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ONI WEEKThis report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF THE FOURTH POWER PROJECT

YANHEE ELECTRICITY AUTHORITY

THAILAND

February 3, 1967

Projects Department

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CURRENCY EQUIVALENTS

I U.S. $ 2O.8 Baht (B)1 Baht = 4.8 U.S. ¢1 million Baht = 48, 077 U.S. $

MEASURES EQUIVALENTS

One kilometer = 0. 6215 milesOne mile = 1. 609 kilometers

THAILAND

YANHEE ELECTRICITY AUTHORITY

APPRAISAL OF THE FOURTH POWER PROJECT

TABLE OF CONTENTS

Page

SUMMARY i

I. INTRODUCTION 1

II. THE BORROWER 1Background and Borrower 1Consolidation of the Power Sector 2YEA's Existing Facilities 2

III. THE POWER MARKET 3Service Area 3Past Load Growth 3Forecast Load Growth 5Present Generating Capability 5

IV. THE PRESENT PROGRAM 6Status of Procurement and Schedule of Construction 6Justification 7Cost Estimate 8Engineering and Method of Construction 10The Project to be Financed by the Proposed Loan 10Planning for Future 10

V. FINANCIAL ASPECTS U1Rates 11Audits 11Present Financial Position 12Past Earnings Record 13Proposed:.Financing Plan 14Est16 at6d Future Financial Position 16

VI. CONCLUSIONS L6

This rep,ozt'-a,sprepareid by-E. B. Arnold and H. C. Hittmair onthe-bas-i&.of-. f, ton s,upplied by YEA and from general knowledgeof YEA:o,per&tibns'and pers-onnel gained through periodic visits, thelatest in July 1966.

LIST OF ANNEXES

1. System Load Growth Forecast and Capacity Installations.

2. Load and Capacity Development.

3. Balance Sheets 1963-1966.

4. Income Statements 1963-1970.

5. Sources and Applications of Funds 1967-1970.

6. Balance Sheets 1966-1970.

Map

THAILAND

YANHEE ELECTRICITY'AUTHORITY

APPRAISAL OF THE FOURTH POWER PROJECT

SUMMARY

i. The Yanhee Electricity Authority (YEA) is engaged in a con-struction program which includes generation additions of 140 MW inhydro and 87.5 MW in thermal power capacity as well as major trans-mission line and substation additions. The program should be com-pleted by early 1969.

ii. The estimated cost of the program would be equivalent toabout US$31.4 million of which the Bank has been asked to financeUS$5 million equivalent. The proposed loan would finance the foreignexchange costs of transmission line and substation additions (theProject) against contracts let after international competitive biddingin accordance with the Bank's normal procurement procedures. Thetotal cost of the program would be financed approximately 48 percentfrom loans and 52 percent from YEA's own resources.

iii. Energy demand on the YEA system has increased 3.7 timesduring the last five years writh annual growth rates of over 30 percentin each of the last three years. These extremely high growth rateswill not continue indefinitely but there is no indication of a majorslackening during the next few years. Because of this, YEA manage-ment has had to act quickly to provide generating capacity to avertshortages forecast for 1970 and has already arranged financing andplaced orders for the new generating units included in the program.The program is justified and YEA has established a very satisfactoryrecord of construction of a similar nature.

iv. YEA was created as a condition of Loan 175-TH in 1957 andbecame an operating entity in 1961. It is well organized and staffed,with capable management.

v. This would be the fourth Bank loan to YEA. The projectspreviously financed have or are being carried out satisfactorily.

vi. YEA's present and forecast financial situation is satisfactory.The rate-of-return on realisticaIly valued net fixed assets inoperation is estimated to average about 10 percent during the next fouryears and debt service coverage would range between 1.7 times and2.1 times. The debt equity ratio would remain at about 54/46.

vii. The proposed loan of US$5 million equivalent is needed tocomplete the financing plan for the present construction program towhich YEA is fully committed. The financing plan is sound. A termof 15 years including 3 years of grace would be appropriate for theproposed loan.

THAILAND

YANHEE ELECTRICITY AUTHORITY

APPRAISAL OF THE FOURTH POWER PROJECT

I. INTRODUCTION

1. The Yanhee Electricity Authority (YEA) has applied for a loanof US$5 million equivalent to assist in financing new construction to becarried out during the three years starting July 1966. The total costof this construction program, including interest during construction onloan funds, is estimated at about US$31.4 million, of which the foreignexchange cost will be equivalent to about US$20.1 million. YEA hassecured a loan of US$10 million from the Central Bank of Thailand whichwith the proposed Bank loan of US$5 million equivalent would financeabout 48 percent of the total cost. The balance will be provided fromYEA's own resources.

2. This would be the fourth Bank loan to YEA. The first, 175-TH forUS$66 million equivalent in 1957, was for the Yanhee Project which providedfor construction of the Yanhee (Bhumibol) Dam and power plant on the PingRiver in northern Thailand; the second, 333-TH for US$6.6 million equiva-lent in 1963, was for additions to the transmission system and the third,406-TH for US$6 million in 1965, was for additional generating units atthe Yanhee (Bhumibol) Dam. These projects have been, or are being, carriedout satisfactorily. YEA has established a well deserved reputation forcompetence. Its undertakings are carried out on time and its financialplanning is good.

3. This report was prepared by E. B. Arnold and H. C. Hittmair onthe basis of information supplied by YEA and from general knowledge ofYEA operations and personnel gained through periodic visits, the latestin July 1966.

II. THE BORROWER

Background and Borrower

4. The YEA was created by the Yanhee Electricity Authority Act of1957 as a condition of the first loan. It has sole responsibility for bulkgeneration and transmission in central Thailand. It sells in bulk to twodistribution agencies and to a relatively few industrial consumers. Itis a corporate entity with a Board consisting of a Chairman and four tosix other members, exclusive of the General Manager who is an ex-officiomember. The Board selects the General Manager subject to approval of theCouncil of Ministers. One-half of the Board Members retire each thirdyear, but the outgoing members are eligible for reappointment.

5. Although created in 1957, YEA did not come into being as anoperating entity until March 1961 when, on completion of its first generatingplant, it assumed responsibility for the bulk power supply of Bangkok. YEAis efficiently organized with capable staff and management.

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6. There are four other power agencies in Thailand; two are majorcustomers of YEA - the Metropolitan Electricity Authority (MEA), whichis the retail distributor in the Bangkok area and the Provincial ElectricityAuthority (PEA), which has the same function in rural areas. There arein addition the Northeast Electricity Authority system in northeast Thailandand the Lignite Authority power system in the south, along the Malay Peninsula.

Consolidation of the Power Sector

7. For some years the Thai Government has been exploring proposalsfor consolidating the power sector. One proposal being seriously consideredat the time of the 1965 loan envisaged a complete merger but this idea wasabandoned as it proved too ambitious a step for the time. A recent proposalnow agreed in principle in the Thai Cabinet, would merge the Lignite andNortheast Authorities with the YEA and the Provincial Authority with theMetropolitan Authority. The two resulting Authorities would have new names,one being responsible for generation and transmission throughout Thailandand the other for country-wide distribution. Bulk generation and trans-mission would be under the Ministry of National Development while distribu-tion would be under the Ministry of Interior. While a rational proposalfunctionally, it has the defect of involving two Ministries in a fieldbetter handled by one. Because there are two Ministries involved, formalaction on creating the new entities is not expected quickly. However,the Bank should be prepared to cooperate when the time comes, assuming,as now appears certain, that the present YEA organization and staff willremain the backbone of the new generation and transmission organization.At any rate, the Bank's interest in YEA is well protected by past loanagreements which require Bank approval to any significant change in theYEA Act.

YEA's Existing Facilities

8. YEA's existing facilities include:

Yanhee (Bhumibol) Dam and Power Plant: This project, located250 miles north of Bangkok, was financed in part through the 1957 Bankloan of US$66 million equivalent. Its total first stage cost was equiva-lent to about US$115 million and included two 70 M generating units whichcame into operation in the spring of 196 4, provisions for up to sixadditional units and major transmission facilities. The third and fourthunits were partially financed by the 1965 Bank loan of US$6 million equiva-lent. Installation of units 3 and h will be complete in mid-1967. Units5 and 6 are a part of the present program. Both are being financed by YEAand both units are on order.

9. The project has multiple benefits, providing water for irriga-tion, navigation and salinity control, as well as power. Irrigation andsalinity control requirements have priority in scheduling reservoir re-leases which in turn dictate the power availability. Nevertheless theproject's total cost is reflected in YEA's assets base, which distortsthe Authority's apparent rate of return to a significant degree, particularlyin the early years.

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10. North Bangkok Steam Plant: The plant has two modern highpressure reheat units, both rated at 75 MW. A third unit, which is apart of the present program, is already financed and on order. It willbe rated at 87.5 MW and will complete the plant to its full plannedcapacity. Commercial operation of the first unit began in 1961, thesecond in 1963 and the third should be in operation in 1969.

11. Diesel Plant: When YEA first began commercial operations in1961 it took over, from the MEA, about 40 MW of diesel driven generatingcapacity in the Bangkok area. About 24 MW of this capacity have beenretained and are available to meet emergency and peaking load require-ments of the system.

12. Transmission: The Yanhee and North Bangkok plants are inter-connected by a double circuit 230 kv transmission line which serves mainlyfor transmission of bulk power from the Yanhee plant to the Bangkok area.A third circuit is a part of the present program. These major trans-mission lines also supply substations at Nakorn Sawan and Angthong fromwhich power is supplied to the Provincial Electricity Authority over YEAowned 69 kv sub-transmission lines. There are also three 230 kv substationsin the Bangkok area; a fourth, plus a 230 kv line extension are includedin the present program. YEA owns in addition over 400 miles of 115 kvtransmission line extending to the west and east of Bangkok.

13. The map at the end of this report shows the location of thesevarious facilities.

III. THE POWER MARKET

Service Area

14. The YEA service area extends from Chiengmai in the north to bothsides of the Gulf of Thailand in the south. The Bangkok metropolitan areais the primary market and accounts for about 85 percent of energy sales.YEA sells bulk power to the MEA in Bangkok and the PEA in the rural areasand also sells directly to a few large industries, such as cement, by agree-ment with MWA or PEA as the case may be.

Past Load Growth

15. Load growth on the YEA system has been high by normal standardsduring the five years since YEA began its first operations. Commercialoperations started in March 1961 but June was the first representativemonth from which comparisons could be drawn, as follows:

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Demand Energy LoadMonth of (MW) (Gwh) Factor (%)

June 1961 96 32.58 47

June 1966 262 120.52 64

196619=1 2.73 x 3.70 x

Average annualgrowth 22.2% 29.2%

16. Load growth has been continuous and at an increasing rate asshown below. The pattern of growth, with each year's increase greaterthan the previous years, is decidedly unusual and compounds the normalproblems in the optimum scheduling of plant additions.

Maximum Annual AnnualDemand Demand Energy Energy Load(MW) Growth (%) (Gwh) Growth (%) Factor (%)

June '61 - May '62 109.7 - 469.57 - 48.9

June '62 - May '63 125.0 14 568.26 21 51.8

June '63 - May '64 152.0 21½ 704-73 24 52.9

June 164 - May '65 201.6 32k 935.70 33 53.0

June '65 - May '66 258.o 28 1,254.74 34 55.5

Sept.'66 285.0 10½ (4 months)

17. Annual energy requirements have increased faster than annualpeak load resulting in a marked improvement in system load factor withconsequent improved utilization of generating facilities.

18. The rapid rate of growth has been due to (i) integration andmodernization of distribution facilities in Bangkok, (ii) reliable bulkpower supplies adequate to meet all demands experienced, (iii) an incentivetype of rate structure, and (iv) major economic expansion which is occurringprimarily in the Bangkok metropolitan area, a significant degree of whichis attributable to the Viet Nam situation.

19. This high rate of growth will not be sustained indefinitely butthere is nothing to indicate a major slackening during the next year ortwo. This creates a short range problem as the system will become shortof firm energy by 1970, if not sooner, even assuming some tapering off ingrowth rate during 1967, 1968 and 1969.

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Forecast Load Growth

20. At present, any long-term forecast for the YEA system can onlybe considered an order of magnitude because of the abnormal rate of loadgrowth. Primary emphasis in YEA system planning is therefore given tothe following three year period, the minimum lead time required for placingnew generating units in operation.

21. New loads to be connected during the next three years includehotels, shopping centers, recreational facilities, commercial officebuildings and light and heavy industry. YEA staff keeps abreast of theplanning and construction progress of potential new loads and has conserva-tively estimated increases of about 25 MW from such sources in each of thenext two years. In addition there are substantial potential loads not beingincluded in the forecast. The Thai Cement Company, for example, is currentlyexperimenting with a pilot steel plant at Talan and depending on the out-come of the present trials, major electric loads such as electric furnaces,small rolling mills and liquid oxygen plants could develop. There are alsopreliminary plans for expanding the capacity of two oil refineries. Distribu-tion system expansion to serve the rapidly growing Bangkok area market isthe responsibility of the MEA and no problems are foreseen in keeping abreastof customer requirements.

22. YEA's present long-range planning is based on the expectationthat the growth rate will taper off to about 10 percent annually by themid-1970's. On this basis, a peak load of about 975 MW could be expectedin 1975. By then the system annual load factor could be expected to beabout 60 percent, resulting in gross energy requirements of about 5,120 Gwh.About 93 percent of gross energy generated has been sold in the past, withthe remainder consisting of station power requirements and transmissionlosses. This ratio is expected to remain essentially constant for theforecast period.

23. The forecast is shown in Annex 1 and graphically in Annex 2.

Present Generating Capability

24. YEA's generating facilities are capable of producing about 2,750million kwh annually in an adverse water year with botk North Bangkoksteam units base loadedl However, at present, about 650 million kwhtheoretically available from Yanhee cannot be used because water releasesfor agriculture and other uses are at times greater than needed to meetsystem energy requirements.* Water must thus be "spilled" but the amountof spill will decrease each year as energy requirements increase. In 1970,all of the energy theoretically available from Yanhee should be useable.In the meantime, the system firm energy capability and system energy require-ments are as follows:

1/ With an annual availability factor of 91.4%.

(millions of kwh)Fiscal Year Energy Firm

Oct. 1 - Sept. 30 Requirements Energy Capability

1966 1,385 2,100

1967 1,730 2,350

1968 2,090 2,650

1969 2,14.5 2,700

1970 2,830 2,750

IV. THE PRESENT PROGRAM

25. To meet the projected system requirements the YEA managementdecided in mid-1966 to provide additional capacityby 1969. This consistsof the North Bangkok third unit to provide energy capacity and units 5 and6 at Yanhee to provide peaking power capacity.

26. The present program of expansion therefore includes the following:

i) The third steam unit for the North Bangkok Station (87.5 MW).

ii) Installation of hydro units 5 and 6 (2 x 70 MW) at Yanhee.

iii) Construction of the third 230 kv transmission line betweenYanhee and Bangkok (450 kilometers) with double circuitsteel 'towers (one circuit strung) for the portion of theline between Bangkok and Nahorn Sawan.

iv) Installation of a third 60 NVA synchronous condenser inBangkok.

v) Installation of two 40 MVA 230/115 kv transformers at theBangkapi and Bangkok Noi substations in Bangkok.

vi) Construction of a 230 kv transmission line extension withdouble circuit steel towers from the Bangkok Noi substationwest of Bangkok to a new substation to be constructed southof Bangkok (about 25 kilometers).

Status of Procurement and Schedule of Construction

27. The third steam unit is already on order from Westinghouse Inter-national. The contract was negotiated in June 1966 with prices significantlyreduced as compared to the second unit which was also supplied by Westinghouse.Delivery of the boiler components will start toward the end of 1967 and becompleted in mid-1968; the turbine and generator will be delivered by mid-1968.The unit is expected to be ready for operation by the end of 1968 or early

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in 1969, approximately 30 months from the time Westinghouse was issueda letter of intent. This schedule should be met as it includes moretime than was required for either of the first two units.

28. Unit 5 for Yanhee with transformers for units 5 and 6 andassociated switchgear were ordered early in 1966 after internationalcompetitive bidding. The order for unit 6 was placed recently by exer-cising options obtained with the unit 5 order. Unit 5 will be in opera-tion by mid-1968 and unit 6 about one year later.

29. Invitations to bid for the supply and erection of the third230 kv transmission line were issued on an international basis in October1966 after review and approval of the bidding documents by the Bank. Acontract award will be made in January or February 1967 and the line shouldbe completed and ready for commercial operation during the first half of1969.

30. Invitations to bid for the 60 I$VA synchronous condenser, trans-formers and switchgear will be issued on an international basis early in1967. The Bank will review all bidding documents as it has in the pastfor procurement intended to be financed through Bank loans. The synchro-nous condenser and transformers are scheduled to be installed and in opera-tion by the end of 1968 assuming contracts are awarded by the end ofMarch 1967.

31. Engineering studies for the south 230 kv line extension andsubstation are complete and invitations to bid for the line and sub-station components will all be issued by mid-1967. All work will becompleted by the end of 1968.

32. All elements of the program are scheduled to be completed bymid-1969.

Justification

33. The program consists of additions to existing facilities tomeet energy and power demands of YEA's rapidly growing market and allelements of the program tend to improve benefits from investments previ-ously made.

34. The third steam unit is needed to meet energy requirements.There is no practical alternative:

i) The North Bangkok steam station was planned for threeunits. Unit 3 can be installed (about US$137/kilowatt)and operated at less cost than could a steam unit inany other location.

ii) The Yanhee hydro plant with four units can produce allthe energy theoretically available from the average flowof the river. Units 5 and 6 will not produce additionalenergy in average years.

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35. Units 5 and 6 at Yanhee and the third 230 kv transmission lineprovide peaking capacity for the system at less cost than could any otheralternative. The cost of this peaking capacity is equivalent to aboutUS$83 per kw.

36. Annexes 1 and 2 indicate that the sixth unit at Yanhee couldperhaps be delayed for about one year from its presently scheduledinstallation date of mid-1969. However, its incremental cost is rela-tively small (equivalent to about US$27 per kw) since it is necessary toinstall with unit 5, some of the features common to both units 5 and 6.However with the presently high rate of load growth and the uncertaintyas to when it would reduce to more normal levels, YEA's decision to proceedwith the installation is reasonable.

37. The synchronous condenser and substation additions in Bangkokare necessary to provide increased reliability for the system and thesouth 230 kv line extension and substation are needed to meet load growthin the area.

Cost Estimate

38. The costs of the program are reasonably firm as contracts formajor items have already been let. These costs are summarized below:

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(millions of baht) (millions)Foreign Local Total DollarCost Cost Cost Equivalent

North BangkokUnit 3 208.00 41.60 249.60 12.00

Yanhee Units 5 and 6,main transformers andswitchgear 74.00 27.50 101.50 4.88

230 kv line between Yanheeand Bangkok including sub-station additions 85.10 65.30 150.40 7.23

60 MVA synchronous condenserincluding switchgear 9.50 2.50 12.00 .58

Two 40 NVA 230/115 kv trans-formers including switchgear 12.00 2.00 1h.00 .67

South Bangkok substationand Banghopi Noi substationadditions 17.30 11.80 29.10 1.40

South Bangkok 230 kv lineextension 4.70 11.20 15.90 .77

Land and rights-of-way - 16.50 16.50 .79

Subtotal: Baht 410.60 178.40 589.00 28.32

Equivalent US$ (19.74) (8.58)

Import duties - 40.00 40.00 1.92

Interest during constructionon loan funds 7.52 16.76 24.28 1.17

Total: Baht 418.12 235.16 653.28 31.41

Equivalent US$ (20.10) (11.31)

39. Allowances for contingencies totalling about 7 percent of foreigncosts and-l l6Jerdnt of local costs are included in the estimate. Theseare adequate ide,r-ing the present advanced stage of procurement. Con-tingencies inctu& engineering costs but these are not significant as almostall features of the project duplicate facilities in existence for whichspecifications and bidding documents were available.

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Engineering and Method of Construction

40. YEA has a capable engineering and planning department with demon-strated ability to carry out work similar to that in the program within boththe scheduled time and the estimated cost. YEA also engages consultants andhas arrangements with three U.S. firms at present. Engineering ConsultantsIncorporated of Denver provide one or two engineers full time to work withYEA staff on transmission line planning and construction. This firm alsocarries out computer studies of the YEA system in its home office. TheKuljian Corporation of Philadelphia will be responsible for coordinatingdesign and procurement for the third steam unit, and for preparing basicconstruction drawings. This work will be done entirely in their home office.Black and Veatch International of Kansas City was engaged in 1966 to reviewload growth and system planning studies made by YEA staff. This firm willalso be responsible for the basic engineering for a future new thermal plantto be located south of Bangkok. These arrangements work well.

41. Construction to be handled by contract in the present program willinclude the third 230 kv transmission line between Yanhee and Bangkok, thesouth 230 kv line extension and certain parts, such as steel erection, forthe North Bangkok steam unit. Most other work will be done by YEA forces,augmented by laborers and craftsmen hired on a day-by-day basis. Erectionof major components such as the boiler, turbines, generators and heavy switch-gear will be under the supervision of supplier representatives. Similar workhas been carried out in the same manner in the past with excellent results.

The Project to be Financed by the Proposed Loan

42. The proposed loan of US$5 million equivalent would be applied tofinancing the foreign exchange costs of the third 230 kv circuit, the third60 M4VA synchronous condenser and the two 40 MVA transformers. Procurementactions for these items will be on the basis of international competition.

Planning for Future

43. Future capacity additions will require the construction of newplants since the present program will complete the North Bangkok steamstation and, aside from another 70 MW of peaking capacity, also completethe Yanhee project.

44. Preliminary engineering for three projects is going ahead andit is likely that two projects may be started within the next year. Onewould be a new thermal station at a site on the Chao Phya River downstreamfrom Bangkok for which land procurement was completed in the fall of 1966.The plant will be laid out for an ultimate installation of about 1,000 MW,with initial unit sizes of 150 MW to 200 TMW. The second project would bea power installation of 160 NW at the Phasom Dam. The Phasom Dam Projecthas been appraised by the Bank (Report To-563 of October 18, 1966) and loannegotiators have been invited. Its primary justification is for agriculturalwater supply. If the project proceeds as scheduled, YEA is tentativelyplanning the power installation for the period 1968-1971. The third project,the Kang Rieng hydro project, west of Bangkok, is still being investigatedbut on the basis of present data appears to be capable of an initial instal-lation of about 200 MW.

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V. FINANCIAL ASPECTS

Rates

45. YEA has the right to set its own rates within guidelines of theYEA Act which stipulate that rates should provide revenues sufficient:

(a) To cover operating expenses (including depreciation,financial charges and bonuses);

(b) to meet amortization payments to the extent thatthese exceed provisions for depreciation, and

(c) to finance a substantial portion of additions tofixed assets.

In the previous loan agreements between YEA and the Bank a rate covenantwas incorporated which reflected the provisions of the YEA Act. It wasagreed during negotiations that this covenant would be repeated for theproposed loan.

46. In case of a reorganization of the power sector as mentioned inparagraph 7, the question of rates would have to be closely reviewed bythe Bank and a satisfactory solution for the new entity should be one ofthe prime pre-requisites for an agreement to any change affecting YEA.

47. YEA's rate structure is the standard demand - energy type,whereby unit kwh costs decrease with increasing load factor. When YEAfirst started operations in 1961 the wholesale rate averaged aboutB 0.38 (18.3 US mills) per kwh. Improving load factors plus some slightadjustment to the rate schedule reduced this average to about B 0.32(15.4 uS mills) per kwh by 1966 and will probably lead to furtherreductions to about B 0.30 (14.4 US mills) per kwh by 1970.

48. Despite this forecast decrease in the average revenue/kwh theexisting tariffs should provide a sound earnings basis for YEA and anacceptable financing plan for the project (see paragraphs 56 and 61)although the present size of YEA's expansion program will place a con-siderable burden on its cash resources. In this connection, YEA hasagreed to consult with the Bank prior to making any rate changes duringthe construction period of the proposed project. This should assurethat an adequate earnings level would be maintained.

Audits

49. A provision of the YEA Act requires an annaal audit of YEA'saccounts by auditors appointed by the Board. This requirement was metinitially by the appointment of the Government Audit Council but as theAudit Council had limited experience with public utilities, the Bankrequested outside auditors. For the past three years an outside account-ing firm (Coopers & Lybrand) has reviewed and supervised the work of theAudit Council as it pertained to YEA and in addition has providedgeneral training for Audit Council staff. This arrangement has nowended but YEA has decided to retain Coopers & Lybrand as accounting

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advisors. As part of their work, they will submit an annual report tothe YEA Ebard on the status of YEA's accounts. During negotiations itwas agreed that this report would also be made available to the Bank,while the formal audit of YEA's accounts and the certification of itsfinancial statements would remain the responsibility of the GovernmentAudit Council.

Present Financial Position

50. Balance sheets as of September 30, 1963 to 1966 are shown inAnnex 3. The figures for fiscal year 1966 have not yet been audited.Total fixed assets as of September 30, 1966 amounted to B 3,720 million(US$ 179 million equivalent); after deducting accumulated depreciationof B 255 million, net fixed assets were B 3,465 million (us$ 167 millionequivalent). The investment for the First Yanhee Project, includingthe Yanhee (Bhumibol) Dam and transmission lines, accounted for aboutB 2.4 billion (US$ 115 million equivalent) or about 65 percent of totalfixed assets.

51. YEA's capitalization as of September 30, 1966 was as follows:

in millionsEquity and Surplus of Baht f

Contributions from Thai Government 1,357.40 38.6Property transferred from MEA 49.40 1.4Contributions in aid of construction from MEA .60 .1Earned surplus 309.60 8.8

Total Equity 1,717.00 48.9

Long-term debt outstanding

IBRD Loans - 175-TH, 5-3/4%, 1957-82 1,221.03 3 4.7- 333-TH, 5-1/2%, 1963-83 130.58 3.7- 406-TH, 5-1/2%, 1965-85 54.52 1.6

Export-Import Bank - No. 1065, 5-1/2%, 1959-73 167.96 4.8- No. 1769, 5-3/4%, 1962-76 159.79 4.5

Government Loans - No. 1, LA, 1963-83 37.00 1.1- No. 2, 5-3/4%, 1964-84 65.00 1.8- No. 3, 6%, 1966-86 10.00 .3

MEA debt assumed on transfer of properties,no interest 16.22 .5

Lignite Authority debt assumed on transfer ofproperties 31.67 .9

Sub-total 13,93.77 53.9Less: portion maturing within 12 months (97.18) (2.8)

Total long-term debt 1,796.59 51.1

Total capitalization 3,513.59 100.0%

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Equi.ty amounted to 49 percent of total capitalization. The Governmentcontributions were made primarily to cover local currency expenditures forthe First Yanhee Project and the first North Bangkok steam unit since,at the time of their construction, YEA was not yet an operating agency.No further contributions have been needed since. The MEA property takenover by YEA has over the years been reduced by retransfer to M4EA and otherentities to the present level of B 50 million.

52. Outstanding long-term debt represented about 51 percent of totalcapitalization. The amounts of the loans and their purpose were asfollows:

(a) US$66 million (175-TH) for the Yanhee Project (First Project).

(b) US$6.6 million (333-TH) for transmission line extensions,substantially all of which has been disbursed (Second Project).

(c) US$6 million (406-TH) for Yanhee Units 3 and 4 about halfof which remained undisbursed as of September 30, 1966(Third Project).

(d) US$14 million and US$10 million (Export-Import Bank) for thetwo 75 MW North Bangkok steam units.

(e) Three local currency loans by the Thai Government:

(i) B40 million for the transmission line extensions(Second Project);

(ii) B65 million for the first debt service payment onLoan 175-TH, which became due prior to completionof the project;

(iii) BhO million for Yanhee units 3 and 4 (Third Project).

(f) The MEA and Lignite Authority debt taken over by YEA representssuppliers credits and other loans repayable in local currency.The transmission line assets from the Lignite Authority weretaken over in 1965 and the terms of this debt have not yetbeen agreed upon; 6 percent interest and repayment over a12 year period have been assumed for purposes of the forecasts.

53. YEA's current position has been well managed in the past andno particular problems have arisen so far. The outstanding cash balanceat the end of fiscal year 1966 amounted to B122 million which is ahigher amount than YEA would require for its operations. However, thefact that major debt service payments fall due two weeks after the closeof the fiscal year make this accumulation of cash necessary.

Past Earnings Record

54. Income statements for the four fiscal years ending September 30,1966 are shown in Annex 4. During this period major 'generating sources were

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cedmpleted allowing YEA to increase the scope of its activities consider-ably. Net income from operations increased from B 63 million in fiscalyear 1963 to B 222 million in fiscal year 1966. The rate of return onYEA's net fixed assets in operation dropped from 7.3 percent in fiscalyear 1963 to 2.8 percent the following year when the Yanhee Projectstarted operations and produced power for only two and a half months. Byfiscal year 1966 the return had reached 6.8 percent due to rapid loadgrowth enabling a better utilization of the existing generatingfacilities. This level of return is satisfactory because it is based onthe total Yanhee investment without making adjustments for any of itsmulti-purpose aspects (see paragraph 9). It should also be recognizedthat so far only two of its generating units have been installed and arein operation.

Proposed Financing Plan

55. Forecast sources and applications of funds are given in .nnex 5.The difficulty in presenting a realistic long-range forecast is caused bythe present extremely high increase in load and the uncertainty as tothe duration of this growth. In order to overcome this problem, theanalysis in this report has been limited to a four year period. It isbased on projections of sales as outlined earlier and on a program ofcapital expenditures, consisting of the completion of the second andthird Yanhee projects, the present program and the future projects des-cribed in paragraph 44. A review of the load growth prospects in ayear or two would then determine the steps which would have to be takenfor the period beyond 1970. The estimated cash flow for the four fiscalyears 1967 through 1970 during which the present construction program wouldbe completed is as follows:

Financial Requirements Baht US$ equivalent(in millions)

Construction expenditures:Yanhee projects 2 and 3 117.23 5.6Present program 629.00 30.3Future projects 1,379.67 2,125.90 66.3 102.2

Debt service requirements 980.14 47.1Bonus payments 48.20 2.3

Total requirements 3,154.24 151.

Would be met from:Internal cash generation 1,849.05 88.9Borrowings 1,311.19 63.0Government equity contributions 4o.00 1.9

Total sources of funds 3,200.24 153.

Increase in cash balances 46.oo 2.2

Internal cash generation net of debtservice and bonus payments 820.71

as % of construction expenditures 38.6%

- 15 -

56. This financing plan is acceptable. Internal cash generationafter meeting bonus payments and the sizeable debt service requirementswould finance about 39 percent of capital expenditures. YEA's ownresources together with the assumed borrowings and other minor sourceswould leave a cash margin of about B 46 milliod which might be consideredwell justified as an additional contingency, given the uncertainties ofthe expansion program.

57. The forecast long-term debt would be:

(a) the remaining undisbursed balance of Loans 333-TH and406-TH;

(b) the disbursement of Government loan No. 3 (see paragraph52(e));

(c) the utilization of Bank of Thailand financing of US$ 10 million,at an interest rate of 5-1/2 percent and for a term of 15years including a grace period of three years, to cover theforeign exchange cost of the third unit at the Bangkokthermal plant;

(d) the proposed Bank loan of US$ 5 million equivalent which hasbeen assumed at an interest rate of 6 percent and for a termof 15 years including a grace period of three years for thepurposes of this forecast;

(e) future loans totalling B 890 million (US$ 43 million equivalent)which would be required to complete the financing plan. A6 percent interest rate was assumed for the forecast withrepayments to start in 1971.

The proposed Bank loan (d) and Bank of Thailand financing (c) totallingUS$ 15 million equivalent would cover about 48 percent of the totalconstruction costs of the present program.

58. The YEA Act stipulates that the Government has to provide fundsas needed should YEA's own resources be insufficient to meet its financialrequirements. Fbr the period of the forecast no significant Governmentcontributions are assumed. The estimated Government equity contributionsin 1968 and 1969 totalling B 40 million represent the reimbursement fromthe Government for import duties paid by YEA.

59. A particular problem has arisen with the requirement that YEApay to the Government an amount equivalent to about 25 percent of netprofits. In view of YEA's sizeable capital needs the Government sub-sequently agreed to a deferment ofihese annual payments for a three yearperiod ending September 30, 1967. The payment of the deferred and theestimated amounts would pose a problem for YEA's cash position duringthe forecast period through fiscal year 1970 and would require at leastB 270 million (US$ 13 million equivalent) in additional funds to completethe financing picture. During negotiations this problem was discussedand confirmation obtained from the Thai delegation that the Governmentfully recognized its obligations to assist YEA in meeting its financial

- 16 -

requirements. If the payments to the Government were to impair YEA'sliquidity and thus jeopardize the proper progress of its expansionprogram the Government would be willing to provide compensating financialassistance to the extent required. It was furthermore agreed that shouldit be decided to convert the deferred payments into long-term debt theBank would be consulted on this point. On the basis of these discussions,the proposed financing plan assumed that further deferrals would begranted through fiscal year 1970.

Estimated Future Financial Position

60. Forecast income statements, sources and applications of fundsand the resulting balance sheets are given in Annexes 4 through 6respectively. Net income from operations would increase from B 222million in fiscal year 1966 to B 402 million for the year endingSeptember 30, 1970. Measured against year end net fixed assets inoperation, this would result in rates of return of 8.5 percent infiscal year 1967, rising to 11.7 percent in fiscal year 1969 and thendropping to 9.9 percent in fiscal year 1970 (Annex 4). These ratesof return are high considering the fact that the Yanhee Dam has multi-purpose benefits for which YEA does not receive compensation (paragraph 54).

61. Internal cash generation would increase from B 362 million infiscal year 1967 to B 526 million in fiscal year 1970. Debt servicewould be covered between 1.7 and 2.1 times during this period whichis satisfactory (Annex 5). Total internal cash generation after debtservice would finance 39 percent of total capital expenditures. Thiswould be a "substantial portion" within the meaning of the tariffcovenant (paragraph 45) considering that YEA's total fixed assets wouldincrease more than 60 percent during these four years.

62. YEA's debt/equity ratio would change slightly from 52/4 8 in1966 to 54/46 in 1970. The balance sheet shows the proposed paymentsto the Government as a deferred item in accordance with the assumptionsof the financing plan (paragraph 59). Fbr the calculation of the debt/equity ratio these deferred payments were considered as long-term debt.Provisions for working capital would be adequate to leave a positivecurrent position throughout the period under review after includingthe current portions of outstanding long-term debt under currentliabilities.

63. The debt limitation covenants in the previous Loan Agreementsspecified that the borrower would not incur long-term debt without theprior agreement of the Bank and it was agreed during negotiations tocontinue this covenant for the proposed loan.

VI. CONCLUSIONS

64. YEA is presently faced with extraordinary high load growth whichwill likely require a correspondingly heavy rate of capital investmentduring the next few years. YEA's management is following a sound coursein coping with the problem, reviewing continually load growth forecasts to

- 17 -

avoid the commitment of capital until absolutely necessary. Thissituation requires competent management which is fortunately available.

66.- YEA is committed to the present program for which a loan ofUs$ 5 million equivalent has been requested. The program is sound andthe cost estimate is relatively firm. YEA should be able to carryout the program within the allowed time.

67. On the basis of the proposed financing plan, internal cashgeneration would finance about 39 percent of capital expenditures duringthe next four years. Debt service coverage would be sound as wouldthe projected rate-of-return. The debt/equity ratio would increaseslightly above the present level to 54/46.

68. The program is suitable for the proposed loan of US$ 5 millionequivalent for a term of 15 years including a three year grace period.

February 3, 1967

THAILAND

YANHEE ELECTRICITY AUTHORITY

System Load Growth Forecast and Capacity Installations

Fir5mPlanned Total EnergyFiscal Year Peak Load Generation Sales Av. Revenue Revenue Installation Capacity Capability(Oct.l-Sept.30) (MW) (Gwh) (Gwh) (Baht/kwh) (millions baht) (MW) (MW) (Gwh)

Historic

1962 113 506 480 0.375 180.11963 133 605 564 0.370 209.11964 170 771 716 0.360 258.51965 219 1,033 956 0.325 310.71966_' 290 1,385 1,294 0.320 415.2 340 2,100

Forecast

1967 353 1,730 1,610 0.310 499.1 80 Hydro2/ 420 2,350196d 420 2,090 1,945 0.310 603.0 160 Hydro2/ 580 2,6501969 486 2,445 2,280 0.300 684.0 90 Steam_/ 670 3,3901970 552 2,830 2,630 0.300 789.0 80 Hydr o 750 3,4401971 630 3,230 3,010 0.290 872.9 New hydro7/ 750 3,4401972 713 3,690 3,430 0.290 994.7 or steam1973 798 4,16o 3,870 0.290 1,122.3 energy needed1974 889 4,640 4,310 0.280 1,206.8 in 19711975 975 5,120 4,760 0.280 1,332.8

NOTE:1/ Based on nine months2/ Yanhee units 3, 4 and 5 (under construction)JT/ North Bangkok unit 3 (financed and on order)47/ Yanhee unit 6 (equipment on order5/ Possibilities being considered include South Bangkok

thermal or Phasom hydro - about 160 MW. Kang Rienghydro being considered for 1973 (about 200 NW)

December 22, 1566

THAILAND: YANHEE ELECTRICITY AUTHORITYLOAD AND CAPACITY DEVELOPMENT

1,000 I I I I I I I 10,000UNDER CONSTRUCTIONOR FIRMLY PLANNED

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w U I / / NEEDED 1971

o I-1__=//

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400~~~~~~,0 MILLONKW _ -

(-LEFT2SCALE)GROSA Y R E N S E 3FIRM CAPACITD (RIGHT SCALE

T_~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ ~ ~~ ~~ ~~~~~~~~~~~~~~~~~~~~~~~~~N

1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975

< ~~ACTUAL PROJECTED :>

FISCAL YEARS ENDING SEPTEMBER 30 z(R)IBRD -3105 x

ANNEX 3

THAILAND

YANHEE ELECTRICITY AUTHORITY

Balance Sheets 1963-1966(in millions of Baht)

September 30 1963 1964 1965 1966 -/

ASSETS

Fixed Assets in Operation 927.63 3,378.26 3,458.47 X,521.00Less: Accumulated depreciation 62.14 105.96 173.75 255.00

Net fixed assets in operation 865.49 3,272.30 3,204.72 3,266.00Work in progress 2,011.08 77.29 115.17 199.00

Total net fixed assets 2,d76.57 3,349.59 3,399.69 3,465.00

Current and other assets:Cash 39-19 75.35 29.84Accounts receivable 44.71 56.42 75.40Materials and supplies 34.03 32-33 25.92Deposit with Ministry of Finance 12.00 - -Deferred Charges 3.27 3.25 3.72

Total current and other assets 133.20 167.35 134.58 256.00 2/

TOTAL ASSETS 3,009.77 3,516.94 3,534.77 3,721.00

LIABILITIES

Equity:Contributions of Thai Government 1,065.68 1,294.43 1,357.30 1,357.40Property transferred and contribution

in aid of construction from MEA 137.19 123.05 50.05 50.00Earned surplus 97.46 142.94 191.24 309.60

Total Equity 1,300.33 1,560.42 1,598.59 1,717.00

Long-term debt:IBRD loans (175,333,406-TH) 1,175.69 1,346.35 1,353.99 1,354.16Export-Import Bank 397.98 369.02 327.76 286.27Ministry of Finance 12.00 65.oo 102.00 112.00Lignite Authority - - 32.17 28.79MEA 17.91 17.07 16.22 15.37

Total Long-Term Debt 1,603.58 1,797.44 1,832.14 1,796.59

Current Liabilities:Accounts payable and accrued expenses 20.54 32.16 18.62Accrued interest on long-term debt 15.02 42.52 13.45Current portion of long-term debt 70.3 84.40 71.97

Total Current Liabilities 105.56 159.0o 104.04 207.41

TOTAL LIABILITIES 3,009,77 3,516.94 3,534.77 3,721.00

Debt/Equity ratio 55/45 54/46 53/47 51/49

1/ Preliminary, unaudited figures2/ The cash balance at year-end was B122 million; no other detail available3/ The current portion of long-term debt at year-end was B97.18 million; no

other detail available

December 22, 1966

THAILAND

YANHEE ELECTRICITY AUTHORITY

Income Statements 1963-1970(in millioas of B*it)

Actual EstimatedFiscal Year ending September 30 1963 1964 1965 1966 1967 1968 1969 1970

Sales in Gwh 564 716 956 1,294 1,610 1,945 2,280 2,630

Average revenue per kwh in satangs 37 36 33 32 31 31 30 30

Operating revenue 209.08 257.10 312.78 415.19 499.10 602.95 684.00 789.00

Operating costsrFuel cost 85.68 82.90 38.41 59.94 78.bo 68.60 118.30 172.20Other operating cost 3b.68 38.58 47.41 51.91 58.40 62.00 77.70 9o.4oDepreciation 25.54 45.44 75.41 81.51 84.25 88.90 91.95 124.57

Total operating cost 145.90 166.92 161.26 193.36 221.05 219.50 287.95 367.17

Net income from operations 63.18 90.18 151.52 221.83 278.05 383.45 396.05 101.83

Other income .29 .4o .57 1.00 - - -

Net income before interest 63.47 90.58 152.09 222.83 278.05 383.b5 396.05 401.83

Total interest 115.14 127.52 113.25 156.64Less: interest capitalized 17.41 28.01 40.29 42.90

Interest charged to operations 16.51 38.54 101.12 97.97 97.73 99.51 102.96 113.74

Net profit 46.96 52.04 50.97 124.86 180.32 283.94 293.09 288.09

Payment to Government V - - - - 40.58 63.73 62.95 61.05Bonus and welfare fund 2.65 2.58 2.81 6.54 8.57 13.45 13.29 12.89

Earned surplus of year 41 14.31 49.46 18.16 118.32 131.17 206.76 216.85 21h.15

Net incom froe operations as a percentageof net fixed assets in operation 7.3% 2.8% 4.6% 6.8% 8.5% 11.4% 11.7% 9.9%

1/ Earned surplus in 1965 and 1966 is overstated by B 12.74 million and B 31.20 million respectively which wouldbe amounts payable to the Government; these payments were deferred and are not considered in YEA's financialstatements. The forecasts show the annual amounts due starting with 1967 for analysis purposes but furtherdeferrals of actual payments are expected through 1970 (see paragraph 59).

F'cbruary 3, 1967

THAILAND

YANHEE ELECTRICITY AUTHORITY

Sources and Applications of Funds 1967-1970(in millions of Baht)

TotalFiscal year ending September 30 1967 1968 1969 1970 1967-1970

SOURCES OF FUNDS

Internal Cash Generation:Not incce before interest 278.05 383.h5 396.05 401.83 1,1459.38Depreciation 84.25 88.90 91.95 121h.57 389.67Total internal cash generation 362.30 IL72.35 4Bb3.00 526.110 1,81,9.05

Borrowings:IBRD loans (333-TB and 406-TN) 73.72 5.h7 - _ 79.19Proposed IBRD loan 20.00 71,.00 10.00 - l01±.00Existing local currency loans 25.00 5.00 - - 30.00Bank of Thailand financing 110.00 80.00 18.00 - 208.00Assumed future loans - 280.00 300.00 350.00 890.00Total borrowings 228.72 4,04.7 328.00 350.°0 73IrI;

Government equity - 39.00 1.00 - 1,o.oo

Total sources of funds 591.02 915.82 817.00 876.140 3,200.24

APPLICATIONS OF FUNDS

Additions to plant (excl. capitalized interest):Completion of 2nd and 3rd Yanhee projects 103.86 13.37 - 117.23Present program 201,.17 311.05 113.78 - 629.00Future projects:South Bangkok Thermal Plant (No. 1) 17.00 190.00 190.00 159.00 556.00Phasom Hydro Project - 51.00 90.00 145.00 286.00South Bangkok Thermal Plant (No. 2) - - - 100.00 100.00Transmission expansion 1X3.67 102.00 142.00 150.00 1437.67Total additions to plant 368.70 667.h42 535.78 551,.00 2,125.90

Debt service:Interest - Existing foreign exchange loans 102.57 99.16 93.70 87.71 383.114Existing local currency loans 8.59 9.31 9.26 8.98 36.1hProposed IBRD loan .95 3.60 5.914 5.61 16.10Bank of Thailand financing 3.03 8.25 10.95 11.1414 33.67Assumed future loans - 7.20 23.o0 1,2.90 73.50Total interest 115.11, 127.52 11,3.25 156.6F, 517.5

Amortization - Existing foreign exchange loans 93.415 96.50 l010.40 108.11 1402.h6Excisting local currency loans 3.73 3.72 6.38 5.96 19.79Proposed IBRD loan - - - 6.67 6.67Bank of Thailand financing - - 8.67 8.67Assumed future loans _ _Total amortization 97.18 100.22 110.78 129.1l1 1,37.59

Total debt service 212.32 227.714 254.03 286.05 980.11,

Bonus and welfare provision 8.57 13.1h5 13.29 12.89 1X8.20

Total applications of funds 589.59 908.61 803.10 852.91, 3,154.21,

Net cash accrual 1.4,3 7.21 13.90 23.1,6 146.00Cash at beginning of year 122.00 123.1,3 130.61, lll,. ,ACash at end of year 123.1,3 130.6h 1h1,i.54 168.00

Times debt service covered by internal cash generation 1.7 2.1 1.9 1,8

February 3, 1967

THAILAND

YANHEE ELECTRICITY AUTHORITY

Balance Sheets 1966-1970(in millions of Baht)

September 30 1966 1/ 1967 1968 1969 1970Actual ForecastAmended 2/

ASSETS

Fixed assets in operation 3,521.00 3,620.50 3,789.81 3,897.14 4,714.16Less: Accumulated depreciation 255.00 339.25 428.15 520.10 644.67Net fixed assets in operation 3,266.00 3,261.25 3,361.66 3,377.04 4,069.49Work in progress 199.00 485.61 1,011.73 1,480.47 1,260.35

Total net fixed assets 3,465.00 3,766.86 4,373.39 4,857.51 5,329.84Net current and other assets 48.59 46.98 43.63 38.90 50.39

Total assets 3,513.59 3,813.84 4,bl7.02 4,896.41 5,380.23

LIABILITIES

Contributions frci Thai Government 1,357.40 1,357.40 1,396.40 1,397.40 1,397.40Properties transferred from KEA 50.00 50.00 50.00 50.00 50.00Earned surplus 265.66 39683 _ 60359 820.44 1,034.59Total equity 1,673.06 i,804 23 2,749 99 2,267 .84 2,461.99LongwtAmra debt t

Existing foreign exchange loans 1,733.88 1,714.15 1,623.12 1,518.72 1,410.61Existing local currency loans 159.89 181.16 182.44 176.06 170.10Proposed IBRD loan 20.00 94.00 104.00 97.33Bank of Thailand financing 110.00 190.00 208.00 199.33Assumed future loans - - 240.00 540.00 890.00Sub-total l,B93.77 2,025.31 2,329.56 2,546.78 2,767.37Less: Portion maturing within 12 months 97.18 100.22 110.78 129.41 141.38Total long-term debt 1,796.59 1,925.09 2,210.76 2,417.37 2,625.99Deferred payeents to Gover2net2/ hi3.94 84.52 148.2 271-02

Total liabilities 3,513.59 3,813.84 4,417.02 4,896.41 5,380.23

Debt/equity ratio (considering deferred 52/48 53/47 54/46 54/46 54/46payments as debt)

1/ Preliminary, unaudited figures. 0

2/ For analysis purposes earned surplus in 1966 has been redured by B 43.94 million representing deferredpayments to Government which had not been taken into account in YEA's financial statemGnts. Theaccumulation of these and future payments are shown in the forecasts as a separate item (gee paragraph 59 and 62).

February 3, 1967

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OCTOBER 1966 IBRD 1894