Document ofThe World Bank

ReportNo: 18333-TH

PROJECT APPRAISAL DOCUMENT

ON

PROPOSED PARTIAL CREDIT GUARANTEES

FOR TWO US$300 MILLION BOND ISSUES

BY THE

- ELECTRICITY GENERATING AUTHORITY OF THAILAND (EGAT)

FOR AN

EGAT - INVESTMENT PROGRAM SUPPORT PROJECT

AUGUST 12, 1998

East Asia Energy and Mining Development Sector UniitThailand Country UnitEast Asia and Pacific Regional Office

CURRENCY EQUIVALENTS(As of July 1998)

Currency Unit = Thai Baht (B)US$1 = B 40.0

B I = US$0.025

WEIGHTS AND MEASURESMW - megawatt (1,000 kilowatts)kWh - kilowatt-hourGwh - gigawatt-hour (1 million kWh)

ABBREVIATIONS AND ACRONYMSBOO - Build Own OperateEGAT - Electricity Generating Authority of ThailandEGCO - Electricity Generating CompanyEA - Environmental Impact AssessmentEIA - Environmental Impact AnalysisERR - Economic Internal Rate of ReturnFRR - Financial Internal Rate of ReturnGEF - Global Environmental FacilityIPP - Independent Power ProducerMEA - Metropolitan Electricity AuthorityMOF - Ministry of FinanceNEB - National Environmental BoardNEPO - National Energy Policy OfficeNESDB - National Economic and Social Development

BoardOECF - Overseas Economic Cooperation Fund of JapanOEPP - Office of Environmental Policy and Planningp.a. - per annumPDP - Power Development PlanPEA - Provincial Electricity AuthorityPCG Partial Credit GuaranteePTT - Petroleum Authority of ThailandRAP - Resettlement Action PlanSOE - State Owned EnterpriseSPP - Small Power Producer

Vice President: Jean Michel SeverinoCountry Director: J Shivakumar

Sector Manager: Yoshihiko SumiTask Team Leader: Darayes Mehta

ThailandEGAT - Investment Program Support Project

CONTENTS

A. Project Development Objective ............................................................... 2

1. Project dlevelopment objective and key performance indicators ........................ 2

B. Strategic Context ............ 2

1. Sector-related CAS goal supported by the project ........................................... 22. Main sector issues and Government strategy .....................................................33. Sector issues to be addressed by the project and strategic choices .................... . 5

C. Project Description Summary ............................................................... 6

1. Project components ............................................................... 62. Key policy and institutional reforms supported by the project ......................... . 73. Benefits and target population ............................................................... 84. Institutional and implementation arrangements ................................................. 9

D. Project Rationale .............................................................. 10

1. Project alternatives considered and reasons for rejection . . 102. Major related projects financed by the Bank and/or other

development agencies ............................................... 103. Lessons learned and reflected in proposed project design . ................................. 114. Indications of borrower commitment and ownership . ........................................ 115. Value added of Bank support in this project ................................. 12

E. Summary Project Analysis .............................................. 12

1. Economic ........................................ . 122. Financial ......................................... 133. Technical ........................................ . 134. Institutional ........................................ . 135. Social ......................................... 156. Environmental assessment ........................................ 167. Participatory approach ......................................... 16

F. Sustainability and Risks .............................................. 16

1. Sustainability ........................................ . 162. Critical risks ........................................ . 173. Possiblecontroversial aspects ........................................ 17

G. Main Loan Conditions ......................................................... 18

1. Effectiveness conditions ......................................................... 182. Other ......................................................... 19

H. Readiness for Implementation ......................................................... 20

I. Compliance with Bank Policies ......................................................... 20

Annexes

Annex 1. Project Design Summary ......................................................... 22Annex 2. Detailed Project Description ......................................................... 26

Attachment A to Annex 2. Term Sheet ......................................................... 37Attachment B to Annex 2. Environmental Protection ................................................... 44

Annex 3. Estimated Project Costs ......................................................... 45Annex 4. Cost-Benefit Analysis Summary ......................................................... 61Annex 5. Financial Analysis ......................................................... 67

Attachment to Annex 5 Privatization, Restructuring and Regulation of EGAT ... 72Annex 6. Procurement and Disbursement Arrangements .................................................. 79Annex 7. Project Processing Budget and Schedule ......................................................... 80Annex 8. Documents in Project File ......................................................... 81Annex 9. Statement of Loans and Credits ......................................................... 84Annex 10. Country at a Glance ......................................................... 85

Map: IBRD No. 29720

INTIERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOPMENT ASSOCIATION

East Asia and Pacific RegionCountry Department EACTH

Project Appraisal Document

ThailandEGAT - Investment Programn Support Project

Date: August 12, 1998 Task Team Leader: D. MehtaCountry Director: J. Shivakumar Sector Manager: Y. SumiProject ID: TH-LL-58697 Sector: Energy (Power) Program Objective Category:Lending Instrument: Partial Credit Guarantee Program of Targeted Intervention: [I Yes [XI No

Project Financing Data [] Loan [ Credit [X] Guarantee [] Other [Specify)Financing plan (US$m):

Source Local Foreign TotalGovernmentCommercial Borrowing 797 797IBRD 600 600Supplier's Credits 912 912Borrower's Internal Sources and local borrowing 2,576 2,576TOTAL 2,576 2,309 4,885Borrower: Electricity Generating Authority of Thailand (EGAT)Guarantor: Kingdom of ThailandResponsible agency: EGATEstimated disbursements (Bank FY/US$M): Not

applicableFor Guarantees: [X] Partial Credit [ ] Partial risk

Proposed coverage: Principal on original scheduled maturity (subject to the outcome of the credit rating exercise anddiscussions with the lead bank, tlhe Bank's guarantee may alternatively cover payment of principal at maturity, on a non-accelerablebasis, and two scheduled semi-armual interest payments).Project sponsor: EGAT (Issuer of the Bonds)Nature of underlying financing: Bond IssueTerms of financing:

Principal amount (US$) US$ 600 million - Two bond issues of US$ 300 million eachFinal maturity 10 years

Amortization profile Bullet payment at maturityFinancing available without guarantee?: [X] Yes [ NoIf yes, estimated cost or maturity: About 5 years at about 400 basis points over corresponding US Treasuries but onlywith a sovereign guarantee (as of July 14, 1998, the date of receipt of proposals for selection of lead managers for the bond issue).Estimated financing cost or maturity with guarantee: 10 years at about 150 basis points over corresponding US Treasuries(as of July 14, 1998)

Expected effectiveness date: September 30, 1998 (first bond issue) Closing date: Not applicable

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Note: The Project is being presented for Board approval as a single operation for two bondissues. In the first instance, Board authorization is being sought for a partial credit guarantee foithe first bond issue. Board approval would be sought at the appropriate time for the terms andconditions pertaining to the second bond issue and the provision of a second partial crediguarantee. At that time, the Board would be informed of the progress achieved in respect ofinancial and institutional aspects, without undertaking a second full Project appraisal.

A: Project Development Objective

1. Project development objective and key performance indicators (see Annex 1):

The main development objectives of the Project are to: (a) help EGAT meet its essentialinvestment commitments on generation and transmission projects whose implementation hasalready been under way - at a time when the country faces a severe financial crisis and hasdifficulties in accessing long-term finance at reasonable maturities; (b) help EGAT not loseground in: (i) accomplishing its organizational restructuring and corporatization; and (ii)implementing its privatization strategy -both of which are part of the Privatization Master Plan

for State-Owned Enterprises (SOEs) which the Government is preparing at the behest of the IMFand with technical assistance financed by the Bank; and (c) help improve the regulatoryframework for the energy sector.

B: Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annexl):

CAS document number: Report No.: 18002 -THDate of latest CAS discussion: July 9, 1998.

The Project is consistent with the Bank's Country Assistance Strategy which recognizes the needto strengthen Thailand's infrastructure base - notably in energy, water and transport - which isvital to regain its international competitiveness. Specifically for the energy sector, the CASadvocates: (a) mobilizing private sector financing for electricity by accessing capital marketsthrough Bank guarantees; (b) catalyzing private sector financing by privatizing and by reducingpolicy, regulatory and conversion risks; (c) supporting regulatory reform for the energy sector,and (d) bracing EGAT's financial position against the impact of the financial crisis.

The Project is also consistent with the conditionality of the IMF standby-arrangement, especiallyin regard to reforzn and privatization of state-owned enterprises and strengthening of theregulatory framework. Finally, the Project supports power sector reform and restructuringstrategies which are consistent with the Bank's power sector policy.

It supports the aforementioned objectives by:

(a) mobilizing private financing through two US$300 million bond issues (one each in Thai FY98and FY99) in the international capital markets for vital investments in electricity infrastructurewhich would: (i) sustain the reliability and efficiency of the power system in the long term; and(ii) facilitate evacuation of power from Independent Power Producer (IPP) plants within Thailandand import from neighboring countries; and

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(b) supporting power sector reform, more specifically through: (i) the restructuring of EGATinto autonomous business units followed by the corporatization of EGAT itself as a whole; (ii)progressive privatization of EGAT's new thermal generation plants; and (iii) establishing andimplementing measures to improve the regulatory framework for the energy sector.

2. Main sector issues and Government strategy:

The main sector issues and the Government's strategy to respond to these issues are outlinedbelow:

2.1 Large Investment Requirement of the Sector (calling for Restructuring and Privatization):The power sector requires massive investments for which public funds would not be sufficientand private participation would be required. In response, the Government has formulated acomprehensive plan for the restructuring and privatization of the electricity industry (seeAttachment to Annex 5). Its immediate thrust is towards: (a) privatization of thermal powergeneration of EGAT; (b) introduction of Independent Power Producers (IPPs); and (c)introduction of Small (private) Power Producers (SPPs). It is proceeding in parallel withrestructuring, corporatizing and commercializing EGAT itself as well as the two distributionentities, the Metropolitan Electricity Authority (MEA) and the Provincial Electricity Authority(PEA). It has envisaged, in the near term, a "single buyer" model for the Thai power system(with EGAT as the buyer), and a long-term model in which a wholesale power market would beestablished. Reference: Publications of the National Energy Policy Office (NEPO); Bank'sReport No. 1312-TH, Increasing Private Participation and Improving Efficiency in StateEnterprises; and Privatization Master Plan for State-Owned Enterprises (under preparation bythe Government for the IMF).

2.2 The Financial Crisis and Its Impact on EGAT: The currency crisis in Thailand has had anadverse impact on the financial health of the Thai electricity utilities. Before the crisis, EGAT'sfinancial position was sound and more than satisfied the Bank's financial covenants. Followingthe crisis (with the exchange rate going from Baht 25/US$ up to more than Baht 50/US$ andthereafter stabilizing at around Baht 40/US$), EGAT suffered heavily from higher operatingcosts, debt servicing requirements and foreign exchange losses and could no longer meet the selffinancing ratio covenant of the Bank in FY97 and FY98. Because of the severity of thedevaluation, there has been political reluctance to raise tariffs immediately. Although theGovernment has made adjustments to the tariff from April 1, 1998 to reflect devaluation of theBaht, this has only partially offset the impact of devaluation, and consequently, EGAT has notbeen able to recover fully. There is need to improve its financial position and remove seriousconstraints it faces in meeting the financing requirements of its ongoing investment program. Thefinancing gap is further aggravated by EGAT's inability to access long term financing in theinternational market because of perceived higher country risk and the collapse of the domesticdebt market. The Government, in consultation with the Bank, has decided that part of thefinancial resources required for EGAT should be mobilized from the capital markets.

2.3 Erosion of the Sector's Profitability: Erosion of the sector's profitability has raised concernsabout EGAT's ability to meet its obligations towards IPP contracts already finalized and to closeIPP deals which have been negotiated and renegotiated following the devaluation of the Baht (see

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Attachment to Annex 5). The adverse financial position of EGAT could also act as a deterrentin pursuing its privatization program at a time that it needs to be kept on track. During thetransition period, EGAT would need substantial resources to support its ongoing investments,both in its own generation program (some of which is not planned for privatization in the nearfuture) and in the reinforcement of the transmission network to facilitate purchase of electricityfrom IPPs. With some stability in the exchange rate, the Government has implemented measuresto partly address the adverse impact of the crisis, by providing an automatic adjustment toEGAT's tariff so that the risk of foreign exchange rate variations is passed through to theconsumer.

2.4 Non-Independent Regulatory Regime: The power sector requires credible and transparentarrangements for regulation. Although the existing scheme of regulation has been workingsatisfactorily (as evidenced by operating efficiency and the lack of power shortages), there is aneed for orienting the regulatory framework to a more commercial sector structure in view ofincreased private participation in the sector. In response, the Government has: (a) taken the firststep by completing a Bulk Supply Tariff study whose recommendations it is now implementing;and (b) has now completed a comprehensive study to define the structure of the future regulatorysystem, including functions and procedures. References: (a) Bulk Supply Tariff Study underBank's Loan No. 3884-TH, Lam Takhong Pump Storage Project; and (b) Study on RegulatoryFramework for The Energy Sector under Bank's Loan No. 4067-TH, Distribution Automationand Reliability Improvement Project. The Bank will also be financing additional regulatorystudies under its technical assistance program.

2.5 Limited Indigenous Energy Resources: Thailand's energy resources for generatingelectricity are limited and it would need huge energy imports either in the form of fuel (coal andgas) or electricity itself. The Government's strategy calls for: (a) import of power fromneighboring countries, especially Lao PDR (this would eventually lead to the establishment of anIndo China Grid) and Malaysia; and (b) importing coal, and other cheap fuels, substantiallythrough private power producers and gas through pipelines from Myanmar. Arrangements forimport of power from Lao PDR (the nucleus for the creation of the Indo China (Lower Mekong)Grid, in which the Bank expects to play a significant role, is under active discussion between thecountries in the region) and gas from Myanmar are well advanced. Reference: (a) Bank's ReportNo. 11948-TH, Thailand - Fuel Options Study; (b) Bank's Report No. 17033 - EAP GreaterMekong Power Trade.

2.6 Deteriorating Supply-Side Efficiency and Reliability: The massive growth in electricitydemand in Thailand over the last decade (at an average rate of 10% p. a.) has placed severestrains on the systems that transmit and distribute power and their reliabilities have deterioratedsignificantly. The Government placed a strong emphasis on reliability in its Eighth 5-year plan(1997-2001) and directed EGAT, MEA and PEA to undertake investments necessary to improvetransmission and distribution reliability and efficiency. EGAT is implementing a substantial andlong overdue transmission reinforcement program. In regard to PEA and MEA, this aspect isbeing addressed in the most recent Bank assisted projects (Loans 4067-TH and 3598-TH).

2.7 The Need to Exercise Vigilance on the Investment Program During the Economic Turndown:The recent deteriorating economic situation and consequent reduction in power demand hascreated a vital need to exercise vigilance on the electricity utilities' expansion and investmentprograms. Continuous monitoring and tailoring of the system expansion programs is necessary toavoid wasteful investments. The Government is aware of this situation and has directed EGAT toprepare a revised Power Development Plan and MEA and PEA to prune down expansion.

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2.8 The Need to Strengthen the Sector's Environmental Management Capabilities: Rapiddevelopment of the power sector has been associated with significant stresses on the environmentand has raised serious social concerns. In the last few years the Government has placed a strongemphasis on an environmentally sound and sustainable development. It has strengthened theEnvironmental Act, revamped the environmental bureaucracy and formalized involvement ofNGOs in environmentally sensitive projects and environmental impact assessments. There isnow a growing need to strengthen the institutional capabilities of Government agencies inenvironmental management. While EGAT has accumulated substantial expertise in addressingenvironmental and social issues project-wise, it does not have a comprehensive corporate policyor documented implementation guidelines for handling the environmental and social issuesassociated with its development programs.

2.9 The Need to Improve Demand-Side Efficiency: To curb wasteful consumption and toincrease the efficiency of electricity use, a strong energy conservation and management programis needed. The Government is fostering this through: (a) economically efficient pricing ofresources; and (b) a well-structured demand-side management (DSM) program, which is beingvery successfully implemented by EGAT. The Bank is intimately associated with this programunder the Bank's GlEF funded DSM project (GEF Grant No. 28637-TH).

3. Sector issues to be addressed by the project and strategic choices:

The Project addresses most of the aforementioned sector issues as follows:

3.1 Large Investment Requirements of the Sector (calling for Restructuring and Privatization):The Project provides for agreement on the steps and time frame for the organizationalrestructuring and corporatization of EGAT and privatization of its thermal power plants. TheProject would also support private power development through financing of the criticaltransmission system for facilitating transport of power from the IPP plants.

3.2 The Financial Crisis and Its Impact on EGAT: The Project provides for the use of theBank's Partial Credit Guarantee Instrument, to help EGAT float, subject to market conditions,two Bond issues of about US$ 300 million each. The first issue is currently planned forSeptember 1998 and the second issue for June 1999. Bank's Partial Credit Guarantee wouldensure that the finamcing raised is of adequate maturity and reasonable spread. The present valueof Bank exposure for a ten-year issue would be about 56% only (based on the Bank providing aguarantee of the principal for a 10-year bullet bond). This operation would help re-establishEGAT's name as an issuer and would force EGAT to market discipline in terms of transparencyof financial accounts and operation. This in turn would complement project objectives ofachieving organizational reform and market discipline.

3.3 Erosion of the Sector's Profitability: The Project provides for agreements to redeem andmaintain the sector's profitability through implementing measures necessary to restore the selffinancing, debt service and capital structure requirements of EGAT (similar measures for MEAand PEA are being addressed under Bank's ongoing projects with these utilities).

3.4 Non-Independent Regulatory Regime: The Project provides for agreements with theGovernment's National Energy Policy Office on defining and implementing measures to improvethe regulatory franmework for the energy sector, based on the findings of the study completedunder Bank Loan 4067-TH. These measures will be further reviewed under the PrivatizationMaster Plan for State Owned Enterprises, currently under preparation by the Government for the

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IMF. Detailed legislation for an independent regulator would be drafted with technical assistancefinanced by the Bank.

3.5 Limited Indigenous Energy Resources: The Project would help lay the foundations forinterconnection between Thailand and its neighboring countries of Lao PDR and Malaysia (theIndo China (Lower Mekong) Grid) that would meet a substantial portion of Thailand's electricityneeds and eventually promote regional power trade. The Project also supports development ofpower generation using gas from Myanmar.

3.6 Deteriorating Supply-Side Efficiency and Reliability: Through financing vital generationand transmission expansion components which are already under implementation, the Projectwould help maintain the efficiency and reliability of the entire Thai power supply system in thelong run.

3.7 The Need to Exercise Vigilance on the Investment Program During the EconomicTurndown: Bank missions have worked closely with EGAT in developing a new expansionprogram which has resulted in deferring several investments planned in the near term. A revisedPower Development Plan prepared during appraisal in July 1998, is being further reviewed in thelight of further depression in GDP and demand. Semi-annual review and updating of the powerdevelopment plan is also called for during Project implementation.

3.8 The Need to Strengthen the Sector's Environmental Management Capabilities: The Projectwould strengthen EGAT capability and credibility at environmental and resettlementmanagement by laying down the corporate policy for these functions. It also provides forstrengthening the environmental management function of EGAT in regard to monitoring andevaluation of environmental impacts of plants constructed by EGAT.

C: Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

Through the raising of two bonds of US$300 million each, one by September 30, 1998 and theother by June 1999 (subject to market conditions), the Project would help meet part of thefinancing gap for EGAT investments during the period FY1998 - FY2001, for the followingpower generation and transmission facilities whose implementation has already commenced 1.

Component Category Cost Incl. % ofContingencies Total

(US$M)(a) 300 MW, Krabi Thermal Unit 1 Physical 283 6.2(b) 2x700 MW Ratchaburi Thermal Units I & 2 Physical 1,089 24.7(c) 3x600 MW Ratchaburi CC Blocks 1,2,3 Physical 1,012 20.6

The table lists all Project components that have been appraised. Some of these components may bedeferred or curtailed in scope depending on the need to reduce investments commensurate withdemand growth.

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(e) 500 kV Transmission System for IPPs and Physical 1,149 21.6Hong Sa Project in Laos(f) Bulk Power Supply for Greater Bangkok Physical 360 6.8(g) EGAT-TNB Stage II Interconnection Physical 161 3.0(h) Transmission System Expansion Project 9 Physical 558 10.5

TOTAL 4,885 100.0

(i) Restructuring and Corporatization of EGAT Institutional 5Reform

(j) Privatization of EGAT Generation Sector Reform 3(k) Reforming the Sector's Regulatory System Sector Reform 1(1) (i) Formulation of Corporate Policy for Institutional 0.5Environmental and Social Management; and (ii) StemgtheningStrengthening EGAT's EnvironmentalManagement Function

Structure of the Partial Credit Guarantee (see Annex 2 and Attachment A to Annex 2)

The proposed bond operations, supported by the World Bank guarantee, would each use a fixedrate bond of a minimum maturity of 10 years repayable with a bullet payment of principal. Theywould be offered in the Euro/US 144a markets. The partial credit guarantee of the Bank wouldcover 100 percent of the bullet principal repayment at scheduled maturity, on a non-accelerablebasis. Bondholders would assume Thailand risk on the interim interest payments (the Kingdom ofThailand is the owner of EGAT). The use of the Bank's partial credit guarantee for one or twocoupon payments on a rolling basis is under consideration, subject to its leading to a rating higherthan the sovereign debt. Discussions with the Government (Ministry of Finance (MOF) andEGAT) have been very positive. Based on informal market soundings, indications are that theBank's guarantee would result in significant additionality both in terms of narrower margins andlonger maturities for the issues and in broadening the existing investor base for Thailand debt.With the bullet repayment structure, there is no amortization of principal until maturity. Thiseffectively results in a longer 'grace period' as compared with the grace period of 5 years for atypical Bank loan, and a comparable average life to that of a Bank loan (about 9 years, based onaverage disbursement profile for Bank loans to the power sector). The Request for Proposals toselect the arrangers for the first bond issue was issued in July 1998.

2. Key policy and institutional reforms supported by the project:

The key policy and institutional reforms supported by the Project are (see Attachment to Annex5):

(a) Internal restructuring of EGAT into autonomous Business Units that would first operate asprofit centers, then be converted into EGAT subsidiaries and later privatized.

(b) Corporatization of EGAT and its transformation into a limited liability company.

(c) Establishment of Ratchaburi Power Co. starting with Combined Cycle Units 1, 2 and 3 as awholly owned EGAT subsidiary and its subsequent privatization.

(d) Divestment of about 14.9% of EGAT's equity in EGCO (already accomplished in July 1998).

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(e) Privatization of any new thermal generating plants constructed by EGAT.

(f) Establishment of a wholly-owned transmission subsidiary of EGAT operating as a "singlebuyer" of power from all duly licensed generators within Thailand (and import from neighboringcountries) on an arm's length basis.

(g) Improvement of the regulatory framework for the energy sector including: (i) preparation of adraft law for the electricity supply industry and its submission to Parliament; (ii) preparation ofsecondary regulations and submission to Cabinet (or other appropriate authority) for approval; and(iii) establishment of an independent regulatory office separate from NEPO following approval ofsecondary regulations.

3. Benefits and target population:

Benefits of the Project Components: The Project would help EGAT maintain the reliability andefficiency of its power system (over-stressed by a decade of heavy demand growth) in the long termby keeping on track the implementation of its ongoing generation plants and transmissionexpansion programs. The development of vital transmission infrastructure would also facilitate: (a)the implementation of the IPP program for which EGAT has recently finalized power purchaseagreements; and (b) import of power from the neighboring countries of Lao PDR and Malaysia.The Project would also help sustain elements of the reform program envisioned by the Governmentfor the power sector, including the organizational restructuring of EGAT, its corporatization,privatization of its thermal generation plants and improving the energy sector's regulatoryframework.

Being a project of national significance, the target population is the population of Thailand.

Benefits of the Partial Credit Guarantee (PCG): The benefits of the Partial Credit Guaranteeoperation would be:

(a) Access to capital markets: This operation would enable EGAT to obtain market financing withreasonable spread and maturity with enhanced credit and set a benchmark for its future bondoperations. Since the issuer of the paper would be EGAT, the PCG operation would help toestablish a track record for the company by exposing EGAT to the rigors of market discipline,thereby facilitating its commercialization and privatization process.

(b) Maturitv: After the East Asia crisis, it has become practically impossible for EGAT to go tothe capital markets for financing on reasonable terms for any maturity. The operation wouldenable EGAT to extend its available financing considerably beyond current market tenrs to at leastten years, with an extended grace period through a bullet structure.

(c) Competitive Financing Cost: Borrowing with the support of the World Bank Guarantee wouldbe on attractive terms, reflecting not only the Bank's credit enhancement, but also the guarantee oncoupons by the Kingdom of Thailand.

(d) Leverage: Private lenders would take the interest payment risk on Thai credit for a period of 10years. The partial credit guarantee for principal only, for a 10 year bond, on a non-accelerablebasis, would result in exposure for the Bank of around 56% in present value terms, thereby

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significantly leveraging Bank resources as compared to a Bank loan. In case of a guarantee of thecoupon this would increase by 3% for one coupon coverage and 6% for two coupon coverage.The risk taken by the investors will correspondingly reduce.

(e) Support for EGAT's Privatization Initiative: The guarantee operation would bring in capital tosustain EGAT's investment program, thereby allowing EGAT to complete its generation facilitiesthat will make EGAT more attractive for subsequent privatization. In addition, the guaranteeoperation would expose EGAT to financial market discipline and introduce EGAT tointernational financial markets, which itself could be the source for privatization efforts. Theseconsequences of the bond issues (which are conditional on tangible steps being taken by EGATand the Government towards restructuring and privatization) are expected to increase marketinterest in the privatization of EGAT.

(f) Reduced Burden on Public Sector Budget: The better financing terms that would be realizeddue to the Bank's partial credit guarantee would correspondingly reduce the repayment burden onthe public sector budg;et.

4. Institutional and imfplementation arrangements:

Implementation period: Implementation of the Project components has been ongoing. The earliestProject component started in 1993, while the last Project component would be completed in 2006.The Bank financed investments would be substantially completed by 2002.

Executing agencies: EGAT would be the executing agency for all project components except"Reforming the Regulatory System for the Energy Sector" which would be implemented by theGovernment's National Energy Policy Office (NEPO) under the guidance of the MOF which isoverseeing the privatization and regulatory program for all infrastructure sectors.

Project coordination: EGAT would be responsible for overall coordination of the Project.

Project oversight (policy guidance, etc.): The Ministry of Finance (MOF) will supervise Projectfinancing and advise EGAT on all financing matters. NEPO and MOF will oversee theimplementation of EGAT restructuring and privatization. The Prime Minister's Office willoversee the implementation of regulatory framework reformns by NEPO.

Accounting, financial reporting and auditing arrangements: EGAT's accounts are auditedannually by the Office of the Auditor General, the government agency responsible for auditing allstate enterprises. AII international accounting firm (Price Waterhouse Coopers) also acts asexternal auditors and has been retained as financial consultant, cooperating with the AuditorGeneral in issuing ECAT's annual accounts. EGAT would submit to the Bank audited financialstatements within six months of the close of each fiscal year.

Monitoring and evaluation arrangements: Satisfactory procedures for monitoring the progress ofthe project in terms oif physical execution, environmental and social aspects and financial reportshave been agreed with EGAT which would furnish semi-annual progress reports. AnImplementation Completion Report (ICR) would be drafted by the Bank with EGAT's assistancenot later than six months after completion of the Project. EGAT would also prepare a plan for theoperational phase of the Project, and together with the Bank, define the performance indicators to

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be used to monitor operations and development impact. EGAT would also prepare and makeavailable to the Bank its own evaluation report, including a summary report which would beattached unedited to the ICR.

Project supervision would focus on monitoring: (a) performance indicators; (b ) compliance withfinancial covenants; (c) implementation of environmental impact mitigation andresettlement/compensation; (d) physical construction; and (e) institutional restructuring and sectorreform. Supervision expertise would comprise: power engineering, economics, financial analysis,environmental and social issues, restructuring and privatization and legal aspects. Two missionsannually for a period of four years are foreseen, with total estimated staff-week (sw) inputs (onthe basis of sharing with other Thai power projects) of: (a) power engineer, economist andfinancial analyst -- 12 sw; (b) enviromnental specialist -- 4 sw; (c) social scientist - 4 sw; and (d)sector reform and restructuring specialist, guarantee specialist and legal expert -- 16 sw.

D. Project Rationale

1. Project alternatives considered and reasons for rejection:

Before inclusion in the formal power development plan (PDP), EGAT along with local andinternational consultants undertakes detailed analysis of -- feasibility; alternatives; fuelavailability both locally and in the international markets; flexibility and reliability of fuel supply;transport options; initial environmental impacts (which take into consideration adverse impacts ofalternative site locations and supply and disposal facilities for limestone and gypsum,respectively, when a FGD is utilized); land availability and ownership; extent of resettlement;socio-economic impact; political and international treaties; and other relevant issues. EGAT alsotakes into account the Government's needs related to energy security by diversifying fuel andsites. The projects that satisfy these criteria, are further processed through a program called PRO-SCREEN for project prioritization and inclusion in the PDP. The PDP is scrutinized by thegovernment agencies - National Economic and Social Development Board (NESDB) and NEPO -before being approved by the Cabinet. The Project, thus, is unlikely to have any feasiblealternatives that are technically, economically or environmentally superior. If, as an alternative,the Project is not undertaken, or delayed, private power development would be hampered, and thereliability and efficiency of supply would deteriorate and financial and economic losses wouldensue to the country in the long term.

2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned):

Sector Issue Project Latest Supervision (Form 590)Ratings

(Bank-financed projects only)

IP DO*Bank-financedImproving efficiency and Metropolitan Distribution S Ureliability of distribution in Reinforcement Project (LN 4199Bangkok and restructuring of June 24, 1997

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MEAImproving efficiency and Distribution Automation and S Ureliability of distribution Reliability Improvement Projectoutside Bangkok and (LN 4067 of Sept. 27, 1996)restructuring PEAMeeting system peak Lam Takhong Pump Storage S Udemand and addressingl Project ( LN 3884 of Sept. 8,bulk supply tariff issues 1995)Reinforcing distribution and Distribution System S Uextending rural Reinforcement Project (LN 3798electrification of Sept. 27, 1994)Other developmentagenciesOECF of Japan Lam Takhong Pump Storage

ProjectGlobal Environmental Promotion of Electricity Energy S Ufacility Efficiency

* All power sector projects in Thailand have recently been given unsatisfactory DO ratingprimarily due to the financial crisis which has resulted in the utilities not being able to meet theBank's financial covenants. The utilities are expected to meet the financial covenants from FY99onwards.

3. Lessons learned and reflected in the project design:

The following are the main lessons learned and reflected in the Project design:

(a) a thorough review of the Power Development Plan and tailoring of investments to thecountry's economic scenario;

(b) a comprehensive review of the environmental impact assessments, the incorporation ofstrengthening measures and provision for monitoring during implementation;

(c) a detailed formulation of the resettlement action plans and provision for monitoring duringimplementation; and

(d) adoption by EGAT of a participatory process in the design, environmental impact assessmentsand resettlement and compensation programs for the Project.

4. Indications of Borrower commitment and ownership:

The Government has made a very specific request to the Bank to prepare this operation on anurgent basis. EGAT's need for the Bond funds is imminent and EGAT has cooperated fully withthe Bank missions in all aspects of Project preparation, in an extremely short time frame.Implementation of all Project components has started and some of the components are in anadvanced stage. Government and EGAT commitment to the Project is, therefore, assessed to beexceptionally strong.

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5. Value added of Bank support in this project:

Bank association with the Project would add value in the following aspects:

(a) The Bank's Partial Credit Guarantee would help catalyze private financing for the powersector through debt financing from the capital markets with reasonable spread and maturity andestablish EGAT as an issuer in the capital markets.

(b) The Bank's involvement in the review of plans and implementation schedule for restructuringand privatization of EGAT and improving the regulatory framework for the power sector wouldenhance the credibility of these processes.

(c) The Bank's review of EGAT's Power Development Plan and adjustment of its financing plansin tune with the country's economic scenario would help development of an economically viable investment program.

(d) The Bank's review and subsequent monitoring of environmental assessments and resettlementplans of major projects in EGAT's investment program would fortify their credibility and set thepace for similar operations for future IPP plants.

(e) Finally, Bank presence in the Project would provide a degree of comfort: (i) to the IPPs in thematter of timely and efficient evacuation of power generated by them; and (ii) to the privateinvestors in investing in EGAT's power generation plants. By influencing the creation of a strong500 kV transmission backbone in Thailand, the Bank would be able to assist in laying thefoundation for establishing future interconnections with neighboring countries (the formative IndoChina (Lower Mekong) Grid), which would bring benefits to the region as a whole.

E: Summary Project Analysis (Detailed assessments are in the project file. See Annex 8):

1. Economic (supported by Annex 4):

Following a period of rapid demand growth averaging 10% p. a. during the last decade, theelectricity generation requirement of Thailand reached 14,506 MW and 92,725 Gwh during FY 97.This was accompanied with a decline in generation reserve margin to about 12.5% (dependablesystem installed capacity of 16,300 MW), against a requirement of about 30% for maintainingadequate system reliability and a loss of load probability below 1.0 days p. a. The decline in theefficiency and reliability of the transmission and distribution systems during this period was alsosignificant. The three Thai electricity utilities have been undertaking expansion programs since themid nineties, which would have enabled the system to reach acceptable levels of reliability, inparticular a generation reserve margin exceeding 30% during 2000-2004 and varying between 25 -30% thereafter. With the decline in demand growth, and curtailment/deferment of projects asfeasible, it is expected that the generation reserve margin will increase rapidly in the next few years(varying between 40 to 50% in the years 2000 to 2004) but settling down to about 32% by the year2005 and varying between 25 to 30% in the long run. (Under the IME'sfifth Letter of Intent undera recently completed fourth review of the reform package, an increased fiscal deficit has beenallowed - 3% this fiscal year, 3.55% the next fiscal year - which focuses on employmentgenerating capital investment by state enterprises. It explicitly singles out EGAT's investmentprogram, including Ratchaburi Thermal Units 1-2, Ratchaburi Combined Cycle Blocks 1-3, andTransmission System Expansion Project No. 9 - all of which are components of the Project). Theeconomic justification of the Project is based on a revised demand forecast and a corresponding

13

PDP (with several investments deferred), according to which, by the year 2005, the system demandwould have grown to about 22,000 MW, the dependable installed capacity to about 29,000 MWand the generation reserve margin to about 32%.

[X] Cost-Benefit Ana1lysis: NPV = Baht 31,351 million; ERR = 10.87% []Cost EffectivenessAnalysis

2. Financial (see Annex 5):

The currency crisis in Thailand has had an adverse impact on EGAT's financial health. Before thecrisis, EGAT's financial position was sound, satisfying and even surpassing the Bank's financialcovenants. Because the crisis did not emerge until July 1997 (9 months into EGAT's FY) and theexistence of an automatic pass through to consumers absorbing increased fuel expenses in the finaltariff (Ft), EGAT's revenue-generation was not significantly affected. However, the hugeunrealized losses on foreign exchange debt, higher operating expenses, and heavier debt servicingrequirements resulting from the crisis which could not be recovered from the Ft, eroded EGAT'sprofitability and led to its non-compliance with the Bank's financial covenants. The financing gapis further aggravated by EGAT's current inability to access long term financing in the internationalmarket because of the country risk and the collapse of the domestic debt market.

The Government and EGAT have responded positively to these developments by: (a) permittingforeign exchange fluctuations to be recouped effective April 1, 1998 through its inclusion in the Ft;(b) reviewing EGAT's load growth and reducing its sales forecasts; and (c) revising the powerdevelopment program. to substantially reduce investments. Notwithstanding these measures,EGAT would need substantial resources to support its ongoing investments, both for its owngeneration program amd in the reinforcement of transmission network to facilitate electricitytransport from IPPs.

Fiscal Impact: There would be a positive fiscal impact (equivalent to the discounted future fiscalsavings on debt services) due to lower spread resulting from the Bank's partial credit guarantees.The exact amount will depend on the financing terms obtained for the bonds.

3. Technical

The physical components of the project are based on detailed feasibility studies undertaken byinternationally recognized consultants employed by EGAT. The basic technical parameters of thegenerating plants and transmission systems have been established by the feasibility studies.Detailed engineering and designs have been and will be done by the concerned Engineering ProjectDepartments of EGAT which have long experience in these disciplines. Consulting assistance hasbeen and will be availed of for the design of generating stations and special designs for thetransmission ring around Bangkok. The cost estimates are based on data available in the EGATCost Data Bank (which is continuously updated, based on latest contract prices), and areconsidered to be reasonable. The Project's technical design is, thus, considered to be sound.

4. Institutional

a. Executing agencies

Although EGAT is wholly-owned by the Govermment and is under the direct supervision of thePrime Minister, it enjoys substantial autonomy. It sets down policies in connection with power

14

production and sale of electricity, lignite and other by-products, formulates and approves its owninvestment plans and budgets, proposes tariffs to the Government, enters into contracts withsuppliers of goods and services and borrows from domestic and foreign lenders (subject toGovernment approval if guarantees are needed). With EGAT achieving "Good State EnterpriseStatus" in August 1994, it attained even greater day-to-day operating autonomy, i.e. settingfinancial corporate objectives, decision-making authorities, limits and responsibilities;implementing market-oriented salaries, benefits and bonuses; setting up and managing its ownRegistered Provident Fund; and recruiting and developing staff.

Since 1996, EGAT has been undergoing commercialization and corporatization in parallel withthe Government's plan to restructure and privatize the electricity supply industry. Restructuringincludes creation of a corporate EGAT (new EGAT), comprising 6 autonomous business units(Transmission, Power Plants, Maintenance, Mining, Engineering and Construction) and 5operating units (Policy and Planning, Accounting and Finance, Management, BusinessDevelopment and Hydropower Plants). The approach to privatizing EGAT requires the sale ofsufficient assets, on an urgent basis, to finance the expected shortfall resulting from the financialcrisis. There is also the need to introduce effective competition to produce efficiency, establishadequate regulatory safeguards to protect consumers, and to consider the welfare of EGATemployees in the restructuring and privatization process. The most recent proposals of EGATmanagement, which have the Government's approval in principle, and which are in line withIMF's requirements, call for a three-step approach to its privatization and corporate restructuring:Step 1, privatizing the Ratchaburi Combined Cycle 1-3 power plants; Step 2 corporatizingEGAT as a whole and corporatizing and privatizing each subsequent new power plant of EGAT;and Step 3, corporatizing each business unit as a subsidiary of EGAT Company Limited andprivatizing each as appropriate. (see Attachment to Annex 5 for details).

b. Project management:

Management, implementation and monitoring of project activities would be carried out byEGAT. EGAT has a record of implementing and completing its projects in a timely manner withtight cost control and with substantial achievement of objectives. As a utility, it is endowed withextensive administrative, project management, procurement and technical expertise. With regardto its efficiency, operational, and planning capabilities, recent Bank evaluation reports and otherassessments have rated EGAT's performance as outstanding.

EGAT has satisfactorily implemented 18 Bank loans (Annex 9) for financing the expansion ofelectricity generation and transmission facilities, of which 17 have been fully disbursed and one,the Lamn Takhong Pump Storage Project (Loan No. 3884-TH), is progressing on schedule.EGAT is also satisfactorily implementing a demand-side management project (Trust Fund No.28637-TH) for which funding has been provided by the GEF and the Australian Government.

Project construction would be under the direct management and supervision of EGAT'sConstruction Department which is well qualified to handle projects of this magnitude andcomplexity. A Project Coordination Cell headed by a person at Assistant Governor level, andassisted by staff from the concerned departments of EGAT would be formed to exercise overallcoordination of the Project and liaise with the Bank.

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5. Social.

5.1 The Project involves: (a) for transmission lines - acquisition of 32,047 acres of land andrelocation of 1,174 households; and (b) for generating stations and substations - purchase of1,006 acres of land from 75 owners through open market transactions. While 14,146 acres,affecting 630 households have already been acquired, 17,901 acres affecting 544 households stillneed to be acquired. EGAT has confirmed that the compensation and resettlement policies for theland that has been acquired were the same as those agreed with the Bank for future acquisitionunder the Project. The policies and procedures used for procuring land for different projectcomponents have been described in detailed Resettlement Action Plans prepared by EGAT, andare summarized in the following paragraphs.

5.2 The land acquisition impacts for transmission lines are: (a) land acquisition for the towerbase; (ii) land acquisition in the right of way (ROW); (b) relocation of houses in the ROW; and(d) impacts on affected houses, trees and other assets. Compensation for the aforementionedimpacts is determirned by a Provincial Compensation Committee, headed by a senior provincialofficial (generally the Vice Governor of the respective province) and includes provincialgovernment officials, EGAT representatives and the representatives of the affected people asmembers. The committee establishes the replacement cost of affected assets and provides for asystem of redress of grievances, if any. The affected persons need to agree on the proposedcompensation rate and sign a survey form expressing satisfaction with the compensation ratesoffered.

5.3 While land for the tower base is compensated at full replacement value, land in the ROW(which can continue to be cultivated) is compensated at 50% - 90% of replacement value. Thelatter represents compensation at a much higher level than the practice in most Bank's Borrowercountries, where compensation is typically equivalent to 5% - 10% of the replacement cost.Those losing more than 25% of their land holdings as a result of acquisition of land for the towerbase can opt for allotment of replacement land of equivalent productivity in lieu of cashcompensation. Houses and other assets are compensated at their replacement cost along with theaffected residential land. Affected trees are compensated at a rate that takes into account thedisruption in income stream associated with the trees.

5.4 Land required for generating stations and substations is not acquired using the law ofeminent domain. Instead, open market transactions are resorted to and the land is purchaseddirectly from the owners. Prior to land purchase, EGAT confirms that there are no encroachers,tenants or any other secondary claims on the land. Records of land purchase have been providedby EGAT.

5.5 The entire process of resettlement planning and implementation is participatory. Districtand village leaders are involved at every stage in the resettlement process. The implementation ofthe resettlement plans is coordinated by the Land Division of EGAT working with therepresentatives of the provincial, district and village authorities. Detailed cost estimates(including provisions for physical and price contingencies) for the compensation to be paid andother expenses to 'be incurred for conducting various resettlement related activities, have beenprepared. Elaborate mechanisms for grievance redress are available to the affected people.

5.6 The resettlement process will be closely monitored during implementation. Monitoringwill be both internal, to be conducted by a special monitoring unit to be formed for the Project,and external, to be contracted to an independent agency (registered with the Office of

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Environmental Policy and Planning (OEPP)) to be appointed by EGAT. Periodic monitoringreports will be submitted to the Bank.

6. Environmental Assessment: Environmental Category [X] A []B []C

In accordance with Bank's OD 4.01 on Environmental Assessment, the Project has been assignedCategory A. The Project comprises four generation and four transmission line componentswhich are in various stages of completion. The environmental assessment (EA) or environmentalimpact analysis (EIA), as appropriate, of each component has been completed and reviewedindividually. EGAT, with the assistance of local and international consultants, prepared the EAsfor the four generation components (at three sites) as required by Thai regulations. Focused EIAsfor the transmission line components (not required by Thai regulations) were prepared for theBank. All EAs required by Thai regulations have been approved by the National EnvironmentalBoard (NEB). Two of the transmission line EAs were reviewed by the Bank earlier as a part ofanother project and were found satisfactory. EGAT has provided addenda and executivesummaries to the EAs and EIAs for this Project which provide updated information, furtherclarification and explanation. All eight components of the Project have been designed and will beimplemented in accordance with modern concepts of environmental management. A summary ofenvironmental impact, mitigation and monitoring program, and proposals for strengthening theenvironmental management function of EGAT is presented in the Attachment B to Annex 2.

7. Participatory Approach: [key stakeholders, how involved, and what they have influenced; ifparticipatory approach not used, describe why not applicable]

EGAT's corporate plan now explicitly requires public participation and seeks its acceptance ofthe development project. For the components in this Project, EGAT's objectives in publicconsultation included their opinion, needs, problems and obstacles from the people andcommunities living in the operational area, as well as disseminating accurate information aboutthe Project. Local communities, leaders, and government and non-governmental groups werecanvassed and requested for recommendations. Several public meetings were held at each of theProject sites to discuss concerns, mitigation measures and seek resolutions. Alternatives to theprojects were discussed with the local communities, as appropriate for each site as detailed in theproject specific environmental executive summaries.

F. Sustainability and Risks

1. Sustainability:

The following key factors are critical to Project Sustainability:

Institutional: Continued: (a) Government commitment to its power sector reform proposals; (b)EGAT management commitment to implement its restructuring and privatization program.

Financial: (a) Periodic review and appropriate adjustments of the Bulk Supply Tariff by theRegulator; and (b) Financial viability of EGAT Company Ltd. and EGAT Transmission operationwhen it is separated from EGAT parent body in the future.

Technical: (a) High standards and quality of power plant, transmission line and substationconstruction; and (b) Proper maintenance of the facilities constructed under the Project.

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Environmental and Social: (a) Monitoring of the environmental impact mitigation measures; (b)consultation with affected persons - during; and (c) post monitoring and evaluation - after projectcompletion.

2. Critical Risks (reflecting assumptions in the fourth column ofAnne.xl):

Risk Risk rating Risk Minimization Measure

Annex 1. cell "from cutput to objective"

Market conditions are favorable to raising Moderate Right market timing, issuebond financing. rating and coupon coverage

under the guartantee.

Continued commitment of relevant Moderate Continued monitoring bygovernment agencies to power sector reform. IMF and the Bank.

Cooperation of EGAT unions in the High Effective communicationcorporatization and privatization process. between Government, EGAT

management and EGATunions.

Annex 1. cell "from components to outputs)

Deployment of adequately skilled and Low Appointment of an overallmanned project management teams for each project coordinating cell toproject component. ensure smooth operation of

the Project.

Expeditious management decisions on Low Monitoring by the Bank.procurement related issues.

Consultants of high caliber and EGAT Moderate Selective consultantcooperation. appointment process and

intensive supervision ofconsultants' work by EGAT.

Consultants of high caliber and NEPO Moderate - Do - by NEPO.cooperation.

Overall risk rating Moderate

.3. Possible controversial aspects: Nil

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G: Main Loan Conditions

1. Effectiveness Conditions:

As this is a guarantee operation supporting a capital markets issue, there are no conditions foreffectiveness. The following conditions for Board presentation of the Project and the first bondhave been met.

(a) The Government has updated the demand growth and investment projections taking intoconsideration the current and projected economic situation, in a manner satisfactory to the Bank,and has agreed to implement any one or a combination of the following measures: (a) adjustmentof EGAT whole-sale tariff; (b) adjustment of EGAT investment program; (c) control ofremittances to the RTG; and (d) acceleration of sale of EGAT assets, to ensure that, from FYI 999and thereafter EGAT will comply with: a self-financing ratio of not less than 25%, a limitation ofshort and medium term debt to 15% of total debt, a debt equity ratio of not more than 60 to 40,and a debt service cover of not less than 1.3 times.

(b) Agreement has been reached between the Government and EGAT on the strategy andschedule for the restructuring, corporatization and privatization of EGAT. EGAT has alreadyappointed Consultants, following terms of reference satisfactory to the Bank, to develop plansfor: (a) the internal restructuring of EGAT into autonomous business units, their operation asprofit centers and their conversion into wholly-owned subsidiaries of EGAT and subsequentprivatization, as appropriate; (b) the corporatization of EGAT as a whole; and (c) theprivatization of Ratchaburi Combined Cycle Power Plant Blocks 1, 2 and 3. The Government hasconfirmed that from FY 1998 and thereafter, EGAT will undertake the development, constructionand operation of any new thermal power plants, which are deemed to be unsuitable fordevelopment through IPPs, only by means of wholly-owned subsidiaries that it shall establish forsuch purpose and which shall be subsequently privatized (except in cases where this is notfeasible according to the financial adviser).

(c) EGAT has accomplished sale of an additional 14.9% of the issued and outstanding sharesheld by it in EGCO to a foreign strategic investor. This has reduced EGAT share holding inEGCO from 40% to 25.1%.

Second EGAT Bond Issue ( by June 1999)

After completion of the first bond issue, the Bank will continue its dialogue with EGAT and theGovernment on institutional, financial, technical, environmental and social issues, and onupdating of EGAT's investment program to take account of revised load forecasts. A secondbond issue is currently envisioned, subject to market conditions, by June 1999. Prior toproceeding with a guarantee for that bond issue, which in any event will be subject to the Bank'snormal approval procedures, the Bank will review all relevant developments after the first bondissue including, in particular, the following:

(a) The state of compliance with financial covenants of EGAT and the sector as a whole, forFY 1998, and projected compliance for FY 1999. This will include a review of measures taken bythe Government, as well as by EGAT.

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(b) Progress satisfactory to the Bank in implementing the Restructuring Action Plan forEGAT's restructuring, corporatization and privatization (covenanted under the ProjectAgreement for the first bond issue). Review of such progress would focus in particular on:

- status of legislation on corporatization of state-owned enterprises

- EGAT's establishment as a corporation, and status of progress of the corporatized EGAT'soperation with autonomous business units (profit centers) and supporting operating units

- process of establishiment of a wholly-owned transmission subsidiary of EGAT to operate as asingle buyer of power from all duly licensed generators within Thailand (and import fromneighboring countries) on an arm's length basis

- status of creation of a Ratchaburi Combined Cycle Company as a wholly-owned subsidiary ofEGAT, and of development and execution of a satisfactory power purchase agreement betweenthis company and EGAT

- status of Government approval of privatization by EGAT of Ratchaburi Combined CyclePower Plant, Blocks 1. 2 and 3.

2. Other [classi fy according to covenant types used in Legal Agreements]:

Agreements reached with EGAT:

Accounts/Audits: EGAT would submit to the Bank audited financial statements within sixmonths of the close of each fiscal year.

Financial Performance: (a) EGAT would generate funds from internal sources equivalent to notless than 25% of the annual average of its capital expenditure incurred, or expected to beincurred, for that fiscal year, the previous fiscal year, and the next following fiscal year; (b)EGAT would maintain a debt service coverage ratio of at least 1.3 times; (c) EGAT willmaintain a debt:equity ratio of not more than 60:40; and (d) EGAT would limit short andmedium-term debt to nio more than 15% of total outstanding debt.

Power Development Plan and Investment Program: EGAT would review its PowerDevelopment Plan on a semi-annual basis, and discuss with the Bank corrective actions, if any,needed to its investment program in line with the country's evolving economic situation.

Management Aspects: (a) EGAT would restructure and corporatize its organization according toagreed action plans; and (b) following restructuring and corporatization, EGAT would maintainits corporate existence and right to carry on its operations, and exercise all rights which arenecessary in the conduct of its operations and its carrying out its obligations under the Project.EGAT shall not, without the Bank's prior consent, sell, lease, transfer or otherwise dispose of anyof its property or assets which are required for the efficient conduct of its operations in relation tothe carrying out of the Project, except with respect to transactions in the ordinary course of itsbusiness, which, in the opinion of the Bank, do not materially affect its ability to perform itsobligations under the ]?roject or its financial condition or operation.

20

Environmental and Resettlement Covenants: EGAT would: (a) construct the generating stationsand transmission systems taking into account the environmental impact mitigation measuresoutlined in its Environmental Impact Assessment and Environmental Impact Analyses reportsagreed with the Bank; (b) carry out resettlement and compensation of affected persons accordingto the Resettlement Action Plans (RAPs) agreed with the Bank; (c) develop and formalize itscorporate policy for environmental and social management; and (d) strengthen its environmentalmanagement function according to a plan agreed with the Bank.

Agreements reached with the Government:

Financial Performance: The Government would undertake a review by April 30 of every year theadequacy of power rates to ensure that tariffs are adequate for EGAT to produce the requiredself-financing ratio, debt service coverage ratio and debt/equity ratio obligations.

Management Aspects: Thailand shall, through its National Energy Policy Office (NEPO), adopt,not later than December 31, 1998, a time-bound action plan, in form and substance satisfactory tothe Bank, for the strengthening of the regulatory framework for its energy sector. Said action planshall include, without limitation, the preparation and submission to Parliament of legislation forregulation of the electricity supply industry; such legislation to include provision for thepreparation and approval by the competent authorities of implementing regulations for suchlegislation and for establishment of a regulatory office independent of NEPO.

H. Readiness for Implementation

[X] The engineering design documents for the first year's activities are complete and ready forthe start of project implementation.

[X] The procurement documents for the first year's activities are complete and ready for the startof project implementation.

[X] The Project Implementation Plan has been appraised and found to be realistic and ofsatisfactory quality.

[ ] The following items are lacking and are discussed under loan conditions (Section G).

I. Compliance with Bank Policies

[ ] This project complies with all applicable Bank policies.

[X] The following exception to Bank policies is recommended for approval: Retroactivefinancing to the extent of 50% (see Annex 6) of the first bond value for eligible expendituresincurred after April 1, 1998, the Project Identification date, and before closing of the bond. TheProject complies with all other applicable Bank policies.

21

Task Teaun Leader (EASEG): D. Mehta a t 4

Sector Manager (EASEG)kSu if

Country Director (EAiCTH): J. Shivakumara- Aa4eAA

*o J jxL(A4dI'-

22

Annex 1Thailand

EGAT - Investment Program Support ProjectProject Design Summary

Narrative Sumnmary Key Performance Indicators Monitoring and Supervision Critical Assumptions andRisks

Sector-related CAS Goal: (CAS Objective to BankMission)

Mobilizing private sector Satisfactory closing of bonds Semi-Annual review of Macroeconomic conditionsfinancing for electricity by supported by Bank Partial statistics to be maintained by are favorable for raising theaccessing capital markets Credit Guarantee. Government and EGAT. necessary financing.through Bank guarantees.

Catalyzing private sector Timely restructuring and Sustained Government andfinancing by privatizing and corporatization of EGAT. sector entities' commitment toreducing policy risks. Satisfactory privatization of reforms. Cooperation of

Ratchaburi Combined Cycle EGAT unions in thePower Plants. corporatization and

privatization process.

Supporting regulatory Establishment of an Sustained Government andreform for the energy sector. independent regulatory body NEPO commitment to

for the energy sector. reforms.

Bracing EGAT's financial Implementation of tariff Sustained Governmentposition against the impact reforms. commitment to improvingof the financial crisis. EGAT finances.

Project Development Maintaining following target Bank supervision missions; (Objective to Goal)Objective: completion dates: EGAT progress reports. Timely closing of the two1. Help EGAT meet its Krabi Thermal # 1 5/2001 IBRD bond operations.heavy but essential Ratchaburi Therm.investment commitments # 1 1/2000 Adequacy of procurement,during the country's # 2 5/2000 construction management andfinancial crisis, thus keeping Ratchaburi CC Blocks financing resources.on track the implementation # 1 12/1999of its generation and # 2 2/2000 Cooperation of EGAT unionstransmission construction # 3 4/2000 in the corporatization andprograms which it has Wang Noi CC Block privatization process.already commenced. # 3 12/1999

Trans. Exp. No. 9 2/2002EGAT- TNB 9/1999Greater Bkk. Trans. 11/2000500 kV Trans. 12/2000

23

2. Help EGAT not lose Business Units operating as Financial statements of Continued Governmentground in: (i) accomplishing profit centers Business Units. commitment to reform at theits organizational macro and sector levels torestructuring and Parliament approval of EGAT Incorporation provide a stable environmentcorporatization; and (ii) corporatization law. documents to make private and publicimplementing its equity offerings of Gen Cosprivatization strategy. Transfornation of EGAT to Subsidiaries' Incorporation attractive.

a Limited Company. documents.Continued EGAT

Business Units converted to Sale of majority shares. management commitment toEGAT subsidiaries. structural reforms and

privatization.Business Units privatized. Power Purchase Agreement.

Sale of majority shares.Privatization of Ratchaburi Power Purchase AgreementCombined Cycle Plants Sale of majority shares.

Privatization of subsequentnew Power Gens of EGAT

3. Help improve the Preparation of a draft law Progress reports from NEPO Parliament and Cabinetregulatory framework for for the electricity supply and EGAT to be compiled remain committed tothe energy sector industry and its submission by EGAT. regulatory reform and work

to Parliament for approval towards timely approval andby March 1999. promulgation of the requisite

legislation for establishing thePreparation of secondary regulatory agency.regulations and submissionto Cabinet for approval by Cooperation from NEPOSeptember 1999.

Separate regulatory officeestablished within 6 monthsof approval of secondaryregulations.

4. Facilitate the entry of Fresh commercial borrowing EGAT financial statements. Acceptance of EGAT on theEGAT into the commercial by EGAT in international intemational capital markets.debt markets following the capital markets asfinancial crisis in East Asia. percentage of total new debt

incurred.

1998 2000 2002To be determined later.

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Outputs Amount of capital raised Underwriter's reports. (Outputs to Objective)1. Successful placement of through the bond offering. Market conditions arebonds offered by EGAT favorable to raising bond

financing.

Continued commitment ofrelevant government agencies

________________________ ________________________ ________________________ to pow er sector reform .2. EGAT achieves access to Same indicator as for project EGAT financial statements.commercial debt markets on objective. Cooperation of EGAT unionsits own account in the corporatization and

privatization process.3. Restructured and Same indicator as for project Infornation provided bycorporatized EGAT objective. EGAT and Government.

4. Privatized Generating Same indicator as for project Information provided byPlant objective. EGAT and Government.

5. Implementation of a rules Same indicator as for project Information provided bybased system and institutions objective. NEPO.for regulating the powersector

Project Components/Sub Inputs: (budget for each (Components to Outputs)components: (see Annex 2 component)for project description)

(a) 300 MW Krabi Thermal US$ 283 million Periodic status reports of Deployment of adequatelyUnit 1. EGAT. skilled and manned project(b) 2x700 MW Ratchaburi US$ 1089 million management teams for eachThermal Units 1 and 2. Bank supervisions. project component.(c) 3x600MW Ratchaburi US$ 1012 millionCombined Cycle Blocks 1-3. Expeditious management(d) The 600 MW Wang Noi decisions on procurementCombined Cycle Block 3. US$ 273 million related issues.(e) 500 kV TransmissionSystem for evacuation of US$ 1149 millionpower from IPP plants inThailand and the Hong SaProject in Laos.(f) Strengthening of the BulkPower Supply System for US$ 360 milliongreater Bangkok, Stage I.(g) Stage II of the EGAT-TNB (Malaysia) Transm. US$ 161 millionInterconnection.

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(h) The Transm. SystemExpansion Project No 9. US$ 558 million(i) Restructuring andcorporatization of EGAT. US$ 5 million EGAT and consultant's Consultants of high caliber() Privatization of EGAT reports. and EGAT cooperation.Generation. US$ 3 million EGAT and consultant's(k) Reforming the reports.Regulating System for the US$ 1 million NEPO and consultant's Consultants of high caliber.Energy Sector. reports. and NEPO cooperation.(I) (i) Corporate policy forEnvironmental and Social US$0.5 million EGAT Environmental Proper planning and allocationManagement; (ii) Division Reports of staff and budgetaryStrengthening the resources.environment managementfunction of EGAT.

26

Annex 2Thailand

EGAT - Investment Program Support ProjectDetailed Project Description

Project Background

1. Over the last few months, the Government has been sounding out the Bank for assistancein raising bonds for SOEs in the international capital markets. During March 1998, a Bankmission visited Thailand and came to the conclusion that growth of the Thai economy has a directlinkage to the growth of energy supplies and hence continuing the energy investment program,albeit at a lower tempo, would be a precondition for ensuring competitiveness and revivinggrowth. Bank support to this sector would thus be the most effective way in which the Bankcould contribute to the recovery of the Thai economy. The mission also concluded that the mostappropriate SOE in the energy sector would be EGAT, based on: (a) Bank's intimate knowledgeof the power sector; (b) its continued involvement with EGAT's projects, both, ongoing andunder development; (c) EGAT's excellent record in project preparation and implementation; and(d) EGAT's crucial need for financial support during the current financial crisis. Despite theimpact of the crisis, EGAT remains a sound and efficient entity and is expected to be back tosound financial status with the steps proposed to be taken by EGAT and the Government. TheGovernment concurred with the mission's view and made a specific request for urgent Bankassistance in helping EGAT meet its heavy borrowing requirements from commercial sourcesamounting to about US$600 million for FY98 and FY99. Suitable finding sources for theseinvestments couldl not be identified by the Ministry of Finance (MOF) and hence MOF requestedan IBRD Partial Credit Guarantee (PCG) to assist EGAT in reestablishing its credit and raisingfunds on reasonable terms in the international capital markets.

Summary of Project Cost and Financing

Project Cost (US$ Million)

|0;Component; i i ; ;; 0 0 0 ; Cost;; 0 i ;; % of TotalGeneration SFa-cilitiesS fI300 MW, Krabi Thermal 28.3 6.22x700 MW, Ratehaburi Thermal (1 & 2) 1,089 24.73x600 MW, Ratchaburi Combined Cycle 1,012 20.6600 MW, Wagt NboilCombined Cycle 273 6.6Sub TotalE 2,;7 58.1T:raSnsnilssio:n Fwacilities.. ;; ; i:; X ;S;? f|;500 kV Tansmission System fbr IPPs and 1,149 i2 1!.6H0Song Sa Project in Laos0 f00 000 00tBulk iPower Supplybfor Greater Bangkok 360 6.8EGAT-TMNBStage IItInterconnection 161 3.10 Transmission iSysemExpansion Project 9 558 10.5Sub Total 2,228 41.9Total Cost 4,885 100.0

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Financing Plan (US$ Million)

Source of Funds Amount P o- Total

(FY 1998 to FY 2000)-ECA's/Suppliers' Credits 749 15.3Other Commercial Financing 256 73Long-term Bonds (World Bank Guarantee) 600 12.3Local Borrbwing 511 10.5EGAT 587 -12.0-Sub Total 2803 - - .4Drawn before- FY1998 or prospective -(Beyond FY 2000)ECA'stSuppliers' Credits 163 3.3Other Commercial F-inancing 441 9.0Local Borrowing- 461 9.4EGAT 1,017 20.8Sub Total 2,082 4.6-

Total ) 4,85 - - 100-i -

Partial Credit Guarantee

2. It is proposed that two distinct partial credit guarantee operations be undertaken to helpmobilize the necessary financing to fund the financing gap of EGAT's investment program. Theguarantee will help catalyze private financing for the power sector through debt financing fromthe capital markets. The East Asia crisis has led to a lowering of EGAT's creditworthiness andits unfavorable financial projections will make it virtually impossible to access the commercialcapital markets and achieve long tenor financing at reasonable terms under its own name.Therefore, it is proposed that while EGAT is undergoing restructuring and privatization and thesector reforms are in progress, EGAT would borrow, with the Kingdom of Thailand guaranteebacking the coupon payments and Bank guarantee of the principal in order to maximize the termsof the borrowing sought under the partial credit guarantee. Bank guarantee of one or two couponpayments on a rolling basis is also under consideration.

3. Before the East Asia crisis, EGAT had successfully accessed capital markets severaltimes. Details of three such issues, recently in April 1996 and much earlier in March 1985 andAugust 1983, are set out in the table below.

EGAT Market Issues

Issuer Date Amount Coupon Isue Price Maturity Market Lead Manager

EGAT April 3, 4 Billion 8.84% 100% 5 yrs. Non-US/ Bangkok Bank1996 Baht International

Domestic

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EGAT March 3, 19:5 0.125% 100% 20 yrs. Domestic/Euro Chase, Lloyds,1985 million over 6- LTCB Asia,

USD month MorganLIBOR Guaranty

EGAT Aug. 10, 60 million 0.1875% 100% 8 yrs. Domestic/Euro LTCB,1983 USD over 6- Hanover, Saudi

month IntemationalLIBOR

Structure of the Partial Credit Guarantee (see Attachment A to Annex 2 for Term Sheet)

4. The proposed bond instruments, with the World Bank guarantee, would each be a fixedrate bond issue of a 10 years maturity, repayable with a bullet payment of principal. They wouldbe offered in the Euro/US 144a markets. The partial credit guarantee of the Bank would cover 100percent of the bullet principal repayment at scheduled maturity, on a non-accelerable basis. Bankguarantee for one or two coupon payments on a rolling basis is also under consideration.Bondholders would assume Thailand risk on the remaining interest payments (The Kingdom ofThailand is the owner of EGAT). Discussions with the Government (MOF and EGAT) have beenvery positive. Based on informal market soundings, indications are that the Bank's guaranteewould result in significant additionality both in terms of narrower margins and longer maturitiesfor the issues and in broadening the existing investor base for Thailand debt. The arrangers for thefirst bond issue have been appointed in July 1998.

5. With the bullet repayment structure, there is no amortization of principal until maturity.This effectively results in a longer 'grace period' as compared with the grace period of 5 years fora typical Bank loan, and a comparable average life to that of a Bank loan (about 9 years, based onaverage disbursement profile for Bank loans to the power sector).

Rationale and Benefits of the Proposed Partial Credit Guarantee

6. In response to the tightening of credit availability following the rapid devaluation of theBaht since July 1997, a number of initiatives have been taken to speed up Thailand's export-ledrecovery. In this context a facility, partly guaranteed by ADB has been designed to make availableUS$1 billion to exporters and export oriented businesses for financing short to medium term exportrelated materials. More importantly, the Kingdom of Thailand is proposing to issue a 5 to 7-yearglobal sovereign issue and mobilize between US$ one to two billion from the capital market duringthe year. The exact timing of the launch of the Government's Global Bond issue would dependupon market conditions. The launch of the proposed bond issue for EGAT would need closecoordination with the Government's global bond and other capital market issues proposed byThailand. Based on the discussions with Fiscal Policy Office and key market players it has beendecided that the EGAT issue should proceed independently of the Sovereign Global bond. Thepartial credit guarantee operation would provide EGAT with long-term funds on reasonable terms.It should be recognized that EGAT has limited other avenues to meet its financing gap, withsupplier credits being limited in availability and maturity. The Kingdom of Thailand has expressedits support to enhance EGAT's ability to access the market at reasonable maturities and termswhile it is still undergoing restructuring.

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7. In summary, the advantages of the proposed guarantee operation would be:

(a) Access to capital markets: This operation would enable EGAT to obtain marketfinancing with reasonable spread and maturity with enhanced credit and set abenchmark for its future bond operations. Since the issuer of the paper would beEGAT, the PCG operation would help to establish a track record for the companyby exposing EGAT to the rigors of market discipline, thereby facilitating itscommercialization and privatization process.

(b) Maturity: After the East Asia crisis, it has become practically impossible forEGAT to go to the capital markets on reasonable terms for any maturity. Theoperation would enable EGAT to extend its available financing considerablybeyond current market terms to ten 10 years, with an extended grace periodthrough a bullet structure.

(c) Competitive Financing Cost: Borrowing with the support of the World BankGuarantee would be on attractive terms, reflecting the Bank's creditenhancement, but also the guarantee on coupons by the Kingdom of Thailand.

(d) Leverage: Private lenders would take the interest payment risk on Thai credit fora minimum period of 10 years. The partial credit guarantee for principal only,for a 10 year bond, on a non-accelerable basis, would result in exposure for theBank of around 56%2 in present value terms, thereby significantly leveragingBank resources as compared to a Bank loan. In case of a guarantee of thecoupon this would increase by 3% for one coupon coverage and 6% for twocoupon coverage. The risk taken by the investors will correspondingly reduce.

(e) Support for EGAT's Privatization Initiative: The guarantee operation wouldbring in capital to sustain EGAT's investment program, thereby allowing EGATto complete its generation facilities that will make EGAT more attractive forsubsequent privatization. In addition, the guarantee operation would exposeEGAT to market discipline and introduce EGAT to international financialmarkets, which itself could be the source for privatization efforts. Theseconsequences of the bond issues (which are conditional on tangible steps beingtaken by EGAT and the Government towards restructuring and privatization) areexpected to increase market interest in the privatization of EGAT.

2 Based on a Discount rate (for Bank Guaranteed Principal) of 5.9% as of May 18, 1998.

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Project Components

8. The project includes four generation projects, and four transmission systems, as follows:

Krabi Thermal Power Plant Unit 1 (Cost US$283 million)(Schedule: March 1997 - May 2001)

9. The Krabi Thermal Power Plant Units I and 2 will be located at Tambon KhlongKhanan, King Amphoe Nua Khlong, Krabi Province. The plant will use oil (2% sulfur) as mainfuel source. The nominal capacity for each unit is 300 MW; the Bank Project would financeKrabi Thermal Unit 1 (300 MW). The proposed power plant would be located within EGATpremises near the old lignite-fired Krabi Power Plant which was decommissioned in September1995. The feasibility study for Krabi was performed by EGAT. Two alternatives for fuel oilversus imported coal were studied. Two alternative gypsum disposal sites were considered, and twoalternatives for fuel transport. Dispersion modelling was used to determine the need for FGD, andthe response to FGD malfunction. The overall efficiency of the thermal plant is about 35%.Environmental Impact Assessment was performed by TEAM Consulting Engineers Co., Ltd.from December 1995 to August 1996 and the report was approved by NEB on April 24, 1997.Procurement was by international competitive bidding. with S. C. Lavalin assisting EGAT asconsultant for engineering. Construction is being done by EGAT. The work for site preparationhas begun.

10. The Krabi Power Plant will use domestic or imported oil. The blarge transport EIA hasbeen submitted to the Thailand Office of Environmental Policy and Planning (OEPP). Oil wouldbe transferred fromn ships to 1,000 ton barges, through an estuary (24 km) to a dock near thepower station, and then via pipeline to the power station. Preliminary analysis indicates analternative for cost and environmental reasons may be a pipeline from an offshore ship loadingfacility, to an underground pipeline (16 km) along an existing road right of way to the powerstation. This alternative was requested through public consultation and is under study; if thisalternative is preferred, the Pipeline EIA would be subject to review by the World Bank afterapproval by OEPP. During operation, water will be used for steam production, SO2 removalsystem, and domestic consumption. The main sources of raw water for the above purposes are twoexisting reservoirs. Raw water would be pre-treated by clarification, filtration, and chlorination.Make up water for the circulating cooling system would be drawn from Khlong Pakasai, and wouldamount to only 4.5% of the minimum flow rate of Khlong Pakasai. Water quality in KhlongPakasai has been found to meet standards. Sulphur Dioxide and dust will be controlled by a wetlimestone Flue Gas Desulfurization System (FGD) with a minimum of 80% efficiency prior toemission. An emergency plan has been adopted in case of FGD malfunction, since dispersionmodelling indicates, unacceptable air quality would result. The operation of the power plant will bestopped within 10 minutes after the signal of FGD break down is shown.

11. The Krabi thermal power plant Units I and 2 will be connected to the grid by newtransmission lines from Krabi to Thung-Song substation (the east area) and from Krabi toPhangnga substation (the west area). The scope of transmission system is summarized as follows:

* 230 kV Krabi-Phangnga 2 substation, 98.5 km long, including optical fiber with overheadground wire.

* 230 kV Krabi--Thung Song Substation, 97 km long, including optical fiber with overheadground wire.

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Ratchaburi Power Plant Project2x700 MW Thermal Units 1 and 2 (Cost US$1,089 million)(Schedule: January 1994 - May 2001)3x600MW Combined Cycle Blocks 1, 2 and 3 (Cost US$1,012 million)(Schedule: January 1994 - March 2001)

12. The Ratchaburi Power Plant Project is located in subdistrict Tambon Ban Rai,approximately 7 km northeast of Ratchaburi Province about 5 km. north of Mae Khlong River.The project will incorporate four 700 MW (nominal) supercritical, conventional heavy oil firedunits and three 600 MW (nominal) combined cycle blocks, for a total site development of 4,600MW. The Bank project includes Ratchaburi Thermal Units 1-2 (2x700 MWI and Combined CycleBlocks 1-3 (3x600 MW). The overall efficiency of the thermal units is about 38 %, and thecombined cycle station efficiency is about 50%. The thermal units will burn residual fuel oil (2%sulfur) and/or natural gas and the combined cycle will burn natural gas as the primary fuel ordistillate oil as the back-up fuel. The area of the site is approximately 2,000 rai, and current landuse is rice cultivation and fishponds. The feasibility study technical justification and design wereperformed by Black and Veatch; while EGAT performed the cost estimate, economic analysis,interconnection and upgrade of the transmission system, and integration of the EIA study results.The site selection study was performed by Black and Veatch. Analyses of alternatives includedsite selection, fuel delivery systems, FGD technology and wastewater discharge point.Environmental Impact Assessment was performed by the Faculty of the Environment andResource Studies, Mahidol University from December 1993 to November 1994. The report wasapproved by NEB on February 2, 1996. Procurement was by international competitive bidding.Procurement for the thermal units was through an engineering, procurement and construction(EPC); the combined cycle procurement was for engineering, while EGAT did the constructionand erection. Specifications preparation and engineering consulting for the combined cycle andthermal plants was done by Stone and Webster. Bidding documents for the thermal plant wereprepared by Black and Veatch.

13. Sources of natural gas for Ratchaburi Power Plant are developing production regionslocated in the Gulf of Martaban, Union of Myanmar. Estimates of natural gas reserves andproduction are 5,700 billion cubic feet and 525 million cubic feet per day respectively. Naturalgas pipelines will be extended from production wells across peninsular Myanmar and enterThailand at the border (Kanchanaburi Province), then continue to the Ratchaburi Power Plant.Delivery of the residual (No. 6) fuel oil will be via a seaberth, fuel oil terminal and a dedicatedpipeline. The EIA for this pipeline to the power station has been finished. If alternative fueldelivery schemes are contemplated for the project, an additional EIA would be required, andwould have to pass review by OEPP and the World Bank. The raw water supply (75.03M.m3/year) will be provided from Mae Khlong River at Ban Bang Li via pipeline to an onsiteraw water reservoir. The water will be pretreated and will serve for all plant needs, includingcooling water makeup (69.60 M. m3/year), potable water, general service water anddemineralized water. The project will not cause any change in the hydrology of the river basin.Wastewater from the closed cycle condenser cooling system at a maximum summer-timetemperature of about 36 OC will be discharged into a holding pond before being relayed to awastewater retention pond. Sulfur dioxide (SO2) emissions from the thermal unit will becontrolled by a wet limestone FGD system, of 90% efficiency. To control NOx, low NOx burnerswould be used. Each stack would be equipped with continuous on-line emissions monitoringsystems.

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14. The Ratchaburi Power Plant Project will be connected to EGAT's transmission systemthrough the 500 kV and 230 kV substations at the plant site. The transmission systems for theproject include the following:

* 230 kV, double circuit transmission lines connect the plant's substation to Ratchaburi 2substation.

* 500 kV, doulble circuit transmission lines connect the plant's substation to Chom Bungsubstation.

* 500 kV, double circuit transmission lines connect Chom Bung substation to Sai Noi substation.

Wang Noi Combined Cycle Power Station, Stage II, 600MW (Cost US$273 million)(Schedule: June 1994 - October 1998)

15. The Wang Noi combined cycle base load power station has been constructed on an areaof 718 rai in Tambon Khao Ngam and Wang Chula, Amphoe Wang Noi, Ayudhaya Province.Stage I, comprising the first two 600MW units, is in operation. The Bank Project comprisesStage2 (600 MW) of the ultimate capacity of 1,800 MW. Each block of 600MW is composed of 2 setsof 200 - MW gas turbines and a 200MW steam turbine. The overall efficiency of the combinedcycle station is about 50%. The feasibility study, design and construction management wereperformed by Black and Veatch; while EGAT performed the cost estimate, economic analysis,interconnection and upgrade of the transmission system, and integration of the EIA study results.Alternatives analyzed for the project included choice of technology, site selection, water sources,wastewater treatment schemes and choice of receiving waters. The Environmental ImpactAssessment was performed by the Southeast Asia Technology Co., Ltd. from November 1993 toApril 1994. The ireport was approved by the National Environment Board (NEB) on August 15,1994. Procurement of the plant has been done by intemational competitive bidding, through anengineering, procurement and construction (EPC) contract.

16. Natural gas will be supplied from the Gulf of Thailand and inland sources through apetroleum Authority of Thailand (PTT) pipeline; there will be no storage facilities on the plantsite for natural gas. Distillate No. 2 oil (0.05 - 1.0% S, average 0.53% S) will be used only asbackup. The oil is delivered to the site by tank truck. Makeup water for the power station isdrawn from Khlong Raphiphat and a well. The power station demand would be only 6 % of theminimum (July 1992) recorded monthly flow of Khlong Raphiphat. A closed cycle condensercooling water system is used. Oxides of nitrogen are controlled in the first two blocks ofcombustion turbines by water injection; the third block uses low NOx burners. The stacks areequipped with on-line NOx monitors.

500 KV Transmission System for Independent Power Producers and(Schedule: Septeirber 1997 - February 2002)Hong Sa Project in Laos: (Cost US$1,149 million)(Schedule: December 1998 - May 2002)

17. International consultants engaged by EGAT in 1993 selected a 500kV transmissionsystem as a least-cost option to transmit 10,000 MW of power from IPP plants to the GreaterBangkok area (in each of the western and eastern corridors around the Gulf of Thailand) from thefollowing options: 500kV HVAC, 765kV HVAC, and +/-500kV HVDC. EGAT will constructtwo 500 KV transmission lines along the Gulf of Thailand from Bang Saphan (Prachuap KhiriKhan Province) to Chom Bung on the western coast and from Rayong to Nong Chok and WangNoi on the eastern coast. These 500 KV lines will receive the power from IPP power plants and

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transmit most of the generated power to the load centers in Greater Bangkok and the surroundingarea. In addition, a 500 KV transmission system for the Greater Bangkok Area will be developed,replacing the existing 230 KV system. Western Area, 500 KV Transmission Lines: Thetransmission system for the disbursement of power from IPPs in the Western Area includesconstruction of two transmission lines: (i) 275 km long Ist route of 500 KV double circuit linefrom Bang Saphan to Chom Bung; (ii) 280 km long 2 nd route of 500 KV double circuit linefrom Bang Saphan substation to Chom Bung. Western Area, Substations: The substation projectsfor the Western Area include expansion of the following 3 existing substations: (i) Expansion ofBang Saphan 500 KV substation with installation of 500/230 KV of 1000 MVA transformer, lineshunt reactors and addition of a communication system; (ii) Expansion of Chom Bung 500 KVsubstation with installation of line shunt reactors and addition of a communication system; and(iii) expansion of Sai Noi 500 KV substation and addition of a communication system. EasternArea, 500 KV Transmission Lines: The transmission lines for the Eastern Area include twotransmission lines: (i) 155 km long Ist route of 500 KV double circuit line from Rayong 4 to TJunction; and, (ii) 170 km long 2 nd route of 500 KV double circuit line from Rayong 4substation to T Junction. Eastern Area, Substations: The substations for the Eastern Area includethe construction of one new and expansion of one existing substation: (i) new 500/230 KVRayong 4 substation with installation of line shunt reactors at 500 KV Rayong 4-Nong Chok andRayong 4-Wong Noi lines, and addition of a communication system; and, (ii) expansion of the230 KV Rayong 2 substation with addition of a communication system.

18. The Hong Sa lignite fired thermal project in Lao PDR is covered under the MOU signedbetween the governments of Lao PDR and Thailand for exporting up to 3,000 MW of powerfrom Laos. The Project's first stage would comprise 2 units of 372 MW constructed by Thai LaoPower Company Ltd. on a BOT basis for the Lao Government. The transmission system coveredby the project will be a 500 kV double circuit line constructed by EGAT from its Mae Mohsubstation to the Lao PDR border.

Bulk Power Supply for Greater Bangkok (Cost US$360 million)(Schedule: October 1994 - March 2002)

19. The design of the bulk power supply system project is based on studies completed byconsultants in 1992 and later modified by EGAT in the light of higher power demand projectionsmade in the 1995. To avoid problems of land and right-of-way acquisition, the design is basedon the use of existing substations and transmission line routes. To supply significantly morepower through lines in existing right-of-ways, 500kV transmission will be introduced into theurban area of Bangkok in 2001. To accommodate space related constraints for transmissionlines, the following measures are adopted: (a) 500 and 230 kV lines would use multi-conductors(2 or 4 bundled per phase) to replace the 230 kV lines in existing right-of-ways; (b) compactmulti-circuited and multi-bundled lines would be installed in narrow right-of-ways; (c) GISsystems would be installed in substations to conserve space; and (d) underground transmissionfacilities would be considered, when severe space-related constraints exist. The system isdesigned to limit excessive fault currents to minimize damage due to short-circuits, loss ofinterconnection between stations, and disruptions of the supply system. Circuit breakers withinterruption capacity, up to 50 kA, would replace existing low interruption capacity breakers andthe system would be divided into three load areas bounded by switch-breakers, with each areahaving sufficient capability to supply its own demand. The project component involves thereinforcement of transmission lines, expansion and renovation of five substations, andconstruction of a new substation in the Greater Bangkok area to meet the projected powerdemand of 8,290 MW in 2001 from a level of 5,722MW in 1996. The bulk supply system beingreinforced will introduce a voltage level of 500kV into the area after 2001, even though the

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system will initially be energized at 230kV. Ten transmission line segments, totaling 113 km or245 cct. km of lines, will be constructed, out of which 81 km would consist of 500kV lines andthe rest 230kV lines. The 500 and 230kV lines would be constructed using 4x1272 MCM ACSRand 2 x 1272 conductors per phase, respectively. The new substation, with 2, 300 MVA,230/115kV transformers would be constructed at Thepharak and expansion and renovation wouldbe undertaken at the five substations at Bang Phli, Bangkok Noi, North Bangkok, ChaengWatthana and Lat Phrao, comprising 16 transformers with a total capacity of 5,050 MVA. Theproject also includes installation of 20 shunt capacitor banks with a total capacity of 1,518MVAR for reactive power control.

EGAT-TNB Stage II Interconnection (Cost US$161 million)(Schedule: July 1994 - October 1999)

20. The power systems of Thailand and Malaysia are currently interconnected through aweak AC link with a transfer capacity of only 80 MW which does not facilitate synchronousoperation of the two systems. Realizing the benefits of system interconnection in terms ofimproving system efficiency and reducing reserves, SwedPower, a Swedish consulting company,was appointed to improve the performance of the existing interconnection and to recommend theadditional EGAT-TNB Stage II interconnection that would be robust and highly reliable for afully synchronized operation. The study was commenced in May 1989 and was completed inSeptember 1992. For the Stage II Interconnection, SwedPower recommended installation of 300MW, upgradable to 600 MW, HVDC interconnection between the power systems of Thailandand Malaysia. The proposed EGAT-TNB Stage II Interconnection project is a 300 MW, ±300kV, bi-directional HVDC point-to-point transmission, upgradable to a capacity of 600 MW inthefuture. Associated with the DC link, the project also covers strengthening of the 230 kV systemin the south of Thailand.

Transmission System Expansion Project No. 9 (Cost US$558 million)(Schedule: June 1993 - March 2001)

21. The main objective of this project is to strengthen the transmission network of EGAT inthe provincial areas served by PEA .The project is a package of 26 subprojects of transmissionlines and substations expansion and reinforcement. The project involves the construction andreinforcement of transmission lines totaling 1,890 circuit-kilometers, and 10 substations. Thetotal amount of 5,900 MVA transformer capacity and 1,202 MVA reactive power compensationequipment installed at the existing substations are also included. The Transmission SystemExpansion Project No. 9 (TS.9) is presently under different stages of implementation.

Restructuring and Corporatization of EGAT (Estimated Cost - US$5 million)Privatization of EGAT(Estimated Cost - US$3 million)

22. In March 1998, EGAT management decided, with the Government's approval inprinciple, on a three-step approach to its privatization and corporate restructuring calling for: (a)Step 1, corporatizing EGAT as a whole and privatizing the Ratchaburi Combined Cycle 1-3power plants which was originally intended for Step 2, but in view of the expected cash flowshortfall over the next 2 years, is being advanced to Step I in the privatization process; (b) Step 2,corporatizing and privatizing each subsequent new power plant of EGAT; and (c) Step 3,corporatizing each business unit as a subsidiary of EGAT Company Limited and privatizing eachas appropriate. A change in approach was required due to EGAT's cash flow problems, the delayin the approval of the Corporatization Law, and the obligations required from the Government bythe International Monetary Fund's standby arrangement to initiate sales of EGAT stakes in

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EGCO and Ratchaburi Combined Cycle Power Co. The revised privatization approach is asfollows:

23. In Step 1, EGAT would transfer the Ratchaburi Combined Cycle Power Plant Blocks 1 -3 to a wholly-owned subsidiary which would subsequently seek private sector participation of atleast 51%. In parallel, the original plan to organize EGAT into autonomous business units and totransform EGAT into a limited company (100% owned by the Ministry of Finance) when theCorporatization Law is ready will be carried out. Presently, each business unit as envisaged inthe organizational restructuring plan is beginning to operate as a more self-sufficient entity.Although previous expectations that each Business Unit would become a separate statutorycompany have been shelved for the time being, it is expected that by October 1998, each unit willbe a self-accounting division with its own financial statements. This will involve a systemthrough which all business and operating units would fully recover the costs of their services toother units of the company or to external users.

24. In Step 2, corporatization of EGAT as a whole is expected to be completed within oneyear from the approval of the Corporatization Law - in the latter part of 1999. Further, it isenvisioned that all new power plant projects after Ratchaburi Combined Cycle would becorporatized and privatized. EGAT would evaluate whether some or all new power plants wouldbe combined with the EGAT powergens or be privatized separately with EGAT Company Ltd.holding no more than 49% of shares in each new power plant company.

25. In Step 3, each business unit would be formed into a 100% - owned subsidiary of EGATCompany Limited with the individual units corporatized and privatized when ready according tothe plan adopted in 1996. The individual business units are to be corporatized at different times,depending on their readiness, however, it is anticipated that all units would have beencorporatized by the end of the third year after the approval of the Corporatization Law.

Reforming the Regulatory System for the Energy Sector (Estimated Cost - US$1 million)

26. Privatization of the energy sector has created the need for a comprehensive legal andregulatory framework to protect the interests of consumers, investors and the Government.NEPO engaged consultants (under the Distribution Automation and Reliability ImprovementProject (Loan No. 4067-TH) with PEA, to help design and establish an independent regulatoryoffice for the energy sector. This would eventually assume NEPO's current regulatory powers.The consultants have framed proposals for future regulation of the electricity sector based onEGAT, initially, being the single buyer from generators but moving to a competitive power poolin the medium-term. For the gas industry, it has taken account of the need to introduce morecompetition at all levels, for transmission and distribution through bidding concessions. The finalform of regulation will depend on the shape of the electricity and gas industries and the extent towhich competition and privatization is adopted. Its proposals include the following principles:

(a) a regulator responsible for regulation of the electricity and gas industries, independentfrom NEPO, accountable to the Prime Minister or another Minister;

(b) regulation would be undertaken by a commission with five members with technicalcompetence appointed for terms of 3-5 years;

(c) the commission's functions would include pricing, investment and competition policyand quality of service. It would also issue licenses as an instrument for regulation;

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(d) establishing the regulator through primary legislation and secondary legislationsetting out related administrative procedures;

(e) price cap regulation is being proposed with regular review periods;

(f) NEPO would be initially responsible to establish key regulatory functions during thetransitory phase prior to the regulator becoming independent.

27. The next step is to draft the enabling legislation. The consultants have commenced thiswork. The Project covers: (a) Preparation of a draft law for the electricity supply industry and itssubmission to Parliament for approval by March 1999; (b) Preparation of secondary regulationsand submission to Cabinet for approval by September 1999; and (c) Establishment of a separateregulatory office within 6 months of approval of secondary regulations.

(a) Formulation of Corporate Policy for Environmental and Social Management(b) Strengthening EGAT's Environmental Management Function (Estimated Cost -US$0.5 million)

28. EGAT, with the assistance of the Bank, will develop a framework for a CorporateEnvironmental and Social Policy (CESP). The CESP, which sets out the guidelines for EGAT'spolicy with regards to environmental and resettlement management, would incorporate a broadrange of social issues including resettlement of project affected persons, land acquisition andresettlement related issues, participatory project design, issues related to impacts on ethnicminorities, and community development initiatives (not necessarily in adversely affected areas)of EGAT. The CESP, which would be applicable to all projects implemented by EGAT or whereEGAT has a financial stake (IPPs would also be encouraged to follow the Policy asrecommended guidelines to deal with environmental and social issues), would integrate theprocess of addressing environmental and social issues into EGAT's existing project preparationcycle.

29. All eight components of the project have been designed and will be implemented inaccordance with the modem concept of environmental management. EGAT currently has anenvironmental department that includes 90 qualified professionals. The focus of the group ismainly environmental impact assessment for project development. Under the project the focuswould be expanded to include more environmental management functions. EGAT will develop aplan to modernize the Environmental Management Group with the following objectives: (a)standardize effluent and emissions disposal and treatment technologies; (b) establish companytraining programs, to keep pace with changing environmental regulations, for workers atvarious management and operations levels, for environment and safety; and (c) central follow-up and control cn environmental compliance and safety performance of plants. EGAT wouldcarry out trend analysis of pollution monitoring data and prepare exception reports; enhancemonitoring data collection and analysis capability; provide operational feedback to CorporateEngineering for carrying out necessary modifications in existing/future systems; and providecorporate support to stations.

30. Environrmental management units would be established at the power stations. Theenvironmental management units at the power stations will include the following activities whenfully developed: (a) implementation of environmental health and safety policies; (b) monitoringfor compliance wiith regulatory and corporate standards,

Attachment A to Annex 2

Kingdom of ThailandEGAT - Investment Program Support Project

US$300 million Bond IssueSumnmary of Terms of the Bank's Partial Credit Guarantee

Issuer: Electricity Generating Authority of Thailand (EGAT).

Guarantors: World Bank as to payment of principal only at stated maturity, on a non-accelerable basis.Coupon payments are guaranteed by Government of Thailand (GOT). Subject to the outcome ofthe credit rating exercise and discussions with the lead manager, the Bank's guarantee mayadditionally cover up to two scheduled semni-annual interest payments on a rolling basis.

Issue Format: Eurobond and US 144A.

Lead Manager: ABN AMRO Bank N.V.

Amount & Currency: US$300 million.

Use of Proceeds: The net proceeds of the Bonds will be used for partial funding of EGAT's investment program forFY98-2000, in accordance with the terms of the Project Agreement between EGAT and the Bank.

Maturity & Amortization: 10 years - Bullet, at scheduled maturity.

Indicative Coupon: Fixed rate at 140-165 bp per annum over 10-year US Treasury yield'; payable semi-annually inarrears. This pricing spread is based on Bank guarantee of principal at maturity only, and issubject to capital market conditions on the date of launch.

Issue Price: 100% (indicative).

World Bank Guarantee Principal: The guarantee will cover payment of principal only at maturity in year 2008Provisions: and is not accelerable in the event of any payment default by EGAT prior to stated maturity. The

Bank will be obliged to pay only to the extent that EGAT has failed to pay the principal amountof the bonds, and only following confmation of such default by the Fiscal Agent. The WorldBank would be entitled to reimbursement from GOT on demand, or as the Bank may otherwisedirect, any amount paid under the guarantee.

Coupon: Should the Bank also guarantee coupon payments (up to two), the Sovereignwould be the primary guarantor for the payment of scheduled coupons2 . In the case of a defaultby EGAT and the Sovereign in the payment of the coupon, the Bank would make the payment tothe bondholders within a stipulated period. The Sovereign will within 60 days following theBank's payment reimburse the Bank for the coupon paid. As long as this reimbursement is madewithin 60 days, the Bank's guarantee coverage of two coupon payments would continue.Otherwise, coverage of only one additional coupon payment would roll over. Once the Bankmakes the second coupon payment under its guarantee, EGAT/GOT must reimburse the Bank andclear all outstanding arrears with the Bank related to this bond issue, within 60 days, before thesecond coupon coverage can roll over again3. Failure to do so would tenninate the Bank's rollinginterest cover.

Final pricing will only be dmetmined on the launch date.2 While it may be possible that coverage of a single rolling coupon payment could suffice, it would be prudent in light of current market

conditions to retain the flexibility to cover up to two semi-annual coupon payments. Based on the additional feedback from the rating agencies,the exact interest coverage will be furiher refined and its terms and conditions communicated to the Board.

Although the investors would be taking the sovereign/issuer risk for the coupon this structure entails that as long as the sovereign reimbursesthe Bank in time, the Bank could conceivably pay against all scheduled coupons. However, the Bank exposure at any given time would notexceed one or two interest payments, as the case may be.

38 Attachment A to Annex 2

Guarantee Related Fees: Principal: The fee represents 0.25% per annum, charged on the guaranteed principalexposure on a present value basis, discounted at the Bank's cost of funds as of the date of launch(currently estimated to be US$3.85 million). The entire fee is payable in advance at the closingdate, out of the gross proceeds of the Bonds. In the event of early redemption of the Bonds (or partthereof), a pre-calculated refund of a prorated part of the guarantee fee will be made by the Bank,provided that GOTIEGAT are not in default to the Bank with respect to other guarantee feeobligations or with respect to amounts previously paid by the Bank under the guarantee.

Coupon: Should the Bank also cover one or two interest payments, the Bank wouldcharge an additional fee of 0.25% per annum on the guaranteed coupon exposure, payable semi-annually, in advance of each period. The first installment would be due at the closing date, alsoout of the gross proceeds of the Bonds. Failure by EGAT/GOT to make timely payments of suchfee installments would be treated by the Bank as a breach by EGAT/GOT of their paymentobligations to the Bank, and would cause the Bank to suspend its guarantee coverage of couponpayments.

Commission (re-offerfee): 55bp; payable from bond proceeds.

Expenses to EGAT. Capped at US$60,000 - listing fees, paying agency fees, printing costs, trustee fees, closing costs.

OtherEGATExpenses: * Road show costs: capped at US$13,000 per person.* Rating agency fees: about US$100,000 (for Moody's). Lead manager absorbs S&P rating.* Annual rating maintenance fees: estimated at US$20,000-25,000 per agency.* EGAT's legal counsel: estimated at US$200,000.

Syndication (tentative): Lead Manager/Bookruiner (80%): ABN AMRO Bank N.V.Co-lead managers (15%): 3 European & US investment banks; nominated by GOT/EGAT andsatisfactory to the Bank.Co-managers (5%): 5 investment banks with 1% each.

Roadshow: London-Frankfurt-Milan-New York-Chicago.Other cities via conference calls.

Issue Rating: S&P and Moody's.

FiscalAgent. TBD

Distrbution: US 50% Italy 15% UK 15% Other Europe 10% Asia 10%

Investor Placement: Investment Advisors 50% Hedge Funds 5% Banks 5%Insurance companies 25% Pension Funds 10% Retail 5%

Buy-out Option: If interest/coupon payments are covered under the Guarantee, then following a default by EGATand GOT, a demand by the Fiscal Agent, payment by the Bank under the guarantee, and failure byGOT and EGAT to indemnify the Bank in respect of such payment, the Bank shall have the right,within a stipulated number of days (TBD) of such failure, to offer to purchase the bonds for anamount equal to the outstanding principal and accrued but unpaid interest on the bonds.

Drawdown: On the closing date of the issue, EGAT will receive the full amount of the proceeds less theguarantee fee payable to the Bank and all other fees, commissions and expenses payable to theManagers, Fiscal Agent, Paying Agents, and advisors. The entire net proceeds of the issue will becredited to a special account maintained by a fmancial institution acceptable to the Bank.Subsequent drawdowns from the special account will be made exclusively for the purposesdescribed above under "Use of Proceeds". The special account will be audited by independentauditors acceptable to the Bank and the audit reports will be submitted to the Bank. If the Bankdetermines that funds have been used for ineligible expenditures, GOT and EGAT must replenishthe special account.

3 9 Attachment A to Annex 2

Taxes and Other All payments to be made under or in connection with the Bonds to be free and clear of any taxes,Deductions: withholdings or other deductions.Documentation: Standard documentation including: Offering Circular, Terms and Conditions of Bonds, Warranty

Agreement, Fiscal Agency Agreement, Paying Agency Agreement and Subscription Agreement.Special provisions will be included to reflect the World Bank's participation, to provide disclosureof material information on the Bank and terms of the partial credit guarantee provided by theBank.

Bonds: The Bonds are unconditional and unsubordinated obligations of EGAT. No modification to theterms of the Bonds can be made without the Bank's approval. In the event that the Bonds areredeemed or canceled, the Banks guarantee will be discharged.

Indemnity by GOT/EGATT: GOT will enter into an Indemnity Agreement and EGAT will enter into a Project Agreement withthe Bank in respect of the guarantee. Under these agreements, GOT and EGAT will each agree toreimburse and indemnify the Bank in respect of any amount paid out (including other costs andexpenses incurred) under the provisions of the guarantee, on demand or as the Bank mayotherwise direct.

Governing Law & The terms and conditions of the Bonds, the Partial Credit Guarantee and all agreements areJurisdiction: subject to the laws of the State of New York. The Indemnity Agreement with GOT and the Project

Agreement with EGAT contain the dispute resolution provision common to all Bank agreementswith member countries and follow the usual legal regilne.

40

Attachment B to Annex 2Environmental Protection

1. Power plants and transmission lines are subject to stringent standards in Thailand (morestringent than the Bank guidelines in general). The proposed generation facilities will utilizecleaner fuels like natural gas. Flue Gas Desulfurization (FGD) will be installed for power plantsat Ratchaburi and Krabi (fuel oil with 2% sulfur) to remove 70,000 tons of sulfur dioxide peryear. The selected FGD systems represent commercially proven technology and will be designedto remove at least 80% of sulfur at Krabi and 90% at Ratchaburi. An environmental monitoringand management system would be instituted at each facility in order to meet regulations alongwith EGAT's corporate policy goals and responsibility.

Environmental Cornsiderations

2. In accordance with OD 4.01 on Environmental Assessment, the overall project has beenassigned Category A. The project comprises four generation and four transmission linecomponents which are in various stages of completion. The environmental assessment (EA) orenvironmental impact analysis (EIA) of each component has been completed and reviewedindividually. EGAT, with assistance of local and international consultants, prepared the EAs forthe four generation components (at three sites) as required by Thailand regulations. FocusedEIAs for the transmission lines components (not required by Thailand regulations) wereprepared for the Bank project. All EAs required by the Thailand regulation have been approvedby the National Environmental Board (NEB). Two of the transmission line EAs were reviewedby the Bank earlier as a part of another project and were found satisfactory. EGAT has providedaddenda and executive summaries to the EAs and EIAs for this project which provide updatedinformation, further clarification and explanation. All eight components of the project have beendesigned and will be implemented in accordance with the modem concept of environmentalmanagement.

Generation Compsnents

3. For the four generation facilities at three sites, EGAT has proposed to useenvironmentally friendly and clean natural gas at Wang Noi and Ratchaburi Combined cycle and2% sulfur fuel oil for Rachaburi thermal and Krabi. FGD systems with at least 90% efficiency atRachaburi and 80% at Krabi will be utilized to remove about 70,000 tons of sulfur dioxide peryear to meet stringent sulfur dioxide emissions standards in Thailand. Particulates emissions willalso be partially controlled by the FGD. The calculated amount of particulate emissions atRatchaburi thermal and Krabi are expected to be around 70 mg/Nm3 which is less than the Bankguideline dated 1983 (applicable when these power plants were designed but are higher than the1997 guidelines of :30 mg/Nm3). Dispersion modeling for the sites predicted maximum groundlevel concentration of the power plant to be less than 5 um/m3 (which is minimal). Consideringthe location of these facilities, further particulate control is not needed. However, ambientmonitoring for particulate matter will be conducted and if the power plant is shown to be a majorcontributor to the exceedance of particulate standards, further controls may be considered.

4. When possible, gypsum which is a by product of FGD will be utilized for theconstruction industry. Nitrogen oxides will be controlled at each facility, as required to meetemissions standards. Continuous monitoring for sulfur and nitrogen oxides for air pollution willbe instituted at each facility.

41

5. Water usage will be minimized by employing closed loop (or recirculating cycle) coolingsystems. Water intakes will be pretreated and discharges will be controlled to meet Thaistandards and the Bank guidelines. A holding pond, water reservoir and a waste water treatmentsystem will be constructed to reduce discharge water temperature. When required, water will beneutralized before being discharged. Oil/water separators are provided at oil storage and handlingareas and domestic sewage would be treated. Screens and other methods to prevent fish enteringthe inlet water pipes will be employed.

6. EGAT facilities will be surrounded with visual screens like greenbelt and other barriersto reduce noise and intrusion. Noisy activities (e.g. limestone blasting) will be conducted onlyduring the day time and in coordination with the local authority.

Transmission Components

7. In the selection of routes for transmission lines and substation sites, EGAT usesdesign criteria to minimize environmental impacts on forest, wildlife, watershed areas,populations, archeological sites and scenery. Transmission line right of ways are not to belocated through: (a) restricted Class IA watershed area, according to laws and regulations; and(b) holy places, archeological sites and government sites. Transmission line right of waysshould also avoid: (a) watershed area class 1B, Class C forest conservation areas, mangroveforest, national parks and other conservation areas; (b) community and developed areas; (c)parallel with, or close to telephone and telegraph cables for a long distance to avoidinterference; and, (d) airports.

8. Detailed Route Surveys. Before construction of the transmission system, detailed routesurveys will be perforned by EGAT staff together with the Royal Forestry Department (RFD).The number of forest trees to be cut will be documented. In addition, final route selectionadjustments to avoid dwellings and circumvent other areas of potential negative impact will bemade, according to EGAT's environmental design criteria.

9. Construction. EGAT's guidelines for construction activities are: (a) avoid installation ofnew access roads for construction purposes; try to utilize existing trails; (b) no cutting oftrees over the limitations set by RFD; and (c) clean up construction sites upon completion ofconstruction work.

10. Maintenance of the Right of Way. Along the valleys, only trees considered to behazardous to the stability of the transmission system would be cut down. Landowners arepermitted to cultivate economic crops at EGAT's option along the right of way corridors.Upon completion of transmission line construction work, ground cover around the towers willbe planted and land contouring will be done as required to provide a protective covering forthe earth and to prevent soil erosion. No herbicides are used in right of way maintenance.

11. For all components in this project, environmental aspects have been taken intoconsideration and should cause minimal disturbance to the human and natural environment. Anenvironmental management program consisting of both mitigation and monitoring action plans atthe plant level have been incorporated into the each of the project components to confirmnenvironmental performance on a sustainable basis. Monitoring will be conducted at each facilitiesfor air and water effluent quality, noise, ground water hydrology and quality, aquatic ecology,solid waste management, socio-economic indicators, public health and safety.

42

Fuel Transport

12. All fuel transport routes are selected with the least impact on people, forest, and wildlife.Fuel transport EAs for each generation facility (not financed under this project) have beenprepared by fuel suppliers (e.g. Petroleum Authority of Thailand - PTT) and reviewed andapproved by the NEB. These EAs have also been sent to the Bank public information center forthis project.

13. The Yadana gas pipeline for Ratchaburi plant is buried in a 3 meter deep ditch. This gaspipeline does pass through a 26 km of conserved forest which has provoked opposition. Thesocial impact of this pipeline has been estimated to be low. About 26 households have to movetheir house a few meters. No new access roads are needed. Royal Forest Department will reforest852 rais to compensate for the passing through the protected areas.

Analysis of Alternatives

14. In their planning and development analysis, EGAT takes into account the alternatives for:site locations, fuel type and transport, limestone supply and gypsum disposal when FGD isutilized. Before the projects are included in the formal power sector development (PDP) analysisof: feasibility; alternatives; fuel availability both locally and in the international markets;flexibility and reliability of fuel supply; transport options; initial environmental impacts; landavailability and ownership; extent of resettlement; socio-economic impact; political andinternational treaties; and others are performed by EGAT along with local and internationalconsultants. EGAT also takes into account the Government of Thailand's needs related to energysecurity by diversifying fuel and sites. The projects that satisfy these criteria, are furtherprocessed through a program called PRO-SCREEN for project prioritization and inclusion inPDP.

15. The components under considerations were based on extensive analysis as describedabove. Constraints on expansion of lignite and hydro, and to meet exponentially growingdemand, EGAT to choose the fastest generation method, namely gas turbines and combinedcycle. The fastest site capable of immediate development was Wang Noi as this site had alreadybeen acquired by EGAT previously for possible use, when needed, as a major substation.

16. While Wang Noi was being accelerated, the Cabinet contracted with Myanmar topurchase Yadana natural gas for 30 years starting in 1998. PTT completed detailed pipelinerouting studies and a major EA (April 1997). Ratchaburi was selected as the main site for thegeneration facility because it balanced the cost of transmission lines with the cost of gaspipelines. The Yadana gas pipeline had to be connected to the existing Gulf of Thailand gaspipeline network. Although pipelines are somewhat more expensive than transmission lines, theneed to connect to the, gulf gas lines was the main factor in selecting the Ratchaburi site betweenMyanmar and the main load center of Bangkok. The Ratchaburi site had been previouslyacquired by EGAT as there would be no involuntary resettlement. The other attraction of this sitewas that there was no biodiversity, forest or other habitat. The Yadana pipeline was completed inJune 1998. The Ratchaburi site is expected to be developed to 1800 MW with generation startingin September 1998. In order to spread economic risks, the site is planned to be half gas and halfoil.

17. Power demand in the Southern region of Thailand will exceed the demand soon. Krabisite was selected for expansion as it was an existing site of an old lignite plant which had beendecommissioned. Complying with the Cabinet's fuel diversification policy and in view of the

43

low and falling prices of international fuel oil, Krabi is to be developed into a 600 MW importedoil power plant.

18. Least-cost planning showed that upgrading of the current 80 MW interconnection ofThailand and Malaysia power grids to 300 MW is now the priority, hence is included in thisproject, for commissioning in 1999. This HVDC line can be upgraded to 600 MW in the future.

Public Consultation

19. EGAT's corporate policy now explicitly requires public participation and seeks theiracceptance of the development project. For the components in this project, EGAT's objectives inpublic consultation included their opinion, needs, problems and obstacles from the people andcommunities living in the operational area, as well as disseminating accurate information aboutthe project. Local communities, leaders, and government and non-governmental groups werecanvassed and requested recommendations. Several public meetings were held at each of theproject site to discuss concerns, mitigation measures and seek resolutions. Alternatives to theprojects were discussed with the local communities, as appropriate for each site as detailed in theproject specific environmental executive summaries. Even though public participation is includedin EGAT policy, the timing, transparency and public awareness of planning considerations inproject selection will be improved.

44

Environmental Considerations During Bank Supervision.

20. The following items would form part of the supervision of the Bank.

Component Issue Supervision ActivitiesEGAT environmental emissions and effluent site visits and inspection ofmonitoring monitoring as per EIA's environmental controls and

mitigation measures, reviewenvironmental monitoringdata, exception reports, andfollow up with management.

Yadana gas pipeline for traverses 26 km of conserved site inspection, reviewRatchaburi plant forest mitigation measures, follow

up on implementationRatchaburi and Krabi fuel 1) barge transport, Spill 1) review implementationdelivery systems Prevention Control and measures, loading operations

Countermeasures Plans; and safety; and capacity and2) pipelines; needs for spill response;3) alternatives 2) inspection of sensitive

segments of pipeline right ofways, further definition andimplementation of mitigationmeasures;3) review EIAs for anychanges in plans for fueldelivery systems, and siteinspections

Transmission lines: right of ways that traverse inspection of traverses500 kV for IPPs; reserved forest or other through protected areas,Transmission System No. 9 protected areas further definition and

implementation of mitigationmeasures

45

Annex 3Thailand

EGAT - Investment Program Support ProjectCost Estimates: Summary

The cost estijmates given in this Annex are based on EGAT's cost estimates for thevarious Project components which are in different stages of implementation. These estimateshave been prepared in different years and have been updated at appraisal. The estimates are notnecessarily in the Bank's normal format. Further, some of the Project components may be deletedor deferred following cuts in investments that may be dictated by depression in demand.

46

Annex 3Thailand

EGAT - Investment Program Support ProjectCost Estimates: Summary

- . ... .. .. . r ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . . .. . . . .. . . .

.EERi iLiEESE E- Ei iSiEEDescription MIIcoS Tota , , IHo lil -_______''.E EESSSE. ....... .!. pSE EL. i E. ..............,,,. .... .w.u--u .......... ............

iS S .iE.EEEEEEEEEEEE i.E ~~~~~~~~~~~~~~~~~~~....... fi;.ES EEEE.;. l iEEi.iLE........... ....... ... ................... ......... ..ER RRR-. ............ ......E iRiERREREEREER iRERE i.E. iREEEE EEE.ER...... ......... ..................... ........ ... E .EER-

, , l t ;t000000000 ..... 0.g;.., ....... .,00...... .... ... g l.-....

I Krabi Thermal Unit 1 (300 MW) 163 120 28 6,50 4,805 11,308

Krabi Thermal Unit 1 (300 MW) 145 91 236 5,783 3,645 9,42

Transmission System 18 29 47 | 720 1,160 1,88

2 Ratchaburi Thermal Units 1-2 (2x700 MW) 640 450 1,08| 25,582 '17,98C 43,56

Ratchaburi Thermal Plant Unit 1-2 454 271 725 18,150 10,84E 28,99

Transmission System 186 178 364 7,43 7,132 14,56

3 Ratchaburi Combined Cycle Blocks 1-3 626 386 1,012 25,04C 15,440 40,48(3x600 MW)Ractchaburi Combined Cycle Block 1-3 493 247 73| 19,70 9,860 29,56

Transmission System 134 140 273 5,340 5,580 10,92

4 Wang Noi Combined Cycle Stage 2 (600 201 73 273 8,02 2,913 10,93MW)

6 Transmission System for Evacuation of 208 327 53| 8,31 13,095 21,40Power from IPPs /IWestern Area 142 205 347 5,69 8,185 13,88

Eastem Area 65 123 188 2,61 4,910 7,52

6 Transmission System to Receive Power 48 116 16 1,90 4,640 6,54from Hong Sa (Laos)

7 Bulk Power Supply System for Greater 233 127 36 9,32 5,080 14,40Bangkok

8 EGAT-TNB (Malaysia) - Stage II 85 76 161 3,41 3,024 6,440Interconnection

9 Transmission System Expansion Project 289 269 55 11,56 10,752 22,32No.9 (TS.9)

-Totl 2. . L 7 177,39

I USD = 40 THB

Estimates prepared and updated by EGAT/1 Part Cost Estimate reflectingdeferment of some components

47

Annex 3Krabi Oil Fired Thermal Plant Unit 1 - 300 MW

Sr. jDeecr,pti'on,, .'ll USO,, : Millio TBD::.. . . ........ .......... . . . .. . . . . ......... ........ ... ........ , , , .................. ......... . ..... ... ...

C Equipment 104.3 1.8 106.1 4,172.0 71.0 4,243.0

2 Spare Parts 3.9 - 3.9 157.4 - 157.4

3 Local Transport - 0.1 0.1 - 4.0 4.0

4 Site Services 5.6 - 5.6 225.6 - 225.6

5 Design Engineering 5.2 5.2 208.1 208.1

6 Training Program 0.1 - 0.1 5.1 - 5.1

7 Erection 6.8 17.3 24.1 272.0 693.6 965.6

8 Civil Works - 17.2 17.2 - 687.2 687.2

9 Land&LandRight - 0.7 0.7 - 29.8 29.8

10 Port Facility&Pipe Line 5.9 8.8 14.6 235.2 350.1 585.3

Sub -Total 1 131.9 45.9 177.8 5,275.3 1,835.8 7,111.1

11 Engineering Services 3.8 7.5 11.3 151.7 298.8 450.5

12 Contingencies 6.8 3.0 9.8 271.4 119.9 391.3

Sub - Total 2 142.5 56.4 198.8 5,698.4 2,254.5 7,952.9

13 Import Duty & Taxes - 6.6 6.6 - 263.8 263.8

14 Escalation 2.1 11.3 13.4 84.7 451.1 535.8

Sub -Total 3 144.6 74.2 218.8 5,783.1 2,969.4 8,752.5

15 Interest During Construction - 16.9 16.9 676.0 676.0

:: ' i '':::1 1:' '' ''lI[' 14. J ] :3. ': ' ' '1 ',4, : ' ii : -1 P.ice Level . 1 ... o. .97 .

I I . .

Price Level -1997

48

Annex 3Transmission System for

Krabi Oil Fired Thermal Power plant Unit I - 300MW

Nos - - - I I : :; I -- il. II D. Mi., ~~~~~~~~~~...... .....S..-................. .. ............ - .......... . . . . ...... ................

Transmission Lines1 230 kV Krabi - Thung Song 5.2 11.9 17.2 209.0 477.5 686.5

Sub-Total Transm Lines 5.2 11.9 17.2 209.0 477.5 686.5

Substations2 230 kV Krabi Substation 7.2 1.8 9.0 288.2 73.1 361.33 230 kV Thung Song Substation

Expansion i7 0.3 2.0 69.1 12.6 81.74 230 kV Nakhon Si Thammarat

Substation Expansion cIo 0.2 1.2 38.7 8.3 47.05

Communication System Addition 0.3 0.0 0.3 11.0 1.0 12.0

Sub-Total Substations 10.2 2.4 12.6 407.0 95.0 502.0

Sub-Total 11' 15.4 14.3 29.7 616.0 572.5 1,188.5

7 Engineering & Supervision - 2.1 2.1 - 83.0 83.08 Physical Contingencies 1.5 1.6 3.2 61.6 65.5 127.1

Sub -Total 2 16,9 18.0 35.0 677.6 721.0 1,398.6

9 Escalation 0.9 2.6 3.5 36.4 104.5 140.910 Import Duties - 2.8 2.8 - 110.0 110.0

Sub -Total 3 17.9 23.4 41.2 714.0 935.5 1,649.5

11 Interest During Construction - 3.2 3.2 - 128.0 128.0

Sub - Total 4 17.9 26.6 44.4 714.0 1,063.5 1,777.5

12 Value Added Tax - 2.9 2.9 - 114.5 114.5

.................... ThtaI[ ,,,1-7: ''''''''''''''''''''''i I 29.51 41. 71 ''' 18.o I2.. '''

Price level - 1997

49

Annex 3Ratchaburi Thermal Powewr Plant Units 1 and 2 - 2x700 MW

Sr. Description Million USD F Million THBNo. FC LC ToTotal FC LC Total

1 Steam Gen. & Aux. 70.5 2.1 72.7 2,821.7 85.1 2,906.7

- Required Spare Parts 13.0 0.0 13.0 518.1 0.1 518.1

2 Turbine Gen. And Aux. 141.6 2.1 143.7 5,662.4 84.3 5,746.7

3 FGD 35.6 - 35.6 1,424.1 - 1,424.1

4 Power House 15.6 3.8 19.4 623.5 153.5 777.1

5 Electrical & Control Eqp. 61.8 0.9 62.7 2,473.7 35.2 2,508.8

6 Water Treatment 20.6 7.3 27.9 823.2 292.1 1,115.3

7 Cooling Water System 13.5 2.1 15.6 539.9 83.0 622.9

8 Port Facility 26.3 11.3 37.5 1,050.0 450.0 1,500.0

9 Land and Land Rights - 8.8 8.8 - 350.0 350.0

10 Erection 25.9 60.4 86.2 1,034.7 2,414.4 3,449.1

11 Civil Works - 30.7 30.7 - 1,229.5 1,229.5

Sub-Total 1 424.3 129.4 553.7 16,971.3 5,177.2 22,148.5

12 Engineering Services 4.7 7.5 12.2 186.2 300.0 486.2

13 Contingencies 21.4 7.9 29.4 857.9 316.3 1,174.2

Sub-Total 2 450.4 1448 595.2 18,015.4 5,793.5 23,808.9

14 Escalation 3.4 60.8 64.1 134.3 2,430.0 2,564.3

15 Import Duties and Taxes - 21.2 21.2 - 848.6 848.6

Sub-Total 3 453.7 205.6 659.3 18,149.7 8,223.5 26,373.2

16 jInterest During Const. - 65.6 65.6 - 2,623.6 2623.6

[I T,a , 4,3, 1 2. .... -.- 4. ...... 4..1...................:

Price Level -1995

50

Annex 3Transmission System for

Ratchaburi Thermal Power Plants Units 1 and 2 - 2x700MW

1S r . : Cecipit :: Millio USD lt MWlo ThB : 1, ,,,,~~~~~~~~~. .. ..iE. i EEEEEEEE. ......E

I No -- EEE -:E -i:g -I 1C LC -oa - -:-FC LC Total -C

Transmission Lines1 500 kV Chom Bung -Wang Noi 34.5 65.5 99.9 1,378.6 2,618.9 3,997.5 2 Reconstruction of 230 kVI

Ratchaburi 2 -Ban Pong 2 7.4 6.1 13.5 295.4 243.4 538.83 Reconstruction of 230 kV Ban Pong

2 -.Sai.Noi 9.5 9.9 19.4 379.7 395.2 774.9

Sub-Total TIL 51.3 81.4 132.8 2,053.6 3,257.5 5,311.1

Substations4 500 kV Ratchaburi Power Plant

Switchyard Expansion 3.4 0.6 4.0 135.4 24.9 160.3|5 500 kV Chom Bung Substation

Expansion 9.6 1.5 11.1 385.6 58.8 444.46 500/230 kV Wang Noi Substation

93.3 6.8 100.2 3,7322 273.9 4,006.17 230 kV Ban Pong 2 Substation

Expansion 4.6 0.2 4.8 185.3 6.2 191.518 230 kV Sai Noi Substations

Expansion 2.0 0.1 2.1 80.2 2.8 83.039 Comm. System Add 1.6 0.1 1.7 63.8 4.4 68.2

Sub-Total Subs 114.8 9.3 123.8 4,582.4 371.0 4,953.4

Sub - Total 11 165.9 90.7 256.6 6,638.0 3,628.5 10,264.5|

10 Engineering & Supervision 9.7 9.7 - 388.5 388.511 Physical Contingencies 16.6 10.0 26.6 664.0 401.5 1,065.5

Sub-Total 182.5 110.5 293.0 7,300.0 4,418.5 11,718.5

12 Escalation 3.3 25.0 28.3 1320 1,000.0 1,132.013 Import Duties u 11.9 11.9 4 475.5 475.5

Sub-Total 185.8 147.4 333.2 7,432.0 5,894.0 13,326.0

14 Interest During Construction 1 16.9 16.9 4 675.5 675.5

Sub-Total 4 185.8 164.2 350.0 7,432.0 6,569.5 14,001.5

15 Value Added Tax - 14.0 14.0 - 560.5 560.5

Price level - 1995

51

Annex 3Ratchaburi Combined Cycle Power Plant Blocks 1,2,3 - 3x600 MW

[ Sr. Description Million USD Million THB _No. | FC [ LC [ Total | FC L _C I Total

1 Gas Turbine 189.9 - 189.9 7,597.1 - 7,597.1

2 Steam Turbine 66.2 - 66.2 2,646.6 - 2,646.6

3 HRSG 79.4 - 79.4 3,176.2 - 3,176.2

4 Circulating Water System 13.0 - 13.0 518.5 - 518.5

5 Power House 29.6 - 29.6 1,182.4 - 1,182.4

6 Electrical and Control 48.7 - 48.7 1,950.0 - 1,950.0

7 Fuel Oil Handling 1.7 - 1.7 66.1 - 66.1

8 Gas Pipeline 0,6 - 0.6 22.8 - 22.8

9 Land and Land Rights - 8.8 8.8 - 350.0 350.0

10 Erection 25.7 60.1 85.8 1,029.6 2,402.3 3,431.9

11 Civil Works - 39.8 39.8 - 1,590.0 1,590.0

Sub-Total 1 454.7 108.6 563.3 18,189.3 4,342.3 22,531.6

12 Engineering Services 2.4 11.3 13.6 94.8 450.0 544.8

13 Contingencies 22.9 7.1 30.0 914.2 285.1 1,199.3

Sub-Total 2 480.0 126.9 606.9 19,198.3 5,077.4 24,275.7

14 Import Duties and Taxes - 22.7 22.7 - 909.5 909.5

15 Escalation 12.5 37.1 49.6 500.8 1,483.4 1,984.2

Sub-Total 3 492.5 186.8 679.2 19,699.1 7,470.3 27,169.4

16 Interest During Construction - 59.8 59.8 - 2,391.6 2391.6

. -'''' ' ::: ::''- ...... . ......... . ,,................----.:

. .... ........ ..... . I. j . I.. I ............. ...... |1 .,. .. I . . . . |..... .... . . :: -. : : .. ...... 11.:. :: .1. ::. .. : 1 --. --.11 ............ : .:: : I ... . .....--

Total11 .IF .... 246 .. . .. .. -.-. : 1 :.:.:.: ' '.,1 96j6:'1:.9 j 2.5..1 , .. 4.

Price Level - 1995

52

Annex 3Transmission System for

Ratchaburi Combined Cycle Power Plant Blocks 1,2,3 - 3x6OOMW

~~~~~~~~~~~~. .......... .... .. ... ......... ........................ ...... ........... ..... ..''''''1Sr. f Descrlptlr. .................- .......S....___ _____ FlonTh~_____

Transmission Lines1 230 kV Ratchaburi Power Plant

- Ratchaburi 2 3.5 4.1 7.6 141.8 162.3 304.12 500 kV Ratchaburi Power Plant

- Chom Bung 4.0 5.9 9.9 161.3 236.4 397.73

500 kV Chom Bung - Sai Noi 17.5 36.3 53.8 701.9 1,450.0 2,151.94 230 kV Ratchaburi Power Plant

- Samut Sakhon 4 4.0 7.0 11.0 158.2 281.1 439.35 Reconstruction of the 115 kV

Samut Sakhon 4 - 1.0 1.2 2.2 41.6 47.2 88.8Sub-Total TIL 30.1 54.4 84.5 1,204.8 2,177.0 3,381.8

Substations6 500/230 kV Ratchaburi Power

Plant Switchyard 45.3 8.5 53.8 1,813.4 338.3 2,151.77 230 kV Ratchaburi 2

Substation Expansion 5.4 0.4 5.7 215.2 14.5 229.78

500 kV Chom Bung Substation 14.3 5.1 19.4 573.8 202.2 776.09 500 kV Sai Noi Substation

Expansion 13.8 1.1 14.9 550.4 44.0 594.410 230/115 kV Samut Sakhon 4

Substation 7.3 3.3 10.7 293.4 133.8 427.211 115 kV Samut Sakhon 2

Substation Expansion 0.2 0.0 0.3 9.9 0.9 10.812 Communication System

Addition 1.5 0.1 1.6 60.6 4.3 64.9Sub-Total Substations 87.9 18.5 106.4 3,516.8 738.0 4,254.8

Sub-Total 11 118.0 72.9 190.9 4,721.6 2,915.0 7,636.6

13 Engineering & Supervision - 7.3 7.3 - 293.5 293.514 Physical Contingencies 11.8 8.0 19.8 472.0 321.0 793.0

Sub-Total 2 129.8 88.2 218.1 5,193.6 3,529.5 8,723.1

15 Escalation 3.7 16.3 20.0 146.4 652.4 798.816 Import Duties - 10.8 10.8 - 432.0 432.0

Sub-Total 3 133.5 115.3 248.8 5,340.0 4,613.9 9,953.9

17 Interest During Construction - 14.0 14.0 - 558.0 558.0

Sub-Total 4 133.5 129.3 262.8 5,340.0 5,171.9 10,511.9

18 Value AddedTax 10.2 10.2 _ 408.0 408.

Pric|||g ...e.'; .: Level .. 1995Price Level - 1995

53

Annex 3Wang Noi Combined Cycle Power Plant Stage 11 - 600 MW

§ Sr. --- : EDescription: - Milio .S.. .Millin T.___No__ LC--ot- FC : LC__ Totalt: F .:::

I Gas Turbine 1-2 87.7 0.9 886 3,507.7 37.5 3,545.2

2 HRSG Boiler 18.9 0.4 19.3 755.0 17.4 772.4

3 Steam Turbine Generator Eqp. 20.4 0.9 21.3 816.9 34.7 851.6

4 Power House 5.1 5.6 10.7 204.0 223.0 426.9

5 Control and Access. Elect. Eq. 44.9 0.9 45.8 1,797.6 35.7 1,833.3

6 Wtare Treatment Plant 4.5 0.4 4.9 180.2 16.0 196.2

7 Cooling Water System 5.2 0.4 5.7 210.0 17.8 227.7

8 Civil Works - 12.5 12.5 - 501.9 501.9

9 Local Transport - 1.8 1.8 - 72.2 72.2

Sub-Total 1 186.8 23.9 210.7 7,471.4 956.2 8,427.5

11 Engineering Services 4.2 8.1 12.4 169.1 325.4 494.5

12 Contingencies 9.6 2.1 11.6 382.0 82.8 464.8

Sub-Total 2 200.6 34.1 234.7 8,022.5 1,364.3 9,386.8

13 Import Duties and Taxes - 9.3 9.3 - 373.6 373.6

14 Escalation - - - - - -

Sub-Total 3 200.6 43.4 244.0 8,022.5 1,737.9 9,760.4

15 jInterest During Construction - 29.4 29.4 - 1,174.7 1,174.7

1- -... I 11: . - :. -- i. 1 ------- -- -: :............ .. 1..i - - - :-:~~~.--1... ... : 1. .Il.. ..... ..111......

1 . 1 -. , : .1 1 1 .1: .... .: ... {1 .:.: : {.: .: : .:1 : :: I~~~~~~~~~~~~~~~~~~~.. .. . . . . ..

Irc lT eval 200-.8 7 { 273141 8022.5 I 2,012 . 10 36.i Price Level - 1994

54

Annex 3Transmission System for IPPs (West)

Description MIIIIos~~~~~ IJSD IIMillwkn THB.... ~~~~~~~~~~~~~~~~~~~~~~~..... . . .. .... i;............................ ............. ....... .iEE. L,,E........ . .. '1.' ... 9.. ........ ...... N

TRANSMISSION LINES

1 500 kV Bang Saphan-Chom Bung 1st Line 45.5 83.7 129.2 1,818.0 3,348.0 5,166.0

Sub-Total -Transmission Lines 45.5 83.7 129.2 1,818.0 3,348.0 5,166.0

SUBSTATIONS

2 500/230 kV Bang Saphan Substation Expan 17.1 6.0 23.1 683.5 239.5 923.0

3 500 kV Chom Bung Substation Expansion 3.5 0.8 4.2 138.5 30.4 168.9

4 500 kV Sai Noi Substation Expansion 46.6 2.8 49.4 1,862.7 112.8 1,975.5

5 Installation of Reactor at 500 kV Lines 6.8 0.3 7.1 271.2 10.9 282.1

6 Communication System Addition 1.4 0.1 1.6 57.6 5.9 63.5

Sub-Total Substations 75.3 10.0 85.3 3,013.5 399.5 3,413.0

Sub-Total 11 120.8 93.7 214.5 4,831.5 3,747.5 8,579.0

7 Engineering & Supervision 10.7 10.7 - 429.0 429.0

8 Physical Contingencies 12.1 10.4 22.5 483.5 417.5 901.0

Sub-Total 2 132.9 114.9 247.7 5,315.0 4,594.0 9,909.0

9 Escalation 9.5 32.8 42.3 380.0 1,312.5 1,692.5

10 Import Duties - 16.2 16.2 - 649.5 649.5

Sub-Total 3 142.4 163.9 306.3 5,695.0 6,556.0 12,251.0

11 Interest During Construction - 17.1 17.1 - 883.5 683.5

Sub-Total 4 142.4 181.0 323.4 5,695.0 7,239.5 12,934.5

12 Value Added Tax - 23.6 23.6 - 945.5 945.5

Note: Part Cost estimate reflecting deferment of some components

55

Annex 3Transmission System for IPPs (East)

St -1- Description Million USA - Milion IB-lNo. ...... F.C. L L -T L.C x -j-- Total

TRANSMISSION LINE

1 500 kV Rayong 4 - T Junction lst Line Route 20.1 50.6 70.7 804.1 2,025.3 2,829.4

2 230 kV Rayong 4 - Rayong 2 4.5 9.1 13.7 181.9 364.7 546.6

Sub-Total Transmission Lines 24.7 59.8 84.4 986.0 2,390.0 3,376.0

SUBSTATION

3 5001230 kV Rayong 4 Substation 26.0 7.6 33.6 1,038.5 305.5 1,344.0

4 230 kV Rayong 2 Substation Expansion 1.4 0.3 1.6 54.4 10.6 65.0

5 Installation of Shunt Reactor at 500 kV Line 6.2 0.3 6.5 247.7 12.5 260.2

6 Communication System Addition 0.5 0.1 0.6 19.9 2.4 22.3

Sub-Total Substations 34.0 8.3 42.3 1,360.5 331.0 1,691.5

Sub-Total 11 58.7 68.0 126.7 2,346.5 2,721.0 5,067.5

7 Engineering & Supervision - 6.3 6.3 - 253.5 253.5

8 Physical Contingencies 5.9 7.4 13.3 234.5 297.5 532.0

Sub-Total 2 64.5 81.8 146.3 2,581.0 3,272.0 5,853.0

9 Escalation 0.9 12.5 13.4 34.0 501.5 535.5

10 Import Duties - 8.0 8.0 - 318.0 318.0

Sub-Total 3 65.4 102.3 167.7 2,615.0 4,091.5 6,706.5

11 Interest During Construction - 9.1 9.1 - 362.5 362.5

Sub-Total 4 65.4 111.4 176.7 2,615.0 4,454.0 7,069.0

12 ValueAddedTax - 11.4 11.4 - 456.0 456.0

L_....i I2~II 65*4 ~ 122.8J 188.1 2,815.0 1 4,810. 7,5--:: -

Note: Part Cost Estimate reflecting deferment of some components

56

Annex 3Transmission System for Hong Sa

Sr Description _ Millon USD F Million THBNo. r FC § LC | Total FC _ LC Total

I500 kV Laos/Thai Border- Mae Moh 3 T/L 30.6 49.5 80.1 1,224.0 1,981.5 3,205.5

2500 kVMae Moh 3 Switchyard Expansion 6.8 1.1 7.8 270.4 43.2 313.6

3Communication System Addition 0.7 0.1 0.7 26.6 2.3 28.9

Sub-Total 11 38.0 50.7 88.7 1,521.0 2,027.0 3,548.0

4Engineering Services - 4.4 4.4 - 177.5 177.5

5Contingencies 3.8 5.5 9.3 152.0 220.5 372.5

Sub-Total 41.8 60.6 102.5 1,673.0 2,425.0 4,098.0

6Import Duties and Taxes - 8.1 8.1 - 322.0 322.0

Sub-Total 41.8 68.7 110.5 1,673.0 2,747.0 4,420.0

7Escalation 5.8 25.5 31.3 232.0 1,019.0 1,251.0

Sub-Total 47.6 94.2 141.8 1,905.0 3,766.0 5,671.0

8Interest During Construction - 10.2 10.2 - 408.5 4085

Value Added Tax 11.6 11.6 465.5 465.5

i iERERE . ,#. , .E E i,:E E E iERE ~~~~~~~.. ....... ... ..... ,....... . ...... ........... .......... ........... ........... ... .. E... .. ..

....... 47. 1 .0 16 .I .0 : ...Price level - 1997

57

Annex 3Bulk Power Supply System for Greater Bangkok

Description .:Hv USD IopH|--s.r. l--- ' DescH tior'' ' '~~~~~~~~...... .,-... .. ... ............,': 'Mli-.US:,---'|:."............ -................ ":Mi l ' -B:~~~~~~~: . 1 - L: :1 :Total'- I' '' :L - ['.:tTotal

TRANSMISSION LINE1 230 kV Detour Line Sai Noi-Bangkok Noi 4.2 3.4 7.6 169.4 134.0 303.42 Reconstruction of 500 kV Sai Noi-Bkk Noi 8.5 10.9 19.4 339.6 437.7 777.33 Reconstruction of 500 kV Nong Chok-OnNuch

5.3 6.7 11.9 211.8 266.2 478.04 230 kV Detour Line Rangsit-Chaeng Wathana

1.2 0.9 2.1 46.3 36.5 82.85 Reconstruction of 500 kV Sai Noi - Rangsit 7.1 &9 16.0 284.7 357.2 641.96 Recons. of 500 kV Rangsit - Chaeng Watthana

2.3 2.9 5.2 92.5 115.7 208.27 230 kV Detour Line Chaeng Watthana-Lat Phrao

2.8 2.2 5.0 111.4 88.5 199.98 Reconst. of 230 kV Bangkok Noi - North

Bangkok 2.7 2.7 5.4 107.9 106.9 214.89 Reconst. of 230 kV Chaeng Watthana - North

Bangkok Junction 3.6 3.3 6.9 145.4 131.5 276.910 Reconst. of 230 kV North Bangkok - North

Bangkok Junction- Lat Phrao 2.5 2.2 4.7 100.4 87.0 187.4

Sub-Total Transmission Lines 40.2 44.0 84.3 1,609.4 1,761.2 3,370.6

SUBSTATION11 Replacement of circuit breaker at Bang Phi 2.9 0.1 3.0 114.5 5.0 119.512 Thepharak 15.8 2.7 18.5 633.6 108.2 741.813 Bangkok Noi Expansion 0.7 0.2 0.9 27.9 6.3 34.214 North Bangkok Renovation and Expansion 17.2 1.2 18.3 686.9 47.0 733.915 Chaeng Watthana Expansion 5.0 0.8 5.7 198.1 30.7 228.816 Lat Phrao Renovation and Expansion 39.8 5.3 45.0 1,590.6 210.5 1,801.117 Addition of Transformers at Existing Substations

61.0 3.7 64.7 2439.2 149.5 2,588.718 Reactive Power Cornpensation Equipment 15.0 1.0 16.0 600.0 39.0 639.0

Sub-Total Transmission Lines 157.3 14.9 172.2 6,290.8 596.2 6,887.0

19 Communication System Addition 0.9 0.1 1.0 37.0 2.6 39.6

Sub-Total 11 198.4 59.0 257.4 7,937.3 2,360.0 10,297.3

20 Engineering & Supervision 1.6 8.3 9.9 63.5 330.7 394.221 Physical Contingencies 20.0 6.7 26.7 800.0 269.1 1,069.1

Sub-Total 2 220.0 74.0 294.0 8,800.8 2,959.8 11,760.6

22 Escalation 13.0 15.5 28.5 520.6 620.0 1,140.623 Import Duties - 11.0 11.0 - 440.6 440.6

Sub-Total 3 233.0 100.5 333.6 9,321.4 4,020A 13,341.8

24 Interest During Construction - 12.3 12.3 - 493.9 493.9Sub-Total 4 233.0 112.9 346.9 9,321.4 4,814.3 13,835.7

25 Value Added Tax - 14.2 14.2 - 566.0 566.0

Pr .. .. . . .. -:: -::- - -: - . ::Tice Level......... .. ,, ,. , '';:" ', '7. ' .... . , .. ' - .......Price Level - 1 994

58

Annex 3EGAT-TNB Stage 11 Interconnection

| Sr. | Description M Million USD Million THB[No.| FC LC Total FC LC Total

TRANSMISSION LINES

1 230 kV Hat Yai 2 - Khlong Ngae 1.9 3.2 5.1 77.1 128.4 205.5

2 HVDC Khlong Ngae - Thai/Malaysia Border 1.6 2.5 4.1 63.5 100.7 164.2

3 230 kV Khlong Ngae - Thung Song 13.5 22.4 35.9 539.4 897.9 1,437.3

ission Lines 17.0 28.2 45.2 680.0 1,127.0 1,807.0

SUBSTATIONS

4 230 kV Hat Yai 2 Substation Expansion 3.4 0.1 3.5 135.1 4.9 140.0

5 Khlong Ngae HVDC Converter Station 45.3 4.8 50.0 1,811.7 190.3 2,002.0

6 230 kV Thung Song Substation Expansion 1.4 0.2 1.6 54.3 8.9 63.2

7 Communication System Addition 0.9 0.1 1.0 35.1 3.4 38.5

Substations 50.9 5.2 56.1 2,036.2 207.5 2,243.7

Sub-Total 1 67.9 33.4 101.3 2,716.2 1,334.5 4,050.7

8 Engineering Services - 5.4 5.4 - 217.0 217.0

9 Contingencies 6.8 3.9 10.7 271.5 155.0 426.5

Sub-Total 2 74.7 42.7 117.4 2,987.7 1,708.5 4,694.2

10 Import Duties and Taxes - 9.8 9.8 - 391.5 391.5

11 Escalation 10.7 8.3 18.9 427.7 330.0 757.7

1~~~~~~~~~~~~~~~~~~~~~~~~~~Sub-Total 3 85.4 60.7 146.1 3,415.4 2,428.0 5,843.4

12 Interest During Construction - 8.9 8.9 - 355.0 355.0

13 Value Added Tax - 6.0 6.0 _ 241.0 241.0

I I l . ..~ ~~~ ~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . . . .. .

.......... -'I'M':R .. E.'... H''''' '..... ............ ' .. H'..':. .....3............... H:''4' ''''''3E::' 'K '3i.i E I ~~~~~~~~~~~. . .. . . ........ . .. . .E .. . .. . . . ............. .............

Price Level - 1994

59

Annex 3Transmission System Expansion Project No 9

r .. ... . ... . ...... ... ... ., ., I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . . .. . . . . . .. . .. .

--~~~~~ ~ o, . -- L1LC :Ttt Toa ]~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.......... . ...... ...... ........_---''''''''i

TRANSMISSION LINES1 230kV BanPong2-BanF'ong1-NakhonChaisi-SamPh.2 4.4 5.6 9.9 175.2 222.6 397.82 115 kV Bo Win - Ban Bung 1.3 2.5 3.7 50.2 98.2 148.43 115 kV Tha Wung Line Termination 0.1 0.3 0.4 3.3 12.9 16.24 115kVThalan3-Saraburi 1 0.7 1.4 2.2 28.7 57.8 86.55 115 kV Ratchaburi 2- Ftatchaburi 3.0 3.4 6.4 118.7 136.3 255.06 115 kV Prachan Buri 2.- Watthana Nakhon 1.6 5.6 7.3 64.8 225.7 290.57 230 kV Mukdahan 2 Line Termination and 115 kV Mukdahan 2

That Phanom - Nakhon Phanom 1.8 4.5 6.3 70.6 180.1 250.78 115 kV Udon Thani 2 - Nong Bua Lam Phu 0.8 2.6 3.4 32.3 105.3 137.69 |115 kV Roi Et - Phayaklaphum Phisai - Surin 2.0 3.9 5.9 81.6 154.7 236.3

10 115 kV Chaiyaphum - Bamnet Narong 0.8 2.5 3.3 30.7 100.1 130.811 115 kV Ubon Ratchathani 2 - Kantharalak 0.7 2.4 3.1 29.0 94.9 123.912 115 kVSurin-Sangkha 0.6 2.1 2.8 25.9 84.6 110.513 230 kV Surat Thani - Thung Song and 230 kV Thung Song -

Nakhon Si Thammarat 11.9 13.9 25.8 474.7 556.6 1,031.3|1 230kVKhlongNgae-Yala 5.4 9.4 14.7 214.6 374.4 589.015 230 kV Phangnga - Phuket Junction and 115 kV Phuket 2 -

Phuket Junction 4.4 4.5 &9 176.0 178.6 354.616 115 kVYala - Narathiwat 0.8 7.1 8.0 32.3 285.9 31&217 115 kV Surat Thani - Ban Don 0.1 0.1 0.2 4.2 2.3 6.518 115kV Lan Krabu - Kamphaengphet 1.6 3.0 4.6 63.8 121.8 185.619 115 kV Mae Moh 3 - Lampang 2 1.5 2.3 3.8 59.5 92.8 152.320 115 kV Chiang Mai 2 - MIae Taen 0.6 2.3 2.8 22.3 91.0 113.3

Sub-Total Transmission Line 44.0 79A 123.4 1,758A 3,176.6 4,935.0

SUBSTATIONS21 Ban Pong 2 Expansion, Nakhon Chaisi Expansion and Sam

Phran 2 Expansion 1.2 3.0 4.1 46.9 118.3 165.222 Bo Wing Expansion and Ban Bung Expansion 1.3 0.2 1.5 51.3 7.2 58.523 Tha Wung 1.6 1.9 3.4 62.9 74.8 137.724 Thalan 3 Expansion and Saraburi I Expansion 1.6 0.3 1.9 64.0 12.0 76.025 Ratchaburi 2 Expansion and Ratchaburi Expansion 0.9 0.1 1.0 36.4 5.2 41.626 Prachin Buri 2 Expansion and Watthana Nakhon Expansion 0.7 0.1 0.7 26.2 3.7 29.927 Mukdahan 2, Mukdahan I Expansion, That Phanom Expansion

and Nakhon Phanom Expansion 9.8 3.4 13.3 393.4 136.9 530.328 Udon Thani 2 Expansion and Nong Bua Lam Phu Expansion 0.5 0.1 0.7 21.2 5.4 26.629 Roi Et Expansion, Phayalkhaphum Phisai Expansion and Surin

Expansion 1.4 0.2 1.6 54.3 7.8 62.130 Chaiyaphum Expansion and Bamnet Narong 2.5 0.6 3.1 98.8 25.3 124.131 Udon Ratchaburi 2 Expansion and Kantharalak 2.5 0.7 3.2 101.0 26.4 127.432 Surin Expansion and Sangkha 2.4 0.7 3.1 96.8 27.3 124.133 Surat Thani Expansion, Thung Song Expansion and Nakhon Si

Thammarat Expansion 12.2 3.3 15.5 487.7 133.3 621.034 Khlong Ngae Expansion and Yala Expansion 7.8 1.9 9.7 313.6 75.6 389.235 Phangnga Expansion PhLiket 2 Expansion 0.6 2.2 2.8 24.8 88.8 113.636 Yala Expansion and Naral:hiwat Expansion 0.5 0.1 0.6 21.0 2.9 23.937 Surat Thani Expansion and Ban Don Expansion 0.7 0.1 0.8 26.8 3.8 30.638 Mae Moh 3 Expansion and Chiang Rai Expansion 7.9 1.9 9.8 316.1 74.1 390.239 Lan krabu Expansion and Kamphaengphet Expansion 1.1 0.2 1.3 43.6 6.4 50.040 Mae Moh 3 Expansion and Lampang 2 Expansion 2.9 0.6 3.5 115.9 23.0 13&9

60

Annex 3Transmission System Expansion Project No 9

ESr.- E Eii -P-iEE - - * n: E LXe .... n-...... i. ..... . Won:. . T a................... ..

41 Chiang Mai 2 Expansion and Mae Taeng 2.6 0.8 3.4 105.4 31.3 136.7

42 Addition of Transformers at Existing Substations 95.6 7.0 102.6 3,824.3 278.5 4,102.8

43 Reactive Power Compensation Equipment Installation 12.1 1.2 13.3 482.8 48.7 531.5

4 Miscellaneous System Expansion 39.8 15.5 55.3 1,591.8 621.0 2,212.8

Sub-Total Substation 210.2 45.9 256.1 8,407.1 1,837.7 10,244.8

45 Communication System Expansion 5.9 0.8 6.6 234.5 30.7 265.2

Sub-Total 260.0 126.1 386.1 10,400.0 5,046.0 16,445.0

46 Engineering Services - 20.4 20.4 - 817.7 817.7

47 Contingencies 26.0 14.7 40.7 1,041.1 586.3 1,627.4

Sub-Total 286.0 161.2 447.3 11,441.1 6,449.0 17,890.1

48 Import Duties and Taxes - 22.0 22.0 - -880.2 880.2

49 Escalation 3.1 37.2 40.3 125.0 1,488.0 1,613.0

Sub-Total 289.2 220.4 509.6 11,666.1 8,817.2 20,383.3

50 Interest During Construction - 2&0 28.0 - 1,121.6 1,121.6

51 Value Added Tax - 20.4 20.4 - 816.9 816.9

I..... I. = ... TQt4II#11lI~.9 SILO I.11...1. 1 10,755.7 1 32

Price Level -1994

61

Annex 4Thailand

EGAT - Investment Program Support ProjectCost Benefit Analysis Summary

(Monetary Values are in Thai Baht)(Base Year - 1997)

Present Value of Flows Fiscal ImpactEconomic FinancialAnalysis Analysis Taxes Subsidies

Benefits 852,627 mln. 852,627Costs 821,276 mln. 884,873 63,597

Net Benefits: 31,351 mln. -32,246IRR: 10.87 % 9.13 %

Sensitivity analysis/Switching Values of Critical Items to drop ERR to 10%:

Variable

Energy Sales or -4.0%Average Selling Price

Investment Costs +11.5%

Power Purchase Cost +5.0%

62

Economic Justification

Electricity Supply Situation

1. Following a period of rapid demand growth averaging 10% p. a. during the last decade, theelectricity generation requirement of Thailand reached 14,506 MW and 92,725 Gwh during FY 97.This was accompanied with a decline in generation reserve margin to about 12.5% (dependablesystem installed capacity of 16,300 MW), against a requirement of about 30% for maintainingadequate system reliability and a loss of load probability below 1.0 days p. a. The decline in theefficiency and reliability of the transmission and distribution systems during this period was alsosignificant. The three Thai electricity utilities have been undertaking expansion programs since themid nineties, which would have enabled the system to reach acceptable levels of reliability, inparticular a generation reserve margin exceeding 30% during 2000-2004 and varying between 25 -30% thereafter. With the decline in demand growth, and curtailment/deferment of projects asfeasible, it is expected that the generation reserve margin will increase rapidly in the next few years(varying between 40 to 50% in the years 2000 to 2004) but settling down to about 32% by the year2005 and varying between 25 to 30% in the long run.

2. The growth of the electricity market will depend heavily on the recovery of the Thaieconomy. The pace of this process remains uncertain and depends on progress in domestic reformsand the external economic enviromnent. The following assumptions were made at appraisal inprojecting a lower electricity demand growth scenario: (a) an energy growth of 0.65% for FY98,based on actual figures till May 1998 and a negative -1% growth for each of the next four monthsof FY98; (b) a negative demand growth of -2.25% for FY98; (c) a zero GDP growth and a verymodest demand growth of 0.5% for FY99; (d) the Thai economy will start to recover from the year2000; (e) an average demand growth of 7.7% from 1999 to 2005 based on the latest forecast ofThailand's Load Forecast Sub-Committee (Sep. 1997), (a GDP elasticity of electricity demand ofabout 1.35).

Least Cost Expansion Plan

3. In order to assess the Project, an adjusted Power Development Plan (PDP) was prepared atappraisal consistent with the load forecast mentioned above. Compared to EGAT's latest PDP(Dec. 1997) the proposed investment program includes the following main adjustments: (a)postponement of five IPPs (for 4,435 MW) by about two years; (b) postponement of powerimports by about three years; (c) deferment of corresponding transmission investments accordingly.According to the revised PDP, by the year 2005, the system demand would have grown to about22,000 MW, the dependable installed capacity to about 29,000 MW and the generation reservemargin to about 32%.

Analysis of Economic and Financial Rates of Return and Project Risk

4. The economic viability of the adjusted PDP is used as a proxy to assess the proposedEGAT - Investment Program Support Project. This assumption is supported by the following: (a)the investments to be supported by the Project account for about 72% of the adjusted PDP duringthe period 1998-2001; and (b) the transmission components of the PDP are an integral part of theexpansion plan and, as such, their benefits cannot be separated from the generation components.Transmission investments are essential to transport incremental energy and provide

63

a more efficient and reliable operation of the system, both factors directly linked to the expansionof generation.

5. The analysis is done in constant 1997 prices, no allowance is made for the shadowexchange rate or for labor costs, as actual values reflect opportunity costs. The economic costsinclude: (a) capital investment for transmission and generation projects planned to be completeduring the period 1998 - 2001, excluding duties and taxes and interest during construction; (b)corresponding operation and maintenance costs4; (c) economic fuel costs based on informationsupplied by NEPO; and (d) cost of purchased power from IPPs and Small Power producers(SPPs). The economic benefits are based on the incremental sales -- after transmission losses --that would be made possible by the new generation and transmission facilities, valued at EGAT'saverage selling price of B 1.7841/kWh for 1998 (which results in the same tariff in 1997 termsafter allowing 10% for deflation and adding a VAT of 10%), derived from EGAT's financialprojections. This is a conservative estimate for the economic benefits associated to electricityconsumption since it does not take into account the benefits of increased system reliability andconsumers' willingness to pay which is above tariff levels among important sections ofresidential, commercial and industrial consumers. The cost and benefit streams are presented inthe attached tables.

6. The ERR is estimated at 10.87% and the NPV at 10% discount rate at 31,351 millionBaht. A financial analysis using the same methodology, but leaving out taxes and duties yields afinancial rate of return of 9.13 % and a NPV of - 32,246 million Baht at 10% discount rate.

7. The project's economic viability was tested for the following variables to achieve thebenchmark return of 10% for economic viability of the project:

(a) Energy Sales or Average Selling Price: The ERR is sensitive to variations in thesevariables, dropping to 10% for a decrease of 4% in either variable. As sales price wouldbe adjusted to achieve a self-financing ratio of 25%, the risk of the Project becomingeconomically unviable due to variations in the aforementioned variables is small.

(b) Cost Overrun: A cost overrun of 11.5 % in EGAT's transmission and generationinvestments drops the ERR to 10%. As a substantial portion of the equipments havealready beebn ordered, the likelihood of overall cost increase of this magnitude is small.

(c) Escalation in Energy Purchase Price: A 5.0 % increase in the contracted IPP price resultsin an ERR of 10% However, power from the IPPs is contracted on a long term basis andprice escalations of this magnitude are unlikely.

Economic Viability of Individual Project Components

8. The economic viability of the individual Project components had been assessed in thefeasibility studies of each sub-project. The economic costs, benefits and ERR -- or benefit/costratio -- estimated in these studies are presented below. As these components are at an advancedstage of implementation -- with the exception of Krabi Thermal Unit I and the 500kV

4 O&M costs as % of capital costs: Thermal plants - 2.5%; Combined cycle plants - 2.8%; Gas turbineplants - 3%; Hydro plants - 1%; Transmission system - 1.5%.

64

Southern Region, which is less affected by the current crisis. Accordingly, the commissioning ofUnit 1 is required for late 2000. The 500kV transmission system is an integral part of the IPPprogram, being necessary to transport the power of five IPPs. Therefore, its implementationschedule is a function of the IPPs commissioning plan.

Project Component Costs (US$ million) Benefits ERR

Total Sunk (Feasibility

Invest. Costs5 Study)

Krabi Thermal Unit 1 (300 283.3 8.9 Incremental sales of 1,940 13.3 %MW) Gwh per year.

Ratchaburi Thermal 1-2 1088.5 417.7 Incremental sales of 22,425 15.0 % 6(2x700 MW) Gwh per year made

available by the thermal andRatchaburi Combined Cycle combined cycle plants.(3x600 MW) 1011.5 325.4

Wang Noi Combined Cycle 273.4 195.6 Incremental sales of 4,205 20.7 %(600 MW) Gwh per year.

Transmission System for 991.2 17.2 Incremental sales to MEA 22.6 %IPPs. and PEA resulting from this

project plus related IPPsenergy.

Bulk Power for Greater 360.4 86.7 Incremental sales to MEA 13.4 %Bangkok Area resulting from this project

plus related generationinvestment.

EGAT-TNB Stage II 161.3 113.0 Economic power exchange B/C ratio:Interconnection (due to non-coincident

peaks), investment savings 1.59 'due to reduced reservecapacity requirements, andreduced operating costs(spinning reserve sharing).

Transmission System 558.3 144.1 21 least cost subprojects 11.8 %Expansion Proj. No. 9

5 Assuming 50% of 1998 disbursements.

6 ERR for both Ratchaburi plants, thermal and combined cycle.

7 Economic justification based on avoided cost approach.

CALCULATION OF ERR OF EGAT'S PDP (1998-2010)

Cost Stream (MTHB) Benefit StreamFiscal Year incremental.

Cost of Incremental Selling PriceIncremental Purchased Total Energy Energy Sale (THBlkWh) Sale Revenue Net Benefit

Capital Cost O&M Cost Fuel Cost Energy Total Cost Sale (GWh) (GWh) Constant Price (MTHB) (MTHB)1993 128 128 0 -1281994 1254 1254 0 -12541995 6772 6772 0 -67721 996 8329 83z9 -8329

1997 18269 18269 85897 0 -182691998 37200 411 3366 7414 48391 86462 565 1.7841 1008 -473831999 29523 1097 -3053 18064 45632 87781 1884 1.7841 3361 -422702000 37842 2825 5412 24552 70632 93408 7511 1.7841 13400 -572322001 26631 2903 8788 28325 66648 100909 15012 1.7841 26783 -398652002 21830 2981 13157 29599 67568 109162 23265 1.7841 41507 -260612003 31806 3281 17244 34204 86534 117971 32074 1.7841 57223 -293112004 35397 3528 16888 48265 104078 127808 41911 1.7841 74773 -293052005 37533 4084 18177 59601 119395 137748 51851 1.7841 92507 -268882006 29326 5151 20179 66937 121593 147395 61498 1.7841 109719 -118742007 19622 6486 20157 68842 115108 157850 71953 1.7841 128371 132642008 13918 6669 19015 70244 109845 169149 83252 1.7841 148530 386842009 10174 6917 21685 65871 104646 179850 93953 1.7841 167622 62975 o2010 3188 7261 23253 63508 97209 191046 105149 1.7841 187596 903872011 7261 23253 63508 94021 191046 105149 1.7841 187596 935752012 7261 23253 63508 94021 191046 105149 1.7841 187596 935752013 7261 23253 63508 94021 191046 105149 1.7841 187596 935752014 7261 23253 63508 94021 191046 105149 1.7841 187596 935752015 7261 23253 63508 94021 191046 105149 1.7841 187596 935752016 7261 23253 63508 94021 191046 105149 1.7841 187596 935752017 7261 23253 63508 94021 191046 105149 1.7841 187596 935752018 7261 23253 63508 94021 191046 105149 1.7841 187596 935752019 7261 23253 63508 94021 191046 105149 1.7841 187596 935752020 7261 23253 63508 94021 191046 105149 1.7841 187596 935752021 7261 23253 63508 94021 191046 105149 1.7841 187596 935752022 7261 23253 63508 94021 191046 105149 1.7841 187596 935752023 7261 23253 63508 94021 191046 105149 1.7841 187596 935752024 7261 23253 63508 94021 191046 105149 1.7841 187596 935752025 7261 23253 63508 94021 191046 105149 1.7841 187596 935752026 -86119 7261 23253 63508 7902 191046 105149 1.7841 187596 179694Total 282622 169774 556309 1601548 261 0253 - -- 4053943 1443690

ERR= 10.87%NPV: Cost (10% DCR) $821,276NPV: Benefit (10% DCR) = $852,627Net Benefit (10% DCR) = $31,351

CALCULATION OF FRR OF EGAT'S PDP (1998-2010)

___ Cost Stream (MTHB) Benefit StreamFiscal Year incremental

Cost of Incremental Selling PriceIncremental Purchased Total Energy Energy Sale (THB/kWh) Sale Revenue Net Benefit

Capital Cost O&M Cost Fuel Cost Energy Total Cost Sale (GWh) (GWh) Constant Price (MTHB) (MTHB)1993 134 134 0 -1341994 1311 1311 0 -13111995 7076 7076 0 -70761996 8704 8704 0 -87041997 19092 19092 86462 0 -190921998 38952 429 8619 7972 55972 87781 565 1.7841 1008 -54964

1999 30915 1146 -919 19424 50567 93408 1884 1.7841 3361 -472062000 39625 2952 5864 26400 74842 100909 7511 1.7841 13400 -61441

2001 27886 3034 9572 30457 70949 109162 15012 1.7841 26783 -44166

2002 22451 3115 14412 31827 71806 117971 23265 1.7841 41507 -302982003 33237 3428 18785 36778 92229 127808 32074 1.7841 57223 -350052004 36989 3687 18389 51898 110963 137748 41911 1.7841 74773 -361892005 39222 4267 20008 64087 127584 147395 51851 1.7841 92507 -35077

2006 30646 5383 22635 71975 130639 157850 61498 1.7841 109719 -20921

2007 20505 6778 22950 74024 124257 169149 71953 1.7841 128371 4114

2008 14544 6969 21225 75531 118270 179850 83252 1.7841 148530 30260 o

2009 10632 7228 23647 70829 112336 191046 93953 1.7841 167622 552852010 3332 7588 25608 68288 104816 191046 105149 1.7841 187596 82781

2011 7588 25608 68288 101484 191046 105149 1.7841 187596 86112

2012 7588 25608 68288 101484 191046 105149 1.7841 187596 86112

2013 7588 25608 68288 101484 191046 105149 1.7841 187596 861122014 7588 25608 68288 101484 191046 105149 1.7841 187596 861122015 7588 25608 68288 101484 191046 105149 1.7841 187596 86112

2016 7588 25608 68288 101484 191046 105149 1.7841 187596 861122017 7588 25608 68288 101484 191046 105149 1.7841 187596 861122018 7588 25608 68288 101484 191046 105149 1.7841 187596 86112

2019 7588 25608 68288 101484 191046 105149 1.7841 187596 861122020 7588 25608 68288 101484 191046 105149 1.7841 187596 861122021 7588 25608 68288 101 484 191046 105149 1.7841 187596 86112

2022 7588 25608 68288 101484 191046 105149 1.7841 187596 86112

2023 7588 25608 68288 101484 191046 105149 1.7841 187596 86112

2024 7588 25608 68288 101484 191046 105149 1.7841 187596 86112

2025 7588 25608 68288 101484 191046 105149 1.7841 187596 86112

2026 89995 7588 25608 68288 11489 191046 105149 1.7841 187596 176107Total 295257 177414 620531 1722094 2815296 - 4053943 1238646

FRR= 9.140%NPV: Cost (10% DCR) = $884,872NPV: Benefit (10% DCR) = $852,627Net Benefit (10% DCR) = ($32,245)

67

Annex 5Thailand

EGAT - Investment Program Support ProjectFinancial Analysis

The Currency Crisis and its Impact on Foreign Exchange Losses

1. The currency crisis in Thailand has had an adverse impact on the financial health of theThai electricity utilities. Before the crisis, EGAT's financial position was sound and more thansatisfied the Bank's main financial covenant which seeks a minimum self financing ratio (SFR)of 25%. In fact, EGAT has been able to achieve SFRs of over 30% in the last few years. Thecrisis emerged in July 1997 following the Government's decision to float the currency and adopta managed floatin,g exchange rate system. As a result, the Baht/US$ exchange rate felldramatically going to more than Baht 50/US$. It had stabilized at around Baht 40/US$ at thetime of Project appraisal in June 1998.

2. The crisis has led to substantial unrealized losses on foreign debt and to higher operatingexpenses. For the year ended September 30, 1997, EGAT deferred a loss of Baht 21.4 billionbecause the MOF did not allow it to write-off the entire loss on its foreign debt in 1997, which itwould have done had it followed the international accounting standard covering the treatment offoreign currency transactions. The unrealized loss of Baht 21.4 billion appears as a deferred itemin EGAT's balance sheet, to be recouped over the remaining terms of the loans. By following theaforementioned accounting procedure, EGAT was able to record a net profit of Baht 12.8 billion,making it liable for remittance to the Government. The adoption of this accounting treatment ledto a qualification of its financial statements by EGAT's auditors. At appraisal, EGAT providedrestated accounts based on compliance with the international standard and it has been assumedfor the purposes of the Project that EGAT's finances and financial projections will be based onthe international accounting standard.

3. With the entire foreign exchange loss taken into account in FY97, EGAT incurred a netloss of Baht 8.6 billion and its self-financing ratio was negative (-11.7%). This performance wasfar below the 25% level agreed with the Bank. Over the next few years, annual allocation of theunrealized loss based on the remaining life of the loans will cost EGAT's consumers about US$65 million per annum at April 1998 exchange rates - about 30 stang/kWh or US 0.7 cents/kWh.

4. In accordance with regulations applicable to state enterprises, EGAT is liable to remit toMOF a proportion of its net income. Despite the adverse effects of the devaluation on EGAT'sprofits, it was required to remit Baht 8.4 billion from its FY97 revenues to the Government. Thelevel of Government remittance is significant as this amount reduces EGAT's level of internalcash to self-finance its investments.

5. EGAT financial results were based on an increase in electricity sales of 8% in FY97(compared with 9% the previous year) and operating revenues for the period of Baht 125 billion,15% over FY96. This shows that EGAT's revenues were not significantly affected by thefinancial crisis up to September 30, 1997. EGAT's bulk supply tariff rose 6.6% in FY97 to Baht1.46/kWh due mainly to the application of the automatic adjustment factor (Ft). While theaverage prices of oil, gas and lignite rose in FY97 by about 12%, the impact on EGAT's

68

operating income was marginal, because these costs were recouped through the Ft. However,there were substantial increases in other operating expenses in FY97:

(a) purchased power of Baht 21.3 billion increased by 63% (volume increased by43% and the overall average price of purchased power rose from Baht 1. 14/kWhto Baht 1.29/kWh); and

(b) administrative expenses increased by 32% to Baht 3.5 billion; largely payrollexpenses and consultancy costs on financial, legal and managementexpenditures relating to EGAT's privatization.

6. The Government and EGAT have responded positively to these adverse developmentsby:

* permitting foreign exchange fluctuations to be recouped effective April 1998through inclusion in the Ft. (this raised EGAT's tariff in 1998 by 10 stang/kWh -about 8%).

* reviewing EGAT's load growth and reducing its sales forecasts.- revising the power development program to reduce investments by about Baht 95

billion.

7. Erosion of the sector's profitability, nonetheless, has raised concerns about EGAT'sability to meet its obligations towards the IPP contracts already finalized and to close IPP dealscurrently under negotiation. The adverse financial position of EGAT could also act as a deterrenton its privatization program at a time that it needs to be kept on track. During the transitionperiod, EGAT would need substantial resources to support its large ongoing investments, bothfor its own generation program and in the reinforcement of the transmission network to facilitatepurchase of electricity from IPPs. The financing gap is further aggravated by EGAT's currentinability to access long term financing in the international market because of the country risk andthe collapse of the domestic debt market.

EGAT Long-Term Debt and Debt Service Cover

8. Total outstanding loans rose in FY97 from Baht 146 billion to Baht 173 billion. Loanrepayments in FY97 rose from Baht 12.8 billion to Baht 21.4 billion, an increase of 67%. EGAThas no minimum debt service cover undertaking with the Bank. Following the crisis, EGAT'sdebt service cover has fallen from about 1.6 times in FY96 to 1.05 times in FY97. This is wellbelow the level normally sought by the Bank of 1.3 to 1.5 times. Instead of a debt servicecovenant, previous Bank loans require EGAT to maintain a minimum debt/equity ratio of 60/40.In FY96, EGAT's debt/equity ratio was very sound at 55/45 but at the end of FY97, itsdebt/equity ratio had risen to 63/37.

Fixed Assets Valuation

9. Fixed assets have normally been valued in EGAT's audited financial accounts athistorical cost. For the purposes of the Bank, EGAT prepares separate statements which revaluethe fixed assets and depreciation using the Capital Formation Deflation Index provided by theNational Economic and Social Development Board. The deflator for FY97 was 5 %. Therevalued net fixed assets derived were used for calculating EGAT's financial ratios for the Bank.This revaluation has served little purpose since it is not needed for determining EGAT's

69

performance under the self financing ratio. The revaluation does not in any case produce anadequate revalued assets base for measuring EGAT's financial return. This is because recentexchange rate movements have greatly exceeded the local deflator. For privatization purposes,EGAT's fixed assets will need to be properly revalued to reflect their worth to a strategic investoror for use in any prospectus that might accompany a public listing of part or all of its fixed assets.Such a valuation would reflect the potential earnings that could be derived from their efficientoperation over their estimated remaining lives. This value is likely to be higher than historicalvalues given in EGAT's audited accounts.

EGAT's Financial Projections

10. For the purposes of the proposed Project and the prospectus for the bond issues, EGAT'sfinancial projections were restated to provide potential bondholders with financial accountswhich show its financial results after international accounting standards are followed. This willgive bondholders a more meaningful financial picture (which would not be subjected toqualification by EGAT's auditors) and would provide a sound basis for seeking improvement inits finances.

11. Further deterioration in EGAT's finances has occurred since the end of FY97 due tocontinuing decline in the Baht/US$ exchange rate. This has fallen from Baht 36/US$1 to aboutBaht 55/US $1 and is currently about Baht 40/US$1, as of end June 1998. In FY98, the tariff isforecast to rise to Baht 1.784/ kWh. This increase includes only the automatic adjustment forfuel prices and foreign exchange (the base tariff has not been increased as there has been politicalreluctance to raise taLriffs sufficiently to comply with the SFR covenant).

12. EGAT's financial projections, summarized in the table below, show that beforerestructuring and privatization, it would be able to achieve satisfactory financial performance andmeet its debt service by reducing its investment expenditure based on the expected lower growthin demand and providing it can suitably defer some purchases of power from IPPs. It will alsodepend on success in obtaining access to funds from the proposed two bond issues, and fromsales of shares in EGCO. Proceeds of privatization of Ratchaburi and other subsidiaries have notbeen taken into account but these would serve to help finance new investments after 2000 andreduce new borrowings.

13. EGAT's projected financial performance for the next five years (1998-2002), are basedon its most recent revised forecast as of June 1998 and assume a very low case demand scenarioof 4.6% growth on average from 1997-2002. The projections show that EGAT's self-financingratio will recover to 0.6% in FY98 and EGAT will achieve satisfactory financial performance andcompliance with the Bank's covenants from FY99 onwards provided: (a) the investmentprogram is tailored down commensurate with the low demand growth projections; (b) theremittance to Government does not exceed 35% of net income; and (c) tariff adjustments aremade in sufficient amounts beginning FY00.

70

EGAT Financial Projections *Years Ending September: 1996 through 2002

(In Billions of Baht)

1997 1998 1999 2000 2001 2002 Avg. p.a.Growth

Actual ForecastIncome Statement Items

Energy Sales (GWh) 85,897 86,462 87,781 93,408 100,909 109,162 4.6Average Revenues (B/kWh) 1.462 1.784 1.878 2.153 2.253 2.244 9.2Revenues 125,376 154,111 164,742 200,951 227,137 244,798 14.5Operating Income 22,646 28,486 30,172 40,676 48,610 52,373 18.8Net Income -8,607 14,809 20,689 28,189 30,182 32,576 -36.2

Funds Statement ItemsInternal Sources 42,361 47,642 49,556 61,338 71,844 76,684 12.8Borrowings 18,536 53,616 34,504 66,494 40,617 52,539 47.4Other Sources of Funds 907 5,934 500 508 1,742 2,166 146.3

Total Sources 61,804 107,193 84,559 128,340 114,203 131,389 21.6Capital Expenditures 34,083 45,510 45,713 61,075 30,801 49,121 15.5Working Capital Increase -17,019 22,680 -1,899 17,464 6,775 3,305 -294.7

(Decrease)Debt Service 30,313 32,826 28,952 37,235 57,647 61,859 17.4Other Applications 14,427 6,177 11,793 12,565 18,981 17,104 16.3

Total Applications 61,804 107,193 84,559 128,340 114,203 131,389 21.6Balance Sheet Items

Current Assets 38,407 59,782 60,946 75,940 85,665 91,810 20.4Less Current Liabilities -43,834 -45,189 -55,403 -69,760 -76,124 -84,489 14.3

Other Assets 27,955 28,744 30,735 32,420 37,262 38,832 6.9Net Fixed Assets 249,698 285,049 318,180 364,047 376,374 406,226 10.3

Total Assets 272,266 328,386 354,458 402,647 423,177 452,379 10.8Debt and Other Liabilities 162,090 209,296 223,904 255,495 258,806 269,405 11.1Equity 110,136 119,091 130,554 147,152 164,371 182,973 10.7

Total Liabilities & Equity 272,226 328,386 354,458 402,647 423,177 452,379 10.8

Financial RatiosOper. Income as % of Revenue 18.1 18.5 18.3 20.2 21.4 21.4 19.7Net Income as%ofRevenue -6.9 17.1 12.3 14.0 13.3 13.3 10.5Rate of Return on Revalued Net 7.2 6.2 5.6 6.7 7.3 7.3 6.7Fixed Assets (°/)Debt Service Coverage 1.1 1.9 1.5 1.4 1.3 1.2 1.4% Total Capital Expenditures -11.7 0.6 26.1 25.0 25.0 28.1 -2.0financed by Internal Sources(Self Financing Ratio)Current Ratio 0.9 1.3 1.1 1.1 1.1 1.1 1.1Debt Equity Ratio 58:42 63:37 62:38 62:38 60:40 60:40 61:39

* Sales projections are based on indications at the time of appraisal in July 1998. Most recent data show afurther decline in GDP and demand and would need appropriate measures to achieve the financial ratios.

71

14. The timing of EGAT's capital expenditures is vital to EGAT's financial rehabilitation.Since the crisis, EGAT has reviewed its investment program under the very low case scenarioand delayed investments in the earlier approved power development plan. About Baht 95 billionin capital investments from FY99-02 would have to be deferred to reflect the downward trend offorecast demand. T]his downsized investment program would give EGAT some breathing roomuntil the next round of annual tariff increases of 8%, 6% and 3% is required in FYOO-02respectively. The reduced investment program can be more appropriately financed by EGAT'sweakened cash flow', and still enable it to meet debt obligations from lenders and bondholders.With sufficient internal funds to service interest and principal repayments, a debt servicecoverage ratio of 1 3x would be achievable. EGAT's debt equity ratio would be marginallyabove the Bank's requirement of 60:40 in FY99-00. In the past, the Bank has derived EGAT'sdebt equity ratio following annual revaluation of its net fixed assets. For reasons explained above(see "Fixed Assets Valuation"), no revaluation of fixed assets has been done for the financialprojections. If assets were revalued, the resulting increase in EGAT's equity would ensure that itmeets the Bank's covenant relatively easily.

15. EGAT is expected by Government to continue to remit at least 35% of its net income toMOF to maintain its "Good State Enterprise" status. In FY98, EGAT is expected to remit Baht9.1 billion based on its FY97 net income. The financial projections assume that no remittancewould be made in respect of FY98 because EGAT incurred a net loss in FY97. Should the SFRor the debt service coverage ratio fall in future years below the agreed limits, the Governmentshould not require any remittance from EGAT.

72

Attachment to Annex 5

Privatization, Restructuring and Regulation of EGAT

Background to Restructuring and Privatization of EGAT

1. There are currently three Government-owned electricity enterprises in Thailand: theElectricity Generating Authority of Thailand (EGAT) responsible for generation andtransmission, the Metropolitan Electricity Authority (MEA) distributing power in Bangkok andadjoining provinces and the Provincial Electricity Authority (PEA) supplying the rest of thecountry. In addition, EGAT owns about 25.1% of the shares in the Electricity Generating PublicCo. Ltd. (EGCO). EGCO was formed in May 1992 when it purchased the 1,200 MW Rayongpower plant from EGAT. It subsequently also purchased EGAT's 800 MW Khanom powerplant. In January 1995, EGCO was listed on the Thai Stock exchange.

2. Until 1992, EGAT was the sole commercial producer of electricity in the country.Private companies could produce electricity for self-consumption, but were not allowed to sell it.According to the EC;AT Act of 1968 and subsequent amendments, EGAT has the responsibilityto provide electric energy for the whole country by generating, transmitting and selling the bulkenergy to MEA and PEA, other direct energy customers, and neighboring countries. EGATcould also undertake energy related activities such as the development of alternative energysources from natural resources and lignite production.

3. A 1992 Amendment of the EGAT Act had two major impacts on the electricity supplyindustry in Thailand. First, it ended EGAT's monopoly over electricity generation paving theway for new legislation allowing private producers, and second, it permitted EGAT to beginrestructuring its organization in line with the Government's objectives of corporatization andprivatization.

4. In September 1992, the Government approved a four-phase Plan for thecommercialization and privatization of the electricity supply industry in Thailand in accordancewith guidelines proposed by the National Energy Policy Office (NEPO). The plan provided for:

(a) the transformation of EGAT into a Good State Enterprise in 1994;

(b) the corporatization and privatization of EGCO and the transfer of substantialthermal generation units to EGCO during 1993-96;

(c) the introduction of substantial small power producer and independent powerproducer programs during 1994-96; and

(d) the transformation of EGAT to a corporation and its internal restructuring intobusiness units, which would be operated, initially, as profit centers and operatingunits which would be operated as cost centers.

5. Although wholly-owned by the Government and under the direct supervision of thePrime Minister, EGAT has enjoyed substantial autonomy. With EGAT achieving "Good StateEnterprise Status" in August 1994, it attained even greater day-to-day operating autonomy, i.e.

73

setting its own corporate objectives, implementing market-oriented salaries, benefits andbonuses; and setting up and managing its own Registered Provident Fund.

6. Plans for privatization of the electricity industry were first approved by the Governmentin 1996. They involved the separation of EGAT's thermal plants and their establishment aslimited liability companies, which would sell shares through an initial public offering (IPO). Thetransmission and hydro facilities were to remain as part of EGAT. EGAT was to be thepurchaser of power from the thermal plants, the Independent Power Producers (IPPs) and theSmall Power Producers (SPPs) and Lao PDR but would gradually allow power suppliers to selldirectly to users. The longer-term plan was to form a power pool and develop wholesale tradingand some retail competition.

7. In June 1996, the Cabinet and EGAT's Board approved EGAT restructuring into anumber of companies including three power generating companies (Powergens), a maintenancecompany, an engineering and construction company and a lignite mining company. Its otherfunctions were to be reformatted as a holding company; the EGAT Company Limited, whichwould be unbundled and organized around its redefined core roles of power planning, powertrading, transmission and hydro, and transition management, forming new business ventures fromsupport services, and demand side management.

8. There would also be six business units (transmission, generation, maintenance, mining,engineering and construction) and five operating units (policy and planning, accounting andfinance, business development, hydropower plants and administration). The transmissionbusiness unit would be established as a semi-autonomous business unit within the corporateEGAT and be the transmission network operator, responsible for developing and operating areliable and cost-effective transmission network service for Thailand's electricity supplyindustry. The hydro power plant business unit would remain with the corporate EGAT whilecontinuing to meet the national power objectives of providing emergency power and peakingduties, and the social obligations of flood control and irrigation.

Current Status of EGAT's Privatization

9. EGAT and the Government remain committed to privatizing Thailand's electricitygenerating capacity and related infrastructure, where practicable. However, two matters arepresently causing delay to the process: (a) the reduced level of demand growth from a moribundeconomy slowing down the need for renewal and expansion of capacity; and (b) objections fromEGAT's employees' trade union to the extent and mode of privatization originally envisaged.

10. Privatization is in its early stages, but the process is well under way. Despite the delays,the Government is committed to three principal privatization objectives:

(a) the restructuring and corporatization of EGAT's existing operations;

(b) the sale of significant interests in existing EGAT's thermal power plants and,possibly, certain other operations to the private sector; and

(c) encouragement of private sector interests to build new generating capacity.

11. Under the third letter of intent made with the IMF, the Government has agreed thatEGAT will initiate further sales of its stake in EGCO and the Ratchaburi power plant (Power Gen

74

2) in 1998. Under the conditionality of the Bank's Economic and Financial Adjustment Loan(Report No. 17017-TH), and the IMF's fourth letter of intent, the Government has committeditself to spell out details of a comprehensive strategy for privatization in a Master Plan for StateEnterprise Reform to be approved by the Cabinet by August 31, 1998. Private sectorparticipation in the energy sector would form a major part of the master plan which is expected tospell out with clear deadlines, the objectives and organizational arrangements of the privatizationstrategy, sequence aLnd timetables for corporatization of EGAT and other state enterprises,choices of the appropriate divestiture strategy, guidelines for improved monitoring of EGAT andother state enterprises and the establishment of an effective regulatory framework. Technicalassistance for the Miinistry of Finance, which is coordinating these efforts, is being provided bythe Bank's Economic Management Assistance Project (Report No. 17334-TH). The Project isdesigned to complement the Government's overall efforts at privatization.

12. In March 1998, EGAT's management decided, with the Government's approval inprinciple, on a three-step approach to its privatization and corporate restructuring calling for:

(a) SteFp 1, corporatizing EGAT as a whole and privatizing the Ratchaburi CombinedCycle 1-3 power plants (latter was originally intended to be part of Step 2, but inview of the expected cash flow shortfall over the next 2 years, 1998-99, is beingadvanced to Step I in the privatization process);

(b) Step 2, corporatizing and privatizing each subsequent new power plant ofEGAT; and

(c) Step 3, corporatizing each business unit as a subsidiary of EGAT CompanyLimited and privatizing each as appropriate.

13. A change in approach was required due to EGAT's cash flow problems, the delay in theapproval of the Corporatization Law, and the obligations required from the Government by theInternational Monetary Fund's standby arrangement package to initiate sales of EGAT stakes inEGCO and Ratchaburi. The revised privatization approach is as follows:

(a) In Step 1, EGAT would transfer the Ratchaburi Combined Cycle Power PlantBlocks 1 - 3 to a wholly-owned subsidiary which would subsequently seekprivate sector participation of at least 51%. In parallel, the original plan toorganize EGAT into autonomous business units and to transform EGAT into alimited company (100% owned by the Ministry of Finance) when theCorporatization Law is ready will be carried out. Presently, each business unit asenvisaged in the organizational restructuring plan is beginning to operate as amore self-sufficient entity. Although previous expectations that each BusinessUnit would become a separate statutory company have been shelved for the timebeing, it is expected that by October 1998, each unit will be a self-accountingdivision with its own financial statements. This will involve a system throughwhich all business and operating units would fully recover the costs of theirservices to other units of the company or to external users.

(b) In Step 2, corporatization of EGAT as a whole is expected to be completedwithin one year from the approval of the Corporatization Law - in the latter partof 1999. Further, it is envisioned that all new power plant projects afterRatchaburi Combined Cycle would be corporatized and privatized. EGAT

75

would evaluate whether some or all new power plants would be combined withthe EGAT powergens or be privatized separately with EGAT Company Ltd.holding no more than 49% of shares in each new power plant company.

(c) In Step 3, each business unit would be formed into a 100% - owned subsidiary ofEGAT Company Limited with the individual units corporatized and privatizedwhen ready according to the plan adopted in 1996. The individual business unitsare to be corporatized at different times, depending on their readiness, however,it is anticipated that all units would have been corporatized by the end of the thirdyear after the approval of the Corporatization Law.

(d) EGAT's advisors on privatization have reviewed the revised EGAT approach toenable it to be submitted for approval by the Government. A series of workshopswas conducted to identify issues with EGAT's management, the State EnterpriseEmployers Association of EGAT (SEEA-EGAT) and NEPO. SEEA-EGAT isstill concerned about the impact of privatization on employees' job security andbenefits to the population in terms of tariff increases and possible adverse effectsfor low-income consumers and the environment. There is also concern thatEGAT would sell its plants at excessively low prices or that costs of powerpurchased from Ratchaburi after privatization would be too high. Under the newthree-step plan, the privatization of EGAT would be slower and this is expectedto ensure more time is given to these issues and those affecting the welfare ofEGAT workers.

Sale of EGCO Interests

14. The privatization process within EGAT commenced with the sale of the Rayong powerplant to REGCO in FY94 followed by the sale of Khanom power plant to KEGCO in FY96.Both companies are subsidiaries of EGCO, in which EGAT retains a 40% interest. In November1997, EGAT obtained Government approval to further reduce its holding by 14.9% toapproximately 25.1% by a disposal of shares to a strategic investor in 1998. Six prequalifiedinvestors were invited to submit offers and the sale to the winning strategic investor was finalizedin July 1998. Proceeds of the sale would be used by EGAT to meet its financing needs in 1998.

Sale of Ratchaburi Power Plant

15. EGAT is proposing to raise funds to meet its projected cash flow shortfall by privatizingthe Ratchaburi combined-cycle power plant. Ratchaburi is an 1,800 MW gas fired, combined-cycle power station currently under construction and scheduled for completion by 2000. Thissale may follow the EGCO model by which EGAT would establish a new subsidiary company tobuy the plant and subsequently list it on the stock exchange. The next steps in this process wouldrequire the appointment of financial advisors to value the plant and develop a power purchaseagreement. Before proceeding, it would also be necessary to decide if the proposed Ratchaburithermal project should be included in the new company. EGAT does not expect that Ratchaburicould be privatized until after the second bond issue. EGAT has placed a value of about Baht 30billion on the combined cycle plant and about Baht 40 billion on the thermal units. Proceeds ofthe sale would be used to finance EGAT's investments, part for employee benefit funds and partremitted to Government.

76

Regulation of the Sector ( The regulatory system for all SOEs is currently being reviewed underthe Privatization Master Plan being prepared for the IMF)

16. Privatization of the energy sector has created the need for a comprehensive legal andregulatory frarnework to protect the interests of consumers, investors and the Government.NEPO has engaged consultants, using financing provided by the Bank, to help design andestablish an independent regulatory office for the energy sector. This would eventually assumeNEPO's current regulatory powers.

17. The consultants have framed proposals for future regulation of the electricity sectorbased on EGAT, initially, being the single buyer from generators but moving to a competitivepower pool in the medium-term. For the gas industry, it has taken account of the need tointroduce more competition at all levels, for transmission and distribution through biddingconcessions. The final form of regulation will depend on the shape of the electricity and gasindustries and the extent to which competition and privatization is adopted. Its proposals includethe following principles:

(a) a regulator responsible for regulation of the electricity and gas industries,independent from NEPO, accountable to the Prime Minister or another Minister;

(b) regulation would be undertaken by a commission with five members withtechnical competence and appointed for terms of 3-5 years;

(c) the commission's functions would include pricing, investment and competitionpolicy and quality of service. It would also issue licenses as an instrument forregulation;

(d) establishing the regulator through primary legislation and secondary legislationsetting out related administrative procedures;

(e) price cap regulation is being proposed with regular review periods;

(f) NEPO would be initially responsible to establish key regulatory functions duringa transitory phase prior to the regulator becoming independent

18. The Government through NEPO has agreed that it will take the following steps toestablish independent regulation of the electricity supply industry:

* submit a new law to Parliament by March 31, 1999;* submit secondary regulations for the administrative implementation of the new law

to Cabinet by September 30, 1999; and* establish an independent energy regulatory office within 6 months of approval of the

secondary regulations

77

Thailand's Private Power Program

19. Independent power projects first emerged in Thailand about mid-1992, through the SmallPower Producer (SPP) program. The SPP program enables EGAT to buy power fromcogenerators or renewable energy projects of up to 90 MW. EGAT has signed about 50 PowerPurchase Agreements (PPAs) for projects which if completed would provide about 2,500 MW.As of early 1998, about 26 projects were in operation providing EGAT with about 500 MW ofcapacity. Following the devaluation of the Baht in July, 1997, quite a number of these projectswere having problems obtaining finance. To assist them, the Government agreed to index part oftheir capacity payments to the exchange rate. EGAT now expects that SPPs will provide about1,600 MW of capacity by 2000.

20. In August 1994 EGAT commenced solicitation of large-scale power purchases fromIPPs. Proposals were first sought for 1,400 MW for 1996-2000 (Phase 1) and a further 2,800MW for 2001-2002 (Phase 2). In July 1996 the Phase I program was increased to 1,750 MWand Phase 2 to 4,200 MW. Power purchase agreements were subsequently signed with 7 IPPs in1997 for about 5,800 MW of plant requiring investment of about US$5 billion. About 2,500 MWwere for gas-fired plants and the remainder for imported-coal fired plants. All payments forpower purchased were agreed to be in Baht. Financial closure was agreed to be completed within18 months of signing the PPAs.

21. Following the devaluation of the Baht, the government decided to treat the devaluation asa "change in law" and agreed to renegotiate agreements with the selected IPPs. It agreed to apartial indexing (to the BahtJUS$ exchange rate) of the capacity charges - 75% for coal plantsand 90% for gas plants. In addition, 55% of fixed operations and maintenance costs will beindexed based on the US consumer price index. This has on average increased the Bahtdenominated levelized cost of generation by about 50%. In dollar terms the equivalent cost camedown marginally indicating that the developers absorbed some of the devaluation impact.

22. So far, only two IPPs have reached financial closure; Independent Power (700 MW) andTri Energy (700 MW). Closure of some of the others has been affected by the financial crisis.Some are seeking changes to commissioning dates by up to 12 months. Financial institutions areconcerned about the lack of explicit Government guarantees of EGAT's performance; andconcerns that EGAT may have excess capacity or that Government will defer tariff increasesneeded to ensure its financial viability. Despite this, EGAT still expects that all IPPs will reachfinancial closure but possibly with some delay. Costs of power will be higher, however, as aresult of the indexing arrangements which have been agreed. The next round of IPP solicitationshas now been deferred. The actual timing of the next round of IPP capacity would depend uponthe growth in power demand. The following table provides the latest status of the IPPs formingPhase I of the program.

78

IPP Phase I Programi Status:

Name Fuel Generating Original RemarksCapacity Commissioning

____________ _ __ DateIPT Gas 700 MW Sept. 1999 Closed May 97.

___________ Under construction.TECO Gas 700 MW July 2000 Closed July 98.

_______________ Under Construction.EPEC Gas 350 MW January 2001 Delay expected.UPDC Coal 1400 MW Sept. - Dec. 2001 Delay expected.Gulf Power Coal 734 MW Oct. 2001- April Delay expected.

2002Bowin Gas 713 MW April 2001 Delay expected.BLCP Coal 1346.5 MW Oct. 2002 - Feb. No firn date of financial close

2003 indicated.

79

Annex 6Thailand

EGAT - Investment Program Support ProjectProcurement and Disbursement Arrangements

Procurement

1. All goods ancl services required for the Project and to be financed out of the net bondproceeds shall: (a) at all times be procured with due regard to considerations of quality,reliability, economy and efficiency, in accordance with procedures satisfactory to the Bank; and(b) be applied exclusively for the purposes of the Project. The procurement procedures followedand proposed to be followed by EGAT for all components of the Project have been reviewed atappraisal. These procedures are based on competitive bidding and are satisfactory to the Bank.

Disbursement

2. EGAT shall open a freely convertible and operable US dollar bank account (the DollarSpecial Account) exclusively for the purposes of financing eligible expenditures for the Project.EGAT shall maintain records and procedures adequate to identify the expenditures financed outof the net bond proceeds and shall submit quarterly reports specifying the withdrawals made,including a complete description of the expenditures.

Retroactive Financinag

3. Under OP 12.10, the 10% retroactive financing limit for investment operations is subjectto exceptions "in extraordinary circumstances". The Project is of a nature that falls under thiscategory and merits special consideration -- (a) the Project has been developed on a fast-trackbasis in response to Government's urgent call to the Bank for assistance at a time when thecountry is experiencing a serious financial crisis as a result of the massive currency devaluation;(b) the Project's primnary objective is to help alleviate the severe financial crunch that EGAT isfacing in meeting its short-term cash flow commitments for projects whose implementation it hasalready commenced; and (c) EGAT and the Government have made a special request toaccommodate the maximum percentage of retroactive financing. The primary concern of theBank in this operation is that the bond proceeds are used exclusively for the Project componentsthat have been appraised (and this is being ensured through appropriate documentationrequirements) and that financing is limited to expenditures after April 1, 1998, the identificationdate. Although the Bank has not been involved in the early stages of Project design andpreparation, as is customary for loan operations, it has been involved in EGAT's overallinvestment planning over a number of years. The Board paper for "mainstreaming guarantees"expressly contemplates that proposals for guarantees will routinely be presented to the Bank forconsideration at a comparatively late stage. The Bank is satisfied that procurement arrangementsfor the Project as a whole, including the items to benefit from retroactive financing, meet theBank requirements of "economy and efficiency" for guarantee operations. Further, under theguarantee operation there would be no micro-managing of procurement. In view of theaforementioned considerations relating to the Project, it has been considered appropriate topermit up to 50% retroactive financing from the net proceeds of the bond issue for eligibleProject-related expenditures incurred by EGAT after April 1, 1998 and prior to the closing of thefirst bond, expected on September 30, 1998.

80

Annex 7Thailand

EGAT - Investment Program Support ProjectProject Processing Budget and Schedule

A. Project Budget (US$000) Planned Actual(At final PCD stage)

150 148

B. Project Schedule Planned Actual(At final PCD stage)

Time taken to prepare the project (months) 5 monthsFirst Bank mission (identification/pre- 03/30/1998 03/30/1998appraisal)Appraisal mission departure 06/22/1998 06/22/1998Negotiations 07/29/1998 07/29/1998Planned Date of first bond closure 09/30/1998 09/30/1998

Prepared by: Electricity Generating Authority of Thailand (EGAT)

Preparation assistance: Bank missions.

Bank staff who worked on the project included: Darayes Mehta (Task Team Leader, EASEG);Suman Babbar (Principal Operations Officer, PFG); Rebecca Sekse (Financial Analyst, EASEG);Enrique Crousillat (Senior Energy Economist, EASEG); Jitu Shah (Senior EnvironmentalSpecialist, SASEN); Robert Goodland (Principal Environmental Specialist, ENV); Mannered Gill(Social Scientist, EASSD); Philip Daltrop (Senior Counsel, LEGEA); Mark Walker (SeniorCounsel, LEGOP); Peter Cordukes (Principal Financial Analyst, IENPD); Ranjit Lamech(Restructuring Specialists, IENPD); and Perry Radford, Task Assistant.

81

Annex 8Thailand

EGAT - Investment Program Support ProjectDocuments in the Project File

1. General Information - EGAT Power Development Plan (PDP 97-02) - System PlanningDepartment of EGAT, December 1997.

2. Load Forecast Report (Revised from the Report Issued in April 1996) - Thailand LoadForecast Sub-committee, September 1997.

3. General Information - EGAT Power Development Plan (PDP 97-01) - System PlanningDepartment of EGAT, April 1997.

4. The Eighth National Economic and Social Development Plan (1997 - 2001) - Office of theNational Economic and Social Development Board, Thailand, 1996.

5. Summary of Feasibility Study of Krabi Thermal Units I and 2 - EGAT Development andPlanning Division, June 1996.

6. Summary of Feasibility Study of Ratchaburi Power Plant Project - EGAT Development andPlanning Division, August 1996.

7. Summary of Feasibility Study of Wang Noi Combined Cycle Project Stage II - EGATDevelopment and Planning Division, September 1994.

8. Feasibility Study for Transmission System Development for Southern Power Plant Project -Black and Veach International (BVI), March 1994.

9. 500 kV Transmission System Project for Independent Power Producers - EGAT SystemPlanning Department, January 1996.

10. Draft Report - Transmission System to Receive Power from Hong Sa Thernal PowerProject - EGAT System Planning Division, April 1996.

11. Feasibility Study on Bulk Power Supply Project for the Greater Bangkok Area - JapanInternational Co-operation Agency (JICA), August 1993.

12. Bulk Power Supply for the Greater Bangkok Area Phase-i (1995 - 2000) - EGAT SystemPlanning Department, April 1995.

13. Transmission System for EGAT-TNB Stage II Interconnection Project (300 MW), SystemsPlanning Department of EGAT, November 1993.

14. Transmission System Expansion Project No. 9 - General Information - EGAT SystemPlanning Department, April 1995.

82

15. Study of Economical Impacts from Electricity Interruption - Final Report - EnergyResearch Institute of Chulalankom University, November 1996.

16. Final Report - Environmental Impact Examination of 500 kV Transmission System forIPPs - EGAT, August 1997.

17. Final Electro-Technical Reports - 500 kV Compact Transmission Line for GreaterBangkok Area -National Grid Corporation, England, 1997.

18. EA, EIA and RAP Reports

A. Ractchaburi Power Plant 1. Executive Summary: Ratchaburi Power Plant Project EIAProject 2. Addendum to Final Report for EIA of Ratchaburi Power Plant Project

3. Environmental Impact Assessment of Ratchaburi Power Plant Project- Faculty of Environment and Resource Studies, Mahidol University,March 1996:* Summary Report* Volume I: Main Report* Volume II: Appendices

4. Main Report for Environmental Impact Assessment of YadanaNatural Gas Pipeline Project - Team Consulting Engineers Co., Ltd.,April 1997.

5. Draft Final Report for Sea Berth, Sub-Sea Pipeline and Shore TankFarm for Fuel Oil Supply System to Ratchaburi Thermal Power Plant- Radian S.E.A. Limited and System Engineering Co., Ltd., August1997.

6. Summary Report of Public Relations Work of Ratchaburi Power PlantProject, Ratchaburi Power Plant Project Public Relations CoordinationCenter, December 1997 (in Thai)

7. Final Report for Cross Country Pipeline for Fuel Oil Supply Systemto Ratchaburi Thermal Power Plant - Radian S.E.A. Limited andSystem Engineering Co., Ltd., November 1997.

8. Main Report of Environmental Impact Assessment of LimestoneMining Project for Ratchaburi Power Plant - N.S. Consultant Co.,Ltd., April 1998 (in Thai).

B. Krabi Thermal Power Plant 1. Executive Summary: Krabi Thermal Power Plant Units 1&2 EIAProject 2. Environmental Impact Assessment of Krabi Thermal Power Plant

Project at Tambon Khlong Khanan, King Amphoe Nua Khlong,Changwat Krabi - Prepared by Team Consulting Engineers Co., Ltd.,May 1997:* Summary Report* Main Report

3. Main Report, Oil Transfer Jetty, Krabi Thermal Power Plant Project -Consultants of Technology Co., Ltd. September 1997 (in Thai).

C. Wang Noi Combined 1. Executive Summary: Wang Noi combined Cycle Power Station ETACycle Power Plant Project 2. Environmental Impact Assessment of Wang Noi Combined Cycle

Power Plant Project - Southeast Asia Technology Co., Ltd., May1994:* Volume 1, Executive Summary* Volume 11, Environmental Impact Assessment

83

3. Draft Final Report of Natural Gas Pipeline Project From Bang Pakongto Wang Noi - Team Consulting Engineers Co., Ltd., June 1994.

D. Transmission System I. Executive Summary: Transmission System Expansion Project No. 9and TNB Stage II Inter Connection, Environmental Guidelines forPlanning, Construction and Maintenance of Transmission Lines.

2. TNB Stage II Inter Connection and Transmission System ExpansionProject No. 9, Environmental Guidelines for Planning, Constructionand Maintenance of Transmission Lines.

3. Final Report, Environmental Impact Examination of 500 kVTransmission system for Independent Power Producers - Asst. Prof.Dr. Samakkee Boonyawat and Staff, August 1997.

4. Executive Summary, Environmental Impact Assessment, The 500 kVPower Transmission Line Project for Hongsa Lignite Project - Officeof Environmental Science Program Graduate School, KasetsartUniversity March 1997.

5. EGAT - Investment Program Support Project Resettlement ActionPlan for (a) Power Supply for Greater Bangkok Area Stage I; (b)500 kV Transmission System for Purchased Power Stage I -Land Division, EGAT, August 1998.

6. EGAT - Investment Program Support Project Resettlement ActionPlan for (a) Krabi Thermal Plant, Unit 1; (b) Ratchaburi ThermalPlant, Units 1 and 2; (c) Ratchaburi Combined Cycle Blocks, 1, 2 and3; (d) Wang Noi Combined Cycle, Stage 2; (e) EGAT-TNB Stage 2Interconnection; (f) Transmission Expansion Project No. 9; (f) 500kVLine for Hong Sa Power Plant, Stages l and 2 - Land Division,EGAT, August 1998..

7. Final Draft Environmental Report, 500 kV Transmission Lines forGreater Bangkok Area - National Grid Co., PLC, October 16, 1996.

Annex 9 CAS Annex B8

Statement of Loans and Credits Generated: 08/10/98

Status of Bank Group Operations in ThailandIBRD Loans and IDA Credits in the Operations Portfolio

DifferenceBetween expected

Original Amount in US$ Millions and actual Last ARPP

Loan or Fiscal' disbursements a! Supervision Rating b/

Project IL) Credit Year Borrower PurposeNo. IBRD IDA Cancellations Undisbursed Orig Frm Rev'd Dev Obj Imp Prog

Number of Closed Loans/credits: 113

Active LoansTH-PE-4796 IBRD 35980 1993 METRO ELEC AUTHORITY DISTRIB. SYS & EGY E 109.00 0.00 0.00 18.30 18.28 18.28 U S

TH-PE-4799 IBRD 3884A 1995 EGAT LAM TAKHONG PUMP STO 70.47 0.00 0.00 58.14 27.14 0.00 U S

TH-PE-4797 IBRD 3799A 1995 PETROLEUM AUTHORITY SECOND GAS TRANSMISS 2.00 0.00 0.00 2.00 44.58 1.00 S S

TH-PE-4801 IBRD 37980 1995 PROV ELEC AUTHORITY DISTRIBUT.SYSTEM REI 50.00 0.00 0.00 6.63 6.63 0.00 U S

TH-PE-4803 IBRD 37970 1995 RTG LAND TITLING III 118.10 0.00 0.00 69.52 29.31 0.00 S S

TH-PE-4793 IBRD 40530 1996 GOVT OF THAILAND TECHNICAL EDUCATION 31.60 0.00 0.00 31.60 15.00 0.00 S S

TH-PE-4791 IBRD 40520 1996 GOVT OF THAILAND SEC.EDUC. QUALITY IM 81.90 0.00 0.00 81.90 22.00 0.00 S S

TH-PE-4800 IBRD 39680 1996 GOV. OF THAILAND HIGHWAYS V 150.00 0.00 0.00 149.65 122.65 2.50 S UTH-PE-37086 IBRD 41990 1997 METROPOLITAN ELECTRICITY METROPOL'N DIST REIN 145.00 0.00 0.00 131.64 -8.36 0.00 U S

TH-PE-4805 IBRD 41600 1997 GOVT OF THAILAND UNIVER SCI & ENG.EDU 143.40 0.00 0.00 143.40 25.00 0.00 S S

TH-PE-42268 IBRD 40670 1997 PEA DISTR AUTOM G RELIA 100.00 0.00 0.00 97.07 39.07 1.47 U U 0O

TH-PE-54799 IBRD 42880 1998 ECO MGT IMPLE ASSIST 15.00 0.00 0.00 14.48 8.48 0.00 S S 4

TH-PE-53616 IBRD 42330 1998 FIN SEC IMPL ASST 15.00 0.00 0.00 12.06 6.07 0.00TH-PE-56269 IBRD 43730 1999 SOCIAL INVEST PROJ 300.00 0.00 0.00 300.00 0.00 0.00TH-PE-54801 IBRD 43720 1999 EFAL - TH 400.00 0.00 0.00 400.00 0.00 0.00

TH-PE-4802 IBRD 3889S BANGCHAK PETROLEUM PCL CLEAN FUELS & EA QUA 0.00 0.00 0.00 0.00 57.09 0.00 S S

TH-PE-4802 IBRD 3889A BANGCHAK PETROLEUM PCL CLEAN FUELS & EA QUA 74.09 0.00 0.00 74.09 57.09 0.00 S S

Total 1,805.56 0.00 0.00 1,590.48 470.03 23.25

Active Loans Closed Loans TotalTotal Disbursed (IBRD and'IDA): 215.07 4,716.20 4,931.27

of which has been repaid: 5.21 3,143.43 3,148.64Total now held by IBRD and IDA: 1,800.35 1,587.36 3,387.71Amount sold 0.00 196.73 196.73

Of which repaid : 0.00 196.73 196.73Total Undisbursed : 1,590.48 14.30 1,604.78

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.b. Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system was introduced (HS = highly Satisfactory, S = satisfactory, U = unsatisfactory,

HU - highly unsatisfactory): see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994.

Note:Disbursement data is updated at the end of the first week of the month.

Generated by the Operations Information System (OIS) Page I

85

Annex 10 Annex A2Country at a Glance Page 1 of 2

THAILAND AT A GLANCE

Lower-POVERTY and SOCIAL East middle-

Thalland Asia Income Development dlamond-

Population mid-1996 (minlDons) 60.1 1.726 1,125GNP per capita 199 (USS) 3,020 890 1,750 LWfe expectancyGNP 1996 (b/lIons USS) 177.3 1,542 1,967

Average annual growth, 1910.94

Population (%) 0.9 1.3 1.4 Labor force (X) 1.3 1.3 1.8 GNP aGrossper i, I primaryMost recent estimate (latestyearavailable since 1989) capita enrollment

Poverty: headcount Index (6 of populaton) 13Urban populafon (% of total populatton) 20 31 56Life expectancy at birth (years) 89 68 67Infant mortality (per 1,000 Dive bIrths) 35 40 41 Access to safe waterChUd malnutriton (% of children under 5) 13Access to safe water (X of population) 81 77Illiteracy (% of population age 15+) 6 17 ThailandGross primary enrollment (% of school-age population) 87 117 104

Male .. 120 105 Lower-middle-income groupFeLmale .. 116 101

KEY ECONOMIC RATIOS end LONG-TERM TRENDS

1975 1985 1995 1996Economic ratloa

GDP (billions USS) 14.9 38.9 168.4 185.0Gross domestc investmentGDP 26.7 28.2 41.8 41.6Exports of goods and services/GDP 18.4 23.2 41.7 38.8 Openness of economyGross domesUc savings/GDP 22.1 25.5 36.2 35.3Gross national savings/GDP 22.7 24.2 34.8 33.7

Current account balance/GDP -4.1 -4.0 -8.0 -7.9 Ie nInterest payments/GDP 0.7 2.3 1.8 1.2 Savings InvestmentTotal debt/GDP 12.5 4S.1 50.6 49.9 s rTotal debt service/exports 12.0 31.9 11.6 11.4Present value of debt/GDPPresent value of debt/exports .. Indebtedness

197545 19B6-9S 1995 1996 1997-05(average annual growth) ThailandGDP 6.5 9.6 8.7 5.5 GNP per capita 4.1 8.3 7.7 4 6 Lower-middle-income grupExports of goods and services 9.5 15.9 14.8 2.4

STRUCTURE of the ECONOMY1 975 1 985 1 995 1 996

(% of GDP) Growth rates of output and Investment (%)Agriculture 26.9 15.8 10.8 10.7 40TIndustry 25.8 31.8 39.4 39.8 30

Manufacturing 18.7 21.9 28.5 28.6 20Services 47.3 52.3 49.7 49.5 i .c

Private consumption 67.6 61.0 54.4 55.1 91 92 93 94 95 95

General govemment consumption 10.3 13.5 9.5 9.6Imports of goods and services 23.0 25.9 47.4 44.3

197545 19^o6-96 1995 1996 1(average annual growth) Growth rates of exports and Imports 1%)Agniculture 4.1 4.0 3.2 3.0 29Industry 7.9 12.6 11.3 7.7 20-

Manufacturing 7.0 12.8 12.4 7.3Services 6.7 91 7.7 6.0

Private consumption 5.2 8.3 8.3 6.3General govemment consumption 9.1 4.5 0.8 4.4 cn _ _ , , _

Gross domestic investment 6.1 15.3 13.6 7.4 91 92 93 94 95 9S

Imports of goods and serAices 6.2 17.6 16.9 2.8Gross national product 6.3 9.5 8.4 5.4 Export 0 mrn5

Note: 1996 data are preliminary estimates. Figures in italics are for years other than those specified.The diamonds show fouir key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.

86

Annex A2Page 2 of 2

Thailand

PRICES and GOVERNMENT FINANCE1975 1985 1995 1996

Domesic prices InntlalOf (%)(X change)Consumer prices 5.3 2.5 5.8 5.9 .

ImplicIt GDP deflator 3.5 2.2 6.2 5.1 4

Govenment flnance 2

Current revenue 12.8 15.4 18.2 18.6 91 92 93 94 95 96

Current budget balance 1.5 -0.6 7.8 8.3 GDP def. - CPI

Overall surplus/deficit -1.6 4.9 2.5 2.2

TRADE195 1986 1995 1996

(millions US$) Export and Import levels (mill. US$)

Total exports fob) 2,208 7,121 56.444 55,721 gO,ooO

Prmary Goods 9,679 9,598 70,000

Rice 287 829 1,962 2,012 60.000

Manufactures 2,920 46,445 45,653 |50000

Total imports (cif) 9,248 71,493 72,768 40,000

Food - 348 1,489 1,660 30.: i iiiiFuel and energy ., 2,696 4,672 6,248 10000

Capital goods 2,598 32,716 33,822 o__ _ ___ _

Export price index (1987=100) 73 139 138 90 91 92 93 94 95 96

Import price index (1987-100) 72 154 153 mExports *Imports

Terms of trade (1987=100) .. 101 90 90

BALANCE of PAYMENTS1975 1985 1995 1996

(millions USS) Current account balance to GDP ratio (%)Exports of goods and services 2,780 9,100 70,590 71,725 0

Imports of goods and services 3,478 10,160 82.169 83,617 .1

Resounce balance -698 -1,060 -11,579 -11,892 -2

Netincome 11 -643 -2,114 -3,257 -3

Net current transfers 80 165 487 780 -4

Current account balance, 4II " I-before official capita transfers -07 -1,537 -13,206 -14,369 7

Financing items (net) 555 1,620 20,442 16,538 4-

Changes In net reserves 52 -82 -7,236 -2,169 .9

Memo:

Reserves Including gold (mill. USS) 2,008 3,003 34,976 38,551

Conversion rate arocalJSS) 20.4 27.2 25.5 25.8

EXTERNAL DEBT and RESOURCE FLOWS1975 1985 1995 1996

(millions USS) ComposItion of total debt, 1SS6 (mill. USS)

Totaldebtoutstandinganddisbursed 1,865 17,552 83,166 90,812 B 0

IBRD 270 2,202 1,805 1,607 16A7 100 1277

IDA 4 105 102 100 E

Total debt service 357 3,263 8,608 8,666 _76 3

lORD 32 232 336 318

IDA 0 1 3 3 37613 j_Composition of net resource flows

Offcialagrarnts 11 120 99 110

Ofricial creditors 93 556 511 634

Pnvate creditors 107 956 5,788 9,618 F

Foreign direct Investment 22 163 2,068 2,900 42592

Podfolio equIty 0 44 2,154 1,551

Worid Bank programCommiments 95 113 190 250 A- IeRD E- Bilateral

Disbursements 44 285 146 138 j 8-DA D-Othermutlbbteral F-FPivate

Principal repayments 13 75 203 198 C-IMF G - short-te

Netfiows 31 210 -57 -60

Interest payments 20 158 136 122

Net tanders 12 51 -193 -183

Development EconomIs 6/1298

MAP SECTION

MYANMAR ~ ) SO ION 150 200 KILOMETERS AMAA

MYANMAR__ _ _ _ _ _ _ _ _ _, PR

r0 , -, i* 9 , 5COKV TRANSM!SSiON 0 50 100 I150 MILES '7 THAILANDSYSTEM FOR HONG SA TALN

." i | D 1 LAO PEOPLE'S COAMEB0APhoyoo DEMOCRATIC

CHIANGMAI 2 REPUCBRLIC; 3 7MW | MAEMOO N:n I REP C f M

Ching m:i I 1 C1iongnMoi 1111 NAM NGUM _ . o

(5 ~~~~~~~~ %T~~~~~~~~ 4135 MW LM-1

C Tho.g. / \ I ff rL~~~pooglI ~ ~ ~ ~ ~ ~ /'-..Bvi~~~~~~~~oi4 I~K.

-1 8' ) L=mp:ng 7 t : 6 SIKIKIT J I B

375 MW / /;;3 L..i ~~~~~N..g ILh.i *

\ 30w:n Xlok /1< / * ~- P_ _oMooolo N o k h : n 1N HUMIBOL '535 MW ONA ' _

K 004 ~ ~ UDNT15MWT4I U1do-oho,, 2 WhoSLnNEo

C_R 123MW _h, I\ M_NAMPHONG *.1, N.h

- Ph,r,onolo ~~~~~ UBOLBATANA I ~~~NAM PUNG

MooSol -~ ', 0MW/ b i h m S < 1Z D\ A -K4-r~~~~~~BKOKN ~~~~~~~~~~~~~~~~~~\II ~ ~ ~ ~ ' 1

PEA,Buni1|@2 PEoVhobo' M -oNokhon idCo T Ho2 A El

RATCHABURI t R~~~~~~likh-:o S. is h. TkW Ph°1M GA V T EN O A

i oonhoe0

C} Phh h Chi B.oK RbN

kii Boo NAKH SHi RL 2 ¼

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