report no. 1159c-in india: appraisal of the singrauli

FILE COPYReport No. 1159c-IN

India: Appraisal of theSingrauli Thermal Power ProjectFebruary 4, 1977

South Asia Region, Projects DepartmentEnergy and Water Supply Division

FOR OFIC(;IAL USE ONIA-

Document of the World Bank

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

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CURRENCY EQUIVALENTS

Currency Unit = Rupee (R)Rupee 1 = Paise 100Rupee 1 = US$0.1111Rupees 1,000,000 = US$111,111.11Rupees 10,000,000 = Rupees One CroreUS$1 = Rupees 9.0 /1US$1,000,000 = Rupees 9,000,000

ABBREVIATIONS AND ACRONYMS

V = voltkV kilovolt = 1,000 voltskWh = kilowatt-hour = 1,000 watt-hoursGWh Gigawatt-hour = 1,000,000 kilowatt-4oursTWh Terawatt-hour = kilowatt-hours x 10

kVA kilovolt-amperes = 1,000 volt-amperesMVA = Megavolt-amperes = 1,000 kilovolt-amperesMW = Megawatt = 1,000 kilowattsLF = Load Factorkm = kilometerkg = kilogram

kg/cm = kilograms per square centimeterKcal/kg = kilocalories per kilogramkg/kWh = kilograms per kilowatt hourr.p.m. revolutions per minute0C = degree Centrigrade

cusecs cubic feet per secondtonne = metric ton 2,200 lbsGOI = Government of IndiaNTPC = National Thermal Power Corporation Ltd.NHPC = National Hydro Power Corporation Ltd.CEA = Central Electricity AuthoritySEB = State Electricity BoardCWPC = Central Water and Power CommissionUPSEB = Uttar Pradesh State Electricity BoardDESU = Delhi Electricity Supply Undertaking

NTPC's FISCAL YEAR ENDS MARCH 31

/1 Until September 24, 1975, the Rupee was officially valued at a fixedPound Sterling rate. Since then it has been fixed against a 'basket'of currencies. As these currencies are floating, the US Dollar/Rupeeexchange rate is subject to change. Conversions in this report havebeen made at US$1 to Rs 9.00, which was the short-term average rateprevailing at the end of 1976.

FOR OFFICIAL USE ONLY

INDIA

SINGRAULI THERMAL POWER PROJECT

TABLES OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ............................... i-ii

1. INTRODUCTION ................. ........................... I

Background ................................. 2

2. ENERGY RESOURCES AND THE POWER SECTOR ................. 2

Energy Resources ...... ........................... 2The Power Sector ...... ......................... 3Sector Characteristics ..... ...................... 5Existing Facilities ..... ...................... . 6Future Development ...... ....................... 7

3. THE BENEFICIARY - NATIONAL THERMAL POWER CORPORATIONLIMITED ............................................. 8

Organization and Management .................. ... . 8Training ......................................... 9

4. THE PROJECT ........................................... 10

Description ....... ............................... 10Estimated Cost ...... ............................. 11Amount of Credit ...... ........................... 11Basis for Estimates ..... ......................... 11Status of Engineering and Construction ....... .... 12Procurement ....... ............................... 13Disbursements ...... .............................. 14Ecological Aspects ...... ......................... 14

5. JUSTIFICATION OF THE PROJECT .......................... 15

The Power Market ................................. 15The Need for Singrauli Capacity in the NorthernRegion ......................................... 16

Marketing ........................................ 16Comparison of Alternatives ....... ................ 16Return on Investments ......... ................... 18

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

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Page No.

6. FINANCIAL ASPECTS ........ . ....ea.es ............. 18

Introduction ..................................... 18Future Earnings . ........................ 18Bulk Supply Tariff ............................... 19Financing Plan (FY 1977 through FY 1988). 20Internal Cash Generation (FY 1984 through FY 1988) 22Estimated Future Finances .23Audit .. . . . . . . . . . . . . . . . . . . . . . 23

7. RECOMMENDATIONS...... 23

LIST OF ANNEXES

Annex 1 - Organization of the Power Industry.Annex 2 - Proposed Expansion of Generating Capacity

During the Sixth Plan Period.Annex 3 - Description of the Singrauli Development.Annex 4 - Description of the Korba Development.Annex 5 - Organizational Structure of NTPC.Annex 6 - Project Cost Estimates.Annex 7 - Critical Path Construction Chart - Power Station.Annex 8 - Critical Path Construction Chart - Transmission.Annex 9 - Disbursement Schedule.Annex 10 - Chart - Northern Region - Daily Load Curve 1983/84.Annex 11 - Chart - Northern Region - Annual Load Duration Curve 1983/84.Annex 12 - Chart - Northern Region - Actual and Estimated Energy

Requirement, Peak Demand and Installed Capacity forPeriod 1979/80 through 1983/84.

Annex 13 - Table - Northern Region - Actual and Estmated Energy Generated,Maximum Demand, Installed and Firm Capacity and Pro-ductive Capability for Period 1970/71 through 1983/84.

Annex 14 - The Economic Justification of the ProjectAnnex 15 - NTPC - Income Statements, FY 1979 through FY 1988Annex 16 - NTPC - Forecast Sources and Application of Funds Statements,

FY 1977 through FY 1988 together with NTPC's investmentprogram FY 1977 - FY 1987

Annex 17 - NTPC - Balance Sheets, FY 1977 through FY 1988.Annex 18 - Assumptions on Financial Projections.Annex 19 - Contract Arrangements and Tariff Proposals.

MAPS

INDIA


SUMMARY AND CONCLUSIONS

i. This report covers the appraisal of the Singrauli 2,000 MW thermalpower station and associated 400 kV transmission. The development will costaround US$1.2 billion and the cost of the Project, which will comprise thefirst three 200 MW generating units, boilers and the ancillary plant togetherwith that part of the 400 kV transmission required to evacuate power fromthese three units, is estimated at US$397 million equivalent excluding in-terest during construction. The Government of India (GOI) has asked theAssociation to assist in financing the Project and an IDA Credit of US$150million is proposed. GOI will onlend the proceeds of the proposed Credit tothe National Thermal Power Corporation Limited (NTPC), and will provide thebalance of the finance required.

ii. The proposed Credit would be the ninth IDA Credit for power inIndia; the eight previous Credits for power aggregated US$446 million. Addi-tionally the Bank has made seven loans for power aggregating US$179.5 million.

iii. The Indian power sector is large and demand is expanding rapidly.To maintain a continuing capacity to meet the future demand on an efficientbasis, GOI is planning to supplement the development plans of the StateElectricity Boards with the installation of a number of large centrally ownedhydro power stations, and thermal power stations of up to 2,000 MW capacitylocated on the coal fields and supplying bulk power to the States via a 400 kVinterconnected transmission system. Singrauli is the first of the proposedthermal developments.

iv. Two generating companies have been set up, NTPC to constructand operate the Central thermal power stations and the National Hydro PowerCorporation Limited (NHPC) to construct and operate Central hydro-electricpower stations.

v. The demand for power in the past has been greater than availablecapacity and, although the situation is now improving due to better plantutilization, it is doubtful if the commissioning of new capacity will be ableto keep pace with demand. Some 20,000 MW of additional generating capacity isscheduled for commissioning during the Sixth Plan period (1980-84), includingthe first stage (1,000 MW) of the Singrauli development, all of which isnecessary to meet the demand.

vi. The proposed Singrauli development is the least-cost method ofproviding additional capacity of 2000 MW. It has been compared with the nextbest alternative program, which would involve the installation of smallerthermal power stations of equal aggregate capacity at load centers. The

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analysis gave an equalizing discount rate of 32%, which is higher than theopportunity cost of capital. The internal economic rate of return is 10%,which simply means that, on average, bulk sales will be priced at roughlymarginal costs.

vii. NTPC will construct and operate the Singrauli development whichincludes the Project. Additionally it is proposed that NTPC should constructand operate the 2,000 MW Korba development in Madhya Pradesh. NTPC, whichis in the process of building up its establishment, has appointed the ThermalDesign Organization of the Central Electricity Authority (CEA) to carry outdesign work and assist in supervising construction of the Singrauli powerstation. Additionally NTPC is appointing specialist consultants acceptableto the Association to review its prime consultant's design, and assist in themore specialized areas. The Uttar Pradesh State Electricity Board (UPSEB) hasbeen appointed to design the 400 kV transmission associated with the Project.NHPC will supervise construction of the transmission.

viii. The proposed Credit will be used to finance specific items of equip-ment which are suitable for international competitive bidding. Procurementwould be on this basis and would be subject to a domestic preference of 15%in evaluating bids. Disbursements would be made against the foreign cost ofimported equipment and materials and the ex-factory cost of locally manu-factured equipment and materials.

ix. NTPC will own and operate the 400 kV transmission network, and willtransmit power to selected SEBs for sale at suitable bulk supply points inthe States.

x. The bulk supply prices would be based on the marginal cost ofgeneration and transmission which should enable NTPC to achieve a minimumrate of return of 9-1/2% on the original cost of its net assets in serviceafter the 2,000 MW Singrauli development has been commissioned.

xi. The capitalization of NTPC would be made up of debt and equity ina ratio of about 50/50.

xii. During the six-year project construction period to March 31, 1983,NTPC's forecast investments of US$2,111 million would be financed from theproposed Credit (7%) and capital provided by GOI (93%). The forecast capitalrequirements of NTPC to finance its investment program through FY1987 would bea little under US$3,000 million which represents about 20% of GOI's probabletotal investment in power during the five years of the Sixth Plan period.

xiii. With the assurances proposed in Chapter 7, the Project would besuitable for a Credit of US$150 million.

INDIA


1. INTRODUCTION

1.01 This report appraises the Singrauli 2,000 MW thermal power station,located in the Mirzapur District of Uttar Pradesh, and associated 400 kVtransmission. The power station is planned to comprise five 200 MW and two500 MW generating units and the total estimated cost of the development, in-cluding transmission but excluding interest during construction, is US$1.2billion equivalent. The Project will consist of the first three 200 MW gene-rating units with boilers and ancillary plant and that part of the 400 kVtransmission which is required to evacuate the power generated by these units.The estimated cost of the Project is Rs 3,573 million (US$397 million equiva-lent), excluding interest during construction amounting to about US$44 millionequivalent, and the Government of India (GOI) has asked the Association toassist in financing the Project. The proposed Credit of US$150 million, wouldbe used to finance specific items of electrical, mechanical and transmissionequipment which are suitable for international competitive bidding. GOI willonlend the proceeds of the Credit to the National Thermal Power CorporationLtd. (NTPC) and will provide the balance of the funds required to complete theProject in the form of part equity and part loan. The proposed Credit ofUS$150 million represents about 34% of the financing required for the Projectand 12.5% of the estimated total cost (excluding interest diring construction)of the Singrauli development.

1.02 The Bank has made seven loans to India for power Projects amount-ing to US$179.5 million, and IDA eight credits totalling US$446 million.US$165.5 million financed the construction of generating plant, US$23 mil-

lion financed the purchase of construction equipment for the Beas hydro-electric project, US$380 million was for high voltage transmission and US$57million was for Rural Electrification. All the loans and credits for thegenerating plant, the Beas project and the first transmission loan (416-IN)have been fully disbursed. Of the finance made available for the remainingtransmission (Credit 242-IN of May 1971 - US$75 million, Credit 377-IN ofMay 1973 - US$85 million and Credit 604-IN of January 1976 - US$150 million),funds have been fully committed in the case of the first two credits anddisbursements are beginning to accelerate. Credit 604-IN became effective onOctober 22, 1976 and no disbursements have yet been made. No disbursementshave yet been made against Credit 572-IN (Rural Electrification) butsubstantial commmitments have been entered into and substantial drawdownsare anticipated during the first half of 1977.

1.03 The principal objectives of the transmission credits have beenthe expansion of the high voltage transmission system to achieve interconnec-tion within and between the State systems, to improve the financial positionof the State Electricity Boards (SEBs) and to bring about progressive institu-tional improvements. The enlargement of the Central Electricity Authority's

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(CEA's) powers and the amendments to the Electricity (Supply) Act have helpedin achieving these objectives.

Background

1.04 The development of power in India proceeded, in the past, on anuncoordinated State-wise basis. As the demand increased and larger generatingstations had to be installed to achieve greater economy of production andsize, an attempt was made to coordinate planning on a regional basis withinterstate transfers of power. With a rapidly expanding power sector in acountry the size of India, GOI recognized that regional planning wouldhave to be advanced further with the installation of even larger power sta-tions and the introduction of Central planning in order to meet the futuredemand on an efficient basis. Preliminary planning for the Sixth Five-YearPlan period, therefore, envisaged the construction of a number of large Centralthermal power stations, up to 2,000 MW capacity, located on coal fields andsupplying bulk power to the States via an interconnected 400 kV transmissionsystem. Five sites were selected, one in each of the Northern, Western andEastern Regions and two in the Southern Region, and feasibility studies weremade. Reports were published in December 1974 and GOI formally requestedBank assistance in financing the first of these developments, the Singrauliproject, in 1975. A decision to appraise was deferred pending the receipt ofadditional information, which was provided in the form of a Supplement to theFeasibility Reports during the latter part of 1975.

1.05 This report is based on information provided by (i) the FeasibilityReports of December 1974, (ii) the Supplement to the Feasibility Reports,(iii) GOI, CEA and NTPC, (iv) an appraisal by Messrs. J. Beach, A.E.Bailey, S.S. Scales and J. Warford in January/February 1976, and (v) anupdating mission by Messrs. A.E. Bailey and S.S. Scales in July/August 1976.

2. ENERGY RESOURCES AND THE POWER SECTOR

2.01 Inadequate supplies of electric power were a constant feature of theFourth Plan period (1970-1974) and, although there was some improvement by thesecond year of the Fifth Plan period (1975-76), power shortage still remainsa constraint on the economies of several of the Regions. This is likely to bea problem for several years ahead which, hopefully, will be progressivelyalleviated as the large new Central thermal, and hydro power stations plannedby GOI come on stream to augment the States generation development programs.Availability of energy resources for these developments is discussed in thefollowing paragraphs.

Energy Resources

2.02 The main commercial energy resources are coal, oil and naturalgas and hydropower. There are also resources of nuclear fuels, principallyuranium and thorium, and India's power program includes the construction

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of further "CANDU" type heavy water reactors using domestically producednatural uranium as fuel. Two nuclear power stations have been constructedto date and a third is under construction. There are also some geothermalenergy sites, but the potential appears to be limited.

2.03 Coal is by far the most extensive indigenous fossil fuel; reservesare estimated at 81 billion tons of which some 21 billion tons have beenproven. Additionally, total reserves of lignite at the Neyveli field inTamil Nadu are estimated at around 2 billion tons. If generally unworkablecoal, e.g. coal with high ash and moisture content is excluded, this estimateof recoverable and saleable coal and lignite is reduced to something like 45billion tons which, on a forecast country wide usage, would be adequate forsome 300 years.

2.04 By comparison with coal, proven reserves of oil in India are pre-sently small; exploratory and drilling activities to date have proven anestimated 185 million tons on shore. It is probable that further usefuldeposits may be found, particularly offshore, but until a great deal moreexploratory drillings have been done, the magnitude of further resourcesmust remain a matter of speculation. Reserves of natural gas, which is foundin India both alone and in association with crude oil, are estimated at over100 billion cubic meters.

2.05 The firm power potential of hydro-electric power reserves is es-timated at 41,000 MW at a load factor of 60%, equivalent to an annual outputof 216 TWh, of which some 8,000 MW will have been developed by the end of theFifth Plan period (1978/79); some 25% is in the Northern Region with thebalance spread over the North Eastern (30%), Southern (20%), Western (18%)and Eastern (7%) regions.

2.06 Development of generating facilities for the foreseeable futurewill be based on coal or lignite burning thermal stations and hydroelectricpower stations with a small but gradually developing nuclear program.

The Power Sector

2.07 The Indian power sector is complex because electricity supply iswithin the concurrent jurisdiction of the Central Government and the StateGovernments. Annex 1 describes the organization of the power industry.The principal agencies in the industry are the State Electricity Boards (SEBs)which are responsible for the generation, transmission and distribution ofelectricity within each State and for the control and regulation of othersupply undertakings which are private licensees, the Atomic Energy Commission,the Central Electricity Authority (CEA) and the two Central Power Corporationswhich are discussed below. The CEA, which comes under the Ministry of Energy,has recently had its powers enlarged and, in addition to its general respons-ibilities for national power policies, is now to be responsible for the for-mulation of plans for power development, training of personnel, interconnectedsystems operation, research and development. Enlargement of CEA's powersinvolved amendments to the Electricity (Supply) Act 1948 which were agreed

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during negotiations for Credit 604-IN (Fourth Power Transmission Project).At the same time it was agreed that the appointment of a Chairman of the re-organized CEA would be a condition of effectiveness of that Credit. It wasemphasized by the Association that no further Bank Group lending in the powersector would be negotiated until the agreed changes to the Act had been made.Action has since been taken on all counts; the CEA's Chairman was appointed inOctober 1976, an ordinance incorporating the agreed amendments to the generalprovisions of the Act was issued on October 8, 1976 and enacted into law onNovember 30, 1976 and amendments to the financial provisions of the Act wereapproved by the Cabinet on December 8th 1976.

2.08 In view of the magnitude of the task of providing generating capa-city to meet the forecast requirements of India, GOI has set up NTPC andthe National Hydro Power Corporation Limited (NHPC) to construct and operatelarge capacity thermal and hydroelectric power stations. Power planning,country wide, will be coordinated by CEA to ensure that (a) all projectscarried out by NTPC, NHPC and the SEBs fit into the overall national program,(b) the investments are made so as to be put to optimum use, and (c) a situa-tion of surplus power without a taker does not arise.

2.09 Planning in the past has been very much on an 'ad hoc' basis, butwith the increasing sophistication of the Indian power sector, the need toundertake an integrated national approach to sector development has been re-cognized. The unified operation of power systems on a Regional basis hasalready commenced; the Southern Regional grid-went into integrated operationin August 1972 and progressive integration of power systems in other Regionsis intended to pave the way for an all-India grid. There is a US$1.6 millionequivalent UNDP-assisted project to help CEA establish a systems operationsorganization, and provision was included in IDA Credit 604-IN (Power Transmis-sion IV Project) to help finance the cost of consultants to carry out tech-nical, economic and financial studies on a regional and national basis in

order to produce a long-term national plan for power development in India.

2.10 These studies have only just commenced. The Government has yetto crystallize its long-term plans for the central development of powergeneration and the pattern of sector organization in which the national gene-rating companies (NTPC and NHPC) are to operate has yet to be decided. GOIfeels that Singrauli and Korba (see para 3.04) together with the Badarpurpower station near Delhi, which might be taken over by NTPC, might be asmuch as the Corporation can handle efficiently and, bearing in mind the mag-nitude of the Sixth and Seventh Plan programs, other thermal and hydro powercorporations might have to be formed. Also the decision that NTPC shouldown and operate the 400 kV transmission system which is required to eva-cuate power from the Central thermal power stations is essentially an interimsolution and little thought has yet been given to the future national 400 kVgrid and the entity which would operate and maintain that system.

2.11 An immediate requirement is the need for a detailed system studyof the future interconnected 400 kV transmission system to investigate opera-ting parameters under all foreseeable conditions and produce the technical

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information necessary for system and plant design. There is also the questionof the organization which is to design and construct the 400 kV Central trans-mission system. Since early action must be taken on both of these issues, GOIhas decided (1) that CEA will carry out the system studies and (2) NHPC, theChairman of which is a transmission specialist, will establish a transmissionwing which will be responsible for the design and construction of the 400 kVtransmission system excluding the design of the Singrauli/Obra/Kanpur sectionassociated with the Project, for which the Uttar Pradesh State ElectricityBoard (UPSEB) has been appointed as consultant (see paragraph 4.09). Withregard to the proposal for the design and construction of the 400 kV Centralsystem, the establishment of a transmission wing within NHPC is an acceptableshort term solution but NHPC was formed for an entirely different purpose andit would seem at some time in the future, a separate company will have to beestablished to carry out these functions. Changes can only be made over aperiod of time and continuous dialogue on this and other matters discussedin the preceding paragraph will be maintained with GOI and CEA. The proposalfor carrying out the 400 kV system studies was further discussed during nego-tiations and an assurance was obtained from GOI that consultants or specia-lists satisfactory to the Association will be appointed to assist CEA inthese studies.

2.12 Another problem area is the need for standardization; a number of400 kV transmission lines in addition to the proposed Central system areplanned or under construction and it would seem desirable to set up a com-mittee to agree standard design parameters which should apply to all 400 kVconstruction, otherwise problems can arise as and when these are intercon-nected with the National system. This matter was also discussed duringnegotiations and GOI has agreed to establish a committee not later thanMarch 31, 1977 to set standard design parameters for all 400 kV transmissionsystems to be constructed in India.

2.13 A preliminary report, prepared by CEA, on the long term planningstudy, for which US$2 million was included in Credit No. 604-IN to cover thecost of consultants (see para 2.09), was also discussed during negotiations.Little progress has been made on this study due to staff constraints withinCEA. However, the 400 kV system studies referred to in paragraph 2.11 arepart of long term planning, and with the establishment of a long term studyteam within the next few months, it should be possible to make some meaningfulprogress with this study. This will be routinely supervised by future missions.

Sector Characteristics

2.14 The demand for power in India has consistently been greater thanavailable capacity, principally because of financial constraints and lack ofplant maintenance but also because of failure, through poor planning, to meetthe targets for bringing new plant into operation. Installed generatingcapacity reached 18,500 MW by the end of the Fourth Plan (1973/74) comparedto the target of 23,000 MW, and load restrictions, which have been mainlydirected at industry, have adversely affected the economic performance of thecountry. This, together with the oil crisis in 1973/74 and the failure of

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two monsoons, have been the main reasons for the slow down in load growthduring the last few years. For the 20 years or so prior to 1970, sales of Kwhhad been increasing at an average of 11% to 12% per year but this growth rateslowed during the early 1970's; statistics for 1969/70 and 1974/75 which areshown below indicate that annual growth of sales averaged just over 5% duringthis period.

Sales and Energy Data for 1969/70 and 1974/75

1969/70 1974/75

Installed Capacity (excl. non-utility plant) MW 14,102 18,333Electricity Generated GWh 51,988 70,158Electricity Sold GWh 41,061 52,905Electricity Generation per Capita kWh 96.2 119.2Electricity Consumption per Capita kWh 76.0 89.9Average Annual Load Factor % 49.7 52.4Proportion of Sales %:

Agriculture and Irrigation 9.2 14.4Railway Traction 3.5 3.0Industry 69.1 61.5Commercial and Government 6.5 8.0Public Lighting 1.0 1.0Domestic 8.6 9.8Public Waterworks, Drainage, etc. 2.1 2.3

Average Annual Growth of Sales % 9.9 5.3Losses as % units sent out 16.8 20.0

2.15 The situation was improving by the end of 1975 due to the commis-sioning of new capacity and the better utilization of existing plant; thenational load factor improved from 49.7% in 1969/70 to 54% by 1975/76 andthe rate of growth in demand over 1974/75 is estimated at 12%. GOI expectsthis improvement to continue and an average annual growth rate of 10% is fore-cast through 1984. In view of the low growth rate during the last fiveyears and the probability of failing to achieve the Sixth Plan period tar-get (see para 2.19), this might prove optimistic.

Existing Facilities

2.16 The total installed generating capacity for the whole of India atMarch 31, 1976 was 20,111 MW. This excludes about 1,800 MW of non-utilitycapacity, mostly thermal, which is owned by major industrial consumers tomeet their own needs. The generating capacity consists of:

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Installed Generating Capacity at March 31, 1976(MW)

ConventionalRegion Thermal Hydro Nuclear Total

Northern (excluding Uttar Pradesh) 1,038 1,604 220 2,862

Uttar Pradesh 1,238 930 2,168Western 3,317 1,718 420 5,455Southern 1,763 3,618 5,381Eastern 3,302 765 4,067North Eastern 111 67 178

10,769 8,702 640 20,111

2.17 Intrastate and interstate transmission is at 132 kV and 220 kV and,generally, major load centers are interconnected by 132 kV and 33 kV sub-transmission lines. Distribution voltages are 11 kV and 415/240 V. Thesupply is generally reliable but losses and unaccounted for, at around 20% ofunits sent out, are high.

Future Development

2.18 The power demand increased from 12,000 MW in 1970 to 15,200 MW in1975 and is expected to increase to 19,800 MW by 1978/79, the end of theFifth Plan period, with output in that year estimated at 112 TWh. The plannedexpansion of generating capacity during the Fifth Plan period which providedfor an additional 16,350 MW of plant (9,460 MW thermal, 6,420 MW hydro and470 MW nuclear), is not now likely to be achieved and the target has beenrevised to 12,500 MW which would bring the installed capacity by 1978/79 to31,000 MW of which 29,200 MW would be utility plant with the balance of 1,800MW non-utility.

2.19 The Sixth Plan (1979/80-1983/84) has yet to be prepared in detailbut on the assumption that growth of demand will continue at an average annualrate of 10%, preliminary proposals indicate the addition of some 20,000 MW ofgenerating capacity during this period comprising 13,000 MW thermal, 6,200MW hydro and 500 MW nuclear and involving 25 thermal projects and 56 hydroprojects. Additionally, the construction of some 15,000 circuit kms of 400kV transmission is planned to enable further integration of the State systemsand the evacuation of the output from the proposed large thermal power sta-tions over the expanding regional grid systems. Total capital expenditureson these projects alone would be in the neighborhood of Rs 125 billion (US$14billion equivalent).

2.20 This would be an unprecedented undertaking and, bearing in mind thefailure to meet the Fourth and Fifth Plan targets, it is doubtful if such anambitious program (see Annex 2) can be achieved during the Sixth Plan period.

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3. THE BENEFICIARY - NATIONAL THERMAL POWER CORPORATION LIMITED

3.01 The Borrower of the proposed Credit would be the Government ofIndia and the Beneficiary would be NTPC. A Development Credit Agreementwould be entered into between GOI and the Association, a Project Agreementbetween NTPC and the Association and a Subsidiary Loan Agreement betweenGOI and NTPC to cover the onlending of the Credit.

3.02 NTPC was established in 1975 under the Companies Act 1956, andthe Electricity (Supply) Act, 1948 has been amended to give the Corporationstatutory recognition. NTPC is responsible to the Government and has aninitial authorized share capital of Rs 1,250 million (US$140 million). TheCorporation is managed by a Board of Directors of not less than four andnot more than fifteen, some of whom will be part time.

3.03 The main objects for which the Corporation has been establishedare:

(i) to design, construct, and operate large central thermalpower stations and projects; and

(ii) to distribute and sell the power generated.

NTPC would initially own and operate the associated 400 kV transmissionsystem over which power would be distributed and sold in bulk to StateElectricity Boards. The contractual and tariff structure proposals arediscussed in paragraphs 6.07 and 6.08.

3.04 Initial development planned by NTPC provides for the constructionof two central thermal power stations each with a capacity of 2,000 MW. Thefirst to be constructed is located at Singrauli on the coal fields in UttarPradesh State and the second is at Korba on the coal fields in Madhya Pradesh.It is possible that NTPC might also take over the Government owned 300 MWBadarpur power station near Delhi (ultimate planned capacity 700 MW), present-ly owned by GOI. The Singrauli development, which includes the proposed pro-ject for Bank Group financing, is described in detail in Annex 3 and theKorba development in Annex 4.

Organization and Management

3.05 NTPC's proposed organization is shown in Annex 5. A start hasbeen made on building up the establishment and filling key appointments.The Chairman and Managing Director who is a competent administrator withwide experience in the formation and development of large industrial under-takings and in the construction of factories and the manufacture of generat-ing facilities has been appointed and the Board of Directors comprising fivepart time Directors and a full time Director (Finance) has been constituted.For the time being it is intended to limit the size of the Board to not more

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than eight members. Progress with the appointment of senior staff was dis-cussed during negotiations and the NTPC representative stated that recruit-ment of staff at General Manager and senior professional level and essentialadministrative staff has commenced with 22 already in position and 68 forwhom the selection process has been completed. General Managers to head theSingrauli Development and the Technical Services have been appointed as alsohave the Deputy General Managers in charge of Civil Design and Constructionand Personnel Training and Administration. Deputy General Managers and MiddleLevel Managers in the areas of Erection, Systems Development, TechnicalServices and Finance are expected to be appointed early in 1977. It would seemfrom the foregoing that satisfactory progress is being maintained in staffingthe Corporation, but the position will be reviewed in detail during the nextmission in the power sector.

3.06 The organizational structure should be viewed at this juncture asa framework for development in a phased manner over the years. In the earlyyears, until NTPC has built up a competent establishment with suitably quali-fied personnel, it will be necessary to draw upon the experience of seniorproject management experts such as CEA and/or other consultancy organizationsto supplement the efforts of the Corporation staff. This will be particu-larly necessary in the case of the Singrauli Thermal Power Project and NTPChas appointed the Thermal Design Organization of CEA as its prime consultantfor the design of the power station and preparation of specifications. WhilstCEA is experienced in the design lay-out of 120 MW units its experience with200 MW units is limited. This matter was discussed during negotiations andagreement was reached on the appointment of consultants satisfactory to theAssociation to review CEA's layout and design proposals and to assist inthe more specialized areas of design. Agreement was also reached on theemployment of consultants satisfactory to the Association to assist NTPCin the design, preparation of specifications and supervision of constructionof the 400 kV transmission included in the Project.

Training

3.07 Training of engineers and operators for the operation and main-tenace of thermal stations has been inadequate and this has been reflectedin the under-utilization of generating plant with outages for periods longerthan normally required for maintenance. With the proposed growth of powergeneration by the end of the Sixth Plan period involving an increase in thework force of some 40,000 highly skilled workers, the need for training can-not be too highly stressed.

3.08 NTPC places special importance on this aspect of its organizationand training programs are to be developed by the Corporation which will bebacked by a training school equipped with simulators and other modern facili-ties for instructing and training the operating staff.

3.09 GOI has also recognized the problem and the inadequacy of existingtraining establishments to meet the demands of the future and has included

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electric power training in a UNDP project entitled 'Advanced Vocational Train-ing System'. Briefly, the objective of this project, which is financed by aUNDP contribution of a little under US$5 million and an equivalent counterpartGovernment contribution in local currency, is to establish new institutionsfor advanced vocational training to ensure the steady availability to industry(including the power industry) of the more critical categories of highlyskilled workers and technicians needed in the long term.

3.10 The first generating units are not scheduled to go into commercialoperation until 1981/82 and the formulation of programs for the instructionand training of operating staff is not of immediate importance. Nevertheless,training programs covering pre-operational spheres of activity such as Plan-ning, Design, Construction, Management, Finance, etc. should be formulatedas soon as possible and these matters will be further discussed with NTPCduring project implementation.

4. THE PROJECT

Description

4.01 The Project comprises a part of the Singrauli development (seeAnnex 3) and consists of:

(a) Civil works comprising acquisition of land, constructionof roads, culverts, railways and other miscellaneous pre-liminary works, power station and residential buildings,plant foundations, dams, canals, ducts and other worksassociated with the circulating water system;

(b) three 200 MW turbo-generating units and three 680 tonnes/hr boilers complete with all auxiliaries and ancillaryelectrical and mechanical equipment including coal trans-portation and handling equipment and the switchyard; and

(c) the 400 kV transmission system comprising two 30 km singlecircuit lines from Singrauli to Obra and a 400 km singlecircuit line from Obra to Kanpur together with controlbays and other associated equipment.

4.02 The Singrauli 2,000 MW development is to be constructed on thefringe of the Rihand Reservoir close to the Singrauli coal field depositat Kota in the Mirzapur District of Uttar Pradesh. The Project has beenselected as a logical slice of the overall development which, on economicand engineering considerations, could operate as an independent and viableproject in the event construction of the remaining units aggregating 1,400MW is delayed or deferred.

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Estimated Cost

4.03 The estimated cost of the Singrauli 2,000 MW power station togetherwith associated transmission is about Rs 10,500 million (about US$1.2 billionequivalent). The estimated cost of the Project as defined in paragraph 4.01is Rs 3,573 million (US$397 million), excluding interest during construction.On the assumption that most contracts will be won by Indian suppliers theforeign currency component of the Project is estimated at Rs 461 million(US$51.3 million). The estimated costs of the principal features of theProject are shown in the following table and in more detail in Annex 6.

Rupees (millions) US$ (millions)Description Local Foreign Total Local Foreign Total

Preliminary Works 31.3 - 31.3 3.5 - 3.5

Main Civil Works 607.0 13.0 620.0 67.4 1.4 68.8Electrical & Mechanical 1,334.0 296.0 1,630.0 148.2 32.9 181.1Coal Transportation 153.4 24.2 177.6 17.1 2.7 19.8Transmission 257.0 32.0 289.0 28.5 3.6 32.1

Subtotal 2,382.7 365.2 2,747.9 264.7 40.6 305.3

Contingency (Physical) 146.0 20.9 166.9 16.3 2.3 18.6Contingency (Price) 381.0 57.2 438.2 42.3 6.4 48.7Engineering & Administration 202.0 18.0 220.0 22.4 2.0 24.4

Project-Cost 3,111.7 461.3 3,573.0 345.7 51.3 397.0Interest during Construction 396.0 - 396.0 44.0 - 44.0

Total Financing Required 3,507.7 461.3 3,969.0 389.7 51.3 441.0

Amount of Credit

4.04 The proposed Credit of US$150 million represents about 34% of thetotal financing required for the Project. It was agreed during negotiationsthat this should be applied to the purchase of specific items of electrical,mechanical and transmission equipment which are suitable for internationalcompetitive bidding. Provision has also been included in the Credit for thecosts of the consultants appointed to assist CEA in Singrauli design.

Basis for Estimates

4.05 The estimates are based on the cost of 200 MW generating units,boilers and associated equipment which are presently being manufactured inIndia and are under erection at Obra, Badarpur and other thermal power sta-tions. Transmission estimates are based on the costs of the 400 kV trans-mission line under construction between Obra and Kanpur and on other 400 kVconstruction at present in progress in India. A physical contingency of 10%

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has been allowed on civil works and coal transportation equipment to providefor unforeseen factors and possible delay in project completion. This,together with a 5% physical contingency on Electrical and Mechanical (E&M) andtransmission costs is considered reasonable. The price contingency of 20% onall aspects of the Project excluding E&M equipment is based on an estimated7-8% annually compounded rate of inflation during the period of construction.In the case of E&M equipment, recent experience has shown that fixed pricetenders are now being obtained for turbogenerators and boilers, and plantcosts have been escalated at 8% per annum to the assessed date of placement oforders and held constant thereafter. Erection costs have been escalated at7-8% annually compounded throughout the period of construction. This hasresulted in an overall price contingency of 12% on E&M equipment. Althoughlow, these price contingencies are considered reasonable in the light ofIndia's experience and its recent success in containing inflation.

4.06 The power station, switchyard and coal storage are sited in anarea presently occupied by a local village. The villagers will have to berehoused but, since most of them will be offered employment in the developmentarea and will live in Corporation houses, resettlement costs are expected tobe minimal and have been included in the cost of residential housing underthe item "Main Civil Works."

Status of Engineering and Construction

4.07 The Singrauli development comprises a number of major works whichmust be carefully coordinated to ensure efficient progress to completion;coal transportation facilities must be completed ahead of the plant to en-sure availability of coal for commissioning purposes and likewise the trans-mission system should be slightly ahead of the first 200 MW generating unitto facilitate commissioning tests on the unit. The first 200 MW unit isexpected to be in commercial operation from October 1, 1981 and the entireproject comprising three 200 MW units together with associated transmissionis expected to be completed by September 1982. The critical path construc-tion charts shown in Annexes 7 and 8 set out the construction program forthe power station and transmission respectively on the assumption major powerstation contracts can be placed by September 1977 and transmission contractsby April 1978. With those constraints in mind NTPC has prepared an implement-ation plan together with a master progress chart so that all aspects of theproject and associated works can be monitored during the construction period.

4.08 Preliminary works are well advanced; site survey, hydrological andsubsoil investigations and land acquisition are in the final stages and modelstudies are in hand. NTPC has appointed its prime consultant (see para. 3.06);the specifications for civil and structural works have been completed and thepreliminary drafts of the turbo-generator and boiler specifications have beensubmitted to the Association for comment. Coal studies and dam design are alsoproceeding and negotiations are in hand with consultants for the design of thecoal transportation system. In view of the progress to date, there should be noproblem in keeping to the September 1977 deadline for award of major contracts.

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4.09 As far as the transmission is concerned NTPC has appointed UPSEBas its consultant for the design of the Singrauli-Obra-Kanpur 400 kV trans-mission line. UPSEB has built up a competent design team and is currentlyengaged in the design and supervision of erection of some 2,000 kms of 400 kVtransmission lines. Its approach to line and equipment design appears to becompetent, and the Obra-Kanpur section of the Singrauli-Kanpur line (about 400km out of a total of 460 km) will, subject to modifications suggested by CEA,duplicate in much of the design detail the 400 kV line presently under con-struction by UPSEB between Obra and Kanpur. In the circumstances this arrange-ment is acceptable. UPSEB has carried out a preliminary survey and has com-pleted the draft specifications for the towers. In view of the progress todate there should be no problem in keeping to the deadline for placing majorcontracts by April 1978.

4.10 NTPC proposes to appoint NHPC to supervise construction of the line.The rationale for this proposal is that in this way NHPC will be able to buildup a team of experienced staff which would ultimately form the transmissionwing of the Corporation (see para 2.11). This matter was discussed duringnegotiations and GOI stressed the need to form the transmission wing of NHPCas soon as possible, particularly as work would shortly have to commence onthe design and construction of other sections of the proposed 400 kV CentralSystem in States other than Uttar Pradesh. To this end the Corporation wouldbe recruiting its staff from UPSEB's competent and experienced organization.Taking all factors into consideration i.e. the experience of NHPC's Chairmanin extra high voltage transmission line construction, the recruitment ofUPSEB's experienced team and the impending 400 kV construction in other States,it was agreed that the proposal to use NHPC for supervision of construction ofthe Singrauli-Obra-Kanpur line would be acceptable to the Association.

4.11 The coal handling and transportation equipment is part of theProject and possible delays due to anticipated long delivery on some of theequipment is recognized in the ordering and construction program. However,an area over which NTPC has little or no control, is the development of thatblock (Jayant) of the Singrauli coal field which is to supply coal for theProject. This matter was discussed during negotiations and GOI agreed totake all such steps as shall be necessary to make available adequate coalsupplies for the efficient operation of the Project by the time the firstgenerating unit under the Project shall have been commissioned.

Procurement

4.12 Procurement of all equipment to be financed from the proposedCredit would be on the basis of international competitive bidding in accord-ance with the Association's guidelines. All bidding documents, including

recommendations for award of contracts, would be prepared by NTPC with theassistance of its consultants, and approved by the Association. Local manu-facturers would be expected to bid for all categories of equipment but in-corporated in Lnese bids would be an indirect foreign cost element coveringspecialized material embodied in the major contracts and not yet manufacturedin India. A domestic preference of 15% or the import duty, whichever is less,

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would be applied in bid evaluation. Local manufacturers are likely to winthe majority of contract awards, but to prevent procurement delays GOI agreedduring negotiations that, in the event the lowest evaluated bidder for anycontract is a foreign manufacturer, permission to import will be forthcomingwithout further review by any agency of the Government. There are competentlocal contracting firms in India and also manufacturing facilities coveringmost of the equipment for the Project. Therefore all work not financed whollyor in part from the proposed Credit will be subject to local procurement pro-cedures, which are satisfactory.

Disbursements

4.13 Disbursements would be made against the cost of the consultantsretained to assist the Thermal Design Organization of CEA and against the costof the equipment to be financed from the proposed Credit on the followingbasis:

(a) 100% of the ex-factory cost of equipment procured inIndia after international competitive bidding; and

(b) the foreign cost of equipment procured from abroad.

Any balance of the Credit not used after commitments have been made for allitems covered by the list of goods, could be used to purchase other electricaland mechanical equipment for the Project, after obtaining the Association'sagreement. A disbursement schedule is given in Annex 9.

Ecological Aspects

4.14 The ecological and environmental aspects of the Project were dis-cussed during negotiations. GOI advised that the Singrauli development hadreceived the approval of the Indian National Committee on Environmental Plan-ning and NTPC agreed to comply with all environmental quality standards pres-cribed by this committee, in the design, construction and operation of theProject.

4.15 The principal environmental problems with large thermal powerstations are: (a) location, (b) stack emissions, (c) heat dissipation,and (d) ash removal. These are dealt with below:

(a) Location

The proposed Singrauli power station is a pit head sta-tion and is situated far from any urban area. Accordingly,there are no problems in this area other than the need toensure the health and environment of the operating staffwho will be housed in a residential area to be constructedsome 4 or 5 kms from the power station.

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(b) Stack Emissions

Electrostatic precipitators will be installed and the stackwill be of such a height that emitted particulate matterwill be spread over a sufficiently wide area to reducethe density of pollutants to an acceptable level. The sulphurcontent of the coal is in the range of 0.3% to 0.6% which islow and does not present a pollution problem.

(c) Heat Dissipation

The cooling pond is designed to ensure that its averagetemperature increase will not exceed 3% with the stationunder full operation. This would have no adverse effect onfisheries.

(d) Ash Disposal

The ash will be pumped as a slurry, through a 5 km pipe-line, to an ash dump area which has been reclaimed fromthe Rihand Reservoir. The area will be enclosed by a bundand together with a reserve area will be adequate to con-tain the ash output for the life of the power station.

4.16 With regard to the safety and occupational health of employees,safety regulations for power stations, to which all operating personnel mustconform, will be strictly enforced. As far as noise levels are concernedthe turbine hall of a modern steam turbine power station, which is the noisi-est area of the plant, has a sound pressure level of less than 90 decibelsand is well under the maximum acceptable threshold for the normal 8 hour/day shift worker.

5. JUSTIFICATION OF THE PROJECT

The Power Market

5.01 The demand for power in India and the reason for the slow down ingrowth of load during the early 1970's have been discussed in paras. 2.14and 2.15. The load restrictions which had to be applied during this period,consequent upon lack of plant capacity, fell mainly on industry where thereis, in consequence, a large element of pent-up demand. This together with thesteady increase in agricultural demand in consequence of the large rural elec-trification and irrigation programs, is the basis of the Government's conten-tion that the underlying annual growth rate of 11% - 12% is still there, pro-vided generating capacity is available to meet it. Bearing in mind the magni-tude of the development program for the Sixth Plan period, the improved per-formance during the Fifth Plan period and the better plant utilization whichis now being achieved, CEA considers that, if anything, forecasting an annualgrowth rate of 10% for the foreseeable future, is conservative.

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The Need for the Singrauli Capacity in the Northern Region

5.02 Load restrictions fell heavily on the Northern Region during theearly 1970's particularly in the case of Uttar Pradesh where plant availa-bility in 1974, for instance, fell to less than two-thirds of the estimatedrequirement and the planned development during the Sixth Plan periodis designed to achieve an acceptable balance between demand and supply by1983/84. The program is heavy and the inclusion of a 2,000 MW powerstation such as Singrauli ensures the availability of a large block ofpower in the shortest possible time. Annexes 10 through 13 demonstratethe need for the Singrauli capacity in the program. -Annex 10 shows howthe Singrauli output will fit into a forecast (Northern Region) daily loadcurve during 1984/85 and Annex 11 illustrates the forecast annual load dura-tion curve (Northern Region) for 1983/84, with the Singrauli plant in itsorder of merit. Both of these charts demonstrate that there will be a shor-tage of capacity and energy availability during those years when full al-lowance is made for standby, spinning reserve and forced outage. The shortageis small and should be covered by spinning reserve; nevertheless it is demon-strated that even with Singrauli, the position is still tight. The chart inAnnex 12 shows the projections of peak demand and installed capacity requiredto meet the peak demand of the Northern Region for the Sixth Plan period(1979/80 through 1983/84), and the table in Annex 13 shows for the NorthernRegion, actual and estimated GWh generated, system maximum demand, installedand firm capacity and productive capability for the period 1970/71 through1983/84.

Marketing

5.03 It is GOI's intention that 85% of the output of power from theSingrauli development will be sold to selected States in the NorthernRegion (Uttar Pradesh, Punjab, Haryana, Rajasthan and the Delhi ElectricitySupply undertaking (DESU)) (see para 6.08), with the remaining 15% availablefor allocation in accordance with emergency requirements from time to time.The output of power from the three generating units to be constructed underthe Project will be fed into the Uttar Pradesh system at a 400 kV bulksupply point to be established at Kanpur and it is GOI's intention that 85%of this power will be sold in agreed portions to the above named selectedStates. Bulk supply points will be established in each State and the power,excluding that sold to UPSEB, will be "wheeled" over the UPSEB system.

Comparison of Alternatives

5.04 The justification for the Singrauli development is based entirelyon the needs of the Northern Region and various alternatives for providingthis power were examined. The possible alternatives are (a) hydro electric,(b) nuclear, and (c) smaller coal fired thermal stations at load centers toprovide the same amount of power.

5.05 The development of hydroelectric potential was ruled out as apracticable alternative because of the limitations on time and size, avail-ability and general remoteness of sites and because most of the ready poten-tial which has not yet been exploited is already included in the Sixth Plan

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for development concurrently with Singrauli. The nuclear alternative wasalso eliminated as a practicable alternative because of the physical impossi-bility of providing the power required in the time span available. This leftthe development of a number of smaller coal fired power stations at loadcenters as the next best alternative. The comparison of this alternative,comprising three 700 MW installations, with the proposed Singrauli 2,000 MWpit head development, is described in detail in Annex 14.

5.06 In making this comparison shadow prices (see para 5.08) were appliedto the cost of foreign exchange and local labor in the case of both alter-natives and constant fuel prices of Rs 150 per tonne (the 1976 cost of fuel

at Badarpur power station near Delhi) for the smaller power stations and the1976 national pit head price of Rs 55 per tonne for Singrauli, were assumed.At discount rates of 10% and 12% the present worth of Singrauli costs wassubstantially less than that of the three separate 700 MW installations. Theequalizing discount rate, at which the present worths of both cost streams wereequal, was 32%. These results are sensitive to significant variations in themost uncertain factors of the two alternatives, but taking the most pessimisticview (a 10% increase in the cost of Singrauli combined with a 10% decrease inthe cost of fuel for the smaller power stations) still shows the present worthof Singrauli costs to be the lower at both 10% and 12%, and the equalizingdiscount rate is reduced to 15%. These rates are higher than the opportunitycost of capital in India and demonstrate that development of a large thermalpower station at Singrauli is the most economic of the two alternatives.

5.07 Having established the justification for the 2,000 MW Singraulipower station, which is to comprise 5 x 200 MW generating units in the firstphase followed by 2 x 500 MW units, a comparison was made between this and a2,000 MW power station comprising 4 x 500 units constructed in two phases;2 x 500 MW followed by 2 x 500 MW. On a straight comparison the 2 x 500 MWunits would be some 15% cheaper than the 5 x 200 MW units and additionallythere would be savings in operating and fuel costs. However the largestgenerating units in operation at the present time are 120 MW units. Basedon technical considerations it would be unwise and potentially more costly toproceed in one step to the 500 MW units with their more sophisticated operat-ing and maintenance procedures. Several 200 MW units are presently being con-structed in India and some will be in operation by the time the first Singrauli200 MW unit goes into commercial operation. On a risk analysis basis higherexpected costs would have to be associated with a first phase of two 500 MWunits. These contingent costs are based on the greater likelihood of break-down with the larger units resulting in longer outage periods and consequentloss of revenues. This would not apply to the 2 x 500 MW units in the secondphase of the development as by that time generating units of this size arelikely to be manufactured in India and experience should have been gained in

their operation and maintenance. The foregoing considerations favor proceed-ing first with the 5 x 200 MW installation and justifies this alternative forthe first phase of the development.

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Return on Investments

5.08 An internal rate of return on the 2,000 MW Singrauli power stationplus associated transmission costs was estimated in order to demonstrate therelationship between the revenues implied by the proposed tariff policy andthe economic cost of the project (see Annex 14). For the purposes of thiscalculation, which equates the present worth of project costs with the presentworth of attributable revenues, both costs and revenues are at 1976 prices,foreign exchange is valued at Rs 11/US$, labor is valued at 70% of the actualwage rate, and taxes and duties are excluded. On these assumptions, thereturn, estimated at 10%, suggests that the bulk supply price will be roughlyequal to marginal cost, thereby encouraging the SEBs to adjust their owntariffs to reflect economic costs. While such a pricing policy is a necessarystep toward rationalization of power tariffs in India, reform of pricing atthe SEB level is also required if wasteful consumption of energy and prematureexpansion of capacity is to be avoided, and analyses of SEB tariff policiesare thus necessary. Several SEB's including Uttar Pradesh are already under-taking pricing studies based on marginal cost principles and it is expectedthat the other States (Punjab, Haryana, Rajasthan and DESU), which are to beallocated power from the Singrauli development, will follow suit. GOI haspromised to take all steps possible to obtain such an undertaking from eachof these States.

6. FINANCIAL ASPECTS

Introduction

6.01 The financial forecasts of NTPC's operations through FY 1988 arepresented in Annexes 15-17. They are based on NTPC's capital investmentprogram for the period through FY 1987 which comprises the construction of two2,000 MW thermal power stations, one at Singrauli in Uttar Pradesh and one atKorba in Madhya Pradesh, and about 4,500 circuit kms of associated 400 kVtransmission.

6.02 The forecast dates for commissioning the generating units foroperations are detailed in Annex 15 page 2, which shows that by October 1982the first three 200 MW units, which form part of the project at Singrauli,would be commissioned together with the first 200 MW unit at Korba. Furtherconstruction of plant by NTPC beyond the completion of these two power sta-tions and their associated transmission is not included in NTPC's investmentprogram in view of the possibility that GOI may set up additional centrallyowned power generating corporations (para 2.10). However NTPC agreed duringnegotiations to inform the Association in the event it acquires any assetvalued at Rs 50 crores or more.

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Future Earnings

6.03 NTPC's future earnings forecasts assume that it will supply bulkpower at 400 kV to State Electricity Boards at prices which would coverNTPC's operation and maintenance, management expenses, interest, and areasonable earned surplus. To meet this situation GOI and NTPC agreed toachieve in FY 1988 1/ and maintain thereafter a rate of return of not lessthan 9-1/2% on the original cost of its average net fixed assets in service,and in the meantime to set tariffs from the time of the commissioning of thefirst generating unit at levels not lower than those estimated each yearwhich are required to achieve a 9-1/2% return in FY 1988.

6.04 The income statement (Annex 15) shows the forecast average bulksupply price of 22.1 paise per kWh (excluding fuel surcharge), calculatedon the basis of the FY 1988 forecasts. This price is used in determiningthe annual forecast revenues in the earlier years, FY 1982 through FY 1987.Although operating losses are forecast in both FY 1982 and FY 1983 NTPC'sinternal cash generation (Annex 16) in those years would exceed its debtservice. As the capacity of the generating plant continues to increase,NTPC's annual revenues will increase faster than its operating expenses,and NTPC would be expected to achieve a rate of return of 0.6% in 1982 and3.7% in 1983 rising gradually to the agreed 9.5% by FY 1988. As NTPC's cashflow would cover its debt service requirements in that period, its lowerearnings in the initial years of operation of Singrauli and Korba would beacceptable.

6.05 NTPC is unlikely to become liable for tax on its earnings untilafter FY 1988 because the deductibles allowed for annual depreciation inassessing taxable income each year are based on a fixed percentage of thedeclining balances, and not on the straight line method which is used inpreparing the income statements. Any loss assessed in a given year canbe carried forward and deducted from a subsequent year's profits beforedetermining the tax liability in that year. No provision is made for thepayment of dividends while the Corporation continues to carry forward lossesfor tax purposes to subsequent years of assessment.

6.06 Several SEBs who are expected to enter into long term contractsfor the purchase of power from NTPC (Uttar Pradesh SEB, Punjab SEB, HarayanaSEB, Rajasthan SEB and DESU) did not achieve a 9-1/2% rate of return on arate base valued at historic cost by the target dates agreed under earlierAssociation credits. The delay is attributable mainly to monsoon failuresin FY 1974 and FY 1975, to their losses from rural electrification opera-tions, and to inflationary conditions. The Government has requested thatthe target dates be revised to FY 1977 for Punjab, Rajasthan, Uttar Pradeshand to FY 1979 for Harayana and DESU. The proposed structure of the BulkSupply Tariff is discussed in the following paragraphs.

1/ The first year in which the 2000 MW Singrauli power station shouldbe in full commercial operation.

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Bulk Supply Tariff

6.07 NTPC will, in due course, enter into long term contracts withthe recipient SEBs for the sale of bulk power. The general principleswhich should be followed in establishing bulk supply tariffs are discussedin Annex 19. In view of the pattern of future development in the powersector with possibly another two large Central thermal power stations invarying stages of commissioning and a National System Load Despatch organi-zation in operation by the time the Singrauli Development is completed, theformulation of a bulk tariff policy is likely to be complicated by the dif-ferent types of bulk transfers which will, by then, be involved, and as aconsequence it would be premature to go beyond a brief outline of principlesat this juncture. This will be the subject of continuing dialogue duringfuture missions.

6.08 The general principle of a bulk supply tariff which, ideally,should consist of an annual demand charge per kW of capacity allocatedbased on total fixed costs (which would be a minimum charge) plus an energycharge which reflects short-run marginal costs was discussed with GOI at thetime of appraisal. This principle is agreed by GOI and it was also agreedthat from time to time such a bulk tariff would have to be revised to takeaccount of changes in both fixed and variable costs and to meet any increase inthe rate of return target. GOI's proposal is that 85% of the power would beallocated, the remaining 15% being sold in accordance with priorities,to be determined by CEA, to States with the greatest need. The most importantconsideration is to protect NTPC's revenues to ensure that income from thesale of bulk power will be adequate at all times to meet fixed and variablecosts and provide the agreed rate of return. To the extent that there islikely to be a continuing capacity shortage for the foreseeable future, GOI'sproposal outlined above would be acceptable for the Project, comprising thefirst 600 MW of a planned 2,000 MW power station. During negotiations, NTPCagreed to sell the output of power from the Project to SEBs under bulk supplycontracts satisfactory to the Association and GOI agreed to take all stepswithin the power available to it to obtain from the selected SEBs not laterthan September 30, 1977 an undertaking satisfactory to the Association, andendorsed by the State Government in each case, to purchase, in aggregate, notless than 85% of the output of power from the Project.

Financing Plan (FY 1977 through FY 1988)

6.09 Forecast source and application of funds statements covering NTPC'soperations for FY 1977 through FY 1988, are shown in Annex 16. NTPC's finan-cing plans for the Project construction period (FY 1978 to FY 1983) providefor:

Generation Plant

(a) The construction and completion of:

(i) three 200 MW generating units at Singrauli whichform part of the proposed Project; and

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(ii) one 200 MW generating unit at Korba.

(b) Work in varying stages of progress on six additional200 MW units, and four 500 MW units at Singrauli andKorba.

Transmission

(a) The construction and completion of the 400 kv transmissionlines viz:

(i) Singrauli/Obra/Kanpur - 460 circuit kms, whichforms part of the proposed Project;

(ii) Korba/Koradi - 900 circuit kms.

(b) Work in varying stages of progress on the remaining transmissionlines - 1,550 circuit kms associated with Singrauli and 1,600circuit kms associated with Korba.

6.10 The financing plan for the six years to March 31, 1983 is shownbelow:

Total TotalRs million US$ million _

Sources of Funds

Internal Cash Generation 379 42Less Debt Service 349 39

Net Cash Generation 30 3 -

GOI Equity 9,881 1,098 52GOI Loans 7,840 871 41IDA Credit relent 1,350 150 7

Total - Sources 19,101 2,122 100

Application of Funds

Construction Expenditure 19,002 2,111 100Working Capital Increases 99 11 -

Total - Application 19,101 2,122 100

6.11 This financing plan includes provision for the cost of construc-tion of the Project estimated at US$441 million equivalent (Annex 6). TheAssociation would provide US$150 million and the GOI would provide the

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balance. Assurances were obtained during negotiations that GOI would providethe balance of capital, estimated at US$291 million, to complete the Project,on terms satisfactory to the Association together with any additional fundsdue to cost overruns or other unforeseeable factors which may arise.

6.12 The total construction expenditure in the financing plan wouldamount to US$2,111 million equivalent, of which the cost of the proposedSingrauli Project would represent about 20%. GOI would provide the capitalrequired by NTPC in the form of debt and equity in a ratio not exceeding50/50. Its loans to NTPC would be repayable over 15 years following graceperiods of up to 5 years, and carrying interest on outstanding loans at10-1/4% per annum.

Internal Cash Generation - FY 1984 through FY 1988

6.13 After commencing commercial operations in October 1981, NTPC'sannual internally generated funds would increase rapidly to Rs 2,876 million(US$320 million) by FY 1988. They would cover annual debt service by 1.1times in FY 1982 and FY 1983 rising to 1.6 times by FY 1988 (Annex 16). Thefollowing table illustrates the rapid rise in internally generated funds netof debt service and working capital increases which reflects the operationof the new plant and the tapering off of the investment program (Annex 16,page 2).

---- Rs Million -------------Year to March 31 1984 1985 1986 1987 1988

Net Internal Generation 150 422 542 831 1,050GOI Capital 3,254 1,151 300 - -

Source of Funds 3,404 1,573 842 831 1,050

Investment Program 3,404 1,573 842 181 -

Surplus Cash - - - 650 1,050

Proportion of investmentfinanced by internalfunds 4 27 64 100 -

6.14 Internal cash generation is based on plant having an average annualload factor of 63% when fully developed, on energy sales priced at 22.1 paiseper kWh, operating and maintenance expenses expressed as a percentage ofcapital cost (Annex 18) and the investment program as currently forecast.The surplus cash would arise in FY 1987 and FY 1988 mainly because the invest-ment program does not provide additional construction following the construc-tion of the Singrauli and Korba Power Stations and the associated 400 kVtransmission network, and also because no provision is made for the paymentof dividends.

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Estimated Future Finances

6.15 Forecast condensed balance sheets as at March 31, 1977 throughMarch 31, 1982, reflect the construction of plant, and the result of com-mercial operation of the first 200 MW generating unit from October 1, 1981.By March 31, 1982 NTPC's capitalization would be Rs 14,640 million (US$1,626million equivalent) divided between GOI loans (including the relending of theAssociations' credit) and equity in a ratio of 45/55. This would be satis-factory. On completion of the plant in FY 1987 the gross plant value wouldexceed Rs 25,000 million (US$2,780 million ). Annex 17 assumes NTPC'sauthorized share capital would be increased to Rs 6,000 million in FY 1979and Rs 12,000 million in FY 1982.

6.16 NTPC's debt equity ratio rises to 50/50 in FY 1984, then reducesgradually to 38/62 by FY 1988. This reflects the reduced borrowings asthe investment program tapers off and retained earnings are added to equity.

Audit

6.17 The appointment of an independent auditor to audit the NTPC books,would be made by the Company Law Audit Board, on the recommendation of theAuditor General of India. He would normally be a member of the Indian Insti-tute of Chartered Accountants and his audit report on NTPC's financial state-ments would be subject to comment by the Auditor General. During negotia-tions NTPC undertook to submit to the Association audited financial statementswithin 7 months of the close of the year to which they relate, together with acertified report by the independent auditor, and the review of the accounts bythe Director of Commercial Audit.

7. RECOMMENDATIONS

7.01 During negotiations the following issues were raised with GOI andsatisfactory agreement or assurances obtained with regard to:

(a) the appointment of consultants or specialists satisfactoryto the Association to assist CEA in its 400 kV system studies(para 2.11);

(b) the establishment of a committee not later than March 31,1977 to determine national design parameters for all 400kV transmission systems to be constructed in India(para 2.12);

(c) the availability of adequate coal supplies by the timethe first generating unit is scheduled for commissioning(para 4.11);

- 24 -

(d) permission to import without further review by any agencyof the Government in the event the lowest evaluatedbidder for any contract to be financed through the Creditis a foreign manufacturer (para 4.12);

(e) obtaining by September 30, 1977 undertakings from eachof the selected SEBs (Uttar Pradesh, Punjab, Haryana,Rajasthan and DESU) endorsed by the respective StateGovernments that they will purchase in aggregate 85%of the output of power from the Project (paras 6.06 and6.08);

(f) to provide the balance of capital, estimated at US$291million equivalent on terms and conditions satisfactoryto the Association, to complete the Project, together withany additional funds which might be needed due to costoverruns or other unforeseeable factors (para 6.11).

7.04 During negotiations the following issues were raised with GOIand NTPC and satisfactory agreement or assurances obtained with regard to:

(a) the appointment by NTPC of consultants satisfactory tothe Association to review CEA's layout and designproposals and to assist in the more specialized areasof power station design (para 3.06);

(b) the appointment of consultants satisfactory to theAssociation to assist NTPC in the design, preparationof specifications and supervision of construction ofthe 400 kV transmission included in the Project (para3.06);

(c) compliance with environmental quality standards prescribedby the Indian National Committee on EnvironmentalPlanning (para 4.14);

(d) providing information to the Association in the eventNTPC acquires any asset valued at Rs 50 crores or more(para 6.02);

(e) a rate of return for NTPC which would be not less than9-1/2% by FY 1988 and thereafter, and meantime toset tariffs from the commencement of commercial opera-tions at levels not less than those estimated each yearwhich are required to achieve the 9-1/2% return inFY 1988 (para 6.03);

(f) the sale of the output of power from the Project toSEBs under Bulk Supply contracts satisfactory to theAssociation (para 6.08); and

(g) the annual financial statements which would be submittedto the Association no later than seven months after the

- 25 -

end of the financial year to which they relate, togetherwith certified copies of the independent auditors opinion,and the review of the accounts by the Director of Commer-cial Audits (para 6.17).

7.05 Subject to the foregoing assurances the Project will be suitablefor a Credit of US$150 million.

ANNEX 1Page 1 of 4 pages

INDIA


Organization of the Power Supply Industry

The manner in which the electricity supply industry is at presentorganized was broadly determined by the provisions of the Electricity (Supply)Act, 1948. In particular, the Act provided for the establishment of whatare now the principal agencies in the industry, the State Electricity Boards(SEBs). The SEBs were assigned responsibility for the generation, transmis-sion and distribution of electricity within each State, and for the controland regulation of other supply undertakings which were private licensees.This responsibility includes the construction of new power stations and theoperation and extension of the systems within each State. Private licenseesoperate mostly in urban areas and their relative importance in the sector isexpected to diminish over time. At present the State Authorities effectivelyown or control the sources of well over 90 percent of electricity supply byutilities; in addition, their sanction is required for the installation ofall captive plants within their borders.

As originally conceived, the SEBs were to be autonomous publiccorporations, responsible for running their own operations subject onlyto broad instructions and guidance in policy matters from State Governments.In practice, the SEBs have been very much under the control of the StateGovernments, rather along the lines of the Public Works Departments in whichmost of them have their origins. One symptom of this dependence, and atthe same time a factor which helps to maintain it, is the financial weaknessof most SEBs.

The Indian power sector is complex because electricity supply iswithin the concurrent jurisdiction of the Central Government and the StateGovernments, according to the Constitution and to the Electricity (Supply)Act, 1948. Thus, while the Act assigned extensive responsibilities to theState authorities, it also provided for broad guidance and coordinationfrom the Center. These were to be supplied by a Central Electricity Authority(CEA), which was to be responsible for developing a national policy for powerdevelopment and for coordinating the activities of the various planningagencies involved in electricity supply. But although the CEA was formallycreated in 1950, it has, until recently, remained for the most part inopera-tive, without staff of its own and with no clear and accepted function toperform.

For most of the electricity supply industry, the Central Governmentagency most involved until recently was the Ministry of Irrigation and Powerspecifically, the Power Wing of its Central Water and Power Commission (CWPC).However, as a result of administrative changes introduced in October 1974,responsibility for power now comes under the Ministry of Energy, which is


also in charge of the coal mining industry. For atomic energy, and hencefor nuclear power generation, there was and remains a separate Departmentof Atomic Energy which comes directly under the Prime Minister. Untilrecently, the CWPC was responsible through its Power Wing for the implementa-tion of Central as opposed to State or private power schemes. In relationto the latter it undertook such functions as appraisal of projects proposedby the SEBs, provision of technical advice and consultancy services on allaspects of power design and engineering. Its effectiveness in this capacitywas, however, constrained by an important limitation which does not bind theCEA, the CWPC being simply a technical advisory subordinate agency of theMinistry of Energy. It had no formal status independent of the responsibleMinistry (as does the CEA), and no powers to direct or control or to carryout independent investigations of its own. To achieve its objectives itrelied solely upon its powers of "persuasion." In connection with the powerTransmission III Project (Credit 377-IN of May 1973), the GOI agreed itsunderstanding that further Bank Group financial assistance to the sectorwould be contingent upon a meaningful reactivation of the CEA.

Following the establishment in October 1974 of the Ministry ofEnergy, the functions of the Central Water and Power Commission were split;the irrigation function being transferred to the Central Water Commissionreporting to the Ministry of Agriculture and the power function beingtransferred to the CEA reporting to the Ministry of Energy. This involvedthe transfer of the Power Wing of the former CWPC to the CEA. Much stillrequires to be done to complete "reactivation" but an important step forwardhas been taken. The extent to which the CEA will be able to ensure effectiveimplementation of its recommendations by State Authorities remains to be seen,but its reactivation represents an important step toward an integrated nationalapproach to the power sector.

The Electricity (Supply) Act 1948 has been suitably amended toenlarge the scope and the functions of the CEA. In addition to its generalduty of developing a sound, adequate and uniform national power policy andcoordinating the activities of the planning agencies in relation to the con-trol and utilization of national power resources, new functions have beenassigned to it, e.g. formulation of short-term and perspective plans forpower development, training of personnel, interconnected system operationsand research and development. The amendments also cover the establishmentof generating companies by the Central Government as well as by State Govern-ments to build up expertise in the field of generation to enable constructionof generating stations in a shorter time and to operate them with greaterefficiency. An ordinance incorporating the agreed amendments to the generalprovisions of the Act was issued on October 8, 1976, and other amendments tothe financial provisions of the Act, which concern the financial operationsof the SEBs, were approved by the Cabinet in December 1976. Legislativeenactment of the amendments is expected,probably by mid 1977.

An order dated August 12, 1975, promulgated by the President ofIndia, details the new organizational structure of the CEA and describes


the functions of its Chairman and Members. Although the order gives immediateeffect to the new organization, the appointment of the full complement ofmembers is subject to legislative enactment of the amendments to the Actreferred to in the preceding paragraph.

The CEA will consist of not more than seven full-time membersincluding its Chairman and not more than six part-time members, all appointedby the Central Government. The full-time members are required to have ex-perience of, and have shown capacity in the design, construction, operationand maintenance of generating stations or transmission and distribution ofelectricity, applied economics, industrial, commercial or financial mattersor applied research in the field of electricity. The Chairman is to beresponsible for the overall coordination and control over the functioningof the CEA; administration, research and development; and all matters rela-ting to the legal aspects of the Electricity (Supply) Act and the IndianElectricity Act and Rules. Members with appropriate qualifications are tobe responsible for planning, power systems, thermal and hydroelectric designand construction, operations and economic and commercial matters. Part-time members are to be appointed from time to time to assist the CEA inspecialized fields. Four of the full-time members have already been trans-ferred to the CEA from the former CWPC and the Chairman has been appointed.In order to ensure that well-qualified personnel are selected for the remain-ing posts the GOI is proceeding cautiously.

Other agencies at the Center are also concerned in the decisionsrelating to the planning and financing of electric power. In particular,the Ministry of Finance and the Planning Commission are involved in theappraisal and sanction of major power projects and in the fliancial provi-sions for investment in electricity supply. Since the powe- supply industryis highly capital-intensive and has grown in India at an ext. wmely rapid rate,it has taken a consistently large share of aggregate investment. The invest-ment program in the power sector is necessarily a matter of continuing concernto the Ministry of Finance and the Planning Commission, because of the largeamounts involved.

Generating Companies and Regional Integration

In view of the immense task of providing sufficient generatingcapacity to meet the requirements of the Sixth Plan period (FY 1980 throughFY 1984), the GOI proposes to supplement the efforts of the States by con-structing a number of large generating stations. For this purpose, twoCentral generating companies, one for hydro and the other for thermal planthave been established. These have been set up under the Companies Act andare accountable to the GOI through the Ministry of Energy for the construc-tion, ownership and operation of large Central thermal and hydro generatingfacilities whi-h ;ould provide bulk power to neighboring States. Powerwould be transferred over an interconnected 400 kV transmission system whichwill, initially, be owned and operated by the National Thermal Power Corpora-tion Ltd. (NTPC). It is believed that these new large facilities will help


to speed attainment of meaningful regional integrated operation. The selectionof the senior executives for the two -panies is being processed by the PublicEnterprises Selection Board; the Chairri,_,; of both have been appointed. Ascertain statutory rights are to be ac7signed to them, the required amendmentsto the Electricity (Supply) Act, 1948 to give them such statutory recognitionare included in the general amendments which became law in October 1976.These amendments also cover the setting up of generating companies by StateGovernments with a view to optimizing generation and developing professionalexpertise in the construction, operation and maintenance of generating stationsand associated transmission lines. Also likely to help accelerate the inte-gration of regional operations is a US$1.6 million equivalent UNDP - assistedproject designed to help the CEA establish a System Operations Organizationcapable of meeting the future coordination and control needs of the Indianelectricity supply system, and to provide modern training in the field ofload dispatching.

Regional Electricity Boards

As means of improving collaboration between the SEBs, and establishingpower systems on a regional rather than a State basis, five Regional ElectricityBoards were formed during the period 1964-66. The general functions of theBoards are to review the progress of regional power development schemes, planthe integrated operation of the constituent power systems for the maximumbenefit of the regions as a whole, coordinate overhaul and maintenance programs,determine generation schedules to be followed and the power available from timeto time for transfer between States and determine a suitable tariff structureto govern exchange of power within the region. To carry out these functions,each Regional Board is staffed by personnel transferred from the constituentSEBs. For example, in the case of the Southern Regional Electricity Boardthis consists of a Member-Secretary, two Superintending Engineers, sevenExecutive Engineers, two Assistant Directors, fourteen Assistant ExecutiveEngineers and supporting technical staff. The Boards are nominally subjectto CEA control, but in practice they function mainly in an advisory role tothe SEBs, over which they have no executive authority. Thus, the extent towhich regional planning can be undertaken depends on the interests and atti-tudes of the individual constituent SEBs and of their State Governments. Theprogress of collaboration has been greatest in the Southern Region, where theregional load dispatch center at Bangalore has successfully encouraged theexchange of power between State networks and made possible a higher utiliza-tion of plant capacity within the region. Other regions are moving moreslowly to effective collaboration, but in all regions regional and Stateload dispatch stations are being set up (most of the equipment for which hasbeen, or will be, financed by Credits 242-IN, 377-IN, and 604-IN). The ulti-mate aim is the establishment of an all-India grid with a central systemoperations organization, under the direction of which, the Regional Boardswould operate.

Note: This Annex is an update of Paras 2.01 through 2.11 of the Fourth PowerTransmission Appraisal Report (Credit No. 604-IN).

January 1977.

INDIASINGRAULI THERMAL POWER PROJECT

Proposed Expanaion of Generating Capacityduring Sixth Plan Period 1979/80 - 1983/84

1979/80 1980/81 1981/82 1982/83 1983/84 TotalRegion/ No.of Aggregate No.of Aggregate No.of Aggregate No.of Aggregate No.of Aggregate No.of AggregateType of Plant Units Capacity Units Capacity Units Cagacity Units Capacity Units Units Capaity

(MW) (MW) (MW) (MW) MW) (Mw J

NorthernThenmal 4 570 2 220 2 310 4 835* 3 600 13 2,535Hydro 9 318 2 49 2 23 10 401 7 502 30 1,293

WesternThermal 4 720 4 800 7 1,400 5 1,300 4 1,400 24 5,620Hydro 4 180 5 212 6 142 - - - - 15 534

Southern *Thermal 2 400 3 600 2 600 2 400 2 435 11 2,435Hydro 3 145 10 692 13 1,180 13 784 9 259 48 3,060

EasternTherymal 3 510 4 710 2 600 2 400 3 600 14 2,820Hydro 2 2 - - 4 75 10 575 6 490 22 1,142

North EasternTher-m-al- 1 60 1 60 - - - - - - 2 120Hydro - - - - 2 75 2 75 4 150

TotalTnermal 14 2,260 14 2,390 13 2,910 13 2,935 10 3,035 64 13,535Hydro 18 645 17 953 27 1,495 35 1,835 22 1,251 119 6,179

* Includes a 235 MW nuclear generating unit.

Bource: Central Electricity Authority.

January 1977.

Annex 3Page 1 of 2 pages

INDIA


Description of the Singrauli Development

1. The Singrauli development is the first of a series of largethermal power stations, planned by the Government of India, to feed intoa 400 kV interconnected transmission system and supply bulk power to theState Electricity Boards (SEBs).

The Singrauli 2,000 MW power station is to be installed on thefringe of the Rihand Reservoir adjacent to the extensive Singrauli coalfields at Kota in the Mirzapur District of Uttar Pradesh.

2. The plant will consist of 5 x 200 MW and 2 x 500 MW generatingunits with boiler plant, ancillary electrical and mechanical equipment andassociated 400 kV transmission. The first stage of the development willconrprise the 5 x 200 MW installation.

3. The 200 MW turbines will be three cylinder, tandem compound3,000 rpm, double flow exhaust type reheat units operating at 130 kg/cmTwith a temperature of 535 0C. The generators will be of the hydrogen cooledtype and will each be rated at 235,300 kVA. The boilers will be naturalcirculation, pulverized fuel fired, balanced draft type using the directfiring system. Each boiler will have a continuous evaporation rating of680 tonnes/hr. with a superheater outlet pressure of 139 kg/cm2 and temperatureof 540 °C. Each 200 MW generating unit will be connected to its own 250 MVAtransformer and will feed power into the 400 kV system.

4. Local manufacture of the 500 MW turbines is anticipated by thetime these are required. These are likely to be four cylinder tandem conpoundtype with operating parameters much the same as for the 200 MW units. Boilerswould be of a similar type to the smaller units except that each boiler wouldhave a continuous evaporation rating of 1,680 tonnes/hr.with a superheateroutlet pressure of 178 kg/cm2 and temperature of 540 0C.

5. The salient features of the development are shown below:

POWER STATION

Capacity - Initial 2000 W (in two stages) with possibleultimate capacity of 3000 NW (5 x 200 MW plus4 x 500 MW).

Fuel - Coal from the Singrauli coal fields locatedwithin 3 to 6 kms. Consunption of 2000 MWpower station at 70% LF is about 7 milliontorrsa year. The calorific value of thecoal averages 4000 Kcal/kg, it has an ashcontent of 30-40% and a moisture content of


10-12% at 60% relative humidity and40 OC temperature.

Transport of Coal - Double track unit train continuoussystem with continuous bottom dischargingwagons.

Cooling System - The source of water is the Rihand Reservoirand open pond cooling is achieved bycreating a sub reservoir with the construc-tion of an earth rockfill dam 10.16 km longgiving a surface area of 12 square miles anda catchment area of 40 square miles. Thelevel of water in the sub reservoir wouldbe maintained at a maximum height of 885 feetand a minimum of 880 feet. The intake channelwould be 200 meters long and the offtakechannel would be about 7.2 kms long,with anintermediate discharge point at 2.4 kms,andwould be designed to carry a discharge of3500 cusecs.

Ash Disposal - Ash is pumped as a slurry through a pipe tothe ash disposal area (2000 acres) situatedabout 5 kms from the power station. Thearea is reclaimed from the Rihand Reservoirand is contained within an eirth bund 12 kmslong.

Land - A total of 3685 acres will be acquired:550 acres for the power station, switchyardcoal storage and auxiliaries and 800 acresfor the residential area. The balanceconsists principally of the ash disposalarea.

TRANSMISSION

400 kV lines required - Singrauli-Obra -- 60 circuit kmsObra-Kanpur -- 400 "

Kanpur-Delhi -- 450 i fSingrauli-Satpura -- 1100 "Singrauli-Tenughat - 300 " (future)

Also associated switchgear, telemetry and metering equipment, land,buildings and other miscellaneous works.


INDIA

KORBA THERMAL ?O0WER PROJECT

Description of the Korba Development & Estimate of Costs

1. The Korba project is the second planned development in a seriesof large thermal power stations, proposed by the Government of India (GOI),to feed into a 400 kV interconnected transmission system and supply bulkpower to the State Electricity Boards (SEBs). GOI proposes to constructKorba concurrently with the Singrauli development but with commencement ofwork and commissioning of units lagging one year behind Singrauli. In thecase of Korba, major contract awards are planned for September 1978 (Singrauli,September 1977), and commissioning of the last unit is scheduled for October1986 (Singrauli, October 1985).

2. Basically the Korba power station is identical with Singrauli, theonly variation being in the cooling water system and possibly, the coaltransportation system (it has still to be decided whether this should be byunit train or by conveyor/ropeway). The proposed site is on the right bankof the Hasdeo River, in the Bilaspur District of Madhya Pradesh just downstreamof an existing barrage at Darri. The selection is governed by its proximityto the coal deposits in the Kusmunda Blocks and the adjoining irrigation canalwhich can be used for the direct cooling system. The water would be passedback directly into the canal during the irrigation season and when the canalis closed it would be passed out into a pond for natural cooling. The canalis designed for a flow of 3,000 cusecs which will provide adequate coolingfor 1,800 MW during the irrigation season. There might therefore be a needfor a cooling tower for a 200 MW unit to make up the 2,000 MW. There willalso be problems in the provision of adequate ponding when the irrigationcanal is closed. Additionally, development of the coal deposits is not nearlyso advanced as is the case with Singrauli, and the ash storage area has yetto be established. It is obvious therefore that further detailed investigationsare necessary before power station design can proceed.

3. The plant will consist of 5 x 200 MW and 2 x 500 MW generating unitswith boiler plant, ancillary electrical and mechanical equipment and associated400 kV transmission. The first stage of the development will comprise the5 x 200 MW installation.

4. The 200 MW turbines will be three cylinder, tandem compound3,000 rpm, double flow exhaust type reheat units operating at 130 kg/cm2

with a temperature of 535 °C. The generators will be of the hydrogen cooledtype and will each be rated at 235,300 kVA. The boilers will be naturalcirculation, pulverized fuel fired, balanced draft type using the directfiring system. Each boiler will have a continuous evaporation rating of680 tonnes/hr. with a superheater outlet pressure of 139 kg/cm2 and tempera-ture of 540 OC. Each 200 MW generating unit will be connected to its own250 MVA transformer and will feed power into the 400 kV system.


5. Local manufacture of the 500 MW turbines is anticipated by thetime these are required. These are likely to be four cylinder tandem compoundtype with operating parameters much the same as for the 200 MN units. Boilerswould be of a similar type to the smaller units except that each boiler wouldhave a continuous evaporatiop rating of 1,680 tonnes/hr. with a superheateroutlet pressure of 178 kg/cm and temperature of 540 °c.

6. The salient features of the development are shown below:

POWER STATION

Capacity - Initial 2000 MW (in two stages) with possibleultimate capacity of 3000 MW (5 x 200 MW plus4 x 500 W).

Fuel - Coal from the Kusmunda Blocks at Korba locatedwithin 3 to 5 ims from the proposed site.Consumption of 2000 NW power station at 70%LF is about 7 million tonnes a year.The calorific value of the coal varies from3200 to 4200 Kcal/kg, it has an ash contentvarying from 34 to 46% and a moisture contentof 10% at 60% relative humidity and 40 °Ctemperature.

Transport of Coal - To be decided--either by double track unittrain, aerial ropeway or belt conveyor.

Cooling System - The source of water will be the right bankirrigation canal during the irrigationseason augmented with cooling towers, withpondage during the period of the year whenthe irrigation canal is closed.

Ash Disposal - Ash will be pumped as a slurry through apipe to an ash disposal area yet to beestablished.

Land - A total of some 1000 acres will be required--Land not yet acquired.

TRANSMISSION

400 kV Lines Required

- Korba-Koradi - 900 circuit kmKorba-Satpura- Burwaha- 900 circuit kmBurwaha-Bam da - 700 circuit kmKorba-Tenughat - 300 circuit Im (future)


Also associated switchgear, telemetry & metering equipment,land, buildings and other miscellaneous works.

Estimated Costs of 2,000 MW Power Station & Transmission

(Base Date 1976)

Rupees (millions) US$ (millions)Local Foreign Total Local Foreign Total

Main Civil Works 890 10 900 98.9 1.1 100.0Electrical & Mechanical Plant 3,600 1,170 4,770 400.0 130.0 530.0Coal Transportation Equipment* 120 30 150 13.3 3.4 16.7Transmission 1,100 260 1,360 122.2 28.9 151.1

Sub-total 5,710 1,470 7,180 634.4 163.4 797.8

Contingencies (Physical) Civil 10% 305 100 405 33.9 11.1 45.0E&M 5%

Contingencies (Price) 2,400 625 3,025 266.7 69.3 336.0

TOTAL 8,415 2,195 10,610 935.0 243.8 1,178.8

Engineering & Administration 500 40 540 55.6 4.4 60.0

Grand Total 8,915 2,235 11,150 990.6 248.2 1,238.8(excluding interestduring construction) Say US$1.3 billion

* Coal transportation costs are based on double track unit train method.Exchange rate is assumed as Rs 9.0 = US$

January 1977.


NATIONAL THERMAL POWER CORPORATION LTD.Proposed Organization

CHAIRMAN &MANAGING DIRECTOR

PROJECT REVIEWTEAMS (FOR EACH PROJ.)

PLANNING & ~~~~~~~~~~~~FINANCE & PESNNEL &SYSTEMS MARKETING OPERATIONS ACCOUNTS ING

GENERAL MANAGERGENERAL MANAGER GENERAL MANAGER GENERAL MANAGER TECHNICAL DEV.

BADARPUR |KORA AND DESIGN

QUAL. TOWNSHIP & ~~MATERASFNNE&PSOELTIIGSURVEILLAE ADM. A

| DEPUtY GM | ; ; ;DPUTY G DEPUTY GM lPOJECT PROJECT OPER. & MAINT.

{ivil) I E&M)

CONSTRUCTION SECTIONS ERECTION OPERATION & MAINTENANCE SECTIONS

(FIELD STAFF) SECTIONS (OPERATIONAL STAFF) l

World Bank-16417

AMNE 6


Project (600 MW) Cost Estimates

Rupees (millions) US$ (millions)Description Local Foreign Total Local Foreign Total

1. Preliminary WorksLand 7.3 - 7.3 0.8 - 0.8Road & Railway 22.5 - 22.5 2.5 - 2.5Miscellaneous 1.5 - 1.5 0.2 - 0.2

-Total 3 - 31.3 3.5 - 3.5

2. Civil WorksBuildings, Dam,

Foundations, etc. 470.0 10.0 480.0 52.2 1.1 53.3Residential and Other 137.0 3.0 140.0 15.2 0.3 15.5

Sub Total 607.0 13.0 620.0 67.4 1.4 68.8

Contingency (Physical) 10% 61.0 1.0 62.0 6.8 .1 6.9Contingency (Price) 20% 133.0 3.0 136.0 14.8 .4 15.2

Total 801.0 17.0 818.0 89.0 1.9 90.9

3. Electrical & MechanicalTurbogenerators, Boilers

& Associated Equipment 1,160.0 264.0 1,424.0 128.9 29.3 158.2Electrical Equipment 140.0 32.0 172.0 15.5 3.6 19.1Miscellaneous Tools &

Plant, etc. 34.0 - 34.0 3.8 - 3.8

Sub Total 1,334.0 296.0 1,630.0 148.2 32.9 181.1

Contingency (Physical) 5% 65.5 16.0 81.5 7.3 1.8 9.1Contingency (Price) 12% 164.0 41.0 205.0 18.2 4.6 22.8

Total 1,563.5 353.0 1,916.5 173.7 39.3 213.0

4. Coal Handing & TransportationRail Track 26.4 - 26.4 2.9 - 2.9Wagons 14.4 - 14.4 1.6 - 1.6Locomotives 20.6 - 20.6 2.3 - 2.3Loading/Unloading Equipment 10.0 21.6 31.6 1.2 2.4 3.6Coal Handling Equipment 68.0 2.6 70.6 7.5 .3 7.8Workshop & Miscellaneous 14.0 - 14.0 1.6 - 1.6

Sub Total 153.4 24.2 177.6 17.1 2.7 19.8

Contingency (Physical) 5% 7.0 1.9 8.9 0.8 0.2 1.0Contingency (Price) 20% 32.0 4.5 36.5 3.5 0.5 4.0

Total 192.4 30.6 223.0 21.4 3.4 24.8

5. TransmissionSingrauli-Obra-Kanpur

400 kv Lines 200.0 25.0 225.0 22.2 2.8 25.0Associated Substation

Equipment 49.0 7.0 56.0 5.4 0.8 6.2Tools & Miscellaneous 8.0 - 8.0 0.9 - 0.9

Sub Total 257.0 32.0 289.0 28.5 3.6 32.1

Contingency (Physical) 5Z 12.5 2.0 14.5 1.4 0.2 1.6Contingency (Price) 20% 52.0 8.7 60.7 5.8 0.9 6.7

Total 321.5 42.7 364.2 35.7 4.7 40.4Engineering & Administration 202.0 18.0 220.0 22.4 2.0 24.4

TOTAL COST OF PROJECT 3,111.7 461.3 3,573.0 345.7 51.3 397.0

December 28, 1976.

INDIAAINGHAULI THERMAL_ WER PROJECTCRITICAL PATH CONTRUCTIOR N CRART

IANNWN, ENTEOR0im 10771

D C NADI.N &CHATOR PTENDTDDCA D NADOMN ARDNTFDCNTRADTS

NAMeR COEDES CDRMT,TDIADMRlRID9vECIMADr BGTD RE

/ - M~~~~~~~~~~~~~~~AENDDTNArRID NA,TD ONLVRYG TJROGNED CNRATMN AMATD TARN ENITID PRSAIAOTII = ANA A MONTH ED

IRATNONIACTS A DTINTTTC ~ ~ F RENJOINARO FGREN TU&E oFFe lbIN UFE NIQ n N

1 7 / _ < ~720 it~

NDINTILTMTTNM RCAO~~~~~~~~~~~~~~~ SNACADNNCCCN,AMI O EeTIAN SOTER ADTRG CRT R/NINTACtIACTN A RND CCMlvRCMOFO T CANE NDL oNEC CONDO

I rlNAL FOIIND CONbTN \ l \ l~~~~~~NACITTAM )oX

ml9TRUMENTS~~~~~~ ~~~ ~ ~~~ ~~~~~~~~~~ hMLRMIDTERECNDDN CNDE |RCTO LTECMIOOONEOIE51GNOTIACRTHRAACRC\C/M\

e G T cRANe S l \~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~CAAR,OCTL.,T OLOO

12~~~~~~~~~~~~~~~~~~~~~~~~41

C ATER . .CO./ TCONIIIG,AURGO r ,NA(IITM NI

STATION LIGHTING ~ O F9LMNRrONTRA TREOROIA RIEr YCN DR CUOAIN ONGC\TNOCAA.FU OML SG WRS

~~~~~~~~~~~~~ARD NINIANDNIO\\*_*a 5cArTOOEN EHN NEON

WATER~ ~ ~ ~~~~~~AE TROAMIN TACCED EA NEDEOO CAD| FIDA R REIIAEL IIIOIOON OIONNEL STRRIN N 10N

INDIASINGRAULI THERMAL POWER PROJECTCRITICAL PATH CONSTRUCTION CHARTSingrauli/Obra/Kanpur 400 KV Transmission

Commences April 1977

Trace Clearing

Preli ~~~~~Right-of-Wey anda = end Cona AuisstionAppurveYd byompleted by

April 1977aM h

| / Erection )~~~~~~~ Detaiied Survey and PnzTilingcondctorstrigin

repr,ation Tnesnneited

rs. of Spc Awardedntet wadd![ auatue&.5j1eier fcndco

conducto fo

I~ ~ ~ ~~~~~ ~ ~~~~~~~~~~~~~~~~ I i

Ien t ( &-P-o anfatuee Delivery of acces_ ries

Orsanization Eretio Up* |

onvManufacture Dl Detivery of Trantfor tor t a

Conductor ~ ~ ,e,Sprsrctr Fbicto

THE 48 MONTH CONSTRUCTION SCHEDULE TO COMlMISSIONING ASSUMES1. Orgnization net up end conultants rPpointed bY April 19772. Erect7 n contct & order for telwork pl ced bYApril 1973 and

3. No delays due heavY rains beyond the *nnuel three nonthe built into the conetruction schedule.

World 9enk-s39

ANNEX 9

INDIA


Estimated Schedule of Disbursements(US$ millions)

IBRD/IDA Fiscal Year Cumulative Disbursementand Quarter at end of Quarter

1977/78September 30December 31March 31 -June 30 10

1978/79September 30 10December 31 10March 31 30June 30 60




1982/83September 30 145December 31 145March 31 150

January 1977.

Annex 10


NORTHERN REGIONDAILY LOAD CURVE

1984-85

10,000 _ 9800 M.W.

9,000 _ ENERGY DEFICIT

8,000 _

7,000

6,000-

HYDRO STATIONS (5364 M,W) - 629 G{wH

z5,000

0

BADAR PUR (210 MW) - 3.4 GWHNARORA (NUCLEAR) (235 MW) - 3.8 GWH

4.000 SINGRAULI/GQRAKHPUR (200 MW) - 3.2 GWHPARICIHA (220 MW) - 3.6 GWH

OBRA (200 MW) - 3.2 GWH

3,000

2,000

5TH PLAN THERMAL STATIONS (4933 MW) 66.8 GWH

1,000 _

000 I I I I I I I I I I I I I I I I

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

HOURS

World Ban k-15794

Annex 11


ANNUAL LOAD DURATION CURVE SHOWINGPLANT OPERATION INDICATING GWH OUTPUT

FROM EACH PLANT(1983-84)

NORTHERN REGION

9000

40.8

8000

PEAK DEMAND = 8670 MWENERGY REQUIREMENT = 47369 GWHSPINNING RESERVE = 3718 GWHAUXILIARY CONSUMPTION = 3768 GWH

7000

6000

TOTAL HYDRO - 5364 MW19214 GWH

5000

z RAJGHAT - 69.7 MW - 200 GWH

NARORA (NUCLEAR) -235 MW-1030 GWH

O 0 48.5%0 r 150%

4000 53.1%PARICHA/SINGRAULI 430 MW -2000 GWH

GORAKHPUR 54.9%

HARDUAGANJ -540 MW - 2600 GWH 58.5%

P. - 284 MW - 1450 GWH SMALL THERMAL + KALAKOTE

3000 KOTA N-P220 MW- 1120 GWH - 150 MW -765 GWHPAN KI/KANPUR - 272 MW - 1390 GWH

FARIDABAD - 195 MW - 975 GWHPANIPAT - 220 MW - 1120 GWH

BHATINDA - 440 MW - 2240 GWH

2000

OBRA - 1250 MW - 6400 GWH

BADARPUR - 700 MW - 3550 GWH

1000

SINGRAULI S.T. - 1000 MW - 5100 GWH

500 68%

R.A.P P. - 470 MW - 2600 GWH

0.0 I I I I I I I I0 5 10 20 30 40 50 60 70 80 90 100

% DURATION

World Bank-15795 (RM


PROJECTIONS OF PEAK DEMAND AND INSTALLED CAPACITYREQUIRED TO MEET THE PEAK DEMAND

NORTHERN REGION (Sixth Plan Period)

THERMAL HYDROYEAR NAME OF POWER CAPACITY CAPACITY TOTAL

NAMEOF PWERMW NAME OF POWER MW MWSTATIONS STATIONS

1979-80 OBRA EXTN. 200 SHANAN 1 X 50BADAR PUR 200 ANAND PUR SAHIB 2 X 3385FARIDABAD 60 MANERI BHALI 3 X 31 888KOTA 110 RISHIKESH 3 X 36

20,000 1980-81 110 ANAND PUR SAHIB 1 X 33, 28

. KOTA 110 MUKERIAN 1 X 15 268.5

1981-82 SINGRAULI S.T. 200 W. YAMUNA CANAL 1 X 7.5PARICHA 110 MUKERIAN 1 X 15 3325

1982-83 SINGRAULI ST. 400 W. YAMUNA CANAL 3 X 75GORAKHPUR 200 MUKERIAN 3 X 15NARORA 235 MANERI BHALI 2 X 52 1236.5

(NUCLEAR) SALAL 2 X 115

1983-84 ISINGRAULI S.T. 400 W. YAMUNA CANAL 2 X 7.5GORAKHPUR 200 BHABA 1 X 40

15,000 _ MANE RIN JHALI i X 10 11020 Installed Capacity RequiredDUL HASTI 1 X 110

_SALAL 1 X 115

TOTAL THERMAL 2535 HYDRO 1292.5 3827.5

- Teermal 600 MW

Hydro 502 MW

iThermal 835 MW

Installed Capacity 'Hydro 401 MW

c z.| ; _ Thermal 310 MW

0 10,000 - Thermal Hydro 23 MW

_i Therl 22Thermal 570 MW 220 MW

0 aJ Hydro 49 MW

~~~~~~~~~~~~- -- __

~~~~~~~~~~~~- -- ___-

5,000~~~~~~~~ _ _ -_ - Peak Demand

5,000 - - - - - -~~~~~~~~~~~~~~~Hdr 18MW00 0

1974/75 1975/76 1976/77 1977/78 1978/79 1 979/80 1980/81 1981/82 1982/83 1983/84

World Bank-i15793 (A)


Northern Region

Actual & Estimated GWh Sent out, System Maximum Demand,Installed & Firm Capacity & Productive Capability

Productive CapabilityPeak Installed Firm Hydro

GWh '%Annual Demand Capacity Capacity (Average Yr.) Thermal TotalYear Sent out Increase MW 1W MW _(GWh) (GWh) (GWh)

Actual

1970-71 12,181 - 3,054 3,421 2,741 8,194 5,615 13,8091971-72 13.596 11.6 3,359 3,573 2,860 8,624 5,915 14,5391972-73 14.184 4.3 3,387 4,014 3,220 8,782 6,634 15,4161973-74 15.611 10.1 4,131 4,179 3,350 8,888 6,897 15,7851974-75 15.418 - 1.2 4,308 4,849 3,900 9,843 9,074 18,917

Estimated

1975-76 19,772 28.3 4,600 5,268 4,150 10,020 13,811 23,8311976-77 22,570 14.1 4,900 5,948 4,400 10,200 16,514 26,7141977-78 25,765 14.1 5,240 7,603 5,300 11,110 20,696 31,8061978-79 29,413 14.1 5,596 8,599 5,929 11,600 25,377 36,9771979-80 32,354 10.0 6,135 9,573 6,409 12,866 25,605 38,4711980-81 35,589 10.0 6,726 10,053 6,764 13,059 28,342 41,4011981-82 39,148 10.0 7,375 10,731 7,074 13,626 29,713 43,3391982-83 43,063 10.0 8,o85 11,749 8,090 15,168 33,249 48,4171983-84 47,369 10.0 8,865 13,070 8,647 15,790 37,431 53,221

Source: Actual and forecast statistics provided by CEA. The forecast is subject to revision when the Tenth

Annual Power Survey is published.

August, 1976.

ANNEX 14

Page 1 of 5 pages

INDIA


The Economic Justification of the Project

The Return on Investment

1. The internal rate of return on the 2,000 MW Singrauli super thermalpower station, plus associated transmission costs, which is estimated inthis Annex, demonstrates the relationship between the revenues implied bythe proposed tariff policy and the economic cost of the project. Forthe purpose of this calculationr, plant availability is assumed to be somewhatlower than that assumed in the estimate of long run marginal costs, shadowprices are used to reflect scarcity of foreign exchange and abundance oflabor, and taxes are excluded.

2. Costs and revenues, which are listed on page 4 of this Annex,are at constant (1976) prices, and revenues are based, not upon pricesthat reflect incremental costs, but upon those required to meet the financialrequirements of NTPC. On the assumption that Singrauli will be used for baseload throughout its life, the internal rate of return of the project is estimatedat about 10%.

3. There is much evidence to suggest that this estimate of the rate ofreturn is conservative. It is not possible to estimate with any accuracy thefull impact on the ultimate beneficiaries when they cannot be identified,as in the case of a bulk supply project. Furthermore, in an environment ofintermittent shortages that constrain industrial and agricultural production,the bulk supply tariffs used to estimate the internal rate of return willunderrepresent the opportunity value of power at the margin, if, as is likely,the effect of the shortages in constraining demand is greater than the effectof the generally low level of tariffs among the SEBs is stimulating demand.flowever, in view of the fact that a bulk supply tariff was used in theestimation, and that pricing at the retail level is not based on economiccosts, it cannot be asserted that, even if actually realized, such a returnis sufficient to demonstrate that the rate of system expansion is optimal.

4. The bulk supply tariff which was used satisfies the financial require-ments and is very close to the long run marginal economic cost of power fromthe project. This was estimated using a discount rate of 10%. Thus, itshould not be surprising that, when this tariff is used as a measure ofbenefits, and costs have been marginally adjusted in the manner outlinedabove, the estimated internal rate of return is very close to the originaldiscount rate.

ANNEX 14

Page 2 of 5 pages

Selection of the Most Economic Alternative

5. The alternatives to the Singrauli 2,000 MW development which wereexamined were development to a similar capacity by (i) hydro, (ii) nuclear,and (iii) continuation of development by the SEBs involving the installa-tion of smaller power stations located at load centers. The hydro alter-native was examined carefully and rejected as a feasible alternativebecause of the limitation on size, the time taken to construct, the numberof these projects which would be required to meet an equivalent demand,the general remoteness of the sites, and also because most of the readypotential which has not already been exploited is included, in any casein the Sixth Plan, for development concurrently with Singrauli. The nuclearalternative was also eliminated as a practicable alternative because of thephysical impossibility of providing the power required in the time spanavailable. This left a continuation of development by the SEBs of smallerpower stations (or extending existing installations) located at the loadcenters as the next best alternative.

6. The cost streams of the two strategies have been compared and theSingrauli program proves to be the most economic alternative (see page 5of this Annex). This program provides for the installation of 5 x 200 MWand 2 x 500 MW generating units together with 2,000 circuit kms of associatedtransmission, the generating units to be progressively commissioned duringthe period 1981/82 through 1985/86; by which time the full output would betaken up. The total cost of the program includes operation and maintenanceof power station plant at 2% of capital cost (transmission 0.5%) and constantfuel costs based on the Singrauli pit head price of Rs 55 per tonne 1/ andestimated consumption of 0.59 kg/kWh (1.31 lbs/kWh). This program ischaracterized by heavy expenditure during the early years due to costs ofthe power station and transmission but low expenditure after 1983/84 becauseinvestment ceases and fuel costs with pit head generation are low.

7. The alternative construction program provides for the constructionof three 700 MW power stations at selected load centers, with no associatedtransmission and with all units progressively commissioned over a similarperiod to the Singrauli development. The total cost of this program includesthe cost of operation and maintenance based on 2% of capital costs, as in thecase of Singrauli, and constant fuel costs in 1976 prices at the Delhi-Badarpurpower station of Rs 150 per tonne 1/. Adjustment was made for lower losses (notransmission losses) when calculating fuel costs, and fuel consumption, on theassumption of usage of coal with a higher calorific value, was taken as0.55 kg/kWh (1.21 lbs/kWh). This program was characterized by lower capitalcosts than Singrauli in the early years but substantially higher fuel costslater.

1/ An additional 5% has to be added to fuel costs to cover the cost of oilfor starting and low load operation.

ANNEX 14

Page 3 of 5 pages

8. The comparison between the above two alternatives based on netbenefit streams discounted at 10% and 12% showed, at both rates, thatthe present value of the costs of Singrauli was substantially lower thanthose of the next best alternative. The equalizing discount rate was 32%.

9. The sensitivity of the equalizing discount rate was analyzed bychanging the main variables -- capital costs and fuel costs, but the marginbetween the present worths of the two strategies was so large that takingthe pessimistic view (a 10% increase in the capital cost of Singrauli anda 10% decrease in the assumed cost of coal in the case of the alternativestrategy) still shows the present worth of Singrauli costs are lower thanthe alternative at both discount rates. The equalizing discount rate inthis case falls to 15%.

10. The principal factor contributing to this result is the substantialsaving in fuel costs with pit head generation.

Shadow Pricing

11. The rate of return calculations and the comparison of alternativesdescribed in this Annex arebased on shadow pricing. For this purpose,it has been assumed that 30% of local costs represent labor costs andthese have been shadow priced at 70% of the actual wage rate. Foreignexchange costs which have been taken as 20% of total costs have been shadowpriced at an exchange rate of Rs 11.0/US$ compared with the market rateof Rs 9.01US$l. These estimates represent the best estimate of shadow pricesavailable at the present time.


INDIA


Internal Rate of Return

(Costs & Revenues in R million)

Capital TotalYear Cost 0 & M Fuel Cost Revenues

1 15 - - 15

2 381 - - 381

3 778 - - 778

4 1,436 - - 1,436

5 1,963 - - 1,963

6 1,420 92 14 1,526 66

7 1,050 120 82 1,252 394

8 671 130 158 959 754

9 45 137 223 405 1,064

10 17 137 317 471 1,515

11-30 - 137 378 515 1,806

Rate of Return = 10.0%

January 1977.

ANNEX 14Page S of 5 pages

INDIA


Comparison with Next Best Alternative

(Rs millions)

Singrauli Development Development with Smaller PowerStations at Load Centers

Year Cost 1' 0 & M Fuel Total Cost 0 & M Fuel Total

1 15 - - 15 18 - - 182 381 - - 381 363 - - 3633 778 - - 778 712 - - 7124 1,436 - - 1,436 1,606 - - 1,6065 1,963 - - 1,963 1,636 - - 1,6366 1,420 92 14 1,526 1,212 86 31 1,3297 1,050 120 82 1,252 662 110 198 9708 671 130 158 959 272 124 380 7769 45 137 223 405 94 130 544 76810 17 137 317 471 - 130 777 90711 - 137 378 515 - 130 914 1,04412 - 137 378 515 - 130 914 1,04413 - 137 378 515 - 130 914 1,04414 - 137 378 515 - 130 914 1,04415 - 137 378 515 - 130 914 1,04416 - 137 378 515 - 130 914 1,04417 - 137 378 515 - 130 914 1,04418 - 137 378 515 - 130 914 1,04419 - 137 378 515 - 130 914 1,04420 - 137 378 515 - 130 914 1,04421 - 137 378 515 - 130 914 1,04422 - 137 378 515 - 130 914 1,04423 - 137 378 515 - 130 914 1,04424 - 137 378 515 - 130 914 1,04425 - 137 378 515 - 130 914 1,044

Total Present Worth 10% 6,951 8,338Total Present Worth 12% 6,103 7,031

Equalizing Discount Rate = 32%

1/ Includes Transmission Costs.

January 1977.

A 15Pae I of 2 pgss

IlIDIA

SIllRAlI TlROlL PCWENR PROJECT

NATIONA THENAL PCER CORPORATION

Inccem Statemat Covering NTPC's Operations FY 1979 through n 1988(in millions of Rupees, except where otherwise stated)

----------------------------------------- F O R E C A S T S ----------- _-----_-----___-----________________--Year to March 31 1979 1980 1961 1962 19B3 19B4 1965 1966 1987 19M6

capacity - Singrauli MW - - - 200.0 600.0 1,000.0 1,500.0 2,000.0 2,000.0 2,000.0- Korbac -W - - - 200.0 600.0 1,000.0 12500.0 2.000.0 2.000.0

TOTAL 1/ MW - - 200.0 800.0 1,600.0 2,500.0 3,500.0 4,0o0.o 4,ooo.o

Generation - Singrauli 0Mb - - - 400.0 2,400.0 4,600.o 6,500.0 9,250.0 11,000.0 11,000.0- Korbaul, GWh - 400.0 2,400.0 4,600.0 6,500.0 9,250.0 11,000.0

TOTAL GWh - 400.0 2,800.0 7,ooo.o 11,100.0 15,750.0 20,250.0 22,000.0

Station use - Singrauli GWh - 36.o 216.o 420.o 600.0 850.0 990.0 990.0- Ktorba GWh - 36- - 3. 216.0o 42o.0 6o0.0 850.0 990.0

Transmission Losses - Singrauli GWh 9.0 54.0 105.0 150.0 210.0 250.0 250.0- Kor'oa GWh- - - 9.0 54.0 105.0 150.0 210.0 2'50.0

Sale of Energy - Singrauli GWb - - 3 355.0 2,130.0 4,075.0 750 0 8,190.0 9,760.0 9,760.0 - Korba GWh - - - 355.0 2,130.0 4,075.0 5,750.0 ,190.0 9760.0

TOTAL SALES GWh - - 355.0 2,485.0 6,205.0 9,825.0 13,940.0 17,950.0 19,520.0

Av. Revenue - Bulk Supply- paise per kWh sold - - - 22.1 22.1 22.1 22.1 22.1 22.1 22.1- Fuel Surcharge - p/kWh - - - 0.205 0.405 o.640 0.875 1.142 1.410

Operating RevenueSales - Bulk Supply - - 78.4 549.2 1,371.3 2,171.3 3,080.7 3,967.0 4,315.0

- Fuel Surcharge - - - - 5.1 24.9 62.7 121.9 205.0 275.0

TOTAL REVENUE - - 78.4 554.3 1,396.2 2,234.0 3,202.6 4,172.0 4,590.0

Sperating ExpensesGeneration - Singrauli - Fuel - - 18.4 110.7 212.3 299.9 427.0 507.6 507.6

- Fuel Surcharge - - - 4.3 16.4 36.7 71.6 111.4 137.5- 0 & M - - - 16.9 62.2 96.6 127.8 174.0 197.6 197.6- Depreciation - - - 29.0 100.2 156.3 206.7 285.5 319.8 319.8

- Korba - Fuel - - - 18.4 110.7 212.3 299.9 427.0 507.5- Fuel Surcharge - - - - 0.8 8.5 26.0 50.3 93.6 137.5- 0 & M - - - - 18.3 64.2 103.5 137.4 187.6 204.0- Depreciation - - - - 29.6 103.8 167.4 222.3 303.7 346.5

Transmission - 0 & M - - - 3.3 7.8 10.1 17.8 22.0 22.0- Depreciation - - 7.2 28.4 49.5 71.8 114.1 141.0 141io

TOTAL OPERATING EXPENSE - - 71.5 376.2 826.1 1,262.2 1,799.9 2,311.3 2,521.0

Operating Income (before Interest) - - ' 6.9 178.1 570.1 971.8 1,4M2 7 1,860.7 2,069.o

Less Interest on Loans 22.5 106.5 294.9 556.9 798.2 1,019.6 1,116.6 1,073.7 1,a21.1 943.6Deduct - Interest Capitalised 22.5 106.5 294.9 516.5 595.6 624.8 545.9 318.0 79.4 -

Net Interest Chargeable to Revenue - - - 40.4 202.6 394.8 570.7 755.7 941.7 943.6

Profit/Loss - - - (33-5) (24.5) 175.3 401.1 647.o 919.0 1,125.4

Average Rate Base _ _ _ 1,113.0 4,812.0 9,267.0 13,080.0 17,757.0 21,708.0 21,775.0Rate of Return (Operating Income before

Interest) as % of Av. Rate Base - 0 _ 0.6 3.7 6.2 7.4 7.9 8.6 9.5Net Interest as % of Av. Rate Base - - - 3.6 4.2 4.3 4.4 4.3 4.3 4.3Operating Ratio (Operating Expenses

as % of Operating Revenue) - _ _ 91.0 68.o 59.0 57.0 56.o 55.0 55.0Station Use & Transmission Losses

as % of Generation - - - 11.2 11.2 11.4 11.5 11.5 11.4 11.3

1/ See Annex 15 page 2.

January 1977.

INDIA - SINGRAULI THERMAL POWER PROJECT

NATIONAL THERMAL POWER CORPORATION

Installed Capacity - Forecast Dates of Commissioning

Size of Unit Installed Installed Capacity NTPC's

Date of Commissioning Singrauli Korba Singrauli Korba TotalMW MW MW MW MW

October 1, 1981 200 200 200

April 1, 1982 200 - 400 - 400

October 1, 1982 200 200 600 200 800

April 1, 1983 200 200 800 400 1,200

October 1, 1983 200 200 1,000 600 1,600

April 1, 1984 - 200 1,000 800 1,800

October 1, 1984 500 200 1,500 1,000 2,500

October 1, 1985 500 500 2,000 1,500 3,500

October 1, 1986 - 500 2,000 2,000 4,000 m m

1h

January 6, 1977.OQ

till)

S INGIRAILI THERPMAL POWER FROJECT

NATIONAL TIERMAI. POWER CORPORATION

Forecast Source and Application of Funds Statement Covering ITI'C's Operations FY 197' through FY 1988(in milliors of Rupees, except where otherwise stated)

Year to March 31 1977 1978 19'/9 1930 1981 1982 1983 1984 1985 1986 1937 19P,8

Source of Funds

Internal Cash Generatior.Operating Income (before Interest) _ _ _ 6.9 178.1 570.1 971.8 1,402.7 1,860.7 2,o069.Depreciation ---- 36.2 158.2 309.6 445.9 621.9 764.5 897.3

Total Cash Generation - - - - 43.1 336.3 879.7 1,417.7 2,024.6 2,625.2 2,876.3

LoansGOI Loans - Singrauli Power Station - - - 880.0 770.0 750.0 250.0 - - - -

- Korba Power Station - - 400.0 750.0 1,350.0 1,300.0 l,500.0 320.0 50.0 -- 400 kV Transmission - 140.0 200.0 400.0 350.0 550.0 350.0 270.0 150.0 -

GOI Loan (IDA Credit TS$150 million) - - 300.0 600.0 420.0 30.0 - - - - -

Total Loans - - 440.0 1,200.0 2,450.0 2,500.0 2,600.0 2,100.0 590.0 200.0 -

Equity Corntriblotions by Gi.l

- Singrauli Power Station 20.0 445.0 378.3 894.4 1,127.2 996.7 785.0 471.7 - - -- Korba Power Station - 11.0 438.o 250.5 1,010.4 1,454.3 584.Y 382.4 311.4 100.0 -- 400 kV Transmission - 15.0 59.2 212.6 323.3 443.5 382.9 299.7 249.6 - - -- Other Purposes -- - - 4.4 65.0 - - - -

Total Equity Contributions 20.0 471.0 875.5 1,357.5 2,460.9 2,898.9 1,817.6 1,153.8 561.0 100.0

l'OTAL SOURCES 20.0 471.0 1,315.5 2,557.5 4,910.9 5,442.0 4,753.9 4,133.5 2,568.7 2,324.6 2,625.2 2,876.3

Application of Funds

Capital Expenditure (incl. Capitalised Interest)- Singrauli Power Stationi 20.0 445.0 678.3 1,494.14 2,427.2 1,796.7 1,535.0 871.7 446.9 167.1 -- Korba Power Station - 11.0 438.0 650.5 1,760.4 2,804.3 1,884.7 1,882.4 701.4 447.3 144.4 -- 400 kV Transmission - 15.0 199.2 412.6 723.3 793-5 932.9 649.7 424.7 227.2 37.0 -

Total Capital Expenditure 20.0 4(1.0 1,315.5 2,557.5 4,910.9 5,394.5 4,352.6 3,403.8 1,573.0 841.8 181.4 -

Debt ServiceInterest Chargeable to Revenue - - - 40.4 202.6 394.8 570.7 755.7 941.7 943.6Amortisation of Loans - - - 106.6 216.7 342.6 568.o 753.6 823.2

Total Debt Service - 4.4 309.2 611.5 913.3 1,323.7 1,695.3 1,766.8

T emporary Investment of Surplus Cash - 65o.o 1,050.0

Working Capital - Increase/(Secrease) - 7.1 92.1 118.2 82.4 159.1 98.5 59.5

TOTAL APPLICATIONS 20.0 471.0 1,315.5 2,557.5 4,910.9 5,442.0 4,753.9 4,133.5 2,568.7 2,324.6 2,625.2 2,876.3

No. of Time Debt Service covered by 1.1 1.1 1.4 1 6 1.5 1.5 1.6Total Cash Generation - - - _ 1

January 1977. 0 a

INDIA



Investment Program Covering PY 1977 through FY 1987(in millions of Rupees)

Year to 31 March 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987

Singrauli Thermal Power Station /

Land 7.0 - - - - - - - - -

Station Costs (excl. capitalised interest)

3 Units x 200 MW 13.0 445.0 643.0 1,094.0 578.0 381.0 23.0 - _ _ _

2 Units x 200 MW - - 10.0 200.0 609.0 397.0 300.0 100.0 - - _

2 Units x 500 MW - - 10.0 139.0 1,080.0 775.0 1,000.0 579.0 300.0 117.0 _

Interest during Construction (capitalised)

3 Units x 200 MW - - 15.3 61.4 115.2 122.9 21.9 - - - _

2 Units x 200 MW - - - - 15.3 40.9 56.3 12.8 - - _

2 Units x 500 MW - - - 29.7 79.9 133.8 179.9 146.9 50.1 -

Total Singrauli Power Station 20.0 445.0 678.3 1,494.4 2,427.2 1,796.7 1,535.0 871.7 446.9 167.1 -

Korba Thermal Power Station

Land - - 7.0 - - - -- -

Station Costs (excl. capitalised Interest) - 11.0 431.0 630.0 1,681.0 2,615.0 1,594.0 1,550.0 397.0 219.0 65.o

Interest during construction (capitalised) - - - 20.5 79.4 189.3 290.7 332.4 304.4 228.5 79.4

Total Korba Power Station - 11.0 438.0 650.5 1,760.4 2,804.3 1,884.7 1,882.4 701.4 447.5 144.4

Transmission Lines (400 kV) (incl. cap. Interest)

Associated with Singrauli Power StationSingrauli/Obra/Kanpur - 15.0 189.2 115.5 93.1 35.4 _ _- - -

Kanpur/Delhi - - - 57.0 113.2 114.9 95.0 51.3 10.0 - _

Singrauli Satpura - - - - 45.0 215.1 227.9 190.7 189.9 122.0 22.0

Land - - - 20.0 - - - - - -

Associated with Korba Power StationKorba/Koradi - - 10.0 113.1 274.8 188.6 260.7 10.0 - _ _

Korba/Satpurq - - - 82.0 122.2 97.8 97.4 60.4 10.0 - _

Satpura/Burwaha - - - - 42.0 81.7 131.8 119.4 89.5 10.0 -

Burwaha/Baroda - - - - 33.0 60.0 120.1 217.9 125.3 95.2 15.0

Land - - - 25.0 - - - - - - -

Total Transmission - 15.0 199.2 412.6 723.3 793.5 932.9 649.7 424.7 227.2 37.0

Total Investment Program 20.0 471.0 1,315.5 2,557.5 4,910.9 5,394.5 4,352.6 3,403.8 1,573.0 841.8 181.4

1976 Costs have been escalated at 5% per annum over the 1976 base prices through FY 1979 and at 7% per annum thereafter until the plant is commissioned.

January 1977. a

INDIA



Condensed Balance Sheets as at end of FY 1977 through FY 1988(in millions of Rupees, except where otherwise stated)

Year to March 31 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

ASSETS

Fixed Assets - - - - - 2,261.7 6,702.6 10,730.0 15,466.2 22,356.5 25,022.0 25,022.0

Less Depreciation - - - - - (36.2) (194.4) (504.0) (949.9) (1,571.8) (2,336.3) (3,143.6)

Net Fixed Assets in Service - - - - - 2,225.5 6,508.2 10,226.0 14,516.3 20,784.7 22,685.7 21,878.4

Work in Progress 20.0 491.0 1,806.5 4,364.o 9,274.9 12,407.7 12,319.4 11,695.8 8,532.6 2,484.1

Total Fixed Assets 20.0 491.0 1,806.5 4,364.o 9,274.9 14,633.2 18,827.6 21,921.8 23,048.9 23,268.8 22,685.7 21,878.4

Investments - - - - - - - - - - 650.0 1,700.0

Current AssetsCash - - - - - O.8 23.2 15.4 15.8 38.9 32.4 61.9

Receivables - - - - - 6.8 47.0 120.0 175.0 270.0 355.0 400.0

Inventories - - - - - 1.0 33.0 107.0 154.o 220.0 250.0 250.0

Other Debtors - - - - - 0.5 10.0 10.0 15.0 15.0 20.0 25.0

Total Current Assets - - _- - 9.1 113.2 252.4 359.8 543.9 657.4 736.9

TOTAL ASSETS 20.0 491.0 1,806.5 4,364.0 9,274.9 14,642.3 18,940.8 22,174.2 23,408.7 23,812.7 23,993.1 24,315.3

LIABILITIES

Authorised Share Capital 1,250.0 1,250.0 6,000.0 6,ooo.o 6,000.0 12,000.0 12,000.0 12,000.0 12,000.0 12,000.0 12,000.0 12,000.0

Equity & ReservesIssued Share Capital 20.0 491.0 1,366.5 2,724.0 5,184.9 8,083.8 9,901.4 11,055.2 11,616.2 11,716.2 11,716.2 11,716.2

Retained Earnings & Reserves - - - - - (335.) (58.0) 117.3 518.4 1,165.4 2,084.4 3,209.8

Total Equity & Reserves 20.0 491.0 1,366.5 2,724.0 5,184.9 8,050.3 9,843.4 11,172.5 12,134.6 12,881.6 13,800.6 14,926.o

DebtGOI Loans - - 140.0 740.0 2,770.0 .5,240.0 7,823.4 9,796.7 10,134.1 9,856.1 9,192.5 8,459.3

GOT Loan (IDA Credit Relent) - - 300.0 900.0 1,320.0 1,350.0 1,260.0 1,170.0 1,080.0 990.0 990.0 810.0

Total Debt - - 440.0 1,640.0 4,o9o0o 6,590.0 9,083.4 10,966.7 11,214.1 10,846.1 10,092.5 9,269.3

Current Liabilities - - Z 2.0 14.0 35.0 60.0 85.0 100.0 120.0

TOTAL LIABILITIES 20.0 491.0 1,806.5 4,364.o 9,274.9 14,642.3 18,94o.8 22,174.2 23,408.7 23,812.7 23,993.1 24,315.3

Debt/Equity Ratio 0/100 0/100 24/76 38/62 44/56 45/55 48/52 50/so 48/52 46/54 42/58 38/62

January 1977.


INDIA



Assumptions on Financial Projections

1. The financial statements in this report cover the electricitysupply operations for each year through FY 1988 in respect of the newlyestablished NTPC. They include income statements (Annex 15) source andapplication of funds (Annex 16) and condensed balance sheets as ofMarch 31 each year (Annex 17). The following assumptions are made.

Income Statements (Annex 15)

2. (a) Re - Singrauli and Korba:

- Load factor - 63% when fully developed.- Price of coal (1976) - Rs 55 per Tonne.- Coal consumption - 0.59 kg per KWh.- Energy used in plant - 10% of KWh generated.- 0 & M Expenses - 2% on capital cost.- Depreciation - straight line method of depreciation

calculated at 3.6% of the original cost ofdepreciable assets, after allowing 10% for salvagevalue in accordance with the Electricity (Supply)Act 1948.

(b) Transmission

- 0 & M Expenses - assessed at one half of one percentof the original cost.

- Depreciation - assessed on the straight line basis,using 3.6% of 90% of the original cost of depre-ciable assets.

- Losses - 2½% of KWh sent out.Tariffs

3. NTPC has an obligation to set tariffs to achieve a rate of returnof not less than 9½% on its average net assets in service by FY 1988, andmeantime from the commencement of its commercial operations to set tariffsat levels not lower than those estimated each year to be required to achievea 9½% rate of return in FY 1988. On this basis the average price of22.1 paise per kWh calculated on the FY 1988 estimates are assumed asthe average price for all sales from October 1, 1981.


Fuel Surcharge

4. The average revenue of 22.1 paise per kWNlh for power supplied bySingrauli and Korba is based on the 1976 coal price at Rs 55 per Tonne 1/escalated at 5% per annum to FY 1981. Thereafter, a fuel clause is assumedin the bulk supply contract to permit adjustment to meet variation in fuelcosts. The effect of any price variation is shown separately in the forecastrevenues and expenses in Annex 15.

Rate Base

5. Construction costs are based on 1976 prices. These have beenescalated at the rate of 8% per annum through FY 1979 and at 7% per annumthereafter.

Borrowing

6. The proposed credit would be relent by GOI to NTPC for a periodof 15 years, repayable following a 5 years grace period in 30 equal semi-annual installments of principal together with interest on the unpaidbalances at the rate of 104% per annum.

7. Apart from a small amount of internal cash generation, it isassumed that the remaining capital required by NTPC would be borrowed fromGOI provided that the outstanding indebtedness at the end of subsequentfinancial years would not exceed the sum of the issued share capital andthe accumulated retained earnings.

8. GOI loans are not normally granted on a project basis and with-drawn by the borrower over the several years of construction, but are usuallyrelated to an annual slice of the borrower's investment program. It isassumed that each GOI loan to NTPC would be associated with an identifiablepiece of plant, so that the grace period before the loan commences to berepaid may be conveniently fixed from the date of the loan to a convenientdate following the forecast date of commissioning of the plant. For example,in the case of the construction of the Korba/Koradi transmission line, threeGOI loans are forecast, one in each of the years FY 1980, FY 1981 andFY 1982. Grace periods of 3 years, 2 years, 1 year respectively are assumedbefore repayment of the loans would commence from April 1, 1983, sixmonths after 30 September, 1982 the forecast commissioning date. Interestup to the commissioning date would be charged to construction. Repayment ofGOI loans other than the relending of the IDA credit are assumed followinggrace periods of up to 5 years, on the basis of 30 equal semi-annual install-ments of prtncipal together with interest at 10¼% per annum on outstandingbalances.

1/ An additional 5% is added to fuel costs to cover the cost of oil forstarting and low load operation.


Working Capital

9. Increases in working capital represent the increasing differencesbetween the sum of the individual items making up current assets lessliabilities at the end of a year, compared with those at the end of theprevious year.

Balance Sheets (Annex 17)

10. Current Assets

(a) Receivables are assumed at a level equivalent toapproximately one twelfth of the revenue for theyear.

(b) Inventories are assumed at 1% of gross assets atthe end of the year.

Current Liabilities

(c) Current liabilities are assumed at a level equalto one month's fuel cost, plus 4% of the annualoperating and maintenance expense.

January 1977.


INDIA


Contract Arrangement and Tariff Proposals

1. This annex briefly outlines the general principles that should befollowed in establishing bulk supply tariffs and makes specific recommenda-tions as to the structure.

General Principles

2. The discipline and example afforded by the NTPC in chargingprices that reflect incremental costs are necessary elements of a strategydesigned to improve pricing reforms at the SEB level. This has been agreedby GOI. It was however recognized that incremental cost pricing at the bulklevel will not necessarily guarantee an optimal response at the retail level.In particular, since the SEBs also have responsibility for generation, theprices charged by the bulk supplier should be designed to be consistent withthe most efficient usage of generating capacity in the regional system.Since load dispatching priorities should be determined on the basis of shortrun (primarily energy) costs, the appropriate pricing arrangements for bulksupply should be some form of a two part tariff consisting of a fixed sumwhich does not vary in the short term with usage, plus a charge per unit ofuse which reflects energy costs. On average, however, the price per kWhshould approximate the long run marginal cost of bulk supply, thereby impos-ing financial pressure upon the SEBs to adjust their own tariffs accordingly.

3. While the foregoing may allow short run efficiency to be achieved,there remains the problem of encouraging SEBs to enter a contract to buyfrom the bulk supplier which charges a price based on full economic costwhen the States themselves may make financing available at concessionaryterms. Moreover, since existing financial rate of return targets for SEBsare based upon historic costs, the introduction of incremental cost pricing(which by definition has to be maintained in real terms) for bulk supply mayhave unpalatable pricing implications at the retail level. In view of this,pricing according to incremental cost at the bulk level needs to be supple-mented by administrative measures. In this respect, since SEBs are expectedto continue to invest heavily in generation and transmission, the approvalof the CEA for all projects over 50 million Rupees (covered by the recentamendments to the Electricity Supply Act (1948)) is of critical importanepto rational development of the sector.


Tariff Structure for Bulk Supply

4. The following procedure outlines an appropriate pricing strategy:

(i) The NTPC and the relevant SEBs would enter a contractunder which the NTPC would undertake to meet a given de-clared maximum demand by each SEB over a period of 25 years.The actual tariff would be reviewed every year, at which timea reassessment of incremental system cost of generation andtransmission by the bulk authority, and the appropriate re-visions to the tariff schedule would be made. Within theone year period, automatic adjustments to price would bemade as a consequence of changes in fuel costs.

(ii) Charges payable by an SEB would consist of (a) a lump sumpayment, based upon marginal capacity cost, which would,subject to an emergency provision described in paragraph(iii) below, entitle it to a given amount of generationand transmission capacity during the day time period of 16hours, plus (b) a charge per kWh actually taken, which wouldbe based on NTPC's short run marginal costs (i.e. primarilyfuel costs). Variations in marginal transmission costswould be reflected in the charges payable by differentstates. This arrangement would give the SEBs a financialincentive, not only to make optimal use of generation andtransmission capacity (i.e. by basing their short run dis-patching decisions upon true short run costs), but also toadjust both the level and structure of their own tariffsto reflect incremental costs.

(iii) After allowing for normal outages, 100% of NTPC's capacitywould be allocated to SEBs by contract. There would howeverbe a provision that in the event of emergency the CEA wouldbe given the right, through the NTPC, to reallocate up to15% of supply to other SEBs whether or not those SEBs haveany contractual arrangement with NTPC. There would be areimbursement of marginal capacity costs to SEBs thusdeprived, such marginal capacity costs then forming partof the kWh charge for states in emergency situations. Bydefinition, such states would be operating at capacity, soeven if kWh charges incorporate both marginal capacity andoperating costs, underutilization of NTPC capacity shouldnot result.

(iv) In the event that any surplus capacity--i.e., that in excessof the amount contracted for--happens to be available pri-orities should be allocated in accordance with the proportionthat each SEB contributes to marginal capacity cost. Since


the combination of "teething troubles" and relatively smallinitial output may mean a need for a relatively largesevuirity rrirgin in determining contractual arrangements,this provision would be particularly important in earlyyears of NTPC's operations, becoming less significant asthe scale of operations increases.

5. GOI agrees with the above pricing strategy but has one reservation;rather than allocating 100% of expected available capacity to SEBs, GOI'sproposal is that 85% would be allocated, the remaining 15% being sold, inaccordance with priorities determined by CEA, to States with the greatestneed, at a price during the daytime peak equal to marginal capacity plusenergy cost, and during the night to marginal energy cost. The problem withthis is that NTPC could conceivably find itself unable to sell energy duringpeak hours--even if produced by the most efficient plant--when marginal capa-city costs are included in the rate base. The position taken by GOI is that,in the foreseeable future there would continue to be shortages, so the capa-city could always be utilized. This is an adequate approach for the shortterm but, hopefully, the capacity shortage will in due course be alleviatedby which time it will be necessary to accept the principle that the kWhcharge should only include a capacity cost element when the SEBs themselvesare up against capacity constraints.

Long Range Pricing Problems

6. The foregoing recommendations can be applied in a fairly straight-forward manner as long as NTPC facilities are homogeneous and/or are appro-priate to supply base load requirements. However the situation is likelyto become more complicated as the National 400 kV system is developed andas NTPC begins to operate a mix of plants of varying ages and degrees ofefficiency. Although these complications will not be encountered for anumber of years after the commissioning of the Project, their implicationsfor organization of the sector are important enough to warrant detailed studyin the near future.

Failure of NTPC to Fulfill Contract

7. An obvious problem is the need to decide who should bear the riskof failure by NTPC to delivery power according to contract. The Bank'sstandard public utility approach--assuming NTPC is the client in whosefinancial integrity we are primarily interested--would be to let the SEBsbear the risk. But this may not be appropriate because:

- SEBs finances are generally poor;

- fairness suggests that NTPC should bear the risk of itsowr. failure to adhere to the terms of the contract; and


- a guaranteed income (based on marginal capacity costs)might diminish the incentive to NTPC to operate efficiently.

8. In light of the above, GOI favors NTPC or, indirectly, the centralgovernment, suffering the financial consequences of failing to meet the con-trac. agreement. However, physical indicators of efficiency may provide con-siderable incentive for NTPC management, and financial incentives may equallybe diminished by the ultimate availability of central government support.While protection of the SEBs seems to be of paramount importance, a distinc-tion might possibly be made between "minor" outages for which the SEBs wouldroutinely bear the financial risk and "major" ones--such as failure to meeta given load over a period of a month or more--which should be borne by NTPC,with the possibility, in the last resort, of obtaining central governmentsubsidy.

Financial Viability

9. Determination of the appropriate level of tariffs has to be con-sistent with the financial viability of NTPC. If the revenues neededfor financial purposes exceed those implied by marginal cost pricing, thetariff should be adjusted to suit financial requirements, with a structuredesigned to minimize the inefficiencies involved by departure from the mar-ginal cost criterion. Tentative estimates indicate that at 1976 prices,the average revenue per kWh sold by NTPC will have to be about 18.5 paisein order to provide, by the time Singrauli is in full operation, a rate ofreturn on net fixed assets of 9½%.

1O. The Indian power sector is characterized by shortages and under-pricing and the bulk supply price should at a minimum be equal to the marginalcost to NTPC of production and transmission, and possibly somewhat in excessof this to compensate for inefficiencies at the SEB level. In order that(a) the real economic costs of increased power consumption should be reflectedin the financial accounts of the SEBs and yet (b) optimal use be made ofNTPC's capacity, the appropriate bulk supply tariff structure should be onein which energy charges reflect incremental resource costs to NTPC with thefixed payment for capacity/transmission exceeding, as necessary for financialpurposes, incremental capacity/transmission costs.

IBRD-12256

* APP~~~~~~~ROOIMATE CEASE-FIRE LINEIN A

j: EATIRANSINGRAULI THERMAL POWER PROJECT....... REGIONAL POWER BOARDS

C' JA/I4MUANVKASKM/* ~~~~~~~~~~~~~~~~~~~PROtIECT LOCATION

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SINGRAULI THERMAL POWER PROJECT E SYATIO E

PROJECT SITE LAYOUT OBR TAL Di,1, a,

4D7 KV TRANSMISSION LINE (PROPOSED) RJ

4 -40 K, TRANSMISSION LINE UNDER CONSTRUCTION BY SEE ! K(.

PROPOSED HAILWAY / L f'Y

PROPOSED MINES I = - MBgaRA .

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report no. 1159c-in india: appraisal of the singrauli

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