Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No.2476a-BD

FILE CO PY Y

STAFF APPRAISAL REPORT

BANGLADESH

GREATER KHULNA POWER DISTRIBUTION PROJECT

May 30, 1979

Regional Projects DepartmentSouth Asia Regional Office

This document has a restricted distribution and may be used by recipients onily in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Taka (Tk)Iaka I = Paisa 100Taka 1 = US$0.0645Taka 1,000,000 = US$64,516US$1 = Tk 15.5US$1,000,00 = Tk 15,500,000

MEASURES AND EQUIVALENTS

I kilometer (krn) = 0.6214 miles (mi)1 meter (m) = 39.37 inches (in)1 cubic meter (cu m) = 1.31 cubic yard (cu yd)1 cubic foot (cu ft) 0.028 cubic meters (cu m)1 kilogram (kg) = 2.204t pounds (lb)1 kilo calorie (kcal) = 3.968 British thermal units (Btu)1 kilogram standard coal

equival]ent (kg ce) = 7,000 kilo calor:ies (kcal)1 imperial gallon (imp gal) = 4.545 liters (1) = 1.2 US gallon1 kilovolt (kV) = 1,000 volts (v)1 kilovolt-ampere (kVA) = 1,000 volt-amperes (VA.)1 megawatt (MW) = 1,000 kilowatts ",kW)1 gi.gawatt hour (GWh) = 1,000,000 kilowatt hours (kWh)

ABBREVIATIONS AND ACRONYMS

ADB - Asian Development BankBWDB - Bangladesh Water Development BoardCIDA - Canadian International Development Agencycif - Cost, Insurance, Freight (International shipping clause)ECNEC - Executive Committee of the National Economic CouncilEPWAPDA - East Pakistan Water and Power Development AuthorityERD) - External Resource Division of the Ministry of FinanceGOB - Government of BangLadeshHSD - ligh Speed DieselIERR - Internal Economic Rate of ReturnKfW - Kreditanstalt fuer WiederaufbauLRMC - Long-Run Marginal CostODM - Ministry of Overseas Development of the United Kingdom (ODM)OPEC - Organization of Petroleum Exporting Count-riesPEC - Project Evaluation CommitteeREB - Rural Electrification BoardSGV - Sycip, Gorres and VelayoUNDP - Ulnited Nations Development Programme!USAID - Ulnited States Agency for Internatiornal D)evelopment

BPDB'S FIS,CAL YEAR (FY)

July 1 - June 30

FOR OFFICIAL USE ONLYPEOPLE'S REPUBLIC OF BANGLADESH

GREATER KHULNA POWER DISTRIBUTION PROJECT

Staff Appraisal Report

Table of Contents

Page No.

I. THE ENERGY AND POWER SECTOR ............................ 1

A. Energy Resources .................................. 1Natural Gas ........ .......................... 1Hydro Power ........ ........................... 1Coal and Peat .............. 2oil . 2TraditionaL Fuels ................. ...... 2

B. The Power Subsector. 3Rural Electrification Board. 3External Assistance .. 4Existing Facilities .. 4Access to Service and Status of Supply 5System Losses. 6Pattern of Consumiiption. 6Forecast of Electricity Consumption. 7BPDB's Development Program. 7

II. THE BENEFICIARY. 9Historic Background. 9BPDB's Corporate Existence andResponsibilities. 9

Organization and Management ...... ............ 10Management Improvement Effort ..... ........... 11Personnel .................................. 11Training .................................... 12

III. THE PROJECT . ........................................... 12Objectives ....... .......................... . 12Description ....... ........................... 12Project Cost ....... ........................... 13Project Financing Plan ........... ............. 14Engineering and Implementation ...... .......... 16Storage of Materials ........... .............. 16

This report was prepared by Messrs. K. Stichenwirth and V. Antonescu and isbased on information obtained during a preappraisal missicn in December 197Tand an appraisal mission in February 1979.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank autihorization.

Table of Contents (Cont'd)

Page No.

III. THE PROJECT (Cont'd)Procurement .................................. 17Disbursements ................................ 17Project Approval ............................. 17

IV. FINANCIAL ASPECTS ...................................... 18Past Financial Performance ................... 18The Financial Recovery Plan .... .............. 18

System Loss Reduction Program .... ......... 19Power System Rehabilitation Program ....... 20Management Improvement Effort ..... ......... 20Tariff ..................................... 20

Future Improvement ............................ 21Debt Restructuring ............................ 22Future Financial Situation ................ .. 22Financing Plan .............. . 24Onlending Terms ...... ........................ 25Accounting Consultants ..... ................... 25Billing and Collection ....................... 26Audit ......................... 26Insurance .......................... . . 27Rural Tariffs ............. . . . . 27

V. JUSTIFICATION ............................... , . . . 27Demand ............................... . 27Economic Rate of Return ....................... 28Risks ......................... 29

VI. AGREEMENTS REACHED AND RECOMMENDATION .... .............. 29Conditions of Credit Effectiveness .... ....... 29Other Agreements ............................. 29Recommendation ............................... 29

ANNEXES

1. Generating Capacities and Maximum Demand2. Historic and Forecast Sales, Generation and Maximum Demand3. Investment Program4. Summary of President's Order No. 595. BPDB's Organization Chart6. Training7. Project Cost Estimate8. Estimated Construction Schedule9. Estimated Schedule of Disbursements10. Financial Statements

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Table of Contents (Cont'd)

ANNEXES (Cont'd)

Page 1 Actual and Forecast Income Statements 1977/78-1984/85Page 2 Forecast Sources and Applications of Funds Statements

1978/79-1984/85Page 3 Actual and Forecast Balance Sheets 1977/78-1984/85Page 4 & 5 Notes on Financial Statements

11. Recommendations of Accounting Consultants12. Terms of Reference for Tariff Consult:ant13. Internal Economic Rate of Return14. Documents Available in Project File

MAP

IBRD 14182

PEOPLE'S REPUBLIC OF BANGLADESH

APPRAISAL OF THE

GREATER KHULNA POWER DISTRIBUTION PROJECT

I. THE ENERGY AND POWER SECTOR

A. Energy Resources

1.01 Bangladesh's per capita consumption of commercial energy is amaong thelowest in the world amounting to only 33 kilogram standard coal equivalent 1/(kg ce) in 1976. This compares with an average consumrption of 426 kg ce ofcommercial energy for all developing countries and 2,069 kg ce for the worldas a total. The per capita consumption of commercial. energy in the worldranged from 11 kg ce (Nepal) to 25,236 kg ce (Qatar). 2/ Total energy consump-tion per capita in Bangladesh, including traditional f.uels, amounted to some140 kg ce in 1973/74.

Natural Gas

1.02 NaturaL gas is the main known commercial energy resource of Bangladesh.There are seven fields, all located in the East, with aggregate proven reservesof about 250 billion cubic meter (cu m) or some 20 years of use when the highgrowth rate in consumption of 30% per year is assumed. Four of the fields --Sylhet, Chatak., Rashidpur and Titas --- are in commercial operation. The gasis of high quality with a methane content ranging from 94.3% to 99.1%. Inaddition, there are probable reserves of about 320 billion cu m. Unfortunately,no comfmercial quantities of gas have so far been identifiecl i r1 iWhe West zone,although exploration indi-cates that natural gas may be found in thle Barisaldistrict and the areas of Rajshahi and Natore. At present,, gas is being usedmainly as raw material for fertili.zer plants and as fuel for power stations inthle East zone.

Hydro Power

1.03 Although two of the world's largest rivers, the Ganges and theBrahmaputra, flow through Bangladesh, they do so over a flat deltaic area.The prospects for economic hydroelectric development are therefore limited.The northern, portion of the Brahmaputra river has potential for a darn site withan estimated output of some 400 MW of firm power, but the size and large costof this project make it only a remote possibility. The smaller rivers of theSoutheasterrn part of the country in the Chittagong Hill Tracts have some pot.en-tial. So far, only the Karnafuli. ri.ver has been developed. to an installedcapacity of 80 MW with a further 50 MW under construction at the Kaptai dam.

1/ 1 kilogram standard coal equivalent = 7,000 kilocalories.

2/ World Energy Supplies 1972-1976, United Nations, New York 1978.

Two additional units with an installed capacity of 50 MW each are planned for1985. The energy from these projects must be utilized during the monsoonseason for reservoir control, and the flow of water from the reservoir duringthe dry season is further constrained by irrigation requireraents. An overallsurvey of the hydroelectric potential of the country has not: been carried out.Although some additional potential may be identified, it is not expected to besubstantial.

Coal and Peat

1.04 Good quality coal with a heat value of about: 6,200 kcal/kg existsin Northwestern Bangladesh, in the Bogra distri.ct, wit.h total reserves esti-mated at over 1 billion toiis. While this exceeds the equivalent of theproven natural gas reserves, the deposits are at a depth of 850 to 1,060 munder soft water-bearing strata. Their extraction would require sophisti-cated and costly soil-freozing techniques, and it i.s understood that theirexploitation would be uneconomic and would reqluire more than a decade beforemeaningful quantities could be extracted. I.The underground gasification of t-hecoal also does not appear to be technicallv feasible. Currently, small. quan-tities of coal are imported from India.

105 There are some peat deposits in the Faridpur and Khulna districts.However, the individual fields are relatively small and lie under primeagricultural land. For these reasons, the mining of lpeat appears to beneither technical.ly practical nor economic.

Oil

1.06 Extensive exploration for oil, has been going on for more than 15years, but so far without positive resu'Lts. Areas for offshore explorationhave beern identified following recommendations of commercial studies byforeignI experts in 1973. At present, the country's oil requirement is coveredby imports, partly in the form of crude oil, which is refined in Bangladesh'sonly refinery, located at Chittagong. The refinery which has been in opera-tion since 1968 has a rated processing capacity of 1.5 million tons, but hasniever produced more thanl 1 million tons per year. Heavy oil and other petro--leum products from the refinery are used for power generation in the westernzone where no local alternative fuel is available.

Traditiona:L Fuels

1.07 For all practical purposes, the only indigenous entergy r,^sourcesother than natural gas are the traditional fuels common to most agriculturalbased developing countries - firewood, vegetable and animal wastes. Accordingto the Bangladesh Energy Study prepared in 1976 by a group of consultant firms,administered by the Asian Development Bank (AD%) under a United Nations Devel-opment Programme (UNDP) project, traditional fuels in FY74 accounted for 73.4%of the country's total energy consunmption, compared with 13.1% for importedpetroleum products, :10.4% for natural gas, 2.1% for imported coal and 1% forhydroelectricity.

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B. The Power Subsector

1.08 Bangladesh is divided into two zones -- East and West -- by the

Ganges-Brahmaputra basin. The East zone contains the two main commercialand industrial centers: Dacca, the capital, and Chittagong, the country'smnajor port. Khulna, the country's third largest town, and Mangla, an import-ant harbor under construction, are located in the West zone. The annuallyflooded Ganges - Brahmaputra delta has hindered in the past the constructionof road and rail communications as well as electric power interconnectionsbetween tlhe two zones.

1.09 At the time of partition from India in 1947, the installed capacityin Bangladesh (then East Pakistan) was about 21 MW, of which 12.5 MW was owneclby industry, 7 MW by private utilities and the balance by various small enter-prises. Per capita consumption of electri.city was only about 0.33 kWh. Duringthe following decade, the Government took over most of the private utilitiesand developed additional power facilities, mainly in the form of local gener-atirig stations. Under the 1961-65 and 1966-70 Five-Year Plans, major g#n-

;iaiig y stations were constructed at Siddhirganj, Kaptai and Ashugan' and anintegrated transmission system was created in the Eastern zone through the1.32 kV transmission lines Kaptai-Chittagong-Siddhirganj, and Siddhirganj-Sylhet. In 1970, the total installed capacily was 535 MW whiich generated1,106 GWh, sat:isfying a maximum simultaneous demand of only 233 MW. Therewiere about 1,040 km of lines 33 kV and below.

1.10 During the hostiLities of 1971 which led to the independence ofBangladesh, power facilities suffered sdbstantial damaave, electricity gener-ation collapsed and inaximuma demand dropped to 30 MW. In 1972, the BangladeshPower Development Board (BPDB) was set up as a separate entity under theMinistry of Power, Flood Control and Water Resources (para 2.02).

1.11 At the policy making level, the two main Government institutionsinvolved in the power industry are (i) the Planning Commission which coor-dinates the development of the power subsector with that of other sectorsand sanctions all schemes costing more than Tk 5 million 1/; and (ii) theMinistry of Power, Flood Control and Water Resources which supervises thesubsector. Nuclear development policy is under the direct auithority ofthe President oE the Republic.

Rural Electrification Board

1.12 Until recently, BPDB was the sole Government agerLcy responsiblefor generation, transmission and distribution of electric power in Bangladesh.

1/ Projects costing up to Tk 5 million are submitted to the Planning Com-mission which may recommend changes, but the final decision rests withthe Ministry. Project:s costing more than Tk 5 millioni are evaluatedby a Project Evaluation Committee (PEC), chaired by the Member, PlanningCommission in charge of the sector and submitted to the ExecutiveCommittee of the National Economic Council (ECNEC) for formal approval.

In October 1977, the Rural Electrification Board (REB) was created and giventhe responsibility for power distribution in rural areas, through cooperatives.Although the transition period is expected to require several years, REB willultimately take over the entire responsibility for rural electrification,which may also include power supply of industries not only in rural but alsoin certain urban areas to be established by the Government. 1/ The influenceof REB's activity on BPDB's financial situation and th,e necessary steps tobe taken to ensure BPDB's financial viability in the future are discussed inparagraph 4.27.

External Assistanco-

1.13 Bangladesh has been successful in the past in securing foreignfunds for the development of the power sector from various sources. However,domestic resources mobilized for development have been scarze in relation tothe requirements of the economy. Since most of the foreign lenders areprepared to finance only the foreign cost of projects and eKpansion schemes,the power sector as other segments of the economy has suffered from a shortageof local counterpart funds which has delayed project implementation. Of theprojects presently under execujtion, USAID is providing funds for the 50 MWextension of the Kaptai hydroelectric plant (US$2.5 million) and Czechoslovakiahas been approached for financing of two more 50 MW units. The same countryis assisting in the installation of the 60 MW steam pLant in Chittagong andthe 110 MW steam unit for the extension of the Khulna station. Sweden isproviding about US$3 million for the installation of a 12 NW combustionturbine in Khulna and the Kreditanstalt fuer Wiederaufbau (KfW) of Germanyhas made available about US$5 million for a 20 MW gas turbine in Bheramara.Recently Japan has agreed to finance two 28 MW combustion t.urbines (barge-mounted) fGr Khulna. Various lenders are providing financial assistance fortransmission and distribution projects, the most notable being ADB (US$27.7million for Chittagong distribution), the United Kingdom (US$50 mitLion forGreater Dacca distribution), the Kuwait/ Abu Dhabi Funds (US$38.5 million forthe East-West Interconnector) arLd USAID (US$50 million for rural electrifi-cation). The United Kingdom has also indicated its intention to provide aboutUS$55 million for a rural electrification project thr-ouigh cooperatives. Inaddition, various donor agencies are providing funds for technical assistancemainly in the field of training.

Existing Facilities

1.14 The two separate (eastern and western) power systems cover all fourof the country's administrative divisions which are subdivided into 19 districts.In 1978, BPDB's installed capacity, including isolated systems, totalled 752MW, 526 MW (70%) in the East zone and 226 MW (30%) in the West zone (Annex 1).In addition, there is some 120 MW of captive power, owned by different indus-tries, among which thie largest are the steam stations at the paper mills inKhulna (24 MW) and Chittagong (28.5 MW), the steam station at the fertilizer

1/ Rural Electrification Board Ordinance LI of 1977, signed by the Presi-dent of the Republic on October 29, 1977.

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plant in Fenchuganj (36 MW) and the combustion turbine station at the fertil-

izer plant in Ghorasal (16 MW). A combustion turbine station with two 15 MW

units is under construction at the fertilizer plant in Ashuganj. None of

these captive power stations is connected to the grid; instead th'eir role is

to provide standby capacity to make up for failure of supply from the grid.

Due to the unequal distribution of energy resources in the country, all power

plants in the West zone are using imported petroleum products, while most of

the power generation in the East zone is based on indigenouS natural gas and

hydro electricity.

1.15 In 1978, the overall power system included some 1,600 km of 132 kV

transmission lines, 5,000 km of 66 and 33 kV sub-transmission lines and 13,200

km of 11 kV and low voltage distribution lines.

1.16 A provisional load dispatch center is in operation at the Sidhirganj

power station and communication between all important power plants and sub-

stations is maintained by transmission line carrier communication. A newdespatch center at Sidhirganj adequately equipped to ineet the future require-

ments of the interconnected system, is being built under Canadian Aid and is

due to be commissioned in 1979.

Access to Service and Status of Supply

1.17 Total energy generated by BPDB's power plants in FY78 was 1,912.8W'4h, 1,444.3 GWh (77.5%) in the East zone and 908.3 GWh (24.5%) in the Westzone. In 1978, approximately 320 of the country's 422 tharLas 1/ were served

by electricit:y and less than 3% of the 65,000 villages were electrified. The

total number of consumers served by BPDB had reachied some 403, 500 -- whic h isquite low for a country with 83 million inhabitants -- and the per capita

consumption was only about 15 kWh.

1.18 Of the installed capacity of 702 MW owned by BPD1B and connected

to the two grids (excluding isolated systems), only about 577 MW (82%) are

actually available (454 MW in the East zone and 123 MW in the West zone).

This compares with a maximum demand in 1978 of 287 MW in the East zone and 94

MW in the West zone. The situation is particularly critical in the West zone

where the only main base load unit, the steam turbine generator at the Khulna

power pLant with a rated capacity of 60 MW, has at present a maximum capability

of only 42 MW (Annex 1) due to boi.ler prob:Lemns. Any stoppage of this unit,

accide!ntal or for maintenance, leads to a total or partial breakdown of supply

in the West zone. The situation will not improve but rather deteriorate until

1983/84, when the planned interconnection between the East and West grids

would be operative and new base load units would be commissioned in both

parts of the country. To bridge this difficult period, BE'DB plans to install

reLatively large capacities of oil-Eired combustion turbines in the West and

operate them as base load units. This results in a higher average fuel con--

sumption and premature deterioration of generating equipment which, however,

cannot be avoided due to lack of alternatives at present.

I/ Thana is an administrative sub-unit: of a district.

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1.19 At present, quality of service is poor. There are frequent powersupply outages, and voltages as well as frequency are sometimes low and fluc-tuating. One main reason for unreliability of supply, in addition to theinsufficiency of generating capacity in the West zone, is the inadequacy ofdistribution facilities, especially in the Khulna district. Some lines aretoo long and overloaded. There is also a great need for additional substationcapacity and more suitable network design, notably with respect to loop linesand adequate relay control in order to provide alternate sources of supply.The main purpose of the project is to improve this situation.

1.20 Another cause of the unsatisfactory supply is the lack of regularpreventive maintenance, particularly for generating facilities. This is dueto lack of spare parts and materials and insufficient trained personnel. Theproblem of spares cannot be solved unless BPDB becomes financially viable tobe able to finance its import needs. The problem of iaanpower :*'l be solvedonly by developing adequate training facilities and training of large numbersof personnel.

System Losses

1.21 For the past few years, power system losses including station con-sumption have been over 35%, which is too high. According to BPDB's estimates,these losses, which reached about 37% in fiscal year 1978, comprised some 26%technical losses, the rest being attributable to unpaid consumption. It isestimated that a substantial portion of the technical losses could be saved bypower factor correction. In this regard, the appraisal mission suggested thatlBPDB should examine the possibility of using the alternators of discardedcombustion turbine units as synchronous condensers. The losses in distribu-tion networks (33 kV and lower voltages) are estimatedl at about 18% of totalgeneration. They are so abnormally high because of overloaded distributionfacilities, especially in urban areas like those included in the Project,unpaid consumption due to pilferage and under-billing, and defective metering.A loss reduction program is includedl i.n BPDB's financial recovery plan (para4.07).

Pattern of Corsumption

1.22 Following independence and after overcoming the shock of the 1974oil price increase, the consumption of electricity has incr-eased at an averageannual rate of about 13% during FY76-78. On an annual basis, sales have in-creased by 11.6% in FY76, 8.7% in FY77 and 18.9% in FY78. The growth ratewas about 21% in the West zone and 10.5% in the East zone.

1.23 While industrial consumption is the largest single category, itsshare of about 66%-68% has remained relatively unchanged. Similarly, notmuch has changed in the share of comiercial consumption (about M0). Domesticconsumers accounted for about 20% of total consumption in :[973 but theirproportion had declined to less than 15% in 1978. The most rapidly growingcategory was agriculture (on average 68.4% per year) as a result of strongGovernment encouragement of this sector and BPDB's efforts to extend elec-tricity supply to rural areas. This activity is expected to receive further

emphasis through the creation of REB (see para 1.12) as well as through

financial and technical support from USAID.

1.24 The main industrial consumption is for jute processing -- more or

less evenly distributed on both grids -- but there are also substantial blocks

of demand for chemicals and cotton textile mills (mostly in the East) and fora steel mill in Chittagong. Other industrial loads include a cement plant in

Chattak, an oil refinery in Chittagong, a shipyard at Khulna, three paper

mills (two in the West, one in the East) and numerous sugar mills which aresiostly located in the West. The present agricultural load consists mainly

of the Ganges - Kobadak Project at Bhermara, the Dacca - Demra Project near

Dacca, and a tubewell project at Thakurgaon in the Northwest.

Forecast of Electricity Consumption

1.25 BPDB has based its power market projections on the extrapolation

of recent historic trends, adjusted to take account of specific development

projects in the various sectors of thte economy. In doing so it deviated from

the projections contained in the UNDP Energy Study (para. 1.26) which, under

the immediate impression of the 1974 oil price increase, had assumed consider-

ably lower consumption increases than had actually materialized. For the

period 1979-85, power consumption is expected to increase at an annual avor.jQe

rate of 14.6%. The forecast rate is 17.6% in the West and 13.6% in the East.

The share of industry in total electricity sales is expected to decrease from

66% in 1978 to some 58% in 1985, and domestic consumption f-rom 14.9% to 12.9%.

As in the recent past, agriculture is expected to be the most rapidly growing

category (40.3% per year). Its share of total consumption would reach 13.9%

in 1985.

BPDB's Development Program

1.26 BPDB's program for power development is based on the UNDP-financed,

ADB administered Bangladesh Energy Study, undertakern in Baag1aiVQ;' I 1'-)75,1?6

by a consortium of foreign consultants. 1/ The major objectives of the study

were: (i) to assess the prospects of utilizing natur-al gas for meeting

internal needs, and to determine the foreign exchange earning potential of

natural gas; (ii) to analyze various interr-elated energy supply projects and

determline their relevance anid priority for implementation up to the end of the

century; and (iii) to recommend an immediate investment program for energy

related projects in the period up to 1985. The study concluded that the

presenrtly known reserves of gas will be used to meet interrnal requirements of

energy and fertilizer production only. Fertilizers should be used locally and

exported only if the domestic demand is lower than the total production.

Liquefication of natural gas for export, or alternatively production of

n-i-irl;ool was not recommended for irmmediate implementation. The study recom--

mended early construction of further gas transmission pipe!lines, and the

expansion of gas distribution facilities to minimize imports of oil.

1/ Montreal Engineering, Canada; Meta Systems, USA.; Snamprogetti Spa,

Italy; and Carlo Lotti Associates, Italy.

1.27 A major recommendation of the Energy Study related to the powersubsector concerns the early construction of the inter-zone transmission inter-connection across the Jamuna (Brahmaputra) River. The energy consultantsexamined alternatives of an electrical interconnection and of a gas pipelinebetween the East and West zone. Both solutions pose difficult technicalproblems but would lead to substantial savings in imported oil which, withoutthe interconnection, would be needed for the operation of power facilities inthe West zone. The consultants recommended an electrical interconnection,consisting of a 230 kV double circuit transmission line across the river. Thisconclusion is in conformity with the findings of a feasibility study for theriver crossing which was completed in 1970.

1.28 BPDB's investment program (Annex 3) is based on the Energy Study.It consists of a number of ongoing projects which include an additional hydro-electric generator under construction at Kaptai (50 MW), an oil/natural gasfired steam unit at Chittagong (60 MW), both in the East zone, and a large(110 MW) oil-fired steam unit at Khulna in the West zone. The decision toinstall the two steam units goes back to the pre-independence period bult the1971-hostilities and the lack of funds have delayed their completion. Theneed for a 110 MW unit in the West zone is now debatable, however, since itwill be commissioned only two years before the scheduled completion of theEast-West interconnection in 1984. BPDB has also decided tc, install severalcombustion turbine units in the West zone as an interim measure to preventfurther deterioration of supply in that part of the country. Extensions tothe 132 kV grid are under construction particularly in the West zone, wherethe presently isolated diesel power systems are being integrated with themain 132 kV grid.

1.29 BPDB's investment program FY79-85 is as follows (for details seeAnnex 3):

Foreign Local Total %--- US$ million------

Generation 274.8 181.1 455.9 49.81ransmission 77.7 62.9 140.6 15.3Distribution 145.1 139.6 284.7 31.1Other 21.0 13.9 34.9 3.8

Total (constant 1978 prices) 518.6 397.5 916.1 100.0Escalation 130.9 152.1 283.0

Total (current prices) 649.5 549.6 1,199.1

A substantial part of the above investment program consists of projectswhich were started in the past when the shortage of funds and the totaldependence on foreign aid for imported equipment prevented BPDB from adheringfully to the least cost investment program suggested in the energy study. Inorder to place power system planning on a sound basis, the Government, withthe assistance of BP'DB's planning department, will establish a long-range

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power development plan for the country which is based on least cost solutionsand the availability of local fuel resources. The plan will also be useful inidentifying future projects to prospective donor countries/ agencies for theirfinancing. During negotiations the Government agreed to prepare and furnishto the Association for its review not later than June 30, 1980, a draft of thelong-range power development plan; agreement was also reached on an annualreview of the plan in consultation with IDA.

II. THE BENEFICIARY

Historic Background

2.01 Prior to the 1947 partition, the power sector of East Bengal haddeveloped on a private basis. Between 1947 and the late-1950s, a gradualinvolvement of the Government in the sector occurred, at first through theGovernment's Electricity Department and later through its Electricity Director-ate. During this period, the Government took over a number of private utili-ties and also developed additional power facilities, mostly, in the form ofisolated generating stations feeding local distribution networks. In 1959,the East Pakistan Water and Power Development Authority (EE'WAPDA) was createdto assure control of water resources and power development throughout the pro-vince. In combining power and water (irrigation) operations, the Governmentexpected that the operation of multipurpose hydroelectric (lams and the agri-cultural demand for power could be closely coordinated. EPWAPDA's power wingtook over the Electricity Directorate with all Government-owned power facili-ties and gradually expanded by absorbing more private utilities. It alsocommenced the task of integrating the main market areas in the east and westzones of the country.

BPDB's Corporate Existence and Responsibilities

2.02 However, since there was no major site in the country suitable foreconomic development of multipurpose projects, and realizing that EPWAPDA'spower wing could be operated on a commercial basis whereas the water wing isentirely dependent on the Government: budget, the Government decided to sepa-rate the two activities. Consequently, President's Order No. 59 of 1972 (asamended) created the Bangladesh Water Development Board (BWDB), responsiblefor the development and utilization of the country's water resources andflood control, and BPDB, both under the supervision of the Ministry forPower, FLood Control and Water Resources.

2.03 Although conceived as a semi-autonomous body wit:h corporate status,BPDB in fact functions as a Government department charged with the responsi-bility of carrying out Government instructions which are not only concernedwith policy decisions but also with day-to-day matters. ]3PDB's main respon-sibilities are (for details see Annex 4):

(a) preparation, for Government approval, of a comprehensiveplan for the development and utilization of power resources

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as well as schemes for construction, maintenance and opera-tion of power facilties;

(b) construction and operation of generation, transmission anddistribution facilities; and

(c) control over the operation of private power facilities, whennecessary.

Organization and Management

2.04 The Board's management consists of a Chairman and not more thanfive members, aLl appointed by the Government. They are responsible forgeneration/transmission, distribution, finance, personnel/training and plan-ning. 1/ The period, terms and conditions at which the Chairman and themembers are appointed are solely at the discretion of the Government. Ap-pointments and dismissals can be made by GOB at any time. This has led in thepast to frequent turnover and, despite the fact that most of the personspromoted to top management positions have been chosen from among the membersof BPDB's staff, has resulted in lack of continuity. Also the Governmentoccasionally appoints individuals from outside BPDB. This would not beundesirable if the candidate chosen had the proper background, but civilservants with little experience in the specific field have sometimes beenappointed, on a fixed-term secondment basis, which also results in lack ofcontinuity.

2.05 BPDB's organization as illustrated in Annex 5 suggests welldefined lines of responsibility. In fact, however, this is not so. Thereis little delegation of authority within the Board leading to excessivecorncentration of decision making at the level of top management. Overstaffingcreates inefficiency and cumbersome administrative procedures, and, last butnot least, the lack of an efficient internal reporting system leaves managersat all levels insufficiently informed about the actual status of BPDB's opera-tions and finances.

2.06 As indicated in paragraph 2.03, BPDB has only limited autonomy.GOB has retained responsibility not only for policy formulation concerningelectric power development within the framework of the country's overalldevelopment plans, but also for day-to-day matters such as creation of person-nel positions and appointment of BPDB's officers, salary levels and structureas well as budget approval and control. Although undesirable in the contextof effective management, this is understandable in view oi- GOB's policyto control the major sectors of the economy. However, the Government hasindicated that it wishes to use BPDB's expertise in system planning forestablishment of the long-range power development plan for the country (para1.29). This is an important assignment ior BPDB involving the most suitableentity in the process of power sector planning.

1/ The Member Planning has just been appointed.

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Management Improvement Effort

2.07 ADB has taken the lead among aid agencies in trying to improve theBoard's efficiency. In the context of four previous loans, ADB has financed athorough review of BPDB's management (para 4.09).

2.08 Recognizing that BPDB's improvement cannot be achieved solely throughmanagerial changes, ADB initiated or supervised the following additionalactivities:

(a) preparation of the Bangladesh Energy Study (para 1.26),which includes extensive recommendations concerningthe power sector;

(b) preparation of a countrywide Power System RehabilitationProgram (para 4.08);

(c) provision of consulting services for establishing andintroducing an accounting system based on commercialaccounting principles (para 4.22); and

(d) provision of consulting services for studying BPDB'slevel and structure of tariffs (para 4.12).

2.09 Most of the above-described activities are just being started orhave been started only recently. This accounts for the fact that BPDB isstill a utility with substantial deficiencies which under normal circumstanceswould suggest: the introduction of a major institution building effort on thepart of IDA. However, under the prevailing circumstances, reinforcement ofADB's endeavors rather than starting of new activities is considered moreconducive to BPDB's recovery.

Personnel

2.10 As of February 1979, BPDB had a staff of 20,200 of whom about 32%were unskilled (messengers, sweepers). This translates to about one employeefor 20 customers and less than 40 kW installed capacity per employee. Thisis excessive even when considering that BPDB's supply area is widespread andthat most of the recording, in particular accounting and billing, is carriedout manually. Salary and wage scales are set by the Government and are sub-stantially lower than those in the private sector. When retirement benefitsare taken into account, the Board's salaries are even lower than those paidby GOB.

2.11 ADB's management consultant (para 2.07) has made a number of recom-mendations on how to improve personnel management. However, the Government'spractice of imposing its ideas about personnel management and structure, whichmay be appropriate for Government departments but are counter-productive whenapplied to a public utility, is bound to. make progress very slow. The intro-duction of a promotion system that is based not only on seniority but also onperformance would be an improvement.

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Trainiing

2.12 Despite BPDB's large number of staff, there is a shortage of trainedpersonnel. This is mainly due to insufficient training because of shortage oftraining material and resignation of personnel, usually the highly qualifiedand ambitious employees.

2.13 Annex 6 describes in some detail the schooling and training facili-ties available in the country and within the Board for the Icind of personnelrequired for an electric power ut:ility. This project includes assistancefor BPDB's training center in Khulna where mainly training for power dis-tribution specialists (foremen, linemen, cable jointers) is being carriedout (para 3.01). An extension of the training activities to cover operationand maintenance for power stations is being contemplated. After completion ofthe training center, an annual training capacity of about 300 employees isenvisaged.

III. THE PROJECT

Objectives

3.01 The proposed project is intended to:

(a) rehabilitate, reinforce and expand the distribution systemsin the urban areas of the Khulna district, located in thesouthwestern part of the country;

(b) provide training facilities and teachers for BPDB's trainingcenter in Khulna; and

(c) contribute to an institution building effort throughstrengthening BPDB's planning capability and improvingits financial situation.

Description

3.02 The Project consists of:

(a) the improvement and development of the urban distributionnetworks in the four towns of the Khulna district -- Khulna,Bagerhat, Mangla and Satkhira -- involving approximately:

- 130 km of 33 kV overhead lines,

- 3 transformers of 132/33 kV, totalling 150 MVA,

- 8 substations, 33/11 kV, totalling 60 MVA,

- 105 pole mounted transformers, 33/0.415 kV,totalling 14 MVA,

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500 km of 11 kV overhead lines,

150 km of 11 kV and low voltage cables,

520 pole mounted transformers, 11/0.415 kV,totalling 80 MVA,

rehabilitation of 33 kV, 11 kV and low voltage linestotalling 320 km,

- 33,000 new consumer connections,

- 20,000 rehabilitated connections;

(b) service vehicles and communication equipment;

(c) consulting services for project engineering and implementation;

(d) training equipment and training of personnel; and

(e) operational buildings and staff quarters.

Project Cost

3.03 The estimated cost of the project is US$44.2 million equivalent,of which US$20.4 million represent the foreign exchange component based onthe exchange rate at the time of appraisal. The estimated cost of the proj-ect is set out in Annex 7 and summarized below:

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------ Tk million ----- ----- US$ million ----Foreign Local Total Foreign Local Total

Substations 73.0 7.7 80.7 4.7 0.5 5.2Overhead Lines 87.1 49.0 136.1 5.6 3.3 8.9Cables 58.4 3.1 61.5 3.8 0.2 4.0Consumer Services 8.6 27.0 35.6 0.5 1.7 2.2Service Vehicles andCommunication Equipment 0.2 6.5 6.7 - 0.4 0.4

Buildings - 43.9 43.9 - 2.8 2.8Local Freight - 20.2 20.2 - 1.3 1.3

Engineering 12.7 2.8 15.5 0.8 0.2 1.0Training 10.1 6.2 16.3 0.7 0.4 1.1BPDB's Administration - 43.3 43.3 - 2.8 2.8

250.1 209.7 459.8 16.1 13.6 29.7

Contingencies:Physical 22.7 15.8 38.5 1.5 1.0 2.5Price 42.8 85.3 124.5 2.8 5.3 8.1

Total Project Cost (beforeduties and taxes) 315.6 307.2 622.8 20.4 19.9 40.3

Duties and Taxes - 60.5 60.5 - 3.9 3.9

TOTAL PROJECT COSr 315.6 367.7 683.3 20.4 23.8 44.2

3.04 The estimates were developed by BPDB. They are based on late-1978prices and were established taking into account recent projects of a similarnature in Bangladesh. Engineering and supervision are estimated at about 2%of the total project cost and correspond to an average of about US$7,500 perman-month plus direct expenses. The project cost includes US$1.2 millionfor training equipment and training of personnel 1/. Duties and taxes averag-ing about 21% for imported equipment and materials were added in accordancewith local regulations. Physical contingencies of 10% on equipment, materialsand civil works, and price contingencies of 7% per year on the foreign costand 10% on the local cost (12% in FY80) were allowed for.

Project Financing Plan

3.05 Cofinancing among IDA, the OPEC Special Fund anc[ GOB is envisaged forthe project. IDA and the OPEC Special Fund would enter into a joint financingarrangement with both parties financing a certain percentage of the foreign

1/ US$480,000 for trainers, US$260,000 for training equipment andUS$460,000 for civil works (school buildings and accomodationfacilities for trainees).

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cost of the project equipment items. IDA would administer the funds providedby OPEC under standard procedures applicable to the OPEC Special Fund. To beassured of a complete financing plan of the project, signing of the OPECSpecial Fund Agreement has been made a condition of Credit effectiveness. Inaddition, IDA would finance the expected total cost of training and projectengineering. IDA funds would also cover local freight, project constructionand erection, and civil works connected with the project (operational buildingsand staff quarters). GOB would provide budget funds for BPDB's administrativecosts and the duties and taxes payable on imported equipment and materials. 1/Under the above assumptions, the following financing plan would ensue:

Foreign Local Total---- US$ million ----

OPEC

Equipment and Vehicles 8.5 - 8.5

IDA

Equipment 10.1 6.3 16.4Construction and Erection - 3.0 3.0Civil Works - 4.2 4.2Local Freight - 2.0 2.0Training 0.8 0.4 1.2Engineering Consultants 1.0 0.2 1.2

Total IDA 11.9 16.1 28.0

GOB

BPDB's Administration *- 3.8 3.8Subtotal (net of dutiesand taxes) 20.4 19.9 40.3

Duties and Taxes(GOB financing) - 3.9 3.9

TOTAL FINANCING REQUIREMENT 20.4 23.8 44.2

The above financing plan shows that IDA would finance aboult 70% of the totalproject cost excluding duties and taxes, the OPEC Special Fund about 21%,and the Government about 9%.

1/ 20% duties on equipment and machinery and 75% on cars and trucks (pre-ferential rates for BPDB). There is also a 1% local octroi tax on thec.i.f. value of imported goods levied in the municipalities where thegoods are used.

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Engineering and Implementation

3.06 BPDB has prepared the feasibility study for the proposed projectwith IDA advice using the experience gained with similar projects in thecountry. The study has been adequately carried out. For p:roject design,drafting of specifications, bidding documents and contracts, and supervisionof project implementation, BPDB will employ consultants who would be expectedto develop the capabilities of BPDB's own staff through transfer of knowledgeduring implementation of this distribution project. This is designed to lead

to a gradual reduction in future consulting requirements. Selection of theengineering consultants is a condition of Credit effectiveness.

3.07 BPDB plans to establish a project unit in Khulna headed by a full-time engineer (project manager) with adequate network construction experience.The project manager has been appointed. This unit will be responsible forappropriate and timely execution of the project, it will supervise the con-sultants, organize and operate the project stores and warehouses and willhave a major input in the evaluation of bids and decisions on contract awards.The unit's first important task will be the initial field survey which wouldprovide the consultants with the basic data for project design.

3.08 The construction of the project is expected to take about fouryears during the period 1979/80 through 1982/83.

Storage of Materials

3.09 The review of BPDB's warehouse and storage control systems inKhulna reveaLed serious deficiencies. Since the introduction of a reliable

store control system, to be developed by BPDB's accounting consultants (para4.22), is bound to take a long time, an interim arrangemeni: has to be used toensurE that materials procured under the proposed credit would not be subjetto pilferage and that they would actually be used for the proposed project.Consequently, the following arrangements were discussed for early implementa-tion:

(a) sufficient space should be set aside in a clearly separatearea of BPDB's Khulna warehouses for equipment procuredunder the proposed credit; and

(b) separate records should be kept for the project materialsshowing:

(i) the material received (physical item, value!,freight, taxes and duties);

(ii) the location of the material in the storage area; and

(iii) the location of its installation.

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Procurement

3.10 Supplies and equipment will be procured through international compe-titive bidding in accordance with the Association's guidelines. There arelocal manufacturers who may be able to participate successfully in the biddingprocess for certain items. In this case, the standard 15% preference on thec.i.f. price, or the prevailing duties, if lower, would be applicable in bidevaluation. Items valued below US$20,000 aggregating to not more thanUS$200,000 may be procured in accordance with international shopping proce-dures. The project also includes construction and erection work. However, thecontracts involved are small and consequently, local competitive bidding inaccordance with the country's procedures would apply.

3.11 Construction and erection of the project will be carried out toa large extent by local contractors with only minor portions left to BPDB'sown staff for execution (house connections, small civil works). Earlierprojects of a similar nature have shown that BPDB's staff is capable ofcarrying out the minor erection work.

Disbursements

3.12 Disbursements of the proposed IDA credit would ccver:

(a) 90% of civil works;

(b) 54% of the equipment procured overseas;

(c) 80% of locally procured equipment to allow for importedduties and taxes, and 100% of locally manufactured equipment(ex-factory);

(d) 100% of equipment installation;

(e) 100% of training equipment and services;

(f) 100% of engineering services; and

(g) 100% of local freight.

The expected disbursement schedule is shown as Annex 9.

Project Approval

3.13 Project approval involves various steps within t:he Government and,consequently, can be a time consuming process. The proposed project has beenincluded in Bangladesh's Annual Development Program and authorization forincurring expenditures has been granted; however, approva:L of the project byPEC and ECNEC (para 1.11) is still outstanding. Since full Government supportis considered essential for the successful implementation of the project,Government approval of the Project Proforma (summary of project data) isa condition of Credit effectiveness.

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IV. FINANCIAL ASPECTS

Past Financial Performance

4.01 It is not possible at: this stage to judge reliably BPDB's pastfinancial performance because of serious deficiencies in recording. Under thepresent accounting system, the recording of revenues is on an accrual basiswhereas expenditures are recorded on a cash basis. Materials and supplies are

frequently charged to expense and riot to inventory, irrespective of their use,

resulting in doubtful accounting control over purchased stock. Fixed asset

accounting is unreliable. Depreciation is charged at 3.2% on a straight linebasis which appears low. However, the fact that depreciated assets are notbeing eliminated from the books partially counteracts this lower depreciation

charge.

4.02 In view of the above-mentioned deficiencies, BPDB's accounts canbe regarded only as indicative of trends. Therefore they have not been inc-

luded in the financial statements of this report. However, they show a clearlyand quickly deteriorating trend of BPDB's finances which is expected to reverse

only with the next tariff increase in FY80 (para 4.11). This trend has resul-ted in the Board's inability to cover its cash operating expenses in FYs78and 79 (Annex 10), and in total cash deficits of about US$:[7.5 million in FY78and US$10 million in FY79 (49% and 22% of revenues).

The Financial Recovery Plan

4.03 To reverse BPDB's rapidly deteriorating financial situation, whichis a consequence of inefficient operation as well as inadequate tariffs, the

Government and BPDB prepared a financial recovery plan designed to reachthrough specific steps gradual cost coverage by revenues in FY81/82. ADBagreed with this approach and included the total plan as a financial covenantin the documents of its recent Chittagong Power Distribution Project loan.

4.04 The plan includes the following major elements:

(a) restructuring of BPDB's debt to the Government (para 4.15);

(b) separating rural electrification investments and theirfinancing on the basis of GOB grants;

(c) creating a standing committee and a tariff cell withinBPDB with the responsibility of revising the power tariffsfrom time to time;

(d) reducing unit cost for fuel by 15% by 1980;

(e) reducing system losses, including station consumption,to 20% of gross generation by .1980;

(f) restricting escalation of operating costs to 5% per

year starting in FY78;

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(g) charging depreciation at the rate of 3.2% (straight-line method);

(h) paying to GOB the surplus remaining after allowing foroperating expenses, interest and depreciation; and

(i) reducing the accounts receivable to a three-monthbilling level.

4.05 The mission's review of the contents of the activities connectedwith the financial recovery plan as outlined above revealed that the planis a commendable attempt to improve BPDB's operations and to restore itsfinancial viability and that it could form the framework for the management/financial covenants to be proposed for inclusion in the credit documents.However, some of the targets have become infeasible from a technical as wellas an economic point of view. For instance, it does not appear possibleto attain a level of only 20% losses including station consumption; the fuelcost reduction by 15% and the restriction of operating cost escalation to 5%per year seem doubtful; and the three-month billing level of accounts receiv-able is not too indicative of success in the face of non-billing of about 67%of BPDB's customers (para 4.23). The Government and BPDB have thereforeundertaken a review of the most urgent aspects of the Plan in order to estab-lish a program of priority actions which, together with the necessary tariffincreases would permit BPDB to cover its costs through revenues in FY82,and to cover a reasonable return on investment thereafter.

4.06 The most urgent aspects of the financial recovery plan are:

(a) a program designed to reduce BPDB's system losses;,

(b) a power system rehabilitation program;

(c) a management improvement effort; and

(d) a tariff increase of at least 38% designed to improvequickly BPDB's financial position.

4.07 System Loss Reduction Program. After analyzing tlhe causes for BPDB'shigh system losses (para 1.21) and establishirng a reasonable estimate of thetimeframe within which a gradual improvement can be achieved, BPDB agreed thatit will take all steps necessary to ensure that the following levels of systemlosses, including station consumption, are reached:

Percent of TotalElectricity Generation

FY79 (actual) 37FY80) 34FY81 31FY82 29FY83 27FY84 25FY85 23

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BPDB also agreed to ensure that from FY85 the technical losses in its dis-tribution network together with non-technical consumption (losses due todefective metering and billing) do not exceed 18% of BPDB's electricitygeneration.

4.08 Power System Rehabilitation Program. Financed from funds of ADB,BPDB is presently carrying out a power system rehabilitation study with theassistance of consultants. This study will establish the scope of the neces-sary rehabilitation of BPDB's system, will define the financial and technicalresources required, and will draft guidelines and schedules for planning ofsystem maintenance. It will also assist BPDB in identifying methods andformulating procedures for securing in a timely manner the foreign exchangeallocation necessary for spare parts, equipment and material for the contin-uing regular maintenance of the power system. Upon completion of the study,which is expected not later than June 30, 1980, BPDB will consult with IDA onthe steps to be taken in implementing the recommendations of the study. Closecoordination will be maintained with ADB during the consultations.

4.09 Management Improvement Effort. With financial assistance by ADB, anindependent expert has carried out a review of BPDB's management. The experthas recommended a partial reorganization of BPDB with the objective of provid-ing more delegation of responsibility to lower levels of management, spreadingthe workload more evenly, removing overlaps of responsibilities and establish-ing new office procedures where required. The. draft management report of theexpert has recently been submitted to the Government for consideration. TheGovernraent and BPDB have agreed to consult with IDA, not later than December 31,1979, on the action to be taken in implementirng the recommendations in themanagemenit report in accordance with a timetable satisfactory to the Govern-ment, BPDB and IDA. The consultations will be coordinated with ADB.

4.10 Tariffs. As described in previous paragraphs, BPDB's poor financialperforrmance is not only the result of its inefficient operations but also ofinsufficient earning levels. Revenues average USJ3 per kWh sold which, althoughcomparable to neighboring countries, would be too low even if BPDB's systemwere operated efficiently. Tariff levels also appear to be considerablybelow the long run marginal cost of supply on the basis of BPDB's presentinvestment program. Government approval is required for tariff adjustmentswhich is a difficult and time consuming process. BPDB's present rates havebeen in effect since 1974. The present application for a 38% rate increase,pending) since early-1977, will be implemented finally in July 1979.

4.11 BPDB's tariffs should cover operating costs, interest charges, depre-ciation, amortization of debt as far as it exceeds depreciation and taxes, andshould provide a reasonable return on investment (Section 26 of President'sOrder No. 59). BPDB stated that, except for the year after the last tariffincrease, GOB has never permitted tariffs to be increased to meet the require-ments. A series of gradual tariff adjustments will be required to reach thislevel. As a first step toward reaching finarncial viability and toward achiev-ing the targets mentioned in paragraph 4.13, the Government and BPDB plan to

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increase BPDB's tariffs by at least 38% on July 1, 1979. Implementation ofthis tariff increase is a condition of Credit effectiveness. To facilitatesubsequent tariff adjustments, the Government and BPDB indicated their will-ingness to explore the feasibility of the early introduction of an automaticfuel adjustment clause in BPDB's tariffs.

4.12 The structure of the electricity tariffs in Bangladesh does notreflect the cost of service. Industrial and commercial consumers are beingcharged more than twice the rate of domestic and agricultural customers.This reflects the Government's practice of subsidizing the poorer segment ofthe economy. Financed with funds from the Ministry of Overseas Developmentof the United Kingdom (ODM), a team of tariff experts of the British firms ofCoopers & Lybrand Associates Ltd. and Preece, Cardew and Rider has arrived inthe country to carry out a tariff study. The study is expected to make recom-mendations for a tariff structure that will reflect as closely as possiblethe long-run marginal cost (LRMC) of supply for different classes of consumers(terms of reference are in Annex 12).

Future Improvement

4.13 As an indication of the effectiveness of BPDB's improvement effortsoutlined in paragraphs 4.07-4.09 as well as the Government's effectiveness inpermitting adjustment of tariffs as and when required, BPDB has agreed to takeall action necessary to achieve operating ratios 1/ of at Least 135 percentin FY80, at least 120 percent in FY81 and at least 100 percent in FY82.

4.14 As described in paragraph 4.01, the present status of BPDB's accountsdoes not permit judgment about the value of its assets and casts doubt on theaccuracy of recording in general. It is, therefore, not possible to designat this stage a conventional earnings covenant which could be applied afterrecovery in FY82. For establishing such a covenant, effective introductionof the commercial accounting system designed by the accounting consultant(para 4.22) must be awaited. Consequently, agreement has been reached duringnegotiations that BPDB will take all action necessary on its part to ensurethat, with effect from FY83, tariffs are set at levels that will provide reve-nues 3ufficient to cover its administrative and operating expenses (includingmaintenance and adequate provision for depreciation), and taxes and other pay-ments to the Borrower, if any, and that will produce an annual rate of returnon BPDB's currently valued net fixed assets in operation sufficient to coverall interest payments and other charges on debt, adequiate provision for baddebts, and repayment of debt when due as far as such repayment exceeds depre-ciation, and to finance a reasonable portion of BPDB's investment program.

1/ Operating and maintenance expenses including depreciation, taxes, in-terest and provision for bad debts divided by operating revenues.

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Debt Restructuring

4.15 Before FY78, all Government capital input was in the form of loansat varying terms. 1/ To ease BPDB's financial burden, the Government decidedin early 1978 that as part of the Financial Recovery Plan BPDB's debt shouldbe restructured as follows 2/:

(a) conversion of all pre-liberation Government Rupee loansto equity shares subscribed by GOB;

(b) conversion of 50% of the post-liberation Government Takaloans to equity shares subscribed by GOB;

(c) conversion of 50% of the post-liberation Government Takaloans granted up to Juiie 30, 1977 to a 25-year loan in-cluding 5 years of grace. The interest rates chargedremain unchanged;

(d) conversion of 50% of the post-liberation Taka loans grantedafter June 30, 1977 to a 25-year loan including five yearsof grace with interest at 5% per year.

(e) foreign loans obtained up to June 30, 1977 remain unchangedin the books of BPDB;

(f) conversion of foreign loans obtained after June 30, 1977to a 25-year loan including five years of grace withinterest at 5% per year; and

(g) in the case of loans for which specific relending terms areagreed with the donors, such relending terms will prevail.

Future Financial Situation

4.16 BPDB's financial situation as it is expected to develop duringthe next several years is summarized in the following table:

1/ l'he equity capital included in the balance sheets before FY78 consistsmainly of the balancing amount for the value of the fixed assets at the!time of transfer to BPDB.

2/ Decree of the Ministry of Power, Flood Control and Water Resources No.GOB-VII/5-Misc 69/76 (Pt-I)/59 in concurrence with the Ministry ofFinance.

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Net Internal Cash Generation Debt/Operating Rate of as % of Investments Equity

FY Ratio Return /a (annual) (3-year average) Ratio

1978 159 - - - 61:39(actual)1979 183 - - - 63:371980 133 - - - 69:311981 117 - - - 72:281982 100 3.5 7 1 72:281983 98 3.8 10 6 72:281984 88 5.9 23 13 70:301985 84 6.8 21 18 69:31

/a On average, net fixed assets in operation. The rates of return areconsidered reasonably realistic although no revaluation of the ratebase has been carried out. This is because BPDB's assets appear over-valued due to the insufficient depreciation charge as well as the muchlower than normal life expectancy of most of BPDB's assets because ofinsufficient maintenance.

To arrive at the above results, BPDB would have to increase its averagetariffs by 38% on July 1, 1979, 20% on July 1, 1980, 17% o01 July 1, 1981 and9% on July 1, 1983, raising the average revenues per kWh sold from the presentUJSJ3 to US(14.2 after the next increase (July 1, 1979) and 1JS¢6.5 at the endof the forecast period (FY85). The magnitude of these adjustments, however,is influenced to a large extent by the assumed cost inflation factors (seeAnnexes 3 and 10). At constant price levels (1978/79), the tariff increasesrequired to arrive at similar results would be about 35% on July 1, 1979, 14%on July 1, 1980 and about 10% on July 1, 1981. The average revenues per kWhsold in FY85 would increase only to about USJ5.

4,17 Another factor with substantial adverse effect on the power tariffsin Bangladesh are BPDB's system losses which at present amount to 37% of grossgeneration (including station consumption -- para 1.21). If BPDB's losseswere at a level considered appropriate for its system (about 23%), annual fuelsavings of about Tk 120 million would materialize. This is equivalent tosavings in fuel cost of 7 paisa per kWh sales. This analysis underscores theurgent need for an effective loss reduction program (para 4.07).

4.18 Fuel accounts for about 50% of BPDB's operating costs excludinginterest. This is a comparatively large proportion even when consideringthat BPDB's system i.s predominantly thermal (between 75% and 80% of grossgeneration). It illustrates:

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(a) the inefficiency of BPDB's system. Station breakdownsnecessitate frequent stop/go operation, and shortage ofreliable base load capacity requires base load operationof gas turbines which have a low fuel efficiency; and

(b) the inadequate maintenance which causes station breakdownsas well as higher than normal specific fuel consumption.

Financing Plan

4.19 Applying the targets described in paragraph 4.13 and assuming areasonable financial development thereafter, BPDB's financing plans duringFYs79-83 (project construction) and the forecast period FYs;79-85 are asfollows:

FY79-83 FY79-85Tk US$ Tk US$

Million Million % Million Million %(equivalent) (equivalent)

Sources

Gross Internal Sources 1,836.9 118.5 - 4,799.3 309.6 -

Less: Debt Service 1,690.5 109.1 - 3,168.9 204.4Net Internal Cash Generation 146.4/a 9.4/a 1.1T T,630.4/a 105.2/a 7.9

External Sources

GOB Equity Contribution 3,177.8 205.0 23.1 4,758.4 307.0 23.0GOB Subsidy 400.0 25.8 2.9 400.0 25.8 1.9Foreign Currency Loans 7,133.9 460.3 51.9 11,003.3 709.9 53.3Local Currency Loans 2,876.9 185.6 21.0 2,876.9 185.6 13.9Total External Sources 13,588.6 876.7 98.9 19,038.6 1,228.3 92.1

Total Sources 13,735.0 886.1 100.0 20,669.0 1,333.5 100.0

Applications

Investments 13,451.0 867.8 97.4 20,288.0 1,308.9 93.2Variations in Working Capital 284.0 18.3 2.6 381.0 24.6 1.8

Total Applications 13,735.0 886.1 100.0 20,669.0 1,333.5 100.0

/a BPDB claims that it also collects consumers' capital contributions.Since the method of their recording is unclear at the moment, noallowance has been made in the financing plan thus probably under-stating somewhat the net internal cash generation.

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4.20 The financing plan shows that BPDB is only able to finance about1% of its requirements from internal cash generation during the project con-struction period. However, with the expected improvement of its finances,it should be able to finance internally about 22% during FYs84 and 85 whichwould bring the average for FY79-85 up to about 8%. The Government is ex-pected to provide from its budget resources about Tk 8 billion (equity andsubsidy input and local currency loans) during FYs79-85, whereas Tk 11.0billion have to be raised in foreign currency borrowing (about Tk 4 billionhave been secured). Consequently, the total inflow from the Government toBPDB amounts to Tk 19 billion whereas the flow of funds from BPDB to theGovernment (debt service and customs duties and taxes) during the sameperiod is estimated at Tk 6.6 million, leaving a net Government input ofabout Tk 12.4 billion (US$790 million equivalent).

Onlending Terms

4.21 The Government will onlend the proceeds of the proposed Credit toBPDB at 5% interest and a term of 25 years including 5 years of grace. Theterms include a substantial concessionary element 1/. However, they formpart of GOB's financial recovery plan for BPDB (para 4.15) and are appropriategiven BPDB's unfavorable financial position. Conclusion of the onlendingarrangement between the Goveriunent and BPDB is a condition of Crediteffectiveness.

Accounting Consultants

4.22 Financed from funds of a technical assistance credit of ADB, BPDBhas appointed the firm of Sycip, Gorres and Velayo (SGV) of the Philippinesfor design and implementation of a commercial accounting system appropriatefor a public utility enterprise (for details see Annex 11). The consultantshave completed the design stage of their assignment and GOB and BPDB haveaccepted their proposal. With the assistanice of local consultants (Messrs.S.F. AUhmed & Co.), SGV has recently commenced the implementation of thesystem together with a training program for ]3PDB's accounting staff in

1/ During the past three years, the inflation in Bangladesh (GDP deflator)developed as follows:

1975/76: -12.3%1976/77: - 5.3%1977/78: 6.2%

In the future, the following trend is expected:

1978/79: 11.0%1979/80: 9.5%1980/81: 8.5%

With Government approval, BPDB borrows small amounts in the local capitalmarket through issuance of bonds at about 9% interest and a term of about20 years including five yeats of grace. BPDB bears the full foreignexchange risk.

- 26 -

system application (training of about 20 local teachers). This assignmentis estimated to take about three years. At present, BPDB plans to apply thenew system for FY79 and thereafter. It is uncertain at the moment when theseannual accounts will be issued, but progressive improvement can be expected.

Billing and Collection

4.23 At the end of FY78 BPDB had 403,500 customers of which 171,500 wereclassified as industrial and commercial and 228,500 as domestic. In addi-tion BPDB supplied about 2,500 agricultural consumers and had on an average1,000 temporary connections. BPDB's billing and collection record is unsatis-factory. This is not readily recognizable since BPDB's bociks indicate thatthe accounts receivable on average do not exceed four-month billing. In fact:,however, BPDB actually bills only about 67% of its customers which not onlyresults in loss of revenues but also in an understatement of the amounts out--standing versus total revenues from sales of power 1/. Consequently, arequirement which limits accounts receivables to a predetermined proportionof revenues or billing would not be appropriate because it would either compareaccounts which are not comparable or would not provide incentive for improve--ment. It is, therefore, proposed to rely on the gradual introduction of thenew billing and collection system developed by the accounting consultants(Annex 11) which is expected to considerably improve consumner accounting.Improvements will also occur in the context of the loss reduction program(para 4.07).

Audit

4.24 President's Order No. 59 stipulates that the Government may, forany year, appoint one or more auditors to audit the accounts of BPDB. Inaddition, the Auditor-General of Bangladesh may, either on his own initiativeor upon request by GOB, undertake such audit of BPDB's accounts as is con-sidered necessary. The Auditor-General's Office is not equipped for carryingout a commercial audit and confines its activities to Government-type auditing.

4.25 During the last three years, no audit has been carried out mainlybecause of the deficient state of BPDB's accounts. For the same reason, itwould not be meaningful to request an audit before the new sytem of accountsis introduced which is planned for FY79 and thereafter. Ilowever, closingof the FY79 accounts may take a long time, since it is the first test year.BPDB has agreed during negotiations to have its accounts audited annuallyby independent auditors acceptable to IDA ccmmencing FY79. The auditor'sreport wiLl be made available to the Association as early as possible and,starting FY82 (expected completion date of the consultants' assignment) notlater than six months after the close of any fiscal year.

1/ The meter readers report a larger number of readings, which form thebasis for calculating the revenues, than get actually billed later.

- 27 -

Insurance

4.26 BPDB carries insurance for most of the insurable risks normallyassociated with the operation of a power utility. All insurance contractsare entered into with the national insurance company. Contrary to the experi-ence of other enterprises, BPDB states that it has not had major problems insettling insurance claims. Random checks substantiate this statement. Thissuccess seems to be due to an energetic staff in BPDB's insurance department.BPDB is not insured against risks of fire and the mission advised BPDB toinvestigate the economy of entering into such insurance arrangements. BPDBindicated that it would do so.

Rural Tariffs

4.27 The present legislation concerning REB (para 1.12) is silent aboutthe level and structure of the tariffs to be charged to rural bulk customers.This is a potential threat to BPDB's financial viability because BPDB couldbe directed by the Government to sell power at subsidized rates without beingreimbursed for the financial shortfall. The Government's policy calls foroperation of BPDB on a commercial basis whereas rural electrification wouldbe subsidized. The Government has confirmed that it wishes to adhere to thispolicy. Consequently, agreement has been reached during negotiations thatBPDB will take all action necessary to ensure that tariffs 2Eor the supply ofelectricity to REB and the Rural Cooperatives are set at levels sufficient tocover the cost associated with BPDB's assets and operation required to pro-vide such electricity supply and to produce an annual rate of return on BPDB'scurrently valued net fixed assets in operation required to provide suchelectricity supply which is at least equivalent to the annual rate of returnBPDB earns on its total assets.

V. JUSTIFICATION

Demand

5.01 The project is required for strengthening and expanding BPDB'sdistribution facilities in the area of Khulna and its environs and to meetreliably the growing demand, particularly industrial demand, in the area. Theexisting distribution system is already heavily loaded, and without thenecessary rehabilitation severe overloading could not be avoided even if thenumber of customers does not increase. Partial or total blackouts for varyirnglengths of time occur frequently, occasionally several times per day, whichhas led to complaints by industrial customers about erratic power supplydisrupting the manufacturing process. Some industries, for instance, atelephone cable manufacturer, have had to resort to the installation of theirowII diesel generation, which is being operated permanently to maintain thosemanufacturing processes which, when interrupted, would cause major damage tothe manufacturing plant and/or product.

- 28 -

5.02 Judging from past trends and taking into account future increasesexpected to materialize on the basis of waiting lists and plans for industrialexpansion, the demand for electricity is expected to develop in the projectarea as follows:

Fiscal Years 1978 1984 1988(actual)

Khulna

Maximum Demand (MW) 30 62 74Sales (GWh) 87 211 368

Mangla Port

Maximum Demand (MW) 0.3 8 10Sales (GWh) 0.4 29 48

Bagerhat

Maximum Demand (MW) 1 2 3Sales (GWh) 2 8 16

Satkhira

Maximum Demand (MW) 0.5 1 2Sales (GWh) 1 4 9

TOTAL PROJECT AREA

Maximum Demand (MW) 31.8 73 89Sales (GWh) 90.4 252 441

As in t:he past, around 66% to 68% would be industrial demand. A higher shareof industrial demand is expected in Mangla where, with aid from Yugoslavia, amajor commercial port is under construction. Other industries include cablefactories, jute mills, steel mills, fish processinlg and marketing, and coldstorage.

Economic Rate of Return

5.03 Because the project consists of a part of BPDB's complex rehabili-tation and expansion program, it is not possible to separate in a meaningfulway that portion of the incremental benefits which can be attributed to it.An internal economic rate of return (IERR) on the project can therefore notbe computed. Instead, the IERR on the time slice FYs79-83 (project construc-tion period) of BPDB's total investment program, of which the project forms apart, has been calculated (for details see Annex 13). The return is about 8%.This indicates that the tariff, even afte.r the impending tariff increase of38% (para 4.11), is below the average incremental cost of supply. ImpleTmenta-tion of further tariff increases is, therefore, necessary.

- 29 -

Risks

5.04 The project is straightforward and easy to implement. From atechnical point of view no major risks are foreseen at this time. Costestimates have been made conservatively minimizing to the extent possiblethe risk of cost overruns even if some implementation delays should occur.

VI. AGREEMENTS REACHED AND RECOMMENDATION

Conditions of Credit Effectiveness

6.01 Before declaring the proposed Credit effective, the followingconditions should be met:

(a) signing of the OPEC Special Fund Agreement (para 3.05);

(b) selection of the engineering consultants (para 3.06);

(c) Government approval of the Project Proforma (para 3.13);

(d) effective implementation of a tariff increase of atleast 38% (para 4.11); and

(e) conclusion of the onlending arrangement between GOB and BPDB(riala 4.21).

Other Agreements

6.02 During negotiations agreement was reached on the following:

(a) GOB is required to establish a long-range power developmentplan (para 1.29);

(b) BPDB is required to achieve minimum operating ratios of 135%in FY80, 120% in FY81 and 100% in FY82 (para 4.13) and areasonable rate of return thereafter (para 4.14); and

(c) bulk tariffs to rural consumers are to be set so as to coverBPDB's full cost at the point of supply plus an adequaterate of return (para 4.27).

Recoimmendation

6.03 The proposed project constitutes a suitable basis for an Asso-ciation Credit of US$28 million equivalent on standard terms.

PEOPLLb S REPUBLIIC OF BANGLADESH

Bangladesh Power Development Boad (BaDB)

Greater Ebola lo-e Distribution Project

Generating Capa-itnes and Madm Demad Jnterconnected System)

Yea Ending June 37-Instal led Capacity Year of 1978 1979 1980 1981 1q82 1983 1984 1985Number and Hating of nlots commis-sinag Fuel -- --------------- - Available Cap&oity.--------------

T.WEST ZOINEAExsIg(1975)

Kh12005l is6 Stean 1973 Heay 002 42 42 ho ho ho ho 6o 6i1 n12.75 Combustion Trie 1967 Diesel 011 - - 10 10 10 10 10 10I c1.1 Diesel 1956 Diesel Oil 5.5 5.5 7 7 7 7 5 --I .2 Cobustion Turbine 1966 Bephta/Diesel Ol 51 5 5 5 5-4 4i.15 Stean 1.959-60 HeavyOil 68 - ----

Rhrwass 0 o 2 Conbuation Turbine 197-6 Diese Oil 36. 36 36 36 36 36 36 36S.sidp,r 3 n3.75 Diesel 1975-77 Diesel Oil/Heavy oil 7.5 11.0 11 11 ii 11 11 11Tkurgao- 7xn1.5 Diesel 1964 Di-eel Oili 2.6 3.9 6.5 6 6 s s -Naris.l 3 c1.1 Diesel 1960 Diesel 0111. 2.7 2.7 2.7 2 - --4xo1.5 Diesel 1961 Diesel Oil 3. 3.3 3.3 2.2 .2! 2 --Bo.gsa 5.51.3 Diesel 1986-69 Diesel 001 2.4 2.4 2.4 2 2 ---

Kt.tkhali (Rajahahi) 3 o1.4 Diesel 1965 Diesel 011 2.2 2.2 2.2 2.2 2.2 2--Serajganj 2 N0.87 Diesel 1969 Diesel 011

2xco.65 Diesel 1969 Diesel 011 11.9 1.9 i.9 1.9 1.9 1.5 1.5 -1Io1.30 Diesei 1989 Diesel Oil

Other Small Units 10 Diesel - Diesel Oil 5 6 6 5 5 4 4 4Subtotal A l97F 15 376T fl9- 131i 13-0.3 =1375 737775 iy31-

B. Ness StationsKh.ulna 2 . 2O Combustioni Turbine 1980 Diesel Oil 56 56 56 56 56 56

u' 6.5 lumiuctlux. TUrbine 1990 Diesel Oil 10 10 10 10 10 101 s 12.5 Combustion Turbine 1980 Diesel Oil 12.5 12.5 12.5 12.5 12.5 12.51 n 110 Steam 1982 Heavy Oi1 110 110 110 110Eherssara 1 x 20 Cosbuation Turbine 1981 Diesel Oil 20 20 20 20 20

Sultotal 2 ~ ~ ~~ ~~~~~~~~~ ~~~~~- - '787 98 2M-3 208.3 a7-5 iTotal Avalabe zity1 Went Zner 12.2.6 130.15 220.5 029.5 338.8 3432 346 329.5

Maximum Demand WesO Zone 4.4 114.9 135.1 159.2 184.5 216 249.3 287.5~~~4.9159. la.5 26 29.3 87'Total Available Capacity less Maximum Demad West Zone 28.2 15.25 895.3 70.3 134.3 i16 96.7 45~On % of Tstal Availabll Capacity Wsmt Zone 23 11.7 38.7 30.6 45.5 34.9 27.9 1.2.7Total Available Capaoity less Largest UnIt Wost Zone 60.6 86.15 1.81.5 189.5 223,8 22 236 219.5Total. :s-tlsble Imparity is-s l,args1 UJnit less Maiacmu Demand Wesb Zone (-(13.8 (-j 26j-( 45.3 30.3 .44.3 6 (-)13.3 ()68In % of Total Available Capacity Iesa Largest Unit -- 25 14 -2.7 --

19.4TI. EAST ZONEA. -Existing (1978)

Eaptali 2sho Hydro 1961-62 -92 952 92 92, 92 92 92 92Aahugsnj 2xm64 Steam 19170-71 Natural Gaa 128 128 128 128 128 128 128 1.28Ghos-asa 2xm55 Stean 1974-75 Natural Oas 110 010 110 110 110 110 110 110Siddhirgansj 1 o50 Steam 19,71 Natural Gas/Furnace Oil 50 50 50 50 50 50 50 503 o10 Steam 1959-60 Natural Gss/Purnatce Oil 16 i6 16 16 16 16 16 i6Shahjibacar 3xm 4.75 Cumboation Turbine 1970-71) uato-al Gee 55 ss ss ss ss ss ss ss

4.16l Comboation Turbine 1970-71)

Other Small omits 6 Diesel 3 3 3 3 2 2 2Subtotal A 5-12.25 qlC li5F VW87 3W- v577 377- 7577 357

B. Nen, StationsEaptai 1 s 50 Hydro 1981 50 50 30 50 50

S x 5i Nydro 1955l - iooChittagong I x 6o Stean 1982 Furnace Oil/Natural Gas 60 6o 60 6o0Ghoracal 2 x 100 Steam 1984 Natural Gas ___ 200 200Subtotal 23 3103 - w I 10 783

Total AvailaSle capacity DEalt Zone 454 4-, 44 5oh 563 563 763 863Maximum Demand East Tone 207.3 319 35l 3933 4s6 484 537 596Total1 Available Csp.clty less Meolmom Demand East Zone 166.7 135 100 ill 127 79 226 267Zn 6 of Total Available Capacity East Zone 36.7 29.7 22 22 22.6 14 29.6 30.9Total Available Capacity less Largest Unit East Cone 390 390 390 440 499 499 663 763Total Available Capacity less Largest Unit less Maxi.mum Demand East Zoss 102.7 71 36 47 63 15 126 167'r . o f Total Available Capacity less Largest Unit 26.3 18.2 9.2 10.7 1.2.6 3 19 21.9

Totsi Dutercosn ctad tyto illTotal Available Capacity~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~r

1,10-Maximum Demand 2/ 1,0 ,1575Total Available Capacity less aULu.I- lenan-d 346 335.5 HZn 9 of Total Available Capacity 31.0 2siTotal Available CapacIty lees issrgen' li 999 1,0820,

Total Available Capscity loon Largest Unit less Maximum Deman.d 236 225.5Io 9 of Total Available Capacity less Las-gat Umit 23.6 2o.8

1/Thet-o separate grids (West sod SEst Con) are due so be interconn.cted by mid-1954 Stho..gh adouble circuit 230 bV t-asemission line1/ 90 roncdene fcco hn ben asued for the maimum demands in the West and NEst Zones.

PEOPLE S REPUBLIC OF BANGLADESH

-SAMJ.)ESEt POWR DEVE,?m7iT T (G?'

HiSsuorio a.nd Forecast Sales, Generation and Naximum Demar.d

Trend Trend

Year Ending June 30 1973 1974 1975 1976 17T 1978 1 93-137f, 1979 ;98G 1983 1982 1983 1984 1985 1979-1985

- - - - - - - - - - - - Historic - - - - - - - - - - - - - - - - - - - - - - - - - - Forecast - - - - - - - - - - - - -

I. WEST GONE

1. Inercor.nectei System

Sales (oGmh

Domestic 14.1 150 17.8 18.4 22.4 30.1 16.4 48.7 56.4 62, 7 68.8 82.0 97.1 114.8 15.4

Commercial 6 3 9.4 II.8 26.1 27.4 32.3 387 35.7 4° 3 43' 51.6 61.5 72.8 86.1 15,8

Industry 79.6 108.1 109.6 126.1 146.2 173.9 16.9 208.0 242.8 282.2 332.5 385.0 444.3 521.3 16.5Agriculture - - - 1,9 6.5 3.0 13.5 24.2 43.4 63.0 82.0 105.2 124.4 44.8

0ther 1.6 ,4 1.2 6.1 5,2 25.7 7L.2 19.7 24.2 28.9 28.6 34.5 40.4 47J9 16.0Total 101,6 134.2 140.4 3177o. 207.7 f67. 21.1 3. 37.9 460.6 5 44.5 6. 7579. 834.5 18.3

Annual Growth (3) 32 4.6 27.2 16.3 27.6 22.9 19.1 18.7 18.2 18.5 17.8 17.7

DEosee 7.GWh) 7.o0 39.9 103.2 109.1 129.3 158.7 191.8 199.8 206.9 222.4 238.6 251.2 267.2

(V) 42.1 40.1 42.4 37.9 38.4 37.5 37.1 34.o 31.0 29.0 27.0 25.0 23.0

Generation (G0TW)Diesel 26.1 13.2 9.9 13.2 5.6 29.8 2.7 73.4 52.0 58.5 117.0 88.2 59.7 51.1 (-)6.2Combustion Turbine 1^1. 46.8 17.7 42.1 131.4 207.4 15.3 194.0 320.7 384.0 324.9 195.4 204.4 169.6 (-)2.2Steam 4t.1N L.1 216.0 232.4 200.0 186.5 31.3 250.0 215.0 225.0 325.0 600.0 618.0 717.0 19.2

.NiRydro - , - - -- -

Total 77u 224.1 773. 7 28.7 3 19.3 517.4 557.7 667.5 7 . §7Import fr'm toe East Zone - - - - - 131.0 224.0

Maximum Demand (NW) 36.5 48.8 50.2 6A.9 73.5 94.4 20.9 114.9 135.2 159.2 184.5 216.0 249.3 287.5 16.5Annual Growth (V 33.7 2,9 27.3 15.0 28.4 21.7 1V.7 17.8 15.9 17.1 15.4 15.3

load Factor (M 54.9 52.4 55.4 51.4 52.3 51.,2 51.4 49.6 47.9 47.5 46.7 46.4 46.1

2. Isolated Systems

Sales (GWh)Domestic g,0 11.9 ll.G 11 7 6.6 7.5 2.1 1.7 1.3 1.1 o.6 o.s o.4

w Commercial 1.0 0.5 1.O 3.7 4.1 4.5 1.4 1.2 0.9 0.8 0.5 o.4 0.3Industry 14.o 24.2 12.1 15.8 14.3 12.9 9.1 7-7 6.3 5.7 3.1 2.4 1.8

Agriculture - 3.3 0.1 4.9 4.1 3.4 o.6 0.7 0.9 1.0 o.6 0.5 o.4

Other 0.8 1.5 0.9 1.1 1.8 2.4 0.8 0.7 o.6 o.4 0.2 0.2 0.1

Total 7 31.4 25.1 77 2 30 9 30.7 4.4 2978 7 7875o 9. 379 88o (-)29.3

LOGO" (GJh) 28.4 27.4 31.4 19.2 26.2 14.1 7.6 6.o 4.5 4.o 1.8 1.3 0.953.4 46.6 55.6 34.o 45.9 31.5 35.2 J3.3 31.0 30.8 26.5 2h5 23. 1

Generation (GWM) 53.2 58.8 56.t 56.4 57.1 44.8 -)3., 21.6 18.0 i4.5 13.0 6.8 5.3 3.9 (-)32.8

TOTAL WEST ZOE

Sales (i0GWh)Domestic 23.1 27.2 28.8 30.1 29.0 37.6 10.2 50.8 58.1 64.0 69.9 82.6 97.6 115.2 14.6Commercial 7.3 9.9 12.8 29.8 31.5 36.8 38.2 37.1 4i.5 44.3 52.4 62.0 73.2 86.4 15.1

industry 93.6 122 3 121.7 141.9 160.5 186.8 14.8 217.1 250.5 288.5 338.2 388.1 446.7 523.1 15.8 jI Agriculture - 3.3 0.1 6.8 l0.6 6.4 14.1 24.9 44.3 64.0 82.6 105.7 124.8 43.8 aOther 2.4 2.9 2.1 7.2 7.0 28.1 63.6 20.5 24.9 29.5 29.0 34.7 40.6 48.o 15.2 H

Total 126.4 165.6 1 65.5 215.8 37.6 295.7 18.5 73396 399.9 470.6 553.5 650.0 7 .5 17.6 o

Transmission and DistributionLosses (CMh) 102.4 117.3 134.6 128.3 155.5 172.8 199.4 205.8 211.4 226.4 240.4 254.6 268.1

- ( 44.7 4-.s 44.8 3.3 39.5 36.9 37.0 34.o 31.0 29.0 27.0 25.0 23.0

Generation (GWh) 228.8 282.9 300.1 344.1 394.1 468.5 15. 4 539.0 605.7 689.0 779.9 690.4 887.4 941.6 9.7

Trend Trend

Year Endinlg June 30 1973 1974 1737 1976 1977 1978 1973-1978 1979 1980 1981 1982 1983 1984 1985 1979-1985

- - - - - - - - - - - - historic - - - - - - - - - - - - - -- - Forecast.-

II. EAST ZONE

1. Interconnected System

Sales (GWh)Domestic 95 ., 133.9 122.3 104.6 114.8 142.2 8.4 156.2 166.9 177.1 186.8 213,2 243.0 277.1 10.0

Commercial 50.8 58.5 40.9 57.8 93.6; 93.' 13.0 104.2 119.2 122.6 140.1 159.8 182.3 207.8 12.2

Industry 332., 446.4 474.0 514.8 519.9 608.3 12.8 639.4 712.0 792.4 896.8 996.2 1,106.1 1,248.4 11.9

Agriculture 1.3 2.4 5.2 17.6 26.7 11.2 53.8 41.7 71.5 122.6 171.2 213.2 263.4 300.1 38.9

Other 10.2 14.2 21.0 19.8 18.2 52.9 39.0 62.5 71.5 81.8 77.8 88., 101.3 115.4 10.8

Total 490.2 655.4 b6 3. 714.6 T773 908 .3 13.1 1, 1014. 1,1296.5 1,2.7 ,7.2 1,896.12, 13.6

Annual Growth (,) 33.7 1.2 7.7 8.2 17.4 10.5 13.7 13.6 13.6 13.5 13.5 13.6

Losses (GWh) 356.8 315.7 346.6 398.6 450.0 535.4 597.4 587.9 582.5 601.3 617.8 632.9 642.2

(%) 42,j 32.5 34.3 35.8 36.8 37.1 37.3 34.0 31.0 29.0 27.0 25.0 23.0

Generation (GWh)Diesel 1.4 1.7 1.0 o.4 o.6 o.6 (-)15.5 o.4 0.4 0.5 0.6 0.7 0.7 0.8 12.2

0ombaston Turbine 124.0 89.0 69.9 62.4 70.9 136.0 9.2 150.0 101.6 100.0 80.0 80.0 80.0 80.0 (-)11.0

Steam 391.3 637.0 503.0 558.0 715.6 801.4 15.4 871.0 1,027.0 1,128.5 1,193.4 1,408.3 1,779.3 2,074.2 15.6

!Hydro 330.3 243.4 436.1 492.4 436.3 505.7 8.9 580.0 600.0 650.0 800.0 800.0 800.0 800.0 5.5

Total 847.0 971.1 1,010.0 1,113.2 T1,223.4 ,443.7 11.3 T6801. 1,729.0 1,879.0 2,074.0 2,289.0 2,660.0 2,955.0

Export to the West Zone - - - - - - - - - - - (-)131.0 (-)224.0 10.7

Maximum Demand (MW) 172.0 182.6 196.0 219.8 253.4 287.3 10.8 319.0 354.0 393.0 436.0 484.0 537.0 596.0 11.0

Annrralu 5-roth - 6,2 7.3 12.1 15.3 13.4 l1.0 11.0 11.0 11.0 11.0 11.0 11.0

Load Factor (<) 56.2 60.7 58.8 57.8 55.1 57.4 57.3 55.8 54.6 54.3 54.0 53.8 52.3 w

0.IcolateG Syst.eus.

Sales (GWh)Domestic 3.2 3.7 3.6 o.6 0.4 0.2 0?2 O.1 0.1

Commercial 1.2 1.1 o.4 - 0.1 0.1 - -

Industry 1.7 2.2 2.1 0.8 0.5 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.2

Agriculture - - - - - - - - - - - - -

Other 0.1 0.2 0.1Total 7; 7.2 @ 1.4 1.0 0.5 (-)65,5 0.5 0.4 0 0.3 0.3 0.3 .72 (-)16,5

Losses (MA) 3.6 4.2 5.7 1.3 0.9 0.1 0.1 0.2 0.1 0.1 - -

(t) 36.7 36.8 47.9 48.o 47.4 i6.7 16.7 33.3 20.0 25.0 - - -

Generation (GWh) g.u 1,4 __a 2.7 1.9 o.6 (-)74.8. o.6 o.6 0.5 0.4 0.3 0.3 0.2 (-)20.0

TOTAL EAST ZONE

Sales (GWh)Domest 98.- 137.6 125.9 105.2 115.2 142.4 7.7 156.4 i6(.u ?7.2 186.8 213.2 243.0 277.1 1O.O

Commercial 52.0 59.6 41.3 57,8 93.9 93.8 12.5 104.2 119.2 122.6 140.1 159.8 182.3 207.8 12.2

Industry 334.5 448.6 476.2 515.6 520.4 608.5 12.7 639.7 712.3 792.7 897.1 996,5 1,106.4 1,248.6 11.9 >

Agriculture 1.3 2.4 5.2 17.6 26.7 11.2 53.8 41.7 71.5 122.6 171.2 213.2 263.4 300.1 38.9

Other 10.3 14.4 21.1 19.8 18.2 52.9 38.7 62.5 71.5 81.8 77.8 88.8 101.3 115.4 10.8 r 1

Total 786 , 7U2.6 a6696 716.0 77484 p877 12.9 1,004.5 1,141.5 1,296.9 1,473.0 1,671.5 T8o78 2,149.0 13.6 N

Losses (GWh) 36Oi. 1 319.9 '352.3 399.9 450. 9 535.5~ 597.5 588.1 582.6 601.4 617.8 632.9 642.2

Losses tGWh) 3637.7 32.6 34.5 35.8 36.8 37.1 3753 34.0 31.0 29.0 27.0 25.0 23.0 m

Generation (GWh) 956.8 982.5 1,021.9 1,115.9 1,225.3 1,444.3 8.6 1,602.0 1,729.6 1,879.5 2.074.4 2,289.3 2,660.3 3,015.2 11.1

Trend Trend

Ycr Er.ding Tun.e 30 1973 1974 1975 1976 1 977 197R 19-3-197e 1979 19&0 1981 1982 1983 1982 1985 1979-1985

_-__ __ -_ iistoric - - - - - - - - - - - - Feoreca-st - - _ _ _ _ _

BPDB (West + East)

T terconnected Systems 1/

"ales ( GahDom.estic 109,2 41492 ]40.i 123.0 53-.2 172.3 ,. 204.9 223.3 239,8 255.6 295.2 340.1 391.9 11.4

Comfqrcial 5 7.1 A7.9 50y.' 1 '1.2 126.0 17.2 139.9 159.5 16h.0 191.7 221,3 255.1 293.9 13.2

Industry i12.¾1 554.5 583.6 6C0.9 666.1 782.2 13.7 847.4 954.8 1,074.6 1,229.3 1,381.3 1,550.4 1,769.7 13.1

Agrizulture 1.3 2.4 5.2 19.5 33.2 14.2 6,1.3 55.2 95.7 166.0 234.2 295.2 368.6 424.5 40.5

Other 11.8 15.6 22.2 21.9 23.4 78.6 46.1 82.2 95.7 110.7 106.4 123.3 141.7 163.3 12.1

Total 591.i 789.6 803.8 893.2 981.1 14.7 1,329.6 1,529.0 1, 1757.1 2,017.2 2,316.2 2,655.9 3 3-3 14.8

Annual Crowth (if) 33.4 1.8 11.1 9.8 19.6 13.3 15.0 14.9 14.8 14.8 14.7 14.8

Losses (GWh) 430,8 405.6 449.8 507.7 579.3 694.1 789.2 787.7 789.4 823.7 856.4 884.1 909.4

(<5) 42.1 33.9 35.9 36.2 37.1 37.2 37.2 34.0 31.0 29.0 27.0 25.0 23.0

Generation

Diesel 27.5 14.9 10.9 13.6 6.2 30.4 2.0 73.8 52.4 59.0 117.6 88.9 60.4 51.9 (-)6.0

Combustion Turbine 205.7 135.5 87.6 104.5 202.3 343.4 8.8 344.0 422.3 484.0 404.9 275.4 284.4 249.6 (-)5.5

Steam 439.1 801.1 719.0 790.4 915.6 987.9 17.6 1,121.0 1,242.0 1,353.5 1,518.4 2.008.3 2,397.3 2,791.2 16.4

h1ydro 330.3 243.4 436.1 492.4 436.3 505.7 - 8.9 580.0 600.0 650.0 800.0 800.0 800.0 800.0 5.5

Total 1,022.6 1,195.2 1,253.6 1,400.9 1,560.4 1,B7, 12.8 11.8 2,316.7 2,546.5 2,840.9 3,172.6 3,542.1 3,892.7 10.7

Maximum Demand 2/ MW) 763.0 857.0

Load Factor (%) 53.0 51.9

2. Iso'ated Systems

Sales (GWh)Domestic 12.2 15.6 14.6 12.3 7.0 7.7 2.3 1.8 1.4 1.1 0.6 0.5 0.4

Commercial 2.2 1.6 1.4 3.7 4.2 4.6 1,4 1.2 0.9 0.8 0.5 0.4 0.3

Jr:duflstry 15.7 16.4 14.2 16.6 14.8 13.1 9.4 8.0 6.6 6.o 3.4 2.7 2.0

Agriculture - 3.3 0.1 4.9 4.1 3.4 o.6 0.7 0.9 1.0 0.6 0.5 0.4

Other 0.9 1.7 1.0 1.1 1.8 2.4 0.8 0.7 o.6 0.4 0.2 0.2 0.1

Total 31.0 31.3 3. 19 31.2 1.5 9.3 5 (_)28.6

Losses (9WEL) 32.0 31.6 37.1 20.5 27.1 14.2 7.7 6.2 4.6 4.1 1.8 1.3 0.9

(M) 50.8 45.o 54.2 34.7 45.9 31.3 34.7 33.3 30.7 30.6 25.4 23.2 22.0

G,eneration (GWh) 63.0 70.2 68.4 59.1 59.0 45.4 (-)6.8 22.2 18.6 15.0 13.4 7.1 5.6 4.1 (_)32.5

TOTAL BPDB

Sales (GWh)Dio-_CZti:_ 121,4 164.8 154.7 135.3 144.2 180.0 8.2 207.2 225.1 241.2 256.7 295.8 340.6 392.3 11.2

Commercial 59.3 69.5 54.1 87.6 125.4 330.6 17.1 141.3 160.7 166.9 192.5 221.8 255.5 294.2 13.0 j

Industry 428.1 570.9 597.8 657.5 680.9 795.3 13.2 856.8 962.8 1,U81.2 1,235.3 1,384.6 1,553.1 1,771.7 12.9

Agriculture 1.3 5.7 5.3 24.4 37.3 17.6 68.4 55.8 96.4 166.9 235.2 295.8 369.1 424.9 40.3

Other 12.7 17.3 23.2 27.0 25.2 81.0 44.9 83.0 96.4 111.3 106.8 123.5 141.9 163.4 12.0 a

Total 622.8 o2b.2 835.1 931.8 1,013.0 1,204.5 14.1 1,344.1 1,541.4 1, . 77 2,0265 2,321.5 T 1 i4.6 '

Annual Growth (%) 33.0 0.8 11.6 8.7 18.9 11.6 14.7 14.7 14.7 14.6 14.6 14.5

Losses (GWh) 462.8 437.2 486.9 528.2 606.4 708.3 796.9 793.9 794.0 827.8 858.2 885.4 910.3

(%) 42.6 34.6 36.8 36.2 37.4 37.0 37.2 34.0 31.0 29.0 27.0 25.0 23.0

Generation ((Wn) 1,085.6 1,265.4 1,322.0 1,460.0 1,619.4 1,912.8 2,141.0 2,335.3 2,561.5 2,854.3 3,179.7 3,547.7 3,896.8 10.5

Annual Growth (%) 16.6 4.5 10.4 10.9 18.1 12.0 11.9 9.1 9.7 11.4 11.4 11.5 11.5

1/ The two grids (West and East) are due to be interconnected by mid-1984 through a 230kv hioie.

2/ . 97% coincidence factor has been assumed for the maximum demands in the West and East zones.

PEOPLE' S hEPUBLIC OF BANGLADESH

F = Foreign Bangladesh Power Development Board (BPDB)

L = LocalT = Total Greater Khalna Power Distribution Project

Investment Program(in Tk million)

Source of Subtotal Subtotal TotalForeign 1978/79 - 1980/81 - 1978/79 -

Fiscal Years Ending JJune 30 Finance 1978/79 1979/80 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1984/85 1984/85

A. GENERATION(a) East Zone

Kaptai F AID 20.0 30.0 50.0 40.0 30.0 - - - 70.0 120.0

(50 MW hydro) L 30.0 20.0 50.0 10.0 10.0 - _ _ 20.0 70.0

50.0 50.0 100.0 50.0 0 - - - 90 0 190.0Chittagong F CSSR 20.0 35.0 55.0 70.0 7 - - - JT440 199.0

(60 MW Steam) L 20.0 35.0 55.0 80.0 82.0 162.0 217.0

T 4i0.0 70.0 110.0 150.0 156.0 _ _ _ 306.0 le, 0Ghorasal F - - _ _.0 384.0 d 8 6.0 0.0 7(2x100 MW Steam) L - _ _ 87.0 348.0 261.0 130.5 43.5 870.0 870.0

T - _ _ 1 732.0 549.0 7175 91.5 15300 1,300Kaptai F CSSh - - - 37.1 1 111.2 5 ; 3 370

(2x50 MW hydro) L _ _ _ 42.9 171.8 128.8 64.4 21.5 429.4 429.4

T _ _ _~ 0 320. 0240.0 120.0 8 0 0 0 2500.0

Shajibazar F - - - _ _ _ - 5 7T 8 254.5 8

(100 MW Steam) L - - _ _ _ _ 22.3 81.7 104.0 104. o- - - - - - ~~~~~~~~~~~~~- -6 - 7

AshaganJ - - - - -- 91.2 2 . 592. 8(20C M.W Steam) 1 -L -L _ 31.8 79.5 95.4 206.7 206.7

T _ _ _ _ _ 123.0 307.5 369.0 799.5 7995Siddhirganj F - - - - - - - - 91.2 91.2 91.2

(200 MW Steam) L - - - _ _ _ - 31.8 31.8 31.8

T - - - - _ - 123.0 123.0 I T8SengF u -- - 5 _ _ _ 25.4 5

(3x27.5 MW hydro) L _ _ _ _ _ _ - 38.1 38.1 38.1

(b) West ZoneKhulna F Japan - 286.8 286.8 - - - - - 286.8(2x28 MW gas turbine)L - 108.6 108.6 - - - - - - 108.6

- 395.4 395.4 - - - - - - 395.4

Khulna F Sweden - 50.0 50.0 - - - _ _ _ 50.0

(Inst. lx12 MW L _ 16.0 16.0 - - - - - - 16.0gas turbine) )

T ~ ~- 66.0 66.0O - - - - - - 66.0

Khulna F _ 3 - - - - - -3(Rehab.lxl2 MW gas

turbine) L - 10.0 10.0 - - - - - - 10.0T 4 6 .8 - _ _ _ _ _ 4 6 .o

F;hulna F - - 12.0 12. 0 13.0 - - - - 13. O(2x

6.5 MW gas

turbine) L - 10.0 10.0 2.0 - - _ - 2.0 12.0_ 22.0 22.0 15.0 - 15.0 37.0

Bheramara F KfW - 50.0 50.0 O - - - - -28. ;

(20 MW gas turbine) L - 20.0 20.0 4.4 - - - - 4.4 24.4

- 70.0 70.0 33.0 - - - - 33.0 103.0Khulna F CSSR 40.0 150. 0 190.0 200.0 50.0 - - - 250.0 4

(110 MW Steam) L 40.0 150.0 190.0 100.0 86.o - - - 186.3 376.0

T 50. 300.0 350.0 30.0 136.0 - 3. 436.0 516. 0rFa.tore F - _ _ ~ 56.0o 140.0 If 112.O 56.0 532.0 532. O 1

(125 MW Steam) L _ _ _ 22,5 56.3 67.5 45.0 22.5 213.8 213.5F _ _ -_ 78,5 196.3 235.5 157. 0O 78.5 7450

Barisal F - - - - - - - 56.0 140.0 196.0 196.0 F 0

(100 MW Steam) L _ - _ _ _ _ 22.5 56.3 78.8 78.8

TOTAL GENERATION

F 80.0 650.6 730.6 540.7 826.2 658.4 650.2 852.9 3,528.4 4,259.0L 90.0 369.6 459.6 348.8 754.1 489.1 364.2 390.8 2 347 0 2 806 6

T 170.0 2 9.5 1,550.3 1014.4 5,875.

PEOPLE'S REPUBLIC OF BANGLADESH

Bangladesh Power Development Board (BPDB)

Greater Khulna Power Distribution Project

in r.wstment Program(in Tk million)

Source of Subtotal Subtotal TotalForeign 1978/79 - 1980/81 - 1978/79

Fiscal Years Ending June 30 Finance 1978/79 1979/80 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1984/85 1984/85

B. TRAIBSMISSIONEast-West Interconnection Kuwait/

Abu DhabiF 10.0 120.0 130.0 212.0 48.0 214.8 - _ 474.8 604.8L 15.0 80.0 95.0 172.0 128.0 63.2 - _ 363.2 458.2T 25.0 200 0 225.0 384.0 176.0 278.0 - - 838.0 1,063.0

132 kv Lines and Sub- Variousstations F 73.0 75.0 148.0 57.0 142.1 131.7 62.1 58.7 451.6 599.6

L 44.3 47.0 91.3 51.6 113.0 141.3 64.5 55.6 426.o 517.3T 117.3 122.0 239.3 10. 2551 273.0 126. 114.3 _776 1,116.9

TOTAL TRANSMISSIONF 83.0 195.0 278.0 269.0 190.1 346.5 62.1 58.7 926.4 1,204.4L 59.3 127.0 186.3 223.6 241.0 204.5 64.5 55.6 789.2 975. 5T 142.3 322.0 464.3 492. 431.1 551. 0 12 6 1 1,715.6 2,179.9

C. DISTRIBUTION F 265.0 295.0 560.0 307.6 447.7 378.0 253.9 302.2 1,689.4 2,249.4L 290.0 315.0 605.0 283.9 413.2 349.0 234.4 279.0 1,559.5 2 164.5T 555.0 610.v 1,i65.0 591.5 B60.9 727.0 488.3 551.2 349 9

D. OTHER INVESTMENTS

F 123.0 96.0 219.0 4o.o 25.0 17.0 15.0 10.0 107.0 326.0L 78.0 60.0 138.0 30.0 15.0 13.0 10.0 10.0 78.o 216.0

T 201.0 156.0 357.0 70.0 40.0 30.0 25.0 20.0 185.0 542.0

TOTAL INVESTNTS(Price Basis mid-1978/79)

F 551.0 1,236.6 1,787.6 1,157.3 1,489.0 1,399.9 981.2 1,223.8 6,251.2 8,038.8L 517.3 871.6 1 388.9 886.3 1,423.3 1,055.6 673.1 735.4 4 773 7 6 162.6T 1s6. 2 ? 3 176 20 2,912.3 2,455,5 1543 1,9592110249 1401.4 _la

Price Contingencies 2F _ 86.6 86.6 162.0 342.5 434.0 392.5 611.9 1,942.9 2,029.5L _ 104.6 104.6 203.8 512.4 517.2 430.8 588.3 2 252 5 2,357.1 IwT _ 191.2 191.2 365o 85.9 ' 951.2 823.3 1,200.2 4,1954 4,3386.6

TOTAL INVESTMENTS(At Escalated Cost)

F 551.0 1,323.2 1,874.2 1,319.3 1,831.5 1,833.9 1,373.7 1,835.7 8,194.1 10,068.3L 517.3 976.2 1,493.5 1 090 1 1,935.7 1,572.8 1 103 9 1,323.7 7,026.2 8,519.7 X

m 1X068.3 2,299.4 3,367.7 24094 3,767.2 34 7 ,. ,159.4 15,220.3 15,I55.0

Price ContingenciesForeign - 7% - 7% 7% 7% 7% 7% - -Local - 12% _ 10o 10% 10% 1 0% 10% _

- 36-

ANNEX 4Page 1 of 4 pages

SUMMARY

of Presidentts Order No. 59 of 1972 (as amended)creating the Bangladesh Water and-Power Develop-

ment Boards

(promulgated on May 31, 1972 and amended onJanuary 5, 1978)

The following paragraphs refer only to those parts of the ordinance which dealwith the power board. References to the water board have been omitted.

BPDB is a corporate body with perpetual succession and has the rightto acquire, hold and dispose of property. It can sue and can be sued. For thepurpose of the Electricity Act (Act IX of 1910) the Board is considered alicensee.

The Board consists of a Chairman and not more than five othermembers, all to be appointed by the Government. The Chairman and the membershold office for such period and onsich terms and conditions as the Governmentdetermines. The Government may terminate at any time the appointment of theChairman or any other member without giving any reason. The Chairman and theother members exercise such powers and perform such functions as are assignedto them by the Board or the Government. At a board meeting, each member hasone vote and, in the event of equality of votes, the Chairman has a casting orsecond vote.

In discharging its functions, the Board is guided by such directionsas the Government may give from time to time.

The Board has to prepare for Government approval:

(a) a comprehensive plan for the development and utilization ofpower resources in the country; and

(b) schemes for the whole of Bangladesh or any part thereofwhich provide for all or any of the following matters:

(i) generation, transmission and distribution of power; and

(ii) construction, maintenance and operation of power housesand grids.

When submitting a scheme for Government approval, the following information mustbe attached:

(a) a description of the scheme and the manner of its execution;

(b) an estimate of costs and benefits, the allocation of coststo the various purposes to be served by the scheme and theamounts to be paid by the beneficiaries; and

- 37 -

ANNEX 4

Page 2 of 4 pages

(c) if necessary, a proposal for the resettlement or rehousingof persons likely to be displaced by the scheme.

The Government has the right to either:

(a) approve the scheme; or

(b) reject the scheme; or

(c) ask for additional information; or

(d) request such further investigations as it considers necessary.

Any scheme framed by an agency in Bangladesh other than a Board,which concerns matters of electric power, shall be submitted to the Governmentthrough the Board if the estimated cost of the scheme exceeds the amount to beprescribed by the Government. The Government then may approve, reject, ask foradditional information or request further information before approval of thescheme. A scheme can be amended or modified at any time but, if a materialchange 1/ is contemplated, previous approval of the Government must be obtained.

The Board has the right to take over and maintain the works carriedout under a scheme of another board. Should disputes on the transfer modalitiesarise, the Government has the authority of final decision.2/

The Board may, with the approval of the Government, undertake theexecution of any scheme or exercise teclnical supervision and administrativeand financial control over the execution of any scheme framed or sponsored byany agency in respect of electric power. In carrying out its responsibilities,the Board has the right to install the equipment required. It is also entitledto incur the expenditures within the budget, acquire land 3/ and exert controlover the operation of all power houses and grids necessary for proper operation.

With the approval of the Government, the Board may:

(a) set maintenance standards for power houses anad grids;

(b) simplify the method of charges for electricity;

(c) upon payment of a reasonable compensation, declare any

1/ A material change is either an increase in the cost of a scheme by more tharn15% or a change in the cost/benefit ratio which makes the cost exceed thebenefits or reduces the benefits by more thaln 15%.

2/ There is also a stipulation in paragraph 21(2) which prohibits the Governmentto hand over any power scheme carried out by the Board to any of the Governmentagencies or local authorities.

3/ Land acquisition is considered for a public purpose within the meaning of theLand Acquisition Act 1894 or any other law in force from t:ime to time.

- 38 -

ANNEX 4Page 3 of 4 pages

power generating station belonging to a licensee to be a"controlled station". This permits the Board to regulatethe production from such station; and

(d) require the owner of a controlled station in a grid area:

(i) to supply to the grid all or part of the powergenerated at the station at such rates as may bedetermined by the Government;

(ii) to take from the grid all or part of the electricpower for distribution to his consumers; and

(iii) to close down the station on payment of a reasonablecompensation.

The Government may appoint officers, advisors, consultants and otheremployees on terms and conditions it may determine. However, it may delegateto the Poard or the Chairman or any member or officer of the Board its powersof appointing personnel as well as its administrative, disciplinary or financialpowers relating to the Board's personnel.

The capital of the Board consists of the following:

(a) subscribed share capital (at present Tk 5 billion allsubscribed by the Government);

(b) Government grants;

(c) grants by local authorities;

(d) bonds issued under the authority of the Government;

(e) loans obtained from the Government;

(f) loans and foreign aid obtained by the Board with the specialor general sanction of the Government;

(g) sale proceeds of electricity; and

(h) all other sums received by the Board.

With prior approval of the Government, the Board may borrow money for the purposeof carrying out its functions.

Tariffs should cover:

(a) operating expenses;

- 39 -

ANNEX 4Page 4 of 4 pages

(b) interest;

(c) depreciation;

(d) amortization of loans as far as it exceeds depreciation;

(e) taxes; and

(f) a reasonable return on investment.

The Board shaLl annually submit for Government approval its budget,by such date and in such form as prescribed by the Government. The budgetshould indicate the estimated receipts and expenditures as well as the sumsrequired from the Government.

The Board shall maintain proper accounts in accordance with Govern-ment guidelines. The Government may appoint one or more auditors. In addition,the Comptroller and Auditor-General of Bangladesh may carry out audits at hisdiscretion. If no auditor is appointed by the Government in any given year,the Auditor-General automatically carries out the audit. In case an independentauditor is appointed, the Government may:

(a) require special reports by the auditor concerning theadequacy of measures taken by the Board for the protectionof the interests of the Government and of the Board's creditors;

(b) enlarge or extend the scope of the audit;

(c) direct that a different procedure in carrying out the auditshall be adopted; or

(d) require that any other examination shall be made by the auditoror any other person if, in its opinion, the interest of theGovernment so requires.

The Board! shall comply with any directive issued by the Government for therectification of matters objected to in the audit.

The Board shall, as soon as possible after the end of every fiscalyear, furnish to the Government the audited statements of accounts togetherwith an annual report describing the Board's activities during the past yecrand its proposal for the next year. These reports are published in the OfficialGazette.

BANGLADESH POWER DEVELOPMENT BOARDORGANIZATION CHART

vt th~~~~~~~~~~~~re doard

Memt7ber Genaeraient M.te Mee Pesone errd| nrilranarrrisain | j rieRritior IPIFranm rann

rooooli I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~rilr

NflC R o l r ofConuenruceierd;; Mago i Transmission Drr uareflra SuuOin ing *utr(nu,nu s *u Lunencng Ch;rragoeting Puu hefrl ircs Finane and AedirrDreto

Engine, i Siddhitg-an Engineer ilecirifarin., Engineer Openr.ion Enginenl, En 3ineer -oni Engineer Eacri Engineer Diari- Customs and Fimnne P-rchase Personnel ,Chiteegang aent-g and Detne Ghurln ,rv Euppin eerie Rgaj,hah Moving

Managar WDmnnueiogon ireener Pr=jeet Sp,,er,nending Chittagong DMrecor Director Direeor1gdperinrn-dinm Ghrrsal gIannang uueeinfenomnb friDemnroneno Engineer SuGeh nrnnrf.ng Projt G -Preeter Accounrt Re--nue TrainingEngineer Eo-rrirrendine Engineer Eng -m M,--mqnsinth SuPrint,lcdmijg Eng -eer Distri Prestresee-lt O MW SeCtion t,anger Engineer <u-d G;rennor Sunrirn Mainrenanne Dacta Jessm Engineer Dirrl- bEnni. Rengeur Conorere Direerom Di raEtrKhuinc A-hu-tne C'isngreh D;u.nicr pernrn l hriun C-re rstn- Point Audit Es,ape andDuperretendinh Dupe irStendimg Enginee Manager OPeration T-ate-setuEorintenuinn Manager *Sup rinnandine nirrtnror Geeryn Engineer irugirreeti E lEfc gunti,iitend ng and Magntenance D renter___ D Shaizhe-ar Engineer Central end Seandarda I Greeter Dacea Faridpur Eni,eer -Ditr Norrhern Crcle Diesil Di-KWuln} Equip-ent and buEtin Coilla Diiipnur Generation SE-urite and

Manager Repair ShDp Direnetr Design NSuperinmending *Superinend ng igei*uperintending Ktapei H"dro S-Dnderds ii Enginee- Seler Engine Project D rentrEngineer Genoa Earisai Greeter CrnretvgochDiEco

BEgra M-nager Director Di ,tribunron EnquirKElne greg-ae sG*irtcrec Cisil Proipcr n isil*Dupenirre d Wno Works aed DiWpiltEngwni-t Maneger Dirent,r Plectric,l DirotterDeoca Eheramara Egiiprmenr Enginering

Dauperirrending DreDerineendingEngineer

Dtr ctorGrid -'d Pu.,i Renterconnection Cerrier West tln

SDuorintenginE leeoEnainear

L0 iIGrend end l+r

C artier EastLra

Worl d B tit E 9-d

- 41 -

ANNEX 6Page 1 of 3 pages

PEOPLE'S REPUBLIC OF BANGLADESH

Bangladesh Power Development Board (BPDB)

Greater Khulna Power Distribution Project

Training

1. This annex describes GOB's and BPDB's schooling and trainingfacilities available in Bangladesh as far as they are of importance forelectric power utilities.

A. Public Institutions

2. Bangladesh has the following public schooling institutions:

(a) 4 colleges in Dacca, Chittagong, Khulna and Rajshahid.Dacca has university status;

(b) 18 politechnic institutes; and

(c) about 30 vocational training centers.

Colleges

3. All four colleges offer a wide variety of courses among which arethose for engineering sciences, commerce and accounting. Depending on the kindof course, studies take 2-4 years. About 800 engineers per year graduate fromall colleges. The breakdown of the graduating engineers is about as follows:

(a) 300 electrical engineers;

(b) 200 mechanical engineers; and

(c) 300 civil engineers.

In addition, the graduating classes include a few chemical engineers.

Politechnic Institutes

4. The politechnic institutes offer 3-year courses for technicians witha total of about 2,400 graduates per year. About 30% are electrical technicians,20% mechanical, 30% civil and the remainder are technicians for other trades.

Vocational Training Centers

5. There are about 30 vocational training centers in the country withabout 200 students per institute. An average 60% of the students who enterclasses eventually finish the training.

- 42 -

ANNEX 6Page 2 off 3 pages

Quality of Public Training Institutions

6. In the opinion of the staff members of the Power Board who themission interviewed, the quality of the training in the university and collegesis very good. Teachers are first rate and adequate training equipment. andmaterial is available. Unfortunately, this is not so for the politechnicinstitutes and vocational training centers which suffer both from insufficientlytrained teachers as well as shortage of training equipment.

Cost of Training

7. Although tuition is subsidized by Laie Government, the total cost ofeducation in Bangladesh is expensive when compared to the prevailing familyincome. This is particularly true for families living outside the major urbancenters, especially Dacca, who, in addition to the tuition fees, have to defraythe cost for boarding and subsistence. The appLoximate monthly cost per studentis as follows:

(a) Colleges: tuition Tk 40.00boarding " 300.00

Tk340.00 (about US$22.00)

(b) Politechnic Institutes:tuiticon Tk 30.00boarding " 200.00

Tk230.00 (about US$ 15.00)

(c) Vocational Training Centers:tuition Tk 15.00boarding " 100.00

Th115.00 (about US$7.50)

Due to the sufficient number of vocational training centers, onlya small number of students has to use boarding facilities.

8. Although not substantial in absolute terms, the cost of educationis high when compared to the family income level in Bangladesh. The monthlysalary of middle uanagement employees in BPDB is about US$70.00 per monlth.

B. BPDB's Training Facilities

9. At present, BPDB operates the following training centers:

Kaptai Engineering Acade

10. The Kaptai Engineering Academy is BPDB's largest training center- andoffers the following classes:

- 43 -

ANNEX 6Page 3 of 3 pages

(a) induction training for engineers recruited from the college;

(b) training for power plant operators and cable jointers;

(c) special programs (refresher courses) for senior engineers;

(d) management training for administrative officers; and

(e) seminars for accountants and finance officers.

The center can accomodate 150 participants at a time.

Donghi (Dacca)

11. This center offers seminars on selected topics for senior engineers.It has a capacity for 150 participants and can provide accomodation for 50persons.

Ghorasal

12. This training center was built with aid from Russia which is alsoproviding 11 instructors. It was inaugurated in 1977 and so far about 75employees have passed the courses. The training comprises 2-year full timecourses for graduates from politechnic institutes in welding, cable jointing,dist:ribution construction and similar subjects. The center can accomodatesimultaneously 150 participants.

Regional 1'raining Centers

13. There are regional training centers in Khulna, Rjshahid and Chittagongand, in the planning stage,in Dacca. They have been established Eor trainingof foremen, linemen and cable jointers in all trades of distribution constructionand maintenance.

- 44 -

AINEX 7

PEOPLE'S REPUBLIC OF BANGLADESH

Bangladesh Power Development Board (BPDB)

Greater Khalna Power Distribution Project

Project Cost EstimateTTK 1 = US$15,50)

1TK million U--------- $ million-------Local Foreign Total Local Foreign Total

132 - kV Systemn

Substatic,ns 0.90( 10.788 11.688 0.058 o.696 0.754

3, - kV System

Overhead Lines 4.o80 8.924 13.004 0.263 0.576 o.839

Substations 2.735 17.127 19.862 0.176 1.105 1.281

11 - kV System

Overhead Linis 27.600 50.792 78.392 1.781 3.277 5.058Cables 2.40() 51.440 53.840 0.155 3.319 3.474Substatiocns 4.087 )45.040 49.127 0.264 2.905 3.169

0.415 - 1kV Systemn

Overhead Lines 17.307 27.394 44.701 1.117 1-.767 2.834Cables 0.700 7.000 7.000 o.0145 o.452 0.497

Consumer Services 27.000 8.600 35.60o 1.742 0.555 2.297

Service Vehicles andCommunication Equipment 6.515 0.207 6.722 0.420 0.013 0.433

Buildinags 43.900 - 43.900 2.832 - 2.832

Iocal Freight 20.150 - 20.150 1.300 _ 1.300

Engineering Services 2.800 12.700 15.500 0.181 0.819 1.0(0

"raining 6,200 10.075 16.275 0.400 o.650 1.050

BPDBB's Administrat,ion 43.317 - 43.317 2.795 - 2. 795

DAties and Taxes 60.580 - 60.580 3.960 3-960

Sub Total 270.271 250.087 520.358 L7.489 16.134 33.623

Cnnt.in genrias

Physical 1/ 15.737 22.731 38.468 1.015 1.467 2.482

Price / 081.747 L2. 7 62 124.509 5. 274 2,759 8.o33

TOTAL PROJECT COST 367.755 ]15.580 683.335 23.778 :20.360 44.138

Note: 1/ Physical coritingencies: :lO/. for equi-pment, materials and civil works.

</ Price contingencies: 74 per yeEar for foreign eoust and 120 in FY L979/80 and 10o per year there-af-ter or local cost.

Creater P*iolna Power Distribution Project

Estimated Construction Schedule

tetivities Y 1980 FY 1981 FY 1982 FY 1983

JA S OCND3JFMAM. J .JSAL OT1DJFMAMJ J A S O N D J F M A M J JA s S N D J F M A M J

Selection and Appointment of Consultants X X X X X XXY

Re>,iew of Existing Networks and Mappingin the Project Areas XXXXXXXXX

Detailed Network Design XXXXXXXXXXXXXXXX XX

Preparation of Bid Documents andTnvitatioro'p Tenders XXXXXXXXXXX

Tenider Evaluations and Awards XXXXXXXXXXXXXXXXX

Organization of Stores XXXXXXX

Delivery and Inspection of Materialand Equipment XYXXXXXXXXXXXXXX XX X X X X X X X X X X X X X X X X X X X X X X X X X

Land Acquisition XXXXXXXXXXXXXXXXXXXX

Civil Works XXXXXXXXXXXYXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXlXXXXX

Construction of Substations XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX P XXXXXXX

Erection of Lines XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX

Connections (rehabilitation and new) XXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXX

Installation of Pole mountedTransformers XXXXXXX XXXXX XXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXX

Inspection, Acceptance Testingand Commissioning XXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

- 46 -

ANNEX 9

PEOPLE'S REPUBLIC OF BANGLADESH

Bangladesh Power Development Board (BPDB)

Greater Khulna Power Distribution Project

Estimated Schedule of Disbursements

DisbursementsCumulative

IDA Fiscal US$ millionYear and Quarter Equivalent % Undisbursed

1980

December 31, 1979 - 100March 31, 1980 0.40 99June 30, 1980 2.60 91

1981

September 30, 1980 5.00 82December 31, 1980 7.20 74March 31, 1981 9.70 65June 30, 1981

1982

September 30, 1981 13.00 54December 31, 1981 16.80 40March 3,1, 1982 19.30 31June 30, 1982 21.00 25

1983

September 30, 1982 22.50 20December 31, 1982 23.80 15March 31, 1983 25.60 9June 30, 1983 26.80 4

1984

September 30, 1983 27.50 2December 31, 1983 28.00 0

PEOPLE'S REPUBLIC OF BANGLADESH

Bangladesh Power Development Boara (BP1D)US$1 = Tk 15.5

Greater Khulna Power Distribution Project

Actual and Forecast Income Statements lQ77/78 - 1984/85(in Tk million unless otherwise indicated)

Actuall/ ------------------------------Forecast-----------------------------------------

Fiscal Years Ending June 30 1977/78 1?-/78/, 1979/ O 90/81 1981/82 1982/83 1983/84 1984/85

Sales of Electricity (Gwh) 1,204.5 1,344.1 1,541.4 1,767.5 2,026.5 2,321.5 2,660.2 3,046-5

Average Revenues per lkwh Sold (paisa) 44.6 44.6 65.o 7P.0 91.5 91.5 100.0 100.0

RevenuesRevenues from Ssles of ½owe- 537.5 599.5 1,001.9 1,378.7 1,853.7 2,124.2 2,660.2 3,046.5Other Operating Income 12.2 15.4 17.2 18.7 19.6 21.4 22.3 24.0Total Operatirng Income 61 - 4.9 1,019.1 139737.4 2,!45.6 26Z5 3,070 5

Operating ExpensesFuel 392.7 441.1 572.5 714.4 780.0 809.6 883.8 944.7

Personnel 138.1 145.2 155.4 166.2 177.9 190.3 203.7 217.9

Operation, Maintenance and Administration(including provision for bad debts) 128.8 184.0 202.4 222.6 238.2 254.9 272.7 291.8

Depreciation 149.5 215.3 238.6 282.9 349.8 441.8 519.4 582.1

Total Operating Expenses -09T 75 1,168, 9 1,38.1 i,545.9 -, 7 2,036.

.Net Operating Revenues - 259.4 - 370.7 - 149.8 11.3 327.4 449.0 802.9 1,034.0

Other Revenues 4.2 6.9 7.5 8.0 8.9 10.0 11.4 12.6

Interest 144.6 208.0 282.7 378.3 492.4 620.3 715.4 798.8

Less: Interest During Construction - 75.3 - 68.6 - 94.2 - 126.1 - 164.0 - 206.8 - 238.5 - 266.3

Interest Expense 69.3 139.4 188.5 252.2 *32B,4 413.5 476.9 532-5

Profit/Loss - 324.5 - 503.2 - 330.8 - 232.9 7.9 45.5 337.4 __ 8__ x4

Operating Ratio 159% 183% 133% 117% 100% 98% 88% 84% o

Rate of Return on Average Net Fixed Assets in -

Operation - - - - 3.5% 3.8% 5.9% 6.8% n

17 Based on BFDB's preliminua±y income statement.

2/ The average revenues per kwh sold based on BPDB's present tariff are paisa 47. The reduced level of paisa 44.6 per kwh is due to

presently incomplete meter reading. Much improved meter reading procedures are expected for FY79/80 and full realization of the

revenues from sales of electricity has therefore been assumed.

PEOPLE'S REPUBLIC OF BANGLADESH

Bangladesh Power Development Board (BPDB)

Greater Khulna Power Distribution Project

Forecast Sources and Applications of Funds Statements 1978/79 - 1984/85Tota±L

Fiscal Years Ending Tune 30 1978/79 197,9/30 1980/81 1981/82 1982/83 1983/84 1984/85 1978/79-1934/85

SOURCESInternal SourcesNet Operating Revenues - 370.7 - 149.8 11.3 327.4 449.0 802.9 1,034.0 2,104.1Other Revenues 6.9 7.5 8.0 8.9 10.0 i1.4 12.6 65.3Depreciation 215.3 238.6 282.9 349.8 441.8 519.4 582.1 2 629.9

Gross Internal Sources 96.3 302.2 6T86. 900.8 1,333.7 1,628.7 4,799.3Less: Debt Service

Amortization 57.4 59.2 61.9 68.4 121.6 190.4 278.6 837.5Interest 208.0 282.7 378.3 492.4 620.3 715.4 798.8 3,495.9Less:Interest during Constructior - 68.6 - 94.2 - 126.1 - 164.0 - 206.8 - 238.5 - 266.3 - 1,164.5Interest Expense 1394 1 252.2 328.4 413.5 476.9 532.5 2,331.4

Total Debt Service 247.7 314.1 396.8 535.1 667.3 811.I 3 168.9Net Internal Sources 345.3 - 151.4 - 11.9 2.3 365.7 666.4W 7. 6 1T7fT 4External SourcesGovernment Equity Contribution 258.7 488.1 545.1 1,012.9 873.0 671.6 909.0 4,758.4Government Subsidy 400.0 - - - - - - 400.0Foreign Currency Loans 551.0 1,323.2 1,319.3 1,941.5 1,998.9 1,593.7 2,275.7 11,003.3Local Currency loano 30-6.9 680.o 600.0 770.0 520.0 - - 2,876.9

Total External Sources 1,516.6 2,491.3 2,464.4 3,724.4 3,39i.9 2,265.3 3,184.7 19,038.6

TOTAL SOURCES 1,171.3 2,3399 2,452.5 4,013.7 3757.6 2931.7 40023 20 669.0APPLICATIONS

Investments Foreign 551.0 1,323.2 1,319.3 1,831.5 1,833.9 1,373.7 1,835.7 10,068.3Local 517.3 976.2 1,090.1 1,935.7 1,572.8 1,103.9 1,323.7 8,519.7Replacements - - - 200.0 300.0 400.0 800.0 1 700.0Total Investments 1,06.3 2,299.4 2,409.4 3967.2 3,706.7 2,877.6 3959.40,2

Variations in Working Capital other than Cash 98.0 34.5 35.1 34.5 37.9 34.1 36.9 311.0Variations in Cash 5.0 6.o 8.0 12.0 13.0 20.0 6.o 70.0

TOTAL APPLICATIONS 1,171.3 2,339.9 2,452.5 3,757.6 2931.7 4,002.3 20,669.

Times Total Debt Service (including interestduring construction) Covered by Net InternalSources (after deduction of interest duringconstruction) _ - - 1.2 1.2 1.5 1.5 _

Net Internal Sources as % of Investments(annual basis) _ _ _ 7% 10% 23% 21% -

Net Internal Sources as % of Investments(3-year sliding averages) - - - 1% 6% 13%o 18% -

- 49 -

ANNEX 10Page 3 of 5 pages

PEOPLE 'S REPUBLIC OF BANGLADESH

US$1 = Tk 15.5 Bangladesh Power Development Board (BPDB)

Greater Khulna Power Distribution Project

Actual and Forecast Balance Sheets 1977/78 - 1984/85

(in Tk million)

Actuall/ ------------------------------------- Forecast -----------------------------------

Fiscal Years Ending June 30 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85

AS, ETSFixed Asse's

Gross Fixed Assets it Operati3n 6,640.9 6,816.7 8, 098.8 9,581.8 12,281.8 15,330.1 17,130.1 19,250.1Accumulated Depreciation 720.4 935.7 1 174.3 1 457 2 1 807 0 2,248.8 2 768 2 3 350 3Net Fixed Assets in Operation 5,920.5 - 5,881.0 6,924.5 T78 13,4741.3 14,361. 9 15,Work in Provress 1 928.9 2 821 4 3,838.7 4,765.1 6 032 3 6,690.7 7,768.3 9,607.7

Tctal Fixed Assfts 7 1 1 1,87 1650. 19,772.0 22,130.2 25,507.5

_=urrent AssetsCash 187.3 192.3 198.3 206.3 218.3 231.3 251.3 257.3

Acounts Reeeivables 254.6 267.0 280.0 385.0 530.0 563.0 725.0 810.01nver,tor ies 194.7 229.7 232.0 234.0 236.0 256.0 296.0 300.0Other Current Assets 263.1 266.3 287.8 290.0 291.0 306.0 336.o 340.o

Total Current Assets 955.3 998. 1 1,115.3 1,275.3 1,356.3 1 1,70 7.3

TOTAL ASSETS 8,749.1 9,67. 11,761.3 14,005.0 17,782.4 21,128.3 23, 738.5 27,214.8

LTAO~ILrrTFSE;quity

Capital and Grants 3,630(0 4,288.7 4,776.8 5,321 9 6,334.8 7,207.8 7,879.4 8,788.4

Accumulated Profit'Loss - 448.1 - 951-3 1 282 1 1,515.0 - 1,507.1 - 1,461.6 - 1,124.2 - 610.1TotaL Equity 3,1i1.9 ' 737T h 3 7 3,806.9 -; 5,74 ,755.2 ,178.3

BorrowingsForeign Loans 3,102. 3,597.5 4,864.5 6,127.5 8,012.8 9,914.6 11,371.6 13,465.9

Local Loans 1,897.8 2,203.5 2,880.5 3 474 8 4 232 6 4 728 1 4 674 4 4,577.2Total Borrowings 5,000.5 5,801.0 7,745.0 9602.3 1 18,043.1

( urrent ,iabilities 566.7 519.3 521.6 595.8 709.3 739.4 937.3 993.4

TOTAI LLBIB fTIE, 8749.1 9,>7. 7 11,76;.3 14,005.0 17,782.4 21,128.3 23,738.5 27,214.8

Debt/Equity Katio 61:39 63:37 69:31 72:28 72:28 72:28 70:30 69:31

_/ Based on BPDB's preliMinary balance sheet.

- 50 -

ANNEX 10Page 4 of 5 pages

PEOPLE'S REPUBLIC OF BANGLADESH

Bangladesh Power Development Board (BPDB)

Greater Khulna Power Distribution Project

Notes on Financial Statements

Average Revenues per kWh Sold

The following average tariff increases have been assumed: 38% onJuly 1, 1979, 20% on July 1, 1980, 17% on July 1, 1981 and 9% on July 1, 1983.

Fuel

At present, BPDB pays the following prices for fuel:

Furnace Oil : TK 5.25 per imp-gal(US¢29/USgal)High Speed Diesel (HSD) : TK 9.28 " " " (USO5O/USgal)Naphtha : TK 5.86 " " " (UJS¢32/USgal)Titas Gas : TK 5.00 (USo32)/l,OO0 cu ftShell Gas : TK 3.60 (USc23)/l,oon ciU ft

Shell gas is being used in the Shajibazar power station and Titas gasin all the other stations in the eastern zone. The price of furnace oil chargedis equivalent to US$12 per barrel.

Future fuel price increases are very difficult to assess. The missionwas informed that the Government does not plan to pass on all of the recent oilprice increases. A gas price increase of about 35% is expected in the near future.but the Government also may not pass on the total increase to BPDB.

Considering the above, the following assumptions were included in thefinancial projections:

Gas : 20% price increase on January 1, 1980 and 10% everysecond year thereafter.

Oil, diesel, naphta: 11% increase in FY 80 and 8% per year thereafter.

Personnel

Annual increases of 7% have been assumed representing 5% for cost ofliving adjustments and 2% for promotion. No additional staff has been assumed.

- 51 -

ANNEX 10Page 5 of 5 pages

Operation, Maintenance and Administration

The projections are based approximately on past trends. For FYs80 and 81 increases of 10% each have been assumed, above the normal rise ofabout 7%, to allow for additional maintenance required to catch up with arrearsof earlier years. The 7% increase pattern has been resumed from FY 82 onwards.

Depreciation

The assumptions are based on an annual depreciation rate of 3.2% onaverage net fixed assets in operation as presently used by BPDB. This rate,which appears low, is presently under study by the accounting consultants whoare expected to propose depreciation rates more closely related to the expecteduseful lives of the various civil works and equipment items.

Internal Sources

BPDB claims that it charges capital contributions from consumersrequesting major electricity connections. However, their system of recordingis unclear at the moment. Consequently, they have been omitted from thestatements of sources and applications of funds which may understate somewhatthe net internal cash generation.

Foreign Currency Loans

BPDB's foreign loans outstanding were revalued in FY 78 to reflectthe decrease of the value of the Taka versus the US dollar. Assets ancl foreignloans increased by Tk 1,686.9 million. The terms of all future foreign loanswere assumed at 5% interest and 25 years including 5 years of grace. The loansare expected to cover the total foreign cost component of BPDB's investments.

Local Currency Loans

In accordance with the financial recovery plan 50% of the local costof BPDB's investments will be financed by Government equity contributions and50% by Government loans at 5% interest and 25 years including 5 years of grace.With the expected improvement of BPDB's internal cash generaticin, the need forraising Government loans decreases steadily.

Government Subsidy

The Government has indicated that it will grant a subsidy of Tk 400million in FY 79 to cover past financial shortfalls.

- 52 -

ANNEX 11

PEOPLE'S REPUBLIC OF BANGLADESH

BANGLADESH POWER DEVELOPMENT BOARD (BPDB)

GREATER KHULNA POWER DISTRIBUTION PROJECT

RECOMMENDATIONS OF ACCOUNTING CONSULTANTS

A. General Accounting System

- introduction of a commercial accounting system appropriate for apublic utility enterprise.

- decentralization of bookkeeping system with creation of divisionalaccounting offices to facilitate the effective supervision of fieldaccounting functions and the timely preparation of financial state-ments.

- regrouping and simplification of the chart of accounts to make themmore suitable for electric utility operations and to facilitatemanagement planning and control.

- strengthening of internal control by providing complete documenta-tion for all transactions, and the adoption of more stringent accountingpolicies.

- simplification of customer's accounting to facilitate timely billingand collection.

*- conducting formal training programs for accounting staff to improvetheir technical efficiency.

B. Internal Auditing System

- revision from Government to public utility auditing system inaccordance with manuals prepared.

C. Property and Inventory Accountin Systems

- adoption of perpetual inventory method of accounting for putrchasedstock.

- setting up of complete property records for the recording of property.

- strengthening of inventory control.

D. Buggetary Cotrol Systems

- adoption of more comprelhensive annual financial plans in accordancewLth manuals prepared.

- creation of a budget committee to assist the Board in formulatingbudget policies and objectives.

E. Accounts ReceivabLes

- adoption of guidelines for reducirLg and controlling the level of

accounts receivable.

- 53 -

ANNEX 12Page 1 of 2 pages

PEOPLE'S REPUBLIC OF BANGLADESH

Bangladesh Power Development Board (BPDB)

Greater Khulna Power Distribution Project

Terms of Reference for Tariff Consultant

The objective of the study is to arrive at a tariff structure that willaccurately reflect the long-run marginal costs (LRMC's) of generation, transmissionand distribution of electricity for different classes of consumers, and to assessthe implications of such a tariff on the financial viability of the BangladeshPower Development Board (BPDB). To this end, the Consultant will:

(a) examine in detail in the light of ongoing work at BPDB, thepresent tariff, and its implications for the cash flow of BPDB,and assess how far incremental revenue could be generated bymore attention to minimaization of system losses, more vigorousattempts to ensure that consumers pay their bills in full andon time, etc. This part of the study should therefore focuson how the full revenue potential of the existing tariff can berealized, and what charges (if any) in BPDB are necessary toachieve this;

(b) review and comment on the proposed investment program for theperiod 1978/79 - 1988/89 of BPDB, both in relation to its mixbetween generation, transmission and distribution facilities,and in its relation to estimated future demand for electricity;

(c) assess the degree of cross subsidization (both geographicallyand by different classes of consumers) and overall subsidyimplicit in the existing tariff in relations to LRMC's ofelectricity production;

(d) analyze the extent to which such subsidization ref:lects officialGovernment policy objectives with regard to subsidization ofdifferent economic sectors and classes of consumers, includingincome distribution objectives;

(e) examine whether such subsidization is consistent with the broaddevelopment objectives of the Govetnment and consider theeffects of possible distortions arising from a divergence betweenthe current tariff and the economic (LRMC based) tariff;

(f) decide both on an appropriate tariff structure, which maydifferentiate between peak, shoulder and base demand and whichwill also incorporate conclusions on an appropriate level oftariffs (in relation to the one fixed in December 1974) taking

- 54 -

ANNEX 12Page 2 of 2 pages

particular care to value the inputs into electricity supply atthe real resource cost. This will be crucial with respect tothe correct price for natural gas;

(g) make recommendations for the transition of BPDB's existingtariffs to the revised structure and levels, taking intoaccount the need for BPDB to meet the objectives of thefinancial recovery plan;

(h) make any recommendations thought necessary to ensure that theimplementation of the new tariff proceeds smoothly andefficiently; and

(i) make recommendations with regard to the strengthening ofBPDB's capability for the continuing study and revisionof tariff structure and levels;

2. The Tariff Consultant shall work in close consultation with thegroup of engineers specially deputed by the Power Development Board for theTariff Cell. He would also help in developing the required proforma forcollection of information and impart some preliminary training to the engineersattached to the Tariff Cell.

_ 55 -

ANNEX 13Page 1 of 2 pages

PEOPLE'S REPUBLIC OF BANGLADESH

Bangladesh Power Development Board (BPDB)

Greater Khulna Power Distribution Project

Internal Economic Rate of Return

1. An attempt has been made to determine the return on the project bycalculating the internal economic rate of return (IERR) on the time slice ofBPDB's total investment program for the period covered by the project (FYs 80 -83). The following has been assumed:

(a) all costs and benefits are in constant 1979 prices - borderprices;

(b) the investment costs are net of interest during constructionand duties and taxes. They include the total cost of projectsthe construction of which was started before the period underconsideration, but exclude the cost of projects for whichincremental benefits are not claimed;

(c) operation, maintenance and administration costs are based on2.5% of the capital cost of thernmal installations and 0.5%of hydro and transmission/distribution investments;

(d) the local construction cost has been converted to border pricesby using the standard conversion factor of 0.75. In addition,a factor of 0.7 has been applied to the estimated unskilledlabor content (30%);

(e) the operation, maintenance and administration c.osts, expressedin market prices, have been converted to border prices by usingthe standard conversion factor of 0.75;

(f) imported fuel (furnace and diesel oil) is based on early - 1979price levels. The present price for natural gas has beenincreased by 35% to allow for possible price adjustments in thenear future; and

(g) the present tariff level, increased by 38% (para 4.19) was takenas the proxy in establishing the benefit stream. The standardconversion factor of 0.75 was used for conversion to border prices.

2. The streams of costs and benefits based on the above assumptions areshown in the following table:

- 56 -

ANNEX 13Page 2 of 2 pages

Year Investments O&M Total BenefitsForeign Local Admin. Fuel Cost-----------------------------in Taka million-------------------------

1 323.5 359.9 4.9 52.4 740.7 68.1

2 740.9 614.4 14.6 122.9 1,492.8 164.4

3 573.5 511.4 22.4 200.1 1,307.4 274.7

4 487.9 595.4 30.1 231.8 1,345.2 401.1

5 126.0 43.6 31.4 230.7 431.7 545.1

6-30 - - 31.4 263.8 295.2 710.4

The equalizing discount rate is about 8%.

- 57 -

ANNEX 14

PEOPLE'S REPUBLIC OF BANGLADESH

Bangladesh Power Development Board (BPDB)Greater Khulna Power Distribution Project

Documents Available in the Project File

1. Greater Khulna Electrification, Project Proforma by the Directorateof Project Planning, Power Development Board, Dacca, datedSeptember 1978.

2. President's Order No. 59 of 1972.The Bangladesh Water and Power Development Boards Order, 1972.

3. Bangladesh Energy Study, Final Report to the Asian Development Bankand the Government of the People's Republic of Bangladesh (Summary),by Montreal Engineering, Snamfiogetti, Meta Systems Inc. and C. Lotti& Associate dated 1976.

4. The Two Year Plan 1978-1980, People's Republic of Bangladesh, PlanningCommission, Chapter VIII: Power, Natural Resources and Scientific andTechnological Research; 8.1 Power, dated March 1978.

5. Bangladesh, Power Sector, by Bernard Monfort, World Bank, datedJanuary 28, 1974.

6. Sector Memorandum, Draft Report No. 2104-BD, Oil and Gas Sector,Bangladesh, by Vineet Nayyor and Eugene McCarthy, World Bank, datedApril 1978.

7. Bangladesh: The Energy Sector, Draft Memorandum by Sang San Mok,World Bank.

8. Summary Assessment of Load Demand based on Programmes of DifferentSectors (1977-1981), prepared by BPDB - Directorate of Systemn Planning,Dacca.

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