Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 5510-BD

STAFF APPRAISAL REPORT

BANGLADESH

POWER TRANSMISSION AND DISTRIBUTION PROJECT

December 10, 1985

Power and Transportation DivisionSouth Asia Projects Department

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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CURRENCY EQUIVALENTS

Currency Unit = Taka (Tk)Taka 1.00 = US$0.033Taka 30.00 = US$1.00Taka 1.00 = Paisa 100

WEIGHTS AND MEASURES

kW = Kilowatt (= 1.341 horsepower)Mw = Megawatt (thousand kilowatts)MVA N Megavolt-ampere (thousand kilovolt amperes)kWh = Kilowatt hour (= 860.42 kcals)GWh - Gigawatt hour (million kilowatt hours)kV = Kilovolt (thousand volts)TOE = Ton of oil equivalent (thousand kilograms

oil equivalent)kcal = Kilocalorie (= 3.968 British thermal unit)km = Kilometer (0.6214 mile)MCFD = Thousand cubic feet per dayMMCFD = Mil ion cubic feet per dayTCF = Tri .ion cubic feet

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

ADB - Asian Development BankBEPP - Bangladesh Energy Planning ProjectBPC - Bangladesh Petroleum CorporationBPDB - Bangladesh Power DeveLopment BoardDCA - Development Credit AgreementEIRR - Economic Internal Rate of ReturnFY - Fiscal YearGOB - Government of BangladeshICB - International Competitive BiddingIDA - International Development AssociationKfW - Kreditanstalt fuer WiederaufbauLCB - Local Competitive BiddingLIB - Limited International BiddingODA _ Overseas Development Administration (UK)OECF - Overseas Economic Cooperation Fund (Japan)OPEC - Organization of Petroleum Exporting CountriesPBS - Palli Bidyut Samities (Rural Electric Cooperatives)REB - Rural Electrification BoardTOR - Terms of ReferenceUNDP - United Nations Development Program

BPDB's Fiscal YearJuLy 1 to June 30

FOE OMfuCL USE ONLY

BANGLADESH

POWER TRANSMISSION AND DISTRIBUTION PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

Credit and Project Summary ...... .. ... .... .... ............. iv

I. ENERGY SECTOR .**.**********.****.e.**********C**............. 1

A. Okerview of Energy Resources ...... ........................ 1

Natural Gas ...........*..... a... ............................. 1Hil r ...... I..... .. .****e.. 2Hydropower 2Coal and Peat ...... 2Renewable Energy Resources 2

B. Organization of the Energy Sector 3

C. Energy Consumption 4

D. Energy Pricing 4

E. Energy Planning and Development Strategy ................ 5

F. Bank Group Strategy in the Power Subsector 5

C. Bank Group Involvement and Donor Coordination 6

II. THE BORROWER ................... 7

Organization of BPDB .......... o. ....... .. ...... *.. 7Existing Facilities 8..... 8Power Planning .... ...................... .................. 9System Losses ...... ............ 0....... l0BPDB's Development Program ........ .... ............... 11Planned Generation *e*.***................... 11Transmission .............................. 12Distribution ................... ...... ... 12

This report has been prepared by Messrs. M. P. Manrai (Power Engineer),M. El-Menshawy (Financial Analyst), M. C. Webb (Economist),Ms. F. Sylla (Financial Analyst) and Mr. L. Maistre (Consultant) based oninformation acquired during a mission between September and October, 1984.

Tbis document has a resticted diwbution and may be used byrpats o* mt perfo,.am ofthxroffwi dutilIts mtents my not offrin be dbcsed wthout WoddBank sudxwiXtX.

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III. THE PROJECT ................................................. 13

Project Setting ..... ********.............................. 13Project Objectives ...... *... ............... ....... 00.0*. 13Project Description ........ 13Project Cost .................. o................................ 14Project Financing ...... ....... 0. ............. 9....-. 16Project Engineering and Consulting Services .................. 16Project Implementation ........ * ..........*******.*.......... 18Procurement .......... *********.................... ........ 19Disbursement ...o................. o............................. 21Ecological Effects .............. ............................. 22Project Monitoring ........................................... 22Risk ................................................. *.. 22

IV. FINANCIAL ANALYSIS .**.....**. ............................. 23

System of Accounts ....... .................................... 23Past Financial Performance .................. .......... ....... 23Tariffs and Financial Objectives ........ ..................... 24Billing and Collection ....................................... 25Accounts Receivable .... .......................... 26Tariff and Subsidy Study . ........................... 27Audit .... *...*.......... ......... 28Revaluation of Fixed Assets ............................ 28Debt/Equity ....... ........... ......... 28Future Financial Performance .............................. , 29Financing Plan ............................ 31Onlending Terms ........ 32Insurance 32Income Tax 32

V. JUSTIFICATION ......... 33

A. Electricity Demand Forecast ......... ...................... 33

B. Least Cost Alternative .. ................................ 34

C. Economic Internal Rate of Return ......................... 34

D. Justification for Bank Involvement ....... ................ 35

VI. SUMMARY OF AGREEMENTS *.... ............... 36

Agreements during Negotiations ............. o..o............. 36

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Conditions for effectiveness of Credit ............. *...*....... 38Recommendation ............................................. 39

ANNEXES

1. Organization Chart of Bangladesh Power Development Board ....... 402. Generation Capacity, Maximum Demand and Energy Forecast ........ 413. Existing Transmission & Distribution Facilities ................ 424. Transmission and Distribution Works under Construction ....0..... 435. Historical Growth in Demand and Energy Generation ..e.....o...... 446. Past Sales and Consumers **..ee...............................*. 457. Project Details ................................................ 468. Detailed Cost Tables so.................. ............ ... 489. Implementation Schedule ........ ................... ... ... ....... 5010. Technical Assistance ........... . .... ......... .. 5111. Disbursement Profile ........... ..*............................. 5412. Tariffs .......... ..... 0........................ .............. 5513. Assumptions for Financial Projections .......................... 5614. FinAncial Summary .... .......................................... 5715. Actual and Forecast BaLance Sheet ............... ... 5816. Actual and Forecast Income Statement ........................... 5917. Actual and Forecast Sources and Application of Funds ........... 6018. Investment Plan ................................................ 6119. Forecast Sales and Maximum Demand .............................. 6220. Technical Justification ....... ............................... .. 6321. Economic InternaL Rate of Return ............................... 6522. Data and Documents available in Project File ................... 72

MAP

IBRD 18660

-iv-

BANGLADESH

POWER TRANSMISSION AND DISTRIBUTION PROJECT

Credit and Project Summary

Borrower: People's Republic of Bangladesh

Beneficiary: Bangladesh Power Development Board (BPDB)

Amount: SDR 52.3 million (US$56.0 million)

Terms: Standard

Relending Terms: The proceeds of the credit would be onlent to the BangladeshPower Development Board (BPDB) at a rate of 11.5% per annum fora period of 20 years, including a grace period of five years.BPDB would bear the foreign exchange risk.

Project Description: The project's main objectives would be to expand and reinforcethe transmission and distribution system of BPDB to meetforecast demand at least cost; to stablilize system voltage; toincrease system reliability; to reduce power losses in trans-mission and distribution; and to strengthen BPDB's financialoperations. The project would compromise erection of 582 km(kilometers) of 132-kY (kilovolt) lines; extension oflow-voltage distribution networks in fourteen towns; installa-tion of meters and metering equipment; and technical assistanceto BPDB.

Risks: The project is straightforward, and project risks are limited.A possible cause of slippage would be delays in procurement.Appointment of consuLtants to assist BPDB in preparing designsand bidding documents and in construction supervision wouldminimize this risk. BPDB's financial performance needs to beimproved and the excessive system losses reduced. Withoutimprovements in these areas the planned expansion of the powernetwork and the institution building objectives of the projectwould be placed at risk. In order to address these issues, theproject would include (i} a program to reduce system losses,both on an interim and longer term basis, and (ii) the estab-lishment of specific short-term financial goals for BPDB andthe development of longer term performance goals based on along-run marginal cost based tariff study.

Estimated Project Cost:Foreign Local Total…(Us$ million)------

132-kV Lines 5.6 3.4 9.0132-kV Substatiors 7.9 5.6 13.5Low Voltage DistributionNetwork 16.2 6.1 22.3

Meters and MeteringEquipment 1.7 0.3 2.0

Technical Assistance 4.8 0.8 5.6Total Base Cost 36.2 16.2 52.4

Physical Contingencies 3.6 1.6 5.2Price Contingencies 8.0 6.0 14.0Total Project Cost 47.8 23.8 71.6

Interest During Construction - 11.3 11.3Total Financing Required 47.8 35.1 82.9 1/

Financing Plan: --------US$ million---…Foreign Local Total

IDA 44.8 11.2 56.0UNDP 3.0 - 3.0BPDB - 12.5 12.5cOB - 11.4 11.4

47.8 35.1 82.9

Estimated Disbursement:------- US$ million…---

Bank FY FY86 FY87 FY88 FY89 FY90 FY91

Annual 1.1 7.4 14.4 16.9 11.9 4.3Cumulative 1.1 8.5 22.9 39.8 51.7 56.0

Economic Rateof Return: 12.7%

Staff Appraisal Bangladesh: Power Transmission and Distribution ProjectReport: Report No. 5510-BD

Ma: IBRD 18660-BD

1/ Including taxes and duties of US$4.2 million equivalent.

BANGLADESH

POWER TRANSMISSION AND DISTRIBUTION PROJECT

I. ENERGY SECTOR

A. Overview of Energy Resources

1.01 Bangladesh's principal commercially exploitable energy resourcesconsist of large deposits of natural gas and a small hydropower potential.In addition there are some potential peat and coal resources; however, atpresent their development would be uneconomic. Traditional fuels, such ascrop residues, animal dung and wood, supply about 60Z of energy consumption.

Natural Gas

1.02 Natural gas is the main commercial energy resource, accounting forover 50Z of commercial energy supply. One offshore and twelve onshore fieldshave been discovered and seven fields were in production in December 1985.All onshore fields are located on the eastern side of the Brahmaputra/JamunaRiver, which runs across the country from north to south. The production ofnatural gas increased rapidly during the period 1975-1984, from about 80MKCFD to 250 MNCFD (1,800 to 5,700 TOE/day). Twenty-two wells were in opera-tion at the end of 1985, with a total production capacity of about 600 MMCFD(13,700 TOE/day). Gas-in-place is estimated to be aboit 11 TCF (250 millionTOE), however, the Asian Development Bank (ADB) and United Nations Develop-ment Program (UNDP) financed Bangladesh Energy Planning Project (BEPP)estimated that there is a 50X probability that undiscovered gas reserves arein the range 12-20 TCF (275 to 460 million TOE). Uncertainty regarding thelevel of existing reserves makes it impossible for GOB to formulate along-term development strategy for the subsector. Therefore, there is a needto initiate a professionally-designed appraisal program to assess reserves.As a first step, detailed high- resolution seismic surveys of the major gasfields are being undertaken as a part of the IDA-financed Petroleum Explora-tion Promotion Project (Credit 1402-BD) to firm up the reservcir structuremaps, provide a basis for locating future wells to be drilled and assist inidentifying gas-water contacts. A critical follow-up would be a program ofappraisal drilling which is now being addressed under the IDA Second GasDevelopment Project (Credit 1586-BD).

Oil

1.03 To date no commercial reserves of oil have been discovered. TheIDA-financed Petroleum Exploration Promotion Project (Credit 1402-BD) isintended to revive the interest and engender the participation of foreigninvestors in petroleum exploration in Bangladesh. This includes, besides

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the aforesaid seismic surveys (para 1.02), establishment of a data processingcenter, preparing a hydrocarbon habitat study, and strengthening thecapabilities of the national oil and gas corporation, Petrobangla. In addi-tion GOB is conducting other seismic works covering most of the western zonein order to identify promising structures.

Hydropower

1.04 Bangladesh's hydropower potential is limited because its largerivers, the Ganges and Brahmaputra/Jamuna, flow over a flat deltaic area.The hydropower potential is estimated to be about 1,500 GWh/year, of which850 GWh/year has been developed. All of the existing development is on theKarnafuli river at Kaptai, where the installed capacity is 130 MW. Theconstruction of a second power house, financed by OECF (Japan), was startedin 1984 and two 50 MW units are scheduled to be commissioned in December1987. Provioion has been made for a subsequent extension to house two addi-tional 50 MW units. When completed, the Kaptai project will have a totalinstalled capacity of 330 MW and a generating capability of about 1,050CGZnlyear. Two other prospective hydro sites have been investigated in thesame area: (a) Sangu, where about 300 GWh/year could be generaced from a150 KW peaking plant working under a maximum head of 45 meters; and(b) Matamuhari, where a peaking plant of about 100 MW operating under a headof 40 meters could generate about 200 GWh/year. The development of theseschemes would require the relocation of about 30,000 people, consequently nodetailed engineering studies of these schemes have been undertaken to date.

Coal and Peat

1.05 Good quality coal with a heat value of about 6,200 kcal/kg existsin north western Bangladesh, at Jamalganj, with total deposits estimated at700 million tons. The deposits are at a depth of 650 to 1,050 meters undersoft water-bearing strata and their extraction would require sophisticatedand costly soil-freezing techniques. Production costs have been estimatedto be about US$150/ton (mid-1983 prices), which is considerably higher thanthe cost of imported coal. Good deposits of peat are known to exist in theFaridpur and Khulna districts. The Faridpur reserves are believed to besufficient to fuel a 200 MW thermal plant for 40 years at a 50% load factor.The Bangladesh Energy Planning Project has reported that a 30 MW pilot plantconsuming about 200,000 tonnes of peat a year is under consideration byBangladesh Power Development Power Board (BPDB).

Renewable Energy Resources

1.06 Traditional fuels play a crucial role in Bangladesh's energy sector,supplying about 60% of total energy requirements. Wood is one of its majorrenewable energy resources, but its usage is believed to be in excess of itssustainable yield. It has been estimated that tree biomass, such as stemwood, branches, and other tree fuels, contribute between 50% and 60% of totalhousehold energy requirements. Animal dung and agricultural wastes supplythe remaining domestic energy requirements. According to the BangladeshBureau of Statistics the amount of energy supplied by traditional fuels inthe unorganized sector increased by less than 1% a year between 1976 and

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1982. During the same period commercial energy supply increased ,y about6Z a year.

1.07 Urgent action is required to increase Euelwood production, improvethe recovery of forestry wastes for charcoal production, improve theefficiency of traditional stoves and investigate the use of non-conventionalforms of renewable energy. GOB policy is to increase the availability of newand renewable energy resources, with the emphasis on fuelvood (through com-munity and homesteed afforestation) and the promotion of non-conventionalenergy resources. IDA is assisting the implementation of this poLicy throughthe Mangrove Afforestation Project (Credit 1042-BD). In addition, the ongo-ing Bangladesh Energy Planning Project is to formulate a set of recommenda-tions to help stabilize the dwindling base of traditional energy in the faceof rising demand.

B. Organization of the Energy Sector

1.08 Responsibility for energy policies 2nd programs in Bangladesh isdispersed over a number of agencies. The Ministry of Energy and MineralResources has overall responsibility for commercial energy. Operationalresponsibilities are vested in a range of public sector entities responsiblefor comiercial energy supplies. Bangladesh Oil and Cas Corporation(Petrobangla) and its subsidiary organizations are responsible for oil andnatural gas exploration and production, and distribution of natural gas.Bangladesh Petroleum Corporation (BPC) is responsible for imports of crudeoil, refining and marketing of petroleum products. BPDB is responsible forgeneration and transmission of electric power, and its distribution except inthose rural areas served by the Rural Electrification Board (REB). REB wascreated in 1977 to take over the distribution of electricity in rural areasthrough a system of cooperatives, referred to as Palli Bidyut Samities(PBSs). By mid-1984, 17 cooperatives, serving about 110,000 connections 1/had been partially energized and another 16 cooperatives are being developed.At present there is no institutional structure for the coordination ofactivities in the non-commercial energy sector. Various government agencies,including the Ministry of Agriculture and the Ministry of Local Covernment,Rural Development and Cooperatives, are responsible for non-commercialenergy. The issue of coordination is being reviewed under the ongoingBangladesh Energy Planning Project (BEPP). The draft final report of theBEPP was forwarded to IDA in August 1985.

1.09 The Planning Commission, which is responsible for macroeconomicplanning and produces the Five-Year Plans and Annual Development Plans(ADPs), is also responsible for the preparation of the master plan forenergy. An Energy Study and Planning Cell (ESPC) has been established withinthe Planning Commission to formulate this plan through the ADB/UNDP financedBEPP.

1/ On average each domestic connection serves about 2.5 households, and thusthe 110,000 connections provide supply to about 237,000 consumers.

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C. Energy Consumption

1.10 Bangladesh's per capita consumption of commercial energy is about36 kg of oil equivalent per annum, about 872 lower than the populationweighted average for all low-income countries. Total per capita consumptionof energy is about 90 kg of oil equivalent per annum, about 60X of which issupplied by traditional energy resources. The level of energy use is verylow, and thus there is high potential for increased energy demand. Between1976 and 1983, commercial energy consumption grew at about 5.82 per annum,while traditional energy showed relative stagnation, increasing at less than1l per annum. In FY84, comercial energy consumption was about 3.4 milliontons oil equivalent, of which imported fuels, petroleum and coal, accountedfor 37Z and SZ respectively, natural gas 522, and hydropower 6Z. Consumptionof natural gas, which accounts for about two-thirds of electricity gener-ation, increased at 13.5Z per annum between 1975 and 1984.

D. Energy Pricing

1.11 The prices of traditional fuels are determined in the market place,while the prices of petroleum products, natural gas, coal and electricity areset by the Covernment. For each class of consumers the prices of commercialenergy products are uniform throughout the country, with the exception ofeLectricity supplied by PISs. Each PBS sets ils own tariff with the approvalof REB. COB's pricing policy for petroleum products is based on the prin-ciple of periodic adjustments to recover increases in procurement, processingand distribution costs and allov reasonable returns. An adjustment in July1984, raised prices to or above their border price levels. The Ministry ofEnergy and Mineral Resources is authorized to increase petroleum productprices automatically by up to 102 in response to increasing costs. Thecurrent ex-refinery price levels, in comparison with import parity equivalentprices, are satisfactory. Cas tariffs have been raised several times inrecent years, most recently in July 1985. Natural gas prices for some clas-ses of consumers, such as electric power and fertilizer users, are well belowlong run marginal cost. A tariff study by international consultants wascarried out under Bakhrabod Cas Development Project (Credit 1091-BD) toassist the Government in establishing reasonable gas prices. Under theSecond Cas Development Project (para 1.02) GOB increased the average price ofnatural gas by 202 on July 1, 1985, and agreed to introduce an additionalincrease of at least 202 by July 1, 1986. Beginning FY88 and thereafter, COBhas agreed to adjust the structure and level of gas prices on the basis oflong-run marginal cost plus an allowance for depletion. Electricity tariffswere increased by 28X on July 1, 1982, by 3.2Z on July 1, 1983, by 9.52 onMarch 1, 1984, by 3.42 on December 1, 1984 and by 16.4Z on September 1, 1985.The latest tariff incorporates time-of-day pricing for some consumer classes.However, there is a need for an updated long run marginal cost tariff study.GOB agreed, under the IDA-financed Ashuganj Thermal Power Project (Credit1254-BD) and the Rural Electrification Project (Credit 1262-BD), to undertakesuch a study. In October 1984, when the proposed Project and the Second

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Rural Electrification Project were being appraised, GO' approached UNDP tofinance this study; the project document has been signed and the Bank Croupappointed as the executing agency. In mid-September consultants were invitedto submit proposalo, and the study should commence in January 1986, andimplementation of revised tariffs based on the recomuendations made in thestudy should occur in phases beginning December 31, 1986 (paras 3.10 and4.08).

I. Ener.y Planning and Development Strateg

1.12 Energy development in general, and oil and gas exploration inparticul-r, were designated a "core priority" in the Government's SecondFive-Year Plan (SFYP) 1981-1985. Particular emphasis has been placed onsubstituting imported fuels with indigenous resources, such as natural gasand hydro potential. Other major objectives being pursued by the Covernmentin the energy sector include: (a) improving the reliability of electricitysupply and efficiency of the power system operation; (b) achieving a regionalbalance in energy supply between the eastern and western zones of Bangladesh;Cc) implementing a comprehensive rural electrification program; andad) improving efficiency of use and increasing the availability of renewableresources to meet the growing demand for energy in rural areas. 1/ In linewith the priority given to energy development, the SFYP allocated 19X oftotal public sector outlays to the energy sector, of which 70 was allocatedto the power subsector and 301 to hydrocarbons.

F. Bank Croup Strategy in the Power Subsector

1.13 The objectives of the Bank Croup's assistance in the subsector haveevolved from a continuing dialogue with GOB on the complex problems confront-ing the electricity supply industry. They are aimed at supporting effortsto: (a) meet the forecast demand for electricity at least cost;(b) substitute electricity generated using indigenous resources for thatgenerated using imported petroleum products; (c) assist in institution build-ing and training; (d) strengthen financial management, particularly of BPDB;and (e) electrify rural areas. In line with these objectives, the Bank groupand GOB have agreed that priority should be given to: (a) development ofgas-fired and hydroelectric power plants; (b) the reduction of system losses;(c) the development of efficient transmission and distribution systems,including the rural electrification systems; and (d) the financial objectivesand practices of BPDB. Progress has been made in all of these areas, butfurther improvements are necessary. In particular additional efforts areneeded to: (a) address system losses; (b) continue improvement in the main-tenance, operational procedures and management of BPDB; (c) develop thetransmission system to allow the substitution of energy generated fromgas-fired plants for that generated from thermal stations using petroleum

1/ The Bangladesh Energy Planning Project will address this issue.

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products; (d) improve transmission and low-voltage distribution systems tosupply new consumers, and generally improve the quality of supply; and(e) electrify new rural areas and expand the supply systems in areas whichhave already been electrified.

G. Bank Group Involvement and Donor Coordination

1.14 To date IDA has supported energy development with six operations:three in the power subsector and three in the hydrocarbon area. The totalamount of IDA funds committed through these operations is US$296.5 million,representing about 20% of total IDA resources committed to Bangladesh duringthe last five years. IDA's involvement with Bangladesh's power subsectorbegan in June 1979, with the approval of a US$28 million credit for theGreater Khulna Power Distribution Project (Credit 934-BD) to upgrade andimprove the distribution networks in Khulna and three neighboring towns. Thecompletion of this project has been delayed by more than one year, mainly dueto delays in procurement. BPDB has however, taken corrective steps to remedythe situation and the Project is expected to be completed in FY86. Thiscredit was followed by the approval of two power credits in June 1982: aUS$40 million credit for the Rural Electrification Project (Credit 1262-BD)to provide electricity to seven rural cooperatives, which was supplemented byUS$8 million under the Supplemental Assistance Credit (Credit 1504-3-BD) inJune 1984, and a US$92 million credit for Ashuganj Thermal Power Project(Credit 1254-BD), to expand the generating: capacity of the Ashuganj thermalpower station by adding two 150 MW gas-fired steam units. The Rural Elec-trification Project is expected to be completed on schedule in December 1988.After some initial delays which have caused the estimated completion date forthe Ashuganj Project to slip by about one year to July 1987, work isprogressing smoothly. IDA is anticipating substantial savings under Credit1254-BD, and GOB has requested IDA to finance, utilizing these savings, athird 150 MS unit at Ashuganj to meet forecast load growth. In November1985, IDA approved a credit of US$79.0 million for the Second Rural Elec-trification Project as part of GOB's program-to electrify rural areas. Inthe hydrocarbon sector, the first IDA financing, in June 1981, was the US$85million credit for the Bakhrabad Gas Development Project (Credit 1091-BD) todevelop wells at the Bakhrabad gas field and to supply gas to the GreaterChittagong area. A US$28.5 million credit was approved in Kay 1983, for theEnergy Efficiency and Refinery Rehabilitation Project (Credit 1357-BD). Thisseeks to rehabilitate the oil refinery and to study modifications needed toimprove the yield pattern. This project also provides support for thedevelopment of an energy conservation program to improve the efficiency ofenergy use in the industrial sector and for feasibility studies on gas-basedexport-oriented projects. In July 1983, a US$23 million credit was approvedfor the Petroleum Exploration Promotion Project (Credit 1402-BD). This seeksto stimulate interest among foreign investors in the resumption of oilexploration through a proper assessment of petroleum prospects by undertakingseismic surveys and hydrocarbon habitat studies. In April 1985, IDA approvedthe Second Gas Development Project as a part of GOB's program for gasdevelopment and gas infrastructure in the north eastern part of the country.

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1.15 In addition to IDA, a large number of external donors have beeninvolved in assisting investment in the energy sector. They incLude over20 agencies ! including ADB, KfW, UNDP, OPEC Fund and Islamic DevelopmentBank. ADB ias been particularly active in the energy sector through itsinvolvement with the Bangladesh Energy Study (BES), carried out in 1976, anda number of lending operations covering all major energy subsectors. ADB iscurrently executing BEPP (para 1.02) and a Power Sector Master Plan Study.These reports are expected to provide the basis for formulating the Govern-ment's energy policies and investment program for future Five-Year Plans.The Bank intends to review BPDB's annual investmen. plan in FY86, and itsreview will be discussed with other donors and GOB.

II. THE BORROWER

Organization of BPDB

2.01 BPDB, the beneficiary, is a statutory government entity which wasformed in 1972. It is responsible for planning, construction and operationof power generation and transmission facilities throughout Bangladesh, andfor distribution except in those rural areas served by REB. BPDB's managementconsists of a chairman and not more than five members, all of whom areoaDpointed by the Government. The members are responsible for planning/development, generation/transmission, discribution, finance and administra-tion. The period, terms and conditions of appointment for the chairman andmembers are determined by GOB, which can make appointments and dismissals atany time. In the past this has led to frequent turnover of top managementand, although appointees have been chosen from BPDB's staff, has led todiscontinuity.

2.02 BPDB's organization chart is shown in Annex 1. This suggests thatBPDB has well defined lines of responsibility; however, in practice, this isnot always the case. Some improvements have been made in recent years (para2.04). A major impediment to effective management is BPDB's limitedautonomy. Although GOB has recently begun to denationalize importantindustries (e.g. jute and textile manufacturing) it retains control over thedevelopment of the energy sector. It has retained responsibility, within theframework of the country's overall development plans, for policy formulationconcerning the development of the power subsector. However, GOB's influenceis not confined to taking strategic decisions but extends to such day-to-daymatters as the appointment of BPDB officers, setting salary levels andstructures, and approving the !idget.

2.03 In FY84, BPDB had about 22,000 employees, including about 2,860graduate and nongraduate engineers, and about 4,720 unskilled staff. Thenumber of consumers served by BPDB in FY84 was 725,235, giving a con-sumer/employee ratio of about 35:1. This is a very low ratio and indicatesthat BPDB is considerably overstaffed. However, since 1978 BPDB has reducedrecruitment of lower level staff and has introduced training programs toimpart relevant skills to unskilled staff. The consumer!employee ratio hasimproved from 20:1 in FY78 to its present level. Continuation of the exist-ing policy of limiting recruitment of new staff will lead to a substantial

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improvement in this ratio given the forecast large increase in the number ofconsumers.

2.04 Various aid agencies have been involved actively in attempting toimprove BPDB's efficiency. The lead has been taken by ADB, which recognizedthat required improvements cannot be achieved solely through managerialchanges. Thus ADB has funded: the preparation of two energy studies (para1.15) which included many recommendations for the power subsector; provisionof consulting services to establish and introduce an accounting system basedon commercial accounting principles (para 4.01); provisio:u of cooperativearrangements between BPDB and the electric power utilities in Thailand; anddevelopment of a power system master plan (paras 1.15 and 2.09). Managementconsultants engaged under ADB's technical assistance program made severalrecommendations to overcome the problems of high turn-over of middle andsenior level staff, overstaffing at lower levels, and the high degree ofcentralization of authority. Their recommendations included: (i) job class-ification, preparation of job descriptions and standard staffing patterns forspecific items of work, (ii) adoption of more appropriate perforranceappraisal procedures and promotion policies, and (iii) increased delegationof powers to operating personnel. Most of these recommendations have beenimplemented and an Organization and Methods Directorate has been establishedto carry on the activities of work study and job classification on a continu-ing basis. ADB provided US$50,000 under its Fifth Power Project for foreigntraining to officials of the 0 & N Directorate. ADB has pursued an activeprogram with regard to BPDB's institutional development. This program hasbeen reviewed by IDA and found satisfactory, and therefore future effortswill be devoted to supporting the role played by ADB.

2.05 GOB is considering the reorganization of the power subsector.Management consultants were engaged under bilateral financing by UK to under-take a detailed study of the power distribution system in the Dhaka Zone.They recommended the early establishment of a separate autonomous body tohandle power distribution in that zone. GOB has been reviewing the consult-ants' recommendations. In the long term this might involve BPDB shedding itsdistribution functions, so that it would become a generation and transmissionutility. Distribution in rural areas would be the responsibility of REB,while in major urban areas it would be the responsibility of new corporateentities, beginning with Dhaka. So far GOB has not taken any significantsteps in this regard, however IDA proposes to continue to monitor develop-ments through supervision and other missions.

Existing Facilities

2.06 Bangladesh is divided into east and west zones by the Ganges andBrahmaputra/Jamuna River system. Until the commissioning of the 230-kVdouble circuit interconnector (energized at 132-kV) in December 1982 thepower systems in the two zones were completely isolated. In FY85, BPDB'stotal firm generating capacity was 1010 MW (Annex 2). 1/ Firm capacity in thewest zone was 338 MW, all using imported oil, and in the east zone was 672

1/ In addition, industrial captive plant capacity is about 200 MW.

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MW, comprising 130 MW hydroelectric plant, 537 MW natural gas fired plantsand 5 MW of diesels. The commissioning of the interconnector in 1982 allowedtotal system generating costs to be reduced by substituting natural gas firedgeneration in the east for oil fired generation in the west. In FY84, theaverage fuel cost per kWh generated in the west zone was nearly Tk 1.5/kWhbut only Tk 0.15/kWh in the east zone. Substantial transfers (519 GWh and 144MW) took place in FY84. The major generating stations and load centers areinterconnected by a 132-kV transmission grid (2,000 km) consisting of doubleand single-circuit lines (Annex 3). There are also 167 km of 66-kV sub-transmission lines which branch out from the Ishurdi substation. No furtherdevelopment of this 66-kV system is planned. Many reinforcements and exten-sions are under construction or planned for the next decade (Annex 4). Theseinclude stringing second circuits on existing double-circuit towers, exten-sion of the 230-kV grid, together with reinforcements and extensions of the132-kV grid in both the east and west zones.

2.07 The distribution system consists of about 7,000 km of 33-kV linesand 21,000 km of 11-kV and 400 volt lines. The 33-kV network functions as abulk distribution system to supply large consumers. Because of the lack ofa 132-kV transmission grid in some remote areas, some of the 33-kV linesare very long, exceeding 100 km. The 400 volt networks are supplied fromcentrally located 11/0.4-kV transformers. Consequently, the 400 volt networkis very extensive and is often overloaded. TechnicaL losses are high in the33/11-kV and 0.4-kV distribution systems (para 2.10).

2.08 Total energy generated by BPDB's power plants in FY85 was 4,665 GWh,4,207 GWh (90%) in the east zone and 458 GWh (10%) in the west zone (Annex19). At the end of FY84, the total number of consumers supplied by BPDB wasabout 725,000 of which about 467,000 were domestic consumers and about214,000 were commercial consumers, including street lighting (Annex 6).Another 237,000 consumers have been connected through REB, of which about215,000 are domestic consumers. It is estimated that about 9% of the popula-tion is receiving electricity supply.

Power Planning

2.09 In May 1983, BPDB set up a Master Planning Cell to prepare a PowerSystem Master Plan for the development of the generation and transmissionsystem in Bangladesh (para 1.15). BPDB was assisted by a small team ofadvisers from Acres International Limited (Canada) financed by ADB/UNDP.The Master Plan covers the years 1985-2005 and was undertaken entirely inBangladesh in order to maximize the training element. The principal objec-tive of the Plan is the optimal development of the high voltage grid system,including both required generating plants and high voltage transmissionnetwork. Distribution planning was not included in the Terms of Reference;however, a simplified approach was used to assess the investment required fordistribution. This aspect of planning has now been addressed (para 2.15).The draft interim report for the Power System Master Plan has been reviewedby IDA. The report does not specify a least cost development program forBPDB. Rather it consists of 12 scenarios, based on different assumptionsregarding the availability of natural gas, different dates when natural gasmay bacome available in the west zone, different rates of system expansion,and various options concerning the use of coal-fired generation. The interimreport set out a basic high voltage system capable of being adapted to any of

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the 12 scenarios. The intention was that the interim report would deal withnear-term matters of a pressing nature, while longer term decisions could bedeferred until the various uncertainties underlying the scenarios had beenresolved. One of the most significant parts of the training element of theMaster Plan was the provision of two IBM desk-top computers together withvarious programs, including programs for generation expansion, system studiesand financial projections. BPDB's Planning Directorate should now be in aposition to generate and handle its own technical and financial dataaccurately and quickly. This represents a significant improvement in itsplanning capability.

System losses

2.10 In FY80 and FY81, BPDB's losses in the cransmission and distributionnetworks were 40% of gross generation. These were attributed to overloadingof the distribution system, low power factars on consumers' loads, and tovarious forms of theft. BPDB agreed under Credit 1254-BD to take all stepsnecessary to reduce losses, as a percentage of gross generation, to about 28Xla FY83, 25Z in FY84, 23% in FY85 and ZOZ in FY90. Losses are still welLabove the agreed target levels. The joint UNDP/World Bank Energy SectorManagement Assistance Program (ESMAP) and Lahmeyer International (FederalRepublic of Germany) have recently studied losses in Bangladesh. Losses, onthe basis of gross generation, were estimated to be about 39% in FY85 and areestimated to be about 36% in FY86. ESKAP estimated transmission anddistribution losses to be 31% of net generation, consisting of about 14Ztechnical losses and 17% non-technical losses. The main reasons for techni-cal losses are still overloaded distribution systems and inadequate powerfactor correction. On the completion of ongoing distribution improvementprojects currently under construction at Khulna, Dhaka, Rajshahi and Chit-tagong (financed by IDA, ADB, France and ADB respectively), BPNB expects toreduce technical losses substantially. Non-technical losses are due mainlyto inadequate metering and billing systems, and to theft and corruption. TheESMAP draft report was discussed with GOB in October 1984. It includedprograms to deal with the technical and non-technical losses. These programshave been included in the proposed Project (paras 3.08 and 3.09).

2.11 Although dated action programs have not been formulated (para 3.08(a)), it is expected that their implementation would, as a minimum, reducesystem losses to the following levels:

LossesFiscal Year (Z gross generation)

86 3687 3488 3289 3090 2891 2692 2493 22

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The measures discussed in para 3.08 will not begin to reduce losses until1987. To assist BPDB in reducing system losses in the interim, ESMAP sent anexpert in loss reduction to Bangladesh in November 1984. The objective wasto accelerate the reduction of non-technical losses using availableresources. During his stay of one month he checked, together with a team ofmeter technicians from BPDB, approximately 35 commercial and industrialmetering installations. The discrepencies corrected during that period areestimated to reduce system losses by about 4 GWh a year, worth about US$280,000. Pending the implementation of the long term measures to reducesystem losses under the proposed Project (para 3.08), BPDB is implementing anaction program to reduce non-technical system losses (para 3.09).

BPDB's Developmrent Program

Planned Generation

2.12 Details of the forecast energy and capacity balances are given inAnnex 2. Total installed capacity on BPDB's supply system is expected toincrease from 1010 MW in 1985 to 2,345 NW in 1992. Projects under construc-tion or firmly planned in the east zone include: extensions at Ashuganj(3x150 MW gas-fired steam units and lx60 NW gas turbine (GT)), extensions atGhorasal (3x210 MW gas-fired steam units), extensions at Chittagong (2x28 MWGT), extension at Siddirganj (80 NW GT), and the extension of the Karnafulihydropower station (4x50 MW). Similarly, projects under construction orfirmly planned in the west zone for commissioning by end 1988 comprise 20 MSGT extensions at both Saidpur and Barisal. Financing has been secured formost of these projects and they should be comuissioned approximately asplanned. Annex 2 shows that the completion of this commissioning program asplanned would enable BPDB to meet its load forecast at the quality of serviceincorporated in its reserve plant margin criterion. However, looking beyond1991 it is apparent that the planned generation investment program will notallow BPDB to satisfy its security of supply criterion. There could be loadshedding beyond 1991 if the commissioning program is not augmented by addi-tional capacity. BPDB is expected to revise its planned investment programfor the period beginning about 1990.

2.13 BPDB's strategy of adding natural gas-fuelled base load stations inthe east zone and transferring surplus energy to the west zone in order tolimit use of expensive oil-fired generation in that zone to the level neededfor voltage regulation and system security is sound. The investment ingenerating capacity necessary to implement that strategy leads to an invest-ment program with pronounced peaks in FY86 and FY87 (Annex 18), mainlyrequired for the on-going Ashuganj and Chorasal gas-fired projects (to becommissioned in those years). Any slippage in that investment program wouldhave a severe impact on BPDB's expenditure on fuel since oil-fired generationin the west zone would need to be substituted for the deferred natural-gasgeneration in the east zone. The incremental fuel cost involved in usingKhulna in place of Ghorasal is Tk 1.727/kWh. In FY86 Chorasal is projectedto generate 310 GWh. If this was generated using Khulna, the additional fuelcost would be Tk 535.37 million. rhis is equivalent to 32.2Z of projectedlocal currency expenditure on generation facilities in FY86, and to a 5Z

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increase on projected expenditure on imports of petroleum products in thatyear. 1/ Thus any slippage due to a shortage of local currency would lead toincreased expenditure of scarce foreign exchange. In view of the size ofproposed investments in the power subsector and their importance to theeconomy of Bangladesh, the Bank Group plans to initiate a special review ofBPDB's investment program in FY86. The investment program will be discussedwith other donors and GOB (para 1.15). During negotiations, BPDB agreed toreview with IDA, by July 31 of each year during the execution of the proposedProject, its investment program and associated financing arrangements, and tomake such changes to the program as may be agreed by GOB, IDA and BPDB (para6.01(a)).

Transmission

2.14 Conversion of the east-west interconnector to 230-kV operation isplanned for 1986-87 upon completion of the terminal 132/230-kV substations.BPDB is considering reinforcing the interconnection with another tie-line byabout 1993 to further increase power exchange capability and system security.Many reinforcements and extensions are under construction or planned for thenext decade. These include the extensions of the 230-kV grid down toComilla, as well as reinforcements and extensions of the 132-kV grid in boththe east and west zones.

Distribution

2.15 Development of the distribution system has not kept pace with therapidly increasing demand, resulting in a situation where not only are lossesexcessive but voltage drop often far exceeds the original design levels. Thisis particularly true in the 400 volt network, where most consumers receivesupply at less than 85% of the nominal voltage. Most of the conductors onthe main feeders, branches and service drops are undersized; the 11/0.4-kVtransformers are overloaded and many joints and taps have been made with poortechnology, resulting in unreliable connections and local overheating. Toremedy this situation BPDB has recently established four units, one undereach Chief Engineer Distribution, to plan and develop distribution systems.Under the proposed Project provision has been made for consulting services toassist BDPB's distribution planning units in reinforcing the distributionsystems, identifying areas of high losses and recommending a rehabilitationprogram (para 3.08 (a)).

1/ In FY86 Bangladesh's total imports are projected to be about US$2760million (petroleum products US$380 million), and total export earningsabout US$950.0 million, all in constant price terms.

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III. THE PROJECT

Project Setting

3.01 GOB's strategy for accelerating the development of domestic energyresources is to locate future major generating stations in the east zone. Inassociation with this generation, it plans to develop efficient and reliabletransmission and distribution systems required to evacuate the power at leastcost. COB's plans call for the commissioning of about 1,050 MW of gas-firedgeneration and 100 MW of hydro-generation over the next five years in theeast zone, and the commissioning of only 40 MW of oil-fired generation inthe west zone. The existing transmission and distribution systems cannotevacuate the additional power. Even with the present loads, avaiLableoperating voltage is low. On one of the lines included in the project,Bogra-Thakurgaon 132-kV line, system voltage as low as 114-kV has beenobserved. Most of the lines are single circuit and any interruption dislo-cates supply to all the substations connected to that line. Based on systemstudies, BPDB has formulated plans for stabilizing the voltage and reinforc-ing the transmission and distribution systems. System losses are high,partly as a result of the inadequate transmission system. Currently, systemlosses are about 36Z, however BPDB plans to reduce them. For routine linemaintenance, BPDB shuts the supply and carries out maintenance. To enhancethe quality of supply, BPDB is planning to introduce hot line maintenanceusing modern techniques (para 3.12). BPDB has prepared a draft projectProforma for the proposed Project. Approval of the final Proforma by GOBwould be a condition of credit effectiveness (para 6.03(a)).

Project Objectives

3.02 The principal objectives of the proposed Project are to expand andreinforce BPDB's transmission and distribution systems to meet the loadforecast at least cost, to stabilize system voltage, to increase systemreliability and to reduce transmission losses. The proposed Project alsoincludes technical assistance and extension of training facilities. It wouldalso strengthen BPDB's financial management through the provision of techni-cal assistance to improve financial services and accounting procedures; andimprove its financial viability through a proposed tariff study.

Project Description

3.03 The proposed Project would be comprised of the following components:

(a) erection of about 582 km of 132-kV lines;

(b) extension of sixteen 132-kV substations to accommodate new lines, andthe installation of two 132/33-kV transformers, each of 20 MVA, intwo of these substations;

(c) extension and reinforcement of the low voltage distribution networkin 14 towns, involving the erection of about 24 km of 33-kV, 140 km

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of 1l-kV, 210 km of 6.35-kV, and 230 km of 400 volt Lines, 12 substa-tions of 33-kV, 5 MVA each, and 131 distribution substations of 11-kVof various sizes;

(d) three phase and single phase meters and metering equipment for a lossreduction program; and

(e) technical assistance for (i) design and construction supervision,(ii) improving BPDB's commercial and financial functions, (iii)assisting BPDB in reinforcing its planning units and recommending arehabilitation program to reduce system losses, (iv) undertaking astudy for setting tariffs based on long run marginal costs, inves-tigating the ium'lications of various subsidies, and developing amethodology for the revaluation of BPDB's fixed assets, and (v)training BPDB staff in the maintenance and erection of distributionlines (Annex 10).

Details of the Project description are summarized in Annex 7, and map 18660shows the Project details.

Project Cost

3.04 The estimated total cost of the proposed Project, including price andphysical contingencies, duties and taxes, is US$71.6 million. Duties andtaxes are US$4.2 million. Total finances required, including interest duringconstruction, are estimated at US$82.9 million, including US$47.8 million inforeign exchange. The estimates are based on mid 1985 prices. Physicalcontingencies are 1OZ for equipment, material and services, on the basis ofexperience with similar projects. Price contingencies for foreign costs areassumed at 7% annually for FY86-FY87, 7.5% for FY88, 7.7% for FY89 and 7.6% ayear thereafter. Price contingencies for local costs are 13Z for FY86 and 11%a year thereafter. Total price contingencies amount to 24.3Z of base costincluding physical contingencies. A summary cost estimate is presented inTable 3.1 below, and detailed estimates are given in Annex 8.

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Table 3.1PROJECT COST ESTIMATE

Foreign(Taka million) (US$ million) Exchange

CostLocal Foreign Total Local Foreign Total (Z)

132-kY LinesMaterial 30.2 134.2 164.4 1.0 4.5 5.5 82Vehicles & Erection Equipment 7.2 33.5 40.7 0.2 1.1 1.3 85Civil Works 22.9 - 22.9. 0.7 - 0.7 -Land Acquisition & Development 25.2 - 25.2 0.9 - 0.9 -

Erection and Commissioning 16.5 - 16.5 0.6 - 0.6 -Sub Total 102.0 167.7 269.7 3.4 5.6 9.0 62

132-kV SubstationsMaterial 46.7 212.3 259.0 1.6 7.1 8.7 82Civil Works 123.3 - 123.3 4.0 - 4.0 -Land Acquisition & Development 1.1 - 1.1 - - - -Erection and Commissioning - 22.7 22.7 - 0.8 0.8 100

Sub Total 171.1 235.0 406.1 5.6 7.9 13.5 58

Low Voltage Distribution WorksLine Material 76.8 243.1 319.9 2.5 8.1 10.6 76Substation Material 33.9 175.5 209.4 1.2 5.8 7.0 83Renovation of Old Equipment 7.8 45.1 52.9 0.3 1.5 1.8 83Vehicles and Equipment 3.6 22.8 26.4 0.1 0.8 0.9 89Civil Works 13.4 - 13.4 0.5 - 0.5 -Land Acquisition & Development 1.1 - 1.1 - - - -

Erection & Commissioning 44.5 - 44.5 1.5 - 1.5 -

Sub Total 181.1 486.5 667.6 6.1 16.2 22.3 73

Meters and Metering Equipment 10.5 53.4 63.9 0.3 1.7 2.0 85for Loss Reduction

Technical AssistanceConsulting services 22.7 131.7 154.4 0.8 4.4 5.2 85Training - 10.6 10.6 - 0.4 0.4 100Sub Total 22.7 142.3 165.0 0.8 4.8 5.6 86Total Baseline Costs 487.4 1084.9 1572.3 16.2 36.2 52.4 69Pt.ysical Contingencies 48.7 108.5 157.2 1.6 3.6 5.2 69Price Contingencies 177.1 240.9 418.0 6.0 8.0 14.0 5733tal Project Cost 713.2 1434.3 2147.5 23.8 47.8 71.6 67Interest During Construction 339.0 - 339.0 11.3 - 11.3 -Total Finances Required 1052.2 1434.3 2486.5 35.1 47.8 82.9 58

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Project Financing

3.05 IDA would finance US$56.0 million of the total cost of the proposedProject, representing 94% of the foreign cost and 57Z of the local cost,excluding taxes, duties and interest during construction (US$19.6 million).UNDP would finance the remaining 6% of foreign cost. Table 3.2 below sum-marizes the Project financing plan.

Table 3.2

PROJECT FINANCING PLAN(US$ million Equivalent)

Local Foreign Total

IDA 11.2 44.8 56.0UNDP - 3.0 3.0BPDB (Internal Resources) 12.5 - 12.5GOB 11.4 11.4TOTAL 35.1 47.8 82.9

BPDB would finance local cost amounting to US$12.5 million (15Z) of the totalcost of the proposed Project from internally generated resources. GOB'scontribution of US$11.4 million would finance the remaining local cost andwould consist of US$7.0 million (60X) as equity and US$4.4 million (40Z) aslong term loans. BPDB would bear any cost overruns and the foreign exchangerisk. The onlending arrangements are discussed in para 4.15.

Project Engineering and Consulting Services

3.06 The proposed Project mainly consists of 132-kV lines, substationsand low voltage distribution works. DetaiLed engineering designs, specifica-tions and bidding documents for all these Project components are required.BPDB has prepared engineering designs, draft specifications and biddingdocuments for the 132-kY lines and substations. Since the materials are ofstandard design, BPDB would not require any consultancy assistance for the132-kV lines. It would, however, need the services of consultants of inter-national experience to review the engineering design, draft specificationsand bidding documents related to the 132-kV substations, since these wouldinvolve sophisticated equipment requiring close coo!:ination with existingequipment. In August, 1985 BPDB engaged the services of Hotor Columbus(Switzerland) for this purpose in accordance with TORs acceptable to IDA.

3.07 BPDB has the capability to prepare design and bidding documents forlow voltage distribution works. However, since a substantial amount of fieldsurvey work is involve;j and BPDB has manpower constraints, it intends toentrust this work to local consultants with previous experience in theimplementation of similar projects. BPDB has followed this approach underADB financed projects and their performance has been found to be satisfac-tory. Consequently, in November 1985, BPDB engaged the services of six localconsultancy firms to undertake work in specifically designated areas. Before

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the documents prepared by the local consultants are finalized, they would bereviewed by consultants with international experience to ensure that thedocuments are suitable for international bidding. The latter consultantswould also supervise the proposed Project during construction (except lowvoltage distribution works) and train BPDB staff in hot line maintenance anderection of distribution lines. The costs of these consulting services, areincluded in the cost of the proposed Project. The appointment of the con-sultants of international experience would be a condition of credit effec-tiveness (para 6.03 (b))

3.08 The proposed Project includes assistance to BPDB in the form ofconsulting services to undertake studies and implement a program to reduceboth technical and non-technical system losses. UNDP has agreed to financethese studies, with UNDTCD as the cxecuting agency. The project document,including TOR and a short list of consultants, has been agreed by UNDP, COBand IDA. During negotiations GOB/BPDB agreed to impLement the following lossreduction program:

(a) appoint consultants to assist BPDB's distribution planning units inreinforcing and rehabilitating its distribution systems, to identifyareas of high losses, and to recommend by December 31, 1986, datedaction programs to remedy each of the specific causes of systemlosses. BPDB would implement, in a timely manner, these actionprograms taking into account IDA's comments (para 6.02a(i));

(b) appoint a consulting firm for a period of two years to provide theservices of a commercial manager, meter engineer and five metertechnicians to help BPDB streamline its billing and metering proce-dures (para 6.02a(ii));

(c) prepare and submit to IDA for its comments by June 30, 1986 programsto provide meters at those installations where there are no meters,to recalibrate all existing meters, and make all meter installationssecure. BPDB would implement these programs in a timely manner (para6.02a(iii)); and

(d) prepare and submit to IDA for its comments by June 30, 1986, aprogram for the introduction of a computerized billing system consis-tent with normal commercial utility practices. ADB has providedUS$1.70 million in its Sixth Power loan to finance phase I of BPDB'scomputerization program. Under this loan BPDB is inviting proposalsfor consultancy services to identify its requirements for hardwareand software. BPDB would keep IDA informed of the progress of thisprogram and, keeping in view IDA's comments, implement the program ina timely manner (para 6.02a(iv)).

3.09 In the interim, pending the introduction of the loss reductionmeasures under the foregoing studies (para 3.08), GOB/BPDB agreed duringnegotiations to continue to implement BPDB's ongoing loss reduction program,which includes the following key measures (para 6.02(b)):

(a) procurement and installation of appropriate meters at all unmeteredinstallations;

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(b) calibration of all existing meters, with priority for three phasemeters;

(c) 100X meter reading and billing, and checking by supervisorypersonnel;

(d) prevention of theft and pilferage through the installation of secureand tamperproof meter enclosures; and

(e) prompt disconnection and prosecution of consumers for the illegal useof electricity.

During negotiations it was agreed that BPDB would prepare for IDA'sreview an analysis of the level of system losses, showing progress made up toDecember 31, 1985 and for each succeeding six-month period thereafter, untila level acceptable to IDA is achieved.

..iO UNDP is also providing technical assistance for a study to settariffs based on long run marginal costs; investigate the implications ofvarious subsidies for rural electrification, and develop a methodology forthe revaluation of BPDB's fixed assets (para 4.08). IDA is the executingagency for this study. Following the approval of BPDB, consultants wereinvited to submit proposals in mid-September 1985, and the study shouldcommence in January 1986.

Project Implementation

3.11 All 132-kV lines would be erected by local contractors. BPDB hasrecently erected, with the assistance of local contractors, 102km of 132-kVline between Ishurdi and Bogra in about three months. The use of localcontractors is considered acceptable to IDA since the works are scatteredover a wide area and are labor intensive. The 132-kV substations would beerected by the suppliers of substation equipment on a turn key basis.Low voltage distribution works would be erected by local contractors. Con-sultants with international experience, acceptable to IDA, would supervisethe construction and commissioning of the 132-kV lines and substations, whilelocal consultants, also acceptable to IDA, would supervise the low voltagedistribution works.

3.12 The proposed Project includes US$500,000 to strengthen the Khulnatraining institute (Annex 10). This provision includes about US$300,000 tomeet the cost of new tools and equipment required to train BPDB staff inmodern techniques of hot line maintenance and erection. About US$200,000would be used to meet the foreign cost of overseas training for BPDB staff.The consultants with international experience engaged under para 3.07 wouldassist BPDB in implementing this training program. During negotiations, BPDBagreed to implement the following training program (para 6.02(c):

(a) submit a consultant's reportcovering equipment specificationsand training requirements ofof BPDB staff; June 30, 1986

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(b) prepare bidding documents for toolsand equipment for hot linemaintenance; September 30, 1986

(c) finalize contracts forprocurement of tools and equipment; June 30, 1987

(d) select and deputeBPDB teachers for training abroad; June 30-October, 1987

(e) train BPDB staff in Bangladesh; and November 1987-February 1988

(f) consultant's evaluation of thetraining program. March 1988

3.13 BPDB has decided to create the post of Project Director, suppirtedby necessary staff, in order to expedite the implementation of the project.The proposed organization has been reviewed by IDA and found satisfactory.The appointment of the Project Director would be a condition of credit effec-tiveness (para 6.03(c)).

3.14 The implementation schedule for the proposed Project is given inAnnex 9. It would be constructed in about four years from the date ofinitiation of works. IDA has approved GOB's request for the advancedprocurement and retroactive financing of up to SDR 5.0 million, to coverexpenditures for the Bogra-Thakurgaon 132-kY line. As explained in para3.01, the system voltage on that line is low and BPDB intends to givepriority to the erection of the second circuit.

Procurement

3.15 The procurement of the various components of the proposed Projectwould be arranged as shown in Table 3.3. Procurement of materials and equip-ment would be on ICB basis in accordance with Bank Croup guidelines. It isexpected that only foreign suppliers would submit bids for equipment andmaterials. Should a local manufacturer submit a bid, 15X price preference onCIF prices or prevailing duties, whichever is lower, would be allowed. Localcontractors would be selected on LCB procedures. These procedures have beenreviewed by IDA and found satisfactory. Civil works associated with 132-kVsubstations would be constructed by the suppliers of the equipment on a turnkey basis; other civil works associated with 132-kV lines and low voltagedistribution works would be constructed by the local contractors. A set ofsmall quantities of materials, tools, spare parts and equipment, not exceed-ing US$75,000 each and in the aggregate not exceeding US$375,000, would beprocured on LIB basis, in accordance with Bank Croup guidelines. Another setof small quantities of materials, tools, spare parts and equipment, notexceeding US$75,000 each and in the aggregate not exceeding US$375,000, wouldbe procured under LCB procedures acceptable to IDA.

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Table 3.3

PROCUREMENT ARRANGEMENTS(US$million)-

Description - ICB LCB 2/ Others 1/ NA 3/ Total

(a) Line Materials 18.6 0.2 0.2 4.2 23.2(18.6) (0.2) (0.2) (19.0)

(b) Substation Materials 17.5- 0.2 0.2 4.0 21.9(17.5)- (0.2) (0.2) (17.9)

(c) Civil Works 4.5 2.0 - 1.4 7.9(4.5) (2.0) (6.5)

(d) Land Acquisition and Development - - - 1.4 1.4

(e) Vehicles and Erection Equipment 2.5 - 0.5 3.0(2.5) - (2.5)

5f) Erection and Commissioning 1.0 2.4 - 0.6 4.0(1.0) (2.4) (3.4)

(g) Equipment for Loss Reduction 2.4 - - - 0.5 2.9(Meters and Metering Equipment) (2.4) (2.4)

(Ih) Consulting ServicesCi) System Loss Reduction

Study and Tariff Study - - 3.0 - 3.0(ii) Other Consulting Services

for Design and Supervision - - 3.8 3.8of Project - - (3.8) - (3.8)

(h) Training 0.5 - 0.5-- (0.5) (0.5)

Total 46.5 4.8 7.7 12.6 71.6(46.5) (4.8) (4.7) (56.0)

Note: The figures in parenthesis are the respective amounts which would befinanced by IDA.

1/ In the column "Others," the sums of US$0.2 and 0.2 million for items aand b (with the total sum limited to US$375,000) relate to the cost ofitems procured under LIB procedures. Consulting services for the systemloss reduction and tariff studies will be-financed by UNDP.

2/ The total procurement of materials under LCB procedures would be limitedto US$375,000.

3/ Costs under the column "NA" relate to local custom duties, taxes, andBPDP administrative charges, local transport, local handling and localinsurance charges. -Duties and taxes amount to US$4.2 million out of thetotal of US$12.6 million.

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3.16 Separate bidding documents would be prepared for the following items:

line materials, consisting of conductors, insulators andfittings, poles, and cross arms, estimated at US$18.6 million;vehicles and erection equipment estimated at US$2.5 million;substation materials, including civil works and erection,con3isting of transformers, switchgear, protective relayingand carrier equipment, capacitors and other associatedequipment, estimated at US$23.0 million; meters and meteringequipment, estimated at US$2.4 million; and erection andcommissioning, including civil works, of 132-kV lines and low -

voltage distribution systems, estimated at US$4.4 million.

All IDA financed contracts exceeding US$50,000 would be subject to IDA'sprior review.

Disbursement

3.17 Disbursement under the proposed credit would be in respect of thecosts of material and equipment, civil works, erection and commissioning, andtechnical assistance, as shown below:

(a) 100Z of the CIF cost of line and substation materials, vehicles anderection equipment, meters and metering equipment; in the case of -goods manufactured locally, 1002 of ex-factory cost, and in the caseof goods procured locally, 702 of the cost;

(b) 100Z of foreign expenditure and 801 of the local expenditure forcivil works and erection and comnissioning charges;

(c) 1002 of the total expenditure for consulting services; and

(d) 100Z of the total expenditure for overseas training of BPDB staff.

These disbursements would be fully documented, with the exception of smallcivil works costing less than US$20,000. In such cases, disbursewent wouldbe made against Statement of Expenditure (SOE), the documentation of whichwould not be submitted to IDA but retained for inspection by the supervisionmissions. The standard procedures for auditing SOE's would apply. In orderto facilitate disbursement, a special project account would be established inthe Bangladesh Bank (Central Bank), on terms and conditions satisfactory toIDA. The initial deposit in the bank would be SDR 3.0 million. The disbur-sement schedule is based on-completion of the proposed Project byDecember 31, 1989, with a one year warranty after completion. The creditclosing date would .be December 31, 1990. This would imply a constructionperiod of about four years and a disbursement period of about five years.An allowance of 15X slippage in the disbursement schedule has been includedto cover the possible risk of delays in implementation (para 3.20). A mean-ingful comparison cannot be made using the standerd IDA/IBRD profile since132-kV towers already exist. Procurement is only needed for conductors,insulators and fittings required-for stringing the circuit on existingtowers. This should take only a relatively short time. BPDB has recentlyerected a second circuit - a 102km section between Ishurdi and Bogra in only

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three months. All 132-kV substations with associated controL room buildingsexist. Only extensions would be required to accommodate the second 132-kVcircuit and new power transformers at Faridpur and Madaripur. At all 14towns, 33/11 kV substations exist, except at Habigani, and reinforcement ofthese substations is covered under the proposed Project. The proposedProject, however, includes some new low voltage local distribution lines andsubstations. Local contractors and the BPDB have sufficient experience inthis type of work to undertake it satisfactorily. BPDB plans to engage anumber of local contractors to work on different sites. This will shortenthe construction period. During negotiations GOB/BPDB, however, gave anassurance that in the event of delays in the implementation of the proposedProject, GOB would make suitable arrangements to finance any cost overruns.

Ecological Effects

3.18 GOB has assured IDA that Bangladesh's existing laws provide adequatecompensation for properties acquired or damaged as a result of projectsundertaken for public purposes. During negotiations, GOB further assured IDAthat any rights of way required for the purposes of the proposed Project willnot have any adverse impact upon wild life preserves.

Project Monitoring

3.19 Implementation of the proposed Project would be monitored by BPDBwith the assistance of consultants, and BPDB would submit quarterly progressreports and other pertinent information to IDA. When .inally completed, BPDBshould undertake not later than six months after the closing date, or suchLater date as may be agreed for this purpose, to prepare and furnish to IDA aProject Completion Report of such scope and in such detail as IDA shallreasonably request, on the execution and initial operation of the Project,its cost and the benefit derived from it, the performance of BPDB and theaccomplishment of the objectives of the Credit.

Risk

3.20 The proposed Project is relatively free of complexities. Slippagecould occur due to delays in procurement and the appointment of contractors.This would be minimized by engaging consultants according to an agreedschedule. Appropriate contingencies have been provided to avoid costoverruns. BPDB's financial performance needs to be improved and the exces-sive system losses reduced. Without improvements in these areas, the plannedexpansion of the power network and the institution building objectives ofthe proposed Project would be placed at risk. In order to address theseissues, the proposed Project includes (i) a program to reduce system losses,both on an interim and longer term basis, and (ii) the establishment ofspecific short-term financial goals for BPDB and the development of longerterm performance goals based on a long-run marginal cost-based tarifi study.

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IV. FINANCIAL ANALYSIS

System of Accounts

4.01 BPDB engaged the service of Sycip, Cores, and Velayo (SGV) of thePhilippines, under financing from ADB, to assist in the introduction ofa new accounting system. The consultants compLeted their basic assignmentin Kay 1981. Manuals, books of accounts and organizational structurerequired for the implementation of the proposed commercial accountingsystem were developed. BPDB has begun to compile its accounts accordingto the new system and made the required institutional changes by creating25 regional accounting offices and placing all financial and commercialactivities under the Member Finance. However, despite the efforts devotedto this objective so far, limited progress has been in areas, such asproperty accounting and inventory accounts. In addition, the books ofaccounts and records, especially in the Regional Accounting Offices arepoorly maintained. An understanding was reached with GOB that, an overallreview and evaluation of the progress made in implementing the new systemof accounts would be carried out to detect any impediments and recommendimprovements. Therefore, during negotiations it was agreed that theAssociation and BPDB will jointly review BPDB's existing accounting system(para 6.02(d)).

Past Financial Performance

4.02 In February 1978, GOB prepared a Financial Recovery Plan (FRP) forBPDB, which included: (i) restructuring BPDB's debt to GOB and reschedul-ing its foreign debt; (ii) financing the local cost of BPDB's investmentprogram (50% as loans and 50% as equity); (iii) reducing system losses;(iv) revising tariffs periodically; and (v) establishing programs forsystem rehabilitation and improved management. Some progress has been madein meeting these objectives. In February 1978, all GOB's preliberationloans and 501 of post-liberation loans 1/ were converted into equity. Theremaining 501 post-liberation loans together with all foreign loans 2/,were rescheduled with a repayment period of 25 years, including a 5 yeargrace period bearing a 5% interest rate. In July 1983, all BDBP's out-standing local currency loans from GOB up to June 30, 1981, and all foreigngrants without relending agreements, were converted into equity, effectivefrom July 1, 1981. Tariffs were increased in 1981, 1982, 1983, 1984 and1985. Under the Ashuganj Thermal Power Project (Credit 1254-BD), BPDBprepared a comprehensive loss reduction program; however, although variousmeasures have been implemented, to date system losses have not been reduced(para 2.10). Although BPDB has improved the compilation of its annual

1/ Up to June 30, 1977.

2/ Except foreign loans for which specific relending terms were agreedwith donors.

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financial statements, the evaluation of its past performance is difficultdue to unreliable data on system losses and electricity sales. InFY82-FY84, BPDB issued supplementary bills for the previously free consump-tion by its own staff and for consumers believed to have been under-billedduring the past 10 years. BPDB added the additional energy consumptionincluded in these bills to recorded sales. Since most of the supplementarybilling was disputed by customers and was largely uncollectable, issuingthese bills simply distorted actual sales data, appeared to reduce systemlosses and inflated accounts receivable. During negotiations the GOBdelegation informed IDA that the practice of issuing supplementary billshas been discontinued unless underbilling, theft, fraud, etc. has beenestablished beyond doubt and the billed amount is collectable. BPDB didnot fully meet the agreed financial targets for FY83 and FY84; however,its financial performance has improved, although at a slower rate than wasexpected during the preparation of the Ashuganj Thermal Power Project,(Credit 1254-BD). In FY83, it brcke even financially for the first time,and average fuel cost per kWh generated decreased due to the commissioningof the east/west interconnector.

Tariffs and Financial Objectives

4.03 Under Ashuganj Thermal Power Project (Credit 1254-BD), BPDB isrequired to take all actions necessary to ensure that its tariffs are setat levels that will realize net cash generation equal to at least 20% ofits average annual investment in FY83, 25% in FY84 through FY86, and 40Z inFY87 and thereafter. Tariffs were increased by about 28Z in July 1982,3.2Z in July 1983, 9.5% in March 1984, and 3.4% in December 1984, leadingto an increase in the average tariff revenue from Tkl.00/kWh in FY82 toTkl.41/kWh in June 1985. Despite these increases BPDB was unable to meetthe cash generation agreement in FY83 and FY84. Ho-wever, it was able tomove from a position of losses in the 1970's to financial breakeven in FY83(Annex 16). In FY85 BPDB is expected to realize a cash generation of aboutonly 2% as a result of: (i) its policy change regarding supplementarybilling, and (ii) the introduction of a tariff increase of only 3.4% onDecember 1, 1984, when a tariff increase of 11% from July 1, 1984 wasestimated to be required to realize the covenanted net cash generation of25%. It is expected that BPDB will be able to generate net cash equal toabout 12% of its average annual investment in FY86 as a result of thetariff increase introduced from September 1, 1985. This tariff increasewas estimated by GOB to be about 162.1/ PDB's inability to meet its agreedcash generation targets during the three previous yeirs was only partly theresult of inadequate tariff increases. Other reasons included: (i) BPDB'slimited success in reducing system losses; (ii) the unexpected 40% increasein imported oil prices introduced by GOB on July 1, 1982, which was notpassed on to electricity consumers through the fuel adjustment clause; and(iii) the higher than expected annual investment program, (Annex 18). Onthe other hand, some factors contributed positively to BPDB's financialperformance during those years. These included: (i) the commissioning of

1/ This includes an increase in the bulk supply tariff rate to PBSsfrom TK 0.78/kWh to Tk 0.95/kWh

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the east/west interconnector in December 1982, which decreased the averagefuel cost per kWh generated from Tk 0.76 to Tk 0.48; and (ii) COB's arran-gements to restructure BPDR's capital to maintain a debt/equity ratio of60/40, which reduced the debt service obligation from FY82.

4.04 IDA recently concluded that the use of cash generation to measureBPDB's financial performance was inappropriate due to: (i) the difficultyin reaching agreement on BPDB's investment program starting from FY86, and(ii) the sharp increase assumed by BPDB in its preliminary forecast for theannual investment program in FY86-FY88 (about 1001 more than FY85 in eachof these FYs), followed by a smaller program thereafter. These factorssuggest that annual rate of return targets based on BPDB's average netrevalued fixed assets in operation would provide a more appropriate measureof BPDB's financial performance than cash generation related to an uncer-tain investment program (para 2.13). BPDB is already revaluing its assetseach year by applying a 10% price escalation factor (para 4.10). A rate ofreturn target of about 10 on BPDB's average net revalued fixed assets inoperation will enable it to become financially viable and permit it to selffinance an adequate proportion of its future investment program (Annex 14).This target should be achieved through a reasonably smooth progressionafter four interim years. During-negotiations, GOB and BPDB agreed to takeall necessary measures to enable BPDB to achieve a rate of return, on itsaverage net revalued assets in operation, of 5.0% in FY86, 7.5% in FY87,8.5% in FY88, 9.0% in FY89 and 10.0% in FY90 and thereafter (para 6.02(e)).The tariff increase introduced with effect from September 1, 1985 shouldenable BPDB to meet the target rate of return for FY86.

Billing and Collection

4.05 At the end of FY84 BPDB had about 725,000 consumers, includingabout 467,000 (64%) domestic, 250,000 (35Z) industrial and commercial, and7,000 (1%) irrigation pumps. The number of consumers increased by 27.6X(6.3Z p.a.) from FY81 to FY84, while total energy sold increased by 59.8%(12.4Z p.a.). During this period about 56Z of the total energy sold wentto only 0.2% of BPDB's consumers, comprising high tension (HT) and extrahigh tension (EHT) bulk supply industries. One of SGV's tasks was toassist BPDB in improving its commerciaL activities. To this end, SGVprepared a commercial practices manual streamlining meter reading, billingand consumer accounting procedures. In accordance with SGV's recommenda-tions, commercial functions were separated from operations and maintenancefunctions, and a commercial office, headed by a commercial general managerand assisted by a deputy general manager and director, was establishedunder the control of the Member Finance. Collection procedures weresimplified to encourage consumers to pay their bills on time and somemeasures were taken to reinforce disconnection procedures and reducenon-technical losses. However, some impediments remain to the adequateimplementation of some of SGV's recommendations. These would be addressedin the proposed review of BPDB's accounting system (para 4.01).

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4.06 Table 4.1 below summarizes BPDB's billing and collections for thepast three years:

Table 4.1

BPDB's Billing and CollectionsFY82-FY84

FY82 FY83 FY84

Number of consumers 645,076 669,199 725,235% of consumers billed 88.8 93.8 87.7Actual sales (Tk million)l/ 2,024 3,061 3,674Z of billed amount collected 88.7 78.0 78.0

1/ Includes supplementary bills.

The table shows that only 87.7% of the total number of consumers werebilled, and 78Z of the total amount biLled was collected, in FY84. Theprevious practice of supplementary bilLing made the assessment of actualcollectable revenue difficult and worsened BPDB's accounts receivableposition (para 4.02).

Accounts Receivable

4.07 Under Ashugnaj Thermal Power Project (Credit 1254-BD) BPDB isrequired to keep its accounts receivable within 20% of its sales forecastas approved in its annual budget. However, BPDB's actual accounts receiv-able were about 36% of its forecast sales revenue at the end of Ff84. Theincrease in arrears during the last two financial years is attributedmainly to the introduction of supplementary billing. Accounts receivablewhich represented 2.8 months of sales in FY82 increased to 4.4 months inFY83 and 5.8 months in FY84. On June 30, 1984 BPDB's accounts receivable -amounting to Taka 1,780 million - were a real constraint on its financialperformance and caused: (i) serious delays in the payment of fuel bills,and (ii) frequent resort to short-term borrowing at high interest ratesto solve its liquidity problems. Therefore, as a condition of nego-tiations, GOB/BPDB furnished to IDA a draft proposal for an action programto settle existing accounts receivable. This proposal, which IDA foundacceptable, shows the arrears attributable to public entities, corporateentities, private consumers and other consumer categories. The proposalincludes the methods to be employed in settling BPDBts arrears and writingoff uncollectable arrears, together with a timetable for its implementa-tion. During negotiations BPDB agreed to implement this action program andto settle, accordingly, all existing accounts receivable from the sale o'electricity and to ensure that, by June 30, 1988, and thereafter, itsaccounts receivable will not exceed the revenues equivalent of the three

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preceding months' sales of electricity. Meanwhile GOB agreed, as a condi-tion of credit effectiveness, to reduce the arrears due to BPDB from GoB'sdepartments to a level satisfactory to IDA. In this regard the IDA delega-tion indicated that the level of arrears from GOB's departments should bereduced to be no more than the equivalent of 4.5 months of the sales ofelectricity to these entities (paras 6.02(f) and 6.03(d)).

Tariff and Subsidy Study

4.08 Under Ashuganj Thermal Power Project (Credit 1254-BD), and theFirst Rural Electrification Project (Credit 1262-BD), it was agreed thatGOB shall: (a) carry out by December 31, 1984, a study of the bulk andretail tariffs to be applied in the power subsector taking into account thelong-run marginal cost (LRMC) of supply; and (b) implement by July 1, 1985,the tariff structure and such other recommendations of the study as agreedby GOB and IDA. In October 1984, GOB requested UNDP to finance this study.During the appraisal of the proposed Project and the Second Rural Elec-trification Project, it was found that an additional study should be under-taken to investigate the financial burden placed on the Government by therural electrification program, including both current and capital costs ofexisting and planned investments. The study should assess the extent ofsubsidies provided through such mechanisms as onlending arrangementsbetween the Government and REB, and subsequently between REB and PBSs, theGovernment's program of subsidizing PBSs during the first five years oftheir operations, bulk supply tariffs, and PBSs' retail tariffs. In addi-tion, the subsidy study should provide an evaluation of the tariff levelswhich consumers would be able to afford and the possible implications forthe rate of expansion of the rural electrification system. This study wasincluded in the terms of reference for the tariff study. Following comple-tion of that study, the onlending arrangements, Government provision ofsubsidies to PBSs, bulk supply and retail tariffs, would be reviewed withthe Government in order to develop and implement a program, satisfactory toIDA, for the expansion and operation of the rural electrification programwhich would maximize cost recovery within the limits of affordability andwithout jeopardizing the economic and social objectives of the program.During negotiations it was agreed that GOB shall: (a) within a time-frame,under arrangements and in accordance with terms of reference satisfactoryto the Association, carry out, or cause to be carried out, a study of: (i)the subsidies provided to the rural electrification program, and of (ii)the bulk and retail tariffs to be applied in the power sector, taking intoaccount the long-run marginal cost of supplying electricity and financialobjectives; (b) promptly furnish to the Association the findings and recom-mendations of such study; and (c) by December 31, 1986 or such later dateas the Association may agree, implement in phases revised tariffs satisfac-tory to the Association, based on the recommendations of such study, andsuch other measures as GOB and the Association may agree (para 6.01(b)).

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Audit

4.09 Under Ashuganj Thermal Power Project (Credit 1254-BD) BPDB agreedto have its accounts for each financial year audited by independentauditors, acceptable to IDA, and furnish to IDA, not later than nine monthsafter the end of each financial year, certified copies of the auditedfinancial statements and an audit report for the year. In accordance withthis requirement, BPDB's accounts are now audited, in an acceptable manner,by independent chartered accountants. However, BPDB has not been able tocomply with the agreed time limit. To date IDA has received the auditedfinancial staLements for the financial years through FY84, together withrelated audit reports. During negotiations, BPDB reaffirmed its agreementthat it will furnish its accounts for each financial yerr to IDA, auditedby independent auditors acceptable to IDA, together with the audit reportfor the year (para 6.02(g)).

Revaluation of Fixed Assets

4.10 Under Ashuganj Thermal Power Project (Credit 1254-BD), BPDBagreed that, commencing FY83, it would revalue annually its fixed assets inoperation in a manner satisfactory to IDA. Consequently, at the end ofFY82, BPDB started ,o revalue its assets by an amount equal to IO of itsrevalued gross fixed assets in operation. Although this methodologydeviates from the more usual approach to asset revaluation, it has beenaccepted as an interim measure pending the completion of the tariff andsubsidy study (para 4.08), which also includes asset revaluation. Duringnegotiations BPDB agreed to revalue annually its fized assets in operationin a manner satisfactory to the Association (para 6.02(h)). Followingcompletion of the tariff study, BPDB and IDA will agree to a methodologyfor the revaluation of assets and a timetable for its implementation.

Debt/Equity

4.11 BPDB finances its investment program from the following sources:

(a) foreign loans granted to GOB and onlent to BPDB;

(b) GOB's contribution, 501 as equity and 501 as loans, to financea significant part of the local expenditure; and

(c) BPDB's internally generated funds.

COB agreed under Ashuganj Thermal Power Project (Credit 1254-BD), to reviseits arrangements for financing BPDB's investment program by increasing itsequity contributions so as to maintain a debt/equity ratio of not more than60:40. In July 1983, GOB agreed to convert all local currency loans made

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before June 30, 1981 and all foreign grants 1/ without any relending agree-ments, into equity. At the end of FY84, BPDB's debt/equity ratio was atthe satisfactory level of 48:52. At negotiations, GOB reaffirmed theagreements reached under the Ashuganj Thermal Power Project (Credit1254-BD) so as to enable BPDB to maintain * debt/equity ratio of no morethan 60:40 (para 6.01(c)).

Future Financial Performance

4.12 BPDB's projected financial performance for the period FY86 toFY92 is summarized in Table 4.2 and given in detail in Annexes 15, 16 and17:

Table 4.2

BPDB's Expected Financial PerformanceFY86-FY92

Projected Net Cash GenerationFiscal Rate of Tariff Operating as X of 3-yearYear Return 2/ Increases Ratio average investment 3/ Debt/Equity

_ X

86 6.5 16 84 12 58/4287 7.5 11 78 18 59/4188 8.5 3 69 27 60/4089 9.0 11 68 47 59/4190 10.0 15 66 71 57/4391 10.5 2 67 92 53/4792 10.8 8 69 106 50/50

1/ Grants were converted at the exchange rate prevailing on the dateof disbursement.

2/ On currently valued net fixed assets in operation.

3/ Calculated on the basis of the Bank's standard methodology.

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The assumptions used in the financial projections are presented in Annex13. Sales of electricity are projected to increase from 2705 GWh in FY84to 8371 GWh in FY92, about 15X p.a. Industrial consumption is forecast togrow at 12.5% p.a., and will represent about 45% of the total consumptionin FY92 compared to about 65% in FY84. Sales to REB are forecast toincrease from 107 GWh in FY84 to 1286 GWh in FY92, an average growth rateof about 36% p.a. Domestic and commercial consumption are expected to growat an average rate of about 15.5% p.a. System losses are assumed todecrease *rom about 39% of gross generation in FY85 to 24% in FY92. Thereduction in system losses will increase BPDB's sales revenue as a resultof some non-technical losses being transformed into recorded sales. Itwill also reduce BPDB's costs, partly by reducing capacity requirements andpartly by reducing fuel costs. One effect of these changes will be toincrease forecast net profits and another would be to increase BPDB's cashgeneration. BPDB's average revenue is projected to increase from Tk1.41/kWh in FY85 to Tk 2.36/klh in FY90, an average annual increase of 11Z;this would permit the realization of the required rate of return startingfrom FY86. Revenues from sales of electricity are projected to increasefrom Taka 4,032 million in FY85 to Taka 21,680 million in FY92 (27% p.a.),reflecting both the growth of electricity sales and tariff increases. Thefuel cost per kWh generated in FY92 is forecast to equal 52% of the fuelcost per kWh generated in FY85, both in constant prices, as a result ofbasing generation expansion on gas-fired plants. 1/ As a result of systemgrowth and loss reduction, administrative and operating costs per kWh soldin FY92 are projected to equal 80Z of those costs in FY84. The interestexpense represented 3.5Z of total revenues in FY84, and is expected toincrease to about 13.8% of total revenues in FY92 due to the introductionof a higher interest rate (11.52) for new loans. Net earnings - afterinterest expense - are projected to increase form Taka 452 million in FY84(12% of total revenues) to Taka 7,056 million in FY92 (31Z of totalrevenues). The principle issues affecting BPDB's future financial perfor-mance include:

1. the achievement or otherwise of the targets set in the systemloss reduction program (para 2.11); and

2. efficient load dispatching to avoid using costly imported oil(para 2.13).

1/ About 942 of BPDB's total generation in FY92 is projected to be fromgas-fired plants.

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4.13 The sharp increase in net cash generation as a percentage of thethree year average investment beginning in FY89 reflects the large fall inthe annual investment program between FY86 (Tk 11,300 million) and FY91 (Tk5,700 million) rather than any real improvement in BPDB's financial perfor-mance.

Financing Plan

4.14 Under the above mentioned assumptions, BPDB's financing planduring FY86-FY9O (project construction period), would be as shown in Table4.3:

Table 4.3

BPDB's Financing PlanFY86-FY90

Tk million US$ million X

SourcesInternal SourcesCross Internal Sources 27,106 903.5 49Less - Debt Service 9,709 323.6 18

Net Internal Cash Generation 17,397 579.9 31

External SourcesGOB Equity Contribution 5,953 198.4 11Foreign Currency Loans 28,804 960.1 51Local Currency Loans 3,743 124.8 7Consumer Contributions 59 2.0 -

Total External Sources 38.559 1,285.3 69

Total Sources 55,956 1,865.2 100.0

ApplicationsInvestment 49,335 1,644.2 88Cash Investment 140 4.7 -Increase in Capital Stores 2,344 78.1 4Increase in Investment Plan Advance 230 7.6 1Variation in Working Capital:

- Other than cash 2,299 76.7 4- Cash 1,608 53.6 3

55,956 1,865.2 100.0

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During the period FYB6-FY90 BPDB is eipected to generate net cash equal to23Z of its investment program; however, in FY86 the internal sources wouldbe equal to only 12Z of the annual investment but will increase to 71X inFY90. COB's contribution is expected to be about 192 of BPDB's investmentprogram during the project construction period, with 61Z provided as equitycontribution and 39Z as long term loans. Foreign currency requirementswill represent about 58Z of the investment program (about US$960 millionequivalent). GOB has already succeeded in obtaining commitments for about70Z of the foreign currency requirements.

Onlending Terms

4.15 During negotiations GOB agreed to relend the proceeds of theproposed Credit to BPDB under a subsidiary loan agreement to be enteredinto between GOB and BPDI under terms and conditions acceptable to IDA.The term of onlending should be 20 years (including 5 years of grace) andat an interest rate of 11.5Z per annum. The foreign exchange risk will beborne by BPDB (para 6.01(d)). The conclusion of the Subsidiary Loan Agree-ment between GOB and BPDB would be a condition of credit effectiveness(para 6.03 (e)). These arrangements are in line with COB's arrangementsfor onlending foreign loans to BPDB. GOB is still using the rate of inter-est of 5Z on its own local lending to BPDB, as established in the 1978Financial Recovery Plan. That rate is below rates charged to revenuegenerating enterprises. During negotiations the GOB delegation informedIDA Lhat all the local funds provided by GOB to BPDB are being converted toequity to enable BPDB to sttain the debt/equity ratio previously agreedwith IDA. However, it was understood that in the event GOB does providefunding to BPDB in the form of loans, these loans would bear an interestrate of 11.52.

Insurance

4.16 BPDB does not carry insurance for its fixed assets in operation orother properties. During negotiations BPDB agreed to insure or make arran-gements for insurance of its proj,erti' o- assets, in such kinds and amountsas shall be consistent with approprii*te public utility practice and accept-able to IDA. In this regard BPDB agreed to submit to IDA by December 31,1986 a draft scheme for establishing a fund from its own resources to coverthe insurance risks. BPDB agreed to implement the scheme promptly, there-after, taking into account IDA's comments (para 6.02(i)).

Incoma Tax

4.17 Because of its legal status as a Local Authority, BPDB is not liableto pay income tax.

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V. JUSTIFICATION

A. Electricity Demand Forecast

5.01 Total electricity sales increased at the average annual rate of14.3Z in the period FY75-FY84 and 18.6% in the period FY8O-FY84 (Annex 5).A significant change has occurred in the percentage shares of salesaccounted for by BPDB's major consumer groups. Annex 6 shows that, compar-ing i984 with 1977, there was an increase in the relative importance ofsales to domestic and ceremonial/temporary consumers, and to REB. Therewas an off-setting decrease in the shares of sales to industrial, streetlighting and commercial, and agricultural consumers. The increased salesto REB reflect the on-going rural electrification investment program.

5.02 The load forecast for the period FY85-FY92 is given in Table 5.1and Annex 19.

Table 5.1

Forecast of Energy Sales by BPDB, FY85-FY92

AverageAnnual

FY85 FY92 GrowthRate

GWh (Z) GCh (Z) (Z)

Domestic 649 22.7 1683 20.1 14.6Commercial 254 8.9 1129 13.5 23.7Industry 1651 57.7 3782 45.1 12.6Other 92 3.2 491 5.9 27.0REB 213 7.5 1286 15.4 2 .3TOTAL Sales 2859 100.0 8371 100.0 16.6

Ceneration 4665 11014 13.1Losses 1806 2643Losses (Z) 38.7 24.0

Total energy sales are forecast to increase at 16.61 a year, while energygenerated is forecast to increase by only 13.1% on the assumption that BPDBwill achieve its loss reduction targets (para 2.11). Although theforecast rate of growth for total sales is high, it is lower than the rateachieved in the period FY8O-FY84. One reason for the relatively highforecast is the projected reduction in non-technical losses, which suggeststhat some currently unrecorded consumption will be replaced by recordedsales. The forecast reflects the projected continuing high rate of connec-tion of new consumers, which averaged about 55,000 a year in the period

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1979-1984 and is projected to be about 80,000 a year in the Third Five YearPlan period (FY85-FY90).

5.03 Significant changes are forecast to occur in the relative shares ofsales to the major consumer groups served by both BPDB and REB. For BPDBthe major changes concern a fall from about 58% to 45Z of total sales goingto industrial consumers and an increase from about 82 to 15X for bulk salesto REB. The proportional' increase in sales to REB underlines the impor-tance of rhe introduction of suitable load management measures for REB'sirrigation and industrial consumers (Annex 19) to prevent a possible sub-stantial decline in the system load factor. This issue is addressed bythe proposed Second Rural Electrification Project which was approved by theBoard in November 1985.

B. Least Cost Alternative

5.04 BPDB prepared the proposed Project to extend and reinforce itstransmission and distribution systems in order to meet the forecast demandfor electricity at least cost. The assumptions used, methodology andresults for each component of the proposed Project have been reviewed andfound satisfactory to IDA (Annex 20).

C. Economic Internal Rate of Return

5.05 Although the proposed Project is expected to play a crucial role inensuring the optimal development and operation of BPDB's supply system, itsbenefits to consumers cannot be separated from those of other necessarygeneration, transmission and distribution programs. In these circumstan-ces, having established that the project is part of the least cost expan-sion program, it is appropriate to carry out the cost-benefit analysis onthe entire program to ensure that it is desirable. For this purpose a'time-slice' of BPDB's and REB's investment programs for generation, trans-mission and distribution for the period FY85-FY92 has been analyzed. Capi-tal costs for these programs, together with incremental operating and fuelcosts, are shown in Annex 21. All costs were expressed in their equivalentborder values. A minimum measure of the benefits associated with theseprograms is given by the incremental sales revenue. Based on an averagerevenue of Tk 1.64/kWh, and using the standard conversion factor of 0.80 toconvert financial revenue into a measure of economic benefit, the minimumeconomic internal rate of return (EIRR) was estimated to be 9.6% (Annex21).

5.06 The foregoing revenue based measure of the EIRR is, by its nature,more a measure of the adequacy of tariffs than of the true economic meritof the investment programs which include the proposed Project. Theestimated minimum economic rate of return of 9.6% is less than theestimated opportunity cost of capital of 122, and this indicates thattariffs are currently less than long run marginal costs (para 4.08). In

-35-.

these circumstances the proposed Project will confer benefits in excess ofthose measured by incremental revenue.

5.07 A better measure of the EIRR can be obtained by estimating con-sumers' willingness to pay for the incremental electricity sales. Willing-ness to pay by the major consumer groups was estimated in terms of thecosts which they would bear to meet their energy requirements in theabsence of the proposed Project. For household and commercial consumersthis was the cost of lighting using kerosene lamps, while for industrialand irrigation (agricultural) consumers it was the cost of diesel motors.The weighted average willingness to pay was estimated to be Tk 1.94/kWh.On this basis the EIRR was estimated to be 12.7%. However, it should bestressed that this is still partial measure of EIRR. It does not allow forincremental consumers' surplus on the generated market produced by theproject (as distinct from the diverted market), it assumes that the wilL-ingness to pay for non-technical losses is zero, and does not allow for anyexternal benefits which may be produced by the proposed Project.

D. Justification for Bank Involvement

5.08 In addition to providing additional capacity to meet forecast loadgrowth at least cost, the proposed Project will, through Bank involvement:

(a) help expand and reinforce the power generating, transmissionand distribution systems and expand the rural electrificationsystem;

(b) assist the power subsector in moving tariffs to a level whichreflect the economic costs of production and distribution andwhich will also achieve a greater degree of self financing;

Cc) promote the use of natural gas as a substitute for importedoil for power generation;

(d) improve efficiency by reducing system losses;

(e) expand training facilities; and

(f) improve BPDB's accounting systems.

-36-

VI. SUMMARY OF AGREEMENTS

6.01 During negotiations the following agreements were reached with GOB:

(a) GOB shall submit to IDA BPDB's annual investment program andBPDB shall, by July 31 of each year of the execution of theProject, review in consultation with IDA its investment programand proposed financing arrangements and shall make such changesto the program as may be agreed between GOB, BPDB and IDA (para2.13).

(b) GOB will: (a) within a time-frame, under arrangements and inaccordance with terms of reference satisfactory to IDA carryout, or cause to be carried out, a study of : (i) the subsidiesprovided to the rural electrification program and of (ii) thebulk and retail tariffs to be applied in the power sector,taking into account the long-run marginal cost of supplyingelectricity and financial objectives; (b) promptly furnish toIDA the findings and recommendations of such study; (c) byDecember 31, 1986, or such later date as IDA may agree, imple-ment in phases revised tariffs satisfactory to IDA, based onthe recommendations of such study, and such other measures asGOB and IDA may agree (para 4.08);

(c) GOB will enable BPDB to maintain a debt/equity ratio of no morethan 60:40 (para 4.11); and

(d) the proceeds of the Credit will be onlont to BPDB under asubsidiary loan agreement between GOB and BPDB under terms andconditions acceptable to IDA. The terms of onlending will betwenty years (including five years of grace) and at an interestrate of 11.5% per annum (para 4.15).

6.02 During negotiations the following agreements were reached withBPDB:

(a) UNDP technical assistance will be used to implement the follow-ing loss reduction program:

(i) appoint consultants to assist BPDB's distribution planningunits to, reinforce and rehabilitate distribution systems,identify areas of high losses, and recommend by Decem-ber 31, 1986, dated action programs to remedy each of thespecific causes of system losses. BPDB, will thereafter,implement the action programs in a timely manner takinginto account IDA's comments (para 3.08(a));

-37-

(ii) appoint a consulting firm for a period of two years toprovide the services of a commercial manager, meterengineer and five meter technicians to help BPDB streamlineits billing and metering procedures (para 3.08(b));

(iii) prepare programs to provide meters at those installationswhere there are no meters, to recalibrate all existingmeters, and nake all meter installations secure; theprograms would Be submitted to IDA for its comments by June30, 1986 and thereafter BPDB would implement the programstaking into account IDA's comments (para 3.08(c)); and

(iv) prepare and submit to rDA for its comments by June 30,1986, a program for the introduction of-a computerizedbilling system consistent with normal commercial utilitypractices. BPDB will implement the program in a timelymanner, taking into account IDA's comments (para 3.08(d)).

(b) Pending the implementation of the above programs, BPDB willcontinue to implement its ongoing interim program to reducenon-technical losses. This program includes the following keymeasures(para 3.09):

*i) procurement and installation of appropriate meters at allunmetered installations;

(ii) calibration of all existing meters with priority for 3phase meters;

(iii) 100 percent meter reading, billing and checking by super-visory personnel;

(iv) prevention of theft and pilferage by installing securetamperproof meter enclosures; and

(v) prompt disconnection and prosecution of consumers forillegal use of electricity.

BPDB would prepare for IDA's review an analysis of the level ofsystem losses showing progress made upto December 31, 1985, and for eachsucceeding six month period thereafter, until a level acceptable to IDA isachieved (para 3.09):

(c) BPDB will implement its training program for strengthening theKhulna Training Institute in accordance with an agreed timeschedule (para 3.12);

-38-

(d) IDA and BPDB will jointLy review BPDB's existing accountingsystem (para 4.01);

(e) COB and BPDB will take all necessary measures to enable BPDBto achieve a rate of return, on its average revalued net assetsin operation, of 5.0% in FY86, 7.5% in FY87, 8.5% in FY88, 9.0%in FY89 and 10.0% in FY90 and thereafter (para 4.04);

(f) BPDB will implement its action program for the reduction ofaccounts receivable and will ensure that, by June 30, 1988 andthereafter, the accounts receivable will not exceed the equiv-alent of the three preceding months' sales of eLectricity (para4.07);

(g) BPDB will furnish to IDA, not later than nine months after the*end of each financial year, certified copies of its financialstatements for that year and as will be audited by an independ-ent auditor acceptable to IDA (para 4.09);

Ch) BPDB will revalue annually its fixed assets in operation ina manner satisfactory to IDA (para 4.10); and

Ci) BPDB will insure or make arrangements for insurance of itsproperty or assets, in such kinds and amounts as shall beconsistent with appropriate public utility practice and accept-able to IDA. In this regard BPDB agreed to submit to IDA byDecember 31, 1986 a draft scheme for establishing a fund fromits own resources to cover the insurance risks. BPDB agreed toimplement the scheme promptly thereafter, taking into accountIDA's comments (para 4.16).

6.03 The following conditions would be met before the proposed Creditis declared effective:

(a) GOB will approve the Project proforma for carrying out theproposed Project (para 3.01);

(b) BPDB will appoint consultant of international repute to, reviewdesign and bidding documents prepared by the local consultantsfor local distribution work, supervise the Project duringconstruction (except local distribution work), and train BPDBstaff in hot line techniques of maintenance and erection ofdistribution lines (para 3.07);

(c) BPDB will appoint a Project Director, with qualification andexperience satisfactory to IDA (para 3.13);

-39-

(d) the aggregate accounts receivable due to BPDB in respect ofelectricity supplied to GOB would be reduced to a level satis-factory to IDA (para 4.07); and

(e) a subsidiary loan agreement is executed between GOB and BPDB(para 4.15).

6.04 The proposed Project constitutes a suitable basis for an IDA creditof US$56.0 million.

X~~~~~-' -E

1 if 111II I liii

S~~~~I X X iSiS ~ III ii'i

Ot + 097 4- Olt - OK *er + etr O lt - OK 'or + Ki "6 ettrr -*1111 " p Oii.itt-mi PlO *OtU 5E4Tt.fT pet1 /9aag ae ward ma eq& pciuu F-ExsVps 30 AzT, d p u3u95 p.o"insd m%3 aw1p--qT CWTV - a 'PSqaa sq_. AT&U wa 38q Tuuwsd abTi,p POMIiim 5- -30p aq

CtT.u) 1N ItS . PV a 6C 99 PO C1T, ) a Off - WM VA= *- Aut :Ao wao i i*PTA pwFqft*- %Eqqami . - Jo T"" i we 393 6631 - * T&PAN - U IT

NC NCs NC NC at NC OK r P, -mtc *c mlc of atc Mc eec ISf U3ZUNisa &"

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gis W^ -r ec ere R rez* ei n er a 09 of erf Oct et It so ec SIOm

-tU T

UK us tag sit; hi t us Wt ec ae cis "Iet esC ett c me ev 3"S &a 6 0 6T C

IF tUt _ n- se1t tie ael sfell Cii tei Kii sc smse ewe ff seat c r - e -i.tib 066 356 n

e s i tees Go s nat :1 nIT Got sir Se, n:m; " cii si et S arT lCte t3S 35 td`31Z

es~~~~~ -o o l eseG-- - - - - - - - - - - lz 5 az g- tmon

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JrNU sst… t *12e t it sM it emit ft Z - SD C - lt I

SCS of - - e n T IsC arT 0 ett esH is MT e@@ 09 t 19 ar ;TZ ̂ C

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Uee U e ets it wc of ese est- e e-tt - -ti esteU e- - tee a *e e"st It, seetar G W af 6 oftc sic -e-u…iOT S t tiltfl1 it i Om NC OPT ni e GU T nti i Olt e*1 Oft * ;etc itll

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31ie: ttt seit ac Mat em OKe Is enm Bg a otfsee sit… tia i S a esiltMGISTd-e IL' OMc at O"Secem eSgte se sit Me siT ON M Oct BIT -" 1- 55T 5 55

St2r ift i 5 eRNa aca sets ea s asum a usaa m 2U uii.s) ams*at 3c e U ste en m e ut em I i e a siT am e -a itT P NesitJIM FAF-lom mrd*M 9mmoo NOT3uq.y

tetuetii gt rc utsitea st gt ii se eU e sit aK=Wte e e i i-c :36m

inP msq m m eN N 3N IN N 9 3NuTdl 633 N~ISItmu U ist tst eer m: s: ilt car as: : iqu. ~ aep u ii-

.4-

U-

A. Suisti's b@@au s1m Urn.

Lims-m~~~ X~~~~~~~~(. 11 t ZCivrnitS

l.ot-vest 3tdcaL lrn_t.eemet., 230 17.4l 7 95 AcM Ibsle

I. 6lbih11MJ-lbJb.a 132 138.374 63 27/ 62. wtai-Uih ur nj 132 * 23.3 G36 aC3. UlAddi.3mj-Tw1 U3 35.31 G36 S ULol.4. Wmimt-blLobsber 132 4.U74 66 U -S. *JLamjt.4ew-o t. 132 349.62? 466. Cea_11_e-Cp 12 7MM 336.4 317 "

ACM7. Aubugn-Jmlw 132 165.72 436L. ToqtsAhlm-$dUnmj 132 3.34 636 "9. uLus ilt 5 .mgg j 152 67.313 46

10. 1d_t- Iba l 252 43.27 06 11. Ihubee-U.1A.himebe 133 1." 36 "

12. uiu-Ianmia 32 ILUO 65613. Tu.6L4t- iu.r 152 32.3 06 "

Total I hBt Bae. s321.675

M.t Some a

1. cel_ers-2rd.i 132 6L5965 477 217 Doubleacm

2. Iui.r61-sudpur 131 4.7 477 am ILwgle3. D1 4.26 336.4 367 "

acm4. IJh1mkL-Znbwii.bzajpmj 46 167.336 0.15 ag. Lteb '

S. cinsl 12 30.412 477 27 "&cm

6. _e.~-.. 112 2071 677 41_ -Total wa n s 7z

1. KW.5m Sieetad. Is1Ise

11t n S blUW a 21033 3 KWV Dub-etetm i n 3 . 17 wit

C. 3.Iut.12 b -

Cac1ilt of thu Ye1te. 3.15.. Total C.peftyt3m. U.- tf163 t3 TWm (M * AI

1. ammmA_ I12tl 132/3 13202. UILKUA 2 x 33 1321n 3. UAL 23141.67 L32133 60.1/

46.1/03 1321534. tow 2 Z 46.1/63 132153 UE.21L "ApAU6T 23431.67 132133 3W.24

23141.67 213D3U6. 31.531.1 23141.67 131153 3111.677. CUU L 2 X 10113.3 32153 2n/36.6L Wn 10112.3 132/3 1NI2S*. KuI&3A 13135 13215 L73V25

3.7513 132111l0. Ca t 2 Z 1U12.5 132133 2U/25II. Sum5IUANJ 3016.3 332/33 1461135.3

2 X 25 Wil/l1Ui. lE 30/3 132133 631106

33/30 13113313. TOM 25141 132133 731116

3/17 2(Sgle 132I33Phase)

14 x31 2 X 35U13/5 132153 70/100/11015 POKU4A 2 2 33USS 132133 7011/11016. tau71 1013 13133 161317. SUIL 2 2 S 13215 16916. a 2 X1132 131133 3U/D

so. _mam n 1 .3 132/3ll 1..21. PJ_ x132 132D111 13/2022. QTT 10/13.3 132/33111 W103.3D2. Ua2Yf 30113.3 132/J 16/13.326. kIWAGARS le U2J21 l2. 111117 2 6 le 2/5 2026. JAY-AM 10 132133 1027. WLh3& 3 Z 12.3116.67 131233 N .5/321. sP13D 10 132332 is27. jn 2 X 316.67 132/3311 1Nt13.430. _ink 31.67 1321311 1319.67

16/13 13213331. salon~ I3/13. 131/33 1613.332. EMImm =/123 .67 132/U M12.3.67

33. o21 2 * 12.J3U6.67 1320 33103.36le 132/33

36. Sa 2210 132/3n 203i. PAMIAaz le 132/33 10

37. le2 1U 132/33 IL10 132/1 21

36. Pummum 12./1667 132/33 12.5/16.6739. Umm s12.5/16.47 132/33 12fl.311.U. ~ 10/13.3 132/33 1313.3

41. inama 10/3.3 lie/3 35113.342. 'AM Lm 2 2 16/13J3 In/3 20/6.6

-43-

ANHU 4

BANGLADESH

TRANSMISSION & DISTRIBUTION PROJECT

Transmission and Distribution Works Under Construction

Expected Year ofA. Lines t Voltage Comissioning

East Zone

1. Ashunganj-Chorasal 48 230kV FY872. Nadanbut-Kulshi 13 132kV FY863. Ullon-Tongi 19 132kV FY864. Kaptai-Saraulia 60 132kV FY875. Dobazari-Cox's Bazar 85 132kV FY87

Vest Zone

1. Rajubahi-Natore 40 132kV FY862. Ishurdi-Shahjadpur 72 132kV PY863. Borgra-Joypurbat 52 132kV FY864. Bher_mara-Sarisal 230 132kV FY85

S. Substations

East Zone

1. Extension of 132kV substations at Kadanhat,Comilla, Cbandraghona, Feni, Chandpur,Chattak, Sylhet, Fenchuganj, Sreemongal,Siddhieganj, Kishoreganj, Mymensingh,Jamalpur, Kulshi, Ullon, Tongi. FY87

West Zone

1. Extension and construction of 132kV susbstationsat Bottail, Jbenida, Jessore, Bagerat, Barisal,Shahjadpur, Dohazari 1/, Cox's Bazar 11,Joypurhat 1/, gatore, Rajshahi, Bogra, Saidpur,Purbasaidpur, Thakurgaon, Rangpur, Palashbari,Ishurdi, Bheramara and 66kV substations atPabna, Ullapara, Sirajganj PY87

C. Local Distribution Projects

1. Greater Rajshahi Power Distribution FY862. Greater Khulna Power Distribution FY863. Creater Dhaka Power Distribution Phase II FY894. Creater Chittagong Power Distribution Phase II FY895. 18 Town Distribution Project (33kV) FY89

1/ These substations Sre new.

(2972-73 to 1983-4)

bat 3mm Veal faa Total Spats teatS the bat ales Woltaua-so 3/ Total Sytme itno= Peak We"s SAWNy lam desm tin avt oo.bw Load gatem oil.. Salem valta aesi

TUBl 3on flaamish miO ta Gomm-i gaut ootew (z) con) Cub) (Ut) ZAuNo 51000 3300 CZ)(U) (OUt) ( t) C) () (Ut)

1972173 174.4 336.3 47.2 2L.1 221.6 40.34 55.9 62.9 - 2. 9 125.6 40.4 (3) 42.5(25l e) (c) (3*)

1973174 13.6 93.4 £3.3 20.0 23.2 4265.4 57.3 *L2 - me.2 10.3 4.4 (3) 34.6C2617a) (NA) (NA)

974175 :93.l 4022.3 67.3 300.1 2".1 4322.1 36.3 05.2 - 05.2 10.2 631.3 (N) 36.8(2ES) CsA) (NA)

1737176 213.9 4115.7 3.6 34.1 301.3 443.8 53.3 "3.0 - 932.0 26L.5 63.4 (NA) 36.2(30694) (NA) (I

1976177 24.0 1.224.4 3.3 394.2 342.2 LGlLS 34.0 ,012.0 - 1.013.0 50.3 631.7 (NA) 27.4(340W (NA) (NA)

1977173 2I.O 444.4 103.6 43.L5 393.6 91L.9 33.2 404.3 - 1,206.5 317.0 65.3 (a) 37.0(4263 (NA) (NA)

£079 231.3 4603. 103.2 319.0 436.3 ,122.3 53.5 43u.3 - 1.38.2 611.0 770.3 (NA) 34.9(43772) CA) (NA)

197910 337.6 L744.5 12.3 68. 44. 1.9 2333.3 33.2 J.40.3 - 1.0.3 614.6 791.7 (KA) 40.2(32250 A) (KA)

19lu 39.1 4397.S 4.1 6O.5 543.2 2641.3 33.7 1.594.5 14L30 L739.5 74L.1 01.3 (3c) 40.1(5671m) (3) (NA)

131/t 430.7 22M.0 133.0 74.4 603.7 3.06.5 37.4 4I54.0 174. 2,|023.3 0.1 1,04.3 179.3 389(OWN3) (1463) (2)

1iUO 35.8 2.5 3.7 20.2 30.0 709. 3,422.7 35.3 .131.3 266.8 2.398.6 94.4 42 6L2 35.9 37.7("64746) (13222, (312

19 /5 30.9 4393.7 171.0 Sr.3 711.0 3.iU.3 3.0 4603.0 171.7 47.7 1312.9 4379.1261 .7 34.1;72SN) (IG29) (37)wAam.n flat 13.0 13.9 14.3 (736)16)()

pratt raet CU

=__a fAt 13.9 I._ws3 TA (12

,'fthg Oates' Wv.MI 3 bsaipmawhUlk . astlmted caumiapim by NM0 Aoa"Itallevo mA atoM uoioweo.

V emms *1* a parfhala_ sam -m- af tmmo.

H lataI__ ad boom is calcugid a the basis of "tougd "aIs.

-45-

zuu.ION An DISTII1TiC MOJICT

lat t.. aclc od Cousumrs

(1976-77 to 193-84)

FT1977 F11976 111979 711960 111961 711982 7119f 1T1964

A. Sales (Ma) be Consomr Cateeories

Cosmr Caente

Domestic and Ceremonal ((NIh) 146.197 1l2.080 230.266 229.560 299.52 369.69 "5.9 533.2Industrial (Nib) 690.242 795.226 U3.7U1 81.645 1.10.30 1,349.10 1,616.1 1,303.04Street Lighting and

Comercial Cab) 139.321 209.647 2M3.34 20. 54 217.73 205.9 235.91 286.15Agricltural (ab) 37.268 17.559 43.446 36.352 37.99 32.63 37.43 49.9511D (hb) - - - - - 55.26 63.58 107.37

Total Sales (Ca) 1,013.028 1,204.512 1.381.297 1.406.265 1,739.54 2,031.3 2,39892 2,779.71

3. lmber of Comaumers by CStLUor=

Conatmer Category

;o,stic and Ceremonial 1 194,575 224,011 252, 938 292,53 356,520 405,6S0 420,819 467,542Insutrial If 90,408 108,207 26,951 229,500 j 29,511 33,491 34,743 35,044Strzet Lightiog and

Comercial 62,954 68,806 166,499 176,771 199,550 207,012 214, 870Agricultural 1,295 2,495 3.330 5.609 62365 6.603 7,754

ID,, - - - - - ~~~ ~~~ ~~~~~~~~~~~~~~20 22 25

Total 349,232 403,519 451,718 522,060 568.411 645,076 669. 19 72S.235

eatae Shre by 81.a E r

Gatuor0 1177 11

sales lmber Sals Nuber

Domatic 6 Ceremonial 14 56 19 64Industrial 68 26 65 5Street Lightins & Co_mercial 14 18 10 29.5Agricultural 4 less than 0.5 2 1to - - 4 0.5

Since n11979 cOnsumers have bee grouped as folio.:

11 Tariff categories A, £2 and D2 Tariff categories C, F. C, ad U2 Tariff catogories J ad II Tariff categories 3

. Tariff categories rJ 229, SD is the total of industrial. street lighting ad ricultural cosmers;

ereated data is not available

Ii~ ~ }0 . ..j .. . . . . . .

Ij] il i3'il *.03R .| * SIISI a~

318 s; - i S4i -a a -

| I i | ; 3. 3 S

,ijlh - - -- a- -- - -- -…a - - -a- ma. - * * a.

|~~~~~~~~~~~~~~~~~~~~~~~~~ 33. 2. . .g ; :. s. 2 . 3 . , a , , ;8 lt

| | | } 0 } § l ! § , l X g I 611,1§

liii I I. I i i I gIXh

47-AM=X 7Page 2 of 2

BANCLADESH

TRANSMISSION AND DISTRI BUTION PROJECT

Forecast Number of New Connectioni 1984-1990 for Fourteen Towns

Single Phase Three Phase

Ezisting New Connections Ezisting mew ConnectionsTown 1983/4 1984-1990 198314 1984-1990

Thakurgpon 2893 3798 145 75Nilphauri 900 1181 95 71kurigru 1685 2312 101 132Caibandha 2445 2472 201 203Parbatipur 710 932 54 70LaLuonirhat 552 724 42 42Joypurhat 2550 3348 239 175Swerpur 728 1083 111 112Habigan. ,118 3599 54 91Suaauganj 1522 1988 50 52Cbhadanga 2400 1851 170 103gurua 1401 1049 135 105

Madaripur 1708 2242 75 98Jheaidah 3210 4214 197 102

Tatal 24,822 30,803 1,669 1,431

-48-M=C 8

Papg 1 of 2

tllASUISSTM AiD DISTRIIONt 73D!C

Detalled Cost Eatimte

cuss~~~~~~~~~~~~~~~~~ls

uw

3. Cats F iea caumius trims CEmibuis Teal Inl. Cont. Phusical clts *ct. lnus Pri±e

Lea La. Lull Lag Price Cat. Cmt. anFor. tEid. MlUn I Far. (Em!. aMi A For. Mel. Mie a For. (EW. Ais I an Pluical *mEmb. TTW) Tam Ttal Ea.- Taxes) am Toa W. aw) Tam Tt Embd. ras) Tam Totl CGt. cush

I. WES IISC

A. 1UK EtLs 13.5 2.5 1.2 17.2 1.4 0.2 0.1 1.7 1 1.0 0.3 4.3 19.0 3.7 1.6 3.3 2.1 21.13. UUSTATIII MIETM 13.5 16 1.2 16. 1.3 0.2 0.1 1.1 Li S.4 0.3 4.0 1.9 2.4 1.6 1.9 2.0 19.9C. C1l9Lv - 4.9 0.4 .3 - 0.5 0.0 0.5 - 1.9 0.2 2.1 - 74 0.6 7.9 0.7 7.20. LZ 111Mu No111 _ T - 0.9 - 0.9 - 0.L - 0.1 - 0.4 - 0.4 - 1.4 - 1.4 0.1. 1.2E. VENQI MI TIECIJ IU T 1.9 0.2 0.2 2.2 0.2 0.0 0.0 0.2 0.4 0.1 0.0 0.5 2.3 04 0.2 3.0 0.3 2.7F. ETEUl Wd COi1U I 0.8 2.0 - 2. 0.1 0.2 - 0 0.2 0.3 - 1.0 1.0 3.0 - 4.0 0.4 3.7L. EIUIT FOR ILl EOLT= 1. 0.2 0.2 2.1 0.2 0.0 0.0 0.2 0.4 .L 0.0 0.5 2.4 0.3 0.2 2.9 0.3 2.6H. aIN ISN= 4.4 0.3 - S.1 0.4 0.L - 0.5 0.3 0.3 - 1.1 5.7 1.1 - 6.3 0.6 6.2J. ThDI 0.4 - -0. 0.4 - - 0.0 .l - - .L 0.5 - - 0.5 0.0 0.4

Toal INDEDII hIs 32 13.1 3.1 S.4 3.6 1.3 0.3 5.2 0.0 .1 0.3 13.9 . 19D.5 4.2 71.6 6.5 8.1TOtW 362 13.1 3.1 324 3.6 1.3 0L 5.2 3.0 5.1 0.e U.9 47a 13.5 4.2 71.6 6.5 65.1

-49-

ANNEX 8Page 2 of 2

BANGLADESH

TRANSMISSION AND DIPROJECT

Detalad Cost Estimate

irTak Ktlliou)

Contfgbcss132KV 132 KY LOCAL TEC.IC_LIE SUSATIN DISTIXrON SM ICE Total z bunt

I. IMSTENT COSTS

A. LIE NTERIALS 164.4 - 352.0 - 516.4 10.0 11.6D. USWATIN ETERIALS - 259.0 230.3 - 419.3 10.0 48.9C. I'IWL kMU 22.9 1.3 13.4 - 139.5 10.0 16.03. LAN ACEISITl AD WELMENT 25.2 1.1 1.1 - 27.3 10.0 2.7E. t E AND EECTIO EUPENT 40.7 - 26*4 - 6.1 10.0 6.7F. ENEiTIE AND COU IISSJI 16.5 22.7 44.5 - 13.7 10.0 89.4B. E'UPN FOR LOSS RECTION - - - 63.9 6.9 10.0 6.4H. COLTDB SERUICES - - - 154.4 154. 10.0 15.4.- TRAININ - - - 10.7 10.7 10.0 1.1

Tota rNESTIN COSTS 269.6 406.1 667.6 229.0 1,572.3 10.0 157.2Total 3ASa COSTS 269.6 406.1 667.6 229.0 1,S72.3 10.0 157.2

Phw1ical CntinKcies 27.0 - 4a*6 66.8 22.9 157.2 0.0 0.0Price Cantinmfcies 75.4 116.9 174.3 51.5 419.0 9.1 3.0

Total PROJECT COS 372.0 563.5 A7 303.4 2v147.6 9.1 195.2

Taxes 22.4 3898 59.3 6.4 126.9 9.1 11.5Foreign Ehxage 222.5 311.7 645.4 254.7 1,434.4 9.1 130.4

MANGUWTRANSMWLON AND WURIWON PROJECT

I 2 31461 16 a9 101442412 3 8 6 I75I9 10 II12 42 8456 184a@940414.2,4 28345a61 I9404i4

(a) 13wLm

(b) i32Wkbk*ftwo

& N8goM~Ib& AM aCoWiac

(a) 13WIUns

.% (b) 13 WVS*ftdob

(c) Local OIMbt~ion Wf

4 Mamortku& D~ of Malm I

(a) 132WUkus

(b) '32WIl"ai,om III

(c) LocalDfm vli ia" aeI

& rgnqm lo S.

(a) t3gWlnes i

(b) 132W&Mdblma

6 carmViAMlb -ti(a) 132 WLkUS

(b) oii 2W&Mibfcm'

(c) LIIWhDabu -onW:

7. T*i&omv¶aiianv*lxg

-------------------~~~

Annex 10Page 1 of 3

-51-

BANGLADESH

BANGLADESH POWER DEVELPHENT BOARD (BPDB)

TMANSMISSION AND DISTRIBUTION PROJECT

TECHNICAL ASSISTANCE

The scope of the technical assistance provided under the Project issummarized below:

Consulting Services

1. Consulting services of international experience are being provided forfollowing works:

(a) review of the bidding documents related to 132-kV substations; and

(b) review of the bidding documents related to low voltage distributionworks, supervision of the Project during construction and trainingBPDB staff.

2. In addition, a provision has also been made for local consultingengineers to prepare engineering design and bidding documents for local dis-tribution works.

3. UNDP is providing technical assistance for the following works:

(a) assistance to BPDB's planning units to reinforce its local dis-tribution systems, to identify areas of high system losses and torecommend a rehabilitation program;

(b) assistance by one commercial manager, one meter engineer and fivemeter technicians to help BPDB in streamlining its comnercialfunctions as part of its loss reduction program; and

(c) undertaking a study for setting tariffs based on long-run marginalcost, investigating the implications of various subsidies andevolving a methodology for revaluing the fixed assets of BPDB.

-52- Annex 10

Page 2 of 3

Computerized System

4. It is necessary for BPDB to introduce a computerized billing systemconsistent with normal utility practices. At present all billing is donemanually which not only delays the delivery of bills to the consumers but alsointroduces errors. ADB in their sixth power project loan has provided US$1.7million as phase I of their computerization program. BPDB is inviting proposalsfrom consultants. BPDB would furnish a program to IDA for introducing a com-puterized billing system and taking into consideration IDA's comments wouldimplement the program in a timely manner.

Training

5. One of the main reasons for an unreliable power supply in Bangladeshhas been the Lack of regular preventive maintenance by BPDB which in turn isdue to nonavailability of spare parts and insufficient number of trained person-nel. To solve the trained manpower problem, BPDB has set up foLlowing traininginstitutions for its employees;

Kaptai Engineering Academy;Tongi Regional Training Institute;Chorasal Regional Training Center;Chittagong Regional Training Center;Khulna Regional Training Center; andRajshahi Regional Training Center.

6. All the institucions, except Kaptai Engineering Academy, are under thecharge of the Director Training and Career Development; the Engineering Academyat Kaptai is under the administrative charge of Director, Engineering Academy,Kaptai. During FY's 82, 83 and 84 about 6,000 employees were trained in theseinstitutions through seminars, specialized induction and management courses.The trainees varied from linesmen and helpers to senior staff including Superin-tending Engineers. About 134 employees were deputed abroad under various spon-sorship programs for a period of 332 man months. Apart from IDA, BPDB receivedassistance from ADB, UNDP, Canada, Germany, Switzerland, Japan, Italy, Norwayand UK to develop its training program.

7. Under Greater Khulna Power Distribution Project (Credit 936-BD), IDAis financing to upgrade the training center at Khulna to provide improved train-ing facilities for power distribution specialists (foremen, linesmen, cablejointers). Under the project a provision of US$500,000 is being made to providenecessary tools and to impart necessary training to BPDB staff at this trainingcenter in "hot line method" of maintenance and erection. US$300,000 would beused to meet the cost of new tools and equipment and US$200,000 would be used tomeet the cost of foreign expenditure of BPDB staff for overseas training.

-53-Annex 10Page 3 of 3

During negotiation, a timetable for the procurement of tools, equipment andassignment of BPDB's staff for training abroad has been agreed.

8. Contribution by BPDB

BPDB would appoint counterpart staff with all the consulting engineersso that it can effectively implement its loss reduction program and improve itsquality of work in the engineering, finance and accounting departments.

-54-

ANNEX 11

BANGLADESHTRANSMISSION AND DISTRIBUTION PROJECT

Disbursement Profile

Cumulative CumulativeDisbursement Disbursement

Fiscal Year (Project.) (Project.)US$million Z

1985/86December 31, 1985 0 0June 30, 1986 1.1 2.0

1986/87December 31, 1986 2.2 3.9June 30, 1987 8.5 15.2

1987/88December 31, 1987 14.8 26.4June 30, 1988 22.9 40.9

1988/89December 31, 1988 31.0 55.4June 30, 1989 39.8 71.1

1989/90December 31, 1989 48.8 87.1June 30, 1990 51.7 92.3

1990/91December 31, 1990 56.0 100.0

MMU2

mommam-rD

qainsxu UiumJaa Umit Eat. If _SICm.fj

(AD) om-tic l 1 2C) n .blyuummpsioe ik il per ofup to lam "ilts 100 p.lo/Nib ee.gromtmd tou or

(U) blyb .. uu..ptie.s fractLo. tbereofIn to 400 mite 110 p.1nA/i

(11L) Numbly eusrptlas-- 40 .31k VS pMm/Nih

(a) Iurigtiem Pinu Ammal CIbmU.tnk 220 P. *P/pm Al1 sIt. 13 p.t1m/Nb n k 30 p.r W of

but Mt loUs tbm; eouuctmd 1IceU 1.000 (mIam. 1k.)1k 3.000 (triple pkmw)

(c) Industrial - - 1 pm/Nib lb 3O per W of(up to 5 N) seummted lead

Zuimmtrial (I) withot time-o-imp 2h0 psl.o/Nib 1k 30.0 pe W ofCS te soNi) . -miter connected loud

C U With til_-oef-i_ter

tff-pus bu. 193 p.ff m/NibPeah bumr. 200 p1mA/Nh

(U) Cmrus.mial/Tesprry Tk 100 put W 4s0 pmih U lO pw d ofbut Not lose th;. eommuted 1ud

Purpm Tk 200 (minls 1km.)Tb 4.001 (triple pb...)

tE) Cousrciul Tk 45. eer pw1 (1) NnIhthI @us_t1_ 2O p1mm/NibPM umai up to IN Mite

(i) Nutlpy mg _ tlee 2f5 p.1m/Nb 1k 10 pwr E oever 10 suite comoetd 1eed

IL. iW, iIRLU

(1) Commovr (tr1 to Tk 70W/ pmr mtb (I) vlthat tiam--da 10 to 20 p.imfib hnk 30 pwr a ofFi) abo 0 S W but Mt lose two'. muer d_owWi u e gtaey e_etud leed(atbor thm jute 1k 2.500 per semt (11) 31gb tim-eldupMull.) _

efl-poo busu Ine to 270 p.1mm/ihdopu"mio us catum

Pek busrs 30 to 340 p.im/Nhdopouir em c_tum

(C) Jute KUl*l ub, 70101 per muts0o buet anloss tbm; 1S Spe /Nb n S oPM W of

1k 3.s VW wsfth cometod lo"d

III.

(U) 5 WA or mbae U 53 PM NI (1) Witblt tdm-f-(etber tu EU) per mout otor 175 pmm/Nih

(LI) Vitc tgm-of-imsstar

Effl-PM bI_r. 1i5 p.1ml/i 1k 30 VWr Ni ofPooh 4f5 p.em/Nib emeted loud

(1) ani"rva 1k 5D PMr N f5 p.mm/NCopr tiheo pwr m_a

W. C) Streot lightsw ter _p _70 p.1LmsAih

U SI id_igls GusCoMu- t O Ctriaitp Uty ml S Of5 . p.r Nib u e.

i Feer lhepitel0. o_ucti_eml mu ebuit&Ke iLtlitatm. tid religliou eotsidmt. C etl)_th mft tinte to 50 psao/b fer mwthlYee_umutlos up to I0 _Its me 225 p.im/llb fur motbly ecoempties mr I. M .1tkm. with a saim chore of Sk 15 pwr i at ca-

trete ld hut et le" thou 1k 15 for a migle 1k _. Mt k " for tr41-e ps. so dmmi erge is 1k 10 p.Y i o etretud loud.

-56-

ANNEX 13

BANGLADESH

TRANSMISSION AND DISTRIBUTION PROJECT

Assumptions Used for Financl Projections

I. ased on the anirgy foreKast, generation grmis at a averag rate of 13.9.

2. Syst. losse consiered arm:39 in FY8536 in FY9634 in FY8732 in FY830 in FYT28 in FY9026 in FY9124 in FY92

3. The uxim possible gneration is assua fro Easbrn Ze, wing nteral gs, the ruiaing gmratsm isfroa trn Zln fired by oil.

4. Ful cost escalation owar FYVS prices arm:Natural ga 202 in FYs -I07 and 102 thereftar.Imported Oil 92 p.,.

S. Personel Cot:assued to incres at 15Z p.a. starting from FY86

6. Deprciation:3.2Z (SLK) of the averag revalud fixed aunts in opration.

7. Rpairs and aintmnnc:assumd to increse at 201 p.a. starting FY96.

9 Other revemus: 3.5Z of sYa revmu.

9. The investment mlrerd as assu by ta graisal aisim, is bud mally a thcompletio of comittedprojKcts SpKi IV in the first tkra proj d ys. pWval of tl Third Five-Yewar n q call for wolanchanges.

10. Debt service as computed for the Powr Syste ster Plan has bee cmuid.d far the misting bor Frn borroving a inturest rate of 11.52 p.a. has ben considered for frdpigm ls ad 11.51 p.a. for EUlocal loans starting FY?7.

11. Aset Revalution:102 of gross revalued assets at the beginning of fiscal year.

12. Capital Stores and Inventory:4.5Z of gross fixed assets.

13. lvestmnt Plan AdvancesIO of the average investut of three yars starting FY6.

14. Accounts Receivable:assmd to be: 5 mths of rnue saln in Fm

4 month of reouve sales in FIS3.35 months of reveu sales in FY7.3 mths of revme sales in Fm an thereaftar.

15. Accounts Payable: 6 months of cash operating expense- then gradully decreased to 3 eths.

16. Other Debtors: 102 of the annul cash operating epens

17. Other Creditors: assured to incrue by 10 annully starting FTC5.

-57-

AINEX 14

BANGLADESH

TRANSKISSION AND DISTRUBUTION PROJECT

Financial Summary

--- TUAL -------- - ---- OS

191101 Z / 198 2/13 I SIN 1K/f 1915/6 1 91 1117 19 1 1.11R 11M99 1911191 1"1192

_EVENE ------- Taka Million-------------

Slies bwumus 1636 2023 301 36I3 4032 566 7041 04 10 1467 17336 211tbgr Rsv.us 41 55 137 151 141 191 266 29 12 514 607 759

Sant Uhil 1741 2023 23 27 2110 332 39 45 5361 29 7223 1V7Avw 7 le vauu (Taka h) 0." 1.00 1.21 1.29 1.41 1.62 1.79 1.E 2.04 2.36 2.40 2.59Tari 1I.rasa. 12) 6.4 21.0 0.5 9.6 14.9 10.7 3.1 10.5 15.4 1.9 7.9

RATE OF RETIU

Opwrati l1c -227 -257 561 613 312 1330 2215 3419 5055 71K 05Z2 10161Ave. rsvalsd wt fixad asuts 5406 5683 31 1114 1J63 2023 259 40222 56213 713J7 31213 942Qati of retun I1) -4.2 -4.5 6.5 5.2 2.7 6 5 7.5 3.5 9.0 10.0 10.5 10.1

Frnig -- -- - - 3627 3 7107 56 4765 452 3194 4411LKcl - - 29O0 6 13 403 4655 4372 3016 3195 21 3711Total lvnntut 2471 3363 90 4355 5410 11309 11762 976 57 7717 5675 3136Thm year a argE -- 293 3723 4405 7191 9494 11016 10103 8735 7321 7176 73

511 QEEIININ

Cah opirating apu . 1722 2121 20 250 3256 40 33B 4203 540 643 7UK srvice 270 315 320 435 771 9 1226 141 2304 312 4316 5164Iocruu in Norking Capital -206 -201 612 -150 -3 -33 93 637 507 10u 515 767

Total Cub Raquirnsut 1796 23 3110 25 40 4561 5317 537 7214 10017 11337 146%Total Cash S6imuat 164 2078 3198 332 4173 55 72 342 11J 15191 1742 22439Not Cash 60nuration -- - - - 146 1093 1970 25 4670 5174 663 743Nut Cash Cmnration-l- - 2.0 11.5 17.9 27.3 J.5 70.7 92.1 105.3

-58-

ANNEX 15

BANGLADESH

TRANSMISSION AND DISTRUBUTION PROJECT

Actual and Forecast Balance Sheet

(YMCA NILLEOI _____

--- ACTUL -FORECASTST-190,111 191132 1932/3 193N/ 1934115 1985196 lU1/ 1tw1in 1930 191 9/90 1990/91 1991192

SgXS~~~~~~~- ---- -_- ------ -----------!Taka Hil. in------------- Fixed~~~~ - …Tts inO--ati…FiAe at r 661 633 11265 1125 1413 21397 29384 359 56173 hiYN 641" 7631

busts awvalutim --- 655 184B 3155 459 6503 193 1303 19302 2 34611 44492

Tota valud butt 6571 7338 13113 14440 19042 27N00 3909 51M 745 37 9 120773Accuulatad Dhpreciation 1165 1371 1708 2137 2673 3424 449 -55 7972 1156 15= 17066

Not Fixnd hsts in Opration 5406 5960 11405 12303 1639 24476 34601 45142 65 77169 0256 103707Mark in Progees 7415 1066 9034 13796 16048 20403 2375 2494 1595 1792 21303 17355

Total Fixed Assets 1M21 16626 20439 26099 32417 4479 5359 70791 8252 95"5 105W5 121063lat antmt 1 33 40 54 59 69 90 117 152 19 257 334Capital St. -- --- -S --- 355 653 1036 1463 2314 269 2947 63Invnstt Plan Advances - -- --- -- 502 94 1102 1010 U7 732 711 732Cwrret Assets

Cash lh 387 309 301 357 231 "5 2037 339 IS I3 5734 B9Accounts Receivable 467 472 1114 164 16 ID21 1966 2112 2726 3669 4334 5420Dtbr lobtors 145 490- 367 49 326 357 400 3B7 420 541 64 176nvantory S53 m 1004 1131 502 602 723 917 1041 1249 149 179

Total Currant Assets 1952 2250 2736 3545 2798 345 5175 3755 4372 7349 12210 17039Adjustamnt 90 97 96 47

rOTAL ASSETS 14864 I9006 2331 29745 36121 499 65763 77136 90234 106073 12692 14254.2 Z_ =s am m .N,. _=W E., ._.~ m

EQUITY AND LIABILITIESEquity

itail 5269 8911 960 12577 13469 1696 19422 19422 19422 1"22 19422 19422anhd Earnings -2 -631 -270 123 -116 778 2385 5113 971l 139 1936 26926

Total Elity 5005 8290 920 12700 13353 17174 21307 24535 29203 33360 3923 4634Asets Revaluation Rserve -- 430 1280 2516 3960 5364 9654 12564 17743 25199 33972 4353Long-taro DorrodingForeig- Lo ns - nd of F 5066 7096 041 9963 13152 19513 26131 31090 35018 3036 40075 42730Local Loans - and of FY 3346 1143 1793 153 2373 3342 5344 5464 5461 5156 4351 4546

Total Borrowing - ad of FY 8412 8239 10634 11552 15525 23355 31475 36554 40479 45 4492 47276Currant Liabilities

Accounts Payable 523 975 1105 1469 IU82 1786 1833 1290 101 1352 1609 2191Othar Creditors 51t 567 477 929 911 1002 1102 1212 1334 1467 1614 1775Security DSposits 171 226 210 247 m 29 329 362 393 438 461 529Employea Provident Futd 187 221 259 309 340 374 411 452 498 547 602 662

Total Curmrnt Liabilities 1405 1939 2050 2153 3150 3461 3675 3316 3630 3303 4306 5153Cons_s Contribution 42 b8 107 124 133 142 152 167 179 191 205 219

TOTEL E0ITY AND LIABILITIES 14964 19006 23361 29745 36121 4996 65763 77136 90234 106073 122692 1424-::C:~~~~~~~- ==G XzX==:1 ==== SS = == =mss :"sm *smaa _szz a---

EQUITY TO (EDUITY+IETI 37 50 47 52 46 42 41 40 1 43 47 50DBT TO (EOUITY+DEITI 63 50 53 49 54 58 59 60 59 57 53 50

-59-

Annex 16BAIGLADESH

TRANSMtlSSION AND DISTRIBUTION PROJECT

Actual and Forecast Income Statement

290112 1991/82 M92/183 1983184 1194/lI 1915/h 1966117 1917/818 1911/U I9 o i29/9i '1fl1/2

llwratie ICl) 262 036 3433 396 46S 52 50 6721 7630 851 9711 11014krmu h ntm Los.rnh( 35 33 30 32 39 31 34 32 30 21 26 24Ulu h() 174t 2 2705 231t 3372 3927 4570 5341 62 7223 331Averag bvrne (TkIlkt) 0.94 1.00 1.23 1.29 1.41 1.62 1.79 1.95 2.04 2.36 2.40 2.59= alncrus (Z) 6.4 23.0 0.5 9.6 14.9 10.7 3.1 10.5 15.4 1.9 7.9

Fro Sasis o Powr 1636 2023 3061 3431 4032 5463 7041 M44b 10903 1467 17336 21630Dthbr Oarating bvmnu 48 55 137 151 141 191 246 296 32 514 107 75

Total Operating enun 1614 2078 3198 3632 4173 565 7297 U742 11234 15191 17942 23439

OPIRITIN EVPENIES

Fumi 1362 119 1710 1923 2206 2345 25U3 21* 2230 3092 719 5574Frsml 230 230 270 310 456 524 103 194 791 917 1055 1213Office & Other Expbem 37 53 65 72 92 101 111 122 135 143 163 179Repairs S Nalnmuo 93 137 263 285 502 602 723 167 1041 124 14" 179WrKiatiN 169 214 329 429 53 751 1072 1454 2022 2597 29M 3513

ota OpWrating pm uc 1911 2335 2637 3019 3792 432 5072 5323 6225 3003 9420 127

Orating lcoo -227 -257 561 613 382 1330 2215 3419 5059 71U 522 1011m Subsdy 100 -- - - - - - -- --- - - -

Iiterest EINuI I 146 134 144 161 226 436 60 691 1391 2031 25 36A*idtat Df Rcuivabl 5

let PrsfjtI Loss -273 -39 417 452 -239 194 1107 27 36 5157 5924 7m5Mt-t _-it .Loss _V , g- = 27 *U

Rate of otiwra c Net A AurIhAYiud Fixed Assts in gi -4.51 1.51 5.22 2.7? 6.51 7.52 6.51 9.0? 10.0? IO.51 10.3K

-60-

ANNEX 17

BANGLADESH

POWlER DEELOPMENT BOARD

ITUL i FWECAU hOIMES m AFFL ZATII OF FINKS STIT9 _

-- (TA IILU __ ____ ___ __--- CTUA.L -- - - - - --- fWAMAS ---

193Il1 193112 112/13 1M3 M3IN 190186 19IV7 1M7U 19/I 193/0 1990/91 I11192

Intirul howcssOperatint lln -227 -257 561 613 312 1330 221 3419 1OIb iatclm IN 214 329 429 M 751 L072 143 2M t5

- 7-- - 7-7 -- ml --

Brus lt l wen -3 -43 310 12 17 2091 327 4673 7061 9M7 11507 1374Previos Vws AIJ.st.t 1 23 -5 -60Abpraisal 91pun - 430 N50 1236 1444 1904 2o 3910 5179 7456 774 31Adliutut Of NicVblii -395

m Equtmr"^lbC^tiktim 60 63 650 3017 69Z 297 30 - - - - -

Formip CiUcy 1146 2211 1921 2M 327 6N 7107 50 4765 4522 319 4413Local rrucy 563 75 650 7U 391 1576 162 265 273 - -

ToWta lrruio 179 2964 2571 3672 4513 O32 8736 U9 503 4522 3194 4413Cmuws C ristiao 22 26 39 17 9 9 10 15 12 13 13 14

Total Eutuul Soacn 23 3676 3260 6706 5419 1131 1172 034 5050 4535 3207 4432___ __ __ _ ____ _ _- 7 _ _T _7 _T _ _.__

TTAl SUICE 26 403 4 94 75 1i 4 1749 1 7 17310 21774 2343 2793

AFFICI0Ionmtmt

Frtrip 3627 606 7107 5604 4765 422 319 441Local 2471 3363 2950 4732 4503 45 4372 306 3195 2431 3711

Total lmv.tu.t 2471 33 2950 4782 5410 1309 11762 97 3S71 77 175 313but lvalutim - 655 1193 1307 1444 1904 27 3910 5179 7456 374 13Otbrr [hvuu.t - 32 7 14 4 11 21 27 35 46 59 77IscruNe is Capital Stoer - - - - 355 293 33 4*27 11 335 243 6licru in [mst. PlE Mv. - -- -- --- 502 447 153 -2 -13 -144 -14 14

-47lit hmrtics

Iutizatio 124 131 176 274 545 55Z 616 70 1113 1431 1M 206Total Gors iat.t 27 191 290 321 62 97 1121 2526 3304 3767 40 4372L n- IK 125 57 146 160 37 536 1213 15 1913 1736 142 1276lttwrst Expse 146 134 144 161 226 436 60 6l 1391 2031 2596 3096

Total lit Service 270 35 320 45 7 9 1224 I3 254 3512 43S 516Trusfwr 0f hbts 2430Variatioin 1 orking Caital

Othr Tha Cah -206 -201 432 -150 -7 -33 93 f37 507 10" 515 767Vriatio in Cash -179 -78 -9 56 -76 394 1422 -16" -203 1704 334 3260

TOTAL WILICATOIS 25 406 4944 3924 73 15304 17349 1467 17310 21774 234 2797'uuuum uuu uu- mm. .muuu.u, ...... .. 3m _n m a... . .... au mu

-61 -

ANNU 18

TA3IsIOEAnD DISTUIDTICEa MOJKT

Inveatmnnt Plan

hLDL 6f 3L9 ELM iDL L 9019 9192------------ U *mKLLoIu--

Ceatration Foreign 1916.3 3497.7 2841.4 1433.9 972.9 1455.1 650.6 1171.0Local 706.3 1659.5 1209.7 9463 461.5 771.8 464.2 691.6

Tra rission Foreig 449.0 1466.9 1141.9 1033.2 991.2 840.3 450.5 450.5Local 228.5 .990.2 777.3 633.2 546.9 395.4 142.8 142.8

Diatribution & Foreign 1261.7 1259.3 19L. 1J60.5 1413.0 6U4.8. 604.8 796.4iscullaueouu Local 847.7 1407.1 1791.3 1616.7 15M0.3 731.2 721.2 959.6

Total Iuvyetaont Total 5409.5 10300.7 9760.4 7525.8 5835.5 4838.6 3234.1 4211.9(Dc. 84 prices) foreign 3627.0 6243.9 59M.1 4327.6 3377.1 2940.2 1905.9 2417.9

Local 1782.5 4056.8 3778.3 319S.2 2508.7 18L.4 132L2 1794.0

PriceCotingencie Total - 10OL3 2001.1 2450.3 2685.0 28.4 241.2 3924.5

Foreig. - 562.0 1124.6 1276.6 1388.0 1581.8 1286.3 199.6Local - 444.3 876.5 1173.7 1297.0. 1296.6 1152.8 1924.9

Total Iavestamnt Total 5409.5 11309.0 11761.5 .9976.1 6570.8 7717.0 5675.3 U36.4(including price foreign 3627.0 6805.9 7106.7 5604.2 4765.1 4522.0 3194.2 4417.5contiignciaa) Local 173R.5 4503.1 4654.8 4371.9 3805.7 3195.0 2481.0 3718.9

-62-ANNEX 19

BANGLADESH

TRANSNISSION AND DISTRIBUTION PROJECT

Forecasted Sales and maximum Demand

Units FY1985 PY1986 FY1987 171988 FY1989 771990 PY1991 F719921/

1. BPDB sales: Domestic GWh 649 744 852 976 1119 1282 1469 1683Comoercial GWh 254 302 322 344 445 611 871 1129Industrial GWh 1651 1850 2135 2416 2717 3035 3365 3782Other GWh 92 140 150 220 280 350 412 491

Sub Total GWh 2646 3036 3459 3956 4561 5278 6117 7085

2. RES Sales: Domestic GWh 45 75 114 198 212 268 325 386Comercial GWh 8 13 19 26 34 42 50 60Irrigation GWh 40 60 78 97 117 139 156 177Industrial GWh 74 119 166 219 280 343 399 461Other GWh 1 1 1 2 2 2 3 3

Sub Total GRh 168 268 378 502 645 794 933 1089

3. RES losses GWb 45 68 90 112 135 157 173 197I 1 21.3 20.2 19.2 18.3 17.3 16.5 15.7 15.3

4. RIB purchasesfrom BPDB: Sub Total OUh 213 336 468 614 780 951 1106 1286

5. Total BDPB Sales (1 plus 4) Glh 2859 3372 3927 4570 5341 6229 7223 8371

6. BPDB losses GWh 1806 1897 2023 2151 2289 2422 2538 2643Z % 38.7 36 34 32 30 28 26 24

7. Energy generation (Total) Glh 4665 5269 5950 6721 7630 8651 9761 11014Annual increase S z 17.7 12.9 12.9 12.9 13.5 13.4 12.8 12.8

S. East zone generation: Hydro GWh 700 830 830 900 1030 1030 1030 1050Thermal GWh 3507 3769 4556 5525 6415 7265 8397 9264

Sub Total GWh 4207 4599 5386 6425 7445 8295 9427 10314

East zone requirement GWb 3317 3709 4146 4638 5214 5853 6540 7308East zone maxim=m demand PU 668 741 826 920 1035 1161 1300 1467East zone load factor Z 56.7 57.1 57.3 57.5 57.5 57.5 57.4 56.9

Transfer to West zone GWb 890 890 1240 1787 2231 2442 2887 30069. West zone generation: Thermal GWh 458 670 564 296 185 356 334 700

West zone requirement(Sub Total) GWb 1348 1560 1804 2083 2416 2798 3221 3L706

West zone maxiimm demand MW 278 322 372 428 495 576 660 748Went zone load factor Z 55.4 55.3 55.4 55.6 55.7 55.6 55.7 56.6

10. Total hydro generation GWh 700 830 830 900 1030 1030 1030 1050Total therma1 generation Glh 3965 4439 5120 5821 6600 7621 8731 9964Total generatiou (Sub Total) GWh 4665 5269 5950 672! 7630 8651 9761 -1101

Total Maximum demand mH 946 1063 1198 1348 1530 1735 1960 2215General load factor z 56.3 56.6 56.7 56.9 56.9 56.9 56.9 56.8

1/ FY 1985 is estimated actual -

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Annex 20Page 1 of 2

BANGLADESH

TRANSMISSION AND DISTRIBUTION PROJECT

Technical Justification

The proposed Project was prepared by BPDB using appropriate loadflow studies to extend and reinforce the transmission and distributionsystems to meet the future demand for electricity at least cost. Thethree 132kV lines (Ishurdi to Bogra, Shahjihazar to Chattak, and Bheramarato Barisal) are designed as doubLe circuit lines and one circuit alreadyexists. All 132-kV substations already exist and only reinforcement basbeen provided to meet the increased load demand, improve the systemreliability, reduce system losses and stabilize voltage conditions. Theconditions on the Ishurdi-Bogra line are very critical because voltage aslow as 114-kV (as compared to normal voltage of 132-kV:j has been observed.With the stringing of the second circuit the operating conditions willimprove. The reinforcement of Shahjibazar-Chattak L.ne would enable BPDBto connect captive industrial load of a fertilizer factory, Fenchuganj(23MW), cement factory Chattak (6MW) and paper factory Chattak (6MW) toits grid system. The reinforcement of Bheramara - Barisal line wouldenable BPDB to use thermal power stations in the east zone to their maxi-mum capacity and thus reduce the costly generation, using imported oil, inthe west zcne.

The existing distribution networks, consisting of 33-kV and LVlines and substations, in the 14 towns included in the proposed Projectrequire reinforcement to meet forecast load growth. Existing maximumdemands in these towns are shown in Annex 7, together with forecast maxi-mum demands in 1990. The 33-kV networks are being fed from sixteen 132-kVsubstations included in the proposed Project. BPDB both has approachedand is approaching other donors for funding the reinforcement of 33-kVnetworks in other towns. ADB (sixth power project) has agreed recently tofinance distribution network rehabilitation and expansion in 18 majortowns. Since the proposed Project involves the rehabilitation and exten-sion of existing distribution systems, least cost analysis, say in termsof alternative supply from isolated diesel sets, was not undertaken. Thecomponents of lines and substations required for reinforcement are shownin Annex 7, and supporting calculations and drawings are on the ProjectFile. The criteria used by BPDB to select the 14 towns included; thenumber of existing and forecast consumers, existing and forecast elcc-tricity consumption, and the administrative and economic importance ofthe town, with preference being given to those with higher load factorand/or economically important loads (principally industrial loads). Page2 of Annex 7 shows that the reinforcement of the networks in the 14 townswould serve about 31,000 additional singie phase and 1450 additional threephase consumers by 1990.

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Annex 20Page 2 of 2

The aggregate maximum demand of the 14 towns is projected to be50.3 NW in FY90 (Annex 7) and the incremental demand about 28 NW. Assum-ing a diversity factor of 0.9 and the overall system load factor of 0.55,the annual energy required would be about 122 GWh. Using an averagetariff rate of Tk 1.64/kWh and an additional 3.5Z of revenue to allow forconnection charges and meter charges etc., the total revenue (in 1985prices) would be Tk 207 million or US$ 6.9 million. The estimated cost(in 1985 prices) of network reinforcement in these towns (including physi-cal contingencies and consulting fees) is estimated at USS 25.5 million.Since the annual revenue is a sizeable portion of the investment cost(about 27%), the reinforcement of the networks in these towns is jus-tified.

ANNEX 21

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BANGLADESH

Transmission and Distribution Project

Economic Internal Rate of Return

As described in Chapter 5, the proposed Project forms an integral partof BPDB's expansion plan and, therefore, cost-benefit analysis needs to becarried out on the whole plan rather than on the project in isolation. BPDB'sinvestment program for the period 1985-1992 has, therefore, been analysed.Capital costs, incremental operation and maintenance costs, incremental fuelcost (all in terms of mid-1985 prices), and benefit streams are all shown inTable 1. Assumptions underlying these figures are detailed below.

Capital Costs

Anticipated capital expenditure on generation, transmission and dis-tribution at financial prices was converted to economic prices by (i) expressingthe import content at cif prices; (ii) valuing unskilled local labor at 0.75 ofthe market wage rate; and (iii) applying the estimated standard conversionfactor, 0.80, to local costs.

Operation and Maintenance Costs

Incremental annuaL operating and maintenance costs were estimated as thefollowing percentages of capital value: generating plant 2.08S, transmission2Z, and distribution 4%.

Fuel Costs

Fuel costs, estimated on an economic basis, were as follows: naturalgas Tk33/MCF, HSD Tk 32.81/gln, and fuel oil Tk 24.54/gln. The economic costsin Table 1 were derived as the product of the economic cost of generation andthe yearly increase in generation (Glh) shown in Table 2. The economic cost ofgeneration was derived using the fuel consumption forecast given in Table 4 andthe generation forecast given in Annex 19.

Case 1. Benefits

Case 1 benefits are based solely on incremental revenue at existingtariff levels. Incremental sales attributable to the investment program areshown in Table 2. These allow for reduced system losses in accordance with thetargets given in para 2.11. The average revenue of Tk 1.64/kih in FY86 was

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ANNEX 21Page 2 of 7

taken to represent the weighted average tariff rate defined over ezistingtariffs. On this basis the rate of return is about 9.6Z.

Case 2. Benefits

Case 2 benefits are equal to consumers' willingness to pay (WTP) forelectricity measured by the costs of the alternative methods of meeting theirdemands for lighting, irrigation pumping, etc. which are displaced by elec-tricity (details are given in the project file). The economic internal rate ofreturn (EIRk) on this basis is about 12.7X. This is a lower-bound estimate ofEIRB. It assumes that consumers' WTP pay for non-technical system losses (whichrelate to meter reading and billing errors, theft, etc.) is zero, whereas WTPfor the consumption represented by these losses will be positive. The assign-ment of a WTP value to non-technical losses would increase the estimated EIRR.

Sensitivity Analysis

Sensitivity analysis was carried out assuming 1OX and 20% increases inrevenue, 10% increase and decrease in generation, 10X increase in capital costand 10% decrease in willingness to pay (WTP). All the results are summarized inTable 5.

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ANNEX 21Page 3 of 7

BANGLADESH

TRANSMISSION AND DISTRIBUTION PROJECT

Table 1Economic Internal Rate of Return

(Millions of Taka)

Fiscal Capital Operation & EconomicYear Costs maintenance Fuel Cost Benefits 1/ Balance

1985 4,599.5 - - -4,599.51986 8,794.9 139.9 330.4 796.2 -8,469.01987 8,885.2 391.1 645.1 1,657.5 -8,263.91988 6,462.3 663.4 830.6 2,655.5 -5,300.81989 5,140.6 878.0 1,064.4 3,885.3 -3,197.71990 3,784.1 1,048.1 1,490.8 5,316.6 -1,006.41991 2,449.9/2 1,162.0 1,906.0 6,934.2 1,416.31992 2,758.072 1,241.6 2,463.5 8,826.1 2,636.31993 106.371 1,336.3 2,998.9 11,073.6 6,632.11994 106.3/2 1,339.8 3,042.6 11,510.1 7,021.41995 106.372 1,343.3 3,079.2 11,772.7 7,243.91996 106.372 1,346.8 3,123.4 11,856.6 7,280.11997 106.371 1,350.3 3,158.8 11,925.4 7,310.01998 - 1,353.8 3,192.8 12,000.5 7,453.91999 - 1,353.8 3,228.1 12,061.0 7,479.12000 - 1,353.8 3,264.3 12,121.7 7,503.62001 - 1,353.8 3,3310.1 12,216.4 7,552.5FY2002to - 1,353.8 3,347.2 12,304.8 7,603.8

FY2014 137,268.0(13 y)

1I/ Benefits were derived in two stages; first the product of estimated 1TPof Tk 1.94/kWh and estimated yearly increase in BPDB sales (see Table 2),and second the product of estimated 15P by rural consumers andincremental sales under the Second Rural Electrification Project (seeTable 2). Total benefits are the sum of the foregoing multiplied by theSCF.

2/ Plus Tk 106.3 million for rural electrification ezpansion.

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ANNEX 21Page 4 of 7

BANGLADESH

TRANSMISSION AND DISTRIBUTION PROJECT

Table 2Economic Inte.rnal Rate of Return

Yearly Yearly Yearly EconomicIncrease Increase Increase Cost of REB

Fiscal in Generation of BPDB Sales of REB Sales Generation BenefitsYear (Gwh) 11 (GWh) 1/ (GWh) 2/ (KTk/GWh)3/ (tTk/CWh)4/

1985 - - - .502 -1986 604 513 - .547 -1987 1285 1068 - .502 -1988 2056 1711 - .404 -1989 2965 2482 8 .359 5.21990 3986 3370 24 .374 4.51991 5096 4364 48 .374 4.21992 6349 5512 87 .388 3.91993 7871 6919 127 .381 3.31994 7903 7195 159 .385 2.71995 7M36 7348 192 .388 2.41996 7968 7374 224 .392 2.31997 7997 7397 253 .395 2.21998 8022 7417 278 .398 2.21999 8050 7440 306 .401 2.12000 8080 7464 336 .404 2.02001 8113 7491 369 .408 2.02002 to2014 8144 7516 400 .411 2.0

1/ Data shown in these columns is derived from that given in Annex 19.

21 These sales refer to the Second Rural Electrification Project.

31 The product of economic cost of generation and the yearly increase ingeneration equals the economic fuel cost shown in Table 1.

41 See Project file for details of benefit estimation.

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ANNEX 21

Page 5 of 7

BANGLADESH

TRANSMISSION AND DISTRIBUTION PROJECT

Table 3Economic Internal Rate of Return 1/

Fuel Prices Constant

CapitalDiscount N.P.V. Cost 0 & M Fuel BenefitsRate (MTk) (Z) (Z) (Z) (Z)

oz 137,268 316 389 170 - 465Z 41,797 116 258 118 - 328Z 17,942 55 164 77 - 21101 8,328 27 96 46 - 1312Z 1,770 6 25 12 - 3152 - 4,440 - 17 - 84 -43 + 12181 - 8,000 - 33 N.A. N.A. + 2820X - 9,470 - 41 N.A. N.A. + 4025Z -11,332 - 56 N.A. N.A. + 71

EIRR - 12.71

1/ The table shows the percentage change, compared with base case value.,required to make the EIII equal to any rate shown in the first column.Thus the EIRR would fall to 51 if the capital costs were increased byabout 116S or benefits were decreased by 32Z.

N.A. Not applicable, the percentage decrease in costs would have to exceed100X, meaning that 0 & K costs and fuel costs would have to be negative.

-~~~~~~~~=21 7o

ua=-w mamiv RJ

Fuel Counitlon PoreacstTAU4

lest SateERw tttio nm - Mm1 nJUn 1n991 1u22n V9a

2. Anmbguj War Stat-on2.643 Stem Goe Il0 9240 9240 0 9240 6400 "on *600 McIgem (55 + 30) Cab. Cycle Gee 130001O060 4413 6413 6413 4500 3938 393B 4219 m1c1.158m Stem ae 1000O - 2000 6400 9200 10000 1con0 cOsao SECr1.150W Stem Gee 10000 - - 4000 6700 9200 10000 10000 off1.150M Stem Ges 10000 - - - 6400 9200 ionoo Icr160 IN Cab. turb. Gee 14000 910 1620 2100 2100 2100 2100 2100 mU

3. Cboread Pawvr Station2z55W Stem Gee 12000 3740 3740 3760 *760 5400 6420 6000 m1.210W Ste-s Gee 10000 3100 7400 9200 12900 14000 14000 14000 MU1x210W1 stem Gee 10000 - - 1600 5900 9200 12900 14000 Mr1210w stem age lO0O - - - - - 3000 9200 ECP

4. Cbittgo Power Stat io1a40M Stem Gee 12500 5000 5000 5000 3750 3750 3750 5600 mU206.5w Cab. Turb. CGe 1900 133 95 - - - - - NET2.231 Cab. Torb. Cam 14000 420 1540 5440 1540 1540 1540 110 MC

5. Siddbirgeaj lower Statia1W5O stem 415 Ca. £1000 2904 2904 2440 17"0 1760 1690 13 t m

4/5 F.0 11000 4.86 4.8f 4.43 2.96 2.96 2.83 2.34 N ca.3.161 stem 315 Cae 16500 1060 1040 149 149 50 - - mU

2/5 I.0. 16500 3.75 3.75 .54 .54 .13 - - CAL.1.8C Cab. tUrb. Gee 1400 700 2450 2U0 2800 2300 3500 3500 MCI

4. ShaJibser Paer Statia7z1CM Cab. turk. Ge 19000 4270 3U29 1330 - - - - MCF

7. Disels ILS.3 10000 .11 - - - - - - 11C.

IOM Zaut Zone: CGm "30 52431 41372 49239 76935 38633 97553 MUFel Ol 3.61 3.0£ 4.97 3.50 3.14 2.83 2.34 11CGA.-. S.D. 0.11 - - - - - - N Gt.

IOTAL Coets: Cea 13.05 ENc 5s5.1us 6.25 eoo- e. 904.352 1006.041 1156.726 123.132 1t1.0 24.54 /I el Got211.29 211.209 121.944 0.390 77.056 9.443 57.424 Ht3.S.D. 32.31 Ik/I Co1 3.605 - - - - - - lit

TOM. 800.713 895.514 922.369 9o.242 166.097 1226.174 1330.556 lif

test Zoe. CGeration 459 5234 6425 7445 B25 9427 10314 obkeree cast per Nb .174 .166 .144 .133 .130 .130 .129 itTraunfer to Vent gnu: 8" 1240 1787 2231 2442 2837 3004 Wt4

154.03 205.34 256.610 296.740 318.269 375.50 387.789 Ut

1. CaIne lower stutd.1 z 60 D Stem F.0. 12300 .373 7.535 4.136 1.475 1.861 4.500 12.558 IL Gel.1 z 110 w Steam P.O. 11000 31.976 21.333 11.273 4.631 14.735 10.644 31.37 N. CGl.3 a 4 W Stem - - - - - - - - IL Gal.I x 10.5 M Ca-b.Terb. IlS.D. 21000 .419 .419 .414 .419 .419 .419 .210 N. Gel.1 a 12.75 W Cab.Twrb. I.S.D. 21000 .525 .525 .525 .525 .525 .525 .315 IL Gal.2 z 28W large Cab. Turb. 12400 2.575 2.31 1.916 1.616 1.916 2.694 2.754 N. Gal.

2. Sher_mra Peovr st tioe3 a 20 W Cab.Tbrb. Y.S.D. 169 0 2 35 2.535 1.267 1.520 1.609 1.669 1.689 16.54.

3. Saidpur D.P.S 4 Otber Dieselu 3.S.D. 1000 1.6" 1.600 .050 .544 .250 .250 .150 ILe.

6. s*ritl & Slidpur Powr Station3 x 20 N Cawb.Tarb. M..D. 14000 1.400 4.129 1.40 .700 3.499 4.199 3.4" K.Gdl.

Total West ZlOe r.o. 40.349 29.413 15.459 5.304 16.594 15.134 43.95 KOal.lLz.D. 9.153 12.022 6.377 5.329 3.296 9.776 3.6D1 ILeC.

Total Cent: F.0. 990.166 721.906 379.364 203.#3 407.264 371.615 1073.410 OII.J.D 300.310 394.44 209.225 174.844 272.257 320.751 2U2.724 S1

Sub Total 1290.474 1116.348 SU.593 370.o73 679.523 693.366 1361.1234 Tranferred frao hat Zow 154.86 205.04 256.400 296.740 31L.269 375.513 367.769 S

OTAL IW5.34 1322.18M 35.273 675.413 997.792 106.879 1743.923 MCvb Veet tme 1540 1804 2083 2416 2793 3221 3704 aSb

Jeragp coat per Nb 0.924 .733 .40 .200 .357 .332 .472 ik

Total Cont 2091.13 2011.362 1511.462 1364.915 12760620 1919.540 2691.690 MMTotal Generation 5269 55O 721 1651 3651 9761 11014 SbAn-Zage Coat per Nb .397 .338 .225 .204 .204 .197 .24 Ik

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ANNEX 21Page 7 of 7

BANGLADESH

TRANSMISSION AND DISTRIBUTION PROJECT

Table 5Economic Internal Rate of Return and Sensitivity Analysis

Cost Benefit EIRR (Z)

o Base case (fuel price constant WTP (constant in 12.7in real terms) real terms) 1/

Tariff revenue

o Base case Tariff revenue 9.6

Indirect effects

o Base case Revenue + lOX 11.3

n Base case Revenue + 20X 13.2

Variation in generation

o Base case with generation -10X WTP constant 1/ 10.8

o Base case with generation +10Z WTP constant 1/ 13.9

8iscellaneous

o Base case +10 increase in WTP constant I/ 11.6capital cost

o Base case WTP minus lOZ 10.6

1/ ITP is Tk 1.94/kWh

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Annez 22

BANGALDESH

TRANSMISSION AND DISTRIBUTION PROJECT

Data and Documents Available in Project File

1. Draft report on Bangladesh Energy Plannirg Project (BEPP) by SirWilliam Halcrow & Partners, Motor Colombus Consulting EngineersInc., and Petroconsultants S.A., dated July 1984.

2. Draft report on Power System Kaster Plan (PSKP) by AcresInternational dated August 1984.

3. Bangladesh Power Sector Efficiency Study by joint UNDP/World BankEnergy Sector Management Assistance Program dated October 1984.

4. Review of Load Forecast and Planning in Bangladesh by LahmeyerInternational Frankfurt dated September 1984, (vol I, Il, III, IVand V).

5. Consumers' willingness to pay for electricity measured by the costsof alternative methods of meeting the demand.

6. Summary of load flow studies carried by BPDB.

7. Annual Report of BPDB for FY82/83.

/~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~f

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