RETURN TO R E S T R I C T E DREPORTS DESK QPY Rpy

WITHIN ROe Reort No.ONE W"!EEK_j

This report was prepared for use within the Bank. It may not be publishednor may it be quoted as representing the Bank's views. The Bank accepts noresponsibility for the accuracy or completeness of the contents of the report.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

APPRAISAL OF

THE VOLTA RIVER HYDROELECTRIC PROJECT

GHANA

August 30, 1961

Department of Technical Operations

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CURRENCY EQUIVALENTS

U.S. Cents 1 = Ghana Pence 0.857U.S. $1 = Ghana Shillings 7 Pence 3U. S. $2. 80 = Ghana E IU. S. $2. 8 million = Ghana L1I million

APPRAISAL OF TEE VOLTA RIVER EHYDROE-HLCTRIC PROJZCT

GESAN

TAR.LE OF CONT'NTS

Page No.

SURY i

I. INTRODUCTION 1

II. BACKGROUND 1

III. TaE BORROCVER 2

IV. TIE POWER MARKET 3

Existing Installations 3Smelter Demand 4General Consumer Demand 5The Demand of the Mines 6Total Demand and Generating Capacity Required 6

V. TIE PROJECT 7

Description of the Project 7The Volta Basin 8Water Requirements 8Construction Schedule 9Engineering and Cost Estimates 9Procurement 11Schedule of Expenditure 11

VI. FINTANCIAL ASPECTS 11

Financing Plan 11Smelter Revenues 12Non-Smelter Revenues 13Financial Projections 14Estimated Future Earnings 15Debt Service Coverages 15Comparison of Forecast Earnings of Annexes

6 and 7 16Forecast Cash Position 16Forecast Results of a Smelter Demand of 370 M4l 17

VII. ECONOMIC ASPECTS 18

VIII. CONCLUSIONTS 19

LIST OF AND=XS

1. Power Station Capacity and Estimated Maximum Demand.

2. PoTger Station Capacity and MIaximum. DemandSmelter demand increased to 315 1T1 beginning April 1972

3. Power Station Capacity and I1iaximum. DemandSmelter demand increased to 315 NVI beginning April 1969

4. Construction Schedule

5. Summary Conclusions of Consultants as to Effect on Projectof Water Abstractions from Volta .iiver Tributaries Outside Ghana

6. Forecast Summary Income Statements and Cash Flows 1966-1976Based on the assuFption that the firm power requirernentsof the smelter increase to 315 TI1 beginning April 1972

7. Forecast Summary Income Statements and Cash Flows 1966-1976Based on the assumption that the firm power requirementsof the smelter increase to 315 IT.M; beginning April 1969

8. Economic Aspects of the Volta River Project

9. Calculation of Long-Term Rate of Return

10. A Brief Summary of Valco's iinancial Arrangements

Map of Project

APPThAlSAL OF TIH 7OLTA RIV7ER HY72GE.,RC ,2-TRTC PROJECT

SUOLMUARY

i. The Government of Ghana has asked the Bank to assist in financingthe Volta River Hydroelectric Project by extending a loan of the equivalentof ;47 million (bG 16.8 million) to cover a part of the foreign exchange costof the Project. The total estimated cost of the Project is the equivalent of":190 million (LG 67.8 million), of which about 6010 would be reqaired in foreignexchange.

ii. The Project consists of a dam and power plant at Akosombo, 50 milesabove the mouth of the Volta River, and a transmission system to supply powerto Accra, the capital, to Tema and to a proposed aluminum smelter to be builtnearby and to the main toTqns and villages and the mines of southern Ghana.,

iii. The Government has passed legislation establishing the Volta RiverAuthority, the Borrower, to carry out all steps necessary to construct theProject and to operate it after completion.

iv. The Project, designed and engineered by Kaiser Engineers and Corn-structors, Inc. who would supervise construction, is technically sound andwould take about five years to construct. The power station, in which thefirst unit should be cormmissioned by 1966, would have an initial capacity of589 HvJ with four units installed and an ultimate capacity of 883 MA.J whencompleted wgith six units.

v. A consortium of aluminum companies (VALCO) headed by the KaiserAluninum & Chemical Corporation would be committed to build a large alur;numsmelter at Tema to be supplied by power from the Project under a long-termcontract. The power from the Project would be consumed by the aluminumsnelter, various mining companies and the ElectrLcity Divis-ioio *hich wou24distribute power to the general consumers in southern Ghana.

vi. 'o finance the Project the Government is prepared to invest up toIXG 35 million ($98 million) and is planning to borrow an additional OG 35million Thich would be sufficient to rieet t'le estimated cost of the Project,including a four-unit installatiQn, and, if required, to meet that part ofthe estimated cost of a fifth unit which could not be met by internal cashgeneration. Commitments have been obtained by the Government for thereqa ired loans and these arrangements will be consumated sinultaneouslywith the proposed Bank loan.

vii. Gross income would be modest in the initial years but is forecastto increase steadily as the smelter and non-smelter revenues develop.Although the forecast return on net fixed assets in operation would benegligible in 1967 and only about 3% in 1969, it would reach 6% by 1973and 9% by 1976.

viii. The Project would be suitable for a Bank loan of 'I47 million(AG 16.8 million) Tith a term of 25 years, including a 6-year grace period,

APPAI SAL OF T1E VOLTA RIVER HYDRCELCh CTRIC PIWJECT

GFLk1IA

I. INTRODUCTION

1. The Government of Ghana has decided to construct the Volta RiverHydroelectric Project and has asked the Bank to assist in its financing byextending a loan of LG 16.8 million (Ui9W47 million) to cover a part of theforeign exchange cost of the Project.

2. In 1960 the Government of Ghana asked the Baik to make a prelidi-nary appraisal of the proposed Project. The Bank's conclusions, which werereached after considering the technical, financial and economic soundness ofthe Project and the adequacy of the organizational arrangerments for its con-struction and operation, were presented in a report titled "PreliminaryAppraisal of the Volta River Hydroelectric Project" (TO 249a, June 30, 1960).Since then, negotiations bet-ween representatives of the Government and aconsortium of American aluminum companies (VALCO) headed by Kaiser Aluminum& Chemical Corporation have resulted in a cornplex of agreements whereby,inter alia, the consortium would build a large aluminum smelter in Ghanato be supplied by powrer from the Project under a long-term contract and thausprovide the Project with an important source of revenue. See Annex 10 fora brief surmary of VALCO's financial arrangements covering the constructionand operation of the proposed smelter.

3. The Project proposed for Bank financing would consist of a dam atAkosombo about 50 miles above the mouth of the Volta River; a power plantwith an initial capacity of 589 ISl; trma smission lines to Tema, the seaportwhere the smelter is to be located, to Accra, the capiti, and a transmissionnetwork to supply the main tmons and villages and the mines of southern Ghana.The estimated cost of the Project, with four of the six generating units -Ln-stal led, is the ecpivalent of US21A190 million. The borrower would be theVolta aiver Authority, which is being established to build and operate theProject.

h. This report presents an appraisal of the Project. It is based oninforriation obtained from engineering reports and other data prepared byKaiser Engineers and Constructors, Inc. (KECI), the Government's consultingengineers for the Project; a report prepared by Cooper Brothers & Co., theGovernment's financial advisers for the Project; a Haster Agreement andPower Contract negotiated and initialed last November by the Government andrepresentatives of YALCO; an engineering; report prepared for the Volta RiverPreparatory Commission by Sir WJilliam Halcrow and Partners in 1956; a numberof field trips to Ghana by Bank staff and discussions with Governmentofficials during their several visits to the Bank in 1960 and 1961.

II. BDACKGR_.ONL0T.D

5. The possibility of constructing a large hydroelectric installation.on the Volta River in the general area of the proposed Akosombo site haa beenunder review for a number of years. As the large size and cost of anypossible development were out of proportion to the ri.odest pc:,er dem.and in

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southern Ghana, the viability of a project would depend on the establishnentof a large power consumina industry. Thus in 1°50 the Volta R,iver PreparatoryCommission -wzas established to make a stuciy of the power potential of the iToltaRiver Basin and of the possible use of the powqer in the manufacture ofaluminum from the very extensive bauxite deposits of Ghana. The PreparatoryCommission produced a comprehensive report in 1956 which recormmended theconstruction of a power project at Ajena, approximately one rmile upstreamfrom Akosombo, to supply power to an aluminum plant at Kpong on the VoltaRiver.

6. The recommendation twras not implemented at that time and in 1958the Government commissioned KZCI to review the earlier proposals and re-consider the justification of a power-alurdnum development.

7. XECI recommended that the Government proceed with the proposeddevelopment and that the power project be constructed at Akosombo. TheAkosorbo site, where the river is narrower than at Ajena, was chosen becauseit would enable the construction of a less costly dam in a shorter con-struction period with greater power station output due to a slightll higheroperating head.

8. KECI confirmed the necessity of developing a large industrialload to justify the construction of the necessarily large hydroelectricproject and proposed the construction of an aluminum smelter adjacent tothe port of Tema, approximately 44 miles from the dar site. F'urthermore,KECI also recommended the construction of a high voltage transmission systerto supply power to southern Ghana, replacing existing thernmal generatingfacilities.

9. Kaiser Aluminurm a Cherical Corporation subsequently decided tosponsor the construction of an aluminum smelter.

III. TiHE BORRQ14EA

1041 Legislation establishing an Authority to construct and operatethe Project (the Volta River Development Act of 1961) was enacted April 10,1961 and the Government is considering the selection and appointment of theChief Executive. The Authority will agree to obtain the Bank's approvalprior to the appointment of the first and subsequent Chief Executives.WThen established, the Authority will take over the work now being performedby a Government secretariat which has been coordinating the general planningof the development.

11. The successful execution and operation of this important ProjectTwill depend, in large measure, upon the nature and mianagement of theAuthority. The broad delegations of policy laid down in the Act, -hich hadbeen reviewed by the Ba-nk prior to e-nactment, should enable the Authorityto take any action required for the success of the Project, and should allowit the freedom necessary to conduct its affairs in accordance with soundfinancial and public utility practices.

12. The Volta Aver Development Act provides for a Board, to bearpointed by the President of Ghana, conaisting of a Chairman and sevenother members. The President of Ghana would be the Chairman, one memberwould be the Chief Executive of the Authority, two members would representmajor consumers of power and four wzould represent the general public.

13. The Chief Executive will be responsible for the general directionand day-to-day operation of the Authority. Qualified senior staff, havingthe experience necessary to manage and operate a project of this nature,cannot at present be recruited in Ghana and it wfill be necessary to retainexpatriate staff for some years.

14. To ensure that its accounts be set up and !aintained in accordancewith sound financial practice, the Authority will retain independent publicaccountants, satisfactory to the Bank.

15. After completion of construction, the principal responsibilit-esof the Yolta jRiver Authority will be the generation and transmission ofelectricity, including direct sales to the smelter. Distribution Twill bethe function of the Electricity Division, a department of the IIinistry ofWorks and Housing, which has experience in the problems involved in dis-tributing electricity to consumers in Ghana. In view of the important rolewhich the Eleclricity Division will have in expanding its distributionsystem to handle adequately the output of the Project, timely steps willbe taken by the Government after consultation w:ith the Bank to improve theDivision's operations from the viewpoints of efficiency and economic sound-ness. Th-is Division will be reorganized as soon as practicable as anautonomous public utility.

IV. THE PO>2E. ia LAtET

Existing Installations

16, All electricity generation in Ghana at present is by diesel plantslocated in the towns or at the rnines wqhich they serve. The plants supplyingthe public are owned and operated by the Plectricity Division. The loadon the Electricity Division's plants was estimated to be about 34 MW atthe end of 1960.

17. The mines are supplied by their own diesel installations, whichare efficiently operated and well ruaintained.W The demand of the minesaggregated about 36 iTJ in 1960 and is not expected to increase appreciablyin the future. The mining companies have expressed the view that they wouldnot take po-wer from the Authority until they could feel sure that the supplywould be reliable and would show some savings compared Twth their directoperating costs.

18. The market to be served by the Project would result from:

a) the demand of the smelter;

b) the genera consumer demand in the southern area of Ghana,which includes Accra, thae capital city, Tema, Takoradi, Kumasiand other towns and villages to be served by the transmissionnetwork; and

c) the demand of the rines.

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Because of their different charact-eristics, the features and probabledevelopment of these demands are discussed separately.

Smelter Demand

19. The agreement negotiated between the Government and VALC0 providesthat delivery of firm power to the smelter would begin on a "PermanentDelivery Date" which could not occur until five years and eleven months haveelapsed after the award of the main construction contract for the Project.As work commenced under this contract before mid-1961 and, as discussed inparagraph 44, it is reasonable to assume that the Project would be completedin a period of five years, the assumption is made in this report, forpurposes of calculation, that the ttPermanent Delivery Date" would beApril 1, 1967.

20. Under the terms of the Power Contract the Authority would, ineffect, be required to have available to the srmelter (excluding transniissionlosses) 158 iiF of capacity in the first year following the Permanent EeliveryDate, 210 1i-N in the second through the fifth years, 315 I1-I in the sixth yearand thereafter. The agreement also provides VALCO with options for earlierincreases of capacity, i.e. up to 315 LJ in the third year followving thePermanent Delivery Date (sub-ect to giving one yearts notice), and up to370 i!1 in the fourth through the tenth years (subject to giving two years'notice). After the tenth year, however, the Authority would not be obligedto provide more than 315 PT'I unless a higher power ceiling -were already ineffect. IVALCO would be committed barring force majeure "to take or payfor" a minimum amount of power in each year pursuant to the optionsexercised.

21. The following table shows the minimum and maximum generatingcapacity (including transmission losses) which must be reserved by theAuthority to meet VALCOts opt-ions and the kuh which VALCO would be com-mitted "to take or pay for":

Period following Minimulm _ MaximumPermanent Delivery Date Ivii lch in millions i4ii kwh in millions

First year 166 578 166 578Second year 223 1,X63 223 1,h63Third year 223 1,752 334 2,628Fourth year 223 1,752 392 3,079Fifth year 223 1,752 392 3,079Sixth year 33L 2,339 392 3,079Seventh year and thereafter 334 2,628 392 3,079

lIhen the Authority is required to make 33 ItII available to the smelter, thefifth unit would be needed. Should -the smelter exercise an early option forits maximum demand this unit would also enable the Authority to provide the392 N1WT which would be necessary. In order to be conservative in evaluatingthe effect on the Project of the forecast need to install the fifth unit byas late as the sixth year or as early as the third year folllowing the Perna-nent Delivery Date, the smelter revenues shown in paragraph 61 are based onthe assumption that the Authority would be cor,mitted to reserve t1e r;inimu

generating capacity for the smelter as show,n above or alternatively that theAuthority would be committed to reserve 334; 1H (2,628 million kwh) in thethird year following the Permanent Delivery Date and the smelter would notexercise its options for any further increases.

General Consumer Demand

22. Public supplies of electricity wvere first made available in Accrain 19l47. The demand of the Accra area is now approximately 18 I-'J and therelative energy sales among principal categories of consumers are as follows:

Consumer categories Percent

Commercial 12.5Light Industry 28.8Domestic 45.3^i'iscellaneous 13. 4

Total 100.0

23. In the main towns of southern Ghana the Electricity Division hase-ndeavored to provide plant and distribution system extensions to meet allrequirements of consumers TwTith t,he result that in the past few years therate of increase of load has been rapid (approximately 20-25ko per annum).

2L4. From time to time forecasts have been made of the trend of elec-trical demand in Ghana but in view of the short history of electricaldeveloprmient, the lack of definite indications of large individual industrialdemands, and the generally under-developed nature of the country it isdifficult to forecast load growth with any degree of precision.

25. The consulting engineers have prepared the load forecasts used inthis report, based upon their consumer study, load forecasts prepared bythe Electricity Division, a comparison wfith other African territories andreference to electrical supply statisticsr'epared by the United Nations.They estimate tIhat in the period 1960-66 the rate of load growth will de-crease frorn 16% to 14hA per arnnum as cornpared with the Electricity Divisionrsestimate of 20p per annur. through 1962 and 15> per annum through 1965.Thereafter the rate of increase of load is estimated to decrease graduallyto 71, per annum by 1977. These rates of growth are founded largely on anestimated increase in consumption per capita and do not assume the develop-ment of large individual industries.

26. The load of the towns and villages of southern Ghana would thusbecome 69 MT in 1966 wThen the Project is expected to come into operation andthen grow to 220 IN. in 1976. Corresponding sales would be 331.8 million kuhin 1966, increasing to 1,082.5 million kwh in 1976 (Annexes 6 and 7). Theseare fairly high rates of growth and it is difficult to project estimates sofar in the future from such small beginnings. On the other hand, generaleconomic indicators would tend to support these assurmptions at least for apew years. Among these are the high per capita cash income (currently about'200/year) and above all the coyntinuing rapid process of urbanization in

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southern Ghana. The forecasts reprasent a reasonable ex-pectation of thefuture electricity demands of the genera consumers in this area.

The Demand of the Mines

27. The mining industry produces gold, diamonds, manganese and bauxitte,of which gold is by far the most important. Some rmines are working success-fully and may increase their output -Thile others are marginal operations.The Government recently bought out five of the marginal gold mining companieswnich account for about half of the current output. These mines are beingoperated by their present rmanagements, responsible to a Ghana State IliningCorporation. Gn balance, it is unlikely that there Tirll be any significantincrease in the overaLl electrical demand of the mining industry.

28. Power is essential to the nines for pumping wfater from deep under-ground workings. The danger of serious flooding imposes a requirement ofextreme reliability as power failures w,ould have serious consequences. Atpresent the mines are supplied from their own diesel stations. The equipmerntis kept in a sound operating condition and there is little, if any, likeli-hood of retirements.

29. It would seerm reasonable to expect that as soon as they satisfythemselves as to the reliability of supplies from the Authority, the mineswould discontinue the operation of their own-i facilities if the Authority',supply were available at an attractive rate. ~Thile the mining companies havenot entered into any agreements for the supply of power from the Project, theyhave indicated in discussions with the Government and the consulting engineersthat they are prepared to consider taking power from the network.

30. In this report it has been assumed that the transfer of the rmiiningload from captive generation to the Authority's system would be a -radualprocess and that supplies from the Authority to the mines (including trans-mission losses) would be about 11 Mil in 1966, increasing to 32 115 in 1975.Corresponding energy sales would increase from 52.6 million kwh in 1966 to157.7 rillion kwh in 1975.

Total Demand and Generating Capacity Required

31. The combined demand on the Project, taking into account transmissionlosses, is shown in Annexes 1, 2 and 3, and corresponcing energy sales inAnnexes 6 and 7.

32. Annexes 1(A) and 2 illustrate the development of demand in the eventVALCO takes only its guaranteed minimum supplies. Annexes 1(B) and 3 show thetotal demand in the event VALCO exercises its option for early cormlissioningof the ultimate srmelter capacity. (The final VALCO option of increasing thesmelter demand to 370 I1WT is not considered in this section of the report inview of its intended conservative approach. Increase of the VALCO demand to370 -I'S would accelerate the utilization of the Project and slightly improveits financial results.)

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33. In the first alternative, total dernand would increase from 265 INin 1967 to 509 W' in 1972 (and correspondin- sales from 834 million to 3,l445million kwh) when the canacity reserved for the smelter would reach 334 Ndl.In the second alternative, total demand would increase rapidly from 265 nsJin 1967 to 460 14J in 1969 (and corresponding sales from 884 million to 2,914million kwh) when the capacity reserved for the smelter would reach 334 IvJ.Thereafter, in each case, with a constant smelter load, the comparativelysmall increase in demand of 15-25 YN per annum would be due entirely to thenon-smelter demand.

34. As it is essential for the supply to the smelter to be firm, i.e.continuously available, it will be necessary to maintain in the power stationa reserve capacity equal to the largest generating unit on the system. It isproposed initially to install four units of 147.2 ± ,T each, which would be com-missioned by mid-1966, giving a firm capacity of 442 FYI. On the basis ofminimum deliveries to the smelter there would therefore be ample capacity inthe station to supply the maximum demand until 1972 when the fifth unit wouldbe required in service. If VALCO were to exercise its option for an increasein smelter capacity at the earliest possible date, the fifth unit wzould berequired in early 1969.

V. THE PROJECT

Description of the Project

35. The Project ranks with the largest undertakings of this type so fardeveloped anywhere. The rockfill dam rising about 244 feet above river level(370 feet above the foundations) would have a crest length of 2,100 feet.The reservoir, wholly within Ghana, would be 300 miles in length and wouldhave a surface area of 3,275 square miles. Of the total reservoir volume of120 million acre feet, 50 million acre feet would be useful storage. Thepower station would be located on the right bank of the river, just belowthe dam, and is designed for an ultimate capacity of 883 BiEV (six 147.2 YNunits). Four of the six units, 589 MJ, would be installed initially, Othermajor features would be a spillway located in the left abutment, adjacent tothe main dam, having a capacity for a flood discharge of 1.2 million cubicfeet per second, and an auxiliary rockfill saddle dam 1,100 feet long and120 feet high.

36. The Project would also include the following transmissionfacilities:

a) two double circuit 165 KV transmission lines, approximately 44miles long, from the power station at Akosombo to a substationat the seaport of Tema, adjacent to the smelter site; and onedouble circuit 165 KV transmission line, 18 miles long, from theTema substation to Accra;

b) a single circuit 165 KV transmission ring approximately 400 mileslong to supply southern Ghana. Substations would be constructedat selected points on the ring to provide supplies to the maintowns of Takoradi and Kumasi, other towns and villages, and themines in the area traversed by the ring.

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A map showing the location of the proposed dam and transmission system: isincluded as an annex.

The Volta Basin

37. The drainage basin of the Vfolta River comprises an area of about155,000 square miles. Of this area, 90,000 square miles, or about 60$, liein territories outside Ghana. Records for 23 years show that the mean annualrainfall in the basin is about 42 inches, the minimum being 37.4 inches andthe maximum 49.1 inches during this period. The maxinmm recorded peak flowat the dam site between 1936 and 1959 was 393,000 cubic feet per second andoccurred in 1947. The highest flood in recent times, as determined from highwater marks, occurred in 1917. Its estimated discharge was 520,000 cubic feetper second. The average flow of the river is about 41,500 cubic feet persecond.

W4ater Requirements

38. It is estimated that evanoration losses from the reservoir wouldamount to as much as 3,000 cubic feet per second. The average inflow of41,500 cubic feet per second into the reservoir would therefore provide anaverage continuous discharge from the reservoir (available for power gener-ation) of about 38,500 cubic feet per second. The very large capacity ofthe reservoir would provide adequate storage and, unless an unprecedentedsuccession of dry years were experienced, would be sufficient to maintainthe average discharge continuously. Siltation is not a problem due to thevery large dead storage volume available in the reservoir for silt deposition.With the adequate regulation afforded by the reservoir, the initial capacitycould be operated at a l005% plant factor, corresponding to a theoreticalannual output of 5,149 million kwh. At the final capacity of 883 M4W, annualenergy generation would average 5,400 million kwh, corresponding to a plantfactor of 70p,.

39. Only about one-third of the water flowing past the Akosombo siteoriginates in the part of the watershed located in territories outside Ghana;consequently, the flow required for four units could be supplied from therainfall on the watershed lying wholly in Ghana and the operation of the fourunits could be maintained even in the unlikely event that all of the waterfrom neighboring territories were diverted to other uses. However, when sixunits are installed in the rower station the major part of the water enteringGhana from neighboring territories would be required for continuous operationat a plant factor of 70%.

40. In view of the significant effect on the Project of any substantialconsnumptive water use by upstream riparians the Bank comnissioned Sir WilliamHalcrow & Partners, consulting engineers, to undertake an independent investi-gation of the feasibility of any such uses. Their hydrologists have conducteda field survey which has confirmed that it would be feasible for futuredevelopments in upstream riparian countries to extract a maximum of 2.7% ofthe flow of wxater entering Ghana. In their view this amount is so small, inrelation to the natural variations of thne total Volta River flow, that itseffect on the Project would be negligible. The conclusions from the reportare given in Annex 5.

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Construction Schedule

41. The consulting engineers (KECI) have estimated that the ProjectWould be completed in a period of five years. The construction schedule isshown in Annex 4. In May 1961 the Government decided to award the -,nainconstruction contract to the Group Impresit - Girola - Lodigiani and E. Recehiand issued a letter of intent to the Grcup pending final award of the contract.The letter authorized the Group to proceed with preparatory work as if thecontract had been awarded. In August 1961 the contract was awfarded to theGroup. Important dates which must be met to ensure completion as prograimedare:

a) Begin preparatory work under mainconstruction contract (already under way) Prior to mid-1961

b) Complete west channel coffer dams June 1962c) Start filling reservoir June 1964d) Reservoir filling for first power output November 1965

42. To assist the main civil works contractor in the preliminary con-struction stages, a considerable amount of supervisory staff housing and themain access roads have already been constructed.

43. An important aspect of the construction schedule will be the removalof a deep overlay of sand from the river bed to enable coffer dams to be con-structed. It is proposed to dredge this sand from the area of the first cofferdam during the first low water working season which extends from November untilJune. Exceptional floods could delay this program and retard the general con-struction program but should not delay the Project sufficiently to preventthe Authority from achieving an April 1, 1967 Permanent Delivery Date asassumed in this report.

14. It is proposed to schedule the erection of the first four generatingunits so as to make the most economical use of erection personnel in relationto power requirements during the first stages of operation of the Project.KP;CI's estimate of a five-year construction period seems reasonable and allfour units should be in operation by mid-1966.

Engineering and Cost Estimates

45. Extensive sub-surface investigations have been made to gainknowledge of the geological features of the dam site. These studies showthat the rock in the foundations and abutments is satisfactory for the typeof dam and other structures proposed.

46. The engineering studies made by the consultants are adequate inscope and detail to make reliable estimates of the cost of the Project andto serve as a basis for its final design.

47. An independent board of consultants, selected by the consulting en-gineers with the approval of the Government, has inspected the site and studiedthe proposed plan of development. It concluded that the design and layout ofthe Project is satisfactory and the site is suitable for the type of dam proposed,

48. Cost estimates for the Project prepared by KECI have been reviewedby Cooper Brothers & Co., a firm of chartered accountants with considerableexperience in the cost of large projects in Africa and ln iocal conditionsin Ghana. Among the purposes of this review was to determine and account for

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the likelihood of internal price variations in Ghana during and possibly asa result of, the execution of the Project.

b49. The estimated total cost of the Project, including interest during* construction on borrowed capital, contingencies and an initial working capital

allocation, amounts to TG 67.8 million ($189.7 million). This estimate coversthe installation of only the initial four units. A breakdown of the estimatedtotal cost is shown below:

Estimated Cost of the Project

Local ForeignCurrency Exchange Total

usW Us$ US$ G(millions)

Reservoir clearance, resettlement,site preparation, camp and accessroads 26.7 28.7 10.2

Civil works (main and saddle dams,intake structure, power stationbuilding and steel penstocks) 2L,.5 36.6 61.1 21.8

Power plant, equipment andinstallation (4 units) 3.4 18.6 22.0 7,9

Transmission lines and substations 9.0 23.8 32.8 11.7Engineering (design and supervision) 3.8 5.7 9.5 3.4Contingencies 6.6 11.2 17.8 6.4Working capital 1.4 1.4 0.5Interest during construction _16.4 16.4 5e9

Totals 77.h 112.3 189.7 67.8

505 It is estimated that the foreign exchange component would comprise60% of the total costs of the Project.

51. The cost of the fifth unit and of the corresponding auxiliaryfacilities (mainly to increase the capacity of transmission to the smelter)ls estimated at EG 3.3 million. If the fifth unit wrere to be in commissionby early 1969, the expenditure of these funds would be incurred during thepreceding two-year period.

52. The contingency allowances are equivalent to 15% of the estimatedtotal cost of the civil engineering works, power plant and transmissionfacilities. Having regard to progress made in Project design and in thedetermination of quantities, as well as to the methods used in determiningunit price estimates, the contingency sum should be adequate to cover physicalcontingencies as well as reasonable increases in the costs of plant andmaterials. Allowances for escalation in the costs of labor have beenincluded in individual items of the total cost estinate. The estimate ofcost is realistic and, judging by bids received for the main constructioncontract, may prove to be high.

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53. On the basis of the estimate, the investment per K-I installedwould be 6G 115 ($322). When the station is completed to its ultimatecapacity of 883 MW, this cost would become LG 86 (142LO) per IKI instIled.Excluding the transmission system, the corresponding figures would be

* ,G 92 (0258) and LG 67 ($188) respectively. On either basis the costscompare favorably with important hydroelectric developments of thismagnitude elsewhere.

Procurement

51. Contracts for construction and for the supply of equipment forthe Project will be awarded on the basis of international competitive bidding.Tnvitations to bid on specifications prepared by the consulting engineershave been sent to groups of pre-qualified contractors. The consultingengineers wqill prepare an evaluation of bids received and submit recomm-en-dations for the award of contracts to the Authority, -w.hich will in turnconsult Twith the Bank before finalizing its decisions on major contracts.

Schedule of Expenditure

55. The following table shows the estimated schedule of annual ex-penditures on the Project through 1966:

Schedule of Annual Expenditures

L_G US

mi.Llions)

1959-60 2.8 7.81961 7.8 21.81962 12.4 31t.61963 13.7 38.41964 16.5 16.11965 10.4 29.31966 4.2 11.7

Total 67.8 189.7

VI. FT-EAIHCIAL ASPECTS

Financing Plan

56. The Government is seeking to arrange financing totaling IG 70million iwhich would be sufficient to provide:

a) 1G 68 million to meet the estimated cost of the four unit,589 MW installation to be comnissioned by 1966; and

b) 1G 2 million to meet part of the estimated cost of the fifthunit (required in early 1969 if VALCO exercises its options atthe earliest date possible). As discussed below (paragraph 79)

- 12 -

it is reasonable to assume that internal cash generation couldcontribute the balance of the funds required to install thefifth unit.

57. The Government is prepared to invest up to LG 35 million as equityand is negotiating to obtain an additional TG 35 million from borrowingfrom the following sources:

Amount in Equivalent1G 000s TjS5 000s

Source

IBRD, 5-3/4o, 25 years 16,786 47,000

United States yearsil 9Development Loan Fund, 3%, 3063 27,000Export-Import Bank, 5-3/L%, 25 yearsli 3,571 10,000

13,2l14 37,000

United Kingdom Export Credi 2sGuarantee Department, 6%_/ 25 years- 5,000 lh,000

Total 35,000 98,000

58. It has been assumed in this report that the equity contributionsand the various loan funds would be drawn upon as required on a pro-ratabasis and that the grace period on debt service on all the loans would extendthrough 1966. Level payments on debt service have been assumed thereafter,with the first semi-annual payment due June 30, 1967.

59. A number of meetings of the various lenders have been held to diseunsthe coordination of the several loans, their effectiveness dates, disbhreementprocedures and other mutual problems. It is expected that the lenders willagree to cooperate in the administration of the loans.

Smelter Revenues

60o The Pover Contract with VALCO will establish the power rate to thesmelter at 2.625 mills per kwh for a period of 30 years and will give VALCOan option to renew for an additional 20-year period at the same rate unlessunder an agreed escalation clause a higher rate rere established. VALCOcommits, however, to pay for power whether used or not with the demand chargebeing based on a utilization of 66 NdlW in the first year following the PermanentDelivery Date, 167 NWl in the second, 200 NWS the third, fourth and fifth, 267 NWin the sixth and 300 NW in each year thereafter. At any time that notice is

1/ Although the United States and United Kingdom loans are in varying degreestied loans, the procurement arrangements are such that it is expected thatthese loans will be fully available to the Authority.

2 Assumed for the purposes of this report. Actual interest rate will dependon U.K. rates at time of draw down.

- 13 -

given to increase the power ceiling beyond 210 Me,, VALCO's obligation to payfor power whether used or not wqould be based on the increased power ceiling,

61. Because VALCO has agreed to build a 200 YW-capacity smelter (fourpotlines) no later than two years after the Permanent Delivery Date and plansto build a 100 1M4-capacity addition (two potlines) within the next eightyears, the financial projections oresented in this report (Annexes 6 and 7)are based on two alternative schedules of smelter payments, namely:

a) that VALCC will not increase the smelter capacity early enoughto require more than the minimum firm power supply which it isbound to "take or pay for", and

b) that VALCO will increase the smelter capacity more rapidly andexercise its option to take a firm power supply adequate tomeet the requirements of a 300 Wi'-caoacity smelter by ADril 1969.

On these bases the revenues from sales to the smelter would be as follows:

(a) (b)Period following Smelter Payment Smelter Payment

Permanent Delivery Date (LG 000's) (;G 000's)

First year 542 542Second year 1,371 1,371Third year 1,643 2,464Fourth year 1,643 2,464Fifth year 1,643 2,464Sixth year 2,193 2,464Seventh year and thereafter 2,464 2,464

As the Permanent Delivery Date has been assumed in this report to be April 1,1967, amounts shown for smelter revenues in Annexes 6 and 7 have been cal-culated by pro-rating on a calendar year basis the figure shown in the abovetable.

Non-Smelter Revenues

62. No decisions have been reached on rates to be charged by theAuthority for bulk sales to the Electricity Division for retail to generalconsumers. In the previous Bank report, the main purpose of which was toarrive at a judgment as to the economic justification of the Project, it wasassumed that the average revenue from such sales would amount to 15 mills(1.29d) per kwh and this is again assumed in this report.

63. As to sales to the mines, it has been remarked in paragraph 29 abovethat the extent to which the Authority will succeed in supplying demand ofthe mines will depend to a large extent on the attractiveness of the rate

- 14 -

offered to them. Direct operating costs for power generation at the rrinesare understood to vary between 12 and 18 mills per kwh. In this report arate of 10 mills (0.86d) per kwh for sales to the mines has been assumed.

64. These assumptions should not be interpreted as a judgment thatthese would be the proper rates to be charged by the Authority. They areintended as a means of determining, on a conservative basis, whether theoperating results of the Project are likely to be reasonable. Averagerevenues to the Electricity Division from retail sales at the present timeexceed 50 mills per kwh. The bulk supply price of 15 mills per kwthrepresents the probable cost of generation in Ghana by central thermalinstallations which wyould be the alternative if the Volta Project were notconstructed. The cost to the Authority for supplies provided to the Elec-tricity Division (and to the mines) in the initial years of projectoperation would exceed the assumed average revenues.

65. Until the Electricity Division is operating efficiently on asound financial basis and is assured that it can adequately finance thenecessary expansion of its facilities, it would not be prudent to lower therates currently charged to the ultimate consumners. W,1hen these goals havebeen achieved, the rates to the ultimate consurers can properly be established.It should be possible to adjust these tariffs gradually to lower levels butit may not be possible to do so prior to the early 1970's.

66. The importance of non-smelter revenues to the success of theProject is apparent fron the fact that, even if VALCO exercised its maximumoptions at the earliest possible dates3 non-smelter revenues would beg;reater than smelter revenues in all years. Based on maxdmum smelterrevenues, non-smelter revenues would comprise about 655 of total revenues overa forecast 11-year period ending 1976 and, on minimum smelter revenues, about70%. These proportions would continue to increase as the non-smelter loaddeveloped. As the smelter tariff is now fixed, the profitability of theProject depends in large measure on the size of the non-smelter load and onthe tariffs to be charged to non-smeLter consumers.

67. In any event the actual tariffs for non-smelter consumers shouldnot be determined until just prior to initial operations when costs and theprobable volume of sales can be rore accurately determined. The Authorityshould negotiate long-term contracts wgith the mines and any other bulkpurchasers at the highest possible tariffs consistent with obtaining maximumrevenues.

Financial Projections

68. Forecast sunmary income statements and cash flows covering the11-year period 1966-76 are shown in Annexes 6 and 7.

69. Annex 6 is based on the assumptions that: the fifth unit wouldnot be required until 1972; loans aggregating LG 33.9 million, which includeinterest during construction through 1966, would provide half the forecastcapital requirements of 1G 67.8 million for the initial four-unit project;the fifth unit would be financed out of internal cash generation; and theminimum amounts of smelter revenues would be paid to the Authority,

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70. Annex 7 is based on the assumptions that: the fifth unit would berequired by April 1969; loans aggregating MG 35 million together wvith ZG 35million of equity and TG 1.1 million of internal cash generation wouldprovide the estimated capita requirements through April 1969 of zG 71.1million; the smelter demand would be increased to 315 NPJ as of April 1969;and the smelter revenues thereafter would be OG 2,46h,000 per year.

71. Both forecasts assume that power would be available to the non-srmelter consumers and mines starting January 1, 1966 and that April 1, 1967would be the Permanent Delivery Date. Depreciation has been assumed to beginas of January 1, 1967 and 1966 is treated as a year of partial operations.

72. The forecast earnings and debt service coverages of the Project, asassumed in Annex 6, are described in the following paragraphs inasmuch as theyare based on the minimum smelter revrenues to be guaranteed pursuant to thePow,er Contract. They are compared to the forecast earnings and debt servicecoverages, as assumed in Annex 7, in parasraph 76 below. The forecast cashpositions of the Project as assumed in Annexes 6 and 7 are discussed inparagravhs 77-81.

Estimated Future Earnings

73. Gross income is forecast to increase steadily as the smelter andnon-smelter revenues develop. In 1967 gross income is forecast at about,G 270,000 rising to IG 1,300,000 in 1968, ;G 2,000,000 in 1969 and there-after increasing to about LG 6,000,000 in 1976. The return on net fixedassets in operation, which has been computed as of the beginning of the year,would be negligible in 1967, less than 2;4 in 1968 and about 3% in 1969, butwould reach 6% by 1973 and 9% by 1976.

7i. Although there would be a curmulative deficit of earnings of aboutIG 800,000 in 1968 which would not be eliminated until after 1969, netearnings would be about ;G 900,000 in 1970, about !G 3,000,000 in 1973 andabout TG 4,800,00o by 1976, Ghana would not earn any return on itsinvestmentl/ in the early years but by 1973 the return would be more than 7Nand w ould increase steadily thereafter.

Debt Service Coverages

75. Since only half of the capital requirements of the Project wouldbe financed by borrowings, forecast debt service coverages would be satis-factory. Internal cash generation (gross income plus depreciation) woualdcover debt service about 1.5 times in 1970 and over two times in 1973 andthereafter. To ensure that any additional long-term borrowings are made ona prudent basis, the proposed loan agreement contains a debt limitationcovenant which would operate to prohibit the incurrence of additionallong-term debt uhless latest annual historic gross income (adjusted forany rate increases subsequently in effect) plus depreciation amounted to

1/ Ghana's equity contributions with interest during construction computedat 5%, the approximate yield on the Government's present liquid investments.

- 16 -

at least 1.5 times the maximum annual debt service requirement on all debt,including the debt to be incurred. Based on the financial projections, theAuthority would not be able to incur additional long-term debt until the early1970's when it could borrow increasingly greater amounts adequate to cover thefunds required to meet all subsequent plant additions including the instal--lation of the sixth unit. If such additions were financed by borrowings theAuthority would still be able to borrow over LG 20 million at the end of 1976,assuming level debt service on the new borrowings for 20 years at 6

- 17 -

78. Forecast plant additions aggregating about iG 8 million would berequired during the period ending 1976, mainly in connection with the instal--lation of the fifth and sixth units.

79. A contribution of JG 1.1 rillion from internal reasources forinstallation of the fifth unit by April 1969 as assumed in Annex 7, wouldresult in a small cumulative cash deficit of about iG 400,000 at the end of1968 which would reduce working capital to only 1G 100,000. However, by theend of 1969 there would again be a modest cash surplus of about ;G 470,000.It seems reasonable to assume that, if necessary, cash could easily beaugmented in 1968 by short-term local bank loans or Government advances.IIoreover, if non-smelter revenues were based on tariffs of 16 mills insteadof 15 mills for the three years 1966-68, the forecast deficit for 1968 wouldbe eliminated. If non-smelter tariffs were 20 rmills instead of 15 mills overthe same three-year period, there wzould be a cumulative cash surplus at theend of 1968 of about EG 1.7 million3 Beginning in 1969 cash surpluses wouldgrow steadily and, if permitted to accumulate, w¢ould reach approximately;G 20 million by 1976 after providing the funds required for the addition ofthe sixth unit. The proposed Guarantee Agreement contains a covenant wvhichprovides that if the funds available to the Authority are inadequate to meetthe expenditures required for the Project, including the installation of thefifth unit, the Government would provide the necessary funds.

80, As shown in Annex 6, modest but sufficient amounts of cash wqouldaccumulate in the early years of operations to provide for the installationof the fifth unit forecast to be needed by 1972. Accumulated cash couldreadily finance subsequent plant additions leaving a forecast cash accumu-lation at the end of 1976 of about IG 16 million.

810 No provision has been made in the forecasts, however, for theGovernment to receive cash dividends on its investment in the Authority norwould any be prudent until sometime after 1971 or 1972. It is important topermit the accumulation of funds sufficient to cover a reasonable portion ofthe cost of the expansion of the power system.

Forecast Results of a Smelter Demand of 370 MW

82. If VJALCO should exercise its option for a maximum demand of 370 IMrequired to install one additional smelter potline (the seventh), the fore-cast financial results of the Project Tould, of course, vary in accordancewith the timing of the increased power ceiling. The exercise of an optionfor increased powier supply of this magnitude would produce greater smelterrevenues but it would also advance the timing of further additions ofgenerating facilities. If the smelter were to exercise this option as earlyas possible, i.e. in the fourth year following the Permanent Delivery Date,the future returns would be improved slightly.

- 18 -

VII. ECONOMIIC ASPECTS

83, The Project would make available to G31hana the abundant supply ofpower which is necessary for the economic development of the country. Asubstantial number of scattered relatively inefficient diesel plants couldgradually be replaced. The guaranteed smelter payments to be provided forin the agreements with VALCO render the Project a rmiore economic source ofpower for meeting the non-smelter loads than the alternative of thermalpower installations.

84. The forecast return on Ghana's equity investment in the Projectover its entire assumed 50-year life as calculated on a discounted cash flow(or present wTorth) basis would be about 8.8% based on the assumptions shownin Annex 6 and about 8.2' if Ghana's investments in ancillary facilities wereincluded.l/ These investments, however, would provide very little returnuntil sometime in the early 1970's. Not until the late 1970's wfould theProject's curmulative net earnings be equivalent to the earnings Ghana w-.ouldhave realized if the amount invested in the Project were kept instead asliquid holdings, say, at 57, compounded annually which would approximate thecurrent rate of return on the Government's investiments.

85. The forecast return over the assumed life of the Project wouldimrprove only slightly if VTALC0 w-Tere to exercise its option and request arnaximum demand of 370 1AW. The return would be about the same if such optionwere exercised as early or as late as oossible, i.e. in the fourth year orin the tenth year followring the Permlanent Delivery Date.

86. In addition to the direct benefits from the Project noted above,there are other ancillary benefits. Ultimately, income taxes would becollected from the smelter. In addition, the national income would benefitfrom the expenditures associated with the Project, the smelter and associatedservices, on local labor (to the extent not previously employed) and materials.There would, of course, also be required ancillary investments estimated at6G 7.2 million. On balance, when the net ancillary benefits of the Projectare combined with the direct return, the net contribution of the Project tothe economy when the Project would be fully loaded, say in the early 1980's,would be equivalent to about 11% of Ghana's current national income and aneven smaller percentage of the national income at that time.

87. This modest contribution to overall econo.ic output would besupplemented by additional non-monetary indirect benefits. For example,the availability of substantial quantities of power might attract neTwindustries. Some related industries and services would most likely growup around the Project area. The Project probably would result in an increasein the general level of labor skills in the country. On balance, even thoughthe return on capital invested in the Project is modest, when the additionaladvantages are considered the Project is economically justified.

1/ See Annex 8 for a fuller discussion of the econonic aspects of theProject and Annex 9 for a fuller statement of the method and assump-tions used in calculating the return over the assumed life of theProject.

- 19 -

885 One benefit frequently ascribed to the Project w uld not beobtained on the assumptions made here, namely, cheap power for non-smelter consumers . It has been assumed that the Project m uld have tocharge these consumers as much as they would pay if they obtained powerfrom the best thermal alternative. While this is less than presentgenerating costs (to which distribution costs must be added in computingrates to final consumers), the same reduction could be gained, with farless capital outlay, by adopting the thermal alternative.

VIII. CONCLUSIONS

89. The Project is technically sound and properly engineered. Themain construction contract has just been awarded to well-qualified con-tractors whose bid was within the engineer's cost estimate. The schedulecalling for initial operation by the end of 1965 is feasible. Even ifsome unfavorable circumstances were to prolong the construction period itshould be possible to meet the forecast date for the initial deliveries ofpower to the smelter (paragraph L3).

90. The Volta River Authority, which has been set up by enactmentof legislation, the text of which has been reviewed and concurred in bythe Bank, would be a satisfactory agency to construct and operate theProject.

91. Cormitments by -JALCO to "take or pay for" certain minimun powerdeliveries, combined with the potential non-smelter demand, would providean adequate market for the Project with power facilities of the capacityplanned.

92. Gross income would be modest in the initial years but is forecastto increase steadily as the smelter and non-smelter revenues develop. Al-though the forecast return on net fixed assets in operation wzould be negli-gible in 1967 and only about 3% in 1969, it would reach 6% by 1973 and 9%by 1976.

93- The Project would be suitable for a Bank loan of 847 million witha term of 25 years including a six-year grace period.

94. The 3ank loan would not become effective until the agreementswhich the Authority and Ghana will enter into 7with the other lenders forfinancing the Project and the complex of agreements among VALCO, theirshareholders, Ghana, the Export-Iraport Bank and others for financing andoperating the smelter are also effective on terms satisfactory to the Bank.

ANNEX 1

VOLTA RIVER HYDRO-ELECTRIC PROJECT

Power Station Capacity and Estimated Maximum Demand

A. Smelter Dmanwd Increaaed to 315 id Beginning April 1972

Year 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976

Units Installed 4 4 4 4 4 4 5 5 5 5 6Capacity r4W 589 589 589 589 589 589 736 736 736 736 883

Maximum DemandSmelter 166 223 223 223 223 334 334 334 334 334Non-Smelter 74 86 96 109 121 135 152 170 190 211 234Mines 11 13 15 17 19 21 23 25 27 29 32

Sub-total E w m v 9 0 2 ';rl 7 Z

Reserve Capacity 1h7 147 147 1147 147 147 147 147 1747 147 147

Total 232 1,12 481 496 510 526 656 676 698 721, 747

Spare Capacity 357 177 108 93 79 63 80 60 38 15 136

3. Smelter Demand Increased to 315 ld Beginning April 1969

*Jnits Installed 4 4 4 5 5 5 5 5 5 '5 6Capacity W 589 589 589 736 736 736 736 736 736 736 883

Maximum DemandSmelter 166 223 334 334 334 334 334 334 3314 334Non-Smelter 74 86 96 109 121 135 152 170 190 211 234Mines 11 13 15 17 19 21 23 25 27 29 32

Sub-total 85 71 4 MO ;1i m - I7C 36-Reserve Capacity 147 147 147 147 147 147 147 147 147 147 147

Total 232 412 481 607 621 637 656 676 698 721 747

Spare Capacity 357 177 108 129 115 99 80 60 38 15 136

Note: Smelter Demand on Power Station includes transmission losses.lion-Smelter Demand includes Accra, Tema, towns nn network and transmission losses.Smelter Pennanent Delivery Date - April 1, 1967.Capacity of each generating anit - Normal, 128 E; Maxdmwum Continuous, 147.2 MW.

Annex 2

GHA NA

VOLTA RIVER HYDROELECTRIC PROJECTPOWER STATION INSTALLED CAPACITY

AND MAXIMUM DEMANDSmelter demand increosed to 315MW beginning April 1972

900 883MW

INSTALLED CAPACI TY-)800

736 MW

700FIRM CAPAC/TY*

600 589 MW _ _

: 5 0 0:< ~-TOTAL MAX/MUM

3 442 MW DEMAND

M400

SMELTER (Mlhirnum Demand)

300

200_ J i TO~~~-TTAL NETWORK

Including AccrG,

100 _ _ ~~~~~~~~~Tema, Mines100

_-ACCRA and TEMA

1966 '67 '68 '69 '70 '71 '72 '73 '74 '75 '76 '77 1978

YEARAPRIL 1961 IBRD-803R

Annex 3

GHANA

VOLTA RIVER HYDROELECTRIC PROJECTPOWER STATION INSTALLED CAPACITY

AND MAXIMUM DEMANDSmelter demand increased to 315MW beginning April 1969

900 883MW

INSTALLED C PAC/TY-*

800

736 MW _______

700

FIRM CAPAC/TY

600 ~589MWV

500 l_(i) 500 TOTAL MAXIMUM< 442 MW / _ tDEMAND

a400

SMEL TER

300

TOTAL NETWRi 7/dit7g Acco

200 _ _

~~~ACCRA anld TEMA 100

0 Il1966 '67 '68 '69 '70 '71 '72 '73 '74 '7 5 '7 6 '77 1978

YEARAPRIL 1961 IBRD-791R

CG H ANAVOLTA RIVER HYDRO-ELECTRIC PROJECT

CONSTRUCTION SCHEDULE

Year 1961 1962 1963 1964 1965 1966

High Water Season -_ -

Place Main Contract mid-1961

Mobilize -

Open Cut and Drive Diversion TunnelTunnel Lining Conduit and Gates -Remove Sand West ChannelDrive and fill sheet pile cellsWest Coffer dam rockfillDewater Coffer Dam wPrepare foundations, drill and groutPlace rockfill to El. 290Place core and filter material to E1.290

Construct Saddle Dam

Remove sand East Channel _Drive sheet piles -East coffer dam rockfill _Prepare foundations, drill and grout _Place rockfill to El. 290Place core and filter material to El. 290 -

Concrete:Power House _IntakePenstock anchorsSpillway

Mechanical:Penstocks -IntakePower House -Spillway

Transmission Lines and Substations

Reservoir Filling >

First Power Generated x

IBRD-693RI2

ANNEX 5Page 1.

Summary Conclusions of Consultants as to the effecton the Project of water abstractions fromVolta River tributaries outside Ghana

On behalf of the British Colonial office and the Government of theGold Coast (now Ghana), Sir William Halerow & Partners, Consulting Engineersof London, made a study during the years 1951-1953 of the hydro-agronomicpotential in areas of the Volta River catchment which lie outside Ghana.This study was undertaken in view of the probability that water abstractionsto develop this hydro agronomic potential might affect the production of por;rerfrom the proposed hydro-electric project to be constructed in Ghana on thelower reaches of the Volta River.

The findings of the Consulting Engineers were incorporated in tne reportof the Volta River Preparatory Comrission in 1955 (reference No. 7, page 32)to the effect that the developments under consideration would not vitally affectthe Volta River Project.

In October 1960 the Bank advised Sir William Halerow & Partners that itwas "anxious to satisfy itself that there will continue to be enoagh waterat the project site to operate the proposed power generation installation andthat countries outside Ghana are not likely to abstract from the tributariesof the Volta enough water to affect the project", and requested the Consultantsto restudy the situation and advise the Bank as to their opinion on the question"

The Consultants submitted their report (Report on the Hydro-agronomicPotential in Areas of the Volta River CatchmFent which lie outside Ghana) tothe Bank in January 1961. The conclusions of the report are as follows:

"Conclusions

"1. Under existing conditions the abstraction of water in areas outsideGhana, amounting to 0.05% of the average annual Volta flow at theproposed dam site is sufficiently small to be neglected in assessingwater availability for the Volta Project.

12. Since irrigation potential does exist in some areas, and since theGovernments of the countries outside Ghana have plans for developingboth irrigation resources and water conservation measures for ruralcommunities, the promoters of the Volta River Project might considerit prudent to budget for a possible future diversion of up to, say,2.7% of the present average annual flow of the Volta at the damsite.

"3. It should be noted that the quantity of 2.7% is small compared withthe annual variation of the total Volta flow, which has, in 25 yearsof records ranged between 176% and 32% of the average. A small

A1NEX 5Page 2

change in climatological and hydrological conditions is there-fore likely to be of much greater significance to thehydrological account for the Volta Project than local abstrac-tions in the upper parts of the catchment area.

"b. Since, however, the countries adjacent to Ghana have a rightto the use of water in the Volta catcchment area 7qe wouldconfirm our recommendation, made to the Volta River ProjectPreparatory Commission in 1955, that an agreement on thesubject of water rights between the governments concerned shouldbe considered now that the project is said to be irmminent.t

As the Bank is satisfied that the estimated possible diversion of wiaterin countries outside Ghana is not so large as to cause anxiety for thefuture of the Volta River Project, it has communicated the Consultant'sconclusions to the Government of Ghana so that the Government could decideif it wished to seek an agreement on this subject with the other governmentsconcerned, as recommended by the Consultants.

, .

V O L r A R I V E R P R O J E C T

Forecast une ary Income Stteme-ts and Cash Flows 1966-1976

Based on the Assumption that the Fir= PowerRocuiroemnta of the le'-hr Increase to 315 W

Beginning ipril 1972

Years Ending December 31 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976

Sales (Millions of Yiv)Smelter 433.6 1,241.7 1,679.7 1,752.0 1,752.0 2,192.2 2,555.7 2,628.0 2,628.0 2,626.0Non-Smelter 331.8 387.2 437.6 493.5 555.3 623.6 698.9 781.8 872.9 9172.9 1,082.5N Hines 52.6 63.1 73.6 04.1 4.6 105.1 1L8.3 131.4 144.5 :57.7 157.7

Total3r - X- I-S5." 2,bOl9 2,480.7 -3,009.1 T 5IjSE9 -36Z=4. Vi56 -37c68

Average Revenoe per Clh Sold in Mills 14.3 8.6 6.o 5.6 5.8 6.0 5.8 5.7 5.9 6.1 6.4

m _______________________________________ In IlsOssonds of Ghana NoonS, ________________________IT us t of an P ounds

Operating RevefemSmelter (2.625 Mils/Kit) 4C7 1,364 1,575 1,643 1,643 2,055 2,396 2,464 2,464 2,464Non-Smelter (15 Milln/Kit) 1,777 2,074 2,344 2,644 2,975 3,361 3,744 4,188 46676 5,212 5,799Mines (10 mills/Kmi) 188 225 263 300 318 375 422 669 516 563 6

rot^L ; ~~~~~~~~~~~7 7 1;39Total 1,965 2,76 3,771 6,51-9 14956 5359 h,BPI 7,-033 T7Z5 97239Operating Expenoes

Cost of Operations 820 820 820 820 820 820 9C0 92 900 900 960Depreciation 1,613 1613 1613 1613 1613 1720 176 1,753 1,760 1845

Total 2,IU 2,433 5533 133 2 N 2 2,653 21,53 Z, 2,005

Gross Income 1,165 273 1,338 2,086 2,523 2,926 3,601 4,409 5,003 5,579 6,02L

Income DeduotiousInterest Psid 1,739 i,8C5 1,752 1,697 1,638 1,577 1,511 1,442 1,370 L,292 1,B2lInterest Charged to Construotion (Credit) (1,735) - - - (3 ()8l'(13)

Total - iS 1,7121,697 9 1,434 1,337 T , 1 r,V8Net Earnings or (Deficit) 11165 (1,532) (hll4) 389 918 1,470 2,109 2,975 3,666 4,385 4,823Cnmulative Net Earnings or (Deficit) 1,145 ( 387) (801) (412) 506 1,976 4,085 7,060 10,726 15,1lla 19,934

Coh GenerationGroso Inoo=e 1,145 273 1,338 2,086 2,523 2,926 3,601 6,409 5,003 '5,579 6,021Depreciation - 1613 1 613 1613 1613 1 613 1 720 1 76 1753 760 1845

Total 751 58 I 1;51B 3699 4136 6,39 t% tr1 b;50 7i TIM

Les: Debt Service - 2,789 2,790 2,789 2,790 2,789 2,790 2,709 2,790 2,789 2,790Addition, to Plant _ - - - 1 309 2.120 757 313 1 325 1 6o4 533

Total - 2,7F9 2,790 5 57 ,909 2 ,5 7 393

Cash Surplus or (Deficit) 1,115 V (903) 161 910 37 (370) 1,774 3,051 2,641 2,946 4,543Cs nlative Cash SBrpso or (Deficit) 1,145 242 403 1,313 1,350 980 2,754 5,805 8,6446 11,392 15,935

Grons income an % of Net Flixed Assetsit Operation 0.37% 1.86% 2.97% 3.68% 4.37% 5.22t 6.48% 7.51% 8.57% 9.10%

Net Earnings an % of Ghana's Inventment - - 0.97% 2.29% 3.67% 5.268 7.42% 9.14% 10.,94 12.03%

Tines Debt Service Covered by InternalCash Generaotion 1.06 1.33 1.48 1.63 1.91 2.21 2.42 2.63 2.82

7 This a-moot dion not ioclude th, aG 0.5 million proviniso for working capitel inilnded iu the estisated onpitnl req:ircemrto.PrncLlpal A-pcoLis-

Initial Poser Plant: 589 d (Four 147.2 IW lnitt) Debt Service: Level AncaL pyments on all borrovingc with first smi-annual pj'nent due Jqne 30, 1967.

Power Plant in Operation: January 1, 1966Additional Poeer tJnis: Required 1o 1972 -nd 1976 to be finnoond with fatr,

Start *Jo of inciter April 1, 1967 additions to tranamd.sion facilities out of ictersal£Penancnt Delivery lDate) cash generation.

Capital Requiresnoto through 1966: EG 67.8 Million Non.inelter Power Pric: 15 Mill (1.29d) per Kwh

Financing: YG 33.9 Million Equity from Ghansa Mines Power Price: 10 MiluL (0.86d) per Kwh

aG 33.9 MLllion borrowinga an follow,: Smelter Power Prioe: 2.625 PilLs (0.25d) per Kwh with oomditm.nt tc payY; 16.2 Million - IBRD for a omnimum outpot of power per 12 months begLn-

25-ew- Loan ntg ApriL 1, 1967 as follows:6-Year Grace Period5 3/45 Interest First year --------------------- 66 XW - 4l 542,000Maturing 1967-1385

Second yeer ------------------- 167 Xi - Y: 1,371,000an 7.1 Million - DLP

30-Year Loan Tird through fifth year ------ 200 944 - 21,643,0006-Year Grace Period31% Intereot Sixth year -------------------- 267 884 - Y} 2,193,000Maturing L967-1990

Invlent6

loam and thersafier --- 300 MW - El; 2,4664,000aG 3.6 Million - Ex:ort-Import Bank

25-Yew Loan Depreciation: Dam and Power Plant - 2% per Annum6-Year Grace Period Tranm-isoin fiacilities - 3% per Annum5 3/4% Interestilsturiog 1967-1985

an 5.0 Million - U.K.25-Year Loan6-Year Grace Period6% InterestMaturing 1967-1985

LO 2.0 Million - iov-roe to bo Determined25-Year Lon6-Ycar Grace P,riod5 3/4a InterestMaturing 1967-1985

ANNEX 7

I C L T R R I V E R P R O J E C T

Forecast Summary Income Statements ani Cash Flows 1966-1976

Basei on the Assumption that the Firm PowerReqairemento of the SReiter Inorease to 315 MJJ

Beginniag April 1969

lears Ending December 31 1966 1967 1968 1969 1970 1971 1972 1973 1974 197!; 1976

Sales (M'illions of vih)i Seelter - 33.6 1,241.7 2,336.7 2,628.0 2,628.0 2,626.0 2,628.0 2,628.0 2,62B,0 2,628.0iun-S-clter 331.6 387.2 437.6 493.5 553.3 623.6 696.9 7S1.8 872.9 972, 9 1,082.5Mines 52.6 63.1 73.6 8.1 98.6 105.1 118.3 131.4 144.5 157.7 157.7

Total 384.4 883.9 1,752.9 2,914.3 3,275.9 3,356.7 3,445.2 3,541.2 3,645.4 3,758.6 3,868.2

Average Reveae per Kwh Sold in Yills 14.3 8.6 6.0 4.9 4.9 5.2 5.4 5.6 5.9 6,2. 6.4

Z.n ThD ohnd of Ghama Poand,

Operating RevenuesSmelter (2.625 Mills/Kwh) - 407 1,164 2,191 2,464 2,464 2,464 2,464 2,464 2,8164 2,464Non-Smelter(l5 Mills/Kah) 1,777 2,078 2,344 2,644 2,975 3,341 3,744 48,16 4,676 5,212 5,799Mine- (10 Mills/Kwh) 188 225 263 300 338 375 422 869 516 563 563

Total 1,;96 795 77I 73fl =7 51 TmI 7; 7'Oparating Dopesoas

C0et of Operations 620 800 620 880 900 900 900 900 900 900 960Depreciation - 1,613 1,613 1.691 1.717 1.71' 1.720 1.744 1.753 L1760 1.845

Total 820 2,433 2,833 2,571 2,617 2,617 2,620 2,644 2,653 2,660 2,805

Gress S.come 1,185 273 1,333 2,564 3,160 3,563 4,010 4,877 5,003 5,5675' 6,021

Iocome Dod-.etiolaIrtere_t P.id 1,739 1,S64 1,60p 1,750 1,691 1,628 1,560 1,489 1,48T 1,3:3i. 1,250Interest 0lorged to Costractimn (^redit) (1.739) (18) (95) (27) - (3) (19) (8) (33) (9) (13)

Total - 1,846 1,718 1,725 1,691 1,625 1,541 1,481 1,381 1,236 1,237

'et uormiues or Ioftott) ,1145 (1,573) (376) 839 1 ,69 1,938 2,469 2 996 3,622 4,343 4 784C-uulative .st E^nings or (0eficit) 1, ( 8) (804) 35 1,508 42, 5,91t 8,907 77,529 2$,817 21 656

Cash OeaerstionGros- unos 1,145 273 1,338 2,564 3,160 3,563 4,010 4,4.77 5,C03 5,579 6,021Deprecietion _- 1613 1,613 1,691 1.717 1,717 1720 1.784 1853

11.845

Total 1,145 1,886 2,951 L,255 4,877 5,280 5,730 6,221 6,756 7,339 7,866

Le-ss Debt Service 2,880 2,880 2,o80 2,880 2,880 2,880 2,880 2,880 2,8R, 2,880Additions to flast - 982 L.840 504 - 103 757 323 1,325 1_6 1 533

otal 3,862 8,720 3,384 2,S80 2,983 3,637 3,193 4,205 4,85 3,413

Cash &erolu or (Deficit) 3,345 V (1,976) (1,769) 871 1,997 2 297 2,093 3, 028 2 551 2,855 4,453Tunu.ltice oaon S-rplu- or (Defiolt) 3,345 1,369 ( 800) 471 2,468 8,765 6 858 5,686 12,437 15,292 19,785

Sro.a Income as ! of Net Fined Assetsin Operation 0.37% 1.86% 3.65% 4.39S 5.078 5.84% 6.61% 7.54% 8.61% 9.145

Net Se'niogs as 5 of Ghana's buce-tmeat - - 2.04% 3.57% 4.70% 5.995 7.27% 8.79% 10,54, 11.61%

Ti-es Drbt Ser-iee Ceovrod by Tot-roolC-mh Generation - 1.02 1.48 1.69 1.63 1.99 2.16 2.35 2.55 2.73

hi= aount inoludos RB 2.2 oilliou (RG 1.1 illo1n of borroalng eond 2T 1.1 million of equ"ty) catch represents the balance of the finaaainl .cailable to to, Aothority as ofDeomhber 31, 1966 after tic coapletion ot the initial foar-unit pacer plant. It does net inolude the RB 0.5 nilion pr-isalon for corking -cithl inooluded in tli eatimatedo,-ital rstair-eots.

Principal A--aeptic-o:

01itil Pocer Plant: 589 164 (Four 1L7.2 tW Units) Debt Ser-ies, Level anual payensta en. al1 b-oc'reigs vith first semi-vith fifth unit itsolled by April 1969. annual payent doe Jane 30, 1967.

Par Plet in Operation: January 1, 1966 Additional Power Unit: Retuirad in 1976, tlobe fiac ou siteh futue addittl.aato iroosinfacilities out of int.rnal cash gec-ratico

Start 0p of ir:elter Apri' 1, 167TP86080186hfOolvoOS Date): Kon-iuelter Poaer Price: 15 Mills (1.29d) per Kwh

COapital Reqoiro-oetc through 1969, 10 71.1 Million Mines Pacer Price: 10 Mill, (0.86d) per Kwh

Fi-anine: RB 35 Millio Equity froa Ghana Smelter Power Price: 2.625 Mills (0.25d( per pa sl mit encitment ta pay for asinicmu output of powe per 12 eotbc beginning April 1,

1G 35 Million bor-ovinga as follows, 1967 as fllaws,BG 16.8 Million - IBR3

25-Year Loan First year -------------------- 66 w - O 542,0006-Yea- Orane Period5 3/4% Intorest Se-ond year ------------------ 167 Mil - ;G 1,371,000Maturing 1967-L985

Third year mad ther-after ---- 300 1e - 3G 2,6a,0O0

C0 7.1 M1illion - DL730-Year Toan Depreaiati.n, Dlm sad Poser Plant - 2% per Amnm6

-Year brace Period Tr-eceissio= fetilitise - 3% per Annum3N88 IntersestMatring 1967-1990

LG 3.6 :oillion - Impart-laport Bank25-Year Loan6-Year Grace Fe-lod5 3/18 InterestMaturing 1967-1985

LG 5.0 Million - J.K.25-Year Loan6

-Iear Grace Period6% interestMat_rirg 1967-1985

60 2.5 Million - Source to be Determined25-Year Ieee

6-Year Grace Period5 3/4% InterestMatoring 1967-1985

64G 1.1 Million iGtereal eaeh generatiem

ANIX 8Page I.

ECONOMIC ASPECTS OF TIt VOLTA RIVER PROJECT

In addition to the investment in the Project proper, dealt within the previous sections, there are substantial ancillary investments whichhave to be made in order to carry out the Project. These investments andtheir estirated costs are as follows:

EstimatedCost

Investment (LG Million)

Port works allocable to Project 3.0

Housing for smelter labor 2.3

Water supply for smelter .7

Downstream compensation .5

Compensation and resettlement(Excess over EG 3.5 millioncharged to Project) .7

7.2

These are all directly attributable to the Project but not chargeable to itand hence not included in its cost. The cost of these ancillary investments,and the returns to be realized on them, should be taken into account inconsidering the return on Ghanats investment.

It is reasonable to assume that revenues frorn port dues, housingand water rents, will be sufficient to cover operating costs and to amortizecapital, but not to provide a return on the investment. The effect oftaking these ancillary investments into account in assessing the return onthe total investment and on Ghana's investment is to reduce the return(on a discounted cash flow basis) by about half of 1% per annum over theassumed 50-year life of the Project. Based on the minimum smelter paymentsas assumed in Annex 6, this would mean a return of slightly over 8% on thkeoverall investment.

This return would be the largest single, but not the only, benefitthe economy of Ghana would obtain from the project. Another benefit woulldbe the income taxes collected from the smelter. These would of coursedepend on the profitability of the smelter and on the tax regime negotiatedbetween the Government and VALCO wqhich entitles VALCO to relief from allincome taxes for a period of up to ten years following commercial operationof the first potline. The tax receipts from a six-potline smelter would beabout 1G 1.5 million per annum, after the tax deferment period is over. Not allthis tax income would be clear gain; offsetting it would be the additionalGorernment services, such as schools, hospitals, police protection, sewage, etc.not covered by municipal taxes, which would have to be provided for the in-creased size of the community.

-2 - AINNEX 8Page 2

In addition, the national income would benefit from the expendi-tures of the Project, the smelter and associated services, on local labor(to the extent not previously employed) and materials. During the constrac-tion period the direct contribution of increased employment and purchasesof local materials would be greater than when the Project facilities werecompleted. In the operational stage, the economy would benefit from theemployment by the smelter of an estimated 1,600 persons; the power plantwould require few employees; additional employment in associated ser-vices cannot be readily estimated. If all these factors are taken together,it is doubtful if they would add as much as 1G 1 million per annum to thenational income.

One deduction would also have to be made in estimating the effectof the Project on Ghana's national income, namely, the interest that wouldbe foregone on the capital Ghana invested in the project, which Ghanamight otherwise have continued to invest abroad. If this were LG 40 millionincluding expenditure on ancillary facilities, the appropriate deductionwould be about 1G 2 million.

On all the assumptions and estimates made above, it appears un-likely that the net contribution of the Project to national income wouldexceed 1G 7.3 million per year when the Project would be fully loaded, sayin the early 1980's; this would be equivalent to no more than about l%of Ghanals present national income and an even smaller percentage of thenational income at that time.

There unuld also be some indirect benefits to the economy notmeasurable in monetary terms. It is possible that other industries inwhich regularity of power supply is a significant consideration would beattracted by the Project to Ghana. The Project would bring an increase inthe general level of labor skills to the Project area. The presence inGhana of a number of important foreign industrial companies might lead themto pursue other investment opportunities there, in aluminum fabricating,for example. Finally, although this report is based on the assumption ofa six-potline smelter, using imported alumina, account should also betaken of the possibility that at a later stage an alumina plant might bebuilt to use Ghanaian bauxite and that the smelter might eventually beenlarged to a capacity of seven-potlines. These developments would increasetax yields and employment opportunities, without a commensurate increasein the cost of Government services.

Even taking all the intangible benefits into account, the overallbalance of costs and benefits is on the positive side to only a modestextent.

One benefit frequently ascribed to the Project would not be ob--tained on the assumptions made here, namely, cheap power for non-smelterconsumers. It has been assumed that the Project would have to chargethese consumers as much as they would pay if they obtained power from thebest thermal alternative. IWThile this is less than present generatingcosts (to which distribution costs must be added in computing rates tofinal consumers), the same reduction could be gained, with far less capitaloutlay, by adopting the thermal alternative.

ANiZX 9Page 1

Calculation of Long-Term Rate of Return

Method

1. In this report, the long-term rates of return on the Project havebeen calculated by the discounted cash-flow (or present worth) method ofcalculating investment returns. This rnethod derives a single rate, showingthe net yield of the project to the investor over the entire estimated lifeof the project, after provision for repayment of the capital invested.

2. The principle used in this calculation of the rate of return isthe same as that used in calculating the present worth of an annuity. First,a stream of estimated cash outflows and inflows for the project is computed.Such a computation for the Project is set out in Table 1, based on theasstmptions shown in Annex 6 and described in paragraph 3 below. Next, acolumn of net cash inflows or outflows is computed. In the case of a com-putation of the return on the investment by Ghana, only Ghana's cash ex-penclitures are shown during the construction phase and debt service isincluded as an outlay later on. The stream of net cash inflows and outflowsrelated to Ghana's investment (including investment in ancillary facilitie.s)is shown in Column (3) of Table 2. The uroblem nowf is to find the rate ofdiscount, which, when applied to these flows over the applicable time peri.ods,equates inflows and outflows. The appropriate rate is found by trial anderror. Table 2 presents an example of how this is done. In this exampleinflows and outflows, on a present worth basis as sho-n in Column (4), areapproximately equated at a rate sornewhat higher than 8% and somewhat lowerthan 82%. A rate of 8.2% is determined by interpolation.

Assumptions

3. The calculations in Table 1 have been made on the basis of thefollowing assumptions:

Cash Investments in Fixed Assets and Working Capital - The entries irnColumns (1) represent the cash outlays (shown in parentheses) required to bemade by Ghana for the purposes for the Project. They do not include interestduring construction. The entries for the years 1960-1966 represent theamount needed to be supplied by Ghana to build the Project and equip it withfour generating units (147.2 MW each) and to provide TG 500,000 for workingcapital in 1966. The entries for subsequent years represent the total cashoutlays required to install the fifth and sixth generating units and to makerelated additions and replacements to the transm.ission facilities.

ANNEX 9Page 2

Cash Receipts - The entries in Columns (2), (3) and (4) represent theamounts to be received fron the sale of power in each of the years. Smelterreceipts are based on a rate of 2.625 mills per kwh. Non-smelter receiptsare based on sales at 15 mills per kwh through 1980, and at 12 mills per kwhthereafter. The non-smelter receipts are expected to grow in accordance withthe estimated growth in demand through 1981, the year in which the Project,with a 300 MNW-capacity smelter ( six potlines) is expected to be fully loaded,Receipts from the mines are based on a rate of 10 mills per kwh.

Cash Expenditures - Costs of operation in Column (5) include only cashoperating expenses and do not include debt service payments or non-cash i-temssuch as depreciation. Costs of operation are estimated at EG 820,000 for thefour-unit plant, rising to LG 900,000 and JG 960,000 per year for five andsix units, respectively. The debt service showin in Column (6) is the estimatedannual payments of interest and amortization due on loans of tG 33.9 millionon the terms assumed in Annex 6.

Ancillary Facilities - The figures for ancillary investments in Colunrn (7)represent estimated cash payments by the Government for ancillary investmants(see Annex 8). Ancillary receipts in Column (8) are the estimated net cashreceipts of the enterprises operating the ancillary investments after deductingcash operating costs. These net cash receipts have been estimated to be "% perannum of the ancillary investments on the assumption that the investmentswould earn only enough to cover cash operating costs and amortization of theinvestment over a 50-year period.

ANNEX 9Page 3

TABLE I

CASH FLaCS RESTLTING FROM THE PROJECT BASED ON THE ASSUMPTIONS SIVWN IN ANNEX 6

(1) (2) (3) (4) (5) (6) (7) (8)

Ghana's CashS [Investment

In Fixed Assets Cash Reeipts Cash Exndituresand Smelter Non-Smeter Mines' Costs of Debt Ancillary Ancillary

Year Working Cspitaj. Revenues Revenues Revenues Operation Service Investments Receipts

----------------------------------------- In Thousand of Ghana Pounds -------------------------------------

i96o (2,780) (1,000)1961 (2,511.) (1,000)1962 (6,176)1963 (6,860)1964 (8,235) (2,4oo)1965 (5,224) (2,100)1966 (2,094) 1,777 188 820 ( 700)1967 407 2,074 225 820 2,789 1541968 1,164 2,344 263 820 2,790 1511969 1,575 2,644 300 820 2,789 1541970 (1,309) 1,643 2,975 338 820 2,790 1541971 (2,120) 1,643 3,341 375 820 2,789 1541972 ( 757) 2,055 3,74d h22 900 2,790 1541973 ( 313) 2,396 4,188 469 900 2,789 1541974 (1,325) 2,464 4,676 516 900 2,790 1541975 (1,604) 2,464 5,212 563 900 2,789 1541976 ( 533) 2,464 5,799 563 960 2,790 1541977 2,46b 6,379 563 960 2,789 1541978 2,464 6,837 563 960 2,790 1541979 2,464 7,716 563 960 2,789 1541980 2,h64 8,490 563 960 2,790 1S41981 2,165 7,h7 563 960 2,789 i4

12464 7,471 563 960 2,789 1541983 2,464 7,471 563 960 2,789 1541983 2,464 7,471 563 960 2,790 1541985 2,464 7,471 563 960 2,789 1541986 2,464 7,471 563 960 2s7s2 1541987 2,464 7,471 563 960 442 15i1988 2,464s 7,471 563 960 442 1541989 2,464 7,4n7 563 960 442 1541990 2,464 7,47i 563 960 442 i5h1991 2,464 7,471 563 960 154t1992 2,464 7,471 563 960 1L541993 2,464 7,471 563 960 i541993 2,464 7,471 563 960 1541995 2,464 7,471 563 960 1541996 2,464 7,471 563 960 1541997 2,4,64 7,471 563 960 1541998 2,464 7,471 563 960 lSh1999 2,464 7,471 563 960 1542000 (13,353) 2,464 7,471 563 960 1542001 2,464 7,471 563 960 1542002 2,464 7,471 563 960 lSh2003 21564 7,i7 563 960 iSi2004s ( 1,309) 2,464 7,471 563 960 1542005 3 2,120) 2,i6i 7,47i 563 960 1542006 ( 757) 2,464 7,471 563 960 1542007 ( 313) 2,46i 7,473 563 960 1542008 ( 1,325) 2,46i 7,471 563 960 1542009 ( 1,63I) 2,464 7,471 563 960 1542010 ( 533) 2,464 7,471 563 960 1542011 2,464 7,471 563 960 1542012 2,464 7,471 563 960 1542011 2,464 7,471 563 960 1542012 2,46h 7,4n73 563 960 1542015 2,46i 7,471 563 960 1542016 12,245* 24621 7,471 563 960 154

* Residual value of transmission facilitie8

ANNEX 9Pag,.

TABLE 2

Calculation of Return on Ghana's Investment inProject and Ancillary Facilities

Based on Assumptions sho-n in Anmex 6

(1) (2) (3) (4)

Cash Surplus Cash surplusPresent value or (Deficit) or (Deficit)

Years from of 1 at 8% current value present v rthYear base period annual discount (LG 000's) (LG 000ts)

196C) 0 1.000 ( 3,780) ( 3,780)1961 1 .926 ( 3,511) ( 3,251)1962 2 .857 ( 6,176) ( 5,293)1963 3 .794 ( 6,860) ( 5,4k7)1961k 4 .735 (10,635) ( 7,817)1965 5 .681 ( 7,324) ( 4,988)1966 6 .630 ( 1,649) ( 1,039)1967 7 .583 ( 7k9) ( 437)1968 8 .54o 315 1701969 9 .500 1,064 5321970 10 .463 191 881971. 11 .429 ( 216) ( 93)1972 12 .397 1,928 765197]3 13 .368 3,205 1,179197kt 14 .34o 2,795 9501975 15 .315 3,100 9761976 16 .292 4,697 1,3711977 17 .270 5,831 1,5691978 18 .250 6,268 1,5671979 19 .232 7,150 1,659198( 20 .215 7,921 1,7031981 21 .199 6,903 1,3741982 22 .184 6,902 1,2701983 23 .170 6,903 1,17k1984 24 .158 6,902 1,0911985 25 .146 6,903 1,0091986 26 .135 9,250 1,2491987 27 .125 9,250 1,1561988 28 .116 9,250 1,0731989 29 .107 9,250 9901990 30 .099 9,250 9161991 31 .092 9,692 8921992 32 .085 9,692 82k1993 33 .079 9,692 7661994 34 .073 9,692 7071995 35 .068 9,692 6591996 36 .063 9,692 6101997 37 .o58 9,692 5621998 38 .054 9,692 5231999 39 o050 9,692 4852000 40 .ok6 ( 3,661) ( 168)2001 41 .043 9,692 4172002 42 .039 9,692 3782003 43 .037 9,692 3492004 44 *034 8,383 2852005 45 .031 7,572 2352006 46 .029 8,935 2592007 47 .027 9,379 2532008 48 .025 8,367 2092009 49 .023 8,o88 1862010 5° .021 9,159 1922011 51 .020 9,692 1942012 52 .018 9,692 1742013 53 .017 9,692 1652031t 54 .016 9,692 155201'5 55 .015 9,692 1362016 56 .013 21,937 285

Total 1,418

ANMEX 10

A B IEF SUiHARY OF VALCO S FIDWATCIAL ARL''AN-qGE1`4ENTS

In November 1960, Valco and the Government of Ghana initialedan agreement (the .Master Agreement) which sets forth the basicobligations of (i) Ghana and the Authority to build a dam and powerplant and supply power to Valco and (ii) Valco to build a smelterand to purchase Volta River power under a long term contract (thePower Contract). The dam and power plant (and conseqiently investmenttherein) will be substantially completed before construction of (andinvestment in) the smelter begins. This as well as other factors hasnecessitated fairly elaborate and complicated arrangements for settingup Valco as an operating entity and ensuring the availability of fundsfcr the construction and operation of the smelter. The Haster Agreementcontemplates a number of agreements, decrees and laws which are toeover the deta ls of Valco's relations with Ghana and the Authorit-y,its shareholders and creditors.

Valco is incorporated in Ghana; it is expected that ninety percentof its shares will be owned by the Kaiser Aluminum & Chemical Corporationand ten percent by the Reynolds Metals Company. The shareholders willalso be the customers of VJalco after the smelter is in operation. Theshareholder-customers wil provide Valco Tith alumina wshich will beprocessed by 'Valco and delivered to the shareholder-customers, T;mfio willthen pay Valco a tolling charge based upon a percentage of the worldmarket price for aluminum. In the event that the tolling chargesforaluminum actually processed do not cover Valcols operating costs, theywrill make a mninimum quarterly payment to Valco sufficient to meetoperating costs including debt service and power payment obligations.

Construction of the aluminum smelter will be financed from thefollowing sources of funds:

1. Shareholders' contribution .`32 million512 million in subscription paymentsand $20 million as prepayments oftolling charges7

2. Loan to Valco from theExport-Import Bank ofrW,Tashington $96 million

In the event that additional funds are needed for the construction ofthe smelter, the shareholder-customers will make available an additional"'22 million in the form of prepayments of tolling charges and the EximBank will be prepared to lend another $20 million. The agreementsregarding the construction and operation of the smelter are subject to

It the occurrence of events of for