Report No. 326-IRN FILE COPYIran: Appraisal of aTransmission and Gas Turbine Project(TAVANIR)

April 29, 1974

Europe, Middle East and North Africa Projects DepartmentPower 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 It may not be published,quoted or cited without Bank Group authorization.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 EQUIVALENTS

Rials (Rls) 68.17 US$1.00Rls 1 = US01A467

'Fiscal Year ends March 20 of the following year

WIGHTS AND MEASURES

kW = Kilowatt (1,000 watts)MW = Megawatt (1,000 kW)kit = Kilowatt hourGkh = dligawatt hour (1 million kWh)kV = Kilovolt (1,000 volts)km = Kilometer (0.6214 miles)kCal = Kilocalorie (1,000 calories)MVAR = Mbgavar (1,000 vars)

LIST OF ACRONYMS AND ABEREVIATIONS

IRALCO = Iranian Aluminium CompanyK.WPA = Khuzestan Water and Pbwer AuthorityREC = Regional Electricity CompanyRSK = Reza Shah Kabir DamTHEC = Tahran Regional Electricity CompanyPahlavi = Mohamed Reza 5hah Pahlavi DamThe Mlnistry = The Ministry of Water and PowerMONENCO = Montreal Engineering Company, Limited

IRAN

APPRAISAL OF A TRANSMISSION AND GAS TLRBINE PROJECT

IRAN POWER GENERATIoN AND TRANSMISSION COMPANY (TAVANI)

Table of Contents

Pages

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

1. INTRODUCTICN .................. ....... 1

2. THE ELECTRIC P3WJER SECTORGeneral 2.......... ....... 2Energy Resources... ................ 2History of the Electric Power Sector ................... 3Organization of the Sector and Existing Facilities 3Sector Finances 5............ ....... *5Sector Tariffs ............. ........ .Sector Investment. 5System Planning Policy.. . ......... 6The Future Expansion Program ....... 6

3. THE BORRCWERThe Company . . . . . . . . . .. .. . . . . . . . . .... . . 7Organiz2ation .'I . .. #0f000

Training .................... .... 8

4. THE PROJECTThe Project Description .........................Cost Estimates. . . . . . . . . . . . . . . . 9Project Financing ............... * ... .*.*......*...... 10Procurement ....................... 11Disbursements ............. ..... 1.1Engineering .. .-................ so@@@.-* 11Ecological Considerations ....... 12Social Implications of the Project ............... 12

5- PROJECT JUSTIFICATIONLoad Forecast 12Capacity and niergy Situation ................ ... 13North-South System Interconnection ..................... 14Least Cost Alternatives ........ 15Economic Return ........ ....... .... 15

This report was prepared by Messrs. E.A. Moore (Engineer) and A.J.D. Hutchins(Financial Analyst) from informiation obtained on an appraisal mission to Iranin September/October 1973.

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Table of Contents Cont'd M

6. FINANCIAL ASPECTSIntroduction ....... . O. . ..*e.. **.***. 16TAVANIR's Present Accounting Situation ..... .......... 16Audit .............. ... o...................... 17Insurance ................................................ 17TAVANIR's Tariffs and Rate Covenant .................. 18Taxes and Import Duty ............... O. .... . . ........ 19Government Financing .................... ............. 19Historical Balance Sheets ............................ 20Historical Operating Results ......................... 20Forecast Operating Results .................. o......... 21Financing Plan .......... *.o .......................... 21Forecast Balance Sheets . . ................ .. .o......... 22

7. AGREEMENTS REACHED 23

List of Annexes

1. Hydro Plant Capabilities and Prices for Purchased Energy2. Existing Generating Capacity3. Financial Data for REC's4. Summary of Consumer Tariffs for the Regional Electricity Con 'asi*5. Bulk Supply Tariffs for Major Customers6. Generating Capacity Approved for Construction7. Capital Expenditure Program fQr 1974-19778. TMA=XR Orga-nization9. Cost Estimate for Arak to Tehran 40OkV Line

10. Cost Estimate for Gas TurbinesU. Estimated Schedule of Disbursenmnts for Bank Loan12. Load Forecast AssWutions13. Energy Sales and Maximwam Demands for 1970-19791J. Main Interconnected System Load and Capacity for 1973-198215. Energy Situation of TAVANIR Main System for 1973-197916. Energy Transfers in Average Year between TAVANIR and IWN17. Southeast System Load and Capacity Situation1B. Economic Return on the Program including the Project19. Actual and Forecast Balance Sheets 1971-197820. Actual and Forecast Operating Statements 1971-197821. Sources and Applications of Funds 1972-197822. Major Assumptions Used in Financial Forecasts

Map - Transmission and Gas Turbine Project, IBRD 10971

IEAN

APPRAISAL OF

A TRANSMISSION AND GAS TURBINE PROJECT

IRAN POWER GENERATION AND TRANSMISSICN COMPANY (TAVANIR)

SUMMARY AND CONCLUSIONS

i. This report covers the appraisal of a Project comprising a 400-kVtransmission line from Arak to Tehran including the associated substations,and the procurement and installation of about 400 MW of gas turbine generatingcapacity for which a loan of US$5B million is proposed. The Project forms asmall part (11%) of the extensive (US$1 billion equivalent) 1974-1977 oxpansionprogram of the Iran Power Generation and Transmission Company (TAVANIR), thewholly Government-owned entity responsible for thermal generation and trans-mission of electricity throuehout most of Iran.

ii. The Project is estimated to cost the equivalent of US$112.4 millionof which US$91.8 million would be in foreign exchange. The proposed l6anwould finance the total foreign exchange cost of the 400-kV transmissicn work andabout 50% of the foreign exchange cost of the gas turbines; the Governmentwould provide about US$34 million equivalent to cover the balance of theforeign exchange cost of the gas turbines included in the Project.

iii. TAVANIR's very large expansion program would be financed from theproposed loan (5%), from the ongoing Bank Loan 856-IRN (5%), from cash genera-tion (22%), and from Government provided funds (68%), of Which half would be inequity grants and half in long-term loans.

iv. The proposed loan would be the second power loan for TAVANIR and thethird to the Iran power sector. A major objective of this loan would be theacceleration of the management and accounting training and the organizationalbuildup of TAVANIR. This was started with the previous Bank loan (856-IRN).The achievement of a high standard of both technical and financial managementwill be vital for the effective control of a capital construction program ofthe size planned and the subsequent greatly enlarged scale of operations.

v. Iran's public sector sales grew at an average rate of about 33% annuallyfrom 1968 to 1972 and are expected to grow at 20% annually through 1979. TAVANIR'sbulk sales in the same 1972-1979 period are expected to increase by a higher rateof about 27% annually due to the incorporation of various formerly self-suppliedloads into its system. TAVANIR's required generating capacity is expectedto reach 3,824 MW by 1977, the end of the Project period, as compared with 1,505 MWin the summer of 1973. However even with the planned program including the expectedcompletion of the Khuzestan Water and Power Authority's 1,OOO-MW hydroelectricstation at Reza Shah Kabir, a temporary capacity shortage of 376 MW is probableon the main interconnected system in 1977 after allowing for a reasonable operatingreserve. The proposed program of which the Project is a part constitutes a minimumtechnical solution to meet this expected load growth.

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vi. Foreign consultants with local consultant counterparts have beenengaged for the detailed engineering, bid evaluation and supervision of theProject, scheduled for construction during the period 1974 through 1977.Procurement would be by international competitive bidding and Iranian bidderswould receive a preference of the lower of 15% or customs duties.

vii. Under Loan 856-IRN of September 20, 1972 TAVANIR was required toachieve a rate of return of at least 6% through March 1978 and, before then,to review the need of a higher rate of return beyond that date. Since it isstill doubtful whether present accounting and statistical data available forthe various sector companies is adequate as a basis for long-term decisionson electricity tariffs, the existing rate covenant of Loan 856-IRN would berepeated in the proposed loan.

viii. The economic return on TAVANIR's 1974-1971 expansion program, includingthe Project, is at least 12%.

ix. The proposed Project would be a suitable basis for a loan of US$58million to TAVANIR over a period of 18 years including a 3- year grace period.The loan is expected to become effective within three months of loan signing.

IRAN

APPRAISAL OF A TRANSMISSION AND GAS TURBI.'E PROJECT

IRAN POWER GENERATION AND TRANSMISSION COMPANY (TAVANIR)

1. INTRODUCTION

1.01 The Government of Iran has asked the Bank to help to finance aproject of the Iran Power Gbneration and Transmission Company (TAVANIR).This Project, which is a relatively small part (11%) of TAVANIRts extensiveexpansion requirements for electricity generation and transmission for 1974through 1977 totalling about US$l billion equivalent, comprises the construc-tion of 250 kms of 400-kV transmission line between Arak and Tehran, and theprocurement and installation of some 400 MW of gas turbine generating capacity.

1.02 A loan of US$58 million is proposed to finance the total foreignexchange cost of the transmission facilities and about 50% of the totalforeign exchange cost of the gas turbines. The Government would finance theequivalent of US$34 million to coVer the balance of the foreignexchange cost of the gas turbines. The proposed Bank loan would finance 63%and the Government loan the remainilg 37% of the US$91.8 million foreignexchange cost of the Project as a whole.

1.03 The loan would be made to TAVANIR and would be the! third loan to Iranfor power. The previous loans were made to the Government and onlent to therespective beneficiaries on the same Bank terms. In 1970 a distribution loan(716-IRN of US$60 million) was made for Tehran Regional Electricity Company(TREC) and in 1972 a transmission loan (856-IRN of US$51 million) for TAVANIR.Loan 247-IRN of US$42 million, which included a power element, was made to theGovernment in 1960 for onlending to the Khuzestan W%ter and Pbwer Authority(KWPA) for construction of the Dbz multipurpose project, of which oneobjective was the provision of hydroelectric generating facilities at theMohamed Feza Shah Pahlavi Dam (Pahlavi).

l.O4 The 716-IRN distribution project is progressing satisfactorily;about 50% of the planned installations have been completed, 100,000 newcustomers have been connected, 50% of the loan has been disbursed andorganizational improvements have been effected at TREC. The 856-IRNtransmission project has progressed more slowly than expected, particularlythe procurement which is only now nearing completion due to changes in theproject. TAVANIR has extended the 230-kV transmission portion of the projectto supply Bushehr and has-strengthened the 400-kV line design as a result ofrecent icing experienced on other transmission lines in the area. Thesechanges coupled with the delayed implementation and also currency revaluationsare expected to increase the initial estimate of US$75 million by one-third

(US$25 million). The Government and TAVANIR will provide the additional funds.

1.05 This report was prepared on the basis of an appraisal missioncomprising Messrs. E.A. Moore (Engineer) and A.J.D. Hutchins (Financial Analyst)which visited Iran in September/October, 1973.

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2. THE ELECTRIC POWER SECTOR

General

2.01 Iran, a large country of over 1.6 million km 2, stretches 1,400 kmnorth-south from the Caspian Sea to the Persian Gulf and a similar distanceeast-west from the borders with Turkey and Iraq to those with Afghanistan andPakistan. Over one-half of the land area is a high desert plateau in thecentral part of the country surrounded by mountains.

2.02 Iran's population of 31 million is growing at 3.1% annually accompaniedby an urbanization trend due to the country's rapid industrial development. Theurban portion of the total population increased from 35% in 1962 to 42% in 1972.Despite Government counter measures such as tax concessions for industries estab-lished in less-populated areas, the urbanization trend is expected to continue.

2.03 The annual growth in real GNP over the Fburth Plan covering the five-year period ended March 20, 1973 averaged over 11% annually and the per capitaincome in 1972 was US$517. Manufacturing output has increased four-fold inreal value over the last ten years with the most significant increases occurringin the machinery and chemical industries. Iran has an aluminum smelter, analuminum rolling plant, two steel mills and several cement plants. Mining, withmajor production in chromite, iron, coal and building stone, is also expanding anda copper mine is under development in the southeast region.

2.04 This rate of industrial expansion is likely to increase throughout theremainder of the Fifth Plan period, 1973-1977, for which Government developmentexpenditure in all sectors is forecast at US$39 billion equivalent. The develop-ment program is emphasizing more equitable income distribution and faster develop-ment of rural areas. A large portion of the planned Government expenditure isallocated to agriculture, housing, health and social services.

Energy Resources

2.05 Iran has vast petroleum resources, ample for several decades at forecastproduction rates, and large coal deposits. Oil production in 1973 was 294 millionmetric tons of which 90% was exported ats crude oil, 6% was exported as refinedproducts and 4% was refined at Abadan, Tehran, Kermanshah and Masjed-Soleimanrefineries to meet domestic requirements. The oil field and main gas field arelocated in the Ahwaz area where it is estimated that 200 billion cubic metersof gas have been flared in the course of oil production since the field wasdiscovered. Smaller gas fields are located near Mashhad in the northeast, onQeshm Islandnear Bandar Abbas and at Ghom. Gas is exported to the USSR at Astaravia a 42 inch pipeline which also supplies the cities of Tehran, Esfahan and Shiraz.In 1973 gas production totalled 42 billion cubic meters of which 26% was exported,8% was consumed domestically either for energy production or as raw material forthe chemical industries and 66% was flared in conjunction with oil production.Facilities are being developed to export liquified natural gas in the near future,particularly to Japan. In addition, a second pipeline to the UrSSR is planned for1978. Together with increased local consumption for power generation, theseprograms are expected to absorb within a decade most of the gas production nowbeing flared.

2.06 Known coal deposits total at least 5 billion tons located mainly inthe Kerman area in southeast Iran. Because of the availability of low-costoil and gas, coal production in the past has been only about 300,000 tonsannually, however additional mining facilities are being installed to supplylarge amounts of coal to the steel mill at Esfahan and to the coal/oil-fired60-MW Zarand steam plant recently commissioned by TAVANIR in southeast Iran.

Hisgtory of the Electric Power Sector

2.07 Prior to the mid-fifties the electric power industry in Iran comprisedmany small private and municipally owned utilities or captive plant operated byindustries. Nbst power production was from diesel generating units. In thelate-fifties the Government's Plan Organization initiated a power developmentprogram based on the building of three hydroelectric stations, including thePahlavi station which was partly financed under the 1960 Loan 247-IRN (see 1.03).

2.08 In 1963 the Iranian Power Authority (IPA) was created as the firstautonomous organization responsible for the electric power sector. Subsequentlyit was decided that an organization at the ministerial level with wider authorityand broader functions was needed and the Ministry of Wkter and Power (the Ministry)was established in 196 4 toreplace the IPA.

2.09 In 1965 the electric power industry was nationalized to permit theconsolidation of the industry as the basis for the required large scale expansionof generating and transmission facilities. During the Third Plan period,1963-1967, a start was made on the development of a nation-wide interconnectedsystem through the construction of the 230-kV transmission facilities associatedwith the Pahlavi station in Khuzestan Province and the development of 63-kV and132-kV transmission systems in the Tehran area in conjunction with the construc-tion of other hydro stations. By 1967 all generating facilities were in thepublic sector except for captive industrial plant. In 1966/67 a USAID-sponsoredmanagement-consulting group of utility executives reviewed the sector organiza-tional requirements and prepared a power system development plan for thecountry, which constituted the guide for system expansion through the FourthPlan perio4, 1968-1972. A major recommendation of the group was that theelectricity supply system should be organized as a single consolidated company;however this was not accepted and the sector is instead operated as severalcompanies under the Ministry. This arrangement is satisfactory for the short termwhile operations and "ocounting systame are being corrected buT as a long termaim the goal of a single national power utility seems desirable.

Organization of the Sector and Existing Facilities

2.10 Power distribution to the ultimate customers is the responsibilityof nine regional electricity companies (REC's) and KWPA, which distributespower in Khuzestan Province in addition to operating the Pahlavi hydrostation and administering regional development. Except for hydro generation,which is the responsibility of regional water authorities and KWPA (Annex 1)the bulk supply of power to the public sector is the responsibility of TAVANIR,

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which operates thermal power stations and purchases any available hydro powerfrom the water authorities for resale to the REC's. KWPA power is purchasedonly if surplus to the Khuzestan regional load requirements. The public powersector, which has a total staff of about 15,000, includes a purchasing company(SATCAB), a consulting engineering company (MAHAD), and an audit and inspectioncompany. All se ctor companies report directly to the Minister of Water andPower through their Managing Directors. Within the Ministry there areseparate Power and Water Divisions headed by Deputy Ministers which monitorthe sector companies and serve as coordinating and standardizing agencies.The Power Division has a staff of about 200 including specialists in powersystem planning, engineering, financing, accounting, rates and training.These are supported by foreign consultants who are assigned to specificproblems.

2.11 Theoretically the sector companies should operate as autonomousorganizations in their respective fields but in practice each company isclosely controlled by the Ministry and to some extent responsibilities andfunctions overlap. For example, in accordance with the requirements ofLoan 856-IRN TAVANIR has developed the technical capabilities for planningfuture transmission and thermal generation facilities. Although TAVANIR isnow fulfilling this planning role with the help of consultants, the Ministry,Which had previously been responsible for this and all other planning withinthe sector, closely guides the planning of transmission and thermal generabion.

2.12 For project preparation and implementation all sector companies areheavily dependent on consultants, most of whom are foreign firms allied withlocal counterparts. This reliance is mainly due to the limited size andexperience of the sector company staff who generally are fully occupied onoperational problems because of the rapid system development.

2.13 The national electricity supply includes private industriesproducing electricity from captive plant, Fars REC still operating its owngeneration, REC's supplied by TAVANIR either as isolated systems or fromthe main interconnected system, water authorities selling hydro power toTAVANIR, KWPA providing the supply to Khuzestan Province and small isolatedsystems supplied by diesel sets operated directly by the Ministry or themilitary authorities in certain remote areas. The total gross generation ofelectricity in 1972 was 10,400 GWh of which 72% was by the public sector and28% was by private industry, for which little future growth in generation isforeseen. The energy sales in the public sector in 1972 were made up ofdomestic 19%, commercial 19%, industrial 46%, rural 8%, street lighting 6%and 2% miscellaneous.

2.14 As at December 31, 1973 the major generating capacity in the publicsector totalled 21492 MW comprising 30% hydro and 70% thermal capacity (Annex 2)of which 1941 MW was on the main interconnected system comprising 230-kV and132-kV transmission lines extending from the Caspian Sea to Tabriz in the westand Abadan in the south. The Esfahan and Fars REC's are supplied as isolated

systems and will be connected to the main system in 1974 and late 1975,respectively. The southeast and northeast systems, centered on Kermanand Mashhad respectively, are also isolated and no interconnection isforeseen through 1982. All major generating capacity is owned by TAVANIRexcept the hydro stations and the generating capacity at Shiraz for whichthe ownership will be transferred from Fars REC to TAVANIR when that systemis interconnected in late 1975. Additionally there is about 300 MW of genera-ting capacity in diesel sets on small isolated systems throughout the country.

Sector Finances

2.15 A continuing sector problem has been the general lack of appropriatetimely and accurate accounts and statistics. This is due to the shortage oftrained staff, the lack of asset records for earlier construction projects,the inadequacy of the accounting procedures, and the rate of growth of thesector. A uniform system of accounts, modelled on those of the USA FederalPower Commission, has now been prepared for use throughout the sector with thehelp of consultants and some progress is being made in improving accountingprocedures and expertise, particularly in the case of TAVANIR and TREC, thetwo major entities in the sector.

2.16 Annex 3 shows the 1971 and 1972 financial data for 8 of the 10REC's; information on the remaining two was not yet available. Although thereis a wide variation in individual rates of return, due to differences in loaddensities and supply conditions, the 1972 overall rate of return for thegroup of 8 companies at the existing tariffs for energy purchased fromTAVANIR was adequate at 10% and internal cash generation averaged over 50%of financing requirements.

Sector Tariffs

2.17 The tariffs for the sale of electricity to the customers of the REC'shave been in effect since December 1969 and are shown in Annex 4. They arewell structured, with minimum demand charges and peak/offpeak differentialenergy rates for industrial customers, and the levels appear adequate exceptfor those for KWPA and the aluminum plant w hich appear to be too low (see 6.09and 6.07). The average retail tariff for all sales is 2.05 Rials/kWh (US03.00).TAVANIR's tariffs for bulk sales to the REC's and large industries have beengradually increased with Ministry approval from the 1969 average level of0.70 Rials/kWh to those effective for 1974 as shown in Annex 5, which willresult in an average rate for all sales of about 0.90 Rials/kWh (US¢1.32).

Sector Investment

2.18 In the past, most of the investment in the public power sector hasbeen in the form of Government grants to the sector companies. This policyis now likely to be changed to part grant, part loan (see 6.11).

2.19 As an indication of the investment requirements for the power sector,the Fifth Plan (1973-1977) budget for the sector as forecast by the PlanOrganization in early 1973 totalled the equivalent of US$1,745 million made upof generation 627, transmission 327, distribution 690, village electrification97, and research studies 4 million US dollars.

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System Planning Policy

2.20 In planning the power sector the Ministry has appropriately emphasizedthe building of a strong interconnected system to permit the installation oflarge economic units, to improve reliability and to minimize reserve capacityrequirements. In the past the REC's have provided distribution facilities tomatch the available capacity as evidenced by the limited reserve capacity(see 5.07). By 1976 the national grid will have been extended to form threeprincipal systems (see 2.14) and thereafter, having available an adequatesupply, more emphasis will be placed on expansion of the distributionfacilities, which at present serve only 25% of the total population.

2.21 The Ministry is developing plans for village electrification andfunds have been provided in the Fifth Plan budget (see 2.19). With theassistance of consultants village electrification projects are underpreparation in Tbhran, Khorassan and Esfahan Provinces, aimed at supplyingvillages initially within a distance of 50 km of the existing 63-kV sub-transmission facilities.

The Future Expansion Program

2.22 Based on 1972/73 studies by TAVANIR's consultant, Montreal EngineeringCompany Limited (MONENCO), a Canadian firm, the Ministry has approved an expan-sion program for the bulk supply system during the remainder of the Fifth Plan,i.e. 1974-1977,and has given tentative concurrence to a subsequent program forthe period 1978-1982. The generating capacity under construction or approvedin the 1974-1977 program totals 3386 MW (Annex 6) and includes the 1000-MWReza Shah Kabir (RSK) hydro station under construction by KWPA. The generationprogram is based on using large steam units for base load (5800 MW by 1982) andgas turbines for reserve and peaking duty (1800 MW by 1982). The steam units willoe located:

(a) in the south near Ahwaz with gas-fuelling and cooling waterfrom the Karun River, and

(b) in the north along the Caspian Sea (Mazandaran) fueled withresidual oil from a planned refinery in the area.

The long-range program includes a station of four 350-MW units followed bya station of four 600-MW units 1/ in both the above locations. Two 350-11Wunits are already approved for installation at both Aiiwaz and 1Nandaran for1978, for which financing is being arranged. Gas turbine capacity totalling792 MW is approved for installation in the period 1974-1977 (Annex 6) as peakingand reserve capacity on the main system and as base load generation on thesmaller TAVANIR systems.

2.23 The expansion program includes transmission to extend and reinforceall systems involving the addition of 2276 km of 400-kV lines, 3259 km of230-kV lines and 1890 km of 132-kV lines. The total capital investmentrequired for the TAVANIR system expansion program in the period 1974-1977 isabout US$1 billion equivalent (Annex 7).

1/ These units will probably be nuclear.

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3. THE BORROWER

The Company

3.01 The proposed loan would be made to TAVANIR, a company established in1969 as the national agency for generation and transmission. This company hasan initial authorized capital of RlslO million and is entirely owned by theGovernment of Iran.

3.02 TAVANIR is an autonomous company in its day-to-day activities, but aswith all the other companies in the sector, is strictly controlled by theMinistry of Water and Power in all matters of policy and planning.

Organization

3.03 Ultimate control is exercised through a "General Assembly", whichcomDrises the Minister of Water and Power and the Ministers of Financeand Planning. This General Assembly must meet annually but can be convenedat any time at the request of the Board of Directors, the Managing Director,the Legal Inspector (see 3.06) or any member of the General Assembly itself.The General Assembly has the power to appoint the Managing Director and Boardmembers, to determine their salaries, to approve the budgets, to determine thedistribution of profits or accumulation of reserves, and to approve thefinancial and employment regulations of the company.

3.04 The Board of Directors carries on the day-to-day management of thecompany and consists of three regular members and one alternate, elected fora term of three years with no restriction on members being re-elected. Thepresent Board consists of a Managing Director and two Deputy ManagingDirectors. It functions as a management committee, directing and supervisingthe day-to-day operations.

3.05 The Managing Director, who is ultimately responsible for all financial,technical and administrative functions of the company, is forceful and competent.He joined TAVANIR in 1969 from TREC where he was previously the Managing Director.Both Deputy Directors are engineers and also came from TREC in 1969. They areprimarily concerned with the technical management of TAVANIR. The "alternate"Board director, also an engineer, is responsible to the Managing Director forgeneral administration.

3.06 The senior staff financial position of Financial Director is notpresently at Board level (see 6.04). A Legal Inspector is appointed annuallyby the General Assembly for one year and is required to review and comment onthe balance sheet.

3.07 TAVANIR is organized along conventional lines (Annex 8) with planning,construction, operation, financial, and administrative functions headquarteredin Tehran, and with five operating divisions located in Tabriz, Ahwaz, Kerman,Mashhad and Tehran. It suffers from a shortage of experienced and skilled staffdue to its relatively recent formation and, with the very high rate of expansion,this problem will become even more acute. TAVANIR's total staff (excluding.labourers) has increased from about 1,300 in 1971 to over 2,000 in 1973 and isexpected to be over 4,000 by 1978.

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Training

3.08 Loan 856-IRN included the equivalent of US$3 million for technicaland financ'al training, but so far progress in this regard has been limited.Tentative arrangements made with Electricite de France during 1973 for atechnical training program to be financed from the 1972 loan remained unfinalizedand left in suspense by TAVANIR, which has initiated exploratory discussionsseeking similar arrangements with other consultants in the USA and the UK. TAVANIRhas now agreed to employ consultants to assist it in the preparation, coordinationand implementation of its comprehensive staff training program. By a supplementaryletter amplifying the above agreement TAVANIR has also undertaken to have engagedtechnical training consultants by September 30, 1974 or by the date of effective-ness of the loan, whichever is the earlier.

3.09 As an interim measure, TAVANIR is employing expatriate consultants foron-the-job training and to advise and help to maintain its operations. Theseinclude consultants from Canada (Ontario Hydro) for the maintenance of itsthermal stations and transmission lines and for establishing a system controlcenter; from India (Tata Consultancy Services) for operating new thermalstations and for the organization and computerization of stock control; andfrom U.K. (Coopers and Lybrand) for accounting. This "on-the-job" trainingof technical staff will continue and the training of accounting staff will beintensified (see 6.03).

4. THE PROJECT

The Project Description

4.01 The Project would comprise the construction of 250 kms of 400-kVtransmission line between Arak and Tehran and the purchase and installationof about 400 MW of gas-turbine (effective) capacity at three locations;Bandar Abbas (184 MW), Sar Cheshmeh (80 MW) and Ahwaz (132 MW), or suchother sites as TAVANIR may select with the Bankts concurrence. The Projectwould be carried out over the years 1974 through 1977.

4.02 In 1969 construction started on the KWPA multipurpose RSK projecton the Karun River which will provide 1000 MW of hydro capacity (4 x 250-MWunits) with the first two units scheduled for operation in 1975. Under loan856-IRN the Brnk is financing the foreign exchange cost of the associated400-kV transmission system radiating in four directions from RSK to substationsat Esfahan, Omidieh, Ahwaz and Arak. The new line included under this Projectwould extend the 400-kV system from Arak to Tehran, the major load center ofthe country. The existing interconnection between the Khuzestan and Tehran areasystems is at 230-kV and the provision of the proposed 400-kV line will increasethe transmission capacity, reinforcing and providing greater reliability overthis important section.

4.03 The 400-kV transmission line would comprise 250 kms of single circuittransmission line on steel towrs together with the associated 400-kV substationequipment to be installed at the existing Arak (Loan 856-IRN) and Tehran Firuz

Bahram (Loan 716-IRN) substations. This Arak/Tehran 400-kV line is scheduledfor service in May 1977.

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4.0 4 The gas turbine capacity included in the Project would be of theindustrial type and would comprise 18 units each of 25 MW nominal rating(about 22 MW site rating), or 9 units of 50 MW nominal rating (about 45 MWsite rating). Appropriate consideration will be given to maintenancefactors during the evaluation of bids. The 25-MW units (or their equivalentin other sizes) would be installed at Bandar Abbas (8), Sar Cheshmeh (4)and Ahwaz (6) and are expected to come into operation between May 1976 andMay 1977.

4.05 The gas turbines at Bandar Abbas and Sar Cheshmeh would providemajor generating capacity for TAVANIR's isolated southeast system and wouldsupply this area's growing demand; a major consumer would be the copper mineunder development at Sar Cheshmeh. This mine is scheduled to start operationsin 1975 with a demand of 70 MW, which is expected to reach 90 MW by 1977.In the Fifth Plan budget the Government has allocated US$300 million towardsits development. The Government has also allocated US$200 million towardsthe development of an iron ore mine in the same area (see 5.03).

4.06 The gas turbines at Ahlwaz in south Iran would supplement the peakingcapacity on the main interconnected system. This location was selected becauseof the growing industrial loads in this region, the availability of naturalgas presently being flared and the proximity to the 400/230-kV substationbeing installed at Ahwaz under Loan 856-IRN.

Cost Estimates

4.07 The total cost of the Project is estimated to be the equivalent ofUS$112.4 million of which US$91.8 million (82%) would be in foreign exchange.A detailed cost estimate for the 400-kV Arak/Tehran transmission line isshown in Annex 9 and for the gas turbines is shown in Annex 10.

14.o8 The cost estimate for the transmission line and its associatedsubstation equipment totals the equivalent of US$28.8 million, of whichUS$23.0 million (80%) is in foreign exchange. This cost estimate wasdeveloped in conjunction with TAVANIRTs consultants and reflects bid pricesin late 1973 for similar construction being financed under Loan 856-IRN.Engineering services are included as well as 10% physical contingencies andappropriate price contingencies based on recent guidelines for annualescalation rates (see Annex 9).

4.09 The gas turbines are estimated to cost the equivalent of US$83.6million which includes US$68.8 (82%) in foreign exchange. This estimate isbased on fall 1973 quotations for similar equipment to be installed in 1975,suitably amended to reflect the expected benefits of international competitivebidding. Engineering services are included in the estimates as is a physicalcontingency of 5% and price escalation contingencies based on recent guidelines(see Annex 10).

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4.10 The Project cost estimate is summarized as follows:

Rls. (million) l US$(million)Local Fbreign Total Local Foreign Total

400-kV Arak/Tehran LineLines 210 619 829 3.1 9.1 12.2Substations 57 564 621 0.8 8.3 9.1Subtotal Direct Costs 267 1,183 1,450 3.9 17.4 21.3

Physical Contingency 26 118 144 0.4 1.7 2.1Price Escalation 65 229 294 0.9 3.4 4.3Engineering 37 38 75 0.6 0.5 1.1

Subtotal 400-kV Line 395 1,568 1,963 5.8 23.0 28.8

Gas TurbinesPlant, Accessories and Spares 212 3,138 3,350 3.1 46.0 49.1tuel Storage and Handling 40 46 86 0.6 0.7 1.3Installation 40 328 368 0.6 4.8 5.4Other Direct Costs 369 12 381 5.4 0.2 5.6Subtotal Direct Costs: 661 3,524 4,185 9.7 51.7 61.4

Physical Contingency 33 176 209 0.5 2.6 3.1Price Escalation 219 891 1,110 3.2 13.1 16.3Engineering 98 99 197 1.4 1.4 2.8

Subtotal Gas Turbines 1,011 4,690 5,701 14.8 68.8 83.6

Total Project 1,406 6,258 7,664 20.6 91.8 112.4- -i_m

1/ At exchange rate of Rls.68.17 US$1

Project Financing

4.11 The proposed loan of US$58 million equivalent would cover thefull foreign exchange cost of the 400-kV transmission line and substationsand about 50% of the total foreign exchange cost of the gas turbines.The balance of the gas turbine foreign exchange cost would be financed bythe Govemnment. The proposed loan thus represents 63% of the totalforeign exchange cost of the Project and 52% of its total cost. Theconditions of effectiveness of the proposed loan (see 7.04) are notexpected to result in any delay and the loan is expected to becomeeffective not later than 3 months after its signing.

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Procurement

4.12 Procurement of goods financed by the proposed loan would be onthe basis of international competitive bidding in accordance with the Bank'sguidelines and no contracts would be placed before loan signing. Iranianmanufacturers would receive a preference of 15% or the applicable customsduties applicable to non exempt importers whichever are lower. Iran is nota member of any trading community involving tariff preferences.

4.13 The sector purchasing company, SATCAB, (see 2.10) is responsiblefor most of the power sector purchases. However, since the Bank financedequipment is to be procured under international competitive bidding procedures,and since orders for other sector companies will not be combined with thoseof the Project, the Government has agreed that procurement for the Projectwill be carried out by TAVANIR, in order to simplify disbursement proceduresand to enable the Bank to deal directly with the Borrower, as was the casefor Loan 856-IRN. TAVANIR has agreed that the administration of procurementfor the Project, including bid document preparation and bid evaluation, willbe under the supervision of its engineering consultants. TAVANIR has alsoagreed that to ensure effective coordination of the various elements, thetransmission line contracts will be let on a "supply and erect" basis, aswas done in Loan 856-IRN, with the construction being supervised by theengineering consultants.

4.14 Bids for all the gas turbines for the Project (see 4.04) will besought on a cash basis and manufacturers will not be asked for supplierscredit terms. The contract would be awarded to the supplier making thelowest evaluated cash bid. The amount of the additional foreign exchangerequired for the Project would then be determined and the Government wouldnake appropriate arrangements for this financing.

1Disbursements

4.15 The proceeds of the proposed Bank loan would finance the c.i.f.cost of imported materials and equipment or of the ex-factory cost oflocallv manufactured materials or equipment for the transmission line; andabout 50% of such costs for the gas turbines. The total foreignexchange cost of engineering services would also be financed from theproposed Bank loan. No disbursements would be made against expendituresmade prior to loan signature. Any amounts remaining in the loan on completionof the Project would be cancelled. Annex 11 shows the expected schedule ofdisbursements of the proposed loan, which is expected to be fully drawn downin early 1978.

Engineering

4.16 TAVANIR has negotiated contracts with separate consultants for thedetailed engineering and construction supervision of the 400-kV transmissionline and of the gas turbines. Kennedy & DDnkin (UK) has been engaged forthe transmission line and MONENCO (Canada) for the gas turbines, both in associa-tion with local consultants. The arrangements are acceptable to the Bank.

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Ecological Considerations

4.17 The 400-kV transmission line will be constructed through sparselypopulated areas and no adverse environmental effect is anticipated. The gasturbines at Ahwaz and Bandar Abbas are to be located at existing power stationsites and any atmospheric pollution will be negligible as they will be fueledby natural gas. Although the Sar Cheshmeh units will be oil fueled, the unitswill be located in a remote mining area and will, in any case, mainly operatefor peaking due to their higher fuel cost.

Social Implications of the Project

4.18 The Project is concerned with the availability and reliability of theelectricity supply for Iran in general. It has a specific impact in thesoutheast region of the country, a poor and electrically-isolated region,which the Government is in the process of developing economically. Part ofthe additional capacity is required to sustain the new industries beingdeveloped in this region.

5. PROJECT JUSTIFICATION

Load Forecast

5.01 Electricity consumption in Iran is growing at a phenomenal rate dueto the relatively low initial per capita consumption, the rapid growth of theeconomy generally, the extension of the power system making electricity availableto a larger portion of the rural population, the Government's industrializationpolicy resulting in new major loads, and the consumption increase by the country'sdefence forces.

5.02 During the period 1968-1972 the annual growth in energy sales for thepublic sector averaged 33.4% and since its inception in 1969 TAVANIR's bulk saleshave grown an average of 37.7% annually.

5.03 Within the Fifth Plan period, 1973-1977, several major loads will bedeveloped including a copper mine at Sar Cheshmeh requiring 90 MW; a coal minenear Kerman requiring 50 MW; an iron ore mine in the same area requiring 5 MW; asteel mill near Ahwaz requiring 290 MW (a KWPA customer); a 40-MW load increaseat the Esfahan steel mill; an 11-MW load increase at the Kerman cement plant andabout 188 MW in defence related loads.

5.04 The MLnistry has predicted (Annex 12) that the public sector load growthwill average 31% annually through 1977 because of the continuing industrial expan-sion, and that it will continue to grow at 20% annually thereafter with the highestannual growth rates being in industrial loads (37%), and the relatively insignifi-cant rural loads (57%). Even under the exceptional conditions in Iran, theMEnistry's forecast appears somewhat optimistic and therefore during appraisal anadjusted forecast was developed for the period 1973-1979 (Annex 13). It is expectedthat the total public sector sales will increase by an average of 20% annually duringthe period, but that TAVANIR's bulk sales will increase about 27% annually becauseof the absorption by TAVANIR of formerly self-supplying systems, examples

of which are given in Annex 12. By 1979 it Ls expected that TAVANIR will besupplying some 95% of the public sector compaared to only 60% in 1972. TheTAVANIR load factor should increase from the present 49% to 55% in 1979 dueto the addition of industrial loads.

Capacity and Energy Situation

5.05 In mid-1973 MONENCO completed a study which developed a generationand transmission program through 1982 and recommended installing 350-MW baseload steam units, gas-fueled in the south and residual-oil-fueled in thenorth; installing gas turbines as peaking and mid-range generation (up to5,500 hours operation per year) located at load centers iaving a gas supply;and expanding the 400/230/132-kV transmission to consolidate into threesystems - main, southeast and northeast. The study, which was based on theMinistry load forecast and 20% system reserve, considered hydro, coal/oil/gas-fired steam units and oil/gas-fuelled gas turbines. It showed that sincethere are no additional major hydro sites and as the only coal is in the south-east, the generation on the main system must be a mix of oil/gas-fired steamunits and gas turbines with the variables being the location, size, fuel andrelative amounts. Whereas earlier studies suggested locating smaller steamunits at load centers, the MONENC0 study showed that the availability of anadequate supply of cooling water was the controlling factor determining thelocation of steam generation in Iran, resulting in the recommendation thatlarge steam units be installed in the south on the Karun River and in the northon the Caspian Sea. The study demonstrated that gas turbines were the economicchoice for mid-range generation, the "cross-over" point with steam units varyingfrom 4,000 hours annually at 8% capital cost to 8,000 hours annually at 16%capital cost. Since the gas turbines and steam generation in the south willboth be fired by gas, for which the price to TAVANIR is not expected to changebecause the gas is presently flared as surplus, the recent oil price changesshould not materially affect the study results. The steam generation in the northwill be residual-oil fired but it is the only market for this fuel near therefinery. The MONENCO recommendations were accepted by TAVANIR and the programthrough early 1978 was approved by the Government. The MONENCO study forms thebasis for this report except that during appraisal the load forecast was reduced(see 5.04) and only 15% reserve was used, thus minimizing the new facilitiesrequired to ensure a least cost violution. Since the MONENCO study was completedthe Government has decided to install large nuclear units about 1982 but thisdecision does not affect the earlier program.

5.o6 In 1977, the last year of the Project, TAVANIR's capacity requirement(naximum demand plus 15% reserve) will total 3,82t MW compared to a requirementof 1,505 MW during the 1973 summer peak load, as summarized in Annex 13.Including KWPA's needs, the capacity requirements on the main interconnectedsystem will be 4,196 MW in 1977 compared to 1,559 MW in 1973, or an increasefor the combined TAVANIR/KWPA systems of over 2,600 MW in only 4 years (Annex 14).This analysis includes power TAVANIR will purchase from Esfahan and Fars REC's.

5.07 The capacity situation on the main TAVANIR/KWPA interconnected systemin the period 1973-1982 is shown in Annex 14 and is based on TAVANIR's approvedplans through 1978 and on an assumed program thereafter to reflect appropriateinvestment requirements during the Project period. At the time of the 1973summer peak load there was a 148 MW capacity deficit. Additional steam unLtsare being installed and, together with planned gas turbine capacity, thesewill result in a capacity surplus throughout the period 1974-1976 reaching a

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maximum of 383 MW (15.1%) in 1975, however if the RSK hydro capacity is notavailable in 1975 a capacity deficit will occur, thus the 400 MW of gasturbines planned by TAVANIR for 1974/75 may be said to constitute backupcapacity for the RSK project. In any event, both this gas turbine capacityand that proposed for installation at Ahwaz in the Project will be requiredin 1977, because even with these sources available there will be a capacitydeficit of 376 MW in that year (Annex 14). In the following year two 350-MWsteam units are scheduled at both Ahwaz and Mazandaran and these sourceswill reestablish an adequate capacity situation. Based on the tentative1978-1982 program for TAVANIR's system as shown in Annex 14, by 1982 the mainsystem capacity is expected to be 62% steam, 19% hydro and 19% gas turbines.

5.08 The energy situation on the TAVANIR/KWPA main system in the period1973-1979 is shown in Annex 15 and the expected energy transfers between TAVANIRand KWPA for the same period are shown in Annex 16. In addition to the capacitydeficit in 1977 (see 5.07) an energy deficit of over 3,000 GI'h would occur inthat year under dry conditions (1 year in 30). TAVANIR has indicated it willinitiate on a "crash program" basis the installation of additional gas turbinesfor 1977, if load growth over the next year or two confirms these deficits.Given the approved program for four major steam units in 1978, this approachis reasonable.

5.09 The capacity situation on the southeast system where most of the gasturbine capacity included in the Project would be installed (Bandar Abbas andSar Cheshmeh) is shown in Annex 17. The load in 1973 was actually limited bythe available capacity and, under the planned program, capacity shortages willcontinue on this system until 1977, When the full 264 MW of capacity providedin the Project would be installed. The Project capacity would then constituteabout one half of the southeast system total and without the Project it willnot be possible to develop the copper, coal and iron mines planned for thearea and further growth of the existing loads will have to be severely curtailed.Based on the anticipated loads the Project capacity would be fully absorbed bythe end of 1978 when other sources would be required.

North-South System Interconnection

5.10 By 1978 the generating capacity on the main system will consist ofabout 2300 MW in the north and about 2800 MW in the south, including KWPA's1000 MW RSK hydro station. The MOWENCO study showed that north-south powerinterchanges of 500-600 MW in either direction will occur, depending on systemloading and conditions at RSK; i.e. in wet periods surplus hydro power willflow north and in dry periods thermal replacement power will flow south.The existing 230-kV transmission is not adequate to carry these flows and,without increased interchange capacity, additional generating capacity wouldhave to be installed in the two areas. Thus the Arak-Tehran line is requiredfor power interchange considerations.

5.11 The reliability of the main interconnected system will also begreatly improved with the heavier interconnection. During 1972 there were two -wde-spread power failures on the Iranian system initiated by tripping of the Arak-Tehran230-kV lines during heavy power flows. Such large scale power interruptions tonmjor industrial and residential load centers, occurring even once a year, are notacceptable. Industries tend to install captive plant as backup sources,

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adding to the overall power cost. Thus reliability considerations also warrantadditional interconnection capacity between the north and south areas. Theresulting reliability standards are not inappropriate for a developing countrysuch as Iran.

Least Cost Alternatives

5.12 The expansion program for 1974-1977 was developed by MONENCOas the least cost alternative for generation and transmission facilitiesto meet the forecast load. A cost of capital of 12% was assumed butsensitivities were tested for the range 8-16%. For the smaller systemscosts for local generation were compared with the costs of interconnection -leading to the recommendation to retain three separate systems (the maininterconnected system, the southeast system centered on Kerman, and thenortheast system centered on Mashhad).

5.13 The only alternative to the proposed 400-kV line in the Project whichwill add transmission capacity on the interconnection between the north andsouth areas of the main system would be the installation of additionalgenerating capacity in each area to provide equivalent system reliability.Generating capacity costs US$150-200/kW compared to approximately US$50/kWfor the proposed 400-kV transmission. Strengthening the interconnection toallow the existing generating capacity to be properly meshed as a singlesystem is therefore a cheaper solution than adding generating capacity inthe two areas. Since 400 kV has already been established as the voltage forthe RSK lines, the use of this voltage is logical for the new line. The proposed400-kV Arak/Tehran transmission line is therefore the least cost alternative foradding the necessary interconnection capacity between the north and southareas of the main system, and is the only reasonable technical alternative.

5.14 Additional capacity is required on the southeast system in 1976and on the main system in 1977, and would be provided in these years by theproposed Project facilities (Annexes 17 and 14, respectively). The possiblesources for the southeast system are gas turbines and steam units. TheMONENCO study showed gas turbines to be the least cost alternative. In anycase steam units could not be installed by 1976. Similarly on the mainsystem only gas turbines can be installed by 1977 and the proposed Projectwill form part of th-e gas turbine peaking and mid-range capacity thatMONENCO found constituted the least cost generation mix (see 5.05). By1982 about 2300 MW of gas turbine capacity will be required on the mainsystem, covering about 25% of the system peak load.

Economic Return

5.15 The proposed Project, which would add generation/transmissioncapacity to the bulk power system in Iran, would be a small portion of anextensive program planned by TAVANIR for the period 1974-1977. The deter-mination of the economic return for specific elements within such a system-wideexpansion program is impracticable because all elements are inter-dependentand benefits cannot be attributed. The economic return has therefore beencalculated for all the facilities that will be commissioned in the Projectperiod, 1974-1977, as representative of the return on the proposed Project.

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5.16 The economic return is the discount rate which equalizes theattributable economic costs and tenefits of the 1974-1977 program facilities(including the proposed Project) over their economic lives. Attributablerevenues are taJcen as the minimum benefit. As detailed in Annex 16, theminimum return on this basis is calculated to be 12%. However, the incre-mental revenues understate the benefits consumers receive from the program/Project, since the tariff levels are re:atively low,and it is consideredthat a 10% increase in tariff level wou>d not reduce the projected demandsignificantly (the willingness of consumers to pay more is illustrated bythe fact that a large amount of costly captive plant has been installed).As an indication of the sensitivity of the return, if capital expendituresare 10% higher than those assuned, the return would be reduced by only 1%to about 11%.

6. FINANCIAL ASPECTS

Introduction

6.01 TAVANIR's construction program over the next 4 years is extensive(about US$ 1 billion equivalent) and the financial cost and consequencesof ineffective accounting or poor financial or technical control systemswould be very high. The measures proposed in this report for improvingTAVANIR's financial management and operating skills are therefore vital tocontain these risks within acceptable bounds.

TAVANIR's Present Accounting Situation

6.02 At the time of the 1971 appraisal of Loan 856-IRN, TAVANIR'saccounting system and records were virtually non existent and TAVANIRoperated as one of a number of financial units administered by the Ministryof Water and Power. At the Bankt s suggestion a firm of consultants wasengaged in late 1971 by TAVANIR to help the implementation of an accountingsystem based on the USA Federal Power Couission code of accounts. ByOctober 1973 some progress had been achieved under the supervision of theconsultants, but TAVANIR, which has recently replaced its Financial Director(see 6.o4), still requires at least two other senior qualified staff andfurther training and experience for the more junior staff before any timelyaccounts or meaningful cost analysis can be achieved without the help ofconsultants.

6.03 TAVANIR has recently extended the contract of its present accountingconsultants, Coopers and Lybrand, for one further year until November 1974with the option of a further 6 months extension. Virtually since the startof their present assignment, which was intended to include a major elementof training, these consultants have been required to concentrate on andassume "in line" responsibility for the preparation of annual accounts

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and budgets, and for general overall accounting supervision. This situationis likely to continue throughout the extension period. Progress in thetraining of TAVANIR staff has accordingly been severely limited and sincefunds are available for training under Loan 856-IRN, TAVANIR has agreed toemploy consultants to assist in the preparation, coordination and implementa-tion of its comprehensive staff training program; and, by a supplementaryletter amplifying this agreement, such consultants will include consultantsfor the training of its accounting staff for a period of at least two years,who will be engaged by TAVANIR by September 30, 1974 or by the effectivedate of the loan whichever is the earlier.

6.04 A "Financial Director" seconded from the National Iranian OilCompany, who had been employed by TAVANIR since November 1972, left TAVANIRin November 1973. He had been utilized mainly as a controller of expenditureon capital projects financed through the Ministry of Finance budget, and fewof the accounting and financial responsibilities of a senior financialofficer had been transferred to him as had been intended. TAVANIR hasrecently filled this vacancy with someone from the Ministry of Planning whosecapabilities and experience is at present unknown to the Bank. The problemof attracting suitable applicants to fill this vacancy and those of the nexttwo senior accounting positions for which TAVANIR has no sufficiently qual-ified and experienced exiBting employees, is compounded by the Government'sgeneral policy, which limits the salaries that TAVANIR can offer for theseimportant posts to levels substantially below those offered by the privatesector for equivalent relatively scarce skills and experience. Duringnegotiations this serious disadvantage for TAVANIR, and indeed for all Govern-ment owned technical entities requiring the skills of competent professionalstaff, was again pointed out to the Government. In view of the magnitude ofTAVANIR's expected expansion, the Governmert has agreed to take appropriateaction to appoint a Director with appropriate qualifications and experienceto be a full time member of TAVANIR's Board of Directors, with responsibilityto the Board for all matters relating to financial control and planning. TheGovernment also agreed that this appointment would be made as soon as possibleand in any event not later than March 20, 1977.

Audit

6.05 TAVANIR's first audited accounts were for 1971 and, as in Loan856-IRN, TAVANIR has again agreed to have its accounts audited by independentauditors acceptable to the Bank and to send these audited accounts to the Bankwithin 6 months of the end of the fiscal year. TAVANIR's 1972 accounts (i.e.for the fiscal year ended March 20, 1973) were received just prior to nego-tiations. TAVANIR1s auditors, Peat, Marwick, Mitchell and Co., are independentauditors acceptable to the Bank.

Insurance

6.o6 Section 3.01(d) of the Project Agreement of Loan 856-IRN requiresthat TAVANIR insure its assets with responsible insurers or make other pro-visions satisfactory to the Bank (such as self-insurance) against such risksand in such amounts as shall be consistent with sound public utility practices.

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TAVANIR has no 'such specific arrangements in respect of its assets but,as a wholly government-owned entity, the contingent liability againstsuch risks is considered by TAVANIR to) rest with the Government as is thecase with other state-owned enterprises. The Bank understands that theOovernment agrees that TAVANIR's assets are included in the general govern-ment self-insurance of its assets, but the Government will be asked to con-firm formally that this understanding is correct.

TAVANIR's Tariff's and Rate Covenant

6.07 TAVANIR is required under Loan 856-IRN to maintain tariffs at alevel sufficient to achieve a 6% minimum rate of return on its average netfixed assets in operation plus working capital. In July 1972 the Governmentcommissioned Development and Resources Corporation (U.S.A.) to examine thewholesale tariffs in the sector, and specifically the relation between thoseof TAVANIR and the various REC's. The consultant's report based on estimatesfor 1972 pointed out that TAVANIR was likely to fail to meet the required6% and proposed certain changes, but recommended that these only be interimchanges covering 1973 and 1974 in view of the inadequacy of the existingfinancial and statistical data available relating to all of the variousentities concerned in the sector. Inter alia, the consultants proposed agovernment subsidy for the power sold to the aluminum plant (IRALCO), whosetariff at 0.236 Rls/kkh is well below TAVANIR's overall cost of supply whichaverages more than 0.60 Rls/kWh sold. The Government concurs that any suchsubsidy required by IRALCO in respect of its supply of electricity shouldin future be borne by the Government instead of by TAVANIR and as a conditionof loan effectiveness, TAVANIR and the Government have agreed that TAVANIR'stariff to IRALCO will have been increased from the present 0.236 Rls/kWh(0.35 US4/kWh) to 0.590 Rls/kWh (0.86 USO/kWh) or such other rate as shallat least recover TAVANIR's cost of supply to IRALCO. A tariff of Rls/kWh0.590.,- which acknowledges that-TAVANIR's cost of supply to IRALCO will be lessthan its overall average (because of the htgh load factor and the 230-kVlevel of supply), would entail an annual government subsidy to IRAOC0 of someRls 300 million (US$4.4 million) at its expected annual energy requirement of858 GU1-b

6.08 With the above increase in the IRALCO tariff, TAVANIR is expectedto achieve at least the agreed 6% annual rate of return through 1977 andto improve substantially on this rate of return by 1977/1978 (see 6.16).The rate covenant of 856-IRN, which also requires a review with the Bankbefore March 31, 1978 of the requirement for a higher rate of return afterthat date,has been repeated in the proposed loan in view of the continuinginadequacy of accounting and statistical records, not only for TAVANIR butalso for the rest of the industry (see 2.13). By 1977/78 such recordsshould have improved, particularly in the cases of TAVANIR and TREC, anda more accurate assessment of the various tariffs and their impact on theneeds and rates of return of the various entities within the industry canthen be made.

6.09 KWPA and TAVANIR currently exchange energy (irrespective of whetherit was thermally generated (TAVANIR) or hydro generated (KWPA), at the samerate of 0.34 Rls/kWh depending on the weather conditions or time of yearand consequent availability of energy from the KWPA owned Pahlavi dam.Thermally generated transfers to KWPA are underpriced and below cost, but

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after 1974 KWPA's requirements are expected to exceed the generating capacityof Pahlavi and little, if any, hydro generated energy will be available fromthis source. In 1975. however, the 1 000 MW RSK hydroelectric station, beingconstructed for KWPA is expected to be able to supply about 1800 GWhs forTAVANIR's main system, although this will reduce progressively through 1977as KWPA's own requirements increase. After 1977 KWPA is expected to requireall of the RSJ generation for its own system and to require increasing amountsof thermally generated energy from TAVANIR as well. As a condition ofLoan 856-IRN, the Government is required, by May 31, 1974, to set ratessatisfactory to the Bank both for the sale of RSK energy to TAVANIR and forthe charge to be made by TAVANIR -o KWPA for transmitting the RSK energysold by KWPA over the TAVANIR-owned transmission system (i.e. the "wheelingcharge"). Neither tariff has yet been established and the Governmentexplained that since the completion of RSK had in fact been delayed by aboutone year, it proposed to write to the Bank suggesting that the date fordetermining the KWPA tariff for RSK be also appropriately deferred so as toreflect more up to date costs of construction and operation. The Bank shouldagree to this suggestion and an appropriate later date should be substitutedfor May 31, 1974. The forecasts have assumed that tariffs will be establishedto cover the respective operating expenses plus a reasonable surplus of about10% of estimated capital cost. On this basis, rates of 0.50 Rls/kWh forhydroelectric energy sold to TAVANIR after 1975; a 0.10 Rls/kWh wheelifngcharge;and 0.80 Rls/kWh for TAVANIR's thermally generated energy sold toKWPA after 1977 have been used in the forecasts.

Taxes and Import Duty

6.10 TAVANIR is exempt from company tax on profits for 15 years from itsincorporation (i.e. until 1985) and has not so far been required to paycustoms duty on construction materials although theoretically each project isdecided individually and is the subject of a separate Government directiveto the customs department. The Government intends that TAVANIR continues tobe exempted from customs duty on its expansion projects.

Government Financing

6.11 Through fiscal 1972, TAVANIR's assets have been financed almostentirely through government grants, so that interest has not been chargeableto TAVANIR irrespective of the interest paid or payable by the Government onactual credit terms negotiated. The Government is likely to have to provideTAVANIR with the equivalent of almost US$700 million in finance through 1977and under Iran's Fifth 5-Year Plan Law all such government financing couldbe in the form of 50% outright grants and 50% loan financing. No decisionhas yet been reached as to the intended terms of such loans from the Govern-ment, which will be determined separately for each government-owned entity,and will not necessarily be related to credit terms obtained by the Governmentitself. A large proportion of the foreign-exchange component for TAVANIR'sprogram is in fact planned to be refinanced by the Government through bilateralcredits both from the Eastern and Wbstern bloc countries, through supplier'scredits and through loans from groups of foreign commercial banks. Suchfinancing has already been arranged for the present ongoing major generationand transmission construction from Russia, 1*stern Europe and Japan. Duringnegotiations the Government's intentions as to the financing of TAVANIR were

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discussed. It is probable that, apart from Bank loans and cash generation,TAVANIR will receive its funds from the Government, 50% of which will beas grants and 50% as loans, which for the purpose of this report have beenassumed to be made at 7 interest over 20 years with a 3-year grace periodfor each year's loan, although no decision has yet been taken on the termsof TAVANIR's loan financing.

Historical Balance Sheets

6.12 TAVANIR's "Actual" accounts shown in Annexes 19 through 21 compriseits only audited accounts for fiscal year 1971 (ended March 20, 1972) and itsstill unaudited 1972 accounts. An unaudited balance sheet for 1970 exists,but its gross fixed assets have haa to be substantially adjusted because ofthe inconsistent and questionable records of assets taken over on the establishvment of TAVANIR. By 1972 the verific ation of TAVANIR's assets had greatlyimproved and the category "Unclassified assets" had been reduced from R1E3,931million in 1970 (13% of its totas,gross fixed assets) to Rls187 million(about 1%). TAVANIR's accounting is still on a cash basis, so costs and finan-cial information are largely unobtainable in between annual accounts which arethemselves delayed pending the receipt of "end of year" charges from the Ministryof Planning for most of the major capital expenditure. The value of assetstaken into service during the year can only be included in the accounts afterzeceipt of these charges or, in many cases, after an estimate has been madeof the expected amount concerned. Final reconciliation with the Ministry'srecords is also often a lengthy procedure which is not always completelysuccessful. This situation will only improve with the planned improvement ofTAVANIR's accounting techniques (see 6.02). Examples of the depreciation ratesused are given in Annex 22. The rates are regulated by law and are reasonablealthough the expected operational life reflected in these rates tends to be onthe short side.

6.13 TAVANIR's chronic cash shortage is reflected in its use ofincreasing overdraft facilities from the local bank (Rls256 million in 1972).TAVANTR is precluded from borrowing locally on a long term basis, but,since the local bank debt can be (and is) habitually "rolled over" at theend of each year it is in practice an informal long-term advance and hastherefore been included as "long-term" debt in this report. Other long-termdebts comprise an advance from TREC of R1s332 million at no interest to berepaid before March 1978 and a loan from IRALCO (for the construction of relatedtransmission etc.) at 6% interest to be repaid from sales of electricity toIRALCO. These long-term debts are minor items in TAVANIR's financing whichin 1972 had a debt :equity ratio of 3:97 but which, in view of the new governmentfinancing policy (see 6.11) is expected to be about 32:68 by 1978.

Historical Operating Results

6.14 TAVANIR's operating results for the fiscal years 1971 and 1972 areshown in Annex 20 and show net operating surpluses of Hls533 million andRlsi,059 million respectively on sales of Rls2,599 million and Els3,702 million.Rates of return of 5.0 and 8.1 wre achieved with operating ratios of 79% and71% respectively. Purchased energy made up 414% of total production in 1972

- 21 -

(a year of about average rainfall) and since an overall shortage of capacityexisted within the sector as a whole TAVANIR required as much purchasedenergy as possible. The cost of generation averaged 0.61 Rls/klih g3rnrated(US¢0.89) witb marginal fuel cost of about 0.33 Rls/kWh (US¢o.48) as comparedwith 0.37 RlsAc*i (uSfo.54) paid for purchased energy. Between 1971 and 1972TAVANIR's average sales price had increased from 0.80 to 0.87 RisAkWh (1.28USp/kWh) mainly due to an increase in the TREC tariff from 0.76 to 0.92 Rls/kWh(US¢1.35) and total overall costs decreased to an average of RlsO.62 (US00.91per kWh sold against 0.64 in 1971.

Forecast Operating Results

6.15 TAVANIR's forecast operating results for 1973-1978 (Annex 20) showan expected increase in sales revenue averaging 29.9% annually. Energy salesare expected to increase by an average of about 27.5% annually (see Annex 13)and the higher increase in revenue is mainly due to the taking over by TAVANIRof the South East system from 1973. This is not interconnected to the mainsystem and its sales, which by the end of Financial Year 1978 are expected toaccount for over 11% of TAVANIR's total GWh sold, are made at an average tariffof about 1.2 Rls/kWh as against an average of 0.88 Rls/kWh for the main system.The overall 1978 sales tariff is expected to average 0.92 Rls/kWh (1.35 USO/kWi)as against 0.87 Rls/klh in 1972, which is also partly due to a projected furtherminor increase in TREC's tariff from 1974 to an average of 0.95 Rls/kwh(1.39 US¢/kWh).

6.16 In the period 1976 through 1978 TAVANIR is expected to improve itsoperating ratio to about 60% and to achieve rates of return of 9.0%, 12.2 % and11.3%on its defined rate base (see 6.07) under average rainfall conditions.The relatively lower returns of 6.9%, 7.9% and 6.0% expected in 1973 through 1975are partly due to a temporary excess of capacity in the combined sector as awhole and to the assumed purchase by TAVANIR of such hydro electric energy as isavailable. Although obviously preferable from the overall sector viewpoint, thisis expensive for TAVANIR. As an example, the cost to TAVANIR of purchased energyaverages about 0.46 Rls/kWh in 1975 (including 0.50 Rls/kWh for RSK) whichmaterially exceeds its expected fuel cost (substantially its marginal cost) ofabout 0.28 Rls/kWh generated. This is the year for which TAVANIR's rate ofreturn is expected to reach its nadir of 6%, and a sectorwide overcapacity of383 MW has been anticipated (after taking into account appropriate reservecapacity)&/ and the expectation of RSK being operational. If RSK were to bedelayed, TAVANIR could still meet the sector energy requirement by thermalgeneration at its marginal cost and would under these conditions achieve a rateof return of about 7.5%. An alternative of KWPA being required to charge forRSK energy in 1975 at TAVANIR's marginal cost is not recommended since this wouldmerely complicate the rate structure and shift the cost from one point of thesector to another for that year.

Financing Plan

6.17 TAVANIR's exLensive capital program for 1974 through 1977, theremaining years of Iran's Fifth Development Plan period, totalsnearly Rls70 billioni.e. the quivalent of over US$1 billion. 60% of this program is for projects already

authorized for completion under the Plan and the remaining 40% is for expenditureon projects which are required to meet the expected demand. Annex 21 shows TARAiNIR's

1/ See Annex 14 Note 9

- 22 -

Sources and Applications of Funds for 1972 (actual) and 1973 through 1978 andTAVANIR's Debt Service is expected to be covered at least 2 1/2 times bycash generation throughout this period. The debt service limitation clauseof Loan 856-IRN (limiting borrowing if this ratio falls below 1 1/2 times)should be maintained in the proposed loan.

6.18 TAVANIR's overall financing plan for the Project period of 1974through 1977 relies heavily on the availability of some Rls47,338 million(US$694 million) of Government-provided finance of which 50% is assumed to bein long-term loans. The only other major lender is the Bank. A temporary localbank advance of Rls400 million (TAVANIR's present local bank borrowing limit)required for 1975 and Rls5OO million of the Government loans (required only for1976)are both shown as being repaid in 1977.6.19 The Project and the balance of the 856-IRN project ccmprise 11%and 9% of the capital program, with the Bank financing about 52% and 50%respectively of the two projects. The total Bank lending would finance 10%of the total program cost; the Covernment 34% in loans Md 34% in grants;and self financing the remaining 22%. In suiry TAVANIR's financing planfor 1974 through 1977 is:

Rls (millions)

Net Cash Generation 22,809(Less) Net Increase in Net WbrkingCapital, Cash, Investment, etc. 607

23,416(Less) Debt Service Baquirements (8,122)Net Cash Generation after Debt Service 15,29Government Grants - (Equity) 23,669

long-term Borrowing:Government Loans 23,669 34%IBRD 856-IRN 3,301 5%Proposed Loan 3,954 5%Total IBRD Lending 7,255 10%

Total Sources for Construction 69,887 100%

Construction Program:IBRD Projects: 656-IRN 6,618 9%Proposed Project 7.656 11%Total I3RD Projects 14,274Other Construction Generation 40,441

Transmission 15,106Other 6655613 85,61

Tbtal Construction Program 100%

Forecast Balance Sheets

6.20 The dominating feature of TAVANIR's forecast balance sheets for 1973through 1978 (Annex 19) is the rapid increase in gross fixed assets in operation,which by 1978 is expected to reach almost Rls93 billion, over 6 times the actual1972 figure. The resulting long-term borrowing is shown as increasing from vir-tually nothing in 1972 (PRs747 million) to about Rls37 billion in 1978 so that the

- 23 -

debt:equity ratio changes from 3:97 to 32:68 in the same period. TAVANIR'saccounts receivable, which represented 66 days sales in 1972 are shownas improving to an average of 60 days sales and its cash is expectec! toincrease to the equivalent of about 2 months average cash expenditures andinterest as compared with the equivalent of less than I month in 1972 andabout 1½ months in 1975 even after its Rls 400 million advance from thelocal bank (see 6.18).

7. AGREEMENTS REACHED

7.01 The Government has agreed to take appropriate action to appointa Director with appropriate qualifications and experience, to be a fullmember of TAVANIR's Board of Directors, with responsibility to the Boardfor all matters relating to financial control and planning. This appoint-ment is to be made as soon as possible and in any event not later thanMarch 20, 1977 (see 6.04).

7.02 The Government and TAVANIR agreed:

(a) that procurement for the Project should be effectedby TAVANIR (see 4.13); and

(b) to a minimum 6% annual rate of return covenant inthe same terms as that of Loan 856-IRN (see 6.08).

7.03 TAVANIR has agreed:

(i) to employ consultants to assist it in the preparation,coordination and implementation of its comprehensivestaff training program. By a supplementary letteramplifying the above agreement, TAVANIR has also under-taken to have engaged by September 30, 1974 or by thedate of effectiveness of the loan whichever is theearlier, technical training consultants (see 3.08)and accounting training consultants for a period ofat least two years (see 6.03).

(ii) that procurement, bid document preparation, and bidevaluation for the Project would be carried outunder the supervision of engineering consultantsacceptable to the Bank (see 4.13);

(iii) that the transmission line contract would be leton a "supply and erect" basis (see 4.13);

(iv) to continue to employ independent external auditorsacceptable to the Bank (see 6.05); and

- 24 -

(v) not to incur further debt if its debtservice would thereby fall below 1½tines its net cash generation (see 6.17).

7.04 As a condition of effectiveness of the proposed loan, theGovernment and TAVANIR have agreed to increase TAVANIR's tariff toIRALCO to 0.59 Rials/kWh or such other rate as shall at least coverTAVANIR's cost of supply (see 6.07).

7.05 In view of the above agreements, the Project would providea suitable basis for a loan to TAVANIR of US$58 million equivalent overa period of 18 years, including a *g year grace period. The loan isexpected to become effective within three months of loan signing.

IRAN

IRAN POItER GEERATION AND IRANSMISSION COMPANY

HYDRO PLANT CAPABILITIES AND PRICES FOR PURCHASED ENERGY

Available Energy 1/3/ Peaking Average ar Critical Year Enera Price

plant Owner Capility-MW GWI LF GWi LF Rials/kWh

Shahbanu Farah Tebhran Regional WaterAuthority 80 420 60% 315 45% 0.57

Amir Kabir Tehran Regional WaterAuthority 85 130 17% 98 13% 0.50

Farahnaz Tehran Regional WaterAuthority 22 22 11% 16 8% 0.57

Shahpur Aval Azarbaijan IReggnal wterAutho rity 3 24 91% 18 68% 0.71

Aras Azarbaijan Pegional WaterAuthority 22 88 46% 66 314% 0.71

Shah Abbas Esfahan Regional WaterAuthority 50 174 40% 130 30% 0.54

Pahlavi Khuzestan Water and PowerAuthority 470 2,400 58% 1,750 142% 0.314

Total in 1973 732 3,258 51% 2,393 36%Reza Shah Kabir Khuzestan Wkter and Power 2/

Authority 1,000 4,120 47% 2,1450 28% o.50

Total in 1977 1,732 7,378 49% 4,843 32%

1/ Prices in effect as of October 1973

2/ RSK schedule 500 MW in 1975 and additional 500 MW in 1976; no price negotiated as yet but assumedas 0.5 Rials/kWAh based on an estimated cost of $200/kW plus a return of about 10% and 0.17 Rials/kkfor operating expenses.

3/ All owners except KWPA sell the full plant output to TAVANIR; KWPA supplies all loads in Khuzestan

province and sells to TAVANIR any hydro power available after meeting KWPA requirements (Annex

November 27, 1973

ANNEX 2

Page 1 of 2

IRAN POIER GENERATION AND TRANSMISSION COMPANY4/

EXISTING aENERATING CAPACITY ON MAIN SYSTEM

1/ 2/ N -Nameplate PeakingRegion Location Fuel Rating-MW Capability-MW

Tbhran Shahriar S RO 4 x 156.5 600Mt.jil S G 2 x 120 230Farahabad S G/FO 3 x 82.5 230Tarasht S FO 4 x 12.5 47Tarasht GT D 2 x 12.5 22Amir Kabir H 2 x 45.5 85Farahnaz H - 1 x 22.5 22Various D D 15 15

Sub-total 1251

Mazandaran Various D D 16 16

Gilan Shahbanu Farah H _ 5 x 17.5 80Various D D 9 9

Sub-total 89

Azarbaijan Tabriz S FO 2 x 6 11Tabriz GT D 2 x 15 26Aras H - 2 x 11 22Shahpur Aval H 2 x 1.5 3Various D D 33 33

Sub-total 95

Gharb Various D D 20 20Khuzestan PahlaYi H - 8 x 65 470

Total 1941

1/ S - steam = 1118 MW 2/ R = residual oil 4/ As at 12/31/73GT = gasturbine = 48 MW G = gas

D = diesel = 93 NW FO - fuelH = hydro -682 MW (owned by others) D = gas oil

1941 MW

3/ Shahriar units 3 and 4 and MIanjil units 1 and 2 were completed during the fallof 1973. The capacity available for the 1973 summer peak was therelore only1,411 MW (See Annex 14).

November 27, 1973

ANNEX 2

IRAN Page 2 of 2

IRAN POWER GENERATION AND TRANSMISSION COMPANY

3/EXISTING GENERATING CAPACITY ON SMALL SYSTEMS-

1/ 2/ Nareplate PeakingRegion location Type Fuel Rating-MW Capability-MW

4/Fars Shiras h/ GT G 3x15, lx14, 1x12 66

Various D D 16 16Sub-total 82

Esfahan Shahabad S FO 2x37.5 70Esfahan GT G lx15, 1x23 36Shah Abbas H 3x17.5 50Various D D 17 17

Sub-total 173

Janoob Sharghi Zarand S FO/C 2X30 56(Southeast) Kerman GT D 2x7.5 11

Kerman D D 12 12Bandar Abbas GT D 2x23 40Bandar Abbas D D 12 12Sub-total 131

Khorassan Ma8bhad S FO 2x6 0, 2x12.5 132(Northeast) Mashhad GT D lx16 15

Various D D 18 18Sub-total 165

Total 551

1/ S = steam - 258 MW 2/ FO = fuel oil 3/ As at 12/31/73GT = gasturbine = 168 MW G = gasD = diesel = 75 MW D = gas oilH = hydro = 50 MW (owned by others) C = coal

551MW

4/ Owned by Fars REC and will be purchased by TAVANIR in 1975 when the area isinterconnected

Total for Main and Small Systems - Steam - 1376 MWGas turbine - 216 MWDiesel - 168 MWHydro - 732 MW

2492 MW

November 27, 1973

IRAN

IRAN POIER GENERATION AND TRANSMISSION COMPANY

FINANCIAL DATA FOR REC's - BALANCE SHEETS FOR 1971 AND 1972 (Millions of Rdalal)

..... ... .Azarbaija n Esfahan Tehi Eran Khoras Fars Kermean Gilan FW2andaranYear R.E.C. R.E.C. R.E.C. R.E.C. R.E.C. R.E.C. R.E.C. R.B.C.1971 Assets(1350) Fi=xedAssets in Operation 1,470 1,998 7,403 1,143 2,035 734 487 1,325

Depreciation (218) (299) (1,752) (258) (402) (239) (151) (322)Net Fixed Assets in Oper. 1,252 1,699 5,651 885 1,633 495 336 1,003Work in Progress 23 843 1,979 453 155 620 608 399Other Assets 13 5 3,337 18 2 2 39 866Current Assets 1,171 1,149 5,936 969 948 732 452 841Deferred Drbits 6 277 35 36 129 22 253 11Total Assets 2,465 3,973 16,938 2,361 2,867 1,871 1,688 3,120

LiabiliLiesEquity 1,748 2,881 12,789 1,222 1,102 420 866 1,395Long Term Debt 240 548 2,568 628 194 665 442 1,138Current Liabilities 264 471 1,172 455 669 491 306 570Deferred Credits . 213 73 409 56 902 295 74 17

1/ Total Liabilities 2,465 3,973 16,933 2,361 7767 1,871 1,6T6 3,120

1g72 Assets(1351) Fixed Assets in Operation 1,694 1,902 8,841 1,435 1,847 950 1,029 1,506

Depreciation (271) (379) (2,143 J340) (463) (231) (168) (391)Net fixed Assets in Oper. 1,423 1,523 6,698 1,095 1,384 719 861 1,15Wbrk in Progress 100 286 2,489 439 238 175 317 596Other Assets 18 5 3,501 19 3 2 2 1,038Current Assets 701 984 7,549 1,082 1,674 644 519 1,163Deferred Debits 10 184 170 32 258 - 249 23Total Assets 2,252 2,982 20,407 2,667 3,557 1,540 1,948 3,935

LiabilitiesEquity 1,522 1,840 14,883 1,543 1,333 267 1,059 1,720 Long Term Debt 251 2 3,369 646 382 778 470 1,331Current Liabilities 240 1,140 1,532 435 844 144 370 840 ' 'Deferred Credits 239 - 623 43 998 351 49 44 0

Total Liabilities 2,252 2,982 20,407 2,667 3,557 1,540 1,948 3,935

1/ Data for Azarbaijan, Tehran and Kerman is preliminary.

December 13, 1973

IRAN

IRAN POWER G(&ERATION AND TRANSMISSION COMPANY

FINANCI4L DATA FOR XC's E- INCOV4E STATEMENTS FOR 1971 AID 1972 (Millions or Rials)

Azarbai.lan Esfahan Tehran Khorassan Fars Kerman Gilan MazandaranFiscal Year 1971 (1350) R.E.C. R-E-.C. R.E.C. R.E.C. R.E.C. R.E.C. R.E.C. R.E.C.

cales Ot Liectricity (GWh) 138 293 2,319 196 165 82 108 158-Average Revenue (Rials/kWi) 2.49 1.97 1.99 2.13 2.18 2.34 2.11 2.12

Operating RevenuesSales ol Electricity 343 578 4,625 418 360 192 228 335Other 25 8 67 4 6 1 1 12

Thtal 368 586 4,692 422 366 193 229 347

Operating xpensesOperation & Maintenance 288 431 2,725 340 210 171 192 287Depreciation 72 55 310 65 66 50 40 71

Tital 360 486 3,035 405 276 221 232 358

Net Income (l08o) 8 100 1,657 17 90 (28) (3) (11)

Fiscal Year 1972 (1351)Sales of Electricity (GWh) 172 434 2,496 217 206 101 135 193Average Revenue (Rials/kWi) 2.44 1.68 2.12 2.19 2.19 1.69 2.11 2.13

Operating RevenuesSales of Electricity 419 728 5,289 476 452 171 285 412Other 5 11 82 3 4 1 1 3

Total -424 739 5,371 479 456 172 286 415

Operating 'xpensesOperation & Maintenance 334 530 3,732 398 290 153 226 312

Depreciation 68 84 373 73 68 46 42 67

Total ~ 402 614 4,105 471 358 199 268 379

Net Income (Loss) 22 125 1,266 8 98 (27) 18 36Rate of Return 1) 1.6% 7.3% 18.6% 0.7% 6.2% - 2.8% 3.2%

(10.3% calculated on 8 RECGs)

1/ Net income as percentage of average net fixed assets plus working capital allowance of 2% of grossfixed assets at year end plus 12½% of cash operating expenses. Dbcember 13, 1973

ANNEX 1IIRAN ,

IRAN POWER GENERATION AND TRANSMISSION COMPANY

SUMMARY OF CONSUMER TARIFFS FOR TiE REGIONAL ELECTRICITY COMPANIES

TARIFF I - %isidential- ~~~~~~~~~2/

Energy charges - for the first block of consumption R1s 50 3/- for additional kilowatt hours from Rls 3.75 to 1.30 per kit

Minimum monthly bill: Rls 50

TARIFF II - Commercial (General Service at Secondary Voltage)

Energy charges - for the first block of consumptiorE Rls 80 3/- for additional kilowatt hours from Rls 3.50 to 1.50 per kWh

5/Minimum monthly bill: Rls 80

6/TARIFF III - Small Industry (General Bervice at Primary Voltage )

Demand charges - for the first 50 MW Ris 5,000 3/- for additional kilowatts from Rls 100 to 65 per KW

7/ 8/Energy charges - peak hours from RIls 3.50 to 2.00 per kW,

- off peak hours from Rls 1.75 to .70 per k

Minilium monthly bill: Rls 100 per KW of demand but notless than Rls 5,000

6/TARIFF IV - Large Industry (Primary Voltage)

Demand charges - for the first 300 KW Rls 37,500 8/- for additional kilowatts from Rls 90 to 70 per KW

7/ 8/Energy charges - peak hours from Ms 2.25 to 2.00 per kWh

off peak hours from Rls .95 to .65 per kh4_/

Minimum monthly bill: Rls 300 per KW of demand but not lessthan Rls 120,000 (in most Regions)

TARIFF V - Irrigation Pumpin 8/

Energy charges - peak hours from Rls 4.00 to 3.00 per kWn- off peak hours from lls 3.00 to .45 per kWzj/

Minimum monthly bill: Rls 100

1/ KWPA's tariffs are slightly different although similarly structured.V/ 10 to 16 kWh depending on the Region.'/ Depending both on Region and on magnitude of consumption.

l Generally 20 kWh.37 Except, in Tehran and Gilan where it is Rls 50.b6 If service is provided at secondary voltage (400/230 V), charges are increased by 5%.7/ Peak hours are designated by the REC's and do not exceed 4 hours in any 24-hour period.8 Depending on region.

November 27, 1973

ANNEX 5IRAN

IRAN POWER GCNERATION AND TMANSMISSION COMPANY

BULK SUPPLY TARIFFS FOR MAJOR CUSTOMERS

1/ 3/System Customer Rials/kwh

Main Tebran REC 0.95Mazandaran REC 0.83Gilan REC 0.80Gharb REC 0.90Esfahan REC 0.83Azarbaijan REC 1.04Fars REC 0.90Khuzestan WPA 0.34Doroud Cement 0.75Arak Aluminum 0.236Esfahan Steel 0.73Esfahan Military 0.83Bushehr Military 0.83

Southeast Janoob Sharghi REC 1.20Copper Mine 1.20Coal Mine 1.20Kerman Oement 1.20Iron Mine 1.20Bandar Abbas Authority 1.60Military 1. 1.00Military 2 1.00

Chahbahar Military 1.20

Northeast Khorassan REC 0.91

1/ Expected 1974 tariff levels based on discussions betweenTAVANIR and the Ministry of Water and Powr.

2/ For comparison purposes, this is equivalent to US$1.390/kTh.

3/ Tariffs for most customers have demand and energy componentsbut the overall average rates as used for financial calculationsare shown.

November 27, 1973

ANNEX 6

IRAN

IRAN POWER GENERATION AND TRANSMISSION COMPANY2/

GENERATUING CAPACITY APPROVED FOR CONSTRUCTION

In-service 1/ Nameplate PeakingType Location Schedule Fuel Rating-NW Capability-MW

Hydro Peza Shah Kabir May 1975 - 2x250 500(Owed by KWPA) May 1976 - 2x250 500

Sub-total 1,000

Steam Ahwaz I April 1974 G 1x146 137Esfahan Sept. 1975 G 1x120 113Ahwaz II - #1 Jan. 1978 G, lx350 336Ahwaz II - #2 June 1978 G lx350 336Mazandaran - #1 Jan. 1978 R lx350 336Mazandaran - #2 June 1978 R lx350 336

Sub-total 1,594

Gas turbines(1974 Program) Esfahan March 1974 G 2x25 44

Shahriar May 1974 G lx25 22Farahabad May 1974 G 1x25 22Arak July 1974 G 1x25 22Gorgan July 1974 G 1x25 22Kermanshah Sept. 1974 G 2x25 441974 Sub-total (8x25) 176

(1975 Program) Bushehr lbb. 1975 D 3x25 66Bandar Abbas April 1975 G 3x25 66Yazd June 1975 D 2x25 44Chahbahar Aug. 1975 D 2x25 441975 Sub-total (10x25) 220

(1976/77 Bandar Abbas May 1976 G 2x25 46Program) Bandar Abbas Sbpt. 1976 G 2x25 46

Bandar Abbas Jan. 1977 G 2x25 46Bandar Abbas May 1977 G 2x25 46Sar Cheshmeh May 1976 D 2x25 40Sar Cheshmeh Sept. 1976 D 2x25 40Ahwaz Sept. 1976 G 2x25 44Ahwaz Jan. 1977 G 2x25 44Ahwaz May 1977 G 2x25 44

1976/77 Sub-total (18x25) 396

Tbtal� 386

1/ G gas 2/ As at 12/31/73D g4s oilR - residual oil

April 2 5, 1974

ANNEX 7Page 1 of 3

IRAN

IRAN POWER GENERATION AND TRANSMISSION COMPANY

CAPITAL EXPENDITURE PROGRAM FOR 1974-1977

Scheduled Cost in Millions RialsFacility Project Year Total 1974-1977

Steam Units Mashhad 2x60 MW 1973 1,314 42(Approved)l/ Ahwaz I 146 MW 1974 1,836 326

Esfahan 120 MW 1975 1,145 215Ahwaz II 2x350 MW 1978 10,529 9,793

2 Mazandaran 2x350 MW 1978 10,670 9,922(Ientative Ahwaz II 2x350 MW 1979 9,639 8,289

Mazandaran 2x350 MW 1980 9,335 5,432Caspian 2x600 MW 1981/82 17,114 2,554Ahwaz 600 MW 1981 10,271 513

Sub-total (4,986 MW) 37,086

Gas Turbines Esfahan 2x25 MW 1974 520 182(Approved) Shahriar 25 MW 1974 260 91

It Farahabad 25 MW 1974 260 91

fArak 25 hw 1974 260 91Gorgan 25 MW 1974 260 91

it Kermanshah 2x25 MW 1974 520 182Bushehr 3x25 MW 1975 819 819Bandar Abbas 3x25 MW 1975 546 487Yazd 2x25 MW 1975 546 546

it Chahbahar 2x25 MW 1975 546 5461976 Prog. 18x25 MW 1976/77 5,701 5,690

(Tbntative) Future to1982 1,300 MW 1978-82 21,132 237

Sub-total (2,200 MW) 9,o053

Generation Sub-total 46,139

1/ Approved by the Government as part of the budget for the Fifth Plan.2/ Included in TAVANIR's system development plans as prepared in conjunction

with consultants; the generation quantities and scheduling have been alteredsomewhat to match the appraisal load forecast.

April 25, 1974

AmX 7Page 2 of 3

Scheduled Cost in Millions RialsFacility Project Year Total L9-74-1977

400-1ky transmission SC, RSK Lines (IBRD),(Approved) 767 Km 4/1975 4,486 4,279

SC, Arak to Tehran (IBRD),.250 Km 1977 1,546 1,546

(Tentative) SC, Mazandaran to Tehran(3), 840 Km 1978/79 4,564 4,107

SC, Ahwaz to Omidieh,129 Km 1978 475 383

SC, Esfahan to Arak,290 Km 1978 1,311 1,079

Sub-total (2,276 Km SC) l1,394-5/

230-kV transmission DC, Tehran Ring (IBRD),(Approved) 90 Km 1975 886 54

SC, Manjil to Tabriz (2),560 Km 1973-76 2,374 1,145

it SC, Tehran to Esfahan,420 Km 1974 1,604 850

SC, Manjil to Tehran,220 Km 1975 980 488

DC, Gachsaran to Shireand Bushehr (IBRD),-'361 Km 1975 2,181 2,132

DC, Bandar Abbas to Sirjyn270 Km 1976 1,585 1,411

DC., Ahwaz II Lines,32 Km 1978 900 650

(Tentative) DC, Shahriar to Nowshar,122 Km 1976 525 525

" SC, Mianeh to Ardabil,129 Km 1977 301 301

SC, Kangavar-Kermansh-Sanandaz-Hamadan,322 Km 1977 652 652

SC, Khorramabad toKangavar, 127 Km 1979 301 60

"f DC, Ahwaz II Lines,32 Km 1979 632 126

SC, Mianeh to Ardabil,129 Km 1977 301 301

"? DC, Ahwaz to Bandar Shapur224 Km 1977 1,589 1,589

DC, Ahwaz to Navard,35 Km 1978 244 196

DC, Shiraz to Fasa,186 Km 1978 591 532

Sub-total (1,352 Km DC;1,907 Km SC) 11,012

3/ Under Loan 856-IRNIZ/ Under Proposed Loan5/ Under Loan 716-IRN

ANNEX 7Page 3 of 3

Scheduled Cost in Millions RialsFacility Project Year Tbtal 1974-1977

132-kV Transmission DC, Sar Cheshmeh to Rafsanjan, 1976 141 141(Approved) 60 Km

DC., Sar Cheabehto Sirjan,70 Km 1976 164 1614

SC, Southeast Interconnection,808 Km 1973 1,158 28

SC, Rezaieh Lake Ring,745 Km 1973 1,190 35

(Tentative) SC, Tabriz to Fbzayeh,207 Km 1979 357 181

Sub-total (130 Km DC; 1,760 Km SC) 549

Training Program Provision of facilities andinstructions 1974-76 232 207

General Vehicles, office equipment, etc. 1974-77 66 66

TOTAL 1974-1977 CAPITAL EXPENDITURE 6-9,784(about US$ 1 Billion) ~

April 25, 19714

IRAN

TAVANIR ORGANIZATION

GENERAL ASSEMSLY

BOAR OFWIETORS

| CONSULTANTS MAAIGDRCO

DEPUTY MNA2GIrNG DIRECTOR| OPRTNS3CONSTRUCTION OEA

FINANCIAL AND ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~AL R

PERSONNEL GENERATION ~~~~~~~~~~~~~~~~~~~~~~~TRANSMISSIONASSISTAN ASSISTNT

PROJECT MANAGERS PROJECT MANAGERS

z

PLANT SUB-STATIONSUPERINTENDENTS CHIEF OPERATORS

ANNEX 9

IRAN

IRAN POWR GENERATION AND TRANSNISSION COMPANY

COST ESTIKATE FOR ARAK TO TEHRAN 400kV LINE

In Millions of Rials In Thousands of US$Item Local Foreign Total Local Foreign Total

Transmission Line

Road construction 4.1 2.7 6.8 60 40 100Foundation 91.7 49.4 141.1 1,345 725 2,070Towers 51.1 211.4 262.5 750 3,100 3,850Insulation - 45.7 45.7 - 670 670Conductors and hardware 44.3 256.0 300.3 650 3,755 4,4o5Shield wires and hardware 8.2 30.0 38.2 120 44o 560Spare parts and misc. 10.2 23.8 34.0 150 350 500

Sub-total 209.6 619.0 828.6 3,075 9,080 12,155

Substations 2/

Capacitors (approx. 1,000 MVAR) - 204.5 204.5 - 3,000 3,000Site improvements, foundations,buildings and misc. civil works 44.3 34.1 78.4 650 500 1,150Transformers and reactors 1.7 97.2 98.9 25 1,426 1,451Breakers, switches, buses,miscellaneous equipment andcontrols 10.9 228.4 239.3 160 3,350 3,510

Sub-total 56.9 56X.2 621.1 835 8,276 9,111

Total Direct Costs 266.5 1,183.2 1,449.7 3,910 17,356 21,266

Engineering 37.3 37.3 74.6 547 54/ 1,09L4Physical Contingency (10%) 26.6 118.3 144.9 391 1,736 2,127

Price Escalation 3/ 65.0 229.1 294.1 252 ',*>0 4g,3

TOTAL COST 395.4 1,567.9 1,963.3 5,800 23,000 28,800

(IBRDfinancing)

1/ Conversion at uS$1.00=68.17 Rials./ Ecxtension to 4UU KV subsuai,ioii at j-ak and adaciUion

of 400 kV area to existing Firuz Bahram substation.3/ Based on following annual escalation rates:

Year Equipment/Material Civil Wbrks

1974 14 181975 11 15

1976/77 7.5 12

April 25, 1974

;X 10

IRAN

IRAN POWER GENERATION AND TRANSMISSION COMPANY

COST ESTIMA[E FOR GAS TURBINES

1/In Millions of Rials In Thousands of US$

Item Local Foreign Total Local Foreign Total

Land purchase 289.0 - 289.0 4,239 - 4,239Site preparation 25.2 6.1 31.3 369 90 459Foundations 54.0 6.1 60.1 792 90 882Fuel oil storage 23.4 24.5 47.9 343 360 703Fuel handling facilities 16.6 21.8 38.4 244 320 564Gas-turbine generatorsincluding synchronous clutch,controls, freight andinsurance 32.3 2,935.7 2,968.0 474 43,o65 43,539Transformers and breakers 180.0 104.3 284.3 2,640 1,530 4,170Installation 40.4 327.6 368.0 593 4,805 5,398Spare parts - 98.2 98.2 - 1,440 1,440

Total direct costs 660.9 3,524.3 4,185.2 9,694 51,700 61,394

Engineering 98.2 98.2 196.4 1,440 1,440 2,880Physical contingency (5%) 33.0 176.2 209.3 484 2,585 3,069Price escalation 2/ 218.9 891.3 1,110.2 3,211 13,075 16,286

TOTAL COST 1,011.0 4,690.0 5,701.0 68,800 83,629

IBRD Financing 35,000 (51%) 31Other Financing 33,800 (49%)

1/ At exchange rate US$1.00 = 68.17 Rials2/ Based on following annual escalation rates:

Year Equipment/Material Civil Works

1974 14 181975 11 15

1976/77 7.5 12

3/ Or about 2/3, say 65%, of the direct foreign exchange cost.

April 25, 1974

ANNEX 11

IRAN

IRAN POWER GENERATION AND TRANSMISSION COMPANY

ESTIMlED SCHEDULE OF DISBURSEMENTS FOR BANK LOAN

Calendar CumulativeIBRD Fiscal Quarter Disbursements PercentYear and Quarter Ending in US$ 1,000's Undisbursed

FY 74

4 June 30, 1974 o 100%

FY 751 September 30, 1974 3,010 95%2 December 31, 1974 4,720 92%3 March 31, 1975 6,100 89%4 June 30, 1975 14,050 76%

FY 761 September 30, 1975 22,340 61%2 December 31, 1975 31,650 45%3 March 31, 1976 42,040 28%4 June 30, 1976 46,120 20%

FY 771 September 30, 1976 50,300 13%2 December 31, 1976 53,050 9%3 March 31, 1977 55,400 4%4 June 30, 1977 56,350 3a

FY 781 September 30, 1977 56,900 2%2 December 31, 1977 57,450 1%

3 March 31, 1978 58,ooo 0%

April 25, 1974

ANNEX 12Page 1 of 4

IRAN

IRAN POWER GENERATION AND TRANSMISSION COMPANY (TAVANIR)

Load Forecast Assumptions

1. The following table shows the historical energy sales in GWh byclass of customer for the public sector for the period 1968-1972, basedon the statistics of the Ministry of Water and Power.

StreetYear Domestic Coimnercial Industrial Rural Lighting Misc. Total

1968 639 364 656 49 174 78 1,9601969 691 607 9114 79 219 74 2,5841970 808 855 1,426 91 256 36 3,14721971 983 1,029 2,035 121 312 39 4.,5191972 1,160 1,190 2,870 510 350 115 6,195

2. From the above table, the average annual growth of public sectorsales since 1968 was 33.4%. Growth rates for the different classificationsin the above table are not meaningful because of reclassification of someloads.

3. Since TAVANIR's inception in 1969, the average annual growth ratein its energy sales has been 37.7% calculated from the following companystatistics:

1970 sales = 2,248 GTh1971 sales 3,243 GWh1972 sales = 4,259 GWh

14. The Power Division of the Ministry is responsible for load fore-casting for the public power sector and works closely with the REC's inanalyzing historical data and load trends in the regions. In October 1972,the Ministry issued a report "Power Industry Development in Iran, FifthPlan Period" including a detailed load forecast by load classifications foreach region and also by suhbtations. Domestic and coimmercial load forecastswere based on past trends, population growth, regional economic developmentand average per customer consumption estimates. Industrial load forecastswere based on projections of firm industrial programs. Street lighting loadforecasts were based on the number of municipalities.expected to have lighting.Rural load forecasts took into consideration the Government's agriculturalplans.

ANNEX 12Page 2 of 4

5. For the Fifth Plan period, 1573-1977, the Ministry forecasts theaverage annual growth rates for the various load classifications in thepublic sector will be as follows:

Domestic - 23.9%Commercial - 20,2%Industrial - 36.4%Rural - 57.5%Street Lighting - 19.3%Miscellaneous - 47.5%Total - 31.0%

(The above forecast does not include the impact of a planned load of 290 MWfor a steel mill at Ahwaz which was announced in the summer of 1973.)

6. For the Sixth Plan period, 1978-1982, the Ministry has arbitrarilyassumed a flat 20.0% annual growth rate for the public sector load.

7. On the basis of this Ministry forecast, the change in per capitaelectricity consumption figures on a national basis (including privategeneration) would be as follows:

1972 1977 1982

Gross generation per capita(kWh/capita) 343 841 1,666

By way of comparison, the present range for Earope, North America and Japanis 2,000 to 10,000 kWh/capita. Thus the Ministry's suggested forecaat wouldrepresent a very rapid rise towards the levels existing in fIlly developedcountries.

8. Contributing to the fature rapid load increase as forecast by theMinistry are several large block loads for new industrial or military pro-jects as follows:

Load MWProject 1972 - 77 Remarks

Copper mine at Sar Cheshmeh 0 90 Under development by the SarChesbmeh Copper Company

Coal mines near Kerman 0 50 Under development by IranianNational Steel Mill Co. to supplythe Esfahan steel mill

Iron ore mine near Kerman 0 5 Under development by IranianNational Steel Mill Co.

New steel mill facilities at 6 290 Major development with GovernmentNavard near Ahwaz assistance/participation

ANNEX 12Page 3 of 4

Load MWProject T972 1977 Remarks

Esfahan steel mill 54 80 Gradual expansion is planned

Bushehr Military ? 66 Military force now supplied bydiesels, but local gas turbine(TAVANIR) supply to be followedby an interconnected supply arein the course of construction

Bandar Abbas Military ? 86 Diesels now used but power orderedfor gradual buildup on TAVANIRgas turbine supply

Esfahan Military 0 40 New block load; power ordered for1977

Chahabar Military 22 Military force now using dieselsbut power ordered from TAVANIR for1975 to be supplied by gas turbines

Kerman cement I 15 Gradual expansion planned

TOTAL 7 744 The available data as provided byTAVANIR indicates all projects arecommitted and firm written requestsfor power supply have beer. received.

9. Even though the trend in load growth over the past few years hasbeen over 30%, the Ministry's load forecast seems generally too high for usefor appraisal purposes. The load growths for the REC's were therefore reduced(by about 25% in terms of 1979 total sales) in such a way as to retain therelative load growth patterns between the REC's (Annex 13). The estimates ofnew block loads were not changed because these blocks of power have been orderedand they are critical to planning of new capacity, particularly on the southeastsystem. The average annual growth rates for 1972-1979 of TAVANIR's energy salesto the REC's and for its total sales based on the load forecasts detailed inAnnex 13 are as follows:

AverageLoad Annual Growth Rate

TREC REC 19.6%Mazandaran REC 23.0%Gilan REC 20.5%Gharb REC 21.4%Esfahan REC 24.2%Azarbaijan REC 24.5%Khorassan REC 24.2%

ANNEX 12Page 4 of 4

AverageLoad Annual Growth Rate

Total TAVANIR main system in-cluding sales to block loadsand KWPA 25.5%

Total TAVANIR load includingnew southeast system 27.5%

10. It must be kept in mind that the above figure of 27.5% annualincrease in TAVANIR's total sales is not a true load growth figure. Itincludes additional TAVANIR supply to the following: Fars REC, which wasformerly self-supplied; to the KWPA which was historically a net supplierto TAVANIR but whose growth will be supplied by TAVANIR after 1977; toRECs in the southeast region self-supplied in 1972; to growing militaryloads, formerly supplied by local diesels; and to portions of REC loadson the interconnected system but self-supplied in 1972. In 1972 the totalpublic sector sales were 6,195 GWh (para. 1 above) and TAVANIR's bulk saleswere 4,259 GWh (Annex 13). Based on 12% distribution losses, TAVANIR'sbulk sales therefore represented about 60% of the sector ultimate customersales. Since by 1979 TAVANIR ia expected to be supplying some 95% of tnepublic sector and the appraisal forecast of TAVANIR's bulk sales is 23,390GWh (Annex 13), the total public sector sales would be 21,666 GWh assumingthe same 12% for distribution losses. The average growth in total publicsector sales between 1972 and 1979 would thus be 19.9% i.e. about 20%ccmpared to TAVANIR's average sales increase of over 27%,

IRAN PC ER GENERATION AND TRANSMIS3SION C0023IIY

NERC-Y SALES ATD MA7YMMIT D0'1 NDSL/i53 1970-1979

----------------------- Actual ---------------------- ----------------------------------------------- Fore-ast ---------------------------------- __-_-____-___-___

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

(1349)3/ (1350) (1351) (1352) (1353) (1354) (1355) (1356) (1357) (1358)2/

.M GWh LF MW GWh LF MW GWh LF MW 4Wh MW GWh MW 1h MW GWh MW GTh MW GWh MW GWh

Fifth Plan

Tehran REC 450 1,827 0.46 530 2,296 0.49 604 2,780 0.52 724 3,266 940 4,314 1,054 4,924 1,350 6,091 1,612 7,348 1,860 8,449 2,138 9,714Mazandar-m REC 35 121 0.39 47 174 0.42 53 213 0.46 62 223 73 286 87 354 108 524 130 646 153 771 182 920

Gilan REC 25 72 0.33 30 104 0.40 37 132 0.41 41 154 50 193 56 230 60 280 65 336 75 403 90 483Ch-eb REC 00 12 0. 14 35 93 E.SE0 44 143 0. 39 52 220 63 271 75 33E 94 370 97 4E3 109 47 3 029 3555EGfharb REC 6/ 10 145 0.33 67 246 0.42 84 334 0.45 93 4127 116 521 145 651 192 53L 227 0401 284 1,273 341 1,528Asbahas nREC

271 - - - 25 87 0.40 36 118 0.37 44 154 54 189 67 235 82 87 101 350 130 455 156 546

Acabaijam RE1- 92 5 10 45 5 4FarEC a W 2 7 - - - - 96 427 123 544 142 632 170 758,lhsesa _F 0! - - 391 2,003 949 3,40721

Draud Cement 9 27 0.39 9 46 0.55 13 70 0.61 13 69 13 69 3 69 1-3 69 1 69 13 69 13 69

Arak Aluminum - - - - - - 54 200 0.42 100 760 100 858 100 858 100 858 100 858 100 858 100 858Esfaha- Steel _ _ _ 13 23 0.20 28 79 0.32 40 224 50 280 60 336 70 392 s0 448 90 505 1m 569Esfahan Military - - - - - - - - - - - - - - 40 210 40 210 40 210Bnshnhr Military - - - - - - - - - - 44 231 55 289 66 347 7: 404 77 404

Main System S0b-total 578 2,204 0.43 756 3,071 0.46 953 4,076 0.49 1,169 5,687 1,459 6,981 1,701 9,219 2,200 10,400 2,649 12,577 3,453 16,505 4,182 20,021

Janoob Sharghi REC - - - - - - - - - 19 42 45 197 56 245 70 307 88 385 106 464 127 557CopeC Minc - - - - 70 490 80 561 90 631 90 631 90 631Coal Mines - - - - - - - - - - - - - - - 50 268 SC 268 50 268 50 268Kerman Cement - - - - - - - - - 4 9 10 61 12 73 13 80 15 92 20 122 20 122

Iron-Mie - - - - - - - - - - - - - - - 5 26 5 26 5 26 5 26Bandar Abbho Authority - _8 - 11 .8 22 96 31 136 40 175 49 210 56 245 65 296Militaryl I 2 9 4 19 4 19 5 22 10 44 15 66 15 66Military 2 _ _ _ 22 100 45 236 52 273 61 321 76 399 81 426 85 447

Sonthea=t System S1b-total - _ _ _ _ _ _ _ - 58 2C8 126 608 225 1,235 324 1,760 382 2,055 423 2,248 457 2,403

Chahbahar Military -- - - - 10 52 15 79 20 105 25 131 25 131

Khorassan REC 35 44 0.14 41 172 0.48 42 183 0.49 52 228 65 285 81 355 101 442 127 556 159 696 191 835(Northeast System)

TAVANIR TOTAL 613 2,248 0.42 797 3,243 0.46 995 4,259 0.49 1,279 6,123 1,650 7,874 2,017 9,860 2,640 12,682 3,178 15,293 4,060 19,580 4,855 23,390Average annual sales increase '7.5-

STU'NMARY OF TA'ATTI' s CAPAETTY REQSQIRETENT

ormi 1-Cuban Southeast 7ortRemit To-si

1/ Noo-noi-cident demands.2/ All data ore at subtransmission delivery pFints. ]9`3 - Losd 1,076 93 '3 15 1,779

3/ All yeers conform to Iranian y-ara, i.e., 1349 is March 21, 1970 to March 20, 1971, Reserve 150 35 _ 1241 TREC averaEe annual load growth for 1972-1979 in 19.6%. EeouAEeA i is' 84 67 ,5715/ Forecast sales to KWPA ore based on av-rage year available hydra energy at Pahlavi and RSK. - ' 1i/ TAVANIR sFpplies Efiahan REC as an isolated system firo local TAVANIR gemeration; the system will be connected tI the maim system in 1974. rbm en

7/ TAVANIE pur-ha-ed local generation and has su-plied Asarbaijan REC siece 1971; it was connected to the maim system in 1973. 14 hb 20 382 L7 3,1788/ Energy sold to KWPA due to dry conditions at Pahl-vi. 197 - s 6o - 9/ Ž9 54671 Ih-ladss reseI-ve for KWPA gener-ting capacity. nere-1T 5-t

7o-rembe- 1973

IRAN

IRAN POWER GENERATION AND TRANSMISSION COMPANY

MAIN INTERCONNECTED SYSTEM LOAD AND CAPACITY FOR 1973-1982

Item Units 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982

(MW) (1352) (1353) (1354) (1355) (1356) (T357) (1358) (1359) (1360) (1361)

APPROVED PROGRAM TO 1978

Tavanir Load - 1,076- 1,459 1,701 2,200 2,649 3,072-) 3,534 4,135 4,838 5,660

KWPA Load - 274 348 443 840 1,000 1,381- 1,616 1,891 2,212 2.588

Total Load 9/- 1,350 1,807 2,144 3,040 3,649 4,453 5,150 6,026 7,050 8,248

System Reserve- - 209 271 400 456 547 668 773 904 1,057 1,237

Total RequirementlQ/ ,559 2,078 2,544 3,496 4,196 5,121 5,923 6,930 8,107 9,485

Existing Capacity (Annex 5) 1,4111/ 2,114 2,114 2,1962/ 2,196 2,196 2,196 2,070-

Ahwaz I Steam lx146 - 137 137 137 137 137 137 137 137 137

1974 Gas Turbines 8x25 - 88 176 176 176 176 176 176 176 176

Esfahan Steam lx120 - - - 113 113 113 113 113 113 113

1975 Bushehr GT 3x25 - - 66 66 66 66 66 66 66

Ahwaz II No. 1 & 2 2x350 - - - - - 672 672 672 672 672

Mazandaran No. 1 & 2 2x350 - - 672 672 672 672 672

Ahwaz Gas Turbines 3x44 - - - - 132 132 132 132 132 132

Reza Shah KRir 4x250 - - 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000

Lar Project-. 144 - _ - _ _ - 82 82 82

Total Approved Program 1,411 2,339 2,927 3,688 3,820 5,164 5,164 5,246 5,246 5,120

Surplus or (Deficit) (148) 261 383 192 (376) 43 (759) (1,684) (2,861) (4,365)

REQUIRED ADDITIONS AFTER 1978-

Ahwaz II No. 3 & 4 2x350 - - - - - - 672 672 672 672

Mazandaran No. 3 & 4 2x350 - - - - - - - 672 672 672

Additional Gas Turbines 1,300 MW - - - - - - 100 350 400 1,300

Caspian No. 1 and No. 2 2x600 - - - - - - - - 576 1,152

Ahwaz IIT No. I lx600 - - - - - _ - _ 576 576

Probable Program 1,411 2,339 2,927 3,688 3,820 5,164 5,936 6,940 8,142 9,4928/

Surplus (Deficit) (148) 261 383 192 (376)- 43 13 10 35 7

APPROVED PROGRAM > ASSUMED PROGRAM FOR COSTING v

1/ Esfahan area load and generation not included; this area will be interconnected in 1974 but was supplied SUMMARY OF 1982 (1361) MAIN SYSTEM CAPACITYfrom TAVANIR local generation in 1973; frorm 1974 Esfahan load and generation are included. (Assuming 126 MW diesels retired)

2/ Fars interconnected in late 1975.3/ Growth beyond 1978 assumed as 17%. Hydro - 1,814 MW (19%)

4/ TAVANIR's records indicate there is about a 41% difference between the system coincident peak and the Gas Turbine - 1,824 MW (19%)

sum of the customer maximum demands (Annex 13) and that the transmission losses are about 4%. As Steam = 5,854 MW (62%)

these effects cancel out, the maximum customer demands have been accepted as net generation figures. Total = 9,492 MW (100%)

5/ Partially approved.6/ 126 MW diesel capacity retired.7/ It is known there is hydro/pumped storage potential on the Karun River and in the Alborz mountains, but

as costs for these are not available the program has been assumed as thermal for costing purposes.8/ TAVANIR has indicated it plans to accept this capacity risk in 1977.

9/ Based on 15% or the sum of the largest hydro and thermal units, whichever is greater.

10/ The annual peak occurs in July or August, therefore the capacity situation is based on summer conditions.

November 1973

IRAN

IRAN POWER GENERATION AND TRANSMISSION COMPANY

ENERGY SITUATION ON TAVANIR MAIN SYSTEM FOR 1973 TO 1979

Plant Scheduled Averate Critical 1973 1974 1975 1976 1977 1978 1979Peaking Service Year GWh Year GWh (1352) (1353) (1354) (1355) (1356) (1357) (1358)

Item MW Date Capability Capability ----------- -- ---- GWh ---- ______________

Tavanir Energy Sales - - - - 5,687 6,981 8,218 10,401- 12,577 14,502 16,614KWPA Energy Sales - - - - 1,657 2,010 2,544 4,872 5,787 8,195 9,5454% Transmission Losses - - - - 306 374 448 636 765 946 1,089

Net Generation Requirement _ - - - 7,650 9,365 11.210 15.909 19,129 23.643 27.248

Hydro Capability

Shahbanu Farah 80 I/S 420 315 315 315 315 315 315 315 315Amir Rabir 85 I/S 130 98 98 98 98 98 98 98 98Farahnaz 22 I/S 22 16 16 16 16 16 16 16 16ShahpurAval 3 I/S 24 18 18 18 18 18 18 18 18Shah Abbas 50 I/S 174 130 130 130 130 130 130 130 130Aras 22 I/S 88 66 66 66 66 66 66 66 66Pahlavi 470 I/S 2,400 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750Reza Shah Eabir 1.000 1975/76 4-120 2.450 - 2.044 2,450 2.450 2.450 2.450

Sub-total 1,732 7,378 4,843 2,393 2,393 4,437 4,843 4,843 4,843 4,843

Steam Capability Maximum Plant Factor

Tarasht 47 I/S 50% 205 205 205 205 205 205 205Farahabad 230 I/S 50% 1,007 1,007 1,007 1,n07 1,007 1,007 1,007Shahriar 600 Oct. '73 70% 2,440 3,679 3,679 3,679 3,679 3,679 3,679Tabriz 11 I/S 507. - 48 48 48 48 48 48Shahabad 70 I/S 60% 368 368 368 368 368 368 368

Manjil 230 Oct. '73 70% 452 1,410 1,410 1,410 1,410 1,410 1,410Ahwaz I 137 April'74 70% - 390 840 840 840 840 840Esfahan 113 Sept.'75 70% - - 173 692 692 692 692

Ahwaz II 672 1978 70% - - - - - 3 090_' 7,7264Mazandaran 672 1978 70% - - _ - - 3I go3/ 4,121

Sub-total 2,782 4,472 7,107 7,730 8,249 8,249 14,429 20,096

Gas Turbine Capability

Tarasht 22 I/S 60% 116 116 116 116 116 116 116Tabriz 26 I/S 60% 136 136 136 136 136 136 136Esfahan 36 I/S 60% 190 190 190 190 190 190 190Shiraz 66 I/S 60% - - - 3426-' 346 346 3461974 Program 176 1974 60% - 462 924 924 924 924 924Bushehr 66 Febr. '75 60% - - 174 346 346 346 346Ahwaz 132 1976/77 60% - - - 58 694 694 694

Sub-total 524 442 904 1,540 2,116 2,752 2,752 2,752

Main System Energy Capability 7,307 10,404 13,707 15,208 15,844 22,024 27,691

Surplus (Deficit) - in Critical Year (343) 1,039 2,497 (701) (3,285) (1,619) 443

- in Average Year 2,192 3,514 5,032 1,834 (750)V/ 916 3,422

1/ Excluding TAVANIR's saaes to RWPA but including Azarbaijan interconnected in 1973 and Esfahan to beinterconnected in 1974.

2/ Fars to be interconnected in late 1975.3/ Unit 1 assumed availabte January, unit 2 in July, operation at 707 plant factor.4/ Units 3 and 4 assumed available in January aud Jty, respectively, of 1979.5/ On the basis of TAVANIJEs approved generation program, there will be an energy shortage in 1977 as well

as a capacity deficit. Even under average hrdraulic conditions the frrecast energy requirement villnot be met. The large steam atations planned for 1978 are critical for that year on both an energy and capacity basis.

November 1973

IRAN

IRAN POWER GENERATION AND TRANSMISSION CONPANY

ENERGY TRANSFERS IN AVERAGE YEAR BETWEEN TAVANIR AND KWPA

1/1973- 1974 1975 1976 1977 1978 1979

Item (1352) (1353) (1354) (1355) (1356) (1357) (158

Available Energy (GWn)- Pahlavi 2,097 2,400 2,4002/ 2,400 2,400 2,400 2,400- Reza Shah Kabir _ - 2,044- 4,120 4,120 4,120 4,120

Total KWPA Hydro 2,097 2,400 4,444 6,520 6,520 6,520 6,520

Energy Required by KWPA (GWh)(including 4% losses) 1,723 2,090 2,646 5,067 6,018 8,523 9,927

Energy Transfers (GWh)- To Tavanir 374 310 1,798 1,453 502 - -

- Th KWPA 3/ 2001/ - - - - 2,003 3,407- 1rAheeled for KWPA from RSK- - - 246 2,667 3,618 4,120 4,120

4/ )4/ 5/ 5/ 5/TIAVANIR's Cost for Purchases (MM Rls) 12Tr 105 899 726 251] - -

TAVANIR's Revenue (MM Rls) 4/ 6/ 6/Sales to KWPA 68 - - - 1,602 2,725-

- Wleeled for KWPA - 25 -. 267 362 412 412

Total Revenue from KWPA 68 - 25 267 362 2,014 3,137

1/ Based on actual conditions; 1973 was a dry year, Pahlavi production was reduced and TAVANIR sold KWPA someenergy from thermal plants during dry periods as well as purchasing some hydro energy in wet periods.

2/ Based on two 250-MW units operating 7 months at 80% plant factor.3/ TAVANIR owns the 400 kV transmission via which KWPA transporti the plant output to KWPA loadsI/ Based on a rate of 0.34 Rials/kWh.3/ Based on the RSK rate of 0.50 Rials/kWh (Annex 1).i;/ Based on a rate of 0.80 Rials/kWh for thermal energy sold to KWPA.7/ The "wheeling rate" is assured as 0.10 Rials/klh as derived from a transmission cost of $66 million,

average annual energy of 4120 Gkh and 10% return.

Nocvember 27, 19O3

ANNEX 17

IRAN

IRAN POWER GENERATION AND TRANSMISSION COMPANY

SOUTBEAST SYSTEM LOAD AND CAPACITY SITUATION

1972 1973 1974 1975 1976 1977 1978Load/Capacity (131) t(13) (1353) (1J54) (1 ) (136) Remarks

Yazd 6 6 16 19 22 26 31 ExistingKernan 6 6 13 15 20 26 30 IRafsinjan 1 1 4 5 6 8 10 n

Sirjan 1 1 5 6 7 8 9Jiroft 2 2 3 4 7 12 15Baft 1 1 1 2 2 2 3 "Bandsir 1 1 1 2 2 2 3Zarand 1 1 2 3 4 4 5Kerman Cement 4 4 10 12 13 15 20Copper Mine - - - 7Q'/ 80 90 90 Project committedCoal Mines - - - _ 50 50 50 i "Iron Mine - - - - 5 5 5 nBandar Abbas 11 11 22 31 40 48 56 ExistingMilitary 1 - 2 4 4 5 10 15 Contract signedMilitary 2 _ 22 45 52 61 76 81

Total Load 34 58 126 225 324 382 423Reserve 26 26 48 5Z 51 51 51

Requirement 60 84 174 275 375 433 474

Capacity

Kerman 2x7 MW GT 11 11 11 11 11 11 11 Mobile unitsKerman diesels 12 12 12 12 12 12 -Zarand 2 x30 MC steam - - 56 56 56 56 56Yazd 2x25 M4W GT - _ - 44 44 44 44Sar Cheshneh 4x25 MK GT - - - - 40 80 80 Proposed ProjectBandar Abbas diesels 12 12 12 12 12 12 -Bandar Abbas 2x20 SW

GT 40 40 40 40 40 40 40Bandar Abbas 3x25 MW

GT - - - 66 66 66 66Bandar Abbas 8x25 MW

GT 46 184 184 Proposed Project

TOTAL CAPACITY 75 75 131 241 327 505 481

SURPLUS (DEFICIT) 15 (9) (43) (31k) (48) 72 7 After allowancefor reserve

1/ Tne reserve is based on the sum of the largest units in the Kerman and Bandar Abbas areas.After 1 9 7 5 this is a 28 MW stean unit and a 23 MW gas turbinc. Before 1976 the areas arenot interconnected; some flexibility in capacity allocation exists because the 2x7 NW gasturbines at Kerman are mobile units.

2/ This is the level of load ordered by the copper mine. The load attained in 1975 will dependon availablC CapZiCity.

NovemboIr 27, 1973

ANNEX 18

IRAN

IRAN POWER GENERATION AND TRANSMISSION COMPANY (TAVANIR)

ECONOMIC HE TURE ON THE PROG3.jA INCLUDING THE PROJECT

1. The economic return of the Project is the discount rate whichequalizes the costs and benefits of the Project over its economic life.The Project would add generation/transmission capacity to the bulk powersystem in Iran, as a small portion of an extensive program plannsd byTAVANIR for the period 1974-1977. All elements in such a system-wideexpansion program are interdependent and therefore the determination ofthe return for any specific element, i.e., a transmission line orgenerating unit, is impracticable. The return has therefore beencalculated for all the facilities that will be actually commissioned duringthe Project period, for which the total investment will be about 40.0 billionRials (US$587 million) as detailed in this Annex (Attachment I). As TAVANIRdoes not pay customs duties the cost to TAVANIR of imported equipment hasbeen accepted as the economic cost, Operational costs were based on theappraisal estimates.

2e The economic benefits attributable to the program/Project are atleast those reflected by TAVANIR's tariffs to the REC's because these, inturn, are reflected in the REC's retail selling tariffs, and the generalpublic has shown a "willingness to pay" at least these REC tariffs. This isindicated by the rapidly increasing REC sales. Thus the economic value ofthe electricity supplied by the program/Project to the final users is greaterthan that indicated by the TAVANIR tariffs used for valuing the benefits.

3. The minimum benefits attributable to the facilities added in theperiod 1974-1977 were therefore taken as TAVANIR's incremental sales revenuerelative to that in 1973, through the economic life of the program facilities,assumed to average 25 years. The corresponding costs were taken as the directinvestment costs and the incremental cost of power generated and power purchasedrelative to that in 1973.

4. On this basis, the minimum economic return on the facilities addedin the period 1974-1977, which is representative of the return on the proposedProject, is 12% as calculated in Attachment II to this Annex. As a test ofthe sensitivity of this return to cost changes, if the investment costs forsome unlikely reason are 10% higher than those assumed, then the return wouldbe reduced to 11%.

ANMZX 18Attachmeint I

CAPITAL EXPENDIT-UES FOR FACILITIES TO BE COPYIISSIONED IN

THE PERIOD 1974-1977

Millions of Rials

AccruedProject to 1973 1974 1975 1976 1977

C~eneration (1973 Value)

Shahriar 3 & 4* 2,880 - - -Manjil* 2,133 - - -

Mashhad* 1,272 27 15 -

Zarand * 1,354 _ _

Ahwaz I 1,510 293 33 - -

Esf;j.han 930 97 97 21

197L GT (8x25) 1,352 520 208 - -

1975 GT (lOx25) 332 1,502 680 276 -1970/77 GT (18x25) - _524 3,774 1,329 51

Sub-total 11,763 2,963 4,807 1,626 51

Tarasmission

400-kV RSK 207 2,781 1,498 - -4GO-kV Arak/Tehran - 216 1,039 513 1952-0-ky Tehran loop 832 43 11 - -230-kV Manjil/Tabriz 120 150 700 230230-kV Tehran/Esfahan 754 650 200 - -

230-kV Manjil/Tehran 492 268 220 -230-kV Gachsaran/Shiraz 541 807 1,170 155230-kV Bandar Abbas/Sirjan 174 919 333 159230-kV Shahriar/Nowshar - 125 300 100 _230-kV Mianeh/Ardabil - - 60 180 61230-kV Kangavar/Hamadam - 72 378 137 65230-kV Ahwaz/Bandar Shapur - 159 921 334 175132-kV Sar Cheshmeh/Rafsarjan - 32 81 28 -132-kV Sirjan/Sar Cheshmeh - 44 88 32 _

Sub-total 3,120 6,266 62999 1,868 496

Vehicles, etc. - 15 16 17 18

Total Expenditures 14,883 9,2h4 11,822 3,511 565

(4o,025 mX Ris or US$587 million)

* These were commissioned in late 1973.

ANNEX 18Attachmient II

RATE OF RETURN CALCULATION

Millions of Rials1978 to

Benefits and (Costs) 1973 1974 1975 1976 1977 2002

(Costs)Caoi-tal expenditure (1M.883) (9,244) (11,822) (3,s511) (565) _Purchased energy cost 0 (15) (766) (593) (118) (118)Cost of generation 0 (854) (1,275) (2,484) (3,354) (3,354)

Benef its

Sales revenue 0 1,576 3,438 6,100 8,528 8,528hheeling revenue 0 - 25 267 362 362

Net Benefit/(Cost) (14,883) (8,537) (1M,400) 221 4,853 5,418

lNote - Based on the assumed costs and benefits the equalizing discount rate is12%. If the capital expenditures are increased 10% the equalizingdiscount rate is 11%.

GENERAL DATA ON RATE OF RETURN CALCULATICN

1974 1975 1976 1977 to 2002

Sales increase after 1973 (GWh) 1,751 3,737 6,559 9,170Purchased increase after 1973 (GWh) 44 1,532 1,187 236Generation increase after 1973 (GWh) 1,780 2,361 5,645 9,316Average price of sales (Rls/kWh) 0.90 0.92 0.93 0.93Average cost of extra purchased (RIs/kWh) 0.34 0.50 0.50 0.50Average cost of generation (Rls/kWh) 0.48 0.54 0.44 0.36Wheeling revenue (MM las) - 25 267 362

April 25, 1974

54NIory '5

Iran Power Generation and Transmission Company (TATrANIR)

Actual and Forecast Balance Sheets 1971-1978

(Each Fiscal Year ts fro March 21 of that year to March 20 of the next, i.e. 1972 covlers 3/21/1972-3/20/1973)

MSiioo- O Ritls (RIs)Rio 68.17=US$I

Fis-al coo 1971 1972 1973 1974 1975 1976 1977 1978Oqoivalcot Tosnian tear (1350) (1351)~~~~~~~~~~~~t- =i (135Ž (1353 (1354) (1355 (1356) ai357

Equiralent Iania nAtl--- --- Forecast.

YET AISSETSFlood Aoocts

rross F. oe)i Asseto 13,789 14,593 06,044 34,1-18 46,697 57,377 63,500 92,855Leoo Deprectation I420 1 961 23707 3,860 5 531 7 674 10 152 13,289Net Fixed A.,et. in (P-ration 12X9 12,632 23,337 30,318 41,1it 49,703 3t34 7973Work Fo Asst in P690ao 12 180 8,979 14 571 242P59 3,830 45,213 30 277

Total Not Fiod Asoets 19,397 24 32,316 48tu78 84,53 98,9 161

Other Non-Current AssetsInvestments 1 - - _ _ _ _ _Poepsynoato on Lettero of C-rdits for Construction 1,015 1,816 2,100 2,660 3,200 1,900 1,500 *,400Deferred Expenditure / ' - 21 72 102 111 40

Total Met Fioed and Non-corrent Assets 20,373 23 0Z7772 431 6r77 M 1) 11L,23I

Wo,rking CapitalC oash og Cap tol 66 164 479 889 941 903 747 855Acounlto -iobll _ Consumers 547 667 825 1,191 1,509 2,012 2,428 3,091

- Others 3/ 81 187 200 200 200 200 200 '03Inven:.orces 184 255 485 635 865 1,025 1,115 1,695Othero b/ 163 132 130 130 130 130 130

Subtotal Current A-seto 1,395 1,18 P, 8 3853, I7iS 47.6295 5

(Less) Current LiabllitiesA_ccount Rayable E: l f5ty (185) (87) (177) ('03) (382) (322) (244) (203)

Fuel (063) (166) (011) (777) (362) (423) (460) (719)Construction (329) (409) (359) (583) (970) (1,393) (1,808) (1,211)

WorkIng CoFitn t ther (190) (186) ~/ (147) (160) S4 0) (o02) (26o) (290)Working Capital mP7 557 1,22 I,= kS 1272 1,848 3,508

TOTAL NET ASSETS 20,445 27,185 35,662 49,443 70,488 88,471 ___4

9.9UITY AND LONGTERM DEBTEquity l.over-ent owned stare Capital 10 10 10 10 10 10 10 10Other To-ernret Grants and Contribhtio.s 6/ 12,253 24,767 28 339 32,716 4 ,4q4 47 235 52.Q08 56,052

Subtotal of Ooveoomeol Toveotmeot 107268 24,777 '7389 32,754 40,504 47,245 52,018 56,042Botalned Surpluo sod Reseres 642 i,651 7,892 5,047 7,095 10,816 16,267 21,953Spe-ific P.esre s 7/ 8 10 40 77 118 166 218 284

Total Equity 1991 2,438 3,7 3 50 717 58,227 e07

Lc.ngt-r Debt2B2D L... - 056-IRN - _ 175 2.866 3,415 3,417 3,292 3,157

IBF3 Froposed Loan - 416 2,866 3,774 3,954 3,887

.-ovcro-ent Costru-tion loans - 3,573 7,949 15,728 22,291 26,170 29,385Arok Aloninom PFlot - 129 65 - -Tehos- Regionacl tiecticity Company / 309 332 332 332 332 332 _ _loc-l BaoS FatIlty 9/ 172 256 206 - 4oo 400 - -MIscellaneous Notes, etc. 46 30 30 30 30 30 30 30

Total Longters Debt 7*37 l 7r7 v7n 11f 593 227 77i2 3TW 3024315

T 1TAL EQUI11TY AND LOBGTERM DEBT 20,445 ,18 35,662 49,443 70,488 88,41 101,949 114,798

Debt:Equity Ratio 2:98 3:97 12:88 23:77 32:68 34:66 33:67 32:68

1/ Although the auditof I77 is not yet eopplete.and the aeco. uts are therefore sot yet final, the figures are not expected to undergo any material changes./ Foreign xexhange training .osta in 856-IRN is RI. 83 million.

3/ Prepayment, adoances, etc.4/ Ad-noc payment to contractors, tc.3/ Exnlodiag loans from IRALCO for noaatrs,tion of traasiatssio, of Rls 129 illion (including 8 tillion interest) tn-ladad in long-term debt and te be repaid sut of atlas af orgy.7. 1971 includes both Rbs 10,104 million of Treasury Grants on initial take monr of assets and subsequent Plan Depsrt-emt conrtruotion finance.7/ Includeo Pension fund apd RBassro for Property looses.g/ Repayable before 3/21/1978 at nil interest.

Y8 ioternst. Although te-chlo-ly repayable at the end of eacn year the facility in practioe -as and has been "rolled over" esnh year, so is included as a longterm debt.

April c5, 1974

ANNEX 20

TRAIT

Iran Power Generation ard Transmission Company (TAvOINIR)

ictuat and Forecast Op<erahing St _tements 1971-1976

Bach Fiscal tear is from March 21 of -hat year to March of the next, i.e. 1972 coers 3/21/1972-3/20/'973)

Millions of Rials (Rls)Rio '8. 1T=7SSl

o ' a ear :97 1979 1973 1974 1975 1976 1977 1978t

sctn at;¢ I Tri-dot! 'r (Trm0) (1351! (l352) (1352) (13541 (13551 (1356) (7l

- -- Actual------- ---------------------------------- Foreca…t ----------------------------------

Flec'.r1cz~; _ 8old (;'s122 3,243 4,959 7,874 9.86o I9,632 15,2°93 19,580_ereren (<SOFT 7,034 2,449 5,954 7,034 7,615 12,899 14,570 19,538_ - hoeond '1 1,75 1,931 1,12i 1,i6B o, 66 - 1,360 858

Total odutoro(';enerated and 9urchased) (lIshs) 3,309 4,380 6,378 2 203,971 13,210 15,933 20,396A,eragd P--e of Sa-len (Rlsn'u5) o.6o 7.07 C.9 / 0.90 0.99 0.53 0.93 0.90

(T IS ^ts,'kWh( ) 1.17 1. R,8 1.20] l.2 1.35 It 1.36 1.35A eta e ^osf of &.enera ion (R1-7kWRy O.50 0.61 C 4. 0 43 0 54 0 44 00.3 o.40

A crage Cost of Pp-hasea (Rls'kWh) 3/ 0.40 0.37 0.37 0 37 0.L6 9.46 0.42 0.38Average O-rall Cost of Sales (RlA/k74) o.64 o.6p 3.61 a.62 C.70 0.62 0.53 o.54

('s tste/kWh) 0.94 0.91 o.89 0.9' 1.02 0.51 0.75 0.80

9pernt ' g R/ene-Sales of El,,trimity 9,599 3,707 5,0?4 6,796 5,792 11 ,546 13,984 17,734

AEssoed Government SuhAbsid to IRATIO tariff 4/ - - - 300 300 3C0 309 303'hteeling rharge for -anrmitting RS.K. Energy 5/ - _ - - 25 267 362 412

otnl1 Goneratirn Fetenun 7,599 3,701 5,02- 7,096 9,117 12,113 14,646

pe-ratrig -sers'

Generasoin &uel 730 807 i,967 1,66o 2,131 9,536 9,763 4,310Cen-eration 2her -pen-es 956 344 731 940 i,0o4 1,151 1,202 1,75T

Hletr,irity r,rcnnoed 514 714 419 431 1,225 1,052 577 324

'G'ranosmissior 82 205 319 405 559 672 BigAtniaGol;roninoz st1 Gooseseral 89 173 363 374 388 375 392 304

Sdbtotao 'nsh _ penditure 1,649 9,170 2,975 3,7?3 5,173 5,673 5,6o6 7,S29

Peprsriatino- G,eneertion 14 355 516 791 566 1,179 1,321 1,765ethter 6' 9D3 1i68 234 360 744 11aol 1 o40

Total perntirg FRescsn- 0,264 -,c43 3,2 <,694 6,883 7,676 8,155 10,690

Net Operation Surplus 533 1,059 1,299 9,209 2,234 4,237 6,491 7,756

7ti-selloneons Other Income 33 3 3 3 3 3

Svurpino Geltos-a InteresL 36 1,060 1,300 2,205 2,237 14i240 6,494 7,759

It-erest 7V 4 58 i196 613 1, 292 1,978 2,380 2,639less Ctarged to Capital - (34) (165) (600) (1,144) (I 5 7) (1,389) (632)

lai Tterst r40 3 ' 1 31 991 2 007SurDlus ofter ntcerest 49b 1,030 1,271 2,192 2, 69 3,790 5,503 5

Aij:ustme,s to prior years 8! 79 27 - -Adjuotnd Scrplus for Cnnon Sheet 417 1- r,01 0 1 192 20829 90791 5,503 5,75eSpecific Reserve '23 45 66p 30 37 -T 52~~~721 sls 66-ernal Ilsoer-e _ 1,009 1,24 2,155 2,068 3.721 5.451 5,686

RATE BASE(a) Aserage Yet Fixed Assets in Operation 10,283 9/ 12,500 17,985 26,827 35,7 42 45,684 51,526 66,460

(b) Working Cap'tali(i 29 of Va) bose- 206 05Q 360 537 715 914 1,031 1,329

(ii) 12 1/21 of Cash Expenditare 206 267 372 465 647 709 701 940

TocoS Rice Bose 10,095 13,015 18,71 27,829 37,104 47,307 53,258 68,729

Rate of Ret,,n 5.0 8.1 6.9 7.9 6.o 9.0 12.2 11.3

Operating RatiE % 79 71 74 69 75 65 55 57

1/ All l1vdr- G-ecrstion: Esisting 659 GWh pua ICIPA's Pahlavi atotiorn 2,1300 .so in averags year) and RSK from1974 it arailable 'ron -i•RPA. 310, 1798, 1,453, and 502 05Whs hae- been calculated as '-eing asailable for1974 through 1977.

The drop in average sales prize in 1973 is due to the almost

full productic. of 0RAlCO in this year, bhving76O G', at 0.236 Rials/k'h. BsFso 1974 average alne price includes the Rls 330 million subsidy.

3i The 1972 a.cerage price 0.37 Rials/kWh eas for 1931 G01l including iol4 G'.ns at 0.34 Rials/kWh for Bahlavi.

3.50 Rials/kWI. has been assumed from 1975 for the RSK power.4 Approxi-are difference between cost of genera.tio and preseert triff.-, Charged to K,W. j.A. for energy transmitted from its RSK hydro station over TAGANIR's 400 kV transmission

line. Assumed charge is Rls 0.10 per kWI, which is the estimated approsi;mote cost + 10% return.61 1cludes amortisation of training costs at 306 annually.

For details, see Annex 21 . Inoludes local bank interest.91 Mainly comprises addi-ional depreciation erising from odjuet-ent of fixed osoet accounting and va.Ies.

192 was about Rlo 18 million.29 The 1970 accounts had no saudit certificate asd the figure fcr net fixed assets (Rials 8.97 million) waes the

shbjeso of cobhtantial adjoatmeots in 1971 and 1972.

AOcil CC, 107L

ITAN

Iran Power Generation and Transto 6_on_mpanY (TA ATIS)

Soues and Appl_-tions of Fuds 1972-1978

(Earh Fiscal Year i from Morch 71 of that year to March 20 of the next, i.e. 1973 co-em 3'91/l97t-3't t7o)

Millions of Rialo (Rls)

Plo 68.1700S$I

Fiscal Year 1972 1973 1974 1975 19'76 1977 1976 Total Project 1974-1977 Total 1973-1978

Equicalent Tranise Year cTu) (_7) (1353) (Forecas) (7) (35) onstructiton Period 6t Fnci 63 Forecast Feriod 7. of6 F-inacn

Antssl 1974-1977 PrngrsnTFlnsa-n- 1973-i978 rgrl Financing

ESOURCEENet Surplus before Interest 1,062 1,302 c,-05 2,237 4,240 6,494 7,759

Les- Prior Years .Adjusttenn 1/ (27) - - - - - -

Depreniation 541 750 1,171 1 710 2,203 2,549 3,170

Net 5ash Generation 1,376 1,0D52 3,374 9399 9,0436 7 10,929 22,809 35,790

Deorease (Increase) in Working Capital 2/ (387) (1c3) (37) 343 (44) 13 (972) 275 (8E0)

De-reose (In-rease) in Prepsy-oents and In-estent (800) (284) (560) (540) 1,300 400 100 6oo 416

Go-er-ment Grants 5,509 3,S72 4,377 7,778 6,741 4.773 n044 23,669 3t1°

Longter B-... ing~o5'6s-IRN s 175 2,691 49 61 - - 3,301 5% 3,476 4c!

Proposed Loan _ _ 4i6 2,450 908 180 - 3,954 5% 3.954 4

Subtotal IBRD _ 17' --? 2,999 W T _ 7,255 I?K 7 7

Arak Aluainua Plant (i.ALCO) 129 - - -

TREC 73 - - - - -

Lo-al Baak Fanility 84 - - 4o0 - - - 400 4ho0

Go-rernent Loan - 3 573 4.376 7,779 6,741 4 773 4 044 23,669 31l 31 286 341

Totel lsngtns'55 Bonrosming 9 t j 7- ,483 11.178 7,710 t t 31.324 45% kit

1OTAL GSOURCES 6,134 8,965 39 22706 22,150 1, 182 18,145 78,677 105.787

APPLICATIONSConstruction Enpeaditure: 3/

IBPD Pro an a - o56-INN 49 23" 3,657 2,737 224 _ _ 6,618 9% 6,8508

-ProposedLoan - 8 584 3 878 1583 61i - 7656 11% 7664

Subtotal INND Projects 2 4,241 7, _ 164t777 195949

Other 5 Q13 6 1oo 9 104 14,747 17166 14,596 i4 367 55,613 869 78 o8o 844

Total CTnatroction Exen ture 1 21.362 19,973 15,207 14,367 69,887 1JX) 10541

Debt brleinterest:

IBTD 6566nT6-TRN 6 31 125 230 248 243 234 846 1,U11

Proposed Bank loan _ 43 136 246 281 2 706 990

Subtotal dank 31 l b b 9 3 96 4 5294 %I5Wg 1,552 7787

onal Beank 24 25 11 22 h4 22 - 99 124Arak iluminu= Plant (I0ALCO) 8 6 2 - - - - 2 8

Go,ernmeat loans 20 134 432 904 1,440 .8'34 2,121 4,610 6 86s

Subtotal Interest T8 613 1,292 778 2J39Q 6,639 73

Aaortisation:

ABRnia56-IkTN - - 59 125 135 684 319

Proposed Bank Loan - - 67 -67

Subtotal aBnk -59 12 202 '99

Goeerrnmmt Loans _ 178 894 829 1,072 1,901

Local Bank Fa-ility - 50 206 - - 400 - 606 656

Miscellaneous 4/ 16 64 (5 - _ 332 _ 397 461

Total Aiortizatisn 16 17 271 - 237 1751 1,031 2,259 3

Total Debt erE-ne 74 31 W84 1,292 2 215 4,131 3,670 8,522 c 502

Subtotal 66999 8,76so 14,279 929654 "9 19338 18,037 78,4 105,

Inorease (D-e.rease) in Cash 98 315 41o 52 (38) J29l 108 268 691

'TOTAL APPLICATIONSE 6,134 8,965 14,639 22.706 22,150 19,182 18,145 78,677 105,787

Cash at strat of period 66 164 479 889 941 903 747 479 164

Cash at end of period 164 479 889 941 903 747 855 747 855

Times debt ser'ine no ered by Net Cash Generation 21.3 6.6 3.8 3.1 2.9 2.5 3.0

Tr9 9lipeC1i-Tsadllion in1

7T prior year depreniation.2/ Excluding tash.3/ ENcluding interest dring Construction.4/ Nialn 16 million in 1972 -as for aisoellaneo-s notes, etc. 1973 and 1974 io TRALCO loan. 1977 is the TREC loan (R1= 332 million).

April 25, 1974

ANNEX 22Page 1 of 2

IRAN

IRAN POWER GENERATION AND TRANSAISSION COMPANY (TAVANIR)

MAJOR ASSUMPTIONS USED IN FINANCIAL FORECASTS

1. Balance Sheets

(a) Gross fixed assets include interest during construction andare included in assets in the year in which they are due to come intooperation. The assets from 1976 do not take into account the transferof the KWPA 230-kV lines connecting to TAVANIR 400-kV system, since thetiming and values of these lines are uncertain and their effect on therate of return will not be material.

(b) Fixed amount depreciation has been calculated at the followingaverage overall rates with 50% being charged for the year in which theasset comes into operation:

% Life in Years

Generation Plant - Steam 4 25- Gas turbine 5 20

Transmission systems 3 33-1/3Miscellaneous other assets 15 6-2/3Dispatch center 4 25Deferred training costs de-

ducted from expenditure andnot added to accumulated de-preciation reserve 30 3-1/3

(c) Work in progress reflects the expected expenditure on TAVANIRWscapital construction program including interest during construction.

(d) Prepayments: 25% of construction program in 1973 reducing to 10%by 1976.

(e) Accounts receivable - consumers: 60 days average sales.

(f) Inventories increased by 2% of new construction coming into operation.

tg) Accounts payable: Electricity 60 days average purchases.: Fhel 60 days average consumption.: Construction 4% of work-in-progress.: Other Bonus and tax on salaries at 15%

average total salaries and wages.

ANNEX 22Page 2 of 2

(h) Specific reserves: Pension Fund credited annually with 2.3% ofcash operating expenses excluding fael andpurchased electricity.

(i) Long--term loans other than IBRD or Government comprise:

(i) IRALCO - Loan of Rls 129 million in 1973 at 6% interest tofinance line connections to the plant. This loanis to be repaid against sales of electricity toIRALCO.

(ii) TREC - Loan of .Us 332 million by 1972 at Nil% to be repaidby TAVANIR by March 21, 1978, when it is assumed tobe repaid.

2. Operating Statements

Salaries and wages are included in "Generation other", "Transmission"and "Administration" and are based on the projected numbers of staff andlaborers at an averaae of Rls 440,000 and Rls 90,000 respectively. In generalit was assumed that staff would be recruited about one year prior to theexpected comaissioning date and their cost has been capitalized, since theyare used for construction and training during this period.

3. Fuel Costs

The basic data used in the calculation of the fuel costs is shownin the Attachment.

Nlovember 27, 1973

AN'EX 22Attachment

IRAN PGA'ER G3UERATIC:. ALD TXANSMISSION COMPANY

Fuel Cost Assumotions for Financial Forecasts

Net Fuel- Fuel Heat Net Heat Net FuelStation Peak Type Price Content Rate Cost

____ hls KCal KCal/kWh Rl s/kEhMtin sysemn stean

Tarashtt 47 G 0.65/m3 9,500/1m h,690 0.321Farahabad 230 G 0.65/m3 9,500/m3 2,918 0.200Man jil 230 0 0.60/n3 9,500/m3 2,900 0.183Shahriar 600 RO 0,58/Lt 10,200/Lt 2,813 0.160Tabriz 11 FO 1.20/LL 10,400/Lt 5,956 o.687Shahabad 70 G 0.60/m 9,500/r3 3,525 0.222Esf'ah2n 113 G 0.60/m3 9,500/m 3 2,9C0 0.183Ahwaz I 137 G 0.55/r3 9,500/rm3 2,640 0.153Ahwaz II 672 G 0.55/r 9,500/m3 2,575 0.150Mazandaran 672 RO 0.5,8/1t 10,200/Lt 2,490 0.142

Main sy/steri gas turbinesTarasht 22 G 0.65/mr 9,500/rin 5,000 0.342Tabriz 26 D 2.40/Lt 10,500/LD 5,300 1.212Esfahan 36 G 0.60/m3 9,500/mr 4,100 0.259Shiraz 66 G O.6O/rm3 9,500/m3 4,300 0.272Esfahn.^n (]5974) 44 G O.60/mI 9,500/ms 4,000 0.253Shahriar (197h) 22 G 0.60/rn 9, 500/r3 4,000 0.253Farahabad (1974) 22 G o.do/r13 9,50o/_33 4,000 0,253Arak (1974) 22 G 0.60/m3 9,500/mr 4,000 0.253Gorgan (1974) 22 G l.OC/mr 9,500/m3 3,800 0.400Kermanshah (1974) 44 G 0.60/r3 9,500/m 4,000 0.253Bushehr (1975) 66 D 2.40/Lt 10,500/Lt 4,200 o.960Ahwaz (1976/77) 132 G 0,55/rm 9,500/m3 3,600 0.208Additional (1979) 100 G 0.60/m3 9,500/m3 3,500 0.221

Northeast systemNashhad No. 1 steam 22 FO 1.20/I,5 10, 400/Lt 3,200 0.369

II 22 G 1.00/mr 9,500/mr 3,000 0.337Mashhad No, 2 steam 110 FO 1.20/LS 10,400/L$ 3,200 0.346

It 110 G 1cO0/m 9,500/mQ 3,000 0.316Turboma GT 6 G 1.00/m3 9,500/m3 3,000 0.914

,, 6 D 2.40/Lt 10,500/Lt 4,000 0.421Diesels 11 D 2.40/Lt 10,500/Lt 2,800 o.640

Southoast nvstenZarand stean 56 FO 1.20/Lt 10,400/Lt 3,100 0.358Kerman GT 11 D 2.40/Lt 10,500/Lt 4,200 0.960Kcrmani diesels 12 D 2.40/Lt ln,500/Lt 2,800 o.640Yazd GT 44 D 2.40/Lt 10,500/Lt 4,000 C.914Sar Cheshneh GT 80 D 2.40/Lt 10,500/Lt 3,600 0.823Bandar Abbas 2 x 20 GT 40 D 2.40/LT 10,500/Lt 4,700 1.074

"40 G 1.00Q/r 9,500/mt 4,000 0.495Bandar Abbas 3 x 25 GT 66 G 1C00/n3 9,500/mn3 14,000 0.421Bandar Abbas 8 x 25 GT 184 G 1.00/n3 9,500/m3 3,600 0.379'I3iar Abbas diesels 12 D 2.4C/Lt 10,500/Lt 2,800 0.6Lo

Chahbahar 44 D 2.40/Lt 10,500/LT 4,200 0.960

1/G gas D = gas oilhO residual oil FO = fuel oil

r44'> U S. S. R. r ' I tRAN

ARAS DAM $Z" / 8t*ta : °^ IRAN POWER GENERATION AND TRANSMISSION COMPANY>-s 22 > 2 ' > < S S R TRANSMISSION AND GAS TURBINE PROJECTw~ U. S S. R.

_RU ORAS RDVED EXISTIDg

rr n d 4 Us TOUriz r i TS T RANSIMiSON LINESmw .dc . ..... __400KV

Bujnurd 63~~~~~~~KV

SFIAHPURMFMiondoob ,X_ o5ht: :Bt - XZAs94 F,,. =Gh chon\ *POlEWR PLANTSSKAWUR MianANDA Gouchon Go TurbineAVAL TM 31A |6? ( \Zen ~ X '>-_+ 8 * Stour r

Zenj RAH ~~~~~~~~~~~~~~~~~~IHydra -36' ' <> 8 M A hJ~~~~~~~~~~~Ai. MaS > r wshhod )

( ;> } <,AHR~~~~~~~4AR2713MW RoirilvoyR 22mw ~~~~~~~~~~~~~~~~~~~~~~~~~-- ItrntIo.tto bourAories

SSIJOI ARA8IA dodj(om Nd T ARASH batS

^) ( > <3Hor.nedon t t\jX ~~~~~~FARAHAF3AD G r e al t Sax D e s e r t )) gSS IO 2po 39 4530

Kermanshah ngavoNQhovondr Abbas

t IRAN w ird Krsi a shon Miles o r 50

\ a~~~~~~orrmebo ,daht\ Z

,(R} \FQeS.. (G6reAa t S0 nDr D e 4st} 1t 1 t . %5 \ / REZ~~~~~~~~a SHAH1 K,.' 3 F:toi Yz

< ] Y6> s X > < \ <o ~~~~~~~~~ ~ ~ ~~~~oKuolmineh \ A FG3H A NISTA Nhr Q ERSH A H XM < A \ >"5~~~~~~~~~~6MW \t

AbQdru _Fwh Cmdechrn E csn Kerman

. / ) ;F hXur A v e~~~~~~~~~~~~~~~ht Jamshid Sur Cheshmeh 4l M

F5 CL, ~~~KUWIAIT fC0 inb ~\

SAUDI AtRAE31A , 63, Jahromk \- EJ}oft \%3K lh .

US. S.R ft *40MW

*1 i~~~~~ p t#oJ/ aK & e~~~~~~~~~6 6 M 5' A '0 9 7 5 ) }

> I R ~~~~A N rg

1 S ;e4_f5. w_ \ \, {> _ ~~~MUSCAT ANn) * -~

SS S - t ;S QATAR ~ ~~~~~~~~~ OMAN 44MW 6hhee 4M~