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Power and Coal Subsector Review Report No. 4746b-HU Hungary Powerand Coal SubsectorReview o-dLEto Public Disclosure Authorized October 4, 1984 Projects Department Europe,Middle Eastand North Africa Regional Office FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (as of May, 1983) Currency unit = Forint (Ft) Official rate 1T7'orint (Ft 1) = US$0.025 Ft 40 = US$1.00 WEIGHTS AND MEASURES 1 kilowatt (kW) = 1,000 watts (103 W) 1 Megawatt (MW) = 1,000 kilowatts (103 kW) 1 Gigawatt (GW) = 1 million kilowatts (106kW) 1 kilowatt-hour (kWh) = 1,000 watt-hours (103 Wh) 1 Megawatt-hour (MWh) = 1,000 kWh (10 3 kWh) 1 Gigawatt-hour (GWh) = 1,000,000 kWh (106 kWh) 1 Terawatt-hour (TWh) = 1,000 million kWh (lO9kWh) 1 kilovolt (kV) = 1,000 volt (103V) 1 kilovolt-ampere (kVA) = 1,000 volt-amperes (103 VA) 1 Megavolt-ampere (MVA) = 1,000 kilovolt-amperes (103 kVA) 1 kilocalorie (kcal) = 3.968 British thermal units (Btu) = 4.1868 kilojoules (kJ) 1 kilojoule (kJ) = 0.2388 kilocalorie (kcal) 1 Megajoule (MJ) = 1,000 kilojoules 10 3 kJ) 1 Gigajoule (GJ) = 1,000,000 kilojoules (106 kJ) 1 Terajoule (TJ) = 1,000 million kilojoules (109 kJ) 1 Petajoule (PJ) = 1,000,000 million kilojoules (l012 kJ) 1 tonne of oil equivalent (toe) = 10,200,000 kilocalories = 42.7 Gigajoules 1 Hertz (unit of frequency) (Hz) = 1 cycle per second I bar (unit of pressure) = 14.5 lbs per sq. inch 1 kilogram (kg) = 2.206 pounds (lb, 1 ton (metric ton) (t) = 1000 kg = 2,206 lb = 1.102 short ton = 0.984 long ton 1 meter (m) = 3,281 feet (ft) 1 millimeter (mm) = 0.001 m 1 kilometer (km) = 1,000 m = 3,281 ft FOR OFFICIALUSE ONLY GLOSSARY OF ABBREVIATIONS AEEF State Authority for Energy Management and Energy Safety CHP Combined Heat and Power (co-generation) CMEA Council for Mutual Economic Assistance (Comecon) DESASZ South-East Hungary Electricity Distribution Company DEMASZ South Hungary Electricity Distribution Compaly EDASZ North-West Hungary Electricity Distribution Company EGI Institute for Energy Conservation ELMU Budapest Electricity Distribution Company EMASZ North Hungary Electricity Distribution Company ERBE Power Station Investment Company EROTERV Engineering Company for Power Station and Network Design FRG Federal Republic of Germany GDP Gross Domestic Product GDR German Democratic Republic GNP Gross National Product HV High voltage IAEA InternationalAtomic Energy Agency IpM Ministry of Industry KBFI Central Mining Development Institute KSH Central Statistical Office LOLP Loss ot Load Probability LPG Liquefied Petroleum Gas LRAIC Long-Run Average Incremental Cost LRMC Long-Run Marginal Cost LV Low Voltage MV Medium Voltage MVMT Hungarian Electric Power Board (Trust) MWe Megawatt electrical output of CHP plant MWg Megawatt generated at generator MWso Megawatt sent out from power station, net of internal consumption MWth Megawatt thermal (heat) output of CHP under heat supply plant NBH National Bank of Hungary NBMP National Board for Materials and Prices NGL Natural gas liquids NDC National (power) Dispatch Centre NPO National Planning Office OAB Atomic Energy Commission OEGH National Energy Authority OES InterconnectedPower System (CMEA) OKGT Hungarian National Oil and Gas Trust OKTH National Environmental Protection Office OMFB State Commission for Technical Development OVIT National (power) Transmission Company PWR Pressurized Water (nuclear) Reactor SAR Staff (project) Appraisal Report (World Bank) SDB State Development Bank TITASZ East Hungary Electricity Distribution Company USSR Union of Soviet Socialist Republics (Soviet Union) VEIKI Institute for Energy VERTESZ Power Station Study and Erection Company VITEV Electricity Industry Civil Engineering and Maintenance Company This document has a restricteddistribution and may be used by recipientsonly in the performanceof their official duties. Its contents may not otherwisebe disclosed without World Bank authorization. HUNGARY POWER AND COAL SUBSECTOR REVIEW ABSTRACT This report identifies the main issues in Hungary's electric power, coal, and district heating subsectors and presents a strategy for dealing with them. The central issue in the subsectors concerns the selection of the most economic power generation option and any associated coal mining investment. Based on a computer model of the Hungarian power system, the mission recommends that a group of combined heat and power projects followed by a lignite power station is the preferred strategy. An alternative strategy with no CHP projects would be the lignite power station followed by a brown coal power station. Further 1,000 MW nuclear power stations are shown to be a low priority at present. The report contains a number of recommendations for strengthening the planning of the subsectors which involve preparing least-cost investment programs for power, brown coal and district heat development, feasibility studies for projects in these programs and a re-evaluation of the Lias (hard coal) investment program. Prices of power and coal to enterprises are generally in the order of 80-90% of economic cost and the mission recommends raising these prices to their economic costs to improve economic efficiency and to mobilize resources to finance new investment. Consumer energy prices are typically only 30-35% of economic cost. The Government plans to increase them to their economic costs, but the mission recommends that the Government should determine whether the timescale to this could be speeded up. Enterprises in the power and coal subsector are generally well run and adequately staffed. There may exist some scope for modest institutional reforms that would raise efficiency above its already high level and the report recommends areas which the Government could examine. In particular, the mission recommends giving the power utility more responsibility for preparing its investment programs for review and approval by the appropriate Government agencies. HUNGARY POWER AND COAL SUBSECTOR REVIEW Table of Contents Page I. EXECUTIVE SUMMARY 1 A. Introduction 1 B. The Main Issues 3 II. THE INSTITUTIONAL FRAMEWORK 21 A. Energy Sector Organization 21 B. The Electric Power Subsector 27 C. The Coal Subsector 31 D. The District Heating Subsector 35 E. Subsector Planning 36 1II. COAL AND OTHER ENERGY RESOURCES 39 A. Coal Reserves 39 B. Other Energy Resources 40 IV. PAST CONSUMPTION AND SUPPLY OF POWER, COAL AND DISTRICT HEAT 43 A. Development of Energy Policy 43 B. Overview of Energy Consumption and Supply 44 C. Past Trends in the Consumption of Coal 50 D. Past Trends in the Consumption of Electricity 53 E. Past Consumption of District Heat 56 F. Past Supply of Electricity 58 G. Past Supply of Coal 68 H. Past Supply of District Heat 72 V. PROJECTED CONSUMPTION AND SUPPLY OF POWER, COAL AND DISTRICT HEAT 77 A. Forecast Consumption of Power, Coal and District Heat 77 B. Future Electricity Supply 83 C. Future Coal Supply 97 D. Future Supply of District Heat 103 This report was prepared by; A. McKechnie (economist), H. Hendriks (mining engineer), T.B. Russell (consultant), M. Sharma (consultant), with assistance from H. Boehm (financial analyst), S. Chattopadhya (coal mining engineer), I. Tuncay (power engineer), G. Deuster (consultant), P. Skytta (consultant), W. Buehring (consultant), and L. Poch (consultant). - ii - Table of Contents (cont'd) Page VI. DEMANDMANAGEMENT AND PRICING 107 A. Demand Management 107 B. Historical Overview of Coal and Electricity Prices 108 C. Institutional Responsibility and Basis for Energy Pricing 112 D. Pricing of Coal 112 E. Electricity Tariffs 116 F. Pricing of District Heat 122 G. Household Prices of Power, Coal and District Heat 126 VII. INVESTMENT 130 - iii - Table of Contents (cont'd) ANNEXES Page 1. - None 2.1 - Power Subsector Organization (Chart)......................... 135 2.2 - Organization of Hungarian Electric Power Trust (MVMT) (Chart). 136 2.3 - Electric Power Subsector Manpower 1975-1985.................. 137 2.4 - Wages and Salaries, Electric Power Subsector................. 138 2.5 - Organization of Tatabanya Coal Mining Company (Chart)........ 141 2.6 - Tatabanya Coal Mining Company................................ 142 2.7 - Main Provision of Public Law IV of 1962 Concerning the Development, Transmission and Distribution of Electric Power, Decree 40/1962 ...................................... 144 2.8 - Main Provisions of Act VI of 1977 on State Enterprises and Decree No. 4/1978 of the Council of Ministers on Its Enforcement................................................ 155 3. Coal Reserves................................................ 164 4.1 - Consumption of Fuels by Sector............................... 168 4.2 - Consumption of Coal and Coal Products . ......................172 Table 1: Primary Coal Consumption by End-Use, 1970-1981..... 172 Table 2: Coal Consumption by Sector, 1970-1981 . ........ 173 Table 3: Consumption of Briquettes by Sector, 1970-1981 ..... 174 Table 4: Consumption of Coke by Sector, 1970-1981 . ...... 175 4.3 - Electricity Generating Capacity ................. 176 Table 1: Balance of Capacity and Demand, Interconnected System............................................. 176 Table 2: Details of Power Generating Plant, December 1982 ... 177 Table 3; MVMT Installed Capacity by Fuel Type, 1982......... 179 Table 4: Age Distribution
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