Document of

The World BankH1JE {Y)P 1

FOR OFFICIAL USE ONLY

Report No. 4626-JO

STAFF APPRAISAL REPORT

JORDAN

ENERGY DEVELOPMENT PROJECT

November 14, 1983

Projects DepartmentEurope, Middle East and North Africa

Regional Office

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 = Jordan Dinars (JD)JD 1 = 1,000 filsJD 0.355 = US$1.00JD 1.00 = US$2.81JD 1.00 = 1,000 filsUS$1.00 = 1,000 mills

WEIGHTS AND MEASURES

1 meter (m) = 3.281 feet (ft)1 kilometer = 0.621 mile1 square kilometer (km2) = 0.386 square mile (mi2)1 cubic meter (m 3 ) = 35.315 cubic feet (ft3)1 kilogram (kg) = 2.205 pounds (1B)1 ton (1,000 kg) = 1.102 short ton (sh ton)

0.984 long ton (lg ton)1 barrel (bbl; 0.159 m3 ) = 42 US gallons (gal)1 kilowatt (kW) = 1,000 Watts1 Megawatt (MW) = 1,000 kW

1 kilowatt hour (kWh) = 1,000 Watthours (Wh)1 Gigawatt hour (GWh) = 1,000,000 kWh = 1,000 MWh (=106kWh)1 kilovolt (KV) = 1,000 volts (V)1 kilovolt ampere (kVA) = 1,000 volt amperes (1 kVA)1 Megavolt ampere (MVA) = 1,000 kVA1 quad = 1015 Btu

GLOSSARY OF ABBREVIATIONS

CGG - Compagnie Generale de G6ophysiquetcM - Council of Ministers

EPA - Energy Plan of ActionEPU - Energy Planning Unit

ESS - Energy Sector StudyIDECO - Irbid District Electricity CompanyIAEA - International Atomic Energy Agency

JEA - Jordan Electricity AuthorityJEPCO - Jordanian Electric Power CompanyJPRC - Jordanian Petroleum Refinery CompanyGCEC - Gilbert Commonwealth Engineers and ConsultantsK&D - Kennedy and Donkin

LPG - Liquified Petroleum GasLRMC - Long Run Marginal CostMIT - Ministry of Industry and TradeNEC - National Energy CommitteeNPC - National Planning CouncilNRA - Natural Resources AuthorityPD - Petroleum Department at NRAPCR - Preece, Cardew and Rider

RSS - Royal Scientific SocietySCE - Steering Committee for Energytoe - tons of oil equivalentTapline - Trans-Arabian pipeline

Financial Year = Calendar Year

(1085P)

FOR OFFICIAL USE ONLY

JORDAN

ENERGY DEVELOPMENT PROJECT

Table of Contents

Page No.

I. THE ENERGY SECTOR ...................................... 1

A. Introduction ....................................... 1

B. Energy Resources ................................... 1

C. Institutional Setting of the Sector .... ............ 2

D. Energy Balances .................................... 4

E. Energy Pricing. ........... 6Petroleum Products . . ............ 6Electricity Pricing .............................. 8

F. Energy Planning and Development Strategy .... ....... 10Energy Planning .................................. 10Energy Development Strategy ...................... 12

G. Beneficiaries . 14The Jordanian Electric Power Company (JEPCO) 14The Irbid District Electricity Company Limited

(IDECO) ........................................ 15Royal Scientific Society (RSS) ................... 16National Planning Council (NPC) .... .............. 17

H. Role of IDA/Bank ................................... 18

II. THE PROJECT ............................................ 19

Project Objectives .................... ................. 19

Project Description .................................... 19A. Petroleum Exploration Component .... .............. 19B. Power Distribution Component ..................... 19C. Energy Conservation Component .................... 20D. Renewable Energy Component ....................... 20E. Energy Planning Component ........................ 21

The report was prepared by Messrs. I. Elwan (Economist), Ms. Z. Ladhibi(Engineer), C.P. Ranganathan (Financial Analyst), J. Schweighauser (Geologist),

A. Malik (Renewable Energy Specialist), A. Smit (Petroleum Specialist),S. El Daher (Financial Analyst) and J. Mulckhuyse (Conservation Specialist)

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.

- ii -

Table of Contents (Continued)

Page No.

II. THE PROJECT (Cont'd)

Project Cost .......... ................................. 21Project Financing ...................................... 21Lending Arrangement .................................... 24Accounts and Audits .................................... 24Engineering and Consulting Services .................... 24Project Irnplementation ................................. 26Procurement .......... .................................. 29

Disbursements ............................ 32Risk ........... ........................................ 32

III. FINANCE ............................................... 33

Rural Electrification Losses ........................... 33

A. Jordanian Electric Power Company .... .............. 34Accounting ..................................... 34Accounts Receivable ................... § 34Revenue Covenant ....... ......................... 34Past Performance and Present Position .... ....... 35Financing Plan ........ .......................... 35

Future Performance ..................... 37Debt Service Coverage . ..................... 38Auditing ..................... 38Insurance............ 1. ....... 38Monitoring System ...................... 39

B. Irbid District Electricity Company Limiited ........ 39Accounting .. ....... 39Past Performance and Present Position .... ..... 39Accounts Receivable ............... 40Financing Plan ................. 40Future Performance . ... 42Debt Service Coverage .............. 43Auditing ....... ............ 43Insurance ....... ............ ............ 43Monitoring System ,............ 43

IV. ECONOMIC JUSTIFICATION OF THE PROJECT .......... 44

V. AGREEMENTS REACHED DURING NEGOTIATIONS ................. 46

- iii -

Table of Contents (Continued)

ANNEXES

1.1 Load Forecast and Existing and Planned Power Facilities

1.2 Energy Plan of Action for 1983-1985

2.1 Detailed Project Description

2.2 Yearly Detailed Project Cost2.3 Petroleum Exploration Component - Yearly Detailed Cost2.4 Power Distribution Component - Yearly Detailed Cost2.5 Power Distribution Component - IDECO - Project Cost Detailed by

Financing Sources2.6 Energy Conservation Component - Yearly Detailed Cost

2.7 Renewable Energy Component - Yearly Detailed Cost

2.8 Energy Planning Component - Detailed Yearly Cost

2.9 Breakdown of Consulting Services Required for Energy Audits

2.10 Implementation Schedules:Petroleum Exploration ComponentPower Distribution ComponentEnergy Conservation ComponentRenewable Energy ComponentEnergy Planning Component

2.11 Estimated Disbursement Schedule2.12 Estimated Disbursement Schedule - Comparison of Disbursement Profile

3.1 Notes and Assumptions for Financial Forecasts

3.2 JEPCO's Income Statements3.3 IDECO's Income Statements

3.4 Suggested Key Indicators of Performance3.5 Suggested Principle for Evaluation of Fixed Assets for JEPCO and IDECO

4.1 Assumption for Rate of Return Calculations

4.2 Total Power Component - Rate of Return4.3 Power Distribution Component: JEPCO - Rate of Return

4.4 Total IDECO Component - Rate of Return

MAPS

IBRD 16106RIBRD 16299R

I

I. THE ENERGY SECTOR

A. Introduction

1.01 A review of the major issues facing Jordan's energy sector was

undertaken by the Bank in November 1981. A report, Jordan: Energy SectorStudy (ESS) 1/, summarizing the issues and recommendations was discussed withthe Government in October 1982. In March 1983, the National Planning Council(NPC) presented the recommendations of the ESS in a brief submitted to theCouncil of Ministers (CM), and requested authorization to seek Bank financingfor an energy development project to attract cofinancing and serve as anumbrella for the coordinated implementation of the recommendations of ESS. Inaddition, NPC requested, as was recommended in the ESS, permission to createan energy planning unit (EPU) in the Council to oversee implementation of theongoing and proposed energy planning work, and eventually formulate the longterm energy plan. CM approved both requests in April 1983. The proposedProject is designed with a view to ensuring that a consistent and coordinatedplan of action for 1983-1985 is initiated to implement the mnainrecommendations of the ESS.

B. Energy Resources

1.02 Overview. Jordan's presently known indigenous energy resourcesconsist of relatively large deposits of oil shale, some tar sands, a smallhydropower potential, and few geothermal sources of low surface temperatures.No commercially exploitable coal, lignite, uranium or oil and gas reserves areknown to exist. Moreover, with the exception of solar energy and possiblywind energy, Jordan's endowment of non-commercial and renewable energy ismodest.

1.03 Oil Shale. Oil shale deposits are presently known to exist atAl-Qatranah, El-Lajjun, and Al-Husseineyyah south of Amman, and in Mukhibahnear the Yarmouk River. So far, only the deposits at El-Lajjun have beengeologically investigated in some detail. The Government has contractedKlockner (a German firm) to undertake a prefeasibility study for determiningthe economic viability of extracting oil from the shale or burning the shaledirectly in specially designed power plants. Klockner's preliminary resultsfavored the extraction of oil and recommended a move to the second phaseinvolving more extensive geological and engineering work. The Government hasaccepted Klockner's recommendations and appointed a panel of internationalexperts to review the scope of the proposed work program and therecommendations to follow.

1.04 Oil and Gas. Jordan spans an area of approximately 97 thousandkm2 of which 75 thousand km2 is covered by sedimentary basins wherepetroleum reserves could be found. Past exploration work, by theinternational oil companies and the Natural Resources Authority (NRA), hasidentified several areas where oil and gas could be present. Of these, 4areas (IBRD Map No. 16106R) are of immediate interest for petroleumexploration. Since 1976, NRA has been implementing an exploration program to

1/ Report No. 4012-JO, February 1983.

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prepare the geological data needed to attract international oil firms toundertake exploration drilling in Jordan. However, not a single firmexpressed any interest in acquiring exploration permits. This disinterest hasbeen primarily due to the inadequacy of geological data and the reliance onfairly outdated techniques for processing it. The proposed Project wouldstrengthen NRA's capabilities in executing and processing the geological workneeded to: a) attract international firms to undertake exploration contractsin Jordan; and b) assist in the formulation and implementation of a systematicexploration drilling program (paras. 2.02 and 2.13 and Annex 2.1).

1.05 Hydropower. Jordan's hydropower potential is limited to about 30 MW(87 GWh per annum) of which 4 MW (12 GWh per anaum) is at King Talal Dam onthe River Zarqa, and 26 MW (75 GWh per annum) could be tapped if themultipurpose Maqarin Dam on the Yarmouk River is built. The potential at KingTalal will be exploited when the current plan to raise the height of the daman additional 15 meters is completed in 1984. As for the Maqarin Dam, itsconstruction would be subject to the conclusion of an agreement on riparianrights between Jordan and Syria.

1.06 Geothermal and Other Renewable Energy Resources. Geothermalresources exist in the form of hot springs at Al-Zarah and Zarqa Ma'in, about10 km from the northern end of the Dead Sea. The surface temperature is about45 deg. C. at Al-Zahra and 63 deg. C. at Zarqa Ma'in. The combined hourlydischarge of these springs into the Dead Sea is estimated to be about 2,000m3. USAID is currently financing a study conducted by the U.S. GeologicalSurvey for the assessment of these resources. The first phase of theassessment, covering the geophysical and geochemical characteristics, wasrecently completed. Presently, preparations are underway for the explorationdrilling phase of the assessment. In addition to geothermal energy, solarenergy constitutes Jordan's main renewable energy resource. However, to thisdate, the extent of this resource and its distribution is not adequatelyknown. Moreover, the ongoing and planned pilot and demonstration schemes areproceeding without the benefit of an overall plan. The Project would addressthese shortcomings by financing the establishment of a national solar and windresource measuring network, the formulation of a national plan for theexploitation of renewable energy, and the demonstration of solar technologieswith potential for commercial application in the foreseeable future (para. 2.02and Annex 2.1). Preliminary results, however, indicate that these resourcesare not suitable for the generation of electricity.

C. Institutional Setting of the Sector

1.07 Several entities are concerned with the operation and development ofJordan's energy sector. The planning, coordination, and policy formulationinvolves 3 bodies: the National Planning Council (NPC), the Ministry ofIndustry and Trade (MIT), and the National Energy Committee (NEC).The development of domestic sources of primary energy is entrusted to theNatural Resources Authority (NRA). The production and delivery of secondaryenergy are the responsibility of the Jordan Petroleum Refinery Company (JPRC),the Jordan Electricity Authority (JEA), the Jordanian Electric Power Company(JEPCO), and the Irbid District Electricity Company (IDECO). Energy researchinvolves the Royal Scientific Society (RSS) and the universities of Jordan andYarmouk.

-3-

1.08 NPC is an autonomous Government agency responsible for theformulation of long-term economic plans (paras. 1.27 and 1.47). NEC wasformed in 1977 to review and advise the Government on policies relating to thesupply and development of energy in Jordan. MIT is responsible for regulatingthe operations of the private and public enterprises in the energy sector. Italso plays a major role in formulating policies for the pricing of energy, andthe negotiation of concessional agreements with the private firms (JEPCO,IDECO and JPRC). In 1977, an energy department was established in MIT tofunction as a secretariat for NEC in preparing studies relating to energyconservation, planning, production and distribution. However, the department

has been unable to provide the support originally envisaged because ofshortages of human and financial resources. Moreover, NEC has provided verylittle guidance in initiating and implementing policies principally due to itslarge membership which hindered the efficiency of the decision-making process(para. 1.26). Consequently, the Government decided recently to streamline theprevailing structure by creating, in April 1983, a Steering Committee forEnergy (SCE) composed of only 7 members representing the power, petroleum, andrefining subsectors, RSS and MIT. SCE would set the guidelines and monitor

the operations of the newly created Energy Planning Unit (EPU) in NPC whichwould be staffed to function as the sole energy planning entity in the country(para. 1.27). The Project would cover the cost of consulting services,training and studies aimed at strengthening the energy planning capabilitiesof EPU (para. 2.17 and Annex 2.1).

1.09 NRA is a Government agency responsible for all activities relating tothe exploration and development of minerals, hydrocarbons and groundwater.The Petroleum Department (PD) at NRA oversees all oil-related activities inJordan, which, among other things, covers geological surveys, negotiationswith foreign firms of contracts for exploration, and more recently, theimplementation of a program for exploration drilling. The Department ofGeology at NRA supervises studies dealing with the development of oil shale.

The proposed Project would provide the foreign exchange needed to strengthenPD by covering the cost of expatriate advisers and the training of Jordaniansin recently developed techniques of petroleum exploration (paras. 2.02 and2.13 and Annex 2.1).

1.10 JPRC is a privately-owned firm in which the Government holds 12% ofthe total shares. It operates the only oil refinery in the country located35 km northeast of Amman. JPRC is responsible for refining crude oilpurchased by the Government, and the distribution and marketing of allpetroleum products in Jordan. JPRC's operations are regulated by MIT inaccordance with a concession agreement which ensures the company a fair returnon investment.

1.11 JEA is a financially and administratively autonomous Government owned

utility. It is responsible for the formulation of plans for the overalldevelopment of the power subsector, the construction of generation andtransmission facilities, the generation and transmission of virtually all thepublicly supplied electricity and the distribution of electricity in the areas

under its jurisdiction. In addition, JEA regulates JEPCO and IDECO, theutilities responsible for the distribution of about 90% of all the electricitysold at the medium and low voltage levels. JEPCO is a private company ownedby the public (77%), JEA (13%), and the municipalities (10%). It distributeselectricity in an area of about 2,000 km2 covering the city of Amman and itsenvirons. In 1982, JEPCO accounted for about 80%'of total electricity sold at

the medium and low voltage levels. IDECO is a semiprivate company owned byJEA (46.5%), the Municipalities of Irbid Governorate (42.5%), and by privateinvestors (11%). Its service covers a concessionary area encompassing theGovernorate of Irbid. IDECO's sales in 1982 amounted to about 10% of totalelectricity sold at the medium and low voltage levels.

1.12 Research in renewable energy is entrusted to RSS and the universitiesof Jordan and Yarmouk. RSS is well organised and its staff is of highcaliber. However, the Society's activities in t:he energy field need to bemore closely integrated with national objectives for the sector. The proposedProject would provide a blue print for integrating and coordinating theactivities of the Society with the ongoing and proposed investments for thecommercial exploitation of renewable energy (paras. 2.02 and 2.16 and Annex2.1).

D. Energy Balances

1.13 Supply of Commercial Energy: Jordan is totally dependent on importedenergy for its supply of commercial energy. Its imports are in the form ofcrude oil. At times, petroleum products are traded to complement therefinery's output or dispose of surpluses. As summarized in Table 1.1, theimport of crude oil from Saudi Arabia through the Tapline, which transports

crude to Lebanon via Jordan, increased at an average annual rate of 13.8%between 1976 and 1982, from 1.1 million toe in 1976 to 2.4 million toe in1982. Unless oil and gas are discovered as a result of the ongoing andplanned exploration program, and with the exception of the 2 thousand toe ofhydropower to come onstream in 1984 after the completion of the powercomponent at the King Talal Dam, Jordan would continue to depend on imported

energy for meeting its domestic demand for energy. The annual growth ofimports of crude oil and petroleum products are expected to decline to 12% forthe period 1982-1990 as shown in Table 1.1, from 2.4 million toe in 1983 toabout 5.8 million toe in 1990. The imports of petroleum products would be inthe form of middle distillates (diesel Oil and aviation fuel) and fuel oil.However, if the plan to build a new refinery at Aqaba is implemented, Jordanwould become a net exporter of petroleum products in the 1990's. AGovernment-financed feasibility study by a British firm (Williams Brothers) iscurrently underway to determine the least cost means for meeting the projecteddemand for petroleum products. In addition, the study would propose astrategy involving the optimal timing for investment in refining and theinfrastructure for handling crude oil and petroleum products (Annex 1.2).

1.14 Consumption and Losses in Energy Transformation: Conversion lossesin electricity generation and petroleum refining as well as distributionlosses have been on a declining trend in the past few years and are expectedto decline further, from about 16% of gross ener,gy supply in 1982 to about 13%in 1990. This decrease is primarily due to: (a) the improvement in theefficiency of the power subsector resulting from the commissioning of new andtherefore more efficient power plants near Zarqa (Hussein power station) andat Aqaba; (b) the reinforcement of the transmission and distribution networks;

and (c) the implementation of energy audits and retrofitting for which thefeasibility studies would be financed under the proposed Project (paras. 2.02and 2.15 and Annex 2.1).

Table 1.1

('00 t, Of oilpiuelut)

1976

Phiery Emu E3etrkity Petrole Prabct. 1179AA. i-

GrOs 91yply Cod. Oil LTC GeO0lire XK Fel. Die6el Fuel G A. ul Fuel Oil Ot-ero Tot61

l.oto 1,112 _ _ 1,112

TotW2 Avdilble 1,112 - - - - - - _ _ 1,112

Cuve-ooio

Petoole. Refiney 1,080 - 34 186 131 97 319 13 59 241 - 1,080 0Elertril Pce

G..t - 169 - - - - (90) - - (79) - (169) 0C_ersi_a l (32) (124) - - - - - - - - - - (156)Tr/0i.tr. 1-.o - (8) - - - - - _ _ _ _ _ (8)

9et &1ly Av.ilble - 37 34 166 131 97 229 13 59 162 - 911 948

8eusdwy 1Ets - - 8 3 - - - - 9 16 - - 36

Net OtircFCsutir - 37 26 183 131 97 229 13 50 146 - 872 912

CavIti- By lSv *

146try - 14 - - - - 20 13 - 137 - 170 184Tra.Pt - - - 183 - 97 186 - - 9 - 475 475H.-.olds - 12 26 - 131 - 20 - - - - 177 189Otherw 17 - - - - 3 - 50 - - 53 64

1982

-- Y E80U El-rtuioity Petrol PFh t. T1Avistio_

G 9 y Cre Oil 1 Colie Keooe Fuels Diesel Frel G6s A t Fel Oil Othbr Tot61

Iq.t. 2,425 - - - - - - - - - - - 2,425

ToWl Aeil1ble 2,425 - - - - - - - - - - - 2,425

C'-

Petrolo. ef'iy 2,357 - 66.6 301.5 169.9 295.7 674.5 25.6 114.5 702 6.7 2,357 0llertri_el PF

Omatim - 425 - - - - (53) - - (372) (425) 0Cuee.oeixLo..e. (68) (297) - - - - - _ _ _ _ _ (365)Tr .IDiutr. 1e - (21) - - - - - _ _ _ - - (21)

Net &qWly A-ilble - 107 66.6 315 169.9 295.7 621.5 25.6 114.5 330 6.7 1,932 2,039

Nt D-tir C-.-pti - 107 66.6 321.5 169.9 295.7 621.5 25.6 134.5 330 6.7 1,932 2,039

W_XIv Sertor

Ihmt ,y 39 - - - - 63 25.6 - 320 - 408.6 447.6Th-oet - - - 301.5 - 295.7 469 - - 10 6.7 1,08.9 I.0.9

Iboldt - 40 66.6 - 169.9 - 70 - - - - 3D6.5 346.5Otb - 28 - - - - 19.5 - 114.5 - - 134 162.0

1990

Priamy En H3dee Electri- Petol Prt. TOOLcity Avust'l

Q- S&Wly cnwG OU 1_0 G Colia. 4o Fuel. Dieel F1 G. A lt uel Oil Otk- TOcU

FPet= - 2 - 2l~t. 4,300 - - 10 40 - 300 620 - - 565 - 1,535 5,35

TOW. Adible 4,30D 2 - 10 40 - 303 620 - - 565 - 1,535 5,837

C- 0 -

FPoe hfimy 4,185 - - 142 690 202 365 1,260 SO 238 1,328 - 4,185 0Elelric l ,as

Cticn - (2) 955 - - - - (W) - - (865) - (953) 0Co.ou losm' (115) - (621) - - - - - - - - - - (736)TrauDiet.r.Lms - - (55) - - - - - - - - - - (55)

Net 8Wlypb Ail6ble - - 279 152 640 202 665 1,792 50 238 1,028 - 4,767 5,046

Net DOMio C-A.t txD - 279 152 6iO 202 665 1,792 50 238 1,028 - 4,767 5,046

1utry - - 116 - - - - 360 S0 - 992 - 1,422 1,538T r.A t _- - 640 - 665 1,163 - - 36 - 2,504 2,504

,old. - - 99 152 - 2D2 - 180 - - - - 534 633Otbm _ 64 - _ _ _ 69 - 238 - - 307 371

Nmv*w 1983(low)

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1.15 Consumption of Commercial Energy: Jordan's net consumption of energyincreased between 1976 and 1982 at an average annual rate of about 14.2%, from0.87 million toe in 1976 to 2 million toe in 1982. This rate of growth isexpected to decrease to about 12% between 1983 and 1985 and 10% between 1986and 1990. The deceleration in the growth of energy consumption between 1986and 1990 is expected to be primarily due to: (a) the improvement in the energyefficiency of the major energy intensive industries such as cement, powerplants, fertilizers, potash, iron and building materials; (b) the increaseduse of solar energy for passive greenhouses and the supply of low temperaturehot water for household, commercial and some industrial uses; and (c) theimprovement of the building codes to promote conservation in the private andinstitutional buildings. The studies needed to provide the inputs for theformulation of both a strategy for the restructuring of energy consumption andan investment plan for retrofitting and technical improvement in theindustrial processes would be financed under the proposed Project (paras. 2.02and 2.15 and Annex 2.1).

E. Energy Pricing

Petroleum Products

1.16 During the 1960's and early 1970's, Jordan's petroleum subsector wasa net contributor to the public revenues. However, following the increases inthe price of imported oil that started with the oil embargo of October 1973,the Government decided to buffer the economy from the adverse impact of higherenergy prices by raising the tax on gasoline and LPG (light distillates) tocover the cost of the subsidies extended to consuimers of diesel oil, fuel oil,kerosene and aviation fuel (middle and heavy distillates). Despite theincrease in the tax on light distillates, the revenues collected fell short ofcovering the rising cost of the subsidies because of the sustained increasesin the price of imported oil and the inadequate upward adjustments in thedomestic prices of middle and heavy distillates. The Government covered theseshortfalls which reached JD 22 million (US$65 million) in 1978. Faced withthe prospect of a sustained increase in the burden of the subsidies on thenational budget, the Government decided in 1979 to phase out the subsidies bygradually closing the gap between domestic and border prices. Since thendomestic prices were increased 6 times; in March and July of 1979, February of1980, February and November of 1981, and February of 1983.

1.17 As a result of the upward adjustments in the domestic prices ofpetroleum products since 1979, and the stagnation in the import price of oilfor most of 1982, the deficit (net subsidy) coveresd by the Government in 1982amounted to JD 16.5 million (US$46.3 million). In 1982, the domestic price ofthe reconstituted barrel was about US$33.2 compared with a cost of aboutUS$35.8. As i) the price of imported oil has remained at its March 1983 levelof U3S$31/barrel, and ii) so far the domestic prices of a reconstituted barrelis about US$36 in 1983, the petroleum sector is expected to be a netcontributor to the revenues of the Government. Based on a forecastconsumption of about 2.7 million tons, the net contribution of the subsectorto the fiscal resources would amount to JD 2.6 mi]Llion (US$7.6 million) in

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1983. Table 1.2 below shows the relationship between domestic and borderprices of petroleum products.

Table 1.2

Relationship of Domestic and Border Pricesfor Petroleum Products - April 1983

(US$/ ton)

Border Domestic Tax or Domestic PriceProduct Price Price (Subsidy) As % of Border Price

LPG 350 394 44 113Gasoline 310 683 373 220Jet Fuel 308 248 (60) 80Kerosene 310 230 (80) 74Gas oil/diesel 300 230 (86) 77Fuel oil 160 150 (10) 94Weighted Average 284 320 - 113

As of April 1983, the average domestic price for petroleum products was atabout 113% of border price; that is, US$320/ton compared to US$284/ton.

1.18 The subsidy for gas oil/diesel accrues mainly to the owners of thecommercial transport vehicles transporting goods and materials within Jordanand from the port of Aqaba to Lebanon, Iraq and Syria. The subsidy for jetfuel benefits the national airline, while the subsidy for fuel oil accrues toindustry and utilities such as JEA, the cement plant, the Zarqa refinery,etc. These subsidies are indirectly passed on to the consumers through therelatively lower prices paid for goods and services produced by the transport,industrial and agriculture sectors. On the other hand, the subsidy forkerosene accrues, directly to the consumers who use it for domestic purposes.The subsidies for gas oil/diesel, fuel oil and jet fuel are not justified onsocial or economic grounds. The optimal policy for pricing energy resourceswould dictate that domestic prices be set at levels that reflect their realcost to the economy in order to ensure their efficient use and mobilize themaximum revenues for the Government. Therefore, despite the commendableprogress made in reducing the burden of the subsidy on the national budget,the cross subsidization between petroleum products should be phased out overthe medium term plan. The recent decline in the price of imported oil and thelikely stagnation in the real rate of its increase until 1985 provides anopportunity for the Government to sustain its efforts in phasing out the crosssubsidy through upward adjustment in the prices of the subsidized product atrates lower than would otherwise have been required had the price of importedoil continued the upward trend experienced between 1979 and 1981.

1.19 Several studies and measures are either underway or planned whichwould provide the Government with the necessary input to formulate a moreconcrete and systematic plan for phasing out the subsidies. A transportationstudy has recently been completed which provided the Government with a measure

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of the impact of eliminating the subsidies for aviation fuel and diesel oil onthe economy. In addition, the Bank has recently appraised a transportationproject where one of the objectives is to double the freight transport

capacity of the rail system in order to reduce the use of diesel for thetransport of goods by trucking. Concurrently, t:he Bank is financing a study,as a part of the energy sector work program, to assess the impact of higherprices for diesel oil on the mode of transport and to set a strategy for theoptimal taxation of fuels used in the transport sector. The proposed Projectwould also finance several energy conservation and audit studies aimed atreducing the industrial and household consumption of energy. These studies,and the investments likely to follow from them, would cushion the economy fromthe full impact of higher energy prices resulting from the upward adjustmentsin the prices of the subsidized petroleum products. During negotiations,understanding has been reached with the Government that it would continue itsreview of domestic prices of petroleum products with the objective of phasingout the subsidies over the medium term (1984-1989) (para. 5.01).

Electricity Pricing

1.20 JEA sets the tariffs for sales to the bulk consumers (largeindustries, JEPCO and IDECO). The low voltage t:ariffs are set by JEA inconsultation with JEPCO and IDECO; however, the introduction of new tariffsrequire Government approval.

1.21 Bulk Tariffs: The bulk tariffs apply only to JEA's sales to thelarge industrial consumers, JEPCO and IDECO. These are based on a time of daystructure (peak and off-peak) with no seasonal variation.-They alsodifferentiate between consumers in the district of Irbid and those in theother districts. The peak tariff involves a monthly capacity charge of JD2.4/kW (US$6.7/kW) for all districts, and an energy charge of 17.5 fils/kWh(US 49 mills/kWh) for Irbid and 18.5 fils/kWh (IJS 52 mills/kWh) for the otherdistricts. The off-peak tariff involves an energy charge of 12.5 fils/kWh (US35 mills/kWh) for Irbid and 13.5 fils/kWh (US 37 mills/kWh) for the otherdistricts. In January 1983, the average economic cost of electricity (LRMC)for bulk sales was about 28 fils/kWh (US 75 milLs/kWh) compared to an averagerevenue for sales to JEPCO, IDECO and the large industrial consumers of about26 fils/kWh (US 72 mills/kWh).

1.22 Retail Tariffs: The tariff structure Eor electricity sales to thelow voltage consumers is identical for all three utilities (JEA, IDECO andJEPCO). It is based on a uniform block rate for each customer category,classified according to the end use of electricity (domestic, commercial,small industries, water pumping, etc.). However, the tariff level for eachcategory differs slightly among the three utilities to reflect the costincurred by each in providing elecl:ricity service. In April 1983, the averagetariff for sale to the low voltage consumer was about 35.6 fils/kWh (US 99.6mills/kWh) which was slightly above the average economic cost of supply (LRMC)of about 35.04 fils/kWh (US 98.3 mills/kWh).

1.23 Tariff Level: Tariffs were at levels ithat conveyed to consumers thecost to the economy of the resources used in meeting their electricity demand(LRMC), and high enough to allow JEA, JEPCO and IDECO to cover their operatingcosts and provide at least 25% internal contribution towards the cost of

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their development program between 1977 and 1980 (para. 3.06 and 3.15).However, the continued upward adjustment in the prices of fuels used by JEAfor power generation and the reluctance of the Government to allow the utilityto reflect the higher fuel costs in its tariff, reduced JEA's level ofinternal cash generation below 25% for 1981 and 1982. By contrast, the levelof internal cash generation for JEPCO was in excess of 30% for the same twoyears. IDECO's internal cash generation, however, was only 6% in this period,mainly because of its heavy up-front investment in rural electrification.Normally, in a totally thermal power system like Jordan's, if the averagetariff is at the LRMC, the internal cash generation of a utility should besufficient to cover its operating cost and provide an adequate level of selffinancing. However, in the case of JEA, the cost of implementing andoperating the Government's rural electrification program in the sparselypopulated areas is incurred by the utility. It is estimated that theeconomic cost incurred by JEA in supplying the rural consumers is about70 fils/kWh (202 mills/kWh) compared to a tariff of about 35.6 fils/kWh(99.6 mills/kWh) 1/, resulting in an economic loss of about JD 800 thousand(US$2.4 million) in 1982. Moreover, the supply of electricity for public

lighting is provided free of charge. In 1982, this consumer categoryaccounted for about 2% of total sales, representing a foregone revenue ofabout JD 1.5 million (US$4.2 million). In recognizing the impact on JEA'sfinancial position of the tariff freeze, the higher prices for fuel, thelosses incurred by JEA in serving the streetlighting free of charge and therural consumers, the Government compensated JEA for the cost of these servicesfor 1981 and 1982. This enabled the utility to meet the internal cashgeneration agreed with the Bank under earlier loans. However, similarcompensation has not been extended to JEPCO and IDECO which also incur similarlosses. Moreover, the present arrangements for Government compensation to JEAhave not been formally institutionalized, and there is a strong possibilitythat once JEA's financial position improves, the extent of the Government'scompensation for services provided by the utility would diminish or completelystop. The informal arrangement currently being followed for billing theGovernment hinders JEA's ability for sound financial planning because of theuncertainties relating to the extent of the compensation and dates for the

remittance of the sums involved. As in the case of JEA, JEPCO and IDECO alsoneed compensation to ensure their development as financially viable entities.This matter was discussed during negotiations and the Government informed theBank that, in order to address these shortcomings, new measures had beenestablished to compensate the power utilities for the services they providebelow cost (mainly rural electrification). First, a Rural ElectrificationFund, funded from specific and general tax revenue of at least 2 million JDeach for 1984 and 1985, and by amounts to be determined thereafter, has been

created and would provide soft loan and equity funds to the power utilitiesfor their rural electrification programs. Second, according to newregulations rural beneficiaries will contribute a lump sum towards investments

1/ Excludes 1 fils/-kWh rural electrification tax levied on all electricity

sales at the low voltage level. The revenues collected is used by theGovernment to partly finance the cost of the national ruralelectrification program.

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in their communities ranging from 5,000 JD to 15,000 JD per comtmnitydepending on population. In addition, the TORs of the Demand Management Studyof the proposed Project, which would formulate a comprehensive program forfuture energy pricing policies, would include the review of the Governmentcompensation to the power utilities.

1.24 The uniform block rates for the low voltage consumers areinconsistent with the Government's policy of encouraging conservation andrestraining the growth of demand for energy. There are indications that thelow voltage consumer's demand for electricity is relatively insensitive toincreasing tariffs primarily because the remittances from the Gulf and SaudiArabia accrue principally to the households rather than the Government. As aresult, the household's demand for electricity is determined by levels ofdisposable income that are higher than would otherwise prevail. Therefore, bymaintaining uniform block rates for sales to the low voltage consumers, theGovernment is foregoing revenues which the utilities could mobilize to financetheir development program. In addition, by introducing increasing block ratesin the structure of electricity tariffs, large domestic and small commercialconsumers could be induced to conserve electricity. The Government and JEAhave reviewed with the Bank, in October 1982, the results of a study by JEAfor the assessment of the effects on the resources mobilized by the powersubsector of introducing increasing block rates in the low voltage tariffstructure Currently, the Government: is in the process of reviewing JEA'sproposal for possible implementation in conjunction with the next tariffincrease. However, in order to ensure consistency with its declared policy ofadjusting domestic prices of energy to reflect their costs to the economy, thestudy for the formulation of demand management policy for energy would examinethe overall structure and level of electricity tariffs with a view tooutlining the steps needed to maintain parity with the economic cost of supply(LRMC) and ensure the achievement of the financial objectives for JEA andIDECO which were agreed upon with the Bank.

F. Energy Planning and Development Strategy

Energy Planning

1.25 Energy Sector Planning: Jordan has been successful in formulatinglong term plans for the development of the economy which achieved an averageannual rate of increase in real GDP of about 10% over the past decade.Recently, however, due to the constraints on the availability of foreignexchange stemming from a softening of the world market for oil and theconsequential decline in the level of remittances from Jordanians in SaudiArabia and the Gulf States, and the increasing bill for oil imports whichcontinues to absorb higher percentages of export earnings, the Govermnentturned its attention to the energy sector. Several studies concerned with theproduction and use of energy have been commissioned by NPC; however, thesewere dictated by immediate pressing needs rather than a long-term strategyaimed at providing the inputs that would result in a development plan for theenergy sector similar to the macroeconomic plans. As a result, to this date,Jordan does not have a national plan for energy that would outline a set ofconsistent policies for the development and management of the sector. Thereis a pressing need for Jordan to formulate a long-term plan for the

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development of the energy sector; outline consistent policies for energypricing, conservation and demand management; and strengthen its capabilitiesin project identification, preparation, and implementation. The proposedProject would address these shortcomings by strengthening NPC's planningcapabilities and finance studies needed to assist the Government informulating energy plans (para. 2.17 and Annex 2.1).

1.26 Institutional Setting for Energy Planning: Several entities andagencies are involved in the operation and management of Jordan's energysector. A feature of this setting is the lack of coordination and the largedifference in the technical and administrative capabilities of the entities.All the enterprises responsible for the production, transportation anddistribution of energy (JEA, JEPCO, JPRC, and to a lesser extent, IDECO) arefairly well staffed and capable of executing their responsibilities atstandards that are, for some, substantially higher than those generally foundin the area, and in most cases, comparable to those found in theindustrialized countries. By contrast, the agencies responsible for theoverall management of the sector, and the formulation and coordination ofplans, lack a clear direction, and are either overextended (NPC) orunderstaffed (NEC).

1.27 Until recently, NEC was, in essence, responsible for the formulationof overall policies in the energy sector. However, since the membership ofthe committee is made up of high ranking officials with other administrativeresponsibilities (ministers, directors of departments and corporate managers),its effectiveness as an energy planning body was constrained because of thelimited input provided by the Energy Department at MIT. Since its creation,the Energy Department has been unable to adequately execute itsresponsibilities because of lack of precise objectives, shortage of funds, andabove all, inexperience. The department experienced severe difficulties inattracting and retaining staff of the quality needed to ensure effectivesupport for NEC and adequate input in the formulation of energy policies. NPCis responsible for the coordination of sectoral plans, the selection ofprojects for the national development plans and the mobilization of foreignand domestic financing for these plans. However, its coordinating function isbasically an aggregation of plans for each energy subsector drawnindependently by the enterprise or agency responsible without assurance thatthe plans are part of an overall least cost strategy for the development ofthe sector. In sensing the need for a more systematic analysis of theinterrelationship between energy and economic growth, NPC has moved to fillthe existing gap in the institutional structure of the sector by commissioningseveral energy planning related studies. However, its staff has beenover-burdened because of the wide responsibilities covering all sectors of theeconomy; and as a result, the time devoted by the Council to energy planningwas fairly limited.

1.28 The main constraint to the Government's ability to formulate

comprehensive national energy plans has been the abundance of agencies in thesector among which the country's human, financial and administrative resourcesare dispersed. Consequently, the sector suffers from the absence of a nucleusof human and financial resources needed for undertaking energy planning. TheGovernment has recently become aware of the shortcomings of the institutionalstructure of the sector, and as a result, it created the SCE under the

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chairmanship of the president of NPU, with representatives from the varioussubsectors of the energy sector (para. 1.08). SCE has been given the mandateto set guidelines and monitor t'he operations of the newly created EPU at NPC.EPU has been entrusted with the solle responsibility for energy planning inJordan. This would cover the formuLation of long-term energy policy andplans, the integration of the subsectoral i.nvestment plans into a consistentnational inivestment plan, the idertifiLcation of priority projects and thesupervision of their implementation, The creation of SCE and EPU represents amajor step in the rationalization o:E energy planning in Jordan. The creationof EP.U has filled a major gap in the :nstitutional structure of the energysector. The next step would be to draw from the manpower presently availablein the various institutions in the sector cualified Jordanians who could betrained in energy planning. During negotiations the Government agreed i) toassign to EPU in at timely manner the staff required to enable EPU to performits administrative and technical funictions under the Project and ii) to set incon.sultation with the Bank the outline of training programs needed tostrengthen the capabilities of EPU's staff (para. 5.02). In addition, theGovernment informed the Bank that the selection process for EPU's manager hasstarted and his apppointment will take place by the end of 1983. Currently,NPC is compiling a list of the potential candidal:es who could be transferredfrom the other agencies in the sector, industry and the universities to staffEPUo

1.29 The Power Subsector: Planning in the power sector is substantiallybetter than the overall energy planning. Altho-ugh some weaknesses stillprevail, the subsector is in the processes of adcdressing them with theassistance of the Bank. Investment plans for generation and transmission areprepared by JEA assisted by expatriate consultant:s. In fact, the Bank hasquestioned the extent of JEA's deperdence on consultants during the appraisalof the third power project (Loan 1688-JO). Since! then, JEA has takencommendable steps in staffing its planning depart:ment and training its newlyrecruited staff. JEA's load forecasting capability has improvedsignificantly, and with the assistance of the International Atomic EnergyAgency (IAEA) and Bank financing under the proposed Project, a new forecastingmodel relating the macroeconomic indicators and the consumption of electricitywould be added to JEA's planning tools. Moreover, the Load Research andManagement Study financed under the proposed Project would outline a systemfor the establishment of data base for the Dower subsector to be used for loadforecasting, system planning, and tariff designs (Annex 2.1), The proposedProject would also provide the resources needed to train and install the WASPsystems planning model at JEA (Annex 2.1). Details of load forecast and theexisting and planned facilities in the power subsector are presented in Annex1.1.

Energy Development Strategy

1.30 Jordan is totally dependent on imported oil for meeting its needs ofcommercial energy. Following the 1973 oil crises, the burden of Jordan'simport bill for oil started rising asad by 1982 it absorbed 29% of its foreignexchange earnings compared with 10% in 1973. Past exploration work byinternational oil companies has been unsuccessful, and consequently all oftheir activities were terminated in L976. Efforts by the Government, asrecently as 1981, to attract foreign firms t:o undertake exploration followingtheir withdrawal from Jordan have also been unfruitful, mainly because of the

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poor quality of the geological packages offered, which failed to provideadequate technical support for the prospects. Despite the setbacksexperienced in attracting international oil firms to undertake explorationcontracts in Jordan, expert assessment of the country's petroleum geologyindicates that the prospects for the discovery of small oil reserves arefairly good. This encouraged the Government to initiate its currentexploration program, which includes seismic and drilling operations. Althoughtraces of oil have already been encountered, a more extensive geologicalanalysis, based on recently developed techniques, is required to provide thebasis for the implementation of a systematic exploration drilling program.

1.31 Solar energy is Jordan's principal energy resource; however, itscommercial utilization is well below what could optimally be achieved,primarily because of the absence of a policy for encouraging its use as asubstitute for petroleum products. Moreover, past research work on theexploitation of solar energy is proceeding in a piecemeal and uncoordinatedfashion, largely due to country's inability to mobilize technical andfinancial resources from bilateral and multinational agencies. As for thecommercial exploitation of solar energy, it is presently limited to waterheating supplied by locally manufactured equipment based on older technologyproduced without adequate attention to quality. Consequently, the marketpenetration of solar water heaters has been slower than in other countries inthe region. Solar passive systems and solar greenhouses are two othertechnologies that have important commercial and fuel displacement potentialfor Jordan; however, so far, these have not been properly demonstrated in thecountry.

1.32 Despite the favorable prospects for the discovery of oil and thepotential for increased utilization of solar energy as a substitute forpetroleum products and electricity, Jordan's only option for decreasing itsdependence on imported energy in the immediate future is to ensure that energyis supplied and consumed in the most efficient way possible. Jordan's energy

consumption per unit of GDP is one of the highest among the middle incomecountries and industrial market economies. In 1982, the energy consumptionper unit of GDP 1/ was 0.617 toe/l,000 GNP which was higher than the energyintensity of Japan (0.323/1,000 GNP), France (0.335/1,000 GDP), Italy(0.437/1,000 GDP) and Turkey (0.404/1,000 GDP). This high level of energyintensity is due primarily to the inefficiency with which energy is consumedby the industrial sector and the subsidized prices maintained by theGovernment for aviation fuel and diesel oil which encourages their uneconomicuse in the transport sector. In 1982, the transport sector absorbed about 50%of total energy consumption and the industrial and power sectors accounted foranother 38%.

1.33 The 1981-1985 program for the development of the urban and ruraldistribution program in areas served by JEA, JEPCO and IDECO was formulated in1980. The Bank has financed (Loan 1986-JO) a slice of that program inparallel with other commercial, bilateral and multinational organizations, andfinancial institutions. However, with the growth of demand at the currentlyprojected rate, it is expected that by 1985 or at the latest 1987, theexisting grid would reach its capacity limit, and unless the network is

1/ Expressed in real terms.

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reinforced, the level of technical losses would increase and the quality ofservice would deteriorate significantly. Furthermore, there has beenincreased import of small diesel power generators by the rural householdswithout access to public supply of electricity, thus raising the consumptionof diesel oil, which continues to be in short supply in Jordan because of thepresent configuration of the country's only refinery at Zarqa. Consequently,the Government has accelerated the program for rural electrification. JEA hassecured financing from the local market and bilateral aid agencies for thedevelopment of its distribution iietwork. By contrast, JEPCO and IDECOcontinue to experience shortages in their finances for the implementation oftheir rural and urban electrification programs. The distribution component ofthe Project would help close the gaps in the financing plans of the two powerdistribution utilities.

1.34 Recognizing the need for a systematic approach to the development ofenergy, the Government requested Bank assistance in identifying the majorissues facing the sector which were presented in ESS. The main issues andrecommendations outlined in the ESS are presented in Annex 1.2 which arereferred to as the energy plan of action for 1983-1985 (EPA). The EPAsummarizes the issues, recommendations, the agency financing the studiesinvolved, if any, and the status of all the actions required. When fullyimplemented, EPA would provide most, if not all, of the inputs needed for theformulation of strategies for: (a) oil and gas exploration; (b) theexploitation of oil shale; (c) the increased commercial use of solar and windenergy; (d) the optimal utilization of geothermal resources; (e) thedevelopment of infrastructure for refining the i-uture supply of crude oil andtransporting and handling petroleum products; (f) the reduction of losses inthe transformation and delivery of primary to secondary energy in both thepetroleum and power subsectors; (g) conservation in the overall consumption of

energy, particularly by the industrial, transport, residential and commercialsectors; and (h) the improvement of energy demanid management through pricingand fiscal measures. In addition, Jordan's energy planning capabilities wouldbe strengthened through the creation of a comprehensive and detailed energydata base, the installation and integration of several energy planning models,and the establishment of an energy planning unit: with staff trained in the

most recent techniques of investment planning, project preparation andappraisal, and macroeconomic policy formulation.

G. Beneficiaries and Implementing Agencies

The Jordanian Electric Power Company (JEPCO)

1.35 JEPCO's operations are regulated in accordance with a 50-year

concession agreement granted in 1962. The company's management is dictated bythe Articles of Association (1978) which regulate all matters relating tocapital formation, responsibility of shareholders, issue and sale of shares,procedures of the General Assembly, election and activities of the Board ofDirectors, distribution of profits, auditing, etc. JEPCO's Board of Directorsis composed of 11 members; 2 are nominated by the Government, and the other 9are elected by the General Assembly.

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1.36 JEPCO is well organized and its staff is, on the whole, wellqualified. However, its main organizational weakness is in the area offinance. In order to address this gap, the Bank financed, under the fourthpower project (Loan 1986-JO), a financial management study, byGilbert Commonwealth Engineers and Consultants (GCEC), a US firm, aimed atidentifying the major issues and outlining a strategy for addressing them

(organization, staffing, training, financial control, etc.). The preliminaryrecommendations of the study have been reviewed with the Bank in May 1983.The study would be completed by the end of 1983. After finalizing the study,in consultation with the Bank, JEPCO would invite proposals by consultants for

the implementation of GCEC's main recommendations. The proposed Project wouldensure, through amendments to the TORs, of ongoing and proposed studies forJEA, JEPCO and IDECO, that a system for measuring and monitoring the technicaland financial efficiency of the 3 utilities is designed and implemented. Thissystem would include: (a) the development of meaningful means for themeasurement of performance; (b) the development of a data base for the powersubsector and the storage, retrieval and supply of data; (c) the establishmentof performance criteria; and (d) the outline of guidelines for reporting and

evaluating performances (Annex 2.1).

1.37 At the end of 1982, JEPCO had 1,470 employees, of which 983 were inoperations. Although JEPCO's staff salaries are somewhat higher than JEA's,JEA has managed to attract and retain engineers because of technicallychallenging nature of generation and transmission planning and operations.Consequently, to attract and retain its qualified staff, JEPCO has introduced,in addition to regular salaries and wages, 13th and 14th month salaries,accommodation allowances, discount for electricity consumption and otherincentives.

1.38 JEPCO's training programs are carried out with the assistance of theJordanian Vocational Training Corporation. About 220 students have beenselected to be trained with various technical teams in the company for aperiod of three years. In addition 10 students, sponsored by JEPCO andattending courses at engineering colleges, are being trained in the technical

and administrative departments of the company. In 1982, 10 engineers weresent to the UK, USA and France to attend training courses.

The Irbid District Electricity Company Limited (IDECO)

1.39 Similar to JEPCO, the operations of IDECO are regulated in accordancewith a 50-year concession agreement granted by the Government in 1961. Themanagement of the company is outlined in the General Agreement (1978) whichcovers capital acquisition and disposal, treatment of profit, distribution ofearnings, auditing, etc. IDECO's Board of Directors is composed of 11members, 6 are nominated by the Government, 2 by municipalities, and theother 3 are elected by the General Assembly.

1.40 Although IDECO's operations are reasonably well managed considering

its size and remoteness, some improvements are still needed in itsorganization and management, particularly in finance. IDECO has retained theservices of the Government-owned Jordan Institute for Administration to adviseit on management, manpower planning, and accounting. On the technical side,IDECO receives staff support from JEA in the areas of planning and network

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operation. In addition, the company has retained the services of Preece,Cardew and Rider (PCR), a UK firm, to assist in the implementation of its

development program. The Bank has reviewed the guidelines for JEA's technicalsupport and the TOR for PCR and found them satisfactory. In the financialarea, however, there are still major weaknesses which should be addressed.Therefore, similar to the steps tak:en in dealing with JEPCO's weaknesses inthe financial area, IDECO should undertake a study to outline a strategy forstrengthening its capabilities in the area of finance as well as performancemeasurement (para. 1.36). The prop,osed Project would finance a study to beundertaken in accordance with TOR acceptable to the Bank by not later thanJune 30, 1984 (para. 3.18).

1.41 At the end of 1982, IDECO had 604 employees, of which 277 were

technical staff. Although IDECO staff salaries are somewhat lower than JEA's,it has been able to attract a fair number of qualified staff because the costof living in Irbid is lower than Amman's. In acddition to regular salaries andwages, IDECO has also introduced lth and 14th month salaries, discount forelectricity consumption and other incentives in order to retain itsprofessional and skilled labor staff.

1.42 IDECO's training programs have been carried out in the trainingcentres at Yarmuk University. About 80 students have been selected to betrained with various technical teams in the company for a period of threeyears. In addition 20 students attending courses at engineering colleges, arebeing trained during the summer vacations in the technical and administrativedepartments of the company. In 1981-1982 four engineers and one accountantwere sent to the U.K. to attend training courses. Also IDECO includes in itsproject contracts a provision to train its staff. Although the previoustraining of IDECO's staff has been satisfactory, continuing efforts are neededto intensify IDECO's training programs covering all basic training needs.

Natural Resources Authority (NRA) and Royal Scientific Society (RSS)

1.43 NRA is discussed in para. 1.09. RSS is the only applied researchagency in Jordan. It was established in 1970 through a Royal Decree with the

mandate to promote research aimed at the industrial, economic and socialdevelopment of the country. The Society provides direct consulting servicesto Jordanian industries and makes available its facilities to interestedindustrial concerns in the country. Finally, the Society also providesassistance to the Government in its planning operations and in designingscientific curricula for academic institutions. Since its creation, theSociety has worked toward attaining this goal. RSS uses a mission-orientedapproach in its projects and tries to develop products which, in principle,could lead to commercialization. However, despite important strides that RSShas made, there still exists room for impr3vemerLt. The Society is cognizantof this fact and is trying to rectify it.

1.44 RSS has qualified manpower and adequate support facilities. It has atotal of 430 employees out of which 188 are professionals, and the rest aresupport staff. Among the professionals, nearly 50% have post graduate degreesand diplomas mostly from universities in USA and. Europe. Generally speaking,the technical quality of RSS staff is fairly high. Also the supportfacilities (especially the computer, workshop and testing facilities) areexceptionally good.

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1.45 The policy of RSS is formulated by a Board of Trustees chaired by the

Crown Prince. The Society is headed by a Director General, who administersthe organization through a number of directorates (viz. mechanicalengineering, economics, industrial chemistry, computer science, education,economics, buildings research, electrical services and general administration)each headed by a director. Some larger directorates are further divided intodepartments. Of particular interest is the mechanical engineeringdirectorate, which includes solar energy as one of its major departments. The

department has a staff of 20 which includes 15 professionals, with 11 havingpost graduate degrees. The department has undertaken R&D work in solar andwind energy for about a decade. Their major success has been in spinning offthe solar water heating industry in Jordan, which despite some weaknesses tobe addressed under the proposed Project, has attained some modest degree ofsuccess. In general, however, the department needs to sharpen its focustoward commercialization. In order to achieve this objective, the solarenergy department should strengthen its staff and its experimental

facilities. The proposed Project would cover the cost of demonstration andpilot schemes, studies and training which would improve and update the skillsof staff in the department of solar energy.

1.46 RSS draws most of its budget through grants from the Government. Therest of its funds are in the form of grants from the bilateral andmultilateral agencies. In addition, the Society generates a small fraction ofits budget through contract research. RSS is attempting to expand its revenuegenerating role in order to reduce its reliance on grants. Judging by theprogress made during the last few years, the prospects of attaining this goalappear to be reasonable.

National Planning Council (NPC)

1.47 NPC is a well organized autonomous government agency. Its staff is

of high caliber and its management is largely credited with the achievement inthe formulation of development plans and the mobilization of externalresources for their implementation. The council has a free hand in itsoperation and its president, who is appointed by the Government, maintains

control over the general policies and guidelines but delegates all decisionsrelating to the daily operations of the council to his deputies and linemanagers. NPC has been able to attract and retain qualified Jordanians mainlybecause of the technical caliber of the work, and the salaries andcompensation schemes which are higher than those of the civil service. Thecouncil has also been effective in recruiting internationally reputable

consultants to undertake specific studies which its staff were unable toundertake either because of the workload or lack of experience. Although

NPC's staff is adequately trained in general macroeconomic planning, the newlycreated EPU would need to be staffed and its capabilities matched with thoseof the macroeconomic planning unit. Moreover, the operations of the unit andthose of the macroeconomic unit would need to be coordinated to ensureconsistency and to avoid duplication. The Bank would assist in drafting theprofessional profiles for the staff to be recruited for EPU, and the proposedProject would cover the cost of advisers, training and equipment needed toensure that the unit ultimately develops into a highly qualified energyplanning body (para. 2.17 and Annex 2.1).

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H. Role of IDA/Bank

1.48 The World Bank Group has been involved in 5 operations in the powersubsector. The first 2 of these operations were in the form of credits madeto the Government to support its efforts in initiating the first stages forthe development of generation. Credit 386-JO (1973) financed US$10 million,together with an equal amount from the Kuwait Fund, the foreign exchange costof 2x33-MW steam power units and lx13 MW gas turbine at the Hussein powerstation. These have been completed and are currently operatingsatisfactorily. IDA Credit 570-JO (1975) for US$5 millions wlith cofinancingfrom the Arab Fund (US$13.4 million), covered the foreign exchange cost of athird 33 MW unit at the Hussein power station, the reconditioning of the Marqadiesel power station, and a study for the formulation of a plan for thedevelopment of the transmission and distribution grids in the southernregion. The steam unit and the reconditioned Marqa diesel station were putinto commercial operation in 1974. TChe combined 'project completion report forthe two Credits (June 1982) states that the projects, in fulfilling theirroles, have exceeded the expectations of the appraisal. Loan 1688-JO (1979)for US$15 million financed the development of the national transmissionnetwork and the extension of public supply of electricity of 33 villages inthe areas served by JEA. The Project has been completed and the correspondingcompletion report is being prepared. Loan 1986-JO (1981) for US$25 million,which covered parts of the development programs of JEA and JEPCO for theperiod 1981-1984, is progressing satisfactorily. Loan 2162-JO (1982) forUS$35 million, with cofinancing from a number of bilateral and multilateralinstitutions, covered the foreign exchange cost of- a 2x130 MW thermal powerstation at Aqaba with a total cost of about US$300 million. Theimplementation of the Project is proceeding in accordance with the timetableoutlined in the appraisal report.

1.49 The Bank Group lending operations have been instrumental in fosteringthe development of JEA into a fairly mature utility. These operations havealso played a catalytic role in attracting financial resources from a number

of bilateral and multilateral financial institutions. The Bank has alsoundertaken a comprehensive review of the main energy sector issues summarizedin the ESS. The report has been successful in initiating extensivediscussions within the Government and with the bilateral and multilateral aidagencies, and in coordinating all activities relating to the development ofthe sector. The proposed Project would enable the Bank to continue itsefforts towards achieving the institution-building objectives identified. Itwould assist the Government in mobilizing the external resources andintegrating all activities in the sector into a plan of action for 1983-1985aimed at providing all the necessary inputs for the formulation of a long-termplan for the development of energy.

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II. THE PROJECT

Project Objectives

2.01 The main objectives of the proposed Project are:

(a) to initiate or continue the implementation of some major investmentsthat would contribute to the improvement of Jordan's overall energyefficiency;

(b) to attract cofinancing and serve as an umbrella whereby all theinvolvement of the bilateral and multinational organizations iscoordinated and integrated into a consistent plan of action for thedevelopment of energy; and

(c) to ensure that the critical elements (data, models, training, pilot

projects, prefeasibility investment studies, etc.) needed for theformulation of a comprehensive long term energy plan would beavailable by 1985.

Project Description

2.02 The proposed Project is designed to ensure that the involvement ofthe aid donors, international organizations and the Bank in the implementationof the EPA is coordinated into a set of complementary or sequential taskswhich would provide the elements needed for the formulation of the envisagedlong-term plan for energy. It would involve 5 components: PetroleumExploration; Power Distribution; Energy Conservation; Renewable Energy; andEnergy Planning. Details are presented in Annex 2.1 and are summarized below.

A. Petroleum Exploration Component:

(i) Equipment and material for micropalaeontology, palynologypetrography, geochemistry and well testing;

(ii) Consulting services for petroleum geology, drilling andproduction, seismic interpretation, seismostratigraphy;

(iii) Training of NRA's staff abroad in recently developedtechniques in petroleum exploration and production; and

(iv) Advanced processing of seismic data.

B. Power Distribution Component:

(i) Expansion and rehabilitation of the urban distribution

networks in JEPCO's and IDECO's concession areas andelectrification of about 75 villages, involving about 100km of 33-kV and 11-kV underground cables, 445 km of 33-kYand 11-kV overhead lines, 915 km of low voltage lines, 8power transformers of total capacity of 50 MVA, anddistributiQn transformers with a total capacity of 74 MVA;and

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(ii) Consulting services to assist JEPCO in the preparation ofdetailed engineering design, preparation of biddingdocuments, evaluation of tenders, and supervision ofconstruction and erection; and assist IDECO in theformulation of a strategy for strengthening itscapabilities in Einancial planning and control.

C. Energy Conservation Comzonent:

(i) Equipment for analytical laboratories and fieldmeasurements for the determination of the energyefficiency of boilers, heat exchangers, turbines,electrical motors, etc.;

(ii) Consulting services for undertaking detailed energy auditsand project preparation in selected major industries withpotential for energy saving. These would include therefinery, power plants, phosphate mining and transport,potash, fertilizer plants, ceramics, cement and steelworks; and

(iii) Training abroad iJor short periods, ranging between 2 and 4

months, for the staff of EPU in identifying and preparingprojects for the improvement of energy efficiency, and thetraining of energy conservation officers from the mainindustries. In addition, the component provides for 18months of advisory services to EPU.

D. Renewable Energy Component:

(i) Equipment: solar and wind resource measuring instrumentsfor about 10 locations in the country; 8 solar waterheating demonstration systems, solar collectors, andexperimental set-up to test solar water heating systems;energy conserving materials (insulation, reflectivecoating, etc.); and instrument:ation required to test 4solar passive homes and 3 commlercial size greenhouses;

(ii) Consulting services to undertake studies (potentialassessment study, solar water heating study, solar pondstudy and solar passive systen); and provide design,installation, data analysis arLd supervision support on thepilot and demonstration schemes (solar greenhouses, solarpassive houses and solar water heating test facility); and

(iii) Training for RSS staff ranging; in periods of about 4-12weeks in the form of workshops and visits to commercialestablishments in an industrialized country. The trainingwould emphasize commercialization of renewabletechnologies.

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E. Energy Planning Component:

(i) Equipment: Software and hardware for the energy planning

unit at the National Planning Council;

(ii) Consulting services for detailed studies in energyplanning, demand management, pricing, etc., and 2 advisersto assist EPU for a period of 24 months;

(iii) Training in Jordan and in institutions outside for periodsranging between 2 and 4 months in project appraisal andpreparation, investment planning, project implementation,energy pricing conservation, demand management andmacroeconomic policy formulation.

Project Cost

2.03 The total cost of the proposed Project, including physical and pricecontingencies, is about JD 23.9 million (US$67.0 million) of which JD 16.2million (US$45.3 million) is in foreign exchange. Details of the Project costare given in Annexes 2.2 through 2.8 and summarized below. The front-end feewould be paid by the Government and therefore has not been included. TheProject estimates are based on mid-1983 prices derived on the basis of:a) detailed data provided by the consultants (distribution component);b) information available on the cost of specialized consultants and trainingprograms involved in similar tasks in other Bank financed projects (petroleumexploration, conservation, energy planning and renewable energy), andc) quotations received for the delivery in June 1983 of equipment and materialsimilar to those included in other Bank-financed projects. The pricecontingencies for the local costs are 8% per year for 1983 through 1986. Theprice contingencies for the foreign exchange cost of the Project are 8% for1983, 7.5% for 1984, 7% for 1985 and 6.0% for 1986. The Project costestimates include physical contingencies for the power distribution componentof 5% because of the nature of the component which is repetitive and requiresstandard equipment designs, and the fact that minor variations in the physicalextent of the component would not affect its success. No physicalcontingencies were assumed for the other 4 components because these wouldprimarily involve consulting services and studies, and relatively smallamounts for highly specialized equipment. No tax or import duties would bepaid on the equipment and material financed under the proposed Project.

Project Financing

2.04 The proposed Bank loan of US$30 million would finance about 45X ofthe overall cost of the Project of US$67 million. The remaining US$37 millionwould be financed by the Government, the beneficiaries, customercontributions, bilateral and multilateral aid agencies, and UNDP. Theproposed loan would cover about 66% of the foreign exchange cost of theProject of US$45.3 million, and the remaining US$15.3 million would befinanced by JEPCO and IDECO, Aid agencies, UNDP, and other sources to beidentified by JEPCO. Details of the financing plan are summarized below:

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US$ MillionFNA<ILW, PLAN lTlAL PICI'T CO.Q1

Local Foreign _L_ Local Forirgn TotalGovern- Benefi-nent caries Bank IDOC4O JEPCO EEC Italian USAID UNDP

Petroleun Explor. 1.00 - 5.00 - - - 0 - - 1,0 5. 00 6.00Power Distribution

- JEPCO - 10.50 13.50 - 3.50 - - - 10.50 17.00 27.50- IDECO - 7.97 8.00 9.03 - - - - - 7.97 17.03 25.00

ErY!gy Consarvation 0.40 - 3.00 - - - 0.20 - 0.40 3.20 3.60RelleWable EorW- 0.70 - 0.25 - - - 0.85 0.60 -- 0.70 1.70 2.40Erergy I'larning 1.10 - 0.25 - - 0.50 - 0.40 0.25 1.10 1.40 2.50

Total 3.20 18.47 30.00 9.03 3o50 0. 50 0.85 1.20 0.25 21.67 45.33 67.09

The proposed Bank loan would finance 100% of the foreign exchange cost of the

petroleum exploration component (IJS$5.0 million) and the local cost would becovered by NRA. The local cost of1 the power distribution component would becovered by customer contributions, JEPCO and IDECO (US$18.47 million). Theforeign exchange cost of the power distribution component would be financed asfollows: (i) IDECO's share of about US$17.03 million would be covered by:the proposed Bank loan of US$8.00 million, material and equipment alreadyavailable in the utility's warehouses amounting to US$7.3 million, andinternal cash for the remaining US$1.73 million which represent the indirectforeign exchange for installation and erection,: (ii) JEPCO's share of aboutUS$17 million would be financed by: the proposed Bank loan of US$13.5million, commercial loans to be secured to cover the cost of the switchgearsamounting to US$1.85 million, and internal cash for the remaining US$1.65million representing the indirect foreign exchange for installation anderection. The proposed loan woulc cover about 94% (US$3.0 million) of theforeign exchange cost of the energy conservation component and the remaining6% (US$0.2 million) would be financed by USAID. The local cost (US$0.4million) of this component would be covered by the Government. The proposedloan would finance about 15% (US$C.25 million) of the foreign exchange cost ofthe renewable energy component and the rest, US$1.45 million equivalent wouldbe covered by USAID and the Italian bilateral aid agency. RSS would cover thelocal costs from its own resources. The proposed Bank loan would finance

about 18% (US$0.25 million) of the foreign exchange cost of the energyplanning component and the balance, amounting to US$1.15 million (82%), wouldbe covered by USAID, EEC and UNDP. The foreign exchange risks and any costoverrun would be borne by JEPCO and IDECO for the distribution component ofthe proposed Project. The Governnment would bear these risks for the other 4components. The financing plan for the proposed Project which involves thebeneficiaries (JEPCO and IDECO), and several bilateral and multinational aidagencies has been reviewed during negotiations and the Government agreed tofund the components for which the expected contributions do not materialize byDecember 31, 1984.

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Total Project Cost Estimate

JD Million USt MillionLocal Foreign Total Local Foreign Total

1. Petroleum Exploration CcnponentBase Cost 0.32 1.67 1.99 0.90 4.70 5.60Physical Contingencies - - - - - -

Price Contingencies 0.03 0.11 0.14 0.10 0.30 0.40Total Cost 0.35 1.78 2.13 1.00 5.00 6.00

2. Power Distribution ComponentJEPODBase Cost 2.97 4.73 7.70 8.37 13.32 21.69Physical Contingencies 0.14 0.21 0.35 0.39 0.63 1.02Price Contingencies 0.62 1.08 1.70 1.74 3.05 4.79

Total Cost 3.73 6.02 9.75 10.50 17.00 27.50

Base Cost 2.12 4.98 7.10 5.95 14.04 19.99Physical Contingencies 0.10 0.25 0.35 0.37 0.56 0.93Price Contingencies 0.60 0.88 1.48 1.65 2.43 4.08

Total Cost 2.82 6.11 8.93 7.97 17.03 25.00

Total Power Distribution 5.67 10.71 16.38 15.97 30.03 46.00

3. Conservation CcmponentBase Cost 0.13 1.05 1.18 0.36 2.94 3.30Physical Contingencies - - - - - -Price Contingencies 0.02 0.10 0.12 0.04 0.26 0.30

Total Cost 0.15 1.15 1.30 0.40 3.20 3.60

4. Renewable Energy CciponentBase Cost 0.22 0.53 0.75 0.62 1.51 2.13Physical Contingencies - - - - - -Price Contingencies 0.03 0.07 0.10 0.08 0.19 0.27

Total Cost 0.25 0.60 0.85 0.70 1.70 2.40

5. Energy Planning ComponentBase Cost 0.34 0.45 0.79 0.95 1.24 2.19Physical Contingencies - - - - - -Price Contingencies 0.06 0.04 0.10 0.15 0.16 0.31

Total Cost 0.40 0.49 0.89 1.10 1.40 2.50

6. TOTAL PPDJECTBase Cost 6.14 13.41 19.55 17.19 37.73 54.92Physical Contingencies 0.24 0.46 0.70 0.76 1.21 1.97Price Contingencies 1.32 2.28 3.60 3.72 6.39 10.11

TOTAL PRDJECT COST 7.70 16.15 23.85 21.67 45.33 67.00

7. Interest During Constructionand Front-End FeeInterest During Construction - 0.35 0.35 - 1.00 1.00Front-End Fee on Bank Loan - 0.03 0.03 - 0.08 0.08

TUIAL FINANIN REQIRD 7.70 16.53 24.23 21.67 46.41 68.08

Novenber 1983(1085P)

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Lending Arrangement

2.05 The proposed Bank loan wzuld be made to the Government. The portionof the loan covering the power distribution component would be onlent by theGovernment to IDECO (US$8.0 milliDn) and JEPCO (US$13.5 million) at the sameterms as the Bank loan. This is reasonable in view of the fact that the twoutilities have been able to secure loans for their development programs atinterest rates which are substantially lower than the onlending rate proposedfor Bank loan. Execution of subsidiary ]oan agreements between Government andJEPC0 and IDECO will be a condition of loan effectiveness (para. 5.09). Theshares of the loan (US$8.5 million) relating to petroleum exploration, energyconservation, renewable energy and energy planning will be disbursed out ofthe annual budgetary allocations of NPCo With regard to the share of the loan(US$3 million) covering the energy conservation component, it has been agreedduring negotiations that, when a 3tudy for an industry concludes that anadequate return is likely to resuLt from undertaking investments in certainenergy conservation measures, the corresponding cost will be passed on to thebeneficiaries on terms to be agreed with the Bank.

Accounts and Audits

2.06 The accounts of JEPCO and IDECO are satisfactory. As agreed under7oan 1986-JO, JEPCO's accounts are audited by independent auditors and theirpast performance has been satisfactory. Under the proposed Project the auditcovenant for JEPCO will be repeated (paras. 3415 and 5.07). IDECO is a newborrower and agreement has been reached on the appointment of independentauditors and the submission of audit reports (para. 3.29). The PetroleumExploration Component would be executed by NRA. Therefore, in order tomonitor the financial management and control oE the exploration component, theGovernment and NRA agreed during negotiations to keeping separate accounts forNRA's share of the proposed loan; and to appointing independent auditorsacceptable to the Bank and to submitting yearly audit reports for Bank'sreview and comment 6 months after the close of each year (para. 5.03). Theother 3 components, namely energy conservation, renewable energy and energyplanning would be managed by NPC, and therefore, in order for the council tomonitor the allocation of the loan proceeds to these components and the taskswithin each, the Government and NPC agreed during negotiations to keepseparate accounts for the energy conservation, renewable energy and energyplanning components, to appoint independent auditors acceptable to the Bankand to submit yearly audit reports for Bank review and comments 6 months afterthe beginning of each year (para. 5.04).

Engineering and Consulting Services

2.07 Petroleum Exploration: Implementation of the Petroleum Exploration

component would require about 206 man-months of consulting services amountingto about US$3.1 million, based on an estimated cost of US$15,000/man-month.This would involve: a) eight expatriate advisers for a period of 12-18 monthseach to assist the staff of NRA in prospect mapping, log interpretation, welldrilling, seismic and stratigraphic interpretat:ion and in establishing acomputer based accounting system for exploration costs and materiml(108 man-months); (b) specialized consulting services to be provided byinternationally reputable firms to support the ongoing work (62 man-months);(c) periodic consulting services to assist and advise NRA in seismicacquisition and seismic stratigraphy and processing. These services

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will be needed for 3-4 periods of 8 weeks (12 man-months); and(d) miscellaneous consulting services as may be needed by NRA(24 man-months). The TORs for the advisers and consultants under (a) and (b)have been agreed upon. The TORs for the services under (c) will be drafted

depending on the needs and the interim results of the ongoing work.

2.08 Power Distribution: Only the electricity distribution component of

the Project required consulting services prior to appraisal. These servicesinvolved preliminary and detailed design of the network, the specification ofequipment and estimation of costs which were prepared by Kennedy and Donkin(K&D) and Preece, Cardew and Rider (PCR), both UK firms, for JEPCO and IDECOrespectively. The cost of K&D's services were financed by the Bank from theprovisions made for the preparation of new projects under Loan 1986-JO. IDECOcovered the cost of the services provided by PCR from its own resources. Theservices of K&D and PCR would be retained by the distribution companies toassist in the implementation of the Project. In the case of JEPCO, theProject would finance the engineering services of K&D for assistance in the

evaluation of bids and supervision of construction. This would require about92 man-months of consulting services at an estimated total cost of aboutUS$1.11 million, based on a cost of US$12,000/man-month. IDECO is currentlyretaining PCR as consultants to provide assistance in the development of thedistribution network between 1983 and 1986. It is estimated that IDECO wouldrequire 100 man-months of consulting services to implement the proposedProject at an estimated cost of about 1.2 million, based onUS$12,000/man-month. The cost of these services would be financed by IDECO.In order to ensure that Project execution would proceed in accordance with theprojected implementation schedule, IDECO will employ consultants whosequalifications and experience are satisfactory to the Bank (para. 5.08).

2.09 Energy Conservation: Implementation of the energy conservationcomponent would require about 245 man-months of consulting and advisoryservices at an estimated total cost of about US$3.0 million of which aboutUS$2.6 million would be in foreign exchange. About 169 man-months would beprovided by foreign experts at an average cost of 15,000/man-month. Of the

245 man-months (a) 218 man-months, including 146 man-months provided byforeign experts, would involve the preparation of detailed energy audits,engineering designs and bidding documents, for the 10 largest energy consumingplants; (b) 18 man-months of foreign advisory services would be provided by anenergy conservation adviser to train and assist the newly recruited staff atEPU and the staff of selected industrial companies in the identification ofpotential conservation projects in the medium and small scale industries, andthe implementation of an industrial conservation strategy; (c) an additional 9man-months, including 5 man-months of foreign experts, would be required todraft an industrial energy conservation manuals for use by the industries tobe audited under the Project. The breakdown of the consulting servicesrequired for each plant is summarized in Annex 2.9.

2.10 Renewable Energy; Implementation of the renewable energy component,comprising 10 tasks, would require 87 man-months of consulting services at an

estimated cost of US$870,000, based on a cost of US$10,000/ man-month . Ofthese, 53 man-months of consulting services would be needed to complete thefollowing studies: potential assessment (12 man-months), solar water heating(19 man-months), solar pond (11 man-months), solar passive (12 man-months).The execution of the tasks involving demonstration and pilot schemes andmeasurement facilities would require about 34 man-months of consulting

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services for the selection of sites, specification of equipment, systemsdesign and training of local counterparts at RSSo

2.11 Energ Planning; Implementation of the energy planning componentwould require about 168 man-months of consulting services at an estimated costof about US$2.3 million, based on a cost of US$14,000/man-month. Theseservices would cover: (i) the load research and management study (39man-months) to assist in identifying a strategy for the efficient supply andconsumption of electricity throughout the power subsector; (ii) theconstruction of an energy data base and a system for the collection, storageand retrieval of energy data (38 man-months) for use in energy planning and inmonitoring overall and sectoral consumption of energy; (iii) a study todetermine the economic feasibility of converting simple cycle gas turbines tocombined cycle (5 man-months); (iv) the formulation of a policy for demandmanagement involving energy pricing policy, fiscal incentives and measures forthe inducement conservation, retrofitting, insulation, etc. (6 man-months);(v) the addition and integration of the WASP power system planning model andthe model for the forecast of demand for energy in the planning tools of EPUand JEA (5 man-months); (vi) 2 resident advisers in energy economics andenergy planning to advise and assist the staff of EPU in identification andevaluation of projects, investment planning, formulation of energy policy andintegration of macroeconomic and energy development plans (48 man-months);(vii) consultative group on energy composed of internationally reputed energyeconomists, planners and engineers to advise EPIJ's staff and advisers onenergy policy and review the studies and plans produced by the Unit throughperiodic conferences abroad and in Jordan (7 man-months); (viii) formulationof a tax structure for petroleum products to ensure consumption of products ina mix consistent with refinery output and maximize the resources mobilized forthe Government, and outline a strategy for limiting energy subsidies, if any,to target low income groups (6 man-months); and ix) studies in energy policy,energy planning and energy modelling that the Government, based on advice fromNPC or the consultative group and in consultation with the Bank, judgenecessary for the achievement of the objectives of the proposed Project (14man-months).

Project Implementation

2612 The overall responsibility for coordinating and monitoring theimplementation of the Project would be entrusted to the newly created energyplanning unit (EPU) at NPC which wculd also act as the counterpart to the Bankand cofinanciers. However, in order to ensure the efficient execution of someof the components, 3 separate Project agreements would be required for theimplementation of the proposed Project. These would affect JEPCO and IDECOfor the execution of their respective share of the power distributioncomponent, and NRA for the execution of the petroleum exploration component.Furthermore, since the Government has requested the Bank's active involvementin mobilizing cofinancing from bilateral and multilateral aid agencies for therenewable energy and the energy planning components, the Bank would provideguidance in drafting the TOR and setting the implementation schedule for thetasks and studies financed by the cofinanciers. EPU would coordinate andmonitor the progress of the tasks financed by the cofinanciers. The Projectimplementation schedule is given in Annex 2.10. In order to ensure that theimplementation of the proposed Project is not delayed because of staffingconstraints, the early appointment Df a manager would be needed to monitor andcoordinate all the preparatory work needed for completing the staffing of EPU

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and commissioning the studies financed under the Project. Duringnegotiations, the Government confirmed that the appointment of EPU's managerwill take place before the end of 1983.

2.13 Petroleum Exploration: The petroleum exploration component would beimplemented by the Petroleum Department (PD) of NRA over a period of about 18months. The consulting services, training and equipment to be financed underthe Project would strengthen the capabilities of PD to undertake a moreextensive and systematic program of geological work (prospect mapping, loginterpretation, and acquisition, processing and interpretation of seismicdata) required to attract foreign oil firms to undertake petroleum explorationin Jordan, and to provide the inputs needed for NRA to formulate anexploration drilling program in case foreign firms continue their disinterestin exploration in the country. In addition, the team responsible forimplementing NRA's ongoing program for exploration drilling would coordinatewith the senior drilling and production engineer to be recruited under theProject. Therefore, in order to ensure that the Project would make thelargest possible impact on the ongoing geological work, the Government and NRAagreed during negotiation to recruit, in accordance with terms of referenceacceptable to the Bank, the specialist under para. 2.07 by not later thanJune 30, 1984 and to review with the Bank the results of the geologicalstudies prior to the implementation of the drilling program (para. 5.04).

2.14 Power Distribution: The power distribution component would beimplemented by JEPCO and IDECO. The implementation of the Project in parallelwith the extension and reinforcement of the existing system, is considered tobe within capabilities of both companies with the assistance of consultants.The Project will be implemented over 3 years. The preparation of detaileddesign and tender documents for procurement of goods are under way and wouldbe completed by March 1984. Installation and erection of the Projectfacilities would start in July 1984 and is expected to be completed byDecember 1986. The terms of reference for both K&D and PCR, and thequalification of the staff assigned to assist JEPCO and IDECO in theimplementation of the Project have been reviewed by the Bank and found to besatisfactory. Once the Project is commissioned, all the facilities would beowned, operated and maintained by JEPCO and IDECO respectively.

2.15 Energy Conservation Component: The energy conservation componentwould be implemented over a period of 18 months by consultants with provenexperience in energy conservation. It would involve techno-economic studiesaimed at assessing the potential savings and costs of energy conservationprojects in about 10 major energy consuming industrial works. The studieswould be undertaken in 3 phases all of which would be carried out under theProject. The energy conservation studies would require 227 man-months ofconsulting services including 76 man-months of local support. These services

would involve: (i) preliminary audits to identify energy conservationprojects; (ii) recommendations and detailed feasibility studies for energyconservation projects; (iii) preparation of basic engineering designs,equipment lists and specifications, cost estimates and economic evaluation of

proposed projects; (iv) preparation, for recommended projects, of biddingdocuments in consultation with the concerned industries; and (v) preparation

of energy conservation and utilization manuals. Phase I would review andestablish an energy balance for each process within a plant and aggregate themin an overall energy balance for each plant. This would make possible theidentification of the areas where savings in energy could be achieved with

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improved management and operating procedures together with minor investments

involving better insulation, heat recuperation, etc. This phase would alsoprovide an estimate of the potential for conservation without major investmentand a rough estimate of the savings that could be achieved with moresubstantial investments. The resulcing output from Phase I would be a matrixof various levels of investments and the corresponding savings by plant.Phase II would provide an exact estimate of the investment in selectedprojects required to improve the energy efficiency and the net savingattributable to the investment, as well as, the pay back period and the return

on investment. This phase would provide a ranking of the investments inenergy conservation. Phase III would focus on the basic engineering design,the specification of equipment and the preparation of bidding documents forthe industries where investment in new equipment and processes is deemedjustified from the economic point of view. The terms of reference for thecomponent have been prepared and submitted to NPC for review and comment. TheTOR were finalized in July 1983. In order to assist the Government with thecoordination and supervision of the ongoing work, a resident adviser would beprovided under the Project for a period of 18 months. The adviser would beassigned to the newly created EPU at NPC in the section for energyconservation. In addition, the Unit would include at least 2 engineeringgraduates who would be trained overseas in the identification, preparation andimplementation of energy conservatian projects in institutions specializing inconservation to be selected in consultation with the Bank. A training programhas been outlined by the Bank and raviewed with NPCD The training, coveringperiods ranging between 2 and 4 months, would be carried out in sequentialmanner to allow sufficient overlap cf EPU's Jordanian staff with theconservation adviser over the 18-month assigniment. Moreover, the Projectwould finance equipment, which would be installed at the chemical analysisdepartment of RSS, and train 2 of tlhe Laboratory's staff in the use of theequipment to provide technical support for the conservation section of EPU.In order to ensure that the energy conservation component is implemented in

accordance with the proposed schedule, EPU would need to recruit Jordanianprofessionals with adequate qualifications including a head for the energy

conservation and renewable energy section to be created in the Unit(para. 2.16). This would ensure that all preparation (correspondence withpotential consultants, coordination with managers and technicians in theplants to be audited, briefing of cDnsultants, etc.) necessary for initiatingthe energy audits are coordinated. During negotiations, the Government andNPC agreed to recruiting, in a timely manner, a qualified engineer to head theenergy conservation and renewable energy section (para.5.04).

2;16 The Renewable Energy Component: The renewable energy component wouldbe carried out by the Conservation and Renewable Energy Section of EPU incooperation with RSS and with assistance of consultants. It would beimplemented over a period of about 3 years., The bilateral (US and ItalianGovernment) aid agencies became interested in participating in this componentonly because of the Bank involvement. In addition, the Government felt thatthe formulation anid implementation of a national plan of action for the

renewable energy subsector could best be achieved under the Bank'sleadership. A coordinated plan has been formulated to ensure timely

implementation of the 10 tasks constituting the renewable energy component.This plan would provide a framework for the discussions of the Government withthe cofinanciers. Therefore, in order to ensure the timely implementation of

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this component, an understanding has been reached during negotiations that theGovernment would provide the Bank with details of the arrangements andimplementation schedule agreed with the cofinanciers and the activities

covered thereunder by not later than December 31, 1983. With respect tostudies financed by the Bank, there will be an exchange of views with the Bankprior to initiating detailed designs on subprojects. EPU would monitor theimplementation of the tasks financed by the cofinanciers (para. 5.01).

2.17 Energy Planning Component: The implementation of the energy planning

component would be the responsibility of the EPU of NPC. The unit would be

managed by Jordanians, whose manager would report directly to the President ofNPC. The unit would have 3 sections each headed by a chief. These are: the

energy conservation and renewable energy section, the policy and development

section, and the statistical analysis section. The energy conservation andrenewable energy section would be staffed with Jordanians selected by theGovernment to perform tasks outlined in TORs discussed with the Bank duringnegotiations (para. 2.15). The section would be primarily involved for 2years in the coordination and supervision of the energy audits financed underthe Project. In addition and in order to train the newly recruited staff, theconservation adviser would assist in identifying energy conservation projectsfor the small and medium scale industries. The section would also workclosely with the policy and development section in formulating an overall planfor demand management which would be undertaken with the assistance ofconsultants financed by the Bank. These tasks and reports would be monitoredby the Bank for the tasks and studies financed under the Project, and by EPUfor those financed by the cofinanciers. The Energy Policy and DevelopmentSection would be responsible for the formulation of all policies relating todemand management, energy development and project identification andpreparation and the integration of subsectoral investment plans into aconsistent national energy development program. The staff of the sectionwould be involved over a 2-year period in coordinating and completing thestudy for the formulation of demand management, the study for the design of anoptimal structure for taxing petroleum products, and the ultimate formulationof an overall energy plan for 1985-1990. The section would be staffed with anexpatriate energy economist to assist and supervise the work to be undertakenby the 2 Jordanian economists to be recruited. In addition, the Jordanianstaff would be trained in institutions outside Jordan in the areas of projectevaluation, investment planning and energy policy. Detailed outline of thetraining program has been reviewed during negotiations and would be finalizedby December 31, 1983. The Statistical Analysis Section would be responsible

for the construction of an energy data base, the integration of an energysubmodel in the macroeconomic model of the economy, the construction ofdetailed models for the forecast of energy including electricity andmonitoring the consumption of energy by the main sectors of the economy. Thesection is already in existence and its staff would only require strengtheningand training. A statistical adviser consultant with experience in energywould be recruited for the section under financing provided by the Project.Detailed TOR for the economic and statistical advisers have been reviewed withthe Government and NPC during negotiations.

Procurement

2.18 Procurement for most of the works and goods to be financed by theproposed Bank loan would be through international competitive bidding (ICB)

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with appropriate allowance for preierences for domestic manufacturers.However, for certain specific items, an alternate form of procurementdescribed in Part B of the Bank's Procurement Guidelines would be selected.The procurement of the services of consulting firms or of the individualconsultants would be in accordance with the Banlc's Guidelines for the Use ofConsultants. The following summar.zes the procurement procedures proposed forvarious components of the projects.

2.19 Petroleum Exploration Component: Aboui: 206 man-months of consultingservices required to provide technical assistance to NRA (para. 2.07) at anestimated cost of US$3.1 million would be procured in accordance withprovisions described in Part II of the Bank's Guidelines for use ofConsultants. For the highly specialized geological laboratory equipment andgeochemical equipment of estimated values US$2.C million, for which there areonly a limited number of suppliers, procurement would be through limitedinternational tendering.

2.20 Power Distribution Component - JEPCO: The goods and services to be

financed by the Bank have been grouped into the following 9 contracts toensure effective international competition:

Contract Amount (US$ Million)Local Foreign Total

(1) Overhead Conductors - 1.85 1.85(2) Underground Cables - 4.24 4.24(3) Transformers - 1.97 1.97(4) Towers and Poles - 2.03 2.03(5) Insulators and Accessories - 0.20 0.20(6) Meters - 0.45 0.45(7) Installation and Erection 2.20 1.40 3.60

of the 33-kV lines anid powersubstations of the urbancomponent

(8) Installation and erection 1.35 0.90 2.25for the rural component

(9) Engineering Services 0.65 0.46 1.11TOTAL 4.20 13.50 17.70

Items I through 8 would be procured through ICB. In the comparison of bidsobtained under ICB, local manufacturers would be allowed a margin ofpreference equal to the existing rate of customs duties applicable tocompeting imports or 15% of the CIF price, whichever is lower. Contract for92 man-months of consulting services would be in accordance with the provisionof Part II of the Bank's Guidelines for Use of Consultants. To complete theurban component, JEPCO would procures the switchgear in accordance with therequirements of the cofinanciers. In addition, JEPCO would carry out by forceaccount the balance of the installation and erection works covering severalsmall relatively dispersed elements which are not suitable for ICB.

2.21 Power Distribution Component - IDECO: The goods and services to be

financed by the Bank would be packaged into the following 5 contracts:

Contract Amount (US$ Million)Local Foreign Total

(1) Concrete Poles - 1.10 1.10(2) Steel Poles 0.15 1.90 2,05(3) Meters - 1.50 1.50(4) Cables 3.20 3.20(5) Post Insulators and Accessories - 0.30 0.30

TOTAL 0.15 8.00 8.15

All those contracts would be subjected to ICB and the above packaging

arrangements would ensure effective competition. In the comparison of bidsobtained under ICB, local manufacturers would be allowed a margin ofpreference equal to the existing rate of customs duties applicable tocompeting imports or 15% of the CIF price, whichever is lower. Installationand erection (which would not be financed by the Bank) would be undertaken byIDECO and local contractors.

2.22 Energy Conservation Component: About 150 man-months of foreignconsulting services would be required for energy conservation studies (para.2.09) at an estimated cost of US$2.3 million and would be processed inaccordance with the provisions under Part II of the Bank's Guidelines forConsultants. Another 20 man-months of individual consulting services at anestimated cost of US$300,000 for identifying and preparing energy conservationprojects in the medium and small scale industries and for providing trainingto local staff (para. 2.10(b)) would be procured in accordance with theprovisions under Part V of the Bank's Guidelines for use of Consultants. As

there are only a limited number of suppliers for the highly specializedmeasuring equipment for energy consumption and the amount involved is alsosmall (US$380,000), the procurement would be through international shopping inaccordance with the provisions under Part B, para. 4.2(c) of the Bank'sProcurement Guidelines.

2.23 Renewable Energy Component: About 25 man-months of individualconsulting services for design, installation, data analysis and supervision ofresource assessment network and demonstration solar water heating systemswould be procured in accordance with the provision under Part V of the Bank'sGuidelines for use of Consultants. Since the equipment to be procured for

resource assessment network are highly specialized and for which there areonly a limited number of suppliers and since the value is small (US$93,000)they would be procured through international shopping in accordance with theprovisions under Part B, para. 4.2(c) of the Bank's Procurement Guidelines.

The equipment required for demonstration solar water heating systems wouldlikewise be procured through international shopping in accordance with theprovisions under Part B, para. 4.2 (c) of the Bank's Procurement Guidelines.However, in developing equipment specifications the consultants would payparticular attention to the technical reliability, economic viability andamenability to local production in Jordan.

2.24 Energy Planning: About 25 man-months of consulting services at anestimated cost of US$250,000 required to strengthen EPU's planningcapabilities would be procured in accordance with the provisions under Part IIof the Bank's Guidelines for Consultants.

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Disbursements

2.25 Petroleum Exploration Compcnent: The disbursement from the proceedsof the proposed loan would be made for 100% of the foreign exchange cost of:i) consulting services for petroleum exploration (US$2.9 million);ii) training courses for the Jordanian staff of PD at NRA (US$0.6 million);iii) equipment for geological and geochemical anaLlysis (US$0.5 million); andiv) advance processing of seismic data (US$1.0 million).

2.26 Power Distribution Componert: For JEPCCI's part of the component,disbursements would be made for (i) 100% of the foreign expenditures ofdirectly imported equipment and materials or 100% of local ex-factory costs ofgoods manufactured in Jordan; (ii) 40% of total c:ost of contracts procuredthrough ICB procedures for installation and erect:ion which represents theestimated foreign exchange content; and (iii) 100% of the foreign cost ofconsultants' services. For IDECO's part of the component, disbursements wouldbe made for 100% of the foreign expenditures of directly imported equipmentand materials or 100% of local ex-factory costs of goods manufactured inJordan.

2.27 Energy Conservation: The disbursements from the proceeds of theproposed Bank loan for this componen.t would be made for 100% of the foreignexchange cost of (i) consultants' services for the energy audits (US$2.42million); (ii) laboratory equipment (US$0.38 million); and (iii) 75% of the18-month services to be provided by the conservation adviser for EPU (US$0.20million). Retroactive financing of up to US$0.2C million is proposed forcosts incurred after November 1, 1983 for consultants' services for the energyaudits.

2.28 Renewable Energy: The disbursements from the proceeds of theproposed Bank loan for this component would be made for 100% of the foreignexchange cost of: (i) consulting services for the design and installation ofsolar/wind resource assessment network and demonstration solar water heatingsystems; (ii) measuring equipment for resource assessment; and (iii) solarwater heating equipment.

2.29 Energy Planning; The disbursements from the proceeds of the proposed

Bank loan for this component would be made for 100% of the foreign exchangecost of the consulting services.

2.30 The estimated disbursements from the prcposed loan and for each of

the five components are shown in Annex 2.11 and the disbursement profile iscompared with the regional profile in Annex 2.12.

Risks

2.31 In addition to the risks usually associated with petroleum

exploration there is a risk involved in the implementation of the Project dueto its multidisciplinary nature which would require a high degree ofcoordination by the newly created EPU. However, given NPC's demonstratedsuccess in matter involving interdepartmental coordination and theGovernment's commitment to the creation of a strong planning unit, this riskis substantially reduced.

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III. FINANCE

3.01 This Chapter addresses the finances of JEPCO and IDECO, the onlyrevenue earning beneficiaries. The other entities such as NPC, NRA areGovernment agencies. Although part of the conservation component wouldbenefit the large energy consuming industries (cement, fertilizers, etc.)which are revenue earning semi-public industries, the Government is presentlyin the process of determining how the cost of the energy audit studies wouldbe treated. However, it has decided that irrespective of the process selected(grants, loans at concessionary terms, etc.), it would bear the responsibilityfor borrowing and repayment.

Rural Electrification Losses

3.02 It is axiomatic that rural electrification is a losing propositionfor a utility because the revenues provided by the consumers in the first fewyears of electrification normally fall far short of the utility's costs inproviding the service. This is because of the low level of capacityutilization of the equipment with a relatively large upfront investment tomeet a disproportionately small demand for electricity in the first few yearsof service. The utility would be able to break even from say, 5 to 10 yearsdepending on how quickly the load develops and costs are spread over anincreasing number of consumers. For example, JEA now incurs an economic costof about 70 fils/kWh in supplying electricity to the rural consumers andobtains as revenue only about 35.6 fils/kWh, thus incurring a loss of about34.4 fils for each kWh sold (para. 1.23). In view of the inevitable revenuelosses in rural electrification, all the three utilities, namely JEA, JEPCOand IDECO, being commercially-oriented, would normally be averse toundertaking extensive rural electrification schemes and would do so only toserve the national and social objectives of the Government. Since the Bank'sfinancial objectives for the subsector aim at developing the three utilitiesinto financially viable and autonomous enterprises, it is reasonable to expectthe Government to compensate them for any losses stemming from theimplementation and operation of its national rural electrification schemes,which from the utilities' point of view are not justified on financialgrounds. The Government is aware of the need to compensate the utilities forlosses as reflected in its past compensation to the utilities in the form ofsoft loans, equity contributions, etc. However, the arrangements fordetermining and paying the compensation have not been formalized, and they areusually completed after considerable negotiations and consequential delays.In order to avoid these difficulties, Government has established formalcompensation reserves for compensating the utilities for losses (para. 1.23).Accordingly, the financial projections for JEPCO and IDECO assume revenueincreases and compensation by the Government which together would ensurethat: (a) the average tariff is maintained above or at par with the economiccost of supply (LRMC) by annually increasing the average revenues to reflectthe increase in the general price level; and (b) the financial targets agreedwith the Bank to ensure the financial viability of the utilities areachieved. Moreover, the financial projections assume that Governmentcompensation would decline steadily over the forecast period (1983-1988) asthe level of utilization of infrastructure and equipment approaches itsoptimal level.

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A. Jordanian Electric Pouer Company

Accounting

3.03 JEPCO's financial planning is handled by its consultants, K & D ofthe U.K. It has only an accounting section responsible for keeping thebooks. It does not have a financial management department. Under Loan1986-JO, JEPCO appointed GCEC to undertake a ccmprehensive study of itsorganization and management practices, to plan and implement an appropriatetraining program to improve the quality of the financial and accounting staff,and to review its hiring policy with a view to hiring and retainingappropriately qualified and experienced senior level staff who could graduallytake over the planning functions from the consultants. The study has beencompleted and as agreed under Loan 1986-JO, JEPCO would expeditiouslyimplement, in consultation with the Bank, appropriate changes in itsorganizational structure and the training program on the basis of the study.

Accounts Receivable

3.04 During the period through 1980, the Government departments were slowin paying JEPCO's bills for electricity supply with the result that JEPCO'saccounts receivable were between 6) and 80 days' sales. Under Loan 1986-JO,the Government agreed to cause all its departments and agencies to pay alloutstanding electricity bills by Saptember 1, 1981 and thereafter to pay allcurrent bills within 6 weeks of their issuance by JEPCO. Although the earlierarrears had been liquidated by September 1981 as covenanted, the Governmentdepartments are still slow in paying their current bills, resulting in a highlevel of accounts receivable; they were 59 days' sales at the end of 1982. Inorder to ensure that delayed paymeat of bills by the Government departmentsand agencies may not be a continuing problem, the Government and JEPCO haveagreed to take all actions required to enforce the collection by March 31,1984 of all bills from the Government departments and agencies which areoutstanding for six weeks or more and thereafter the collection of all currentbills within six weeks of their issuance (para. 5.05). As regards domesticcustomers, JEPCO decided in 1980 to safeguard its interests against defaultson their part by raising the level of customer deposits for new customers totwo months' estimated consumption, and already about 85% of JEPCO's domesticcustomers furnish such deposits. As agreed under Loan 1986-JO, JEPCO wouldgradually increase the deposits of the remaining 15% of consumers also overthe next two years from the existing level of one month's estimatedconsumption to two months. Non-payment of electricity bills by JEPCO'scustomers is not expected to be a problem in the future.

Revenue Covenant

3.05 JEPCO agreed under Loan 1986-JO to generate internally, after thepayment of dividends, at least 25% of construction requirements in 1982 and1983 and at least 35% in 1984 and thereafter. The level of cash generation isto be computed with reference to the average construction expenditures for 2years namely, the current and the preceding years. Under that loan, theGovernment and JEPCO further agreed to: (i) review at least three monthsbefore the end of each fiscal year, the adequacy of JEPCO's revenues toachieve, on the basis of a realistic forecast, ;:he agreed self-financing ratiofor the following fiscal year; and (ii) determine, on the basis of this

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review, the measures required to achieve this ratio, and consult with the Bankon these measures and on the implementation schedule for these measures beforethe beginning of the following fiscal year.

3.06 The above revenue covenant has served in the past as an appropriatemechanism for determining the level of revenues required to meet JEPCO'sfinancial needs. It has to be examined whether the covenant would beappropriate in future also for setting JEPCO's financial goals. This isdiscussed in para. 3.12.

Past Performance and Present Position

3.07 JEPC0's concession agreement stipulates: (i) that dividends shallnot be less than 7.5% of the nominal value of the shares; and (ii) that if atariff increase is approved by the Government to meet the above requirement,then the increase shall be such as to restrict the profit including income taxto not more than 16% of the nominal value of the shares. Any profit earned inexcess of 16% is to be transferred to a voluntary reserve account. JEPCO hasalways set its financial goals within the framework of the above provisions inthe concession agreement.

3.08 JEPCO's income statements, sources and applications of fundsstatements, and balance sheets for the years 1980, 1981 and 1982 are given inAnnex 3.2. JEPCO's past financial performance has been satisfactory. Itsself-financing level was 30% of construction requirements in 1981 and 51% in1982 as against 25% required under Loan 1986-JO (para.3.05). The highself-financing level in 1982 was mainly because of a 20% drop in the actualconstruction expenditure in 1982 as compared to the estimated level. Itspretax rates of return on revalued assets were 9.5% in 1981 and 8.4% in 1982,and the corresponding returns after a 38.5% corporate tax were 5.8% in 1981and 5.2% in 1982. Its debt/equity ratio, which was 26/74 in 19&1 and 29/71 in1982, indicates a sound equity base, particularly since the assets arerecorded at historical costs. The current ratio was 1.4 in 1981 reflecting anacceptable liquidity position. In 1982, it dropped to 1.1 indicating thatliquidity was increasingly tight. In fact, owing to the tight cash positionJEPCO had to double its overdraft in 1982 from JD 1.0 million at 1981-end toJD 2.0 million at 1982-end.

Financing Plan

3.09 The forecast sources and applications of funds statements of JEPCOfor the period 1983-1988 are given in Annex 3.2. These are based on theassumption that the Government would compensate for rural electrificationlosses to provide for average revenue increases of about 21% from January1984, 2% from January 1985, 2% from January 1986 and 3% from January 1988 toenable JEPCO to maintain the cash generation levels required under theexisting and proposed covenants (paras. 3.11 and 3.12). A summarized versionis given below:

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JEPCO's FinanZing Plan for 1983-1988

% ofJD US$ Capital

Thousands Thousands Expenditures

Program RequirementsThe Project 9,763 27,500 16Other Construction Requirement 52,157 146,922 83Interest During Construction (IDC) 733 2,065 1

Total Program Requirements 62,653 176,487 100

Sources of FundsInternal SourcesInternal Cash Generation 42,736 120,383 68Less: Debt Service (Excluding IDC) (15,720) (44,281) (25)

: Dividend Payments (4,700) (13,239) (7): Working Capital Requirements (6,555) (18,465) (10)

Customer Contributions 6,192 17,442 10Other Internal Sources 6,536 18,411 10

Total Internal Sources 28,489 80,251 46

Debt and Equity FinancingCommitted Loans 10,854 30,575 17Proposed Loan - IBRD 4,793 13,500 7Other Future Loans 15,117 42,584 24New Shares 3,400 9,577 6

Total Debt and Equity Financing 34,164 96,236 54

Total Sources 62,653 176,487 100

3.10 Internal sources including customer contributions and additionalcustomer deposits are expected to provide a total of 46% of the constructionrequirements. About 48% of the construction requirements is proposed to befinanced by JEPCO through borrowings of about JD 30.8 million, which includescommitted loans of about JD 10.9 million (17%), the proposed Bank loan ofabout JD 4.8 million (7%), and unidentified loans of about JD 15.2 million(24%). However, about 72% (JD 12 million) of the unidentified portion of theborrowings assumed relates to its construction requirements after 1985. It isexpected that JEPCO would be able to identify these sources when it updatesits next four-year financing plan for the period 1986-198 . The forecastassumes that to meet part of its capital expenditure requirements, JEPCO wouldsell in March 1985 two million new shares at JD 1.70 per share. JEPCO wasable to sell about 921,000 shares to JEA and other investors in 1981 at JD 1.9per share. Its shares are actively traded in the market and since theyprovide an attractive yield to investors (para. 3.12) it would not have anydifficulty in raising the proposed equity capital from the market. Thisequity capital of JD 3.4 million (US$9.6 million) would cover about 6% of its

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program requirements. JEPCO has agreed to issue and sell new shares in atotal amount which shall be sufficient to enable JEPCO to meet its capitalexpenditures under the Project; and to consult with the Bank, in sufficienttime before the beginning of each fiscal year with a view to determining, inlight of such construction requirements and the expected capital expendituresof JEPCO during such year, the amount of shares to be issued and the timingthereof (para. 5.06).

Future Performance

3.11 The forecast income statements and balance sheets for the years1983-1988 with assets carried at "book value" are given in Annex 3.2.Assumptions relating to the forecasts are included in Annex 3.1. The

forecasts assume an increase in the average revenue of about 21% startingJanuary 1, 1984 to secure the agreed 35% cash generation in 1984. Theincrease in revenues will be primarily through compensation by the Governmentfor losses incurred in meeting the demand of the rural consumers and of streetlighting, which together account for about 12% of JEPCO's sales. Theforecasts assume a further increase in the average revenue of about 2% from

January 1, 1985, to enable JEPCO to generate at least 35% of the constructionrequirements internally in 1985 as required under Loan 1986-Jo. It isestimated that with these increases in average revenue, the after-tax rate ofreturn on revalued assets would be around 6% during 1983-1985, which issatisfactory (para. 3.12).

3.12 Being a distribution company serving essentially urban consumers,

JEPCO's capital expenditure is mainly in the nature of extension ofdistribution facilities or of upgrading existing distribution facilities.Therefore, after a period of renovation and expansion, there is a falling offin construction expenditures with the result that with the same level ofinternal cash generation the self-financing ratio rises. This is the casewith JEPCO in the years 1986-88 when the total construction expenditures areestimated to fall from JD 13.6 million in 1985 to JD 10.3 million in 1986,JD 9.1 million in 1987 and JD 9.5 million in 1988. In such circumstances, ithas to be tested whether the required level of cash generation results in anadequate return on revalued fixed assets in operation. Since the return iscomputed after 38.5% of taxable income is siphoned off by Government ascorporation tax, a rate of return of around 6% on revalued assets should beconsidered adequate. Such a return would be the equivalent of a return beforetaxes of close to 10% on revalued assets. To achieve a 6% return on revaluedassets in 1986-1988, JEPCO would require a revenue increase of about 2% fromJanuary 1986 and 3% from January 1, 1988. During negotiations, anunderstanding has been reached with the Government and JEPCO that JEPCO wouldtest its financial performance not only by cash generation objectives but alsoby returns on operating asjets valued according to a methodology to be agreedbetween the Government and the Bank (para. 5.01). The Government and JEPCOhave agreed to repeating the existing revenue covenant in the proposed loan(para. 5.05). Since 12% of JEPCO's sales are to rural consumers and forstreet lighting, an appropriate compensation from Government for lossesassociated with street lighting and with the extension of public supply ofelectricity to the rural consumers would be included as revenues in computingthe cash generation (para. 3.02). Government and JEPCO have also agreed torepeating the existing review provision (para. 3.05) in the proposed covenant(para. 5.05).

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3.13 During the period 1983-1988, JEPCO's debt/equity ratio would bebetween 41/59 and 54/46, which is acceptable. The current ratio during theperiod would be between 1.3 and 1.6, which reflects an acceptable liquidityposition. The company's earnings per share would be between 14% and 33% ofthe nominal value of the shares which, when computed with reference to themarket value of the shares (about twice the nominal value at present), stillprovides a return to the investors, which is attractive relative to otherinvestments in the country. Consequently, it is expected that JEPCO wouldcontinue to be successful over the forecast period in attracting privateinvestors. Assuming that the Government departments would pay their billspromptly, the accounts receivables are projected to be about six weeks' salesin the future.

Debt Service Coverage

3.14 During the forecast perioL, the debt service coverage ratio isprojected to be between 2.7 and 3.2, which is satisfactory. Under Loan1986-JO, JEPCO agreed that it will not incur any debt without prior approvalof the Bank, unless its net revenues (before depreciation and interest) lessproposed dividend for each year during the term of the debt is at least equalto 1.5 times the projected debt service requirement for such year, on all itsdebt, including the debt to be incurred. The existing covenant relating todebt service coverage would be repeated in the proposed Loan (para. 5.06).

Auditing

3.15 JEPCO agreed under Loan 1986-JO to appoint independent auditorssatisfactory to the Bank to audit its accounts, and to submit to the Bankaudited financial statements and audit reports for each year, not later thanfive months after the end of the year. The accounts of JEPCO are audited byKhadder, Ramadan & Co., a local auditing firm. The auditing arrangements aresatisfactory and the reports have always been submitted on time, ascovenanted. The reports have also not disclosed any significant deficienciesin JEPCO's accounting work. JEPCO has agreed to repeating the existing auditcovenant in the proposed Loan; however, because of time constraints due toGovernment review and clearance, it: was agreed to extend the submission timeuntil not later than five months aiter the end of the year (para. 5.06).

Insurance

3.16 JEPCO's purchases from abroad are covered during the constructionperiod by insurance provided by the contractors. Insurance coverage for itsassets in operation is provided by local insurance companies operating underGovernment regulation. The arrangements for insurance coverage have beensatisfactory. JEPCO has agreed under Loan 1986--JO to continue to maintainwith responsible insurers, or make other provis:ions satisfactory to the Bankfor, insurance against such risks and in such amounts as shall be consistentwith sound utility practice. The existing covenant relating to insurancewould be repeated in the proposed Loan (para. 5.06).

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Monitoring System

3.17 The revenue covenant would help determine the level of revenuesrequired to meet JEPCO's financial needs. However, it is also necessary forJEPCO to develop other key indicators for monitoring its technical andfinancial performance in the future. JEPCO has agreed to assemble bySeptember 30, 1984, in consultation with the Bank and with the help of itsfinancial consultants, a comprehensive set of key indicators to monitor itstechnical and financial performance (para. 5.06). Suggested key indicatorsare given in Annex 3.4.

B. Irbid District Electricity Company Limited

Accounting

3.18 IDECO does not have a department or adequately qualified staff forfinancial planning and management. It has only an accounting sectionresponsible for keeping the books. In order to plan and manage its financialoperations efficiently, IDECO has agreed to employ not later than December 31,1984, a qualified and experienced financial planner (para. 5.08). The TOR forthe appointment of the financial planner would be reviewed and finalized bythe next supervision mission. Also there is a need to plan and implement anappropriate training program to improve the quality of the accounting staffand the accounting section's operating methods to be in line with currentutility practices. IDECO has agreed: (i) to employ by June 30, 1984 expertswith qualifications satisfactory to the Bank and in accordance with TORacceptable to the Bank to outline a plan for strengthening IDECO'scapabilities in financial planning, management and control; and (ii) aftertaking into account the Bank's comments to implement promptly the experts'recommendations by not later than January 1986 (para. 5.08).

Past Performance and Present Position

3.19 IDECO's income statements, sources and applications of fundsstatements, and balance sheets for the years 1980 through 1982 are given inAnnex 3.3. IDECO's concession agreement provides for the distribution of thenet profit as follows: (i) an amount equal to 10% of the profit before taxwould be allocated to a mandatory reserve account; (ii) an amount notexceeding 20% of net profit, as determined by the General Assembly of theShareholders, would be allocated to the voluntary reserve; and (iii) afterproviding for appropriate remunerations for the Board of Directors, a portionof the remaining profits as determined by the General Assembly of theShareholders would be distributed as dividends. IDECO has always set itsfinancial goals within the framework of the above provisions in the concessionagreement.

3.20 IDECO's financial performance has been generally satisfactory.

During 1980-1982, IDECO had an average annual rate of growth in sales of about19%. Its pretax rate of return on unrevalued assets was between 7.3% and 11%

during 1980-1982. Its rate of return during this period after a 38.5%corporate tax was between 5.3% and 6.8%. However, its net internal cashgeneration was sufficient to meet only about 5% of its constructionrequirements in 1981 and 9% in 1982. Until 1980, its assets were primarilyfinanced through the investors' equity. At the end of 1980, its debt to

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equity ratio was 27/73. During 1981 and 1982, its expansion program wasfinanced through borrowings and its debt to equity ratio as of December 31,1982 rose to 65/35. Therefore, it would be prudent to finance a part ofIDECO's expansion program through equity. Also, IDECO managed its operationswith a low current ratio that has ranged between 0.9 and 1.3 during the period1980-1982.

Accounts Receivable

3.21 IDECO's accounts receivable during the past two years has been fairlyhigh at about 2 months' sales because of slow bill distribution andcollections. This situation could be improved by suitably modifying theprocedures. IDECO presently serves about 65,000 consumers. For billing andcollection purposes, it has 25 meter readers and 40 bill collectors. It takesabout one month to complete the meter readings and to check them forconsistency before preparing the bills, another month to process the bills andanother two to three weeks to deliver the bills. Consumers are required topay their bills in three days. Normally, the consumers who do not pay theirbills within seven days would be disconnected. However, a review of thereceivables revealed that about 70% of the overdue bills were two-month oldand the balance 30% were overdue by three months or more. The Government's(primarily water utility) share of these overdue bills is about a third. The

Government and IDECO would take all actions necessary to enforce collection ofwater utility's overdue bills. The overdue bills from domestic consumersrelate to people who live in Irbid only a few months in a year and therefore,by disconnecting them IDECO would lose the minimum charge for which they couldbe billed if service is continued. By streamlining the bill distribution andcollection procedures the accounts receivable could be brought downsignificantly, say to about six weeks' sales. The mission reviewed with IDECOvarious options for improving the billing and collection procedures. One ofthe options is to authorize the meter reader to present the bill at the timeof reading the meter. After further processing of the meter readings throughthe computer, corrections, if any, could be reflected in the next bill. IDECOwould be testing this procedure in a few villages. IDECO has agreed toimprove its billing and collection procedures with the assistance of itsconsultants (PCR) to reduce the receivables to six weeks' sales by

December 31, 1984 (para. 5.08). In order to safeguard its interest againstdefaults by customers, the Government and IDECO have agreed to raise thecustomer deposits from the existing level of one month's estimated consumptionto two months' (para. 5.07).

Financing Plan

3.22 The forecast sources and applications of funds statements of IDECOfor the period 1983-1988 assuming an average 25% revenue increase from January1, 1984 are given in Annex 3.3. A summarized version is given below:

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IDECO's Financing Plan for 1983-1988

JD us$ % of CapitalThousands Thousands Expenditures

Program Requirements

The Project 8,875 25,000 56

Other Construction Requirement 6,895 19,423 43Interest During Construction (IDC) 236 665 1

Total Program Requirements 16,006 45,088 100

Sources of Funds

Internal Sources

Internal Cash Generation 13,718 38,642 85Less: Debt Service (excluding IDC) (7,336) (20,665) (46)

Dividend Payments (568) (1,600) (4): Working Capital Requirements (1,622) (4,569) (10)

Net Internal Cash Generation 4,192 11,808 25

Customer Contributions 1,050 2,958 7Other Internal Services 2,172 6,118 14

Total Internal Sources 7,414 20,884 46

Debt and Equity Financing

Committed Loans 4,402 12,400 28Proposed Loan - IBRD 2,840 8,000 18New Shares 1,350 3,804 8

Total Debt and Equity Financing 8,592 24,204 54

Total Sources 16,006 45,088 100

3.23 The internal sources are expected to provide a total of 46% of theconstruction requirements. About another 46% of the construction requirementsis proposed to be financed through borrowings of about JD 7.2 million, whichincludes committed loans of about JD 4.4 million (28%), and the proposed Bankloan of about JD 2.8 million (18%). The forecast assumes that to meet part ofits capital expenditure requirements, IDECO would sell in 1983 one million newshares of face value of JD 1 plus a premium of about 0.35 JD per share. Thisequity capital of JD 1.35 million (US$3.8 million) would cover about 8% of itsconstruction requirements. The Jordanian Delegation informed the Bank that 27percent of the shares had been sold to the private sector as of October 15,1983, and an understanding has been reached that the Government will buy thebalance.

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Future Performance

3.24 Since JEA and JEPCO already have cash generation covenants whichregulate their financial goals from year to year, it would be appropriate tohave a similar cash generation covenant for IDECO also. Under such acovenant, IDECO would be required to mobilize a reasonable part of itsconstruction program in line with thE. Bank's objective of ensuring that

consumers pay a reasonable proportior of system expansion costs.

3.25 The operations of JEPCO and IDECO are similar. Both are privatedistribution companies serving both urban and rural areas and buying power inbulk from JEA, and both pay corporation taxes at 38.5% of taxable income.There are however two important differences: (i) JEPCO is 77% owned by thepublic with the remaining 23% owned by JEA (13%) and the municipalities (10%),while IDECO is only 11% owned by the public, the rest being owned by JEA(46.5%) and the municipalities (42.5%); and (ii) about 50% of IDECO's salesare to rural consumers while the percentage is only 10 in the case of JEPCO.In view of the similarity in the operations of JEPCO and IDECO, it isreasonable that the two have similar financial objectives with some allowancefor the greater share of rural sales in the case of IDECO. Therefore, a cashgeneration covenant similar to the covenant proposed for JEPCO would be anappropriate method to measure IDECO's financial performance. The Governmentand IDECO have agreed to take all such measures as would be required toproduce funds from IDECO's internal sources equivalent to not less than 20%

for each of the fiscal years 1984 through 1988 and not less than 30% in 1989and thereafter, of IDECO's average capital expenditures for electricityoperations for two years, comprising the year in question and the nextpreceding year (para. 5.07). They have further agreed to review at leastthree months before the end of each fiscal year, measures necessary for IDECOto achieve the agreed self-financing ratio for the following year and toconsult with the Bank on these measures before the beginning of the followingfiscal year (para. 5.07). Furthermore, during negotiations, an understandinghas been reached with Government and IDEC0 that IDECO would test its financialperformance not only by cash generation objectives but also by returns on

operating assets valued according to a methodology to be agreed between theGovernment and the Bank (para. 5.01). The Government and the Bank wouldconsult in this regard.

3.26 The forecast income statements and balance sheets for the years

1983-1988 with assets carried at "book value" are given in Annex 3.3. Theassumptions relating to the forecasts are given in Annex 3.1. An increase inaverage revenues of about 25% from January 1 1984 (compensation from theGovernment for losses incurred in meeting the rural consumers' demand forelectricity and the supply of power far public lighting) would be required forIDECO to achieve the proposed level of self-financing ratio (this would resultin a return of about 6% on revalued assets in 1984) (para. 3.25). TheJordanian Delegation informed that this Government would be rescheduling allforeign loans relent to IDECO giving it an additional five year grace period.This would enable IDECO to meet all its obligations without any problems.

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3.27 During the forecast period, IDECO's debt/equity ratio which would

reach its peak in 1985 at 67/33, would go down to 53/47 in 1988 showing adecreasing debt burden and increasing financial strength. It is expected that

after implementing appropriate changes in billing and collection procedures(para. 3.21), the accounts receivable would be not more than six weeks' salesin the future. During the forecast period, the current ratio is expected tobe between 1.3 and 1.5, which is acceptable.

Debt Service Coverage

3.28 Although IDECO's cash flow during the projection period 1983-1988would be over 1.5 times its debt service obligations and would rise as high as2.8 times the debt service obligations in 1988, it is necessary to keep underreview IDECO's assumption of further debt obligations. IDECO has agreed notto incur any debt without prior approval of the Bank, unless its net revenues(before depreciation and interest) less proposed dividend for each year duringthe term of the debt is at least equal to 1.5 times the projected debt servicerequirement for such year, on all its debt, including the debt to be incurred(para. 5.08).

Auditing

3.29 The accounts of IDECO are audited annually by auditors appointed eachyear by the shareholders during their annual meeting in accordance with theCompany's Articles of Association. A local auditing firm has been appointedby the Company for this purpose. The auditing arrangements are satisfactory.The reports have also not disclosed any significant deficiencies in IDECO'saccounting work. IDECO has agreed to appoint independent auditorssatisfactory to the Bank to audit its accounts, and to submit to the Bankaudited financial statements and the audit report for a year, not later thanfive months after the end of the year (para. 5.08).

Insurance

3.30 IDECO's purchases from abroad are covered during the constructionperiod by insurance provided by the contractors. Insurance coverage for itsassets in operation is provided by local insurance companies operating underGovernment regulations to cover all the risks that are inherent in operatingan electricity distribution system. These arrangements for insurance coverageare satisfactory. IDECO has agreed to continue to maintain with responsibleinsurers, or make other provisions satisfactory to the Bank for, insuranceagainst such risks and in such amounts as shall be consistent with soundutility practice (para. 5.08).

Monitoring System

3.31 The revenue covenant would help determine the level of revenuesrequired to meet IDECO's financial needs. However, it is also necessary forIDECO to develop other key indicators for monitoring its technical and

financial performance in the future. IDECO has agreed to assemble byDecember 31, 1984, in consultation with the Bank and with the help of itsfinancial consultants proposed to be appointed for strengthening itscapabilities in financial planning (para. 3.18), a comprehensive set of keyindicators to monitor its technical and financial performance (para. 5.08).Suggested key indicators are given in Annex 3.4.

- 44 -

IV. ECONOMIC JUSTIFICATION OF THE PROJECT

4.01 Jordan is totally dependent on imported energy for meeting its demandof commercial energy. There is potential, however, for decreasing the extentof this dependence in the future by intensifying the effort for developingdomestic energy resources and improving the efficiency of energy supply andconsumption. On the supply side, the prospects for the discovery of oil aregood, and there is substantial scope for the increased exploitation of solarenergy through commercially proven applications. Moreover, significantimprovement can be achieved in the efficiency of industries involved in thetransformation of primary energy (oil refining and power generation) and thetransport and distribution of secondary energy (power transmission anddistribution, marketing of petroleum products, etc.). On the demand side, the

rationalization of energy consumption through comprehensive demand managementpolicies and conservation, particularly in industry and the power subsector,would reduce the overall energy consumption of l:he economy. So far, however,these have not been addressed in a systematic fashion and unless an integratedprogram is initiated on all these tronts, Jordani's future dependence onimported energy would increase. The active involvement of the Bank through

the proposed Project would provide an integrated approach to the developmentof the energy sector by serving as a catalyst for the mobilization of externaland local support, both technical and financial.

4e02 The components of the proposed Project were selected on the basis oftheir potential for reducing Jordan's dependence on imported energy. Thepetroleum exploration component would improve the techniques for thecompilation, integration, analysis and presentation of existing and newgeological data, by training NRA's staff, with the support of internationaladvisers and consulting firms, in recently deveLoped processes for petroleumexploration. This data, together with the assistance to be provided in thepreparation of exploration contracts, would allow NRA to prepare geologicalpackages that could interest international oil firms in resuming theirpetroleum exploration activities in Jordan. If this proves unsuccessful, NRAwould be able to use the same data to prepare and implement a systematicexploration drilling program. The power distribution component would resultin a net saving to the economy and mobilize resources for the power subsectorby allowing JEPCO and IDECO to extend their services to new consumers whichwould reduce the consumption of light and middle petroleum distillates (LPG,kerosene, etc.) currently used for household purposes. In addition, losses atthe distribution level would be reduced by at lesast 1%, from 9.6% in 1983 toabout 8.6% in 1986 for JEPCO, 1/ and from 15% in 1983 to 14% by 1986 forIDECO 1/ (Annex 1.1, Attachments 1 and 2). The energy conservation component

would improve the energy efficiency of the 10 l.argest industrial consumers ofenergy and set the stage for initiating similar work in medium and small scaleindustries. The renewable energy component wouLd provide the elements andtraining needed to ensure that a program for the commercial exploitation of

1/ Reduction in losses in the two distribution systems is estimated at about3,000 toe per year.

- 45 -

solar energy is formulated, and that a strategy is outlined for strengtheningthe local capabilities for the manufacture of solar water heating and solargreenhouses. The energy planning component would provide critical studies andtraining needed to strengthen the Government's capabilities for energyplanning and assist in the formulation of energy plans and policies to ensurethat the future demand for energy is met at least cost to the economy.

4.03 Although the benefits associated with the petroleum explorationenergy conservation, renewable energy and energy planning are notquantifiable; they are well designed and justified and are expected to makesome contributions to the economy as discussed earlier (para. 4.02). Sinceonly the power component has quantifiable benefits the economic rate of returnwas calculated for only that component.

4.04 The power distribution component represents a part of Jordan's leastcost program for the development of the power subsector. The economic rate ofreturn for this component is about 12.9% based on the quantifiable costs andbenefits associated with the investment and measured over its expected

economic life. The costs include: (a) the power component capital costs andphysical contingencies, expressed in mid 1983 prices; (b) the long runmarginal cost of supply (LRMC) for generation and transmission of about 28fils/kWh; and (c) the cost of operation and maintenance which is assumed foreach year to be equal to 2% of the capital cost. The benefits include: (a)the revenue from the sale of electricity based on the present and projectedaverage tariff of 55 fils/kWh for IDECO and 36.6 fils/kWh for JEPCO, which aretaken as a proxy for the consumers' willingness to pay 1/; (b) the net savingin households fuel resulting from the substitution of electricity forpetroleum products; and (c) customer contributions which representnon-reimbursable payments by the consumers of JD 25 for the urban consumersand an average of JD 85 for the rural consumers for equipment installed intheir households (meters, connectors, etc.). Details of the calculations andassumptions are presented in Annexes 4.1 and 4.2.

4.05 The economic rate of return was calculated for JEPCO's and IDECO'sshares of the power distribution component to assess each as a free standinginvestment. The economic rate of return on JEPCO's share of the investment is16.4% and 8.4% on IDECO's share (Annexes 4.3 and 4.4), which in the case ofthe former compares favorably with the opportunity cost of capital of 10%.The return on IDECO's share is below the opportunity cost of capital mainly asa reflection of the composition of consumers in its concession area and theextent by which average revenue deviates from the economic cost of supply(LRMC). In JEPCO's concession area, about 90% of the low voltage sales is tourban consumers whose economic cost of supply is about 35.04 fils/kWh comparedwith an average tariff of about 36.6 fils/kWh. The remaining 10% are ruralconsumers whose economic cost of supply is 70 fils/kWh compared with a tariffof 36.6 fils/kWh. Consequently, despite the economic subsidy extended torural consumers, the average tariff for JEPCO's overall sales at the lowvoltage level is at about 89% of the weighted average economic cost of supply,

1/ These figures include an additional I fils for each kWh bought by currentconsumers representing a contribution for the rural electrification fundwhich partly finances the national rural electrification program.

- 46 -

that is 36.6 fils/kWh compared with 41 fils/kWh. By contrast, about 80% ofIDECO's sales is to rural consumers, and despite the fact that the low voltagetariff in its concession area is about 55 fils/kWh which is higher thanJEPCO's average tariff by about 50%, it represents 85% of the weighted averageeconomic cost of supply of about 65 fils/kWh. TheW Government recognizes theinadequacy of existing tariffs for sales to the rural consumers relative tothe economic cost of supply; however, it maintains the economic subsidy onsocial grounds primarily to achieve some degree of equity among urban andrural consumers throughout the country. These subsidies should not be borne

by the utilities, and the Government has agreed tco review the cost incurred bythe utilities in serving the rural consumers and introduce a mechanism forcompensating them (para. 1.23).

V. AGREEMENTS REACHED DURING NEGOTIATIONS

5.01 Understandings have been reached: (A) with the Government that itwould:

(a) review the domestic prices of all petroleum products with theobjective of phasing out the subsidies over the medium term(1984-1989) (para. 1.19);

(b) provide the Bank with details of the arrangements andimplementation schedule agreed with the co-financiers and theactivities covered thereunder by not later than December 31,1983 (para. 2.16); and

(c) purchase the portion of IDECO's shares that remained unsold asof October 15, 1983 (para. 3.23); and

(B) with the Government, JEPCO and IDECO that the financial performance of

JEPCO and IDECO would be tested not only by cash generation objectives butalso by returns on operating assets valued according to a methodology to beagreed between the Government and the Bank (paras. 3.12 and 3.25).

5.02 The Government has agreed to:

(a) assign to EPU, in a timealy manner, the staff required to enableEPU to perform its administrative and technical functions underthe proposed Project and set in consultation with the Bank theoutline of a training program to strengthen the capabilities ofEPU's (para. 1.28); and

(b) fund the components of the Project for which the expectedcontribution do not matierialize by December 31, 1984(para. 2.04).

- 47 -

5.03 The Government and NRA have agreed to:

(a) keep separate accounts for NRA's share of the proposed loan and

appoint auditors, acceptable to the Bank, to audit the accountsand submit yearly audit reports for Bank review and comments6 months after the close of each year (para. 2.06);

(b) recruit experts whose qualifications and terms of reference

shall be satisfactory to the Bank by not later than June 30,1984 (para. 2.13); and

(c) review with the Bank the results of the geological studies priorto their implementation (para. 2.13).

5.04 The Government and NPC have agreed to:

(a) keep separate accounts for the proposed Project (para. 2.06);

appoint independent auditors acceptable to the Bank to audit theaccounts and submit yearly audit reports for Bank review andcomments six months after the close of each year (para. 2.06);and

(b) recruit in a timely manner an engineer with qualificationsacceptable to the Bank to head the energy conservation andrenewable energy section (para. 2.15).

5.05 The Government and JEPCO have agreed to:

(a) take all actions required to enforce (i) the collection from all

departments and agencies of the Government not later than March31, 1984, all electricity bills owed by them to JEPCO andoutstanding, as of such date, for a period of six weeks or more;and (ii) the collection thereafter all such bills within sixweeks from the date of their issuance (para. 3.04);

(b) take all measures as shall be required to enable JEPCO tomaintain a self-financing ratio of at least 25% after dividendpayments in 1983 and at least 35% in 1984 and thereafter, basedon its average capital expenditures for electricity operationsfor two years comprising the year in question and the nextpreceding year (para. 3.12);

(c) review at least three months before the end of each fiscal year,the adequacy of JEPCO's revenues to produce, on the basis of arealistic forecast, the agreed self-financing ratio for thefollowing fiscal year (para. 3.12); and

(d) determine, on the basis of the above review, the measuresrequired to achieve the agreed ratio, and consult with the Bankon these measures before the beginning of the following fiscalyear (para. 3.12).

48 -

5.06 JEPCO has agreed to:

(a) issue and sell new shares in a total amount which shall besufficient to enable JEPCO to meet its capital expendituresunder the Project; and consult with the Bank, in sufficient time

before the beginning of each fiscal year, with a view todetermining, in light of such construction and the capitalexpenditures of JEPCO during such year, the amount of shares tobe issued and the timing thereof (para. 3.10);

(b) obtain the Bank's prior approval for any new long-term borrowingunless the net revenue (before depreciation and interest) lessproposed dividends for each year during the term of the debt isat least equal to 1.5 times the projected debt servicerequirement for such year, on all its debt, including the debtto be incurred (para. 3.14);

(c) continue to appoint independent auditors acceptable to the Bankand to submit to the Bank audited financial statements for ayear together with the audit report not later than five monthsafter the end of the year (para. 3.15);

(d) take out and maintain with responsible insurers, or make otherprovisions satisfactory to the Bank for, insurance against suchrisks and in such amounts as shall be consistent withappropriate public utility practices (para. 3.16); and

(e) assemble by September 30, 1984, in consultation with the Bankand with the help of its financial consultants, a comprehensiveset of key indicators to monitor its technical and financialperformance (para. 3.17).

5.07 The Government and IDECO have agreed to:

(a) raise the customers' deposits from the existing level of onemonth's estimated consumption to two months' estimatedconsumption (para. 3.21);

(b) take all such measures as would be required to produce fundsfrom IDECO's internal sources equivalent to not less than 20%for each of the fiscal years 1984 through 1988 and not less than30% in 1989 and thereafter, of IDECO's average capitalexpenditures for electricity operations for two years,comprising the year in question and the next preceding year(para. 3.25); and

(c) review at least three 'months before the end of each fiscal year,measures necessary for IDECO to achieve the agreedself-financing ratio for the following fiscal year and toconsult with the Bank, on these measures before the beginning ofthe following fiscal year (para. 3.25).

- 49 -

5.08 IDECO has agreed to:

(a) employ consultants to assist in the execution of the Project toensure that project implementation would proceed in accordancewith the projected implementation schedule (para. 2.08);

(b) employ, not later than December 31, 1984, or such other date asthe Bank shall agree, a qualified and experienced financialplanner (para. 3.18);

(c) employ by June 30, 1984, experts with qualifications and inaccordance with TOR acceptable to the Bank to outline a plan forstrengthening planning, management and control and after takinginto account the Bank's comments, to implement promptly theexperts' recommendations by not later than January 1986 (para.3.18);

(d) improve its billing procedures with the assistance of itsconsultants (PCR) to reduce the receivables to six weeks salesby December 31, 1984 (para. 3.21);

(e) obtain the Bank's prior approval for new long-term borrowingunless the net revenue (before depreciation and interest) lessproposed dividends for each year during the term of the debt isat least equal to 1.5 times the projected debt servicerequirement for each year, on all its debts, including the debtto be incurred (para. 3.28);

(f) appoint independent auditors acceptable to the Bank and tosubmit to the Bank audited financial statements for a yeartogether with the audit report not later than five months afterthe end of the year (para. 3.29);

(g) take out and maintain with responsible insurers, or make otherprovisions satisfactory to the Bank for, insurance against suchrisks and in such amounts as shall be consistent withappropriate public utility practices (para. 3.30); and

(h) assemble by December 31, 1984, in consultation with the Bank andwith the help of its financial consultants a comprehensive setof key indicators to monitor its technical and financialperformance (para. 3.31).

5.09 The signing of the subsidiary loan agreements between the Governmentand JEPCO and IDECO will be a condition of loan effectiveness (paras. 2.04 and2.05).

5.10 Subject to the foregoing understandings and agreements the Projectwill be suitable for a Bank loan of US$30 million for 17 years including agrace period of 4 years.

November 1983(1085P)

- 49a -ANNEX 1.1Page 1 of 2

JORDAN

ENERGY DEVELOPMENT PROJECT

Load Forecast and Existing and PlannedPower Facilities

Load Forecast

1. Electricity sales are forecast to increase at an average annual rateof about 197o for the period 1983-1987, from 1,363 GWh in 1983 to 2,900 GWh in1987. The high rate of growth is primarily due to the expected increase inJEA's direct sales to the large industrial consumers. Maximum demand wouldincrease from 244 MW in 1981 to 690 MW in 1987. Generation capacity wouldincrease from 540 MW in 1983 to 850 MW in 1987. The system's load factor isexpected to improve from 49% in 1983 to 70% in 1988, as a result of theplanned improvement in the utilization of generating plants. Sales to JEPCOare expected to decline as a percentage of JEA's total sales, from 80% in 1983to 54% in 1987. Sales to large industries will increase from 12% of JEA'stotal sales in 1983 to 31% in 1987, reflecting the development of severallarge industries in the Central and Southern Regions. The forecast ofelectricity sales by JEPCO and IDECO are presented in Attachments 1 and 2.

Existing and Planned Power Facilities

2. Generation: In 1982, the extensions of the Hussein steam plant (3x66MW) and the diesel plant at Aqaba (3x5 MW) were completed. The fourth andlast unit (66 MW) of Hussein plant was commissioned in 1983. The next majorinvestment in power generation involves the construction of the first phase oftne oil fired steam power plant at Aqaba (2x130 MW) which is cofinanced by theBank (Loan 2162-JO). The implementation of Aqaba is progressingsatisfactorily and commissioning of the station is expected in 1986 asoriginally planned. This station would be connected with the power system bya 400-kV transmission line linking the power plant to Amman.

3. Transmission: About 880 km of 132-kV transmission lines and 914 MVAin substation transformer capacities were in operation by end-1982. Another1,060 km of transmission lines and substations with combined capacity of 749MVA would be commissioned between 1983 and 1986. The 132-kV transmission linefrom Ma'an to Aqaba, which was commissioned in 1983, resulted in theinterconnection of the Northern, Central and Southern regions and the current

operation of the power system in Jordan as a fully interconnected system. TheJordanian and Syrian power systems are interconnected through a 66-kVtransmission line for exchange of electric energy. A 230-kV line from Irbidto Damascus with a 100-MVA transformer substation at Irbid have beenconstructed, which allows synchronous operation of the two power systems.

4. Distribution: The planning of the development program fordistribution is divided among JEA, JEPCO and IDECO, depending on the area.The distribution networks in Jordan are designed by experienced foreignconsultants and follow British standards. JEPCO and IDECO design and

- 49b -

ANNEX 1.1Page 2 of 2

implement their programs with the assistance of consultants. JEA plans andexecutes its own program and provide s IDECO assistance in design when needed.JEA's distribution expansion program for 1981-1986, includes about 150 km ofoverhead lines and 120 MVA in substation transformer capacity. JEPCO plansinvolve the extension ana reinforcement of network in its concession area byconstructing 140 power substations with a combined installed capacity of 170MVA, and 250 km of cables and 80 km of overhead lines at medium voltage (33-KVana 11-kV). Furthermore, about 530 distribution substation will be built.JEPCO has also started a program for reinforcing the urban distributionnetwork by upgrading the existing 6.6-kV system in Amman to 11-kV. By 1986,JEPCO's distribution losses would be reduced from 9.8% to 8.7% and the accessto electricity is expected to increase from 72% t:o 91% (Attachment 3).IDECO's distribution plans include t:he reinforcement of the distributionnetwork in the city of Irbid by closing the 3.3-kV ring, the construction of anew 3316.6-kV substation, and the installation oif 6.6-kV underground cables.By 1986, IDECO's distribution losses would be recduced from 15.6% to 14%. Theaccess to electricity in IDECO's corcession area is expected to increase from69.3% to 92.8% (Attachment 4).

5. Rural Electrification: JEA has prepared, in collaboration with JEPCOand IDECO, a national rural electrification plan covering all villages to beelectrified in the period 1981-2000. At present, 232 villages with a totalpopulation of 585,000 have been electrified. As a result, 60% of the ruralpopulation in Jordan has access to public supply of electricity.

PopulationYear No. of Villages '000

1985 491 8991990 576 9281995 770 9472000 900 907

Jordan's national program for rural electrification has been supported byassistance from bilateral soft loans (Denmark, UK and USA), equipment andmaterial (USSR), and loans from the national budget, the Bank and othermultinational development agencies. A soft loan from Denmark covered the costof 21 small mobile diesel generating sets for remote villages in the southernregion. The loan from the UK was used to connect 30 villages in District ofIrbid to the central grid. The USSR provided materials and equipment for theextension of public supply of electricity to 100 villages in the District ofIrbid and 32 villages in the District of Amman. The proposed Project wouldcover the cost of equipment and material and consulting services to make useof the Soviet equipment currently stored in IDECO's warehouses. A loan fromUSAID of US$9 million was used for the supply of materials and equipmentneeded to connect 37 villages and two low cost housing areas in JEPCO'sconcession area to the national grid. The Bank loans (1688-JO and 1986-JO)financed the extension of public supply of electricity to villages in JEPCO'sconcession area and in the areas served by JEA.

July 1983(1253P)

- 50 ANNEX 1.1

Attachment I

JORDAN

ENERGY DEVELOPMENT PROJECT

Jordanian Electric Power Company (JEPCO)

Forecast of Sales (GWh) by Consumer Categories

1982 1983 1984 1985 1986 1987 1988 1989 1990DomeSLlc 269.0 310.7 360.6 421.3 497.9 565.0 628.2 726.9 819.8

wommercial 115.2 127.2 136.0 152.8 167.3 180.1 194.1 206.2 220.7

industrial 141.6 167.6 194.4 216.3 244.1 278.7 298.2 328.2 356.1

iiospitals, etc. 96.4 112.8 133.2 148.9 161.6 182.3 186.1 196.3 206.1

Water Pumping 63.8 b8.7 76.8 86.3 92.1 99.2 105.2 111.7 115.0

Street Lighting 12.1 12.8 13.5 14.4 15.7 17.1 18.3 19.4 20.5

others 15.9 17.8 21.6 25.3 20.0 31.0 49.0 41.2 39.7

Total Sales by JELPO 728.0 817.6 936.1 1,065.3 1,198.7 1,353.4 1,479.1 1,629.9 1,777.9

Distribution Losses (X) 9.8 9.6 9.4 9.0 8.7 8.0 8.0 7.4 6.4

Total bold to JEPGO 807.2 904.2 1,036.3 1,172.1 1,313.4 1,460.6 1,607.9 1,760.2 1,901.2

May 1983

( l.5oP, p. 1)

ANNEX 1.1Attachment 2

JORDAN

ENERGY DEVELOPMENT PROJECT

Irbid District Electricity Co. Ltd. (IDECO)

Forecast of Sales (GWh) by Consumer Categories

1982 1983 1984 1985 1986 1987 1988 1989 1990

Domestic 54.0 63.5 74.5 90.1 107.7 126.7 147.4 173.3 198.6

Commlercial 8.8 11.0 13.8 16.0 18.6 20.5 23.8 27.0 31.4

Industrial 8.7 9.6 11.6 15.8 19.2 19.4 25.4 29.2 33.9

Hospitals etc. 12.9 16.6 20.4 24.6 30.0 35.6 38.0 42.3 49.0

Water Pumpinig 24.5 30.4 36.4 39.6 44.5 54.5 63.4 70.8 80.0

Street Lighting 5.7 6.9 8.3 11.9 14.0 16.4 19.0 22.4 26.1

Total Sales by IDECO 114.6 138.0 165.0 198.0 234.0 273.0 317.0 365.0 419.0

Distribution Losses (M) 15.6 15.0 15.0 15.0 14.0 14.0 14.0 14.0 14.0

Generated by IDEGO 16.7 22.0 18.0 16.0 14.0 12.0 12.0 10.0 10.0

Purchased by IDECO 119.1 140.0 176.0 217.0 258.0 305.0 357.0 415.0 478.0

'A)TAL AVAILABLE ENERGY 135.8 162.0 194.0 233.0 272.0 317.0 369.0 425.0 488.0

May 19b3(1253P, p. 9)

- 52 -ANNEX 1.1

Attachment 3JORDAN

ENERGY DEVELOPMENT PROJECT

Jordanian Electric Power Company (JEPCO)

Forecast of the Rate of Electrification RE(%)

URBAN AREAS RURAL AREAS' TOTALAvailable Existing Available Exist:ing Available Existing

Year Consumers Consumers RE% Cmnsumers Consunmers RE% Consumers Consumers REX

1982 226,11) 17J,655 77 30,260 10,380 34.3 256,370 184,035 72

1983 237,350 191,020 80 31,260 15,320 49 268,610 206,340 77

1984 249,230 210,120 84 32,290 20,350 63 281,520 230,470 82

1985 261,660 231,130 88 33,360 26,390 79 295,020 257,520 87

1986 283, D9O 254,250 89 34,460 27,940 81 318,050 282,190 89

1987 302,230 277,500 92 35,600 29,400 83 337,830 306,900 91

1988 312,150 292,480 94 36,780 30,630 83.5 348,930 323,110 93

1989 319,940 302,950 95 37,990 31,950 84 351,890 334,900 95

1990 328,160 315,500 96 39,250 33,360 85 36,741 348,860 96

May 1983(1253P, p. 2)

- 53 -ANNEX 1.1Attachment 4

JORDAN

ENERGY DEVELOPMENT PROJECT

Irbid District Electricity Company (IDECO)

Forecast of the Rate of Electrification RE(%)

URBAN AREAS RURAL AREAS TOTALNumber of Existing Number of Existing Number of Existing

Year Households Consumers RE% Households Consumers RE% Households Consumers RE%

1982 28,010 25,046 89.4 47,290 27,134 57.4 75,300 52,180 69.31983 29,430 26,550 90.2 50,320 36,100 71.7 79,750 62,650 78.61984 30,840 28,080 91.0 53,380 43,640 81.8 84,220 71,720 85.21985 32,290 29,670 91.9 56,250 52,040 92.5 88,540 81,710 92.31986 33,890 31,420 92.7 59,050 54,790 92.7 92,940 86,210 92.81987 35,660 33,350 93.5 62,210 57,820 92.9 97,870 91,170 93.11988 37,300 35,190 94.3 64,910 60,310 92.9 102,210 95,500 93.41989 39,090 37,200 95.2 67,800 62,980 92.9 106,890 100,180 93.71990 41,060 39,420 96 69,840 64,830 92.9 110,900 104,250 q4.0

June 1983(1253P, p 8)

-54 -

ANNiEX 1. 2JORDAN Page 1 of 5

ENERGY )EVELOPMENE PROJE.T

EnLergy Plal of Action fcr 1983-1985

Action Status of FPnan-

ussues Cbjectives 1-cciaimendationi Studies laken Studies csp>

I. EPIERGY RESOCUEZS

A. Oi I aiale

a) fecni,logies for tae utili- a) Prepare grounds-srr for a) Pcstpnaa, for a: least a) Reassess the economic Slow du,r- trter- Lou t/zationi or oil slaae are tuture exploitation of oil 1C years, plans to viability of retortirg the program, natiorna Canaanstill at a wery ar.y stage snake deposits, pailding build com-LuercLal size asnd direct crrbustron Appoino a revie, Aidor developrent worldwide advaLicerent in tedmnolo- plants for either re- bascd on econarac prices paral of pa-el(para. 2.08); gi-al research asroad; tcrting or pose arn wages to deter-nire experts to selected

L) NIA's program for tre devel- D) minimize use of dusrestic generation; which redinology is review re-

operoot of oil as.le resoor- financial resources and b) scale coas the explra- mr,e appropriate for results ofces is proceedirg too rely more extensively on tory wcrk plerred for Jordan, and prepare orgoingrapialy, toreatelling to bilateral aid. Al-OQtranah sall Al- systerratic and detailed studiesoverburden tLe cauntry's aIsseineyyah and con- prefeasibility and fea-fina±riel art nuOman centrate efforts for sibility studies ofresources (para. 2.06). tie next five years mine and plants;

at: El-iajjun. b) ursertake arn evaluationof the extent of under-ground water whicnh wculdbe needed for the toera-tion of an oil shaleplant.

B. Oil and gas

J) a) Ire present exploration 1) axiraize proDability of 1) a) Cort inue acquisition Lecisiorn to Teros of Prcoe tprograrn is very wicespread, discovering ccamercial or high quality seistic improve qua- zefererne -Bank

attempting to evdluate ail oil and/or gas accuamala- data; lity of data for resi-rhe prospective areas in a tions by carrying out b) process and interpret arid seek dent ex-

vwry stort tire; geological and geophysical seisimic data in accordareo expert in perts to

D) a large aniout of seismric studies of a high tech- with industry srandards petrole-rs ex- ba provi-

data nave teen acquirea macab nical level. tc make sure that adequate ploration ded by anot wnicn needs special suwsurface data is available acd drilli-g. inteara-roceassing retnods; tc justify tre drilling tional

cj drilling operations are effort (para. 2.18); fire havearmertaken switaout (c) in case 1%A undertakb bean re-

sufficient hign quality exploration driLling itself, viewed withsersmic data. ccntract additional geo- _- Batnk,

physical and ergiraerifgservices ar-d prepare Lecisii n to ist of Project

massive training program strergtben training -Barnkfcr iae staff (oars. 2.19). RA's capa- courses

bilities. sequisedagree dviri ta theBank

2) intetiational oil caspanies 2) Attract foreign oil ccapa- 2) a) Offer updated packages Decision DR for Prajectnav demroostrated a lack nies to undertake explor- o. geological assessrent to prepare consul- -Banaof interest in exploring in ation drillirg. for review to foreigi better tant to

Jorda. Ipara. 2.,o). csxpanies (Annex 2, package to reviewpmra. 35); attract in- contractb ) review contract agree- ter-national aigreersantwsnts to offer incentives fins., has beenfor foreip firms to agreed1idertake exploration wind theii drillii in Jordan Bank,.(¼Arex 2, para. 36).

(1407P)

- 55 - ANNEX 1.2Page 2 of 5

Action Status of Finan-Issues 0otjectipas Reccmiendations Studies Taken Studies cing

C. kothermal Energy

Um:ertainty aS tL ti dulid a viable syste,n for the Complete geological work a) Assess tne size ard quality Asess- Phase I Gov't/extent ot viability of extraction and utilization of before exploiting tie of the geotheosal energy re- nsent of of assess- lUSAIDtne resource as a source geotnzreal eiergy froa tbe resource. scxwce from Al-Zarah and Zarqa size & sent ccraot renwwable energy springs at Al-Zarah and Zarqa Ma'in. quality. pleted.(para. 2.21). s M'in. b) Aasess the possible applica- P hase II

ions of geoti-erral energy and is aboutdeternine the optimal nix of to start.potential uses.c) Assess enviroreental iinpactof use of geothenml energyresource s.d) Prepare detailed engineeringdesign and cost specificaticnsfor the application identifiedabo'. (Anrex 3).

D. Rrenwable Eiergy

1) (Xi-going activities ini rerew- 1) Maximize the potential for l) Inpletent inuediately 1) a) Assess Jordan's renewable Inclusion TOR of Proj.-able energy are progressing dewloping rerewable energy demonstration and re- energy resources in detail of stu- studies Bank/tn a p).eceemal fashionx and resources. search projects focus- with particular focus on dies under hawe USAm/laci conererce (para. 2.23). sing on applications of solar and wind energy. l(a) and been Gov't

soiar energy to water b) Undertake a planning l(b) in reviewedand space heatirg, wind/ study to establish priori- Bank with thesoiar thermal electricity ties anong various rerewable Project Bankconversion systems, and energy technologies and topassiwv greenhouses. fornulate a strategy for

their application.

2) a) Private production of 2) Increase the competitivaeness 2) a) Encourage manufac- 2) Assess potential for exportsolar collectors is ur- of the locai solar collector turers of soiar collec- of solar collectors to thereguiatUec anu quality ot manufacturing industry. ters to improw quality, ilf countries (Amrex 4,Production is not starlaro- reiiability and cost of para. 10).ized. output (para. 2.24).D) 'Ie operation of several b) Install facilitiesproducers of solar coilectcrs for the testing andrnanpers ecLnomies of scale. standardization ofc) Imported equiprent for solar collectors andne manufacture of soiar col- provide oewrall techdni-

lectors is tared wnile ealec- cal assistance to localtricity and diesel oil used -manufacturers.tor tne safe purposes are c) Eliminate import dutiessubsidized (para. 2.24). on equipoent used in the

manufacturing of solarcollectors.

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- 56 - ANNEX 1.2

Page 3 of 5

JODN

AIct ion Status of Finan-Issues Oijectives ReccmTendations Studies Taken Studies cirg

II. SUPILY OF EINERGY

A. Petroleum products

1) Jordan suid need to axpatd Sisure that the future 1) a) Uidertake a detailed Stop all Study by Gov'toad rationaiize its oil derind for energy is set at assessaent of the pat- plans re- Willians

reftunn cagacity before least coast to tfe econamy. tern of the future lating to Brothersl96d althougi it is not in- consumption of petroleumr dev. of 0(K) iscluded in tne inrstrent products, the use and the infra- currentlyprogram tor t9b1-t9d5 location of deTand structure underway(para. 5.09). (para. 5.09). relating in accor-

b) Assess pDtential for to tle dance withsubstitution of coal and/ processirg, 1DRor gas for petroleum transport, acceptableproducts to meet the storage & t) thefuture demand of energy distribu- Bank.(para. 5.10). tion of Study wauldc) Review various alter- petroleum be corxnatives for the expansion products, pletedof tlhe refininig capaci- until stu- by June 1,ties to determine tie dies under 1983optimal configuration (1) & (2)for oil refinirg are comi-para. 5.10). pleted.

2) Ihe transportation, storage, 2) a) After campletion of theand distrioution ot petro- above assessaents, undertaketeLn products is hignly a study for determining theirentficient (para. 8.19). optimal configuration for

the infrastructure for thetransportation, storage anddistribution of petroleumproducts (Ar.ex 7,para. 16).b) lUnertake a study todetermine the feasibilityof building a pipeline toimport gas from SaudiArabia.

3) Lie eniergy ccnaesiption of 3) Undertake a detailed study Irrlusion JOR Proj.-tfi existing refinery is for assessing the potential of refinery for Bankrelatively highi (para. b.i8). for energy saving in refin- in the Study

ing through retrofitting industrial providedand diarges in the equiprent energy con- by tieused (Arnex 10, Attach- servation Bank.ment 2). program.

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- 57 - ANNEX 1.2Page 4 of 5

Artion Status of Finan-Is.es (Jbjectives Recc1mendations Studies Talen Studies cing

B. Eiectricity

1) Fuel cinsuaptiion in pover hmprove tne overall manage- 1) Undertake a load research Undertake TJR would Project/plants is relatively ineffi- arnt of the power sector. and m5annent study to set a detailed be fina- Bank.cient (para. 8.2a). a fraaterk for managing audit of lized by

the demand of electricity the pwer July 31,consumption and the facili- plants. 1983.ties in the sector tosupply electricity at leastcost to the econasy andto improve the efficiermyof pawer plants (Annex 10,Attachmnt 3).

2) fransm.ssioa and distribu- 2) Undertake a study for Undertake 1DR would Project!tion lcoses axe higi identifying the sources of a load be fina- EE.(para 4.12). the high losses at the managment lized by

distribution leve 1 and and July 31,propose a system for research 1983.standardizing the equip- study.ment and material usedin the system (Armx 10,Attachment 4).

III. ENEICY PLANNING

A. Institutions

a) Jhere is an oaerabundarce Strengthen the local capabili- a) In the imediate Undertake a sector organization Postponed Pecruit- Project/of awncies in the energy ties for energy planning. future, assign the study to detenrine whether the decision aent UNDPsector wiru an inevitaole responisiblity for new agenry proposed by the to create for staff and Bank.aispersamxi ot numan, iunancial energy planning to Coverrnent is needed, to pro- energy is under-and administrative resources the National Plan- pose a structure for the Corpora- way andamong them. ning Council sector, to identify esponaibi- tion and D)R for

(para. 3.09). lities of the institutions as an expatriateb) No single entLty bas tne b) Strengthen WC's and to recca end the staffing interim advisorsfull responsibility for tie staffing by consoli- and finarcial resaorces needed measures would betonwilation, coordination and dating all the for each (para. 3.12). created finalizedipleaentation of energy plans available expertise erergy byIpara. 3.U8). in the sector in a unit at Aigest 31,

new section specifi- WC. 1983.fically designatedfor energy plaxning(para. 8.12)

B. Energy Data

thta on energy consumption Establish the technical a) Undertake a study to iden- Approved MOR for Project/in tne various sectors of the infonuation system necessary tify the essential energy and the the task USkID.econory is dispersed and for plamnirg the future econmaic data needed for plan- creation would beiadequate Ipara. 8.08). development of tie energy ning and to desiga a system for of a finalized

sector. the collection, organization, statisti- bystorage and retrieval of this cal analy- July 31,data (Amnex 10, Attachment 1). sis section 1983.b) Following the start of the at NPC.energy data base study, under-take a study to disaggregatethe input/output model andextend the macroeconmic node 1of the Bank to include anenergy sector submodel.

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58 - AlNNEX 1.2Page 5 of a

NDIA

Action Status of Finan-

Issues Obectixes Pecactendations Studies Talen Studies cir

IV. DILtIAN) MANACEN

A. Conservation

Woasumptron of energy nas beeni Irnprowe tne manageameolt of After completion of the Undertake energy audits of the Inclusion TOR for Pro.-grcwilg wry rapidly in the energy demsnd tllroug conser- energy audit studies, major energy consuners in the of the re- tihe au- rbnkrast ten years (para. o.2o). vation. estabiish desigis for industrial sector (crennt and carended dits ha')m

retrofitting equipnent and building materials fertilizers, industries been pro-procure adequate material phosphate, oil refining, etc.) in the vided by(para. 8.28). and of power plants Gov't's tle Bank

(!j-emx 10, Attachment 2). industrialconserva-tion program

B. Energy Pricing

i) ansestic prices for gasoil/ Price energy products at their 1) Set fin end of 1985 as 1) Assess tne inrpact of raising Gradual Study Bank

diesel, fuel oil, kerosere, econrmxic cost to ensure optimal the target date for the prices for petroleunm mo.msent isard jet tuel are belcw utilization of resources in tne adnievirg parity betwaen products to eliminate tie prices. currentlytneir border prices econcny. domesstic and border subsidies (pars. 6.10). In 1982, underwjay(para. o.03). prices for gasoil/Jiesel, the petro- in con-

fuel oil, and aviation leun sub- juTrtion

fuel (para. 6.07). sector co- with re-

vered from gional

the reve- sectorinues gene- work

rated by programtaking light-distillates.The subsidiesextenided to tinconsuisers ofmiddle dis-

tillates andheavy fuels

2) Electricity tariffs are 2) Intul-duce increasing 2) tindertake a study to assesssuDstantially oelue tie block rates into the tie inpact on the resourcesecunomic cost of supply low-voltage electricity mobilized by tie subsectorbpara. 6.13). tariffs (paras. 6.15- and the consuners of intro-

6.l7). ducing increasing blockrates for sales at the low-

wltage le\el (para. 6.17).

June 19aJ

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-59 ANNEX 2.1Yage 1. ot 13

JORDAN

ENERGY DEVELOPMENT PROJECT

Detailed Project Description

1. The proposed Project is designed to ensure that the involvement ofthe aid donors, international organizations and the Bank in the implementationof the EPA is coordinated into a set of complementary or sequential taskswhich would provide the elements needed for the formulation of the envisagedlong term plan for energy. The Project would involve 5 components: PetroleumExploration; Power Distribution; Energy Conservation, Renewable Energy andEnergy Planning.

Petroleum Exploration

2. Several foreign oil companies explored in Jordan between 1946 and1978. Geological and geophysical programs were undertaken through which 14exploration wells were drilled and oil and gas shows were encountered.However, as a result of their exploration work, the oil companies concludedthat "Middle East-sized oil fields" were unlikely to be present in Jordan, andby the mid-70s, all the firms had abandoned exploration work in Jordan. TheGovernment, while concerned about the lack of interest shown by the oilcompanies, remained convinced that the oil and gas potential of the countryhad not been fully evaluated. In 1976, NRA embarked on an exploration programfunded from the national budget. Two foreign consulting firms were appointed,BEICIP (France) and Welldrill (UK), to review past exploration data and toformulate an exploration program. The firms recommended additional seismicwork whicn was subsequently executed and interpreted by Compagnie Gfnfrale deGiophysique (CGG), a French firm which undertook additional geological andgeochemical studies. In 1980, the new data was presented to the oil industry;however, despite some initial interest, in the end not a single oil companyacquired exploration rights. The lack of interest by the internationallyreputable firms was due to: (a) the complex geology of Jordan and thelikelihood that all discoveries would be smaller than required to attractlarge oil firms; (b) the poor quality of some of the geological data whichfailed to provide conclusive evidence of the prospects; and (c) the inadequacyof the geophysical methods used in properly mapping the geologicalstructures. The technology has since then improved to provide the means forupgrading the quality of geological data and employing new methods for mappingcomplex geological structures similar to those found in Jordan. However, tothis date, NRA has not been able to make use of these developments mainlybecause of the shortage of local expertise.

3. The disappointing response by the foreign companies to the packagesoffered in 1980, prompted NRA to continue its own seismic work in addition to

embarking on an exploration drilling program. By the end of 1982, threeseismic parties were under contract, and about 8,000 km of seismic lines havebeen profiled. The results obtained showed a definite improvement in thequality of seismic data. Concurrently, NRA contracted a drilling rig fromNaftagas (Yugoslavia) to implement its exploration drilling program. Twowells were drilled near Wadi Rajil, and the drilling of a third one is under

- 60 -ANNEX 2.1Page = ot 13

way. Several possible oil bearing horizons have been found in these wells.Testing is under way with a workover rig, contracted by NRA from Naftagas.Seismic surveys will continue through 1983 with one, or possibly two, crews.The present program foresees acquisition of over 6,000 km of new seismiclines. Intensive seismic processing and the reprocessing of 15,000 line kms.of previously recorded data is indeed required for all areas and new seismicacquisition and processing methods need to be employed in the geologicallycomplex areas such as Northern Highlands and the Dead Sea Graben. TheGovernment wishes that processing and interpretation of seismic data becarried out in accordance with industry standards to ensure that adequatesubsurface data is available to justify the drilling effort. After theresults of the seismic work are known, NRA would make a new attempt to attractthe interest of oil companies. In the unlikely event that no foreign companyexpresses interest in the results, NRA would undertake the explorationdrilling itself. This, however, would require high level technical personnel,not only for the actual drilling operations but also for the attendantpre-drilling work. In order to overcome this shortcoming, NRA has concludedtechnical services agreements with Welldrill (a UK consultant for oilexploration and production matters) and with INOC (which has secondedengineers to NRA).

4. However, before undertaking a full petroleum exploration drillingprogram, NRA should explore to the fullest extent the possibilities ofattracting international oil companies to undertake exploration work in Jordanby strengthening the technical capabilities of its staff in order to improvethe quality of the geological data offered for these companies'consideration. The improvement of NRA's capabilities and the quality of itsdata would have 2 advantages: (a) it would improve the chances of attractingforeign oil firms to undertake exploration contract in Jordan; and (b) preparethe authority's staff for undertaking a comprehensive exploration drillingprogram in case the foreign oil fir-ms continue their disinterest in Jordan.In order to achieve this objective, the petroleum exploration component of theProject, would cover the cost of a program aimed at strengthening NRA'stechnical capabilities for undertaking the sophisticated geological workrequired to plan and implement an exploration drilling program, and to preparepackages that would attract international oil companies in Jordan. Thecomponent would involve four elements: (a) equipment and material; (b)consulting services; (c) training of NRA's staff; and (d) advanced seismicprocessing.

(a) Equipment and Materials: The ongoing program for explorationrequires the upgrading of NRA's laboratory facilities to improve thequality of analysis and results. The proposed Project would coverthe cost of microscopes for micropalaeontology and palynology,petrography, geochemical equipment, equipment to determine porositiesand permeabilities from core and rock samples and cement testing.

(b) Consulting Services: NRA requires the services of consultants withexpertise in petroleum geology to supervise and participate inprospect mapping, log interpretation and supervision of the geologistin the wells unit; a senior drilling and production engineer toassist in the supervision of the drilling program and advise on well

- 61 -ANNEX 2.1Page 3 of 13

testing operation and completion techniques; two stratigraphers toestablish a stratigraphical framework of the mesozoic and paleozoic

formation; seismic specialists to assist and advise NRA in theacquisition, processing and interpretation of geological data. Inaddition, the Project would cover the cost of three man-months ofconsulting services to undertake a study for determining whether the

capacity of NRA's computer financed by USAID for the storage of dataon groundwater could allow for the compilation and storage of

geological data. The Project would also cover the cost of consultingservices to assist NRA in drafting a new petroleum law; and

(c) Training: NRA has at present about 20 technical staff withexperience ranging between 2 and 20 years; however, only few have haddirect exposure to modern petroleum exploration and productiontechniques. A set of courses on oil exploration and petroleumengineering have been selected to overcome this weakness. About 20of NRA's staff would be trained annually over a period of about threeyears. The duration of these courses is expected to range between Iand 2 months;

(d) At this moment 15,000 line kms of previously recorded data areavailable to NRA. One seismic crew provided by Iraq National OilCompany (INOC) is operating in Jordan with an expected production of2,000 km/year. The Project will contain a component to reprocess olddata where necessary and apply very advanced processing techniques tocritical parts of the old and new data.

Power Distribution

5. The 1981-1985 program for the development of the urban and rural

distribution program in the areas served by JEA, JEPCO and IDECO wasformulated in 1980. The Bank has financed (Loan 1986-JO) a slice of thatprogram in parallel with other commercial, bilateral and multinationalorganizations and financial institutions. However, with the growth of demandat it currently projected rate, it is expected that by 1985 or at the latest1987, the capacity of existing grid would reach its maximum capacity andunless the network is reinforced, the level of technical losses would increaseand the quality of service would deteriorate significantly. Moreover, theimport of small diesel power generators by the rural households without accessto public supply of electricity has recently started to increase atunprecedented rates. The recent family expenditure survey completed in 1982showed that the rural households without access to public supply ofelectricity allocate a greater proportion of their disposable income tomeeting their demand for lighting and other small household uses by generatingtheir own electricity using diesel oil, the product which continues to be inshort supply in Jordan because of the present configuration of the country'sonly refinery at Zarqa. Consequently, the Government has stepped up itsefforts in extending public supply of electricity to the rural areas. The

accelerated program for rural electrification is currently underimplementation. JEA has secured financing from the local market and bilateral

- 62 -ANNEX 2.1Page 4 of 13

aid agencies. However, JEPCO and IDECO continue to experience shortages intheir finances for the implementation of their rural electrification program.

6. The distribution component of the Project addresses difficultiesbeing experienced by JEPCO and IDEC0 in implementing their revised least costdevelopment program for 1983-1986 by providing foreign exchange financingfor: (a) the extension and reinforcement of the urban distribution networksin both JEPCO's and IDECO's concession area; (b) the extension oE publicsupply of electricity to about 55 villages in IDECOs concession area; and (c)the strengthening of the capabilities of IDECO's staff in financial planningand control.

(a) Extension and Reinforcement of Urban Distribution Network: The urbandistribution network in the concession areas of JEPCO and IDECO wouldbe extended to allow for the supply of electricity to about 25,000new consumers. It would replace equipment that are currentlyoverloaded to ensure improved quality of service and corntributetowards the reduction of losses from 9.8% in 1982 to about 8% by 1987and 6.4% by 1990 and from 16% in 1982 to 14% in 1987 for JEPCO andIDECO respectively. The Project would also result in the doubling ofsome main feeders which would provide uninterrupted supply to thepockets of high concentration of consumers and raise the level ofreliability; and

(b) Rural Electrification: The Project would extend public supply of

electricity to about 16,000 rural consumers in 77 villages in IDECO'sand JEPCO's concession areas. This would increase the access ofrural consumers to electricity in IDECO's concession area from thelevel of 57.4% in 1982 to 92.5% in 1986 and in JEPCO's concessionarea from the level of 34.3% in 1982 to 79% in 1986. It woulddisplace kerosene and diesel oil currently being used for householduse and irrigation pumping.

Energy Conservation

7. Jordan is one of the most energy initensive economies among the

developing and industrial market economies. The intensity by which energy isconsumed (energy intensity), measurelf as the ratio of energy consumption andGNP, was 0.617 toe/1,000 GNP which was higher than the energy intensity ofJapan (0.323/1,000 GNP), France (0.335/1,000 GNP), Italy (0.437/1,000 GNP),Turkey (0.404/1,000 GNP) and the UK (0.595/1,000 iGNP). This high level ofenergy consumption per unit of incoma is primarily due to the high share ofenergy consumed by the transport sector which accounted in 1982 for about 50%of the overall consumption of energy, and the industrial and power sectorswhich account for another 38%. The Government is currently financing acomprehensive transport study which would outline a strategy for thedevelopment of the transport sector that would ensure the optimal combinationof the modes of transport. In addition, the Bank is currently financing astudy as part of the economic sector work for the formulation of structure fortaxing the petroleum products used by the transport sector, The Governmenthas also taken major steps in eliminating the subsidy for petroleum products

- 63 - ANNEX 2.1Page o or 13

which -1-.uld induce conservation in the use of these products a m-resources fKŽr the public sector. As for the industrial sector and the rowersubsector, their consumption of energy has been found to be more sensitive tothe growth of income than the increase in the prices of petroleum productsused. For example, since 1979 the average tariff has increased by abouW 2002

to accommodate the 190% increase in the price of fuel oil and diesel oil;however, the consumption of electricity continues to increase unabated at anaverage annual rate of about 16%. However, despite the increase in the prices

of industrial fuels, the consumption of energy by the industrial sector hasincreased at an average annual rate of 15%. Therefore, the only means bywhich Jordan can restrain the growth of the future industrial consumption ofenergy would be by intervening in the productive processes through betterenergy management, retrofitting, and at times, rehabilitation of entireindustrial processes.

8. In order to achieve the desired reduction in the overall energyconsumption, there is also a need to complement the direct measures withindirect measures aimed at providing the incentives for the consumers toconserve. Such measures include pricing, and tax rebates for both theinvestment in conservation and the shift to lower value products. However,the formulation and implementation of a consistent demand management policywould require at least two years. In the interim and as a first step inreducing the overall consumption of energy, the efforts should be concentratedon the major energy intensive industries. It is estimated that in 1982, fivemajor industries comprised of at most 10 plants accounted for 41% of theoverall consumption of energy (804 thousand toe of a total of 2,039 thousandtoe). These are petroleum refining (221 thousand toe), cement and buildingmaterials (141 thousand toe), phosphate and fertilizers (171 thousand toe),potash (20 thousand toe) and power plants (251 thousand toe). Preliminaryevaluation and comparison of the energy consumption of these industries withsimilar industries elsewhere indicate that an energy saving of between 15-20%for each can be achieved once investment in conservation and processimprovement is undertaken and a system for better energy management isdesigned and implemented in each plant under the full responsibility of atrained energy manager. The Project would cover the cost of consultingservices required to outline a strategy for improving the energy efficiency ofthese 10 industrial plants to formulate and implement an industrial energyconservation plan. The formulation of a fiscal plan for conservation would beaddressed under the energy planning component.

9. The conservation component would involve three elements: (a) energyaudits and project preparation; (b) training in energy conservation; and (c)equipment and material.

(a) Energy Audits: Only the aggregate consumption of the major energyconsuming industries are known. Details of the energy balances forthe processes involved are virtually non-existent. Moreover, some ofthese industries, if not most, are utilizing technologies most ofwhich were introduced during the era when energy cost was low(refinery, cement, building materials, etc.). The Project wouldcover the cost of energy conservation studies. The studies would be

- 64 - ANNEX 2.1klage b ot 13

undertaken in 3 phases. Phase I would review and establish an energybalance for each process within a plant and aggregate them in anoverall energy balance for each plant. This would make possible theidentification of the areas where savings in energy could be achievedwith better management or with some minor investment. This phasewould provide an estimate of the potential for conservation withoutmajor investment and a rough estimate oif the savings that could beachieved with major investments. The resulting output from Phase Iwould be a matrix of various levels of iinvestments and thecorresponding savings by plant which wotuld allow the Government theopportunity of whether to restrict the action to better energymanagement or proceed to more detailed assessment of the majorinvestments required. Phase II would provide a more exact estimateof the investment required to improve the energy efficiency of eachprocess and the net saving attributable to the investment, as wellas, the pay back period ancL the return on investment. This phasewould provide the Government with a rankcing of the investment inenergy conservation. Phase III would follow with the basicengineering design, the specification oi- equipment and thepreparation of bidding documents for the industries where investmentin new equipment and processes is deemed justified from the economicpoint of view.

(b) Training in Energy Conservation: So far, little has been done by theGovernment in creating the institutional framework needed to promoteenergy conservation measures and to prepare the projects forimplementation. The Project's conservat:ion component would providetraining for local staff to be recruitedl in consultation with theBank to staff the proposed energy conservation section in the newlycreated EPU in NPC. The training would be undertaken in specializedinstitutions outside Jordan in accordance with terms of referenceacceptable to the Bank. Moreover, in order to strengthen thecapabilities of the local staff, an energy conservation adviser,experienced in the identification, preparation and implementation ofenergy conservation projects would provide in-field training for aperiod of 18 months by assisting the staff of the conservationsection in EPU in identifying and preparing energy conservationprojects for the medium and small scale industries.

(c) Equipment: Presently laboratories in Jordan including thelaboratories of RSS, are not equipped with instruments necessary formeasuring energy consumption and identifying the conservationpotential. The Project would provide highly specialized equipment tobe used by the engineers of the EPU and by the analytical chemists ofRSS who would be trained to provide the technical support for theconservation division at EPU.

Renewable Energy Component

10. Jordan's renewable energy program has been underway for about adecade and has covered a number of diverse areas such as: solar water

- 65 - ANNEX 2,1

Page 7 or 13

heating; solar desalination; solar heating of building; use of photovoltaic

systems for communication and windmills for water pumping. The program hasbeen implemented primarily through RSS and has tended to be mainly of adevelopmental nature. The only commercial activity pertains to solar waterheating and notwithstanding many of its imperfections, a modest industry hasdeveloped in this area in the last few years. The industry has a capital

outlay of about $2 million, employs some 100 technicians and can produce uptoa maximum of one million square feet of collectors (equivalent to about 28,000

household units) per year. However, despite some successes, the renewableenergy program in Jordan has failed to make an impact on the overall energysupply of the country. This is due mainly to the fact that the program haslacked a clear sense of direction, has proceeded in a piecemeal and in an adhoc manner and as a result has had little relevance to the energy needs of thecountry. Also relatively little emphasis has been placed on commercialization

and the need for pilot/demonstration schemes which would be crucial forcommercializing some of the promising renewable technologies in Jordan whichhave been overlooked. Last, but not the least, no systematic effort has beenmade to collect solar/wind resource data which is fundamental to thepropagation of renewable technologies in the country.

11. The renewable energy component of the Project would address most ofthe key problems facing the renewable energy program in Jordan. The componentcomprises 4 elements: (a) resource assessment, (b) planning, (c)pilot/demonstration schemes and (d) training. These elements would involve atotal of 10 tasks which are interlinked and constitute a package that wouldprovide Jordan with a solid foundation for the development--in the near mediumterm--of its renewable energy program in a sustained and meaningful manner.

(a) Resource Assessment: Comprehensive and accurate information aboutthe availability of solar and wind resources is essential for theformulation of a national program for the exploitation of renewableenergy. So far, limited progress has been made in this context;currently, the Meteorological Department, NRA and RSS, are involvedin collecting climatological data, some elements of which arerelevant to the assessment of solar and wind resources. However,this activity needs strengthening through the establishment of anational resource assessment network covering about 10-12 locationsin the country (the exact number will be determined through sitesurveys). Mechanism would be developed for systematically analyzingthe resulting data, archiving it and making it available to the usersin the renewable energy field, along with relevant pastclimatological data collected at existing meteorological, NRA and RSSstations. Financing would be provided for the necessary measurementand data processing equipment, together with the technical assistancerequired in site selection, analysis and archiving of data.

(b) Planning: This element would comprise a total of four tasks, all ofwhich are in the form of studies. The first of these (potentialassessment study) would develop an overall national plan forharnessing renewable resources in Jordan, while the remaining studies

- 66 - ANNEX 2.1Y-age b 7T 13

would prepare subplans for solar wacer heating, solar ponds and solar

passive systems, three of the technologies which would haveapplications in the near-to-medium term in Jordan. The studies wouldbe undertaken concurrently whereby they would complement each other.(i) Potential Assessment Stud would seek to eliminate the piecemealand ad hoc implementation of renewablie program in the country andensure that it would make optimal contribution to the national energybudget. The study would quantitatively assess the technical andeconomic potential of all renewable technologies, rank them in termsof their economic viability and develop a detailed plan of actionincorporating policy recommendations, pre-investment activities,investment projects and financial aid institutional requirements. Inessence, this planning task will seek to trace the future role ofrenewable energy in the overall energy future of the country anddevelop a blueprint for realizing this potential; (ii) Solar WaterHeating (SWH) Study. This task consists of a two-part study namely,"the development of a national subplan for commercializing solarwater heating"; and "preparation of a feasibility study to develop a"model" manufacturing concern in Jordan". Solar water heatingindustry in Jordan is plagued with a number of serious problems. Forexample: the Jordanian water heaters do not perform as efficientlyand are not as well construc:ed as they need to be if the fullbenefits of residential applications are to be realized; the industryhas so far concentrated on the residential market and ignored theseemingly much larger commercial and industrial markets; lack ofGovernment-instituted standards has resulted in marketing ofsubstandard products, therefore, cornsumer dissatisfaction; there hasbeen a lack of a government-Led pilot/demonstration program and agovernmental policy regarding possible finiancial incentives tomanufacturers and/or consumers, etc., etc. The first part of thestudy would review the problems faced by 1:he industry and develop adetailed strategy to place it: on firm foot:ing so that it can expandand make meaningful contributions to the energy supply of Jordan. Inthe second part of the study a plan would be developed to build the"model" manufacturing concern which would use the latest SWHtechnology suited to Jordanian needs. Such a concern, which wouldeither be developed from scratch or through upgrading of an existingoutfit, would have a modernising influence on the existing industry;(iii) Solar Passive Systems ,tudy. In Jordan, the energy used inresidential, commercial and industrial buildings is about one sixthof the national energy budget:. However, the buildings are designedwithout considering energy conserving measures, potential for whichis substantial and which could save some 2-3% of the total energyconsumption by the end of the decade. The study would review theexisting as well as projectec. building stocks in the country,together with their energy demand patterns and develop a detailedplan to minimize their energy consumption. The study wouldconcentrate on three main technical areas namely, heating,ventilating and air conditioring equipment; appliances and lighting;and the "envelope" of the building, the last of which will be most

- 67 - ANNEX Z.iPage 9 ot 13

important. Experience in many countries shows that energyre2uirements can be substantially reduced both through conr.e,,io.laiconservation measures (e.g. >isulation) and through the "passivesolar" design which raximizes the sun's contribution to meetingwinter heating needs while minimizing summer cooling loads (e.g., bysiting and glazing buildings for maximum energy efficiency andthrough the use of special design features such as overhangs). Inaddition to the various technical aspects, the study would addresseconomic, financial and policy issues; (iv) Solar Pond Study. Thistask would involve preparation of a prefeasibility study on solarpond technology, which involves the use of large salt water ponds assolar collectors from which heat can be drawn off for powergeneration and other purposes. Small and medium-size ponds are beingoperated, mainly for research and development purposes in a number of

countries and a large (5 MW peak capacity) pond is under constructionin Israel. In Jordan, the Dead Sea seems to offer an attractive site

suitable for development into solar ponds. It has a theoreticalpotential of generating about 2,000 MW of electrical energy atseemingly attractive price. Although solar pond technology has notbeen commercially proven, it seems sufficiently promising to warrantconsideration in countries like Jordan where suitable sites may existand where there are few other indigenous energy resources. The studywould make a preliminary assessment of the potential for solar pondsin Jordan and, if the findings are positive, recommend measures forthe development of this potential if and when the technology developsto the point at which this becomes feasible.

(c) Pilot/Demonstration Schemes. This element would include three tasksrelated to demonstration of solar water heating, solar passivesystems and solar greenhouses and help accelerate thecommercialization of these promising technologies. (i) Solar WaterHeating Systems. As mentioned earlier, the SWH industry in Jordanhas ignored the seemingly much larger commercial and industrial(process heat) markets. The economics of SWH systems for commercialand industrial applications are better than that of householdsystems; also technically they are easier to design and install.Despite these advantages, both the manufacturers and consumers arereticent to venture into these relatively unknown markets. Thisresponse is not unique to Jordan and has been experienced in othercountries as well. In Jordan, as indeed in other countries, entryinto the commercial and industrial markets can be made through a

government-led pilot/demonstration program. The task wouldaccomplish this need by installing collector arrays on a number ofcarefully chosen buildings in the country. The array sizes and thenumber of buildings will be specified by the consultants. Thesesystems would be instrumented and their performance monitored forabout a year. Recommendations would then be developed for largescale deployment of such systems in different parts of the country;(ii) Solar Water Heating Test Facility. An outdoor test facility forcomparative testing of SWH systems is crucial to the development of

- 68 - ANNEX 2.1Fage IU of 13

improved SWH systems. Such a facility also provides valuable testingsupport to the SWH manufacturers most of whom lack the technical (and

often also financial) resources to obtain one of their own.Currently RSS has limited testing capabilities which would beaugmented through this task to develop in,to a viable outdoor testfacility; (iii) Solar Greenhouses. Greenhouses have experienced arapid growth in Jordan. Starting with about 20 ha in 1970, thecountry now has about 2,500 ha under plastic covered greenhouses.

The greenhouses are locally manufactured, are typically tunnel shapedand with few exceptions do not employ mechanical heating or cooling.Majority of the greenhouses grow vegetables (mostly tomatoes andcucumbers) and a few are now entering the lucrative flower marketwith distinct potential for export. Whereas the greenhouses haveoften resulted in increased crop yields, they have been far fromperfect; without provision for heating and cooling (especially theformer) large crop losses estimated to be in hundreds of thousands ofJD's, have been experienced in colder winters. Whereas the need forinstalling heating systems is well recognized, their enormousrecurring fuel costs have impeded their use. If a satisfactory andcost effective solution is found to the heating problem, thegreenhouse industry could grow rapidly; a leading greenhousemanufacturer estimates that through such a solution greenhouseacreage in Jordan would at least triple in probably less than twoyears. The use of solar energy seemingly offers a viable solution.It should be possible to design and build simple and inexpensivegreenhouses in Jordan which--through reliance on solar energy--wouldexperience minimal recurring costs. The task would includeestablishment of three commercial sized greenhouses (roughly 500 m2each), instrumentation, performance monitoring and development ofrecommendations for large scale adoption of solar greenhouses in thecountry; (iv) Solar Passive Systems. As noted earlier, the buildingsin Jordan are designed without regard to energy conserving measures.Passive solar techniques offer an attractive possibility forconserving energy in Jordanian buildings. The task, which wouldconcentrate on the buildings in the residential sector, woulddemonstrate the use of these techniques in typical 3-4 new housesand--as a retrofit--in an existing house. The techniques would bechosen such that they are easy to replicate in Jordan and arepreferably based on materials which are commonly available in thecountry. The buildings would be instrumented and their performancemonitored for about a year. The recommendations would then bedeveloped for large scale adoption of these techniques in theresidential buildings in the country. The demonstration houses wouldbe procured in Jordan throug]h RSS and the task would finance allexpenses except for the convientional cost of erecting them.

(d) Training. The staff at RSS would greatly benefit from training in

commercialization of various renewable energy technologies andespecially those which are included in the component. This trainingwould be in the form of 1-2 months' workshops and about 4-6 weeks'

- 69 - ANNEX 2.1Page il of 13

tours to commercial outfits in an industrialized country. No longterm training leading to academic degrees would be included in this

element and a strict commercial orientation would be maintained.

Energy Planning Component

12. The main weakness of the institutional setting of Jordan's energy

sector is in the area of planning. The formulation of energy policy andinvestment plans has been fragmented and divided among institutions whichsuffered from the shortage of financial resources, and inadequate andinexperienced staff. Consequently, NPC moved to fill some of the gaps ofcommissioning whatever studies were needed for the formulation of pastinvestment plans. However, these studies served mainly short term objectivesand in most cases they fell short of providing results needed for theformulation of energy policies. Moreover, the absence of a comprehensive database compounded the difficulties experienced by NPC in setting consistentenergy and macroeconomic policies. Recognizing these constraints, theGovernment took a major step in streamlining the organizational structure ofthe sector by creating SCE to set the guidelines and monitor the newlycreated EPU at NPC. EPU has been designated as the sole organizationresponsible for the formulation of energy policy and plans. NPC is currentlyin the process of recruiting qualified Jordanians for the unit in consultationwith the Bank. The energy planning component would ensure that EPU's planningcapabilities are strengthened in order to ultimately formulate all energypolicies and monitor the implementation of plans for the development of thesector. The component would involve 10 tasks: (i) load research andmanagement study for the power subsector; (ii) development of energy database; (iii) interfuel substitution study; (iv) formulation of policy fordemand management; (v) integration of energy planning models and macroeconomic

planning models; (vi) a study for the formulation of an optimal tax structurefor petroleum products; (vii) resident advisers on energy; (viii) consultantgroup on energy planning; (xi) training; and (x) adhoc studies on energy.

(i) Load Research and Management Study: In 1982, there was about 40MW of generating capacity operated by the large industrialconsumers (refinery, cement, phosphates, etc.). These representedabout 20% of the peak demand in that year and 10% of JEA'sinstalled capacity. Since all the isolated systems have beenconverted by the owners to operate by burning fuel oil, and giventhat JEA uses gas oil to operate its peak plants, there is a scopefor reducing the overall consumption of gas oil by having theautoproducers meet their own demand during the peak periods andusing JEA's supply for backup. For example, cogeneration at theoil refinery at Zarqa would result in a net annual saving to the

economy of about US$324,000 and would reduce the consumption ofgas oil by about 3,000 tons annually, representing 0.2% of total

consumption of the product for 1983-1990. The purpose of the loadresearch and management study is to outline the means by which theinstalled capacities in Jordan could be matched with the demand inthe most efficient way possible. Such a study would also proposethe shift of unessential demand for electricity from peak to off

- 70 - ANNEX 2.1

Page 12 of 13

peak periods, e.g., water pumping load, The study would also

assess the adequacy of tariffs in re]Lation to the optimaloperations of the systeni, the operations of the transmission anddistribution networks, etc. The study would set a framework for

managing the demand of consumers and the facilities in the sectorto supply electricity at least cost t:o the economny.

(ii) Development of Energy Data Base: The quality of the datapresently available for energy planning vary considerably. JEA'sdata on sales to high vcltage consumers is fairly accurate, butthe information available on the end uses of electricity at themedium and low voltages require substantial strengthening,particularly, in the areas served by JEPCO and IDECO, Moreover,very little is known of the pattern cf consumption of petroleumproducts in the transport and agriculture sector despite the factthat they presently appear to account for over 60% of totalconsumption. The data on the industrial consumption of energy bythe large consumers is available but data on the consumption ofthe small and medium industries, as well as the households, isvirtually non-existent. Unless more detailed and accurate data iscompiled, the quality of all policies covering pricing, demandmanagement and investment planning, as well as, projectpreparation, would not achieve their objectives. The proposedProject would address this gap by providing for the collection,assessment and refinement of data, and its storage in NPC computerfacilities.

(iii) Conversion of single cycle gas turbine plants into combined cycleplants: Currently JEA's total gas turbine installed capacity isabout 132 MW. To improve the efficiency of these plants andincrease their utilization, JEA intends to convert these plantsinto combined cycle units. Technical and economic feasibilitystudies would be undertaken by consultants to assess the technicaland economic viability of the conversion. The consultants'recommendations would form the basis for carrying out the requiredtechnical modifications to the existing gas turbines.

(iv) Policy for Demand Management: Several energy pricing studies wereundertaken by consultants for NPC and a study for electricitypricing at the low voltage levels undertaken by K & D for JEPCOwas recently completed. For the formulation of demand managementpolicy, the result of the pricing studies would be integrated witha set of indirect measures (taxes, rebates, etc.) which togetherwith the energy pricing policy would achieve 3 objectives: (a)convey to consumers the real cost of the resources used in meetingtheir demand; (b) mobilize the miaximum resources for theGovernment; and (c) induce the increased conservation and economyin the use of energy.

(v) Integration of Energy and Macroeconomic Planning Models: In 1980,NPC financed a study by Dar El-Handasa (UK firm) for theformulation of an industrial development strategy. An (32x32)input/output table was prepared as a part of the consultant's

- 71 -ANNEX 2.1Page I3 of 13

study. In 1981, USAID financed a study to assess the impact ofrgher import bill for energy on the overall growth prospects ofche economy. Both studies were of good quality; however, becauseof the weakness of the data base the results were of fairlygeneral nature. The creation of the energy data base would allowfor the extension of the input/output model to capture theinterdependence between the energy sector and the main sectors ofthe economy. This would enable NPC to simulate and assess theimpact of different energy policies such as pricing, conservationand substitution between sources of energy on the economy. Thetask would involve the assistance of NPC's staff in: (a)integrating the energy data base and the input/output model, whichcurrently is stored in the council's computer; (b) installing amacroeconomic model for forecasting of energy demand (MEAD)developed by the IAEA which would be made available to theGovernment of Jordan free of charge under the cooperative workbetween the Bank and IAEA.

(vi) Optimal Tax Structure for Petroleum Products: Currently the

petroleum subsector contributes to the revenues of the Governmentthrough the taxes levied on light distillates and absorbs most ofthese revenues to cover the subsidies extended to the consumers ofkerosene, aviation fuel and gas/diesel oil. The study wouldpropose an optimal tax structure which would ensure that theproducts are consumed in an optimal mix consistent with theproduct mix of the refinery. In addition, the study would outlinethe possible means for subsidizing the consumption of kerosene bythe low income group, if necessary.

(vii) Resident Advisers: The newly created EPU would be staffed withJordanians whose expertise in the design of energy policy andplans is limited. The component would provide for 2 residentadvisers in energy economics and planning to assist and partlytrain EPU's staff in initiating and implementing their workprogram. The advisers would be assigned to NPC for a period of 2years;

(viii) Consultative Group on Energy Planning: A group of internationallyreputed energy economists, planners and engineers would beselected to assist the Government in setting the overall plans forenergy and review and monitor the results of studies and draftpolicies completed by EPU;

(ix) Ad hoc Studies; This would cover studies that the Government orEPU, in consultation with the Bank or the consultative group,decide are needed for the development of the energy sector;

(x) Training: EPU's newly recruited staff would be trained forperiods ranging between 2 and 4 months in institutions abroad inenergy planning, project identification and evaluation, policyformulation and project implementation.

November 1983(1407P)

- - ANNEX 2.2

JORDAN

ENERGY DEVELOPMENT PROJECT

Yearly Detaled Project Costl In USt °°°)

… ------ 1984 1985 1986 - …- ------- 1984-1986 ---Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total

1. Power Distribution Component

JEPCOBase Cost 1,140 5,330 6,470 4,340 7,190 11,530 2,890 800 3,690 8,370 13,320 21,690Physical Contingencies 50 250 300 210 350 550 130 30 160 390 630 1,020Price Contingencies 130 840 970 770 1,870 2,640 840 340 1,180 1,740 3,050 4,790

TOTAL COST 1,320 6,420 7,740 5,320 9,410 14,730 3,860 1,170 5,030 10,500 17,000 27,500

IDECOBase Cost 2,120 5,200 7,320 2,270 5,620 7,890 1,560 3,220 4,780 5,950 14,040 19,990Physical Contingencies 130 190 320 140 230 370 100 140 240 370 560 930Price Contingencies 350 610 960 650 1,010 1,6L0 650 810 1,460 1,650 2,430 4,080

TOTAL COST 2,600 6,000 8,600 3,060 6,860 9,920 2,310 4,170 6,480 7,970 17,030 25,000

TOTAL POWER DISTRIBUTION 3,920 12,420 16,340 8,380 16,270 24,650 6,170 5,340 11,510 18,470 34,030 52,500

2. Petroleum Exploration Component

Base Cost 600 3,200 3,800 300 1,500 1,800 - - - 900 4,700 5,600Physical Contingencies - - - - - - - -Price Contingencies 60 200 260 40 100 140 - _ _ 100 300 400

TOTAL COST 660 3,400 4,060 340 1,600 1,940 - - - 1,000 5,000 6,000

3. Conservation Component

Base Cost 100 2,000 2,100 260 940 1,230 - - - 360 2,940 3,300Physical Contingencias - - - - - - - -Price Contingencies 10 180 190 30 80 110 _ _ _ 40 260 300

TOTAL COST 110 2,180 2,290 290 1,020 1,310 - - - 400 3,200 3,600

4. Energy Planning Component

Base Cost 510 840 1,350 350 400 750 90 - 90 950 1,240 2,190Physical Contingencies - - - - - - - - - - -Price Contingencies 65 80 145 55 80 135 30 _ 30 150 160 310

TOTAL COST 575 920 1,495 405 480 885 120 - 120 1,100 1,400 2,500

5. Renewable Energy Component

Base Cost 464 1,397 1,861 145 114 259 4 - 4 620 1,510 2,130

Physical Contingencies - - - - - - - - - - -Price Contingencies 53 163 216 34 26 60 - _ _ 80 190 270

TOTAL COST 517 1,560 2,077 179 140 319 4 - 4 700 1,700 2,400

November 1983(1407P. D. 19)

JORDAN

ENERGY DEVELOPMENT PROJECT

Petroleum Exploration Component

Yearly Detailed Cost(In US$ Million)

1984 1985 1986 Total

Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total

Training (includingper diem in costs)for 20 staff, 1 month 0.02 0.06 0.08 0.01 0.06 0.07 0.01 0.06 0.07 0.04 0.18 0.22

Consultant Services 0.20 0.90 1.10 0.12 0.30 0.42 - 0.10 0.10 0.32 1.30 1.62

Equipment for Services 0.11 0.46 0.57 - - - - - 0.11 0.46 0.57

Special SeismicAcquisition and

Process 0.43 1.76 2.19 - - - - - - 0.43 1.76 2.19

Advanced Seismic Processing - 1.00 1.00 - - - - - - - 1.00 1.00

Physical Contingencies - - - - - - - - - - - -

Price Contingencies 0.06 0.20 0.26 0.04 0.10 0.14 - - - 0.10 0.30 0.40

Total 0.82 4.38 5.20 0.17 0.46 0.63 0.01 0.16 0.17 1.00 5.00 6.00

November 1983

(1253P, p.22)

Li

- 74 -

JORDAN ANNEX 2.4

ENERGY DEVELOPMENT PROJECT

Power Distribution Component

Yearly Detailed Cost( tn USjMil.ion)

---------- 1984…------- --------- 1985 -------- -------- 1986-------- -------- TOTAL--------

Local Foreign TotaL Local Foreign Total Local Foreign Total Local Foreign Total

A. JEPCO'S COMPONENT

AX1 URBAN EXTENSION ANDREHABILITATION

Equipment and Material forElectrical Plant - 3.44 3.44 - 4.41 4.41 - - - - 7.85 7.85Installation and Erection 0.58 0.28 0.H6 3.19 1.03 4.22 1.42 0.54 1.96 5.19 1.85 7.04Engineering and Supervision 0.12 0.24 0.36 0.40 0.05 0.45 0.74 0.05 0.79 1.26 0.34 1.60

Base Cost 0.70 3.96 4.66 3.59 5.49 9.08 2.16 0.59 2.75 6.45 10.04 16.49

Physical Contingencies 0.03 0.19 0.22 0.17 0.27 0.44 0.10 0.02 0.12 0.30 0.48 0.78Price Contingencies 0.07 0.69 0.76 0.58 1.53 2.11 0.60 0.26 0.86 1.25 2.48 3.73

TOTAL 0.80 4.84 5.64 4.34 7.29 11.63 2.86 0.87 3.73 8.00 13.00 21.00

A.2 RURAL ELECTRIFICATION

Equipment and Material forElectrical Plant - 1.10 1.10 - 1.38 1.38 - - - - 2.48 2.48Installation and Erection 0.30 0.20 0.5c0 0.70 0.30 1.00 0.54 0.20 0.74 1.54 0.70 2.24Engineering and Supervision 0.14 0.07 0.21 0.05 0.02 0.07 0.19 0.01 0.20 0.38 0.10 0.48

Base Cost 0.44 1.37 1.81 0.75 1.70 2.45 0.73 0.21 0.94 1.92 3.28 5.20

Physical Contingencies 0.02 0.06 0.08 0.04 0.08 0.12 0.03 0.01 0.04 0.09 0.15 0.24Price Contingencies 0.06 0.15 0.21 0.19 0.34 0.53 0.24 0.08 0.32 0.49 0.57 1.06

TOTAL 0.52 1.58 2.10 0.98 2.12 3.10 1.00 0.30 1.30 2.50 4.00 6.50

A.3 TOTAL JEPCOS' COMPONENT COST

Base Cost 1.14 5.33 6.47 4.34 7.19 11.53 2.89 0.80 3.69 8.37 13.32 21.69

Physical Contingencies 0.05 0.25 0.30 0.21 0.35 0.56 0.13 0.03 0.16 0.39 0.63 1.02Price Contingencies 0.13 0.84 0.97 0.77 1.87 2.64 0.84 0.34 1.18 1:74 3.05 4.79

TOTAL 1.32 6.42 7.74 5.32 9.41 L4.73 3.86 1.17 5.03 10.50 17.00 27.50

B. IDECO'S COMPONENT

B.1 URBAN EXTENSION ANDREHABILITATION

Equipment and Material forElectrical Plant 0.03 1.53 1.56 0.02 1.10 1.12 0.02 1.18 1.20 0.07 3.81 3.88Installation and Erection 0.35 0.17 0.52 0.22 0.10 0.32 0.22 0.11 0.33 0.79 0.38 1.17Engineering tnd Supervision 0.20 - 0.20 0.14 - 0.14 0.15 - 0.15 0.49 - 0.49

Base Cost 0.58 1.70 2.28 0.38 1.20 1.58 0.39 1.29 1.68 1.35 4.19 5.54

Physical Contingencies 0.03 0.07 0.10 0.02 0.05 0.07 0.03 0.06 0.09 0.08 0.18 0.26Price Contingencies 0.09 0.20 0.29 0.11 0.22 0.33 0.19 0.39 0.58 0.39 0.81 1.20

TOTAL 0.70 1.97 2.67 0.51 1.47 1.98 0.61 1.74 2.35 1.82 5.18 7.00

B.2 RURAL ELECTRIFICATION

Equipment and Material 0.15 3.00 3.15 0.10 3.87 3.97 0.15 1.63 1.78 0.40 8.50 8.90Installation and Erection 1.08 0.50 1.58 1.22 0.55 1.77 0.72 0.30 1.02 3.02 1.35 4.37Engineering and Supervision 0.31 - 0.31 0.57 - 0.57 0.30 - 0.30 1.18 - 1.18

Base Cost 1.54 3.50 5.04 1.89 4.42 6.31 1.17 1.93 3.10 4.60 9.85 14.45

Physical Contingencies 0.10 0.12 0.22 0.12 0.18 0.30 0.07 0.08 0.15 0.29 0.38 0.67Price Contingencies 0.26 0.41 0.67 0.54 0.79 1.33 1.46 0.42 0.88 1.26 1.62 2.88

TOTAL 1.90 4.03 5.93 2.55 5.39 7.94 1.70 2.43 4.13 6.15 11.85 18.00

B.3 TOTAL IDECO'S COMPONENT COST

Base Cost 2.12 5.20 7.32 2.27 5.62 7.89 1.56 3.23 4.78 5.95 14.04 19.99

Physical Contingencies 0.13 0.19 0.32 0.14 0.23 0.37 0.10 0.14 0.24 0.37 0.56 0.93Price Contingencies 0.35 0.61 0.96 0.65 1.01 1.66 0.65 0.81 1.46 1.65 2.43 4.08

TOTAL 2.60 6.00 8.6D 3.06 6.86 9.92 2.31 4.17 6.48 7.97 17.03 25.00

November 1983(1407P, p. 17)

- 75 - ANNEX 2.5

JORDAN

ENERGY DEVELOPMENT PROjECT

Power Distributio- Coepo-ent - IDECO

Project Cot3t Detailed by Financiog Soorces(I. US$ Ofillion)

---------- 1984------ ----- 1985…------- --------- 1986…-------- ------- TOTAL--------Local ForeignTt L ig Total Local Foreign Total Local Foreign Total

c. URBAN cEXTNSIUN AND bEhABILiTATION

I.0 Parct cca-cca by ID01O andBilateral Aida:

ELucp-ent and Material - 0.33 0.33 - 0.30 0.30 - 0.36 0.36 - (.99Installation and Erection C.07 0.13 0.10 0.06 0.03 0.09 0.06 0.03 0.09 0.19 0.09 0.28EOiinee-ing and Supervsion 0 0.04 0.34 0.04 - 0.04 0.04 - 0.04 0.12 - 0.12

Bane Cost O.1l 0.36 0.47 0.10 0.33 0.43 0.10 0.39 0.49 0.31 1.08 1.39

Py-sical Lontingencien (5%) 0.01 0.02 0.03 0.01 0.02 0.03 0.01 0.02 0.03 0.03 0.06 0.09Price -ontinEencien 0.01 0.04 0.05 0.03 0.07 0.10 0.03 0.14 0.17 0.07 0.25 0.32

SUBTOTAL 0.13 0.42 0.55 0.14 0.42 0.56 0.14 0.55 0.69 0.41 1.39 1.80

1.k Part LO bn F-nancan by IDECO andthe Proponed IBBD Loan:

Equipment soc Material 0.03 1.20 1.23 0.02 0.80 0.82 0.02 0.82 0.84 0.07 2.82 2.89Installation and Erection 0.28 0.14 0.42 0.16 0.07 0.23 0.16 0.08 0.24 0.60 0.29 0.89Eloi.e.ring and Supervinion 0.16 - 0.16 0.10 - 0.10 0.11 - 0.11 0.37 - 0.37

BASE COsT 0.47 1.34 1.81 0.28 0.87 1.15 0.29 0.90 1.19 1.04 3.11 4.15

Phypical Contingencien 0.02 0.05 0.07 0.01 0.03 0.04 0.02 0.04 0.06 0.05 0.12 0.17Price Contingencies 0.08 0.16 0.24 0.08 0.15 0.23 0.16 0.25 0.41 0.32 0.56 0.88

SUBTOIAL 0.57 1.55 2.12 0.37 1.05 1.42 0.47 1.19 1.66 1.41 3.79 5.20

II. RUBAL ELECTRIFICATION

2.1 ParE Financed by IDEC)and Bilateral Aids:

Bquipmnent and Material - 1.50 1.50 - 2.15 2.15 - 1.20 1.20 - 4.85 4.85Installatlon and Erection 0.58 0.30 0.88 0.67 0.30 0.97 0.45 0.20 0.65 1.70 0.80 2.50Engineering end Supervision 0.16 _ 0.16 0.31 - 0.31 0.20 - 0.20 0.67 - 0.67

base wet 0.74 1.80 2.54 0.98 2.45 3.43 0.65 1.40 2.05 2.37 5.65 8.02

Phynical Contingencies (5%) 0.05 0.07 0.12 0.06 0.10 0.16 0.04 0.06 0.10 0.15 0.23 0.38Price Contingenciet 0.13 0.18 0.31 0.28 0.44 0.72 0.27 0.30 0.57 0.68 0.92 1.60

SUBTOTAL 0.92 2.05 2.97 1.32 2.99 4.31 0.96 1.76 2.72 3.20 6.80 10.00

2.2 Part tE be Financea by IDOC0and the Proposed IBRD Loan:

Eqaip-cent ann Mateei.l 0.15 1.50 1.65 0.10 1.72 1.82 0.15 0.43 0.58 0.40 3.65 4.05Installation and Erection 0.50 0.20 0.70 0.55 0.25 0.80 0.27 0.10 0.37 1.32 0.55 1.87Engineering and S.pervinio. 0.15 - 0.15 0.26 - 0.26 0.10 - 0.10 0.51 - 0.51

Base Coat 0.80 1.70 2.50 0.91 1.97 2.88 0.52 0.53 1.05 2.23 4.20 6.43

Pnyaical Coningencies 0.05 0.05 0.10 0.06 0.08 0.14 0.03 0.02 0.05 0.14 0.15 0.29Price Lontingetnies 0.13 0.23 0.36 0.26 0.35 0.61 0.19 0.12 0.31 0.58 0.70 1.28

SUBTOTAL 0.98 1.98 2.96 1.23 2.40 3.63 0.74 0.67 1.41 2.95 5.05 8.00

III. TOTAL IDECO'S COMPONENT COST

3.1 P-rc Financea by IDECO andBilateral Aids.

Base Lost 0.85 2.16 3.01 1.08 2.78 3.86 0.75 1.79 2.54 2.68 6.73 9.41

Physical Contingencies 0.06 0.09 0.15 0.0J 0.12 0.19 0.05 0.08 0.13 0.18 0.29 0.47Price Contingenciea 0.14 0.22 0.36 0.31 0.51 0.82 0.30 0.44 0.74 0.75 1.17 1.92

SUBTOTAL 1.05 2.47 3.52 1.46 3.41 4.87 1.10 2.31 3.41 3.61 8.19 11.80

3.2 PArt tE be Financed by theProposed IBD Loan and IDECO:

Base Cost 1.27 3.04 4.31 1.19 2.84 4.03 0.81 1.43 2.24 3.27 7.31 10.58

Physical Contingeaccen 0.07 0.10 0.17 0.07 0.11 0.18 0.05 0.06 0.11 0.19 0.27 0.46Price Contingencie- 0.21 0.39 0.60 0.34 0.50 0.84 0.35 0.33 0.72 0.90 1.26 2.16

SUBTOTAL. 1.55 3.53 5.08 1.60 3.45 5.05 1.21 1.86 3.07 4.36 8.84 13.20

3.3 TOTAL LDECO'S COMPONENT COST

Base Cost 2.12 5.20 7.32 2.27 5.62 7.89 1.56 3.22 4.78 5.95 14.04 19.99

PhysIcal Cantingennie. 0.13 0.19 0.32 0.14 0.23 0.37 0.10 0.14 0.24 0.37 0.56 0.93Price Contingenciea 0.35 0.61 0.96 0.65 1.01 1.66 0.65 0.81 1.46 1.65 2.43 4.08

TOTAL 3.60 6.00 8.60 3.06 6.86 9.92 2.31 4.17 6.48 7.97 17.03 25.00

June 1983(1407P, P. 18)

- 76 - ANNEX 2.6

JORDAN

ENERGY DEVELOPMENT PROJECT

Energy Conservation Component

Yearl Detailed Costus$ '000)

1983 1984 Total 1983-1984Local Foreign Local Foreign Local Foreign Total

A. Consulting Services

- Refining - 79 148 696 148 775 923- Fertilizer - 30 43 230 43 260 303- Cement - 24 13 176 13 200 213- Steel - 16 20 134 20 150 170- Ceramics - 8 10' 67 10 75 85- Bricks - 8 10 67 10 75 85- Phosphate Mining - 6 1C 54 10 60 70- Phosphate Transport - 5 16 40 16 45 61- Potash - 16 20 134 20 150 170- Power Stations - 22 40 248 40 270 310

- Adviser-Energy Unit - 9 - 241 - 250 250- Other Advisery Services - 8 20 67 20 75 95

Total Base - 231 350 2,154 350 2,385 2,735

Price Contingencies - 9 50 217 50 226 276

Total ConsultingServices - 240 400 2,371 400 2,611 3,011

B. Training - 40 - 135 - 175 175

Price Contingencies - 1 - 13 - 14 14

Total Training - 41 - 148 - 189 189

C. Technical Library - 5 - 15 - 20 20

D. Equipment - - - 350 - 350 350

Price Contingencies - - - 30 - 30 30

Total Equipment - - - 380 - 380 380

GRAND TOTAL - 286 400 2,914 400 3,200 3,600

November 1983(1407P, p. 61)

RR 2.7- 77 - Page 1 of 2

w

EN= DEEE PM=

Reuble Etrew e pg t

YeryDetailed Costh(US6'OCO)

1983 1984 1985 1986 Total 1983-86Local F Loeal F OcFal is Loca Fo Loa F i Total

lwemble Energr

(i) Resouce Assess

Equpment - - 36 93 - - - - 36 93 129Consultants - - - 15 - - - - - 15 15Coxtizgmies - - 4 12 - _ _ _ 4 12 16

Total Resource Assesment - - 40 120 - _ _ _ 40 12D 160

(ii) Demstratimu Solar WaterHeatjzm Systm

EqAst - - - go _ _ - - 90 90Cuultants - - - 22 - 4 - - - 26 26Installatim nd

Supervision - - 38 - 15 - - - 53 - 53c'tirwncies - 4 4 13 3 1 _ _ 7 14 21Total Damstratimu Solar

Water Heatzg Systems - 42 125 18 5 _ _ 60 130 190

(iii) Potential A s

Caisultants - 6 - 112 - - - - - 118 118miscells ans l/ - - 36 - - - - - 36 - 36Contiage:ies - - 4 12 _ - _ _ 4 12 16Total Potential

Assessmnt Study - 6 40 124 _ _ _ _ 40 130 170

(iv) Solar Water Heatix Study

Caultants - - - 188 - - - - - 188 188

Miscellans - 45 - - - 45 - 45Contigesies _ - 5 22 _ _ _ _ 5 22 27Total Solar Water

eating Study - _ 50 210 _ _ _ _ 50 210 260

(v) Solar Pix Study

Cosultants - - - 107 - - - - - 107 107Miacellaneous - 31 - 31 - 31Contingencies - _ 4 13 _ _ _ - 4 13 17

Total Solar P Study - 35 120 _ 35 120 155

(vi) Solar Passive Study

Consutant - - 125 - - - _ - 125 125- aelailiis - - 40 - -40 - -

Coxtircies _ 5 15 _ _ _ _ 5 15 20

Total Solar Passive Study _ _ 45 40 _ _ _ _ 45 140 185

- -NEX 2.72T~

EnEwlY DEYEnery PIOJmEnt

Retaniale EnrgrY Cceporent

Yearlv Detailed CstS

1983 1984 1985 1986 Total 1983-86Lecal FocalF i a neign Local Foreigii Local Foreig Total

Renewable Energy (Contd)

(vii) Demonstration SolarPassi.ve Systeais

Equi?nst - - 27 155 4 5 4 - 35 160 195Consultants - 17 - 154 - 19 - - - 190 190Miscellaneous - 2 4 3 2 5 - - 6 10 16Caitinrgemies - 1 4 38 2 6 _ _ 6 45 51Total Dawxistration Solar

Passive Systems 20 35 350 8 35 4 _ 47 405 452

(viii) Dmnstration SolarCreehouses

Equipent _ - 25 90 13 10 - - 38 100 138Consultants - 19 - 22 - 17 - - - 58 58Miscellareous - - 5 4 6 6 - 11 10 21Contingercies - 1 5 14 5 7 - _ 10 22 32Total Demonstration Solar

Greeabcuses _ 20 35 130 24 40 - - 59 190 249

(xi) Solar Water Heatirn TestFacility

Equirnt - - 20 44 - _- - 20 44 64Consultants - 9 - 32 - 8 - - - 49 49

Miscellaneoss - - 2 - - 4 - - 2 4 6Continxencies - 1 2 9 - 3 - - 2 13 15Total Solar Water Heating

Test Facility - 10 24 85 - 15 _ - 24 110 134

(x) Training

Consultants - 10 - 25 - 4 - - - 39 39Travel and per diem for

trainees - 4 - 23 - 10 - - - 37 37Miscellareus I/ - - - 6 - 2 - - - 8 8

Contingencies - 1 _- 6 - 4 _ - - 11 11

Total Training _ 15 - 60 _ 20 _ _ _ 95 95

(xi) Project Mnagagent forItalian Subcomponent(Iterz (vii)-(x))

Fee - 10 - 20 - 10 - - - 40 40

Contirgencies - 2 - 3 _ 5 _ _ - 10 10

Total Project ManagerEnt _ 12 - 23 _ 15 - _ _ 50 50

(xii) Salaries and Wages (ofadditional Jordanianstaff at RSS)

Salaries and Wages 31 - 124 - 105 - - - 260 - 260

Contingencies 1 - 15 - 24 _ - _ 40 - 40

Total Salaries and Wages 32 - 139 - 129 - - - 300 - 300

Total Re?wble Energy 32 83 485 1,477 179 140 4 _ 700 1,700 2,4C0

1/ Miscellaneous items include computer time and for studies (iii) - (vi), the expenses irrurred in collecting data.

June 1983(1407P, p.12-13)

79 ANNEX 2.

JORDAN

ENERGY DEVELOPMENT PROJECT

Energy Planning Component

Detailed Year Y Cost(In US$ooo)

1984 1985 1986 TOTALLocal Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total

i) Load Research andbManagement Study

Consulting Services 95 250 345 20 25 45 - - - 115 275 390Equipment - - - - - - - - -

Price Contingencies 9 29 38 2 5 7 - - - 11 34 45

Subtotal 104 279 383 22 30 52 - _ - 126 309 435

Li) Development of EnergyData Base

Consulting Services 130 170 300 40 40 80 - - - 170 210 380Equipment 45 175 220 - - - 45 175 220

Price Contingencies 16 40 56 4 10 14 _ _ _ 20 50 70

Subtotal 191 385 276 44 50 94 - - - 235 435 670

iii) Intertuel SubstitutionStudy

Consulting Services 20 30 50 - - - - _ - 20 30 50Equipment - - - - - -

Price Contingencies 2 3 5 - _ _ _ _ _ 2 3 5

Subtotal 22 33 55 - - - - - - 22 33 55

iv) Policy ior Demand ManagementConsulting Services 10 10 20 20 20 40 - - - 30 30 60Equipment - - - - - - - - -

Price Contingencies 1 1 2 2 4 6 _ - 3 5 8

Subtotal 11 11 22 22 24 46 - - - 33 35 68

v) Energy Planning ModelsConsulting Services 10 10 20 10 20 30 - _ _ 20 30 50Equipment - - - - - - - - - -

Price Contingenfies 1 1 2 1 4 5 _ _ - 2 5 7

Subtotal 11 11 22 11 24 35 - - - 22 35 57

vi) Optil Tax Structure forPetroleum Pro4duts

Consulting Services 20 30 50 - - - - - - 20 30 50Equipment (Softw re) 5 5 10 - - - - - - 5 5 10Price Contingencies 2 4 6 - _ _ - _ _ 2 4 6

Subtotal 27 39 66 - - - - - - 27 39 66

vii) Resident Advisers.Energy Economics Adviser 20 60 80 20 70 90 - - - 40 130 170Energy Planning Adviser 20 50 70 20 60 80 - - - 40 110 150

Price Contingencies 3 12 15 4 28 32 _ - - 7 40 47

Subtotal 43 122 165 44 158 202 - - - 87 280 367

Vill) Consultative Group on EnergyPlanning

Periodic Review ofPolicies and Plan 10 20 30 10 30 40 - - - 20 50 70

Price Contingencies 1 2 3 1 7 8 _ - - 2 9 11

Subtotal 11 22 33 11 37 48 - - - 22 59 81

ix) TrainingServices 40 30 70 40 15 55 - - - 80 45 125Price Contingencies 3 3 6 4 3 7 - - - 7 6 13

Subtotal 43 33 76 44 18 62 - - - 87 51 138

x) Adhoc StudiesServices 75 80 155 210 20 230 100 10 110 385 110 485Price Contingencies 7 8 15 22 4 26 25 2 27 54 14 68

Subtotal 82 88 170 232 24 256 125 12 137 439 124 563

Grand Subtotal

Price Contingencies 45 103 148 40 65 105 25 2 27 110 170 280

GRAND TOTAL 545 1.023 1.568 430 365 795 125 12 137 1,100 1.400 2.500

July 1983(125iP, p. 10)

80 - ANNEX 2.9

JORDAN

ENERGY DEVELOPMENT PROJECT

Breakdown of Consulting Services Requiredfor Eniergy Audits

ConsultingServices

(man-months)

Refinery 86Fertilizer works 28

Cement works 22Steelworks 14

Ceramic works 7Brick works 7Phosphate mine 6

Phosphate transport 6Potash works 14Power stations 28

218

Energy conservation advisor 18

Energy conservation manuals 9

245

June 1983(1253P, p. 20)

- 81 -

ANNEX 2.10Page 1 of 5

JORDANENERGY DEVELOPMENT PROJECT

Implementation SchedulePetroleum Exploration Component

1984 1985 1986

Qa Q2 Q3 Q4 Q1 Q2 IQ3 Q4 Q1 Q2 I Q3 Q4

EQUIPMENT

Preparation of Bid Document

Award of Contract

Delivery & Installation

TRAINING

CONSULTING SERVICES _ .. _ _ ,.. , .....

June 1983 World Bank-25240

- 82 - ANNEX 2.10Page 2 of 5

JORDANENERGY DEVELOPMENT PROJECT

Implementation SchedulePower Distribution Component

PREPARATION IMPLEMENTATION

1983 1194 1985 4986

Ql Q2 Q3 Q4 Q1 C1 2 Q3 Q4 Q1 Q2 Q3 Q4 Ql Q2 Q3 Q4

1. DESIGN

Site/Route Selection

Prepare Schedules

2. SUPPLY OF MATERIALS

Bidding Documents

Controcts Awards

Manufacture & Delivery

3. INSTALLATION & ERECTION

Bidding Documents

Contracts Awards

Installation & Commission

4. SUPERVISION

June 1983 World Bank-25241

ANNEX 2.10- 83- Page 3 of 5

JORDANENERGY DEVELOPMENT PROJECT

Implementation ScheduleEnergy Conservation Component

1983 1984 1985 198t

Q1 02 Q3 04 Q 02 03 04 Q1 Q2 Q3 4 Q01 12 | 3 Q4

STLIDIES__

Finalize Terms of Refererce_

Call for Consultant Proposals _

Selectaon & Appointment af Consultant _ L) stPhase ,

Petinery ) 2nd Phase

3rd Phase

I st Phose I

Ferilizers ' 2nd Phase

3rd Phase

) st Phase

Cement ) 2nd Phase

3rd Phase

) 1st Phose | __

Steel 2nd Phase

3rd Phase

I 1st Phase | | _ i

Ceramics & Bricks ) 2nd Phase _

3rd Phase

I 1st Phase |

Phosphate Mine ) 2nd Phase

3rd Phase

) 1st Phase j | | _

Potash Works ) 2nd Phase

3rd Phase

) 1st Phase

Poaser Stations ) 2n Phase

3rd Phase

1 st Phase

Energy Consultant ) 2nd Phase

3rd Phase -----------------

Energy Consultant Manuals .... ...

Library & Technical

I )~~~~~preparataon I I I LI _ Advertisement

Equipment Purchase LCB Eyaluction

) Purchasng

Selection Training

Traiinng ) Course

m) Impementation | _ j ______

World Bank-25242

ANNEX 2.10Page 4 of 5

- 84 -

JORDANENERGY DEVELOPMENT PROJECT

Implementation ScheduleRenewable Energy Component

=983 1984 1985 1986DESCRIPTION_ _.__ __

01 02 03 04 Q1 02 03 04 Q4 02 03 04 01 02 03 04

I RESOURCE ASSESSMENT

1. Site Selection

2. Prepare Equipment Specificatlons.Invite & Evaluote Bids

3. Install Equipment & Train Local Consultants .

4. Data Acquisition _ _

II. FLANNING STUDIES (PotentalO Aseument Study,So4ar Water Heattng Study, Solar Pond Study &Sabar PaUAO System Study)

1 Prepare, TOR, Invite & Evaliuate Bids

2. Complete Studles

1i1. DEMONSTRATION SOLAR WATER HEATING SYSTEMS

1. Site Selection

2. Prepare Equipment Specifications,Inte & Evaluate Blds

3. Procure Equipment

4. Install Equipment _

5. Performance Evaluation & Repor _

IV. SOLAR WATER HEATING TEST FACILITY

I Design

2. Procure Equipment & Install

3. Train Locai Staff

4. Testing Program

V. DEMONSTRATION SOLAR GREENHOUSES

1. Site Selection

2. Design Greenhouse

3. Procure Equipment

4. Install Greenhouse

5. Performance Evalution & Report -

Mt. DEMONSTRATION SOLAR PASSNE HOUSES

1. Selection of Bulidings

2. Design of Bulidings

3. Construct Buildings _ _

4. Performance Evaluation & Report

Vil. TRAINING

1 Workshops

2. Visits to Commercial Organizations

May 1983 World Bonk-25243

- 85 -ANNEX 2.10Page 5 of S

JORDANENERGY DEVELOPMENT PROJECT

Implmermntatio ScheduleEnergy Panning Componesit

1963 19U4 4965 1966

ENEK2 03 C5 Ct C 2 Ct 04 Ctt 03 02 Ct 04

I LOMNYOCFE6M64A0AM1

- R403t ITOR

- loe,5CeReo

- S.-Aa 001 A106 l 0C--Cdala tct h l=b

-&r oIG n& d WO 1 OdCOornt

Ca fO C-e"ft l06

- 5VSt6fl_ _ _l_ __g_ _ _ _ _ _ _ _

V. POW AMSDA W MC

H -bT OR-

6196 000

-~~C- aAhMr dCaw n a

- ROIS.S0 TM

-W,,.Atd Cih FocHhs

- Can d 0 , ID &

VW. OFC1 W0 09096 A0P96.GY4RTD

-COlOC E9uol ,t_ I

-CbnaR.o d-rtml

_. P060 D 0 tdI …t. [ l

--Cal tftCa,adIott | -1i i 0.00j j

| -3.a0eo P-II1 |

| O* - C 0,aaIto,1 0 | _00 00. l l

I ~ VR.OESVIII

|, - o0009019660 G P| *4 G

X -N 0 -dR

- C09 ttazt9 11|0|0|3-

-I 69 96001qa I --

-- 114096 1 - 1 I IIC

--OC1,o,trCa,6o. | | |

_ _ _ _ _ -L iztrrd t | | -ld R@tl l L

- 86 - ANNEX 2.11

JORDAN

ENERGY DEVELOPMENT PROJECT

Estimated Disbursement Schedule(us$ '000)

Distribution EnergyBank Fiscal Year Component Conservation Exploration Renewable -Planning Total

and Quarter JEPCO IDECO Component Component Energy Comp. Component Disbursements

1984

March 31, 1984 40 25 40 200 80 40 425June 30, 1984 420 200 320 800 180 80 2,000

1985

September 30, 1984 1,080 620 740 1,500 180 100 4,220December 31, 1984 3,150 1,720 1,160 2,900 180 160 9,270March 31, 1985 4,950 3,200 2,080 3,200 180 200 13,810June 30, 1985 6,500 4,500 3,000 4,000 250 250 18,500

1986

September 30, 1985 8,700 5,200 3,000 4,400 250 250 21,800December 31, 1985 9,500 6,200 3,000 4,600 250 250 23,800March 31, 1986 9,750 6,650 3,000 5,000 250 250 24,900June 30, 1986 11,000 7,000 3,000 5,000 250 250 26,500

1987

September 30, 1986 12,000 7,310 3,000 5,000 250 250 27,810December 31, 1986 12,500 7,600 3,000 5,000 250 250 28,600M4arch 31, 1987 13,000 7,800 3,000 5,000 250 250 29,300June 30, 1987 13,500 8,000 3,000 5,000 250 250 30,000

November 1983(1407P, p. 10)

- 87 - ANNEX 2.12

JORDAN

ENERGY DEVELOPMENT PROJECT

Estimated Disbursement Schedule

Comparison of Disbursement Profile

Year from date of Board approval

1 2 3 4 5 6 7

Proposed loan 6.7 61.6 88.3 100 - - -

Distribution component of

proposed loan 2.9 73.0 83.7 100 - - -

Typical power projectfor EMENA Region 2.7 17.2 42.4 67.1 85.3 96.3 100.0

November 1983

(1407P, p. 60)

- 88 - ANNEX 3.1Page 1 of 4

JORDAN

ENERGY DEVELOPMENT PROJECT

Notes and Assumptions for Financial Forecasts

A. Jordanian Electric Power Company

I. General

1. All financial forecasts are given for the fiscal years of JEPCObeginning January 1 and ending December 31. The forecasts included inAnnex 3.2 have been prepared on a historical cost basis. A set of financialratios based on revalued assets is also included in this Annex.

II. Income Statements

2. Sales of Electricity are based on information furnished by JEPCO asmodified in the Bank. The forecasts assume an average annual kWh sales growthof 12.3% for 1983, 14.7% for 1984, 13.6% for 1985, 12.5% for 1986, 12.1% for1987 and 10.1% for 1988, and an average annual maximum demand (MW) growth of16.2% from 1983 through 1985 and 10.7% per annum thereafter through 1988. Theforecasts also assume an averages revenue increase of 21% from January 1984, 2%from January 1985, 2% from January 1986 and 3% from January 1988 to complywith the cash generation covenant (paras. 3.10 and 3.11).

3. Other Revenues are assumed to increase by the same percentages asannual kWh sales of electricity,

4. Purchase of Electricitv for 1983 is based on JEA's existing bulksupply tariff to all Governorates except Irbid at Fils 18.5/kWh plus JD2.4/kWof monthly maximum demand, which works out to an average bulk supply tariffrate of Fils 22.4/kWh. From 1984 onwards, the purchase rate assumed isFils 28.2/kWh, which is the rate JEA would need to comply with the revenuecovenant in its existing loans. No increase in this rate is considerednecessary for the present.

5. Administration and Distribution Expenses have been calculated basedon an estimate of the number of employees in relation to the number ofconsumers and the average cost per employee.

6. Depreciation has been calculated using the depreciation ratesprescribed under the law. The revised depreciation rates applicable to JEPCOas of 1982 are the following:

- 89 -ANNEX 3.1Page 2 of 4

Networks 5%Cables 3%Meters 7%Tools 6%Vehicles 15%Furniture 6%

Office Equipment 7%

7. Taxes. Corporation tax has been calculated at the present rate of38.5% of taxable income and University tax at 1% of taxable income.

III. Balance Sheet

8. In preparing the forecast balance sheets, inventories have beenforecast at 10% of average fixed assets in service. Accounts receivable hasbeen estimated on the basis of six weeks' revenues from the sale ofelectricity. Customer contributions are based on the estimated cost of thecustomer's portion of the supply line. Additions to reserves are based on thestatutory requirements and the provisions of JEPCO's Articles of Association.Accounts payable is projected to increase at 10% per annum. For purposes ofproforma revaluation of JEPCO's assets, the following index has been assumed:1980 thru 1983 - 8%, 1984 - 7.5%, 1985 - 7.0%, and 1986 through 1988 - 6%.

IV. Sources and Applications of Funds

9. Borrowings. All foreign borrowings are converted to Jordanian Dinarsat the rate of US$1 = JD 0.355. JEPCO's borrowing program has been adjustedto meet the needs of the construction program as revised by the Bank andtaking into account JEPCO's internal cash generation.

10. Construction Requirements are based on JEPCO's estimates as revisedby the Bank and escalated using the following percentages for pricecontingencies corresponding to expected conditions in Jordan.

1983 1984 1985 1986-1988

Equipment and Civil Works 8.0 7.5 7.0 6.0

11. Amortization of Long-Term Debt. Amortization of existing foreignloans is based on information provided by JEPCO.

B. Irbid District Electricity Company Limited

V. General

12. All financial forecasts are given for the fiscal years of IDECO

beginning January 1 and ending December 31. The forecasts included in Annex3.3 have been prepared on a historical cost basis. A set of financial ratiosbased on revalued assets is also included in this Annex.

ANNEX 3.1Page 3 of 4

VI. Income Statement

13. Sales of Electricity are based on information furnished by IDECO asmodified in the Bank. The forecasts assume an average annual KWh sales growthof 20% from 1983 through 1985, 18% in 1986, 17% in 1987 and 16% in 1988, andan average annual maximum demand (MW) growth of about 19% from 1983 through1988.

14. Other Revenues are assumed to increase by the same percentage asannual kWh sales of electricity.

15. Purchase of Electricity for 1983 is based on JEA's bulk supply tariffto Irbid Governorate at Fils 17.5/kWh plus JD 2.4/kW of monthly maximumdemand. From 1984 onwards, the purchase rate assumed is Fils 27.5/kWh, whichis the rate JEA would need to comply with the revenue covenant in its existingloans. No increase in this rate is considered necessary for the present.

16. Generation Expenses are based on the estimated expenses of Fils23/kWh in 1983, increasing at an average rate of about 10.8% per annum.

17. Administration and Distribution Expenses are assumed to increase by16% in 1983 and in 1984, 14% in 1985, 13% in 1986, and 12% in 1987 and in 1988.

18. Depreciation expenses have been calculated using the depreciationrates prescribed under the law. The depreciation rates applicable to IDECO asof 1982 are the following:

Buildings 4%Generation Equipment 7%Network 5%Meters 7%Tools 6%Vehicles 15%Furniture 6%

19. Taxes. Corporation tax has been calculated at the present rate of38.5% of taxable income and University tax at 1% of taxable income.

VII. Balance Sheet

20. In preparing the forecast baLance sheets, inventories have been

forecast at 10% of average fixed assets in service. Accounts receivable hasbeen estimated on the basis of six wetsks' revenues from the sale ofelLtricity. Customer contributions are based on the estimated cost of thecustomer's portion of the supply line. Additions to reserves are based on thestatutory requirements and the provisions of IDECO's Articles of Association.Accounts payable is projected to increase at 10% per annum. For purposes of

- 91 -ANNEX 3.1Page 4 of 4

proforma revaluation of IDECO's assets, the following index has been assumed:1980 thru 1983 - 8%, 1984 - 7.5%, 1985 - 7.0%, and 1986 through 1988 - 6%.

VIII. Sources and Applications of Funds

21. Borrowings. All foreign borrowings are converted to Jordanian Dinars

at the rate of US$1 = JD 0.355. Other than the proposed Bank loan, no otherborrowing is planned in 1983-1988.

22. Construction Requirements are based on IDECO's estimates as revisedby the Bank and escalated using the following percentages for pricecontingencies corresponding to expected conditions in Jordan.

1983 1984 1985 1986-1988

Equipment and Civil Works 8.0 7.5 7.0 6.0

23. Amortization of Long-Term Debt. Amortization of existing loans and

the proposed Bank loan is based on the terms of the loans; and, for proformapurposes, does not include Government's rescheduling foreign loans to IDECO(para. 3.26).

November 1983(1315P)

ANNEX 3.2

- 92 - Page 1 of 4

JORDAN

ENERGY DEVELOPMENT PROJECT

JEPCO'E Income Statementsi(JD Thousands)

For the Year ending ------- Actual…------ ------------------ Forecast…--------…--------December 31 1980 1981 1982 1983 1934 1985 1986 1987 1988

33U0 SALES IN GWH331L … ---- _______3320 ELECTRlCITY SALES 558.0 626.5 728.0 817.6 936.1 1065.3 1198.7 1353.4 1479.1

3400 REVENUE/KWH SOLD3410 --- …---------3420 AV REVEN FILS/KWH 33.2 35.1 35.1 36.1 43.6 44.5 44.6 44.6 46.0

4110 OPERATING REVENUES4115…4200 ELECTRICITY SALES 18533 22012 25517 29497 40804 47418 53458 60375 681104220 OTHER REVENUES 616 574 934 1049 1204 1367 1538 1724 1898

4252 TOTAL OPER. REV. 19149 22586 25451 30546 42008 48785 54996 62099 70008

46031 OPERATING EXPENSES4602…4660 PURCHASED ENERGY 13193 15728 18091 20263 29224 33053 37038 41189 453434700 ADMINISTRATlON 1455 1855 2408 2769 3135 3662 4212 4843 55704710 OPERATION & MAINT. 1416 1788 2115 2714 3252 3856 4550 5369 63354730 DEPRECIATION 1/ 915 1084 1456 1802 2268 2865 3481 4015 4509497) CORPORATION TAX 792 717 738 906 11'91 1526 1528 1781 23374977 OTHER TAXES 160 * 158 * 161 * 166 * 152 * 124 * 42 50 66

4990 TOTAL 17931 21330 24969 28620 39282 45086 50851 57247 64160500NE_P_ -----11 1256__482 1926 -272 3699 4145 4852 5848---

5010 NET OPER. INCOME 1218 1256 1482 1926 2726 3699 4145 4852 5848

5030 NET OPER.INC.BEF,INT. 1218 1256 1482 1926 2726 3699 4145 4852 58485040 INT CHARGED OP 161 369 366 645 976 1385 1746 2058 2182

5060 NET INCOME 1057 887 L116 1281 17.50 2314 2399 2794 3666=====5= -=-=== ===::== ======= ====-=- ======= ===-== =-.... - ...- =w

5100 RATE BASE 16321 17268 19440 22898 292L9 37335 45299 51247 559355110 RATE OF RETURN5140 -BEFORE TAXES 12.3 11.4 L1.4 12.4 13,4 14.0 12.5 12.9 14.65150 -AFTER TAXES 7.5 7.3 7.6 8.4 9.3 9.9 9.2 9.5 10.55160 OPERATING RATIO % 94 94 94 94 94 92 92 92 92

5301 APPLICATION OF NET5302 INCOME

5310 -DIVIDENDS 718 694 672 683 6133 733 833 833 8335320 DIRECTORS FEE 17 17 17 17 L7 17 17 17 175330 -CAPITAL RESERVE 201 176 201 283 392 522 567 663 8185375 -RETAINED EARNINGS 121 0 226 298 658 1042 982 1281 1998

5477 TOLAL INTEREST 161 447 366 764 1104 1563 1908 2153 22335480 LESS:ICC 0 78 0 119 128 178 162 95 51

5484 INT CHARGED OP 161 369 366 645 976 1385 1746 2058 2182

5488 AMORTIZATION 303 623 427 694 832 1099 1181 1461 1461

1/ Depreciation rates were changed by Law in 1982.* Includes deffered payment of taxes on Marqa sales.

July 1983

_ 93 - ANNEX 3.2Page 2 of 4

JORDAN

ENERGY DEVELOPMENT PROJECT

JEPCO's Sources and Application of Funds(JD Thousands

For tne Year ending ------- Actual------- ------------------ Forecast------------------

December 31 1980 1981 1982 1983 1984 1985 1986 1987 1988

b010 INTERNAL SOURCES6015 …6020 -NET INCOME BEF IN 1218 1256 1482 1926 2726 3699 4145 4852 58486030 -DEPRECIATION 915 1084 1456 1802 2268 2865 3481 4015 45090U40 -CONSUMER CONTRIB 1401 447 1231 798 1141 1362 1030 914 947

6045 -INVESTMENTS 41 0 3 0 0 0 0 0 0

60bO TOTAL 3575 2787 4172 4526 6135 7926 8656 9781 11304

6080 LESS:DEBT SERVICE6081 AND DIVlDENDSt082 …

6100 -DEBT SERVICE 464 1070 793 1458 1936 2662 3089 3614 3694611 -DIVIDENDS 735 711 689 700 700 750 850 850 850

bl40 TOTAL 1199 1781 1482 2158 2636 3412 3939 4464 4544

0152 NET INTERNAL CASH6153 GENERATION 2376 1006 2690 2368 3499 4514 4717 5317 6760

6156 LESS:WORKINGb157 (APITAL NEEDS 2628 744 -1892 927 922 1471 1304 1253 678b158 LESS:REDUCTION INb159 OTHER LIABILITIES -1667 -700 -263 -1067 -1920 -1190 -564 -719 -1076

.6160 NET AVAILABLE6170 FROM OPERATIONS 1415 9b2 4845 2508 4497 4233 3977 4783 7158

6190 CONSTRUCTIONo191 REQUIREMENTS620U -ONGOING WORKS 2532 4199 6403 7980 8663 8387 8517 9144 94696210 -PROPOSED PROECT 0 0 0 0 2747 5228 1785 0 06290 L/T INVESTMENTS 0 8 0 0 0 0 0 0 0

6295 TOTAL 2532 4207 6403 7980 11410 13615 10302 9144 9469

6310 BALANCE TO FINANCE 1117 3245 1558 5472 6913 9382 6325 4361 2311

6330 FINANCED BY:6340 PROJECT LOAN-IBRD 0 0 0 0 1118 2254 1065 335 06350 COMMITTED LOANS 1072 1481 1382 5372 5482 0 0 0 0636U FUTURE LOANS 0 0 0 0 213 3628 5160 3926 2211o410 -EQUITY 21 921 0 0 0 2000 0 0 0o415 -SHARE PREMIUM 12 828 0 0 0 1400 0 0 0b420 TERM RESERVE FUND 12 15 176 100 100 100 100 100 100

6460 TOTAL 1117 3245 1558 5472 6913 9382 6325 4361 2311

6575 SURPLUS((DEFICIT)

6710 NET AVAILABLEb720 FROM OPERATIONS/6730 -CONSTRUCTION REQ% 56 23 76 31 39 31 39 52 766740 -PLANT IN OPER-% 6.0 3.5 15.1 6.3 8.9 6.6 5.3 5.6 7.50750 DEBT SERVICE COVER 7.7 2.6 5.3 3.1 3.2 3.0 2.8 2.7 3.16751 SELF FINANCING 95 30 51 33 36 36 39 55 736754 REVENUE INC REQD(%) 0.00 0.00 0.00 0.00 21.00 2.00 2.00 0.00 3.00

November 1983

ANNEX 3.2Page 3 of 4

JORDAN

ENERGY DEVELOPMENT PROJECT

JEPCO's Balance Sheets(At "Nook Value")

(JD Thousands)

For the Year ending ------- Actual------- ------------------ Forecast------------------December 31 1980 1981 1982 1983 1984 1985 1986 1987 1988

7540 ASSETS755O ======75bt PLANT IN OPERATION 23531 27769 32093 39972 50744 63840 75410 85176 951717570 LESS: DEPREClATION 5728 6812 8268 10070 12338 15203 18684 22699 27208

7580 NET PLANT 17803 20957 23825 29902 38406 48637 56726 62477 67963

7600 WORK IN PROGRESS 175 214 2293 2513 3279 3976 2870 2343 1868

7618 L/T INVESTMENTS 320 328 325 325 325 325 325 325 325

762j CURRENT ASSETS7627 -----------27 …7630 CASli 225 210 233 990 460 693 512 656 5787632 -ACCOUNTS REC 3055 3936 431:2 3540 4896 5690 6415 7245 81737635 -lNVENTORIES 3953 4799 4480 3603 4536 5729 6962 8029 90177o40 PRE PAYMENTS ETC 723 121 185 690 700 900 1100 1300 1500

7670 TOTAL 7956 9066 9216 8823 10592 13012 14989 17230 19268

7690 TOTAL 26254 30565 356593 41563 52602 65950 74910 82375 89424

7710 LIABILITIES772u …7730 EQUITY7770 -CAPITAL 6579 7500 9000 9000 9000 11000 11000 11000 110007820 -RETAINED EARNINGS 991 991 1217 1515 2173 3215 4197 5478 74767870 -EMPL TERM RESERVE 686 701 877 977 1077 1177 1277 1377 14777955 -OTHER RESERVES 3285 4289 2990 3273 3665 5587 6154 6817 7635

7995 TOTAL 11541 13481 14084 14765 15915 20979 22628 24672 27588

8010 LONG TERM DEBT 3900 4758 5713 10391 16372 21155 26199 28999 29749

8030 CUR'NT LIABILITIES814u -ACCOUNTS PAYABLE 3399 3851 4743 5217 5739 6313 6944 7639 84038050 OVER DRAFTS 1136 1042 1995 0 0 0 0 0 08055 TAX PAYABLE 724 717 738 906 1191 1526 1528 1781 233780b0 MEDICAL FUND ET AL 686 701 87:' 910 950 990 1030 1070 1110

8090 TOTAL 5945 6311 8353 7033 7880 8829 9502 10490 11850

8107 RETENTION MONIES 1331 1502 1011 1027 1420 1718 1466 1251 12836108 CONSUMER CONTRIBUT 1889 2336 3567 4365 5506 6868 7898 8812 9759

8109 CUSTOMER DEPOSITS 1648 2177 293. 3982 5509 6401 7217 8151 9195

9100 TOTAL 26254 30565 35659 41563 52602 65950 74910 82375 89424

922u DEBT/DEBT & EQUITY 25 26 29 41 51 50 54 54 529230 CURRENT RATIO 1.3 1.4 1.1. 1.3 1.3 1.5 1.6 1.6 1.6924u RECEIVABLES/REV % 16 17 16 12 12 12 12 12 129245 RECEIVABLES-DAYS 57 63 59 42 42 42 42 42 42

July 1983

- 95 - ANNEX 3.2Page 4 of 4

JORDAN

ENERGY DEVELOPMENT PROJECT

JEPCO's Financial Ratios Based on Revalued Assets

For the Year ending ----------Actual-------- ----------------------Forecast----------------------December 31 i

1.3 A1 R F RE:IURN1.140 --Bt:F(.FiE: TAXES .i.0 9.1: 15, O, ?.y 9.4 6.0 8.0 8.8'i150 -AFTLE--S rAxEs i . 50 5.2 5 . ; . O . 6.. 6.1 6 .5,'.,i.lo OF'LR;F.141 ING RhIOi ;. %X i- 95 7;, '9 45Z360 OPERA I INS NA3 10 9~~~~~~~~~~~Q I~j 341~4 973 936754 TARIFF INC RE0'D1 0.00 0 00 0.3 0 0.00 21.00 2.00 2.00 0.OG 3.0O9220 DEISIiED,T & EOUITY 23 32 39 3q 41 40::9230 C:URRENT RATIO 1-. 1.4 1.1 1.3 i.4 1,rj 1.7 i.1.7'240 NElI. 1YARLE3/N EV% 1. 1t 16 12 1. 12 1 l 12

.15 RECE lVABLES--GAYSi 56 77 5' *t 4 42 42 42 42

July 1983

- 96 - ANNEX 3.3

Page 1 of 4

JORDAN

ENERGY DEVELOPMENT PROJECT

IDECO's Income Statements(JD Thousands)

For the Year ending ------- Actual…------ ------------------ Forecast------------------December 31 1980 1981 1982 1983 1984 1985 1986 1987 1988

3300 SALES IN GWH

3310 ------------3320 ELECTRICITY SALES 74.2 94.2 114.6 138.0 165.0 198.0 234.0 273.0 317.0

3400 REVENUE/KWh SOLD3410 ----------------3420 AV REVEN FILS/KWR 41.6 43.2 42.6 42.5 53.1 53.1 53.1 53.1 53.1

4110 OPERATING REVENUES4115 …---- ----- -----4200 ELECTRICITY SALES 3089 4071 4881 5865 8766 10519 12431 14504 168414220 OThER REVENUES 205 231 229 175 190 210 230 250 250

4252 TOTAL OPER. REV. 3294 4302 5110 6040 8956 10729 12661 14754 17091

4601 OPERATING EXPENSES4602…4660 PURCHASED ENERGY 1181 2093 2605 3124 4840 5968 7095 8388 98184700 ADMINISTRATION 416 395 498 577 669 663 782 965 11994710 GENERATION EXP 496 467 411 506 464 453 444 438 4634720 DISTRIBUTION EXP 475 604 745 864 1002 1142 1290 1445 16184730 DFPRECIATION 333 356 484 696 9L6 1135 1327 1462 15644975 GORPORATION TAX 148 149 101 11 247 303 418 556 7044977 OTHER TAXES 2 2 2 0 6 8 11 14 18

4990 TOIAL 3051 4066 4846 5778 8144 9672 11367 13268 15384

5010 NET OPER. INCOME 243 236 264 262 812 1057 1294 1486 1707

5U30 NET OPE.INC.BEF.INT. 243 236 264 262 812 1057 1294 1486 17075040 INT C(HARGED OP 0 0 66 244 424 581 638 613 600

5060 NET INCOME 243 236 198 18 388 476 656 873 1107======= ======= ====:=== ======= ====-:= ======= ======= 5====== =======

51U0 RATE BaSE 3580 3502 5013 7952 10597 13042 14859 15560 155965110 RATE OF RETURN

5140 -BEFORE TAXES 10.9 11.0 7.3 3.4 10,0 10.4 11.5 13.1 15.55150 -AFTER TAXES 6.8 6.7 ';.3 3.3 7.7 8.1 8.7 9.6 10.9Diou OPERATING RATIO % 93 95 95 96 91 90 90 90 90

5301 APPLICATION OF NET5302 INCOME5310 -DIVIDENDS 198 180 160 50 70 100 100 100 1005320 DIRECTOR6 FEE 8 8 8 8 8 8 8 8 85330 LEGAL RESERVE 39 40 30 27 106 136 171 204 2415375 -RETAINED EARNINGS -2 8 0 -67 2C4 232 377 561 758

5477 TOTAL INTEREST 0 30 204 300 469 635 678 635 619348U LESS:ICC 0 30 138 56 45 54 40 22 19

5484 IN1 CHARGED OP 0 0 66 244 424 581 638 613 600

5488 AMORTIZATION 231 277 300 485 812 823 804 702 610

july 1983

- 97 - ANNEX 3.3Page 2 of 4

JORDAN

ENERGY DEVELOPMENT PROJECT

IDECO's Sources and Application of Funds(JD Thousands)

For the Year ending -- Actual------- ------------------ Forecast…--------…--------

December 31 1980 1981 1982 1983 1984 1985 1986 1987 1988

6010 INTERNAL SOURCES

6015 …6020 -NET INCOME BEF IN 243 236 264 262 812 1057 1294 1486 17076030 -DEPRECIATION 333 356 484 696 916 1135 1327 1462 15646040 -CONSUMER CONTRIB 0 0 172 250 200 150 150 150 150

6060 TOTAL 576 592 920 1208 1928 2342 2771 3098 3421

6080 LESS:DEBT SERVICE6081 AND DIVIDENDS60826100 -DEBT SERVICE 231 307 504 785 1281 1458 1482 1337 1229bllU -DIVIDENDS 20b 188 168 58 78 108 108 108 108

6140 TOTAL 437 495 672 843 1359 1566 1590 1445 1337

6152 NET INTERNAL CASH6153 GENERATION 139 97 248 365 569 776 1181 1653 2084

6156 LESS:WORKING

6157 CAPITAL NEEDS 331 -676 756 586 -85 60 -24 285 8006158 LESS:REDUCTION INb159 OTHER LIABILITIES -515 -221 -675 -440 -441 -287 -608 -30 -3666160 NET AVAILABLE6170 FROM OPERATIONS 323 994 167 219 1095 1003 1813 1398 1650

6190 CONSTRUCTION6191 REQUIREMENTS62UO -ONGOING WORKS 323 3363 2228 2840 847 8 10 0 062iO -PROPOSED PROECT 0 0 0 0 3053 3522 2300 0 06220 -FUTURE PROJECT 0 0 0 0 0 0 0 1540 1650

6295 TOTAL 323 3363 2228 2840 3900 3530 2310 1540 1650

6310 BALANCE TO FINANCE 0 2369 2061 2621 2805 2527 497 142 0

6330 FINANCED BY:

b340 PROJECT LOAN-IBRD 0 0 0 0 611 1590 497 142 0b350 COMMITTED LOANS 0 2369 2061 1271 2194 937 0 0 06410 -EQUITY 0 0 0 1000 0 0 0 0 06415 -SHARE PREMIUM 0 0 0 350 0 0 0 0 0

b460 TOTAL 0 2369 2061 2621 2805 2527 497 142 0

6575 SURPLUS(DEFICIT)

b7lU NET AVAILABLE

6720 FROM OPERATIONS/6730 -CONSTRUCTION REQ% 100 30 7 8 28 28 78 91 100b740 -PLANT IN OPER-% 5.7 16.6 1.7 1.6 6.4 4.8 7.7 5.5 6.16750 DEBT SERVICE COVER 2.5 1.9 1.8 1.5 1.5 1.6 1.9 2.3 2.8b751 SELF FINANCING 43 5 9 14 17/1 21 40 86 1316754 REVENUE INC REQD(%) 0.00 0.00 0.00 0.00 25.00 0.00 0.00 0.00 0.00

/1 With the contributions from the Government/Municipalities for rural projects indicated bythe Jordanian delegation the self financing level would be more than 20%.

November 1983

- 98 -ANNEX 3.3Page 3 of 4

JORDAN

ENERGY DEVELOPMENT PROJECT

IDECO's Balance Sheets(At "Book Value")(JD Thousands)

For the Year ending -------Actual------- ------------------Forecast------------------December 31 1980 1981 1982 1983 1984 1985 1986 1987 1988

7540 ASSETS7550 =====-7560 PLANT IN OPERATION 5692 5990 972b 13470 17078 20761 23473 25253 268707570 LESS: DEPRECIATION 2074 2430 2914 3610 4526 5661 6988 8450 10014

7580 NET PLANT 3618 3560 6812 9860 12552 15100 16485 16803 16856

7600 WORK IN PROGRESS 24 3119 1749 901 1238 1139 777 559 611

7b25 CURRENT ASSETS7627 -CASH AND BANKS7630 CASH 341 66 245 376 383 201 231 292 7907632 ACC REC-ELEC 536 770 891 978 1031 1235 1457 1698 19677633 -OTHER 93 179 226 250 275 302 333 366 4037635 -INVENTORIES 731 708 753 1160 1527 1892 2212 2436 26067b40 PRE PAYMENTS ETC 26 97 424 466 513 454 224 400 712

767u TUTAL 1727 1820 2539 3230 3729 4084 4457 5192 6478

7690 TOTAL 5369 8499 11100 13991 17519 20323 21719 22554 23945

7710 LIABILITIES7720 === …

7730 EQUITY7770 -CAPITAL 2000 2000 2000 3000 3000 3000 3000 3000 30007820 -RETAINED EARNINGS 71 79 79 12 216 448 825 1386 21447955 -OTHER RESERVES 1/ 392 432 462 839 945 1081 1252 1456 1697

7995 TOTAL 2463 2511 2541 3851 4161 4529 5077 5842 6841

8010 LONG TERM DEBT 908 3000 4761 5547 7540 9244 8937 8377 7767

8030 CUR'NT LIABILITIES8040 -ACCOUNTS PAYABLE 1176 1944 1955 2150 2498 2737 3019 3331 36698050 TAX PAYABLE 148 149 101 11 247 303 418 556 704

8090 TOTAL 1324 2093 2056 2161 2745 3040 3437 3887 4373

8107 CUSTOMER DEPOSITS 196 305 402 792 1183 1420 1678 1958 22748108 CONSUMER CONTRIBUT 87 87 259 509 709 859 1009 1159 13098109 OTHER LIABILITIES 391 503 1081 1131 1181 1231 1581 1331 1381

91Ou 'TOTAL 5369 8499 11100 13991 17519 20323 21719 22554 23945

9220 DEBT/DEBT & EQUITY 27 54 65 59 64 67 64 59 539230 CURRENT RATIO 1.3 0.9 1.2 1.5 1.4 1.3 1.3 1.3 1.59240 RECEIVABLES/REV % 16 18 17 16 12 12 12 12 129245 RECEIVABLES-DAYS 59 64 63 58 41 41 41 41 41

1/ Includes legal reserve and share premiums.

July 1983

JORDAN

ENERGY DEVELOPMENT PROJECT

IDECO's Financial Ratios Based on Revalued Assets

For the Year ending Accl------- tual -----------------------…Forecast----------------------

December 31 1980 1981 1982 1983 1984 1985 1986 1987 1988

5100 RATE BASE 3656 3938 5709 9006 12217 15358 17900 19321 20063

5110 RATE OF RETURN

5140 -BEFORE TAXES 10.4 8.9 2.0 1.6 7.1 7.1 7.6 8.2 9,2

5150 -AFTER TAXES 6.3 5.1 0.3 1.6 6.0 5.8 6.0 6.2 6.8

5160 OPERATING RATIO % 93 95 100 98 92 92 91 92 92

6754 TARIFF INC REQD(/) 0.00 0.00 0.00 0.00 25.00 0.00 0,00 0.00 0.00

9220 DEBT/DEBT 2 EQUITY 25 49 59 52 55 55 50 44 38

9230 CURRENT RATIO 1.3 0.9 1.2 1.5 1.4 1.4 1.4 1,5 1.6

9240 RECEIVABLES/REV % 16 16 17 16 12 12 12 12 12

9245 RECEIVABLES-DAYS 59 64 63 58 41 41 41 41 41

July 19830Qo

4-

- 100 - ANNEX 3.4

JORDAN

ENERGY DEVELOPMENT PROJECT

Suggested Key Indicators of ]?erformance

(a) Rate of growth of load (kWh).

(b) Transmission and distribution losses - 1) kWh2) Percentage of energy fed

into system.

(c) Number of employees per 1,000 connections.

(d) Average revenue per kWh sold.

(e) Average depreciation rate - Annual depreciation charge divided byaverage gross fixed assets excluding work in progress.

(f) Operating ratio - operating expenses, including depreciation andtaxes but not interest, divided by operating revenues.

(g) Debt service coverage - ratio of internal cash generationi.e. net income after taxes plus depreciation to debt serviceexcluding interest capitalized.

(h) Debt equity ratio - ratio of long term debt, including the portiondue for repayment within one year but excluding short term debtincurred specifically for less than one year, to equity includingretained earnings and capital surplus from revaluation if any.

(i) .Internal cash generation ratio - Net income after taxes, plusdepreciation less 1) debt service on long term debt but excludinginterest during construction 2) increases in working capital and 3)dividends, as a percentage of the average gross constructionexpenditure including interest during construction for the precedingand current years (a decrease in working capital should be taken asan addition to internal cash generation).

(j) Rate of return - Net operating income divided by (average net fixedassets in operation as revalued from time to time less accumulatedcustomer contributions.)

(k) Number of average days bills outstanding - (Bills outstanding dividedby total billing for year) x 365.

July 1983(1253P)

- 101 - ANNEX 3.5

JORDAN

ENERGY DEVELOPMENT PROJECT

Suggested Principle for Revaluation of Fixed Assetsof JEPCO and IDECO

1. Separate total costs into yearly figures of foreign and local costs.

2. Use two different indices for valuing foreign and local costs.

3. Revalue this foreign cost component by applying the Unit Valuc Indexof Manufactured Exports from Developed to Developing Countries as prepared in

the World Bank and updated from time to time.

4. Since the revaluation in (3) above would only reflect the changes interms of US dollars, apply a further annual adjustment to reflect changes inthe value of the Jordanian dinar vis-a-vis the US dollar at the end of eachyear.

5. Revalue the local cost component by applying annual coefficient basedon either a construction Material Cost Index if one is available in Jordan, oron the Wholesale Price Index if a Construction Material Cost Index is notavailable.

6. Determine total revalued cost by adding the revalued foreign andlocal cost components.

August 1983(1253P)

- 102 - ANNEX 4.1Page 5 ot 2

JORDAN

ENERGY DEVELOPMENT PROJECT

Assumption for RaLte of Return Calculationsfor the Power Distribution Component

1. Shadow Pricing: Shadow prices were not: used, other than forpetroleum products, as conversion factors for Jordan have not been derived.

2. Capital Cost: The Project cost, including physical contingencies isexpressed in mid 1983 prices. Since the economic life of the Project is takento be 30 years, some of the equipment financed under the Project would requireupgrading or replacement once the demand of the beneficiaries reaches thecapacity limits of the existing equipment. Consequently, the followinginvestments were attributed to the cost side of the project to cover the newequipment needed to meet the projected sales:

Year 17 18 19 20 21 22 23

Amount in '000 JD 650 1,250 250 0 1,100 1,300 900expressed in mid-1983 prices

3. Economic Cost of Supply: The long run marginal cost of supply (LRMC)of 28 fils/kWh for generation and transmission iS taken as a proxy for the newfacilities that would be needed in the future to meet the demand forelectricity. This includes capacity cost of generation and transmission basedon: (a) the capital cost of the new Aqaba steam power plant (phase II) whichrepresents the avoidable cost. Phase I has not been considered because it iscurrently under construction and consequently, its capital cost cannot beavoided; (b) the cost of development of the transmission network (400 kV,220 kV, 66 kV); (c) operations and maintenance cost of about 2% per year ofthe capital cost; and (d) the cost of energy based on border prices for gasoil and fuel oil of about US$300/ton and US$160/t:on respectively, representingthe cost to Jordan in March 31, 1983 of importing these products from SaudiArabia.

4. Average Revenue; An average revenue of 55 fils/kWh for IDECO and36.6 fils/kWh for JEPCO is taken as a proxy for the consumers' willingness topay. The average revenue includes 1 fils/kWh as a contribution by the lowvoltage consumers to the overall cost of the national rural electrificationprogram.

- 103 - ANNEX 4.1Page 2 of 2

5. Savings Through Households Fuel Displacement: There are additionalsavings which accrue from the substitution of electricity for kerosene and LPGcurrently being used in households. The average consumption of petroleumproducts by households consists of 20% LPG at JD 124/ton and 80% kerosene atJD 110/ton, which is equal to JD 113/ton. It is estimated that each householdconsumes about 0.56 ton of petroleum products/year and that it takes about1,000 kWh/year to provide that service, equivalent to 63.3 fils/kWh comparedwith existing tariffs of 36.6 fils/kWh (JEPCO) and 55 fils/kWh (IDECO).Therefore, 8.6 fils/kWh and 27 fils/kWh are used, respectively, as a measureof the savings accruing from the substitution of electricity for fuel used byhouseholds in IDECO's and JEPCO's areas of distribution. The averageequivalent electrical energy of 1,000 kWh/year per household only representsthe fuel displaced in domestic uses. Presently, average electricityconsumption per household is estimated at about 1,200 kWh. The differencebetween the average level of consumption and the equivalent fuel displacementpresumably represents electricity usage by small domestic electricalappliances.

Customer Contribution:

6. A one-time contribution of JD 25 made by each new urban consumer anda weighted average of JD 85 made by each new rural consumer when service isprovided for the first time is regarded as a benefit. This contribution isestimated to cover the cost of the equipment (meters, connectors, etc.)installed in the customer's premises. The equipment cost is included in thetotal cost of equipment and materials to be financed by the Project.

November 1983(1447P)

- 104-ANNX 4.2

ERNY DEUEL[PIT PRlThXC

Total Pouer Distribution Cag nent

Rate of Peturn(JD i00)

Eca CustoCapital Cost of 0 & M Total Sales Fuel Contri- Total Net

Periods Costs 2Mpy Costs Costs Revee Savirs butions Benefits Benefits

1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.002 5122.00 314.40 65.20 5501.60 549.60 194.85 370.00 1114.45 -4387.153 7267.00 723.12 139.74 8129.86 1242.00 471.83 505.00 2218.83 -5911.044 3151.00 1100.40 119.70 4371.10 1857.36 750.82 582.50 3190.69 -1180.425 0.00 1289.(4 112.74 1401.78 2154.00 905.40 210.00 3269.40 1867.626 0.00 1314.82 112.74 1427.56 2197.08 923.51 32.50 3153.09 1725.537 0.00 1341.10 112.74 1453.84 2241.00 941.98 33.14 3216.11 1762.278 0.00 L367.92 112.74 1I40.66 2285.8]. 960.81 33.78 3280.40 1799.749 0.00 1395.24 112.74 1507.98 2331.46 980.00 34.44 3345.91 1837.9310 0.00 1265.93 112.74 1378.67 2048.06 96i.34 35.11 3044.51 1665.8411 0.00 1294.38 112.74 1407.12 2095.60 981.34 35.78 3112.71 1705.5912 0.00 1323.44 112.74 1436.18 2144.15 1001.73 36.47 '3182.35 1746.1713 0.00 1353.08 112.74 1465.82 2193. 70 1022.55 37.15 3253.40 1787.5814 0.00 1383.27 112.74 1496.01 2244.14 1043.74 38.01 3325.90 1829.8915 0.00 1539.77 112.74 1652.51 2581.59 1071.21 38.73 3691.52 2039.0116 0.00 1571.25 112.74 1683.99 2634.18 1093.30 39.45 3766.93 2082.9517 650.00 1634.75 125.74 2410.49 2731.69 1148.23 40.33 3920.25 1509.7518 1250.00 1667.48 137.74 3055.22 2786.37 1171.22 41.07 3998.67 943.4419 250.00 1700.81 137.74 2088.55 2842.07 1194.62 41.96 4078.65 1990.1020 0.00 1734.73 136.74 1871.47 2898.71 1218.50 42.70 4159.91 2288.4321 1100.00 1769.47 151.74 3021.21 2956.80 1242.86 43.63 4243.29 1222.0822 1300.00 1804.91 168.74 3273.65 3016.02 1267.74 44.57 4328.32 1054.6723 900.00 1841.00 181.74 2922.74 3076.33 1293.09 45.50 4414.92 1492.1824 0.00 1877.85 181.74 2059.59 3137.89 1318.98 46.27 4503.14 2443.5525 0.00 1915.36 181.74 2097.10 3200.58 1345.32 47.20 4593.10 2496.0026 0.00 1953.71 181.74 2135.45 3264.67 1372.26 48.16 4685.09 2549.6427 0.00 1992.73 181.74 2174.47 3329.86 1399.67 49.15 4778.68 2604.2128 0.00 2032.60 181.74 2214.34 3396.48 1427.67 50.13 4874.28 2659.9529 0.00 2062.37 181.74 2244.11 3441.57 1453.59 51.09 4946.24 2702.1330 0.00 2103.65 181.74 2285.39 3510.45 1482.69 52.10 5(45.24 2759.84

Rate of Return: 12.9%

November 1983(5075P)

- 105 -ANNEX 4.3

JO3tAN

EN3 DEVYPH1 P1JCECr

JEPOD Parr Distriblticn Ccmparit

Rate of Return(JD '00)

EccnLmic CustCapital Cost of 0 & M Total Sales Fuel Contri- Total Net

Periods Costs Suply Costs Costs Revenue Savings bitions Baeefits Benefits

1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.002 2410.00 157.20 48.20 2615.40 219.60 156.60 185.00 561.20 -2054.203 4337.00 393.00 86.74 4816.74 549.00 391.50 277.50 1218.00 -3598.744 1370.00 644.52 27.40 2041.92 900.36 639.90 320.00 1860.26 -181.665 0.00 786.00 20.44 806.44 1098.00 783.00 142.50 2023.50 1217.066 0.00 801.72 20.44 822.16 1119.96 798.66 18.50 1937.12 1114.967 0.00 817.75 20.44 838.19 1142.36 814.63 18.87 1975.86 1137.678 0.00 834.10 20.44 854.54 1165.20 830.92 19.24 2015.36 1160.819 0.00 850.77 20.44 871.21 1188.48 847.52 19.61 2055.60 1184.4010 0.00 867.78 20.44 888.22 1212.24 864.46 19.98 2096.68 1208.4611 0.00 885.13 20.44 905.57 1236.48 881.76 20.38 2138.61 1233.0412 0.00 902.83 20.44 923.27 1261.21 899.39 20.77 2181.36 1258.0913 0.00 920.91 20.44 941.35 1286.46 917.40 21.16 2225.02 1283.6714 0.00 939.30 20.44 959.74 1312.15 935.72 21.64 2269.52 1309.7715 0.00 926.63 20.44 947.07 1294.45 922.02 22.06 2238.54 1291.4716 0.00 945.81 20.44 966.25 1321.25 941.12 22.46 2284.83 1318.5817 650.00 996.81 33.44 1680.25 1392.48 993.00 22.97 2408.45 728.2018 1250.00 1016.77 45.44 2312.21 1420.37 1012.89 23.39 2456.65 144.4419 250.00 1037.08 45.44 1332.52 1448.75 1033.12 23.89 2505.76 1173.2420 0.00 1057.83 44.44 1102.27 1477.73 1053.79 24.31 2555.84 1453.5721 0.00 1078.96 44.44 1123.40 1507.25 1074.84 2A.84 2606.93 1483.5322 0.00 1100.56 44.44 1145.00 1537.42 1096.36 25.37 2659.15 1514.1523 0.00 1122.57 44.44 1167.01 1568.16 1118.28 25.90 2712.34 1545.3424 0.00 1145.04 44.44 1189.48 1599.57 1140.67 26.35 2766.59 1577.1025 0.00 1167.90 44.44 1212.34 1631.50 1163.45 26.88 2821.82 1609.4826 0.00 1191.29 44.44 1235.73 1664.17 1186.75 27.43 2878.35 1642.6227 0.00 1215.09 44.44 1259.53 1697.42 1210.46 27.99 2935.86 1676.3328 0.00 1239.40 44.44 1283.84 1731.37 1234.67 28.54 2994.58 1710.7429 0.00 1264.20 44.44 1308.64 1766.02 1259.38 29.10 3054.50 1745.8530 0.00 1289.51 44.44 1333.95 1801.38 1284.59 29.67 3115.64 1781.69

Rate of Return: 16.4%

Novemier 198 3(5075P)

- 106 -

ANE( 4.4

ENERGY DEVELOMIENT PLUJECr

IDEOD Power Distribution Coimp_t

Rate of Return(JD '000)

Economic CustamerCapital Cost of 0 & M Total Sales Fuel Ccotri- Total Net

Periods Costs Costs Costs Revenue Savings butions Benfits Benefits

1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.002 2712.00 157.20 17.00 2886.20 330.00 38.25 185.00 553.25 -2332.953 2930.00 330.12 53.00 3313.12 693.00 80.33 227.50 1000.83 -2312.304 1781.00 455.88 92.30 2329.18 957.00 110.93 262.50 1330.42 -998.765 0.00 503.04 92.30 595.34 1056.00 122.40 67.50 1245.90 650.566 0.00 513.10 92.30 605.40 1077.12 124.85 14.00 1215.97 610.577 0.00 523.35 92.30 615.65 1098.64 127.34 14.27 1240.25 624.608 0.00 533.82 92.30 626.12 1120.61 129.89 14.54 1265.04 638.929 0.00 544.48 92.30 636.78 1142.99 132.48 14.84 1290.31 653.5310 0.00 398.16 92.30 490.46 835.82 96.88 15.13 947.83 457.3811 0.00 409.25 92.30 501.55 859.12 99.58 15.40 974.10 472.5512 0.00 420.60 92.30 512.90 882.95 102.34 15.70 1000.98 488.0813 0.00 432.17 92.30 524.47 907.24 105.16 15.99 1028.38 503.9114 0.00 443.96 92.30 536.26 931.99 108.03 16.37 1056.38 520.1215 0.00 613.14 92.30 705.44 1287.13 149.19 16.67 1452.99 747.5416 0.00 625.44 92.30 717.74 1312.94 152.18 16.99 1482.10 764.3717 0.00 637.95 92.30 730.25 1339.21 155.23 17.37 1511.80 781.5518 0.00 650.71 92.30 743.01 1366.00 158.33 17.68 1542.02 799.0119 0.00 663.73 92.30 756.03 1393.33 161.50 18.06 1572.89 816.8620 0.00 676.90 92.30 769.20 1420.98 164.70 18.39 1604.07 834.8721 1100.00 690.52 107.30 1897.82 1449.56 168.02 18.79 1636.36 -261.4522 1300.00 704.35 124.30 2128.65 1478.60 171.38 19.20 1669.18 -459.4723 900.00 718.44 137.30 1755.74 1508.17 174.81 19.60 1702.58 -53.1624 0.00 732.80 137.30 870.10 1538.33 178.31 19.92 1736.55 866.4525 0.00 747.45 137.30 884.75 1569.08 181.87 20.32 1771.28 886.5326 0.00 762.42 137.30 899.72 1600.50 185.51 20.73 1806.74 907.0227 0.00 777.64 137.30 914.94 1632.44 189.22 21.16 1842.82 927.8828 0.00 793.20 137.30 930,50 1665.11 193.00 21.59 1879.71 949.2129 0.00 798.17 137.30 935.47 1675.54 194.21 22.00 1891.75 956.2830 0.00 814.14 137.30 951,44 1709.07 198.10 22.42 1929.59 978.15

Rate or Return= 8.4%

November 1983(5075P)

IBRD 16106Rg ,EBANON r 85 'JU~~~~~~~~~~~~~~~~~~~~~~~~~~~JNE 199Eq'LE BA N7N

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IBRD 16299RI36° JUNE 1983

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R E P UOLC GEOTHERMAL PROSPECT

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4 dUSSEINEYYAS L ,'.LA ~~~~~~EXISTING OR UNDER CONSTRLCOTON TRANSMf 55 ON NETWORK:4", 0- \A,lj SE E E 4 k A T L NE

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