation will be required to be made only during construction/erection of the line. The project will not have any significant impact onnatural resources, disruption of necessary access for public, wildlife waterresources, flooding, etc. The project design is adequate to meet accidentalfailure of power as adequate protection will be provided to meet suchsituation. The project does not involve any risk of explosion or hazardousspills. Measures to be taken by the contractor to ensure workers' health andsafety during construction will be included in the bidding documents.

44. Noise/Vibration/Pollution. All the equipment under this projectwill be static. Adequate measures to minimize noise/vibrations will beincluded in the design of various equipments. Audible noise level of the DCline shall be kept well below the acceptable limit value of 40 decibels (db).

45. Access Roads. Since the terminals at Chandrapur and Padghe arebeing established in the Board's vacant premises, there is no need for theconstruction of access roads. For construction, operation and maintenance ofthe HVDC line, temporary access roads, wherever required, will be laid.

46. Construction and Operation of the HVDC Line. The terminals will beconstructed adjacent to MSEB's existing power facilities where adequateprovisions for minimizing impediments to natural drainage have already beenmade. Provisions for ensuring availability of water supply, sanitation,sheds, etc., for the temporary constructions to be erected during projectexecution will be included in the project design and bidding documents. Theaccess roads to project sites as well as other premises shall be protected byerecting necessary fencing and shall be guarded by security staff. Thetransmission towers near inhabited areas will be equipped with anti-climbingdevices. Adequate provisions for handling fire or power failure situationshave been made in the design of the terminals. These installations will bemanned by personnel duly trained in this field and guarded by securitypersonnel. The scheme does not call for any special feature to protectnatural resources, rare or endangered habitats. The land at terminal stationsis free from growth of any vegetation. The maximum efforts have been taken toavoid wet lands. Suitable tree plantation around installation will be made toavoid soil erosion, if any. Moreover, construction operation and maintenanceof the facilities do not involve any operations leading to soil erosion.

III. Strengthening of Environmental Capability in MSEB

47. Environmental matters are presently handled by MSEB only at plantlevel. The head of the chemical testing laboratory in each power plantdedicates part of his time to manage environmental affairs; in addition,activities of routine monitoring of air and effluent water quality aresubcontracted to state-certified private consultants. At the corporate level,there is no central environmental unit per se responsible for formulatingenvironmental policies and regulations for the whole company as well as formonitoring their implementation, including resettlement and rehabilitationmatters.

48. The proposed project will entail a component aimed at strengtheningMSEB's environmental capability at the corporate level by establishing acentral environmental unit responsible for: (a) formulating the company'senvironmental policies; (b) establishing standards for the disposal of

- 75 -Annex 3.10Page 12 of 12

effluents and emissions and the associated treating technDologies; (c) settingup a company training center and establiehing training programs for the staffat various management and operational levels, in the area of environment,safety, resettlement and rehabilitation; and (e) coordinating the monitoringand evaluation of HSEB's performance in implementing the company'senvironmental policies, including resettlement programs.

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INDIA


Program for Strengthening MSEB's Environmental Management Capability

Background

1. Environmental matters are presently handled by MSEB at the plantlevel only. The current organization provides for a small environmental unit,headed by the chief of the chemical testing laboratory, to manageenvironmental affairs at each power station. The unit reports directly to theplant manager who is directly responsible for plant operation and maintenance.As a result, management decisions related to environmental matters maysometimes be biased by production-oriented considerations.

2. At ;he corporate level, there is no central environmental unit perse responsible for formulating the Board's environmental policies andregulations as well as for monitoring their implementation, includingresettlement and rehabilitation matters.

Obiective

3. To strengthen its environmental management capability at thecorporate level, MSEB needs to set up a full-fledged central environmentalunit that wouldt (a) develop the Board's environmental policies; (b) establishcompany standards for effluents and emissions disposal as well as for treatingtechnologies; (c) create an environmental training center and design trainingmaterials on environment and safety, for employees at various managerial andoperational levels; (d) control MSEB's environmental and safety performance;and (e) develop the Board's policies on social and resettlement issuea.

Scope of Activities

4. The unit would be responsible for developing the Board's policiesand overall targets for: (a) the reduction of air and water pollution; and (b)the integration of environmental concerns in expansion planning. It wouldformulate regulations to comply with GOI's environmental standards andestablish the Board's own standards and guidelines in the following areast

(a) plant operation, to minimize emissions and effluents;

(b) development and engineering, to select environmental equipment,determine effluents and emissions treating systems, set engineeringsafety standards, and establish directives and guidelines for thepreparation of environmental impact assessment for power plants andtransmission lines;

(c) safety, to establish a plant safety rating system and developemergency contingency plans and drills;

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(d) social concerns, including resettlement;

(e) natural resources, for the utilization and preservation of naturalresources (ground water, rivers, lakes, land);

(f) monitoring, to develop monitoring methods, set standards formonitoring intensity and criteria for equipment selection, andestablish a computer center for data monitoring collection andatmospheric emissions dispersion models;

(g) training, to develop and coordinate training programs for personnelat all levels; and

(h) auditing, to establish routine for auditing and supervision ofenvironmental conduct and safety.

Consultancy Services

5. Specialized consultants should be engaged to plan and formulate theestablishment of the environmental unit as the unit's objectives and scope ofactivities are quite broad and relatively complex. Mora precisely, theconsultants would be asked to prepare a development plan for the first two tothree years of the unit's operations, including the following:

(a) identification of a focused, manageable set of priority objectivesand activities for implementation at corporate and plant levels inMSEB, with specific performance criteria for each activity at eachlevel;

(b) preparation of a staffing plan for hiring skilled environmentalstaff, both professionals and technicians, at each level;

(c) design of a training program; and

(d) preparation of a financial plan setting out the costs of: i)routine environmental management activities, e.g., monitoring andaudits, at corporate and plant levels, and ii) purchase,installation, and operation of pollution control technology.

6. Prior to preparing the derelopment plan, the consultants wouldsurvey the regulatory framework for pollution control in the energy sector inMaharashtra, and would identify key existing regulations and possible gapstherein. Such survey, together with the technical assessment of key issues,would be the basis for identifying the priority objectives and activities ofthe environmental unit in the development plan.

7. It is estimated that about 18 man-months of consultancy serviceswould be required to prepare the development plan and assist in the earlystages of its implementation. Such consultancy services would be complementedby the acquisition and installation of the required computer hardware andsoftware as well as monitoring equipment.

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INDIA


Supervision Plan

Bank Supervision Inputs Into Key Activities

1. The staff input indicated in the table below is in addition toregular supervision needs for the review of progress reports, procurementactions, financial statements and audit reports, and associatedcorrespondence. An average of about 15 staff-weeks per year in total will berequired to supervise the project. Most of the field supervision activitieswill be combined with the supervision of other Bank-financed projects underexecution by HSEB.

Bank Staff Inputs for Project Supervision

Approximato Activity Anticipated Input InD.t.. Skill Staffwoeko

Requirements

6/92-4/98 * Review of IFS documentation and bid Engineering 2evaluation for steam and turbine !'rocurement 4generators packages for Chandrapur 7. Cot inanlng 1

- Assistance In finalization of project Management 8ftinncing plan. Environmnt II Selection of consultants for

environmntal management and loadresearch

o Monitoring of TA for private poerdevelopmnt.

10/92 Sua rvison Misaion* Review of procur_ment Engineering 8* RevIow of proj ct financing Financial Analysis/arrang emnt Mang eme nt 2

* Roview of project management Economics Iarrangmente

* Review of unaudited financialstatements for 1991/92

* Reviow of preparation of mrrtar plansfor accelerated dletributlosreinforcement program

* Review of progress for obtaining finalclearance for HVDC trann icsion link.

2/98 Suarvlulon MIslon* R wiow of procurement progress Engilneering 8* Review of distribution mosterplans and Financial Analysis/

assoclated work program for Management 2distribution for 1998/94 Economics 2

* Review of iSES's investmnnt programand associated financing plan

* Review of MSEBs financial performanceand compiIance with financialcovenante

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9/9a Sup rveon Mission* Reviw *f pro; implementation Engineering 2progras Financial Analysis/

* Review of procurement progress Management 2* Review of consultancy program for Environment I

env ronmont.l management andelectricity demand management

* Review of preparation of additionalmoster plans.

• Environmental monitoring

1994/97 Two Supervision missions per year 1/ Engineering 6Financial Analysio/Management 5Economic 1

199t Project completion report (PCR) Engineering 8preparation Financial Analysis 2

Econooie 2

1/ - Supervision mission of 2/94 will discuss findings of high-level comanssion on InstitutionalIssues.

- Mid-term review to take place In 2/95.

MSEB's Contributions to Supervision

2. Progress reports are to be submitted by MSEB on a quarterly basis,at the end of March, June, September and December of each year. The progressreports will provide an update of the status of procurement, contract award,project cost, commitments, withdrawal applications, disbursements,construction, implementation of institutional aspects of the project(including selection and mobilization of consultants, and their ownsubmissions, as applicable), key financial and operating performanceindicators for the Board1, and results of environmental monitoring. Progressreports will also highlight project performance as measured against appraisalschedule, analyze delays and difficulties, and discuss mitigating meeasures.In addition, HSEB will submit its annual, unaudited financial statementswithin six months of the end of the fiscal year, i.e., by September 30 of eachyear, and its annual, audited financial statements within nine months of theend of the fiscal year, i.e., by December 31 of each year.

3. Project monitoring and coordination will be the responsibility of:

(a) for the Chandrapur 7 component, the Technical Director, GenerationProjects;

I Financiail indicators will include: on a quarterly basis,receiva'bles, by consumer category, and payables, and on an annualbasis (end-December report), internal cash generation ratio, rateof return, debt service coverage ratio. Quarterly operationalindicators will include, for each generating station, plant loadfactor, heat rate, plant availabilty, auxiliary consumption and ESPefficiency, as well as total transmiscion and distribution systemlosses (in Z of total net generation).

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(b) for the HVDC transmission link, the Technical Director, EHVprojects;

(c) for the distribution component, the Technical Director,Distribution; and

(d) for the technical assistance activities, the Technical Member.

MSEB will appoint a Project Coordinator to supervise the overallimplementation of the project and its various components, and coordinate withthe Department of Energy and Environment (GOM) for the activities to becarried out by the state government. The Project Coordinator will also beresponsible for coordinating arrangements for Bank supervision missions andfor providing information required by missions.

INDIA

SECOND NARARASHTR PCUER PROJECT

NSEB'S Actual and Forecast Incain. Stdtements............................................

tRa Milion)Fiscal Year endingParch 31 1988/89 1989/9 1990/91 191/92 1992/93 1993J94 1994/ 1995/96 1996/97 1997/98 1998/9 1999/00

--------- |---------.Actual ----------| Estimated ------------------------------------- Forecast ------------------------Sales of Electrcicty (GUh) 24,981 26,973 27,958 29,287 32,060 34,545 35,435 36,370 37,047 40 058 42,420 42,521Aveag Tariff (Rs./kWh) 0.78 0.83 1.04 1.09 1.31 1.44 1.60 1.69 1.79 1.85 1.99 2.09

Reveuwas:Sale of Electricity 19,605 22,404 29,14" 31,95S 41,976 49,907 56,535 61,291 66,392 73,917 84,596 88,860Other Revese (1fasc.Recovery) 117 91 88 92 101 109 112 115 117 126 134 134

.... ~~~~~~~~~ ..... .... ----. ---- ..... .... ..... ...----........ ... . ..... ... ........ .....

Total Rev. from Sale of Power 19,722 22,4S5 29,232 32.047 42.078 50.016 56,647 61,406 66,509 74,043 84.730 88.994liev.Subsidies & Grants /1 1,833 3,477 146 3,695 0 0 0 0 0 0 0 0Other Income 478 660 727 761 833 898 921 945 963 1.041 1,102 1,105

.... ..... .... ..... .... ..... .... ..... .... ..... ..... ........ ..... ..... ..... ..Te.al Revws 22,033 26,632 30.104 36,504 42,911 50,914 57,568 62.351 67,472 75,084 85.833 90,099

................. .................................................... ......................................................................................

Expenses

Fuel Cost 7,299 8,756 9,523 11,057 13,768 16,218 17.783 19,593 20,788 23,363 24,531 25,757 XCornsables 358 423 468 542 666 778 843 926 983 1,097 1,169 1,227Purchase of Power 4,152 5,148 5,886 7,159 7,681 9,066 9,909 10,104 11,164 13,143 17,135 17,135Lesse Rent 550 517 522 522 522 522 522 522 522 522 522 522Vages wid Salaries 4,030 4,608 5.118 5,988 6,850 7T.115 8,610 9.554 10,542 11.512 12,571 13,728General Administration 488 586 S52 621 683 739 793 846 898 943 990 1,040RepaIrs A Naintenance 1,443 1.588 2,155 2,931 3.434 4,252 4,826 5.325 5,999 6.533 8,365 8,901Other Expenses 415 451 480 540 594 643 690 736 781 820 861 904

.... .... . .... .... . ..... .... . .... .... . ..... .... . .... ........ ..... ..... ..... ... ........

Total Vorking Expenses 18,705 22,076 24,703 29,359 34,198 39,933 43,975 47,607 51 677 57.933 66,145 69,215Less: Experes Capitatized 1,094 1,215 1,709 1.980 2,431 2,840 3,077 3,382 3.588 4,005 4.267 4.480Depreciation 1,335 1,489 1,610 2.228 2,690 3,177 3,553 3.964 4.386 5.214 6.043 6.444

o ... ....... ....... ....... ... ....... ....... ....... ........ . .... .... . .... .... ----. ----

Total Operating Expenses 18.946 22.350 24,605 29.607 34.45U7 40,270 44,451 48,188 S2,474 59,142 67,921 71.179Ad). tor prev. yrs. 103 256 319 0 0 0 0 0 0 0 0 0Foreign Exd,w n Losses 0 0 0 32 167 149 134 119 104

Not Incocm before Interest 2,984 4,026 5.181 6,896 8,454 10.643 i3,084 13.996 14,649 15,808 17.793 18.816

Interest for the Tear 3,813 4,766 6.154 7,459 8,226 9,116 10,317 11,875 13,197 14,483 15,749 16,864Les": Interest Durfng Construction 1,224 1.638 1.9.4 2,016 2,132 2.129 2,709 3,475 4.051 3,60S 3.210 3,842 X~~~~~~~~~~~~~~~~~~~.... .... . .... ---- . ----.. ..... .. ..... ..... ... ..... ..... .. ..... .....

Interest on Long-terom Debt 2,589 3,128 4,180 5,443 6,094 6,987 7.609 8,400 9.146 10.878 12,539 13.022

net Income 39f 898 1,001 1,453 2,360 3.656 5,476 5,596 5,703 4,930 5.254 5.794

/1 Rs. 1700 willIon Is required In addition to the subsidy slready provided for in the 91-92 state budget to meet the covenanted 3.5X rate of return.

IIDIA

Seem muwRSaM PAM PIoJECT... @.@^@@ .w* @...w............

I'S tl ad Forecat alatm Stmts.........................................

(s Mitllion)

(As an Mmdc 31) 1963 1959/90 1990/71 191/92 199293 1993/95 19949 1995/96 199697 199IM 199699 1999/00Ei... .. .. Actult ......... IEstimted I...ore..a-.. Forsat.AMETS:* imed Asset

FIxed Ae n Svice 41.890 47.7M 56.26 66,666 B5.041 96.514 l16.509 119.960 130,657 167.305 178,027 190,200Lo: Accimtlted prciotion 6,907 10G44 12.092 14,320 17.010 20.187 23.740 27,704 32,090 37,304 43.348 49,792.... .... .... .... . .... .... . .... .... . .... .... . .... ........ ..... ..... ..... ..... ..nt Fixed As#ts In Service 32,96 3r.277 46,534 54,366 68,031 76.326 82,769 92,276 96,56T 130,000 134.679 140.08Work In Progrss 19,519 24.202 25,57 25.440 22,949 27,036 38.182 46.620 54.085 36,085 44,7 54,716otbaw I t 69 158 91 91 91 91 91 91 9 91 91 Total Fixed Assets 52.571 61.637 72,152 79,897 91,07 103453 121,042 13,987 152,743 166,176 179,509 195.216

CwOrt Asset

Casklash ^^411 613 m 961 531 690 792 229 549 395 702 334Fuc Store 349 256 263 369 459 541 593 653 693 77 818 859Capital Store 1.937 2.670 2,68 3,434 4,2S2 4,826 5,325 5,999 6,533 8,365 3,901 9,S10total Stocks 2.286 2,926 2 951 3.803 4.711 5.366 5.918 6,6S2 7,226 914 9 719 10,369wtor Revables 5.962 6,797 9,27 8,813 8,766 10,420 11,801 12.793 13.556 1.426 17,652 18.540Adnnes tostaff lrl 191 212 249 265 321 3S9 398 439 480 524 572Loat I Advences 1,623 1,909 2,061 2,318 2,550 2,762 2,964 3,162 3.355 3.S23 3,699 3,884other weclvbles 2,547 2,823 3,120 3 509 3,660 4.181 4,48f 4,787 5,079 5,333 5,599 5,879ReceivblsfrmGM 8ol81 1,419 39 1,700 0 0 0 0 0 0 0 0.... ~~~~~~~~~~~~~~~~~~~~~~~~~~~- - .... . ....... ...... ...... ...... ... ...ITotal Currwnt Assets 13,901 16.677 19.290 21,354 20,704 23,741 26,320 28,021 30,5e3 34,300 37,895 39,578

TOTAL ASSETS 66,472 78,515 91,43 101,250 il1,M 127,194 147.362 167,008 183.247 200,476 217,40 234,7

EQUITY AND LIMILITIES:

Consumer Contributione 3,074 3,927 5,095 S,608 7,364 8.753 9,913 10,746 11,639 12,958 14,628 15,574Retained EImin(Los) 1,789 2691 3,576 5,030 7,389 11,046 16,522 22,117 27,820 32,751 38,005 43,799GrutsS 5 11 24 24 24 24 24 24 24 24 24 24.... ... ~~~~~~~~~~~~~~~~- - .... ---- . .... ... ..... ..... ..... ....... ..... ........ Total Equity 4,868 6,630 6,696 10,662 14,77 19,823 26,459 32,887 39,483 45,732 52,657 59,397

Low Twr Liabilities.....................

GI Low ; a 34,015 37,182 42,630 47.193 51,354 55,829 60,539 65,382 70,460 75,901 81,857 68,362Other Louts 18,14' 22,659 27,126 28,951 30,659 34,592 41,80 48,855 52,021 55,642 57,188 60,398

Totol Long-term Loam 52,156 59.841 69,757 76,14 862,013 90,421 102.371 114 238 122,480 131,543 139,0I 5 140,760Les: Current Maturites 1.945 3,184 2,863 3,528 3,941 4,441 4,547 5.476 4885 6,604 6,979 6,979*--- .@-. .... .... ~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~.... .... .... .... .... .... ---- .... fLong-tern Llabilities 50,211 56,656 66,954 72,617 78,073 85,960 97,825 108,762 117,595 124,939 132,066 141,781 XCewrent Liabilities................... Camunr Deposits 1,7 2,092 2,557 2,671 3,506 4,168 4,721 5,117 S,542 6,170 7,061 7,416Cnsuer Psaybles 3,005 3,457 4,137 4,689 3,686 4.344 4,756 5,104 5,489 6,267 7,139 7,353Current Maturities of L.T.eebt 1,945 3.184 2,803 3,528 3,941 4,44 4,547 5,476 4,885 6,604 6,979 6,979other Sbwrt-term Liabilities 4,64 6,496 6,297 7,084 7,792 8,439 9,055 9,662 10,251 10,764 11,302 11,867

.... .... .... .... . .... .... . .... .... . .... .... . .... ..... ....... .. ....... .. .......Total Currant Liabilities 11,394 15,229 15,793 17,972 18,925 21,391 23,078 25,359 26,168 29,805 32,481 33,616

TOTMAL 1I AM LIABILITIES 66,472 78,515 91,443 101.250 111,M 127,194 147,362 167,008 183,247 200,476 217,404 234,793s _ _____ _ s _ nSsuuuuuuau8uSau_aa3u33a3u .3.333u22u.mas __ a3uazuu3uu2uUu..au3

MUEBS Actual an1oeat ore1ndApialaG fFad

(Is Nition)

Fiscal Tear wAndg 8th Plam TotatNarth 31 196813 1989/9 1990/9 199/92 1992193 I99/94 1994/95 1995/9 1996/97 1997/98 1999 1999/00 1992/97 1992/0

intesltnns

Hat Income 3 696 1,001 1,453 2 360 3,656 5,4716 5,596 5.70 4.930 5,254 5.794 22,79 38,769* Add:inte Q4 an Lo-tm gtge bt 2.5so 3 126 4,180 5,443 6 094 6.967 7,609 8.400 9,146 10.876 2.539 13.022 38.236 74,675

Dsp tlatln 1.335 1,489 1.610 2,225 2,690 3,177 3,553 3,964 4,386 5.214 6.043 6,444 17,77 35.472Adjustmmnte/F.E.Lossas; (17) (35) (14) 0 0 0 32 167 149 134 119 104 348 704Commit cmntributiona I6 grats 721 86 1.161 513 1,755 1.389 1.160 833 893 1.318 1,870 746 6,031 9.966

* ~~~~Totatl ntewna Soresm 5,023 6.4 ,5 ,3 12,899 I521 7.830 18.959 20.277 22.475 25.825 26,110 65,175 159.565

GM tuo 3,73 3,493 s,8a2 4,96 4,620 4.M7 5.249 5,444 5,730 6,332 7,054 7.827 26,016 47,230133 loa 0 372 1.224 2,S56 3,377 2.477 848 0 0 10, 014 10 863

PFC borroniqe ~~~~~~ ~~~~~~ ~~~~1,730 1.900 2,09 2,300 2,530 2,78 3,050 3,350 3,610 11, 600 2,8Export 6,968t 0 0 579 3.262 213 0 0 0 0 4.053 4.053

Qtlwr bonowings 6.%B 6.136 7,276 2,480 2,505 3,483 2.963 4,683 2.583 3,583 3,583 5,083 16,237 28486

Tofta go. rroup 10.0 960 13,101 919 9,6 12,34 16,359 16,247 13,570 13,614 13,967 16,59 67,920 112,311Chmigs In Currant LIabilities (281) 2,596 946 1,454 541 1,966 1,581 1,351 1,l00 1,919 2,301 1,135 6,839 12,193

MOAL SUKE OF ltINS1546 8,6 22,004 20,281 22,836 29,524 35,770 36.55 3527 3,0 214 4,3 5.34 284,08

*APPLICATION OF KiSS

Capital EJqaanltures

Chuqandai 7 0 0 0 0 574 1,892 3,424 4,410 2,346 1,663 0 012,645 14,308UWC Lin 0 0 0 0 19 300 1,241 1,333 78 65 0 003,676 3,741

* Vc Teruinas 0 0 0 0 42 645 2,461 2,630 1,218 430 0 0 7,017 7,448Distribuiton Reinforcement 0 0 0 0 363 744 1,162 1,613 2,083 0 0 6 5,964 5,964

Total Proposed Project 0 0 0 0 997 3,581 8,269 10,006 6,431 2.158 0 0 29304 31,461Other Plan Ouatlaws 7,456 8,879 10,253 7,956 9,512 8,626 6,921 7,204 6,436 11,661 14,941 17,083 4'0,699 84,386Psp Energlzation 0 0 0 0 1,224 1,224 1,224 1,224 1,22.4 1,224 1,224 1, 224 6,119 9,790i.D.C. 1,224 1,638 1,9740 2,016 2,132 2,129 2,70 3,475 4,051 3.605 3,210 3,842 14,496 25,15S3

total Capital hxpendlttares 860 10.517 12.227 9,972 13,868 15,560 21,142 21,906 18,142 18,648 19,37S 22,151 90,617 150,791

Ch*W In -t~ .rret Assets 2,088 2,574 2,454 1,87 (220) 2,877 2,477 2,264 2,163 3,950 3,288 2,051 9,561 16,851

Interest on Long-term Debt 2,589 3,128 4,180O 5,443 6,094 6,967 7,609 8,400 9,1" 10,876 12,539 .13,022 38,236 74,675Reainewnt of Iowan 1,944 1,945 3.124 2,803 3,528 3,941 4,441 4,547 5.476 4,885 6,604 6,979 21,93 40,400

Total Debt Service 4,533 5,073 7,364 8,246 9,621 10,928 12,049 12,947 14,622 15,763 19,142 20,001 60,160 115,075

Others

TOTAL APPLICATIONS 15,301 18,164 22,045 20,093 23,266 29,364 35,668 37,120 34,927 38,361 41,806 44,203 160,346 284,716

INCREASE 10 tIASH 146 402 (41) 109 (430) 160 101 (563) 319 (154) 307 (369) (412) (627)

CASN AT BEGIIWNIU OF TEAR 265 411 813 77 961 531 690 79 229 549 395 70 3,203 4,849

CASN ATENI)OFTEVW 411 813 77 961 531 690 792 229 549 395 70 334 2,791 4,222


INDIA

SECOND HAHARASHTRA POWER PROJECT

Assumptions Followed for Financial Proiections

Price Escalation and Exchange Rate

InflationYear Local Foreign Exchange Rate

US$1-

1992/93 10.02 3.7Z Re. 26.71993/94 8.3Z 3.7Z Rs. 28.61994/95 7.32 3.7Z Re. 30.21995/96 6.72 3.7Z Rs. 31.51996/97 6.12 3.72 Re. 32.61997/98 5.02 3.72 Rs. 33.71998/99 5.02 3.72 Rs. 34.81999/00 5.02 3.72 Re. 35.9

Income Statement

Revenues

1. Average Tariff. Projected to increase by 201 in FY 92-93 as aresult of the tariff adjustment implemented as of June 1, 1992 and enable MSEBto achieve the net cash generation targets of 202 in FY 93/94 and 302thereafter.

2. Other Revenues. Include meter rentals and revenues from othersources than sales of electricity. It is projected to grow at the same paceas sales of electricity.

3. Subsidies and Grants. Represent subsidy paid by GOM to enableMSEB to earn a covenanted return after interest on its capital base.

4. Other Income. Includes interest rec'%ved, and revenues frommiscellaneous transactions. It is projected to grow in line with sales ofelectricity.

8se8

Fuel Cost. Includes the cost of coal, fuel oil, and natural gasconsumed by thermal stations. Calculated on the basis of the generation planfor each plant and the specific fuel consumption. Future fuel cost estimatesper kWh of thermal generation at constant 1992/93 prices, are as followst

1992/93 Ps. 43.27 1996/97 Ps. '41.191993/94 Ps. 41.47 1997198 Ps. 41.191994/95 Ps. 41.19 1998/99 Ps. 41.191995/96 Ps. 41.19 1999/00 Ps. 41.19


Given that MSEB's tariffs include a fuel cost adjustment clause, theprojections assume that any increase, in real terms, in the price of fuelwould be passed on to the consumers through an increase in tariffs and wouldhave no impact on MSEB's net operating income.

6. Consumables. Include generation costs other than fuel cost, leaserent, personnel and maintenance. Projected to increase in line withgeneration and inflation.

7. Purchase of Power. Calculated on the basis of purchases f_mTata, NTPC, other States, and the Atomic Energy Commission, at the presentprice for each of these sources. The average cost of energy purchased at1992193 prices is as follows:

1992/93 Ps. 93.38 1996/97 Ps. 104.301993/94 Ps 96.13 1997/98 Ps. 109.601994/95 Ps. 98.40 1998/99 Ps. 120.501995/96 Ps. 100.90 1999100 Ps. 120.50

As a result of the introduction of a power purchase adjustment clause inMSEB's tariffs in June 1992, it is assumed that any increase, in real terms,in the cost of purchased power will be outomatically passed on to theconsumers and thus have no impact on MSEB's net operating income.

8. Lease Rent. The lease rent is the rent paid by MSEB to GOMID foroperations of the hydro plants owned by GOMID. It is estimated on the basisof a constant annuity equivalent to the construction cost at an 8Z interestover 30 years.

9. Wages and Salaries. Include all fringe benefits. It is assumedthat the wage bill will increase by 4.0X per annum plus local inflation.

10. General Administration. Includes insurance, rents, transportationand communications. Proiected to increase in line with local inflation.

11. Repair and Maintenanre. Projected to increase at 5? of grossfixed assets at the beginning o. the fiscal year.

12. Other Expenses. Include interest on consumer deposits, otherdebts, and extraordinary items. It is projected to increase in line withlocal inflation.

13. Expenses Capitalized. Represent the value of capital investmentimplemented by MSEB's own staff. It includes mainly investment indistribution and sub-stations. It is projected to increase in line withgeneration and local inflation. Correspe ing consumption of productionfactors is included in working expenses.

14. Depreciation. Depreciation is calculated in accordance with theElectricity (Supply) Act on a linear basis, at a rate of 3.5? per annum.


15. Interest for the Year. Represents interest applicable to thesources of borrowing calculated as follows for new loanss

GOM 11.75?IBRD 16.75?PFC 16.75?Export credit 12.00?Other borrowings 12-202

For GOM loans, interest for the year are interest accrued, and do notcorrespond to interest actually paid.

16. Interest During Construction. Includes the percentage of interestaccrued (but not necessarily payable) to be added to Work in Progress, and tobe capitalized when work is completed. The percentage is calculated inaccordance with the Electricity (Supply) Act provision, approximately as theratio of accumulated Works in Progress to Gross Fixed Assets financed fromother sources than Equity or Consumer Deposits. Projected Interest DuringConstruction is calculated based on MSEB's investment plan and investmentfinancing plan.

Balance Sheet

17. Work in Progress. Calculated as the balance between additions toWIP for the year based on estimated project implementation schedule, andtransfer to fixed assets at the end of the fiscal year of completed projects.

18. Consumer Payables. Projected as 2 months of consumption of fuel,consumable, and power purchased.

19. Consumer Contributions. Include connection charges. Projected toremain at present level of 2.1 months of electricity sales.

20. Consumer Deposits. Include consumers' guarantee deposits.Projected to remain at their present level of 1 month of electricity sales.

21. Other Short-term Liabilities. Projected to increase in line withlocal inflation.

22. Fuel Stores. Projected as 0.4 month of fuel cost.

23. Capital Stores. Projected to remain at their present level of 0.6month of gross fixed assets.

24. Loans and Advances. Projected to increase in line with localinflation.

25. Advances to Staff. Projected to remain at the present level af0.5 month of the wage bill.

26. Receivables. Customer receivables are projected to remain atMSEB's target level of 2.5 months of sales. Other receivables are estimatedto increase in line with local inflation.

- 87 -

INDIA Annex 5.1

SECOND MAHARASHTRA POWER PROJECT............. ....................... ....... ......

Western Region: Past and Projected Power and Energy Demand..........................................................

Average rate of growth1981/82 1990/91 1994/95 1999/2000 (K p.a.)

a/ (Estimated) (Projected) (Projected) 1981/90 1990/94 1990/99

1. Peak Load (KW)

Gujarat b/ 1,626 3,661 4,849 6,747 9X 7X 7X

Madhya Pradesh 1,107 2.919 4,030 5,716 It at 8X

Maharashtra c/ 3,078 6,183 8,230 11,529 8X 7X 7X

Total 5,811 12,763 17,109 23,992 9X 8X 7X

Peak Availability d/ 5,811 11,542 14247 22349 8X 5 8X

Deficit: in MW 0 1221 2,862 1,643

as% of Load 10X 17X 7X

2. Energy Requirement (GUh)

Gujarat 9,458 22,456 29,754 41,402 10X 7X 7X

Madhya Pradesh 5,892 17,725 24,391 34,757 13K 8X 8K

Maharashtra 17,525 38,748 51,634 72,363 9X 7X 7X

Total e/ 32,875 84,267 111,944 155,948 11X 7X 7X

Energy Avallability d/ 32,875 79,529 101,764 147,022 10K 6X 7X

Deficit in Gwh 0 4,738 10,180 8,926 21K 7X

as X of Requirement 0 6X 9X 6K

a/ Data for 1981/82 reflec. consrmption rather than power ard energy demands.No data are available on the extent of umet load or the amount of uiserved energy.

b/ Includes Dadra and Nagar Haveli.c/ Includes Goa, Daman and Diu.d/ Availability figures are taken from the anticipated power supply position based on a synchronisation

programme of 23,308 MW for all India 1990/91-1994/95. For 1999/2000, the availability figures arebased on a very optimistic Ninth Plan programme of 46,733 NW.

e/ This total includes the requirement from captive power plants in the region. CEAestimates continued generation from captive plants, but excludes this from energyrequirement.

Source: Fourteenth Electric Power Survey of India, CEA, March 1991.

INDIA


Western Region: Electricity Consumtaion By Consumer Category

Average rate of growth1981/82 Share 1990/91 Share 1991/92 Share 1994/95 siare(Glh) (X) (GUh) (X) (Gh) (X) (Glh) (X) CX p.a.

(Expected) (Projected) (Projected) 1981/90 1990/94............ ..... ................... . ,............. .... ................... ..... ...... .............

Consumer Category

1. Domestic 3.257 112 9,812 16X 10.955 16X 14,927 18X 13X 11X

2. CommerciaL 1.639 6X 3,694 6X 3.965 62 4.843 6X 9X 72

3. Industrial

LT 2,606 92 4,815 8X 5,146 82 6,213 72 72 72

NT 15,489 532 26, 152 422 27,602 412 34.239 40X 6% 7X

Total Industrial 18.096 622 30.967 492 32,748 482 40,452 482 62 7X 2

4. Public Lighting 303 12 530 1X 567 12 693 12 62 7X co

5. Traction 1,068 42 2,092 32 2.304 3% 2,726 32 82 7X

6. Agriculture 3.787 132 13,973 222 15.136 222 18,705 222 162 82

7. Public Water 738 32 1,520 22 1.658 22 2,123 32 82 9X

8. Bulk Supplies 259 1X 308 0.5% 328 0.52 396 0.52 22 62

Total a/ 29,147 1002 62,896 100X 67,661 1002 84,865 1002 9X 82

a/ These are actual sales and differences with figures for energy availability in Table 1reflect technical and non-technical losses.

Sources: Fourteenth Electric Power Survey of India, CEA, March 1991. U'

- 89 - Anne= 5.3

INDIA


Least-Cost Analysis

Comparison of the Economic Cost of ¢aneration

1. Chandragur Unit 7 - Net Generationt 2,768 GWh per annum

Re per kWh Notes

a. Capacity Charge 0.37 Re. 18,000/kW, 25-year litetime, ext. of existingplant

b. Fuel 0.26 0.65 kg/kWh, Rs.369/ton auxiliary consumption 10Zc. Oil Support 0.06 10/ml/kWh, Rs.5.0 per litre, auxiliary consumtion 10Zd. O&M 0.07 2.5Z of total capital coste. Transmission 0.11 3OZ of station capital costf. T.D losses 0.02 3Z cf generation

Total .90

2. Load-Center Coal Station - Net Generation: 2,768 GWh per annum

Rs/ kWh Notes

a. Capital Charge 0.42 Rs.20,000/kU, 25-year lifeb. Fuel 0.58 0.65 kg/kWh, Rs 816 per tonne (movement of coal 1200

km) auxiliary consumption 1OZc. Oil Support 0.06 As l(c)d. O&M 0.08 As l(d)e. Transmission 0.02 5? station costf. T&D Losses 0.01 1Z of generation

Total 1.17

3. Combined Cycle Gas Station - Net Generation: 2,768 GWh per annum

Rs/ kWh Notes

a. Capital Charge 0.48 Rs 20,0001kW, 15 year life timeb. Fuel 0.49 0.203 m3/kWh, Rts 2.400/m3, aux. consumption 2?c. O&M 0.10 As l(d)d. Transmission 0.02 5? of station costf. T&D Losses 0.G1 1U

Total 1.10

-90- Annex 5.4

INDIA


Coomarative Cost Analysis of HVDC and 800-kVA Options

HVDC 800-kV ACDouble Circuit

Capital Costs (Rs. Million) a/ 8,400 16,000

Maximum Evacuation Capacity (MW) 1,650 4,000

Evacuation required (MW)FY1096-2002 1,500 1,500FY2002 onward 3,000 3,000

Additional Capital Cost in FY 2001-2 (Rs. Million) 5.600 0

Operating and Maintenance Cost (Rs. million/yr) bIFY1096-2002 168 320FY2002 onward 280 320

Present value of total costs (Rs. million) 13,119 18,699

a/ Based on MSEB and CEA cost estimatesb/ Taken at 22 of total capital cost

-91 . Annex 5.S

INDIA

SECOND MUBARASHTRA POWER PROJECT

Western Regiont Average Power Prices by State and Union Territory

1984/85 1990/91 Real Increases in Prices Proportion1984/85 to 1990/91 LRHC

State/Union Current Current 1984185Territory Prices Prices Prices a/ X X . .a I(X) d/

Gujarat b/ 65 85 56 -14.0 - 2.5 48

Madhya Pradesh 54 83 55 + 1.9 + 0.3 46

Miharashtra c/ 47 110 72 +53.0 + 7.4 64

Goa, Daman & Diu 53 97 64 +20.8 + 3.2 56

Western Retion 54 99 65 +20.4 + 3.1 57

a/ Deflated using an index of wholesale prices. Official estimates from Ministry ofIndustry.

bI Includes Dadra and Nagar Haveli.cl Figures above are different than for 1S4B since these data also reflect sales by

Tata Electric Companies, Bombay Suburban Electricity Supply and Bombay ElectricitySupply and Transport (a publicly-owned distribution utility in Bombay).

d/ LTIPS estimates.

Source: Estimates prepared by CIA.

- 92 _

Annex 5.6

INDIA


Western Region: Average Power Prices by Main Consumer CategorY

1984/85 1990/91 Real Increases in Prices Proportion LRMC1984/85 to 1990/91 LRMC (90/91)

Main Consumer Current Current 1984185Category Prices Prices Prices Z . g.a. (2) cl

Domestic 46 56 37 - 19.6 - 3.6 24 230Coumercial 71 133 88 + 23.9 + 3.6 64 209Industry 60 137 90 + 50.0 + 7.0 100 137Agriculture 23 18 12 - 48.0 -10.3 10 190Other b/ 58 115 76 + 31.0 + 4.6 55 209

Western Region 54 99 65 + 20.4 + 3.1 57 175

3/ Deflated using an index of wholesale prices. Official estimates from Ministry ofIndustry.

b/ Comprisess public lighting, public water pumping, bulk supplies to distributionutilities and inter-region sales.

c/ LTIPS estimates.

Source: Estimates prepared by CEA.

- 93 _


INDIA


Estimated Economic Costs of Autopeneration

Cost per kW of Capacity (Rs.)

50 kW Machine 200-400 kW Machine

1. Fixed Costs

Capital Cost a/ 4,380 3,757

Annual Charge bl 645 553

Salaries 600 404

Routine Maintenace 120 76

Total Annual Fixed Costs 1,365 1,033

2. Variable Costs Cost per kWh Generated (Paise)

Diesel Fuel c/ 182 154

Lubricant 6 4

Total Variable Costs 188 158

3. Average Cost of Generation d/ 292 237

a/ Retail price, less taxes and duties, shadow priced using the SCF of 0.8b/ Assuming a 15-year life and a 122 discount rate.c/ Using the CIF cost of Rs. 5.5 per litre for diesel (based on a CIP price of

US$ 222 per metric ton) and 0.33 lit./kWh consumption for a 50 kW generatorsand 0.28 lit./kWh for a 200-400 kW machine.

d/ Assuming a 15? load factor.


INDIA

SECOND MAHARASHTRA POVER PROJECT

Estimated Costs of Diesel and Electric Pumping

Cost per kW of Capacity (Rs.)

Electric Diesel

Motor/Engine Size (KW/H.P.) 5 a/ 7

Pump lifetime (years) 15 10

Pump Capital Cost (Rs) 5,074 9,092

Annual Charge (Rs) 747 1,613

O&M Costs (Rs) 814 2,286

Costs of Diesel Fuel (Rs/hour) - 13.12

Annual Diesel Costs (Rs) 10,560

Costs of Electricity (paise/KWh) mXX

Annual Electricity Cost (Rs) 2,984(XmX) c/

Total Annual Cost 1,561 + 2,984 (XXX) 14,459

Cost of electricity at which costs of electric pumpingare the same as the costs of diesel pumping:

Paise XXXIkWh - (14,459 - 1,561)/2,984

- 432

a/ 1 H.P. - 0.746 kW.b/ Using a CIF price of high-speed diesel of Rs. 5.50 per litre, consumption

of 2.4 litres per hour and operation for 800 hours per year.cl 2,984 - 5 x 0.746 x 800.


INLIA


Estimated Financial Costs of Autogeneration

Cost per kW of Capacity (Rs.)---------------------------------------

50 kW Machine 200-400 kW Machine

1. Fixed Costs

Capital Cost a/ 6,300 5,400

Annual Charge bI 925 793

Salaries 750 505

Routine Maintenace 150 95

Total Annual Fixed Costs 1,825 1,393

2. Variable Costs Cost per kWh Generated (Paise)

Diesel Fuel c/ 197 167

Lubricant 7 5

Total Variable Costs 204 172

3. Average Cost of Generation d/ 343 278

a/ Retail price plus handling and installation.bI Assuming a 15-year life and a 12Z discount rate.c/ Using a cost of Rs. 5.96 per litre for diesel and 0.33 lit./kWh consumption

for a 50-kW generator and 0.28 lit./kWh for a 200-400 kW machine.d/ Assuming a 15Z load factor.


INDIA


Estimated Fiaancial Costs of Diesel and Electric Pumpina

Cost per kV of Capacity (Rs.)

Electric Diesel

Motor/Engine Size (MW/H.P.) S a/ 7

Pump lifetime (years) 15 10

Pump Capital Cost (Rs) 4,440 11,365

Annual Charge (Rs) 652 2,011

O&M Costs (Rs) 1,017 2,857

Costs of Diesel Fuel (Rsihour) - 14.3

Annual Diesel Costs (Rs) 11,443

Costs of Electricity (paise/KWh) XXX -

Annual Electricity Cost (Rs) 2,984(XXX) c/ -

Total Annual Cost 1,669 + 2,984 (XXX) 16,311

Cost of electricity ac which costs of electric pumpingare the same as the costs of diesel pumpings

Paise XXX/kWh - (16,311 - 1,669)/2,984

- 491

a/ 1 B.P. - 0.746 kW.b/ Using a retail price of high-speed diesel of Rs. 5.96 per litre,

consumption of 2.4 litres per hour and operation for 800 hours per year.cl 2,984 - 5 x 0.746 x 800.

- 97 -Annex 5.9Page 1 cf 3

INDIA


Valuation of Economic Benefits fcr Each Consumer Category

Methodology

1. The benefits of electricity supply were estimated on the basis ofincremental electricity sales. In financial analysis incremental sales werevalued at the utilities' tariff revenues from various consumer categories.This was also the starting point in the economic evaluation and yielded ratesof return from 3-102 in the Western Region program analysis. These returnsreflect the relatively low level of tariffs rather than the economic merit ofthe program. It was therefore necessary to value the economic benefits ofelectricity more accurately. The valuation was undertaken in two parts: (a)first the shares of fuel substitution due to and energy consumption induced byincremental electricity supply were estimated; and (b) second, sales replacingt--e use of alternative energy sources were valued at the resulting economicresource cost saving (ERCS) while induced sales were valued by estimatingindustrial, commercial, residential and agricultural consumers' willingness topay for this incremental energy consumption.

2. The economic benefit of fuel substitution is the resultingeconomic resource cost saving (ERCS). That is the economic cost ofalternative energy (e.g. captive diesel generators and diesel engine drivenpumps in agriculture), which the country saves by using electricity instead.These benefits are shown in Annex 5.7. For each consumer category, theportion of incremental electricity supply valued at ERCS depends on theconsumption patterns on consumers of their alternative sources of energy: 50?for industrial and commercial consumers, 102 for dc,mestic and 20? foragricultural consumers, as detailed in paras. 5-9 below.

3. Induced consumption (50X for industrial and commercial consumers,90? for domestic and 80 for agriculture) was valued by estimating theconsumers' willingness to pay for this rart of incremental electricity supplyand adding the related consumer surplus benefits to the utilities' tariffrevenues from these consumer categories. Present excess demand indicates thatconsumers' willingness to pay for public electricity exceeds existing tarifflevels. Willingness to pay for the induced consumption is related to thefinancial costs of their alternative supply. The financial costs to theconsumers of the main alternative sources of energy (diesel generators forindustrial, residential and commercial consumers and diesel pumps foragriculture) are shown in Annex 5.8. This provided the maximum or upper limitof the willingness to pay and consumer surplus benefits.

1 Consumer surplus is defined as the difference between whatconsumers would be willing to pay for their electricity supply and what theyactually pay.

- 98 -

Arnex 5.9Page 2 of 3

4. Given the sensitivity of demand to price for the variouscategories of consumers, it was assumed that only a proportion (in the basecase 50a for Andustrial, commercial and other consumers, 302 for residentialand agriculture) of the maximum consumer surplus benefits were used in thevaluation of induced sales. Therefore, for each consumer category thisassumed proportion of the difference between the maximum willingness to payand the prevailing financial tariff was calculated, added to the financialtariff and then shadow priced using a standard conversion factor (SCF) of 0.8.This yields the total economic benefit of induced consumption. For the twosensitivity analyses, lower proportions are assumed, including one in whichconsumer surplus benefits were excluded and only the prevailing economictariff was taken as the economic value of induced consumption.

Industrial Consumers

5. For industrial consumers, it was assumed that in the absence ofgrid supply, there would be substantial generation using alternative sourcesof supply, namely diesel generators. G4ven the relatively small differencebetween the financial costs of diesel generation and grid supply and therelatively low price elasticity of demand of industrial consumers (estimatedat -0.50 under the Bank's LTIPS study), it was assumed thatt

(a) about 5OX of the incr#mental electricity supply would replace dieselgeneration. Thereforu, 50X the additional generation for this categorywas valued at the economic resource savings. i.e. the economic cost ofautogeneration (Annex 5.7, page 1); and

(b) the balance 50Z of incremental sales was assumed to be inducedconsumption. The base case assumes a linear demand curve and accordinglytakes consumer eurplus at 50Z of the full financial cost ofautogeneration (Annex 5.8, page 1). Sensitivity case 1 and 2 assumed astrongly convex demand curve (302 consumer surplus) and no consumersurplus, respectively.

Commercial Consumers

6. For commercial consumers, the same assumptions on proportions ofeconomic resource savings and induced consumption were used as for industrialconsumers. However, it was assumed that commercial consumers would use smaller50 kW diesel generators for their autogeneration (page 1 in Annex 5.7 andAnnex 5.8 give the corresponding economic and financial costs).

Domestic Consumers

7. For domestic consumers, it was assumed that only about 102 of theincremental electricity sales would be for the replacement of kerosene ordiesel. The low share corresponds to the current use of kerosene for lightingby domestic consumers and would also be the upper limit for diesel generatoruse. The cost of autogeneration is based on large diesel generator sets of 50kW capacity. Page 1 in Annex 5.7 gives the corresponding economic costs. Itis emphasized that these assumptions are conservative:

(a) the cost of kerosene lighting per kWh equivalent of electricity farexceeds the cost of diesel generation. Had the calculation been based

- 99 _Annex 5.9Page 3 of 3

on kerosene lighting, the derived value of electricity in residentialuse would have been significantly higher; and

(b) Given the low levels of individual consumption, consumers would need toget together and use cooperative sets to achieve these low captivegeneration costs in practice. (This has in fact been observed in theEastern Region). Use of smaller diesel (or gasoline or kerosene)gernerators would result in higher unit costs.

8. The balance 902 of additional supply was assumed for inducedconsumption and was valued by estimatinu O'he willingness to pay for thissupply. Page 1 in Annex 5.8 gives the . esponding financial costs. Giventhe wide disparity between the cost of autogeneration and prevailingresidential tariffs, the base case analysis assumes a convex demand curve andaccordingly takes consumer surplus of only 302 of the financial cost ofautogeneration. For the two sensitivity analyses, consumer surplus wasentirely excluded and the prevailing economic tariff was taken as thewillingness to pay.

Agricultural Consumers

9. The Rural Electrification Corporation (REC) has observed that thenumber of pumpsets goes up by a factor of 5 when electricity becomesavailable. Therefore it was assumed that 20T of incremental sales toagriculture will be for replacement of diesel pumps and was valued at ERCS(page 2 in Annex 5.7). The Bank's Long Term Issues in the Power Sector studyestimates price elasticity for agricultural electricity consumers to be -0.25,confirming agricultural electricity consumption to be relatively insensitiveto price. Given the wide disparity between the price of agriculturalelectricity (typically below Rs. 0.20/kVh) and the cost of electricity at,which the costs of electric pumping would equal the costs of diesel-drivenpumps (estimated to be close to Rs. SIkVh, page 2 in Annex 5.8), even usingthis low price elasticity, consumption of electricity in pumping at tariffrates approaching Re. 5/kWh is estimated to be only a small fraction (evenless than 20Z) of the current consumption, in line with REC's empiricalexperience.

10. The balance 80X of additional electricity supply to agriculturewas assumed for induced consumption. Page 2 in Annex 5.8 gives thecorresponding financial costs. This induced consumption was valued byestimating the willingness to pay for this supply. Although low priceelasticity has been observed, again given the wide disparity between the costsof diesel and electric pumping, the base case analysis assumes a stronglyconvex demand curve and accordingly takes consumer surplus benefits at 30? ofthe estimated maximum, the financial cost of autogeneration. For the twosensitivity analyses, consumer surplus was entirely excluded and theprevailing economic tariff was taken as the willingness to pay.

- 100 -


INDIA


Program Benefits and Economic Rate of Return

Table 1 below presents the economic value of incremental supply toeach consumer category and the weighted average for the Western Region as awhole, with the commensurate ERRs in the program analysis.

Table 1

Average Value of Benefits and ERRS for the Western Region Program Analysis

----------------------------------------------------------- __----------------

Category Consumption Benefits Benefits Benefits BenefitsShare (Z) Economic Tariff Base Case Sensitivity 1 Sensitivity 2

Domestic 12 62 132 70 70Commercial 8 146 242 225 200Industry 50 151 202 191 174Agriculture 22 20 189 98 98Other 8 127 198 1;75 166

100 Averages 106 194 158 146

EIRRs 3Z 152 112 9.5Z

- 101 -

INDIA AnnMW 5.10

Page 2 of 2SECOND MAHARASNTRA POWER PROJECT, ...... ...... ........

Program Anltysts................

(Rupees Nllion)

Fiscal

Year INCREMENTAL NET

Ending CAPITAL COSTt OPERATING COSTS REVEL-US BENEFIT

Cool Hydro Puwp G T&D OSM FUEL Bse Case Bss Case

storage

1992 473 0 0 90 338 3 (904)

1993 1,420 125 0 2,926 2.683 30 (7,184)

1994 2,367 687 56 5,555 5,199 82 491 1,824 (12,613)

995 6,674 1,436 169 10.779 11,435 287 1,570 5,862 (26,487)

1996 13,468 1,749 337 14,496 18,030 664 1,570 5,898 (44,415)

199I 16,928 1,749 337 21,616 24,378 908 2.423 14,052 (54,286)

1998 15,975 1,998 381 16,630 20,990 1,647 5.969 28,560 (35,031)

1999 11,331 3,123 468 9,218 14,484 2,609 10,023 40,489 (10,767)

2000 7,863 3,997 937 5,797 11,156 3,293 13,004 55,105 9,059

2001 4,163 2,311 937 2,420 5,898 4,039 15,109 66.052 31,176

2002 2,m 312 625 0 2,227 4,268 16,923 74,305 47,175

2003 4,718 17,693 77,255 54,844

2004 4,718 17,693 77,255 54,844

2005-202a 4,718 17,693 77,255 54,844

EIRR 15XNPV 45,272

- 102 -


IhDIA


Project Benefits and Economic Rates of Retuirn

Table 1 below presents the value of benefits used in the projectanalysis. Since the power from Chandrapur unit 7 will be sold in the Bombayarea, for the calculation of benefits the consumer profile and tariffs usedare those of the Bombay Suburban Electric Supply Limited. With a recenttariff increase, the BSES financial average tariff is as high as high as Rs.1.82/kWh for FY93 (about Rs. 1.62 in FY92 prices). Taking only the prevallngtariff as a proxy for benefits yields an economic rate of return of 16X.Given the high level of tariffs already in existence, due to a large extent tothe absence of agricultural consumers, using the oame assumptions as for thebase case as for the program analysis leads to an even higher rate of returnof 20Z. The same seasitivity cases 1 and 2 reduce this only slightly.

Table 1

Average Value of Benefits and ERRs for the Project Analysis

…-----------------------------------------------------------__---------------_Category Consumption Benefits Benefits Benefits Benefits

Share (X) Tariff Base Case Sensitivity 1 Sensitivity 2

Domestic 45 112 166 119 119Commercial 19 193 258 248 233Industry 35 204 220 216 210Other 1 357 320 320 320

100 Averages 162 204 180 i74

EIRR: 162 20? 182 17?

- 103 -

INDIA Anrex 5.11----- Page 2 of 2

SECOND NAHARASHITRA POWER PROJECT

PROJECT ANALYSIS................

(Rs. iltlion)

CRAkDRAPUR UNIT 7 T&D NET INCREMENTAL INCREMENTAL NET NET............................ ................. - ... - ----GENERATION REVENUE REVENUE BENEFITS EE4EFITS

YEAR Capital Operating Coats Capftel OM TOTAL COST (CWH) (At tariff) Base Case (At tariff) Base Case(CM) Cost - * Costs

Coal Oil GIN

1992 473 231 705 (705) (N)1993 1,420 694 2.114 (2,114) (2,114)1994 2,367 1,270 3,637 (3,637) (3,637)

1995 2,840 1,389 4,229 (4,229) (4.229)1996 1,420 807 2.228 (2,228) (2,228)1997 947 420 27 170 45 1,609 1,407 2,279 2,870 670 1,261

1996 738 48 170 45 1,001 2,47n 4,005 5,043 3,004 4,0421999 738 48 170 45 1.001 2,472 4,005 5,043 3,004 4,042

2000-2022 738 48 170 45 1,001 2,472 4,005 5,043 3,004 4,042

IRR 15X 19X

NPV 2,812 7,027

- 104 _

Annex 6.1

INDIA


Related Documents in the Project File

1. Annual accounts, MSEB, 1987/88 to 1991/92 (unaudited).

2. Administrative reports, MSEB, 1987/88 to 1990/91.

3. MSEB's investment program for the VIlIth Plan, February 1992.

4. Summary of operating and financial performance in respect of EighthFive-Year Plan, 1992-1997, MSEB.

5. Operational and financial action plan, GOMIMSEB/PFC, January 1992.

6. Public notice for the May 1992 tariff revision, MSEB, May 18, 1992.

7. Time schedule for rehabilitation and resettlement of project-affectedpersons of Chandrapur thermal power station, GOM, February 20, 1992.

8. Environmental impact studies for third unit of 500 MW at Chandrapurthermal power station, Associated Industrial Consultants (India) PrivateLimited, May 10, 1990.

9. Bidding documents for the Chandrapur-Padghe HVDC terminals, MSEB, March1992, and related comments from Mr. Neil Magrath, World Bank Consultant,May 28, 1992.

10. Least-cost expansion plan for the Western Region, CEA, 1992.

11. Fourteenth Electric Power Survey of India, CEA, March 1991.

12. Integrated master plan for the distribution system (Ahmednagardistrict), MSEB, May 1992.

13. Detailed working tables for the computation of project cost estimates,World Bank/MSEB, May 1992.

14. Detailed working tables for the preparation of financial projections,World Bank/MSEB, May 1992.

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FOR OFFICIAL USE ONLY - World Bank · FOR OFFICIAL USE ONLY MICROFICHE COPY Report No. 10604-IN...

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