FiE COPY REST RI C TED Report No. TO-697a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION MALAYSIA NATIONAL ELECTRICITY BOARD APPRAISAL OF PORT DICKSON AND PRAI EXPANSION PROJECT (FOURTH POWER PROJECT) December 10, 1968 Public Utilities Projects Department CURRENCY EQUIVALENTS US$1 = 3. 00 Malaysian dollars (M$) M$l = US$ cents 33.33 M$l = US$333,333.33 NEB's fiscal year ends August 31 MEASURES AND EQUIVALENTS Mw = Megawatt = 1,000 kilowatts (kw) Gwh = Gigawatt hour = 1, 000, 000 kilowatt hours kwh = Kilowatt hour = 1, 000 watt hours kv = Kilovolt = 1, 000 volts kva = Kilovolt amperes = 1, 000 volt amperes psig = Pounds per square=0. 07031 kilograms per inch guage square centimeter OF = Degrees = 9/5 x degrees centigrade Fahrenheit plus 32 One mile = 1.6093 kilometers One square mile = 259 hectares (ha) Load factor = kwh generated in year maximum demand in kw x 8760 ABBREVIATIONS AND ACRONYMS NEB = National Electricity Board PCR = Preece, Cardew & Rider, London PRHE = Perak River Hydroelectric Company M4ALAYSIA NATIONAL ELECTRICITY BOARD PORT DICKSON AND PRAI EXPANSION PROJECT (FOURTH POWER PROJECT) TABLE OF CONTENTS Page No. SUMMARY i 1. ITITRODUCTION 1 2. THE ELECTRIC POWER SECTOR 1 Facilities of the National Electricity Board 3 Perak River Hydroelectric Company 3 Penang City Council 4 3. THIE BORROWER 4 Tariffs 5 Accounting and Audit 6 Capital Structure and Financial Position 6 Earnings Record 8 4. THE PROJECT 9 Prai Thermal Power Station Port Dickson Thermal. Power Station 10 Transmission Lines and Substations 11 Bilateral Financing 12 Summary of Cost Estimates 13 Engineering Construction and Procurement 14 Future Expansion Program 15 5. JUSTIFICATION OF THE PROJECT 15 Estimate of Sales 15 Estimate of System Demand 17 Plant Operations 17 Choice of New Generating Capacity 18 Rate of Return 18 6. FINANCING PLAN AND FUTURE FINANCIAL POSITION 19 Financing Plan 19 Future Earnings and Financial Position 21 7. CONCLUSIONS AND CONDITIONS OF LENDING 22 This report has been prepared by Messrs. R.V. Sear and C. de Beaufort. M.ALAYSIA NATIONAL ELECTRICITY BOARD SUMrARY i. At the request of the National Electricity Board (NEB) an electric Dower project has been appraised which consists of: the Second Stage of the Prai Steam Station; the Second Stage of the Port Dickson Steam Station and, transmission lines and associated substations to deliver the power to the load centers. ii. The total cost of the project is estimated at US$29 million. The generating plant for the Port Dickson station is expected to be financed from US$10.1 million of bilateral credits. The proposed Bank loan to NEB would cover the foreign exchange costs of the Second Stage of the Prai Sta- tion, miscellaneous items for the Port Dickson Station, the transmission ex- pansion, and interest during construction, to give a loan amount of USt11.5 million. The remainder of the project financing would be provided by about US$7.4 million from TEB's own resources. All orders for equipment would be awarded on the basis of international competitive bidding. iii. The Project is needed to meet the growing demand for power on IWEB's interconnected system and it is the most economic means of meeting this demand. iv. NEB is organized as a modern public utility corporation and has a high degree of autonomy. Its stock is almost entirely owned by the M4alaysian Government. The financial record of NEB is good and its present Position is sound. The financing plan for the period covering the pro- nosed Project is satisfactory. Net internal cash generation is expected to finance about 45% of its capital requirements during the next five years. Contributions towards construction by the Government and consumers would raise the financing from sources other than borrowings to almost 53%. NEB is expected to earn a satisfactory average return of 8.5% on net fixed assets in operation during the next five years. v. The Project is suitable for a Bank loan of US$11.5 million for a period of 20 years, including a grace period of four years. MALAYSIA NATIONAL ELECTRICITY BOARD PORT DICKSON AND PRAI EXPANSION PROJECT (FOURTH POWER PROJECT) 1. INTRODUCTION 1.01 This report covers the appraisal of a project of the National Electricity Board of Malaysia (NEB), consisting of the Second Stage of the Prai Thermal Station with a capacity of 30 Mw, the Second Stage of the Port Dickson Thermal Station with a capacity of 120 Mw, and the construc- tion of associated transmission facilities. 1.02 The estimated cost of the Project is about M$87 million (US$29 million). The estimated foreign exchange cost, including interest during construction, is M$72.6 million (US$24.2 million). The Bank has been re- quested to finance M$34.5 million (US$11.5 million) of the foreign exchange cost. The remainder is to be financed from bilateral credit sources and from NEB's cash generation. 1.03 The Borrower would be the NEB to which the Bank has made three loans amounting to US$117.5 million. The first loan (210-MA) of US$28.6 million, net of cancellations, was made in September 1958 for the first stage of the Cameron Highlands hydroelectric scheme. A second loan (350-MA) of US$51.9 million was made in July 1963 for the second stage of the Cameron Highlands scheme, the first stage of the Prai Thermal Station, and the ex- pansion of transmission facilities. In July 1966 a third loan (458-MA) of US$37 million was made for the first stage of the Port Dickson Thermal Sta- tion, the installation of additional generating units at the Cameron Hiigh- lands hydroelectric scheme, the second stage of Johore Bahru and the exnansion of transmission facilities. Projects covered by the first two loans have been completed and are operating satisfactorily. Construction of the project covered by the third loan is proceeding very well and completion is expected to be on schedule. 1.04 The Project is the next logical step in the expansion of the NEB facilities. It was first discussed with the NEB in Mtarch 1968 during a project supervision inspection in connection with previous Bank loans. An application for a loan was received in May 1968 and Mr. R.V. Sear visited Malaysia in July 1968 to appraise the Project. This report is based on his findings and on information supplied by the NEB and its Consultants, Messrs. Preece, Cardew & Rider of London. It has been prepared by Messrs. R.V. Sear and C. de Beaufort. 2. THE ELECTRIC POWER SECTOR 2.01 Malaysia consists of the peninsula of Malaya (West Malaysia) which lies between Thailand and the equator, and the States of Sarawak and Sabah on the Island of Borneo (East Malaysia). The aggregate area of Malaysia is about 145,000 square miles and it has a population of about 10 million. 2.02 Malaya (West Malaysia) which is the part of Malaysia with which this report is concerned covers an area of some 68,000 square miles and has a population of about 8.3 million. A mountain range which divides the country over almost its entire length runs parallel to and about 50 miles from the west coast to form a continuous watershed from the Thailand border to Malacca. The population and commercial life of the country is concen- trated mainly in coastal areas on the western side of the mountain range. 2.03 Malaysia has no significant deposits of fossil fuels but it has an abundant rainfall and a number of water resources which could be de- veloped to provide hydroelectric power. Most of these are situated on the eastern side of the mountain range in areas remote from load centers. There are however resources which can be developed to supply load centers on the western side of the country, and one of these is the Cameron Highlands which has been developed with Bank assistance. A number of water resources are currently being studied. 2.o4 Historically the exports of tin and rubber have been the major source of growth for the economy of Malaysia. In the first half of the 1960's the Gross National Product maintained a rise averaging 6-1/2% a year mainly because of rapidly expanding public expenditures. Sharp drops in Malaysia's major export prices, especially of rubber and tin slowed down the growth rate considerably in the past two years to slightly below four per cent a year. The outlook for the immediate future is for a slight improvement, though still for a slower growth rate of GNP than in the first half of the 1960's. Public expenditures are expected to rise less fast. However, the development of manufacturing industries which has been moving forward rapidly during the last few years is likely progressively to make a significant contribution toward com=ensating for loss in the rubber and tin industries. 2.05 Electric power in Malaysia is provided principally by the NEB which serves the whole peninsula of Mlalaya with the exception of Penang Island which is supplied by a municipally owned plant and part of the State of Perak which is supplied by the Perak River Hydroelectric Power Company (PRHE). The two States on the Island of Borneo are supplied by the Govern- ment owned statutory authorities, the Sabah Electricity Board and the Sarawak Electricity Supply Corporation. The installed capacity of the entities is shown below. Installed Capacity (Mw) IEB 564 Perak River THydroelectric Company (PRHE) 145 Penang City Council 4o Sabah Electricity Board 20 Sarawak Electricity Supply Corporation 25 Total 79)b -3- Facilities of the NEB 2.06 NEB's total generating capacity of 564 Mw is made up of 264 Mw of hydroelectric plant and 300 Mw of thermal plant. Details of the plants are given in Annex 1. An additional 150 Mw of thermal plant is under con- struction under Loan 458-MA and is scheduled to go into service in 1969. This will bring the total installed capacity to 714 Mw. The proposed project would add another 150 Mw by 1973 and bring the total installed capacity to 864 Mw. 2.07 Nearly all of NEB's generating capacity supplies the Intercon- nected System which covers most of the western side of the peninsula and the Southern System around Johore Bahru (see Map). About 50 small isolated systems in other parts of the country are supplied by diesel generating plants with an aggregate capacity of about 60 Mw. 2.08 The Interconnected System is connected to the PRHE System. Under the terms of an agreement recently signed PRHE will purchase power in bulk from the NEB to meet its requirements in excess of that produced by its own generation plants (see Paragraph 2.11). The NEB interconnected system is also connected to the Penang City Council System but power is only exchanged in an emergency. 2.09 The NEB's hydroelectric plants have only limited storage capacity. Because of this the firm capacity of the Interconnected System was reduced during the 1968 dry season from the plant rating of 444 Mw to 309 Mw. Annex 2 shows the existing and proposed system installed capacity, dry sea- son capacity and dry season firm capacity. 2.10 NEB's main transmission system, some 450 route miles in length, operates at 132 Kv. It also has about 300 miles of 66 Kv and 435 miles of 33 Kv transmission lines. Distribution is carried out at 22 Kv and 11 Kv by some 1,600 miles of overhead lines and underground cables. Substation capacity is in excess of 1,700,000 Kva. Perak River Hydroelectric Company (PRHE) 2.11 This Company supplies part of the State of Perak under a con- cession granted in 1926 which extends until 2006. The Malaysian Government holds 51% of the shares of the Company and has the option to acquire the CDmpany in 1976 or at ten year intervals thereafter. The Government has not yet declared whether or not it will acquire the Company in 1976 but if it does the Company would probably be handed over to the NEB in exchange for an issue of NEB shares. The Company is NEB's largest customer and a long-term contract was recently signed for a bulk supply to enable it to meet its requirements in excess of that produced by its own generating plants. The Company's generating plant is old and inefficient and only produces about 640 million kwh per year. At the present time about 260 million kwh per year are purchased from the NEB and it is estimated that this will increase to about 800 million kwh per year by 1975-76. Penang City Council 2.12 Special provisions were made in the Electricity Ordinance of 1949 for the Penang City Council to continue to operate its own electricity system to supply the Island of Penang. It has a 40 Mw thermal generating station which was constructed in 1967 and which is interconnected with the NEB system by 33 Kv and 11 Kv submarine cables. 3. THE BORROWER 3.01 The Borrower would be the NEB, which was established in 1949 by the Government under the provisions of the Electricity Ordinance enacted that year. 3.02 The NEB is organized and functions as a modern public utility corporation and has a high degree of autonomy. It is both a regulatory and operating agency. It is charged with the operation of the electric instal- lations under its jurisdiction and the establishment of such new facilities as may be required. It regulates the production and use of electric energy in Malaya and grants licenses for the installation and operation of independent electricity works to be used for public or private purposes. The NEB has the power to set electricity tariffs without reference to other authority (see paragraph 3.09). 3.03 The Board of Directors of the NEB consists of a Chairman, Deputy Chairman and not more than ten or less than five other members. At the present time there are nine members. All members, with the exception of the Deputy Chairman who is also the General Manager, serve in a part-time capacity. Members are appointed by the Minister of Commerce and Industry for terms and subject to conditions, as he may determine. The present members are prominent in the political, labor and business communities and have been associated with the NEB for from three to five years. 3.04 Over the course of time the NEB has developed into a well or- ganized and operated utility. In the past, most key positions were occu- pied by foreigners, chiefly of British nationality. Following independence in 1957, the Government established the principle of Malayanization and by the end of 1967 all key positions were held by Malaysians. Only four for- eigners remain in advisory appointments which are expected to be terminated by the end of 1968. 3.05 Although most of the senior staff now in key positions have only held such posts for a relatively short period their performance to date has generally been satisfactory. It is, however, too early to make a meaning- ful judgment and the matter should be given special attention during project supervision visits. During negotiations assurances were obtained that dur- ing the life of the loan the Bank will continue to be consulted before appointments are made to the positions of General Manager, Chief Engineer and Chief Financial Officer. 3.o6 The policy of Malayanization was accompanied by a program of in- tensive professional training. Many potential officers and supervisory personnel were sent abroad, principally to the United Kingdom, for train- ing and have since assumed their new responsibilities. The Board has its own training center which has recently expanded its activities to include training programs for senior supervisory staff which terminate in a period of training abroad, as well as training programs for technicians, clerical staff, trade apprentices and plant operators. About 84 technicians, 40 clerks, and 220 trade apprentices and plant operators are presently under- going training. The training programs are comprehensive in scope and well administered. The NEB has approximately 8,700 employees which may be clas- sified as follows: (a) Management, professional engineers and accountants 305 (b) Technical monthly paid staff 1,632 (c) Non-technical monthly paid staff 1,858 (d) Semi-skilled and unskilled workers 4,902 Total 8,697 During the negotiations NEB confirmed that it intends to continue the train- ing program. 3.07 The ratio of consumers per employee is low, mainly because NEB's activities cover the whole peninsula of M4alaya which has many isolated com- munities supplied by their own diesel generating plant and also because of the amount of construction work carried out by the NEB's staff. The NEB is well aware of the situation and is taking steps to improve the ratio by keeping the number of new posts approved to a minimum and by increasing efficiency. The expansion of transmission facilities now taking place which will eliminate a number of diesel generating plants will help to improve the ratio. During the negotiations the matter was discussed with the NEB and an assurance was obtained that it will continue to improve the situation. 3.08 On the basis of its past performance the NEB, with the assistance of its Consulting Engineers, Preece, Cardew & Rider of London, is considered fully capable of carrying out the construction of the Project. The Board is also considered to be fully capable of operating the Project efficiently after its completion. Tariffs 3.09 Under the Ordinance the NEB has power to fix tariffs without reference to any other authority. In practice the Minister of Commerce and Industry is consulted and he has the right to give the Board directions of a general character not inconsistent with the provisions of the Ordi- nance. These provisions require that total revenues must be sufficient to meet total outgoings Droperly chargeable to revenue, including depreciation and interest on capital, taking one year with another. This provision is regarded as determining the minimum level of tariffs. The NEB's stated policy is to produce a return on its average net fixed assets in operation of at least eight per cent per annum and to endeavor to finance about 40% of canital requirements out of internal resources. 3.10 Under Loan 458-MA, the NEB is required to maintain tariffs suffi- cient to yield, together with revenues from other sources, a return of not less than eight per cent on its average net fixed assets in operation. The return is calculated by relating "net income" from operations to average net fixed assets in operation after deducting accumulated depreciation, Government con- tributions for rural electrification, and consumers' contributions towards construction. During negotiations agreement was reached on a continuation of this requirement under the proposed loan (see also paragraph 6.10). 3.11 There have been only two tariff changes since 1960. The first oc- curred in 1964 when tariffs were lowered after the completion of the Cameron Highlands hydroelectric scheme (Loan 210-M4A). This resulted in a reduction in revenues by about M$1.3 million per annum or about two per cent. In 1967 the '4inister exercised his right under the Ordinance and directed the NEB to in- troduce a new tariff for large industry to assist the Government's efforts to promote industrial development (paragraph 5.04). The NEB engaged a tariff specialist, D.C. Bolton of England, to make a study of its entire tariff struc- ture. As a result of this study and recommendations by the consultant a spe- cial tariff (known as Tariff R) was introduced in August 1967 for large indus- try. At the present time only six consumers qualify for this tariff. Sales to these consumers represent only 3.2% of the NEB's total sales and 1.7% of gross revenue. 3.12 The other recommendations of the consultant's report refer to sim- plification of the tariff structures and these are now being studied by the NFB. No changes in tariffs are expected for at least two years and any that are made are not expected to result in any loss in total revenue. Accounting and Audit 3.13 The NEB has a modern and efficient accounting organization with an adequate and well qualified staff. The NEB's auditors since its inception in 1949 have been Price Waterhouse & Co. Besides carrying out the annual audit, the firm has from time to time been engaged to advise on accounting methods and procedures. The Board in 1966 appointed a t4alaysian firm of auditors, Mlessrs. Hanafiah, Raslan, Ong and Mahomad, to carry out the audit of about 23 ont of a total of 60 isolated locations on the NEB system. The audit as a whole continues to be done by Price Waterhouse & Co. who have been reapnointed for the 1968 audits. During negotiations an assurance was obtained that the NEB will continue to emDloy independent auditors acceptable to the Bank. Canital Structure and Financial Position 3.114 Summaries of the NEB's audited balance sheets as of the end of August 1963 through 1967 and of the Dreliminary 1968 balance sheet are given in Annex 3. 3.15 The NEB's capital structure and financial position are generally sound and its negative current position is manageable (paragraph 3.20). 3.16 The following is a summary of the preliminary balance sheet at August 31, 1968: Mt US$ (millions) ASSETS Utility plant at cost 813.4 271.1 Less: depreciation 167.0 consumers' contributions 23.5 190.5 63.5 Net fixed assets in oneration 622.9 207.6 Work in progress 78.3 26.1 Current assets 52.4 17.4 TOTAL ASSETS 753.6 251.1 LIABILITIES AND EQUITY Ordinary stock 163.3 54.4 Reserves 121.6 40.5 Total equity 284.9 94.9 Long-term debt Government of Malaysia 86.3 28.8 Employees' nrovident fund 10.0 3.3 Commonwealth Development Finance Company 4.3 1.4 IBED loan 210-MA 70.8 23.6 IBRD loan 350-MA 144.1 48.1 IBRD loan 458-MA 38.4 12.8 Commonwealth Development Corporation 148.1 16.0 Total long-term debt 402.0 134.0 Current liabilities (including Mtll.3 million current maturities of long-term debt) 66.7 22.2 TOTAL, LIABILITIES AND EQUITY 753.6 251.1 3.17 With the exception of M$3 million held by the Pahang State Govern- ment, the ordinary stock of the NEB is owned by the Malaysian Government. The stock pays dividends which under the Ordinance cannot exceed six per cent per annum on its face value. The dividend has been set at five per cent since 1962/63. 3.18 Reserves comprise the General Reserve and Capital Development Ac- count, which represent the accumulated earned surplus to date. 3.19 Details of the long-term debt are given in Annex 4. Of the total debt 63% is owed to the Bank under the following loans: (i) Loan 210-MA for UJS$28.6 million, net of cancellations, at an inter- est rate of 5-3/4% made in 1958; (ii) Loan 350-MA for US$51.9 million at an interest rate of 5-1/2% made in 1963; (iii) Loan 458-MA for US$37.0 million at an interest rate of six per cent made in 1966. 3.20 At the end of August 1968 the current ratio was 0.8:1.0, current liabilities exceeding current assets by M$14.3 million. But in view of the composition of the current liabilities which include M$14.9 million of cus- tomers' deposits and M$11.3 million of long-term debt maturities which are spread evenly over the fiscal year 1968/69, no serious cash problems are expected. 3.21 At the end of August 1968 the overdraft included under Current Lia- bilities amounted to only M$t million, as compared with a peak of M$13 million reached in 1965. The overdraft facilities consist of M$9 million from the Chartered Bank and M$6 million from the Chase Manhattan Bank, both secured by a Government guarantee. In order to prevent an excessive use of these fa- cilities the NEB undertook, in connection with Loan 458-MA, not to use bank overdrafts or other short-term money to finance capital expenditures except as an interim measure pending receipt of long-term finance. The NEB again agreed during the negotiations not to draw in excess of M$10 million against the overdraft facilities without advising the Bank and stated that it was NEB's policy to keep overdraft drawings to a minimum and not to use them to finance capital expenditures. Earnings Record 3.22 Income statements for the six fiscal years 1962/63 through 1°67/68 are included in Annex 5 and the annual percentages for the Return on Net Plant and the Operating Ratio for these years are included in Annex 6. 3.23 The average return on net fixed assets in operation for the six-year period was 9.4A well above the minimum rate of eight per cent agreed upon be- tween the Bank and the NEB under loans 350-TMA and 458-MA. Depreciation is calculated on a straight line basis and the provisions made are adequate. - 9 - 3.24 The Operating Ratio shows a steady decline from 78.0% in 1962/63 to 68.1% in 1966/67 and, mainly because of increased fuel costs, an increase to 69.0% in 1967/68. The improvement in the Operating Ratio is largely due to the coming into operation of Cameron Highlands' hydro plants in 1963 and 1967. These ratios show that operating costs are reasonable. 3.25 Revenues during the last year of the Deriod were 91% above those during the first year. Because of the improvement in the operating ratio net income from operations showed an even larger increase of 170%. 4. THE PROJECT 4.01 The project proposed for Bank financing constitutes 14% of the NEB's 1968-1972 expansion program. It consists of the construction of: a) The Second Stage of the Prai Thermal Power Station with an installed capacity of 30 Mw. Scheduled for service in 1970. b) The Second Stage of the Port Dickson Power Station with an installed capacity of 120 Mw. Scheduled for service in 1972. c) Transmission lines and associated substations to deliver the additional power generated at the two stations to the load centers. The remainder of NEB's expansion program consists of, (a) the completion of works now under construction under Loan 458-MA (paragraph 2.06), (b) distribu- tion system expansion and (c) the addition of small diesel generating units at some isolated localities. A. Prai Thermal Power Station 4.02 The first stage of the Prai Station, with 2-30 Mw generating units was financed by Loan 350-MA. It was planned for an ultimate capacity of 270 Mw but initially foundations and buildings were only provided for 3-30 Mw generating units, two of which have been in satisfactory service since May 1967. 4.03 The Second Stage consists of the installation of the third 30 Mw generating unit on the existing foundations and the construction of asso- ciated cooling water and control facilities. The unit would be identical in specifications to the two existing units, and consists of a 300,000 lbs per hour boiler designed to operate with steam conditions of 925 psi and 925°F and a turbo-alternator with a maximum continuous rating of 30 Mw. - 10 - 4.04 The estimated cost of the Second Stage is based upon the known cost of the First Stage plus allowance for price increases. A summary of the cost estimates, which are realistic, is as follows: Foreign Local Total Foreign Local Total Item Exchange Cost Cost Exchange Cost Cost (M$ Millions) (US$ Millions) Civil Works 0.32 0.25 0.57 0.11 0.08 0.19 Plant and Equipment 9.85 1.28 11.13 3.28 0.43 3.71 Engineering and Supervision 0.78 0.18 o.96 0.26 o.o6 0.32 Contingencies 0.82 0.12 0.94 0.27 0.04 0.31 NEB Administration - 0.40 0.40 - 0.13 0.13 Interest and other charges during Construction 1.67 - 1.67 0.56 - 0.56 Total 13.44 2.23 15.67 4.48 0.74 5.22 B. Port Dickson Thermal Power Station 4.05 The First Stage of the Port Dickson Station which is being finan- ced by Loan 458-MA and is now under construction will consist of 2-60 Mw generating units which are scheduled to be in service by mid-1969. After some initial delays due to piling difficulties, construction of this project is progressing satisfactorily and the completion date is expected to be met. This station was planned for 4-60 Mw units and the site is adequate for fur- ther extensions to accommodate 4-120 Mw units. 4.o6 The Second Stage of this station comprises the construction of an extension to the power house with the necessary foundations for the plant, a smoke stack and the installation of two boilers and two turbo-alternator sets with associated cooling water and control facilities. The units would each have a capacity of 60 Mw and would be identical in specifications to the two units now being installed. Each unit would consist of a boiler with a maximum continuous rating of 550,000 lbs per hour and with steam condi- tions of 925 psig and 9150F. The turbo-alternator will have a maximum con- tLnuous rating of 60 Mw. 4.07 The estimated cost of the Second Stage is based upon the cost of the First Stage now under construction plus allowances for price increases. A summary of the cost estimates, which are realistic, is as follows: - 11 - Foreign Local Total Foreign Local Total Item Exchange Cost Cost Exchange Cost Cost (Mt Millions) (US$ Millions) Civil Works 5.90 4.05 9.95 1.97 1.35 3.32 Plant and Equipment 27.10 6.55 33.65 9.03 2.19 11.22 Engineering and Supervision 3.42 0.49 3.91 1.14 0.16 1.30 Contingencies 2.76 0.93 3.69 0.92 0.31 1.23 NEB Administration - 0.50 0.50 - 0.17 0.17 Interest and other charges during Construction 0.80 4.20 5.00 0.27 1.40 1.67 Total 39.98 16.72 56.70 13.33 5.58 18.91 C. Transmission Lines and Substations 4.o8 In order to transmit the power generated by the additional plant at the Prai and Port Dickson Stations it will be necessary to extend and modify existing transmission lines. 4.09 This work consists of constructing the second 132 kv circuit be- tween Prai Station and Papan and the conversion of the 132 kv circuits be- tween Port Dickson and Kuala Lumpur south to 275 kv operation. These lines are shown on the MaD. 4.10 The cost estimates for this work, based upon the known costs of similar equipment and material now being purchased, adjusted for price increases are realistic and are as follows: Foreign Local Total Foreign Local Total Item Fxchanae Cost Cost Exchange Cost Cost (M$ Millions) (US$ Millions) Equipment and Installation 8.96 2.78 11.74 2.99 0.93 3.92 Engineering and Supervision 0.40 0.09 0.49 0.13 0.04 0.17 Contingencies 0.79 0.16 0.95 0.27 0.05 0.32 Interest and other charges during Construction 1.21 - 1.21 o.4o - o.4o Total 11.36 3.03 14.39 3.79 1.02 4.81 - 12 - Bilateral Financing 4.ll The borrower has agreed to obtain the financing for the generating plant for the Port Dickson Second Stage from bilateral sources. The borrower intends to invite international tenders for all goods whether financed from Bank funds or from bilateral sources. The invitations to tender for goods to be financed from bilateral sources will stipulate that financing terms must be stated along with the offer to supply the goods. Discussions were held during the appraisal mission with a representative of the Malaysian Government Treasury, the NEB and their Consultants Preece Cardew & Rider of London to de- termine the most suitable division of financing between bilateral sources and the Bank. The following was accepted by all parties concerned: Approximate Foreign Fxchange Cost (i) IBRD Loan Prai Plant, Transmission system T-634.5 million expansion and miscellaneous items for (US$11.5 million) Port Dickson Plant (ii) Bilateral Financing Port Dickson Turbines, Boilers and Steel '4$38 million Structures (US$12.7 million) Tt is assumed that NEB would pay about lO{ down and the interest during construction from its own resources. Therefore the actual credit amount received would be M$30.3 million (US$10.1 million) and NEB would finance T4t7.8 million (US$2.6 million) from its cash generation. 4.12 The criteria used were to provide financing for offshore or foreign costs only and assume that the WEB would meet all local costs and the down payments and interest on the bilateral credits; then to seek easily identifiable large items which could be financed as a unit or package by the bilateral lenders. However, there is insufficient time left to negotiate bilateral credits for the Prai Thermal Plant extension and its offshore cost is therefore to be financed entirely by the Bank. Finally, the transmission system expansion and the miscellaneous items at Port Dickson were included in the proposed Bank loan because they consist of a number of com- Daratively small items or units unsuitable for bilateral financing. h.13 On the basis of the above, the breakdown of the cost estimate for the Port Dickson Plant Second Stage would be as follows: - 13 - Foreign Exchange Foreign Exchange Local Total Local Total Item IBRD Bilateral NEB Cost Cost IBRD Bilateral NEB Cost Cost (M$ Millions) (US$ Millions) Civil Works 2.48 3.42 0.41 3.64 9.95 0.83 1.14 0.14 1.21 3.32 Plant and Equipment 2.50 24.60 2.92 3.63 33.65 0.83 8.20 0.97 1.22 11.22 Engineering and Super- vision 3.42 - - o.49 3.91 1.14 - - o.16 1.30 Contingencies 0.47 2.29 0.27 o.66 3.69 0.16 o.76 0.09 0.22 1.23 NEB Adminis- tration - - - 0.50 0.50 - - - 0.17 0.17 Interest and other charges during Construction 0.80 - 4.20 - 5.00 0.27 - 1.40 - 1.67 Total 9.67 30.31 7.80 8.92 56.70 3.23 10.10 2.60 2.98 18.91 4.14 In order to avoid a partial completion of the Port Dickson project and since the major pieces of equipment are to be obtained through bilateral financ- ing, the loan agreement requires the securing of supplementary financing sat- isfactory to the Bank, before disbursements are made from the Bank Loan for this portion of the Project. D. Summary of Cost Estimates 4.15 The cost estimates for the various items in the Project and a break- down for the financing of the foreign costs, are summarized below: - 14 - Foreign Exchange Foreign Exchange Local Total Local Total Item IBRD Bilat. NEB Cost Cost IBRD Bilat. NEB Cost Cost (M$ Millions) (US$ Millions) Prai Station 2nd Stage 11.77 - - 2.23 14.00 3.92 - - 0.74 4.66 Port Dickson Station 2nd Stage 8.87 30.31 3.60 8.92 51.70 2.96 10.10 1.20 2.98 17.24 Prai and Port Dickson Transmission Lines and Substations 10.15 - - 3.03 13.18 3.39 - - 1.02 4.41 Interest and other charges during construction 3.68 - 4.20 - 7.88 1.23 - 1.40 - 2.63 Total 34.47 30.31 7.80 14.18 86.76 11.50 10.10 2.60 4.74 28.94 Foreign exchange costs assumed to be met out of NEB's cash generation consist of down payments (US$1.2 million) and interest during construction (US$1.4 million) on the bilateral credits. E. Engineering, Construction and Procurement 4.16 The NEB has retained its principal consultants Preece, Cardew & Rider, of London (PCR) for the project under arrangements previously found satisfac- tory to carry out engineering, construction supervision and evaluation of bids. During negotiations assurances were obtained that the NEB will continue to use consultants satisfactory to the Bank. 4.17 Construction will be carried out by contractors and the suppliers of equipment. The transmission line work will be done by NEB crews which are capable of undertaking the work. These arrangements are satisfactory. - 15 - 4.18 All orders for equipment would be awarded on the basis of interna- tional competitive bidding. Some tenders are to be invited before the proposed loan is made in order to meet construction schedules, but no contracts are ex- pected to be awarded before the loan is signed. Any expenditures made prior to the date of the loan signing will not be eligible for reimbursement. Exceot for interest during construction, disbursements would be made against presen- tation of the usual documents evidencing the expenditure of foreign exchange for equipment, materials and services. If savings are made any excess loan funds will be available for cancellation. 4.19 The construction schedule is designed to achieve completion of the project in time to meet the forecast system demand, shown in Annexes 2 & 7. The schedule is reasonable and calls for completion of the Prai Second Stage by the end of 1970 and the Port Dickson Second Stage by mid-1972. In both cases the transmission lines extensions would also be ready by the completion dates of the respective plants. It is expected that this schedule will be met. Future Expansion Program 4.20 Future expansion beyond that contemplated under the present program has been continuously studied by the NEB and it has engaged consultants to continue this work and to pay particular attention to specific projects. 4.21 One of the projects is the Upper Perak Hydroelectric Development. This scheme would consist of an initial hydroelectric plant of 192 Mw installed capacity with a dam to create a storage reservoir which would regulate the river downstream and facilitate further hydroelectric developments. This scheme has been studied by the Shawinigan Engineering Company Ltd., Canada, and up to the present the power benefits have been considered marginal by the Bank. However, further studies are being carried out by the consultants and NEB to determine if other benefits, such as flood control could be attributed to the project. It is unlikely that a decision will be made before 1970 and if NEB then de- cides to construct the project the earliest completion date would be 1975-76. 4.22 As the proposed project for Bank financing would only meet forecast power demand until about 1973, NEB's consultant, PCR, have tentatively recom- mended the third stage of the Port Dickson Thermal Station which would consist of 2-120 M4w units (Nos. 5 and 6) as the next development to meet forecast de- mand up to 1975-76 when the Upper Perak Hydroelectric Development or some other power expansion project would be in operation. Until the studies on system Jevelopment now being carried out are completed it is impossible to say pre- cisely what the next stage of development should be. 5. J1JSTIFICATION OF THE PROJECT A. Estimate of Sales 5.01 The power market served by NEB, has had a long history of steady and substantial growth. Since 1960 the average annual increase in total power sales - 16 - has been 13.5% and during the past five years the rate has been 14.1%. The an- nual rate of growth in sales for the next four years may be somewhat lower as explained in paragraph 5.06. 5.02 In 1966-67 NEB had total sales of 1,373 million kwh, divided among the various categories of consumers as follows: Domestic 14.8%, Commercial 34.4%, Industrial 25.7'^ and Mining 25.1%. 5.03 IWEB, with the assistance of consultants, PCR, has made very complete studies of its load statistics and based on the trends shown in the past along with known new developments for the next four years, has prepared a realistic forecast of future sales and system demand to 1976. See Annex 8 for details. 5.04 Power sales to the general industrial section have been increasing at an annual rate of about 17% during the past five years. The Map shows the location of industrial zones which have been established by the Government to encourage external investment in industrial facilities and which are ex- pected to foster industrial growth. During the past five years industry's share of NEB's total sales has risen from 22.5% to 25.7% and is forecast to increase to 27% by 1976. 5.05 Tin mining is a very important activity in Malaysia. During the past five years its share of the total power sales has dropped from 30% to 25%. While the present demand is expected to remain about constant, its share of total sales would decline to about 11% by 1976. From NEB's point of view this is a helpful trend because the tin mining demand is very sensitive to fluctua- tions in tin prices. 5.06 Total sales for 1967/68 show an increase of about 29% over 1966/67. This is largely due to the agreement reached during the year with the PRHE to sell it power in bulk, representing an increase of over 11% in NEB's total sales. (See paragraph 2.11.) For 1968/69 and 1969/70 annual increases in total sales are forecast at about 13%, which is close to the average growth rates achieved during the past ten years. In 1970-71 some decline in the an- nual growth rate to about 10% is forecast to reflect the anticiDated economic slowdown caused by the withdrawal of the British forces from Malaysia. From 1971/72 to 1975/76 annual growth rates are forecast at a conservative level of about 12%o. These forecasts are considered realistic and if economic activity in Malaysia continues at the level of the past 5 years, the sales achieved could well be about 10% higher than forecast. 5.07 In order to assess the probable effect of a simultaneous drop in tin and rubber prices along with the withdrawal of the British forces, a low or pessimistic forecast was made. See Annex 9. This shows that the growth rate in 1969-1970 could fall from 13'0 to 10% and to 9% in 1971. However, after that the growth rate is forecast to recover to the conservative level of 12% given in the higher forecast. In the long term the measures being taken by the Government to foster industrial development and the diversification of agri- cultural products - palm oil and other crops are now being cultivated in some areas nreviously given over exclusively to rubber production - will help to offset adverse trends resulting from tin and rubber price declines. - 17 - Estimate of System Demand 5.o8 Climatic conditions in Malaysia give rise to a very steady system load throughout the year. The use of air conditioning and the twenty-four hour per day tin mining load combine to reduce the difference between holiday and workday demands. Annex 10 shows a typical load curve. The factors men- tioned above give rise to an exceptionally high system load factor of about 73%. This would tend to decrease with the growth of the percentage of total sales going to industry. However, it is forecast to remain at about 70% for at least the next eight years. 5.09 The forecast of system demand has also been prepared based on the "normal" and "low" sales forecasts, discussed in paragraphs 5.06 and 5.07. Annex 7 shows the demand forecasts along with the proposed additions to gen- erating capacity. It shows an average increase in peak demand during the next four years of 12.4% for "normal" growth and 11.4% for the "low" growth rate. Based on the detailed study made by NEB it is considered most unlikely that growth in demand would fall below the "low" forecast during the next four years. C. Plant Operations 5.10 The NEB Interconnected System, shown in the Map and Annex 2, consists at present of 264 Mw of hydro plants and 180 Mw of thermal plants. Another 120 Mw of thermal plant is under construction at the Port Dickson Station which will bring the thermal plant capacity to 300 Mw by 1969 for the interconnected system. 5.11 The hydro plants are generally used for peaking purposes and the thermal plants supply the base load. However, during periods of plentiful water supply, hydro plants are used to supply base load to save fuel and to enable thermal units to be taken out of service for essential maintenance work. 5.12 NEB has made detailed studies and schedules for the operations of its plants to meet system demand during dry and wet periods and to enable plant maintenance to be carried out. On the basis of these studies and the experi- ence in operating the system the dry season firm capacity of the interconnected system has been established as shown in Annexes 2 and 7. It will be seen from this that the proposed additions of generating plant capacity are essential to meet forecast system demand for either the normal or the low forecast. During 1969 and 1970 the dry season firm capacity is just sufficient to meet the nor- mnal load forecast if Port Dickson units 1 and 2 and Prai unit 3 come into serv- ice on schedule. In 1971 the situation again becomes tight until Port Dickson units 3 and 4 come into service in 1972 and 1973. The forecast also shows that construction of units 5 and 6 at Port Dickson should be started before the present project is completed if power shortages are to be avoided in 1974 and 1975. - 18 - D. Choice of New Generating Capacity 5.13 The major load center of the Interconnected System is at Kuala Lumpur, hence the Port Dickson Station is being developed as the major thermal station. However, due to the length of the Interconnected System and the increasing PRHE load the 30 Mw unit proposed for Prai is required to maintain a stable system and reduce spare generating capacity to a minimum. 5.14 The two additions to generating plant capacity in this project both consist of the expansion of existing stations where some of the facilities re- quired for the plant additions already exist and would be used in common with existing generating units. Indeed, the two stations were planned on the as- sumption that they would be extended, they are the latest thermal stations to be constructed by the NEB and they are efficient and up-to-date for the size and type of equipment installed. The extension of these stations by adding units of similar specification to those previously installed is the most economic compared with any other alternative thermal plant expansion. There are no immediately available hydroelectric sites which could be de- veloped in time to meet the forecast demand. The next potential hydroelectric project, the Upper Perak Hydroelectric Scheme (see paragraph 4.21) is still being studied. It would not be in operation before 1975 or 1976 if work was started in 1969. E. Rate of Return 5.15 The part of NEB's system affected by the project is the intercon- nected network along the west coast. This network is supplied by both thermal and hydroelectric plants, as shown in the Map. Therefore the output of each plant on any particular day of the year to meet system demand will vary in accordance with the amount of water available to the hydro plants. Preference is always given to using water in hydro plants instead of im-ported fuel in thermal plants so as to keep the cost of producing electrical energy to a minimum. It is therefore not nossible to segregate the Droduction which can be assigned to a particular plant during its life time in any meaningful way because the entire combination of plants supplying the Interconnected System is operated as a group and each plant is assigned functions from time to time to achieve the maximum of efficiency for the entire system. Some idea of the relative value of each plant may be obtained by comparing the cost of energy generated. It should, however, be kept in mind that even this is not an exact comparison because the plant factor which varies during the year, influences 1-he cost per kwh of energy produced. The following table, based on a plant factor of 605', shows that both Port Dickson and Prai stations produce power at lower cost than the older thermal stations. Cost of Kwh Produced Station Cents of 'Malayan $ US$ cents Port Dickson Units 1 & 2 1.5737 0.5246 Port Dickson Units 1 - 4 1.5259 0.5086 Prai [Jnits 1 - 2 1.7307 0.5769 Prai Units 1 - 3 1.7307 0.5769 Connaught Bridge 2.4675 0.8225 Malacca 2.5497 0.8499 - 19 - 5.16 It will be seen that some slight reduction in overall cost of power produced is expected at Port Dickson when units 3 & 4 go into service. This is principally due to the allocation of capital costs between the 4 units as against the 2 units initially. There is no appreciable change to Prai Station costs with the addition of the third unit. 5.17 Since the overall rate of return on average net fixed assets in operation for the NEB system as a whole is expected to average about 8.5% dur- ing the period under consideration (1969-1973), it would be reasonable to assume that the rate of return on the generating plant added to the system by the project would be somewhat above the system average of 8.5%, because of its lower production costs. This return values kwh sales at prevailing prices. VI. FINANCING PLAN AND FUTURE FINANCIAL POSITION Financing Plan 6.01 A forecast of sources and applications of funds for the period August 31, 1968 - August 31, 1973 is given in Annex 11. The projections are based on: (a) Sales of energy in accordance with the estimates given in paragraph 5.06. (It should be noted that the last column is based on sales under the lower forecast mentioned in paragraph 5.07.) (b) Tariffs at the present level. (c) Operating, administration and maintenance expenses based on present costs for each method of generation, adjusted for fuel consumption and increases in labor costs. (d) Depreciation calculated by the straight-line method on principal cate- gories of plant. The average annual charge is equivalent to between three per cent and four per cent of the value of gross fixed assets. (e) Interest of 6-1/2% and commitment charges of 3/4% on the proposed Bank loan which is assumed to be for a period of twenty years in- cluding a grace period of four years. In view of the very substan- tial contribution to the financing of the program from NEB's own funds and the already existing tight cash position interest and other charges during construction totalling US$1.2 million have have included in the loan. Interest on the proposed bilateral financing and on the overdraft has been assumed at seven per cent and on the future loan at 6-1/2%. It has also been assumed that the bilateral financing would be repaid in ten equal annual installments. (f) Dividends at the present annual rate of five per cent. (g) Transfer to the reserves of the entire surplus after interest and dividends. 6.02 During the five-year period from August 31, 1968 through August 31, 1973 NEB should complete the developments financed by loan 350-MA, loan 458-MA and the present project. It has been assumed that the construction on the third stage of the Port Dickson plant would be started in 1971. Investments will also have to be made in the diesel generating plants to supply isolated localities, and the distribution system will require annual investments which have been assumed to increase at the rate of five per cent per year. - 20 - 6.o3 A summary of the Financing Plan for the period August 31, 1968 through August 31, 1973 is shown in the following table: Financial Requirements: M$ US$ Percentage (millions) Construction expenditures (excluding interest) Batang Padang and Prai (Loan 350-MA) 33.6 11.2 5.8 South Malaya (Loan 458-MA) 128.4 42.8 22.2 Port Dickson and Prai Extension (the project) 78.9 26.3 13.7 Port Dickson future extension 88.7 29.6 15.3 Other generation and transmission 23.5 7.8 4.1 Distribution 183.4 61.1 31.7 Administration and miscellaneous 30.4 10.1 5.3 Total construction expenditures 566.9 188.9 983.1 Working canital provision 4.0 1.4 0.7 Total requirements 570.9 190.3 98.8 Cash surplus 7.1 2.4 1.2 Total applications 578.0 192.7 100.0 The applications would be financed in the following manner: Sources of Funds Mt US$ Percentage (millions) Internal cash generation 576.9 192.3 99.8 Less: Debt Service 265.3 Dividends 49.7 315.0 105.0 54.5 Net internal cash generation 261.9 87.3 45.3 Government: Contribution for rural electrification 19.0 6.3 3.3 Stock participation for South Malaya power development 15.0 5.0 2.6 Contributions from consumers 8.7 2.9 1.5 Total contributions 42.7 14.2 Borrowings: (a) Disbursements under existing loans: IBRD loan 350-MAA 32.3 10.8 5.6 IBRD loan 458-MA 101.9 34.0 17.6 (b) Pronosed borrowings: IBRD loan 34.5 11.5 6.0 Bilateral Financing 30.3 10.1 5.2 Future loan for Port Dickson 2nd extension 75.8 25.3 13.1 Total Borrowings 277.8 91.7 47.5 Overiraft at local banks (1.4) (0.5) (0.2) Total Sources 578.0 192.7 100.0 - 21 - 6.o4 Internal cash generation, net of debt service and dividends, would finance 45.3% of the application of funds. This is satisfactory and in accord- ance with NEB's stated policy that its internal resources will finance 40% to 50% capital expenditure. Contributions by the Government and consumers to- wards construction would raise the financing from sources other than borrowings to 52.7%. The Financing Plan is satisfactory. 6.05 Borrowings totaling Mt274.8 million (US$9l.7 million) would consist of: (a) the undisbursed balances as of August 21, 1968 totaling us$44.8 mil- lion of IBRD loans 350-MA and 458-MA. (b) the proposed Bank loan for US$ll.5 million which would finance 39.7% of the total cost of the project. (c) bilateral financing of a part of the foreign costs of the project estimated at M$30.3 million (US$10.1 million). This would cover 34.9% of the total cost of the project. (d) disbursements totaling M$75.8 million (US$25.3 million) under a fu- ture loan which has been assumed to finance the third stage of the Port Dickson plant. 6.o6 The bilateral financing mentioned under (c) has been discussed in paragraph 4.11. The items of equipment to be financed by it are of a kind for which satisfactory bilateral financing is normally available. 6.07 It is expected that NEB's current position will be quite tight dur- ing the next three years so that increasing use will have to be made of the overdraft facilities (naragraph 3.21). The projections show that a peak over- draft of M8 million in 1971 would be fully renaid within two years. 6.o8 Under the lower forecast for energy sales as discussed in paragraph 5.07 operating revenues during the six-year period to August 31, 1973 would be 14t69.7 million lower than under the forecast on which the Financing Plan is based. Lower operating costs, mainly through a reduction in fuel consumption, would reduce the difference between the two forecasts as regards the internal cash generation to M$14.7 million. Under the lower level of sales there would be no need to increase the annual investments in the distribution system at the rate of five per cent per year. Assuming that a rate of increase of three per cent would be sufficient, the investments could be reduced by M$9.3 million. 6.09 As shown in the last columns of Annexes 5 and 11 the reduction in operating costs and investments mentioned in the previous paragraph, would compensate for all but MT5.4 million of the expected loss of revenues under the lower forecast. There would still be a small but sufficient cash surnlus over the six-year period and the financing of the project would remain secure. Future Earnings and Financial Position 6.10 The income statement projections (Annex 5) and the table of financial ratios (Annex 6) show that future earnings during the six years to August 1973 - 22 - should be satisfactory. The rate of return which is expected to be 9.2% in 1967/1968 and 8.8% in 1968/1969, may decline to 7.6% during 1969/1970 and 1970/ 1971. This development which is partly due to the addition of sizable amounts of new construction to the rate base, will be rectified in 1971/1972. In view of the temporary nature of the decline of the rate of return under the required level of eight per cent, it may not be necessary to revise the tariffs. In 1972 the rate would improve to 8.3% and in 1973 to 9.80%. The average rate for the whole period would be 8.5%. 6.11 Interest would be covered more than two times by income before in- terest and debt service would be covered more than two times by internal cash generation throughout the neriod. The debt/equity ratio which would remain at 59/41 during the first half of the period, would gradually change to 56/44 in 1973. 6.12 Loan 458-MA requires NEB to obtain the Bank's approval before incur- ring any long-term debt if internal cash generation for a recent twelve-month period is less than 1.5 times maximum future debt service. During negotiations satisfactory assurances were obtained that this requirement will be continued under the proposed loan. NEB should be able to meet this test as regards the proposed loan and the bilateral financing. 6.13 As already mentioned in paragraph 6.07 the current nosition would be tight but manageable with the use of the overdraft facilities. 7. CONCLUSIONS AND CONDITIONS OF LENDING 7.01 The Project is technically sound, the cost estimates realistic and the arrangements for construction satisfactory (paragraphs 4.14, 4.15 & 4.16). 7.02 The generating capacity which the Project would provide is necessary to meet the forecast demand and the proposed installations would be the most economical means of doing this (paragranhs 4.15, 4.16 & 4.17). 7.03 The power demand and sales forecasts are realistic and have been based upon a careful evaluation of the effect of future changes in the growth patterns of the area served (paragraph 5.07). 7.04 NEB's financial position is sound and promises to remain so in the future. A tight current position expected during the next three years will be manageable with the use of overdraft facilities (paragraphs 3.15 and 6.07). 7.05 The proposed financing plan for the period August 31, 1968 through August 31, 1973 is satisfactory. NEB would earn a satisfactory return, achieve an adequate coverage of interest and debt service, and would generate more than 40% of its capital expenditure (paragraphs 6.04, 6.10 and 6.11). 7.06 During negotiations satisfactory undertakings were obtained that the N'TEB will: - 23 - 1. Consult the Bank before making apDointments to the positions of General Manager, Chief Engineer and Chief Financial Officer (para- graph 3.05). 2. Continue to employ independent auditors acceptable to the Bank (para- graph 3.13). 3. Continue to maintain tariffs at a level to yield not less than eight per cent on its net fixed assets in operation (paragraph 3.10). 4. Keep its bank overdraft and short-term borrowings to a minimum. (paragraph 3.21). 5. Only incur long-term debt without the approval of the Bank, if its maximum annual debt service shall be covered at least 1.5 times by net revenues (paragraph 6.12). 6. Continue to engage consultants satisfactory to the Bank for the engineering, supervision of construction and evaluation of bids (paragraph 4.16). 7.07 During negotiations discussions were held to insure that the NEB intends to continue the following activities: 1. The staff training program (paragraph 3.06). 2. Measures to imDrove the ratio of customers or employee (paragraph 3.07). 7.o8 Disbursements under the portions of the proposed Loan allocated for Port Dickson and related transmission system are conditioned on the prior conclusion, satisfactory to the Bank, of supplementary financing (paragraph 'l.14). 7.09 The Project is suitable for a Bank Loan of US$11.5 million equivalent for a period of twenty years including a grace period for amortization pay- ments of four years. December 10, 1969 MAL2YSIA NAM0ViL 2ELECTRICITY BOARD Go!SBiATINC PLANT CAPACITY (JULY 1968) Year Installed Station Installed Capacity Location MW Plants in Service C@nnaught Bridge Thermal Station 1953 80 Near Kuala Lumpur Robinson Falls & Upper Telom Hydro Stations 1959/65 2.2 120 miles north of Kuala Lumpur Malacca Thermal Station 1959 40 In Malacca Ulu Langat Hydro Electric Station 2.3 Near Kuala Lumpur Cameron Highlands (Jor & Habu Hydro Plants) 1963 105.5 110 miles North of Kuala Lumpur Johore Bahru Thermal Station 1963 60 Southern end of Peninsula Prai Thermal Station 1966 60 Near Penang Cameron Highlands (Woh and Odak Hydro Plants) 1967 154.2 100 miles North of Kuala Lumpur Diesel Stations Various 60 About 50 Individual Stations serving areas not connected to the Main Networks Total 564 Plants Under Construction Scheduled in Service Date Johore Bahru Thermal Station Extension 1969 30 Southern end of Peninsula Port Dickson Thermal Station 1969 120 90 miles south of Kuala Lumpur Total 150 Plants Proposed Under New Loan Prai Thermal Plant Extension 1970 30 Port Dickson Thermal Plant Extension 1972/73 120 Total 150 GRtaN TOTAL BY 197286L (October 16, 1968 GRAND TOTAL BY 1972 86L I I ANNEX 2 MALAYSIA NATIONAL ELECTRICITY BOARD INTERCONNECTED SYSTEM PIANT 1 CAPACITY AND MAXIMUM DEMAND The following information is given in chart form in Annex 7. Plant 2/ Installed Dry Season Dry Season Estimated Year Addition Capacity Capacity Firm Capacity Maximum Demand MW Normal Low 1968 444 339 309 282 282 1969 PD 1 & 2 564 459 369 330 308 1970 P 3 594 489 399 366 340 1971 594 489 399 400 370 1972 PD 3 & 4 714 609 519 455 415 1973 71-4 609 519 515 468 1974 PD 5 834 729 579 575 530 1975 PD 6 2/ 954 849 699 645 590 1/ Does not include the Southern System and isolated diesel plants. 2/ PD = Port Dickson Steam Plant P = Prai Steam Plant 2/ Either PD 6 or some other project e.g., Upper Perak Hydroelectric Development Project if proven feasible (see "Future Expansion Program" in text of r-ep"ort.) October 28, 1968 MALAYSIA NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA Actual and Forecast Balance Sheets 1962/63 - 1972/73 (in millions of M$) Actual Preliminary Forecast As of August 31 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 ASSETS FIXED ASSETS Utility Plant at cost 367.1 442.7 467.9 505.9 571.7 813.4 901.1 1,022.8 1,094.1 1,167.4 1,235.1 Less: Accumulated depreciation 82.6 96.1 107.6 125.0 144.3 167.0 193.6 224.7 258.1 294.6 332.9 Consumers contriDutions 11.3 13.7 16.7 18.7 20.8 23.5 27.5 32.0 36.0 39.5 42.5 Net Fixed Assets in Operation 273.2 77373 7343.6 362.2 b5 622.9 6 766.1 oOO -7O ¶7 Construction work in progress 59.3 53.2 104.7 178.9 221.1 78.3 103.0 68.7 69.9 64.9 112.0 CUR.RENT ASSETS Cash and banks 0.4 0.6 0.8 1.6 5.2 5.3 5.4 8.4 8.6 7.9 12.3 Inventories, receivaoles, etc. 32.0 33.9 33.5 41.0 48.1 47.1 49.1 51.1 53.1 1 58.1 Total Current Assets 327 7 3_3 17 53.3 97 ____ 9 7T:7 7-0. TOTAL ASSETS 364.9 420.6 482.6 583.7 681.0 753.6 837.5 f94.3 931.6 961.2 1,042.1 LIABILITIES AND EQUITY EQUITY Ordinary stock 51.3 72.3 87.3 122.3 152.7 163.3 167.7 167.7 167.7 167.7 167.7 deserves 46.4 52.8 64.4 81.6 102.7 121.6 149.1 169.8 192.8 222.2 264.7 Total Equity 1t7 1 1737T 777.7 757 Z.- .5 769.7 379 4Th-4 LONG-TERM DEBT Government of Malaysia 93.4 93.0 91.6 89.9 88.2 86.3 84.3 82.2 80.0 77.7 75.3 Employees Proviient Fund 10.0 10.0 10.0 10.0 10.0 10.0 10.0 9.8 9.4 8.8 8.o CDFC 4.3 4.3 4.3 4.3 4.3 4.3 3.9 3.5 3.1 2.7 2.3 I3RD loan 210-MA 66.5 72.9 76.1 76.9 74.0 70.8 67.4 63.8 60.0 56.o 51.7 I.3RD loan 350-MA - 10.5 37.9 83.1 124.5 144.1 14t7.b 142.9 137.7 132.2 126.4 IERD loan L58-MA - - - l.4 38.4 o5.4 109.2 104.8 100.2 95.3 C 56.o 54.7 53.1 51.6 49.9 h8.1 46.2 44.2 42.1 39.9 37.5 Proposed I3RD loan - - - - - - 4.5 18.1 29.6 33.3 32.0 Bilateral Financing - - - - - - 1.3 3.7 17.4 23.3 20.3 Future loan Port Dickson 2nd Ext. - - - - - - - - 0.7 12.7 75.8 Total Long-Term Deot 2-7U.2 2W275-.fl 273. 717.g T2257 402. : W7 277-T UM UB 27.7 CURR?ENT LIABILITIES Paysoles, provisions, consumers deposits 29.o 36.6 39.3 55.9 53.4 54.4 55.4 56.4 57.4 58.4 59.4 3ank overdraft 2.9 b.5 13.0 2.0 1.4 1.0 2.0 5.0 8.0 2.0 - Currenit portion of long-term debt 4.3 5.0 5.6 6.1 6.5 11.3 12.5 18.0 20.9 24.1 25.7 Total Current Liabilities 57.1 57.9 - 63.3 7667 6*9.9 79T 76ET_7. 85.1 TOTAL LIABILITIES AND EQUITY 36h.9 727.6 2-.Z o bl O 7g7 837.-5 931.36 -76r.7 T Debt/Equity ratio 71/29 67/33 65/35 61/39 59/1 5hl /41 59/441 Conversion rates In the Actual Balance Sheets US dollars have been converted into sterling: at the rate of US $2.80 to 4 1 and sterling into Malayan dollars at the rate of 2 shillings 4 pence to M$1. In the projections the rate of US31 = M$3 has been used. October 16, 1968 MALAYSIA NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA Details of Long-Term Debt as at August 31, 1968 (in million of M$) Year Amount Interest Repayment Repaid to Balcace Outstanding Lender Drawn Drawn Rate % Period August 31, 1968 August 31, 1968 Government 1954/59 40.0 5 1955-2019 1.6 38.4 1960 7.0 5.75 1965-1979 1.1 5.9 1961 6.o 5.75 1966-1980 0.7 5.3 1960/63 42.5 6 1964-1988 3.9 38.6 Employees Provident Fund 1960 5.0 6 1971-1980 - 5.0 T I " I I I 1962 5.0 6 1973-1982 5.0 Commonwealth Development Finance Co., Ltd., 1959 4.3 6.75 1970-1979 - 4.3 IBRD Loan 210-MA 1959/66 87.6 5.75 1964-1983 13.6 74.0 IBRD Loan 350-MA 1963/68 150.6 / 5.5 / 1968-1988 2.1 148.5 IBRD Loan 458-MA 1966/68 38.4 / 6 1970-1986 - 38.4 Commonwealth Development Corporation 1960 60.7 6.25 1961-1985 10.8 49.9 i Loan 350-MA is for US$51.9 million (M$158.9 million) The interest rate has been reduced slightly due to sales participations in early maturities. / Loan 458-MA is for US$37.0 million (M$113.3 million) October 14, 1968 MALAYSIA NATIONAL ELECTRICITY BOARD OF THE STATES OF MALAYA Actual and Forecat ITome Statoe-nts 1962/63 - 1972/73 (in millions of MI) Actual Preliinary_ Forecast Total 1968 through 1973 Fiscal year ending Aogu't 31 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 no forecast nder ninia in preceding columns conditions Sales increase in percent 13.1 1ic.4 16.8 14.4 11.8 29.3 15.8 10.7 9.8 12.9 12.8 131.6 111.5 Sales (Gh) 803 919 1,073 1,228 1,373 1,775 2,056 2,275 2,498 2,819 3,180 14,603 13,642 Average revenue per kwh (M. cents) 9s9 9.0 8.9 8.1 7.9 7.7 7.7 7.6 7.6 7.7 7.8 OPERATINO REVENUES 75.1 84.4 9? 110.6 122.4 143.8 162.4 175.2 192.3 214.2 241.7 1,129.6 1,059.9 OPERATINO COSTS Op-rating administration and ,alntsnance eopeeee. 47.7 48.6 54.1 59.0 63.6 75.0 80.1 90.7 100.5 111.5 121.9 579.7 524.7 Dep-eciation 10.9 14.7 i6.0 17.5 19.8 24.2 28.1 32.6 34.9 38.0 39.8 197.6 196.3 Total Operoting Costs 38 73 77 767 737 733 i 1 173 1MT 13577 777 NET INCOME FROM OPERATIONS 16.5 21.1 27.7 34.1 39.0 14.6 54.2 51.9 56.9 64.7 80.0 352.3 338.9 Other Income 2.14 2.2 2.6 2.9 3.1 3.0 3.0 3.0 3.0 3.0 3.0 18.0 18.0 NET INCOME EEFORE INTREaST 18.9 23.3 30.3 37.0 42.1 47.6 57.2 54.9 59.9 67.7 83.0 370.3 356.9 Intereat Payable 12.7 15.4 16.5 18.2 20.3 23.0 25.6 20.4 30.1 30.8 32.1 176.0 170.0 Lesn: Int-reet Cupitolloed 5.0 1.5 1.8 3.14 6.1 2.1 4.2 2.6 1.6 0.9 l.1h 11.4 Interest oharged to operatina -77 13 =177 1TU TU 73 7 ; 77 9 1 7537 NET INCOME 11.2 9.4 15.6 22.2 27.9 26.7 35.8 29.1 31.4 17.8 50.9 211.7 198.3 Surplus at beginning cf year 37.5 46.4 52.8 64.4 81.6 102.7 121.6 149.1 169.8 192.8 222.2 102.7 102.7 Les-: Dividends 2.3 3.0 4.0 5.0 6.8 7.8 8.3 8.4 8.4 8.4 8.4 49.7 49.7 Surplus at end of year 46.4 52.8 64.4 81.6 102.7 121.6 149.1 169.8 192.8 222.2 264.7 264.7 251.3 Ti-en interest ce.ered by nst inc before interest 1.5 1.5 1.8 2.0 2.1 2.1 2.2 2.0 2.0 2.2 2.6 2.2 2.1 Ret,rn en vrage met fiOed naeots in oPeration 8.6 7.7 9.0 10.5 11.0 9.2 8.8 7.6 7.6 8.3 9.8 8.5 8.2 Octcber 16, 1968 MALAYSIA NATIDNAL SlICTRICITY BOARD OF THE STATES OF MA1LYA Actual and Forecast Financial Ratios (in millions of 1r) Actual Forecast Fiscal year ending August 31 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 Return on Net Plant Average net fixed assets in operation 220.0 303.1 338.3 352.9 384.4 514.8 651.5 723.1 783.1 816.7 846.5 Net income before interest 18.9 23.3 30.3 37.0 42.1 47.6 57.2 54.9 59.9 67.7 83.0 Percentage return C%) 8.6 7.7 9.0 10.5 11.0 9.2 8.8 7.6 7.6 8.3 9.8 OpratintgRatio Rato f oprating expenses to operating revenues (%) 78.0 75.0 71.7 69.2 68.1 69.0 66.6 70.4 70.4 69.8 66.9 Interest Times interest covered by net income before interest 1.5 1.5 1.8 2.0 2.1 2.1 2.2 2.0 2.0 2.2 2.6 Debt T!mes debt service covered by internal cash generation 2.4 2.4 2.3 2.4 2.2 2.0 2.1 2.2 Debt/Equity ratio 71/29 67/33 65/35 61/39 59/41 59/41 59/41 59/41 58/42 57/43 56/44 October 1b, 1968 ANNEX 7 MALAYSIA: NATIONAL ELECTRICITY BOARD INTERCONNECTED SYSTEM PLANT CAPACITY AND MAXIMUM DEMAND (MEGAWATTS) 1,000 -D -' 1,000 (0 z~~~~~ 900 < 02 ( 900 700 aJ~4 , \ ~~~~~P A H A N G . Q s0 \ " MENTAKAB \9,Yt + kRAWNG t : % ~~~~EG MBUT .....:....., . PetaZing .Jya . ............ POWER STATIONS CONNAUGHT BRIDGEA / NEGRI THERMAL HYDRO * * BELOW 50 MW, EXISTING senawan . * * ~50 - 100 MW, EXISTING\/<... 03 UNDER CONSTRUCTION PORT PROPOSED PROJECT TRANSMISSION LINES MA CA 132 KV, EXISTING J O H O R E 66 KV, EXISTING KLUANG -++-4---++-4- 132/275 KY, UNDER CONSTRUCTION - 132 KV, UNDER CONSTRUCTION 132 KV, PROPOSED PROJECT 0 SUBSTATIONS + OIL ENGINE STATIONS 0 25 50 75 INDUSTRIAL ZONES MILES .............STATE BOUNDARIES AUGUST 1968 IBRD - 2368