Report No. 627a-KE Kenya FILE COPY Appraisal of the Gitaru Hydroelectric Project May 23, 1975 Public Utilities Projects Division Eastern Africa Regional Office Not for Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared tor r)fficial use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. KENYA APPRAISAL OF GITARU HYDROELECTRIC FROJECT Currency Equivalents Currency Unit = Shilling (Sh) Kenya Cents 100 = Shl Sh20 - Kenyan Pound (KE) 1 * Kz 1 - US$2.80 KE 1,000,000 = US$2,800,000 US Cent 1 =Kenyan cents 7.142 US$1 - Sh 7.142 US$1,000,000 -K 357,000 Swedish Kroner (Sw Kr) 1 -Sh 1.64 Pound Sterling (kStg.) 1 -Sh 16.42 Ki 1 - Sw Kr 12.2 US$1 - Sw Kr 4.35 * The KE is not now used in Kenya as a unit of currency but is used in accounting, economics and reporting as a covenient measure of value or unit of account. Abreviations and Acronyms kV =Kilovolt = 1,000 Volts kW =Kilowatt =1,000 Watts kWh =Kilowatt hour = 1,000 Watt hours MWh = Megawatt hour =1,000 Kilowatt hours GWh = Gigawatt hour = 1,0000,000 Kilowatt hours kVa = Kilovolt Ampere = 1,000 Volt Amperes MVA =Megavolt Ampere -1,000 Kilovolt Amperes MW =Megawatt = 1,000 Kilowatts m = Meter m3 = Cubic meters cumecs = Cubic meters per second km = Kilometer OC = Degrees centigrade Bar =14.5 pounds per square inch GDP =Gross domestic product Government =Government of Kenya CDC = Commonwealth Development Corporation SIDA =Swedish International Development Authority EPDC - Engineering Pbwer Development Consultants EAP&L = The East Africa Power and Lighting Company Limited KPC = The Kenya Fbwer Company Limited TRDC = The Tana River Development Company Limited TRDA =The Tana River Development Authority PSC =Power Securities Corporation UEB =The Uganda Electricity Board TANESCO = Tanzania Electric Supply Company Limited UK =United Kingdom TRDC's financial year - Calendar Year KENYA CITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED TABLE OF CONTENTS Page No. SUMMARY ...................................... i-iii 1. INTRODUCTION ................................. 1 Background ....... ............................ 2 2. GENERAL ECONOMY AND THE POWER SECTOR ......... 2 The Country and the Economy ..... ............. 2 Energy Resources ............................. 3 The Power Sector ............................. 3 Existing Facilities .......................... 4 Future Development ..................: 6 Rural Electrification ........................ 6 Geothermal Exploration Program .... ........... 7 3. THE PROJECT .................................. 8 Description .................................. 8 Estimated Cost ............................... 8 Financing ........ ............................ 10 Basis for Estimates .......................... 10 Status of Engineering and Construction ....... 10 Procurement .................................. 11 Disbursements ................................. 11 Ecological Aspects ........................... 12 Irrigation Aspects ........................... 12 4. JUSTIFICATION OF THE PROJECT .... ............. 14 The Power Market ............................. 14 Need for Additional Capacity .... ............. 14 Comparison of Alternatives ..... .............. 14 Economic Rate of Return ..... ................. 15 This report was prepared by Messrs. A.E. Bailey, E. Bolte, J. Shaukat and P. Owusu. TABLE OF CONTENTS (Continued) Page No. 5. THE BORROWER - TANA RIVER DEVELOPMENT COMPANY LIMITED ......... ............................. 16 Structure of the Electricity Supply Industry .. 16 Organization and Management ..... ............. 17 Training ......... ............................ 19 6. FINANCIAL ASPECTS ............................ 20 Introduction ....... .......................... 20 Past Operations and Present Financial Position ....... ......................... 20 EAP&L's Tariffs ....... ....................... 21 Proposed Financing Plan ................... ... 21 Future Earnings ....... ....................... 24 Accounts and Audit ...... ..................... 24 Debt Limitation ... ........................... 25 Security Arrangements ...... .................. 25 Project Monitoring System .................. .. 25 7. RECOHMENDATIONS . ............................ . 25 LIST OF ANNEXES Annex 1: Actual and Estimated GlWh Generated and Sold, System Demand, Installed and Firm Capacity and Productive Capability (Interconnected System) Annex 2: FAP&L - Actual and Forecast Sales of G1Th in each Consumer Category Annex 3: Existing Generating Plant Annex 4: Rural Electrification in Kenya - The Market, Costs and Potential for Development Annex 5: Description of the Project Annex 6: Project Cost Estimates Annex 7: Construction Schedule Annex 8: Estimated Schedule of Disbursements Annex 9: Possible New Major Loads to be Supplied by EAP&L between 1975 and 1980 Annex 10: Chart - Maximum Demand, Installed and Firm Generating Capacity Annex 11: Chart - Energy Demand and Dry Year Productive Capability Annex 12: Chart - Energy Demand and Average Year Productive Capability Annex 13: Comparison of Project with Thermal Alternatives Annex 14: Method and Assumptions made to Determine the Rate of Return on the Investment Annex 15: The Hlistory of the Power Companies Annex 16: TRDC (a) Balance Sheets 1972-1980 (b) Rcvenue Accounts 1972-1 RV (c) Sources and Application of Funds 1972-1980 Annex 17: KPC (a) Balance Sheets 1972-1980 (b) Revenue Accounts 1972-1980 LIST OF ANNEXES Annex 18: KPC and TRDC Pro-Forma Combined Statements Assuming Conventional Depreciation Accounting (a) Balance Sheets 1972-1980 (b) Revenue Accounts 1972-1980 Annex 19: EAP&L (a) Balance Sheets 1972-1980 (b) Revenue Accounts 1972-1980 (c) Sources and Applications of Funds 1972-1980 Annex 20: KPC, TRDC and EAP&L Pro-Forma Combined Statements Assuming Conventional Depreciation Accounting (a) Balance Sheets 1972-1980 (b) Revenue Accounts 1972-1980 (c) Sources and Applications of Funds 1972-1980 Annex 21: Notes and Assumptions for Financial Statements Annex 22: Economic Analysis of EAP&L's Tariffs 1 Annex 23: Loan Capital and Security Arrangements of EAP&L, KPC and TRDC Annex 24: Project Monitoring System MAP IBRD 3169x2 KENYA TANA RIVER DEVELOPMENT COMPANY LIMITED APPRAISAL OF THE GITARU HYDROELECTRIC PROJECT SUMMARY AND CONCLUSIONS i. This report covers the appraisal of the Gitaru Hydroelectric Project on the River Tana in Kenya. The Project is to be built by the Tana River Development Company Limited (TRDC) and its estimated cost is US$123.6 million equivalent excluding interest during construction. The Government of Kenya has asked the Bank to assist in financing the Project and a Bank Loan of US$63 million, which includes interest during construction of US$8 million is proposed. The Borrower has obtained Supplier/Export Credit commitments to finance about 80% of the offshore costs of the main plant contracts. The remaining costs including interest during construction on the Supplier/Export Credits and local bank loans are being financed by the Borrower. The loan would be the Bank's second to the power sector in Kenya. ii. The first Loan (745-KE) together with a credit from the Swedish International Development Agency (SIDA), jointly financed the offshore cost of the Kamburu hydroelectric project. Construction of this project proceeded satisfactorily, although there was some delay in completion due to slow progress in the construction of the tailrace tunnel, and the plant went into commercial operation in July/August 1974, some five months behind schedule. Project costs increased by about 7% over the appraisal estimate principally because of cur- rency revaluations, a sales tax, and increased consultants costs. The cost overrun was financed by the Government. iii. The Project consists of an underground power station containing two 67 MW generating sets (rated at 72 MW for individual operation), and pro- vision for a third set later; a transmission line about 8 kms in length link- ing Gitaru with Kamburu and a line about 111 kms in length from Kamburu to Nairobi. iv. Demand for electrical energy in Kenya was growing at a rate of about 10% per year during the period 1968-1972, falling slightly in 1973 and 1974. In the three years 1975-1977 the increase of non-industrial demand for power is expected to fall below its long-term trend due to a projected slow- down in Kenya's economic growth. However power consumption in the industrial sector, where some major projects are coming on stream, will increase more rapidly than in the past, compensating for the reduction in other sectors. It is, therefore, expected that total power demand in the period .1975-1977 will grow at more than 10%, falling thereafter to an average annual growth rate of 9%. v. The Project is necessary to meet the growth in demand and is the least cost method of doing so. It has been compared with the next best alter- native program which would involve the prior installation of 66 MW of gas turbine capacity located at Nairobi. The analysis gave an equalizing dis- count rate of 11% and a sensitivity analysis showed that a 10% increase in the capital cost of Gitaru reduces this to 10.5% and a 10% reduction in demand growth reduces it to 9.5%. A combination of the two reduces the equalizing discount rate to 8%. In these cases, the equalizing discount rate falls below the range of the opportunity cost of capital, which is estimated at 11% to 13%. The internal economic return on the project is 14%, which is satisfactory. It is sensitive to variations in costs and revenues; a 10% increase in costs reduces the rate to 12% and a reduction in the growth of electricity demand by 10% leads to a rate of 13.5%. When both coincide it is just under 12%. vi. Kenya presently takes a bulk supply of 30 MW from Uganda under a long-term agreement and hopes to negotiate a further 5 MW under a separate agreement. There is also potential for a bulk transfer of power from Tanzania by the early 1980's and the advantages of cooperation between neighbouring territories in the interchange of power should, together with the development of geothermal power, be considered in future development planning. vii. Three companies are responsible for public electricity supply in Kenya. The East African Power and Lighting Company Limited (EAP&L), a cor- poration with widespread private ownership of its stock, was the only one for many years. EAP&L formed two subsidiaries, the Kenya Power Company Limited (KPC) and TRDC, with Government participation, in 1955 and 1964, respectively, to be responsible for specific new projects. TRDC, the second of these two companies, was charged with development of the Tana River. The Government has a controlling interest in EAP&L and has acquired all the shares of TRDC and KPC. EAP&L is responsible for distribution of electricity, and it supplements its own output by buying in bulk at actual operating cost plus debt service from the two subsidiaries, which have the main responsibility for generation. EAP&L staffs and manages the two subsidiaries. EAP&L is a reasonably well-managed utility and it will be capable of managing TRDC efficiently when that company has to carry out the Project. viii. The financing plan includes provision for a 10% increase in EAP&L's tariffs from July 1, 1975 together with a fuel surcharge of 4 Kenyan cents per kWh and the investment of the Government's revenues from EAP&L in TRDC's equity by the issue of shares of a per value of KL 6 million. This together with a long-term loan from the Government in the amount of Kb 3.86 million will enable EAP&L and TRDC to finance the balance of costs not covered by the Bank loan and Supplier/Export Credits. ix. The bulk sales agreement between EAP&L and TRDC requires EAP6L to purchase from TRDC a minimum amount of power so as to provide sufficient revenues to meet TRDC's ascertained costs. Additionally a development sur- charge has been paid by EAP&L to TRDC since 1971, principally to provide the latter with part of the funds to meet the local costs of the Kamburu project. It is proposed as part of the costs payable by EAP&L to continue the develop- ment surcharge which together with a loan from EAP&L to TRDC, will cover part of the local currency costs of the Project. - iii - x. The financing method described is satisfactory. The surcharge will be fixed so as to produce about the same average return on average net fixed assets including work in progress, for KPC and TRDC combined, as for EAP&L. This return would be 8-1/2% per year. xi. Procurement for works and materials which are to be financed from the proposed Bank Loan will be on the basis of international competitive bid- ding. Procurement of equipment and materials to be financed by Supplier Credits would be on a competitive basis. xii. As in the case of Kamburu there are not expected to be any undesir- able side effects on the ecology of the area, but SIDA who is financing an ecological study, which is being carried out to determine the effects of Kamburu on land usage, disease vectors, etc., has agreed to include the area of the Project in this study. xiii. There are conflicting claims on the Upper Tana waters for irrigation and other purposes and the Tana River Development Authority (TRDA) has been established to carry out studies to determine the most efficient usage of the Upper Tana waters. Their consultant's report, which has recently been pub- lished and is presently being examined by the Government, recommends the establishment of an Upper Reservoir to regulate the flow of the river. TRDA had previously recommended to the Government that no further abstraction of water for irrigation or other purposes which would adversely affect hydroelectric capacity should be permitted before the Upper Reservoir is constructed. The Government has no long-term plans for irrigation or other major development in the Upper Tana but with the construction of the Upper Reservoir by the early 1980's as presently foreseen, such plans would not be adversely affected by the Project. xiv. With the assurances proposed in Chapter 7 the Project would be suitable for a Bank Loan of US$63 million for a term of 25 years including 5 years grace. KENYA TANA RIVER DEVELOPMENT COMPANY LIMITED APPRAISAL OF THE GITARU HYDROELECTRIC PROJECT 1. INTRODUCTION 1.01 This report appraises the Tana River Development Company Limited's (TRDC) hydroelectric power station at Gitaru in Kenya with an initial capacity of 134 MW and associated transmission lines. The estimated cost of the Project is KE 44.1 million (US$123.6 million) excluding interest during construction on the various loans and credits, aggregating about US$12.4 million. The Government of Kenya has asked the Bank to assist in financing the Project. The proposed Bank Loan would be US$63 million which would be used to finance part of the costs of the civil works, the foreign costs of miscellaneous electrical and mechanical works and engineering and administration, a manage- ment review and interest during construction. The Government has obtained Supplier/Export Credit commitments estimated at Ki 7.79 million (US$21.8 million) to finance about 80% of the foreign exchange costs of the main plant contracts. TRDC will finance the balance of the project costs, including interest during construction on the local loans and credits, aggregating about Kh 18.3 million (US$51.2 million) from (i) surpluses accruing to it, (ii) a contribution to equity from the Government, and (iii) a long term Government or local bank loan. The proposed Bank Loan of US$63 million would represent about 46% of the total cost of the Project. 1.02 This will be the second Bank loan for power in Kenya, Loan No. 745- KE having been made in 1970 for US$23 million to finance part of the foreign exchange costs of the Kamburu hydroelectric project. This project was joint- ly financed, with a SIDA Credit of US$6 million financing the balance of the foreign exchange. The loan was made to TRDC which is a "paper company" estab- lished in 1964, for political purposes, to develop the hydroelectric potential of the Upper Tana River. EAP&L staffs and manages TRDC and buys its entire output. Since EAP&L is the sole revenue earning company it had to provide all the assurances normally required of the borrower, and the same requirement will apply in the case of the loan for the proposed Project. 1.03 Construction of the Kamburu project has proceeded satisfactorily, although project costs have increased by about 7% over the appraisal estimate. The cost overrun of about US$2.8 million which has been financed by the Govern- ment is due principally to currency revaluations, the imposition of a sales tax during the construction period and to escalation in the costs of super- vision and other consulting services. Work proceeded broadly in line with the construction schedule, although time was lost due to slow progress of construction of the tailrace tunnel through fault sections, and the plant was commissioned during July/August 1974, some five months behind the target for completion set at the time the major contracts were awarded. -2- Background 1.04 EAP&L commissioned Mlessrs. Merz & McLellan (UK consultants) in September 1972 to examine and recoirmend a plan of development for the period 1973 through 1992, and to determine the form and location of the power gene- ration source which would be required by 1978. The report concltuded that there would be a slight economic advantage in favor of the Gitaru flydroelec- tric Project but, for a number of reasons including dry year risks and un- certainties of irrigation abstraction, it would be prudent to construct first a 120 MW thermal power station at M-lombasa for commissioning in 1978 to be followed by the Gitaru lhydroelectric project in 1981. This recommendation was subsequently overtaken by events; following the substantial increases in the cost of fuel oil during late 1973 and early 1974 the position was re-examined and it was demonstrated that Gitaru is now the preferred project, that deferment could no longer be justified for the reasons previously stated and construc- tion should proceed with a minimum of delay to ensure completion of the Proj- ect by early 1978. 1.05 EAP&L's consultants for the Kamburu project, Engineering Power Development Consultants (EPDC) of the UK, had submitted a geology report on Gitaru in 1970 and, in view of the extent of their previous involvement, EAP&L decided to engage them for the Gitaru engineering, design and supervision of the Project. The appraisal originally scheduled for March/April 1974 was post- poned to allow completion of geological survey work and preparation of an en- gineering report which was subsequently published in May 1974. 1.06 This report is based.on information provided by (i) EPDC's Draft Engineering Report of May 1974, and the Supplement to the Draft Engineering Report of August 1974, (ii) EAP&L, and (iii) an appraisal by Messrs. A.E. Bailey, E. Bolte, J. Shaukat and P. Owusu in August/September 1974. 2. GENERAL ECONOMY AND THE POWER SECTOR The Country and the Economy 2.01 Kenya, a country covering an area of 583,000 sq. kms, has a population of 12.9 million growing at a rate of 3.3% per year. About 90% (1970) of the total population are living in rural areas, but urban popu- lation is increasing fast. The main urban centers, the capital Nairobi and Mombasa, are growing at 9% and 5% per year respectively. 2.02 During the eleven years since Independence in late 1963, GDP at constant prices has grown at an average rate of 6.7% per year. GDP per capita reached about US$180 in 1973 ard is the highest in East Africa. Agriculture dominates Kenya's economy; it produces a livelihood for nearly 90% of the population and constitutes about one third of GDP. Monetized agriculture has grown by 6% per year; 45% of the country's foreign exchange earnings are agri- cultural exports (mainly coffee, tea, and meat products). Industry has grown at about 8% per year during the last decade; its output is now about 12% of - 3 - GDP. Services, including tourism, had a high growth rate and account for 28% of GDP. In response to the serious impact of world inflation, including the oil prices, on Kenya's economy, the Government has adopted an action program to restructure the economy. While this will hopeful]y bring about a high growth rate in the long run, growth in the next few years will be below pre- vious performance as a result of the serious balance of payments constraint. Energy Resources 2.03 The known main indigenous energy resource is hydroelectric power. Its physical potential is estimated at over 30,000 GWh half scattered over small rivers mostly uneconomic to exploit. The Tana River accounts for the other 15,000 GWh of which about 2,700 GWh is economically exploitable. Sur- veys have shown no coal seams of economic value 1/ and the geological structure of most of Kenya seems to preclude the occurrence of oil except in a strip bordering Somalia in the northeast. Imported oil is processed in the refinery in Mombasa, which was enlarged in 1974 to a capacity of 3.3 million tons per year. Furnace oil for electricity generation at EAP&L's main thermal power station in Mombasa is supplied from the refinery at a price of KSh500 per ton, compared to KSh90-120 before October 1973. Kenya imports over 30 MW of electric power at 95% load factor from the Uganda Electricity Board (UEB) which is also prepared to supply a smaller amount of non-firm power ("spill. units"), as permitted by plant and energy availability. When the second stage of Tanzania's Kidatu Power Station is completed (about 1979/80), Kenya could import for some years, limited amounts (up to 20 MW) of electricity from Tanzania. There is also the possibility of developing geothermal power by the early 1980's (see paragraph 2.22 to 2.25). The Power Sector 2.04 The electricity supply industry in Kenya consists of three companies; The East African Power and Lighting Company Ltd. (EAP&L), The Kenya Power Company (KPC) and The Tana River Development Company Ltd. (TRDC). EAP&L is the sole distributor and it coordinates all sources of power and staffs and manages the other two companies. The background and description of the three companies are explained in detail in Chapter 5. 2.05 EAP&L's sales increased at an average of 8% per year during the period 1964 to 1974 with a tendency towards higher growth rates in recent years; sales increased by about 10% per year during the period 1968-1972, falling to just over 8% during 1973 and 1974, compared to 5.5% per year during the period 1964-1968. The Kenyan economy is expected to have a substantially lower growth rate during the period 1975-1977 than in the past, which will lead to a sharp drop in the growth rate of non-industrial power demand. On the other hand, several new power consuming industries will go into operatirn during this period, which are largely independent of a temporary reduction of economic growth in Kenya and the average annual growth rate of industrial power demand 1/ Coal deposits have been found in neighboring Tanzania and should be considered when assessing Kenya's future thermal development program. - 4 - during 1975-1977 is expected to be about 16.5%. Total power consumption will increase by about 10% per year during this period. In the long term, with an improvement in the growth rate of Kenya's economy, and with expansion of industry back to a normal level, electricity demand in Kenya is expected to return to a growth rate of 9% per year. Detailed statistics for the Inter- connected System for the period 1970 through 1980 and actual and forecast sales of GWh during the same period are shown in Annexes 1 and 2. 2.06 With 75 kWh per capita, electricity consumption in Kenya is still at a low level. Nearly 100,000 household connections give 600,000 to 700,000 people access to electricity, which is 5-6% of the total and about half of the urban population. 350,000 to 400,000 of the population supplied with electricity are Kenyans with low incomes, living mostly in high density housing built by the Government or city councils. This group is presently growing at an annual rate of about 35,000. 2.07 Domestic electricity consumption increased about 6% per annum during the last six years but its part in total sales dropped from 19% in 1968 to 15*% in 1974. Low income domestic consumers had a higher rate of growth of 10% per year, but due to the low consumption per connection (20 kWh per month), such small domestic consumers account for only 1% of EAP&L's total electricity sales. Depending on the rate of government and city council construction of low cost housing, annual growth of small domestic electricity consumption is expected to average 10% until 1980. The growth rate of the larger domestic consumer will continue at a lower annual rate of between 3% and 4% improving to 6% by 1980. 2.08 Electricity consumption in the commercial sector increased at 13% per year between 1968 and 1974, mainly due to the high rate of development of Nairobi which is the administrative and commercial center of Kenya, and by 1974 accounted for 26% of total sales. In future, the growth rate in this sector is expected to be lower, at about 8% per annum. 2.09 Industry is the largest consumer of electricity in Kenya with an average annual rate of increase of 12% between 1968 and 1974. Industry presently accounts for 43% of total sales but with substantial new loads coming up and the demand forecast to increase at a rate of about 13% per annum, more than half of all electricity supplied in Kenya will be consumed by the industrial sector by 1980. Existing Facilities 2.10 Electricity is distributed by EAP&L in four areas of Kenya, namely the Nairobi district and the Rift, Coast and Western areas (see map). Gen- erating plant operated by the three companies (shown in detail in Annex 3) consists of: Interconnected Sjstein Isolated Stations Hydro 130 MW Steam 65 NW Diesel 29 MW 3.9 MW Gas Turbine 30 MW _ Total 254 MW 3.9 MW 2.11 In addition to the above plant availability, EAP&L takes a 30 MW bulk supply from the Uganda Electricity Board (UEB) under a long-term agree- ment, extending to year 2005 (see para 2.03), giving a total installed capacity of 284 MW on the interconnected system. The effective capacity is 268 MW due to the need to derate some of the older diesel and gas turbine plant. 2.12 The two largest hydroelectric power stations, Kindaruma (44 MW) and Kamburu (60 MW) located on the Tana River some 70 miles from Nairobi are owned by TRDC and the 65 MW Kipevu steam.station located at Mombasa is owned by EAP&L. These three power stations are interconnected with the Nairobi area by means of 132 kV single circuit transmission lines. One of the transmission lines between Kamburu and Nairobi is constructed for 275 kV but there are no plans for operating the line at this voltage before the early 1980's. 2.13 Other installations include seven small hydroelectric developments, the largest of which are Tana (15.2 MW) and Wainjii (7.4 MW), both run of river schemes on the Tana River, owned by KPC. The remaining five hydro- electric installations together with eight diesel-electric power stations including Nairobi South and the gas turbine generating plant are owned by EAP&L. All of this plant including the larger power stations described in paragraph 2.12 above are interconnected by means of 132 kV and 33 kV trans- mission and subtransmission lines. This system is linked to Uganda by a 132 KV double-circuit transmission line for the transfer of the 30 MW bulk power (see paragraph 2.11). UEB has also supplied 'spill units" under a supplementary agreement with EAP&L, in accordance with availability of plant, and EAP&L was hoping to negotiate a further firm bulk supply of 5 MW under a separate agreement, but with seemingly inadequate plant maintenance in Uganda and UEB's recent inability, at times, to supply even the 30 MW on a firm basis, EAP&L is not very hopeful that a further 5 MW will be possible. EAP&L also operates four isolated diesel electric power stations aggregating 3.9 14W. 2.14 Distribution voltages are 11 KV and 415/240 v. The supply is reliable and losses at 15% of units sent out are reasonable. -6- Future Development 2.15 The construction of the third Kamburu 30 MW hydroelectric generat- ing unit (24 MW firm) and the Kipevu No. 7 steam turbine generating unit (30 MW) are currently in progress with commissioning in each case scheduled for 1976. The Project (134 MW) is scheduled for commissioning in 1978 and it is expected that the third generating unit will be required by 1982. Further thermal back-up plant will be required by 1981 and EAP&L is provision- ally planning for the first 60 MW steam generating unit at a new Mombasa power station to be commissioned by 1980/81 but firm proposals must await the outcome of the current geothermal exploration program (see paragraphs 2.22-2.25). The capacity of the existing 132 KV line between Mombasa and Nairobi is 58 MW and a second line constructed for 275 KV will be required by the early 1980's. 2.16 The advantages of cooperation between neighboring territories in the interchange of power must also be considered in future development planning. It is doubtful if much more than the present 30 MW bulk transfer will be available from Uganda in the medium term due to a slow down in planning the development of its own hydro resources during recent years, but a bulk transfer of power from Tanzania after Kidatu II is commissioned - by about 1980 - has distinct possibilities. Full cooperation between the two countries and utilities could defer the next large thermal project and possibly provide much needed time to get a major geothermal installation into operation. The possibility of cooperation with Tanzania in the inter- change of power by 1980 was discussed with EAP&L and the Government during negotiations but EAP&L were of'the opinion, following talks with the Tanzania Electric Supply Company Limited (TANESCO) that little spare power could be made available after 1980 and, since long-term availability could not be guaranteed they were disinclined at this point in time to consider imported power from Tanzania in their future development plans. Rural Electrification 2.17 EAP&L normally apportions 1% of its net operating income to the development of supplies in the rural areas. Schemes likely to become financially remunerative in time have been selected from a list of townships nominated by the Government. This program has been proceeding slowly during recent years due to financial constraints. 2.18 Additionally, the Government requires that the surplus created by the difference between the soft terms of the SIDA Credit for the Kamburu project and the harder on-lending terms to TRDC should be used to finance an expanded rural electrification program. SIDA provided consultants to examine the proposal and put up a program of development. Despite some delay, this rural development program is now going ahead; SIDA has made a bridging grant of Kn423,000 equivalent pending receipt of revenues under the SIDA Credit on-lending agreement and Swedish staff, comprising a planning engineer and two construction foremen, has been seconded to EAP&L to take charge of the program. - 7 - 2.19 The arrangements provide for all revenues to be paid into a Govern- ment fund; EAP&L will manage the schemes as these are commissioned, on a management fee basis and all operating costs will be paid from the fund, which will thus carry operating losses. Provision is made for EAP&L to "buy out" schemes as these become viable, and absorb them in their own organization. 2.20 SIDA is also carrying out a socio/economic study on the effect of rural electrification in Kenya and the report should be available by mid- 1975. A copy will be made available to the Bank as soon as this is published. 2.21 Rural electrification in Kenya, the market, costs and potential for development are discussed in Annex 4. Geothermal Exploration Program 2.22 Geothermal survey and exploration have been in progress, with UNDP assistance, for the past three years and the first successful exploration/ working well has been drilled in the Lake Naivasha area (two wells had been drilled at the time of appraisal, one of which was dry). The successful well is running steam (and a little water) at 240'C in the ground at 31 bars. The area under test is approximately 7 sq km and the field should, in the opinion of the UNDP geologist, be capable of supporting a power demand of 400 MN: (80 wells at 20 acres spacing, allowing 5 MW per well). 2.23 This matter was discussed during negotiations and the EAP&L repre- sentatives advised that two fdrther wells have since been drilled at 200 m spacing from the successful well. Both wells are running some steam but insufficient, together with the one successful well, to support a pilot installation. If the steam flow cannot be improved by other means, it is proposed to deepen the wells from 1,200 m to 1,700 m. If successful, EAP&L proposes to drill a further two wells and, contingent upon the recommendations of a feasibility study (see paragraph 2.24), proceed with a pilot installation. of at least 10 MW. 2.24 Consultants (SWECO of Sweden) have been appointed to carry out the feasibility study of exploiting the reservoir and to recommend a program of development and costs. The study, which was scheduled to start in December 1974 for completion by mid 1975 has been delayed, but EAP&L is hopeful that a start will be made by mid 1975. Both the Government and EAP&L confirmed their commitments to the development of Kenya's geothermal potential and, dependent upon the recommendations made in this study, EAP&L will consider, in addition to the pilot installation, a large scale drilling program with a view to establishing a large geothermal power station. The reservoir is located some 12 km from the existing 132 kV double circuit transmission line from Tororo to Nairobi. and feeding the power into the system should present no problem. - 8 - 2.25 It is.unlikely that EAP&L would wish to place firm orders for geothermal plant until working experience has been gained with a pilot installation and adequate results have been obtained from the drilling. program. Assuming therefore the program proceeds as envisaged, the pilot plant could be in operation by 1977, with the main plant ordered by the late 1970's for commissioning by the early 1980's. 3. THE PROJECT Description 3.01 The Project is described in detail in Annex 5; it consists of: (a) a rock and earth-fill diversion dam, with integral spillway and vertical intake shafts with short headrace tunnels to the underground power station; (b) an underground power station designed for three 67 MW generating sets (rated at 72 MW for individual operation) driven by Francis turbines, with two sets installed under the Project; (c) a partially lined tailrace tunnel about 4700 m long emptying into the Kindaruma reservoir; (d) a 132 kV double circuit transmission line from Gitaru to Kamburu (8 KMf) and a single circuit 275 kV transmission line from Kamburu to just outside Nairobi (111 KM). This line will operate initially at 132 kV; and (e) a management review and a study of EAP&L's tariff structure. 3.02 Gitaru is located between the existing Kamburu and Kindaruma hydro- electric power stations. The three power stations operate in cascade i.e., they all use the same water, one following the other, to generate power, and Gitaru completes the development of the hydro resources of the Upper Tana River referred to as the "Seven Forks" development. Gitaru will produce energy at varying weekly load factors depending not only upon the river flow but also on the ability of the power system to absorb the energy produced. The estimated annual output in an average year would be about 750 GWh rising to 900 GWh when the third unit is installed. Estimated Cost 3.03 The estimated cost of the Project is Kh44.1 million (US$123.6 million) with a foreign currency component of KL31.1 million (US$87.1 million) excluding interest during construction. The estimated costs of the principal features of the Project are shown in the following table and in more detail in Annex 6. -9- Local Foreign Total Local Foreign Total ----- Ki Thousand ---US$ Thousand----- Part A Main Civil Works 5,800 11,380 17,180 16,240 31,864 48,104 Misc. Electrical Works 100 575 675 280 1,610 1,890 Misc. Mechanical Works 60 220 280 168 616 784 Physical Contingency Civil 20% E&M 10% 1,200 2,350 3,550 3,360 6,580 9,940 Price Contingency 27% 1,920 3,900 5,820 5,376 10,920 16,296 Engineering & Administratio / 240 2,985 3,225 672 83.58 9 030 Total 9,320 21,410 30,730 26,096 0 Part B Turbines Generators Gates, Screens, etc. 350 4,520 4,870 980 12,656 13,636 Trans. Line Substations and Transformers 700 2,430 3,130 1,960 6,804 8,764 Physical Contingnecy 10% 200 700 900 560 1,960 2,520 Price Contingency 27% 330 2,055 2.385 924 5,754 6,678 Tbtal 1,580 9,705 11,285 4,424 27,174 Ii-598 Import Duty & Sales Tax 2,120 - -2120 5,936 5.936 Total Cost of Project 13,020 31,115 44,135 36,456 87,122 123,578 Interest during Con- struction on Bank Loan - 2,857 2,857 - 8,000 8,000 Interest during Con- struction on Local Bank Loans 690 - 690 1,932 - 1,932 Interest during Con- struction on Supplier Credits _ 869 869 -2,433 GRAND TOTAL 13.710 34,841 48,551 38388 97,555 1/ Includes the cost of the Management Review estimated at Ki 25,000 (US$70,000). Note: The estimate includes provision for a 6 month delay in completion of construction. - 10 - 3.04 Preliminary works comprising, principally, access roads and associated consultants costs have been completed and have not therefore been included in the cost estimates. The costs of these works amounting to KE1.286 million were financed by TRDC by means of a local bank loan of K-1.5 million. Financing 3.05 The proposed Bank Loan of US$63 million would be used to finance part of the civil works, the foreign exchange costs of the miscellaneous electrical and mechanical works and engineering and administration, the management review 1/ and interest during construction on the Loan. 80% of the foreign exchange costs of Part B estimated at KE 9.7 million (US$27.2 million), comprising all the major plant, the transmission line, transformers and substations would be financed through Supplier/Export Credits. Local costs and the balance of foreign costs of Part B, and the costs of Part A which are not financed from the Bank Loan, together with import duties, sales tax and interest during construction on the Supplier Credits and the local loan (para. 3.04) estimated at KL 18.3 million (US$51.2 million) are being financed by the Borrower. Basis for Estimates 3.06 The estimates are based on actual lowest tenders received for the main civil works and plant contracts which were being evaluated at the time of negotiations. The consultants' knowledge of local conditions and of mate- rials and labor costs and also their experience with Kamburu has facilitated a reasonably reliable assessment of additional costs due to risk conditions and other physical factors. Nevertheless a physical contingency of 20% has been allowed on civil works to provide for unforeseeable bad rock conditions and possible delay in project completion. This, together with a 10% physical contingency for E&M works and an additional 10% on local costs to provide for delay in project completion is considered reasonable. The price contingency of 27% is based on an estimated general rate of inflation during the period of construction. The way in which this contingency is calculated is demon- strated on page 2 of Annex 6. 3.07 The area to be inundated by the Project is relatively small; there are no permanent human habitations and cultivations in the area and conse- quently no provision for resettlement costs has been included in the estimates. Status of Engineering and Construction 3.08 The Project is being designed by Engineering and Power Development Consultants of England. This firm or its affiliate, Balfour Beatty and Company Limited, has been responsible for designing all EAP&L's major devel- opment projects and for TRDC's Kindaruma and Kamburu hydroelectric power proj- ects. They are responsible fcr the preparation of all documents and evaluation of tenders and will superviae construction of the Project. 1/ The study of EAP&L's tariffs is being carried out by the Bank in coopera- tion with EAP&L's staff. 3.09 The construction program is tight, principally because EAP&L was obliged to reassess the development program following the large increase in fuel oil costs during late 1973 and early 1974. This led to a decision to defer the proposal for a thermal development at Mombasa and to proceed in- stead with the Gitaru Project. Fortunately a great deal of the engineering, geological survey and the associated work had already been carried out. The present position is that specifications for the civil works and all major plant contracts have been completed; tenders which were invited at the end of 1974 have been received and evaluated and it is planned to award contracts immedi- ately after approval by the Board of the Bank Loan. The construction schedule is shown in Annex 7. As already mentioned, the program is tight but, bearing in mind the consultants' recent experience with Kamburu and familiarity with the local conditions, it is achievable providing no unforeseen risk area or other problem arises. Nevertheless, the cost estimates provide for the possi- bility of a six-month delay in completion of construction. EAP&L has no plans to purchase interim gas turbine plant and if it becomes apparent that commis- sioning is likely to be substantially delayed the possibility of selective load shedding will be accepted by EAP&L. The consequences would not be serious. Procurement 3.10 Procurement for works and materials under Part A of the cost esti- mates, part of which are to be financed from the proposed Bank Loan, will be on the basis of international competitive bidding. Procurement of equipment and materials covered by Part B of the cost estimates will be through Supplier/ Export Credits on as wide a competitive basis as possible. It was confirmed during negotiations that firm commitments have been obtained for 80% of the foreign costs of plant and equipment to be financed by Supplier/Export Credits. Completion of all conditions precedent to the effectiveness of these credits, will be a condition of effectiveness of the proposed Loan. 3.11 In the case of minor items of ecuipment not exceeding USS5O,000 equivalent, contracts will be awgarded, where appropriate, on the basis of competitive bidding advertized locally, and in accordance with local proce- dures, satisfactory to the Bank. Disbursements 3.12 Preliminary works, which have been financed by a local bank loan, have been completed, but no other work on the Project has commenced other than the engineering design and preparation of bidding documents, and com- pletion of geological field works. Because of the late change in develop- ment plans (see para 3.09) and the consequent need to expedite work on the project if the expected demand in 1978 is to be met, consultants' expenditures of US$2 million enuivalent (foreign component USq1.5 million equ.ivalent) will be incurred prior to loan presentation. These costs have been included in the cost estimates and the foreign component (USS1.5 million) should be eligible for disbursement under the Bank Loan. - 12 - 3.13 With the sole exception of the main civil works, disbursement of the Bank Loan will be made for the actual foreign exchange cost of equipment, material and services procured under the Loan and for interest during con- struction on the Loan. In the case of the civil works, 60% of the payment under each certified pay certificate will be disbursed from the Bank Loan. A disbursement schedule is given in Annex 8. Ecological Aspects 3.14 An ecological study, financed by the Swedish International Develop- ment Agency (SIDA), is being carried out to determine if ecological changes are likely to result from the Kamburu project, and to determine what steps, if any, need be taken to avoid or mitigate any undesirable side effects. This study is being carried out by Nairobi University staff. 3.15 The cost of the study is estimated at 240,000 Swedish Kroner and the team carrying out the work comprises 7 groups all qualified in their par- ticular field, plus 16 field assistants. The University of Nairobi is used as a base with the team also drawing on the resources of the Government Research Laboratories. 3.16 SIDA were asked if there would be any objection to the inclusion of Gitaru within the scope of the study and ho objection was raised providing this can be carried out within the financial provision of 240,000 Swedish Kroner. The inclusion of Gitaru in the study has since been confirmed. I rigation Aspects 3.17 There are conflicting claims on the Upper Tana waters for irrig- ation and other purposes and, dependent upon the degree of abstraction for these purposes, the output from Gitaru and the other two hydro power stations (Kamburu and Kindaruma) would be adversely affected. The effect of abstrac- tion on Kamburu's output was recognized during negotiations for the Kamburu loan and the Government agreed, at that time, that Kenya would not commit itself to a development program which involved abstraction of water from the Upper Tana and its tributaries upstream of Seven Forks to an extent which would interfere substantially with the ability of the Borrower to generate power at Kamburu power station, pending completion of studies to determine the most efficient usage of the Upper Tana waters. The Tana River Develop- ment Authority (TRDA) was formed in 1972 to carry out these studies. 3.18 An integral part of the studies is the need to exanine the pro- posal for an Upper Reservoir which will impound flood waters and permit regulation of the river to ensure the most efficient usage of its waters for hydro power and other purposes. TRDA's consultants 1/ started the 1/ TRDA's consultants are: Ewbank and Partners (UK) - Power Studies; Watermeyer, Legge, Piesold and Uhlmann (UK) - Civil & Hydrological Studies; Peat, Marwick and Mitchell (UK) - Management Consultants. - 13 - prefeasibility study of the Upper Reservoir on May 1, 1974, and their final report has been published and is currently being examined by the Government. 3.19 Copies of the report will be made available to the Bank as soon as this is released by the Government. In the meantime discussion of this matter during negotiations elicited the information that the report outlines the cost of developing storage at the different potential dam sites and makes specific recommendations for the establishment of the Upper Reservoir. 3.20 The benefits of an Upper Reservoir will include availability of water for irrigation, public water and rural supplies in the Upper Tana, and the provision of firm hydro power of about 80 lclq in the average year. It will not significantly change the amount of energy which can be generated by the Project (and the other hydroelectric installations) because it only impounds the flood flow and there are losses due to evaporation. Also there are no sig- nificant savings in the capacity of standby thermal plant, as total thermal plant installed by 1985 would be about 250 MW. However, analysis shows that the firm energy availability after the Upper Reservoir is constructed will restult in a reduction of thermal energy output, rising to a maximum of 112 GWh per annum by 1985. On present fuel cost this would represent a saving of about US$2.5 million equivalent per annum. 3.21 The view of TRDA is that with the population in the Upper Tana Basin rising to a forecast of 4.5 million (3 million can be supported on rain fed waters), pressure will mount for the establishment of an Upper Reservoir. Without it, it is doubtful if any further hydro development after Gitaru will be possible; further irrigation in the Lower Tana will be limited and there will be little or no irrigation in the Upper Tana without depletion of hydro potential. Bearing these facts in mind and also the Importance of fuel savings which can be made by substituting thermal power with hydro-power, the Board of TRDA has recommended that no irrigation development in the Upper Tana Basin should be permitted prior to the development of the Upper Reservoir. 3.22 These matters were also discussed with the Government and EAP&I. during negotiations; EAP&L intimated that present thinking indicates construc- tion of the dam during the early 1980's and Government agreed that all neces- sary measures will be taken to ensure that abstraction of water from the Upper Tana Basin for large scale irrigation and other major schemes will not be authorized prior to development of the Upper Reservoir. The Government has no long-term plans for irrigation or other major development in the Upper Tana but any such plans maturing after the early 1980's would not be adversely affected by the Project. - 14 - 4. JUSTIFICATION OF THE PROJECT The Power Market 4.01 Past and future trends in EAP&L's sales of KWh have been discussed in paragraphs 2.05 through 2.09. The latest (1975) EAP&L forecast assumes an annual increase of sales of 9% in 1975 increasing to 11% in 1976 then falling to the longer term growth rate of 9% by 1979. This latest forecast, which is broadly in line with the forecast made at the time of the appraisal, was care- fully checked by the appraisal mission by making independent surveys and pro- jections. Taking into consideration all known major developments which are detailed in Annex 9 and ignoring the possible establishment of a large fertilizer industry by the late 1970's, the independent survey indicated that EAP&L's fore- cast was if anything, a little conservative. Their forecasts were therefore accepted for determining the timing for the next major generation development program. Need for Additional Capacity 4.02 The existing generating facilities (see paragraphs 2.10 through 2.13) comprise a blend of thermal and hydro generating plant and since the hydroelectric power stations are all virtually "run of river" developments with the storage afforded by the Kamburu dam insufficient to control the river, the flow available for power generation is not constant throughout the year, or from year to year. The capacity is lowest during the dry months of the year (February/March and September/October). Records which have been maintained since 1947, include 'several dry years with a recurrence period of 10 years and the generation development program is based on this factor. 4.03 With the commissioning of the Kamburu No. 3 generating unit and the Kipevu 30 MW steam generating unit in 1976, the Interconnected System is capable of meeting capacity requirements until 1978 and energy require- ments until 1979. This is demonstrated by Annex 10 which shows the pro- jected maximum demand together with the installed and firm capacity and Annex 11 which shows the energy demand and the dry year productive capability. Annex 12 shows the energy demand and the average year productive capability. Difficulty could be experienced in meeting energy requirements during the September-October dry months of 1978 if it is an exceptionally dry year and this together with shortage of capacity in that year, indicates that EAP&L will require additional generating capacity to meet the growing power demand of the Interconnected System by 1978. Comparison of Alternatives 4.04 The proposed project represents the first development of the most economic generation development program in Kenya until 1983. The first step of the next best alternative development program would be 66 MW of gas turbine capacity, to be installed in three stages in the Nairobi area. These and other development strategies have been analyzed, including construction of - 15 - a second thermal power plant in Mombasa based on fuel oil or coal, and import of power from Tanzania. The comparison of the different development strategies is described in detail in Annex 13. 4.05 The installation of three gas turbines of 22 MW each and the third unit of Kindaruma power station would postpone the heavy capital expenditure for Gitaru by three years at the cost of spending more on imported fuel. The comparison between the proposed strategy with Gitaru as the first stage and the strategy of postponing Gitaru by three years shows an equalizing discount rate of 11%, applying shadow prices for the cost of both alternatives and assuming a slow drop of 2% per year until 1980 in "real" fuel prices. This is at the lower end of the range of the opportunity cost of capital in Kenya (estimated at 11% to 13%) and the decision in favor of Gitaru is therefore close. However, the Government and EAP&L have expressed a strong preference for Gitaru and this has been accepted as the preferred alternative. The equalizing discount rate would be reduced to 10% if Kenya would import 20 MW of relatively cheap hydro power from Tanzania, where excess capacity is expected to be available from 1980 onward. Kenya already imports a substantial amount of energy from Uganda (more than 25% of its total consumption in 1974) which EAP&L feels is no longer entirely dependable (see paragraph 2.13). Because of this and the Government's reluctance to rely too heavily on imported power from Tanzania (see paragraph 2.16) and the probability of this not being available by 1980 when planned, the alternatives which include importing pJwer from Tanzania have been excluded from further analysis and 11% is the best estimate of the equalizing discount rate. The rate is sensitive to variations in the most uncertain factors of the two alternatives. A 10% increase in the capital cost of Gitaru and the gas turbines reduces the equalizing discount rate to 10.5% and a rise of 10% in Gltaru's capital cost only, reduces the rate to 10%. A sharp reduction of the fuel costs from their end 1974 level by about 40% until 1980 would reduce the equalizing discount rate to 10%; unchanged fuel prices during the period of comparison (1975-1983) increase the rate to 12%. If demand growth is 10% lower than projected, the equalizing discount rate would fall to 9.5%. If two of the three changes from the basic estimates-- an increase in Gitaru's capital cost, a substantial fall in fuel prices, a drop in projected demand growth--occur simultaneously the equalizing discount rate would be reduced to about 9% and if all three occurred simultaneously the rate would drop below 8%. These rates are lower than the opportunity cost of capital in Kenya. However, such a combined development of prices and demand growth is improbable and the comparison of different development strategies demonstrates that Gitaru is the most economic project to meet the increase of power demand between 1978 and 1981. Economic Rate of Return 4.06 The economic rate of return, which relates economic pro,ect capital and operating costs to the revenue attributable to it, is 14%. Economic project costs used in the calculation differ from financial costs due to the use of a 75% shadow price ratio for unskilled labor and of a shadow rate which is 33Z above the official exchange rate. The economic rate of return was subjected to sensitivity tests. A reduction in revenues due to a 10% - 16 - lower demand growth reduced the rate of return to about 13.5% and a 10% increase in capital and operating costs reduces it to about 12%. If the cost increase and the reduction in demand growth coincides, the economic rate of return would be a little below 12%, which is still satisfactory. The assumptions and metho- dology underlying these calculations are described in Annex 14. 5. THE BORROWER - TANA RIVER DEVELOPMENT COMPANY LIMITED Structure of the Electricity Supply Industry 5.01 Of the three companies which comprise the electricity supply in- dustry in Kenya (see paragraph 2.04) EAP&L, which is the sole distributor, was founded in 1922 by the amalgamation of two private companies which had supplied Nairobi and Mombasa since 1907 and 1909. Both KPC and TRDC were created by EAP&L, the former in 1955 principally to finance the intercon- nection with Uganda and sell to EAP&L power imported, and the latter in 1964 to develop the potential of the Tana River. At the time these companies were formed, the stock of EAP&L was privately owned by a large number of shareholders. Almost all of the capital raised for KPC and TRDC was loan capital. EAP&L shared the ownership of the nominal equity with the Govern- ment which became the owner of one third of KPC's equity capital and one quarter of TRDC's. A brief description of the history of the power companies is in Annex 15. 5.02 The Government in 1969 decided to obtain control of EAP&L by purchasing its shares. As a result of market purchases and a bid made early in 1970 for all the Company's shares on the London stock register, the Government became, in July 1970, the majority shareholder in the company and consequently of KPC. The Government acquired all the shares of TRDC and KPC in February 1971. 5.03 Government has accepted that rationalization of the structure of the power industry could best be achieved by integrating all three companies. However, this cannot be achieved immediately; about 6Stg. 3.2 million of debenture stock in KPC is held by outside shareholders - chiefly the Commonwealth Development Corporation (CDC) with a IStg. 3.17 million holding. Government, which holds the rest, intends to gradually buy up the miscellaneous share- holders and when this is completed it intends to negotiate with CDC for the purchase of CDC's hStg. 3.17 million holding on completion of which, the merger of TRDC and KPC can proceed. In the case of EAP&L, Government and its associated institutions, which together hold about 60% of the equity, are continuing to buy up shares on the Nairobi register as and when these become available. When a sufficiently large holding is acquired and TRDC and KPC are merged, the merger of all three companies can proceed. The target for completion is difficult to forecast, but the present arrangement, whilst complicated, is operating efficiently and it is not of significant importance if this cannot be achieved in the short term. - 17 - 5.04 EAP&L purchases the entire output of KPC and TRDC at ascertained cost (see para. 6.02 for definition) and is the only company with surplus revenue earning capacity. The funds required to enable the proposed borrower to cover its operating expenses, pay its debt service and meet the local currency costs of the Project must therefore come from EAP&L, and appropriate arrangements are necessary to assure TRDC's revenues. Discussions were held with the Government and EAP&L during negotiations concerning these matters and agree- ment was reached on the continuation of the development surcharge, agreed during the Kamburu negotiations, to meet the needs of TRDC's development pro- gram. It was also agreed during negotiations that since the Bulk Supply Agree- ment refers to all the Seven Forks hydro developments, including Gitaru, the amendment agreed at the time of the Kamburu negotiations concerning the pur- chase of a minimum amount of power to provide sufficient revenues to meet TRDC's ascertained costs, applies equally to Gitaru and no further amendment is necessary. 5.05 It was also confirmed during-negotiations that a generating station licence, which is required under the Electric Power Act, would be issued in respect of the Project. The issue of the licence will be a condition of effec- tiveness of the proposed loan. Organization and Management 5.06 EAP&L is a reasonably well managed utility and is operated in accordance with sound commercial principles. The Chairman, a Kenyan, is a competent administrator and many of the senior management staff are ex- patriates with wide experience in public utilities. The Board of Directors consists of nine members including the Chairman and General Manager of the company and two government representatives; the remaining five members are leading Kenyan businessmen. 5.07 The staff of EAP&L at December 31, 1974 inclusive of staff attached to KPC and TRDC, numbered 2914 which includes 120 expatriate professional staff, (includes 38 Asian non-citizens) and 369 senior local staff. The number of connected consumers was just over 112,000 and consumers per employee about 38. This suggests the company is rather top heavy in staff but this is acceptable bearing in mind the number of installations (some 21 power stations spread over Kenya), the distances involved and the amount of construction work carried out by the company. 5.08 The number of expatriate professional staff has fallen from 189 in 1970; maintaining the establishment at full strength and at the same time avoiding a deterioration in the quality of staff are continuing problems. The expatriate staff have generally been replaced with qualified local staff, but there are a number of vacancies which EAP&L is having difficulty in filling and there is a high turnover of remaining expatriate staff with the new ex- patriate staff recruited usually of a lower calibre than the staff they have replaced. For these reasons the standard of management of the companies has deteriorated since the Kamburu project was appraised in 1970. - 18 - 5.09 There is no quick solution to this problem and the situation can only be relieved as the establishment becomes progressively more Kenyanized. In the meantime EAP&L will have to rely on expatriates for some years ahead but to a decreasing extent as qualified Kenyans can be trained to replace them. 5.10 Although EAP&L is still well managed there are weaknesses in its internal reporting system and there are aspects of its top managerent structure which merit investigation. For instance, the need for a General Manager in addition to the full-tine executive Chairman is questioned. Also, since the Assistant General Mtanager (Engineering) retired, the post appears to have been abolished and, as a consequence, there are four Chief Engineers at EAP&L's headquarters all operating independently with no coordinating manager (EAP&L has since created a post for a Chief Coordinating Engineer.) The same applies to the Districts where there are three District Engineers and a District Accountant, but no District Manager. A brief investigation raises doubts that (a) EAP&L's internal reporting system is producing the informa- tion required for efficient management and (b) the computer is being used in the most efficient manner possible. These matters were discussed during negotiations and agreement was reached with EAP&L to appoint consultants satisfactory to the Bank to carry out a review of the management structure of EAP&L, the recommendations arising therefrom to be jointly examined by the Bank and EAP&L and all such recommendations as are mutually acceptable to be implemented by EAP&L. 5.11 The present staff are competent to operate the companies, to carry out the Project with the assistance of consultants, and to carry out other works covered by EAP&L's development program. Assurances were obtained during negotiations that TRDC will continue to employ consultants satisfactory to the Bank in carrying out the Project. 5.12 The additional responsibilities to be incurred by TRDC if it is to carry out and successfully operate the Project will necessitate a revision of the agreement by which EAP&L manages TRDC. The amendment should provide that EAP&L will make available to TRDC comprehensive management services relevant to Gitaru which are not provided under the present agreement. It is important also to ensure that EAP&L is under sound management at all times and is capable of continued efficient operation. These matters were discussed during negotiations and agreement was reached with EAP&L on the following points: (a) the need for consultation with the Bank about changes in the appointments of Chief Coordinating Engineer and Chief Accountant; (b) the need for revision to the Management Agreement, to include the operation and management of the Gitaru hydroelectric development within the scope of the Agreement. The revision of the management agreement in a form satisfactory to the Bank will be a condition of effectiveness of the Bank Loan. - 19 - 5.13 EAP&L will also be required to enter into the covenants usually made by the beneficiary of a Bank Loan with respect to operating in accord- ance with sound business, public utility and financial practices, insurance and exchange of information with the Bank. Training 5.14 It is EAP&L's intention to fill all senior posts with Kenyan nationals as quickly as suitably qualified staff can be brought forward. To achieve this EAP&L has a training program which is tailored to meet its foreseeable requirements. The scheme depends mainly upon the local university. EAP&L sponsors 6 entrants annually and, given a three year course, there are 18 in the stream at any given time. On completion of the university course the student does 2 years post graduate work training, usually overseas, before being absorbed into the workforce for on the job training. The output from the local university is frequently augmented with direct appointments of government sponsored students from overseas universities. The program will be reviewed from time to time and the number of sponsored students will gradually be reduced to a level commensurate with the normal expansion and turnover requirements. At the time of the appraisal 21 electrical and 3 mechanical engineers were in the program (including engineers on post grad- uate training). 5.15 EAP&L also operates a well staffed and equipped residential train- ing school for all grades of staff up to technician level. Recruits are taken straight from school (after a minimum of 7 to 11 years of education) for training as craftsmen and technicians. The two categories go into separate induction courses but the basic.training is the same for both groups. This consists of the school classroom and simple workshop training for the first 9 months, followed by a 3 month course at the local polytechnic, then alternate 3 months at the training school and the polytechnic for the next 12 months. At the end of two years they are trade tested and starting from the third year the courses differ; the craftsmen continue for a further year at the end sf which they qualify for a Grade II trade test certificate but the technicians go on for a further three years, alternating 3 months at the polytechnic with 3 months in the field, and at the end of 5 years qualify for a full technology certificate. 5.16 This is probably one of the most efficient utility operated training schools in East Africa; the courses are well organized and being residential, the students are well fed and housed and the "turn out" is of a high standard; the intake is 30 per year; 20 for technician training and 10 for craftsman training. 5.17 There is no sponsored training program for accountants as, usually, requirements can be met from local university students who pass oat with appropriate accounting qualifications. Because of the wide demand for such qualified Kenyans, it is not easy to maintain the establisment (12) at strength (there were 2 vacancies as of September 1974). Clerical staff present no problem as they receive adequate on-the-job training. - 20 - 6. FINANCIAL ASPECTS Introduction 6.01 The activities of the three companies comprising the power sector in Kenya are closely connected through common management. The financial position of the borrower, TRDC, should not therefore be evaluated in isola- tion, but jointly with that of KPC and EAP&L. The published financial state- ments of KPC and TRDC are prepared on the basis of cash accounting, consistent with the definition of ascertained cost on which their revenues are determined. It has therefore been necessary, in their case, to prepare pro forma statements which assume the use of conventional depreciation accounting so that their earnings and financial position can be compared with those of EAP&L in accor- dance with the key factors customarily used by the Bank to appraise public utility projects. These statements are presented in Annexes 16 to 20 covering the period 1972-1974 (actual) and 1975-1980 (estimated). Assumptions made in these statements are given in Annex 21 together with explanatory notes. 6.02 The revenues of KPC and TRDC are determined on the basis of "ascer- tained cost" as defined in their respective bulk-supply agreements. Ascertained cost is described in greater detail in Annex 21 and, stated briefly, comprises operating and administration costs, interest,and redemption payments for debt, income and other taxes and an amount to meet abnormal expenses and a part of the development expenses. Past Operations and Present Financial Position 6.03 As will be seen from Annex 16 (a), TRDC had net assets (fixed assets, investments and working capital) of over Kh 20 million at the end of 1974. While virtually all of these assets had been financed by borrowing, about 23% of the foreign debt was payable in sterling, and the net gain from the deval- uation of the pound from time to time since 1967 is reflected as a part of equity. The debt equity ratio at the end of 1974 was 84/16. By the end of 1978 after completion of the project, net assets are expected to be about KL 69 million and the debt equity ratio 73/27, which is higher than normally would be considered desirable, but it is more significant to consider the financial posi- tion of TRDC on a combined basis with the other two companies (paragraph 6.06). 6.04 During the period 1972-1974, the earnings of EAP&L were satisfactory. The rate of return for the period 1972-1974 was 9% and was lower than for the bulk supply companies in 1972 and 1973 and higher in 1974 as a result of pay- ment of the Development Surcharge (see Annex 21) to TRDC during the years 1972 and 1973 which was more than required to equalize the rate and less than the required amount in 1974. If the correct amount of Development Surcharge was paid during this period, the rate of return would have been almost 10%. The financial covenants of the IBRD loan 745-KE require that the minimum rate of return in 1972 through 1974 should be 9.5% and 8% thereafter. 6.05 EAP&L uses depreciation accounting and, as will be seen from Annex 19 (a) it is conservatively capitalized. At the end of 1973 its total net assets were about K6 25.6 million and its debt equity ratio was 29/71. By - 21 - the end of 1978 EAP&L's net assets are expected to be about KL 32 million, and its debt equity ratio 27/73. 6.06 The combined balance sheet contained in Annex 20 (a) shows that, at the end of 1974, the total net assets of the three companies were K647 million and the debt equity ratio was 51/49. By the end of 1978, the total net assets are estimated to be about KE 100 million and the debt equity ratio 56/44. It is apparent, therefore, that on a combined basis, the three companies are conservatively capitalized. 6.07 The effect of currency rate fluctuations in the past has had no adverse effect on the foreign currency debt of the company as the official rate of exchange of the Kenya shilling has remained quite stable. It was agreed during negotiations that the rate of return covenant would make provision for the revaluation of assets, annually, on a price index to be agreed between EAP&L and the Bank to take into account the increases in the replacement cost of fixed assets as well as the fluctuations of the exchange rate of Kenya currency. 6.08 Annex 20(a) indicates that the three companies have adequate working capital and satisfactory cash positions. The cash forecasts have been made on a conservative basis and internal generation of funds may be higher than estimated. There has been a good control of debtors, accounts receivable amounted to only a little more than six weeks' billing at the end of 1974. Net income of the three companies for the years 1972, 1973 and 1974 (Annex 20(b)), expressed in million K& was 3.19, 2.34 and 2.09 as against the estimates of 2.00, 2.07 and 2.38, respectively, and show a satisfactory posi- tion, except for 1974 when there was a decline, caused principally by higher fuel prices. EAP&L's Tariffs 6.09 On the basis of a consultant's study, new uniform tariffs were in- troduced throughout the country in May 1968, and present rates brought in an average revenue of 23 Kenya cents or 3.2 US cents per kWh in 1973. In 1974 a fuel oil surcharge was added to the tariff which allows EAP&L to recover from its consumers the bulk of the increase in the cost of fuel used in power generation. The tariff structure in its differentiation between class- es of consumers, which is discussed in detail in Annex 22, now requires further review. Such a review is being carried out jointly by the Bank and EAP&L. Recommendations arising from the review will be discussed and agreed with the Government before implementation. Proposed Financing Plan 6.10 The financing plan agreed during negotiations includes an increase i. EAP&L's tariffs by an average of 10% and a new fuel oil surcharge at 4 Kenya cents per kWh to replace the present surcharge, both from July 1, 1975, continuation of the development surcharge payable by EAP&L to TRDC, issue to the Government of Kenya of TRDC shares of par value of KE 6 million and a local loan of KE 3.86 million. The development surcharge serves to provide - 22 - the two bulk supply companies TRDC and KPC, with a rate of return which is similar to that of EAP&L. EAP&L has suggested that, as TRDC's cash requirements during the construction period of Gitaru project will be considerable, the rate base should be inclusive of work in progress in order to provide a larger amount of development surcharge to TRDC than would be provided if the rate base used was exclusive of work in progress. This will also reduce the income tax burden of the power sector during the construction period of the Project by increasing TRDC's income which is exempt from income tax and by reducing EAP&L's taxable income. This suggestion which is reasonable has been used for calculation of the development surcharge from 1975 in the financial statements. On this basis, the surcharge is estimated to make available about K67 million from 1975 through 1978 (compared with less than KM million if the rate base excluded work in progress). Thus the balance of the project costs other than those costs financed through the proposed Bank Loan and Supplier/Export Credits will be pro- vided by the continuation of the development surcharge, a loan of KL 2 million from EAP&L to TRDC, and the balance under a Government commitment of an equity subscription of KE 6 million and a loan of not less than Kn 3.5 million (assumed to be KE 3.86 million in the financing plan). Completion of arrangements to provide the financing under the Government commitment will be a condition of effectiveness of the proposed Bank Loan. 6.11 A forecast of TRDC's sources and application of funds for the period 1975-1980 is presented in Annex 16(c). The financing plan of TRDC for the project construction period 1975-1978 along with that of the three companies combined is given below: - 23 - TRDC TRDC/KPC/EAP&L Combined 'e - EC US$ Millions % Millions Millions i Requirements Construction (Including Capitalized Interest) TRDC - Gitaru 1/ 46.69 93 46.69 130.73 77 ' Other .98 2 .98 2.75 2 EAP&L - 12.95 36.26 21 Total 47.67 95 60.62 169.74 100 Increase (Decrease) in Working Capital 2.64 5 (.16) (.45) - Increase in Reserve and Equalization Fund .10 - .19 53 - Total Requirements 50.41 100 60.65 169.82 100 Source of Fhnds Net Cash Generation 17.87 34.50 96.60 Less: Debt Service (10.65) (14.72) (41.22) Dividends (3.42) 8 Net Internal Cash Generation 7.22 14 16.364. 27 Increase in Share Capital -.0 12 6.00 0 10 Repayment of Tanzanian Bills of Exchange .17 .48 - Loans Gitaru - Proposed IBRD 21.66 43 21.66 60.65 36 Proposed Supplier Credits 6.87 14 6.87 19.2L 11 EAP&L Loan to TRDC 2.00 4 Local Loans 5.36 11 5.36 15.01 9 Cther Loans 1.30 2 4.23 11.84 7 Total Borrowings 37.19 E 38.12 l-7 g Total Source of Funds 50.41 100 60.65 169.82 100 With preliminary expenditure in 1974 of K£0.91 million and expenditure in 1979 of' K£2.24 million, the total estimated cost of the Gitaru development is K.49.84 million (US$139-55 million). - 24 - 6.12 It is more significant to consider the financing plan on the basis of the combined sources and requirements of the three companies, eliminating inter-- company payments, as though they were merged into one company. The forecast of the combined requirements and sources of funds on this basis, of TRDC, KPC and EAP&L for the period 1975-1980 is presented in Annex 20(c). The financing plan summary of the three companies given in the table in the preceeding para- graph shows that, of the total construction and working capital requirements of the three companies for 1975-1978, 27% would be financed by net internal cash generation after providing for debt service and dividends, 10% from in- crease in share capital and the balance by borrowings: 36% by the proposed IBRD loan, 11% by Suppliers' Credits and 16% by other loans. As indicated in Annex 20(c), the internal cash generation covers the annual debt service requirements by an ample margin ranging from an estimated 2.6 times in 1978 to about 1.9 times in 1979 which is adequate. 6.13 It was agreed during negotiations that if additional funds are re- quired to complete the project because of cost overruns, or due to outside loans and credits being insufficient, the Government would make satisfactory arrangements to provide additional financing requirements. Future Earnings 6.14 Forecasts of revenues and expenses are attached for TRDC (Annex 16 (b)), for TRDC and KPC combined (Annex 18(b)) for EAP&L (Annex 19(b)), and for the three companies combined (Annex 20(b)). 6.15 The development surcharge has been calculated to provide the same rate of return for KPC/TRDC combined and for EAP&L, measured in terms of net operating income as a percentage of average net assets including work in progress. The rate of return is estimated to average 8.7% during 1976-1978 and 9.1% during 1979-1980. 6.16 It was agreed during negotiations that EAP&L would take all necess- ary steps to ensure that its net operating income for any year is not less than 8-1/2% of its average net fixed assets including work in progress. The Government agreed that it would take or cause to be taken all action necessary to permit EAP&L to obtain revenues sufficient to yield this rate of return. Accounts and Audit 6.17 It was agreed during negotiations that the financial statements of TRDC and KPC, individually and combined, will be prepared on depreciation accounting basis and that the financial statements of TRDC/KPC as so prepared will be combined with those of EAP&L. It was also agreed that the annual accounts of TRDC, KPC and EAP&L, including the accounts on depreciation basis for TRDC and KPC, would be audited by independent auditors acceptable to the Bank, and that copies of the certified financial statements and of the auditor's reports would be submitted to the Bank. - 25 - Debt Limitation 6.18 Debt service coverage is relevant only in relation to the combined position of the three companies particularly because of the equated rate of return requirement for KPC/TRDC and EAP&L (paragraph 6.10), and the debt service of the bulk supply companies KPC/TRDC being payable by EAP&L as a part of ascertained cost (Annex 21). It was agreed during negotiations that no long term-debt would be incurred without prior Bank approval, unless cash earnings before provision for depreciation are at least 1.5 times the maximum debt service for any succeeding fiscal year, on all debt including the debt to be incurred. This test is made on the basis of combined revenue accounts and debt service, eliminating inter-company payments and assuming conventional depreciation accounting. Security Arrangements 6.19 Annex 23 describes the security arrangements for the loan capital of EAP&L, KPC and TRDC. The outstanding foreign debt of TRDC, estimated to be about US$38 million equivalent in 1974 is secured, except for the SIDA loan of about US$7 million, by a floating charge or lien on all present and future assets. The Bank has a pari passu charge on these assets for Loan 745-KE and consent of the-existing creditors of TRDC will be required for securing the proposed Bank loan also on a pari passu basis. Completion of the legal formalities finalizing the arrangements will be a condition of effectiveness of the loan. Project Monitoring System 6.20 Proposed guidelines for a project monitoring system which are presented in Annex 24 were discussed and agreed with EAP&L. 7. RECOMMENDATIONS 7.01 During negotiations the following issues were raised with the Government and satisfactory agreement or assurances obtained with regard to: (a) abstraction of water from the Upper Tana Basin for large scale irrigation development and other purposes, which should not be authorized prior to development of the Upper Reservoir (para. 3.22); (b) the Government commitment in the financing plan for the Project (para. 6.10); and (c) provision of any additional financing which might be required to complete the Project in accordance with arrangements satisfactory to the Bank (para. 6.13). - 26 - 7.02 During negotiations the following issues were raised with EAP&L and satisfactory agreement or assurances obtained with regard to: (a) the availability of credit financing (para. 3.10); (b) the engagement of consultants satisfactory to the Bank to carry out a management study, the recommendations arising therefrom to be jointly examined by the Bank and EAP&L (para. 5.10); (c) the employment of consultants satisfactory to the Bank in carrying out the Project (para. 5.11); (d) consultation with the Bank about any changes in the appoint- ments of Chief Coordinating Engineer and Chief Accountant (para. 5.12(a)); (e) revision to the Management Agreement to include the operation and management of the Project (para. 5.12(b)); (f) operation in accordance with sound business, public utility and financial practices, insurance and exchange of information with the Bank (para. 5.13); (g) the continued employment of auditors satisfactory to the Bank and the submission to the Bank of copies of annual auditors reports and certified financial statements for EAP&L, TRDC and KPC Cpara. 6.17); (h) a limitation on the amount of long-term debt which may be incurred by EAP&L, TRDC and KPC (para. 6.18); and (i) obtaining consent of the existing creditors of TRDC for securing the proposed Bank Loan on a pari passu basis (para. 6.19). 7.03 During negotiations the following issues were raised with the Government and EAP&L and satisfactory agreement or assurances obtained with regard to: (a) continuation of the development surcharge (para. 5.04); (b) the issue of a generating station licence in respect to the Project (para. 5.05); and (c) the minimum rate of return on net fixed assets in operation and under construction which should be not less than 8-1/2% per year and revaluation of assets annually which will be on a price index to be agreed between EAP&L and the Bank to take into account the increases in the replacement value of fixed assets (paras. 6.16 and 6.07). - 27 - 7,04 The following events will be conditions of effectiveness of the proposed loan: (a) completion of all conditions precedent to the effectiveness of the credit financing (para. 7.02(a)); (b) completion of arrangements evidencing the Government Commit- ment (para. 7.01(b)); (c) issue of a generating station licence for the Project (para. 7.03(b)); (d) revision to the Management Agreement (para. 7.02(e)); and (e) completion of the legal formalities finalizing the security arrangements (para. 7.02(i)). 7.05 Subject to the foregoing assurances the Project will be suitable for a Bank Loan of US$63 million for 25 years including a grace period of 5 years. May 1975 K E N Y A GITARU HYDROELECTRIC PROJECT EAP&L SYSTrEl Actual & Estimated GWh Generated. Sent Det r Sol System Nuxlmu,n Dend, lnstalled and firm PAp Pno!otive Caoabiltty (InLerconneted System) Productive Capability (GW]i) Year Generated & Maximum Installed Effective Firm Hy o Hydr o Thermal Total Total Actual Purchased Sent Out Sold % Increase Demand MW Capacity MM Ca!aIty MW Capacity MM Average Tear Dry Year _ !orted Average Year Dry Yca1- 1970 747 727 636 - 121 192 171 146 316 - 641 957 - 1971 849 935 704 10.7 131 216 201 145 318 - 875 1192 - 1972 946 924 784 11.4 146 211 195 140 374 - 852 1226 - 1973 1617 994 850 8.5 161 224 208 151 387 - 942 1329 - 1974 1095 1074 919 8.1 171 284 268 208 820 520 942 1762 1462 Estimated 1975 1185 1166 1002 9.0 191 284 268 208 820 520 942 1762 1462 1976 1323 1305 1116 11.4 221 344 322 248 864 540 1179 2043 1719 1977 1482 1454 1243 11.4 242 344 322 248 864 540 1179 2043 1719 1978 1603 1593 1368 10.0 263 484 462 362 1699 890 1179 2878 2069 1979 1748 1737 1491 9.0 287 484 462 362 1699 890 1179 2878 2069 1980 1911 1899 1626 9.0 313 484 462 362 1699 890 1178 2878 2069 1971 Kipevu 30 MW unit commissioned. 6 MW of old diesel plant retired. 1972 Kepevu 5 MW set retired. 1973 Nairobi South 13 MW gas turbine commissioned. 1974 Kamburu 2 x 30 MW sets commissioned. 1976 Kipevu 30 MW set and Kamburu 30 MW (24 MW effective capacity) due to be comlissioned. 1978 Gitaru 2 x 70 MW sets due to be commissioned. Note: Firm capacity is the effective capacity less 30 M1W plus 15% of remaining plant, May 1975 K E N Y A GITARU HYDROELECTRIC PROJECT EAP&L SYSTEM Actual and Forecast Sales of GWh in Each Consumer Category Domestic Commercial Industrial Public Lighting Off Peak Others Total Units Growth Units Growth Units Growth Units Growth Units Growth Units Crowth Units Growth GWh % GWh 7 GWh % GWh W7 GWh % GWh =/ Actual 1968 98.77 3.9 118.90 18.2 121.41 8.9 8.39 3.1 82.24 5.4 9.27 4.0 529.98 9.1 1969 99.61 0.8 151.10 27.0 219.06 3.1 8.60 2.5 87.13 5.9 9.27 5.4 575.27 8.5 1970 105.09 5.5 170.75 13.0 254.23 16.0 8.67 0.8 96.24 10.4 10.77 10,2 645.75 12.2 1971 112.1 6.7 186.2 9.0 290.4 14.2 9.2 6.1 105.5 9.6 11.9 10.2 715.2 10.8 1972 120.5 7.5 204.3 9.7 330.3 13.7 9.4 2.2 118.0 11.9 12.4 4.2 794.8 11.1 1973 126.7 5.2 223.9 9.6 364.1 10.2 10.4 10.6 121.3 2.8 13.2 6.5 859.7 8.2 1974 136.5 7.7 239.5 6.9 403.2 10.7 10.1 -3.0 120.7 -0.5 15 10.6 925.0 7.6 Forecast 1975 141.0 3.3 254.0 6.1 460.0 14.1 10 - 124 2.7 16 5 1005 8.6 1976 146.0 3,5 272.0 7.1 538.0 16.9 11 10.0 136 9.6 17 5 1120 11.4 1977 151.0 3.4 294,o 8.0 527.0 16.5 12 9.5 143 5.0 18 6 1245 11.2 1978 157.0 4.0 320.0 9.0 706.0 12.6 13 9,0 155 8.5 19 8 1370 10.0 1979 165.0 5.1 349.0 9.0 778.0 10.2 13 - 168 8.5 20 8 1493 9,0 1980 176.0 6.0 380.0 9.o 856.0 10.0 13 - 182 8.5 21 8 1628 9.0 May 1975 K N YA ANEX 3 GITARIU HIUO}LECTRC PROJECT EAP&L SYSTEM EXISTIN GENERATING PIANT Station Set Rating Year Station Set Rating Year No. kW No. kW Kamburu 1 30,000 1974 Kericho 1 700 1960 Hydro 2 30,000 1974 Diesel 2 700 1960 (TRDC) KLdoret 1 550 1952 Kindarawa 1 22,000 1967 DLesel 2 550 1952 }ydro 2 22,000 1967 3 400 1954 (TRDC) Lanet 1 550 1952 Wanjii 1 2,700 1952 Diesel 2 550 1952 Hydro 2 2,700 1952 3 1,100 1955 (KPC) 3 1,000 1952 4 750 1957 4 1,000 1952 5 750 1958 Tana 1 2,000 1933 *Homa Bay 1 169 1967 Hydro 2 2,000 1933 Diesel 2 169 1967 (KPC) 3 2,400 1950 3 169 1967 4 4,400 1953 4 169) Transferred 1973 5 4,400 1953 5 450) Ndula 1 1,000 1925 *Kitale 1 150 1949 Hydro 2 1,000 1925 Diesel 2 150 1949 3 150 1949-50 Mesco 1 380 1933 4 180 1954 Hydro 5 300 1962 6 320 1958 Sagana Falls 1 500 1955 7 850 Transferred 1973 Hydro 2 500 1955 3 500 1962 Kipevu Steam Turbine 1 5,000 1955 Selby Falls 1 180 1952 2 5,000 1961 Hydro 2 180 1952 3 12,500 1962 4 12,500 1965 Nairobi South 1 2,240 1956 5 30,000 1971 Diesel 2 2,240 1956 Gas Turbine 6 12,200 1970 Gas Turbine 3 2,200 1955-56 it " 4 2,200 1956 Mbaraki Diesel 5 1,050 1959 Diesel 1 800 1947 6 1,050 1959 2 800 1950 7 1,050 1954 3 800 1951 8 1,050 1955 4 800 1951 9 2,188 1957 5 800 1940 10 2,188 1957 11 2,188 1957 Malindi 1 80 1959 Gas Turbine 12 13,500 1973 Diesel 2 80 1959 3 80 1 963 Ruiru 1 1,500 1949 Diesel 2 1,500 1950 *tamu 1 105 1969 Diesel 2 65 1969 Kisumu 1 200 1947 3 105) Transferred 1973 Diesel 2 200 1947 4 105) 3 200 1947 4 380 1949 *Gasissa 1 102 1972 5 380 1952 Diesel 2 102 1972 6 605 1955 3 70 1972 *Isolated Diesel power stations. Note: Diesel power stations and plants ihich are no longer in service are omitted. May, 1975 ANNEX 4 Page 1 of 3 pages K E N Y A GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED Rural Electrification in Kenya; the Market, Costs, and Potential for Development Population Centers 1. The total population of Kenya is about 12.9 million of which about 1.5 million live in the larger towns, about 9 million live in the fertile agricultural areas, which comprise about 10% of the land area of 583,000 sq kms and the balance of about 2.million are settled over the remaining 90% of the land area of the country. The classification of population centers are described below. Urban Center Population of more than 5,000 and containing a full range of services associated with a town. Serves a hinterland of some 120,000 people and houses the main district administrative offices of the area. Contains health, education, postal, shopping, banking and hotel facilities and an airstrip. Included under this heading are all the major towns excluding Nairobi. Rural Center Serves a hinterland of some 40,000 people and is a focus of local trade and commerce. Contains local divisional administrative offices and police, health, social, education, market, postal and banking facilities to a lower level than an Urban Center. Will have a resident population of between 1,000 and 5,000. Market Center Serves an area of at least 150 sq kilometers with a minimum hinterland population of 15,000. Contains education, health, social, market, postal and police facilities to a lower level than a Rural Center. Will not have a large residential population. Local Center Serves populace within walking distance of that center. In well populated areas will have a hinterland of some 50-70 square kilometers containing a minimum of 5,000 people. Will have a primary school, medical dispensary, postal agency, shops and an open market. Not intended as an administrative center. ANNEX 4 Page 2 of 3 pages 2. All the centers in Kenya are defined in one or other of the above classifications and although not all the facilities described exist in every case, they are gradually being introduced. No firm figures are available but the 1974-1978 Development Plan forecasts the number of centers showing those which it is hoped will be receiving a public supply of electricity by the end of 1974 and 1978 respectively. Center Total No. No. on Supply 1974 1975 No. %_ No. ___ Urban 86 59 68.6 81 94.2 Rural 150 31 20.7 31 20.7 Market 420 73 17.4 73 17.4 Local 1,015 64 6.3 64 6.3 Total 1 681 227 13.5 259 15.4 Basic Cost of Rural Electrification Tne cost of electrifying rural areas in Kenya can be based on the following approximate 1974 costs: 33,000 volt lines - Kb 1,200 per km Medium voltage distribution - KX 700-1,000 per km Transformers - KL 10-50 per KVA depending upon size and whether single or three phase Service Lines - Kb 15-35 per service W'here the center is remote from the existing network (of the remaining centers in the country, these are now probably in the majority) diesel generating plant has to be installed. The cost per KVA of such plant is of the order of Kb 250-300. Principal Usage and Revenues The principal use of electricity by consumers in rural areas is for lighting and with an estimated per capita income of KE 40 per annum in the rural areas, potential revenues are limited. Annual consumption for lighting for houses and shops is 80-90 kWh with an after diversity maximum demand of about 0.05 kW per consumer. Other types of load in rural areas are: (i) The maize mill, situated in all rural and most market centers. This has a loading of between 10 and 30 HP and a consumption of between 6,000 and 12,000 kWh per year; ANNEX 4 Page 3 of 3 pages (ii) Irrigation and water pumping, generally located outside the centers; load and consumption is difficult to define as it varies considerably from center to center. What little industry there is in the rural areas tends to be associated with tea, coffee, rice and cotton production. Revenues and of course, costs of supply, vary considerably, dependent upon the remoteness of the center and its population and type of supply. Typical average annual revenues in 1974 are: Domestic Consumer - KL 6-12 Shop - Kb 12 Maize Mill - Kb 200 General It is generally accepted that the electrification of rural areas will have an ultimate impact on the social, commercial and industrial activities of the community and will tend to check the migration to the larger towns. The rural electrification program in Kenya has not been in existence for a sufficient period for any definite trend to become apparent in this respect. November 1974 ANNEX 5 Page 1 of 4 pages K E N Y A GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED Detailed Description of the Project 1. That stretch of the River Tana which lies between existing hydroelectric installations at Low Tana, (upstream) and Kindaruma (downstream) falls about 270 m over a distance of 94 km. The steepest gradients are however, concentrated in the downstream region of the stretch, and it is here that most of the power potential lies. A study of this potential and of future demands for power, indicated that it would be advantageous to develop the river in two stages, stage 1 between km 64 and 80 (measured down the river), and stage 2 between km 80 and 94t9 and to consider the upstream region as a site for a major reservoir, wfith limited power output, possibly for development later on. Stage 1 of this arrangement, the Kamburu development designed for three 30 14HW generating units but initially comprising 2 units was commissioned in July 1974. Stage 2, the Gitaru development which is located between Kamburu and Ki-ndarama at approximately km 83, constitutes the Project. 2. The Project comprises a low diversion dam with an integral spillway, vertical intake shafts with short headrace tunnels to the under- ground power station and a along tailrace tunnel to the Kindaruma reservoir. The power station would be designed for 3 units each of 67 Mi output when operating together and rated at 72 MW to take advantage of the increased head available when operating individually. The Project includes only the first two units but the constructional works include provision for the third unit. Principal data for the Project are listed in the table at the end of this Annex. Geology 3. The geology of the area was initially investigated between March and June 1969, at the same time as the geological investigations for the Kamburu development were carried out and copies of the consultants report were sent to the Bank. There were some areas where further investigations remained to be done and the program of work to complete these investigations which was started in March 1974 comprised principally a drilling program along the tailrace tunnel and in the area of the underground power house. The predominant rocks in the area are gneisses, forming part of a geolog- ical structure known as the Basement Complex System. 4. In the bed of the river, hard rock exists over most of the area to be covered by the dam except in the main channel some 20-25 m wide where rock is decomposed and has been eroded to a depth of about 5 m and where sealing would have to be carried out against percolation of water under pressure. The dam would be 30 m high and would have a crest length of 580 mn; ANNEX 5 Page 2 of 4 pages soil overlaying weathered rock would have to be removed (approximately 3 m on the right bank and averaging 6 m on the left bank) to obtain suitable founda- tions. 5. The site of the power station was considered proven at the time of the appraisal b-ut its final alignment was to be selected after consideration of the latest-geological data which was not at that time available. There would seem to be no likely problems with the tailrace tunnel; in the main, the rock appears competent enough but there are likely to be short lengths which will require support and from the geophysical traverse, it would seem that part of the last 1,000 m could also require lining. Hydrol6gy 6. The River Tana is a typical tropical river having two flood seasons and two dry seasons per year. The largest flows generally occur in April-June as a consequence of the "long rains"; high flows occur again in November - December from the "short rains". Low flow periods are February-March when the flow has dropped occasionally to 17 cumecs and during the period September- October when the minimum flow is usually above 30 cumecs. The Gitaru reservoir is quite small (16 million m3t and the Kamburu reservoir, with its live stor- age capacity of 123 million mi and minimum discharge of 40 cumecs provides seasonal storage also for the Kindaruma and Gitarupower developments. Installed Capacity and Energy Output 7. The storage afforded by Kamburu dam is insufficient to control the river, so the flow available for power generation from GLtsru would not be con- stant throughout the year. During the dry season the reservoir would be drawn down, but it would normally be kept full at other times. The station would therefore generate energy at varying weekly load factors, depending not only upon the river flow but also on the ability of the power system to absorb the energy generated. In the wet season the average weekly power output is expect- ed to be about 80 MW (with two sets) rising to 100 MW after the commissioning of the third set. In the dry season of the one in ten dry years, the average weekly output will drop to 145 MW. Description of Principal Works 8. The access road to open up the Gitaru site is approximately 9 km long starting from the junction of the Kindaruma and Embu-Kangondi roads and finish- ing at the dam site. This road together with an access road to the tailrace tunnel portal has been constructed as part of the preliminary works. 9. The dam will be a rock and earth fill structure with a broad core of low permeability material and it will have a spillway similar in design to Kamburu but with three gates which will discharge a total of 3,500 cumecs with the water in the reservoir at its full supply level of 924 m and, with an addi- tional rise of 1.5 m will pass a flood of 4,500. ANNEX 5 Page 3 of 4 pages 10. Each of the three turbines will have separate intake, shaft and headrace tunnel, each designed to pass 62 cumecs. The three intakes will be combined into one reinforced concrete structure located on the left bank some 120 m from the concrete abutment block. 11. The turbines would be vertical shaft Francis machines, main vehicular access to the power station will be via an access tunnel some 900 m long, and, at the end of the power station, where this tunnel enters, a floor at generation level will be provided for unloading, erection and maintenance purposes. An area between units 1 and 2 will contain service equipment, cooling water pumps and air compressors. Generated power will be transmitted to the surface by paper insulated cables placed in a vertical shaft, to a small surface building. This shaft will also house a duct for provision of ventilation air to the cavern and a small elevator for access of personnel from the surface to the power station. Trtansmission Lines and Substation 12. The transmission system associated with the Project would include a 132 kV double circuit line from the Gitaru substation to Kamburu (approxi- mately 8 km) and a 275 kV single circuit transmission line from Kamburu to the existing Juja Road substation (approximately 111 km) which is located just outside Nairobi. The 275 kV line.which will operate initially at 132 kV, will be routed via suitably located terminal'1towers at the site of a future 275/132 kV Dandora substation and a final 1.3 km between Dandora and Juja Road will be single circuit 132 kV construction. 13. Gitaru substation will be very simple with, basically, generator transformers, auxiliary transformers and carrier coupling equipment. All switching will be carried out at Kamburu where the substation will be ex- tended by three 132 kV bays with three 132 kV circuit breakers installed in the existing generator circuits to improve bus-bar security. Two 275 kV single circuit substation bays will be installed. The mesh at Juja Road substation will be extended to take the incoming transmission line. Technical Data ,,ydrology 1/ Long term average flow - 94 cumecs Annual maximum flow - 1,926 cumecs Annual minimum flow - 17 cumegs Storage capacity of reservoir - 16 x 10 m3 Capacity of spillway (1 in 10,000 flood year) - 4,500 cumecs Dam Type - Rock and earth filled Height - 30 m Crest length - 580 m Intake Shafts Diameter - 4.2 m Depth - 130 m 1/ Continuous flow records have been available since 1947. ANNEX S Page 4 of 4 pages Power Station *3Generating sets first stage - 2 x 72 MW Generating sets second stage - 1 x 72 MW Net head - 136 m Estimated average annual output with 3 units - 900 GWh Dimensions of power station: length - 74 m width - 18 m height - 32 m Access Tunnel Width - 5 m Length - 900 m Tailrace Tuunnel Equivalent diameter of horseshoe sections - 9 m Length - 4,700 m Transmissions Transformers - first stage - 2 x 90 MVA three phase units - second stage - 1 x 90 MVA three phase unit Length of 275 kV line to Juja Road _ 111 km single circuit Length of 132 kV line to Kamburu - 8 km double circuit *Note: Generating units are rated at 72 MW but with an autput of 67 MW when three units are in operation. May I975 K E N Y A ANNEX 6 Page 1 of 2 pages GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COM8ANY LIMITED Pro4ect Cost Estinates DESCRIPTION LOCAL FORE:KN TOTAL LOCAL FOREIGN TOTAL KE 1000's US$ 1000's Preliminary Works Preliminary Civil Works 556 603 1,159 1,557 1,689 3,246 Contingencies 15 15 30 42 42 84 Site Camp Purchase 30 - 30 84 - 84 Engineering and Administration 4 63 67 11 176 187 Iccal 605 681 1,286 1,694 1,907 3,601 Part A Main Civil Works Preliminary Gen_ral and Temporary Items 920 1,7S0 2,710 2,576 5,012 7,588 Clay Core Dam 527 1,020 1,547 1,475 2,856 4,331 Spillway 1,078 2,C92 3,170 3,019 5,858 8,877 Intake Structure 230 4 7 677 644 1,252 1,896 Shafts and Tunnels 2,005 3,8S2 5,897 5,614 10,898 16,512 Power House 635 1,233 1,868 1,778 3,452 5,230 Substations 35 69 104 98 193 291 Services Buildirngs 60 114 174 168 319 487 External Work and Miscellaneous 310 723 1,033 868 2,024 2,892 Total Civil Works 5,800 11,380 17,180 16,240 31,864 48,104 Miscellaneous El. ctrical Works 100 575 675 280 1,610 1,890 Miscellaneous Mechanical Works so 120 280 168 616 784 Contingencies Physical Contingency Civil 20%,; E&M 10% 1,200 2,350 3,550 3,360 6,580 9,940 Price Contingency 27% li920 3,900 5,820 5,376 10,920 16,296 Total Contingencies 3,120 6,250 9,370 8,736 17,500 26,236 Engineeting and Administration 240 2,960 3,200 672 8,288 8,960 Management Review - 25 25 - 70 70 Total Part A 9,320 21,410 30,730 26,096 59,948 86,044 Part B Turbines. Generators, Cates & Screens Gates anad Screens l0C 1,340 1,440 '30 3,752 4,032 Turbines and Associated Equipment 110 1,450 1,560 338 4,060 4,368 Generators and Associated Equipment 140 1,730 1,870 392 4,844 5,236 Total 350 4,520 4,870 980 12,656 13,636 Transmission Lines Substations & Transformers Transmission Li-nes 620 1,530 2,150 1,736 4,284 6,020 Substations 60 490 550 168 1,372 1,540 Transformers 20 410 430 56 1,148 1,204 Total 700 2,430 30 9 6,804 8,764 Contingencies Physical Contirngencies 10% 200 700 900 560 1,960 2,520 Price Contingency 27% 330 2,055 2,385 924 5,754 6,678 Total Contingencies 530 2,755 3,285 1.48- 7.714 9,198 TotLl Part B 1,580 9,705 11,285 4,424 27,174 31,598 Import Duties and Sales Tax -2,120 - 2,120 5,936 - 5,936 Total Cost of Project 13,020 31,115 44,135 36,456 87,122 123,578 Note: 1. Exchange Rate KE 1 = US$2.8 2. Cost Estimates are based on actual tenders received for divil and main plant contracts. A physical contingency of 20°/ is allowed on civil works (includes 5% to provide for possible delay in completion) and 10% on electrical and mechanical works. An addi- tional 10% physical contingency has been included in ERM local costs to provide for possible delay in project completion. Engineering consultants costs include a physical contingency of about 10% and cost escalation of about 34% plus KE 80,000 to cover the cost of Inspection and Progressing. 3. The cost of preliminary works which have been completed are not included in the total project costs. May 1975 Calculation of Expected Price Increases EtSndlitures durnJ year (Commencing June 1) thousands) CIVIL WORKS 197`/76 1976/77 1977/78 1978/79 1979/80 TOTAL Base Cost Esti;mate 5,200 5,900 4,500 1,300 280 17,180 Physical Contingency 1, 0O)O l,lo8 900 260 60 3,440 Total 6,240 7,080 34400 1,560 340 20,620 Expected Price Increase 500 1,700 2,170 890 260 5,520 % of Base Cost plus Physical Contingency 27% ELECTRICAL..AND MECHANICAL WORKS Base Cost Estimate 900 2,600 2,800 1,800 855 8,955 Physical Continge my 100 300 310 200 100 1,010 'Total 1,000 2,900 3,110 2,000 955 9,965 Expected Price Increase 60 510 870 770 480 2,685 % of Base Cost plus Physical Contingency 27% Note: Annual price factors are calculated by compounding the rates of price increases in prior years and are half the rate of price increase in the year concerned. 'The following price increases which have been assumed have been applied to boLh local and foreign costs. 1. Civil 'Works: Year 1 - 16%, Year 2 - 14%, Year 3 - 12%, Year 4 - 12%, Year 5 - 12%. 2. Electrical and Mechanical Works: Year 1 12%, Year 2 - 10%, Year 3 - 8%, Year 4 - 8%, Year 5 - 8%. May 1975 01 N , i ow KENYA GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED CONSTRUCTION PROGRAM 1974 1975 1976 1977 1978 MAM A J J A S O N D JF|IMIA M J J A S O No D F M A MI J J S N D JFl M|A MIJd IJA SOND iJF M A MiJd A S_O MAINCIVIL WORKS ril. H 0I ST I IE I U U Fi U T I I - I TRANSFRMERS '-'' j+d|l I l I-- - - A A GATES, SCREENS & HOISTS - , _. J ONIITII 1 1. TU R BI NES & VA LVE 0/ES SPIA. -!,TUREt No GENERATORS 4 COMBINED INGUIRY * *7 TRANSFORMERS 4 SUB-STATIONS - INCLUDING SUB CONTRACT FOR CONTRON SS -TOWER TRANSMISSION LINES COMBINED INQUIRY * ** MISCELLANEOUS MECHANICAL } t S t GENERAL ELECTRICAL I *II1 INSPECTION 7 .-m w w Draft document preparation, finalization & printing p Place order Approval by the Borrower F.O.B. *Ieti1 iII Tender period (iclidirg ev-ital-t)o Erection/Construction * Basic fender evaluation to Borrower and I BR D Commissioned Q Publish aduertisement W- World Bank-9167(R) ANNEX 8 KENYA. GITARU HYDROELIETRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED Estimated Schedule of Disbursements US$ million I3MD/IDA Fiscal Year Cumulative Disbursement and Quarter at end of Quarter 1975/76 September 30, 1975 5.0 December 31, 1975 10.0 March 31, 1976 15.0 June 30, 1976 19.0 1976/77 September 30, 1976 24.0 December 31, 1976 28.0 March 31, 1977 32.0 June 30, 1977 38.0 1977/78 September 30, 1977 43.0 December 31, 1977 19.0 March 31, 1978 52.0 June 30, 1978 55.0 1918/79 September 30, 1978 57.0 December 31, 1978 60.0 March 31, 1979 60.0 June 30, 1979 61.0 1979/80 September 30, 1979 62.0 December 31, 1979 63.0 Note: Provision has been included for a slippage of 3 months in the estimated rate of expenditures agreed with the Consultant and additionally the disbursement schedule assunes a 6 month delay in completion of the Project. May 1975 K E N Y A GITARU HYDROELECTRIC PROJECT EAA&L SYSTEM Possible New Major Loads to be Supplied by EAP&L between 1975 and 1980 1975 1976 1977 1978 1979 1980 MVA MWh MVA MWh MVA MWh MVA MWh MVA Wh MVA MWh COAST Mombasa-Nairobi Oil Pipe Line - - - - 2.0 9,500 2.2 12,000 2.5 15,000 2.8 18,000 CoastWater Supply - - - - - - 1.8 9,813 2.3 13,000 2.7 15,211 Bamburi Portland Cement Co. (additional) - - 9.2 54,560 9.2 54,560 9.2 54,560 9.2 54,560 9.2 54,560 East African Oil Refineries (additional) 3.0 17,100 3.0 17,100 3.0 17,iO0 3.0 17,100 3.0 17,100 3.0 17,100 Mombasa Airport (additional) - - 0.8 2,000 1.0 3,000 1.1 3,200 1.2 3,400 1.3 3,600 Diani Development - - - - - - 1.0 2,500 2.0 5,000 3.0 7,500 KUSCO (additional) 2.0 3,500 2.1 3,600 2.2 3,800 2.3 3,800 2.3 3,800 2.3 3,800 Geomin (additional) - - 3.6 17,000 3.6 17,000 6.0 30,000 6.0 30,000 6.0 30,000 Fertilizer Plant - - - - 2.0 12,000 3.0 18,000 3.0 18,000 3.0 18,000 NAIROBI Ngethu Chania Water Works (additional) - - - - 3.0 15,45C 3.0 15,450 4.8 24,000 5.6 28,000 Nairobi Airport (additional) - - 3.7 6,000 4.0 13,000 4.3 14,000 4.7 15,100 5.0 16,300 D.C.K. Kibwezi - - - - - - 2.5 14,000 3.0 16,000 3.0 16,000 Kikuyu Steel Rolling Mill - - 1.8 2,000 1.8 3,500 1.8 3,500 1.8 3,500 1.8 3,500 City Engineering - - 1.2 2,400 1.2 2,400 1.2 2,400 1.5 3,000 1.5 3,000 Emco Steel Works (additional) - - - - 4.0 7,000 7.0 12,000 7.0 12,000 7.0 12,000 Dama Enterprise - Mombasa Road 0.8 2,000 0.8 2,000 0.9 2,250 0.9 2,250 1.0 2,500 1.0 2,500 Dawa Pharmaceutical, Dandora 0.6 1,300 0.8 1,800 1.0 2,000 1.0 2,200 1.0 2,200 1.0 2,200 East African Industries (additional) 1.0 2,500 1.0 2,500 1.0 2,800 1.0 3,000 1.5 3,500 1.5 4,000 J.K. Synthetics Thika - - - - 3.5 13,800 4.5 17,800 5.5 21,700 5.5 21,700 Kenya Brewery (additional) 1.5 2,000 2.5 11,000 2.5 11.000 2.5 11,000 2.5 11,000 3.8 17,000 500 New Houses - - 1.5 2,200 2.0 3,000 2.5 3,500 2.5 3,700 2.5 3,700 RIFT VALLY Textile Factory, Nakuru - - - - 3.0 16,000 3.5 20,000 4.0 23,000 4.0 23,000 D.C.K. Naivasha 1.0 2,600 2.0 5,200 3.0 7,800 4.0 10,400 4.0 10,400 4.0 10,400 Kenya Chipboard Factory, Nakuru 0.5 2,000 1.2 4,800 1.2 4,800 1.2 4,800 1.2 4,800 1.2 4,800 WESTERN Fluorspar Company 2.8 15,000 3.0 16,000 3.2 17,000 3.2 17,000 3.2 17,000 3.2 17,000 Textile Factory, Eldoret - - - - 2.0 10,000 2.0 10,000 2.0 10,000 4.0 20,000 Panafrican Paper Mills, Webuye - - 2.0 12,000 2.0 12,000 2.0 12,000 3.5 21,000 5.0 30,000 MT. KENYA Textile Factory, Nanyuki - - 0.5 2,000 1.8 9,000 1.8 9,000 1.8 9,000 2.0 11,500 Kanja Saw Mill - - 0.75 2,500 0.75 2,500 1.0 3,000 1.0 3,000 1.0 3,000 May 1975 KENYA GITARU HYDROELECTRIC PROJECT EAP&L SYSTEM - EFFECTIVE AND FIRM CAPACITY AND MAX. DEMAND 500 F 450: ,.,, .....,., , .EfFrECTIVE CAPACITY 450 X 400 o I-D * - -FIRMCAPACITY 350 -c 350 I D 1 MAX. DEMAND 0 - 300 Y,,~~~ .. ,,.................................... 300 c 250 200 150 100 50 1974 1975 1976 1977 1978 1979 1980 1981 YEAR World Bank-9168(2R) KENYA GITARU HYDROELECTRIC PROJECT EAP&L SYSTEM - PROGRAM OF DEVELOPMENT BASED ON PRODUCTIVE CAPABILITY IN DRY YEAR 2500 2400 2200 FORECAST GWH GENERATED AND PURCHASED 2000 1800 A( 16E00 C 1400 C THERMAL PRODUCTIVE CAPABILITY 6t~~~~~~~~~~~~~~~~~~~~~~~~I L ;EA trS .Xi~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i UGANDA BIJI K SIIPPIY 1973 1974 1915 1976 1977 1978 1979 19S0 198? 1982 1983 YEARi 'IF POSITIVF RESULTS ARE DBTAINED FROM THE GEOTHERiMAL STUDIES Biy T1iE LATE T70 , THE THflMAL DEVELOPMENT SHOWN IN 1981 COULD BE INTERIM GAS TUiRBINES PENDING COMPLETION OF A LARGE GECTHEHMAL PROEiCT World B-ik 9161 (2RI KENYA GITARU HYDROELECTRIC DEVELOPMENT EAP&L SYSTEM - PRODUCTIVE CAPABILITY IN AN AVERAGE YEAR 4000 z _ r C~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C 0 ul ~~z 3600) > E ~~~~~~~~~~~~~~~~~~~~~~~~~~~~E I _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I en~~~~( 3200 2800 I 120 , o 4: . . :: THERMAL PRODUCTIVE CAPABILITY : GWH GENERATED AND PURCHASED 2400< 1:2000L 8100 1200 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 YEAR NIF POSITIVE RESULTS ARE OBTAINED FROM THE GEOTHERMAL STUDIES BY THE LATE 1970's, , THE THERMAL DEVELOPMENT SHOWN IN 1981 COULD BE INTERIM GAS TURBINES PENDING z COMPLETION OF A LARGE GEOTHERMAL PROJECT. WAorld Bank-9462tR) ANNEX 13 Page 1 of 7 pages KENYA GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED Comparison of the Project with Thermal Alternatives Selection of the Most Economic Alternative 1. Selection of the next step of expanding EAP&L's generating capacity involves the cost analysis of different possible development strategies which would satisfy the increasing demand in the interconnected grid over the plan- ning period. The cost streams of these different strategies have been compared, and the development program which includes Gitaru power station as the first step proves to be the most economic alternative. This program provides for the commissioning of Gitaru in 1978, with three gas turbines of 22 MW each for operation during hours of peak demand during the dry season and for stand-by in case of forced outages of other generating units, commissioned respectively in 1980, 1981 and 1982. A third generator would be installed in the existing Kindaruma hydroelectric power station in 1983 to reduce the need for thermal generation. In 1980 a 275 kV line between Nairobi and Mombasa would be installed to transfer cheap hydro power to the coastal area as by that time the capacity of the existing line would be fully "taken up". The total cost of the progratn includes operation and maintenance, and fuel costs. This program is characterized by high expenditures during the first years of the planning period, due to the construction costs of the Gitaru power project and low expenditures after 1978, because investment is modest and fuel costs for thermal power generation are low. 2. The main alternative program for the development of the inter- connected system would commence with three gas turbine units of 22 MW each, to be installed in 1978, 1979 and 1980 with the commissioning of Citaru post- poned until 1981. To reduce fuel consumption, it is economical under this program to install the third set at Kindaruma power station as early as 1977. In this case the 275 kV line would be commissioned at the same time as Gitaru so that thermal generation in Mombasa can be substituted for hydro power. This program would have low expenditures during the first years of the plan- ning period, but high expenditures in the period 1978 to 1980, when the con- struction of the Gitaru project would coincide with high fuel costs. A comparison between this alternative and the program with Gitaru as the first project, based on discounted cash flow costs, showed an equalifiing discount rate of 11.3;. The cost streams are shown on page 5 of this Annex. 3. A third alternative which was analyzed is the replacement of Gitaru by a new 2 x 60 MW coal or oil fired thermal power station in Mombasa (which- ever would be the most economic). An oil-fired plant of this size was the choice of the consultants before the oil price increases after September 1973. ANNEX 13 Page 2 of 7 pages The equalizing discount rate is 15.5%, when Gitaru followed by a coal-fired plant is compared with a coal-fired thermal station followed by Gitaru, assum- ing a low coal price of US$30 per ton CIF Mombasa. The equalizing discount rate increases to 19% if the coal price is US$40 per ton and to 20% if the thermal plant is fired by oil. 4. The possibilities of geothermal power and imported power from Tanzania were also considered; since the geothermal exploration program is incomplete and, on the best assumptions, a large geothermal power station could not be commissioned before 1983, this was excluded from the develop- ment alternatives. 5. With regard to the possibility of imported energy, surplus power should be available from Tanzania after commissioning Kidatu II power station (presently scheduled early 1980). A-transmission line would have to be built between the town of Tanga in Tanzania and Mombasa to interconnect the two national grids. Tanzania could supply excess power which, because of losses and stability problems would be limited to about 20 MW and the input of 20 MW from Tanzania has therefore been analyzed and introduced into the strategies. The assumed annual load factor of the imported power is 85% and the sale price is Ki 10 per KWH (in 1975 prices). Import of power from Tanzania would of course have the greater impact on the gas turbine followed by the Gitaru program. On the above assumption the equalizing discount rate between the two strategies would fall to 10% if 20 MW of power is imported from Tanzania each year. Because of Kenya's reluctance to import more power than at present, the possi- bility of delay in commissioning Kidatu II and the lack of long-term availa- bility, EAP&L would prefer not to include imported power from Tanzania in its development planning. This was therefore excluded from the further analysis of EAP&L's most economic development strategy as the economic advantage was minimal. Shadow Pricing 6. The comparison of alternatives in the previous paragraphs of this Annex are based on shadow pricing. All local costs have been turned into foreign cost equivalents using shadow price ratios as listed on page 7 of this Annex. The most important shadow price ratios used are 0.75 for un- skilled labor and 1.33 for all local costs. The shadow price ratio for local costs is implictly used in all shadow prices listed and corresponds to an exchange rate, which is 33% above the official rates. These shadow prices were estimated by a study group from Oxford University headed by M.F.G. Scott 1/ in 1970, 1972 and 1973. Some shadow prices may have changed in the meantime, especially due to the effect of the fuel price increase on relative prices in Kenya. However, they represent the best estimate of shadow prices available at the present time. 1/ The most important study prepared by the group is "Estimates of Shadow Wages in Kenya" by M.F.G. Scott, February 1973. ANNEX 13 Page 3 of 7 pages Sensitivity Analysis 7. The sensitivity of the equalizing discount rate between the cost streams of the two basic strategies--Gitaru followed by gas turbines and gas turbines followed by Gitaru--was analyzed by changing the main variables, capital costs, fuel costs and load forecast. 8. Gitaru cost estimates are based on experience with Kamburu power station and bid prices for major contracts and ample provision has been in- cluded for physical contingency (20% for civil works, 10% for equipment) to provide for unforeseen construction problems. However, considering the amount of rock excavation involved, cost increases above the amounts included in the estimates for physical contingencies are possible, which would change the structure in the cost streams of the alternatives compared. A relative cost increase of Gitaru (over the other costs included in the comparison) of 10% would reduce the equalizing discount rate to 10%. A simultaneous increase in the cost of the gas turbines, which is less probable, since unforeseen con- struction problems are not expected, would result in an equalizing discount rate of 10.5%. 9. The comparison of the two basic alternatives includes a slow drop of 2% per year until 1980 in "real" fuel prices from its end 1974 level of Ksh 500 per ton of furnace oil in Mombasa; i.e., current fuel prices are expected to rise until 1980 at a somewhat lower rate than the capital and operating costs of the two alternatives. A fall in "real" fuel prices of 7% per year until 1980 from their present level would reduce the equalizing discount rate to 10%, and unchanged "real" fuel prices, i.e. fuel prices which rise at the same rate as the other commodities included in the compar- ison would result in an equalizing discount rate of 12%. 10. The growth of demand has been projected on the basis of a detailed analysis of future electricity consumption of large industrial consumers and on the correlation between demand of the remaining consumers and the expected development of Kenya's economy. If the expectation of economic growth in Kenya--a slow-down in 1975 and 1976, and a recovery with a return to the previous economic trend in 1977--are too optimistic, then the load growth could be lower than projected. A lower load growth would lead to a reduction in fuel consumption if gas turbines are installed first, and to a longer period of under-utilization of generating capacity if Gitaru is commissioned in 1978. A reduction in load growth by 10% would reduce the equalizing discount rate to 9%. 11. A simultaneous occurrence of two of the three events analyzed above --an increase of Gitaru capital cost, a sharp drop in "real" fuel prices, a reduction in demand growth by 10%--would reduce the equalizing discount rate to 8%. Under conditions most unfavorable to the strategy of building Gtaru first with all three events occurring simultaneously, the equalizing discount rate would fall below 7%. However, the likelihood of a simultaneous occurrence is small. The mission estimates that the likelihood of a drop in load growth ANNEX 13 Page 4 of 7 pages by 10% is 25%; of 10% higher capital cost of Gitaru 33%, and of a sharp drop in "real" fuel prices 25%. The joint probability of simultaneous occurrence of two or three of the events, therefore, would be less than 10%. May 1975 ANTNEX 13 Page 5 of 7 pages KENYA GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPNENT COIPANY LIMITED Calculation of Equalizing Discount Rate Cost in a: Million Develonment Strategy: Gitaru First 275 kV Gas Kindarama Oprat. & Fuel Total Year Gitaru Line Turbines III Maint. Cost Costs 1975 6.1 - - - 6.1 1976 9.4 - - - - 9.1b 1977 8.9 - - - - 9 11.3 1978 5.2 0.4 - - 0.2 0.6 6.4 1979 2.1 4.1 O0L4 - 0.2 0.7 7.5 1980 - 2.7 1.4 - 0.2 0.9 5.2 1981 - 0.5 1.4 - 0.4 1.5 3.8 1982 - - 1.2 0.4 0.4 2.4 4.4 1983 - - 0.3 1.2 0.4 3.3 5.2 Development Strategy: Gas Turbines First 1975 _- - - o.4 1976 - - - 0.4 - o.4 1977 - - 0.4 1.2 - 2.6 L.o 1978 6.1 - 1.4 - 0.1 3.1 10.7 1979 9.4 0.4 1.4 - 0.1 4.3 15.6 1980 8.9 4.1 1.2 - 0.2 5.5 19.9 1981 5.2 2.7 0.3 - 0.4 1.5 10.1 1982 2.1 0.5 - - 0.4 2.5 5.5 1983 - - - 0.4 3.6 4.0 Equalizing Discount Rate: 11.3%0 If the estimated amounts of tied aid are shown in the capital cost streams at the time the actual payments are made the equalizing discount rate improves slightly to 11.5%. AINEX 13 Page 6 of 7 pages KENYA GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPkAY LIMITED Local and Foreign Costs of Projects (K£I Million) Local Foreign Total Gitaru Civil Works 6.7 13.8 20.5 Electro-Mechanical Equip. 1.4 8e6 100 Engineering 0.3 3,0 3.3 Total 8.h 25.4 33.3 Gas-Turbines Civil Works 0.5 0e2 0.7 Equipment 0.5 3.4 3.9 Engineering 0.1 0e2 0.3 Total 1.1 3.8 4.9 275 kV Line Civil Works 0.6 0.2 0O8 Equipment 1.3 5.5 6,8 Engineering 0.2 0.4 o.6 Total 2.1 6.1 8.2 Kindaruma III Equipment 0.1 1.3 i.4 Engineering 00 0.2 0e2 Total 0O1 1.5 1.6 Grand Total 11.7 36.a e48.5 FNge 7 0!7 pag&s GITARU H7DROELCTRIC PROJECT TANA RIVMR DEVLOPMT COMPANY LJaTED EZUaate of local Costs at Shidow Prices Costs Fstimated Cost Estimates Shadow Price at Shadow Prices in X£ MiMlion Ratio in Ei, Million Gitaru Civil Works Unskilled Labor 2.h 0.75 1,800 Cement 1.0 0.82 0.820 Fuel 0.8 0.90 0.720 Fuel (Diesel) 1.0 0.45 01450 Transport of imp. goods (Road) o06 0.72 O.432 Other (Timber Hard- ware, etc.5 0.9 °.90 0.720 Total 6.7 4.942 ELectro Mechanical Equipment Unskilled Labor 0.2 0.75 0.150 Skilled Labor 0.5 0-75 0.375 Transport (Rail) 0.7 0.89 0.628 Total 1.4 il48 Engineering 0.3 0°75 0.225 Total Gitaru 8.4 6.315 Gas Turbines Civil Works Unskilled Labor 0.2 0.75 0,150 Cement 0.2 0.82 0.164 Fuel, Steel, Trans- port 0.1 0.90 0.090 Total 0,5 0.404 Ecuipment Transport (Rail) 0,5 0.89 02445 Engineering 01 0.75 0,075 Total Gas Turbines 1.1 0,9214 275 kV Line Civil Works Unskilled Labor 0,2 0.75 0.150 Cement 0,1 0.82 0,082 Fuel, Steel, Trans- port 0.3 0,90 0.270 Total o.6 0.502 Equinment llnakilled labor 0.6 0.75 0.450 Skilled Labor 0.3 0.75 0.225 Transport (Road) 0.3 0.72 0.216 Fuel, etc. 0.1 0-90 0-°90 Total 1.3 0.981 Engineering 0,2 0.75 0.150 Total 275 kV Line 2.1 0.633 Kindaruxaa III Transport 0.1 0.89 0.089 Total 11.7 8.961 Fuel 0°95 Operation and Maintenance 0,80 ANNEX 14 Page 1 of 3 pages KENYA GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED Method and Assumptions Made to Determine the Rate of Return on Investment 1. The rate of return on the investment is defined as the equalizing discount rate between all project related capital and operating costs and the revenues (over 50 years) attributable to the project. 2. The capital costs of Gitaru, which include the costs of the third unit to be installed in 1982, are estimated at April 1975 constant prices. The investments in distribution and secondary transmission, necessary to supply the power generated by Gitaru to the consumers are part of EAP&L's development program for the period 1977 to 1982. The economic life of Gitaru was assumed to be 50 years and of transmission and distribution equipment 25 years. Operating costs have been estimated by the Consultants. 3. Shadow pricing was applied to foreign cost and unskilled labor. The shadow exchange rate was assumed to be 33% above the official exchange rate and local unskilled labor was shadow priced at 75% of actual cost. 4. The revenues attributable to the project, are Gitaru's estimated output reduced by losses in transmission and distribution (about 15% of units sent out) and multiplied by EAP&L's average sales price per kWh as of April 1975. Sales of Gitaru power will start in 1978 with 334 GWh, rising to a maximum of 761 GWh in 1986; thereafter they remain constant. The applied average sales price, based on EAP&L's present tariff system, has three components: (i) A base price of Ki 25.3 in 1978, K4 25.1 in 1979 and Ki 24.8 in 1980 and thereafter; (ii) A Government tax of K4 1 per kWh; and (iii) The fuel oil price surcharge, which will vary depending on the amount of energy generated by thermal power. EAP&L forecasts a fuel oil price surcharge per kWh of KE 0.1 in 1978, El 0.3 in 1979 and El 0.8 in 1980. Mission estimates of the fuel oil price surcharge in the following years are: KE 1.1 in 1981, K4 1.4 in 1982 and KE 1.6 in 1983 and thereafter. ANNEX 14 Page 2 of 3 pages 5. The streams of costs and revenues are presented in the table on page three of this annex. The rate of return on investment is 14.3%., 6. The rate of return on the investment is sensitive to changes in costs and revenues. A 10% increase in total costs would reduce the rate from 14.3% to 12.2%, and a drop in growth of demand by 10% results in a rate of 13.6% A joint cost increase of 10% and reduction in the demand growth of 10% would result in a rate of return of 11.8%. May 1975 ANNEX 14 Page 3 of 3 pages KENYA GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED Calculation of the Rate of Return on Investment (K£ Million) Costs Distribution Operation & Total Year Gitaru Development Maintenance Costs Revenues Difference 1975 4.6 - 8.0 - 8.0 1976 12.0 - - 12.0 - -12.0 1977 10.8 1.8 - 12.6 - -12.6 1978 7.1 1.8 0.4 9.3 4.4 - 4.9 1979 2.6 2.4 0.6 5.6 5.8 + 0.2 1980 _ 2.4 0.6 3.0 6.9 + 3.9 1981 0.8 1.5 0.7 3.0 7.9 + 4.9 1982 2.3 1.1 0,7 4.1 8.6 + 4.5 1983 0.7 - 0,7 1.4 9.4 + 0.8 1984 - - 0.7 0.7 9.8 + 9.1 1985 - - 0.7 0.7 10.3 + 9.6 1986-1999 - 0.7 0.7 10.4 + 9,7 2000 0.4 . 0.7 1.1 10.4 + 9.3 2001 1.6 _ 0.7 2.3 10.4 + 8.1 2002 1.6 1.8 0.7 4.1 10.4 + 6.3 2003 o.4 1.8 0.7 2.9 10.4 + 7X5 2004 - 2.4 0.7 3.1 10.4 + 7.3 2005 _ 2.4 0.7 3.1 10.4 + 7.3 2006 - 1.5 0.7 2.2 10.4 + 8.2 2007 - 1.1 0.7 1.8 10.4 + 8.6 2008-2024 - - 0.7 0.7 lOe4 + 9.7 Rate of Return on Investment: 14.3% ANNEX 15 Page 1 of 2 pages KENYA GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED History of the Power Companies 1. The Kenya Electricity Supply Industry is presently comprised of three companies: (a) The East African Power & Lighting Company Limited (EAP&L) (b) The Kenya Power Company Limited (KPC) (c) Tana River Development Company Limited (TRDC) The East African Power & Lighting Company Limited 2. EAP&L, which is the sole distribution company, was incorporated in 1922 by the amalgamation of two undertakings which had supplied Nairobi and Mombasa since 1907 and 1909, respectively. It is a local private enter- prise company with authorized share capital of KL 10,000,000 of which KL 9,741,504 is issued. In addition, loan capital amounting to KE 4,165,653 was outstanding as at the end of 1973. Although formerly operating through- out Kenya, Uganda and Tanzania, its activities have been confined to Kenya since 1964 due to purchase of the Uganda and Tanzania undertakings by the respective Governments. The Company is primarily concerned with the com- mercial distribution of electricity throughout Kenya, but presently it also generates the entire power requirements of the Coast System, provides the necessary thermal back-up for the main grid system and operates generating stations in centres not connected to the grid. It also co-ordinates all sources of power, and staffs and manages the other two Companies (KPC and TRDC). 3 In 1970, the Government acquired a controlling interest in EAP&L when it made a successful bid for all the shares on the London Register. Since then, the Government has been purchasing shares as they come in the East African Market and its total holding together with. that of Government- controlled agencies is now probably in the neighborhood of 60%. The Kenya Power Company Limited (KPC) 4 In 1955 EAP&L was faced with the problem of financing the con- struction of a 132 kV transmission line to interconnect the power systems of Uganda and Kenya as well as other expansion requirements. The Company did not consider it practicable to raise the required finances through new equity issues because of conservative dividend policies due to political pressures and the need for increased self financing. There was also revived ANNEX 15 Page 2 of 2 pages political pressure for nationalization, and the company concluded it was inevitable and desirable to increase public ownership and direct Government participation in the power industry. Accordingly, it was decided to form a new company, KPC, in 1955, with an issued nominal capital of Kb 100 held equally by EAP&L, the Government and Power Securities Corporation Limited (PSC). 1/ KPC's function was to construct the transmission line and to take over two hydroelectric stations belonging to EAP&L on the Tana River. KPC financed its requirements through issuance of LStg. 7.5 million of debenture stock, the payment of the debt service on which was guaranteed by EAP&L's undertaking to purchase KPC's bulk supply at ascertained cost. 5. In accordance with its policy of increasing its participation in the electricity supply industry, the Government acquired 100% of KPC's issued share capital by buying out Power Securities Corporation Limited in 1971. Tana River Development Company Limited (TRDC) 6. A forecast of load growth after Kenya's achievement of independence in December 1963, indicated that it would be necessary to commission further major generating capacity by 1967-68 and a re-appraisal of the Seven Forks Scheme (the harnessing of the hydro potential of the Upper Tana) established Kindaruma as the most economical first stage development. TRDC was formed in 1964 to finance the Kindaruma hydroelectric development for much the same reasons as led to the formation of KPC. The share capital of TRDC is a nominal Kb 100 which was held equally by EAP&L, the Government, Power Securities Corporation and Commonwealth Development Corporation (CDC) until February, 1971 when the Kenya Government acquired the entire stock. CDC supplied LStg. 3.5 million of a total of about LStg. 6 million of loan capital which was arranged for the Kindaruma Project.. It is Government's intention that TRDC should complete the construction of the Seven Forks development. Kamburu Stage 1, comprising the first two generating units, was commissioned in July, 1974 and the third unit is scheduled for commissioning in 1976. Gitaru, the last of the Seven Forks Hydroelectric Projects, is scheduled for commissioning in 1978. Like KPC, TRDC sells its entire output to EAP&L at ascertained cost. May 1975 1/ PSC is a UK finance house which arranged the financing of most of EAP&L's development in the past. It is also the parent company of EAP&L's engineering consultants. tKENYA ARNEX 16(a) GITbARU HJYDROELEC,RIC . ROJEC-. AN.R 77VER DEVELOPHENT COP'PANY LIMITED ,b7w~~~~~~~~i DECsBRq lc St4 -~8 CKL THOUSMs ESTIMATED ASSETS PLANT IN nPERATION S514 5975 20939 2200F 22030 2'20G3 69627 71867 71867 LESSI DFPRECIATION 47 5 716 2 ljt tk . 2 p533 398P 8490 _- - -- -- -_ -- - - --- -- --- - ------- ---- - --- -- ------- _____ _ _ ___ _ NET PLANT t2 s36 20223 ?0esa 20417 t ,997 67094 6t77q 66377 WORK IN PROGRESS 566? t1675 ;.011 1027R 25!1? 0 a 0 R&E FUND TNVEST 106 134 t61 18J ?13 23A 263 28P 313 CURRENT ASSFTS -CASH AND 8ANKS -OEPOSITS & DEBTRS !40 2 37 0 0 0 0 TEMPORARY SURP I 0 0 300 894 779 1688 297P 4346 TOTAL 14f 2 37 300 Aq4 779 168P 2978 4346 TOTAL A113o 17' 9S 21434 'l162o 4ti6U+ $16t7 695045 71149 71n36 LIABILTIES EQUITY -CAPITAL 1/ 1 '764 437t ,¼o0 6000 6000 6000 -DEV. SURC.i OTiLR 2' i 1363 17* 787 3L44 -39 8862 1C630 120n7 -GAIN ON FXCH 792. 649 645 -R&F FUND V' 1i4 -; 2 263 78P. 313 TET REP LESS *E 37 71iY X-2 2658 2977 3630 __G.-- ----- ----- ---- ---- --__----wO_r_ ----- -- -- --- e_ _ ;.________ _ TOTAt _ - 2625 ,822z 548! I 0222;, i';l l 8428 ?7Co4 22595 LONG TERM tF8T 5/ 4207 '7ˇOt 26i39 3h4.3 90617 06 60 0 4844! CUR'NT LIABTLITTES -FAPL 0 C, 0 ? ,q 0 O -OTHER 1! 205 73-i 0 0 TOTAL 55Q 263 994' 0 O 0 0 0 0 ----- - ------- _-_---*- ----__ __ ----_-__- -_ -- v- ---- - ---- ------- TOTAL 113) 07tq9 2I43 4 31620 43 . 6904S 7 1!4, 71036 DE8T/DEST & ECUITY 81 83 3 4 8! 79 70t 73 71 68 ]1 T AS DEVELOPMENT SURCHARGE INCLUDED IN THE PRICE OF ELECTRICITY SOLD TO IT, AND CII) PROCEEDS FiR&5 INSURANCE CLAIM, Kt148 THOUSAND, RECEIVED IN 1970 IN RESPECT OF DELAYED COMMISSIONING OF K_NDRA2UMA PROJECT AND THE RESULTING INCREASED CAPITAL COST. .3/ THE ESTIMATES DO NOT ALLOW FOR ANY INTEREST INCOME, GAINS OR LOSSES WHICH MAY BE REALIZED ON RESERVE AND EQUALIZATION FLND INVESTMENTS. 4/ TRDC DOES NOT USE DEPRECIATION ACCOUNTING BUT INSTEAD CHARGES AS AN EXPENSE THE AMOUNT SPENT EACH YEAR TO REPAY LOANS. THE CUMULATIVE AMOUNT OF DEBT REPAYMENTS EXCEEDS THE AHOUNT WHICH IS PROVIDED IN THIS STATEMENT FOR DEPRECIATION AND CONSEQUENTLY THIS EXCESS IS SHOWN AS A PART OF EQUITY. ./ DETAIL OF 'LONG TERM DEBT' OF 1974 IS PROVIDED IN ANNEX 21. KENYA ANNEX 16(b) GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED REVENUE ACCOIJNTS FOR THE YEARS 1972 - 1980 CK6 THOUSANDS) ACTUAL ESTIMlATED 1972 1973 1974 197S 1976 1977 197A 1979 1980 OPERATING RFVENUFS __________________ nPERATION K ADMIN 65 7S 96 165 180 196 405 1442 482 INTEREST 348 338 818 1427 1184 1341 2712 4231 4193 DFBT REPAYMENT 258 278 283 848 III? 1051 775 1770 2159 R&E FUND 25 25 25 2S 2S 2; 2S 2S 25 …______ ------- ------- ------- ------- ------- ------- ------- ------- TOTAL 696 716 1222 2465 2701 261F 3917 6468 bA99 DEv SURCHARGE 447 480 375 44 11457 1991 3627 1777 136R ASCFRTAINED COST 1/ 1143 1196 1S97 2509 4158 46h0 7544 824S 8227 OPERATING EXPENSES _____.____________ OPER t ADMIN 65 79 96 16S 180 196 405 442 48? DEPRECIATION tl1 119 125 438 459 460 460 145S :50? TOTAL 183 194 221 603 639 656 865 1897 tQ84 OPERATING INCOME 960 1002 1376 1906 3s19 3950 6679 6348 6243 OTHER INCOME NET 382 152 -145 0 0 0 0 0 0 NET INCOMF REF TNT 1342 1154 1231 1906 39:Q 3950 6679 61*8 h243 INT CHARGFD OP 348 338 818 1427 1384 1341 2712 423t 4193 NET INCOME 994 816 413 479 2135 2600 3967 2117 2050 1/ TRDC'S REVENUES ARE DETEPMINED IN ACCORDANCE WIlIt THE DEFINITION OF 'A!JTURE STOCK; TO BE REDEEMED AFTER TiJE EiiD OF 1974. AT THlAT TIME, ALMOST THE ENTIRE KL2724 THIOUSAND) OUTSTANDItNG IAS OWINED BY COMHONWEALTH DEVELOPMiENT CORPORATION AND COULD ONLY WE REDEEM1ED THiROUGH CALL FOR T,lE SINKING FUND AT A PRICE OF 101J. OF FACE VALUE, 2/ ILONG TERM DElT' COMiPRISES 5 1/2' DE5ENTURE STOCK (STERLING) 1975/85. KENYA AM= 17(b) GITARU HYDROELECTRIC PROJECT TtiE KENYA POWER COMPANY LIMITED REVENUE-ACCOUNTS FOR THE YEARS 1972 - 1980 Ck THOUSANDS) ACTUAL EST IMATED 1972 1973 1974 197S 1q76 tq77 1978 1979 198n OPERATING REVENUES …_____._..________ OPERATION & ADMTN 177 161 174 183 197 21? 23? L 247 268 INTEREST t81 160 155 126 1t6 86 66 46 26 DEBT REPAYMENT 257 282 286 320 34f 36n 380 400 a2n RIE FUND 22 2? 23 ?3 23 23 23 23 PURCHASED ENERGY 525 599 398 S98 390 398 39R 39p A.S4ERTAINED COST,1, Itb2 1224 t?l1 1050 in64 1079 1099 1til 1115 OPEPATING EXPENSES __________________ OPER 6 AOMIN 177 161 I7q 183 197 21? ?3? ?47 RhR PURCHASFD ENERGY 525 599 573 398 398 390 398 39P 39p DEPRECIATTnN 197 P20 200 200 ?on Pon 200 Pon 200 TOTAL 899 960 9d7 781 795 A1o 830 809 R66 OPERATING INCOME 263 264 26L 2 ?69 269 269 ?69 269 OTHER INCOMF NET 353 144 -169 0 0 n 0 NET INCOMF REF TNT 616 408 95 269 Ph9 ?60 269 269 269 INT CHARGFD OP 181 160 159 126 106 A 66 46 26 NET INCOMF 435 248 -60 143 163 183 ?03 223 243 1/ KPC'S REVENUES ARE DETERMINED IN ACCORDANCE WITH THE DEFINITION OF ASCERTAINED COST IN ITS BULK SUPPLY LICENCE, DESCRIBED IN ANNEX 21. K.ENYA A\mNEX 1l&a) GITARU -IYDROELECTRIC PROJECT TiE KENYA POIJER COMrAPNY LIMIlTED TAtJA RIVER DEVELOPMENT COMiPAt-Y LIMITED COl;3I.JED 3ALANCE SHEET AS OF DECEtMBER 31, 1972-1980 ACTUAL ESTIMATED 1972 1973 1974 1975 1076 1977 1978 1979 198ia ASSFTS PLANT IN npFRATION 1 264 13965 ?28949 29618 29h4an 2964e 77?37 791177 791477 LFSS: DFPRECIATTON 3473 3792 411' 4755 59ial/ 607/i h7S4 83814 10091 NET PLANT 9791 9773 24432 ?4963 24226 23966 70903i 110HR 6918k WORK IN PRQGRFSS 5662 11675 10,1 l0278 251'2 G0343 0 n In R&E FUlND TNVEST 425 483 941 S89 637 6h8F 733 781 s2s ClJRRENT ASSFTS -CASH AND BANKS -DEPOSITS g DE8TRS 283 105 211 n 0 n O o TFMPORARY SURP 0 n 0 370 964 6.1p 1751 3048 41416 -EAPL 0 0 10 0 0 n 0 TOTAL 283 10t 221 370 9/ 8149 178 3018 01416 TOTAL 1661 22036 26209 36100 90 39 64143 72994 74917 7a43¶ LIABILITIFS E QUIT Y -CAPITAL 0 V I 1764 4371 600on 60O 60n0n 6000 =DEV SURCH & OTHER 888 1368 1743 1787 324/i 523 886? 106314 12n07 -GAIN ON EXCH 1449 1727 1394 1394 1394 13914 t394 139/1 1914 -R9E FUND 5114 579 648 h96 7414 79? 8140 88P 9336 -DEBT REP LESS DEP 204 445 689 1219 201? 276c 32?O 3775 465? 'DF1HT RFDEMPTN DISC 699 699 697 697 697 697 697 647 697 TOTAL 3754 4818 9171 7557 1216? 16883 21093 23393 P2968 LONG TERM DFBT 11738 t6785 19926 28543 38477 a1856n 519a41 ,1924 48141 CUR'NT LIA8TLITTES -EAPL 70 163 267 o n n 0 n -OTHER 599 270 841 0 n n 0 n n TOTAL 669 433 1to8 0 o n- 0 0 0 TnTAL 16161 22036 26205 36100 90939 65443 7299a 74917 714s1 DEaT/DEBT & EQUITY 76 73 79 73 76 74 71 59 66 STATUTORY 8SE RATE OF RETURN 1/ 18926 25240 29560 39896 54752 69983 77237 79477 79477 AVERAGE NET FIXED ASSETS 2/ 9926 9732 17102 30292 4224n 56624 67206 70796 70237 1/ UNDER SECTION 47 OF THE ELECTRIC POWER ACT OF K,rENYA, A POWER COMPANY 'S TARIFFS WOULD 3E SUBJECT TO REDUCTION TO THE EXTENT OF FIVE-SIXTHS OF THE AMOUNT BY W4HICH OPERATING INCOtME BEFORE INCOME TAX FOR ANY YEAR EXCEEDS 12 1/2 OF T,1E 'CAPITAL EXPENDED ON T,iE UNDERTAKING' AS OF THE END OF THE YEAR. THIS STATUTORY ASSETS BASE IS SH{OWN AS THE TOTAL OF FIXED ASSETS AT COST INCLUDINIG ',IORK Itl PROGRESS AND INVENTORIES AT TiHE Er-D OF iACH YEAR. 2/ AVERAGE NET FIXED ASSETS EXCLUDE WORK IN PROGRESS TO 1974, AtlD INCLUDE IT TiHEREAFTER. KENYA ANNEX 18(b) GITARU HYDROELECTRIC PROJECT TN-E liEtNYA CEllER COMPANoY LIMIITED TAN4A lIVER DE:V/ELOP,MENiT COMiPANY LI1MITED COUIUINED REVENUE ACCOUNTS FOR T 1E YEAPS 1Q72- 9Z0 (iK6 T:iOUSANDS) ACTUAL ESTIMATED I1972 1973 197 1980 OPERATING RFVENUlES _______.__________ nPFRATION K ADMYN ?42 236 270 348 377 40P 637 68A 790 INTFREST 929 498 973 1S93 11190 1427 277R 4777 4219 DEBT REPAYMENT 919 960 s6Q 1168 149? 1413 11595 217A 2597 RPE FlND 47 4J7 4R Li8 4A 4R /4A A 48 Pl fCIASEr ENFRGY Sp5 599 957 398 398 398 39$ 398 TOTAL ---S- 1940 2433 3S1S - 76- 3-9- 5016 798; 7994 DEV SURCHARGE 447 480 379 44 1497 1991 3627 1777 13b8 ASCERTAINFD CnST 2309 24?0 280A 3's9 922? 5h8r M643 9359 936? OPERATING EXPENSFS __________________ OPER & &DMTN 242 ?36 ?70 348 377 4o0 637 689 750 PUPCHASF[i FNERGY 525 i99 13 698 S98 698 q99 398 39$ DEPRECIATION 31*, 319 325 638 6bq bhn 66n 16b9 170? TnTAL tn82 1154 1168 138/4 I'13' 14b6 1699 ?749 g890 OPFRATING INCOMF 1/ 1223 1266 1640 2179 ;788 421o 6'4p 6617 h51? ,OTHEN INCOME NET - 735 296 -314 0 nn n NET INCOMF PEF INT 4958A 16? 132h 2179 3788 4214 6914j 6617 - 91? INT CHARGFD OP 92q 498 973 1993 1 l9(f 1427 27tA 4?77 4? 1 NET INCOMF 14I 1064 393 62? 2?9R 279? 417n 234n 2?93 RATL RETURH -STATUTORY 2/ 6.5 5.0 5,5 5.5 So 9 8,3 8.2 ADJUSTED NET OPERATING INCOME AS S OF AVERAGE JET FIXED ASSETS q/ 11.3 12.4 9.2 6.9 0.7 7.2 10.1 9.1 9.90 1/ INCOtME OF TRDC IS EXEMlPT FROM INCOME TAX. SECAUSE OF T1E LARGE WEAR AND TEAR ALLOWANCES ON FIXED ASSETS ALLOlEII FOR TAX PURPOSES, KPC HAS ACCUMIUJLATED LOSSES lliICH tMAY BE CARRIED FOR;lARD AND APPLIED AGAIrNST FUTURE iNCOi1E. FOP. THIS REASON, KPC IS NOT EXPECTED TO AAVE ANY TAXABLE INCOtME DURING THE PERIOD COVERED BY TlIS ANNEX. THE OPERATING EXPENSES, THERE- FORE, DO NOT INCLUDE ANY PROVISION FOR INCOMIE TAXES. 21 SEE NOTE 1 TO ANNEX 13(A). 31 THE ADJUSTED NET OPERATING INCOME USED FOR CALCULATING RATE OF RETURN IS THE NET OPERATING INJCOME S-OUNr ItJ THIS STATEMiE,JT LESS MISCELLANEOUS INCOME CREDITED TO OPERATING EXPENSES TO 1974 AND AN AMOUNT OF NOTIONAL TAX ON KPC PROFITS. RATE DASE USED IS NET FIXED ASSETS IN SERVICE TO 1974 ArND NET FIXED ASSETS INCLUDING !WORK IN PROGRESS TH/EREAFTER. ON NET FIXED ASSETS IN SERVICE, TIE RATE OF RETURN FOR YEARS 1975 TO 1980, RESPECTIVELY, IS 8.5, 15.1, 17.2, 14.5, 9.1 AND 9.0. KENYA AN= C19(a) GITARU IYDROELECTPIC PROJECT THlE EAST AFRICAN POWER AND LICTHTING COMPANY, LIMITED BALANCE SHlEET AS OF DECEMEBER 31, 197?-1980 (KI&TH0US AN DS ) ACTUAL ESTIMATED tk72 t973 1974 Mg75 X9IQ i977 1978 1979 1980 ASSETS PLANT IN nPFRATTON ?7h6 279,52 29281 32922 38474 4017"1 41974 43874 4s874 LESS: DEPRECIATION l0829 11669 12486 13934 14713 16090 17528 t9n31 ?0602 NET PLANT 1497t 15887 16795 19388 23761 24084 24446 24843 25?72 WnRK TN PR1GRFSS A91 1217 2748 36SS n A 3000 6000 8000 L/T INVFSTMFNTS 1/ 2378 4009 3863 4934 SL13? 9621. 9500 4701 3892 CURRENT ASSFTS -CASH AND PBANKS -CASH & DFPOSITS 3732 1334 2S42 0 0 A n 0 TEMPORARY SURP 0 0 0 183 8R n 149 984 2612 -DERTRS & PREPMNTS 1298 1324 1r9c99 1709 I899 2009 2tS5 230F 24S9 -INVENTORIES 1609 1720 19S;9 2004 2094 2t04 2194 220o 2?S4 -DUF FROM KPC/TRDC 70 163 2S7 0 0 0 0 TOTAL 666.9 4941 6308 3892 3q97 410q 4t98 9493 7321 TOTAL 24909 256S4 ?9714 I1469 S329n 338!1/ 37404 41n07 4414P89 LIARILITIFS --------_ 22_==-= =-:- _=m--=-- -=== = EQUTTY -CAPITAL 9742 9742 97£42 974? 9 4Y? '7 974? 974? 974? -RETAINED EARNINGS 5999 6384 7269 8205 927R 9%; 11623 1333R 1S326 TOTAL 1970t 16126 177 17Q947 19n20 197Tn 2.36s 2308n 290b8 LONG TERM DEBT 4979 41{66 68 9 7228 6711 6nir 7704 9261 10243 CUR'NT LIABILTTIES -ACCOU)NTS PAYABLE 1898 2QDF 2443 2468 2493 ZS1M 2543 2568 2593 -CONSUMER DEPnSITS 933 697 612 707 73? 757 782 807 AS? -PROV FOR TAXES 1198 lriO >J71,S 763 1241 IO? 1793 1900 1714 -OVERDRAFTS 0 a O 0 0 84 0 n O TOTAL 3e27 3712 4i58 3938 4466 5091 9119 5279 5139 DEF TAX PROVISION Ioor, 16s0 1650 2356 2h93 2976 3217 3421 4035 TOTAL ?4909 29694 ?29714 31469 32A9O 33R14 37404 41037 44489 DEST/DEBT E enliTY 23 Zi. 2 -2 2- 23 27 2! 29 STATUTORY BASE FOR - RATE OW RETURN 2P 28296 30489 33983 38581 4G528 42278 47128 520C78 56128 AVERAGE NET FIXED ASSETS j2/ 14991 15429 16341 21293 23402 23922 25765 29144 32057 1/ 'L/T INVESTMENTS' COMPRI.SE (I) GOVERNMENT OF TANZANIA BILLS OF EXCHANGE WHICH WILL BE FULLY REPAID IN 1975, AND (II) LOANS TO TRDC. 21 SEE NOTE 1 TO ANNEX 18(A). I/ SEE NOTE 2 TO ANNEX 18(B). K>E,'IYA MflItb 12 GITARU HYDROELECTRIC PROJECT TilE EAST AFRtCAN POWER AND LIGHTING COMPANY, LlrI1TED REVENU ACCOUNTS FOR 1HE YEARS 1972 - 1980 (Kh THOUSANDS, EXCEPT AS OTHERWISE INDICATED) -.TH 7 ASj M ERATEE IN97I 998 ACTUAL 47 47 7 s7A1 1972 1973 1974 175 1767 ENERGY SALES, GwH 795 860 925 1nos 1120 1?4s 1370 taq3 ' 162' OPFRATING RFYFNUES AT BASIC PATES 9122 9A76 10615 11357 125441 1382n 15070 16274 17r11? FUEL SURCHAQGF 0 0 12S3 1456 2?40 ?'49n 2740 2908 0256 TARIFF TNCRFASE 0 0 0 567 1?54 138? t507 1627 17SS TOTAL SALES PEV 9t22 9R76 1186, 1-330 16030 116;9? 1931? 20087 P2'596 OPERATING EXPFNSES OPERATInN a ADMTN 3231 3740 S431 590A 6106 7h97 467; S34oi .,20 KPC ASC COST 1162 12?4 1211 1050 10601 1079 1n99 llll 1137 TRDC ASr COST 696 716 1222 2465 2701 261F 3917 646A 6099 TRDC DEV SURCH 447 1180 375 04 1457 1Q91 3627 1777 136,0 DFPRECIATION 10n40 1000 905 1048 1179 1377 1438 1501 1971 TAXES 131q 1700 900 1469 1570 1268 2034 2100 ?32P TOTAl 7095 8900 t01t4 1 4 14011 16040 1078B 183°7 19781 OPERATING INCOMF 1227 976 1744 1396 1953 1h4R 2S29 25sn 2015 OTHER INC(IE NET 1/ Q13 653 332 717 410 410 400Q 390 377 NFT INCOMF REF INT 214A 1629 2n76 2113 237t 2050 2929 2970 319r INT CHARGED OP 381 348 339 317 402 487 0403 ;9q 300R NET INCOME 1759 1281 1737 1796, 1929 1571 2056 2571 2011 AVERAGE SALES REVENUE PER ?tli IN KENYA CENTS 22.95 22.997 25.66 26.63 28.64 28.42 23.20 27.93 27.76 RATE OF RETURN STATUTORY 2/ 9.3 9.1 8.0 7.6 3.) 7.1 9.3 ').1 9.3 ADJUSTED NET OPERATING INCOME AS °i OF tIET FIXED ASSETS j./ 3,. 6.9 11.2 6.9 8.7 7.2 10.1 9.1 9.0 1/ 'OTllER INCOME NET' IS MAINLY GAINS AND LOSSES ON UR: LOANJS REPAYA3LE IN L STERLING ARISING FRON, CHANlGES IN TIlE VALUE OF - STERLING IN RELATION TO TiiE OFFICIAL EXCHiANGE PATE OF KL. IN ADDITION, IT INCLUDES GAItN ONl DISPOSAL OF FIXED ASSETS AND UNCLAIMIED CUSTOMEgS' DEPOSITS CREDITED TO INiCOtME. 2/ SEE NOTE 1 TO ANlNEX 1'(A) 3/ TIE ADJUSTED NET OPERATING ICOtE USED FOR CALCIJLATING RATE OF RHTURN IS T.It TOTAL OF NET O1ERATING INCOME SiODUN IN' TrlIS STAT.ME'T AND RENTAL INCOME. RA,TE ;ASE- USED IS NET FlN-D ASSETS I'l SE.RIC- To 1974 AND NiET FIXED ASSETS INCLUDING 'dORK IN PPOGRESS, T:;EREAFTER. ON i;ET FIXED ASSETS IN SERVICE TitE RATE OF RETURI4 FOP YEARS 1975 TO 1933 RESPECTIVELY IS 8.2, 9.4, 7.2, 10., 1G.U, ANO 11.j. KENYA ANNEX 19(c) GITARU HYDROELECTRIC PROJECT, TrIE EAST AFRICAtJ POVIER AND LIGHTING COIMPANIY. LIMITED ESTItMATED SOURCES AND APPLICATION OF FUNDS, 1975-1980 (KS THOUSANDS) 1975 1976 1977 197A 1978 1979 19q30 TfOTAI INTERNAL SOURCES -NET TNCfME BEF IN 2113 2371 205R 292q 9471 2970 3192 -DEPRECIATION 1048 1179 1377 1.438 504? 1503 1571 .DEF TAX 706 337 283 ?41 1567 204 h ! INVEST DECREASE 0 0 0 121 121 799. 8o9 TOTAL 3867 3887 3718 I4729 1201 5U7h 618 OPERATIONAL RE- DUIREMFNTS -WORKING CAPITAL -237q -328 389 -6111 -2959 43 336 -DEBT SERVICE 701 1003 1186 1151 0in44 1242 966 -DIVIDENDS 856 A5 8 56 856 3424 R56 856 TOTAL -A19 1531 2431 1366 4509 2141 2158 --- -- ------ ------- _------ ------- ------- ------- NET AVAILABIE FROM OPERATIONS 4686 2356 1287 3363 1169? 3335 4028 CONSTRUCTION REQUIRFMFNTS NORMAL 2175 1600 1700 1A0n 7?75 jQ0O 2000 N-M LINE o n 0 3000 3nOO 3000 2000 KTrUVU 7 1873 297 0 n 2170 0 0 GEOTHERMAL 9oo n 0 n 900 0 n INVFST INCRFASE 671 59A 489 e 1758 0 0 TOTAL 5 1Q 249F 2189 4800 14703 4900 4000 BALANCE TO FINANCF 933 13Q 90? 1437 3011 1565 -28 FINANCED RY: GLYN 71-80 716 411 0 n 7&n 0 0 PROPOSED FOR N-M 0 n 0 2400 21J00 2400 1600 TOTAL 716 411 n 2410n 3160 2400 1600 SllRPLUS(DFFTCIT) OF FUNnS 183 -9r -902 Q63 149 835 1628 ACCUMULATED 183 88 -814 14Q 149 984 261? KENYA ANXf 20(a) GITARU HYDROELECTRIC PROJECT THE P.ENYA POWER COMPANY LIM1TED, TANA RIVER DEVELOPMENT COMPANY LIMITED THtE EAST AFRICAN POWER AND LIGrHTING COMAPNY LIMITED CO11INED BALANJCE SJEET AS OF DECEMBER 31. 1972-1980 (KL THOUSANDS) ACTUAL ESTIMATED T72 973 M7W 1975 1976 1977 1978 1979 1980 ASSETS PLANT IN OPFRATION 39060 41117 57830 62540 681h14 6q8It 119211 1?335¶ ¶5351 LESS: DEPRECIATION 14129R 15457 16603 18289 20127 22164 24262 27420 30693 NFT PLANT 24762 25660 41227 44251 47987 4765n 94949 95931 94658 WORK IN PROGRESS 6553 12892 3759 I3933 25112 4Q343 3000 60on 8n00 L/T TNVFSTMFNTS 966 832 710 589 637 68F 733 781 829 CURRENT ASSFTS -CASH AND BANKS OPERAtIONAL REQU 4005 1435 2672 0 n 0 n TEMPORARY SURP 0 0 0 553 1052 35 10; '403? 7028 -DERTRS & PREPAMTS 1268 1328 1636 1705 1855 200F 21S5 ?30' 2455 -INVENTORIES 1609 1720 1954 2004 2054 2104 2154 2204 2254 TOTAL 6882 4483 6262 4262 o961 ql44 6216 8541 11737 TOTAL s9163 43867 51958 63035 78697 92A22 104898 111253 115224 LIABILITIFS ___________ EGUITY -CAPITAI 9742 9742 9742 11506 t1413 1574? :5742 t5742 15742 -RETND FARNGS TROC 2009 2825 3238 3717 585? 84lt3 12428 14545 16I595 -RE7ND EARNGS KPC 1745 1993 1933 2076 2?39 242? 2625 2848 3091 -RETND EARNGS EAPL 5959 6384 7?65 8205 9278 999s 11623 13338 15326 TOTAL 19455 20944 22178 2504 3148? 361P '12418 46473 50754 LONG TERM nF8T 14480 17291 23131 31237 40056 48951 54145 56084 55296 CUR'NT LIABILITIES -ACCOUNTS PAYABLE 2497 2275 3284 2468 2493 25 8 2543 2568 2q93 -CONSUMFR DFPOSITS 533 657 682 707 732 757 782 807 R32 -PROV FOR TAXES 1198 I050 1033 763 1?41 loo? 1793 190Q 1714 TOTAL 4228 3982 4999 3938 4066 4?77 5118 5275 5139 DEF TAX PROVN 1000 1650 1650 2356 2693 297A 3217 3421 4035 …______ ------- ------- ------- ------- ------- ------- ------- ------- TOTAL 39163 43867 S19s8 63035 78697 92822 104898 111253 115224 ==:==== ======= ====:=== ====:=Z= =%=z =====~= =-====2 = =:=====:::: :==::=== DEBT/DEBT & EQUITY 43 45 51 55 S6 57 56 55 52 STATUYTORY BASE FOP 12 IS5115 36 RATE OF RETUR, _1/ J7222 5?2 6353 TT 95280 I1UI- 1 5 =555 i 5 AVERAGE NET FIXED ASSETS 2 249I7 25211I 33443 51585 65642 80546 92971 99940 102294 1/ SEE NOTE 1 TO ANNEX 18(A) 2/ SEE NOTE 2 TO ANNEX 18(B) KENYA ANNEX 20(b) GITARU HYDROELECTRIC PROJECT THE KENYA PO!IER COtMPANY LIIMITED TANA RIVER DEVELOPMENT COM1APNY LIMITED TrlE EAST AFRICAN POWER AND LIGHTING COMPANY, LIMITED CONiJINED REVENKUE ACCOUNT FOR THiE YEARS 1972 - 1980 (CK ThOUSANDS) ACTUAL ESTIMJATED - ?72 1973 1974 197S 1976 1977 1978 1979 1980 OPERATING RFVFNUES __________________ AT BASIC RATES 912? 9876 10615 11357 125U1 1382n 15070 16274 17982 FUEL SUPC,ARGE n 0 1293 1456 2?40 ?t49( 2740 2986 3256 TARIFF TNCRFASE 0 0 0 567 1?54 138; 1507 1627 1758 TOTAL SAIES REV st22 9876 118b8 13380 16038 1769? 19317 20887 2259h OPERATING FXPENSES __________________ OPERATI7N g ADMIN 3473 3976 5701 6256 6U83 810F 5310 60t310 72?70 PURCHASFD ENERGY S25 599 573 398 39A 39P 39A 39A 398 DFPRECIATTON 1355 1359 1310 1686 183R 2037 ?098 315A 3?73 TAxES (EAPL) 1319 100 900 1469 1578 1281 2D34 2104 228 TOTAL 6672 76314 8484 9809 10297 11829 9A4c 1i1h69 13269 OPERATING, YkC'MF- 24t0 2242 3384 3571 5741 58&7 9a77 9197 9327 OTHER INC.-MF NET 1587 870 -166 370 R0 S8r 80 8nf NET I%C:G>-- ;F !'T 4037 3112 3218 3941 5821 5947 9557 9277 9i07 INT CHARGF'! cP 8U,9 767 1128 1923 15914 158k 29011 4366 4270 NET TNCnMF 3188s 2345 2090 2418 4;?27 4363 6696 4911 5137 RATE OF RETURN STATUTORY 1/ 8.2 7.2 6.9 6.5 7.3 6.4 9.3 3.7 3.7 ADJUSTED NET OPERATING INCOME AS % OF AVERAGE FIXED ASSETS 2/ 10.2 9.2 10.4 6.9 8.7 7.2 10.1 9.1 Cl.o 7/ SEE NOTE I TO ANNEX .3(A) 2/ SEE NOTE 2 TO ANNEX 18(A) KENYA WNW 20( GATIAR.U tHYDROELECTRIC PRCLiECT THE KENYA POVIER COMPANY LIMITED TANA RIVER DEVELOPMENT COMPANY LIMITED T_E EAST AFRICAN POWIER AND LIGHTING COMA?kVN LliMITED COMBINiED SOURCE AND APPLICATION OF FUNDS, 1975 - 1980 (K6 THOUSANDS) 1975 1976 1977 197R 1978 1979 1980 INTFRNAL SOlJRCES -NET INCOME BFF IN 3941. 5821 5947 9 597 ?5?6f% 9?77 9407 -DEPRFCTATION 1686 1838 2037 2n0A 7659 3158 3273 -DEF TAX 706 337 283 241 1Sb7 20 4 6114 -INVESTMENTS 121 0 0 121 0 0 TOTAL 63454 2.4Z7 11 9 S4 A - 1-239 13?9a OPERATIONAL RE- QUIRFMFNTS -WORKING CAPITAL -1149? -328 389 -&41 -2072 43 336 -DEPT SERVICE 2984 3riol 3585 46k3 147 7 6580 hhb5 -DIVIDENDS 896 856 8Sh P56 3t124 A56 k56 TOTAL 2148 4 43 i PiQ830 4PSP 7 479 7A50 NET AVAILABLE FROM CPERATIONS 4106 3 q, 3437 7s< A J 5Ib0 5t4 4 CONSTRUCTTON REQIJ RFMFNTS -GITARU PROJECT 9179 1 4 15231 7?<14 14669/i 2240 0 -OTHER TRnC 9b 2 0 0 93 0 0 -EAPL 4S4 A P. 1700 4'0 12945 490 4000 L/T INVFSTMENTS n4 a I44 1 F TOTAL 1a 84 L 6e,l l6979 '21O? 607 6 74AB A 404A BALANCE Tn FTNANCE I r;3 7-AI 342 .m 4:>i?2 ?o 8 -1396 FINANCEn BY: -TROC nEBT 8P51 10686 1 0896 4916 3 41Jo 1753 A -FAPL DEBT 716 41 0 2400 3160 2400 1600 -EQUITY 1764 2W07 1629 0 6n0o 0 0 TOTAL 11331 13X37 12525 6936 44129 4153 1600 SURPLUS(DFFICIT) OF FUNDS 193 49 -1017 1A72 1907 2125 2996 ACCUMULATED 553 1052 35 1907 1907 4032 7028 DEBT SERVICF COVER 2> ?.3 2.6 24 1.9 2 ANNEX 21 Page 1 of 5 pages KENYA GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED Notes and Assumptions for Financial Statements Revenues 1. EAP&L's revenues are based on the present tariffs to June 1975 and, thereafter, an increase of 10% over the present rates has been assumed. In addition, a fuel surcharge is included in revenues which, in accordance with the present Government regulations,-allows EAP&L to recover the bulk of the increase in fuel cost over a fixed level of fuel price. This will be replaced by a new surcharge at 4 cents per KWh after June 1975. Sales volume is assumed to increase by about 11% in 1976 reducing gradually to about 9% annually from 1979. 2. Changes in EAP&L's tariffs require Government approval. Under the Electric Power Act of Kenya, tariffs must be reduced when operating in- come before income tax for any year exceeds 12-1/2% of the capital expended on the undertaking. The base for measuring the rate of return for this statutory standard is equivalent to the gross fixed assets, including work in progress, plus inventories. EAP&L's earnings have never exceeded the statutory limit and, in recent years, the highest statutory return achieved was about 9.8% in 1970. 3. TRDC's revenues include a Development Surcharge, described in para 6 below, as part of ascertained costs, the amount payable by EAP&L for electricity purchased by it from TRDC. 4. KPC's revenues are estimated in accordance with the definition of Ascertained Cost in its bulk supply licence described in the next para. Ascertained Cost 5. The bulk supply licences of KPC and TRDC define ascertained cost (on the basis of which their revenues are determined) as the actual audited cost each year for the following items: (a) Operations and administration. For KPC this also includes the cost of purchasing power from Uganda; (b) interest and redemption payments for debt; (c) income or other taxes. TRDC's income is exempt from payment of income tax and KPC has had no taxable in- come because of large depreciation allowance deduct- able for tax purposes (see footnote 2 to Annex 18 (b); and ANNEX 21 Page 2 of 5 pages (d) such other charges as the Government shall consider proper to be allowed. Under this authority a Develop- ment Surchage (described later in this Annex) is added as a part of ascertained cost of TRDC. In addition, ascertained cost includes small annual appropriations to a Re- serve and Equalization Fund which, with the interest on the securities in which it is invested is available for future capital expenditure or to cover deficiencies in income and to pay for abnormal expenses. Development Surcharge 6. Development Surcharge being paid by EAP&L to TRDC was principally designed to provide the latter with a part of the funds required to pay the local currency costs of its Kamburu Project (IBRD Loan 745-KE). The surcharge has been paid by EAP&L, since 1971, as part of the cost of elec- tricity it purchases from TRDC and is determined each year so that the rate of return on average net fixed assets in service of TRDC and KPC combined is the same as that earned by EAP&L. The payment of surcharge will continue to provide to TRDC funds for part of the local currency requirements of the Gitaru project. The surcharge payment is intended to result each year in similar rates of return for TRDC/KPC combined and EAP&L, measured in terms of net operating income as a percentage of average net fixed assets in service for the years 1971-1974, and average net fixed assets including work in progress, thereafter. The latter method will provide larger amounts to TRDC during the construction period when the requirement of funds for the project will be substantial. This will also reduce the income tax burden of the power sector during the construction period of the project by increasing TRDC's income which is exempt from income tax and by reducing EAP&L's taxable income. Provision for the surcharge has been made in the financial state- ments beyond the construction period of the project to provide for major capital expenditure in the future. Operating Expenses 7. An escalation in operating expenses, excluding fuel cost, of 9% per year has been assumed after 1974. Fuel cost is based on the existing prices, and fuel quantitites as shown in the development program. Operating expenses of Gitaru station, estimated in the light of experience on the present hydroelectric stations of TRDC, have been escalated at 9% per year. Fixed Assets 8. Fixed assets are recorded at cost, except for EAP&L's assets before December 31, 1947 which were at net book value. Depreciation rates used to 1973 are those prescribed under the Electric Power Act. These range from 1% of the cost for permanent hydraulic civil engineering works to 20% for tools, implements and loose plant and 22.5% for motor vehicles, and are generally in line with the rates customarily applied in the power industry. ANNEX 21 Page 3 of 5 pages The average combined depreciation rate for the three companies for the years 1972 to 1974 works out to 3.4%. Depreciation rate used for TRDC after 1974 is 2.09% of cost of fixed assets at the beginning of each year. Current Assets and Liabilities 9. Inventories, trade debtors, trade creditors and consumers' depo- sits of EAP&L are estimated to increase every year by about (KL thousands) 50, 150, 25 and 25, respectively. Financing of the Gitaru Project 10. The project cost, including interest during construction, will be financed by TRDC as follows: Equivalent KL Millions US$ Millions Issue of Share Capital to the Government 6.00 16.80 IBRD Loan 22.50 63.00 Suppliers/Export Credits 7.79 21.81 Loan From EAP&L 2.00 5.60 Other Local Loans , 3.86 10.81 Internal Cash Generation 6.40 17.92 Estimated Project Cost 48.55 135.94 11. In addition, preliminary works estimated to cost KL 1.29 million are to be financed out of a local bank loan of KL 1.5 million 12. Local and foreign loans required for the Gitaru project are assumed to be on the following terms: Period Amount in Rate of of Grace KL Millions Interest Loan Period IBRD 22.5 8.5% 25 5 Suppliers/Export Credits 7.79 10 % 13 3 Local Loans 3.86 10 % 25 5 EAP&L Loan 2.00 Nil 6 3 ANNEX 21 Page 4 of 5 pages Interest during construction on the suppliers'/export credits and the local loans is assumed to be payable by TRDC; but on IBRD loan it will be provided out of the loan amount. Loan from EAP&L to TRDC is assumed to be free of interest since any interest payable to EAP&L will have to be reimbursed to TRDC by EAP&L as part of the ascertained cost. In addition a local bank loan of K£1.5 million for preliminary works has been arranged at annual interest rate of 9% and repayable in 4 years. Provision for Deferred Income Tax 13. Depreciation on fixed assets of EAP&L expected to be allowed for determining the income tax payable during the period to 1980 is considerably more than the amount provided for in the financial ststements. A provision for deferred tax liability has, therefore, been made each year in EAP&L's accounts to reflect the tax saving due to difference in the two depreciation amounts. This provision relating to the 1971-1980 period will decrease in future years when the tax depreciation on those fixed assets will be less than the accounting depreciation and, consequently, the tax payable on the higher taxable income will include an amount relating to the income of past years. The present tax rate of 45% has been applied to income of future years. Share Capital 14. Additional share capital of K£6 million will be issued by TRDC to the Government of Kenya. The payment will be made by the Government to TRDC during the period 1975-1977 and will be used by TRDC for the expenditure on the project. Long-Term Debt - TRDC 15. Loan capital of TRDC outstanding on December 31, 1974 consisted of the following: Kg Thousands William and Glyn, 5.5% 'D' Stock - Total Outstanding 276 Less: Portion Allocable to EAP&L 48 Net Amount Payable by TRDC 228 Commonwealth Development Corporation 'A' Stock 2,730 IBRD Loan for Kamburu, 745-KE 7,551 SIDA Credit, Relent by the Government to TRDC 2,199 EAP L&'B' & 'C' Stock for Kindaruma 921 'E' Stock for Kamburu 2,773 Government Loan for Kamburu 8o0 17,202 16. The 'A', 'B' and 'C' debenture stock are at annual interest rates ranging from 7.75% to 9.625% and repayable in eciuated annual installments of principal and interest over the period 1971-1987. The 'D' stock is repayable in 19 semi-annual installments ending December 1976. The 'E' stock is at 9% annual interest and repayable in 21 installments over the period 1975-1995. ANNEX 21 Page 5 of 5 pages SIDA credit to the Government for Kamburn project has been relent to TRDC by the latter on the same terms as the IBRD loan 745-KE which are 7,5Z . interest and repayment in 43 semi-annual installments commencing July 1, 1975. Government's loan to finance the Kamburu project cost overrun is on the same terms as the IBRD loand 745-KE. Dividends 17. EAP&L has been paying dividends on its ordinary shares at the rate of 10% of the par value since 1972, when it was raised from 9%. It is assumed that the 10% rate will be maintained unchanged through 1980. General 18. The figures for the years 1972 and 1973 in the financial statements are based on the audited accounts for those years, and for 1974 on provisional accounts. ANNEX 22 Page 1 of 4 pages KENYA GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED Economic Analysis of EAP&L's Tariffs 1. EAP&L's tariff system differentiates between the following eight con- sumer groups: (1) Large Domestic (5) Industrial (2) Small Domestic (6) Off-Peak (3) Small Commercial (7) Street Lighting (4) Large Commercial (8) EAP&L's Employees A special feature of this grouping is the off-peak tariff for water heating and irrigation pumping. A load of about 20 MW (of a total peak demand of 170 MW) for these two purposes is connected to a central "ripple control" installation and switched on only during times of low demand (during the night and the day off-peak hours). The creation of this off-peak tariff group has enabled EAP&L to keep its annual system load factor as high as 70%. 2. Another special feature of EAP&L's tariff is the fuel oil price sur- charge clause, which was applied for the first time in 1974. This clause goes into effect, if the price for the fuel used in Kipevu power station in Mombasa differs from the "basic price" of KSh 110/ton of furnace oil prevail- ing prior to the large increases at the end of 1973. With the fuel oil price surcharge, EAP&L is able to recover part of its additional fuel cost from the electricity consumers. The surcharge is calculated on the basis of the dif- ference between the "basic fuel price" and the prevailing price (KSh 500/ton in September 1974) and an "economic factor" which is determined monthly by the Ministry of Power. The equation for the calculation of the fuel oil price surcharge has the following form: Surcharge in Ki _ f x Fuel Price less "Basic Price" x 0:21 Thermal kWh per kWh sold 5 Total kWh During the first seven months of application of the surcharge, the "economic factor", f, and the resulting surcharge were fixed at the following levels: Economic Factor f Surcharge Kd/kWh April 0.5 4.7 May 0.5 4.8 June 1.3 4.5 July 1.3 5.2 August 1.2 5.6 September 1.9 3.9 October 1.4 2.1 ANNEX 22 Page 2 of 4 pages From July 1, 1975, the fuel price surcharge will be absorbed into the tariff by the addition of Kg 4 per kWh to all tariffs. The basic fuel price in the clause will then simultaneously be increased to the then prevailing fuel price. 3. Following a cursory examination of EAP&L's tariff structure it is apparent that improvements can be made. Some of the possible improvements are discussed in the following paragraphs. 4. The present structure does not reflect the cost of power generation, since basically, it does not differentiate between electricity supplied during different times of the day and different times of the year. During the two rainy seasons of the year (April to June and November to December) large amounts of cheap hydro power are available, while during the two dry seasons (February to March and September to October) generation is more expensive with a larger component of thermal power. Similarly, there is a difference in costs of generation for power supply during the night, when demand is low, and the hours of peak demand during the day. Therefore, charges should be higher during the dry season and during peak hours and lower during the rainy season and during off-peak. A season and a time-of-day tariff, reflecting these cost differences could appropriately be applied to industrial and larger com- mercial consumers, where additional metering costs would not matter. This would encourage these consumer groups to adjust their pattern of electricity consumption to the cost of supply, which,. in turn, would improve EAP&L's sys- tem load factor, which now has a tendency to drop. 5. The difference between the average price per kWh for the different consumer groups in EAP&L's tariffs (see attached table) would appear to be larger than can be justified by the difference in the cost of supply. Dif- ferences in the average price per kWh are only justified in so far as consum- er groups use electricity during different times of the day and of the year or because of lower related costs. To quote an example, the cost to small commercial consumers is on average KO 41.1 per kWh whilst the cost to large commercial consumers, generally connected at the same voltage level is much lower at Kg 23.6 per kWh. On the other hand, only a 2% discount is granted to large commercial and industrial consumers who have a high voltage supply. EAP&L's tariffs should be restructured to reflect more correctly the differences in distribution costs. 6. Declining block tariffs applied to all tariff groups with the ex- ception of large domestic consumers, give a reduction to the large consumer, which is, in most cases, not justified by the lower cost of supply. The last blocks in the industrial tariff - KO 6 per kWh and KSh 18 per KVA of peak de- mand - probably do not cover the cost of supply, which means that other con- sumer groups are probably subsidizing large industrial consumers. Declining blocks should be abolished in favor of a uniform tariff, perhaps even intro- ducing an increasing block tariff for households with a cheap first block for small consumers. ANNEX 22 Page 3 of 4 pages 7. The application of the fuel oil price surcharge has rad-cally changed EAP&L's tariff structure. The surcharge is applied to all kWh consumed, not only to consumption during times of thermal generation - and it is added as an absolute amount-. This has had a different impact on different consumer groups: Large industrial consumers are now paying between 15% and 43% more for electricity, while the cost to small domestic consumers has been increased by 2% to 5% only. The surcharge has its main adverse effect on the off-peak ta- riff, which applies to consumption of hydrogenerated power, but has been in- creased by the highest rate of all tariff groups (up to 45%). The attractive- ness of off-peak consumption has been reduced, and if implemented for a long time the surcharge will have a reverse effect on EAP&L's system load factor. A revision of EAP&L's tariff structure should provide for the present fuel oil price surcharge to be integrated into the tariff system. The surcharge clause could remain part of EAP&L's tariff bylaws to protect EAP&L financially, if fuel prices should increase further. The clause should, however, be changed in the following two respects: (i) The surcharge should only be levied on kWh generated by thermal power, not on all kWh supplied. Thus, the tariff would remain cost reflecting; (ii) the surcharge should be calculated so as to relate to future consumption. At present, the amount to be sur- charged during the followirg month is based on fuel consumed during the past month. Since fuel consump- tion changes according to season, this time-lag of two months often leads to a high surcharge in a month of low thermal generation and vice versa. 8. The large difference in average revenues for different consumer groups indicates that the present tariff is not equitable. For example, in 1974 re- venue per kWh was K4 25 for large domestic consumers but Kg 119 for small do- mestic consumers. Large industrial consumers on special agreement paid only K4 13 on average. The tariff for small domestic consumers could be lowered substantially by cross-subsidization from other consumer groups. Since this group consumes only 1% of total electricity sold, the subsidy would be small. K E N Y A GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED EAP&L's Tariff System Charge Per kWh (Based on Monthly Minimum Charge Average Revenue - consuaptioq _ Fixed Chat_ Letr MouLthi _ Per Month Other Criteria Per kWh in 1974 GROUP 1: Domestic 14¢ Sh 30 25.3¢ GROUP 2: Small Domestic 0 to 30 kWh - 100¢ Over 30 kWh - 70¢ Sh 4 Sh 10 109.1¢ GROUP 3: Small Commercial 0 to 200 kWh - 75¢ 201 to 500 kWh - 35¢ Restricted to maximum of Over 500 kWh - 30c Sh 30 7,000 kWh per month 41.1¢ GROUP 4: Large Commercial 11¢ 0 to 100 KVA-Sh 45 per KVA of MD Restricted to consumers exceeding Over 100 KVA-Sh 30 per KVA of MD - 7,000 kWh per month. (2% discount for high voltage connection). 23.6c GROUP 5: Industrial 0 to 400 kWh per KVA-10.6c 0 to 60 KVA-Sh 30 per KVA of MID Restricted to consumers exceeding Over 400 kWh per KVA- 6.0¢ 61 to 1,000 KVA-Sh 20 per KVA of MD 21,000 kWh per quarter. (2% dis- Over 1,000 KVA-Sh 18 per KVA of MD - count for high voltage connection) 17.8¢ GROUP 6: Off-Peak Consumption (1) 12¢ Sh 14 (heating and Irriga- For up to 116 kWh tion pumping) per month ) 12.5¢ (2) 12¢ Sb 160 For connected loads exceeding 70 kW - GROUP 7: Street Lighting 0 to 3,000 kWh-66¢ 3,001 to3O,000 kwh - 32¢ Over 30,000 kWh - 26¢ or Over 400,000 kWh - 224 - Available 11 hrs per night only 27.84 GROUP 8: EAP&L Employees 10e Sh 5 10.54 Special Contracts (to Group 5) 13.04 Total 25.7¢ Note: 1. GROUP 5: Industrial, is a quarterly tariff but rates have been shown on a monthly basis for simplicity of comparison. GROUP 6: Off-Peak Consumption, two alternative tariffs are illustrated. m 0 43 Hay 1975 mOQ '0 ANNEX 23 Page 1 of 2 pages KENYA GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED Loan Capital and Security Arrangements of EAP&L, KPC and TRDC 1. This annex describes the loan capital of power companies of Kenya and the arrangements securing this loan capital. The amounts stated represent the total amount of the loans contracted and not the amounts outstanding, which are given in Annexes 15 (a), 16 and 18 (a). All refer- ences to L are references to TStg. EAP&L 2 EAP&L's loan capital amounting to i 10,862,240 comprises loans from Commonwealth Development Corporation (CDC) (L 350,000, h 2,944,000 and b 1,500,000), and from Glyn, Mills and Company syndicate (E 2,887,520, L 216,400, L 2,724,320 and E 240,000). The CDC loan of L 350,000 was secured by (i) EAP&L's 8-1/2% Debentures 1971-85; and (ii) a Trust Deed dated November 1, 1968, which provided for a first legal charge on specified leasehold properties of EAP&L. The L 2,944,000 CDC loan and the L 2,887,520 loan from the Glyn, Mills and Company syndicate were respectively secured by Debenture Stock 1975-91 and 1971-80 respectively, as well as a Trust Deed dated May 16, 1969. This' Trust Deed created mortgages and charges on certain of EAP&L's properties and assets and also stipulated that EAP&L was not to create any mortgage or charge ranking in priority to or pari passu with that mortgage or charge. The h 216,400 loan from the Glyn, Mills and Company syndicate represents the portion of the loan to TRDC referred to in item (iv) under TRDC below, which was used to purchase equipment for EAP&L and the debt service for which EAP&L has undertaken to reimburse TRDC. The i 1,500,000 CDC loan and Glyn syndicate loans of L 2,724,320 and L 240,000 were secured by Debenture Stock 1979-88, and 1978-80 respectively, as well as a supplemental Trust Deed dated August 29, 1974 which made these loans to rank pari passu with the loans secured by the Trust Deed dated May 16, 1969. KPC 3. In 1955 KPC floated a i 7,500,000 loan by the issue of a i 7,500,000 5-1/2% Debenture Stock 1975/85. b 3,500,000 of this loan was subscribed by CDC, and the balance was underwritten for public sale. The Debenture Stock was secure by a Trust Deed dated June 27, 1956, which, among other things, created a first legal charge and a floating charge in respect of KPC's property and assets and stipulated that KPC was not to create any further ANNEX 23 Page 2 of 2 pages charges or incumbtances upon its undertakings and assets ranking in priority to or pari passu with the charges created under the Trust Deed except in special stated circumstances. The Trust Deed also provided that any scheme for the reconstruction should require an extraordinary resolution of the stockholders which means in effect the consent of three-fourths of the stockholders. TRDC 4. TRDC's loan capital amounting to about KS 21 million came from CDC, the Glyn, Mills and Company syndicate, EAP&L, IBRD, Government of Kenya and out of a SIDA credit to the Government of Kenya. Security for the loans consists of (i) b 3,742,911 A Debenture Stock 1971-87, (ii) Shs 9,240,500 and Shs. 5,380,000 B Debenture Stock 1971-87, (iii) Shs. 6,040,000 C Debenture Stock 1971-87, (iv) b 1,844,661 D Debenture Stock 1967-77 (of which b 216,400 is underwritten by EAP&L), (v) Shs 81,300,000 E Debenture Stock 1975-96, (vi) US$23,000,000 Bonds 1975-96 to be issued to IBRD, and (vii) a Trust Deed dated May 26, 1966 as modified and extended by two Supple- mental Trust Deeds dated December 5, 1968 and December 16, 1971. The Trust Deed provided for the creation of a floating charge of TRDC's undertakings, property and assets and also required TRDC (i) not to (A) create without the Trustee's consent any mortgage or charge ranking in priority to or pari passu with the floating charge or (B) create any specific mortgage or charge over any of its immovable property or other assets without the prior written consent of the Trustee; or (ii) not to borrow money without the written consent of the Trustee or have any subsidiary, except with the prior written consent of the Trustee. The Trust Deed also provides for the creation and issue in specified circumstances of additional stock to rank pari passu in point of security with the original stock created under the Trust Deed. These circumstances include the need to secure any loan TRDC would need to finance later stages of the Seven Forks Hydroelectric Project. May 1975 ANNEX 24 Page 1 of 2 pages KENYA GITARU HYDROELECTRIC PROJECT TANA RIVER DEVELOPMENT COMPANY LIMITED Project Monitoring There are a number of areas described in this annex which are key factors in the efficient operation of the utility and the success of the Project. These have been discussed with the Borrower. EAP&I is a sophisticated and reasonably well staffed utility with well developed commercial, statistical and engineering departments where up-to-date records on system technical perfoxmance, load and con- sumer statistics are maintained. -There is therefore no need to establish a monitoring system for these aspects. Main areas for establishing a monitoring system are described below: 1. Construction of Project Performance achievements for construction should be measured monthly in terms of percentage completion at the end of each month against the target completion date for each phase of bonus earning construction shown in the bidding documents for main civil and plant contracts. 2. Staffing Staffing levels should be monitored bi-annually under the following headings, referring to target esta bLishments in each category. Targets for 1975-1977 (a) Management 26 (b) Professional Staff (including Accountants) 150 (c) Technicians and other Supervisory Staff (including Computer Personnel) 250 (d) Clerical (including Secretaries & Typists) 450 (e) Unskilled Workers (including Auxilliary Staff) 1,600 (f) Staff in Training 160 ANNEX 24 Page 2 of 2 pages Overall, the number of employees should not normally exceed about 25 per 1,000 consumers. Where staffing levels are excessive, efforts should be made to reduce staff through limitation on recruitment, early retirement, etc. 3. Training Personnel under training, totalling 160 in 1975, should be monitored on an annual basis under the following headings, and the numbers in training under each heading should be reviewed annually to ensure that these are commensurate with normal growth and with replaceaent and turnover requirements: (a) Graduate Engineers in University (by classification) (b) Graduate Engineers on works or field training (by classification) (c) Technicians in training (by classification) (d) Craftsmen in training (by classification). 4. Rural Electrification Annual records should be maintained, showing against the targets which have been set: (a) Number of townships connected, under EAJPL and Government financing respectively; (b) Number of connections in each area; and (c) KWh sales in each area. 5. Financial Indicators (a) Cost of fuel used in power generation should be compared quarterly with estimates, as follows: i) total fuel cost ii) quantity of fuel used iii) fuel cost per unit of thermal generation iv) fuel cost per unit of total power sales v) fuel cost recovered from customers as surcharge (b) Average revenue per unit sold. May 1975 IBRD 3169R2 'MAY 1975 S U D A N 'KENYA POWER SYSTEM .... - - k- .... ~-~* . . .GENERATING STATIONS, & MAIN .. 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