R E ST RI C T E D RE<TURN r RETURIIEDT ARCIIVES DIVSCP R e p o r t N0. TC-249a REPORTS DlESK WITH][N Public Disclosure Authorized ONYE EE:KE -'IYPtrvu~m1wasprepared for usewithin the Bank. It maynot be publishednor mIiyit be quotedas representingthe Bank'sviews. The Bankaccepts no responsibilityfor the accuracy or completenessof the contentsof thereport. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized PRELIMINARY APPRAISAL OF THE VOLTA RIVE' HYDROELECTRIC PROJECT GHANA Public Disclosure Authorized FILECO PY June 30, 1960 Public Disclosure Authorized Departraent of Tethnical Operations CURRENCY EQUIVALENTS U.S. Cents 1 = Ghana Pence 0.857 U.S. $1 = Ghana Shillings 7 Pence 3 U.S. $2. 80 = Ghana I 1 U. S. $2. 8 million = Ghana i 1 million PvRELIiJNirtY A.PP7,HAISALOF TIE VOLTA RIVER HYDROELECTiIC PROJECT GHANA TABLE OF CONTENTS Page No. SUTVIiARY i - ii I. INTRODUCTION 1 n,-.,- m\r4 ~ 4 m-rM4- T' Mr'vrmr AmThMnTTnM A TT7h ,-nT:,jA Trr' nDCr T-nrTI 1 III. POWERMARKET 2 Existing Installation 2 Proposed Transmission Network 2 The Non-SmelterLoad in the Accra-TemaArea 3 The SmelterLoad 4 TotalDemand and GeneratingCapacity Required 4 IV. THE PROJECT 5 The VoltaBasin 5 Descriptionof the Project 5 Engineeringand GeologicalStudies 6 Water Requirements 6 ConstructionSchedule 7 Cost Estimates 8 Scheduleof Expenditure 9 V. FINANCIALASPECTS 9 Financing 9 Tariffs 10 FinancialProjections 10 Ten-Year Return on the Investment 11 Long-Term Return on the Investment 13 Effectof an 80,000-tonSmelter 14 Effect of a 210,000-tonSmelter 15 GeneralConsiderations 16 VI. ECONOMICASPECTS 18 VII. CONCLUSIONSAND RECOSMENDATIONS 20 LIST OF ANNEXES 1. Power Demand in Accra-Tema Area: (Estimated Maximum Demand and Plant Capacity; and Estimated Electricity Sales) 2 PowTer Station Tnstalled Capacity and Maximum Demand. 3. Construction Schedule 4. Forecast Summary Income Statements and Cash Flows Based on a Smelter Tariff of 2.5 Mills. 5. Forecast Summary Income Statements and Cash Flows Based on a Smelter Tariff of 3 Mills. 6. Forecast Summary Income Statementsand Cash Flows Based on a Smelter Tariff of 3.5 Mills. 7. AlternativeThermal Power Station Costs. 8. Summary Estimate of Ancillary Investments. 9. The Effect of Power Prices on the Cost of Aluminum. I'.) Calcala'tio of Long-Term Rate of Return. Map of Ghana GHANA PRZLYi!LWARATAPPRAISAL OF TIH. VOLT)1ARI-v_R FIf-ROUS-U.CTRIC PROJi1ECT SUMMARY The Governmentof Ghana asked the Bank to appraise the Volta River Project as though it were consideringfinancing the project and to indicate the effects of various smelter tariffs on the returns that might be expected from the project. ii. The project comprisesthe Droposed AKosombo dam, a 539 i{ui power plant (wfvithprovision for 294 I.Tadditional capacity) and trans- mission lines to Accra and Tema to supply power to a proposed aluminum smelter and to the Accra-Temaarea. The dam would be 370 feet high above foundationlevel and 2,100 feet long, creating a reservoir 300 miles in length, with a total storage capacity of 120 million acre-feet. Excluded from the project, as appraised in this report, is a proposed 700 mile transmission netwrork, as the expected power demand it would supply would not justify, for some years, the initial capital cost re- quired. The project has been investigatedby consultants,Kaiser ,ngi- neers & Constructors,Inc., of the U.S.A. iii. Based on average rainfall, adequate water from the catchment area in Ghana would be availableto operate the initial four unit (589 ISrT) plant. Since water from tributaries of the Volta River rising in neigh- boring territorieswould be required to operate the project when fully developed (883 1MW),steps should be taken to determine wThether sufficient water could be diverted to affect the project seriously. iv. The project, which would take about four years to construct, is scheduled to be completedby December 1965 but, in view of possible constructiondifficulties and the chance that two dry years in succes- sion might be experiencedduring the reservoir filling period, the date of beginning operationshas been assumed as January 1, 1967, in this report. v. The project is estimated to cost fG 58.3 million of which the foreign exchange componentwould be apnroximatelyfG 40 million. vi. For financing the constructionof the project it has been aosumed in this report that the Government'scontribution would be fG 30 million and the remainder would be borrowed at 651interest for a period of 25 years, includinga 6 year grace period. vii. The Governmenthas establisheda secretariatto coordinate general planning of the project. The Governmentproposes to set up a Volta River Authority to carry out all the steps necessary to construct the project and to operate it after completion. Consultingengineers would design and supervise constructionof the project. Expatriate staff would be required for key positions in the proposed Authority. - ii - viii. The power market would consist of the 120,000 ton aluminum smelter requiring 303 MiWand other consumers (Accra-Temaarea) requiring 59 MWin 1967 and 163 MWby 1976. ix. The financial return on the project would not be attractive in the initial years of operation,particularly when the cost of ancillary invP.tm-nt.- is tikPn innto aeeoin1 aowpvv'r_t.hpe rptirn nve.r t,hp longer run is more substantial and benefits other than financial would accrue to the Government and the economy. It is for the Government to decide whether the longer-termreturn and benefits outweigh the initial losses and the uncertainties faced in so substantial an inv<stment. x. If the Government decides to proceed with the project, it is recommended that the measures set out in paragraph 82 be taken. I. INTRODUCTION This report presents an appraisal of the proposed Volta Ri"rer hydroelectricproject and has been prepared at the request of the Govern- ment of Ghana. The appraisal is concerned with the technical,financial adf1 ecOnvoc soundncssof the proposPednr6iect. with the adequacy of the organizationalarrangements for its execution and management, and with the assumptionsand cost estimates upon which a decision to carry out the project might be based. 2. The nroijet as presented to the Bank would include a dam at the Akosombo site about 60 miles above the mouth of the Volta River; a power plant with 589 Hdlinstalled; transmission lines to Accra and to the port of Tema, where a proposed aluminum smelter wtouldbe constructedby VALCO, a consortiumof aluminum companies;and a 700 mile transmission network to supply the principal cities, towns and mines of Southern Ghana. 3. Data on the technical features of the project and its estimated cost have been obtained from a comprehensiveengineering report prepared by Kaiser Engineers and Constructors,Inc., who are the Government'scon- sultants for the project, from a report prepared by Cooper Brothers and Co. on Kaiserts estimated costs, from an engineeringreport prepared for the Volta River Preparatory Commissionby Sir W~illiamHalcrow and Partners and from a field trip made by Bank staff. II. ORGANIZATIONTO CONSTRUCTAND OPERATEPROJECT 4. A secretariat with a small non-technical staff has been set up by the Ghana Governmentto coordinategeneral planning of the project. The Governmentproposes to set up a Volta River Authority to carry out all steps necessary to build the project and to operate it after comple- tion. Consultingengineers would design the project and superviseits construction. 5. The successfulexecution and operationof the project will depend, in large measure, upon the type and characterof the authority which the Government establishesto have responsibilityfor this impor- tant project. The authority should have the freedom, under broad delegationsof policy laid down in the legislationestablishing it, to make decisions and take the actions necessary for the success of the project. It should have the freedom necessaryto conduct its affairs in accordance WTithsound financial and public utility practices. 6. The most successfulagencies of this type are governed by a board of directors of several members. It is irmportantthat the board, while being responsiblefor overall policy and programing, should appoint adrministrativeand technical staff to Thom the execution ofLwork and operation of facilities would be delegated. Qualified senior staff, having the experiencenccessary to manage and operate a project of this nature, are not available in Ghana and it iwouldtherefore be essential to retain expatriate staff for many years. It is important also that the authority should have the power to fix tariffs and otherwise to main- ain a sound fiinancial position. - 2 - 7. U4hilein some cases authoritiesof this character are respon- sible for both generation and distributionof po:Jer,it would seem preferable that the responsibilitiesof the Volta River Authority should be restricted to the generation and transmissionof electricity,includ- ing sales to the smelter, and that distributionshould be the function of the EThetrinity epnartmPent. ifhich is fully conve'.n± with fhe,leal problems involved in distributingelectricity to the widely differing types of consumer in Ghana. In view of the importantrole which the ElectricityDepartment would have in selling the output of the project, that Department should, as quickly as possible,bc put on an efficient and economic basis. Considerationshould be given to the reorganization of the Department as an autonomous public corporation. III. POWER MARKET Existing Installations 8. All generation of electricityin Ghana at present is by diesel plants located in the towns or at the mines which they serve. The plants supplyingthe public are controlledby an ElectricityDepartment directly responsibleto the Ministry of Works and Housing. The load on the plants controlledby the ElectricityDepartment was about 29.2 NI at the end of 1959 and in addition the mines had a demand of about 36 YU.. 9. It is not expected that the demand of the mlnes, all of which are supplied from their own well maintained and operated power stations, will change significantlyin the forseeable future.