FILE COPYReport No. 1299b-GH

Ghana: Volta River Authority (VRA); Appraisalof the Kpong Hydroelectric ProjectMarch 1, 1977

Regional Projects DepartmentWestern Africa Regional Office

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

US$ 1 = Cedi (¢) 1.15Cedi ( I) 1 = US$ 0.869Cedi ( I) 1 = Pesewas (P) 100Cedi ( I) 1 million US$ 869,565

WEIGHTS AND MEASURES

1 Kilometer (km) 0.621 mile (mi)1 meter (m) 3.281 feet (ft)1 square kilometer (km ) = 0.3286 square mile (mi2)1 kilogram (kg) 2.205 pounds (lb)1 ton (1,000 kg) 1.102 short ton (sh ton)

0.984 long ton (lg ton)1 barrel (bbl; 0.159 m 3) = 42 US gallons (gal)

1 kilowatt (kW) 1,000 Watts (W)1 Megawatt (MW) 1,000 kW1 Gigawatt (GW) 1,000,000 kW = 1,000 MW (=106 kW)I kilowatthour (kWh) 1,000 Watthours (Wh)1 Gigawatthour (GWh) 1,000,000 kWh = 1,000 MWh (=106kWh)1 kilovolt (kV) 1,000 Volts (V)1 kilovolt ampere 1,000 volt amperes (lkVA)1 Megavolt ampere (MVA) - 1,000 kVA1 Megavar (MVAR) 1,000 kVARI Mill One Monetary Unit Equal to 1/1,000

GLOSSARY OF ABBREVIATIONS

GNP Gross National ProductGDP = Gross Domestic ProductVALCO Volta Aluminum CompanyVRA Volta River AuthorityECG Electricity Corporation of GhanaCEB = Communaute Electrique du BeninUNDP = United Nations Development ProgramFED Fond European du DdveloppementEIB European Investment BankBADEA = Banque Arabe du Developpement

Economique en Afrique

FISCAL YEAR

July 1 - June 30

VRA FINANCIAL YEAR

Calendar Year

FOR OFFICIAL USE ONLYGHANA

APPRAISAL OF THE KPONG HYDROELECTRIC PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS . . . . i-iv

1. INTRODUCTION . X e . . . . . . . . . . . . . . . . v 1

2. THE SECTOR ........... ............ 2Sector History and Institutions . . . . . . . . . 2The Power Market . . . . . . . . . . . . . . . . . 4Electricity Service Coverage . . . . . . . . . . . 6Tariffs - VALCO . . . . . . . . . . . . . . . . . 6

- Other Customers . . . . . . . . . . . . 7Planning Sector Development . . . . . . . . . . . 8Sector Objectives . . . . . . . . . . . . . . . . 8

3. THE BORROWER .. 9General. . 9Organization and Management . . . . . . . . . . . 9TrainIng . .10Operations . . . . . . . . . . . . . . . . . . . . 11Accounting and Audit . . . . . . . . . . . . . . . 11

4. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . 11Project Description . . . . . . . . . . . . . . . iiProject Cost . . . . . . . . . . . . . . . . . . . 13Project Financing . . . . . . . . . . . . . . . . 15Engineering and Construction . . . . . . . . . . . 17Procurement . . . . . . . . . . . . . . . . . . . 18

Disbursement . . . . . . . . . . . . . . . . . . . 18Resettlement and Environmental Aspects . . . . . . 19

5. ECONOMIC JUSTIFICATION . . . . . .21Intodutio . . . .. . . . . . . . . . . . 2Introduction..21

Forecast of Need for Electric Power . . . . . . . 21Basis for the Economic Analysis . . . . . . . . . 23Least Cost Solution . . . . . . . . . . . . . . . 24Return on Investment . . . . . . . . . . . . . . . 25Future Tariff Policy . . . . . . . . . . . . . . . 25

6. FINAN4CIAL ASPECTS . . . . . . . . . . . . . . . . . . . 26General .26Past Finances. 26Financing Plan . . . . . . . . . . . . . . . . . . 27Future Finances . . . . . . . . . . . . . . . . . 30

7. AGREEMENTS REACHED AND RECOMMENDATIONS . . . . . . . . . 32

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

LIST OF ANNEXES

1. Existing Power Facilities

2. VRA Organization Chart

3. Detailed Description of the Project

4. Escalation Percentage Change Forecast

5. Apportioning of External Financing for Kpong

6. Construction Program

7. Schedule of Disbursements

8. Resettlement Program

9. Financial Forecasts and Assumptions

10. Tariff Schedules

11. Economic Justification;Draft Terms of Reference forPower Sector Study

12. VALCO Smelter Operations

13. Project Drawings - Kpong Hydroelectric Project - Ghana:Drawing 1

Project General ArrangementDrawing 2

Sections through Dam and Dykes

MAP

Ghana - IBRD-12418R

GHANA

APPRAISAL OF THE KPONG HYDROELECTRIC PROJECT

SUMMARY AND CONCLUSIONS

i. This report appraises the Kpong Hydroelectric Project on theVolta River in Ghana, a related transmission line and substations tosupply communities in the southwestern part of the country, and worksin Ghana's transmission grid to accommodate the load increase foreseen.The project is to be built by the Volta River Authority (VRA) and itsestimated total cost is about US$236.5 million equivalent, excludinginterest during construction and net of tax and duties. The Governmentof Ghana and the VRA have asked the Bank and other external lenders tohelp finance the foreign exchange costs of the project, estimated atUS$172 million. A Bank loan of US$39 million, for a term of 20 yearsincluding 4-1/2 years of grace, is proposed for Kpong and the transmissionline and substations. The other lending agencies (Canadian CIDA, theEuropean Communities - FED & EIB, BADEA and the Saudi and Kuwait Funds)have agreed in principle to provide the remaining foreign exchangecosts of US$133 million. VRA will provide local costs of US$64.5 million.

ii. The Bank Group has made four previous loans and credits forpower development in Ghana. The first two loans (US$47 million in1962 and US$6 million in 1969) assisted VRA with the expansion of itspower generation and transmission facilities, including construction ofthe Akosombo hydroelectric plant on the Volta. Two credits (US$10 millionin 1968 and US$7.1 million in 1971) assisted the Government in financingthe Electricity Corporation of Ghana's (ECG) distribution systems. Allprojects were completed satisfactorily. OED's Audit observations onrate of return, revaluation of assets and the merger of the generatingand distributing authorities are being addressed in paras. 6.06,6.08, and 2.06. A further Loan/Credit for ECG's Third Phase is alsobeing presented to the Board.

iii. VRA and ECG are both statutory corporations owned by the Govern-ment. VRA supplies bulk power to ECG, to the smelter of the VoltaAluminum Company (VALCO) at Tema, to several gold, diamond, manganeseand bauxite mining industries, to the Akosombo township and to theCommunaute Electrique du Benin (CEB) which supplies Togo and Benin. ECGis responsible for the distribution of power to all other consumers inGhana. Besides power, VRA is also engaged in resettlement, lakeresearch and lake transport. Overall VRA is a well managed institution.

iv. The power market in Ghana has grown appreciably over thelast ten years, reaching 540 MW of peak demand; generation increasedto 4,110 GWh, of which over 90% is hydroelectric. It is estimatedthat over the next decade peak demand will reach 900 MW and generation6,200 GWh.

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v. The project consists of four components: (a) the Kpong Damand hydropower plant, to be constructed about 24 km downstream fromthe existing Akosombo facility, and associated transmission system;(b) reactive power compensation in VRA's transmission grid necessaryto keep power and energy losses at satisfactory levels; (c) a transmissionline and substations to supply the Sefwi-Wiawso-Bibiani area in south-western Ghana; and (d) additional transmission facilities between Temaand Accra. Installed capacity at Kpong will be 160 MW in four units.A 161-kV transmission line to Tema would tie in Kpong power with VRA'stransmission grid. The Kpong hydropower scheme has been designed bya reputable engineering firm with ample experience in this type ofproject and does not involve unusual structures, nor difficult foundationor construction problems. The reactive power compensation required byVRA's transmission grid will be provided by one 25 MVAR synchronouscondenser at Prestea and one static condenser of same rating at Kumasi.An 80-km 161-kV transmission line, connected at Dur.ka to VRA's trans-mission grid, will supply the power requirements of the Sefwi-Wiawso-Bibiani area. This area, comprising industries and about 30,000people will receive electricity service under ECG's Phase III (seepara. ii). Additional transmission capacity required between Tema andAccra will be provided by a new 25-km 161-kV transmission line.

vi. The project is necessary to meet the growth in demand forpower in Ghana and is the least cost method of doing so. The annualenergy capacity of existing hydro facilities will be reached by theload demand in 1978. The Kpong project will add 140 MW firm and970 GWh per year to the VRA system, thus providing for normal growthplus a total of 174 GWh of interruptible supply for industrial heatinguntil 1985 when additional generation facilities will be needed. Prin-cipal beneficiaries of Kpong power will be ECG customers who will consume78 percent of the output by 1985.

vii. The Kpong headpond will cover an area of about 3,700 ha andwill necessitate the resettlement of about 5,700 people and the compensationof flooded farm lands. The cost of resettlement and compensation hasbeen estimated at US$8.2 million. The resettlement programming is inan advanced stage. The Kpong headpond is anticipated to give littledisturbance to the ecology. There is a risk of an increased incidenceof bilharzia with however a reduction in riverblindness given the floodingof vector breeding rapids. In order to reduce the hazard of schistosomiasis,piped treated water will be supplied to communities surrounding theheadpond and suitable wharfing facilities for fishermen will alsobe provided to permit embarkation without wading.

viii. With the existing level of tariffs the economic return oninvestment for the Kpong project is 7.5%. Justification of the Kpongproject on the basis of an economic return on investment which reflectsconsumers revealed willingness to pay is not feasible in this casebecause of the current pricing policy which originated with the very

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low cost of Akosombo energy. If benefits were assumed to be valuedat marginal cost, which is equivalent to ECG tariffs increased on theaverage 70% over present levels and roughly comparable to 75% oftariffs paid in Liberia,I/ the return would be about 11%.

ix. The tariff increases likely to result from the proposed ratecovenant would imply a price level, on average which is less than thelong run marginal cost. To achieve average prices for electricitythat would reflect long run marginal cost of electric power in Ghana,the present ECG tariffs would have to be raised by an average of 70% inreal terms on top of a recent 29% increase and maintained in real terms.It would not be feasible therefore to implement marginal cost pricingin Ghana's electric power sector immediately. Furthermore, the averagetotal cost of electric energy is much lower than the incremental costof electricity to be supplied by Kpong because Kpong will furnish only15% of total generation in 1984 but at a cost per kWh much greater thanAkosombo. Thus, the Government has agreed to undertake a power sectorstudy to be completed by June 1978. Results of the study will bediscussed with the Bank with a view to implementing gradually withinan agreed period a tariff which reflects the marginal cost of power,taking into account social and wider economic considerations.

x. Ghana has just concluded its longstanding discussions with theVolta Aluminum Company about an increase in the Power Rate. The agreedrates are 4.5 US Mills/kWh for 1976 leading to 5.0 Mills/kWh by 1981. Theagreement also includes an escalation formula covering operating costsand any foreign exchange losses related to the two previous IBRD loansto VRA. Tariffs to ECG and the Mines have also been increased by 60%effective September 1, 1976. Tariffs to CEB had already been increasedby 24% effective July 1, 1976.

xi. VRA has been generating sufficient resources to cover operatingand capital requirements plus debt service. However, its return oneatimated revalued equity has been only 2-3% during 1974 and 1975. Withthe recently negotiated VALCO tariffs and tariff increases to ECG, Minesand CEB and with further tariff increases of 10-20% per annum as from1978 to its non-VALCO customers, VRA is expected to cover operatingexpenses, debt service and the local cost component of the proposedproject and in accordance with its rate of return obligations under theloan agreement earn 7-9%, on revalued equity. During negotiations,VRA agreed to fully revalue its assets by indices acceptable to the Bank.VRA's foreign exchange revenues from VALCO and CEB alone are expected tofully cover its debt servicing obligations.

1/ Liberia has the lowest tariff levels among Ghana's neighboring countries.

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xii. The financing plan includes expiected revenues from the tariffincreases for VALCO, VRA's largest cust:omer, for ECG and other users ofVRA power. All foreign costs excluding interest during constructionwill be borne by external lenders. The proposed Bank loan would coverabout 20 percent of the off-shore costs of the project. Of the total Bankcontribution of US$39 million, about US$33.6 million would be used tofinance jointly with two other external agencies (EIB/FED) the foreigncosts of generating and transmission ectuipment for Kpong. The remainingUS$5.4 million would help finance the 'Sefwi-Wiawso-Bibiani transmissionline, and construction equipment and vehicles for preliminary works ofKpong and resettlement. Retroactive financing of US$1.0 million isrecommended for advanced procurement for construction equipment andvehicles urgently needed by VRA for the preliminary works of Kpong andfor the initial phase of resettlement.

xiii. All items financed by the external agencies, other than CIDA,would be on the basis of international competitive bidding substantiallyin accordance with the Bank's Guidelines for Procurement. The onlydeviation from these guidelines will be that the rate of exchange atthe time of bids opening will be operative in evaluating bids for itemsfinanced jointly by the Bank, EIB and FED, instead of the rate ofexchange prevailing on the day the dec:Ision to award the contract ismade. Items, which would be covered by CIDA contribution to the projectand which would be awarded after compel:itive bidding in Canada, are notexpected to cost significantly more than if procured as a result ofinternational competitive bidding; furlhermore, CIDA aid is beingprovided on very generous financing ternms.

xiv. With the assurances proposed in Chapter VII, the project wouldbe suitable for a Bank loan of US$39 m:illion at 8-1/2% annual interestrate and for a term of 20 years including 4-1/2 years of grace. TheBorrower will be the VRA; the Governmenit of Ghana will be the Guarantor.

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GHANA

APPRAISAL OF THE KPONG HYDROELECTRIC PROJECT

I. INTRODUCTION

1.01 The Government of Ghana and the Volta River Authority (VRA)have requested external assistance in financing the Kpong hydroelectricproject, the second step in the planned development of the Volta River'shydro-power potential. In addition to the Bank, six multilateral andbilateral agencies have been approached for financial assistance to theKpong project: Fond European du Developpement (FED), European InvestmentBank (EIB), Banque Arabe du Developpement Economique en Afrique (BADEA),Kuwait Fund, Saudi Fund for Development, and Canadian InternationalDevelopment Agency (CIDA). These agencies have agreed in principle withthe Bank to cover the foreign exchange costs, estimated at US$162 millionout of a total cost for the Kpong scheme proper of about US$225 millionequivalent, excluding interest during construction.

1.02 Financial assistance has also been secured for construction byVRA of a transmission line and substations to supply the Sefwi-Wiawso-Bibiani area in southwestern Ghana, for reactive power compensation inVRA's transmission grid and for additional transmission facilities betweenTema and Accra. Inclusion of these items raises the total project costto US$236.5 million, including US$172 million in foreign exchange. Aseparate Bank loan/IDA credit is under consideration to help finance aproject of the Electricity Corporation of Ghana (ECG) to extend itsdistribution systems to the above mentioned area and other new serviceareas in the southern part of the country.

1.03 A Bank loan to VRA of US$39.0 million, for a term of 20 yearsincluding 4-1/2 years of grace, is proposed for the Kpong project, forthe supply of electric power to the Sefwi-Wiawso-Bibiani area, forreactive power compensation, and for the additional Tema-to-Accratransmission facilities. This would be the third Bank loan to VRA,with the Government the Guarantor in all cases, and the fifth BankGroup operation in the power sector of Ghana. The first two loans(310-GH for US$47.0 million in 1962 and 618-GH for US$6.0 million in1969) assisted VRA in building and expanding its power generating andtransmission facilities, the major component being the Akosombo powerplant. This six-unit hydroelectric facility, with a total installedcapacity of 912 MW presently provides over 90% of the country's electricpower requirements. Credit 118-GH for US$10.0 million in 1968 andCredit 256-GH for US$7.1 million in 1971 assisted the Government infinancing ECG's program to improve and expand its distribution systemsto meet Ghana's growing demand for power, particularly for industrial

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use. All power projects were implemented successfully. OED's Auditcomments related to (i) merging the two power authorities; (ii) revaluationof assets; (iii) rate of return performance, and (iv) staffing are beingaddressed in paras. 2.06, 6.08, 6.06 and 3.07.

1.04 VRA prepared the proposed Kpong project with assistance fromAcres International Ltd. (Canada). The Acres' feasibility study,financed by a CIDA credit, was completed in June 1975; it provides theessential technical, economic and financial justification for the project.Several Bank pre-appraisal missions visited Ghana in 1974 and 1975.Field appraisal was completed in March 1976. The present appraisalreport has been prepared by Messrs. A. Posada, S. Alber-Glanstaetten,J. Gilling and R. Bates.

II. THE POWER SECTOR

2.01 The power sector, with hydroelectric power the major energyresource, has a highly important role in Ghana's economic development.This is especially the case in the Government's effort to diversifythe economy, which is largely dependent on agriculture, as the provisionof assured sources of electric power for industry and commerce is abasic requirement in the diversification effort. Besides its importancein overall development, hydroelectric power as an alternative to importedoil for power generation has been a key factor in alleviating theimpact of higher oil prices in Ghana. Although, drilling (mainly off-shore) has been conducted, no oil resources have been discovered andGhana has no known coal deposits. Ghana's total hydroelectric potentialis estimated at about 9,000 GWh of which 5,400 GWh have been developedat the existing Akosombo hydropower plant. In this respect Ghana hashad an important advantage over most of the other West Africa countriessince it has been possible through the utilization of the very lowcost hydropower source of the Volta River at Akosombo to supply powernot only to a large aluminum smelter but also to a substantial partof the country. However, this particularly advantageous position willdeteriorate by the end of the present decade when Akosombo's generatingcapability will be reached and much more costly sources, i.e. the proposedKpong hydro-plant, will have to be tapped.

Sector History and Institutions

2.02 Public electricity supply is the responsibility of' VRA andECG, both of which are statutory corporations owned by the Government.Created in 1961 to build and operate the first hydro project on the

Volta River at Akosombo, VRA supplies bulk power to ECG, to the smelterof the Volta Aluminum Company (VALCO) at Tema, to several gold, diamond,

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manganese and bauxite mining industries, to the Akosombo township, andto Communaute Electrique du Benin (CEB), which supplies Togo and Benin.As the Borrower in the proposed Kpong project, VRA is fully discussedin Chapter III.

2.03 The feasibility of developing the hydropower potential of theVolta River had been established by a preparatory commission which in1956 raecommended its implementation, basically to supply power to aproposed nearby aluminum smelter that would use Ghana's bauxite deposits.Following a review of the proposals in the late 1950's, Kaiser Aluminumand Chemical Corporation of the;USA sponsored the smelter, and in 1962the Bank and other donors agreed to assist in financing the hydro-electric plant. The exploitation of local bauxite deposits was deferred,and the smelter has been processing alumina imported from the Carribean.However, in order to induce Kaiser to use local bauxite the contractualarrangements (the Master Agreement) provide that, unless local bauxiteis entirely used by April 1977, the smelter's income will, in effect,be subjected to higher taxes (for the precise mechanism see also Annex 12,para. 2). The Bank is currently helping to review the feasibility ofestablishing a bauxite/alumina plant at Kibi.

2.04 The construction of Akosombo and the establishment of VRA arethus inextricably connected with the establishment of the smelteroperated by the Volta Aluminum Company (VALCO). Ghana, with its largepotential power from the Volta River system, offered a propitioussetting with an easily accessible and vital resource and the VALCOsmelter provided the necessary large electricity demand needed tojustify and enable the hydroelectric plant to be financed. VRA'srelationship with VALCO is governed by the Power Contract of 1962(see also para. 2.12 to 2.13).

2.05 ECG, established in 1967 as a public utility to succeed theElectricity Division of the Ministry of Works and Housing, is responsiblefor the distribution of power to all other consumers in Ghana and forthe generation of public electricity supply in areas that cannot beeconomically connected to the VRA system. ECG serves the four principalcities of Accra, Tema, Kumasi and Sekondi-Takoradi, as well as 26smaller urban centers.

2.06 The feasibility of merging VRA and ECG has been under con-sideration off and on since the mid-1960's. As by now ECG and VRAhave developed into relatively mature organizations with distinctlydifferent functions, a merger is not expected to bring about majornet benefits.

2.07 VRA's facilities comprise the hydroelectric plant at Akosombo,located about 100 km northeast of Accra, and a 920-km 161-kV trans-mission system which forms the national grid and covers most of southernGhana (see Map). The Akosombo hydro power development consists of a

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six-unit powerhouse and a rock-fill dam cn the Volta River, creatingone of the world's largest man-made reservoirs. Lake Volta covers8,400 km2, about one-tenth of Ghana's total area; its useful storageis 61 billion m3, capable of accommodating almost two years of averageyearly inflow from the upper Volta River basin. As the long-termdependable generation from Akosombo is estimated at 5,400 GWh peryear, the lake's electric energy storage capability is about 10,000 GWh.Akosombo's power capability at average reservoir level is 882 MW andits long-term dependable output 762 MW. A detailed description of VRA'sgeneration and transmission systems is given in Annex 1.

2.08 ECG's facilities comprise 33 and 11 kV distribution systemsfed from VRA's transmission system or from ECG's own diesel-electricstations. As of November 1975, ECG had 28 such stations with a totalinstalled capacity of 81 MW. The main sl:ations are those at Tema(33.3 MW installed) and Accra (14.7 MW installed).

The Power Market

2.09 The power market has grown over the past decade, reaching540 MW of peak demand in 1974; generation irncreased to 4,110 GWh, ofwhich over 90% is hydroelectric. Of this hydrogeneration, about two-thirds is being consumed by VALCO's 132.000 ton aluminum smelter,which is characterized by its power-intensive nature. Furtherdetails about VALCO's smelter are given in Annex 12. It is estimatedthat by 1984 the peak demand will be 900 MW and generation 6,200 GWh.Most of the hydroelectric power is consuned in the southern partof Ghana, where about two-thirds of its 9.8 million people live andwhere most of the commercial, agricultural, manufacturing and miningactivity is located. Total electric energy production and consumptionin 1974 were as follows:

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Production and Consumption of Electricityby Consumer Category - 1974

% of TotalGWh Consumption

ECGResidential 206 5.3Commercial 128 3.3Industrial 413 10.5Other 23 0.7

Total ECG 770 19.8VALCO 2,734 69.6Mines 256 6.5Akosombo Township and Textiles 30 0.8Communaute Electrique du Benin 128 3.3Total Consumption 3,918 100.0

Losses and own consumptionVRA 90ECG 102

192 4.01/

Total generation 4,110of which:VRA 4,078 99.21/ECG (own generation) 25 0.61/ECG (rural electrification) 7 0.21/

2.10 During the period 1968-1974, total electricity consumptionin Ghana increased at an average annual rate of 8.1%; ECG's salesincreased at 12.2% per annum2/. The forecasts of demand do not includeany supply to new power intensive industries such as aluminum smelting.Such industries are unlikely to be attracted to Ghana as electricitycosts will be about 20-25 US Mills/kWh in the future, about 5 timesmore expensive than Akosombo, and Ghana will not have any large blocksof surplus power. The actual and forecast electricity consumption inGhana is shown in Tables 1 and 2 of Annex 11.

I/ Refers to total generation

2 Average annual growth rate for the 1970-1974 period were respectively9.1% for total consumption and 10.2% for ECG's sales (see para. 5.03).

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Electricity Service Coverage

2.11 Public electricity supply presently serves about 100 towns,totaling some 2.25 million people (about 25% of the total population),nearly half of whom live in a household with a connection. In therural areas, electricity supply serves areas with an estimated260,000 people, representing 4% of Ghana's rural population. Onlyabout 10% of these people, or less than half of 1% of the total numberwho live in the rural areas, have a connection. Service to ruralareas is being extended under ECG's proposed Phase III Project.

Tariffs

VALCO - Power Contract

2.12 VRA's sales to VALCO are priced in the Power Contract of 1962.The Original Contract contains (i) VRA's obligation to deliverultimately up to 370 MW of firm power and (ii) VALCO's obligation topay a Power Rate of 2.625 Mills/kWh for the energy effectively takenor to pay ultimately at least a "Minimum Charge" equal to the PowerRate times 3.079 GWh, i.e. 370 MW at 95% load factor. VALCO's paymentsare in US dollars. The Power Rate's validity was fixed for 30 years(1967-1997) with no provisions for adjustment.

2.13 Since the late sixties, VRA and the Government sought VALCO'sagreement to increase the Rate and to change its fixed nature becauseof the increased incidence of inflation and currency realignments.In late 1972, VALCO agreed to increase the Power Rate to 2.75 Mills/kWhand in early 1973 VALCO agreed to a further interim, and refundable,increase to 3.125 Mills/kWh ("Interim Power Rate') i.e. until bothparties had agreed on a "Permanent Rate". In order to determine such aPermanent Rate, both VRA and VALCO commissioned in 1974 a consultant'sstudy (Shawmont-Canada). In December 1974, Shawmont concluded on thebasis of an 11% return on equity standard - derived from North AmericanPublic Utility practice - that VALCO should pay 5.0 Mills/kWh until itspower take reaches 370 MW and thereafter 4.0 Mills/kWh. In addition,Shawmont proposed an escalation formula which was to compensate VRAfor increase in operating expenses and loss of purchasing power of theoriginal return on equity standard due to inflation and exchange ratechanges. The negotiations started in early 1975 and have just beenconcluded. VALCO and Ghana agreed (i) to increase the rate to 3.25 USMills/kWh for the period of 1973-1975, (ii) to increase the rate to4.5 US Mills/kWh for 1976 with further gradual increases leading ultimatel-Jyto 5.0 US Mills/kWh in 1981. In addition, an escalation mechanism wasagreed which would protect VRA against operating cost increases andexchange rate risks related to the two outstanding IBRD loa-ns. It isinteresting to note that while the negotiating parties eventuallyfocussed on VRA's expected financial requirements during 1976-1981 anddid not follow Shawmont's rationale, the agreed Permanent Rates arecomparable on a discounted basis.

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2.14 In addition to the 370 MW, VRA agreed in mid-1975, in theFourth Amendment to the Power Contract, to provide VALCO with anadditional 30 MW firm and 15 MW interruptible power for the fifthpotline now expected to be completed by the end of 1976. In the FourthAmendment VALCO agreed to pay 5.0 and 6.0 Mills/kWh for the 30 and 15 MWrespectively. These rates were however replaced within the frameworkof the Permanent Rate discussions by a rate of 6.75 US Mills/kWh -a rate that had no meaning in isolation, but was negotiated as partof an agreement covering both the 370 MW and the 30 MW. The rate forpower in excess of the basic 370 MW is however temporary and applicableonly until the actual costs of Kpong are known. One year prior toKpong's commissioning, the likely actual final costs of Kpong would befed into the agreed adjustment formula; in the event the resulting rateis higher than 9.75 Mills/kWh, VALCO has the option either to reduceor to forego entirely its take on the 30 MW. On the basis of availablecost estimates for Kpong, the power rates for the 30 MW may have to beadjusted to about 20 Mills/kWh - about in line with the marginal costof power in Ghana - thus making the VALCO option a possibility.

Other Customers

2.15 VRA has a two-part tariff for its bulk supply sales to ECG,the Mines, and CEB and Akosombo Township/Textiles which consists ofa capacity charge related to the highest recorded monthly maximumdemand and an energy charge which reflects the very low running costof hydro-electric power. Average revenues per kWh in 1974 wereUS ¢ 0.69 for ECG, US ¢ 0.71 for the Mines and US ¢ 0.82 for CEBI/(see Annex 10 for the tariff schedule). Tariffs were increased by24% to CEB effective July 1 and by 60% to ECG and the Mines effectiveSeptember 1, 1976. Tariffs schedules are shown in Annex 10.

2.16 ECG's scheduled tariffs are of two types (for details, see

Annex 10). The small residential, commercial and industrial consumerspay a simple kWh charge in a declining block tariff. Large consumerspay a monthly maximum demand charge and an energy charge per kWhwhich decreases with kWh consumption per kNTA of maximum demand.

2.17 While the actual rates charged by VRA and ECG are low, thegeneral principles underlying their tariff schedules are reasonablyappropriate in relation to the load and cost conditions of the inter-connected system, which accounts for over 99% of public power in Ghana.Maximum demand on VRA's system tends to grow from month to month. Thelarge base-load from the aluminum smelter makes time-of-day fluctuationsin demand relatively small. Thus the minimum and maximum daily loadvaries by only about 12%; the evening peak is about 6% higher thanthe daily "shoulder"; system load factor exceeds 86%. Consequently

1/ VRA's contract with CEB also provides for payments in US dollars.

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there is little scope for shifting load from peak to off-peak times.The bulk supply tariff and ECG's tariff for large loads (includingan off-peak tariff) provide the main incentives to keep down the growthrate of monthly maximum demand and to maintain a high load factor. ECG'ssimple block tariff structure for small customers is similar to thatfound in most cotntries; the cost involved in the measurements requiredfor a more sophisticated tariff structure would be too high.

Planning Sector Development

2.18 Planning for generation and high-voltage transmission is carriedout by VRA, whereas ECG does the planning for subtransmission and dis-tribution. Coordination of their actions is ensured through frequentcontacts at the level of their Boards, Managing Directors and seniorstaff.

2.19 VRA's planning is done mostly by consultants. Since 1970/1971VRA has commissioned a number of studies to determine the requirementsfor additional generating capacity. In 1974 the Canadian consultants,Acres International Ltd., concluded that hydro plant at Kpong down-stream from Akosombo on the Volta River would be the least costsolution for the next stage of system expansion. Consultants are alsostudying: (a) the feasibility of the Bui hydro project as a source ofpower after Kpong is completed; (b) the feasibility of an inter-tiewith the Ivory Coast (this study is being carried out in collaborationwith the Ivorian power utility); and (c) the long-term developmentof Ghana's high-voltage grid. The short and medium-term developmentof this grid would consist of: (a) an 80-km extension of the 161-kVgrid westward to the Sefwi-Wiawso-Bibiani area, where one of theschemes included in the proposed third Bank Group/ECG project (paras.4.04 and 4.05) is located; (b) a 40-km 69-kV extension of the VRAgrid from Asiekpe to Ho; (c) a small 20-kV extension from Lome,Togo, to electrify the Ghanaian township of Aflao; and (d) reinforcementof VRA's substations to take care of local load increases (see Map).

2.20 ECG has planned its current expansion program with its ownstaff, supplemented by an expatriate engineer. This program, whichis being considered for the third Bank Group/ECG lending operation,comprises the extension of lines to the west and north of Kumasiplus general system reinforcement.

Sector Objectives

2.21 The principal sector objectives for the period 1976-81 are to:

(a) increase the firm generating capacity in order tobe able to supply the demand growth beyond 1978;

(b) carry out the feasibility studies for the requiredgenerating and transmission line facilities for theyears 1983/84 onwards;

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(c) extend hydropower supply to (i) areas where costlydiesel generating plants are now in operation, and(ii) new rural areas;

(d) extend and reinforce subtransmission and distributionsystems in order to improve the quality of service, andto take care of load growth; and

(e) rationalize sector tariffs.

2.22 In addition to these objectives for the sector, ECG intendsto improve its organization, management and accounting. These pointsare discussed in detail in the appraisal report on the ECG project(No. 1196-GH).

III. THE BORROWER

General

3.01 As with the two previous Loans (310 and 618-GH), the VRA willbe the Borrower and the Government the Guarantor of the proposed Bankloan.

3.02 VRA's charter, the 1961 Volta River Development Act (the Act),charges VRA not only to operate the Volta River Project according tosound public utility practices, but also to develop the Volta Lake.These latter non-power activities include resettlement, lake researchand lake transport. VRA is exempt from all duties and taxes.

3.03 VRA's past and current resettlement functions are shown inAnnex 8. Lake research is carried out with the assistance of UNDP andcovers fisheries, hydrobiology, public health with emphasis onschistosomiasis (bilharzia) and onchocerciasis (riverblindness).Lake transport is operated by VRA's Volta Lake Transport Company(see para. 6.01) which currently plans a significant expansion ofits cargo and passenger carrying capacity with the financial assistanceof the Federal Republic of Germany.

Organization and Management

3.04 The Act provides for the Authority to be governed by a Boardwhich is appointed and supervised by the Head of State. The Boardis composed of a Chairman and seven other members, including VRA'sChief Executive and representatives of the major consumers (VALCOand ECG) and the general public.

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3.05 VRA's organizational structure is shown in Annex 2. TheEngineering Branch is divided into two sections, one for poweroperations and the other for engineering. The Administrative/FinancialBranch (Executive Secretary's Office) has four sections coveringfinance, personnel, legal services, and non-power services (LakeResearch, Lake Transport, Resettlement).

3.06 VRA has been managed since 1966 by a competent, forceful andhighly respected Engineer/Manager. During negotiations Governmentagreed to continue to seek Bank approval for the appointment of VRA'sChief Executive. The Heads of the Engineering and the Administrative/Financial Branches, together with their main assistants, are likewisewell-qualified professionals. Recently the Head of the Administrative/Financial Branch was given the additional responsibility of servingas Deputy Chief Executive. VRA's staff are entirely Ghanaian.

3.07 As of December 1974, VRA's staff totaled about 2,400, with55% engaged in power generation and transmission tasks and 33% inthe administration of the Akosombo township. Most of the remainingstaff comprise casual labor. Of the senior staff of about 240, 125 aretrained in engineering and 29 in accounting. While well staffed atthe top, VRA lacks breadth in middle management. There are about 35vacant positions in the various engineering categories and up to 9in the Administrative/Financial Branch. In that branch, the mostimportant vacancy is the position of Director of Finance; the Head ofthe Administrative/Financial Branch, in addition to the responsibilitiesimposed by this recent appointment as Deputy Chief Executive, is carryingout the functions of this position. In view of the heavy supervisoryworkload being undertaken by this one official, and also consideringthe additional financial controls that will be required during Kpong'sconstruction period, it is important for the position of Director ofFinance to be filled. During negotiations assurances were obtainedfrom VRA that this position will be filled by July 1, 1977.

3.08 VRA's salary administration, as in other government-ownedentities, closely follows the regulations of Ghana's Prices and IncomesBoard (PIB). VRA's junior staff members, who are organized in a PublicServices Workers' Union, negotiate with VRA's management within thelimits imposed by PIB.

Training

3.09 VRA's policy is to emphasize on-the-job training and to makefull use of local educational institutions such as the Ghana Instituteof Management and Public Administration, the Management Developmentand Productivity Institute, and the National Vocational TrainingInstitute. When the local institutions cannot meet VRA's trainingneeds, the staff requiring training are sent abroad. During 1974

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and 1975 about 100 staff members attended courses at local institutionsand 16 either began or completed overseas training. VRA budgets aboutUS$100,000 annually for training purposes, of which about 90% is spentfor training abroad. The training program and policies are formulatedby a group of senior staff. They appear to be achieving satisfactoryresults.

Operations

3.10 VRA's electric facilities are operated in a workman-like andprofessional manner. Indicative of the efficient performance of themanagerial and technical staff is the very good reliability of servicesince commissioning of the Akosombo hydro plant and the low level oflosses (about 2%) experienced in the VRA system.

Accounting and Audit

3.11 VRA's accounting system is now well established and the accountingstandards are satisfactory. In addition to annual reports, VRA issuestimely and comprehensive quarterly reports on its operations whichinclude full financial details. Although improving, the quality offinancial forecasting has suffered from a shortage of qualified staff.VRA employs both internal and external auditors. The local branch ofCoopers & Lybrand provide the external auditors. VRA's audit arrangementsare satisfactory and should be continued under the proposed Bank loan.

IV. THE PROJECT

Project Description

4.01 The project proposed for Bank financing comprises four com-ponents: (a) the Kpong dam and hydroelectric plant with associatedtransmission facilities; (b) reactive power compensation on VRA'stransmission grid; (c) a transmission line and related substationsto supply the Sefwi-Wiawso-Bibiani area in southwestern Ghana; and(d) an additional transmission line between Tema and Accra. Thelocation of the components is shown on the attached Map. A detailedproject description is given in Annex 3.

A. Kpong4.02 The Kpong component as designed by VRA's consultants, AcresInternational Ltd., is a hydroelectric development of the VoltaRiver 24 km downstream from the Akosombo dam which regulates the riverflow (Kpong is 84 km by road from Tema, Ghana's deep-water seaport).Specifically this component consists of:

(a) a dam formed by (i) an integral concrete intake-powerhousestructure, (ii) a gated concrete overflow spillway, and(iii) an embankment river dam and forebay dykes; and

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(b) a 60-km double circuit 161-kV transmission line toTema, where it will tie in with VRA's transmission grid.

The concrete structures and the river dam, extending about 700 m,will be flanked by earthen forebay dykes with a total length of 6 km.The headpond will be raised by this impounding barrier to elevation17.7 m above sea level; it will submerge the Senchi and Kpong rapidsupstream and reach to the toe of the Akosombo dam to develop a grosshead of 12 m. The surface area covered by the headpond will be3,650 ha. The drawings in Annex 13 show general arrangement of theKpong project and sections through dam and dykes.

4.03 The installed capacity of the power plant will total 160 MW infour vertical units. Overhead connections from the step-up trans-formers will deliver the power output to the plant switchyard locatedon the west river bank. Simulation studies of Kpong operating inconjunction with Akosombo indicate that the long-term dependable poweroutput and annual generation of the VRA power system would increaseby 140 MW and 970 GWh, respectively, by the addition of the Kpongpower plant.

4.04 The Kpong project does not involve unusual structures (themaximum height of the dam is only 20 m above bedrock), difficultgeological conditions, or severe construction problems. All thestructures and electrical and mechanical works are well within knownengineering practice. Moreover, the project has been designed by areputable engineering firm with ample experience in this type of projectand following current engineering design standards.

B. Reactive Power Compensation

4.05 Studies recently completed by the Italian consulting groupItalconsult-Cesi have concluded that VRA's 161-kV grid would requireadditional reactive power compensation by 1980. This would be achievedby installing a 25 MVAR synchronous condenser at Prestea, the mostwesterly point of the grid, and a static condenser of the same capacityat Kumasi, its northernmost point. The reactive power compensationis necessary in order to maintain satisfactory voltage conditions inthe grid and to keep power and energy losses at reasonable levels. Thesupply and installation of these condensers and their associated equipmentcomprises the second component of the proposed Bank-financed project.

C. Transmission to the Sefwi-Wiawso-Bibiani Area

4.06 This component of the proposed Bank-financed project consistsof an 80-km 161-kV line that would be connected to VRA's 161-kV gridat a substation near Dunkwa in southwestern Ghana. VRA would construct,own and operate this transmission line and the substations at both ends.

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The Bank Group is currently considering a combined Bank loan/IDA creditfor an ECG project designed to extend electricity supply to new serviceareas in southern Ghana. The ECG project includes the constructionof a distribution system within the Sefwi-Wiawso-Bibiani area involving86 km of 33-kV lines to supply existing industries - saw mills at Sefwi-Wiawso, bauxite mines at Awaso, gold mines at Subin, and a metal andwood industrial complex at Bibiani - plus related low-voltage distributionlines. This system would also bring electricity to seven townshipsand about 30,000 people. The bulk supply of electric energy for thisdistribution system would be provided by the above-described trans-mission line and substations comprising the third component of theproposed Bank-financed project.

D. Additional Transmission Line Tema-to-Accra

4.07 The 25 km 161-kV Tema-to-Accra segment of VRA's transmissiongrid is made up of two single-circuit transmission lines. The studiescarried out by Italconsult-Cesi on the behavior of VRA's grid (para. 4.05)have also concluded that by 1980 the thermal rating of the existingcircuits will be exceeded whenever one circuit has failed. In order notto endanger the physical integrity of the transmission lines it will benecessary to install additional transmission capacity between Tema andAccra. The supply and installation of a new transmission line and theextension of the substations at both ends make up the fourth componentof the proposed Bank-financed project.

Project Cost

4.08 The project, comprising the four components described inparas. 4.02 to 4.07, is estimated to cost a total of US$236.5 million,including US$172.0 million in off-shore costs. The cost of the Kponghydroelectric scheme proper is estimated at US$225.0 million equivalent(excluding interest during construction), with a foreign exchangecomponent of US$162.0 million. The cost estimates assumed that thehydroelectric scheme will be implemented in accordance with the con-struction schedule in Annex 6, so that all four units of the powerplant will be in service by June 1981. The cost estimates are presentedin US dollars and are also apportioned in Ghanaian Cedis and US dollars.The expenditures in Ghanaian currency reflect costs incurred in Ghanaprincipally for construction manpower, materials available locally,and resettlement costs. The off-shore expenditures comprise foreignexchange requirements for items such as construction equipment, expatriatepersonnel, electrical and mechanical equipment, engineering services,and materials not available in Ghana. The cost estimates for the Kpongcomponent proper, including contingencies and resettlement costs, aresummarized in the following tabulation, preliminary cost estimates forthe other three components are also given in this tabulation.

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Breakc'own Foreign/Chana Currs.Percent Off-Shore On-Shore

Estimated Costs of Total Costs CostsUS$ US$ US$ US$ Equiv. CedisMillion Million _ Million Million Million

I. Kpong liydroelectric Scheme:(i) Hydro-power Development:

Preliminary work by VRA 4.0 1.2 2.8 3.2*Civil engineering works 81.9 55.5 26.4 30.4

Electrical and mechanicalworks: 47.5 45.1 2.4 2.8

*Turbines, generatorsand powerhouse crane 28.2*Gates and hoists 17.5*Transformers 1.3*Ancillary elect. equip. 0.5

Resettlement 8.2 1.2 7.0 8.0

*Engineering and management 13.8 11.5 2.3 2.7Owner's costs 2.9 - 2.9 3.3Review engineer board 0.2 0.2 - -Total Base Line Cost 158.5 67 114.7 43.8 50.4

(ii) Transmission Facilities:*Kpong switchyard 0.9*Extension of Tema substationswitchyard 0.7

*Transm. line Kpong-to-Tema 4.1*Engineering and management 0.2Owner's costs 0.1 ___ __

Total Base Line Cost 6.0 3 5.0 1.0 1.1

(iii) Contingencies:Physical 14.8 10.1 4.7 5.4Price 15.7 32.2 13.5 15.6Total Contingencies 60.5 25 42.3 18.2 21.0

Total Estimated Cost for KpongProject in Service 6/30/81

2255.0 95 162.G 63.0 72.5

II. *Reactive Power Compensation 4.0 2 3.8 0.2 0.2

III. *Transmission to Sefwi-Wiaswo-Bibiani Area 4.0 2 3.0 1.0 1.1

IV. *Additional Transmission Facilitiesbetween Tema and Accra 3.5 1 3.2 0.3 0.4

CRAŽ5D TOTAL PROJECT 236.5 100 172.0 64.5 74.2

PERCENT 100 73 27Note: * Indicates major contracts foreseenThe above estimated costs exclude all duties and taxes since VRA is exemptedfrom import duties and other tax levies.

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4.09 The base line costs (in terms of mid-1976 price levels) estimatedfor the Kpong civil engineering works and electrical and mechanicalworks were recently revised and updated by VRA's consultants, Acres Inter-national Ltd. The base line estimate for the civil engineering work hasbeen developed as contractor's type of estimate using the bill of quantitiesof the tender documents and on the basis of the technical specificationsfor each piece of work; it can be regarded as the Consultant's own tenderfor the job. For the electrical and mechanical works a number of pro-forma quotations were obtained from internationally known manufacturersin Europe, America and Japan; the quotations were then confronted withrecent supplies of similar nature to arrive finally at realistic baseline costs. The base line costs estimated for the other items in theKpong scheme are based on the feasibility report (prepared by Acres inmid-1975) escalated to mid-1976. Engineering and management of the hydro-power development were estimated at 10% of base line costs of equipmentand civil engineering works, which seems reasonable. The estimated costfor engineering and management covers design and specifications writing,preparation of tender documents, bid evaluation, inspection and expediting,and the overall management and supervision of construction of the Kpongproject including management of the required preliminary works. An amountequivalent to 2% of the total base line cost was allowed to cover VRA'sadditional administrative costs during construction. The estimates includephysical contingencies to reflect the degree of precision attached to thecost estimation for each project item. Altogether, physical contingenciesamount to 9% of the total base line cost. Price contingencies were computedon the estimated cash flow and added to the estimates to cover the anticipatedrise in prices during the construction period. The escalation indicesused in computing the price contingencies are shown in Annex 4; they representthe consultants' forecast of price increases for each basic input in theKpong scheme. On the above-described basis, the price contingencies amountto about 25% of the total base line costs plus physical contingencies.

4.10 The cost of the reactive power compensation, of the transmissionline to the Sefwi-Wiawso-Bibiani area and associated substations, and ofthe additional transmission facilities between Tema and Accra are tentativelyestimated at US$11.5 million equivalent (including contingencies), of whichabout US$10.0 million would be foreign exchange. A reasonable allowancehas been included in this estimation to cover engineering services.

Project Financing

4.11 The proposed financing of four components of the project involvinga total cost of US$236.5 million, of which US$172.0 million is the foreignexchange requirement, is set out in the Table below. The proposed Bankloan of US$39.0 million equivalent would be used to finance: (a) theoff-shore cost (US$3 million) of the Sefwi-Wiawso-Bibiani transmissionline; (b) construction equipment, vehicles and spare parts for the preliminaryworks in Kpong, for the resettlement program, and for project supervision(estimated off-shore cost US$2.4 million); and (c) the off-shore cost ofgenerating equipment, transformers, ancillary equipment, materials and

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equipment for the transmission line Kpong to Tema, equipment for reactivepower compensation, additional transmission facilities between Tema andAccra and of a review engineering board (para. 4.13). The latter groupof items would be financed jointly with FED and EIB, which have agreedto provide together up to US$21.0 million. The FED contribution of aboutUS$10.0 million would carry interest rates of 1% while that of EIB ofabout US$11.0 million is being lent at 6-3/4% interest. FED's fundswill be granted over 40 years with 10 years grace, while EIB's is for15 years including 4-1/2 years grace. CIDA is providing the equivalentof US$36.0 million (50 years repayment, including 10 years grace, at nointerest) for engineering services, and gates and hoists, it being under-stood that the amount of the credit will be increased as necessary tocover any additional cost of gates and hoists for which procurement isrestricted to Canadian firms. The three Arab agencies - BADEA, KuwaitFund and Saudi Fund for Development - have agreed to finance jointly upto US$73.0 million equivalent at 2-4% interest, for the civil engineeringworks. Local costs totaling US$64.5 million equivalent will be financedby VRA out of its own internal cash generation. Annex 5 gives detailsof the financing packages for the four components of the project. Thefinancing of the total estimated cost of the project is summarized asfollows:

Equiv. US$ MillionSponsor Items Foreign Local Percent

Arab agencies Civil engineering works 73.0 - 31%

CIDA_L Engineering of Kpong, gatesand hoists 39.0 - 17%

Joint Financing Generating equipment, powerhouseIBRD/FED/EIB crane, transmission Kpong to(US$33.6/10.0/ Tema and Tema to Accra, equip-11.0 million) ment for reactive power compen-

sation, and review engineeringboards 54.6 - 23%

IBRD Sefwi-Wiawso-Bibiani trans-mission, construction equipmentand vehicles for preliminaryworks and resettlement 5.4 - 2%

VRA VRA's own contribution for thefour components of the project - 64.5 27%

17 The CIDA contribution, as shown here, is equated with the presentlyestimated cost of the items that are to be procured in Canada.

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Engineering and Construction

4.12 Design studies on the hydroelectric development have been completedby Acres, VRA's consultants. Project drawings and technical specificationsare available for the civil engineering wvorks, the electrical and mechanicalequipment for the powerhouse, and the required hydraulic gates and hoistingdevices. The bidding documents for the first two items are in final form.The prequalification process for civil engineering works contractors hasalready taken place; VRA has notified the contractors approved fortendering. The Bank has been kept informed of all proceedings, whichconform to Bank's guidelines for procurement. Works on the design oftransmission facilities for Kpong will commence in early 1977, as theyare not critical in the context of the overall construction schedule(Annex 6). In order to complete Kpong by June 1981, the civil engineeringworks contract and the supply of the main generating equipment and spill-way gates will have to be awarded by April 1977 as these are the criticalitems in the time schedule. This seems feasible since the bidding processesfor both items is currently underway and tenders will be submitted inearly February 19771/.

4.13 VRA is retaining the services of Acres to assist in the imple-mentation of the Kpong scheme. The consultants will supervise and manageconstruction. Installation of all major electrical and mechanical equipmentwould be done by the suppliers, assisted by the civil engineering workscontractor. The transmission line between Kpong and Tema would be con-structed under a contract covering all materials and construction. VRAwill also retain the services of three or four engineers of internationalreputation to monitor the technical aspects of the Kpong project,particularly those having to do with the construction of the dam; thisreview engineering board will meet about every six months to reviewthe design of the structures and the construction progress.

4.14 For the proposed transmission line to the Sefwi-Wiawso-Bibianiarea, VRA has proceeded with a topographical survey of the transmissionroute but has not yet started the design work. No definite constructionschedule has been established for this project component, but in orderto supply the ECG distribution scheme (para. 4.07) in time, all workswould have to be completed by mid-1979, which seems feasible. VRA willemploy consultants to design the line and substations. Supervision ofconstruction would be undertaken by VRA's own personnel, assisted byconsultants.

iT Bids for the civil engineering works contract were opened publicly onFebruary 2, 1977. Five construction firms submitted bids; all appearto be responsive. Results of the bidding are in line with the costestimates in the present report.

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4.15 VRA will employ Italconsult-Cesi for the implementation of theproposed reactive power compensation and additional transmission facilitiesbetween Tema and Accra. The consultants will design the facilities andsupervise their installation, which will be done by the suppliers.

Procurement

4.16 Except items to be financed by CIDA (para. 4.11), which will becontracted in Canada, all other items for the project involving foreignfinancing will be procured through international competitive bidding. Thecontracts for hydraulic gates and hoists, which will be covered by CIDAcontribution to the project, will be awarded after competitive bidding inCanada, and are not expected to cost significantly more than if procuredas a result of international competitive bidding; furthermore, CIDA aidis being provided on very generous financing terms. All items to be financedjointly by the Bank and the European development agencies will be contractedthrough international competitive bidding open to manufacturers of allBank member countries and Switzerland. The only deviation to the "Guide-lines for Procurement under World Bank Loans and IDA Credits" in thisarrangement with FED and EIB will be, that the date of bid opening shall bethe operative date in establishing the rate of exchange for bid evaluation-Y.The supply of materials and equipment for the transmission to the Sefwi-Wiawso-Bibiani area as well as their installation and the supply of constructionequipment and vehicles for the preliminary works of Kpong and forresettlement, will be awarded on the basis of international competitivebidding in accordance with the Bank's guidelines. Considering the greatimportance of proper maintenance service and spare parts facilities forthe construction equipment and vehicles for the preliminary works of Kpongand for resettlement, the bidders will be required to submit with theirtender proof of having available such facilities in Ghana at the timeof submission of bids.

Disbursement

4.17 The proposed Bank loan of US$39.0 million would be disbursedas follows:

/ Current Bank guidelines provide that if there is a change in the valueof the currencies after bids' opening and before the award is made, then,for the purpose of bids valuation, the exchange rates prevailing on theday of the decision to notify the award to the successful bidder shouldbe used.

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% of US$Item Foreign Cost Million

Turbines, generators and powerhouse craneTransformersAncillary electrical equipmentKpong switchyardExtension to Tema substation switchyardTransmission line Kpong to TemaReactive power compensationAdditional transmission line Tema-to-AccraReview engineer boardTotal in joint financing with FED and EIB 62 33.6

Transmission to Sefwi-Wiawso-Bibiani area 100 3.0Construction equipment, vehicles andspare parts for preliminary works andresettlement 100 2.4

Grand total Bank Loan 39.0

4.18 As the project components proposed for Bank financing should becompleted by June 1981 at the time of full commissioning of Kpong, aclosing date of December 31, 1981, is proposed to allow for late disburse-ment requests. Disbursement of the loan funds for the power supply tothe Sefwi-Wiawso-Bibiani area would be contingent on completion of thedesign studies for the transmission lines and substations and on the Bank'sapproval of such studies. The schedule of disbursements is given in Annex7. Retroactive financing of about US$1.0 million is recommended to coveradvanced procurement of construction equipment needed by VRA for thepreliminary works of Kpong and for the initial phase of resettlement.This is necessary to maintain the Kpong project construction time-schedule(see Annex 6).

Resettlement and Environmental Aspects

4.19 The Kpong headpond will cover about 3,700 ha of land, islandsand existing river (para. 4.02), necessitating the resettlement of anestimated 4,600 people (900 households) who are living in 55 villages andcompounds and who make their livelihood from fishing and farming. LowerKpong, the older part of the town of Kpong, will also be affected andabout 1,100 people will have to be resettled. The Kpong headpond willalso flood certain commercial farming lands; 170 ha of cotton land and90 ha of irrigated rice land on the east bank of the Volta River and 400 haof sugar-cane land on west bank. A preliminary estimate, adjusted to mid-1976 price levels, of a reasonable upper limit of resettlement costs andcompensation for commercial farming lands is 9.4 million cedis (equivalentto US$8.2 million). The cost of resettling the population affected bythe headpond excluding that in lower Kpong, is estimated at 7.0 million

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cedis (equivalent to US$6.1 million); this represents an average percapita cost of 1,500 cedis (equivalent to US$1,300) compared with percapita cost adjusted to 1976 price levels of 1,300 cedis for the Voltalake resettlement. VRA is aware of the mistakes made in the resettlementprogram when Akosombo was built (see Annex 8), and has formulated theresettlement program for Kpong accordingly. For a detailed discussionof VRA's resettlement program, see Annex 8. This program is broadlysatisfactory. As a condition of effectiveness a detailed resettlementprogram with a time-table would be agreed with the Bank which the Govern-ment and VRA would be committed to carry out.

4.20 The area to be inundated by the Kpong headpond (3,700 ha) is verysmall when compared to the Volta Lake (800,000 ha). An on-site inspectionof the environment to be affected did not reveal any serious disturbanceto the impacted ecosystems. However, potentially serious health problemscan be expected, including, especially, urinary and intestinal schistosomiasis.Experience gained in the Volta Lake scheme strongly suggests both anincreasing prevalence and incidence of schistosomiasis if Drecautions arenot taken. Onchocerciasis is presently endemic but inundation of theSenchi and Kpong rapids (para. 4.02) should result in a habitat unfavorablefor the blackfly vector of that disease. It can be anticipated, however,that during the construction of the dam, the work force and associatedpopulace will be at considerable risk; hence, application of Abate in thebreeding sites is required. Malaria is also endemic but it is not expectedthat the Kpong impoundment will significantly affect its prevalence.Workers from low-prevalence areas and expatriate staff will, however, beat great risk; therefore, a prcphylaxis program is necessary, With thework force expected to reach 1,700 it is anticipated the additional populationassociated with the construction may total 7,000. Health facilities atpresent consist of the 52-bed Akuse hospital, and it is thought to beinadequate for handling the array of clinical problems that experiencewith other hydropower projects in Africa has shown will occur, Plans forhandling the expected clinical referrals betweer. the contractor and theAkuse, Somonya, and VRA hospitals are to be worked out, but the contractoris fully responsible for these services and will be paid accordingly;a separate specific item is listed in the Bill of Quantities for theCivil Engineering Works Contract to cover these payments. hi order toreduce the hazard of schistosomiasis, piped treated water will be suppliedto the communities surrounding the headpond and suitable wharfing facilitiesfor fishermen will also be provided to permit embarkation without wading.Detailed planning of the resettlement villages being conducted by theUniversity of Science and Technology at Kumasi will be reviewed by VRAas regards the adequacy of housing conditions, water supply, excretadisposal, refuse handling, vector control and associated matters, accordingto standards prepared by the VRA Health and Safety Division. These andadditional measures for disease control and health care delivery arebeing discussed with the VRA and the Ministry of Health. For a moredetailed discussion of the health aspects, see Annex 8, paras, 13-15.

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V. ECONOMIC JUSTIFICATION

Introduction

5.01 The economic justification of Kpong has been analyzed takinginto account that:

(i) there is a need for expansion of generatingcapacity due to the increase of electricdemand and that;

(ii) Kpong is the least-cost solution.

Forecast of Need for Electric Power

5.02 The Bank has revised and updated the study prepared by the con-sultants (Acres International) on the load forecast for the period 1977to 1986. The study for areas with electric service is based on the extra-polation of the past trends for each type of consumer, modified forexpected specific new consumer developments not included in the overalltrend. For the new areas to be served during the study period, electricconsumption has been evaluated on the basis of specific consumption inareas with service. The average annual growth rate of the ECG load(VRA's public utility load) is forecast at 11% for the period 1975-80,and 8% for the period 1981-85. The other main VRA loads, VALCO and CEB,are fixed by contract and would remain constant at 3329 and 313 GWh peryear respectively during the period 1981-85. In view of the above, theproportion delivered from VRA to ECG is expected to increase from around20% for the period 1970-75 to 36% in 1985.

5.03 The evolution and composition of VRA's load is shown in thetable below where the actual and forecast load growth and incidence inthe total consumption of the main type of consumers are indicated:

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Growth Rates and Composition of Consumption of Total VRA Output from Kpongand Akosombo

Annual Growth Rates 71/ % Total Consumption2/

Actual Forecast Actual Forecast

1970- 1975- 1981-1974 1980 19854/ 1970 1974 1980 1985_/

ECG - residential 4.6 6.8 8.0 33 27 20 20- commercial 12.04/ 12.2 7.9 20 19 18 17- industrial 13.54/ 13.7 8.2 46 54 61 62- other 8.2 10.8 8.1 1 1 1 1

TOTAL ECG 10.2 11.3 8.1 20 21 28 36

Valco 8.0 4.8 0 70 69 60 52Mines 5.5 3.3 4.7 7 6 6 6Akosombo Township& Textiles 8.1 5.9 5.6 1 1 1 1CEB5/ - 14.2 0 - 3 6 5

Total Consumption 9.2 6.8 2.9 100 100 100 100

Losses 4.3 15.3 5.6 33/ 2"3/ 43/ 43/

Tctal VRA Generation 9.1 7.1 3.0 - - -

1/ Average annual growth rate from year end to year end.2/ Composition of ECG consumption is referred to total ECG consumption.

Total ECG consumption and all others are referred to Total VRA generation.3/ Referred to Total VRA generation.4/ IBRD estimate because data not available from ECG.5/ Sales to CEB began in 1972.

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The composition of ECG's load for the period 1980-85 is expected toremain fairly constant at 20% residential and 80% industrial/cormm'ircial.The resulting average expected load growth of public utility consumptioncorresponds approximately to a GNP growth of the order of 5.0% and aGNP/electricity consumption growth ratio of up to 2, based on limitedhistorical data. This forecast considers kWh loads originating in the usageof electric power for steam production in electrode-boilers. The sub-stitution of oil-fired boilers by electrode-boilers in certain industriesrequiring process steam is now being implemented in Ghana. These electrode-boiler loads (estimated to total 20 MW and 125 GWh/year by 1978) will beinterruptible and will only consume dumped hydroelectricity, that is,electricity generated with water that otherwise would be spilled fromLake Volta. The oil-fired boilers will be kept permanently in operableconditions to take over steam production whenever the electrode-boilershave to be switched-off; therefore, no firm kW load on VRA system results(see para 5.09).

5.04 It can be appreciated from the tables of Annex 11 that theVALCO load would be fully served from the Akosombo station, and that only10 MW of the power covered by the CEB contract would be supplied fromenergy attributable to Kpong. Thus 90% of Kpong capacity will be usedto satisfy increases in Ghanaian consumption, while the remaining 10%will go to CEB and losses. Table 3 and Figure 1 of Annex 11 show theforecast incremental energy consumption made possible by Kpong followingthe run out of Akosombo in 1978 until Kpong capacity is reached in 1985(see para. 5.09).

Basis for the Economic Analysis

Costs

5.05 The assumptions made in the economic analysis are shown inAnnex 11. A shadow exchange rate of 1.7 cedis per US dollar or 1.48times the current official exchange rate has been used for both the leastcost solution and the rate of return calculation to reflect the economicvalue of the foreign exchange. As there is full employment for skilledlabor in Ghana, no shadow price has been taken in this case. No shadowprice has been considered for unskilled labor, although discussions withthe Minister of Economic Planning led to the conclusion that the shadowprice of unskilled labor is about 70-80% of actual wage rates. Althoughsuch values have not been considered in the economic analysis, it is evidentthat such a cost saving would result in a modest improvement in therate of return.

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5.06 The cost stream associated with the Kpong project includes:

1. Kpong project capital costs- dam and generating plant- transmission facilities- resettlement and loss in agricultural production;

2. additional VRA transmission investment as part ofthe program to utilize fully the capacity of Kpong;

3. investment of $300/kW for medium and low voltagedistribution for the part of VAR load which willultimately be supplied at low voltage; and

4. annual operation and maintenance expenses forgeneration, transmission and distribution.

Least Cost Sclution

5.07 The Ghana power sector is limited by energy rather than by powercapability. As shown in Table 1 and 2 of Annex 11 the long-term firmenergy (GWh) capability of Akosombo will be reached in 1978 on the basisof the present forecast of consumption. Peak generating capacity (MW),on the other hand, will not be reached until 1979. Several alternativeprograms for the expansion of the generating capacity to meet the forecastdemand until 1995 have been studied by VRA and consultants. They haveanalyzed the most attractive hydro sites for power generation in Ghana andarrived at the conclusion that the Kpong and Bui projects in the VoltaRiver Basin presented definite advantages over the other hydro project.

5.08 Although at present there are no detailed studies of the Buiproject, an "a priori" analysis shows that Kpong presents definite economicadvantages and could be put into service at least two to three years beforeBui, due to the relative simplicity and present stage of the engineeringstudies of the former project. The economic and timing advantages of Kpongover Bui are basically due to the fact that Kpong makes use of the existingLake Volta reservoir 24 km upstream and with a relatively small dam(2.2 million m3 of material) an annual average generation of the orderof 1,000 GWh can be obtained. To produce similar energy from Bui wouldrequire a major dam (about 10 million m3 of material) and a transmissionline of about 4 times longer than needed for Kpong.

5.09 The Akosombo plus Kpong plants can meet peak demand until 1985.An expected hydro energy deficit of 777 GWh from 1978 to 1980 can bemet by drawing down the level through Akosombo of Lake Volta by about2 feet (0.61 m). The usable storage of the Volta Lake reservoir is100,000 GWh, or nearly two years of total production of Akosombo (para. 2.04).This drawdown is not expected to affect future power capability of theKpong or Akosombo plants to any significant degree (see detailed analysisin Annex 11). As indicated in para. 5.03, power for electrode-boilers will

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only be supplied by VRA and ECG whenever there is surplus electricity,and therefore no particular provision should be made to take care of theseinterruptible loads. Substituting fossil fuels by electricity forsteam production in Ghana cannot be considered on a firm power basisbecause the long-term marginal cost of electricity exceeds that of fuelfor the same heat content; therefore, only surplus hydroelectricity canbe used for this purpose since its marginal cost is practically nil.

5.10 An economic comparison of Kpong with the conventional oil-firedgenerating program was made, and the results are shown in Figure 2 ofAnnex 11. According to such a comparison the equalizing discount ratesfor the costs of both alternatives are higher than the 11% opportunitycost of capital in Ghana,for fuel oil prices corresponding to crude oilprices as low as US$6/bbl. Table 4, Annex 11, gives the basic dataused in this analysis.

Return on Investment

5.11 The equalizing discount rate of returr. of economic cost andrevenues, corresponding to the existing levels of tariffs, for theproposed investment in the Kpong project is 7.5%. The consumers'revealed willingness to pay for electric power in Ghana cannot be usedas a proxy for benefits in this case, because of the pricing policy currentlybeing followed in Ghana which reflects the very low cost of Akosomboenergy compared to Kpong's, although as described in Annex 11, some roughideas of the value of electricity can be made from study of alternativesand by inter-country comparison. If benefits were assumed to be valuedat marginal cost, roughly comparable to 75% of tariffs paid in Liberia,the return would be about 11%.

Future Tariff Policy

5.12 The tariff increases likely to arise from the proposed rate ofreturn covenant in paragraph 6.06 would result in a price level which onthe average, is less than the long run marginal cost. In order to achieveon the average prices that would reflect the long run marginal cost ofelectricity supply in Ghana, the present ECG tariffs would need to beincreased over present levels by an average of 70% in real terms on topof a 29% increase recently implemented (para. 6.06) and maintained inreal terms. In view of this extremely large tariff increase, it wouldnot be feasible to implement marginal cost pricing in Ghana's powersector immediately1!. Furthermore, the average total cost of energy is

J/ Nevertheless, the proposed financial rate of return covenant (seeparas. 6.06 and 6.08) would provide the means to maintain tariffsconstant in real terms. Although, if the present rate of inflationcontinues the difficulty of raising tariffs in real terms to reflectthe long run marginal cost of electricity in Ghana will be compounded.

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much lower than the average incremental cost of Kpong because Kpong willsupply only 15% of total generation in 1984 but at a cost per kWh muchgreater than Akosombo. As a result of the new situation caused by thedrastic increase of long run marginal cost, it is desirable to undertakea tariff study in VRA and ECG to move towards economically efficientpricing of electricity in Ghana.

5.13 During negotiations it was agreed that the Government wouldundertake a power sector study to be financed from the Third Power ProjectCredit, and to be completed by June 1978. This study would, among otherobjectives determine the marginal costs of electricity supplied to VRAand ECG customers at different voltage levels and locations. The resultsof the study will be discussed with the Bank with a view of implementir.ggradually, within an agreed period, a tariff structure designed to reflectthe marginal cost of power, taking into account social and wider economicconsiderations. Draft terms of reference for the study are given inAnnex 11, Attachment 1.

VI. FINANCIAL ASPECTS

General

6.01 The presentation in this Chapter deals entirely with the financesof VRA's power activity. The finances of VRA's non-power activities andVolta Lake Transport operations (see also para. 3.03) have been excluded.For the non-power activities VRA acts as an agent of the Government andhas received since the commencement of these services to the end of 1975US$10.6 million in grants for related capital development and operations.Volta Lake Transport is operated by a separate company (Volta Lake Trans-port Company) now wholly owned by VRA. VRA keeps non-power activitiesaccounts separate. Income statements, balance sheets and funds flowstatements, together with a debt service schedule and assumptions under-lying financial projections f or power operations, are given in Annex 9.

Past Finances

6.02 VRA started operations in 1965. However, revenues only becamesignificant in 1967 when VALCO's aluminum smelter started production.Since then VRA has been improving its financial performance. Giventhe concessional terms of VRA's long-term debt and the entity's specialcontractual relationship with VALCO, the Loan Agreements (Loan 310 and618-GH) for Akosombo provided that the main test of VRA's financialperformance would be rate of return on equity!! rather than a specificrate of return on net fixed assets; accordingly, VRA was required toachieve a target rate of return of 8% on currently valued equity as from

1/ This return is defined as income after interest over average equity.

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FY74. However, for this test to be effective VRA's equity musc be consistertlymaintained at its current value through the regular revaluation of assets.VRA's assets were last revalued in FY71 and then only partially so, sincethe revaluation was only applied to assets financed from foreign currency.Accordingly, the rate of return test (as of now) has been incomplete. Ithas been estimated that VRA's assets may presently be undervalued by asmuch as 80%. Assuming that this estimate is correct, VRA will haveachieved only an estimated 2-3% real rate of return on equity in FYs 74and 75. However, given the VALCO rate increase for FY76 and tariffincreases to ECG and the Mines, the rate of return in that year would be6-9%i/. Salient features of VRA's finances between FYs 72-75 are givenin the Table below. During this period, with the additional revenue fromsome rate increases2/, financial performance has, in general, been adequateto meet operational, debt service and investment requirements and to enablea small annual dividend of ¢ 2 million to be paid to the Government. Theoverall financial position of the entity is sound.

1972 1973 1974 1975

Sales (GWh) 3,237 3,771 3,989 3,833

Electricity Revenues (O millions) 15.4 17.7 19.0 19.3

Net Income After Interest (O millions) 3.1 4.4 5.4 4.9

Average Rate (mills/kWh) 4.8 4.7 4.8 5.0

Operating Ratio 54 50 50 55

Debt Service Coverage (times) 1.4 0.9 1.7 1.7

Current Ratio 1.2 2.2 2.3 2.0

Debt/Equity Ratio 58/42 53/47 52/48 50/50

Net Plant in Service (O millions) 172 167 166 161

Financing Plan

6.03 VRA's capital investment and working capital requirements during thisperiod FYs 76-81, along with the sources from which they would be met aresummarized in the following financing plan:

I' The new Agreement with VALCO includes a rate increase from US Mills $2.75to 3.25/kWh for the 1973-75 period. Depending on the inclusion/exclusionof the resulting extraordinary ¢ 4.0 million in the 1976 income the returnis higher or lower.

2/ The increases to VALCO of 1972 and the increases to the Mines and AkosomboTownship/Textiles of 1974. The retroactive VALCO increases for 1973-75are excluded.

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¢____ US$ %-------Millions --------

REQUIREMENTS

Investments- Kpong hydroelectric scheme 258.6 225.0 59- Miscellaneous investmentsl/ 30.9 26.8 7- Future development program2/ 126.0 109.4 28

Sub-total 415.5 361.2 94

Working capital 4.4 3.8 1Cash for future investments/dividends 22.9 19.9 5

Total Requirements 442.8 384.9 100

SOURCES

Internal sourcesOperating income after depreciation 187.6 163.1

Add: depreciation 70.8 61.5Deduct: debt service 90.1 78.3Deduct: dividends 12.0 10.4

Net internal sources 156.4 135.9 35

Proposed Borrowing:

IBRD Loan 44.9 39.0

Additional Int. Loans 153.0 197.9 133.0 172.0 45

Borrowing for future developmentprogram 88.6 77.0 20

Total Sources 442.8 384.9 100

- Includes the project components other than Kpong (see para 4.08).2! Based on preliminary consultants' estimate of the cost of the first two

years of the Bui scheme escalated at 10% p.a.

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The Kpong hydroelectric scheme represents about two-thirds of the proposedcapital investment during FYs 76-81. Other investments mainly comprisetransmission lines, substation modifications and the initial works of VRA'snext development program, which is expected to commence in 1980, and forwhich additional external financing could be sought. The plan restsprimarily on (a) the borrowing of US$172.0 million for the foreign exchangecomponent of the project; (b) the ratification of the recently agreednew VALCO rates; and (c) the implementation of further tariff increasesto VRA's non-VALCO customers.

(a) Loan Funds

6.04 Details of the proposed Bank and other international loans are setout in para. 4.11. The Bank loan would not become effective until the loanagreements of all participating lenders have been executed. The financingplan also assumes borrowings during 1980/81 of US$77.0 million at interestof 10% per annum for VRA's future development program.

(b) Ratification of the VALCO Rates

6.05 The revenue forecasts for the financial plan include the recentlyagreed rates on the 370 and 30 MW (see para. 2.12). The resulting compositerate ranges from about US$4.7 to 5.1 mills/kWh up to 1981 and thereafterfrom US$6.4-6.7 Mills/kWh (see para. 6.06). It would be a condition ofloan effectiveness, that the agreements with VALCO on the Permanent Ratesshould have been signed.

(c) Rates to Non-VALCO Customers

6.06 To achieve a level of earnings adequate to provide the fundsrequired from internal sources for the financial plan, VRA needs furtherrate increases for supplies to its customers other than VALCO. The Govern-ment has been aware for some time of the likely magnitude of the rateincreases which would be needed for the Kpong investment and has alreadLygone a considerable way in meeting the expected requirements by permittingVRA to increase its rates to ECG and the Mines by 60% as from September 1,1976. ECG has in turn been permitted to raise its rates to the finalconsumers by about 29% effective October 1, 1976. During negotiationsthe Government and VRA agreed that VRA will adjust its rates in such away as to enable VRA to earn a rate of return on equity!! of not less than7% in 1977, 8% in FY78 to 80 and of not less than 9% in FY81 and thereafter.As a result of these rate of return targets, tariffs are expected toincrease in current terms by about 10-25% during 1978-1981. Average

/ A change-over to a return-on-assets covenant was considered. However,as the existing return-on-equity covenant is estimated to achieve verysimilar financial objectives we propose to retain it.

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tariffs to non-VALCO customers are expected to range during 1977-1981between US$10.3-20.4 Mills/kWh. To ensure that tariff action is takenin time to meet required rates of return, VRA agreed during negotiationsto submit each year by July 31 financial forecasts for review by the Bank.In this context the Government also agreed that the required VRA tariffincreases will be passed on to ECG's own customers. Finally, duringnegotiations a mechanism of altering tariffs regularly (monthly, quarterly),in line with expected rate of return requirements and with a yearlyadjustment according to the results of the revaluation of assets (seepara. 6.08) was presented for further consideration. Regular adjust-ments have the advantage of avoiding the political difficulties of suddenand drastic tariff increases.

Future Finances

6.07 Although VALCO is expected to decrease its share of VRA's salesfrom 66% in 1975 to 54% in 1984, clearly it will remain VRA's maincustomer. VALCO's firm power take has been projected at 400 MW at aload factor of 95% commencing in 1977 when VALCO's fifth potline will bein commercial operations. Sales to ECG are projected as per para. 5.02

including somewhat higher growth rates (15%) during the initial years,whereas sales to the Mines are projected at a lower average annual growthrate of about 4%. Given the contractual limitation of 50 MW, sales toCEB are projected to remain constant as from 1978. In view of the staticrequirements for the Akosombo operations, VRA's operating expenses inthat respect are essentially not expected to increase in real terms;accordingly forecasts of operating expenses have been projected toreflect the incidence of inflation. Operating expenses relating toKpong have been estimated at 0 500,000 per annum in 1976 prices, i.e.receivables, inventories, payables - are expected to develop accordingto existing relationship. On the basis of these assumptions, VRA isexpected to achieve the following results:

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1977 1979 1981 1983

Sales (GWh 000) 5.1 5.5 5.7 6.0

Total Power Revenues (¢ millions)-! 39.3 55.9 81.9 123.6Power Revenues in Foreign Exchange (%) 51 39 34 22Operating Ratio 45 42 40 36

Current Ratio 4.2 4.9 4.4 3.5

Debt/Equity Ratio 28/72 35/65 38/62 38/62

Net Plant in Service (¢ millions) 327 388 735 860

Debt Service Coverage (times) 3.2 3.1 2.6 2.1

Foreign Debt Service Coverage byVALCO & CEB Foreign ExchangeRevenues (times)2/ 2.1 1.5 1.6 1.1

Rate of Return on Equity (%) 7 8 9 9

6.08 Because of the difficulty of establishing satisfactory indices,VRA's fixed assets have not been revalued since 1971 and on that occasionthe revaluation was partial and only applied to assets financed from foreigncurrency. On the basis of statistics from the US Bureau of Reclamationthe financial forecasts assume a revaluation of assets in FY76 of 80%.Thereafter, assets have been revalued 11% per year reflecting a weightedaverage of expected international inflation rates (7% p.a.) and localinflation rates (20% p.a.). During negotiations VRA agreed to revalueits 1976 assets by June 1977 according to indices acceptable to the Bank.Should the actual revaluation yield a net fixed asset value different thanthe ¢ 300 million assumed in the financial forecasts the agreed rates ofreturn would be adjusted proportionately. For the years following 1976,VRA agreed to revalue assets according to local and international inflationindices.

1/ The foreign exchange revenues have been translated at the official rateof exchange. Local revenues have been forecast on the basis of VRA'sexpected financial requirements.

2/ Excludes debt service on future development.

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6.09 With the additional revenue from the rate adjustments (seeparas. 6.05 and 6.06) the financial forecasts to 1984 indicate that VRA'sfinancial position should continue to be sound and earnings should be sufficientto adequately meet operating expenses and contributions to the investmentprogram. Furthermore, VRA is expected to continue to pay at least itscustomary 0 2.0 million yearly dividend. Higher dividend payments wouldbe possible if the forecast liquidity in fact materializes. Debt servicecoverage is adequate; even taking only VRA's foreign exchange revenuesfrom VALCO and CEB, the debt service coverage is expected to be at least1.0.

6.10 During negotiations it was agreed to continue to adopt the debtlimitation covenant of Loan 618-GH. Therefore, during negotiations,VRA agreed that no debt will be incurred without consulting the Bankunless the maximum future debt service is covered 1.5 times by VRA'soperating income before depreciation.

VII. AGREEMENTS REACHED AND RECOMMENDATIONS

7.01 As a condition of loan effectiveness all loan agreements ofparticipating lenders (para. 6.04) and the agreements with VALCO on thePermanent Rates should have been executed (para. 6.05) and a detailedprogram satisfactory to the Bank for the resettlement of the people affectedby Kpong should have been submitted.

7.02 As a condition of disbursement on that portion of the Bank loanpertaining to the Sefwi-Wiawso-Bibiani line (para. 4.18), the designstudies for the transmission line and substations should have been completedand approved by the Bank.

7.03 The Government and VRA agreed during negotiations that:

(i) Bank approval will continue to be sought beforeappointments to the positions of VRA's ChiefExecutive are made (para. 3.06);

(ii) Power supplies for industrial steam production bemade interruptible (para. 5.09); and

(iii) VRA will maintain a rate of return on revaluedequity of 7% in 1977, 8% during FY78-80, and 9%thereafter. Net plant in service has been estimatedat about ¢ 300 million on December 1976. Shouldthe actual revaluation yield a different value, therequired rate of return standard would changeproportionately (para. 6.06). Lastly, the Govern-ment agreed to allow ECG to pass on VRA's tariffincreases to its own customers.

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7.04 VRA agreed during negotiations that:

(i) it will fill the position of Director of Financeby July 1, 1977 (para. 3.07);

(ii) it will revalue its FY76 assets by June 1977,according to a method acceptable to the Bank,and keep its assets thereafter on a currentlyvalued basis (para. 6.08);

(iii) it will maintain the existing debt limitationsand auditing covenants of Loan 618-GH (paras.6.10 and 3.11); and

(iv) it will submit each year by July 31 financialforecasts to the Bank (para. 6.06).

ANNEX 1Page 1 of 4 pages

GHANAAPPRAISAL OF THE KPONG HYDROELECTRIC PROJECT

EXISTING POWER FACILITIES

General

1. The main source of power in Ghana is the VRA hydroelectricplant at Akosombo, about 100 km north to Accra. From Akosombo, power istransmitted to the southern part of Ghana via a 920 km transmission sys-tem, which forms the national grid. Other small diesel generatingstations are maintained by ECG and certain of the mines.

Akosombo Hydroelectric Development

2. The Akosombo development consists principally of a six-unitpowerhouse and a rock-fill dam on the Volta River, creating a reservoircovering an area of 8,400 km2, two spillways, with a total capacity of19,500 m3/s at elevation 87.7 m (288 feet) above sea level, are incor-porated in the impounding barrier. Four of the six units were commis-sioned in 1966 and two in 1972. The characteristics of these generat-ing units are shown in the table below. The turbines for Units 1 to 6are identical. Maximum output of Units 1 to 4 is limited by the gener-ator and transformer capacities, which were selected on the basis of theturbine nominal rating. From experience with these first four units itwas found that with the reservoir above elevation 81.4 m (full poolelevation is 84.10 m), the turbine output can exceed the nominal rating.To take advantage of the full turbine output at higher heads, generat-ors with a continuous over load capacity of 162 MW were selected forUnits 5 and 6.

AKOSOMBO GENERATING PLANTCHARACTERISTICS

Turbine: Units 1 to 4 Units 5 and 6

Rated output (hp) 203,000 203,000Rated head (m) 64.9 64.9Maximum output(hp) 213,000 222,000

Generators:

Continuous normal capacity (MWT) 128 140Continuous overload capacity (MW) 147 162

Transformers:

Rating (kVA) 165,000 180,000

ANNEX 1Page 2 of 4 pages

The capability of the Akosombo units over the normal range ofreservoir operating levels is shown in the following tabulation:

AKOSOMBO POWER CAPABILITY - MW

Reservoir Elevation (m) 75.6 81.10 84.10

Lower Rule Average Upper RuleCurve Limit Reservoir Level Curve Limit

Unit 1 128 147 1472 128 147 1473 128 147 1474 128 147 1475 128 147 1626 128 147 162

768 882 912

3. Forty years of hydrological data are available for deriving stream-flow records. From the available records the estimated mean rate of run-offfrom the Volta River basin, as measured at Senchi just downstream fromAkosombo, is established as 1,270 m3 /s. Evaporation and irrigation consump-tion account for losses comprising 6.7% and 0.3% of run-off, respectively.The VRA power simulation established the average regulated outflow Lake Voltaas 1,150 m3/s with the Akosombo power plant operating at its full potential.The simulation study also gives the long-term energy capability of Akosomboas 5,400 GWh per year and the long-term dependable output as 762 MW.

4. Lake Volta regulates well the Volta River flow, with average spil-lage of only 1.8% of run-off. The longest continuous below average run-offperiod Qccurred from 1936 to 1944 with a nine-year mean annual flow of1,000 m Is. The two highest years on record occurred in 1963 and 1968, withannual values of 3,060 m3 /s and 2,420 m3/s respectively.

ANNEX 1Page 3 of 4 pagcs

5. The considerable storage available in Lake Volta and the surfacearea of the lake are readily apparent in the following tabulation:

Lake Volta Areas and Volumes

Water Elevation Surface Area Storage Volumeft. m km' 109 m3

99.5 30.5 245 1199.5 60.8 2,320 31249.5 76.0 5,750 90259.5 79.1 6,770 109269.5 82.1 8,510 131275.5 84.0 8,450 148279.5 85.2 8,840 158289.5 88.2 9,750 198

6. The lake's storage capacity in the operating range of the units(between the limits of the upper and lower rule curves) is 619000million m3. Since the average annual inflow is 36,700 million m3 thelake can store almost two years of inflow, and as the long-term dependablegeneration from Akosombo is 5,400 GWh per year the electric energy storagecapability of Lake Volta is in the order of 10,000 GWh.

Existing Transmission Facilities

7. The VRA transmission and generation facilities were placed inservice in late 1965 for the purpose of providing a reliable and economicpower supply to (a) the VALCO aluminum smelter at Tema, and (b) the majortowns and industries of southern Ghana.

8. The VRA power transmission system is shown on the attachedLocation Map and comprises:

(a) six 161-kV circuits extending 67 km from Akosomboto the Volta switching station, supplying the heavyloads at Tema and Accra;

(b) a 650-km, 161-kV transmission loop supplying sub-stations for ECG and mine loads in southern Ghana;the transmission loop is connected to buses inboth the Akosombo and Volta substations;

(c) ECG's new Tema substation is supplied over two161-kV circuits from Volta substation; and

ANNEX 1Page 4 of 4 pages

(d) Togo/Benin is supplied from Akosombo substationover two 161-kV circuits.

9. The 161-kV Volta switching station is the principal VRA sub-station and also serves as the load dispatching and system control center.The VALCO aluminum smelter is located about two miles from this switchingstation, and is supplied via five circuits each terminating on an 85 MVA,161/13.8-kV transformer; there are no means of paralleling these circuitsat 161-kV at the smelter substation. Four of these circuits provide13.8-kV supply for the four potlines, each rated approximately 75 MW. Thefifth circuit is identical to the other units but is arranged on the13.8-kV side so that it is normally functioning as a spare, which can besubstituted for any of the other potline circuits in the event of a perma-nent outage for any significant time period.

10. Over the 650-km transmission loop the 25-km section from Voltato Achimota substation serving Accra consists of two circuits in parallel,but the remaining 625-km is a lightly loaded single circuit. At Prestea,located in the westernmost portion of the loop, a 25-MVAR synchronous con-denser is provided to maintain an adequate voltage profile at the varioussubstations on the loop. The 161-kV system has provided satisfactoryoperating performance for some ten years since commissioning without anybasic modifications. New load has required extensions -- for example,the spurline from Tafo to Akwatia and increased transformer capacity atAchimota, Takoradi, Kumasi, etc. -- but the same basic loop arrangementhas remained unaltered, without any transmission line reinforcement.

ANNEX 2

VRA - ORGANIZATION CHART

BOARD OF THE AUTHORII'Y

CHIEF EXECUTIVE

OFFICE ECTIVE SEC'S

POWER OPEHATIONSDEPT.

PERSONNEL SPECIAL LEGALENGINEERING DEPT.| FINANCE DeFrPT. L i|HAT1 AE DEFAfr MeNr IENGINERING EPT. FNANCEDE 1.DEPT. DUTI ES ADMIN. SERV. HiEALTHi & SAFETY D-AIMN

VOLTA LAKE V-ALKEAKOSOMBO TOWNHESEAFICH AND TRANSPORT RESTTLEMENT MANAGEMENTDEVELOPMENTS TRANSPORT

Wojid Bank- 16401

ANNEX 3Page 1 of 5 pages

GHANAAPPRAISAL OF THE KPONG HYDROELECTRIC PROJECT

DETAILED DESCRIPTION OF THE PROJECT

General

1. The project proposed for Bank financing is made up of four parts:

(a) the hydroelectric development of the Volta Riverat Kpong and its associated transmission facilities;

(b) reactive power compensation in VRA's transmissiongrid;

(c) the transmission line and substations required tosupply electric power to t'ie Sefwi-Wiawso-Bibianiarea in southwestern Ghana; and

(d) an additional transmission link between Tema andAccra.

The Kpong Project

Description

2. The Kpong project consists of a concrete and embankment dam forelectric power generation to be built on the Volta River 24 km downstreamfrom the Akosombo dam and hydro plant which regulate the river flow with its

huge reservoir. See attached Location Ma?.

3. The width of the river at this point is 550 m. The impoundingbarrier, extending about 700 m in a straight line from bank to bank, will com-prise an integral intake-powerhouse structure, 150 m long, adjacent to thewest bank; a gated concrete overflow spillway, 250 m in length; and an embank-ment river dam of zoned section, 300 m long. Earthen forebay dikes with atotal length of 6 km will flank the impounding barrier. The headpond will beraised by the dam and dikes to a maximum Df 17.70 m above sea level, submerg-ing the Senchi and Kpong rapids upstream and reaching to the toe of the damat Akosombo to develop a gross head of some 12 m. The surface area of theheadpond is 3,650 hectares (see attached General Arrangement and Sectionsthrough Dam and Dikes).

4. The four-unit powerhouse will have a total installed capacity of160 MW. A 270-ton powerhouse crane will handle the heaviest power plantcomponent. Overhead connection from the step-up transformers will deliverpower to the plant switchyard, located on the west bank of the river, whichwill be equipped with a 4-breaker ring bus scheme. A double circuit 161-kVtransmission line (795 MCM all-aluminum conductors on steel framed towers)will extend southwesterly for 60 km to the Volta substation at Tema.

ANNEX 3Page 2 of 5 pages

5. The concrete gravity overflow spillway, designed for a flood flowwith return period of once in 10,000 years (18,600 m3/s) and capable ofaccommodating the maximum possible release (20,800 m3/s) from the Akosombospillway and powerhouse when the Akosombo headwater is at the maximum levelfor which the dam was designed, will contain fifteen 11.2 by 13.5 m radialgates.

6. The main plant equipment will be installed in the combined intakeand powerhouse structure. It includes:

- 12 wheeled intake gates (3 per unit), 6.40 by 13.50 m,stop logs and trash racks;

- 6 draft tube gates (2 per draft tube), 6.60 by 6.30 m;

- one powerhouse crane - 270-ton plus 25-ton auxiliary;

- 4 generating units of 40 MW each; 55,000 HP, 11.75 mhead fixed-blade propeller turbines with concretespiral casings, 7.50 m runners driving 44.6 MVA (at0.9 p.f.), 13.8 kV, 62.5 RPM, 50 Hz umbrella typethree-phase synchronous generators;

- ancillary electrical and mechanical systems; and

- two 13.8/161 kV, 100 MVA forced cooled three-phasestep-up transformers (two units per transformer).

Construction

7. The construction schedule given in Annex 6, requiring a total of4-1/2 years from submission of bids for civil engineering works contract tocommissioning of the fourth and last unit of the power plant, is governed bythe diversion sequence. It is proposed to perform the diversion in twostages in accordance with the seasons sequence; in Stage I, which will beexecuted in the 1978 dry season, a U-shaped cofferdam extending from the westbank of the river will enclose the working area for constructing the intake-powerhouse structure and the spillway. When the spillway gates are posi-tioned before the start of the 1979 rainy season, the river is divertedthrough the completed spillway during Stage II, which permits the construc-tion of the river dam behind a cofferdam extending from the east bank of theriver.

ANNEX 3Page 3 of 5 pages

8. The method described of handling the river flow during construc-tion is greatly assisted by the ability to smooth peak flood dischargeseven during a heavy rainy season by the very large extent of Lake Volta.Moreover, advanced warning of any large spillage from the lake can be givento the contractor well ahead of time so as to permit implementing precau-tionary measures.

9. Of an estimated peak labor force of 1,700 men including supervi-sory staff, housing will have to be provided for approximately 1,100 men.In order to take full advantage of this expenditure it is proposed tolocate the new housing facilities in the immediate vicinity of the existingtowns of Amedika and Kpong, which are close to the construction site, andto design the buildings in such a way as to make them convertible intofamily dwellings at the end of the construction period. The planning ofthis is being done by VRA, assisted by local authorities.

10. In laying out the construction schedule it is necessary to con-struct certain site facilities before award of the civil engineering workscontract in order to facilitate a quick start-up of the contractor's oper-ation. The preliminary works to be carried out by VRA assisted by localcontractors consist of: (a) approximately 50% of the housing facilitiesfor the work force mentioned in the preceding paragraph including an officebuilding; (b) a power line to supply construction power at the site; (c)clearing and resettlement of villages adjacent to the project site; and(d) a 6-km haul road from the west bank rock quarry to the constructionsite.

11. As indicated above, the construction schedule requires that thecivil engineering works contract be awarded not later than March 1977 topermit completion of the project by June 1981. Other key contracts tobe awarded concurrently with the civil engineering contract are: (a)spillway gates (manufacturing period 19 months); (b) turbines and genera-tors (manufacturing period 26 months); and (c) powerhouse crane (manufac-turing period 18 months). Excepting the contracts for hydraulic gatesand hoists, which will be financed by CIDA and contracted in Canada, allother items for the project involving foreign financing will be procuredthrough international competitive bidding. Issuance of tender documentsfor the various contracts of the project is foreseen as follows:

Civil engineering works August, 1976Turbines, generators and powerhouse crane September, 1976Gates and hoists

- Spillway gates January, 1977- Intake gates- Draft tubes lining and piers nosing March, 1977- Transformers January, 1977- Kpong and Volta switchyards June, 1977- Transmission line Kpong-to-Tema June, 1977

ANNEX 3Page 4 of 5 pages

12. Tenders for civil engineering works will be due four months afterissuance; for electrical and mechanical works a period of three months forpreparation of bids is considered sufficient. Contracts are expected to beawarded two to three months later. Prequalification of interested civilworks contractors has already been carried out and eleven well known interna-tional contractors have been approved for tendering. The Bank has beenkept informed of all the prequalification proceedings, which conform toBank's guidelines for procurement.

13. The concrete gravity spillway and the powerhouse structure willneed a total of 207,000 m3 of concrete. The river dam, with a maximumheight of 20 m above bedrock, and the dikes embankments will have a totalvolume of 2,000,000 m3 of fill materials. It is estimated that the Kpongproject will require 52,000 tons of cement, 9. 800 tons of reinforcing steel,700 tons of steel-sheet piling, and 130,000 ml of formwork.

Technical Soundness

14. The Kpong hydroelectric project develops the Volta River drop atthe Senchi and Kpong rapids between Akosombo and the river mouth in theGulf of Guinea. The power generation at Kpong benefits from the considerablestorage immediately upstream afforded by Lake Volta (see Annex 1). Based on40 years of hydrological data for deriving stream flow records, the averagelong-term regulated outflow is estimated at 1,150 m3/s with the Akosombopower plant at its full potential. The installed capacity of Kpong has beendetermined for this long-term average discharge so that three units wi:ll beable to pass it through when one unit is being overhauled. Simulationstudies of Kpong operating with Akosombo in the most efficient manner indi-cate that the long-term dependable power output and annual generation ofthe VRA power system will be increased by 140 MW and 970 GWh, respectively,with the addition of the Kpong power plant to the power system.

15. A major program of drilling, soil sampling and geophysical sur-veys was conducted at the project site to provide sufficient geological andgeotechnical data for design studies. The dominant soil in the area is animpervious alluvium of clay/silt gradation adequate for embankment con-struction. Bedrock, which is exposed in the river bed, is a gneiss of goodquality for foundation purposes. An ample supply of materials suitable forembankment construction and concrete aggregate is available at reasonablehauling distances. The powerhouse, the spillway and the river dam will allbe founded on sound rock. The dikes will be founded on the imperviousalluvium with pressure relief wells at the downstream toe and cut-off inthe immediate vicinity of the river bed.

ANNEX 3Page 5 of , pages

16. West Africa is commonly thought to be a relatively stable and seis-mically inactive area, nevertheless, the coastal areas of Ghana have experi-enced earthquakes of substantial magnitude. Therefore, the stability of allmajor structures has been analyzed by the consultants with due considerationgiven to seismic forces.

Reactive Power Compensation in VRA's Transmission Grid

17. The Italian group of consultants Italconsult-Cesi has conducted com-prehensive studies of VRA's 161-kV transmission grid. These studies comprisedload flow, system stability and short circuit analysis on four reference years,namely 1980, 1985, 1990 and 1995. The main conclusion regarding the behaviorof the system for reference year 1980 is that the present grid will operatesatisfactorily provided that sufficient reactive power compensation is added.The consultants recommend that a 25 MVAR synchronous condenser be installed atPrestea in addition to the existing unit of same capacity, to meet the react-ive power requirements of the system and avoid excessive voltage drop andpower losses. Moreover, the consultants recommend the installation of a 25MVAR static condenser at Kumasi in order to maintain satisfactory operatingvoltages at every busbar of the grid in the event of an open circuit in thetransmission line between Accra and Cape Coast without having to resort toextensive load shedding (up to 50% of the load) at each of -he substationsbetween Prestea and Accra. The installation of these two condensers entailsextending the 161-kV busbars at both substations, Prestea and Kumasi, and theprovision of 25 MVA stepdown transformers and associated sw--tching equipment.

The Supply of Electricity to the Sefwi-Wiawso-Bibiani Area

18. This component of the project entails the construction of (a) an80-km 161-kV transmission line connected to VRA's 161-kV loop at a substationnear Dunkwa in southwestern Ghana, and (b) the substations at both ends ofthe line. The line will supply electricity to an ECG project involving 86 kmof 33-kV lines to feed industrial loads in the Sefwi-Wiawso-3ibiani area (seeMap) and seven townships (population about 30,000),

19. VRA has proceeded with some route surveying, but -o design work hasyet been done. No definite construction schedule has been established forthis project; but in order to supply electric power in time to the ECC distri-bution scheme, all works would have to be ready for commissfining by mid-1979.

Additional Transmission Line Tema to Accra

20. The studies conducted by Italconsult-Cesi on VRA7s 161-kV transmis-sion grid indicate that -- for reference year 1980 -- under emergency condi-tions involving an open circuit in the 25 km transmission .1-e between Voltasubstation at Tema and Achimota substation at Accra, the Lhe-rmal rating ofthe circuit still in service will be exceeded. In order to avoid such criti-cal operating condition it will be necessary to increase the transmissioncapacity between these two substations by adding another line. This addi-tional line requires extension of both substations to accommodate the neces-sary switching and control equipment.

GHANA

KPONG HYDRO-ELECTRIC PROJECT

Escalation Percentage Change Forecast i/

1976 1977 1978 1979 1980 1981

2/Index of International Inflation 100.0 108.4 117.1 125.8 134.7 202.1

Yearly % Change 8.4 8.0 7.5 7.0 7.0

Items

Labor - Expatriate 14 12 10 8 8 8

Construction Equipment (Including Spare Parts) 13 10 9 6 5 5

Construction Materials (Other than Specified Below) 8 7 7 7 7 7

Cement 10 8 6 6 6 6

Reinforcing Steel, Sheet Piling, Structural Steel 13 7 7 7 7 7

Petroleum Products 25 15 15 10 10 10

Electrical Equipment 14.0 10.0 8.5 6.5 6.5 6.5

Mechanical Equipment 7.5 6.5 6.5 6.5 6.5 6.5

Turbines and Generators 14.0 10.0 8.5 6.5 6.5 6.5

z1/ Forecast by Acres International Ltd. X2/ Source: International Economy Division, Economic Analysis and Projection Department -

Development Policy Staff, April 1976.

G H A N AKPONG HYDRO-ELECTRIC PROJECT

VOLTA RIVER AUTHORITY

Apportioning of External Financing

Donor Item$ US$ millions1/

Arab Agencies Civil engineering works 73.0

Joint Financing Generating equipment and powerhouse crane 37.6IBRD/FED/EIB Transformers 1.5

Ancillary electrical equipment 0.7Kpong switchyard 1.4Extension of Tema switchyard 1.0Transmission line Kpong-to-Tema 5.2Reactive power compensation 3.8Additional transmission link Tema/Accra 3.2Review engineer board 0.2Total IBRD/FED/EIB joint financing 2/ 54.6 54.6

IBRD Construction equipment, vehicles and spareparts for preliminary works and resettlement 2.4Transmission to Sefwi-Wiawso-Bibiani area 3.0Total IBRD parallel financing 5.4 5.4

CIDA Engineering services for the Kpong scheme 16.7Gates and hoists 22.3Total CIDA 3/ 39.0 39.0

GRAND TOTAL FOREIGN FINANCING 172.00

1/ Includes physical and price contingencies.2/ IBRD: US$ 33.6 million/FED: US$ 10.0 million/EIB: US$ 11.0 million3/ The CIDA contribution,as shown here, is equated with the presently estimated

cost of the items that will be procured in Canada.

U,

AU0 6KPONG HYDROELECTRIC PROJECT

GHANACONSTRUCTION SCHEDULE

CONSTHLICTIS MA JOF I CONTRACTS - 1A -- I -I - SIR I

STAGES LA ENGIHELHING R3JOALIFICA DS lL OOD JERJDD $ 20 | H G l _ ¶itLLI 'I HL:TiL :TP0005 lLTIO IN AS TInTS TRW ,s

T

'SI 1o-.-----4- -,IVI',ON $fSL LLICIVIL ENGINEERIN TENDER SUBMi -S oN CUN IA L CON NAC21IRKS ^- I Io -I - - - -- STALL REMOVEPHSNAVLIFICATION CALL R co F LEO 5EROAM REMOVE COLILSCEA.A.A. ~ ~ ~ '--- - OLtWI I.. LAN .. TE SECTIONU

PAILIRINAR WOHET RV V AN EXCAVATE ELST NOI Ch ANNEL I

I 51NC TENSER, ALL"iOTS OTS CONTRACT LONAICTN OLES j0ST1E0TSPILLWAY GATES I i t I

CALL VMISN PAAIC I I A S HIPIN II VERSION

| G(THROUGH LEFT | A P OUSECIOAONNE LI INTACE GATSI, 8 1 PRTRASH RACES ESLT ANA CI NTRACT FI LAICATION VATS INSTALL TRASH RACES ISHAFT TARE -- _____GATES & PIER CAY D IN

|~~~~~~~~~~oiG SVAAITCYR bITCYHD|ll EOE ,A*R u^ucV*$slN&FXlalol

NOSINGS ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~AIuiN 2I EVC

TURBINES GENERATORS TONSIL SUN_SMISO |ARO LONTRCA MANUFACTURR T O ESINS FABICATION -t - .IT NO 2KPoPTEnASRUSE CRANE ~O 1SIPN CALL i iIINSTALL LIkIT NOOUI o4 NSRX

TRANSFORMERS AND TENOEH SUBMISSION AWRDA CONT.RACT FOUATAL EI A I& ATICAUION THNURNA NTALL UNIT NO. IN A ANCILLIARIESI O …0- - __ _ - N PIN -- T

EA L I_ _ _ _ _ U_ I_I_

COFFERDAM iSAE III

DIVA RSION *AT A IASTAGE 1IECRTO NLOEPEIT ROUGH IbFUDPEI

THEE CONSTRUCLIO I ICASTS AEST LOALNAY DYKESAS RREA GE C RUCTR ION - ___ ___

ITCHYSRO N E'TNITCHTAAO TRA~~~ ~ ~~~~~~~ ~~~~~~TENOE AWARD COTRC I RSVETAL G,LIPM EICAANO INSTALLATIO J

A C IL IT IE S ~ ~ ~ ~~ ~~~ ~~ ~~~ ~~~~~~~~ ~ ~ T A A I. .I T L A A S H A T * A,AN* SH IPPIN G INTA LLA TIO N T R A N SM ISSIO N LA C ILIT IE S dLINE CALL SURIGGITM l~~~~~~~~~~~~~~~~~~~;IAinUl TS~A -. A VTAHIUAC.T-AA SAAV

ANNEX 7

GHANAKPONG HYDROELECTRIC PROJECT

VOLTA RIVER AUTHORITY

Estimated Schedule of Loan Disbursement

AssumptionsLoan Approval: March, 1977Effective Date: May, 1977Closing Date: December 31, 1981

IBRD Fiscal Year Cumulative Disbursementand Semester at end of Semester1976/1977 (in US$ million)June 30, 1977 3.6

1977/1978December 31, 1977 7.3June 30, 1978 9.9

1978/1979December 31, 1978 12.6June 30, 1979 18.0

1979/1980December 31, 1979 23.4June 30, 1980 28.4

1980/1981December 31, 1980 33.5June 30, 1981 36.2

1981/1982December 31, 1981 39.0

January, 1977

ANNEX 8Page 1 of 6 pages

KPONG HYDROELECTRIC PROJECTRESETTLEMENT PROGRAM

Introduction

1. Compared to the Volta Lake, covering 2.0 million acres, the areathat will be covered by the Kpong head pond will be very small -- 9,000acres of land, islands and existing river. The area is well populated andcultivated. The number of people to be resettled is 4,597 (919 households)who are living in 55 villages along the east and west banks of the riverand on the islands. Lower Kpong, the older part of the town of Kpong, willalso be affected and about 1,100 people will have to be resettled. Large-scale farming activities are also taking place in the area: cotton and ricefarming on the east bank and sugar-cane plantations on the west bank.Resettlement plans are now being finalized by VRA; plans for the relocationof the first community are under way and the construction program isexpected to begin shortly.

2. VRA has already experienced one resettlement exercise, when theAkosombo Dam was built. The formation of the head pond meant that nearly80,000 people had to be resettled. They were finally relocated in 52resettlement townships. As the resettlement team was mobilized only afterconstruction of the dam began and the flooding started before schedule,the relocation program was carried out more in an emergency situationrather than as a well thought-out scheme. In addition, VRA had no previousexperience in resettlement programs and had to rely on considerableinputs, which were not always forthcoming, from other governmental agencies.Despite these problems VRA evacuated everyone with their full cooperationand without loss of life. Once the people were resettled, however, pro-blems emerged, especially with respect to the agricultural program, housingand water supply. Some of the resettlement towns are now deserted orgradually deteriorating. The Kpong resettlement team is aware of the mis-takes made in the Volta Resettlement Program, and have formulated theirplans accordingly.

Administrative Framework

3. The Kpong Project Manager bears overall responsibility for reset-tlement activities. Under him are VRA's resettlement officer, his twoassistants, and about 40-50 field staff. Side by side with the resettlementofficer is the head of the construction team. Under the resettlement officeris (i) a team from the Faculty of Architecture of the Kumasi University ofScience and Technology (UST) who have been contracted to prepare conceptualdesigns of the resettlement villages and construction township; (ii) a teamfrom the University of Legon who have been contracted to prepare the agric-ultural resettlement program; (iii) the Lands Department, which is responsi-ble for the surveying and valuation of land and property and which will be

ANNEX 8Page 2 of 6 pages

responsible for making compensation payments; and (iv) an architect/plannerwho will be responsible for the planning and supervision of construction ofthe resettlement villages. The resettleuent officer and one of his assist-ants have carried out the social survey and analyzed all the data collected.

4. The administrative set-up appears adequate for the size of theprogram. The resettlement officer has already been appointed; he has beenworking on resettlement activities ever since the Volta Resettlement Program,during which he was a social welfare worker, and he is intimately acquaintedwith the Kpong project area. VRA's Deputy Director of Engineering has beenappointed as head of the construction team as he is an experienced civilengineer.

Location of Resettlement Villages

5. There are basically five groups of people to be resettled. Thefirst will be the Togome community, located in three villages on the eastbank of the Volta River (see Map), with a population of 854 comprised of113 households. A second groupare the Fcjokus, living in 17 villages on theeast bank, with a population of 1,938 comprised of 397 households. Both theFojoku and Togome groups are living on their own tribal land. The thirdgroup, the Ewe community, is living on ti.e east and west banks of the riverand on the Kpong Islands either in Manya Krobo (1,187) or Akwamu (244) triballands. The total population is 1,431, comprised of 333 households and livingin the village of Latriku on the west bark: Latriku is Manya-Krobo triballand although the Osudokus claim tenure to land they are now occupying. Thepopulation is 374, comprised of 76 households. All four communities followtraditional activities of fishing and subsistence farming. None of thevillages has a potable water supply, sewerage system or electricity. Nor dothey have medical facilities, the hospital at Akuse being used when neces-sary. The last group is the community of lower Kpong, on the west bank,numbering 1,100 people.

6. Four basic principles were used in deciding where the new resettle-ment villages are to be relocated: (i) t:o retain the present rural/riverinelife style of the resettled people, but provide the means for self-develop-ment; (ii) to ensure that sufficiently good farmland and water existed closeto the resettlement areas; (iii) to ensure that the resettlement area wouldnot be unhealthy, especially with respect: to the spread of bilharzia; and(iv) to respect traditional, tribal and clan groupings and land tenure rights.These principles are based on the experience gained and problems encounteredduring the Akosombo Resettlement Program,

7. Extensive consultations have been conducted with most of the peopleto be resettled, and now the new resettlement sites have been decided on,with the agreement of all concerned. However, plans for resettlement of thepopulation of lower Kpong are still being finalized.

ANNEX 8Page 3 of 6 pages

Compensation Policy

(a) Cash Comtpensation

8. VRA had considered making cash compensation to each householderbased on the assessed value of his property. However, consultations withthe people to be relocated revealed that for the most part they did notwant cash compensation but wished to be resettled; therefore, a resettle-ment policy has been adopted by VRA. The few who have opted for cashcompensation will be reimbursed by VRA.

(b) Compensation for Land

9. The Lands Department will have completed by the end of 1976 thesurveying and valuation of land, property, hunting and fishing rights forall the areas affected. Compensation for land and land tenure rightswere a serious problem in the earlier Volta Resettlement Program whenvillagers were moved off their tribal land onto other tribal areas. For-tunately, the selection of the Kpong resettlement sites does not involvethis issue, as the Togome and Fojoku groups will remain on their triballands and the Ewe group, who are not living on their own land, will bemoved either to government-owned land or remain tenants of their currentlandlords.

(c) Compensatiorn for Housing

10. After extensive consultation with village representatives andwithin VRA itself, the resettlement team has drawn up a housing policybased on replacing permanent structures room for room, i.e. each house-holder will be given the same number of living and sleeping rooms thatare in his present house. All will be provided with a bath area andenclosed compound, and owners of houses valued at 0600 or more will beprovided with a kitchen. Owners of temporary structures or those whowish to receive cash compensation will be paid the Lands Department valu-ation of their properties times a factor of 10, as this is the standardcompensation factor for those who will receive new houses. A prototypehouse is being erected at Togome so that changes can be made in conjunc-tion with the community and the Regional Administration. The design ofthe unit is based on the present design of houses in the villages.

(d) Agricultural Policy

11. The policy adopted by the Kpong resettlement team is not toattempt to change radically the means of production, but to provide suf-ficient land for the resettled communities to continue their traditionalmethods of cultivation and offer them the means for developing themselves.Many resettlement programs have failed because they have been turned intodevelopment projects; this not only requires a high level of planning andadministration, but also involves radically changing peoples' way of lifeat a time whien they have to undergo the traumatic experience of being

ANNEX 8Page 4 of 6 pages

resettled. After consultation with the IMinistry of Agriculture, an agric-ultural team from the University of Legorn has been preparing an agriculturalprogram for the resettlement villages. As well as surveying the sites toassess the agricultural potential and preparing a plan for how the landshould be allocated, they will also be looking at how to provide the meansfor people to develop themselves. One approach under discussion is to setup a small agricultural unit staffed by extension workers, which can pro-vide seeds, fertilizers and simple farm implements for sale to the farmers.Once the program has become established and VRA withdraws, the Ministry ofAgriculture should take over.

(e) Compensation for Commercial Farms

12. The Kpong head pond will flood certain commercial farming lands:420 acres of cotton and 230 acres of irrigated rice land farmed by ADC(Agricultural Development Corporation) oni the east bank of the river, andon the west bank 990 acres of sugar-cane land owned by GHASEL (GhanaSugar Estates Ltd.), part of a Bank-financed sugar project. Discussionshave been taking place between representatives of ADC, GHASEL and VRA onthe issue of compensation. Both companies indicated that they were notinterested in receiving cash payment for their land, valued at a total esti-mated cost of 02.26 million. They would rather be provided with some irri-gation facilities and have land cleared fEor crop growing (ADC on land theyare already leasing and GHASEL on land they already own). Off-take channelsfrom the dam could provide an irrigation outlet. These arrangements appearto be the best solution for both GHASEL and ADC. Final agreement on thedetails of such a compensation program a:re being worked out and a mutuallyacceptable time schedule is being formulated.

Public Health

13. With the formation of the Volta Lake, schistosomiasis (bilharzia)became endemic in certain areas, whereas previously endemicity was lowalong the Volta River. Onchocerciasis (river blindness) was previouslywidespread alylg the Volta River; after the lake's formation in some areasbelow the dam- and also near the tributaries, prevalence rates increasedwhile in other areas the disease was eralicated. Construction of the KpongDam will mean that a breeding place of the simulium fly (the fly that trans-mits onchocerciasis) -- the Kpong and Senchi rapids -- will be eradicated.However, the Kpong head pond will be fairly shallow, providing suitable con-ditions for growth of aquatic weeds which are important as the habitat of thesnail vector of schistosomiasis. There also may be migration into the areaof fishing communities already suffering from urinary schistosmiasis, sothat the disease could possibly become endemic around the head pond.

14. VRA has been conducting a research program on the Volta Lake tohelp eradicate schistosomiasis. The methods adopted, which are also recom-mended by the UNDP/WHO Bilharzia Control Project, are those of prevention,i.e. to control lake water contact by providing potable water supplies and

1/ Around the Kpong and Senchi rapids.

ANNEX 8Page 5 of 6 pages

sanitary facilities for the lakeside villages. The Kpong resettlement vil-lages will be provided with a potable water supply and sanitary facilities.South Senchi and Old Akradi are located near faster-moving waters where thesnail vector should not be present. The one drawback to the new locationof the Fojoku group is that they will only be located one mile from thehead pond. Therefore, low dykes (five feet high) will be built at oneaccess point on the head pond near their new location to create deep water,and jetties will be provided for boat landings so that people will not wadeinto the water. The rest of the eastern bank of the head pond will beprivate ADC land through which access to the lake will not be permitted.The problem of fishing on the head pond is being discussed within VRA: byprohibiting fishing, schistosomiasis can be controlled; but on the otherhand the lake probably will be fairly productive as far as fishing is con-cerned. By licensing fishermen there could be some control over theiraccess points to the lake, i.e. only where there is deep water and wherejetties are provided. VRA has already decided to patrol the head pond sothat nobody settles by the lakeside; this should be feasible as the lakewill cover only 37 km'.

15. A Bank consultant has visited Ghana to discuss the public healthaspects of the Kpong head pond. He has recommended measures to controlschistosomiasis, including: (i) the provision of water supply to resettle-ment villages; (ii) development of non-public agricultural land to preventaccess to the lake; (iii) engineering works related to the improvement ofthe shoreline, access to the lake, piers, wharves, embankments, dyking,drainage and preparation of service areas (for fishing and transportation)for access to the lake; (iv) legislative measures related to fishing, squat-ing, access to the lake and use of land for construction and agriculture;(v) fencing; and (vi) establishment of an Epidemiological Unit to carry outsurveillance and control activities for schistosomiasis and other diseasesin both the Lake Volta and Kpong areas. Recommendations were also made onthe establishment of a health center at Kpong and the strengthening of theAkuse and Akosombo hospitals. These measures are being discussed with VRAand the Ministry of Health.

Estimated Cost of the Kpong Resettlement Program

16. The Acres feasibility study contains a preliminary estimate of06.25 million for resettlement costs, excluding lower Kpong. This estimatehas been included in the estimated capital cost of the project. The follow-ing table is a breakdown of the estimated costs:

ANNEX 8Page 6 of 6 pages

Cedi

Purchase of Land 172,000Housing 4,833,000Schools 150,000Water and sewerage 215,000Moving expenses 80,000Administrative expenses 220,000Contingencies (10%) 580,000

Total 6,250,000 (1975 prices)

Adjusted to 1975 price levels, the average per capita cost for the VoltaResettlement Program was approximately ¢1,000. For the Kpong programper capita cost is nearly ¢1,200.

17. The Acres feasibility study also made some estimates of the costof resettling the lower Kpong population. The total cost would be approxi-irately 0 1,800,000, composed of:

Cedi

Housing 1,309,000Clearing land 100,000Construction of dykes 200,000Moving, infrastructureand administrativeexpenses 191,000

Total 1,800,000 (1975 prices)

18. As a condition of effectiveness of the Bank loan it is recommendedthat final resettlement plans be submitted to the Bank for approval. Of thetotal cost of resettlement (US$8.2 equivalent), the Bank will contributeUS$ 1.6 million; VRA will provide the remainder. The Bank's contributionwill cover the foreign costs of equipment and vehicles and spare parts(US$ 1.2 million) associated with village resettlement and about US$ 0.4million for preliminary works -- i.e. construction township, assistance inrelocating Togome, the first village to be resettled.

Conclusion and Recommendations

19. The Kpong resettlement team is finalizing a program that will besatisfactory to the Government, VRA and the people who will be relocated.The efforts they have made to become fully aware of the inhabitants'opinions have been thorough, both with respect to the detailed social surveycarried out and extensive consultations conducted with the representativesof the villages throughout the planning process.

ANNEX 9Page 1 of 4 pages

GHANAVOLTA RIVER AUTHORITY

KPONG HYDRO-ELECTRIC PROJECTASSUMPTIONS UNDERLYING FINANCIAL PROJECTIONS

I. ENERGY FORECAST

(a) ECG: ECG sales are based on projections prepared by theBank in the course of the appraisal of ECG's IIIPhase. Estimates are substantially in line withforecasts prepared by Acres in their Kpong Feasibi-lity Report.

(b) VALCO: Sales to VALCO have been estimated at 2,700 GWh in1976 reflecting the projected upturn in the worldaluminum market. Thereafter, with the fifth pot-line in operation VALCO is projected to take400 MW at a 95% loadfactor.

(c) THE MINES: Sales have been projected by Acres with growthrates of 4 - 6% p.a.

(d) CEB: Contractually CEB is limited to 50 MW which isexpected to be attained by 1978.

(e) AKOSOMBO TOWN-SHIP/TEXTILES: Forecasts have been prepared by Acres

II. POWER RATES DEMAND CHARGE ENERGY CHARGE

(a) ECG(US$)I/ 4.2/kW p.m. 0.00278/klWh

(b) MINES(US$y)i 4.8/kW p.m. 0.00360/klqh

(c) CEB (US$) 2.48/kW p.m. 0.00248/kWh(CEB is also subject to a construction charge of US$ 24,500/month)

(d) VALCO (US$): the details of the recent agreement are as follows:

1/ As of September 1, 1976.

ANNEX 9Page 2 of 4 pages

Rates:

(A) up to 370 MW:

- 1973-1975 3.25 US Mills/kWh- 1976-1978 4.50 US Mills/kWh- 1979 4.6 US Mills/kWh- 1980 4.75 US Mills/kWh- 1981 and beyond 5.0 US Mills/kWh

(B) above 370 MW:

- 1977-1930 6.75 US Mills/kWh- 1981 and beyond 19.64 US Mills/kWh.!/

Escalation: beginning in 1977 all rates will be escalated onthe basis of the operating expenses component of 0.83 US Mills/kWh.

(e) AKOSOMBO TOWNSHIP/TEXTILES (0): An average rate of 0.00897/kWhhas been assumed.

III. OTHER INCOME: Miscellaneous income (rents, interest, etc.) hasbeen estimated at ¢ 500,000 p.a.

IV. VALCO INTERRUPTIBLE POWER: It is estimated that VALCO will take15 MW over and above the 400 MW at 50% loadfactorat the rate of 6.75 US Mills/kWh up to 1980 andthereafter at the rate of 19.64 US Mills/kWh.

V. VALCO DEPOSIT ACCOUNT: This entry reflects VALCO's 1976 agree-ment to increase the rate of US Mills 2.75 to3.25/kWh for the period 1973-75. The amountincludes the ¢ 3.0 million already paid under theinterim increase agreement of 1973.

VI. OPERATING EXPENSES: Given the static nature of the Akosombo oper-ation, operating expenses have not been increased inreal terms. Inflation allowances are based on pro-jected judgements on likely results of VRA unionnegotiations, inflation rates in Ghana and abroad.Kpong's operating expenses have been estimated at0 500,000 in 1976 prices.

1/ This rate is the result of applying the expected cost of Kpong to theprice adjustment formula contained in the fourth amendment to the PowerContract (see also para. 2.14).

ANNEX 9Page 3 of 4 pages

VII. DEPRECIATION: An average depreciation rate of 2.40% on gross fixedassets has been assumed which reflects approximatelyhistorical values.

VIII. DEBT SERVICE

INTEREST:-On existing loans, the contractual rates have beenadopted (see Annex 9, Table 4).

-The proposed Bank loan carries a 8.5% p.a.interest rate and a 0.75% commitment charge.

-The proposed additional international loans areassumed to carry a weighted interest rate of 3.5%p.a.

-The future loan for VRA's next generating stationhas been assumed to carry a 10% p.a. interest rate.

AMORTIZATION:-On existing loan the contractual arrangement havebeen adopted.

-The proposed Bank loan is repayable over 20 yearsincluding a grace period of 4-1/2 years.

-The proposed additional international loans areestimated to include a grace period up to themiddle 1981 with 4 semi-annual level amortizationpayments becoming due thereafter.

-The future loan is assumed to carry a grace periodduring the construction period of Bui.

IX. DIVIDENDS: VRA is projected to continue to pay ¢ 2.0 million peryear to the Government.

X. CAPITAL INVESTMENT:

Kpong - The cost estimates have essentiallybeen derived from data furnished by Acres.

Reactive PowerCompensation andMiscellaneousInvestments - Estimates are based on IBRD appraisal

ANNEX 9Page 4 of 4 pages

BUI - Consultants estimate very preliminarilyVRA's likely next hydro-electric stationat US$ 235 million in 1976 prices. Anescalation factor of 10% p.a. has beenadded.

XI. ASSETS IN OPERATION: Work in progress has been transferred to assetsaccording to the projected construction schedule withKpong transferred to assets in service by 1981.

XII. WORKING CAPITAL: Cash requirements inventories, receivables and pay-ables have been projected according to historical rela-tionships.

Table 1

VOLTA RIVER AUTHORITYKj90MG fYD~R_OELECTRIU PEW cuT

INCOME STATEMENTS

-------- ACITTAL . ------- -------- -- FO___ _FRECAST--- . - -_________

19/2 19737 19/' I 9/5 J 22 1977 1 978 1 v.7' 1I8 1981 1976-1981 1.982 193 98

TOTAL-

3300 S(iLL1 ~ IN 0W81 000)

3320 FCC 0.7 0,8 0.8 0,9 1.0 1.2 1.4 1,5 1.6 1.7 8. 3 1.8 2.0 2.13i330 VALLO 2.3 2.6 2.7 2,5 2.7 3.3 3.3 3,3 3.3 3,3 19.3 3.3 3.3 3.33340 MINES 0.2 0.2-1 0.3 0,3 0.3 0.3 0.3 0,3 0.3 0.3 1,8 0,3 044 0,43350 GEB 0,0 0.1 0.1 0,1 0.2 0.2 0.3 0,3 0.3 0.3 1.7 0.3 0.3 0,33360 AROSOMBO -.0.O 0( .0 _0 a.0. _.0.O ---0 .0. __0 ~ ---- .. O O.O.3 _.:_I .013395 TOTAL 3,.2 3.8 4.0 3,8 4.2 5.1 5,3 5.5 5.6 5.7 31.4 5.9 6.0 6.2

3400 MILLS/KWH SOLD,3410…3420 ECG 5.070 8.070 8.000 8,290 9.360 11,940 12.080 12,400 12.640 12.620 0,000 12.560 12.560 12.5603430 YALGO 3,390 3,190 3.160 3.220 5.170 5.360 5.450 5.620 5.870 7.370 0,000 7.470 .;7.570 7.7203440 MINES 7.590 7.680 8.220 8.800 10.340 13.960 13.950 L3,930 13.930 13.930 0,000 13.930 -43.930 13.9303450 CEBS 0.000 9.SA0 9.380 6.850 9.340 9.280 8.850 8.850 8 ~850 8.850 0,000 8.850 a.850 8.8503460 AKOSONBO 8,t0 .8- 8fln 2-.620 --8,9O 922O _ .8.92O _.22O --8.920, __8.1920 .-8.2220 _O~QOO -- 8.97O -8.-922O -8-20

355AVE REV/KWH SOLO, 4.764 4.693 4.753 5.026_ 6.714 7.573 7.83/ 8.1i58 8. 435 9.383 0,000 9.522 9.662 9.834

*ne OING REVENUES4115…-- - - - - - - -4200 EC0 9644 61,94 6714 7244 9386 13982 16501 1 8523 19946 -21012 99692 22872 24756 268664210 VALCO 7683 83~83 8649 8090 13959 1704l 12143 18709 19541 24535 112730 248681 25201 257004220 MINES 18414 1866 2112 2366 2802 3995 40/3 4240 4430 4597 24046 4262~ 5043 53074242 CEB 15 956 1200 1249 1616 2264 2770 2770 2/20 2770 14960 ~1,"~o 2770 27704244 AI(OSOMF0 ""2Z _30O -- 229 ---0,O -_ A 3! -- 50 ---3- 43~..44 1 _._2253 -_ 489 -..425 --- 7024252 TOTAL SALES REY 15444 12699, 189165 19Y2 02 280'79 38334, 4 1855 419,32 4709~1 53345 253641 55920 58245- 6111454260 TARIFF INCREASES0 0 0 0 0 0 5700 10000 15900 26600 58200 51000,( 634100 /82004270 orHER 446 393 933 708 15/0 500 500 500 500 500 4070 500O 500 5004280 VALCO-INTER. FROWER 0 0 0 0 0 5100 500 -5oo 500 1500 3500 150 1500 15004290 VALCO-DEPOSIT ACCO …----0 …----- …--- .0 ---- - .3000 .…0 . 0 0 .3000 -------

T,OT uTL -- '""'<'C2 _222 -- 22CO - …2_--_23Z 559Zt _ .632911 81945 _322411 107021 12365 161305~

4601 OPERATING EXP'ENSES4602 --- -…-- ---9'640 GENERATION 1510c 958 1140 1436 1436 1436 1436 1 436 1436 1436 8616 1436 1436, 14364650 TRANSMISSION 830 1014 1235 1477 1477 1477 1477 14/7' 1477 1477 8862 141/, 1.477 14774660 ADiMINISTRATION 1181 1235 1695 1951 1 951 19511 19511 1951 19511 1951 11706 1951 1951 19514680 AKOSOMBO TOWNSHIP' 402 460 608 718 /18 718 718 7180 718 /18 4300 7118 718 7184700 HEALTH % SAFETY 918 543 707 805 805 805 805, 805 8053 805 40330 205 s0s Boll4210 PaTCH CONTISNGENCIES -. 0 0 0 0 1071 L912 3423 489/ 6025 7766 25094 9V3TE 1063:3 122844/20 11P0NB 0 0 0 0 0 0 0 0 0 500 500 500 5oc 5soc4950 DiEPRECIATION -- 6.1L3 -- 42676 ---01 4649 -.- 6877 -9532 10.,i609 _1 196/ _.13435 -18389 7_0889 -.23841 _26-547 29551l4990 TOTAL -- U50A -..872 -_2224 _11036 _1433j 12831 _..20422 23251 -- 25842 -- Z3042 _13.4805 _.39ZO5U _PziC6? 48722SOlO OP'ERATING INCOME, . -23e6 _. .9115. 292-4.8954 -. 18314 "21503 __2005A _326L36 - -3U144 _48203 _102606- 64/961 .795/8 _5126235030 NET INCOME PEP INI 7386 9115 9924 8954 18314 21503 28056 4268,6 381I44 48903 187606 67961 7 957¾ 97~ 26235040 INT CHARGED, OP' _._4222 4 .24A9-- ._~6569 4055 .. 4192 - 3252 _ 30 3430-313t __828 _.2124O P )-11437. 10,66? -9828

5060 NET INCOME 30941 4366 5355, 4899 14122 17551 214354 29256 _351008 46075 166366 56524 6.~ 0 2745

FUTURE TARIFF INCREASESCZ - .. - - - - 24 11 14 22 - 36 1 2 9RATE OF RETURN

ON EQUITY 8.3 5.5 6.3 5.6 . 8.9 6.9 7.9 7. 9 7.1 8.8 8,9 8.8 8.7ON NET FIXED ASSETS 8.6 5.4 6.0 5.5 8.0 6.9 8.2 8.2 9.4 8.4 - 8.9 9.6 10.4

OPERATING RATIO 7. 54 10 50 55 44 45 42 _42 40 40 3 7 36 34REV/GROSS PLANT 0,16 0.09 0.18 0.10 0.11 0. 10 0.111 0.11 0.11 0.11 0.11 0.11 0.11DEPREC/CROSS PLANT 4.14 2.42 2.11 2 .33 2.40 2.40 2.40) 2.40 2. 40 2.40 240 2.40 2.40

JANUARY 31, 1977

GHANA ~~~~~~~~~~~~~~Table 2VOLTA RIVER_AUTHORiTY

KPONG HYDROELECTRIC PROJECTFORECASTS FUNDS FLOWS STATEMNTS

(L-00Q0)

TOTAL1976 1.97-;7 . 21 1979 1.980 -Pytll 197641981 :1.9,92 1983 1984

601(0 T.N iL. HNr-i. S OUIRfC ES602--.NE'T INCOME DEIN 1.831..1 21.503 28056 32686 38144 48903 187606 67961 79578 926236030 -DEPRECIATION ..... 60W ........ 9532 -..O8 11262 ..-- 34lJ5 -18;382 -20882 -- 24B41 .--24547 ..-2925~1606 TOC)TA L. 5./ 38745 4 4 653. 51579 67292 258495 91802 l 06125 122174

608(1 OPERATIONAL RE--6 031 (0:1: oEMEN 165090 -WORKINIi CAPITAL 5 1. /' 1251 770 1.56 1.655 4427 2732 442 20026.1.00 --DIEBT SERVI1CE 8876 (9/3 4 ~11603 1434(0 .19206 26294 90053 42227 51475 571556110 -DIVID[ENDS -- 102000 -- 0002000 -- 2000 --- .2000 --. 1000 --- 2000 -2000 .. 2061 40 TOTVAL ... 11394 ... 118-11 ..,.1485-4 ..--1211.0 --..21362 --22942 -106480 -- 46259. 53912 --.6115761.60 NET VAVAIIA I3L E61.70 FROM (.PER4T'fIONSi :1.3797 1.9224 23891 27543 30217 37343 152015 44843 52208 6101.7

6190 C'ONSTRUJCT ION61 91 RhI (.41. TRF.'M EN TS'62~10 K1PONG BASE COSTS 2377 3505.,.,9 56723 682.74 34197 0996 2061.26 0 00

620 KPONG PRICE CONTINGENCIES 13 `.. 06 6 9630 :1.8431. :76 4 5119 4 52503 0 0 06230 'SEFWI-WEWSO LINE 0 1265 22 42 1.092 0 0 4599 0 0 062.40 REACTIVE POWER CO)PENSATION 0 0 1035 3220 345 0 4600 00 06245 MISCELIAN~~QJUS 7754 6000 00 2000 2000 2000 21754 2800 420 006250 BUI -0... . .. . .... .. 0 .... 0 -. ..-. 39.000 --. 87000 .-126000 -168000 .131000 --. ,580006295 TOT'AL 1 06A429 ...A.. 9)0 7....1 63 ZKD 3012 -. 92706 .-10319.O -415582 .- 120800 -.135200. 00

63:10 FIAI..(N.ANCE 'TO 17TNANCf. 3:[ .41 21. 66 47739 6 547 .1 24 a9 65847 263567 125957 82992 -1017

6330 FINANCED BY'6 34 0 D:R:I:11E1lNK I 0 A1N:140 6:1. 0( J1.2420 :1.:1.620 6330 44870 0 0 06 . j0 (V U II: R INTTERNTIONAL LOANS 0 2 40 4 420)0 57 60 23800 45,0 0 13 00 0 0 0 06"11 39i`j 1 301RRD41.TN13V.0 . 0 .0 .. .... .. .. .. .... .. 0.260..61000.33600 .112500.92600 40.4006 *460 TOTl.. 3 1300" 50j300 70020 63020 71830 236 170 .1.17500 92600 40400

0 I hI:RR1RS & 0M 111 13,30N3 0 0 0 0 0 0 0 0 40

V: 033.1.48 61.34 25.j6:1. 454;-6 5 3 1 5933 22903 -- 34 57 9603 41.4176.0 A CJ LJ'I1JLAE:D 3:1.4 9232 J.. 35 6 3119 1.6920 22903 2290,3 144-46 24054 65471.

67:1.0 NIo.TAVr T I: LDE.6 2( loM 1:1 RI ATVIO ONF/

6730 1:: 1:10 S.RIJ c Ti: ON REO 3 :1.50 43 ~~~~ ~~~ ~~~ ~~~ ~~~~3:3 .30 33 36 37 2 6 39 1026/q *...l .A N' :I:N C02.) 3. 4. 6 5 I [ 5.1 4.0 4.6 4.3 4.5 4.76 5C 0 E:.:: si: o 0:1::Eo: Cw::j.R 0 . . 3 1. 2.7 2.6 2.9 2. 2 21 2

JANuARY 31, 1977

ANNEX 9Table 3

30ThT RINEX UTHORITYTC1QNC HiYDROELECTRIC PROJECT

BALANCE SHEET

( KO0O)

-ACTUAL----. ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~TOA

FINANCIA YEAR; JAN, 1I DEC. 31 TT1

7550 - - --- '

75 6(O Fl. ANT N 1'f4[IN 196461 196794 1.99575' I$9.[1 373144 421190 469521 527767 591821 940624 55401:1. 1046093 [.1661.6:3 1296441.7570 LI::.53S DEHI"ECTI4 IllS -24583.-22325 -_33823 --- 8455 -- 26OY6 9.3222 -115028 -139648 .168444 -2053L2 -133026 .251223 3n60.32 -362252751.3( NETF PLANT 171873 187469 1-65747 [.6 1456 297048 327-,'I91 354493 388119 423377 735262? 420915 794300 860126 927189

7600 W8118K IN l1111GJIESF' 4453 6744 5347 9657 7002 4 520G7 117716 209432 306:340 142579 138059 32,7552 4 3'3.C. 2`3 6384

76,2 5 CUIIdFEN'T ASSET iS7627 -CAlSH AN0 DANKS7630 0 FPE84 AT1.:N AIF REQL) 2661 5196 9344 5916 2000 2000 2000 2000 2000 2000 2000 2000 'mc)0 20007631 TEMP0WJ841Y SURF1 0 0 0 0 3148 9282 11643 16389 16920 22903 13414 14446 cK. .. 471.7632 - ACCOUNT' 1 EELC 3409 3878 3984 4849 65530 7367 9711 11187 [2798 163839 10747 21564 'Y29 i/ y 232697635 --INVENTIR'IES 1183 1337 1376 1332 1547 1873 1976 2038 2066 2103 1934 2169 2.230 20 17640 -1976 ECG RECEIVABLES ---- 0 - --0 ----- 0 - 0- ( -.J2 . .0 ........ …0.0---- .. 0 .--- i32. - C0 .7670 T OT ALI. 7273 1 04 11J 14704 1.2097 14015 21.022 25530 31614 33784 43395 28227 4 01 79 5301 3 93041

7690 T 0TIA . 163599 184624 135798 1 8332 1( 318065 393500 497739 629165 763501 921236 587201 1.162-031 1396731 :1.5;119 I14

/71l0 .1 31) .1 . I1)I5 772).77Y30 FQU IT Y7770 --CAP FI TA L. 59129 59129 59129 59129 59129 59 1.2 959129 59129 59129 59129 5 9 12 59129 5912.9 59 1297820 -RETAINF::0 EARNINGS 7296 9657 12885 15784 27906 43457 65811 93067 126075 170150 8774.4 224674 291.535 3723307985 -REVALUATIL1N RESF.R __8252 -1.5821 -13568 -1 3568 -.1.42233 -i175408 -.2113292 §25039.3 --293086 -339652 .235446 -420536 5(.90290 --60252.37 995 f1 IIA141. 74684 34657 85582 88481 229768 277994 336339 402589 4711290 568936 38231.9 704339 053623 1033982

8010 LOCNG TElls DfE3T 103024 95161 93808 83723 84039 IO 10.5 2 155650 220058 2772 10 342326, 198289 445209 522391 548056

8030 CU R ' NT L I 4511131I1 F 3 ~S80-40 -AL:COUNITS PAYA40A1 3797 3237 4799 44710 :00 6(1 3800 3900 4000 4-100 3733 4200 43 00 430018050 IE T FNT 1 ONcS 394 15i 94 2.46 0 0 0 0 0 0) 0 0 003055 F::INANCIAI.. :l41, 100 .. 1418 -lt.515 i~.. 290 .. 1253 . 145~4..950 --- 618 _-.00i- 32 A.2 859 --. 2323 ... 10 962 ~1258:09(O 10141 589 4806 6408 6006 4253 50154 5750 6518 3001 9974 6592. 12483 [5.:7 16876

9100 TOT M. 133599 184624 185798 183210 318065 393500 497739 629165 7.30 1 921236 53721:01 116(2031 I 3 9 6 7(13 15,93891L4

92.20 [11.UT/Ff01 & EQS 1 TY 58 53 5 2 50 217 ;.3 32 35 37 30 1 39 33a 759221". D:ED /F OU LTY 1.4 1.1 1.1 1.0 0.4 0,4 0.5 0.5 0.6 0.6 0, 0. 6 16 0,59230 CURRENT Ri k Til 1.2 2.2 2.3 C,0 3.3 4.2. 4.4 4.9 1. 2. .44 4.3 3, .2 5.59240 REF141[[R 2.1 21 20) 24 2(0 2 20 20 :20 02.09245 (WE CE 1 .YOIj .1 I A4~ Y X7 77 72 1:17 72 72 72 72 72 72 77272.9 2 50 N ET/ GROC.)S F'l 451l 3 87 85 83 38 I B0 I'8 76 74 72 78 'Y6 76 *47

9270 PLANT JNUPH41I % 0 0 1 ' 7 2 (I L 4Ll 092380 (1NN1.14 [141 114(11N [1..0 0.0 0 .0[0. 0 J.1 .1.. 11.0 J.1I. 0 [[.0 ~ 1.] .0 131 0 .I J 10 10 1

JANUARY 31. 1477

ANNEX 9Table 4

VOLTA RIVER AUTHORITYKPONG HlYROELECTRIC PROJECT

DEBT SERVICE SCHEDULE

(0 '000o) TOTAL

1976 1977 1978 1979 1990 1981 i 9tl1 1982 1983 .984

900 DEST STATEMENT9 5() - .--.. ---- ',-_ ...

1000 PROPOSED BANK WUA

1030 PROPRROWANKOS 0 8400 6100 12420 11620 6330 44870 0 0 0

1030 -BORROWINGS ~~0 00 0 0 0 0 2893, 2893 21893

0.40 AMORTIZATION 0 8400 14500 26920 38540 44870 0 41977 39084 36191

10 INTEREST D8 50A) 0 357 973 1760 2782 3545 9418 7691 3445 3199

t, C -INOMMITMENT CHGE 0 137 251 181 91 24 683 0 0 0

1 380 1D -2: 0 100- 100 100 100 100 0 0 °

.l190---lfeC i0 0 494 1224 1942 2873 3569 10101 0 0 0

''1,30 -Bol:130OW1N35 0 22900 44200 57600 2380000 4500 1500300 0 0

5040 BORROINTAGN 0 0 0 0 575 575 5300( 7J300 5300

'i,J10 P:LN'll: E:ST(31505)0° 22900 6.7100 124700 148500 152425 0 l47' 5 L825 1365250 N C R1,T.O% 0 401 1575 3356 4781 5266 15 479 27A 50527 87

13 i /3T(35Z 0 100 100 100 100 100 U0 00

'. I ,0 P:If!C W 0 401 1575 3356 4781 5266 9 0 0

mi0 1-I j DC AN 310--OH

340 A,'4OI 1 ATION 2SJj 30.73 3201 3388 3584 379 YIl 4015 4249 4497

l 0 -O 1 1 .1:N!.' pj996 39 4. 54770 31382 27293E 2¾ 19989 15740 11243

1 N -TERE'I' (5O15%) I 2439 1, 0 2091 1902 1701 2 261' 1027 776

QiRD LOAN 618--lH3'040 A0MORTIZATION 0 0 0 2U' X' 1 913 345 367 391

00-N) -I:PAL ANCE 7304 7304 7304 '.19 3 04 630 I 0 6046 5679 5288

1 10 -INTEREST (6,5%) 475 475 475 465 4 16 426 2762 404 381 356

2'.40 -4M15I IATIOUN 8397 '29 962 995 1031 1067 5881 1105 1144 11S4

25EJO BALANCE 2046i 19j32 18570 1 757 16544 15477 0 14372 1 13228 12044

.610 -INTEREST (3.5S2 732 700 / 633 597 560 3988 522 483 442

1000 t1S ECX IM BANK35040 AMORTIZATION 468 468 468 468 468 468 2808 468 468 468

308O -BALANCE 4451 3983 3515 3047 2579 2111 0 1643 1175 707

3110) -- INTEREST (5.752) 269 242 216 189 162 135 1213 108 81 54

3500) GHANA GOVERNMENT31:40 --AMORTIZATION 103 103 103 103 103 103 618 103 103 103

15530O -BALANCE 1178 1075 972 869 766 663 0 560 457 354

X61.0 -- INTEREST (1,5%) 31 28 26 23 20 1S 1.46 1.5 13 10

4000 CIDA

-1040 --AMORTIZATION I 357 362 368 373 378 383 2221 388 394 399

4030 -BALANCE 1 ' | 9649 9287 B9i9 85461 8168 7785 0 7397 7003 6604

4110 -INTEREST (2,5tM J . 246 237 228 .k9I. . i QY 1337 )7p 180 170

4500 I'tJTURE LOAN753( -BORROWINGS o 0 0 0 27600 61000 88600 117500 92600 40400

4530 --BALANCE 0 0 0 0 27600 88600 0 206100 298700 339100

46:l0 -INTEREST (.l00) 0 0 0 0 1380 5810 7190 14735 25240 31890

4660 -COMMITMENT CHGE 0 0 0 0 1168 2107 3276 1438 650 151

4680 --IDC- 0 0 0 0 100 100 0 100 100 100

4690 -IDC 0 0 0 0 2548 7917 10466 16173 25890- 32040'

9500 DEBET SUMMARY . .-.. -

95:l0 BORROWINGS - 0 31300 50300 70020 63020 '71830 286470 117500 92600 40400

9:J520 -REfAYMENTS , 4684 4887 5102 5612 5968 6714 32867 14617 14918 15235

95>30 -BALANCE 84039 110452 155650 220058 277210 342326 342326 445209 522891 548056

95s0 -COMMITMENT FEES 0 137 251 181 1259 2131 3959 1438 650 lSl

911160 -INTEREST 4192 4710 6250 8547 12079 17449 5322 7 26172 35907 41769

9'570 --INTEREST & CF 4192 4847 6501 8728 13338 19580 57186 27610 36557 41920

9580 -DEBT SERVICE 8876 9734 11603 14340 19206 26294 90053 42227 51475 57155

9590 -1DC 0 895 2799 5298 10202 16752 35946 16173 25890 3204.1

9660 AVE INT % 4.85 4.98 4.89 4.65 5.36 6.32 5.18 7.01 7.55 7 33

JANUARY 31, 1977

GHANA ANNEX 10VOLTA RIVER AUTHORITY Page 1 of 2 pages

KPONG IYDRO ELECTRIC PROJECT

Tariffs

1. VRA Bulk Supply - See Annex 9.2. Electricity Corporation of Ghana Retail Tariff as of October, 1976.

All tariffs on monthly basis1. Domestic _ US$ (official rate)

up to 30 kWfh (per kWh) 0.060 0.05230 - 60 kWh (per kWh) 0.040 0.035over 60 kWh (per kWh) 0.030 0.026minimum monthly charge 3.00 2.61

2. Commercial

a. Maximum demand less than 100 kVAup to 50 kWh 6.65 5.7851 - 150 kWh (per kWh) 0.080 0.070over 100 kWh (per kWh) 0.067 0.058

b. Maximum demand not less than 100 kVAdemand charge per kVA maximum demand 3.33 2.90minimum demand charge 333.00 290.00

Energy charge - per kVA maximum demandup to 170 kWh (per kWh) 0.024 0.021171 to 340 kWh (per kWh) 0.022 0.019over 340 kWh (per kWh) 0.016 0.014

3. Combined Premises

up to 50 kWh 4.00 3.4851 to 100 kWh (per kWh) 0.065 0.057over 100 kWh (per kWh) 0.055 0.048

4. Industrial

a. Maximum demand less than 100 kVAEnergy chargeup to 50 kWh 6.65 5.7850 to 150 kWh (per kWh) 0.080 0.070over 100 kWh (per kWh) 0.067 0.058

b. Maximum demand not less than 100 kVAi. high voltage metering

demand charge per IVA maximum demand 3.20 2.78minimum demand charge per month 320.00 278.00

Energy charge per kVA maximum demandup to 170 kWh 0.024 0.021170 to 340 kWh 0.019 0.017over 340 kWh 0.014 0.012

ANNEX 10Page 2 of 2 pages

__ _US$

ii. Medium voltage meteringdemand charge per kVTA maximum demand 3.33 2.90minimum demand charge 333.00 290.00

Energy Charge per kVA maximum demandup to 170 kWh (per kWh) 0.024 0t021170 to 340 kWh (per kWh) 0.022 0.019over 340 kWh (per kWh) 0.016 0.014

5. Streeting lighting (per kWh) 0.080 0.070

6. Flat rate lighting - maximum three lamps

each lamp less than 40 watts 0.72 0.63each lamp 41 to 60 watts 0.90 0.78

7. Special Tariff to Certain Industries,

- Fixed monthly charge 1/12 total annualcost of depreciation, O&M and allocatedoverheads associated with service.

- Cost to ECG + 20% based on average priceper kWh at VRA substation supplyirng service.

ANNEX 11Page 1 of 9 pages

GHANA

VOLTA RIVER AUTHORITY

KPONG HYDRO ELECTRIC PROJECT

Economic Justification

Introduction

1. The economic justification of the Kpong project is examined indetail in this annex and focusses on three main aspects:

1. the forecast of demand for power (MW) and energy (GWh)and the growth in demand made possible by the project;

2. a demonstration that Kpong is the least cost solutionto meet incremental demand following the runout ofAkosombo capacity;

3. the valuation of the benefits of incremental consump-tion of electricity and the determination of the dis-count rate which equalizes the present value of bene-fits with the present value of costs including addi-tional investment required to distribute Kpong power.

2. The economic analyses are based on the following assumptions:

(i) 1976 prices for all civil and electro-mechanical workfor generation and transmission and resettlement asreviewed July, 1976.

(ii) Local exchange components converted to US$ at shadowexchange rate of 1.70 Cedis per US dollar.

(iii) Drawing down the level of Lake Akosombo reservoir tocover hydro energy deficits from 1978 to 1980. Thereservoir will be refilled from 1980 to 1985.

(iv) Load forecast as given in Table 2.

(v) Benefits attributable to Kpong beginning at the runoutof Akosombo long term energy capability in 1978. Anyload which increases above its level at the time ofAkosombo runout is attributable to the availability ofKpong since Kpong ensures that these loads can be metin the long run. (See Table 3 and Figure 1).

ANNEX 11Page 2 of 9 pages

(vi) Interrupting supply of 15 GWh of energy for steamgeneration at Tema in 1979 to avoid operation ofHiesel generators to meet peak load. Consumer willswitch to oil which is least cost alternative.

(vii) Surplus hydro energy in the system until 1984 willbe used to meet heating loads at Tema. The corres-ponding benefits are valued at the price of oil.Heating loads will be permanently dropped in 1984or met from surplus at Bui.

(viii)Distribution costs associated but separate from theKpong Project of $300 per kW FCC cperating and main-tenance costs equal to $0.001 per kWh.

(ix) VRA operating and maintenance costs of $1.76 per kWyear based 160 kW installed capacity as estimated byAcres Engineering.

(x) $6.3 million additional transmission investment from1979 to 1984 required to fully utilize Kpong capabi-lity.

(xi) Revenues resulting from the application of 1976 tariffstaken as the minimum proxy for economic benefits.Total economic benefits include a consumer surpluswhich can be estimated by comparing with alternativesources of supply and comparison of Ghanaian tariffswith tariffs in other countries.

Demand Forecast

3. The load (MW) and energy (GWh) demand forecasts are shown in Tables1 and 2. Details of the forecasting methodology are given in Chapter V,paras. 5.02 to 5.04 of the text. Electricity supply in Ghana is limited byenergy rather than power capability as can be seen from Tables 1 and 2 reserve(demand vs. capability). This situation persists at least until the commission-ing of the project following Kpong. For this reason, the additional growth indemand following the runout of Akosombo is based on the energy (GWh) forecastin Table 2 and the incremental growth in energy attributable to the availabilityof Kpong is shown in Table 3 and graphically in Figure 1. Interruptible loadsfor industrial steam generation at Tema, which are discussed in detail inpara. 6, are included in the ECG forecast.

System Capability to Meet Load Forecast

4. The long term caoability of the Akosombo and Kpong hydro plants andthe diesel facilities are shown in Tables 1 and 2. The Akosombo plus Kpongplants can meet peak demand until 1985 except for 1979 when the 30 MW dieselplant could be used for peak generation of 6 MW if all loads (firm plus inter-ruptible) were met. VRA plans to shed load if necessary to avoid the operationof the diesels at an estimated cost of 0.052 $/kWh produced. Based on the fore-

ANNEX 11Page 3 of 9 pages

cast, 15 GWh of diesel generation will be avoided in 1979 during t.e peakload condition.

5. The Kpong plant will not be commissioned until year end 1980.As a result of this schedule there will be a hydro energy deficit total-ling 777 GWh from 1978 to 1980. This deficit can be met from Akosomboby drawing down the level of the Lake Volta reservoir by no more than2 ft (0.61 m) since the usable storage of the reservoir is 10,000 GWh ornearly 2 years of total gross consumption. The total hydro energy deficitfor the years 1978 to 1980 is 7.8% of the usable stored energy or alterna-tively 14% of the annual long term firm capability of Akosombo.

6. Long term firm load growth can be accepted in advance of the com-missioning of Kpong by the combined operation of Kpong plus Akosombo torestore the reservoir level after commissioning. The combined Akosombo/Kpong system will be operated so that no water is spilled at either damthereby restoring the reservoir to its original level. This operation isshown graphically in Figure 1. Because of the need to refill the LakeVolta reservoir, there will be a considerably reduced net surplus ofenergy in the combined Akosombo/Kpong system amounting to 40 GWh/year until1985. The 2 ft (0.61 m) maximum drawdown of the reservoir level is notexpected to affect the power capability of either the Kpong or Akosomboplants to any significant degree.

Interruptible Loads for Steam Generation at Tema

7. Two textile manufacturers at Tema are installing electrode boilersfor steam generation as a result of the lower cost to themselves of usingelectrode boilers rather than oil fired boilers based on 1975 prices ofelectricity and oil. This was a rational decision from the point of view ofthe industrialists but not so from the point of view of the overall Ghanaianeconomy. The long run marginal cost of electricity is greater than theeconomic cost of oil for equivalent steam generation. VRA has agreed inprinciple that the supply of electricity for the operation of electrodeboilers will be made interruptible and will continue only as long as surplushydro energy is available. The oil fired boilers will be maintained inworking order so that the switch from electricity to oil heating can be madewithout loss of production.

8. The Tema heating load in 1979 is 16 MW and 83 GWh. Since thisload is interruptible, use of dieiel generation to meet the 6 MW deficit inhydro capacity can be avoided by ;witching to oil heating at lower resourcecost to Ghana. Fifteen GWh of electric energy consumption will thus berefused.

9. Gas oil is the type of fuel used to power the boilers at Tema.Burning gas oil directly in a boiler is approximately 90 percent efficient.Using gas oil to generate electricity which is then used to power electrodeboilers is extremely inefficient because of the high thermal losses in thediesel engine plus losses in transmission. Electrode boilers are themselves100 percent efficient. Overall efficiency for the fuel to electricity to

ANNEX 11Page 4 of 9 pages

heat conversion is only 32 percent.

10. The consumer price at Tema for gas oil c.i.f. in early 1976 wasabout $115/ton with the local exchange component (assumed to be 15 percent)shadow priced at ¢ 1.70 =$1.00. This is the price which an industrialistfaces in comparing the cost of oil heating with the cost of electric heat-ing. The resource savings to Ghana, on the other hand, realized by substi-tuting electricity for oil heating are less than the consumer price sincetaxes, duties, and sellers' margins must be deducted. The resource savingsare virtually 100 percent foreign exchange being comprised of crude oil,refining, and transportation. The resource cost of oil is approximately$84/ton. This amount will be saved if surplus hydro electricity substi-tutes for existing oil heating. The equivalent costs per kWh are given inpara. 29.

Project Costs

11. Cashflows for the Kpong project and additional costs associatedwith the project are shown in Table 6. These costs are based on Acres/Shawinigan Engineering estimates in mid 1976 dollars with local exchangecomponents converted at a shadow exchange rate of 1.70 cedis/dollar toreflect more closely the estimated economic value of foreign exchange toGhana. Cashflows shown under Generation include civil works, powerhouseelectro-mechanical facilities, resettlement costs, and compensation forlost production in agriculture.

12. Additional costs associated with the project include the Sefwi-Wiawso-Bibiani transmission line, the static and synchronous condensers forreactive power compensation, and other transmission facilities necessary todistribute Kpong power. The distribution cashflows assume a $300/kW costfor annual growth in ECG peak demand, at medium and low voltage. Distribu-tion costs must be included in the economic cost of distributing Kpong powerto final consumers. Annual operating and maintenance costs for VRA areestimated at $1.76/kW based on 160 kW installed capacity. ECG O&M isestimated at $0.001/kWh annually.

Kpong as the Least Cost Solution

13. Kpong can be shown to be the least cost solution to provide forfuture growth in electricity demand by determining the break-even discountrate between the Kpong project and feasible alternatives. If the break-evendiscount rate exceeds the economic cost of capital in Ghana then Kpong is theleast cost solution provided that the present value of Kpong is less than thepresent value of the alternatives at discount rates less than the economiccost of capital.

14. Kpong is the least cost hydro project which can be implemented atthis time. More risk and cost are involved in the next most attractive hydroproject at Bui. The civil works are estimated to involve 5 times the mater-ial and the transmission facilities would be 4 times as long for comparableoutput. The alternative to Kpong at this time would, therefore, be a thermalplant with which Ghana has no previous experience.

ANNEX 11Page 5 of 9 pages

15. The benefits obtained from a thermal plant of comparable capabi-lity with Kpong would be the same as with Kpong; therefore, they can beignored in the analysis. Similarly, distribution costs and additionaltransmission can be excluded.

16. The basic assumptions regarding costs of the thermal alternativeare shown in Table 4. Only generation capital and O&M costs need be consi-dered for Kpong as shown in Table 5, since distribution and other transmis-sion costs would be the same in both cases. Cashflows for both thermal andKpong are shown in Table 5.

17. The cost of thermal alternative is most sensitive to the cost ofoil. For this reason a graph of the break-even discount rate between Kpongand thermal is shown in Figure 2. It can be seen from this graph that Kpongis more attractive, that is, the break-even discount rate exceeds theeconomic cost of capital of 11% for all prices of crude above $6 perbarrel. Kpong is, therefore, the least cost solution to supplying Ghana'simmediate needs for growth in electricity supply.

Valuation of Benefits

18. Project costs are quantifiable with a high degree of reliabilityin comparison with project benefits which depend primarily on the utilityconsumers attach to electricity consumption. Theoretically, this utilitycan be approximated by the area under the aggregate demand curve for elec-tricity. There will be additional secondary benefits such as the expansionof employment opportunities and general multiplier effects of the availabi-lity of electricity to industry.

19. In reality it is extremely difficult to estimate a demand curvefor aggregate consumption. Only one real point is known for each customerclass and that is the quantity actually consumed at the price paid. Otherpoints can be roughly estimated by comparing the price of alternatives suchas oil for steam generation and domestic cooking, candles or lamps forlighting and diesel generation for own consumption for industrial use. Theprice charged for electricity in Ghana is presently based on the low costof generation at Akosombo. This price has no direct relationship with theutility of consumption or the consumers' willingness to pay for electricityexcept for those unknown number of consumers at the margin who are wil:Lingto pay no more than the current price. Revenues obtained from tariffs arethus a minimum proxy for economic benefits which understates the total bene-fits of electricity consumption and the total value to final consumers.

20. In recognition of the difficulty of providing a reliable estimateof economic benefits of the Kpong project, two approaches have been taken.First, benefits have been valued at existing tariffs and costs of alterna-tives currently in use and known to be applicable, such as oil heating forsteam generation and diesel generation for own use. This estimate can beregarded as a minimum valuation of total economic benefits. Secondly, avaluation has been made using prices paid for electricity in a neiboring

ANNEX 11Page 6 of 9 pages

country, Liberia, which is at a similar stage of economic and social deve-lopment. These prices are, on an average, about 2.0 times the currentprice of electricity in Ghana. This comparison requires the assumptionthat Ghanaian and Liberian consumers have a similar utility of consump-tion of electricity. Reasons for the choice of Liberian tariffs as aproxy for benefits in Ghana will be explained below.

Electricity Prices in Neighboring Countries

21. The average price of electricity in Liberia is the lowest of4 neighboring countries for which data was available as shown below:

$/kWh 1974Liberia 0.055Cameroon 0.075Ivory Coast 0.077Niger 0.130

Liberia was chosen as the standard of comparison to provide a conservativebasis of valuation.

Electricity Tariff in Liberia

22. The 1976 tariff and distribution of consumption in Liberia isshown below using a shadow exchange rate of 1.2 L$/US$.

% $US/kWhResidential 37 0.064Commercial 31 0.052Industrial 22 0.043Government and street lighting 10 0.058

100 0.055 average

Mines 0.031Overall average 0.046

Application of Liberian Tariff to Ghanaian Consumption

23. A weighted average price based on the Liberian 1976 tariff forconsumption by ECG and Akosombo Township consumers was determined using the1980 percentage distribution of ECG consumption as weights. This particularyear was chosen as it is the mid point of the growth of load attributable toKpong. Consumption in Akosombo Township is in reality similar to ECG butcustomers currently enjoy a reduced tariff from VRA because of their uniqueassociation with the Akosombo hydro plant. There is little reason to believethat their valuation of electricity consumption is any less than that of ECGcustomers.

ANIIEX 11Page 7 of 9 pages

ECG 1980 % 1976 Liberiar Tariff $/kwh

Residential-/ 20 0.064 + 10% taxCommercial 18 0.052Industrial 61 0.043Street lighting 1 0.058

100 0.050 average

Uncertainty of Applicability of Liberian Tariffand Demand Elasticity

24. It is not certain that Ghanaians do value electricity to thesame extent as Liberians or in other words that the aggregate demand curveis the same in both countries. Allowance must also be made for demandelasticity in addition to an allowance for uncertainty. A sharp rise inprices would reduce aggregate consumption to an amount less than the fore-cast shown in Table 3 because of demand elasticity. Demand elasticity forelectricity is usually quite low because electricity consumption is a smallpart of total expenditures for most residential consumers and the cost ofsubstitutes is high for both residential and industrial customers. Oil forindustrial heating and domestic cooking is the exception. The uncertaintyregarding the applicability of the Liberian tariff could result in an overor under estimation of benefits of consumption in Ghana with a range, say,of + 25% of Liberian prices. To allow for the combination of uncertaintyand demand elasticity 75% of the Liberian tariff has been used to valueconsumption by ECG, the Mines, and Akosombo Township using the forecast ofTable 3 as the basis.

Valuation of Sales to Communaute Electrigue du Benin(CEB)

25. The only benefit to Ghana from Sales of electricity to CEB isthe revenue received which is in US dollars. The price is fixed by con-tract which was renegotiated July 1976.

Summary of Tariffs Used to Value Benefits

26. October 1976 Tariffs:Official Exchange Shadow Exchange

per kWh Cedis $ Cedis $ECG retail average2- 0.03584 0.03117 0.03584 0.02108Mines 0.00862 0.00750 0.00862 0.00507Akosombo Township 0.00922 0.00681 0.00922 0.00542CEB 0.00783 0.00681 0.01157 0.00681

27. 75% of Liberian Tariff Applied to Ghana

per kWh Shadow Exchange RateECG retail average2/ Cedis US$ECG retail average 0.065 0.038Mines 0.039 0.023Akosombo Township 0.065 0.038CEB 0.116 0.0681/ Ghanaian consumers pay a 10% retail tax on residential consumption which

is not paid by Liberians.

2/ Includes 10%s Fax oii residential consumption.

ANNEX 11Page 8 of 9 pages

Interruptible Supply for Steam Generation

28. Consumption of electricity which substitutes for existing oilheating must be valued at the resource cost savings to Ghana of not con-suming oil. There is no cost for hydro generation for electric heatingon an interruptible basis, since only surplus hydro energy will be used.However, only resource costs, which are less than consumer costs, can beavoided if oil is not used for existing heating.

29. The consumer is willing to pay the consumer price for oil heat-ing as a maximum value of using electricity as a substitute, consideringthe lower maintenance costs and convenience of using electricity. Addi-tional consumption of energy (oil or electricity) for steam generationgreater than at present is thus valued at the consumer price for oilwhich is estimated to be $0.0083/kWh.

30. The interruptible Tema heating loads amount to 19 percent ofthe Kpong long term energy capability from 1980 on. These loads are notattributable to Kpong once the capacity of Kpong is reached in 1984. Ifthey are not interrupted, these loads will be attributable to the nexthydro project.

Value of Interruptible Heating Loads at Tema per kWh Equivalent of Oil

31. Official Rate Shadow Rate

Cedis $ Cedis $

Existing oil heating 0.00895 0.00778 0.01322 0.00778Additional heating 0.01278 0.01111 0.01421 0.00836

Benefit Cashflows

32. The cashflow streams for benefits valued at the 1976 Ghanaiantariff are shown in Table 7 and those valued at 75% of the Liberian tariff,in Table 8.

Effects of Inflation

33. Cashflows of costs are expressed in constant 1976 dollars; hence,inflation effects are disregarded. In order to maintain comparabilitybetween costs and benefits, the benefits must also be evaluated in constantterms. If tariff increases in current terms are not sufficient to maintainthe tariff at the 1976 level in real terms, then there will be an increasein consumer surplus as the price of electricity decreases in real terms.Inflation, however, does not effect the economic value of electricity con-sumption. This value is affected only by a change in the utility of con-sumption as demonstrated by willingness to pay resulting from changes inreal income and consumption preferences.

ANNEX 11Page 9 of 9 pages

Equalizing Discount Rate

34. The present value of the benefit and cost streams taken at thebeginning of 1976 are shown graphically in Figure 3 at varying discountrates. The discount rate which equalizes costs and benefits is an esti-mate of the economic rate of return under different assumptions asexplained above. A sensitivity analysis to error in the demand forecastand cost estimates is also provided. It is apparent that the estimate ofthe economic rate of return is far less sensitive to error in the demandforecast or error in cost estimates than to valuation of the benefits ofelectricity consumption. The equalizing rates of return under differentassumptions are summarized in the table below:

Equalizing discount rate %Assumptions Base Line Cost +10% Cost

1. benefits valued at 1976 Ghanaiantariff and demand as forecast in Table 3 7.0 6.4

2. benefits valued at 1976 Ghanaian tariffwith demand 10% less than forecast 6.8 6.2

3. benefits valued at 75% of Liberian pricesfor forecast demand 11.6 10.8

4. benefits valued at 75% of Liberian priceswith 10% less demand 11.3 10.5

Future Tariff Policy

35. Based on the assumptions presented regarding the valuation of bene-fits of electricity consumption to Ghanaian consumers it would appear thatsufficient consumer surplus exists to warrant raising tariffs 70% in realterms as shown in Figure 4 to provide a rate of return based on revenuesalone equal to the cost of capital of 11%. Such action would result in mar-ginal cost pricing of electricity. Marginal cost pricing is desirable inthe long run to provide economically efficient pricing signals to consumers.It is, however, acknowledged that such a move is not realistic at present inGhana given the present inflationary conditions in Ghana, the historical lowprice of electricity, and the price distortions for oil and other goods as aresult of import restrictions. Tariff studies for both VRA and ECG will beundertaken to ensure that future prices reflect the changing cost of electri-city in Ghana so that the most efficient use is made of the available supplyof electricity.

ANNEX 11GHANA Table 1

VOLTA RIVER AUTHORITY - KPONG

Hydro Electric Project

Maximum Demand(Mega watts) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986

Valco 250 244 295 315 315 315 315 400 400 400 400 400 400 400 400 400 400ECG 106 117 126 135 146 163 172 189 224 258 275 290 315 341 370 402 434Mines 34 37 38 38 40 42 42 44 46 48 50 52 55 57 60 63 66Akosombo (Township &

Textiles) 5 5 7 6 6 8 8 8 8 8 8 8 8 9 9 9 9CEB - - 1 20 25 25 30 40 50 50 50 50 50 50 50 50 50

Sub-Total 395 403 467 514 532 553 567 681 728 764 783 800 828 857 889 924 959+ Losses 11 11 13 14 15 18 19 23 25 28 29 30 32 34 36 39 41- Diversity 28 34 9 15 7 15 16 20 23 24 26 27 29 31 33 35 37

TOTAL Feak Generation 378 380 471 513 540 556 570 684 730 768 786 803 831 860 892 928 963

Long Term Firm Capability

Akosombo (hydrO) 588 588 762 762 762 762 762 762 762 762 762 762 762 762 762 762 762Diesels - - 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30Kpong (hydro) - - - - - - - - - - 40 140 140 140 140 140 140

TOTAL 588 588 792 792 792 792 792 792 792 792 832 932 932 932 932 932 932

Reserve + surplus +210 +208 +321 +279 252 +236 +222 +108 +62 +24 +46 +129 +101 +72 +40 +4 -31- deficit

HydrO only +210 +208 +291 +249 +222 +206 +192 + 78 +32 -6 +16 +99 +71 +42 +10 -26 -61

/1 Expected to occur at year end.

ANNEX 11GHANA Table 2

VOLTA RIVER AUTHORITY - KPONG

Hydro Electric Project

Gross EnerghyConsumption 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986(Giga watt hours)

Valco 2,012 1,919 2,264 2,626 2,734 2,518 2,700 3,329 3,329 3,329 3,329 3,329 3,329 3,329 3,329 3,329 3,329ECG 565 659 699 768 840 874 1,003 1,171 1,366 1,518 1,578 1,665 1,821 1,971 2,139 2,324 2,510

Mines 207 227 243 243 256 271 271 279 292 305 318 330 349 362 381 400 420

Akosombo Township &Textiles) /2 22 30 30 35 30 34 35 39 41 43 45 48 50 53 56 59 63

CEB - - I 100 128 141 173 244 313 313 313 313 313 313 313 313 313

Sub-Total 2,806 2,835 3,237 3,772 3,988 3,838 4,182 5,062 5,341 5,508 5,583 5,685 5,862 6,028 6,218 6,425 6,635+ Losses 76 74 84 100 90 92 142 170 189 198 206 216 229 241 255 270 285

Total Gross Consumption(Generation) 2,882 2,909 3,321 3,872 4,078 3,930 4,324 5,232 5,530 5,706 5,789 5,901 6,091 6,269 6,473 6,695 6,940

Total Long Term Firm EneryAkosombo (hydro) 4,083 4,083 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416 5,416Diesels - - 184 184 184 184 184 184 184 184 184 184 184 184 184 184 184

Kpong (hydro) - - - - - - - - - - - 970 970 970 970 970 970

TOTAL 4,083 4,083 5,600 5,600 5,600 5,600 5,600 5,600 5,600 5 6,570 6,570 6,570 6,570 6,570 6,570

Balance + surplus +1,181 +1,154 +2,279 +1,728 +1,522 +1,670 +1,276 +368 +70 -106 1 -189/1 +669 +479 +301 +97 -125 -370- deficit

Balance Hydro only +1,181 +1,154 +2,095 +1,544 +1,338 +1,486 +1,092 +184 -114 -290 -373 +485 +295 +117 -87 -309 -554

/1 Energy deficit to be made up by drawing down reservoir level of Volta Lake.

/2 Growth occurs in Akosombo Township load only after 1978.

ANNEX 11GHANA Table 3

VOLTA RIVER AUTHORITY - KPONGHYDRO ELECTRIC PROJECT

Incremental Energy Consumption (GWh) Attributable to Kpong

1985-Year 1978 1979 1980 1981 1982 1983 1984 2025ECGFirm demand-VRA purchase 75 93 108 195 351 501 669 752

-retail sales/4 68 84 97 176 316 451 602 677Interruptible -existing oiiL5 - 6011 104 104 104 104 20 0

-additional oiL/5 - 62 75 75 75 75 75 0

TOTAL ECG 75 215 287 374 530 680 764 752Mines 5 17 31 43 62 75 94 102Akosombo township 1 3 5 8 10 13 16 17CEB 26 26 26 26 26 26 26 26

Sub-Total 107 261 349 451 628 794 900 900+ Losses 7 14 24 34 47 59 70 70

TOTAL 114L3- 275/3 373/3 485 675 853 970 97011

/1 Figure allows for 15 GWh reduction in interruptible consumption for heating at Tema to avoiddiesel generation. Consumer will switch to oil heating.

/2 Long Term firm capability of Kpong./3 Results in drawing down of reservoir level of Lake Volta. Deficit recovered in years 1981 to 1983

when surplus available./4 Retail sales allow for 10% loss in distribution./5 Existing oil refers to substitution of electric heating for oil presently used for water heating at

Tema. Additional oil refers to the substitution of electricity for oil which would otherwise beconsumed given the current production plans at Tema.

ANNEX 11Table 4

GHANAVOLTA RIVER AUTHORITY - KPONG

HYDRO ELECTRIC PROJECT

Comparison of Kpong Project with Thermal Plant Alternative -

Least Cost Solution Cost Parameters for Thermal Plant

1. Installed capacity 160 MW, 970 GWh

2. Capital cost per net kW output $400/kW

3. Construction period 3 years

4. Commissioning date January 1981

5. Service life 25 years, no salvage

6. Fuel rate 300 gms/kWh net

7. Fuel characteristics - residual fuel oil

- 6.6 bbl/tonne

- $12/bbl crude

- $1/bbl transportation

- fuel oil cost 85%

crude cost cif

8. Operation and maintenance - 3% of fuel cost variable

- 2% of investment fixed

9. Transmission - investment $1.6 million split evenly 1979 and 1980

- O&M $100,000/yr

10. Restore Akosombo energy deficit 762 GWh over years 1981 - 1983 leavingequal surplus capacity each year

11. Sensitivity tests on crude price $10 and $14 per bbl

ANNEX 11Table 5

GHANAVOLTA RIVER AUTHORITY - KPONG

HYDRO ELECTRIC PROJECT

Cashflows (Costs) Thermal Plant and Kpong

Thermal Plant - based on crude oil price of $12/bbl2'

1984- 2006-1978 1979 1980 1981 1982 1983 2004 2005 2030

…_________ $US 000…___________________General - capital1 ! 21,333 21,333 21,333 - 64,000 -

Transmission - capital - 800 800 - - - - - -

Fuel + Variable O&M - - - 20,644 20,644 20,644 21,649 21,649 21,649Fixed generation O&M - - - 1,920 1,920 1,920 1,920 1,920 1,920Transmission O&M - - - 100 100 100 100 100 100

Total 3 22,133 22,133 22,664 22,664 22,664 86,664 22,664

KPONG HYDRO PLANT1984-

1976 1977 1978 1979 1980 1981 1982 1983 2030

Generation capital-/ 2,181 27,549 44,367 52,750 21,844 7,262 - - -Transmission capital - - 115 1,500 4,885Generation O&M - - - 300 300 300 300Transmission O&M - - - - - 100 100 100 100

2,181 27,549 44,482 5 26,729 7,662 400 400 400

1/ Fuel and variable O&M costs allow for the restoration of a total of 762 GWh of energy in Lake Voltafrom 1981 to 1983.

2/ Generation capital includes resettlement and physical contingencies.

ANNEX 11GHANA Table 6

VOLTA RIVER AUTHORITY - KPONGHYDRO ELECTRIC PROJECT

PROJECT COSTS/'

1985- Foreign Exch.1976 1977 1978 1979 1980 1981 1982 1983 1984 2025 Component

-------------------------------------------------- (US$1000O)-----------------------------------------------------Investment

Generation 2,181 27,549 44,367 52,750 21,844 7,262 - _ 70%Transmission - - 115 1,500 4,885 - 92%

Sub-Total 2,181 27,549 44,482 54,250 26,729 7,262 - - - -

VRA O&M - - - - - 161 161 161 161 161 25%

Additional CostsAssociated with Project

InvestmentTransmission - - - 917 917 2,910 776 776 _ - 92%

Distribution - - 3,892 934 778 4,514 8,095 7,783 5,137 - 90%

ECG O&M - - - 28 34 40 72 130 185 222 25%

Sub-Total - - 3,892 1,879 1,729 7,464 8,943 8,689 5,322 222

TOTAL INVESTMENT 2,181 27,549 48,374 56,101 28,424 14,686 8,871 8,559 5,137 -

TOTAL O&M - - - 28 34 201 233 291 346 383

TOTAL CASH FLOW 2,181 27,549 48,374 56,129 28,458 14,887 9,104 8,850 5,483 383

/1 Local exchange components converted at shadow exchange rate 1.70 cedis = 1.00 US$

GHANA ANNEX 11VOLTA RIVER AUTHORITY - KPONG Table 7

HYDRO ELECTRIC PROJECT

Benefits Valued at 1976 Ghanaian Tariff

1985-1978 1979 1980 1981 1982 1983 1984 2025

ECG retail 1,553 1,919 2,215 4,020 7,217 10,300 13,750 15,463

Mines 40 136 248 344 496 600 752 816

Akosombo township 9 26 43 69 87 113 139 147

Existing oil - 463 803 803 803 803 154 -

Additional oil - 516 624 624 624 624 624 -

CEB 177 177 177 177 177 177 177 177

TOTAL 1,779 3,237 4,110 6,037 9,404 12,617 15,596 16,603

$US Thousands - local currency convertedat shadow exchange rate ¢1.70 = $1.00.

ANNEX 11GHANA Table 8

VOLTA RIVER AUTHORITY - KPONGHYDRO ELECTRIC PROJECT

Benefits Valued at 1976 Ghanaian Tariff

1985-1978 1979 1980 1981 1982 1983 1984 2025

ECG retail 2,584 3,192 3,686 6,688 12,008 17,138 22,876 25,726

Mines 115 391 713 989 1,426 1,725 2,162 2,346

Akosombo township 38 114 190 304 380 494 608 646

Existing oil - 463 803 803 803 803 154

Additional oil - 516 624 624 624 624 624

CEB 177 177 177 177 177 177 177 177

TOTAL 2,206 3_781 4,758 7,193 11,449 15,518 19,458 20,939

$US Thousands - local currency convertedat shadow exchange rate 01.70 = $1.00.

GHANIA ANNEX 11

Figure 1VOLTA RIVER AUTHIORITY - IKPONG

HYDRO ELECTRIC PROJECT

VRA ENERGY CONSUMPTION FORECAST ANDLONG TERM CAPABILITY

Bui

5,400 Kppng

3.300

Recoveryb,200 of energy ---- '

. 1 D0 _ rJ~~~~~eficitX3,100 C

,000 -U

a: ~~~~Net surplus ------0,900- > ~~~~for sale. x

1,800Energy attributable

.,700 _ ... . . @ to Kpong3,700~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

z,600

^,500 _

Akosombo 114 275 373 485 675 853 970 970 Gwh

^,400

53300 Energy attributable to Akosombo

-.200_

9.100_

.,30oo I I 1 1975 '76 '77 ''78 '79 '80 '81 '82 '83 '84 '85 '86 '87 Year

Benefit prior Benefit afterto commissioning commissioning

in 1981

World Bank-16338

GHANAANNEX 11

VOLTA RIVER AUTHORITY - KPONC Figure 2

TYDRO ELECTRIC PROJECT

KPONG VS. THERMAL PLANTEQUALIZING DISCOUNT RATE

AT VARIOUS CRUDE OIL PRICES

14

13

12 -- crude $10-\-

0-

69

11 12 13 14 15 16 17 18 19 20

110 -Bn 1f,33')

C3

LU

8-

DQAIZIG6SCOUNT RATE %

11 12 13 1 15 16 17 18192

120 - Costs,~~~~~~~~~~~~~~~~~~~~~~WrdBak- ~T

200 EQUALIZING RATES OF RETURNC O S T S V S. B E N E F I T S K P 0 N G

190-

1705 D *S

130 E~~~~~~~~~~~~~~ENEFITS 0

160- .

u ~~~~~~~~~~~~~~~~~~~~Base Line Costs100- 1,Kpong + Associated

~~~~~~~~~~~~~~~~~~~~~Investment

BENEFITS EVALUATED AT80 lo~~1 1976 Tariff,

20 1976 Tariff wlth 10% load forecast reduction

30- 3 75% of Liberian Tariff.

60 1 ~4. 75% of Liberian Tariff with 10% load reduction.

4- 5B6a7s8e910 l1 12 13 14 15 16

DISCOUNT RATE X

INCREASE IN VALUATION OF BENEFITSTO GHANATAN CONSUMERS OVER AVERAGE1976 TARIFFS TO YIELD A GIVEN RATE

OF RETURN100

90

801 < 0

70

cn60

5040

'30 /s

20/

10/30

6 7 8 9 10 11 12 13 14

R A T E O F R E T U R N Z

ANNEX 11Attachment 1Page 1 of 3 pages

GHANAKPONG HYDROELECTRIC PROJECT

Outline of Draft Terms of Reference for a Tariff Study forGhana's Electric Power Sector

Objective

The purpose of the study is to derive a tariff structure for thesale of electricity to customers of both VRA and ECG which reflects asclosely as possible the costs to the national economy of meeting the demandfor electricity and to determine the appropriate levels of tariffs whichshould be charged to the various categories of customers of both VRA andECG having regard to:

(i) financial requirements of VRA and ECG;(ii) Government social policy and development objectives, and(iii) the economic costs of other forms of energy such as petro-

leum products, their prices, the substitutability of dif-ferent energy sources, and the resultant cross elasticityof demand.

Guidelines for Study Execution

Analysis of Cost Structure

(a) The relevant costs are not the financial costs to ECG andVRA of expanding and operating its system to meet the demand but the incre-mental costs to the economy. Strictly speaking, therefore, shadow prices(for capital, labor and foreign exchange) rather than actual prices to VRA/ECG should be used as appropriate for measuring costs and any taxes on VRA/ECG's inputs should be deducted and subsidies added back. Eowever, the con-sultant cannot be expected to calculate the appropriate shadow prices touse but must rely on guidelines from the authorities. Failing this, hewill have no alternative but to use the actual prices of inputs (duly cor-rected for taxes and subsidies), although it is suggested that, in any case,the opportunity cost of capital for discounting future costs should betaken as 12%.

(b) It is expected that the first step would be to analyse thelong run and short run marginal costs of generating, transmitting and distri-buting electricity at different places, times and voltage levels to differentconsumers over the next few years. This would require due attention to thedaily and seasonal variations in forecast system demand and, to the extentpossible, in forecast demands of various consumer classes. Much of therequired information for this purpose may have to be specially collected,

ANNEX 11Attachment 1Page 2 of 3 pages

e.g. by taking substation readings, by enquiring about shift working, sea-sonal work patterns, etc., and by statistical analysis of available loadcurves. The basis for the estimates of marginal costs would be the devel-opment program for the period 1977-85, the proposed operating regime andproposals for subsequent expansion.

(c) For the time periods when demand does not come up againstthe system capacity constraint (allowing for the reserve margins set tomaintain security of supply) marginal costs would be simply marginal run-ning costs (short run costs) grossed up to allow for losses at the differ-ent voltage levels and, where relevant, in different regions. The rele--vant losses are incremental losses, even if they can be estimated onlyapproximately, not average losses.

(d) At periods when an increase in generation would bring thesystem up against the security constraint, the marginal cost of meetingdemand would be the addition to all system costs resulting from adding togeneration capacity and/or storage, transmission and distribution in orderto provide the increased supply with an unchanged probability of failure.These are long run costs.

(e) It would also be necessary to study the incremental costsattributable to poor power factors for these types of consumer (the largerones) who can be expected to improve their power factor in response tosuitable tariff incentives. The most i mportant cost to concentrate on isthe extra MVA capacity required to cater for these poor power factors.

Existing Tariffs

(f) It is envisaged that the next step would be to examine theexisting tariff structure and rates and compare them with the structure ofmarginal costs of supply derived from the foregoing analysis. Large differ-ences between the two may be an indication that the existing system isgiving the wrong price signals to consumers. Examination of the existingsystem should pay particular attention to the types of metering in use andthe quality of meter maintenance, since this would provide some guidanceto what types of tariff are feasible. Other features to look for inexamining the existing system are whether it is difficult to administer,conducive to disputes or conducive to fraud, since these will provide use-ful pointers to improvement in devising the new tariff structure.

New Tariff Proposals

(g) With the information thus collected, it should be possibleto make a first set of proposals for changing the existing tariff systemso that the incentives (and disincentives) it provides to consumers corres-pond more closely to the schedule of marginal costs derived. These propo-

ANNEX 11Attachment 1Page 3 of 3 pages

sals would consist of a classification of consumers and a tariff (or setof tariffs) for each class, together with any connection charges andchanges for reactive power which can be justified. They would have to bemodified as necessary to take account of the following:

(i) Any strong arguments for slanting electricity tariffsbecause of price distortions (e.g. of substitutes forpublic electricity supply) elsewhere in the economywhich are likely to affect electricity sales in theabsence of such slanting.

(ii) The availability of surplus hydro energy when shortrun marginal costs are applicable and lower cost int-erruptible power can be sold to industries.

(iii) The need for VRA and ECG to meet rate of return coven-ants.

(iv) Any income redistribution objectives of the government,e.g. the provision of a low price social block for lowincome consumers.

Cv) Practicality and cost. There is a trade-off betweenthe cost of administering any tariff structure (whichdepends largely on the cost of metering and billing)and the extent to which it can reflect the structur-ing of marginal costs. Complex metering, for example,is likely to be worthwhile only for larger consumers,since the response of small consumers to the extraincentives (or disincentives) it offers would not just-ify the expense.

ANNEX 12

GHANAVOLTA RIVER AUTHORITY

KPONG HYDROELECTRIC PROJECT

The Aluminum Smelter

1. The Volta Aluminum Company (VALCO), owned by Kaiser Aluminumand Chemical Corporation (90%) and by Reynolds Metals (10%) operates fourpotlines at Tema for the production of aluminum ingot. The alumina usedas raw material in the potlines is imported principally from theCaribbean and smelted with Akosombo power. The smelting of alumina is ahighly energy intensive process which in the case of VALCO requires about20,000 kWh per ton of aluminum ingot. VALCO produces presently some132,000 metric tons of ingot annually. The power demand at the smelteris fairly steady at 315 MW with an .98 annual load factor. VALCO is com-pleting the installation of a fifth potline (for which an additional85 M7 firm and 15 MW interruptible will be required) raising the totalproduction capability of the smelter to 200,000 metric tons per year.

2. Alumina, imported into Ghana free of custom duties, is provi-ded to VALCO by Kaiser and Reynolds on board vessels at VALCO's dock inTema Harbor, and the aluminum ingot produced from such alumina isdelivered to both VALCO shareholders on board vessels at same point; noexport duties are levied on these ingots. Slightly less than 2 tons ofalumina are used per ton of aluminum ingot produced. VALCO chargesKaiser and Reynolds a toll for processing their alumina into aluminumingot. The tolling contract establishes that toll charge at 56% of theLondon or New York quoted price for aluminum ingot after deductingimport duties into the UK or the USA. The quoted price stands presentlyat the equivalent of US$ 1,056/ton (USj 48 pound); after deducting onecent for custom duties the tolling charge is thereby of US$ 579 per ton.The tolling charge will be raised to 60% of the London or New Yorkquoted price if after April 1977 all the aluminum produced by VALCO isnot processed entirely from bauxite mined in Ghana, and will remain atthat level until all aluminum is produced from local bauxite.

3. The smelting of aluminum was recognized as a pioneer industryby the Government of Ghana and accorded a tax holiday which expires in1978; afterward VALCO will pay income tax at the rate of 40% of itschargeable income and will contribute an additional 30% of its charge-able income to a trust fund for social development in Ghana.

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ANEX 13

KPONG HYDROELECTRIC PROJECT Drawin 2

GHANA

SECTIONS THROUGH DAM AND DYKES

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UNITS HIGH VOLTAGE LINES

TO SWITCHYARD

HOUSING-IST GENERATOR

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_____ GATE GALLERLLER

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EXISTING BEDROCK-? -- ______--_________

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DRAINS

SECTION THROUGH INTAKE AND POWERHOUSE

70-0 GATE HOIST

HIGH HEALPOND EL. 17.70 RADIAL GATES

NORMAL OPERAT1NG HEADPOND EL *4.75 -- _AXIMUM TAIL WA TER EL. 14.75

STOPLOGS O - \

CREST EL. NORMAL TAILWATER EL 3000

B EDROCK

GFROUT CURTAIN -_

- - PRESSURE RELIEF

DRAINS

NOTE ELEVATIONS IN METERS

SPILLWAY SECTION

HIGH HEAOPONO EL 77.70 f2_

NORMAL OPERArING HEADPOND EL 14.75

NATURAL _NATURIAL

SLOPES SL

_ P S

UPSTREAM COFFERDAM = -DOWNSTREAM COFFERDAM

UPSTREAM CDFFERDAM CNOIAINGOTNCNODAiDN GROUTING

AS AEDUIRED

RIVER DAM

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HIGH HEADPOND EL. 17.70 23 'A NORMALOPERATING POR

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PRESSURE RELIEF WELLS - SLURRY TRENCH

AT 100' SPACING

PARTIAL CUTOFF DIKE TOTAL CUTOFF DIKE

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