Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 16003

IMPLEMENTATION COMPLETION REPORT

INDIA

NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I(LOAN 2844-IN)

September 13, 1996

Energy and Infrastructure Operations DivisionCountry Department TISouth Asia Region

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

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COUNTRY EXCHANGE RATES AND ABBREVIATIONS

Currency Unit= Rupee (Rs.)Rs. I = Paise 100

RUPEE (Rs.)/US $ EXCHANGE RATES AND CPI (Yearly Averages)Exchange Rate

Fiscal Year Rupees/US$Rate at appraisal 13.00FY 89/90 17.50FY 90/91 22.74FY 91/92 26.20FY 92/93 31.20FY93/94 31.46FY 94/95 32.30FY 95/96 34.50

Average Rate during project implementation penrod: US$I Rs. 27.19NTPC Fiscal Year: April I - March 31

Measures and Equivalents

I Ton (t) = I metric tonne= 1,000 Kg =2,204 Ibs.I Kilovolt = 1,000 volts (V)1 Kilovolt ampere (kVA) = 1,000 volt-amperes (VA)1 Kilowatt-hour (kWh) = 1,000 watt-hoursI Megawatt-hour (MWh) = 1,000 kilowatt-hoursI Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours

ABBREVIATIONS AND ACRONYMS

CA : Central AppropriationsDESU : Delhi Electric Supply UndertakingESP Electrostatic PrecipitatorGOI : Government of IndiaIBRD : International Bank for Reconstruction and DevelopmentICB Intemational Competitive BiddingICR Implementation Completion ReportIERR Internal Economic Rate of ReturnLC Letter of CreditNERC North American Energy Reliability CouncilNTPC : National Themial Power CorporationO & M Operation and MaintenancePAP Project Affected PersonsPLF : Plant Load FactorThe Project The National Capital Power Supply Project - Phase IRBI : Reserve Bank of IndiaSEB : State Electricity BoardTPP : Thermal Power Plant

FOR OFFICIAL USE ONLY

IMPLEMENTATION COMPLETION REPORT

INDIA

NATIONAL CAPITAL POWER SllPPLY PROJEcT(LOAN 2844-IN)

Table of Contents

P R E F A C E .................................................. ........ ..... ..............................

EVALUATION SUMMARY .......................... ii

PART I: PRO.IECT IMPLEMENTATION ASSESSMENTA. Statement/Evaluation of Objectives ...... .................... .. . . ................... IB . A chievem ent of O bjectives ..... ................... ... ............................................4C. Major Factors Affecting the Project ...................................... 5

NTPC Component ...................................... 5Procurement ...................................... .6Delays Caused by Contractors and Suppliers ..................................... 6Land Acquisition, Resettlement and Rehabilitation ................................... 7GOI and NTPC's Financial Difficulties in 1991-1992 ................................... 8Implementation Results ........ 8............................8Costs ......................... 8Savings and Cancellations .............. . .... 9Closing Date and Disbursements ................... . . 9R ate o f return ........... ....... ... . . ..... . ..... ....... . . ......... 9

DESU Component .......... 9D. Project Sustainability ................... 10

NTPC Component .................. 10The Project .................. 10

E. Bank Performance .................. .................... 10NTPC Component ................. ...................... 10DESU Component ................. . 1 2T h e P ro je ct .......................... 1................... .. ... .. ..... . ... .. .. ... . . .. . .. .... 12

F. Borrower Performance ...... ................... ...... ......... .. ..... . ...... 13NTPC Component . .......................... 3........... .. ......... . ....................... 13D E S U C om ponent .......................... 1........... ...... ..... . ... ........ ... .......... .... 13The Project ............................... ...... .... . . .. ....... 13

G. Summary Assessment of Outcome ..... ..................... 13H. Future Operation.. .......................... 141. Key Lessons Learned ..... .......................... ......... 14

Ths document has a restricted distribution and may be used by recipients only in the performance of theirI ofcial duties. Its contents may not othemise be disclosed AiLhout World Bank authorization.

PART II: STATISTICAL TABLESTable IA - Summary of Assessments for Original Project ................................................. 16Table lB - Summary of Assessments for the Restructured Project . . 17Table 2 - Related Bank Loans/Credits ........................................................... 18Table 3 - Project Timetable .......................................................... 19Table 4A - Loan Disbursements (for NTPC) ........................................... 19Table 4B - Loan Disbursements (for DESU) ........................................................... 19Table 5 - Key Indicators for Project Implementation ...................................................... 20Table 6 - Key Indicators for Project Operation ........................................................... 20Table 7A - Project Costs ........................................................... 21Table 7B - Project Financing ........................................................... 21Table 8 - Economic Costs and Benefits ........................................................... 22Table 9 - Status of Legal Covenants ........................................................... 23Table 10 - Bank Resources: Staff Inputs ........................................................... 24Table 11 - Bank Resources: Missions ........................................................... 24

ANNEX-A: Highlights of the ICR Mission .......................................................... 25ANNEX-B: Project Review from the Borrower's Perspective ........................... ....................... 27ANNEX-C: NTPC - Financial Overview .......................................................... 34ANNEX-D: Supply of Coal and Economic Opportunities for Improving

the Quality of Coal ........................................................... 37ANNEX-E: Mitigation of Environmental Pollution in Dadri TPP ............................................... 38ANNEX-F: Dadri TPP - Retrofit Socio-Economic Survey - Sumrmary of Actions .................... 39ANNEX-G: Dadri and Badarpur TPPs - Allocation and Sales of Energy Generated .................. 41ANNEX-H: Comments by coal India Ltd. On the Supply of Coal to the Dadri

and Badarpur TPPs .......................................................... 42

IMPLEMENTATION COMPLETION REPORT

INDIA

NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I(LOAN 2844-IN)

Preface

This is the Implementation Completion Report (ICR) for the National Capital PowerSupply Project - Phase I (the Project) for the National Thermal Power Corporation (NTPC) and theDelhi Electric Supply Undertaking (DESU) in India, for which Loan 2844-IN in the amount ofUS$485 million equivalent was approved on June 17, 1987, signed on December 21, 1987, and madeeffective on March 21, 1988. The Borrower was India, acting by its President. The DESU component(US$60 million equivalent) was canceled on August 1, 1990, because of the failure of the Govermmentof India (GOI) to present to the Bank an acceptable financial recovery plan. The project was thus defacto restructured. The restructured project (comprising the NTPC component only -- US$425 millionequivalent) was implemented, albeit with delays. The loan closed after one extension by six months onDecember 31, 1995. A total of US$162.2 million from the original loan amount was canceled. Thebalance of the loan amounting to US$322.8 million, was fully disbursed by May 3, 1996. Even thoughnot envisaged under the original financing plan, financing to the tune of about US$37.4 millionequivalent was provided by the Intemational Bank of Japan. The balance amount was met by GOI'scontributions, domestic loans and from NTPC's own intemal resources.

The ICR was prepared by Mihir Mitra (Consultant) and Argun Ceyhan (Task Manager)of the Energy and Infrastructure Operations Division (SA2EI) of the South Asia Region CountryDepartment 2 (SA2) and reviewed by Jean-Francois Bauer, Division Chief, SA2EI and KazukoUchimura, Project Adviser, SA2.

Preparation of this ICR was started during the Bank's mission in September 1995 and wasfinalized during a follow-up mission in February 1996. It is based on material in the project file andsite-specific information gathered during the Implementation Completion Mission. The implementingagency, NTPC, contributed to the preparation of the ICR for their part of the project, by providingtimely input for the statistical data. NTPC's comments endorsed by GO6 with their letter datedJune 11, 1996, are given in Annex B of the ICR.

IMPLEMENTATION COMPLETION REPORT

INDIA

NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I(LOAN 2844-IN)

Evaluation Summary

A. STATEMENT/EVALUATION OF OBJECTIVES AND THE PROJECT

Introduction

i. At the time the project was appraised in May 1986, consumption of electricity in India hadgrown at an average annual rate of eight percent during the past two decades. Although anumber of hydro and coal-fired thermal power stations had been built, power shortages prevailedthroughout the country. In particular, the national capital, New Delhi, was severely affected due tosuboptimal planning, accentuated by non-performing power plants and insufficient transmissioncapacity in the area, while its demand was growing at more than 10% per annum. In addition to thephysical limitations in the supply of power to the capital, the complex administration of the UnionTerritory of Delhi restricted DESU's autonomy and hindered its efficient operation. It was in direneed of restructuring of its finances and improvement of its power supply facilities coupled withcomprehensive streamlining of its operations and massive infusion of cash to pull it out of thedisorderly condition.

Objectives of the Project

ii. Against this backdrop, the objectives of the project were to:

a. augment power supplies to the capital;b. improve the reliability of transmission and reduce system losses;c. reduce environmental pollution from power generation;d. move towards more efficient use of existing assets in the power supply system;e. identify economic opportunities for improving the quality of coal use in power

generation; and,f effect a program of administrative, financial and operational improvements in DESU.

In addition to the physical and other institutional objectives, it has been an express goal of theBank to transform NTPC into a model utility based on a sound financial footing. These objectiveswere consistent with the strategy GOI and the Bank were following at the time and were, ingeneral, well-defined.

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The Scope of the Project

iii. The physical components and other services included in the project were consistent withthe above project objectives. The NTPC component comprised the construction of the first stage(4x210 MW) of a coal-fired power station at Dadri and rehabilitation of the Badarpur Thermal PowerPlant (TPP). Consulting services for the Dadri plant and a study on improvement of the quality of coalused in power generation were also included. The DESU component comprised the construction ofabout 110 km of double-circuit 400-kV transmission line and related 400-kV and 220-kV substations,and consulting services for institutional and technical strengthening of DESU (Part I; para. 6).

The Loan

iv. Ln. 2844-IN for US$485 million equivalent was approved on June 17, 1987, signed onDecember 21, 1987, and became effective on March 21, 1988. NTPC's share for the implementationof its components was US$425 million, and DESU's share US$60 million equivalent.

B. ACHIEVEMENT OF OBJECTIVES

v. The objectives of the original project (NTPC and DESU components) were not achieveddue to the failure and cancellation of the DESU component. The objectives of the restructuredproject, including institutional objectives for NTPC, were substantially achieved.

C. MAJOR FACTORS AFFECTING THE PROJECT

vi. NTPC Component. The component was implemented satisfactorily but with delays whichwere due to:

* lengthy procurement by NTPC (Part I; para. 9);* significant delays by the contractors and suppliers (Part I; para. 10);* substantial difficulties experienced by NTPC in acquiring the land for the ash disposal

area and the railway connection to Indian Railways mainline (Part I; para. 11); and,* financial difficulties experienced by GOI and NTPC in 1991-1992 (Part I; para. 12).

Other factors which affected the NTPC component were: (i) lower initial bid prices but highinflation levels during the first years of implementation, which resulted in costs in Rupee termshigher than the estimates by about 24% (Part I; para. 14); and, (ii) depreciation of the Rupee vis-a-vis the US Dollar which resulted in large savings under the Loan which were canceled (Part I;para. 15).

vii. DESU Component. GOI had agreed that no later than February 29, 1988, it wouldfurnish to the Bank a satisfactory plan for the financial strengthening of DESU and thereafterimplement it. GOI took an inordinately long time to present the said plan. When the plan wasfinally presented it was deemed unsatisfactory from the Bank's perspective. Disbursement against

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the DESU component was suspended on January 6, 1989. Despite several attempts by the Bank,there was no progress on this front, while the financial situation of DESU continued todeteriorate. Finally, the DESU component of the loan, amounting to US$60 million equivalent,was canceled on August 1, 1990. Thus this component was not implemented.

viii. Savings and Cancellations. Due to the devaluation of the Rupee, costs in US Dollar termswere significantly lower than the estimates. Although part of the loan was utilized for therehabilitation of Badarpur TPP as well as for the procurement of urgently needed spare parts(part I; para. 12), large savings occurred and they were later canceled (US$102.2 millionequivalent - under the NTPC component). In total US$162.2 million was canceled (Part I;para. 15).

ix. Closing Date and Disbursements. In order to complete the implementation of the project, theclosing date of the loan was extended by six months. The loan was finally closed on December 31,1995, and the loan amount, revised to US$322.8 million following the cancellation of a total ofUS$162.2 million, was fully disbursed on May 6, 1996. Out of this amount, about US$316.3 millionwhich were spent for the Dadri TPP and other NTPC investments were onlent by GOI to NTPC,while about US$6.5 million spent for the rehabilitation of the Badarpur TPP were assumed byGOI. Because NTPC was not in compliance with the accounts receivable covenant, the Bank agreedvith GOI and NTPC on an informal suspension of disbursements under the Loan, which lasted fromFebruary 28 to June 3, 1994 (Part I, para. 16).

x. Rate of Return. The internal economic rate of return (IERR) of the Northern Regioninvestment program, of which the project is a part, has been computed as 18.7% compared withthe appraisal estimate of 11% (Part I; para. 17).

D. PROJECT SUSTAINABILITY

xi. The achievements of the restructured project are likely to be sustainable under thecondition that coal of proper quality and in required quantities is provided (Part I; paras. 19 and20). Operational plans to ensure the sustainability of results achieved under the project have beenagreed with NTPC (Part II; Table 6).

E. BANK PERFORMANCE

xii. NTPC Component. For this component the performance of the Bank from projectpreparation through project completion was satisfactory (Part I; para. 21).

xiii. DESU Component. The component was designed to provide funds for DESU'sinvestments and for technical assistance to address its institutional, managerial, engineering andfinancial problems. Agreement with the Bank on a satisfactory financial strengthening action planwas at first a condition for negotiations. After waiting for about one year, the Bank proceededwith loan negotiations based on a conceptual approach addressing the need for technical

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assistance in those specific areas, with details to be worked out later as a dated condition, insteadof pinning down specific action plans. This approach was unsuccessful and led to the ultimatecancellation of this component. The need to put the utility back on a sound financial footinghaving been fully identified, a specific action plan should have been developed before negotiations.The performance of the Bank in respect of project preparation and appraisal concerning theDESU component was, therefore, deficient (Part l; para. 22).

xiv. The Project. Because of the failure of the DESU component, the performance of theBank for the original project was deficient. However, the performance of the Bank with respectto the restructured project wvas satisfactory (Part 1, para. 23).

F. BORROWER PERFORMANCE

xv. NTPC Component. GOI's and NTPC's performances in respect of the NTPC componentwere satisfactory. Compliance with the covenants of the loan was satisfactory, except for the onerequiring NTPC to reduce its accounts receivable to within 2 months of equivalent monthlybilling. It was only towards the end of the implementation of the project, and following variousinterventions by GOI and close dialogue between GOI, the Bank and NTPC on the subject, thatNTPC was finally in compliance with this covenant (Annex C). NTPC's performance in thedesign and engineering of the construction of the Dadri TPP and rehabilitation of the BadarpurTPP was also satisfactory (Part I, para. 24).

xvi. DESU Component. GOI's and DESU's performances in respect of the DESU componentwere unsatisfactory. The commitments made by GOI during the negotiations of the loan were notkept. GOI was given adequate time to present the financial recovery plan for DESU. It was onlyafter repeated attempts failed to extract a viable plan did the Bank finally cancel the loan amountof US$60 million allocated for the DESU component (Part I; para. 25).

xvii. The Project. Due to the failure of the DESU component the performance of the Borrowerfor the original project was deficient. The performances of the Borrower and NTPC with respectto the restructured project were satisfactory (Part f, para. 26).

G. SUMMARY ASSESSMENT OF OUTCOME

xviii. The outcome expected for the original project was not obtained due to the cancellation ofthe DESU component. Thus the outcome of the project is assessed as deficient. However, theresults of the restructured project are satisfactory. NTPC has been able to increase its generatingcapacity in the Northern Region with the commissioning of the 4 x 210 MW Dadri as well as therehabilitation of the 720 MW Badarpur TPPs. With the upgrading of the electro-staticprecipitators (ESPs) at Badarpur TPP, the overall air quality in the area has improved.Institutionally, the project has assisted NTPC to continue to improve its finances and achievesuccess with commercial objectives. This policy has indeed helped NTPC improve its tariffstructures and load management procedures as well as mobilize additional resources from outsidethe public sector to strengthen its financial and economic efficiency (Part I, para. 27)

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H. FUTURE OPERATION

xix. NTPC's operational performance at the Dadri TPP will be monitored against the standardsof the North American Energy Reliability Council (NERC). The corresponding availability of theplant is expected to be 70% during the first two years of operation at 63% capacity factor and79% thereafter at 75% capacity factor (Part I, para. 28). However, achieving these targets iscontingent upon the plant receiving coal, as required.

1. KEY LESSONS LEARNED

xx. Several specific lessons can be drawn from this project that have both operational andstrategic implications for the design of similar projects in the future:

a) The Dadri and Badarpur TPPs should receive coal of proper quality and in requiredquantities in order to operate in a sustainable manner at their respective full capacities(Part I; para. 19, and Annex D).

b) A sound financial health is a key element to the success of a utility. NTPC's willingness tofollow commercial practices has greatly improved its financial position. GOI/Bank/NTPCdialogue on NTPC's financial situation and its application of the commercial policies (inparticular, cutting off supply to non-paying customers) should be continued. (Part I,para. 24, and Annex C)

c) The successful completion of the first phase of rehabilitation of the Badarpur TPP clearlyserves to establish that power plant rehabilitation is indeed an economically viableproposition. Projects such as these which assure optimal utilization of existing assetsshould continue to be supported (Part I; para. 19).

d) GOI intervention through the Central Appropriations (CA) helped NTPC resolve itsaccounts receivable problem, even though for a limited period of time. It is doubtfulwhether GOI's actions have led to the SEBs improving their operational efficiency andtheir billing and collection procedures and practices. What is equally important, but so farreceived little attention, is the need for energy conservation on the customer (SEBs) sideand demand management by the utility through the adoption of appropriate tariffs andtariff structure at SEBs and through end-use efficiencies. GOI/Bank/ States dialogue onthe restructuring by the states of their respective power sectors is a step forward andshould be continued (Part I; para. 24).

e) Project preparation, with all its components, should be completed in detail well ahead ofloan negotiations. A conceptual project description for the purpose of completing loannegotiations, with details to be worked out later, is no proxy for fulfilling the requirementsof project appraisal as the DESU component of the project clearly serves to demonstrate(Part I; para. 22).

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f) The procurement cycle, starting from bid issue to contract award, should be significantlyshortened (Part l; para. 9).

g) Local manufacturing capability, cheaper labor, deemed export benefits and the provisionfor domestic preference in accordance with Bank guidelines for procurement, weigh infavor of local bidders enabling them to win contracts over foreign competition. However,the existing backlog of the winning bidders, vis-a-vis their manufacturing capability,should be strictly evaluated to determine whether they would be capable of performing thecontracts on schedule, if awarded through the bidding process. Failure by reputed localmanufacturers to deliver critical equipment on time has caused the project long delays, aswas the case for the supplier of the ash handling plant (Part I; para. 10).

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IMPLEMENTATION COMPLETION REPORT

INDIA

NATIONAL CAPITAL POWER SUPPLY PROJECT - PHASE I(LOAN 2844-IN)

PART I. Project Implementation Assessment

A. Statement/Evaluation of Objectives

1. In the 1 950s and 1 960s, the responsibility for power development in India was entrustedalmost entirely to the states. This led to suboptimal development planning as each state strove toserve its own interests, resulting in acute shortages of power in most parts of India. The situationprompted GOI, in the 1970s, to change the thrust of its power policy to focus on least-costregional development, emphasizing construction of central power stations close to indigenousenergy resources, and rehabilitation of non-performing power plants, along with a more liberalpolicy towards captive generation, as well as improving the quality and reliability of coal supplies.In 1975, GOI established NTPC making it responsible for the design, construction and operationof large thermal power stations and transmission lines, and for sale of power generated to theState Electricity Boards (SEBs). The Bank has supported GOI's actions under six IDA and 10IBRD operations to finance 14 thermal power plant (usually with their associated transmissionfacilities) and two transmission projects implemented by NTPC. Twelve thermal power plantsand the two transmission projects have been satisfactorily completed.' These projects haveassisted NTPC to expand at least-cost and also helped enhance NTPC's institutional capabilities.

2. At the time the project was appraised in May 1986, consumption of electricity in India hadgrown at an average annual rate of eight percent during the past two decades. Although GOI(through NTPC and other GOI-owned entities) and State Governments had built a number ofhydro and coal-fired thermal power stations, power shortages prevailed throughout the country.In particular, the national capital, New Delhi, was severely affected due to suboptimal planning,accentuated by non-performing power plants and insufficient transmission capacity in the area,while its demand was growing at more than 10% per annum. The capital had to rely primarily on theIndraprastha (owned and operated by DESU) and Badarpur (owned by GOI, and operated byNTPC)2 coal fired thermal power plants (TPPs). Both had suffered from inadequate maintenance,at least in part, due to shortages of power, and extensive wear and tear of boiler componentscaused by poor quality of coal. Although environmental concerns were limited when they werebuilt, both plants represented unacceptable sources of pollution. GOI's response to the criticalpower supply position in the capital had been to have NTPC build a high voltage direct current

l Since April 1, 1993. the said transmission projects and the transmission facilities associated with the thermalpower plants have been transferred to the Power Grid Corporation of India Ltd. (POWERGRID).

2 The operation and management of the Badarpur TPP has been entrusted by GOI to NTPC on a managementcontract basis. NTPC has been operating and managing the power plant since April 1, 1978. Until that date, theplant was operated by the Central Electricity Authority of GOI.

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transmission line from the Rihand Area in the State of Uttar Pradesh,3 sanction the installation inIndraprastha of 6x30 MW gas turbines to be operated on open cycle using middle distillates andto devise a program for the rehabilitation of the Badarpur TPP. The initial planning was that thegas turbines at Indraprastha would operate only for very short periods, but at appraisal itappeared likely that extended operation would be required. There was thus a strong case forretrofitting these gas turbines with waste heat recovery boilers and steam turbine generators toallow them to operate in combined cycle with much higher fuel efficiency.4

3. The least-cost development program for the region required the installation in two phasesof a 1,840 MW coal fired power plant around Delhi to augment the generating capacity in thearea, along with complementary improvement in the reliability of power transmission by creating a400 kV ring around the capital.5 GOI had decided to have this power plant built at Dadri byNTPC. It was also envisaged that the proposed power plant would have the capability ofoperating and supplying electricity to Delhi as an independent source, quite apart from othersources that would supply the capital region via the transmission network of the Northern RegionInterconnected System. For this reason, GOI and NTPC adopted a cautious approach andselected the 200 MW unit size to ensure greater reliability of supply.6

4. In addition to the physical limitations in the supply of power to the capital, the complexadministration of the Union Territory of Delhi7 restricted DESU's autonomy and hindered itsefficient operation. Concurrently, inadequate funding and excessive restraints on its tariffsconstrained DESU's ability to develop its transmission and distribution networks. DESU was notable to recover its costs owing to the high costs of power generation, high system losses and theburden of interest on accumulated debt. It was in dire need of restructuring of its finances andimprovement of its power supply facilities, coupled with comprehensive streamlining of itsoperations and massive infusion of cash to pull it out of the disorderly condition.

5 . Against this backdrop, the objectives of the project were to:a. augment power supplies to the capital;b. improve the reliability of transmission and reduce system losses;c. reduce environmental pollution from power generation;d. move towards more efficient use of existing assets in the power supply system;

Funded under Ln. 2555-IN (FY85) for the Rihand Power Transmission Project.

4 Only a study was included in the project under the DESU component. As this component was cancelled, the study was notconducted.

5The choice of a load center power station around Delhi was recommended by a Committee constituted by the Ministry ofEnergy in 1982 to review the options available to meet the future requirements of the National Capital Region. The Committeecomprised of representatives from NTPC, Northern Railways, Department of Coal, CEA and Department of Environment. TheCommittee, in its report submitted in December 1982, had recommended a site near Muradnagar in UP opposite the UPSEB400 kV substation as the most suitable location for the National Capital Region thennal power project. Due to environmentalconsiderations, the site was subsequently shifted to Dadri.

6 Unit down time for a 200 MW unit would have a smaller effect on the total generating capacity of the plantthan a 500 MW unit. Phase II of the plant, in future, would include the installation of 2xS00 MW units.

7 The Union Territory of Delhi became the State of New Delhi in 1993.

e. identify economic opportunities for improving the quality of coal used in powergeneration; and,

f. effect a program of administrative, financial and operational improvements in DESU.

In addition to the physical and other institutional objectives, it has been an express goal of theBank to transform NTPC into a model utility based on a sound financial footing. These objectiveswere consistent with the strategy GOI and the Bank were following at the time, and were ingeneral, well-defined.

6. The physical components and other services included in the project were consistent withthe above project objectives:

I. NTPC component:

i. construction of the first stage (4x210 MW) of a coal-fired power station at Dadri;ii. rehabilitation of the Badarpur TPP to improve its efficiency and reduce the impact

of its future operations on the environment;iii. consulting services for the Dadri plant; and,iv. a study on improvement of the quality of coal used in power generation.

II. DESU component:

i. construction of about 110 km of double-circuit 400-kV transmission line andrelated 400-kV and 220-kV substations; and,

ii. consulting services for:

a) the preparation of a least-cost plan for the extension and reinforcement of thedistribution network in Delhi;

b) the design and implementation of a system for the compilation, storage andretrieval of technical data on the distribution network,

c) the assessment of the economic viability of equipping the gas turbines in theIndraprastha power plant with waste heat recovery boilers and steamturbogenerators;

d) the preparation of a plan for the rehabilitation of the Indraprastha TPP,e) the finalization of DESU's financial statements for each of the fiscal years

1 983/84/85/86;f) the implementation of a new commercial accounting system; and,g) the completion of an organization and management study.

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B. Achievement of Objectives

7. The objectives of the original project (NTPC and DESU components) were not achieveddue to the failure and cancellation of the DESU component. The objectives of the restructuredproject, including institutional objectives for NTPC, were substantially achieved. Objectives a, c,d and e were fully achieved, while objectives b and f were not, summarized as follows:

- Objective a: With the commissioning of the four generating units at Dadri and rehabilitation ofthe Badarpur TPP, the power supply to the capital has been augmented.8 Thisobjective has been fully achieved.

- Objective b: Investments to improve the reliability of transmission and reduce DESU's losseswere under the DESU component which was canceled. The DESU 400 kV ring9

is still under construction. Thus the transmission capacity did not keep pace withgeneration, and the power situation in the Delhi area continues to remainunsatisfactory. This objective has not been achieved.

- Objective c: The Dadri TPP was designed to use beneficiated coal; its ash is kept dry througha special ash handling plant and stocked on a mound, avoiding water pollution

8 However, overall supply to the Capital is not sufficient to meet the demand at peak hours. The peak demand ofDelhi region was approximately 2150 MW (un-restricted) during 1996 summer season. This was met with internalgeneration of 700 - 800 MW from Indraprastha (DESU), Rajghat (DESU) and Badarpur (NTPC). The balancerequirement was drawn from central sector shares of Delhi, through 400 kV Mandola, 400 kV Ballabgarh and220 kV Narela substations. The restricted peak demand of Delhi region was of the order of 1900 MW during the season.DESU and the Uttar Pradesh State Electricity Board (UPSEB) were allocated 90% and I0%, respectively, of the generation ofthe Dadri TPP. In FY96, 63% and 4%, respectively, of the plant's generation were sold to DESU and UPSEB. The balancewas sold to other SEBs. All the generation of the Badarpur TPP was sold to DESU (Annex G). Dadri and Badarpur TPPsoccasionally contribute to the shortage of supply when they cannot generate at their respective full capacities due to coalshortages or supply of coal of a quality inferior to what the one the plants (in particular the Dadri TPP) were designed for.

9 The 400 kV ring around the National Capital consists of:

- Transmission lines:

* Owned and operated by POWERGRID:i. 400 kV Dadri - Ballabgarh (PG) - D/c line - in operationii. 400 kV Dadri - Mandola (PG) - D/c line - in operation

* Being built and to be owned and operated by DESU:iii. 400 kV Mandola-Bawana D/c line - 21.4 Kms (2x2000 MVA Cap.)

(nearing completion)IV. 400 kV Bawana-Bamanoli D/c line - 34.1 Kms (2x2000 MVA Cap.)v. 400 kV Bamanoli-Ballabgarh-D/c line - 42.3 Kms (2x2000 MVA Cap.)

- Substations:i. 400/220 kV Bawana-4X315 MVA - (2 Present + 2 Future)ii. 400/220 kV Bamanoli-4x315 MVA - (2 Present + 2 Future)iii. Extension of 400 kV S/s at Ballabgarh to 4x315 NMVA capacityiv. Extension of 400 kV S/s at Mandola to 4x315 MVA capacity

(The Bawana and Mandola substations are formed of parts owned and operated by POWERGRID and DESU.POWERGRID's bays are in operation. Bays being installed by DESU are planned to be completed by October 1996.)

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risks through the ash slurry. Upgrading and retrofitting of the electrostaticprecipitators (ESPs) of the Badarpur TPP has increased their collectionefficiency to 99.5%, reducing environmental pollution from this power plant.This objective has been fully achieved. 10

- Objective d: Following rehabilitation, the plant load factor (PLF) of Badarpur TPP hasimproved from 64% to 74% and the availability of the plant has exceeded 85%,while in the past it was around 70-75%. The plant average heat rate has beenreduced to about 2,900 kcallkWh from 3,100 kcallkWh. This objective has beenfully achieved.

- Objective e: A study confirmed that coal beneficiation was a viable economic proposition thatwould significantly reduce transportation costs, as well as wear and tear of thepower plant equipment in addition to reducing environmental pollutionassociated with the burning of coal. Consequently, the construction of a coalwashing facility was undertaken by Coal India (outside the scope of the project).It is expected that it will be operational around June 1997. As only the studywas included in the project, this objective has been fully achieved.

- Objective f: Due to the cancellation of the DESU component this objective was not achieved.

- Financial Objectives for NTPC: Through all Bank-financed NTPC projects, including thisproject, the Bank has endeavored, through constant policy dialogue and discreetfinancial covenants, to advance NTPC towards a sound financial footing. Atappraisal, NTPC's overall financial position was generally satisfactory, butaccounts receivable already imposed serious burden on NTPC's finances (para.24). By project completion, in 1995, improvements in collection and accountsreceivables had helped NTPC achieve returns well in excess of the rates requiredunder the financial covenants (Annex C). Institutional objectives for NTPC havebeen substantially achieved.

C. Major Factors Affecting the Project

8. NTPC Component. The component was implemented satisfactorily but with delayswhich were due to:

* lengthy procurement by NTPC (para. 9);* significant delays by the contractors and suppliers (para. 10);* substantial difficulties experienced by NTPC in acquiring the land for the ash disposal

area and the railway connection to Indian Railways mainline (para. 11); and,* financial difficulties experienced by GOI and NTPC in 1991-1992 (para. 12).

10 Only the preparation of a plan for the rehabilitation of the Indraprastha power plant was included in the project as a part ofthe DESU component, which was canceled.

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Other factors which affected the NTPC component were: (i) lower initial bid prices but highinflation levels during the first years of implementation, which resulted in costs in Rupee termshigher than the estimates by about 24% (para. 14); and, (ii) depreciation of the Rupee vis-a-vis theUS Dollar which resulted in large savings under the Loan which were canceled (para. 15).

9. Procurement. NTPC's procurement cycle, between bid issue and contract award was toolong. For the two major contract packages, viz., those for the boilers and turbine generators, thetime taken to complete procurement was close to 11 months. Typically, the procurement cyclefrom bid opening to contract award should have taken no more than 6-7 months. " There were, intotal 54 contracts, procured on the basis of international competitive bidding (ICB), in accordancewith Bank guidelines and funded under the Loan for the construction of Dadri and therehabilitation of Badarpur TPPs. 12 The major contracts for the mechanical and electricalequipment were procured on a supply-and-erect basis. Some contracts also included civil works,which was done to ensure better contract coordination during implementation. Most of thecontracts were won by Indian bidders. However, Indian contractors and manufacturers had touse imported machinery, materials, equipment or instruments (para. 10).

10. Delays Caused by Contractors and Suppliers. Contractors and suppliers causedsignificant delays in project implementation by failing to complete on time some critical civilworks (such as piling and foundations) and to deliver on time critical pieces of plant equipment,such as, air preheaters, cooling towers, coal handling plant, ash handling plant, etc. Most of theconstruction and manufacturing work was carried out in 1989-1992 during which period Indiaexperienced an economic and financial crisis. GOI put restrictions on imports, made permissionof the Reserve Bank of India (RBI) mandatory and increased the margins for opening a letter ofcredit (LC) first to 50% (in October 1990), then to 110% (in March 1991). To arrange such highmargins for the LCs and to obtain RBI's permission, contractors had to devote more resourcesand much longer time. Import restrictions were further aggravated with the steep devaluation ofthe Rupee. In July 1991, GOI withdrew some of the deemed export benefits which werepreviously provided for contracts awarded under ICB procedures of the Bank. The fact that theTrade Agreement between India and Poland ceased with effect from July 1991, affected the

1 l Allowing for 4 months for actual bidding on such complex procurement, and another 2 montlhs for bid evaluation. Summarydata about the principal contracts is as follows:

Dadri TPP Number of Number of Bids Bids Opening B. nk No Contract AwardBidders who Submitted Date Objection Date DateBought BidDocuments

Turbine Generators 12 3 Jan.27.87 Nov.3.87 Nov.20,87Boilers 16 l Jan.27,87 Nov.24,87 Dec.2,87Cooling Towers 9 6 June 12,87 June 12,88 Dec.7,88CHP 14 13 Feb. 1,88 Oct. 12,88 Dec.2,88AHP 8 4 Oct.3,89 Oct. 1 5,91 Nov.'91

12 Out of the said 54 contracts, 41 were for the Dadri TPP of which 33 now pertain to NTPC and eight toPOWERGRID and 13 were for the Badarpur TPP. In addition to the above, 36 smaller contracts were procuredunder local competitive bidding. The Bank also agreed to fund the last payments for 32 contracts originallyprocured under the Korba 11 and Ramagundam II projects, after the respective loans were closed.

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import of equipment for the ash transportation system. 13 GOI's decision in March 1992 toliberalize steel prices resulted in a steep rise in the price of steel which could not have beenforeseen when the contracts were awarded. Since the contracts were covered under the generalescalation formula, compensation to contractors for such high price increases had to be separatelydiscussed and negotiated. Thus further delays were experienced. Delays by the contractor of thecooling towers directly affected the unit synchronization/commissioning program. NTPC'sactions dealing with the contractors and suppliers were satisfactory. Otherwise, delays could havebeen much longer. However, local manufacturing capability, cheaper labor, deemed exportbenefits and the provision for domestic preference in accordance with Bank guidelines forprocurement, weigh in favor of local bidders enabling them to win contracts over foreigncompetition. It is important to strictly evaluate the existing backlog of the winning bidders vis-a-vis their manufacturing capability to determine if they would be capable of performing thecontracts on schedule, if awarded through the bidding process. Failure by reputed localmanufacturers to deliver critical equipment on time has caused the project long delays, as was thecase for the supplier of the ash handling plant. In this respect, i.e., evaluation of the existingbacklog of the winning bidder, NTPC's performance could have been better.

11. Land Acquisition. Resettlement and Rehabilitation. A total area of about 1,000 ha wasacquired for the power plant, ash disposal area (which is adjacent to the plant) and railway link.A very low percentage of the land was of semi-agricultural type; the rest was classified as barrennon-agricultural land. Some 2,630 families were affected by the project, representing 14,160persons; however, none had to be resettled. NTPC provided jobs to 135 project-affected persons(PAPs); another 58 PAPs were economically rehabilitated. The balance of 2,167 PAPs receivedcash compensation. No baseline survey was made before land acquisition and no rehabilitationaction plan was prepared. Acquisition of some parts of the land to be used for the disposal of ashand construction of the railway link proved to be very difficult where villagers physicallyobstructed access. Many PAPs took NTPC to the courts and obtained stay orders whichprevented NTPC and its contractors from working in the area. Problems arose from the fact thatall PAPs were interested in direct employment; most of PAPs who lost part or whole of their landhad been agriculturists without any formal/technical education so they were not eligible fortechnical jobs in an industrial set up. Most of them were not keen on being sponsored forvocational courses related to trades like carpentry, air conditioning and refrigeration mechanics,etc., and the political situation in the district was (and still is) different because of its proximity tothe Capital so people are not interested in government-sponsored welfare schemes. In the end,NTPC has resolved all the cases in accordance with the decisions of the court, but the completionof the power station, and in particular, railway link, suffered significant delays. Under the NTPCPower Generation Project (Loan 3632-IN; FY93) and in accordance with NTPC's most recent

l 3The principal contractor for the ash handling package for Dadri TPP was an Indian company which ordered equipmentunder the package from a Polish manufacturer to be imported to India through Rupee trade under the said trade agreement.The agreement ceased to exist with effect from Julv 19, 1991. The contractor had to apply for a fresh import license after July1991 and this could be obtained from the GOI only in 1993 for importing the equipment components from Gennany. Due tothe effect of devaluation and other economic measures taken by the GOI, unprecedented rise in prices occurred. The contractorhad to incur much higher expenditures as compared to the billing breakup for procurement of imported and bought out itemsprovided with their bids. NTPC. as a special case, agreed to pay the differential cost between the billing breakup cost and theactual cost of imported items incurred by the contractor, based on documentary evidence The total additional liabilitv on thisaccount amounted to Rs.12.9 million (about US$0.4 million).

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Resettlement and Rehabilitation Policy, NTPC initiated socio-economic studies of the PAPs of allBank-funded projects, including those under the project, to assess the need for any further helpthese PAPs might require to ensure that their living standards were at least the same as before.This study is now complete and various recommended actions are being implemented. Summaryinformation about the study and actions is given in Annex F.

12. GOI and NTPC's Financial Difficulties in 1991-1992. The Badarpur TPP is owned byGOI. Since 1978, it has been operated by NTPC on GOI's behalf During negotiations, it wasagreed that its rehabilitation would be funded by GOI. Due to economic and financial constraintsexperienced by GOI, the work could not be undertaken. In December 1991, the Bank agreed tofund, from the proceeds of Ln. 2844-IN, the first phase of the rehabilitation works. ESPs havebeen retrofitted and several other critical components of the power plant have been replaced orrehabilitated. The rehabilitation of the Badarpur TPP has dramatically improved its performance,with the PLF improving from 64% to 74% and the availability exceeding 85%. During the sameperiod, due to the substantial financial difficulties NTPC was experiencing, the operation andmaintenance (O & M) of its power plants began to be adversely affected due to lack of spare partsand inadequate maintenance. The Bank agreed to fund: (i) the procurement of urgently neededspares for NTPC projects built under previous Bank assistance;14 (ii) expenditures made by NTPCfor civil works contracts awarded under NTPC's local competitive bidding procedures; and,(iii) completion of disbursements for the Korba II and Ramagundam II TPP projects followingclosing of the respective IBRD Loans (Part II; Table 2). 0 & M of NTPC plants are back to theirsatisfactory levels.

13. Implementation Results. Due to the above, the units in Dadri TPP were put intocommercial operation with substantial delays. A comparison of actual commercial operation datesof the units vis-a-vis appraisal dates is as follows:

Synchronization Coal Firing Commercial OperationPlanned Planned Delay Delayat at w/r to w/r toContract Contract SAR Award

SAR Award Actual SAR Actual SAR Award Actual (Months) (Months)

Unit 1 10/91 03/92 10/91 11/91 08/92* 03/92 09/92 01/93 10 4Unit 2 04/92 09/92 12/92 05/92 12/93 09/92 03/93 03/94 18 12Unit 3 10/92 03/93 03/93 11/92 10/94 03/93 09/93 04/95 25 19Unit 4 0)4/93 09/93 03/94 05/93 03/95 09/93 03/94 12/95 27 21* Unit I was coal-fired in August 1992. only by arranging coal supply through road transportation from anotherrailway station.

14. Costs. Project cost estimates were prepared, at appraisal, on the basis of internationalprices of various plant components. Prices of components quoted under ICB were, in IndianRupee terms, lower than the estimates. Due to the high inflation levels which occurred in 1989-1992, costs in Rupee terms increased more than those projected during appraisal. The actual cost

14 At the time, NTPC was operating 22 coal-fired units, 200 MW and 500 MW each; 7 gas turbines and 3 combined cycleunits, all built under previous Bank assistance

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of the NTPC component was Rs. 19,433 million compared with the appraisal estimate ofRs. 15,702 million, an increase of about 24% (Part II; Table 7A).

15. Savings and Cancellations. Due to the devaluation of the Rupee, costs in US Dollar termswere significantly lower than the estimates. Although part of the loan was utilized for therehabilitation of Badarpur TPP, as well as for the procurement of urgently needed spare parts,large savings occurred and they were later canceled (US$102.2 million equivalent - under theNTPC component).

16. Closing Date and Disbursements. In order to complete the implementation of the project, theclosing date of the loan was extended by six months. The loan was finally closed on December 31,1995, and the loan amount revised to US$322.8 million following the cancellation of a total ofUS$162.2 million,'5 was fully disbursed on May 3, 1996. Out of this amount, about US$3 16.3million which were spent for the Dadri TPP and other NTPC investments were onlent by GOI toNTPC, while about US$6.5 million spent for the rehabilitation of the Badarpur TPP wereassumed by GOI. Because NTPC was not in compliance with the accounts receivable covenant, theBank agreed with GOI and NTPC on an informal suspension of disbursements under the Loan, whichlasted from February 28 to June 3, 1994.

17. Rate of Return. At appraisal, the IERR of the Northern Region investment program, ofwhich the project is a part, was estimated to be about 11%. Using the same methodology, actualcapital costs of the investment program (covering generation, transmission and distributioncomponents) and incremental operating and fuel costs, the minimum IERR is computed to beabout 18.7% (Part II; Table 8). The benefits of the investment program relate mainly to theincremental consumption which they make possible. They were derived from the incrementalsales revenue based on the average retail tariffs of NTPC (Rs. 0.87/kWh). Both computations didnot take into account consumer surplus; the IERRs given above are deemed to be the minimumvalues.

18. DESU Component. GOI had agreed that no later than February 29, 1988, it wouldfurnish to the Bank a satisfactory plan for the financial strengthening of DESU and thereafterimplement it. 6 GOI took an inordinately long time to present the said plan. The Bank servednotice on GOI in November 1988 that unless a satisfactory financial recovery plan for DESU wasreceived by December 31, 1988, the Bank wouid be obliged to seek remedies under the loan andsuspend disbursements on the DESU component of the project. A financial recovery plan, whenfinally presented, was deemed unsatisfactory from the Bank's perspective. Disbursement againstthe DESU component was suspended on January 6, 1989. Despite several attempts by the Bank,

15 Cancellations: August 1, 1990: US$ 60.0 million (DESU Component)May 1, 1993: US$ 17.0 million (Savings)December 9, 1993: US$ 35.0 million (Savings)June 30, 1995: US$ 50.17 million (Savings)Total: US$162.17 million

16 The Loan was declared effective on March 21, 1988, upon completion by GOI, NTPC and DESU of the conditions ofeffectiveness. By that date, the dated condition for DESU's financial recovery plan had become a condition of effectiveness. Inthe Project Files, there are no documents indicating that the Bank postponed this condition.

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there was no progress on this front, while the financial situation of DESU continued todeteriorate. Finally, the DESU component of the loan, amounting to US$ 60 million equivalent,was canceled on August 1, 1990. Thus this component was not implemented.

D. Project Sustainability

19. NTPC Component. The achievements of the NTPC component are likely to besustainable. The Badarpur TPP has significantly improved its PLF and given the increasedawareness of the plant management and staff for preventive maintenance, it is highly likely that theplant would be able to sustain its improved performance and reliability. This plant and the DadriTPP are capable of producing power at their respective design capacities provided they areassured of coal supplies in the right quantities and of proper quality. 17 It is expected that with thecommissioning in 1997 of the coal washery being built by Coal India, supply and transport of thewashed coal to the power stations would be significantly improved. However, NTPC has to keepa satisfactory payment record"8 and sign a long-term commercial contract with Coal India for thesupply of beneficiated coal. Institutionally, NTPC has grown much stronger, leading to itsincreased self-reliance as the largest, and the most modern public utility in India.

20. The Project. The achievements of the restructured project are likely to be sustainableunder the condition that coal of proper quality and in required quantities is provided (para. 19).Operational plans to ensure the sustainability of results achieved under the project have beenagreed with NTPC (Part II; Table 6).

E. Bank Performance

21. NTPC Component. For this component the performance of the Bank from projectpreparation through project completion was satisfactory. In particular, the Bank has successfullymaintained a good working relationship with NTPC, identified and appraised the project, assistedNTPC in completing procurements under the project, and supervised the project over a seven yearperiod. Project preparation included all necessary conditions to ensure sustainability of results aswell as enhance NTPC's project management, planning and implementation capability. A total of15 supervision missions were fielded during the project implementation period. Problemsencountered were identified, solutions were developed, action plans were agreed and advice onproblems were provided to those concerned. Suitable follow-up actions were taken as neededand mid-course corrections were made as project implementation progressed. When, in 1991-

17 The coal stocks at both power stations were almost nil durinig the ICR mission's visit.

18 The paymenits tor coal for the Dadri TPP are made on a "cash and car>," basis withi advance payments toCoal India. Coal supplied to Badarpur T'P is paid for by GOI from funds paid by DESU for the payment of theenergy purchased from this power plant. DESU is the sole customer of Badarpur TPP. However, DESU'spayment perfonnance for the power purchased is poor. This affected the position of Badarpur TPP's workingcapital, resulting in the plant management not being able to pay regularly/fully for the coal purchased till recentpast. In order to partially recover dues from DESU, GOI introduced recovery through Central Appropriation inMay 1994. This has facilitated payment of current dues to Coal India for the past few months.

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1992, GOI and NTPC faced economic and financial difficulties, the Bank assisted them with therehabilitation of the Badarpur TPP, funding of some civil works and procurement of urgentlyneeded spares. However, there were periods of tensions between the Bank and GOI and NTPCduring the period actions were taken by GOI and NTPC to remedy NTPC's accounts receivableproblems and to comply with the accounts receivable covenant which had been agreed under theongoing Rihand Power Transmission (Ln. 2555-IN; FY85) and Combined Cycle Power (Ln.2674-IN; FY86) Projects. The covenant was repeated in Ln. 2844-IN, but until March 1993,NTPC was not able to fully comply. The Bank's actions in this respect are summarized asfollows:

* when the project was presented to the Executive Directors on June 17, 1987, NTPCwas not in full compliance with the accounts receivable covenant it had agreed underthe ongoing Rihand Power Transmission and Combined Cycle Power Projects;'9

* when at the end of FY90 (March 31, 1990), NTPC's level of accounts receivable hadrisen to seven months of sales equivalent, Bank management decided not to exercisethe remedies available under the loan agreement such as suspension of disbursements,partly because of concern about jeopardizing India's ongoing development program.Other non-power reasons might be that the Bank was also worried about the impact ofsuch a suspension of disbursements on the overall India-Bank relations and on thelevel of disbursements to India, when India was experiencing an economic crisis;

* however, the Bank decided to cancel in mid-1990, the processing of a new loan ofUS$375 million to NTPC after completion of negotiations;

* following many drastic measures taken by GOI and NTPC,20 NTPC was, as of March31, 1993 (end of FY93), in compliance with the modified21 accounts receivablecovenant. Then, based on this data, the Board of Executive Directors approved inJune 1993, Ln. 3632-IN for the NTPC Power Generation Project;

* when the Bank realized that, during the first three months of FY94 (April to June1993), NTPC bill collection performance had dropped again to about 72% and therewas little evidence that NTPC was applying the newly adopted commercial policies byregulating power to defaulting SEBs, on October 21, 1993, the Bank advised GOI thatunless NTPC's level of accounts receivable was brought down to two months of salesequivalent by January 15, 1994, the Bank would, in effect from that date, suspend

19 It is stated in para. 4.05 of the SAR dated May 28, 1987, that "the outstanding receivables .... have recently dropped furtherto about 2.8 months in May 1987 ..... Afler the remaining amounts are paid to NTPC [through central appropriations], theoverall level of accounts receivable would be below the equivalent of two months sales." On the same day, the ExecutiveDirectors approved Ln. 2845-IN for an amount of US$ 375 million, for the Talcher Thermal Power Project to be built by NTPC.This project is still under construction.20 During the 1990-1993 period, GOI allowed NTPC: (i) to recover over a period of four years through the CentralAppropriations (CA) the arrears accumulated as of the end of May 1990; (ii) to acquire the Unchahar power station from theGovernment of Uttar Pradesh in lieu of arrears accumulated by the Uttar Pradesh SEB; and, (iii) to shut-off or restrict supply ofpower to the SEBs in case of non-compliance with agreed terms of supply.21 As part of conditionality of the then proposed NTPC Power Generation Project, the Bank agreed that for the purpose ofmonitoring compliance with the two months accounts receivable covenant, the amounts still due from CA were to be excluded.

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India's rights to make withdrawals from Ln. 2844-lN and Ln. 2845-IN (TalcherThermal Power Project) until NTPC was in compliance with the agreed receivablecovenant,

* the Bank also informed NTPC that Ln. 3632-lN would not be declared effective untilNTPC was in compliance with the receivable covenant;

* on February 2, 1994, the Bank agreed to keep the formal suspension in abeyance up toMay 1994, in recognition of NTPC's progress in dealing with its bill collectionproblems and its applications of the new commercial policies, while GOI and NTPCagreed to refrain from submitting withdrawal applications under Ln. 2844-UN andLn. 2845-lN from March 1, 1994;

* following further actions by GOI and NTPC, in early June 1994, NTPC was incompliance with its commitments. On June 6, 1994, the Bank lifted the abovementioned informal suspension of disbursements and declared Ln. 3632-IN effective.

Although relations between the Bank and GOI and NTPC were tense at times, the Bank'spersistence on commercial behavior by NTPC has led to positive results and is, in fact, muchappreciated now by NTPC.

22. DESU Component. The component was designed to provide funds for its investmentsand for technical assistance to address DESU's institutional, managerial, engineering and financialproblems. Even during the project preparation stage it had been established that, with debtsexceeding assets by more than Rs. 3.4 billion (about US$261 million equivalent)2 2 and short ofworking capital, DESU was in dire financial straits. Agreement with the Bank on a satisfactoryfinancial strengthening action plan was at first a condition for negotiations. After waiting forabout one year, the Bank proceeded with loan negotiations based on a conceptual approachaddressing the need for technical assistance in those specific areas, with details to be worked outlater as a dated condition, instead of pinning down specific action plans.23 This approach wasunsuccessful and led to the ultimate cancellation of this component.

23. The Project. The need to put DESU back on a sound financial footing having been fullyidentified, a specific action plan should have been developed before negotiations. Theperformance of the Bank in respect of project preparation and appraisal concerning the DESUcomponent was, therefore, deficient. However, the performance of the Bank with respect to therestructured project was satisfactory.

22 With the exchange rate of Rs. 1 3.00/US$, prevailing at appraisal.23 GOI committed to furnish to the Bank, not later than February 29, 1988, a satisfactory plan for the financial strengtheningof DESU, and thereatler to implement the said plan. The plan was furnished in early 1989. It wvas not satisfactory.

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F. Borrower Performance

24. NTPC Component. GOI's and NTPC's performances in respect of the NTPCcomponent were satisfactory. Compliance with the covenants of the loan was satisfactory, exceptfor the one requiring NTPC to reduce its accounts receivable to within 2 months of equivalentmonthly billing. It was only towards the end of the implementation of the project that GOI andNTPC realized that a sound financial health is a key element to the success of a utility and NTPCwas finally in compliance with this covenant. NTPC's willingness to follow commercial practiceshas greatly improved its financial position. GOI's intervention through the CA helped NTPCavert financial crises and resolve, for limited periods, its accounts receivable problem. Theseinterventions aimed at having NTPC operate efficiently and thus keep the energy supply in thecountry at an adequate level. However, it is doubtful that GOI's actions have resulted inimproving the operational efficiency as well as the billing and collection practices and proceduresof SEBs which buy power from NTPC. What is equally important, but so far received littleattention, is the need for energy conservation on the customer (SEBs) side and demandmanagement through the adoption of appropriate tariffs and tariff structures and through end-useefficiencies. NTPC's performance in the design and engineering of the construction of the DadriTPP and rehabilitation of the Badarpur TPP was commendable. NTPC used the knowledge it hadtransferred from consultants and experience it had gained during the implementation of theprevious projects. Limited support from consultants was utilized in few areas such as coalhandling, transportation, storage and disposal of dry ash in Dadri, railway link and tubewellnetwork system.

25. DESU Component. GOI's and DESU's performances in respect of the DESUcomponent were unsatisfactory. The commitments made by GOI during the negotiations of theloan were not kept. GOI was given adequate time to present the financial recovery plan forDESU. It was only after repeated attempts failed to extract a viable plan did the Bank finallycancel the loan amount of US$60 million allocated for the DESU component.

26. The Project. Due to the failure of the DESU component the performance of theBorrower for the original project was deficient. The performances of the Borrower and NTPCwith respect to the restructured project were satisfactory.

G. Summary Assessment of Outcome

27. The outcome expected for the original project was not obtained due to the cancellation ofthe DESU component. Thus the outcome of the project is assessed as deficient (Part II;Table IA). However, the results of the restructured project are satisfactory (Part II; Table I B).NTPC has been able to increase its generating capacity in the Northern Region with thecommissioning of the 4 x 210 MW Dadri as well as the rehabilitation of the 720 MW BadarpurTPPs. With the upgrading of the ESPs at Badarpur TPP, the overall air quality in the area hasimproved. Institutionally, the project has assisted NTPC to continue to improve its finances andachieve success with commercial objectives. This policy has indeed helped NTPC improve its

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tariff structures and load management procedures as well as mobilize additional resources fromoutside the public sector to strengthen its financial and economic efficiency.

H. Future Operation

28. The NERC standard for a coal-fired power station specify that a power plant such as theone at Dadri should achieve a minimum PLF of 63% in the first two years of its operation, and75% PLF thereafter for the next 8 years. Although most power plants outperform the NERCstandard, Dadri TPP's performance would be monitored against the standard specified by NERC.The corresponding availability of the plant is expected to be 70% during the first two years ofoperation24 and 79% thereafter. The PLF equates to a generation of about 1.6 TWh of energy byeach unit per annum. However, achieving these targets is contingent upon the plant receivingcoal, as required.

1. Key Lessons Learned

29. Several specific lessons can be drawn from this project that have both operational andstrategic implications for the design of similar projects in the future:

a) The Dadri and Badarpur TPPs should receive coal of proper quality and in requiredquantities in order to operate in a sustainable manner at their respective full capacities(para. 19, and Annex D).

b) A sound financial health is a key element to the success of a utility. NTPC's willingness tofollow commercial practices has greatly improved its financial position. GOI/Bank/NTPCdialogue on NTPC's financial situation and its application of the commercial policies (inparticular, cutting off supply to non-paying customers) should be continued (para. 24, andAnnex C).

c) The successful completion of the first phase of rehabilitation of the Badarpur TPP clearlyserves to establish that power plant rehabilitation is indeed an economically viableproposition. Projects such as these which assure optimal utilization of existing assetsshould continue to be supported (para. 19).

d) GOI intervention through the Central Appropriations (CA) helped NTPC resolve itsaccounts receivable problem, even though for a limited period of time. It is doubtfulwhether GOI's actions have led to the SEBs improving their operational efficiency andtheir billing and collection procedures and practices. What is equally important, but so farreceiving little attention, is the need for energy conservation on the customer (SEBs) sideand demand management by the utility through the adoption of appropriate tariffs andtariff structure at SEBs and through end-use efficiencies. GOI/Bank/ States dialogue on

24 All four units have been in commercial operation since December 1995. Therefore, the first year would be NTPC's fiscalyear 1996/97.

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the restructuring by the states of their respective power sectors is a step forward andshould be continued (para. 24).

e) Project preparation, with all its components, should be completed in detail well ahead ofloan negotiations. A conceptual project description for the purpose of completing loannegotiations, with details to be worked out later, is no proxy for fulfilling the requirementsof project appraisal as the DESU component of the project clearly serves to demonstrate(para. 22).

f) The procurement cycle, starting from bid issue to contract award, should be significantlyshortened (para. 9).

g) Local manufacturing capability, cheaper labor, deemed export benefits and the provisionfor domestic preference in accordance with Bank guidelines for procurement, weigh infavor of local bidders enabling them to win contracts over foreign competition. However,the existing backlog of the winning bidders, vis-a-vis their manufacturing capability,should be strictly evaluated to determine whether they would be capable of performing thecontracts on schedule, if awarded through the bidding process. Failure by reputed localmanufacturers to deliver critical equipment on time has caused the project long delays, aswas the case for the supplier of the ash handling plant (para. 10).

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PART II: Statistical TablesTable IA: Summary of Assessments for the Original Project

(NTPC and DESU Components)

A. Achievement of Objectives Substantial Partial Negligible Not ApplicableMacroeconomic policies * 1/Sector policies * 2/Financial objectives * 2/Institutional development * 2/Physical objectives * 3/Poverty reduction *l1Gender concerns *liOther social objectives * 4/Environmental objective *3/Public sector management * 2/Private sector development *liOther

B. Project Sustainability Likelv Unlikelv Uncertain.5/

C. Bank Performance Highly satisfactory Satisfactory DeficientIdentification * 6/Preparation assistance * 6/Appraisal * 6/Supervision * 6/

D. Borrower Performance Highly satisfactory Satisfactory DcficientPreparation * 7/Implementation * 7/Covenant compliance * 7/Operation V 7/

E. Assessment of Outcome Highly satisfactory Satisfactory Deficient* 81

I/ The objectives did not include any specific action for malcroeconomic policies, poverty reduction, gender concern issues andprivate sector development.

2/ Sector policy and public sector management objectives were partially achieved throtuglh financial and institutionalstrengthening of NTPC, while those for DESU were not, due to the cancellation

3/ Physical and environmental objectives were substantially achieved with the completion of the conistnictioni of the DadriTPP and rehabilitation of the Badarpur TPP. Such objectives for the DESU component were not achieved.

4/ There were no special social objectives in the project. However, satisfactor-y resettlement and rehabilitation of the peopleaffected by the Dadri TPP was an objective and has been partially achieved. Follow up is being canied out under theNTPC Power Generation Project.

5/ Paras. 19 and 20 - The sustainability of the NTPC componenlt wlhiclh was implemenited is likely6 Paras. 21-23.7/ Paras. 24-26.8/ The outcome expected for the original project was not obtained (para 27)

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Table IB: Summary of Assessments for the Restructured Project(NTPC Component)

A. Achievement of Objectives Substantial Partial Negligible Not ApplicableMacroeconomic policies El1Sector policies * 2/Financial objectives E 2/Institutional development E 2/Physical objectives * 3/Poverty reduction *l1Gender concerns EliOther social objectives * 41Environmental objective * 3iPublic sector management E 2/Private sector development E l/Other U

B. Project Sustainability Likely Unlikely Uncertain.5/

C. Bank Performance Highly satisfactory Satisfactory DeficientIdentification * 6iPreparation assistance * 61Appraisal *J6Supervision * 6/

D. Borrower Performance Highly satisfactory Satisfactory DeficientPreparation E 7/Implementation * 7/Covenant compliance E 8/Operation * 7/

E. Assessment of Outcome Highly satisfactory Satisfactory Deficient* 91

1/ The objectives did not include any specific action for macroeconomic policies, poverty reduction, gender concern issues andprivate sector development.

2/ Sector policy and public sector management objectives were partially achieved through financial and institutionalstrengthening of NTPC.

3/ Physical and environmental objectives were substantially achieved with the completion of the construction of the DadriTPP and rehabilitation of the Badarpur TPP.

4/ There were no special social objectives in the restructured project. However, satisfactory resettlement and rehabilitation ofthe people affected by the Dadri TPP was an objective and has been partially achieved. Follow up is being carried outunder the NTPC Power Generation Project.

5/ Para. 19 - Availability of coal of proper quality and required quantities must be ensured.6/ Para. 21.7/ Para. 24.8/ Because of NTPC's non-compliance for most of the implementation period vith the accounts receivable covenant,

covenant compliance is assessed as "deficient" (para. 21).9/ Para. 27.

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Table 2: Related Bank Loans/Credits

Loan/Credit title Purpose Year of approval StatusIBRD LoansPreceding OperationsRamagundam Thermal 3x200 MW thermal 1/79 CompleteFarakka Thermal 3x200 MW thermal 6/80 CompleteSecond Ramagundam Thermal 3x500 MW thermal 12/81 CompleteCentral Power Transmission 400kV + 220 kV transmission 5/83 CompleteSecond Farakka Thermal 2x500 MW thermal 6/84 CompleteRihand Power Transmission 500kV HVDC+400kV AC 5/85 CompleteCombined Cycle Power 413 MW (Anta) 4/86 Complete

652 MW (Auraiya)644 MW (Kawas)

National Capital Power Supply 4x210 MW thermal 6/87 Complete

Following OperationsTalcher Thermal 2x500 MW thermal 6/87 Under

ConstructionNTPC Power Generation Improve commercial 6/93 Under

discipline, environmental and ConstructionR&R management capability,increase generation capacity(as of date of this ICR, the followingTPPs have been declared eligiblefor funding under this project:(a) 2x500 MW coal-firedVindhyachal II TPP; and(b) 400 MW Kayamkulamnaphta-based combined cycle TPP)

Total IBRD Loans 10

IDA CreditsPreceding OperationsSingrauli Thermal 3x200 MW+400kV AC 4/77 CompleteRamagundam Thermal 3x200 MW thermal 1/79 CompleteKorba Thermal 3x200 MW thermal 4/80 CompleteSecond Singrauli Thermal 2x500 MW thermal 5/80 CompleteFarakka Thermal 3x200 MW thermal 6/80 CompleteSecond Korba Thermal 3x500 MW thermal 7/81 CompleteTotal IDA Credits 6

Sectoral Obiectives Common to the Above ProjectsIn addition to the above project-specific objectives, the sectoral objective was to assist NTPC become a modelutility for the poorly performing SEBs.

-19 -

Table 3: Project Timetable

Steps in project cycle Date lanned Date actualIdentification 1983Preparation 6-7/84Preappraisal 11-12/84Appraisal 5/86Negotiations 2/87Board presentation 6/87Signing 12/87Effectiveness 11/87 3/88Cancellation of DESU component - 8/90Restructuring of the ProjectProject completion (restructured project) 12/94 12/31/95Loan closing 6/30/95 12/31/95

Table 4A: Loan disbursements: Cumulative Estimated and Actual (NTPC Component)

FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96Appraisal Estimate:Annual 34(0 46.0 73.0 85.0 76.0 55.0 39.0 17.0Cumulative 34.0 80.0 153.0 238.0 314.0 369.0 408.0 425.0Actual:Annual 38.5 37.1 49.9 60.2 59.6 24.8 25.4 1.2 26.1Cumulative 38.5 75.6 125.5 185.7 245.3 270.1 295.5 296.7 322.8Actual as % of estimate 113 80 68 71 78 45 65 7Date of final disbursement IMay 3, 1996Notes: 1. Appraisal disbursement estLmates correspond to Bank FY July through June

2. Out of US$425 million for the NTFPC Component, US$102.2 million was canceled as not required

Table 4B: Loan disbursements: Cumulative Estimated and Actual (DESU Component)

FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96

Appraisal Estimate 3.0 11.0 23.0 36.0 46.0 53.0 58.0 60.0(Cumulative) _

Actual

Actual as % of estimateDate of final Disbursement This component was canceled in 1990 as GOI and DESU were in default of their

commitments

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Table 5: Key Indicators for Project Implementation(for NTPC Component)

I. Key Implementation Indicatorsin SAR/President's Report

Package Bid Issue Evaluation Bank Approval ContractComplete Award

Boiler Planned 04/87 03/88Actual 10/86 10/87 11/87 12/87

Turbine- Planned 04/87 03/88Generator Actual 10/86 10/87 11/87 11/87

Generator Planned 09/87 09/88Transformer Actual 09/87 12/88 12/88 01/89

Cooling Planned 10/87 7/88Towers Actual 09/87 05/88 11/88

Coal Planned 11/87 10/88Handling Actual 10/87 09/88 10/88 11/88

Ash Planned 02/88 10/88Handling Actual 07/88 7/89 09/89 11/89

400 kV Planned 01/87 5/88Substation Actual 11/87 09/88 09/88 9/88

Table 6: Key Indicators for Project Operation(for NTPC Component)

Indicator Unit I Unit 2 Unit 3 Unit 4P/I A P A P A P A

Erection Start (Boiler) 5/89 2/89 11/89 9/89 5/90 5/90 11/90 2/91Light Off 8/91 2/91 2/92 3/92 8/92 11/92 2/93 11/93Synchronize 3/92 10/91 9/92 12/92 3/93 3/93 9/93 3/94Commercial Operation 9/92 1/93 3/93 3/94 9/93 4/95 3/94 12/95Generation, GWh /2 3.7 3.6 2.1 2.4 0.67 1.2 0.1 0.15Availability, % 70/79 79.8 70/79 80.8 70/79 8(.8 70/79

/3 ____ /3. /3 /3Plant Load Factor, % 63/75 62.2 63/75 63.2 63/75 73.8 63/75

/3 _ _ _ __/3 /3 _ _ _ _ /3

/I P: Planned at the time of award of the boiler and turbine generators contracts (Part H; Tablc 5)A Actual

/2 Based on expected generation in accordance with NERC standard for coal-fired power plants. Calculatedfrom date of commercial operation.

/3 First 2 years/next 3-10 years

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Table 7A: Project Costs

Appraisal estimate (USSM) Actual (USSM) **

Local Foreign Total Local Foreign TotalA. NTPCPreliminary Works 24.8 - 24.8 28.6 - 28.6Civil Works 109.6 7.7 117.4 99.4 - 99.4Main Plant Equipment 176.0 171.4 347.4 134.4 99.9 234.3Other Mechanical Equipment 60.9 61.0 121.9 82.0 25.9 107.9Coal Handling & Transportation 89.7 45.4 135.1 40.8 2.7 43.5Electrical Equipment 15.2 41.3 56.5 44.6 1.5 46.1Precommissioning Expenses 1.9 - 1.9Equipment and Materials for 12.7 10.5 23.2 6.5 - 6.5Badarpur Power StationConsulting Services, Engineeringand Administration 54.2 2.1 56.3

35.6 35.6Total for NTPC 543.1 339.4 882.6 473.8 130.0 603.8

B. DESUTransmission Lines and 63.7 38.8 102.5 - - -

SubstationsConsulting Services for DESU 3.0 0.7 3.7

Total for DESU 66.7 39.5 106.2

Total Base Cost 609.9 378.9 988.8 473.8 130.0 603.8Physical Contingencies 37.2 19.3 56.5Price Contingencies 217.7 90.1 307.8Total Project Cost 864.8 488.4 1,353.2 473.8 130.0 603.8Interest During Construction 68.4 120.5 188.9 110.9 - 110.9Total Financing Required 933.2 608.9 1,542.1 584.7 130.0 714.7

NOTE: In terns of Rupees, financing requirements estimated at appraisal equate to Rs.20,046 million, with the exchange rateof Rs.13.00/UJS$. Actual cost is Rs.19,433 million at the average exchange rate of Rs.27.19/US$, during the projectimplementation period.(*) Original project (NTPC and DESU components are shown separately).(**) Restructured project (DESU component not implemented).

Table 7B: Project Financing

Appraisal Estimate (USSM Actual (US$M)Source Local costs Foreign costs Total Local costs Foreign Total

costsNTPC: IBRD - 425.0 425.0 192.8 130.0 322.8

GOI/NTPC 841.3 123.9 965.2 146.3 - 146.3 /1DESU: IBRD - 60.0 60.0 -

GOI/DESU 91.9 - 91.9 - -

IBJ-11 - - 37.4 37.4NTPC: DOMESTIC LOANS 98.3 98.3

INTERNAL RESOURCES 109.9 109.9Total 933.2 608.9 1,542.1 584.7 130.0 714.7

/I GOI Loan & Equity

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Table 8: Economic Costs and Benefits(Rs. Million)

Fin. Year Capital O&M Fuel Total Cost Incr. Sales Net BenefitExp.

1984 2.4 - - 2.4 - -2.4

1985 45.6 - - 45.6 - -45.61986 47.6 - - 47.6 - -47.61987 70.3 - - 70.3 - -70.31988 598.1 - - 598.1 - -598.11989 633.6 - - 633.6 - -633.61990 1804.1 - - 1804.1 - -1804.11991 2634.2 - - 2634.2 - -2634.21992 1984.3 - - 1984.3 - -1984.31993 1558.0 - - 1558.0 - -1558.01994 1817.6 1049.0 137.9 3004.6 2135.4 -869.21995 1088.8 1642.1 250.8 2981.7 3717.2 735.51996 389.6 2672.6 380.6 3442.8 5057.5 1614.71997 219.0 3142.8 377.6 3739.4 7752.7 4013.41998 - 3142.8 377.6 3520.4 7752.7 4232.31999 3142.8 377.6 3520.4 7752.7 4232.32000 3142.8 377.6 3520.4 7752.7 4232.32001 3142.8 377.6 3520.4 7752.7 4232.32002 3142.8 377.6 3520.4 7752.7 4232.32003 3142.8 377.6 3520.4 7752.7 4232.32004 3142.8 377.6 3520.4 7752.7 4232.32006 3142.8 377.6 3520.4 7752.7 4232.32007 3142.8 377.6 3520.4 7752.7 4232.32008 3142.8 377.6 3520.4 7752.7 4232.32009 3142.8 377.6 3520.4 7752.7 4232.32010 3142.8 377.6 3520.4 7752.7 4232.32011 3142.8 377.6 3520.4 7752.7 4232.32012 3142.8 377.6 3520.4 7752.7 4232.32013 3142.8 377.6 3520.4 7752.7 4232.32014 3142.8 377.6 3520.4 7752.7 4232.32015 3142.8 377.6 3520.4 7752.7 4232.32016 3142.8 377.6 3520.4 7752.7 4232.32017 3142.8 377.6 3520.4 7752.7 4232.32018 3142.8 377.6 3520.4 7752.7 4232.32019 3142.8 377.6 3520.4 7752.7 4232.3

IRR = 18.7% (para. 17)

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Table 9: Status of Legal Covenants

Ref. COVENANT COMPLIEDLoan Aireement:LA 3.01(b) GOI will enter into a subsidiary loan agreement with NTPC yes

under terms satisfactory to the Bank (condition of effectiveness)

3.01 (c) GOI will enter into a Financial Arrangement with DESU under yesterms s satisfactory to the Bank (condition of effectiveness)

3.01(d) GOI to provide NTPC amounts from loan account, on specified yes (1)terms and conditions, in the first month of the quarter followingthe quarter in which amounts are withdrawn by GOI

4.01(b) GOI/NTPC to furnish Audit on SOEs (due within 7 months of yes (1)FY end)

4.02 GOI to furnish to the Bank not later than 6 months after the end yesof FY the auditor's report in respect of the Special Account

4.03 GOI to furnish to the Bank, not later than February 29, 1988, no (2)a satisfactory plan for the financial strengthening of DESU, andthereafter to implement the said plan.

NTPC Project Aareement:PA 3.04 NTPC to contract for coal supplies not later than one year prior yes

to commissioning power station under the project

4.01(b)(ii) NTPC to furnish audited statements, along with the audit report, yesnot later than 7 months after end of FY

4.02 NTPC to take all necessary measures to maintain its accounts no (3)receivable (excluding amounts to be recovered through CentralAppropriations) at a level not exceeding an amount equivalent tothe proceeds of its sales of power in the preceding two months.

4.03 NTPC shall achieve an annual ROR of not less than 7% in 1984/85 yesthrough 1989/90 and not less than 9.5% in 1990/91 through 1994/95and thereafter at satisfactory levels to ensure financial viability

Schedule 2 NTPC to implement Technical File Management system by yesDecember31, 1988

As the DESU Component was not implemented, covenants of the DESU Project Agreement are not listed.

1) Sections 3.01 (d) and 4.01 (b) of the Loan Agreement covered DESU as well. However, no disbursementswere made under the DESU Component. As this component was not implemented and canceled, GOI andDESU did not need to furnish audits reports for DESU.

2) The plan, furnished to the Bank in early 1989 was not satisfactory to the Bank. The Bank used its remediesand canceled the DESU Component.

3) It was towards the end of implementation of the project that NTPC was in compliance with this covenant(para. 24 and Annex C).

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Table 10: Bank Resources: Staff Inputs

Stage of Project Cycle Planned Revised ActualWeeks US$ Weeks US$ Weeks US$

________ 000)

Through Appraisal 26.5 61.8Appraisal-Board 83.9 163.4Board-Effectiveness 6.3 14.7Supervision _ _ 56.9 160.4Completion 8.5 30.8 6.5 22.7 9.0 23.3

TOTAL 182.6 423.6

Table 11: Bank Resources: Missions

Stage of Month! No. of Days Specialized Performance RatingProject Cycle year Persons infield staff skills Implemen- Development Types of

represented tation status impact problemsThroughappraisal _AppraisalthroughBoard |_l _ l_lBoardapprovalthrougheffectivenessSupervision 1 2/88 5 4 E, FA, PR 1 HS 1, INSupervision 2 5/88 3 3 E,FA,EN 2 SSupervision 3 10/88 4 3 E,FA,EC 2 S ISupervision 4 8/89 4 3 E,FA,EC 2 S PRSupervision 5 9/90Supervision 6 2/91 1 2 E 2 S PRSupervision 7 7/91 3 3 E,FA,EN 2 S ISupervision 8 2/92Supervision 9 10/92 2 3 E,FA 2 S ISupervision 10 6/93 4 3 E,FA,EN 2 S ISupervision 11 9/93 7 5 E,FA,EC, 2 S I

ENSupervision 12 1/94 5 3 E,FA,EN 2 S ISupervision 13 6/94 5 3 E,FA,EN 2 S ISupervision 14 10/94 4 3 E,EN 2 S ISupervision 15 11/95 1 4 E 2 S ICompletion 11/95 1 6 E 2 S I

and2/96

Legend: E: Engineer; FA: Financial Analyst; EC: Economist; EN: Enviromnental Specialist; S: SpecialistI= No or minor problems; 2 = Moderate problems; 3 = Major problemsI = Implementation delays; IN = Institutional Problems; PR = Procurement Delays

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ANNEX A

HIGHLIGHTS OF THE ICR MISSION

A. The ICR Mission of the Bank met with the Chairman/Managing Director and other senior officialsof NTPC on February 29, 1996 and discussed the following:

1. Even though the Dadri power plant was in commercial operation, one generating unit was outof service because there was no coal. The same situation prevailed at the Badarpur thermalpower station where one of the generating units was also out of service for want of coal. Eventhough NTPC was not responsible for the situation, it was unconscionable in view of the factthat regular load shedding, especiallv at peak hours, was being carried out in Delhi to balancesupplv and demand of electricity. The mission emphasized that full economic benefits of theproject were not being realized and that the matter called for a satisfactory resolution as soonas possible.

2. The coal linkage policy of GOI was obviously not working. NTPC should be prepared toprocure its own fuel from the least-cost source and arrange for its transportation to therespective sites in a free market environment, while meeting the agreed minimum rate of returnon its investments. This matter should be taken up with GOI under a policy dialogue.

3. Rehabilitation of the Badarpur power plant had yielded very encouraging results. The PLFhad gone up from 64% to 74%, and the plant availability had improved to above 85%. NTPCinformed that the results had encouraged them to prepare a Phase 11 rehabilitation scheme.

4. The ICR was already under preparation, but there were several missing pieces of information.Specifically, NTPC's contribution to the ICR from the Borrower's perspective had to bewritten and submitted to the Bank. The mission requested NTPC to submit the missinginformation for the completion of the ICR, as soon as possible (Annex B).

B. The ICR Mission also met with Coal India at Calcutta on March 1, 1996. The following pointswere discussed:

I . It was noted that although the Dadri power plant was linked to the Piparwar coal mines inNorth Bihar, the plant was actually receiving coal from a basket being filled by several coalmines in the vicinity. The result was a mixture of coal that was significantly different from thequality of coal for which the Dadri plant was designed. For instance, ash was in excess of40%, instead of 28% for which the boiler and its components were designed. The volatilematter was less than 20%. NTPC was paying the penalty for this inferior coal by way offaster wear and tear of the boiler components, lower equipment availability and frequent forcedoutages. Under the project, a coal washery was to have been set up at the coal mines toimprove the quality of coal by washing and the mission inquired of its status.

2. Coal India informed that the coal washery was under construction and expected to becommissioned into service by December 1996 (During later communications with Coal India,it was stated that commissioning of the washery was delayed to June 1997). Piparwar coalmines was currently raising about 6.5 million metric tons (MT) per year. Coal India had

- 26 -

approached NTPC to enter into a long term contract (- 15 years) for the beneficiated coal, theprice of which was likely to be Rs. 120-140/MT higher than the current coal price. Thismatter had been pending for a long time and a contract was yet to be signed. Coal India statedthat if a contract was not signed soon, it would divert the clean coal to other interested parties.

3. In so far as coal linkage, Coal India in January 1996 had delivered, 316,000 MT to Dadriagainst an allocation of 300,000 MT and 276,000 MT to Badarpur against an allocation of270,000 MT. Clearly, allocation by the Coal Linkage Committee was far too short ofrequirements because one generating unit at each plant was out of servicc for want of coal.

4. Coal India was not aware of any equipment difficulties at the NTPC power plants as a resultof inferior quality of coal being supplied. Coal India requested that NTPC be advised to writeto the Marketing Department of Coal India explaining in detail the nature of the operatingdifficulties due to faster wear and tear of the boiler components, higher ash loading. increasedincidences of forced outage, etc.

- 27 -

ANNEX B

PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE'

A. STATEMENT/EVALUATION OF OBJECTIVES

1. The main objectives of the National Capital Power Supply Project-Phase I (IBRD Loan 2488-N)were to:

(a) provide additional least-cost thermal capacity in the capital city of India through the additionof 840 MW (comprising four coal-fired 210 MW units);

(b) improve the reliability of transmission and reduce system losses;(c) reduce environmental pollution from power generation;(d) move towards more efficient use of existing assets in the power supply system;(e) identify economic opportunities for improving the quality of coal used in power generation;

and,(f) effect a program of administrative, financial and operational improvements in DESU.

2. As was brought out in the SAR, power development in the Northem Region has been concentratedon coal-fired plants close to the coal fields in the east of Uttar Pradesh and on hydro-electric power plantsin the far north of the Region. Both the areas are remote from the rapidly growing load center of the capitalcity of Delhi. Also, transmission development has not always kept pace with generation. Moreover, evenwhere transmission capacity was adequate because of the acute power shortages in the country, areas withproportionately less generation are unable to maintain reasonable power supplies. Under thecircumstances, the only feasible way to maintain an adequate power supply to Delhi was to build morecapacity in the area.

B. ACHIEVEMENT OF OBJECTIVES

3 . So far as the first and the prime objective is concerned, all the four units (4x2 10 MW) have beensynchronized and have already started supplying much needed power to the capital on a sustained basis.Ninety per cent of the power from the National Capital Power Supply Project has been allocated to Delhiand the power supply position in Delhi has greatly improved in the last couple of years due to NationalCapital Power Supply Project as well as increased and more reliable availability of power from BadarpurThermal Power Station after the renovation and modernization of the plant.

4. The National Capital Thermal Project is thus on its way to achieve the main objectives ofsupplying additional least cost power to the capital through commercial operation of the four 210 MWunits.

5. Through the renovation of electrostatic precipitators (ESPs) at Badarpur and the use of savingsfrom the loan in other air quality improvement programs, the objective of reducing environmental pollutionfrom power generation has also been greatly achieved.

6. The National Capital Power Supply Project has been designed to use beneficiated coal and is oneof the first power projects in India which has recognized the need for improving the quality of coal used inpower generation.

1 Perspective provided by NTPC and endorsed by GOI with their letter dated June I1, 1996.

- 28 -

C. PROJECT DESIGN

7. Right from the inception of NTPC, the achievement of self sufficiency in the design andengineering of large thermal power stations was adopted as an organizational objective. In this respect,NTPC has already acquired adequate experience in the area of design and engineering of 210 MW units atits various operating projects like Singrauli, Korba and Ramagundam, Farakka, etc. This experience wasgainfully utilized by NTPC by way of successful design and engineering of the National Capital ThermalPower Project in-house, with very limited support from consultants in few areas such as the dry ashhandling, transportation, storage and disposal, railway siding and tubewell network systems.

8. The technical specification for various packages and detailed design review of the project weresimilar to those followed in other NTPC stations and were also in line with the general practice followed byother power utilities the world over for construction of such projects.

D. PROJECT IMPLEMENTATION (*)

D.I. General

9. Although there was no delay in the synchronization of the first unit, various circumstances, mostlyeconomic in the domestic as well as international fronts, contributed greatly to the non-performance of thevarious contractors. As has been detailed below, the major delays could be attributed to:

- initial delays in the piling and foundation work resulting in delays in structural steel work.

- delays in supply of critical boilers parts and ash handling system

- policy changes imposing various restrictions on imports

- high rate of inflation and rupee devaluation, etc.

D.II. Reasons For Delay In Synchronization

Unit # Scheduled Actual Delay inSynchronize (+) Synchronize Months

Unit I Mar. '92 Oct. '91 5Unit II Sep. '92 Dec.'92 2Unit III Mar.'93 Mar.'93 0Unit IV Sep.'93 Mar.'94 6(+)Scheduled at the time of award of boilers and turbine generators.

(E) IBRD's Note: NTPC compares the actual dates with the dates set at the time the contracts for the main plant equipment(boilers and turbine generators) were awarded in December 1987.

- 29 -

(i) The delay in synchronization of Units 11 & IV was because of delays in Piling and Foundationwork by NBCC. For Unit 11, there was a delay of eight months in SG foundation and sixteenmonths in TG foundation. NTPC crashed the subsequent activities by way of off-loading partof the work to other agencies and overall delay in the synchronization of Unit 1I was broughtdown to 2 months. By off-loading the works of Units III and IV to other agencies, delay inUnits IV was contained to 6 months, which might have otherwise been more.

(ii) Non-readiness of the Cooling Towers also affected the synchronization program.

D.1II. Reasons For Delay In Commissioning Of Units

(a) Political And Economic Environment. The project had to steer through times wvhen thecountry faced environmental imbalance in the areas of economy and infrastructure causinghigh inflation and imposing serious constraints on the progress of the project.

(b) Increase In Margin Money For Imports. Due to adverse balance of trade paymentprevailing in 1989, Government imposed conditions of 100 per cent Bank Guarantee forfulfillment of export obligation in Ma' 90. To put further restriction on imports, theGovernment prescribed 50 per cent margin for opening of Letter of Credit (LC) in October1990, which was further raised to 110 per cent in March 1991. Further, the Governmentdirected that for anv LC valued at more than Rs. 50 lacs, permission of the Reserve Bank ofIndia's Central Office was mandatory. To arrange such high margins and to obtainpermission of the RBI was very time consuming for most of the contractors.

(c) Rupee Devaluation & Withdrawal Of Cash Compensatory Support. Import restrictionswere further aggravated with the steep devaluation of rupee by almost 26 per cent in twostages in July 1991. Simultaneously, the Government had withdrawn cash compensatorysupport available for World Bank financed contracts with effect from July 1991 whichaffected the performance of contractors.

(d) Effect Of The Gulf War On Project Imports. Most of the major contracts covered under theWorld Bank financing had envisaged large import content for the execution of the contracts.The general economic condition of the country after the Gulf War between the beginning of1990 and the end of 1992 was of great uncertainty coupled with issues related to social andcivil disorder. All these uncertainties affected the timely execution of these contracts to agreat extent.

(e) Disintegration Of The Eastern Block Countries In Europe. Consequent to thedisintegration of the Eastem Block countries in Europe, the Trade Agreement between theGovernment of India and Poland ceased with effect from July, 1991 and this affected theimport of equipment's for ash transportation system.

(f) Decontrol Of Steel. Steel prices in India were decontrolled from March, 1992 and as a resultthere was steep rise in the price of steel which could not have been foreseen when thecontracts were awarded. Since the contracts were covered under the general escalationformula, compensation to contractors for such high price increases was not covered under theframework of the contract and had to be separately discussed and negotiated which causedcertain delays.

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(g) High Inflation. There was unprecedented price increase in this period which can be seenfrom different published economic indices of the Government of India. These uncertaintieshad prevailed up to the end of 1992 till economy could stabilize. These contracts wereawarded mostly during the period 1988 and 1989. Though NTPC had extended all possiblehelp to the contractors delays resulting from such changes could not be arrested.

D.IV Delay In Coal Firing Of Units

Unit # Scheduled Actual Delay inCoal Firing (-) Coal Firing Months

UNIT - I June '92 Aug. '92 2UNIT - II Dec. '92 Dec. '93 12UNIT - III June '93 Oct. '94 16UNIT - IV Dec '93 Mar '95 15

(+) Scheduled at the time of award of boilers and turbine generators.

(a) Ash Handling Spstemn The delay in coal firing is attributable to delay in readiness of the ashhandling system in case of Units I & II, delay in commissioning of fly ash and bottom ash incase of Units III & IV. Inordinate delay in supplies by vendor due to heavy order booking,shortage of pig from coupled with prevailing uncertainties in the economic environmentdelayed the coal firing program.

(b) Coal Handling System. The coal handling system was awarded to M/s. Aling. Delay of fourmonths in site mobilization. delay in supplies of major equipment, organization instability andpoor site managemcnt by the contractor led to delay in readiness of the coal handling system.Even after extcnding help, the vendor could not perform satisfactorily.

(c) Ash Disposal Systemn The Ash Disposal System by M/s. MAMC could not be made ready intime due to delay in design stage as the technical collaboration of M/s. MAMC with M/s.KOPEX, Poland had failed. Further, the vendor could not come out of the financial crisisfaced by them.

(d) Railway Siding Work M/S. Ircon. This package was severely affected due to delayedavailability of land. frequent obstruction by villagers and stay orders taken by them duringconstruction. Against scheduled completion of May 1991, the downstream works could becompleted in September 1993 and upstream in June 1995. Unit I was coal fired in August1992, only by arranging coal through road transportation.

E. OPERATIONAL EXPERIENCE

10. Presently, all the four units are available for generation and during 1995-96, the plant has beenoperating at an availability factor of 76.5 per cent with a Plant Load Factor of 60.8 per cent. Thegeneration from Dadri would have been much higher but for losses due inadequate supply of coal becauseof which it has lost over 750 MU already (almost 20 per cent of total generation). The present coal linkageis not sufficient to run all the four units at a PLF (Plant Load Factor) of 75 per cent. Another factor whichhas contributed to lower generation is the restriction from the grid due to which the plant has lost almost400 MU (over 10 per cent of total generation).

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11. Except for the above two major constraints in generation, the plant does not have any majoroperational problems. Some of the minor operational constraints are with respect to the ash handling,evacuation and transportation systems which have been aggravated by the quality of coal. The Dadripower plant was designed for washed coal from the Piparwar mines. However, the plant has not beenreceiving any washed coal since the coal washery at the mine end is delayed and is likely to be ready onlyby June, 1997.

12. There were some failures of the boiler feed pump shafts but the problem has now been identifiedand rectification is being done by the manufacturers. The paddle feeders in the coal handling plant werefound to be of under-capacity and modifications have been done in three of the four paddle feeders.

F. EVALUATION OF BORROWER'S OWN PERFORMANCE

13. As in other projects of NTPC where it commissioned the projects on schedule and, in many cases,even ahead of schedule, adequate advance planning was done even in case of National Capital PowerSupply Project. Against the SAR schedule of synchronizing the first unit in November, 1991, it wassynchronized five months ahead of schedule. To achieve this objective, NTPC applied its IntegratedProject Management and Control System (IPMCS) in this project.

14. While the use of the project management system and close monitoring did assist NTPC incommissioning its units in other projects either on time or in some cases, even ahead of schedule, in thecase of the National Capital Power Supply Project (Phase 1), even though the proven project managementsystem was adopted and critical contracts were awarded to experienced contractors, who had carried outsimilar jobs on other projects, there were delays in commissioning of the units due to reasons beyond thecontrol of NTPC as discussed above under project implementation.

15. Leaving aside the delays in completion of the project, the performance of NTPC is considered to besatisfactory in meeting the basic objective of ameliorating the power supply in the capital and posting apositive rate of return on investment as outlined in the Bank's appraisal report.

G. EVALUATION OF PERFORMANCE OF THE BANK AND COFINANCIERS

16. National Capital Thermal Power Project was taken up for implementation by NTPC after a seriesof large thermal power project such as Singrauli, Korba, Ramagundam, Farakka, etc. The assistanceextended by the Bank contributed substantially in bringing the project to fruition. The project wassupervised closely and an adequate number of site visits under supervision missions were made. Excellentcooperation existed between the Bank staff and NTPC during the implementation of the project. In factthis relationship continues to grow and to date Bank group has extended financial assistance to NTPC forthe implementation of 15 projects. This includes the assistance provided by the Bank for NTPC PowerGeneration Project under the time-slice concept.

17. Thus it may be seen that after the initial decade of development, the Bank and NTPC havedeveloped an intimate relationship which goes much beyond the substantial financial assistance extended tosupport NTPC's expansion plans.

18. Other than the Bank, financing was also provided by Industrial Bank of Japan. The balance of theproject cost was met from GOI loans and equity contributions as well by NTPOC from its own internalresources.

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H. PLAN FOR THE OPERATIONAL PHASE OF THE PLANT

19. NTPC gives utmost importance to operational performance of its power plants. Severalperformance indicators covering efficiency aspects, leading to high level of generation are used to monitorthe operations of the power stations. The heat rate, specific oil and specific coal consumption (i.e., fuelconsumed per unit generation of electricity), auxiliary power consumption, etc. for efficiency monitoring,and availability factor and plant load factor are used for monitoring the availability aspects. Annual targetsare set station wise and unit wise and performance is monitored with respect to the targets. NTPC has beenperforming at much high level as compared to All India performance of thermnal power sector.

20. Availability of the units and all associated auxiliaries and sub-systems is one of the mainadvantages of National Capital Power Supply Project for ensuring high PLF and low partial loading.However, the station is presently facing shortages in coal supply since the coal linkage is not sufficient torun all the four units even at a PLF of 75 per cent.

21. National Capital Thermal Power Project has been planned to supply 90 percent of the powergenerated to Delhi and the balance to states in the Northern Region. Power generated at the station will betransmitted over transmission lines of DESU and Power Grid associated with the project and theinterconnected transmission networks of the DESU and the State Electricity Boards in the region. It isexpected that the regional transmission systems will operate in an interconnected manner with each statelimiting its drawl to the extent of its allocations from the various central generating stations.

I. ADEQUACY AND ACCURACY OF INFORMATION IN PART 11

22. Part 11 of the ICR prepared by the Bank includes statistical data covering various aspects ofconstruction and operation of the project. The factual information relating to NTPC, contained in thissection is generally based on the Staff Appraisal Reports (SAR) prepared by the Bank for the project,discussions between the Bank and NTPC during various supervision missions and quarterly projectprogress reports submitted by NTPC. The project cost details are based on actual expenditures alreadyincurred and estimates of the expenditure on balance works to be completed.

J. KEY LESSONS LEARNED FROM THE PROJECT

23. The National Capital Power Supply Project is the first project of NTPC which was located faraway from a coal mine keeping the load center of Delhi in mind. The experience so far in operating theplant has been that considering the inadequacies in the infrastructure sectors like the railways and coal inIndia, there is a need for NTPC to examine the possibility of having greater control over movement of coaland the development of captive mining facilities.

24. The contract package list and its procurement procedures need to be reviewed for future projects inorder to facilitate curtailment of avoidable delays in procurement and reduced inter-package interfaceactivities.

25. Renovation and Modernization of Badarpur has been a successful experience for NTPC which canhelp in achieving the national objective or more efficient use of existing assets through R&M of old/under-performing units of the State Electricity Boards.

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26. National Capital Power Supply Project at Dadri houses within the same complex a gas basedcombined cycle power project with a capacity of 817 MW as well as a switchyard for the evacuation of allpower. This has ensured the reliability of generation and flexibility of optimal operation of the units.

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ANNEX CNTPC - FINANCIAL OVERVIEW

1. NTPC at Project Appraisal. NTPC started its commercial operation in February 1982. From1982 to the time of appraisal, NTPC's financial performance had been satisfactory, except for the accountsreceivable, which required many interventions on the part of GOI. NTPC's net earnings in FY87' exceededforecasts and yielded a rate of return (ROR) of 17.2% based on historically valued assets. The equivalentROR on revalued assets, calculated on a proforma basis, was slightly more than 13.4%. Cash generationmeasured as a percentage of average annual capital investment requirements was about 10.7%. NTPC'sdebt-equity ratio at the end of 1986/87 was 34:66: however, its overall bill collection performance had beenvery poor. Large uncollected amounts imposed a serious burden on NTPC's finances. Despite this situation,the overall financial performance of NTPC in FY87, by and large, and its financial position at year end weregenerally satisfactory.

2. NTPC From Loan Approval to Project Completion. Bill collection and accounts receivable havebeen persistent problems for NTPC, because of the poor financial situation of many SEBs. NTPC'saccounts receivable increased at a far greater pace than its revenues and operating income in successiveyears. The receivables, which represented some 5.2 months of billing in FY87, steadily increased to 7.5months in FY91. A covenant specifying the level of accounts receivable not to exceed an amount equivalentto the proceeds of its sales of power for the two preceding months was first introduced for NTPC under Loan2555-IN for the Rihand Power Transmission Project approved in May 1985, with effect from the end ofFY86. The covenant was repeated in four subsequent Bank loans.2 NTPC has had great difficulty incomplying with the covenant.

3. The accounts receivable as of March 1990 were about Rs. 11.5 billion (some US$500 millionequivalent, and represented over six months of current billings). Increasing bill collection and accountsreceivable problems led to several interventions by GOI on behalf of NTPC beginning in June 1990. At eachof these interventions, GOI assumed the responsibility to clear some of the arrears from SEBs by transferringto NTPC corresponding amounts from its central allocations (CA) to the respective states. Such paymentswere carried out over a period of four years. In February 1992, NTPC acquired the Unchahar power stationin lieu of arrears of the Uttar Pradesh SEB. NTPC has received over Rs. 31 billion from the transfers throughthe central appropriations from June 1990 to December 1995. Combined with other bill collection efforts,NTPC was able to reduce its level of accounts receivable despite the rapid increase in sales. At the end ofFY93, the overall level of accounts receivable was 3.3 months of sales equivalent, but excluding the amountstill to be paid through the central appropriations, it was 1.4 months of sales equivalent. During thenegotiations of the NTPC Power Generation Project (Ln.3632-IN), agreement was reached that NTPC wouldmaintain the level of its accounts receivable at two months of sales equivalent excluding the amount still to bepaid through the central appropriations for which a specific payment schedule was also agreed. On June 29,1993, when Ln. 3632-TN was approved, NTPC was in compliance with the covenant as clarified.

4. GOI's interventions through the central appropriations helped NTPC avert financial crises andresolve, for limited periods, its accounts receivable problem. These interventions aimed at having NTPCoperate efficiently, thus keeping the electricity supply in the country at an adequate level.

5. GOI's policies, directed at increasing commercialization and the efficiency of the power system, havehad a substantial impact on NTPC. In October 1992, NTPC adopted new investment and commercialpolicies. They are designed to introduce better commercial discipline at SEBs, along with improving NTPC'sown operational and financial performance, including revenue collection. New two-part bulk supply tariffs

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for NTPC coal fired stations became effective in November 1992. A study for further reforms in bulk powerand transmission tariffs has been completed by consultants to Powergrid (financed by ADB) andrecommendations will be implemented in accordance with a plan agreed with GOI as part of ongoing and newBank operations with Powergrid and NTPC. The process of establishing commercial contracts between theSEBs and the central utilities is cumbersome, but progress is being made with strong Bank support underLoan 3577-TN and the NTPC Power Generation Project.

6. During the first three months of FY94, NTPC's bill collection performance dropped again to about 72%and there was little evidence that NTPC was applying the newly adopted commercial policies by regulating powerto the defaulting SEBs. At the end of various communications between the Bank, GOI and NTPC, it was agreedthat an informal suspension of disbursements would be in effect with the understanding that GOI and NTPC wouldrefrain from submitting withdrawal applications to the Bank after February 28, 1994 until NTPC was incompliance with the receivable covenant.3 Following further remedial actions by GOI and NTPC, the latter was, asof May 31, 1994, able to comply with the covenant, as amended. The informal suspension was lifted on June 3,1994 and GOI began once again to submit disbursement applications. NTPC's accounts receivable is beingmonitored on a monthly basis.

7. NTPC's Financial Status at Project Completion. By the end of FY95, on March 31, 1995, NTPCoperated about 22.5% of India's total installed generating capacity and 31 % of the thermal capacity. As apart of the Bank's ongoing dialogue with GOI and NTPC, a number of policy reforms had been introducedwhich aimed at: (a) improvement of generating efficiency; (b) introduction of commercial policies; (c)entering into undertakings with foreign and local private partners to develop power projects; and (d)introducing two-part bulk tariff, which allowed NTPC to set its tariffs under the fixed cost part in line withthe LRMC and pass fuel price variations to the consumers under the variable part. These measures helpedNTPC to be in a relatively strong financial position at the end of FY95. NTPC's debt- equity ratio was42:58, as compared with most power utilities around the world with debt-equity ratios around 80:20. Atabulation of NTPC's actual financial performance, as compared to the SAR projections made at the time ofappraisal, is given in Table I of this Annex. The returns achieved by NTPC were well in excess of the ratesrequired under the financial covenants. At the end of FY95, NTPC's debt service coverage was 2.14 and itscurrent ratio 2.75, indicating the availability of adequate resources to service its long-term debt and to meetits current obligations. However, NTPC was unable to comply with its accounts receivable covenant forFY95; the overall level of (net) accounts receivable at the end of March 1996 was about 2.5 months, but 2.0months excluding the amounts being disputed by the SEBs.

8. NTPC's operating data, summarized in the table below, reflect the spectacular growth theCorporation has experienced during the last seven years. From FY88 to FY95, electricity sales grew at anaverage annual rate of 22% and the value of average net fixed assets grew at an annual average rate of 26%.The pace of growth, however, is declining. The level of capital investment has been stagnant since FY91(except for an increase in FY92 due to the transfer of Unchahar assets to NTPC). During FY88-95, capitalinvestment grew annually at a rate of 5%, but in real terms the growth rate was negative (-5%). Capitalworks in progress remained flat from FY88-91, but there has been some modest increase since FY92.

I NTPC's Fiscal Year Ending March 31, 19872 Ln. 2674-IN for the Gas Based Combined Cycle Power Project (FY86);

Ln. 2844-IN for the National Capital Power Project (FY87);Ln. 2845-IN for the Talcher Thermal Power Project (FY87); andLn. 3632-IN for the NTPC Power Generation Project (FY93).The other Bank actions until NTPC was in compliance with the agreed receivable covenant were: (i) suspension of India'srights to make withdrawals from the generation component of Ln. 2845-IN (Talcher Thermal Power Project); and, (ii)decision of not to declare Ln. 3632-IN (NTPC Power Generation Project) effective.

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Annex C - Table ITable 1 - NTPC's Operating and Financial Performance, FY88-95

HOW TO ADD FY95Comparison of Actual Data and National Capital Power Project SAR Forecasts

Fiscal Year Ending March 31 1988 1989 1990 1991 1992 1993 1994 1995

DESCRIPTION SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR ActualForecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast

NetFixedAssetsinOperation(Rs 47782 28439 97413 41716 112477 65417 134906 85546 152532 120344 166494 105839 197501 112120 245576 124598Million)Capital Works in Progress (Rs 64890 52187 44697 57062 57243 52360 61160 56039 76302 70080 95564 68870 103366 80798 91142 78867Million)

Installed Capacity (MW) - 3600 - 5220 - 9813 - 10125 - 11333 -- 13054 - 14529 - 15625Electricity Generation (GWh) 16395 17533 27723 24875 39907 38595 50566 43965 59489 61197 66231 65418 71318 75861 78837 76470Average Bulk Tariff(P/kWh) 57 41 61 46 64 52 68 53 74 61 78 73 83 84 88 89(Generation)

NetProfitaflerTax&Provision(Rs 2373 3024 4613 3308 7635 5366 11340 7009 14571 10171 16778 8866 19364 10580 23211 11246Million)

AverageNetFixedAssets (Historic) 35902 23856 72598 35078 104945 53567 123692 75482 143719 102945 159513 99406 181998 108980 221539 118359RateofRetumron H istoricAssets(%/o) 116 16.4 11.6 14.8 13.0 15.0 15.4 12.8 16.7 15.3 17.6 13.7 17.7 16.5 17.1 15.47RetumnonCapitalEmployed/(%) 9.1 11.5 6.2 10.6 6.2 10.6 7.2 10.6 10.4 9.7 11.7 11.9 13.0 9.7 13.6 11.8Operating Ratio (%) 55.2 54.7 49.6 59.3 46.5 61.1 45.1 60.2 45.5 60.4 45.6 70.3 45.3 69.8 45.5 71.8

Debt:Equity Ratio 41/59 43/57 41/59 47/53 44/56 47/53 44/56 43/57 41/59 48/52 41/59 47/53 40/60 45/55 42/58 42/58Current Ratio 0.9 1.68 1.5 1.81 2.0 1.79 2.5 1.90 2.0 1.54 1.9 2.47 1.8 2.57 3.2 2.24Accounts Receivable (# ofdays) 61 177 61 175 61 210 61 233 61 154 61 168 61 138 61 127

ContrtoConstruction(Annual)0 o 7.9% 39.8% 14.8% -1.8% 28.5% 18.8% 43.0% 17.0% 49.3% 31.3% 51.6% 16.2% 49.6% 46.5% 58.6% 48.5%Contrto Construction (3 year 9.0% 38.6%/o 7.3% -1.8% 9.8% 17.5% 25.9% 14.2% 41.3% 45.7% 40.4% 12.2% 49.2% 47.6% 53.3% 47.6%Average) %DebtServiceCoverage 2.8 3.9 2.6 2.4 2.7 2.5 2.90 2.5 2.9 2.4 2.60 2.1 2.4 2.0 2.5 2.1

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ANNEX D

SUPPLY OF COAL AND ECONOMIC OPPORTUNITIES FOR IMPROVINGTHE QUALITY OF COAL

1. The coal linkage committee of GOI that oversees allocation of coal to various power plants in Indiadecided that the Dadri TPP would be supplied from the Piparwar block of the North Karanpura Coalfieldsin the Ranchi District of the State of Bihar. However, the coal currently received is from a basket group ofcoal mines near Piparwar, having properties significantly different from the quality of coal for which theplant was designed. This somewhat affects the performance of the plant.

2. However, this is not a problem limited to Dadri TPP. A continuing problem vitiating theperformance of thermal power plants in India is the timely supply of coal of appropriate quality used forpower generation. The power sector suffers from the deteriorating quality of coal due mainly to theexhaustion of better grades and of the heavy burden put on the railways by the transport of large quantitiesof coal. Greater selectivity of mining, improvement in coal handling and possibly, beneficiation, couldeconomically improve coal quality and decrease the quantities to be transported. The poor quality of coalnot only increases transportation costs, owing to the volume that needs to be transported, but also results inhigher capital costs for the power stations as well as increased rates of wear and tear of the plantcomponents as well as erosion of their useful life.

3. It is therefore, imperative to seek opportunities to improve the quality of coal used in powergeneration. Preliminary studies by the Central Mining Planning & Design Institute indicated that there wasa case for beneficiation of coal at the mine from which the proposed Dadri TPP project would be supplied.To complement these studies and help confirm whether beneficiation would be economic in this case, theproject included a detailed study of the benefits to be derived from improvements in the quality andconsistency of coal for power generation. This study confirmed that coal beneficiation was a viableeconomic proposition that would significantly reduce transportation costs, as well as wear and tear of thepower plant equipment in addition to reducing environmental pollution associated with the burning of coal.Consequently, the construction of a coal washing facility has been undertaken by Coal India (outside theproject). It is expected that it will be operational around June 1997.

4. However, Coal India and NTPC have not so far signed a long-term contract about the supply ofwashed coal to NTPC on a commercial basis. Unless a commercial agreement is signed, Coal India willnot deliver washed coal to Dadri TPP. This matter needs to be settled as soon as possible.

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ANNEX E

MITIGATION OF ENVIRONMENTAL POLLUTION IN DADRI TPP

The measures implemented in the Dadri TPP for the mitigation of environmental pollution to meetGOI/Bank regulations consisted of the following:

* Emission: 225-meter high stacks were constructed to limit ground level concentrations of SOxand NOx to within allowable limits. In addition, space has been provided for thefuture installation of a flue gas desulfurization plant, should it be necessary, when thepower plant is expanded to its ultimate generating capacity of 1,800 MW;

* Liquid Wastes: The plant utilizes a closed circuit cooling water system, with the help of coolingtowers. Liquid discharges from the plant, specifically from the demineralizer plant, aswell as from boiler blowdown, cooling tower blowdown and boiler cleaning wastes,are treated and neutralized. The neutralized effluent, along with coal storage arearunoff, is directed to a sedimentation basin. The overflow from the basin is dischargedinto the main plant drain;

* Solid Wastes: Electrostatic precipitators, with collection efficiencies over 99%, limit particulateemission from flue gases to comply with emission standards. Fugitive coal dust iscontrolled by spraying water over the coal pile. Ash disposal area is also sprayed withwater and bitumen emulsion to control fugitive dust in that area. The ultimate plancalls for compacting the ash mounds, covering them with fertile soil and seeding.

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ANNEX F

DADRI TPP - RETROFIT SOCIO-ECONOMIC SURVEYSummary of Actions

Retrofit socio-economic survey was carried out in 1994-1995 by a Professor of Economics withIIT Kanpur. The major actions identified in the studv were:

1. Village Communitv Development Work:a. Primarv Schoolb. Dispensary on Cluster of Villagesc. Panchavat Ghard. Drainagec. Approach Roadf. Village Electrificationg. School of Girls on Cluster of Villagesh. Industrial Training Institute1. ITraining

11. Income Generation Schemes:a. Dairyb. PoultryC. Handicraftsd. Shopse. Improved Agriculture

111. Jobs:a. With NTPCb. With ContractorsC. Award of Petty Contracts

NTPC has initiated actions on the following points suggested in the above survey:

Primary Schools - 2 Primary schools constructed in Gulawathi and Salarpur Village. Primaryschool proposed for Patadi and Muthivani.

Drains - Drains have been constructed in various villages.

Roads - Work on Sidipur. Pali. Kailashpur. Shyoraj Pur, Khodna Kalan, and Roopbas roadscompleted.

Brick Paving lanes were built inside the villages for various villages.

Village Electrification - Extension of village electrification to Khangora village, Shyoraj Pur,Rasoolpur and Solarpur Kalan. Electrification of Sidipur and Muthiyani done by UP Government.

School for Girls: One school constructed for Uncha Amipur, Rasoolpur, Sidipur, Tatarpur andChouna Village governments were approached to make teaching arrangements.

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Training: First batch comprising of 20 trainees has completed computer training. Also, training intyping and shorthand has been imparted to 28 candidates and training in motor driving to 73candidates.

Income Generation Schemes: Various schemes under discussion with PAFs:

Shops - 16 shops allotted to PAFs in Township area.Handicrafts - 3 sewing centres proposed for 3 villages.

Jobs - With NTPC: 181 Nos.- With contractors 250 Nos.- Award of petty contracts: 10 Nos.- Vehicle on hire: 22 Nos.

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ANNEX G

DADRI AND BADARPUR TPPs - ALLOCATION ANDSALES OF ENERGY GENERATED

Power Allocated from the Dadri TPP and Drawn in FY95-96

Region/SEB NCTPPShare (GWh) Actual Drawn (GWh)

UPSEB 403.0 152.9RSEB 0.0 548.6DESU 3627.2 2541.0PSEB 0.0 49.5HSEB 0.0 669.5HPSEB 0.0 33.9J&K 0.0 29.5U.T.C 0.0 2.1WR 0.0 0.3POWERGRJD 0.0 2.8TOTAL 4030.2 4030.2

Power Sold from Badarpur TPP to DESU

FY GWh93-94 3991.97294-95 4648.69595-96 3646.066

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ANNEX H

COMMENTS BY COAL INDIA LIMITED (CIL)ON THE SUPPLY OF COAL TO THE DADRI AND

BADARPUR TPPs

Excerpt from CIL's Letter dated September 5, 1996

Our comments on the various issues raised in the said ICR are given below:

I. Availability of Coal:

The coal linkage vis-a-vis quantity supplied to Dadri and Badarpur Thermal Powerduring the last 5 years is as given below:

Ouantitv in million tonnes

Power House 1991-92 1992-93 1993-94 1994-95 1995-96Dadri: Linkage 0.018 0.48 1.38 2.13 3.12

Despatch 0.027 0.43 1.37 1.63 2.96Badarpur: Linkage 3.84 3.96 3.75 3.84 3.48

Despatch 3.29 3.79 4.36 4.41 3.07

From the above, it can be seen that CIL has more or less fulfilled its commitment in spiteof the poor payment position by the above two power houses.

However, it may also be mentioned that despatch to these plants have also been, at times,affected due to constraints from Railway side. In "pit-head" power plants -- where no thirdagency is involved -- supply has mostly been more than the linkage.

II. Payment for supply of coal to Dadri and Badarpur Thermal Power Station:

As of July 31, 1996, payment to the tune of Rs. 162.40 crores is due from NTPC andRs.349.29 crores is due from Badarpur Power plant. Unless the payments are received in timecoal companies cannot make any commitment for assured supply of coal.

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III. Supply of Washed Coal to Dadri Power Plant:

A coal washery with a throughput capacity of 6.5 MTY is under construction at Piparwar.The salient features of the washery are given below:

a) Raw coal input 6.5 MTYb) Clean coal production 5.25 MTYc) Ash % of clean coal 34 + 2d) Yield 87.7%e) Top size clean coal 100 mm

The commissioning of the washery will ensure consistency in both ash and size, withrespect to coal supplies to Dadri Power plant. However, inspite of its initial positive response,NTPC is yet to sign an agreement with Coal India for supply of washed coal.

In case NTPC is not interested in washed coal from Piparwar, Coal India will have to lookfor other customers interested in using washed coal.