Dewiness lt

The World Bank

FOR OFFCLAL USE ONLY

Report No. 6020-PAK

STAFF APPRAISAL REPORT

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

April 28, 1986

Energy DivisionSouth Asia Projects Department

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

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CURRENCY EQUIVALENT

Currency Unit Pakistan Rupees (PRs)Rupee 1 = Paisa 100Rupee I - US$0.0625kupees 1,000,000 US$62,500US$1 5 PRs 16.0US$1,000,000 - PRs 16,000,000

MEASURES AND EQUIVALENTS

1 Kilometer (km) - 0.6214 miles (mi)I Ton (t) - 1,000 kilograms (kg)=2,200 pounds (lbs)1 Kilovolt (kV) - 1,000 volts (V)1 Megawatt (MW) - 1,000 kilowatts (kW)1 Megavolt-ampere (MVA) 1,000 kilovolt-amperes (kVA)1 Kilowatt hour (kWh) = 1,000 watt-hours (Wh)1 Gigawatt hour (GWh) = 1,000,000 kilowatt hours (kWh)1 Kilocalorie (Kcal) = 3.97 British Thermal Units (BTe)I Ton of oil equivalent (toe) = 10,200 Kcal/kg

ABBREVIATIONS AND ACRONYMS

ADB - Asian Development BankADP - Annual Development PlanAEB - Area Electricity BoardAG - Auditor GeneralCIDA - Canadian International Development AgencyCIP - Core Investment ProgramCDWP - Central Development Working PartyECC - Economic Coordination CommitteeECNEC - Executive Committee of the National Economic CouncilERWG - Energy Review Working GroupESL - Energy Sector LoanGOP - Government of PakistanHSD - High Speed DieselICB - International Competitive BiddingIERR - Internal Economic Rate of ReturnKESC - Karachi Electric Supply Corporation, Ltd.LCB - Local Competitive BiddingLRMC - Long-Run Marginal CostMPD - Ministry of Planning and DevelopmentMPNR - Ministry of Petroleua. and Natural ResourcesNEPC - National Energy Policy CommitteeOGDC - Oil and Gas Development CorporationPARCO - Pakistan Arab CompanyPMDC - Pakistan Mineral Development CorporationPSO - Pakistan Sate Oil CompanySGC - Southern Gas CompanySNGPL - Sui Northern Gas Pipeline Ltd.USAID - United States Agency for International DevelopmentUNDP - United Nations Development ProgramWAP!A - Water and Power Development Authority

GOP AND WAPDA'S FISCAL YEAR (FY)

July 1 - June 30

FOR OFFICIAL USE ONLY

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

Is THE ENERGY SECTOR .............. 1........................... 1

A. Strategy for the Development of the Energy Sector ..... 1B. The Bank Group Strategy and Involvement ................ 5

II. THE BORROWER * ............................................. 7

A. Organization of WAPDA 7................ ...... 7B. Existing Facilities *...e.........*.... 8C. Power Planning ....... ............ .... 8

III. THE PROJECT ................... 12.....................

IV. FINANCES ............................................ 19

V. ECONOMIC JUSTIFICATION .................................... 30

A. Forecast of Electricity Sales by WAPDA ................. 30B. Least Cost Alternative ............................ * 31C. Return on Investment ...................... *...*. 31

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

This report was prepared by Messrs. E. Linard de Guertechin (Engineer),M. Sharma (Consultant), S. Babbar (Engineer), J. Vance (Senior Financial Analyst),R. Sharma (Financial Analyst), and Gauhar Ali (Energy Advisor, PakistanResident Mission).

This document has a sttid distibuton nd may be ued by cipients only in the peneof thek officl dutie Its contents may not otherwis be dickad without World Bank authodrnion.

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Page No.

ANNEXES

1.1 - Strategy for the Development of the Energy Sector .... 351.2 - Organization Chart - Energy Sector ................... 422.1 - Organization Chart - WAPDA ........................... 432.2 - Organization Chart - Power Wing ...................... 442.3 - WAPDA Thermal Generation Statistics .................. 452.4 - Forecast of Energy Balances .......................... 473.1 - Project Description ........................... 483.2 - Project Costs ..................... 493.3 - Project Implementation Schedule ...................... 523.4 - Schedule of Disbursements ............................ 534.1 - WAPDA Balance Sheets ................................. 544.2 - WAPDA Income Statements .............................. 554.3 - WAPDA Sources and Application of Funds Statements .... 564.4 - Notes and Assumptions for Financial Forecasts ........4.5 - WAPDA Investment Program for PY85-FY93 ............... 604.6 - Summary of Status and Plans for strengthening WAPDA's

Financial and Commercial Operations under the WAPDA/USAID Power Distribution Project ...................... 62

5.1 - Actual and Projected Power Demand and Energy Sales ... 665.2 - Assumption for Rate of Return on Project ...... ,...... 676.1 - Documents and Information in the Project File * ....... 69

MAP

IBRD 19384

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

Loan and Project Summary

Borrower : Water and Power Development Authority (WAPDA)

Guarantor : Islamic Republic of Pakistan

Amount : US$90.0 million equivalent

Terms : Repayable in 20 years, including five years of graceat the standard variable interest rate

Project Description : The main objectives of the proposed Project are toassist WAPDA in meeting the electricity demand in thecountry by adding about 200 MW of thermal capacitywhile improving the fuel efficiency of the combustionturbines at Kot Addu. The proposed Project involvesthe conversion of two 100 MW and two 125 MW combustionturbines under construction at Kot Addu into combinedcycle units with the addition of four heat recoveryboilers and two 100 MW steam turbo-generators as wellas the associated transmission system for connection tothe grid. The station is expected to operate on highspeed diesel oil (HSD); however, provision is beingmade for the use of alternate fuel (gas, furnace oil,crude oil). The fuel will be supplied near Multan,through an existing pipeline from Karachi to Gujrat,which would be extended to Kot Addu with a 30 km spurpipeline by the Pakistan State Oil Company (PSO), thefuel supply company. There are no unusual risksforeseen for the implementation and operation of theproposed Project. WAPDA is experienced in the designand construction of generation and transmissionfacilities but will receive assistance fromconsultants in relation to the combined cycle units,as these represents a new technology for both WAPDAand Pakistan.

Local Foreign Total------- US$ million-

Estimated Costs:l/

Preliminary and Civil Works 12.5 - 12.5Power Station Equipment 28.4 56.1 84.5Transmission Equipment 1.6 3.8 5.4Erection 9.7 4.4 14.1Consultancy 1.4 1.4Engineering and Administration 4.8 - 4.8Total Base Cost 57.0 65.7 122.7

Physical Contingencies 7.6 5.5 13.1Price Contingencies 20.8 18.8 39.6Total Project Cost 85.4 90.0 175.4

Interest During ConstructionBank - 12.4 12.4Other _ _ --

Total Financing Required 85.4 102.4 187.8

Financing Plan:

IBRD Loan - 90.0 90.0WAPDA 75.1 - 75.1GOP 10.3 12.4 22.7Total 85.4 102.4 187.8

Estimated Disbursements:

IBRD FY87 FY88 FY89 FY90 FY91--- US$ million------------

Annual 3.2 16.0 35.0 25.8 10.0Cumulative 3.2 19.2 54.2 80.0 90.0

Rate of Return: 15.2Z

Map : IBRD 19384

1/ Including local duties and taxes of US$36.0 million.

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

STAFF APPRAISAL REPORT

I. THE ENERGY SECTOR

A. Strategy for the Development of the Energy Sector

1.01 Pakistan's commercially exploitable domestic energy resources consistin order of importance of hydropower, natural gas, oil and coal. In addi-tion, the country has a large base of renewable energy in the form ofagriculture and animal wastes, and solar and wind energy. The hydropowerpotential is estimated at about 30,000 MW, of which only 2,897 MW has beendeveloped and 1,928 MW is under construction or at an advanced stage ofpreparation. In addition, 3,600 MW will be added when the site at Kalabaghis fully developed. Natural gas is Pakistan's main commercially exploitablehydrocarbon resource, with proven and probable reserves estimated at about340 million tons of oil equivalent (toe). Proven and probable reserves ofoil are estimated at about 58 million toe. Consequently, the prospects aregood for increasing the supply of domestic hydrocarbons; however, this wouldonly be achieved by increasing the private sector's participation in explora-tion to reduce the risk :orne by the Government of Pakistan (GOP)(para 1.04).Coal and lignite reserves are estimated at about 900 million tons, of whichonly 175 million tons are proven. GOP has outlined a systematic program forthe formulation of a comprehensive coal exploration strategy to determine thereserves where further assessment is justified. The first phase of theprogram would be carried out in 1987 and 1988. GOP is also assessing, underfinancing from the United States Agency for International Development (USAID)the potential for stimulating increased private sector involvement in coalproduction using the reserves at Lakhra as a model. If the results at Lakhraare favorable, the same model could be applied to other promising areas. Byand large, the development of Pakistan's domestic energy resources hasprogressed at a substantially slower pace than is warranted by the size ofreserves mainly because of financial constraints. As a result, the country'sdependence on imported energy increased which contributed to the rapid growthof imports and external payments deficits.

1.02 In recognition of the possible adverse impact on the economy of thesustained growth in the demand for energy and increased dependence onimported energy, the Fifth Five-Year Plan (FY79-FY83) emphasized theaccelerated development of domestic energy resources and rationalization ofconsumption. However, the plan targets were not achieved. In addressing theset-backs experienced in achieving the energy targets of the Fifth Plan, GOPincluded the energy sector among the high priority sectors in the SixthFive-Year Plan (FY84-FY88) by increasing its share of the resources and

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taking several important policy initiatives. Despite these actions, itbecame evident during the first two years of the Plan that supply targetswere not likely to be achieved fully. The shortfall in achieving the targetsof the Fifth and Sixth Plans was mainly due to: (a) the shortages of finan-cial resources, precipitated by the underpricing of natural gas and elec-tricity which, in turn, stimulated consumption and resulted in severe andfrequent supply interruptions; and (b) the absence of a system for settingpriorities in investment and for mobilizing resources for their implementa-tion. As a result, the development of primary and secondary energyprogressed in a piecemeal fashion, dictated primarily by the availability offinancial resources, causing persistent gaps between actual and plannedinvestments.

1.03 The lack of progress under the Fifth Plan, the setbacks experiencedin the implementation of the investment program for the energy sector duringthe first two years of the Sixth Plan and the likelihood that resource con-straints would continue into the immediate future prompted GOP to formulate acomprehensive development strategy to address the major sectoral issues. Thestrategy was formulated in 1985 in collaboration with the Bank, under theEnergy Sector Loan (ESL) (Ln. 2552-PAK). It invoived a two-pronged approach.The first focuses on minimizing the shortfalls in energy during the remainingthree years (FY86-FY88) of the current Plan period and on ensuring thatinvestments needed for the Seventh Five-Year Plan are identified and imple-mented. The second calls for studies to outline the framework for theintegrated development of the sector during the Seventh and Eighth Planperiods. The actions and studies under the energy development strategy arecategorized under three headings: (i) investment and development;(ii) pricing and demand management; and (iii) institutional development. Asummary of the issues identified, the plan of action outlined to address themand the target dates for achieving them is summarized in Annex 1.

1.04 Investment and Development. The first element of the strategy formu-lated was to revise the supply targets of the Sixth Plan and outline a CoreInvestment Program that covers the remaining three years (FY86-FY88) of thePlan. The core program for power covers ongoing projects needed to achievethe revised supply targets and projects to be initiated during the remainderof the Sixth Plan to ensure smooth transition to the Seventh Plan. Moreover,it calls for predetermined yearly financial allocations between generation,transmission and distribution to balance the development of the power subsec-tor. In the oil and gas subsector, the core program covers the Oil and GasDevelopment Corporation's (OGDC) annual program of exploration and develop-ment of specific low risk gas and oil prone areas, and the allocation of ayearly budget by GOP to implement the program. In addition, a program paral-lel to that of OGDC was outlined involving the development of fields suitablefor attracting risk capital through joint venture. A new gas producer priceformula was introduced under ESL (Ln. 2552-PAK) to stimulate the interest ofthe international oil firms in undertaking exploration drilling in Pakistan(para 1.06).

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1.05 The financial requirements of the core investment program amounts toabout Rs 50 billion (US$3.2) of which Rs 36.5 billion (US$2.3 billion) wouldbe absorbed by the power subsector; Rs 12.8 billion (US$0.8 billion) by thepetroleum subsector; Rs 0.4 billion (US$24 million) by the coal subsector;and Rs 0.25 billion (US$17 million) by energy planning and conservationactivities. To finance the core investment program, the Government wouldcontribute Rs 8.7 billion (US$0.6 billion) from the Annual Development Plan(ADP) and the contribution of the entities from their internally-generatedfunds would amount to Rs 14.7 billion (US$0.9 billion). The remainingRs 26.4 billion (US$1.7 billion) would be in the form of loans, grants andsuppliers' credits, the bulk of which have been secured.

1.06 Pricing and Demand Management. The petroleum products subsectorcontinues to be a net contrit.tor to the resources of COP. In December 1985,the weighted average domestic price of petroleum products was at 148% of theborder price, US$287/toe compared to US$194/toe. Under the prevailing pricestructure, prices of all petroleum products are above their respective borderprices, with the exception of fuel oil which is below its border price byabout US$39/toe. The price of natural gas, by contrast, was maintained atlevels substantially below those of competing petroleum products, reflecting(?OP's decision to buffer the economy from the adverse impact of the highercost of imported energy. This stimulated demand and by 1981, supply con-straints started to emerge. Accordingly, under SAL I (1981), COP decided toincrease the price of gas to reach two-thirds the border price of fuel oil byFY88. The same policy was reiterated under ESL (Ln. 2552-PAK). In implement-ing the gas pricing policy, the weighted average domestic price of gas hasbeen increased since 1981 at an average annual rate of about 30%. As aresult, in December 1985, the weighted average price of gas was about 65% ofthe border price of fuel oil, that is, US$96/toe compared to US$147/toe. Inaddition, a new producer price for natural gas was introduced in 1985, whichlinks the price of new gas to the border price of fuel oil less a discount tobe determined on a field by field basis. This formula would provide addedincentives for the international petroleum firms to increase their explora-tion activities in high risks gas prone areas (para 1.04).

1.07 As regards electricity, the averige revenue, including fuel sur-charge, in FY85 was 61 paisa/kWh for WAPDA, representing about 60% of theaverage long-run marginal cost (LRMC) of 110 paisa/kWh. Despite the diver-gence between the average revenue and LRMC, WAPDA has been able to financemore than 40% of its investment program from internally generated revenuesbecause actual investments in the past have amounted to only about 50% of theplanned investment. In order to ensure that actual and planned investmentsdo not diverge, GOP and WAPDA agreed under ESL (Ln. 2552-PAK) to undertakeall necessary measures including tariff increases and annual allocations fromthe budget to ensure that the core investment program is financed(paras 4.09, 4.10 and 4.11). Electricity tariffs which had changed verylittle since November 1981 were increased, effective July 1, 1985, by 10%

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across the board for all consumers. Based on the Bank's forecast, theimplementation of WAPDA's investment program for the period FY87-FY94 wouldrequire annual real increases in tariffs of about 8% for the next eightyears. The forecasts further show that for FY87, tariffs will need to beincreased by about 11% on July 1, 1986, in order for WAPDA to cover 40% ofits core investment program for FY87 from internal sources (para 4.11). Inaddition, WAPDA has recruited Argonne Laboratories in the USA, under financ-ing from United Nations Development Program (UNDP). to design a system forthe collection, storage and retrieval of data on the power system(para 2.05). Concurrently, WAPDA, assisted by consultants, EBASCO Services,a US firm, under financing from USAID, has initiated a load research andmanagement study to compile detailed information on the pattern (extent,duration, load factors, etc.) of electricity consumption by the varioujconsumer categories (paras 4.04 and 5.02). The data base study is expectedto be completed by December 1986 (para 2.05), and the load management bySeptember 1987. These would provide the necessary inputs needed for restruc-turing electricity tariffs in Pakistan. In the interim WAPDA is assessingthe impact on consumers of introducing a fuel surcharge in the tariff for thelow voltage consumers. Current plans call for this change to be introducedin FY87.

1.08 Institutional Responsibilities and Development. Three ministriesshare the responsibility for supervising the operational entities and agen-cies involved in the energy sector. These are the Ministry of Petrolevm, andNatural Resources (MPNR), the Ministry of Water and Power, and the Ministryof Production. In addition, the Energy Division of the Ministry of Planningand Development (MPD) has responsibility for energy planning. Operationalresponsibilities in the sector are vested in a large number of entities andagencies in both the public and the private sectors. As shown in theorganization chart in Annex 1.2, all these entities and agencies, come underthe jurisdiction of HPNR, except for three state organizations engaged in oilrefining or petrochemicals, the two electricity supply organizations and theAppropriate Technology Development Corporation. Nuclear energy comes underthe office of the Prime Minister. Coordination between the ministries onenergy matters is secured through a number of committees, namely the NationalEnergy Policy Committee (NEPC), Energy Review Working Group (ERWC), theEconomic Coordination Committee (ECC), the Executive Committee of theNational Economic Council (ECNEC), and the Central Development Working Party(CDWP). NEPC is responsible for the formulation of GOP's overall energypolicy. ERWG performs the functions of inter-ministerial coordination aswell as monitors the status of on-going projects in the public sector andendeavors to remove the operational bottlenecks. The review of the financialplans of the sector and the approval of energy pricing proposals is under thejurisdiction of ECC. ECNEC and CDWP review and approve major proposals andprojects in the energy sector, as in other sectors.

1.09 The main issue concerning the organization of the energy sector isthe multiplicity of ministries and committees responsible for planning,

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coordinating and monitoring the performance of the public and privateenterprises involved in the production, transport and delivery of energyproducts. This division of responsibility spreads the scarce human resour-ces, particularty at the techiical level, among a large number of publicagencies resulting in reduced effectiveness of each agency. Recently, GOPunder ESL (Ln. 2552-PAK) created in MPD an energy planning cell (ENERPLnN)with USAID financing, and an energy conservation unit (ENERCON) with jointUSAID and Bank financing. ENERPLAN is mandated to collect, compile andanalyze, on an on-going basis, alL relevant data on the energy sector andintegrate them with the country's annual, five-year and long-term developmentplans, to enable GOP to identify priorities and evaluate resource require-ments to support effective policy formulation and investment planning.ENERPLAN would be staffed by Pakistani personnel who will be assisted duringthe first four years by consultants financed by USAID. CNERCON would serveas the focal point for all conservation activities and its main respon-sibilities will be to plan energy conservation actions, formulate policyguidelines, develop a data-base, support training activities and privateresearch, undertake development and demonstration as well as public informa-tion activities, and monitor the implementation of conservation program ofvarious public and private entities. It would formulate a c.nprehensivenational energy conservation program by the end of 1986. The long-termconsultants for the ENERCON project are expected to start work in mid-1986.

B. The Bank Group Strategy and Involvement

1.10 The Bank's broad objectives in the sector involve the support of thepolicies initiated under ESL (Ln. 2552-PAK), and the allocation of resourcesfor specific projects included in the core investment program (para 1.03).In the area of primary energy production, the Bank would support theimplementation of a comprehensive plan for the exploration and development ofhydrocarbons and coal. In addition, it would support an investment programaimed at the substitution of lower-value products, particula.ly imported coalfor gas in power generation and the release of gas for use by industry andhouseholds as a substitute for imported petroleum products. As for hydropotential, emphasis would be on providing technical and financial support forthe development of high priority schemes. Efforts would also be directedtoward retrofitting and restructuring the refinery subsector, as well as therationalization of the infrastructure for the transport of liquid hydrocar-bons and gas. The Bank would also support the formulation of plans forbringing domestic prices of energy products to parity with their respectivecost to the economy to rationalize consumption and mobilize resources forGOP, and for investing in rehabilitation and retrofitting in major energyconsuming industries, such as oil refineries, fertilizers, cement, etc. Inthe power subsector, the Bank has directed its efforts to strengtheningWAPDA's management and technical capabilities. WAPDA has improved its over-all financial operations by developing modern accounting and commercialsystems (para 4.02). The Bank would continue supporting the institutionbuilding measures already undertaken by WAPDA, including the strengthening of

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technical capability in formulating an integrated least cost plan for thedevelopment of generation, transmission and distribution facilities.

1.11 The Bank Group involvement in Pakistan's energy sector started in1955, with a loan to KESC for the construction of a thermal power station.Since then, it has assisted in financing projects in all energy subsectors.In the power subsector, the Bank has participated in the Indus Basin Develop-ment Projects, which include the hydrogeneration development at Mangla andTarbela. A series of four credits/loans were made to KESC between 1955 and1967 for the development of its generation capacity. Since 1970, the Bankhas been more directly involved in COP's program for strengthening the powertransmission and distribution networks, for which five credits/loans weremade to WAPDA. The first (Cr. 213-PAK) of US$23 milLion, made in 1970,covered the cost of upgrading the transmission network. A second operation,a Third Window loan (Ln. 1208T-PAK) of US$50 million, subsequently reduced bvUS$15 million due to savings achieved under international competitive bid-ding, was made in 1975 to finance the development of part of the 500-kVtransmission system to connect the hydra resources of the north with thethermal generation in the center and south to provide the most economic meansof supplying power throughout the country. A third operation (Cr. 968-PAK)in the amount of US$45 million was made to cover four years of WAPDA'sprogram for the development of the secondary transmission (FY79-FY83),involving the erection of about 4,345 km of single and double circuit linesand the construction, expansion and conversion of 216 substations. Thisproject was completed in December 1985.

1.12 In FY85, four loans amounting to a total of US$433 million wereapproved by the Bank. The Fourth WAPDA Power Project (Ln. 2499-PAK) for anamount of US$100 million is a continuation of the Third WAPDA Power Project(Cr. 968-PAK) and covers the construction of a total of about 3,890 km oftransmission lines and 227 substations, including expansion of 86 substa-tions, ot the subtransmission system over the period FY86-FY90. The FifthWAPDA Power Project (Ln. 2556-PAK) for an amount of US$100 million wasapproved in order to assist WAPDA in the installation of about 1,100 km of500-kV transmission line between Lahore and Jamshoro via Sahiwal, Multan,Guddu and Dadu, and of new 500-kY substations at Lahore and Sahiwal and theextension and reinforcement of existing 500-kV substations at Multan, Guddu,Dadu and Jamshoro (para 2.09). In the area of petroleum exploration anddevelopment, the Bank approved a Petroleum Resources Joint Venture Project(Ln. 2553-PAK) with a view to financing the Government's and OGDC's share offoreign exchange commitments under the existing joint ventures with privatesector as the operator in Badin and North Potwar blocks and the new jointventures yet to be firmed up during the next three years (para 1.04).

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II. THE BORROWER

A. Organization of WAPDA

2.01 WAPDA, the beneficiary of the loan, was established in 1958 to coor-dinate the development of Pakistan's water and power resources. It is asemi-autonomous agency whose capital investment program and tariffs areapproved by GOP. WAPDA is divided into two largely independent 'wings' onefor power and the other for water (Annex 2.1). The Power Wing is responsiblefor the construction and operation of power generation, transmission anddistribution facilities throughout the country, except the Karachi area whichis served by KESC. The Water Wing is responsible for the overall planningand investigation of water resources, and the design and construction ofsurface and groundwater development projects for the federal and provincialgovernments. WAPDA's governing body, referred to as the "Authority", con-sists of a chairman and three members who are in charge of power, water, andfinance, and are designated Member (Power), Member (Water) and Member(Finance) respectively. The members are appointed by the Government andfunction as chief executives of their respective groups.

2.02 Member (Power) is assisted by a Deputy Managing Director (distribu-tion) and seven general managers in charge of generation (thermal), gener-ation (hydel), transmission and grid stations, finance, coordination andplanning, system operation and load dispatch, and inventory control. Theorganization of the Power Wing which, for convenience, is herein referred toas WAPDA, is shown in Annex 2.2. Although WAPDA is highly centralized withrespect to decision-making, its distribution department is divided into eightArea Electricity Boards (AEBs), which were established in 1981 to take overthe responsibility for local electricity service. Each AEB has a chairman,who is the chief engineer for the area, appointed by WAPDA for a five-yearterm; three full-time members, who are also directors in charge of depart-ments; and three part-time members representing local interests, one of whomis normally a representative of the Provincial Government. The members ofAEBs are appointed for a period of three years.

2.03 In January 1985, WAPDA had about 88,000 employees, 2,100 engineers,700 other professionals, 9,200 technical and other staff, 15,000 administra-tive and accounts staff, 44,000 skilled workers and 17,000 general staff.The number of consumers served by WAPDA in that same year was about 4.5million, representing about 51 consumers per employee. The relatively highconsumer-employee ratio, reflecting the overstaffing of the distributiondepartment, 1/ has induced WAPDA to initiate a program, with the assistance

1/ The distribution department accounts for about 70% of WAPDA's staff.

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of consultants, EBASCO Services, a U.S. firm financed by USAID, for stream-lining the operations of the distribution department and for updating itspolicies, procedures and methods (paras 4.02 and 4.14). These same consult-ants are also assessing the viability of creating a Power DistributionAuthority. In addition, in order to promote the integrated development ofthe power subsector, GOP has agreed under ESL (Ln. 2552-PAK) to review themeans for reorganizing the subsector. COP is presently examining the legalimplications of assigning to WAPDA the responsibility of generation and highvoltage transmission of electricity for the entire country and restrictingKESC's operation to the bulk purchase of power from WAPDA for distribution inthe Karachi area. Consideration is also being given by GOP to private sectorinvolvement in the power subsector. Toward that end, GOP appointed in August1985 a National Deregulation Commission headed by the Governor of the StateBank of Pakistan. One of its objectives is to outline a strategy forincreasing private sector involvement in power distribution. Moreover, ECCapproved in September 1985 a charter of terms and conditions under which theprivate sector would be invited to participate in power generation, in thecontext of the agreed medium and long-term plans. A detailed framework forcompensating potential private firms involved in the supply of power inPakistan is currently being formulated. The Bank would review tne means andthe timetable for reorganizing the subsector.

B. Existing Facilities

2.04 In June 1985, WAPDA's total installed generating capacity was4,339 MW, comprising 2,897 MW (67%) of hydro and 1,442 MW (33%) of thermalcapacity. The maximum potential output of the existing hydro stationsamounts to about 3,100 MW when all the reservoirs are full. This potentialdrops to about 1,000 MW during the dry seasons, and has to be offset bythermal generation, including the more extensive use of combustion turbinesthan for the normal peak load, because of the overall shortage of generatingcapacity (Annex 2.3). According to WAPDA, the shortfall between demand andthe generation capability of its system, estimated at about 1,000 MW inJanuary 1985 and about 1,200 MW in June 1985, is expected to continue intothe mid-1990s (paras 4.07 and 5.02).

C. Power Planning

2.05 The slippages in the implementation of investment program,precipita:ed by both resource constraints (paras 1.07, 4.01 and 4.06) and theabsence of a mechanism that would identify priority projects and the scaleand timir.g of investments (para 1.02), prompted WAPDA to formulate, with theassistance of Argonne Laboratories, under financing fromi UNDP, with the Bankas the executing agency, an interim least-cost program for the development ofgeneration facilities. A revised national long-term least cost plan whichincorporates the more recent developments in the subsector is expected to becompLeted by December 31, 1986. In addition, in order to strengthen WAPDA'sin-house power system planning capability, Argonne, under the auspices of the

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International Atomic Energy Agency, has trained its staff in the use of theWien Automatic System Planning (WASP III) computer model and has successfullyinstalled that model on WAPDA's computer in early 1985. This would enableWAPDA to revise the national least-cost plan, as and when needed, incorporat-ing the updated information on the operation of the subsector, includinghydrology, water management and pattern of electricity consumption. ArgonneNational Laboratory, under financing from UNDP, is presently assisting WAPDAin outlining a system for collection, storage and retrieval of data on thepower system. The consultants are expected to complete this work by the endof 1986 (para 1.07).

Ceneration Program

2.06 Based on the interim long-term least cost development plan, WAPDA'sinstalled generating capacity is forecast to increase from 4,339 MW in June1985 to 9,416 MW in 1993. This would involve the commissioning of Projectsunder construction including: the extension at Tarbela (Units 11-14,4x432 MW), a steam unit (Unit No. 4, 210 MW) and a combined cycle station(450 MW) at Cuddu, a steam unit (Unit No. 1, 250 MW) at Jamshoro, and a setof combustion turbines at Kot Addu (4x10 MW). Financing for the aboveprojects has been secured. All of these units, except the ones at Tarbela,are expected to be commissioned during the Sixth Five-vear Plan. Units 11and 12 at Tarbela are expected to be commissioned in December 1989, and units13 and 14 in June 1990. In addition, the interim plan calls for the develop-ment of: a Large hydropower scheme at Kalabagh with a total capacity of3,200 MW when fully developed and a number of low-head hydro schemes inves-tigated by consultants under financing from Federal Republic of Germany; animported coal complex at Karachi; and thermal capacities at Lakhra based ondomestic coal and at Jamshoro based on fuel oil. Project implementationschedule for Kalabagh provides for construction over an eight-year periodwith civil works beginning end-1987.

2.0? A prefeasibility study for the imported coal complex has been com-pleted by consultants, Shawinigan Integ, a Canadidli firm, under financingfrom the Canadian International Development Agency (CIDA) and the Bank. Theconsultants have identified three possible sites - two near the existing PortQasim and the third, in the area west of Karachi. The feasibility study anddetailed engineering and preparation of bidding documents for the first phaseof the imported coal power complex are expected to be completed by Decem-ber 31, 1987. The feasibility studies for the Lakhra mine and power stationare under preparation by consultants, Gilbert Commonwealth, J.T. Boyd andICF, U.S. firms, under USAID financing. The results of these studies wouldbe reviewed by the Bank. The prefeasibility study for the plants at Jamshorohas been completed by consultants, Bechtel International, Inc., a U.S. firm,under financing from USAID who are also expected to finance the detailedengineering. The study shows that the expansion of the installed capacityfrom 670 MW to about 1,600 MW and the construction of a pipeline to transportfuel oil for the operation of the plants would be economic. In view of the

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need to diversify the fuel used for power generation and expand the gener-ating capacity to reduce power shortages, WAPDA agreed to recruit consult-ant3 with qualifications, experience and terms of reference satisfactory tothe Bank, to undertake a feasibility study and detailed engineering, andprepare the bidding documents for the second stage of the power generationcomplex at Jamshoro; the work should be completed and reviewed in consult-ation with the Bank by no later than March 31, 1987 (para 6.02(a)).

2.08 In addition, in order to improve the efficiency of the existingthermal power plants WAPDA with the assistance of consultants, Stone andWebster, a U.S. firm, financed by USAID, has prepared a program for theirrehabilitation and retrofitting. The principal eiements of the recommendedprogram, which would increase WAPDA's generating capacity by about 200 MW,would form the basis of a project suitable for possible Bank financing inFY87.

Transmission Program

2.09 Major hydro resources are located in the north of the country andthermal facilities and load centers are concentrated in the center and thesouth, which requires the bulk transmission of electricity over long distan-ces. In order to ensure the efficient evacuation of power, WAPDA's long-termplan calls for the development of extra high voltage (500-kV) transmissionlines between Tarbela and Karachi by 1990. The Tarbela-Faisalabad section(about 300 kn) of the first 500-kV transmission line is already in service;the section from Faisalabad to Jamshoro via Multan and Guddu, presentlyoperated at 220-kV, is being upgraded for 500-kV operation. A double circuit220-kV transmission link between Jamshoro and Karachi (about 130 km) wascompleted in December 1984. The second 500-kV line from Tarbela toFaisalabad was commissioned in August 1985 with financial assistance fromCIDA. The transmission system will be further reinforced with the completionby 1990 of a third 500-kV line. The section between Tarbela and Lahore isfinanced by the Asian Development Bank (ADB), and section between Lahore andJamshoro via Multan and Guddu is financed by the Bank (Ln. 2556-PAK)(para 1.12). The 220-kV network and subtransmission system would also beexpanded during the period FY85-FY89 under the Fourth WAPDA Power Project(Ln. 2499-PAK) (para 1.12) whose development would be integrated and coor-dinated with the expansion of the high voltage transmission and distributionsystems. As losses in the network are relatively high, about 27X of grossgeneration, WAPDA has also initiated a study, with the assistance of consult-ants, EBASCO Services, a US firm, financed by USAID, to prepare a detailedwork and inviestment programs needed to reduce losses to economically accept-able levels. The study, which is expected to be completed by June 30, 1986,will serve as a basis for a possible loss reduction project suitable for Bankfinancing.

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Distribution and Rural Electrification Program

2.10 EBASCO Services, a US firm, financed by USAID, is assisting WAPDA inthe design and preparation of a comprehensive Master Plan for Power Distribu-tion System which would identify the changes required to expand as well asimprove the efficiency of WAPDA's service. The objective of this program isto reduce losses at the distribution level and provide for the economicexpansion of the distribution network in rural as well as urban areas. Thestudy, to be completed by mid-1986, has focussed specifically on: the dis-tribution organization, energy loss analysis, establishing criteria forselection of feeders for rehabilitation, plans for efficient distributionexpansion and practices, load management, voltage regulation and servicereliability. The Bank, together with WAPDA and USAID, will review the MasterPlan prepared by the consultants. This Master Plan, along with the study ontransmission losses (para 2.09), would serve as a basis for identifying thetransmission and distribution components of the Core Investment Program andset a framework for selecting projects suitable for external financing.

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III. THE PROJECT

Project Setting

3.01 In order to rationalize investments, GOP's energy sector strategycalls for the implementation of a core investment program which covers theongoing projects and those to be initiated during the remaining three yearsof the plan (para 1.04). One of the ongoing projects included in the coreinvestment program is the power plant at Kot Addu (400 MW), located in thecentral part of the country (Map IBRD 19384). The Kot Addu power plant,comprising four combustion turbine, was designed to ensure system stabilityand provide peaking capacity at Multan, one of the main load centers in thecountry. However, the forecast energy requirements indicate that these unitswill be operated for at least the first ten years during off-peak periods.Accordingly, priority has been accorded to the conversion of combustionturbines to combined cycle operation which would allow WAPDA to make use ofthe waste heat from the turbines and improve the overall efficiency of thepower plant. The conversion of combustion turbines to combined cycle opera-tion is consistent with GOP's overall objectives for the energy sector whichcall for rationalizing consumption, improving efficiency and meeting futuredemands at least cost to the economy.

Objective of the Project

3.02 The -primary objective of the Project is to improve the efficiency ofthe Kot Addu power station by providing 50X more power per unit of fuelconsumed. Moreover, it would also assist in reducing the forecast shortfallin generating capacity, expected to continue until the mid-1990s, by addingan additional 200 KW of capacity in a relatively short time.

Description of the Project

3.03 The Project, which is described in detail in Annex 3.1, consists ofthe following components:

(a) the installation of four heat recovery boilers to be connected totwo 125 MW and two 100 MW combustion turbines currently underconstruction, two steam turbo-generators of about 100 MW, togetherwith associated high voltage transformers, cooling water supply,and auxiliary facilities3

(b) the construction of about 104 km of 220-kV transmission lines fromNot Addu to Multan and the addition of connecting bays at thesegrid substations; and

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(c) consulting services for the preparation of specification of equip-ment, bidding documents, evaluation of bids, finalization ofdesigns and supervision of erection and testing of the combinedcycle units.

Project Cost

3.04 The estimated cost of the Project, including price and physicalcontingencies and customs duties is about US$175 million. The total financ-ing required, inclusive of interest during construction, is US$188 million.Of the total financing required, US$102 million would be in foreign exchangeand the remaining US$86 million would be in local costs. These estimates arebased on quotations for similar ongoing works, updated to December 1985prices. Physical contingencies were assumed at 7% for equipment andmaterial, and 14% for erection services. These amount to 10.7% of the basecost of the Project. Escalation of foreign costs is assumed at 3.25% forFY86, 7% for FY87, and 7.25% for FY88, 7.6% for FY89 and FY90, and 6% forFY91. Escalation of local costs is assumed at 10% for FY86, 8.5% for FY87,and 7.5% per annum thereafter. The total price escalation amounts to 29.2%of the base cost plus physical contingencies. Estimates of duties and taxesamount to US$36.0 million, resulting in total cost of the Project of US$139.4million net of taxes and duties. Summary of project cost is presented inTable 3.1 below and details are given in Annex 3.2.

Table 3.1: Project Estimated Cost 1/

Local Foreign Total Local Foreign TotalRs Millioi ----- -----US$ Million-----

Preliminary and Civil Works 200 - 200 12.5 - 12.5Power Station Equipment 454 899 1,353 28.4 56.1 84.5Transmission Equipment 26 60 86 1.6 3.8 5.4Erection 156 70 226 9.7 4.4 14.1Consultancy - 23 23 - 1.4 1.4Engineering and Administration 77 - 77 4.8 - 4.8Total Base Cost 913 1,052 1,965 57.0 65.7 122.7

Physical Contingencies 122 83 205 7.6 5.5 13.1Price Contingencies 333 301 634 20.8 18.8 39.6Total Project Cost 1,368 1,436 2,804 85.4 90.0 175.4Interest during Construction

Bank - 199 199 - 12.4 12.4Total Financing Required 1,368 1,635 3,003 85.4 102.4 187.8

1/ Figures may not add due to rounding.

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Project Financing

3.05 The foreign exchange cost of the Project would be covered by a Bankloan of US$90.0 million, and a loan of about US$12.4 million by GOP towardsinterest during construction, which would be capitalized. The Bank loanwould be made to WAPDA with GOP as guarantor. GOP and WAPDA would providethe local financing, amounting to US$85.4 million of which US$10.3 millionwould be in the form of Rupee loan from GOP and US$75.1 million from WAPDA'sinternal sources. WAPDA would bear the interest rate risk and cost overrunsand GOP would bear the foreign exchange risk. The following table summarize-the financing plan:

Table 3.2: Project Financing Plan

Local Forjein Total(US$ Million)

IBRD Loan - 90.0 90.0WAPDA 75.1 - 75.1GOP 10.3 12.4 22.7

Total 85.4 102.4 187.8

Engineering and Construction

3.06 WAPDA has acquired extensive experience in the installation andoperation of thermal power stations, both steam units and combustion tur-bines, and associated high voltage transmission systems. This experience,however, does not cover the installation of combined cycle units. The firstcombined cycle station of 450 MW is currently under construction at Gudduwith ADB and USAID financing. The Project would be the second such stationin the country. WAPDA is in the process of recruiting consultants, on termsand conditions satisfactory to the Bank, to assist in: (i) the preparation ofthe specifications for the equipment and bidding documents; (ii) the evalua-tion of bids; (iii) the finalization of the design proposed by the selectedbidder; and (iv) the supervision of the manufacture, erection, testing andcommissioning of the equipment. The cost of consulting services required forthe Project would be financed under the loan.

3.07 The proposed power station "4ill be located in the outskirts of thetown of Kot Addu close to major roads and railways, which will facilitatetransport of equipment, materials and fuel (para 3.12). Cooling water willbe supplied from tubewells because the quality of groundwater is better thanthat of the water from nearby irrigation canals. Moreover, the station wouldbe equipped with cooling towers in order to reduce water requirement. Theassociated transmission system would consist of 132-kV lines being con-structed under the Fourth WAPDA Power Project (Ln. 2499-PAK) connecting the

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station to the regional load centers. In addition, 220-kV lines to Mu'Ltanwill connect the station with WAPDA's national grid. WAPDA has alreadyestablished a specific unit responsible for the implementation of the Projectto ensure prompt decision-making and effective coordination. Constructionwould be supervised and conducted by resident engineers with the assistanceof consultants (para 3.06). In the context of the ongoing installation ofthe combustion turDines, WAPDA has already started a training program for theoperation of similar facilities, using a simulator at WAPDA's training centerat Faisalabad. Specific training for the operation and maintenance of thecombined cycLe equipment included in the Project would be provided by theequipment contractors.

Project Preparation and Implementation Schedule

3.08 WAPDA is currently installing the four combustion turbines to whichthe equipment incLuded under the Project would be connected (para 3.01).These turbines are scheduled to be commissioned by the end of 1986. Land hasalready been acquired by WAPDA to accommodate the installation of the combus-tion turbines and combined cycle facilities and allow for possible extensionin the future. All basic infrastructure facilities (e.g. access roads, watersupply, fuel treatment plant and storage reservoirs, accommodation for con-tractors and WAPDA personnel) are under construction. The equipment includedin the Project is standard and preparation of tender document is straightfor-ward and is expected to be completed before September 30, 1986. Major con-tracts, in particular the combined package for the heat recovery boilers andsteam turbo-generators, would be awarded by June 30, 1987. Project comple-tion is expected in mid-1990. The detailed implementation schedule for theProject is shown in Annex 3.3. The approval by ECNEC of the PC-1 documentwith respect to the Project would be a condition of effectiveness for theloan (para 6.03(a)).

Procurement

3.09 Procurement arrangements for the Project are summarized in Table 3.3.The major equipment for the combined cycle units, estimated to cost aboutUS$133.5 million, would be tendered as a turnkey package, subject to interna-tional competitive bidding (ICB) in accordance with Bank guidelines.Auxiliary equipment for the power station and equipment associated with thetransmission facilities, estimated to cost about US$9.0 million, would begrouped in packages and will be subject to ICB in accordance with Bankguidelines. About 81% of works, goods and services for the Project would beprocured through ICB. Documents for individual contracts above US$1,000,000equivalent would be subject to prior review by the Bank. Local suppliers andmanufacturers competing for the supply of goods under ICB would have a 15%preference or the applicable duty, whichever is less. Consultants forproject engineering, training and technical assistance would be selected andemployed in accordance with Bank guidelines. WAPDA has requested the Bank toauthorize advance procurement and retroactive financing of up to US$500,000

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to cover expenditure after December 1, 1985, and prior to loan signing, inrespect of consulting services (para 3.06). The planned schedule forprocurement of the equipment and material to be financed by the Bank loan is(a) invitation of bids: September 30, 1986; (b) first bid opening: Decem-ber 30, 1986; (c) first award decision: June 30, 1987; and (d) first contractsignature: July 31, 1987.

Table 3.3: Procurement Arrangements(US$ Million) 1/

Project Element Procurement Method 2/ICB LCB Other Total

I. Power Stations

Preliminary and 18.1 18.1Civil Works

Main Electromechanical 133.4 133.4Equipment (81.5) (81.5)

Auxiliary Electromechanical 2.3 3.3 5.6Equipment (1.8) (1.8)

II. Transmission Lines andSubstations

Civil Works & Erection 3.5 3.5Equipment 6.9 6.9

(4.7) (4.7)

III. Consulting Services and 2.0 2.0Technical Assistance (2.0) (2.0)

IV. Engineering and Administration 5.9 5.9

Total 142.6 24.9 7.9 175.4

(88.0) (2.0) (90.0)

1/ Figures in parentheses indicate the amount to be financed by the Bank.2/ ICB: International Competitive Bidding

LCB: Local Competitive BiddingOther: Direct negotiation or not subject to commercial procurement

(e.g., land acquisition, owner expenses.)

Disbursement

3.10 The proceeds of the loan would be disbursed against: (a) 100% of theCIF cost of imported goods, or (b) 100% of ex-factory costs of locally

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manufactured goods, aoth being subject to ICB. Disbursement of the loanwould also be made against 100% of the foreign cost of consultancy. Aschedule of disbursements is given in Annex 3.4 and relates to the projectimplementation schedule (Annex 3.3). The disbursement schedule is fasterthan the Bank's standard profile for thermal generation projects, five yearsas against eight. This is reasonable given: (a) the shorter time requiredfor the manufacture and installation of equipment for the conversion tocombined cycle operation compared to Large coal-fired power stations whichfeature significantly in the standard profile; and (b) the conversion tocombined cycle in this project basically involves retrofitting a stationwhere all infrastructural facilities are nearly complete. The Bank is satis-fied that the proposed profile reflects worldwide experience in combinedcycle conctruction, WAPDA's implementation capabilities, and the advancedstage of project preparation.

Fuel Supply

3.11 The Kot Addu combustion turbines which are at an advanced stage ofinstallation would operate on 1iquid fuel to be transported from Karachi toGujarat, near Multan, through an existing pipeline. 1/ The pipeline has beendesigned to transport crude oil to a refinery that GOP had planned toinstall at Multan. However, under ESL (Ln. 2552-PAK), the Government agreedto undertake a study for the rationalization of the infrastructure for supplyand delivery of petroleum products throughout the country. Accordingly, thestatus of the proposed Multan refinery is being reviewed. In the interim,the Karachi-Cujarat pipeline is being used to transport batches of kerosene(30%) and high speed diesel oil (HSD) (70%) for distribution to mid-countryconsumers. Although diesel oil would be used to operate the Kot Addu sta-tion, the combustion turbines have been designed to use a mix of furnace oilor crude oil (80%) and HSD (20%), in the event that these fuels become avail-able in the area, through the pipeline or the refinery. An alternative fuelto be considered would be gas, which is Pakistan's main commnrciallyexpl,ited hydrocarbon resource (para 1.01). However, the nearest known gasfields, Nandpur and Panjpir, are located about 200 km from Kot Addu and havelimited reserves. According to OGDC, these fields could only supply smallunits of about 25 KW each. In addition, because of recent shortages in gasproduction, GOP has decided, for the time being, to release the gas from thepower subsector for higher value uses, and has agreed under ESL(Ln. 2552-PAK) to undertake a study to revise the Gas Development Plan todetermine the optimal supply and utilization pattern for the next five years.Therefore, in the absence of gas or crude oil, the operation of the Kot Addustation with HSD would be the only economic option (para 5.03).

lf Diameter 16 inches, length 864 km.

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3.12 The Karachi-Gujarat pipeline is operated by the Pakistan Arab Company(PARCO) which delivers the fuel to the oil depot at Mahmood Kot, nearGujarat. PSO would deliver the fuel to the Kot Addu power station which islocated about 30 km from Mahmood Kot. PSO has decided to construct a 11 inchdiameter pipeline for the transport of fuel between the two stations. Afeasibility study has demonstrated that the transport of fuel by pipeline isthe least cost alernative, particularly in view of the fact that for atleast ten years after its commissioning, the station is expected to operateat a high load factor. Therefore, in order to ensure the coordinateddevelopment of the Mahmood Kot - Kot Addu fuel pipeline and the proposedpower station, confirmation by GOP that a contract for the_pipeline construc-tion has been signed, would be a condition of effectiveness of the loan(para 6.03(b)).

Ecology

3.13 The operation of the station at full capacity should present noenvironmental problems because the fuel has a low sulphur content. Theemission levels are expected to meet the requirements specified in the Bankguidelines. Owing to the relatively small size of the steam units and theinstallation of cooling towers, the water requirement can easily be drawnfrom the underground without affecting the aquifer level. Safety regulationsfor power stations, to which all operating personnel must conform, will bestrictly enforced, as they are in existing WAPDA stations which all have agood safety record. The combustion turbines are being equipped with adequatesilencing equipment and the turbine halls of the steam turbo-generator com-ponents will have a sound pressure level of less than the maximum acceptablethreshold of 90 decibels. Transmission lines will be designed to keep radiointerference within acceptable limits.

Project Risks

3.14 No unusual risks are foreseen. Combined cycle units are a standardtype of installation which require limited civil works and relatively littleassembly on site. Risk of damage due to fire, explosion, etc. would becovered by the respective contractors during the construction phase, and,after commissioning, by WAPDA, through its insurance policies which aresatisfactory (para 4.22).

Project Monitoring

3.15 WAPDA will submit quarterly reports covering the works of the con-sultants, physical progress, costs, disbursements and administrative aspectsof the Project. In addition, there will be annual financial and administra-tive reports.

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IV. FINANCES 1/

Introduction

4.01 WAPDA's financial affairs are governed by the WAPDA Act whichrequires the utility to generate sufficient revenues from electricity salesto cover operating costs including depreciation, debt service and achieve areasonable return on investment. Under the First WAPDA Power Project(Cr. 213-PAK), WAPDA agreed to achieve a rate of return of 8% on revaluedaverage net fixed assets in use. However, because of GOP's reluctance torevalue assets, this covenant was replaced in FY80 under the Third WAPDAPower Project (Cr. 968-PAK) by an internal cash generation covenant whichrequires WAPDA to generate annually from internal sources 40% of the invest-ment, averaged over the previous two years and the current year withouttaking into account the net changes in working capital. WAPDA was able tocomply with this covenant until FY85 with minimal tariff increases(para 4.04), but only because of substantial slippages in its investmentprogram. It was in the context of these slippages and the accompanyingshortfalls in generating capacity that agreement was reached with WAPDA underthe Fourth WAPDA Power Project (Ln. 2499-PAK) on a Rs 30 billion Core Invest-ment Program (CIP) for the period FY86-FY88 (para 4.06).

Accounting Systems and Organization

4.02 Under previous Bank Group operations (Ln. 1208T-PAK and Cr. 968-PAK),WAPDA engaged Peat, Marwick, Mitchell and Co. (PMM) of UK as consultants tostudy the financial organization and make recommendations to improve theutility's financial management, particularly in the areas of accountingsystems and procedures, and organization and staffing. The study, which wascompleted in FY82, recommended the introduction of a modern accruals basedaccounting system with a code of accounts, the updating of inventory manage-ment methods and the streamlining of financial reporting procedures. Theserecommendations were implemented by PMM in FY83 and FY84 and as a result,WAPDA's revenue billing and collection, and control over its finances haveimproved significantly. In addition, the appointment of General Manager andDeputy General Manager for Finance has strengthened the overall financialfunction and enhanced its role within WAPDA. In order to sustain this momen-tum, WAPDA, under financing from USAID, has engaged EBASCO Services, AmericanElectric Power Energy Services and International Training and EducationCompany, US firms, is consultants to carry out additional work in the areas

1/ WAPDA maintains complete and separate accounts for the Power Wing. Thefinancial analysis and discussions in this chapter are confined to theoperations of WAPDA's Power Wing, which for ease of reference is referredto as WAPDA.

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of Fixed Asset Accounting (para 4.08), Internal Audit (para 4.15) and train-ing of staff (paras 2.03 and 4.14).

Past Operations

4.03 Financial statements showing WAPDA's performance during the periodFY80-FY85, are presented in Annexes 4.1, 4.2 and 4.3, and summarized inTable 4.1:

Table 4.1: Operating Results FY80-FY85

Year Ending June 30 FY80 FY81 FY 82 FY83 FY84 FY85(prov)

kWh generated (million) 12,124 13,206 14,768 16,477 18,052 18,780kWh sold (million) 8,160 9,068 10,288 11,593 12,762 13,156System losses (%) 33 31 30 30 29 27Avg. rev/kWh sold,including fuel surcharge 46 51 57 62 63 64

Operating Rev. (Rs million) 3,919 4,777 6,011 7,361 8,214 8,986Operating Exp. (Rs million) 1,782 2,218 3,306 4,083 5,069 6,350Operating Income (Rs million) 2,137 2,559 2,705 3,278 3,145 2,636Net income after int.and payment to Govt.(Rs million) 1,410 1,870 1,835 2,214 1,977 1,445

Self-financing ratio(3 yr. Avg.) (%) 56 65 82 70 47

Rate of Return:Historically valued assets (Z) 15.3 18.3 17.3 17.9 14.6 10.6Revalued assets (proforma) (X) 10.0 10.4 9.5 10.0 8.2 4.1

WAPDA's electricity generation increased from 12,124 GWh in PY80 to18,780 GWh in FY85; however, because of the overall shortage of generatingcapacity precipitated by resource constraints (para 1.02) and the poorhydrological conditions, particularly in FY84 and FY85, the rate of growth ofgeneration declined from an average of about 10.PZ between FY80 and FY83 toabout 6.8% between FY84 and FY85. The poor hydrological conditions alsonecessitated the increased use of thermal capacity and, as a result, itsshare in total generation increased from 28% in FY80 to 35% in FY85, whilethat of hydro declined correspondingly. As WAPDA was able to reduce systemlosses from 33% of gross generation in FY80 to 27% in FY85, by extending andupgrading the transmission network (paras 1.11 and 1.13) and by streamliningand strengthening billing/collection operations, its electricity salesincreased at a higher rate of growth than generation, averaging about 12% ayear.

4.04 WAPDA's tariffs were increased from 46 paisa/kWh in FY80 to 64paisa/kWh in FY85, representing an average annual increase of about 7Z.

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However, as the increases in tariffs were well below the increases in thegeneral price level, WAPDA'S tariffs declined, in real terms, during thisperiod at an average annual rate of about 13%. As of FY85, WAPDA's averagerevenue/kWh was at about 60% of Lthe estimated LRMC of 110 paisa/kWh(para 1.07). The average rovenuei'kWh it;cludes the fuel adjustment surcharge,which is applicable toi all consumer C(ategories, except agricultural anddomestic consumers who accouttnted ttr abolut 38%r of WAPDA's sales in FY85. Asa result, WAPDA was able to recover onlv about 62% of fuel costs in thatyear. As inadequate upward adjustmentns in tariff; together with theinability of WAPDA to fully recov'er the nigher tuel costs had resulted insubstantial stippages in thle investLMenL prugram, GOP and WAPDA agreed underthe Fourth Power Proiect (L.n. 2499-PAK) t) tLake all necessary actions,including tariff increases to ensure that WAPI)A'-i core investment program isimplemented (paras 4.06. 4.09 and 4.101). GOP has also initiated a loadresearch and management study wlhich would provide inputs needed for restruc-turing electricity tariffs (paras 1.07 and 5.02). In addition, WAPDA isassessing the impact of introducing a fuel charge in the tariff for the lowvoltage consumers. Current plans call for this change to be introduced inFY87 (paras 1.07 and 5.02).

4.05 WAPDA's operating revenues increased from Rs 3,919 million in FY80 toRs 8,986 milLion in FY85, representing an average annual rate of about 22%.By contrast, during this same period operating costs increased at a ratenearly twice that of operating revenues, averaging about 43% annually, mainlybecause of higher fuel costs stemming from increased reliance on thermalcapacity (para 4.03). As a percentage of total operating costs, theseincreased from 22% in FY80 to 38% in FY85. Higher fuel costs, which WAPDAwas unable to fully pass on to the consumers, together with inadequate upwardadjustments in tariffs and shortages of generating capacity, eroded theutility's profitability. This, as measured by the ratio of operating incometo operating revenue, declined from 54% in FY80 to 29% in FY85.

4.06 WAPDA's self-financing ratios, calculated in accordance with theformula agreed under the Third WAPDA Power Project, amounted to 56% in FY81,65% in FY82, 82% in FY83, 70% in FY84 and 47% in FY85. As noted (paras 4.01and 4.04), these relatively high self-financing ratios were achieved mainlybecause of slippages in WAPDA's investment program precipitated by resourceconstraints stemming from inadequate tariff increases and reductions inannual budgetary allocations. These slippages and the supply constraintsensuing therefrom induced GOP and WAPDA to agree, under the Fourth WAPDAPower Project (Ln. 2499-PAK), on a Rs 30 billion Core InvestmentProgram (CIP) for the period FY86-FY88 (para 1.04). Of this, about 60% isearmarked for the expansion of generation capacity. In order to ensure theimplementation of the CIP for FY86, WAPDA's tariffs were increased by 10% forall categories of consumers effective July 1, 1985 (para 1.07) and requiredbudgetary allocations were made. GOP and WAPDA have also agreed under thisproject to adopt, starting FY89, a forward looking formula for calculatinginternal cash generation which would require WAPDA to generate annually from

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internal sources 40% of its investment averaged over the previous, currentand succeeding years, after taking into account the changes in working capi-tal.

4.07 During the period FY80-FY83, WAPDA's revenues and net income keptpace with increases in its asset base, thereby enabling the utility toachieve an average rate of return of 17% on historically valued assets and10% on revalued assets. In FY84 and FY85, however, the rate of returndeclined to 14.6% and 10.6% on historically valued assets and 8.2% and 4.1%on revalued assets. This decline in rates of return is attributable to:(a) the commissioning of large assets during those two years, particularlyhydro capacity; and (b) the erosion of WAPDA's profitability (para 4.05).Moreover, as some of WAPDA's assets were underutilized during FY84 and FY85,particularly hydro units and the associated transmission lines, WAPDA'saverage net fixed assets in use are overstated relative to the revenue gener-ated. The rates of return -n FY84 and FY85, therefore, should be viewed asunderstated return. WAPDA's financial projections for the period FY86-FY93,in fact, show that the rates of return on revalued assets is expected toimprove, but is unlikely to exceed 8% because capacity shortages are forecastto continue into the mid-1990s (paras 2.04 and 5.02). This implies thatincreases in operating revenues will continue to increase Gver the foresee-able at a slower pace than the increases in assets.

Present Financial Position

4.08 Balance sheets showing WAPDA's financial position are presented inAnnex 4.1. The book value of fixed assets is shown at historical cost, asrequired by GOP. As a large proportion of WAPDA's electricity supplyfacilities (generating plant, and transmission and distribution networks)were commissioned during the last few years, its gross fixed assets in serv-ice increased between FY80 and FY85 by about 115%, 60% of which were financedfrom WAPDA's internal sources and 40% from borrowings. WAPDA is currently inthe process of establishing a system that will classify fixed assets bycategory and form the basis for the formulation of appropriate depreciationschedules (para 4.02). This work is expected to be completed by June 30,1986. Until such time, an average rate of depreciation of about 3.5% isbeing applied, which is considered adequate by the Bank. WAPDA's capitaliza-tion as of June 30, 1985 is summarized in Table 4.2:

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Table 4.2: WAPDA's Capitalization as of June 30, 1985

US$ MillionEquity Rs Million Equivalent X

Government investment 2,409 151 6Government equitycontribution 2,777 173 7

Capital contributions 2,175 136 6Retained earnings 11,988 749 31Total 19,349 1,209 50

Long-term Debt 18,993 1,187 50

TOTAL CAPITAL 38,342 2,396 100

The Government's investment of Rs 2,409 million includes initial contributionof Rs 461 million to WAPDA at the time of its formation, capital contribu-tions of Rs 471 million for the Warsak and Mangla projects and Rs 1,386millinn for Tarbela. At the end of FY85, WAPDA's capitalization position wasstrong with a debt/equity ratio of 50/50 compared to a ratio of 61/39 at theend of FY79. This increase in equity is due mainly from improved earnings;retained earnings amounted to 62% of total equity at the end of FY85, com-pared to only 26% at the end of FY79. In addition to a strong capitalizationposition, both the ratio of current assets to current liabilities of 3.4 andthe coverage of debt service by gross internal cash generation of 1.69 aresatisfactory.

Investment Program and Financing Plan

4.09 WAPDA's development program for the period FY85-FY94, together withthe annual phasing of expenditures for ongoing and new projects and thesources of foreign exchange presently identified, is presented in Annex 4.5and summarized in Table 4.3:

Table 4.3: Capital Investment Program

Rs million US$ million % Foreign Exch.(%)

Generation 101,556 6,347 64 44Transmission 31,078 1,942 20 36Distribution 26,081 1,630 16 10Other 44 3 - 45Total 158,759 9,922 100 38

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Of the total investment program, about 64% is earmarked for the expansion ofgenerating capacity, 20% for the extension and reinforcement of the transmis-sion system and 16% for the distribution system. As substantial investmentshave already been made in the development of transmission (paras 1.11 and1.13) and distribution facilities (para 2.11), and because slippages weremost acute in the commissioning of new generating capacity, a relativelylarger share of the resources are earmarked for their expansion. The Bankhas reviewed the investment plan for its content, size and allocation, andfinds it satisfactory. In order to ensure that WAPDA's system continues todevelop along the least cost path, GOP and WAPDA agreed under the Fifth WAPDAPower Project (Cr. 2556-PAK) to an annual investment review with the Bankwhich would result in a rolling three year CIP, starting with the coreprogram for FY86-FY88 (para 4.06). AccordingLy, GOP and WAPDA agreed to aCIP of Rs 39 billion for FY87, FY88 and FY89, with annual allocation ofRs 10,751 million for FY87, Rs 11,535 million for FY88 and Rs 16,669 millionfor FY89 (para 6.01(a)) and to invest over the three year period Rs 21,749million in generation, Rs 10,731 million in transmission and Rs 6,375 millionin distribution facilities (para 6.01(b)).

4.10 The purpose of the CIP is to identify high priority projects andensure that resources are made available for their implementation. Thesources of financing for the CIP covering the period FY87-FY89 are summarizedin Table 4.4:

Table 4.4: Financing Requirements and Sources During FY87-FY89

Rs million US$ million x

Requirements

Capital Investment 38,955 2,435 91Working Capital Increase 3,827 239 9Total Requirements 41,782 2,674 100

Sources

Gross Internal Sources 30,025 1,876Less: Debt Service andPayment to Government 15,560 972

Net Internal Cash Generation 14,465 904 34BorrowingsGOP Loans 11,290 706 26Foreign Loans 15,782 9&6 37Proposed Loan 1,245 78 3Total Borrowings 28,317 1,770 66

Total Sources 41,782 2,674 100

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During the period PY87-FY89, WAPDA's total requirement of funds would amountto Rs 41,782 million (US$2,674 million); Rs 38,955 million (US$2,435 million)for the CIP and Rs 3,827 million (US$239 million) for working capitalincrease. Of the total funds required, Rs 14,465 million (US$904 million) orabout 342 would be financed by WAPDA from internal sources and the balance ofRs 28,317 million (US$1,770 million) would be financed through borrowings.GO! loans, which would be made to WAPDA by way of Annual Development Program(ADP) allocations, would amount to Rs 11,290 million (US$706 million) andmost of it would be in Rupees. Foreign loans, including the disbursementsunder the proposed Project amounting to Rs 17,027 million (US$1,064 million),would finance about 40% of the total requirements. COP and WAPDA agreed totake all necessary actions, including tariff increases and ADP allocation, inorder to ensure that the resources needed to implement the CIP for FY87-FY89are made available. (para 6.01(c)).

Future Finances

4.11 Forecast income statements, sources and applications of funds state-ments and balance sheets for FY86-FY93 are shown in Annexes 4.1, 4.2 and 4.3.A summary of forecast operating results for this eight-year period ispresented below:

Table 4.5: Forecast Operating Results

FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93

kWh generated (million) 21,227 23,510 26,174 28,769 30,628 33,329 35,727 37,171kWh sold (million) 15,708 17,973 20,154 22,152 23,584 25,663 27,510 28,622Average revenue per kWh

sold (paisa)l/ 74 86 108 136 150 164 180 204Operating revenue (Rs million) 11,919 15,700 21,950 30,361 35,602 42,383 49,979 58,702operating expense (Rs million) 8,294 11,150 15,791 20,241 23,654 28,272 34,063 41,018Net operating income (Rs million) 3,625 4,490 6,059 9,720 11,308 14,011 15,416 :6,984

Self-financing ratio(Three-year average) (X) 48 40 40 40 40 40 40 40

Rate of returnHistorically valued assets (X) 12.2 12.7 14.3 19.3 18.7 18.2 17.0 16.0Proforma revalued assets (Z) 5.1 5.2 6.1 9.0 8.8 9.4 9.0 8.8

Debt/equity ratio 53/47 57/43 59/41 59/41 60/40 59/41 60/40 59/41

Debt service coverage 1.8 1.6 1.6 2.0 1.9 1.9 1.8 1.7

1/ Including fuel surcharge.

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WAPDA's financial projections are based on increases in electricity gener-ation and tariffs, and a reduction in system losses. Electricity generationis forecast to increase at an average annual rate of 8.9% and electricitysales by 9.6%, reflecting a sustained decrease in system losses. In orderfor WAPDA to continue to self-finance not less than 40% of its capitalinvestment program to meet the financial performance covenant, forecaststhrough FY93 show that it would need to increase tariffs at an average annualrate of about 15% in nominal terms, amounting to about 8% in real terms,assuming a forecast average annual inflation rate of 7%. The financialforecasts for FY87, in particular, show that a 11% increase in average tariffeffective July 1, 1986. is needed to satisfy the 40% self-generation covenantfor FY87. In order to ensure that adequate resources are available for theimplementation of the Rs 10,751 million Core Investment Plan for FY87, GO?and WAPDA agreed that the announcement of a tariff increase which woulienable WAPDA to finance at least 40% of its capital investment requirementsfor FY87 from internal sources, computed in accordance with the internal casheneration formula drawn up under the Third WAPDA Power Project(Cr. 968-PAK), would be a condition of loan effectiveness (para 6.03(c)).

4.12 Forecast balance sheets (Annex 4.3) show that WAPDA's gross fixedassets are expected to increase from Rs 35,019 million in FY85 to Rs 149,731million at the end of FY93. About 40% of the increase would be financed fromWAPDA's internal sources and 60% from borrowings. As a result, equity isexpected to increase by three and one-half times, from Rs 19,349 million inFY85 to Rs 67,671 million in FY93, 85% of this increase attributable toretained earnings. Long-term debt is forecast to increase fivefold, fromRs 18,992 million to Rs 99,095 million, resulting in a debt/equity ratio inFY93 of 59/41, which is reasonable for an electric utility. The coverage ofdebt service by gross internal cash generation would be satisfactory duringthis period as would the ratio of current assets to current liabilities.Nevertheless, in order to ensure that WAPDA's debt service coverage by grossinternal cash generation continues to be satisfactory, the debt limitationcovenant under the Fourth WAPDA Power Project (Ln. 2499-PAK) is repeatedunder the project, which provides that WAPDA would consult the Bank should itseek to incur new debt that would result in WAPDA's gross internal cashgeneration before debt service and payment to GOP falling below 1.5 times thedebt service requirement (para 6.02(b)).

Financial and Commercial Operations

4.13 WAPDA's distribution department is one of the largest commercialundertakings in Pakistan with annual sales in FY85 of 14 GWh to over 4.5million consumers, and billing and collections amounting to some Rs 750million each month. This magnitude of operation requires efficient finan-cial/commercial systems and capable staff to operate them. WAPDA, however,has been unable to recruit qualified mid- to high-level accounting staffbecause its current rules stipulate that such positions be filled by promot-ing individuals from within WAPDA. In order to address this constraint, new

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WAPDA Accounting Service Rules have now been drafted which would permit therecruitment of mid- to high-level accounting staff from outside WAPDA, and acommittee is reviewing them before presentation to the Authority forapproval. Once these rules are approved, WAPDA will be able to recruitqualified financial staff to fill required positions at both headquarters andthe eight AEBs where the shortage of qualified staff is particularly acute.WAPDA plans to have these rules approved and put into effect, beginningJuly 1, 1986.

4.14 WAPDA continues to make progress in streamlining and strengtheningits financial/commercial operations with substantial support from USAID underits Power Distribution Project (paras 2.11 and 4.02) which includes a largetraining component. This project is timely in that it complements theinstitution-building work carried out by WAPDA under Bank-financed projects(paras 1.10 and 4.02). WAPDA, USAID and the Bank are closely coordinatingtheir institution building activities. Annex 4.6 summarizes work beingcarried out under the Power Distribution Project in the financial/commercialareas.

Internal Audit

4.15 A basic function of an internal audit unit is, inter alia, to providesenior management with information relating to the performance of theentity's systems. In addition, an effective internal audit unit canfacilitate the performance of the external audit, with the latter relyingheavily on the former (para 4.20). WAPDA has a large Internal Audit Depart-ment, whose systems and procedures are outdated and its responsibilities havenot been enhanced to suit the utility's recent growth in size and complexity.In recognition of this, as agreed under the Fourth WAPDA Power Project(Ln 2466-PAK), WAPDA has engaged consultants (EBASCO Services, AmericanElectric Power Energy Services and International Training and EducationCompany, US firms) under financing from USAID, to develop a modern internalauditing system. Bank has reviewed the qualifications, experience, and theterms of reference of the consultants and finds them satisfactory. Theconsultants have begun their work and are expected to complete it by March1988.

External Audit

4.16 The WAPDA Act stipulates that the Auditor General of Pakistan (AG) isresponsible for auditing WAPDA's accounts. He discharges his responsibilitythrough the Director General, WAPDA Audit, who is assigned together with some400 staff to WAPDA on a permanent basis. Under an earlier IDA Credit, it wasagreed to accept the AG as the independent auditor until WAPDA's accountingsystem was strengthened sufficiently to permit a judgement as to the qualityof the AG's audit. It was also recognized that an effective internal auditsystem, which is pres-itly lacking, is required to support the externalaudit. The AG, with he Dutch assistance, is making a significant effort to

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strengthen the audit ft!nction. These improvements, together with WAPDA'sefforts to strengthen ts accounting procedures and to institute an effectiveinternal audit function, will go a long way in facilitating the AG in per-forming the externaL audit (para 4.15). Present arrangements are that thePreliminary Audit Observations, together with the balance sheet, incomestatement and any other relevant statements covering the performance ofWAPDA, are accepted for the time being as satisfying the Bank's auditrequirements. The observations are normally issuad within six months of theclose of the fiscal year. Thc existing audit arrangements continue until thenew internal audit system is in place and the new accounting system is fullyimplemented and operational, so that an informed judgment can be made on thequality of the AG's audit thrcarr. The Bank has reserved the right tomonitor the present audit arrangements and, it necessary, to request an auditconsistent with Bank guidelines. Under the Fifth WAPDA Power Project(Ln. 2556-PAK), it was agreed thaL the Bank's standard audit covenant wouldbe included in the loan documents to enable the Bank to retain the right ofexercising the option of requesting an audit consistent with its guidelines,and that the interim arrangement governing WAPDA audits, requiring WAPDA tosubmit its annual accounts, together with Preliminary Audit Observationswithin six months of the end of the fiscal year, is outlined in the Minutesof Negotiations. This agreement is renewed under the Project (para 6.02(c)).

Government Arrears

4.17 Under the Fourth WAPDA Project (Ln. 2499-PAK), GOP agreed to ensureall arrears owed to WAPDA by Government departments and agencies as ofJune 30, 1985, by not later than December 31, 1985. Despite concertedefforts, GOP has not been able to comply with this covenant. GOP and WAPDAhave informed the Bank that the concerned departments are withholding paymentof the entire bill because of disputes in some portion of the bills. TheBank has also been informed that since approximately 20% of the amount billedis under dispute, GOP has directed all departments and agencies in arrears topay all uncontested arrears (approximately 80% of the outstandings) to WAPDAby March 31, 1986. Furthermore, the Finance Ministry has authorized deduc-tion of appropriate amounts at the budgetary source, if the uncontestedarrears are not paid by that date in order to clear arrears to within threemonths of the receipt of bills by the beginning of FY87. It is thereforeexpected that arrears owed by WAPDA by Government departments and agencieswhich, as of December 31, 1985, amounted to Rs 612 million will be substan-tially reduced. However, in order to ensure that WAPDA's financial positionis not adversely affected, substantial reduction in arrears owed to WAPDA byGovernment departments and agencies, is a condition of loan effectiveness(para 6.03Td)). Under the Fourth WAPDA Project (Ln. 2499-PAK), GOP had alsoagreed that all future electricity bills would be paid by all governmentagencies and departments within three months after the receipt of the bill.This covenant has been repeated under the Project.

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Insurance

4.18 Prior to 1977, WAPDA placed its insurance with the National InsuranceCorporation of Pakistan, a Government insurance agency. Due to difficultiesin settling its claims with this agency, WAPDA elected to insure its assetsunder a self-insurance scheme and, with the assistance of actuariat consult-ants, established a self-insurance program covering substations, powerhouses, machinery and workshops against loss from fire and machinery break-down. Based on studies carried out by WAPDA and its actuarial consultants,an amount of Rs 15.3 million is allocated annually to the insurance fund.The insurance fund, amounting to Rs 73.2 million as of June 30, 1985, isadministered independently by a Board of Management with assistance from itsactuarial consultants. The Bank has reviewed these insurance arrangementsand found them acceptable.

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V. ECONOMIC JUSTIFICATION

A. Forecast of Electricity Sales of WAPDA

5.01 WAPDA's actual and projected electricity sales for the periodFY76-FY95 are presented in Annex 5.1 and summarized in Table 5.1 below. Asshown,

Table 5.1: Historical Development and Forecast of Electricity Salesby WAPDA between FY76 and FY95

Average AnnuaL Average AnnualGrowth Rate Projected GrowthFY76 - PY85 (X) Rate FY86 - FY95 (X)

Energy Sold 11.1 9.6Residential 21.4 12.0Commercial 15.2 9.0In'uiLrial 9.4 9.0Agriculture 8.0 6.0

electricity consumption increased between FY76 and FY85 at an average annualrate of about 11%. This relatively high rate of growth is attributable to:(a) the unprecedented increase in the demand for electricity by theindustrial sector, particularly the newly developed electricity intensiveindustries; (b) the increased worker's remittances from the Gulf Countrieswhich maintained a buoyant demand for electricity by the household and com-mercial sectors; and (c) maintenance of tariff increases at levels substan-tially below the increases in the general price level which further stimu-lated the demand for electricity.

5.02 WAPDA's forecast for the period FY86-FY95 show that the historicalpattern of electricity consumption is not expected to continue over the nextdecade, mainly because of the shortage of generating capacity precipitated bythe slippages in the implementation of its investment program (para 4.06).In order to minimize these shortages which started to emerge in 1982 and areexpected to continue into the mid 1990s, GOP, in keeping with its comprehen-sive development strategy, intends to take all necessary measures includingtariff increases to ensure that the core investment program is implemented.The tariff increases required between FY86 and FY93 to enable WAPDA tofinance 40% of its core program from internal sources would amount in realterms to about 8% annually (paras 1.07 and 4.11). In addition, the loadresearch and management study initiated with the assistance of consultants(EBASCO, a US firm) under USAID financing would form the basis for restruc-turing electricity tariffs, including the introduction of fuel surcharge in

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the tariff for sales to low voltage consumers (para 1.07). These changes inthe structure and level of tariffs together with the initiation of the con-servation program agreed to under ESL (Ln 2552-PAK), involving the audit andrehabilitation of the major energy consuming industries which incLude thelarge electricity consumers, e.g. steel, cement, glass, etc., are expected torestrain the growth of demand by inducing consumers to use electricity morerationally.

5.03 In view ot the proposed measure, the rate of growth of electricityconsumption is forecast to drop from 11.1% in FY8O-FY8S to 9.6% in FY86-FY95.Among consumer categories, the household and commercial sectors are expectedto show the largest drop, primarily because of the planned adjustments in thestructure and level of tariffs (paras 1.03 and 5.02). The growth of demandby the industrial sector, by contrast, is expected to remain virtuallyunchanged despite the conservation measures and the planned investments inindustrial rehabilitation, mainly because its increased reliance over thepast few years on captive plants to avoid the disruption caused by theshortage of power. Consequently, although the higher tariffs and conserva-tion measures would reduce the power consumption per unit of output, theincreased dependence on public supply for power brought about by theaccelerated development of the subsector would leave the growth of demand forelectricity at the level observed for FY76-FY85. As for the agriculturesector, the load research and management study would provide the inputsneeded to restructure tariffs for the low voltage consumers, includingagriculture uses. This together with the projected increases in the tariffis expected to arrest the growth of demand for electricity in the agricul-ture sector, reducing the rate from 6% for FY76-FY85 to 8% for FY86-FY95.

B. Least Cost Alternative

5.04 The conversion of combustion turbines at Kot Addu to combined cycleoperation was introduced in the planning model (WASP III) used by WAPDA asone of the options for the future expansion of generation. The results ofthe optimization showed this option to be part of the least cost developmentprogram for the period (1986-1995), as the conversion of combustion turbinesto combined cycle operation increases their efficiency of the Kot Adduplants, generating an additional 1,051 GWh of electricity annually without acorresponding increase in fuel consumption. The Bank reviewed the assump-tions used in the optimization and the results and found them satisfactory.

C. Return on Investment

5.05 The economic rate of return on the Project is 15.2% based on themeasurable costs and benefits. The measurable costs include: (a) theinvestment in the combined cycle equipment and the pipeline connecting thepipeline to the power station at Kot Addu; (b) operation and maintenance costare assumed at about 5% of the capital cost of the equipment; and (c) theaverage incremental cost for transmission and distribution of about

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Rs 0.04/kWh. The costs associated with the combustion turbines currentlybeing built at Kot Addu are considered sunk and were not included in calcula-tion. The measurable benefits include the revenues associated with theincremental sales attributable to the extra generation that would be providedreflecting the fact that the Project was designed to take advantage ofinvestment decision already made by generating extra power using the samefuel as was otherwise planned. Details relating to the assumptions andcalculations are presented in Annex 5.2.

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VI. AGREEMENTS AND RECOMMENDATIONS

6.01 During negotiations, GOP and WAPDA agreed to:

(a) A Rs 39 billion Core Investment program for FYs 87, 88 and 89, withannual allocation of Rs 10,751 million for PY87, Rs 11,535 millionfor FY88 and Rs 16,669 million for FY89 (para 4.09);

(b) Invest Rs 21,749 million in Generation Facilities, Rs 10,731 millionin Transmission and Rs 6,475 million in Distribution over the threeyear period, FY87 to FY89 (para 4.09); and

(c) Take all necessary actions, including tariff increases, to ensure theimplementation of the Core Investment PLan for FY87 to FY89(para 4.10).

6.02 During negotiations, WAPDA agreed to:

(a) Recruit consultants on terms and conditions satisfactory to the Bank,to undertake a feasibility study and detailed engineering for a powerstation complex at Jamshoro and to prepare bidding documents for suchcomplex; and that the work would be completed and reviewed, in con-sultation with the Bank, by no later than March 31, 1987 (para 2.07);

(b) Consult the Bank - should it seek to incur new debt that would resultin WAPDA's internal cash generation before debt service and paymentto GOP falling below 1.5 times the debt service requirement(para 4.12); and

(c) Include the Bank's standard audit covenant in the Loan Documents toenable the Bank to retain the right of exercising the option ofrequesting an audit consistent with its guidelines, and that theinterim arrangements governing WAPDA audits would be outlined in theMinutes of Negotiations (para 4.16).

6.03 The following will be the conditions of effectiveness of the loan:

(a) Approval by ECNEC of the PC-1 document with respect to the Project(para 3.08);

(b) Confirmation by COP that a contract for the Mahmood Kot - Kot Addupipeline construction has been signed (para 3.12);

(c) Announcement of a tariff increase effective July 1, 1986, which wouldenable WAPDA to internally generate at least 40X of its capitalinvestment requirements for FY87, the formula for computing the

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internal cash generation being the one agreed to under the ThirdWAPDA Power Project (Cr. 968-PAK) (para 4.11); and

(d) Substantial reduction in arrears owed to WAPDA by Government depart-ments and agencies (para 4.17).

6.04 With the above agreements, the Project is suitable for a Bank Loan ofUS$90.0 million.

1o0 ADDU CUSINED CYCLE PENIEN PROJECT

ttrat-tv for the Develogm_t of the Eaeri Sector

18038# ACTIONS ?A=EN ACTION TO TAKEN

DEVELopUnT AND IrUSTnT

ner p Develoe _ t

l. Jado: GOPrs long-term plan GOP comiseioned Montreal Engineeriag in In ordet to ensure thct tbe hydro siteccalls for the accelerated 1980, nuder financing from CIDA, to evaluate at talabsgb, asbe ad eDau are co ic-development of the country's bydro sites larger than 200 MR in sise on the uioned and brought on str-o at tbo optimalbydropower potential; bowever, Indus River and rank tbhs in order of economic time, *inimal coat and in full integrationthe larger sites bave as yet merit for development. A total of 26 site with the program for thermal generation,to be adequately evaluated in were inventoried excluding Kalabagb and Nseba GOP has agreed witb the Sank under theorder to ensure that these are wbich are ranked first and second in priority propoged loan to recruit cosultants bybrought on stres at the optimal of development. The study concluded that only December 31, 1986 to initiate a detailedtine, minimal cost aod in full 11 of the sites inventoried could be exploited site investigation, engineeting aod costintegraton with the progrm for economically, with the site at Dau receiving estimates for Samba. COP would also initiatetbermal generation. the bighest ranking. The results of this in due coure similar wrk for Damc.

study were reviewed witb the Bank.

GOP has completed the detailed engineering forthe site at Kalabagh and preparations are under-way for initiating the implementation of thisscheme during the Seventb tPan.

A feasibility study bas also been completed forBasba witb the assistance of consultants financedby CIDA.

2. 8vdrocarbons: Exploration and GOP's active involvement over the post two years In order to furtber expand tbe exploration anddevelopment activity is inadequate has resulted in a record number (46) of explo- development proggow for bydroc.rbons, GOP basto achieve GOP's objective of mini- ratory and development wells being spudded or outlined a nationul policy which delioeatesmizing the anticipated shortfalls in drilled and in the discovery of four noew oil the scope of the exploration and developmentthe supply of hydrocarbons. particu- and two new gas fields. progrem to be implemented by OCDC over thelarly gas, and reducing the country's next tbree years ("86-Tss) and idnotifios thedependence on imported energy. Seisnic surveys undertaken in the offshore approach to be followed in attracting private

areas, witb the assistance of Norway, bave sector participants# botb foreign and local.identified promising structures for drilling GOP has agreed under the proposed loan to 5and further evaluation. implement the core investmant progTro for

OGDC involving the following: the development owegotiations have been completed for offshore of Toot, Pirkob, Dakhdi and Tendo Alan; Meller .drilling of oil-bearing structures located in projects such a* *hod *ad Sari/ilndi inthe Indus basin. strongly gSa proveo areas; non-opereting interect

ACTIONS TAIER ACTIOS O U3

a sinority partner in ongoing and oev jointGOP boa enabled OCDC to isprove its performace ventures; and * modet-asisd exploration prosromby allowiog it to retain a larger share of its which gives priority to potentially high yieldingenergy, but because of resource and iuple- prospects in the immediste vicinity of the Tsadosentation constraints the Corporation is Alm discove*y and important pas prospects sucbunlikely to achieve the targets et in the as Loti. The core investment progra includesSixth fu. exploration and development investments wbieh are

justified from Pakista o viewpoint and reGOP's efforts have also reoslted in doubling potenti<lly *ttractive to private ivestorS, butthe domestic output of oil. which either cnooot, or should not be uadertakensolely by CONC to avoid diverting its resoureesGOP hbo concluded grements on producer prices from its own core activities or wndly riskingfor gas from existing fields at ari and Sui public resources. It is for tbese investmeDtsand consequently satisfactory progress is being that renewed effort sould be made to mobiligeade in developing this resource from these private sector capital to Suppleuent GCOC effortfields. to attract private exploratioo investment in open*reas ad consider far-rinc to CGDC average onappropriate terws. tn particulsr, tbh ¢overoeentplaos to uadertake new efforts to see joiotveoture partners, eSpeciatly iO ar where gasdiscoveries bave already been smde, once the nOpas producer prico formul is announced.

3. Coal: Estimates of the quantity The Ceological Survey of Pokistan (GSP) and the in order to promote the acelterated devel5mpentand quality of the reserves are U.S. Geological Survey, under financing from of coal, GOP bas agree witb the ank under thenot based oo a systeutic evalua- USAID, have sined an agreueout to fornulate a proposed loan, to initiate a two-phased program.tion of the resource. comprehensive coal exploration strategy which The first would involve * bighly focused Studywould identify priorities for exploration, to be initiated by 8epte ber 30, 1985 ad completeddrilling and geophysical analysis. It involves by Septmber 30, 1986, to identify the main opera-the assessment of the reserves at Lakhra and tional constraints being experienced aNd outline aSonda-Thatta in 1985 and 1986, and the Salt plan of action for addressing thm. The second phase,Range and iakerwal reserves in 1987 and 1988. would involve the implenetation of the plan of actionwhich will be initiated by becember 31, 1916.

VAPDA is currently implesenting a progrn, underBank financing, aimed at firming up the extent of 'athe reserves at Dukki to eventually prepare a 4.feasibility study for mining the coal for powergeneration. 0.GOP is al o assessing, under US UD f inancing, the potential for stimulating increased privatesector investment in cool production using theLakhre as a model. Should the results provefavorable, GOP would consider applying thesce model to othet promising artes.

I88U U ACTIONS TAKENW ACTIONS TO It !*JJ

Enermy Investmeotca

4. Core Investments: Absence of GOP prepared a sector study in 1982, with The studies to be initiated nader the proposedprogram for the integration of the assistance of consultants, which provided E8L together witb the strengtheiLg of energysubsectoral investents has the basis for outlining the targets for the planning capabilities, whicb is being financed byresulted in the initiation of a energy component of the Sixth Plan. This USAID, would provide the inputs needed to identifylarger number of projects tban study, however. did not critically evaluate the bigb priority projects and promote the integrastedcould be implemented with the the resource requirement of the investment development of the subsectors. In the ioterim, GOPavailable resources. program for energy. has outlined a core investment program of bigh priority

projects to be initiated or completed doring the period1Y86-ITSS. It i. designed to mioimise the sbortfallsenergy during this period sad ensure tbht slippaestbat are expected to occur do not become an impedimentto the implementation of the Seventh plan. The Bank hasreviewed the projects included in the core investamntprogram, their financial requirements and the sourcesof fiaoncing and has found tbese to be generally satio-factory. In order to ensure the timely implementetionof the core investment program, GOP ha agreed with theboak under the proposed loan to review in 4etail theperformaoce of the progrtm io preceding year acd thesources for financing it in the next year on an annualbasis beginning pril 1986.

5. Power Subsectoer Rationalize the GOP has developed, under financing from MUDP IP order to formulato a more robust Wational Least Costinvestments in the power subsector with the bank as the executing agency, an Plan, GOP has a8reed with the lank under the proposedto seet future demand at least cost. ioteris least-cost plan for the power sub- loan to incorporate the recently eomplied information on

ector based on available data. It formed the operation of the power subsector, hydrology sad patternthe basis for the identification of projects of electricity consomption in the intarim leest eost pla.included in the core investmnt program for This national lest cost plas will be completed and rewiewedns86-7183. with the Dank by December 31, 1986.

VAPDA, with the asaistasce of consultants VAPPA bh agred with the ank under the Fifth Power Frojectfinanced by USAID, is curreontly preparing a to recruit consultants, by no later than Beptember 30, 1985,comprehensive national rural electrification on terms and conditions satisfactory to the Seek, to undertakemaeter plan wbich is expected to be completed a study for the implementation of a system for the collection,by March 1985. The lank would review its storage and retrieval of dote on the power system; the study

will be completed and reviewed in consultation with the lank*by no later tban December 31. 1986.

6. Petrleum products, Subsector: GOP bas agreed witb the Dank under the proposed loan toConstraints in tbe supply and initiate by Devember 1, 1965 and complete by Marcb 31.delivery of petroleo. products 1986 a study for the rationlisation of the infrastructure ware becoming a aajor impediment for the supply and delivery of petroleo products.to the developmet of the energyector.

ISSuE ACTIONS SDgL ACtION TO an ThUD

nICING AJD D SAUD NANACUIZUT

PricinR

7. GSa Consuegr Price: The consumer In 1981, GOP agreed with the Bank under SAL I, GOP baa reaffirsed its co itment to the Bank undorprice of sas is inadequate to to raise the consumer price of gas to two- the proposed loan to raise the price of gae torestrain the growth of demand. tbirds the border price of fuel oil by m8. achieve the m8 target. Sbereafter. GOP ill

Since then its price has been increased in review witb the lank the general strategy and otberrupee nominal terms by 1251, whicb raised the neasures for inducing consumers to use this scarceaverage domestic price of gas in December 1984 resource more rationally and mobilize resources forto 39S of fuel oil parity. the development of the subsector.

8. Gas Producer Prices: GOP's gas In 1981, COP adopted a new cost plus formula To stimulate the interest of tbe private sector, GOPproducer pricing formula is for setting producer prices to stimulate the has outlined new fremework for gas producer prices.unacceptable to private interest of foreign and local firfs in accel- Its key elements are: (a) the price paid to theinvestors. erating exploration and development activity producer for pipeline quality gas will equal 662 of

in Pakistan. This formula, bowever, has not the international price of fuel oil at mainelicited the response boped for from the consumption centers, adjusted for the transport costprivate sector. of 8as from the field to main consumption centers,

less a percentage-discountr; b) the magnitude of thediscount is to be negotiated and agreed in Conces-sion Agreements before commencing exploraton. Tbediscount will very frem area to area and will takeinto account, aemong otber tbings, the geological riskand location of the coneession, anticipated exPlora-tion and developmeet eoats, oil market cbnditionmand cost of production. It is cors intention tonegotiate discounts with tbe besic objective ofstimulating accelerated exploration by privateinvestors; and (c) the mew price formula will apply toall mon-associated gam from concessions siged on orafter September 30, 1965. COP bas agreed witb tbe Rankunder the porpoeed loss to make an announement of thenew policy by June 1985, #Ad widely publicize it witbinoil industry circts. amP iutends to keep the operationof this formula under rewiew.

9. Slectricitv Price.: WAPDA'c efforts COP ha agreed witb the Sank under the Fourth The introduction of a tariff increae, effectiveto mobilize resources througb MAPS Power Project, wbicb was presested to July 1, 198S6. wichb ill enable WAMr to fi4snaetariffe bhve fallen abort of the the Board on March 7, 1985, to link future at Ieast 401 of it# investment progrem in 786 fromtargets set by GOP. increases in tariffs to the three year core ioternally-generated funds, would be a condition of I

investment program met at ts 30 billion, in effewtiveneas of the proposed 381 and MAPSA V.accordance with formula outlined in the LoanA8raee et for VAPDA III ptJo3ect. COP bee also Agreed uetor WMPA I to bectefo Otb hda alstariffs to ensure that at least 402 of theexpenditures called for under the core invest-

IssuEs ACTIO9S TAK AC-Ties TO S zoo

sent program are financed from WAPDA's internalsources.

10. Coal PricinrA: Structural imbalances GOP has agreed with the Sak under tbe propsed loon

between sources of supply and location to allow the use of ioported cool for power genera-

of consumers and bottlenecks in real tion around Kraechi, provided that *wcb imports are

transport necessitate transportation deemed economic. A prefeasibility study, underof coal by trucks, vtich raises the financing frem the Bank and CIDA is currentlyprice of coal to final consumers underway for coal handlin.substantially.

GOP, bae agreed with the bank under the propose loanto initiate a study that would: (a) outline a strategyfor corporate restructuring ad technical improvementsto promote the more efficient operation of mines in thepublic sector; an (b) provide a basis for reviewing therole of the public sector in coal aining.

VAPIA hcs agreed with the Sak under the proposed FifthPower Project to recruit consultants, no later tbanJune 30. 1986 on terus and conditions satisfactory tothe Bank, to undertake a feasibility study and detailedengineering for a power generating ceaplex at Karachi,based mainly on imported coal, and prepare the biddingdocuments for the first phase of this complex; thework would be completed and reviemed witb the Sankby no later than December 31, 1967.

11. Dea4nd _anasement: Despite short- GOP. under lank financing is currently imple- In order to reaffirm its coemitment to conservation

falls in the supply of energy. in- enting a progrm for improving the efficiency GOP has agreed with the Sak under tbe proposed loan

sufficient attention has been of the EEL refinery and a fertilizer plant. to initiate a program of energy sudits by November 1.

accorded to demand 8maaement. 1985 in at least 20 of the largest energy cosming

VAPDA is preparing, witb the assistance of plants in the public seeter industries to be perfoMedconsultants financed by USAID, a program for by local nd foreign consultant finr sd completed bythe expansion and rebabilitation of tbe June 30, 1957.distribution system. Specifically it ouldfocus on: energy loss anlysis, comprebeonsive GOP bha agreed witb the Bnk under tbe propose loanlong and short terms program, comodities. to intiate by no later than Decmber 31, 1985: (b) aestablishing criteria for election of feeders, study to rwise the optil supply ad utilizationwok order system, tebch t reorganization of pattern for tbe next five years; an (b) a Study tothe staff, plan for urban and rural erpansion, outlioe a demnd tman t policy aimie at isprovingdistribution system mapping ad updating, tbh efficiency of as supply au coumption. ehecriteria, for selecting villages, conector results of thes studiesi wold be revios" with the

prectices, application of single phase Sank by Diecmber 31, 1986.distribution, distribution system overbeadprotection, load mnagement and voltage reuloa- WAPDA has agreed with the Sak under the proposedtion and service reliability. The stuy is Fiftb Power Project to recruit coultents, no laterxpected to be completed by March 1985. The December 31, 1985 on to conditione atisfactey

ISSUE1S ACTIOS TAREN ACtIOfl TO 13 T11

baok would review and coment on the results to the Baok, to undertake a losd research a*d lodand would ueek agreement from GOP on priority demand anagement study wbich would be eompleted andinvestment, *nd financial requirmments. reviewed with the Sank. by no later than June 30s 1987.

QUID is also financing a study that wouldidentify tbermal plants wose efficiency couldbe improved througb rehabilitation and retro-fitting.

VAPDA hba agreed under the Fourtb Power Projectto initiate by July 31. 1985, and complete byJuly 31, 196, a study aimed at identifying thesources of energy losses in the transmissionsystem, quantifying such losses, determining theoptimm level of such losses, and producing adetailed work and inwestment program to acbievesuch optim levels.

GOP has also completed a survey of energyconsusption by public sector industries.

IIISTUUTIOAIL DIVLOHET

12. O9eratial Autonomy: The two most VAPDA has recruited consultants, under USAID GOP has agreed under the proposed loan to reviewimportant agencies in the energy financing, to prepere an action plan designed the means an4 the tietable for reorganising0e4tor, WAPD and GDC, Deed coni- to improve the operational efficiency of VAPDA the power subsector by June 30, 1966.derable strengtbening and greater througb its reosanisation. It will focus onfiscal and managerial autonomy. assessing the viability of assigning to APD

the responsibility for generation nd trans-mission and creating a new decestralisedholding company for the distribution ofelectricity tbrough semi-autonomus agencies.It would also designu coemprebesive distri-bution training progrm, and establisb atraining institute.

CCDC s financial position is expected to COP baa agreed with the lank uner the proposedimprove considerably due to: (a) Gor. loan to review by June 30, 1986 the measure neededdecision to allow it to retain a larger to strengthes OCDC's managerial nd self-fixnacing .2sbare of its earnings; and (b) anticipated capabilities and the timetable for their imple- Iincreases in the production of oil and gas. mutation.GOP intends to take advantage of the improvedfinancial position of CDC to move towardsstrengtbening its managerial and self-financingcapabilities.

I8SU8S ACTIONS TAKEN ACTIONOS O 33 TAKEN

13. Enermy Plamnina: ftergy planning GOP has established an Office of Enertgy Plan- In order to ensure that MEBPLAWs activities wouldand coordination is inadequate. ning (ENURPLAN) in the Ministry of Planning and provide the input nopded for effective policy

Development under financing from USAID. It is decisions, sad integrated energy sector aOd macro-mandated to collect, compile and analyre, On an economic planning, COP GM areed witb tbo Bonk underongoing basis, all relevant data on the energy the proposed loan, to review, On an annual basis,sector and integrsate them witb the country's beginning April 30, 1986, its scope of work jointlyannual, Five-Year and long-tert development with the bank, USd10 and ADS.plans using the most recent analytic andmodelling techniques to enable the Governmentto identify priorities and evalnate resourcerequirements to support effective policy forum-lotion and investment planning. ENPLAR,which is divided into two groups, one for deve-loping an energy data system and the other fordata analysis, is headed by a Managing Directorwho was recently appointed. It will be admin-istered by an interi-_inisterial Energy PolicyBoard. 8RPLhM will be staffed entirely byPakistani personnel who will be assisted duringthe first four years by consultants financed byUSAID.

To ensure that Pakistani personnel are ableto continue the recently initiated energyplanning and conservation activities, the Govt.bas implemented, under financing from US1AD,a manpower development program.

14. Enerty Conservation: Absence of a In order to coordinate the conservation activitiescomprebensive and coordinated and make thm more effective, GOP intendS to estab-strategy for rationalizing energy lish a National Energy Conservation Center (SWIRCON)consumption. under financing from the BDnk and P5AID. The Center

will serve as the focal point for all conservationactivities nd its wain rtesopeibilities wlUl ha toplan energy conservation actions, formulate policyguidelines, develop a dat base, upport trainingactivities and private. reearcrb, undertake develop-ment and demonstration, as well as public informa-tion activities, *ad sonitor the implemetation ofconservation progrema of various public and privateentities. A detailed action program for nEUCoI iscurrently being prepared with the adaitantce of theSank aod USAI8 . The Center is expected to for ulate I* comprehensive national conservation progrem withinabout one year. As a first step, GOP baa cgreed withtbe Dank under the proposed lean to identify in 1985at lest 15 of the largest energy-consumiag plentsin the private seter for audits to be perforid bylocal od foreign consultant firms. All efforts wouldbe made to complete those by Decembr 31, 1987.

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

Organization Chart(December 1985)

1 1 .ewg, (]gig I 1 ct3(H MVGOPt tJd (po" bvmiatb o> d t hta ntDi OddI b0vOo*y CtY*

hdtt V*td d bV* d nm PJ Ca

Fr* Ftsv & Fhanow & F*wv*t) tCNC dXaed 0 .0Ptuokwn) of tkxcov &PAW*)

t911*trvatr

Diect'GO.1rwuj ne aeincha(OS*itg~

COrKMSO" 00 wa Gewa &Res9arct) (Sm hvd4. 00-~ oniatIS"m a,Ca, , . __ 5| . , . . ~~~~~~~Az.~ . I _ _ _)

*ec"o I II, |~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~om

OP-f @ w* ru_ghd

* it I . I Ctx. c ; t ot P* ~ ~~~ t * * I pc v

I . ' s I t | * I P O)~S SS I

OGOC PIL f oDwApnn a Ph(C .C WA- -<O

POt bAoLo. SdolS GUSP WX KE9:

Pt PtROD SSC IlL

FJ(MAR) PSO ccRec Couftn&UNISbN Pti FJ dY rtaN (pw)

cm cIx PSO hbtoaloat er*wdata etc

NEPM - Ntino tw PRAW Can_o0t OXV -- OCkcidwn Co at SA &" of _&nTs d tu OS

ER- tamgvRlv tgGcw PMDC - PdM erdC n MAC - SktePoPolS t**e & PetohbntiatCoxp

ECC - CObW* Econ,s l CccdhmcibConbwr?e G6P - GeciogI SUsvofd Patdn Nt - NOtior Ra*wi Ltd

C - WaSeCcSS Con O d # tIW O PRL -F PO*n I eRSAA Ltd Nt - NOtxd U.Satti td (b-r gpeftd _c1)

kESIn*CuC ARL - A*txckgtaEVUd WMdA: V a POwN OuAuIPnmen A*Iht

CDY- -d04WP-CltWO"atv PARCO - PA*AFb RlneCo KESC- goaucNE l,9AWCaxwMtm

acoc - a Gal D.A,ment Capoxallon P90 - Pt*a Sk*a 01 Co Ltd. PfEC - Pd* W Aftomc Ergy Conml

POL - PFnsw Olblk Ltd POS- Ptkston Ssmvh Sh w AMDO - Apto :ctwogt Doulcpnun io nm%

Pt - Pddslon PFalw Ltd C1X - Cote d WtLA Bftm - Eb, RPTs* & O0 IkwMt

FPU - F* oFundoflo SNGPL - SU IN*wn Gos FPS.tw Ltd UCOO-En - aWv Camnfn CVet

lNON - Wton t9M Co d USA SGIC - S9 Go. IRonm Co LtdSGC - Sohom Goa Cac4B-2

zxZ

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

Organization Chart

VW"v*MXko (

I.-,

(wua~Lwagm Ger~hM~W IUSCCh1A3U o GWOO jftMM09

(k**") 1'10'X)011 t '')_ E 53~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*.~

1 ' 1 | s-----1-- T~--3

, _______ . l, . _~~~~~~~~~~~~~~~~

II-

I I ~~~~~~~~~~~~~~~~I

Z'Z XaNNf _f N

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

Thermal Power Generation StatisticsSteam Units

51tND PaloU I sEwi CWITV MIT 1 TILITtl 111TI. FML EfItt

itLa wOc.3S, 1toF64 MAL S G OCT. 31,191F4 la11,1 31 F 6 66T1 so13 (11111 NEU LUS LOP 11Ff t3o 3 (I 33893Kul FMOF is #Miss own F VW TOTIM. VIIII fc F ACTOR1318 fVU 310/93 81 mm11 12

T11 MINSS. SECE tIM tM EFFECTIVE 1 lb £hl (it 111 III too) 89l 48 It la)f (t1 ui S OIL-- ------- - . .. ....... ....... . . ...................-------.. ------- ----.--- ------- ........ -- - --- ------- ---- _-_ - - _ .... ----- , - - _- _..

"To t 411960 24.4 65.O 0.0 30360 53 t0.9 6721 76.? 273.1 61. 5u3 32n02 6110% 24.4 45.0 60. 12104 4954 5. 46n 52.3 280.4 75.e to"6 M.3 12/189 20.9 65.0 60.0 837144 6 4. 69?3 79.0 M.0 67.9 10663 52.0

4 121193 20.9 65.0 60.0 ISM2 6669 7.i 7408 4.5 265.0 59.6 W0AS 32.0

SiolsTa 2i0.o 240.0 8631.2_m 5677 67.1 648 n.3 251.6 4.9 46.0 32.4 1063. 32.U 1199 2.4

91E60 1 5/1960 24.5 7.5 6.0 166706 99 Y. 34M 9L. 45.3 67.3 1793 19.02 591%0 24.5 7.5 6.0 87594 7175 61.9 6733 99.7 46.6 e.9 8in 9.3 6/190 19.4 3.0 L.0 1745 759 6.6 2874 24.3 9.9 S6.9 "79 In.4 W8967 U7.4 83.0 e.0 1O52 6062 9.2 7265 O3.2 3.6 62.e 87n 19.0

U11ITO1 36.0 2.0 133.4mom_9 733 6711 76.6 n.7 96.0 4.0 $790 ".0 *1914 1.1

N I 3181965 17.7 82.5 12.5 123447 4961 79.7 474 54.0 60.6 60.6 1£6 23.0 976 £732 SI1M U1.7 12 .5 I 125159 7013 00. 51.6 39.6 62.7 ee56 23.0 Ism. U..23 41967 £7. 12.5 82.5 817452 "74 76.2 793 90.6 64.7 52 143 30 8L. 187.24 4/8967 17.4 12.5 12.5 14713 a3 74.6 U 65 76.0 49.1 59.0 186 23. 89t1.0 87.3

mISIL 16.0 50.0 894.AIM 60l7 77.3 6094 0.6 .5 48.7 100.0 0.0 1465 231. 891 8T.2

f1I6MM I 61890 17.4 64.9 60.0 HI7 6412 72 3 6302 W1 ?7 87.0 .0 60.0 *413 6469 73. 6327 77.9

=M10L 132.0 120.0 951.0 512.5011111E t 17.2 60 73.5 69 2.9 56 9S 276.3 72.8 61.0 39.9 82651 1.3 I72 29.8

am 1 311974 10.7 8110.0 880 7434 64.9 12.1 46.0 91.52 101711U4 0. I88.0 883.0 66 73.2 563.0 72.1 699 n l .113 1211950 3.1 § 10.0 280.0 3241 8330.0 76. 9 3.1

1mti3. 930.0 430.0 2435.39339I 64.3 600.0 75.5 9.3 1.0 99 1. IUI M9.9

._111M "6 71.3 3.4 fNAM Asia £ro. 84.2

I8f L f1tP8r a titlIitllul * hstiulIIb.lag 3w.ect6v. Capetpfl

Thermal Power Generation StatisticsCombustion Turbines

STAIN Pml* 11 151tE WMlT! WIT 1lTU.*TI .mII "EL U93W

Wit . OFUW T. 31,NS914 o " TA WF OCTpg. 3I,14 an"!1 mummlNOR tr Om .$ LU LM _U"FOI W

3? II F til _Emm 4115t . *A MAL FUACt.Z _ rINM t M .N II)

51 UII15. WM11 Own I TIL W 1111 (tml mt (V (a) (RI () (S) di 1/ lob) II) 1 as OIL

111111N I V/1%& III MS. 11. 360 15 11.92 WI%U 1L$ 13.3 11.0 341 172m 9.

S 101199 15.l 14.1 1.0 2214 140 10.4 10111 11 WI 12.0 22m 10 17.2S I1/9 15.1 9.1 132.0 23213 151 17.00 111909 15.1 14. 12.0 211,1 110 u0.0

mint. us iOo+ ii._lR 1533 17.S 13.5 O.9 1t2o 1 m.0 11449 1t9.

Oki I 2/19,10 14.1 5.0 11.0 3141 2474 3.22 2l9t1 £4.6 ILI0 2.9 4291 2 33.23 12119 LI 2.0 25.0 150 2051 .39 121Wl LI 25.9 30 2MS 311 6.1S S1" 3.1 5 .0 2 121 34 39.* Sf11"1 L3 2.0 IMN 34 39.1

_2 136.0 122.0 229.0

Nam 3071 3.1 3.2 14.0 I.0 10 2 U7 23 O4

tU65_ I 3S1 9.1 25.0 25.0 150 191 17. 2m .6 4.2 75 .

2 im9 9. 25.0 25.0 1tl 12 P1.4 214 29.1 44. 7.13 11911 9.4 25.0 0 079 190 17. 2 27.0 .2 105

4 /m2 9.4 23. 3L0 14703 0 17.9 23 27.3 ".4 73l

S t?I1 9.2 ae0 30 1M 170 19.4 229 200 407 2.

0 10/191 9.1 25. 3.0 1t1 1 V 26 29.7 07.7 7LS

7 W9IM 9.1 2L9 L. 1373 129 14.3 25 20.2 4.1 9.1

I It171 9.0 25.0 210 3411 29 17.0 223 3.8 65.2 7t.7

NtS 2.0 206.0 30.3

Now 1 17.4 2049 27.9 40.011 12.92VA 1321.619101 ILI

13_ a 4111 392. 0

-sm 20 23.4

It Led UM lUIW atilieati l * uu tmlu/l lSwsafectI. CapKityfl

Annex 2.4

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

Forecast of Energy Balances

(CWh)-Power Station FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93

HydelExisting 13761 13761 13761 13761 13761 13761 13761 13761Tarbela 9 & 19 1345 1529 2094 2094 2094 2094 2094 2094Tarbela 11 & 12 ---- --- -- 332 981 1781 1781 1781Tarbela 13 & 14 - ---- ---- ---- ---- 700 1400 1400Mangla 9 & 10 ---- ---- ---- ---- ---- ---- 100 260

Subtotal Hydel 15106 15290 15855 16187 16836 18336 19136 19296

ThermalTPS Guddu 2668 2869 3223 3415 3332 3288 3493 3493NGPS Multan 867 987 1155 1280 1260 1260 1260 1260S Faisalabad 447 665 590 665 465 421 412 4125TPS Faisalabad 283 350 445 350 350 350 350 350TPS Sukkur 151 172 201 210 210 210 210 240NTPS Hyderabad 151 158 150 158 158 158 158 180CTPS Kotri 344 237 276 230 230 230 230 230GTPS Shadara 198 139 158 75 75 75 75 75CTPS Quetta 202 164 182 125 125 125 125 125REPCO NESGO 110 127 145 174 174 174 174 174Guddu Gas Trub. 300 1576 1576 1710 1710 1710 1710 1700Kot Addu Gas Tur - 367 998 1715 1824 Guddu - CS -- --- 591 855 855 855 855 855Jamshoro-I & 2 - - --- 900 1600 1825 1825 1825Kot Addu - CS --- --- --- 1040 3537 3493 3493Jamshoro-3 & 4 --- --- --- - 520 1748 1748Faisalabad - CS -- --- --- --- --- 218 650Lakhra Cool --- 850

Total Steam + Gas 5721 7811 9690 11862 13408 14738 16336 17720

Total WAPDA Gen. 20827 23101 25545 28049 30244 33074 35472 37016Import from KESC 400 409 629 720 384 255 255 155

Total Generation 21227 23510 26174 28769 30628 33329 35727 37171Energy Required 21712 23796 26174 28769 31328 34336 37632 41245Surplus/Deficit -485 -286 0 0 -700 -1007 -1905 -4074

-48-

ANNEX 3.1

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

Project Description

1.0 The project consists of conversion into combined cycle units of two96 MW and two 72 MW (site rated) combustion turbines (CTG). The 96 MW CTGsare supplied by Kraftwerk Union of West Germany and the two 72 MW CTCs aresupplied by GEI of Italy. These units are at present under construction.Each CTG will be a 50 Hz, heavy duty industrial single shaft machine withinlini compressor, directly coupled with mAtching generator. CTGs would becapable of continuous operation on heavy fuel oil, HSD, or natural gas(para 3.1). CTGs will be provided with a gas bypass stack to enable opencycle operation.

2.0 The combine cycle components included in the proposed Projectcomprise essentially (i) four heat recovery boilers (HRB) connected to thetwo 96 MW CTGs and the two 72 MW CTGs respectively, and (ii) two steamturbogenerators (STG) of appropriate capacity (around 100 MW) for connectionto each HRB. The heat recovery boilers (HRBs) will be unfired, dual pressuresteam boilers designed to accept the maximum exhause temperature and gas flowof the connected CTG. Each STC will be designed to match the maximum heatinput from the connected HRB. STGs and HRBs will be designed for slidingpressure operation over a wide range to respond to CTG load variation. Thegenerators will be either air or hydrogen cooled with an output voltage ofabout ll-kV. Standard electrical, control and auxiliary equipment togetherwith the associated installations will be provided for each units.

3.0 The associated transmission system comprises 132-kV lines, underconstruction, and 220-kV lines, included in the proposed Project, which willconnect the plant with concomitant grid substations. These will beconstructed in accordance with WAPDA standards and practices.

PAKISTAN

KOT ADDU COMBINE CYCLE POWER PROJEC

DetaiLled Cost Table-Power Station

tor .mKe mi.nwma du WIE pi II too local

85/86NS 86 AI1 81aesa 09/90 @/96 ltoal 35/ 86 /1 VU /8 87/8SMSAD9/5/91 gotal [VA N~blonni Iaa. I.t.t

IL CIVIL VMS

tusi acqisitim AM s. - - - 5.5 0.4 - - 5 - 0.4 - .4rowEs station mustsi - .. u1.2 46.846 06. 5.M6 3560 - 69.7 42.5s 66.5 73.1 2527 220.6 14 4 -4

KSISEUIIM LS - 2lo . 1 t.8 M*. 11.0 - 28.J 4.6 IS. 0 16.2 1, 4 - 53.2 3 3 J. 3.

S%6-Iotal CIVIl 665 S.5 19. 3 42 2 Si.8a 51.8 is. 6 69.3 6.4 24.3 57.5 34.7 91.0 2 2 251 is6 I IS

UtilE -O 502 109.4 M. 6 l506 5* 7 5020 5864 I"25194.1 M6 74 6 M550 281 7623 46 0110644I A 216 13.2 109.8 109.8 3Io 6 J5fif0 41 1 8 81t46.9tI5A 54 4 476 3 209 I09

81111ant84S 36.S 109.6l09. 8 It'i 35660 - 44.S 643. 6 1%4.5 650 So07I is8 a 14 is 3tISPANS - - 29.4 29.4 s8.8 a 41.4 44 8.s,6 3 2 06 IS 5.3cim INS 6T36 6 0 18. 24.O0 2.0 so600 68a 21.9 31.4 16. - ?1.0 2. 9 0.5 3 .4 48a

Sq4,-i.1a6 fLtcWNEOmlCit IIuINEII 92.8 228. 2 394.2 411.6 228.0 l. 3W.8 1042 27S.3 ISt .6 SY5 2 336 .3 a".695 145S 4 5 318 a612.8

tuln*i*efins90g1t, -2. 17.1 12.8 42.8 - 25.6 35.1 it94 911a S. I SiCMsvMIN uin s - 7.71 t.2 7.7 25.6 -- 13 .0 16 549 .4-3.4Pilaf lUCIUS - - 33 51,4 20.3 136.0 IS 1. 3 5. 0 86. 16 . 8.6 6 .4 6.

Stb4otal IRCItS So- S9. 19.8 5 9.8 19. 4 I I16.3 M4, 1 133.5S 466. S.8a 17.2 - 26

tma~~~~ sasurns 7.6~~~~~~t 14.2 It.2 14.2 14.2 7.1 7110 7.5 S16.3 11. S 689 20.3 10.3 a I 4 - 5. .? 'IEIPNIUIII ~~~~~~~~~~~~2.0 4.6t 4. 1 4.1 4.1 2.0 20.3 2.1 4.3 4.7 So 5.4 2.6 74.3 1.% - .5wmuious . ~~~~~~~~~~~~~~0.5 0.5 0.5 0.5 0.5 2.3S 0. 0.5 0.6 0.6 0, 6 2. 8 6.2 - 9.

Sob-Total IGEgiEtIU n U6IUISIW6Ui 9. I 18. 187 IS,1 58a,1 9.6 93.6 9.5 26.3 223 24.5 20.3 14.6 It S 67 7 S 1. .

lotal IhWIESINh1 COSTS 14.6 130.8S8M. 25$*.6 So?. 9 31 1.90 1. M4. 6 is. 9 t49.1 355.613M. 08S".2 S12.32. WS.6 IN 64.9 45.6 33.8 164.

Total 4 6120.8289. 2 50. 6 67. 9 311 0 1.844. I 65.9 649.7 355.8 731.0* 859.2 S512.3 2.629.6 6 4.9 4580 33.8 166.3

tcReA 9. MS8 2349

06?

t1;m

Detailed Cost Table-220 kV LinefR.al fu os @1 otal IE~cl. CopS

N#iist IlsiorptBas* Costs loteo I ncludipg Coptt i cg .ts ..................

IPM iSPUE tilijopl (PAK RiUEE Iilionp totZl.......................... ... .............................. fr. hidc. DtAies 8

s;/86 66/St 67/68/69 69/90 90/91 total WAS 65/86 86/ 87/88 t 9/90 90/91 lotal F%cht. flaesi lstes lotal:-:-C. t : .r:: ,: t: r::,r.:-: CCCC# ::::: lis: :5:t: ,:n: :c:::: ::r *: v:r -:::: :r ::5 :;::; c : :sc.c: :: cc Etct

1. lInSI"ENIT COStS

A. CtvILt 9M6S

RitGHtl Of MAY 0.3 0.2 * - - 0. 5 Q3 e3 0.6 0 0.0BUILDINGfi 0.3 0.3 0.3 0. I 1.0 - 0.4 0.4 0.4 0.2 1t4 01 0.1

Sub-totol CIVII VMS 0.3 0.6 0.3 0.3 0.I 1. 5 0.3 0.7 0.4 0.4 0.2 - 2.0 0.1 -S. ftEtNiOEcUICat £OIIINEN

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

EPICII - - 9.0 15. 0 6.0 30. 0 - 10 a 19.4 8.3 - 336 1.7 - 0.7 2.4ISOtLOS ain flitil S - - 6. 0 10.0 4.0 20.0 - 72 12.9 5 6 25 7 1. I * 05 1.6101lS - - 10.0 t0.9 5.0 75 0 12 0 12.9 70 3ot 9 1.4 0.6 2.0SU6STAIION fWlplEit 2.3 S. 7 J 4 of 4 2 7 7 4 4. 14.9 0.7 o .3 0.9

Stb-t.tal EtiCItESNUNUIC*t 1EitilEti - - 27.3 40.7 16.4 86.4 - 32.6 12.8 25.6 * M, I 4 9 - 2 1 .9C. tUCletI

1n11*10 IISSPO8I6AIOU - 1.0 3.0 1.0 s.0 - 1.9 6.0 2.1 - t.. 06 o 0.6 COiSSIUtClliW ls E- - 0.4 0.2 0.4 2.0 * - 0.7 2.4 0.9 4.0 - 0.2 0.2COOSIUCTI t U - -M.0 6.0 6.0 2.0 20.0 - - t 1.t 12.0 12.9 4.6 40.6 - 2. - 2. S

.... .. ..... ...... ..... ..... . . *.... .. .*... ..... ...... . ^*. . .. ...... ... ... . ..... ....... .,.......... .... ., .. .. ... .....,... ..... ..

5th-loCal IKCtUOJit - - 7.4 10.2 7.4 2.0 27.0 - 13.7 20.4 15.9 4.6 S4.6 - .4 2.4Q EiB1itEEOlti O If..i.ISttU.....

.... ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ . . ..... .. . .. .. .. . .. . .... .... .... . .. .. . .. . .. . .. . . . . .... . . . . .1Ub lt SEItICESR D 1.7 1.1 1.1 .t 0.6 S.7 - 2. 1. 4 1. 5 1. 6 o. 9 7.4 05 - 0. s

5th-bIaS EtlBItERillit6 B t *1t1 5 tII UI IICtt - t. 7. 1. t 1.t 1..t 0.6 S. t 2..0 t. 1.5 t.. . .s 7. 4 0. 5 -. o. S

legal INUStVEUt COSIS 0.3 2.3 36.1 S2.3 21.1 2.6 120.6 0.3 2.7 48.4 74.9 43.3 S.S 175.0 4.9 4.0 2.1 10.9,::: it::e: :ccs: ccc:: cUat. scs::: :::r n:z: .::2 3::.": cxci: tic:: :ttSI cc::: 1::-: ::::,: c::c:tC,T cS::.

total 0.2 2.3 36.1 S2.3 21.1 2.6 120.6 03 2.7 46.4 74.6 43.3 1.5 ItS.0 4.0 4.0 2.1 10.0zTa: C?.,t ::::: - :#2 itCus tv.. %2:c: Stt*: ViltS IflhC ::::: t::2: ttit ' $, :V : *::12S e1 .::::c * :st

_..,_........_ ,_._. _ _.__._.._.._ ................... _.._.._.__._.._.__ _ ._ ._ _. _. _.__._...................................... .. __ __._.._.__.. ._.__,,............................. _.._... ..... _ __ .. _.__ ........ ._ ._ _ _._.._.._ ._.._._. _._..__._.._.__._.._.__._

be_ 0. 1985 23:49

00

I"JX

SuMmar Accounts Cost 'summar

(PAK WPE IH I I ion) SIis nl SIt I

tocal foreign total ;oea Foreign total Rvcbhnp Cols

I.l 1ms9nim COSMS

A. two . sUilDIu. U4D tcivt VOS

*M- 6.0 6.0 0.4 * 0.4 0civlet MS 151.0 - 157.0 9. - 9. a aWIfIIoIsS 36.8 - 36.8 2.3 2.3 - 2

St-lotal taln . JltSlG UIMD 0Ciit ORMS 139.6 -a1.8 12.5 - M2.5 -S

l1t111 COWtooG 24.0 36.0 600 0 5 2.3 3.S 60 JMli4 it - NEC 260.4 601.6 868.0 16.3 38.0 S4.3 *0 44

*UXSIMY It - ItC 169.9 254.9 424. 10.8 6 5.9 26 6 60 22SU8SiFUll 3.4 8.0 114 0 2 0 5 0.1 is ItfoSl. NStUill*i ' 22. s2 1 is 1 I 4 3 3 4 1 t0 4

S,b-t,l.l ,,iwipNE 480 2 959.0 1, 43. 2 30.0 59. 9 90 6r 73C. EUECIISn

ImS l1S51 f*4ttlOt 47.8 47.8 30 - 3.0 2FsSIISUI NCI RSCtIOU 27 6 - 27.6 I .t IinttIIm mm1 0. 3 10.1 7 St0 S. 0 4.4 9.4 41 I

SD.-t1t011 CtION tS. I 0. 2 26. 4 9. * 4.4 14.2 it it

loctl Ct llUSiM 7it -I6.1 4.6 4.6 4IOnEi PMS lftI - 22.6 22.6 1.4 1.4 tO0 I'

SWlotel CUStLI*UCv 76.I 2.6 993 4.8 1.4 6.2 23 S

oll 1ASEIIEII COSTS 912.4 1.052.3 1.964 7 St0 65. 6 I2. 54 100Stilcal Cotlluiqcloe 121.8 83.3 20M.I *.6 S.2 12.8 41 10Prie, CantFte tel 333.4 301.3 634.8 20.0 6 t.8 39.7 4? 37

lotal NOICI COStS .J36?.? 1.436.9 2.804.6 85.5 89.8 315.3 St 143

..- _._............... ........ ............. . . .. .... _....... .. ..... .... .. ............. .................

Dorewb 9. I981 23: 50

I!P

PAKISTANKOT ADDU COMBINED CYCLE POWER PROJECT

lmplsmentatn Schedule

WR 1965 19116 1987 196 MP 900

QUARTER 4 2 3 4 4 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 4 2 3 4

PROJECT PREPAATION ICONSULTAN SERVICES m no- m _ -_ * so

ReCt.

SlE LEVES _N.

Spec. ddin_ Cons _c_ _

comBiNED cyCLEUNITS

CTG ~~~Manufoc Erectlon & Testing C~iNl

CR@ISTG - - - -l 1; I l , |--- | . - - -

I I I Sper- BddIg Mo &nuk ctn& Erection TRAN9/IE9 SYSTEM I I -I - - - G G

RJEL PIPEUK ~~~~~~~~Spec. Bkiddin Manuc & rc Ion

| REL R{ELINE I I l l I z I W n3 I| 4s~~~~~~~F I

--- .,d P'$Bak'sfinacigprec

-53- ANNEX 3.4

PAKISTAN

KOT ADDU COMBINE) CYCLE POll PRWOECT

Estimated Schedule of Disbursements

8ank Fiscal Year Disbursements, US$ millionand Semester In Semester Cumulative Cumulative X

1987

December 31, 1986 0.2 0.2 0.3June 30, 1987 3.0 3.2 3.6

1988

December 31, 1987 6.0 9.2 10.2June 30, 1988 10.0 19.2 21.3

1989

December 31, 1988 15.0 34.2 38.0June 30, 1989 20.0 54.2 60.2

1990

December 31, 1989 15.0 69.2 76.9June 30, 1990 10.8 80.0 89.0

1991

December 31, 1990 6.0 86.0 95.6June 30, 1991 4.0 90.0 100.0

PAKISTANWATER AND POWER DEVELOPNT AUTHRITY

KOT ADDU COMBINED CYCLE PROJECT(RUPEES MILLION)

ACTUAL AND FORECAST INCOME STATEMENTS

(YEAR ENDING JUNE 30th). ............. ACTUAL .......... (PROV.) .................. FORECAST........................

FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY9M F9

KIWh GENERATED (MILLIONS) 12124 13206 14768 16477 18052 18780 21227 23510 26174 28769 30628 33329 35727 37171KWh SOLD (MILLIONS) 8160 9068 10288 11593 12762 13756 15708 17973 20154 22152 23584 25663 27510 2822KIh SOLD/KWh GENERATED(M) 67 69 70 70 71 73 74 76 77 77 77 77 77 77AVE. REVENUE/KWb SOLD(PAISA) 46.19 50.84 56.75 61.93 62.74 63.80 74.41 85.94 107.52 135.67 149.52 163.70 180.19 M.52

OPERATING REVEPA (PR MILLION)..............................

SALES OF ELECTRICITY 356 4245 5322 6146 6785 7276 9222 11775 15784 22281 26526 31795 37429 437FUEL SURCHARGE 223 365 516 1034 1222 1500 2466 3671 5886 7772 8737 10216 12141 14474OTHER OPERATING REVENUES 150 167 173 181 207 210 231 254 280 307 338 372 409 450

TOTAL OPERATING REVENUS 3919 4M 6011 7361 8214 896 11919 15700 21950 30361 3S602 4238 49979 58702

OPERATING EXPENSES(PR MILLION)...........................

PURCNASE Of POWER . .... 447 372 418 603 662 6S1 368 259 165FUEL COST 388 494 1132 1541 1892 2404 3422 5229 8453 11295 12791 15349 18419 22103MAINTENACE 266 336 514 545 641 643 997 1198 1435 1743 2117 2551 3051 3594OPERATION & ADNIVISTRATION 584 767 952 1178 1546 1730 2163 2703 3379 4224 SS2 6599 8249 10312DEPRECIATION 544 621 708 819 990 1126 1340 1601 1920 2317 2815 3404 4065 4845

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

TOTAL OPERATING EXPENSES 1702 2218 3306 4083 5069 6350 8294 11150 15791 20241 23654 28272 34063 41018

NET OPERATING INCOME 2137 2559 2705 3278 3145 2636 3625 4550 6159 10120 11948 14111 15916 1'684OTHER INCOE 85 109 97 127 235 198 218 240 264 290 319 351 386 424

NET INCOME AVAILABLE FOR FIXED 2222 2668 2802 3405 3380 2834 3843 4789 6423 10409 12267 14462 16302 18109CNAR6ES

FIXED CNARGES.............

INTEREST 973 985 1071 1264 1481 1801 2464 3334 4398 5578 6931 8359 10016 11759LESS:INTEREST CHARGED CONSTN. 181 207 124 93 98 432 416 518 633 788 987 1168 1348 1503

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

INtEREST CHARGED OPERATIONS 792 778 947 1171 1383 1369 2048 2816 3765 4791 5944 7191 0668 10296

INCa. 1430 1890 1855 2234 1997 1465 1796 1973 268 5619 6323 7271 7634 7813LESS:PAYNENT TO GOVERNNENT 20 20 20 20 20 20 20 20 20 20 20 20 20 20

............ ;......................................................................................

NET PROFIT 1410 1870 1835 2214 1977 1445 1776 1953 2638 5599 6303 7251 7614 7TM

RATE OF RETURN OR AVERAGE NETFIXED ASSETS IN OPERATION

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

HISTORICALLY VALUED 15.25 18.30 17.31 17.92 14.60 10.58 12.17 12.72 14.28 19.32 18.66 18.15 17.03 15.98REVALUED (PROFORMA) 10.00 10.40 9.50 10.00 8.20 4.14 5.07 5.22 6.13 8.96 8.79 9.42 8.99 8.75

PAKISTANWATER AND POWER DEVELOPMENT AUTHORITY

KOT ADDU COMBINED CYCLE PROJECT(RUPEES MILLION)

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

FORECAST SOURCES AND APPLICATION OF FUNDS STATEMENTS.... ..... .. .... . .. ... . . .... .. . ... .. .

(YEAP ENDING JUNE 30th).O.................. FORECAST ... '''''''''''''''-''

SOURCES OF FUNDS FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93................ .... .......... ..... .... .... . .... .... . .... .... . .... ........ ..... ..... ..... .....

INTERNAL CASH GENERATION.......... ................ ......

NET INCOME FOR FIXED CHARGES 2834 3843 4789 6423 10409 1226? 14462 16302 18109DEPRECIATION 1126 1340 1601 1920 2317 Z815 3404 4085 4845

.............. i... .............................................

TOTAL INTERNAL CAtiI GENERATION 3960 5183 6391 8343 12727 15081 17866 20387 22954

CAPITAL CONTRIBUTIONS 597 656 720 789 864 947 1038 1137 1245SEaRIT DEPOSITS 43 48 55 63 73 83 96 110 127BORROWINGS..........

RUPEE LOANS 1209 2718 3900 4103 4532 4118 4290 677 5548FOREIGN LOANS 2427 3264 4333 4325 5856 7513 8404 8263 9349PROPOSED IBRD LOAN .4 264 578 426 165 0 0 0

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

TOTAL BORROWINGS 3636 6035 8497 9006 10814 11796 12694 15040 14897

TOTAL SOURCES OF FUNDS 8236 11923 15662 18201 24478 27908 31693 36674 39223

APPLICATIONS OF FUNDS I..................... VICONSTRUCTION PROGRAM....................

PROPOSED PROJECT 16 152 404 812 903 518 0 0 0OTHER CONSTRUCTION 5672 7648 10347 10723 15767 18427 20733 23706 23874

TOTAL CONSTRUCTION PROGRAM 5688 7800 10751 11535 16669 18945 20733 23706 23874

DEBT SERVICE............

INTEREST 1801 2464 3334 4398 5578 6931 8359 10016 11799LESS:INTEREST ACCRUED 83 83 83 83 83 83 83 83 83AMORTIZATION 623 579 692 863 883 1000 1184 1488 1987

.. i .... . ... ; ............. ................................. . ............................

TOTAL DEBT SERVICE 2341 2960 3943 5178 6378 7848 9460 11421 13703PAYMENT TO GOVERNMENT 20 20 20 20 20 20 20 20 20

VARIATION IN WORKING CAPITAL............................

CASH INCREASE 74 190 190 432 405 m 403 511 619OTHER THAN CASH INCREASE 114 952 758 1036 1005 803 1078 1016 1006

..... i.........................................................>NET INCREASE 187 1142 948 1468 1411 1095 1480 1527 1625

TOTAL APPLtCATIONS OF FDUS 8236 11923 15662 18201 24478 2 31693 36674 39223

TIMES DEBT SERVICE COVERED BYINTERNAL CASH GENERATION 1.69 1.75 1.62 1.61 2.00 1.92 1.89 1.79 1.68

SELF FINANCING RATtO3 Yr. AVE. 47 48 40 40 40 40 40 40 40

PAKISTANWATER AND POWER DEVELOPMET AUTNORITY

KOT ADDU COMINED CYCLE PROJECT(RUPEES NtLLION)

ACTUAL AND FORECAST BALANCE SHEETS

(AS OF JUNE 30th)..........-. ACTUAL . (ESTINATE) ....... FORECAST ........................

ASSETS FY8O FY81 FY82 FY83 FY84 FY8s FY86 FYs7 FY88 FY89 FY90 FY91 FY92 FY93.... ........ ..... ..... .... .... .... .... ..... .... ..... .-..... .... ..... *..... .... ..... .... ..... .... ..... ....

FIXED ASSETS..........

FIXED ASSETS IN OPERATION 16303 19265 20966 26100 29333 35019 41559 49936 59806 72618 88225 106305 127113 149731LESS:DEPRECIATION RESERVE 3472 4133 4841 5650 6697 7823 9163 10764 12685 15002 17817 21221 25306 30151

.............................. ...........................-.-. *. -. ¢ *** .. ... *^. .. r.**.... ......-....NET FIXED ASSETS IN OPERATION 12831 15132 16125 20450 22636 27196 32396 39171 47122 57616 70408 85084 101807 119580WORK IN PROGRESS 5149 5027 7500 6475 8095 8529 10206 13098 15396 20040 24366 28187 32433 35192

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

TOTAL FIIED ASSETS 17960 20159 23625 26925 30731 3575 42601 52269 62517 77656 94774 113271 134240 1S4M

CURRENT ASSETS........ ...........

CASI 317 315 429 611 501 575 765 955 1387 1792 2084 2487 2998 3617INVENTORIES 672 1239 1550 1649 1779 1967 2494 2746 2990 3631 4411 5315 6356 7487ACCOUNTS RECEIVABLE 680 928 1182 1435 1752 1774 2146 2826 3951 5465 6408 7629 8996 10566WATER WING ACCOUNTS 159 19l 242 251 212 223 234 245 258 271 284 298 313 329OTHER CURRENT ASSETS 128 531 565 865 955 1060 1177 1306 1450 1609 1786 1983 2201 2443

... ; .. i;.. ;;..;.... ;.... ;;... ;..... ;;... ;i .................................... ",

TOTAL CURRENT ASSETS 1956 3204 3968 4811 5199 5598 6814 8079 10036 12764 14974 17712 20864 24442 ........................................................................................................................ . tA

TOTAL ASSETS 19936 23363 27593 31736 55930 41323 49416 60348 72553 90424 109,748 130983 155103 179214 cis

CAPITAL AND LIABILITIES.......................

EQUITY

GOVERNENT INVESTMENT 2144 2147 2218 2318 2409 2409 2409 2409 2409 2409 2409 2409 2409 2409GVERNMENT EQUITY CONTRIBUTION 2766 276 2m 2777 2777 2777 2777 2777 2777 2777 2m 2M 2m 2MCAPITAL CONTRIBUTION 2.. 151 650 1035 1578 2175 2831 3551 4340 5204 6151 7189 8326 9571RETAINED EARNINGS 2787 4660 6500 8664 10543 11988 13764 15717 18355 23954 30257 37508 45121 52914

............................................... I..................................................................................--

TOTAL EQUITY 7697 9724 12145 14794 1707 19349 21781 24454 27881 34344 41594 49883 58634 67671

LONG TERN DEBT 11018 11965 13295 14475 15979 18992 24448 32254 40396 50328 61123 72633 86185 99095

CONSUMER DEPOSITS 189 211 236 275 318 366 421 484 556 640 736 846 973INTEREST ACCRUED ... 784 867 951 1034 1117 1200 1283 1366 1449 1532 1615 1698CURRENT LIABILITIES 1221 1485 1158 1364 1418 1630 1704 2020 2509 3830 4941 6199 7824 9777

TOTAL CAPITAL AND LIABILITIES 19936 23363 27593 31736 35930 41323 49415 60348 7553 90424 109747 130983 1551053 79214

DEBT AS X OF DEBT+EWUITY 59 55 52 49 48 50 53 57 59 59 60 59 60 59EQUITY AS X OF OEBT+EQUtTY 41 45 48 51 52 50 47 43 41 41 40 41 40 41

ANNEX 4.4Page I of 3

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

Notes and Assumptions for Financial Forecasts

Income Statement

Sale of Electricity

The. forecast sale of electricity is based on projected plant expan-sion and takes into account a reduction in system losses. Increase in salesis forecast at an average annual rate of about 10 through FY93.

Average Revenue per kWh Sold

The average revenue per kWh sold reflects the fuel adjustment sur-charge, as well as tariff increases necessary to meet the 4% Internal CashGeneration Covenant.

Other Operating Revenue

Other operating revenue consists principally of miscellaneous serv-ices such as transfer/replacement of meters, application fees, reconnectionof service, etc. These revenues are shown to increase by 10% per year basedon the increase in the number of consumers.

Power Purchases

Power would be purchased from KESC to meet peak period deficits basedon current institutional set up of WAPDA and KESC.

Fuel Cost

Increase in fuel costs have been assumed as follows:

(a) 45% per annum for raw gas and lOZ for purified gas up to PY88, and1OX thereafter;

(b) HSD, fuel oil and crude oil at 101 per annum; and

(c) Coal at 1OX annually.

-58-

ANNEX 4.4Page 2 of 3

Maintenance Expense

Maintenance expense is related to plant in service and is forecast at2.42 of fixed assets in operation, taking into account past experience andthe increasing proportion of thermal plant in the system.

Operation and Administration Expense

Except for FY88, operation and administration expense is forecast toincrease by 25% annually, taking into account system expansion, inflation andalso past experience. An increase of 35% is taken for FY88 to reflect anexpected general wage increase.

Depreciation

WAPDA is applying a composite rate of depreciation of 3.5%. Thisrate is realistic and has been used in the forecasts.

Other Income

Other income includes interest, sale of scrap and rental of officespace, and is shown to increase by 10% annually.

Payment to Government

WAPDA has been remitting Rs 20 million annually to Government forassets earlier transferred to WAPDA. Forecasts show this payment continuing.

BALANCE SHEET

Cash

Cash balances are projected on the basis of about six weeks' cashoperating expense.

Inventories

Inventories are forecast on the basis of a percentage of fixed assetsin operation. Taking into account past experience and WAPDA's efforts toimprove materials management, the following percentages are used for theforecasts:

5.5 of fixed assets in FY875% of fixed assets thereafter

-59-

ANNEX 4.4Page 3 of 3

Accounts Receivables

Forecasts assume that, as in the past, WAPDA's accounts receivableswill be equivalent to two months' billings.

Other Current Assets

Other current assets include miscellaneous receivables, advances andclearing accounts. Forecasts assume a SX annual increase.

Current Liabilities

Current liabilities include accounts payable, deposits for works tobe carried out for other agencies, contractor deposits, duties payable andaccrued salaries. Based on past experience, current liabilities are forecastat between 25X and 40X of current assets.

Security Deposits

Security deposits are forecast to increase at 151 per annum.

Capital Contributions

Consumers' capital contribution assumed to increased by 10 annually.

PAKISTANWATER AND POWER DEVELOPMENT AUTNOR ITT

KOT A130 COtMBIE CYCLE PROJECTINVESTMENT PROGRM - FY86 TO FY94 I/

(RUPEES MILLION)Est lasted Ezqpenttare

Date Totat Project Costs Upto July 1965 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 Smourcs)Of .......... ........ .. - - 1 1, ... .. ... .. .. . Of

Project Comissfion LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL ForfoIn Ff rmo*

Genration

Wmredk unfts 5 8 6OuotteGOn Turbineo (35 NW) Nov. 1986 68 117 185 la 82 100 17 .......Tsebtl unf tos9 10 C350 MW) May 198 1000 830 1830 247 165 412 42 ... ... ... .... .....SutN Comined Cycle (450 NW) oct. 1987 2116 2343 4459 285 89 1184 M7 900 458 522.....- ... ... SI/cGL"udnawt. 4 (210 NW) Feb. 1966 1324 716 2040 272 620 892 488 35 . . - . . . . CHINAKot AdNiA umi to I to 4 (400 NW) Oct. 1966 130S 1410 2715 53 162 215 1542 710 300 179 .. FRG/ITALYNutton units I to 3 (630Nw) Sep. 1991 4154 392 8074 25 0 25 48 50 55 1500 329 2439 939 usR C?)Jornwohouoit lCZS0OWi) Dec. 1988 1870 1660 3530 22 0 22 193 1036 1085 500 387 -... . ... JANKot Addu units 5to 8(400 wi) Apr. 1968 1542 1855 3397 --- 0 .. 81 848 1246 688 200 .... .. FRO/ITALY (?)Kot AddbjCa. Cycle (200 NJ) Nor. 199 1475 1275 2750 .. 0 .. 16 152 404 812 903 518 * IINRTarbteo un~its 11 -14 (1728 on) Aug. 1990 6000 5000 11000 163 4 167 579 1923 2500 270 170 750 ...... wSCIPA/KFalestabod Cor. Cycle (100 mw) Dec. 1991 800 550 1350 --... 0 .. 50 -- -- S 400 760 314 .. .. tmU C?)OfesoetSets at ltitat(3 NW) 1989-90 13 17 30 ... 0 .. 19 11 .......

smnallNydets OM NWi) 1968.89 10 0 10 .. 40 88 0 8 P61 of Major Mydols 25 10 35 34 75 91 35. . .- *~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2 0 3S 3 5 1 3

Low NeedN "ist(35NWi) Jul. 1989 450 250 70 1 0 1 9 130 351 190 19 AD.--Chitral Phase It ... 0 ---.ChashtM Low Need Nydet (256 NW) Dec. 1992 1970 1570 3540 .. 0 * 600 66 75 70 0 M ?Jimah Low Need Nyt (122 NW) Dec. 1994 .. 0 *-. ... 100 S00 1000 A0B (?)Tarbela units 15 17 (1200 "W) Dec. 1994 50oo 4000 9000 ... 0 . .100 1400 2450 270 Ags/FitA/*p/cID,Jrnohorosunit 2 (210MNW) Jun. 1992 1457 1676 3133 0 50 250 700 800 1000 332 .. jApAN C?)Nangta units 9 A10(ZDOONW) Mar. 1992 664 726 .1390 0 48. 150 300 500 250 142 .. UNIOUN.Lakchra CostC300NWi)PCII1 48 93 141 7 0 7 34 50 49 -- .. ......Lokhro Cost (300 NW) Mining 3030 935 3965 --- 0 11-870 910 800 980 295 138D C?)Lakhra Coat (300 NW) Power Stnm. Dec. 1992 3630 2765 6395 .. 0 25.'I 26 0 19 48 20 ?Lokhra Coal (600 NW) Mining 4340 1400 5740 ... 0... ... .100 600 1500 2000 WNIIDE.Lakhra Cool (600 NW) Power $tn. Dec. 1995 5160 4100 9260 ... 0 .*30 100 120.60...DNTDuk~iCost PC 1 42 53 95 18 0 18 22 28 13 5 ... .. ... .. ... ...Duki Coal PC t ... 0 ... ...Jomboo Ben Exp (120 MM) Dec. 1992 4100 3100 720 ... 0 0 00 40 2000 3000 5000 376 I33 (?)top. Cool Power Stn. (2*500 NW) Dec. 1996 11000l OM0 1900 ... 0 .. .. .. .. .. .. 100 850 1280 4400 UNIDEN.Lahwre Thermi (800 NW) mar. 1993 7500 600 13500 ... I0. 1350 2000 3000 3100 2700 1350 UMIDENT.Iqp. CooL Powe Stn. (2*500 NW) mar. 1999 11000 600 19000 ... 0 .. 5.0. .. .. s 200 UNIENT.

Sttotat Generation 81058 62361 143419 1146 1942 3068 3969 598 6710 9936 1238S 14052 16043 1713 1925

I/ Does not incluude Kaiaeg Dam Project.? Probable Source.

0*

PAKISTANWATER AND POWER DEVELOPNNT AUThORtTY

KCOT ADDU CONSINED CYCLE PROJECTINVESTMENT PROGRAM FY86 TO FY94

Estimated Expendituresoate Total Project Costs Upto JuLy 1985 fY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 sourceWsOf.1 ... .. .. .. .. .. .. .. .. .. Of

Project Comsission LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL foreign finanC0........ .. .. .. .. .. .. .. .. .. .. .. .......

Transmission

Faisalabad-Nultan-Karachi (500-kY) 1986-87 2224 180 4033 94 26 120 M7 600 260 116 ... .". . FRANCE/JAPAN2nd Tarbela-Falsalabad (500-kY) 198s-86 785 571 1356 381 195 576 90 3 --- -. . . . .. .. CIDAFaisalabad-Sahiwal (220-kY) 1985-86 216 154 370 23 0 23 125 120 57 32 .. ADOLoad Despatch Center-Nodernitation 1988-89 ... -* ... 4 3 7 77 170 369 114 ... ADLudweta-baudkhet (220/500-kY) 1990-91 575 465 1040 -- -- .. 14 10 26 2O0 264 264 122 ... C?)Lahore-jamshoro (500-kY) 1990-91 2857 2118 4975 .. .. .. 34 300 4.04 1350 1500 920 467 ... 102nd Guddu-Sfbl-Ouetta (220-kV) 1989-90 630 410 1040 - - .. .. -- 12 60 114 114 60 .. ...-- .. FAGKot Addu-Loralai (220-kY) 1992-93 400 300 700 -- .. .. .. .. .. . 16 82 205 246 25 UNIDENT.3rd 500-kY Tagrbela 1989-90 815 585 1400 ...~ 130 370 447 313 140 ...- -- - ADSMardan-Peshawar (220-kV) 1987-88 200 100 300 - -. 33 200 29 30 .... FAG06Wu-Khuzdar (220-kV) 1987-88 399 217 616 .. .* . 72 350 23 60 ... ... --- PROKot Addu-Multan 1st Phase 1988-89 210 90 300 .. .. . 50 100 50 60 30 10 - -- ADS /I M)3rd Nuttan-Guudu (500-kY) 1994-95 1000 700 1700 .. ...- - -. - -- 21 84 318 UNJDENT.2nd Tarbela-Lahore (500-kV) 1994-95 1000 700 1700 :- ... - -- - ... so5 200 So0 UNtOENT 2nd Ludwela-Gatti (500-kV) 1994-95 IS0 120 300 -...- - ... -- . .- 5 50 100 UNIDENT. ~Kalabagh-Chasmam-ultan (500-kY) 1994-95 1280 770 2050 - -- -- -......- - -. ... 50 8W0 600 350 250 UIET

sut,totaI Transmission 12771 919 2188 502 224 726 ¶21 1945 1905 2513 2317 2296 1480 930 1193

Subl-Transmission and Grid Stations 1135 4368 1572 51 768 1283 1303 1410 1470 1957 2000 2050 2100 2150 220 1811

Distributfon & RuraL ELect 2083 2443 23296 739 218 957 1689 1800 2000 2900 3000 3200 3750 4000 4700 (3ID1/GOP

Diesel sets 24 20 44 0 0 0 0 44 0 0 0 0 0 0 0....

TotaL Investments with I.D.C 126061 78301 204362 2902 3152 6054 8178 11187 12085 17306 19702 21598 23373 25019 27348

Less: Interest During Construction 378 436 550 637 757 865 997 1145 1272

Totat Investments without 1.D.C 126061 78301 204362 2902 3152 6054 7800 10751 1153S 1666 18945 20733 22376 23874 26076

? Probable Source.

'm

ANNEX 4.6-62- Page 1 of 4

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

Summary of Status and Plans for Strengthening Financial andCommercial Operations Under the WAPDA/USAID Power DistributionPraject

FINANCE AND ACCOUNTING

In carrying out financial institutional improvements under the PowerDistribution Project, the improvement objectives have been grouped into sixbroad areas:

- Confirmation of assets and liabilities to determine actual currentvalues, and correct as required any recorded amounts in the account-ing records and financial statements.

- Revaluation of capital (fixed) assets to determine present value anddevelopment of functional depreciation rates for the major classes ofassets.

- Determination of cost of service for the various classes of customersand design of rates and tariffs based on these costs.

- Modernization of present manual systems and procedures for near termimprovements in the accuracy, timeliness and efficiency of financialoperations and subsequent conversions to computer based systems.

- Reorganization of financial operations to improve overall efficiency,management control and responsiveness to financial informationrequirements.

- Upgrade the qualifications and capabilities of financial personnel atall levels.

Work Accomplished as of September 1985

The confirmation of inventory valuations has been completed and willbe documented in a report. The data gathering phase of the confirmation ofWAPDA's current assets and current liabilities has been completed.

A Fixed Asset Accounting Manual that will provide the basis forfuture fixed asset accounting -procedures has been developed and documented.

WAPDA's management information requirements have been determined anddocumented. Improved financial and managerial reports have been developedand designed.

-63-

ANNEX 4.6Page 2 of 4

A pceliminary study of WAPDA's rates and tariffs is near completionwhich will help in formulating recommendations fot tariff adjustments.

A proposal for reorganization of WAPDA's financial operations hasbeen developed, documented and is being presented to the Authority. A jointconsultant/WAPDA implementation team has been created to plan and carry out adivisional reorganization pilot operation in two selected divisions. Staffingrequirements have been determined and procedure development and documentationis well underway.

Project financial personnel consisting of WAPDA assigned personneland implementation staff are being trained via the sister Utility ExchangeProgram (SUE). Five WAPDA officers have received training at American Elec-tric Power (AEP) in the U.S.A., plus another five WAPDA financial officershave been selected for this scheduled training.

Present Activities

A study to confirm current assets and current liabilities is in thedata analysis and report writing stage.

A short-term expatriate is currently working with the PrincipalTechnical Assistance Team (PTAT) staff and WAPDA personnel to developimproved cash management and accounting systems.

The confirmation of WAPDA's capital (fixed) assets is underway, basedon a review of the available detailed records.

Depreciation rates for WAPDA's utility assets are being developedthrough a joint effort by PTAT and the AEP home office staff.

Future Programs of Work

The following major programs will be completed during future periodsto achieve the financial objectives of the projects

Confirmation of current assets and current liabilities

Improve cash management

Verify and revalue capital (fixed) assets

Develop depreciation rates

Upgrade manual financial accounting systems and assist in developmentof computer based systems

* -64- ANNEX 4.6

Page 3 of 4

Upgrade construction accounting procedures

Revise financial organization and improve staff capabilities

Develop cost of service, determine rate of return and design rates

Assist in the development of training programs for financial officersand clerical staff

COMMERCIAL OPERATIONS

Present Activities

The commercial operations include all areas of work pertaining tocustomer services (application processing, connection of service, meterreading, billing and collection, disconnection and reconnection, and customerrelations). Those areas ot work currently underway are:

Fully computerizing and updating of WAPDA's commercial procedures(Customer Accounting System).

Develop a system for computer monitoring of customer billing andrecords to assist in controlling unauthorized use of energy.

Review of WAPDA's existing security deposit policy to provide recomr-mendations for change.

Design of a model Customer Services Center.

The development of a Customer Energy Conservation InformationProgram.

To date (September 1985), studies have been carried out in a numberof selected offices across WAPDA. An in-depth look at four revenue officesand six sub-division offices has been completed. The information gatheredand observations made have been the basis for the work currently underwaycited above.

The commercial procedures are being revised with full emphasis oncomputerization to increase the overall speed and accuracy of the billingprocess which will significantly improve WAPDA's cash flow and customerrelations. It is also intended to provide control over the total customerinformation system. The plan is to locate computers at each AEB and microcomputers at each revenue office for data entry.

-65-

ANNEX 4.6Page 4 of 4

Future Program of Work

Future work will involve the computerization and revisions to thecommercial procedures and the establishment of a Customer Energy ConservationProgram.

A pilot program tied in with the WAPDA organization is planned forJune 1986 at the Muridke and Sheikhupura Divisions in the Sheikhupura Circle.This program, to test out the revisions and computerization of the commercialprocedures, will require about four to six months to complete. This willallow many of the potential problems to be resolved before wider implementa-tion.

The work on the Energy Conservation Management Program will continuewell into 1986. The initial team will be expanded to include staff for eachAEB. Staff selection, training and actual program materials will carry intothe second quarter of 1986 prior to implementation.

/uerl6/asppt /ales /ELWA/Pakistsn/annaRS.X51/12-26-85

PAKISTA

*OT AMDU CUIBD CYCLI POM R

Actual aud ftpiected Poer DeMd Ed EnemA FAIe,

CUAPD System)

-Atual- -- ~-utit e d -Fm m81 .T$2 nF8 "84 FMS FM M7 "a ml m .11 2 _

Installed Capacity (1W1) 2,685 3,254 3,254 3.954 3,954 4,339 4,612 5,412 5,412 6,178 8,266 6,266 9,416 9,416

Peak Demand (tN) 2,076 2,473 2,846 3,163 3,437 3,791 4,121 4,517 4.95S 5,436 5,963 6,541 7,176 7,872

Luergy Generated (Glih)

Rydel 8,718 9,046 9,526 11,367 11,828 13,475 15,106 15,290 15,855 16.187 16.836 18,336 19,136 19,246

Theral (t import) 3 4§M 4,160 S 242 5J11O 6.224 5.305 6.121 8.220 10.319 1 13.792 14-29 16A591 ALZ

TOTAL GURATION (Glh) 12,124 13,206 14,768 16,477 18,052 18.780 21,227 23,510 26,174 28.769 30,628 33,329 35,727 37,171

Energy sales (Gllh)

Domestic 1,564 1,858 2,394 2,866 3,470 3.887 4,438 4,970 5,567 6,235 6,983 7,621 8,760 9,811

Comercial 389 44S 574 634 739 796 868 946 1,031 1.124 1,225 1,335 1,455 1.5E6

Industrial 3,154 3,482 3,974 4,417 4,708 5,061 5,516 6,013 6,554 7.144 7,757 8,488 9,252 10,086

Agricultural 2,057 2,125 2,357 2,546 2,663 2,783 2,950 3,127 3,314 3,513 3.724 3,9" 4,185 4,436

Public Ligbting 50 58 75 78 88 93 102 119 130 136 147 173 187 21

sulk supply 900 1,056 872 1,002 1,050 1,092 1,206 1.332 1,470 1,624 1,793 1,980 2,187 2,415

Traction 46 44 42 44 44 *4484 57 59 62 6S 69 '

TOTAL SALES 8,160 9,068 10,288 11,593 12,762 13,756 15,708 17,973 20,154 22,152 23,586 25,663 27,510 21,622

ANNEX 5.2 --67- Page 1 of 2

PAKISTAN

KOT ADDU COMBINED CYCLE POWER PROJECT

Assumption for Rate of Return on Project

1. Capital Cost: Investment costs for the project, amounting toUS$122.86 million, are incurred as follows:*

Year Base Cost(US$ million)

1 0.972 8.723 19.274 35.355 37.836 20.72

2. Local Costs were expressed in their equivalent border pricing usingthe following conversion factors: Material - 1.1; Skilled Labor - 1.06; andUnskilled labor - 0.63.

3. Annual Operating and Maintenance Costs were calculated at 5% ofcapital costs.

4. There is no addition fund cost for running the converted combinedcycle plants.

5. Additional Generation was computed on the basis of the 60X loadfactor, for the first ten years, thereafter on the basis of 35% load factor.

6. Revenues: Assuming a loss of 15% because of proximity of generatingplant to load centers, revenues were calculated on incremental sales valuedusing the average revenue of PRs 0.73 (1985 prices), which is assumed as aproxy for consumers' willingness to pay.

INTERNAL RATE OF RETURN ON PROJECT

FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 - FYOI FY02 - FY15

INFLATION RATE-LOCAL(Z) 1O.0 8.5 7.5 7.5 7.5 6.0 4.5 4.5 4.5 4.5 4.5 4.5 4.5INFLATIN RATE-FOREIGN(Z) 3.2 7.0 7.3 7.6 7.7 6.0 4.5 4.5 4.5 4.5 4.5 4.5 4.5 --

CONSTANT (1995) PRICES(US S NLN.)

INVESTNENT COSTS 0.9 q.8 14.3 26.1 27.9 15.5 … … ---- ---- …--- ---- --…-- ---- -- -LOCAL COSTS 0.7 5.6 3.6 7.2 9.3 5.0 ---- --- -

RATERIAL 0.6 4.7 3.0 6.0 6.9 4.1 ---- ---- -SKILLED LkB0R 0.0 0.3 0.2 0.4 0.5 0.3 ……---- --UNSMILLED LABOR 0.1 0.6 0.4 0.8 0.9 0.5 -- --

FORE16N COSTS 0.2 4.2 10.7 18.9 19.6 10.5 ---- ---- ---- ---- ---- ---- ---- ---- ----

IN BDRDER(1985) PRICESIUS $ NILN.)

LOCAL COSTS 0.8 5.9 3.8 7.5 8.7 5.2 ---- ---- - -- ---- ---- ----WATERIAL 0.7 5.1 3.3 6.6 7.6 4.5 -- - --- ---- ---- --- ---- ------SKILLED LABOR 0.0 0.4 0.2 0.5 0.5 0.3 ---- -- - ---- ---- ---- --- ----UNSKILLED LABOR 0.1 0.4 0.3 0.5 0.6 0.3 ---- ---- --- ---- ---- ---- -- -

ECOOMNIC COSTS (US S NILLION)

INVESTRENT COSTS 1.0 10.1 14.5 26.4 28.3 15.7 -…-- --- ---- ---- ---- ---- -----PIPELINE COSTS 0.6 1.3 1.9 1.9 1.3 ---- -- - ---- ---- ---- ---- ---- ---OPERATION & NAINTENANCE COSTS 0.0 0.6 1.3 2.6 4.0 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.9 4.8 4.8TRASNISSION & DISTRIBUTION COSTS 0 0 0 0 0 0 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2

TOTAL COSTS 1.6 12.0 17.7 30.9 33.6 20.5 7.0 7.0 7.0 7.0 7.0 7.0 ?.0 7.0 7.0

AVERAGE REENlUE/KNh(CURRENT US 4) 0.0465 0.0537 0.0672 0.0848 0.0935 0.1023 0.1023 0.1023 0.1023 0.1023 0.1023 0.1023 0.1023 0.1023 0.1023AVERAGE REVEYNE(KWh(CONSTANT US *1 0.0443 0.0468 0.0543 0.0637 0.0653 0.0670 0.0637 0.0609 0.0503 0.0558 0.0534 0.0511 0.0489 0.0489 0.0489INCRE TAL SALESUIILLtN KNhb 0.0 0.0 0.0 0.0 0.0 0.0 893.0 893.0 893.0 893.0 893.0 893.0 893.0 893.0 521BENEFITS(US S ILLION) 0.0 0.0 0.0 0.0 0.0 0.0 35.6 35.6 35.6 35.6 35.6 35.6 35.6 35.6 21NET 8ENEFITS(US $ NILLION) -1.6 -11.9 -17.7 -30.9 -33.6 -20.5 28.6 28.6 28.6 28.6 29.6 29.6 29.6 29.0 14 A

INTERNAL ERR ON PROJECT = 15.2I

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