Report No. 843a-MA FILE COPYMalaysiaNational Electricity Board of the States of MalayaAppraisal of the Seventh Power ProjectNovember 10, 1975

Power DivisionEast Asia & Pacific Projects Department

Not for Public Use

Document of the World Bank

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

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CURRENCY EQUIVALENTS

US$1 - 2.30 Malaysian dollars (M$)M$ 1 - US cents 43.48US$1 = 1.01 Canadian dollar (C$)

UNITS OF 4EASUREMENT

kW - kilowatt (1000 W)MW - megawatt (1000 kW)kwh - kilowatt hourGWH - Gigawatt hour (1 mlllion kwh)kV - kilo volt (1000 V)KVA - kilovolt-ampereMVA - Megavolt-ampere (1000 EVA)mi = 1.6093 kmsq mi - 259 hectares (ha)

ABBREVIATIONS AND ACRONYMS

CIDA - Canadian International Development AgencyNEB - National Electricity Board of the States of MalayaMINCO - Malaysia International Consultants, tuala LuspurPCR - Preece, Cardew & Rider, Brighton, EnglandPRHE - The Perak River Hydroelectric Power Company, Ltd.

NEB's FISCAL YEAR

September 1 - August 31

1/ The Malaysian dollar is floating relative to the US dollar. Conver-sions in this report have been sade at US$1 to M$2.30, which *as theshort-term average rate prevailing at the time of appraisal.

MALAYSIA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

APPRAISAL OF THE SEVENTH POWER PROJECT

TABLE OF CONTENTS

Page No.

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

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

II. ThE ECONOMY AND THE POWER SECTOR .................... 2

The Country and its Economy .................... 2Energy Resources ... 3...... ..................... 3The Power Sector .................... . . ** 3Facilities of NEB ...... .................... 4The Perak River Hydroelectric Company (PRHE) ... 4Penang City Council ............ ............... 5Rural Electrification ......... . 5

III. THE BORROWER ........... ....... 6

Management and Staff ................. . . ......... 7Consultants .. ........................ ....... 6.. 7Tariffs . ......................., .......... 7Taxation ........... ... ... .... .. ... . .. . .. . .. . .. 8Accounting and Audit ..... .............. . 8Insurance ........... . ... . ...... ................ 9Industrial Participation .6 ..................... 9Training .. 9.................................... 9

IV. THE PROJECT .......................... 6.... . 9

Prai Thermal Power Station Extension .... .. 0 .... 10Transmission and Distribution Sub-projects 10Rural Electrification Study .......... . .......... 11Cost Estimate ................. ................ 11Financial Arrangements ........ ................ 13Engineering and Construction ......6 .... ..... 14Procurement and Disbursement .................. . 14Ecology ................... *...6 ....... ......... 15

This report was prepared by Messrs. K.C. Ling (Power Engineer) and J. M.Sneddon (Financial Analyst).

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Page No.

V. PROJECT JUSTIFICATION ............................... 15

The Power Market ............................... 15Least Cost Solution ........................... 15Return on Investment .......................... 16

VI. FINANCIAL ASPECTS ................................... 17

Past Results and Financial Position .... ........ 17Financial Forecasts ........................... 17Financing Plan ................................. 17Future Operating Results ....................... 19General ........................................ 19Rate of Return ................................. 19Debt/Equity .................................... 19Operating Ratio ................................ 19Current Ratio .................................. 20Debt Control ................................... 20Receivables .................................... 20

VII. AGREEMENTS REACHED AND RECOMMENDATION .... ........... 21

ANNEXES

1. GENERATING PLANT CAPACITY2. ORGANIZATION CHART (No. 9976)3. TERMS OF REFERENCE - RURAL ELECTRIFICATION STUDY4. PROJECT COST ESTIMATE5. PROJECT IMPLEMENTATION SCHEDULE FOR PRAI EXTENSION (No. 15073)6. LOAN DISBURSEMENT SCHEDULE7. ACTUAL AND FORECAST SALES OF ENERGY FY 1965-19818. BALANCE OF SYSTEM LOAD REQUIREMENT AND CAPABILITY9. SYSTEM MAXIMUM DEMAND AND CAPABILITY (No. 9922)

10. RATE OF RETURN CALCULATION FOR PRAI EXTENSION11. INCREMENTAL COST OF ENERGY CALCULATION12. INCOME STATEMENTS FY 1966-197413. BALANCE SHEETS FY 1966-197414. TARIFFS AND REVENUE ANALYSIS15. INCOME STATEMENTS FY1975-198116. FUNDS FLOW STATEMENTS FY1975-198117. BALANCE SHEETS FY 1975-198118. CONSTRUCTION EXPENDITURE PROGRAM FY 1975-198119. ASSUMPTIONS IN FINANCIAL FORECASTS20. DEBT SCHEDULE

MAP

MALAYSIA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

SEVENTH POWER PROJECT

SUMMARY AND CONCLUSIONS

i. The Seventh Power Project of the National Electricity Board of the

States of Malaya (NEB) consists of the final extension of the Prai Thermal

Power Station (3 x 120 MW), transmission and distribution sub-projects and

consulting services. Prai Power station stages 1 and 2 of 2 x 30 MW and 1

x 30 MW were completed in 1967 and 1971 respectively, financed under Loans

350-MA and 579-MA. The final extension will use the site to capacity. A

132 kV transmission line would be built from Majadee, a switching station

near Johore Bahru, to Kota Tinggi, both to upgrade the present 6.6 kV supply

and ultimately to supply the Johore Tenggara rural area as it develops. Two

11 kV projects would supply power to two rural areas, the first located near

Alor Star in the North and the second between Segamat and Kluang in the

South. A study would be carried out by consultants to formulate a long-term

plan for rural electrification of West Malaysia.

ii. NEB has received an aggregate of US$180.9 million (net of cancel-

lation) in six Bank loans since 1958 which have helped in financing 1,010 MW

of additions to system capacity and the expansion of the transmission system

which will interconnect all of Peninsular Malaysia. The proposed loan would

assist NEB in financing its expansion program and help raise the total system

capacity to 1,959 MW compared to 124 MW at the beginning of 1963; the Bank

would be involved for the first time in Rural Electrification in partnership

with the Federal Government, the State Governments and NEB. The projects

under previous loans have all been satisfactorily completed or are now under

construction and no significant problems have arisen since the beginning of

the Bank's association with NEB.

iii. The total cost of the project is estimated at US$171.3 million

equivalent of which the Bank would finance US$35 million, a portion of theforeign cost. The balance of the foreign cost of US$84.9 million would befinanced from bilateral and suppliers credits and the local cost of US$51.4

million is to be financed from NEB's internal cash generation.

iv. Malaysia has embarked on a dynamic program to expand the economy

both in agriculture and industry. For 1974, GNP grew by 17.6% at current

prices and 6.3% at real. Per capita GNP in 1973 was US$477. Demand for power

grew in line with the expansion of the economy.

v. Responsibility for the power sector in Peninsular Malaysia rests

with three organizations: NEB responsible for most of the generation and

distribution; the Perak River Hydroelectric Company Limited responsible for

generation and transmission in part of the State of Perak which NEB will

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take over in 1976; and the City Council of Georgetown, Penang, responsiblefor the island of Penang which NEB is to take over later this year.

vi. NEB operates in Peninsular Malaysia and is organized as a modernpublic utility with considerable autonomy. Separate Boards are responsiblefor electric power in the States of Sabah and Sarawak. NEB's stock is almostwholly Government-owned and the directors are appointed by the Minister ofPower, Technology and Research. The financial history is good and NEB'spresent financial position is sound. A rate of return greater than 8% onacceptably valued net fixed assets in operation is expected throughout theforecast period.

vii. NEB's expansion program required to meet forecast growth of FY1975through 1981 is estimated at US$1,338 million; the proposed project wouldaccount for 13% of this amount. The program has been selected after com-parison of a number of possible sequences of system development of generationand transmission.

viii. The Prai extension is the only possible development that can beconstructed in time to meet forecast load and energy requirements in 1980.It forms part of all the sequences of system expansion used to find the leastcost solution.

ix. The project is suitable for a Bank loan of US$35 million for aperiod of 20 years including a grace period of 5 years.

MALAYSIA

NATIONAL ELECTRTCITY BOARD OF THE STATES OF MALAYA

SEVENTH POWER PROJECT

I. INTRODUCTION

1.01 The report covers the appraisal of the Seventh Power Project ofthe National Electricity Board of the States of Malaya (NEB), for extensionof generation facilities, rural electrification and consulting services.

1.02 The project consists of construction of an extension to the PraiPower Station of 3 x 120 MW units, 132 kV transmission lines from Majadee toKota Tinggi and extension of the bulk distribution system to two rural areas.The consulting services to be provided would cover a study of rural electri-fication in Peninsular Malaysia and an updating of the Western Malaysiasystem study.

1.03 The estimated cost of the Seventh Power Project is M$393.9 million(US$171.3 million). The Bank has been asked to finance part of the foreignexchange component in an amount of M$80.5 million (US$35.0 million) equiva-lent, about 20% of the total cost. The balance of the foreign cost, M$195.3million (US$84.9 million), would be financed from bilateral or supplierscredits and the local cost component of M$118.2 million (US$51.4 million)would be financed from NEB's internal cash generation.

1.04 The Borrower would be NEB to which the Bank has made six loansaggregating US$180.9 million (net of cancellation). The first loan (210-MA)of US$28.6 million was made in 1958 for the first stage of the CameronHighlands Hydroelectric Scheme. A second loan (350-MA) of US$51.1 millionwas made in 1963 for the second stage of the Cameron Highlands Scheme, thefirst stage of the Prai Thermal Station and the expansion of transmissionfacilities. In 1966, a third loan (458-MA) of US$27.7 million was made forthe first stage of the Port Dickson Thermal Station, the installation ofadditional generating units at the Cameron Highlands Scheme, the second stageof the Johore Bahru Thermal Station and the expansion of transmission facil-ities. The fourth loan (579-MA) of US$8.5 million was made in 1969 for thesecond stage of the Port Dickson and Prai Thermal Stations and for theexpansion of transmission facilities. In 1970, a fifth loan (700-MA) ofUS$20.0 million was made for the third stage of the Port Dickson Stationand transmission facilities. The sixth loan of US$45.0 million was made in1974 for transmission, distribution, and control facilities associated withthe Temengor Hydroelectric Development (4 x 87 MW).

1.05 The projects under the first four loans have been completed andare operating satisfactorily. Under the fifth, delays in the manufactureand delivery of equipment have occurred and the commissioning dates of thefirst two 120 MW units are estimated to be end 1975 and mid-1976 respectively,about 20 months behind the original schedule. Construction of the projectsunder the sixth loan is on schedule.

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1.06 The project now proposed is required: to provide the energy re-

quired by the expansion of NEB's system; to supply bulk power to rural areas;

and to study rural electrification.

II. THE ECONOMY AND THE POWER SECTOR

The Country and its Economy

2.01 Malaysia consists of the peninsula of Malaya which lies between

Thailand and Singapore, and the States of Sarawak and Sabah on the island

of Borneo. The aggregate area of Malaysia is about 128,730 square miles.

In 1974 it had a population of about 12 million, growing at a rate of

2.7% per annum. Per capita GNP was US$490 in 1973.

2.02 The pace of economic growth in Malaysia began to accelerate in

the course of the second half of 1972. The year 1973 was an outstanding one

for the Malaysian economy. The upswing in the business cycle led to recordperformances in almost all sectors of the economy and GNP increased 26.1%

at market prices.

2.03 1974 was also a good year. GNP grew by 17.6% at market prices and

6.3% at real. Despite the worldwide recession and by Malaysian standards a

relatively high domestic inflation rate, the economy experienced a high level

of economic activity particularly in the first half of the year until some

of the major commodity prices began to decline. The rate of inflationappeared to slow towards the end of the year and continued slowing in thefirst half of 1975.

2.04 Rubber continues to be the main pillar of the Malaysian economy

contributing about 28.3% of export earnings and 17% of GDP. In spite of the

decline in rubber prices, exports managed a 15% growth in 1974. Timber re-

mains the second largest export earner, contributing 15% of merchandise

exports and 9% of GDP. The exports of saw-logs and sawn timber slumped by

14% and 23% respectively in 1974. Tin ranked third representing 14.9% of

merchandise exports and 8.9% of GDP. Palm oil ranked fourth representing

12.3% of merchandise exports and 7.3% of GDP. Petroleum products ranked

fifth, representing 6.5% of merchandise exports and 3.9% of GDP. The export

sector showed resilience largely because of the favorable palm oil, tin

and petroleum prices.

2.05 Imports shot up by about 50% largely due to high import prices.

The overall balance of payments, however, has about M$450 million surplus,

thus adding further to Malaysia's external reserves of about M$3,760 million

(US$1,600 million) at the end of 1974 which equals about 5 months of net

imports at present levels.

2.06 Industry is the principal power user, consuming 37.0% of total

energy sales in 1974. Commercial use ranked second at 29% while residential

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users consumed 11.7%. The remaining 22.3% was used in bulk supply by otherpublic utilities and mining.

Energy Resources

2.07 Both natural gas and oil have recently been found off the eastcoast of the peninsula of Malaya and earlier off the coasts of Sabah andSarawak. Production at present is about 100,000 barrels per day, or 4.5million tons per year. In about 3 to 4 years' time, production is expectedto increase at least threefold. Since 1973, Malaysia has been a net exporterof petroleum products. In the next few years, liquified natural gas mightalso become an important foreign exchange earner.

2.08 Hydroelectric potential is still the most valuable indigenousenergy resource for power, with 295 MW installed and 348 MW under construc-tion (Temengor Hydroelectric Development). A preinvestment study on thePergau Hydroelectric Scheme (100 MW) was completed by the Snowy MountainsHydroelectric Authority of Australia in 1969 under the Colombo Plan. Agroup of Russian engineers is now making a feasibility study of the SungaiTembeling Scheme (90 MW). The Snowy Mountains Hydroelectric Authority ismaking a combined flood control and power development feasibility study ofthe Trengganu River (300 MW) on the east coast. The development of hydroresources is therefore being actively pursued.

The Power Sector

2.09 Electric power in Malaysia is supplied principally by autonomousGovernment-owned entities. The largest of these is NEB which serves penin-sular Malaysia with the exception of Penang Island which is supplied bymunicipally-owned plants, and part of the State of Perak which is supplied bythe privately-owned Perak River Hydroelectric Power Company (PRHE). The twostates on the island of Borneo are supplied by Government-owned statutoryauthorities -- the Sabah Electricity Board and the Sarawak ElectricitySupply Corporation. The present capacity installed by all of these entitiesis as follows:

Entity Installed Capacity (MW)

NEB 860.6PRHE 142.5Penang City Council 43.3Sabah Electricity Board 88.6Sarawak Electricity Corporation 59.2

Total 1,194.2

In addition, there is a total of 21.4 MW in about 117 diesel plants ownedby small electric companies which supply power to customers on a licensedbasis and 158 MW of privately-owned small diesel units.

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Facilities of NEB

2.10 NEB's total present generating capacity of 860.6 MW is made upof 265.4 MW of hydroelectric plant, 540 MW of steam plant and 55.2 MW ofdiesel plant. Details of the plants are given in Annex 1. Units 3 and 4at Port Dickson Thermal Station (2 x 60 MW - Loan 579 MA) have been incommercial operation since 1974 and Units Nos. 5, 6, and 7 (3 x 120 MW -Loan 700 MA) are scheduled to go into service in 1976. The Temengor plant(4x 87 MW) scheduled for completion by 1979 will bring NEB's total installedcapacity to 1,598.6 MW including hydro capacity of 613.4 MW.

2.11 Nearly all of NEB's generating capacity supplies the interconnectedsystem which covers most of the western side of peninsula of Malaya andextends from Alor Star in the North to the Southern system around JohoreBahru (see map). A 132 kV transmission line under construction from theWestern system to Kuantan on the east coast will be completed by the endof 1975, and by mid-1976 this line would be extended to Pekan and Tg Gelangand by 1977 to Jengka/Jerantut. The transmission lines from Temengor toMachang, then to Kota Bahru and Kuala Trengganu on the east coast arescheduled for completion by the end of 1980. Thus the entire peninsula willbe interconnected and the relatively high-cost isolated diesel stations willbe eliminated.

2.12 NEB's transmission system is operated at 275 kV between PortDickson and Kuala Lumpur South Substation, a distance of 45 miles. NEB hasalso 607 miles of 132 kV, 315 miles of 66 kV and 516 miles of 33 kV overheadtransmission lines as well as 11.5 miles of 66 kV and 52.2 miles of 33 kVunderground cables. Distribution is carried out at 22 kV and 11 kV by some2,823 miles of overhead lines and underground cables as well as 206 milesof lines and cables at 6.6 kV, 3.3 kV, and 2.2 kV. 3,352 substations incommission have a total capacity of 4,764 MVA.

2.13 NEB's system is connected to the PRHE and Penang City Councilsystems which are commented on below.

The Perak River Hydroelectric Company (PREE)

2.14 The company and its distribution subsidiary (Kinta ElectricDistribution Co. Ltd.) generate and distribute electricity within theirconcession area in the State of Perak to some 65,756 customers; the bulk oftne output is sold to the mining industry. PRHE has a profitable operation.The company is incorporated in the United Kingdom and operates under aconcession granted by the State of Perak in 1926 for a term of 80 years witha break-clause after 50 years. The Government has decided to exercise itsright under the concession agreement to acquire the assets of the companyin November 1976 for operation by NEB. Negotiations continue on the settle-ment to be reached.

2.15 The price to be paid for the assets has not yet been agreed buton the assumption that the amount will not be excessive, the takeover shouldimprove NEB's financial viability.

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2.16 PRHE has 142.5 MW of generating plant, 27 MW of which is hydro-electric and 115.5 MW is steam. When the Port Dickson power station exten-sion is commissioned 37 MW of the older thermal plant will be placed onstandby, reducing PRHE's operating plant capacity to 105.5 MW.

Penang City Council

2.17 Special provisions were made in the Electricity Act of 1949 for thePenang City Council to continue operating its own electricity system to supplythe island of Penang. Given the concentrated, densely-populated area ofPenang and the recent industrial development of the island, the Council'sElectricity Department has been able to operate viably and generate suffi-cient funds to subsidize some of the other departments of the City Adminis-tration. For some time, Penang has purchased electricity in bulk from NEB(42 million kWh in FY74).

2.18 Penang Electricity Department's financial viability was badlyaffected by Government's refusal to allow fuel surcharges to be passed toindustrial and commercial consumers following the fuel crisis. Governmentagreed that NEB would take over the department during calendar 1975 andnegotiations to this end have been held. The price to be paid for the assetshas not yet been agreed but on the assumption that it will not be excessive,NEB's financial viability should be improved.

Rural Electrification

2.19 Rural electrification in Malaysia began in the 'fifties when alarge number of the rural population was concentrated in villages duringthe emergency. These villages were electrified from diesel generators toprovide perimeter lighting for security reasons. Originally the installationswere operated by NEB's predecessor organization (the Central ElectricityBoard) on cost reimbursement from Government. After the emergency, themajority of the small systems were sold to private licencees as they wereuneconomic on a full NEB service basis; 89 such licencees still exist.

2.20 Rural electrification as a social objective began in 1957. By theend of FY74, 2,187 villages had been electrified covering 197,000 consumers.About 25,000 rural consumers per year are now given supply which is morethan 50% of NEB's domestic consumer increase.

2.21 While it is Government's intention to electrify rural Malaysiaas much as reasonably possible, the current program is unplanned. Villagesmake application to the State Governments for supply; state administratorsselect villages from these applications arbitrarily for recommendation tothe Federal Government which agrees the program according to the avail-ability of funds.

2.22 NEB defines rural electrification as financially non-viable domes-tic electrification, treating viable loads as normal extensions. Recordsare not available to show the economic and financial benefits/deficits fromthe rural program to date. The program is financed one-third each by the

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Federal and State Governments and by NEB -- including estimated operatingdeficits for the first 7 years. Operating deficits greater than the estimatesand for the period after 7 years, are borne by NEB. Until now, the recur-ring deficits have been insignificant in NEB's scale of operations. However,the rural program is not having a great effect on the backlog of domesticrural houses that need supply. About 814,000 rural houses were withoutsupply in 1970; approximately the same number exists now, as the annualprogram keeps only slightly ahead of the increase in rural houses resultingfrom the 2.7% population increase. Popular demand -- already apparent --

will therefore cause the program to accelerate and the resulting cashdeficits may no longer be insignificant for NEB.

2.23 Low-voltage (LV) distribution equipment and materials are now, orby next year will be, manufactured locally, but manufacturers cannot com-pete with foreign bidders within the Bank's 15% preference margin. As im-ported LV distribution equipment and materials are subject to 30-40% customsduty, electrification of villages, if financed by the Bank, would cost morethan if purchased locally. Accordingly, NEB is not presently interested inBank financing for such purposes. At any rate, it can be safely assumedthat NEB would have to support the local industries, whether it wanted toor not (see paragraph 3.14).

2.24 Malaysia and NEB need a properly planned rural electrificationprogram. Government and NEB have agreed that consultants be appointed tocarry out a study and make a report on the outlines of a plan for totalrural electrification of Peninsular Malaysia.

III. THE BORROWER

3.01 The Borrower would be NEB, established in 1949 under the Electri-city Act of that year, a financially sound, well-organized and operatedutility.

3.02 NEB is organized and functions as a modern public utility corpor-ation with a considerable degree of autonomy. It is both a regulatory andoperating agency, charged with the operation of the electric installationsunder its jurisdiction and the establishment of such new facilities as maybe required. It regulates the production and use of electric energy inWest Malaysia and grants licences for the installation and operation ofindependent electricity works to be used for public or private purposes.NEB has the legal power to set its tariffs (see para. 3.07) but operatesunder Government direction in this regard.

3.03 The Board of Directors consists of a Chairman, Deputy Chairmanand not more than 10 nor less than 5 other members. At present there are10 members, all of whom serve in a part-time capacity, with the exceptionof the Deputy Chairman who is also the General Manager. Members are appointed

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by the Minister of Power, Technology and Research, subject to terms and con-ditions he may determine. The present Chairman is currently Chief Secretaryto the Government; the responsibilities of the position cover both beingSecretary to the Cabinet and Head of the Civil Service. Other members ofthe Board are prominent in the political, labor and business communities.

Management and Staff

3.04 NEB reorganized its management structure during the past two yearsbased on consultants' recommendations which took into account Government'spolicy of providing more equitable distribution of job opportunities amongthe different races. Principal changes in higher-level positions are beingmade as suitably qualified and experienced Malays become available. A recentWages and Salary Award which gave only a small increase to NEB employeesand removed some benefits has caused morale problems at all levels in NEBand the lower level employee unions threatened strikes during May 1975. Acopy of the organization chart is shown in Annex 2.

3.05 The previous loan agreement contained an undertaking that theBank would be consulted before appointments were made to the positions ofGeneral Manager and Financial Controller. It was agreed that this under-taking be continued for the proposed loan.

Consultants

3.06 In the past, NEB used consultants to make engineering and manage-ment studies and for design, procurement and supervision of construction.The arrangement and performance have generally been satisfactory. RecentlyNEB began to use its own staff to design and supervise the construction ofsmall thermal units (the sixth unit at Johore Bahru Thermal Power Stationof 30 MW) and 66 kV and 132 kV transmission lines and will likely expandsuch activities with time. NEB will however continue to use consultantsto augment its own capabilities for large or complex facilities.

Tariffs

3.07 Under the Electricity Act, NEB has the power to fix tariffs withoutreference to any other authority. In practice, because of political con-siderations, the Cabinet now deliberates on the sector's tariffs. NEB'sstated policy in the past has been to produce a return on its average netfixed assets in operation of at least 8% per annum and to finance at least40% of construction costs from internal sources. In the past, NEB's internalcash generation has financed over 60% of the expansion program, but thissituation will change due to accelerated load growth, the expanded construc-tion program and inflation; consequently, greater reliance will have to beplaced on borrowing and additional equity.

3.08 Basic tariffs have not been revised since 1964 and are thereforenot related to NEB's current costs of system operation in view of thechanges that have occurred since then. NEB had Electrowatt of Zurich review

tariffs in 1972, but they did not then investigate the cost of supplying thedifferent categories of consumers. NEB has recently re-engaged Electrowattto study these costs and an outline of appropriate terms of reference forthe study has been sent to NEB covering inter alia the incremental costs tothe economy of NEB operating and expanding its system. A report will beissued by mid-1976. It has been agreed that NEB shall exchange views withthe Bank prior to making any changes in its tariffs.

3.09 Following the fuel crisis, Government, as part of its anti-infla-tion policy, did not permit NEB to apply the fuel adjustment provisionscontained in the tariff schedule to industrial and commercial consumers.This policy continued until March 15, 1975 I/ when Government agreed tofuel surcharges being applied to all consumers. Agreement was given partlybecause NEB was running into cash problems and partly as a quid pro quofor an arrangement with ESSO that the loss on the Port Dickson power stationfuel oil contract, based on pre-fuel crisis oil prices, would be sharedone-third by NEB and two-thirds by ESSO.

Taxation

3.10 NEB is liable to pay corporation and development taxes. Corpora-tion tax is levied at a rate of 40% of taxable income and development tax at5% of gross income. In addition, NEB is liable to pay import duties, fueltax of M$17 per ton and a surtax of 4% on imports. Exemption was given fromthese taxes up to March 15, 1975 when fuel surcharges were applied to allconsumers, but full liability to tax operates from that date.

Accounting and Audit

3.11 NEB has an efficient finance and accounting organization, butexperiences some difficulty in recruitment and retention of qualified staffbecause of the market conditions for such staff created by the rapid expan-sion of industry in Malaysia. Increasing use is being made of NEB's computer:

- the billing system is being expanded to covermore consumers; and

- present worth and rates of return techniques willshortly be used to evaluate internally planned projects.

3.12 Price Waterhouse and Company have been principal auditors of NEBsince it was established; a local firm of accountants, Hanafiah, Raslan,Mahomed and Partners audits NEB's branches; both firms are acceptable.During negotiations, assurances were received that NEB will continue toemploy independent auditors acceptable to the Bank.

/ t About 3% of gross revenues has been lost in FY1975 after offsettingcustoms and sales tax exemptions.

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Insurance

3.13 An existing covenant requiring NEB to maintain reasonable insur-

ance coverage has been followed. This covenant is repeated in the agreement

for the proposed loan.

Industrial Participation

3.14 NEB is promoting the establishment of local manufacturing capa-

bility in electric meters, paper insulated lead-sheathed cable, medium

voltage distribution transformers and switchgear. A company has already

been formed in which NEB has a 51% interest to manufacture paper insulated

lead-sheathed cables; commercial production is expected to begin in late

1975. Proposals from several companies have been received for cooperation

in the manufacture of electric meters, medium voltage transformers and

switchgear; local companies are expected to be established next year. The

total estimated investment required is unlikely to exceed M$25 million and

to ensure investment for non-power purposes does not exceed this amount

without the agreement of the Bank the latest loan agreement includes a

covenant providing for the Bank's concurrence to any industrial participation

by NEB when these exceed M$25.0 million. Continuation of this covenant was

agreed for the proposed loan.

Training

3.15 NEB runs a comprehensive staff training program under its Education

and Training Department. Since 1960, 393 engineering scholarships have been

sponsored at overseas universities; of this number, 212 have graduated and

181 were continuing their studies at December 31, 1974; loss to NEB of

returned graduates amounted to 13, or 6%.

3.16 A training school is being planned and construction is expected to

begin during FY76. A staff member of the International Labor Organization

is currently attached to NEB to formulate the curricula. Courses offered

will generally be at technician and clerical level with the aim of augment-

ing NEB's manpower requirement and furthering Government's policy of en-

suring equitability in employment for Malays.

IV. THE PROJECT

4.01 The project proposed for Bank financing will consist of thefollowing:

(a) the final stage extension of the Prai ThermalPower Station comprising three units of 120 MWeach, scheduled for commissioning iR August 1979,February 1980 and August 1980, respectively;

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(b) a 132 kV transmission line from Majadee switchingstation to Kota Tinggi, a town in the rural devel-opment area of Johore Tenggara, scheduled forservice in 1978;.

(c) extension of 11 kV distribution system to tworural areas, scheduled for service in 1978; and

(d) consulting services for a rural electrificationstudy and other services.

Prai Thermal Power Station Extension

4.02 The first stage of the Prai station (2 x 30 MW) was completed in1967 under Loan 350-fA. The second stage (1 x 30 MW) was completed in 1971under Loan 579 MA. The site is adequate to accommodate 3 additional 120MW units. The units will be generally identical with only minor modifica-tions in specifications to the three units now under construction at PortDickson Thermal Station (Loan 700-MA). Each unit will consist of one 839,520lbs per hour reheat type boiler designed to operate under steam conditionsof 1,800 psi and 1,000 0 F/1,000 0 F and a turbo-alternator with a maximumcontinuous rating of 120 MW.

Transmission and Distribution Sub-projects

4.03 One transmission and two distribution sub-projects for bulk supplyto rural areas are included in the loan package.

4.04 The 132 kV transmission line, 16.5 miles in length, is from Majadeeswitching station to Kota Tinggi. The whole district of Kota Tinggi in-cluding the Johore Tenggara regional development has a population of 61,500according to the 1970 Census. It is now being supplied at 6.6 kV from JohoreRiver Waterworks 22/6.6 kV substation which is connected by 15 miles ofsingle circuit 150 mm2 22 kV overhead line from Tebran tie-in substationin Johore Bahru. Maximum demand in 1974 at Johore River Waterworks was3000 kW which is expected to increase to 5000 kW by 1976. The maximumdemand in 1974 at Kota Tinggi was 710 kW which is forecast to grow at anaverage annual rate of about 13% over the next ten years. The 22 kV over-head line is reaching the limit of its capacity. Frequent breakdowns havebeen experienced on this very old line due to lightning and corrosioncf earthwires. A 132 kV, 300 mm2 double circuit line is therefore proposedby .EB to be initially operated at 66 kV with provision for future extensionlnto the Johore Tenggara rural development areas.

4.05 The two 11 kV distribution sub-projects are designed to supplypower to two rural areas, one located near Alor Star in the north and theother located between Segamat and Kluang (see map) in the south. Requestsfor bulk supply have been made by residents of the Segamat Selatan areafor many years. These can be met on completion of the 66 kV line (financedunder Loan 1031-MA) from Seganac to Kluang, the purpose of which is mainly to

- 11 -

strengthen the southern network by completing the 66 kV loop. The distri-bution sub-projects involve mainly 11 kV cables, 11 kV/0.4 kV distributiontransformer, 11 kV switchgear, low voltage cables and overhead mains. Totalnumber of consumers to be served by these two sub-projects would be about1,100 and 2,200 respectively in the early years.

Rural Electrification Study

4.06 In order to prepare for future projects, NEB agreed that a consul-tant's study of rural electrification is required in West Malaysia to formu-late a rural electrification plan and review its technical, economic andfinancial implications. Among other things the consultants will study (seeAnnex 3 for Terms of Reference):

- achievements of NEB's past rural electrification program;- future load, energy and consumer growth in rural areas;- capital and operating costs;- economic benefits;- existing licensed installations; and- criteria to be used in selection of areas and villages

to be electrified.

Cost Estimate

4.07 The cost estimates for the various items in the project are sum-marized below (See Annex 4 for details):

- 12 -

M$ Million US$ Million

Item Foreign Local Total Foreign Local Total

(a) Prai Extension

Civil Works 10.76 31.21 41.97 4.68 13.57 18.25Plant & Equipment 176.40 35.10 211.50 76.70 15.26 91.96ContingenciesPhysical 9.94 4.99 14.93 4.32 2.17 6.49Price 69.39 15.52 84.91 30.17 6.75 36.92

Taxes and Duties - 17.00 17.00 - 7.39 7.39Engineering &Supervision 2.00 3.50 5.50 0.87 1.52 2.39

Administration - 6.00 6.00 - 2.61 2.61

Sub-total 268.49 113.32 381.81 116.74 49.27 166.01

(b) 132 kV TransmissionSub-project

Compensation - 0.66 0.66 - 0.29 0.29Overhead line 1.98 0.85 2.83 0.86 0.37 1.23Contingencies

Physical 0.10 0.04 0.14 0.04 0.02 0.06Price 0.45 0.20 0.65 0.20 0.09 0.29

Taxes and Duties - 0.19 0.19 - 0.08 0.08

Engineering &Administration - 0.56 0.56 - 0.24 0.24

Sub-total 2.53 2.50 5.03 1.10 1.09 2.19

(c) 11 kV DistributionSub-projects

Distributionfacilities 2.14 1.03 3.17 0.93 0.45 1.38

ContingenciesPhysical 0.11 0.05 0.16 0.05 0.02 0.07Price 0.40 0.16 0.56 0.17 0.07 0.24

Taxes and Duties - 0.19 0.19 - 0.08 0.08Engineering &Administration - 0.52 0.52 - 0.23 0.23

Sub-total 2.65 1.95 4.60 1.15 0.85 2.00

(d) Consulting Services 2.10 0.40 2.50 0.91 0.17 1.08

TOTAL 275.77 118.17 393.94 119.90 51.38 171.28

4.08 The basic cost estimate is in mid-1975 prices. Physical contin-

gencies of about 10% for civil works and 5% for plant and equipment were

- 13 -

included. Price contingencies of 12% for 1975, 10% for 1976, 8% for 1977-79and a,' after 1980 were assumed to cover price escalation in foreign costcomponents of civil works and equipment. The rate of price escalation forlocal costs was assumed to be 7-1/2% per annum.

4.09 Excluding taxes and price contingencies, the unit cost is aboutUS$340 per installed Kw. This is of the right order of magnitude for mid-1975 prices.

Financial Arrangements

4.10 The proposed Bank loan as requested by ilEB will finance theforeign exchange costs of civil works and plant and equipment of the PraiThermal Power Station Extension with the exception of boilers and turbo-alternators, as well as the foreign exchange costs of transmission anddistribution sub-projects and consulting services as illustrated below:

Foreign Exchange Local Cost Total CostSource Source

Item IBRD Bilateral or NEBSuppliers' Credits

------------------- US$ million ------------

Prai Extension

Civil Works 6.26 - 18.66 24.92Plant and Equipment 24.71 84.90 19.09 128.70Engineering and Super-

vision 0.87 - 1.52 2.39.Duties & Administra-

tion - - 10.00 10.00

132 kV Transmission Sub-project 1.10 - 1.09 2.19

11 kV Distribution Sub-project 1.15 - 0.85 2.00

Consulting Services 0.91 - 0.17 1.08

Total 35.00 84.90 51.38 171.28

- 14 -

4.11 NEB plans to use bilateral and supplier credits for the procure-ment of boilers and turbo-alternators. These are estimated to cost aboutUS$84.9 million. A bilateral credit of C$50 million equivalent to the Ma-laysian Government from the Canadian International Development Agency (CIDA)has so far been used only to finance C$12.5 million for engineering andsupervision services for the Temengor Hydroelectric Project and updating offeasibility studies for Bersia and Kenering Hydroelectric Projects. TheMalaysian Government may use this credit for the procurement of boilersprovided that the offers of Canadian manufacturers under internationalbidding are competitive with world market prices. Tender documents invitinginternational bids were issued on June 6, 1975 and opened on September 6,1975. Favorable credit offers were received. Evaluation and clarificationare now underway. Decision is expected to be made by the Government beforeDecember 1975. No difficulty in financial arrangement is foreseen.

Engineering and Construction

4.12 A local firm, Malaysia International Consultants (MINCO), has beenengaged by NEB to provide engineering services on detailed investigation,design and construction supervision for civil works of Prai Thermal PowerStation Extension Project. Preece, Cardew and Rider (PCR) of London hasbeen retained by NEB to furnish a project manager and three senior engineerson electrical and mechanical equipment in the Project Design Team in KualaLumpur and also the back-up services in PCR's home office.

4.13 In view of the fact that this is the first major thermal projectto be undertaken by NEB and MINCO, assurances were obtained during negotia-tions that PCR will review the tender documents and designs prepared byNEB and MINCO and that during construction PCR will appoint a SeniorResident Engineer for the overall supervision of the Project.

4.14 Engineering and design for transmission and distribution sub-projects will be done by NEB's own staff.

4.15 Civil works for the Prai Extension other than steel works andchimney will be awarded to local contractors after competitive bidding.Equipment will be installed by suppliers on a supply and erection basis.The transmission and distribution sub-projects will be constructed by localcontractors under the supervision of NEB. A project implementation schedulefor Prai Extension is shown in Annex 5.

Procurement and Disbursement

4.16 The equipment and materials to be financed under the proposed loanwould be procured through international competitive bidding in accordancewith the Bank's Procurement Guidelines with the Bank's usual 15% preferencebeing granted to local manufacturers. Civil works to be financed by theBank (representing approximately 25% of the total cost of civil works) wouldalso be contracted through international competitive bidding.

4.17 No expenditures other than engineering are expected to be incurredbefore the loan is signed. Disbursements for the proposed Bank loan would

- 15 -

be made against: (i) 100% c.i.f. cost of directly imported equipment andmaterials, (ii) 100% of local expenditures ex-factory for equipment andmaterials manufactured locally; (iii) 70% of total expenditures for importedequipment and materials procured locally; (iv) 100% of foreign exchangecomponent of civil works; and (v) 100% of foreign exchange component ofconsulting services. Any balance of surplus funds remaining after completionof the project will be cancelled unless there are good reasons for applyingthe savings to related works. An estimated schedule of loan disbursementsis shown in Annex 6.

Ecology

4.18 Prai power station is located about 5 miles south-southeast of thetown of Butterworth. It is situated in an industrial zone with a rather lowpopulation density. The nearest residential area is about 1.3 miles away.According to the measurements made by NEB from three air-pollution monitor-ing stations since 1970, the sulphur oxide concentrations have been withinpermissible limits. A chimney of adequate height will be constructed todisperse undesirable pollutants.

4.19 Discharge of cooling water into the channel will cause no problems.Oceanographic and hydrographic surveys ard temperature measurement areunderway. A cooling water recirculation study will be made using themathematical model of the Danish Hydraulic Research Laboratory.

V. PROJECT JUSTIFICATION

The Power Market

5.01 The power market served by NEB has had a long history of steadygrowth. The average annual increase in total sales from FY1965 through1974 was 14.5%. Energy sales for the next seven years (1975-1981) areexpected to increase at an average around 14.0% per annum, .17.6% in 1975then gradually levelling off to 10.8% by 1981. Annex 7 shows the actual andforecast sales of energy. The system maximum demand in FY 1974 was 604 MW.It is forecast to increase to 1721 MW by FY 1981. Annexes 8 and 9 give atabulation and chart of the system load requirements and the capabilitiesavailable to meet these demands. The Prai Extension is the only possibledevelopment that can be completed in time to meet the system load require-ments, particularly energy.

Least Cost Solution

5.02 Preece, Cardew and Rider, NEB's consultants on system study, havemade extensive studies of the generation and transmission expansion programcoveriag the period from 1975 through 1983. The least cost sequence out of25 alternatives following Port Dickson Stage III (3 x 120 MW) is given belowin chronological order of development:

- 16 -

(a) to develop Temengor Hydroelectric Project (4 x 87 MW)which is now under construction, scheduled for com-pletion in FY 1978 for the first three units and inFY 1979 for the fourth unit;

(b) to extend the Prai Thermal Power Station by installingthree additional 120 MW units, to be brought intoservice in FY 1979 for No. 4 unit and No. 5 and No. 6units in FY 1980;

(c) to develop a new thermal power station in thesouth at Pasir Gudang with 2 x 120 MW units,scheduled for completion in FY 1981; and

(d) to develop new hydro sites on the east coast,the sequence of which is still subject to furtheroptimization pending completion of field in-vestigations and feasibility studies.

5.03 The two rural distribution projects were compared with theirdiesel alternatives by assuming a conservative growth rate of 5% p.a.Extension of transformer capacity and diesel installation consistent withthe load growth as well as necessary replacement have been taken intoconsideration. The discount rates which make the present worth of coststreams of bulk supply to two rural areas breakeven with those of dieselalternatives are:

(a) Labis/Chaah area - 15.45% (assuming 1/3 of the cost of66 KV transmission system to beallocated to the bulk supply)

(b) Lana Bulu Area - 13.75%

Return on Investment

5.04 The internal rate of return of Prai Extension or the discountrate at which the present worth of costs attributable to the Project, ex-cluding duties and taxes, is equal to that of the benefits from it over itslife is 11% in constant value terms (see Annex 10).

5.05 Based on the power development program from 1977 through 1983which includes two major hydroelectric projects and two thermal power projects,the system incremental cost of energy per Kwh is estimated to be Mi 10.8 ona constant price basis, using a discount rate of 10% (Annex 11). Averageprice is estimated to be Mi 10.4 per Kwh sold by the end of the forecastperiod. This indicates that a tariff increase may require considerationlater in the current decade.

- 17 -

VI. FIN.ANCIAL ASPECTS

Past Results and Financial Position

6.01 During the period FY 1966-1973 policies followed by Governmentenabled NEB to maintain a sound financial position. The rate of return onacceptably valued net fixed assets in operation rose from a minimium of d.8%in FY 1969 to 11.9% in FY 1973; the Debt/Equity ratio improved from 61/39in FY 1966 to 48/52 in FY 1973. During FY 1974 finances weke affected byNEB's inability to recover fuel price increases but the rate of return at10.2% still comfortably exceeded the 8% agreed with the Bank. For FY 1974the debt/equity ratio was 47/53 and debt service coverage on an annualbasis was 2.3 times. Income Statements and Balance Sheets for FY 1966 through1974 are shown in Annexes 12 and 13.

Financial Forecasts

6.02 NEB's financial forecasts show that internal cash generationavailable for construction will not continue at the high level of about60% achieved in past years; a contribution of 25% after covering allrequirements, is estimated for the period FY 1975 through 1981. Althoughthe Malaysian dollar has been revalued upwards by about 23% againsL theUS dollar since currency parities began changing irn 1971, increased equip-ment and construction costs, acceleration of the construction program tomeet increased load growth and inflation will combine to make NEB's cashgeneration insufficient to cover all local costs. Additional local fundswill be necessary for the first time since FY 1969. Forecast Tariff andRevenue Analysis, Income, Funds Statements and Balance Sheets for FY 1975-81are shown in Annexes 14, 15, 16 and 17.

6.03 The total construction program FY 1975-81 is estimated to amountto M$3,079 million (US$1,338 million) including interest during constructionand after escalation at 12%, 10%, 8% and 7% for 1975, 1976, 1977-79 and1980-81 respectively for the foreign portion of civil works and equipment andat an average of 7-1/2% annually for local costs. A rate of 7-1/2% hasbeen used for operating costs other than fuel oil. Construction costestimates which are reasonable are based on figures used by the consultants(Preece, Cardew and Rider) in the system study to arrive at the most economicsequence of system expansion. Forecast load and energy growth used in thestudy was agreed by NEB and its Consultants and is acceptable (para. 5.01).

Financing Plan

6.04 The financing plan based on the above assumptions is suimmarizedbelow:

- 18 -

Financing Plan FY 197S-1981(Millions of M$ and US$)

Sources M$- US$ %

Internal Sources of Funds

Operating Income 949 412 30.8Depreciation 494 215 16.0Consumers Contributions 91 40 3.0

Total Internal Funds 1,534 667 49.8

Less: Operational Requirements

Increase (Decrease) inWorking Capital (15) (6) (0.5)

Debt Service /a 653 284 21.2Dividends 100 43 3.3Industrial Equity 25 11 0.8

Total Operational Requirements 763 332 24.8

Internal Funds Available for Investment 771 335 25.0

Assumed Additional Equity 677 295 22.0

Borrowings

Proposed IBRD Loan 81 35 2.6Existing IBRD Loans 128 55 4.2Other Loans 1,422 618 46.2

Total Borrowings 1,631 708 53.0

Total Sources 3,079 1,338 100.0

Applications

Construction Expenditure /b

Proposed Project 394 171 12.8Other Construction 2,685 87.2

Total Construction Expenditure 3,079 1,338 100.0

/a Excludes interest during construction.

/b Includes interest during construction.

- 19 -

6.05 The proposed Bank loan of US$35 million equivalent would coverabout 20% of project cost. The balance of US$136 million equivalent will befinanced from bilateral sources or suppliers credits and internal cashgeneration. The project represents 13% of NEB's FY 1975-81 constructionexpenditure program, as shown above. The detailed construction expenditureprogram is shown in Annex 18.

6.06 No difficulty is anticipated in NEB raising suppliers' credits orother assumed foreign loans to meet the expenditure program. Additionallocal funds of US$295 million equivalent are estimated to be required duringthe 7-year period FY 1975-1981. These have been assumed as equity in thefinancing plan. General assurances were obtained during negotiations thatGovernment will provide, or cause NEB to be provided with, the funds requiredto complete the construction program and specific assurances were alsoobtained regarding the provision of funds to complete the project.

Future Operating Results

General

6.07 Energy sales are estimated to increase from 3,502 GWh in FY 1974to 8,869 GWh in FY 1981, an average annual growth rate of about 14%. Revenueper kWH is forecast to average about MJ9.8 (US$44.3) during the forecastperiod. Revenues are forecast to increase from M$292 million (US$127 mil-lion) in FY 1974 to M$929 million (US$404 million) in FY 1981, an averageannual growth rate of 18%; operating expenses are forecast to increasefrom M$220 million (US$96 million) in FY 1974 to M$721 million (US$313 mil-lion) in FY 1981, at an average growth rate of 20% indicating that a tariffincrease may require consideration later in the 'seventies (see Annex 19for assumptions in the financial forecasts).

Rate of Return

6.08 The rate of return on acceptably valued average net fixed assetsin operation isestimated to vary between 8.2% (FY 1979) and 11.5% (FY 1980).Currently the rate of return covenant with the Bank provides for a minimumof 8% and it was agreed during negotiations to continue this rate for theproposed loan.

Debt/Equity

6.09 . On the assumption that all foreign expenditures are borrowed andthat the remaining funds NEB requires during the forecast period are providedthrough retained earnings and equity, NEB's capital structure will remainsatisfactory. The debt/equity ratio will vary from 48/52 in FY 1975 to52/48 in FY 1981, the last year of the forecast period.

Operating Ratio

6.10 An increasing trend from 69% (FY 1974) to 78% (FY 1981) due toinflation and an increasing proportion of thermal generation, is forecast

- 20 -

for 'he operating ratio, 1/ again indicating that tariff revision may needto b<± considered during the forecast period.

Current Ratio

6.11 The current ratio, the ratio of current assets to current lia-bilities, has varied in the past between 0.7 (FY 1966) and 1.8 (FY 1971).It is estimated to fall to 1.1 in FY 1977 and increase to 1.4 by FY 1981.Current assets include estimated adequate working cash through the forecastperiod and NEB has additional short-term borrowing facilities of M$15 million(US$6 million). Consumers receivables have been about 1-1/2 months revenueand have been forecast to continue at this level through FY 1981. Otherreceivables have been forecast to increase slightly on the FY 1974 level.Inventory levels are adequate. The current limitation on short-term borrowingagreed between the Borrower and the Bank is a maximum of M$20 million. Inorder to cover possible short-term cash requirements and in view of theincreased size of NEB's operations, the proposed Loan Agreement providesthat this limit be increased to M$30 million.

Debt Control

6.12 Long-term debt outstanding at the end of FY 1974 was valued atthe currency exchange rates prevailing when loans were drawn. Revaluationof outstanding loans at rates of exchange ruling on August 31, 1974 wouldresult in a gain on revaluation of M$20 million. Debt service coverage onan annual basis will fall progressively through the forecast period, begreater than 2.2 times for all years through FY 1980 but will fall to 1.8times by FY 1981, another indication that tariffs may require review laterin the decade. The current debt control covenant provides that, except asthe Bank shall otherwise agree, internal cash generation of the past fiscalyear or a later 12-month period prior to the incurrence of such debt, shallnot be less than 1.5 times future maxiLmum debt service on all debt drawndown. On this basis, coverage would have been 1.7 times for FY 1974 andNEB has always met this test in the past. However, this test will not likelybe met in the future and since debt is defined as incurred only at the timeof draw-down, strict application of the covenant would require the Bank'sagreement to every debt drawing to be made in future years. It was agreedduring negotiations to define debt as incurred at the time any loan agreementis signed and in view of the effect this change will have on the calculationof the ratio, to lower the minimum coverage to 1.3 times, a still reasonabletest. A schedule of debt is shown in Annex 20.

Receivables

6.13 NEB has no consumers in serious arrears. NEB takes deposits fromconsumers as security for outstanding bills which amounted to M$27 million

I/ Operating costs (before tax) x 100/Gross Revenue.

- 21 -

at end FY 1974. Bank guarantees in lieu of deposits were also held forM$-18 million which together with deposits, exceeded consumers receivablesand unbilled energy by about M$4 million.

VII. AGREEMENTS REACHED AND RECOMMENDATION

7.01 During loan negotiations, agreements were reached on the followingpoints and appropriate covenants included in the agreement for the proposedloan:

(a) tariff changes (para. 3.08);

(b) industrial participation (para. 3.14);

(c) rate of return (para. 6.08); and

(d) short-term borrowing (para. 6.11).

7.02 The proposed project is suitable for a Bank loan of US$35 millionequivalent to the National Electricity Board of the States of Malaya fora period of 20 years incuding a grace period of 5 years.

MALAYSIA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

GENERATING PLANT CAPACITY

Station Year Installed LocationInstalled Capacity

(MW)

Plants in ServiceConnaught Bridge Thermal Station 1953 80.0 Near Kuala LumpurRobinson Falls & Upper Telom Hydro Stations 1959/64 2.2 120 miles north of Kuala LumpurMalacca Thermal Station 1959 40.0 In MalaccaUlu Langat Hydro Electric Station 2.3 Near Kuala LumpurRaub Hydro Electric Station 1.2 In PahangCameron Highlands (Jor and Habu Hydro Plants) 1963 105.5 110 miles north of Kuala Lumpur

(Woh and Odak Hydro Plants) 1967/68 154.2 110 miles north of Kuala LumpurJohore Bahru Thermal Station 1st stage (No. 1 - 1963 30.0 Southern end of peninsula

No. 3 units)2nd stage (No. 4 and 1968/71 60.0 Southern end of peninsula

No. 5 units)Prai Thermal Station 1st stage (No. 1 & No. 2 units) 1967 60.0 Near Penang

2nd stage (No. 3 unit) 1971 30.0 Near PenangPort Dickson Thermal Station 1st stage (No. 1 & 1969 120.0 60 miles south of Kuala Lumpur

No. 2 units)2nd stage (No. 3 & No. 4 1974 120.0

units)Diesel Stations Various 55.2 About 90 individual stations

serving areas not connected tothe main networks.

Total 860.6

Plants Under Construction Scheduled In Installed LocationService Date Capacity

(MW)

Port Dickson Thermal Station 3rd stage (No. 5 - 1976 360.0 60 miles south of Kuala Lumpur

No. 7 unitsTemengor Hydro Station (No. 1 - No. 4 units) 1978/79 348.0 65 miles east of Butterworth

on the Perak River.Johore Bahru Thermal Station 3rd stage (No. 6 unit) 1976 30.0

Grand Total by 1979 1,598.6June 1975

ANX 2

MALAYSIANATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

ORGANIZATION CHART

| Elnaircal Chairman, DeputyInspectorate Chaima & gad -

General ManngerG- l m-g.

Dy G ra! Manager Dy. General Manager - Dy General Manager I C-nimerciel Manager ,Financ Controller

Long Range Planning _ preratics end _ Arniinitnratinn andid C-nntruc-ice Maintenance Management DeCelnDmeer

Genera.i.n (OpDraansi gtSeretary & Leg,, Punic Relatins- Administration

Tr--smi ,sian Personne & uelgary Tarrits & Chargm Dare Pracetting

Cini Engineering Tassio -|Education & Teemning l |Capital Expenditure l |8uagert

-|Research and Industrial Relations l Marker Research l |Accaunts

Den _eLadmesptc

]_ /Mchitect _ S~~~~~~~~~~~~~~~~~~~MaaemIent Ecotomict and Internal Audit

H Stores l 0 ~~~~~~~~~~~~~~~~~~~~~~~~~Fnnditig

World Bank 9976

Joen. t ~ ~ op.. t A -,.,

r Area-& Dstr ct "

June, ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~Vol 1975997

A1iNEX 3Page 1

M1ALAYSIA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

SEVENTH POWER PROJECT

Terms of Reference for Rural Electrification Study

1. The purpose of the study will be to identify the problems ofsupplying electric power to all rural areas of Peninsular Malaysia.

2. Inter alia the study should:

(i) review the achievements of NEB's past electrificationprograms in rural areas;

(ii) forecast load, energy and consumer growth of existingand future rural electrification schemes;

(iii) estimate capital and operating costs;

(iv) estimate the cash deficits that will be incurred untilcash breakeven is reached; and

(v) calculate the overall economic internal rate of returnof the program.

3. Agricultural and regional development schemes should be studied;the report should recommend long-term plans for the transmission and distri-bution system for these schemes.

4. Problems of existing public license systems should be addressedand recommendations made whether NEB acquire such systems.

5. Criteria to be used for the selection of areas and villages to beelectrified should be suggested.

6. Family incomes should be studied to establish the threshold incomesnecessary for domestic supply.

7. NEB's current method of levying consumers' contribution shouid bereviewed.

8. Technical standards of rural electrification should be reviewed.

ANNEX 3Page 2

9. A long-term plan should be produced to serve as a guide to sound,orderly and more rapid development of rural electrification. The planshould identify schemes and/or areas for implementation in the short termof the next 5 years.

10. The study should also recommend the organization structure andstaffing plan for a Rural Electrification Section.

ANNEX )

MALAYSIA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

SEVENTH POWER PROJECT

PROJECT COST ESTIMATE

(In Millions of M$) (In Millions of US$)Foreign Local Total Foreign Local Total

(a) Prai Thermal Station Extension1. Civil Works

Civil Works 10.76 31.21 hl.97 b.68 13.57 18.25

ContingenciesPhysical 1.0h 3.19 h.23 0.15 1.39 1.8h

Price 2.60 8.50 11.10 1.13 3.70 h. 8 3Taxes and Duties - 1.00 1.00 - 0.L3 0.L3

Engineering &Supervision - 3.00 3.00 - 1.30 1.30

Sub-Total 1h.40 L6.90 61.30 6.26 20.39 26.65

2. Plant and EquipmentElectrical & Mech-anical Equipment 176.40 35.10 211.50 76.70 15.26 91.96

ContingenciesPhysical 8.90 1.80 10.70 3.87 0.78 L.65

Price 66.79 7.02 73.81 29.0h 3.05 32.09

Taxes and Duties - 16.00 16.00 - 6.96 6.96

Engineering &Supervision 2.00 0.50 2.50 0.87 0.22 1.09

Administration - 6.00 6.00 - 2.61 2.61

Sub-Total 25o.09 66.42 320.51 110.48 28.88 139.36

Total 268.09 113.32 381.81 116.74 49.27 166.01

(b) 132 kV Transmission Line Sub-ProjectCompensation - 0.66 0.66 - 0.29 0.29

Overhead Line 1.98 0.85 2.83 0.86 0.37 1.23

ContingenciesPhysical 0.10 O.O0 0.lb 0.0 0.02 0.06

Price 0.o5 0.20 0.65 0.20 0.09 0.29

Taxes & Duties - 0.19 0.19 - 0.08 0.08

Engineering & Admin. - 0.56 0.56 - 0.24 0.24

Total 2.53 2.50 5.03 1.10 1.09 2.19

(c) 11 kV Distribution Sub-ProJects11 kV distribution 2.1 1.03 3.17 0.93 0.15 1.38

facilitiesContingencies

Physical 0.11 0.05 0.16 0.05 0.02 0.07

Price 0.40 0.16 0.56 0.17 0.07 0.2hTaxes and Duties - 0.19 0.19 - 0.08 0.08

Engineering & Admin. - 0.52 0.52 - 0.23 0.23

Total 2.65 i-95 4.T 1.15 O.85 2.00

(d) Consulting Services 2.10 0.hO 2.50 0.91 0.17 1.08

GRAND TOTAL 275.77 118.17 393.94 119.90 51.38 171.28

June 1975

ANLEX;2 5

MALAYSIANATIONAL ELECTRICITY BOARD OF THE STATES OF MAYALA

SEVENTH POWER PROJECTPROJECT IMPLEMENTATION SCHEDULE - PRAI EXTENSION

1975 1976 1977 1978 1979 1980

ITEM J |F|MAIM| JJA| SOIN|D JEIi E M 1jj J ] N[9 l0 M FIM M|M J a IA| OND J[M |F AM A N F M|AAjJ AiI5 .1i .] ]M[J a| as oE E ND

I CONSULTANTS

:LV II W(3 .K RNOI -en - I Z *E - -' -PSIC -n -U0r -O -

RP,o,r,m,,,, E _o,_

nsa to Sl l 10

E & M WORKS AND PR.O-IFLI 51.PI RVIS ON - , ' L _

2 SOil INVESTIGATION K OpI ,

3 PIL NG II{II l,,

4. FOLJNDATION SUBSTRUCTURE & MARINE WORKS 1 - r C °

5STEEL'3ORKS & CLADD NG ...... . - F I

6 SUPFVIISTRUCTURE .... . .r .- T

7 CHIMNIEY { | tSP>C M J Jl I I CO^SUUS OII I I - I I

8BO LEIR NO 4 - - -_ LnVm,sson

NO b&P0 |O Fw6sl _ .. . t t I emg v + o

9 TURRO.AL'ERNAlDR NO 4 .......... -- - t t - - t t I t I I i I

NO S &NO 6 _ - | |

1O CRANE - - r- r -1

11 ELECTRICAL WORKS ... N. F , r t r112 INSTRUMENTATION & CONTROLS F

13 WATER TREATNMENT PLANT . . . . .t . .I N,4 DoSN 4NN,R354 PUM PS .. m.m r - - - - - - -N 4 - N .. 5- .6 l l

15 C.W. PIPEWORK & TANKS m | - -- - - N t R

I___-_ E_ _A- I ... I I ...

,mmmmmmm D,,um6,,5 ___ Tender ra,flKo,,mr, Eva ua,,, &mAw _IM,,o.N,,,oRe g ,I1

npp8g *1- _5e0I3 o)t

0,,0R,oIR2R

ANNEX 6

MALAYSIA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

SEVENTH POWER PROJECT

LOAN DISBURSEMENT SCHEDULE

Bank Fiscal Year In M$ In US$ In US$ Undisbursed Inand Quarter Million Million Million US$ Million

(Cumulative)

1976 Jan. - Mar. 76 1.38 0.60 0.60 34.40

Apr. - June 76 1.84 0.80 1.40 33.60

1977 July - Sept. 76 3.68 1.60 3.00 32.00

Oct. - Dec. 76 3.68 1.60 4.60 30.40

Jan. - Mar. 77 3.68 1.60 6.20 28.80

Apr. - June 77 3.68 1.60 7.80 27.20

1978 July - Sept. 77 7.13 3.10 10.90 24.10

Oct. - Dec. 77 7.82 3.40 14.30 20.70

Jan. - Mar. 78 7.82 3.40 17.70 17.30

Apr. - June 78 8.28 3.60 21.30 13.70

1979 July - Sept. 78 8.05 3.50 24.80 10.20

Oct. - Dec. 78 2.99 1.30 26.10 8.90

Jan. - Mar. 79 2.99 1.30 27.40 7.60

Apr. - June 79 2.99 1.30 28.70 6.30

1980 July - Sept. 79 2.99 1.30 30.00 5.00

Oct. - Dec. 79 2.99 1.30 31.30 3.70

Jan. - Mar. 80 2.99 1.30 32.60 2.40

Apr. - June 80 2.76 1.20 33.80 1.20

1981 July - Sept. 80 2.76 1.20 35.00 --

80.50 35.00

June 1975

MALAYSIA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

ACTUAL AND FORECAST SALES OF ENERCY FY 1965-1981

--------- Domesti --------- -------- Conssercial-------- ---- Industrial - Mines---- ---- Industrial - Others--- -Bulk Supply to PRHEP Co.- ------ Total-------

Increase Increase Increase Increase Increase IncreaseYear over % of over % of over % of over % of over % of overending kWh previous total kWh previous total kWh previous total kWh previous total kWh previous total kWh previousAugust 31 Million years sales Million years sales Million years sales Million years sales Million years sales Million years

Actual

1965 163 16.4 15.2 366 16.6 34.1 281 12.4 26.2 263 22.3 24.5 _ - _ 1,073 16.8

1966 184 12.9 15.0 423 15.6 34.4 315 12.1 25.7 306 16.3 24.9 - - _ 1,228 14.4

1967 203 10.3 14.8 473 11.8 34.4 344 9.2 25.1 353 15.4 25.7 _ - - 1,373 11.8

1968 225 10.8 12.7 530 12.1 30.0 375 9.0 21.2 433 22.7 24.5 205 - 11.6 1,768 28.8

1969 249 10.7 12.8 577 8.9 29.8 362 (3.5) 18.7 496 14.5 25.6 255 24.4 13.1 1,939 9.7

1970 268 7.6 12.3 629 9.0 28.9 352 (2.8) 16.2 576 16.1 26.4 353 38.4 16.2 2,178 12.3

1971 291 8.6 12.1 688 9.4 28.7 350 (0.6) 14.6 672 16.7 28.0 400 13.3 16.6 2,401 10.2

1972 322 10.7 11.6 775 11.2 28.0 346 (1.1) 12.5 848 26.2 30.7 475 18.8 17.2 2,766 15.2

1973 369 14.6 11.7 899 16.0 28.6 313 (9.5) 10.0 1,079 27.2 34.4 481 1.3 15.3 3,141 13.6

1974 408 10.6 11.7 1,015 12.9 29.0 297 (6.3) 8.5 1,297 20.2 37.0 485 0.8 13.8 3,502 11.5

Forecast

1975 460 12.7 11.2 1,150 13.3 27.9 310 4.4 7.5 1,560 20.3 37.9 640 32.0 15.5 4,120 17.6

1976 518 12.5 10.5 1,311 14.0 26.5 330 6.5 6.7 1,872 20.0 37.9 910 42.2 18.4 4,941 19.9

1977 580 12.0 10.2 1,488 13.5 26.3 350 6.1 6.2 2,246 20.0 39.7 1,000 9.9 17.6 5,664 14.6

1978 648 11.8 10.1 1,681 13.0 26.2 350 - 5.5 2,639 17.5 41.1 1,100 10.0 17.1 6,418 13.3

1979 723 11.6 10.0 1,896 12.8 26.3 350 - 4.9 3,035 15.0 42.1 1,200 9.1 16.7 7,204 12.2 >

1980 805 11.4 10.1 2,135 12.6 26.7 350 - 4.4 3,414 12.5 42.6 1,300 8.3 16.2 8,004 11.1

1981 895 11.2 10.1 2,400 12.4 27.1 350 - 3.9 3,824 12.0 43.1 1,400 7.7 15.8 8,869 10.8

MALAYSIA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

BALANCE OF SYSTEM LOAD REQUIREMENT AND CAPABILITY

P o w e r (MW) E n e r g y (GWh)

Year Plant Maximum New Retirement Gross Reserve Available Requirement New Retirement Available

Ending Addition Demand Addition Capability Margin Net (sent-out) Addition firm

Aug. 31 Capability energy

1975 (901.2) 758-/ 142 616 4230

1976 Port Dickson Nos. 5 & 6 (240) 8721" JW 12-/ 99-1/ 142 856 5362 PD 5 500 4810

PD 5, 6 228 PD 6 80

1977 Port Dickson No. 7 (120) 9661! JW 123/ 1124-/ 142 982 5976 PD 5, 6 1020 6480

PD 7 114 PD 7 650

1978 Temengor Nos. 1, 2 & 3 (261) 11781! JW 123/ MN 23 1443 228 1215 7340 PD 7 150 MN 160 7382

TG 1, 2, 3 216 TG 112

Southern Interconnec- (120) SIPS 114 SIPS 800

tion

1979 Temengor No. 4 (87) 1358 JW 3/ 1564 228 1336 8121 TG 638 8020

TG 1, 2, 154 28136811 O 3

TG 4 72

1980 Prai Nos. 4 & 5 (240) 1480 PR 4 114 1792 228 1564 8945 PR 4 800 9220

PR 5 114 PR 5 400

Prai No. 6 &1981 Pasir Gudang No. 1 (240) 1721 PR,6 114 2020 228 1792 10132 PR 5 400 10420

PG I 114 PR 6 800

1982 Pasir Gudang No. 2 (120) 1872 PG 2 114 2134 228 1906 11135 PG 1 800 11620

P.2 400

NOTES: 1/ Maximum doands for 1976-78 are without 5% margin.2/ Load requirements and capabilities include those of Perak Hydro and Penang System but exclude,,Southern Network until its interconnection by end 1978.

3/ Increase of peaking contribution at Cameron Highland plants and Temengor.

June 1975.

ANNEX 9MALAYSIA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYASYSTEM MAXIMUM DEMAND AND CAPABILITY

2,00 d -

00

6

1,800

0c

C o1,600 _______.__ - I

1,400 E -"'

Gross System Gross Svstem E _ ~........... ^ si ed System

Peaking Capacity Estimat Demand

> l,200 _ r < Z ,.,. <~~~~~~~~~~~"O % margin)

rl c \.. | .................................. .... - \Estirnated S ystem Maximum

E z *3 C;E rL | ; VNet System Pecaking Capacity

80

60 .......... ... '

6000

4000200

1974 1975 1976 1977 1978 1979 1980 1981

Year Ending August 31

World Bank-9922(R)

ANNEX 10

MALAYSIA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

SEVENTH POWER PROJECT

RATE OF RETURN CALCULATION FCR PRAI EXTENSION

General Assumptions

(a) Plant data

Installed capacity - 3 x 120 MW

Annual capacity factor - 80%

Energy Output - 2,4o00 GWh

Life of Plant - 30 years

(b) Capital Cost (1975 price level) M$ Million

Foreign - 129.1

Local - 80.8

Total - 279.9

(c) Fuel Cost

Fuel Consumption - 0.225 kg/kwh

Unit Price - M$204/ton

(d) System Operating Costs and - M(3.30 per kWh sold

Financial Costs for T & D

System

(e) Expected Revenue -Me 10.8 per kWh sold

based 100% fuel surcharge

adjustment

MALAYSLA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

SEVENTH POWER PROTECT

INCREMENTAI. COST OF ENERrY CALCULATION

UniA MS Million

Ynn- C A F I T A L I N V B S T M0 E N T_ 0 & 1 F..l Ether Tot.l Presen t Prese..t Tot.1 Pres..ntTRANSMISSION DISTRIBUTION SUB-TOTAL cost Cost Opeota2)g CoNtS Worth Worth nergy Worth ofC E N E R A T I O N & SUBSTATIONS (Generation) Cosnt- FPctor Of Costs Sold Energy Sold

Temengor PFri Exteneion Posir Gndang Tren-genu (. Mo 1.5/kWh) (C 10) (GWh) (GWh)Bydro (3 x 120 MW) (2 x 120 MW) Hydro

(4 87 MW) (4 x 75 MW)

1973 7.4 7.4 7.4 0.909 6.7

1974 26.6 26.6 26.6 0.826 22.0

1975 59.3 1.7 3.8 64.8 64.8 0.751 48.7

1976 64.7 29.7 48.6 143.0 143.0 0.683 97.7

1977 52.0 62.4 8.5 86.5 209.4 209.4 0.620 129.8

1978 21.2 107.3 41.5 15.0 60.8 10. 8 1.4 6.7 253.9 0.564 143.2 387 218.3

1979 68.0 65.3 48.4 61.3 50.0 293.0 1.8 13.5 308.3 0.513 158.2 774 397.1

1980 10.8 102.9 144.0 70.6 50.0 378.3 6.3 45,9 28.5 459.0 0.466 213.9 1634 761.4

1981 27.0 205.9 39.3 50.0 322.2 9.9 117.9 52.0 502.0 0.424 212.8 2984 1265.2

1982 200.0 15.9 50.0 265.9 12.6 165.2 67.5 511.2 0.385 196.8 3870 1489.9

1983 58.8 1.9 50.0 110.7 13.8 183.5 73.5 381.5 0.350 133.5 4214 1474.9

1984-88 50.0 50.0 15.8 183.5 88.5 337.8 1.329 448.9 5000 89 16520.0

1989-2013 15.8 183.5 88.5 287.8 1.975 569.4 5000 Y

231.2 279.9 245.0 672.1 2380.6 22126.8

Leveliied En.rgy Cost = 2380.8 M, 10 75

22126.8

NOTE: 1/ Onnonstant prine and ten free basin.

2/ Other operating nosts include 0 & M cost fo- eranlsison end ditrtibotion, onsmee. s' service=, nduinistation and genern enpenses.

June 1975

MALAYSIA NATIONAL ELECTRICITY BOARDFINANCE 8TATEMENTSFY 1966-74

FOR ThE PERIOD BEGINNING SEP 1, 1966REPORT PREPARED JUL 17, 1975

1 2 3 4 5 6 7 8 91966 1967 1968 1969 1970 1971 1972 1973 1974

INCOME SlATEMtNT.. ._ .......

(MILLIONS MS).............

SALES INCREASE X 14,0 11,8 28,8 9,6 12,3 10.2 15,2 17,7 11,3

ENERGY SALES CGwH) 1228 1373 1769 1939 2178 2401 2766 3145 3502

AvE PRICE PER KWH 9,0 8,9 8,0 7,9 7,7 7,7 7,6 7,5 7,7

ENERGY REVENUE 111 122 142 154 169 185 209 237 271

OTHER REVENUE 3 3 4 S 7 10 13 16 21

....... ........ ..... e.......e.......e.......a..--.---.--n---__.-. --- a

TOTAL REVENUES 114 125 146 159 176 195 222 253 29Z

OPERATING EXPENSESOPERATIONS 59 63 71 75 79 83 96 104 162

DEPRECIATION 18 20 24 28 30 32 34 40 38TAXATION 0 0 0 0 0 3 16 25 20

. e....... ....... ..... f. e.... ._ .. .. a. ....... W...w

TnTAL EXPENSES 77 83 95 103 109 116 146 169 220

OPERATING INCOME 37 42 51 56 67 77 76 84 72

NET INCOME BEFOREa INTEREST 37 42 51 S6 67 77 76 84 72

INTEREST 15 14 20 22 26 24 26 27 26e*-eeS -. _ _- .. ...... W ....... e ....... ... .. ......

w CHRGD OPERATIONS 15 14 20 22 26 24 26 27 26

NET INCOME 22 28 31 34 41 53 50 57 46

ALLOCATIONS OFa NET INCOMEv DIVIDENDS 5 7 8 8 8 8 8 8 5

..... ........................ ........ _. .. ...... ........... ....... ........... ...... ......... 0 .... ...................

RETAINED EARNINGS 17 21 23 26 33 45 42 49 41

RATE BASE 352 385 504 636 680 700 703 703 707RATE OF RETURN % 10,5 10,9 10,1 8,8 9,9 11,0 10,8 11,9 10,2

OPERATING RATIO X 67,5 66,4 65,1 64,8 61,9 59,0 58,6 56,9 68,5REVENUE/AVE GROSS -- PLANTX 23,4 23,2 21,4 18,8 19,0 20.0 21,9 23,8 26,1

ANIEX 13

MALAYSIA NATIONAL ELECTRICITY BOARDFINANCE STATEMENTSFY 1966-74

FUR THE PERIOD BEGINNING SEP 1, 1966REPORT PREPARED JUL 17, 1975

1 2 3 4 5 6 7 8 91966 1967 1968 1969 1970 1971 1972 1973 1974

BALANCE SHFETS

._ .........------ _-(MILLIONS MS)

FIXED ASSETS

PLANT IN SERVICE 506 572 794 899 950 1002 1030 1095 1145LESSi DEPRECIATION 125 144 168 196 224 255 289 328 366

....... ....... ....... ........................... ....... ........... _._..... ,._.,.._

nPERATINO PLANT 381 428 626 703 726 747 741 167 779

WORK IN PROGRESS 179 221 98 64 55 62 108 136 215

CURRENT ASSETS

CASM 2 5 b 17 54 79 114 150 108INVENTORIES & RECBLS. 41 48 50 53 54 86 82 99 151

.. ..,.... ,,, ... ^. ............... ............ ....... ............ ....... ............ ....... ............ .......

43 53 56 70 108 145 196 249 259

TOTAL ASSETS 603 702 780 837 889 954 1045 1152 125533:::gm :=:::s :s :3:22 322=s3s =: 2:2..:: :::as2z 22232 3a23233 2x33s3=

EQUITY AND- LIABILITIES

EGUI TV

PAID IN CAPITAL 122 153 163 168 lb8 168 168 168 18RFTAINED EARNINGS 82 103 126 152 185 230 272 321 362

204 256 289 320 353 398 440 489 530

LONG TERM DEBT

DaEBT DUE 322 371 408 435 437 439 449 451 469

322 371 408 435 437 439 449 451 069

CURRENT- LIABILITIES

PAYA8LES ETC 56 53 57 49 63 79 112 153 181BANK OVERDRAFT 2 1 1 0 O 0 0 0 0

.___. ........ ....... ..... ... _____ ............. .. ..... .. ____________..*_.__._____.__

S5 54 so 49 b6 79 112 153 181

CONTRIBUTIONS 19 21 25 33 36 38 44 59 73

....... ....... ....... ....... ....... ....... ....... ....... ...TOTAL FOUITY AND- LIABILITIES 603 702 780 837 889 954 1045 1152 1253

====333 3=:z-S3 322233s 32=3322 a233232 xa23333 32533a3 s3333ss as22323

CONNECTIONS (000) 339 362 387 432 468 505 543 569 640AVE GROSS PLANT-PER CONNECTION 1437 1489 1765 1959 1975 1933 1871 1804 1750-PER G4H SOLD(OoO) 397 393 386 437 424 406 367 338 320INCREASE IN- GROSS PLANT X 8,1 13,0 38,8 13,2 5,7 5,5 2,8 6,3 4,6DEBT/NET PLANT X 84,5 86,7 65,2 61,9 60,2 S8,8 60,6 58,8 b0,2DEBT %- OF OEBT t EQUITY 61,2 59,2 58,5 57,6 55,3 52,4 50,5 48,0 46,9CURRENT RATIO 0,7 1,0 1,0 1,4 1,7 1,8 1.8 1,6 1,4M INSTALLED 312 352 542 662 664 725 725 733 861NET PLANT/Mw (000) 1221 1216 1155 1062 1093 1030 1022 1046 905

ANNEX 14

MALAYSIA NATIONAL ELECTRICITY BOARDFORECAST FINANCE STATEMENTS 197581

FUR THE PERIOD BEGINNING SEP 1, 1975REPURT PREPARED JUL 17, 1975

1,0 2,0 3,0 4,0 5,0 bo0 7,0 7,51975 1976 1977 1978 1979 1980 1981 1981

TOTAL

TARIFFS/REVENUES

(MILLIONS MS)

ENERGY SALES

DOMESTIC Gwh 460 518 580 648 723 805 895 4629- PRICE PER KOH 14,60 14,40 14.10 14,00 14,20 14,20 14,20 14,24o REVENUE 67 75 82 91 103 114 127 658

COMMERCIAL * GMH 1150 1311 1488 1681 1896 2135 2400 12061- PRICE PER KOH 11,70 12,80 12,20 12,10 13,40 j3,40 13,20 12,69

M RFVENUE 135 168 1l2 203 254 286 317 1544

INOUSTRIAL MINES 310 330 350 350 350 350 350 2390a PRICE PER KOH 6,50 8,20 7,60 7,70 9,20 9,30 9,20 8,24v REVENUE 20 27 27 27 32 33 32 198

OTHER INDuSTRIAL 1560 1872 2246 2639 3035 3414 3824 18590M PRICE PER KwH 7,00 8,40 7,80 7,70 9,10 9,20 9,10 8,33. REVENUE 109 157 lS 203 276 314 348 1S83

BULK SUPPLY PRHE 640 910 1000 1100 1200 1300 1400 7550- PRICE PER KWH 4,20 5,80 5,20 5,30 6,80 6,90 6,80 5,86m REVENUE 27 53 52 se 82 90 95 456

TOTAL w GiH 4120 4941 5664 6418 7204 8004 8869 45220

AVE PRICE PER KwH 8,69 9,69 9,13 9,08 10,37 10,46 10,36 9,68

TOTAL REVENUE 358 479 517 583 747 83T 919 4440s3::::- 3:3:333 3332:3s 33:33:3 3333333 333333 3us:s 3333333

OTHER REVENUE

OTHER 1 16 10 10 10 10 10 10 76

.... ___ .... ,..m .. .... aw..... "....... ...... t w._ t......

TfTAL 16 1O 10 10 10 10 10 763:::::: 333:233 3333:33 333g:3w 3333333 3333333 3333333 2333333

TOTAL REVFNUL 374 489 527 593 757 847 929 4516-:::::r 3:s:::: :3::::: 32:zss: 332333 33s:33u 3333333 u3zu33

ANNUAL INCREASE %I

MDMESTIC U'H 12,7 12,6 12,0 11,7 11,6 11 3 11,2 0,0

-REVENUL 15,5 11,9 9,3 11,0 13,2 1607 11,4 0,0

(IOMmFRCIAL GWH 13,3 14,0 13,5 13,0 12,8 12,6 12,4 0,0

-RtVENUE 2S,O 24,4 8,3 Il,S 25,1 12,6 10,8 0,0

INDUSTRIAL GWH 4,4 6,5 , 1 0,0 0,0 0,0 0,0 0,0

-REVENUE 33,3 35,o 0,o 0,0 18,5 3,1 .3,0 0,0

OTHER I GWH 20,3 20,0 20,0 17t5 15,0 12,5 12,0 0,0

-REVENUE 45,3 44,0 115 16,0 36,0 13,8 10o8 0,0

OiTHER II GWH 32 42 10 10 9 8 8 0

-REVENuE 92,9 96,3 "1,9 11.5 41,4 9,8 5,6 0,0

tMALAYSIA NATIONAL ELECTRICITY BOARDFORECAST FINANCE STATEMENTS 1975-81

FOR THE PERIOD BKGINNING SEP 1, 1975REPORT PREPARED JUL 17, 1975

1 2 3 4 5 6 71975 1976 1977 1978 1979 1980 1981

INCOME STATEMiENJT

(MILLIONS [1$)

SALES INCREASE ' 17.6 19.9 14.6 13.3 12.2 11.1 10.8ENERGY SALES (GWIH) 4120 4941 5664 6418 7204 8004 8869AVE PRICE PER KtWHl 8.69 9.69 9.13 9.08 10.37 10.46 10.36

ENERGY REVENUE 358 479 517 583 747 837 919OTHER REVErNUE 16 10 10 10 10 10 10

TOTAL REVENUES 374 489 527 593 757 847 929

OPERATINJG EXPENSESFUEL 158 204 209 242 364 405 442OPEPATItNC, 101 101 117 131 150 168 1721,DPRECIATION 44 49 58 73 79 34 107TAXN AT IONl 10 19 31 3 41 0 0

TOTAL EXPENSES 313 373 1115 454 634 657 721

OPERATING INJCOME 61 116 112 139 123 190 208

OTHlER INCOME (NJET) 0 0 0 0 n 0 0

NET INICOtME BEFORE- IN4TEREST 61 116 112 139 123 190 208

Ii4TEREST 30 36 45 59 77 102 124- CHRGI) COtISTR 1 5 10 13 26 24 25

- CIiRGD OPERATIONS 29 31 35 46 51 78 99

4I--T INCOHE 32 35 77 93 72 112 109

ALLOCAT IOfIS OF- NET INJCOM, E- DIVIDENDS 6 8 10 13 16 22 25

Rl'-A I NE l ARi J I rIGS 26 77 67 80 56 90 84

RATE 3ASE 731 852 1010 1268 1492 1649 2116RATE OF 1zETUR' I 0.3 13.6 11.1 11.0 0.2 11.5 9.8OPEPATIHJG RATIO % 81.0 72.4 72.9 75.2 78.3 77.6 77.6REVENUE/AVE GROSS- PLANIT% 31.2 35.5 32.9 30.6 33.6 33.8 30.2

ANNEX 16

MALAYSIA NATIONAL ELECTRICITY 80ARUFORtCAST FINANCE STATEMENTS 1975-81

FUH THE PERIOD BEGINNING SEP 1, 1975REPORT PREPARED JUL 17, 1975

1,0 2,0 3,0 4,0 5,0 b,0 7,0 7,b1975 1976 1977 1978 1979 1980 1981 1981

TOTAL

FUNDS FLOQ- STATEMENT

(MILLIONS t1F Mr.. _..__..__.....

TNTFRNAL SOURCES- OF FtJNDSOIPERATING INCUME 61 118 112 139 123 190 208 949I)EPRECIATION 44 49 58 73 79 84 107 494CONSIJMFRS CONTb3NS 13 13 13 13 1I 13 13 91

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

TCOTAL TNTERNAL- FuNDjS 1IP 178 183 225 215 287 328 1534

OPLEATI(NAL- REIUIREMFNTS.. ______.._...

INCREASE/DECREASt- AIORKING CAPITAL 51 -3 -14 27 -27 43 -O 71INTEREST CHANGFD- OPERATIONS 29 31 35 40 S1 78 99 369DEBT REPAYMtNIS 25 29 34 3h 39 4b 7S 284DIVIDENOS 6 8 10 13 16 22 25 100INVESTYFNTS 3 7 5 5 S 0 O 25

TO)TAL OPFRATIONAL- REQUIREwENT6 114 12 70 121 a" 189 193 8(49

INTERNAL FUNDS- AVAILABLE FO R-- INVESTMENT '4 I 0 113 98 131 98 135 b8S

CAPITAL I VESTMtET

oTHE,s C1)NST<JCTTI 224, 31b 38b 431 51b b91 513 2975INTERtST OuMIRG- CONSTRUCT|11, 1 5 1 IS 2b 244 2 1t04

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

T(iI IACAL ALIAL- INvfS-SlMfNT 22S 320 395 '444 542 ul5 538 3079

BALANCF Tr) RE- rF1NACED 221 214 282 34b 411 t17 403 2394

FINANCED BY

;nRRf'ING- PRO(POSED Ll)AN I 0 7 18 32 12 12 0 81-I3RD 700.MA lb 7 t 0 0 0 0 24-IBRD 1031-MA 4 3S 41 19 3 1 0 104- OTHER LOANS Hi 1Ob 154 177 289 329 286 1422EQUITY 25 bO h5 120 110 197 100 677

- ___. ....... __ ....... , .,,,_,.__ ....... ............ ._,_,,,_,__.__

TOjTAL CAPITAL- SUUNCES 12b 21h 279 348 41 4 539 386 2308

CASH INCREASE/- DECRtASE -95 2 -3 2 3 22 -17 -86

CASH AT BEGINNING- OF YEAR 108 13 15 12 14 1? 39 39CASH AT YEAR END 13 IS 12 14 it 39 22 22

DEBT SERVICE- COVERAGE 1,9 2,8 2,5 2,6 2,2 2,2 1,8 2,3INTERNAL CASH- RATIO % 0,3 7,0 6,6 4,5 5,b 3,7 3,9ANNUAL CONTBN-TO CONSTRUCTION I,q 34,5 29,6 22,7 24,8 16,3 25,7 22,2*4 YEAR AVERAGE 22,2 27,9 23,3

ANNEX 17

MALAYSIA NATIONAL ELECTRICITY 6UARO

FORECAST FINANCE STATEMENTS 1975.81

FnR THE PERIL)U BEGI,NING SEP 1, 1975REPi)RT PREPARED JuL 17, 1975

1 2 3 4 5 , 7

1975 1'76 1977 1978 1979 1980 1981

6ALANCE S3EETS

(MILLIONS MS)

ASSETS

FTXEo ASSE TS

PtANT IN SERvICE 1251 1507 1700 2180 2326 2683 3477

LESS: DEPPECIATTION 410 459 517 590 669 753 860____ , .. ,. ,,...... ,- ..... 7;........ ..... 77.. . . .... .... ....... .- --- _

OPERA1ING PLANT 841 1048 1183 1590 IbS? 1930 2o17

AORK IN PROGRfSS 334 396 600 564 960 1218 962

I.VESItYFNS A 10 15 20 25 25 25

CURRENT ASSETS

CASH 13 15 12 14 it 39 22

INVES1J1RIE-S 67 69 73 74 7b 79 82

QECEI9ABLES 7 Li 8 7 91 96 115 125 1 33

TnTAL 154 171 176 186 206 243 237

TnTAL ASSfTS 1332 127 1974 2360 2850 3416 3841=: ~ ~ :: =u:: =223 =2==C=w==:: ::==::: s:22::: 2::=:::

FOUITY ANO

- LIAKILItIES

EUUITY

PAID IN CAPITAL 193 253 318 4S8 54H 748 848

RETAINED EARNI!GS 386 465 532 612 668 756 842

TOTAL EOUITY 561 116 650 1050 1216 1506 1690

LONG TERM DE8T

DEBT DOE 5Li, 672 852 1044 1309 1602 IH13

TnTAL DEBT 545 - 7- 852 104'4 1309 1602 1813

- LIABILITIl.S

PAYABLES 120 13H lo 141 187 157 174

,,,_,.,,,,,,....... ........ ....... .... ,.... ....... , ........ ....... _,

TflTAL 120 168 160 141 187 157 174

C0N TRI8U INS 886 q99 1 12 125 138 151 164

TOTAL EOUITY AND

* LIA8ILITIES 1332 1627 1974 2360 2850 3416 3841

AVE GROSS PLANT

*/CONSUMER (0U0 1734 1639 1970 219? 2347 2406 2723

-/GWH (0001 291 279 283 302 313 313 347

INCREASE IN

- GROSS PLANT % 9,3 20,5 12,8 28,2 6,7 15,3 19,6

DEBTXNET PLANT X 64.8 64,1 72,0 65,7 79,0 83,0 69,3

GEET % OF* DEST + EUITIY 48,4 t48,3 50,1 49,9 51,8 51.5 51,8

CURRENT RATI(O 1.3 1,2 1,1 1. 3 1,1 1,5 1.4

m4 INSTAL~ED 861 1101 1251 1512 1599 1839 2079

NET PLANT/mk (000) 977 952 946 1052 1036 1049 1259

ANNEX 18

MALAYSIA NATIONAL ELLCTRICITY BOARDCONSTRUCTION EXPENDITURE FY 1975.81

FUR THE PERIOD BEGINNING SEP 1, 1975REPORT PREPARED JUL l6, 1975

1,0 2,0 3,0 4,0 5,0 6,0 7,0 7,51975 1976 1977 1978 1979 1980 1981 1981

TOTAL

PORT DICKSON 2 1 0 0 0 0 0 0 1PORT DICKSON 3 54 40 10 3 0 0 0 107PORT DICKSON TL 5 8 0 0 0 0 0 13JOHORE BAHRU PS 17 3 0 0 0 0 0 20TEMENGOR HYDRO PS 48 76 73 29 9 0 0 235TEMENGUR TL 6 33 24 6 0 0 0 691031-MA PROJECTS 3 15 37 25 0 0 0 g0PRAI EXTENSIOJN 2 29 88 149 83 23 3 377PASIR GUDANG PS n 0 12 57 86 132 37 324PASIR GUDANG TL 0 0 0 0 7 4 0 11TEMBELING HYDRO PS 1 2 8 23 59 75 54 222TEMBELING TL 0 0 0 0 0 23 19 42TRENGANNU HYDRU PS 0 0 0 15 47 137 197 396TRENGANNU TL 0 0 0 0 0 0 17 17OTHER HYDRO 0 0 0 2 4 8 21 35NUCLEAR PS 0 0 5 3 4 4 53 69OTHER TRANSMISSION 13 27 17 0 0 0 0 57DIESEL PLANTS 2 10 6 6 6 2 1 33RURAL 15 15 1s 15 15 15 IS 105DISTRIBUTION 49 50 50 50 50 50 50 349ADMINISTRATION 8 7 8 7 8 7 8 53PRAI/PAPAN 275Kv 0 0 0 0 35 26 3 64WOH/RAWANG 275KV 0 0 31 22 3 0 0 5bTEMNGR/MCHNG 275KV 0 O 0 0 27 18 3 48MCHNG/KBAHRU 275KV 0 0 0 0 11 a 2 21MCHNG/KTRENG 275KV 0 0 0 a 34 22 3 59KTRENG/DUNGUN TL 0 0 0 0 11 7 1 19TJUNG GLNG/KEMAMAN 0 0 0 0 4 3 0 7KEMEMAN/DUNGUN TL 0 0 0 0 0 0 IS ISKEMAMAN S/S 0 0 0 a 0 4 0 4SYNC_CUMP 5X40MVAR 0 0 0 3 3 4 4 14KLUMPUR NORTH S/S 0 0 1 lb 7 6 2 32TEMENGnR S/S 0 0 0 0 0 3 2 5KLUMPUR SOUTH S/S 0 0 0 0 0 1 0 1KOTA BAHRLI S/S 0 0 0 0 3 0 0 3KTRENGANNU S/S 0 0 0 0 0 b 2 8DUNGUN S/S 0 0 0 0 D 3 1 4

…_ ,- - -… -______ ------ _______ ------

TOTAL 224 315 385 431 S16 591 513 2975_::S==: :=C:2:: =:st:Z: _::==:= Z2=::: a: :X:Z:X XZ::X: :2333S2

ANNEX 19Page 1

MALAYSIA

NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA

SEVENTH POWER PROJECT

Assumptions in Financial Forecasts

1. REVENUES

Supplies to PRHE and Penang have been projected on the basis ofcurrent contracts. The fuel variation charge on tariffs has been assumed toapply to all areas of Western Malaysia, recovering about 100% of projectedfuel cost increases except for FY 1975 when about 54% will be recouped. Thefuel surcharge has been projected at the following average rates:

ActualFiscal Years 1974 1975 1976 1977 1978 1979 1980 1981

Average MWkWh 2.79 2.86 2.98 2.38 2.48 3.97 4.06 3.97

2. FUEL COSTS

Fuel oil prices from April 1975 1/ have been estimated as follows:

(a) M$89.00 per ton for Port Dickson power station throughFY 1978 and at M$204 per ton thereafter;

(b) M$204 per ton for other thermal stations;

(c) M$235 per ton for heavy diesel fuel; and

(d) M$1.25 per gallon for low speed diesel fuel.

3. CUSTOMS AND OTHER DUTIES

NEB is assumed to be subject to fuel oil duties, customs duty,surtax and sales tax from April, 1975.

1/ Actual costs are incorporated in the forecasts through March, 1975.

ANNEX 19Page 2

4. OPERATION, MAINTENANCE AND ADMINISTRATION

Forecast operation, maintenance and administration is based ona detailed analysis of cost per kWh sold by each station for the first sixmonths of FY 1975 escalated at an average of 7-1/2% per annum.

5. CONSTRUCTION EXPENDITURE

Construction expenditures have been escalated as follows:

Years Foreign Costs Local Costs

1975 12% 7-1/2%1976 10% 7-1/2%1977-79 8% 7-1/2%1980-81 7% 7-1/2%

6. DEPRECIATION

Depreciation is on the straight line method and averages about3.3% of gross plant.

7. CORPORATION TAX

Corporation tax has been assumed at the current rate of 40% ofannual net profit adjusted in accordance with the Tax Act. Liability variessubstantially each year due to the effect accelerated depreciation allowancesgiven by the Tax Act on the commissioning of plant.

8. FORECAST EXTERNAL SOURCES

Projected borrowings and other sources are assumed on thefollowing terms:

(i) the proposed IBRD loan of M$69 million (US$30 million)assumed to be at 8-1/2% for terms of 20 years including5 years of grace;

(ii) balances to be drawn on IBRD loans 700-MA and 1031-MAamounting to M$128 million (US$56 million) at interestrates of 7% and 7-1/4% each for terms of 20 yearsincluding 5 years of grace;

(iii) agreed bilateral and suppliers credits totalling M$158million (US$69 million) at interest rates varying from5% to 7.05% with repayment periods ranging from 8 to 20years;

ANNEX 19Page 3

(iv) assumed borrowings of M$1,273 million (US$553 million)at 8-1/2% interest rate for periods of 20 years including5 years of grace;

(v) assumed equity investment by Government of M$680 million(US$296 million) at a dividend rate of 5%, less tax; and

(vi) contributions from consumers towards the cost of non-viable installations and from Federal and State Governmentstowards the cost of rural electrification, amounting toM$91 million (US$40 million).

MALAYSIA NATIONAL E:LECTRICITY BOARDLOAN TERMS SCHEDULE

FUR THE PtRIOD BEGINNING SEP 1t 1975RLPURT PREPARED JUN 18 1975

1 2 3 '4 5 6 7 8

LOAN 1974 INTRST CUMMIT YEARS GRACE REPYMT REPYMYAMOUNT bALANCE RATE X RATE% TO MTTY PERIOD BEGINS ENDS

IBRO 210"MA 88,00 51,00 5,75 0,00 9.00 5,00 1964,00 1983.00

IRRD 350.MA 157*00 124,00 5,50 0,00 14,00 4,50 0968,00 1988,00IBRD 458wMA 65,00 70t00 6,00 0,00 12,00 3,50 1971,00 1987,00

IBRD 579mMA 25,00 24,00 6,50 0,00 14,00 '4,00 1973,00 1989900

IBRL 700*MA 49,00 25,00 7,00 0,75 16,00 4,50 i975,00 1990,00

IBRD 1031'MA 104*00 0,o0 7,25 0,75 19,00 4,00 1980,00 1994,00

BHARAT 2 LOAN 7,00 6,00 5,00 0,00 11,00 2,00 i973,00 1983,o0

BHARAT 3 LOAN 27,00 16,00 5,50 0,00 13,00 2.00 1976,00 1988,00

CDC 1ST LOAN 61,00 38,00 6,25 0,00 11,00 0,00 1961,00 1965,00

CD PC 4,00 2,00 6,75 0,00 5,00 ,OOO 1970,00 1979,00

CDC 2ND LOAN 27,00 0,00 7,50 0,00 25,00 7,00 1980,00 1997,00

PROPOSED IBRU LOAN 69,00 0,00 8550 0,75 20,00 5,00 1981.00 1995,00

PRAI EQUIP LOAN 203,00 0,00 8,50 0,00 20,900 5,00 1980,00 1994,00

PASIR GUDANG LOAN 205,00 0,00 8,50 0,00 20,00 5,00 1981,00 1995,00

TEMBELING LOAN 12,0000 0,00 8,50 0,00 20,00 5,00 1981,00 1995,00

TRENGANNU LUAN 397,00 0,00 8,50 0,00 20,00 5,00 1982,00 1997,00

OTHER HYDRO LOAN 236,00 0,00 8,50 0,00 20,00Q 5,00 983,00 1997,00

MAJOR TRANS LOAN 268,00 0,00 8,50 0,00 20,00 5,00 1981,00 1995,00

TEMBELING TL LOAN e9,00 0,00 8,50 0,00 20,00 5,00 1985,00 1999,00

TRENGANNU TL LOAN d6,00 0,00 8,50 0,00 20,00 5,00 1985,00 1999,00

NUCLEAR LOAN 713,00 0,00 8,50 0,00 20,00 5,00 i982,00 1996,00

GOVT 5% L-OAN 40,00 37,00 5,00 0,00 45,00 0,G0 1956,00 Z019.00

GOVT 5,75% LOAN 13,00 6,00 5,75 0,00 7,00 5,00 1965,00 1981,00

GOVT 6% LOAN 43,00 32,000 b,00 0,0Q 15,00 5,00 0964,00 1989,00

EMPL PF LOAN 10300 f,00 6,00 0,00 8,00 10,00 i971,00 1982,00

GOVT CIDA LOAN 9,00 5,00 5,00 0,00 27,00 7,00 1979,00 2001,00

GOVT UK AID LOAN 15,00 13,00 6,50 0,00 21,00 5,00 i976,00 1995.00

GOVT FRENCH LOAN 20,00 9,00 5,00 0,00 15,00 3,00 1976,00 1989900

FRENCH BANKS LOAN 4S000 0,00 7,05 0,00 l1,oo 0900 i976,00 1986,00GOVT,EXMBNK LUAN 9,00 0,00 7,25 0,00 18,0U 5,00 1979.00 1991900

GOVTwOECF LOAN 203,00 3,00 3,25 0,00 19,00 7,00 198,00 1993,00 10

IBRD 11692RAUGUST 1976

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