Joint UNDP/World Bank- Energy Sector Management Assistance

JointUNDP/World Bank- Public Disclosure Authorized EnergySector Management Assistance Program

ActivityCompletion Report No. 072/87 Public Disclosure Authorized

Activity: TULI BLOCKFARMS ELECTRIFIAION PRE-FEASIBILITY STUDY

JULY 1987 Public Disclosure Authorized Public Disclosure Authorized

BESTCOPY AVAILAIBLE

Reporlof the JointUNDP/World Bank Energy Sector Management Assistance Program Thisdocument has a restricted distribution.Its contents may not be disclosed without authorization from the Govemment,the UNDPor the World Bank. MNERCYSECTOR NANACENT ASSISTANCEPROGBAM

T,heJoint UNDP/WorldBank Energy .SectorManagement Assistance Program(ESMAP), startted in April 1983*assists countries in implementing the main investmentand policy recommend4tionsof the Energy Sector Assessment Reports -produced under another Joint .UNDP/World Bank Program. ESMAP providesstaff and consult-ant.assistance in formulating and justifyingpviority pre-investmentand investmentprojects and in providing management,institutional and policy support. The reports produced under this Program provide governments,dotors and potential investorswith the informationneeded to speedup projectpreparation and -implementation.ESMAP activitiescan be classifiedbroadly into three groups:

Energy AssessmentStatus Reports: these evaluateachieve- ments in the year following iss-uanceof the original assessmentreport and point out where urgent action is stillneeded;

- Project Formuladionand Justification:work designed to acceleratethe preperationand implementationof investment projects;and

- Institutional.andPolicy Support: this work also frequently leads to the identificationof technicad assistance packages.

The Program aims to supplement,advance and strengthenthe impact of bilateral and multilateralresources already, available for technical.assistancein the energysector.

Fundingof the Program

The Programis a major internationaleffort and, while the core finance has been provided by the UNDP and the World Bank, important financialcontributions to the Programhave also been made by a numberof bilateralagencies. Countries-which have now made or pledged initial contributionsto the programsthrough the UNDP EnergyAccount, or through other cost-sharingarrangements with UNDP, are the Netherlands,Sweden, Australia,Switzerland, Finland, United Kingdom, Denmark, Norway, and New Zealand.

FurtherInformation

For further informatior.on the Programor to obtaincopies of completedESMAP reports,which are listed?at the end of this document, pleasecontact:

Divisionfor Globaland OR EnergyEfficiency Unit InterregionalProjects Industryand Energy UnitedNations Development Department Program World Bank One UoitedNations Plaza 1818 H Street,N.W. New York,N.Y. 10017 Washington,D.C. 20433 TULI ILOCKFAIR1 SL3CTUVIC&TIO MB-FPUIBUWTTS?WY

JULY 1987 CurrencyUnit = Pula 1.00 Pula = 100 thebe

RKCHAUCURATES AT TINE OF MIssIon (November1985)

US$ 1.00 * Pula 2.12 Pula 1.00 - US$ 0.4717

ABBpRVIATIONSAND ACNUSfH

BCL Bamangv,X Concessions,Ltd. BPC Botswa._Power Corporation DWA Departmentof Wacer Affairs ERR EconomicRate of Return ESCOM ElectricitySupply Commission ESMAP EnergySector Management Assistance Program COB Governmentof Botswana HKS Hill, Kaplanand Scott Inc. ZRNC Long Run MarginalCost NMRWA Ministryof MineralResources and Water Affairs MPS MorupulePower Station NPV Net PresentValue OCC OpportunityCost of Capital RSA Republicof South Africa

This reportis based on the findingsof a missionthat visited Botswana in November, 1985 and consisted of Messrs. Miguel Bachrach (Economist, Mission Leader), Lars-Erik Larsson (Power Engineer, Consultant), and Bo Sedin (Economist, Consultant). Subsequent contributionswere made by Messrs.Robin Bates (Economist),Hany Assaad (Financ il Analyst), and Joseph Cilling (Economist, Consultant). Secretas-A assistancewas providedby Holly Mensing,Tara Holtby-Allen, and Betsy Edison. Word processingwas providedby BasharatAhmad. The reporthas been revisedto take into accountthe commentsreceived from GOB and BPC duringdiscussions that took place in Gaboronein May, 1987. TABLE OF CONTMrTS Page

I. SUMMARYAND MAIN FINDINGS...... 1

ProjectDescription...... 2 Costs and Benefits...3...... 3 ProjectImplementation....s...... 5

II. ELECTRICITYSUPPLY IN BOTSWANA.*...... 8 Power SectorOrganization...... 8 Ceneration,Capacity, and 8ales...... 8 ElectricityTariffs...... 9

III. ELECTRIFICATIONOF THE TULI BLOCK FARMS...... 11 The Tuli Block Ara...... 11 EconomicActivities and GovernmentPolicy...... 11 Water Resourcesin the Tuli Block...... 12 EnergyConsumption and Costs.... 13 Communicationsand Marketing...... 14 The ProposedProject...... 15 ProjectAlternatives.e.... 0 ...... o...... o...... 15 ProjectDescriptiono...... 0.0.00.0...... 16

IV. ECONOMICAND FINANCIALEVALUATION ...... 19 Introduction ...... 000000~00*00...... 0.. 19 EconomicEvaluation ..... 0 19 ElectricityDemand Forecast...... 19 Methodology...... 0.0...... 20 EconomicBenefits of Electrification...... 21 ProjectCosts .00...... 23 DiscountedCash FlowAnalysis ...... 24 Costof Electricitye...... 000025 Sensitivity...... 25 AlternativeDevelopment Strategiesoo..o..o9o.oo*o0o 26 DieselPumping ...... 0000000..000.000000000000 26 Supplyfrom RSA...... 27 PricingPolicy ...... 0.00.00.000.00 ...... 027 Risks...... *28 FinancialEvaluation...... 0.00.00...... 28 The Farmers'Wllingness to Electrify...... 28 FinancialImpact of the ProposedProject on BPC...... 30 TABLES

2.1 HistoricalSales and Generation8...... 8 3.1 Breakdownof VariableCosts of Productionfor Sample Crops ...... 15 4.1 Cost of ElectrificationBased on MorupuleSupply at 66-kY.. 23 4.2 Net PresentValue and EconomicRate of Returnfor Three Growth S 24 4.3 Net PresentValue of Costs and Benefitsat 1fliDiscount Rate ...... 24 4.4 SensitivityAnalysis of Key Parametersfor ScenarioB...... 25 4.5 SensitivityAnalysis Results for the Project--ScenarioB... 26 4.6 Comparisonof Supplyfrum Morupuleand ESCO M...... 27 4.7 Net PresentValue of Savingsat DifferentElectricity Tariffsand ComparableDiesel Prices (at 101 DiscountRate) 29 4.8 Net PresentValue of incrementalCash Flows to BPC ar - InternalRate of Returnon Investmentat Different ElectricityTariffs and Load GrowthScenarios************ 31

1 ProjectCost Estimates(1985 Prices))..... 33 2 Economicand FinancialValuation of Costs and Benefits..... 37 3 IrrigationActivities in the Tuli Block Fasms 44 4 EstimatedElectricity Demand in the Tuli Block Area:4...... 48 5 Tuli Block ElectrificationEconomic Analysis...... 51 6 FinancialSavings to the Farmer...... 55 7 FinancialFeasibility of the Projectfor BPC...... 57 8 Key Maps of the Tuli Block Farms...... 60 I. 8SUMMRYAND MAIN FINDINGS

Introduction

1.1 The EnergyAssessment Report on -Botswanaidentified water pump electrificationas an importantpotential opportunity for reducing the country's dependenceon imported energy sources.1/ At that time, importsof petroleumproducts accounted for nearly a quarter of export earnings, diesel imports representedabout 65% of total petroleum imports,and the consumptionof diesel oil for water pumping accounted for about 131 of total dieseloil demandin the country. The Government of Botswana(GOB) thereforeis concernedabout the growth of diesel oil demand (which was about 6.5Z per year between 1977 and 1982), and initiatedseveral pilot projectsduring the FourthNational Development Plan (1976-1981)to evaluatealternatives to diesel-poweredpumps. The Energy AssessmentReport reviewedthe status of ongoing investigations and concludedthat, given the availabilityof power generationcapacity and the pace at which the electricitytransmission/distribution grid was being expanded in eastern Botswana,there might be a strong case for drawing power from the grid to electrifythe existing diesel-powered pumps. The objectiveof the conversionwould be to reduce the economic cost of water supplyby using a cheapersource of energy,produced with a domesticresource (coal), to substitutefor the more expensiveimported energy (diesel).21 Other benefitsares an overall increasein energy self-sufficiencyand savings from electrifiedpumps that would come in the form of lowermaintenance and operationcosts.

1.2 The Joint UNDP/WorldBank Energy Sector ManagementAssistance Program (ESMAP), working in collaborationwith the United Nations Department for Technical Cooperationfor Development,initiated two prefeasibility studies--cofinancedby the Swedish International DevelopmentAgency--to assist in evaluating the potentidl for pump electrification.The first of these, completedin 1986, examined the potentialfor electrifyingpumps that supplywater for domesticuse to villagesclose to the grid. 3/ The second,the subjectof the present report,examines the feasibilityof supplyingelectricity for irrigation and other productiveuses in the Tuli Block farms. This prefeasibility re?ort is based on the findingsof a mission that visitedBotswana in

1/ Botswana: Issuesand Optionsin the EnergySector, September 1984, ReportNo. 4998-BT.

2/ Even with depresseddiesel oil prices,the economiccost per ;NShof diesel-poweredequipment is three times higher than electricity generatedwith domesticcoal.

3/ Botswana:Pump ElectrificationPrefeasibility Study, January 1986, ReportNo. 047/86. -2-

November1985; it reflects1985 price levelsexcept in the case of diesel prices, where the subsequentfall in internationaloil prices has been taken into accountin the economicand financialanalysis.

1.3 The presentprefeasibility study concludes that electrification of the Tuli Block area is likely to be economicallyviable, subject pvincipallyto confirmationof water availability,improvements in the road accessto the area,which affectsthe marketingof its agricultural production,and expectationsregarding the future trend of oil prices. These factorsare key to the growth potentialof the area and thus the growth in electricitydemand on which the viability of the project hinges. The implementationof the project would require an initial investmentof P 13.1 million (US$6.18 million) in 1985 prices; an additionalinvestment of about P 900,000in 1985 priceswould be needed for expansionsin years two and three if justifiedby an assessmentof electricitydemand growth potential,to be undertakenat that time. A maximum total investmentof P 15.3 million (US$7.22million) in 1985 prices would be warrantedif economicactivities in the area, fueled by the electrification,increase electricitydemand to four times the potential load that exists at present, by convertingavailable diesel pumps and smallerdiesel units to electricity.However, the feasibility of the proposedproject depends crucially on the availabilityof water, an issue which has been addressed by the "Limpopo Water Utilization Study"--exec'itedby the Departmentof WaterAffairs (DWA) of the Ministry of Mineral Resourcesand Water Affairs (MKRWA)--whichexists in draft form (March1987).

ProjectDescription

1.4 The proposedproject consists of buildinga 66-kV transmission line from the Morupule Power Station (MPS) to the Tuli Block area, a distanceof 100 km, togetherwith the associateddistribution facilities to connect the existingfarms (and other productiveunits) to the main grid. These farms extend along the Limpopo River over a distanceof about 300 km. Compared with diesel pumping, connectionwith the ElectricitySupply Commission (ESCOM) system, and separatetransmission lines constructedto serve the northernand southernparts, the proposed project is the least-costsolution for meeting identifiedexisting and potentialirrigation and associateddemands in the Tuli Block area with acceptablereliability and servicestandards.

1.5 The Tuli Block is one of the few areas in Botswanawhere large- scale irrigationtakes place and where developmentof agricultural productionappears promising. This area combinesirrigation potential, adequatesoil conditions,and reasonableaccess to the local and export markets. Until now, the high cost of energy and relativelylow reliabilityof diesel-poweredpumps and generatorshave restrictedits development. In this context,the proposedelectrification project has severalattractive features. The implementationof this projectwould: -3-

(a) save economicresources by replacingimported diesel fuel with electricitygenerated by a cheaperdomestic resource (coal);

(b) enhance Botswana's energy self-sufficiency,an important considerationgiven the uncertain political and economic situationin the Southern Africanregion; tc) increasesecurity of supply in the event that diesel supply from the Republicof South Africa(RSA) is disrupted;

(d) providea more reliablesupply of energyto the farms;

(e) enableelectricity supply to be extendedto cattlefarms (both for domestic and productiveuses), with consequentadditonal savingsin importeddiesel;

(f) through (d) and (e), stimulategrowth in agriculturaloutput and employmentin the Tuli Blockarea; and

(g) providebasic infrastructurefor futureelectrification in the area along the transmissionand distributionlines.

1.6 The idea of providingelectricity to the Tuli Block farms is not a new one. Indeed,for some years the farmersin the area have been trying to arrange for their farms to be connectedto the R8A grid. In response to these demands, two studies were commissioned. The first (Hill,Kaplan and Scott Inc. (HKS))examined the economicfeasibility of interconnectionwith the RSA, and the second(Nerz and McLellan)examined its technicaland financialaspects. Having reviewedboth studiesand collected informationin the area, the mission concludes that the electricity demand projections calculated by HKS are optimistic. Nevertheless,some of their resultswill be presentedin this reportas points of reference. Also, the proposalby Merz and McLellanhas been used as a basis for comparingthe costs and benefitsof connectingthe farms to the Botswanagrid with the costs and benefitsof connectingthem to the RSA gr-d.

Costs and Benefits

1.7 The basic economiccost of connectingthe Tuli Block farms to the main grid in Botswana'is estimated at about P 11.1 million (Us$5.2million). 4/ About 70X of the economic cost of the proposed project is foreign and the remainder (30%) is local. The basic investmentcomprises the terminal equipmentat Morupule (220/66 kV), transmissionand distribution lines, a 66/33 kV substation, and extensionsto consumers. If high load growth materializes,the system would require extra investmentin voltageregulation, transformers, and

4/ The financialcost is P13.1 million(US$6.2 million). -4-

perhapsadditional 33-kY extedsionsto consumers. Since there is surplus electricitygeneration capacity in the medium-term,it is estimatedthat demand growth in the Tuli Block would not require further generation capacityfor severalyears to come. The neededadditions could increase the economic cost by about P 1.9 million (US$ 0.9 million) or P 2.2 million (US$ 1 million)in financialterms, to be incurredZour to five years after the installat'onof the basic transmissionand distribution infrastructure.

1.8 Economicbenefits vary with the growth prospectsin the area and the price of diesel oil. At the price of 69 thebe/lt (US$1.31/gallon)prevailing at the time of the mission (Novembt.1985), the benefitswould have justifiedimplementation of the projecteven with modest growtLover the then depressedlevel of economicactivity and oil consumptionin the Tuli Block area. At lower dieseloil prices,such as the mid-1986 price of 57 th/lt (US$1.08/gallon),the project is still likely to be justifiedif energy demand grows at 4.5X per year. This growth rate in electricitydemand would implyan equivalentincrease in the agriculturalarea from the initial1,580 hectares under irrigationto about 3,800 hectaresin twentyyears or 2.4 times the initialarea. The economicrate of return for this growth scenariois estimatedat about 10.6x. If the irrigatedarea in the Tuli Block could be increasedto about three times the existing area in eight years, with related increasesin production,it is estimatedthat electricalloads could grow in proportion,averaging 15X per year for the firsteight years. At this rate of growth, the projectwould yield an economicrate of return of about 13.5Z.

1.9 Such a potentialload growthis possiblesince the availability of electricitywould result in considerablesavings and convenienceto farmers. At present, the fuel cost of irrigation represents a significantproportion of productioncosts. For example,it can be as much as 23% of total productioncosts for soya. If electricityis priced at 16.97 thebe/kWh,its substitutionfor dieselwould reducethe farmers' energy costs by about 25X. 5/ Hence, the availabilityof electricity would result in considerablesavings to farmersand could inducea boost in production. However,actual growth in productionwill be determined primarily by the availability of water--and of course market opportunities--ratherthan water pumpingcosts. Marketopportunities are now restricted because the Tuli Block area is not accessible to markets. Improvingthe road networklinking the farms to their markets is also a primary conditionfor the success of the proposedproject. Therefore,if the Tuli Block Farms electrificationproject is to proceed beyondthe prefeasibilitystage, the economicrate of returnestimated by

5/ This would be the recommendedelectricity price based on the Bank's Power SubsectorReview. To this saving one would have to add the reductionin capital,maintenance, and other operatingcosts that resultsfrom electricmotors. - 5 -

the mission must be subjectedto confirmationof water availabilityfor the expansionin productionand a final judgementon the market for the outputof the Tuli Block Farms.

ProjectImplementation

1.10 The successof the proposedproject hinges critically on three factors: water availability,accessibility of the farms to their markets, and the financial arrangementsbetween the Botswana Power Corporation(BPC) and the farmers.

1.11 Water in the Tuli Block can be obtained from two sources: surface water from the Limpopo and groundwater. Although existing studiesindicate that the potentialfor surfacewater irrigationin the Tuli Block is being underutilized(see para. 3.9), it is not clear to what extent this is becauseof high water pumpingcosts in Botswanaor more intensivewater pumpingfrom farms in the RSA. On the one hand, the cost of water pumpingwith diesel engines is relativelyexpensive and this discouragesfarmers in Botswanafrom pumpingwater from the Limpopo into terrain that is far away from the river. On the other lhand, productioninputs (includingelectricity) sold to farmersin the RSA are heavily subsidized, and this has stimulated a higher level of agriculturalactivity across the border. Higheractivity means that the farms in the RSA may be takingpart of the Limpopowater that could be available for irrigationin Botswana. Water rights are not clearly establishedor monitored. A more formalagreement on this matter would have to be settledbefore implementation of the proposedpoject.

1.12 Regarding groundwaterresources, the availabilityof cheaper and more reliableenergy supply in the Tuli Block (i.e.,electricity) may induce more intensivegroundwater pumping. This may jeopardizeregular replenishmentof the aquifers,which would be clearlyundesirable from an environmentalpoint of view. The availabilityof groundwaterand the expectationfor its replenishmentare two issuesthat must be resolved before any further work on implementingthe proposed project is undertaken.

1.13 The questionsregarding water availabilityhave been addressed by a draft study by the DWA. 6/ The resultsof this studyhave clarified the statusof this resourcein the Tuli Block area and the GOB is now in a betterposition to judge the potentialfor increasingirrigation in the Tuli Block.

1.14 The second factor is the accessibilityof the area. The poor conditionof the road network linkingthe Tuli Block area with the rest of Botswanaand surroundingcountries has constrainedthe agricultural developmentof the area. This issue is currentlybeing addressedby the

61 "LimpopoWater UtilizationStudy," DWA (March,1987). - 6 -

World Bank-assisted Selebi Phikwe Project which includes the identificationof a feeder roaa network through the Tuli Block area. Improving the road network will open up markets for the agricultural productsof the Tuli Block farms, for example,allowing more delicate producesuch as tomatoesto be transported.This will encouragefarmers to diversifyand increasetheir production. The lower transportcosts generated by improved road conditionswill also influencetbe market price of the producefrom the area.

1.15 The third importantfactor for the success of the proposed projectis the financialarrangements that are made betweenBPC and the farmerswith respectto connectioncharges and electricityrates. BPC's present connectionpolicy is to recover the full cost of connection througha lump sum payment. This policywill hinderthe participationof some farmersin the project,unless payments are spreadover time. Also, the existing electricityTates applicableto the farms would be well above the estimatedlong run marginalcosts of supply(LRMC) 7/ and could result in energy costs as high as the currentdiesel fuel cost per kWh. While the mission considersthat many farmerswould connecttheir farms to the proposed line even given the present connectioncharges and electricityrates, a substantialpart of the economicbenefits would be foregonebecause some farmerswould not electrifytheir farmsor increase production.

1.16 Adopting more flexible connection policies or making appropriatecredit lines availablewould allow for phased paymentof the connectioncosts, so that these costs should not deter farmers from participatingin the proposedproject. This is particularlyimportant since demandgrowth is a prime determinantof the project'ssuccess. BPC could either: (i) install all low voltage networks within the farms (includingthe connection costs within overall project investment), recoveringthese costs throughthe tariffs;or (ii) connecteach farm to the medium voltage line and charge for whatever connectionsare made beyond this point. A review of BPC's current electricityservice connectionpolicy has been undertakenand the results presentedin an ESMAP report.8/ That study examinedBPC's connectionpolicy in the context of low income urban consumersand recommendedthat, for this group of consumers,connection charges should be reflectedin the tariff and not be a lump sum paymentat the time the connectionis made. The low incomehouseholds thus are able to affordto connect. In the case of the Tuli Block farms,which are largerproductive units with a relatively high potentialelectricity demand, it is not recommendedthat connection chargesbe includedin the tariff but rather that a financingmechanism be establishedto spreadpayments over time and bring electrificationof

7/ LRMC is adjustedto reflectfinancial requirements of the utility.

8/ "Botswana: Review of Electricity Service Connection Policy," UNDP/WorldBank, July 1987. the farms within the financialreach of most if not all farms in the area. The mission thus concludesthat the second alternativeis more appropriate,whereby BPC would assume all costs up to the medium voltage drop, includingthe meteringequipment, and the farmerwould assume all connectioncosts within the farm, includingthe low voltage network, wiring, and the replacementof the diesel pumps with electric pumps. This option is more appropriategiven the variationswithin each farm regardingarea, layout, and extent of the low voltage network needed. Furthermore,if these costs are includedin the total projectcost and are reflectedin the tariffs,then there would be a cross-subsidyfrom small to large farms. However, if in-farm connectioncosts are made explicitand are chargeddirectly to the consumers,each farm will try to optimize its network to reduce costs by decidingon the benefits of electrifyingmore distantareas on the farm. Moreover,the networkcould be developedin stagesaccording to the financialresources available to the farmer. BPC could assist by financingthe on-farmconnection costs over a periodof three to five years,or other creditorganizations could provide funds to farmersto financethe conversioncosts including:(i) the purchaseof electricpumps; (ii) the installationof the low voltage network within the farm; (iii)wiring; and (iv) related installation costs. This financingcould be initiatedby the GOB and channeled through commercial banks or an agricultural cooperative. Since electrificationof the farms aims at expanding the agricultural production of the area, such financing should be considered as a productiveinvestment. The installationof the low voltage network within a farm can be undertakeneither by the BPC or by an independent contractor,following BPC's standards. The periodicmaintenance and servicingof this network could either be done by BPC for an annual charge independentof the tariff or could be the responsibilityof the farmer, who would have an independentcontractor carry out the work. These options could be made availableto the consumerswho would then selectthe most appropriatesystem for their specificneeds.

1.17 The issue of BPC's tariff structurehas been reviewed in a separatereport which recommendsestablishing electricity tariffs based on sound LRMC principlesand eliminatingexisting cross-subsidiesto major mining consumers.9/ This restructuringof tariffswould reduce the Business_I tariffunder which the Tuli Block farms would fall, from the present tariff of 21.53 thebe/kWhto 16.97 thebe/kWh,subject to confirmationby the LRMC tariff study conductedby Kennedyand Donkin. This reductionwould make electricityconversion affordable to farmers and encouragethem to electrifytheir farms. This strategywould help reflect more closely the true opportunitycost of electricityand encourageits productiveeni use. 4

9/ "Botswana: ElectricPower SubsectorReview," World Bank, January 20, 1987. II. SLECTRICITYSUPPLY IN BOTSWANA

Power SectorOrganization

2.1 The MMRWA coordinatesthe power sectorand coal developmentand is responsiblefor drawingup the country'senergy policy and development targetsin the NationalDevelopment Plan.

2.2 BPC, a parastatal organizationoperating under MMRWA, is responsiblefor supplyingand distributingpower throughoutBotswana. BPC supplies consumers within the grid plus four isolated major villages: Maun, Serowe,Mahalapye, and Palapye. The last three are to be connectedto the MPS through33-kV lines in a projectfinanced by the Danish InternationalDevelopment Agency which was expectedto have been commissionedduring 1986.

Generation,Capacity, and Sales

2.3 Botswana's interconnectedpower system has traditionallybeen operated and maintained byk two separate divisions of the BPC, the Northernand the Southerndivisions, with most consumptiontaking place in the formerwhere the miningindustry is located. Power generationfor the grid is based on small dieseland coal-firedplants in Gaboroneand Selebi Phikwe that have a total installedcapacity of 107 MW. In addition,a 132-kV transmissionlink betweenthe BPC southerngrid and the ESCON grid of the RSA, allows access to a maximum of 31 MW of power. During 1984/85,maximum demand was 105.6 MW, 63.7 MW in the northernsystem and 41.9 MM in the southernsystem.

2.4 Electricityconsumption is do'minatedby the mining sector, which accountedfor about 75% of sales between 1980 and 1985. Over the same period, commercialconsumption averaged 15%, domesticconsumption 7%, and governmental-consumption3X, as shown in Table 2.1.

Table 2.1: HISTORICALSALES AND GENERATION(Gdh)

Average Category 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 Distribution Sales: Mining 287.8 277.7 315.8 363.1 418.5 419.6 75% Commercial 43.1 471.8 57.3 71.0 74.5 79.9 15% Domestic 22.2 24.8 28.6 35.9 37.1 40.2 7% Governmental 13.4 13.0 12.6 14.6 18.7 25.4 3% Total Sales 366.5 363.3 414.3 484.6 548.8 565.1 100%

StationUse 28.0 28.3 30.8 32.9 30.5 32.2 Distribution Losses 6.8 9.2 13.9 15.7 22.9 23.9 Generation 401.3 400.8 459.0 533.2 602.2 621.2

Source: BPCAnnual Report, 1984. -9-

2.5 Existingcapacity on the systom almost doubled with the new coal-firedMPS commissionedin late 1986. This stationconsists of three 33-MW units and is locatednear the MorupuleColliery. 10/ The MPS is connectedto the northernand southerngrids by 220-kVUlnes which are alreadyin operation. Given the prospectsfor the mining industryin the northernregion, load growthis expectedto be limited.

ElectricityTariffs

2.6 Electricityrates for most customersin Botswanaconsiderably exceed LRMC and even LRMC-basedrates that are designedto satisfythe financialrequirements of the BPC. This is mainlydue to an arrangeuent betweenthe BPC and RamangwatoConcessions Ltd. (BCL), the large mining company,signed under the Shasheagreement. The copper-nickelmine and smeltercomplex at SelebiPhikwe, owned by the DCL, accountedfor 781 of total sales at the northernor ShasheDivision in 1985. The provisions of this agreementlimit the electricityrate paid by BCL to a level that coversBPC's operatingexpenses and allowsan 8% annualrate of returnon historicalassets. The rate chargedto BCL cannotbe increasedto cover BPC's projected financialrequirements or to provide for an adequate returnon BPC's revaluedassets. It is estimatedthat revenuesfrom BCL fall short of the level requiredto cover 'PCsfinancial requirements by about P 17 million (US$8.5million) per year. Since the mining sector representsabout three-quartersof total sales, the financial-shortfall has to be made up by the remainingone-fourth of the sales;as a result, the differentialbetween LRMC and the rates paid by other consumersis high. The Energy AssessmentReport and the Electric Power Subsector Review analyzed this pioblem and recommendedthe establishmentof a separate government subsidy to compensatefor bhe effective cross- subsidizationbetween BCL and otherconsumers. Ratesare also aboveLRMC because BPC's financial requirementsreflect unit investment costs incurredfor existingfacilities which are higher than unit costs for marginalsources of supply.

2.7 Takingthese factorsinto account,the ElectricPower Subsector Review recommendedreducing the presentrates for BusinessII customers from 21.53 thebe/klhto 16.97thebe/kWh, subject to finalconfirmation by the LRMC tariff study preparedby Kennedyand Donkin. This rate would induce the Tuli Block farmers to connect their farms to the grid and would be sufficientto recover the full investmentin the proposed project.

10/ In addition,three more unitsare planned,one of which is currently under constructionand expectedto be commissionedby 1989. The use of domesticcoal (from the MorupuleColliery) makes this the least- cost power developmentprogram. - 10 -

2.8 Connection charges are another important aspect of BPC's consumerpolicies. New customersare chargedth# full connectioncost, payablein a singlepayment, at the time connectionis made. This policy may hinder the electrificationof irrigationpumps in areas of Botswana such as the Tuli Block where it would be economicallyfeasible to do so. The Bank and the GOB have carriedout a separatestudy under ESMAP to review the electricityconnection policies for low incomeresidential consumersin Botswanaaid to assistin definingan appropriatepolicy for new customers.11/ The study focused on the impact of the BPC's connectionpolicy on low incomeurban consumersand recommendedthat for residentialconsumers, connection charges be reflectedin the tariff,not chargedas an initiallump sum payableat or beforeconnection. The Tuli Block farms are made up of potentialmedium voltage consumerswho each have different requirements for low voltage connections to the distributionlines. In this case, it is particularlyimportant to distinguishbetween tariffsand connectioncosts, since the latterwill vary from farm to farm. However,since the cost of connections-inother words, the cost of installingthe low voltage network within a farm connectingthe pump houses,the farmstead,workshops, and otherunits to a meteringpoint at the mediumvoltage transformer-may be high, a large lump sum payment may discourageconnection and reduce the potential benefitof the Tuli Block FarmsElectrification Project. A policyshould be devisedto allowpayments to be spreadover a numberof years.

ll/ "Botswana:Review of ElectricityService ConnectionPolicy," UNDP/ World Bank,July 1987. - 11 -

III. ILECTRIPICATIONOF THE TULI BLOCK FARMS

The Tuli Block Area

3.1 Four-fifthsof Botswanais covered with Kalaharisands which give the country an arid to semi-aridappearance. Precipitationis largelyconcentrated on the easternsection of the countrywhere most of the populationlives. Total annual rainfall,which averages between 250 mm in the southwestto 650 mm in the extremenorth, is moderate,but there are few opportunitiesfor storing*nd utilizingthe rainwater.

3.2 Althoughgroundwater is limited,it still is the most important sourceof water for houseaoldand industrialuse. Only in the eastern part of the countryis surfacewater used to any significantdegree. Th2 natural conditions for large scale, sustained developmentof water resources in Botswana therefore are restricted. There are still large untappedresources, but these tend to be eApensiveto develop. Further- more, large sectionsof the country will remain chronicallyshort of water. This means that major irrigationschemes, which requirelarge volumes of water, would sooner or later compete with other possible uses-villages,mining centers, and/or water for protectedwild animals.

3.3 Large-scaleirrigated agriculture is limitedto the Tuli Block Farms in the LimpopoValley, on the borderwith the RSA. The Tuli Block is a free-holdarea of farms along the westernbank of the LimpopoRiver which forms the borderbetween RSA and Botswana. It coversapproximately 420,000ha and is subdividedinto some 100 individualfarms, all large enoughto supportlarge-scale modern agriculture. Almost all of the area is used for extensivecattle grazing, but there is considerablepotential for agriculturalproduction. At present,some 1,500ha of that potential are used for large-scaleirrigation. Most of the crops grown om irrigatedland are cash crops. The yields are high to very high when comparedto averageyields in Botswana.

EconomicActivities and GovernmentPolicy

3.4 The Government'smain objectivein the field of agricultureis increasedself-sufficiency. Botswana is an importantexporter of beef (tZ of total exports), but, at the same time, a large importerof virtuallyall other types of agriculturalproducts. Half or more of all wheat consumed is imported,as well as virtuallyall dairy products, vegetables,and fruit.

3.5 Increased productionfrom dry land farming, except for the Pandamatangascheme, does not stand to contributemuch to agricultural production. This makes it essentialto concentratethe effortsto raise agriculturalproduction by increasingirrigated land. The Ministryof Agriculturehas estimatedthat some 25,000ha of irrigatedland will be needed by 1990 to achievethis. Only a few thousandhectares are under irrigationat present. - 12 -

3.6 The Tuli Block Farms are located in one of the few areas of Botswana which combine irrigationpotential with reasonableaccess to consumermarkets. The area supportsthe largestcattle production in the country. Grazing is organizedon an extensivescale with up to ten hectaresof grazingland per head of cattle. There is also some maize and sorghumbeing producedas dry land crops. Apart from cattle,most of the agriculturalsurplus of the Tuli Block area is producedby farms under irrigation.

3.7 Most of the areas suitablefor irrigationare locatedalong the Limpopo River between the Seoka and Mhalatswetributaries and in the northernmostpart of the Tuli Block (see maps, Annex 8). Wheat,maize, potatoes,soya, cotton,citrus fruits,vegetables, and some sorghumare producedemploying irrigation. Some of these crops, like cotton, are sold entirely in RSA while others are sold partly in RSA and partly in Botswana.12/ The combinationof irrigationpotential, capable farmers, and closenessto potentialmarkets should help to secure an important positionfor the Tuli Blockarea in Botswana'sagriculture.

Water Resourcesin the Tuli Block

3.8 There are two basic sourcesof waterused for irrigationin the Tuli Block area: surfacewater from the LimpopoRiver and groundwater. At present,the more important source is surfacewater from the Limpopo River.

3.9 SurfaceWater. The river water is divertedfrom some 30 weirs and used for irrigationon both sides of the river. The EasternBotswana RegionalWater Study 13/ estimatesthat the LimpopoRiver carriesenough water to irrigatebetween 5,000-10,000ha on each side of its banks. However, only about 1,500ha are now under irrigationon the Botswana side. This is due to severalfactors:

(a) variabilityin the amount of water availablein the Limpopo each year;

(b) a lack of clear long-termlegal arrangementson water rights between Botswana and RSA coupled with intensive irrigation activitiesin RSA;

12/ A large portionof the crops sold in Botswanais transportedthrough RSA to the Gaboronearea.

13/ VIAK, Stockholm,1985. - 13 -

(d) the specializationof some farms along the river in cattle raisingwhich does not requirethe use of the river water for irrigation.

3.10 Of these factors,the first two deservespecial attention. The availabilityof water in the river varies considerably. Periods of prolongeddrought and new dams and irrigationschemes along the tribu- taries reduce water availabilityin the t:mpopoRiver. Since agricultural productionin RSA farms locatedalong the border is subsidized,it appearsthat part of the water which could be used in Botswanais currently used by R8A farms. In addition,there is no formal agreement betweenRSA and Botswanaon the utilizationof the Limpopowater. The matter is being reviewedin a Joint PermanentTechnical Committee repre- sentingall the ripariancountries and there is an informalunderstanding that (for the time being) the two.countriesshould share the water in equal parts. There is, 'aowever,no systemto monitorwater usage and the TechnicalCommittee thereforehas urged farmers on both sides of the river sharingone or mwre weirs to work out individualagreements on how to use the river water. A clear understandingin this matter between Botswanaand the RSA should be a prerequisitefor the implementationof the proposed project. Vrom a longer-termperspective, a more formal agreementis requiredand this is currentlybeing negotiated.

3.11 Groundwater. At present, groundwater is utilized for irrigationpurposes on a limitedscale due to the high cost of pumping. This sourceof water offers the advantagesof neitherbeing subjectto internationalsharing principles nor fluctuatingas much as the water of the Limpopo. However,it is not yet known how much groundwateris available, its replenishmentrate, and its life expectancy.Intensive groundwater pumpingmay jeopardizeregular replenishment of the aquifers,which would be environmentallyunsound. Some groundwater investigation activitieshave taken place but these studieshave been limitedto indi- vidual farms or relativelysmall areas. The preliminaryconclusion that can be drawn from these investigationsis that groundwateravailability variesconsiderably from area to area.

3.12 An extensive study of the Limpopo catchmentarea has been completedin draft form and containsresults which are relevantto the whole Tuli Block area ("LimpopoWater UtilizationStudy," March, 1987). These results have considerablyclarified the availabilityof water resourcesin the short and medium-term,as well as their suitabilityfor irrigationpurposes.

EnergyConsumption and Costs

3.13 The dominantsource of energy in the Tuli Block area is diesel oil, used to pump water for irrigation,watering of cattle, agro- industrialpurposes, and for households. How much diesel is consumedin the area is not known, as there are no dependablestatistics on fuel consumption. Part of the fuel is irregularlydelivered from RSA by truck, and the rest is sent from Gaborone. Farmers complain that - 14 -

unreliabledelivery service has required them to invest in excessive storagefac litiesor limit their agriculturalproduction.

3.14 Diesel oil prices paid by the consumervary accordingto many factors,including the supplier,location within the Tuli Block area, and specificdiscount agreements. At the time of the mission,the border price of diesel oil (includingtransport costs to the farm) was about 57 thebe/lt (US$1.08/gallon),while the price paid by the farmer (if purchasing from official sources) was about 69 thebe/lt (US$1.31/gallon).Some farmerspurchased diesel from unofficialsources across the border in RSA, at prices ranging between 50 thebe/It (US$0.95/gallon)and 55 thebe/It(US$1.04/gallon). This price is lower than the border price of diesel importedby officialsources of supply because RSA subsidizesthe price of diesel for farmers. Part of the subsidywas to be removedin early 1986. As a resultof changesin the world oil market (and changes in the value of the Rand and P/Rand parity),the price to the farmer was about 57 thebe/lt,as opposed to about 69 thebe/ltthe previousyear.

3.15 In discussionswith the farmers, high energy costs were frequentlygiven as one of the reasonsfor not expandingthe area under irrigation. This claim is supportedby Table 3.1 which shows the share of irrigation(fuel) costs in total variable costs for a sample of crops. It is clear that for some crops (e.g.,soya) dieselirrigation is a significantcost component. In this context,the farmersare concerned about the price that they would be chargedfor electricityif it became available to them. At the LRMC-basedrates presentedin the recent Electric Power Subsector Revies for medium-voltage customers (16.97thebe/kWh), savings in direct fuel costs could be as high Ps 20% to 25%. However,at currenttariffs (i.e., 21.53 thebe/kWh),there-would not be any savings in costs. While some of the farmerswould probably consider this acceptable because of the advantagesthat electricity supply would give them, especiallyin terms of reliabilityof energy supply, a lower rate would certainly induce a higher rate of participationin the project. This issue will be analyzedfurther below (paras.4.34-4.35).

Communicationsand Marketing

3.16 Poor communicationsand transportinfrastructure between the Tuli Block area and the rest of Botswanahas constrainedits development and integrationinto the economyof the country. At present,the road network is rudimentary. All roads are of poor qualityearth or gravel constructionwith inadequatehydraulic structures. This limits year- round accessto the area. The poor road surfacealso means high vehicle operatingcosts and poor transportconditions for more delicateagricul- tural productslike tomatoes. However,roads are being improvedas part of a projectto improverural infrastructurein the Selebi Phikwearea. Within two years,the transportinfrastructure should no longerconstrain the internal movement of produce. Some farmers believe the present transportsystem (i.e., trucks) is adequateif productsare well packaged - 15 -

and if a distinctionis made between those consumerswho requirehigh qualityproduce and those who are contentwith lower qualityproduce.

Table3.1: BNEAKDOWNOF VARIABLECOStS OF PRODUCTION FOR SAMPLE MPS (aspet 1985costs)

Potatoes NaIze Soya (%) Cs) (S)

Seeds,fertilizer, chemicals 44.6 43.0 32.0 Labor 3.9 6.9 14.0 Transport,labor, packing, diesel 46.7 39.8 31.0 Dieseland oil (irrigation) 4.8 10.3 23.0

Source:Mission estilates, Talana Farm.

The ProposedProject

ProjectAlternatives

3.17 The proposedproject aims at electrifyingthe Tuli Block area to replace diesel-poweredwater pumps with more reliable and more economicelectric pUpMS* This conversionwould be expectedto lead to an increasein the agriculturalarea and production,provided that water availabilityis confirmed. The proposedproject also would use domestic energy resourcesthrough the introductionof coal-basedelectricity, to replace importedoil and also improvethe reliabilityof energy supply. Severalalternatives for the electrificationof the Tuli Block area are available,of which the followingwere examined:

(a) constructionof a transmissionand distributionline from the MPS and connectionof the Tuli Blockarea to the BotswanaGrid;

(b) connectionof the Tuli Block area to the RSA main grid east of the Limpopo River through three or four transmissionlines runningacross the LimpopoRiver; and

(c) a hybrid projectwhereby transmissionlines are built across the LimpopoRiver to connectto the RSA grid and a distribution line is constructedthrough the Tuli Block area, followed,some years later when demand in the Tuli Block develops, by a transmissionline to Morupuleto connectto the BotswanaGrid. - 16.-

3.18 The missionhas assessedthese three alternativesand concluded that the first alternativeis to be favored. Supplyingthe Tuli Block area from the MPS is th9 most reasonablealternative when taking into consideration,on the one hand, the medium-term excess generating capacity of MPS and, on the other hand, the desirabilityof avoiding fluctuationsin tariffs that would be possibleif supplywere imported from ESCOM of the RSA. The latter would stem from exchange rate fluctuations4;nd expected ESCOM tariff changesthat would affect BPC's cost of purchasedelectricity from ESCOM. Moreover,there would be no advantageto takingan initialsupply from ESCON with a later connection to Morupule because the additionalinvestment costs would exceed any benefits. Consideringthe above and taking into considerationthe economic factors described in paras. 4.25-4.29,the mission concluded that the best alternativeis to supplythe Tuli Block area from MPS.

ProjectDescription

3.19 The proposed project would combine a transmissionline from MPS, a distributionline running through the Tuli Block area, and connectionsto farms. It would containthe followingelementss

(a) constructionof a three-phase,single-circuit, wood pole, 66-kV transmissionline over a distanceof 100 km from the MPS to a substationto be built at Sherwood;

(b) constructionof a 66/33-kVsubstation at Sherwood;

(c) constructionof two three-phase,single-circuit, wood pole, 33-kV subtransmission/distributionlines runningapproximately 150 km northeastand an equal distance southwestalong the LimpopoRiver;

(d) installation of transformers for each farm along the distribution lines,14/ including service connection and meteringequipment;

(e) constructionof a low-voltagedistribution network within each farm with connectionsto water pumps, homesteads,workshops, and other usages;and

(f) electrificationof existingpump units which would involvethe replacementof each diesel engine with an electric motor designedfor three-phaseor single-phaseoperation.

3.20 Generationcapacity is not an issue in the short to medium-term since Botswanawill enjoy considerableexcess generationcapacity with

14/ Depending on electricitydemands and physical arrangements,one transformercould serveone or more farms. - 17 -

the new MPS and its planned expansions. A study conductedby HKS identifiedenergy requirementsfor 28 farms in the Tuli Block. The mission visited and/or collecteddetailed informationon 17 of these 28 farms;,the data is presentedin Annex 3. Annex 4 shows the estimated demandforecast for the area dividedinto three clusters(see also maps, Annex 8). The total potentialload which can currentlybe convertedto electricityin the Tuli Block is around2 NW at the MPS.

3.21 BPC would be in charge of the design and constructionof the 66-kV transmissionline, the Sherwood sobstation,and the two 33-kV distributionlines and transformers.This investmentwould be part of BPC's investment portfolio in rural electrification. The proposed project'sfinancial implications to BPC are examined in Chapter IV of this report. The designand characteristicsof this distributionsystem should incorporatecost reduction measures appropriateto Botswanan conditions(e.g., use of wooden poles) rather than followingstandards which would be overdesignedin the local context.15/ More economic standardsfor constructionof the distributionsystem would reduce the costs to BPC, making it more attractive for the utility to supply electricityto the Tuli Block area.

3.22 BPC has at least two alternativestrategies in providing connectionsto consumers. One is for BPC to finance and construct distributionnetworks connected to the 33 kV lines,which would supply the variety of units within a farm and thus have multimeteringpoints within each farm. The cost of the networkwould then be annuitizedand added to the tariff that would be charged to the farmers. The other alternativewould be to considereach farm as a medium voltageconsumer with one metering point off a 33/11-kY transformerand install a transformerfor each farm along'the distributionline. Since the estimatedelectricity demand and the consumptionpattern show that these farms would be large consumersaveraging 93 kW peak demand, the most appropriatestrategy would be to categorize them as business customers and charge them the business tariff. Alternatively, separate tariffs could be applied, depending on the type of demand (e.g.household/general and pumping). The distributionnetwork within a farm would then be financedindependently from the tariff through,for instance, a separate credit fund. This network--includingall connections--couldeither be built by BPC or by independentcontractors who could be approved by BPC and abide by its standards,with BPC engineersreviewing the work before connectionsare finalized. If the consumersultimately paid for their own internalnetwork, they would be concernedabout reducingoverall costs and thus minimizethe costs of the network by either modifyinglayouts or by decidingwhether or not to extend electricityto points further removed on their farms. This alternativewould encourageeach farm to optimizeits internalnetwork,

15/ See also "Reviewof ElectricityConnection Policy" and "Electricity Power SubsectorReview." - 18 -

reducingoverall electrification costs. Maintenanceand servicecould be conductedby BPC and chargedseparately from the tariffs.

3.23 There are major advantagesto followinga singlemetering point strategy instead of multiple metering points within a farm. With a single metering point, the consumer will be more aware of the distributionof electricitydemand within the farm between different usages from water pumpingto the workshopand the homestead. The same effectcould be obtainedwith totalizingmeters at each load point. The consumercould then managepeak demandby adjustingthe loads. Decisions on when to run a pump versus other usageswould includea consideration of the financialimpact of peak demand charges. This system may be better since it would create an optimum demand curve, while avoiding time-of-daycharging or multiple tariffs based on usage (e.g., water pumping,lighting, and other productiveusages).

3.24 The cost to the farmer of convertingto electricitycould be substantialif the cost of installingthe networkwithin the farm were paid for in a lump sum at connection. In order to make it financially possiblefor the farmersto undertakethis conversion,financing of these costs shouldbe made available. Such financingcan eitherbe providedby the utility or by an independentagency. The latter can be an agriculturalcooperative, a credit union, or a bank. If the Government deems it necessary, it can provide credit guarantees in order to faciliatatethis financing. Since the financing is for productive purposes,with an expectedimpact on the agriculturalproduction of the area, governmentinvolvement in any creditscheme would clearlyindicate its prioritiesabout increasingthe area's agriculturalproduction. To furtherensure consumerinterest, the GOB could establisheither a credit fund or a discountfacility to providefinancing to rural consumersfor purposesof this project, or commercialbanks could provide consumers with additionalmedium to long-termcredit. If farmers do not obtain financing for their share of connectioncosts and for expenditures requiredto convertfrom dieselpumps to electricpumps, lack of interest in becomingconnected could underminethe viabilityof the project.

3.25 Before undertakingconnections, BPC should provide customers with extensiveinformation concerning their optionsand the implications of these in terms of tariffs,connection charges, financing, maintenance, and service. These options could include sharing a transformerwith other neighboringfarms if the demandof one farm is not expectedto be sufficient;single metering point per farm versus multiplemeters for differentusages with relativetariffs charged per type of usage;annual maintenanceand servicecharges versus a higher tariff rate that would includethese chargesand thus be based on consumptionrates rather than physical connections;and a range of financing alternativeswith a varietyof paymentperiods. The customerswould then be in a positionto select the system most suitableto their needs. Althoughcomplicated, this approachwould benefit both the utility and the customersin the long run. - 19 -

IV. SCONONICAND FINANCIALEVALUATIOV

Introduction

4.1 The mission assessed the economicand financialviability of electrifyingthe Tuli Block farms and concluded that supplyingthese farms with electricityfrom the MPS is likely to be the least-cost solution and economicallyviable at a discount rate of 10%. In particular,the mission concludedthat the proposedproject has lower economic cost than: (a) constructingseparate transmissionlines tn serve the northernand southernends; (b) continuingwith dieselpumping; or (c) obtainingsupplies from ESCOM. The proposedproject is expected to be financiallyviable for BPC if electricitydemand in the area grows by at least 7.5 per annum. This growth rate would providethe project with adequatecash flow to cover operatingexpenses, service the debt, and meet other financialobjectives which may apply. The electricity service to be provided would offer a reliable supply of -energy and produce cost savings for the farmers which are attractiveenough to encouragethem to electrifytheir farms and expandproduction.

Economic Evaluation

4.2 The economicviability of the projectdepends on the following factors:

(a) the potential load to be connected by convertingexisting dieselpumps and smallerdiesel units in the Tuli Blockarea;

(b) the potentialfor additionalload and the rate of growth of demand;

(d) the investmentcost of electrification.

ElectricityDemand Forecast

4.3 The mission evaluatedthe potentialload from the Tuli Block area by use of an electricitydemand forecast. This forecastrevealed that approximately2 MW of potentialload exists in the Tuli Block area. The estimate,detailed in Annex 4, is based on data concerningdiesel- poweredequipment and fuel consumptionfor the farms that were visitedby the mission (listed in Annex 3). Maps showingfarm locationsand the proposedtransmission lines are includedin Annex 8.

4.4 The economicfeasibility of the projectdepends significantly on the growth in energy demand in the area. Evidence from past - 20 -

production developmentsshows that farmers normally introduce non- marginalchanges in productionwhen given the necessaryincentives. With appropriatepricing of connectionsand electricity,farmers could expand productionwithin a short period. It is not possible,however, with the informationavailable to estimateaccurately the upper limit to the area that could be irrigated and the rate at which growth would occur. However, it appears that the irrigatedarea could be increasedto at least three times the existingarea and that other electricaltoads could grow in proportionto the increase in irrigatedarea and the related increasesin production. Becauseof the uncertaintiesconcerning demand growth,three distinctscenarios for load growthwere examined.

4.5 ScenarioA: No Growth. In the no growth scenario,benefits would be realizedfrom substitutingelectric motors for existingdiesel engines in irrigation and from introducingelectricity for other productiveuses. It is furtherassumed that there would be no growth beyond the existing 2 MW potentialload. Half of this load would be connectedinitially and the remainderover five years.

4.6 ScenarioB: ThreefoldExpansion. In ScenarioB, it is assumed that the rate of growthwould resultin a doublingof the irrigatedarea in five years (14.9%per annum growthrate), reaching the limit of three times the existingarea in about eight years. All existingload (2 MW) is assumedto be connectedat the time of projectcommissioning.

4.7 ScenarioC: FourfoldExpansion. In ScenarioC, it 's assumed that growth would occur at 20% per annum to a ceilingof four times the existingpotential load in eight years. All the load would be connected at the time of projectcotw4issioning.

Methodology 4.8 In carryingout the economicevaluation, a distinctionhas been made between costs and prices expressed in economic terms and those expressedin financialterms. Economiccosts and benefitsare determined by the value of the resourcesused to providethe service(electricity, irrigation,etc.) and the resourcesuaved (dieselfuel, capital,and O&M costs) by substitutingelectricity. Financialcosts are those costs faced by the farmeror BPC in the form of paymentsfor fuel, electricity tariff, etc. Economic costs/benefitsmay be higher or lower than financialcosts dependingon the level of duties,taxes, or subsidiesand pricingpolicies.

4.9 The economicanalysis assumes a minimumrequired economic rate of return of 101; therefore,cost and benefitcash flows are discounted at the opportunitycost of capitalat 10 in real terms.16/ Moreover, it is necessaryto show that electrificationwould providethe least-cost

16/ All calculationsare in constantprices as at the end of 1985. - 21 -

solutionto meetingmotor power needs for irrigationand other uses. If electrificationwere not the least-costsolution, then a higher economic rate of returnwould be achievedusing alternativemeans.

4.10 Economic benefitsfrom electrificationwould be derived from the savingsin dieselpumping and generatingcosts from units already in service. Further expansion of pumping for irrigationwould provide additional benefits; howevar, it must be demonstratedthat farm electrificationbased on a supplyfrom Morupulewould be less costlythan eithert (a) continueduse of diesel pumping; or (b) the provisionof electricityfrom RSA througha shorterconnection to ESCOM.

4.11 Because of the uncertaintiesof load growth and the future costs of electricityand diesel fuel, sensitivityanalyses have been carried out to assess the risks of taking a wrong decisioneither to proceedwith the projector to adopt anotherstrategy.

EconomicBenefits of Electrification

4.12 The net economic benefits from electrifyingthe Tuli Block farms have three main components:

(a) resourcecost savings;

(b) increasedeconomic activity; and

4.13 The main savings in resource costs stem from substituting electricmotors for diesel engines in existinguses and in additional irrigationand other loads. Provideda certainthreshold can be reached in terms of the size of load to be served,electric pumps would be less costly in overalleconomic terms than diesel pumps. For the pump sets themselves,capital, maintenance, repair, and energycosts would be lower than diesel-drivenpumps. Detailsof the value of benefitsare given in Annex 2.

4.14 In addition to the irrigationpumping load, smallerpumps and electric generators could be replaced at lower costs through electrification.It has been assumed in this analysis that all load growth would be associatedwith increasesin agriculturaloutput, which in turn would increaseoverall economic activity in the area. Additional demand, therefore,could arise from household use and agriculturally related loads such as sorghum mills, poultry farms, and increased commercialactivity.

4.15 Accordingto estimatesof the load based on the energy demand at presentand at currentdiesel oil prices (57 thebe/lt),it shouldbe possibleto save about 1.7 millionliters of dieselfuel consumptionper year with an economic value of P 0.97 million (US$0.5million). In addition to these savings, capital, operating,and maintenancecosts could be reducedby about P 0.25 million. - 22 -

4.16 The benefitsfrom increasedeconomic activity would be derived from the valueadded (net profit)of the incrementalproduction generated as a result of the availabilityof electricity. The incrementalvalue added,attributable to irrigation,has been estimatedat 1,256P/ha. This estimate is based on a sample of productioncosts and the prices of different crops on various farms. Interviewswith farmers were also carried out to assess productionplans and constraintsto increasing production. According to farmers,the main constraintscurrently are high energy costs, unreliabilityof diesel fuel supply,relatively low reliabilityof diesel engines,seasonal water availability,and, to some extent, inadequatetransport infrastructure. While analyticalresults indicate that further expansion of irrigated agriculture appears attractiveusing diesel pumps, the interviewsrevealed limited plans to expandproduction unless pumping costs were lowerand irrigationcould be made more reliablethan at present.

4.17 The impact of the availabilityof electricityon farmers' productionis obviouslydifficult to estimatea priori. Past experience indicatesthat farmers are eager to expand productionunder favorable circumstancesand it is conceivablethat the are& un6er irrigationcould be doubledeven in three to four years. At presentonly about 20-30Xof the potentialfor surfacewater irrigationhas been developed.17/

4.18 The benefitsfrom increasedquality of serviceand reliability are difficultto estimatedirectly but appear to be significant. These benefits stem mainly from the higher inherentreliability of electric motors comparedwith diesel enginesand the expectedhigher reliability of the electricitysupply compared with diesel fuel supply. For instance,when a diesel engine breaks down, it may take severalweeks before parts can be brought to a farm and installed. Similarly,the supply of diesel fuel to the farms is cut at times by adverse road conditionsand/or breakdownsof vehicles that distributefuel in the area. Standby diesel engines and fuel storage facilitiescould, of course,be providedat additionalcost to make diesel-poweredequipment more reliable. Given the alternativeof either higher cost or higher risk, farmersare dissuadedfrom increasingthe area under cultivationor from startingother productiveactivities which requirediesel power.

4.19 On the basis of the foregoing observations,agricultural expansionwould likely be limited unless pumping could be made more reliable and costs could be reduced. It is reasonableto assume, therefore,that the benefit of electrifyingthe Tuli Block Farms can be valued on the basisof the valueadded throughincreased irrigation since this wouldnot be likelyto occur withoutelectrification.

17/ The potentialfor groundwaterirrigation is the subjectof a study recentlycompleted in draftform (para.3.12). - 23 -

ProjectCosts

4.20 The costs of the project are summarizedin Table 4.1. The basic networkand extensionswould providefacilities for the connection of existingdiesel pumping and smallerdiesel units with a total load of about 2 NV for an investmentcost of P 13.1 millionor P 11.1 millionin economicterms. Beyond growth to about 3 MW, additionalextensions in years 2 and 3 would be needed to accomodategrowth to about 6 MW. These extensionswould require an additionalinvestment of about P 900,000, bringingthe project cost to P 14 million or P 12 million in economic terms. In the event that high growth rates (20Z) were experienced (ScenarioC), then furtherextensions and voltageregulating transformers would be neededin years 4 and 5. Maximumload in this scenariowould be about 8 MW. Under this scenario,the total investmentrequired would reach P 15.3 million(P 13 millionin economiccosts). While the rate of grQ th and locationof the loads would determinethe actual timing and cost of the extensions,the cost estimatesin Table 4.1 are the expected values based on available informationand assumptionsconcerning load growthin the Tuli block.

Table4.1 COSTOF ELECTRIFICATIONBASED ON MORUPULESUPPLY AT 66-kV (inPula milIIons, 1985 prices)

FinancialOosts EconomicCosts

A, ScenarioA: Electrificationof Existing Loads Only Terminalequipment at Morupule 1.5 PowerStation, 220/66 kV 66-kVtransmisslon line, 100 km 3.3 Sherwoodsubstation, 66/33kV 1.1 33-kVdistribution line, 330 km 6.0 Extension to consumers 1.2 Totalcost (financial prices) 13.1 11.1

8. ScenarioB (ultimateload 3 timesInitial) Additlonal33-kV extensions and connectIons 0.9 Totalcosts 14.0 12.0

C. ScenarioC (ultimateload 4 times existing load) Basicnetwork 13.1 AdditionalInvestment in yrs 4 and 5 - 2 voltageregulating transformers in 33-kVlInes 0.8 Extensionsto newconsumers 1.4 Total costs 15.3 13.0

Source: Annex1, Mission estimates and 9PCextension estimates. - 24 -

DiscountedCash Flow Analysis

4.21 The cash-flow streams of, costs'and benefits for the three growth scenariosfor the Tuli Block electrificationwere discountedat the opportunitycost of capital to determine the net present value (NPV). The economicrate of'return (U3R) was also calculated. Details of the calculationsare shown in Annex 5 and are,suu_rixed in Tabled4.2 and 4.3.

Table 4,2: NETPRESENT VALUE AND ECONOMIC RATE OF RETURN FORTHREE GROWTH SCENARIOS

tP Present Value at Dlut;ountRate EconomlcRate Scenario 10% 6S of Return (PmlIlIons) Cs)

A -4.9 -1.6 4.4% a 12.3 24.3 18.5% C 21.1 37.6 22.9%

Source: MIsslon estimates and Annex5.

Table 4.3: NET PRESENT VALUE OF COSTSAND BENEFITS AT 10$ DISCOUNTRATE (in mIIionsof P)

Scenario A a C

Benefits: Savings from electrificationof existing diesels 10.3 10.3 10.3 Value added from additionalagricultural production _00 21.5 32.0 Total benefits 10.3 31.8 42.3

Costs: Electrificationproject costs 10.5 11.1 11.1 Electric pumps 2.6 3.6 4.0 Electricity 2.1 4.8 6,1 Total costs 15.2 19.S 21.3

Net Present Value -4.9 12., 21.1

Source: Mission estimates and Annex 5. - 25 -

Cost of Electricity'

4.22 For Scenavio BS the average incrementalcost to *the final consumerin the Tuli Block area-is estimatedat 14.9 thebe/kWh,of which 10,.7thebe/kWh are transmissionand distributioncosts from the MPS and 4.2 thebe/kWhare generatingcosts, I&/ Thesecosts comparewith a total averageincremental benefit equivalent to 30.7 thebe/kWh.

SensitivityAnalysis

4.23 The effect of variations in several key parameters under ScenarioB was assessedand the resultsare summarizedin Table 4.4. The switchingvalue at which the NPV would be zero at a 10X discountrate is also shown to indicate the maximum possible variation for a given parameterwhich would renderthe projecteconomically unattractive, i.e., for which NPV would drop to zero.

Table 4,4: SENSITIVITYANALYSIS OF KEY PARMETERS FOR SCENARIO B

S Chang Percntage Corresponding Value for Over Base Base Variation NPV EAR WhichNPV Value to Values Tsted (at10%) (%) u 0 ReachNPVsO (PoIItons) (PmIIIons)

Projectcost P 12.0million +20% 9.5 15.0 23.6 497% .a20% - 15.0 22.3

AgriculturalbenefIt 1256P/A +20% 16.6 20.8 565 -55% -20% 0.0 16.0

Dleselruel price 57 thebe/l +20% 13.9 19.7 e/ -20% 10.7 17.4

Electricityprice 4.2thebe/kh I *20% 11.3 18.0 14.7 +350% +40% 10.3 10.3 a/ NPV Is P 4.2 mIIlion(ERR n 13.0%)even when fue l priceIs zero because of predominance ofagricultural benef its. Source:Mission estImates and Annex 5.

18/ This is a first approximationof the LtMC of supply to the Tuli Block area. If and when the projectis implemented,a more detailed study of the LRMC would be required to set tariffs, taking into accountthe electricityconstmption patterns. - 26 -

4.24 An alternativeto using the value added per hectare for agriculturalexpansion would be to value the benefitsat the avoidedcost of dieselsfor irrigationand other uses. This was done for ScenarioB, where total benefits due to electrificationthen were equivalentto P 804/ha rather than P 1,256/ha. In this case, NPV would be P 4.5 millionand ERR would be 13.01. Using the avoidedcosts of dieselswould be a conservativeapproach to valuing benefits since the ultimate objective (and benefit) of electrificationis to expand agricultural production.

AlternativeDevelopment Strategies

4.25 Two alternativedevelopment strategies were comparedwith the option of supplyingthe Tuli Block with power from Morupuleunder the conditionsof ScenarioB. In the event that dieselpumping could be made more attractiveto farmers--throughimprovements in reliabilityof fuel supply,reduction in the cost of repairsto dieselpumps, and a reduction in the price of diesel oil--it could be used to expand irrigation. Alternatively,a supply from ESCOM could be used to feed the Tuli Block network.

DieselPumping

4.26 The analyticalresults show that, under Scenario B, diesel pumpingwould have a lower NPV than a Morupulesupply for all discount raL1.s up to 12.01;at a discountrate of 1O0, the projecthas an NW of P 9.9 million. If load growthwere low or negligible(i.e., as in Scenario A), then diesel pumping would be more attractivebecause the initial investmentrequirements would be less than the fixed investmentcost of electrification.For instance,under the no growthscenario, the ERR for the all-diesel-pumpingoption is estimatedat 15.01,while the NPV would be P 4.8 million.

4.27 An analysisof the sensitivityof the projectto variationsin severalparameters in the case of ScenarioB (supplyfrom Morupule)was conductedto ascertain the magnitude of change required to make the diesel and electrificationoptions equivalent. The results of this analysisare presentedin Table 4.5.

Table4.5: SENSITIVITYANALYSIS RESULTS FOR THE PROJECT--SCENARIOB

Equalizing Percentage Project ParametersVarled Valuea/ Change Projectcapital cost P 1C.7million -11% Fuel cost 43th/Iiter -25% Electricitycost 6.3 thAhWh +50%

a/ Valueof parameterwhich makes the NPV of the electrificatIonproject equal to the NPV of the all-dieselalternative (P 9.9 millionat 10% discountrate). Source: Missionestimates and Annex 5. - 27 -

Supplyfrom RSA

4.28 Connectionwith ESCOM would require an initialinvestment in transmission,distribution, and connectionswhich has been estimatedto be P 3.2 millionless than a supplyfrom Morupule;however, the cost per kWh (includingcapacity costs and losses) would be 7.5 thebe/kWhfrom ESCOM versus4.2 thebe/kWhfrom Morupule. The resultsof this comparison are shown in Table 4.6.

Table4,6: COMPARISIONOF SUPPLYFROM MORUPUiLE AND ESCOM

Total NPV NPV Equalizing Capital at at Oiscount cost 10% 6% Rate% --- m=IIlIonsof P----

ScenarioA Morupulesupply 11.1 -6.0 -2.9 ESCOMsupply 7.9 -3.9 -1.4 3.0%

ScenarioB Nwoupulesupply 12.0 12.3 24.3 ESCOMsupply 8.8 12.0 22.4 11.0%

ScenarioC Mrupulesupply 13.1 20.2 36.6 EScOMsupply 9.9 19.0 33.1 14.0%

Source:Mlssion estimates and Merz and McLellan "Report on 22 kV DistributionSys.em Suppiled from ESCOM System" (August 1985).

4.29 With no load growth (ScenarioA), both electrificationoptions are economicallyunattractive. While an ESCOM supply would be less unattractivethan the Morupulesupply, the situationwould quicklychange with increasesin the ESCOM tariff. However,under ScenariosB and C, the Morupule option has a higher, positive NPV at a 10X opportunity discountrate, the equalizingdiscount rate correspondinglyexceeds the opportunitycost of capital, and the Morupule supply would be the preferredoption.

PricingPolicy

4.30 While electrificationof the Tuli Block farms would be economicallyfeasible under the conditionsof ScenarioB, farmerswill face market pricesor financialprices which would affecttheir decisions to electrifyor not. The principalfactors to be consideredare the - 28 -

price of electricalconnections and the tariff for electricity. Both items are tariff-relatedissues for BPC and are furtherdiscussed in the financialevaluation presented in paras.4.32-4.39.

Risks

4.31 The main risks of the projectare: (a) that the initialdemand and the demandgrowth would be lower than estimated;(b) that the project costswould be higher;and (c) that agriculturalvalue added is less than estimated. These risks are controllableor at least quantifiableto a large extent through the further careful analysis which would be necessaryduring the detailed feasibililtystudy and final engineering stages. Policyissues related to connectioncosts and electricityprices shouldbe settledprior to undertakingthe detailedfeasibility analysis, since they would strongly influence the expected level of demand. Greateranalysis is requiredto verifythe estimateof agriculturalvalue added and the potentialfor expandingproduction, since about two-thirds of all the benefitsare expectedto stem from the expansionof irrigated agriculture.

FinancialEvaluation

4.32 The financialevaluation presented in this sectionexamines the proposedproject from the point of view of the farmers (the consumers) and that of the BPC (the supplier). On the one hand, the farmersshould achievefinancial savings from electrificationwhich would encouragethem to connect to the proposedtransmission line and induce them to expand production. On the other hand, the demand for electricitywithin the Tuli Block area and its price should be sufficientlyhigh to be consistentwith BPC's financialtargets.

4.33 The financialimplication for a medium-sizedfarmer to electrify his farm is analyzed below with reference to the added benefits of electrifyinga "standard"pump unit under differentdiesel/electricity price scenarios. The financialfeasibility of the project from BPC's point of view assumes that all project costs up to and includingthe meteringpoint at each farm are recoveredthrough the electricityrate.

The Farmers'Willingness to Electrify

4.34 The farmers'willingness to electrifytheir farms is essentially a functionof the relativecost of electrificationvis-a-vis the cost of remainingwith diesel pumps. The cost of electrificationto the farmer includesthe cost of the low voltagenetwork to be installedwithin the farm, with associatedwiring, the cost of replacingthe diesel pumps by electric pumps, the periodic maintenanceand service charges,and the cost of electricenergy representedby the tariff chargedby BPC. To illustratethe financial impact of electrificationon the "average" farmer, the costs of electrifyinga standard 100 hp irrigationunit, - 29 -

which is the one most commonlyused for irrigationin the Tuli Block,are comparedto the costs associatedwith diesel pumping. It is initially assumedthat the cost of low voltagelines (on average,about P 34,000) would be incurredat the end of the first year. It is furtherassumed that BPC will charge the Tuli Block farms BusinessII tariffs(currently 21.53 thebe/kWh)since the demand and consumptionlevels of these farms are high enoughto warrantthis classification(see Annex 3). Background calculationsare includedin Annex 6 and Table 4.7, which summarizethe NPV of annualcash flow savingsassociated with conversionto electricity at differentelectricity prices and comparablediesel prices for a 10% opportunitycost of capital(discount rate). 19/ The rate of growth in demand selectedis the one correspondingto ScenarioB in the economic analysis.

Table4.7: NET PRESENTVALUE OF SAVINGSAT DIFFERENTELECTRICITY TARIFFS AND COMPARABLEDIESEL PRICES (AT 10% DISCOUNTRATE) (InPula)

Diesel Electricity Tariff (thebeAkWh) Price 16.09 16.97 18,16 19.15 19.82 20.44 20.90 21.53 Thebe/it

50 (834) (13,127) (29,751) (43,581) (52,940) (61,601) (68,027) (76,828)

55 20,078 7,785 (8,839) (22,668) (32,028) (40,689) (47,115) (55,916)

57 28,443 16,150 (474) (14,303) (23,663) (32,326) (38,750) (47,551)

60 40,990 28,697 12,074, (1,756) (11,116) (19,777) (26,202) (35,003)

65 61,903 49,610 32,986 19,156 9,797 1,136 (5,290) (14,091)

Note: Electricitytariffs selected are the presentand recommendedtariffs for BusinessI and 11 customerspresented in Table6.1 of the "ElectricPower SubsectorReview." Source:Mission estimates and Annex 6.

4.35 These results show that the financialfeasibility of electrificationto the farmeris very sensitiveto the relativeprice of electricity. For instance,at the existingdiesel price of 57 thebe/It,the NPV of savingsis P 16,150at the LRMC-based20/ BusinessII tariff of

19/ All calculationsare in constant1985 prices.

20/ Subjectto confirmationby the tariffstudy conductedby Kennedyarid Donkin as referred to in the recent "Electric Power Subsector Review." - 30 -

16.97 thebe/kWhand P -47,551at the presenttariff of 21.53 thebe/kWh. Hence, at currentdiesel and electricityprices in Botswana,electrification would be financiallyunattractive and the proposedelectricity rate of 16.97 thebe/kWhbarely adequateto induce farmersto electrifytheir farms. This situationwould hold unless the connectioncosts of the low voltagenetworks within the farms,which shouldbe borne by the farmers, were reduced and payments spread over a period of five years with an appropriateinterest rate. As discussed above, providing credit to farmersto electrifytheir farms would be an importantcomponent to the successof the proposedproject. Under such circumstances,the proposed electricityrate of 16.97 thebe/kWh should be adequate to stimulate electrification.

FinancialImpact of the ProposedProject on BPC

4.36 In order to estimatethe impactof electrifyinigthe Tuli Block Farms on BPC's finances, the mission has evaluated the financial feasibilityof the projectfrom BPC's point of view. A major objective of the BPC shouldbe to set electricityrates which reflectLRMC and at the same time enablethe companyto meet its futureoperating costs, debt serviceand working capital requirements,and to finance a reasonable part of its future investmentexpenditures from internallygenerated funds. As explained above (paras. 2.6-2.7), actual tariffs are substantiallyhigher than LRMC. The Electric Power SubsectorReview analyzedthis issue and concludedthat the averageLRMC-based tariff for BusinessII customers(which would alply to the farms) could be reduced from the existinglevel of 21.53 thebe/kWhto 16.97 thebe$IkWh.

4.37 Five load growth scenarioshave been examined to analyze the financialimpact of the proposed project on BPC. These load growth scenariosrange from a low case in which electricityconsumption does not grow beyondthe initialdemand which is expected,when dieselpumps which are currentlyoperating are convertedto electricpumps (ScenarioA in the economic analysis),to a high growth case in which electricity consumption reaches four times the initial demand by year eight, correspondingto a growth rate of 20% per annum (ScenarioC in the economicanalysis). The intermediatescenarios represent increments of 5Z in the annual growth rate with a load growth of 15% per year correspondingto ScenarioB in the economicanalysis.

4.38 Table 4.8 presentsthe financialresults for the five scenarios at differentelectricity tariffs. The financialresults presentedare the NPV of the streamsof cash flows generatedby the proposedproject over the lifetimeof the networkof about 33 years. These cash flows are discountedat the 10% opportunitycost of capital. Internalrates of return have also been computed showing the rate,of ;returnthat can be achievedby the investmentin Tuli Block electrificationat different electricitytariffs for the five growth scenarios. Assumptionsand detailedcalculations are includedin Annex 7. Table 4.8 NET PRESENTVALUE OF INCRENTA! CASHFLOWS TO BPC AND INTERNALRATE OF RETtRti0N INVEStMENTAT DIFFERENT ELECTRICITYTARIFFS AND LOAD4ROMtH SCENARIOS

* aximImA Demand ELECTRICITYTARIFF In Yr.0 (No. of (tlebe/kWh) Annual times Load fnitial 15.00 16.09 16.97 18.16 19.15 19.82 20.44 20-90 21 53 Growth load) PwV*/ IR/ NPV IRR NP IRR NVP IRR NVP IRR NW lot NWR IP NP lot

- (4,328) - (3,977) - (3,652) - (3,411) - (3,0Q1) -_ 0 1 time (6,504) - (5,932) - (5.471) - (4,847) I.

5% 1.5 times (4,991) - (4,922) - (3,602) - (2,763) - (2,065) 2.1$ (1,592) 3.8M (1,155) 5.4% (830) 6.6$ (386) 8.4M 2,466 l9.8% 10$ 2 times (3.389) - (7,412) 1.6% (1,622) 463S (555) 8.0% 332 11.2% 933 13.6S 1,409 15.S% 1,902 17.5% 32.0% 1S% 3 times (794) 7.65% 545 11.6% 1,627 14.9% 3,069 19.3% 4.306 23.1% 5,129 25.6$ 5,891 27.9 6,457 29.7% 7,231

20% 4 tims 1,558 14.0% 3,276 18.4$ 4,663 21.8A 6,538 26.5% 6,098 30.3% 9,154 32.8% 10,131 35.1% 10,856 36.7% 11,49 39.0%

*/ NPVa Net present value of tiscounted eash flowsover 33 years at 10%discount rete, In thousands of Pule. IRR a Internal Rate of Return (0-' meansnegative IM).

Source: mission estimates, Annex 8. - 32 -

4.39 The resultsof the analysisshow that at the LRMC-basedtariff of 16.97 thebe/klWhfor Business II customers,the project would be financiallyviable for BPC with a potentialreturn on investmentof about 151, if demand in the area grew at an average annual rate of 15X, reachingthree times initial load by year eight. This growth implies that there is a correspondingincrease in agriculturalactivities, and that the area of the agriculturalland under irrigationwould reach three times its currentlevel over a period of eight years from the introduction of electricityin the area. 'The potentialload that would exist at project start-up,'based on current needs, would 'ot be sufficient'to justify the investment,if no growth of dimahiddevelops. Hence, the economicand financialfeasibility of the proposedproject hinge on the prospectsfor growth in irrigatedagriculture. These prospectsdepend, among other'things,on the availabilityof water. Clarificationof this issue thus would be'a key determinantin a decision to implementthe proposedproject. - 33 - Annex1 Page 1 of 4

(1985Prices)

Transmissionand DistributionCosts The cost of servingthe Tuli Mlockarea has been estimatedon the basis of unit costsshown below and on a preliminarydesign of the transmissionand distributionlines. Severaldesigns were contidered using 33,kV, 66 kV, and 132 kV alternativesfor the transmissionline from Morupuleto Sherwood. The final recommendeddesign calls for a 100 km, 66 kV, singlecircuit wood pole transmissionline fromMorupule to Sherwoodsubstation feeding single circuit 33 kV subtransmission/ distributionlines runningapproximately 150 km northeastand an equal distancesouth west along the LimpopoRiver. Low voltagedistribution lineswould be constructedwhere necessaryto serve smaller,dispersed loads. Voltageregulation and protectionequipmeat would be installedas necessaryto givethe requiredquality of serviceconsistent with cost.

Costof HighVoltage Lines

33kV 66kV Threephase Singlecircuit (PutI/1) (Pula/km)

Poles 5,000 10,000 Crossorns and stays 1,000 2,000 Insulators 2,000 5,000 Conductors 157 ACSR 2,000 2,500 MIscellaneous 0 2,500 Subtotal 10,000 24,0Q0 Transportand Erection 30% 3,000 6,000 Engineeringand Administration 2,000 3,000 Totaleconomic costs 15,000 28,000 Totalfinancial costs 18,000 35,000

Note: Thedistinction between financial and economic costs Is discussed InAnnex 2.

Source:Mission estimates.

It is anticipatedthat two conductorsingle phase lines, where theycan advantageouslybe used initially,would be builtwith the same designas a three phase line, but leavingout the thirdconductor and insulator.This is in accordancewith presentBPC practicesand means thatthe linecan be easilyequipped with a thirdc6nductor when the load growsto requirethe additionalcapacity. - 34 - Annex 1 Page 2 of 4

ConnectionCosts

At least one 33 kV/440 V transformerwould be installedfor each farm and more could be installedfor larger farms with dispersed pump houses. Low voltagelines would be used to connectthe pumps to the supply from the transformer,and to feed the homesteadand other areas withinthe farm with electricity. I

Cost of Transfofmsr Installations

33 kV/440V three Phase Flnancial Economic Slze Costs Costs (MVA) (Pula) (Pul)

25 3,100 2,600 s0 3,400 2,800 100 4,000 3,200 300 10,000 8,000

Cost of LowVoltaoo Lines

440 V, 3 phase Pule/km

Financial 12,000 Economic 9,500

Notet The distinction beteen financial and economic costsIo discussed In Annex2. Source: Mission estimates. - 35 - Annex 1 Page 3 of 4

Cost of ElectrificatlonBased on MorupuleSupply at 66 kV (MlillonPula - 198i5prices)

Financial Economic Costs Costs

Scenario:

A. Electrificationof ExistingLoads Only

Terminalequipment at Iiorupule 1.5 PowerStation, 220/66 kV 66 kV transmissionlIne, 100 km 3.3 Sherwoodsubstation, 66/33 kV 1.1 33 kV distributionline, 330 km 6.0 Extensionsto consumers 1.2

Totalcosts 15.1 11,1

B. Growthof 10 gog, ultimateload 3 tims existing

Basicnetwork 13.1 Additional33 kV extensionsand connections 0.9

Totalcosts 14.0 12.0

C. Growthof 20% p.a.,ultimate load 4 timesexisting

Basicnetwork 13.1 AdditionalInvestment In yrs 4 and S - 2 voltageregulating transformers In 33 kV lines 0.8 Extensionsto new consumers 1.4

Totalcosts 15.3 13.0

Note: The distinctionbetween financial and oconomiccosts is discussed In Annex2.

Source: Missionestimates, BPC extensionestimates. - 36 - Annex 1 Page 4 of 4

Breakdownof FinancialCosts by Categor (millionPula, 1985 prices)

Manpower Local Local Material Unskilled Skilled Foreign Total

ScenarioA 9.3 1.3 1.3 1.2 13.1 ScenarioB 9.9 1.4 1.4 1.3 14.0 ScenarioC 11.1 1.5 1.5 1.3 15.3

Source:Mission estimates.

ProjectDisbursements

It is assumed that constructionwould requiretwo years with equal disbursementseach year. Initialservice connections would be made as part of line construction. - 37 - Annex 2 Page 1 of 7

ECONOMICAND FINACIAL VALUATIONOF COSTSAND BENEFITS

Introduction

The cost and benefit estimatespresented in this study are based on the Pump ElectrificationPrefeasibility Study. 1/ The data and informationcontained in that study have been adjustedand supplemented with informationobtained from:

(a) reportsand studieswithin the generalfield of water supplyin Botswana;

(b) interviewsand disc',ssionswith farmersin the Tuli Block area, COB officials,and BPC staff;and

Botswana is highly dependent on RSA for the supply of equipment,material, and fuel. The fluctuationson the world currency market in general,and the politicalunrest in RSA in particular,have createdsome uncertaintyin making reliableestimates of costs expressed in Pula. The figures presentedherein representthe best assessmentat the time this report was prepared. All cost estimatesare given in end- 1985 prices.

EconomicBenefits

Economicbenefits can be dividedinto two components:

(a) savingsrelated to the reduced costs of substitutingelectric motors for existingdiesel engines for pumpingand other uses; and

(b) benefitsderived from the increasedvalue added in the economy due to increasedirrigation using electricpumps.

Diesel Pump Savings. The savingsin irrigationcosts dependon a number of factors,such as the volume of water pumped,lift, numberof operatinghours, and the size of pump. These factorsare ratheruniform since most irrigationis done with similarpump sets drawingwater from the LimpopoRiver. Virtuallyall land is close to the river so the lift is similarin most cases.

The diesel enginesused to pump water to the homesteads,or to generateelectricity in the farms, show a wider variation in size and

1/ Botswana: Pump ElectrificationPrefeasibility Study, UNDP/World Bank ESMAP Report,January 1986. - 38 -

Annex 2 Page 2 of 7 operatingconditions. The same is true for diesel enginespumping water at cattleposts. These enginesare considerablysmaller than the engines for irrigation.

The estimateof energy consumptionis based on the inventory work carried out by the ESMAP mission. The informationcollected includes the area under irrigation, fuel consumption, irrigation intensity,and volumes of water pumped for household and gardening purposes.2/ A few border posts, commercialoperations, as well as a sorghummill and a poultry farm use diesel generatorsand the savings from converting them to electric power have been included. This informationis presentedin Annex 3 where the total energy requirements of these differentconsumer has been assessed.

Savingshave been estimatedby standardizingthe dieseluvits to be replacedinto two categories,large and small engines,according to use. Irrigationis carriedout almdstentirely using large 100 hp diesel enginesfor which a 75 kW electricmotor could be substituted.Smaller diesel engines in the 15-30 hp range are used for most other purposes which, on average, could be replacedby 20 kV electricmotors. The characteristicsof these two motorsare shown below (pages5-7).

IncreasedValue Added. An increase;n agriculturalproduction would result in an increasein value added in the economy, i.e., the differencebetween the market value of the output minus the cost of inputs. Informationon crop pricesand productioncosts revealsthat for each additionalhectare under irrigation,value added would increaseby about Pula 1,256. In the absenceof significanttrade and/or exchange rate distortions,it is assumed that ex-farm prices and the cost of inputs give a realisticestimate of the economic value added. It is furtherassumed that the marginalvalue added would remain constantand would be equal to the averagevalue added of Pula 1,256/ha.

It is assumedthat all other uses of electricityare associated with the increase in agriculturalproduction, which would not likely occur in the absence of additional irrigation. As it appears that farmers would not expand production significantlybased on diesel pumping, and that most other uses are linked to agriculture,no additionalbenefit would be attributableto the increasedconsumption for other uses. While this may be a conservativeassumption, it is offsetby the somewhatoptimistic assumption that marginalvalue added is constant at Pula 1,256/ha.

2/ Wateringof cattlehas not been includeddue to lack of sufficiently reliableinformation. - 39 -

Annex 2 Page 3 of 7

Economicand FinancialCosts

Despite fluctuationsin the Pula/Rand parity, the current exchange rate gives an adequate measure of the real cost of foreign exchange. Tradedinput pricestherefore have not been adjuioed. As most items purchasedby governmentagencies, such as 8PC, are not of taxes and levies,the marketprice reflectsboth the economicand financialcost.

The economiccost of labor dependson the level of employment and the extent to which aarket forces determine wage rates. No adjustmentis necessaryto the cost of skilledand semi-skilledlabor as there is close to full employment,with the resultthat the marketwage reflectsthe economicvalue of labor. On the other hand, there is a surplusof unskilledlabor for which the economicvalue is about one-half the marketrate.

Presentvalues of the cashflowstreams have been determinedby discountingat the opportunitycost of capital(OCC) which, for Botawana, is estimatedto be 101, althoughthere is evidencethat the OCC could be closer to 61 as used by GOB for project evaluation.Use of a lower discount rate would improve the apparent economic viability of the project.

EnergyCosts Two of the key input prices to the projectare the price of diesel fuel and the cost of electricity. The economiccost of diesel fuel hAs been estimatedaccording to the border price of the fuel as imported from RSA plus the delivery costs to the farms. The economic cost of electricityhas been estimatedon the basis of the LRMC of electricityas determinedin the Tariff Study preparedby Kennedy and Donkin (1985), includingtransmission losses to the farms. Detailsare shown below.

Fuel Cost

The border price of diesel oil is Pula 0.52/liter.Handling, storage,and transportcosts to bring the fuel to four central storage centersat Lobatse,Gaborone, Serule, and Francistown,are P 0.03/liter. The cost of lubricantsis estimatedat 0.4Z of the fuel costs and is includedin the estimatedcost of Pula 0.55/liter. The averageprice of dieselfuel, includingtransport to the farms in the Tuli Block area, is then estimatedat Pula 0.57/literas of November1985.

The cost of fuel transportto the Tuli Block Farms has been estimatedusing the data shown below based on the National Transport Study of 1983. - 40 -

Annex 2 Page 4 of 7

Fuel TransportCosts

LightGoods Heavy Vehicles/Jeeps Goods Vehicles Economic Financial Economic-Financial Costs Costs Costs Costs (Puls/bw) (Pula/km) Road Condition

Good/fair 0.40 0.43 0.99 1.11 Poor/very poor 0.96 1.05 2.45 2.76

Source:Pump Electrification Prefeasibillity Study and Mission estimates.

ElectricityCost

Economic costs of electricityhave been estimatedusing the LRMC based on BPC's tariff study carriedout by Kennedyand Donkin in 1985. The LRMC at the 66 kV level in the MPS is taken from the tariff study as being the same as at the 33 kV level. Annual operationand maintenancecosts are estimated to be 1.5% of the initial project investment. Power and energylosses from Morupuleto the final consumer are estimatedto be 10X. With an average load factor of 24% and a diversity factor of 60% among consumers,the average cost of energy, includinglosses, but excludingthe cost of transmission,ditribution, and connections (i.e., the project costs), is estimated to be 4.2 thebe/kWhbased on the cost componentsshown below.

Long Run MarginalCosts of Power Supply- EconomicPrices

66 kV level Average Cost at at Morupule LossFactor Pump House a/

Capacitycost (PulaAkW/yr) 103 1.1 113 Energycost (thebe/kWh) 0.8 1.1 0.9 Meteringand billing(Pula/customer/yr) 13 a/ Excluding costs of transmissionand distribution,I.e. the costs of the electrificationproject.

Source: Missionestimates. - 41 -

Annex 2 Page 5 of 7

Electricitycosts includingtransmission and distributionwill depend on the initialload and rate of load growthas the fixed capital costs are averagedover differentenergy quantities. The averagecost per kWh sold to final consumersfor each scenariois shownbelow.

PV energy PV TotalCosts a/ Avg IncrementalCost Sales of Electrification T&D GenerationTotal b/ (GWh) (millionof Pule) -----thebeAkWh------

ScenarioA 38.7 10.5 27,1 4.2 31,3 Scenario8 103.5 11.1 10.7 4.2 14.9 ScenarioC 131.6 11.8 9.0 4.2 13.2

I/ Capitalplus operation and maintenance costs. b/ Economiccost at pointof consumptionincluding losses.

Source:Mission estimates.

DieselEngine and ElectricMotor Costs

Two basic sizes of diesel enginesare currentlyin use in the Tuli Block area. Large 100 hp enginesare used to drive irrigationpumps while smallerunits of about 27 hp are used to power smallerpumps and generatorsfor non-irrigationuses.

Costs(Economic and Financial) of DieselEngines andElectric Motors (in Pula)

(i) DieselEngines Small Larp Size(kw) 20 t5 (hp) 27 100 Cost(Pula) 4,000 12,300 Fuelconsumption (liters/yr) 10,260 50,000 Averageservice life (years) 10 7 a/ (ii)Electric Motors Size(kw) 20 75 (hp) 21 100 Cost,3 phase (Pula) 2,900 10,000 Electricityconsumption (MWh/yr) 35 167 Averageservice life (years) 15 15

a/ The largerengine is used for irrigationpumping with a higher utilizationrate compared with the smallunits, hence the difference inservice lives. Source:Mission estimates. - 42 -

Annex 2 Page 6 of 7

InstallationCosts

Because of the mix of labor employed,there is a difference between the financialand economiccosts of installationas shown in the table below.

InstaliIng InstallIng motorSize Cost DleselEnginer ElectricMotor (kW) (Pula)

20 Financial 2,200 1,200 Economic 1,800 1,000

75 Financial 3,000 6,000 Economic 2,500 5,000

Source:Pump Electrification Prefeesibility Study and Mission estimates.

Maintenanceand RepairCosts

All of the above tasks are performedby semi-skilledor skilled labor,therefore no price adjustmentsare necessaryand the financialand economiccosts are identical.

Overhaul Belt MiscellaneousTotal ------(Pula/unit)--

Dieselengine, 20 kW 1,500 100 300 1,900 Dieselngine, 75 kW 3,500 200 700 4,400 Electricmotor, 20 kW - 100 100 Electricmotor, 75 kW 200 100 300

Source:Pump Electrification Prefeasibility Study and Mission estimates. - 43 -

Annex 2 Page 7 of 7

ReplacementIntervals

Any electric motor which is to substitutefor an existing dieselengine would requirean immediateinitial investment cost at the time the electricityconnection is made. Motor replacementswould then be requiredat intervalscorresponding to the normal servicelife. The benefitto be obtainedby electrificationwould dependon the age of the dieselengine to be replacedand its subsequentreplacement program. On average,it is assumed that any existingdiesel engine to be replaced would have half its expected service life remaining. Cash flow for dieselpump replacementswould begin in year four for large dieselsand year five for small engines, with replacementintervals according to theirrespective service lives.

Because the replacementintervals are not the same for all units and do not correspondto the 20 year study periodwhich has been used for calculatingdiscounted cashflows, a salvage value based on straightline depreciationhas been used to account for any remaining economicvalue of the variousengirm zHnd motor types.

Pump OperatorWages

Operatorcosts are based on the actualnumber of pump operators working on each scheme. Normally, one operator (unskilled)working 200 days per year at Pula 6/day is requiredper pumpingstation resulting in the costs as shown below. An operator would not be required for electricpumps.

AnnualCost of PumpOprators w 100 HPDiesel Unit

DieselAlternative ElectricAlternative

- …(Pula/unit) ------

Financial 1,200 Economic 600

Source:Hiss'on estimates. - 44 -

Annex 3 Page 1 of 4

IRRI6ATIONACTIVITIES IN TME TUII BLOCK FAINS

SampleResults

In order to promoteelectrification of the Tuli Block area, the BotswanaDevelopment Corporation initiated a study on power requirements for the Tuli Block farms. The study was carriedout by EKS, Consulting Engineers. The total number of farms studiedwas 28, ranging over a distance of approximately200 km from Buffus Drift to Zanzibar. The power requirementshave been calculatedusing theoreticalcrop water usagestechniques and individualfarmers' assessments of field dimensions and their preferencesfor particularcrops.

The mission has visited and/or collecteddetailed information on 17 farms which have significantirrigation activities in the Tuli Block at present. The data include: area under irrigation,the diesel oil consumed, irrigationintensity, and informationon water pumping. The followingtable presentsthis data and includesan estimateof the electricenergy consumption equivalence and electricpower required. IRRIGATIONACTIVITIES BY FARN

Running Intensity HKS Irrigation Diesel Time at Farm Water Maximm Electric Electric Survey Area Consumption Full Load Average Volure Flow Energy Power

(NO) (ha) (C3/a) (h/a) (um/a) (M 3/a) (m3 Ah) (INhIa) (W)

Palla Branch D Brink 1 100 70 2,000 770 770 390 230 11g

Riversdale D Brlnk 2 ------

Ellofsdale F Malan 3 100 70 2,000 800 BOO 400 240 120

4F' Saas Post U D Brink 4 ------

Darnaway T Riggs S

Dovedale F Riggs 6 30 15 1,000 600 180 180 50 50

Riversly T Riggs -7

Basinghall MrsA Bieuond 8

LimpopoDscatlone D Brink 9 140 100 2,000 790 1,100 560 330 165

Dead Mule & Banchory r 0 Brink 10 ------IRRIGATION ACTIVITIES BY FARN (OONTINUED)

Running Intensity HKS Irrigation Diesel Time at Farm Water Maximum Electric Electric Survey Area Consumption Full Load Average Volume Flow Energy Power -~~~~~~~ (No) (ha) (3 /a) (h/a) (mm/a) (km3 /a) (m3 /h) (4h/a) (kW)

Rockland and Maylfower Du Plessis and Vos 11 - -

Coombe farm Freeman 12 ------

DevenshIre Freeman 13 40 22 1,000 600 240 240 70 70

Sunnyside 11 L Mulder 14 210 198 3,000 1,050 2,200 1,500 660 220

Sunnyside 1 M Giachettl 15 - - -

Babedi Ranch B Blawett 16 138 130 4,000 1,800 2,480 620 430 110

Shapane Ranch (mill) K van Vuuren 17 13 10 6,000 1,500 200 30 30 5

Martins Ranch Hbdkinsonflulder 18 48 40 1,100 950 450 410 130 120

RamabillbIll J Stighling 19 ------

S0l0ka 0 BDC 20 145 140O 3 000 1ttOO 640 530 470 160 IRRIGATIONACTIVITIES BY FARM(lWTINIJED)

Running Intensity HKS Irrigatlon Diesel Time at Farm Water Maxima Electric Electric Survey Area Consumption Full Load Averae Volume Flow Energy Power

(Mo) (ha) (,3/8) (h/a) (m/a/) (1w3 /a) (. 3A.) (tUh/a) (kV)

African Ranches Schuuaan 21 76 72 3,000 1,300 1,000 330 240 60

Virginia Hirbst 22 ------

LimpopoInn & van Riot E Gros 23 60 48 1,500 900 540 360 160 110

GoslamIam R Young 24 40 12 1,100 330 130 120 40 35

ArizonaRanch C Sladden 25 15 12 1,500 1.000 1S0 100 40 25

MokgetheRanch P Kirby (poultry) 25 ------

WIlIkinsGrove R Young 27 40 12 1,100 330 130 120 40 35

Tuli Ruins Kedikliwe 28 36 18 1,500 560 200 130 60 40

TalanaFarm BCC - 350 300 3,000 950 3,330 1,110 1,000 330

Total cropping 1,581 1,269 2,360 980 15,510 - 4,220 17,90 ° Q0.49ms -3/ not diversified - 48 - Annex 4 Pago 1 of 3

ESTDAtRID3LECTRICITY DUIAMD IN MM TUI BLOCK ARBA

The followingfigures are estimatesof the initialload in the Tuli Block area. This initialload is based on the potentialelectricity demandof only large farms. Smallerfarms have not been includedin this estimate. Hence, the potentialinitial load is conservativelyestimated with a possibility that at the time of electrification,the load requirementswould be higher,but not lower, than the estimatedfigure. The load factorat farm level is calculatedat 0.24. With an anticipated diversityfactor within clustersof 0.8, the load factorby clusterwill be 0.30. Farm numberscorrespond to the HKS study.

Cluster1 (South)

LoadLocation IrrigationHom stead Other Total (101) (W) (1W) 0(W)

Fam I 115 20 135 Far 3 120 20 140 Farn6 50 20 70 Farm9 165 20 185 EuffelsOrlft 20 20 Hotel 20 20 ParrsHalt 20 20 Nakwate 20 20 wachaneng 40 40

Totalnot diversifled 450 80 120 650 Diversifled (0.8) 520

Load factor 0.30. Energy consumption1,370 MWh/a. - 49 -

Anne 4 Page 2 of 3

ClusterII (Central)

LoadLocation IrrigationHomestead Other Total (kW) (kV) (kW) (1W)

Farm13 70 20 90 Farm14 220 20 240 Farm16 110 20 130 Farm17 (mill) 5 20 80 105 Fam 18 120 20 140 Farm20 160 20 180 Farm21 80 20 l0 Form23 110 20 130 Farm24 35 20 55 Far 25 25 20 45 Farm26 (poultry) 20 80 100 Farm27 30 20 55 Form28 40 20 s0 Sherwood 40 40 MartinsDrift 20 20 Zanzibar 20 20

Totalnot diversified 1,1010 260 240 1,510 Diversifled(0.8) 1,210

Loadfactor 0.30. Energyconsumption 3,170 MNb/a.

ClusterIII (North)

LoadLocation Irrigation Homenstod Other Total (kW) (kW)* (W) (KV)

Platjaan 20 20 Talanafarm 330 40 370 TuliLodge 80 80 PontDrift 20 20

Totalnot diversified 330 40 120 490 Dlversifled(0.8) 390

Loadfactor 0.30. Energyconsumption 1,030 iWh/a. - 50 -

Annex 4 Page 3 of 3

Summary

Energy Power Area Consumption Dmnd 001/a) (kW)

Cluster 1 1,370 520 Cluster 11 3,170 1,210 Cluster 111 1,030 390

Totalload In Sherwood substatlon 5,570 2,120 Whereofsouthward (1,130) northward (990)

LosesSherwood-Worupule 390 210

Totalload In Morupulepower statlon 5,960 2,330 Diversifiedto the generators (0.85) 2,000

Note: BPCestimates the basic load at 13.1Gbh/year, and WS & Scott Inc. estimateIt at 9.4 Nh/yeoar. - 51 -

Annex 5 Page 1 of 4

TULI BLOCK BLECr3IVICATIONECONOMIC ANALYSIS

Scenarioa

Assumptions:

GrowthrateS 151 per annum to a mazimumof 3 times existingload.

OpportuaityCost of CapitalDiscount Ratet 10.O0

Economiccost of fuel: 57 thebe/lt Economiccost of electricitys 4.2 thebe/kWh lumberof irrigationpump units:28 at start year 1 for eventual replacement.

Numberof other small units: 25 at start year 1 for eventual - replacement.

Percentagereplaced with electricpumps in year 1: 100.01

Irrigation SmallUnits Diesel Electric Diesel Electric Stz IODhp 75 kW 27 hp 20 kW

Pmp costs (Pula): Capital 12,300 10,000 4,000 2,900 Instel lotion 2.500 _5,00 I -000W 0 Total capital 14,800 1,000 5,800 3,900

Annual.costs: Repair& maintenance 4,400 300 1,900 100 Operator 600 0 400 0 Total OIm 5,000 300 2,300 100

Eneg consumption 50,000 I 16?Mh 10,260 1 39fh Service lifo (in yeas) 7 15 10 IS

Source:Mission estimates. - 52 -

Annex 5 Page 2 of 4

PresentValue of item at OCC discountrates

MlillionPule Total savingsfrom electrification of existingpumps 10.3 Total benefits fromagricultural oxpason 21.5 Total bef Its

Total transission&distribution costs 11.1 Electrlicty costs 4.8 Totalcost of pumps 3.0 Total project costs

cumiltiveinvestmnt, no discounting 12.0 Netpresnt value 12.3

Economicrate of return 16.5%

AverageIncremental Cost of Electricity:.15.4 thebe/kwhconsumed. AverageIncremental Benefit: 30.7 thebe/kwhconsumed.

Area under cultivation: 1,581 hectares. Benefitsper additionalha: 1,256 Pula

Numberof irrigationpumps per ha.: 0.018 Numberof small units per ha.: 0.016 c111o60 '165 808044. U0A %M 611666 90611m 1 6091Mwon " i m l "Wit "06601 906601 996061 900691 9968016 "go t *1696 619969 06060" 11666tm 6666611 66 91 406f 60006ff 660666 '6m &=raw6 Wm

1469 466 6 409 449 44096 46669 949996 9446 *0"9 944969 94909 4669 delta 0906 06619 66646 6966 41606 16606 "Tu66 ITE 80 366 "us0

it"9 36" 111468 U 666- 66@006 91-a0a" 6 1,360.3dw

061901 0611661 0 61 066661 661661 06196 061901 6161 616 696014 616 06"oo1Mtt61"96flat ""I66*69 1061 "90166 06906 1666 46994 oft 661100886666 16

44601 own ow6a66 06061 0666I1661 06666 666 6666 1601 6661.. OM66 6600 M669 01669 @4861 6*661 96066 66496 "Si99 O49499 666 I 00341 to mm6 090" Stan St"" *9 096" 0" I o" 09 90 9 6 00 09 oo"696 Class 0696t 06m stol 04169 866" 0 so"oO*mWe96 leafag 066

8096 80). 001 0ww9)1

In --.-.-..----.-- ~~~~~~~~~...... - .-.-...... -...... --...... -......

a,"660" Coal ~60"TO

6666 own6 66661 on"6 6660 666 66666"661"69 "A 60 6660d $I&60 401964 16096 0641"a 668 "In"116 6660g 8966 gut49060 0466606* S 68, 10

at" 'm"am,ueso

------.-. ..--.-... ---.----. .~~~~~~~~~~~~~~~~...... an an 6 gm6m a gm gm6 g gm 4 0m 0 0m 0am 0 0uMg 600 tt6ee690

(3100~90@36665) ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ tass"402a emmoss-ooom Nam*"M sumwon ne. SOOM NOW emotes 856 56263 61 ...... 1*4cm~5 8011wit 4L11

*t1 of. g.t .3 * l 0 a a I 0 5 4 I 0 t to Is la 1, 15 3s t 4 S? 1t S9t a

maci _ mi"s -

611MTIM

WAOO of lipe t .,"_ to sns Sqalstgoealaaou** og. 3556 a sn *_ sS -na PV *oplZes cost

W* fete Su" 8t s 3s s MU s , 1 3 31 s8g ss S sn sn 3p1g.mct a as abU ata- 1~ ez ae 1e003ee m su S e z*,eeoo SW *e a_moO mm Am" t a _

*W *cptal g *1 *M9n 1"at" _ _ _ one"_ m "Ms "a m m

suk of as2s nas as BS 22 Ss n . as Ss as Ss as Uqalcalact-Ii 00 e1,0. aolelo 85,3 Sp as

tw &mm1 a amtn Aat Amplsets.c ctaa 1a14 8N .s m sn1 o sAo Ism S sm l} t Ia t "m

...... 6 . . I"Mal "at-* 1.909_2 n7 salls a*21 221nz tood Iarm 21*5 U,4 *4 1n Sna nv F,M ddtaalbgsgea.pl~a 131 508 834" 1SM SIM * v4aa n74 Ulann "a ntai Un Ulm n7 W U S0IM 363 SI43 9163 53450 W395 SI63 5143 SIM SIM OM4 338 14 36 M.l _Iini6an 3 tte N. 33.3 milet. 10168I~~~~~~~~~118,130361? 360~~13436415 334141 San010 38100 Oftbwts t" UN I 304149 61459 3" 366"n 10416 166" 160o 106411086 518,109 33800 83660159 93356 53860 81835 136

bert_ _ t _ 64" waoll 1nown" nnn tor nns naa "nn-n nnm nnnm n7un nmo so amos no nuno nnsn uno "nIsm ...... _ ...... _...... lamd . 11.5.5 0.IC 1, MO. 86.01 31.0 33 5 40. 11.M ...... ,,.... ,,,_...... _,...... ____._.__,_...... _._.__.. paj nINCON m -- SOD -539001 ftn Mso slants MW 2a" *041 49 WIS at "> *0111 40 64 *el"s 4est "| 4fi 4mo 4m" 6u_ Nu wa_" _"I _

-546._3 #8,0 Sat. _5 ba 8n.bX t. *eg Uait 435) ltb 1 12l#1030U tZ*UJ)

.*.... . ----...... MM passmV 4 ftle 1.99 0580a1 WMA3601 130 4.359 1459 4 ca3.31.6 Om 1..9 t_C~~~~~~~49 0. 1.3 15. 3. 31 0 1.5# 0.

ftu-e.es ) 3 1.6 31.1 48.4 5.0 15t.5 a" 3.3 39.4

3.63 ".4 a149 8.6 5.6 U.3 A" 8. 89.4 *.et 24.1 11.5 n3. *s.4 41'.7 Wc MI l.0

WINS 0.2 to 6 WIP 0.0 l.0 *.91@ e0.w

u6.es 4.9 19. 11.1 *.e "- e4.1 * 2*s.9

14.es *.-3 97.0 ns.1 *.e *0.1 *s *0.0 e0.2 MUe 0.2 1.6 34.3 *.9 344 SA* s.6 se.# u0.ea e2.0 SAw. Co. 11.1 *. a* *.2 Ze.0 0 e.11 4A It. *-S.f S.4 23S. 47 n4.0 rA 01 - 55 - Annex 6 Page 1 of 2

FIvANciALsVIoN To TE FIa

The financial savings which the farmer can achieve from electrificationare based on the costs of acquiring, installing, operating,and maintaininga 75 kV electric pump versus operating, replacing, and maintaining a 100 hp diesel pump. The annual cash flows are compared and the net cash flows are discountedUsing the opportunity cost of capitalof 102. The costs are based on the figures presented in Annexes 1 and 2.

The electric motor purchase and installation costs are Pula 16,000 with an effective life of 15 years. The purchase of a replacementmotor would cost Pula 11,000in 1985 prices. The low voltage line connectingthe pumphouse to the connectionpoint on the medium voltage transformer on the farm would average Pula 34,000.

Knergy costs are based on the tariff charged to the farmers per kMh. This analysis excludes demand charges as it is assumed that the farmer would make optimum use of electricity in order to avoid excessive charges.

A11 other costs are based on figures in Annex 2. C..~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.-_,

ltlofeW 11 : Tooo

1*4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~* e)ow "

lot t9110 10 ONP* AStW4066 * '~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~oto t- ot- P tt_*%Awdu

, ...... __...... __..._._....____...... __...... _._...... _...... _. _...... _. ont'" *01lt 00014 *01lo o, t WttM t't Gul0W' on"t'11 " st'tt o'" Wt' t 00t'" Z't"' "t-"49* I*Gt" set," t 09 -ovat tose

_ _.5 .______...... _._._...... ____,,,,...... _... . .__ ._ ._ a0 tl'~0014 _sle on, 0010 evl 0014 -wl O"s -tls evel _-to O-m $Wu Oew* O"esn -$l e-+Owr t tl oln _ t"* to

OK m an OK" on oi t'm anZn a n o 08Wn on on at on on on OK 00t- 0'tenwnes OW'S@99S 59'S WLI1SW' Cmi) 595 09'S OWl gm"0 599'S S as9$MM' W~eIoIII@91 O l @9 Ws 91 O' 69'' tet W tet10 $W t bt em W4a *44 wt tt14 61eZ *91 4t10 enta #",a e91 "co Oest 0e' "l eet eetet dft e _n

t 0 0 * *0* * 0* * * * ewel W _o tWaewt IV""

SC id-._st sn

StSt In _ 4s a Stest It t 1 I@ £

-11 t35 tI - g aanwI - 57 -

Annex 7 Page 1 of 3

FIMICIAL PIASIBILITY0P OF E PROCT FMOPC

The analysisof the proposedproject's financial viability for BPC is based on the followingassumptions:

(a) Investmentcosts do not include extensionsto consumers as these costs would be financedseparately and recoveredthrough direct charges;

(b) Investmentcosts at differentload growthrates are as follows:

Annual Load Maximum Investnt Costs Growth Doend Total Forelgn Local S) Oa) - ula mi 1llons)

0 2 M 11.90 9.52 2.38 5 3 MW 11.90 9.52 2.38 10 4 M 11.90 9.52 2.38 is 6 MW 12.10 9.68 2.42 20 8 M 12.70 10.16 2.4

Source: Missionestimates and Annex1.

(c) foreigncosts are assumedto be financedthrough a loan with a grace periodof 3 years,payable in 15 years,at 102 interest;

(d) all local costs of the project are paid for during the same year they are incurred; I (e) line maintenancecosts of 1.52 of investmentcosts have been added each year, starting a year after the end of the constructionperiod;

(f) financial generation costs are taken from BPCta income statementfor 1985 and divided by generationduring the same year. It is conservativelyassumed that fuel costs will be reducedby 20Z with the commissioningof Morupule;

(g) the net presentvalue of the investmentis calculatedover the life of the transmissionline (33 years),with a discountrate of 101; and - 58 -

Annex 7 Page 2 of 3

(h) the revenuesfrom the projectare obtainedby multiplyingthe energy consumption (for each growth scenario) times the electricityrate per year. Total costsare the sum of (a), (b) and (c), plus generationcosts (d) times the volume of energy consumed.

The deta:led calculationsfor scenario B with the proposed tariff of 16.97thelA/ktWh are shownin the followingtable. ta g fe2;22Page 3 of 3

g 3t -- 32 1

$U . 3 I -

s It . 5 2 331 *jXjO

X s ~* I ,Xl

I~ ~~ !3, ;33., , 3X ; S fz3 ,f: s , * . s si! 1; 3s

!# tI 1 1 tei33 §,

_ * f,.31gXs!q3

s !3l0 i I 3!3g. }Xii 0 - 60 -

Annex 8 Page 1 of 6

KUY MPS 0 TE TULI BOCK PARKS

Map 1 General Overview

Map 2 TransmissionLine from MorupulePower Station tQ SherwoodSubstation

Map 3 ClusterI farms (southwestarea)

Map 4 ClusterII farms (centralarea)

Nap 5 ClusterIII farms (northeastarea) ______--_--_------__-_-_1___-_,_IBRD 20069.

AtfLA It?! - ?I BoTswANA _. _._ Z.rW, lULIBLOCK FARMS IT \ J 0 B Ao NAME

Pfmaywroads

- Secondary roads |.

I-I i Railroads ALANVC *-Y , J AN O Townsor major vIlages OCEM 3c0' o Other villages \/AFRICA - Riversand streams Internationl bounri.es ' : : .

ZIMBABWE

rhu,

ff~~~~~~~~~~~~~~ _ 0 SOUTH~DU T H

eao~~~~~~~~iss LINE CLU s66 CWSTEAFIIC0

e 9 0~~~~~4 / ~~~~~~~~~~~~~~CWSTR 11 AF R ICA

(.0~~~~~

mts&fede* lds eebwomfor foe C*fr useOf The NW ON*MeNW tie OtNuhOn Flseic CopvoefteThe rusufoe&.w&ed &Vwl bWIaCmuwno Mo n Oe eu doANo foofo.-t Owe, of nooteWISot* SWdon mbaTie.XClF~ounc4m*veIen awoA1ni onti eas"enAOf VWOr wni0y w afr~Wwor wacCgDu?oof stch bnidrxie IBRD200AD

TULIBLOCK FARMS _ _ I New TransmissionLine \ 't ZIMM NAM\MA I BOTSWANA Newtranumsnslonpower lb*e 66WArao ____ Gaboodr!PI Secondarymods ---- OtheRuoads -,--.-,- RaBoads ( I

C T1bwsor ttqot vLgLC S 13L,2 O Othervllkage AMA ocw

b.ltemaflOnal baunrdarie

-\ RNMan str"

_ ~~~ / .-. ~ ~~~~~I

MORUPULE ZOWE Leserieposal0 / STATION /

I\SWAPONG HILLS

/f* --- S ==ta/

/ 7 \\~I / *

ffiw_ ~~I /dk MoleteTA?O

/F~~~~~~~~~'' ~ ~~ I R~ C/~~~~~~~~~

,0 1p 2' 30metaer M_ \ 9tsl

AmomQh Of \I)

\ 2 FRIC Mact*ang ) SuaOCTH

F*w,e ycOOO'8k'nSW.8w180s The .eddd bO.Xe 8*848* oo DI e7y IewPW1 #TaeS**8 d Ieh*n.e*e Few.c. dwm*. *'_ Mf eol L- ' '- ~~~~~~~~~~~~~~~~~~~~~~~~~~OCTOBER1986 IBRD200

BOTSWANA TULIBLOCK FARMS ClusterI

90 irdgatlonforms or otherbig consumers Prnmaryroads of eletricity. Figuresfrom HKS Study. gcondary roads O Minorioads - Otherroads Newdsrlbution power lines, 33kv Railroads O Townsor maJorvilbgeRalrad -onomjvis Riversand streoms o Othervillges 1-Iternatlonalboundaries

to&*&AkvtotdDy

/ a~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~/

1(huduJlsSee _- r

< tMahalapaye L/D

~~~~~~~~~~~~~~~~~~~~~~ 2

to G~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~eonti

) \ XTULI X \w~ j

ALM ANI OLA C ZC

bt'-k,.. .. ,a ofTO. Mb.rs*Aaf AF R IC A F)S0 SOUTH~M

/ l.~. f..T IT._,d ._d WrTOb.~ Co _ , Or Q- ,/ Xa-- re rAW ec a_ 310 WM IBRD20079R BOTSWANA TULIBLOCK FARMS Cluster 11 130elntgattonfarms or othe big consumers Secondayroads of electriciy,re ftomHKS Slud. -- Other ds 0 Mlnorloads 0 Townsor majorvllages Newdldibuton powerines. 33w 0 Othervilges

_ _ and strears Intemattnal boundads

1 i I n ' -----1 ~

Le-swopole~~%Mgop%Ik

SSs ~~~~~~~/\1 '92 I~~~~~~~

9\/J °t1P3,0/t - -

\~~~~~~~~~~~~~~~~~~~~~R I C,A

to PdW 10: ~ ) S~~~~~~~~~~~~~~~~~~~~~~OAA IBO9AA.) fZ

BO\\ \<-q-_- - - -S - _

\JA -- S_ , ;- :- JULY 987 IBRD2007j

BOTSWANA TULIBLOCK FARMS Cluster IIl

* brigoatonfms or othr big consumersof elecircit o Mnor oads Newditibution powe Unes.33W6/ Secondaryroods - Otht tooads 0 Townsor majorvillges A~ANAi_~~ / °0 Other vilages ~-47RiAversanastreamrs 6 //2 / -sm- -IrdfltOtrationalboundlarie

I ,/S ,, -r < < -j ------I \ -x,<

/tX; * '7 A ZIMBABWE

/'{ \'S N

1 P

i ~ ~~~~~ !- - t 4%& ' < J -~~~~~~~~~~~~~~~~~I~~~~~~~~~~~~~~~~~~~MMI,sou0 THt Itk ~ I

'C-' ' ~~~~~~~'"' ~~~~~~~AFRIrA - t I ~~~~~~~~ 2( I! 7A4S

.~~~~\\ ~~~~~~~~~~~~\ K 1 ANGOlACTBE 18

0~~~~~~~~~~~~~~~~~~~~COE 198lS SaUYSCQ MAUAUN ASSISTAC IOGRAW

Activities Completed

Date Coleted Energy Assessment Status Report

Papua New Guinea July, 1983 Hauritius October, 1983 Sri Lanka January, 1984 Malawi January, 1984 Burundi ' February, 1984 Bangladesh April, 1984 - Kenya Mey, 1984 awanda Kay, 1984 Zimbabwe August, 1984 Uganda August, 1984 Indonesia Septembert 1984 Senegal October, 1984 Sudan November, 1984 Nepal January, 1985 Zambia , August, 1985 Peru August, 1985 Haiti August, 1985 Paraguay September, 1985 Morocco January, L986 Niger February, 1986

Project Formulation and Justification

Panama Power Loss Reduction Study June, 1983 Zimbabwe Power Loss Reduction Study June, 1983 Sri lanka Power Loss Reduction Study July, 1983 1Llawi Technical Assistance to Improve the Bfficiency of Fuelwood Use in Tobacco Induitry November, 1983 Kenya Power Loss Rsduction Study March, 1904 Sudan Power Loss Reduction Study June, 1984 Seychelles Power Loss Reduction Study August, 1984 The Gambia Solar Water Heating Rgtrofit Project February, 1985 Bangladesh Power System Efficiency Study February, 1985 The Cambia Solar Photovoltaic Applications March. 3985 Senegal Industrial Energy Conservation June, 1985 Burundi Improved Charcoal Cookstove Strategy September, 1985 Thailand Rural Energy Issues and Optiona September, 1985 gthiopia Power Sector Efficiency Study October, 1985 3urundi, Peat Utilization Project November, 1985 Botiwana Pump Electrification Prefeasibility J Study January, 1986 Uganda Energy Efficiency in Tobace Curing Industry . February, 1986 Indonesia Power Generation Efficiency Stu4y February, 1986 Uganda Fuetwood/Forestry Feasibility Study March, 1986 Sri Lanka Industrial Energy Conservation- Feasibility Study March, 1986 Togo Wood Recovery in the Nangbeto Lake April, 1986 Rwanda Improved Charcoal Cookstove Strategy August, 1986 Ethiopia Agricultural Reoidue Briquetting Pilot Project December, 1986 Ethiopia sagasse Study - December, 1986 Peru Proposal for a Stove Dissemination Program in the Sierra February, 1987 Rvanda Improved Charcoal Production Techniques February, 1987 Kenya Solar Water Beating Study February, 1987 Indonesia Energy Efficiency tIprovement in the Brick, Tile and Lime industries on Java - March, 1987 Malaysia Sabab. Power System Efficiency Study Mlarch, 1987 Cote Improved Biomass Utilization - Pilot d'Ivoire Projects Using Agro Industrial Rea., April, 1987 Mauritius Power System Efficiency Study may, 1987

Institutional and Policy Support

Sudan Management Assistance to the Ministry of Energy & Mining- may, 1983 Burundi Petroleum Supply Management Study December, 1983 Papus New Proposals for Strengthening the Guinea Department of Minerals and Energy October, 1984 Papua New Guinea Power Tariff Studi October, 1984 Costa Rica Recommended Tech. Asst. Projects November, 1984 Uganda , Institutional Strengthening in the Energy Sector Jaiuary, 1985 Guinea- Recommended Technical Assistance Bissau Projects Aprit, 1985 Zimbabwe Power Sector Management Aprilt 1985.- The Gambia Petroleum Supply Mtanagement Assistance April 1 1985 Burundi Presentstion of Energy Projects for the Fourth Five Year Plaq May, 1985 Liberia Recomsended Technical assistance Proj. June, 1985 Burkina Technical Assistance Program March, 1986 Senegal Assistance Given for Preparation of Documents for Energy Sector Donors' Meeting April, 1986 Zambia Energy Sector Institutional Review November, 1986 Jamaica Petroleum Procurement, Refining & Dist. November, 1986