RESTRICTED Report No. TO-398c Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracyor completeness.The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized APPRAISAL OF THE KAINJI MULTIPURPOSE PROJECT THE NIGER DAMS AUTHORITY Public Disclosure Authorized NIGERIA June 3, 1964 Public Disclosure Authorized Department of Technical Operations CURRENCY EQUIVALENTS One 6N = U.S. $2.80 = 1 E Sterling = 1, 743 Lire = 10. 1 Guilders NIGERIA APPRAISAL OF THE KA.INJI MULTIPURPOSEPROJ7CT TTHENIGETR DAMS AUTHCRTTY TALE OF CONTENTS Page No. SUM!4ARY I. INTRODUCT-ON 1 II. BACIGROUND 1 III. THE BORROWER 2 IV. THE PROJECT 3 V. POWERASPECTS 9 VI, TRANSPORTATION 12 VII. AGRICULTUNEANID FISHERIES 13 VIII. ECONOTI,ECEVALUATIOiON 14 IX. FINANCIAL ASPECTS 16 X. CONCLUSIO:IS 22 ANITEXES 1. Estimated Foreign and Local Costs of the Project 2. Economic Evaluation 3. Assumed !Amounts and Terms of Project Loans 4. Kainji Project - Forecast Income Statements 5. Kainji Project - Forecast Sources and Applications of Funds Statements 6. Kainji Project - Forecast Balance Sheet's 7. Forecast Consolidated Income Statements 8. Forecast Consolidated Sources and Applications of Funds Statements 9. Forecast Consolidated Balance Sheets 10. Assumptions for Financial Projections MAP 1 - Niger River Dasin MAP 2 - Electricit-y Undertakings NIGERIA APPRAISAL OF THE KAINJI IiULTIPURPOSEPROJECT TIlE NIGER DA1ISAUTHORITY MI%ARY i. The Government of Nigeria has applied to the Bank for a loan to finance part of the foreign exchange costs of the Kainji Project. This Project is the first stage of a multipurposedevelopment scheme on the Niger River. It consists of: a dam; a power station with an initial capacity of 320 14Wdl;a system of locks and canals to accommodateriver trans- portation; and a transmissionsystem which would be connectedwith facilities of the Electricity Corporationof Nigeria (ECN), thus forming a national grid. ii. The borrower would be the Niger Dans Authority (NDA), a statutory governmentalcorporation created by the Niger Dams Act of September13, 1962 and presently in the process of organization. iii. The estimated total cost of the Project excluding iworkingcapital but including capitalizedinterest during constructionis equivalent to US$207.8 million (tN74.2 million). The foreign exchange component is esti- mated to be US$ 134.6 million equivalent. The funds required by NDA for the Project during the constructionperiod, includingworking capital and interest paid, total EN 69.8 million of which the Government would provide fI 24.! million. The balance of EN 45.4 million equivalent will consist of loans from the Bank and foreign governments. The Government wzillalso be required to provide an estimated EN 100,000 equivalent of interest on the U.S.-AID loan during the constructionperiod. iv. The only imnediate, substantialbenefit from the Project would be power. However, under proper development and management, additional benefits should materialize in the areas of agriculture,fisheries and navigation. v. The Project is well planned and would meet the forecast powTergrowith in Nigeria. It is expected that the Project uill be completed by the end of 1968. Additional generatingunits wjillbe installedperiodically during the subsequent twelve years thereby increasing the total capacity to 960 14vWby 1981. This additional power %ould be sufficient to meet the expected load requirementsthroughout this period. vi. The organizationand operation of the power sector upon the com- pletion of the Project is being consideredby the Government. Regardless uf the ultimate arrangement,rates will be set so as to produce a minimum annual return of 8% on the net fixed assets of the sector. vii. NDA would be a suitable borrower for a Bank loan of US$82 million with a term of 35 years including a grace period of 5 years. A condition of effectivenessof the Bank loan is that agreements shall have been com- pleted for a minimum of USjp45million equivalent in other foreign loans. NIGERIA APPRAISAL OF ThE KAINJT WMJLTTPUT?OSEPROJECT THE 1'NIGERDAMS AUTHORITY I. INTRODUCTION 1. The Goverunent of Nigeria has decided to corstruct, a multipurpose dam on the Niger River at Kainji (see Map 1) and has asked the Bank to as- sist in financing part of the foreign exchange cost. The est-.ratedcost of the first stage of the developmcnt is equivalent to US$207.8 million,of which the foreign currency comoonentwould be US$13h.6 million equivalent. 2. The Project as presented to the Dankc iwould con,sist of a dan across Kainji Island 260 miles north of Lagos and about 600 miles above the mouth of the Niger; a hydroelectric plant tith 320 NW of installed capacity; high voltage transmission li-nes to Oshogbo and Kaduna -.hich -would connect with the facilities of the Electricity Coipoiation of Nigeria (ECN); a two stage navigation locks system at the dara; a canal with loc.cs at ATurli, 11 miles below the da1; river ohannel excavation between Kainji _and Jebba; relocation of eidst ng roads; and protection or resettlementof emisting tow-ins. 3. Planning and design of tlheProject has 'seendone by Balfour, Beatty & Company Ltd. and the Netherlands EngineeringConsultants (NEDECO) as Joint Consultants. The Project wRillbe carried out by the recently created -liger Dams Authority CIDA). Constructionof the Project has commenced. A contract for the constructionof an all -eather access road from the town of 7'arato the Kainji site and the erection of tuo ',emporarybridges over the Niger River was a Jarded to Sir Lindsay Parlcinson C Co. Ltd. in April 1963. Follol- ing international competitive bidding, a ]etter of intent was issued to Impregilo in February 1954 for the main civil works ccntract. 4. This report presents an appraisal of the proposed Project. It is based on: information contained in a comprehensivereport prepared by the Joint Consultantsin 1561 which concluded a feasibility studlypartially financed by the United Nations Special Furd; two reports prepared by Cooper Brothers and Company in 1962; market surveys prepared by Merz & McLeellanin 1959 and 1962; data obtained from Stone & Webster vho were retained by the Bank as Consultants;and field visits to Nigeria 'byBank missions in 1902 and 1963. II. BACKGROUND 5. In the past decade several studies of the INigerRiver and its tri- butaries have been performed by specialized organizations. The first of these wa,s a hydrological investigation of the Niger and Beniue Rivers con- ducted by IZEDECOin 1953, particularly to determinie means of improving navi- gation. In March nf 1958 ECN commissioned Balfour, Beatty & Co. Ltd. to determine the hydroelrctric potential of the Jebba site on the Niger. Soon after Balf our, Deatty had been retained, discussions were hold betwecn EC14 and the Federal Government, as a result of which it was agreed that a com- prehensiveinvestigation of the Niger should be carrI.edout by Balfour, I3eatty and NEDECO, as Joint Consultants. At about t;-eCame time, acting on - 2 - the suggestion of the Northern Region Government,ECIH commissioned Sir Alex- ander Gibb and Partners to investigatetie hydroelectricpossibilities of the7ShiroroGorge site on the Kaduna River. In 1960, the Stanford Research Institute undertook an economic analysis of Nigerian transport, including river transport on the lNiger,in order to assist the Government in providing an orderly developmentand coordinationof all modes of transport:rail, road, water and air. 6. A wzorkingparty of officials representingthe Federal Government, the Regional Governments,and ECINwas set up early in 1959 to study the Joint Consultants'report and the Gibb's report. In June 1959, a unamimous recommendation was made for a long range hydro development programl- which would utilize the iKur-iasa site on the !1iger River (near Kainji) as the first step. The iligerian working party also recorzmended, and the National Econo- mic Council concurred, that the Joint Consultantsproceed with the next stages of the investigations. 7. In December 1959, the United Nations Special Fund approved a grent of US41700000 eouivalent to the Government of Nigeria to conduct additional envineering investigationsof the Niger River which vwouldprovide the in- formation necessary to determine the desirabilityof the constructionof a multipurPosedam on the Niger. The Bank acted as Executing Agency and the sar.eJoint Consultantswere retained to carry out the study. The study was completed in June 1961 with a report which concluded that the most economic method of producing the future pO?er requirementsof Nigeria was the deve- lopment of the hydroelectric potential of the NIiger River and reco-miended that a site across Kainji Island be developed immediately by the construc- tion of a daii- including navigation locks and a hydroelectricstation with an ini.tiil installation of four 70 N1Wunits (since changed to 80 NW'units). 8. A Bank re-ort on the "EcononU of Nigeria" completed in October 1961 conclulded from a preliminary analysis that the Kainji Project was sufficient- ly attractive to warrant a formal appraisal if it was requested. A ligerian Governm-rent delegation to the Bank at that time asked for assistance in financ.ing the Project and in July 1962 a Bank mission visited N\igeria to make the appraisal. The Bank mission was assisted by two consultantsfrom Stone ant 7ebster who investigatedalternative means of power generation. 9. In January/February1963 a second Bank mission to Nigeria arpraised the exp;l.Jicn progra.a of ECHTand concluded in Report No. TO 380a "Arpraisal of the Tlr..m-ission Project" that ECN's transmission lines would be suitable for a Uk loan of US%$3O.0million equivalent. The transmissionproject would forr, the nucleus of a national grid as a prerequisite for the Kainji Projiect Loan 372 UNI was signed on liarch 12, 1964. III. THE BO.RROIER 10, The Niger Dams A.uthority,the borrower, was created by Act Mot.23 Or 2eptelaber 13, 1962 of the Legislature of the Federation of NTigeria.