Report No. 415-AL FILE COPYAlgeria: Appraisal of aPower Project (SONELGAZ)(Societe Nationale de l'Electricite et du Gaz)

May 20, 1974

Europe, Middle East and North Africa Projects DepartmentPower and Energy Development Division

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use only by the Bank Croup. It may flot be published,quoted or cited without Eank Ctoup authorization. The Bank Croup does not accept re5ponsibilityfor the accuracy or completeness of the report.

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CURFENCY EQUIVALENTS

Currency Unit = Dinar (DA)DA e 100 DA 1.00

US$0.2702 - DA 1.00US$270,200 ' DA 1 millionUS$1.00 - DA 4 .09

SYSTES OF 1eIGHTS AND MEASURES

Metric System

1 hectare (ha) (10,000 m2 ) = 2.471 acres (ac)1 square kilometer (km2 ) = 0.3861 square mile (sq mi)1 cubic mter (m3 ) = 35.315 cubic foot (cu ft)1 kilogram = 2.206 pound (lb)1 metric ton (t) (1000 kg) = 1.10 short ton (sh ton)

o.985 long ton (lg ton)1 barrel (bbl) (0.159 m3 ) - 42 US gallons1 kilowatt (1000 Watt) = 1 kW1 Mégawatt (1000 kW) = 1 MW1 kilowatthour 6 = 1 kih1 Gigawatthour (10 kWh) = 1 GWh1 kilovolt (1000 Volt) = 1 kVI kg force/cm2 (technical atm.) - l4.223 psi (lb/sq inch)BTU = British Thermal Unit1 kcal (kilocalory) = 3.968 BTU (1 BTU-0.293x103 kth)therm = 1000 kcal1 Hz (Hertz) cycle/second

ACRONXNS AND ABBREVIATIONS

SONELGAZ Societé Nationale de l'Electricité et du Gaz

SONATRACH Societe Nationale pour la Recherche, laProduction, le Transport, la Transformation,et la Commercialisation des Hydrocarbures

BNA Banque Nationale Algerienne

BAD Banque Algerienne de Developpement

CNEP Caisse Nationale d'Epargne et de Prevoyance(Trust and Saving Go.)

EdF Electricitë de France

FISCAL YEARJanuary 1 to December 31

ALGERIA

APPRAISAL OF A POWER PROJECT

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ (SONELGAZ)

TABLE OF CONTENTS

Page No.

SUM"ARY AMID CONCLUSIONS , .................... i - ii

1. INTRODUCTION ...... .... . ........... ,

2. THE ENERGY AND POWER SECTOR ...... ........... *es.. 1

General . ........ # ...... * *.............. *.... **. 1Energy Resources ............. .. .. ............ 2Organïzation ........... a............................. ....... 2Future Developments .....o .............. ... ....... 4International Interconnection .... ............. 5

3. THE BORROWER .................... .... o...... ..... 5

Legal Background ................ * 5Management and Organization ...................... 6

Management .................... ..... ............... . 6Organization ...................... ..... . . . 6Staffing ........................... 6Training ....... 0 ........ 0....6Organization Study .......................... 7PlaTiing ...........O.*..****. .... a......... ...** 7Operations ............... .......................O..... ., 7

Tariffs ................ ............................. 7Electricity .................................... 7Gas ............o..................et.......... 8

4. THE PROJECT ............................... .. 9

Project Description . .................. ..... 9Cost Estimates .. ................. ... .............. . 9Status of Engineering and Construction ....... .... 10Procurement and Disbursement ..................... ilEnvironment ..... ........... ............................ 11

This report was prepared by Messrs. W.F. Kuipper (Engineer) and Y.P. Buphomène(Financial Analyst). Ms. J. Chernock edited the report.

TABLE OF CONTENTS (Cont'd) Page No.

5. JUSTIFICATION ....... *******........................*........*....* 12

Objectives ................................................. 12Forecast of Power Requirements .................. . 12Generating Plant ................................... 13Dispatch System ... . ...... ... ..... a 14Substations ....................................... 14Rate of Return of Project .................... .... 15

6z. FINANCIAL ASPECTS ... ...................... ..... . 15

SONELGAZ's Financial Responsibility and Viability 15Accounts ................................ .*. .. . 16Audit ............................................ 16Insurance .. . ... . ... ...... ....... 17Taxes, Duties, and Social Security ............... . 17Contribution to Government's Development Program . 17Balance Sheet ...... e ............................. 18

Fixed Assets ....... ......................... 18Inventories ...... ............................ 18Receivables ......................... *.*......... a....o... 18Equity ............... ............ o* ................o*. 19Long-Term Debt . ......... ........-... ..... . 19

Past and Forecast Operating Results ...... ....... 20Electricity Department Operating Results ......... 21

Gas Department Operating Results ....... ...... 22Other Activities Operating Results ........... *... 22Financing Plan .... .. ..... .a. . . .. ....... ..... . .... . 22

SONELGAZ Overall Financing Plan ............. 24Electricity Financing Plan ................... 24Gas Financing Plan . ............... .......... 5

7. AGREEMENTS REACHED ...... ..................... ..... 25

ANNEXES

1. Energy Sector Organization2. Power Sector Data3. Construction Program Expenditures4. Legal Background Information5. Company Statistics and Indicators 1968-19726. Outline of Reorganization Study, Proposed Terms of

Reference for Tariff Studies7. Description of Project8. Project Estimated Construction Cost9. Schedule of Estimated Disbursements10. Historic and Forecast Sales, Generation, Maximum Demand

and Plant Capacities

TABLE OF CONTENTS (Cont'd)

11, Capacity Schedule, 1972-197812. Fuel Requirements and Cost for Electricity, 1972-197813. Justification of Project14. Balance Sheet - Actual 1970-1972, Forecast 1973-197815. Income Statements - Actual 1970-1972, Forecapt 1973-197816. 1972 Revenue Account Per Activities17. Sources and Application of Funds 1972 and 1973-197818. Major Assumptions Used as Basis for Financial Forecasts19. Long-Term Debt as of December 31, 1972

MAP

IBRD-10892

ALGERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ

POWER PROJECT

SUMMARY AND CONCLUSIONS

i. This report appraises a Power Project for the Societé Nationale del'Electricité et du Gaz (SONELGAZ), a Government-owned company responsiblefor generating, transmitting and dis tributing eleetricity and gas throughoutAlgeria.

ii. The Project comprises 120 MW of gas turbine capacity at Algiers,three 220-kV substations, six 60-kV substations and one 90-kV substation invarious locations, dispatch facilities, and various management and technicalstudies. The total cost of the Project is estimated at US$64.3 million, in-cluding a foreign exchange component of US$38.5 million equivalent. The pro-posed Bank loan would finance this foreign exchange component, which excludesinterest during construction. The Project forms a small part (9.4%) ofSONELGAZ's forecast 1973-78 construction program costing US$681 million(US$483 million for electricity, US$152 million for gas and US$46 million forbuildings and general equipment). Procurement would be on the basis of Inter-national competitive bidding in accordance with the Bank's guidelines and 15%local preference would be allowed for Algerian manufacturers in bid evalu-ation.

iii. In addition to items included in the Project, SONELGAZ's 1973-1978power development program comprises completion of a 274-MW steam station atSkikda; the installation of gas turbine stations at Hassi R'Mel and Arzew(8() MW each), construction of a second 220-kV line between Algiers and Oran,conversion of existing lines and substations to 220 kV, and large expansionsin distribution.

iv. Because of the length of its interconnected network, SONELGAZ isexperiencing problems in maintaining stability, voltage, security and spin-ning reserve, aggravated by an inadequate control system comprising onlylimited communication facilities. The dispatch facilities included in theProject would assist SONELGAZ in remedying these difficulties.

v. Management and operations are satisfactory. Training is excellent.SONELGAZ's organization has not been changed materially since 1947 and in somerespects is inadequate. A consultant has already been appointed to carry outa reorganization study which would be financed by the proposed loan. Retro-active financing totalling about US$300,000 is proposed for this contractarid the engineering contract for the dispatch system, covering costs incurredsince appraisal.

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vi. With respect to SONELGAZ's electricity activity, the present rate ofreturn of 5.1% on net fixed electricity assets would rise to 7% by 1978 on thebasis of present tariffs. Internal cash generation would cover 20% of thecost of the 1973-1978 construction program for electricity. The Governmentand consumers' contributions would finance 41% of the program, and long-termborrowing, including the proposed loan, would finance 39% of it.

vii. Although SONELGAZ's tariffs are adequate to provide a reasonablerate of return for its elextricity activity, once the ambitious nationalpower expansion program has been completed, the entity had forecast that itsoverall financial position would gradually deteriorate due to the size of theexpansion program (including that for gas) and the operating deficit of itsgas and other activities, unless appropriate measures were taken to improvethe trend. In order to reach this qbjective the Goverament and SONELGAZagreed on a combination of electricity targets and objectives for rate ofreturn, the ratio of surplus to investment program, the ratio of net revenueto debt service requirements, to set prices and charges for operations otherthan sale of electricity and gas not below cost, and to make the period offuture Government loans to SONELGAZ consistent with the economic life of therelevant assets. SONELGAZ will furnish the Bank annually with information,approved by the Government, indicating how it plans to meet the targets, andhow it expects to meet operating deficits and financing gaps (if any) in itsgas and other activities. A tariff study will be made for electricity and amarket/tariff study for gas.

viii. In views of the agreements reached as set forth in Section 7, theProject would be suitable for a Bank loan to SONELGAZ of US$38.5 millionequivalent, repayable over 20 years including a grace period of 3-1/2 years.

ALGERIA

SOCIETE NATIONAL DE L'ELECTRICITE ET DU GAZ

APPRAISAL OF A POWER PROJECT

1. INTRODUCTION

1.(1 The Government of Algeria, on behalf of the Societeé Nationale del'Électricite et du Gaz (SONELGAZ), has requested the Bank to help financea Project estimated to cost US$64.3 million. For this Project, which formsa small part (9.4%) of SONELGAZ's 1973-78 construction program, a loan ofUS$38.5 million is proposed to finance the foreign exchange cost. TheProject would comprise two gas turbine stations in Algiers with a capacity of120 MW, various substations, dispatch facilities, and several studies, includ-ing a general organization and management study.

1.02 The Project is based on a study prepared by SONELGAZ for the Algierspower stations and on a feasibility study prepared by Electricite de Francefor the dispatch facilities. A consultant (PA International of U.K.) hasalready been appointed for the organization and management study.

1.03 A previous Bank loan (131-FR) of US$10 million was made in 1955,prior to independence, to Electricite et Gaz d'Algerie (EGA), SONELGAZ'spredecessor, under guarantee of the French Government, to finance part ofEGA's expansion 1955-1958 program in generation, transmission and distribu-tion.

1.04 The Project was prepared following two Bank reconnaissance missionsin 1972 and 1973. This appraisal report was prepared by Messrs. W.F. KÜpper(Engineer) and Y.P. Buphomène (Financial Analyst) and is based on informationprovided to them by SONELGAZ during an appraisal mission in October/November1973.

2. THE ENERGY AND POWER SECTOR

General

2.01 The Democratic and Popular Republic of Algeria, on th2 southwestcoast of the Mediterranean, has an area of about 2.3 million km (885,000square miles). Most of its estimated 15 million inhabitants live in thefertile coastal area, which'covers about 20% of the country. This area isseparated by the Atlas mountain ranges from the predominantly desert areain the south. Of the 44 million ha fertile area, about 34 million ha (15%of the countrv's land area) is used for grazing, 8 million ha (3%) is activelycultlvated and 2 million ha (1%) is covered by forests.

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Energy Resources

2.02 Algerials major natual 3resources are oil and gas. Its proven oilreserves are at least 1.9 x 10 m (12 billion barrels) and the 1973 output,including gas condensate, was 51 million tons or about 1 million barrels perday. The main oil fields are in the central desert area of Hassi Messaoud/Haoud el Hamra. The natural gas field of Hassi R'Mel is one of the world'slarg~st, with proven recoverable reserves (under present techniques) of 3,000x 10( m . Additionally, some 1,000 x 109 m of proven reserves are distributedamong 8 other fields. Liquified natural gas (LNG) is now being exported fromArzew and Skikda and similar large-scale projects are under way includingpipelines across Tunisia and under the Mediterranean, to Italy. The maincenters for processing oil are refineries at Arzew, Algiers, and Skikda.Tule ports of Arzew, Bejaia and Skikda export oil. A project for the con-struction of the new LNG port of Bethioua, near Arzew was appraised for Bankfinancing concurrently with the present power Project, as was a railway re-habilitation project.

2.03 The country's hydro resources are limited and most of the hydropotential is already being exploited for power (284 MW installed capacity,supplying an average of 400 GWh annually), but effective capacity is re-stricted (184 MW) due to irrigation requirements.

2.04 Coal reserves are small, and mainly concentrated around Becharwliere, before independence, about 300,000 tons were mined annually. Themines are being modernized and production is to be increased to 600,000 tonsannually to be used mainly in coke-making for the steel works at El Hadjarnear Annaba in the east. Little coal is currently used for other purposes.

Organization

2.05 An outline of the organization of the energy sector, establishedin 1969 under the Ministry for Industry and Energy, is shown in Annex 1.

2.0( SONELGAZ has the exclusive right to transmit and distribute powerthroughout the country. Its right to generate power is not exclusive. Fac-tories, requiring up to 1,000 kVA, may be auto-producers, and any factoryrequiring process heat may generate its oxmn electricity for maximum economy.However, any excess production of electricity by the auto-producers must besold to SONELGAZ. The company is also the sole distributor of gas in thecountrv, either produced in its own plant (which will be discontinued in1974) or purchased in bulk from the Societe Nationale pour la Recherche,la Production, le Transport, la Transformation et la Commercialization deslHydrocarbures (SONATRACI). In the last few years gas distribution has beenprogressively converted to natural gas (and bottled gas) throughout thecountry.

2.07 SONATRACH has the exclusive right of exploration, development,processing, and trading of oil and gas, with the restriction that gas fornational requirements be sold in bulk to SONELGAZ for distribution.

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2.08 The Societeé Nationale de Recherches et d'Exploitation Minière(SONAREM) has the exclusive right of exploration, development, processing,and trading of mining products.

2.09 In order to ensure optimum use of existing power facilities and toreap the benefits of scale, it has been the Government's policy to substituteindividual or isolated power supplies with supplies from SONELGAZ. The variousrefineries and liquefaction plants already have been connected to SONELGAZ'snetwork, and SONELGAZ is expected to meet most of the future power require-ments in the rapidly expanding petroleum and gas sector. Similarly, in HassiR'Mel, generation for the gas field bases, their surroundings, and the gasfield itself (to the extent possible), would le concentrated in a singleplant, to be constructed and operated by SONEIGAZ.

2.10 Growth in the power sector was practically stagnant during 1963-1966, but since then the sector has grown steadily. Power sector data for1973-1978 are shown in Annex 2. The total 1972 capacity of 1,024 MW installedin the country generated 2,323 GWh. Of this capacity 794 MW (78%) was ownedbv SONELGAZ, which generated 2,015 GWh (87%), and 230 MW (22%) captive plant,generating 308 GWh (13%). Dividing losses proportionally, general consumers(domestic, Government, irrigation, commercial) accounted for 1,162 GWh (50%)of the total 1972 production; the petroleum and gas sector for 294 GWh (12%);and other industry for 867 GWh (38%).

2.11 Of the 230 MW installed in captive plant, 140 MW pertains to largerindustries (petroleum, steel) and about 90 MW to smaller industries. Genera-tion of the latter has declined steadily and now constitutes less than 1% ofthe total country generation. Since 1965, generation of the larger industrieshas been relatively level at 10-13% of total generation.

2.12 Overall length of SONELGAZ's 220-kV system (which, however, will beoperated at 150 kV until 1977/78 when full conversion to 220 kV should be com-pleted) is about 1,700 km. Total length of the transmission system, including60-kV and 90-kV lines, is 4,000 km. The middle voltage lines (5.5-30 kV) havea length of about 16,000 km, and low tension distribution lines and cables(127/220 V and 230/380 V) about 9,000 km.

2.13 At the end of 1973, total installed capacity in SONELGAZ's inter-connected system, amounted to 861 MW, and location and capacities of the majorthermal plants were as follows:

Oran: Steam 189 MW, gas turbine 44 MWAlgiers: Steam 120 MW, gas turbine 40 MWAnnaba: Steam 184 MWSkikda: A new steam station comprising 2 x 137 MW is under

construction for completion in 1974/75.

About 200 MW in major hydro plants is concentrated in the area midway betweenthe Tunisian border and Algiers; 84 MW in smaller hydro plant is spreadalong the Atlas Tellie Mountains (lower Atlas), near the coast. In isolatedsystems, gas turbine capacity was about 130 MW, mainly catering to oil andgas fields, and diesel capacity was about 23 MW.

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Future Developments

2.14 SONELGAZ's 1973-1978 construction program, which reflects theNational Development Program but which has not yet been approved by theGovernment, has been assumed to be slightly reduced in practice (see 2.21).It would amount to some DA 2,787 million (US$681 million equivalent). Thisprogram (see Annex 3) includes a power component amounting to DA 1,976 million(71' of the total); a gas component of DA 621 luillion (22%); and a generalcomponent of DA 196 million (7%).

2.15 The program includes the completion in 1974/75 of the 274-MW steamstation at Skikda. With this station SONELGAZ would complete its major ex-pansion program in generation for the interconnected system, initiated underthe last 4-year plan. Thermal plant capacity installed in this system wouldincrease from 312 MW in 1971 to 835 MW by 1975. The additional capacity wasscheduled mainly with a view to expected developments in industry, partic-ularly the oil and gas industry (Oran and Skikda/Annaba areas). Construc-tion of industrial plants was delayed, however, and for the next 2-3 yearsconsiderable (but rapidly diminishing) excess capacity will be available.SONELGAZ is currently constructing a second 220-kV llne from Algiers to Oranand is procuring equipment for conversion to 220 kV (mainly substation equip-ment) to be completed in the next 3-4 years. To remove the capacity regionalimbalances in the system and to meet forecast demand at least cost, SONELGAZis planning to install 3 x 40 MW in gas turbine plant in Algiers by 1977/78,to be financed by the proposed loan, and a further 2 units in the Oran areaby 1979. No steam-electric plant is scheduled for completion prior to 1980.A continuing program of substation construction to be financed partly fromthe proposed loan, and line conversion to higher voltages, in addition toexpansion in distribution, would enable the increasing demand to be met, par-ticularly in industry. The Government would provide the funds required forthe execution of an exceptionally large village electrification plan, risingfrom DA 61 million (about US$15 million) in 1973 to DA 120 million (US$29million) by 1978.

2.16 The present control system in Algiers (mainly telephone connectionsand some tele-indications) is completely inadequate for SONELGAZ's rapidlygrowing generation and transmission system. A dispatch system, to be fi-nanced from the proposed loan, is scheduled for completion by 1977.

2.17 Developments in the gas field of Hassi R'Mel (about 400 km southof Algiers) would require the completion, by 1977/78, of a gas turbine stationwith an installed capacity of about 80 MW. SONELGAZ, which was at first con-sidering Bank financing for this station, has postponed construction of thisstation and therefore has withdrawn this request.

2. 19 The Government is planning to construct, by 1980, an aluminum plantnear Bejata and a steel plant near Djidjelli (both north of SONELGAZ's mainhydro plants, on the coast), requiring a total of 240-300 MW. Plans for agenerating plant and substations catering for this particular load will bemade by SONELGAZ as soon as more details are available. The impact of theseplans on overall system planning cannot be assessed at this stage due to thelack of detailed information.

2.19 Although the power program would considerably strengthen transmis-sion, and reinstitute an appropriate balance between regional generation ca-pacities, it is closely geared to the 1974-1977 National Development Plan.Because SONELGAZ is considered the basic entity for industrial development,it is obliged to frame and execute its own program substantially irrespectiveof changes or delays in other parts of the national plan. This already hascaused overinvestments (see 2.15) in power under the 1970-1973 national plan.

2.20 Agreement has been reached with Government and SONELGAZ on variousfinancial measures which will improve SONELGAZ's financial position (see 6.02).The application of these measures will necessitate, inter alia, a review ofthe program and institution of measures needed to restore a balanced invest-ment pattern.,

2.21 In view of (a) the fact that the 1973 construction expendituresremained about 16% below the estimate, (b) the gas program appears over ambi-tious and not based on a realistic view of the market development, and (c) theagreements reached--which are expected to result in an investment pattern moreclosely related to actual developments in power requirements--it was consideredappropriate to assume a somewhat reduced 1973-1978 program. For power, thisreduction (down to DA 1,975 million from DA 2,076) mainly reflects the delay--which already became apparent in 1973--in some non-Project items (mainly trans-mission) by about one year. For gas (down to DA 621 million from DA 848 million)a reduction of 25% was assumed, which appears realistic consistent with thehistorical trend. The general component was reduced by 10% (down to DA 196million from DA 218 million) in line with the reduced overall investment.

International Interconnection

2.22 Algeria supplies, by means of a 90-kV line from its 150 kV substa-tion El Aouinet, some power to the town of Tadjerouine in Tunisia. Similarlyit receives in the Annaba area some power from the Fernana hydro station inTunisia. In 1q69, the Governments of Algeria and Morocco reached an agree-ment in principle on interconnection of their power systems. A study, fi-nanced by the African Development Bank, was completed in 1972. In 1973,SONELGAZ and Office Nationale de d'Electricité (ONE) of Morocco reachedagreement on 220-kV interconnection between Oran and Oujda in Morocco formutual support and reserve. The link is scheduled for completion by 1976/77.

3. THE BORROWER

Legal Background

3.01 SONELGAZ is the successor to l'Electricité et Gaz d'Algerie (EGA),which was created in 1947 when all electricity and gas companies in Algeriawere nationalized by the French Covernment. In 1969, the Algerian Governmentdissolved EGA and created SONELGAZ, vesting all former rights and obligationsof EGA in thie new company. See Annex 4 for details on legal background.

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Management and Organization

3.02 Management. The company's management is satisfactory. Its ChiefExecutive is the General Manager, who is appointed by Government decree uponthe recommendations of the Minister of Industry and Energy. The present Gen-eral Manager was appointed in 1970. The ordinance of July 1969, which createdSONELGAZ, stipulated that the company was to be controlled by a Board (Comited'Orientation et de Controle) of 12 members comprising a President, the Gen-eral Manager, representatives of various miùistries, the party, and employees.This committee, however, was never instituted because of changed views withrespect to management of socialistic organizations; it is expected thatworkers participation in management will be required by law in 1975. Thecommittee's prerogatives are now vested in a Management Committee (Comitede Direction) comprising the General Mlanager and the 5 directors and 9 chiefsof the various divisions, departments, and advisory services.

3.03 Organization. SONELGAZ has 4 major divisions, each headed by aDirector: Electrical Planning and Construction, Planning for Gas Productionand Transport, Generation and Transmission, and Distribution. Contributoryservices are provided by 8 departments: Financial, Economic, Legal, Person-nel, Training, Procure,ment and Stores, Organization, and Information. Allexecutive officers are Algerian.

3.04 Staffing. At the end of J972, SONELGAZ employed 6,277 regularstaff, which has increased since 1968 by a modest average of 2.5% annually(see Annex 5). The number of staff is reasonable. Combined energy sales ofelectricity and gas (both expressed in energy equivalent) per employee rosefrom 0.55 x 106 therm in 1968 to 0.75 x 106 therm in 1972. Assuming that allgas consumers are also electricity consumers (204,860 gas consumers and807,420 electricity consumers in 1972), the ratio rose from 118:1 in 1968 to129:1 in 1972, which îs reasonable.

3.05 The replacement of foreign employees (which numbered 464 in 1963)by Algerian personnel has been more rapid than SONELGAZ considered desirabledue to the difficulty of retaining and recruiting such staff in view of thecurrency restrictions which do not allow staff to repatriate surplus earningd.This explains the fluctuations in foreign staff, which ntmbered 119 in 1970,rose to 181 in 1971 and dropped again to 141 in 1972.

3.06 Training. SONELGAZ has excellent training programs and facilitiesin Blida and Ben Aknoun, where up to 250 students can be trained for periodsof several months up to 2 years in basic technical courses, or follow re-fresher courses. It is difficult, however, to attract new trainees becauseof the insufficiency of their basic training and the fact that interest intechnical work is low. As a consequence, the training capacities of thecenters are not fully utilized and the dropout rate is high (up to 50% foryoung trainees). Algeria has many training centers for administration, andfull use is made of these centers to train clerical staff, and for higherstaff to study special subjects. Career development possibilities are good,provided the employee shows initiative. In 1972, about 40 employees wereenrolled (up to 4 years) at universities and other training centers in Algeriaancd 33 were attending courses at institutes and universities in France, Belgium

and Russia.

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3.07 Organization Study In early 1973, SONELGAZ informed the Bank ofits wish to engage consultants to study and make recommendations for its re-organization and to modernize its administrative procedures in view of itsrapid growth. Subsequently, in accordance with the Bank guidelines for em-ployment of consultants, SONELGAZ engaged the services of P.A. Internationalof the U.K., on conditions and terms of reference acceptable to the Bank (seeAnnex 6). The foreign exchange cost of the study, which is expected to becompleted in about 3 years, amounts to abou: US$750,000, which would be fi-nanced from the proposed loan. SONELGAZ has agreed to review with the Bank,prior to implementation, the actions it proposes to take as a result of thesestudies. Retroactive financing of about US$50,O00 is proposed for financingthis contract.

3.08 Planning. SONELGAZ's long-term planning, which is executed by itsown engineers, is in broad outlines only. Until recently, investment decisionswere based on financial and technical rather than economic considerations. Thecompany has now initiated the use of discounted cash flow methods for comparisonof alternative major components within its programn, particularly developmentin generation. This approach, however, does not yet take into account that forevaluation of alternatives the relevant cost is the cost to the economy (e.g.,fuel costs like natural gas are taken at the low price paid by SONELGAZ toSONATRACH, not the pre-liquefaction price reflecting the international marketprice, or future replacement cost (see 5.09).

3.09 Operations. SONELGAZ's facilities are well run and operation isgenerally satisfactory. Annex 5 provides some statistics and company indi-cators for 1968-1972.

'ratiffs

3.10 Electricity. SONELGAZ's electricity tariffs, which have not beenchanged since their implementation in 1965, are stipulated in a "Cahier deCharges" for high tension and one for low tension supply. Their structurewas designed by Electricité de France (EdF) for l'Electricité et Gaz d'Algerie,and represents the French "tarif vert" concept, i.e. marginal costing. Intheory, tariffs should be adjusted on the basis of economic indicators forhigh and low tension networks. Since the issue of the cahiers de charges,however, no adjustment has been allowed by the Government because such ad-justment would not be in accordance with present policy.

3.11 All tariffs have an annual demand charge per kW (high tension) orkVA (low tension), metered or subscribed, and kWh charges depending on thetime of day, the season and location (except for domestic purposes for whichthe fixed charge and kWh charge are equal throughout the country). Specialtariffs cater for complementary or standby supply to auto-producers and areactive charge can be applied for industry. Although the structure isbasically the same, the diversity of industrial tariffs is large due tothe division in zones. Typical for Algiers are the following high tensiontariffs:

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Demand charge: DA 45/kW year

Energy charge in DA,/kWh:

------------ Winter-------- --------- … Summer----Normal Hours Off Hours Normal Hours Off Hours

Peak Hlotirs 6-12h; 14-22h 22-6h; 12-14h 6-12h; 14-22h 22-6h; 12-14hkV Nov., Dec., Jan. October 1 - March 31 April ï - September 30

60 12.53 7.49 2.35 3.61 1.7330 14.39 8.30 2.68 4.80 2.001( 16.35 9.83 2.94 5.63 2.25

Typical domestic tariffs are:

0.5 kVA 1 or 2 kVAFixed charge DA/year 6 35Energy charge DAe/kWh 35 28

Average revenue for 1972 was: high tension (i.e. most industrial connections)9.5 DAé/kWh (USJ2.3/kWh); low tension (domestic and small industry) 32.6 DA,/kWh (US,8.0/kWh); average: DAJ17.1/kWh (USe4.2/kWh).

3.12 A tariff study was made in 1965 by a French firm, indicating thh*tthe general tariff structure was still appropriate. Some minor changes wererecommended in the low tension tariffs but a 20% increase in high tensiontariffs was recommended to reflect the relevant cost of supply. No actionwas taken because the Government declined to authorize any tariff increase.

3.13 In order to assess the impact on costs of its development program,SONELGAZ has agreed to engage qualified consultants prior to March 31, 1975,on terms of reference and conditions acceptable to the Bank, to,carry out anelectricity tariff study, and review with the Bank, prior to implementation,the actions it proposes to take as a result of this study. Suggested termsof reference for this study which is to be financed from the proposed loan,are given in Annex 6.

3.14 Gas. SONELGAZ's gas tariffs were revised in November 1968, whenthe Government decreed a reduction of about 50% in view of the conversionto indigenous natural gas, and for social reasons. There are 3 tariffs:

- Domestic: ranging from DAi1.8-DAe5.2/therm (1 therm1,000 kcal or about 4,000 BTU);

- Small industry: fixed charge DA 162/year, and energy chargeof DAé1.3/therm; and

- Large industry: individual contracts because the tariff forbulk supply is still being studied.

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Average revenue for 1972 was: high pressure (i.e. most industrial connec-tions) DAi0.9/therm (USe0.22/therm or US$0.56/106 BTU); low pressure (domes-tic and small industry) DAt2.5/therm (USe0.S'1/therm or US$1.53/106 BTU); aver-age DAe1.3/therm (USe0.32/therm or US$0.78/ 06 BTU). The number of consumerswas 204,860. In order to relate SONELGAZ's gas development program as closelyas possible to actual requirements (see 2.21) in view of the current and fore-cast deficiency aspects of SONELGAZ's gas operations (see 6.22), the companyhas agreed to combine a study of its gas tariffs and the market withthe tariff study for electricity (see 3.13 and Annex 6).

4. THE PROJECT

Project Description

4.01 The Project, which is described in detail in Annex 7, consists of:

(a) gas turbine plants with a capacity of 120 MW to be installedat Algiers, comprising a power station with two 40-MW unitsat Boufarik substation, southwest of the city, and a powerstation with one 40-MW unit at Bab-ez-Zonar substation, eastof the city;

(b) main dispatch center (including a district dispatch centerfor routine operation of facilities in the central part ofthe country) at SON?LGAZ's new head-office at Algiers;district dispatch centers at Oran and Annaba; transmittingfacilities along transmission and telephone lines; sendingand receiving facilities at power stations, and at 220-kVsubstations and other selected substations;

(c) construction of three 220-kV substations (El Asnam, MarsatEl Hadjadj and El Hadjar extension), six 60-kV substations(Hassi Ameur, Ain Skhouna, Ben Aknoun, Bordj Bou Arreridj,Constantine South, Laghouat, and one 90-kV substation(Souk Ahras); and

(d) consulting services for improvement of SONELGAZ's organiza-tion including administration and accounting, a tariff studyfor electricity and a market/tariff study for gas.

Cost Estimates

4.02) The estimated cost of the Project (Annex 8), excluding interestduring construction, is US$64.3 million, of which US$38.5 million would bein foreign exchange. Cost estimates are summarized as follows:

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-----DA million…----- -- US$ million---- Foreign to

Local Foreign Total Local Foreign Total Total Cost

Gas turbine stations,Algiers 29.2 48.0 77.2 7.1 11.7 18.8 62

Dispatch System 9.0 21.1 30.1 2.2 5.2 7.4 70

Substations 29.6 33.1 62.7 7.3 8.1 15.4 53

Total Direct Cost 67.8 102.2 170.0 16.6 25.0 41.6 60

Engineering 6.2 7.3 13.5 1.5 1.8 3.3 55

Consultant servicesfor studies 1.5 3.7 5.2 0.4 0.9 1.3 69

Total Engineering,Consultants 7.7 11.0 18.7 1.9 2.7 4.6 43

Contingencies(i) Physical 10.1 7.3 17.4 2.4 1.8 4.2 43

(ii) Price 20.1 37.0 57.1 4.9 9.0 13.9 64

Total C2ontingencies 30.2 44.3 74.5 7.3 10.8 18.1 59

Total Project Cost 105.7 157.5 263.2 25.8 38.5 64.3 60

4.03 The cost estimates have been based on SONELGAZ's estimates for the

gas turbine stations and substations, and consultant's estimates for the dis-

patch system. These estimates are based on end-1973 price levels of similar

substation equipment and gas turbines. They include import duties, whichaverage 10-12% on the imported component. Physical contingencies of 15%

on local cost and 5% (gas turbines) and 7% (dispatch and substations) on

foreign exchange cost have been added. To allow for future price risesboth for local and foreign cost, compounded increases were assumed, allow-

ing for 14% in 1974, 11% in 1975, and 7.5% thereafter. On the basis ofthese estimates, the gas turbine stations would cost about US$230/kW with

a foreign exchange component of US$145/kW. This is considered realisticin view of the local cost incurred in the construction of power stationbuildings and the fact that the foreign cost does not include the cost ofsubstation modifications which are to be carried out under SONELGAZ's gen-

eral program.

Status of Engineering and Construction

4.04 Dispatch System. SONELGAZ has engaged EdF to study the dispatch system

anld prepare bid documents under a contract acceptable to the Bank. The contract

specifies that during all work stages EdF will provide the necessary staff to

adlvise and assist SONELGAZ in the execution of the scheme, and train personnel.

Ihis is in accordance with SONELGAZ's general policy of assuming formal respon-

sibi.lity for execution of a project. This is acceptable in view of the com-petence of SONELGAZ's staff. Retroactive financing, amounting to aboutUS$250,(000, is proposed for this engineering contract.

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4.015 Gas Turbine Stations. SONELGAZ (with limited assistance from con-quitants) has procured and installed a number of package gas turbines similarto the proposed Bank-financed gas turbine plant to be installed in Algiers.It intends to engage the services of consulting engineers under arrangementssimilar to those made for the dispatch system for carrying out the works.

4.06 Substations. SONELGAZ prepares all designs for its substation pro-gram. It engages consultants (currently SocieteGenerale pour l'Industrie ofSwitzerland and Electrobel of Belgium) to review the final design and super-vise the required testing. Due to the lack of sufficient competent staff,SONELGAZ hires specific staff from its consultants for expert assistancein the execution and supervision of complicated projects. This policy oflimited consultant services would also apply to the substations to be fi-nanced under the proposed loan, and is acceptable.

Procurement and Disbursement

4.07 The proceeds of the proposed Bank loan would finance the c.i.f. costof imported materials and equipment and the foreign exchange cost of relatedinstallation services and consulting services. All contracts to be financedfrom the proposed loan (except for consulting services) would be awarded onthe basis of international competitive bidding, consistent with Bank GroupGuidelines for Procurement. Although Algerian industry manufactures littleof the required equipment, a preference of 15% or applicable duties, which-ever is the lesser, would be granted to Algerian manufacturers who do par-Licipate. Retroactive financing totalling about US$300,000 (see 3.07 and4.04) for consulting services is proposed. The expected disbursements fromthe proposed loan are shown in Annex 9.

4.08 Should the Project foreign exchange cost be less than estimated,any undisbursed amount would be allocated to consultant services for thenext stage of development or, if not required for this purpose, would becancelled. Procurement is expected to be completed by the end of 1975,and the Project by June 30, 1978. The closing date should be December 31,1979, to allow for some slippage and final guarantee payments.

Environment

4.09) The environmental impact of the gas turbine plants is negligiblebecause they will be located outside population centers and operate on na-tural gas which ensures a minimum of noxious and visible fumes. The sub-stations will be located in sparsely populated areas where amenity consid-erations are minimal.

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5. JUSTIFICATION

Objectives

5.01 The main objective of the Project is to assist SONELGAZ in remedy-ing difficulties encountered in its interconnected system, which stretchesfor about 1,000 km along the coast. Problems are being experienced in main-taining stability, voltage, security of supply and spinning reserve, whichare further aggravated by the inadequacy of the present control system com-prising limited communication facilities only. The proposed dispatch facil-ities included in the Project would help remedy these problems. By install-ing additional gas turbine plant in the Algiers area, the present regionalcapacity imbalance in the system would be reduced. An important objectiveof the proposed loan is also to assist SONELGAZ in improving its organiza-tion and administration.

Forecast of Power Requirements

5.02 SONELGAZ's growth trend (least square method) ln sales since 1966,wlhen sales started improving after a stagnant period of several years, hasbeen about 11%. An average annual growth of 14% is expected for 1973-1978.For 1973 and 1974, sales are expected to increase by 17% and 15% respectively,reducing to 12% by 1978. The forecast does not take into account the possibleeffects of the recent substantial increases in international prices for oilanci natural gas, because the effect on power demand may not become markedlynoticeable before 1976/77. For scheduling of additional capacity, however,a higher growth rate has been assumed (see Annex 13) to reflect the possi-bility of requirements exceeding the present forecast.

5.03 It is extremely difficult to forecast SONELGAZ's growth because:

(a) the period of real growth covers only 6 years (1966-1972); and

(b) the company has not yet been able to fully develop a method toassess delays in new industrial plant completion and actual powerdemand of such plant; this problem is further aggravated becausenational companies do not provide full details on their futuredevelopment plans.

5.04 SONELGAZ has taken three approaches in forecasting power require-nients (see Annex 13). First, an exponential curve was fitted by least squaresto past growth in generation, and extrapolated. Secondly, the 17 sectors ofthe economy, as divided for statistical purposes, and domestic consumners,were studied to assess background growth, to which were added new industrialplant requirements in accordance with the national plan. Thirdly, a mathe-matical model was prepared reflecting GNP and number of inhabitants for 16developing countries, which was then applied to Algeria. The results varywidely; during appraisal these forecasts were discussed with SONELGAZ in viewof the uncertainties in industrial plant development, and a combination ofinethods 1 and 3 was adopted for the average growth rate.

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5.05 The increase in relative importance of sales to industry, partic-ularly to the oil and gas industry, is shown in Annex 10; the increase insales is summarized as follows:

Average Growth1966 1972 1978 1966-72 1972-78

GWh % GWh % GWh % ----- %----

Donestie 350 36.3 604 33.5 1,040 26.4 9.5 9.5Government Services 88 9.1 130 7.2 220 5.6 6.7 9.2Railways 20 2.1 19 1.0 60 1.5 - 21.1Irrigation 94 9.8 145 8.0 315 8.0 7.4 13.8011 and Gas Industry il 1.1 89 4.9 675 17.1 41.7 40.2Other Industry 328 34.0 674 37.5 1,410 35.8 12.8 13.1Commercial 73 7.6 143 7.9 220 5.6 11.9 7.4

964 100 1804 100 3,940 100 11.0 13.9

5.06 Existing plant, and plant to be installed during 1973-1978, as wellas fuel requirements and cost for each type of plant and type of fuel, areshown in Annexes 11 and 12. Conversion from residual oil to natural gas forfuel and a relatively small amount of flare gas from refineries will be sub-stantially completed in 1974, except for some outlying systems not yet con-nected to a natural gas pipeline. SONELGAZ currently pays only DA 0.007/m3(or about USé4.4/106 BTU) for natural gas, and total fuel cost (includingflare gas and soate residual and diesel oil) per kWh generated would be re-duced from DAi 0.490/kWh (IJS mil 1.20/kWh) in 1973 to DAJ 0.241/kWh (US mil0.59/kWh) by 1978; gas turbines would then generate 890 GWh or 22% of thermalgeneration (totalling 4,000 GWh, which itself is about 90% of total genera-tion, including hydro, amounting to 4,420 GWh).

Generating Plant

5.07 With the completion of the 2 x 137 MW steam-electric plant at Skikdain 1974/75, increasing amounts of power will have to be transferred to Algiers(400 km) and to Oran (800 km), and new plant will be required in these areasto meet requirements and to improve the balance of capacities and reserves.Because it appears likely that the installation of gas turbine plant will bethe least cost development following Skikda, the only two reasonable alter-natives to be studied are the following: Alternative 1, the next step ingeneration would be the installation of gas turbines followed by steam plant,and Alternative 2, steam plant only would be installed.

5.08 At the estimated opportunity cost of capital of about 9%, constantprices as of the time of appraisal, and financial cost of fuel, Alternative1 would have a present value of DA 28 million below the present value ofAlternative 2, mainly due to the lower capital cost of gas turbines and theiruse primarily for peaking. The decision is not significantly sensitive tovariations in construction cost because in order to equalize the present valueof both alternatives at a discount rate of 9%, gas turbine plant cost shouldhave to be at least 14% higher, and steam plant cost 14% lower, than estimated,whieh appears highlv unlikely.

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5.09 The effect on Project justification of varying assumptions for theeconomic cost of fuel was tested. In view of the large gas reserves (some4,000 x 109 m3) - the date at which foreign exchange cost vould be incurreddue to the use of gas for power, is not the date (or dates) on which the gaswould actually be used, but the date on which - as a result of this usage -the gas would not be available for export. Conservatively assuming a run-outdate of 25 years for the field and, in view of the uncertainties, an economicwell head price ranging from US$1.20-1.70/106 BTU, and a shadow exchange rateraniging from DA 4 - DA 6/US$, the above present value difference of DA 28 mil-lion (in favor of Alternative 1) would reduce by a minimum of about DA 6.6million and a maximum of DA 9.4 million; thus the conclusion is not sensitiveto teic economic. cost of fuel for the values assumed, which cover the likelyransge of possibilities.

Dispatch System

5.10 Because SONELGAZ's system, in which increasing amounts of powerhave to be transferred over distances up to 800 km, would become progres-sively more unmanageable, the present telephonic dispatch should be replacedby an automated system. Advanced installation of gas turbine plant in theweakest (western) part of the system could conceivably allow postponingconstruction of the dispatch system by several years, and for this purposetwo alternatives have been studied (see Annex 13). Alternative 1 assumesthat the dispatch systemi would be completed by 1976 and that gas turbineplant (80 MW) for Oran would be installed by 1979 as currently envisaged.Alternative 2 assumes the dispatch system to be delayed by 3 years, whichwould require advancing installation of 60 MW in gas turbine plant by asimilar period.

5.11 At the estimated opportunity cost of capital in Algeria of 9%, thepresent value of Alternative 1 would be about DA 3.5 million below the pres-ent value of Alternative 2, indicating that the dispatch system should becompleted as soon as possible. This conclusion is rather insensitive toconstruction cost; the cost of the dispatch system should have been under-estimated by 18% and the cost of gas turbine plant overestimated by 18%, inorder to cause both alternatives to break even at 9%. The conclusion is notsensitive to an increase in the price of fuel (i.e. using economic cost offuel ratlher than financial cost). Such increase would benefit Alternative 1,because the extra fuel required in relation to increased revenues (due todecrease in system outages) for this alternative is less than the net sav-ings in fuel attributable to this alternative.

Substations

5.12 The substations near Oran/Arew (El Asnam, Marsat El Hadjadj, HassiAr,eur), Algiers (Ben Aknoun) and in the east (Constantine South, El Hadjar:xd Souk Ahras) all are required (see Annex 13) to meet rapidly increasingdemanld, mainly for industry and urban developments, which cannot be met bytiue present subtransmission lines and substations and alternative extensionstliereto. Three substations at Ain Skhouna, Bordj Bou Arreridj and Laghouatare the only reasonable technical solutions for meeting increased demand re-sulting from increased requirements of existing and new domestic consumers

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ani fron the execution of small infrastructure projects in the interior; highcost die-sel plant in Ain Skhouna and Laghout would be eliminated, and Bordj

ioi Arredi.dj would be connected to a 60-kV line to be constructed for a cementf SIc torv.

Rate of Return of Project

5.13 The rate of return of a project is the discount rate which equalizesthe present values of the cost and benefit streams attributable over time tothe project. Because the proposed Project comprises a dispatch system, gasturbine plant mainly used for peaking and reserve, and substations, for whichbenefits are extremely difficult to quantify, it was deemed appropriate toassess the rate of return on SONELGAZ's overall 1973-1978 expansion programfor electricity, of which the Project constitutes a small but representativepart (9.4%). Revenues from additional output have been used as an approxima-tion of the benefits. These revenues understate the benefits consumers re-ceive from the development program because it is considered that a tariffincrease of reasonable magnitude (say 10-20%) would not reduce demand sig-nificantly.

5.14 At present tariffs the rate of return of the development programand, consequently, of the Project, is about 15% (Annex 13). This rate ofreturn is coxisidered reasonable because, after a long period of slow expan-sion, the current program includes a backlog of construction to restore anadequate balance of capacities and service quality, and the requirements forexecution of a national plan, the additional benefits of which, if achieved,cannot be quantified with any degree of certainty. The rate of return wouldincrease to about 21% in the event of a favorable combination of a 10% reduc-tion in the investment program and in operational cost, and a 10% increasein revenue. Because conservative estimates have been used in forecastingSONELGAZ's revenues from the sale of electricity, the probability of resultsin line with these more favorable assumptions appears high. If the abovethree factors would combine unfavorably (10% increase in construction andoperating cost and a 10% reduction in revenue), the rate of return woulddecrease to somewhat less than 8%. This combination appears unlikely.The rate of return is expected to range from 15-17%.

6. FINANCIAL ASPECTS

SONELGAZ's Financial Responsibility and Viability

6.01 Although SO)NELGAZ is an autonomous commercial entity, in practice ithas little financial independence. Management is hampered by numerous Gov-ernrvent controls (e.g. according to SONELGAZ's 1971 Annual Report about 20 ap-provals are required for awardlng a contract). The Ministry of Industry andEnergy controls SONELGAZ's activities and approves all decisions on organiza-tion and personnel. SONELGAZ's operation and construction budgets must be

approved by the Ministries of Planning and Finance, which arrange external

financing for projects once they are included in the National Development

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Plan. Tariffs are subject to Government approval. InternaL resources gen-erated in excess of the amount required for meeting the renewal program,should under the law be invested in Treasury Bonds, but the Company iscurrently exempted from this (see 6.10).

6.02 At the end of 1972 the overall financial situation of SONELGAZ wassound, although during the preceding 3-year period the revenue growth ratehad been decreasing while the operating expenses had been increasing at agrowing rate. The situation for the electricity activity is expected toremain satisfactory. lHowever, SONELGAZ's financial situation as a wholewould be weakened by the burden of an ambitious construction program andbecause earnings from electricity are subsidizing the unprofitable gas andmiscellaneous activities. Consequently, the company would not remain viableunless (i) non-essential components of the investment program are curtailêdincluding a substantial revision of the gas program (see 2.21), and (ii) theGoverntent and the company implement appropriate financïal measures to alle-viate the debt service requirements and, if needed, provide comnplementaryfinancial assistance in the form of grants. The Goverrment and SONELGAZagreed to take appropriate measures (see 6.27).

Accounts

6.03 The accounting methods still reflect those implemented in Franceby the National Accounting Council. Although this system is largely satis-factory, it still requiîrs some adjustment, now underway, to meet SONELGAZ'sspecific requiretaents and to speed up the accounting procedures. At ptesent,a rather old punch card system is being uged in Algiers and Oran for account-ing, inventories, billing of domestic consumers and payroll; however, a newGk 115 Honeywell computer is being installed îti Algiers and several new ap-plications for data prbcetsing are being developed.

6,04 SONELGAZ's âccouints are consolidated; however, a pattial breakdovnof the balance sheet is available for electticity, gas and other activitieà,and in 1972, for the first time, detailed aepatàte revenue accounts for eathbf these activities were attached to the consolidated accounts with a break-ddwn for generation, transmission and distribution. In September of each yeAâ,SNELGAZ prepares an opetation and construction budget for the current yearand the following yeat, thich is sent to the Government for approval. InJune, SONELGAZ prepares an annual repott on the previous yeat's accounts,containing information (even criticism) which one usually expects to findbtly in an external auditot's report. This antual report i8 very detailedand satisfactory.

Audit

6.05 According to the law creating SONELGAZ a Commissaire aux Comptesexercises financial controls on behalf of the Government and prepares anaudit of the Company's accounts. This Commissaire aux Comptes is appointedby the Minister of Finance from the staff of the Government's FinancialControl Departnent. He is entirely independent of SONELGAZ and reports

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to the Government. His audit, in association with the Annual Financial Reportissued by the Company, would be satisfactory for the Bank. However, theCommissaire aux Comptes has not yet issued his 1971 and 1972 reports. Duringnegotiations the Bank confirmed that the audit of the Commissaire aux Comptesis acceptable, and the Government and the Bank will consult with each otheron the conditions under which such audit is performed. The Government hasindicated that it will cause the Commissaire aux Comptes to perform his auditin such time that this audit will be received in the Bank not later thanSeptenmber of each year.

Insurance

6.06 SONET,CAZ insures its major assets against the usual hazards (fire,transport, third party, electrical or mechanical damage to machinery, etc.)throuigh the Caisse Algerienne d'Assurances et du Reassurances (CAAR) and theSociete Algerienne d'Assurances (SAA). Both are nationalized companies whichreinsure through the world insurance market. In 1972, the insurance premiumamiounted to DA 6 million against a total net fixed asset value of DA 2,875million (0.2%). Since 1967, however, it no longer covers electrical ormechanical damage to transmission lines and substations, which are themost frequent. Negotiations are in progress with CAAR to insure these assets.

Taxes, Duties, and Sbcial Security

6.07 SONELGAZ is liable for income tax (20% of net income after inter-est on debt), sales tax (averaging 7.9% of which 7% is charged to consumers),salarv tax (6% on all salaries) and custom duties (varying from 0 to 100%and resulting in 7 to 8% of the total construction cost). SONELGAZ is alsoliable for a construction tax of 10% of the bills paid to contractors, butpresently has an exemption until 1975 which probably will be extended.

6.(8 SONELGAZ's social security plan includes free medical treatment,retirement provisions, dependents' benefits, holiday camps for staff children,etc. In 1972, the cost amounted to DA 26 million or about 20% of gross wagesand salaries.

Contribution to Government's Development Program

6.0U' Like all other national companies, SONELGAZ is required to con-tribute about 50% of its net consolidated surplus (before allocation to reserves),forecast one year in advance, to the cost of the Government's developmentprogram. No reimbursement takes place if the actual surplus is less thanexpected, or if a loss is incurred. The contribution amounted to DA 11 mil-lion iri 1971, DA 8 million in 1972, DA 10 million in 1973, and will reachrDA 15 million in 1974.

6.1) SONELGAZ is also required to invest in Treasury Bonds, the amountcharged for depreciation. However, an annually renewable exemption from thisobligation has been granted up to the hmount required for the renewal androutine development programs.

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Balance Sheet

,.11 Fixed Assets - SONELGAZ's actual 1970-1972 and forecast 1973-1978consolidated balance sheets are in Annex 14. Major assumptions are statedin Annex 18. At the end of 1972, gross fixed assets in operation (DA 2,949viillion) and work in progress (DA 1,023 million) aggregated DA 3,972 million,of which 77% was for electricity, 10% for gas and 13% for Head Office andgeneral. From 1972 through 1978, gross fixed assets in operation would in-crease at an average annual rate of 11% for electricity and 23% for gas. The1972 fixed assets anc 1973-1978 forecast fixed assets do not include any cap-italized interest during construction, which is treated as an expense. In1972, accumulated depreciation amounted to 39% of gross fixed assets in opera-tionI. In 1961, the existing assets were revalued by DA 347 million. About40% of the capital expenditures at the end of 1973 was made after 1967 and 27%after 1970. Under these conditions the present assets valuation is reasonableand is expected to remain so due to the effects of the large continuing develop-ment vrogram. At the end of 1972, the amount of work in progress was high -about 35% of the 1972 gross value of assets in operation - because the volumeof work has sharply increased since 1968 and transfer from work in progress toassets in operation is generally slow. However, this is expected to improve.bv the end of 1978 work in progress would reduce to about 18% of the grossvalue of the assets in operation.

6.1'') Inventories - The average turnover of materials in stock is too low,chliefly because of the slow and intricate administrative procedure for purchaseand import of materials, which causes SONELGAZ to overstock in order to avoidpossible interruption in operation and construction. SONELGAZ expects thatthe Government will ease the procedure, permitting the company to graduallyreduce the turnover to about 8 months by 1978.

6.13 Receivables - At the end of 1972, receivables amounted to DA 285million and represented about 76% of the total revenue for the year. Thebills in arrears for electricity and gas supplies amounted to DA 137 millionagainst a revenue of DA 353 million, or an average of 142 days of billing.The following table summarizes the situation by consumer categories:

Outstanding Revenue EquivalentReceivables from Sales Days Average12/31/1972 1972 Sales

… _______-----…DA million-----------------

Ceneral Consumers 24.2 192.0 45 daysNational Companies 40.7 77.8 190 days(,overnment and Municipalities 72.3 82.8 320 days

137.2 352.6 142 days

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For general consumers the situation is satisfactory. The proportion of billscollected in the year of issuance was 93.9% in 1972. On the other hand, thesituation was bad and worsening from year to year with respect to Governmentand Municipalities as well as National Companies. For the former, the propor-tion of hills collected in the year of issue was only 53% in 1972 and 72%for the latter. The company has informed the Government of this situationrepeate.dly, through its annual report. The Government has informed the Bankthat it expects to settle arrears within a reasonable time, in principle be-fore December 31, 1976, and is expected to cause its offices and the NationalCompanies to pay promptly for future services.

6.14 At the end of 1972, accounts receivable for debtors other than con-sumers amounted to DA 86.4 million. Of this amount, about DA 35 million wasfor taxes incorrectly assessed on the Company, according to SONELGAZ. DA 17million pertains to cash advances to two subsidiaries, TRAVELEC and SERIG,responsible for civil works in electricity and gas. The latter amount willbe transferred to "loan" and "portfolio" in the 1973 and 1974 accounts.

6.15 Equity - There are no stocks or shares. The Government is legallyentitled teo receive a dividend but has agreed to replace this by the contribu-tion to Government's development program (see 6.09). As of December 31, 1972,the ecuitv amounted to DA 1,832 million, including: (i) DA 1,145 million main-ly for assets transferred from former French companies and taken over by theGovernment after independence; (ii) DA 368 million in Government contributionsfor rural development, and (iii) DA 272 million in consumers' contributions.Accumulated profits were negligible. From 1973 through 1978 Government con-tributions for rural electrification would grow by DA 553 million and consumers'contributions by DA 335 million. It has also been assumed that during theperiod the Government would transform DA 27 million of existing loans intoequity related to the electricity activity, and would grant DA 70 million insubsidies for the gas activity (see 6.24).

6.16 Long-Term Debt - As of December 31, 1972, outstanding long-termdebt was DA 1,221 million, a breakdown of which is shown in Annex 19. Amajor feature of this debt is the very low average interest rate (2.9% in1972). Tlis is the result of numerous adjustments of accounts between theGovernment and the company within the framework of the general settlementof problems between France and Algeria. With the exception of the firstIBRD power loan (DA 11 million outstanding) and suppliers' credits, the exist-ing debt at the end of 1972 consisted of loans from Algerian banks or long-terni credits from the Treasury. All banks in Algeria have been nationalized.Besides the Banque Algerienne de Developpement (BAD), there are three otherbanks, of which the Banque Nationale Algerienne (BNA) is allowed to makeloans to SONELGAZ. One savings institution, the Caisse Nationale d'EpargneeL de Prévoyance (CNEP), is also allowed to make loans. On the basis of theassuni%pt ons made in tLuis report, long-term debt would increase by DA 1471million during 1973-1978 (see 6.24). The debt/equity ratio would remain atabout 40/60.

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Past and Forecast Operating Results

6.17 A major feature of the consolidated income statement for 1970-72(actual) and 1973-1978 (forecast) (see Annex 15) is the steadily growing in-terest on long-term debt which, despite the low rate, would have risen fromnearly 6% of the expenses (including depreciation), in 1970 to 18% in 1978.SONELGAZ, which had an average net annual surplus of about DA 18 million foreach of the 3 years 1970-1972, would accumulate an average net annual surplusof about DA 31 million for each of the following 6 years. Annex 16 gives abreakdowm of SONELGAZ's 1972 revenue account for electricity, gas and otheractivities. The following table summarizes a similar breakdown for 1973-1978:

Other TotalElectricity Gas Activities SONELGAZ----------- DA million-----

Revenue2,825 455 - 3,280

Other activities 256 2562,825 455 256 3,536

ExpensesPersonnel 812 143 43 998Fuel for production 52 2 54Purchase of gas for distribution 28 28Materials for operation 47 13 42 102Purchase of goods for sale 37 37Other operating expenses 240 73 120 433Income tax 20 - - 20Other taxes 260 42 25 327

Subtotal: Operating expensesbefore depreciation 1,431 301 267 1.999

Depreciation 706 146 9 861

Total operating expenses 2,137 447 276 2,860

Net operating income 688 8 (20) 676Interest on debt 356 131 487Net surplus 332 (123) (20) 189Contribution to Government 105 - - 105

Avallable surplus 227 (123) (20) 84

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Electricity sales are 80.0% of conso:.idated revenue and gas sales 12.9%; theremaining 7.1% comprises revenue from works for consumers, revenue from salesof appliances, sales of by-products or scrap, rental fee for staff housing,etc. Operating expenses for electricity, gas and other activities accountfor 71.6%, 15.0% and 13.4%, respectively, of total expenses before depreciation.During 1973-1978 the average growth rate of revenue from sales would be 12.8%as against 13% between 1969 and 1972. Operating expenses before depreciationare assumed to increase at an average rate of 9.5% during the period as against11% between 1969 and 1972 because of the conversion to natural gas as the prin-cipal fuel for the power stations, the closing down by the end of 1974 oftiie manufactured gas plants, and the increase in efficiency expected inthe power production.

6.18 Depreciation, for which the straight line method is used, is satis-factory. Depreciation rates are based on the expected life of assets: 30years for most of the equipment in thermal power stations, 50 years for civilworks and buildings, 30 and 40 years for overhead lines and substations, 75years for dams and reservoirs, and 10 and 5 years for office equipment andvehicles.

Electricity Department Operating Results

6.19 The forecast income statement and operating results of the Elec-tricity Department from 1972 (actual) through 1978, assumes an average an-nual growth rate in sales of about 14% (see 5.35), as against 9% in 1972,with no changes in SONELGAZ's tariffs. During the period the annual revenuegenerated by the assets in operation (gross value) would be a steady 14.0Net operating income ranges from DA 67 million in 1972 (22% of sales) to DA166 million (27% of sales) in 1978. Annual surplus would average DA 55 mil-lion for the period. A comparison with EdF, which uses similar administra-tive and operational methods, shows that in 1972 administration and over-head costs for thermal generation (about DA 30 per kW) were satisfactory. Thecost of operation and maintenance, excluding fuel, was 30% above the Frenchcost. This is partially due to the smaller size of the plants and the dif-ference in workers' skills. However, SONELGAZ could improve its productivi-ty, which is one of the purposes of the reorganization study (see 3.07) andthe objective of various technical improvements now under way. The operat-ing ratio (before depreciation) was 57% in 1972. Forecast revenue accountsassume that by 1978 the operating ratio will decrease to about 50%.

6.20 Based on the revised construction program (see 2.21 and Annex 3),the rate of return of electricity assets (including an adequate proportion ofheadquarters and consumer assets) would range from 5.0% in 1972 to 7.0% in1978. This realistic objective, combined with other proposed financialcovenants (see 6.27), would provide SONELGAZ's electricity sector with areasonable financial position.

6.21 During negotiations, the Government and SONELGAZ agreed that in theyear 1974 and thereafter, they would take all measures to provide, by the endof 1978, a rate of return of not less than 7% on the average net electrical

- 22 -

fixed assets in operation. The calculation of this rate of return would bemade by considering only revenues and expenses related to the electricityactivity, including a reasonable allocation for head office or general over-heads. Electrical fixed assets would exclude assets financed by consumersbut include a reasonable proportion of Headquarter's and other assets commonto both electricity and gas activities.

Cas Department Operating Results

6.22 In 1972 the gas activity was in deficit by about DA 9 million.Sales increased by 8%. The average revenue per therm sold vas DAJ1.3.The forecast assumes an average increase of sales of about 22% for 1973through 1978, much less than initially expected by SONELGAZ. However, thenet operating income for the gas operation would be almost nil during 1973-1978 and, after payment of interest on debt, a deficit of about DA 125 millionwould accumulate. SONELGAZ's gas activity, under present conditions, is notviable. The deficit heretofore has been financed by electricity surplus.Forecast financial statements attached to this report assume that the Govern-ment will grant subsidies in sufficient amount to meet the difference betweenthe internal cash generation and the debt service related to the gas activity.

Other Activities Operating Results

6.23 In 1972, these activities were in deficit by about DA 4 million be-cause charges made to consumers do not adequately cover overhead expenses.The forecast shows deficits accumulating to about DA 20 million in respectcf '973/74. For future years the Government and SONELGAZ agreed to set pricesand charges to consumers at such levels so as to assure revenue from theseactivities and services would at least cover costs including reasonably allo-cated overhead and general charges.

Financing Plan

6.24 SONELGAZ's 1974-1978 construction program and Financing Plan havenot yet been approved by the Governnent. SONELGAZ 's consolidated Sources andApplication of Funds for 1972 (actuai) and the proposed 1973-1978 financingpJin, based on the assumed construction program (see 2.21), are shown inAnnex 17. The following table summarizes the situation with an approximatebreakcdown between electricity (including general construction program) and gas.

- 23 -

---------------DA Millions------Electricity % Gas Total SONELGAZ

I. Net Sources of FundsNet cash generation 1,394 143 1,537Less debt service 884 211 1,095

510 (68) 442Change in working ccapital 22 5 27

532 25.1 (63) 469Less contribution paid to Govt. 105 (4.9) 105

427 20.2 (63) 364

Long-Term BorrowingProposed Bank loan 157 - 157Other external loans assumed 76 - 76Loans from Treasury andAlgerian banks 379 649 1,028

Suppliers' credits 210 _ 210822 38.8 649 1,471

Government contribution torural electrification 553 26.0 - 553

Consuiners' contribution 318 15.0 17 335Total contribution 871 17 888

Government subsidies -_70 70

Total: Net Sources of Funds 2,120 100 673 2,793

Il. Application of FundsThe Project 263 - 263Potential second IBRD Project 164 - 164Other 1,692 656 2,348

Total Application 2,119 656 2,775In1crease in Cash 1 17 18

2,120n 673 2,793

Ratio of Net Revenue toDebt Service 1.6 - 1.4

6.25 As a matter of Government policy, and as is the case for other na-tional companies, SONELGAZ's internal cash generation is intended to be suf-ficient onlv to finance replacement and routine development. Revenues fromelectricity, gas and other activities are not considered separately, and areused for the financing of the activities as a whole. All major works in-cluded in the national development plan are financed by loans made avail-able to the company through Algerian banks, according to the Government'sinstructions or from the Treasury, and exceptionally through internationallending agencies. Rural developmment is financed by Government contribu-tioris.

- 24 -

6.26 SONELGAZ's overall financing plan does not consider separate finan-cing for electricity and gas. For the year 1975 and thereafter, the Governmentand SONELGAZ agreed to prepare separate two-year financing plans to be epprovedby the Government for each of the activities in accordance with the requirementstated in 6.27.

6.27 Electricity Financing Plan. The electricity financing plan con-sidered separately is a suitable basis for a loan. During negotiations:

(a) SONELGAZ and the Government agreed that until the 7% rate ofreturn has been reached (see 6.21), the surplus from theelectricity activity (before charging depreciation, butafter deducting all operating expenses related to thisactivity including a reasonable allocation of generalexpenses, and debt service on loans allocated to electri-city) would not be less than 15% of the average constructionprogram for electricity, including a reasonable proportiont ofgeneral construction for the current and the previous year;

(b) the Government agreed to take appropriate measures to al-leviate the burden of SONELGAZ's debt service in such awav that the ratio of the net revenue of SONELGAZ's elec-tricity activity to the debt service related to this activityfor the previous and current year is not less than 1.5 for1975 and thereafter;

(c) the Government agreed to cause the lending institutions toset the duration of future loans to SONELGAZ commensuratewith the nature of the assets they are to finance; and

(d) SONELGAZ agreed that any funds remaining after the contributionto the Government shall be initially applied to meet require-ments for electricity operations.

b. LS8 Financial statements attached to this report assume that DA 27 millionof loans borrowed in 1971/72 will be transferred to equity and that the periodof future loans will be extended to 20 years including 3-1/2 year periods ofgrace.

6.29 SONELGAZ's proposed financing plan assumes two foreign loans. Thefirst one would be the proposed Bank loan for US$38.5 equivalent for 20 yearsincluding a grace period of 3-1/2 years. The second loan of about US$27million equivalent, for which similar conditions have been assumed, wouldfinance the foreign cost of the Arzew and Hassi R'Mel gas-turbine stationsand the installation of two more 220-kV substations. The Government andSONELGAZ have discussed the matter with the Bank, but have not yet formallydecide whether or not to request further assistance.

- 25 -

6. 3ù Suppliers' credits included in the financing plan are similar tothose existing in 1972/73. The average proportion of suppliers' credits inthe long-terîn borrowing, which was about 25% in 1972 for SONELGAZ as a whole,would remain about the same throughout 1973-1978.

6.31 Gas Financing Plan. Without the electricity activity subsidizinggas, or without Government grants, the gas financing plan is not viable.Because of delays in industrial plant completion, the initial program wasoversized and requires some curtailment. A thorough study of the gas marketis needed to ascertain the exact demand and assess which part of the programshould be reduced or postponed (see 3.14). SONELGAZ agreed to engage consult-ant to carry out sucli a study. Financial statements attached to this reportare based on a construction program in line with the trend of the assumedgas consumption.

7. AGREEMENTS REACHED

7.(il S9ONELGAZ has agreed:

(a) to furnish to the Bank for review, promptly upon completion,the reports for the organization study, the electricity tariffstudy, and the gas market/tariff study, and inform the Bankof the actions it proposes to take as a result of the saidstudies in accordance with the instructions of the Governmentand in application of the Government's national development plan(see 3.07, 3.13 and 3.14);

(b) to take all steps necessary to employ consultants for theelectricity tariff study and gas market/tariff study, notlater than March 31, 1975 (see 3.13);

(c) to employ qualified consultants as and when needed and onspecific assignments, upon terms and conditions satisfactoryto it and the Bank, to assist it in carrying out the workfor the Algiers gas turbine facilities and the dispatchfacilities (see 4.04, 4.05);

(d) to take all steps as shall be necessary to (i) provide by1978 a rate of return of not less than 7% on the average netfixed electricity assets in operation; the rate of returnshall be calculated by taking into account net income andoperating expenses for electricity, including a reasonableproportion of other charges for overhead and general purposes;electricity assets would exclude assets financed by consumers,but would include a reasonable portion of headquarter facilitiesand other assets common to all SONELGAZ's activities (see 6.21);and (il) until the 7% rate of return has been reached, achievea surplus for the electricity activity (before charging depre-ciation but after deducting all operating expenses related tothis activitv, including a reasonable allocation of general

- 26 -

expenses) not less than 15% of the average cost of constructionprogram for electricity (including a reasonable portion ofgeneral construction) for the current and preceding year; andthat, except as the Bank shall otherwise agree, any fundsremaining after the contribution to the Government shall beinitially applied to meet requirement for electricity operationsfor its operations (see 6.27);

(e) to set prices and charges for its operations other than thesale of electricity and gas at levels sufficient to ensurethat revenue from such other activities are not less thantheir costs, including reasonably allocated overhead andgeneral charges (see 6.23); and

(f), that, beginning with 1975, it will provide to the Bank,prior to November 30 of each year, separate financing plans,approved by the Government, covering the current and thefollowing year, showing the proposals for (i) meeting fort-,e electricity activity the targets for rate of return,tIte coverage of the construction program, and ratio of netrevenue to debt service, and (ii) meeting the operatingdeficit, if any, for the gas activity, and the financinggap, if any, for the construction program for gas (see-6.26).

7.i' ' The Covernment has agreed:

(a) that it will take, not later than December 31 of each year,starting with 1975, all steps necessary to ensure that theratio of SONELGAZ's net revenues for electricity operationsfor the current year to the average debt service requirementson loans allocated to electricity operations for the previousand current year is not less than 1.5 (see 6.27); and

(b) to cause the lending institutions to set the duration of futureloans to SONELGAZ coennensurate with the nature of the assetsthey are to finance (see 6.27).

During negotiations the Bank has confirmed that it considers the"(:omn.issaire aux Comptes" appointed by the Government to be independentauditors acceptable to the Bank. The Government and the Bank will consultwith eachi other, àt the request of either of them, on the conditions underwhicl such audit is performed. The Government has indicate that it willc.use the Commissaire aux Comptes to perform his audit in such time thatthis audit will be received in the Bank not later than September of each year(see 6.05).

7.04 During negotiations the Government and SONELGAZ have informed theBank that the Government is considering a settlement of debts owed to and byGovernment agencies and public enterprises and that it expects that a fullsettlement of such debts will have been accomplished by December 31, 1976(s.e e ei)

- 27 -

7.0.5 In view of the agreements and assurances on the matters listedabove, the Project provides a suitab"e basis for a Bank loan of US$38.5million. The proposed loan would be made to SONELGAZ for a term of 20 years,including a grace period of 3-1/2 years. A Guarantee Agreement would beconcluded between the Democratic and Popular Republic of Algeria and the Bank.

ALGERIA

Energy Sector Organization

|Ministry for Industry and Enorgy|

|Directorate: |nryi-- Dir ctorate Mines -Oeolog-8y|

Natura. and Natural 0 O3 ;oal

|Electricity| |Manufactured|- L Byproducts Bypro| dets Byproducta

~~~~~~0 T

International National National a tionalInterconnectiona Requirement Requirements Petroehenucals Reqtirementa Requiremente -

lo95a19,, SttI 77n91819 (nnr 963 1964 16196 1917 1969 199 1917 191 971

Intttlîti (79lt)i,h19il761 ad. 1994 2n12 I7. 1 25. 1 29. 7 14.1 18.2 42. 2 12. 1 40. 1 15. 6 31. 1

D-tîtîi.' 1954 1n53 103.9a 136.20 157. 1 19.9 101.98 199. 2 71. 5 177.0 9 3. 2 168.1

82.., Ijan Itao 1997 1 7. 5 11.7 15.23 13. 2 19. 7 24. 3 9.4 17. 7 7. 5 7.5

Knosoînîa 1~~~ ~ ~~~~~969 31.50 29.7 179. 1 159.4 16~4.9. 131. 7 11411 9.

Ostînos tat 91 rIver plants ~~~~~~~~~~j 1631-1152 43 ~~~~ 77.2 771 9. 16. 1.6 75. 7,..67. 61.6 948

9,1779pat deeslno rînlr 16-923 84 59 7.142. 49.0 58.4 59.0 9, 42.6 91.

îaanlnn416 254.0 99T 99-.5 217.6 4662.7 5_649 3T59-.3 579.6 912. 6hZ82.6

Intal4

spcty 28)194 184 284 284 284 284 294 264 284 294

P1*71 taf.-1% 19.7 19 .9 14 .9 16 .1 14i.1 22.7 14.4 23 .2 122.9 19.4

977611/1-2 191l& 47^.9 524.2 591.9 434.9 360.8 3593.0 596.9 437.0 597 597

Otan 71a79n Oîern/1-7 ~~~~~~~~~~~1951 ^277 } 231.5 180.0 202.7 199.4 243.71 219.3 5009.6 39.9 581.9 434.7

/64) (187) <75)325

Atasba 77*/- 1951/1952 5727 113.6 74.7 75.7 42.9 207.4 123.7 199.0 277.9 297.7 35.

/(5-47 17172,71972) 754(557

16k68kd164/(l2( (1974/1975) 62nlSP(

S1.bntaîln 14<4 7 7979 768.9 670.3 7131 30.8 667,.4 1,25-4.8 0,924.4 1,419.3 6,35 7.9

matallad 71.9681717 (1527 ~~~~~ ~ ~~~ ~ ~~~(404~ 228 76 2929 7 2288 288 29629836

Plant fatîno (53 ~~~~ ~ ~~~~ ~ ~~~~ ~ ~~~ ~ ~ ~ ~~39.4 28.5 75. 28.5 2997.2 41. 40.7 9442.7

1. Tîn_ln.a na

Onsatn(Wh2) 77110.

Iran Sanas (tnt ~~~~~~~~~~~~~~1957Ot 4 . 1.7 1.7 8.1 9.7

Anta Ai. t ly 1973 6770)

87888 99881 71.9918, 88.1 1943~~~~~~~l 779 2.7 9.9 171.0 11n 11.7 13.9 18.2 17.5 20.0 22.5

nas.l.81.nsond Us8n7 8taasaad 1973 3522 8762794)

S8.ratlnn <46)2 . 98.6 19o.71 71.8 11.77 1Î4.5 17. 9 54.5 Î1144 142.2

îîa.lld îat2(88)<o 34 M4 344 34 34 249634 2

plan fann-.]1 3.1 19. 114 2. 13. 49 6. i1l2.71.

M ... 1l21- 23.9 19.6 2098 20.4 21.5 54,9 301,2 32.9 39.0 3.

5719891154 capanînp <71s88871.47 1~~~ ~ ~~~ ~ ~~~2.7 15 - 5 76 17 19 19 292222.

Pln 71d.nt-ntl/ E 17.3

onastonnneîtednyntea 1,348~~~~~~~~~~~~~~~~~~~~~fl.8 1.672.3 1,968. 1,964.4 1,137.4 1,2571.9 1,415.2 1,863.8 1,1750.4 1,9559. 2

Ssnîatadspsts 97~~ ~ ~~~~ ~ ~~~~ ~ ~~~~ ~ ~~~~~ ~ ~ ~~.7 29.7 32.6~ 962.7 371.6 45.7 47.2 49.5 146 7 129.9

09691 1,~~~~~~ ~ ~~~~~~~ ~ ~~~~~~~ ~ ~~~~~07-85 0,85 1.9-9.4 1209-7.1 1,101.1 -1,297.4 1,462.2 1,691.1 1.897.2 2,0114.5

Onî.ttnnnsîaad ayate ~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~897.5 923.2 917.4 '1.:'33 .9. .215 140. ,2. 1,7.

laMaI.d s~~~~~~~~~~~~~~~~~~~~utes ~~~~~~~~~41.0 44.3 671.1 48 .7 458 477 40.8 961 126. 132.8

Tas . 93-8.5 987.5 9635.5 976143 1,9l031. 1 1,099,3 1,299.1 1 ,_507.8 -1,65-4.9 _1. 893.9

îasten1l îld C, ysta(DY 454 439 594 594 598 596 596 599 594 711

5s1a- a t- t7 25 25 29 27 28 29 30 53 54 93

07-61 -461- 441i 622 675 674 975 -c624 849 6r58 2-94

Ova11î FIn-, nlt 5 28 27 207 20 77 24 27 90 33 33

07171at7171717159t56

sysIan ~~~~ ~~~~ ~~~~ ~ ~~~~~~209 21 2171 217 209 740 2971 323 3401 384

Lsîs Indatl. ip6

y 1972 ;W1. h117 19) 122.9 95.

Elînnk 21ndjnn 1972 18.610 . 04'

71i.87.71 AIgî,t 194..6 0 i2.7 25.6 23.1 29.6 28.7 27.7 29.5 27.3 28.71

a.nlnany 9,tmsn ~~~~~~~~~~~~~~~197 4.91

7111 T.aalt71 603 1972 7.716. 3. 7

2,Iqvltaatlnt Otan. 1~~~ ~ ~~~~ ~ ~~~943 22.5 0.2 17.7 68.9 52.9 90.1 89.57906.75473

LlqvlfaîtIon Ikîlda 6~~~ ~ ~~~~~~~~~972 27.

7111 Ossn 0.891 Nanan,,d lintal 1945~~~~I 71 . 7v.. 4. 17.6 2570981.71. 10.1 14.8

7 111 a.-. 999 ...ana 12 16 10.1 7.2 125 2.12. 7.367 28. 32.2 51.2 92. 0

7101 3*8 la à-n,a 198 30.0 63.9 81.3 59.6 57.69 48.8 50.06 59.3 202886.

7111Basa nantI ri 9..l91991 (479.6) 7714 45.7 76.1 79.5 82.2 89.5 93.7 68.5

1466711*1 1~~~~~~~~~~~~~~~~~~~~Ï3-7.7 153.6 19=9.4 78 4. 0 258. 5 241.8-I 7-9.3 366.5 271.3 209.71 29.

<n19721

Sasle Idut- a (nM.) n9/antîn1 I 96.5 15.0 24.8 21.8 25.4 24.8 48.2 27.4 12.8 29.1 19.0

Tota 0.ptîn Plant P-iY sp.lt (94 -ouaatn <.8, 234. 749. 724.2 '259.9 283.5 765-.0- 935.5 93-1.9 284.0l -ï 28.1 3718.8

InTmnl 76 84 83 79 79 711 M ai 86 89 87

-l~5*51 7.289(94119 1. 9 M54 I 1967 1o8 97(19 lalnsdhyd-ngattn

3 hI. 1 -ln ne od- itllt-y -iaetin ntl 19617,tndan,a1168

Man2 12., 1974

ALGERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ

Power Project

Construction Program Expenditures

1973-1978

Included in 1973 1974 1975 1976 1977 1978 Total NotesBank Project Development Item 3 ------------------ DA Million--------------

GenerationCompletion Skikda Thermal Station, 374MW 107.2 63.7 17.6 188.5

x Gas Turbines Algiers, 120 MW 1.3 9.3 28.3 40.5 34.8 113.8Gas Turbine Station Hassi R'Mel 4.9 14.6 40.2 25.4 85.5Gas Turbines Arzew (Oran), 80 MW 0.5 3.8 23.1 26.4 53.8 Total cost DA 84.8 millionOther (spares, improvements, small plant) 28.0 11.0 14.0 30.0 35.0 45.0 163.0

Total 135.2 76.0 46.3 76.7 138.8 131.6 604.6 21.7% of total program

TransmissionAlgiers-Oran, 220 kV 8.5 5.6 4.3 4.0 3.0 1.6 27.0Conversion 150-220 kV 10.2 6.7 12.0 12.4 17.0 18.7 77.0New Lines

220 kV 6.4 7.4 9.0 8.0 12.5 16.2 59.560 kv 8.5 8.3 9.6 13.9 13.0 4.2 57.5

x Dispatch Facilities 0.4 0.6 11.5 22.9 9.1 3.0 47.5x Substations 220 kV, 60 kV 9.4 19.5 20.5 31.3 16.0 96.7

Ongoing and New Program of Substations220 kV 8.5 8.4 8.6 11.8 18.9 27.9 84.160 kV 8.0 13.6 11.5 12.5 12.5 12.5 70.6Total 50.5 60.0 86.0 106.0 117.3 101.1 519.9 18.6% of total program

DistributionExtensions 30.0 27.0 32.5 28.5 33.5 34.0 185.5Renewals 15.5 15.6 21.6 24.8 27.0 21.0 125.5Village Electrification 61.2 70.0 80.0 100.0 110.0 120.0 541.2

Total 106.7 112.6 134.1 153.3 170.5 175.0 852.2 30.6% of total program

GasTransmission/Distribution 61.1 76.5 85.0 94.5 99.5 109.0 525.6Renewals 10.2 t3.5 15.0 15.5 20.5 21.0 95.7

Total 71.3 90.0 100.0 110.0 120.0 130.0 621.3 22.37 of total program

GeneralBuildings (Admin., Operation) 13.0 15.0 16.0 16.0 16.0 18.0 94.0Staff Housing, Office Equipment,

Vehicles, etc. 9.0 13.0 11.0 14.0 14.0 15.0 73.0x Studies (Bank financed) 1.5 1.6 1.5 0.6 5.2

Other Studies 5.5 2.0 3.9 2.5 2.4 1.0 17.3Total 27.5 28.5 32.5 34.0 33.0 34.0 189.5 6.8% of total program

Total Expenditures 391.2 367.1 398.9 480.0 579.6 570.7 2.787.5 Totals were reduced in Annex 17 by a total ofof which Bank Projact: -- DA 1,3.2 mnillion for reduction in inventories.

Local Currency 0.2 5.8 18.9 27.8 31.7 21.3 105.7Foreign Currency 0.2 7.0 23.0 45.4 49.8 32.1 157.5Total 0.4 12.8 41.9 73.2 81.5 53.4 263.2 9.4% of total program

May 6, 1974

ANNEX 4

ALGERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ

Power Project

Legal Background Information

1. Before nationalization, supply of electricity in Algeria wasprovided by more than 20 private companies under their respective conces-sions. Folloving the nationalization in France (by Decree 46-628 ofApril 18, 1946b, as modified by Decree 46-2298 of October 21, 19h6), Decree47-1002 of June 5, 1947 (as modified by Decree (without number) ofSeptember 17, 1947) applied nationalization for Algeria creatirg at thesame time l'Electricité et Gaz d'Algerie (EGA) as the sole public entityto serve the sectors.

2. Subsequent to Algerian independence, EGA was dissolved and Societe

National de l'Electriciteé et du Gaz (SONEI.GAZ) was created by Ordinance 59-59 of July 28, 1969, which transferred all assets, rights and obligations tothe new company. SONELGAZ's statutes are annexed to this ordinance.

3. Regulations for the employment of person'nel (Statut National duPersonnel des Industries Electriques et Gazieres), which date from 1946(French Decree 46-1541 of June 22, 1946, declared applicable to Algeriaon June 5, 1947, and promulgated on July 10, 1947), are still applicable,except that basic rezuneration schedules were revised on June 6, 1963, andthat many special aUowances have been added of general (13th month, emplcy-ment allowance) and particular (productivity, travel distance, location ofemployment, training, settlement, etc.) nature.

4. SCNEIGAZ's regulations for its concession and operations, definingits rights and duties and those of its customers, as well as its tariffs,are laid down in two "Cahier des Charges", one covering the 60-kV supply,and one covering 30 kV and lower tensions, in the form of an agreementbetween the Minister of Industry and Energy and EGA, dating from March 3,1965.

5. In accordance with Decree 63.201 of June 1963 and the Ordinanceof May 27, 1966, SONEIGAZ insures its assets and other risks with the Caisse

Algerienne d'Assurances et de Reassurances and the Societ4 Algerienned'Assurances.

ALGERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ

Power Project

Company Ststistics and Indicators

1968-1972

AverageAnnual Short-Term

1968 1969 1970 1971 1972 Increase Trend Observations-r--la Installed Capacity (MW) n.a. n.a. See Annex 2

Hydro 284 284 284 284 284Steam 288 288 288 288 363Gas Turbine 34 34 56 56 124Diesel 19 20 21 22 23 Estimate

625 696 649 650 794

lb Net Effective Capacity (MW) n.a. n.a. See Annex 10Hydro 180 180 180 180 180Steam 271 271 271 271 342Gas Turbine 30 30 49 49 109Diesel 19 20 21 22 23 Estimate

5°° 501 -21 522 657

2 Gross Fixed Asset ValueElectricity, DA10° 2,062 2,126 2,3oo See Annex 15Per Installed kW, DA10

33,177 3,270 2,915

Per GWh generated, DA103

1,212 1,118 1,139

3 Personnel for Generating PlantHydro Plant, number 147Per Installed MW 0.52

Thermal Plant, number 730 No breakdown steam/gas turbine availablePer Installed MW 1.45

4 Maximum Demand (MW)Interconnected System 241 283 323 340 384 12.4 11.7 See Annex 10

5 Net Generation (GWh) See Annex 10Hlydro 565 359 580 322 483Steam 687 1,055 1,024 1,420 1,358Gas Turbine 14 18 54 166 142Diesel 31 30 33 39 32Purchases 10 12 10 4 4

1,307 1,474 1,701 1,951 27019 11.5 10.7

6 Losses n.a. n.a. Excludes station supplyGWh 167 184 194 246 215 See Annex 10

12.8 12.5 11.4 12.6 10.6 See Annex 10

7 Load Factor (%) ( l

Interconnected System 59 57 57 59 55 n.a. n.a.

8 Reserve Margin See Annex 10Interconnected System n.a. n.a.

MM 230 186 148 131 194 Effective capacity less maximum demand49 39 31 28 34 % of Effective Capacity (Interc. System)

March 12, 1974

ALGERIA

SOCIETE NATIONALE DE 1'ELECTRICITE ET DU GAZ

Power Project

Company Statistics and Indicators

1968-1972

AverageAnnual Short-Term

1968 1969 1970 1971 1972 Increase Trend Observations71-

Length of Lines (km)

9a High Voltage150 kV 1,241 1,564 1,564 1,732 11.7 10.390 kV 304 304 372 395 9.1 9.060 kV 1 669 1,748 1,775 1,903 4.5 4.5

Total 3t 3,616 3,711 4,030

9b Medium Voltage30 kV 11,5o4 11,812 12,338 12,790 3.6 3.610 kV 2,050 2,020 2,117 2,135 1.4 1.45.5 kV 878 901 994 981 3.8 3.5

Total 14,432 14,733 15,449 15,906

9c Low Voltage127/220 V and 220/380 V 8,220 8,390 8,750 9,005 3.1 3.1

Forced Outages n.a. n.a.

lOa Generation (% of time)Oran (2x27 + 60 MW) 1.1 0.5 6.3 10.7Algiers (2x60 MW) 2.6 7.0 6.6 5.1Annaba (2x27 MW) 11.0 5.9 0.4 0.2Hassi R'Mel Gas Turbines 6.6 1.0Haoud el Hamra Gas Turbines 4.3 0.4

lOb 150 kV Transmission LinesNumber/100 km year 9 8 12 6

March 12, 1974

UIERIA

so0'ETgo NATIOIAT2, PR L'ELECTRICT` 7T DUiGA

Eùwer roojeot

Cotpany Statisti-s and Idilcators

1968-1972

A-'erageAnnual Shurt-Tero

1968 1969 1970 1971 1972 Increase Trend Observations

Salesl'a-Electricity (cmSAh)

DoMestic 403 449 495 563 604 10.6 9.6 See Annex 10

Government Services 84 93 112 116 130 11.5 7.1

Railways 41 33 37 33 19 -17.5 -

Irrigation 109 119 129 134 145 7.4 7.4011 Industry il 13 44 82 89 48.6 29.1Other Industry 411 505 612 642 674 13.2 11.0Others, ineluding Commercial 79 78 78 85 143 16.0 16.2

Total 1,138 1,290 1,507 1,655 1,804 12.2 11.6

lb In % cf TotalDomestic 35.4 34.8 32.8 34. 33.5 Government services y(.4 7.2 7,ls 7.0 Y.?

Railways 3.6 2.6 2.5 2.0 1.0Irrigation 9.6 9.2 8.6 8.1 8.1Oil Industry 1.0 1.0 2.9 5.0 4.9Other Industry 36.0 39.1 40.6 38.8 37,4Others 7.0 6.1 5.2 5.1 7.9

Total 100 1O0 100 100 1oo

llc In Ipe of Sup1yElectricity (GWh)High Tension 735 841 1,012 1,092 1,200 13.0 12.1Low Tension 403 449 495 563 604 10i6 10.4TongT t n1, 138 1,290 1,507 -1,65-5 1,8704t 12.2 11.6 6

To 106 herms Equivalent 979 1,109 1,296 1,423 1,551 12.2 11.6 1 GWh = 0.860 X 10 Therm (of 1,000 keal)

oas (n 10 Sr s) 2 141 2,491 2,744 2,939 3,183 9.0 8.0 ( Total Energy Equivalent SoldIn lob Therms (or O

2kcal) 3,-12 3,600 4,040 4,362 47W34 10.0 9.1

li lT evenuei BSl3

reakdowjn per ~bove consumer categories

EleYc triecity noL available

High Tension 75.0 88.0 100.5 113.3 14.7 14.3Low Tension 149.0 1dl.7 100.9 196.3 I10( io.4

Subtotal 220.0 249.5 281.4 309.6 12.1 11.8

Gas 25.7 32.5 37.4 43.0 18,7 1716

Total 245.7 282.0 318.8 352.6 12.8 12.5

lIC In Revenue er UnitElectricity 0A 1

n.a.High Tension 8.9 8.7 9.2 9.5Low Tension 32.3 30.6 32.1 32.6

Average 1/ 17.0 16.6 17.0 17.2

Average in DA7/Tl eru Equivalen-AS 19.8 19.3 19.8 20.0Gas (DA•/Therm)b 1.03 1.18 1.27 1.35

Energy Equivalent (DA7/Therms)/ 6.83 6,73 7.31 7.45

12 Energy Equivalent Sold Pr Employes 10 Therm/Essslyee 0.55 o.66 0.74 0.73

1/ Multiply by 2.52 to obtain revenue in DA per 10 RTU energy esoivalent.

SOCIETE NAT1IONALE DE L'ELECTRICITE ET DU r.AZ

Power Project

Company Statistics and Indicators

1968-1972

Average Annual Short-Term1968 1969 1970 1971 1972 Increase Trend Observations

13 Number of ConnectionsElectricity 668,416 699,902 720,718 784,720 807,420 4.8 4.9Gas 148,174 149,717 182,653 192,814 204,860 8.4 8.1Connections per employee 117 128 132 127 129 2.4 2 2 Number of electricity consumers

is used (i.e. all gas consumers

14 Number of Employees would also be electricity consumers)Central Administration 805 Based on workhours; breakdown notGeneral Services 35 available for 1968-1971Consumer Services 248Thermal Plant 770Hydro Plant 147Transmission 257Distribution 2,563Gas 747Construction 705

5,677 5,7478 5,476 7,78l 6,277 2.5 2.5

15 DebtDebt equity ratio 31/69 26/64 40/60Debt service coverage 2.9 2.8 1.9

16 Rate of ReturnElectricity 5.2GasTotal 1.8 3.1 4.o See Annex 15

17 Operating Ratio 58.8 60.0 63.8M Operating expenses, excluding

18 Average Depreciat ion Rate depreciation,divided by revenueElectricity n.a. n.a. 2.80Gas n.a. n.a. 3.94Total (including office 2.60 2.78 2.78

equipment, cars, etc.)

19 Weighted Average Interest RateOn debt outstanding at year end 2.08 2.78 2.98

20 Operating Expenses (excl. depreciation)Electricity, DA¢/kWh sold 9.7Gas, DAO/Therm sold 1.2Energy equivalent, DA•/Therm sold 4.5

21 Employment Cost per Employee (DA)Electricity 19,600Gas 18,200SONELGAZ overall (incl. administration) 20,900

22 lumber of Average Days Bills OutstandingElectricity and Gas total 151 134 142

23 Internal Cash R"tio 1.41 Internal cash generation lesscontributions to Governsent,divided by gross fixed assetsplus work in progress

ANNEX 6Page 1 of 3

AIGERIA

SOCIETE NATIoNALE DE L'ELECTRICITE ET DU GAZ

Power Project

Outline of Reorganization Study

1. In accordance with the terms of reference of a contract signed November it ,1973, P.A. International is carrying out the study which is expec-ted t>^

require up to three years on the following basis.

2. In the first phase (Diagnostic Phase), the study should include the analysis

of:

- objectives of the undertaking- its organizational structure- the role of each division, department and service section

- requirements for the management information system- administrative systems and methods- the role of computer facilities in administration- use, training and upgrading of staff- planning and preparation of projects and their control during

execution- market strategy- the scheduling of development stages- the objectives SCNELGAZ desires with respect to financial ef'iciency,

rate of return, and level of service to consumers

3. In the second phase the consultants should make detailed proposals for

review and discussions, and prepare all documents required for impiemen ta-

tion of the final recommendations, for which a period of about 20 months

is envisioned. The consultants should assist, to the extent required,

in the implementation of the recommenda+,ions. This part of the work

would overlap the 20 month work period for the preparation of the re-

commendations, but extend about 8 months beyond this period. All aspects

should be covered as outlined for the first phase.

ANNEX 6Page 2 of 3

ALGERIA

SOCIETE NATIC*ALE DE L'ELECTRICITE ET DU GAZ

Power Project

Provosed Terms of Reference for Tariff Studies

Electricity

1. Exadne the marginal capacity and running costs of generation,transmLssion and distribution of the energy for the significant times ofthe-day and periods of the year, at the different voltage levels, in thedifferent regions of the country. This will require due attention to thedaily and seasonal variations in system demand and, to the extent possible,to the daily and seasonal variation in demands of various consumer classes.The period to be studied shall cover the years 1975-1978. The basis forthe estimates of marginal coats shall be the development program for the sameperiod, its proposed operating regime and proposals for subsequent expansion.To the extent possible, marginal capacity and rmnming costs -hould be adjustedfor losaes, either by taiing a figure for average losses over all periods,or by determining losses in different periods (and for different voltagelevels of service). Incremental cost of power factors shal be studied.

2. The test discount rate to be used for the study shall-be 9%.

3. Compare the existing tariff structure and rates with the resultsof the marginal cost structure assessed on thebasis of the above. Descrip-tion of the exiBting system should pay particular attention-to the incentiveaefects of alternative metering and tariff types. Simplification may beqought for smaU consumers where the costs of metering are high in relationto bills.

4. Make recommendations for a revised tariff structure in the lightof ihe findings. To the extent possible the present structure shall berretained unless significant ,gaps exist between the marginal cost structureaesesed and the existing tariff structure, and unless present tariff andm:otring policies do notVprovide correct inventives for consumers to economnizewhen marginal costs are high, and to conserve more when marginal costs are low.

5. Assess the financial consequences of the implementation of therecommended tarif£ structure, assuming that ths rate of return on average netassets in operation would not be less than 6% in 1975/76, 6.5% in 1977 and7% ini 1978, suitably revising the recommendations for tariff levels toreflect this requirement. Any revisions of tariff levels, however, to meetthe aime of finance or simplication should be made so as to least distortany incentive effects of the tariffs and any aims of equity.

6. Study the impact on tariffs of progressive conversion of steam-plantfiring from natural gas to residual oil, in steps of 25% of total generation.Make recomendations for the introduction of an adequate provision in the rateregulations for the adjustment of rates for the sale of electricity in order

ANNEX 6Page 3 of 3

to cover additional operating expenses resulting from variations in theprice paid by for fuel (other than diesel oil or other oil used in limitedquantities) for steam-electric plant and define the average price of fuelabove which the regulation should automatically apply.

7. Prepare recommendations for the implementation of the recomnendedtariff structure in close cooperation with management, including publicity,meter acquisition and installation, reading and billing, and necessary stafftraining, to enæure and facilitate the adoption of the new tariff.

Gas

8. A market study shall be made covering the period 1974-1978, assessingthe requirements for gas. Particular attention shall be paid to the assessmentof rsalistic completion dates of new developments in housing and factories andtheir demand for gas.

9. SCNELGAZ's construction program for gas shall be studied and revisedin accordance with the above findings, in order to relate the revised programas close as possible to actual development.

10. A tariff study for the gas activities shall be carried out generallyin accordance with the above terms of reference for the electricity tariff study,but suitably adopted to the more simple nature of the gas activities. Therevised gas development program shall be taken into account.

Miay 8, 1974

ANNEX 7Page 1 of 3

AILiERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET IDJ GAZ

Power Project

Description of Project

1. The Project comprises:

- the installation of 120-MW of gas turbine-electric capacity atAlgiers

- a control and dispatch system for generating and transmissionfacilities throughout the intercooirected system

- substations

220 kV

El Esnam, Marsat El Hadjadj, and El Hadjar extension; and

60 kV or 90 kV

Rassi Ameur, Ain Skhouna, Ben Aknoun, Bordj-Bou Arreridj,Gonstantine (south), Laghouat and Souk Ahras (90 kV).

Algiers (as Turbines

2. Three gas turbines of 40 MW each of the industrial type would beinstalled in the Algiers area, two at the 60-kV substation Boufarik, south-west of Algiers, and one at the 60-kV substation Bab Ez Zouar to the eastof the city. The gas turbines o! the non-package type, which would operateon natural gas, would be housed in a simple building (suitable for futureextension), each provided with a crans for easy maintenance. The completelyautomated units would be operated from the main dispatch center in Algiers.

Dispatch System

3. The dispatch system would comprise:

(a) main (National) dispatch center to be located in the recently cornpleted.head office of SONELGAZ in Algiers;

(b) district -dispatch centers, each covering about one third o,F the network, a+Algiers (as a subcenter of the main dispatch center handling routineoperational matters for the center part of the country), at Oran arid aTthe Annaba; and

(c) a system of telemetering, sîgnalization and control for the 220-kVsubstations and main substations 90 kV and 60 kV.

ANNEX 7Page 2 of 3

4. The dispatch center at Algiers would include:

- single line, wall-mnunted, signal lighted diagramn, representingthe 220-kV, 90-kV and 60-kV transmission systems and indicatingexisting and transitory conditions in the network with respectto position of circuit breakers, substation busbar voltages,generating units busbar voltage, and main energy transports;

- a system of recording instruments for regulated variables (frequency,voltage,reservoir levels), voltages in substation, power stationproduction and international exchange of energy;

- wall-mounted plotter representing forecast load curve and actualdemand;

typewriters for logging important normal and cyclic information;

computer facilities with all associated equipment;

telecommand equipment covering the central part of the country foroperation of circuit breakers and isolators, gas turbines, andregulators for generating units, and transformers;

telephone equipment;

astronomical clock;

air conditioners; and

- standby emergency supply.

5. The district dispatch centers would comprise equipment sinilar tothat in the main dispatch center, excluding equipment required for centralizedfunctions in Algiers (e.g. plotter, computer and associated equipment, clock).The wall diagram would cover only the respective area of the network assignedto the district. dispatch center for secondary observation and commarid. Althoughfor security reasons, some functions would duplicate those of the main dispatchcenter (for normal operational control), telemetering and control ivuld covermainly those functions reserved for the respective district conter.

6. In power stations and substations, appropriate equipment will be pro-vided for sending and receiving of metered and coded information, telecommunica-tion, teleconmand, interlock and protection, as required for centralized dispatchcenters; parallel paths would be provided via the transmission lines and phonecozmpany cables.

Substations:220 kV- Substations El Asnam and Marsad el Hadjadj would comprise a double busbar systeD

for both 220 kV and 60 kV, two transformers 225/63/11 kV of respectively 80 ÈMVAand 60 MVA, metering transformers, 7 bays for transformers and lines on the 220kV side (including one spare) and 10 bays (including 2 spares) on the 60-kJ< side;the ll-kV system will be of the single busbar, cubicle type, providing for stationsupply and connection of compensating reactors.

ANNEX 7Page 3 of 3

- Substation El Hadjar would be extended by one 220-kV and one 90-kV linebay.

- Provisions will be made in the substations for comnunication, telemeteruiJt,and telecontrol facilities.

60 kV and 90 kV (Souk Ahras)- Each substation will generally comprise: a double primary busbar systenli

(60 kV or 90 kV), two transformers, 10, 20 or 30 MVA, metering transformers,4 to 9 bays for transformers and lines (including 1 or 2 spares), a singlesecondary buabar system, open for 30 kV and cubicle type for 11 kV (ConstantineSouth, Ben Aknoun); the 30-kV systems would be provided with up to 10 baysfor transformers and lines the il-kV systems with up to 20 sections, includin-several spares.

- Provisions will be made in the substations for communications, telerneteringand telecontrol facilities-

- Depending on the Government plans for industrial developments, the design of

one or two substations may have to be revised and delæyed, in which case the

Bank would agree to select another substation for financing subject to theconditions of similar cost, adequate justification and international biddinî.

ANNEX 8

ALGERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ

Power Projqet

Prgject Estimated Construction Cost

Lozal Foreign Total Local Foreign TotalCost Cost Cont C03t Cost Cost

-- DA 1 Million ------ ------ US$ 1 Million------

A. Gas Turbines AlgiersCivil Works 14.0 - 14.0 3.42 - 3.42

Electro Mechanical v7orks 8.8 48.0 56.8 2.15 11.73 13.88

Dutie3 and Taxes 6.4 - 6.4 1.57 - 1.5729.2 48.0 77.2 7.14 11.73 18.87

Adm-'ntstratioz and Engineering 3.0 2.0 5.0 0.73 0.49 1.22

ContingenciesPhysical 157. LC and 5/. FC 4.3 2.5 6.8 1.05 0.61 1.66

Pricel/ 6.0 18.8 24.8 1.47 4.60 6.0713.3 23.3 36.6 3.25 5.70 8.95

TOTAL A 42.5 71.3 113.8 10.39 17.43 27.82

B. Dispatch t st-exCiuil Works 0.9 - 0.9 0.22 - 0.22

Computer Facilities 0.9 4.2 5.1 0.22 1.03 1.25

Telemetering and Control Facilities 2.7 16.9 19.6 0.66 4.13 4.79

Taxes .mnd Duties 4.5 - 4.5 1.10 - 1.109.0 21.1 30.1 2.20 5.16 7.36

Administration and Engineering 1.7 2.8 4,5 0.42 0.68 1.10

Contingen,-ziesPhusiral 157 LC and 77, FC 1.4 1.5 2.9 0.34 0.37 0.71

Prirel2 3.1 6.9 10.0 0.76 1.69 2.456.2 11.2 17.4 1.52 2.74 4.26

TOTAL B - 15.2 32.3 47.5 3.72 7.90 11.62

C. Substations270 kVEt Ansa. 6.0 8.5 14.5 1.47 2.08 3.55

Marset Fl Hadjad 6.5 9.2 15.7 1.59 2.24 3.83

El Hadjar 0.6 0.8 1.4 0.15 1.20 0.35

Dutims and Taxes 3.4 - 3.4 0.83 - 0.83

60 kVConstantine South 1.4 2.7 4.1 0.34 0.66 1.00

Be- Aknon... 1.5 2.7 4.2 0.37 0.66 1.03

Laghouat 1.4 1.9 3.3 0.34 0.46 0.80

Bordj Boa \rredidj 1.2 1.5 2.7 0.29 0.37 0.66

Ain Skhoua 1.4 1.5 2.9 0.34 0.37 0.71

Hassi Ameur 1.5 2.8 4.3 0.37 0.68 1.05

Souk Ahras 2.2 1.5 3.7 0.54 0.37 0.91

luties amd Taxns 2.5 - 2.5 0.61 - 0.6129.6 33.1 62.7 7.24 8.09 15.33

Administration and ngineering 1.5 2.5 4.0 0.37 0.61 0.98

Cont ingene ie sPhysical 157 LC and 10% FC 4.4 3.3 7.7 1.07 0.81 1.88

Pricel/ 11.0 11.3 22.3 2.69 2.76 5.4516.9 17.1 34.3 4.13 4.1.3 8.31

TOTAL C 46.5 50.2 96.7 11.37 12.27 23.64

D. StudiesManagement 1.3 3.3 4.6 0.32 0.80 1.12

Other 0.2 0.4 0.6 0.05 0.13 0.15

1.5 3.7 5.2 0.37 0.90 1.27

TOTAL PROJECT COST 105.7 157.5 263.2 25.85 38.50 64.35

Su.m=ary

1. Gas Turbine Stations Algiers 29.2 48.0 77.2 7.14 11.73 18.87

2. Dispateh System 9.0 21.1 30.1 2.20 5.16 7.36

3. Substations 29.6 33.1 62.7 7.24 8.09 15.33

Total Direct Cost 67.8 102.2 170.0 16.58 24.98 41.564. Administration and Engineering 6.2 7.3 13.5 1.52 1.78 3.30

Studies (Management, Tariffs, Others) 1.5 3.7 5.2 0.37 0.90 1.27

Total Administration and Consultants 7.7 11.0 18.7 1.89 2.68 4.57

5. Contingencieni/2/

Physical 10.1 7.3 17.4 2.46 1.79 4.25

Price 20.1 37.0 57.1 4.92 9.05 13.97

30.2 44.3 74_. 7.38 13.84 18.22

TOTAL PROJECT COST 105.7 157.5 263.2 25.85 38.50 64.35

iT Ass lmed escalation, local and foreign cost:1974 1975 1976-1978147. 11. 7.5%

May 6, 1974

ANNEX 9

AIERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ

Power Project

Schedule of Estimated Disbursements -

Bank Fi8Cal DisbursementsYear and Quarter Cumula

-US$1,000 equivalent----

1974,/75 September 30,1974 [ODecember 31, 1974 1,800 95March 31, 1975 3,°00 92June 30, 1975 4,300 89

1975/76September 30, 1975 5,300 86December 31, 1975 6,ooo 84March 31, 1976 7,800 79June 30, 1976 10,ho0 73

1976/77September 30, 1976 13,40Ct 65Decenber 31, 1976 17,200 55March 31, 1977 20,000 48June 30, 1977 23,000 h0

1977/78September 30, 1977 26,300 32December 31, 1977 29,300 21March 31, 1978 32,700 15June 30, 1978 35,000 9

1978/79September 30, 1978 37,4oo 3December 31, 1978 38,500 0

/ Assumed date of effectiveness October 30, 1974

May 6, 1974

SOCIET1E NATI06ALE DE-EL EC.TR-IE IT ~D-JGAZ 4.1

Hist-ori and Forecast Gsl-s, r-e-in iaiu e d .. d PatCpct

Pl- .-tnT-1n19MI72

1963 1g6L 1965 191 6 1967 1968 1965 1970 l971 1972 _j l973 L91 1975 L196 19?7 L198

Int- -onet.d Gy.te

Domsti ) 21. 354.4 372.3 416.& 458.8 528-7 567.6 10.1 622 685 73 86 904 92

GoyErn#nt Services ~~~~~~~~~~~~~~~~~~~~~~~~79.7T 68.6 80.0 89.4 107.5 110.7 125-.0 6s.1 135 149q 164 176 193 212

Ratlw ys ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~20.0 27.8 41.2 33.4 37.5 33.2 18.6 _ 35 40 45 50 55 60

Irrigation ~~~~~~~~~~~~~~~~~~~~~~~~~~~~94.2 95.2 108.5 119.2 128.g 134.4 145.3 7.4 170 189 213 242 270 298

Odl Industry 9.4 8.9 9 5 9.7 8.7 8.9 10.2 1.2 50 70 go 90 12Q 175

Other 1.dostry 328.4 347.2 *11.5 S04.7 611.3 642.2 674.6 11.1 778 857 926 1,0r40 1,155 1,300C --mera 62.9 63.0 57.6 68.i 67.7 70.8 129.7 17.5 130 140 159 174 193 213

1or 597.5 923.2 917.4 5 9531,=090.6 1,71. 1,r29 1,529 1, 7w .0L7 ;g R É

..nmsso d Distribution Losses GEh 143.6 149.2 149.5 là86 I 47.3 16i.3 173.9 183.0 222.5 190.1 260 315 360 400 445 4so(3) ~~~~~~~~~~~~(13.8) (13.9) (14.0) (14.0) (13.0) (12.9) (12.3) (11.4) (l2.7) (l0.2)(1.) 129 33 13) (33) (.)

reeain(GWh) 1,041.1 1,072. 1,066.9 1,064.4 1,I32. 1,251.91,415.2 1,603.9 1,751. li 11. 2,0 b ,101g 335

Eydr 252.9 303.4 396.5 35I.3 400.8 563.8 358.7 577.7 322.o 482.6 430 430 430 430 430 430

S.,a 787.9 768.9 670.3 713.1 731.8 687.4 1,o54.8 1,024.4 1, 4i9.3 i,357.9 1,730 1,965 2,215 2,495 2,805 3, 070

GE- Tnrbine 07 1.7 1.7 9.1 18.7 40 50 65 75 lSO zoo

Purchbses ~~~~~~~0.3 0.1 0.1 - - - _ 0.1 1.0 1.9

Flant C c~ities (MW)(Effective, net F.ydr 100 100 160 IBO 160 180 180 180 180 180 180 180 180 180 180 180

Steam 214 214 214 271 271 271 271 271 `71 342 466 597 727 727 727 72

Gas Turbine 20 20 20 10 'O 20 20 20 20 56 74 74 74 74 144 179Totel nF iÉT ~~~~~~~~~~~~~~~~1 771 -li7l -771 _Z71 2 0 7 E5 i 11 1 7

axtmDem-d pNtl) Coincident 209 210 210 217 219 241 285 323 340 384 10.4 430 475 530 580 645 710

Ea2t 120 130 i60 170 ?.10 235 260Center ~~~ ~ ~~~ ~~~~ ~~~~ ~~~~ ~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~170 190 200 225 240 265 290

Hest ~~~ ~ ~~~ ~~~~~~~~ ~~~~ ~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~110 120 1 5 145 160 170 190

Lr d Factor («)56.9 58.3 57.9 56.0 59.0 59.3 56.7 56.7 5B.8 55.3 58.4 58.7 58.4 59.0 59. 60

Gl.ba1 REnev . qirmnt MWCold 25 25 25 60 60 60 135Maineae 2; 25 25 60 60 60 60

spinning 60 75 135 1355 135 135 135

1inecntans West 60 60 60 60 Cene 60 60 60 60 120 120

which i.: Tt1-23

in 6 of Effective Installed Capacity 40 34 29 38 38 36 30

Effe ive Cspaity I-s M-ximu Demad (yb) 125 124 204 254 252 230 186 148 131 194 290 376 451 4#1 406 376rn . o f Effective Cap city 37 37 49 54 54 49 39 31 28 34 40 44 46 41 39 35

IeltdSysteme

Sate (GWhDqmestic ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~28.8 28.6 30.7 32.3 36.4 34.3 36.2 3.6 38 40 42 44 *6 48

Government Ser7ices ~~~~~~~~~~~~~~~~~~~~~~~~8.6 6.3 4.1 3.7 4.3 5.4 5.1 5 6 6 7 7 8Irrigatio 10 il 12 13 15 17

Oil Indust'y i.6 1.6 1.8 3.0 35.5 72.6 78.5 110 210 320 410 460 SOO

Other Inomstry 32 38 54 70 85 110

Cqmril(Oth-r 196~3-I972) 9.7 9 3 11.1 9.8 9.9 13.7 13.0 4.1 5 5 6 6 7 7

T.t.1 l 410 4 TZ 3 1i7 4.,4113 18.9 2 00 3~10 554T

L1. . GWh 5.6 6.o 6.6 6.6 5.0 7.3 9.6 11.3 23.2 25.2 10 20 20 25 35 4S

77i (I2.0} (11.9) (12.1) (11.9) (9.8) (13.8) (16.4) (11.6) (15.53 (15.93 (4.73 (6.13 (4.33 ;4.33 (5.33 (s.4)

G-nr.ti-n (GWh) 46.6 50.3 54.7 55.3 50.8 55.0 58.4 97.4 149.2 158.0 210 R3o 460 575 6S5 730UE-h-~

Eydr 1.1 1.8 1.8 1.3 1.9 1.0 0.6 1.9 o.4raS Tnrbine 2.7 8.8 10.0 11.0 1-1.7 13.8 16.2 52.7 107.3 l23.5 180 295 420 4 61q 690

Diesel ~~~~~~~~~~23.9 18.6 20.8 20.4 24.5 30.9 30.2 32.9 39.0 32.0 30 35 40 35 37 4oPcr bah- 18.9 21.1 22.1 22.6 12.7 9.3 ii.4 9 9 2.5 2.5

Plant CapEities (bu)3

Gas -Crino 9 9 9 9 9 9 10 29 29 53 114 114 114 150 186 I86.- 5l2 15 15 16 17 18 1n 20 21 22 23 23 23 23 _ 23 23 23~~~~~~~~~~~~~~~~~-Toa -- T 2 2 27 -30 50 51 =7 20.2 -y 1717r09X

SOT ElrGAZ Total

TUomestio 350.0 383.o 4o3.0 449.1 495.2 563.0 603.8 9.6 660 725 795 870 950 1,040

Governmet Sevcs8S.3 951.1 84.i 93.1 111.8 116.1 130.1 7.1 140 155 170 185 200 2202ainways ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~20.0 27.8 L1.2 33.4 37.5 33.2 18.6 _ 35 40 45 50 5S 60

Irriest rn ~~~~~~~~~~~~~~~~~~~~~~~~~~~~94.2 9U. 2 108.5 119.2 178.9 `34.4 --45.3 7.4 180 20C 225 95= 99r 315

Oil I.d.sEa 11.0 10.5 11.3 12.7 44.2 81.5 88.7 29.1 160 25O 410 500O 580, 675

ovmerciBl ~~~~~~~~~~~~~~~~~~~~~~~~~~~~72.6 72.3 781 277.9 17. 5070 1,2. l, . 2 135 145 i(5 430 ,240 2.40

Aoss .hb i49.2 155.1 156.1 I55.5 152.3 168.6 L83.5 194.3 24.7 215.3 290 335 3po 42c 4Po Og1t,) (13 73 !13.8) (13.9) ~13.9) jIq 125 25 1.4) .) t07 (12.0) (21 (2.) (11.91 1,0PD (l11

Geeain(GWh) 1,087.7 1,122.7 1,1-21,6 1,119.7 1,163.4 1,306.9 l,473.6 1,7o1.3 i,900.6 2,019.1 10.5 2,41o 2,775 3,170 3,5575 3.990 4,430

.`4ydro ~~~~~~~~~~254.0 305.2 398.3 352.6 402.7 564.8 3S9.3 579.6 322.4 482.6 430 430 430 430 43o 430

sta 787.9 768.9 670.3 7 3.1 731.8 6S7.4 1,o54,8 1,024.4 i,4lg.3 1,357.9 1,730 1,965 2,215 2,4g5 2,8SO 307

G-s Turbine 2.7 M88 10.0 11.0 11.7 14.5 17.9 54.4 116.4 142.2 220 345 485 6l5 718 890

Diesel 23.9 18.6 20.8 20.4 24.5 30.9 30. 32.9 _390 3.30 5 4o 5 37 4Total Own Generetirn ~~~~~~~1, E= 5 1,101.5 1,O99.4 1,097,1 1, I7. 1,297.6 1,462.2 1,i91 3 ,897.1 2p, 014.7

P-rh...s 19.2 21.2 22.2 22.6 12.7 9.3 il.4 10.0 3.5 4.L

Pl *t c 'pctie (Mi)

Hydr 100 100 180 180 180 18o 180 180 180 180 180 180 180 130 180 180

stee- 2/ 214 214 214 271 271 271 271 271 271 342 466 597 727 727 727 727GABT bi-e 29 29 29 29 29 29 30 49 49 log 188 188 188 224 330 365

Diesel 15 15 16 17 18 19 E 21 22 23 23 23 23 23 23 23~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-Tota l 3 58 35 -799 3 É 501 52152 71 1;1,9

(Iostalled)R~ydro 184 184 284 284 284 284 284 24 28 234 234 284 284 284 284 284

steBB / ~~~ ~~~~~~~~~~228 228 288 288 288 288 288 288 268 363 490 621 751 751 751 71U

Sas Tllrbineb 34 ~~ ~ ~~~ ~~~~34 34 34 34 34 34 56 ~ 6 124 214 214 214 254 374 414Dietel ~~ ~ ~~ ~ ~~~~~~ ~~15 15 16 17 18 19 20 21 22 23 23 23 23 -23 23 23

T ote l 7 7 m E 5;iZ 1,011 17 1,272 1,37C5 1 17!;75~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~_9 i - -17 1 -7 1 3 1 1 4 -

1/ IIC breaEdow 1963-1965 -vilabl.g(I.oludiog olRnt -der mIlit.ry sprion(24/20 m)durine 1963-19673/ No b-ksld-v 1967-1971 -1ailbl.4 rOver 1972-19178 only,/ Diesel caP-oitY -stimated

M-rh 12, 1974

ALERIA

SOCIETE NATIONALE DE L'ELECTRICITE LIT DU GAZ ANNEX il

Power Project

Capaeity Nehedule1972-1978

Unit or Plant Year of Effective

Instailed Commissionine Net Capacity

Capa jity (MW) 19751972 197 1974 1 1976 1977 1975

Interco--erted Systeex

Ejdro Total 284 1961 180 180 180 180 180 180 1o0o 18

Stgiee 6o 1961 57 114 114 114 114 114 114 114

2 60 1961 57 )

Cran 1 27 1951 252 27 1951 25 ) 107 107 179 179 179 179 179

3 6o 1965 57 )17 1719 19 19i 75 1973 71.5 72

Annoba 1 27 1951 25 25 252 27 1952 25 25 25 ) 173 173 173 173

3 75 1972 71.5 71 71 17 13 13 13 13

t 55 1973 52 52Skikda 1 137 1974 130.5 131 131 ) 261 251 251

2 137 1975 130.5 ___130 __ ___

Total Steam 342 466 597 727 727 727 727

Gasturoie 120 1972 id 36 36 36 3b 36 3b 30

20 1972 10

40 197T 35

S 4o 197 35

i ~~~~~~~~~~~~~40 1 35 3

Oran l 12 1957 10 10 10 ) 38 38 38 38 38

2 12 1957 10 10 10

Arzew 1 20 1973 ô 18i

Total Gasturbiae 56 74 74 74 74 144 179

Suooory:

Pegi-oal total Effective Capaoity (MW)

East (Annaba, Skikda( 121 173 304 434 434 434 434

Conter (Algier, Hydre) 330 330 330 330 330 400 435

weat (Oran, Ar-ea) 127 217 217 217 217 217 217

Total IDteroonnected Systen 578 720 851 981 981 1,051 1,086

load 5etor (9) 55.3 58.4 58.7 58.4 59 59 60

Maximum Eeman.d bM0) 384 430 475 530 580 645 710

Maxi-aLe menand used fbr Plantiag-Up

12/G onn-al increaae over 1973 384 430 48o 54o 605 675 760

Is-lated Systems

Gashtrbine

"lassib Emel 1 5 1963 4.5 > 9 9 9 9 9 9 9

2 5 1963 4.5 )3 20 1976 18 18 ia 18

4 'O 1976 18 18 id 18

5 20 1977 18 18 id

6 20 1977 i 1i8 18

Ghardaia 1 7 1972 6 ) 12 12 12 10 12 l2 12

2 7 1972 6 )Ha-si Massaoud 1 15 1973 12.5

2 15 1973 12.5 61 61 61 61 61 61

20 1973 18

4 20 1973 18

Ha-ad el Ha-ra 1 5.6 1958 5

2 5.6 1958 5 ) 20 20 20 20 20 20 20

3 5.6 1958 5 )5.6 1958 5

Touggaort 1 7 1972 6 12 12 12 12 il 12 12

2 7 1972 6

Total Gasturbines 53 i14 114 114 150 186 186

Diesel Totar 23 23 23 23 23 23 23

Total Isoleatd Syatems 76 137 137 137 173 209 209

Totai DONELGAZEffective Capacity

HIydro 18o 180 18o 180 180o IO 180

Steam 342 466 597 727 727 727 727

Gaaturi-e 109 188 188 188 224 330 365

Diesel 23 23 23 53 23 23 53

Total 654 857 988 1,118 1,154 1,26o 1,295

Mar-h 12, 1974

ALGERIA

SOCIETE NATICNALE DE L'ELECTRICITE ET DU GAZ ADUEY 12

Power Projjct

Fuel Reqeire-ents and Cost for Electrioity

1973-1978

Interoonneoted Systn Unit 1973 1974 1975 1976 1977 1978 Notes

Fuel #3 Start-up and bankingGeneration 384 200 50 10 10 10 10Energy required 1Okcal 640 160 32 32 32 32 3.2 x 109kcal/GWhQnantity required t 6e,380 15,090 3,020 3,020 3,020 3,020 94.333t/10

9kcal(10,600 x 10inao t)

Cost PA 10 3,020 750 150 150 150 150 DA 50/t

Fuel it2 AnnabaCenrtion GWh 10 5Energy required 10

9kcal 50 25 5.xl109kcal/GWh

Quantity required t >4,590 2,300 91.74t/109

keal (10,900xlOkeal/t)test DA 10

3570 290 DA 124/t

Flare Gas Stem plantneneeaîin OsGWh 108 212 320 350 360 380 All flare gas not used in refineriesPlant heat rate kal/kWh 2,970 2,900 2,860 2,820 2,800 2,800 4AEnergy available 109kaal 320 615 915 990 1,010 1,o65 Axl03kcal/GWhQ-antity available 10

6m 29 56 83 90 92 97 0.09alo

6.;J_sal (11,O0Okal/m

3)

Cnst DA 103 30 60 90 100 100 110 DA1. 1x103/1061s3

Nfaturel t,asrlenerelion r1wh 1,412 1,698 1,885 2,135 2,435 2,68o =APlant heat rate kcal/kWh 2,970 2,900 2,860 2,820 2,800 2,800

nergy required 1019k§al 4,190 4,925 5,391 6,020 6,820 7,505 Axl0-3

knpî/GWhOnantity required 10 a 478 503 550 614 696 766 0.l02xlOOaj /1

9koal (9,800koal/m

3)

test DA 103

3,000 3,520 3,850 4,300 4,870 5,360 DA710a /lo063

las Turbines

Fuel j2 OranG.eneration 3w>-. 10 10 10Pnergy required 10'tal 41 41 41 _ _ - 4. lxlO

9kcal/Owh

Quantity resui t 385 3,850 3,850 _ - _ 94.333t/109

kcal (10,900x103kal/t)taCt DA 103 480 480 480 DA124/t

Natural easCeenreratin (1Wh 30 40 55 75 100 200Enerr-r required 109kcal 123 164 226 308 410 820 4.1xlO

9kcal/GWb4

Qu-ntity required 1062 13 17 23 31 42 84 0.1o2elom3n/lo0skal (9,800keal/n3

)Cnst A 1o

390g 120 160 220 290 590 DA7e103/10

6m3

Totala (Interconnected Systems)Geerati-n (Thermal) G1e 1,700 2,015 2,280 2,570 2,905 3,270Energy required l _'keal 5,364 5,930 6,605 7,350 8,272 9,422Colt DA 10

37,190 5,220 4,730 4,770 5,41o 6,21o

Indi-atorsNet h-as rate kcal/kWh 3,030 2,940 2,900 2,860 2,850 2,880Fuel cnet DA/tkwh o.423 0.259 0.207 o.186 o.186 0.190

-olaled Systems

Gas Turbinse

Fuel #2 Plant nt located near gas field.Gener.ation Wh 2 21 73EnerIgy required aOgkcal 86 86 94 4.1x1O9kcal/GWhQuantity required t 8,110 8,110 8,870 - - - 94.333t/109kcal (10,600xlO

3kcai/t)

Cost DA 103 1,000 1,000 1,100 - - -

Natural CsaGeneration CWh 159 274 397 540 618 690Energy required 10

9k-al 651 1,123 i,628 2,214 2,534 2,830 4.1xlo9ksal/GWh

Quantity required 106a

366 115 166 226 258 280 0.î02,jsîo

3/o09koal (9,800kcal/m3)

Cost DA 103 460 800 1,160 1,580 1,810 2,020

Diesels

Fuel #2Generation ?Wh 30 35 40 35 37 40Energy required 107kcal 90 105 120 105 111 120 3xI09keal/GWhQua-tity requied t 8,490 9,900 11,320 9,900 10,470 11,320 94.333t/109kcal (10,600xlO

3kcal/t)

Cost DA 1o3

1,050 1,230 1,400 1,230 1,300 i,400 DA124/t

Totals (Isolated Lystess)

Geseration (thermal) GWh 210 230 460 575 655 730Energy required 10

9koj1 827 1,314 1,842 2,319 2,645 2,950

Ceat DA 10 2,510 3,030 3,660 2,81o 3,110 3,420

IndicatorsNet hest rate kcal/kwh 3,940 3,980 4,000 4,030 4,040 4,040Fuel cest DA¢/kWh 1.295 0.918 0.796 o,489 0.475 o.468

S0ONE1GAZ

T.otls for PoserHydre teneration GWh 4 40 3o 430 430 430 430Therral te-eration GWh 1,980 2,345 2,740 3,145 3,560 4,000

Total Seneration 2W!, 2,410 2,775 3,170 3,575 3,990 4,430

Thermal Energy Requirements 109Xc-l 6,191 7,244 8,447 9,669 10,917 12,372

Fuel Cnet DA 103 9,700 8,250 8,390 7,580 8,520 9,630

IndicatorsNet hkat rat nc-l/kWh 3,130 3,090 3,080 3,070 3,070 3,090Fuel nest DA¢/kWh 0.490 0.352 o.306 0.241 0.239 0.241

UShil/kWh 1.32 0.95 0.83 o.65 o.64 o.65

arch 12, 1974

ANNEX 1.jPage 1 of 10

ALGERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ

Power Project

Justification of Project

This Annex is in 3 parts:

A. Forecast of Sales and Demand

B. Comparison of Alternatives

a. Algiers Cenerating Plant

b. Dispatch System

c. Substations

C. Rate of Feturn on Project

Attachients

Attachment 1 (Generating Plant):

1. Installation Schedule

2. Generation Schedule

3. Cost Streams

4. Basic Cost Assumptions

Attachment 2 (Dispatch System):

1. Cost Streams

2. Basic Cost Assumptions

Attachment 3 (Rate of Return on Project)

1. Cost Benefit Streams

May 6, 1974

ANNEX 13Page 2 of 10

A. FCŒCAST CF SALES AND DEMAND

1. S<NEIAZ's growth trend (by least squares method) for sales hasbeen about 12% since 1966 when, after a stagnant period of several years,sales started improving. An average annual growth rate of 1I% is expectedfor 1973-1978. For 1973, sales were expected to increase by about 17%.

2. It is extremely difficult to forecast S(KEIfWAZ's growth because(a) the period of real grouth covers only 6 years (1966-1972); and (b) thecompany has not yet been able to fully develop a method to assess delays innov industrial plant completion and actual power requirements of such plant;this problen is further aggrevated because national companies do not providefull details on their future development plans.

3. The company has taken three approaches in forecasting power require-ments. First, an exponential curve vas fitted by least squares to growth ingeneration for 1966-1973 (the latter year being included because 10 monthfigures vere already available), both for the interconnected and the sum ofthe isolated systems, excluding SLWATRACH. This resulted in two sets of threecurves (low, average, high forecast). These were added, together with powergeneration in the outlying systens as forecast by SoeATRACH. The company didnot provide information on high and low forecasts and their probabilities.This firet approach resulted in a minimum 1978 generation of about 4,100 GWih(12.5% average growth over 1972) and a maximum of 4,800 GWh (15.5% averagegrowth).

4. Secondly, the 17 sectors of the econony (as divided for statisticalpurposes) and domestic consumers were studied to assess the background growthof sales (aostly varying between 3% and 10% annually), to which vere added therequirements of new industrial plant in accordance with the national plan, andestimated losses. Possible delays in plant completion were not considered indetail; high and low estimates were made for domestic supplies, but not forindustry. By 1978, generation required would amount to 5,500-5,700 GWh,representing an annual increase of about 18%. A very low probability wasassumed for this estimate by S1IIELGAZ and the mission.

5. Thirdly, a mathematical nodel was prepared reflecting GNP, number ofinhabitants, and power generation, for 16 developed and developing countries,which was then applied to Algeria under three assumptions of growth of GNP.This resulted in forecast generation for 1978 of 4,100 GWh (12.6% averagegrowth) and a maximum of about 5,300 GWh (17.4% average growth).

6. During appraisal, the above forecasts vere discussed with SONEIGAZin view of the many uncertainties in industrial plant development, and themission agreed with SONEILiAZ on a conservative approach in forecasting sales,in order not to overstate SCI4EL&AZ's financial results and to reflect physicalconstraints in constructing new plant. For this reason, the average forecastfor mwthods 1 and 3 was adopted for the years through 1975, and the averageminimum forecast was adopted for 1976 through 1978. This results in a grorthrate of 15% for 1974 (slightly below the expected 1973 increase), decreasingto 12% by 1978.

ANNEX 13Page 3 of 10

7. Maxuni demand, on the basis of the forecast load factor (expectedto rise to 60% by 1978), would increase an average of 10.8% during 1972-1978,to 710 Md in the latter year. In view of the uncertainties in the data, andthe conservative forecast power requiremaents, engineering considerationsdictate for planting-up purposes a slightly higher growth rate for demnand;12% was assumed, resulting in 760 Md by 1978, or about 7% above the basicestinate.

8. The increase in relative iznportance of sales to industry, particularlyto the oil and gas industry, is shown by Annex 10; the increase in sales issuimnarized as follows:

--Average Growth--1966-- -1972-- -1978-- 1966-72 1972-78Gw- 1 OWh 1 R _ -,"

Domestic 350 36.3 604 33.5 1,040 26.4 9.5 9.5

Government Services 88 9.1 130 7.2 220 5.6 6.7 9.2

Railways 20 2.1 19 1.0 60 1.5 - 21.1

Irrigation 94 9.8 145 8.0 315 8.0 7.4 13.8

Oil & Gas Industry 11 1.1 89 4.9 675 17.1 41.7 40.2

Other Industry 328 34.0 674 37.5 1,410 35.8 12.8 13.1

Commercial 73 7.6 143 7.9 220 5.6 11.9 7.4

964 100 1,804 100 3,940 100 11.0 13.9

9. Existing plant, and plant to be installed during 1973-1978, as wellas fuel requirements and cost for each type of plant and type of fuel, areshown in Annex 11 and 12. Conversion to natural gas for fuel and a relativelysmall amount of flare gas from refineries, will be substantially completed in1974, exept for some outlying systems not yet connected to a natural gas pipe-lipe. SCQEDLAZ currently pays only DA 0.007/m3 (or about DAO.18/lfI3BTU-US04 .L1C/10°BTU) for natural gas, and overall cost per kWh generated would reduce from DAe0.490/kWh (US mil 1.20;kWh) in 1973 to DAOO.241/kWh (US mil 0.59/kl.) by 1978; gasturbines would then generate 890 GWh or 22% of thermal generation (4,coo GWh-i,which itself i:s about 90% of total generation amounting to 4,1430 GWh).

B . CCK4PARISCN OF ALLTETNATIVES

a. Generating Plant

Basic Considerations and Asswumtions

1. With the coupletion of the 2x137 Mg pl.ant at Slikda in the east ofthe country, increasing amoumts of poier have tVo be transferred to Algiers(400 km) and to Oran (800 km) and new plants would be required in both locations

ANNEX 13Page 4 of 10

in due time to meet requirements and restore an adequate balance ofcapacities and reserves.

2. For planting up purposes a 12% growth rate in maximum demand isassuxed, slightly above the appraisal estimates. It is al8o assumed that

the requirements for the plant margin (about 45% by 1975) would be reducedsharply prior to installing new plant, and be maintained at about 30% untilthe end of the decade.

3. In view of the Skikda unit size of 137 MW (effective 130-132 MW),is assumed that until the end of the decade, when maximum demand would be

in the order of 900-1,000 MW, this unit size should be maintained for stea.r

plant, followed by 200 MW unit size. For gas turbine plant, for which cost

per kW is little sensitive to unit size, blocks of capacity equal to 130 MWare being assumed.

Alternatives to be Studied

4. Because: (a) it is obvious that SONELGAZ primarily needs additionalcapacity to firm up the system, and not energy; (b) it is an almost foregone

conclusion that at the extremely low financial cost of fuel (which may not benecessarily true for economic cost) and lower capital cost of gas turbine plant

would favor the installation of gas turbines even when operating at a relative]yhigh plant factor; and (c) the decision is required whether the next plant to beinstalled should be gas turbine plant or steam plant, the following two reasoriibl le'

esti-mates were studied.

Alternative 1

Installation of gas turbine plant (260 MW) followed by steam plant.

Alternative 2

All steam development.

Discounted Cash Flow Comparison

5. The schedules for required capacities and generation for both

alternatives are sho'wn in Attachment 1 to this Annex, as well as the variouscost streama for both alternatives. toRether with the basis of the cost assuwmed;at constant prices as of the time of appraisal.

conclusions

6. The equalizing discount rate up to which Alternative 1 would con-stitute the least cost development plan, is in excess of 20%. More particular,at the opportunity cost of capital in Algeria (estimated to be about 9%), the

development with gas turbine plant followed by steam plant would have a presentvalue of about DA 28 million below the present value of the all steam develop-ment. This is mainly due to the lower capital cost of gas turbine plant and

its use primarily for peaking (hours of operation would be a maximim of about

1,400 homrs in 1979). The next step in generation development should therefore

be gas turbine plant.

ANNEX 13-Page 5 of LC

Sensitivity of Cost Variations

7. Sensitivity to variations in operational cost (including fuel atfinancial cost) is negligibly small.

8. In order to cause the alternatives to break even in the discountodcash flow comparison at the estimated opportunity cost of capital of 9%, thecost of gas turbine plant would have to be about 14% higher and the cost ofsteam plant 14% lower than estimated; this appears highly unlikely.

9. The conclusion is not sensitive to the ec5n3mic cost of fuel. Inview of Algeria's large gas reserves (some 4,000xlO m3), the date at whichforeign exchange cost would be incurred due to the use of gas for power, isnot the date (or dates) at which the gas would actually be used, but thedate at which as a result of this usage, the gas would not be available forexport. Conservatively assuming that the run-out date would be 25 years frointhe beginning of the discount period (1975), the present value factor at 9%(the estimated opportunity cost) would be 0.1160. The additional gas usedby Alternative 1 through the discount period 1975-1984, is about 335xlOxm3whiche at a financial cost of DA 1.8/10P BTU (at 9,800kcal/m3) represent acost of about DA 2.3 million in the year 2000, when the gas would not beavailable for export. Assuming - in view of the uncertainties - an economicwell-head price ranging from US$1..20-1.70/10 TU and a shadow exchange rateranging from DA 4-DA 6 per US$, the economic cost of the gas by the year2000 would range from about DA 57 million to DA 81 million, representinga present value of DA 6.6 million and DA 9.4 million respectively. Thepresent value in favor of Alternative 1 of DA 28 million shown above, woulcdthus reduce to DA 18-21 million, which ie` still substantial and confirmsAlternative 1 to be the most economie development program in generation.

b. Dispatch System

Basic Considerations and Assunptions

1. Because SNEILGAZ' system, in which increasing amounts of power haveto be transferred over distances up to 800 km, would become progressively moreunmanageable as to voltage, frequency, and security of supply, sound utilitypractices require the installation of a dispatch system with automated adjust-ment of the main parameters. In view of the increasing number and durationof system outages, it appears that the existing dispatch system, comprisingtelephone commNnications and some voltage displays only, is inadequate, andthe installation of a more sophisticated system is overdue. Such a systemwould decrease the number and duration of system outages (i.e. increaserevenue) and improve the technical and economic use of facilities. Completionby 1976/77 is currently envisionei, but conceivably the system could be postponedby several years, thus foregoing aome financial and economic benefits, providedadequate measures would be taken to firm up the systems.

2. For purpose of comparison of alternatives it is being assumed thatinstallation of a dispatch system cannot be postponed by more than 3 years,but that some additional generating facilities would be i±istalled at theextreme - and weakest - end of the interconnected system (Oran), where by1976 high security of supply is required for the oil and natural gas pro-cessing plants.

ANNEX 13Page ô of 10

3. Currently about 35-40 MW can be transmitted from Algiers to Oranby means of the existing 150-kV line and the present dispatch system (voicecommand). Once conversion to 220 kV is completed and the second 220-kVline has been commissioned, and Morocco has been connected - which is allexpected for 1976/77-the transmission capacity Algiers-Oran by voice commandand with one line out of service, in expected to be about 60 MiW (i.e. abouthalf the normal transmission capacity of 120 MW and the automatic control).For approximate equal security in supply about 60 MW is gas turbine plantshould be installed in Oran in 1976 in case the dispatch system were to bepostponed.

Alternatives to be Studied

4. In view of the above, two alternatives are defined as follows:

Alternative 1

- Dispatch system to be completed by 1976/77

- Oran gas turbines 2x40 MW to be commissioned in 1979,in accordance with SONELGAZ' present forecast

Alternative 2

- Dispatch system to be completed by 1979/80

- Oran gas turbines: 2x30 MW to be operational by 197620 Md to be operational by 1979

Discounted Cash Flow Comparison

5. The various cost streams (at constant prices as of the time of theappraisal) for the above are shown in Attachment 2 to this annex, together with;the basis of the costs assumed.Conclusion

6. At the estimated opportunity cost of capital of 9% the present valueof Alternative 1 would be about DA 3.5 million below the present value ofAlternative 2, indicating that the dispatch system should be completed as soonas possible.

Sensitivity to Cost Variations

7. Increase in fuel prices causes ths present value difference toincrease, thus benefiting Alternative 1, because the present value of thefinancial cost of extra fuel required for Alternative 1 (in order to generatethe onergy related to the increase in revenue) is smaller than the savings infuel due to the improved efficiencies provided by the operation of the dispatchsystem.

8. Ln order to cause Alternatives 1 arnd 2 to break even in present valueat the aassied opportunity cost of capital, the construction cost of the dispatch

ANNEX 13Page 7 of 10

system should be about 18% higher and the construction cost of gas turbineplant about 18% lower than estimated. The probability of these combinederrors is considered to be negligibly small.

c. Substations

El Asnam (220 60 kV); Oran/Arzew Area

1. Supply by means of the existing 60-kV lines from existing and new220-kV substations is limited to about 20 MVA. Forecast requirements are thefollowing;

M>adaum Demand (MVA) 1974 1977 1980

ELsting 5.0 6.5 10.0Cement Factory (lx1O6 T/yr) 10.0 20.0SCKATRACH Plastic Factories 1.0 15.0 35.0Irrigation 5.0Other New Industry 3.0 6.0Tenes (transfer from 30 kV) - - 4.0

Coincident Demand (xO.7) 4 .2 24.5 55.0

Even if construction of several of the new factories will be delayedby 1 or 2 years, maxiimu denand will exceed the limit of 60-kV capacities inthe El Asnam areae and a new 220/60-kV substation should be constructed assoon as possible because alternative addition in transformer capacities inexisting substations and construction of parallel 60-kV lines would only alleviatethe situation for about 3 years. This transformer capacity and the lines wouldbe substantially redundant after completion of the new 220-kV substation.

2. Marsat El Hadjadj (220/60 kv)

3. Hassi Ameur (60/30 kV)(Nidway between Oran and Algiers)

The zone between Oran, Arzew a,d Mostaganem is expected to developvery rapidly with the construction of SCHATRACH's liquefaction and chemicalplants, and expansion of the refinery. Forecast requirements are the follo-wing:

MaxLamu Demand (MVA) 1974 1977 1980

Paper Factory Mostaganem 7 20 25Car Factory SCWACCIE 15 35Industrial Zone Hassi Arneur 9 20Oran East 2 6 10Ammonium Factory 6 6 15Methanol Factory 8 8Liquefaction, not less than 10 10Refinery 6 6 12Industrial Zone Arzew 8 15 20

29 97 17î

Coincident Demand (xO.7) 20 65 100

ANNEX 13Page * 8o 10

By 1977, the carrying capacity of 60-kV lines (50-60 MVA) will beexceeded, requiring a direct 220-kV connection (Marsat el Hadjadj) for thearea in addition to the supply from the existing 220-kV substation Zahana (pre-

sently operating at 150 kV). The main function of substation of Hassi Ameurwould be 60-kV switching (between Ravin Blanc, Zahana, Marsat el Hadjadj,Ain El Bya, and the industrial ring around the Arzew area). Some loads froxmexisting 60 kV substations would be transferred to the new substation HassiAmeur.

Ain Skhouna (60/30 kV; Area South of Oran)

4. A 60-kV line, 80 km long, is scheduled for completion by 1976 toconnect the isolated system of Ain Skhouna to the main system at Saida. AI;irrigation project is presently in execution in the area, where demand isexpected to be about 3 Md in 1976, mainly for pumping. Demand for irrigationwould progressively increase to about 10 MW by the end of the decade. Theconstruction of the line and substation is the only reasonable technica],solution, and would replace high cost diesel. plant.

Ben Aknoun (El Biar) (60/30/10 kV; Algiers Area)

5. The rapid expansion of Algiers in the hills above the city, requiresthe construction of a 60-kV line which ultimately will close a ring around thenew developments. The substation would supply the new urban developments,including the stadium and university extensions.

Bordj Bou Arreridj (60/30 kV; Inland, Midway between Algiers and Skikda)

6. The area is presently supplied by means of a 75 km long 30-kV line,which does not allow the connection of several infrastructure projects, likethe textile plant (3 MW) under construction in M'Sila and some small factoriesin Bordj Bou Arreridj. With the construction of a cement factory in Ras el Oued,somewhat to the east, a new 60-kV line will be completed by 1976 for connectionto Setif (where SONEI1GAZ's development program envisages the construction of a220-kV substation). This line will be extended to Bordj Bou Arreridj and theproposed substation would be required to supply the various infrastructureprojects.

Constantine South (60/30 kV; Eastern Area)

7. This third largest city in Algeria is supplied from two aides (Skikdafrom the north and Khroubs from the south) by a single 60-kV line and presentdemand (about 20 MVA) is rapidly approaching the capacity of the 60 kV line froinSkikda (60 km). The Constantine South substation would be the first step incompleting a 60-kV ring around the city, for which forecast demand is expectedto be the following:

faximum Demand (MVA) 1974 1977 1980

lxisting 22 24 27Industrial Zone 1 6 10University 2 5 5

Coincident femand (x0.8) 20 28-30 30-35

AUX 13Page 9 of 10

E2l Hadjar (220 kV, extension, Annaba Area)

8. The Societeé Nationale Sidertirgique (SUS) in constructing twoelectric mielters, 20 NVA each, vith a third probably to follow, roquiringdirect connection to 220 kV. In view of its expansion plans the Societo'Nationale des Chemins de Fer (SNCF) vill conatzuot a subatation which, forreasons of supply, will be connected both to the primazy 220-kV aide andthe secondazy 90-kV side of El Hadjar. The substation would be extesded toallow for the necessary lino sections 220 kV (two, for vhich ono reservebay is available) and 90 kV (one).

Laghouat (60/30 kV; North of Hassi R'Hel in Cectral Desert Area)

9. The town is presently connected to Hassi R'Mel by means of a 30-kVlino, more than 120 km long and in view of woltage drop, current demand (1.8 MW)is being met during poak bours by paralleling the 1.5 Nd diesel station atLaghouat. With the constiuction of a noe gas turbine station at Hassi R'Xelas included in SONELWAZ's devolopment progra., conversion to 60 kV of theexisting 30-kV line vould eliuinate the high cont diesel plant. The isolatedsystems of Dhelf a and Aflou vill be connected to Laghouat and total aximumdemand is expected to increase to about 5 )IT by 1976.

Souk Ahras

10. The present substation, which colprises sectionalisers only willbe equipped fully to provide the necossary reliability for the railvays inview of the rehabilitation and forecast increased demand. A sugar factory-ould be connected, and the etation would serve as back-up for th» 30 kVsysten in the area.

C. RATE OF RETURN 0F PROJECT

1. The rate of return of a project is the discount rate which eqaalizesthe present values of the costs and benefits streams attribItable over time tothe project. Because the proposed Project comprises a dispatch system, gasturbine plant operating mainly used for peaking and standbyy, and aubstations,for which benefits are extremely difficult to quantify, it was deemed appropriateto assesa the rate of retum of SONELQAZ'S overall 1973-1978 expansion program,of which the Project fonns a saall part (about 94). The detailed benefits andcost streams are shown in Attachment 3 to this annex. Thq are based on thefollowing:

CGots

2. The cost of SONELGAZ's development program and the Project included init are shown in Annex 3. Subtracted frou these costo vere the coat of facilitiesto be completed after 1978 and the cost of the expansion pzvgram for gas. Alsoexcluded were import duties and taxes assumed to average 8% of total constructioncost because this constitutes only an intennal transfer to the economy.

ANNEX 13Page 10 of 10

3. Personnel cost for the electricity activity were reduced by 6%for the tax on salaries for which SCNELGAZ is liable. Ninety percent of theincrement of other electricity operating expenses (other than materials re-quired for power operations) were attributed to power, assuming that 10% isattributable to SONEFGAZ long range planning beyond the period 1973-1978(training, promotion, etc.).

4. Fuel costs were assumed in accordance with Annex 12, remaining constantfrom 1979 onward over the assumed economic life of the development program.

Benefits

5. The increment in power sales (rising from a base of 1,800 GWh in 10W2to 3,940 GWh by 1978) and assumd to remain constant from 1979 onward at -heaverage prices assumed during appraisal (see Annex 15) provide the incremientalrevenue derived from the execution of the expansion program to meet the increnmentalgrowth of sales. Sales taxes of 7% charged to consumers were added, as they aredemonstration of the willingness of consumers to pay for electricity.

Rate of Return

6. As shown in Attachment 3 to this anhex, the above results in a rate ofreturn of the development program - and of the Project - of about 15%. This isconsidered reasonable in view of the fact that the current program includes a back-log of construction to restore adequate service quality, and the requirements forthe execution of an ambitious national plan, the benefits of which, however, ifachieved cannot be quantified with any degree of certainty.

Sensitivity

7. The rate of return, on less or more favorable assumptions would varyas follows:

Rate of Return

On Main Assumptions 15

On Less Favorable Assumptionsa. 10% reduction in attribution of revenue 12.9b. 10% higher capital cost 13.2c. 10% higher O&M cost 13.3d. Combination of a,b and c Below 8%

On More Favorable TAssumtionse. 10 increase in attribution.of revenue 17.of. 10% lower capital cost 17.0g. 10% lower O&M cost 17.9h. Combination of e,f and g 21.0

Conclusion

8. Because conservative estimates have been used in .forecasting SONELAzrevenues from electricity sales, the probability of results in line with the miorefavorable assumptions appears high, and for this reason the rate of return isexpected to range from 15-17%.

ALaERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ

Power Project

Comparison of Alternatives

Generation Plant

Installation Schedule

1975 1976 1977 1978 1979 1980 1981 1982 1983

Max. Demand (MW) 54o 605 675 760 850 950 1,065 1,200 1,330

Plant Margin (%) 45 38 31 30 30 30 30 28 28

Required Total Capacity (MW) 981 981 981 1,085 1,215 1,355 1,520 1,668 1,850

Additional Capacity to be Installed (MW) - - - 105 235 375 54o 685 870

Installation ScheduleAlternative 1Gas Turbine #1, 2, 3 130 130 130 130 130 130

#4, 5, 6 130 130 130 130 130

#7 60 60 60

Steam #1 130 130 130 130

#2 130 130 130

#3 2001 200

Total _ 20&2130 260 390 5È0 750 950

Alternative 2Steam #1 130 130 130 130 130 130

#2 130 130 130 130 130,# 3 130 130 130 130-#4 200 200 200

#5 200L 200#6 _ 5 _ _ _ 200P21

10 260 39-0 79-0 79-0 990

P Not common to both alternative because for Alternative 1 this unit is first unit

in new power station, for Alternative 2 addition to existing station.

/ Common to both alternatives.

ALGERIA

SOCIETE NATICNALE DE L'ELECTRICITE ET DU GAZ

Power Project

Comparison of Alternatives

Generation Plant

Generation Schedule

1975 1976 1977 1978 1979 1980 1981 1982 1983

Required Generation (GWh) 2,710 3,000 3,335 3,700 4,100 4,560 5,060 5,620 6,240

Alternative 1Hydro' 430 430 430 430 430 430Steam, existing

Fuel #3 10 10 12 15 20 20Flare Gasl" 380 400 420 44o 460 48oNatural Gas 2,680 2,780 2,760 2,740 2,220 1,500

Steam, new (natural gas) 590 1,230 2,400 3,810Gas Turbine, existing and new 200 480 348 205 90 -

Total 3,700 4,100 4,560 5,060 5,620 6,240

Alterncitive 2HydroL/ 43 430 430 430 430 430Steam, existing

Fuel #3 10 15 20 25 30 30Flare GasP' 380 4oo 420 440 460 48oNatural Gas 1,000 500 - - - -

Steam, new (natural gas) 1,880 2 755 3,690 4 165 4 700 5 300Total 3,700 , 5X XL|

Common to both alternatives. 'H

ALGERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ

Power ProjectComparison of Alternatives

Generation Plant

Cost Streams Total

Capital" Fuel Personnel Maintenance OperationalGas Turbine Steam Gas Turbine Steam Gas Turbine Steam Gas Turbine Steam Cost

Alternative 11975

6 11,0007 40,000 9,000

8 92,000 30,000 590 5,510 625 2140 830 7,7959 79,000 98,ooo 1,41o 5,710 1,250 560 860 9,790

1980 24,ooo 131,000 1,020 6,810 1,250 2,500 41o 1,020 13,0101 30,000 14o,ooo 600 8,030 1,375 3,500 240 1,200 14,9452 5,000 72,000 260 9,280 1,375 3,500 100 1,390 15,9053 20,000 10,500 1,375 3,500 1,580 16,9554 1,375 5,025 6,400

Alternative 21975 9,000

6 30,0007 91,o008 140,000 5,800 2,500 870 9,1709 163,000 6,490 3,500 970 10,960

1980 i68,ooo 7,270 6,oo0 1,090 14,3601 148,000 8,250 7,500 1,240 16,9902 72,000 9,330 7,500 1,400 18,2303 19,000 10,470 7,500 1,570 19,5404 7,500 7,500

Equalizing Discount Rate: In excess of 20%(below which present values of Alternative 1are below present values of Alternative 2)

For discounting residual values, assumed economic life is:20 years for Gas Turbine Plant30 years for Steam Plant

à 13~ktchment 1Page 4 of 5

AGERaI&

SOCIETE N&TICKALE D L'EIECTRICITE ET W GAZ

Pober ProJect

Discounted Cash Flow Comparisonof Alternative Generation Developments

Basic Cost Assumptions

Capital Cost Expenditures

a. Gas Turbine Plant

Base price nD 875/kW, including power station, gas pipelineconnection, pressure reducing station, transformer, substation, terrain,import duties and tames. Foreign exchange component 60%.

130 MW: DA 114 million60 MW5: DA 53 million

Expenditure Schedule

130 Nd 60 MWYear % 106D ------

1 10 il 52 25 29 133 55 63 304 10 1 5

An economic life of 20 years has been assumed (the gas turbine would operateon natural gas, a clean fuel)

b. Steam Plant

Base price DA1190/kW for 130 MW first unit and DA1025/kW for 200 MWunit; less 10% for second units; including buildings, housing, sea water coolingg,substation, terrain, import duties and taxes.

130 MW: DA 155 miuion200 MW: DA 205 million

----130MW----- ----200MW------Expenditure Schedule First Second 6 First Second

Year - --------------10 DA---------------

1 6 9 8 16 142 14 22 20 29 163 40 62 56 52 744 30 46, 42 58 525 10 16 14 20 19

AHNEt 13Attachment 1Page 4 of 5

ALGERIA

SOCIETE NATICNALE DE L'ELECTRICITE ET BU GAZ

lower Project

Discounted Cash Flow Comparisonof Alternative Generation Developments

Basic Cost AssImptions

Capital Cost Expenditures

a. Gas Turbine Plant

Base price DA 875/kW, including power station, gas pipelineconnection, pressure reducing station, transformer, substation, terrain,import duties and taxes. Foreign exchange component 60%.

130 MW: DA 114 million60 Mw: DA 53 million

Expenditure Schedule

130 MW 60 MwYear % o6 n-DA

1 10 il 52 25 29 133 55 63 304 10 n 5

An economic life of 20 years has been assumed (the gas turbine would operateon natural gas, a clean fuel)

b. Steam Plant

Base price DA1190/kW for 130 MW first unit and DA1025/kW for 200 MWunit; less 10% for second units; including buildings, housing, sea water cooling,substation, terrain, import duties and taxes.

130 MW: DA 155 million200 MW: DA 205 million

-130MW---- - ----200MW--ExPenditure Schedule First Second 6 Firet Second

Year % --------------10-DA---------------

1 6 9 8 16 142 14 22 20 29 163 40 62 56 52 744 30 46 42 58 525 10 16 14 20 19

-1 D- M3 Tg

Attachment 1Page 5 of 5

An economic life of 30 years has been assumed.

Personnel

a. Gas Turbine Plant

25 staff, DA 25,000/year, annual cost DA 625,000For additional 60 MW gas turbine: 5 staff, i.e. DA 125,000/year

b. Steam Plant

For 130 MW unit:

100 staff, DA 25,000/year, annual cost DA 2.5 million; for next units,add 40 staff per unit, i.e. DA 1 million/year

For 200 MW unit:

125 staff, DA 25,000/year, annual cost DA 3.1 million; for next unitseadd 60 staff per unit, i.e. DA 1.5 million/year

Maintenance

a. Gas Turbine Plant: 40% of fuel cost

b. Steam Plant: 15% of fuel cost

Fuel Cost (financial)

a. Gas Turbine Plant

Heat rate: 4,100 kcal/kWh=(HR) 6 3 9Gas heat rate: 39,,8gO3kcalJm3(0.102xlO m /109kcal)Price: DA 7xlO /10 mCost: in DA 103 = (GWh) x (HR) x 10 3 x 0.102 x 7 (=2.93 x (GAh'))

b. Steam Plant

Existing Plant: heat rate 2,800 kcal/kWhCost in DA 10->: 2 800 x 2.93 (GWh) = 2 x (Gllh)

New plant heat 5ate: 2,650 kcal/kWhCost: in DA 10- = 1.89 x (GWh)Fuel #3 (start-up and banking): heat rate 3,200 kcal/kl%hPrice: $50/ton3(at 10,600 x 103kcal/ton)Cost: in DA 10 = 47.2 (GWh) :c (HR) l0- (=15.1 x (Gwh))

A1GERIA

SOCIETE NATICNALE DE L'ELECTRICITE ET DU GAZ

Power Project

Comsparison of Alternatives

Dispatch System

Cost Streams(TDA 103 )

------------------------ _____----------Alternative 1------------------------------------------ ------------------------ Alternative 2-----_- -____________

--------- Capital---------- - ------- ---------------- peration----------- ------- ___ -------- Capital --------- - ------------ Operation------------Cas Turbines Fuel Increase in Gas Turbines

Dispatch Oran Personnel Maintenance Savings 1/ Revenue Total Dispatch Oran Personnel Maintenance Total

1973 4oo

1974 600 3,000

1975 11,000 500 16,ooo

1976 21,000 3,500 1,300 4,800 400 35,000 200 200

1977 8,200 20,500 1,350 100 -54 -2,700 -1,304 600 3,000 200 200

1978 3,000 23,500 1,400 100 -62 -3,000 -1,562 11,000 5,000 200 200

1979 24,ooo i,660 100 -70 -3,200 -1,510 21,000 12,000 1,660 100 1,760

1980 3,000 1,720 100 1,820 8,200 1,000 1,720 100 1,720

1981 1,780 100 1,880 3,000 1,780 1o0 1,880

Equalizing Discount Rate: 3%(above which present values ofAlternative 1 are below presentvalues of Alternative 2)

/ At financial cost; allocated to Alternative 1.For disco.nting residual values, assumed economic life is:

25 years for Dispatch Systems20 years for Gas Turbine Plant

March 14, 1974

AMYAE 13

Fâg 2 or 3

SOCMITI EATICEALA DE L'ESTRICITS IT ]D GAZ

Pbwer Project

Discount.d Cash Flow C ouason of AlternativeDispatch Delopents

Basic Cost Asuption.

Capital C08tb Expenditures

a. Dispatch systeas Coet as assuued during appraisal (see co0t stream Page 1)

b. Gao Turbine Orant Expenditure Schedules in Di millions

Alternative 1 Alternative 260 » 976 20N 1979

1974 3.01975 0.5 16.01976 3.5 35.01977 20.5 2.0 1.01978 23.5 5.01979 24.0 12.01980 3.0 1.0

75.0 56.o 19.0

c. Economic life of the dispatch system assumad to be 25 years, and of thegas turbines 20 years.

Operational Co0t

a. Dispatch: 45 staff at DA 30,000/man-year increasing about 4% annually(merit increases)

b. Gas Turbines: 6 operators at DA 25,000/man-year; DA 50,000 annually forexpatriate special maintenance personnel maintenance andfuels ausumed negligibly small for Alternative 2 for theperiod up to 1979 (when, for Alternative 1, the turbineswould becomu operational) because the plant is expected tooperate only under emergency conditions; from 1979 onvardoperational cost for both alternatives would be equal andfor this reason can be neglected in the discounted cashflou comparïson.

Savings

a* The dispatch systei would yield savings due to more econowic use offacilities and increase revenues due to the umaller nu*ber sod shorter duration

ANNEX 13Attachment 2Page 3 of 3

o! outages. Because savings in operation and maintenance cost can not bequantified with any reasonable degree of accuracy, it is assumed thatsavings in fuel and increase in revenue can be used as an approximationof the attributable benefits. This understates the total attributable

benefits.

b. Total financial cost of fuel is stated in Annex 12. Because

savings under both Alternatives would be equal from 1980 onward, three years

only should be taken into account in the discounted cash flow calculations.Assuming a 12% increase for 1979, and a 1% saving, the savings would bethe following:

1977 1978 1979

Total fuel cost DA 103 5,410 6,210 6,950

Savings: 1%; DA: 54,100 62,100 69,500

c. SC&EIAZ presently pays only DA 0.71,loe>kcal (usL4-4h/lO BTU), which

obviously is far below the economie (pre-liquefaction) cost of this type offuel. Financial coats, however, are being used for the relevant cost streamto allow a sensitivity analysis in view of the uncertainties with respect tothe economic cost of natural gas (see text paragraph B9).

d. The increase in revenue has been assumed to be small (0.5%); becausethe increase for both Alternatives would be equal from 1980 onwarû, three yearsonly should be taken into account. The increase in (financial) cost of fuel

is very asual, and the increase in revenue would be the following:

1977 1978 1979

Revenue increase DA 103 2,700 3,000 3,200

ALGERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ

Poier Pro4eet

Rate of Return on Project

Cost and Benefit Streams

----(perating Cost--------- =-Capital=~ - ~.-.. Other Total

Other Operating Total Benefits NetYear Project Prograrn Perionnel Materiais Expenses Fuel Costs (Revenue) Rsnefit&Costs and Benefit Streams1973 O 294.3 12.8 8.6 2.5 1.8 312.0 55.1 - 256.91974 11.8 251.4 24.3 1.3 5.3 2.6 296.7 110.2 - 186.51975 38.5 236.0 33.5 2.1 8.5 3.5 322.1 166.7 - 155.41976 67.3 269.6 44.0 3.0 12.2 7.7 403.8 224.7 - 179.11977 75.0 316.5 56.2 4.0 16.0 4.7 472.4 282.9 - 189.51978 5o.o 308.2 67.6 5.1 20.3 5.9 457.1 352.0 - 105.11979-2003 68.0 6.o 21.0 6.0 101.0 353.0 252.0

Present ValuesDiscount Rate (%)

8; 186.5 1,385.8 673.5 55.4 200.4 63.8 2,565.4 3,455.4 890.010> 175.4 1,328.0 555.4 45.1 164.2 53.2 2,321.3 2,843.0 821.212 165.2 1,279.8 467.0 37.5 137.1 45.2 2,126.8 2,385.1 258.313 160.4 1,249.8 431.0 34.4 126.1 42.0 2,043.7 2,198.8 155.114 155.8 1,225.9 399.4 31.7 116.5 39.1 1,968.4 2,035.2 66.815 151.4 1,0o2.5 371.4 29.3 108.0 36.6 1,899.5 1,890.6 - 8.916, 147.1 1,180.7 396.7 27.2 100.4 34.3 1,836.4 1,762.4 - 74.C17 14 3.1 1,159.4 324.6 25.3 93.7 32.3 1,778.4 1,648.1 -130.3 " m

19 135.4 1,119.2 287.0 22.1 82.3 28.9 1,674.9 1,453.9 -221.0 o <

20 128.3 1,081.9 256.4 19.5 73.0 26.1 1,585.2 1,296.0 -289.2 c

Rate of Return 14.9%

May 6, 1974

ALCREIA

SOCIETF NATIONALE DE L'ELETTRICITE ET DU GAZ (SOINELGAz)

Balance Sheet

DA MRilion DA 4.09 = us$1

1970 1971 1972 1973 1974 1975 1976 1977 1978

ASSETSFixed Assets

Gross Fixed Assets Ele-tricity 2,o62.1 2,126.0 2,300.4 2,567.6 2,762.5 3,186.1 3,453.1 3,880,4 4,64. 3Gas 235.1 239.1 246.5 346.5 426.5 516.5 616.5 726.5 846.5.end Offic- and goee,al 360.7 d 79. 4o,.5 462.5 492.5 5n2.5 544.5 574.5 604.5Sub Total 2,657.9 2,74579 3,376.6 3,681.5 4 ,375.1 4,614.1 3191W 3773

Less Depreciation Rlectricity 747.8 799.6 862.6 936.2 1,Ol5.4 1,107.4 1,207.3 1,319.6 1,444,1Gas 89.6 98.4 107.8 120.4 135.7 154.o 175.3 200.6 229.9Head Office and generel 181.6 183.4 190.6 205.1 220.3 236.3 252.8 270.1 288.1

Sub Total 1,019.0 1.081.4 T1,1 - 1,261.7 1,371.4 1,497.7 17,35.4 1,790.3 1,962.1

Net Fised Assets in Oreration Electricity 1,314.3 1,326.4 1,437.8 1,631.4 1,747.1 2,078.7 2,245.8 2,560.8 2,820.2Gas 145.5 140.7 138.7 226.1 290.8 362.5 441.2 525.9 5l6.6HRad Office and general 179.1 196.3 211.9 257.4 272.2 286.2 291.7 304.4 316.4

1,663.9 4 73E 1,788.4 2,1l4.9 2,310.1 2,727.4 2,978.7 3,391.1 3,753.2Work is Frogress 522.8 821. 2 1,022.6 981.1 1,039.8 889.6 976.6 985.9 1,021.3

Intangible assets 66.7 47.6 50.6 47.4 40.2 34.0 25.2 18.1 13.4Investmtnts 39.4 11.4 13.8 23.8 24.8 23.8 22.6 21.3 20.0

Total Fined osots, E1ectricity 1i,62.4 1,9i0.6 ,191.2 2,410.0 2,579.4 2,753.8 2,989.9 3,304.2 3,586.4Ban 220.1 262.3~ 292.7 351.4 426.1 507.8 596.5 691.2, 791.9Head Office and general 259.2 311.7 327.1 334.6 344.4 355.4 368.9 381.6 396.6Intangible and Inveatmont 106.1 59.9 64.4 71.2 65.o 57.8 47.8 39.4 33.4

TOTAL 2,267.8 2,543.6 2,875.4 3,167.2 3,414.9 3,674.8 4,003.1 4,416.4 4,808.3

Curret AslotsInventories 59.7 88.9 87.8 83.8 79.8 75.8 71.8 67.8 69.6Cash 65.6 25.2 41.o 24.3 20.9 53.7 51.8 67.0 57.6Consnxers (net) 122.4 120.1 144.4 149.0 156.5 158.0 167.5 167.0 171.5Others 114.7 125.5 14i.0 145.0 138.0 150.0 170.0 187.0 197.0

Total Carrent Annote 362.4 359.7 414,2 402.1 395.32 437.5 4757! 1.] g 9557

TOTAL ASSETS 2,630.2 2,903.3 3,289.6 3,569.3 3,810.1 4,112.3 4,464.2 4,905.2 5,304.0

LIABILITIES

eginsl Equity and Government Enuity 797.7 797.7 797.7 797.7 824.7 824.7 824.7 824.7 824.7

Goeernsment contribution 273.2 308.2 367.6 438.1 5i8.6 609.1 729.6 86o.i 930.6Cons,ners Contribution 182.4 220.3 272.0 324.0 377.5 432.5 489.o 547.0 607.0Undistributed profit and rserves 428.0 387.5 395.1 390.8 393.1 398.3 413.1 434.5 478.7

Total Equlty 1,681.3 1,713.7 1,o32.4 1,950.6 2,113.9 2,964.6 2,4561. 2,666.3 2,901.0

Long-Tterm Debtng lang term loans (12/31/72)

IBRD (Power 131-FR) 17.5 14.3 11.0 7.4 3.7Loans prior to independence 411.7 398.6 385.4 371.8 350.9 329.6 308.0 285.0 263.7Goverr,ment and national banko 1ans 315.2 516.9 713.7 692.4 629.1 586.4 54o.1 492.6 446.3Suppliers oredits 50.8 111.3 96.3 81.6 66.o 50.4 37.1 24.6

Future long term lnansProposed Bank 1oan (The Project) 7.2 30.2 75.6 125.7 153.Other possible Bank loan 3.3 15.2 41.1 75.7Government and national basks loans 174.3 314.1 489.o 613.1 806.2 966.9uppliera croditn 29.5 55.6 74.4 94.5 113.9 127.6

Total Long Term Debt 744.4 980.6 1,221.4 1,371.8 1,442.2 1,578.9 1,696.9 1,902.3 7,057.4

TOTAL EQUITY AND LONG TERM DEBT 2,425.7 2,694.3 3,053.8 3,322.4 3,556.1 3,843.5 4,153.3 4,568.6 4,958.4

Carrent Liabilities 204.5 209.0 235.8 246.9 254.0 268.8 310.9 336.6 345.6 r

TOTAL LIABILITIES 2,630.2 2,903.3 3,289.6 3,569.3 3,810.1 4,112.3 4,464.2 4,905.2 5,304.0

Debt-Equity Ratio 1 31/69 36/64 40/60 41/59 41/59 41/59 41/59 42/58 41/59Average net fixed assets in operstionl , 1,450.0 1,450.0 1,470.0 1,654.0 1,862.0 2,114.0 2,392.0 2,667.0 2,995.0Rate of Return 1,8% 3.1% 4.0% 3.5% 4.4% 4.5% 4.9% 53. 6.î%

A After dedueting eonsnmer's contribution.

May 8, 1974

ALGERIA

SOZIETE NATIONALE DE L'ELECTRICITE ET DU GAZ (SCNELGAZ)

Income Statement

DA Million DA 4.09 = US$l

1970 1971 1972 1973 1974 1975 1976 1977 1978----------- Actual ------------ ------------------------------ =-Forecast ---------------------.------

Sales of UnitsElectricity (GW,) 1,507 1,655 1,804 2,120 2,440 2,790 3,150 3,510 3,940

Gas (10°th) 2,744 2,939 3,183 3,670 4,182 4,968 6,o96 7,716 10,380Average revenue per unit

Electricity c/kWh 16.6 17.0 17.2 16.3 16.2 15.8 15.6 15.5 15.4

Gas c/th 1.2 1.3 1.3 1.3 1.3 1.3 1.2 1.2 1.1

RevenueEnergy Sales

Electricity 249.5 281.4 309.6 346.0 395.0 442.0 491.0 544.0 60 6.7

Gas 32.5 37,4 43.0 49.5 56.5 63.0 74.o 92.6 119.4

Other Revenue 21.4 30.4 31.3 31.2 34.9 39.4 44.3 49.9 56.1

Total Revenue 303.4 349.2 383.9 426.7 486.4 544.4 609.3 686.5 -_j=2.2

ExpenditurePersonnel 77.0 89.3 116.4 130.3 145.1 157.5 171.7 188.0 203.9Fuel for production 11.4 12.5 16.2 11.5 8.5 8.4 7.6 8.6 9.7

Purchase of gas for distribution 3.0 2.0 2.1 2.8 3.2 3.8 4.6 5.7 7.6

Materials for operation and sale 12.7 14.6 20.1 18.2 20.0 21.8 24.0 26.4 29.2

Other operating expenses É/ 39.2 46.6 49.6 55.5 61.2 67.6 74.2 82.1 92.9

Income tax and other taxes 37.0 39.6 43.5 41.4 46.5 52.4 59.9 68.9 78.0

Depreciation of assets 96.7 100.3 77.9 109.4 120.4 138.0 150.5 165.0 177.5

Total operating expenses 277.0 304.9 325.8 369.1 404.9 449.5 492.5 544.7 598.8

Net operating income 26.4 44.3 58.1 57.6 81.5 94.9 116.8 141.8 183.4Interests on long term debt 15.5 27.3 36.5 51.9 64.2 74.7 87.0 100.4 109.2

Less charged to Capital 1.5 3.9 - - - - - -

Net surplus (Deficit) 12.4 20.9 21.6 5.7 17.3 20.2 29.8 41.4 74.2

Less: Contribution to Government'sDevelopment Programs 0.5 11.2 8.0 10.0 15.0 15.0 15.0 20.0 30.0

Available surplus (Deficit) 11.9 9.7 13.6 (4.3) (2.3) (5.2) (14.8) 21.4 44.2

Average net fixed assets in operation 3/ 1,450.0 1,450.0 1,470.0 1,654.0 1,862.0 2,114.0 2,392.0 2,667.0 2,995-0

Rate of Return 1.8% 3.1% 4.o% 3,5% 4.4% 4,5% 4.9y. 5.37. 6.1%

NotesF-Includes sales of by-products, sales of appliances, gross revenue of some works for consumers made on consumers properties

and rental fee for staff housing. It also includes profit or loss on sales of scrap or assets if any.

@/ Including 2.7 for purchase of electricity in 1970.

2/ After deducting consumers' contribution.

May 8, 1974

ANNEX i6

ALGERIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DU GAZ (SONELGAZ)

1972 Revenue Account per Activities

DA Million DA 4.09 = us$1

Electricity Gas Others Consolidated

Sales of units i/ 1,804 3,183 -

Average revenue per unit 2/ 17.2 1.3

I. RevenueSales Electricity and eas 309.6 43.0 352.6Works billed to consumers 2 19.2 19.2Sales of appliances 10,7 10.7Sales of by-products, scrap (net) 0.7 0.7Non operating activities (net) 0.7 0.7

309.6 43.0 31.3 383.9

Percentage of revenue per sector 80.6% 11.2% 8.2% 100%

II. ExpendituresPurchase of gas for distribution 2.1 2.1Purchase of gas for electricity

generation 1.9 1.9Purchase of oil for production 10.8 3.5 14.3

12.7 5.6 18.3Materials for operation 5.2 1.5 5.3 12.0Goods for sales 8.1 8.1

Total fuel and material 17.9 7.1 13.4 38.4

Operation and maintenance 150.3 31.2 20.9 202.4Income tax 7.1 7.1

Total Expenses 175.3 38.3 34.3 247.9

Percentage of expenses per sector 70.7% 15.4%o 13.9% 109%

Depreciation of assets and provision 67.1 9.8 1.0 77.9

Net Operating income 67.2 (5.1) (4.0) 58.1

Interest on long term debt 32.8 3.7 - 36.5

Net Surplus (deficit) 34.4 (8.8) (4.0) 21.6Contribution to Government 8.0 8.o

Available surplus 26.4 (8.8) (4.0) 13.6

Average net fixed assets in operation 1,334 136 - 1,470

After deducting consumers' contribution

Rate of return 5.0% - _ 4.0%

l/ Units comprise GWh for electricity and millions of therms for gas.2/ In DA centime per kWh and DA centime per therm. All prices including sales tax.3/ When made on consumers properties.

H/ Head office and general fixed assets allocated to electricity and gas in proportion of their own fixed assets

MRy 8, 1974

AI.2PRIt

SOCIETE KATII3IALi DE L'ELECTRCTITE -T 0? 1U (2(21i1112)

SOb-tCLS A-T APPT:MAMr22 OF 21? K-

FA :lillion 'A 4,oy

Total19V7 1913 73': 1277 19?7 1`7? l7S 17-7,Aictal

SOU13CESNet cash generationNet operating income 58.1 57.6 81.5 39.) 116.8 i41.8 283.4 676.0Depreciation and provisions 77.9 109.4 120.4 138.0 150.5 165.0 177.5 860.8

Net cash generation 136.0 117.0 201.3 232.0 '67.7 30. 3GO.9 1,536`.8

CapitalWorking capital (exci. cash) increase

or (decrease) (12.3) ' .5 6. 1.3 19.6 9 . (5.5) 26.7Government's participation 60.6 70.5 70. 30.5 100.5 110.5 1-0.5 553.0Consumers contributions 51.7 57.0 53.5 55.0 5'.5 58.o 60.0 335.0

100.0 175.0 130. 77PY T97T 177.7 175.0 914.7

Long-term borrowfingProposed IBRD loan (Project) 7.7 23.0 45.4 49,8 32.1 157.5Further IBRD projezt (tentative) or

similar loan 3.3 11.9 25.9 34.6 75.7Government's or Natiotnal Bank's Ians 707.1 174.3 i4o.0 183.0 i4o.o 210.0 180.9 1,028.2Suppliers credits 67.5 30.0 34.4 30.0 35.0 40.0 40.0 209.4sîwr(, 704.3 1816 239.3 232.3 327.7 zwnb -r,470b

Gooernment subsidies

- - 10.0 10.0 20.0 70.0 10.0 70.0

TOTAL SORCES 510o6 496.3 524.1 619.0 689.2 830.2 833.5 3,992.3

APPLICATI03SConstruction cost 12.8 41.9 73.2 81.5 53.4 263.2The project 0.4 5.4 1.0 75. 63.4 i64.oFurther potential IBRD project 413.9 386.8 350.3 347.6 381.8 418.9 456.7 2,342.1Other (incl. stocks) 413.9 387.2 363.1 2 476.0 575.6 572.5 2,769.3

Debt service

AnortizationProposei I581D boas 5.2 5.2Other long team debt 34.1 53.9 84.2 102,6 114.3 120.3 127.3 602.6

Total amortization 34.1 53.9 54.5 107.6 ll4.3 120.3 132.5 60.

InterestProposai IBND loan 0.7 2.3 4.4 7.5 11.4 26.3Other long team debt 36.5 51.9 63.5 72.4 82.6 92.9 97.8 46113

Total interest y' / 51.9 6 4.2 F 7 o 7.0 100. 109.2 - BTrTotal Debt Service 70. 05î. 147.4 177.3 201.3 220.7 241.7 1,095.2

Contribution to Governnent's Develop-sent Prograin 8.o 10.0 15.0 15.0 15.0 20.0 30.0 105.0

Other long-term investment increase(or decrease) 2.3 10.0 1.0 (1,0) (1.2) (1.3) (1.3) 6.2

TOTAL1 APPLICATIONS 494.8 513.0 527.5 q86.2 691.1 Sîs.o 842.9 3,975.7Change in cash 15.8 (16,7) (3.4) 3286 (1.9) 15.2 9.4 16.6 Cash at end of period 41.o 24.3 20.9 53.7 51.8 67.0 57.6 57.6

Debt service coverage 1.9 i.6 1.4 1.3 1.3 1.4 1.5 i.4

fi Net aSter deducting all financial prodicts san Government contribution d lebt service of some loans (around 1.5 a year)

May 8, 1974

ANNEX 18

Page 1 cf 2 pages

ALGERIA

SOCIE E3 NATIONALE DE L'ELECTRICITE ET DU GAZ

Pouer Project

Major Assumptions Used as Basis for Financial Forecast

1 BALANCE SHEET

?ixed Assets: Forecasts result from the existing assets and from theassumed developrent program. For the calculation of the

rate of return and of the construction program ratio inthe electricity sector, it has been assumed that 79%of the common assets and related depreciation would be

allocated to power, 15% to gas and 6% to the otheractivities.

3epreciation: On forecast assets: average rate 3.33% for transmissionand thermal power stations; 2% for building, 2.5% fordistribution.

Intangible Cost of studies have been entered in the balance sheet

Assets: and written off the same year. Actual balance at end

of 1972 is being progressively written off.

Wbrks in All works included in the Project, and buildings, are

Progress: expected to remain in progress an average of 3 years.Distribution works and all other routine works would

remain one year in progress.

Debts: Forecasts assume that future loans from the Algerian

Banks and from the Treasury would be on conditions andfor terms similar to those from the Wbrld Bank. It has

been assumed that the average proportion of supplierscredit in the long term borrowing which was 25% in 1972would remain the same.

II. REVENUE ACCOUNTS

Sales of Based on existing tariffs and an average rate of increase

nerg~y: of sales of electricity and gas in high and low tensionfor electricity and high and lowpressure for gas.Assumed average rate of' increase of sales of units from

1972 through 1978for kWh HT 16% LT 9%for therms HP 24% LP 15%

Interest on They are treated as expenses, as they were in the actual

Debt: 1972 revenue account. There is no capitalization.

ANNEX 18

Page 2 of 2 Pages

Perscnnel Based on forecast of number of employees for each sector ofCosts: activity (thermal, transmission, gas and electricity distri-

bution). Assumed average rate of increase (salary per man):7%. Includes merit increases, cost of living increase, andpromotion. Assumed rate of staff development: 2.7% per year.

Fuel Cost: Based on cost per category of fuel at existing price. Takesinto account the shifting of generation of electricity togas-burning stations and the transfer of gas distribution tonatural gas.

Cost of Based on an average rate of increase of 12% from 1972Material to 1978.for Opera-tion:

Tàaies Other Based on an average rate of increase of 11% from 1972Ihan Income to 1978.Tax:

Other Ex- Forecasts assume an average rate of increase of 11% frompenses: 1972 to 1978.

NOIES: 1/ SONELGAZ's actual revenue accounts as shown in this report arethe resuIt of the transposition of the company's formal Income Statementsinto the Bank's usual presentation. Hence, there are differences betueenfigures in official statements and the statements attached to this report.

2/ The breakdown of 1972 operating expenses for electricity, gasand other activities as shown in Annex 16 is based on figures provided bythe Borrower for this year, and takes into account several adjustments whereneeded. The table (page 20) summarizing a similar breakdown for 1973-78is derived from the 1972 situation and assumes that revenue and expensesin each sector will vary as described above.

Maj 8, 1974

ALmERIA

SOCIPT1X NWTIONAIi- DE L'ELEGCTRICITF &T DU GkZ

Po-er Project

Long-Term Debts as of Dec. 31, 1972

Assumed TermsIncl. Interest DA Million

Year Lender Years (grace) % Original Outstanding

Liabilities prior to independencetaken over by Algerian Government 1947 Gov't 40 0 433.7 133.0

59/60/61/62 CEADII 30 3 321.8 252.4

IBRD (Power Project) 1955 IBRD 20 3 4.75 US$10M 11.03/

Settlement of Governnent and SONELGAZuintual obligations 1962 Gov't 38 0 1.75 38.0 27.5

1972 Gov't 10 0 1.0 52.4 52.497/4 79.9

Construction Program 1963/64/65 BAD-/ 20/25 - 4.50 80.0 59.71969/70 BAD 20 3 4 192.8 189.21971/72 BAD 18 3 6/5.75 234.0 234.01971/72 BNA / 7/6 2 6 106.9 106.91972 CNEP-1 20 0 4.75 8.6 8.61972 Gov't 16 0 5.75 35.4 35.4

657.7 633.81971 Supp. Credits 11/9 1 3/ 50.7 43.91972 Supp. Credits 9/6/5 1 IV 67.4 67.4

ll8 l TW

Total Long-Term Debts 1,621.7 1,221.4

NOTES:1/ CEAD and BAD: Algerian Development Bank - BNA National Bank

CNEP: National Trust and Saving Co.2/ As shotn in SONELGAZ Balance Sheet for US$2 million.

/ Credit with a maximum of DA 69M° over 11 years at 6 and 6.5% interest and DA 42? over 9 years at 5.5%.4/ Maximum Credit: over 9 years DA 47 million at 7.30%

over 5 years DA 22 million at 6%; 6.2%; 6.5%over 5 years DA 6 million at 7%

IBRD 10892

ALGE RIA

SOCIETE NATIONALE DE L'ELECTRICITE ET DXU GAZMAIN POWER STATIONS AND TRANSMISSION SYSTEMS

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