I-N- a-?-'1 o- G!RGJLATItJCOPY-R E S T R I C T E D RETURNTO *-~'CMCULATINIG COPY- REPORTS DES BERETU2U?D TOREPORTS DESK R e p o r t N 0. TO-Z67a WITHIN Ii CLEr.t?ALFIIES ONE WEEK Public Disclosure Authorized This report was preparedfor use within the Bank. It may not be published nor mayit be quotedas representingthe Bank'sviews. The Bankaccepts no responsibilityfor the accuracyor completenessof the contentsof the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized APPRAISAL OF POWER PROJECTS YUGOSLAVIA Public Disclosure Authorized February 14, 1961 Public Disclosure Authorized Department of Technical Operations CURRENCY EQUIVALENTS U.S. $1. 00 = 750 dinars 1 billion dinars = U. S. $1 1/3 million YUGOS;LAVIA Appraisal of Power Projects TABLE OF CONTENTS Page Summary i I. Introduction 1 II. Power Industry 1 III. Existing Power System 2 IV. Power Market 3 V. Expansion Program 3 VI. The Project 5 Senj Hydroelectric Plant 5 Description 5 Hydrology 5 Geology 6 Engineering and Constructuion 6 Present Status and Schedule of Construction 6 Cost Estimate 7 TransmissionLine System 7 Amount of Loan 8 Procurement 8 Priority of Projects 9 VII. Financial and Economic Aspects 9 Rates 9 Distribution of Income 9 Economic hspects 10 VIII. The Borrower 11 IX. Conclusions 11 LIST OF ANNEXES 1. Records and Forecasts of Power Consumption 2. ConstructionProgram 3. Forecast of Energy Balarce 4. Senj Hydroelectric Development 5. The 220 KV Transmission System 6. Average Price of Power 7. Planned Investments for Expansion of Power System Maps 1 SUi~'1ifRPY i. This report covers the appraisal of a power project in Yugoslavia consistingof the Senj HydroelectricPlant (216 YT7) and the installationof a 220 kv transmissionnetwork. A Bank loan of A30 million equivalent has been requested, to cover bO% of the total cost of the project, estimated at "575million equivalent. ii. The borrower would be the Yugoslav Investmentaank, an institution responsible for lending funds made available by the Government for development projects. Out of the proceeds of the Bank loan and its own resources the Investment Bank would make loans covering the entire estimated cost of the project to each of the several enterprises which would construct and operate it. iii. The organization of the Yugoslav power industry is unique. Each generating plant and the transmissionfacilities in each of the six Republics are constructed and operated as individual self-mana-ed enterprises. The generation and transmission enterprises within each Republic are members of a Republic Power Union which serves as a coordinatingorganization. The Republic Unions are joined in a Federal Power Union responsible for power dispatching in the integrated system, preparation of plans for future expansion and establishment of standards and procedures for the operation of power enter- prises. The power system is well-maintained and operated. The management and staff of the enterprises that hvuld carry out and operate the project are well-qualified. iv. The project is part of a five-year program for the expansionof the Yugoslav power system which itself forms part of the Government'sgeneral investmentplan. The program is reasonableand with normal river flows, will provide the additional capacity required to meet the estirmiated increase in demand. The project is technically sound and has a high priority in the power expansionprogram. The estimatedcost is reasonable. Construction schedules call for completion of the Senj hydroelectricplant in 1965 and of the 220 kv transmissionnetwork in 1963. v. The usual financial concepts coujldnot be used in this appraisal because of the decentralizedorganization o1 the industry, the unusual accounting system used and price distortionsin the economy. It can be said, however, that the high level of saving in Yugoslavia and the large share of aggregate investmentconsistently allocated to power would give assurance that the progran contemplatedwould be adequately f-inanced. vi. Furthermore,the Yugoslav Government has assured the Bank that one of its goals in connection with the implementationof the foreign exchange reform is the removal Of the existing disparities in prices. The Government has also stated that it intends to pursue a policy of gradually increasing prices of electricityso as to achieve an adequate rate of return on investmentsin the power industry. vii. The project is suitable for a Bank loan of $30 million equivalent with a term of 25 years including a grace period of about four years. Y U G O S L A V I A Appraisal of Power Projects. I. I_TRODUCTION. 1. As a result of the findings of a Bank mission which visited Yugoslavia in the spring of 1960, the Government was informed in August 1960 that the Bank was prepared to consider a loan to finance projects in the power sector. This report is based on studies prepared by the organizationsres- ponsible for the supply of electric power in Yugoslavia and on informetion obtained by a mission vhich visited th! country in OctobertNovcrber 1960. 2. The proposed Bank loan would be made to the Yugoslav Investment Bank. This institutionwas establishedin 1956 to make long term loans for developmentprojects, utilizing funds made availableby the Government. II. POWER 1NDUSTRY 3. The power industry in Yugoslavia is organizedin accordancewith the provisions of a law passed by the Federal Assembly in December 1957. The organizationis characterizedby extensive decentralization. Each generating plant is normally constructedand operated as an individual enterprise. The corstructionand operationof high tension transmissionlines and substationsare -ccomplishedbys5jXenterprlses, one for each of the six republics. These, in turn, supply power to local distributionenterprises. 4. All enterprisesare organized in accordancewith the Yugoslav principles of self-management. The workers elect the members of the Wrlorkers, Council and the MianagingBoard responsiblefor establishinggeneral policies of the enterprise. The chief executive of the enterpriseis the General Manager who is eleteadby the Workers' Council and confirmedby the local authorities. 5. The generating and transmissionenterprises within each Republic are members of a Republic Power Union which serves as a coordinatingorgan- ization. In particular,it concludes contractswith its member enterprises for supply and transmissionof power and with distributionenterprises and large consumersfor sale of power. Each Republic Power Union is managed by a Board of Directors and a General Ivianager.The Board consists of representa- tives of mermberenterprises, local authorities,the government of the Republic, the associationof industries and the main distributionenterprises. The General IHnager is appointedby the Republic Government. 6. The Power Unions of the six Republics are joined in a Federal Power Union. This organizationis responsible for the coordination of the power industry in the country as a whole, the power dispatchingin the 4.ntegratedpower system, preparationof plans for future expansionand estab- lisiment of standardsand proceduresfor production, transmissionand dis- tribution of electric power. 7. The chief executive of the Federal Union is the General M4anager, appointed by the Federal Government,who is responsible to a Board of Direc- tors, the members of which represent th~esix Republic Unions, the Federal Government and various other organizations. 8. The managers and senior staff of the enterprisesand Unions have extensive experiencein the utility field and are technicallywell quelified. III. EXISTING PCIOE SYSTEM. 9. Since 1957, electric power in Yugoslaviahas been supplied to the princinal load centers by an integratednetwork to whlicdhthe main generating plants are connected. The total generating capacity in the country at the end of 1959 w-s 1884 EN consisting cf 1,133 l1+of hydro and 751 1iW of thermal capacity4 Of this total, 231 MIT was installed in thermal plants owned and operated by industrial enterprisesto meet their own power requirements. Dur- ing 1960, an additional 172 ih of hydro and 128 lWJ of thermal generatingcapac- ity were put into operation by the power enterprises. 10. Most of the hydro plants in the system are of the run-of-the-river type. Water availabilityreaches a maximum dur-ingthe late winter months and drops to a minimum during the late sumn,erwhen the average monthly production may be some 4C% lower than the highest winter production. Possible hydro generationvaries also from year to year with a differenceof about 2C% between an average hydrologicalyear and a dry year. 11. About 45% of the thermal capacityis provided by plants constructed before 1939 with small and inefficientunits. In recent years larger units with a capacity of up to 64rP1 have been installed but the average thermal efficiency of plants in operation is still below 25%. hIostof the thermal plants burn low grade lignite of which Yugoslavia has extensive deposits. 12. The high tension transmissionnetwork at the end of 1960 consisted of 905 kilometers of 220 kv and 4,991 kilometers of 110 kv lines and 66 main substationswith a total transformercapacity of 2,242 h1VA. The trans- mission system is connectedwith the systems of Austria, Italy, Groeee and Hungary. 13. Total power production in 1960 was about 8.8 billion kwh and the peak load was 1,565 MI. The system load factor was 64%. System losses were 16% of total generation. 14. The power system is well maintained and efficiently operated. - 3 - IV, FPOWERMARKET. 15. Total power sales in