CIRCULATING COPY RESTRICTE D

TO BE RETURNED TO REPORTS DESK ReportN 0. TO-210a

IN CENTRAL FILES

This report was prepared for use within the Bank. In making itavailable to others, the Bank assumes no responsibility to them forthe accuracy or completeness of the information contained herein.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

APPRAISAL REPORT

PROPOSED NEW POWER LOAN TO NORWAY

(TUNNSTO -TUNNSIODAL PROJECT)

June 29, 1959

Department of Technical Operations FILE COPY

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CURRENCY EQUIVALENTS

U.S. $1 - 7.143 N.Kr.1 Norwegian Krone - 14 U.S. centsI million Norwegian Kroner - $140,000

TABLE OF CONTENTS

Summary

I. INTRODUCTION 1

II. BACKGROUND 1

III. NVE AND NTE 3

A. NVE 3B. NTE 4

IV. TIE PROJECT 5

A. GENERATING FACILITIES 5Arrangements for Planning, Design and Construction 7Construction 7Cost Estimates 8Capital Costs and Cost of Generation 9Construction Progress and Completion Dates 9

B. TRANSMISSION FACILITIES 9Planning Design and Construction 10Cost Estimates 10

C. JUSTIFIATION OF THE GENERATING FACILITIES 11Generating Facilities 11Transmission Facilities 13

V. FINANCING PLAN 13

VI. FINANCIAL 14

NVE Power Rates 14Financial Organization of NVE 15Fast Earnings and Return on the Investment 16Capital Expenditures and Sources of Funds 17Forecast of Earnings, Sources and Application of Funds 17Future Earnings 18Interest and Debt Service Coverage 18Estimated Balance Sheets 19Rate Covenants 19

VII. CONCLUSIONS 19

LIST OF ANNEXFS

ANNEX 1 Statistics on Power Development in Norway

ANNX 2 NTE Power Statistics

ANNEX 3 Arrangements for Planning, Design and Construction of Tunnsj -Tunnsj dal Installations

ANEX 4 Detail of Cost Estimates

ANNEX 5 Cost of Power Generated in Tunnsj -TunnsjAdal

ANNEX 6 Planning of Interconnection

ANNTX 7 NVE Income Statements

ANN1X 8 NVE Cmnstruction Program

ANNEX 9 NVE Power Operations - Pro forma Cash Flow Statements

ANNEX 10 NVE Condensed Pro forma Balance Sheets

Maps

Summary

This report covers the appraisal of power generating and transmis-sion facilities, which have been proposed to the Bank as the basis for a$20 million loan to the Kingdom of Norway.

ii. The beneficiary of the proposed loan would be the Norwegian Water-course and Electricity Board (NVE). The Bank made a $25 million loan toNorway in 1956, to assist in financing the Tokke Project, still under con-struction by NVE.

iii. The Project comprises the Tunnsj and Tunnsj dal hydroelectricpower stations, with a total capacity of 168 MW and an annual averagegenerating capability of 1,020 million kwh; and 555 km of high voltagetransmission lines to strengthen the Southeastern and Aura Grids and tointerconnect them. The total estimated cost of the Project is equivalentto $54 million of which NVE would bear about $41 million and the Frovinceof Nord-Tr ndelag, in which the Project is located, about t13 million.NVE and Nord-Trndelag, after bearing the cost of the generating facilitiesin equal shares, would each receive half of the power produced. Nord-Tr ndelag would carry out its part of the Project through its agency knownas Nord-Tr ndelag Electricity Works (NTE).

iv. The NVE share of the power is to be exported to Sweden, on thebasis of contracts already negotiated. NTE's share is to be distributedin Norway as part of the supply to the grids being interconnected. Con-struction work is scheduled to begin in the surmer of 1959 and completionof the Project should be accomplished in the latter part of 1963. Thearrangements made for the design and construction of the Project are satis-factory and the management and staff of both NVE and NTE are sound.

v. The capital cost of the generating facilities in the Project isvery low (159/kw) and the cost of generation is the equivalent of about2.5 mills/kwh.

vi. NVEts power rates have been substantially increased since 1956 andthe return on its investment in power facilities went from 3.4% to 5.3%between 1955 and 1958. While a higher return might be desirable to reducethe burden on Government funds for financing expansion, the present rateof return is adequate.

vii. The Project is considered suitable for a $20 million loan, with aterm of 25 years including a period of grace of 4(- years.

I. INTRODUCT ION

1. The Kingdom of Norway has requested a $20 million Bank loan toassist in financing the construction of a number of power facilities.This report contains an appraisal of the proposed Project. It is basedon information submitted to the Bank by the Norwegian Government and onthe findings of a Mission which visited Norway in April 1959.

2. The Project would comprise:

i. The construction of the Tunnsj/ and Tunnsj dal hydroelectricpower station, to be carried out jointly by the Norwegian Water-course and Electric Board (NVE) and the Province of Nord-Tr ndelag through its power agency, Nord-Tr ndelag ElectricityWorks (NTE);

ii. The construction of 555 km of high voltage transmission lines,to be carried out by NVE.

3. The total estimated cost of these works is the equivalent of about$54 million of which NVE would provide $41 million and NTE $13 million.

4. The Bank has already made a loan to Norway for power facilitiesbeing built by NVE (Loan 138-NO, Tokke Project, $25 million, May 3, 1956).To date very good progress has been made in the construction of the TokkeProject and there is a possibility that it may be completed six monthsahead of the original schedule. As of June 9, 1959, the equivalent of$11.4 million remains to be disbursed. As in the case of Tokke, theBorrower for the proposed loan would be the Kingdom of Norway. Practicallythe entire cost of the Project will consist of local currency expenditures.The proposed loan would be disbursed on the basis of a list of goods con-sisting largely of equipment to be purchased in Norway.

II. BACKGROUND

5. An important factor in the economy of Norway is the availabilityof hydroelectric power potential in large quantities. Over 5 million kwcapacity has so far been developed throughout the country. NVE estimatesthat 15 million kw more can be obtained from sites which have been inves-tigated. Many of these sites are very favorable for economic power develop-ment and can be developed to provide energy at generating costs in therange of 2 to 3 US mills.

6. Even though the availability of inexpensive hydroelectric powerhas resulted in active development of sites and the attainment of thehighest per capita consumption in the world (6,700 kwh in 1958), the post-war period in Norway has been characterized by a continuous shortage ofpower from which the country has not yet fully recovered.

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7. Installed capacity in Norway at the end of 1958 was 5,400 PW, ownedas follows:

State 1,350 MW 25%Municipalities 2,425 iMW 45%Privately-owned (mainly

industrial concerns) Ya2 1W 30%

5,400 W 100%

8. Annual generation during fiscal year 1957/58 reached 26,500 millionkwh, approximately in the same proportion by source as capacity. Consumptionduring the same period attained 23,500 million, with the following breakdownby categories of consumers:

Electrochemical and Electrometallurgicalindustries 10,000 43%

Paper and pulp industries 1,900 8/Mining 300 1%Other industries and handicraft 2,600 11%

Subtotal for industry 14,800 63%

Traction 300 1%

Lighting, residential, commercial and farm 80 36%

Total 23,500 100%

9. Annex 1 shows capacity and energy statistics for all of Norwaybetween 1919 and 1958. The average yearly compound growth in capacity andenergy generation during the last ten years has been between 7 and 8%.

10. The planning by Norwegian authorities on which expansion of powerfacilities is based, including the facilities in the Project, is very con-servative and assumes an average annual increase in demand of the order of4%.-

11. In the past, development of power resources has taken place locallyas a result of either municipal or private industrial initiatives and ithas only been after the last war that NVE began undertaking direct develop-ment of power sites on a large scale. No national grid has yet been es-tablished and Norwegian electricity requirements are still largely suppliedfrom isolated local systems centered around the more active regions in thecountry. The following are the six principal systems in the country:

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Conneted PlanCanacity

i. Southeastern system 2,560 MWii. Agder System 340 *

iii. Lyse System 300 "1iv. Bergen, South Hordaland and North

Rogaland System 400v. Sogn and Fjordane and Sunnm re System 250 "

vi. Aura region (Nordenfjeldske power System) 700 "4,550 MW

In other parts of the country _50 "

Total 5,400 NW

III. NVE AND NTE

A. NVE

12. NVE was organized in 1920. Among its main responsibilities are thecollection of hydrological data in the entire country; the formulation ofrecommendations concerning the administration of all concessions for theuse of water for either power generation or water supply; the control ofwaterways for flood prevention, shore protection and reclamation purposes;the authority to recommend and supervise concessions for the establishmentand operation of power generating facilities; and, finally, the construct-ion and direct operation of power generating facilities and transmissionlines. Power generated in NVE's facilities is sold wholesale and NVE hasno distribution systems.

13. At present, NVEls staff in its central offices in Oslo numbersaround 250. The staff engaged in the operation and maintenance of powerfacilities numbers about 300, in addition to about 200 laborers. The per-manent staff of the Construction Department in the field (NVE generallyacts as its own contractor for the construction of its facilities) amountsto about 280 and the total number of laborers presently engaged in con-struction of new facilities is about 2,700.

14. Total generating capacity of NVE's power plants now in operationamounts to 1,163 MW or 21.5% of the total for Norway. Plants under con-struction represent an aggregate capacity of 680 YIW. The total energygeneration in NVFs plants during the last complete accounting year (1957-58) amounted to 5.8 billion kwh.

15. The construction program for the development of new capacity byNVE results from estimates of the growth of demand throughout the countryin future years, as prepared and periodically reviewed by NVE. Account istaken of plans for expansion of facilities by municipal or private under-takings, and new developments by NVE are decided upon largely as balancingitems in the forecasts. The forecast of annual sales of power by NVE,

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given in Annex 7, is the result of these calculations, the basic assumptionbeing that overall power consumption in the country will grow at an averageannual rate of 4%. NVE's long range plans assume that new energy to be pro-vided in Norway will reach the 2 billion kwh/year mark in 1975. These ratesof growth have been substantially exceeded in recent years and it appearslikely that they will continue to be exceeded at least for some time in thefuture.

16. The management and staff of NVE are well qualified to carry outtheir responsibilities. The relatively small staff handles a heavy work-load efficiently. In recent years there have been periods when some de-partments were overloaded, but management keeps this situation under goodcontrol: there have been additions to the staff, and organizational im-provements are currently being studied. There were some difficulties abouttwo years ago with the professional staff owing to the relatively low payscale, but a general salary increase appears to have overcome these diffi-culties.

B. NTE

17. NTE is an agency of the Province of Nord-Tr ndelag, charged withthe generation, transmission and distribution of power.

18. NTE has in operation three hydroelectric stations with an aggregateeffective capacity of 72 MW. A fourth hydroelectric station in the finalphases of construction will add 26 MW to the system. The most recent peakload on the system has been 90 IW. As the system of NTE is interconnectedwith the Aura Grid (Nordenfjeldske Kraftsamband), NTE has been a net pur-chaser of power from the grid since 1954.

19. NTE power sales during the last complete accounting year (1957-58)were 445 million kwh. During the last ten years, the peak load on NTEtssystem has grown at an average annual compound rate of about 8%, and energyconsumption at about 6%. As the extension of electric service to ruralareas in the county has almost been completed, NTE forecasts that loadgrowth will continue at a 6% annual rate until 1962, and then gradually de-cline. The average annual increase assumed in the forecast for the comingten year period is 4.5%. This forecast is likely to be exceeded.

20. Additional statistics on NTFs operations are given in Annex 2.NTE is under the direction of (i) the provincial council, (ii) a board offive directors and (iii) a managing director, who is its chief executiveand is appointed by the province's Standing Committee upon recommendationof the Board.

21. NTE is organized in six departments. Planning and design are nor-mally handled by the staff with the advice of mechanical and electricaloutside consultants. Civil engineering works are planned and designedentirely by the staff. Construction of facilities, with the exception oftransmission and distribution work, is generally entrusted to contractors.NTE is properly managed and capably staffed, in a manner and on a scalewell suited to the size of its normal operations.

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IV. TfE EROJECT

A. GENERATING FACILITIES

22. The generating facilities in the Project are the proposed Tunnsj/and Tunnsj'dal hydroelectric stations. These two plants, when completed,will fully utilize the power potential of the Upper Namsen river (seemaps). The basic development scheme for the Upper Namsen hes been underconsideration since the 1920's and the detailed plans and designs nowbeing used have been under preparation by NTE since 1952. The UpperNamsen is to be diverted from its natural course at the outlet from LakeNamsvatn. There are available complete records of precipitation and flowstarting in 1908. These show that the overall average flow at the pointof proposed diversion for the period during which observations are avail-able is 34.6 m3/sec. The maximum and minimum flows ever recorded wererespectively 280 and 1.6 m3/sec. After allowing for the minimum flow re-quirements in the natural bed of the Namsen, the average flow that can bediverted is 30 m3/sec.

23. A dam already exists at the natural outlet from Lake Namsvvtn.The diversion would involve the following major works:

a. A 3,200 m tunnel of 45 m2 section between Lakes Namsvatn andVekteren.

b. A 580 m open cut canal to connect Lake Vekteren to Lake Limingen(the average difference in elevation of the two lakes, about25 m will be utilized at an undetermined later date to generateabout 14,000 kw and 70 million kwh/year).

c. A 2,800 m pressure tunnel of 45 m2 section, with intake installa-tions on Lake Limingen.

d. Surge tank, penstock and underground Tunnsj power station (23 1JW).

e. A 150 m tailrace tunnel from Tunnsj power station into LakeTunnsj .

f. Works to increase the capacity of the existing outlet from thewestern end of Lake Tunnsj$ to pass 82 m3/sec.

g. Intake dam for the Tunnsj$dal power plant at Grfndalsfoss.

h. An 11,000 m pressure tunnel of 45 m2 section.

i. Surge tank, penstocks and underground Tunnsj dal power station(145 MVw).

j. A 2,080 m tailrace tunnel, to rejoin the Namsen river.

24. On the basis of this layout, storage regulation for water divertedfrom the Namsen will take place in Lakes Namsvatn, Vekteren, Limingen andTunnsj . The useful storage volume obtainable in each lake is governed by

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the allowable limits in level variations dictated by existing concessions,fishing and logging rights, farming considerations, winter transit con-siderations and finally landscape conservation policies. In addition, aconcession for the use of a certain storage volume in Lake Limingen (whosenatural outlet flows into Sweden) has been granted to Swedish interests.When the concession was granted, account was taken of known plans for thediversion of the Namsen river through the lake. It was provided that theamount of water to be withdrawn by Norway from Lake Limingen would not ex-ceed that taken in from Lake Namsvatn through Lake Vekteren, and, further,that within the allowable variation of the level of Lake Limingen, thestorage of water for Norwegian purposes would not affect the ability ofthe Swedish to utilize the storage volume assigned to them.

25. When all these limitations are taken into account, the usefulstorage volume available for the Tunnsj power station would be as follows:

Millions m3

Already available in Lake Namsvatn 450To be obtained in Lake Vekteren 25To be obtained in Lake Limingen 230

Total 705

As the total average annual outflow of the Namsen from Lake Namsvatn is1,093 million m3 this storage volume will nake it possible to obtain al-most full regulation of the diverted flow. In addition, there is alreadyavailable for the Tunnsj$dal power station in Lake Tunnsj a useful stor-age volume of 450 million m3 .

26. Having regard to these factors, the basic design features of thetwo power stations have been established as follows:

ITinns 16 Tunnsj6d 1

Regulated flow, m3/sec. 30 44Maximum flow (at full load), m/sec. 52 82Average head, m 57 237Turbine capacity, hp 1 x 33000 4 x 50000Total electrical inst.cap., kw 23000 145000Annual generation, per basic yeas

mill.kwh 108 704Annual generation, per average year,

mill.kwh 120 790

1/ The year with hydrological conditions on which the Norwegians base theirplanning: instead of the average year they use the third lowest yearamong those for which full records are available. Fxperience has shownthat a basic year has a frequency of about one in ten.

In addition, 110 million kwh per year presently produced only at times offlood in existing power installations in the downstream reaches of the Nam-sen will become firm energy as a result of flow regulation in the lakes.Thus the average annual generation to be credited to the generating faci-lities in the Project totals 1,020 million kwh.I

Arragements for Planning. Design and Construction

27. The Tunnsj$-Tunnsj dal development was originally to be carriedout by NTE alone. However, its capacity and energy generation were muchtoo large for NTF ts system and moreover it was necessary to construct thewhole scheme at one time in order to take full advantage of its economicfeatures. The possibility of exporting some of the p?er to Sweden, anattractive one, necessitated the intervention of NVT. 4 This led to thefinal decision that Nord-Tr$ndelag and NVE would share as equal partnersin financing the scheme and that each would receive half of the power genera-ted. A Board of four members, two representing each partner, is to managethe construction and operation of the installations. Subject to the provisothat all plans, designs and decisions affecting the scheme were to beacceptable to both parties, it had been essentially the intent of the par-ties that NTE should carry the basic responsibilities for actual design,construction management and supervision, and later for the operation of thescheme. The shortcomings of this plan which were brought to light by adetailed discussion with both parties have been remedied to the satisfactionof the Iission and the new arrangements are summarized in Annex 3.

Construction

28. The construction of the Project will be carried out by contractors.Bids have been invited from qualified Norwegian contractors on the basisof four lots, namely the diversion works from Namsvatn to Limingen and theoutlet from Lake Tunnsj$, the Tunnsj power station and related works, theintake dam for Tunnsj dal and 8 of the 11 km of the pressure tunnel, andfinally the balance of the pressure tunnel and the Tunnsj/dal station.

29. Bids for the supply of the major equipment have been or will beinvited from qualified manufacturers on an international basis. There arein Norway, manufacturers capable of supplying the equipment needed, andthe Government requires that they be given preference if their bids are

1/ In time of flood, spill energy is sold at very low rates largely topaper mills for use in electric boilers, thereby reducing consumptionof fuels. Conversion of spill energy to firm energy will thereforein fact make available an additional 110 mill.kwh to public supply.

/ Existing legislation provides that VE should be responsible for allimportant power export contracts.

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not more than 10% higher than foreign ones, after adding custom duty.

Cost Estimates

30. Cost estimates have been prepared by NTE on the basis of detailedestimates of quantities obtained from the preliminary layout, with refer-ence to current experience in the construction of their plant at Aunfossand to advice from the consultants on probable equipment costs.

Summary Cost Estimate

Million Million US$Kroner (equivalent)

Land and water rights 7.35 1.02Access roads 17.1 1.00Share of cost of existing regulations, dams,

etc. 4.9 0.68Diversion Namsvatn-Vekteren-.Limingen 11.3 1.58Tunnsj, Power Plant 23.9 3.34Tunnsj dal Power Plant 91.8 12.83Planning, engineering, overhead 2.5 0.35

Subtotal 148.85 20.80Contingencies 23.15 3.25Interest during construction _29Q0 2.8

Total 192.00 26.85

A more Oetailed estimate is given in Annex 4.

31. NTELs original estimate included an allowance for contingenciesamounting only to Kr 8.1 million, thus giving a total estimate of Kr 177million. A detailed analysis of the estimates, discussions with NVEtsConstruction Department to obtain their opinion on NTF's estimates, and theapplication of current cost experience in other projects in Norway, notablyTokke, have led to the conclusion that NTEIs estimates have been preparedcarefully and that they are fairly reliable. However, there are a fewdesign features not yet finally defined, the underground explorations sofar available are rather limited, and some recent wage increases have notentirely been taken into account in the estimates. It was concluded thata more prudent financial plan would result from the assumption of a largercontingency allowance. For the purpose of this appraisal contingenciesare therefore taken at about 16o of the cost of the works, which shouldprovide a reasonably conservative allowance against both physical and pricecontingencies.

32. Bids have very recently been received by NTE on all civil workscontracts and on the turbines for both power stations. While bid analysishas not been completed, the range established by combining all lowest bide

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and all highest bids on the civil works contrects is from Kr 60 to 94 mil-lion, as compared to the estimate of Kr 70 million. Bids for turbines areslightly lower than the estimates.

Capital Costs and Cost of Generation

33. Equivalent capital costs for the Tunnsj$-Tunnsj dal installationsare $159/kw and 2.6 cents/kwh/year. These are extremely low costs. Inthe Norwegian proposal the cost of generation, as calculated by NTE fortheir share, is given as 1.84 are/kwh. However, in calculating this costsome facilities have been included which are not part of the Project. Acalculation of the cost of generation limited to Tunnsj and TunnsjMdal isgiven in Annex 5 and shows the cost as 1.78 ire/kwh (2.5 US mills).

Construction Frogress and Comnletion Dates

34. The proposed period of construction, assuming that work can startin July 1959, is estimated as four years, with the Tunnsj Power Plantscheduled for completion during the third quarter of 1963, and Tunnsjgdalduring the fourth quarter of the same year. As the Project could not beplaced un er construction until full parliamentary approval had beenobtainedi and the major financing arrangements have been completed, NTEhas awarded contracts for the access roads needed in order to begin con-struction in the summer of 1959. It has also obtained bids on contractswhose timing would be critical.

B. TRANSMISSION FACILITES

35. The transmission facilities proposed as part of the Project (seemap) have been planned by NVE, which would also erect and operate thelines invol_ed. These are:

1. Tunnsj dal-Eidum at 300 kv 180 km

2 (Csbu-Vagamo at 130 kv 83 km2. (Pirtparo-Vinstra at 300 kv 47 km

3. Fabezg-Skjeberg at 300 kv 245 km

Numerous substation and transformer capacity expansions are involved asrelated works at points of interconnection along the routing of the pro-posed lines.

36. While there is a direct relationship between the development of anew large power source at Tunnsj$-Tunnsj/dal and the construction of thelines described as Item 1 and part of those in Item 2, the basic planningbackground for these transmission facilities is to be found in the necessity

1/ This has been granted on June 24, 1959.

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of making available transmission interconnections on a national scale inaddition and as a supplement to existing local grids.

37. The study of the national interconnection problem has been active-ly carried out during the past four years by the Power Transmission Com-mittee. Represented on the Committee are the NVE, the private and publiclocal interests, and the regional grids. NVF has reviewed and amended theCommittee's recommendations in order to allow for probable future develop-ment of generating capacity in Norway and for plans to establish furtherexchanges of power with Sweden. The transmission line plan as now proposedrepresents a suitable compromise after weighing all technical and economicfactors. These factors are given in some detail in Annex 6.

38. The technical and operating characteristics of the proposed inter-connection have been checked on the Trondheim network analyser. The testshave shown that under some conditions the 130 kv connection Osbu-Vagamowould not be stable for parallel operation of the Aura and Oslo grids andin those instances service will have to be separated at Aura. This willnot seriously affect the usefulness of the interconnection and arrangementsare being made to establish adequate breaker and protection specificationsand to organize a suitable dispatching service.

Planning, Design and Construction

39. NVE is to discharge all these responsibilities directly, throughthe use of their own technical staff and facilities. They have done so inthe past and they are currently engaged in erecting the high voltage linesincluded in the Tokke development. They are well qualified for this work.

40. The planning of the lines has been completed and preliminaryrouting of all connections finalized. Work for tower location, acquisitionof transit rights and expropriations will begin in the summer of 1960, Thelines are scheduled for completion in late 1963. Time is not a criticalfactor.

41. All materials and equipment involved will be procured domestically,with the exception of insulators for lines at 300 kv, which ag was done inthe past, will be purchased in Japan and in the USA.

Cost E timates

42. Cost estimates have been prepared by NVE on the basis of currentexperience on similar lines.

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Summary Cost EstimatesNillion Kroner Million US$

F_uivalent

Tunnsj dal-Eidum 300 kv, 180 km 41.5 5.8Transformer Station at Verdal 16 2.24Expansion of Substations at Eidum,

Strinda and Nea 8. 1.22

Subtotal 66.2 9.26

2.Osbu-Vagamo 130 kv, 83 km 8.3 1.16Vagamo-Vinstra 300 kv, 47 km 10.8 1.52Transformer station at Vagamo 14 1 .96Fxpansion of substations at Osbu and Vinstra 1.5 0.21

Subtotal 34.6 4.85

3.Faberg-Skjeberg 300 kv, 245 km 56.5 7.9Transformer stations at Saner and Skjeverg 24.0 3.36Expansion of substations at Faberg and R ykas _.2 1.18

Subtotal 8. 12.44

General Subtotal 189.8 26.55

Rerouting of telephone and other communica-tion lines parallel to proposed 300 kvsections 6 0.85

Total 195.8 27.40

43. The rerouting of communication lines may not have to be executedby NVE, and in that event the allocated amount would increase the contin-gency allocations, which are already included in the estimates. Theamount of contingency allocations varies between 5 and 10% depending onpossible changes in routing and span which may be made necessary by localfactors. These allocations should be adequate.

C. JUSTIFICATION CF THE PROJECT

Gen2ratiny Facilities

44. Both the NTF system and the Aura Grid, of which the NTE system ispart, require the development of new generating facilities to satisfyenergy demand in the early 1960ts. The combined forecast of demand andsupply for the grid, excluding the Tunnsj$-Tunnsj dal installations, is asfollows:

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TABLE A(millions of kwh)

Energy Sunly Energy BalanceBasic Average Demand Basic AverageYear Year Year Year

1958/59 2660 2850 2740 - 80 + 1101959/60 2980 3180 2960 + 20 + 2201960/61 3310 3510 3260 + 50 + 2501961/62 3370 3570 3430 - 60 + 1401962/63 3410 3610 3520 - 110 + 901963/64 3410 3610 3790 - 380 - 1801964/65 3410 3610 3890 - 480 - 2801965/66 3410 3610 3970 - 560 - 360

+ = surplus- = deficit

45. The Namsen river development has economic priority among thepossible sources of power to satisfy requirements from 1963 onwards. Thisdevelopment can provide power in excess of immediate grid requirementsduring the initial years of operation. However, there is an attractivemarket for export of power to Sweden.

46. Planning the development of the Namsen river diversion has result-ed in the conclusion of contracts for export of power to Sweden by NVE asfollows:

a) a 20-year contract for the export of 300 million kwh per year(as an annual average), with the option to raise this amount to400 million if both parties agree by 1961.

b) short term (5 years) contract for the export of an additional150 million kwh per year, leaving the possibility open for theNorwegians to reduce the amount or terminate the contract de-pending on power requirements on the Aura Grid.

47. As in other recent power export contracts to Sweden, the actualannual amount of energy to be delivered may be varied, at Norway's option,between limits of 40% less and 20% more than the average contract amount.The significance of this clause is that Norway is in effect firming upits own domestic supply of hydroelectric power.

48. The prices in the export contracts which are to be adjustedaccording to variations of the wholesale price index, are denominated inSwedish currency equivalent to an expected average of 3.4 and 3.9 Nor-wegian ire/kwh (4.8 and 5.5 US mills) respectively for the first andsecond contract.

49. After export commitments are fulfilled (450 to 550 million kwh/year), supply-demand balance on the Aura Grid will be as follows:

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TABLE B(millions of kwh)

Balance Tunnsjodal Additional supply ExPort BalanceTable A Installations to Aura Aluminum

Factory

1962/63 + 90 + 100 - 20 - 100 + 701963/64 - 180 + 910 - 20 - 450(550) + 260(160)1964/65 - 280 + 1020 - 20 - 450(550) + 270(170)1965/66 - 360 + 1020 - 20 - 450(550) + 190(90)

These surpluses, to the extent that they may materialize, will be sold toNVE for trarsmission to the southeastern grid. It has been agreed thatthe part of NTE's share of Tunnsjodal power to be sold temporarily to NVEwill be turneq over at cost (provisionally calculated as 1.84 /re/kwh;para 33).

50. On the basis of these arrangements, the development of the Tunnsj -dal faciliuies will offer to NTE the opportunity to have available theadditional supplies of power needed for its system and for the Aura gridduring a period of several years at a cost which compares favorably withcurrent generating costs. The entire capability of the project will beutilized as soon as construction is completed and NVE will have the oppor-tunity to realize sizable profits from the export to Sweden and, to alesser extent, from the temporary sale of domestic surpluses to the south-eastern grid.

Transoission Facilities

51. Th- transmission facilities proposed as part of the Project willmake a valiable contribution for the pooling of spare plant, thus reducingfuture capital investment in new capacity. Moreover, immediate and iden-tifiable revenue will accrue to NVE from these lines as a result of:

a) The conversion of 300 million kwh/year on the average from summerspill power to firm power.

b) Transmission fees to be paid to NVE by grids or power entitieswhich will be using these lines for their power exchanges, onthe basis of an already agreed-upon charge of 0.3 ire/kwh.

V. FINANCING FLAN

52. The Norwegian plan for financing the Tunnsj -Tunnsj dal schemeand the proposed interconnection also includes the sum of Kr 28 millionto meet Norway's share of the cost of a power station (Linvasselv) notincluded in the Project and to be jointly owned with Sweden. The Norwegianestimate of the investment required is as follows:

- 14 -Million Kroner

Cost of Tunnsj -Tunnsj dal 177Share of Linvasselv's cost 28

Subtotal 205Cost of Transmission Facilities 1958

Total 400.8

The cost of the generating facilities is to be borne 50% by Nord-Trndelagand 50% by NVE (each share amounting to Kr 102.5 million). In addition,NVE must bear the entire Kr 195.8 million cost of the transmission facilities.

53. In order to finance its share of the generating facilities, Nord-Tr/ndelag has undertaken to provide Kr 16 million directly, and has obtain-ed a commitment from the Municipalities Bank of Norway to lend the remainingKr 86.5 million. NVE proposes that its share of the cost of the Project,totalling Kr 298.3 million, be provided through budget allocations, abouthalf of which would be covered by the proposed Bank loan.

54. Taking account of additional contingencies (para. 31), and consid-ering only the works included in the Project, the contributions by NVE andNord-Tr ndelag would be as follows:

Million Million US(Kroner givalent

Nord- NVE Nord- NVETLrndelg Tr$ndelag

Tunnsj -Tunnsj dal 96 96 13.42 13.42Transmission Lines 195.8 27.4

Total 96 291.8 13.42 40.82

55. In view of the fact that the Norwegian Government, through NVE,will be obligated to make up any shortfall, Nord-Tr ndelag1 s financialarrangementB are adequate to cover its share of the cost. As to NVEtsshare, a Bank loan of $20 million equivalent (Kr 143 million) would leaveabout Kr 149 million to be provided by budgetary allocations.

VI. FINANCIAL

56. As NVE is to be the beneficiary of the proposed loan, its pastand estimated future finances are examined below.

NVE Power Rates

57. NVE sells power, in bulk, to 39 wholesale customers - five largeindustrial consumers, the State Railways and 33 municipal or rural utilitiesin Central and Southern Norway. The five industrial consumers take upabout half of all the energy sold by NVE.

58. The price charged to the industrial consumers is established byseparate contracts, subject to the approval of Parliament. Electricitysupplies to the largest consumers (aluminum and chemical industries) arecovered by long-term contracts. Contract prices are generally tied to the

- 15 -

fluctuations of the wholesale price index of the Central Statistical Bureau,either at short intervals according to pre-established formula, or at in-tervals of 5 to 10 years.

59. Contracts with the State Railways and the 33 utilities do not stipu-late any price. Rates are determined by NVE and can be modified during thelife of the contract, on NVE's initiative, subject to the approval of Parlia-ment.

60. Up to 1956, the level of rates was set so as to produce total revenuessufficient to cover all operating costs of the NVE system as a whole, includingreasonable allocations to special reserves, in lieu of depreciation, and toleave a small surplus available for reinvestment in power facilities.

61. In July 1956, the government decided that power prices charged by NVEshould be based on the cost of generation in the new power stations, ratherthan on the cost of generation by the system as a whole. This change froman average to a marginal cost concept resulted in an immediate increase ofabout 30%o in the price charged to the 33 utilities. Although existing long-term contracts with the industries could not be amended, new industrial con-tracts signed since July 1956 stipulate power rates at least 40%o higher thanthe previous level.

62. The result of the 1956 rate increase was to raise NVEts averagerevenue per kwh from 1.36 ire (1.9 US mills) per kwh in 1955-56 to thepresent 1.60 re (2.24 US mills) per kwh. New contracts - including exportcontracts to Sweden - for the supply of power to be generated by plantscoming into operation in the next four years are expected to raise the aver-age gradually to a level of at least 1.80 re (2.52 US mills) per kwh by1964.1/

Financial Organization of NVE

63. NVT, is a government agency, without any financial autonomy. Revenuesand expe.Lel are all included in the government accounts, and all funds fornew construction are provided from budget appropriations.

64. A statement of financial condition of the power stations is publishedevery year. It merely records, on the asset side, the total capital expen-ditures, balanced, on the liabilities side, by items of government appropria-tions from which the investments were made. The statement also shows variousreserves, the exact counterparts of which appear among the assets as fundsdeposited with the Treasury.

65. The reason for this form of presentation is that the status of thegovernment capital as debt or equity is not clearly defined. Although budgetappropriations for construction expenditures by NVE are shown, in governmentaccounts, as long-term loans, these loan liabilities merely represent an in-ternal relationship between government departments. The rate of interest onexisting loans is set by law every year, and the amortization requirementscan be modified or waived at the government's discretion. For these reasons,NVE's financial statements show budget appropriations merely as "governmentcapital".

1/ These are net revenues to NVE. In addition, power consumers in Norwayare charged a surtax of 0.2 $re/kwh and the proceeds of this tax are re-invested by the Government in expansion of electric power facilities.

- 16 -

66. The possibility is at present being considered in Norway of grant-ing NVE some measure of autonomy. If NVE were an autonomous governmententity, its balance sheet as at June 30, 1958 would appear approximatelyas follows: (in millions of Kroner)

AssetsFixed assets in operation 953.9less: Reserves, in lieu of depreciation _22_.

Net fixed assets in operation 854.6Construction work in progress, at cost 244.0Current Assets 5

1,104.5Liabilities

IBRD Loan No. 138-NO 59.4Government Capital 1-Q01

Total 1,104.5

Past Farnings and Return on the Investment

67. Operating results of NVE are recorded in a Profit and Loss Accountwhich is charged with all operating expenses and with 3 special provisions,in lieu of depreciation.

68. The 3 provisions are:

(1) a provision for renewals calculated, for all plants in opera-tion, on the basis of a sinking-fund, earning 3--0o interest, designed toaccumulate the full value of the plants in 35 years.

(2) for plants commissioned since 1953, a provision for amortiza-tion of the government capital invested in the installations. This is inaddition to the provision described in (1) above and is calculated on thesame basis,

(3) a small contribution to an insurance fund.

69. No expenditure for plant renewal is charged against any of theseprovisions, so that they are, in effect, equivalent to a depreciationreserve. Their combination has, in the last 5 years, been equivalent toan annual depreciation of over 2.5% of the historical cost of the assets.

70. The Profit and Loss account is also charged with interest on thegovernment capital, at rates which are set annually; the present rate is3o1 a year.

71. Summary Income Statements of NVE for the last 4 years are givenin Annex 7. On the basis of the accounting described above, the powerplants have shown a profit which has increased from Kr 2.3 million in1954-55 to Kr 18.4 million in 1957-58. This was largely due to the in-crease in power rates which took place in 1956.

- 17 -

72. Gross Income before interest charges more than doubled fromKr 20.5 million to Kr 44 million during the same period. The return onthe investment in operation thus went up from 3.4% in 1955 to 5.3% in1958.. It should be noted that the return figures would be slightly high-er if NVE had charged straight-line depreciation, even at the conservativerate of 2.25% a year, instead of the 3 provisions previously referred to.

Capital Expenditures and Sources of Funds

73. Total capital expenditures of NVE over the eight years from July1, 1958 to June 30, 1966 are estimated at Kr 1,251 million (q175 million).Details of this investment program are given in Annex 8. NVEts share ofthe Project accounts for about 23% of total construction expendituresduring the period considered.

74. All funds required to carry out the construction program, includ-ing the proceeds of the proposed loan of $20 million and the undisbursedbalance of Loan No. 138-NO will be made available to NVE in the form ofbudget appropriations, as has been the practice in the past.

75. If NVF could retain its net earnings for reinvestment in newfacilities, the forecast of sources of funds for the construction programwould appear as follows:

Millions of %Kroner

Total net receipts from operations 885.6less: total debt service provisions 586.9

Available for construction 298.7 24

Government AppropriationsFrom proceeds of IBRD loans 262.3 21

From general funds _690.4 55

1,251.4 100

76. NVE would thus provide about 24% of all construction fund require-ments out of its own internal resources. Considering that the constructionprogram will more than double NV's investment in 8 years, this percentageof financing out of internal generation of funds appears reasonable. Ahigher contribution would be desirable, however, in order to reduce theburden on Government funds.

Forecast of Earnings, Sources and Anplication of Funds

77. Forecasts of income statements of NVE for the 8 years from July 1,1958 to June 30, 1966 are given in Annex 7 and estimated cash flow state-

1/ Hydrological conditions in 1958 were above average.

- 18 -

ments for the same period are shown in Annex 9. Because of the completeintegration of NVEts finances with those of the government, these state-ments should be considered as purely pro-forma.

78. The estimates of revenues are based on growth of sales conserva-tively estimated by NVE (see para. 15). The NVE power rates in effect atpresent heve been used. As mentioned earlier, the present rates are ex-pected to result in a gradual increase in NVF's average revenues per kwhsold from 1.60 re in 1958 to 1.80 re in 1965.

79. For purposes of calculation, the proposed and existing Bank loanshave been shown separately from the rest of the government funds. Theproposed loan has been assumed to carry an interest rate of 6% and to havea term of 25 years, with amortization beginning in February 1964 and endingin August 1984.

80. Although their status is uncertain, government appropriations havebeen shown as long-term loans and have been assumed to carry an interestrate of 3-p% a year, with amortization on a 35-year, 3j% sinking fund basisin line with current accounting practices of NVE, which have been assumedto remain unchanged.

Future Earnings

81. On this basis, earnings of NVE would increase from Kr 5 million in1959 to Kr 27.8 million in 1966. These estimates of future earnings areunderstated to the extent that the sum of the three provisions exceeds theamount of depreciation accruals which NVE would charge, if it amortizedits assets on a straight-line basis at the rate normally applied to hydro-electric installations, i.e., 2.25% a year.

82. A theoretical computation prepared on that basis is given inAnnex 7, below the estimated income statements. It shows adjusted netprofits increasing from Kr 12.2 million in 1958-59 to Kr 27.6 million in1965-66. Adjusted gross income, before interest charges, would rise fromKr 43.6 million to Kr 106 million during the same period. This wouldamount to a return on the investment in operation (excluding thereforework in progress) increasing slightly from 4.9% in 1959 to 5.4% in 1965.Although relatively low, this return is about equal to the average cost ofnew money to the Norwegian Government.

Interest and Debt Service Coverage

83. Because of the theoretical character of NVE's debt to the Govern-ment the interest and debt service coverage rates do not have much sig-nificance. Taking the government capital as long-term debt, and assumingthat the rate of interest and the amortization remain on the present basis,the interest coverage would increase from 1.4 in 1959 to 1.55 in 1966.The debt service coverage would remain very close to 1.5. Considering theBank loans as the only long-term debt of NVE, both the interest and thedebt service coverage would be ample. Debt service on the existing andproposed Bank loans would be covered by net receipts from operations atleast 5i times from 1965 on.

- 19 -

Estimated Balance Sheets

84. Pro-forma balance sheets of NVE as at the end of the constructionof the project in June 1964 and as of June 1966 are given in Annex 10.They show fixed assets in operation increasing from the present Kr 954million ($133 million) to about Kr 2,450 million (k0343 million) in 1966.Taking the government capital as equity, the debt/equity ratio of NVE wouldbe approximately 13/87 in 1966.

Rate Covenants

85. At the time of Loan 138-NO (Tokke) the Bank considered the thencurrent rate of return of 3.4% as insufficient, and the Norwegian Govern-ment, in a letter to the Bank, stated its intention to establish powerrates sufficient for NVE to cover all its expenses including interest andadequate provisions for funds in lieu of depreciation, and to leave areasonable surplus for reinvestment in electric power facilities.

86. In view of recent operating results of NVE no immediate action isneeded on NVE rates. During negotiations it has been agreed that a re-statement of the above principle would be incorporated in the loan agree-ment.

VII. CONCLUSIONS

87. The generating facilities proposed in the Project are soundly con-ceived and have good economic justification. The arrangements proposedfor their design, construction and operation are satisfactory.

88. The transmission facilities proposed in the Project have highpriority and will provide sizable operating and financial advantages. Thearrangements for the design, construction and operation of the transmissionlines are satisfactory.

89. The management and staff of NVE and NTE are competent and qualified.

90. Wholesale power rates charged by NVE have been considerably in-creased since 1956. The return on NVE's investment in the field of powerduring the period 1955-58 went from 3.4:/ to 5.3% and is expected to averageabout 5% between 1959 and 1965. While the present rate of return corres-ponds to the average cost of new money to the Norwegian Government, a high-er return would seem desirable with the object of enabling NVE to generatea larger proportion of the funds needed for expansion, thereby reducingthe burden on Government funds.

91. The Project is suitable for a loan of $20 million. In view of thenature of the facilities and of the period of construction, a term of 25years and a period of grace of 4k7 years appear appropriate.

Annex 1

STATISTICS ON POUER DEVLOFENT IN NORWAY

Calendar Installation in million Yearly energy production inYear kw by end of year million kwh

All power NVFs power From all pow- NVE's powerstations stations er stations stations

1919 1.25 ca. 4,2001939 2.11 0.24 10,516 7601940 2.13 0.24 8,956 7831944 2.33 0.29 11,381 1,0091945 2.46 0.29 10,140 8811946 2.52 0.32 11,600 916

1947 2.65 0.37 11,598 1,0721948 2.75 0.44 12,818 1,3261949 3.03 0.55 15,563 2,1901950 3.12 0.56 17,716 3,1211951 3.26 0.56 17,750 3,2771952 3.31 0.56 18,866 3,182

1953 3.62 0.62 19,583 3,0091954 3.83 0.69 21,780 3,9391955 4.39 0.99 22,682 4,2401956 4.59 1.05 23,800 4,881

1957 4.86 1.06 25,840 5,5111958 5.40 27,580

Note: Of the figures given for installed capacity, total thermalcapacity in 1958 was 0.1 million kw.

ANNEM 2

NTE PWER STATISTICS

Budget Power Sold from System Production in own Purchased High Tension Delivery -0wh 220 Volts Delivery - GwhTear Peak load Energy Power Stations Power Large Industry Power

0ompanies Residential Small Commercial Flood Total

NW GA* MW Owh Gwh and fans Industry _ Energ -

1948/49 42.2 234.4 42.2 233.9 0.5 0.7 71.2 62.9 100.3

1949/50 42.4 242.0 42.4 242.0 - - 73.0 65.1 103.9

1950/11 46.2 227.1 46.2 227.1 - - 60.7 66.4 100.0

1951/52 50.1 264.4 50.1 264.4 - - 83.5 77.5 103.4

1952/53 55.4 283.3 55.4 283.3 - - 73.5 91.6 90.1 6.8 14.5 6.8 118.2

1953/54 65.0 330.8 53.7 316.1 11.3 14.7 97.0 102.3 96.5 7.8 17.7 9.5 131.5

1954/55 61.0 333.9 44.6 320.9 15.4 13.0 103.0 101.0 98.0 8.5 18.0 5.4 129.9

1955/56 78.4 403.6 62.0 382.7 16.4 20.9 124.0 L23.9 119.3 9.5 20.1 6.8 155.7

1956/57 77.4 430.5 62.0 362.7 15.4 67.8 134.0 131.0 124.7 12.4 21.3 7.1 165.5

1957/58 88.8 445.0 60.9 394.6 27.9 50.4 111.0 152.8 137.0 14.3 22.7 7.2 181.2

* Millions of kwh

FORECAST OF ENERGY SUPPLY AND DEMANDON NTE's sYSTLEM

IN MILIR3 OF KWE{

Year Energy Demand Production in NTE Deficit - Delivery to BalancePlants Surplus + the State

1958/59 501 388 - 113

1959/60 529 515 - 14

1960/61 555 515 - 40

1961/62 582 515 - 67

1962/63 621 515 - 106

1963/64 809 1025 + 214 170 44

1964/65 828 1025 + 197 170 27

1965/66 848 1025 + 177 170 7

1966/67 868 1025 + 157 157 -

1967/68 889 1025 + 136 136 -

1968/69 912 1025 + 113 113 -

1969/70 934 1025 + 91 91 -

Annex 3

ARRANGFENTS FOR PLANNING, DESIGN AND CONSTRUCTIONOF TUNNSJO-TUNNSJODAL INSTALLATIONS

Planning

The planning of the installations has been completed and checkedover by all parties concerned. All aspects of the development, includingnecessary concessions, draft agreements, power export contracts, etc.,have been grouped in a proposition submitted to the Storting for itsapproval, which is expected to be given early in June.

a) Civil engineering preliminary design has been carried out by NTE.It was planned that detailed design would be executed in the Civil Engineer-ing Department of NTE. While this group is competent and ably staffed, itdoes not quite measure up in size and experience to the importance of theproject now at hand. NTE's management has plans for strengthening thedepartment during the construction of the project, but it would not bedesirable to increase its size and importance to a level out of all propor-tion with normal work demands placed on it. It has been agreed that thedepartment, with sufficient additions, will execute the design and thatall important work will be checked in detail by the Construction Departmentof NVE. This is a satisfactory solution.

b) All mechanical engineering design work, including preparation ofspecifications, shop inspection and acceptance tests, has been entrustedby NTE to their mechanical consulting engineers, Thorensen and Hansen ofOslo. This is a leading firm in this field in Norway. It enjoys excellentreputation, it is free from commercial ties and is fully competent to dothe work. NVE is in agreement with the choice.

c) In regard to electrical engineering, consulting firms are notavailable in Norway with sufficient experience for this type of work. NVEhad declined an early request by NTF that it take charge of this part ofthe work and NTE had then decided to entrust it to a firm in Trondheim.However, in addition to the disadvantage of limited experience, this firm willhave a commercial interest in the Project as agents of a foreign equipmentmanufacturer. As this conflict would have been objectionable not only tothe Bank but also to NVE, it was agreed that NVE electrical departmentwould be responsible for the project's electrical design.

d) Supervision of construction will remain the responsibility of NTEbut NVE has pledged its close cooperation and the probable assignment ofexperienced personnel.

Annex 4

DETAIL OF COST ESTIMATES

Million Kroner

Land and water rights 7.35Access roads 7.1Share of cost of existing regulations, dams, etc. 4.9Diversion Namsvatn-Vekteren-Limingen

(a) Preliminary works and temporary facilities 1.07(b) Tunnels and canals 10.13(c) Transport of equipment on site .05(d) Flow measurement facilities .05

11.3

Tunnsjo Power Plant

(a) Preliminary works and temporary facilities 2.2(b) Civil works 11.0(c) Mechanical equipment 2.2(d) Electrical equipment 4.8(e) 60 kv Transmission lines 3.7

23.9

Tunnsjodal Power Plant

(a) Preliminary works and temporary facilities 5.9(b) Civil works 50.3(c) Me2-onical equipment 11.1(d) Electrical equipment _24-5

91.8

Planning, engineering, overhead 2.5

Subtotal 148.85Contingencies 23.15Interest during Construction 20.00

Total 192.00

Annex_5

COST OF PCWR GFNTRATED IN TUNNSJO-T1NNSJODAL

- Capital cost Kr 192 million

- Average generation 1,020 million kwh/year, including 110 millionkwh increase in firm generation by existing plants.

Annual Cost1000 Kroner

Interest or return on investment at 5.5% 10,560

Depreciation at 2.25% of full cost 4,320

Wages 407

Materials 70

maintenance 564

Insurance 174

Overhead 76

Misc. charges for use of roads and regulationfacilities 109

Compensation to NTE for loss of income from saleof flou power, 100 mill.kwh at 0.8 ore/kwh 880

Duties and taxes 519

Contingencies (Incl. expected increase in tax) 501

Total 18,180

18 18Q 00 = 1.78 ore/kwh (equiv. 2.5 US mills)1,020,000,000

1/ As described in para 26, 110 million kwh/year will be converted fromflood energy to regulated energy.

Annex 6

PLANNING OF INTIRCONNFCTION

The essential planning background for the various links in theinterconnection program can be summarized as follows:

1. About 200 NIW will be concentrated at the main Tunnsjodal sub-station, from Tunnsjodal, Tunnsjo and other smaller generatingplants to be built in the area, all to be interconnected at 60 kv.Of this capEcity, about 155 MW must be transmitted south. Partof it will be stepped down to 60 kv at Verdal for distributionon the NTE system. Possibly 100 iIW will remain to be transmittedtowards Trondheim-Aura over the existing 130 kv line for consumption onthel:uragrid or further transmission to the southeastern grid. Inreality there would be a reversal of flow on that line, fromthe present south to north to a future north to south. Thus thecapacity which might be available for transmission to the south-eastern grid would be represented by some of the units in the Aurapower station.

2. The purpose of the Osbu-VEguo and Vagamo-Vinstra lines is to pro-vide the first link between the southeastern (Oslo) grid and theAura (Nordenfjeldske) grid. Apart from the normal interconnectionadvantages of combining markets, diversity and reserves of the twogrids, the basic purpose is to bring about by means of the inter-connection the increase in energy generation resulting from thecomplementary nature of the hydrological features in the two regions.

As part of its detailed evaluation, the Committee calculated theincreases in energy generation which would have resulted fromknown statistical information covering the 30-year period 1920-49,assuming power plant development in the two regions to be thatplanned for the end of 1963. In essence, the result of the studywas to show that in a basic year a 300 kv line between the twogrids would bring about an increase in firm energy of 950 millionkwh, while a 132 kv line would limit the increase to 718 millionkwh. With the 132 kv line the average annual increase would beabout 300 million kwh.

On this basis the Comrittee's recommendation was to establish rightaway a continuous 300 kv link between Tunnsjodal and southernNorway. NVE after weighing all factors decided that for the timebeing the interconnection between the two grids should be limitedto a 132 kv line. The major factors involved in NVE's decisionwere the following:

- the 132 kv connection offers most of the immediate advantagesthat can be obtained in the near future;

- the investment required by a 300 kv connection (which would in-volve upgrading to 300 kv the existing 132 kv connection betweenOsbu and Eidum) would be too large for justification at this time.

Annex 6. Page 2

- the best routing of the eventual 300 kv (or higher) north-southconnection depends on which of the large sites in mid-Norwaywill be developed during the next decade; and also on the finalpattern and location of the power exchange points between Norwayand Sweden. As these matters are not now ready for decision, toadopt the 300 kv voltage might well restrict the freedom ofchoice in the future.

In the light of these considerations, the decision on the mainfeatures of the Osbu-Vinstra line transcends strict engineeringevaluation to become a matter of management judgment. As NVE isresponsible for national interconnection as well as for developmentof large sites and power export matters, it is properly theirresponsibility to exercise such judgment. In this case the solutionthey propose appears to be the best compromise among the manyfactors to be considered, as it offers most of the advantages anddoes not pre-judge future decisions.

3. The southern section of the proposed transmission facilities,Faberg-Skjeberg, will make available transmission capacity alreadybadly needed for the normal flow of hydro power towards marketcenters within the southeastern grid, and in addition it willaccommodate the southward exchanges of power between the two gridsto be connected. There are no questions outstanding about thissection of the line, nor any differences of opinion among theparties concerned. When this section of the line is in operationthe scope of load dispatching within the southeastern grid willhave to be widened and suitable arrangements are already beingworked out between the Southeastern Grid and NVE.

NVE INCOME STATEMENTS

AC TUAL E S TI MA TED __

Year ending June 30 - 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966

es of Kwh (in mi1llions) 3,550 4,346 4,786 5,610 5,830 6,475 7,300 3,550 9,350 9,725 10,400 11,200Tage reveue per Kwh (gre) 1.25 1.36 1.60 1.60 1.60 1.63 1.65 1.68 1.70 1.75 1.80 1.80

Thousands of N. Kroner Thousands of N. Kroner

enues from sales of power 44,404 58,953 76,315 89,760 93,345 105,500 120,400 143,300 158,700 169,500 187,200 201,600er power revaues 3,665 425 580 767 592 1,675 1,700 1,800 1,810 9,100 9,400 11,100

Total power reveues 46,069 59,376 76,695 90,527 93,937 107,175 122,100 1)5,100 160,510 173,600 196,600 212,700rating costs, including purchased power 15,566 17,683 21,386 23,494 29,067 31,885 35,74o 4,1o 43,660 46,560 49,400 56,700

Net Receipts from Operations 32,503 41,695 55,509 67,033 64,870 75,290 b6,360 104,960 116,850 132,040 147,200 158,000

enue deductions, in lieu of depreciation1location to renewal reserve 5,319 9,943 13,154 14,250 15,328 16,060 18,500 20,000 2),200 25,300 26,070 31,4401location to amortization reserve 6,198 3,242 8,588 8,020 12,397 12,660 12,E60 20,260 20,600 27,360 28,040 28,9301location to insurance reserve 435 592 692 803 809 900 950 960 1,000 1,100 1 100 1 430

Total "in lieu of depreciation" 11,952 13,777 22,434 23,073 28,534 29,620 32,310 41,220 45,80 53,760 -55)210 i,ooGross Income 20,551 27,918 33,075 43,960 36,336 L5,670 51,050 63,740 71,050 78,280 91,990 96,200

al interest charges 20,245 26,169 29,681 32,178 38,136 43,331 48,945 54,420 58,105 65,305 68,580 71,050s: Interest charged to construction 1,970 4,795 5,910 6,640 6,800 7,215 9,735 5,920 9,365 8,940 6,470 2,475erest, other than capitalized 18,275 21,374 23,771 25538 31,336 36,116 39,210 48,500 48,740 56,365 62,110 68,575

Surplus for the year 2,276 6,5Uh 9,304 18,422 5,000 9,554 14,840 15,240 22,310 21,915 29,880 27,625

-forma Income Statements

receipts from Operations, as above 64,870 75,290 86,360 104,960 116,850 132,040 147,200 158,000s Pro-forma depreciation * 21,250 23,900 28,400 33,900 38,300 41,800 47,100 52,000

Adjusted gross income 43,620 51,390 57,960 71,060 78,550 90,240 100,100 106,000s: Interest, other than capitalized 31,336 36,116 39,210 48,500 48,740 56,365 62,110 68,575

Adjusted Net Profit 12,284 15,274 18,750 22,560 29,810 33,875 37,990 37,425

es interest covered by adjusted gross income 1.40 1.42 1.47 1.47 1.60 1.60 1.61 1.55

rage net investment in operation 605,000 746,000 787,000 835,000 897,000 i,Q3q000 1,160,000 1,440,000 1,530,000 1,735,000 1,350,000 1,970,000urn on investment in operation * 3.4% 3.7% 4.2% 5.3% 4.9% 5% 5 5% 5.1% 5.25 5.4, 5.4%

.suming depreciation accounting on a straight-line basis, at an annual rate of 2.25%.

omputed for the years 1959 to 1966 on the basis of "Adjusted gross income".

ANITEX 8

NVE Construction Program

July 1-'58 to June 30-'66(in millions of N. Kr.)

8-yearYear ending June 30 - 1959 1960 1961 1962 1963 1964 1965 1966 Total

Tunnsj -Tunnsj$dal 15.00 15.50 21.00 25.00 17.50 2.00 - 96.00Transmission Lines 20.00 47.00 46.00 44.00 37.50 1.30 195.80

Total oroject 35.00 62.50 67.00 69.00 55.00 3.30 291.80

Tokke Project (1st Stage) 83.18 100.00 85.50 55.24 18.00 7.69 - 349.61

Other Construction2nd - 3rd stages of Tokke,including transmission 16.00 48.00 87.00 92.00 85.50 48.00

NVE's share of Linvasselv project - - - 8.00 6.00 - - -

Innset project, includingtransmission 31.) 22.00 6.83 .74 - - -

R$ssaga project, includingtransmission 33.21 34.15 15.20 6.82 5.20 1.20 -

Aura project, includingtransmission 11.12 7.57 4.37 1.00 - - -

Miscellaneous transmission 20.70 10.07 7.50 - - - - -

Total "other construction" 96.88 73.79 49.90 64.56 98.20 93.20 85.50 48.00 610.03

Total Construction 180.06 208.79 197.90 186.80 185.20 155.89 88.80 48.00 1,251.44

NVE POWER OPERATIONS

Pro-forma Cash Flow Statements(Thousands of N. Kr.)

Year ending June 30 - 11960 1961 196 1963 1964 1965 1966

Sources of Funds

Net receipts from operations 64,870 75,290 86,360 104,960 116,850 132,040 147,200 158,000BorrowingsIBRD Loan No. 138-NO 39,800 41,900 37,600 - - - - -Proposed IBRD Loan - 15,000 35,000 35,000 35,000 23,000 - -Government Loans 1203020 127,000 94,800 121000 108,150 87,000 38,300o-

Total Borrowings 160,130 183,900 167,400 156,000 143,150 110,000 38,300 -

Total Sources of Funds 225,000 259,190 253,760 260,960 260,000 242,040 185,500 158,000

Application of Funds

Construction expenditures, includinginterest during construction.

Tokke Project * 83,180 100,000 85,500 55,240 18,000 7,690 - -TunnsjO-Tunnsjodal Project - 35,000 62_500 67,000 69,000 55,000 3,300 -Other Construction ** 96,880 73,790 49,900 64,560 98,200 93,200 85,500 48,000

Total Construction Expenditures 180,060 208,790 197,900 186,800 185,200 155,890 88,800 48,000

Debt Service

(a) IBRD Loan No. 138-NOAmortization 8,010 8,390 8,800 9,230 9,670Interest 8,420 8,040 7,630 7,200 6,760

(b) Proposed IBRD LoanAmortization - - 1,740 3,640 3,860Interest - - 28410 8,10

Total IBRD Debt Service 16,430 16,430 22,455 28,480 28480(c) Government Loans

Sinking Fund Payments 13,397 14,260 16,580 17,230 17,580 19,030 21,620 22,945Interest 31.336 '-116 3210 40080 40,700 44,450 46500 53,625

Total Debt Service 44,733 50,376 55,790 73,740 74,710 85,935 96,600 105,050

Total Application of Funds 224,793 259,166 253,690 260,540 259,910 241,825 185,400 153,050

Cash Accrual for year 207 24 70 420 90 215 100 4,950

Times IBRD debt service covered bynet receipts - - - 6.4 7.1 5.9 5.2 5.5

Times total debt service covered bynet receipts 1.45 1.50 1.55 1.42 1.56 1.54 1.52 1.50

Including transmission lines LIncluding the 2nd and 3rd stages of the Tokke Project

ANNEX 10

N.V.E.

Condensed Pro-forma Balance Sheets(in millions of N. Kroner )

Actual EstimatedJune 30 - 195b 1964 1966

ASSETS

Fixed Assets in Operation 953.9 2,117.5 2,449.3less: Depreciation Reserve 99.3 286.9 386.0Net Fixed Assets in Operation 854.6 1,830.6 2,063.3

Construction work in progress 244.0 195.0 -

Net Current Assets 5.9 6.9 12.0

Total Assets 1,104.5 2,032.5 2,075.3

LIABILITIES

IBRD Loan No. 138-NO 59.4 153.5 134.6

Proposed IBRD Loan - 141.3 133.8

Government Capital and Surplus 1,045.1 1,737.7 1,806.9

1,104.5 2,032.5 2,075.3

Depreciation reserve in 1958, is assumed to be equal to the sum of theaccumulated renewal, amortization and self-insurance reserves.For 1964 and 1966, the depreciation reserve is calculated on the basisof straight-line accruals of 2.25% a year.

NORWAY u

TUNNSJO-TUNNSJODAL PROJECT ' /SCHEME OF PROPOSED NVE INTERCONNECTIONS I Tunnsjo

O EXISTING POWER PLANTS0 PROPOSED POWER PLANTSO EXISTING SUBSTATIONSO PROPOSED SUBSTATIONS

TRANSMISSION LINES / ..

Existing 300KV STEINKJER

- -- -- Proposed 300 KVExisting 132 KV

-- Proposed 132 KV Verdal

TRONDHEI

KRISTIANSUN

uraALESUND Osbu

bVogamo

II

Ovre Vinstra *

Faberg *

BERGEN

Tegneby Royk6s

Flesoke o

Dalen

3Skjeberi

STAVAN R.. *

Akland /

0 20 40 60 80 100 Km

KRISTIANSAND

JUNE 1959 IBRD-593R

Locationof project

tu Existing Dam

L AKE

os o NAMUSVA TN

Cona

N

L AKEL IMINGEN

L AKE

/ TUNNSJ6

TUNNSJODA LPOWER PLANT l ntake TU.NNSJd

Dom POWE R PL AN TIntake

Tunnel

'•.zNORWAY

TUNNSJA-TUNNSJ6DAL PROJECT

LAYOUT OF GENERATING FACILITIES

0 5 10 15 20 25 Km

JUINF 1959 IBRD-594R