NORTH MADRAS THERMAL POWER PROJECT (Loan 798-IND)
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ASIAN DEVELOPMENT BANK PPA: IND 18181 PROJECT PERFORMANCE AUDIT REPORT ON THE NORTH MADRAS THERMAL POWER PROJECT (Loan 798-IND) IN INDIA June 2002 CURRENCY EQUIVALENTS Currency Unit – Indian Rupee/s (Re/Rs) At Appraisal At Project Completion At Operations Evaluation (October 1986) (March 2001) (April 2002) Re1.00 = $0.083 $0.023 $0.021 $1.00 = Rs12.12 Rs43.00 Rs47.75 ABBREVIATIONS ADB – Asian Development Bank EIRR – economic internal rate of return FIRR – financial internal rate of return GTN – Government of Tamil Nadu ICHS – internal coal handling system MAUP – Madras City Augmentation and Upgradation Project OEM – Operations Evaluation Mission PCR – project completion report PFC – Power Finance Corporation PPAR – project performance audit report SEB – state electricity board SERC – state electricity regulatory commission TNEB – Tamil Nadu Electricity Board TNPCB – Tamil Nadu Pollution Control Board WEIGHTS AND MEASURES Cal (kilocalorie) - 1,000 calories kV (kilovolt) - 1,000 volts MW (megawatt) - 1,000,000 watts kWh (kilowatt-hour) - 1,000 watt-hours GWh (gigawatt-hour) - 1,000,000 kilowatt-hours NOTES (i) The fiscal year (FY) of the Government and the Tamil Nadu Electricity Board ends on 31 March. FY before the calendar year denotes the year in which the fiscal year ends. For example, FY2001 begins on 1 April 2000 and ends on 31 March 2001. (ii) In this report, “$” refers to US dollars. Operations Evaluation Department, PE-595 CONTENTS Page BASIC DATA iii EXECUTIVE SUMMARY iv MAPS vi I. BACKGROUND 1 A. Rationale 1 B. Formulation 1 C. Purpose and Outputs 2 D. Cost, Financing, and Executing Arrangements 2 E. Completion and Self-Evaluation 2 F. Operations Evaluation 3 II. PLANNING AND IMPLEMENTATION PERFORMANCE 4 A. Formulation and Design 4 B. Achievements and Outputs 4 C. Cost and Scheduling 5 D. Procurement and Construction 6 E. Organization and Management 6 III. ACHIEVEMENT OF PROJECT PURPOSE 7 A. Plant Performance 7 B. Performance of the Operating Entity 7 C. Economic and Financial Reevaluation 7 D. Sustainability 8 IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 8 A. Socioeconomic Impact 8 B. Environmental Impact 9 C. Impact on Institutions and Policy 9 V. OVERALL ASSESSMENT 10 A. Relevance 10 B. Efficacy 10 C. Efficiency 10 D. Sustainability 10 E. Institutional Development and Other Impacts 10 F. Overall Project Rating 10 G. Assessment of ADB and Borrower Performance 11 H. Power Sector Policies 11 VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 12 A. Key Issues for the Future 12 B. Lessons Identified 12 C. Follow-Up Actions 13 ii APPENDIXES 1. Cost Breakdown by Project Components 14 2. Implementation Schedule 15 3. Financial Statements of the Tamil Nadu Electricity Board 17 4. Economic and Financial Reevaluation 19 5. Resettlement and Rehabilitation Measures 23 6. Actions Taken on Stipulated Environmental Conditions 26 SUPPLEMENTARY APPENDIXES (available upon request) A. Socioeconomic Impact Assessment B. Environmental Impact Assessment BASIC DATA North Madras Thermal Power Project (Loan 798-IND) Key Project Data ($ million) As per ADB Loan Documents Actual Total Project Cost 627.5 469.4 Foreign Exchange Costs 253.8 176.4 Local Costs 373.7 293.0 ADB Loan Amount/Utilization 150.0 110.4 Key Dates Expected Actual Fact-Finding 29 Jan–7 Feb 1986 12–27 May 1986 Appraisal 1–11 Sep 1986 Loan Negotiations 13–17 Oct 1986 Board Approval 18 Nov 1986 Loan Agreement 21 Jan 1987 Loan Effectiveness 21 Apr 1987 10 Apr 1987 First Disbursement 5 Apr 1988 Project Completion Dec 1992 Jun 1999 Loan Closing 30 Jun 1992 7 Jan 1999 Months (effectiveness to completion) 62 146 Economic and Financial Appraisal PCR PPAR Internal Rates of Return (%) Economic Internal Rate of Return 15.7 15.6 14.2 Financial Internal Rate of Return 7.4 4.0 8.4 Borrower Government of India Executing Agency Tamil Nadu Electricity Board (TNEB) Mission Data No. of Missions No. of Person-Days Fact-Finding 2 96 Preappraisal 1 16 Appraisal 1 30 Project Administration Inception 1 8 Review1 16 134 Project Completion 1 4 Operations Evaluation2 1 26 1 Most missions were fielded to review the progress of projects under several loans. Person-days shown are actual days spent on the Project. 2 The Operations Evaluation Mission comprised Mr. K. E. Seetharam (Evaluation Specialist/Mission Leader), Mr. K. Venkataraman (Staff Consultant), and Mr. J. P. Shrivastava (Domestic Consultant). The Mission visited India from 17 to 31 March 2002. Ms. Kus Hardjanti (Evaluation Specialist) joined the meetings and field visit from 17 to 22 March. iv EXECUTIVE SUMMARY The Government of India developed a long-term power development program under the Seventh Five-Year Plan (FY1985-1989). The program aimed to alleviate severe power shortages that were serious constraints to economic growth. The program included several thermal power stations utilizing the country's large coal reserves. The North Madras Thermal Power Project (the Project)1 was an integral part of the national power development program. The main purpose of the Project was to expand the generating capacity of the Tamil Nadu Electricity Board (TNEB), the Executing Agency, by installing north of Madras (now Chennai) two units of 210 megawatts (MW) each to meet the prevailing and anticipated power shortages in Tamil Nadu. The Project comprised (i) civil works for site preparation, foundations, the power station building, and water circulation and other systems; (ii) two 690 ton/hour capacity coal-fired steam boilers and auxiliaries; (iii) two reheat steam turbine generators each with a rated capacity of 210 MW and auxiliaries; (iv) instrumentation and control systems; (v) coal and ash handling systems; (vi) water treatment and other miscellaneous mechanical equipment; (vii) transformers, switchyard equipment, and other miscellaneous electrical equipment; and (viii) consulting services. The Operations Evaluation Mission visited India in March 2002, and held discussions with the officials and experts connected with the Project and the staff of the Asian Development Bank (ADB) India Resident Mission. The Central Electricity Authority formulated the Project. The Project was prepared without an ADB project preparatory technical assistance. Plant design and engineering were technically sound and appropriate in the context of the urgent need for additional generating capacity. At appraisal, the total project cost was estimated at $628 million equivalent, comprising $254 million in foreign exchange costs (40% of the total cost) and $374 million equivalent (60% of the total cost) in local currency costs. The actual project cost at completion was $469 million equivalent, comprising $176 million (38%) in foreign exchange costs and $293 million equivalent (62%) in local currency costs. The significant savings resulted mainly from (i) a major depreciation of the rupee during implementation, (ii) strong competition among international and domestic bidders for ADB-financed contract packages, and (iii) overestimated price contingencies. The commissioning of units 1 and 2 was originally scheduled in March and December 1991, respectively. Several factors led to major delays: land acquisition problems; procurement delays in the award of contracts (due to excessive time taken by TNEB for bid evaluation, lengthy internal approvals of contract awards within TNEB, and additional lengthy process for approval of awards by the Central Electricity Authority and the Government of Tamil Nadu [GTN] before submission to ADB for approval); and considerable delays in the implementation of some contracts, particularly that for the internal coal handling system (ICHS). Units 1 and 2 were eventually commissioned in October 1994 and March 1995, more than 3 years behind schedule. However, their optimum utilization was not possible due to the delay in the commissioning of the ICHS, which became fully operational only in June 1999. Thus the total delay in project implementation was 6.5 years. 1 Loan 798-IND: North Madras Thermal Power Project, for $150 million, approved on 18 November 1986. As envisaged at appraisal, the Project provided the additional generating capacity of 420 MW and enabled TNEB to optimize the operation of its hydropower generation facilities. However, until the commissioning of the ICHS, plant performance suffered. Since the ICHS was commissioned in June 1999, performance has been very good with plant load factors exceeding 80%. Operation and maintenance personnel have been adequately trained by TNEB. With the commissioning of the external coal handling system in January 2002, the availability of coal has further improved. The coal delivered by sea will be also cheaper than that delivered by rail. Future funding for the required operation and maintenance is not expected to be a problem. Thus, the long-term sustainability of the Project is likely. Apart from the major delay, the Project has satisfactorily achieved its objectives. The additional energy generated is consumed mainly by domestic, industrial, and commercial consumers in urban areas, and by a limited number of agricultural consumers. The Project’s economic internal rate of return of 14.2% and its financial internal rate of return of 8.4% both confirm its high efficiency. The actual cost, being lower than the appraisal estimates, and excellent plant performance have more than compensated for the delay. Further, the substantive issues relating to the environment and resettlement have been addressed satisfactorily. There still remains the procedural issue of obtaining environmental compliance from the Tamil Nadu Pollution Control Board. Overall, the Project is rated successful. The key indicator of the financial performance of TNEB is the 3% surplus required under Section 59 of the Electricity Act. The Loan Agreement stipulated that TNEB would maintain tariffs at a level to achieve the 3% surplus. However, given GTN’s decision to give power freely to agricultural consumers, this was not possible and hence subventions were needed from GTN to achieve the stipulated surplus. These subventions have become a significant burden on GTN’s budgetary resources. As regards future power projects, the key issue, which is of national relevance, is the financial viability of the state electricity boards.