I-N- a-?-'1 o- G!RGJLATItJCOPY-R E S T R I C T E D RETURNTO *-~'CMCULATINIG COPY- REPORTS DES BERETU2U?D TOREPORTS DESK R e p o r t N 0. TO-Z67a WITHIN Ii CLEr.t?ALFIIES ONE WEEK Public Disclosure Authorized This report was preparedfor use within the Bank. It may not be published nor mayit be quotedas representingthe Bank'sviews. The Bankaccepts no responsibilityfor the accuracyor completenessof the contentsof the report.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized
APPRAISAL OF POWER PROJECTS
YUGOSLAVIA Public Disclosure Authorized
February 14, 1961 Public Disclosure Authorized
Department of Technical Operations CURRENCY EQUIVALENTS U.S. $1. 00 = 750 dinars 1 billion dinars = U. S. $1 1/3 million YUGOS;LAVIA
Appraisal of Power Projects
TABLE OF CONTENTS
Page
Summary i
I. Introduction 1
II. Power Industry 1
III. Existing Power System 2
IV. Power Market 3
V. Expansion Program 3
VI. The Project 5
Senj Hydroelectric Plant 5
Description 5
Hydrology 5
Geology 6
Engineering and Constructuion 6
Present Status and Schedule of Construction 6
Cost Estimate 7
TransmissionLine System 7
Amount of Loan 8
Procurement 8
Priority of Projects 9
VII. Financial and Economic Aspects 9
Rates 9
Distribution of Income 9
Economic hspects 10
VIII. The Borrower 11
IX. Conclusions 11 LIST OF ANNEXES
1. Records and Forecasts of Power Consumption
2. ConstructionProgram
3. Forecast of Energy Balarce
4. Senj Hydroelectric Development
5. The 220 KV Transmission System
6. Average Price of Power
7. Planned Investments for Expansion of Power System
Maps 1
SUi~'1ifRPY
i. This report covers the appraisal of a power project in Yugoslavia consistingof the Senj HydroelectricPlant (216 YT7) and the installationof a 220 kv transmissionnetwork. A Bank loan of A30 million equivalent has been requested, to cover bO% of the total cost of the project, estimated at "575million equivalent.
ii. The borrower would be the Yugoslav Investmentaank, an institution responsible for lending funds made available by the Government for development projects. Out of the proceeds of the Bank loan and its own resources the Investment Bank would make loans covering the entire estimated cost of the project to each of the several enterprises which would construct and operate it.
iii. The organization of the Yugoslav power industry is unique. Each generating plant and the transmissionfacilities in each of the six Republics are constructed and operated as individual self-mana-ed enterprises. The generation and transmission enterprises within each Republic are members of a Republic Power Union which serves as a coordinatingorganization. The Republic Unions are joined in a Federal Power Union responsible for power dispatching in the integrated system, preparation of plans for future expansion and establishment of standards and procedures for the operation of power enter- prises. The power system is well-maintained and operated. The management and staff of the enterprises that hvuld carry out and operate the project are well-qualified.
iv. The project is part of a five-year program for the expansionof the Yugoslav power system which itself forms part of the Government'sgeneral investmentplan. The program is reasonableand with normal river flows, will provide the additional capacity required to meet the estirmiated increase in demand. The project is technically sound and has a high priority in the power expansionprogram. The estimatedcost is reasonable. Construction schedules call for completion of the Senj hydroelectricplant in 1965 and of the 220 kv transmissionnetwork in 1963. v. The usual financial concepts coujldnot be used in this appraisal because of the decentralizedorganization o1 the industry, the unusual accounting system used and price distortionsin the economy. It can be said, however, that the high level of saving in Yugoslavia and the large share of aggregate investmentconsistently allocated to power would give assurance that the progran contemplatedwould be adequately f-inanced. vi. Furthermore,the Yugoslav Government has assured the Bank that one of its goals in connection with the implementationof the foreign exchange reform is the removal Of the existing disparities in prices. The Government has also stated that it intends to pursue a policy of gradually increasing prices of electricityso as to achieve an adequate rate of return on investmentsin the power industry. vii. The project is suitable for a Bank loan of $30 million equivalent with a term of 25 years including a grace period of about four years. Y U G O S L A V I A
Appraisal of Power Projects.
I. I_TRODUCTION.
1. As a result of the findings of a Bank mission which visited Yugoslavia in the spring of 1960, the Government was informed in August 1960 that the Bank was prepared to consider a loan to finance projects in the power sector. This report is based on studies prepared by the organizationsres- ponsible for the supply of electric power in Yugoslavia and on informetion obtained by a mission vhich visited th! country in OctobertNovcrber 1960.
2. The proposed Bank loan would be made to the Yugoslav Investment Bank. This institutionwas establishedin 1956 to make long term loans for developmentprojects, utilizing funds made availableby the Government.
II. POWER 1NDUSTRY
3. The power industry in Yugoslavia is organizedin accordancewith the provisions of a law passed by the Federal Assembly in December 1957. The organizationis characterizedby extensive decentralization. Each generating plant is normally constructedand operated as an individual enterprise. The corstructionand operationof high tension transmissionlines and substationsare -ccomplishedbys5jXenterprlses, one for each of the six republics. These, in turn, supply power to local distributionenterprises.
4. All enterprisesare organized in accordancewith the Yugoslav principles of self-management. The workers elect the members of the Wrlorkers, Council and the MianagingBoard responsiblefor establishinggeneral policies of the enterprise. The chief executive of the enterpriseis the General Manager who is eleteadby the Workers' Council and confirmedby the local authorities. 5. The generating and transmissionenterprises within each Republic are members of a Republic Power Union which serves as a coordinatingorgan- ization. In particular,it concludes contractswith its member enterprises for supply and transmissionof power and with distributionenterprises and large consumersfor sale of power. Each Republic Power Union is managed by a Board of Directors and a General Ivianager.The Board consists of representa- tives of mermberenterprises, local authorities,the government of the Republic, the associationof industries and the main distributionenterprises. The General IHnager is appointedby the Republic Government. 6. The Power Unions of the six Republics are joined in a Federal Power Union. This organizationis responsible for the coordination of the power industry in the country as a whole, the power dispatchingin the 4.ntegratedpower system, preparationof plans for future expansionand estab- lisiment of standardsand proceduresfor production, transmissionand dis- tribution of electric power.
7. The chief executive of the Federal Union is the General M4anager, appointed by the Federal Government,who is responsible to a Board of Direc- tors, the members of which represent th~esix Republic Unions, the Federal Government and various other organizations.
8. The managers and senior staff of the enterprisesand Unions have extensive experiencein the utility field and are technicallywell quelified.
III. EXISTING PCIOE SYSTEM.
9. Since 1957, electric power in Yugoslaviahas been supplied to the princinal load centers by an integratednetwork to whlicdhthe main generating plants are connected. The total generating capacity in the country at the end of 1959 w-s 1884 EN consisting cf 1,133 l1+of hydro and 751 1iW of thermal capacity4 Of this total, 231 MIT was installed in thermal plants owned and operated by industrial enterprisesto meet their own power requirements. Dur- ing 1960, an additional 172 ih of hydro and 128 lWJ of thermal generatingcapac- ity were put into operation by the power enterprises.
10. Most of the hydro plants in the system are of the run-of-the-river type. Water availabilityreaches a maximum dur-ingthe late winter months and drops to a minimum during the late sumn,erwhen the average monthly production may be some 4C% lower than the highest winter production. Possible hydro generationvaries also from year to year with a differenceof about 2C% between an average hydrologicalyear and a dry year.
11. About 45% of the thermal capacityis provided by plants constructed before 1939 with small and inefficientunits. In recent years larger units with a capacity of up to 64rP1 have been installed but the average thermal efficiency of plants in operation is still below 25%. hIostof the thermal plants burn low grade lignite of which Yugoslavia has extensive deposits.
12. The high tension transmissionnetwork at the end of 1960 consisted of 905 kilometers of 220 kv and 4,991 kilometers of 110 kv lines and 66 main substationswith a total transformercapacity of 2,242 h1VA. The trans- mission system is connectedwith the systems of Austria, Italy, Groeee and Hungary.
13. Total power production in 1960 was about 8.8 billion kwh and the peak load was 1,565 MI. The system load factor was 64%. System losses were 16% of total generation.
14. The power system is well maintained and efficiently operated. - 3 -
IV, FPOWERMARKET.
15. Total power sales in Yugoslavia in 1959 were 6.7 billion kwh corre- sponding to a consumptionper capita of 370 kwh. The annual rate of increase over the last five years (1955/1959)has avera-ed about 19% reflecting the substantial economic growTthin the country over the period (details are given in Annex 1).
16. The power market is characterizedby high industrial consumption which in 1959 was 4.5 billion kwh or 675 of total consumption. Large inidus- tries using more than 20 million kwh annually include aurminum, carbide, ferro-alloys,copper, lead, zinc, iron, steel, cables, chamicals,electrical and mechanical equipment,manuY'acturing and textiles. A detailed study carried out by the Federal Planning Office in cooperationwith the Federal Power Urion takes into account the additionalpower required by the planned expansion of existing large industries and all new industrial plants which the Investment Bank has agreed to finance, includingtwo new nitrogen fertilizerplants ex- pected to start operations in 1963.
17. The supply of power to residentialand conmmercialconsumers is limited to urban centers. At present about 50% of the population has a supply of electricity. During the five years, 19515/59,consumption of residential and commercial consumers increased at the average annual rate of nearly 25%. Preliminaryfigures for 1960 show a much smaller increase, but this is a result of rate increasesmade efLective in 1959 which about doubled the price of power for these consumriers.
18 Through the transmissionline interconnectionswith neighboring countriesYugoslavia is able to export surplus hydro power. In 1958, when water conditionswere particularlyfavorable, these sales amounted to 175 million kwh. An agreementwas recently reached bet'weenYugoslavia, Italy and Austria to increase the capacity of the inuerconnectinglines over the next five years from 15 l2fTto 100 i . to Italy, and from 40 N'T to 200 N-4 to Austria. These new interconnectionswould serve for export of power from Yugoslavia during the winter months and import of an equal amount of power during the summer months. However, in adcition to this exchange of firm power, Yugo- slavia would in most years have surplus power available for export.
19. The study of future power requirementsshowsthat total power con- sumption is expected to increase to 14.5 billion kw-hby 1965 or by an average annual rate of about 15%. The estimate is reasonable provided that Yugo- slavia can maintain its present rate of economic development.
V. EXPANSION PROGRAM.
20. The plans for the expansion of the Yugoslav power system form part of the general economic investmentplans which are made by the Government Planning Office. These are prepared for five year periods and reviewed and amended annually. They are subritted to the Federal Executive Council for approval. The plans are general and in respect of the power industry, estab- lish only the magnitude of new hydro and thermal capacity required and the amount of funds to be invested. - 4 -
21. The detailed plans are prepared by the Federal Power Union. Engi- neering investigations and design of individual orojects are carried out by consulting engineeringenterprises under contracts -withthe Republic Power Unions.
22. The present plans for further expansion of the generatingcapacity of the power system cover the installation of 1856.5 IPWduring the period 1961-65. Of this, 1,125.5 NWare already under construction,comprising six hydro plants iith a tctal capacity of 689 11Wand seven thermal plants with a total capacity of 436.5 XW (For details see Annex 2). The new generating plants will increase total generating capacity in the integratedsystem to 3,810 Iv4lby the end of 1965. Of this 2,,4924Wl would be hydro and 1,318 141 thermal capacity.
23. Constructionis expected to be started in 1961 on the Senj, Bajina Basta and Globocica hydro plants, the Beograd thermal plant and an expansion of the Kosovo thermal plant is being planned. These works would add 498 11H of hydro capacity and 233 EN of thermal capacity.
24. The transmissionline system w.ll be extended by constructionof about 500 kilometers of 110 kv lines and 1264 kilometers of 220 kv lines together with associated transfori;erand switching stations. The new lines will serve both to connect the new generating plants to the main consurption centers and to improve the country-wide grid system. In addition,the capac- ity of the interconnections with the Austrian and Italian networks will be expanded and load and frequency control eqaipment will be installed to permit the Yug,oslav sysem to operate in parallel with the integrated power system of Western Europe.
25. The total cost of the works to be carried out during the six years 1960-65 is estimated at Dinars 325 billion (,,35 million). According to normal practice in Yugoslavia,these estimates do not include any allowances for contingenciesnor interest during construction. The projects in the pro- gram are well engineered. judged on past perfor3nance,experienced local contractors are well qualified to carry out their construction.
26. Detailed studies, having regard to the system load characteristics, show that with average water availability, the energy requirements of the system could be supplied throuighout the five-year period. If dry year con- ditions prevailed, however, (based on the minimum flow in 9 among 10 years) the maxim, 27. As mentioned earlier in this report, the supply of water to the main hydro plants in the Yugoslav power systems reaches a mirnimumduring the months August through October, while maximum flows occur during i4arch-April. The Yugoslavs are currently negotiatingwith power companies in Austria and Italy and a tentative agreementhas been reached under which Yugoslavia would export surplus power in the spring and import an equivalent amount in the late summer months. With the improvementsnow planned for the transmission line system this exchange of polfer is estimated to reach some 600 million kwh - 5 - by 1965. Unfortunately these arrangements will do little to improve conditions during dry years since in those years there will be little power available for either export or import. 28, During future annual reviews of the expansionprogram by the Federal Power Union and the Federal Planning Office it is expected that several small plants will be added to the program which will become operational by 1963-1965. These may reduce potential shortfallsby as much as one-third but if unfavorable hydrological conditionswere to occur ovrerthe next few years, some curtailment of supplies to large industrial consumers such as aluminum and carbide plants might be necessary. 29. Also, during future annual reviews of the expansion program, decisions will be made as to projects which will be started so as to become operational after 1965. No definitive informationon such projects is available at this time. VI. THE PROJECT 30. Within the present expansionprogram the Senj hydroelectricplant and the 220 kv transmission line network were considered to be of high priority and most suitable to be financed by the proposed Bank loan. SENJ HYDROELECTRICPLANT Description 31. This project is located in the Velebit Mountains bordering on the Adriatic Sea near the coastal town of Senj (see map attached). The plant would utilize the waters of the Gacka and Lika Rivers by diversion through the mountain range to develop an average gross head of 35 meters. Seasonal stor- age would be provided by a 76 meter high double curvatureconcrete arch dam on the Lika River, creating a reservoirwith a useful storage capacity of 120 million cu. meters. 32. Other main structures include four low concrete diversion dams, a daily regulating pond, 33 kilometers of tunnels and an underground powerhouse equipped with three 72 IMWgenerators driven by Francis type turbines. The plant would be connected to the Yugoslav power system by 110 kv and 220 kv transmissionlines (For technical details see Annex 3). Hydrology: 33. Reliable stream flow records f-orthe two rivers are available for a period of 18 years. The average annual flow of the two rivers combined is 44.3 cu. meters/sec. The Gacka River is fed by springs. It has a minimum flow of 4 cu. meters/sec. The Lika River is mainly fed by surface run-off. Its maximum recorded flow at the dam site is 75C cu. meters/sec.while the flow practically ceases in a dry summmer. With the flows of the rivers combined and with the flow of the Lika regulated by the proposed reservoir the minimum summer flow would be 13.2 cu. meters/sec. Annual power productionwould be: 1063 CRA7Hin average year 925 GWH in 9 out of 10 years 617 GWH in driest year. 34. The capacity of the spillway protecting the main storage dam has been set at 1,200 cu. meters/sec. In view of the heavy rainfallswhich occur in this region additional storr studies will be made to provide a firmer basis for the estimate of the maximum flood. Model studies of the proposed morning glory type spillTwayare being carried out at present. The result of these studies and the final design of the spillwraywould be submitted to the Bank, and assuranceshave bebn received that the constructionwould not be startedbefore the Bank had beensatisfiedthatthe structurewould provide adequate safety. Geology. 35. The Gacka and kLra Rivers flow through a karstic region with soluble limestone bedrock. As is characteristic of this type of formation, both rivers disappear and flow to the sea through underground channels. Extensive geolog- ical studies have been carried out and the places where the rivers disappear have been traced to well defined faults. The storage and diversion dams would be located a conside-rabledistance upstream from thesefault zones. 36. The site of the concrete arch dam has been explored by drilling and excavation of galleries and the rock was found to be of good quality. Addi- tional tests are being carried out to serve as a basis for the detailed design of the structure. Engineering and Construction 37. As is the usual practice in Yugoslavia, an enterprisehas been formed which would be responsiblefor the constructionand operation of the project. The managerent and staff of the enterprise are experiencedand well- qualified. 38. The plans for the project have been prepared by Electroproject of Zagreb. This engineeringenterprise, which also would carry out the detailed design and supervision of construction, has been responsible for the engineer- ing of a substantial number or power projects and other works. Its work is of high technical standard and it is fully capable of executing the Senj project. 39. The constructionwork would be carried out by experiencedlocal contractorsselected on the basis of competitivebiddirng. Present Status and Schedule of Construction. h0. The general plans for the project as well as the detailed plans for the tunnels have been prepared. Preliminary tworkssuch as access roads and constructioncamp facilitieswere started in 1959 and have been nearly com- pleted. - 7 - 41. The constructionof the project is estimated to require about five years based on the time necessary for building the tunnels. This work would be started in the beginning of 1961 as soon as the financing of the project had been arranged. The constructionof the storage and diversion dams is scheduled to be started towards the end of 1961e The detailed plans for these structures,in particular for the concrete arch dam, have not yet been com- pleted, but assuranceshave been received that the plans would be submitted to the Bank which would have to be satisfied about the soundnessof the design before any constructionwork is started. The five year constructionsched- ule is reasonable. Cost Estimate 42. The cost of the project is estimated as follows: Millicn Dinars PreparatoryWorks 2,725 Relocation and other works 952 Civil lWorks I'4,258 MechanicalEquipment 1,025 Electrical Equipment 4h,215 ConstructionEquipment 43.500 Engineering and Design 2,481 Contingencies 3,34 Total: 33,50O Less: Remaining value con- 2,000 struction equipment 2,000 Cost of Project 31,500 ($42.0 million) Required in Foreign Exchange 5,612 ( $7.5 million) 43. The estimate is the result of detailed calculationscarried out by the consulting engineers. Their estimate is based on their wide experi- ence in similar types of work. Contingency allowanceshave been added by the mission and amount to 18% on civil works and 8% on equipment costs. Following Yugoslav practice, interest during constructionis not included in the estimate. 44. Judged by a comparisonbetween estimated and actual cost of com- pleted projects, the consultingengineers use conservativemethods in prep- aring cost estimates and the cost of the Senj project is therefore realistic. 45. The capital cost per installed kw would be $197 which is low for a hydro plant with seasonal storage. TRANSMISSIONLINE SYSTEM. 46. The present transmissionsystem in Yugoslavia consists mainly of 110 kv lines and the system is heavily overloaded. To improve it and to provide connectionsbetween the generating plants now under constructionand the major load centers a new 220 kv network has been planned. The initial lines of this network have already been constructedbut most of them are still onerated at 110 kv, - 8 - 47. The project consists of the following additions to the 220 kv net- work (for locations see attached map and for further details see Annex 5). Length Capacity of Cost i-n of Line Transformers Million Dinars km. INVA. In the Republic of Serbia 277 10 7,500 Slovenia 93 1,219 Croatia 357 150 6,656 Bosnia-Herzegovina 384 100 6,281 Monteneegro 153 150 3,094 Totals: 1,264 550 24,750 (or -33.0 million) 48. While the new lines and associated substationswill form a contin- uous system, the various sections will be constructedand operated by thletrans- mission enterpriseswithin each Republic. The plans were prepared by the respectiveRepublic Power Unions and co-ordinatedby the Federal Power Union. The proposed system has been studied on a network analyzer and is sound in conception and design. 49. The estimated total cost of Dinars 2h.75 billion is based on actual cost of recently completed works plus 7% for contingencies due to price rises and is considered to be realistic. The foreign exchange required is estimated to be Dinars 4.7 billion (35.85 million). 50. Constructionstarted in 1960 and would be completed in 1963e Amount of Loan 51. In view of the fact that a relatively small part of the cost of the projects would beincurred in foreign exchange, the Bank has agreed to con- sider a loan limited to 4bCYof total costs. On this basis, the two projects selected would justify a loan of -'30mi'llion with $16.8 million allocated to the Senj project and 13.2 million to the transmissionsystem. Procurement 52. Tho equipment to be purchased abroad wouldbe obtained on the basis of internationalcompetitive bidding. Yugoslav manufacturersare however, technicallyqualified to deliver a substantialpart of the materials and equipment recuired for the projects. Yugoslav industry has until recently been protected by a system of multiple exchange rates. In anticipationof the exchange reform, which would remove this form of protection, customs duties were introducedwhich range between 35% and 6WS for electrical and mechani- cal equipment. In deciding where orders would be placed the enterprisescon- cerned would have to take into account the new customs tariffs. In view, however, of the admitted distortionsin the present Yugoslav price structure and the shortage of foreign exchange, the high tariffs would not necessarily msan that resourceswere being used uneconomically. -9- Priority of Projects 53. The projects proposed for Bank financing.have a high priority within the program for exDansion of the Yugoslav power system0 Because of the 1ow cost of the Senj hydro plant it would not be significantto make a comparison with an equivalentthermal plant. Furthermore,the expansionof the thermal capacity in Yugoslavia is closely coordinated with the expansion of the coal mining industry. The constructionof a large thermal plant would thereforeo0W be possible with substantialadditional investmentin coal mining facilities. 54. The regulated flow,Tof water for the Senj plant would assure an average annual production of 1.1 billion kwh. Additionalnon-firm power could however, be produced durirg the winter months when surplus water would be available. Because of the location of the plant in the northern part of the country, this power could readily be exported to Italy and Austria. 55. The constructionof the 220 kv transmissionnetwork is essentialfor the rational operation of the new generating plants. The new system is also necessary for the planned increase in exchange of power with the neighboring countries. VII. FINAiNCIALALD ECOOIC ASPECTS. Rates 56. Power rates are set by the Federal Government. The rate system, which is uniform for the whole country, differentiatesamong classes of con- sumers, between night and day consumptionand, in some cases, between seasons of high and low water conditions. Particularly low rates are provided for power intensive industries as may be seen from Annex 6 which shows the average revenue per kwh sold by main classes of consumersin 1959. In January 1960, the prices of power for domestic consumerswas about doubled. Another increase to apply to sales to power intensive industries is being consideredat present. 57. In accordancewith the Yugoslav system of self-management,which makes the worker's inccme dependenton the profitabilityof the enterprise, as further describedbelow, rates are establishedat a level generally suffi. cient to cover all operating expenses, including minimum wages, and certain compulsorydeductions from income (see paragraph 59) while leaving some sur- plus to retain the workerst interest in the success of the enterprise. Distributionof Income 58. All the proceeds of power sales, either collectedby the distribution enterprisesor received from large industrialconsumers, are transferredto the Power Unions of the six Republics. These, in turn, make payments to the various power enterprisesto cover their costs in accordancewith detailed regulations establishedby the Federal Power Union. Under these rules, depreciationand the various fixed charges are paid in full at the Government prescribed rates, but operating expenses (includingfuel) are paid on the basis of "norms". These "norms" are theoretical cost allowancesderived from experience and reflecting standards of efficiency under various types of - 10 - operating conditions. As far as labor is concerned, however, the norm re- flects to a large extent the existing 'Labor pattern of the individual enter- prise and provides for wages slightly in excess of the officially guaranteed minimum wage. Savings realized on costs of materials and wages are the enter- prise's source of "profit" and this rtprofitrtis entirely independent of the level of its fixed charges. 59. The receipts of a power enterprise are subject to substantial com- pulsory deductionswhich are almost entirely channelledinto Governmentfunds. These deductions consist of: (a) depreciation,based on assumed average lives of about50 yearsfor hydro plantsand 25 to 30 years for thermalplants; (b) intereston Loans,at 2%; (c) a capitaltax, at 1%.,applying to the enter- prise's"equity" which is derivedeither from the Governmentgrants received beforethe InvestmentBank was created,or, to a much smallerextent from retainedearnings; (d) miscellaneoussmall taxes and contributions,and (e) an incometax. The incometax is assessedon the tincome'of the enterprise afterpayment of operatingexpenses including minimum wages and all incornie deductions.Income in excessof the minimumguaranteed wage bill is taxad at progressiverates, reaching a maximumof 7C% on all incomeexceeding twice that amount. 60. The remaining"net income"or "profit"may be distributedfreely by the enterpriseamong (a) wages and salaries;(b) a "collectiveconsumption fund"for housingand welfareexpenditures and (c) the enterprise'sinvest- ment fund and reserves. 61. Self-financingby power enterprisesthemselves is negligible.De- preciation,to the extentthat it exceedsamortization of loans,is paid into a blockedaccount at the NationalBank and may be used only for renewalsin relationwith the agingof the assetsdepreciated. Surpluses are small and opportunitiesfor expansionwithin the enterpriseare limitedso that most investmentsfinanced by enterprisesare eithersocial or not relatedto power activities. 62. The order of magnitudeof the industry'sreturn on investmentcould not be made corparableto that of industr-esin other countries,given the differencein the definitionof net income. The determinationof the return on investmentis also made difficultby the influenceof the past price patternon the value of the investment. EconomicAspects 63. The Yugoslaveconomy is characterizedby a high level of savingand investment.In 1959 for instance,it is estimatedthat grossinvestments amountedto 30% of grossnational product. The power industryhas been con- sistentlyobtaining a large share of aggregateinvestment resources. Between 1946and 1959,about 20% of total investmentin industryand miningwas allo- cated to electricpower. As a result,about four fifthsof Yugoslavia's power capacityhave been constructedsince the war and electricityproduction has increasedto a level of about eight timespre-war. This rapid expansion - 11 - of power facilitieshas allowed industrial output to increase at a rate of about 13% over the past few years. 64. The Yugoslavs admit that low power rates may have encouraged some uneconomicuses of power. The rate increase made in 1960 for supply to domestic consumershas partly remedied this situation. Adjustmentsin domes- tic prices that should gradually follow the new foreign exchange regime should also contributeto establishmore realisticpower costs. In addition,pro- vided similar adjustmentsare introducedin the capital tax and the interest rates paid by the power enterprises,investment costs would also become more meaningful. 65. The Yugoslav Government has assured the Bank that one of its goals in connectionwith the implementationof the foreign exchange reform is the removal of the existing disparities in prices. The Governmenthas also stated that it intends to pursue a policy of gradually increasingprices of electricityso as to achieve an adequate rate of return on investmentsin the power industry. VIII. THE BORROWER 66. The proposed borrower is the InvestmentBank which was established in 1956 as the managing agency for the Federal Government's"General Invest- ment Fund" and for similar investment funds of the six Republics. It finances about half of total new investment primarily with long term loans for devel- opment projects. The broad lines of investment distributionamong sectors are established by the governments in their economic plans. 67. In 1958 and 1959 the InvestmentBank made loans totalling about Dinars 78 billion for power. About Dinars 64 billion were disbursed out of power loans in these two years from the General InvestmentFund alone. A forecast showing resources to be allocatedfor power out of the various in- vestment funds is shown in Annex 7. 68. Power loans are made for terms of 30 years for tnermal projects and 50 years for hydro projects and carry an interest of 2%. The InvestmentBank finances the total cost of a project and will adjust the amount of the loan in case of variation of cost estimates. An adjustmentis also made at the completion of the project to include interest during constructioncharged at 2%. 69. The financing of the projects proposed for Bank financingwould follow the same procedure. It would serve no useful purpose to insist that the relending of Bank funds be made at the same terms as the proposed Bank loan because under the existing Yugoslav system this would not have any affect upon the financial position of the enterprises administering the projects or upon the power rates which would be charged. IX. CONCUJSIONS. 70. The organization of the Yugoslav power industry is unique. The power system, which is generally well maintained and executed, has been devel- oped to keep pace with the rapid economic growth of the country. - 12 - 71. The present program for expansion of the power system, which forms part of the Government'sgeneral investmentplan, is reasonable and will provide the additional capacity required to meet the estimated increase in demand. 72. Two projects have been selected fron this progran as being most suitable for financingby the propiosedBank loan of 130 million. These are the Senj hydroelectricplant and the 220 krvtransnmission system, to which would be allocated 6.O8million andi>33.2million respectively. 73. Both projects are technicallysound and have a high priority in the power expansionprogram. Satisfactoryarrangements have been made for their execution. Their estimated costs are reasonable. 7ht. Powrerexpansion is almost exclusivelyfinanced by the Investment Bank fromiGovernment funds through which a substantialportion of the savings in the economy are channelled. The high level of saving in Yugoslavia and the large share of aggregateinvestment consistentlyallocated to power give prom- ise that the program contemplatedwould be adequately financed. 75. The usual financial concepts could not be used in this appraisal mainly because of the methods by which accounts are kept in Yugoslavia, the channellingof investrientsthrough Government funds and the existing price distortionsin the economy. 76. The proposed Bank loan would be made to the Yugoslav Investment Bank, the agency responsiblefor managing the invrstmentfunds of the Federal and Republic Governments. The proposed loan would be nade with a term of 25 years including a grace period of about four years. ANNEX1 Y U G O S L k V I k Records and Forecasts of Po-TerConsumption (in million kwh) Share 1959 RECORDS 1954 1955 1956 1957 1958 1959 (%) Large Industrial 765 1,014 1,240 1,555 1,877 1,865 27.9 Other Industrial 1 220 1,610 1)866 2,115 2,217 2,656 39*7 Total Industrial 1 2,624 3,170 4,09 4 67.6 Residential 395 554 695 832 1,142 1,348 20.2 Commercial 210 260 275 320 394 45h 6.8 Traction 22 21 25 25 25 27 04 Public Servi^es 134 115 150 186 216 232 3.5 Met Fxports 61 _414 69 146 175 99 1.5 Total Consumption 2, 607 14,320 5,179 o 6,O46 100.0 Losses (incl. own consumption) 638 733 728 1,073 1,300 1,425 Total Generation 3,4. 140 5,0i48 6,252 7,3)46 Supplied by Indulstrially- owned Plants 710 823 882 933 940 1,033 Supplied by Public Power System 2,735 3,561 4,166 5,319 6,406 7,073 Increase Over Previous Year (%) 30.0 17.0 27.7 20.5 10.2 FORECASTS 1960 1961 1962 1963 1964 1965 Large Industrial 2,160 2,440 2,775 3,4U50 14,010 14,910 Other Industrial 2,840 3,180 3,525 3,950 14,490 5,090 Total Industrial 000 5,620 5,3 ,40 ,00 1j0,000 Residential 1,390 1,530 1,780 2,050 2,400 2,600 Commercial 520 505 670 770 880 1,000 Traction 28 30 30 35 45 60 Public Services 263 285 320 360 405 450 Exports 105 120 130 11h0 180 230 Total Consumption 7T3o 5,170 9,230 10,755 12,10 14,5h40 Losses (incl. own consumption) 1,1914 1,730 1,970 2,2bO 2,560 2,960 Total Generation 58b00 9,900 11,200 12,995 19709o 17,500 Supplied by Industriall;y- owned Plants 1,100 1,130 1,250 1,330 1,1400 1,470 Supplied by Public Power System 7,700 8,770 9,950 11,665 13,570 16,030 ANNEX 2 Y U G O S L A V I A OonstructionProgram Hyd-roPlants Name Location Capacity Start Operations ilM Kokin Brod Serbia 21 1963 Split I Croatia 216 1962 Ozbald 3rd Unit Slovenia 20 1961 Grancarevo Bosnia-Herzegovina 108 196 4 Dubrovnik Croatia 216 1965 Globocica A,iacedonia 42 1963 Perucica i4ontenegro 108 1962 Bajina Basta Serbia 2)40 1965 Senj Croatia 216 1965 Total TIT7 Thermal Plants Name Location Capacity Start Operations -AW Kolubara 2nd Unit Serbia 32 1961 Lukavac 1st Unit Bosnia-Herzegovina 64 1962 Brestanica Slovenia 125 1961 Zagreb Croatia 64 1961 Sostanj 2nd Unit Slovenia 75 1961 Rtanj Serbia 12.5 1962 Kosovo 1st Unit Serbia 64 1962 Kosovo 2nd Unit Serbia 125 1963 Beograd Serbia 108 1963 Total 7.5 ANNEX 3 YUGOSLAVIA Forecast of Energy Balance (In milliornsof kwh) 1960 1961 1962 1963 l964 1965 Possible Generationbased on Average water availability: HydroPlants 5,763 6,261 7,202 8,050 8,8C5 10,856 ThermalPlant 2,37h 3,655 ,341 5,041 5,716 5,716 Total: 8,137 9,916 11,5h3 13,091 1h,521 16,572 Energy requirements 7,700 8,770 9,950 12,665 13,570 16,030 Surplus 437 1,1h6 1,593 1,426 951 5h2 Possible Generationbased on water availabilityin a dry year: Hydro Plants 4,7h1 5,184 5,882 6,9,93 7,131 8,811 Thermal Plant 2,374 3,655 4,341b 5,041 5,716 5,716 Total: 7,115 8,839 10,223 11,53h 12,847 1h,527 Energy requirements 7,700 8,770 9,950 11,665 13,570 16,030 Surplus or (deficit) (585)1/ 69 273 (131) (723) (1,503) 1/ The water availabilityin 1960 was above average. A1N\NEX4 Y U G 0 S L A V I BPage 1 Principal Data on the Senj HydroelectricDevelopment Drainage Areas: Lika River: 1200 sq. km. Gacka River: 5$O 1" '! Average Annual Precipitationon Drainage Areas: 1b4O mm. Average Flow Based on 18 years Record: Lika River: 31.18 m3/sec. Gacka River: 13.10 " Total )h428 ¶t Highest Flow of Record at Sklope Dam Site: 750 " Total Volume of Storage at Sklope Dan: 125 million m3 Head on Sklope Dam at FIax.Storage: 73 m. Gross Head at Powerhouse: 432.7 m. to 437.2 m. Net Head at Powerhouse: )406.0 m. to 434.0m. Flow at Ins'UalledCapacity 6C.0 m3/sec. InstalledCapacity: 216 NW Generating Sets: T*pe: Francis-vertical Number: 3 R.P.i4.1 600 Rating: 80 1NV Power F2ctor: 0.9 Transformers: Tape: Three-phase Number: 3 Voltage: 2@ 17.5/121 KV 1@ 17.5/242 KV Production in Average Year: 1062 GNH Utilizationof Capacity inAvera7e Year: 2145 Hours Dams: Sklope: Purpose: Storage (futurepower) Type: iloublecurvature thin arch Height 76 m. Length at Crest: 2L4 mn. Spillway Type: Gated ";orning Glory Spillway Capacity (tentative): 1200 m3/sec. Seliste: )urpose: Divert Lika River Type: Cated Concrete Gravity overflow structure and screened tunnel inlet Height 8.0 m. Length: 72.0 m. Vivoza: Purpose: Control one distributoryof Gacka River Type: Concrete gravity gated sluiceway and rock fill embankment Height: 8 m. Length: 950 m. ANNEX 4 Page 2 Sumecica: Purpose: Divert one distributoryof Gacka River Type: Gated concrete gravity Height: 7 m. Length: 150 m. Gusic Polje: Purpose: Diversion, Gacka River and provide daily pondage Type: Gated concrete gravity and rock fill embankments Height: 7.5 m. Length: 2050 m. Tunnels: Lika to Gacka: Type: Pressure, concrete lined, circular Length: 10.45 km. Diameter: 3.85 m. Capacity 50 m3/sec Sumecica to Gusic Polje: Type: Free flow, concrete lined, horseshoe Length: 9.20 km. Size: b.7 m. iride 5.5 m. high capacity: 60 m /sec. Gusic Polje to Hrmotine: Type: Pressure, concrete lined, circular Length: 13.58 km. Diameter: 5.0 M, Capacity: 60 ml/sec. Canals: Downstream from Lika-Gacka tunnel, length 280 m. Upstream from Sumecica-GusicPolje tunnel, length 1525 m. Downstream from Sumecica-GusicPole tunnel, length 1730 m. Hrmotine Surge Tank: Type: Underground riser Throat Diameter: 2.8 m. Head, Maximum dynamic: 37 m. Penstock: Type: Underground, inclined 430, steel lined Length: 621 m. Diameter: 3.7 m. Powerhouse: Type: Underground,concrete lined Length: 68 m. Width: 15.5 m. Height above Floor: 13 m. Tailrace Tunnel: Type: Concrete lined, horseshoe Length: 651 m. Size: 6 m. wide, 6.8 m. high Ah1MEX 5 Y U G 0 S L A V I A The 220 KV TransmissionSystem Costs Incurred During Latter Estimated Length Half Total or 1960 Cost Facility Capacity 4iillion Dinars In the Republic of Serbia Bajina Basta switching station - 0 1,037 Bajina Basta-Zvornikline 90 km. 0 960 Potpec-BajinaBasta line 65 km. 0 760 Srboban transformer station with synchronouscondenser 150 MVA 114 1,629 Srboban-Zvornikline 122 km. 812 1,577 Synchronouscondenser in the Beograd III transformer station 0 144 Load frequency control equipment in Belgrade 0 540 Automation equipmentfor system control in Belgrade 0 853 In the Republic of Slovenia Mraclin-Kidrecevo line 93 km. 0 1,075 Synchronous condenser in the Klece transformer station 0 144 In the Republic of Croatia Mraclin transformer station with synchronous condenser 150 lAVA h90 2,234 Split-MIraclin line 357 km. 1,287 4,422 In the Republic of Bosnia-Herzegovina Kakanj transformer station 100 ?VA 0 861 Kakanj-Jajce line 86 km. 637 958 Titograd-M.ostar line 186 km. 0 2,351 1Mostar switching station 0 881 I\Iostar-Kakanj line 112 km. 0 1,230 In the Republic of Montenegro Titograd transformer station 150 KVA 5o 1,262 Titograd-Potpec line 153 km. 1,150 1,832 Totals 1,264 km. 4,540 24,750 550 iVA ANNEX 6 Y U G O S L A V I A Average Price of Power for Selected Categories of Consumers in 1959 din/kw.jh US mills/kwh ElectrochemicalIndustry 2.52 3.4 Electrometallurgy 4.37 5.8 Other Special Industries 6.42 8.6 General Industry 114.23 19.0 Local Services 8.80 11.7 Domestic 5.24 7.0 Commercial 25.56 34.2 Public Lighting 6.26 8.3 Export 4.63 6.2 ANIEX 7 YUGOSLAVIA Planned investmentsfor expansion of power system 1960 - 1965 (In billions of dinars) 1960 1961 1962 1963 1964 1965 Total Generation: General Investment Fund 36.0 48,Q0 47.0 46.o h9.0 59.0 285.0 DecentralizedFunds - - - 2.0 3.0 5.0 Total 36.0 4P.0 47.0 46.0 51.0 62,0 290.0 Transmission(110 and 220 kv) General InvestmentFund 11.2 11.8 9.2 7.0 7.0 h.0 50.2 DecentralizedFiunds 0.5 1.2 2.8 z.O 6.0 11.0 25.5 Total 11.7 13.0 12.0 11.0 13.0 15.0 75.7 Distributionand 35 kv, DecentralizedFunds 10.5 9.0 11.0 13.0 14.0 15.0 72.5 Total Sources: General InvestmentFund 47.2 59.8 56.2 53.0 56,0 63.0 335.2 DecentralizedFunds 11.0 10.2 13.8 17.0 22.0 29.0 103.0 Total 58.2 70.0 70.0 70.0 78.0 92.0 438.2 Note: The "decentralizedfunds" include the investment funds of republics,communes and enterprises. Distribution is financed out of local funds, mostly with proceeds of a surtax establishedin 1960 on domestic power rates. AU STRIA~ ( gMEDVO-DE9 _ A x * ~~~~~~~~~~~HU N G A R Y dim2 crr>(z ARG ESTANC Subofico ,>P. \a Rokbje V Kloro ~ ~ ~ ~ ~.R2ki\ <7 \ i M o te 6 g eMe~~~~~~~~~~~~~i.durio f/ \ IK Zonbelovoc IUBA\A%JAJjd I / ojd donpek TrcnsformerStos 0k I \ YUGOSLAVIA >OUSROuNI;i&qwWCAREX ~~ ~ ~ ~ ~ ~ ~ ~ l ~ ~BITIA|-gN t ~s> ~ ~ 24~ - ~ ~~(00\ VLSN) D~~~~~~~63)c POWERSYSTEM (65);< /- * \ \~~~~~~~~~~~ERCI,~63 FACILITIES PROPOSED 220KV FIVE-YEAR IN 0 ERATION TRANSMISSION noE no 80 00pePOWER STATION BEFOORE61 SYSTEM PROGRAMO\ \. IIOKV TA RmoY Lmes 3 Jeg e 220KV Trnm-i,,sio,n Lin,es Hydro Plaonts A L El A N I A * /\1 Thermcl PlanWs A *li/5gp T-csformer Stoti-n ° 0VUOO Svviti:hig Statiohs i9 69 'N.. ers in pgrnhe, ind-t,/ rhe ye-r befile,nf\ /96/ ond 1963' InAiCh the stowha- ,i/l b. b-vght GLOBOC(Ct ihto oDPro/i'h (3)\ MILES SENJ DEVELOPMENT AREA 0 ) \ -J JANUARY 1961 IBRD-772 YUGOSLAVIA SENJ HYDROELECTRIC PROJECT 1. Sklope storage dam 9. Gusic Polje rock-filled dams 2. Seliste diversion dam 10. Gusic Polje diversion dam and intake structure 11. Gusic Poije intake structure 3. Lika-Gacka tunnel 2. Gusic Polje-Hrmotine tunnel 4. Vivoza diversion dam 13. Hrmotine surge tank 5. Canals 14. Hrmotine valve chamber 6. Sumecica diversion dam 15. Penstock (underground) 7. Svica intake structure 16. Powerhouse (underground) 8. Svica-Gusic Polje tunnel 17. Tail race tunnel *Sr ar].O N,~~~~~~~~- A : ' a~r .. - J V) 15,~~~~~~ -". ~~~~~~~~~~~~,,,4,S . SENJ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~KSN JANUARY 1961 18RD-778