el kureimat power project - afdb

PROJECT COMPLETION REPORT

EL KUREIMAT POWER PROJECT

LIST OF ANNEXES

ANNEX No TITLE NUMBER OFPAGES

1. Project Location 1

2. Map of the Unified Power System 1

3. Bank Group Operations in the Electricity Sector 1

4. Schematic Organisation of Egyptian Electricity Sector 1

5. Schematic Organisation of Egyptian Electricity Authority 1

6. Comparative Income Analysis 1

7. Comparative Financial Analysis 1

8. Financial Internal Rate of Return 1

9. Economic Internal Rate of Return 1

10. Contract Cost and disbursement 2

11. Overall Project Performance 4

12. Sources of Information 1

TABLE OF CONTENTS

A. Contents Pages

Currencies , Acronomys and Abbreviations i -ii

Executive Summary iii

Project Key Data v

Project Matrix viii

1. INTRODUCTION 1

2. PROJECT OBJECTIVES AND FORMULATION 1

2.1 Sector Goal 12.2 Project objectives 22.3 Project Formulation 22.4 Preparation Appraisal, Negotiation & Approval 32.5 Project Description 3

3. PROJECT EXECUTION 3

3.1 Loan Effectiveness and Project Set up 33.2 Modification 43.3 Implementation Schedule 53.4 Reporting 53.5 Procurement of Goods and Services 53.6 Project Cost 63.7 Sources of Financing 7

TABLE OF CONTENTS (Cont’d)

Contents Pages

8. Overall Performance 15

9. CONCLUSIONS AND LESSONS 15

9.1 Conclusions 15

9.2 Lessons Learnt and Recommendations 16

This Report has been prepared by Mr. Nzabanita Emmanuel, Senior Power Engineer, anEnvironmental Consultant and a Financial Analyst consultant, following their ,mission toEgypt from 7th to 23rd January 2001. Request for further information should be addressedto Mr. E. B. NZABANITA, Senior Power Engineer, OCDN.4, telephone extension 5981 and

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CURRENCIES, ACRONOMYMS AND ABBREVIATIONS

CURRENCY EQUIVALENTS

Currency Unit = Egyptian Pound ( LE ) = 1000 Millimes

At Appraisal At Completion( July, 1989 ) ( December 2000)

UA 1.0 = USD 1.24639 UA 1.0 = USD 1.30291UA 1.0 = LE 3.18 UA 1.0 = LE 4.1769USD1.0 = LE 2.20 USD 1.0 = LE 3.2058

WEIGHTS AND MEASURES

1 km = kilometer =10³ metres( m) = 0.62 mile1 KV = kilovolt =10³ volts( V )1 kVA = kilovolt ampere =10³volt amperes (VA)1 kW = kilowatt =10³watts(W)1 kWh =kilowatt hour =10³watthours1 GWh =Gigawatt hour =100³kilowatthours (kWh)1 MVA =Mega volt ampere =10³kilovoltamperes (kVA)1 m² =Square meter =1.196squareyards1 m³ =Cubic meter =35.32 cubic feet(cu ft)1 fedan =4200Square meter1 tonne =Metric Tonne = 1000kg=2204.6 Pounds (lbs.)=0.9842tonmtoe =Million tons of oil equivalentkg/sec =Kilogrammes per secondºC =Degrees centigrade ( Celsius)ºF =Degrees FahrenheitPH =Hydrogen concentration( measure of acidity)Hz =Hertz = cycles per second

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ABBREVIATIONS

A. AC = Alternating CurrentADB = African Development BankADF = African Development FundARE = Arab Republic of Egyptbn = billionEEA = Egyptian Electricity AuthorityEGPC = Egyptian General Petroleum CorporationEIRR = Economic Internal Rate of ReturnFE = Foreign ExchangeFIRR = Financial Internal Rate of ReturnGDP = Gross Domestic ProductGIS = Gas Insulated SwitchyardIDC = Interest During ConstructionISC = Industrial Source ComplexLC = Local CostLRMC = Long Run Marginal CostMEE = Ministry of Electricity and EnergyNo2 = Nitrogen DioxideNox = Oxides of NitrogenOHTL = Overhead Transmission LinesPV = Present ValuePIU = Project Implementation UnitPa = Per AnnumSF6 = Sulphur HexaflourideSO2 = Sulphur DioxideUPS = Unified Power Grid SystemUHT = Ultra High VoltageTSP = Total Suspended Particles

Fiscal Year

Ist July – 30th June

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B.C. EXECUTIVE SUMMARY

1. The EL Kureimat power project is located on the East Bank of river Nile,approximately 95 kms south of Cairo. It comprises of two 627 MW gas/oil fired unitsgenerating power into the National Unified Power Grid System( NUPS ) through a500/220kV switchyard and associated transmission system.

2. The project was initially programmed for completion in 1995 but due tosome delays caused by late withdrawal of IBRD from the financing of the projectand by various contractors that did not meet their contractual obligations in timethe first unit was synchronized in November 1997 and the second in July 1998.Despite the delay, the project objectives have been achieved. The units havebeen commissioned and are meeting part of the power demand on the nationalgrid.

3. The financial rate of return at PCR has been calculated at 12.47%compared to 12.50% at appraisal while the economic rate of return has beencalculated at 11.07% compared to 15.55% at appraisal.

4. Environmental concerns resulting from locating the project in the areawere addressed by carefully adopting the appropriate design that allowsmonitoring of excessive emissions to the atmosphere and treatment ofwastewater before being discharged into the river.

5. Given the past experience of EEA in similar plants, the financial resourcesof EEA and the planned reforms that are being introduced in the electricitysector, there is a likelihood that the project will be sustainable. However the debtequity and current ratios which are currently high must be reduced and liquiditymust be improved.

6. The following lessons were learnt during the implementation of the project:

6.1 Firm commitments from the financiers at the commencement of the projectshould be encouraged to avoid major changes in the financial planning during theexecution of the project. Some changes as experienced on the project hadsignificant impact on the completion schedule of the project.

6.2 The continuous operation of the plant using Mazout oil resulted in higherlevels of gas emissions that were not acceptable. However, with natural gas beingused the emissions reduced to acceptable levels. The use of natural gas as fuel ingenerating electricity has the duel advantage of reducing the cost of fuel andoperating in an environmentally friendly atmosphere.

6.3 While the capacity of each unit installed in the station is 627MW, during offpeak hours the units operate at half the load. Normally at this level of operation theefficiency is low. The lesson learnt here is that if smaller but more units had been

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installed it would have been possible to allow the complete shutting off of some ofthem during the off peak hours. EEHC has acknowledged this problem and most ofthe new plants are in the range of 300 MW per unit.

6.4 A complex project like this one requires proper coordination to ensure that allcomponent activities run concurrently. This was lacking and some considerabledelays were encountered as a result of lack of proper coordination. In future projectcoordination should be given the importance it deserves. Periodic meetingsbetween various financiers and contractors should be held to ensure smoothimplementation of the projects.

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PROJECT DATA

1. Country . Egypt2. Name of Project . EL Kureimat Power Project3. Loan Number . B/EGY/POW/91/184. Borrower . The Government of Arab Republic of Egypt5. Executing Agency . The Egyptian Electricity Authority ( EEA )

A. LOAN APPRAISAL ACTUALD. ESTIMATE

1. Request for Loan (Date) October 19892. Amount(UA million) 250.00 132.443. Interest Rate 9.55% 9.55%4, Repayment Period 20years 20years5, Grace Period 5years 5years6. Loan Approval Date 17/12/19907. Loan Signature Date 30/05/918. Loan Effective Date 23/03/19929. Effective Date of first Disbursement 31/12/1992 31/12/199210. Effective Date of Last Disbursement 31/12/1997 31/12/200011. Commencement Date Nov 1992 16/04/199412. Completion of the Project 31/12/1995 31/12/2000

B. PROJECT DATA

1. PROJECT COST

Foreign Cost(UA million) 565.16 349.00Local Cost(UA million) 290.08 94.17Total Cost(UA million) 856.14 443.17

2. Financing Plan(UA million)Source Foreign Local Total Foreign Local Total

Cost Cost Cost Cost Cost CostADB 249.98 0.00 249.98 117.54 0.00 117.54USAID 143.62 0.00 143.16 103.16 0.00 103.16AFSED 71.81 0.00 71.81 64.65 0.00 64.65SF 0.00 0.00 0.00 43.10 0.00 43.10EEA 28.16 291.48 319.64 20.55 94.17 114.72TOTAL 565.38 291.48 856.86 349.00 94.17

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C. PERFORMANCE INDICATORS

1. Cost Overrun/(underrun) (47.90%)

2. Time Overrun/(underrun) 100%

3. Project Completion Status Completed

4. Institutional Performance Satisfactory

5. Contractor Performance Satisfactory

Appraisal Actual6. FIRR(%) 12.55 12.47

EIRR(%) 15.55 11.07

D. MISSIONS DATES No of Persons Weeks

Identification 1983 N.A N.A

Preparation 1985 N.A N.A

Appraisal Sept. 1990 3 3

Supervision Oct. 1995 2 2Oct. 1996 2 2July 1998 2 2Mar 1999 1 2Apr 2000 1 2

PCR Jan 2001 3 2

E. DISBURSEMENTS(UA millions)

Sources 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 TotalAt Appraisal

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ADB 3.09 72.56 89.18 63.15 21.36 0.00 0.00 0.00 0.00 0.00 0.00 249.34Total 3.09 72.56 89.18 63.15 21.36 0.00 0.00 0.00 0.00 0.00 0.00 249.34% 1.24 29.10 35.77 25.33 8.57 0.00 0.00 0.00 0.00 0.00 0.00 100

Sources onCompletionADB 0.00 0.00 0.00 9.37 14.51 50.43 24.35 4.98 3.49 0.83 9.58 117.54Total 0.00 0.00 0.00 9.37 14.51 50.43 24.35 4.98 3.49 0.83 9.58 117.54% 0.00 0.00 0.00 7.97 12.34 42.90 20.72 4.24 2.97 0.71 8.15 100

F. EQUIPMENT SUPPLIERS AND SERVICES (UA Million)

Component Contractor/Country Date of Award Amount

1.Consultancy Ratheon/Ebasco/ 15-04-92 46.73Services USA

2.Site Preparation Sami Saad & co 04-12-93 3.61Cairo, Egypt

3.Civil Works Dealim Industrial 16-04-94 52.99Korea

4.Switchyard Mitsubishi/Tomen 25-08-91 59.73Japan

5.Steam Generators Babcock/Cimimontubi31-01-94 80.40

6.Turbine Generators General Electric/ 04-12-94 56.20USA

7.Yard Tanks Port Said Eng./ 12-10-94 2.66Egypt

8.Insurance Al-charak/ 04-12-93 4.53Egypt

9.Pumps & Drives Worthington/ 04-08-94 10.31USA

10.Heaters & Drivers Korea Heavy Ind./ 04-08-94 8.80Korean

11.Water Treatment Bamag/ 23-01-94 7.64Germany

12.Cr Pip & valve Mecannica/ 04-07-93 5.55Spain

13.Elec Equip ABB/ 23-01-94 19.19Germany

14.Inst & controls Westinghouse/ 02-02-95 10.89USA

15.500kv overhead KEC Ltd./ 21-06-94 6.94Transmission lines India

16.500Kv Insulators Mitsui/ 11-01-95 7.24Japan

17.220Kv Insulators Aracan/ 11-06-95 1.39USA

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D.Project MPDE MatrixE.F. Project Title : EL KUREIMAT THERMAL POWER PROJECT

Country : EGYPT

Design Team : E. Nzabanita/Consultants

PCR Date : January 2001

Narrative Summary (NS)

Verifiable Indicators (VI) Means of Verification (MOV) ImportantAssumptions

Goal :

Provide costeffective energy to meetincreasing power demand

-Increase in energy usage-New connections to thesystem

-Governmentstatistical reports-Bank Review MissionReports

Project objective

-Provide Electrical Energy to:the consumers in Egypt(industrial, Domestic,commercial etc)

Increase of installedgenerated capacity by 1200MW in the year 2000

-EEA annual reports.-Bank supervision/reports and ProjectCompletionReport (PCR)

Sustained economicreforms and politicalstability

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Outputs:

- 2 x 627 MW Powerstation-500 and 220kV Substation-HV lines

-2 x 627 MW naturalgas/oil steam units-GIS switchgear-transmission lines atEl Kureimat village

-Quarterly Progress

reports; Bank's Supervision

Missions and Project

Completion

Report

-Project is completed,

-Availability of funds to

maintain the

system

Activities/Components

a) Civil worksb) Pump and

drives

c) Feed waterheaters,deaerators andcondensers

d) Water andwaste watertreatment systems

e) Steamgenerators(boilers) erected

f) Turbine andGenerators erected

g) Piping,valves andmiscellaneous

equipment(critical piping)

h) Instruments, panels andcontrols

i) Electricaldistributionequipment

j) Switchyard

k) Yard tanksl) Mechanica

l and Pipeerection

m) Electricaland instrumenterection

n) Architectural andengineeringservices

o) Colonyp) UPS

interconnectionq) Insurance

Input/resources

UA 56.60 million -UA 10..31 million

UA 8.80million

UA 7.64million

UA 77.58 million

UA 56.20million

UA 5.55million

UA 13.11million

UA 19.19million

UA 59.73UA 2.66 million

UA 36.35 million

UA 16.08 million

UA 46.73 million

UA 7.01 million

UA 11.03 millionUA 4.53 million

UA 4.39 million

Contract documents;

progress reports and Bank

supervision missions

Availability of Gas and

continued maintenance

of plant.

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r) Gastransportation(pipeline)

s) Bargeunloadingcranes

t) Elec.safety system

u)Storage

units

UA1.44 million

UA 2.34 million

UA 0.29 million

1. INTRODUCTION

1.1 The Bank Group started its lending operations in Egypt's power sector in1974. To-date, 13 projects and two studies have been financed. Out of the 13projects approved 12 including El Kureimat power project and one study havebeen completed. The thirteenth project approved in 1993 was cancelled at therequest of the borrower. The second study is still ongoing. The total loan/grantsin the power sector amount to approximately UA 750 million making the sectorthe biggest beneficiary of the bank's assistance to Egypt. The Bank Group'stotal loan approvals to Egypt amount to UA 1,236.96 million, comprising, UA1,044.36 million from ADB resources, UA 179.68 million from ADF resources,and UA 12.92 million from TAF resources. Annex 3 summarises the Bank groupoperations in the electricity sector in Egypt.

1.2 Egypt has recently undertaken a restructuring programme of the powersector. In the new programme the generation of the power in Egypt is shiftingfrom the public domain to the private sector in the form of BOOTs. There is aalso a programme to gradually shift the control of the distribution companiesfrom Government to the private sector leaving the Government's control onlywith the transmission system, rural electrification and mini-hydropowerdevelopment.

1.3 The El Kureimat Power Project is located 95 km south of Cairo in adesert village called EL Kureimat (See Annex 1 & 2). The power station wasconveniently located near the river Nile that provides the water necessary forplant operation. The river has also facilitated the delivery of equipment andmaterials to the site during and after construction. As a result of the power planta small town has been developed in the area. In addition the Executing Agencyhas created a green area around the plant and this has contributed to theimprovement of the environment in the area. The existence of extra high voltagelines in the vicinity of the project site makes it easier to evacuate the powergenerated at the plant to other parts of the country.

2. PROJECT OBJECTIVES AND FORMULATION

2.1 Sector Goal

2.1.1 Egypt has developed most of its large hydropower sites and is currentlyexamining the possibility of developing medium and mini-hydro power sites thatstill exist along the river Nile. The development of these sites is however notexpected to meet the fast growing demand on the Egyptian network. Thus thedevelopment of thermal stations and renewable sources of energy at aneconomic cost and with high reliability is the main goal of the sector. Theprovision of electricity at an economic rate is very important for the developmentof other key areas within the economy. For example tourism and agriculturewhich play a major role in the Egyptian economy are heavily reliant onelectricity. The development of electricity at an economic rate will therefore

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increase the economic activity, reduce poverty and improve the quality of life ofthe people in Egypt.

2.1.2 In line with the above sector goal the Government of Egypt has givenhigh priority to the development of the electricity sub-sector in the country. It hasconsidered that rapid development of the sub-sector can be achieved bymeeting the following main goals:

a) the development of generation capacity to satisfy the increasingdemand;

b) the improvement of the power system efficiency; andc) the application of energy conservation measures.

2.2 Project Objectives

The basic objectives of the El Kureimat project, at appraisal, were to provideelectric power supply to the unified power system by installing 2 x 600 MW gas/oil fired units, thus increasing the generating capacity of EEA to meet thedemand of the whole grid in the late 1995, and to promote the rationalinvestment and consumption decisions throughout the economy.

2.3 Project formulation

The load growth on the national grid grew by 10.4% per annum in the period 1977 to1987. The effect of implementation of economic reforms, industrial restructuring,projected tariff increases, application of load management and energy conservationwere anticipated to have a limiting effect on the electricity demand to the extent thatthe growth rate was forecast at an average rate of 6.5% during the period 1988/1999-199/2000. This growth would translate into energy and power deficit if no plans weremade to augment the then existing generating plants. The forecast carried out byEEA showed that by 1995 there would be a shortage of 1200 MW on the grid. EEAhad therefore to look into the possibility of developing this capacity. In 1981 ElKureimat was identified by EEA for study and subsequent development. The studyfinanced by USAID was completed in December 1985. The study recommended theconstruction of a 1200 MW (2 X600 MW) dual coal/oil-fired station. However therecommendations of the study could not be implemented immediately because of theconcerns of using mazout oil and coal for firing the boilers as had beenrecommended in the study. At that time it was thought that given the increaseddemand for domestic oil consumption the resources available were not enough tomeet the needs of the plant. However a subsequent forecast of natural gas supplies,based on national gas exploration activities, suggested that natural gas could beconsidered as a primary fuel for the proposed plant. A supplementary study wasconsequently undertaken by EEA in 1988 to determine the probability that a sufficientquantity of natural gas would be available by mid 1990's to fuel the 1200 MW powerstation. The supplementary study was completed in July 1989 and concluded that thegas resources were developing and that there was high probability of a sufficient gassupply by mid 1990's to operate the plant. As a result of this finding EEA opted for amixture of mazout oil/gas design.

2.4 Preparation, Appraisal, Negotiation and Approval

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2.4.1 On November 8, 1989, EEA presented the technical, Economic and financialfeasibility of the El Kureimat plant to a group of potential bilateral and multilateralfinancial institutions including the Bank

2.4.2 Following a request from the Government and EEA, a Bank missioncomprising of a power Engineer and two financial analysts was sent to Egypt inSeptember 1990 to appraise the project. The mission discussed and defined thescope of works, cost estimates, procurement, implementation of the project and theloan conditions. An appraisal report based on the consultant report, mission findings,and discussions with representatives from other donors was prepared and submittedto the Bank for consideration.

2.4.3 During loan negotiations the Government accepted all loan conditionsprecedent to entry into force and pledged to comply with other Bank loan conditionsas spelled out in the general conditions applicable to loan agreements and guaranteeagreements of November 1989. The loan was approved on December 17, 1990.

2.5 Project Description

2.5.1 The project consists of supply and installation of two 627 Mw dual fired(natural gas/fuel oil) steam units in a new power station located on the eastbank of the river Nile approximately 95 km south of Cairo.

2.5.2 The project has the following main components: Civil works, Pump anddrives, Feedwater heaters, deaerators and condensers, Water and wastewater treatment systems, Steam generators (boilers), Turbine andGenerators, and miscellaneous equipment, Switchyard, Yard tanks, Electricaland instrumentation, Architectural and engineering services, Colony, UPSinterconnection, Insurance and Gas transportation (pipeline).

3. PROJECT EXECUTION

3.1 Loan Effectiveness and Project Start-up

3.1.1 The loan was signed on May 30, 1991 and became effective on March23, 1992 after the borrower had fulfilled the loan conditions precedent to entryinto force. The conditions were:

a) furnishing the Bank with satisfactory evidence that thecomplementary financing for the project had been secured andthat such financing would be available for the timely executionand completion of the entire project;

b) concluding a subsidiary loan agreement, acceptable to theBank, for on-lending the proceeds of loan to EEA at an interestrate not exceeding 9% per annum with a repayment period of 20years including a grace period of five (5) years;

c) causing EEA to set up under EEA'S deputy chairman forprojects , a project implementation unit (PIU) which would becomposed of a project manager, project engineer; and afinancial specialist whose qualification experience and would beacceptable to the Bank;

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d) undertaking to cause the Egyptian General PetroleumCorporation to deliver sufficient quantities of natural gas topermit EEA to operate the station on not less than 50% gas,without curtailing gas supplies to other EEA facilities;

e) transmitting satisfactory evidence to the Bank that it has paid toEEA the third instalment of LE 50 million to settle partoutstanding electricity bill arrears and causing EEA to transmit tothe Bank within six months of loan signature a plan of action thatEEA would take to collect the arrears such that the level wouldbe reduced to the equivalent of three (3) months of sales by theend of 1992/1993 fiscal year.

f) furnishing to the Bank for its internal review, a copy of the newtariff study.

3.1.2 At appraisal the project start up activities were estimated to begin in June1991 with the design and bidding processes ending in November 1992. Theentire project had been programmed for completion by December 1995.However this programme could not be fulfilled. One of the reasons for the delaywas the withdrawal of IBRD from financing one of the components thus creatinga financing gap which had to be closed by other financiers. Overall the start upprocess was delayed by nine months.

3.2 Modification

3.2.1 The initial financing plan had to be modified because of two factors:Firstly during the process of tendering most packages were awarded at pricesconsiderably below budget. This was attributed mainly to favourable marketconditions that prevailed at the time in 1993/1994. The foreign cost of theADB financed packages totalled approximately UA 137.43 million, projecting asaving of UA 113.0 million equivalent to about 45.2% of the original loanamount. At the request of the borrower, UA 97.0 million was cancelled leavinga loan amount of UA 153.0 million. Secondly IBRD cancelled its loan to EEA,which had been earmarked to finance three packages. IBRD, however,retained some participation in the project by funding the already committedGas Pipeline package implemented by the Egyptian General PetroleumCorporation (EGPC).

3.2.2. The three packages earmarked for IBRD were financed by ASFED &SF, EEA and USAID at a cost of US$ 39.55 million, US$ 10.53 million andUS$ 13.97 million respectively. This arrangement enabled EEA to close thefunding gap created by IBRD late withdrawal and to proceed with the projectstart-up activities.

3.3 Implementation Schedule

At appraisal it was foreseen that the construction activities would commence inNov 1992 and be completed by December1995. Unit 1 was however

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synchronised with the National grid on November 18, 1997 while Unit 2 wassynchronised on July 24, 1998. Compared to the initial implementationprogramme, this amounted to a delay of 22 months and 30 months for unit 1and unit 2 respectively. The main cause of the delay was the late withdrawalof the IBRD from financing three components. There were also other delays inthe execution of some components due to design problems which took time torectify. The implementation of the project effectively commenced in April 1994with the civil works contractor starting the site activities. This was after thetendering process of the civil works that delayed by six and half months. Otheractivities, which included the delivery and installation of boilers, turbines andgenerators and other auxiliary equipment, followed. Each of these componentsintroduced a delay that impacted the overall completion period of the project.Some components had a delay of up to eight months. However , most of thecomponents were being tendered at the same time. Taking into considerationthe delays of the tendering process it is apparent that the actual delay in gettingthe units on the grid was only six and half months for unit one and eight and halfmonths for unit 2. With a complex project of this size this is reasonable.

3.4 Reporting

The Executing Agency on a regular basis submitted the quarterly progressreports. The annual audited accounts reports were submitted to the Bank butthey were not accepted by the Bank because they fell short of Bankstandards. A Borrower’s PCR was submitted to the Bank. The report was ofgood quality and has been useful in the preparation of the Bank's PCR.

3.5 Procurement of Goods and Services

3.5.1 The executing agency strictly followed the Bank rules on procurementof goods and services. Procurement for all the ADB financed packages wereeffected through International Competitive Bidding (ICB) limited to ADBmember countries. Instead of single contract, a multiple contract approachwas adopted with a view to engaging contractors specializing in the specifictype of equipment required and therefore expecting the best buy for eachplant.

3.5.2 The multiple package approach adopted during the above processresulted in substantial cost savings for project. However, part of this wasoffset by increased management problems and exchange of the necessaryinterface information between contractors required to complete theirengineering that ultimately contributed to delays in project completion. Themultiple package approach would have been more cost effective if thedetailed engineering and design was completed by the consultant rather thanincluding them within the scope of individual packages. This approach wouldreduce the intensity of interfacing between the multiple parties and reduce onthe time for completing the tasks.

3.5.3 The evaluation process was done in a transparent manner and nocomplaints were received from any supplier or contractor for having beenunfairly eliminated.

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3.6 Project Costs

3.6.1 Project Costs:

The overall Project Cost during appraisal in the year 1989 was estimated atUA 856.14 million comprising of Foreign Currency component of UA 565.16Million and 290.08 in Local Currency. The project took off in 1994 with arevised estimated cost of UA 479.00 Million. The actual project cost of UA443.17 Million which is around UA 412.97 Million below the appraisal amount,is due to substantial savings on some project components (indicated in Table3.1 below) such as Interconnections (86,48%), Critical Piping &Valve(80.98%), Electric Erection (58.97%), Yard Tanks(60.36%) andContingencies Provisions (202.98%). However some of the components fore.g. Consulting (61.25%), Switchyard(159.47%) and Insurance (46.13%)involved upward revision during finalization of bids. The substantialcontingency provision of UA 220.16 Million made at the time of appraisalcontributed to the saving in the project cost.

Table 3.5Project Costs Comparison (Figures in UA million)

Component APPRAISAL ACTUAL %agechange Remarks

FC LC Total FC LC Total

1.EPCM 18.62 10.36 28.98 39.91 6.82 46.73 61.25 Under Estimated

2.SitePreparation 0.00 0.00 0.00 3.61 3.61

3.Civil Works 53.98 32.63 86.61 16.57 36.42 52.99 -38.82 Over Estimated

4.Switchyard 21.87 1.15 23.02 52.94 6.79 59.73 159.47 Under Estimated

5.SteamGenerators 77.79 44.00 121.79 65.47 12.11 77.58 -36.30 Over Estimated

6.TurbineGenerators 99.19 4.77 103.96 52.35 3.85 56.20 -45.94 Over Estimated

7.YardTanks 1.00 5.71 6.71 1.67 0.99 2.66 -60.36 Over Estimated

8.Insurance 0.00 3.10 3.10 3.94 0.59 4.53 46.13 Under Estimated

9.Pumps&Drives 13.85 0.00 13.85 10.31 0.00 10.31 -25.56 Over Estimated

10.Heaters&Drives 13.34 0.00 13.34 7.30 1.50 8.80 -34.03 Over Estimated

11.Water Treatment 12.72 0.00 12.72 6.35 1.29 7.64 -39.94 Over Estimated

12.Cr Pip&Valve 27.72 1.46 29.18 5.52 0.03 5.55 -80.98 Over Estimated

13.ElecEquip 22.42 0.00 22.42 18.98 0.21 19.19 -14.41 Over Estimated

14.Inst &Controls 21.86 0.52 22.38 10.89 0.00 10.89 -51.34 Over Estimated

15.ABCTechService 0.00 0.00 0.00 2.22 0.00 2.22

16.Interconnections 29.27 52.32 81.59 11.03 0.00 11.03 -86.48 Over Estimated

17.ElecErection 32.53 6.66 39.19 11.98 4.10 16.08 -58.97 Over Estimated

18.MechErection 21.99 7.31 29.30 28.95 7.40 36.35 24.06 Under Estimated

19.BargeCranes 0.00 0.00 0.00 0.98 0.46 1.44

20.Control Valves 0.00 0.00 0.00 0.00 0.00 0.00

21.ElecSafetySystem 0.00 0.00 0.00 1.58 0.76 2.34

22.Colony 0.87 10.06 10.93 0.00 7.01 7.01 -35.86 Over Estimated

23.StorageUnits 1.68 3.23 4.91 0.00 0.29 0.29 -94.09 Over Estimated

24.Contingencies 94.46 107.70 202.16 -100.00 Over Estimated

TOTAL 565.16 290.98 856.14 348.94 94.23 443.17 -48.24 Over Estimated

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3.7 Sources of Financing and Disbursements

3.7.1 Sources of Financing

At appraisal the project cost was estimated to be met by the combined financialresources of ADB, USAID, IBRD, AFSED, SF and Executing Agency as indicated inTable 3.1 below. The downward revision in the project cost and subsequentwithdrawal of IBRD form the project resulted in a revised financial commitment fromthe co-sponsors as indicated below. AFSED joined the existing co-financiers to makeup the revised shortfall of UA 64.65 Million arising out IBRD’s late withdrawal. Theshare of ADB at 26,99 % is the largest in terms of Foreign Currency and total projectfunding. ADB’s original sanctioned loan of UA 250 Million was subsequently reducedto UA132,44 due to downward revision of project estimates. As indicated in theTable 3.6 below the weighted average cost of borrowed funds is calculated at5.58%.

Table 3.6Sources of Finance ( Figures in UA Million)

* The USAID Loan comprises of an interest free loan for projectconsulting amounting to UA 47 million. The average rate of interest for thebalance loan is computed at 6%.p.a.

Disbursements

3.7.2 Contract Amounts and Disbursements

ADB Disbursements to the project started in 1994 subsequent to the award ofcontracts, while disbursements by other funding agencies commenced from 1992 onconclusion of some the major contracts for Consulting and Switchyard components.Table3.7 below shows the disbursements against the contracts and undisbursedbalance. The undisbursed balance may finally be set off against invoices unpaid yetsubmitted by 31st December 2000. An exhaustive list of contract amounts,disbursements made and balance remaining is attached at Annex 11.

Table 3.7Contract Costs and Disbursements (Figures in UA Million)

Sources of % age share Rate of Int

Finance FE LC Total FE LC Actual %ADB 249.98 0.00 249.98 117.54 0.00 117.54 26.52 9USAID* 143.62 0.00 143.62 103.16 0.00 103.16 23.28 4,00-8,00IBRD 71.81 0.00 71.81 0.00 0.00 0.00 0.00 0AFSED 71.81 0.00 71.81 64.65 0.00 64.65 14.59 4.00SF 0 0.00 0 43.10 0.00 43.10 9.73 4.00EEA 28.16 291.48 319.64 20.55 94.17 114.72 25.89 0Total 565.38 291.48 856.86 349.00 94.17 443.17 100.00 5.58

Appraisal Actual

8

3.7.3 Disbursements Schedule

The appraisal report assumed that implementation of the project wouldcommence with the award of contracts in 1991 and finalization ofimplementation by 1995. At appraisal therefore, disbursement of the loan wasforecast to start in 1991. However, because of the delays registered at thebeginning of the project, the disbursement schedule was modified as it can beseen from Table 3.8 below.

Table 3.8Comparison between Appraisal and Actual Disbursements for

ADB componentFigures in UA Million

3.8 Performance of Consultants, Contractors and the Borrower

Performance of Consultants

3.8.1 The consultant for the project was responsible for proposing theconceptual design of the plant to be constructed at El Kureimat, preparation ofall tender documents, procurement assistance, construction supervision andoverall project management. There was close cooperation between theconsultant and EEA staff. The consultants submitted to the client, progressreports of the project and worked closely with EEA's PIU. The performance ofthe consultants was satisfactory.

Performance of Contractors

Funding AgencyFC LC Total FC LC Total Balance

ADB 117.54 0.00 117.54 109.32 0.00 109.32 8.22USAID 103.16 0.00 103.16 101.04 0.00 101.04 2.12AFSED 64.65 0.00 64.65 59.57 0.00 59.57 5.08SF 43.10 0.00 43.10 39.72 0.00 39.72 3.38EEA 20.55 94.17 114.72 21.07 84.98 106.05 8.67

Total 349.00 94.17 443.17 330.72 84.98 415.7 27.47

DisbursementsContract Costs

ADB 3.09 72.56 89.18 63.15 21.36 0 0 0 0 0 0 249.34Total 3.09 72.56 89.18 63.15 21.36 0 0 0 0 0 0 249.34

% 1.24 29.10 35.77 25.33 8.57 0.00 0.00 0.00 0.00 0.00 0.00 100

SourcesonCompletionADB 0.00 0.00 0.00 9.37 14.51 50.4 24.4 4.98 3.49 0.83 9.58 117.54Total 0.00 0.00 0.00 9.37 14.51 50.4 24.4 4.98 3.49 0.83 9.58 117.54

% of Appraisal 0.00 0.00 0.00 7.97 12.34 42.90 20.7 4.24 2.97 0.706 8.15 100

9

3.8.2 Most of the contractors performed satisfactorily. However theperformance of the contractors for the steam generators, pumps and drives andcritical piping was not satisfactory. All the three components were delayed byalmost eight (8) months. Some faulty designs were adopted by the contractor forsteam generators in some components supplied and considerable time wasspent rectifying the problem. While this had little impact on the operation of theplant it nevertheless had an impact on the implementation programme. Thecontractor for the pumps and drives caused a delay of eight months mainlyprecipitated by missing site representatives. The contractor for the critical pipingand valves performed fairly well but some of the valves they supplied did notmeet the requirements for the plant and had replaced.

Performance of the Borrower and the Executing Agency

3.8.3 The Borrower i.e. the Government of ARE was administratively helpfuland supportive to this project. EEA, the Executing Agency of this project,established a Project Implementation Unit (PIU) in accordance with theconditions set out in the loan agreement. The implementation of the project wassupervised by the consultants assisted by the PIU. EEA's follow up of theexecution of the project has been satisfactory. However coordination of all theparties involved in the project was one area where weakness was detected onthe part of EEA.

4. PROJECT PERFORMANCE

4.1 Operating Performance

4.1.1 The El Kureimat power plant has been designed and built to operate with adual (natural gas/Mazuot oil) fuel system. While at appraisal the planned capacity ofeach unit was 600MW, the plant finally built had a capacity of 627 MW each. Thiswas a result of improved technology. The two units have also been tested formaximum continuous rating (M.C.R) and a value of 689 MW was achieved. The twounits have since their synchronization been operating satisfactorily. In the period1997/98 the two units generated 766.7 GWhs while in the period 1998/99 theygenerated 3,931.145 GWhs. The energy generated in the period 1998/99 meets theexpected design output of one unit which implies that during the period, the operationwas at half the full design load for each of the unit. It should be noted that during thisperiod the plant was still undergoing some commissioning tests. The latest figuresobtained for 1999/2000 show a remarked increase to a total generation of 7,400GWhs, which means that the plant was operating at approximately full load for thetwo units. The plant is therefore currently operating as designed.

4.1.2 The Power Plant is currently operating on gas but it could also operate onmazout oil if the situation warrants it. However because of environmentalconcerns the operation will mostly be on gas.

4.2 Financial And Economic Performances

Financial Results

10

4.2.1. The El-Kureimat Power project which was under the management ofEEA, has been transferred to a new company named Middle Upper EgyptianElectricity Company (MUEEC) and EEA itself has been renamed as EgyptianElectricity Holding Company (EEHC). Notwithstanding the fact that EEHC is anew entity , the past financial performance of the EEA holds good forprojecting the future financial prospects and viability of the EEHC and itsassociated EL-Kureimat Project. It should be noted that although MEEC is anautonomous company it nevertheless belongs to EEHC which is owned by theEgyptian Government. A summary of the financial results of EEA till 1997/98and EEHC for 1999/2000 (Annexes 6 & 7) is shown in Table 4.1 below:

Table 4.1Summarised Financial Results

EEHC

Financial Parameters At Appraisal

1990 1994/95 1995/96 1996-97 1997-98 1999/2000Debt/Equity Ratio 4,20 2,89 2,89 3,02 3,12 5,21Receivables in days 174 238 303 336 362 420Average Tariff (LE/Kwh) 0,048 0,095 0,095 0,096 0,096 0,098Current Ratio 0,44 0,49 0,51 0,55 0,58 0,62Interest on Loans(%) 49 53,8 62,62 61,1 60,72 81,23of income from operations

EEA

The summarised financial results are indicative of the rise in Debt/Equity Ratioand Receivables as against the conditions laid down during appraisal. Therise in the debt/equity ratio coupled with the increase in the receivablescollection period has affected the liquidity as well as net operating income.Increase in total revenue as result of average annual tariff increase of 90%between 1990 and 1999/2000 has been offset by the rise in interest onborrowed funds from 49% to 81.23% between 1990 and 1999/2000. Theliquidity position is alarming and well below the standards in similar utilitiessector by 1.5 times. The rising debt/equity ratio and poor liquidity positionneed substantial improvements to ensure that the project remains viable.

Financial Internal Rate of Return:

4.2.2 The financial justification of the project is based on its financial rate ofreturn (FIRR) which is calculated on assumptions shown in Annex 8.Sensitivity Analysis conducted indicates that the FIRR is sensitive to both fuelcosts and tariffs. Even at a fuel cost hike assumed at 10%, the FIRR is12.47% though less than the projected 12.55% in the appraisal and higherthan the weighted average cost of capital of 5.58% and hence acceptable.

Economic Rate of Return:

4.2.3 In calculating the economic internal rate of return the assumptionsmade are presented in Annex 9. The project will have a revised 11.07%

11

economic rate of return which is lower than the appraisal rate of return of15.55%. This rate being marginally higher than the opportunity cost of capitalof around 10% in Egypt is acceptable.

4.3 Institutional Performance

Legal and Institutional Framework

4.3.1 The borrower of the loan was the Government of the Arab Republic ofEgypt, which on-lent the proceeds to the EEA, which was the executingagency of the project and the beneficiary of the loan. The EEA is under theoverall responsibility of the Ministry of Electricity & Energy (MEE) whichcontrols the Power Sector in Egypt. The schematic organization of theEgyptian Electricity sector is given in Annex 4. EEA's main functions haveremained the same since appraisal, although tremendous expansion involume has been witnessed over the years. Major institutional changes arebeing effected in EEA. The distribution companies have merged with thegeneration departments to form single semi-autonomous electricitycompanies in each of the seven zones. These companies are responsible forgeneration and distribution and belong to EEA which has now been renamedEEHC and wholly owned by Government.

Organization and Management

4.3.2 EEHC is managed by a Chairman who is assisted by six DeputyChairmen at the headquarters, having responsibility for Administration &Training; Financial and Economic Affairs; Studies, Research and Planning;Operations, Projects and for Company affairs. The difference between thisorganization and the organization at appraisal is the creation of the deputychairman for company affaires. Seven Companies have been created; Viz.Cairo, Alexandria, Behaira, Delta, Canal, Middle Egypt, Upper Egypt electricitycompanies. The schematic organization of EEHC is given Annex 5. Each of theoffices of the Deputy Chairmen is further structured into Divisions and Sectionsforming the middle and lower management positions. There are also legaladvisory, information and documentation units reporting directly to theChairman. The management of EEHC continues to report to the Board ofDirectors. The Board meets once a month to review the overall functioning ofEEHC including its capital and operational budgets, financial performance,progress of construction work and pertinent issues. Final approval of tariffincreases and annual budgets have continued to be the responsibility of thecouncil of Ministers.

Staff and Training

4.3.3 In recognition of the importance of qualified manpower for an effectiveorganization, EEHC has expanded its manpower development policy by takingtraining as one of the cornerstones of this policy. The number of training centersincreased from two at appraisal, to eight at present. In addition to these, all the zonesoperate their own Training Centers for conducting technical training in all aspects ofpower generation, transmission and maintenance. The total number of employees

12

trained in 1998/99 was 4,150 representing about 25 per cent of EEHC total workforce. In addition to the permanent staff, EEHC employs temporary staff as and whenrequired, but particularly during the implementation of new projects.

Accounting and Audit

4.3.4 The accounting system of EEHC is quite comprehensive and, as againstthe situation at appraisal, it is now largely computerized. The system isdecentralized with each of the seven zones being responsible for thepreparation of all financial statements, which are then submitted, toheadquarters for consolidation.

4.3.5 The deputy Chairman for Finance and Economic affaires continues tohave responsibilities for the accounting and internal audit functions of EEHC asit was at appraisal. For the internal audit unit to be effective, it should reportdirectly to the Chairman of the EEHC. Future Bank intervention in the sectorshould look critically into this area with a view to making appropriaterecommendations. The external auditor is the fully government-owned CentralOrganization for Auditing and Control [COAC], which has a permanent staffworking exclusively for the audit of EEHC.

Tariffs

4.3.6 The EEA has made significant progress in its tariff structure since theappraisal mission. The current tariff rate is now much closer to the economicrate with certain categories of customers actually being charged tariffs which areabove the Long Run Marginal Cost (LRMC) of providing electricity. However, therate of tariff increase for residential customers has been significantly lower thanthat for other customers. The average rate now for those category of consumersis 83.7 millimes/KWh [representing 41.2 per cent of their LRMC] as against anaverage of 41.7 millimes/KWh at appraisal. The weighted average electricitytariff charged to end-users is now 80 per cent of LRMC, as against less than 25per cent at appraisal. EEA tariff increases to various customer categoriesfollowed the tariff study of 1989, which also involves the modification of thestructure of tariffs to maximize sales and achieve LRMC by 1995/96.

Billing and Collection

4.3.7 At present, EEHC's has customers totalling to 58 in number comparedto 35 at appraisal. These customers consist of large public and private sectorindustries, governmental bodies and the seven distribution companies. Thislimited number has greatly eased the billing function, which are still performedmanually, whereas those of the distribution companies are computerised. Acondition of the loan requires the EEHC to continue its efforts in the collectionof its receivables with a view to attaining an average of three months ofannual sales. However, Collection of receivables, which has been difficult dueprimarily to public sector liquidity problems, continues to be a major problemfor EEHC as it was at appraisal. The collection level has deteriorated,reaching a peak of 420 days of sales in 2000. This issue has to be seriouslyaddressed by EEHC.

13

5. SOCIAL AND ENVIRONMENTAL IMPACT OF THE PROJECT

5.1 Social Impact

5.1.1 The El Kureimat power project generates 7,400 GWhs into theNational grid. Its generation along with the generation of the other plantsconnected to the grid help in meeting the demand on the National Gridwhich currently stands at 65,605 GWhs. The plant contributes about 11%of the energy supplied from the national grid. Its impact on thedevelopment of the economy is therefore country wide particularly inmeeting energy needs of agriculture, industry and tourism that directlybenefit the Egyptian people. The impact so far around the El Kureimat isas follows: a) Land use :The project has resulted in positive impact onland use. Agricultural and pastoral (ranch) use of the land surroundingthe plant has increased considerably. This is due to the fact that waterfrom the plant is supplied to the surrounding areas for irrigationpurposes b) Poverty: There has been alleviation of poverty throughagricultural and dairy farming activities in the surrounding areas as aresult of the irrigation mentioned in a) above. New commercial andresidential centres, and a road network have been added to the projectarea and these have led to economic activities that are likely to improvethe incomes of the people in the area.

5.2 Environmental Impacts

5.2.1 The borrower was required to maintain standards which will ensure thatpollution caused by the presence of the station at El Kureimat shall not rise tolevels that would be hazardous to the public. The design of the plant thereforeconsidered the environmental effects, which included atmospheric emissions,aqueous effluents, noise, liquid and solid wastes disposal.

5.2.2 In order to monitor the levels of gas emissions, Chimney gas analyzershave been installed to monitor the level of pollutants. The levels of gasemissions are constantly monitored to ensure compliance with international andEgyptian standards for ground level concentrations of sulphur dioxide andoxides of Nitrogen. The chimney height is just over 80 m to ensure widedisposal and dilution of the emission before coming down to the level ofhabitation.

5.2.3 The design of the plant also took into account the quality of water that isdischarged back into the river. In order to protect aquatic life, the temperature ofthe water used for condensing the turbine exhaust steam is regulated beforebeing discharged into the sea so that its temperature does not rise to levels thatwill adversely affect the aquatic life.

5.2.4 Wastewater and sewage treatment plants have been installed to treatand process wastewater and sewage respectively. The wastewater and sewageare treated to meet the Egyptian Effluent guidelines prior to discharge into thesea.

14

6. PROJECT SUSTAINABILITY

6.1 Technical

6.1.1 The power station is currently operating on a gas but can also operate onmazout oil if needs be. Since both and gas are abundant in Egypt there istherefore an assured source of supply to sustain the operations of the plant

6.1.2 As is evidenced from the rate of return calculation, the project recovers bothits investment and operational and maintenance costs and thus is self-sustainable.

6.1.3 The equipment supplied has readily available spares on the market.Sustainability in terms of availability of spares is therefore assured.

6.1.4 The EEHC staff operating the plant have had detailed and thoroughtraining during the construction of the power station. They are thus veryproficient and have been running the plant for almost two years without anyproblems.

6.2 Institutional

The electricity sub-sector in Egypt continues to witness significant sectoraldevelopment due mainly to the existence of fairly well organized institutions like theEEHC and the seven electricity companies, which are encouraged to operate oncommercial lines. The electricity sub-sector is undergoing major institutionalrestructuring which is expected to transform electricity generation, transmission anddistribution in Egypt. The Egyptian Government has shown the will to implement thereforms however the problem is the speed at which these reforms are beingimplemented.

7. PERFORMANCE OF THE BANK

7.1 The Bank in general performed well in its responses to the demands ofthe Government of ARE and EEHC before and during the implementation of theproject. However the Bank's performance could have been improved duringsupervision missions on financial aspects of the project. The Bank should havefollowed up the issue of the receivables with the Government and EEHC beforethey increased to such high levels.

7.2 On the other hand the Bank has been giving continuous support to thedevelopment of the power sector in Egypt and so far the sector is performingwell.

8. OVERALL PERFORMANCE AND RATING

The overall performance of the project is considered satisfactory with ascore of 78 percent. Details of the performance evaluation are given in Annex12

9. CONCLUSIONS, LESSONS AND RECOMMENDATIONS

15

9.1 Conclusions

9.1.1 The El Kureimat Project has achieved its primary objectives ofeconomically meeting the power demand of the system.

9.1.2 The El Kureimat project has been designed with care to ensure minimumenvironmental effects around the plant and its surroundings. It

- operates on natural gas/Mazout oil with an in built completeemission monitoring and control system,

- has an efficient industrial and wastewater treatment plant.

9.1.3 The plant is located along the Banks of the river Nile, which is anexcellent source of condenser cooling water. The area which was a desert hasbeen turned into an agricultural area The presence of the plant in the area is,therefore, likely to increase activities related to agriculture and commerce.

9.1.4 As envisaged at appraisal, contracts were awarded for the manufacture,delivery and installation of equipment of the various packages of the project torenowned firms with established experience in conventional steam turbinepower stations. These firms were cooperative in coming up with quick andreliable solutions to problems faced during installation and commissioning.

9.1.6 Since appraisal, the EEHC has made noticeable and significant progressin some areas of its operations. These include staff training and development.The training EEHC's engineers have received in project supervision willcontribute to its self-reliance in managing and supervising future projects.

9.1.7 The availability of low cost and environmentally friendly fuel, which is thenatural gas, during the lifetime of the project, the skilled manpower available torun and maintain the power station, indicates the self-sustainability of theproject.

9.1.8 The Bank's continuous encouragement of the Government of ARE toutilize Bank's loans for the development of the electricity sub-sector has beeninstrumental to strengthening Egypt's electricity supply system to such a levelthat Egypt is among African countries which are not experiencing powershortages.

9.2 Lessons Learnt and Recommendations

Lessons learnt

9.2.1 Firm commitments from the financiers at the start of the project shouldbe encouraged to avoid major changes in the financial planning during theexecution of the project. Some changes as experienced on the project hadsignificant impact on the completion schedule of the project.

9.2.2 The continuous operation of the plant using Mazout oil resulted in higherlevels of gas emissions that were not acceptable. However with natural gas

16

being used the emissions reduced to acceptable levels. The use of natural gasas fuel in generating electricity has the duel advantage of reducing the cost offuel and operating in an environmentally friendly atmosphere.

9.2.3 While the capacity of each unit installed in the station is 627MW, duringoff peak hours the units operate at half the load. Normally at this level ofoperation the efficiency is low. The lesson learnt here is that if smaller but moreunits had been installed it would have been possible to allow the completeshutting off of some of them during the off peak hours. EEHC hasacknowledged this problem and most of the new plants are in the range of 300MW per unit.

9.2.4 A complex project like this one requires proper coordination to ensurethat all component activities run concurrently. This was lacking and someconsiderable delays were encountered as a result of lack of proper coordination.In future project coordination should be given the importance it deserves.Periodic meetings between various financiers and contractors should be held toensure smooth implementation of the projects.

Recommendations

9.2.5 It is recommended that the Government and EEHC resolve the issue ofreceivables which currently stand at 420 days instead of the recommended 90days of annual sales.

9.2.6 The Government is currently undertaking a restructuring programme inthe electricity sub-sector and has allowed the independent power producers toparticipate in the generation of electricity under the BOT scheme. In order for theGovernment to meet the BOT requirements it will be necessary for the tariff paidby the consumers to reflect the market value. It is therefore recommended thatthe tariff structure be reviewed to ensure full cost recovery of the electricityconsumed in Egypt .

9.2.7 It is recommended that measures be taken to improve the worseningfinancial position of EEHC as indicated in Table 4.1, and to ensure long termsustainability of the project. Tariff revision and reduction of the high level ofreceivables are some of the measures that will address these problems.

9.2.8 It is recommended that EEHC strengthens its internal Audit departmentand give it the necessary mandate so that they can effectively deal with internalcontrols.

ANNEXES

ANNEX 3BANK GROUP OPERATIONS IN

THE ELECTRICITY SECTOR IN EGYPT

Year ofApproval 2 Project

Commitments(in UA Million)

ADB 3 ADF

1974 Egypt Power I 5.00 -

1975 Power Project II 5.00 -

1977 Power Project III 5.00 -

1979 Rural Electrification I - 7.4.0

1980 Shoubrah El Kheima Power Project 10.00 -

1981 Rural Electrification Project II - 7.4

1983 Shoubrah El Kheima Interconnection 21.39 -

1985 Shoubrah El Kheima Unit 4 Power 43.50 -

1986 Damietta Power Plant Project 103.00 -

1988 Cairo West Power Project 210.0

1989 El Arish Power Project 53.53

1990 El Kureimat Power Project 250

1992 Cairo West (suppl) 42.10

1993 Solar thermal study 1.57

TOTAL 748.52 16.37

G. ANNEX 4H.I. SCHEMATIC ORGANISATION OF EGYPTIAN ELECTRICITY SECTOR

MINISTRY OF ELECTRICITY ENERGY

EGYPTIANELECTRICITYAUTHORITY

HYDRO POWERPROJECTSEXECUTIVEAUTHORITY

NUCLEARPOWER PLANTSAUTHORITY

NEW ANDRENEWABLEENERGYAUTHORITY

RURALELECTRIFICATIONAUTHORITY

ATOMIC ENERGYAUTHORITY

NUCLEARMATERIALSAUTHORITY

ANNEX 5

SCHEMATIC ORGANISATION OF EGYPTIAN ELECTRICITYAUTHORITY

CAIRO ELEC COMP

ALEX.ELEC COMPANY

BEHAIRA ELEC COM

DELTA ELEC COM

CANAL ELEC COMG.

M.EGYPT ELEC COM

UPPER EGYPTELETRIC COM

DEPUTY CHAIRMANFOR PROJECTS DEPUTY CHAIRMAN

FOR OPERATIONS DEPUTY CHAIRMAN FORSTUDIES, RESEARCH &PLANNING

DEPUTY CHAIRMANFOR FINANCIAL ANDECONOMIC AFFAIRS

DEPUTY CHAIRMANFOR ADMINISTRATIONAND TRAINING

DEPUTY CHAIRMANFOR COMPANIESAFFAIRS

HEAD OF U.H.V TOCAIRO SECTORS

HEAD OF UHV TOCANAL SECTORS

HEAD OF UHV TONORTHERN SECTORS

HEAD OF UHV TOSOUTHERN SECTORS

CHAIRMAN & GENERAL ASSEMBLYCHAIRMAN OF ELECTRIC COMPANIES

ANNEX 6

EGYPTEL KUREIMAT POWER PROJECT

COMPARATIVE INCOME ANALYSIS

1994-95 %Change 1995-96 %Change 1996-97 %Change 1997-98

12978 0.38 13027 2.12 13303 0.00 13303

Energy Generated ( GWH ) 51300.2 6.13 54444 5.90 57656 0.07 57698

Energy Billed ( GWH ) 46398 6.76 49534 6.55 52779 0.38 52980

Average Tariff(LE/Kwh) 0.095 0.00 0.095 1.05 0.096 0.00 0.096

GROSS REVENUE

Sale of Electricity 4,428.00 6.82 4,730.00 6.81 5,052.00 0.67 5,086.00

Others 7.90 -3.80 7.60 14.47 8.70 6.09 9.23

Total 4,435.90 6.80 4,737.60 6.82 5,060.70 0.68 5,095.23

OPERATING EXPENSES

Fuel 1,382.00 6.44 1,471.00 6.87 1,572.00 0.95 1,587.00

Purchases for Sales 1.40 14.29 1.60 -62.50 0.60 -25.00 0.45

Salaries & Wages 233.00 18.88 277.00 9.75 304.00 0.20 304.62

Materials & services 314.00 7.64 338.00 -5.03 321.00 0.31 322.00

Others 187.00 13.90 213.00 20.66 257.00 0.47 258.21

Depreciation 692.00 21.39 840.00 7.02 899.00 0.24 901.20

Total 2,809.40 11.79 3,140.60 6.78 3,353.60 0.59 3,373.48

Income from Operation 1,626.50 -1.81 1,597.00 6.89 1,707.10 0.86 1,721.75

Net Interest Expenses 875.00 14.29 1,000.00 4.30 1,043.00 0.23 1,045.45

Net Income 751.50 -20.56 597.00 11.24 664.10 1.84 676.30

J.K.L.

M.N. ANNEX 7

O.P. EGYPT

EL KUREIMAT PROJECTCOMPARATIVE FINANCIAL ANALYSIS

Figures in LE Million

YEARS

1994-95 %Change 1995-96 %Change !996-97 %Change !997-98

CAPITAL EMPLOYED

Fixed Assets 25461 6.26 27056 5.46 28532 4.19 29728

Current Assets 6131 21.09 7424 14.86 8527 12.87 9624

Less

Current Liabilities 12386 17.38 14539 7.19 15585 6.96 16670

Net Capital Employed 19206 3.83 19941 7.69 21474 5.63 22682

FINANCING SOURCE

Capital & Reserves 4928 4.02 5126 4.12 5337 1.82 5434

Long Term Debts 14278 3.76 14815 8.92 16137 6.88 17248

19206 3.83 19941 7.69 21474 5.63 22682

ANNEX 8EGYPT

EL KUREIMAT POWER PROJECTFINANCIAL INTERNAL RATE OF RETURN

A. Assumptions

Life of Project 30 years Currency Conversion Rates

Investment Cost: Investment cost as on Project Completion date. prevailing on Janaury 2001

Operation & Maintenance costs: Actual

1UA equiv 4.51761

Fuel Cost: 61303(LE) / GWH with 5% increase p.a

Losses: 5% of Generation

Price of Electricity: 9.8p/kwh. Tariff assumed to increase at 10% every year

B. Calculation Figures in UA Million

Year Investment Fuel O & M Total Generation Net sales Revenues Net Cash

Cost Cost Cost Cost ( Gwh ) ( Gwh) Flow

1992 0.27 -0.27

1993 0.25 -0.25

1994 21.52 -21.52

1995 34.46 -34.46

1996 88.28 -88.28

1997 89.24 -89.24

1998 62.94 -62.94

1999 63.64 -63.64

2000 47.40 -47.40

2001 37.29 117.24 33.45 187.98 8,640 8,208 178.06 -9.93

2002 128.97 35.12 164.09 8,640 8,208 190.52 26.43

2003 135.42 36.88 172.29 8,640 8,208 203.86 31.56

2004 142.19 38.72 180.91 8,640 8,208 218.13 37.22

2005 149.30 40.66 189.95 8,640 8,208 233.39 43.44

2006 156.76 42.69 199.45 8,640 8,208 249.73 50.28

2007 164.60 44.83 209.42 8,640 8,208 267.21 57.79

2008 172.83 47.07 219.90 8,640 8,208 285.92 66.02

2009 181.47 49.42 230.89 8,640 8,208 305.93 75.04

2010 190.54 51.89 242.44 8,640 8,208 327.35 84.91

2011 200.07 54.49 254.56 8,640 8,208 350.26 95.70

2012 210.07 57.21 267.28 8,640 8,208 374.78 107.50

2013 220.58 60.07 280.65 8,640 8,208 401.01 120.37

2014 231.61 63.07 294.68 8,640 8,208 429.09 134.40

2015 243.19 66.23 309.42 8,640 8,208 459.12 149.71

2016 255.35 69.54 324.89 8,640 8,208 491.26 166.37

2017 268.11 73.02 341.13 8,640 8,208 525.65 184.52

2018 281.52 76.67 358.19 8,640 8,208 562.44 204.26

2019 295.60 80.50 376.10 8,640 8,208 601.81 225.72

2020 310.37 84.53 394.90 8,640 8,208 643.94 249.04

2021 325.89 88.75 414.65 8,640 8,208 689.02 274.37

2022 342.19 93.19 435.38 8,640 8,208 737.25 301.87

2023 359.30 97.85 457.15 8,640 8,208 788.86 331.71

2024 377.26 102.74 480.01 8,640 8,208 844.08 364.07

2025 396.13 107.88 504.01 8,640 8,208 903.16 399.16

FIRR 12.4773

ANNEX 9


ECONOMIC INTERNAL RATE OF RETURN

A. Assumptions

Life of Project 30 years Currency Conversion RatesConversion Factors: prevailing on Janaury 2001Investment Costs 1.25Operating & Maintenance(5% increase p.a) 1.05 1UA equiv4.51761Fuel 1.05Electricity 1.05Losses: 5% of Generation

B. Calculation Figures in UA Million

Year InvestmentFuel O & M Total GenerationNet sales Revenues Net CashCost Cost Cost Cost ( Gwh ) ( Gwh) Flow

1992 0.34 -0.341993 0.31 -0.311994 26.90 -26.901995 43.08 -43.081996 110.35 -110.351997 111.55 -111.551998 78.68 -78.681999 79.55 -79.552000 59.25 -47.402001 46.61 117.24 33.45 197.31 8,640 8,208 178.06 -19.252002 135.42 35.12 170.54 8,640 8,208 200.05 29.502003 142.19 36.88 179.07 8,640 8,208 214.05 34.982004 149.30 38.72 188.02 8,640 8,208 229.04 41.012005 149.64 40.66 190.29 8,640 8,208 234.56 44.272006 172.44 42.69 215.13 8,640 8,208 261.45 46.322007 172.83 44.83 217.66 8,640 8,208 287.60 69.942008 181.47 47.07 228.54 8,640 8,208 280.57 52.032009 190.54 49.42 239.96 8,640 8,208 300.22 60.252010 200.11 51.89 252.00 8,640 8,208 321.23 69.232011 210.07 54.49 264.56 8,640 8,208 343.72 79.162012 220.57 57.21 277.78 8,640 8,208 367.77 89.992013 231.61 60.07 291.68 8,640 8,208 393.52 101.842014 243.19 63.07 306.27 8,640 8,208 450.54 144.282015 255.35 66.23 321.58 8,640 8,208 482.08 160.502016 268.12 69.54 337.66 8,640 8,208 515.82 178.172017 281.52 73.02 354.53 8,640 8,208 551.93 197.402018 295.60 76.67 372.26 8,640 8,208 590.56 218.302019 310.38 80.50 390.88 8,640 8,208 631.90 241.022020 325.89 84.53 410.41 8,640 8,208 676.14 265.722021 342.18 88.75 430.94 8,640 8,208 723.47 292.532022 359.30 93.19 452.49 8,640 8,208 774.11 321.622023 377.27 97.85 475.11 8,640 8,208 828.30 353.192024 396.12 102.74 498.87 8,640 8,208 886.28 387.422025 415.94 107.88 523.82 8,640 8,208 948.32 424.50

EIRR 11.0743

ANNEX 10


CONTRACT COSTS AND DISBURSEMENTS

Component Contract/

Contractor

Contract Cost Disbursements

PO No FC LC LC Total UA FC LC LC Total UA(USD) (LE) (USD) (USD) (USD) (LE) (USD) (USD)

0.67081

ADB 0.00000 0

Civil Works CO-102 DEALIM 24.36 24.36 16.34 24.36 24.36 16.34

Steam Generators CO-105 B&W/NCM 97.60 97.60 65.47 97.60 97.60 65.47

Yard Tanks CO-107 PORTSAID

2.50 2.50 1.68 2.50 2.50 1.68

Pumps & Drives PO-109 GE /WORTH

14.84 14.84 9.95 14.84 14.84 9.95

Heaters & Conditioner PO-110 KHIC 10.89 10.89 7.31 10.89 10.89 7.31

Water Treatment PO-111 BAMAG 7.12 7.12 4.78 6.79 6.79 4.55

Unloading BargeCranes

119 M-S/FMC 1.47 1.47 0.99 1.47 1.47 0.99

Interconnections

500KV TransmissionLines

116B KEC 6.94 6.94 4.66 6.94 6.94 4.66

500kv Insulators 116-2 MITSUI 7.24 7.24 4.86 7.24 7.24 4.86

220Kv Insulators 116-CII ARACAN 1.39 1.39 0.93 1.39 1.39 0.93

Conductor Fittings 116-CI ARACAN 0.87 0.87 0.58 0.87 0.87 0.58

SUB-TOTAL 175.22 175.22 117.54 174.89 174.89 117.32

USAID

EPCM RAYT/EBAS

59.50 59.50 39.91 58.42 58.42 39.19

Turbine Generators 106 GE /WORTH

78.05 78.05 52.36 77.28 77.28 51.84

Inst. Panels & Control 114 Westinghouse

16.23 16.23 10.89 14.93 14.93 10.02

SUB-TOTAL 153.78 153.78 103.16 151 150.63 101.04

AFSED

Switchyard 114 Mitsubishi 47.35 47.35 31.76 43.30 43.30 29.05

Critical Piping 112 Mechanical 4.52 4.52 3.03 4.13 4.13 2.77

Electrical DistributionEquip

113 ABB 15.31 15.31 10.27 15.30 15.30 10.26

Electrical/Instrumentation

117 Ansaldo 3.81 3.81 2.56 3.47 3.47 2.33

Mech./Piping Erection 118 ABB 25.39 25.39 17.03 22.61 22.61 15.17

SUB-TOTAL 96.38 96.38 64.65 88.81 88.81 59.57

SF 0 0 0 0

Switchyard 114 Mitsubishi 31.57 0.00 31.57 21.18 28.86 0 28.86 19.36

Critical Piping 112 Mechanical 3.02 0.00 3.02 2.02 2.76 0 2.76 1.85


113 ABB 10.20 0.00 10.20 6.84 10.20 0 10.20 6.84


117 Ansaldo 2.54 0.00 2.54 1.70 2.32 0 2.32 1.55

Mech/Piping Erection 118 ABB 16.92 0.00 16.92 11.35 15.07 0 15.07 10.11

SUB-TOTAL 64.25 0.00 64.25 43.10 59.21 0 59.21 39.72

EEA

Civil Works CO-102 DEALIM 0.35 181.86

54.29 54.64 36.65 0.35 176.81

52.78 53.13 35.64

Steam Generators CO-105 B&W/NCM 60.46 18.05 18.05 12.11 50.94 15.21 15.21 10.20

Yard Tanks CO-107 PORTSAID

4.91 1.47 1.47 0.98 4.61 1.38 1.38 0.92

Pumps & Drives PO-109 GE /WORTH

0.53 0.00 0.53 0.36 0.10 0 0 0.10 0.07

Heaters & Conditioner PO-110 KHIC 7.46 2.23 2.23 1.49 7.40 2.21 2.21 1.48

Water Treatment PO-111 BAMAG 2.36 6.40 1.91 4.27 2.86 5.99 6.40 1.91 7.90 5.30

Unloading BargeCranes

119 M-S/FMC 2.29 0.68 0.68 0.46 2.29 0.68 0.68 0.46

EPCM RAYT/EBAS 34.03 10.16 10.16 6.81 33.60 10.03 10.03 6.73

Turbine Generators 106 GE / WORTH 19.20 5.73 5.73 3.84 19.10 5.70 5.70 3.82

Switchyard 114 Mitsubishi 33.90 10.12 10.12 6.79 32.54 9.71 9.71 6.52

Critical Piping 112 Mechanical 0.69 0.13 0.04 0.73 0.49 0.69 0.09 0.03 0.72 0.48


113 ABB 2.80 1.05 0.31 3.11 2.09 2.79 0.09 0.03 2.82 1.89


117 Ansaldo 11.52 20.46 6.11 17.63 11.82 11.48 0.09 0.03 11.51 7.72

Mech./Piping Erection 118 ABB 0.84 36.94 11.03 11.87 7.96 0.75 34.22 10.21 10.96 7.36

Site Preparation 101 Sami Saad 18.01 5.38 5.38 3.61 17.15 5.12 5.12 3.43

Insurance 108 Al-Clark 5.88 2.90 0.87 6.75 4.53 4.49 2.85 0.85 5.34 3.58

Tech Services 114A Westinghouse

3.31 0.00 3.31 2.22 2.65 0.00 2.65 1.78

Colony 120 Engin Co 35.00 10.46 10.46 7.02 31.35 9.36 9.36 6.28

Electric Fence 120A Desco 2.36 3.78 1.13 3.49 2.34 2.12 3.40 1.01 3.13 2.10

Control Valves 121 CCI 1.47 0.44 0.44 0.29 1.47 0.44 0.44 0.29

SUB-TOTAL 30.64 470.25

140.38 171.02 114.72 31.41 424.40

126.68 158.09 106.05

T O T A L 520.27 470.25

140.38 660.65 443.17 504.95 424.40

126.68 631.63 423.70

ANNEX 11

Q. EGYPT

EL KUREIMAT POWER PROJECTPERFORMANCE EVALUATION AND RATING

A. IMPLEMENTATION PERFORMANCE

Indicators Score Remarks1. Adherence to TimeSchedule

1 The was a delay of more than 30% causedby:a) delay in start up activities;b) in Commissioning due to technical

problems encountered during theprocess.

2. Adhering to Costschedule

2 There was an overall cost saving of 48%.

3. Compliance withCovenants

3 Most of the loan conditions were met.

4. Adequacy of monitoring,Evaluation and Reporting

3 The monitoring, Evaluation and Reportingwere in accordance with the requirements.

5. Satisfactory operations 3 The operation of the plant is so farsatisfactory. The plant is delivering thepower to the national grid as initiallyforeseen.

6. Total 12Overall Assessment ofimplementation performance

2.4 The overall implementation performance issatisfactory

B. PERFORMANCE OF THE BANK

1. At identification 4 The project was identified by the borrowerand forwarded to the Bank and other donorsfor financing. The project is part of thenational priorities and economic projectionshad been properly analysed.

2. At Preparation of theproject

3 The project was prepared by a consultantfinanced by USAID. The Bank carried out areview of the project

3. At Appraisal 3 The project matrix was prepared, theappraisal report is good and dealt with all theissues.

4. At supervision 3 The supervision performance of the Bank wassatisfactory in most respects. The Timeduration for processing documents , contractsdisbursement etc were satisfactory andsupervision reports were in accordance withthe requirements of the operational manual.

Overall Assessment of Bank 3.3 The overall performance of the Bank was

performance satisfactory

C. PROJECT OUTCOME

1. Relevance andachievementObjectives

Score Remarks

i) Macro-economicpolicy

4 The project will fully achieve its objectives

ii) Sector Policy 4 Fully achievediii) Physical (includingproduction)

4 Fully satisfied

iv) Financial 3 Will be metv) Poverty alleviationand social gender

4 The availability of sufficient electricitystimulates the growth of the key sectors of theeconomy with creation of employment andwealth hence poverty alleviation.

vi) Environment 4 All environmental issues have been takencare of and there are positive effects as aresult of the project.

vii) Private SectorDevelopment

4 The project results in additional power to theNational grid. The power is distributedNationally to different areas whichencourages private sector investmentthroughout the country particularly in tourismindustry.

2. Institutionaldevelopment (ID)i) InstitutionalFramework incl.Restructuring

3 Restructuring is ongoing but at a slow pace.In addition there is need to streamlineadministration in order to achieve betterresults. This is planned but not yetimplemented.

ii) Financial andmanagementInformation systemsincluding audit systems

2 The financial information system is notefficient and the auditing systems do not meetbank requirements.

iii) Transfer ofTechnology

4 The staff benefited from the project and aretrained in the art of modern technology.

iv) Staffing by qualifiedpersons

4 The staff in the PIU are highly qualified andthe counterpart staff and those sent fortraining were of high calibre.

3. Sustainabilityi) Continued BorrowerCommitment

4 Most project achievements are likely to besustained.

ii) Environment Policy 4 The environmental plan in operation ensuresthat the environment at the plant ismaintained in accordance with nationalstandards.

iii) Institutionalframework

3 It is hoped that the current restructuringprogram will lead to more efficiency and

hence better performanceiv) Technical viabilityand staffing

4 The skills achieved through training and theprogrammes which have been put in placewill ensure sustainability.

v) Financial viabilityincluding cost recoverysystems

2 For long-term sustainability the debt equityratio has to come down. For the last decadethis ratio has been increasing. The liquidityposition has to improve by reducing thereceivables period from the present level of420 days to 90 days.

vi) Economic viability 4 The Economic Internal Rate of Return is 11%which is more than the opportunity cost of thecapital in Egypt which is less than 10%.

Vii) Environmentalviability

4 With the monitoring programme in place theenvironment in the plant area andsurroundings will be sustained at safe levels.

viii) O& M facilitation(availability of recurrentfunding and foreignexchange, spare partsetc

2 While spares are available there isuncertainty on the recurrent funding due toreasons in v) above.

4. The EconomicInternal Rate of Return

4 The Economic Internal Rate of Return is 11%.

Total 71Overall Assessment 3.6 The overall rating is highly satisfactory

RECOMMENDATIONS AND FOLLOW UP MATRIX

MAIN FINDINGSAND

CONCLUSIONS

LESSONSLEARNT

RECOMMENDATIONS FOLLOW-UP

ACTIONS

RESPONSIBITY

Formulation &Project Rationale

1. The project wasdesigned to meet thefast growing loaddemand on theunified powersystem. The size ofthe thermal unitsinstalled were thebiggest ever installedon the Egyptian grid

During off peakperiods the unitsare operated atlow capacities

hence lessefficient.

Future designsshould take this into

consideration.EEHC/ADB

ProjectImplementation:

There were somedelays encountered

as a result ofallowing the suppliersto provide their own

designs which inmost cases wereprovided late and

hence delayed otherrelated components

Co-ordination ofsuppliers with eachbeing responsible

for their owndesigns is not easy

The consultantshould in future bemade to provide allthe detailed designs

as much aspractically possible

EEHC/ADB

Compliance withloan conditions &

Covenants

There is a problemon fulfilling the audit

report conditions.

The audit reportssubmitted byGovernment

auditors are notacceptable to the

Bank

Future projectsshould incorporate afinancial element for

undertaking auditreport as part of the

project design

ADB/GOE

Performanceevaluation &

OutcomeThe performanceevaluation was

satisfactory but itcould have beenbetter if project

delays had beenminimised

The loaneffectiveness takes

long because ofthe approval

requirement byNational Assembly

The start upactivities have top

be realisticallyestimated especially

when Nationalassemblies are

involved inapproving projects.

ADB/EEHC

Sustainability

Environmentalmanagement plan inplace is adequate to

sustain theenvironment safe at

the plant.

The FIRR is around10.59% and

The continuoususe of mazout oilleads to unsafe

emissions.

The monitoringequipment should

always bemaintained in a

working conditionand gas should beused as much as

possible.

The debt equity andcurrent ratios must

EEHC

EEHC

acceptable, howeverthe debt equity andcurrent ratio are high

be improved inorder to make the

project sustainable.

ANNEX 12

EL KUREIMAT POWER PROJECTPROJECT COMPLETION REPORT

SOURCES OF INFORMATION

1. The Annual Report of electric statistics 1998/19992. 1200 MW Gas/Oil assessment for El Kureimat final report -July 19913. El Kureimat Project Completion Report November 20004. Various documents submitted by the Executing Agency5. El Kureimat Project ambient air quality report6. Ministry of State for Environmental Affairs - summary profile of

Initiatives 2000-20017. Egyptian Environmental Affairs Agency -annual report 1999/20008. The Energy Efficiency Council Report -Egypt 2000

9. Appraisal Report, El Kureimat Power Project, African Development Bank,# ADB/BD/WP/90/139, September, 1990.

10. Audited Accounts of EEA –1992 to 1997

11. Audited Accounts of EEHC –30th June 2000

el kureimat power project - afdb

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