Report No. 391a-RO FILEAppraisal of bthe Turceni Thermal Power ProjectRomaniaJune 17, 1974

Europe, Middle East and North Africa RegionPower and Energy Development Division

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use only by the Bank Group. It may not be published,quoted or cited without Bank Group authorization. The Bank Group does not accept responsibilityfor the accuracy or completeness of the report.

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CURRENCY EQUZVALE7.TS -

1/Lei 20 = US$1.00Lei 1 US$0.05Lei 1 million US$50,000

WEIGHTS AND MEASURES

Nm 3 cubic meter at normal temperature and pressurekWh = kilowatt hour = 860 kilo calories (kcal)MW = megawattGWh = gigawatt hourkV = kilovoltkm = kilometer = 0.6 milebillion 109Btu = British thermal unit = 3.9685 kilo caloriesmill US$0.001

ABBREVIATIONS AND ACRONYMS

MEE = Ministerului Energiei Electrice (Ministry of Electrical Energy)CIEET Centrala Industriala A Energiei Electrice Si Termice

(Industrial Central for Electric Power and Heat)SCM = Santier Constructu Montaj (Distribution Construction

Department)ISPE = Institutul De Studii Si Proiectari Energetice (Design

Institute for Thermal Studies)TEC = Trustul Energo Constructia (Thermal Construction Trust)TENM = Trustul Energomontaj (Electro-mechanical Construction Trust)TEM = Trustul Electromontaj (Transmission and Substation Construction

Trust)Rornenergo = Foreign Trade Procurement EnterpriseI.B. = Banca De Investitii (Investment Bank)

Romania's Financial Year - January 1 to December 31

1/ Assumed rate for this report - official rate is lei 4.97 = US$1.00(see Para. 2.07)

Power and Energy Development Division

APPRAISAL OF

THE TURCENI THERMAL POWER PROJECT

ROMANIA

TABLE OF CONTENTS

Page No.

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

1. INTRODUCTION ................. ., .......

2. THE COUNTRY AND THE ECONOMY . ........... .... ....... 1

The Country ........................ 1The Economy e-9.0.00-00.00.0... 2Energy Resources ... ... . . . . . . . . . . . ........... . .. ..... . .. 3

3. THE SECTOR ....................................

Organization of the Power Sector ... .... oo ...... 5Legislation ........- o ................................... 6Management and Mlanagement Systems ................. 6Insurance .......oo. o. .. ..... ... ... .. . O. . .... .. .. .. O7

The Electric Power Market ......................... 7Tariffs .......... -- -............ .... .... 7

Financing of the Sector ..... ........-....... -.. 7Existing Power Facilities ..... .................... 9Development Program ........ . . . . . ....... ...... ....... .. . 10Village Electrification ......... - ........ ....... 11

4. THE PROJECT .. o .... o ... o.oo........................... 11

Description o........................oo o... .... .... ..o... .* 1tCost Estimates ... o... ...... 0......0.................... ...... 11Procurement ... o........0.00.. .................. ** 13Insurance ... ....- - ... .. ... * - ...... 14

Disbursements . .o. . ... .. . ... .. 0 .......... 14Engineering and Construction .............. o...... 14

Ecological Aspects .............. ..... ....... ........ 16

This report has been prepared by Messrs. J.N.M. Green (engineer), P.A.

Cordukes (financial analyst), I. Hume (economist) and S. Brealey (miningconsultant). It is based on information obtained by a mission to Romania

in November 1973.

TABLE OF CONTENTS (Cont'd) Page No.

5. JUSTIFICATION ..... *..... *................ 17

Load Growth . 17Comparison of Alternatives ....................... 17Economic Rate of Return ... ............. . . . . . . . . . . . . 18

6. FINANCIAL ASPECTS .......... . . . . ............................... 19

Sunmary ....... .. *......... ... 0........00*0..0000*... 19Past and Present Financial Aspects .... ........... 19Financing Plan ....... .... O..* ............ 20Future Financial Position ........................ 22Audit ......... ...... 23

7. AGREEMENTS REACHED .............................. . 23

ANNEXES

1. Extracts from Government Decree on Conserving Fuel and Energy2. Mining Aspects of the Turceni Power Project3. Organization Chart - Ministry of Electrical Energy4. Organization Chart - Industrial Central for Electric Power and Heat5. Typical Organization Chart for a Generation Enterprise6. Decree of the Council of Ministers Establishing the Turceni Enterprise7. Tariffs8. Electric Power Sector Planting History and Forecast9. Electric Power System Capability and Maximum Demand10. Project Cost Estimate11. Schedule of Equipment and Materials Suitable for International

Competitive Bidding12. Estimated Schedule of Disbursements13. Comparison of Alternatives14. Economic Rate of Return15. The Accounting System16. Income Statements for the Years 1970-198017. Balance Sheets for the Years 1970-198018. Sources and Applications of Funds for the Years 1970-198019. Notes and Assumptions on Financial Statements

MAPS

Electricity System (IBRD 10830)Turceni Thermal Power Station Project (IBRD 10831)

APPRAISAL OF

THE TURCENI THERMAL POWER PROJECT

ROMANIA

SUMMARY AND CONCLUSIONS

i. This report appraises a 1320-MW lignite fired thermal power stationproject for the Government of Romania. Units will be of 330-MW size and arescheduled to be commissioned at 6 monthly intervals in the period September1977 to March 1979. Turceni is approximately 200 km west of Bucharest in theprovince of Oltenia, the lignite deposits of which are to be exploited. Ap-proximately 600 km of 400-kV and 110-kV single circuit transmission lines anda switching station are to be built to complement the station. The totalcost of the project is estimated at US$353.5 million equivalent excluding in-terest during construction towards which a loan of US$60 million, i.e. 67% ofthe direct foreign exchange cost of about US$89 million equivalent, is proposed.Equipment and materials for the manufacture of the plant and incorporation atthe site would be purchased under the loan. The project represents about 8%of the total construction requirements of the Romanian power sector during theperiod 1973-1979.

ii. Lignite mines and rail links with Turceni are being developed bythe Petrosani Coal Enterprise for the Ministry of Mines, Oil and Geology andare not part of the project.

iii. Demand for electrical energy has been rising rapidly over recentyears largely due to rapid industrialization. The annual rate of growth ofdemand for power is expected to be in excess of 12% to 1976 and thereafterto decline to 9.4% through 1980. The interconnected system annual peak isexpected to reach 13,800 MW by 1979 when the project will be fully commissioned.

iv. The Project introduces advances in technology in that the manufac-ture of the boilers, turbines and generators for the power station is to beundertaken in Romania through the purchase of licenses from suppliers of provendesigns. Similarly, the development of the lignite mines (though not part ofthe Project) involves the manufacture of bucket-wheel excavators under licensefrom an established manufacturer.

v. The loan would be made to the Investment Bank with the guaranteeof the Government of Romania. The Turceni Enterprise will execute the Projectwith the technical assistance of Romanian design institutes, while the civilworks and erection will be arranged with the construction trusts of the Ministryof Electrical Energy. Romenergo, the Ministry's foreign trade enterprise willcoordinate the procurement. The items to be financed by the Bank are all tobe subject to international competitive bidding under the Bank's guidelinesfor procurement. Romanian suppliers may, but are not expected to, compete.

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vi. The power sector 1973-79 expansion program, expected to requireabout US$4.4 billion equivalent, would be financed 46% from internal cashgeneration, 52% from state budget allocations and 1% each by the InvestmentBank and the IBRD. The financing plan is an integral part of the nationalsocio-economic plan. Should the program be changed or the level of internalcash generation vary, state budget allocations would be altered accordinglyto meet the needs of the plan. Though the proposed Bank loan is a small partof the total sector requirements, it will meet the foreign exchange cost ofmost of the equipment and materials suitable for international competitivebidding required for the Turceni project.

vii. The Industrial Central for Electric Power and Heat (CIEET) is re-sponsible to the Ministry of Electrical Energy (MEE) for the control, super-vision and financial planning of the enterprises which generate and distributeelectric power in Romania. The financial accounts and forecasts of the Indus-trial Central indicate an acceptable financial performance would be maintainedby the sector. A recent Government Decree imposing restrictions on the consump-tion and use of energy and an overall review of tariffs and prices is not ex-pected to change the present position because of the total integration of sectorfinances with those of the State. No specific financial covenants have beenagreed but provision has been made for an exchange of views between the re-presentatives of the Bank and the Romanian power sector on financial and econ-omic information to be furnished relevant to the project and its impact on thepower sector.

viii. Insufficient data in support of the specific thermal alternativesto the Turceni Project investment decision was given. Nevertheless consider-ing the available fuel resources, the plant size and the growth of demand forpower in Romania, the decision to build the Turceni power station is judgedto be sound. The economic return on the project is expected to be at least 8%.

ix. Organization of the sector conforms to the structure common tothe whole Romanian system. Management appears competent and operates facil-ities effectively. Management methods and systems are largely standardized.

x. Though all the information sought on the power sector was not madeavailable and the Bank's analysis is not as detailed as is customary, adequatedata on the project itself was obtained, sufficient to conclude that the proj-ect is suitable for a Bank loan of US$60 million for a term of 25 years in-cluding a 5-1/2 year period of grace.

APPRAISAL OF

THE TURCENI THERMAL POWER PROJECT

ROMANIA

1. INTRODUCTION

1.01 This report appraises the Turceni 1/ Project to be constructed onthe banks of the Jiu river at the junction of the Jilt valley and the Jiuvalley in the Gorg district of south-western Romania (MAP IBRD 10830). TheProject comprises a thermal power station with installed capacity of 1,320MW in four units of 330 MW, 400-kV transmission lines, a 400-kV switchingstation, and a 110-kV line for station starting and standby. Additional worksessential for the support of the power station but not part of the Project arethe development of the Oltenia lignite deposit by two new mines, South Jilt andMatasari, the extension of existing mines in the region (Map IBRD 10831), andrail links for delivery of fuel from the lignite workings as well as road,rail and housing facilities to support the construction and operating phasesof the Project. A loan of US$60 million, the first power loan for Romania,is envisaged.

1.02 Data on the power sector was restricted due to the Romanian regula-tions governing its release and the fact that the Romanians were reluctantto release data which was being revised in line with a recent decree aimedat ronserving fuel and energy (Annex 1). A more comprehensive understandingof the Bank's methods and reasons for its special interest in the power sectorhas been gained during the period of loan preparation and is expected to growas association between Romania and the Bank extends. In connection with theProject execution and supervision, detailed reporting requirements includingsector indicators have been accepted by the Borrower and the Guarantor.

1.03 This report is based on the findings of a Bank mission consistingof Messrs. N. Green, P. Cordukes, I. Hume and S. Brealey (consultant) whichvisited Romania between November 7 and 27, 1973, and on data supplied bythe Romanian authorities including a "Preliminary Technical and EconomicStudy" for the Project dated June 1973 and a report entitled "Data andEconomic and Technical Elements Concerning the Feasibility of the TurceniThermal Power Station Scheme".

2. THE COUNTRY AND THE ECONOMY

The Country

2.01 The Socialist Republic of Romania, is a country of some 21 millionpeople covering an area of 237,500 km2 stretching westwards from the Danube

1/ Pronounced as "Toorchen".

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Delta on the western shores of the Black Sea to Hungary and Yugoslavia. Itis bordered on the north and east by the Soviet Union and by Bulgaria in thesouth. The country is of varied topography.

2.02 The climate varies between the mountains and the plains; but ingeneral it is East European Continental, dominated by the high pressuresystems from Western Soviet Union and from North-Central Asia. Wintersare generally long and cold, summers short and hot. Temperatures rangefrom summer highs of 25C to 30C to winter lows of -15C to -20°C.

The Economy

2.03 Since the founding of the People's Republic of Romania in 1948 (itwas pronounced a Socialist Republic by the constitution of 1965), Romania hasbeen organized on the basis of socialist principles. Almost all natural re-sources and productive assets are owned by the State. With the exception ofsome 9% of the total, all agricultural land is either owned by the State oris organized into state-controlled cooperatives. There is no private industry.Economic management is achieved through a process of central planning in whichvirtually all productive activity, including investment and the financing ofinvestment, production targets, productivity norms, foreign trade and the dis-tribution of incomes are stipulated in annual economic and social developmentplans. Annual plans are elaborated within the framework of a Five-Year Plan -that presently in force being for the period 1971-75.

2.04 To facilitate the planning process, the pricing of all inputs andoutputs and the setting of tariffs for services and energy are all predeter-mined by the central authorities, and these have until now remained fixed forlong periods. The structure of tariffs and prices until recently was that setby the authorities in 1963. The price system is at present under review andthe expectation is that new prices will be set to reflect the historical de-velopment of relative costs in time for the final elaboration of the Five-Year Plan for 1976-80. New electricity tariffs and prices for fuel were in-troduced from January 1, 1974 (para 3.12).

2.05 Romania is a country in an intermediate stage of development. Thelatest Bank Atlas estimates GNP per capita for 1971 at $740. The achievementof this level of development is the result of more than two decades of rapidindustrial development, in the course of which the predominately agrarianeconomy of the early postwar years has given way to the emergence of a strongand growing industrial sector. In 1972, industry including power and con-struction employed about 35% of the labor force and contributed about 66%of the national income. Bucharest, Romania's capital (1.6 million in 1972)is the only city with a population exceeding one million. It is followed insize by a group of eight cities whose 1972 population was in the range of200,000 to 250,000.

2.06 Despite the considerable advance in industrialization since 1945,Romania still has a relatively high proportion of its population and laborforce in rural areas. In 1972, about 58% of the total population lived inrural areas compared with over 75% in 1945. About 42% of the labor forcewas employed in agriculture.

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2.07 The official exchange rate of lei 4.97 per US$1 is used only for

accounting purposes. The rate used for invisible and capital transactionsis lei 14.38 per US$1. Under a new system introduced in January, 1974, the

prices of all traded goods are converted at a uniform rate of lei 20 per US$1;

a rate which is considered by the Romanians as being representative of the cost

of convertible foreign exchange. For imported goods, the domestic lei price

is found by adding to the converted foreign price a tariff rate which variesfor different types of goods. The rate of lei 20 per US$1 has also been used

to convert national income statistics from lei to dollars. Consequently, this

rate has been used as the base rate for calculations in the appraisal.

Energy Resources

2.08 Romania relies predominantly on domestic sources of primary energy,

though in recent years imports of crude oil and coal have become important.The country's single most important source of primary energy is natural gas,accounting for 41% of the total consumption in 1973. A breakdown of the four

major primary energy sources (as measured by production and imports in 1973)

is given in the following table. The Romanian strategy on energy, intensifiedsince the recent energy crisis, is to conserve gas and oil and expand domesticlignite production and hydro-generated electrical energy. There is at presentno nuclear power generation capacity in Romania but there are plans to developa 440-MW plant with the commissioning scheduled for 1981. Efforts are also

being made to harness the country's geothermal potential but developments in

this field are not far advanced.

ROMANIA's PRIMARY ENERGY CONSUMPTION IN 1973(Total Annual Supply)

Domestic Imported Total Btu x 1012 %

Coke and Coal (m. tons) 27.4 3.3 30.7 685 28.2

Hydro-Electricity (GWh) 7,500 - 7,500 25 1.0

Oil (m. tons) 3 13.5 3.5 17.0 717 29.6

Natural Gas (bill. m ) 29.6 - 29.6 996 41.2

TOTAL 2,423 100.0

Natural Gas

2.09 Romania has a relatively abundant supply of natural methane gas,

found mostly beneath the Transylvanian Basin. The quality of the gas isas high as any in Europe. No exact figures are available but there areknown to be proven reserves sufficient for 30-50 years supply at presentproduction levels. Total gas production in 1973 was about 30 billion m3 ,of which 5 billion were from oil-based gases. It is expected that produc-tion will increase by about 1 billion m3 annually until 1975. Beyond that

year, however, plans are for no production increase in order to conserve re-serves. The decree issued by the Council of State in November 1973 has for-

bidden any increase in the use of gas as a fuel (Annex 1) as from that date.

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Crude Oil

2.10 Exact figures to show Romania's known reserves of crude oil werenot available, but at the current extraction rate of about 14 million tonsp.a. the reserves are not expected to last much beyond the end of this dec-ade. There is a considerable oil exploration effort, including offshoredrilling in the Black Sea, but prospects are uncertain. In 1973, Romaniaimported about 4 million tons of crude oil, valued at about $80 million.In 1974 oil imports are expected to approach 6 million tons, almost all forchemical feedstock. While being a net importer of crude, Romania is a netexporter of petroleum derivatives. In 1973, petroleum exports totalled about5 million tons with a value around $140 million. To the extent petroleumderivative prices rise in response to recent changes in crude oil prices, therewill be gains in export earnings to offset the rise in the oil import bill.Since the November 1973 decree on energy, there has been domestic rationingof gasoline and fuel oil, but this was ended in March 1974 following an in-crease in the selling prices of these fuels.

Fossil Fuels

2.11 Of the total coal reserves in the country, 90% consists of lignitemost of which occurs along the length of the Carpathian foothills of Oltenia.There are also small deposits of "huile" 1/ and "brown coal". The combustiblecontent of the lignite is 35-38%, that of the "huile" is about 60% and the"brown coal" is intermediate between the lignite and "huile". The ligniteis exploited almost exclusively for power generation. The lignite reservesin Oltenia are stated by the Ministry of Mines to be about 9 billion tonsof which about 3 billion tons are considered economically exploitable. Moredetailed information on the deposits and the quality of lignite can be foundin Annex 2.

Hydroelectricity

2.12 The total installed generating capacity of the Romanian power systemwas 9,357 MW in 1972. Of this total, 22% or 2,100 MW was from hydro-basedcapacity. In the years 1960-72, the total hydro-based capacity increasedfrom 210 MW to 2,100 MW. Most of this increase, however, came in 1970/71upon the completion of the Iron Gates I hydroelectric station on the Danube.This station has a total capacity of 2,100 MW and produces about 11,000 GWhp.a. Only half of these amounts are available to the Romanian system as theIron Gates output is shared equally with Yugoslavia. It is estimated thatRomania's total hydro-potential (economically feasible) is around 31,000 GWhp.a. of which only 7,000 GWh p.a. is currently developed. Most of the unde-veloped capacity is on the Danube and development of this is complicated byproblems related to navigation and international waters.

1/ "Huile" is pit coal or bituminous shale.

3. THE SECTOR

Organization of the Power Sector

3.01 The Ministry of Electrical Energy (MEE) administers the sectorthrough a board comprising the minister, three deputy ministers and thevarious directors of subordinated organizational units. The MEE presentlyemploys in excess of 100,000 personnel and is responsible overall for theresearch, planning, design, construction and operation of all public powersupply installations in Romania. The organization structure of the MEE isshown in Annex 3.

3.02 Among the various units subordinated to the MEE are design andresearch institutes, training centers, construction trusts, foreign tradeenterprises and a national dispatch center. It is the design institutesand the construction trusts which are responsible to the MEE for the prepara-tion, design, construction and supervision of major power projects in Romania,including the Turceni plant.

3.03 Power generation, transmission and distribution facilities areoperated by enterprises which report to the Industrial Central for ElectricPower and Heat. (In addition to selling electric energy, some of the gen-erating enterprises also sell heat, in the form of steam, to industrial andagricultural undertakings.) The organization chart of the Industrial Centralis shown in Annex 4. The Central collates the 5-year and annual investmentand production plans of the enterprises, which are then submitted to theMinistry of Electrical Energy. Each enterprise prepares monthly productionstatements and balance sheets for the Industrial Central, which serves as thehead office of the enterprises supervising their activities and reviewingtheir finances. The Industrial Central has a staff of about 160 and isdirected by one of the deputy ministers of the MEE.

3.04 There are 16 generating enterprises employing about 28,000 staffand 17 distribution enterprises with about 14,000 staff. The organizationalstructure of a typical generation enterprise is shown in Annex 5. The dis-tribution enterprises are similarly organized but within each is a distribu-tion construction unit (SCM). Distribution works up to 110 kV are designedby staff of the enterprises but the SCM units carry out the construction.The SCM units employ about 4,000 staff and are independent self-accountingdepartments of the distribution enterprises. There are also 2 manufacturing/repair enterprises (about 4,000 staff) which supply and service the generationand distribution enterprises.

3.05 The Turceni generation enterprise was established on August 1, 1973,by a decree of the Council of Ministers (Annex 6). It is a legal entity,whose designated officers have the power to sign contracts and utilize theinvestment funds provided for the project. It is a self accounting unit,recording the costs of construction and subsequently those of productionwhen the power station is commissioned. During the construction phase the

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Turceni enterprise operates as the site office monitoring the progress ofthe works. Once the power station is commissioned, it becomes an operatingenterprise of the Industrial Central.

Legislation

3.06 The organizational units of the MEE including the Industrial Cen-tral and its enterprises are basically subject to the same legislation 1/ asthat which regulates and controls all economic units in the Romanian socialistsystem. Some of this legislation, which is implemented through Ministry ofFinance instructions, covers matters ranging from depreciation rates, classi-fication of accounts, distribution and payment of benefits, to the preparationof financial reports for the Central.

3.07 The Ministry of Electrical Energy has its own statutes or regula-tions which prescribe the functions and use of electric energy. They incor-porate the tariff rates, conditions of supply and instructions on the applica-tion of the regulations.

Management and Management Systems

3.08 Each enterprise is headed by a General Assembly of the Working Peoplewhich is represented by a Working Peoples Committee and an Operating ManagementCollective. The Assembly generally meets twice a year. Similarly, the manage-ment and direction of the Industrial Central and all other organizational unitsof the MEE is directed by representatives of the people. Executive responsibil-ity is in the hands of the general manager, who is appointed by the Ministry,assisted by an executive board. In the case of the MEE, the Minister and theheads of the respective organizational units have executive authority (Annex 3).

3.09 The best evaluation of the competence and the adequacy of the man-agement and staff can be gauged from the performance of the sector. Theminister and the deputy minister of the MEE are technical specialists whohave been appointed from within the electric power sector, as is generallythe practice in technical sectors. Despite the very rapid growth of the systemover the last decade, staff of the enterprises appeared competent and knowledge-able, exercising delegated authority and responsibility. Performance trendsper employee have been consistently upward in the past decade. Although thisundoubtedly reflects the general growth in the sector (e.g. increasing sizesof generating units), the general impression gained is one of increasing effi-ciency combined with productivity gains (see 3.21). The facilities visitedwere well maintained and operating effectively. Management methods anddecision making processes, while following a procedural code and constrainedby the dictates of standardization, employ modern tools and methods for data

1/ Law No. 11/71 - covers organization and management of the Centrals andEnterprises.

Decree No. 76/73 - covers organization and management of the Ministriesand other State Bodies.

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collection and evaluation. The design institutes and the construction trustsof the MEE have proven performance records and they seem to be largely inde-pendent of foreign consulting services.

Insurance

3.10 Insurance of normal business risks is not practiced in Romania.However, enterprises do set aside a small share of benefits (para. 3.16)to cover unforeseen events. This reserve is sufficient to meet minor lossor damage. The Government acts as its own insurer supporting enterpriseswhich suffer major losses arising from events beyond their control. Wherenormal budget provisions are not adequate to meet the cost of replacement ofa major asset, specific provision is made in the next State Budget.

The Electric Power Market

3.11 Electricity supply is available to 91% or 18.7 million of theRomanian people. Average annual consumption of electricity per capita wasabout 1,600 kWh in 1972. Total energy consumption within the country wasdivided as follows: industry 75%, commercial 11%, domestic 9%, and agri-culture 5%. Of the country's total electricity production of 43,440 GWhabout 8.5% was exported, principally to Czechoslovakia via U.S.S.R.

Tariffs

3.12 Tariffs are approved by the Council of Ministers. The first revi-sion since 1963 became effective on January 1, 1974 and is reproduced in sub-stance at Annex 7. The new rates will become fully effective by 1975 when itis estimated they will give an average revenue per kWh sold of 0.318 lei,i.e. 1.4% more than the previous average of 0.314 lei.

3.13 The new tariffs give increased incentives to the operation at highload factor, provide penalties for low power factor and the imposition ofrandom excess demand at times of system peak. All of these should have theeffect of improving the system characteristics.

Financing of the Sector

3.14 Being part of a centrally planned economy, the power sector finan-cial plans are integrated with those of all others to form the Socio-EconomicPlan (para 2.03). This plan covers a 5-year period, currently 1971-75. Priorto the commencement of each year, the annual production and investment plansfor each sector are collated and submitted by each Ministry to the StatePlanning Committee and the Ministry of Finance, which coordinate all finan-cial needs into a Financial Plan. The main component of the Financial Planis the State Budget but the Financial Plan also includes self financing ofenterprises, funds from depreciation, and foreign funds. The Socio-EconomicPlan, the Financial Plan and the State Budget are submitted through theCouncil of Ministers for the approval of the National Assembly whereby theyachieve the status of law.

3.15 Finance required to meet the production plans is allocated fromState Budget funds by the National Bank. Each enterprise is allowed a"minimum" normal working capital calculated according to a prescribed formula(Annex 19 para. 11) and any additional requirement can be obtained from theNational Bank as a short term loan. These loans are subject to a nominalrate of interest (2-3%) and are available for periods of up to a maximum of12 months.

3.16 The distribution of benefits or net income is planned when the an-nual production plan is prepared. The first priority after payment of theturnover taxes is a minimum 10% of net income payable to the State Budget.The workers' share of benefits, if the planned level of benefits has beenattained, is then also paid. This benefit normally amounts to 2% of theannual net wages bill and is increased or reduced proportionally to thedegree to which planned benefits are exceeded or not met. Loans and work-ing capital must be repaid and the Industrial Central then receives a por-tion of benefits, sometimes as much as 70-80%, towards its re-investmentrequirements. Between 1-4% is left to each Enterprise to improve socialamenities and to cover capital repairs and other minor investments. Thereis also a reserve fund not exceeding 0.5% to meet expenditures on piotocoland unforeseen expenditures. Should there be any balance remaining afterthe first distribution of benefits, a second distribution is made but theamount allocated to the State Budget is shared equally with the local ad-ministration budget. If an enterprise is unable during the year to meetthe planned distribution payments or other commitments and it is requiredto borrow additional working capital, such funds are subject to a penaltyrate of interest of 12%. The determination of the level of planned bene-fits is thus a fundamental part of the total planning process, any decisionsto vary earnings will have an impact not only on funds available for re-investment in the sector but also on the State Budget and the Financial Planfor the country, and most importantly on the workers.

3.17 The investment plans are prepared separately from the productionplans and are based on projects approved by the delegated authority; theenterprise, the Industrial Central, the MEE or the Council of Ministers.Projects estimated to cost in excess of 70 million lei (US$3.5 million equiv-alent) are approved by the Council of Ministers after careful vetting andanalysis by the MEE, the Investment Bank and the State Planning Committee.Projects estimated to cost 30 million lei and up to 70 million lei are ap-proved by the MEE; projects estimated to cost 10 million lei and up to 30million lei by the Industrial Central. Up to 10 million lei, projects canbe approved by the enterprise.

3.18 Investment expenditure is financed firstly from internal sources,a pre-determined portion of planned benefits (para 3.16), depreciation fundsand other sources (largely the sale of scrap material and obsolete equipment).The remainder is provided by way of allocations from the State Budget or inthe form of loans from the Investment Bank. The latter at the present timeare not significant in amount. However, the Investment Bank does play a sig-nificant role in the allocation and expenditure of all investment funds in

that it is responsible for authorizing all investment expenditures in accord-ance with the approved plans. It has staff in all districts who review theprogress of investment projects, ensure that expenditures are properly au-thorized and finally arrange the transfer of funds effecting payment.

3.19 In practice the Industrial Central coordinates the sector finances.Each enterprise pays its depreciation, planned share of benefits and taxestwice monthly from its revenues. Depreciation funds, which are treated asreal expense items are paid to the Investment Bank for the credit of the Indus-trial Central, and other items to the National Bank for the credit of the State.

Existing Power Facilities

3.20 The installed generating plant at the end of 1972 was 9,357 MW(delivering 43,400 GWh) of which 9,100 MW or 97.3% was interconnected. Theplant comprised 2,100 MW hydro, 6,842 MW steam, 306 MW diesel and 109 MW gas-turbine. Of the total 8,501 MW was in the charge of the Ministry of ElectricalEnergy whilst the remainder represented plant installed at industrial works.The transmission and distribution system comprised 242,675 km of lines ofwhich 2,010 km are 400 kV, 2,458 km are 220 kV, and 9,259 km are 110 kV.Sub-transmission/distribution in the range of 1-60 kV accounted for 86,489km of lines (Map IBRD 10830) and the remainder 142,459 km is below 1 kV.

3.21 Published data showing the efficiency of conversion in thermalplants indicates significant improvements over the years. In 1960, 3,514kcal/kWh were needed (24% efficiency) reducing to 2,849 kcal/kWh in 1965,2,387 kcal/kWh (36% efficiency) in 1970 and has remained substantially atthis level since then. The present performance is as good as if not betterthan the achievements in many industrialized countries and borders on thelimit of technical feasibility.

3.22 Continuing emphasis is placed on the achievement of lower specificinvestment costs for plant of all types. The combination of this and the in-centive to achieve low specific operating costs coupled with reliability ofsupply, operate to control performance in the absence of a free marketsituation.

3.23 In 1972, the output of 36,100 GWh from the thermal plant was derivedfrom the following fuels: lignite 20.8%, coal 13.4%, gas 59.1%, fuel oils3.8% and other fuels including secondary resources 1/ 2.9%. The largestoperating steam units are 315 MW at Craiova and are lignite-fired. Furtherunits of similar size and type (330 MW) are under construction at Rovinari.Craiova and Rovinari power stations are located in the province of Oltenianot far from Turceni. Twelve 200-MW units have been commissioned in theperiod 1966 to 1972. Romania has until recent years purchased its majorpower plant components from foreign sources, mainly Russia and Czechoslovakia.Transition to domestic manufacture is now well advanced and based on long

1/ By-product gases mostly.

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established steel processing and manufacturing capacity in other fields. Atthe end of 1973, there were in course of manufacture under licence, six boilersand four turbo-generators of the type and size to be installed at Turceni.The boiler manufacturing capacity is being extended to cope with the higherproduction rates required to fulfill the plan.

3.24 International power connections exist with Hungary at 400 kV, withCzechoslovakia at 400 kV through USSR, with Bulgaria at 220 kV and a secondlink with Yugoslavia is in preparation but not yet connected. At present,exports to Czechoslovakia in payment for plant supplied are the main inter-national transfers. Under this contract 2,000 GWh p.a. are being exporteduntil 1980. No significant imports are made.

Development Program

3.25 The development program has been described by the Romanian authori-ties in general trend terms supplemented by a few specific pieces of informa-tion. The trend is reflected in Annexes 8 and 9 and relates to the loadgrowth forecasts (para. 5.01) and resources (para. 2.08). In the periodthrough 1980 new plant in excess of 9,000 MW will be commissioned of whichsome 2,800 MW will be hydro plant. Hydro development will be acceleratedas far as possible. Specifically the Riu Mare scheme, with 320 MW of plantat 14,000 lei/kW investment, is scheduled for construction in the period 1974to 1980. The Cernavoda scheme on the Danube costing 20,000 lei/kW, with 1,000MW of plant and an annual output of 4,000 GWh p.a. is planned for constructionduring 1975 to 1983.

3.26 Thermal development will concentrate on the utilization of indi-genous solid fuel and the Turceni Project is typical, being sited so as topermit its extension by a further 1,320 MW of plant based on lignite fuel.

3.27 An important factor in the future thermal program is the plannedreplacement of old and relatively inefficient plant by more efficient andmodern units such as Turceni. Even neglecting any plant retirement aspects,Turceni's contribution to the system peak demand will be absorbed in lessthan 14 months after commissioning. The 1,320 MW of Turceni represent aboutone third of the total new plant being commissioned in the construction period.

3.28 At the time of appraisal it was judged that 7,000 MW of new plantwould be needed in the period 1981-85. Despite the terms of the decree re-quiring a review of the energy sector (Annex 1), it is unlikely that a lowerelectric power generating plant development rate could be justified as therewill remain an incentive to conserve gas and fuel oil reserves by replace-ment of plants presently fuelled by them whilst maintaining the industrialdevelopment of the country (para. 2.08).

3.29 The present 400/220/110-kV transmission system is expected to beadequate until about 1980. After 1980 it is expected that a 750-kV systemwill be needed.

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3.30 Investment to support the planned growth in the period 1974 to1980 is estimated at 99.3 billion lei (US$5 billion equivalent) of which some60% will be devoted to generating plant and the remainder to transmission,distribution and other facilities. This reflects an average system investmentper kW of plant installed of 12,000 lei including transmission and distribu-tion works, etc. which should prove to be adequate to meet the needs of thedevelopment plan.

Village Electrification

3.31 Romania has some 13,150 villages and in 1960, 3,427 had been elec-trified. In the next five years, 1961-65, 617 villages were added on averageeach year. In 1966-70 the rate increased to 815 p.a. Thereafter, as the re-mainder became increasingly more remote the rate dropped to slightly more than500 per year. By 1972, 11,634 or 88.5% had been electrified and the balanceis to be completed by 1975 at the rate of 500 per year, at which time elec-tricity will be available to nearly the entire population.

4. THE PROJECT

Description

4.01 The Project comprises:

(a) a thermal power station with four 330-MW lignite-fired unitsdelivering 7,920 GWh to the interconnected system at a loadfactor of 74%, complete with the Jiu river realignment forcooling water intake purposes and flood control, road andrail links for construction and generation purposes, pollutionmonitoring stations and,

(b) 400-kV and 110-kV transmission lines, about 600-km long,connecting Turceni with Mintia and Brazi substations in-cluding a switching station and interconnection with theexisting 400-kV system out of Iron Gates I power station.The 110-kV line is for construction and standby purposes andwill connect with two nearby substations (Map IBRD 10831).

4.02 Associated works vital to the Project are the development of anopencast mine - South Jilt, the development of an underground mine - Matasari,the expansion of production of the existing mines at Tehomir, Pesteana andLupoaia, and the construction of rail links between mines and Turceni to carrythe fuel (Map IBRD 10831).

Cost Estimates

4.03 A summary of the cost estimate based on prices at the end of 1973(Annex 10) is as follows:

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US$------lei millions---- -equivalent millions--Local Foreign Total Local Foreign Total

Thermal power station 3,828 1,255 5,083 191.4 62.8 254.2

Contingencies - Physical 260 - 260 13.0 - 13.0- Price - 524 524 - 26.2 26.2

Total 4,088 1,779 5,867 204.4 89.0 293.4

Transmission lines andAssociated works 1,147 4 1,151 57.4 0.2 57.6

Contingencies - Physical 48 - 48 2.4 - 2.4-Price - 2 2 - 0.1 0.1

Total 1,195 6 1,201 59.8 0.3 60.1

Total Cost of Project 5,283 7,068 264.2 89.3 353.5

4.04 The estimated foreign exchange requirement, US$89 million, coversthe cost of direct imports required for the Project. The proposed loan of$60 million would finance 67% of this cost comprising items suitable for in-ternational bidding and which are expected to be supplied from Bank-membercountries; the balance of the foreign costs would be financed by the Govern-ment and comprises miscellaneous items unsuited to international procurement.

4.05 Local costs are based on fixed&Romanian prices and are unlikely tochange significantly; however, an allowance not exceeding 5 percent is builtinto the base costs of local project components in accordance with Romanianpractice. Price contingencies on items to be financed by the Bank Loan werecalculated at 14% for 1974,11% for 1975 and 7-1/2% for subsequent years; forthe remainder of direct imports a price contingency of 5 percent is provided.Physical contingency has been allowed at 5% on the overall cost of the projectwhich is in accordance with Romanian experience. Though import duties rangingto 45% have been imposed on equipment and machinery imports since January 1974,the borrower has taken steps to exempt imports for the project from duties.

4.06 The 1,320 MW of plant at Turceni is estimated to cost about lei 5.9billion (US$293 million). The cost per kW installed at 1973 values, neglectinginterest during construction but including the Jiu River realignment, is es-timated to be lei 4,010/kW. This compares with similar plant already inservice such as: Rovinari -- 2 lignite-fired 200-MW sets in 1972 for 3,261lei/kW, Brazi -- 2 oil-fired 200-MW sets in 1972 for 2,112 lei/kW, andCraiova -- 2 lignite-fired 315-MW sets in 1967-68 for 2,565 lei/kW.

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Procurement

4.07 Romanian procurement practice has been to invite tenders from se-lected manufacturers and then negotiate a supply contract. Such activity hasbeen handled by a number of specialized agencies associated with the sectorconcerned. Recently a new regulation was enacted which establishes a form ofcentralized control over procurement procedures including tender evaluation.This law is seen to reflect, among other things, the new association ofRomania with the Bank and its specialized requirements. Agreement was reachedat the time of negotiation that all procurement to be financed from Bank fundsbe coordinated by ROMENERGO, the Ministry of Electrical Energy's foreign tradeenterprise. No difficulty is foreseen in developing a satisfactory procedure.Equipment and materials to be supplied from within Romania will be procureddirectly by the Turceni Enterprise.

4.08 Procurement of the items to be financed by the proposed Bank loanwould follow international competitive bidding procedures in accordance withthe Bank's Guidelines for Procurement and would comprise (i) complete compo-nents such as standby diesel sets and ash handling plant for direct deliveryto site, and (ii) equipment and materials such as special steel plates andpipes for manufacture and incorporation in the boilers, turbines and generatorsbeing made in Romania (Annex 11). In general, Romanian suppliers are notexpected to bid since the list of equipment and materials to be financed bythe Bank has been prepared after excluding all items likely to be manufacturedlocally. Should however, manufacturing capacity be developed in the interim,Romanian suppliers would be eligible to compete on an international basis withbids expressed in a freely convertible currency. No retroactive financing isproposed.

4.09 As discussed in para. 4.04 the specific investment cost for theTurceni plant is expected to be lei 4,010 per kW at 1973 values, using lei20 - US$1, this is $201/kW. Manufacture of the plant in Romania does nottherefore imply an economic penalty. Bank support for the procurement ofmaterials and components to be used in the manufacture is justified andshould lead progressively to Romania's competition in the world market forthe supply of this type of plant.

4.10 The power station is conventional and utilizes designs and layoutsthat have been successfully applied in Romania and elsewhere. There is aconsiderable wealth of experience in Romania in the use of the lignite fuelsfor power generation and stations equipped with units of similar size havebeen operating since 1967. Fuel supplies will be delivered by rail on aline built specifically to handle this traffic (Annex 2, para. 4.1.2). Themain units of plant (boilers, turbines and generators) are to be manufacturedin Romania under licenses from established manufacturers (para. 4.14). Theboilers are to be made at the Vulcan Works and the turbo-generators at theUMGB Works in Bucharest. The mission visited both works and a very favorableimpression was gained of their capacity and equipment both for production andquality control.

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Insurance

4.11 It is the practice in Romania for each organization during the timethat it is responsible for an item of plant or operation, to carry such risksas may arise. Thus the transportation enterprise moving an item of plant froma port or factory to the installation site is held responsible for any damageor loss that would in other circumstances be carried by an insurance policy.This is in effect a State cover, but places the incentive to avoid loss onthe workers at all levels who would lose a proportion of the benefits affectedby any loss. Suppliers of imported equipment and materials are required tocover these by conventional insurance to the point at which a Romanian carriertakes over. The Borrower has agreed to arrange for insurance to the place ofimportation into Romania, payable in a currency freely usable to replace orrepair the goods.

Disbursements

4.12 The proceeds of the proposed loan would be disbursed against thedirect foreign exchange costs of imported equipment and material, and theex-factory cost if Romanian suppliers bid successfully. No disbursementwould be made for costs incurred prior to the signing of the loan. Annex 12shows the estimated schedule of disbursements from the Bank loan. It is ex-pected that the full amount of the loan would be utilized, but if there aresavings which cannot be utilized for the Project, the relevant loan amountswould be applied to interest during construction.

Engineering and Construction

4.13 The Design Institute for Thermal Studies (ISPE) is responsible forthe overall project development and is a design organization specializing inthermal power utilization in which field it has extensive experience. Coor-dination of equipment designs for the Project is the responsibility of (ICPET)the Design Institute for Thermal Power Station Equipment.

4.14 Major advances in technology as in the case of thermal power plantare handled by the device of choosing an established and proven modern designand negotiating with the makers for the purchase of the license to manufac-ture the equipment in Romania. Thus, in the case of the Turceni plant, theboilers are being made to a Babcock-VKW design, the turbines to a Ratthau-Schneider design and the alternators to an Alsthom design. In like mannerit is proposed to obtain designs for bucket-wheel excavators and associatedopencast mining equipment from an established European manufacturer (Krupp)for the manufacture of the equipment needed to develop the South Jilt open-cast mine which is to supply lignite to this Project.

4.15 In the context of the Romanian planning system where the nationalresources are closely integrated and production targets are defined in de-tail, the result has been to develop engineering services to suit this pat-tern. Thus, design covers the smallest detail at an early stage and isfacilitated in its cost evaluation by the existence of a fixed price struc-ture in which fluctuations are small and infrequent. Preliminary estimatesproduced by the design institute (in this case, ISPE) are discussed with

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the manufacturing enterprises and construction trusts which will eventuallycontract to manufacture or erect the works and adjustments to the estimatesare negotiated. The performance target for project execution is limited bylaw to a 5% (largely physical) contingency allowance for cost estimation andit is claimed that in practice project cost estimates are realized to anaccuracy of t1%. Over expenditure in the contingency allowance beyond the5% level requires strong justification and authorization at an appropriatelyhigh level. All this leads to a conservative approach to estimates and de-sign which is itself controlled by incentives to reduce the specific invest-ment costs whenever possible whilst maintaining plant efficiency.

4.16 The Project is administered and supervised by the Turceni enterprise.The design institute (ISPE) will monitor performance and assist in a mannersimilar to a consultant. At the same time, the Investment Bank has a team ofspecialists who effect a technical and administrative audit during the invest-ment period. The Industrial Central has additionally a group of engineerswhose prime function is to supervise during construction and who eventuallyexecute the commissioning trials and authorize the acceptance of the plantfrom the construction trusts and manufacturers.

4.17 Work at site commenced in November 1972 and the first unit is ex-pected to be completed in September 1977 followed in March and September 1978by two more, and the last in March 1979. The civil works are being executedby the Thermal Construction Trust (TEC), erection of plant will be executedby the Electro-Mechanical Construction Trust (TENM), which handles thermaland hydro plants. These trusts are specialized and being constantly employedon the many ongoing projects they have accumulated a wealth of experiencepertinent to power plant works in Romania. This system of project executionhas been demonstrated to be effective on previous works and is satisfactoryfor this Project.

4.18 Turceni will require 11 million tons p.a. of fuel, having an aver-age calorific value of 1,750 kcal/kg. The South Jilt mine will supply 8 mil-lion tons p.a. and the MIatasari mine will supply 3 million tons p.a. exceptin the years 1978 to 1983 when a shortfall from these mines is foreseen andthe requisite quantities are to be obtained from other existing mines (Annex2, Table 1). The most serious deficit of 6.4 million tons occurs in 1980.The Government have agreed to furnish six-monthly data on lignite productionby source and a forecast for the next six-monthly period.

4.19 It is evident that as an outcome of the preparation of detailedplans and the statement of performance targets which is fundamental to theRomanian system and practice, there exists a high degree ofcooperation be-tween the agencies involved in the execution of the projects. The Governmenthas confirmed that all necessary support shall be given to the executingagencies to ensure that the Project is achieved in all respects includingsuch associated works as are vital to the scheme as a whole. As a conditionof effectiveness of the proposed loan, the Council of Ministers must have ap-proved the technical and economic indicators for the Project. The technicaland economic indicators are included in the final technical and economic studyand the approval of the indicators by the Council of Ministers confirms the

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preliminary approval it has already given and ratifies the financing arrange-ments for the Project which then becomes part of the State Plan.

4.20 The manager of the Turceni enterprise is responsible for the admin-istration, assembly and training of the future plant operating staff. Train-ing is arranged with the aid of technical schools, universities, on the jobtraining at existing power stations and ultimately by association with theerection staff during the final stages of the Project through commissioningtrials to operation. An allowance for training costs is made in the capi-tal estimates.

4.21 Manpower needed during the height of the power station constructionwill exceed 5,500 persons. Permanent employment in the power station will beapproximately 1,500 and in the mining activity 5,000.

Ecological Aspects

4.22 Specific attention has been given to the plant design and locationto minimize the risks to the environment and the social structure of the area.The site was chosen with the ultimate development of the lignite deposits forpower purposes in mind and takes into account its ultimate development to2,640 MW. It lies about half way between the Rovinari and Craiova thermalpower plants.

4.23 The water of the Jiu river will be used for cooling purposes in open,mixed or closed cycle with full capacity cooling towers according to the pre-vailing temperature and flow conditions of the river. The water will be takenin such quantities as will allow of economic operation of the plant withoutresulting in thermal pollution of the river.

4.24 Atmospheric pollution standards are set in Romania and prescribea maximum daily average concentration of sulphur dioxide of 0.25 mg/m3, themaximum momentary S02 concentration should not exceed 0.75 mg/m3, non-toxicsuspended powder should not exceed 0.15 mg/m3 and surface deposition of ashemitted with flue gases should not exceed 200 tons/km2 p.a. The design ofthe station abides by these limits on the basis of a full development to2,640 MW. Electrostatic precipitators having a 99% efficiency are to beused to clean the flue gases. Such standards are considered satisfactory.The Turceni Enterprise, as part of the Project, will establish pollutionmonitoring stations, report to the Bank on the results and any correctiveaction taken.

4.25 The disturbance to the environment occasioned by opencast miningoperations will be dealt with in accordance with established practice wherebyoverburden dumps and worked-out areas are contoured, fertilized and plantedand brought back into agricultural or forestry use.

4.26 Slag and ash will be pumped in fluid suspension to the barrenCeplea valley, a distance of 4-5 km, where the output from a 2,640-MW stationcould be accommodated for 30 years.

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5. JUSTIFICATION

Load Growth

5.01 Estimates of load growth are made by the MEE employing regression

analyses using data derived from the national development plan and consumer

growth trends revised at 2-3 year intervals. A linear program model (similarto that recently developed in the Bank) is used to determine optimum develop-

ment plans taking into account the major forms of system constraints, including

export commitments. The load growth in the period 1970 to 1973 has been 13.8%

in 1971, 11.8% in 1972 and 8.5% in 1973. The reduction in 1973 was the result

of stringent conservation measures imposed to meet the world fuel situation.

The forecast to 1976 shows a mean growth rate of 12.9%. Thereafter a decline

to 9.4% by 1980 has been assumed. In the light of Romania's industrial and

social development targets for the forecast peirod, the 1973 reduction is

likely to be offset and the forecast sector growth achieved. A decision, made

recently, to provide lower standards of reliability for some sections of the

system demand by reducing the present plant reserve margin of approximately

20% of plant installed, is a good indication of the awareness of the costs

of security. Since studies of this type are particularly relevant to current

research being undertaken in the Bank, it is proposed to discuss these partic-

ular programs with the Romanian planners with a view to increasing the sharing

of knowledge on these planning methods between the Bank and Romania.

5.02 The forecast figures of interconnected system maximum demand shown

in Annex 8 were derived by the Bank staff from the sales forecast in the ab-

sence of data from the Romanian authorities. By 1979 when the Turceni plant

is commissioned, the system maximum demand is expected to be about 13,800 MW.

The energy to be generated implies a higher utilization of the thermal plant

from the present system average of 5,000 hrs p.a. to 6,200 hrs p.a. Such is

the expressed aim of the authorities concerned.

Comparison of Alternatives

5.03 The Romanian authorities described the methods they use for forward

planning and making investment decisions including the derivation of least

cost programs. Data in support of the Turceni Project investment decision

were given in part covering specific thermal alternatives (Annex 13). Special

arguments were put forward as follows.

5.04 Nuclear plant has not so far been employed in Romania and it is

thought prudent to embark slowly in this field. The existence of solid car-

boniferous fuels in the country, the need to gain experience in nuclear tech-

niques, and the probable advantages of improved designs to be gained by delay-

ing major investments in nuclear stations, contribute to this view. The first

step towards gaining experience has been taken by the placing of an order for

a 440-MW plant to be supplied by the USSR. The capital cost of such a station

is estimated to be 7,800 lei/kW (US$390/kW) and the cost of power generated0.14 lei/kWh (7 mills/kWh), which compares with 4,300 lei/kW (US$215/kW)allowing price escalation to completion, and 0.18 lei/kWh (9 mills/kWh) for

the Turceni Project.

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5.05 The hydro resources of the country are well researched and theprogram for the Romanian Five-Year Plan 1976-80 which covers the Projectperiod, provides for the commissioning of 2,000 MW of hydro capacity, in-cluding 320 NW at Riu Mare in 1980 which may eventually be considered forfuture Bank financing. The ratio of thermal plant to hydro plant is nowof the order of 3.5:1 and this ratio will be maintained during the planperiod. This is reasonable considering the largely peaking characteristicsof the hydro resources. It leaves ample room for base load lignite plantssuch as Turceni. The plan absorbs the feasible hydro construction capabil-ity in the period.

5.06 Natural gas, available in Romania and presently used to generate59% of the total thermal energy production, is a diminishing resource. Inthis context and bearing in mind the high quality of the gas (para. 2.09),the Romanian policy is to conserve gas for petrochemical feedstock in whichapplication it can be demonstrated to have a 2-1/2 times greater value thanfor power production.

5.07 The relative merits of generation using imported fuel oil arediscussed in Annex 13 and indicate that fuel-oil fired plant would be compet-itive only at a price for fuel oil below US$37 per ton, which is well belowcurrent market prices. Romania's indigenous oil resources are believed tobe on the decline. While it is not possible for lack of comprehensive datato demonstrate that the lignite station is a part of the least cost program,it is clear that with an annual system growth in excess of 1,000 MW, thereis a proper place for a base load plant such as Turceni in any plan develop-ing the thermal and hydro resources of the country in suitable proportions.The construction of an oil-based alternative would necessitate importationof fuel since Romanian production is fully committed. The development ofindigenous lignite resources therefore reduces the need for scarce foreigncurrency which would otherwise be needed to purchase fuel from abroad.

Economic Rate of Return

5.08 The rate of return (Annex 14) is 8.6% if benefits are measured by

incremental revenue attributable to the Project and financial costs are ad-justed for taxes and internal transfers. However, the incremental revenueunderstates the benefits consumers receive from the Project, since the levelof tariffs (particularly for industrial users) is low. Also, the incrementalrevenue excludes the social benefits deriving from expanded industrial employ-ment and urbanization which the incremental energy provided by the Projectwould help to foster. If export prices for power (Annex 7) are used as ameasure to calculate total benefits, the rate of return would be 11.5%.

5.09 In the light of the foregoing arguments, the development of anindigenous lignite fuel resource and a thermal power station based on it,is an appropriate part of the overall development plan.

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6. FINANCIAL ASPECTS

Summary

6.01 The financial analysis has not been as detailed as is normally con-ducted by the Bank in appraising power projects due to the limited informationmade available, particularly on the sector investment plans, the bases of fore-casts for fuel costs and energy sales and details of assets financed outsidethe sector, e.g. by the other Ministries and the SCM. Nevertheless the in-formation made available is sufficient to enable judgments to be made aboutthe adequacy of the financial planning system and the continuance of an ac-ceptable level of performance by the Romanian power sector.

6.02 A review has been made of the financial position and forecasts(Annexes 16-18) of the Industrial Central and its enterprises. It was basedon their performance over the 3 years 1970 to 1972 and the sector developmentplans for 1973-80 prepared prior to November 1973 and shows rates of returnbetween 4% and 6% while internal cash generation will meet nearly half of thecapital investment requirements of the sector to 1980. Considering the ab-sence of long-term debt service and the size of the investment requirements(US$5.3 billion equivalent) the forecast performance is satisfactory. How-ever, following a Government decree which was enacted on November 17, 1973to conserve fuel and energy (Annex 1), the Ministry of Electrical Energy com-menced an extensive review of its development program and energy sales fore-casts. Although the financial plans of the Industrial Central may changesubstantially as a result of this review, they will not be jeopardized be-cause the plans of the Industrial Central are a part of the national Socio-Economic Plan which is financed from State sources.

Past and Present Financial Aspects

6.03 The Romanian system of accounts (Annex 15) varies from the conven-tional presentation in that Government contributions from the State Budgetare not treated as equity or subject to interest payments or dividends. Inthe balance sheet, net fixed assets in service are represented under liabil-ities by a fixed asset fund instead of by equity and borrowings. Work inprogress expenditures are matched by "sources of investments" on the liabil-ities side of the balance sheet. With this format the debt/equity concept isnot relevant.

6.04 Analysis of the income statements (Annex 16) of the Industrial Centralfor the years 1970-72 shows a gradually improving trend not inconsistent witha situation of constant tariffs and unit costs. Operating revenues and salesshow an annual rate of growth of about 12%. An unusual feature of operatingrevenues is that 10% is derived from the sale of thermal energy (heat). Whileaverage revenue per kWh sold improved slightly during the period, operatingcosts were reduced from 0.305 lei per kWh to 0.294 lei per kWh largely due tothe commissioning of larger and more efficient plant and increased generation

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from hydro sources. As a result the rate of return improved from 4.2% to 5.0%.

Though these rates of return appear low, they were sufficient to enable the

sector to provide 47% of the capital investment requirements for the period.

A major contributing factor to this latter figure was the total absence of

long-term debt or dividends on the equity.

6.05 The financial position displayed in the balance sheet for 1970-72

(Annex 17) is sound. The only borrowings, Investment Bank loans, have each

been repaid in the following year. Most accounts receivable and creditorsare settled within 5 days, i.e.: as long as it takes to authorize the account

and effect the transfer of funds between bank accounts. Accounts receivable

outstanding represent about 13 days sales. This low level of outstandingsis achieved by rendering estimated accounts for the large industrial consumers

as often as every 10 days and in some cases more frequently. Domestic con-

sumers pay their accounts promptly. Fuel and material stocks valued at 953

million lei at the end of 1972 (about US$48 million equivalent) appear large

but represent about 10 weeks consumption of lignite and other fuels - a prudent

policy.

6.06 Gross fixed assets in service, which have increased at the rate of

about 14.5% per annum between 1970 and 1972, are valued on a historical cost

basis at 55.8 million lei (US$2.8 billion equivalent). In view of the histo-

rically low level of inflation in Romania this basis appears realistic. De-

preciation has averaged about 3.5% of gross fixed assets in service, a per-centage which considered in relation to the plant mix indicates the rates

generally are adequate.

Financinp Plan

6.07 Annex 18 sets out the sources and applications of funds. An extract

for the period 1973-79 is given below.

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1973-79Millions of lei %

Sources of Investments

Internal Sources

Benefits Reinvested 18,665 21Depreciation 21,880 25Other Sources /1 448 1

Gross Internal Cash Generation 40,993 47Less: Debt Service 483 (1)Net Internal Cash Generation 40,510 46

External Sources

State Budget Allocation 45,267 52Investment Bank Loans 448 1Proposed IBRD Loan 1,200 1

Total External Sources 46,915 5487 425 100

Construction Requirements

Proposed Turceni ThermalPower Project /2 7,346 8Other Construction 80,079 92

80J7 425 100

/1 Primarily sales of scrap materials and obsolete equipment.7T Includes interest during construction 276 million lei.

The Industrial Central's investment program requiring about 87.4 billion lei(US$4.4 billion equivalent) will be financed 46% from internal cash generationand 54% from external sources of which 52% will come from State budget allo-cations, 1% from Investment Bank loans and 1% from the proposed Bank loan.

6.08 For the purposes of the forecasts, it has been decided in discussionswith the TEE that 70% of total benefits will be reinvested in the IndustrialCentral's projects; the remainder is to be distributed as described in para.3.16. These reinvested benefits will meet 21% of the total requirementswhile depreciation and other sources will provide 25% and 1% respectively.

6.09 The Investment Bank loans will each be repaid in the following yearsubject to interest at 2% per annum. This interest has been capitalized andis not included as debt service as the loans are not a long-term debt but shortterm advances. The proposed Bank loan is assumed to be for 1.2 billion lei

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(US$60 million equivalent) at 7.25% for a term of 25 years including a 5-1/2year period of grace. The Investment Bank will meet the debt service on theBank loan and has agreed that the sum of the annual benefits and provisionfor depreciation of the Turceni Enterprise will, after the project is com-pleted in 1979, be sufficient to cover the debt service payments on the Bankloan. At that time the assets taken on charge will be valued in respect oftheir foreign content financed out of the proceeds of the loan, at a rate ofexchange US$1 = 20 lei as confirmed by the Investment Bank except where itemsmanufactured or similar to those manufactured in Romania are imported in whichcase they will be valued according to internal Romanian prices. Similarlyitems manufactured in Romania and financed out of the loan will be valuedaccording to the internal Romanian prices.

6.10 The Government is undertaking a comprehensive review of priceswhich will result in the gradual adoption during 1974/75 of a revised pricingsystem under Law No. 19/1971. Prices will be based on the average cost ofproduction plus an approved profit margin. In the power sector, the tariffshave already been revised and as a result the average revenue per kWh soldis expected to increase 1.4% by 1975 above those forecast in the projections.Prices for fuels are unchanged except for a slight increase (less than 1%))in the price of coal, and a slight reduction of about 1.6% in the price oflignite. These changes and any further changes which may arise from the re-view would not jeopardize the financing plan since allocations from the StateBudget are provided each year to balance the funds available from all othersources so as to meet the total requirements of the investment plans approvedfor the sector.

Future Financial Position

6.11 The financial forecasts 1973-1980 (Annexes 16-18) show little basicchange from the patterns of past performance. Operating revenues and salesare projected to increase at about 11% per annum to 1980 (1970-72, 12%) andgross fixed assets in service will nearly treble to 154 billion lei (US$7.7billion equivalent) - a rate of growth of 13.5% (1970-72, 14.5%). Rates ofreturn improve from 5.0% in 1972 to 5.9% in 1976, declining to 4.3% in 1980and the internal contribution to investment slips from 47% (1970-72) to 46%of total investment needs. The decline in the rate of return between 1976and 1980 is principally due to the number of new plants added to the netfixed assets base during the period whose cost per kW is greater than thatof presently installed plant. Despite the low rate of return, because of thehigh internal contribution to investment, the forecast financial performanceis considered satisfactory. Tariffs and costs have been assumed to be un-changed from 1973 levels. Notes and other assumptions for the financialforecasts are presented in Annex 19.

6.12 In view of the overall satisfactory financial performance by thesector, no financial covenants have been sought. Instead, the Governmenthas set out the principles it follows when making major investment decisionswith the understanding that these principles will continue to be applied.The borrower also agreed to furnish financial and economic information toenable the Bank to evaluate the benefits of the Project to the Romanian

- 23 -

economy and the position of the Turceni Enterprise in the Romanian powersector. There will be reasonable opportunity for representatives of thepower sector and the Bank to discuss this information.

Audit

6.13 The finances of all economic units in Romania are subject to closeaudit scrutiny primarily to ensure that planned performance is achieved andthat investments in fixed assets are used efficiently. Each enterprise andcentral has its own internal controllers who are appointed by the respectiveMinistry with the approval of the Ministry of Finance. They are required tocarry out annually a basic audit which is prescribed by Law 5 of 1970 andcertify the correctness of the accounts and present an opinion on the effi-ciency of operations. The scope of the audit under Law 5 of 1970 appears tobe adequate for Bank purposes but the internal controllers are not consideredto be sufficiently independent to certify the accounts. For this reason,reports on and certification of the accounts should be given by a body out-side the MEE.

6.14 The Romanian banks play a key role in external control. The NationalBank monitors the use of working capital throughout the year. Similarly, theInvestment Bank controls all investment expenditures ensuring that projectsare executed according to plan. Further it checks all orders before theyare placed, approves contract variations and makes all payments after firstensuring that they have been correctly authorized.

6.15 The Ministry of Finance reviews the reports of the internal con-trollers reporting its findings to the Council of Ministers. Recently therewas established in Romania a Court of Superior Control whose primary functionis to control the Ministries and the banks and to ensure that the main objec-tives of the National Plan are being achieved. The Court reports annually tothe President and the Council of State.

6.16 The Borrower agreed to obtain and furnish to the Bank within 3months of the end of each fiscal year an independent audit report from theMinistry of Finance on its own accounts and financial statements and on thoseof the Turceni Enterprise. Similarly the Government and the Investment Bankundertook to furnish each year an audit report on the accounts of the Indus-trial Central.

7. AGREEMENTS REACHED

7.01 The Loan and Guarantee Agreements and the supplemental letters willrecord the following principal agreements, undertakings and assurances:

(a) arrangements will be made for insurance of all imported goodsto be financed under the loan to the place of importation intoRomania under policies payable in a currency freely usable byRomania (para. 4.11);

- 24 -

(b) half yearly data will be furnished on lignite production bysource for the period reported on together with a forecastfor the next 6 monthly period (para. 4.18);

(c) the department and agencies responsible for carrying out theProject will cooperate effectively with each other (para. 4.19);

(d) the development of new and expansion of existing lignite minesand rail links between the mines and the power station will becarried out as provided in the State Plan (para. 4.19);

(e) the Turceni Enterprise will, as part of the Project, establishpollution monitoring stations, report to the Bank on the resultsand any corrective action taken (para. 4.24);

(f) the sum of the annual benefits and provision for depreciationof the Turceni Enterprise will, after the Project is completedin 1979, be sufficient to cover the debt service payments, whichwill be made by the Borrower, on the Bank loan (para. 6.09);

(g) financial and economic information will be furnished to enablethe Bank to evaluate the benefits of the Project to the Romanianeconomy and the position of the Turceni Enterprise in the Romanianpower sector. There will be reasonable opportunity for represen-tatives of the power sector and the Bank to discuss this informa-tion (para. 6.12); and

'h) within 3 months of the end of each fiscal year the Bank willreceive an independent audit report from the Ministry of Financeon the accounts and financial statements of the Turceni Enter-prise (para. 6.16).

7.02 As a condition of effectiveness of the proposed loan the technicaland economic indicators for the Project should be approved by the Council ofMinisters (para. 4.19).

7.03 In view of the above undertakings, assurances and agreements, theProject would provide a suitable basis for a loan to the Investment Bank ofUS$60 million equivalent for a period of 25 years including a grace periodof 5-1/2 years.

ANNEX 1Page 1 of 5

ROMANIA

TURCENI THERMAL POWiER PROJECT

Extracts from Govwnment Decree on Conserving Fuel and

Energy (November 17, 1973)

CHAPTER 1

Article 1

In order to insure the energy resources needed for the country'ssocioeconomic development, geological research and prospecting -- includingoffshore drilling -- will be intensified with the view to identifying andexploiting new geological resources of mineral energy substances.

Likewise, research activities for identifying and exploiting newenergy sources will also be enhanced.

Article 2

In order to better utilize energy resources, particularly enginefuels, solid fuel will be chiefly utilized in both the production of elec-tric energy and in other combustion processes. With this view, the develop-ment of the production of energy conveyors will be geared to increasedextraction and to expanding the utilization of solid fael -- coal and bitu-minous shale:

The Ministry of Mining, Petroleum and Geology -will facilitatestudies, designs and other measures necessary for the earlier opening ofnew solid fuel mines and pits, particularly of earth coal- along with theMinistry of Electrical Ererg, that Ministry will take ali the necessary vea-sures to complete the first plant streamlined on bituminous shale by 1978,likewise, alongside the Ministry of Heavy Machine-Building Industry, itwill establish measures for locally producing the equipment and installationsnecessary to furnish the new mines and pits.

The studies and program of measures will be submitted to theCouncil of Ministers for approval by March 31, 1974.

The Ministry of Mining, Petroleum and Geology and the Ministryof Metallurgical Industry, alongside the Ministry of Chemical Industry andthe Ministry of Forestry Economy and Coastruction Materials, will accelerateresearch, design and commissioning operations with the view to fully takingadvantage of the useful mineral contents found in shale.

ANNEX IPage 2 of 5

Article 3

Measures will be taken to reduce and gradually eliminate theutilization of hydrocarbons in combustion processes; crude oil and gaseswill primarily be reserved for chemical treatments, with which view:

(a) Installed capacities in electric plants will be increasedchiefly by means of solid fuels, hydropower potential andnuclear plants; it is forbidden to design and build newthermopower plants streamlined on liquid ftels or gas; like-wise, whenever possible, it is forbidden to design and buildnew industrial installations which consume liquid faels orgases in their combustion processes, as well as to expandthe network of pit gas distribution for combustion processes.

(b) Measures will be taken to intensify the construction of hydro-power plants aimed at taking maximum advantage of the hydro-power potential of internal rivers through their complex ex-ploitation in stages, as well as of the hydropower potentialof the Danube in cooperation with riparian countries; theMinistry of Electric Power, the Ministry of the Heavy Machine-Building Industry and the Ministry of Machine-Tool Buildingand Electrical Engineering Industry will establish and submitto the Council of Ministers, within 4 months of the date ofendorsement of the present decree, a program for intensifyingthe construction of hydropower plants based on the maximumrate of construction possible.

(c) The necessary preparatory measures will be taken as regardsthe design and supply of equipment and installations necessaryto accelerate the achievement of the program of constructionof nuclear plants.

(d) Tho Ministry of Electrical Energy will establish studies and pro-posals divided into stages up to the end of the first half of1974 for gradually reverting the thermo-electric plants inoperation or under construction from consumption of gases andnaphtha to solid faels.

(e) The Ministry of Electrical Energy will take measures to insurethat the types and quantities of fuel approved are strictlyobserved in the production of electric and thermal energy.

Article 5

With the view to utilizing some resources of primary energythat have not yet been utilized, especially underground thermal waters,the National Council for Science and Technology, along with the Ministry

ANNEX 1Page 3 of 5

of Mining, Petroleum and Geology., the Ministry of Electrical Energy and theexecutive committees of county people's councils and of Bucharest munici-pality will establish programs of studies, research and actions necessaryto gradually put these resources into economic circulation, beginning in

1975 at the latest.

CHAPTER II

Article 8(D)

The inistry of Electrical Energy will take measures to improvecombustion processes, thus enhancing the productivity of energy andinsuring reduced consumption in electric plants, as well as losses intransfer networks; it will also establish measures to insure a substantialreduction in this consumption as of June 1, 1974.

Article 8(E)

Socialist units consuming electric power will take measures sothat all shifts can obtain optimal consumption indexes of fuel and electricand thermal energy by intensively exploiting equipment, avoiding idle useand rationally distributing heat and lighting in accordance with strictproduction requirements.

CHAPTER V

Article 27

The Ministry of Electrical Energy, along with the Ministry ofTechnical-Material Supply and Control of the Management of Fixed Assetsand the General State Inspectorate for Guiding and Controlling the Plan-ning and Carrying out of Construction, will draw up, in cooperation withspecialized design institutes within 90 days of the date of endorsementof the present decree, uniform national norms on lighting in industry andother producing capacities, open air installations, administrative buildings,public roads and those within plant areas, shopping centers, socioculturaland other buildings; during the same period, they will establish norms forhousehold lighting and other uses so as to insure rational lighting inrelation to the size of the living space, as well as the normal fmunctioningof household electrical appliances and utensils at regular rates of operation.

ANNEX 1Page 4 of 5

Article 28

lWlith a view to exercising strict control over the consumptionof electric power and natural gases, electric power meters will be installedfor all consumers in the economy by December 31, 1974 and natural gas metersin stages by the end of 1975; after these deadlines have expired, it willbe forbidden to supply electric power and natural gas without meters.

CHAPTER VI

Article 30

The Ministry of Technical and Material Supply and Control ofthe Management of Fixed Assets, the State Planning Committee and theCentral Directorate for Statistics will draw up and forward to the Councilof Ministers for approval within 30 days of the date of endorsement ofthe present decree proposals for improving the information system in thefield of supervising fael and electric power consumption per cwnsumer.

Article 31

With a view to insuring a uniform policy in the field of thejudicious utilization of fuel and energy resources and their rationaladministration, a Permanent Commission for the Coordination, Guidanceand Control of Fuel, Electric and Thermal Power Consumption is establishedcomprised of representatives of the Ministry of Technical-Material Supplyand Control of the Management of Fixed Assets, the State Planning Committee,the Einistry of Mining, Petroleum and Geology, the Ministry of ChemicalIndustry, the Ministry of Electrical Energy, and National Council for Scienceand Technology and the National Cozmission for Geological Reserves.

Article 32

The ministries and other central bodies, the Executive committeesof the coumtry people's councils and of Bucharest municipality, the cen-trals, entelprises and other units will immediately start revising consunp-tion norms and establishing the necessary measures for reducing the con-sumption of fuel and electric and thermal power in sections, workshops andworking places; they will immediately apply the provisions of the presentdecree a-nd introduce the reduced rates of consumption established for 1973and 1974, thus insuring the complete achievement of the plan tasks.

As regards problems pertaining to activity throughout 1974 andafter, the ministries and other plan fulfillers, as well as the executive

ANMEX 1Page 5 of' 5

committees of country people's councils and Bucharest municipality, willestablish programs of actions per enterprise, central, ministry and people'scouncil, within 2 months of the date of endQrsement of the present decreewith a view to developing the sources of primary energy and conserving them.

These problems will be examined and endorsed by the Council ofMinisters, which will supervise the inQlusiQn of the relevant tasks andmeasures in national socioeconomic development plans and control theirimplementation.

March 1974

ANNEX 2

Page 1 of 15

ROMANIA

TURCENI THBAE L POWER PROJECT

Mining Aspects of the Turceni Power ProJect

1. INTRODUCTION

1.1 General

1.1.1 This Annex assesses the mining aspects of the Turceni power projeat-with particular reference to the viability of the plans for the fuiel supplyand its economic cost.

1.1.2 Construction has already started on the power station at Turceniand the first stage of 1,320 MW installed capacity is expected to reachfull output in 1980 when the total consumption of lignite will be about 11

million tonnes per annum. There are nine mines already in production. Twonew mines are being developed in the Rovinari area to supply the bulk of the

lignite requirements. They are:

Million tonsper amnum

Matasari (underground) 3South Jilt (opencast) 8

Total 11

1G2 Location

1.2.1 The power station is located in the Oltenia region in the valley

of the River Jiu whilst the mines are about 35 kIm to the north-west in thebasin of the River Jilt. The rivers are small and rise in the SouthernCarpathians (2,500 m altitude) to the north flowing southward through thefoothills where the lignite deposits of economic interest are found (300 maltitude). The terrain is generally good wood and farmland with many villagesstrung out along the roads. The main towns are Craiova to the south andTirgu Jiu to the north and townships are under development at the mine andpower station sites.

1e3 Climate

13e1 The climate is continental with long hot summers and long coldwinters. The lowest winter temperatures are -5 to -100C although occasionallytemperatures of -300C have been experienced. Considerable snow and ice isusual.

14 Mining Organization

1.4.1 Coal mining activities in Romania are organized under the PetrosaniCoal Central which is responsible to the Ministry of Mines, Oil and Geology.

1/ By S.C. Brealey, Consultant, Pbwell Duffryn Technical Services Ltd.

AMEX 2Page 2 of 15

The Central has financial relations with other organizations in Romaniaand also overseas suppliers although overseas trading is handled throughIMPEXMIN. Subsidiary organizations comprise:

5 mining enterprises2 mining cooperatives2 research and design institutes1 enterprise for mining equipment7 industrial schools8 mining exploitations1 coal preparation plant1 supply, transport and services administration

l.4.2 Those organizations of main significance to the Turceni powerproject comprise:

Rovinari Mining Enterprise - responsible for the operation ofthe opencast mines to the east of Jilt currently supplying theRovinari power station and limited quantities by rail to Craiovapower station; the new South Jilt opencast mine and the constrac-tion of the surface works for Matasari underground mine; and theopencast development at Lupoaia.

Motru Mining Enterprise - responsible for underground mines to thewest of Jilt currently supplying Craiova power station and laterfor the operation of the Matasari underground mine; also a newtownship at Motru where many of the Jilt and Matasari workers willlive.

Craiova Mining Research and Design Institute for Lignite - responsiblefor design studies and mine planning of the lignite mines in Oltenia.

Jiu Valley Coal Preparation Plant - responsible for coal preparationetc. for the Rovinari power station.

1.5 Land and Mineral Rights

1.5.1 The right to mine the lignite is granted by the Commission forLand Utilization which is a body responsible to the Council of Ministers.Compensation is paid to those displaced by the operations and for timbertrees less than five years old. Conditions are laid down for restoration,i.e. en obligation to level the site, which is then handed over to theMinistry of Agriculture. Some spoil heaps have already been contouredand trees planted, including vines.

1,6 Effect on Regional Economic Activity

1.6.1 The mining project will of course stimulate economic activityin the region by providing direct employment for over 5,000 personnel.Other possible new industries are processing industries based on lignite,e.g. liquid and gaseous fuels, chemicals, fertilizers, and the utilizationof fly ash in concrete, light-weight building blocks, etc. The restorationof worked-out areas will provide employment for agricultural workers.

AM=E 2Page 3 of 15

2. GEOLOGY

2.1.1 The lignite deposits of Romania occur in the Dacian Levantineseries of the Tertiary era along the whole length of the foothills ofthe Carpathian mountains fram the Iron Gates in the west (Oltenia) toPloesti in the east and there are other smaller deposits in northernTransylvania.

2.1.2 The lignite in Oltenia comprises 90% of the coal reserves ofthe country. It is being exploited primarily for power generation andthe recently declared energy policy of the Council of Ministers is toconcentrate on this fael for this purpose and reduce the consumption ofoil and gas.

2.1.3 The volatile content of the lignite is 35 to 38%. There arealso small deposits of "huile" which has a volatile content of +60% and"brown coal" which is intermediate in volatile content between the lig-nite (which is black in these deposits) and huile. Small quantities ofbrown coal and huile are mined for damestic purposes. railways, and coke.

2.i.4 The lignite deposits in Oltenia are bounded by the crystallinerocks of the mountains to the north but to the south the beds continuealthough they thin out and are at present uneconomicO The MiRister ofMines stated that the geological reserves amounted to 9 x 10' tons ofwhich 3 x lOY tons was considered economic under present conditions.

2.1.5 There are 12 main seams and many intercalated lenses, the mnaxi-mum seam thickness being 6 m. The seams are more or less horizontal andthe upper seams are cut by the hill and valley topography. The strata islargely clay but contains beds of sand and gravel which are heavily water-bearing. Underground mining is not carried out below the main water table.The opencast mines are dewatered by borehole pumps.

2.1.6 The quality of the lignite is given as follows:

Moisture content - 34.5 to 41.9%Ash (dry basis) - 22.4 to 40.4%Sulphur (organic) - 2.42 to 2.67%Lower calorific value - 1,945 to 2,567 kcal/kg

2.1.7 Quality is determined only on the clean coal sections of theborehole cores and statistical methods are not used to ascertain confi-dence limits. In the course of mining, intercalations of dirt and someoverburden dilutes the coal and this is allowed for by reducing thecalorific value of the run-of-mine lignite, on the basis of experiencein existing mines, to the following:

Opencast mines - 1,750 kcal/kgUnderground mines - 1,850 kcal/kg

ANNEX 2Page 4 of 15

2.1.8 Less dilution is experienced in underground mining because onlythe two best seams are worked and same lignite is left to support theroof.

3. NaNING

3.2. !cisting Underground Mines

3.1.1 Underground mining is carried out at the following mines whichsupply Craiova power station supplemented by some supplies from the Rovinariopencast mines:

RosintaPlostinaLeurdaHorastiLupoaia

3.1.2 The method of working is longwall using 80 m to 100 m facesand the equipment used is of Russian design comprising:

Ranging-drum shearer mounted on armoured faceconveyor (scraper chain). Canopy type self-advancing, hydraulic roof supports.

3.1.3 The lignite is delivered to rubber belt conveyors which trans-port it to the surface. Access to the seams is by approximately leveladits or short inclined drifts. Diesel locomotives and mine cars areused for materials and some production.

3.1.4 The maximum height of seam which can be worked in one lift is3 m and the 6 m seam is taken in two lifts, although difficulty is expe-rienced in working the lower portion due to the broken roof. Wire meshmats have been used but are not entirely satisfactory.

3.1 5 Conditions can be described as easy compared with the deep coalmines of WZestern Europe - there is no gas in the workings despite theproximity of gas fields at greater depths and no great roof pressure.However, the main difficulties are due to water and the weak rocks com-prising both the roof and the lignite seams. Water is drained off byadvance headings,

3.1.6 The operation seen was conducted in a competent manner.

3.1.7 At the surface, large lumps of waste are removed by hand-pickingand the coal is screened and crushed by hammer mills to -30 mm before beingloaded into wagons for transport to the powier station.

3.2 Existing Opencast Mines

3.2.1 Opencast mining is carried out at the following mines which supplyRovinari power station and a small quantity to Craiova power station:

ANNEX 2Page 5 of 15

Girla )Cicani )Beterega ) in productionTismana )

Rosia de Jiu) developingLupoaia )

3.2.2 The method of working is the standard method using bucket-wheelexcavators, belt conveyors and overburden spreaders. As there are multipleseams, some of which are irregular in occurrence, selective excavation isrequired because the benches have to be maintained more or less level andthe faces at uniform height (20 m). A conveyor interchange station directslignite to the railway loading station and waste to the outside or insidedumps as required. A larger number of medium-sized excavators has beenselected because the stoppages and loss of output resulting from this typeof operation would render larger machines less economic as well as resultingin greater peaking of production.

3.3 Coal Production Program for Turceni Power Station

3.3.1 Numerous requests were made for the coal balance showing all thepower station demands and the production of the whole field, mine by mine,for the whole life of the Tarceni power station but this was never obtained.

3.3.2 The lignite requirements for the Turceni power station up to 1985are shown in Table 1. The main production will be obtained from the newSouth Jilt opencast mine (8 million tpa) and Matasari underground mine butthere will be considerable deficits until 1984 and the way these will bemade up from other mines is shown, This will involve considerable complica-tion in train movements and some increases in cost.

3.3.3 South Jilt opencast mine has reserves of 154 million tons, i.e.19 years at full output, so that it will be worked out in about year 2000,Matasarin has reserves of 206 million tons, i.e. 69 years at full output.Therefore the production of South Jilt will need to be replaced before theTurceni power station (first stage) is fully depreciated.

3.3,4 The total lignite requirements from the Oltenia field are givenbelow and there is little doubt that Turceni first stage is well covered:

Total Lignite Requirementsfrom Oltenia Field

Power Stations (up to 1985)

Craiova 9 million tpaRovinari 14 million tpaTurceni 1st stage 11 million tpa

3 million tpa

ANNEX 2Page 6 of 15

Ultimate capacity of lignite field 42 million tpaEconomically workable reserves 3,000 million tonsLife of field at ultimate capacity 70 years

3.3.5 The "ultimate" capacity of the field as a whole was given upas 42 million tpa which does not seem sufficient to cover Turceni secondstage although scme of the Craiova plant will very likely be phased outby then. In any case it is extremely unlikely that sufficient geologicalwork and mine planning has been done to determine the "ultimate" capacityof the field with any accuracy.

3.4 South Jilt Opencast Mine

3.4.1 A box-cut will be developed on the northern side of the takingand faces will advance in parallel for a short distance and then rotatethrough about 1000 in a counter-clockwise direction. The box-cut has beensited at the shallowest point and will be 80 m deep, the volume of spoilexcavated being 200 million m3 before full production is reached. Thiswill be dumped outside in a valley over the Matasari workings. Eightbenches will be developed of which three will be continuous and five dis-continuous, the faces being 20 m high. The working faces will be 2.5 to3.0 km long. The equipment will consist of 8 identical bucket-wheelexcavators, 2 spreaders, 2 stockpile loading and reclaiming machines andthe conveyor transport system for lignite and spoil.

3.4.2 The average ratio of overburden to lignite is 6,85 m3/t which ishigh by usual standards. Whilst the geometry of the deposit has been well-determined no sector or yearly volumetric calculations appear to have beencarried out and only averages used for economic calculations. However, itis intended to establish a stripping equalization fand.

3.5 Matasari Underground Mine

3.5.1 The planning for this mine is rudimentary. Longwall face operationsare standardized and the only items to be determined are the positions ofthe mine entrances and main underground roadways and the sequence of working.Cost variations year by year in this case would be slight and mainly dueto increasing distance from the loading point. No allowance appears to havebeen made for varying geological conditions but averages have been appliedbased on extensive experience in similar adjacent mines.

3e5e2 Advantage has been taken of the location of the two mines adjacentto each other to establish common surface facilities including a stockpileand railway loading station.

3.5.3 Ventilation is no problem as there is no gas and the quantitiesof air circulated are determined by the requirements of heat dissipationand dilution of exhaust gases fram diesel locomotives.

ANNEX 2Page 7 of 15

4. LIGNITE HANDLING AND TRANSPORT

4.1.1 Both bucket-wheel excavators and shearers out the lignite bythe action of teeth or picks and generally the size produced is 0 to 200 mm.In any case the material is weak and subsequent passage through transferpoints breaks up any larger pieces. Crushing to -30 mm is however necessarybefore feeding the boiler mills, and hammer mills are suitable for thispurpose. This process is carried out at present at the Rovinari coal pre-paration plant for Rovinari power station and at Motru for Craiova powerstation. For the Turceni project it is intended to transport the lignitein the run-of-mine state and crush it at the power station before deliveryto the boilers or to stock. The necessary crushing plant has been includedin the power station project. The smaller size material is better forstockpiling as it is easier to consolidate and seal and there are no largelumps to provide air passages. Spontaneous combustion should therefore beavoided.

4.1.2 Standard gauge railways at present handle the coal traffic fromMotru and Rovinari to Craiova. These lines are in separate valleys andjoin to the north of Craiova. A third line in the Jilt valley will connectthe new mines of South Jilt and Matasari to the Turceni power station, adistance of about 35 kn.

4.1.3 The maximum demand for lignite for Turceni power station (firststage) is 40,000 tpd and the train will ccmprise 40 bottom-discharge wagonseach holding 55 to 60 tons (i.e. about 2,400 tons/train), drawn by a diesel-electric locomotive. At maximum demand about 17 trains per day would berequired. One train would be sufficient until about 1980 when two trainswould probably be necessary (excluding spare wagons and locomotive). Inaddition, occasional trains would be required from sources other than Jilt/Matasari (see Table 1).

141.4 The capital cost of the railway constructinn and the rollingstock (say $10 million) is not included in either the mine or power stationestimates as it would be provided in the budget of the State Railways. How-ever a freight cost of 8 lei/ton is included in the mining cost.

5. EQUIRMEWT

5.1 South Jilt Opencast Mine

5.1.1 The main items of equipment comprise the mobile mining machines,i.e. bucket-wheel excavators, mobile transfer conveyors and overburdenspreaders, the conveyor systems (slewable and fixed) and stockpiling machines,i.e. stackers and reclaimers or combination stacker/reclaimer.

50102 In October 1973, a licensing agreement was concluded with KRUPPfor the mobile machines under which they will supply complete designs, somecomponents and supervision of erection, the remaining components being

ANNXJ 2Page 8 of 15

manufactured in Romania to their designs. The conveyor structures willalso be manufactured in Romania but the drive units will be imported.The rubber belting, particularly the long steel-cord belts will beimported under separate contracts.

5.2 Matasari Underground Mine

5.2.1 The main items of equipment imported are the longwall shearersand heading machines and these are of Russian make. The roof supportsand conveyors are largely manufactured in Romania.

5.3 Central Workshops, Rovinari

5.3.1 A lavishly equipped central workshop has been constructed atRovinari and although not yet fully equipped, work has already startedon excavator tracks links and conveyor idlers. The equipment ccmprisesan extensive range of machine tools including 20 turret lathes and alsowell-equipped forge and fabrication shops but no foundry. The workshopwill serve all the mines for heavy repair work and will also manufacturemany spare parts and components.

6. ECONOMICS

6.1 Capital Investments

6.1.1 The capital costs of the mines (1973-1983) are approximatelyas folloows:

Million lei Million $ _

South Jilt 2,930 146 70Matasari 1,273 64 30

4,203 210 100

(Assuming $1 = 20 lei)

6.1.2 The balance sheet of the Petrosani Coal Central on December 30,1972 shows the total assets as 9,751 million lei ($488 million) so thatthe investment represented by this project is a substantial addition (43%).Further investments will of course be required to replace the worked outmines and increase production for Rovinari power station. The total assetsof the Central can therefore be expected to double by about 1982.

6.1.3 The equipment cost amounts to 2,395 million lei ($120 million),of which, 1,457 million lei ($73 million) is to be imported, of which1,197 million lei ($60 million) is from western countries. The total dollarvalue of the mobile machines for the opencast mine is also given as $62million.

ANNEX 2Page 9 of 15

6.1.1[ The overall capital cost, expressed in terms of the totalvolume of material mined, works out at about d$;3 per m3 per annum, whichis reasonable for this type of operation. The geological work, mineplanning and equipment selection are adequate and in the case of bothmines considerable experience of operating conditions is available.The plans were, in fact, approved by Professor Georgen of Aachen Univer-sity, and Professor Arnold, Bergakademie of Freiberg, both authoritieson lignite mining. The machines have been adequately rated to allowfor lost time in operation. In the case of the longwall face equipment,the output per face (less than 300 tons/shift) used in planning is muchless than would be obtained in longwall operations using shearers inthe United Kingdom or USA.

6.1.5 In the case of South Jilt, a large proportion of the invest-ment, i.e. 608 million lei ($30 million) is in the excavation of thebox-cut which is necessary before o4tput reaches 75% of full production.This represents about 150 million inr- out of the total volume of the box-cut of 200 million mr3. Of course due to the multiplicity of steams sub-stantial tonnages of lignite will be mined during this period (about9 years in total).

6.2 Operating Costs

6.2.1 The operating costs for both mines were estimated by theCraiova Planning Institute, using actual costs prevailing in existingoperations as a basis. The cost includes all materials, energy, labour,amortization, services, overheads and sales expenses. No interest or"return"1 is included and the Institute is not responsible for calculatingthe selling price.

6.2.2 Dealing briefly with each item in turn the following commentsare made:

(i) Materials - seems low, possibly because few of the earliermachines are nearing the end of their lives.

(ii) Energy - the energy consumption was estimated as follows:

Underground - 10.1 kWh/tonOpencast - 30.9 kWh/tonAverage overall - 25.0 kWh/ton

These figures are reasonable for this type of mining.Energy has been costed at 0.3 lei/klkh (15 mills/kWh).

(iii) The total labour required is about 5,685 personnel. Labourproductivity figures are approximately as follows:

Underground - 3 tons/manshift overallOpencast - 12e5 tons/mwnshift overall

AINSI 2Page 10 of 15

The underground figure is reasonable but the opencast figureis low by West German standards where values up to 90 tons/manshift occur in the larger mines. However, wage rates areonly 10 and 20% respectively of those current in WesternEurope or USA, eog.

Opencast Mines

lei/shift $/shift

Bucket-wheel excavator 72 3.60operator

Shovel operator 50 2.50Fitter 66 3.30Electrician 66 3e30Conveyor maintenance 63 3,15Greaser 40 2e00

Plus 12% for bonuses

Underground Mines

lei/shift $/shift

Miner 92 4.60Longwall team (avg) 87 4035Room and pillar team (avg) 81 4.05

Plus 20% for bonuses

The overall effect is that the labour cost is low. A numberof other benefits including 11% social insurance costs are infact included in the overheads, An allowance of 12% has beenmade to cover wastage and absenteeism. There is at presentsome difficulty in recruiting labour, particularly in theunderground mines, and incentives are being offered, e.g. halfthe cost of travelling to work.

(iv) Amortization is calculated as follows:

(a) Fixed assets which last the life of the mine - costdivided by total planned tonnage of product over thewhole life.

(b) Fixed assets which are of shorter life or could betransferred at the end of the life of the mine -amortized over the life of the asset.

ANNEX 2Page 11 of 15

(v) Other items in the cost estimate include overheads, central

workshops, exploration, research, and rail freight. There

are no mineral royalties or taxes payable and interest is not

payable on capital allocated in the national budget.

(vi) The resulting average cost make-up for both mines combined

is as follows:

lei/ton $ton

Materials 9.98 0.50Electrical energy 9.61 0.48

Direct wages 10,56 0.53Direct amortization 25,67 1.28

Services 12e35 0o62Exploration 0.30 0.02

Research and development 0.45 0.02Overheads 5.61 0.28Sales expenses 9.17 Oe46

83.70 4.19

say 84.00 4.20

6.3 Selling Price

6.3.1 The selling price for the lignite is determined by the State

Planning Organization presumably in relationship to other forms of primary

energy available to the economy and also to the cost of production. With

regard to the latter the cost of underground mine production is taken as

the criterion and from this the stripping ratio which can be accepted in

the opencast mines has been determined. At present it is 7 m'/t. If the

ratio were higher than this then the lignite would be worked by underground

means,

6.3e2 The first mines at Rovinari however had stripping ratios of 2.5

to 3.0 m3/t and mining costs are about 42 lei/ton. The next mine in order

of merit is Rosia de Jiu with a ratio of about 5 m3/t. South Jilt with

its ratio of 6.85 m5/t is nearing the acceptable stripping limit. The

mining cost of 42 lei/ton has increased to over 80, which is to be expected

as the volumes of material to be excavated per ton of coal produced have

doubled and wages have increased.

6.3.3 The official selling price for Turceni was stated to be 107 lei/ton

($5.35) for lignite of 1,750 kcal/kg calorific value.

6.3.4 The selling price of 107 lei/ton gives a profit of 29.76% expressed

in terms of the average cost. However, the crude return on the total invest-

ment is only 6.3%. A rough calculation of the dcf return gives only 3.7%.

AJNEX 2Page 12 of 15

Figure 1 shows how the selling price would have to be increased to givehither dcf rates of return, e.g. for a 10% return the selling price wouldhave to be 130 lei/ton ($6.50), an increase of 21.5%.

6.3.5 A rate of return of 3.7%, whilst apparently acceptable inrespect of a state enterprise of this kind, would not of course be suffi-cient to remunerate 100% western and capital although a relatively smaIlproportion could be accammodated. It can be concluded that the sellingprice has been set at near the very miniimum to break even, presumably asa result of deliberate policy in the vital energy sector of the economy.

6.3.6 It is intended that a bonus/penalty clause be included in thesales contract between the mines and power station in respect of calorificvalue as measured, but the formula has not yet been settled. The presentcontracts at Rovinari adjust the selling price by + 1% for each + 1%change in ash and moisture content (39% ash, 43.5% moisture baseT - whichis generous favorable to the seller as the penalty for below grade deli-veries is less than the proportionate reduction in calorific value.

7. CONCLUSIONS

(i) The geological investigations and mine planning, constructionand operating standards are adequate.

(ii) The reserves and planned mine capacities are adequate to supportat least Turceni first stage.

(iii) The mining methods selected are orthodox and suitable for thedeposits.

(iv) The South Jilt stripping ratio is near the acceptable strippinglimit.

(v) Capital costs are realistic and capital is available from theState budget.

(vi) The availability of resources is adequate although labourrecruitment is causing problems.

(vii) Operating cost estimates (84 lei/ton ($4.20)) are reasonablealthough it would have been better to have calculated them ona year-by-year basis rather than an overall average.

(viii) The selling price (107 lei/ton ($5.35)) gives only a minimalreturn on the investment (3.7% dcf).

(ix) The manufacturing and construction programs for the mines, powerstation and railway are large and should be closely controlledto ensure that delays are prevented as far as possible.

ANNEX 2Page 13 of 15

(x) Most of the material to be imported from the West is alreadycovered by the KRUPP licence and the only item which could

'be supplied by international tender appears to be the conveyorbelting.

December 7, 1973

TABLE I

LIGNITE REQUIREMENTS OF TURCENI POWER STATION (1ST STAGX)AND SOURCES OF SUP-PLY 1977 - 19$5

(103 tone)

1976 1977 1978 1979 1980 1961 1982 1983 1984 19A5 Totil

Power station requirements - 166 3,120 8,260 10,780 10,780 10,780 10,780 10,780 10,780 76,206

South Jilt opencast mine and 190 720 1,980 3,620 4,400 5,840 8,700 9,860 11,000 11,000 51,310MaL,isari underground mine

Surplus or (deficit) 190 554 (1,140) (4,620) ( 6,380) ( 4,940) ( 2,080) (920) 220 220 (18,896)

Cumulative surplus or (deficit) 190 744 (396) (5,016) (11,396) (16,336) (18,418) (19,336) (ll16i) (18,596)

Other sources of supply:

From stock at Jilt/Matasari - - 744 - - - - _ _ _ 744

Tehomir underground - - 200 400 600 650 700 800 g _ 3,350

Peateana opencast - - 196 1,600 2,400 2,400 1,380 120 _ _ 8,095

Luponia opencast - - - 2,200 3,000 1,890 _ _ _ 7,090

Alboni underground - - _ 200 380 - _ _ _ 680

Motru group underground - - - 220 - - - _ . 220

Totals covering deficits above = - 1,140 4,620 6,380 4,940 2,080 920 _ - 20,060

December 7, 1973

0

H

ANNEX 2Page 15 of 15

RNA2NIA Fig. 1

LIGNITE SELLING PRICE & SUBSEQUENTPROFIT AGAINST D.C.F. RATE OF RETURN

PRICE PROFIT

s0

130

40

120

TON. 30

OFF IC IA17-SELLINJ

PRICE

100 7 2

I10

90 - -3 1 4 5 1i7 8 9 10 3.7

D.C.F. RATE OF RETURN lo/o)

Powell Duffryn TechnicalServices Ltd. ondon

March 1974 Eng:rt Date I Drg. No.S.C.8. 3-12-731552/1

ROMANIAMINISTRY OF ELECTRICAL ENERGY

ORGANIZATION CHART

MANAGING COUNCILOF THE

MINISTRY

EXECUTIVE BOARD

I MINISTEROF

FLECTRICAL ENERGY>

| Euy llDEPUTY ED| DEUTY E |T O|MINISTER M ' INSTER |MNISTER p

INVESTMENT/ TECHNICAL/ PLANNING/ PERSONNEL/LEGAL FINANCIAL PROCUREMENTCONSTR UCTION CONSUM ER ELAT IONS DEVELOPMENT TRAINING/PROTOCO DEPARTMENTS RELATION<DEPARTMENTS DEPARTMENTS DEPARTMENTS DEPARTMENTs DEPARTMENTS

U

DESIGN INSTITUTE *INDUSTRIAL CENTRAL 1/ NATIONAL THERMALCONSTRUCTIONFOR THERMAL STUDIES (ISPE) 'FOR ELECTRIC POWER & HEAT tCIEET) DISPATCH TRUST tTECI

CENTER 5.DESIGN INSTITUTE CENTRE FOR TRAINING HYDRO CONSTRUCTIONFOR HYDRO STUDIES (ISPH) PROFESSIONAL STAFF TRUST tTCHI

NUCLEAR RESEARCH INSTITUTE FOR ELECTRICAL ELECTRO-MECHANICALENTERPRISES AND THERMAL ENERGY RESEARCH TRUST (TEN M.)

HV. TRANSMISSION & POWER SYSTEMS RECORDS CENTER SUBSTATION TRUST (TEM)

TRADE TRAINING SCHOOL .R"ROMENERGO" -FOREIGN a

SUPPLY ENTERPRISE FOR ZCENTRAL & ELECTRICAL GRIC 2

ENTERPRISE FOR METALU.its Directly Concerned With The Turceni Project CONSTRUCTITON& to

1/ See A-ne. 5 For Organization Chart of Indwmtral Central For Electric Power & Heet PREFABRICATION

MARCH 1974 _

WorId BEnk-8274RR)

ROMAN IAINDUSTRIAL CENTRAL FOR ELECTRIC POWER AND HEAT

ORGANIZATION CHART

ASSEMBLY OFTHE WORKING

PEOPLE

I

WORKING lPEOPLES'COUNCIL

EXECUTIVEBOARD

GENERAL j/PLNIGAN _ MANAGER-

DVLPMENT __

PERSONNEL POLICY

POWER STATION ELECTRIC NETWORK DEVELOPMENT CHIEF GENERATION7-/1DEPARTMENT EPARTMENT & SUPPLY DEPT. ACCOUNTANT ENTERPRISES l

PRODUCTION & REPAIR DISTRIBUTION INVESTMENT, CONSTRUCTION FINANCE, ECONOMIC DISTRIBUTIONSUPERVISION AND OPERATION & MAINTENANCE & ERECTION DEPARTMENT ANALYSIS AND FINANCIAL ENTERPRISESADVISORY DEPT. PLANNING & SUPERVISION DEPT. CONTROL DEPARTMENT

MANUFACTURINGFLECTRIC POWER ELECTRIC NETWORK EXPORT-IMPORT, EQUIPMENT TACCOUNTING.DEPT ENTERPRISES

PILANT TECHNICAL TECHNICAL BUREAU & SUPPLY DEPARTMENT ACUTN E NEPIEBUREAU

POWER STATION ELECTRIC NETWORK ELECTRIC POWER & HEAT ADMINISTRATIVERESEARCH & DESIGN RESEARCH & DESIGN SUPPLY DEPARTMENT SECRETARIAT

COMPUTATION DEPT.

1/~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~41 General Ma ,ager is a Deputy Minister of the Ministry of Electrical Energy World Bank827612R)2/ See Annex 6 For Organization Chart of a Generation Enterprise

MARCH 1974

ROMANIAINDUSTRIAL CENTRAL FOR ELECTRIC POWER AND HEAT

TYPICAL ORGANIZATION CHART FOR A GENERATION ENTERPRISE

ASSEMBLY OFTHE WORKING

PEOPLE

WORKINGPEOPLES'

COMMITTEE

OPERATINGMANAGEMENT

COLLECTIVE

GENERAL

PLANNING AND MANAGERDEVELOPMENT

PERSON~NEL

POLICY

DEPUTY DIRECTOR DEPUTY DIRECTOR ADMINISTRATIVE CHIEFENGINEER/COMMERCIAL TECHNICAL SERVICES ACCOUNTANT

NEW CONSTRUCTION PRODUCTION ORGANIZATION ACCOUNTS & COSTING

CONSUMER RELATIONS MAINTENANCE PROGRAM INTERNAL CONTROLWITH DISTRIBUTION ENTERPRISES

CONTRACTORS _ OPERATING LABORATORIES

PROCUREMENTSHIFT SUPERINTENDENTS

STORES & EQUIPMENT PRODUCTIONL DEPARTM ENTS

BOI LERS

TURBI NES

ELECTRICAL

CHEMICAL

FUEL

REPAIRS

MARCH 1974 World Bank-8276 (R)

AMOX 6Pae . of 2

TURCENI THERNAL POWER PROJECT

Decree of the Council of Ministers Eatabligkh;n

the Turceni. Enterprise

Regarding the construction of the electrical plant atTurceni, subordinate to the industrial plant of electric andthermal energy within the Ministry of Electrical Energy.

The Council of Ministers of the Socialist Republic ofRomania, decidest

Article 1 - the "coming into being" of the electricplant at Turceni, is established on the date of August 1, 1973,with its centre in the town of Turceni, district of Gorj, subor-dinate to the Industrial Central for Electric Energy (and thermal)and under the guidance and control of the Ministry of ElectricalEnergy.

The electric power plant of Turceni is organized andwill function as a State enterprise, based upon the principle ofeconomical administration, with a juridical personality, accordingto the legal provisions concerning the organization and administrationof socialist units belonging to the State and its objective of activ-ity is to be that of producing electric power.

The electric power plant of Turceni is to be part of aspecial grade of organization.

Article 2 - Up to the commissioning of the plannedcapacities of the thermo-electric plant at Turceni., the enterpriseof the electric plant at Turceni will fulfill the prerogatives ofbeneficiary of the investment works and will assure the training ofpersonnel necessary for this objective.

Article 3 - The indicators of the plan of labor and wagesfor the year 1973, for the enterprise of the electric plant at Turceni,will be provided within the indicators &pproved for the Ministry ofElectrical Energy. The average approved number of personnel, for theyear 1973, is established at 18.

Article 4 - The wage earning personnel of the electricplant at Turceni, that reside at distances of more than 5 km. fromwork and which, according to legal dispositions in force, do not

ANNEX 6Page 2 of 2

benefit from free transportation to their place of work and back,will be able to receive tickets for railroad and bus transportationfor distances of between 5 and 60 kmn., from the cost of which theemployee will pay 30 lei per month and the difference in the totalcost per month is to be paid by the enterprise. The cost of ticketsper month, which is not more than 30 lei is to be paid by the employee.

Employees who reside at distances of 60 to 80 km, willreceive transportation tickets and the cost of these tickets for dis-tances up to 60 km are to be supported under the conditions abovementioned, while the differences in cost for distances beyond 60 km.is to be paid entirely by them.

March 1974

ANNEX 7Page 1 of 10

ROMANIA

MINISTRY OF A ECTRICITY ENERGY

Tariffs

ACTIVE POWER

I. CONSUMERS SUPPLIED WITH LOW VOLTAGE (0.1-1 kV)

A. Single part tariffs for:

1. Public lighting:

- including maintenance of installations 0.80 lei/kWh- excluding maintenance of installations 0.54 lei/kWh

2. General lighting:

a) not differentiated by period of consumption 0.75 lei/kWhb) differentiated by period of consumption:

- consumption during peak evening hours(between 1800 and 2100 hours) 1.55 lei/kWh

- consumption during remaining hours(from 2100 to 1800 hours) 0.60 lei/kWh

OR

- daytime consumption (between 0600 and2200 hours) 0.85 lei/kWh

- nighttime consumption (between 2200 and0600 hours) O.50 lei/kWh

3. Businesses:

a) not differentiated by period of consumption 0.50 lei/kWhb) differentiated by period of consumption:

- consumption during peak evening hours(between 1800 and 2100 hours) 1.00 lei/kWh

- consumption during remaining hours(from 2100 to 1800 hours) 0.41 lei/kWh

OR

AmlEl 7Page 2 of 10

- daytime consumption (between 0600 and2200 hours) 0.57 lei/kWh

- nighttime consumption (between 2200 and0600 hours) 0.33 lei/kWh

4. Power users with power demand of less than 50 kW or with connectedplant of less than 50 kVA rating.

a) not differentiated by period of consumption 0.45 lei/kWhb) differentiated by period of consumption:

- consumption during peak evening hours(between 1800 and 2100 hours) 0.90 lei/kWh

- consumption during remaining hours (from2100 to 1800 hours) 0.37 lei/kWh

- daytime consumption (between 0600 and2200 hours) 0.52 lei/kWh

- nighttime consumption (between 2200 and0600 hours) 0.30 lei/kWh

5. Users in agriculture, including irrigation:

a) not differentiated by period of consumption(excluding irrigation) 0.40 lei/kWh

b) differentiated by period of consumption::

- consumption during peak evening hours (between1800 and 2100 hours) 0.82 lei/kWh

- consumption during remaining hours (from2100 to 1800 hours) 0.33 lei/kWh

OR

- daytime consumption (between 0600 and 2200hours) 0.46 lei/kWh

- nighttime consumption (between 2200 and0600 hours) 0.26 lei/kWh

6. Domestic users

- each unit in a first block of 6 kWh per room insummer and 12 kWh per room in winter 0.50 lei/kWh

- the balance 0.30 lei/kWh

- off-peak water heaters between 2200 and0600 hours 0.20 lei/kWh

ANNEX 7

Page 3 of 10

B. Two part tariffs for:

7. Industrial consumers with power demand of more than 50 MW orwith connected plant of more than 50 kVA rating.

Power rate for:

- metered maximum demand 144o lei/kW p.a.

OR

- connected plant rating. 1140 lei/kVA p.a.

Energy rate:

a) not differentiated by period of consumption 0.17 lei/kWhb) differentiated by period of consumption:

- consumption during peak evening hours(established by Ministry of Electrical Energy) 0.30 lei/kWh

- consumption during remaining hours 0.15 lei/kWh

OR

- daytime consumption (between 0600 and 2200hours) 0.19 lei/kWh

- nighttime consumption (between 2200 and0600 hours) 0.13 lei/kWh

NOTE: The two part rates given in Section 1.7 may also be applied to theconsumers indicated in Sections 1.2 to Io5, under the conditions tobe established by regulation for the supply and use of electric power,in all cases in which this can ensure minimum consumption of electricpower with a minimum of power absorbed during peak hours.

II. CONSUMERS SUPPLIED WITH MEDIUM VOLTAGE (1-110 kV)

1. Urban and interurban electric traction:

A. Sinale part tariff

a) not differentiated by period of consumption 0.30 lei/kWhb) differentiated by period of consumption:

- consumption during peak evening hours(between 1800 and 2100 hours) 0.40 lei/kWh

- consumption during remaining hours (from2100 to 1800 hours) 0.28 lei/kWh

AN=BX 7

Page 4 of 10

2. Users in agriculture, excluding irrigation

A. Single part tariff

a) not differentiated by period of consumption 0.34 lei/kWhb) differentiated by period of consumption:

- consumption during peak evening hours(between 1800 and 2100 hours) 0.57 lei/kWh

- consumption daring remaining hours(from 2100 to 1800 hours) 0.31 lei/kWh

B. Two part tariff

Power rate for:

- metered maximum demand 1260 lei/kW p.a.

OR

- connected plant rating 1008 lei/kVA p.a.

Energy rate:

a) not differentiated by period of consumption 0.14 lei/kWhb) differentiated by period of consumption:

- consumption during peak evening hours(established by order of Mini;stry ofElectrical EwvrU) 0.27 lei/kWh

- consumption during remaining hours 0.12 lei/kWh

3. Other consumers

A. Single part tariff

a) not differentiated by period of consumption(excluding irrigation) 0.36 lei/kWh

b) differentiated by period of consumption:

- consumption during peak evening hours (es-tablished by order of Ministry of ElectricalEnergy) o.60 lei/kWh

- consumption during remaining hours 0.33 lei/kWh

OR

ANNEI 7Page 5 Of 10

- consumption during peak evening hours (es-tablished by order of Ministry of ElectricalFnergy) 0.60 lei/kWh

- daytime consumption 0.42 lei/kWh

- nighttime consumption 0.20 lei/kWh

B. Two part tariff

Power rates:

- Based on metered maximum demand:

a) not differentiated by period of consumption 1152 lei/kW p.a.b) differentiated by period of consumption:

- for maximum power absorbed during eveningpeak hours 1176 lei/kW p.a.

- for maximum power absorbed outside eveningpeak hours in excess of power absorbedduring evening peak hours 588 lei/kW p.a.

OR

- on basis of connected plant rating. 972 lei/kVA p.a.

Daergy rates:

a) not differentiated by period of consumption(excluding irrigation) 0.17 lei/kWh

b) differentiated by period of consumption:

- consumption during peak evening hours (es-tablished by order of Ministry of ElectricalEnergy) 0.30 lei/kWh

- consumption during remaining hours 0.15 lei/kWh

OR

- consumption during peak evening hours (es-tablished by order of Ministry of ElectricalEnergy) 0.30 lei/kWh

- daytime consumption 0.18 lei/kWh

- nighttime consumption 0.11 lei/kWh

AIMIX 7Page 6 of 10

NOWE: 1. A two part tariff is generally applied to major consumers.2. The rates for medium voltage and for supply at a voltage of

0.5-1 kV are applied to-petroleum drilling and extraction.3. The single part tariff (II 3 A) will be applied to the consumers

indicated in Section II 3 having several meter points and tothose having electric power plants of their own at which themaximum absorbed power cannot be totalled simultaneously.

III. CONSUMERS SUPPLIED WITH HIGH VOLTAGE (110 kV and higher)

1. Railroad electric traction

A. Single part tariff

a) not differentiated by period of consumption 0.26 lei/kWhb) differentiated by period of consumption:

- daytime consumption (between 0600 and2200 hours) 0.30 lei/kWh

- nighttime consumption (between 2200 and0600 hours) 0.19 lei/kWh

2. Other consumers

A. Single part tariff

a) not differentiated by period of consumption(excluding irrigation) 0.26 lei/kWh

b) differentiated by period of consumption:

- consumption during peak evening hours (es-tablished by order of Ministry of ElectricalEnergy) 0..42 lei/kWh

- consumption during remaining hours 0.25 lei/kWh

OR

- consumption during peak evening hours (es-tablished by Ministry of Electrical hergy) 0.42 lei/kWh

- daytime consumption 0.31 lei/kWh

- nighttime consumption 0.15 lei/kWh

B. Two part tariffs

Rates for metered maxiamu demand.

ANNEX 7

Page 7 of 10

a) not differentiated by peridd of consumption 696 lei/kW p.a.b) differentiated by period of consumption

- for maximum power absorbed during eveningpeak hours 706 lei/kW p.a.

- for maximum power absorbed outside eveningpeak hours in excess of power absorbed duringevening peak hours 384 lei/kW p.a.

OR

- rate for connected plant rating 600 lei/kVA p.a.

Rates for energy.

a) not differentiated by period of consumption(excluding irrigation) 0.17 lei/kWh

b) differentiated by period of consumption:

- consumption during peak evening hours (es-tablished by order of Ministry of ElectricalEnergy) 0.30 lei/kWh

- consumption during remaining hours 0.15 lei/kWh

OR

- consumption during peak evening hours (esta-blished by order of Ministry of ElectricalEnergy) 0.30 lei/kWh

- daytime consumption 0.18 lei/kWh

- nighttime consumption 0.11 lei/kgh

NOTE: 1. A two part tariff is generally applied to major consumers.2. The single part tariff (III 2 A b) will be applied to the consumers

indicated in Section III 2 having several meter points and to thosehaving electric power plants of their own at which the maximumabsofbed power cannot be totalled simultaneously.

IV. RATES FOR PRODUCTION AND SUPPLY OF EXPORTED ELECTRIC POWER

Single rate

- consumption during peak evening hours 0.45 lei/kWh

- daytime consumption 0.27 lei/kWh

- nighttime consumption 0.17 lei/kWh

ANNEX 7Page 6 of 10

WATTLESS POWER

Single rates for:

1. Consumers supplied with low voltage 0.046 lei/kVARh

2. Consumers supplied Nith medium voltage 0.036 lei/kVAxh

3. Consumers supplied with high voltage 0.026 lei/kVARh

NOTE: Wattless power is invoiced only if the average monthly power factor is

lower than 0.92.

RATES FOR PRODUCTICN AND SUPPLY OF ELECTRIC POWER SUPPLIED IN THE NATIONALPOWER GRID BY CONSUMERS HAVING ELFCTRIC POWER PLANTS OF THEIR OWN

ACTIVE POWER

Single rate:

a) differentiated by period of consumption:

Power supplied during peak evening hours (es-tablished by order of Ministry of Electrical Enrgy)0.35 lei/kWh

Power supplied during remaining hours 0.23 lei/kWh

b) not differentiated by period of consumption. 0.25 lei/kWh

NOTE: If the average annual planned cost price is higher than 0.25 lei/kWh,the average rate for delivery will equal the planned cost price in therespective year plus a profit of 3%, and the rates of 0.35 and 0.23 lei/kWh will be increased in proportion to the ratio of the average ratefor supply and 0.25 lei.

WATTLESS POWER

Single rate:

1. Wattless electric power supplied to the requirement ofthe dispatcher without special starting of a generatingset or a synchronous compensator 0.02 lei/kVARh

2. Wattless electric power supplied to the requirmentof the dispatcher when special starting of a generatingset or a synchronous compensator is necessary. 0.06 lei/kVARh

ANNEX 7Page 9 of 10

INCREASES AND REDUCTIONS IN RATES

1. Reductions in rates for metered maximum demand or connected plantrating are applied. as follows to seasonal consumers not participating in the

annual power grid peak:

Basic period of operation Reduction, in %

May 1 to September 30 30

April 1 to September 30 25March 1 to October 31 * 15

2. Certain industrial consumers who are able to reduce their demand

during periods of system peak may earn reductions in their tariffs according

to their performance in this respect. (Scales not supplied)

3. If the established normal maximum demand is exceeded during the

peak evening hours, the following power rate increases will be applied to

major industrial consumers:

Increase in % for power exceededFor single ex- For repeated ex-cess per month cesses in same

month

A. Consumers contracting for powerunder 1000 kW:

-- power exceeded up to 10% 50 100

-- power exceeded 10-20% 100 150

-- power exceeded m.ore than 20% 150 200

B. Consumers contracting for power over1000 kW:

-- power exceeded up to 5% 50 100-- power exceeded 5-N0% 100 200

-- power exceeded 10-20% 150 250-- power exceeded more than 20% 200 300

Power excesses of less than 20 kW are exempt from application of

the rate increases.

4. For electric power supplied to a major industrial consumer for a

period longer than 30 consecutive minutes, a.t a voltage or a frequency outside

the contract limits, the supplier will grant a rate reduction of 12.5% to25%, under the conditions specified in the regulations governing the supply

and utilization of electric power.

AMNNE 7

Page 10 of 10

OTHER PROVISIONS

1. Consumers will be placed in the tariff system (low-medium-highvoltage; single part-two part; metered maximum demand-connected plantrating; not differentiated-differentiated by period of consumption; etc.)in accordance with the regulations governing the supply and utilizationof electric power, effort being made to achieve minimum consumption ofelectric energy, with a minimum peak demand.

2. If consumers request electric power supply installationssupplementary to those specified by laws and regulations in force,such consumers will pay the supplier annually 15% of the respectivefixed assets for the operation of these installations.

3. The fixed rates specified in this Appendix also constitutethe rate limits.

April 1974

ROMANIA

TURCENI THERMAL POWER PROJECT

ELECTRIC POWER SECTOR

Planting History & Forecast

Rated Cumulative Ther- Cumulative Cumulative Interconnected Firm Maximum

Type Capacity mal Total Hydro Total System Total Plant Security Margin Capacity Demand

Year Installed Plant H/T Date Commissioned MW MW MW mM MW % lW MW

1950 Thermal 680Hydro 60 740

1955 Doicegti Thermal 52-55 120Ovidiu 52-53 36Baia Mare 52-55 8.4Fintinele 54-55 75Comaneqti 54 24Other " 176.6 1,190Sadu V Hydro 55 15.5Moroieni 53 15Other " 9.5 100 1,220

1960 Baia Mare Thermal 57 1.8Fintinele 56-58 75Borzesti 56 & 57 & 60 100Parogeni 56, 57 & 59 150Grozaue3ti 59 25Other 97.2 1,569Bicaz Hydro 60 110

Other - - 210 1,779 1,469 15 1,249 1,180

1965 Borzegti Thermal 61,62 75Parogeni 64 150Grozavepti 64 & 65 100Brazi " 61 200Ludus-Iernut " 63 & 64 300Craidva-Isalnita 65 200

Bukureqti-Sud 65 50Other (- 12 Diesel)

Net 153 2,797Sadu V Hydro 64 11.8Bicaz 62 100Roznon I 63 14Roznon II " 63 15P. Neamt 64 11Pingarati 64 23Zanesti 64 14Costiga 64 14Buhusi 64 11Racova " 65 23 Girleni 65 23

Other (Derated/ H

Retired) - 8.8 461 3,258 2,994 15 2,545 2,604 0

ROMN4IA

TURCERT THERMAL POWER PROJECT

ELECTRIC POWER SECTOR

Planting History & Forecast/

Rated Cumulative Ther- Cumulative Cumulative Interconnected Firm Maximum

Type Capacity mal Total Hydro Total System Total Plant Security Margin Capacity Demand

Year Installed Plant H/T Date Commissioned MW MW MW MW MW _ fi MW MW

1970 Fintinele Thermal 66 100

Borzesti " 66 & 69 480

Grozavesti 64 50

Ludus-Iernut 66 & 67 500

Craiova-Isalnita T 66, 67 & 68 780

Bucuresti-Sud " 66, 67 & 68 358

Oradea 66 & 67 105

Iasi 66 50

Devamintia 69 & 70 630

Galati 69 160

Govora " 70 100

Palas " 70 50

Other (-31 Diesel)Net -i14 6,146

Vaduri Hydro 66 w

Bacau I " 66 23

Bacau II 66 30

Gh Dej Argeg 66 220

Oieqti " 67 15

Abeqti " 67 15

Cerbureni 68 15

Valea Iasului " 69 15

Portile Defier 70 350

Other 12 1,200 7,346 7,106 20 5,685 5,641

1971 Deukmintia Thermal 71 210

Palas 71 50

Other- (+28Diesel) Ret 23 6,429

Portile Defier Htydro 71 70

Paltinu " 71 10

Other (Derated/Retired) - 5 1,905 8,334 8,o58 20 6,446 6,342

1972 Brazi Thermal 72 400

Rovinari 72 400

Other (Derated/Retired) " 28 7,257

Lotru Hydro 72 170

Other 72 25 2,100 9,357 9,100 20 7,280 7,003

D op

i/ Data for 1973 and 1971+ not provided.

ROMANTA

TURCENI THERMAL POWER PROJE1CT

ELECTRIC POWER SECTOR

Plant History & Forecast

Rated Cumulative Ther- Cumulative Cumulative Interconnected Firm Maximum

Type Capacity mal Total Hydro Total System Total Plant Security Margin Capacity Demand

Year Installed Plant H/T Date Commissioned M W MW MW MW % MW MW

1975 Various Thermal 73 - 75 2.590 9,847

Various Hydro 73 - 75 833 2,933 12,780 12,600 18 10,332 9,917

1976 Various Thermal 76 979 10,826

Various Hydro 76 M , 2,994 13,820 13,700 18 11,234 11,077

1977 Turceni No. 1 Thermal Sept. 77 330

Various 77 LE 11,993Various Hydro 77 73 3,067 15,060 15,000 17 12,450 11,960

1978 Turceni No. 2& No. 3 Thermal March & Sept. 660

Other (Retire-ments) 78 -4 12,359

Various Hydro 78 484 3,551 15,910 15,900 16 13,356 12,880

1979 Turceni No. 4 Thermal 79 330Other " 11 12,802

Various Hydro 79 4,248 17,050 17,050 15 14,493 13,855

1980 Various Thermal 80 645 13,447

Various Hydro 80 685 4,933 18,380 18,380 15 15,623 14,900

March 1974

0i

W m

ROMANIA

ELECTRIC POWER SYSTEM CAPABILITY

AND MAXIMUM DEMAND(Semi-log scale)

x 10100 - ___________-_ Tolpnisaei mi

90

so

70

60

40

-@ -Total plant Installed in Romania30

. 4....- 0-- Total plant on interconnected system

M Maximum demand interconnected system

20 , . _ _V . Firm plant interconnected system

20

10

9

8

7

6

4

LOAD SHEDDING WAS NEEDED

1955 1910 1965 1970 1975 1980

YEAR

Note: Where no plot is shown data are not available. World Bank-8467

March 1974

ROMANIA

TURCENI THERNAL POWER PROJECTProject Cost EstimateY/

In Millions of lei US$ million equivalentLocal Foreign Total Local Foreign Total

Thermal Pbwer Station

Civil Works 1,259 8 1,267 63.0 0.4 63.4Boilers 773 534 1,307 38.6 26.7 65.3Turbo-Generators 853 596 1,449 42.7 29.8 72.5Miscellaneous M1ehanical 143 8 151 7.2 0.4 7.6Miscellaneous Electrical 281 30 311 14.0 1.5 15.5Automation 59 62 121 2.9 3.1 6.0Fuel Handling 252 9 261 12.6 0.5 13.1Water Treatment 40 140 2*0 - 2.0Ash Disposal 13 8 21 0.7 0.4 1.1Commissioning & Supervision 50 _ 50 2.5 - 2.5Training 57 - 57 2.8 2.8Engineering 48 - 48 2.4 _ 2.4

Sub-total 3,828 1,255 5,083 191.4 62.8 254.2

Contingencies: (i) Physical 260 _ 260 13.0 - 13.0(ii) Price - 524 524 _ 26.2 26.2

Total Cost of Thermal Power Plant O4,88 1,779 5,867 204.4 89.0 293.4

Transmission Lines & Associated Works

Transmission Lines 91 - 911 345.6 456Switching Station 82 4 86 4.1 0.2Construction Rail Link 124 - 124 6.2 6.2Agricultural Compensation 30 - 30 1.5 _ 1.5

Sub-total 1,1347 4 1,151 57.4 0.2 57.6Contingencies:(i) Physical 48 - 48 2.4 _ 2.4(ii) Price - 2 2 - 0.1 041

Total Cost of Transmission Lie and ,215. 03 6.Associated Works 1,195 6 1w201 59-8 0-3 60.1

Total Cost of Project 5,283 1,785 7,0(4 264.2 89.3 353-5 11/ Based on prices at the end of 1973 - - - - - -

May 1, 1974

ANNE llPage 1 of 2

RCKANIA

TuREUI THEKAL POWER PROECT

Schedule of Eguioment and Materials Suitable forInternational Competetive Bidding Under

IBRD Guidelines for Procurement

US$ NOllionsValue

CATEGORY I

Thermal Power Station Components and Equipment 22

1. Automation equipment2. High pressure piping and appliances3. Pumps for ash and slag handling4. Diesel generating sets5. Fuel handling equipment6. Miscellaneous electrical equipment7. Communication equipment8. Iron exchange mass for water treatment9. Boiler insulating materials10. Corrosion and refractory materials for stacks

CATEGORY II

Supplies for Manufacture of Thermal Pbwer Station Equipment 28

11. Water housing etc.12. Expansion joints13. Miscellaneous fittings14. Plate and arch disks15. Electric equipment and actuators16. Measuring and control devices17. Vacuum pumps18. Law pressure by-pass19. Hydraulic couplings20. Static excitation equipment21. Valves, condensing vessels etc.22. Non magnetic steel23. Special steel plates and pipes24. Welding electrodes and sire25. Pickling and welding fluxes26. Silver solder27. Springs28. Valves29. Hydraulic couplings30. Hangers - constant support

ANEX UPage 2 of 2

US$ MillionsValue

Supplies for Manufacture of The-r-al Power Station ESuipment(C ont d)

31. Air preheater hydraulic controls32. Coal transport equipment33. Coal crusher parts34. Components for air system35. Various gear boxes36. Insulating materials37. Miscellaneous nozzles and rivets38. Air preheater rotor handling devices39. Carbon, alloy and SS pipes40. Alloy and SS plate41. Rolled sections42. Erection Cranes and Equipment

Total 0

March 1974

ARM 12

ROMANIA

TURCENI THEI'AL POWER PRDJECT

Estimated Schedule of Disbursements

IBRD Fiscal Year Cumulativeand Quarter Disbursements at End of Quarter

(US$ Million)

1975

September 30, 1974 2.1December 31, 1974 7.0March 31, 1975 13.0June 30, 1975

1976

September 30, 1975 129.7December 31, 1975 27.6March 31, 1976 327.June 30, 1976 32.4

1977

September 30, 1976 37.1December 31, 1976 4o.7March 31, 1977 W.0June 30, 1977 47.6

1978

September 30, 1977 50.9December 31, 1977 54.1March 31, 1978 56.5June 30, 1978 58.8

1979

September 30, 1978 60.0

May 1974

AN= 13Page I of 3

ROMANIA

TURCENI THERMAL POWER PROJECT

Comparison of Alternatives

1. Within the context of a thermal plant, the economic alternativeto burning lignite is to use fuel oil derived from imported crude oil.Natural gas supplies (at the present level of known reserves) are alreadyfully committed to uses yielding higher value added than that obtained byburning gas for power generationl1. Increased use of gas in the thermalpower sector, therefore, would require the substitution of crude oil deri-vitatives for gas in some other activities. Since the country is a netimporter of crude oil it follows that the economic cost of using gas is thecost of the corresponding increment of imported oil.

2. In terms of thermal alternatives, therefore, a least cost comparisonwas made between the lignite burning plant and a plant using fuel oil derivedfrom imported crude. The comparison shows that at a price of fuel at $8.00a barrel ($65.4O a ton including $7.00 transport costs) the lignite alternativerepresents the least cost alternative at discount rates up to 25.9%. Thus,the significantly lower capital costs in the case of a fuel oil plant (70%less than in the lignite alternative) are much more than offset by the highercost of oil as a fuel.

3. The data entering into this comparison are shown below. The coststream for the lignite alternative is the base case stream which is fullydescribed in the following section of the report which deals with the economicrate of return. For the oil alternative the capital costs (which includeimported items whose price has been converted at lei 20 = US$1.00) are shownin Table 1. The calculation of fuel oil costs is as follows: The price ofimported fuel oil was assumed to be US$ 8.00 per barrel throughout the projectlife. Using a factor of 7.3 to convert from barrels to tons and a figure ofUS$ 7.00 per ton transport costs (figures supplied by the Romanians) this gavea price per ton of $65.4LQ/. At a specific consumption rate of 0.235 kg/kAhit would require 1,950 thousand tons of fuel oil per year to generate the sameuseful energy as the lignite plant thus giving a total annual fuel oil bill ofUS$ 127.53 million, or lei 2,550.6 million. The total cost streams are shownin Table 2 below. The equalizing discount rate was found by calling the coststream of the oil alternative the benefits to the lignite alternative (in termsof costs avoided), in a standard rate of return calculation.

1/ This issue has been fully explored in the appraisal of the Tecucifertilizer plan.

2/ In the light of the instability in oil prices reigning at the time theproject was appraised, this figure is not intended to be a forecast butrather a hypothetical value used purely for comparative purposes lyingwithin a likely range of values.

A3X 13Page 2 of 3

- Table 1: CAPITAL COSTS ON THE FUEL OIL ALTERNATIVE

(lei millions)

Power 400-kVEquipment Housing Lines Switchyards Total

1973 67.5 20.0 - 87.51974 230.2 20.0 - - 250.21975 1,108.1 - 247.5 - 1,345.619,6 1,300.7 - 237.5 - 1,538.21977 1,400.5 - 237.5 45.0 1,683.01978 217.0 - 237.5 45.0 499.51979 100.0 - - - 100.0

4,424.o 40.0 950.0 90.0 5,504.0

Table 2: COST STREAMS IN THE FUEL OIL ALTERNATIVE

(lei millions)

Capital Fuel Other Total

1973 88 - - 8819714 250 - - 2501975 19346 - - 1,3461976 1,538 - - 1,5381977 1,683 158 - 1,8411978 500 1,276 65 1,8411979 100 2,073 106 2,2791980-2005 - 2,551 130 2,681

Exchanga rate: lei 20 =US$ 1.00Equalizing discount rate 25.93%Fuel oil price $8.00 bbl.

4. Celculations were also made to show, at varying discount rates,what would be the price of imported fuel oil which would equalize thepresent value of the cost streams in each alternative. The cost streamsused were those described above. The present values calculated at differentdiscount rates and oil prices are given in the following table.

ANNEX 13Page 3 of 3

Table 3: PRESENT VALUES OF THE LIGNITE AND IMPORTED OIL ALTERNATIVESAT ALTERNATIVE DISCOUNT RATES AND OIL PRICES

I (lei millions)

Discount Rate 6% 8% 10% 12%

Lignite 19,103.8 16,108.1 13,864.5 12,138.4Oil ($3.00 bbl) 17,358.8 14,021.1 11,614.9 9,830.3Oil ($5.00 bbl) 23.,140.3 l8,407.4 15,018.4 12,523.9Oil ($8.00 bbl) 31,829.6 25,000.0 20,133.9 16,572.7Oil ($10.00 bbl) 37,611.9 29,386.9 23,537.9 19,266.8

Equalizing Oil Price:Abbl $3.68 $4.07 $4.30 $5.10/ton a/ $33.86 $36.71 $38.39 $44.23

a/ Including transport costs to Romanian border at $7.00 per ton.

5. It is clear, from the range of values shown, that the equalizingprice of oil is significantly lower than the actual world price of fuel asof January 1, 1974 ( i.e. about $8.00 bbl) even at the upper end of therange of discount rates. Given that the social cost of capital in Romaniaseems more likely to lie in the range 8-10% than in ranges above 12%,1 itfollows that the ltbest" estimate of the equalizing price would lie in therange $4.00-$4.30 bbl, i.e. about half the actual price reigning in early1974.

6. These calculations suggest that the lignite plant is unequivocallythe least cost thermal alternative.

1/ Notions of the social cost of capital may be even more conjectural in thecase of Romania than generally, since conventional capital markets do notexist and interest rates bear no relation to capital costs. A generalargument can be made, however, that the very high investment rates (oftenin excess of 30% of national income) would tend to imply capital abundancerelative to the situation found in most LDC's, hence implying a generallylower social discount rate.

March 1974

AS= 14Page 1 of 10

ROMANIA

TURCENI THERMAL POWER PROJECT

Economic Rate of Return

1. The economic rate of return on the Project is the discount ratewhich equalizes the present values of the time streams of costs and bene-fits over the life of the Project. For this purpose, a period of 33 yearswas adopted, consisting of 25 years of full Project operating life and 8years of construction. The benefits to the economy from the Project aremeasured as the sales of energy to the power grid. The costs comprisethe following items:

A. Mining Component

(a) Capital costs.

(b) Operating costs, including rail haulage of lignite frommines to generating station.

B. Power Component

(a) Capital costs for equipment and erection.

(b) Construction of 400-kV tranamission lines and switching station.

(c) Operating costs, including maintenance of 400-kV lines.

(d) Construction of housing and social amenities for staff.

(e) Rail access for construction, and site clearance.

2. The detailed figures for the calculation of the economic rate ofreturn, in the case of the basic assumptions, are displayed in Table 1lThe derivation of these figures is described in the following paragraphs.The general approach in the economic analysis has been to price the non-traded components, including the output, at domestic prices, converting theimported components at a shadow exchange rate of lei 20 - US$1.00 andapplying a middle estimate shadow wage of 50% of actual wages.

Project Benefits

3. The energy produced by the Project will be fed to the nationalgrid thus making it difficult to identify individual categories of consumersbenefiting from it. Consequently the benefit stream was found by applyingan average sale price of energy (gross of taxes) to the units to be suppliedby the Project, The quantities chosen were the following:

ANNEX 14Page 2 of 10

Price: 314 lei - The calculated average retail selling price ofelectrical energy to all categcries of consumersin 1972. This post-calculated price thus reflectsthe 1972 structure of energy consumption as appliedto the catalogue of fixed electricity tariffs(see Annex 7).

Units Supplied: 6,882 GWh p.a. This figure is derived as follows:

Total Energy Generated 8,580 GwhLoss Factor (x 1/1.20) 1.430 Gwh

7,150 GWhEergy Used in Mining Component 268 GWh

Net Units Supplied 6 882 GWh

Full Year Benefit: 314 x 6,882 - lei 2.161 million

4. Benefits in the years 1977-79 are pro-rated according to the time-table of comUissioning dates for each unit, These are as follows:

1st Units September 19772nd Unit: March 19783rd Unit: September 19784th Unit: March 1979.

5. For the following reasons, it is considered reasonable that thebenefits quantified in this way do not fully state the net benefits accruingto the econcoy.

(a) The catalogue of electricity tariffs has remained unchanged since 1963.Since then the structure of consumption has changed significantly withlow-tariff users (particularly industrial and other productiveusers who accounted for about 60% of total consumption in 1973)growing in weight. This has led to a decline in the post-calculatedaverage sale price which thus tends to understate the full benefitsaccruing to the population. It is considered that a tariff in-crease for productive users sufficient to raise the post-calculatedaverage sale price by, say, 10% would more adequately reflect the fullbenefits and would not, given the obligation to fulfill plan targets,significantly reduce the industrial demand for energy.

(b) The benefits as considered take no account of possible second-ordereffects such as the expansion of employment and urbanization whosesocial benefit is not necessarily reflected in the price of electricity.

ANNEX 14Page 3 Of 10

(c) Some small (possibly n4gligible) amount of direct revenue mayaccrue to the Project from the sale of ash, heat and otherauxiliary products and services. These have been left out ofaccount.

(d) Were the value of the energy supplied priced in terms of a borderprice then (taking the average export price of Romanian energy,imputed at 363 lei as against 314 lei for domestic sales) thiswould raise the economic benefits by some 15%.

Project Costs: The Mining Component

6. Capital Costs

There are four categories of capital costs involved in the developmentof lignite resources for Turceni, namely:

(a) the costs of developing the Jilt and Matasari mines;

(b) the costs of developing replacement mines when Jilt and Matasariexpire in 1990;

(c) the interim development of additional mines to supplement theJilt-Matasari supply shortfall; and

(d) capital replacement costs.

These replacement costs are estimated at lei 400 million in each of the years1984 and 1994. The development of the supplementary mines (i.e. (c) above) canbe ignored since their terminal value in 1981 cancels their cost. The capitalcost stream reflecting the other items (as well as the terminal values in 2005)is shown in Table 2.

7. Operating Costs

The costing for labor, materials, and other operating costs was basedon the explanations and data contained in the mining consultant's report(Annex 2). Labor was shadow priced, as discussed below. (See Appendix 1 tothis Annex). The Project return is sensitive to the use of shadow wages(see Table 4) largely because labor costs are a significant proportion of totalcosts in the mining component.

The Power Component

8. Capital and Associated Costs

Table 3 shows the breakdown of the costs of equipment, installations,housing, rail access and other associated capital expenditures covering each of theyears 1973-79. Note:

ANNEX 14Page 4 of 10

(a) The total financial cost of the housing (1,000 apartments at80,000 lei each) is given as lei 80 million. Only half thisamount is charged as an economic cost to the Project becauseabout half the apartments will be used (during the operationphase) by the local Turceni community, whose judet financedthe residential construction.

(b) The rail link included in these estimates is not that betweenthe power station and the mines discussed above (for Jilt/Matasari)but that between Turceni and the existing main rail link whichwill, among other things, enable lignite to be brought in fromother mines. This line was originally constructed to carry in theequipment for construction of the Project. In time the line willalso be used for other non-project traffic.

9. Operating Costs

The operating costs of the power component consist of labor costs,materials and some fuel (i.e. the fuel oil for overfiring the burners) andother maintenance costs. The following notes are recorded on these costs:

(a) The major fuel component -- lignite -- is omitted since the costof lignite is accounted for by the resource costs entered underthe mining component. (The latter includes the cost of transportingthe lignite from the mines to the power station).

(b) As in the mining component, labor is shadow priced, on the basis ofthe considerations discussed in Appendix 1.

(c) Among the other operating costs which include repairs and mainte-nance, slag and ash discharge, etc., is the cost of maintainingthe 400-kV transmission lines. The latter is imputed as 2% p.a.of the total capital cost of the lines, i.e. lei 19 million eachyear.

Sunmary of Assumptions in the Base Case

10. To make the calculation of the base economic rate of return thefollowing assumptions are made:

(a) Selling price of energy lei 314 GWh.(b) Units sold 6,882 GEM.(c) Labor is priced at a shadow wage.(d) Conversion rate 20 lei = $1.00 (the assumed shadow rate of exchange).

Economic Rate of Return

II. On the assumptions described above, the comparison of costs andbenefits over the life of the Project results in an economic rate of returnof 8.6% in the base case. As described above, this rate probably understatesthe total economic return to a significant degree. The rate of 8.6% seems

Page 5 f 10

acceptable for this sector, in the Romanian oontext, bearing in mind thestructure of tariffs, the absence of inflation, and the probabilities ofa relatively low social cost of capitel. Calculating the rate of returnusing the border price for energy sales gives a rate of 11.5%.

Sensitivity Analysis

12. The sensitivity of the base rate of return was tested by varyingthe values of the main cost and benefit factors from those in the base case.The results of these tests are given in Table 4 of this Annex. Except in thecase of an assumed 10% increase in the selling price of energy, the rate ofreturn is relatively insensitive to changes in the value of anw single factor,such changes bringing no more than a 1.0% change in the rate of return.When changes in several factors are combined, however, with less favorable(and conversely, more favorable) conditions assumed to coincide the returnshows a variation from a low of 6.3% to a high of 10.5%.

ANNE: 14Page 6 ofb 10

Table 1: ECONOMIC RATE OF RETURN -- THE LIGNITE CASE

(M4illion lei)

COSTSMining Component Poawer Component

Total Total Total Total

Capital Labor Materials Rail Freight Other Mining Capital Labor Other Power Costs Benefits

1973 46 1 2 - 5 54 153 - - 153 207 -

1974 170 4 7 - 21 202 322 - - 322 524 -

1975 615 15 30 - 87 747 1206 -- 1206 1953 -

1976 722 44 83 - 216 1065 1590 - - 1590 2655 -

1977 309 56 110 - 215 690 1965 - - 1965 2655 134

1978 744 56 110 1 215 1126 1632 6 17 1655 2781 1081

1979 405 56 110 25 215 811 230 12 141 383 1194 1756

1980 680 56 110 66 215 1127 5 18 228 251 1378 2161

1981 227 56 110 86 215 694 5 23 281 309 1003 2161

1982 223 56 110 86 215 690 - 23 281 304 994 2161

1983 52 56 110 86 215 519 - 23 281 304 823 2161

1984 400 56 110 86 215 867 - 23 281 304 1171 2161

1985 - 56 110 86 215 467 - 23 281 304 771 2161

1986 - 56 110 86 215 467 - 23 299 322 789 2161

1987 - 56 110 86 215 467 - 23 299 322 789 2161

1988 - 56 110 86 215 467 - 23 299 322 789 2161

1989 853 56 110 86 215 1320 - 23 299 322 1642 2161

1990 1705 56 110 108 215 2194 - 23 299 322 2516 2161

1991 853 56 110 108 215 1342 - 23 316 339 1681 2161

1992 - 56 110 108 215 489 - 23 316 339 828 2161

1993 - 56 110 108 215 489 - 23 316 339 828 2161

1994 400 56 110 108 215 889 - 23 316 339 1228 2161

1995 - 56 110 108 215 489 - 23 316 339 828 2161

1996 - 56 110 108 215 489 - 23 334 357 846 2161

1997 - 56 110 108 215 489 - 23 334 357 846 2161

1998 - 56 110 108 215 489 - 23 334 357 846 2161

1999 - 56 110 108 215 489 - 23 334 357 846 2161

2000 - 56 110 108 215 489 - 23 334 357 846 2161

2001 - 56 110 108 215 489 - 23 351 374 863 2161

2002 - 56 110 108 215 489 - 23 351 374 863 2161

2003 - 56 110 108 215 489 - 23 351 374 863 2161

2004 - 56 110 108 215 489 - 23 351 374 863 2161

2005 -800 56 110 108 215 -311 - 23 351 374 63 2161

Rate of Return = 8.65%

lei 20 = US$1.00

ANNEX A1Page 7 of 10

Table 2: CAPITAL COST §TREM IN THE MINING C0MPONENT

Total Of Which Foreign

Jilt/MatAsari

1973 461974~ 170 1975 615 81976 722 61977 309 21978 7144 181979 40O5 -

1980 690 181981 227 61982 223 51983 5-

Total Jlt/matanar:L 4,203 63

Capital Rtp1acement1984 400

Replacement Mines19897 853 131990 1,705 261991 85 3

Replacement inea Total 3,411 52

Capital Poplaoent1994 400 _

TOTAL 8,114 115

Less: Tezminal Values (200$) 800 -

Investment Cost to the Project 7,614 115

ANNIX 14Page 8 of 10

Table 3: CAPITAL COST STFM IN THE POWER COMPONENT

(J.ei mi:llions )

Power Agricultural Rail )400-kV Switch-lilllt Cp tion Housg Ln Lines yar To

1973 67.5 - 20.0 65.0 152e51974 237.2 - 20.0 65.0 322-.21975 968.1 - _ _ 237.5 1,205.61976 1,347.7 5.0 - _ 237.5 1,590.21977 1,678.2 5.0 - _ 237.5 45.0 1,965.71978 1,344.2 5,0 _ _ 237.5 16.0 1,632.71979 224.5 5.0 - 229.51980 - 5.0 - _ 5.01981 - 5.0 - - _ 5e°

TOTAL 5 , 3040 40.0 130.0 950 0 7,108.4

Table 4: moNomEC RATE OF RETURN - SlSITIlIfTY AALYSIS

Exchange Fate: lei 20 = US$1.00

Base Case / 8.65

Nore Favor-able AssumPtions

(a) Sales increase by 5% 9.29(b) Mine operating costs less by 5% 8.83(c) Selling price 10% higher 10.35(d) Combination of (b) and (c) 10.51

Less Favorable AssumPtions

(a) Capital costs 10% highe) 7.59(b) Mine operating costs 10% higher 8.13(c) Sales 5% lower 8.03(d) Combination of (a)-(c) 6.37

1/ Calculating the base retumn at actual rather than shadow wages gives areturn of 7.8%.

ANNEX 14Page 9 of 10

APPEDDIX 1

Labor Costs

1. The structure of the labor force to be employed in the operatingphase, the structure of wage earnings and the total wage bill are as follows:

--- lei ------ --- 000 lei -Labor Category Number Monthly Salary Annual Wage Bill

Engineers 46 3,300 1,822Technicians and Foremen 115 2,650 3,657Skilled Labor 1,317 2,000 31,608Unskilled labor 59 1,250 88

Total 1,537 (2,058)*

* Weighted average.

2. The direct wage payments to labor may,to some extent,understateand to some extent overstate the real economic cost of labor to the Project.On the one hand, the opportunity cost of the labor employed in the Projectin terms of alternative activities foregone, may be significantly less thantheir salaries earned in the Project. At least this seems likely in thecase of the skilled and unskilled workers (i.e. nearly 90% of the total)most of whom have been recruited and trained specifically for the Project.Since all labor is employed in Romania, for the recruitment of these workersthe ultimate activity foregone is that of a marginal worker in agriculture.Using average incomes in cooperative agriculture as an upper limit measureof possible output foregone would imply an opportunity cost of around lei 850per month in 1973.

3. In actual fact, output in agriculture is unlikely to decline atall in response to a shift of labor into other sectors, since mechanizationmore than compensates for the loss of manpower. The costs of mechanizsation,therefore, may be taken as defining the minimum limit of labor's opportunitycost. Here again, exact figures are not available. Using investment figuresas a proxy for the costs of mechanization would imply a minimum cost of lei246 per month per man in 1973. j

4. On this basis, the opportunity cost of labor would lie betweenlei 246 and lei 850, both figures, however, being upper limit estimates.There is no general reason to suggest where, within this range, the bestestimate of the opportunity cost of labor would lie except that as stated,

1/ Unfortunately, there are no separate data for investments in the cooperativesector, so these figures refer to the agriculture sector as a whole. In 1973about lei 13 billion was invested in agriculture, or lei 2,955 per man. In-vestment per man in cooperative agriculture is undoubtedly less than inagriculture as a whole.

AMI 114Page 10 of 10

it seems unlikely that the output loss would approach the average income inagriculture. As a working estimate, a figure is taken midway between thetwo limits, i.e. a figure of lei 547, or 27% of the average wage of the skilledand unskilled labor in the Project.

5. The factors which tend to make labor more expensive to the Projectthan is indicated by the figures for direct wage payments include:

(a) wastage and absenteeism;

(b) social security and other social commitments;

(c) housing costs; and

(d) training costse

These are considered in the following ways:

(a) Wastage and absenteeism allowances have been built into theRomanian estimates of the wage bill. They represent 10% of thetotal wage bill gross of social security contributions (12% forthe mining component).

(b) The social security contributions (Which are mandatory, thoughdiffer in amount by sector) are l1% of the direct wage bill inthe power component, 10% in the mining component.

(c) Housing and related facilities will cost lei 80 million for1.,000 flats. This number, however, is required to house a largenumber of workers during the construction phase. only about ahalf of the flats will be used by the permanent Project staff,the remainder being taken over by the Tarceni Village Community.As a cost to the Project, therefore, only lei 40 million is shown.(This item is actually entered into the capital cost stream).

(d) Training costs for the skilled labor are given as lei 56 million,but these are also included in the capital costs of the Project.

6. These considerations provide for the following components of ashadow wage for skilled and unskilled workers in the Project:

lei/Month % of Actual Wage

a) Opportunity Cost* 547 28b) Absenteeism etc. 222 1lc) Social Security etc. 200 10

969 49

* Taking the upper limit for output foregone (lei 850 per month) wouldraise the shadow mage to lei 1,272 or 64% of the actual wage.

March 1974

ANNEX 15Page 1 of 2

ROMANIA

INDUSTRIAL CENTRAL FOR ELECTRIC POWER AND HEAT

The Accounting System

1. Uniformity and simplicity are significance features of the accountingand reporting procedures used by all Rcmanian enterprises. All enterprisesof the Industrial Central use a uniform system of accounts and the pre-scribed monthly report forms. However, they vary considerably frcm thosenormally found in other countries with which the Bank deals. The revenuesare recorded not on the basis of customer billings but on the basis of cashreceived from sales of production while the expenditures are accrued in thenormal manner Y. The items of expense are recorded according to basicheadings, e.g.: wages, materials, depreciation and other expenses. Costingby function, allocation of overheads between capital and revenue, distributionof service department costs according to usage and other forms of cost account-ing techniques commonly followed by public utility organizations are not used.Depreciation, normally a non-cash item, is a cash operating expense being paidto the Investment Bank but largely available for re-investment.

2. The presentation of liabilities in the balance sheet differs fromthe conventional presentation essentially because all assets belong to theState; for practical purposes there is no capital or long-term debt and allnet income is distributed. Instead net fixed assets in service are representedby a fixed asset fund and by any outstanding loans for investment projects.As these loans (i.e. the Investment Bank loans) are repaid, the fixedasset fund is increased. Financing of work in progress is shown by sourcesof investment. As assets are brought into service, the sources of investmentsare reduced and the fixed assets fund increased by the value of the completedasset. Finally, current assets are represented by sources of working capitaland current liabilities.

3. The sources and applications of funds statement (Annex 18) is infact not a conventional funds statement. It shows only how constructionexpenditures are financed; movement in working capital, which is used tofinance production, is not shown. It does not show the distribution ofbenefits; only the benefits to be reinvested. Similarly only depreciationpayments available for investment expenditures are included.

I. A further unusual feature of the accounting is that constructionexpenditures in the funds statement are less than corresponding increasesfrom year to year in gross fixed assets in service and work in progress inthe balance sheet. This is explained by the inclusion of distribution assetsfinanced separately and constructed by the distribution system construction

I/ Since collections are only about 13 days behind billing and the treatmentis consistently applied from one year to another, the distortion of grossrevenue would be marginal.

AINiX 15Page 2 of 2

units within each enterprise (SCM)e Another reason is that some constructionis financed by other Ministries and assets on completion are handed over tothe Industrial Central for operation and control.

5. The State Budget allocation which is used onlly to finance newwork is not subject to any conventional form of debt service at the presenttime. However, depreciation payments are made to the State which are largelyavailable for reinvestment in the sector. There are also taxes on produc-tion of electric and thermal energy which are paid to the State by the genera-tion enterprises. In addition, there is a 2% fee payable to the Invest-ment Bank on fauds being used on plant and equipment investments during theconstruction period and a 6% penalty is charged for delays in codmissioningnew plant. Their purpose is to encourage completion of projects so that thLybecome revenue producing on schedule thus preventing disruption of the Socio-Economic Plan. It is possible that the tax on production may be replacedin the near future by a tax on invested funds.

March 1974

ROMANT A

Industrial Central for electric Power sod Heat (CIETT)

Income Statese-ta for the Years 1970-19809/(IT Millions of lei)

To talYeor Ended D-ceb-er 31 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1973-1980

---- Actu-l ---------- ------------------------------ Forecast -------------------------------------------

flectric Energy Sles (GWh) 26,652 30,373 33,898 37,740 43,520 47,780 54,340 59,720 65,440 71,610 78,320Average Revenue per kWh (lei) .316 .316 .314 .314 .313 .308 .313 .313 .313 .312 .311

Operating RevenueSlons of Electricity 8,428 9,583 10,655 11,851 13,635 14,713 16,988 18,688 20,465 22,330 24,327 142,997Sales of Host 992 1,164 1,275 1,308 1,420 1,633 1,752 1.8R6 2,018 2,195 2,396 14,608Other 57 60 64 67 64 78 82 9^ 101 105 110 699

Total Operating Revenue 9,477 10,807 11,994 13,226 15,119 16,424 18,822 20,666 22,584 24,630 26,833 158,304

Operating EuponsesOperation, Mainteaucue, Adminiitration 1,744 1,889 1,958 1,882 2,071 1,980 2,443 2,576 2,727 2,873 2,920 19,474Purchased Power 56 54 116 98 137 169 207 229 212 195 314 1,561Fuel 3,670 4,061 4,281 4,716 5,264 5,870 6,711 7,531 8,450 9,378 10,344 58,264Deprec-ition 1,535 1,735 1,934 2,149 2,409 2,684 3,063 3,441 3,836 4,283 4,867 26,732Te-ns 1.128 1.513 1,691 1.874 2.134 2.446 2,641 2.887 3,156 3.453 3,764 22.355

Total Operating Enpennon 8,133 9,252 9,980 10,719 12,015 13,149 15,065 16,666 18,381 20,182 22,209 128,386

Operating lonoer 1,344 1,555 2,014 2,507 3,104 3,275 3,757 4,000 4,203 4,448 4,624 29,918Other Incm-e (Net) 199 85 113 40 107 164 191 240 307 363 436 1.848

Total Income 1,543 1,640 2,127 2,547 3,211 3,439 3,948 4,240 4,510 4,811 5,060 31,766

Interest 5 26 50 70 81 87 86 405IBRD.. ten 5) (26) (50) (70) (Ii) (44 -26(L.es) Interest Cherged to Construction - - - _ 129Net Int-reot

Net Income 1.543 A _ L 5 3.211 3- 439 3 948 4240 4 0 .974 167

Arte of Returi 32 129-/ 35 247 40,408 46.050 52.436 57,764 63,592 71,113 81,484 93,751 107,142

Operuting IN c td Ae ih Serf 4.2 544 .50 5.4 5.9 5.7 5.9 5.6 5.2 4.7 4.3

i/ lee annee i6 fur a doucriptiou uf the accounting uystem -nd Aenn 20 for notes rnd -umunptins oun financiul statements.j Booed en Tet Fioed A-oets in Servicu end Worling Capital fur your endud December 31, 1970 only.

May 1974

kOMANIA

Indstia1 GenLia fo Electric Paer and Heat (CIEETBalance Sheets for tbe Years 1970-19802

(in Millions oi Lei)

Year Ended December 31 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

------------ Act-l ------------ ------------ - -------------------- Forecast -------- _-_________________________________

ASSETS

Fixed AssetsFixed Assets is Scrvie (at acEt) 42,594 50,285 55,803 65,406 72,906 80,874 90,056 102,028 117,746 135,160 154,235

-ss: Accomulated Oepreciation 11.225 12.763 14.392 16,556 18,980 21,760 24.804 28.232 32.14S 36.987 41.973Net Flied Assets is S-ecice 31,369 37,522 41,411 49,850 53,926 59,114 65,252 73;796 85,606 98,173 112,262

lo 10 Progress (or Investmects) 13.706 13_669 14.687 14,891 16,974 21,307 27,820 31,809 36.791 39,555 4o,916

Total Net Fed_ Asets 45,075 51,191 56,098 63,741 70,900 80,421 93,072 i05,605 122,397 137,728 152,778

Cacrent AsnetsCask at Back 242 207 283 244 270 308 354 416 463 525 587

F.el end Material Stock. 819 864 953 1,C^O 1,086 1,247 1,403 1,564 1,737 1,900 2,074

Accooctn Receivable 271 368 420 394 428 493 555 626 691 759 831Etetrprise Correct A-c-cts 32 27 34 111 13 97 166 349 632 879 1.119

Total Cerront Asne;t 1,364 1,466 1,690 1,749 1,797 2,145 2,478 2,955 3,523 4,063 4,611

TOTAL ASSETS 44,439 52.657 57.788 65,490 72,697 82,566 95,550 108,560 125,920 11.1 1L

L ILB TIE8

Eqoity and Borru inFixed Asset Fond 31,313 37,458 41,349 48,793 53,866 59,052 65,i88 73,730 85,538 96,903 fll,018Inventme-t Baek Loao 56 64 62 57 60 62 64 66 68 70 74

Proposed IBRD Lens _ - _ _ - - 1,200 1,170

Total Equity and BorAwings 31,369 37,522 41,411 43,850 53,926 59,114 65,252 73,796 85,606 98,173 112,262

Sosrean of EnveotqnetsInternet Ctah Goneraties 2,455 3,100 3,526 4,012 4,732 5,173 5,872 6,464 7,053 7,687 8,391Strte Budget Allocation 10,441 9,571 9,593 9,468 10,625 13,876 19,078 21,936 25,837 28,828 28,752Aeotnic Fxyable - Construction 810 998 1,568 1,411 1,569 1,778 2,056 2,327 2,701 3,040 3,373Proponed IBR1 L.an _ _ 48 480 814 1.082 1, - -

Total Sources_o._Ieetments 13,706 13,669 14,687 14,891 16,974 21,307 27,820 31,809 36,791 39,595 4o,516

Sources of WockiCa acpitalWorking Capital Fend 623 680 776 826 954 1,122 1,279 1,451 1,628 1,796 1,966

Shkrt Term Loae- 137 122 166 94 94 122 130 138 155 176 178

To al_Srrcen of Workino Capital 760 802 942 920 1,048 1,244 1,409 1,589 1,783 1,972 2,144

Onrrent LiabilitiesAecomnte Payable - Operatio- 398 475 544 583 481 621 771 1,058 1,421 1,760 2,127

Customer Lepo:its 140 158 178 190 193 205 212 216 221 226 230

Undistribkted Besefits 66 31 26 56 70 75 86 92 98 105 110

Total Cuent Libilities 604 664 748 829 749 901 1,069 1,366 1,740 2,091 2,467

TOTAL LIABILITIE 46.459 52.657 52.788 65490 7,697 8566 95,550 1 0 125,920 141,791 157,389

See Amneo 16 for desriptiom of the -c-ounting 6yctem end Anex 20 for notes cnd aeo-mpticns on ficancial etatemen.

Hey 1974

R0NIA7T

lodustrial Central for Electric Power and Heat (CIEEf)

Soures_anjij _llcations of Fonda for the Yearn 1970 -198W0(in M4illion.. -' Let)

TotalYear Ended Deceber 31 1970 19 71 197 2 1973. 1974 19 75 19 7 197 1978 19 79 19019 73-1980

Year Anded -------- ------ -----------A-t-a------ Forecast - ---------------------- -- 19

SOURCES OF FUNDS

Internal Cash GenerationBenefita Reinvented 810 1,308 1,537 1,783 2,248 2,408 2,763 2,968 3,157 3,338 3,482 22,147Depreciation 1,565 1,709 1,939 2,178 2,424 2,703 3,044 3,428 3,826 4,277 4,834 26,714Other Sorcee _ 8 83 __50 51 60 _.6Z 65 68 70 72 75 523

Total _nternal Sourne 2,455 3,100 3,526 4,012 4,732 5,173 5,872 6,464 7,053 7,687 8,391 49,384

External Snu-eenStater adgat Alloc.tion 3,311 3,224 2,934 2,852 3,057 4,279 6,670 7,910 9,778 10,721 lo,490 55,757Investment Bank Loana 56 64 62 58 60 62 64 66 68 70 74 522Proposad I3RR Loan - - - - 48 432 334 268 118 - - 1,200

Total Eaternal_Sources 3,367 3,288 2,996 2,910 3,165 4,773 7,068 8,244 9,964 10,791 10,564 57,479

TOTAL SOURCES 5,822 6,388 6,522 6,922 7,897 9,946 12,90 1717 18.478 18,955 16.863

APPLICATIONS OF FUNfS

Conetractien Reqairennr." (I-cludingInterent Charged to Con.treation)W 5,788 6,332 6,458 6,86o 7,839 9,886 12,878 14,644 16,951 18,367 18,769 106,194

Debt Service.ADeatizatian at Lnane 34 56 64 62 38 60 62 64 66 68 lsk 12oInterent on Proponed IBRD Loan _ 3 86 129

Total Debt Service 34 56 64 62 58 60 62 64 66 111 186 669

TOTAL APPLICATIONS 5,822 6,388 6_S22 6,972 7 7 9,946 12,940 14,78 17,017 18 8 15863

1/ See Annex 16 for a description of the acounting system and Annex 20 for notes and assnmptions on financial statenente.

j Interest charged to constru-tion is calculated only on the amount of the Sank loan.

May 1974

ANNEX 19Page 1 of 5

ROMANIA

INDUSTRIAL CENTRAL FOR ELECTRIC POWER AND HEAT

Notes and Assumptions on Financial Statements

A. Income Statement

Revenues

1. All revenues are based on cash received from sales ofelectricity and other products. Unpaid accounts reflect 3-5 daysbillings and are shown under current assets. Income accrued onunread meters at year end is not brought to account.

Other operating revenues comprise cash received fromthe sale of industrial water and ash.

Electricity tariffs in force since 1963 are assumed tobe unchanged for the purposes Of the forecasts (Annex 7 ).

Other income (net) is derived mainly from the twomanufacturing enterprises of the CIEET, rentals of transport toother enterprises and from houses occupied by staff of the enter-prises.

Operating Expenses

2. Wages for the purposes of the forecasts have been assumedto increase annually about 1.5% to cover incremental effects in addi-tion to an 8% general real wage increase about the end of 1975. Theaverage monthly wage was assumed to be 1831 lei in 1974 rising to 2000lei in 1980. The estimated number of employees has been correlatedwith the increase in the number of MW's of installed plant.

3. Purchased power comes from three distinct sources:

3.1 imports from neighboring countries with whomtransmission lines are interconnected. Theprice paid is prescribed in the tariff law(Annex 7 ) and is the same as for exports.

3.2 surplus power from captive plant largely thatof the Ministries of Chemical Industry andHeavy Machinery which generate power for heat-ing purposes. The price paid is 250 lei per

ANNEX 19Page of 5

MWh unless the actual cost is higherin which case the planned cost ispaid plus a 3% benefit.

3.3 electricity generated during the commis-sioning of new plant (operating costsduring commissioning are capitalized).The price is based on the average costprice in the system for that particularform of generation.

4. Depreciation has been calculated using the conventionalstraight line method. The rates are prescribed in Law 62 of 1968.Depreciation of assets used by the distribution construction units(S.C.M.) which operate within each distribution enterprise is notincluded in the figure as SCM units are self-accounting.

5. Taxes comprise a turnover tax on electricity productionof 39 lei per MWh, 6 lei per giga calory on thermal energy producedand an 11% social security contribution calculated on gross wagespaid.

6. Interest relates only to the proposed Bank loan. Interestand commitment fees on Investment Bank moneys is capitalized while intereston short-term loans provided by the National Bank are included under opera-tion, maintenance and administration expenses.

B. Balance Sheet

Fixed Assets in Service

7. Fixed assets are valued at construction cost. They includeassets constructed by other ministries for the control and use of theMEE. On the other hand they exclude assets financed by the MEEwhich are transferred for operational purposes to other ministriese.g.: railway line to supply fuel to a power station may be financedby the MEE but transferred to the Ministry of Transportation foroperation.

Distribution assets up to 110 kV which are constructei bythe SCM but financed mainly from local administration budgets arealso included.

ANNEX 19Page 3 of 5

Work in Progress

8. Finance for capital work in progress comes from threesources: internal cash generation, state budget allocations andinvestment creditors. The sum of these sources will match thework in progress figure in each year of the forecasts.

Current Assets and Current Liabilities

9. When projecting current assets, the Ministry has calcu-lated current assets to eaqual 8% of total net fixed assets in eachyear. The items cash at bank, fuel and material stocks andaccounts receivable are split in the same proportion for each yearof the projections; the split being based on the average of theactual figures for the yearsl970-1972.

The figures presented in the balance sheet forecasts(Annex 1? ) do not equal 8% of total net fixed assets becausecertain current asset items have been offset against correspondingitems in current liabilities. For example: the item "enterprisecurrent accounts" is the difference between amounts owed to theC=EFT by the enterprises and the amount owing to the enterprisesby the ClIET. Settlement of these accounts is made in the normalcourse every 5 days.

Similarly, a current asset account which accumulates theprogressive payments of planned benefits during the year by theenterprises has been offset against total benefits earned which areshown in current liabilities. The difference between these accountsat year end is shown in undistributed benefits under current liabil-ities. This presentation shows the true level of current liabilitiesand current assets.

Fixed Asset Fund

10. This fund and the corresponding figure in the same yearfor Investment Bank loans will equal net fixed assets in serviceat the end of the year. As assets in work in progress are completedthe value of the completed assets is transferred to fixed assets inservice and at the same time the fixed asset fund is increased bythe same amount. As the latter entry is made, the value of itemsfinanced from the State Budget are deducted from the State Budgetallocation under sources of investment.

Sources of Working Capital

11. Funds are provided to each enterprise by the National Bankas working capital to meet costs of production. They take two forms;

ANNEX 19Page 4 of 5

a working capital fund which is fixed annually based on the minimum fnormalitfworking capital required during the year and short term loans whichare drawn as required to meet any excess.

The "minimum" normal working capital is determined bycalculating each year the estimated normal working capital require-ment for the 1st and 4th quarter and deducting estimated internalsources. The "minimum" normal working capital is the lower figure.The normal working capital is determined by dividing the estimatedvolume of production expenditures by estimated annual turnover.Internal sources are based on norms prescribed for all enterprisesby the Ministry of Finance. For the purposes of the forecasts theinternal sources were assumed to be a predetermined percentage ofproduction costs. The short term loan for each year is the differencebetween the minimum normal working capital required for the 4thquarter and that required for the 1st quarter. Short term loans aremade available from the National Bank at rates of interest around2-3% per annum for periods up to a maximum of one year. They are repaidfrom benefits.

C. Sources and Applications of Funds

Benefits Re-invested

12. For purposes of the financial forecasts it was agreed withthe MEE to assuwe that 70% of total benefits earned by the enter-prises of the Industrial Central would be re-invested in the sector.

Depreciation

13. Similarly with depreciation, an assumption was made thatall depreciation moneys paid to the Investment Bank by the enterprisesof the Industrial Central would be re-invested in the sector. However,in the case of fixed assets that have reached the end of their usefullife, depreciation charges have been continued but only 60% of thedepreciation is treated as a source of funds, 15% is distributed bythe Industrial Central to the enterprises for uncentralized investnentsand the remaining 25% is using for improving equipment within the enter-prises.

Other Sources

14. These funds are primarily derived from the sale of scrapmaterials and are paid directly to the National Bank. They are nottreated as income in the income statement.

ANNEX 19

Page 5 of 5

Investment Bank Loans

15. Loans are made by the Investment Bank from credit funds specificallyfor purposes of modernizing or increasing the productive efficiency of existingassets. They are assumed to be repaid in the year following their receiptsubject to interest at 2% per annum. These funds are limited and because thebank requires that the loans be for economically viable projects which meansthat they should earn a higher return than projects financed directly fromState Budget funds, they are not a major source of finance.

March 1974

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