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The World Bank

FOR OFFICIAL USE ONLY

Report No. 11523

PROJECT COMPLETION REPORT

INDIA

SECOND RAMAGUNDAM THERMAL POWER PROJECT(LOAN 2076-IN)

JANUARY 11, 1993

Energy Operations DivisionCountry Department II (India)South Asia Region

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

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Country Exchange Rates(Yearly Averages)

Currency and (Abbreviation) Rupee (Rs)

Year Rupees/US$

1978 (Project Preparation Starts) 8.191981 (Project Appraisal); and

(Project Approved and Becomes Effective) 8.661982 9.461983 10.101984 11.361985 12.371986 12.611987 12.961988 13.921989 16.231990 17.501991 22.741992 (Project Completed) 26.20

Government of India Fiscal Year

April 1 - March 31

Abbreviations

CEA - Central Electricity AuthorityCHP - Coal Handling Plant

CMD - Chairman and Managing Directorcr. - crores (ten million Indian Rupees)EAP - Environmental Action PlanGOI - Government of India

IERR - Internal Economic Rate of ReturnKfW - Kreditanstalt fur WiederaufbauNHPC - National Hydro Power CorporationNPTC - National Power Transmission CorporationNTPC - National Thermal Power CorporationPCR - Project Completion ReportPFC - Power Finance CorporationPMI - Power Management InstituteSAR - Staff Appraisal Report

SEB - State Electricity Board


THE WORLD BANKWashington, D.C. 20433

U.S.A

Office of the Director-GeneralOperations zvaluation

January 11, 1993

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on IndiaSecond Ramarundam Thermal Power Prolect (Loan 2076-IN)

Attached is a copy of the report entitled "Project Completion Reporton India - Second Ramagundam Thermal Power Project (Loan 2076-IN)", prepared bythe South Asia Regional Office with Part II contributed by the Borrower.

The three 500 MW. coal fired thermal units with associatedtransmission facilities were commissioned in the time and at a cost some 10%higher in real terms than estimated. With the completion of this project, theRamagundam power plant achieved its full planned capacity of 2100 SW. However,as the present output of the mine linked to the plant is insufficient to supportthis capacity over a longer period of time, the National Thermal PowerCorporation (NTPC) is setting up a temporary additional supply from othersources, which it expects to become available in 1993.

In the course of project implementation, NTPC became a stronginstitution able to plan, design, construct, and operate efficiently largethermal plants and transmission systems. All in all, the outcome of the projectis rated as satisfactory and its sustainability as likely. Institutionaldevelopment is rated as partial given the limited progress achieved in tacklingsector issues at the state level.

The Project Completion Report provides an informative account ofproject implementation. OED recently audited four of the projects in the sector.It plans to audit the present project together with other completed NTPCoperations.

This docu.nt has a restricted distribution a my be used by recipients only in the performnce oftheir official duties. Its contents may not otherwise be discLosed without worLd 8a* authorization.



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TABLE OF CONTENTS

Pare No.

PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i

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

PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . .1Project Identity . . . . . . . . . . . . . . . . . . .1Background . . . . . . . . . . . . . . . . . . . . . .Project Objectives . . . . . . . . . . . . . . . . . .1Project Description . . . . . . . . . . . . . . . . . . 2Project Design and Organization . . . . . . . . . . . . 3Project Implementation . . . . . . . . . . . . . . . . 4Environment, Resettlement and Rehabilitation . . . . . 6Project Results . . . . . . . . . . . . . . . . . . . . 7Project Sustainability . . . . . . . . . . . . . . . . 9IDA/Bank Performance .... . . . ..... . . . . . 10Borrower Performance .... . . . ..... . . . . . 11Financial Aspects. . . . . . . . . . . . . . . . . . . 11Project Relationship . . . . . . . . . . . . . . . . . 12Consulting Services .... . . . . ..... . . . . . 12Procurement .... . . . . . . ..... . . . . . . . 12Procurement. . . . . . . . . . . . . . . . . . . . . . 12Project Documentation and Data . . . . . . . . . . . . 13

PART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . . . 14

PART III STATISTICAL SUMMARY ... . . . . . . . . ......... . 20

ANNEXES

1. Ex-Post Internal Economic Rate of Return. . . . . . . . . . . 322. Income Statement. . . . . . . . . . . 333. Sources and Application of Funds. . . . . . . . . . . . . . . 344. Balance Sheet . . . .35 . . . . . . . . . . . . . . . . .. 35

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


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Preface

This is the Project Completion Report (PCR) for the SecondRamagundam Thermal Power Project in India, for which Loan 2076-IN with theamount of US$300 million was approved on December 22, 1981. On November 20,1989, the Bank cancelled US$20 million, which were no more needed for thecompletion of the project. Thus the loan amount was reduced to US$280million. The loan was closed on March 31, 1992, against the original scheduleof June 30, 1988. Total disbursement under this loan was US$277,167,342.62.The undisbursed balance of US$2,832,657.38 was cancelled on August 28, 1992,when the final disbursement under the Loan was made. Cofinancing for thisproject to the extent of US$30 million, DM 145 million, SR 172 million and JY27,110 million was provided by OPEC, Kreditanstalt fur Wiederaufbau (KfW) ofGermany, Saudi Fund and Exim Bank of Japan, respectively.

The PCR (Preface, Evaluation Summary, Parts I and III) was jointlyprepared by the Energy Operations Division, Country Department II (India) ofSouth Asia Regional Office and the Energy Division, Technical Department ofAsia Region, and Part II by the Borrower.

Preparation of this PCR was jointly started by the Bank and theBorrower during the Bank's supervision in February 1992, based on the revisedguidelines for PCRs, the Staff Appraisal Report (No. 3608b - IN), the Loan andProject Agreements, supervision reports, correspondence between the Bank andthe Borrower and internal Bank Group memoranda.


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Evaluation Summary

Obiectives

The two main objectives of the project were: (i) to provide NTPCassistance to alleviate power shortages in the Southern Power RegionInterconnected System of India by installing three 500 MW each of coal firedunits as the second stage of NTPC's Ramagundam Thermal Power Project; and (ii)to assist GOI in achieving its objective of further advancing the regional andnational integration of the power subsector (Part I, para. 2).

ImDlementation Experience

NTPC successfully implemented the project. The first 500 MW unit(Unit 4) was commissioned one month ahead of the revised schedule and thesecond and third 500 MW units (Units 5 and 6) four and nine months ahead ofthe revised schedule, respectively (Part I, para. 11).

Results

The project fully achieved its main objectives through successfulcompletion of 3x500 MW units of the second stage of Ramagundam station andassociated 400 kV transmission lines. By this completion, the RamagundamThermal station has become the third of the 2,000/2,100 MW class coal firedthermal stations of NTPC (Part I, paras. 13 and 22).

The results of the sectoral objectives sought under the project,i.e., long-range planning on a national basis, improvement of sectororganization and strengthening of the finances of the institutions involved inthe sector, have not been satisfactory (Part I, para. 23).

NTPC's financial rate of return on historically valued net fixedassets declined from a high 17Z in FY86 and FY87 to 13Z in FY91 against thecovenanted rate of return of 9.51. The internal economic rate of return(IERR) of the project was about 241 against the estimated figure of about 151(Part I, paras. 27 and 34).

Sustainabilitv

Operational efficiency of NTPC, in this power station as well as inother NTPC plants is good and thus contributes to keeping up benefits from theprojects NTPC carries out (Part I, para. 28).

Insufficient tariffs and an unchecked increase of accountsreceivable could endanger such sustainability. The Bank, GOI and NTPC havebeen taking actions to avoid such an occurrence (Part I, para. 29).

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Findings and Lessons Learned

Major findings were as follows:

(a) With the completion of its second stage, Ramagundam Thermal PowerProject became the third 2000/2100 MW class large-scale coal firedpower plant of NTPC, following the Singrauli and Korba projects.Detailed design and engineering work for the project weresuccessfully carried out in-house by NTPC, based on its experiencewith earlier projects, with very limited support from outside (PartI, paras. 6 and 13);

(b) Although hydro power is the major power resource in the SouthernRegion, thermal power stations, including the Ramagundam ThermalPower Station, have been playing a key role, especially in a dryseason, in supplying reliable electric power to the system (Part I,para. 14);

(c) It took about one year and three months from opening of bids tofinalization of the award for the steam generator package; includingabout 4.5 months for bid evaluation; about 8.5 months for agreeingwith the Bank on award recommendation; and, about 2 months forfinalizing the letter of award. These periods should have beencurtailed by at least three months (Part I, paras. 11 and 39);

(d) Constraints in coal supplies to meet the requirements of the Projecthave been experienced due to: (i) delays in commissioning ofdevelopment of mines and consequently insufficient availability ofcoal; and (ii) industrial relation problems in the linked mines(Part I, paras. 15-17);

(e) Completion of the project and final payments required the extensionof the closing date of the loan by three years nine months in whichtwo years three months were due to overly optimistic originalclosing date and one year six months of delay in the actualimplementation (Part I, para. 25);

(f) The Bank's and GOI's performances in realizing the sectoralobjectives sought under the project were not fully satisfactory.The Bank expected that increasing the role of the GOI-ownedentities, particularly building up NTPC and emphasizing centralizedpower planning would lead to more SEB reform. The Bank's supporthelped NTPC to become India's model utility and, in the process,also helped to improve operational efficiency nationwide. However,the relative autonomy of the States under India's federal structure,limits what can be achieved through involvement exclusively withcentral agencies (Part I, para. 23); and,

(g) Despite the fact that NTPC's (cost plus) tariffs are set at levelsaimed at ensuring a satisfactory financial viability, the currentpolicy environment in the power sector prevents NTPC from operatingon a purely commercial basis and this has reduced its ability tocontinue implementing its investment program (Part I, paras. 34-36).

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Lessons learned from this project are summarized as follows:

(a) Unexpected constraints in coal supplies and the resultant loss ofgeneration have been experienced. Whereas forecasting of delays indevelopment of mines and the industrial relation problems at thelinked mines could not have been foreseen at the stage of projectformulation and appraisal, contingent provision for linkage toalternative mines could have probably been considered by theBorrower and the Bank (Part I, paras. 15-17);

(b) Socio-economic issues are being assigned higher priority,inpreparation/appraisal as well as implementation stages. NTPC shouldactively pursue consultations with the people affected by itsProjects; however NTPC should not limit its involvement inenvironmental and socio-economic issues to the impact of its powerstations, but should act as a catalyst in environmental andrehabilitation and resettlement mitigation measures and monitoringprograms for the mines and associated urban and rural development aswell (Part I, paras. 19 and 21);

(c) In accordance with the emphasis the Bank requires from its Borrowersand the implementing agencies, NTPC should also strengthen itsenvironmental assessment and monitoring functions in itsheadquarters, regional centers and power plants. The centraldepartment in charge of these functions should be headed by anExecutive Director (Part I, para. 21);

(d) Emphasis should be given during the project preparation stage toshortening the time necessary for award of the contract on thecritical path and for completing the payments promptly (Part I,para. 39);

(e) As a precondition for further Bank loans, more emphasis is beinggiven to improving the commercial arrangements between NTPC and itsclients. However, this has proved to be difficult to achieve inpractice unless the financial performance of the SEBs is improved inreal terms (Part I, para. 35);

(f) To overcome the difficulties mentioned in (e) above, and to enableNTPC to operate on a purely commercial basis, GOI should allow NTPCto sell to other customers the allocated shares of the SEBs which donot comply with their agreements with NTPC. While technicalreallocation (by limiting availability of power to a particular SEB)may be difficult to implement, commercial reallocation can beimplemented. This can be done by limiting allocations to adefaulting SEB and charging a stiff penalty for drawals exceedingthe reduced allocation (Part I, para. 35); and

(g) As a result of the changes in the overall economic policyenvironment within which NTPC is operating, its financial policiesneed reorientation. Under the circumstances, it would be appropriateto change the existing rate of return covenant into a self financingcovenant, because it would not only provide a better monitoringmechanism for the Bank, but also provide better support to NTPCtowards meeting its development challenges (Part I, paras. 34 and36).


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PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE

Proiect Identity

Name: Second Ramagundam Thermal Power ProjectCredit/Loan No: Loan 2076-INRVP Unit: South Asia RegionCountry: IndiaSector: EnergySubsector: Power

Background

1. Power shortages of the 1970's and the adverse effect these werehaving on the productive sectors of the economy prompted the Government ofIndia (GOI) to intensify its efforts to balance the demand and supply ofelectricity. The strategy of the GOI was to supplement efforts of StateElectricity Boards (SEBs) in increasing installed capacity and theestablishment of high voltage transmission lines. Emphasis was put on: (i)accelerating the development of the hydro power potential and large coal firedpower plants at both pithead locations and the proximity of load centers; (ii)improving the efficiency of thermal power plants and reducing losses intransmission and distribution networks; (iii) expanding the ruralelectrification program; and (iv) strengthening the organization andmanagement capabilities of the SEBs. In 1974 GOI decided to proceed with theconstruction of the first stage of four large thermal power stations of 600 MWeach at Singrauli, Korba, Ramagundam and Farakka, located near coal fields andsupplying bulk power to the beneficiaries through an interconnected 400 kvtransmission system. GOI established in 1975 two power generating companies,the National Thermal Power Corporation (NTPC) and the National Hydro PowerCorporation (NHPC) to construct and operate large thermal and hydro powerstations and associated transmission systems. IDA/Bank has financed the firststage of 600 MW at each plant and its associated transmission. In addition,IDA/Bank also financed the second stage of Singrauli (1,400 MW), Korba (1,500MW), Ramagundam (1,500 MW) and Parakka (1,000 MW). The feasibility study ofthe second phase of the Ramagundam project was prepared by NTPC in 1981 andthe project appraisal for the second stage was made by the Bank in 1981. Theloan was approved in December, 1981.

Prolect Obiectives

2. The primary objective of the project was to provide NTPC withassistance needed to assure its envisaged role, including the alleviation ofpower shortages in the Southern Power Region of the country. Sectoralobjectives of the project were Bank Group's assistance to GOI in the powersector in such areas as introduction of long-range system planning on a

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national basis, improvement of the sector organization and training andstrengthening of the finances of the institutions involved in the sector.

Project Description

3. The Second Ramagundam Thermal Power Project (Loan 2076-IN) formedthe second stage of NTPC's Ramagundam Thermal Power Development program of2,100 MW (3x200 MW + 3x500 MW) ultimate capacity located in the KarimnagarDistrict of the State of Andhra Pradesh and consisted of installation of thefirst three units of 500 MW each and associated transmission facilities,including the following components:

(a) three 1,725 tons/hour boilers and three 500 MW turbo-generatingunits complete with all auxiliaries and ancillary electrical andmechanical equipment including the switchyard;

(b) the 400 kV transmission lines comprising 1,361 circuit kms oflinesi/ and associated sub-stations; and

(c) a 6-8 seat, twin engine airplane to be used for supervisory visitsof NTPC's plants 2/.

4. In US Dollar terms, the total actual cost was US$952.4 million, ofwhich US$280 million equivalent was provided by the Bank under Loan 2076-IN,US$74.1 million equivalent by KfW, US$30 million by OPEC, US$47.6 million bySaudi Fund, US$192.0 million by Japan Exim Bank, and US$328.1 equivalent fromdomestic sources.

5. Since August 1991, the transmission facilities implemented under theproject are being managed by the National Power Transmission Corporation(NPTC) under a Power of Attorney in its favor issued by NTPC. NPTC, a GOI-owned entity responsible for the implementation and operation and maintenanceof the transmission systems was incorporated in October 1989. BetweenSeptember 1991 and March 1992, the Bank communicated with GOI on themodalities of the transfer of assets from NTPC to NPTC, assessed themanagement and operational capabilities of NPTC and with its telex of April 2,

1/ 400 kV transmission lines consisted of the following circuits:

(Circuit kms)

Bangalore - Salem 181 (175)Ramagundam - Nagarjuna sagar 534 (540)Nagarjuna sagar - Cuddapah II 239 (282)Nagarjuna sagar - Munirabad 407 (400)

TOTAL: 1,361 (1,397)

Figures in parentheses show estimation at the time of appraisal.

2/ This item was subsequently excluded from the scope of the Bank loan.

1992, informed GOI, NTPC and NPTC that it agreed in principle to suchtransfer. However, at the time of preparation of this PCR, NTPC was still thelegal implementing agency of the project.

Project Design and Organization

6. As in the case of the first stage, the expansion phase of RamagundamDevelopment comprised a number of major works and required carefulcoordination to ensure efficient progress. Much of the detailed power stationengineering and design work had been carried out for the first phase. NTPChad already acquired adequate experience in the area of station design andengineering of 200 MW units at Singrauli, Korba, Ramagundam and Farakka andwas in the process of installing two units of 500 MW capacity at Singrauli forwhich a foreign consultant was employed by NTPC to assist in the design,preparation of specification, evaluation of bids, etc. Therefore, appointinga consultant for doing such works was not necessary and pre-award engineeringworks such as basic engineering, preparation of specification and biddingdocuments, evaluation of bids, etc., were done in-house by NTPC. A foreignconsultant (US firm) was employed to review the basic design prepared by NTPC.The detail design and engineering work for the project were also carried outin-house by NTPC, with very limited support from outside.

7. At the time of appraisal of the first stage, NTPC had adopted a two-tier organizational structure--one at the central/corporate level and theother at the project sites. Technical services, contract and procurementservices, quality assurance and expediting etc. were centralized. For each offour power plants, a project organization group under the control of a GeneralManager was organized to manage the implementation of each project.

8. NTPC was reorganized, subsequently, after the appraisal of the firststage to have three tier organizational structure, corporate, regional andproject levels, respectively.

9. NTPC's Board of Directors, which consists of twelve members, isresponsible for establishing internal policies. The Corporation is headed bya Chairman and Managing Director (CMD), who is assisted by five full-timefunctional Directors, namely, Director (Projects), Director (Operation),Director (Technical), Director (Finance) and Director (Personnel). At theCorporate Office, corporate planning, central procurement and vigilancefunctions are headed by Executive Directors reporting to the CMD. For thepurpose of the administration and execution of work at the sites, theCorporation is divided into five regions, (North, West, East, South andNational Capital Regions) with headquarters at present located at Allahabad,Nagpur, Patna, Hyderabad and Delhi, respectively. These regions are under thecontrol of Regional Executive Directors who are responsible for theimplementation and operation and maintenance of power plants in theirrespective regions 3/. Every power plant and regional transmission unit isheaded by a General Manager. The new structure has the advantage ofoptimizing the span of control of the CMD. The new structure has theadvantage of optimizing the span of control of the CMD and provides fordecentralization of line responsibility while retaining centralized systems in

3/ Until August 1991, the Regional Executive Directors were also responsiblefor the transmission facilities in their regions (para. 5).

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areas such as long-term planning, basic engineering, procurement of criticalequipment and spares, quality assurance, co-ordination with the World Bank andother financing agencies, inspection etc.

10. As NTPC's activities become complex and more geographicallydispersed, further adjustments in control will be required to maintain a highlevel of operational efficiency. This will in turn require some reorientationof technical and management skills as well as adjustments in theorganizational structure. NTPC appointed the Indian Institute of Management,Ahmedabad, to carry out a detailed diagnostic study covering the relevance ofcurrent operational management policies along with a review of organizationstructure. The consultants' recommendations in respect of diversification,centralization, organizational structure and human resource development, arepresently being evaluated for phased implementation. NTPC has also carriedout an internal assessment of the need for centralization/decentralization inthe day-to-day functioning of the Corporation. This has been partlyimplemented with reinforcement of the regional headquarters with commercialand operational services. The project engineering and procurement groups atheadquarters have also been aligned for executing regional projects. TheCorporation underwent an organization change in August 1991 when themanagement of transmission lines and associated engineering and contracts workwas entrusted to the National Power Transmission Corporation (NPTC -- para.5). NTPC has now updated its corporate plan for the upcoming 15 years. Thecorporate plan has identified several key thrust areas, viz. equipmentprocurement, coal and gas supplies, operations and maintenance, commercial,financing, environment and rehabilitation, research and development,technology, human resources development, organization development anddiversification. The corporate plan also focusses on the major constraintsthat may hamper the long-term viability of the Corporation highlightingexternal and internal financing resource constraints, lack of commercialdiscipline in the sector, project approval procedures and lack of clarity inthe enforcement of environmental protection regulations. NTPC states thatsome remedial measures have been suggested for the attention of policy makingbodies in the sector.

Project Implementation

11. The implementation of the project consisting of three 500 MW unitsand associated 400 kV transmission lines has been successfully completed. Atthe time of appraisal, the first 500 MW unit (No. 4 unit) of the project wasscheduled to be commissioned in July 1987 based on the placement of award ofthe main plant equipment (i.e., boiler and turbo-generator) in October 1982(zero date). But the main plant equipment could be awarded in Oct. 1983 forwhich the revised "zero date" was determined as July 1983 4/. The revisedschedule for commissioning of the first 500 MW unit based on this zero datewas July 1988 considering five years for commissioning of the first 500 MWunit and twelve months for each subsequent 500 MW units thereafter. The first

4/ It took about 15 months for the main plant equipment contract from thedate of receipt of offer to the date of the award of the contract. Thisinterval included bid evaluation (about 4.5 months), agreeing with theBank on award recommendation (about 8.5 months) and the finalization ofthe letter of award (about 2 months).

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unit was commissioned in June 1988 which was one month ahead of the revisedschedule and subsequent units in March 1989 and October 1989 which were fourand nine months ahead, respectively, with respect to the revised schedule.

12. During the initial running and subsequent performance tests, certaininitial defects were found in several items of main and auxiliary equipment,such as boilers, boiler feed pumps, condensate extraction pumps, ash handlingplant and power transformers. Rectification works have been finished by March1992 and all units were put into commercial operation on the dates shown inPart III 5/.

13. With the completion of its second stage, the Ramagundam Projectbecame the third 2000/2100 MW class large-scale coal fired power plant of NTPCfollowing the Singrauli and Korba projects. One of major features of theRamagundam project was the fact that the detailed design and engineering aswell as the project construction management were carried out by NTPC's ownresources without assistance of local consultants with the exception of smallminor areas. (A foreign consultant reviewed the project design as mentionedin para. 6).

14. Although hydro power is the major power resource in the SouthernRegion, thermal power stations, including the Ramagundam Thermal PowerStation, have been playing a key role, especially in a dry season, insupplying reliable electric power to the system (Part I, para. 14);

15. Under the first Ramagundam project, GOI agreed to take necessarysteps to make available adequate coal supplies for the 2100 MW power plant.Coal supply did not hinder the operation of commissioned units of this projecttill 1989-90. However, the operational performance of Ramagundam PowerProject was temporarily affected from 1990-91 onwards by constraints in coalsupplies due to: (a) delays in commissioning of development of mines andconsequently insufficient availability of coal; and (b) industrial relationproblems in the linked mines.

16. NTPC took up the matter with the GOI as a result of whichalternative coal mines for supply of coal to this project were identified. Ascoal from some of these mines has to be transported through the normal 'BOX'wagons instead of Bottom discharge wagons, NTPC has also undertakeninstallation of Wagon Tripplers to enable effective unloading and handling ofcoal from the alternative mines. The above additional coal handlingaugmentation system (Wagon Trippler System) to utilize coal from other coalmines is being constructed with additional funding from Saudi Fund fordevelopment (SR 42 million, equivalent to US$ 11 million) and will becompleted by December 1993. As a result of the measures taken by NTPC, thecoal supply position to the project is fast approaching normalcy.

17. As a result of the above, the loss of generation from Ramagundamstation was 1193.3 GWh in 1990-91.

5/ Intervals between the sychronization and the date of the commercialoperation for three units were five (5), six (6) and eighteen (18)months, respectively. The delay in completion of No. 6 unit was due torectification of defects in main and auxiliary equipment.

Environment, Resettlement and Rehabilitation

18. At the time of design and implementation of the project, norms forenvironment protection and requirements of resettlement and rehabilitationplants were not fully developed. Following phenomena encountered at theSingrauli area, NTPC had realized that while a large thermal power projectlike Ramagundam would lead to faster economic development of the surroundingcommunities, it could also have a negative impact on the balance of ecologicalsystems if sufficient mitigatory measures were not taken. Therefore NTPCdesigned the project to comply with the then established environmental qualitystandards. However, environmental and rehabilitation issues outside the powerplant project (i.e., of the coal mine, and other industries developed in thearea) were not studied. A detailed Environmental Impact Assessment was notprepared as this was not required at the time of appraisal, which was carriedout in early 1981.

19. The implementation of the Ramagundam project, including theexpansion phase of the 1500 MW, required the acquisition of 10289 acres ofland involving in the relocation of 782 families. NTPC has evolved arehabilitation program which is needs-based and caters to both physical andeconomic rehabilitation of the displaced families. In addition to providingmonetary compensations for the land acquired by NTPC, alternate land is givento the Project Affected People (PAP). Rehabilitation colonies of the villagesof Narsalpalli, Annapurna and Poratpally have been provided with approach andinternal roads; two primary schools have been constructed or extended.Immunization and health camps are being organized on a regular basis. In theabove villages, 18 bore wells and three hand pumps have been installed fordrinking water purposes. Two community centers have been constructed in thevillages so that the local population can take part in community activitiessuch as rural sports tournaments, cultural activities, etc. The PAP are givenpreference for regular employment in NTPC, based on their educational level,skills and experience. To date, 428 PAP have been provided jobs in NTPC.Further, jobs are also arranged with the contractors. In this category, atotal of 108 people have been provided with such employment. NTPC townshipsare generally self contained and two or three shopping complexes areconstructed in each township. In general, preference is given to the PAP inallotment of shops. No records exist at the Bank to show that consultationswith the PAP were carried out. NTPC should actively pursue consultations withthe people affected by its Projects; however NTPC should not limit itsinvolvement in environmental and socio-economic issues to the impact of itspower stations, but should act as a catalyst in environmental andrehabilitation and resettlement mitigation measures and monitoring programsfor the mines and associated urban and rural development as well.

20. NPTC has also taken appropriate measures with regard to stackemissions and water effluents. Electrostatic Precipitators with efficiency ofover 99.5Z have been provided with 500 MW units so as to minimize particulateemission. Various parameters like air quality (S02, NOX and suspendedparticulate matter--SPM), noise and water quality are continuously monitoredto ensure that they comply with environmental quality standards. NTPC is alsoimplementing a scheme for recycling and treatment of the overflow from the ashpond. In addition, through a continuous afforestation program, a large numberof trees of various species have been planted and this would be expanded inthe future. As a part of reclamation of filled in ash pond area,afforestation has been undertaken successfully on the temporary ash pond.

Tree plantation over the ash pond in the Ramagundam site has been successfullycarried out since 1986. The trials of growing some species over the ash ponddirectly (without soil cover) were carried out. The species such asCasuarina, Acacia, Eucalyptus, etc., have shown excellent growth. As ofDecember 1991, 515,000 trees were planted in the project.

21. As a result of problems encountered and experience gained in thefirst Bank-financed Singrauli, Korba, Ramagundam and Farakka 200 MW stages,the Bank encouraged NTPC to become more aware of the particular complexitiesassociated with environmental and especially with resettlement issues. Theenvironmental consciousness of NTPC has since been increasing very fast and inthe recent projects--e.g., the Talcher Thermal Power Project (Loan 2845-IN)--the approach to environmental protection and rehabilitation has been morecomprehensive right from the beginning. In the Talcher project, a detailedenvironmental impact assessment was prepared prior to beginning theconstruction work. NPTC recruited staff specialized in social andenvironmental sciences and undertook a review of the environmental aspects atthe four Bank financed power stations, i.e., Singrauli, Korba, Ramagundam andFarakka in order to implement corrective measures to adequately rehabilitateand preserve the physical and social environment in those areas affected bythese projects. To achieve this, NTPC prepared in 1989, under the thenproposed Regional Power Systems project, an Environmental Action Plan (EAP)addressing: (i) preparation of Environment Impact Assessments for existing andfuture projects; (ii) resettlement and improvement of living conditions of thedisplaced population; and (iii) development of afforestation plans. Theprogress of the EAP has been satisfactory. Many activities identified are ofcontinuous nature and are being monitored regularly. However NTPC'senvironmental unit is understaffed. In accordance with the emphasis the Bankrequires from its Borrowers and the implementing agencies, NTPC should alsostrengthen its environmental assessment and monitoring functions in itsheadquarters, regional centers and power plants. The central department incharge of these functions should be headed by an Executive Director. Aprogram for strengthening and upgrading NTPC's environmental department(including technical assistance) and mitigatory actions to be taken by NTPCunder the EAP to correct outstanding problems in respect to environmentalconditions and regulations and resettlement, will be followed up under theproposed NTPC-Power Generation Project.

Project Results

22. The project fully achieved its main objective through successfulcompletion of 1,500 MW additional power generation capacity and associated 400KV transmission lines. The generation from the project after commercialoperation was 15,597.53 GWh as of December 31, 1991. The unit-wise detailsare given in Part III.

23. On the other hand, the results of the sectoral objectives of theBank Group's assistance to GOI to introduce long-range system planning on anational basis, improvement of sector organization and strengthening of thefinances of the institutions involved in the sector have not beensatisfactory. This is due to the relative autonomy of the states which limitswhat can be achieved through involvement exclusively with central agencies.Under India's federal structure, central assistance to the states as budgetaryallocations are set by an automatic allocation formula. Therefore, GOI has nodirect means to ensure that financial performance of the state utilities

improves. Thus, the GOI-owned utilities have no option but to enforcefinancial discipline through means, such as: (a) letters of credit set at thelevel of its sales to each client; and/or (b) limiting the supply of power tothe level of payments received. However, the success has so far been limited.GOI recently amended its strategy to support efficient public utilities bychannelling the discretionary funds not subject to the automatic allocationformula only to the performing states. These funds essentially includefinancing through the recently established Power Finance Corporation and fundsfrom external assistance 6/. These actions would increase GOI's impact onthe sector. However, much needs to be done to begin solving the structuralproblems of the sector, such as the current allocation process 7/, theplanning process, the operational efficiency of the power system, theinstitutional set up of the state utilities and financing needs of the powersector. In addition, issues affecting energy conservation and socio-environmental aspects of power development should be taken up.

24. The estimated cost of the project at appraisal and actualdisbursements are given in Part III. Compared with the appraisal costestimate of Rs 12,539.60 million (excluding Interest During Construction --IDC -- and Working Capital Margin -- WCM) actual costs amounted to Rs.13,439.52 million representing 7.2 percent increase. Rs. 899.92 million ofthe increase was due to the change in scope. The total project cost estimatesexpressed in dollar value, however, amounted to US$1,567.50 million (excludingIDC and WCM) in the appraisal and US$908.16 million actually, resulting in adecrease of 42 percent, due to the rapid depreciation of the rupee against thedollar. The average exchange rate for the period of disbursement from theBank loan was Rs. 18.8 per US dollar, resulting in a depreciation of about 58percent in the value of Indian Rupee to US dollars.

25. The estimated disbursements at appraisal and actual disbursementsare given in Part III. The original closing date of the loan was June 30,1988. The loan was closed on March 31, 1992 which was three years nine monthsbehind SAR schedule. This delay was due to two components: (i) unrealisticset up of the original closing date (2 years 3 months); and (ii) delays inimplementation (1 year 6 months) 8/. Total disbursement under this loan was

6/ GOI's efforts to develop PFC into a viable and effective instrument forpromoting improvements in the power sector are supported by the Bank(Loan 3436-IN; Power Utilities Efficiency Improvement Project approved inJanuary 1992), the Asian Development Bank (ADB) under a paralleloperation approved in March 1992, and by USAID under a related technicalassistance program for PFC's institutional development.

7/ Not only in the power sector but also in coal and natural gas.

8/ (i) The original closing date was June 30, 1988, while the expectedproject completion date was September 30, 1989 (SAR para. 3.12).The earlier closing date was in fact contrary to normal Bankpractice of setting the closing date for similar projects - 6months to one year after the project completion date in order toensure the reimbursement of latest payments. The original closingdate should have been September 1990.

US$277,167,342.62. In accordance *ith the Bank's practice,' withdrawalapplications against eligible expenditures incurred until March 31, 1992, wereaccepted unitl July 31, 1992, and the final disbursement ws made on August 28,1992. The undisbursed balance of US$2,832,657.38 was cancelled on this date.This cancellation was in addition to the cancellation by the Bank, on November20, 1989, of US$20 million which were no more needed for the completion of theproject. Keeping in view the financial difficulties faced by GOI and NTPC atthe end of 1991, the Bank agreed in November 1991 to finance under theNational Capital Power Project (Ln 2844-IN) eligible expenditures made afterMarch 31, 1992, for those ongoing contracts under Ln 2076-IN. Theseexpenditures are estimated at US$4.0 million.

26. The allocation of the loan into various categories and actualdisbursement category-wise are shown in Part III. The original allocation wasrevised in April 1987 to reflect changes in financing for the erection works.An executive airplane which was in the original plan was eventually excludedfrom the scope of the Bank loan. US$20 million which was no longer necessaryfor the completion of the project was cancelled from the original amount ofthe loan of US$300 million on November 20, 1989.

27. In the SAR, the ex-ante internal economic rate of return (IERR) forthe project was estimated at about 15 percent, based on measurable economiccosts and benefits associated with the 1,500 MW development. The ex-post IERRis about 242 as shown in Part III and Annex 1.

Project Sustainability

28. This project is clearly sustainable due to the following reasons:(1) the power station is being operated with a high plant load factor; (2) thedemand for its full output is going to exist since power is in short supply;(3) the current tariff is high enough to recover capital and operating costs;(4) the new two-part tariffs, which are will be applied beginning mid-1992,will reinforce incentives to operate the plant efficiently and with highavailability; and, (5) the SEBs in the Southern Region pay their bills toNTPC.

29. However given the sectoral problems, whether NTPC's contribution issustainable is an issue on which GOI, the Bank and NTPC are all working.NTPC's projected high growth may not be sustainable in the medium to longerterm, due to external funding constraints as well as inadequate internalresource mobilization, plus an unchecked increase in accounts receivable fromconsumers in the Eastern and Northern Regions. Sustainability in terms ofmeeting the financing requirements of overall sectoral capacity expansion (andefficiency improvements) needed to close the demand/supply gap is highlyquestionable, but that existing capacity of well designed, constructed andoperated plants (such as Ramagundam) should continue to generate sustained

(ii) Major items of delays in actual implementation were: (a) initialdelay in procurement; and (b) subsequent approval of funding forthe coal handling augmentation scheme in 1987 which was completedin three years after the award in January 1988; and (c) delay incompletion of the performance test following rectification ofinitial defects during commissioning period.

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economic benefits expected from these power plants. Whether the marginaleconomic value of power used in subsidized agricultural or domesticconsumption exceeds the LRMC and what share of this plant's output finds itsway to these end uses is another question related with the deficienciesexisting in the sector.

Bank Performance

30. The performance of the Bank from the project preparation throughproject completion was satisfactory. The Bank maintained good relations withthe beneficiary throughout the execution of the project and fostered anenvironment conducive to increased Bank Group involvement with NTPC. To datethe Bank Group has assisted NTPC in implementing a total of 13 projects with atotal assistance of about US$4 billion. Through these operations the BankGroup has been strengthening the institutional and financial viability of thecorporation. It is important to highlight that, during this initial decade ofdevelopment, NTPC and the Bank Group developed a close relationship, duringwhich the Bank Group has endeavored to support NTPC in each step of itsdevelopment, in a manner that goes much beyond the substantial financialassistance extended to its expansion plan. However, in response to SEBscontinued poor payment records on their bulk power purchases, which wereseriously straining NTPC's finances, the Bank has refrained from furthercommitments to NTPC since mid-1987. Thus the then-proposed Regional PowerSystems Project, which was negotiated in December 1989, was not presented tothe Board, as GOI and NTPC could not fulfill within a reasonable period theassociated conditions of Board presentation. Following NTPC's takeover inJanuary 1992, of the Unchahar Thermal Power Station from the Government ofUttar Pradesh in compensation for arrears of the UPSEB, NTPC's level ofcurrent receivables (excluding the amount still to be paid by GOI throughCentral Appropriations in FY93 and FY94) at the end of February 1992, wasabout 2 months of sales equivalent. Therefore it is now substantially incompliance with the Bank's financial covenants under the ongoing loans, andthe Bank has recently begun preparation work on a new operation with NTPC.

31. The Bank has also continued addressing a number of shortcomings ofbroader concern with appreciable success. Major items are:

(a) During the preparation of the recent projects, a more comprehensiveand up-front approach towards environmental protection, resettlementand rehabilitation issues has been adopted. In 1988, NTPC appointedconsultants to study the environmental impact in the SingrauliRegion created by the development of coal mines, building of powerplants (by NTPC and UPSEB), and other industrial projects,resettlement of the people affected by these projects, and in-migration of skilled workers and their families. The consultants'findings and recommendations are being reviewed by all interestedauthorities. NTPC prepared in 1989, within the then proposedRegional Power Systems Project an Environmental Action Plan (EAP)for the Korba, Ramagundam and Farakka power projects. The EAP andfollow-up of the recommendations for the Singrauli region will betaken up within the newly proposed NTPC-Power Generation Project;

(b) Implementation of an Action Plan to liquidate the accumulation ofarrears from SEBs;

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(c) Development of the Power Management Institute (PMI) to providespecialized training in management and other aspects of the powersector. (This is in progress as a part of the Talcher Thermal PowerProject Ln 2845-IN); and

(d) Preparation of Model Bidding Documents in order to curtail theperiod needed to conclude procurement of contracts.

Borrower Performance

32. The performance of NTPC was generally commendable and met most ofthe expectations of the appraisal report. All the three 500 MW units weresuccessfully completed ahead of the revised schedule under the wellestablished control of NTPC project management by successfully overcomingnumerous difficulties.

33. As a direct outcome of development from large thermal powerstations comprising Singrauli, Korba, Ramagundam and Farakka projects, NTPChas made good progress in building up its organization and manpower resources.NTPC has accorded special importance to the training of engineers andoperating staff as well as managerial staff. This success of NTPC's thirdsuper thermal power project has been primarily as a result of theimplementation of a well planned training program with concentration on pre-operational spheres of activity such as planning, design and construction.

Financial Aspects

34. The most salient feature of NTPC's operations was the spectaculargrowth the corporation experienced. From FY85 to FY91, the value of averagenet fixed assets increased by 38Z per annum, while electricity sales (GWh)grew at an average of 30X per annum. The pace of NTPC's growth is howeverdeclining. Total annual investments increased only by about 17Z over the sameperiod and work-in-progress has remained stagnant since FY88. NTPC's returnon net average fixed assets in operation (historically valued) declined from ahigh 17Z in FY86 and FY87 to 13Z in FY91. The returns achieved are well inexcess of the 9.5Z which was required under the loan as a target from FY89.These levels of rate of return did not, however, translate into adequatecontributions from internal resources to NTPC's investment program ( anaverage of only about 12? over the last 5 years). This can be partiallyexplained by NTPC's ambitious expansion program. During the last years,NTPC's rate of return has somewhat declined, because new tariffs have beenagreed upon only recently but as they are not yet applied, 500 MW units areeffectively billed at 200 MW tariff rates. This will be the case until thenew two-part tariffs are in place (para. 28). However, NTPC's level ofaccounts receivable, throughout the period under review was well above the 2months level covenanted by the Bank under Ln. 2555-IN, in 1985. Theunsatisfactory bill collection performance has not only reduced NTPC's self-financing ratio and tightened its liquidity but, more importantly, hasprevented NTPC's traditional lenders, such as the Bank, from extending newloans to finance NTPC's investment program. It also highlights theshortcomings of the rate of return covenant which does not differentiatesbetween income accrued and income actually received.

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35. Under the prevailing policy environment in the Indian power sector,NTPC is prevented from operating on a pure commercial basis. Many of the SEBshave not been respecting the commercial terms of the supply contracts, billcollection in the current environment is largely beyond NTPC's control. Inorder to function as a commercially oriented enterprise, it is essential thatNTPC be provided by GOI with the freedom to allocate the power from its newinvestments based on demand and take into account the past commercialperformance of its beneficiaries and their ability to pay for the powerallocated to them. In case of non-compliance by any of NTPC's power stationbeneficiaries with agreed commercial and financial terms of their power supplyagreements, NTPC should be allowed to sell its power to other utilities.While technical reallocation (by limiting availability of power to aparticular SEB) may be difficult to implement, commercial reallocation can beimplemented. This can be done by limiting allocations to a defaulting SEB andcharging a stiff penalty for drawals exceeding the reduced allocation. Underthe proposed time-slice operation which is currently under preparation,agreements are being sought from Government to allow NTPC to either cut-off orreallocate power from non-paying customers.

36. GOI has recently indicated that entities such as NTPC would nolonger be able to rely on GOI budgetary support, have to start paying outdividends and have to raise their own funds in the capital markets. GOI hasrealized that this requires a reorientation of NTPC's financial, as well ascommercial, policies and practices. The new policies would aim at a greaterreliance on funds generated from internal resources and NTPC's ability toraise funds from domestic and international capital markets. The details arecurrently being discussed in the context of the new operation with NTPC, butit is anticipated that the rate of return covenant would be replaced by a selffinancing ratio.

Project Relationship

37. Good relationships were maintained by the Bank with GOI, NTPC, andother participants in the project.

Consulting Services

38. The design and engineering work for the project as well asconstruction management were carried out in-house by NTPC with very limitedsupport from Indian consultants in a few areas. The basic design was reviewedby a foreign consultant (a US firm). The performance of the consultants wassatisfactory.

Procurement

39. The Bank guidelines were strictly adhered to by NTPC forprocurement of 28 contracts involving international competitive bidding.Eleven contracts were awarded to foreign firms for an amount estimated atUS$28.6 million. The average procurement time per contract--from the issuanceof bid documents to contract award--was planned to be nearly one year,consisting of around 3 months for bidding and about 7-9 months for bidevaluation. The award of the contract package on the critical path ofimplementation, namely the steam generators contract, took about 15 months(para. 11 and footnote 5). However, this was an isolated case and since thenboth the Bank and NTPC have been trying to ensure that similar difficulties on

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agreeing on award recommendation and thus delays do not occur. In an effortto speed up procurement, a standard bidding document for supply and erectionhas been finalized in April 1992 9/. This model bidding document will beused for bidding in World Bank financed projects and is expected to cut downsubstantially the time lag experienced in previous projects, including theSecond Ramagundam Power Project. NTPC should give further emphasis tofinishing promptly the payments for the contracts, so that the closing datesof new loan(s) would not need to be extended.

Project Documentation and Data

40. The project's legal agreements adequately reflected the BankGroup's interests in a satisfactory execution of the project. The staffappraisal report was comprehensive, well prepared and provided a usefulframework for the Bank and NTPC during the project implementation. TheBorrower regularly submitted Quarterly Progress Reports for the project.These have been used for review of physical and financial performance and theywere generally used for planning the visits of the supervision missions toIndia, which often included site visits in addition to review meetings at NTPCCorporate Office, New Delhi.

9/ Covering the Instructions to Bidders and General Terms and Conditions ofContract.

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INDIA


PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

A. Adeguacy and Accuracy of Factual Information in Part III

1. Part III of the PCR prepared by the Bank includes statistical datacovering various aspects of construction and operation of the project. Thefactual information relating to NTPC, contained in this section is generallybased on the Staff Appraisal Report (SAR) prepared by the Bank for theproject, discussions between Bank and NTPC during various supervision missionsand quarterly project progress reports submitted by NTPC.

B. Comments on the Analysis in Part I

2. The analysis made by the Bank under Part I is comprehensive and hascovered important aspects. The analysis is generally in order. Nevertheless,there are certain issues which need to be further examined keeping in view thebackground of developments as they took place to better appreciate the events.These are as follows:

i) Prolect Implementation (reference para 11 of Part I)

3. As per SAR the first, second and third 500 MW units were to becommissioned in July '87, July '88 and July '89 respectively based on mainPlant Award date (zero date) of October '82. A careful analysis of thereasons for variation between these estimated dates of unit commissioning andthe corresponding actual dates would reveal that their time gap was due toreasons beyond any reasonable control of NTPC. In fact NTPC took all possiblesteps to keep to the schedule and even initiated advance procurement actionpending signing of the Loan Agreement.

4. From Para 11 to Part I, one is likely to get an impression as ifNTPC took unduly long time in evaluation and award of their contract for theSteam Generator Package, which was on critical path. This is not so. Thebids for the Steam Generator (SG) were opened on 31.8.1982 and NTPC finalizedthe evaluation report/award recommendation in the record time of four and ahalf months (against the normal 6 to 12 months period for such large andcomplex packages) and forwarded the same to World Bank on 18.1.1983. M/SBHEL, the lowest qualified bidder had submitted two offers (base offer andalternative offer) and NTPC had recommended acceptance of the alternativeoffer. The Bank while conveying its concurrence on 1.5.1983, had, however,stipulated the award to be made as per 'Base Offer' of BHEL. Detailedinteractions took place between NTPC and Bank regarding acceptance of BHEL's'Base Offer' or 'Alternative Offer' and a final agreement was reached inSeptember, 1983. Pre-award discussions/negotiations were then held with BHELand after resolution of various issues and tying of necessary contractualdetails, the award was placed on 10/12/1983.

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5. The Turbo-generator Package, though awarded in October, 1983,envisaged the 'Zero date' as July, 1983.

6. Based on the date of award of the Steam Generator Package (Dec.'83), the commissioning schedule for the three units works out to Dec. 88,Dec. 89 and Dec. 90 whereas based on the zero date of July, 1983, agreed forthe Turbo-Generator Package, the commissioning schedules for the three unitswereJuly '88, July '89 and July '90 respectively. All the three units werecommissioned ahead of schedule by 1 to 9 months reckoned with reference to theZero Date of July '83 and 6 to 14 months with respect to the Zero Date as thedate of award of the SG package.

ii) Loan Extension (reference para 25 of Part I)

7. The loan was originally scheduled to be closed on June 30, 1988.However, it was extended by 45 months and was finally closed on March 31,1992. The main reasons for extension in loan closing date are as follows:

(i) Earlier fixation of original closing date: Even though theexpected Project completion date as per SAR was September 30, 1989, theoriginal closing date was fixed as June 30, 1988. In fact, the closing dateshould have been fixed originally as September 30, 1990 leaving a margin of atleast one year after the Project completion date to facilitate reimbursementof last payments.

(ii) Variation in SAR schedule and actual schedule: As per the SAR theplacement of award of the main plant equipment was to take place inOctober, 1982. However, the Main Plant Equipment (Turbo-generator portion)could be awarded in October, 1983 and the Main Plant Equipment (SteamGenerator portion) in December, 1983. The reasons for variation in the ZeroDate have already been detailed in paras 3 to 5 above.

(iii) Augmentation of Coal Handling Plant (CHP): Originally, the CoalHandling Plant was designed with minimum redundancies with a view to keep theproject cost low. However, provisions in the layout had been kept to augmentthe system should the necessity arise. From initial feed back of operations,augmentations of the Coal Handling System became imperative, more so due tothe fact that the quality of coal actually supplied to the plant was worsethan that considered in design of the plant. This augmentation includedinstallation of an additional track hopper, crusher house and associatedconveyors. The funding for the coal handling augmentation was approved in1987 and the construction of the same was completed in 3 years after the awardof the package in January, 1988. However, extension of the loan closing datewas necessitated for conducting the performance and guarantee tests andrelease of final payments thereafter.

(iv) Final payments: During the initial running and subsequentperformance tests, certain initial defects were observed in some of theequipment such as boilers, boiler feed pumps, condensate extraction pumps, ashhandling plant and power transformers for which modifications were required tobe carried out in the equipment. This resulted in delay in conducting theperformance and guarantee (P&G) tests and consequently in the release of finalpayments, thereby necessitating extension in the loan closing date.

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iii) Procurement (reference para 39 of Part I)

8. The average procurement time from issue of bid documents tocontract award was nearly eleven months, consisting of 3-4 months for biddingand about 7-8 months for bid evaluation, including necessary internalapprovals, concurrence by the Bank, pre award discussions and award ofcontract. Keeping in view the complexities involved in some of the ContractPackages, the time taken seems to be reasonable.

9. The 500 MW units for Singrauli, Korba and Ramagundam (which wereproceeding almost parallel) were the first ones for NTPC and did involvecertain peculiarities and complexities encountered in the bidding processunder international competitive bidding system, and all these problems wereeffectively solved by NTPC. Keeping the above in view, the time taken inevaluation of bids and award of the contract, does not seem to be excessiveand is comparable with other Bank financed procurement, of course with someexceptions. Nevertheless, NTPC, with its eagerness for a constantimprovement, was successful in achieving a declining trend in the subsequentprojects.

iv) Financing Issues

Receivables (reference para 34 of Part I)

10. Regarding NTPC's outstanding dues against the sale of power, it maybe noted that with a view to limit the accounts receivables to a reasonablelevel, a covenant was provided first in the Loan Agreement for the RihandPower Transmission Project and was repeated in subsequent projects viz. theCombined Cycle Power Project, Talcher Thermal Power Project and NationalCapital Thermal Power Project (NCTPP) requiring NTPC to maintain its accountsreceivables at a level not exceeding billing for the two preceding months.The Bank is aware of NTPC's/GOI's continuous efforts to bring down thereceivables. As one of the measures GOI decided to recover through Centralappropriation an amount of Rs. 1020.50 crs. due to NTPC from SEB's as onMay, 1990. In addition to above, as a one time measure, to make a substantialreduction in outstandings, NTPC took over the Feroze Gandhi Unchahar ThermalPower Project (FGUTPP), (2x210 MW) of Uttar Pradesh Rajya Vidyut Utpadan Nigam(a Government of UP undertaking). These measures resulted in the outstandingsof NTPC being brought down considerably well within the covenanted limit. Byacquiring FGUTPP, NTPC has also gained by adding to its portfolio, aproductive asset by way of adjustment of its outstandings and surchargethereon. During the course of discussions, it has also been realized by theBank that for the size and nature of NTPC's operations the covenant relatingto measure of receivable at the level of two (2) months average billing is notrealistic and needs a review 10/. Nevertheless, NTPC and the Government ofIndia are constantly endeavoring to keep the bills receivable with inreasonable limits.

10/ This statement is GOI's and NTPC's perspective and does not reflectaccurately the Bank's views and position.

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Return on Investment

11. NTPC's return on net average fixed assets in operation(historically valued) though declined from a high of 17Z in FY86 to 132 inFY91, have been substantially higher than the covenanted figures (9.5Z). Themain reason for the decline is that in the case of units commissioned laterand with higher (500 MW) capacity, though higher capital cost has beenincurred, the tariffs charged are still on the basis of capital cost of 200 MWunits commissioned in first half of 1980s. With the implementation of revisedtariffs (two part tariff system as per K.P. Rao committee report) thedeclining trend in the rate of return is expected to be arrested.

12. With regard to para 29 of Part I concerning sustainability ofNTPC's medium and long term growth rate and financing requirements of overallsectoral capacity expansion (and efficiency improvements) needed to close thedemand/supply gap, the Bank is aware that GOI has taken several measures toaugment the resources available for power sector by way of major policychanges which encourages private sector participation, including foreignparticipation, in the field of generation and /or transmission/distribution ofelectricity. These measures are expected to provide substantial additionalityof funds for the power sector and help in minimizing the demand/supply gap.NTPC's capacity expansion program would also have to be reviewed in thecontext of these developments and keeping in view NTPC's excellent trackrecord, it is expected that necessary financial support from externalfinancing source including the World Bank, ADB etc. would continue.Further, NTPC could also be able to mobilize necessary resources from domesticcapital market and external commercial borrowing . The single most importantfactor to be taken care of in this regard is concerning the outstandings to bekept within acceptable limit for which all possible actions are being taken byNTPC and GOI, about which the Bank is being fully kept apprised. As regardsthe sector as a whole also, the various SEBs have taken/are taking severalmeasures including those under "Operational and Financial Action Plans" OFAPswhich, are expected, to go a long way in reducing the several deficiencies.

(v) Environment, Resettlement and Rehabilitation (reference paras 18 to 21of Part I)

13. It has been mentioned in para 18 that environmental andrehabilitation issues outside the power plant project (i.e. of the coal mine,other industries developed in the area) were not studied. It needs to beappreciated that these actions were not in the purview of NTPC. Further, theconcerned organizations were obliged to comply with the applicable regulationsalthough the details of the actions taken by them have not been covered(presumably not considered relevant for this Project Completion Report forRamagundam-II).

14. As per the existing regulations and practices prevailing at thetime of implementation of the project, all rehabilitation measures wereimplemented in consultation with the concerned State Governments. Informalconsultations with the Project Affected Persons (PAPs) about the help to beprovided by NTPC in rehabilitation and resettlement were also held althoughformal consultation with the PAPs through Non-Government Organizations (NGOs)or other similar forum were not held as this was neither stipulated by theBank nor was the prevailing practice. Nevertheless, as brought out in para19, NTPC has taken adequate measures in this regard not only in compliance

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with the prevailing regulations but also even beyond in so far these werepracticable.

15. In fact, NTPC has taken the step to recirculate the ash watercoming back from ash dyke area as the same had high PH value. For beingdischarged otherwise, the supernatant water form the ash dyke is required tobe treated to meet the standards laid down by the Andhra Pradesh StatePollution Control Board. Accordingly an effluent treatment plant is being setup with assistance from SFD. This plant is also used for treatment ofeffluents from the main plant area. A part of the treated water shall berecycled back to the ash handling system. As far as NTPC's role to act ascatalyst for the mines and associated urban and rural development isconcerned, NTPC has already taken a lead amongst all the industries inconducting comprehensive EIA studies and adequate Rehabilitation, Resettlement- mitigative measures and in monitoring programs and has been freelyexchanging the relevant information with the other industries. What isrequired perhaps is a little more initiative on the part of these industriesand the support of the Government for accelerating the process.

16. As brought out in para 20 of Part I, the need for utilization ofash has been well recognized by NTPC and towards this end a full fledged AshUtilization Division has been formed at Corporate Office with Deputy GeneralManager as its head, reporting to Director (Technical). This division hasinitiated all necessary actions for maximum possible utilization of ash fromNTPC's power stations.

17. Regarding use of ash for back filling of mines, NTPC had taken upwith the concerned mining authorities but they have not yet agreed. However,the matter is again being taken up with the Coal India Limited for the use ofash for back filling of either abandoned or active mines. As regards thequestion of development of the national level technologies in mining and ashhandling, which allow back filling of ash to the mines, this aspect will haveto be studied in detail by the concerned agencies considering all itsimplications including the levels of investment required and their possiblesources etc.

18. As evident from paras 20 and 21 of Part I, NTPC has fulfilled allits obligations in connection with environmental requirements which alsoestablishes that the organization's environmental group was adequatelystaffed. However, the need for augmenting the unit to cater to the futurerequirements is well recognized and the same is being adequately addressedunder the proposed NTPC-Power Generation Project.

iv) Evaluation of the Bank's Performance

19. Ramagundam Thermal Power Project was the third in the series oflarge thermal power projects (Singrauli and Korba being first and secondprojects) and the first in the Southern Power Region of the country taken upby NTPC for implementation during its first phase of development. Theassistance extended by the Bank contributed substantially in bringing theproject to fruition. The project was supervised closely and an adequatenumber of site visits under supervision missions were made. Excellentcooperation existed between the Bank staff and NTPC during the implementationof the project. In fact, this relationship continued to grow and to date the

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Bank group has extended financial &sslstaance to NTPC to the extent of nearlyUS$ 4 billion for the implementation of 13 projects. With the approval ofassistance for the Second Ramagundam project, the Bank Group was involved inthe total Ramagundam Project (2100 MW). Discussions for a series of threeBank loans for a total commitment of US $ 1 billion to support NTPC'sinvestment program during the eight plan period under 'time slice' concept arein progress.

vii) Evaluation of the Borrower's Own Performance

20. At the time the second Ramagundam Thermal Power Project wasenvisaged, it was expected that the project, on completion would contributesignificantly to the easing of power shortages in the region. With thesatisfactory completion of the project NTPC has been able to achieve this mainobjective as the generating performance of the units at this station has beensatisfactory and the power station is supplying much needed electricity to theSouthern Region, which continues to suffer from peaking as well as energyshortages. The project has also contributed to the overall development of thearea.

21. Right from inception, NTPC had adopted as an organizationalobjective, achievement of self sufficiency in the design and engineering oflarge thermal power stations and high voltage transmission lines. Thisprocess was started in its first two (2) projects itself i.e. Singrauli andKorba (both financed by the Bank) and NTPC has substantially achieved thisgoal in the Ramagundam project. For the first time, entire design andengineering for this project were successfully done by NTPC in-house with verylimited support from consultants.

22. NTPC has recognized training, both managerial and technical, as oneof the important needs for organizational development. It is significant thatthe Korba and Farakka power projects assisted by the Bank include procurementof a full scope 500 MW thermal power plant training simulator. The Korbaproject also has a 200 MW training simulator. This has been very useful intraining of power plant operators and technicians and has contributedsignificantly in efficient and reliable operation of NTPC's Power Plants.

23. It has been recognized that NTPC has set for itself a tight timeschedule of commissioning 500 MW units within 5 years from the date of orderof the main plant equipment. To achieve this objective, NTPC developed itsIntegrated Project Management and Control System (IPMCS) taking into accountthe work culture and working environment in which NTPC is operating. TheIPMCS has been successfully used by NTPC which is evident from the fact thatalmost all of its projects were completed in time and in some cases, evenahead of schedule.

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INDIA


PART III: STATISTICAL SUMMARY

Related Bank Loans

Loan No. Year ofTitle Purpose Approval Status

Loan 1648-IN To help (a) solve January Closed in The projectCredit 874- rationing in the 1979 June 1987 was success-IN/Ramagundam Southern Regions fully com-Thermal Power by providing three pleted.

200 MW generatingunits; (b) assistGOI in achievingits objective offurther advancingthe regional andultimately thenational integra-tion of the powersubsector.

Proiect Timetable

Date Date DateItem Planned Revised Actual

- Appraisal mission 01-02/81 01-02/81

- Loan/Credit Negotiation 11/81

- Board Approval 12/22/81

- Loan Signaturo 01/06/82

- Loan Effectiveness 03/16/82

- Loan Closing 06/30/88 (i) 03/31/89 03/31/92(ii) 03/31/90(iii) 03/31/91(iv) 03/31/92

- Loan Completion 07/31/92

l 21 {

Loan DisbursementsDisbursements (in US$ million)

Loan 2076-IN

BankFiscal Year Estimated Actual Actual Z ofand Semester Cumulative Cumulative Estimate

1983 12 18

1984 1 30 -2 60 30.5 11.0

1985 1 66 30.5 11.02 132 39.7 14.3

1986 1 216 47.5 17.12 288 72.2 26.0

1987 1 294 85.3 30.82 300 /a 135.1 48.7

1988 1 149.1 53.82 192.5 69.4

1989 1 205.9 74.32 231.8 83.6

1990 1 235.1 84.82 261.6 94.4

1991 1 263.3 95.02 270.4 97.5

1992 1 270.4 97.52 274.1 98.9

1993 1 277.2 /b 100.0

/a US$20 million was cancelled on November 20, 1989.

lb The loan was closed on March 31, 1992, against the originalschedule of June 30, 1988. Total disbursement under this loanwas US$277,167,342.62. The undisbursed balance ofUS$2,832,657.38 was cancelled on August 28, 1992, when the finaldisbursement under the Loan was made.

- 22 -

Prol-ct ImDlementation

Indicators Appraisal Estimate Revised Estimate Actual

(1) Installation of three 600 MW units To be co_Tissconed:/ To be commis- Co_is-with associated civil work: sioned Tn:a sioned In:No. 4 500 MW unit July 1987 July 1988 /bNo. 6 600 MW unit July 1988 July 1989 June 1988No. 6 600 MW unit July 1989 July 1990 March 1989

October1989

(1) Installation of 400 Kv transmissionlines along with associated substa- To be completed bytions: matching with units Completed(i) Bangalore Salem in:

181 km May 1988(ii) Ramagundam Nagarjunasagar August 1987

534 km October(iii) Nagarjunsuagar-Cuddapah (II) 1988

239 km March 1989(iv) Nagarjunasagar - Munirabad

407 km

/a Commissioning means synchronization.

Lk Datoe of commercial operation were as follows:No. 4 600 MW November 1988No. 6 600 MW September 1989No. 6 600 MW April 1991

- 23 -

Project Costs and Financing

A. Comparison of Estimated and Actual Project Costs

S. Item SAR Actual SAR ActualNo. (In Rs. Million) (In US$ Million)

A. Power Plant & Facilities

1. Preliminary & Civil Works 680.80 1,614.57 85.10 95.862. Mechanical Works 3,820.80 8,591.77 477.60 587.413. Electrical Works 577.60 572.52 72.20 38.744. Coal Transportation System 135.20 275.16 16.90 14.22

Sub-total 5,214.40 11,054.02 651.80 736.23

B. Transmission System 1,051.20 1,764.60 131.40 130.60

C. Air Plane 8.00 N/A 1.00 N/A

D. Engineering Services and 824.00 620.90 103.00 41.33Administration

E. Contingency (Physical) 347.60 * 43.50 *

F. Contingency (Price) 3,862.40 * 482.80 *

G. Taxes and Duties 1,232.00 * 154.00 *

TOTAL PROJECT COST 12,539.60 13,439.52 1,567.50 908.16(excluding IDC & WCM)

H. Interest During Construction 662.90 468.40 82.90 32.17

I. Working Capital Margin 183.60 12.10

TOTAL PROJECT COST 13,202.50 14,091.52 1,650.40 952.43

* Included in respective package costs.

- 24 -

Prolect Financing(US5 '000)

Planned (LoanSource Asreement) Revised Final

(USS '0U0) (US5 '000) X (US5 '000) Z

1. IDA/IBRDLCategoryTIT) olTers and aux-

iliary and mech-anica1 equipment,and associatederection work 252,000 234,000 221,150

(2) Electrical andtransmissionequipment, andassociated erec-tion work 37,000 55,000 55,827

(3) Consultants'services 1,000 1,000 185

(4) Air transmissionvehicle La - 3,500 0

(5) UnallocatEid 10,000 6,500 0

Difference due to crossexchange rates on SpecialAccount payments - - 5

Revised subtotal - 277,167 29.2

Cancelled tb - 20,000

Cancelled (August 28, 1992 --undisbursed balance) - 2,833

Subtotal 300,000 18.2 300,000 300,000

2. KfW (FRG) /c 72,700 4.4 74,100 /g 7.8

3. OPEC Ld 30,000 1.8 30,000 3.2

4. Saudi Fund /e 43,680 2.6 47,600 Lj 5.0

5. EXIMBANK of Japan /f 176,370 10.7 192,035 Lj 20.2

6. Domestic 1,027,650 62.3 328,095 L& 34.6

Total 1,650,400 100 948,997 100

La An air transmission vehicle (executive airplane) was originally included inCategory (1) and subsequently revised to explicitly categorized in Category(4). This item was eventually excluded from the scope of the Bank finance forthe project.

Ib US$20 million was cancelled on November 20, 1989.The cofinancing agreement with KfW of Federal Republic of Germany was signedon September 28, 1984 in the amount of DM 145 million (equivalent to US$72.7million) to cover 3 units 500 MW turbine senerators.

/d The cofinancing agreement with OPEC was sIgned on may 21, 1982 in the amountof $30 million.

/e Saudi Fund of Saudi Riyals of 172 million was signed on May 14, 1985 to covercivil works for water treatment plant, procurement of three diesel locomo-tives, miscellaneous mechanical and electrical equipment.

/f Japanese '62 billion was funded for three projects and of which JY 27,110million (equivalent to Rs 2,575.0 million) was allocated to this project.

]. Based on the conversion rates prevailing on dates of actual disbursements.

- 25 -

Project Results

A. Direct Benefits

Indicator Estimated at closingdate/full development(As of December 31, 1991)

1. Energy Generation (GWh) Unit 4(500 MW) 7,734.77(Since Commercial Unit 5(500 MW) 5,824.87operation) Unit 6(500 MW) 2,037.89

Total 15,597.53

2. Power Transmission To the Beneficiariesin the Southern Region

B. Economic Impact

(1) In the appraisal report, the return on investment was calculated forthe second phase expansion by 1,500 MW of the first 600 MW stage of theRamagundam thermal power station to demonstrate the relationship betweentariffs and the economic cost of the development. It was defined as thediscount rate at which the present worth of the economic cost associated withthe development equals the present worth of the economic benefits over thelife cycle of the development. The measurable costs included:

(a) capital and labor costs involved in the development of generationand transmission facilities;

(b) the annual operation and maintenance costs; and

(c) fuel costs.

The benefits were measured in terms of the revenues to be derived from thesale of electricity.

(2) Based on measurable economic costs and benefits associated with the1,500 MW development, the ex-ante internal economic rate of return (IERR) wasestimated at about 15Z (for economic tariff of 25 paisa/kWh and consumersurplus of 12 paisa/kWh) and about 8Z (for economic tariff of 25 paisa/kWhonly). For PCR, the benefits were calculated by the following two ways: (i)weighted average of sales tariffs of SEBs of Rs 0.70/kWh was applied; and (ii)total tariff of Rs 1.58/kWh including consumer surplus of Rs 0.88/kWh 11/was applied. The resultant ex-post IERRs for the 1500 MW development were (i)about 3.3Z, and (ii) about 24Z. The former is based on relatively low tariffrates in the Southern Region and relatively higher coal cost 12/.

11/ The consumer surplus as per SAR for Second Maharashtra Power Project wasused as a reference.

12/ Comparison between Ramagundam II and Rorba II projects for sales tariffsand coal price is as follows:

Ramagundam II Korba II-- Weighted average of sales

tariffs of SEBs (Rs/kWh) 0.70 1.06-- Coal price (Rs/ton) 426.75 203.53

- 26 _

(3) Comparison of tariffs in SAR and PCR is summarized below.

Share of RegionalState Consumption (Z) Average Tariff (Paise/kWh)

SAR PCR SAR 1980-81 PCR 1990-91

Andhra Pradesh 23 27.6 36.0 70.6Tamil Nadu 41 22.4 31.0 71.7Karnataka 24 16.4 23.4 70.1Kerala 12 11.7 19.5 56.3Goa n.a 4.8 95.0Pondicherry n.a 2.4 68.9Unallocated n.a 14.7 n.a

Total 100 100.0

Weighted Averaged - financial 29.0 70.0- economic 25.2 n.a.

C. Financial Impact

(1) The principle beneficiaries of the power generated from the Ramagundampower station are the state electricity boards in Tamil Nadu, Karnataka andAndhra Pradesh which are consuming about 85Z of the power generated. Thebalance of the available electricity has been supplied to Kerala SEB and Goaand more recently to Pondicherry. APSEB and KEB have had good paymentrecords, while TNSEB and KSEB are at times late with their payments. On theaverage dues outstanding from sales of the Ramagundam Power Station arecurrently below 2 months of sales equivalent.

(2) NTPC's actual and projected financial statements for the period FY85-FY91 are presented in Annexes 2 to 4. The most salient feature of NTCP'soperations was the spectacular growth the corporation experienced. From FY85to FY91, the value of average net fixed assets increased by 38Z per annum,while electricity sales (GWh) grew with an average of 30Z per annum. The paceof NTPC's growth is however declining. Total annual investments increasedonly by about 17Z over the same period and work-in-progress has remainedstagnant since FY88. In FY90 the value of net assets in operation becamelarger than work-in-progress. During the period under review, net profitseven grew by 41Z per annum, but NTPC's return on net average fixed assets inoperation (historically valued) declined from a high 17Z in FY86 and FY87 to13Z in FY91. The returns achieved are well in excess of the 9.5Z which wasrequired under the loan as a target from FY89. GOI's current policy is to settariffs for NTPC power stations an a cost-plus basis with specific normativeoperational parameters. NTPC's better financial performance should be largelycredited to NTPC having operated the power stations at efficiencies well abovethe norms and standards used for the purpose of tariff setting. On the otherhand, while NTPC's performance was much better than most other public enter-prises, the FY91 returns were negative in real terms. Moreover, NTPC'scontributions to investments from internal resources was relatively modest andthe level of accounts receivable, throughout the period under review was wellabove the 2 months level covenanted by the Bank under Ln. 2555-IN, in 1985.The following table represents the key operational results forecasted in theappraisal report compared with actuals:

-27-

SECONO KOR8A ANO RAMAGUlNGAM THERMAL P068R PROJECTS

...... ..... ............ ..................

Y.' r endiNO March 01 1985 1986 1987 1988 1989 1990 1991......................................... ...................................... ................ ................... ................ ................... ................ .................. ..................................................

Fon,!w Actual Fore-ast Actual Forecast Actuat Forecst Actul Forecast Actual Forecast Actua Forcast Act-ta

l"ctricity S.tn. (GCA> 6,551 8,316 9,893 12,839 13,261 14,408 17,883 17,533 24,070 248T75 30,651 35,421 36,086 40,306A-.ea # lk Tariff IP/Kc) (Garatio) 33 37 33 38 34 40 34 41 35 46 36 52 36 53

Total Ope9otino r- .S 2,299 3,438 3,513 5,294 4,78Z 6,453 6,526 8,622 8,954 12,748 11,599 20,573 13,900 24,207Totat oparating EIp-nos 1,376 2,042 2,131 2,943 2,771 3,522 3,6O 4,712 5,342 7,559 6,992 12,567 8,397 14,577

1at Profit 257 875 336 1,830 589 2,118 625 3,024 860 3,308 1,186 5,366 1,993 7,009

A~rg8 Mat FictI 8ss8ts (0Itoric) 16,281 10,957 21,175 14,016 26,808 17,209 35,582 23,856 45,041 35,078 53,332 53,567 57,919 75,48zNot. of 8.turr on Historic Assets (X 6X 132 72 17% 82 17X 72 162 82 15 9S 15X 10 138ODarsting Rtio (X) 602 59% 612 56X 58X 552 59X 552 602 592 602 61X 60S 602Cctnb.,tiofl to Construct,om (Ar-Ja 2 62 72 82 -1X 122 98 142 8X 25X 10X 932 138 5002 163Debt Service C-corg 2.0 3.3 1.8 4.9 1.7 4.0 1.4 3.9 1.4 2.4 1.3 2.5 1.3 2.5D*OtEquity Ratio 34/66 32/68 37/63 36/64 41/59 42/58 45/55 43/57 47/53 47/53 45/55 47/53 4/a58 43/57Current Ratio 7.3 1.0 6.0 .6 5.9 1.6 5.6 1.7 5.2 1.8 4.7 1.8 7.2 1.9Accou,ts tec.i-6bls (t of days) 32 184 32 163 32 164 32 177 32 175 32 210 32 233

(3) As can be seen from the table above, NTPC has in fact outperformedmost of the financial targets set in the appraisal report, the exceptionsbeing the much lower level self financing and poor bill collection. While thelower level of self financing can be partly attributed to the much larger sizeof the investment program than anticipated during appraisal, the level ofaccounts receivable has consistently been above 5 months and was even 7.7months of sales equivalent at the end of FY91 13/. The situation wouldhave been worse if the Government had not at times, settled part the outstand-ing bills on behalf of the SEBs through central appropriations. Also, theincreased working capital requirements resulting from the poor bill collectionperformance, considerably reduced NTPC's ability to contribute to its invest-ment program from its internal resources. NTPC's average self financing ratiofrom FY87-91 was only about 121 and NTPC was increasingly confronted withtightening liquidity situation. The unsatisfactory bill collection perfor-mance has not only reduced NTPC's self-financing ratio, but more importantly,its inability to collect in time, has prevented NTPC's traditional lenders,such as the Bank, to extend new loans to finance new plants in NTPC's invest-ment program.

(4) Under the prevailing policy environment in the Indian power sector,whereby the Government determines fixed allocation for supply of power of NTPCplants and NTPC is unable to either cut-off or re-allocate power from nonpaying customers, NTPC is prevented from operating on a pure commercial basis.Since many of the SEBs have not been respecting the commercial terms of thesupply contracts, bill collection in the current environment is largely beyondNTPC's control. Bill collection for power generated from the project has beenmuch better, but most of NTPC sales are presently in the Northern and EasternRegions, which have also been the major defaulters in terms of payment ofbills. Under a new time-slice operation which is currently under preparation,agreements are being sought from Government to allow NTPC to either cut-off orreallocate power from non-paying customers.

13/ In May 91, GOI decided to settle an amount of Rs.10 billion throughcentral appropriations over a period of four years. In addition, inJanuary 1992, NTPC took over the Unchahar Power Station from UPSEB, NTPC'slargest defaulter, with the proceeds to be used to off-set the accumulatedarrears. As a result, the average level of NTPC's accounts receivable atthe end of February 1992 was about two months of sales equivalent, nottaking into account the Rs.5 billion, which is still to be paid by GOIthrough central appropriations in FY93 and FY94.

- 28 -

FY87 - FY91Year Ending March 31, 1991 Forecast 2 Actual 2

(Rs million) (Rs million)

Total Internal CashGeneration 24,843 61 36,518 29

Equity Contributions 2,311 6 35,876 29Capital Receipts 0 363 0

Loans - 34,404 27Bonds 18,539 15

Total Borrowings 13,615 33 52,943 42

Total Sources 40,769 100 125,700 100

Total Investments 20,491 50 100,977 80Total Debt Service 18,110 44 13,483 11Increase in Working Capital 2,169 5 11,241 9

Total Applications 40,769 100 125,700 100

Contribution to construction 222 12ZDebt service coverage 1.4 2.7

(5) During the FY87-FY91 period, NTPC met 422 of its total financingrequirements including debt service and increased working capital needs byborrowing. The balance was met equally from internal cash generation and GOIequity contributions. This denotes a heavy reliance on GOI support, particu-larly if we take into account that a large part of the borrowings were loansmade by multilateral and bilateral agencies to GOI which were onlent to NTPC.Although the interest rates were in line with those charged in the domesticcapital markets (up to 152 in the period under review), GOI generally took theforeign exchange risk, and the terms (20 years, including 5 years grace) weremore favorable than commercial credits. Also, GOI has ploughed all profitsback into NTPC's operation, by not requiring any dividends to be paid out.During NTPC's initial period of growth this was a sound policy, but it hasalso shielded NTPC and its customers from paying the full cost of the powergenerated by NTPC. GOI has recently indicated that entities such as NTPCwould no longer be able to rely on GOI budgetary support, have to start payingout dividends and that it would have to raise its own funds in the capitalmarkets. GOI has realized that this requires a reorientation of NTPC'sfinancial, as well as commercial, policies and practices. The new policieswould aim at a greater reliance on funds generated from internal resources andNTPC's ability to raise funds from domestic and international capital markets.The details are currently being discussed in the context of a new wtime-slice"operation for NTPC.

- 29 -

Status of Covenants

COVENANT SUBJECT STATUS

Project Agreement Dated July 11. 1980

PA 2.02 NPTC shall engage consultants to assist in Complied withthe design and engineering of the Project.

PA 2.04 NTPC shall take out insurance on goods Im- Complied withported for tho Project.

PA 2.06 NTPC shall maintain appropriate records on Complied withthe Project and furnish regular progressreports to the Bank.

PA 2.06 NTPC shall furnish a complotion report with- Being compliedin six months after the closing date of theProject.

PA 2.08 NTPC shall properly acquire all necessary Complied withland for the Project.

PA 2.09 NTPC shall ensure compliance with appropri- Complied withate environmental standards in execution andoperation of tho Project.

PA 3.03 NTPC shall inform the Bank in advance, of Complied withany proposal to change NTPC's limitation toborrow funds.

PA 3.04 NTPC shall take out insurance against risk Complied within such amounts as will be consistent withappropriate practice.

PA 3.06 NTPC shall enter Into bulk supply contracts Complied withwith SEB customers allocated a share of ele-ctricity supply from the Projoct.

PA 4.02 NTPC shall submit audited financial state- 86/86: Compliedments and auditor's report within 7 months 88/87: Compliedof FY end. 87/88: Complied

88/89: Complied89/90: Complied90/91: Complied

PA 4.03 NTPC shall achieve an annual rate of return Superseded by covonents under subsx-of not less than 9.6% from FY90/91 onwards. quent NTPC Projects requiring 7% ROR

in FY84/86 through FY89/90 and 9.6%ROR from FY90/91 to FY94/96 and asatisfactory level thereafter -being complied with. /a

Loan Agreement Dated January 6, 1982

LA 2.02 (b) GOI shall maintain a special account in Complied with (Opened 08/87 31O.OM)dollars as amended 06/03/87

LA 3.01 (b) GOI shall enter into a subsidiary loan Complied withagrement with NTPC under terms satisfactory (The actual lnterest rate was 12%to the Bank (not lose than 11.76% per annum). per annum).

LA 3.03 GOI shall grant import permission for goods Complied withfinanced under the Project and makeavailable foroign exchange funds requiredtherefore.

- 30 -

COVENANT SUBJECT STATUS

LA 3.04 OI shall onsuro adequate coal supplies for Complied withthe Project.

LA 8.04 GOI to furnish the Bank not later than 6 86/86: Compliedmonths after the end of tho FY the auditor's 86/87: Compliedreport in respect of the special account 87/88: Complied(amended 06/03/87) 88/89: Complied

89/90: Complied90/91: Complied

LA 4.02(a) NTPC to maintain a system of SOEs (amended Complied with

LA 4.02 GOI to submit tho Bank not later than 87/88: Compliedb(ii) 6 months after end of FY auditor's opinion 88/89: Complied

in regard to the statements of expenditure 89/90: Compliedsubmitted during tho year (amended 03/16/87) 90/91: Complied

/a NTPC shall enter into bulk supply contracts with SEB customers allocateda share or *lectricity supply from the Project.

- 31 -

Use of Bank Resources

A. Staff Inputs

Staff inputs in carrying out the various tasks through the projectcycle from preparation in FY81 to completion in FY93 were as follows:

Task Input (Staff-weeks)

Project Preparation 2.2Project Appraisal 24.3Loan Negotiations 3.9Loan Processing 8.2Project Supervision 59.7Project Completion Report 4.2Project Administration 2.9

Total 105.4

B. Missions

Project Cycle Month/ Number of Days Speciali- Performance Type ofyear persons in field zation la rating /b Problems /c

Through Appraisal

Identification LdPreparation /d

Preappraisal LAppraisal 01/81 4

SupervisionSupervision 1 02/81 3 25 E,FA,EC 1Supervision 2 06(84 1 21 FA 1Supervision 3 05/85 2 15 E,FA 1Supervision 4 09/86 3 19 E,E,FA 1Supervision 5 09/87 3 10 E,FA,FA 1Supervision 6 01/88 3 20 E,FA,FA 1 PRSupervision 7 09/88 3 29 E,FA,EC 1 ISupervision 8 07/89 1 11 E 1Supervision 9 02/90 1 8 E 1Supervision 10 07/90 1 9 E 1Supervision 11 07/91 1 9 E, FA 1PCR 02/92 1 9 E, FA

la E: Engineer, LO: Loan Officer, FA: Financial Analyst. EC: Economist.7b 1 - No or minor problem, 2 - moderate problem, 3 - major problem.7c I: Implementation delays, PR: Procurement problems and delays.7h Identification was made by GOI in 1974. Preparation and preappraisal were made

by NTPC in 1978.

.- Poot Internal SEco oic sets of Return for Roemoa,dam 11

I.6P.Coel(baIdk) 0.645 6. 0ta.Irca (0) am (Rc WII 1I-/)2.C..l CO(P*/sb) 426.76 7. Aug. Coe,9 . (S) 7

3.011 Cs(Re/kl) 4i1l.96 6, 400kV 1*s.. (S) 2.64. UK p./W1t/V. 400 9. T00 Lo"1. (S) la.a5.S..afltiVaI.aV .dv a tariff of 0. 0A.jkw

CA,..ar oorpla. Imcludedi t.SbMsjki8.pondlture Benefit..

Pro.r 51t.10 Troo.l-alon Sy.L.. E36 ToLal Insded Inds.d

Operating Coata T10 Coot Coot of Rovenu. Conwe.er Ido. Total Projeclot.1 ProjectCapltal -------------------------- Total Capital Total Capital Supply t.oO.aaratiloSlal fro S.,rple 1/92/10011aaflt, S.eflt.

Year Coat Coal ll on Ps Coot 0D14 TS Coot 0C14 End-oro(H) (CM) End-Ua.rsinclwded /b (Baa.) (lnclud.comau

s"-44 622.6 622.9 61.9 61.9 266.5 971.2 U5.2 (971.2) (971.2)

1944-66 63 .1 663.1 91.9 91.9 306.0 1,060.0 56.6 (1.040.0) (1.060.0)

196-66 1,121.0 1,121.0 146.6 146.6 561.7 1,763.2 61.4 (1,703.2) (1,763.2)

1966-67 1,567.2 1,567.2 264.3 266.3 720.9 2.664.4 64.9 (2,664.4) (2.664.4)

1947-66 1,953.6 1,953. a 30.3 36.3 696.7 3236.6 70.2 (3,236.6) (3,236.6)

1 1966-69 2.016.4 261.2 13.0 93.0 2,472.6 366.2 13.1 371.4 927.1 73.1 3,544.1 1,279.9 945.6 60.9 1,367.6 76.6 (3.236.2) (2,476.6)

2 1969-90 660.0 1,099.3 40.7 290.4 1,960.4 41.9 13.6 56.4 253.0 76.1 2,361.0 4.00.1 2,960.6 1.953.4 4.409.1 61.1 (413.6) 2,042.1

3 1990-1 1.187.6 1,047.0 36.6 271.4 2.661.0 199.4 16.6 214.9 546.4 69.1 3,401.4 3,616.6 2,019.7 1,911.3 4,326.4 69.3 (1.466.1) 924.0

4 1991-92 454.1 2,546.4 67.0 600.0 3,469.6 0.4 15.6 16.0 206.9 93.2 3,607.7 6,556.4 6,324.7 4,427.3 9,993.0 100.0 619. 6,1S6.S

1992-93 241.9 2,263.6 63.9 600.0 3,169.6 16.6 1.6 111.3 96.6 3.411.6 6,280.0 6,096.6 4,267.7 9,632.9 100.0 566.0 6.221.1

6 1993-94 470.6 ,26.6 63.9 6.0 8,416.4 16.6 16.6 216.6 99.6 3.760.3 6,260.0 6,096.6 4,257.7 9,632.6 100.0 617.4 66 "2. 6

7 1994-95 2,263.6 53.9 600.0 2.647.7 16.6 15.6 99.8 3,063.0 6,260.0 6.096.8 4,267.7 9,632.9 100.0 1.204.7 0.669.9

a 196-96 2,263.0 6.9 60.0 2,947.7 15.6 16.6 99.6 3,063.0 8,260.0 6,096.6 4,267.7 9,632.9 100.0 1,204.7 6,549.9

9 1996-97 2,263.6 3.9 600.0 2,947.7 16.6 15.6 99. 3,063.0 6,250.0 6,096.6 4,267.7 9,532.9 100.0 1,204.7 6,59.9

10 1997-96 2,263.6 5.9 600.0 2,947.7 10.6 16.6 99.6 3,063.0 5,260.0 6,096.5 4,267.7 9,632.9 100.0 1,204.7 6,69.9

11 199S-99 2,23.6 63.9 600.0 2,947.7 15.5 16.6 99.5 2,093.0 6,260.0 6,096.6 4,267.7 9.632,9 100.0 1,204.7 6,59.9

12 1999-2000 2,26. 6 63.9 00.0 2,947.7 16.6 16.6 99.0 5,063.0 0,260.0 6,096.0 4,267.7 9,42.9 100.0 1,204.7 6,54.9

13 2000-01 2,261.6 3.9 600.0 2,947.7 16.6 16.6 99.6 3,063.0 6,260.0 6,096.6 4,267.7 9,632.9 100.0 1,204.7 6,56".9

14 2001-00 2,263.6 63.9 60.0 2,947.7 16.5 15.1 99.0 3,093.0 6,250.0 6,096.6 4,267.7 9,632.9 100.0 1,204.7 6,569.9

16 2002-0 2,263.6 .9 600.0 2.947.7 16.6 16.6 99.8 3,063.0 6,250.0 6,096.6 4,267.7 9,632.9 100.0 1,204.7 6,59.9

16 2003-04 2,263.6 63.9 600.0 2,947.7 16.5 16.5 99,0 3,063.0 6,260.0 6,096.6 4,267.7 9,632.9 100.0 1,204.7 6,56.9

17 2004-06 2,263.5 53.9 600.0 2,947.7 16.6 16.5 99.6 3.063.0 6,260.0 6.096,5 4,267.7 9,632.9 100.0 1,204.7 6,569.9

16 2005-06 2,263.6 3.9 600.0 2,947.7 16.6 16.5 99.6 3,063.0 6,200.0 6,098.6 4,267.7 9,632.9 100.0 1,204.7 6,569.9

19 2006-07 2,263.6 U.9 0.0 2,947.7 16.6 15.5 99.6 3,063.0 6,200.0 6,096.6 4,267.7 9,632.9 100.0 1,204.7 6,59.9

20 2007-6 2,263.8 .9 600.0 2,947.7 15.6 15.5 99.5 3,063.0 6,250.0 6,096.6 4,267.7 9,632.9 100.0 1,204.7 6, 59.9

21 2006-09 2,263.6 83.9 600.0 2,947.7 18.6 15.6 99.6 5,063.0 6,250.0 6,096.6 4,267.7 9,632.9 100.0 1,204.7 6, 59.9

22 2009-10 2,298.6 ".9 600.0 2,947.7 16.5 15.& 99.6 3,063.0 6,260.0 6,096.6 4,267.7 S,6G2.9 100.0 1.204.7 6,59.9

23 2010-11 2,263.6 ".9 600.0 2,647.7 15.6 16.6 99.6 3,063.0 6,260.0 6,096.6 4,267.7 9,632.9 100.0 1,204.7 6,U9.9

24 2011-iU 2,2S.6 U.9 00.0 2,947.7 16.5 15.5 9".6 3,063.0 6,260.0 6,096.6 4,267.7 9,63.9 100.0 1,204.7 6,69.9

Xii 0.0081 0.241

/b Joflatla 1ed.; #a per CO.. 41 pmeIeNwaormd IM9

is C_O.Ur wIut go per OM of G_ N4 ti"reAtra Pwer Pr oject

i4

SECOND RAAGUiNDAN THERNAL POUER PROJECTNATIONAL THERNAL POWER CORPOBATION LTD.

INCONE STATEMENTS(in million of Rupees)

Year ending March 31 1985 1986 1987 1988 1989 1990 1991,,,,,,,, ,,.,....... ,., .......,..,,.., .. ....,,,,,, ,,,...................................... ....... ............ --- - ----- ................ ---------- ---- ------ - , - ------- .......................... > ...............IMCCOE DESCRIPTION Forecast Actual Forecast Actual forecast Actual forecast Actual Forecast Actual Forecast Actual Forecast ActualElectricity Generation (GWh) 9,248 14,174 15,921 19,378 27,296 38,595 43,965Less: Aux Cons.(GCh) 932 1,335 1,513 1,845 2,421 3,174 3.659Electricity Sates (CGh) 6,551 8,316 9,893 12,839 13,261 14,408 17,U83 17,533 24,070 24,875 30,651 35,421 36,086 40,306Average Bult Tariff (P/Kih) (Generation) 33 37 33 38 34 40 34 41 35 .46 36 52 36 53Operating Revenues:Electricity Sates 2,164 3,077 3,310 4,829 4,510 5,736 6,161 7,201 8,461 11,460 10,970 18,376 13,160 21,254Tranasission Charges 148 284 555 1,176 993 1,691 2,404Electricity Duty 134 111 203 III 272 87 366 93 494 179 629 294 740 347Other Incalim 102 70 75 152 116 212 201

Total Operating Revenue 2,299 3,438 3,513 5,294 4,782 6,453 6,526 8,622 8,954 12,748 11,599 20,573 13,900 24,207Operating Expenses:

Fuel Cost 518 1,252 898 1,952 1,259 2,360 1,799 3,165 2,600 5,285 3,557 8,985 4,461 9,760Operation nd Maintenance 329 404 445 483 547 616 729 807 964 1,175 1,180 1,745 1,323 2,105Depreciation 395 265 585 377 694 448 986 579 1,285 912 1,626 1,396 1,873 2,251 wElectricity Duty 134 112 203 111 272 87 366 93 494 179 629 294 740 347 1Others* 10 21 11 69 8 147 113Total Operating Expenses 1,376 2,042 2,131 2,943 2,771 3,522 3,880 4,712 5,342 7,559 6,992 12,567 8,397 14,577Operating Incaoe Before Interest 922 1,396 1,382 2,350 2,011 2,931 2,647 3,910 3,612 5,189 4,606 8,006 5,503 9,630Interest Chargeable to Revenue 665 492 1,045 570 1,422 866 2,022 1,248 2,752 1,791 3,422 2,730 3,510 3,472Profit before Tax 257 904 336 1,781 589 2,065 625 2,662 860 3,398 1,184 5,276 1,993 6,158Less:Provision for Tax 1 1 0Profit after Tax 257 904 336 1,780 589 2,064 625 2,662 860 3,398 1,184 5,276 1,993 6,158Prior Period Income (Net) (28) 50 53 362 (90) 90 851Net Profit 257 875 336 1,830 589 2,118 625 3,024 860 3,308 1,184 5,366 1,993 7,009Average Net fixed Assets (Historic) 16,281 10,957 21,175 14,016 26,808 17,209 35,582 23,856 45,041 35,078 53,332 53,567 57,919 75,482Rate of Return on Historic Assets (X) 6X 13X 71 17X 81 17X 7X 16X 8X 15X 9X 151 10X 13XOperating Ratio (X) 60X 59% 61X 56X 581 55X 59X 55 60X 591 601 611 60X 601

a Includes deferred expenses, prliPiprary expenses, bonds expenses, rebate to customers and contingencies.

SECOND RAHAGQJNDAN THERMAL POWER PROJECTNATIONAL 1HERMAL POWER CORPORATION LTD.

SoURCES AND APPLICATION Of FUNDS(in millon of Rtpees)

Year ending march 31 1985 1905 1986 1986 1907 1987 1988 1988 1989 1989 1990 1990 1991 1991,,,,,,,,,,,,,,,,,,..... ... . . ............... ......................... --- -- -- -- -- ----- ---- ---- ----- ---- ---- ----------------........ ---------------......... --------------- ---------------

SOURCES DESCRIPTION Forecast Actual Forecast Actual Forecast Actual Forecast Actuat Forecast Actual Forecast Actusl forecast Actuat] .....--- ---- ----- ---- ----- ---- ----- --- ----.- .- ---..... ..----- ------- - -*--*-- *- -- *---*----- * ----.-....---...... ---.-- -------- .---------------- -------------... ... ........--- ----------------

SOURCES OF FUNDSOperating Incooe before Interest 922 1,396 1,382 2,350 2,011 2,931 2,64.7 3,910 3,612 5,189 4,606 8,006 5,503 9,630Prlor Period Inco.e (Met) 0 (28) 0 50 0 53 0 362 0 (90) 0 90 0 851DepreciationM) 395 265 614 377 694 448 986 579 1,285 912 1,626 1,396 1,873 2,251Total Internal Cash Generation 1,317 1,632 1,996 2, 17 2,705 3,432 3,633 4,851 4,897 6,011 6,232 9,492 7,376 12,732

Equity Contributions 4,694 4,859 4,257 6,808 2,311 5,909 0 6,879 3,682 6,594 12,812Capital Receipt 26 0 114 24 87 21 I11

Borrowings...........

Loans Contracted 4,416 5,131 5,865 4,836 11,972 6,712 5,019Bonds 0 1,634 4,300 4,394 1,499 4,346 4,000Total sorrowings 3,355 4,416 4,750 7,365 4,594 10,165 5,742 9,230 3,188 13,471 91 11,058 9,019

TOTAL SOURCES 9,366 10,933 11,003 16,950 9,610 19,620 9,375 20,984 8,085 23,251 6,323 27,165 7,376 34,680

APPLICATION OF FULDSTotat Investment 8,541 10,011 9,795 14,048 7,802 17,806 6,655 17,630 4,243 19,064 1,306 20,397 484 26,079 ''

Debt ServiceInterest Charged to Operations 665 492 1,045 570 1,422 866 2,022 1,248 2,752 1,791 3,422 2,730 3,510 3,472Amrtizatlon of Loans 0 - 63 - 217 - 499 845 747 1,376 1,087 2,045 1,542Totat Debt Service 665 492 1,108 570 1,639 866 2,521 1,248 3,597 2,538 4,799 3,817 5,555 5,015

Increase (Decrease) In Uorking Capital 159 430 101 2,332 168 947 199 2,106 245 1,649 218 2,951 1,337 3,586Provislon for Tax 0 0 0 1 0 1 0 0 0 0 0 0 0 0

TOTAL APPLICATION OF FUNDS 9,366 10,933 11,003 16,950 9,610 19,620 9,375 20,984 8,085 23,251 6,323 27,165 7,376 34,679

Contribatlon to Construction (Arnuat) X 6X 7X 8X -1X 121 92 14X 8X 25X 102 93X 132 100X 162Debt Service Coverage 1.98 3.32 1.80 4.87 1.65 3.96 1.44 3.89 1.36 2.37 1.30 2.49 1.33 2.54,_-. ...... .-.. .. .. .. .. .. . ..--.

(t) Depreciation pertains to operation,

SECOND RAHAGUWDAN THERHAL POWER PROJECTNATIONAL THERMAL POWER CORPORATIOW LTD.

BALANCE SHEET(In mitlion of Rupees)_

Year ending March 31 1985 1986 1987 1988 1989 1990 1991

BALANCE DESCRIPTIOI forecast Actual forecast Actual Forecast Actuat forecast Actual forecast Actual forecast Actual Forecast Actual

ASSETSGross Block 20,531 13,363 23,774 16,047 33,105 20,689 43,003 30,508 54,295 44,784 62,495 69,972 66,968 92,422Less:Depreclatlon 670 476 1,285 903 1,979 1,416 2,966 2,069 4,250 3,068 5,876 4,554 7,749 6,877Wet flxed Assets in Operation 19,861 12,887 22,489 15,144 31,127 19,273 40,037 28,439 50,046 41,716 56,619 65,418 59,219 85,546

Capital Works In Progress 16,149 19,656 22,702 31,069 21,173 44,302 17,933 52,187 10,882 57,062 3,989 52,360 56,039

TOTAL FIXED ASSETS 36,010 32,543 45,191 46,213 52,300 63,575 57,970 80,626 60,928 98,778 60,608 117,778 59,219 141,584

Current AssetsCash and Bank Hatance 11 84 12 448 17 134 22 5,973 27 2 30 291 34 684Short-term deposits 395 637 1,053 737 4,544 s,364 1,179 5,279ReceIvabtles 192 1,626 293 2,284 398 2,828 544 4,058 746 5,981 967 11,561 1,158 15,102Inventories 205 704 238 940 331 1,322 430 1,742 543 2,639 625 3,632 670 5,414Loans & Advances 326 1,972 3,642 783 2,614 1,824 2,088Other Current Assets/Debtors 2 17 2 13 3 148 4 178 4 104 5 125 5 231

Total Current Assets 409 3,151 544 6,293 749 9,127 1,000 13,469 1,320 15,884 1,627 22,797 3,046 28,799HIsc.Capitat Expenditure 19 19 16 17 18 19 41

TOTAL ASSETS 36,420 35,713 45,735 52,526 53,048 72,718 58,969 94,112 62,248 114,680 62,234 140,594 62,265 170,424

LIABILITIESEquity

Share Capital Issued 23,659 20,632 27,915 26,685 30,226 32,851 30,226 37,658 30,226 44,073 30,226 49,640 30,226 59,237Share Deposit 236 990 734 2,806 73 1,100 4,314Retained Earnings 315 1,402 652 3,231 1,241 5,463 1,866 8,511 2,727 11,906 3,910 17,293 5,903 24,420Totat Equity 23,973 22,270 28,567 30,906 31,468 39,047 32,092 48,975 32,953 56,052 34,136 68,033 36,130 87,971Total Long-tern Debt 12,390 10,364 17,077 17,729 21,454 27,894 26,698 37,124 29,041 49,848 27,755 59,819 25,710 67,296Current Liabilities 56 3,081 91 3,891 127 5,778 179 8,014 255 8,780 344 12,742 426 15,158

Total Debt 12,446 13,445 17,168 21,620 21,581 33,671 26,877 45,138 29,296 58,628 28,099 72,561 26,135 82,454

TOTAL EQJITY AWD LIABILITIES 36,420 35,713 45,735 52,526 53,048 72,718 58,969 94,112 62,248 114,680 62,234 140,594 62,265 170,425

Debt:Equity RatIo 34/66 32/68 37/63 36/64 41/59 42/58 45/55 43/57 47/53 47/53 45/55 47/53 42/58 43/57Current Ratio 7.3 1.0 6.0 1.6 5.9 1.6 5.6 1.7 5.2 1.8 4.7 1.8 7.2 1.9Accoults Receivable (f of da") 32 184 32 163 3? 164 32 117 32 175 32 210 32 233........... ................... ... .... .........