World Bank Document National Thermal Power Corporation POWERGRID Power Grid Corporation of India ... A recent audit of five NTPC projects (OED Report No. 10854) postponed

Document of

The World Bank

FOR OMCLAL USE ONLY

Report No. 12640

PROJECT COMPLETION REPORT

INDIA

RIHAND POWER TRANSMISSION PROJECT(LOAN 2555-IN)

DECEMBER 29, 1993

Energy Operations DivisionCountry Department II (India)South Asia Regional Office

This document has a restricted distribution and may be used by recipients only in the performance 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. 1 = Paise 100

Rupee (Rs.)/US$ Exchange Rates and CPI (Yearly Averages)

Consumer Price Index

Fiscal Year Rupees/US$ FY80/81=100

FY83 (Project

appraisal &

approval) 10.10 /a

FY84 11.36

FY85 12.37 133.3

FY86 12.61 141.2

FY87 12.96 148.0

FY88 13.92 163.2

FY89 16.23 176.3

FY90 17.50 190.6

FY91 22.74 216.3

FY92 26.20 237.0 (estimate)

/a Conversions in the Staff Appraisal Report

were made at Rs 9.5/US$.

Government of India and

National Thermal Power Corporation

Fiscal Year: April 1 - March 31

Measures and Ecquivalents

1 Ton (t) = 1 metric ton=1,000 kg.=2,200 lbs.

1 Kilovolt (kV) = 1,000 volts (V)

1 Kilovolt ampere (kVA) = 1,000 volt-amperes (VA)

1 Kilowatt-hour (kVh) = 1,000 watt-hours

1 Megawatt-hour (MWh) = 1,000 kilowatt-hours

1 Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours

Abbreviations and Acronyms

CEA Central Electricity Authority

DESU Delhi Electric Supply Undertaking

GOI Government of India

IBRD International Bank for Reconstruction & Development

IDA International Development Association

MOU Memoranda of Understanding

NHPC National Hydroelectric Power Corporation

NPTC National Power Transmission Corporation

NTPC National Thermal Power Corporation

POWERGRID Power Grid Corporation of India

ROR Rate of Return

SEBs State Electricity Boards

FOR OFFICIAL USE ONLYTHE WORLD BANK

Washington, D.C. 20433U.S.A

Office of Director-GeneralOperations Evaluation

December 29, 1993

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on IndiaRihand Power Transmission Prolect (Loan 2555-IN)

Attached is the "Project Completion Report on India - Rihand PowerTransmission Project (Loan 2555-IN)" prepared by the South Asia Region. Part IIwas prepared by the Borrower.

The US$250.0 million loan increased the transmission grid between theNational Thermal Power Company (NTPC) and the regional power companies.Disbursements reached US$185.9 million and the balance was canceled after threeextensions. In 1991 a power transmission company took over the fixed assetscreated under the project.

After revision in scope, all project components were implementedalbeit with substantial delays. The re-estimated economic rate of return was 111(not directly comparable with the initial figure because of the change in scope).The project generated additional benefits (i.e., transfer of technology,industrial production of high-voltage equipments, streamlining of procurementprocedures, spin off of transmission activities to a new company). NTPCmaintained its good financial health in spite of persistent problems in billcollection from the State Electricity Boards.

The PCR gives a thorough account of project preparation andimplementation which was mostly uneventful except for the initial delays.Overall, the project is rated as satisfactory, its sustainability as likely, andits institutional impact as substantial.

A recent audit of five NTPC projects (OED Report No. 10854) postponedthe need to audit this project.

This document has a restricted distribution and may be used by recipients only in the performance of|their official duties. Its contents may not otherwise be disclosed without World Bank authorization.1

FOR OMCIAL USE ONLY


INDIA

RIHAND POWER TRANSMISSION PROJECT

(LOAN 2555-IN)

Table of Contents

Page No.

REFACE .......................................................

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

PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE .1

Project Identity .1

Project Background .1

Project Objectives and Description. 3

Project Design and Organization. 4

Project Implementation. 5

Environment, Resettlement and Rehabilitation 9

Physical Results. 9

NTPC's Financial Performance .10

Compliance with Loan Covenants .14

Sustainability and Internal Economic

Rate of Return .14

Bank Performance .14

Borrower Performance .15

Performance of Consultants and Contractors 16

Project Relationship .16

Project Documentation and Data .16

PART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ... ....... 17

PART III STATISTICAL SUMMARY ................................. 21

ANNEXES

1 Project Description .30

2 Project Revision .32

3 Availability of Transmission Lines .33

4 Maximum Power Flow on Lines .34

5.1 Income Statement ...................................... 35

5.2 Sources and Application of Funds ...................... 36

5.3 Balance Sheet ......................................... 37

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


INDIARIHAND POWER TRANSMISSION PROJECT

(LOAN 2555-IN)

Preface

This is the Project Completion Report (PCR) for the Rihand PowerTransmission Project, for which Loan 2555-IN in the amount of US$250.0 millionwas approved on May 28, 1985. The loan was made to India, acting by its

President, for on-lending to the National Thermal Power Corporation (NTPC).

The original loan closing date of December 31, 1989, was extended three times

and the loan was closed on December 31, 1992. On December 5, 1991, an amountof US$48 million of savings was cancelled from the loan account. The loan wasclosed on December 31, 1992; disbursements were completed on May 12, 1993. OnJuly 15, 1993, US$7,279,424.78 (the balance in the Special Account) wererefunded by the Government of India (GOI). Then US$16,090,946.84 remainingundisbursed in the loan account were cancelled effective July 15, 1993. Thus

disbursements under the Loan were US$185,909,053.16.

On August 16, 1991, the management of the project (operation andmaintenance of the assets in service and implementation of those still underconstruction) was transferred from NTPC to the National Power TransmissionCorporation (NPTC), the newly established utility responsible for transmissionand grid operations, under a Management Contract signed between the twoCorporations. NPTC was later named Power Grid Corporation of India Ltd.(POWERGRID). On January 8, 1993, an Ordinance providing for all the rights,titles and other interests related to the transmission systems of NTPC and two

other centrally-owned utilities , to be transferred to POWERGRID, witheffect from April 1, 1992, was promulgated by the President of India. At thetime of preparation of this PCR, the Bank was in the process of finalizing themodifications on the Development Credit, Loan and Project Agreements toformalize the transfer of the Bank loans and IDA credits from NTPC and NHPC toPOWERGRID retroactively with effect from April 1, 1992. With regard to Loan2555-IN, assets and liabilities for about US$6.2 million remained with NTPCand assets and liabilities for about US$179.7 million have been transferred toPOWERGRID. The amounts will be finalized after accounts between NTPC andPOWERGRID are settled.

The PCR was prepared by the Energy Operations Division of theCountry Department II (India) of the South Asia Regional Office, and by NTPCand POWERGRID. The former prepared the Preface, Evaluation Summary and PartsI and III of the PCR, while the implementing agencies prepared Part II.

Preparation of Parts I and III of the PCR was based on informationin the Staff Appraisal Report, the Loan and Project Agreements, and materialon the project in Bank files and that provided by NTPC and POWERGRID. Thepreparation was also based on discussions with some of the Bank staff who wereinvolved with the project and the officials of the Government of India (GOI),NTPC, POWERGRID and the project beneficiaries (i.e., State Electricity Boards)during a PCR mission to India in February 1993.

1/ National Hydroelectric Power Corporation (NHPC) and North-Eastern

Electric Power Corporation (NEEPCO).

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INDIA


(LOAN 2555-IN)

Evaluation Summary

Obiectives

The objectives of the project were: (a) to meet the electricitydemand in the Northern Region by providing the transmission linkage betweenthe thermal power generation plants in the Singrauli-Rihand complex in thesouth east of the region and the main load centers of the western parts of theregion; and (b) to ensure the evacuation of power from these plants at leastcost to the economy. The project was also to serve as a vehicle for theintroduction of a new technology (long distance HVDC links) needed for theexpansion and reinforcement of EHV transmission grid. As in the previousBank-financed projects with NTPC, another objective was to improve, in thelong run, the operational, institutional and financial performance of theState Electricity Boards (SEBs), by assisting in the development of afinancially sound, and technically and institutionally competent centrally-owned power utility which would serve as a model to SEBs (Part I, para. 3.1).

Implementation Experience

NTPC (and since August 1991, POWERGRID) successfully implementedthe project, albeit with substantial delays. Implementation of the HVDCcomponents took over a year and half longer than that envisaged because ofdelays in obtaining environmental clearance for a section of the transmissionline which had to pass through a forest and fire damage (and subsequentreplacement of damaged parts) to HVDC terminal at Rihand during the testing ofthe terminal. Implementation of the 400 kV transmission lines and substationswas completed generally some nine months later than envisaged because ofproject revision, slow mobilization of one of the contractors, and long timetaken to evaluate the bids. Construction of the transmission line extensionfrom Panipat to Malerkotla and the associated substation (which weresubsequently added to the project) were completed in July 1992. At appraisal,all the project components were scheduled to be commissioned by December 1988.At the time the Bank closed the loan on December 31, 1992, the project was notcompleted. Supplies and works amounting to US$7.6 million remained - theseexpenditures are being funded under Loan 3577-IN (Part I, paras. 5.2, 5.3 and5.10).

Results

Overall, the project achieved its objectives. The project hasbeen a major component in the establishment of centrally owned regional gridsand intra-regional connections. The power transmission capacity from theSingrauli-Rihand-Vindhyachal complex to the western parts of the Northern

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Region has been increased in a manner which helps optimal utilization of theinstalled thermal capacity in the said coal-fired power plants complex, bytransmitting over a very long distance large amounts of power with minimumtransmission losses. The project also helped NTPC (since August 1991,POWERGRID) to get acquainted with the HVDC technology (Part I, para. 7.1).

The project contributed in making NTPC an efficient utility butfailed in its sectoral objective in inducing improvements in the operational,institutional and financial performance of SEBs (Part I, para. 7.1).

NTPC's financial rate of return on historically valued net fixedassets declined from a high 171 in FY86 and FY87 to 15% in FY92 against thecovenanted rate of return of 9.5%. The IERR for the project as implementedwas estimated at 8.2% (Part I, paras. 8.1 and 10.2).

Sustainability

The project is sustainable, even though at present its maincomponent (i.e., the Rihand-Delhi Area HVDC link) is not yet being fullyutilized. Sustainability will be assured with the strengthening of thetransmission ring around metropolitan Delhi and growth in power demand. It iscertainly assured for the future, as the facilities built under the projectare integral components of POWERGRID'S system development program (Part I,para. 10.1).

However, insufficient generation and transmission tariffs and anunchecked increase of NTPC's and POWERGRID's accounts receivable couldendanger such sustainability. The Bank, GOI, NTPC and POWERGRID have beentaking actions to avoid such occurrence (paras. 8.1 - 8.7).

Findings and Lessons Learned

Major findings are as follows:

a) The project was not completely finalized when the Bank approvedit. This fact is clearly demonstrated by the subsequent revisionof the description (Part I, paras. 5.1 and 5.2);

b) The project contributed to the enhancement of NTPC's (laterPOWERGRID's) expertise in the area of high voltage transmission,created employment of local labor and helped to the development oflocal manufacturing industry (Part I, paras. 5.5 and 5.6);

c) The average time taken from bid opening to the award of thecontract (including Bank acceptance of the proposed award) wasabout ten months, in some cases over a year. In an effort tospeed up procurement, standard bidding documents will in future beused by NTPC and POWERGRID. They would also give further emphasisto finishing promptly the payments for the contracts, so that theclosing dates of new loan(s) would not need to be extended (PartI, para. 5.7);

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d) In addition to the conventional financial rate of return (ROR) onaverage historic fixed assets in operation, a covenant aboutNTPC's accounts receivable was introduced for the first time underthe project. This covenant immediately focussed on NTPC'sprincipal difficulties and poor bill collection was the only areawhere NTPC's performance fell considerably short of expectations(Part I, paras. 8.2, 8.6 and 12.2);

e) GOI interventions through the central appropriations helped NTPCresolve, albeit for limited periods, its accounts receivableproblem. These interventions aimed at having NTPC operateefficiently, thus keep the electric energy supply in the countryat an adequate level. It is doubtful that GOI's actions have ledto SEBs improving their operational efficiency and their billingand collection procedures and practices. What is equallyimportant, but so far received little attention, is the need forenergy conservation on the customer (SEBs) side through adoptionof appropriate tariffs and tariff structure at SEBs and throughend-use efficiencies (Part I, para. 8.4);

f) Another appropriate covenant would have been a cash generationcovenant, e.g. "contribution towards investment" which would havealso highlighted the deterioration in NTPC's performance (Part I,para. 8.6); and

g) Bank's position (only partially shared by GOI) is that electricityindustry provides a service which has to be fully paid throughuser-charges. The perception of the State Governments and SEBs,perhaps for political reasons, is that provision of electricity ispartly a social service. The transfer of funds to NTPC throughcentral appropriations is but another subsidy (whether it comesfrom GOI or from SEB), and not a direct payment through tariffs(Part I, para. 12.4).

Major lessons learned from this project are summarized below:

a) As a precondition for further Bank loans, more emphasis should begiven to improving the commercial arrangements between NTPC andits clients. However, this has proved to be difficult to achievein practice unless the financial performance of the SEBs isimproved (Part I, para. 12.4);

b) To enable NTPC to operate on a purely commercial basis, GOI shouldallow NTPC to sell to other customers the allocated shares of theSEBs which do not comply with their agreements with NTPC. Incases where technical reallocation (by limiting availability ofpower to a particular SEB) cannot be implemented, commercialreallocation can be done. This can be done by limitingallocations to a defaulting SEB and charging a stiff penalty fordrawals exceeding the reduced allocation (Part I, para. 12.2); and

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c) As a result of the changes in the overall economic policyenvironment within which NTPC is operating, its financial policiesneed orientation. Under the circumstances, it would beappropriate to change the existing rate of return covenant into aself financing ratio covenant, because it would not only provide abetter monitoring mechanism for NTPC's financial performance, butalso provide better support to NTPC towards meeting itsdevelopment challenges (Part I, para. 8.6).

The lessons drawn from this and previous projects implemented byNTPC have been used in the preparation, appraisal and negotiations of the NTPCPower Generation Project, which was approved on June 29, 1993:

a) GOI has adopted new investment and commercial policies andelectricity tariffs allowing NTPC to shut-off or restrict powersupply if its clients are in default with their bulk supplyagreements. These policies are designed to introduce bettercommercial discipline at SEBs, along with improving NTPC's ownoperational and financial performance, including improving revenuecollection (para. 12.3);

b) NTPC has agreed with the Bank on an internal cash generationcovenant (para. 8.6);

c) GOI established POWERGRID to: (i) improve the efficiency in powertransmission and systems operations, through an extensiverestructuring of the transmission sector; and (ii) complement itspolicy initiatives to encourage private generation and competitionin power generation (para. 2.6); and

d) The Bank and NTPC agreed on standard bidding documents whose usewould curtail the procurement period (para. 5.7).

The last two points were also taken into account under Loan 3577-IN for the POWERGRID System Development Project.


INDIA


PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Proiect Identity

Name Rihand Power TransmissionLoan No Loan 2555-INRVP Unit South Asia RegionCountry IndiaSector EnergySub-sector Power

2. Pro-ect Background

2.1 In India, the responsibility for electricity supply is sharedconstitutionally between the Government of India (GOI) and the states. Inaddition, India is one of the few developing countries with a vibrant, ifsmall, private sector presence in public power supply. At independence,private utilities and licensed local authorities, located in urban areas,provided about 80% of public electricity supply. GOI opted to embark on anambitious electrification program to support the development of power-intensive industries for a rapid industrial development and expansion ofirrigation. The Electricity (Supply) Act of 1948 (the Act) created the stateelectricity boards (SEBs) and entrusted the state governments and the boardswith primary responsibility for public power supply. The coordination ofSEBs' activities within the national power development policy, and theformulation of longer-term plans for power development is the responsibilityof Central Electricity Authority (CEA), established in 1950.

2.2 Between 1960 and 1980, power demand grew twice as fast as theeconomy, and the generating capacity increased almost five-fold from about5,600 MW to about 32,000 MW. Yet, for the entire period the country facedpower shortages, frequent power interruptions, wide variations in systemfrequency, and large drops in voltage at the consumer level because SEBs couldnot fulfill their responsibilities. Though set up as autonomous bodies, SEBshave been under the stringent control of their state governments in vitalmatters such as changes to tariffs and tariff structure, with the result thatthey have not developed commercial and financial disciplines, and theirfinancial performance generally has been poor, to the extent of depending onthe state governments for operational subsidies.

2.3 In mid-1970s, GOI reoriented its strategy in order to supplementefforts of SEBs in increasing installed capacity and establishing high voltagetransmission networks. Emphasis was put on: (a) accelerating the developmentof the hydro power potential and large coal-fired power plants both at pitheadand in the proximity of load centers; (b) improving the efficiency of thermalpower plants and reducing losses in the transmission and distributionnetworks; (c) expanding the rural electrification program; and (d)strengthening the organizational and management capabilities of the SEBs.

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2.4 GOI established in 1975 two power generating companies, theNational Thermal Power Corporation (NTPC), and the National HydroelectricPower Corporation (NHPC) to construct and operate large thermal and hydropower stations and associated transmission systems. The rapid increase ingeneration necessitated to expand the transmission networks and also toincrease the voltage level to handle the transfer of large blocks of powerfrom generating stations to load centers. Simultaneously, for the first timein India a need was felt for power planning and development on a regionalbasis to ensure the optimum utilization of natural resources which are ratherunevenly distributed over the country and also for enhancing the reliabilityand security of the power transmission systems. The country was divided intofive contiguous regions (Northern, North Eastern, Eastern, Western andSouthern) with a view to build regional integrated grids. RegionalElectricity Boards (REB) were established to integrate the operations of eachgrid through regional load dispatch centers and to improve collaboration amongthe SEBs.

2.5 By the time the Rihand Power Transmission Project was approved inMay 1985, IDA/Bank had financed 11 operations implemented by NTPC. Ten werefor the construction of an aggregate of 7,800 MW of pithead coal-fired thermalpower plant (TPP) capacity in four sites (Singrauli, Korba, Ramagundam andFarakka) and associated transmission lines to evacuate the power generated atthese power stations into the networks owned and operated by SEBs. Theeleventh project was the Central Power Transmission project (Loan 2283-IN;FY83) whose primary objective was to support GOI's strategy to extend andimprove power supply through the establishment of centrally owned regionalgrids and intra-regional connections leading to the promotion of a nationalgrid. The project was the 38th Bank/IDA operation in the sector, and 12thoperation with NTPC. As in the previous NTPC projects, India, acting by itsPresident, was the borrower and NTPC the implementing agency. The project wasdeveloped from studies conducted by CEA and NTPC with assistance by HydroQuebec International, consultants from Canada.

2.6 In 1989, GOI established the National Power TransmissionCorporation Ltd. (NPTC), to improve the efficiency in power transmission andsystems operations, through an extensive restructuring of the transmissionsector, and complement its policy initiatives to encourage private generationand competition in power generation. On August 16, 1991, the management ofthe transmission assets (operation and maintenance of the assets in serviceand implementation of those still under construction) of NTPC, including theProject, was transferred to NPTC, under a Management Contract signed betweenthe two Corporations. Subsequently, two other GOI-owned utilities (NHPC andthe North-Eastern Electric Power Corporation - NEEPCO) which had transmissionlines and substations in operation or under construction, signed similarmanagement contracts with NPTC. NPTC was later named Power Grid Corporationof India Ltd. (POWERGRID). On January 8, 1993, an Ordinance providing for allthe rights, titles and other interests related to the transmission systems ofNTPC, NHPC and NEEPCO, to be transferred to POWERGRID, with effect from April1, 1992, was promulgated by the President of India. The Bank supports theestablishment and development of POWERGRID under the US$350 million Loan No.3577-IN for the POWERGRID System Development Project, approved on March 23,1993. At the time of preparation of this PCR, the Bank was working on thefinalizing of the modifications on the Development Credit, Loan and ProjectAgreements to formalize the transfer of the Bank loans and IDA credits fromNTPC and NHPC to POWERGRID, retroactively with effect from April 1, 1992.With regard to Loan 2555-IN, assets and liabilities for about US$6.2 millionremained with NTPC and assets and liabilities for about US$179.7 million have

been transferred to POWERGRID. The amounts will be finalized after accountsbetween NTPC and POWERGRID are settled.

3. Project Objectives and Description

3.1 Project Obiectives. The objectives of the project were: (a) tomeet the electricity demand in the Northern Region by providing thetransmission linkage between the thermal power generation plants in theSingrauli-Rihand complex in the south east of the region and the main loadcenters of the western parts of the region; and (b) to ensure the evacuationof power from these plants at least cost to the economy. The project was alsoto serve as a vehicle for the introduction of a new technology (long distanceHVDC links) needed for the expansion and reinforcement of EHV transmissiongrid. As in the previous Bank-financed projects with NTPC, another objectivewas to improve, in the long run, the operational, institutional and financialperformance of the State Electricity Boards (SEBs), by assisting in thedevelopment of a financially sound, and technically and institutionallycompetent centrally-owned power utility which would serve as a model to SEBs.

3.2 Original Project Description. The project, as approved by theBoard on May 28, 1985, is detailed in Annex 1 and comprised:

(a) installation of a 500 kV HVDC bi-polar transmission line of about910 km, connecting Rihand and Karawalnagar near Delhi, associatedAC/DC converting stations for an initial capacity of 1,000 MW, andrelated auxiliary equipment at Rihand and Delhi;

(b) construction of about 1,350 km of 400 kV single circuit (s/c) and87 km of 400 kV double circuit (d/c) AC lines (total 1,437 km)connecting Rihand and Singrauli power stations with Kanpur, Delhi,Panipat and Jaipur;

(c) construction of three new and extension of four existingsubstations with their auxiliaries; and

(d) technical assistance for engineering, testing and commissioning ofthe project.

The project cost was estimated at about Rs 6.9 billion (about US$579 millionequivalent) with the Loan providing $250 million (Table 1 for details onestimated and actual costs). It was assumed that GOI would secure co-financing of about US$135 million equivalent for equipment for HVDC terminals.

3.3 Revised Project Description. After the appraisal of the project,NTPC found necessary to introduce three modifications to the projectdescription: (i) changes of grid configuration around the Delhi area caused byenvironmental constraints - the most important was the relocation of the HVDCterminal from Karawalnagar to Dadri, resulting in a shorter line; (ii)redesign of the HVDC line to take into account longer-term capacity demandgrowth and higher efficiency; and (iii) an extension by about 250 km of the400 kV Delhi Area-Panipat line from Panipat to Malerkotla in Punjab to meetNTPC's contractual obligations with the Punjab State Electricity Board. Thefirst two changes were a consequence of a change in location of the 4x210 MWcoal-fired National Capital Thermal Power Project of NTPC from Muradnagar toDadri, and of detailed design of the transmission system. The project, as

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modified, was found by the Bank to remain consistent with the Bank's strategyin the power sector which had been encouraging integrated planning andcoordinated operation of the country's electricity systems to satisfy longterm demand projections and regional demand patterns in a context of maximumsystem reliability and minimum cost. The Bank agreed on the new scheme onJune 5, 1987. The revised project was then expected to be completed by June30, 1991. Its description is detailed in Annex 2 and summarized as follows:

(a) installation of a 1,500 MW capacity 500 kV HVDC bi-polartransmission line of about 814 km", connecting Rihand and Dadri(near Delhi), and associated AC/DC converting stations and relatedauxiliary equipment at Rihand and Dadri;

(b) construction of about 1,509 km of 400 kV single circuit (s/c) and185 km of 400 kV double circuit (d/c) AC lines (total 1,711 km)connecting Rihand and Singrauli power stations with Kanpur, Delhi,Panipat, Malerkotla and Jaipur;

(c) construction of five new and extension of one existing substationswith their auxiliaries; and

(d) technical assistance for engineering, testing and commissioning ofthe project (this component was not modified).

The total cost of the project was estimated to be increased. Thenew project description was still within the overall objectives of the projectas originally approved by the Board. Thus the Management considered that theapproval of the Board for the said changes was not necessary.

4. Pro-ect Desicrn and Organization

4.1 Proiect Desiqn. The project was the second Bank operation withNTPC solely to strengthen the transmission systemn. NTPC had alreadyacquired adequate experience in the area of 400 kV transmission line andsubstation design and engineering during the construction of the transmissionlines and substations associated with the Singrauli, Korba, Ramagundam andFarakka power plant projects<. The basic and detailed engineering work forthe 400 kV lines and substations was thus carried out by NTPC in-house. Asthe long distance HVDC link technology was new to India and NTPC2, the

2/ originally the length of the HVDC line from Rihand to Karawalnagar inthe Delhi area was 910 km.

3/ The first such transmission project was the Central Power TransmissionProject (Ln. 2283-IN) approved on May 19, 1983.

4/ All these coal-fired power plant projects were partly funded under IDAcredits and Bank loans.

5/ The Central Power Transmission project included the construction ofvarious 400 kV transmission lines and substations and that of a back-to-back HVDC system at Vindhyachal, in the Singrauli-Rihand-Vindhyachalcomplex. At the time NTPC initiated the Rihand Power TransmissionProject, it had not yet obtained full experience in HVDC technology.

preliminary engineering of HVDC line, its conductor and voltage optimization,etc., were carried out by Hydro Quebec International, Canada. Teshmont Inc.,Canada, were appointed as consultants responsible for work related to HVDCterminals. NTPC was responsible for the preparation of all specifications,bidding documents, bid evaluation reports and construction supervision.

4.2 Proiect Organization". At the time of appraisal, NTPC hadalready adopted its current three-tier organizational structure at corporate,regional and project levels. The Corporation is headed by a Chairman andManaging Director (CMD), who is assisted by five full time functionaldirectors, namely, Director (Projects), Director (Operations), Director(Technical), Director (Finance) and Director (Personnel). At the CorporateOffice, corporate planning and central procurement functions are headed byExecutive Directors reporting to the CMD. For the purpose of theadministration and execution of work at the sites, the Corporation is dividedinto five regions (Northern, Western, Eastern, Southern and National CapitalRegions) with headquarters at present located at Allahabad, Nagpur, Patna,Hyderabad and Delhi, respectively. These regions are under the control ofRegional Executive Directors who are responsible for the implementation,operation and maintenance of power plants in their respective regions. Eachpower plant is headed by a General Managerx. The structure has shown theadvantage of optimizing the span of control of the CMD and provided for thedecentralization of line responsibility while retaining centralized systems inareas such as long-term planning, basic engineering, procurement of criticalequipment and spares, quality assurance, co-ordination with the World Bank andother financing agencies and inspection. Parts of the Project were located inthe Northern Region and were thus managed by the Executive Director for thisRegion.

5. Prolect ImDlementation

5.1 Loan Effectiveness. Loan 2555-IN was approved on May 28, 1985;the Loan and Project Agreements were signed on September 16, 1985. It wasexpected that the loan would be declared effective by December 16, 1985.Signing of a Subsidiary Loan Agreement between GOI and NTPC, satisfactory tothe Bank, was the condition for loan effectiveness. The loan was declaredeffective on February 20, 1986, a delay of two months from the date ofeffectiveness originally determined at signing.

5.2 Prolect Start-uD and Implementation Schedule. At appraisal, theproject was expected to be completed by December 1988. At the time the Bankagreed on the revisions to the project (para. 3.3), it was expected that,because of the extension of the 400 kV line to Malerkotla, the projectcompletion date would be delayed by one year to December 1989. QuarterlyProgress Reports and other communications in Bank files show that NTPCproceeded with the procurement of equipment for the project components while

61 As NTPC was the legal implementing agency of the project during the lifeof Ln. 2283-IN, NTPC's project organization and management is reviewedin this section.

7/ Until August 16, 1991, NTPC's regional transmission units were alsoheaded by a General Manager (para. 2.6).

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the Loan Documents were being processed - the first contract was awarded onJune 14, 1985.

5.3 Implementation Process. The HVDC transmission line and terminalstations which were projected at appraisal to be commissioned in December1988, were put into service in September 1991. Implementation of the HVDCcomponents took over a year and half longer than that envisaged because of:(a) delays in obtaining environmental clearance for a section of thetransmission line which had to pass through a forest; (b) collapse of one ofthe transmission towers which was sited in a river bed; (c) and fire damage(and subsequent replacement of damaged parts) to HVDC terminal at Rihandduring the testing of the terminal. Modifications were subsequentlyintroduced by the manufacturer of the HVDC terminals8. Implementation ofthe 400 kV transmission lines and substations was completed generally somenine months later than envisaged because of project revision, slowmobilization of one of the contractors, and long time taken to evaluate thebids. Construction of the transmission line extension from Panipat toMalerkotla and the associated substation (which were subsequently added to theproject; para. 3.3) were completed in July 1992.

5.4 Extensions of the ClosinQ Date. The loan was scheduled to beclosed on December 31, 1989. While agreeing to GOI's request to revise theproject, the Bank recognized that extension of the loan closing date toDecember 31, 1990, would be required. Because of the reasons mentioned above,implementation of the project was substantially delayed. The Bank reviewedprogress of implementation annually and agreed extending the closing date byone year each time, for a total of 36 months to December 31, 1992. The Bankdid not extend the closing date of the loan beyond December 31, 1992, butinformed GOI that it would be willing to consider to include funding thecompletion of the ongoing contracts retroactively under the then-proposedPOWERGRID System Development Project. The latter project was approved by theBoard on March 23, 1993 (Loan 3577-IN; para. 2.6) and includes US$7.6 millionfor the completion of the contracts of the Rihand Power Transmission Project.Disbursements for these expenditures under Loan 3577-IN would be completedduring FY94.

5.5 Procurement. The equipment and materials financed under the loanwere split into 61 packages, most of which were procured under internationalcompetitive bidding (ICB) procedures in accordance with Bank guidelines.Contractors who supplied transmission line tower structure were in charge ofthe erection of the towers, insulators and hardware, and stringing of the lineconductors, on a supply and erect basis. Suppliers of main equipment for thesubstations and the HVDC terminals were also in charge of the erection of thesubstations. NTPC procured, always under ICB, the conductors, line materialsuch as insulators and hardware and the electrical equipment includingmetering and instrumentation and had these equipment erected by the abovementioned contractors. The relatively large number of contracts and the aboveforms of packaging created a significant workload on NTPC as well as Bankstaff to monitor and supervise these contracts. However, the above two

8/ These modifications which were installed in other such projects on otherparts of the world as well, included the introduction of highlysensitive smoke detection system and creation of compartments in thesystem in order to contain fire - should one occur.

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characteristics helped NTPC staff to acquire valuable experience in preparingcontract documentation, reviewing and evaluating bids, and in managing theengineering of the project, since they were responsible for proper interfacingof project materials and equipment from different suppliers. Most of the saidNTPC staff have been transferred to POWERGRID. However, it is noted that theabove procurement system applied by NTPC, which required drawing up ofspecifications for tenders, preparation of bidding documents and carrying outof bid evaluations swamped NTPC staff who at one point had to handle some1,200 contracts valued at over US$1 billion. On the other hand, dividing theproject material/equipment into numerous contract packages, promotedparticipation from a range of large and medium sized local manufacturers/suppliers which, in turn, has contributed to the development of localmanufacturing industry.

5.6 Of the 61 contracts (total value: US$197 million equivalent) putout for ICB, 10 contracts (valued at US$59 million or about 30% of the total)were awarded to foreign manufacturers/suppliers. Of the two highest valuecontracts (one for the supply of conductors and the other for the supply ofinsulators) were awarded to a local and to a foreign manufacturer/supplier,respectively. The local industry was fairly competitive where the size ofcontract packages was within its manufacturing and/or supply capability. NTPCfollowed its practice of specifying the qualification requirements of theprospective suppliers on the bidding documents; this was not objected to bythe Bank and worked reasonably.

5.7 For all contracts estimated to cost over US$3.5 millionequivalent, NTPC submitted for Bank's review and comments the biddingdocuments and evaluation reports. Bank files show that there were long delaysin procurement. On some occasions, there was need to amend the bid documents,and also to re-bid in some cases. Based on the available documentation, theaverage time taken from bid opening to the award of the contract (includingBank acceptance of the proposed award) was about ten months, though the saidperiod for six contracts took over a year. The Bank brought to NTPC'sattention the long delays in procurement, particularly in bid evaluation. Inan effort to speed up procurement, standard bidding documents will in thefuture be used by NTPC and POWERGRID. Under the NTPC Power GenerationProject9 and Loan 3577-IN for the POWERGRID System Development Project, NTPCand POWERGRID respectively agreed on standard bidding documents, whose usewould reduce the procurement period substantially. They would also givefurther emphasis to finishing promptly the payments for the contracts, so thatthe closing dates of new loan(s) would not need to be extended.

5.8 Proiect Costs (Part III, Table E). The total cost of the originalproject, including contingencies, taxes and duties, was estimated in the SARat about Rs. 8,315 million (US$666.0 million equivalent). The actual cost ofthe revised project was Rs. 13,440 million (US$734.6 million equivalent). InUS dollar equivalent and in Rupee terms, respectively, the actual project costwas 10% and 621 higher than the appraisal estimate. The difference betweenthe two increases was due to substantial devaluation of the Rupee fromRs.12/US$ at appraisal to Rs.30/US$ in December 1992, when the loan wasclosed. During the implementation period, the weighted average rate for thisproject was Rs 18.3/US$. While inflation increased project costs in local

9/ This project was approved on June 29, 1993.

currency, the devaluation resulted in the loan proceeds generating asubstantially larger amount in local currency than had been expected.Although a detailed and realistic cost comparison between the appraisalestimates and the actual costs is not possible due to the major changes tosome of the transmission lines and the associated substations, it is concludedthat costs at appraisal were underestimated.

5.9 Proiect Financinq. The financing plan was changed substantially.That estimated at appraisal and the actual plan are summarized in thefollowing table.

Financing of the Project

Sources SAR Actual (*)(**)(USS million) (%k) (US$ million) (%)

* Bank Loan 250.0 36.1 185.9 25.4* GOI (Loan & Equity) 308.0 44.44 254.5 34.6* Credit from Sweden 135.0 19.46 164.5 22.4* IBJ - - 15.3 2.1

* EXIM - 58.3 7.9* Bonds 56.1 7.6

Total 693.0 100.0 734.6 100.0

(*) Excludes US$7.6 million to be disbursed under Loan 3577-IN (para. 2.6).(**) It is noted that the actual figures available against some of the

funding sources, as obtained from NTPC, are available only in Rupees,which are as follows:

Rs. MillionGOI (Loan & Equity) 4,833.0Credit from Sweden 3,193.5IBJ 297.9EXIM 1,133.0Bonds 1,089.2

These were converted into US$ using suitable rate of exchange.

5.10 Disbursements. The estimated and actual disbursements, and theoriginal and revised allocation of the loan proceeds are given in Part III,Tables E and F, respectively. By the time of the original closing date(December 31, 1989), cumulative disbursements were US$133.6 million, 53% ofthe original loan amount. The closing date of the loan was extended threetimes by one year each, to December 31, 1992 (para. 5.4). In December 1991,US$48 million of savings were cancelled from the loan amount. The loan wasclosed on December 31, 1992; disbursements were completed on May 12, 1993. OnJuly 15, 1993, US$7,279,424.78 (the balance in the Special Account) wererefunded by GOI. Then US$16,090,946.84 remaining undisbursed in the loanaccount were cancelled effective July 15, 1993. Thus disbursements under theLoan were US$185,909,053.16. India began repaying the proceeds of the loan onJanuary 15, 1991, and will continue to do so until July 15, 2005. It is notedthat by the time disbursements were completed, India had already repaidUS$38,118.600, about 21% of the loan amount utilized.

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6. Environment. Resettlement and Rehabilitation

6.1 While project implementation was delayed awaiting the clearance ofthe Ministry of Environment and Forests of GOI, and in the meantime, inparallel with the re-siting of the proposed coal-fired NCTPP project itsdescription had to be amended (para. 3.3), the project itself did not createany significant environmental and resettlement and rehabilitation problems.NTPC selected the line routings so as to minimize infringement on forest land.Where trees had to be felled in order to provide access to the lines, trees ofa corresponding number were planted in the vicinity. The question ofrelocation of people affected by the project did not arise becausetransmission line routes and substation sites were selected in un-inhabitatedareas remote from the population centers.

7. Physical Results

7.1 Project Obiectives. Overall, the project has achieved itsobjectives (para. 3.1). The project has been the second component'' in theestablishment of centrally owned regional grids and intra-regionalconnections. The power transmission capacity from the Singrauli-Rihand-Vindhyachal complex to the western parts of the Northern Region has beenincreased in a manner which helps optimal utilization of the installed thermalcapacity in the said coal-fired power plants complex, by transmitting over avery long distance large amounts of power with minimum transmission losses.The project also helped NTPC (since August 1991, POWERGRID; para. 2.6) to getacquainted with the HVDC technology. The project contributed in making NTPCan efficient utility but failed in its sectoral objective in inducingimprovements in the operational, institutional and financial performance ofSEBs, as seen in the disappointing operational, financial and institutionalperformances of many SEBs. It is not clear how, if any, NTPC's institutionaldevelopment helped those performing SEBs, such as the Maharashtra and AndhraPradesh SEBs. The failure in obtaining improvements at SEBs while supportingthe development of NTPC as a model utility can be traced to the fact that theBank had not fully appreciated the extent of the interference by the stategovernments in the affairs of SEBs (para. 12.4).

7.2 Physical Results. The individual components of the revisedproject were commissioned at various dates given in Part III, Table D. Sincetheir commissioning, the project components have in general functionedsatisfactorily. The problems which did arise were invariably of a minornature and were resolved without seriously affecting the transmission ofpower. The availability of the individual components has been almost 100l in1992 (Annex 3). Furthermore, the daily power amounts transmitted through the400 kV lines are well in line with the design capacity of the lines. Annex 4shows the maximum power flow and energy transmitted in 1992, on a monthlybasis, under the Rihand system. Each line of the HVDC system has beensuccessfully operated at 750 MW + 10%, and the maximum load on the entire linehas been around 1,100 MW, which was injected to the western parts of theNorthern region and helped improving voltage problems in this part of theRegion. However, until the 400 kV transmission ring around Delhi isconstructed, the power transmitted through the HVDC line would be limited to

10/ In addition to the HVDC back-to-back system built at Vindhyachal underthe Central Power Transmission Project (Loan 2283-IN).

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about 1,000-1,100 MW. Other reasons for the underutilization of the link are:(i) suboptimal operation of generating plant on a regional basis; and (ii)indifferent or unresponsive power generation tariff structure. Generationplants are not operated optimally because individual SEBs do not observe costmerit order in power generation. The power generation tariff structure ofNTPC in effect up to November 1992 did not encourage merit-order plantdispatch in the regional grids. The actual NTPC tariff in application sinceNovember 1992 is on two part basis as per the recommendations of GOI's K.P.Rao Committee. This tariff is conducive to the introduction of merit orderoperation. POWERGRID is pursuing further tariff improvements in transmission.Assistance is being provided under Loan 3577-IN.

8. NTPC's Financial Performance

8.1 From 1982 when NTPC started its commercial operation to thepresent, NTPC's financial performance has been satisfactory, except for thelarge accounts receivable (para. 8.2). NTPC's financial statements for theperiod FY85 to FY92 are given in Annexes 5.1-5.3 and a summary for the lastfive years is given in the Table 8.1 below. NTPC's operating data reflect thegrowth the Corporation experienced since 1982. Key financial parameters,e.g., assets in operation, revenue from electricity sales, total operatingrevenues, and operating income before interest, increased some five-fold since1987. The rate of return on net average fixed assets (historically valued)for this period was high, generally around 15% (between 13t and 171), well inexcess of the 8* between FY85-FY90 and 9.51 starting from FY91, as wasstipulated in the project agreement.

Table 8.1: Key Financlet indicatore

19B5 1986 1987 1988 1989 1990 1991 1992,,,,........ .......... .................. ...... .......... ................ ................ ................ .............. ............... . '................

DESCRIPTION\FY Forecast Actual Forecast Actual Forecast Actuat forecast Actual Forecast Actuat Forecast Actual Forecast Actual Forecast Actual........ ............. .................. ...... ........ ........ ........... ..... ..... ............ , ,,, ,,,_,.......... ....... .......... ........ ........... ....... .......... ........ ........... ....... ....... ............ ....... ..Electricity Sates (Gwh) 7,984 8,316 11,687 12,839 13.644 14,408 17,720 17,533 25,422 24,875 33,759 35,421 43,565 40,306 54,241 56,657

Average Butk Tariff (P/Kwh) (Generati 42.37 37.00 47.96 37.61 50.60 39.81 56.02 41.07 60.20 46.07 63.81 51.88 67.95 52.73 73.07 60.62

TOTAL OPERATING REVEUES 3,383 3,438 5,605 5,294 6,904 6.453 9,927 8,622 15,305 12,748 21,541 20,573 29,602 24,206 39,632 39,929

Rate of Return n Hlstoric Assets (1) 12.70 12.74 13.50 16.77 12.70 17.03 12.50 16.39 10.10 14.79 9.40 14.95 11.30 12.76 12.00 15.34Return on Capital Employed 9.53 13.30 12.70 12.11 10.52 10.61 9.71 11.93

Operating Ratlo (1) 49.30 59.40 50.50 55.60 51.90. 54.58 50.30 54.65 53.00 59.30 56.60 61.08 54.60 60.22 54.20 60.44Contrlbution to Construction (Anmual) X 9.07 3.42 9.66 39.81 -1.78 18.79 17.03 31.26Contrlbution to Construction (3 year Ava.) X 8.73 3.44 10.43 38.64 -1.78 17.55 14.16 45.80

Debt Service Coverage 3.30 3.32 3.60 4.87 3.00 3.96 3.00 3.89 2.10 2.37 2.00 2.49 2.20 2.54 2.40 2.36Debt:Equity Ratlo 27/73 32/68 28/72 36/64 31/69 42/58 34/66 43/57 34/66 47/53 34/66 47/53 31/69 43/57 26/72 48/52Current Ratio 1.02 1.62 1.58 1.68 1.81 1.79 1.90 1.54

Accontt Receivable (# of days) 184 163 164 177 175 210 233 154

FH

H

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8.2 Bill collection and accounts receivable have been persistentproblems for NTPC, because of the poor financial situation of many SEBs.NTPC's accounts receivable increased at a far greater pace than its revenuesand operating income in successive years. The receivables, which representedsome 5.2 months of billing in 1987, steadily increased to 7.5 months in 1991,compared to less than one month (27 days) projected in the SAR for the entireperiod. A covenant specifying the level of accounts receivable not to exceedan amount equivalent to the proceeds of its sales of power for the twopreceding months, was first introduced for NTPC under this Loan, with effectfrom the end of FY86. The covenant immediately pointed out to the largearrears accumulated by SEBs. The covenant was repeated in three subsequentBank loans"/, but NTPC has never been able to comply. In 1991, the increasein accounts receivable (over 1990) was some Rs 3.53 billion, while thecorresponding increases in electricity sales revenue and in total operatingrevenues were Rs 2.88 billion and Rs 3.63 billion respectively; in practicalterms, NTPC collected virtually no additional revenue in FY91, even though itsold an additional 4,800 GWh of energy. In 1986, NTPC internal cashgeneration barely met its debt service requirements and the increase inworking capital (Annex 5.2). A liquidity crisis was averted by the cashreceived by NTPC from its first issue of medium-term bonds. Since then NTPChas been issuing such medium-term bonds every year, mostly to help finance theexpansion of its facilities. The levels of its accounts receivable have alsobeen increasing every year in absolute terms as well as a percentage of itsannual billings. The funds raised from these bonds have helped NTPC to bridgefinance its increasing working capital requirements.

8.3 Increasing bill collection and accounts receivable problems led toseveral interventions by GOI on behalf of NTPC during the period FY88 to FY92.At each of these interventions, GOI assumed the responsibility to clear someof the arrears from SEBs by transferring to NTPC corresponding amounts fromits allocations to the respective states. Such payments are carried out overa period of four years. In February 1992, NTPC acquired the Unchahar powerstation in lieu of arrears of the Uttar Pradesh SEB. As indicated in theTable 8.1 above, NTPC has received over Rs 11 billion from the transfersthrough the central appropriations from 1988 to January 1993. Combined withother bill collection efforts, NTPC was able to reduce its level of accountsreceivable despite the rapid increase in sales. At the end of FY93, theoverall level of accounts receivable was 3.3 months of sales equivalent, butexcluding the amount still to be paid through the central appropriations, itwas 1.4 months of sales equivalent. More encouraging is that during the lastthree months of FY93, 93% of billing was realized directly from the SEBs.During the negotiations of the NTPC Power Generation Project, agreement wasreached that NTPC would maintain the level of its accounts receivable at twomonths of sales equivalent excluding the amount still to be paid through thecentral appropriations for which a specific payment schedule was also agreed.

8.4 GOI's interventions through the central appropriations helpedNTPC avert financial crises and resolve, for limited periods, its accountsreceivable problem. These interventions aimed at having NTPC operateefficiently, thus keep the electric energy supply in the country at an

11/ Loan 2674-IN for the Gas-Based Combined Cycle Project (FY86);Loan 2844-IN for the National Capital Power Project (FY87); andLoan 2845-IN for the Talcher Thermal Power Project (FY87).

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adequate level. It is doubtful that GOI's actions have resulted in SEBsimproving their operational efficiency as well as their billing and collectionpractices from their own customers. What is equally important, but so farreceived little attention, is the need for energy conservation on the customer(SEBs) side through adoption of appropriate tariffs and tariff structure atSEBs and through end-use efficiencies.

8.5 The accounts receivable as of March 1990 were about Rs 11.5billion (some US$500 million equivalent, and represented over six months ofcurrent billings). It was around the same time that the Bank took theexceptional step of cancelling the processing of a loan of US$375 million toNTPC for a project which had already been negotiated, primarily because of theinability of NTpc to reduce its accounts receivable. Since October 1992, GOIadopted new investment and commercial policies and electricity tariffs forNTPC. They are designed to introduce better commercial discipline at SEBs,along with improving NTPC's own operational and financial performance,including revenue collection. New two part bulk supply tariffs for NTPC coalfired stations became effective in November 1992. Further reforms in bulkpower and transmission tariffs will be studied and implemented under Loan3577-IN. The process of establishing commercial contracts between the SEBsand the central utilities is cumbersome, but progress is being made withstrong Bank support under Loan 3577-IN and the NTPC Power Generation Project.The new commercial policies and bulk power supply agreements should enableNTPC to reach a level of bill collection close to 100% during FY94.

8.6 The legal documents of the Loan also adopted the conventional rateof return (ROR) on average historic fixed assets in operation. An importantobjective of this conventional ROR indicator is to serve as a measure of theadequacy of revenues compared to the cost of capital. Therefore, it has moreappropriate application with mature utilities, and where the investment, whichis not included in the rate base, is a fraction of the utility's net fixedassets in operation (or the rate base). Table 8.1 indicates that throughoutthe entire project implementation period i.e., FY86-FY92, the projected "Worksin Progress" (WIP) was a substantially high proportion of the rate base;through 1987, WIP was higher than the Gross Assets in Operation; for practicalpurposes the rate base was insignificant relative to the annual investment.A utility could well have a very high rate of return performance but be facedwith liquidity crisis, and the computation of other standard financialindicators such as operating ratio would not provide meaningful information.One could therefore conclude that such a performance indicator was notappropriate for NTPC at the time. A more appropriate financial indicatorunder such circumstances is the "contribution to investment", because ittargets at generating from internal sources a pre-determined level of fundstowards the on-going investment after taking into account debt service andworking capital requirements. Under the NTPC Power Generation Project, NTPCagreed that it would produce, starting from FY95, funds from its internal cashgeneration equivalent to not less than 20% of its capital expenditures on athree-year moving average. The amount for FY94 would be 15% of the average ofNTPC's capital expenditures for the FY93-FY95 period1 '.

12/ The most recent analysis of NTPC's finances is given in the SAR for theNTPC Power Generation Project (Report No. 11827-IN; Dated June 4, 1993).

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9. Compliance with Loan Covenants

9.1 The key institutional and cost recovery covenants introduced inthe Loan and the Project Agreements and the extent they were complied with arelisted in Part III, Table H. NTPC was not in compliance with the accountsreceivable covenant (para. 11.2).

10. Sustainability and Internal Economic Rate of Return

10.1 The project is sustainable, even though at present its maincomponent (i.e., the Rihand-Delhi Area HVDC link) is not yet being fullyutilized (para. 7.2). Sustainability will be assured with the strengtheningof the transmission ring around metropolitan Delhi and growth in power demand.It is certainly assured for the future, as the facilities built under theproject are integral components of POWERGRID's system development program.However, insufficient generation and transmission tariffs and an uncheckedincrease of NTPC's and POWERGRID's accounts receivable could endanger suchsustainability. The Bank, GOI, NTPC and POWERGRID have been taking actions toavoid such occurrence (paras. 8.5 and 8.6).

10.2 Because of the changes agreed by the parties on the projectdescription, it is not possible to make a reasonable comparison between theinternal economic rate of return (IERR) of the original and revised projectscopes. The IERR for NTPC/POWERGRID's time-slice investments for the FY84-FY92 period has been estimated at 111. Under Loan 3577-IN, the IERR forPOWERGRID's time-slice investments during the FY93-FY2002 period was estimatedat 22%. The difference is explained by improvements in tariff settingparameters v and the unusually high inflation encountered in India in late1980s and early 1990s, which brought down tariff revenues in real terms(Part I, Table G).

11. Bank Performance

11.1 It is difficult to provide a judgement for a project whosedescription was substantially amended, albeit within its original objectives,and its completion was delayed by about 3 1/2 years. Instead of agreeing tothe revision of the project description, the Bank might have cancelled Loan2555-IN. It might also have cancelled Loan 2283-IN for the Central PowerTransmission Project during the hiatus of this project in 1984-1987"'. Butit might thus have lost an opportunity to influence transmission developmentin India. Instead the Bank opted to continue its dialogue with GOI, CEA, NTPCand POWERGRID on transmission system development and operations. The dialoguehas culminated with the recent approval of Loan 3577-IN (para. 2.6).

11.2 On another front, the Bank opted not to suspend disbursementsunder this Loan and other loans to NTPC, when NTPC fell into default of theaccounts receivable covenant and substantial arrears from SEBs began creatingproblems for this Corporation's financial and overall future (para. 8.2). The

13/ The return on equity for projects started before FY90 was 10; for thoseprojects started in FY91 and FY92 it was 121. The return has since beenadjusted to 16% for future projects. Depreciation was also increased.

14/ See the PCR for the Central Power Transmission Project.

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Bank decided to continue its dialogue to encourage GOI to adopt for NTPC newinvestment and commercial policies, and electricity tariffs. It alerted GOIand NTPC that the Bank's continued funding for their projects would no longerbe possible unless actions to correct NTPC's finances are taken. In 1990, theBank decided not to present to the Board the then-negotiated Regional PowerSystems Project, because GOI and NTPC were unable to fulfill the conditionsfor Board presentation within a reasonable time period. Other multilateraland bilateral agencies followed the Bank in limiting their financing of NTPCprojects. All these actions helped GOI to initiate reforms in the powersector and adopt new investment and commercial policies for NTPC. If the Bankhad suspended disbursements, it might have lost another opportunity, this timeto influence reforms in power generation. In view of GOI's, POWERGRID's andNTPC's recent actions prior to the approval of Loan 3577-IN and negotiationsof the NTPC Power Generation Project, the Bank's above decisions bore theirfruits.

11.3 Bank's supervision effort was concentrated mainly on theprocurement issues as well as other important areas such as physical progressincluding problems in implementation, in disbursements performance, etc. TheBank provided valuable help to NTPC. However, visits to the work sites byeach mission could not be undertaken because each mission covered supervisionof all Bank funded NTPC projects. It is concluded that the Bank's performanceunder the project was satisfactory.

12. Borrower Performance

12.1 The performance of NTPC in the technical and managerial activitieswas satisfactory. Bank missions have reported delays in preparation ofspecifications, bidding documents and bid evaluations, and in preparing itsquarterly progress reports in a timely manner; these shortcomings, however,have been mainly due to the large workload of NTPC at the time and because theinformation needs to be collected from various sites which are located inremote placesl. The project provided continuing opportunity for NTPC toenlarge its skills and experience in procurement under ICB procedures, indesigning the transmission systems and in supervising their implementation andconstruction. The PCR mission was advised that the services of NTPC staff,involved in implementation of the HVDC substation, were subsequently used bythe supplier, on a consultancy basis, in the installation of HVDC substationin another country.

12.2 The only area where NTPC's performance fell considerably short ofexpectations was in bill recovery. The accounts receivables condition wasfirst introduced under this Loan and immediately focussed on the substantialarrears by SEBs. These large arrears affected NTPC's financial positionadversely. NTPC maintained it had little recourse against the defaultingSEBs, because of its understanding that it could not cut off the power supplyto the defaulting SEBs even if it wanted to. At present NTPC is carrying outmore systematic and aggressive efforts at all levels of the organization (fromthe regional managers to the CMD) to obtain letters of credit from SEBs for

15/ Furthermore, after the transfer of the management of NTPC's transmissionassets to POWERGRID, the information relating to the transmission systemare collected from this Corporation. Stabilization of a propercoordination system between the two Corporations has taken some time.

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the appropriate amounts of energy sales. These actions include seeking theintervention of the Minister of Power in order to collect dues from SEBs.GOI's new commercial policies and revised bulk power supply agreements shouldenable NTPC to reach a level of bill collection close to 100% during FY94.

12.3 GOI has recently adopted new investment and commercial policiesand electricity tariffs allowing NTPC to shut-off or restrict power supply ifits clients are in default with their bulk supply agreements. These policiesare designed to introduce better commercial discipline at SEBs, along withimproving NTPC's own operational and financial performance, includingimproving revenue collection (para. 8.5).

12.4 There appears to be a difference in the positions of the Bank, GOIand the State Governments. The Bank's position is that the electricityindustry provides a service which has to be fully paid for by each customercategory (cross-subsidization permitted) through user charges. GOI seems tobe moving towards the Bank's position shown by the measures and incentivestaken in recent years including recommendations to the state governments toincrease tariffs. The states appear to perceive (sometimes for politicalpurposes) the provision of electricity as a social service. Furthermore, inan economy, where the public perception of a public utility often is toprovide primarily a social service, the use of a profit criterion as the solemeasure of the utility's financial performance is not generating adequatepublic support.

13. Performance of Consultants and Contractors

13.1 The performance of consultants engaged in the design andconstruction of HVDC and 400 kV facilities was satisfactory. There was apositive transfer of technical know-how from these consultants to NTPC staff.Barring a few problems and some minor delays, overall the performance of thecontractors/suppliers was also satisfactory. The packaging of contracts inappropriate sizes promoted participation from local manufacturing industry,and the Bank's and NTPC's involvements resulted in improvement in the qualityof the product.

14. Proiect Relationship

14.1 A good working relationship was maintained between the Bank andGOI and NTPC, and later also with POWERGRID.

15. Project Documentation and Data

15.1 The project's legal agreements adequately reflected the objectivesof the project and the Bank's interests. The staff appraisal report provideda relatively useful framework for the Bank and NTPC during projectimplementation. Bank supervision missions appear to have been adequate interms of their frequency. However, most of the missions had to superviseand/or prepare other projects. It is therefore likely that the missions werenot able to make visits to some of project sites. Some of the importantproject documentation (e.g. supervision mission reports, aide-memoires),project progress reports and annual financial statements was not found in theBank files.

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PROJECT COMPLETION REPORTINDIA


PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

Comments by NTPC and Endorsed by the Government of India

A. Preface

1. The loan was made to India in May 1985 for on-lending to theNational Thermal Power Corporation (NTPC). The objectives of the projectwere: (a) to meet the electricity demand in the Northern Region by providingthe transmission linkage between the thermal power generation plants in theSingrauli-Rihand complex in the south-east of the region and the main loadcenters of the western parts of the region; and (b) to ensure the evacuationof power from these plants at least cost to the economy. The project was alsoto serve as a vehicle for the introduction of a new technology (long distanceHVDC links) needed for the expansion and reinforcement of EHV transmissiongrid. Another objective was: (c) to improve, in the long run, theoperational, institutional and financial performance of the State ElectricityBoards (SEBs), by assisting in the development of a financially sound, andtechnically and institutionally competent centrally-owned power utility whichwould serve as a model to SEBs. On August 16, 1991, the management of theproject was transferred from NTPC to National Power Transmission CorporationLtd., under a Management contract signed between the two corporations. OnJanuary 8, 1993, an ordinance providing for all the rights, titles and otherinterests related to the transmission systems of NTPC to be transferred toPOWERGRID (NPTC was later renamed as Power Grid Corporation of India) waspromulgated by the President of India.

B. Comments on the Analysis in Part-I

2. The analysis made by the Bank under Part-I is comprehensive andhas covered the important aspects. The analysis is generally in order.Nevertheless, there are certain issues which need to be further examinedkeeping in view the background of developments as they took place to betterappreciate the events. These are as follows:

Preface (reference para. 1)

3. It may be mentioned here that savings of US$48 million has arisenmainly on account of the exchange rate variations.

Procurement (reference para. 5.7 of Part-I)

4.1 In an effort to speed up procurement and after having extensivediscussions, NTPC had finalized with the World Bank a standard biddingdocument in April 1992. However, the Bank withdrew its "No-Objection" to thisstandard bidding document in December 1992 and wanted certain modifications tobe included. NTPC has now finalized standard bidding documents with the Bankbased on the suggested modifications and further discussions. NTPC will usethis document for procurement under the recently negotiated loan for NTPC

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Power Generation Project. This is expected to reduce the procurement time.Further, the proposed NTPC Power Generation Project, negotiated with the Bankin May 1993 would be under time slice concept which would help in bringingabout timely disbursements.

4.2 NTPC has started giving further emphasis to finishing promptly thepayments to the contractors.

Physical Results - Project Oblectives (reference para. 7)

5. Under NTPC's new commercial and investment policies: (a) NTPC hasbeen permitted to shut-off or restrict power supply from its concerned powerstations, whenever physically and technically feasible, in case of non-compliance with the agreed terms, including appropriate payment coverage byletters of credit (LCs), of the bulk power supply agreements (BPSA) with theSEBs; (b) if the above is not possible, the defaulting state(s) would becharged penal rates for drawals (power imports) exceeding LC coverage; (c) fornew power stations, NTPC and POWERGRID have been instructed to design thesystem in such a way that it would allow the shut off or diversion of suppliesin case of non-compliance with the BPSA; (d) NTPC would delay new investmentsin a state if that state is not in compliance with the BPSA; and (e) NTPC ispermitted to undertake projects in one region with a substantial part of theoutput to be allocated to other regions. In addition, NTPC was authorized inJanuary 1993 to enter into joint ventures with foreign and local privatepartners and to develop with those partners power projects either from its owninvestment program or those offered by others.

Financial Performance (reference paras. 8.2 to 8.5 of Part-I)

6. In the discussions on accounts receivable presented in Section 8of the Part I, the Bank has included the amount due to NTPC by way of CentralAppropriation in the accounts receivable. GOI has in the past ordered CentralAppropriation of plan assistance funds to State sectors for offsetting theirdues to Central sector agencies like NTPC. Such amounts are being paid toN'TPC as per agreed schedules and the Bank had been kept informed about thearrangement since August 1990. Considering that these were committed paymentsfrom GOI, the amounts were set off against the dues of the SEBs and NTPC'saccounts receivable reduced by the total amount of Central appropriation.

As has been mentioned in para. 8.3, during the negotiations of theproposed NTPC Power Generation Project, agreement was reached that NTPC wouldmaintain the level of its accounts receivable at two months of salesequivalent excluding the amount still to be paid through the Centralappropriations for which a specific payment schedule was also agreed.

7. The Operations Evaluation Department of the World Bank conductedthe performance audit of few Bank-funded projects, namely Korba (Credit 793-IN), Ramagundam (Credit 874-IN and Loan 1648-IN), Singrauli-II (Credit 1027-IN) and Farakka (Credit 1053-IN and Loan 1887-IN). In its report No. 10854published in February 1993, the Audit Mission has summed up NTPC's financialpolicy in a paragraph as below:

"NTPC has reached its large size (it is India's largest corporate entityin terms of fixed assets) in a record time without jeopardizing orcompromising its financial viability, even in spite of the accounts

- 19 -

receivable issue. This is a performance that very few utilities in thesame situation are able to achieve. The performance is even moreimpressive since NTPC is still in a major investment mode. A good partof NTPC's above-par performance is to be credited to GOI's originaldesign (e.g., debt-equity ratio set at a conservative 1:1; tariffformula to pass on all investment, operation, and financial costs.)"

8. As is common practice in transaction of a commodity likeelectricity, the agreements allow the beneficiary of its energy supply aperiod of 30 days from issue of the bills for making payments. Therefore,outstanding should be reckoned after expiry of this period of 30 days.

Sustainability (reference Para. 10.1)

9. Regarding transfer of assets from NTPC to POWERGRID, GOI hasinformed World Bank vide letter dated January 12, 1993 that all transmissionassets shall be transferred to POWERGRID and while it had been decided totransfer the Rihand-Dadri HVDC link with terminals, because of contractualmatters, the terminals would be transferred a little later. It was alsoinformed that the Vindhyachal HVDC back to back system would be transferredstraightway being quite clearly a part of the transmission system. It wasalso clarified that switchyards of existing NTPC power stations will not betransferred and all new stations will be designed to have switchyards ownedand operated by POWERGRID.

Bank Performance (reference vara. 11.2 of Part-I)

10. It has been stated that the Bank's decision not to present to theBoard the then proposed Regional Power System Project because of GOI andNTPC's inability to fulfil the conditions for Board presentation within areasonable time period, has helped GOI to promote reforms in the power sector.It is worth mentioning that the sectoral reforms are brought about graduallywith time. It is easier to bring out such changes when they are accompaniedby large development programmes such as the proposed US$1.2 billion time sliceloan operation of World Bank for NTPC Power Generation Project.

Comments by POWERGRID and Endorsed by the Government of India

Environment, Resettlement and Rehabilitation

11.1 In the context of transmission projects there is no significantimpact on environment except in the cases where the transmission lines involveany forest area. The impact of transmission line projects on environment isnot considered as severe as in case of thermal, hydel, nuclear power projects.This is primarily because the effect on forest due to laying of transmissionlines is reversible and can be nullified by planting more trees.

11.2 With the worldwide concern over the fast depleting forestreserves, due consideration is given to these aspects at the planning anddesigning stage itself. While identifying the transmission system for Rihand-I, detailed surveys were conducted by the executing agency in association withthe state forest authorities to identify most suitable route having minimuminfringement on forest land. Where trees had to be felled in order to provideaccess to the lines, trees of a corresponding number were planted in thevicinity as per guidelines from Ministry of Environment and Forest.

- 20 -

11.3 Sites for construction of the sub-stations were generally selectedin uninhabitated areas remote from the population centers. Hence, theresettlement and rehabilitation of people did not arise.

Final Payments

12. The loan was originally scheduled to be closed on December 31,1989. But as a consequence of a change in location of the 4x210 MW coal firedNCTPP project of NTPC from Muradnagar to Dadri, the project configurationunderwent major revision. After appraising the revised scheme, Bank decidedto extend the loan closing date by one year each time, for a total of 36months to December 31, 1992. The total disbursement of loan till March 1992was US$191.5 million. Further, Bank has included funding the balance portionof the on-going contracts amounting to US$7.6 million retroactively under thenew POWERGRID System Development Project (Loan No. 3577-IN).

Procurement

13. It generally takes 3 to 4 months before the bids are invited areopened for evaluation. Further, all major packages were awarded within aperiod ranging from 5 to 7 months. Therefore, a total procurement periodvaried from 8 months to 11 months. Keeping in view the complexities involvedin some of the contract packages, the time taken seems to be reasonable.

Evaluation of the Borrower's Own Performance

14.1 The project has overall achieved its objectives. The project hasbeen a major component in the establishment of centrally owned regional gridsand intra-regional connections. With the satisfactory completion of theproject the power transmission capacity, security and reliability in theNorthern Region has increased.

14.2 Since NTPC had already acquired sufficient experience in the areaof design and engineering of 400 kV transmission lines and substations, entirebasic and detailed engineering work for the 400 kV transmission lines andsubstations was carried out by NTPC/POWERGRID in-house.

14.3 This project also provided an opportunity for NTPC/POWERGRID togain valuable experience in procurement under ICB procedures, which was laterused for other Bank financed projects. Also the introduction of HVDCtechnology helped NTPC staff to enlarge its skills and to gain valuableexperience in the execution of HVDC substation, which was later used, on aconsultancy basis, in the installation of HVDC stations in other countries.

- 21 -


INDIA


PART III: STATISTICAL SUMMARY

A. Related IDA Credits and Bank Loans

Cr./Loan No. Year ofand Title Purpose Approval Status Comments

Cr. 685-IN To help reduce the power April 1977 Closed The projectSingrauli shortage in the Northern on June was successfully

Thermal Power Region through the con- 30, 1984 completed

Project struction of the 3x200

MW initial phase of

the NTPC's first large

coal fired thermal powerplant with associated 400

kV transmission lines.

Cr. 1027-IN Assist NTPC to mitigate May 1980 Closed The project

Second power shortages in the on June was successfully

Singrauli Northern Region through 30, 1989 completed.

Thermal the construction ofPower 2x200 MW and 2x500 MW

Project coal-fired units andassociated 400 kVtransmission lines.

Sectoral Objectives Common to the Above Projects

In addition to the This purpose

above project-wide was not fully

objectives, the sectoral attained

objective was to assist

NTPC become an efficientutility (implementation of

projects, operation ofpower plants, institution-

and finance-wide) to form a

model to the poor performing

SEBs.

- 22 -

B. Project Timetable

Activitv Date Planned Revisions Date Actual

Appraisal 08/ /84 08/16/84

Loan Negotiations 03/26/85 04/22/85

Board Approval 05/15/85 05/28/85

Loan Signature 09/16/85 09/16/85

Loan Effectiveness 12/16/85 02/20/86

Completion 12/31/88

Loan Closing 12/31/89 12/31/90

12/31/91

Final Disbursement 12/31/89 05/12/93

- 23 -

C. Loan Disbursements

Cumulative Disbursements(Estimated and Actual)

(US$ million)

Dec. 31 198S 1986 1987 1988 1989 1990 1991 1992 1993

Estimated 12.0 53.5 125.5 187.5 250.0

Actual 0 1.9 49.3 104.2 133.6 172.6 191.5* 191.5* 185.9**

Actual asi of

Estimated 0 4 39 56 53*

* US$48 million from loan account was cancelled on December 5, 1991. Includesreplenishments of the Special Account. The outstanding balance was refundedon July 15, 1993.

** Following refund of the balance of the Special Account.

- 24 -

D. PROJECT IMPLEMENTATION AND COMMISSIONING

A. 400 kV AC Transmission System Scope Commissioned In

1. Rihand-Singrauli (S/C) 42 km March 1988

2. Rihand-Kanpur (POWERGRID) (S/C) 498 km December 1988

3. LILO of Singrauli-Kanpur (D/C) 20 km

I & II (UPSEB) at Kanpur (POWERGRID)

4. Kanpur (POWERGRID)-Ballabhgarh (S/C) 410 km October 1988

5. Ballabhgarh-Jaipur (POWERGRID) (S/C) 217 km September 1988

6. Jaipur (POWERGRID)-Jaipur (RSEB) (S/C) 20 km August 1990

7. Dadri-Malerkotla (S/C) 302 km July 19928. Ballabhgarh-Dadri (D/C) 53 km November 1990

9. Dadri-Mandaula (D/C) 46 km November 199010. LILO of Muradnagar (UPSEB) (D/C) 59 km June 1989

Panipat at Dadri11. LILO of Agra-Jaipur (RSEB) (D/C) 7 km July 1990

at Jaipur (POWERGRID)12. Shifting of Kanpur (UPSEB) (S/C) 20 km

Agra line to Kanpur (POWERGRID)

TOTAL (S/C): 1,509 km(D/C): 185 km

B. 500 kV HVDC System

1. 500 kV HVDC, 1500 MW bi-polar 815 km December 1990

transmission line Rihand to Delhi September 1991

2. 500 kV HVDC, 1500 MW bipoles at December 1990

Rihand and Delhi

C. 400 kV AC Sub-Station/SwitchYard

1. Kanpur October 1988

2. Jaipur (RSEB) (Extension)

3. Ballabhgarh September 1988

4. Malerkotla July 1992

5. Jaipur September 1988

6. Mandaula November 1990

LILO: Line in, line out connection of an existing line

to an existing substation.

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E. PROJECT COSTS

Estimated and Actual

Rs Million Diff. US$ Million Diff.

Components Est.'/ Act. % Est." Act. %

400 kV AC lines 1,986 2,583.1 30% 166 122.5 (26%)

400 kV AC

substations 1,484 2,187.3 47% 124 133.4 8%

HVDC line 1,276 2,082.6 63% 106 119.2 12%

HVDC terminal 2,980 5,490.9 84% 248 287.7 16%

Consultancy 73 105.3 44% 6 6.9

Eng. and Adm. 516 990.8 92% 43 64.9 51%

TOTAL 8,315.0 13,440.0 62% 693 734.6 6%

/a Physical and Price contingencies and IDC are allocated to each

project component in proportion to its cost.

- 26 -

F. Allocation of Loan Proceeds

(Original and Actual)

(US$ million)

Loan Agreement Actual

(1) Civil Works & Erection 25,000,000 10,968,183.78

(2) Equipment & Materials 200,000,00 173,849,350.21

(3) Consultants' Services 5,000,000 1,262,525.62

(4) Unallocated 20,000,000

Difference due to crossexchange rates on

Special Accounttransactions ( 171,006.45)

Total disbursed 185,909,053.16

Amount cancelled (December 5, 1991) 48,000,000.00

Amount cancelled (July 15, 1993) 16,090,946.84

Original Loan Amount 250,000,000 250,000,000.00

- 2 7 -

G. Summary of the Internal Economic Rate of Return Computations /a

OUTFLOW INFLOW NET Discounted @Investment 0 & M Revenue OUTFLOW 11.10%

0 1985-86 3155.8 10.0 135.0 3030.9 3030.91 1986-87 1965.8 15.8 214.3 1767.3 1590.72 1987-88 2495.6 21.9 286.5 2231.1 1807.43 1988-89 2184.9 34.9 359.0 1860.7 1356.74 1989-90 1673.3 77.8 773.2 977.9 641.75 1990-91 1402.5 86.2 962.9 525.9 310.66 1991-92 1254.0 110.4 1370.9 -6.4 -3.47 1992-93 207.9 133.4 1740.7 -1399.4 -669.68 1993-94 718.8 204.9 2210.4 -1285.7 -553.79 1994-95 204.9 2210.4 -2005.5 -777.4

10 1995-96 204.9 2210.4 -2005.5 -699.711 1996-97 204.9 2210.4 -2005.5 -629.812 1997-98 204.9 2210.4 -2005.5 -566.913 1998-99 204.9 2210.4 -2005.5 -510.214 1999- 0 204.9 2210.4 -2005.5 -459.215 2001- 1 204.9 2210.4 -2005.5 -413.316 2002- 2 204.9 2210.4 -2005.5 -372.017 2002- 3 204.9 2210.4 -2005.5 -334.818 2003-4 204.9 2210.4 -2005.5 -301.419 2004- 5 204.9 2210.4 -2005.5 -271.320 2005- 6 204.9 2210.4 -2005.5 -244.121 2006- 7 204.9 2210.4 -2005.5 -219.722 2007- 8 204.9 2210.4 -2005.5 -197.823 2008- 9 204.9 2210.4 -2005.5 -178.024 2009-10 204.9 2210.4 -2005.5 -160.225 2010-11 204.9 2210.4 -2005.5 -144.226 2011-12 204.9 2210.4 -2005.5 -129.827 2012-13 204.9 2210.4 -2005.5 -116.828 2013-14 204.9 2210.4 -2005.5 -105.229 2014-15 204.9 2210.4 -2005.5 -94.630 2015-16 204.9 2210.4 -2005.5 -85.231 2016-17 204.9 2210.4 -2005.5 -76.732 2017-18 204.9 2210.4 -2005.5 -69.033 2018-19 204.9 2210.4 -2005.5 -62.134 2019-20 204.9 2210.4 -2005.5 -55.935 2020-21 204.9 2210.4 -2005.5 -50.336 2021-22 204.9 2210.4 -2005.5 -45.337 2022-23 204.9 2210.4 -2005.5 -40.838 2023-24 204.9 2210.4 -2005.5 -36.739 2024-25 204.9 2210.4 -2005.5 -33.040 2025-26 204.9 2210.4 -2005.5 -29.7

The internal rate of return of the project is computed as 11.1 %.

/a Detail tables have been forwarded to Asia Information Center.

- 28 -

H. Covenants/Undertakings Monitorinq

Total List

Document/Section/ Summary of Undertaking (Covenant) StatusParagraph

LA 2.02(b) amended GOI shall maintain a special account Compliedin US dollars

LA 3.01 (b) GOI relending to NTPC under terms Compliedacceptable to the Bank (not lessthan 12.5 % per annum)

LA 3.01(c) Amounts withdrawn by GO from loan Compliance not determinedaccount in any quarter are to bemade available to NTPC in the firstmonth of the following quarter

LA 3.04 amended GOI to furnish Audit on Special CompliedAccounts (due within 6 monthsof FY end)

PA 3.04 NTPC shall by March 31, 1986, enter Complied. Contracts beinginto 3-year bulk supply contracts, revised following introductionwith customers in Northern, Western of new bulk tariffs in NovemberSouthern and Eastern Regions 1992

PA 4.01 (b) Furnish to the Bank within seven Compliedmonths after the end of eachfinancial year, financialstatements audited by independentauditors

LA 4.02 Take necessary measures to achieve Not complied (Part I, paras. 9.1by March 31, 1986 and thereafter and 11.2)maintain, its accounts receivableat a level not exceeding an amountequivalent to the proceeds of itssales of power for the two precedingmonths

LA 4.031a) Achieve a rate of return of not less Compliedthan 7% from FY85 through FY90;9-1/2% from FY91 through FY95

- 29 -

I . Use of Bank Resources

I . 1 Staff Inputs

Staff inputs in carrying out the various tasks through the project cycle from preparationin FY83 to completion in FY93 were as follows:

Task Input (Staff-weeks)

Project Preparation 1 3.6Project Appraisal 39.3Loan Negotiations 05.6Project Supervision 40.5Project Administration 00.1

TOTAL 99.1

I . 2 Missions

Project Cycle Month/ Number of Days Specialization Performance Type ofYear Persons in /a Rating /b Problems /c

Field

Throuah Aporaisal

Identification /dPreparation /dPre-appraisal IdAppraisal 10/82

SuwervisionSupervision 1 10/08/86 to 10/17/86 4 E; FA; EC; C 1Supervision 2 03/20/87 to 04/01/87 2 FA; E 1Supervision 3 09/02/87 to 09/23/87 3 E; FA; C 1Supervision 4 02/07/91 to 02/26/91 1 E 2Supervision 5 07/22/91 to 07/30/91 3 E; FA; FA 2

/a E: Engineer; LO: Loan Officer; FA: Financial Analyst; EC: Economist; C: Consultant/b 1 = No or minor problem; 2 = moderate problem; 3 = major problem/c I: Implementation delays; PR: Procurement problems and delays/d Identification was made by GOI in 1974. Preparation and pre-appraisal were made

by NTPC in 1978.

- 30 -

Annex 1INDIA


PROJECT DESCRIPTION

1. The project consists of the following major physical components.

I . 400-kV Transmission Lines

The expansion of the 400-Kv network would be comprised of:

(a) Rihand-Singrauli, single circuit: 40 km;(b) Rihand-Kanpur, single circuit: 450 km;(c) Kanpur-Ballabgarh, single circuit: 450 km;(d) Ballabgarh-Jaipur, single circuit: 310 km;(e) Ballabgarh-Muradnagar, double circuit: 20 km;(f) Muradnagar-Karwalnager, double circuit: 17 km;(g) Muradnagar-Panipat, single circuit: 100 km;(h) Muradnagar (NTPC)-Muradnagar (UPSEB): 10 km;(i) Jaipur (NTPC)-Jaipur (RSEB), double circuit: 20 km;(j) Kanpur (NTPC)-Kanpur (UPSEB), double circuit: 20 km.

II . 400-kV AC Substation

Rihand: Modifications to the already ordered substation of NTPC to make it compatiblewith requirements of the HVDC terminal

Sinprauli: Extension of the existing substation located at the site of Singrauli power plantto allow for connection of the Rihand-Singrauli line at the substation.

Kanpur: New substation to connect the Rihand-Kanpur-Ballabgarh lines as well as theSingrauli-Kanpur-Agra-Jaipur lines of NTPC. This substation would also beconnected to the existing 400-kV Kanpur substation of UPSEB. Provision for areactance would also be made at this substation.

Muradnapar: Extension to the proposed 400/200-kV substation to connect theBallabgarh, Muradnagar (UPSEB) and Panipat line and accommodate offtake from Delhi HVDC terminal as well as a new substation being createdto feed power from HVDC bipole to the Delhi grid. Provision has beenmade for 2 x 31 5 MVA 400/220-kV transformers.

Ballabqarh: Extension to the proposed 400/200-kV substation at Ballabgarh to connect theMuradnagar, Jaipur and Kanpur lines.

KarwalnaQar: Extension to the proposed 400/220-kV substation at Karwalnagar to connectthe Muradnagar line.

JaiDur: New substation to connect NTPC's Ballabgarh and Kanpur-Agra lines. Thissubstation would be connected to the RSEB's 400-kV substation at Jaipur.

PaniDat: Extension to the existing Panipat 400-kV substation of BBMB to terminate theMuradnagar line.

- 3 1 -

III . HVDC Transmission Line

Voltaqe Selection

2. The voltage in HVDC links ranges between + 450-kV and + 600-kV. Voltages aboveor below these figures would require multi-conductor bundles either because of excessive losses(below + 450-kV) or excessive corona (above + 600-kV). The voltage selected for the project is+ 500-kV.

HVDC Terminals

3. The terminal at Rihand would be connected by two 400-kV AC feeders to the 400-kVAC substation at Rihand power station and the terminal at Delhi by two 400-kV AC feeders to the400-kV AC substation at Muradnagar. The salient details of the HVDC terminal equipment aregiven below:

Converter Transformers

4. The converter transformers would be three phases or single phase units appropriatelyconnected. They would be designed to withstand the combined DC and AC stresses that would besubjected to while in operation. They would have appropriate number of taps we well as anadequate tap range so as to ensure desired flexibility in the operation of the bipole.

Thyristor Valves

The HVDC converter stations would comprise one 12 pulse valve group per polewhich would be initially equipped for a nominal continuous rating of 1000 MW in bipolar operationbut which would be upgradable at a later date to 1500 MW. The multiple valve units would bewater-cooled and will be the indoor air insulated type. They would be of modular designcomprising different thyristor levels of identical construction. They will be triggered by opticallyinstigated electrical firing, separately light triggered thyristor firing or direct optical firing. Eachvalve would be protected against overload, over voltage, and other variations in current andvoltage.

- 32 -

Annex 2

PROJECT REVISION

Chanae in the Scope of the 400 kV AC Line

(a) Inclusion of a 400 kV double circuit (D/C) line from Dadri to Ballabgarh and from Dadrito Karwalnagar.

(b) Extension of the Dadri-Panipat 400 kV single circuit (S/C) line to Malerkotla (250 kmS/C line).

(c) Three additional river crossings (two in the Dadri-Malerkotla and one in the Kanpur-Ballabgarh line).

(d) Conversion of 35 km in the Rihand-Kanpur line through forest from S/C to D/C).

{e) Shifting of the receiving substation for the NTPC Kanpur-Agra line from the Kanpur-UPSEB substation to the Kanpur-NTPC substation.

(f) Addition of a line-in, line-out (LILO) at the Muradnagar-UPSEB substation for the Dadri-Panipat NTPC line.

(g) Miscellaneous change including LILO at the Kanpur and Jaipur substations.

Chanaes in the ScoDe of the 400 kV Substations

(a) Inclusion of three substations in the Delhi region (karwalnager, Ballabgarh and Dadri)against one substation originally envisaged.

(b) Addition of one static var compensator (SVC) terminal at Kanpur, due to reassessmentof reactive power requirements.

(c) Miscellaneous minor changes for detailed engineering in revised system configuration.

Changes in the Design of the 500 kV HVDC System

(a) Change from an original triple "Moose" to a quadruple "Bersimis" conductor design.

(b) Upgrading of insulators to counteract pollution problems.

(c) Stronger tower construction to accommodate heavier conductors and insulators.

(d) Partial upgrading of terminal stations in view of future capacity increase from 1000MW to 1500 MW.

- 33 -

Annex 3Availability of Transmission Lines under the Project

No Line Jan 92 Feb 92 Mar 92 Apr 92 May 92 Jun 92 Jul 92 Aug 92 Sep 92 Oct 92 Nov 92 Dec 92

1. JPR-JPR1 100.00 100.00 100.00 100.00 99.94 100.00 100.00 97.12 100.00 100.00 100.00

2. JPR-JPR2 100.00 100.00 98.01 100.00 100.00 94.38 100.00 99.20 100.00 100.00 100.00

3. SIN-RIH 100.00 100.00 81.17 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

4. RIH-KNP 100.00 100.00 81.15 100.00 100.00 99.55 100.00 99.97 100.00 100.00 100.00

5. KNP-BLG 100.00 99.81 99.97 100.00 99.86 98.76 99.95 70.75 99.98 100.00 100.00

6. BLG-JPR 100.00 99.69 100.00 ' 99.49 100.00 94.57 99.95 99.41 100.00 100.00 99.94

7. BLG-DAD1 100.00 99.56 100.00 100.00 100.00 100.00 100.00 98.96 100.00 74.21 100.00

8. BLG-DAD2 98.68 94.78 100.00 100.00 100.00 100.00 100.00 100.00 100.00 98.34 100.00

9. DAD-MDL1 100.00 98.97 77.19 99.79 100.00 100.00 98.74 100.00 100.00 100.00 100.00

10. DAD-MDL2 100.00 100.00 100.00 * 100.00 100.00 100.00 98.78 100.00 100.00 100.00 100.00

11. DAD-MAL Line commissioned on July 1, 1992 93.5 99.48 98.70 100.00 100.00 100.00

* Data not available.

- 34 -

Annex 4

MAXIMUM POWER FLOW ON LINES UNDER RIHAND TRANSMISSION SYSTEM

CALENDAR YEAR 1992

Name of Line Jan. Feb. Mar. ADr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

JPR-JPR1 +500 +400 +490 +500 +520 +740 +760 +52 +600 +560 +700 +700JPR-JR2

KNP-BLG +490 +440 +440 +360 +410 +420 +350 +420 +380 +420 +480 +490

BLG-JPR + 290 +190 +160 + 340 +160 + 370 + 360 + 320 + 390 + 200 + 330 + 260

BLG-DAD(I+II) +220 +300 +280 +180 +160 + 90 +110 +100 +150 +420 +300 +200-200 -290 -100 -160 -120 -240 -300 -210 -140 - -240 -340

DAD-MND(I + II) + 520 +460 + 520 + 520 +480 + 580 +440 + 520 + 600 + 580 + 620 + 650

DAD-MAL - - - - - - - - - + 220 + 270 + 310- - - -100 - 60 -

SIN-KNP +850 +260 +860 +800 +810 +700 +675 +640 +665 +725 +920 +810

HVDC + 900 +1000 +1000 + 900 +810 + 900 + 900 + 700 + 700 +1000 +1000 + 1100

Annex 5.1

INDIA

RIHAND POWER TRANSMISSION PROJECT - PROJECT COMPLETION REPORT

VTPCse Forecast and Actual Incom Statement

985 1916 1987 1988 1989 1990 1991 1992......... ............ . . ......... . . . .............. ......... . . . ................ .. . . . . . . . .. . .. . . ..DESCRIPTION\FY Forec st Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecaet Actuat Forecast Actual Forecast Actual----------- _ . .-.-. . . . ------- ....... ------- ... --- . ------- . ..Electricity Generation (GUh) 8,871 9,248 12,986 14,174 15,154 15.921 19,574 19,378 27,917 27,296 36,956 38,595 47,606 43,965 59,222 61,197Less: Aux Cons.(GIA) 887 932 1,299 1.335 1,510 1,513 1.854 1,845 2,495 2,421 3,197 3,174 4,041 3,659 4,981 4,540Electricity Sates (Cwh) 7,984 8,316 11,687 12,839 13, 644 14,408 17,720 17,533 25,422 24,875 33,759 35,421 43,565 40,306 54,241 56,657Avers" Bulk Teriff (P/KwEh) (Generati 42.37 37.00 47.96 37.61 50.60 39.81 56.02 41.07 60.20 46.07 63.81 51.88 67.95 52.73 73.07 60.62operating Revenues:

Electricity Sates 3,077 4,829 5.736 7,201 11,460 18,376 21,254 34,347Transmission Charge 148 284 555 1,176 93 1,691 2,404 3,742Electricity Duty 111 111 87 93 179 294 347 455Other Income 102 70 75 152 116 212 201 1,384TOTAL OPERATING REVEIUES 3.383 3,438 5,605 5,294 6,904 6,453 9,927 8,622 15,305 12,748 21,541 20,573 29,602 24,206 39,632 39,929Operating Expenses:

Fuel Cost 1,070 1,252 1,716 1,952 2,171 2,360 3,033 3.165 4,737 5,285 6,863 8,985 9,752 9,760 13,376 16,424O A N- Employeeee Cost 898-Repairs & Naintairnnce

1,672-AIntstration S Others 974Total Operation *rd Maintenance 292 404 487 483 595 616 926 807 1,631 1,175 2,195 1,745 2,672 2,105 3,464 3,544

Depreciation 305 265 628 377 809 448 1,038 579 1,743 912 3,140 1.396 3,730 2,251 4,629 3,625Electricity Duty 112 Il 87 93 179 294 347 455Interest On Working Capitalothers 10 21 5 11 69 a 147 113 86TOTAL OPERATING EXPENSES 1,667 2,042 2,831 2,943 3,580 3,522 4,997 4,712 8,111 7,559 12,198 12,567 16,154 14,577 21,469 24,13$

operating Inca Before Interest 1,716 1,396 2,774 2,350 3,324 2,931 4,930 3,910 7,194 5,189 9,343 8,006 13,648 9,630 18,163 15,794Interest Chargeable to Revenue 616 492 955 570 1,334 866 1,899 1,248 3,525 1,791 5,316 2,730 6,624 3.472 8,057 5,643Deferred Expenses Written Off 5 - 16 - - - - - -Profit before Tax 1,095 904 1,803 1,751 1,990 2,065 3,031 2,662 3,669 3,398 4,027 5,276 7,024 6,158 10,106 10,151

Add :Prfor Period Income (Not) (28) 50 53 362 (90) 90 851 69Less: Tax 1 1 0: Misc. Provision

149Net Profit after Tax Ilisc. Prosn. 904 1,780 2,065 2,662 3,308 5,366 7,009 10,071Avere Net Fixed Assets (Historic) 13,486 10,957 20,582 14,016 26,246 17.209 39,553 23,854 71,033 35,078 99,863 53,567 118,660 75,482 150,926 102,945Rate of Return on Historic Assets tX) 12.10 12.74 13.50 16.77 12.70 17.03 12.50 16.39 10.10 14.79 9.40 14.95 11.30 12.76 12.00 15.34Return on Capital Eaplayed 9.53 13.30 12.70 12.11 10.52 10.61 9.71 11.93operatino latio MX) 49.30 59.40 50.50 55.60 51.90 54.58 50.30 54.65 53.00 59.30 56.60 61.08 54.60 60.22 54.20 60.44

Annex 5.2

INDIA

RIHAND POWER TRANSMISSION PROJECT - PROJECT COMPLETION REPORT

NTPC's Forecast wnd Actuat Sources and Apptlcations of Funds

1985 1986 1987 19S8 1989 1990 1991 1992DESCRIPTION\FY Forecast Actual Forecast Actual forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actuat Forecast ActualSOJURCES Of FLONDSOperating Income before interest 1,716 1,396 2.774 2,350 3,324 2,931 4,930 3,910 7,194 5,189 9,343 8,006 13,448 9,630 18,163 15,794Prior Period Income (Net) (28) 50 53 362 (90) 90 851Depreciation(M) 305 265 628 377 809 448 1,038 579 1,743 912 3,140 1,396 3,730 2,251 4,629 3,625Total Internat Cash Generatlon 2,021 1,632 3,402 2,77 4,133 3,432 5,968 4,851 8,937 6,011 12,483 9,492 17,178 12,732 22,792 19,419

Equity Contributions 8,159 4,859 13,369 6,808 16,673 5,909 13,177 6,879 19,239 3,682 18,294 6,594 25,601 12,812 26,799 6,667Capital Receipt 26 0 114 24 - 87 - 21 - 117 - 26Borrowings

7,9S4Lowna Contrected* 4,416 5,731 5,865 4,836 11,972 6,712 5,019 25.451Bonds 0 1,634 4.300 4,394 1,499 4,346 4,000 2,800Loans to be Contracted- ISR0

D 0 OLoans to be Contracted- MULTI.SBILATERALLouns to be Contracted- EXPORT CREDITTotal Borrowlngc 3,405 4,416 6,895 7,365 10,512 10,165 12,520 9,230 12,313 13,471 12,801 11,058 8,971 9,019 4,036 28,251

TOTAL SOURCES 13,585 10,933 23.666 16,950 31,318 19,620 31,665 20,984 40,489 23,251 43,578 27,165 51,750 34,680 53,627 54,363APPLICATION OF FtNDSProposed projectsOther new projectson-going projectsTotal Investment 11,747 10,011 22,179 14,048 29,697 17,806 29,606 17,630 34,808 19,064 36,048 20,397 42,259 26,079 42,122 47,570

Debt ServiceInterest Charged to Operation 616 492 955 570 1,334 866 1,899 1,248 3,525 1,791 5,316 2,730 6,624 3,472 8,057 5,643Amortization of Lomns - - - - 22 - 87 801 747 933 1,087 1,233 1,542 1,500 2,595Total Debt Service 616 492 955 570 1,356 866 1,986 1,248 4,326 2,538 6,249 3,817 7,857 5,015 9,557 8,238

Increase (Decrease) In Working Capita 1,222 430 532 2,332 265 947 73 2,106 1,355 1,649 1,281 2,951 1,634 3,586 1,948 (1,594Increase (Decrese) In Cash 1 Bank ba - - - - - - - -rax A Misc. Provision - - - I - I - - - - - 149TOTAL APPLICATION OF FUXDS 13,585 10,933 23,666 16,950 31,318 19,620 31,665 20,984 40,489 23,251 43,57a 27,165 51,750 34,679 53,627 54,363Contribution to Construction (Amusl) X 9 3 10 40 -2 19 17 31Contribution to Construction (3 year Avg.) X 9 3 10 39 -2 l8 14 46Debt Service Cowerae 3.30 3.32 3.60 4.87 3.00 3.96 3.00 3.89 2.10 2.37 2.00 2.49 2.20 2.54 2.40 2.36Net Resources

13812Average Investment( 3 Years) 32468

Annex 5.3

INDIA

IIHAND POIER TRANSMISSION PROJECT PROJECT COMPLETION IEPORT

NTPC s Forecast and Actuat Belwnce Sheet

1985 1986 1987 1988 1989 1990 1991 1992

DESCRIPTION\FY Forecast Actual Forecast Actual Forecast Actuat Forecast Actual Forecast Actuat Forecast Actuat Forecast Actuat Forecast Actuat

ASSETSGross Block 18,424 13,363 24,317 16,047 31,193 20,689 52,774 30,508 96,934 44,784 115,318 69,972 141,398 92,422 188,200 131,136Less:Deprecfation 475 476 1,103 903 1,912 1,416 2,950 2,069 4,693 3,068 7,833 4,554 11.563 6,877 16,184 10,?91Net Fixed Assets In Operation 17,949 12,887 23,214 15,1" 29,281 19,273 49,824 28,439 92,241 41,716 107,485 65,418 129,835 85,546 172,016 120,344

Capitat Works in Progress 16,287 19.656 32,573 31,069 55,394 44,302 63,419 52,187 54,067 57,062 71,731 52,360 87,910 56,039 83.222 70,080

Totat Fixed Assets 34,236 32,543 55,787 46,213 84,675 63,575 113,243 80,626 146,308 98,T78 179,216 117,778 217,745 141,584 255,238 190,424

Current AssetsCash and Bank Batance 37 84 60 48 76 134 108 5,973 174 2 248 291 340 684 461 1.742Short-term deposits - 395 - 637 - 1,053 - 737 - 4,544 - 5.364 - 5,279 - 6,465Receivables 564 1,626 934 2,284 1,151 2,828 1,655 4,058 2,551 5,981 3,590 11,561 4,934 15,102 6,605 16,085Inventories 229 704 379 940 470 1,322 710 1,742 1,222 2,639 1,668 3,632 2,096 5,414 2.752 7,306Loans & Advances 51 326 75 4 90 3,642 122 783 178 2,614 242 1,824 325 2,088 427 2,497Other Current Assets/Debtors 4 17 4 13 4 148 4 178 4 104 4 125 4 231 4 399Totat Current Assets 885 3,151 1,452 6,293 1,791 9,127 2,599 13,L69 4,129 15,884 5,752 22,797 7,699 28,799 10,249 34,494Misc.Csp1tat Expenditure 16 19 19 - 16 - 17 - 18 - 19 41 - 39

TOTAL ASSETS 35,137 35,713 57,239 52,526 86,466 72,718 115,842 94,112 150,437 114,680 184,968 140,594 225,444 170,424 265,487 224,957

LIABILITIESEquity

Share Capital Issued 24,173 20,632 37,542 26,685 54,215 32,851 67,392 37,658 86,631 44,073 104,925 49,640 130,528 59,237 157,327 69,841Share Deposit - 236 - 990 734 - 2,806 - 73 - 1,100 - 4,314 - 377Retained Earnings 1,590 1,402 3,393 3,231 5,383 5,463 8,414 8,511 12,083 11,906 16,110 17,293 22,934 24,420 33,040 34,526

Total Equity 25,763 22,269 40,935 30,906 59,598 39,047 75,806 48,974 98,714 56,052 121,035 68,033 153,462 87,971 190,367 104,744

Total Long-term Debt 9,352 10,364 16,247 17,729 26,737 27,894 39,170 37,124 50,682 49,848 62,550 59,819 70,286 67,296 72,822 97,766Less: Current Maturities - - - - - - - -

Totat long-term Liabifites 9,352 10,364 60,713 17,729 93,801 27,894 39,170 37,124 50,682 62,550 70,286 97,766

Current Liabilities 22 3,081 57 3,891 131 5,778 866 8,014 1,041 8,780 1,383 12,742 1,696 15,158 2,298 22,448Add: Current Maturities - - - - - - - -Totat Current Liabilities 22 3,081 57 3,891 131 5,778 866 8,014 1,041 8,780 1,383 12,742 1,696 15,158 2,298 22,448

Totat Debt 9,374 13,445 16,304 21,620 26,868 33,671 40,036 45,138 51,723 58,628 63,933 72,561 71,982 82,454 73,120 120,214

TOTAL EQUITY AND LIABILITIES 35,137 35,713 57,239 52,526 86,466 72,718 115,842 94,112 150,437 114,680 184,968 140,594 225,444 170,425 265,487 224,957

Debt:Equity Ratio 27/73 32/68 28/72 36/64 31/69 42/58 34/66 43/57 34/66 47/53 34/66 47/53 31/69 43/57 28/72 48/52Current Ratio 1.02 1.62 1.58 1.68 1.81 1.79 1.90 1.54Accounts Receivable (9 of days) 184 163 164 1T7 175 210 233 154