Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 17462

IMPLEMENTATION COMPLETION REPORT

INDIA

TALCHER THERMAL POWER PROJECT(LOAN 2845-IN)

March 9, 1998

Energy Sector UnitSouth Asia Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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COUNTRY EXCHANGE RATESCurrency Unit = Rupee (Rs)Rs I = Paise 100

RUPEE (Rs.)/US S EXCHANGE RATES AND CPI (Yearly Averages)

Fiscal Year RupeesUSSFY90191(SAR) 21.43

Average Rate during project implementation period: US$ I = Rs. 29.7NTPC and POWERGRID Fiscal Year: April I - March 31

MEASURES AND EQUIVALENTSI Ton (t) = I metric tonne = 1,000 Kg = 2,204 lbs.I Kilovolt = 1,000 volts (V)1 Kilovolt ampere (kVA) - 1,000 volt-atnperes (VA)I Kilowatt-hour (kWh) 1 l,000 watt-hoursI Megawatt-hour (MWh) 1,000 kilowatt-hoursi Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours

ABBREVIATIONS AND ACRONYMS

BHEL Bharat Heavy Electricals LimitedBPSA = Bulk Power Supply AgreementCA = Central AuthoritiesCCEA = Cabinet Committee for Economic AffairsCEA = Central Electricity AuthorityDOE Department of Environment (previous to establishment of MOEF)EMG = Environmental Management GroupER = Eastern RegionEREB Eastem Region Electricity BoardERIS = Eastern Regional Interconnected SystemGOt = Govemment of India000 = Govemment of OrissaGT = General TransformerHSO Homestead OutsteesHVDC = High Voltage Direct CurrentIBRD = International Bank for Reconstruction and DevelopmentICB Intemational Competitive BiddingICR Implementation Completion ReportIERR = Intemal Economic Rate of RetumIFC = Intemational Finance CorporationIPP Independent Power ProducerLAA Land Acquisition ActMGR Merry-go-roundMPAFs = Marginally Project Effected FamiliesNER = North Eastem RegionNERC North American Energy Reliability CouncilNGO = Non-Governmental OrganizationsNR = Northem RegionNTPC = National Thermal Power CorporationO&M = Operation and MaintenanceOSPCB = Orissa State Pollution Control BoardPAFs = Project Affected FamiliesPIB Public Investment BoardPLF = Plant Load FactorPMI = Power Management InstitutePOWERGRID = Power Grid Corporation of India, Ltd.PPA = Power Purchase AgreementR&R = Resettlement and RehabilitationRAP = Rehabilitation Action PlanRBI = Reserve Bank of IndiaSEB = State Electricity BoardSLAO = Special Land Acquisition OfficerSPAFs = Substantially Project Affected FamiliesSR = Southem RegionTPP Thermal Power PlantWR Westem Region

Vice President: Mieko Nishimizu

Country Director: Edwin R. LimSector Manager: Alastair J. McKechnieTask Leader: Argun Ceyhan

FOR OFFICIAL USE ONLY

INDIA

TALCHER THERMAL POWER PROJECT(LOAN 2845-IN)

IMPLEMENTATION COMPLETION REPORT

TABLE OF CONTENTSPage No.

PREFACE

EVALUATION SUMMARY.i

PART I: PROJECT IMPLEMENTATION ASSESSMENT.1

A. Project Objectives..1B. Achievement of Objectives ............................................... 3C. Major Factors Affecting the Project ............................................... 5D. Project Sustainability ............................................... 13E. Bank Performance .. 13F. Borrower Perfonnance .............................................. . 16G. Assessment of Project Outcome .............................................. . 17H. Future Operations, Summary of Findings ............................................... 18I. Key Lessons Learned .............................................. 18

PART II: STATISTICAL TABLES

Table 1 - Summary of AssessmentsTable 2 - Related Bank Loans/CreditsTable 3 - Project TimetableTable 4 - Loan Disbursements: Cumulative Estimated and ActualTable 5 - Key Indicators for Project ImplementationTable 6 - Key Indicators for Project OperationTable 7 - Studies included in the ProjectTable 8A - Project CostTable 8B - Project FinancingTable 9 - Economic Costs and BenefitsTable 10 - Status of Legal CovenantsTable 11 - Bank Resources: Staff InputsTable 12 - Bank Resources: Missions

APPENDIX -A : Aide-Memoire of the ICR Preparation MissionAPPENDIX -B- 1: Project Review from Borrower's Perspective - Contribution by NTPCAPPENDIX -B-2: Project Review from Borrower's Perspective-Contribution by POWERGRIDAPPENDIX -C : Environmental Impact IssuesAPPENDIX -D : Land Acquisition, Resettlement and Rehabilitation IssuesAPPENDIX -E : Financial Overview (NTPC)APPENDIX - F : Recent Actions by NTPC and POWERGRID to Improve the Performance of the Power Plants in

ERIS

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

FOR OFFICIAL USE ONLY

INDIA

TALCHER THERMAL POWER PROJECT(LOAN 2845-IN)

IMPLEMENTATION COMPLETION REPORT

Preface

This is the Implementation Completion Report (ICR) for the Talcher Thermal PowerProject in India, for which Loan 2845-IN in the amount of US$375 million equivalent wasapproved on June 17, 1987 and made effective on March 21, 1988. The Borrower was India, actingby its President. At approval, the Implementing Agency for the whole project was the NationalThermal Power Corporation (NTPC). The project comprised a generation component and anassociated transmission component, as well as the installation of communication links betweenNTPC's power plants and corporate headquarters in New Delhi. During the implementation ofproject, the responsibility for implementing the transmission component was transferred to thePower Grid Corporation of India, Ltd. (POWERGRID). The loan closed on March 31, 1997, aftera one-year extension of the loan closing date. There were substantial savings in the project cost dueto continuous devaluation of the Indian rupee vis-a-vis the US dollar during the projectimplementation period. Disbursements were completed on September 2, 1997. A total ofUS$102,201,149.35 from the original loan was canceled. The balance of the loan amounting toUS$272,798,850.65 was disbursed. Financing to the tune of US$100.2 million equivalent wasobtained from French commercial banks. The balance was met by contributions from theGovernment of India (GOI), domestic and international loans by NTPC and POWERGRID, andfrom NTPC and POWERGRID's own resources.

This ICR was prepared by Mihir Mitra (Consultant) and Argun Ceyhan (Task Leader),Energy Sector Unit, South Asia Region (SASEG), and reviewed by Alastair McKechnie, SectorManager, SASEG.

Preparation of this ICR started during a Bank ICR mission in November 1996, and wasfinalized during a follow-up mission in July 1997. It is based on material in the project file andsite-specific information collected during the ICR mission. The Implementing Agencies, NTPCand POWERGRID, contributed to the preparation of this ICR for their part of the project byproviding timely input for the statistical data. NTPC and POWERGRID's comments are given inAppendices B-1 and B-2 of this ICR.

This document has a restricted distribution and may be used by recipients only im theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

INDIA

TALCHER THERMAL POWER PROJECT(LOAN 2845-IN)

IMPLEMENTATION COMPLETION REPORT

Evaluation Summary

Introduction

1. Continued power shortages throughout the 80's prompted the GOI to adopt a policy ofaccelerating the exploitation of indigenous energy resources in the generation of power. TheEastern Region, comprising Bihar, West Bengal and Orissa, three of the poorest states in India, wasparticularly suffering from severe power shortages. Although GOI had embarked on a plannedprogram of plant rehabilitation in an effort to maximize the utilization of existing capacity, additionof new generating capacity had become critical. The project at Talcher, to be built by NTPC, wasproposed as the first phase of development of a coal-fired 3,000 MW power generation complex inthe Eastern Region as a part of a least-cost power development program for that region, to meet thechallenge of continuing power shortages.

2. The power plant was designed to be served by the Talcher coalfields, cheap to exploit but,typical of Indian coals, containing highly abrasive, high ash-content coals that cause acceleratederosion of boiler components. There was a need, therefore, to explore the application of newtechnologies that could potentially minimize and reduce the wear and tear on boiler parts andincrease plant availability.

3. By the mid-80's, NTPC had installed several power plants, most of them with Bankassistance, which were located generally in remote areas where communication facilities wereinadequate. NTPC's project implementation and operational capabilities were thus seriouslyhampered by the absence of instant communications between the corporate headquarters, where theload control center is located, and the various generating plants. There was an urgent need forsetting up real-time communication links between all stations and the control center.

Project Objectives

4. The principal objectives of the project were to:

(a) increase power generation capacity and hence alleviate power shortages in theEastern Region;

(b) introduce to India the technology of "tower boilers" which were suited for theabrasive high-ash coals prevalent in India; and

(c) improve the operational performance of NTPC by providing on-linecommunications between NTPC's power stations and its headquarters in Delhi.

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5. The project, as part of the least-cost development program for the Eastern RegionInterconnected System (ERIS), included the following physical components:

(a) the first stage (2x500 MW) of a 3,000 MW coal-fired power station in Talcher,Orissa;

(b) construction of about 230 km of double-circuit 400 kV transmission lines to link thepower station with ERIS at Rengali and Rourkela, as well as about 40 km of 220 kVtransmission line from Rengali to Talcher to bring start-up power from the grid tothe plant;

(c) installation of earth stations, microwave links and data processing equipment for adedicated satellite-based data communication network to connect NTPC's corporateoffices in New Delhi with its thermal power plants; and

(d) consulting services for the review of engineering and design of the power plant.

6. Loan 2845-IN was for US$ 375 million equivalent, approved on June 17, 1987, signed onDecember 21, 1987, that became effective on March 21, 1988. GOI and NTPC obtained loansfrom French commercial banks. The balance costs of the projects were provided by NTPC, andfollowing the transfer of responsibilities for transmission to POWERGRID, by the latterCorporation.

7. Although the Project was completed with substantial delays (para. 9, below) objectives (b)and (c) have already been fully achieved, while objective (a) is expected to be fully achieved byFebruary 1999 when the most important of the additional transmission lines being built byPOWERGRID are completed (Part I; para. 6).

Implementation Experience and Results

8. Major factors affecting the Project were:

(a) difficulties experienced by NTPC in obtaining the formal environmental clearancefrom GOI's Department of Environment (DOE) and GOI's final clearance for theconstruction of the Project (Part I; para. 8);

(b) lengthy procurement by NTPC (Part I; para. 9);

(c) suppliers and contractors' inability to timely supply the equipment and complete theworks, and first time manufacture of the boilers in India (Part I; para. 10);

(d) the accidents which occurred in the generator of Unit 1 and generator transformersof both units (Part I; para. 11); and

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(e) difficulties experienced by GOO authorities in:

(i) acquiring and handing over to NTPC, the land for the power plant, includingthe ash disposal area, the township and the merry-go-round (MGR) railwaysystem for the transportation of coal from the mines to the power station,and connection to the Indian Railways mainline (Part I; paras. 12 and 13);and

(ii) acquiring the land to be submerged by the Samal Barrage, from where themake up water for the power project was to be supplied (Part I; para. 14).

9. The Project was completed with substantial delays, which included the forced shut down ofeleven months of Unit 1 due to the cooling fan accident in its generator (Part I; para. 11). Unit 1was synchronized for the first time on February 19, 1995, with a delay of 20 months with regard tothe date projected at appraisal. The delays with regard to the re-synchronization of Units 1 and 2,following the cooling fan accident, were 39 and 29 months, respectively (with regard to theappraisal dates). A comparison of actual dates vis-a-vis the dates projected is given in Part I; para.16. The availability of the units was also substantially affected by faults which occurred ingeneration transformers. The transmission lines and associated substation extensions wereenergized and commissioned in February and April 1995, respectively, with a delay of about 15months with respect to the dates projected at appraisal.

10. Project Costs. Project cost estimates were prepared, at appraisal, on the basis ofinternational prices of various plant components. Due to the high domestic inflation levels whichoccurred in 1989-1992, costs in Rupee terms increased by about 52 percent. The actual cost of theProject was Rs. 26,872 million compared with the appraisal estimate of Rs. 17,877 million (Part II;Table 8A). However, because of the devaluation of the Indian Rupee with regard to US dollar andother currencies under which part of the contracts were awarded, the total financing requirement forthe project were US$903.4 million, compared with an appraisal estimate of US$1,375.5 million(Part I; para. 17).

11. Savings and Cancellations. Due to the above mentioned devaluation of the Rupee, costs inUS Dollar terms were significantly lower than the estimates. Although part of the loan was utilizedfor the procurement of urgently needed spare parts and other items, large savings occurred and theywere canceled in due course (US$79.9 million' -- Part I; para. 18).

12. Rate of Return. At appraisal, the internal economic rates of return (IERRs) for theinvestment program of ERIS, of which the project is part, were estimated to be about 4 percent and10 percent, respectively, without and with consumer surplus. Taking into account currentprojections of incremental generation and sales from and current bulk supply tariff for energygenerated at Talcher TPP (Rs. 1.45/Kwh), and actual investment, current operational and

I US$8 million as of May 1, 1993, and US$71.9 million as of March 15, 1996. This amount does not includeUS$22,301,149.35 remaining undisbursed in the loan account at the completion of disbursements, and cancelledas of September 2, 1997.

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maintenance (O&M) and fuel costs, the IERR for the Project was computed to be about 16.65percent (Part I; para. 20, and Part II; Table 9).

13. Sustainability. The Project is highly likely to be sustainable when the current powerevacuation constraints are resolved2 . Supply of coal of proper quality and in required quantities is arequisite for the Talcher TPP to operate at its full capacity in a sustainable manner. Institutionally,NTPC has grown much stronger, leading to its increased self-reliance as the largest, and the mostmodem public utility in India (Part I; para. 21).

Summary of Findings, Future Operations, Key Lessons Learned

14. Bank Performance. The performance of the Bank for project identification and preparationassistance was satisfactory -- GOI, the Bank and NTPC identified and prepared a good andsustainable project. However, the Bank's performance at appraisal was deficient. The project waspresented to the Board prematurely and there were local steps that were incomplete, e.g. landacquisition, procurement, environmental analysis, and some of the appraisal work was deficient,e.g. market analysis, assessment of complementary investments and policies, especially intransmission, and analysis of risk. The Bank's performance in supervision is assessed assatisfactory (Part I; paras. 22-24).

15. Borrower Performance. GOI and NTPC's respective performances for the wholepreparation phase, which covers the period up to the start of implementation, were deficientbecause they took an inordinately long time in granting and obtaining the formal environmental andfinal GOI clearances. Consequently, the start up of the project was delayed by more than one yearand a half, from June 1987 (approval of the Bank Loan) to January 1989 (sigriing of the firstcontracts). GOI and NTPC's performances in project implementation were marginally satisfactory.Because of NTPC's non-compliance with the accounts receivables covenant for most of theimplementation period, covenant compliance is assessed as deficient (Part 1; paras. 25-27).

16. Assessment of Outcome. The results of the project are satisfactory. The physicalcomponents of the project are installed, but problems with the generator transformers3 and absenceof transmission outlets4 have, so far, prevented the plant from achieving satisfactory availabilityand Plant Load Factors (PLF). However, as soon as the HVDC back-to-back systems and othertransmission lines under construction to facilitate transfer of power from the Eastern Region to theother regions are completed, this project would qualify to be deemed as fully satisfactory.

17. Future Operation. For the short periods since they have been declared in commercialoperation5 , the availability of both units has been relatively low (Part II; Table 6). This has beendue to the faults which occurred in the generation transformers. Furthermore, the power plant has

2 Para. 17, below; Part I; para. 26; and Appendix F.

3 Part I, para. 11.

4 Part I, para. 28.

5 Units I and 2 were declared in commercial operation as of January 1 and July 1, 1997, respectively.

been working with one unit in operation at a very poor PLF, except for a few hours during peakload periods. This due to the fact that during the ten years since the finalization of the SAR, thedemand in ERIS did not increase as projected at appraisal, and many of the investments (inparticular in transmission and distribution) were not made. When the transmission facilities beingbuilt by POWERGRID and other recent actions taken by NTPC in accordance with bothCorporations' strategy to export power from ERIS to the other regions are completed, the PLF ofthe Talcher TPP will rise to an economically viable level. However, availability of coal of adequatequality must be assured through commercially enforceable contracts.

18. Key Lessons Learned. Major findings of the project implementation experience andimportant lessons for future projects are summarzed as follows:

(a) In a time of great power shortages, it took so long for GOI to grant the clearancesfor the Project. This suggests some disconnect between the development objectivesof 001 and the officials responsible in various ministries. Moreover, the lengthyclearance process didn't seem to work. After all the delays, insufficient transmissionand distribution capacity existed to take the power to the markets. It isrecommended that during its review of the effectiveness of its project approvalprocesses, GOI should take into account the lessons from the implementation of theProject.

(b) Project preparation and appraisal should assess the risks of the plant capacity notbeing utilized, and should include the development of strategies for mitigatingthese risks. In particular, investment plans for transmission and distribution of thepower from the power plants should be confirmed.

(c) The project experienced serious difficulties getting started because of lack ofenvironmental clearance from GOI. Currently, the Bank requires that the formalenvironmental clearance be obtained before presenting a project to the Board.

(d) NTPC's procurement process cycle from bid issue to contract award should besignificantly shortened by the evaluation committees endeavoring to complete theirwork at shortest possible periods and NTPC management giving priority inreviewing the evaluation reports.

(e) A complete survey of PAFs should be made at the project preparation stage toinclude not only PAPs of the primary project site (i.e., the main power plant), butalso those affected by all associated sites, such as, transmission line corridors,railway lines for coal transportation, resettlement colony, etc. The Resettlement andRehabilitation (R&R) Plans should thereafter be developed in full consultation withthe PAFs in a transparent and open manner.

(1) The Talcher TPP should receive coal of proper quality and in required quantities inorder to operate in a sustainable manner at its full capacity. To this end, NTPCshould sign with the Eastern Coalfields of Coal India, a commercially enforceablecontract, where the parties would not act as monopoly supplier and sole buyer.

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(g) A sound financial health is a key element to the success of a utility. NTPC's newcommercial practices introduced under the NTPC Power Generation Project (Ln.3632-IN) have greatly improved its financial position. GOI/BanklNTPC dialogue onNTPC's financial situation and its application of the commercial policies (inparticular, cutting off supply to non-paying customers) should be continued.

(h) GOI intervention through the Central Appropriations helped NTPC resolve itsaccounts receivable problem, although for a limited period of time. However, it isdoubtful whether GOI's actions have led to the SEBs improving their operationalefficiency and their billing and collection procedures and practices. In order toensure that the project is financially viable, a successful central power project needsto be part of a well conceived sector assistance strategy that also addresses the SEBlevel issues.

(i) Energy conservation on the customer (SEBs) side and demand management by theutilities through the adoption of appropriate tariffs and tariff structure at SEBs andthrough end-use efficiencies, are important other aspects to improve efficiency inthe power sector. GOI/Bank/ States with a number of States dialogue and recentapprovals of the state power sector restructuring operations in Orissa and Haryanaare important steps forward and should be continued.

'j) Failure by reputed local manufacturers to deliver critical equipment on time hascaused the project long delays, as was the case for the suppliers of the ash handlingplant and control and instrumentation package. The bid documents should make itvery clear that before awarding a contract, the manufacturing capability and theorder portfolio of the bidder whose bid is evaluated as the least cost bid, should bereviewed by NTPC to determine whether the bidder would be capable of performingthe contract on schedule. During evaluation, this provision should be applied withcourage. There are already provisions for just such an evaluation in Clause 13,International Tender Bidding (ITB) for Goods, however, this requires some thoughtas to an appropriate set of qualification requirements being crafted for the Bid DataSheet, and good record keeping of ongoing contracts as well. Correspondinginformation to evaluate such provisions would be necessary for these provisions tobe useful and effective.

(k) Subcontracting by contractors was also another cause for delays. NTPC shouldassess more closely the suitability of proposed sub-contractors.

(1) Land acquisition was a major hurdle and as such, in future NTPC should plan to setup projects only when land is acquired and made available to NTPC in the initialstages of the project.

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(rn) Power utilization within the Eastern Region proved to be a bottleneck. The projectwas designed and executed with the assumption that the transmission and sub-transmission systems in the region would also be planned and implemented.Subsequently, projects to export power to other regions were developed. In future,NTPC should ensure that similar bottleneck situations do not appear. This could beachieved by NTPC by converting the existing bulk power supply agreements(BPSAs) into commercially and financially binding contracts with the SEBs or itsother customers (similar to the Power Purchase Agreements (PPAs) signed by theSEBs with the independent power producers (IPPs) for private sector projects) and,then utilizing the inter-regional tranmission links to reach the paying consumers.

IMPLEMENTATION COMPLETION REPORT

INDIA

TALCHER THERMAL POWER PROJECT

(LOAN 2845-IN)

PART I. PROJECT IMPLEMENTATION ASSESSMENT

A. PROJECT OBJECTIVES

1. In the 1950s and 1960s, the responsibility for power development in India was entrustedalmost entirely to the states. This led to sub-optimal development planning as each state strivedto serve its own interests, as well as inadequate investments in generation, transmission anddistribution facilities, which resulted in acute shortages of power in most parts of India. Thesituation prompted GOI, in the 1970s, to change the thrust of its power policy to focus on least-cost regional development, emphasizing construction of central power stations close toindigenous energy resources, rehabilitation of non-performing power plants, along with a liberalpolicy towards captive generation, as well as improving the quality and reliability of coalsupplies. In 1975, GOI established NTPC making it responsible for the design, construction andoperation of large thermal power stations and high-voltage transmission lines, and for the sale ofthe power generated to the SEBs in bulk. NTPC's responsibilities and assets in transmissionwere transferred to POWERGRID as of April 1, 1992 . The Bank has supported GOI's actionsunder 6 IDA and 10 IBRD operations to fimance 15 NTPC power plants (usually with theirassociated transmission facilities) and two transmission projects, implemented by NTPC (Part II;Table 2). Twelve thermal power plants and the two transmission projects have beensatisfactorily completed. These projects have assisted NTPC to expand at least cost and alsohelped enhance NTPC's institutional capabilities.

2. At the time the project was appraised in February 1986h, power shortages prevailed inIndia. This was despite the fact that GOI (through NTPC and other GOI-owned entities) andState Governments had built a number of hydro and coal-fired thermal power stations. GOI'sstrategy for the power subsector, outlined in the Seventh Plan (FY86-FY90), called for theaccelerated exploitation of indigenous energy resources to alleviate these shortages. In

I POWERGRID was incorporated on October 23, 1989, under the Companies Act, 1956, as the National PowerTransmission Corporation and changed its name to the Power Grid Corporation of India on its thirdanniversary on October 23, 1992. POWERGRID assumed the management of the transmission assets andprojects of NTPC under a contract signed between the two corporations on August 16, 1991. An Ordinancefor the transfer of the transmission assets, retroactively from April 1, 1992, was promulgated by the Presidentof India on January 8, 1993.

2 For reasons given in paragraph 24, the Bank kept the processing of the loan in abeyance for more than oneyear. The Staff Appraisal Report was updated as of May 28, 1987 (Report No. 6402-IN). The expression "atappraisal" used in this ICR means the statements made and data given in the SAR.

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particular, the Eastern Region, comprising Bihar, West Bengal and Orissa, three of the pooreststates in India, suffered from chronic and heavier shortages. This had led to substantial pressuresupon the SEBs in the region to postpone maintenance of equipment in order to keep plants inoperation. Consequently, plant availability in the region was substantially lower than in anyother part of the country. The SEBs in the region were implementing a rehabilitation planprepared by the Central Electricity Authority (CEA) of GOI, to improve the efficiency andincrease the output of the existing plants. However, based on the demand forecasts made at thetime, the Eastern Region still needed substantial new generating capacity. The least costdevelopment plan for the region, also prepared by CEA, included the development of the 3,000MW Talcher Thermal Power Plant (TPP) in Orissa. The power station would utilize coal fromthe extensive reserves in the nearby Talcher coalfields3 .

3. In 1985, GOI requested Bank assistance to support the construction of the first phase(1,000 MW) of the Talcher TPP and the transmission system development associated with thepower plant, which would ease the gap in the supply-demand situation in the Eastern Regionwith the addition of new capacity. The executing agency would be NTPC, which would be lesssubject than the SEBs to pressures to maximize present generation at the expense of future plantperformance. As the coal from the Talcher coalfields, in common with many other coals inIndia, has a rather high and abrasive ash content, GOI and NTPC proposed to install steamgenerators of a special design known as "tower boilers" in order to minimize abrasion of boilercomponents. GOI also proposed to have the tower boilers technology transferred to one of thedomestic manufacturers of such equipment4 . In addition, as the lack of instant communicationbetween NTPC's corporate headquarters in Delhi and the individual power plants, scattered inremote areas all over the country, was causing serious operational problems, the project wouldalso include the installation of a satellite-based telecommunication system.

3 The power plant site is located at a distance of approximately 34 km from the Talcher Coalfields in the AngulDistrict of the State of Orissa. The distance to the nearest road and rail heads from the site are approximately 7and 25 km, respectively. The site is located on the south-western bank of the Tikira River, a few kilometersupstream of the Samal Barrage Reservoir on the River Brahmani. The ground elevation is 80-90 meters,which is above the highest flood level. The entire area was at appraisal, rural in nature and sparsely populatedwith a population density of about 157 persons/sq.km. The make-up cooling water would be supplied from thesaid Samal Barrage Reservoir. Coal would be transported to the plant through a closed-loop MGR railwaysystem to be built by NTPC. The MGR railway would also be connected to Indian Railways' mainline.

4 The power-grade coal from the Talcher Coalfields is a high-ash coal (up to 45% ash) and this ash has a highsilica content (up to 60%). By 1986, the experience with the "tower boilers" world-wide had confirmed theirsuitability for handling abrasive ash. GOI had decided that Bharat Heavy Electricals Ltd. (BHEL), the majorIndian manufacturer of power plant equipment, should acquire this technology in view of its potential futureapplication in India, given the poor characteristics of Indian coals. GOI had therefore indicated that NTPCwould negotiate directly with BHEL for the supply of the boilers, and that BHEL would in turn enter into atechnology transfer arrangement with a foreign manufacturer experienced in the tower boiler technology. Theproposed arrangement made procurement through the Bank's ICB procedures inappropriate for the boilerpackage. The Bank did not object to GOI's above proposal but stated that the tower boilers procured throughdirect negotiations would not be funded under the Bank Loan. GOI and NTPC then obtained commercialloans provided by French Banks and guaranteed by COFACE of the Government of France, to finance theboilers and auxiliaries package. BHEL and a French manufacturer (Stein Industries) built the boilers.

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4. Against this backdrop, the objectives of the project were to:

(a) increase power generating capacity and hence alleviate power shortages in theEastern Region;

(b) introduce to India the technology of "tower boilers" which would be suited to theabrasive high ash coals prevalent in the country; and

(c) improve the operational performance of NTPC by providing on-line communicationsbetween the NTPC's power stations and its corporate headquarters in Delhi.

In addition to the physical objectives, it has been an objective of the Project to ensure that NTPCwould be financially viable. These objectives were fully consistent with GOI and the Bank'sstrategies for lending in the Indian power sector.

5. The physical components of the project were consistent with the above project objectives:

(a) construction of the first stage (2x500 MW) of a 3,000 MW coal-fired power plant atTalcher, Orissa;

(b) construction of about 230 km of double-circuit 400 kV transmission lines5 to link thepower station with ERIS at Rengali and Rourkela, as well as about 40 km of 220 kVtransmission line from Rengali to Talcher to facilitate availability of start up powerfor the plant;

(c) installation of earth stations, microwave links and data processing equipment for adedicated satellite-based data communication network to connect NTPC's corporateoffices in Delhi with its thermal power plants; and

(d) consulting services for the review of the engineering of the proposed power plant6.

B. ACHIEVEMENT OF OBJECTIVES

6. Overall Results. The objectives of the project, including the financial objectives forNTPC, have been substantially achieved. While objective (a) is expected to be fully achieved inFebruary 1999 (see below), objectives (b) and (c) have already been fully achieved, assummarized below:

ObjectiveA: The two generating units have been installed, albeit with major delays. Unit 1 hasbeen declared in commercial operation, as of January 1, 1997, while trial runs onUnit 2 are still under progress. The transmission lines and substations have been

5 Actually 215 km of 400 kV transmission lines have been built.

6 As NTPC had not designed tower-type boilers before, it required the services of consultants to review theboiler design and assist in the preparation of the specifications. NTPC retained the services of reputableinternational consultants.

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constructed and are in operation. Due to the low absorptive capacity of the ERIS,and delays by the SEB's in the region in building their transmission, sub-transmission and distribution facilities to evacuate and distribute power from theTalcher TPP, the power plant is being requested by the load dispatch of theEastern Region Electricity Board (EREB) to operate at 250-300 MW7. Whenadditional transmission lines being built by POWERGRID are completed (themost important project is expected to be completed by February 19998), thisproblem will be resolved and the Talcher TPP would be operated near its designcapacity of 1,000 MW. Thus, it is concluded that objective (a) will be fullyachieved by February 1999.

Objective B: An Indian and a French manufacturer have built the two tower-type boilers.Boilers have passed the tests. Objective (b) has been fully achieved.

Objective C: The satellite-based on-line communication network has been successfullyinstalled and is functioning satisfactorily9 . Communications between theheadquarters and the power plants have substantially improved. This objectivehas been fully achieved.

Financial objectives for NTPC: Through all Bank-financed NTPC projects, including thisproject, the Bank has endeavored, through constant policy dialogue and discreet financialcovenants, to advance NTPC towards a sound financial footing. At Board presentation, NTPC's

7 The project is being operated with a plant load factor (PLF) of about 11 percent. This PLF is unsatisfactoryand unacceptable. After the project was built, it was found that there were severe bottlenecks in evacuating thepower from the power plant. The power to be generated by the Talcher TPP was allocated among the States ofOrissa (26.2%) and Bihar (23.9%), as well as other entities, such as the Damodar Valley Corporation (9.8%),and Sikkim (1.8%), while the balance (38.3%) remained unallocated. Because the demand in the region didnot grow as fast as was projected at appraisal, the offtake of power by the allottees fell far short of theappraisal expectations. NTPC is currently awaiting the completion of additional lines which would provide analternative outlet for the power from the Taicher TPP to be wheeled to another regions.

s The lines in question are: (i) the high voltage direct current (HVDC) back-to-back link between Jeypore(Orissa; Eastern Region) and Gazuwaka (Andhra Pradesh (AP); Southern Region) - the capacity of the linkwould be 500 MW, and it is expected to be completed by February 1999; (ii) 132 kV single circuit (2ndcircuit) Dehri-Karamnasa line between Eastern and Northern Regions - the capacity of the line would bearound 150 MW; expected completion by end- 1999; and (iii) 220 kV single circuit (3rd circuit) Badhipadar-Korba line between Eastern and Western Regions - the capacity of the line would be around 200 MW;expected completion by end-1999. In addition to the above, a 500 MW HVDC back-to-back link is planned tobe built between the Eastern and Northern Regions, at Susaram. Its planned completion date is March 2001.However, the above HVDC links and 132 kV and 220 kV lines are being built for transfer of power from theEastern Region to the other regions, and not exclusively for the Talcher TPP. NTPC's further actions in thisrespect are given in Footnote 31.

9 The communication facilities comprise six INSAT Type-B satellite earth stations at Singrauli, Korba,Ramagundamn, Farakka, Kahalgaon and Talcher TPPs, communicating with a central INSAT Type-A satelliteearth station located in the Delhi region. The combined cycle power plants at Anta, Auraiya and Kawas havesince been added to the network. In addition, the communication network includes two long-haul terrestrialmicrowave links to interconnect the Rihand and Vindhyachal TPPs with Singrauli in the same region, which isconnected to the main center in Delhi.

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overall financial position was generally satisfactory, but accounts receivable already imposed aheavy burden on its finances (para. 24). By project completion in 1997, improvements incollection and accounts receivable had helped NTPC achieve retums well in excess of the ratesrequired under the financial covenants (Appendix E).

C. MAJOR FACTORS AFFECTING THE PROJECT'.

7. The project was implemented satisfactorily but with substantial delays which wereprincipally due to:

* difficulties experienced by NTPC in obtaining the formal environmental clearancefrom GOI's Department of Environment and GOI's final clearance for theconstruction of the Project (para. 8);

• lengthy procurement process by NTPC (para. 9);

* suppliers and contractors' inability to timely supply the equipment and complete theworks, and first time manufacture of the boilers in India (para. 10);

* the accidents which occurred in the generator of Unit 1 and generator transformers ofboth units (para. 11);

- difficulties experienced by GOO authorities in:

* acquiring and handing over to NTPC, the land for the power plant, includingthe ash disposal area, the township and the MGR railway system for thetransportation of coal from the mines to the power station, and connection tothe Indian Railways mainline (paras. 12 and 13); and

* acquiring the land to be submerged by the Samal Barrage, from where themake up water for the power project was to be supplied (para. 14).

Other factors which affected the Project were: (i) high inflation levels during the first years ofimplementation, which resulted in costs in Rupee terms higher than the estimates by about 52percent (para. 17); and, (ii) depreciation of the Rupee vis-a-vis the US Dollar which resulted inlarge savings under the Loan which were canceled (para. 18).

8. Difficulties Experienced By NTPC In Obtaining the Formal Clearances. The Project waspresented to the Executive Directors with an "in principle" environmental clearance, given byDOE. The formal environmental clearance for the Project was made a condition of effectivenessof the Loan. This clearance was granted by the DOE in March 1988, nine months after the

10 On the day Loan 2845-IN for the Talcher TPP Project was approved, the Executive Directors also approvedLoan 2844-IN for the National Capital Power Project. This latter project comprised an NTPC component forthe construction of the coal-fired Dadri TPP. The National Capital Power and Talcher TPP Projects wereimplemented during the period from 1988 to 1995/1997, and were affected by similar problems. The ICR forthe National Capital Power Project was issued on September 16, 1996 (Report No. 16003).

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approval of the Loan11 . NTPC obtained the final clearance of GOI, from GOI's CabinetCommittee for Economic Affairs (CCEA), for the construction of the Project on November 25,1988. Until this latter clearance was granted, NTPC could not make a commitment, thus sign a

12contract under the Project . It is noted that GOI's final clearance (CCEA clearance) was granted17 months after the Loan was approved by the Executive Directors of the Bank. Furthermore,clearances for the proposed alignment of the raw water piping from the river to the plant, the

13MGR system, about 33 km long, and the transmission lines were obtained with further delays

9. Lengthy Procurement Process by NTPC. NTPC's procurement process cycle, betweenbid issue and contract award has been endemically too long. The turbine generator bid package,for instance, took close to 17 months. Although tenders were issued on September 4, 1987, to 12manufacturers which were pre-qualified in 1985 for a similar package under another Bank

11 The main reason for the delay in DOE granting the environmental clearance was the failure of the managementof the coal mines in submitting a detailed environmental management plan. On March 21, 1988, GOIinformed the Bank of the issuance of the formal environmental clearance. The same day the Bank declared theloan effective.

12 After the techno-economic clearance by CEA and environmental clearance by DOE (currently the Ministry ofEnvironment and Forests - MOEF) are obtained, NTPC has to submit its project proposal to GOI's PublicInvestment Board (PIB). To initiate a procurement action, NTPC had, at the time the Talcher TPP wasreviewed by GOI, to obtain PIB's clearance after the "pre-PIB meeting". To make a commitment, and thussign a contract under a project, NTPC has to show to PIB and later to CCEA that it has finalized the financingplan for the project and obtain CCEA's final authorization. Only after that authorization is granted can NTPCproceed with the implementation of a project. However, the process is different for private utilities. AfterCEA's techno-economic and MOEF's environmental clearances, the board of directors of a private utility havethe authority to proceed with procurement and commitment decisions. In summary, while shareholders of aprivate company can authorize their board to make decisions committing the company, GOI as the owner of apublic enterprise keeps that authority within a committee of its Cabinet. Recently, GOI has decided to giveenhanced power to approve capital expenditures to the Board of Directors of NTPC after the Board ofDirectors is restructured. The Board is being restructured. In practice, this will mean that NTPC's Board ofDirectors will have the authority to take decisions on proceeding with a project after the techno-economicclearance by CEA -- NTPC will no longer be required to obtain PIB and CCEA clearances.

13 Final environmental clearances for the Talcher-Rengali and Talcher-Rouerkela transmission lines were grantedby GOI on January 12, 1993, and January 17, 1994, respectively -- almost five and six years, respectively,from the date of application. Details are given in Part II, Table 10.

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loan 14, an award could not be made until January 31, 1989. For the other three major contractpackages, viz., those for the cooling water system, coal handling plant (in two packages) and ashhandling plant, the times taken to complete procurement were 15, 13, 11 and 10 months,respectively. Typically, the procurement cycle from bid issue to contract award should havetaken no more than 6-7 months15 . There were, in total, 91 contracts of which 58 were procured,managed and completed by NTPC for the Talcher TPP, satellite communication system andother items subsequently agreed by the Bank to be included in the project. Thirty three contracts,most of which were procured by NTPC prior to the transfer of responsibilities to POWERGRID,were for the transmission facilities; completion of their implementation was managed byPOWERGRID. Major contracts financed by the Bank were procured through ICB procedures,based on supply-and-erect basis, some of which also included civil works to ensure bettercontract coordination during implementation. A domestic preference of 15 percent, or thecorresponding import duty, whichever was less, would be applied in the evaluation of bids for

16equipment contracts. However, there was no case to apply this provision . Most of thecontracts were won by Indian bidders. But, the Indian contractors and manufacturers had to useimported machinery, materials, equipment or instruments (para. 10).

10. Delays Caused by Contractors and Suppliers. Contractors and suppliers causedsignificant delays in project implementation by failing to complete on time some critical civilworks and to deliver on time critical pieces of plant equipment. Most of the construction andmanufacturing work was carried out in 1989-1992 during which period India experienced aneconomic and financial crisis. GOI put restrictions on imports, made permission of the Reserve

14 Under Ln. 2442-IN for the Second Farakka Thermal Power Project.

15 Allowing for 4 months for actual bidding on such complex procurement, and another 2 months for bidevaluation. Summary data about the principal contracts is as follows:

Bids Issue Date Bank No Obj. Date Contract Award Date From Bid Issueto Contract Award

Turbine Generators August 25, 87 September 9, 88 January 31, 89 17 months

Cooling Water System July 18, 88 September 29, 89 November 6, 89 15 months

Coal Handling Plant August 14, 89 September 13, 90 September 20, 90 13 months(Package A)

Coal Handling Plant October 9, 89 September 13, 90 September 20, 90 11 months(Package B)

Ash Handling Plant April 24, 90 February 15, 91 February 22, 91 10 months

a) Boilers were procured under financing from French commercial banks.

b) It is noted that NTPC had to await for GOI (CCEA) clearance (granted on November 25, 1988) before signing theTurbine-generators contract.

16 Comparisons with taking into account the above domestic preference were made in only two cases. In bothinstances, the bids by the foreign suppliers were least-cost. However, due to reasons of unsatisfactoryperformance in an earlier contract in one case, and the supplier raising major post-bid and post-awarddeviations during the finalization of the contract, bids by these suppliers were rejected in both cases aid thecontracts were awarded to the next least-cost bidders, which happened to be Indian suppliers. In both cases,the Bank had no-objection to NTPC and POWERGRID's proposals.

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Bank of India (RBI) mandatory and increased the margins for opening a letter of credit, first to50 percent (in October 1990), then to 110 percent (in March 1991). To arrange such highmargins for the LCs and to obtain RBI's permission, contractors had to devote more resourcesand much longer time. Import restrictions were further aggravated with the steep devaluation ofthe Rupee by almost 26 percent in two stages in 1991 and 1992. In July 1991, GOI withdrewsome of the deemed export benefits which were previously provided for contracts awardedunder the Bank's ICB procedures. GOI's decision in March 1992 to liberalize steel pricesresulted in a steep rise in the price of steel which could not have been foreseen when thecontracts were awarded. Since the contracts were covered under the general escalation formula,compensation to contractors for such high price increases had to be separately discussed andnegotiated. Thus, further delays were experienced. NTPC's actions dealing with the contractorsand suppliers were satisfactory. Otherwise, delays could have been much longer. Localmanufacturing capability, cheaper labor, deemed export benefits and the provision for domesticpreference in accordance with Bank guidelines for procurement, weigh in favor of local biddersenabling them to win contracts over foreign competition. It is important to strictly evaluate theexisting backlog of the winning bidders vis-a-vis their manufacturing capability to determine ifthey would be capable of performing the contracts on schedule, if awarded through the biddingprocess. Failure by reputed local manufacturers to deliver critical equipment on time has causedthe project long delays, as was the case for the suppliers of the ash handling plant and control andinstrumentation packages. In this respect, i.e., evaluation of the manufacturing capacity andexisting order portfolio of the winning bidder, NTPC's performance could have been better. Outof the above mentioned 91 Bank-funded contracts, 40 have so far been closed. NTPC hasapplied total liquidated damages in one case, due to the contractor's unsatisfactory performance.In 15 other cases, NTPC has applied partial liquidated damages. Furthermore, the tower-typeboiler structures required a much higher number of high quality welding operations at the siteduring erection. This was not anticipated at the time of drawing project schedules by thecontractors and reviewing them by NTPC and its engineer, and caused delays while the mainsupplier-contractor and its welding sub-contractors became conversant with this type of boiler.

11. Accidents in the Generator of Unit 1 and Generator Transformers of Both Units. Unit 1was synchronized on February 19, 1995, and by early-October 1995, it had met all therequirements for commercial operation. While NTPC's application for declaring the unit incommercial operation was being reviewed by the Ministry of Power, on October 4, 1995, thecover disc of the hydrogen cooling fan on the rotor of Generator 1 disintegrated into pieces anddamaged the core of the generator. While investigations about the cause of the failure werecarried out, Unit 2 was synchronized on March 26, 1996, using the spare rotor fan and was testedunder controlled conditions. NTPC hired international consultants to provide further opinions.Based on the analysis of the data on Unit 1 just before the accident, and on that obtained duringthe controlled runs of Unit 2, the cause of the failure was determined as insufficient air gapbetween the blades of the fan and the stator core. Investigations, repairs and modifications tookabout eleven months and Unit 1 was re-synchronized only on September 3, 1996. Thus, the unitremained shut down for almost eleven months, causing substantial further delays (para. 16). Unit

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2 was re-synchronized on October 16, 1996, following completion of similar modifications.Both units have suffered forced outages due to failures of the generator transformer units'7

12. Land Acquisition, Resettlement and Rehabilitation. Acquisition of private land, and R&Rof the project affected families (PAFs) were carried out by the Government of Orissa (GOO), notby NTPC. A total area of 3,684 acres was acquired for the entire project of 3,000 MW, includingthe power plant, ash disposal area, MGR railway system and resettlement colony. Out of the said

18amount, 1,497 acres were private land. The balance 2,187 acres was owned by the GOO . Theprivate land was acquired under the provisions of the Land Acquisition Act, 1894 (LAA), and itssubsequent amendments, after paying due compensation. GOO took an inordinately long time tocomplete the acquisition and release the land to NTPC, and consequently, contributed to thedelay of the start of power plant construction. The notifications for land acquisition under theLAA were issued from May 1987 onwards and continued up to June 1995. The compensationsfor the land and structures were decided by GOO; then the amounts were deposited by NTPC tothe Office of the Special Land Acquisition Officer (SLAO) of GOO, prior to the acquisition ofthe land and well before the)PAFs needed to surrender their land. Payments to the PAFs wascarried out by the officials of GOO, outside NTPC.

13. Base-Line Surveys and R&R Plans. As part of the project preparation, NTPC carried outsurveys of the population to be affected by the project and prepared Land Acquisition andResettlement Plans. However, these surveys and plans had to be redone and improved in thecourse of implementation of the project. At negotiations, GOI, the Bank and NTPC agreed thatNTPC would bring minor revisions to the these plans and furnish them to the Bank by December31, 1987. Revisions were made in 1988, 1991 and 1994. The original survey and planidentified 1,750 PAFs, out of which 816 families which would lose more than one third of theirland holdings (Substantially Project Affected Families - SPAFs), who would be eligible forrehabilitation. The remaining 934 families, which would lose less than one third of their landholdings would only be eligible for financial compensation19 . However, this plan which wassigned by the Collector of GOO on November 5, 1986, did not include the land-for-land optionas a possible means of rehabilitation. It gave emphasis on employment by NTPC of one personfrom each SPAF. The SPAFs who were losing their homes were identified as Homestead LandOustees (HSOs) to be resettled in a colony to be developed by NTPC. The 1988 revisionincluded the land-for-land option. In the 1994 revision, the eligibility for rehabilitation of "majormarried sons" belonging to the said SPAFs was included. In accordance with the final list of

17 The generator transformers (GT) installed at the Talcher TPP are single-phase units, of which a seventh unitwas purchased as spare. During tests, rising trends of fault gas levels in five of the seven units were observed.The first fault occurred on October 11, 1996, on a GT unit of Unit 2. As Unit 1 was under maintenance, oneGT unit from that Unit was transferred to Unit 2 and the latter was resynchronized. Later the spare unit wasinstalled on Unit I and this Unit was brought back into service. The second incident occurred on July 3, 1997,in a GT unit connected to Unit 1. As there was no spare, NTPC was obliged to shut down Unit 1. At the timeof finalization of this ICR both damaged GT units were being repaired at the manufacturer's factory in Bhopal.

18 GOO, non-forest land: 1,046 acres; GOO, forest land: 983 acres; and GOO, Irrigation Department land: 158acres.

19 The latter category was called Marginally Project Affected Families (MPAFs).

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SPAFs approved by GOO on March 14, 1996 (about nine years after the approval of the loan),20the number of families to be rehabilitated is 1,632 in 27 villages . This number covers 1,160

SPAFs and 472 beneficiaries as major married sons belonging to these SPAFs. 1,160 SPAFsinclude 114 HSOs to be resettled. Rehabilitation schemes provided to the above families are:employment by NTPC, employment under maintenance contracts, purchase of land, shopallotment, support for self employment, cash deposit assistance, and training at the IndustrialTraining Institute (ITI). HSOs are being resettled at a resettlement colony at Takua, whereNTPC has developed 114 plots and infrastructure facilities. The HSOs are given a constructionassistance of Rs.16,000 per family. However, GOO and NTPC have agreed that NTPC wouldpay an additional Rs.10,000 to each family who do not shift to the resettlement colony. Thisadditional compensation would be in lieu of the allotted plot at the Takua colony. Details andthe status of GOO and NTPC's R&R activities are given in Appendix D. Some of the PAFs havetaken NTPC to Courts. Only one Stay Order was passed by the Court on September 24, 1991,relating to cutting of a road inside the acquired area. The Order was canceled by the Court onDecember 16, 1991. The imposition of the Stay Order did not affect the general implementationof the project. As of September 30, 1997, 1,124 SPAFs out of the total of the above mentioned1,632 SPAFs had been rehabilitated. NTPC and GOO continue the R&R activities in accordancewith the rehabilitation plan and list of eligible SPAFs approved by GOO in March 1996. NTPChas requested financing of the Talcher Phase II (4x500 MW Talcher II) under the ongoing Ln.3632-IN for the NTPC-Power Generation Project. A draft Rehabilitation Action Plan (RAP)covering the balance of rehabilitation activities for people affected by Talcher Phase I (theProject) and those to be affected by Talcher II was prepared by NTPC and submitted to the Bankin March 1997. NTPC is still in the process of incorporating the Bank's comments of April1997, but the implementation of the RAP is already underway. The Bank's involvement andimplementation review of the balance R&R activities for SPAFs under the Project, is expected tocontinue under the Talcher II Project.

14. Difficulties Experienced by GOO in the Construction of the Samal Barrage. This barragewas built by GOO (outside the Talcher TPP Project). NTPC states that about three months waslost by the time the required level of water could be maintained in the power project's intakechannel. This was due to delays by the Barrage Authorities in acquiring the submergence land inthe surrounding area which prevented them from raising the poundage level.

15. GOI and NTPC's Financial Difficulties in 1991-1992. In 1991-1992, GOI experiencedsubstantial balance of payments problems which made it difficult for NTPC to arrange foreignexchange for the import of spares needed for O&M of its power plants. The Bank agreed uponGOI and NTPC's requests that the said spares and other items be funded under the loan. Thiswas done in the broader context of the Bank's strategy of helping NTPC's development, insteadof restricting narrowly to the individual project. Thus, in March 1991 and January 1992, theBank agreed to fund: (i) the procurement of urgently needed spares for NTPC projects built

20 The number of MPAFs is 2,742. Thus PAFs amount to 4,374, as compared to 1,750 PAFs identified in theoriginal survey.

21under previous Bank assistance ; and (ii) expenditures made by NTPC for civil works contractsawarded under NTPC's local competitive bidding procedures22.

16. Implementation and Results. In the SAR, contracts for main plant equipment (boilers andturbo-generators) were planned to be awarded by June 1988 and Units 1 and 2 to besynchronized by June 1993 and June 1994, respectively. Implementation from award ofcontracts to synchronization was foreseen as five years. This period is too long. In reality,contracts were awarded in end-January 1989 (seven months of delay with regard to the SAR). Atcontract award, synchronization dates for Units 1 and 2 were projected as April 1994 and April1995; meaning an extension of the implementation period from award to synchronization of Unit1 by three months. Delays in implementation began to show very early. However, until mid-1993, NTPC was confident that it would catch up. As noted by the May 1994 supervisionmission, in 1994, NTPC had to slow down the erection activities and tests because of lack ofappropriate control and instrumentation equipment. Unit 1 was synchronized for the first time onFebruary 19, 1995, with delays of 20 and 8 months with regard to the dates projected at appraisaland contract award, respectively. The delays with regard to the re-synchronization of Units 1 and2, following the cooling fan accident (para. 11), were 39 and 29 months, respectively (withregard to the appraisal dates). Units 1 and 2 have been declared in commercial operation as of

23January 1, and July 1, 1997 . Performance guarantee tests on Unit 1 were completed in March1997. However, those on Unit 2 and auxiliary plants and systems are planned to be carried out in

24the first half of 1998. The coal supply system has been in place since September 1996 . Acomparison of actual dates vis-a-vis the dates projected at appraisal and at contract award is asfollows:

21 At the time, NTPC was operating 22 coal-fired units, 200 MW and 500 MW each; 7 gas turbines and 3combined cycle units, all built under previous Bank assistance.

22 In addition to the above, the Bank also agreed to fund under the project, technical assistance for NTPC'sPower Management Institute (PMI), and construction and installation of an additional ash disposal system atNTPC's Korba TPP (funded under earlier IDA Credits and Bank Loans). The latter agreement was "inprinciple" only as NTPC had not obtained the environmental clearance for the ash system. Duringimplementation, NTPC obtained grant funds from bilateral sources for PMI and did not need to use fundsunder Ln. 2845-IN. With regard to the additional ash disposal facilities in Korba, due to the substantial delaysin obtaining the said environmental clearance, the funding agreement was withdrawn and savings canceled.The system would be funded under Ln. 3632-IN for the NTPC Power Generation Project.

23 As no dates were shown in the SAR for commercial operation of the units, no comparison can be made.

24 NTPC agreed with Coal India that the rapid loading system at the coalfields would be built for Phase 2development (additional 2,000 MW). Wharf walls which have been built are sufficient to load coal for the fullcapacity operation of Units 1 and 2.

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~~~~~P = _q w ;

Delay Delay Planned atPlanned w/r to w/r to Contract

at Actual SAR Award AwardSAR Contract (**) (Months) (Months) SAR Actual SAR Actual

Award

Unit I 6/93 4194 9/96 1 39 29 NIS 2/95 N/S 10/94 1/97Unit 2 6/94 4/95 10/96 28 20 N/S 5/96 N/S 9/95 7/97

N/S Not shown in the SAR.(*) In early-1989.

(**) Unit I was first synchronized in 2/95, but due to the accident (para. 11), it was resynchronized in 9/96.The same was true for Unit 2, which was synchronized and tested under controlled conditions in 3/96. Itwas resynchronized in 10/96.

The 400 kV Talcher-Rengali and Talcher-Rourkela transmission lines and associated substationextensions were energized and commissioned in February and April 1995, respectively, with adelay of about 15 months with respect to the dates projected at appraisal25 . POWERGRID statesthat it rescheduled the implementation of the transmission facilities in accordance with thecompletion dates of the Talcher TPP.

17. Costs. Project cost estimates were prepared, at appraisal, on the basis of internationalprices of various plant components. Due to the high domestic inflation levels which occurred in1989-1992, costs in Rupee terms increased by about 50 percent. The actual cost of the Projectwas Rs. 26,872 million compared with the appraisal estimate of Rs. 17,877 million (Part II;Table 8A). However, because of the devaluation of the Indian Rupee with regard to US dollarand other currencies under which part of the contracts were awarded, the total financingrequirement for the project were US$903.4 million, compared with an appraisal estimate ofUS$1,375.5 million17.

18. Savings and Cancellations. Due to the above mentioned devaluation of the Rupee, costsin US Dollar terms were significantly lower than the estimates. Although part of the loan wasutilized for the procurement of urgently needed spare parts and other items, large savingsoccurred and they were canceled in due course (US$79.9 million28).

19. Closing Date and Disbursements. In order to complete the implementation of the project,the closing date of the loan was extended by one year. Despite GOI, NTPC and POWERGRID's

25 in Annex 3.5 of the SAR, it is projected that these lines would be completed in December 1993.

26 NTPC Components: Rs. 25,430 million; POWERGRID Component: Rs. 1,442 million.

27 At appraisal, the exchange rate between Rs. and USS was Rs. 13/USS1. At loan closing in 1997, the rate wasRs.35/USS 1. The average rate for the implementation period is calculated as Rs. 29.745/US$ 1.

28 US$8 million as of May 1, 1993, and US$71.9 million as of March 15, 1996. This amount does not includeUSS22,301,149.35 remaining undisbursed in the loan account at the completion of disbursements, andcancelled as of September 2, 1997 (para. 19).

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request for a second extension of one year, the loan was closed on March 31, 1997. Disbursementswere completed on September 2, 1997. In total, US$272,798,850.65 were disbursed andUS$22,301,149.35 remaining undisbursed in the loan account was canceled as of September 2,1997. Thus total cancellations with regard to the original loan of US$375 million amounted toUS$102,201,149.35.

20. Rate of Return. At appraisal, the IERRs for the investment program of ERIS, of whichthe project is part, were estimated to be about 4 percent and 10 percent, respectively, without andwith consumer surplus. Taking into account current projections of incremental generation andsales from and current bulk supply tariff for energy generated at Talcher TPP (Rs. 1.45/kWh),and actual investment, current O&M and fuel costs, the IERR for the Project was computed to beabout 16.65 percent (para. 20, and Part II; Table 9).

D. PROJECT SUSTAINABILITY

21. The achievements of the project are highly likely to be sustainable when the currentpower evacuation constraints are resolved (para. 26, and Appendix F). Supply of coal of properquality and in required quantities is a requisite for the Talcher TPP to operate at its full capacityin a sustainable manner. Operational plans to ensure the sustainability of the project have beendiscussed and agreed with NTPC management. These plans are presented in Part II, Table 6.Institutionally, NTPC has grown much stronger, leading to its increased self-reliance as thelargest, and the most modem public utility in India.

E. BANK PERFORMANCE

22. The performance of the Bank for project identification and preparation assistance wassatisfactory -- GOI, the Bank and NTPC identified and prepared a good and sustainable project.However, the Bank's performance at appraisal was deficient. The project was presented to theBoard prematurely and there were local steps that were incomplete, e.g. land acquisition,procurement, environmental analysis, and some of the appraisal work was deficient, e.g.market analysis, assessment of complementary investments and policies, especially intransmission, and analysis of risk. Process-wise, the Project was presented on the basis of an"in principle" environmental clearance, and an "approval" which was not GOI's finalclearance 9. In the Project Files, there is no mention of the fact that GOI's final clearancewhich permits NTPC to make commitments for a project is granted by CCEA of GOI Cabinet.It appears that at the time the Bank did not understand clearly GOI's pre-PIB, PIB and CCEA

29 Following the completion of the appraisal in February 1986, the Bank kept the processing of the loan inabeyance for more than one year, before inviting GOI and NTPC for negotiations, due to delays in NTPCobtaining the required formal environmental clearance from the DOE and thus final approval by GOI. Then,in May 1987, after being informed that DOE had provided an environmental clearance "in principle" and thatthe PIB approval would follow shortly, the Bank accepted an unconvincing reason, such as reducing travel andstaff expenses on the part of NTPC, and agreed to negotiate the loan for the project consecutively with the onethen proposed for the National Capital Power Project. An approval called "the PIB approval" was granted onJune 1, 1987, after the negotiations had been completed.

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30review and the clearance process given in Footnote 12 . In retrospect, it is questionablewhether such preemptive actions were helpful because GOI and NTPC took an inordinatelylong time to grant and obtain the formal environmental and final GOI (CCEA) clearances31 . Atthe time of presentation of the Project to the Board of Executive Directors of the Bank, GOIwanted the Project, but the Project was not ready for implementation. The Bank failed torecognize that the quality of entry was not good.

23. During project implementation, the Bank successfully maintained a good workingrelationship with GOI and NTPC (and subsequently with POWERGRID for the transmissionprojects), assisted NTPC and POWERGRID in completing procurements under the project, andsupervised the project over a ten-year period. During this period, a total of twenty one (21)supervision missions were fielded. Problems encountered were identified, solutions weredeveloped, action plans were agreed and advice on problems were provided to those concerned.Suitable follow-up actions were taken as needed and mid-course corrections were made asproject implementation progressed. When, in 1991-1992, GOI and NTPC faced economic andfinancial difficulties, the Bank assisted them in accepting their proposal of funding of some civilworks and procurement of urgently needed spares.

24. There were periods of tensions between the Bank and GOI and NTPC during the periodactions were taken by GOI and NTPC to remedy NTPC's accounts receivable problems and tocomply with the accounts receivable covenant which had been agreed under the ongoing RihandPower Transmission (Ln. 2555-IN; FY85) and Combined Cycle Power (Ln. 2674-IN; FY86)

32Projects. The covenant was repeated in Ln. 2845-IN , but until March 1993, NTPC was notable to fully comply. The Bank's actions in this respect are summarized as follows:

30 There may have been some confusion in the information given by GOI to the Bank. On June 4, 1987, threedays after the PIB meeting of June 1, 1987, and about 13 days before the presentation of the project to theExecutive Directors, the Bank representative in New Delhi sent the following message to Bank Headquarters:"No final formal EFW [Environment, Forests and Wildlife] clearance given for Talcher prior to PIB meeting.However, EFW Ministry representative in PIB meeting raised no objection to clearance of project. Given thisand preliminary forestry clearance available for Talcher power plant, DEA [Department of Economic Affairs]and DOP [Department of Power] consider the project fully cleared". Subsequently it was proven that theclearance provided in the PIB meeting of June 1, 1987, was not the final clearance which would permit NTPCmake financial commitments for the project. The supervision mission which visited India in September-October 1988, reported in its Aide Memoire dated October 20, 1988, that "final government clearance for theproject [had] not been confirmed yet".

31 For the Talcher TPP Project the dates were as follows:- Pre-PIB meeting: December 14, 1984- PIB recommendation: June 1, 1987 (given on the basis of an "in principle" environmental clearance)- GOI (CCEA) clearance: November 25, 1988

32 The clause was also repeated in Ln. 2844-IN (National Capital Power Project) approved the same day by theExecutive Directors (Footnote 10).

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* when the project was presented to the Executive Directors on June 17, 1987, NTPCwas not in full compliance with the accounts receivable covenant it had agreed underthe ongoing Rihand Power Transmission and Combined Cycle Power Projects33

* when at the end of NTPC-FY90 (March 31, 1990), NTPC's level of accountsreceivable had risen to seven months of sales equivalent, Bank management decidednot to exercise the remedies available under the loan agreement such as suspension ofdisbursements, partly because of concern about jeopardizing India's ongoingdevelopment program. Other non-power reasons might be that the Bank was alsoworried about the impact of such a suspension of disbursements on the overall India-Bank relations and on the level of disbursements to India, when India wasexperiencing an economic crisis;

* however, the Bank decided to cancel in mid-1990, the processing of a new loan ofUS$375 million to NTPC after completion of negotiations3 4;

* following many drastic measures taken by GOI and NTPC35 , NTPC was, as of March31, 1993 (end of NTPC-FY93), in compliance with the modified36 accountsreceivable covenant. Then, based on this data, the Executive Directors approved onJune 29, 1993, Ln. 3632-IN for the NTPC Power Generation Project;

- when the Bank realized that, during the first three months of NTPC-FY94 (April toJune 1993), NTPC bill collection performance had dropped again to about 72 percentand there was little evidence that NTPC was applying the newly adopted commercialpolicies by regulating power to defaulting SEBs, on October 21, 1993, the Bankadvised GOI that unless NTPC's level of accounts receivable was brought down totwo months of sales equivalent by January 15, 1994, the Bank would, in effect fromthat date, suspend India's rights to make withdrawals from Ln. 2844-IN (National

33 It is stated in para. 4.05 of the SAR dated May 28, 1987, that "the outstanding receivables .... have recentlydropped further to about 2.8 months in May 1987 .... After the remaining amounts are paid to NTPC in 1987[through central appropriations], the overall level of accounts receivable would be below the equivalent of twomonths sales."

34 The project would include the construction of a new 500 MW coal-fired unit at the Farakka TPP. One of thereasons for the Bank to cancel the processing of the loan was its awareness of the low absorptive capacity ofERIS.

35 During the 1990-1993 period, GOI allowed NTPC: (i) to recover over a period of four years through theCentral Appropriations (CA) the arrears accumulated as of the end of May 1990; (ii) to acquire the Unchaharpower station from the Government of Uttar Pradesh in lieu of arrears accumulated by the Uttar Pradesh SEB;and, (iii) to shut-off or restrict supply of power to the SEBs in case of non-compliance with agreed terms ofsupply.

36 As part of conditionality of the then proposed NTPC Power Generation Project, the Bank agreed that for thepurpose of monitoring compliance with the two months accounts receivable covenant, the amounts still dueunder the central appropriations were to be excluded.

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Capital Power Project) and Ln. 2845-IN until NTPC was in compliance with theagreed receivable covenant;

* the Bank also informed NTPC that Ln. 3632-IN would not be declared effective untilNTPC was in compliance with the receivable covenant;

* on February 2, 1994, the Bank agreed to keep the formal suspension in abeyance upto May 1994, in recognition of NTPC's progress in dealing with its bill collectionproblems and its applications of the new commercial policies, while GOI and NTPCagreed to refrain from submitting withdrawal applications under Ln. 2844-IN and Ln.2845-IN from March 1, 1994; and

* following further actions by GOI and NTPC, in early June 1994, NTPC was incompliance with its commitments. On June 6, 1994, the Bank lifted the abovementioned informal suspension of disbursements and declared Ln. 3632-IN effective.

Although relations between the Bank and GOI and NTPC were tense at times, the Bank'spersistence on commercial behavior by NTPC has led to positive results and is, in fact, muchappreciated now by NTPC. Supervision missions gave sufficient priority to the revision,approval and implementation of the resettlement and rehabilitation action plan37 . Based on allthe above, the Bank's performance in supervision is assessed as satisfactory.

F. BORROWER PERFORMANCE

25. GOI and NTPC prepared a good, economical and sustainable project. NTPC utilized theexperience it had acquired in the area of design and engineering of 500 MW thermal units and400 kV transmission lines and substations, by the successful design and engineering of theTalcher TPP and its associated transmission facilities3 8. However, GOI and NTPC's respectiveperformances for the whole preparation phase, which covers the period up to the start ofimplementation, were deficient because they took an inordinately long time in granting andobtaining the formal environmental and final GOI (CCEA) clearances3 9 . Consequently, the startup of the project was delayed by more than one year and a half, from June 1987 (approval of theBank Loan) to January 1989 (signing of the first contracts). At the time the project wasprepared, POWERGRID was not established yet.

26. GOI and NTPC's performances in project implementation were marginally satisfactory.Except for NTPC's lengthy procurement (para. 9), the delays caused by the various reasons givenin paragraphs 8 and 10-14, and in particular the substantial delay caused by equipment failure

37 R&R activities are not completed (para. 13). The Bank will follow the implementation of the remaining R&Ractivities under the Talcher II Project, proposed by NTPC to be funded under Ln. 3632-IN.

38 Thermal power units design and engineering capacity and experience was gained through the 500 MW units atSingrauli, Korba and Ramagundam TPPs. NTPC's transmission engineering capacity was transferred toPOWERGRID, which successfully completed the transmission facilities.

39 At the time the Talcher TPP project was prepared, POWERGRID was not established.

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were beyond NTPC's control. NTPC used the knowledge it had transferred from consultants andexperience it had gained during the implementation of the previous projects. Limited supportfrom consultants was utilized. However, NTPC's failure to plan adequately for the evacuation ofpower from the power plant, once it noticed that investments in transmission and distribution bythe SEBs were far too short, and that the demand in the Eastern Region was not growing asprojected at appraisal, would not reduce the marginally satisfactory project implementation

40rating . POWERGRID's performance was satisfactory. POWERGRID rescheduled theimplementation of the transmission facilities in accordance with the expected completion dates ofthe thermal power plant.

27. Compliance with the covenants of the loan was satisfactory, except for the one requiringNTPC to reduce its accounts receivable to within two months of equivalent monthly billing. Itwas only towards the end of the implementation of the project, and after a period during whichGOI and NTPC refrained from submitting disbursement applications, that GOI and NTPCrealized that sound financial health is a key element to the success of a utility that NTPC wasfinally in compliance with this covenant. NTPC's willingness to follow commercial practiceshas greatly improved its financial position. GOI's intervention through the central appropriationshelped NTPC avert financial crises and resolve, for limited periods, its accounts receivableproblem. These interventions aimed at having NTPC operate efficiently and thus keep theenergy supply in the country at an adequate level. However, because of NTPC's non-compliancewith the accounts receivable covenant for most of the implementation period, covenantcompliance is assessed as deficient. It is also doubtful that GOI's actions have resulted inimproving the operational efficiency as well as the billing and collection practices andprocedures of SEBs which buy power from NTPC. The need for energy conservation on thecustomer (SEBs) side and demand management through the adoption of appropriate tariffs andtariff structures and through end-use efficiencies are equally important. This is being donethrough State Power Sector Restructuring operations of which the Orissa and Haryana SPSRprojects have already been approved.

G. ASSESSMENT OF PROJECT OUTCOME

28. The results of the project are satisfactory. The physical components of the project areinstalled, but problems with the generator transformers and absence of transmission outlets4 'have, so far, prevented the plant from achieving satisfactory availability and PLF. However, assoon as the HVDC back-to-back systems and other transmission lines under construction tofacilitate transfer of power from the Eastern Region to the other regions are completed, thisproject would qualify to be deemed as fully satisfactory. This is expected by February 1999(para. 6, Footnote 8).

40 Recent actions by NTPC and POWERGRID to improve the performance of the power plants in ERIS are givenin Appendix F.

41 Part I, para. 11.

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H. FUTURE OPERATION42

29. For the short periods since they have been declared in commercial operation , theavailability of both units has been relatively low (Part II; Table 6). This has been due to thefaults which occurred in the generation transformers. Furthermore, the power plant has beenworking with one unit in operation at a very poor PLF, except for a few hours during peak loadperiods. This due to the fact that during the ten years since the finalization of the SAR, thedemand in ERIS did not increase as projected at appraisal, and many of the investments (inparticular in transmission and distribution) were not made. When the transmission facilitiesbeing built by POWERGRID and other recent actions taken by NTPC in accordance vvith bothCorporations' strategy to export power from ERIS to the other regions are completed, the PLF ofthe Talcher TPP will rise to an economically viable level. However, availability of coal ofadequate quality must be assured through commercially enforceable contracts. Thereafter, theplant's performance will be monitored against the standards of the North American EnergyReliability Council (NERC) for coal-fired power stations, as indicated in Part II; Table 6.However, availability of coal of adequate quality must be assured.

I. KEY LESSONS LEARNED

30. Several specific lessons can be drawn from this project that have both operational andstrategic implications for the design of similar projects in the future:

(a) In a time of great power shortages, it took so long for GOI to grant the clearancesfor the Project. This suggests some disconnect between the developmentobjectives of GOI and the officials responsible in various ministries. Moreover,the lengthy clearance process didn't seem to work. After all the delays,insufficient transmission and distribution capacity existed to take the power to themarkets. It is recommended that during its review of the effectiveness of itsproject approval processes, GOI should take into account the lessons from theimplementation of the Project.

(b) Project preparation and appraisal should assess the risks of the plant capacitynot being utilitized, and should include the development of strategies formitigating these risks. In particular, investment plans for transmission anddistribution of the power from the power plants should be confirmed.

(c) The project experienced serious difficulties getting started because of lack ofenvironmental clearance from GOI. Currently, the Bank requires that the formalenvironmental clearance be obtained before presenting a project to the Board.

(d) NTPC's procurement process cycle from bid issue to contract award should besignificantly shortened by the evaluation committees endeavoring to complete

42 Units I and 2 were declared in commercial operation as of January 1 and July 1, 1997, respectively.

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their work at shortest possible periods and NTPC management giving priority inreviewing the evaluation reports.

(e) A complete survey of PAFs should be made at the prolject preparation stage toinclude not only PAPs of the primary project site (i.e., the main power plant), butalso those affected by all associated sites, such as, transmission line corridors,railway lines for coal transportation, resettlement colony, etc. The R&R Plansshould thereafter be developed in full consultation with the PAFs in a transparentand open manner.

(f) The Talcher TPP should receive coal of proper quality and in required quantitiesin order to operate in a sustainable manner at its full capacity. To this end, NTPCshould sign with the Eastern Coalfields of Coal India, a commercially enforceablecontract, where the parties would not act as monopoly supplier and sole buyer.

(g) A sound financial health is a key element to the success of a utility. NTPC's newcommercial practices introduced under the NTPC Power Generation Project (Ln.3632-IN) have greatly improved its financial position. GOI/Bank/NTPC dialogueon NTPC's financial situation and its application of the commercial policies (inparticular, cutting off supply to non-paying customers) should be continued.

(h) GOI intervention through the Central Appropriations helped NTPC resolve itsaccounts receivable problem, although for a limited period of time. However, it isdoubtful whether GOI's actions have led to the SEBs improving their operationalefficiency and their billing and collection procedures and practices. In order toensure that the project is financially viable, a successful central power projectneeds to be part of a well conceived sector assistance strategy that also addresseethe SEB level issues.

(i) Energy conservation on the customer (SEBs) side and demand management bythe utilities through the adoption of appropriate tariffs and tariff structure at SEBsand through end-use efficiencies, are important other aspects to improveefficiency in the power sector. GOI/Bank/ States with a number of Statesdialogue and recent approvals of the state power sector restructuring operations inOrissa and Haryana are important steps forward and should be continued.

(j) Failure by reputed local manufacturers to deliver critical equipment on time hascaused the project long delays, as was the case for the suppliers of the ashhandling plant and control and instrumentation package. The bid documentsshould make it very clear that before awarding a contract, the manufacturingcapability and the order portfolio of the bidder whose bid is evaluated as the leastcost bid, should be reviewed by NTPC to determine whether the bidder would becapable of performing the contract on schedule. During evaluation, this provisionshould be applied with courage. There are already provisions for just such anevaluation in Clause 13, ITB for Goods, however, this requires some thought as toan appropriate set of qualification requirements being crafted for the Bid Data

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Sheet, and good record keeping of ongoing contracts as well. Correspondinginformation to evaluate such provisions would be necessary for these provisionsto be useful and effective.

(k) Subcontracting by contractors was also another cause for delays. NTPC shouldassess more closely the suitability of proposed sub-contractors.

(1) Land acquisition was a major hurdle and as such, in future NTPC should plan toset up projects only when land is acquired and made available to NTPC in theinitial stages of the project.

(m) Power utilization within the Eastern Region proved to be a bottleneck. Theproject was designed and executed with the assumption that the transmission andsub-transmission systems in the region would also be planned and implemented.Subsequently, projects to export power to other regions were developed. Infuture, NTPC should ensure that similar bottleneck situations do not appear. Thiscould be achieved by NTPC by converting the existing BPSAs into commerciallyand financially binding contracts with the SEBs or its other customers (similar tothe PPAs signed by the SEBs with the IPPs for private sector projects) and, thenutilizing the inter-regional transmission links to reach the paying consumers.

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PART II: STATISTICAL TABLESTable 1: Summary of Assessments

A -. -,i ~rn.o jtie - , u.,t,,-.E antial Patia T ;,, eg1ii-,

Macroeconomic policies O 03 0

Sector policies a v a O

Financial objectives 0 ' O O

Institutional development 0 0 0

Physical objectives ' O 01 0

Poverty reduction a1 0 0 El1

Gender issues O a o IU

Other social objectives O3 n o

Environmental objectives Ele O3 O3

Public sector management O EV a Cl

Private sector development O O3 O

Other 3 0U

a3 0

............... , .' . .. .. .. ..

Identification O3 3 O O

Preparation assistance O a O3

Appraisal O a3 a m

Supervision a a Da

Preparation a a O .1

Implementation 0 O .2 a

Covenant compliance a a a SW

Operation (if applicable) a a OE~~tw.w Ass.en..uco.. Uypisatr - . heor Diqn. .,'', ,--

1/ The objectives did not include any specific action for microeconomic policies, poverty reduction, gender concem issues and privat sectordevelopment2/ Sector policy, public sector management and institutional development objectives were partially achieved through financial and insttutionalstrengthening of NTPC.l/ Physical and environmental objectives were substantially achieved with the completion of the construction of the Talcher TPP andtransmission projects.J There were no special social objectives in the project. However, satisfactory resettlement and rehabilitation of the people affected by theTalcher TPP was an objective and has been partially achieved. Follow up would be carried out under the NTPC Power Generation Project(Ln.3632-lN) in case Talcher TPP Phase 1 (4 x 500 MW) is financed under this Loan.J Parm. 21 and Appendix F - Sustainability will be achieved when current power evacuation problems are resolved. Availability of coal ofproper quality and required quantities must be ensured.fit Parm. 22.21 Paras. 23 and 24.A/ Para. 25 - Borrower's performance during preparation covers only GOI and NTPC, as at the time the project was prepared, POWERGRIDwas not established yet2/ Par. 26 - Marginally satisfactory for GOI and NTPC; satisfactory for POWERGRID.12 Because of NTPC's non-compliance for most of the implementation period with the accounts receivable covenant, covenant compliance isassessed as "deficient" (para. 27).IV Parm 21 and Appendix F -After the current power evacuation problems are resolved, the operation of the power plant will be fullysaisfactory.12/ Para. 28 and Appendix F -As soon as the transmission lines under construction to facilitae transfer of power from the Eastem Region tothe other regions are completed, this project would qualify to be deemed as fully satisfactory - expected by February 1999.

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Table 2: Related Bank Loans/Credits

L0a*~/Cr0dit i~t. Pr Yea-: - - -:r of Approval Stat-B D,L -n " .":- ................. j .: ----: ... .:: : ':.-': .'. :- .. ... .~~~~~~~~~. . .. .... ....

:1BR 1D `L o n ...... _ _ __ _ __ _ __ _ __

Preceding OperationsRamagundan Thermal 3x200 MW January 1979 CompleteFarakka Thermal 3x200 MW June 1980 CompleteSecond Ramagundam Thermal 3x500 MW December 1981 CompleteCentral Power Transmission 400kV+220kV transmission May 1983 CompleteSecond Farakka Thermal 2x500 MW June 1984 CompleteRihand Power Transmission 500kV HVDC+400kV AC tr. May 1985 CompleteCombined Cycle Power 413 MW (Anta) April 1986 Complete

652 MW (Auraiya)652 MW (Auraiya)

Capital Power Supply 4x2 10 MW (Dadri) June 1987 CompleteTalcher Thermal 2x500 MW June 1987 Complete

Foloin OprtinNTPC Power Generation Improve commercial discipline, June 1993 Under

environmental and R&R constructionmanagement capability, increasegeneration capacity (as of date ofthis ICR, the following TPPshave been declared eligible forfunding under this project: (a)2x500 MW coal-firedVindhyachal II TPP; and (b) 400MW Kayamkularn naphta-basedcombined cycle TPP)

Total IBRD Loans: 10

Preceding OperationsSingrauli Thermal 3x200 MW April 1977 CompleteRamagundam Thermal 3x200 MW January 1979 CompleteKorba Thermal 3x200 MW April 1970 CompleteSecond Singrauli Thermal 2x500 MW May 1980 CompleteFarakka Thermal 3x200 MW June 1980 CompleteSecond Korba Thermal 3x200 MW July 1981 CompleteTotal IDA Credits: 6

Sec oral Objective Common to tlwe Above ProjectIn addition to the above project-specific objectives, the sectoral objective was to assist NTPC in becoming a modelutility for the poorly performing SEBs.

The Singrauli, Ramagundam, Korba, Farakka, Dadri and Talcher TPPs are all coal-fired projects. The projects forthese TPPs included the associated transmission line and substation development.

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Table 3: Project Timetable

.S*~~~ps i~~~.pr~~~jea cy4~~~~:.:: > ~ ~~ ........ ....... .... .. .........Identification 1985

................................................................................................ .......... ..................................................... .............................. ..........................Preparation 1985Appraisal. April 1986 () Feb 1986

......~~~~............................................................................... ..................... ........................................... I.................... ................................................Negotiations September 1986 (1) May 26, 1987 (3)

..................................................................................................... ............................................................... ..........................................................Board presentation November 1986 (1) June 17, 1987

igning December 21, 1987...................................................................................... ..................... ........................................... I.................... ................................................EfRfectiveness March 21, 1988

.......................................................................................................... ............................................................... ...........................................................Project completion March 31, 1995 (4) November 30, 1997 (5)Loan closing ....... March 31, 1996 (4) March 31, 199

(1): From the Project Brief of January 8, 1986.(2): For reasons given in Part I, para. 22, the Bank kept the processing of the loan in abeyance for more than one

year. The Staff Appraisal Report was updated as of May 28, 1987 (Report No. 6402-IN).(3): Technical discussions were held from May 12 to 18, 1987.(4): From the Loan Agreement dated December 21, 1987.(5): Unit 2 was declared in commercial operation as of July 1, 1997. However, due to the unavailability of

generator transformers, both units of the power plant were not in service together until November 30, 1997.For Bank's purposes, the Project is considered completed on this date. The transmission facilities built underthe Project were completed in 1995 (Table SB).

Table 4: Loan Disbursements: Cumulative Estimated and Actual (*)

.~ntPik88 F89 FY90 - t FY9 .......... ...... F.h.. .... ... .. .Y9Appraisal Estimate 7.5 30.0 71.0 135.0 210.0 277.0 326.0 360.0 375.0(US$ million)Actual (USS million) 0.0 24.4 30.2 47.7 90.8 144.9 194.8 237.1 260.8 273.9 272.8

Actual as % of 0.0 81.3 42.5 35.3 43.2 52.3 59.7 65.9 69.4Estimate (%) I I I I_I_I_IDae of Final September 2, 1997Disbursement

(*) Cancellations: As of May 1, 1993: US$ 8,000,000.00As of March 15, 1996: US$ 71,900,000.00As of September 2, 1997: USS 22,301,149.35Total Canceled: US$ 102,301,149.35

(**) Disbursements were completed on September 2, 1997, with the reimbursement of the balance remainingin the Special Account.

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Table 5: Key Indicators for Project Implementation

A. Procurement

;~d J:ssue Eva)u-tt- ' '"1'' 0't"c AWa'd__________ C m lt Jt j eA- :: - : - - :. l I :- . : . -pprov al.,.

Boiler and Planned 09/87 06/88................................. ......................................................................................................................................................................

auxiliaries Actual Negotiated bilateral suppliers' financing 12/88Turbine Planned 09/87 06188.......................... ................................. ................................. ................................. ............................................................Generator Actual 08/87 09/88 09/88 01/89Civil Works Planned 12/88 08/89

-Foundations Actua 02i90.............. .................................. ................................. ............ .......... ...................................Foundations Actual 02/90 ______________10/90

Electrical Planned 09/88 07/89Transformers Actual 01/90 01/9 01/91 01/91CW System Planned 07/88 05/89

Actual 07/88 09/89 09/89 11/89Coal Planned 08/88 06/89

Handling Actual 08/89 & 10/89 07/90 09/90 09/90Ash Planned 03/89 02/90

Handling Actua 04/90 01/1 .02/91 02/91

B. Construction and Commissioning

SAR Revised* Actual S Adual SAR Revised Acdual_ ~~~~~~~~~~~~~~~~~~~~*

Unit 1 03/90 04/91 11/90 06/93 04/94 02/95** *** 06/94 O1/97................................. ...................... ...................... ................... .. ..................... ...................... ...................... ..................... ...............................Unit 2 03/91 03/92 01/92 06/94 04/95 03/96* * *** 07/95 07/97................................. ...................... ...................... ................... ....................... ...................... ...................... ..................... ...............................TransmissionTalcher-Rengali 10/92 10/92 09/92 04/94 02/95 06/95

..................................... ..................... ...................... ............ ........... ........ ........... ....................... ............ ............. ......... ............. ...................... ............. ... . . ....... .............Tal.-Rourkela 07/92 07/92 08/92 03/95 04/95 08/95

............................... 7i..... ....................... .... . ........ ......... ............... i.. ......... ................... ....... ...................... ............. ................... ............. ...........................................Rengali s/s 02/93 04/93 10/94 02/95 06195.............................. .................... ..................... ............................... ..I.................... . ................................ .............Rourkela s/s 01/92 1 01/93 05/95 03/95 08/95

* Revised at the time of award of the contracts in January 1989.4* Part l; paras. 11 and 16, with regard to re-synchronization of Unit 1, after the accident in the Generator of Unit 1.** As no dates were shown in the SAR for commercial operation, no comparison can be made.

Table 6: Key Indicators for Project Operation

1-2 Years 3-10 Years 11-20 Years 21-25 YearsYears in Operation Planned Ut Actual 2/ Planned Planned Planned

Unit I an Unit 2TWh/year 2.75 1.208 1.416 3.3 3.18 2.84Plant Availability, % 70 41.5 79.6 79 79 77Plant Load Factor, % 63 27.6 64.2 75 72 65/ Based on expected generation in accordance with NERC standard for coal-fired power plants.

2/ Calculated from the dates of commercial operation: Unit 1, from January to December 1997; Unit 2, from July to December 1997.l/ Unit 1 was out of service from mid-June to end-November 1997, due to unavailability of the generator transformers (Part 1, para. 11).

Table 7: Studies Included in the Project

None.

Table SA: Project Costs

Local Foreign Tetal Local Foreign Total Local Foreign Total Local Foreign TotalPreHmlmiay Woik 62 - 62 5.6 -5. 56.6 -56.6

Ciil Work 136.5 8.6 145.1 85.6 6.5 92.1j 85.6 6.5 92.1~~~~~~ ~~~~~202.7 191.2 393.9 182.5 172.2 354.71 182.5 172.2 354.

. -. I.~........ ................................ .......... ......................... ...........Ot0ie Mech. Equipment 40.6 36.6 77.2 45.6 40.9 65 45.6 40.9 86.5ElcrclWorks 9.4 37.6 47.0 9.1 36.6 4579.1 36.6 45.7

Coal Handling ..Trans.Eq..4.9 18. 6.9 3.... 4 16..5....i ..... S4.. ....... ....................... 55.9. 39.4... .......... 16.5 .. 5..9...

Trnmnoission Line &Substn. 31.5 15.1 46.6 9.7 25.3 35.0 9.7 25.3 35.0Engneering, Adminstration 56 0. 544 31 4.0 38.1341.081and Consltacy

Pro-commissinn Epne 3.5 - 3.5 3.5 -3.5

Total Bute Cost 593.1 339.8 932.9Physical Contingencies 34.2 17.4 51.6-Price Contingmencis 118 6. 3.

Total Project Cost 799.1 423.2 1,222.3 456.4 277.4 733.8 9.7 25.3 35.0 466.1 302.7 768.8Interest During Construction 52.1 10.1 15. 2. 2.9 8.7 -87 134.6 -13.

-TotaFl nancng Required 851.2 524.3- 1,375.5 582.. 9.31 277.4 85.f84 53 4.7 60730. 0.

NOTE: In tems of Indian Rupees, financing requirement was estimated at appraisa as Rs. 17,877 million. Actual cost is Rs. 26,871.72 million at anavrasge exchange rate of Rs. 29.71US$.

Table 8B: Project Financing

Appraisal Estimate NTPC - Actual POWERGRID - Actual Total - ActualSoirce Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total.............................................................................. .......................................,..........................,..............................................................

IBRD -375.0 375.0 -243.2 243.2 -29.6 29.6 -272.8 272.8..... ................................................................... ............ *---------- 3- ...---------------- 1----------------- 7 -------- .. .............. ...... 2 -4 ...-- ------- 24 --- 6 9 62 2.7GOI Loan and Equity 508.21 149.3 657.5 ---

n Resource s 343 ........................... 3. 3 8.3 338.3 3 ......... ..... ...... ............... ..... ..........3....~~~~~~~~~..... _.................... 1..................... ..................... ..................... ..................... ............................................. ................................ .....................French Commercial Loan 100.2 100.2 100.2 100.2~~~~~~~~~~~~~~~~~.......... ........... ..................... ........... ...................I. ..................... ..................... ......................................................................External Commercial Borrowing 7.5 7.5 7.5 7.5by NTPC

~~~~~~~~..................................................................................................................................... .................... 1.................... ..................... ..................... ..................... .........Domestic Loans * 170.5 - 170.5 170.5 - 170.5.............................................................................. ....................................................................................................................................POWERGRID Internal Resources 14.1 - 14.1 14.1 - 14.1

t....-------------...............................................;... ..........951.' ...... ;i J ... f;P 9 ......... g i .... .... ;~ 9.. ..........8.. 59.7 .. ....... ;. il.i....... i;6 ........ """ ....... ,,.. '"'......3..80.5 ......... 03.4

* Bonds and loans from Indian Financial Institutions.O'

NOTE: Packages awarded following ICB prodecure under Bank funding and the boilers package under the French commercial loan have been taken as foreigncomponent. The balance is local funding.

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Table 9: Economic Costs and Benefits(Rs. Million)

-Fi Total Cost Inr ae NetBe

1986 0.7 0.7 -0.71987 2.8 2.8 -2.81988 6.8 6.8 -6.81989 155.3 155.3 -155.31990 939.7 939.7 -939.71991 1069.4 1069.4 -1069.41992 3399.3 3399.3 -3399.31993 4794.9 4798.9 -4798.91994 3880.6 3890.6 -3890.61995 3355.7 3368.7 -3368.71996 2710.3 2711.6 -2711.61997 1805.0 239.9 89.8 2134.7 1084.6 -1050.11998 224.8 1444.1 538.7 2207.6 7613.3 5405.71999 1596.1 1444.1 598.5 3638.7 8700.9 5062.22000 - 1444.1 598.5 2042.6 8700.9 6658.22001 1444.1 598.5 2042.6 8700.9 6658.22002 1444.1 598.5 2042.6 8700.9 6658.22003 1444.1 598.5 2042.6 8700.9 6658.22004 1444.1 598.5 2042.6 8700.9 6658.22005 1444.1 598.5 2042.6 8700.9 6658.22006 1444.1 598.5 2042.6 8700.9 6658.22007 1444.1 598.5 2042.6 8700.9 6658.22008 1444.1 598.5 2042.6 8700.9 6658.22009 1444.1 598.5 2042.6 8700.9 6658.22010 1444.1 598.5 2042.6 8700.9 6658.22011 1444.1 598.5 2042.6 8700.9 6658.22012 1444.1 598.5 2042.6 8700.9 6658.22013 1444.1 598.5 2042.6 8700.9 6659.22014 1444.1 598.5 2042.6 8700.9 6658.22015 1444.1 598.5 2042.6 8700.9 6658.22016 1444.1 598.5 2042.6 8700.9 6658.22017 1444.1 598.5 2042.6 8700.9 6658.22018 1444.1 598.5 2042.6 8700.9 6658.22019 1444.1 598.5 2042.6 8700.9 6658.22020 1444.1 598.5 2042.6 8700.9 6658.22021 1444.1 598.5 2042.6 8700.9 6658.22022 1444.1 598.5 2042.6 8700.9 6658.2

Internal Economic Rate Return: 16.65 percent

At appraisal, the IERRs for the investment program of ERIS, of which the project is part, were estimated to be about 4 percent and 10percent, respectively, without and with consumer surplus. However, during the ten years since the finalization of the SAR, the demand inERIS did not increase as projected at appraisal, and many of the investments were not made. On the other hand, NTPC's tariffs to theSEBs in the region were substantially increased. The capital costs of actual investments, covering the generation and transmissioncomponents, together with inmremental operating and fuel costs, have been quantified. The benefits of the investment program relatemainly to the incremental consumption which they make possible. The present power evacuation constraint has been assumed to last untilearly-1999, when the HVDC link to facilitate the transfer of power to the Southem region will be completed and energized. Taking intoaccount the current bulk supply tariff for energy generated at Talcher TPP (Rs. 1.45/kWh) and actual investment, current O&M and fuelcosts, the ERR for the Project, considering incremental generation and sales from the Talcher TPP, was computed to be about 16.65percent.

- 28 -

Table 10: Status of Legal Covenants

.. . .,,.........,.''-._. .- .......... ......,. Loan 3.01(b) GOI to relend proceeds of loan to NTPC under subsidiary Loan In compliance.

Agreement approved by the Bank.Loan 4.01(b) GOI/NTPC to furnish audit on SOEs (due within 7 months of In compliance.

FY end).Loan 4.02 GOI to furnish audit on Special Account (due within 6 months In compliance.

of FY end).~~~~~~~~~~~..... .......... ..... 77 7 7 7 , "'' "''

PA 2.07 NTPC shall, by December 31, 1987 furnish to the Bank a Furnished in 1988. Furthersatisfactory R&R plan for those people who are currently improvements with regardresiding on the land acquired for the project, or shall be to Bank and NTPC'sdisplaced by such acquisition and shall in cooperation with the evolving R&R policiesconcerned government authorities implement such plan. were made. Action Plan is

being implemented.3.03 NTPC shall take out insurance against risks in such amounts as In compliance.

will be consistent with appropriate practice3.04 NTPC to contract for coal supplies not later than one year prior In compliance.

to commissioning power station under the project.3.05 NTPC to apply to appropriate authorities by March 31, 1988 to In compliance 1/.

obtain required clearance under Forests (Conservation) Act,1980, in connection with constructing transmission lines.

4.01 (b)(ii) NTPC shall submit audited financial statements and auditor's In compliance.reports within 7 months of end of FY.

4.02 NTPC's accounts receivable will be maintained from 3/31/86 Not in compliance untilonwards at a level of no more than the equivalent of power sales mid-1994 (Part I; para. 24).for the two preceding months.

4.03 NTPC shall achieve an annual ROR of not less than 7% in In compliance.1984/85 through 19889/90 and not less than 9.5% in 1990/91through 1994/95 and thereafter at satisfactory levels to ensurefinancial viability.

1/ NTPC applied to GOO for the said forest clearances on March 15, 1988. Thus NTPC complied with thecovenant. However, final granting of these clearances took another six years. Following the transfer toPOWERGRID of NTPC's responsibilities in transmission, POWERGRID followed up the processing, obtained theclearances and built the transmission lines.Ta1cher-Rorlea Line: -NTPC applied to GOO: March 15, 1988

- GOO applied to GOI/MOEF: May 16, 1992- First stage clearance by MOEF: February 11, 1993- Final clearance by MOEF: January 17, 1994 (Almost 6 years from

application to GOO).Talcher Rengali Line -NTPC applied to GOO: March 15, 1988

- GOO applied to GOI/MOEF: October 26, 1991- First stage clearance by MOEF: May 29, 1992- Final clearance by MOEF: January 12, 1993 (Almost 5 years from

application to GOO).

-29 -

Table 11: Bank Resources: Staff Inputs

oofPwjtct Cycle Planned Revised Actu.,Weeks US$ Weeks US$ Weeks 'US$

('000)Through Appraisal 30.0 __

Appraisal-BoardBoard-EffectivenessSupervision 24.0Completion _

TOTAL 54.0 _

Table 12: Bank Resources: Missions

,..t.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. ............

Through appraisal 1986 9 E,EC,FA,ENAppraisal through 1-6/87 3 E,FABoard approvalBoard approval 6/87- 3/88 3 E,FAthrougheffectivenessSupervision 1 9/87 3 10 FA,SP _Supervision 2 1/88 5 19 E,FA,SP ISupervision 3 9/88 4 EC,E,FA I 1Supervision 4 7/89 1 2 E 1 1 Covenants+FPSupervision 5 10/89 1 2 ENSupervision 5 2/90 2 E I I Cov.+FPSupervision 6 7/90 1 E I 1 Cov+FPSupervision 7 2/91 1 -E I ISupervision 8 7/91 3 E,FA,IT 1 1 Cov.+FPSupervision 9 2/92 2 E,EN I I Cov.Supervision 10 10192 2 E,FA I I Cov.+FPSupervision 11 4/93 1 2 ESupervision 12 6/93 4 E,FA,PR 2 1 Proj.Mgmt.+Cov+FPSupervision 13 9/93 7 E,EC,FA,EN 2 1 PM + EN + Cov. +FPSupervision 14 1/94 4 3 E,EN 3 - PM+EN+Cov+FPSupervision 15 5/94 1 3 EN(R&R)Supervision 16 6/94 5 1 E,EN,FA S HS PM+EN+FPSupervision 17 11/94 2 E,EN S HS PM+EN+FPSupervision 18 11/95 2 E,EN U S EN+FP+EN+PMSupervision 19 3/96 4 E,FA, EN U S PM+EN+FPSupervision 20 9/96 4 _ E,FA, S S R&RCompletion (* t/1196 3 1 E _

Supervision 21 2/97 2 E,FA S S() Short follow up missions were carried out in July and October 1997, by the Engineer (Task Leader).Specialist. E: Engineer, FA: Financial Analyst; EC: Economist; EN: Environmental Specialist; PR: Procurement

Specialist; IT: Infonnation Technology Specialist-Ptrobms: FP: Financial Performance; PM: Project Management; Cov:Legal CovenantsRangs: 1 =No or minor problems; 2 - Moderate problems; 3 = Major problems

I Implenentaton delays; IN - Institutional Problems; PR Procurement Delays

- 30 -

APPENDIX - AAIDE MEMOIRE OF THE

IMPLEMENTATION COMPLETION REPORTPREPARATION MISSION

An Implementation Completion Report (ICR) is re~quired by the World Bank for each ofit's lending operations, aimed at improving the quality and effectiveness of Bank loans andreinforcing the borrower's ability to design, implement and operate projects. In light of thisrequirement, an ICR mission was fielded by the Bank from November 25 to November 29. 1996for the Talcher Thermal Power Project (Loan No. 2845-IN), the loan closing date for which isMarch 31, 1997. The mission included a site visit on November 25 and 26. This aide meemoirerecords the findings of the ICR mission as well as agreements reached with NTPC andPOWERGRID Corporation to facilitate completion of the ICR on time. The mission would liketo take this opportunity to thank NTPC and POWERGRID for the courtesy and assistanceextended to it to accomplish its tasks.

1. The first 500 MW unit was commissioned in February 1995 and the second unit ofidentical capacity in March 1996. Commissioning was vitiated by serious equipment problems,causing significant delays. At the time of the mission's visit, only Unit 1 was in operation andUnit 2 was out of service owing to suspected failure of the Generator Transformer.

2. It was noted that the Talcher Thermal Power Plant was operating at a PLF (capacityfactor) as low as 20% because of constraints in evacuating power from the power plant. Theofftake by the SEBs in the Eastern Region has been much lower than the level projected atappraisal. Until now, it has been possible to run one generating unit only, but that too at 230-240MW level except for a few hours during peak periods when the unit may generate to its designcapacity.

3. The mission was advised that this situation was likely to continue until the end of 1997when the HVDC line between Jeypur and Vishakhapatnam was expected to come into operationto help transport power (about 1,000 MW) to the Southern Region. In light of the fact thatTalcher had idle capacity while the Southern Region suffered from shortage of power, themission requested NTPC to explore the economic merit of expediting the completion of theHVDC installation so that the proper benefits of the Talcher project could be realized as soon aspossible.

4. The mission was also advised that NTPC was about to approach the Bank with a formalrequest for extending the closing date of the loan. However, until such time as this matter wassettled, the mission requested that processing of the ICR should proceed with March 31, 1997assumed as the loan closing date. To this end, the mission handed over a copy of the proposedStatistical Tables (Part II) for the ICR to NTPC as well as relevant extracts of the sanie toPOWERGRID. The schedule for the flow and exchange of information was set and agreed asfollows:

- 31 -

Draft Part III from NTPC to Bank: January 15, 1997Part III extract from POWERGRID to Bank: January 15, 1997Draft ICR from Bank to NTPCIPOWERGRID: February 15, 1997Comments and Final Input from POWERGRID: March 31, 1997Comments and Final Input from NTPC,(including Draft Part II): April 7, 1997Final Draft of ICR: April 30, 1997

The ICR will be updated and finalized as disbursements under the loan are completed.

5. It was agreed that the Project Cost would be shown under the same categories as in theSAR. The mission requested NTPC to follow Annex 3.2 of the SAR as guidelines fordetermining the various contract categories.

6. Taxes and duties paid on procurements for the project are required to be shown. Themission was assured that the figures would be compiled and included in the draft report to besent to the Bank on January 15, 1997, which could be updated in the final version, as necessary.Similarly, IDC also would be indicated.

7. It was reported to the mission that 3 out of 4 air quality monitoring stations at the site hadalready been relocated to correspond to the spots of highest ground level concentrations of SOx,NOX and SPM indicated by the stack plume dispersion modeling. The mission advised NTPCthat air quality measurements should be undertaken as soon as the plant begins operation at fullload, using the worst quality of coal, to validate the results indicated by the model.

8. The 400 kV, double circuit transmission lines associated with the project, viz. Talcher -Rengali (40 km) and Talcher - Rourkela (175 km) were completed and energized in February andApril, 1995 respectively, using spare conductors available with POWERGRID. The missionnoted that the procurement of replacement conductors was yet to be completed, and advisedPOWERGRID to complete the procurement formalities before the loan closing date.

9. With regard to disbursement under the loan, and based on a closing date of March 31,1997, NTPC was advised as follows:

In accordance with the Bank's current practice, further disbursements from the loan willbe made for withdrawal applications received at the Bank's Headquarters by close ofbusiness on July 31, 1997 (a maximum of four months after closing date) in respect ofeligible expenditures made before the closing date (i.e., payments made or payments duefor goods, works and services that have been provided prior to the closing date).Proceeds of the loan remaining unwithdrawn after disbursements have been made inrespect of these withdrawal applications will be canceled.

It follows therefore! that the goods should have been delivered, works completed and servicesrendered prior to the loan closing date and payments for such goods, works or services should

- 32 -

have been made or should have come due under relevant contracts prior to the closing date. Bothcriteria must be met for expenditures under the loan to be eligible for disbursements by the Bank.

10. Environmental Agreements: A formal environmental clearance for the Talcher projectfrom the Ministry of Environment and Forests was required from the Department ofEnvironment before loan negotiations. This requirement was met. Subsequently, NTPC wasrequired to formulate a satisfactory resettlement plan and thereafter implement the plan in co-operation with the government authorities. There were no environmental management ormonitoring conditions included in the agreements of the loan. However, several envirornmentalmanagement and monitoring measures have been voluntarily implemented by NTPC with highlysatisfactory results.

11. Environmental Monitoring: An Environmental Management Group (EMG) has beenestablished at the site. The EMG is responsible for environmental monitoring of ambient air,emissions and effluent, outfitting the environmental laboratory, and pursuing ash disposaloptions. The EMG is supported by laboratory facilities for sample analysis. Ambient air quality,meteorological conditions, SPM, SOx and NOx are monitored on a regular basis. The ambient airquality, with the exception of the mill area within the plant, is within regulatory standards. TheEMG has monitored local surface water quality baseline conditions, and has an ongoing programto continue. The local coal deposit is thought to be to origin of the slightly elevated metals.Effluent monitoring is performed for pH, TSS, oil and grease, lead, cadmium and mercury. Totalsuspended solids (TSS) concentrations have been high in the samples analyzed by the StatePollution Control Board. Operation of the coal runoff settling basin, and completion of the ashpond recycling system will address this problem. Sanitary waste water effluent from the septictanks currently in use is analyzed and sometimes exceeds BOD limits; this will be addressed bythe installation of the new sanitary effluent treatment system. The Talcher EMG has taken a pro-active approach to addressing potential contamination problems associated with the new ashpond, through a program of groundwater monitoring, to establish baseline conditions. Analysesinclude heavy metals. Talcher EMG monitors local surface and well water supplies forpathogens. Pathogens have been found in Takua village well, as well as the resettlement colonywell. While Talcher's operations are not the cause of the well contamination, NTPC is acting as agood neighbor in the commtmity, and has installed sealed 60 - 80 m tubewells for this village.The government has also installed some village tubewells. The wells are to be monitored byNTPC Talcher on a continuing basis, including analyses for pathogens, heavy metals and otherdrinking water standards. Talcher is completing dust suppression and extraction systems in thecoal handling plant, which will address the dust problem noted above. Talcher is to becommended on their environmental monitoring program and should continue the good work.

12. Environmental Management: Stack emissions were observed to be above standardsduring the mission; however, site personnel state that the ESP has had start up co-ordinationproblems, and these should be ironed out as of the performance guarantee test by BHEL, to beconducted in December, 1996. A dust suppression system for the coal stockyard and bunkers ofUnit II are under construction, to be completed by the end of December, 1996. NTPC hasdesigned a wastewater treatment system to include recycling and reuse of wastewater in responseto the stipulations of their Consent Order for "zero discharge." The sanitary wastewater

- 33-

treatment plant contractor is mobilizing, and construction completion is scheduled for end ofMarch, 1997. Fuel oil loading operations were observed being carried out from trucks; theconcrete pad for the trucks has been crushed, and there is now no containment for the chronic oilspillage in this area. The truck loading area should be provided with a spill containment pad thatdrains into the oily water treatment system. NTPC's personnel should enforce proper loadingprocedures. There is a physical oil/water separation system installed; however, this process willnot meet discharge limits. A secondary treatment system is required, and should be installed byNTPC. BHEL should be required to deliver the agreed performance of the ESP's.

13. Resettlement and Rehabilitation: The project included 3684 acres from the followingcategories: private land, 1497 acres; Government (non-forest) land, 1046 acres; Government(forest) land, 983 acres; Irrigation Department land, 158 acres. The land acquisition for theproject started in 1988 and continued until 1993 in a phased manner. Talcher has staffed it's ownresettlement and rehabilitation cell.

14. The Government of Orissa (GOO) was involved in the resettlement and rehabilitation ona compulsory basis from the start of the project. A number of consultation meetings were heldwith substantially affected families (SPAFs), and the finalized list, confirmed by the Collector ofthe Angul District in March, 1996, includes 1632 SPAFs. Photo identity cards will be issued toall SPAFs by the DRC.

15. The location of the resettlement colony was finalized by the District Rehabilitation Cell.The homestead oustees from the 30 km long railway area are not interested in moving to acolony which is far away from their previous settlement. All these 32 homestead oustees havemoved to a new location of their choice. Other homestead oustees are being counseled to eithermove to the resettlement colony, or identify some private land elsewhere near their previoussettlements. They can then qualify for construction assistance for each grant in lieu of plots in theresettlement colony.

16. Lessons Learned: A complete survey of project affected persons in all areas to beacquired should have been undertaken from the beginning, and the resettlement schemesdeveloped in consultation with the affected parties. There was a general resistance to moving tothe planned resettlement colony. The siting of the resettlement colony should be integrated intothe environmental assessment process. For instance, the soils at the Takua resettlement colonysite are alluvial and well drained, and may be less suitable for agriculture than those on theoustees' original land. The railway oustees chose their own land and location as a preference.This method of resettlement may prove to satisfy a greater number of persons than theestablishment of resettlement colonies, and should be considered for inclusion as an option infuture public consultation and planning stages.

- 34 -

APPENDIX B-1

PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE(Contribution by NTPC)

A. Project Description

The Talcher Thermal Power Project comprised the following:

a) Construction of the first State (2 x 500 MW) of a 3,000 MW coal-fired steampower station in Talcher, Orissa, involving boilers, turbo generators, electrical andmechanical auxiliaries, associated civil works and switchyard;

b) Construction of about 230 km of double circuit 400 kV transmission lines to linkthe power station with the Eastern Region grid at Rengali and Rourkela and 40 km of 220kV transmission line for the start up of the power station;

c) Installation of the earth stations, microwave links and data processing equipmentfor a dedicated satellite based data communication network connecting NTPC's corporateoffices in Delhi with its thermal power stations, consisting of six INSAT Type "B" satelliteearth stations at Singrauli, Korba, Farakka, Kahalgaon and Talcher communication with acentral INSAT Type "A" Delhi Region satellite earth station. In addition, thecommunications network includes two long-haul terrestrial microwave links to interconnectthe Rihand and Vindhyachal thermal power stations with Singrauli; and

d) Consulting services for review of the engineering of the proposed power station.

B. Statement/Evaluation of Objectives

The main objectives of the Talcher Thermal Power Project (Loan 2845-IN) were to:

a) Increase power generation capacity and hence alleviate power shortages in the EasternRegion,

b) Introduce to India the technology of "Tower boilers" which are suited to the abrasivehigh ash coals prevalenlt in India, and

c) Improve the operational performance of NTPC by providing on-line communicationsbetween NTPC's power stations and its headquarters in Delhi.

C. Achievement of Objectives

Increase in Power Generation Capacity in Eastern India

- 35 -

The Eastern Region had an installed capacity of 7655 MW in 1987 with NTPC contributingjust 5.22 per cent. Today, the installed capacity in the eastern region is over 10,000 MW withNTPC alone contributing 39 per cent as per the following break-up:

Project Unit (mw) Capacity (mw)Farakka I 3 x 200 600Farakka II 2 x 500 1000Kahalgaon 4x210 840Talcher 2 x 500 1000Talcher TPS 4 x 60 + 2 x 110 460

a. This plant has been taken over by NTPC from the erstwhile Orissa State Electricity Board

However, due to non-availability of adequate sub-transmission system in the eastern region,there is a need to transfer the unutilized power from this region to northern and southern regionswhere there are major shortages of power. However, due to the absence of HVDC links betweenthe east and north and east and south, the surplus power from the region cannot be fullyevacuated till these are completed. A detailed analysis of the short-term as well as long-termmeasures that have been initiated is brought out later in the report in Section I on "Plans forOperational Phase of the Plant".

Introduction of Tower-type Technology

The objective was to try out the tower-type boilers which are more suitable for high-ash,abrasive coal found in India. However, it is as yet too early to conclusively comment on theeffect of highly abrasive Indian coal on the tower type boilers introduced for the first time inIndia at the Talcher Thermal Power Project compared to conventional boilers being usedelsewhere in NTPC plants.

Improve Communication Links

For the procurement of critical equipment required for establishing a SatelliteCommunication Network (Phase I) connecting NTPC's eight power projects to the CorporateCenter in Delhi, the World Bank had sanctioned funds amounting to US$ 6 million. In the year1988, an order was placed to M/s NEC for 3 kW HPA and 40 deg. KLNA for Muradnagar EarthStation which is the hub of the Satcom network of NTPC. The equipment was delivered andmade operational in the year 1989.

For the expansion of Phase I network by inclusion of six more power stations (Phase II), anamount of US$ 1.2 million was sanctioned by the World Bank in 1993 for VSAT (Very SmallAperture Terminal) stations at Talcher, Unchahar, Auraiya, Anta, Kawas and Gandhar andcorresponding augmentation of the existing hub at Muradnagar.

The first communication link between SCOPE and Talcher was established on October 31,1994. The total network was made operational in January, 1995 and, since then, the Satcomnetwork has been working with an average Availability of 99%.

- 36 -

The Phase I and Phase II Satcom networks cater to the following services:

i) Interactive Voice Communication between Delhi and project sites enables moreeffective management of power projects (approx. 0.75 million calls per year);ii) Data Communication facilities: File transfer, Application, Sharing Resource Sharing.iii) Facsimile Transmission

D. Project Design

The achievement of self sufficiency in the design and engineering of large thermal powerstations was adopted as an organizational objective from the inception of NTPC. In this respect,NTPC has already acquired adequate experience in the area of design and engineering of 500MW units at Singrauli, Korba and Ramagundam. This experience was gainfully utilized byNTPC by way of successful design and engineering of the Talcher Thermal Power Project in-house, with very limited support from consultants in a few areas.

The technical specifications for various packages and detailed design review of the projectwere similar to those followed in other NTPC stations and were also in line with the generalpractice followed by other power utilities the world over.

Some features adopted in the design of the Talcher Thermal Power Project were:

v Once through sub-critical type boiler with highly responsive tube mills.3 Circuit breakers at generator terminals.3 High chimney.3 DDC - Total computerized monitoring system.* HP bypass integrated with boiler.* Provision of space for desulphurization.* Ash water re-circulation system.

E. Project Implementation

Reasons for delay

a) LAND ACQUISITIONThe abnormally long time taken by the State Government authorities to acquire the land

outside the plant premises was the main factor in delay in implementation of the coaltransportation system, ash disposal system and township construction. Apart from this,illegal encroachments also affected project implementation quite severely.

b) WATER FOR THE PROJECT

Samal Barrage authorities could not provide required level of water in the NTPC intakechannel at the required time. This was mainly due to delay by Barrage Authorities inacquiring the submergence land in the surrounding area which prevented them from raising

-37-

the pondage level. About three months time was lost by the time required level of watercould be maintained for the commissioning activities of Unit 1.

C) POOR PERFORMANCE BY CONTRACTING AGENCIESThe delay was mainly due to poor response by most of the equipment suppliers due to

fund crisis and other changes in Government economic policies. For example, as illustratedbelow, the material supply for Unit I in the C&I package was delayed by M/s Keltron byover nineteen months:

LOA (Supply): CC-4310-405-1/LOA-1/2139 dated 30/08/90; Rs. 1634 lacLOA (Erection): CC-4310-405-llLOA-11/2140 dated 30/08/90; Rs. 72 lac.

................~~~~~~~~~~~~~~~~~ . ........

.B: -:.. ... .. . ... .. .. .. ... ... .... ... ...............-:-::::::::::: ::: : ::::

Material SupplyUnit I Feb. 1993 July 1993 Feb. 1995Unit II Nov. 1993 Apr. 1995 Dec. 1995

Erection Compl.Unit I Apr. 1993 Nov. 1994 Apr. 1995Unit 11 Jan. 1994 May 1995 Mar. 1996

In July 1992 Keltron requested for revised contract schedule due to their difficulty inopening foreign LCs and also their cash flow problems and LCs limit problems. NTPC, afterdiscussions with Keltron agreed for the revised contract schedule indicated above.

NTPC also agreed for financial assistance to meet the increase in exchange ratevariation on import up to revised contract period, favorable escalation payment on indigenousequipment, exchange rate protection on the expenditure from Keltron's collaborator, priceescalation on erection price without any ceiling, and funding by way of opening foreign LCsdirect payment to Indian sub-vendors. Further to expedite the material supply from Keltron,NTPC's expediters/inspectors were posted to KELTRON works continuously for expediting thetesting, inspection and dispatch of materials.

Despite the revised contract agreement and other financial assistance in favor of M/sKeltron, the agency has failed to supply the materials to suit the project milestones.

Reasons for Delay in Commissioning of Units:

a) POLITICAL AND ECONOMIC ENVIRONMENTThe project had to steer through times when the country faced environmental imbalance

in the areas of economy and infrastructure causing high inflation and imposing serIousaconstraints on the progress of the project.

-38 -

b) INCREASE IN MARGIN MONEY FOR IMPORTSDue to adverse balance of trade payment prevailing in 1989, the Government imposed

conditions of 100 per cent Bank Guarantee for fulfillment of export obligation in May1990. To put further restriction on imports, the Government prescribed 50 per cent marginfor opening of Letter of Credit in October, 1990 which was further raised to 1 10 per cent inMarch 1991. Further, the Government directed that for any LC valued at more than Rs. 50lac, permission of the Reserve Bank of India's Central Office was mandatory. To arrangesuch high margins and to obtain permission of the RBI was very hard for most of thecontractors.

c) RuPEE DEVALUATION & WITHDRAWAL OF CASH COMPENSATORY SUPPORTImport restrictions were further aggravated with the steep devaluation of rupee by

almost 26 per cent in two stages in July 1991. Simultaneously, the Government hadwithdrawn cash compensatory support available for World Bank financed contracts witheffect from July 1991 which affected the performance of contractors.

d) DECONTROL OF STEELSteel prices in India were decontrolled from March 1992 and as a result there was a

steep rise in the price of steel which could not have been foreseen when the contracts wiereawarded. Since the contracts were covered under the general escalation formula,compensation to contractors for such high price increases was not covered under theframework of the contract and had to be separately discussed and negotiated which causedcertain delays.

e) HIGH INFLATIONThere was unprecedented price increase in this period which can be seen from different

published economic indices of the Government of India. These uncertainties had prevailedup to end 1992 until the economy could stabilize. These contracts were awarded mostlyduring the period 1988 and 1989. Though NTPC had extended all possible help to thecontractors, delays resulting from such changes could not be arrested.

f) CONTRACT LABOR 1UNREST AND LAW & ORDER PROBLEMSSince June 1993, the project work was totally affected on 4 occasions of about 15 days

duration due to contract labor strike. This contributed to the overall delay of three monthsin view of demobilization time taken after calling off the strike.

g) NEW DESIGN OF BOILERSTalcher boilers are of Tower type of once through design and are being installed for the

first time in India. Also the boiler structures were of welded design and involved highquantity of site welding. This was not anticipated at the time of drawing the projectschedules and erection strategy was to be revised by BHEL and their sub-agencies who arenot conversant with this type of boiler.

- 39 -

Reasons for Delay in Commercial Operation

Unit-I was synchronized in Feb. 1995 and had met all the requirements for declaration forcommercial operation. However, when the proposal was under consideration for declaring theunit commercial with effect from August 1, 1995 (while under the supervision of ABB, theequipment supplier), the generator of Unit 1 got damaged due to the failure of the cover discfrom the mainframe of the generator rotor on October 4, 1995; the cover disc of the main fandisintegrated into tree pieces and caused secondary damages. The unit remained under shutdown for almost eleven months from October 4, 1995 to September 3, 1996 for repairs andmodification.

Based on the Unit 1 feedback, Unit 2 rotor fan was tested and found defective. Unit 2 wassynchronized on March 27, 1996 using the spare rotor fan under controlled conditions under thesupervision of ABB. Even during the synchronization of Unit 2, unacceptable stress levels havebeen observed in the rotor fan and the unit was kept under forced shut down since the successfulsynchronization on March 27, 1996. The unit remained under shut down till October 16, 1996for repair and modification.

Based on the test data collected during Unit 2 synchronization, ABB had modified the rotorfan design. The machine was rolled on July 11, 1996 with this modified design. However, highvibration and stress levels were again noted and synchronization was suspended. Furthermodification and testing was carried out by ABB after doing modification in inner sealarrangement. After carrying out thorough checks, Unit 1 was re-synchronized on September 04,1996. Its various parameters are under observation. Similar modifications are being carried outin Unit 2 also.

F. Operational Experience

Current StatusPresently, both the units are available for generation and during 1996-97, the plant

generated 929.44 MU. It has been operating at an availability factor of 31.74 per cent with aPlant Loan Factor of 10.61 per cent. The generation from Talcher would have been much higherbut for the freak accident which took place while under the supervision of ABB just at a timewhen one of the units was ready to be declared under commercial operation. Even otherwise,due to lack of evacuation lines in the region as well as to other regions, generation of fullcapacity of 1000 MW would not have been possible.

Evacuation ConstraintsNTPC has a total installed capacity of 3900 MW in the eastern region. Severe Power

evacuation constraints are being faced in this region leading to gross under-utilization. This isquite evident from the fact that for the year 1996-97, while NTPC's coal based stations(excluding eastern region) recorded an impressive PLF of 84.5 per cent, the PLF for easternregion projects was as low as 46.32%. The overall PLF achieved despite these constraints is 77per cent and availability of 87.50 per cent.

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G. Evaluation of Borrower's own Performance

Unlike many other projects of NTPC which were commissioned on schedule and, in manycases, even ahead of schedule, the Talcher Thermal Power Project was fraught with numeroushurdles. The problems that NTPC faced in the execution of this project were mostly beyond thecontrol of NTPC as brought out above in the section on project implementation. This resulted insubstantial delays in the commissioning and commercial operation of the project in spite ofadequate advance planning.

While the Integrated Project Management and Control System (IPMCS) was applied in thecase of Talcher and the major contracts were awarded to experienced contractors who had carriedout similar jobs on other projects, there were nevertheless delays in commissioning of the units.

Leaving aside the delays in completion of the project, the performance of NTPC isconsidered to be satisfactory in meeting the basic objective of improving the power supplyposition in the eastern region and posting a positive rate of return on investment as outlined inthe Bank's Appraisal report.

H. Performance Evaluation of the Bank

Talcher Thermal Power Project was taken up for implementation by NTPC after a series oflarge thermal power projects such as Singrauli, Korba, Ramagundam, Farakka, etc. which toowere funded by the World Bank. The assistance extended by the Bank contributed substantiallyin bringing the project to fruition. The project was supervised closely and an adequate number ofsite visits under supervision missions were made. Excellent cooperation existed between theBank staff and NTPC during the implementation of the project. In fact this relationshipcontinues to grow, and to date, the World Bank group has extended financial assistance to NTPCfor implementation of as many as fifteen projects. This excludes the assistance provided by theBank for NTPC Power Generation Project under the time-slice concept.

Thus, it may be seen that after a partnership of about twenty years in which the Bank hasdevoted considerable time and energy in developing the power sector in India in general andNTPC in particular, the two have built up a relationship which goes much beyond the substantialfinancial assistance extended to support NTPC's expansion plans.

I. Plan for Operational Phase of the Plant

NTPC gives utmost importance to consistently high operational performance of its powerplants. Several performance indicators covering efficiency aspects, leading to high level ofgeneration are used to monitor the operations of the power stations. The heat rate, specific oiland specific coal consumption (i.e., fuel consumed per unit generation of electricity), auxiliarypower consumption, etc., for efficiency monitoring and availability factor and plant loan factorare used for monitoring the availability aspects. Annual targets are set station-wise and unit-wise, and performance is monitored with respect to the targets. NTPC has been performing atmuch higher levels compared to all India performance of thermal power stations.

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In order to optimally utilize the existing installed capacity, NTPC has drawn up thefollowing strategy to export the surplus power from the eastern region:

Short term measures

a) POWER EVACUATION FROM EASTERN REGION (ER) TO NORTH-EASTERN REGION (NER)NTPC has already signed a Power Purchase Agreement (PPA) and made all

commercial agreements with Assam State Electricity Board and power is already flowingto Assam to the extent of 50 MW to 100 MW.

b) EASTERN REGION (ER) TO SOUTHERN-EASTERN REGION (SER)Commercial arrangements have been agreed and PPA signed with Andhra Pradesh

State Electricity Board and already power to the extent of 150-200 MW is flowing throughBalimela-Upper Sileru single circuit line.

c) EASTERN REGION (ER) TO WESTERN REGION (WR)NTPC has initiated dialogue with the Government of Madhya Pradesh for transfer of

power from ER to WR (MPEB) through 220 kV D/C Buddipadar-Korba line to the extentof 200-300 MW.

d) EASTERN REGION (ER) TO NORTHERN REGION (NR)NTPC has already started action for transfer of power from ER to NR via Bihar and

DVC systems in association with EREB, NREB, Bihar, DVC and CEA. Once beneficiariesin NR are identified by CEA, 150 MW can flow radially from ER to NR.

Long term Measures:

a) HVDC back to back of the capacity of 2 x 250 MW is being constructed at Gazuwakain AP which is expected to be completed by May 1999. A 400 KV D/C line betweenJeypur in ER and Gazuwaka in SR is under construction and is expected to be completed inFebruary 1999. After commissioning of this line, additional 300 MW on radial mode canbe fed to APSEB system in SR And after commissioning of HVDC back to back atGazuwaka, further 200 MW can be injected in the APSEB system.

b) HVDC back to back of 1 x 500 MW capacity has been envisaged at Sasaram fortransmission of ER power to NR. The project is expected to be completed andcommissioned by March 2001.

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J. Key Lessons Learned from the Project

In the case of Talcher Thermal Power Project, major delays were caused by contractors andtheir sub-vendors. It will be our endeavor in future to make it contractually possible to avoidsuch sub-contracting.

Land acquisition was a major hurdle in the timely completion of the Talcher project and assuch, NTPC plans to set up projects in the future only where land is made available to NTPC inthe initial stages of the project. It is also as a result of this that NTPC is planning to expand itsexisting project capacities where land and other infrastructure is already available.

Power evacuation from the eastern region has become a bottleneck. The project wasexecuted with the assumption that the transmission and sub-transmission systems in the regionwould also be planned and implemented. However, this has not taken place due to variousreasons.

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APPENDIX B-2

PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE(Contribution by POWERGRID)

A. Project Description

1. The project component comprised the transmission system for the evacuation of powerfrom the first stage of Talcher Thermal Power Project located in Talcher, Orissa. Thetransmission system was implemented by NTPC/POWERGRID, and was designed by NTPC inassociation with CEA on the basis of a number of detailed system and engineering studies. Thescheme, techno-economically cleared by CEA, and thereafter approved by Government of India,constituted the following:

400 kV Transmission System Scopei) Talcher - Rourkela double circuit line 175 Km.ii) Talcher - Rengali double circuit line 40 Km.iii) Substation extension at Rourkelaiv) Substation extension at Rengali.

B. Statement/Evaluation of Objective

2. The loan was to Government of India in December 1987 for on-lending to the NationalThermal Power Corporation (NTPC). The objectives of the project were:

(a) to meet the electricity demand in the Eastern Region by providing the transmissionlinkage between the first stage of the thermal power generation plant at Talcher and theremaining load centers of the Eastern Region;

(b) to ensure the evacuation of power from these plants at least cost to the economy; and

(c) to enable the development of the regional power systems, which will lead ultimately to anational grid, and to assist in the development of the Indian power sector.

C. Project Design & Organization

3. NTPC had already acquired adequate experience in the area of 400 kV transmission iinesand substation design engineering during the construction of the transmission lines andsubstations associated with the Singrauli, Korba, Ramagundam and other power projects.Detailed system and engineering studies for the project were done by NTPC in-house. When theloan was signed, NTPC was identified as the executing agency for the Talcher-I project.However, when the loan was transferred from NTPC to POWERGRID for the transmissionsystem along with the associated manpower, with effect from 16.8.91 POWERGRID has beenmade responsible for the execution, operation and maintenance of this project. Though somepackages have been awarded by the NTPC by the time of loan transfer, POWERGRID wasresponsible for the construction supervision for all the packages.

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4. POWERGRID has adopted a three-tier organizational structure at corporate, regional andproject level for the execution of this project. POWERGRID was incorporated on October 23,1989 under the Companies Act, 1956 and is managed by a Board of Directors consisting of afull-time Chairman and Managing Director, Director (Personnel), Director (Operations), Director(Finance) and two part-time Directors, representing the Ministry of Power. The Directors havebroad powers to carry out their duties. In practice, however, the Board's power is confined to thedaily operations and administration of the corporation as GOI approval is required forPOWERGRID's annual budget, its capital investment programme and borrowing, tariffs, salarystructure and the appointment of key personnel. Similar to other Government-owned enterprises,POWERGRID has started signing a Memorandum of Understanding (MOU) with the MOP andfor the past three years has gotten "Excellent" rating for its performance. POWERGRID has afour-tier organizational structure with the Corporate Office located at New Delhi responsible foroverall corporate planning, system planning and engineering, management of transmissionsystem operations and projects, finance, commercial matters and personnel. For the purpose ofstreamlined execution of works, O&M, the Corporation has divided the country into six regions(Northern-I, Northern-II, Western, Eastern, Southern, North-Eastern) with their headquarters atFaridabad, Jammu, Nagpur, Patna, Hyderabad and Shilong, respectively.

D. Achievement of Objectives

5. The project has fully achieved its main objective of optimizing the transmission system inEastern Region by providing transmission linkages between thermal power plant at Talcher andthe main load centers.

6. The project was originally scheduled to be commissioned in December 1992. The actualcompletion dates were as follows:

a S ....

Talcher-Rengali D/C 400 kV September 1992 February 1995Talcher-Rourkela D/C 400 kV August 1992 April 1995Rengali substation April 1993 February 1995Rourkela substation January 1993 March 1995

7. The estimated cost of the transmission facilities at appraisal stage and actualdisbursements made are given in Part II. Compared with the appraised cost estimate of Rs.885.43 million (including IDC of Rs. 98.67 million), actual costs amounted to Rs. 1,441.47million (including IDC of Rs. 286.7 million) representing 62.80% increase over the appraisedcost (these costs are for the transmission facilities component implemented by POWERGRID).

8. In the area of transmission system, the total disbursement made under this loan untilMarch 1997 is US$24.24 million.

E. Project Implementation Process

9. At appraisal the project was expected to be completed by 1992.

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10. The implementation of the project consisted of commissioning of 430 Circuit.Kms. of400 kV AC transmission line, extensions of 2 no. of 400 kV substation. The details includingline-wise dates of completion are included in Part III.

11. There were considerable delays during the NTPC period which delayed completion of theproject. Major packages like transformers, towers, and conductors were awarded byPOWERGRID after taking over the assets from NTPC and completed the project matching withthe generation project, thus avoiding any bottleneck of power generated at the power project.

F. Procurement

12. The equipment and materials financed under the loan were split into 33 packages, most ofwhich were procured under international competitive bidding (ICB) procedures in accordancewith Bank guidelines. Contractors who supplied transmission line tower structure were in chargeof the erection of the towers, insulators and hardware and stringing of the line conductors, on asupply and erect basis. Suppliers of the main equipment for the substations were in charge of theerection of the substations.

13. All of the 33 contracts were awarded to domestic manufacturers/suppliers.

G. Environment, Resettlement and Rehabilitation

14. In the context of transmission projects there is no significant impact on environmentexcept in the cases where the transmission lines involve any forest area. The impact oftransmission lines on environment is not considered as severe as in the case of thermal, hvdel,nuclear, chemical and other power projects. This is primarily because the effect on forest due tolaying of transmission lines is reversible and can be nullified by planting more trees. With theworld-wide concern over the fast depleting forest reserves, due consideration is given to theseaspects of the planning and designing stage itself. While identifying the transmission system forTalcher-I, detailed surveys were conducted by NTPC/POWERGRID in association with the StateForest Authorities to identify most suitable routes having minimum involvement of forest.

15. At the time of design of this project, it was ensured that the value of interference at edgeof the line corridor was within the limits stipulated. While selecting the routes of thetransmission lines and identifying land for construction of the sub-stations adequate care wastaken for environment and no resettlement and rehabilitation plans were required.

16. As the land for extension of Rengali and Rourkela substations was already available inthe existing substations, no fresh land acquisition was made. As such, there is no resettlementand rehabilitation.

H. Project Sustainability

17. The project is clearly sustainable as could be observed from the fact that the entiretransmission system covered under this project has been commissioned and put in good servicesince the commissioning of this project. The reliability of power supply to major load centers inEastern Region has considerably improved thereby justifying benefits of this project. Also the

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fact that various beneficiaries of this project are paying the incremental transmission tariff pointstowards its commercial viability.

I. Bank's Performance

18. The performance of the Bank from the project preparation through project completionwas satisfactory. The Bank's involvement with the executing agency during the entire period ofexecution of this project helped a great deal in successful execution apart from maintainingcordial relations throughout.

J. Borrower's Performance

19. The performance of POWERGRID was satisfactory to meet the expectations of theWorld Bank and was in line with project guidelines outlined in the Bank's appraisal report. Allthe 400 kV AC transmission lines were successfully commissioned according to the scheduleunder the well-established project management.

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APPENDIX-C

ENVIRONMENTAL IMPACT ISSUES

Talcher Thermal Power Plant

1. NTPC conducted an environmental assessment of the project and submitted it to theGOI's Department of Environment in January 1986 for clearance. The project was cleared "inprinciple" in April 1987. The project was processed and negotiated by the Bank based on thisprovisional clearance. The receipt of a formal environmental clearance was made a condition ofloan effectiveness. The final environmental clearance was obtained in March 1988.

2. The delays were due to the fact that the Departrnent of Environment's request of furtherclarifications on such issues as compensatory afforestation, ash disposal, R&R, andenvironmental management plan for the coalfields. While the loan effectiveness condition wasmet, which was the only legal requirement for it, there were no environmental management ormonitoring conditions included in the agreements of the Bank loan. NTPC voluntarily undertookseveral environmental mitigating schemes similar to the ones included in the EnvironmentalAction Plan agreed with the Bank under the NTPC Power Generation Project (Ln. 3632-IN), forNTPC's other power plants.

3. NTPC has set up an Environmental Management Group (EMG) at the site. The EMG'sresponsibilities include obtaining Consent Orders from, and submission of regular environmentalmonitoring reports to the Orissa State Pollution Control Board (OSPCB). The EMG monitorsambient air quality, emissions and effluent from the plant, outfits and uses the environmentallaboratory for the analyses of samples, and pursues ash disposal options. It also oversees in-house plantation of trees and off-site compensatory afforestation.

4. Air and Water Quality. The ambient air quality, meteorological conditions, solidparticulate matter (SPM), SO, and NO. levels are monitored on a regular basis by the EMG.The air quality, according to monitoring data by EMG, is within GOI and Bank standards. Fourmonitoring stations are placed at locations agreed with the OSPCB, to measure air quality atpredicted maximum ground level concentration of the said contaminants. In accordance with airdispersion modeling results, three out of four monitoring stations were relocated to correspond tothe highest areas of concentration indicated by the model. The remaining monitor is also to bemoved as soon as some logistical problems associated with this relocation is resolved. Thedispersion model data will be validated by actual measurements after the plant begins operationat full load. NTPC is also making provision for continuous stack gas monitoring to comply withregulatory requirements.

5. One of the stipulations of the Consent Order given by the OSPCB is for zero discharge ofwaste water, to the extent possible. NTPC has designed a waste water treatment facility toinclude recycling and reuse of waste water. It includes closed cycle condenser cooling, an ashpond with settling basins and recycling of ash slurry water, settling ponds for coal pile run off, aswell as treatment for oily water and sanitary waste water.

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Transmission Lines and Substations

6. Routing of the 400 kV high voltage transmission lines involved about 407 ha of forestland for the Talcher-Rengali alignment and about 55 ha for the Talcher-Rourkela alignment afterselecting the most suitable rights-of-way, involving minimum interference with forests. It hadbeen agreed that route survey for the lines as well as submitting application for the forestclearance would have to be completed by March 31, 1988, failing which the non-compliancecould be an event for suspension of disbursements under the loan. This requirement wascomplied with. However, granting of the final clearances took about six years. But it is notedthat the environmental clearances in respect of the forest land for the two transmission lines wasreceived in January 1993 and January 1994 for the two lines, respectively (Part II; Table 10;Footnote 1).

7. There was no resettlement or rehabilitation requirement for the transmission lines and thetwo substations.

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APPENDIX - D

LAND ACQUISITION, RESETTLEMENT AND REHABILITATION ISSUES

1. LandAcquiaiin. The private land was acquired under the provisions of the LandAcquisition Act, 1894 (LAA), and its subsequent amendments, after paying due compensation.The notifications for acquisition under the LAA were issued from May 1987 onwards andcontinued up to June 1995. Apart of the cost of the land and structures standing thereupon, anadditional 30 percent was paid as solatium. Furthermore, an additional 12 percent was paid asappreciation from the date of issue of the notification up to the date of actual payment. Thecompensations for the land and structures were decided by GOO; then the amounts weredeposited by NTPC to the Office of the Special Land Acquisition Officer (SLAO) of GOO, priorto the acquisition of the land and well before the PAPs needed to surrender their land. Paymentsto the PAPs was carried out by the officials of GOO, outside NTPC.

2. Base-Line Surveys and R&R Plans. Surveys of the population to be affected by theproject were carried out during the preparation phase, and Land Acquisition and ResettlementPlans were prepared. However, these surveys and plans had to be redone and improved in thecourse of implementation of the project. Revisions were made in 1988, 1991 and 1994. Inaccordance with the original surveys, 1,750 families would be affected, out of which 816families would lose more than one third of their land holdings (Substantially Project AffectedFamilies -- SPAFs)43 . During negotiations in May 1987, it was agreed that certain minormodifications were required in relation to the Resettlement Plan. NTPC agreed to furnish to theBank by December 31, 1987, a satisfactory Resettlement Plan incorporating the agreedmodifications. Furthermore, NTPC agreed to implement the Resettlement Plan, as revised, incooperation with the concerned GOO authorities. In January 1988, NTPC completed its revisedRehabilitation Action Plan (RAP) which was the outcome of four months of field survey byNTPC's site team accompanied by GOO officials. The numbers of the project affected families(PAFs) and SPAFs did not change, but the concept of rehabilitation was brought in -- SPAFswould be eligible for rehabilitation in addition to compensations, while MPAFs would only bepaid compensation. A number of rehabilitation options, including the land-for-land option, weregenerated by NTPC. Because GOO authorities insisted that the land-for-land option was notfeasible, the RAP was revised in May 1991. Although land-for-land option remained, moreemphasis was put on jobs, either with NTPC or with NTPC's contractors. Following a newsurvey the numbers of the affected families were changed too: 1,025 SPAFs; 1,326 MPAFs; thusamounting to a total of 2,351 PAFs. Out of these, 80 SPAFs who were losing their homes wereidentified as Homestead Land Oustees (HSOs) to be resettled in a colony to be developed byNTPC.

3. In August 1993, NTPC established at the site an R&R Cell, and in 1994, upon a requestby GOO, hired competent national consultants to conduct fresh surveys. The consultants

43 The families which were going to loose less than a third of their land holdings were called Marginally ProjectAffected Families (MPAFs).

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submitted to GOO and NTPC a new list covering in total 830 SPAFs (including 114 HSOs,eligible for resettlement) and 186 beneficiaries as "major married sons" belonging to the saidSPAFs. In addition to the SPAFs, "major married sons" would also be eligible for rehabilitationbenefits. Thus the number of families eligible for rehabilitation would be 1,016. The list wasaccepted on July 5, 1995, by the Collector of GOO. However, the Collector instructed NTPCthat the list to be widely publicized among the PAFs. GOO also invited objections, if any, fromthe families. In response, 1,597 objections were received and registered up to the last date of theobjection period; i.e., July 20, 1995. NTPC states that all applicants were given an opportunityto be heard. Based on these hearings, the consultants revised the list and increased the number ofSPAFs to 1,632 families spread over 27 affected villages. This number covers 1,160 SPAFs and472 beneficiaries as "major married sons" belonging to these SPAFs. The number of HSOs to beresettled remained at 114. The revised list was approved by the Collector on March 14, 1996.Rehabilitation schemes provided to the above SPAFs are: employment by NTPC, employmentunder maintenance contracts, purchase of land, shop allotment, support for self employment,cash deposit assistance, and training at the Industrial Training Institute (ITI). HSOs are beingresettled at the resettlement colony at Takua, where NTPC has developed 114 plots andinfrastructure facilities. The HSOs are given a construction assistance of Rs. 16,000 per family.The status of GOO and NTPC's resettlement and rehabilitation activities is given in Table D-1and D-2, respectively.

4. In December 1994, NTPC established a Public Information Center (PIC) at the projectsite. In addition, GOO has established a District Rehabilitation Cell which plays a key role in theimplementation of the R&R Plan. GOO's Rehabilitation Officer and his staff periodically visitthe project and the affected villages and interact with SPAPs and NTPC R&R Cell staff. AScreening Committee scrutinize the candidature of SPAPs for extending rehabilitation options, inparticular, employment in NTPC, training, self-employment, shop allotment, etc. TheRehabilitation Advisory Committee meets periodically to review issues relating to R&Rperipheral development.

5. NTPC has developed a Resettlement Colony with necessary infrastructure facilities atTakua. Out of the 114 HSOs to be shifted to the Resettlement Colony, so far 52 HSOs havereceived the construction assistance but no one has shifted to the Resettlement Colony, Takua.However, 38 HSOs have vacated their houses and are living elsewhere. The details are asfollows:

6. As of December 31, 1997, 1,124 SPAFs out of the total of the above mentioned 1,632SPAFs had been rehabilitated. NTPC and GOO continue the R&R activities in accordance withthe rehabilitation plan and list of eligible SPAFs approved by GOO in March 1996. NTPC hasrequested financing of the Talcher Phase II (4x500 MW Talcher II) under the ongoing Ln. 3632-IN for the NTPC-Power GenerationProject. A draft RAP covering the balance of rehabilitationactivities for people affected by Talcher Phase I (the Project) and those to be affected by TalcherII was prepared by NTPC and submitted to the Bank in March 1997. NTPC is still in the processof incorporating the Bank's comments of April 1997, but the implementation of the RAP's isalready underway. The Bank's involvement and implementation review of the balance R&Ractivities for SPAFs under the Project, is expected to continue under the Talcher II Project.

Table D-1: Status of the Resettlement Activities(As of December 31, 1997)

__ ciiyTrp .civmn . . R .ms01. Development of Resettlement 114 developed plots with A Resettlement Colony Balance work would be

Areas with infrastructure infrastructure facilities having 118 developed plots of taken up after shiffing offacilities 400 Sq. Mts. each has been HSOs (See below).

developed at Takua with thefollowing infrastructurefacilities:* School* Health Centre* Shopping Centre* Community Centre* Pump House* Water Facilities* Roads* Green BeltAchievement is assessed as95%.

02. Shifting of HSOs with 114 * 52 HSOs were given NTPC has agreed to payconstruction assistance of construction assistance. Rs.10,000/- to each HSORs. 16,000/- per family * 38 HSO vacated the area in addition to

and living elsewhere. construction. Assistance* Although 52 HSOs have of Rs.16,000/- in lieu of

acceptep the respective allotted plot at Takuaplots, none of them has who do not want to shiftmoved or is interested to to Takua resettlementshift to the colony. colony & want to settle at

the places of their choice.

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Table D-2: Status of the Rehabilitation Activities(As of December 31, 1997)

SL AciiyTre ch. t -Remarks|

1.0 Enumeration Through Completed. Revised list of 1632 SPAFs approved byConsultant Collector on 14.3.96.

2.0 Economic Rehabilitation (C) 1632 SPAFs. 1209 SPAFs. 74% achievement.2.1 Employment NTPC (CC) 245 (Revised). 217 776 SPAFs have opted (as per

._____________ Consultant's report).2.2 Employment under Maintenance 373 (Revised). 310 As per R&R Plan 230 SPAFs out of 373

Contracts are to be engaged under sweeping cleaning& sanitation contract but SPAFs are

._________________ __________ hesitating to work in these areas.2.3 Purchase of Land Not fixed. 651 803 SPAFs have opted (as per Consultants

report). District Administration hasassured NTPC to disburse passbooks to alleligible SPAFs at the earliest.

2.4 Self Employment Not fixed. 80 SPAFs are self-enployed out of which72 are contractors and 8 have purchasedvehicles and have been deploying on hirebasis. 20 out of 80 have receivedpassbooks against option at 2.3. Somehave not received any rehabilitation

, _____________________________ _ _________________ benefit.2.5 Shot Allotment 160 9 16 SPAFs have opted so far (as per

l____l____l___ Consultant's report).2.6 Cash Deposit Assistance Limited to 22 32 SAPs are identified (as per

l ____________l____________ lEligibility. Consultant's report).3.0 M11 Training 255 Initially target as per requirement. Later

decided for additional 145 SPAFs.4.0 NGO/Consultant for Income Work is in One year consultancy contract for Micro

Generating Schanes (IGS) progress. Enterprise Development for SPAFs hasbeen awarded to Mrs. Bonani Dhar onSeptember 1, 1996. The contract has beenextended for another year.

(*) Economic Rehabiliation: Out of 1632 SPAFs, 1209 have been rehabilitated so far (74% achievement).

(**) Employment in NTPC: As per RAP furnished to the Bank, the targets and achievements were as follows:

- iemtnNTPCS -l;;te Tsrge Aehl met l ---Bala-nce-:- Unskilled 73 5 1 22Skilled 160 154 6Supervisor 12 12 -Total 245 217 28

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APPENDIX - E

FINANCIAL OVERVIEW (NTPC)

1. NTPC at Project Appraisal. During 1985/86, except for its accounts receivable,NTPC's financial perforrnance was satisfactory and financial results compared favorably withforecasts prepared by NTPC and approved by the Bank. NTPC realized a net income of Rs.1,830 million and earned a rate of return on historically valued net fixed assets in operation of17.2% which exceeded the covenant requirement of 7% for 1984/85-89/90 agreed with the Bank.The equivalent ROR on revalued assets, calculated on a proforma basis, was about 13.5%. Cashgeneration measured as percentage of average annual capital investment requirements was about10.7%. Assets in operation at the end of 1985/86 amounted to Rs. 16,047 million, representingonly about 34% of total fixed assets including Rs. 32,569 million of assets under construction.NTPC's debt-equity ratio of 36:64, current ratio of 1.2 and debt service coverage of 5.0 timeswere satisfactory. However, its overall bill collection performance was very poor and alarming.Accounts receivable exceeded 3.5 months and large uncollected amounts imposed a seriousburden on NTPC's finances. During negotiations, NTPC agreed to maintain its accountsreceivable, arising from sales of electricity, at a level not exceeding the proceeds of its powersales for the two preceding months.

2. NTPC's Financial Status at Project Completion. By the end of NTPC-FY97 (endingMarch 31, 1997), it is estimated that NTPC operated about 20% of India's total installed capacityand 27% of the thermal capacity. As a part of the Bank's ongoing dialogue with GOI and NTPC,a number of policy reforms had been introduced which aimed at: (a) improvement of generatingefficiency; (b) introduction of commercial policies; (c) entering into undertakings with foreignand local private partners to develop power projects; and (d) introducing two-part bulk tariff,which allowed NTPC to set its tariffs under the fixed cost part in line with the LRMC and passfuel price variations to the consumers under the variable part. These measures helped NTPC tobe in a relatively strong financial position. A tabulation of NTPC's actual financial performance,as compared to SAR projections made at the time of appraisal, is given at the end of thisAppendix. The returns achieved by NTPC were well in excess of the rates required under thefinancial covenants. At the end of FY97, NTPC's debt service coverage was 1.9.

3. NTPC's operating data, summarized in the Table below, reflect the growth theCorporation has experienced during the past several years. From FY88 to FY97, generatingcapacity was added continuously at an average annual rate of 13.2% and the value of average netfixed assets grew at an annual average rate of 22.1%. The pace of growth, however, is declining.The level of capital investment has been stagnant since FY91 (except for an increase in FY92due to the transfer of Unchahar

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- 55 -

APPENDIX - F

RECENT ACTIONS BY NTPC AND POWERGRII)TO IMPROVE THE PERFORMANCE OF THE PLANTS IN ERIS

1. The total installed capacity in ERIS is 13,600 MW, out of which the installed capacity ofNTPC's power plants is 3,900 MW (Farakka I and II: 1,600 MW; Kahalgaon: 840 MW; Talcher:taken over by NTPC from the erstwhile Orissa SEB - 460 MW; and Talcher (the Project): 1,000MW). Against the above capacity, the peak demand in the Eastern Region is 6,500-6,700 MW.

2. Recently, in accordance with GOI's approval and allocations, NTPC and POWERGRIDhave drawn up a strategy to export power to the other regions and have taken various actions, assummarized below:

- ~ lo Agemet wih : -'Statu

Northeastem Region (NER) Assam SEB PPA has been signed.50-100 MW is being exported to Assam through theexisting 220 kV Birpara (ER) - Salakati (Assam-NER)line. The transfer began on February 28, 1997.

Southern Region (SR) Andhra Pradesh SEB PPA has been signed.150-200 MW is being exported to Andhra Pradeshthrough the existing 220 kV Balimela (Orissa-ER) -Upper Sileru (AP-SR) and 132 kV Machkund (Orissa-ER) - T.B. Vara (AP-SR) lines. The transfer began on

__________________________________ February 20, 1997.Southern Region (SR) Southem Region Electricity Board 2x250 MW HVDC back-to-back system at Gazuwaka

(AP-SR) and 400 kV transmission line from Jeypur(Orissa-ER) to Gazuwaka (SR) being built byPOWERGRID. After completion of the system inFebruary 1999, 500 MW would be transferred to theSouthern Region.

Westem Region (WR) Madhya Pradesh SEB 150 MW of transfer to WR through the existing Dadra-Nagar Haveli and Daman-Diu transmissior lines,began on May 19, 1997. Discussions are under wayfor the construction of a 220 kV single-circuit linefrom Budhdipadar (Orissa-ER) to Korba (MP-WR).150-200 MW is expected to be exported to Madhya

.___________________________________ Pradesh.Northem Region (NR) Beneficiaries to be identified. Discussions are under way for the construction of a

132 kV single-circuit line from Dehri (Orissa-ER) toKaramnasa (UP-NR).100-150 MW is expected to be exported to the

._______________________________ Northern Region.lxS00 MW HVDC back-to-back system is envisagedto be built by POWERGRID in Susaram (ER) totransfer power to NER through AC lines. The projectis planned for completion in March 2001.