Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 15228

PROJECT COMPLETION REPORT

PAKISTAN

FOURIH WAPDA POWER PROJECT(LOAN 2499-PAK)

DECEMBER 29, 1995

Energy and Project Finance DivisionCountry Department ISouth Asia Region

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

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Currency Unit = Pakistan Rupee (Rs)Appraisal Year 1984 = US$1.00 = Rs 13.48Intervening Years 1990 = US$1.00 = Rs 21.45Completion Year 1993 = US$1.00 = Rs 25.96

GOP AND WAPDA'S FISCAL YEAR (FY)

July 1 - June 30

MEASURES AND EOUIVALENTS

1 kilometer (km) = 0.6214 miles (mi)1 ton = 1,000 kilograms (kg)

= 2,200 pounds (lbs)1 kilovolt (kV) = 1,000 volts (V)1 megawatt (MW) = 1,000 kilowatts (kW)1 megavolt-ampere (MVA) = 1,000 kilovolt-amperes (kVA)1 kilowatt hour (kWh) = 1,000 watt-hours (Wh)1 gigawatt hour (GWh) = 1 million kilowatt hours (kWh)1 kilovar (kVAR) = 1,000 volt-ampere reactive (kVAR)1 megavar (MVAR) = 1,000 kilovolt-ampere reactive

(MVAR)

ACRONYMS AND ABBREVIATIONS

ADP - Annual Development PlanGOP - Government of PakistanPCR - Project Completion ReportPMU - Project Management UnitQPR - Quarterly Progress ReportSAR - Staff Appraisal ReportSBD - Standard Bidding DocumentsSTG - Secondary Transmission and GridUSAID - United States Agency for International DevelopmentUNDP - United Nations Development ProgramWAPDA - Water and Power Development Authority

FOR OFFICLAL USE ONLYThe World Bank

Washington, D.C. 20433U.SA

Otice of ihe Dociaor-GenmlOpamlions Evaluation

December 29, 1995

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on PakistanFourth WAPDA Power Project (Loan 2499-PAK)

Attached is the Project Completion Report (PCR) on the Pakistan Fourth WAPDA Power project(Loan 2499-PAK, approved in FY85) prepared by the South Asia Regional Office, with Part II preparedby the Borrower. The closing date was extended twice until December 31, 1992 by which time the loanwas fully disbursed. The project was cofinanced by the Asian Development Bank (ADB), Switzerland, theU.K. and CIDA.

The objective of this eighth Bank operation in Pakistan's power sector was to improve sectorefficiency by helping WAPDA (the state water and power utility): (i) reinforce its transmission andsubstation network; (ii) strengthen its investment planning capacity; and (iii) maintain sound finances.To this end, the project included the construction of about 3,800 km of transmission lines and 6,400 MVAof transformer capacity, studies (loss reduction, internal audit, and least-cost planning), and training ofaccounting staff.

After an initial two-year delay in start-up due, inter alia, to insufficient local funding andrevisions in bidding documents, the project was satisfactorily carried out-indeed with a 10 percentincrease in the scope of its physical components and at a cost 28 percent lower than estimated at appraisal(a consequence of the rupee's devaluation). Despite implementation delays due to shortages in counterpartfunding, difficulties in arranging cofinancing, land acquisition problems and slippages in bid preparationand evaluation schedules, the project was successful in achieving its main objectives: networkreinforcement led to a decrease in system losses (from 25 percent in 1985 to 21 percent in 1991) andallowed for energy sales to grow by about 10 percent annually in 1985-93; and WAPDA's financialperformance remained satisfactory overall, with the exception of a persistent Government arrears problem.The project's ex-post economic rate of return is estimated at 7 percent (slightly above the appraisalestimate of 6.2 percent), an indication that tariffs remain somewhat below marginal cost. The latter issueis being addressed under subsequently-approved Bank projects.

Accordingly, and as in the PCR, the outcome of the project is rated as satisfactory, itsinstitutional development impact as moderate and its sustainabillity as likely. Bank performance is ratedas satisfactory as confirmed by the Borrower. Key lessons learned are: first, the importance of taking intoaccount prior project implementation experience in setting a realistic implementation schedule; and,second, the need to agree with the borrower on a format for progress reports which makes them usefulmanagement tools.

The PCR is of good quality: it is thorough in its analysis and provides most of the neededbackground data (with the exception of the standard annex on studies). The project will be auditedtogether with subsequent loans made to Pakistan's power sector, as an input into a forthcoming OED studyof the Bank's experience with private sector development in the electric powe or.

Attachment

|This document has a restricted distribution and may be used by recipients only In the performance of theirs ofcial duties. Ks contents may not otherwise be disclosed without World Bank authorization.

FOR OFFCIAL USE ONLY

PROJECT COMPLETION REPORT

PAKISTAN

FOURTH WAPDA POWER PROJECT(LOAN 2499-PAS)

Table of Contents

PREFACE

ZVALUATION SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . i

PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . . . . . . 1

1. Project Identity ... . . . . . . . . .... . 12. Background ... . . . . . . . . . . . . ... . 13. Project Objectives and Description . . . . .. . . . . . 24. Project Design and Organization . . . . .. . . . . . . . 3S. Project Implementation . . . . .. . . . . . . . . . . . 3

Project Start-up and Implementation Schedule . . . . 3Project Revision.... 4Studies . . . . . . . . . . . . . . . . . . . . . . . 5Project Costs.... 5Closing Date Extensions . . . . . . . . . . . . . . . 5Procurement.... 5Disbursements.... 6Environmental Aspects... . 6Compliance with Loan Covenants . . . . . . . . . . . 6

6. Operational, Financial and Institutional Performance . . 6Operational Performance . . . . . . . . . . . . . . . 6Financial Performance . . . . . . . . . . . . . . . . 7Institutional Performance . . . . . . . . . . . . . . 9

7. Sustainability and Economic Rate of Return . . . . . . . 108. Bank Performance ........... ........ 119. Borrower Performance .......... ........ 1210. Performance of Consultants and Contractors . . . . . . . 1311. Project Relationship .. 1312. Project Documentation . . . . . . . . . . . . . . . . . . 13

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

PART III - STATISTICAL INFORMATION . . . . . . . . . . . . . . . . . . . 17

Table 1 Related Bank Loans and Credits . . . . . . . . . . . 17Table 2 Project Timetable . .......... ... 19Table 3 Cumulative Estimated and Actual Disbursements . . . . 19Table 4 Project Implementation . . . . . . . . . . . . . . . 20Table 5 Project Costs and Financing . . . . . . . . . . . . . 22

A. Project Costs .22B. Project Financing . . . . . . . . . . . . . . 22

Table 6 Project Results .. .23A. Direct Benefits . . . . . . . . . . . . . . . 23B. Economic Impact . . . . . . . . . . . . . . . 24

Table 7 Key Covenants and Status of Compliance . . . . . . . 25Table 8 Use of Staff Resources . . . . . . . . . . . . . . . 26

A. Inputs .................. 26B. Supervision Missions . . . . . . . . . . . . . 26

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

PROJECT COMPLETION REPORT

PAKISTAN

FOURTH WAPDA POWER PROJZCT(LOAN 2499-PAR)

PREFACE

This is the Project Completion Report (PCR) for the Fourth WAPDA PowerProject, for which Loan 2499-PAK in the amount of US$100 million was approved onMarch 7, 1985. The loan to the Water and Power Development Authority (WAPDA) wassigned on April 17, 1985, and declared effective on July 12, 1985. The originalloan Closing Date of December 31, 1990, was extended twice until December 31,1992 by which time, the loan was fully disbursed and the project closed.

The PCR was prepared by the Energy and Project Finance Division, CountryDepartment I, South Asia Region, and by WAPDA. The former prepared the Preface,Evaluation Summary and Parts I and III of the PCR, while WAPDA prepared Part II,and provided most of the supporting data.

Preparation of this PCR was started during the Bank's final supervisionmission in December 1993. Preparation of Parts I and III of the PCR was basedon, inter alia, information in the Staff Appraisal Report, the Loan and GuaranteeAgreements, material on the project in Bank files and that provided by WAPDA. Thepreparation was also based on discussions with the officials of the Governmentof Pakistan and WAPDA during the PCR mission.

The generous assistance provided by those officials to the PCR missionis gratefully acknowledged.

PROJECT COMPLETION REPORT

PAKISTAN

FOURTH WAPDA POWER PROJECT(LOAN 2499-PAK)

EVALUATION SU3KARY

Introduction

1. This was the fourth Bank Group operation with the Water and PowerDevelopment Authority (WAPDA), and the eighth in the country' s power sector. Theloan, in the amount of US$100 million, for construction of transmission lines andsubstations, was approved ten months after loan negotiations. The delay was dueto two issues: the introduction of a revised or updated financial covenant, andthe introduction of long run marginal cost as an objective for tariffs. Thefirst one was eventually agreed and the second one was deferred for the future(paras 2.5 and 2.6).

Prolect Oblective.

2. The objectives were: (a) to improve the efficiency of power sectoroperation by reinforcement of a part of WAPDA's transmission and substationnetwork; (b) to strengthen WAPDA institutionally, including its capacity toformulate and implement the capital investment program; and (c) to ensurefinancial viability of WAPDA (para 3.1).

ImDlementation ElDerience

3. Project implementation took three years longer than originallyenvisaged for several reasons including: (a) a delayed start because WAPDA'sstaff responsible for implementation activities were engaged in residual work onan earlier project; (b) bidding documents, prepared in accordance with Bankguidelines applicable under the earlier project, had to be changed in accordancewith the Bank's revised formats; and (c) budget allocations for the project,especially during the initial three years, were substanitally lower than therequirements of the project. Because of the start-up delays, no disbursement ofloan proceeds took place during the first two years (paras 5.1 and 5.2). Thephysical components underwent some informal revisions during projectimplementation and, as completed, the project was somewhat larger (about 15%-20%)than that envisaged at appraisal (5.3). Total project costs, in 1993 rupees, areestimated to be about 20% higher than the appraisal estimate, and about 28% lowerin US$ equivalent, and reflect in part the devaluation of the rupee from Rs14.5/US$ in 1985 to about Rs 27/US$ in 1993 (paras 5.7 and 5.8).

Results

4. The project was successful in meeting its objectives. It enabledWAPDA to transmit power and energy from generating plants to load centers withimproved system efficiency. The facilities built under the project havefunctioned generally satisfactorily. They contributed to: (a) reduction insystem losses, while the energy generated more than doubled during the projectperiod (1985-1993); and (b) extension of service to nearly double the number ofcustomers (para 6.3). WAPDA's financial performance during the same period wasgenerally satisfactory, and its internally generated funds have contributedaround 40% of its annual capital expenditure (para 6.5). The accountsreceivable, however, are still on the high side, and this is partly due to thelarge amounts due from Government Departments and agencies, over which WAPDA haslittle control (6.10). The ex-post economic rate of return is estimated at 7%which is close to that projected at appraisal. Other non-quantifiable benefitsincluded, inter alia, improvement in the quality of life and the standard ofliving through the use of electricity; development of the local manufacturing,supply and contracting industries; and an increase in industrial and commercialactivities which generate increased employment opportunities (para 7.2).

11

Sustainability

5. The project, part of WAPDA's transmission system, has contributed toimproved efficiency of power transmission, extension of service to customers, andreduction in system losses. The Government and WAPDA are committed to ensuringthe financial viability of the utility, as manifested by adequate tariffincreases, and the resulting satisfactory financial performance. In theinstitutional aspects, WAPDA is a well-managed, technically competent entity. Itis therefore concluded that the project is fully sustainable (para 7.1).

Findings and Lessons Learned

6. Implementation experience under this project was in many respects thesame as under previous Bank operations, in that project activities werecompleted, and the loan disbursed, about three years later than the completiondates envisaged at appraisal. The factors accounting for these delays were alsomuch the same--shortfalls in resources allocated for the project; delays inproject start-up (design and procurement activities were intiated about eightmonths later than envisaged), and in procurement (substantial time was requiredfor finalizing bidding documents, as well as for the evaluation of bids byWAPDA); and weaknesses in project management and reporting. Nevertheless,despite the delays, the project has made a significant contribution towardsenhancing WAPDA's grid system capacity to transmit power efficiently, and servethe needs of a market that is growing rapidly, both in terms of the customer baseas well as the geographical area covered by the system. As envisaged atappraisal, basic and detailed designs were prepared by WAPDA, and generallycompleted in a timely manner. The Bank loan was disbursed only for goods, whilecivil works and erection costs were borne by WAPDA.

7. Among the major lessons of this project for any future operationstherefore is the need for more carefully evaluating project objectives andtargets at the time of appraisal, to ensure that these are consistent with whatcan realistically be achieved within the envisaged timeframe. In particular,implementation schedules should allow adequate time for start up activities,including the time required for procurement activities to be completed. At thesame time, WAPDA's administrative procedures should also be streamlined in orderto minimize the time that technical staff assigned to the project have to devoteto routine tasks. Finally, despite periodic attempts to address the issue, theutility of progress reports as a management tool remains limited. These reportsshould highlight project issues and identify corrective actions which have to betaken by management; consequently the format and contents of such reports shouldbe critically reviewed during project preparation and appraisal, and agreementreached on a format that achieves the intended objectives.

8. Under subsequent operations, a number of actions have been taken bythe Government and the Bank to address the critical issues identified during theimplementation of the project, in particular those relating to the Borrower'sparticipation and role during the preparation and implementation of projects, andshortfalls in budgetary allocation. Specifically, agreements have been reachedon (a) the preparation and annual review of a Core Investment Program of priorityprojects, which would be protected from budgetary shortfalls; and (b) a NationalProcurement Reform Program, including the adoption of model bidding documents,based on the Bank's standard bidding documents for goods, works and consultants,which are designed to address some of the procurement issues that have repeatedlyarisen during the implementation of Bank funded-projects.

PROJECT COMPLETION REPORT

PAKISTAN

FOURTH WAPDA POWER PROJECT(LOAN 2499-PAR)

PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Proiect Identity

Project Name Fourth WAPDA Power ProjectLoan No 2499-PAKRVP Unit South Asia Region, Country Department ICountry PakistanSector/Subsector Energy/Power

2. Background

2.1 Responsibility for public electricity supply in Pakistan is assignedto the Water and Power Development Authority (WAPDA), a semi-autonomous agencyestablished in 1958. WAPDA operates throughout the country with the exception ofKarachi area, which is served by the Karachi Electricity Supply Corporation(KESC). WAPDA is organized into two largely independent wings, one for poweractivities and the other for water activities. WAPDA, as used in this report,refers solely to the Power Wing which is responsible for planning, constructionand operation of power generation, transmission and distribution facilitiesthroughout the country with the exception of the area served by KESC (para 2.4).

2.2 In 1985, WAPDA's facilities included (a) installed generating capacityof just over 4,000 MW (63% hydro and mainly in the northern part of the country,and 37% thermal and mainly in the south); (b) about 19,000 km of transmissionlines at various voltage levels including 850 km at 500 kV; (c) 457 gridsubstations with about 14,000 MVA of transformer capacity; and (d) a distributionnetwork (some of which was about 50 years old) amounting to about 145,000 km, at11 kV and 440/220 volts. The energy generated in FY85 was nearly 19,000 GWh ofwhich about 73% was billed to approximately 4.5 million customers. The per capitaenergy consumption was only 155 kWh, which was lower than that in other countriesin the region at a similar level of development.

2.3 Through the early 1970s, WAPDA investments--with international donorsupport--was channelled largely towards increasing generation facilities.Nevertheless, for most of the period including the present, the increase ininstalled generating capacity had been inadequate to meet the rapidly increasingpower demand. This resulted in considerable load shedding, particularly duringthe dry season. Furthermore, the system losses through the late 1970s had beenvery high (around 35%). This is partly attributed to the old and overloadeddistribution system, and to inadequate, ad hoc investments in sub-transmissionand distribution systems. These systems transmitted power over long distances atrather low voltages, and had inadequate step-down substations to reduce thelength of primary feeders.

2.4 Between 1955 and 1967, the Bank Group financed four KESC operationsfor the development of generating facilities. Thereafter, the Bank Group becameinvolved in the Government of Pakistan's (GOP) program for strengthening powertransmission and distribution networks. The first operation to WAPDA was in1970, a second in 1976 and a third in 1979. A list of related Bank loans andcredits to WAPDA are detailed in Table 1, Part III. Implementation of the thirdproject (Cr. 968-PAK which in closed 1985) took about three years longer thanenvisaged. Reasons for the delay included non-conformity of tender documentswith Bank guidelines; shortage of local finances; insufficient staffing of theunit responsible for project management; and difficulties with land acquisition.Overall, physical objectives were achieved (even though the reduction in systemlosses was short of the target) and considerable progress was made ininstitutional development. While WAPDA had met the requirements of the financialcovenant, it did not generate adequate funds from its operation because of adeficiency in the formula for the covenant.

-2-

2.5 The fourth Bank Group operation with WAPDA forms the subject of thisPCR. It was prepared in December 1983 by WAPDA's planning department, andcovered a four-year time slice of WAPDA's development program for the secondarytransmission grid network (para 3.2). The project was considered suitable fora variety of cofinancing arrangements. From the Bank's position several issuesneeded to be resolved, including (a) rectifying the deficiency in the formula forthe financial covenant; (b) introduction of long run marginal cost (LRMC) as anobjective for setting WAPDA tariffs; (c) recruiting senior staff in theaccounting department; (d) upgrading the status of the Commercial Manager; (e)setting targets for reduction of system losses and accounts receivables; (f)reorganizing and upgrading the internal audit function; and (g) carrying outseveral studies. Negotiations took place on May 15 and 16, 1984, with agreementon all the issues except (a) and (b), but there was the expectation that the loanproposal would be submitted to the Board by June 30, 1984, provided agreement wasreached on the two unresolved issues.

2.6 There was misunderstanding and confusion within GOP and WAPDA on theconcept and application (including details) of LRMC. GOP was unwilling (a) toagree to a binding covenant whose meaning and impact were unclear; and (b) tocommit itself to the revised formula for the covenant due to the perception thatit would call for immediate steep tariff increases because of the large increasein investment. After much communication between GOP and the Bank, the revisedcovenant was agreed upon, but effective from 1988. Following a Side Letter fromGOP confirming minimum capital expenditure for the next three years, and theupdated financial projections indicating that the tariff (under the revisedcovenant) would be approximate to LRMC by 1990, the Bank agreed to defer theimplementation of LRMC. Following this agreement, the loan was approved by theBank in March 1985, signed in April 1985, and was declared effective three monthslater (Table 2, Part III).

3. Prolect Oblectives and Description

3.1 The objectives of the project were to: (a) assist WAPDA to implementits ongoing program to reinforce the transmission network and thereby lead tomore efficient operation of the power sector; (b) continue with institutionbuilding efforts initiated under earlier lending operations by strengtheningWAPDA's capacity to formulate and implement an investment program to improveenergy efficiency; and (c) build WAPDA into an institution which could borrowcommercially, rather than depend on loans from the Government which was alreadyfaced with budget deficits.

3.2 The project, as approved by the Board, covered a four year time-slice(FY86-FY89) of WAPDA's program for reinforcement and expansion of the secondarytransmission network, and comprised:

(a) construction of about 3,815 km of transmission lines (280 km at 220kV, 2,458 km at 132 kV, and 1,077 km at 66 kV) (para 5.5);

(b) construction of 139 new substations, and reinforcement and extensionof a further 86 existing substations, resulting in a total installedcapacity of about 6,400 MVA (para 5.5);

(c) studies to: li) reduce transmission network losses; (ii) improve powerplant efficiency; (iii) strengthen WAPDA's internal audit; and (iv)formulate a national least cost plan for the power sector (para 5.6);and

(d) training of WAPDA's accounting personnel (para 5.6).

3.3 The total project cost, including interest during construction, wasestimated at about Rs 8,900 million (US$614 million equivalent) of which Rs 3,421million (about US$236 million) was the foreign exchange cost. Sources of projectfinancing were: Bank loan of US$100 million; anticipated cofinancing andbilateral credits of about US$46 million equivalent; and the balance from WAPDA'sinternal sources and from GOP. The loan was expected to be completed by June 30,1990, and was scheduled to close in December 1990.

4. Prolect Desian and Oraanization

4.1 As in previous Bank Group operations with WAPDA (Table 1, Part III),this investment was made mainly for the development of the transmission system.Specifically, the loan financed part of the equipment and materials required forthe reinforcement and extension of the secondary transmission network duringFY86-89. A Project Management Unit (PMU) comprising WAPDA staff, had alreadydeveloped substantial experience in the design and construction of transmissionlines and substations of up to 220 kV. Preparation of basic and detailedengineering work, specifications, bidding documents and bid evaluation reportswas carried out by PMU. Excavation, concreting, foundation laying, etc., wasdone through contractors. Installation of equipment in substations, erection oftowers, and stringing of conductors in transmission lines was carried out byWAPDA staff with assistance from contractors. Testing and commissioning ofsubstations and transmission lines was carried out entirely by WAPDA staff.

5. Prolect ImDlementation

5.1 Project Start-up and Implementation Schedule. Following loaneffectiveness in July 1985, project implementation experienced substantialdelays, mainly during the start-up, resulting in the actual completion takingabout three years longer than originally envisaged. The main reasons for thedelays were: (a) WAPDA did not start project implementation activities until (i)the project was approved by the Executive Committee of the National Council inApril 1985; and (ii) loan effectiveness in July 1985, whereas the projectimplementation schedule (which had been prepared about a year earlier) requiredthese activities to start in October 1984; (b) PMU (which had also beenresponsible for the third project was hampered from working on the fourth projectby the residual work on the third project which took longer than expected partlybecause of shortage of local funds (para 2.4); (c) bidding documents, which hadbeen prepared on the same lines as those prepared with Bank approval under thethird project were considered deficient and had to be modified substantially(after much communication between WAPDA and the Bank) in order to comply withBank requirements; and (d) the perennial shortage of funding for the projectthrough the budget.

5.2 The problem with bidding documents persisted for a considerable time,and well after the project start-up, until eventually WAPDA, with assistance froma Bank mission, prepared a standard bidding document. A shortage of materials anda GOP short-term ban on import of 11 kV switch gear contributed to furtherdelays. Other causes of delays were land acquisition and right-of-way problems,security problems in some remote project areas and GOP insistence on the use ofnational shipping lines for shipment of goods and consequent Bank refusal tofinance the freight element of the contract from the loan proceeds. Finally,project implementation was also delayed in the initial years due to the shortfallin budgetary allocations (relative to WAPDA's annual requirements forimplementing the project). As indicated in Table 1 below, only in FY90-91 werethe allocations close to what was required; by contrast, during FY87-89, theshortfall in allocations ranged between 25-40% of the funding requirements of theproject.

Table 1: Annual budQetarv reauests and allocations(Million Rs)

WAPDA Allocation as %Year Requirement Allocation of Requirment

FY87 1571 1175 75

FY88 1771 1018 57

FY89 1358 887 65

FY90 1300 129 95

FY91 1600 1543 96

FY92 1600 1340 84

FY93 2964 2318 78

-4-

5.3 Prolect Revision. The detailed project description which was agreedat appraisal provided only the number of substations which were to beconstructed, extended, augmented and converted: their voltage and transformercapacity, and likewise, the length and the number of circuits of the transmissionlines and their voltage (para 3.2). The specific substations and associatedtransmission lines to be funded under the project were not identified by name orlocation, nor were the target dates or the sequence of their construction, andthe expected load growth for even a selected number of proposed facilities.1'

5.4 A Bank supervision mission carried out by a consultant in October 1986found that there was confusion concerning the project composition. Similarconfusion was found by the same mission on the third project (para 2.4) which wasthen in the final stages of its completion. After a detailed review of theprogram, the mission and WAPDA jointly prepared a list comprising 231 substations(with 4,718 MVA transformer capacity), and 3,300 km of transmission lines, asconstituting the project21. In retrospect, this confusion related more to thelist of items (substations, transmission lines, etc.) to be financed under theBank loan rather than the scope of the project. In view of the projectcomponents actually implemented, the list compiled by the October 1986 missionrepresents the items/components financed under the Bank loan.

5.5 Table 4 of Part III provides details of the project components aslisted in the Staff Appraisal Report (SAR), and the actual components implementedrespectively. The number of substations installed was 422 (compared to theappraisal estimate of 225); installed transformer capacity was about 8475 MVA(compared to 7314 MVA at appraisal, or about 16% larger); while the length oftransmission lines installed was 3675 kms (or about 4% less than the appraisaltarget of 3815 kms). This indicates that physical implementation was on asomewhat larger scale--around 10%--as compared to appraisal. Nevertheless, itis noted that substantial changes were made in project components. For exammple,only 91 new substations were constructed, compared to the appraisal estimate of140; most of the activities actually carried out involved extensions andaugmentation of existing substations (285 versus 886 envisaged at appraisal); andabout 40% of the substations identified by the October 1986 mission wereeventually replaced or substituted.3/ Similarly, while the length oftransmission lines constructed was close to that appraised, around 1600 kms (morethan two and a half times the appraisal target of 600 kms) carried doublecircuits. Several Quarterly Progress Reports (QPRs) were not available in theBank filing system; and some of them were not available to the PCR mission duringthe country visit. The available QPRs are deficient in information necessary tomonitor implementation progress, and to compare the actual and projected

Large sub-transmission and distribution projects can rarely be designed ordetermined with precision at the time of their appraisal, and generallyundergo some changes and/or substitutions of the original components (dueto changes in the envisaged long-term load growth) during theirimplementation, without having to go through the process of a formal Bankapproved revision. However, this makes it more difficult to evaluate theproject at its completion, particularly in terms of the components of theproject (as designed) which were actually implemented.

According to the supervision mission report, WAPDA had agreed: (a) toensure that any subsequent changes in the above list of substations andtransmission lines would be recorded in the next Quarterly ProgressReports, with reasons for the changes. The mission had also pointed outthat the reports were bulky with unnecessary detail but lacked theimportant information of comparing the progress achieved with the originalor the revised estimate. To overcome this problem the mission hadprepared an outline for progress reporting, which WAPDA had agreed tocarry out in the future.

2/ It is not clear from the appraisal documents whether substations that werescheduled for more than one activity, e.g., extension and conversion, werecounted separately under each activity.

-5-

implementation progress. Furthermore, QPRs do not provide any explanation forchanges in the project components.

5.6 Studies. The four studies required under the project--para 3.2 (c)--were carried out. Consultants financed by USAID submitted a report identifyingthe sources of losses in the distribution networks, and outlining a detailed workprogram to reduce those losses. A national, least-cost plan for the expansionof the power sector was prepared by consultants funded by UNDP (along with WAPDAstaff), with the Bank as Executing Agency. Consultants prepared a reportidentifying the potential for rehabilitation and retrofitting of the existingthermal capacity; this report formed the basis for the Bank financed Power PlantEfficiency Improvement Project (Ln. 2792-PAK: approved 1987; closed 1994). Thestudy on internal audit led to reorganization of the department (para 6.14).WAPDA has a training program which includes training of accounting staff (para6.16).

5.7 Proiect Costs. The appraisal estimate of the base cost of the projectwas Rs 6,993 million (US$482 million equivalent). With contingencies andinterest during construction (IDC), the total project cost estimate was Rs 8,900million (US$614 million equivalent), of which about 38% was foreign cost. A Banksupervision mission in 1992 reported that during project implementation, actualexpenditures on the project were not maintained separately from WAPDA's overallexpenditures on the transmission program. On the basis of the cost andexpenditure information complied after project completion, the final cost of therevised project is determined to be Rs 10,684 million (US$441.9 millionequivalenti'). Estimated and actual costs are shown in Table 5 of Part III.

5.8 These costs amount to an increase of 20% in rupees, while in foreigncurrency terms the project cost shows a substantial saving (about 28%). Whilethe saving in foreign currency terms can be partly explained by the substantialdevaluation of the rupee (from Rs 14.45/US$ in 1984), the appraisal year, to Rs27.4/US$ in 1993, the year of completion, the relatively modest increase in localcurrency terms is more difficult to reconcile, particularly when account is takenof the fact that (a) the period of implementation was a time of relatively highinflation in the country; and (b) the final outcome of the project was largerthan envisaged. A precise comparison between actual costs and the appraisalestimate cannot readily be made because of signfificant changes in projectcomponents; nevertheless, implementation over an 8-9 year period (compared to theappraisal estimate of five years) as well as the enhanced scope is expected tohave resulted in a larger increase in project costs in local currency terms. Onthe basis of information provided to the Bank, and assuming that the final costof the revised project is reasonably accurate, the only conclusion that can bedrawn is that the original cost estimates were on the high side.

5.9 ClosinQ Date Extensions. The loan was scheduled to close on December31, 1990. Because the start-up of project implementation had sufferedsignificant delays, successive Bank supervision missions had reported thatproject completion would be delayed by well over a year. The missions alsoexpressed concern about the shortage of local funding which was likely to causefurther delays. Following a 70% increase in GOP allocations for the project, anda request from GOP and WAPDA, the Closing Date was extended first to December 31,1991, and a second and final time to December 31, 1992 after completion of mostof the project components.

5.10 Procurement. Individual contracts for equipment and material financedfrom the loan, and estimated to cost less than US$50,000 equivalent (butcollectively not more than US$0.5 million), could be procured under limitedinternational bidding procedures, while all contracts estimated to cost overUS$0.25 million required prior Bank review of bidding documents and evaluationreports. As stated earlier (para 5.1), project implementation was considerably

On project completion the annual expenditure in Rupees was converted toUS$ at the prevailing average exchange rate for that year. Since most ofthe project components had been completed by December 31, 1992, no furtherextension was deemed necessary. The loan account was, however, kept opena few months beyond this date to effect payments for goods/servicesprovided or performed by December 31, 1992.

- 6 -

delayed because the bidding documents prepared by WAPDA did not conform with theBank's revised formats for Standard Bidding Documents (SBDs), and preparation ofSBDs took some time. Based on the available documentation, the average timetaken from bid opening to the award of the contract (including Bank acceptanceof the proposed award) is estimated at about 14 months, which is a rather longtime. Complaints were also reported from some equipment manufacturers aboutWAPDA's bidding documents and the subsequent evaluation.

5.11 The equipment and materials financed under the project were split into73 contract packages, and generally procured under international competitivebidding (ICB) procedures in accordance with Bank guidelines. Of the 73 contracts(total value: US$100 million equivalent) put out for ICB, 25 contracts (valuedat about US$33 million or about 33% of the total) were awarded to local suppliersor manufacturers. By contrast, under the third project, Cr 968-PAK, localmanufacturers were awarded contracts valued at about US$18 million--or about 25%out of a total value of US$72 million. One could conclude that the localindustry was fairly competitive in the field of transmission towers andconductors, and where the size of the contract package was within itsmanufacturing and supply capability. The splitting of the equipment into arelatively large number of packages increased the workload on the PMU, andprobably also made it more difficult to rationalize or standardize the equipment.It did, however, promote participation from the smaller, localmanufacturer/supplier and thereby contributed to the development of localmanufacturing industry.

5.12 Disbursements. Because of substantial project start-up delays, therewas a large lag between the actual and the estimated disbursements. Nodisbursements took place during the first two years, i.e, through June 1987,compared to US$43 million estimated. Once the project was underway however,disbursements picked up momentum and by December 31, 1990, (the original ClosingDate), 80% of the loan proceeds had been disbursed. Thereafter, the disbursementpace slowed down, and it took an additional two and a half years for theremainder of the amount to be fully disbursed, with the last disbursement takingplace on May 28, 1993.

5.13 Environmental Aspects. The sites for new substations were generallyselected in relatively less inhabited areas or in the more remote parts of thepopulation centers. The routings for the transmission lines were also generallyselected so as to minimize transgression into the populated areas or infringementon forest land. As a result, there were no environmental problems ofsignificance, nor were there significant issues regarding relocation orresettlement of people affected by the project. WAPDA, with Bank support underthe Power Sector Development Project (Ln. 3764-PAX, approved in June 1994) is inthe process of establishing an Environmental Management Unit to develop, withinitial assistance from foreign experts, in-house expertise in dealing withenvironmental issues particularly in view of the large investments planned.

5.14 Compliance with Loan Covenants. The key institutional and financialcovenants introduced in the Loan Agreement and the extent to which they werecomplied with are listed in Table 7 of Part III. The Borrower complied with themain financial covenant--5.04 (a) which required an annual internal contributionof 40% towards an averaged capital expenditure. The Borrower also complied, butthree years later, with the covenant 4.07 (a) which required a reduction insystem losses to 21% or lower by June 1988. The reduction of accounts receivablefell short of the targets.

6. ODerational. Financial and Institutional Performance

ODerational Performance

6.1 Pro-ect Results. Since their commissioning, the substations andtransmission lines constructed under the project have functioned generallysatisfactorily. The problems which arose were generally of a minor nature andwere resolved without adversely affecting the transmission of power.5a The

Line trippings did take place on several occasions. In order to minimizesuch trippings arising from pollution and fog accumulation on the discs,some discs were replaced with fog type insulators.

-7-

availability of these facilities, excluding routine maintenance, has been around100%. The facilities built under the project were designed to meet the growthin load for the next few years. A comparison between the actual load growth andthat envisaged is not possible because the figures for the latter were notprovided in the appraisal documents nor in the Quarterly Progress Reports whenproject revision was carried out and some of the components were replaced orsubstituted (para 5.3 and 5.4).

6.2 Some project substations, particularly those where the capacity wasextended through the installation of one or more transformers, ended up withfunctionally similar equipment from different manufacturers (e.g., two or moretransformers, each one not necessarily from the same manufacturer, and likewisefor other equipment such as switch gear and relays). Although this situationcaused difficulty with standardization of the equipment and created the need tocarry a larger total inventory of spare parts, WAPDA staff adjustedsatisfactorily in the operation and maintenance of technically similar equipmentfrom different manufacturers.

6.3 Achievement of Project Obiectives. The project was successful inachieving its objectives. It enabled WAPDA to transmit power and energy fromgenerating plants to the load centers with improved system efficiency. BetweenFY85 and FY93, WAPDA's overall operational performance was satisfactory. Itsgeneration and sales of energy more than doubled, representing an average annualgrowth rate of about 10% compared to the GDP growth rate of 5.6% during the sameperiod. Gross assets in operation and total fixed assets (in historical costs)nearly quadrupled, installed generating capacity nearly doubled, the length ofits transmission lines and the number of grid stations increased by about 30%,and the transformer capacity nearly doubled. The number of electrified villagesmore than doubled, the number of connections nearly doubled, and per capitaconsumption increased by about 80%. More importantly, the industrial sector'sconsumption has more than doubled, reflecting sustained high growth in industrialoutput and investments; these developments also have secondary benefits such asincreased employment and exports. The project, part of a continuing program ofpower system reinforcement and rehabilitation has helped to reduce total systemlosses from 25% in 1985 to around 21% since 1991. The losses are still on thehigh side, and the problem is being addressed under follow-on Bank operations(Table 1, Part III) as well as from operations financed by other donor agencies.WAPDA has installed a significant MVA capacity, and has also been promoting orinducing the industrial consumers to invest in capacitors and thereby raise thepower factor, which would improve the system efficiency and reduce the overloadon the system.

6.4 WAPDA's performance compared to the appraisal estimate has also beengenerally satisfactory. Annual generation and sales of energy during the mostrecent years exceeded the appraisal estimate by about 10%. The actual computedmaximum (or peak) demand during the last three years has been lower than thatprojected, but the unmet demand (or load shedding) has also been lower. Table6 Part III provides a comparison between the appraisal estimate and actuals basedon key indicators.

Financial Performance

6.5 WAPDA's financial affairs are governed by the WAPDA Act of 1958 whichrequires the utility to operate along commercial principles and to generatesufficient revenues from electricity sales to cover operating costs and achievea reasonable return on investment. To ensure that adequate funds are availablefor the implementation of WAPDA's investment program, WAPDA has agreed underongoing operations with the Bank on an Internal Cash Generation (ICG) covenant,which requires WAPDA to generate annually from internal sources at least 40% ofits capital expenditures, averaged over the previous, current and ensuing year,taking into account changes in working capital. WAPDA is also required toconsult with the Bank before incurring new debt should it be unable to maintaina debt service coverage of at least 1.5 times. WAPDA's tariffs are set to ensurethat these two financial objectives are met. By and large, WAPDA has achievedthese financial performance targets satisfactorily since FY85.

6.6 Past and Present Financial Performance. Table 6, Part III providesa comparison between appraisal estimates and actual performance for selectedfinancial indicators during FY85-93, while Table 2 below provides a summary of

WAPDA's financial performance during FY89-94:

Table 2: WAPDA'S FINANCIAL RESULTS, FY89-FY94

KEY FINANCIAL INDICATORS ] FY89 J FY90 FY91 FY92 FY93 J FY94kWh Generated (Millions) 28898 31427 34345 380687 40791 42396

kWh Sold (Millions) 21982 24121 26584 29267 31272 32131

Average Revenue/kWh Sold (Rs) 0.944 1.057 1.165 1.268 1.262 1.408

Increase in Average Revenue (X) 13.9 12.0 10.2 8.8 0.0 11.6

Operating Revenues (Rs/kWh Sold) .98 1.09 1.19 1.29 1.28 1.42

Operating Expenses (Rs/kWh Sold) .59 .61 .70 .78 .80 .96

Net Operating Income (Rs/kWh Sold) .39 .48 .49 .51 .47 .46

Investment Program (Rs Million) 14815 16764 16030 24804 22310 25591

Internal Cash Generation CX) -3Yr. Ave. 41.2 40.7 47.3 50.0 44.5 27.8

Current Ratio 1.9 3.3 2.1 1.7 1.3 1.0

Rate of return on Ave. Net Fixed Assets Ct).. 18.7 20.8 19.0 19.2 18.6 20.8

Debt Service Coverage Ratio 1.8 1.8 1.5 1.6 1.4 0.9

Debt:Eguity Ratio 57:43 58:42 57:43 56:44 57:43 56:44a/ un nistorical cost basis.

6.7 WAPDA's overall financial performance during the period wassatisfactory. Average revenue has steadily increased from Rs 0.94 in FY89 to Rs1.45 in FY94. WAPDA's self-financing performance has also been satisfactory withthe ICG averaging about 43.8%, above the covenanted 40% level during the period.Operating revenues increased from Rs 0.98/kWh in FY89 to Rs 1.48/kWh in FY94representing an average annual increase of 8.6%, while operating costs increasedat an average annual rate of 7.8% during the same period (from Rs 0.59/kWh to Rs0.86/kWh). The faster increase in operating revenues than the operating costsis due to a higher recovery of fuel costs through increases in the fueladjustment surcharge rate beginning in FY90, and increased efficiency throughgradual reduction of losses. Thus, net operating income as a percentage ofoperating revenues increased from 39% in FY89 to 42% in FY94. As a result, WAPDAearned a satisfactory rate of return on net fixed assets during the period (18% -23%). WAPDA's assets are valued at historical book values, which is the normalpractice of public corporations in Pakistan. With average inflation ratesrunning at about 8 - 11% during the period, WAPDA has been achieving rates ofreturn well above inflation.

6.8 Although WAPDA's current ratio was also satisfactory, exceeding 1.3during the period, WAPDA's debt service coverage has been gradually decliningfrom 1.8 times in FY89 to 1.4 during FY93 and projected in FY94. The decline isdue to several factors, including increases in short-term borrowing to meet cashflow requirements resulting from a build-up of accounts receivable, inadequatesinking fund appropriations for WAPDA's first bond issue which was retired inFY93, and WAPDA's increased cost of debt. WAPDA's debt-equity ratio, however,has remained at satisfactory levels at about 55:45. In future, there is a needto monitor WAPDA's debt-servicing capacity in order to avoid expensive short-termborrowings, as well as its efforts towards receivables collection, as overallreceivables have increased from 22% of total sales in FY92 to about 24% in FY93.Finally, WAPDA continues to pay hydroelectric profits to the provinces.

6.9 Domestic Borrowing. WAPDA's local debt has comprised mainly of bondsissued in the local financial markets. WAPDA raised Rs 16.9 billion in foursuccessive bond issues between FY88-92. The first three issues were in the formof bearer certificates, which could be encashed before maturity. Therefore,WAPDA has set up a sinking fund to make provision for payments for suchconversion of bonds and thus moderate the tariff increases required.Furthermore, beginning in FY93, the Federal Government no longer guaranteed the

- 9 -

domestic borrowing of public corporations which could affect prospects forrefinancing the bonds as they become due. Although the long-term objective ofWAPDA is to borrow its local financing requirements on the basis of its owncredit rating and trading profile, prudent financial management requires WAPDAto continue to maintain a sinking fund.

6.10 Accounts Receivable. The level of WAPDA's overall accounts receivablehas been increasing over the past three years, from 22% of sales in FY92 to 24%in FY93. *As of June 30, 1993 total receivables amounted to Rs 10.7 billion ofwhich Rs 2.3 billion (22%) have been outstanding for more than three years (seeTable 3 below). Under the ongoing Rural Electrification Project (Ln. 3148/Cr.2078-PAK, 1989), WAPDA agreed to carry out an aging analysis of its accountsreceivable, and reflect on its balance sheet only receivables outstanding forless than three years and deemed collectible. However, while WAPDA is reviewingits accounts receivable of over three years to determine which ones areuncollectible, its balance sheet has yet to be adjusted.

Table 3: WAPDA'S AGING OF RECEIVABLES AS OF FEBRUARY 1995

Up to 1-3 over1 year years 3 years Total

Rs Million 5,234 4,778 4,821 14,803t of total 35.4 32.1 32.5 100

6.11 At the end of December 1993, overall receivables had increased to 29%of total sales, and excluding electricity duty, hydroelectric surcharge andincome tax, which are items that WAPDA collects on behalf of the provincial andfederal governments, the overall receivables amount to Rs 12.7 billion sales.The overall accounts receivable of WAPDA (excluding the duties) and surchargesrepresent about 3.5 months average sales. While receivables from private sectorconsumers, amounting to about Rs 8.6 billion, represent 2.7 months average sales,those from government departments and agencies, amounting to Rs 3.8 billion wereequivalent of 5.1 months sales. Under the ongoing Bank loans, GOP agreed toensure that all federal and provincial government departments and agencies wouldsettle all bills for the supply of electricity within three months. WAPDApresented its case with respect to government receivables and arrears to theCabinet in November 1993, which took several important decisions providing for:(a) recovery of arrears from provincial governments through budgetary releases;(b) deductions at source for all arrears for Salinity Control and ReclamationProjects, irrigation, tubewells of Punjab and Sindh; (c) withholding of paymentsdue by WAPDA to the federal government, provincial departments and local bodiesfor adjustment against arrears; (d) disconnection of local bodies at theprovincial level with arrears; (e) deduction at source by provincial governmentsof electricity arrears of local bodies from subsidies due to the local bodies,and (f) monthly reporting of status of arrears to the Economic CoordinationCommittee through the Ministry of Water and Power. These decisions are now beingimplemented by WAPDA. As a result, the government has agreed that about Rs 2.5billion of receivables from Government departments and agencies would be adjustedagainst amounts payable by WAPDA to the government in FY94. And at the end ofFY94, it is expected that the receivables from government will be within thecovenanted level of three months' sales.

Institutional Performance

6.12 Management. Professionals and Other Staff. WAPDA's managerial andprofessional staff is well qualified and competent. The professional staff haveparticular expertise in the technical areas, e.g., design of transmission (up to220 kV) and distribution systems, operation and maintenance of generation plants,transmission lines and substations and other equipment. The institution, whichin the past has been somewhat over-staffed at the lower levels (particularly inthe distribution department which, it is estimated, accounts for over 70% of thetotal employees), has made some improvement over the years. This is manifestedby the increase in the conventional efficiency ratio of number of consumers peremployee (defined as total employees in the Power, Water and Finance Wings) whichhas increased from 42 in 1985 to 53 in 1993.

- 10 -

6.13 Financial and Accounting Aspects. Following the recommendations froma study by consultants in 1982, WAPDA adopted a decentralized accrual-basedaccounting system. It has about 400 accounting units distributed over the entirecountry. The department has difficulty in attracting trained accountingpersonnel in the distribution areas. This shortcoming, together with the manualsystem of maintaining accounts in those areas cause delays in the submission ofinformation for management, and in the preparation of accounts. Under the Bankfinanced Rural Electrification Project,6 WAPDA availed the assistance of anIrish consulting firm to provide training to accounting staff, and to design andimplement automation of accounting and financial management information system.

6.14 Internal Audit. As required under the Loan Agreement, WAPDA engageda consortium of foreign consultants and seconded two of its staff (one a formerWAPDA Chief Auditor and the other a Deputy Chief Auditor) to design a modernsystem of internal auditing (para 5.6). The consultants submitted areorganization plan, the salient features of which were: (a) upgrading theposition of Chief Auditor to that of General Manager; (b) establishing newSections for System Control and Data Processing and for training coordination;(c) Special Audit; and (d) upgrading of Regional Audit Offices, and PolicyProcedures. Following WAPDA management approval of the consultant'sreorganization plan, the consultants carried out a review of audit procedures anddeveloped manuals for the implementation and functioning of the internal audit.Most of the proposals and recommendations in the manuals have been approved byWAPDA management, and have been implemented. The Audit Division carries out anumber of investigations on various relevant issues and problems, and itsrecommendations are generally implemented.

6.15 External Audit. The Auditor General of Pakistan (AGP) is responsiblefor auditing WAPDA's annual accounts. So far, the audited accounts haveconsistently taken a few months longer than the target (six months from year end)stipulated in the loan covenant because of delays in the flow of information andthe lack of an effective internal audit system. The delays are expected to begradually eliminated after the completion of the automation of the accountingsystem and with the reorganization which has taken place in the internal audit.The observations made by AGP on WAPDA's FY90 financial statements includeddeficiencies such as lack of reconciliation of material account balances, andlack of supporting detail to certify revenue accounts.

6.16 Training. WAPDA has a comprehensive training program, with 11training establishments located in eight cities, to meet the needs of managerial,professional, technical and accounting staff. Between 1986 to 1992, theestablishments have collectively provided training to approximately 76,000 staff,from officers in grades 17-20, supervisors in grades 11-16, and staff in grades5-10. In addition, staff have received training overseas.

6.17 The PCR mission understood from managers and senior staff of thetraining department, that several of their establishments need to be betterequipped, in terms of improved practical training facilities (tools, equipmentand plant), libraries, laboratory equipment, and audio and visual equipment. Itwould also appear that staff training needs more attention and commitment fromthe management. In order to emphasize this aspect, it was felt by the trainingdepartment managers that there was need to make completion of relevant trainingcourses one of the requirements for promotion to a higher grade.

7. Sustainability and Economic Rate of Return

7.1 Sustainabilitv. The project formed a vital part of WAPDA'stransmission system. It contributed to reduction in system losses, to an increasein the number of connections, and to improved efficiency in the transmission ofa two-fold increase in power and energy from the generating plants to the loadcenters. GOP and WAPDA recognize the need for the utility to remain financiallyviable, and to make a reasonable contribution to its capital expenditure. Theseare manifested by GOP commitment to the cash generation covenant, and by theincreases in WAPDA tariffs and fuel adjustment surcharges, which have beengenerally adequate and timely. The tariffs and fuel adjustment charges

6/ Ln. 3148/Cr. 2078-PAK, approved in 1989 with a closing date ofDecember 1995.

- 11 -

cbllectively are now moving towards long run marginal costs. Institutionally,WAPDA has also improved; it is generally a well-managed, technically competentutility. A significant activity where the performance has been less thansatisfactory is the continuing high level of accounts receivable, contributedlargely by the amounts owed to the utility by some of the Government departmentsand agencies, and where the utility has very little control. Overall, however,it is concluded that the project is fully sustainable.

7.2 Economic Rate of Return (ERR) . The SAR correctly determined thatwhile the project was expected to play a vital role in ensuring optimaldevelopment and operation of WAPDA's system, its benefits could not be isolatedfrom those of generation and distribution; therefore, the ERR on WAPDA's totalprogram in generation, transmission and distribution for the period 1984-1990 wasused as a proxy for the ERR for this project. The ex-post ERR, determined on thesame lines, and using only WAPDA's average revenues from the sale of electricityas a proxy for the benefits of the project, is 7% (Table 6, Part III), about thesame as the appraisal extimate (6.2%).

7.3 The above ERR does not take into account the following benefits, someof which are not readily quantifiable: improvement in the quality of life and thestandard of living through the use of electricity; development of the localmanufacturing, supply and contracting industry; and increase in industrial andcommercial activities (para 5.11) and the employment opportunities which these,in turn, created. Alternatively, the ERR derived by using only WAPDA's existingtariff as a proxy for project benefits understates the economic value ofelectricity, which in Pakistan is deemed to be considerably higher. Given theshortage of electricity, many industrial and commercial consumers have installedtheir own standby generation facilities. The above ERR thus does not account forthe consumers' surplus, based on the consumers' willingness to pay forelectricity.

8. Bank Performance

8.1 Twelve supervision missions were undertaken with reasonable continuityin staff. Although frequency of the missions was adequate, mission staff had alarge agenda which included supervision, preparation and appraisal of otherprojects. Discussions with WAPDA staff suggests that Bank supervision missions,pressed as they were with a number of activities related to other projects aswell, did not have much time to visit project sites and to meet with WAPDAofficials in the field, nor to provide the detailed assistance they might haveneeded. The supervision missions were effective, however, in resolving complexissues. For example, procurement issues emerged often and required substantialattention. In this regard, the Bank assisted WAPDA in the eventual preparationof standard bidding documents (SBD) which contributed to the reduction in the lagtime between preparing bidding documents and procurement. In another effort toexpedite WAPDA's procurement process, the Bank organized a Procurement Seminarin Lahore in February 1987, which was attended by power entities and others,including those from the energy sector. The Bank also intervened with GOP onbehalf of WAPDA for reinstating the cut-backs in GOP funding for the project.

8.2 Finalizing the cofinancing arrangements which were incomplete at thetime of loan signing, took an unduly long time. While Bank supervision missionspressed WAPDA to finalize the arrangements, the Bank was unable to play any rolein inducing the prospective cofinanciers to expedite action.

8.3 WAPDA did not record in its final accounts expenditures on thisproject separately from the expenditures on the overall investment program forthermal generation. However, accounts were maintained separately for the projectas part of the detailed accounts. For a utility the size of WAPDA (with about400 accounting units) it is normal to expect that the final accounts would recordexpenditures on individual projects only in a consolidated manner. While thispractice makes it difficult to monitor project expenditures on a periodic basis(in particular, for comparison with appraisal estimates), Bank missions hadrelatively free access to the detailed accounts, and were able to ensure that theloan proceeds and disbursements were adequately accounted for (para 5.7).

8.4 The studies required under the project certainly had merit (para 5.6)However, they did represent a burden to a Project Management Unit that wasalready fully extended by its ongoing investment program. The question,

- 12 -

therefore, is whether the Borrower derives a reasonable benefit when saddled withseveral studies within the framework of one project, particularly when theBorrower's technical and institutional capability has already been extended bythe large investment program.

8.5 The SAR description for this project did not specifically identifysubstations or the associated transmission lines by name and/or location whichcaused confusion in implementing the project (paras 5.3 and 5.4) . Therefore, thepro-ect needed to be revised during its implementation, and a Bank supervisionmission was required in 1986 to define more clearly the number of substations andtransmission lines which constituted the project. Large sub-transmission anddistribution projects can rarely be designed with precision at the time of theirappraisal; however, without a clear understanding of project components, itbecomes very difficult to evaluate the project at its completion (paras 5.3 and5.4).

8.6 At the time of project appraisal, it should have been reasonably clearthat the third project was still some way to being completed (para 2.4) . AsWAPDA staff (who were to be responsible for implementation of the fourth project)were also expected to be engaged with the residual work on the third project,there was a good probability that the start-up of the new project would takelonger than indicated in the SAR implementation schedule. This fact contributedto the overall delay in project implementation.

8.7 The Bank identified most of the appropriate financial, institutionaland physical implementation _issues, e.g., revision to the formula for thefinancial covenant, reduction in accounts receivable, reorganization -of theinternal audit, improvement in the accounting and financial department, andreduction in system losses. Appropriate covenants covered these aspects.

8.8 Overall, despite the weaknesses discussed above, Bank performanceduring the preparation, appraisal and implementation phases of the project isconsidered satisfactory.

9. Borrower Performance

9.1 WAPDA's technical staff, having benefitted from the experience ofearlier projects, are fully competent to handle the design and implementation ofthe substations and transmission lines up to 220 kV. Substantial delays inproject implementation did take place, particularly in the start-up of projectimplementation, and in preparing bidding documents and bid evaluations, becausethe documents were prepared on the basis of the previous Bank formats, and hadto be substantially modified in line with the Bank's new formats. Duringimplementation also, delays were encountered in the evaluation of bids by WAPDA,in part due to the preoccupation of technical staff assigned to the PMU withroutine administrative matters.

9.2 Problems which adversely affected implementation of the third project(Cr. 968-PAK) surfaced again under the subject project. These included (a) ashortage of GOP financing and (b) protracted negotiations for finalizingcofinancing agreements with the respective cofinanciers (para 2.4) . Banksupervision missions reported that WAPDA's project implementation progress wasrepeatedly falling behind the revised schedule, and highlighted the need forsubstantial increases in budgetary allocations in order to expedite the pace ofimplementation.

9.3 The Borrower's financial performance was satisfactory during theproject period and met the key performance criteria stipulated in the LoanAgreement. In fact, a 40% contribution towards a large annual capitalexpenditure which resulted in nearly quadrupling the gross assets in operationin less than ten years is quite a good achievement. WAPDA's performance in billcollection, however, has fallen short of the target. Given the economic, socialand political environment which prevailed during the project period, it isunlikely that WAPDA, on its own, could effect a substantial improvement on itsaccounts receivable through timely collection--particularly from certaingovernment departments and agencies, including the defense establishment.

- 13 -

9.4 In most operational areas (such as energy generated and distributed,the number of customers, and the number of villages electrified), the utility hasverformed creditably. The system losses have progressively decreased from 25*in 1985 to about 21% since 1991, and the manpower utilization ratio (anefficiency criterion) has improved, with the number of consumers per employeehaving increased from 42 in 1985 to 53 in 1993 (para 6.12).

9.5 The Ouarterly Progress Reports prepared by WAPDA were not used to bestadvantage, despite guidance provided by Bank missions. These reports areintended for use as a project management tool to identify critical issues and torecommend action required to be taken by management to address them. However,the quality of the progress reports did not improve despite Bank requests, andprovided neither required information relevant to monitoring implementationprogress, nor the basis for comparing actual progress to that originally planned(paras 5.4 and 5.5).

10. Performance of Consultants and Contractors

10.1 Overall performance by the Borrower is considered satisfactory.WAPDA' s design department acted as consultant/engineer responsible for the designand implementation of the project. At appraisal it was expected that most of thecivil works would be carried out by contractors, whose performance would bemonitored by the PMU. During implementation, however, contractors were employedfor the civil works in the substations and the erection of transmission towersonly; the installation of equipment in the substations and the stringing of thetransmission lines, and the subsequent testing and commissioning were carried byWAPDA's own staff. This enhanced use of WAPDA's own staff is, in part, theresult of the over-staffing of WAPDA, which generates pressures within theorganization to enhance the use of in-house work crews. While WAPDA staffpossess the capability to carry out these civil works, the pace of implementationcould have been enhanced in case in-house crews had been supplemented by outsidecontractors. The performance of WAPDA's design department as well as thoseresponsible for installation, testing and commissioning was satisfactorv.

10.2 Barring a few problems and some minor delays, overall the performanceof the contractors and suppliers/manufacturers was also satisfactory. Thesplitting of the contracts in smaller sizes enhanced participation from localmanufacturers and suppliers, thereby contributing to the development of localmanufacturing industry (para 7.3).

11. Prolect Relationship

11.1 Bank staff maintained a good working relationship with GOP and WAPDAstaff. Staff from the Resident Mission also made useful contributions to therelationship.

12. Project Documentation

12.1 The Loan Agreement as well as the SAR adequately reflected projectobjectives. The SAR, however, did not provide sufficient details (para 5.3)including lack of data on the envisaged load growth for even a few of the majorsubstations. Furthermore, there were differences between the figures providedin the Loan Agreement and those in the SAR on the project completion date. Giventhe long interval between appraisal and presentation of the project to the Board(about 13 months), it would have been beneficial if the SAR were to have beenupdated. Because it was not, the implementation schedule was already out ofdate, and comparing actual accomplishments to original plans could only beestimated (paras 5.4 and 5.6).

12.2 Perhaps arising from the 1987 Bank reorganization and the subsequentrelocation of the division, some of the important project documentation was notfound in Bank files. Those QPRs which are available do not provide adequateinformation to compare the actual implementation progress of the project againstthe planned or revised expectations, nor do they provide explanation for thechanges to project components or the sequence of their construction (para 5.5).

- 14 -

PROJECT COMPLETION RSPORT

PAKISTAN

FOURTH WAPDA POWUR PROJECT(LOAN 2499-PAZ)

PART IS - PROJECT REVEFROM H BOROWER' S PERSPECTIVEZ'

The Dorrower's main comments are summarised below:-

A) The Bank's portormance during evaluation and implementationof the project is discussed here.

i) The bank approved the bidding documents in averagea little over one month's time. In case of twocontracts the bank took a year and in one casesix(6) months in approval of the bidding document.

ii) The evaluation reports of the tenders were ap-proved by the bank in an average time of 50 days.In few cases the approval took 3 months and in onecase only it took 6 months.

In view of above, the overall performance of thebank has been satisfacoty.

iii) The annual allocations for the years 1987, 1988and 1989 were inadequate which resulted in delayedprocurement of the material, consequently theproject completion was delayed.

iv) The bank's missions have helped in quickly solvingthe procurement, disbursement and technical prob-lems in evaluation of the tenders.

LESSONS LEARNED

i) A mandatory SBD during the forthcoming 5th projectwill cut short the time spent on approval of thebidding document.

ii) Bank should adopt the means to cut short the timespent on approval of the evaluation reports.

iii) To avoid the delay, annual allocations for theyears at the start of the project should be ade-quate.

3) ih, Wapd2a- performance during the evolution and implementa-tion of the project is discussed below:-

i) Wapda's role as 'Engineer' has been satistactoryas the evaluation of the tenders has been tried tobe completed promptly.

Part II-A is the Borrower's own evaluation and its content is notattributable to the Bank. A fax copy of a letter dated June 20,1995 is in the project file.

- 15 -

ii) There were delays in the complotion of ths projectand the reasons of delay are discussed below:

a) The Third Power Project which was originally envisaged to becompleted by December, 1984 (subsequently revised to Decem-ber, 1985) could not be completed in time due to the reasonthat the local funds provided under ADP did not match withour full demand.

b) In accordance with the original implementation schedule asenvisaged in the World Bank's Appraisal Report dated:27-4-84, the tender documents were to be issued from July, 1984.This was based on the expectations that the loan will besigned during April, 1984 but unfortunately the loan signingwas delayed by one year with its effectiveness date as 17thJuly, 1985. This was due to the fact that certain conditionsbeing levied by the World Bank with regards to Long RangeMarginal Cost etc. were not acceptable to the Government ofPakistan. Consequently the schedule of the project wasaffected by one year.

C) Tenders were floated in accordance with Wapda's prevailingterms and condit*ons which were in line with Wapda's previ--ous world Bank tenders, floated under Third Power Projectbut World Bank Mission durinq its visit in early 1986 cameup with Standard Bidding documents and advised Wapda that infuture all the tender documents should be based on theformat of Standard Bidding Documents and further informedthat the controversial clause be changed on the pattern ofWorld Bank Standard Bidding Documents. It was however,agreed that the tenders already floated will be processed asa special case.

Subsequently lot of correspondance was exchanged and numberof meetings were held with the World Bank to convince them abouttheoneed of retaining Wapda's existing clauses. Some of theclauses which became controversial are given below:-

I. Government of Pakistan had issued an order that allshipments are to be effected through Pakistan NationalShipping Corporation which was not agreed by the WorldBank and it was insisted by them that in case of suchrestrictions, World Bank will not finance the freightelement of the contract although the adjudication willstill be carried out on the basis of CIF prices as perguide lines of World Bank.

I1. Previously elements of taxes and duties on the compo-nents improted by the local manufacturers was reim-bursed by WAPDA. This practice was not agreed to by theWorld Bank and it was insisted by then that such likeprovisions should be deleted and the local suppliersshould quote the prices inclusive of taxes and duties.

d) The year-wise allocations of local currency has always beeninadequate and lees than d*mand over the period of implemn-tation of the project. Especially for first three years i.e.1986-87, 1987-88 & 1988-89 the allocations have been remark-ably les& i.e. ranging from 2S% to 43t less than the demand.Overall allocations for the year 1986-87 to 1992-93 havebeen on the average less by 22% than demanded.

- 16 -

e) Trh delay in construction of grid stations has been due to.any reasons such as lengthy process of acquisition of land,non availability of suitable land, high land costs andLitigation etc.

f) The delay in construction of transmission lines has beenmainly due to right-of-way/litigation problems.

g) The work has been done partly by Wapda staff/crew & partlyby the contractors. Staff crew strength limitations has beenone of the major causes of delay. The supervision of con-tractors work has been done by Wapda.

LESSON LEAR.NED

aa) Wapda should provide adequate local funds matching with thedemand.

bb) The delay in acquisition of land for grid stations,right-of-way of transmission lines and other litigationproblems is un-predictable.

ccY In View of Wapda's staff/crew limitations it has beondecided to give more work to contractors through I.C.B. Thispractice will help in avoiding the delay during 5th STGProJect.

dd) rt has been experienced that delivery period of equipmentreckoned from Notification of Avard helps the supplier tostart the spade work such as preparation of drawings etc.before formal contract.

e) It has been experienced that payment to the supplier throughdirect disbursement is less time consuming as compared totime spent in establishment of Letter of Credit.

ff) 4th STI Project has helpted development of local electricalindustry.

I$I) while the financial performance of Wapda has boonsatisfactory and met the covenant under loan agreement.The accounts receivable remained in a much higher levelthan those required under the covenant.

IV) On the whole the project has been operated satisfacto-rily as there is no major break down in the system.This has been proved during the Bank representativl'sspot checking in the field.

V) The relationship between the Bank and Wapda has beenquite effective.

V:.} The performance of co-financers has been generallysatisfactory except that lot of time was lost in bring-ing down the high prices of bidders obtained in thecomponents/items financed by U.K. Grant.

- 17 -

PROJECT COMPL4TION RIPORT

PAltISTAN

FOURTH WAPDA POWER PROJECT(LOAN 2499-PAK)

PART III - STATISTICAL INFOR MTION

1. Related Bank Loans and Credits

Cr./Ln. No. I | Yr.of land Title Purpose Apprv./Amt Status Cowments

A. Precedina ODeration L . l

Cr. 213-PAK WAPDA Upgrading capacity of 1970 Closed Completed withPower Project Transmission Network (12/31/78) delay of five(WAPDA I) USS 23.1 yrs.

Ln. 1208-PAK Second Finance part of 500 kV Trans. 1976 Closed SuccessfullyWAPDA Power Project System, connecting hydro in north (9/30/82) completed. with(WAPDA II) and thermal gen. in south USS 50.0 1 year delay.

Cr. 968-PAK Third Finance 4-year tranche of program 1979 Closed SuccessfullyWAPDA Power Project for dev. of secondary (12/31/85) completed but(WAPDA III) transmission USS 45.0 with 3 year

delay.

Ln. 2499-PAK Finance 4-year tranche of program 1985 Closed Subject of thisFourth WAPDA Power for development of secondary (12/31/92) PCR.Project (WAPDA IV) transmission. USS 100.0

Ln. 2556-PAK Fifth Assist WAPDA in reinforcement of 1985 Closed Co pleted butWAPDA Power Project EHV power transmission network (12/31/93) with a delay of(WAPDA V) reducing transmission losses USS 100.0 3 years: Guddu-

Jamshorosectionexpected to beenergized by6/95.

Ln. 2698-PAK Kot Addu Installation of 200 MW additional 1986 Closed PCR underCombined Cycle Power generating capacity at Kot Addu (6/30/93) preparation.Project (WAPDA VI) Power Station. USS 90.0

Ln. 2792-PAK Power Finance program for 1987 Closed ExpectedPlant Efficiency rehabilitation of 7 power plants (6/30/94) completion byImprovement Project and addition of combined cycle USS 70.0 June 1995.(WAPDA VII) generation at 2 power plants. .

B. Followina ODerations s _ _

Ln. 3147-PAK Installation of 2 single circuit 1989 Ongoing OfficialTransmission 500 kV transmission lines between Closing date isExtension and Hub Power Complex and Jamshoro; US$162.0 12/95 but mayReinforcement Project installation of a third single be extended.(WAPDA VIII) circuit 500 kV line between Guddu

and Multan and a second single-circuit 500 kV line betweenMultan and Lahore via Gatti:extension and reinforcement ofexisting 500 kV substations atLahore. Gatti. Multan and Guddu.

- 18 -

Yr. ofCr. /Ln. No. Purpose Apprv./Amt Status | Coauentsand Title__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Ln. 3148/Cr. 2078-PAK Extending the supply of 1989 Ongoing OfficialRural Electrification electricity to new villages and Closing Date isProject (WAPDA IX) settlements: connecting to the USS 160.0 12/95, but may

grid settlements of electrified be extended.villages: expanding consumerconnections: reinforcing andrehabilitating existingdistribution network: extendingelectricity supply to tubewells:mapping of all villages andsettlements: and installing loadmanagement schemes. II

Ln. 3764-PAK Power Restructuring and privatization 1994 Ongoing Closing Date isSector Development component to implement a 6/99.Project (WAPDA X) Strategic Plan including US$ 230.0

reorganization andcorporatization of WAPDA:investment component to implementa timeslice (1995-1998) ofWAPDA's investment program. I

C. Related Loans _ l

Ln. 2552-PAK Energy Finance GOP's program for policy 1985 Closed SuccessfullySector Loan reform and inst. develo ment (12/31/88) completed.

during Sixth Five Yr. Plan (FY83- USS 178.088). l

Ln. 3107-PAK Second Finance GOP's program for policy 1989 & Closed ICR underEnergy Sector Loan reform and inst. development 1991 (12/31/94) preparation.

during Seventh Five Yr. Planl ___________________ (FY89-93) USS 278.0

Ln. 3252-PAK Finance program for 1990 & Ongoing BeingCorporate restr./privatization of SNGPL, 1991 implemented:Restructuring and and expansion of its transmission Closing Date isSystem Expansion and distribution network capacity USS 190.0 currentlyProject by about 50X. Under the project. 12/96.

SNGPL constructed a pipelinebetween Multan and Kot-Addu forsupplying natural gas to the

._____________________ .power station

- 19 -

2. Project TimeTable

Activitv Date Plannea Actual Date

Appraisal February 1984

Negotiations May 15 - 16. 1984

Board Approval June 8. 1984 March 7. 1985

Loan Signature April 17. 1985

Loan Effectiveness June 1985 July 12. 1985

Closing Date December 1990 Decemoer 31. 1992

Last Disbursement June 1991 May 28. 1993

3. Loan Disbursements

Cumulative Estimated and Actual Disbursements(U.SS millIIion)

Actual as ZFY Estimated Actual of estimated

1987 43 0.0 01988 82 7.4 91989 95 40.6 431990 100 72.2 721991 100 88.1 881992 100 93.5 941993 100 100.0 100

- 20 -

Pro.1ect Implementation

Transformers Installed

Number Installed Total MVANo. Voltage CaDacity SAR Est. Actual SAR Est. Actual

1. 132/11KV 26 MVA 90 129 2340 33542. 132/11KV 15 MVA - 1 - 153. 132/11KV 13 MVA 126 129 1638 16774. 132/11KV 6.5 MVA - 1 - 6.55. 132/11KV 6.3 MVA 13 13 82 81.96. 132/6.6KV 16 MVA - 2 - 327. 66/11KV 13 MVA 39 41 507 5338. 66/11KV 6.3 MVA 14 30 88 1899. 66/11KV 7.5 MVA 7 4 53 3010. 66/11KV 2.5 MVA - 4 - 1011. 66/11KV 2 MVA - 4 812. 66/11KV 5 MVA 5 7 25 3513. 66/11KV 15 MVA - 3 - 4514. 220/132KV 160 MVA 14 12 2240 192015. 132/66KV 16 MVA - 1 _ 1616. 132/66KV 37.5 MVA - 3 - 112.517. 132/66KV 40 MVA 7 9 280 36018. 33/11KV 4 MVA 5 7 25 2819. 33/11KV 2.5 MVA - 1 _ 2.520. 132/33KV 13 MVA - 1 1321 66/33KV 6.3 MVA - 1 - 6.322. OTHERS 5 - 36 -

325 403 7314 8474.7

- 21 -

B Grid Station Works

Number of worksNo. Voltage Tvpe SAR Est. Actual

1. 220 New 7 22. 220 Conversion - 1

3. 220 Extension - 14. 220 Augmentation - 9

5. 132 New 94 706. 132 Conversion 9 297. 132 Extension 19 1308. 132 Augmentation 26 669. 132 Remodelling - 3

10. 66 New 38 1611. 66 Extension 20 4112. 66 Augmentation 12 4413. 66 Remodelling - 2

14. 33 New - 3

15. 33 Extension - 3

16. 33 Augmentation - 2

TOTAL 225 422

Note: The 422 works/activities were carried out on 331 grid stations.

C. Transmission Lines

Length in KmsNo. Voltage SAR Est. Actual

1. 220 KV Single Circuit 120 -2. 220 KV Double Circuit 160 473.37

Re-routing - 1.4

3. 132 KV Single Circuit 2073 925.389Re-routing - 0.25

4. 132 KV Double Circuit 385 1197.066Re-conductoring - 63.66

Re-routing - 4.6Underground - 5.31

Second Circuits - 334

Other - 116.135. 66KV Single Circuit 1004 488.49

Re-routing - 4.4

6. 66KV Double Circuit 73 2.8917. 33KV Single Circuit - 58.7

Total 3815 3675.656

- 22 -

Proiect Costs and Financino

A. Prec rot

Appraisal Estimate Actual

A. Land E Right of way 16.0 5.72B. Equipment

Substations 273.2 1.44.35(77.7)

Lines 107.4 85.79(22.3)

C. Civil WorksSubstations 57.9 27.63Lines 4.4 included in erection

chargesD. Transport, Erection etc. 104.9 72.93E. Engg. & Administrative }

plus }28.2 105.47F. Technical Assistance }G. Interest during construction 22.0 included in Engg. &

Admn. charges.

Total: 614.00 441.89

Note: Figures in parenthesis represent the amounts to be financed by the Bank.

RB. Pro 1ect f inanci ng(U5S mi iIion)

…----------------------------------------------------------------------__

PlannedSource Loan Agreement Revised Final

…--------------------------------------------------------------__--------.

IBRD Loan No.2499-PAK 100.000 - 100.00

Co-Financinf Institutions

IBRD Loan ESL-II (3107-PAK) 46.300 - 27.82

ADB Loan No.824-PAK ) 36.13Swiss Mixed Credit ) 15.87U.K. Grant ) 8.96CIDA Grant ) 4.50

…-----------------------------------

Total (Foreign) 146.300 _ 193.28

WAPDA Internal 245.600 - 248.61Government of Pakistan 222.100

…-----------------------------------

Grand Total: 614.000 - 441.89…------ ------ ----- ---- -- _______

- 23 -

Pro.Ject Results

A. Direct Benefits

Project Implementation (Indicators)

Key Economic Indicators

FY85 FY87 FY93 X IncreaseAct Act Est Act (FY85-FY93)

Inst. Capacity (MW) 4,339 5,349 9,416 7,882 82XMax. Demand (MW) 3,791 4,325 7,872 7,522 98XMax. Load Shed (Mw) - -

Generation (GWH) 18,777 23,630 36,775 40,783 117XEnergy Sales (GUH) 13,756 17,745 28,317 31,338 128X

Losses, incl. Aux. 27X 25X 23X 23XTrans. Lines (km) 19,347 21,426 - 24,648 27XGrid SubStns (no.) 457 518 - 597 31XTransformer Cap. (MVA) 14,258 18,551 26,651 871

Consumers (million)Residential 3.50 4.11 - 6.62 89XIndustrial 0.13 0.14 - 0.17 32XCommercial 0.77 0.90 - 1.22 58XBuLk Supply (000) 1.50 2.80 - 2.40 60XOthersTOTAL 4.52 5.27 - 8.18 812

Villages Electrified 19,269 25,251 45,608 1371

Consufption (GUH)Residential 3,880 5,357 7,078 11,242 190XIndustrial 5,061 6,436 10,993 10,925 116XCommercial 769 991 1,557 1,307 702BuLk Supply 1,115 1,361 2,463 2,022 81XOthers 2,931 3,600 6,226 5,842 991TOTAL 13,756 17,745 28,317 31,338 128X

Per Capita Cons.(kwh) 155 188 277

Key Financial Indicators(Rs million)

FY85 FY87 FY90 FY91 FY93 FY93-FY85Act Act Est Act Est Act Act X Increase

Gross Oper. Assets 35,019 54,723 87,771 91,731 103,912 103,286 127,126 2631Elec. Sales (GUH) 13,756 17,745 21,418 24,121 24,036 26,584 31,272 1271

Av. Tariff (p/kwh) 63.8 70.9 148.8 107.8 160.5 116.5 126.2 981

Fuel Surcharge 1,500 2,517 7,232 7,405 9,130 9,130 12,262TOTAL Op. Revenues 8,986 12,921 32,225 26,408 38,969 31,605 40,123 347X

FueL Cost 2,404 3,714 11,126 6,768 14,047 9,150 11,771TOTAL (Cash) Op. Exp. 5,224 7.099 19,602 12,009 24,503 15,198 23,440 3492

Working Ratio 0.58 0.55 0.61 0.45 0.63 0.48 0.58Op. Ratio (inc. Dep.) 0.71 0.68 0.70 0.56 0.71 0.59 0.69Debt Serv. Coverage 1.7 1.5 1.9 1.9 1.8 1.5 -Contrib. to Invest. 47X 351 402 412 402 461Debt/Equity Ratio, 50/50 56/44 58/42 58/42 59/41 57/43 57/43Rate of Return 10.6 11.5 15.3 20.8 14.6 17.6 14.6

- 24 -

3. Economic lmpact

tconomic Rate of Return

FYear Inft. Deflator Annual Effcc. Annual T & D Genera- Energy Av. Rev. Benefit Net Bewef Conat.Invest. Invest. 0 & N Costs tion Sates per KWH (Rp mit) (or Costs Prices(Rp mit) (Rp mil) (Rp mit) (Rp mit) (GWH) (GOH) (paisa)

1985 1.000 5,400 13,7561986 1.049 8,739 7,428 6,400 1,000 15,504 1,748 74.4 1,301 (7,128) (7,128)1987 1.136 1.00 9,872 8,391 7,100 1,700 17,745 3,959 69.6 2,776 (7,315) (6,755)1988 1.247 1.10 11,597 9,857 9,700 4,300 20,702 6,946 82.9 5,758 (8,399) (7,066)1989 1.352 1.19 14,815 12,593 10,800 5,400 21,982 8,226 94.4 7,765 (10,227) (7,935)1990 1.468 1.29 16,764 14,249 12,000 6,600 24,121 10,365 105.7 10,956 (9,894) (7,070)1991 1.644 1.45 16,030 13,626 15,200 9,800 26,584 12,828 116.5 14,945 (8,41) (5,411)1992 1.764 1.55 21,846 18,569 19,200 13,800 29,267 15,511 126.8 19,668 (12,701) (7,553)1993 1.928 1.70 23,939 20,348 22,500 17,100 31,272 17,516 126.2 22.105 (15,343) (8,348)1994 2.150 1.89 - 22,500 18,841 34,926 21,170 142.0 30,061 11,220 5,4741995 1.89 21,709 38,148 24,392 142.0 34,637 12,928 6,3081996 1.89 21,709 38,148 24,392 142.0 34,637 12,928 6,3081997 6,3081998 6,3081999 6,3082000 6,3082001 6,3082002 6,3082003 6,3082004 6,3082005 6,3082006 6,3082007 6,3082008 6,3082009 6,3082010 6,3082011 6,3082012 6,3082013 6,3082014 6,3082015 6,3082016 6,3082017 ERR = u7Xs*

ASSUMPTIONS1. Effective Invwstment excludes customs duty and other charges estimated a15% of annual investment2. Revenue is used as a proxy for benefits.3. Average annual revenue per KWH sold is used to calculate incremental revenue.

- 25 -

Status of Covenants

Key Covenants ana Status of ComDliance

Section Summarv of Covenant Extent of Compliance

3.02 Insurance provision. Complied& 4.033.03 (e) Project Complete Report within 6 months Complied

3.04 Acquire project land and rights Complied withdelays

3.05 Hydro ranking study for Bank review by June 1985 Complied

4.04 (b) Plan to recruit qualified accountants. Complied

4.04 (c) Recruit consultants by Sep. 1985 to develop Compliedinternal audit system.

4.05 Grant Chief Commercial Manager powers of General CompliedManager

4.07 (a) Reduce system loss to 21% or lower by June 1988. Compliedin 1991

4.07 (b) Engage consultants by July 1985 to prepare work Compliedprogram to reduce transmission system loss

4.08 Engage consultants by June 1985 to study least cost Compliedpower plan and review study with Bank by June 1986.

4.09 (a) Engage consultants by June 1985 for work program Compliedto optimize thermal plant efficiency.

5.02 (a) Appoint independent auditors Complied

5.02 (b) Provide Bank audited reports within 6 months from Compliedwith delay.

6.04 (a) Internal contribution to be 40% of average capital Compliedexpenditure starting from FY 1988.

5.04 (b) Prepare and review with Bank financial forecasts Compliedby March of each year, and adjust tariffs.

5.05 Debt service ratio to be not less than 1.5. Complied

G/2.02 GOP to provide WAPDA with funds, if needed, for Compliedproject expenditures.

G/3.03 (a) GOP to cause all governmental entities to pay their NOTelectric bills within 3 months. Complied

G/3.03 (b) GOP to cause above entities to settle, by Dec. 1985, NOTaccounts owed to WAPDA as of June 1985. Complied

-26-

S. Us, of Staff Resources

A. InDuts

1. Through Appraisal ............................................. 77

2. Appraisal through Board Approval .............................. 28

3. Supervision ................................................... 117

TOTAL ......................................................... 222

B. Supervision Missions

No. Month/ No. of Specialization PerformanceYear Persons (a) Rating (b)

1 04/86 3 E,Ec,F

2 10/86 1 E

3 10/86 2 E,F

4 03/87 4 E,E,F

5 11/87 6 E,E,E,F

6 07/88 3 E,E,F -

7 03/89 4 E,E,F 2/3

B 11/90 1 E -

9 04/91 3 E,E,F 2/3

10 06/92 3 E,E,F 2/3

11 02/93 2 E,Ec 2

12 12/93 2 E,E -

gL Engineer (E)Financial Analyst (F)Economist (Ec)

k/ Minor or no problem (1)Moderate problem or no change (2)Major problem (3)

IMAGING

Report No: 15228Type: PCR