Document of

The World Bank

FOR OFFICIAL USE ONLY

| TL CPY~

Report No. 4799-TH

STAFF APPRAISAL REPORT

THAILAND

SECOND MAE MOH LIGNITE PROJECT

March 23, 1984

I'~~2

Industry Department

This document has a restricted distribution and may be used by recipients only 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 Thai baht (B)B 1.00 = 100 stangUS$1.00 = B 23.05

B 1.00 = US$0.0434

WEIGHTS AND MEASURES

1 meter (m) = 3.281 feet (ft)I cubic meter (m 3 ) = 35.315 cubic feet (ft3)

= 1.308 cubic yards (yd3)1 kilometer (km) = 0.622 miles (mi)1 bank cubic meter (bm3) = 1.308 bank cubic yards (byd3)1 kilogram (kg) = 2.205 pounds1 metric tonne (t) = 1.1 short tons (st)I million metric tonne (mt) = 106 tonneI metric tonne per year (tpy) = 1.1 short ton per year (stpy)1 kilocalorie (kcal) = 3.97 British thermal units (BTU)I kilocalorie per kilogram (kcal/kg) = 1.805 British thermal units (BTU)

per pound (BTU/lb)1 kilovolt (kV) = 1,000 voltsI kilowatt (kW) = 1,000 watts (W)1 Megawatt (MW) = 1,000 kilowatts (kW)I Gigawatthour (GWh) = 1,000,000 kilowatthours

ABBREVIATIONS AND ACRONYMIS

ADAB = Australian Development Assistance BureauADB = Asian Development BankDMR Department of Mineral Resourcesdwt = deadweight tonEGAT Electricity Generating Authority of ThailandKfW Kreditanstalt fur Wiederaufbau (F.R. Germany)NEA = Metropolitan Electricity AuthorityMISI = Meta Systems IncorporatedNEA = National Energy AdministrationNESDB National Economic and Social Development BoardPEA = Provincial Electricity AuthorityPTT = Petroleum Authority of ThailandRC = Rheinbraun Consulting GmbH (F.R. Germany)

THAI FISCAL YEAR

October 1 - September 30

Industry DepartmentMarch 1984

FOR OFFICIAL USE ONLY

THAILAND

SECOND MAE MOH LIGNITE PROJECT

STAFF APPRAISAL REPORT

Table of ContentsPage No.

I. INTRODUCTION ..................................... . . 1

II. THE ENERGY SECTOR . . ... ...... .......... .......... . 1

A. Energy Consumption .1.....1

B. Energy Resources . .... 2C. Sector Policies ..... 3D. The Power Subsector 5. . ..... 5

1. Institutions ..................... 52. Generation Capacity ...... . .. .............. 63. Investment Program .. 7

E. Bank Participation in the Sector . . 71. Previous Loans ................ .... 72. Project Performance Audit .. .. 8

F. Lignite Resources . .......... .. .... ..... 81. Reserves and Production...... 82. Development Prospects ..... 93. Lignite Pricing...... .. 10

III. EGAT - THE BORROWER ............... .... ..... .. ....... 11

A. Organization and Management ... 11B. The Lignite Mine Department .. 11C. Manpower and Training ....................... .O- ......... 13D. Financial Position. . . ...... ..... 14E. Accounting and Auditing .16F. Load Forecast and Development Plan . ............... 16

IV. THE PROJECT ............. .... .... 17

A. Project Scope and Objectives ... . .17B. Project Description .................. . ....... .... ...... 18

1. The Mae Moh Lignite Deposit . .. 182. Mine Planning ... 193. Technical Assistance and Training . . .204. Environmental Aspects ............... 21

This report has been prepared by Mrs. M. 0. Smith, Mr. P. Kotschwar,Mr. A. Leon, Mr. C. Warren, and Mrs. M. Kutcher of the IndustryDepartment.

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

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Page No.

C. Project Management and Implementation .................. ... 211. Project Management .................................... 212. Overburden Removal .................................... 243. Project Implementation Schedule . . 25

V. CAPITAL COSTS, FINANCING PLAN, AND PROCUREMENT .... ............ 27

A. Capital Costs ...................................... 27B. Financing Plan ............................................ 28C. Procurement and Disbursement .............................. 30

VI. FINANCIAL ANALYSIS ...................................... . 34

A. Mine Operating Costs ................................... 34B. Financial Projections . .............................. 35

1. EGAT .............................. .......... 352. Lignite Mine Department . .................. 37

C. Financial Rate of Return . . . .......................... 39D. Project Risks . . . . .................... 41

VII. ECONOMIC ANALYSIS ......................... =.,. 41

A. Economic Rate of Return . ....................... .41

1. Incremental Analyses ............................ . 422. Substitution Analysis .. 42

B. Foreign Exchange Savings and Other Benefits ... 44

V]:II. AGREEMENTS REACHED AND RECOMMENDATIONS.... 44

A. Agreements ... ............................................. 44B. Recommendations .46

TABLES

Thailand - Power Generating Capacity ... 6Lignite Production and Consumption in Thailand, 1977-82 . . 9EGAT's Operations, 1975-82 .. 14EGAT: Selected Financial Indicators, 1977-83 .. 16EGAT Load Forecast: FY1983-92 ....................................... 17Second Mae Moh Project: Capital Cost Estimate . .28Financing Plan . .. ........... 29Project Procurement Packages ......................................... 31Allocation and Disbursement of the Bank Loan .. 32Estimated Disbursement Schedule for Bank Loan e.... .. 33Mae Moh Production Schedule .. 34Estimated Cost of Lignite at Mae Moh at Full Production, FY87 ......... 35EGAT - Summary of Financial Projections .. 36EGAT Lignite Production, 1984-92 ..................................... 37

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Page No.

EGAT Forecast Lignite Price . ..................... .. .... 38

Lignite Mine Department Summary of Financial Projections ... 38Sensitivity Tests on Financial Rate of Return for Mae Moh Mine

Expansion and Power Units 5-7 ..................... .. .... .......... 40

Sensitivity Test on Economic Rate of Return for the Power Units 5-7and Related Mine Expansion ............................ 43

CHARTS

3-1 Organization Chart of EGAT's Lignite Mine Department .12

4-1 Project Management Organization. ....... 23

4-2 Implementation Schedule .............................. . . 26

ANNEXES:

1 EGAT Power Development Plan 1983-962 EGAT-Status of Bank Group Operations3 Thailand Lignite Reserves4 EGAT Organization Chart5 EGAT and Lignite Mine Department Manpower6 EGAT's Historical Financial Statements7 Lignite Mine Department Historical Financial Statements8 Project Capital Cost Estimate9 Detailed Breakdown of Financing Plan10 Detailed Procurement Schedule for Bank Loan11 Estimated Production Costs12 EGAT's Financial Projections13 Financial Projections of the Lignite Mine Department14 Incremental Financial Rate of Return15 Incremental Economic Rate of Return.16 Capital and Operating Costs Information on Power Plants17 Coal Prices and Fuel Comparison18 Economic Rate of Return on Differential Cash Flow19 Net Foreign Exchange Savings20 Main Documents Available in the Project File

MAP: IBRD No. 14430Rl

THAILAND

SECOND MAE MOH LIGNITE PROJECT

I. INTRODUCTION

1.01 The Government of the Kingdom of Thailand and the ElectricityGenerating Authority of Thailand (EGAT) have requested a Bank loan to helpfinance the cost of a second stage expansion of the Mae Moh open pitlignite mine, increasing production capacity from 2.8 to about 5.0 milliontonnes per year. The first expansion was financed in part by the Bank(Loan 1852-TH) in 1980. The proposed Project forms part of (i) a long termnational development strategy to develop indigenous energy resources toreduce dependence on oil imports, and (ii) a medium term investment programto increase use of lignite for power generation from 11% in 1982 to anestimated 25% in 1990. The expansion in lignite production would be usedto fuel three 150 MW power plants (Units 5-7) under construction at MaeMoh, increasing lignite-fired power generation at Mae Moh from 375 MW to825 MW. The Mae Moh mine and associated power plants are owned andoperated by EGAT.

1.02 The Project's financing requirement, including escalation,contingencies, interest during construction and working capital, isestimated at US$250 million, of which about US$153 million in foreignexchange. The proposed Bank loan of US$59.1 million would cover 24% of thefinancing requirements. The balance of US$190.9 million will be providedfrom a grant from the Australian Development Assistance Bureau (ADAB), aloan from Kreditanstalt fur Wiederaufbau (KfW), commercial borrowings,Government equity contributions and EGAT's internal cash generation.

1.03 The Project was appraised in January, 1983 and a follow upmission was made in June, 1983. The appraisal team consisted ofMrs. M. 0. Smith, Mr. P. Kotschwar and Mr., A. Leon.

II. THE ENERGY SECTOR

A. Energy Consumption

2.01 During the 1970s energy consumption in Thailand grew at a rapidpace (averaging 8.8% p.a.) due to growth and structural change in theeconomy that expanded industrial and service sectors as well ascommercialized agriculture. The growth in energy consumption wasunrestrained by domestic energy prices, which were not adjusted in linewith increases in international oil prices. In 1981, total commercialenergy consumption in Thailand was 16.2 million tonnes of oil equivalent(toe), compared to 5.9 million toe in 1970.

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2.02 The efficient development of Thailand's indigenous energyresources is of primary importance to reducing the country's importdependence, increasing its fore4gn exchange savings and promoting itsindustrial development. Following the two oil shocks in the 1970s, theaverage value of Thailand's energy imports as a share of total imports rosefrom 13.4% between 1970-74 to 28% between 1979-81. The average value ofenergy imports in the two periods rose ten-fold (from Baht 5.1 to 52.0billion) and by 1980, the economy's export earnings required to financeenergy imports reached 45%. Virtually all petroleum products, accountingfor 71% of total energy, were imported or were refined from importedcrude.

2.03 In response to the economic developments of the 1970s, theGovernment prepared the Fifth Five Year National Economic and SocialDevelopment Plan (1982-86) which addressed four interrelated basic energysector issues: (i) development of indigenous energy resources, such asnatural gas, lignite and hydroelectricity; (ii) establishment of rationalenergy pricing policies; (iii) promotion of energy conservation programs,and (iv) improvement of energy sector management, coordination of policiesand investments.

2.04 Prospects for meeting the Plan's energy sector objectives in the1980s are good. Since the Plan was formulated, domestic energy prices havebeen adjusted to reflect economic costs for most products (para. 2.14).The growth of energy consumption has been sharply reduced for most products(from an average 8.8% p.a. in the 1970s to about 2.5% p.a. since 1979), dueto the steep rise in energy prices and the global recession which hasslowed Thailand's economic growth.

2.05 Based on the development of natural gas and lignite resourcesproven to date and on the continued expansion of hydro potential, as wellas energy conservation and curtailed energy demand, particularly forpetroleum products, Thailand should be able to achieve a structural shiftin composit±on of its energy consumption, reducing the share of energyimports in its overall energy consumption from 89% in 1981 to 38% by 1990.The share of lignite in total energy consumption is expected to increasefrom 4% in 1981 to 10% in 1990.

B. Energy Resources

2.06 Natural gas reserves in the Gulf of Thailand are currentlyestimated to amount to about 20 trillion cubic feet (tcf), of which about4 tcf are proven. Gas production began in September 1981 in the Erawanfield at a rate of 70-80 million standard cubic feet per day (MMSCFD).During 1982 and 1983 production gradually increased to about 150 MMSCFD,but remained short of the 200 to 250 MMSCFD which had originally beenexpected. The shortfall is attributable to technical difficulties and tothe fact that the gas reserves are distributed over smaller than expectedreservoirs. Proven reserves have recently been reassessed downwards.

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2.07 Exploration and current finds of oil in Northern Thailand haveimproved expectations of increased domestic oil production. Three smalloil fields in the Fang area currently yield about 800 barrels per day(bpd). Production at Sirikit began in 1983 at a rate of 5,000 bpd,increased to 10,000 bpd by January 1984, and is expected to increase to17,000 bpd by 1986. Oil shale deposits in Tak province are underfeasibility study by the Department of Mineral Resources, with theassistance of the Government of the Federal Republic of Germany. Atpresent oil prices, however, oil shale development is unlikely to beeconomically viable.

2.08 Substantial increases in Thailand's lignite deposits have beenindicated by recent drillings. Known reserves are 857 million tonnes ofwhich 814 million tonnes are at Mae Moh (para. 2.28). Mae Moh's reservesare sufficient to sustain 1,725 MW in power generating capacity for atleast 30 years, and are the basis for estimates that by 1990 about 25% ofEGAT's total generation could be from lignite-fired thermal stations.

2.09 The total hydroelectric potential of Thailand's rivers isestimated at about 9,300 MW, not including the international rivers (Mekongand Salween) whose development potential of 25,000 MW is currently beyondreach due to major political and social obstacles. About 1,380 MW ofhydropower are now in operation, 2,100 MW are under construction, and about2,500 MW in 25 projects are at various stages of identification orfeasibility study. Mini-hydro potential at over 100 sites is estimated atabout 3,290 MW. According to current plans, hydropower production willincrease at an average annual rate of about 13% between 1981 and 1995.

2.10 Thailand's other energy resources include fuelwood and possiblygeothermal enEry. Fuelwood resources, once plentiful, are rapidly beingdepleted and deforestation is becoming a serious problem. Geothermalexploration is being carried out by EGAT in the northern part of Thailandnear Chiangmai.

C. Sector Policies

2.11 Energy sector policy and planning functions involve the Cabinet,the National Economic and Social Development Board (NESDB) and the NationalEnergy Administration (NEA). In principle, NEA, which is under theMinistry of Science, Technology and Energy, is responsible for sectorplanning and coordination. NEA, however, is a relatively weak institutionand energy sector decisions are often taken ad hoc by various Cabinetcommittees and subcommittees. There are, however, limitations in NEA'sstatutory power which restrain its formal authority. As part of theGovernment's structural adjustment program, an energy strategy formulationstudy is being initiated to provide the basis for determining anappropriate approach to energy sector p'lanning and for improving theinstitutional policy framework.

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2.12 A number of public agencies are involved in the energy sector inThailand. For power, three state enterprises provide the overriding shareof electric services (para. 2.19). For petroleum and gas products, thePetroleum Authority of Thailand (PTT), under the Ministry of Industry, hasan important role in importing, producing, and marketing, along with anactive private sector. The Department of Mineral Resources (DMR) in theMinistry of Industry has the main jurisdictional authority for the oil andgas sub-sector. The DMR also exercises control over lignite mining throughenforcement of mining laws and regulations, and granting of mining licensesand concessions.

2.13 Energy is now the single most important sector for publicspending. For the Fifth Plan period, the NESDB projects that the energysector will account for about 26% of total governmental spending, up fromthe average of 18% during the Fourth Plan period. Energy sector spendingweighs even more heavily in total public investment, at 31.9% in 1981, upfrom 13.7% in 1977. The energy sector is expected to continue to accountfor more than 50% of state enterprise investment throughout the Fifth Planperiod. EGAT is expected to retain its large share (55-75%) in energyspending for the Fifth Plan period, with PTT continuing to grow inimportance as it is involved in further gas and oil development andutilization projects.

2.14 Until 1979, Thailand's domestic energy prices were heldsubstantially below the average import price of oil. Since then, however,the Government has increased domestic energy prices (by 160-180% between1978-82) to reflect international price developments. Electricity tariffshave also been raised and broadly reflect the marginal cost of powergeneration, being set at levels that generate a financial rate of return ofabout 8% on revalued assets (para. 3.13).

2.15 Thailand has established the price levels for its commercialfuels on an individual basis and there is no coordinated pricing systemacross the energy sector. The introduction of natural gas on a largescale, the development of lignite and changes in petroleum product pricesare leading to substantial changes in energy consumption and investmentpatterns. The Government recently initiated two energy pricing studies torationalize pricing policies in the energy sector and promote the efficientutilization of energy. The first study on lignite pricing, carried outunder the first Mae Moh Lignite project (Loan 1852-TH), was reviewed byEGAT and the Bank in June 1983 and is in the final stages of completion.The second study, undertaken in the context of the Structural AdjustmentProgram (SAL I), covers petroleum products, and natural gas and itsconstituents and is now under review.

2.16 Tariff levels were adequate throughout the late 1960s and theearly 1970s, and the financial position of the power subsector remainedstrong. During that period, the electricity subsector enjoyed substantialeconomies of scale through shifts to hydroelectric and large steamgeneration coupled with rapid increases in electricity demand, allowing

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periodic generation coupled with rapid increases in the demand, allowingperiodic tariff reductions. This trend was reversed with the fuel crisisand economic downturn of 1973/74 which necessitated large increases intariffs. Only partial adjustments, however, were politically feasible.

2.17 Severe droughts in 1977 and 1978 adversely affected thethermal/hydro generation mix, and in 1979 fuel oil prices increased some115%. In an attempt to prevent higher energy costs from acceleratinginflation, the Government chose to delay passing on the rising costs ofelectricity to consumers. By mid-1979, the Government, faced with mountingcriticism of its handling of the economy, introduced direct budgetarysubsidies on electricity tariffs, costing an estimated US$9.0 million permonth.

2.18 In 1980, however, the Government agreed to a Plan of Action toremove subsidies and restore the sector's financial viability, inconnection with Loan 1852-TH. This plan was implemented through asurcharge on heavy consumers established in August 1980 and tariffincreases in October 1980, January 1981 and April 1981. Thus, despite adifficult political climate and rapid inflation, the Government implementedoverall increases of 158% in EGAT's electricity tariff between February1980 and April 1981 and eliminated oil subsidies.

D. The Power Subsector

1. Institutions

2.19 Thailand has three autonomous state electricity enterprises.EGAT, under the direction of the Prime Minister's Office, is responsiblefor power generation and transmission and sells bulk power to largeindustrial consumers and to power distribution authorities. EGAT, as thebeneficiary of the proposed loan, is described in more detail in ChapterIII. The Metropolitan Electricity Authority (MEA) was established in 1958as a wholly-owned Government corporation under the Ministry of Interiorwith responsibility for supplying electricity to the Bangkok MetropolitanArea covering the provinces of Bangkok, Thon Buri, Nonthaburi and SamutPrakon. MEA purchases all of its energy from EGAT. The ProvincialElectricity Authority (PEA) was established in September 1960 as awholly-owned Government corporation under the Ministry of Interior withresponsibility for providing and distributing electricity in all provincesof the country except in the areas served by MEA. PEA purchases most ofits energy in bulk from EGAT but also generates small quantities in areasnot yet connected to the grid. PEA is the Government agency responsiblefor implementing rural and provincial electrification programs.

2.20 In addition to NESDB and NEA (para. 2.11) six other Governmentagencies have a direct interest in the power sector: the Committee forPower Policy and Development (CPPD); the Budget Bureau; Tariff RateCommittee (TRC); Ministry of Finance (MOF); Foreign Loan Committee (FLC);and Petroleum Authority of Thailand (PTT). These agencies review: tariffrecommendations; capital project proposals and budgets for submission to

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the Council of Ministers; annual financial performance; and requests forGovernment equity and loans. None of them has overall policyresponsibility; decisions on the sector are arrived at after all theagencies including the state utilities reach a consensus. The system isdesigned to ensure that sector capital expenditures are rigidlycontrolled. PTT's interest in the sector arises from the fact that EGAT,as the utility responsible for generation, will be for some time to come,a major customer for natural gas and is the largest customer for fuel oil.

2.21 Power subsector coordination among the different governmentagencies concerned is achieved through (i) the operations of the LoadForecast Working Group, made up of representatives from NESDB, the NEA,EGAT, PEA and MEA; (il) the current procedure for setting electricity rateswhereby attention is given to the cross-funding necessary to ensure thatEGAT, PEA and MEA each generate an adequate proportion of their capitalinvestments and to prevent cash imbalances; (iii) CPPD which was formed in1977 to oversee the functioning and development of the subsector and toprovide overall coordination; and (iv) the Ministry of Science, Energy andTechnology which was established in 1979 for the development ofnon-conventional energy sources and new uses of existing energy sources.While coordination in the power subsector is satisfactory, possibilitiesfor further strengthening of policy coordination 4in the energy sector as awhole are being pursued through continuing dialogue with the Government andunder the Bankts structural adjustment loans to Thailand (para. 2.11).

2. Generation Capacity

2.22 At end FY82 insitalled power generation capacity in Thailand bysource was as follows:

Thailand - Power Generation Capacity

Generating Capacity Energy Availableat end FY82 during FY 82

Source MW GWh %

Hydro plants 1,384.6 30.0 3,709.9 20.9Steam plants 2,208.2 47.8 12,346.9 69.6Gas turbine 745.0 16.1 793.8 4.5Diesel 282.4 6.1 192.6 1.0Purchased a/ - - 701.9 4,0

Total 4,620.2 100.0 17,745.1 100.0

a! From Laos and Malaysia.

Source: EGAT Power System Planning Division

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At the end of FY82, EGAT owned 88.5% of the country's 4,620 MW powergenerating capacity, PEA and NEA 1.7%, and self-generating industries9.8%. Steam plants represented about 48% of installed capacity, hydro 30%,gas turbines 16%, and diesel 6%. About 71% of the electricity generatedduring FY81 relied on imported sources of energy. Total electricityconsumption was 13,886 GWh in FY81 or 290 kWh per capita.

3. Investment Program

2.23 Since FY79, power demand growth has slowed dramatically from anaverage annual rate of 12.5% (FY73-79) to 6.4% for the three year periodending September 1982, in response to (i) significant 4-ncreases in powerprices (para. 2.18); and (ii) slower overall economic growth during theperiod as compared with that of the 1970s. Accordingly, official powerdemand growth projections have been scaled back from 11% for the 1980-86period to 8.5% for the 1982-92 period to reflect the economic downturn(para. 3.17).

2.24 EGAT's total investment program for the Fifth Plan period hasalso been reduced and rescheduled (from an estimated cost of Baht 95billion to Baht 77 billion). Projects under construction and which aredesigned largely to replace imported oil with domestic energy resources inthe medium term (before 1988), have been retained within the programincluding the planned power Units 5-7 and proposed lignite expansion at MaeMoh, while other projects have been deleted or postponed. Details ofEGAT's power development plans are shown in Annex 1.

E. Bank Participation in the Sector

1. Previous Loans

2.25 The Bank has made eleven loans to EGAT and its predecessorutilities, totalling $542 million, to help finance power plants andtransmission facilities, and another of $72 million for ligniteproduction.1 / In addition, three loans for a total of $136.6 million weremade to PEA7to help finance its Accelerated Rural Electrification Projectsand the Provincial Power Distribution Project (Loans 1527-TH, 1871-TH and2312-TH). Details of Bank lending to EGAT are given in Annex 2.

2.26 Since 1978, the Bank has expanded its assistance into the naturalgas sector, starting with a $4.9 million engineering loan to the NaturalGas Organization of Thailand (NGOT, absorbed by PTT in 1979) in 1978 (LoanS-10-TH). The loan financed the engineering work required for a first gaspipeline project, technical assistance to NGOT and a study of gas

1/ Loans No. 175-TH (1957), 333-TH (1963), 406-TH (1965, 489-TH (1967),655-TH (1970), 790-TH (1971), 977-TH (1974), 1485-TH (1977), 1690-TH(1979, 1852-TH (1980), 2000-TH (1981).

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reserves. Further loans to PTT, totaling $197 million, were made in 1979and 1982 to finance the natural gas pipeline and a gas separation plant andmarketing facilities (Loans 1773-TH and 2184-THl, respectively).

2. Project Performance Audits

2.27 To date, project performance audit reports have been prepared onthree of the early loans to EGAT: the First Power Project (Loan 655-TH),the South Bangkok Thermal Unit No. 4 Project (Loan 798-TH) and the Ban ChaoNen (Srinagarind) Hydroelectric Project (Loan 977-TH). The audit reportsconcluded that the major objectives of the respective projects had beenmet. EGAT complied with all the covenants and its financial performancewas satisfactory.

F. Lignite Resources

1. Reserves and Production

2.28 In the last two years, known lignite reserves in Thailand haveincreased from 750 to 857 million tonnes predominantly at Mae Moh wherereserve levels have increased by 25% (from 650 to 814 million tonnes).EGAT has been exploring intensively over the last several years at Mae Mohand also in the vicinity of Krabi mine, where known reserves are limited(20 million tonnes) but where promising new outcrops have been discovered.EGAT expenditures on exploration have been in the range of US$1.4-2.0million p.a. Reserves have also been developed at Li (10 million tonnes)through NEA's relatively small program for exploration and drilling oflignite, at Mae Tip (11 million tonnes) and at various other areas.Details of reserves are given in Annex 3. Thai lignite deposits are ofmedium to good quality. Heating values lie in the 2,300 to 3,000 kcal/kgrange (as received). Volatile matters can be as high as 35%, ash contentusually varies from 20 to 30%, and sulphur is generally high.

2.29 Lignite in Thailand is used almost exclusively for large-scalepower generation at the mine site since its high moisture and ash contentmake it uneconomical to transport, and its potential disaggregation andspontaneous combustion characteristics make it unsafe to store. Powergeneration accounted for over 90% of lignite use in 1982. The primaryindustrial uses of lignite are in tobacco curing, cement and other, minoruses such as ceramics. Most of the lignite used in industries is producedin four small mines, two in the Li Basin (Ban Pa Kha and Li mines, managedby NEA and Ban Pu Chiang Mai Fuel Ltd.) and one each at Mae Tip (PhraeLignite Co.) and Mae Tuen (Thai Lignite Ltd.).

2.30 Between 1978 and 1979, when the first expansion at Mae Moh minewas started, lignite production in Thailand more than doubled (from 0.6million tonnes to 1.3 million tonnes) and over the last five years(1977-82) has shown an average growth rate of 25% p.a. The major sourcesof production are the EGAT-owned and operated mines, Mae Moh and Krabi, asshown in the table below.

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Lignte Production and Ccnsunption in Thailand, 1977-82(000 tones) a/

Average p.aMine/Consumer 1977 1978 1979 1980 1981 1982 Growth (%)

Mae Moh MineMae Moh Pager Plant 47.1 103.9 823.3 875.3 1,184.8 1,193.4 90.9North Ban*ok Power Plant 115.6 75.9 51.8 0.1 0.1 - (100.0)

Sub-total 162.7 179.8 875.1 875.4 1,184.9 1,193.4 49.0

Krabi MineKrabi Poer Plant 294.6 268.2 283.1 363.8 362.4 372.3 4.8

Li MineIndustries, Hosxeholds 85.7 106.7 94.1 110.5 99.6 131.6 9.0

Mae Tip and Other MinesIndustries, Households 20.0 20.0 20.0 20.0 20.0 20.0 0.0

Total 563.0 574.7 1,272.3 1,369.7 1,666.9 1,717.3 25.0_==

a/ On an air dry basis.

Source: EGAT

2. Development Prospects

2.31 The major development prospects for lignite are at Mae Moh where814 million tonnes of reserves are known. Lignite production capacity atMae Moh is currently under expansion (under Loan 1852-TH) to 2.8 milliontpy to support 375 MW power generation capacity (Power Units 1-4); Unit 4(150 MW) will be completed in May 1984. Under the proposed Project, themine would be expanded to 5 million tpy to support an increased powergeneration capacity of 825 MW to be achieved by March 1986, through theaddition of Power Units 5-7 (150 MW each), construction of which is welladvanced (para. 4.26).

2.32 Long term plans for the Mae Moh mine provide for an eventualexpansion to 12 million tpy to support an ultimate power generationcapacity of 1,725 MW. This will be achieved through the construction ofPower Units 8, 9 and 10 (300 MW each), to be completed in the early 1990s.No investments for the latter expansions are called for before 1986-87, atwhich time EGAT would review the proposed investments in light of currentpower load forecasts, the availability of alternative fuels and theircomparative economic costs.

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2.33 EGAT has included in its investment plans the development ofpotential new reserves at Krabi (para. 2.28) in support of a new 75 MWpower plant to start-up in 1988 and two additional power plants (75 MWeach) in 1989 and 1990. The present mine (0.4 million tpy) and 60 MW powerplant will be retired in mid-1990. These plans are at an early stage sincelignite reserves at Krabi still require delineation and development.Development of lignite by industrial and other small concerns is expectedto be modest due to the relatively small size of private holdings andoptimum use of lignite for power.

3. Lignite Pricing

2.34 Since Mae Moh lignite i-s produced by EGAT exclusively to supplyits Mae Moh power units, there is no market price reflecting its relati'veworth. Under the first Mae Moh Lignite Project i4t was agreed with EGATthat the financial separation of the Company's mining operations from itselectricity operations was required to ensure that the mines were operatedin a financially viable manner and that the economic scarcity value (rent)of lignite was not being ignored in its use as a fuel for powergeneration. In order to establish an appropriate price for intra-companysales of lignite by the Lignite Mine Department to EGAT's electricityoperations, it was also agreed that EGAT would undertake a lignite pricingstudy, based on opportunity cost principles. This study was contracted toMeta Systems Incorporated (MSI, United States); a draft was completed inJanuary 1983 and, after joint review by EGAT and the Bank, is now beingfinalized.

2.35 The results of the pricing study indicated that the lignitetransfer price of US$19.22/ton in effect during 1983 was close to theestimated lignite opportunity cost of US$18/ton. In addition, it isestimated that, under current estimates of the size of reserves, lignitedemand, future mining costs and substitute fuel prices, the economic rentelement, or depletion premium, of lignite would rise from US$0.52/ton in1983 to US$3.55/ton by the year 2000. The economic rent accounts for thecost to the economy of using an exhaustible resource that deprives theeconomy of future welfare (by reducing the amount of lignite available inthe future to generate power at a lower cost than other known energysources).

2.36 As the opportunity cost of lignite is strongly influenced bymovements in the prices of substitute fuels, particularly steam coal, andthe estimated date of depletion of the lignite resource, assurances wereobtained during negotiations that EGAT would carry out a lignite pricingpolicy review in 1985, for application in 1986, and at least every threeyears thereafter. In addition, EGAT agreed that the lignite transfer pricewould continue to be based on economic principles, while meeting theobjective of ensuring the financial viability of EGAT's Lignite MineDepartments. In order that these dual objectives continue to be met pri orto the next full price review, assurances were obtained during negotiationsthat EGAT would increase the price by 2% each year, in real terms, in 1984and 1985.

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III. EGAT - THE BORROWER

3.01 The borrower would be EGAT. EGAT is a wholly-owned Governmentcorporation established in 1968 through merger of the Lignite, the YanheeElectricity and the North East Electricity Authorities to provide for theefficient supply of electricity throughout the country.

A. Organization and Management

3.02 EGAT is organized and functions as modern public utility with aconsiderable degree of autonomy. EGAT is charged with the operation of thepower generation and transmission installations under its jurisdiction andthe establishment of such new facilities as required for the power griddown to transmission voltages of 115 kV and 69 kV. EGAT also owns andoperates lignite mines at Mae Moh and Krabi.

3.03 EGAT is functionally organized with deputy managers foradministration, technical planning and procurement, engineering andconstruction and hydro and thermal power plant operations. The LigniteMine Department reports to the Deputy Manager for Construction. Detailsare shown in Annex 4.

B. The Lignite Mnie Department

3.04 EGAT's Lignite Mine Department consists of a headquarters officein Bangkok and two field offices, at Mae Moh and at Krabi, with directoperational responsibilities for the mines at these sites. Theheadquarters office has four divisions responsible for geology, short- andlong-term planning, feasibility studies and technical designs andproduction cost analyses. The detailed organization is shown in Chart3-1.

3.05 The Department has been reorganized and expanded in size andscope over the last three years to support EGAT's lignite developmentplans. Details of the new organization of the Mine Department are shown inChart 3-1. The main changes are (i) the expansion of the Mae Moh MinesDivision to include new mine planning, maintenance planning, geology andquality control, training and computer sections, and management positions(assistant superintendents) for engineering, administration and operations;and (ii) the establishment of the Mine Accounting Division under thesupervision and control of the Controller's Department to handle costcontrol, planning and budgeting and accounting for the mine operations.EGAT transferred financial management responsibility for mine operations tothe Lignite Mine Department in connection with the first Mae Moh LigniteProject. Assurances were obtained at negotiations that EGAT would continueto operate its mining activities as Mine Accounting Centers and to maintainseparate accounts and financial statements for such centers.

THAI LANDSECOND MAE MOH LIGNITE PROJECT

Organization Chart of EGAT'S Lignite Mine Department

| Lgnite Mine |

| Depa r.n

I 1-i~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

l l Mae Mo~~~~~~~~~~~~~~~~~~~~~~~~h Mine

Solid Fuel Mine 9echnical Mice Planning1- Mine Ev luaton Krabi Mine Mine Acc-u-ting' I Superintendent. Mae Moh MinePs Development_ eology Division _ Dicisiorn l _ Division Dition Operation Dinssion Division I Dep. Superintendent, Mae Moh Mine

Dl enlogicat E fstimnatiorlen & Mining Plan |j Iehia vrudn& i rMn netr l nnesrigatioii Poreasing Sect. Design Secliorn Dumn [ Secio Caul Winning Sect I FaContrul Snctinnl I

Mine~~~~~~~~~~~~~~~~e Mnlet'

0 Drilling l -| Mining P rjject | - Appurtenance | _| Secrion I s stani | Assistant S .[ t t.Section Sectien Design SeCoalP ction SeProduction Drilling tioii_Control Section I Engineering AmnistRaton Operation

Applied tSeolngn Mine Coordination -Onerborden & PrncctonRe-pair & t,F …neGetoginal e_|Miniong i - a ProductMapPion M n -|Mining|-| Work1P Mine Piog in & - Maintne Sa ti sc nsel &

Entution Section Engineering Sect. | Section Record Section Section i: Section 1- a 'l |

Mining Equipmenitl Mine Safern l Mine Innestigation | | Krabi Mine | - -r -ln Legr- |GooyQaiy|_Pou t{ i evcSparepart Section | l Planning Section Deunloemet imi Adminimltratioii L 4 Mine Lert I Gecloion GuaCing r uremeettio

C.~ ro- 1o seCotrac

* Couitrolter DePartment Lnit Riponsible for iMine Accounting.

2 Tan tr* Staff from Contrnller Dnpartment Working LJnder l rI

Lignite Mine Department SuPervision.

Industrn Department

February t983 World Hank-24697

ti-

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3.06 The Department's new mine accounting system is soundly based butnot yet fully used to facilitate efficient management of miningoperations. This is due to lack of familiarity of the Lignite MineDepartment with the management control techniques that the system permitsand inadequate communication between the Mine Accounting Division, whichprepares the financial data, and Lignite Mine Department personnel. Tofacilitate this communication, EGAT plans to relocate the Division from theController to the Lignite Mine Department. The Department plans, also, (i)to establish quarterly planning meetings between the Mine Accounting andMine Planning Divisions; and (ii) to include a financial training program,devoted specifically to the Planning Division of the Lignite MineDepartment, on the basic financial and managerial aspects of the mineaccounting system.

3.07 The Department has successfully developed a professional core ofcapable technical personnel that have gained experience throughimplementation of the first mine expansion at Mae Moh, the only largeopen-pit mine in Thailand. The Department lends its services on occasionto NEA, DMR and other Government agencies with mining interests.

C. Manpower and Training

3.08 Management and staff of both the Lignite Mine Department and EGATas a whole are competent and well-qualified. EGAT had a total of 26,736employees at the end FY82. Manpower has grown at an annual rate of 13.8%between 1978-1982 to meet the needs of the increased numbers of projectsunder construction and the Mae Moh mine expansion. Lignite Mine Departmentstaffing totals 2,023. Of the total, 1,362 are heavy equipment operators,technicians and skilled labor mostly at the mine sites and 288 aresemi-skilled laborers. The balance comprises engineers (87), geologists(17) and supporting staff (269). Staffing has increased by about 60% inthe last three years, primarily due to the first major expansion at MaeMoh. The Department is conscious of the implications of overstaffing onoverhead costs and is planning no further major increases, and possibleslight reductions, in manpower over the next several years. Under theProject, EGAT has taken action to limit further additions to the permanentwork force (para. 4.22). Details of EGAT's and the Lignite MineDepartment's manpower are shown in Annex 5.

3.09 Training is on-going under the first Mae Moh Project, in mineplanning and operations as well as in financial forecasting, varianceanalysis and capital investment evaluation. Technical assistance is beingprovided in establishing a management information reporting system thatprovides feedback to the Lignite Mine Department necessary for managerialdecisions, and information to relevant financial departments (Controller,Budget, Treasury, Internal Audit, Systems and Procedure) in a timelymanner.

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3.10 Under the Project, EGAT has agreed to prepare a detaileddefinition of supplemental training requirements (para. 4.11) to providethe reinforcement necessary for full implementation of the proposedProject, including the strengthening of technical, financial and managerialfunctions of its Lignite Mine Department.

3.11 During the past eight years EGAT has experienced rapid growth,with sales and peak demand doubling over the period (10.5% p.a. growth), asshown in the table below. Losses have risen slowly but, at 8.9%, are stillwithin acceptable limits; the annual load factor has fluctuated over theyears but shown a slight improving trend. As mentioned above (para. 3.08),employment has grown rapidly due to the large investment program and themanpower needs of the Mae Moh mine and power plant expansions.

EGAT's Operations, 1975-82

Years ended September 30 1975 1977 1979 1981 1982

Generation, Sales and Staffing

Peak demand (MW) 1,407 1,873 2,255 2,589 2,838Energy generation andpurchases (GWh) 8,212 10,950 13,964 15,960 16,882

Energy sold (GWh) 7,642 10,149 12,933 14,545 15,385Number of employees 12,697 15,526 17,301 23,233 26,736Indicators

Losses (%) 6.9 7.3 7.4 8.9 8.9Annual load factor (X) 66.6 66.7 70.7 70.4 67.9Sales per employee

(MWh) 602 563 747 626 5r75Employees per MWinstalled 5.2 6.4 6.0 6.2 6.4

Average fuelconsumption(liter/KWh) n.a. 0.263 0.260 0.260 0.264

Source: EGAT

D. Financial Position

3.12 During the FY77-79 period, EGAT consistently generated operatingsurpluses, in spite of large increases in fuel costs and Government-imposedconstraints on tariff adjustments as a part of the Government'santi-inflationary measures, through greater efficiency resulting fromincreases in hydro generation and larger steam plants. In FY80,

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however, EGAT's financial position deteriorated (with a loss of US$44million equivalent in FY80). To help solve EGAT's liquidity problemsduring 1980, the Government granted EGAT equity contributions of Baht 1.2billion (US$59 million) and also arranged a transfer of Baht 100 million(US$5 million) from MEA and PEA to EGAT. EGAT also increased itsborrowings in 1980 over the previous year by about 20%, These equity andloan funds ensured that EGAT's normal operations and investment programwere not affected, although EGAT was forced to reduce its working capital,eroding its current ratio.

3.13 Since then, implementation of the Plan of Action (para. 2.18) torestore EGAT's and the sector's financial soundness has been effective.EGAT's income recovered to US$126 million equivalent in FY82 and US$154million in FY 1983 (before the Government appropriation), and its liquidityposition improved substantially. These results were better than expectedmainly due to (i) the unusually high percentage of energy generated byhydro plants in place of thermal plants using heavy oil (resulting in anestimated cost savings of US$39 million); and (ii) lower than expectedinterest rates on borrowings. EGAT's rate of return on net revalued fixedassets, which was negative in FY80, increased to over 8% in FY81 and 11% inFY82 and FY83, meeting the existing covenant that requires EGAT to have arate of return of at least 8% by FY82 and thereafter. This covenant, andthat requiring an 8% rate of return for the sector as a whole, are repeatedin the proposed loan (para. 6.05).

3.14 EGAT's detailed historial financial statements are shown inAnnex 6 and slected financial indicators are given below. These indicatorsshow the sharp improvement in the rate of return since 1981 (para. 3.13) asa result of a 73% rise in the average electricity price and consequentincrease in the debt service coverage, ratio from 0.6 in 1980 to 2.0 in1983.

3.15 Under the first Mae Moh Project, the Lignite Mine Departmentbegan preparation of financial statements for the mine operations, makinguse of a transfer price based on production costs plus a margin. Thesestatements (beginning in FY81) have been audited as part of EGAT's regularaudit and show that the mining operations had a net operating profit ofBaht 115.4 million (US$5.0 million) in FY1983 after covering all expensesincluding depreciation, interest, and apportionment of centraladministration expenses. EGAT's Lignite Mine Department detailedhistorical income statements and balance sheets are shown in Annex 7.

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EGAT: Selected Financial Indicators, 1977-83

Years ended September 30, 1977 1978 1979 1980 1981 1982 1983 c/

IncomeRevemne (B billion) 4.6 6.4 7.2 10.2 18.9 22.1 24.5Mt income before

appropriations (B million) 59 232 153 (911) 1,146 2,907 3,540

ProfitabilityAverage tariff (stang/kWh) 45.79 55.98 55.34 74.79 129.78 143.55 143.01Rate of return (%) a/ 2.4 3.4 3.1 (1.05) 8.95 11.3 10.9Self-financing ratio (%)bI 29.2 8.0 6.2 13.3 19.3 14.0 22.4Operatirg ratio (%) 91.1 90.7 90.7 103.9 83.5 78.2 78.9

DebtDebt as % of equity plus

long-term debt 38.6 43.6 42.6 48.9 50.7 51.9 51.2Debt service coverage 1.6 1.4 1.4 0.6 1.9 1.8 2.0

=iquidityCurrent ratio (times) 0.97 0.98 1.02 0.59 0.73 0.88 1.00

a/ Xn average revalued fixed assets.b/ Based on the average capital investment for three years (past, present

and following years).c/ Preliminary figures based on EGAT's no-revalued statements.

Source: EGAT

E. Accounting and Auditing

3.16 The accounting system is adequate and the staff is competent.Assurances were obtained at negotiations that EGAT will continue to submitunaudited quarterly and audited annual financial statements for the miningoperations and EGAT on both an unconsolidated and consolidated basis.EGAT's audit is performed by the National Audit Council, the Governmentorganization responsible for auditing all state enterprises. Theinternational accounting firm, Coopers and Lybrand, is retained asfinancial consultants to cooperate with the National Audit Council andissue a separate report on the annual accounts. To date, reports have beensubmitted on time and the performance of the consultants has beensatisfactory. EGAT will continue to employ independent external auditors.

F. Load Forecast and Development Plan

3.17 EGAT's development plans are based on the consolidation ofdetailed forecasts made by MEA, PEA and the direct consumers after taking

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into account the effects of load diversity, system losses and stationservices. The load forecasts for MEA and PEA were derived by a study ofhistorical growth trends of different categories of consumers. Thesectoral load forecast is shown below:

EGAT Load Forecast: FY1983-92

AverageActual Annual1982 1983 1984 1986 1988 1990 1992 Growth

Peak demand (MW) 2,838 3,207 3,610 4,314 5,099 5,789 6,528 8.7%Generation andPurchases (GWh) 16,882 18,632 20,813 24,864 29,501 33,659 38,153 8.5%

Load factor (%) 67.9 66.3 65.8 65.8 66.0 66.4 66.7

Source: EGAT

Growth in the next few years is expected to be slightly higher than theaverage over the past decade, declining to about 6.5% p.a. by the early1990s and resulting in an average demand growth of about 8.5% over the1982-1992 decade.

3.18 EGAT's installed power generating capacity at the end of FY82 was4,088 MW, of which oil-fired steam accounted for 40%, hydro 34%, gasturbine 18%, lignite-fired steam 7%, and diesel 1%. This composition haschanged significantly since 1978 when oil-fired steam accounted for over55% of installed capacity. EGAT's power development plan is based on theprinciple of the least-cost sequence of development, following an extensivestudy of alternative generation and transmission projects, using computerprograms available in-house. New additional capacity for the period1983-1996 is estimated at 6,837.2 MW. By the end of 1996, EGAT's totalinstalled power generation capacity would be 11,045 MW, a 7.2% p.a. averagegrowth. Details are shown in Annex 1.

3.19 EGAT's development plan also involves the construction oftransmission lines and substations necessary for distribution and theextension of the network to cope with increasing load requirements and toimprove system reliability and efficiency.

IV. THE PROJECT

A. Project Scope and Objectives

4.01 A first lignite loan made by the Bank to EGAT (Loan No. 1852-TH)became effective in 1980. It was designed to meet the incremental demandof the power generating facilities up to and including the 150 MW Unit 4,necessitating an increase in lignite production from 1.0 million to 2.8million tpy. This first project has since been implemented with only minor

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problems and is generally within budget. The proposed Project representsthe second stage of the mine expansion, to 5.0 million tpy by 1987, whenthree additional power stations of 150 MW each (Units 5-7) will beconstructed, increasing the total generating capacity to 825 MW.

4.02 The scope of the second stage expansion Project for the Mae Mohopen pit lign4te mine includes engineering, procurement and erection ofmining and related equipment (mainly conveyor belts, semi-mobile crushers,off-highway trucks, and auxiliary equipment), technical assistance,training and civil works, to increase Mae Moh mine production capacity from2.8 to about 5.0 million tpy.

The main Project objectives are:

(i) to increase the lignite-fired electricity generation capacity ofThailand from 375 MW in 1984 to 825 MW in 1987, in order toreduce the country's dependence on imported fuel oil for powergeneration, in line with EGAT's least-cost development program;

(ii) to ensure the economic and financial viability of the miningoperations through, inter alia, use of a lignite transfer pricethat reflects the opportunity cost of substitute fuel and thai:provides for financially sound operations;

(iii) to strengthen EGAT's Lignite Mine Department in technical,operational and financial aspects through the provision oftechnical assistance and training in specialized areas, and tostrengthen its administrative capability in regard to largeoverburden removal contracts; and

(iv) to minimize any adverse environmental impact of lignite basedelectricity generation.

B., Project Description

1. The Mae Moh Lignite Deposit

4.03 The Mae Moh power and mine complex is located in North Thailan.din Lampang Province, approximately 650 km north of Bangkok and 12 km eastof the town of Lampang (Map IBRD No. 14430 RI). The main land use in thearea is commercial teakwood and tobacco cultivation; there is also somelimited subsistence agriculture. Population density in the basin is lowand the climate is tropical, with an average annual rainfall of 1,000 to1,500 mm. The area is adequately served by paved roads and by a railspurline which connects the site with the national rail system approximately 5km to the south of Mae Moh.

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4.04 Extensive exploration campaigns have been carried out over theMae Moh lignite deposit. Prior to 1978, some 1,720 boreholes were sunk.From 1979 to 1981 EGAT, assisted by Longworth CMPS Engineers (Australia),conducted some 73 km of high-resolution seismic lines and drilled a further454 holes, totalling some 98,000 m. All exploration work was carried outin a competent and professional manner. Fill-in drilling for detailed mineplanning is continuing, well ahead of the mine face.

4.05 Lignite reserves, with an average ash content of 22% andcalorific value of 22700 kcal/kg, were established at 814 million tonnes;due to restrictions on pit design as a result of slope instability,geological losses, and other factors, 451 million tonnes are presentlydefined as mineable reserves. A further expansion to 1,725 MW of powergenerating capacity would require about 335 million tonnes of lignite overthe plants' useful lifetime. Reserves, therefore, are ample and assured.

2. Mine Planning

4.06 The first feasibility studies and mine plans for the Power Units1-4 were prepared by Rheinbraun Consulting (RC, FR Germany), from 1972 to1978. Subsequently, in 1980/81, Dr. Otto Gold Consultants (FR Germany)prepared a Master Mining Plan (as covenanted under Loan 1852-TH), which wasthen refined by RC, and now serves as the basis of EGAT's mine planning.The Plan and subsequent feasibility study cover all mining activitiesthroughout the life of the Project, and take into account a possibleexpansion to 1,725 MW (para. 2.32), foreseeing an ultimate pit depth of 200meters and overall stripping ratio of 5.1 bank cubic meters (bm3) pertonne. A Land Reclamation Plan has been prepared by RC (under Loan1852-TH) based on these mining plans.

4.07 Geotechnical work for the determination of pit slope stability(covenanted under Loan 1852-TH) has been undertaken by EGAT, RC, andLongworth for the mine configuration required for Units 1-4. Furthergeotechnical work is required in conjunction with the mine expansion forUnits 5-7 and will be carried out by consultants satisfactory to the Bankunder the technical assistance program (para. 4.10). In view of theimportance of this work, assurances were obtained at negotiations that EGATwould furnish to the Bank a complete report on mine slope stabilityrequired by expansion plans by January 31, 1985.

4.08 In the end-of-life mine feasibility study, EGAT examined threealternative mining methods: (i) trucks and shovels in conjunction withsemi-mobile crushers and conveyors; (ii) shovels, mobile crushers andconveyors for overburden removal; and (ii±) bucket wheel excavators foroverburden removal in the upper benches of the pit. The shovel/truck/semi-mobile crusher alternative in conjunction with conveyor belts andstackers for both lignite and overburden transport has been selected byEGAT. This is considered to be a technically sound decision as bucketwheel excavators are not suitable for work under the relatively hard rockmining conditions at Mae Moh and mobile crushers are at an experimentalstage of development and would be technically risky.

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3. Technical Assistance and Training

4.09 Although, over the last 10 years, EGAT's Mine Department has hada very good record in implementing mine expansions and operating open-pitmines at both Mae Moh and Krabi, the size and scope (including managementof the contractual work) of the next expansion requires training ofaddittional technical personnel and technical assistance from abroad.

4.10 For this purpose, EGAT is the recipient of technical assistancetotaling A$5.7 million (US$4.9 million equivalent) under an agreementbetween the Australian Development Assistance Bureau (ADAB) and theGovernment. The technical assistance covers both the Mae Moh and Krabimines and about US$4.2 million equivalent will relate to Mae Moh. Theobjective is to assist EGAT in detailed mine design, mine management andoperation, geological and geotechnical investigations with regard to pit:slope stability in connection with the extended mine configuration, andenvironmental protection. The program will be carried out over a four-yearperiod (from mid-1983 to mid-1987), for a total of 283 man-months ofconsulting services. The budgeted cost per man month, excluding equipmentand computing services, is approximately US$13,000 including subsistenceand travel, which is considered appropriate. The scope of work of the ADABprogram has been reviewed by the Bank and is considered to besatisfactory. ADAB has selected a consultant (Coleman and Assoc.,Australia) considered satisfactory by EGAT and the Bank.

4.11 The Project includes a limited amount of specialized follow-onassistance to the ADAB program which is considered important to Projectimplementation. This assistance consists of:

(i) an estimated 100 man-months of foreign consulting services forengineering, procurement assistance and erection supervision ofthe conveyor systems, at an estimated cost of US$1.3 million;

(ii) 180 man-months of short-term training for technical personnel atsimilar mine operations abroad, in countries other thanAustralia, at an estimated cost of US$0.8 million; and

(iii) about 7 man-months of on-the-job training for Mine Departmentpersonnel in financial and management aspects of mine accountingat an estimated cost of US$0.1 million.

The consulting services would be financed out of the proposed Bank loan,while EGAT will finance the training out of its internal cash generation.

4.12 Detailed definition of the envisaged supplemental technicaltraining needs will be carried out by EGAT in consultation with theAustralian experts during the course of the Australian training program.Assurances were obtained during negotiations that EGAT would present to theBank a detailed technical training program and a detailed financialtraining program as follows:

- for the technical training no later than March 31, 1985, to startimplementation no later than July 31, 1985;

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- for the financial training no later than September 30, 1984, tostart implementation no later than January 31, 1985.

4. Environmental Aspects

4.13 EGAT is conscientiously seeking to minimize the negativeenvironmental and health impact of its operations at Mae Moh and is nowpreparing a general environmental impact statement for submission to theThai National Environmental Board. Mine reclamation (covenanted under Loan1852-TH) is underway and EGAT has carried out a successful resettlementprogram, relocating about 300 families from the mining area to a newserviced village. EGAT has carried out a water sampling program for overthree years and heavy metal determinations have shown that no risk fromsuch substances is present.

4.14 With regard to air quality, electrostatic precipitators with99.5% efficiency (as compared to 95% in the previous generating Units 1 and2) were installed in order to minimize fly ash dust emissions. Ashdisposal is being made at disposal sites outside the excavated areaaccording to the Master Mining Plan (para. 4.06). EGAT has commissioned anair-quality study with Simons Resources Consultants (Canada), financed bythe ADB under a previous power loan and by the Bank under Loan 1852-TH, andhas agreed to increase the stack height of Units 5-7, now underconstruction, from 120 to 150 m, in order to comply with Bank guidelinesfor sulphur dioxide ground-level concentration. The Bank has also financedenvironmental monitoring equipment in order to strengthen the programalready in effect. Assurances were obtained during negotiations that EGATwould continue to follow environmental standards staisfactory to the Bankand the Government throughout the Project life.

C. Project Management and Implementation

4.15 The Project is to be owned, implemented and operated by EGATwhich is the only sponsor. Responsibility for overall Project execution,coordination and monitoring lies with the Directorate of the LigniteMine Department, which is at present successfully implementing the firstexpansion phase.

1. Project Management

4.16 Responsibility for overall project execution, coordination andproject monitoring lies with the Directorate of the Lignite MineDepartment. Project management responsibilities are delegated to theDeputy Director of the Department, a civil engineer with long experience inproject implementation, both in the power sector as well as the first MaeMoh mine expansion. The Directorate is in charge of overall projectscheduling and monitoring, and coordination of project-related planning andengineering activities. The Directorate liaises with EGAT's procurementdepartment and monitors project progress and costs through weekly, monthly,quarterly and annual reports and frequent site visits, identifying problem

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areas and taking corrective action. The Directorate also contracts,supervises and deploys consultants to be used either in the technical orfinancial divisions of the Lignite Mine Department, or at the mine site.The organization of Project management is shown ln Chart 4-1,

4.17 Physical Project implementation will be under the responsibilityof the Superintendent, Mae Moh Mine who reports directly to and iscontrolled by the Directorate. The Superintendency was recentlyrestructured to direct all divisions of the mine, including management ofoperations as well as the implementation of the expansion Project. In thisrespect it has three main areas of responsibility:

- Implementation of the mine plan by the mine operating division,for which technical assistance will be provided by the ADABprogram;

- Supervision of the overburden contractor (para. 4.21), for whichpurpose a special unit will be created, drawing on the expertiseof the engineering and administrative divisions; and

- Supervision of the erection of the crusher, conveyor and stackersystems for both coal and overburden. This unit is alreadyestablished for the installation of the first lignite handlingsystem for Power Units 4 and 5. Specialized consultants, to befinanced by the Bank, will assist in this task.

4.18 These three units, directly controlled by the Superintendent, arein charge of the front-line Project supervision and data collectionrequired for Project mon4toring and reporting activities. They areassisted by the mine accounting units in assembling cost control data.Mine accounting has been strengthened by technical assistance under Loan1852-TH and further training, including the establishment of a computerizedmanagement information system to streamline the system, is included in theProject. The three Project execution units report back through the Mae MohSuperintendency to the Directorate.

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Chart 4-1

Project Management Organization

Deputy DirectorLignite Dept.(Bangkok)

EGAT'sProcurement Dept. Mine Planning &(Bangkok) _ Engineering Div.( )(Bangkok)

_ Prject Consultants

Mine Superintendent(Mae Moh)

Overburden Overburden and Coal Mine Divisions:Contract Crushers and Conveyor OperationSupervision Systems Erection Administration(Mae Moh) Supervision Engineering

(Mae Moh) (Mae Moh)

Overburden Erection Contractors-Contractor Civil, Mechanical and(Mae Moh) Electrical

(Mae Moh)

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4.19 In order to assure that Project monitoring and control is done ina professional manner, EGAT will continue to furnish to the Bank the normalquarterly and annual Project progress reports, all current critical pathschedules, monitoring reports and cost control monitoring statements. Inaddition, assurances were obtained from EGAT during negotiations thatproject management arrangements including project scheduling, cost controland monitoring satisfactory to the Bank will be maintained at all times.

4.20 The Lignite Mine Department has demonstrated in the past itscapability for sound project execution with the Mae Moh I project. Thisfirst project is on schedule and is expected to be completed in April 1984in time for the first firing of the related Power Unit 4. EGAT has builtup the technical and financial staff of the Department and reorganized itin support of the first expansion of Mae Moh. With additional training andtechnical assistance to be provided under the proposed Project (paras. 4.10and 4.11) the Mine Department should be fully capable of taking on thesecond and larger expansion. EGAT's Procurement Department, which is fullyfamiliar with Bank procurement procedures from twelve previous Bank loans,will assist the Mine Department in procurement matters. Project managementarrangements can be considered adequate for successful Projectimplementation.

2. Overburden Removal

4.21 EGAT plans to mine the lignite and to remove a portion of theoverburden and intercalation that lies in thin layers between the lignite,using equipment to be financed under the project. In addition to their ownoperations of mining 10 million bm3 per year of overburden and lignite,EGAT has contracted the removal of 15 million bm3 annually up to a total of90 million bm3 of overburden from the Mae Moh lignite mine, over a periodof seven years (1983-90). Subsequently, when 25 million bm3 per year arerequired from 1990 to 1995, with stripping requirements tapering offthereafter, EGAT will re-evaluate its position and, with the Bank'sconcurrence, either continue contracting or carry out overburden removal byitself. The overburden contract was bid only among local Thai constructionfirms, subsequent to a policy decision taken by EGAT's board which wasfully approved by the Government at the Cabinet level. The contract willbe fully financed out of EGAT's internal cash generation.

4.22 EGAT, having a long history of successfully handling large civilwork construction contracts (hydroelectric dams, power stations,transmission lines) sees several advantages resulting from such acontractual arrangement. By contracting most of the required overburdenremoval work, it is able to minimize the initial capital investmentrequired for the mine expansion. More importantly, EGAT, being aparastatal institution, does not wish to have considerable increases in itslabor force, during the peaks in the overburden stripping, of which itcannot divest itself later.

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4.23 The pre-stripping work to be carried out from 1983 to 1986 underthe overburden contract has been included in total Project costs (para.5.01). Pre-stripping costs account for about one half of the totalcontract costs. EGAT signed the overburden removal contract in August 1983with a local joint venture between a civil works contractor and heavyequipment supply firm (Sahakol Engineers Company Ltd. and Bangkok MotorEquipment Company Ltd). The Bank has reviewed and approved the contractand Bank technical support will be given to EGAT in supervision of contractwork. Assurances have been obtained from EGAT that, by July 31, 1987,three years before the expiration of the contract, EGAT will, jointly withthe Bank, assess the contractor's performance in order to re-evaluate thecost and benefits of the arrangement and agree on whether to:

- renew the contract, under the same or revised conditions; or

- to terminate the contract at its expiration date and have EGATcarry out the work under its own account and management.

In the latter case, EGAT will present to the Bank a satisfactoryimplementation schedule and financing plan, showing how EGAT intends toequip itself to do such work and the financing sources required therefore.

3. Project Implementation Schedule

4.24 Project preparation is well underway; the Project implementationschedule is shown in Chart 4-2. Following the signing of the overburdencontract in August 1983, which was necessary at that time to ensure thatthe contractor reach full production capacity of 15 million bm3 p.a. by theend of 1985, the one remaining project component on the critical path isthe installation of equipment needed for EGAT's portion of the overburdenremoval. The erection of the waste conveyors and associated semi-mobilecrushers and spreaders will require about 18 months, and detailedengineering, manufacture and delivery will require between 14 and 16months. Therefore, in order to complete the installation by early-1987,detailed engineering was begun in July 1983 and bids are to be invited nolater than mid-1984.

4.25 In order to defer investments for as long as feasible and tomaximize utilization of the forty one 85-ton truck fleet to be replaced bythe overburden conveyor system, EGAT's construction schedule calls for aone year gap between the commissioning of the last power plant, Unit 7, andthe completion of the conveyor system. Since the mine, at that point intime, will have to be in full production and the truck fleet will be closeto the end of its useful life, a shortfall in EGAT's overburden removalschedule could be anticipated. To minimize this risk EGAT plans tore-evaluate the performance of its trucks in 1985 and, if required, advancethe procurement of the new trucks to be acquired in conjunction with theconveyor system, in order to reinforce the ageing fleet.

THAI LANDSECOND MAE MOH LIGNITE PROJECT

Implementation Schedule

1 982 1 983 1 984 1 985 1 986 1 987

-MF-PCAM- __~~~~~ F M Al llJ JA S ON ID J IF Mr,_ AM J i _ASO_ N _J IFIM A MI J I AIS|OIN DJ FM A J A JFMA ||J |SONC JF|M|ATMTJTJTATSO0 N

- Constrilction l/nit 6FH ;1 FF FF ; 4 H 417 111l1l11l

-Construction Unit

MAE MOH MINE EXPANSION

Main Equipmnent Procuremernt

(i) Waste Conveyor Systern(Include Crusher & Spreader)

Prequalif cat ion

Specification

Bidding & Evaluation

Conslructioni

lii 85 ton Waste Truck

(iii) 90 toe Coal Truck

WIv Auxsilliary Equipment 10(vl 2nd Lignite Handling Systemn

OVERBURDEN REMOVAL ByCONTRACTOR

Specificat ion

Bidding & EvaluationilinCon MMILOBM2 Million 8C 3Milo CM 15 Milin C 1 ILINC

0O /B emoval - L L L -L L

Legend

M Place Order

lIndustry Department *Commercial Operation WrdBn-49July 1983 *Start Erection Wrdgn-49

Ii

4e

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4.26 On the power side, units 5, 6 and 7 are under construction, andin March 1984 were, respectively, 65%, 19% and 12% completed. EGAT isexercising purchase options obtained while bidding for Unit 4, andprocurement procedures are well underway. The planned start-up dates ofUnits 5, 6 and ultimately, Unit 7 by March 1986 appear to be realistic andno major slippages are anticipated.

V. CAPITAL COSTS, FINANCING PLAN AND PROCUREMENT

A. Capital Costs

5.01 Total installed Project cost (excluding interest duringconstruction and the Bank front-end fee, but including taxes and duties ofUS$27.2 million equivalent) is estimated at US$231.8 million with a foreignexchange component of US$135.0 million. Estimates are at January 1983price levels and are based on suppliers' quotes obtained by EGAT onequipment and EGAT experience with civil works contracts. Advanceoverburden removal costs are based on the contract proposals received inMay 1983 and review of contractor cost estimates in June 1983 with theBank.2/ Estimates include contingencies amounting to US$44.0 million, or23% of the base cost. Physical contingencies were calculated at 15% of themining equipment base cost excluding advance overburden removal costs(where contingencies are built into the unit cost) and equipment for whichorders have already been placed. Price contingencies are based onprojected international and local price increases for (i) foreign costs of6.5% in 1983, 9e0% in 1984, 7.5% in 1985 and 6.0% thereafter; and (ii)local costs of 3.5% in 1983, 6.5% in 1984, and 6.0% thereafter. Foreignprice contingencies reflect trends in prices of mining equipment which,including equipment requirements of pre-stripping and geological drilling,account for about 95% of foreign project costs. The Project capital costestimate is shown in Annex 8 and summarized below:

2/ Overburden removal totaling 36.5 million bm3 will be required duringFY1983-1986, the cost of which will be capitalized as pre-operatingexpenditures. Based on a contractor stripping cost of US$2.00/bm3 andan estimated EGAT cost that ranges from US$1.36/bm3 in FY83 toUS$2.01/bi3 the average pre-stripping cost over the period is estimatedat US$1.76/bm3 (January 1983 terms), for a total of US$64.2 million.This cost will begin to be amortized when Project production commences.

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Second Mae Moh Project: Capital Cost Estimate a/(US$ million)

Local Foreign Total % Cost

Mining Equipment b/Waste and Coal Conveyor Systems 12.7 31.9 44.6 19.32nd Handling System 5.3 20.4 25.7 11.1Off-highway Trucks 6.2 10.1 16.3 7.0Auxiliary Equipment 2.5 2.6 5.1 2.2Power Supply, Communications

and Workshop Equipment 2.1 2.8 4.9 2.1Total Mining Equipment 28.8 67.8 96.6 41.7

Land 1.5 - 1.5 0.6Engineering and Training 0.6 6.1 6,7 2.9Civil Works and River Diversion 12.4 - 12.4 5.3Geological Drilling 2.4 2.3 4.7 2.0Pre-stripping 32.0 32.2 64.2 27.8Increase in Working Capital 1.2 0.5 1.7 0.7

Base Cost 78.9 108.9 187.8 81.0

Physical Contingencies 6.2 7.2 13.4 5.8Price Contingencies 12.1 18.5 30.6 13.2

Total Installed Cost 97.2 134.6 231.8 100.0

Interest During Construction - 17.9 17.9Bank Front End Fee 0.1 0.1

Total Financing Required 97.2 152.6 249.8

a/ Totals may not all due to rounding.bI Includes freight and erection costs, import duties and taxes, and spare

parts.

B. Financing Plan

5.02 Foreign costs would be met by (i) the proposed Bank loan ofUS$59.1 million, which will cover 39% of direct and indirect foreign costsand 27% of total financing requirements excluding duties and taxes; (ii) aKreditanstalt fur Wiederaufbau (KfW) loan of US$16.8 million equivalent;(iii) an ADAB grant of US$4.2 million equivalent; (iv) commercial borrowingor export credits of US$10.0 million; and (v) EGAT internal cash generationof US$62.5 million equivalent to finance the indirect foreign cost of thegeological drilling and pre-stripping operations, training, interest duringconstruction, and a small amount of equipment and engineering. Local costswould be met by Government contribution of US$14.4 million and EGAT cashgeneration of US$82.8 million. This financing plan is shown on an annualbasis in Annex 9 and summarized below:

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Financing Plan(US$ million)

Local ForeignCost Cost Total %

EquityGovernment Tax Rebate Contributions 14.4 - 14.4 6Internal Cash Generation (EGAT) 82.8 62.5 145.3 58ADAB Grant - 4.2 4.2 2

Total Equity 97.2 66.7 163.9 66

Long-Term DebtIBRD - 59.1 59.1 23Germany (KfW) - 16.8 16.8 7Other - 10.0 10.0 4

Total Long Term Debt 85.9 85.9 34

Total Financing Required 97.2 152.6 249.8 100

5.03 Government tax rebate contributions were approved on March 18,1983 by announcement of the Ministry of Finance on tax exemptions onimported equipment for EGAT construction projects up to and including PowerUnit 5 and the related mine expansion. The ADAB grant of A$5.7 million(US$4.9 million equivalent) for a four year technical assistance programcovering both Mae Moh and Krabi mines, and of which US$4.2 millionequivalent will be applied to Mae Moh, was approved in the second half of1983. The KfW loan for DM 47.0 million was signed on August 25, 1982 anddisbursements have already started. During negotiations EGAT indicatedthat, at an appropriate time to be determined in consultation with theGovernment and the Bank, it would consider replacing part of the US$145.3million internal cash generation and the US$10.0 million of commercialbank/export credit funds for the off-highway trucks with a possible B Loanof up to US$50 million. Such a B Loan would be sustainable within thefinancial covenants applicable to the Lignite Mine Department (para 6.12).

5.04 Following the precedent set in the first Bank loan for Mae Moh,the guarantee fee payment to Government that is normally required by theBank for its industrial projects would be waived on an exceptional basis,as assurances were obtained that no lignite produced under the Projectwould be used in applications other than power generation, and would notenter commercial markets.

5.05 Assurances were obtained at negotiations that any funds necessaryto meet cost overruns or shortfalls in financing would be made availablepromptly by the Government to EGAT to complete the Project. For purposesof this covenant, Project completion is defined as (i) completion ofphysical construction of all facilities included in the Project; and (ii)when the mine has produced 2.5 million tons of lignite over a 6 monthperiod or when it has operated for a 12 month period at the production

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level required to provide Power Units 5-7 with sufficient lignite tosustain operations with such uniformity as not to cause a power plant shutdown due to lack of lignite, whichever occurs first.

5.06 In considering the mine expansion and related Power Units 5-7developments as one development investment package, the Bank loan wouldmeet 6.4% of the total financing required (US$926.5 million). Co-financingwould account for about 37% of the remaining financing required by mine andpower developments, comprising the (the Export-Import Bank of Japan andJapanese supplier's credits (17.6%), Asian Development Bank (4.9%), KfW(Germany, 2.5%), the Economic Development Corporation (Canada, 2.0%),Government of Switzerland (1.8%), ADAB (Australia, 0.5%) and commercialbanks (7.9%).

C. Procurement and Disbursement

5.07 About 91% of all equipment to be financed under the proposed Bankloan would be procured by ICB in accordance with Bank Guidelines. Apreference of 15% of the c.i.f. cost of the imported goods or theprevailing custom duties and other import taxes, whichever is lower, wouldbe extended to qualified local manufacturers. Procurement of individualequipment packages not exceeding US$250,000 would be by limitedinternational tendering acceptable to the Bank up to an aggregate level ofUS$5.0 million. It has been agreed that prequalification of prospectivevendors for the crusher-conveyor-stacker system will be required due to thecomplexity of this package. It is proposed that the Bank would subject thefirst 10 procurement packages, including the trucks and conveyor systemspackages, constituting about 95% of the equipment base price, to priorreview and that the remainder of the ICB packages would be submitted byEGAT to the Bank for post-review. A detailed list of procurement packagesfor the Project is shown in Annex 10 and summarized below:

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Project Procurement Packages(US$ million) a/

EGAT andIBRD KfW ADAB Other Government b/ Total

Equipment Suitable for ICB 52.7 - - 10.0 22.2 84.9

Equipment Suitable for LimitedInternational Tendering 5.0 - - - 8.8 13.8

Second Materials HandlingSystem (already ordered) - 16.8 - - 8.9 25.7

Equipment on EGAT's Budget(already ordered) - - - - 1.5 1.5

Overburden Removal(contracted locally) - - - - 70.5 70.5

Engineering and Training 1.3 - 4.2 - 3.6 9.1

Sub-total 59.0 16.8 4.2 10.0 115.5 205.5

Civil Works and Other C/ - - - - 26.3 26.3

Total Installed Cost 59.0 16.8 4.2 10.0 141.8 231.8

IDC and Front-End Fee onBank Loan 0.1 - - - 17.9 18.0

Total Financing Required 59.1 16.8 4.2 10.0 159.7 249.8

a/ Includes physical and price contingencies.h/ Includes equipment suitable for ICB or LIT and all duties and taxes.c/ Includes land, civil works, river diversion, geological drilling and

increase in working capital.

5.08 On the basis of discussions with EGAT it is proposed that theBank loan of US$59.1 million be allocated as shown below:

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Allocation and Disbursement of the Bank Loan(US$ million)

% of ExpendituresCategory to be Financed1. Equipment a/

- Waste Conveyor System 39.7 100% of foreign expenditures,- Coal Conveyor System 3.6 100% of ex-factory cost of- Power Supply Equipment 1.9 locally manufactured goods- Communications Equipment 0.3 and 70% of local expenditures- Auxiliary Equipment 3.1 for other items procuredSubtotal 48.6 locally.

2. Consultants' Services 1.3 100% of foreign expenditures

3. Front-End Fee on Bank Loan 0.1 100%

4. Unallocated 9.1

59.1

a/ Package values include the cost of spares and price escalation.Physical contingencies and related price escalation are in theunallocated category.

Initial disbursements of the Bank loan will be slow, due to the longmanufacturing time of the main equipment component (crusher-conveyor-stacker system). Therefore, only about 30% of the loan will be disbursedby the end of 1985 and 50% disbursement will occur only by the secondquarter of 1986. The estimated disbursement schedule is shown below:

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Estimated Disbursement Schedule for Bank Loan a/

Estimated CumulativeCalendar Year Quarter Disbursements Estimated Disbursements

…---------- (US$ million)--------

1984 I- -II 0.2 0.2III 3.2 3.4IV 1.2 4.6

1985 I 1.2 5.8II 2.0 7.8III 2.1 9.9IV 8.0 17.9

1986 I 6.5 24.4II 9.0 33.4III 9.3 42.7IV 8.0 50.7

1987 I 4.5 55.2II 2.0 57.2III 1.9 59.1IV

a/ Disbursement estimates for equipment take into account prevailingcommercial practices. For the waste and coal conveyor systems thefollowing assumptions were used: 10% at time of placing the order, 65%at shipment and the remaining 25% at the end of the commissioningperiod.

5.09 Detailed estimated disbursements for the whole Project are shownin Annex 8. The disbursement profile is somewhat different from thestandard disbursement profile for Bank industrial loans in the country butis similar to that being experienced under the first Mae Moh Ligniteproject, and is considered valid.

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VI. FINANCIAL ANALYSIS

A. Mine Operating Costs

6.01 The operating costs of mining lignite at Mae Moh were estimatedby EGAT in January 1983 terms based on the Master Mining Plan prepared byRheinbraun-Consulting GmbH and EGAT's own operating experience. The costsconsist of: (i) operating costs for the small portion of waste removal tobe carried out by EGAT; (ii) operating costs for the lignite mining to becarried out by EGAT; and (iii) the full costs of overburden removal to becharged by the contractor who will carry out the major portion of theoverburden work. The production schedule, showing the production build-upto be achieved in full by 1987 (5 million tpy) and the portions of work tobe carried out by EGAT and the contractor respectively, is given below:

Mae Moh Production Schedule

EGAT ContractorLignite and

Year Lignite Waste Removal Waste Removal(mtpy) (million bin) (million bm3)

FY83 1.28 11.0 -FY84 1.64 11.3 2.0FY85 3.03 10.0 13.0FY86 4.43 10.0 15.0FY87 4.86 10.0 15.0FY88 4.87 10.0 15.0FY89 4.91 10.0 15.0FY90 4.93 10.0 15.0FY91 4.97 10.0 25.0FY92 5.01 10.0 25.0

6.02 At full production (FY87), it is estimated that, in 1983 terms,total operating cost per tonne for Mae Moh II will be US$9.98 of whichoverburden removal will account for US$8.56 (86% of the total) and lignitemining will account for US$1.42. The total production cost per tonne(1983 terms) is expected to be US$17.66 and is broken down into itscomponent parts below. The detailed breakdown of EGAT and contractor ciDstestimates per bm3 at full production is shown in Annex 11.

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Estimated Cost of Lignite at Mae Mohat Full Production, FY87

(US$ per tonne)

Current Jan. 83Terms Terms %

Operating Cost 12.55 9.98 56.5Depreciation and Amortization of IDC a/ 6.11 4.86 27.5Amortization Pre-stripping 0.80 0.64 3.6Administrative Expenses 0.41 0.33 1.9Exploration 0.45 0.36 2.0Reclamation 0.18 0.14 0.8Financial Charges 1.54 1.23 7.0Income Tax 0.16 0.12 0.7

Estimated Production Cost 22.20 17.66 100.0

a/ Includes depreciation of fixed assets and amortization of interestduring construction.

6.03 In the projections the operating costs have been assumed todecrease in real terms by 1% p.a from FY86 through FY90 to reflect theexpected increase in Mae Moh mine productivity. After FY90 they areassumed to remain constant. Operating costs for Krabi Mine have beenestimated by EGAT based on operating experience at Krabi and are assumed toremain constant in real terms. After FY90 no production has been assumedfor Krabi Mine since the mine is expected to be depleted, and delineationand development of new outcrops in the Krabi vicinity is only at apreliminary stage. In FY87 Krabi operating costs are estimated to be, inJanuary 1983 terms, US$14.18 per ton.

B. Financial Projections

1. EGAT

6.04 The projections for EGAT, summarized in the table below, showthat the Company is expected to maintain a sound financial position overthe forecast period (1984-92) with energy sales increasing at an annualgrowth rate of 7.7% (from 18,832 GWh to 34,042 GWh), and revenuesincreasing by 12% p.a. (from US$1.2 billion to US$3.0 billion). Anincreasing proportion of revenues is expected to be available to helpfinance capital expenditures due to the expected continued decrease inoperating ratio (operating expenses as a percentage of revenues) associatedprimarily with the substitution of lower cost fuels for imported oil. Theoperating ratio which exceeded 90% in the late 1970's is projected todecrease from 79% in 1983 to 74% in FY92. To finance its constructionprogram through FY90, EGAT intends to borrow about 81% of the requiredfunds, obtain 2% from the Government as equity to cover duties and taxesand provide the remaining 17% from internal cash generation.

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EGAT - Summary of Financial Projections(Baht billion)

1984 1986 1988 1990 1992

Energy Sales (1,000 GWh) 18.8 22.7 26.5 30.1 34.0

Total Revenue 27.3 32.9 43.4 54.2 69.5Operating Expenses 22.4 25.3 32.5 40.0 51.1Net Income After Tax 2.4 2.9 4.5 6.2 7.9Internal Cash Generation 5.4 7.6 10.5 13.7 18.3

Capital Investment 13.2 13.8 18.8 25.7 24.6Net Fixed Assets 93.4 122.0 157.1 206.4 258.0Long Term Debt 49.1 60.5 77.1 98.8 117.4Equity 45.5 61.6 81.9 109.5 143.9

Ratios:

Return on Assets (%) 8.3 8.4 9.2 9.8 9.5Debt/Equity Ratio 52:48 50:50 49:51 47:53 45:55Debt Service Coverage (times) 1.5 1.2 1.3 1.4 1.4

6.05 As shown in the following summaries, EGAT is projected to meettariff covenants previously established with the Bank over the forecastperiod and maintain a sound financial structure. Under existing covenantsEGAT and the sector are required to have rates of return of a least 8% byFY82 and thereafter. In addition, EGAT is required to review the adequacyof its tariffs on a quarterly basis and maintain a fuel cost adjustmentclause in its tariff schedule. The cost of lignite, at the transfer pricecharged to power plants, is included in the fuel cost calculations.Assurances were obtained at negotiations that EGAT would continue to meetthese requirements. Assurances were obtained also that EGAT would meetexisting debt control covenants limiting the ratio of long term debt toequity to no more than 60:40 and short and medium-term debt to no more than15% of total debt.

6.06 EGAT financial projections assume tariff levels necessary forEGAT and the sector to produce a rate of return on net revalued fixedassets of at least 8%. This was done by first calculating revenues forEGAT, PEA and MEA at the level required to yield a rate of return on netrevalued fixed assets of 8% each year. Calculations were then made ofaverage tariffs at the consumer level for each one of the utilities. Next,keeping these tariffs unchanged, the excess cash in PEA and MEA wastransferred to EGAT by increasing EGAT's bulk tariff to PEA and MEA,resulting in a more rational use of sector financial resources.

6.07 Capital investments assumed in the financial projections reflectthe latest development program, prepared by EGAT, required to meet thedemand forecast (para. 3.17). It was assumed that Government equitycontributions to EGAT would be restricted to approved reimbursement of a

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part of the cost of multi-purpose projects undertaken by EGAT and of dutiesand taxes paid by EGAT on imported equipment for approved projects underthe Fifth Five Year Development Plan.

6.08 Prior to September 30, 1982 EGAT had been exempted, by a CabinetResolution, from remitting net income to the Ministry of Finance. AResolution, however, was signed in January 1983 requiring EGAT to remitBaht 190 million (5% of net income) to the Ministry for FY82. Thefinancial projections assume that EGAT will continue to remit funds at therate of 5% of net income as was the case in FY82. Domestic andinternational inflation assumptions are the same as those used inestimating the Project capital cost (para. 5,01). Other importantassumptions underlying the EGAT financial projections concerning fuelconsumption and costs, other operating and maintenance costs, anddepreciation, are shown in Annex 12.

2. Lignite Mine Department

6.09 Lignite Mine Department operations comprise the Mae Moh and Krabimines. Each mining operation is treated as a separate mining accountingcenter by EGAT and overhead costs are allocated proportionately. Thefinancial accounts of the Department consolidate those of the respectivemining operations. Production schedules for the financial projections arebased on the expectations that Mae Moh will reach full production in FY87and the Krabi mine will be fully depleted after FY90.

EGAT Lignite Production, 1984-92(million tonnes)

FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92Mae Moh Mine 1.64 3.03 4.43 4.86 4.87 4.91 4.93 4.97 5.01Krabi Mine 0.33 0.22 0.22 0.22 0.22 0.22 0.22 - -

Total 1.97 3.25 4.65 5.08 5.09 5.13 5.15 4.97 5.01_ . _ _

6.10 Lignite Mine Department revenues were calculated using an actuallignite base price in FY83 of US$19.22 per tonne. This price reflects thelong run marginal cost of lignite as well as its opportunity cost (based onimported coal as an economic substitute), and is in line with the dualfinancial and economic pricing objectives discussed in Chapter I.Under the lignite pricing arrangements agreed with EGAT (para. 2.37), thelignite price is escalated in real terms by 2% p.a. through 1985. For thepurposes of financial projections, lignite prices have been escalated at 1%p.a. in real terms after 1985. However, a review of lignite prices is toke made by EGAT in 1985 and further adjustments in real prices will bedetermined with EGAT at that time. The lignite prices assumed in theprojections in real and current terms are shown below:

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EGAT Forecast Lignite Price(US$/tonne)

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

Jan. 1983 terms 19.0 19.4 19,8 20.0 20.2 20.4 20.6 20.8 21.0 21.3Current Terms 19.2 20.4 22.2 23.7 25,4 27.2 29.1 31.2 33.4 35.7

6.11 Financial projections for the Lignite Mine Department, and theassumptions on which they are based, are summarized below and detailed inAnnex 13. Under the lignite pricing arrangements established for theproposed Project (para 2.38), Department revenues would cover mi-neoperating costs and other administrative expenses, (depreciationramort4zation of advance overburden removal, administrative expenses,exploration costs, interest charges and reclamation fund expenses) over theforecast period (1984-92) and generate sufficient cash in the Department tomeet debt repayment obligations (predominantly the Bank Loans for Mae Moh)and on-going capital requirements. It is also projected that theDepartment will meet its share of EGAT's income tax obligation (para.6.08).

Lignite Mine DepartmentSummary of Financial Proections

(US$ million)

1984 1986 1988 1990 1992

Lignite Sales (million tonnes) 1.97 4.65 5.09 5.15 5.01

Total Revenue 40.2 110.3 138.4 160.4 179.1Operating Expenses 12.7 49.3 67.9 76.3 84.9Net Income After Tax 9.9 26,8 21.5 32.1 46,0Internal Cash Generation 17.7 45.2 56.8 71.4 81.0

Capital Investments 49.0 42,9 19,4 28.1 17.3Net Fixed Assets 153.6 204,4 260.7 269.8 282.0Long Term Debt 120.5 135.8 130.7 105.6 80.4Equity 114.2 204.0 315.3 404.8 520.3

Ratios:Return on Assets (%) 12.4 20.6 11,7 14.8 18.8Debt/Equity Ratio 51:49 40:60 29:71 21:79 13:87Debt ServIce Coverage (times) 2.7 2.4 3.0 4.5 5.2

6,12 To strengthen the financial management and disciplTne of themining operations, assurances were obtained from EGAT during negotiationsthat the Lignite Mine Department will meet standard debt covenants. Thecovenants are (i) a debt:equity ratio of no more than 60:40; and (ii) a,debt service coverage of at least 1.3. The Mine Department debt:equityratio is at present within the covenanted range (58:42) and expected to

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improve as a consequence of the high proportion of equity funding of theproposed Project. Together with Government tax rebate contributions andthe Australian Grant (para. 5.03), Project financing comprises 65% equity.Financial forecasts indicate the Departments' capability to meet the debtcovenants. The rate of return on net revalued fixed assets of the MineDepartment ranges from 11% p.a. to 21% p.a., exceeding the minimumcovenanted return with EGAT (8% p.a.) at all times.

C. Financial Rate of Return

6.13 The financial rate of return of the Project has been estimated onan incremental bas±s, (i) for the mine expansion alone (Case 1); and (ii)for the combined mine and power developments (Units 5-7) which have beendesigned as one package (Case 2). The returns have been estimated usingcost and benefit steams developed on a "with" and "without" Project basis.The streams were calculated in January 1983 terms taking into account thereal changes in lignite prices, power tariff rates and operating costsassumed in the financial projections. The calculations are made over a 30year period, ending in 2010.

6.14 Case 1 - Mine Expansion Case. The rate of return calculation onthe mine expansion alone assumes as the benefit stream revenues from "sale"of lignite to the power plant at the lignite transfer price. Salesrevenues are calculated using only the sales tonnages at Mae Moh producedunder the Project (shown on a yearly basis in para. 6.09); and the ligniteprice in real terms assumed in the financial projections and shown inpara. 6.10.

6.15 Incremental capital costs for the production increases comprisecapital costs for the Project including (i) replacement expenditures basedon schedules prepared by EGAT and reviewed by the Bank; (ii) workingcapital requirements; and (iii) taxes on imported mining equipment. A taxrebate stream has been added to account for the rebates on mine equipmentassociated with Power Unit 5 (para. 5.03). Operating costs comprise (i)EGAT operating costs; and (ii) the contractor costs for removal ofoverburden to be charged to EGAT. These costs are shown in detail in Annex13. An expected decrease in operating costs at Mae Moh, by 1% p.a. until1990 (para. 6.03), has been reflected in the operating cost stream. After1990 operating costs have been assumed to be constant. The operating coststream includes royalties to be paid to the Government for ligniteextraction (Baht 6.52 per tonne of lignite). The streams are shown inAnnex 14.

6.16 The incremental rate of return on the mine alone is highlydependent on the lignite transfer price. Under the assumed pricingarrangement, the rate of return on the internal investment in the mineexpansion is 9% and the rate of return on net revalued fixed assets of theLignite Mine Department is 12% in 1984 increasing to 21% in 1986 at fullMae Moh production build-up. The Mine Department's return is far higherthan the minimum 8% rate of return on net revalued fixed assets agreed

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between EGAT and the Bank (Loan 1852-TH) and demonstrates the financialviability of the mining operations "with the Project."

6.17 Case 2 - Mine and Power. The rate of return of the combined Mineand Power Unit 5-7 developments assumes, as the benefit stream, revenuesfrom incremental power sales arising from the mine expansion and relatedpower unit investments. Sales revenues are based on (i) estimatedincremental energy sales (GWh) from the additional 450 MW in generationcapacity to be provided by Power Units 5-7; and (ii) tariff levels whichare expected to decrease in real terms (from 6.lt/GWh in 1983 to 5.3g/GWhin 1986) through 1986 and remain constant thereafter, under assumptionsdescribed in Annex 12 and shown in the financial projections for EGAT.

6.18 Cost streams comprise (i) the capital and operating costs for themine as described above; and (ii) the capital and operating costs for PowerUnits 5-7. The Bank has reviewed cost estimates for the power plants withEGAT and considers them satisfactory. The cost of lignite production ishandled in the calculation as a fuel cost to the power plants. Taxes onpower and mine investments have been included in capital costs. A taxrebate stream has been added to the cost/benefit streams for all taxesremitted on imported mine and power equipment associated with the Unit 5development (para. 5.03). The streamsare shown in Annex 14.

6.19 The incremental financial return on the combined Mine and PowerUnit 5-7 developments is a satisfactory 12%, thus indicating the financialviability of the second stage of EGAT's development investments at Mae Moh.

6.20 Sensitivity tests have been carried out on the financial rate ofreturn for the combined Power Units 5-7 and related Mae Moh Mine expansionsince they are interdependent investments which would not have beenundertaken in isolation. The results of the sensitivity tests are shownbelow.

Sensitivity Tests on Financial Rate of Return forMae Moh Mine Expansion and Power Units 5-7

Base 12.0Capital cost increase +10% 10.7Capital cost decrease -10% 13,4Operating cost increase +10% 11.2Operating cost decrease -10% 12.8Tariff increase +10% 14.0Tariff decrease -10% 9.8

6.21 The return is most sensitive to changes in electricity tariffs.No major changes, however, are expected in the tariff levels based on therequirement that EGAT earn a minimum 8% rate of return on net revaluedfixed assets. The return is also sensitive to capital cost changes. Majorchanges are unlikely to occur as construction is well underway on the powerunits and capital cost estimates for the mine expansion are consideredreliable.

-41-

D. Project Risks

6.22 There is relatively little risk associated with the proposedProject. Measured lignite reserves are more than adequate. Demand forlignite as a fuel for electricity generation is virtually assured in lightof the projected rising demand for electricity over the medium andlong-term and the lower cost of domestic lignite for electricity generationthan imported coal. Capital and operating costs for the project are fairlystraightforward estimates, thus minimizing the possibility of a reductionon return. Potential environmental hazards to air and water quality havebeen handled well by EGAT under the first expansion and will be monitoredadequately under the proposed Project to avoid undue risk (para. 4.14).There is some risk in implementation plans associated with the largeoverburden contract which EGAT has let although (i) Bank review andapproval of the contract proposal; (ii) heightened EGAT awareness of thepotential contracting hazards; and (iii) technical assistance and trainingunder the Project, should minimize technical and financial risks (para.4.23). There is also risk of delay in completion of Power Units 5-7,particularly since there is a six month delay in completion of Unit 4.However, construction of Units 5-7 is underway and the schedule appears tobe firm. Sensitivity tests show that a full year's delay, which isunlikely, would reduce the financial and economic returns only marginallysince the major mine investments are made towards the end of the Projectperiod in (FY86 and 87) and would not change even should a delay in powerplant construction occur.

VII. ECONOMIC ANALYSIS

A. Economic Rate of Return

7.01 The economic rate of return on the Project has been analyzed intwo separate ways. First, the return has been analyzed on an incremental("with" and "without" Project) basis in similar manner to the financialrate of return analysis but omitting taxes, duties and royalties from thecalculations. Second, the return has been analyzed on a substitutionbasis, where the relative benefits and costs of the proposed mine and powerdevelopment are compared to a coastal power plant burning imported coalunder the assumption that a 450 MW coal-fired plant would substitute forthe combined Mine and Power investment in Units 5-7. In all calculations,cost and benefit streams have been made in January 1983 terms, taking intoaccount real changes in lignite prices, electricity tariffs and operatingcosts. The analyses were made over a 30 year period. No shadow pricinghas been carried since this is not required in Thailand at present.

-42-

1. Incremental Analyses

7.02 Economic rate of return estimates have been made on the followingbasis: Case 1, for the mine expansion alone; and Case 2, for the mine andpower Units 5-7 developments treated as one package. The same assumptionsand the same cost and benefit streams as for the financial rates of ret:urnwere used, (Chapter VI) with taxes, duties and royalties excluded (Annex15). On this basis the incremental economic rate of return on the mineexpansion alone is 17%, above the estimated opportunity cost of capital inThailand of 12%. 3/ The return on the mine and power development togetheris 14%, slightly above the opportunity cost of capital, indicating that. theprojected level of electricity tariffs (which assures an 8% rate of returnon revalued assets) is close to the incremental cost of electricityproduction (para. 2.14).

2. Substitution Analysis

7.03 The economic rate of return on substitution has been made byanalyzing the relative benefits and costs on a differential cash flow basisof the proposed mine and power developments and a coastal power plantburning imported coal. This analysis takes into consideration the factthat the optimum use of lignite in Thailand is in power generation, due toits constraints related to transportation, handling and its physicalcharacteristics (para. 2.29).

7.04 The benefit streams are assumed to be sales revenues: (i) forthe proposed mine and power development from incremental energy salesgenerated by Power Units 5-7 (totaling 450 MW); and (ii) for the coal-firedplant from incremental energy sales generated by the 450 MW coastal plant.The tariff rates assumed in valuing the power are the same as those used inEGAT's financial forecasts (Annex 12).

7.05 The capital and operating costs for the proposed mine and powerdevelopment are the same as those used in the economic analysis of thecombined investment shown in Annex 15. The capital and operating costsdata for the coal-fired plant were estimated by EGAT assuming the plantsite is on the coast at Ao Phai and a 230 kV double-circuit transmissionline, 97 km long, is required from Ao Phai to Min Buri Substation. Thecriteria and assumptions for capital and operating costs for Power Units5-7 and the coal-fired plant and associated transmission line are shown inAnnex 16. The transmission line requirements for Power Units 5-7 have alsobeen included in the calculations. Taxes, duties and royalties have beenexcluded.

7.06 Coal to be burned in the alternative coal fired plant is assumedto be imported from Australia, the closest supply source. As shown inAnnex 17, recent contract quotes established prices at approximatelyUS$45-50 per tonne for thermal coal for the New South Wales area. Annualaverage f.o.b. export prices in current US$ per tonne were: US$44 in 1981and US$48.5 in 1982. For the return analysis it was assumed that the

3/ Report No. 4366-TH, IBRD, August 31, 1983.

-43-

Australian f.o.b. price will be US$48 per tonne in 1985 (January 1983terms) and escalated in real terms at an annual average rate of 1% through1990. Specifications of Australian thermal coal were assumed to be 6,000kcal/kg, less than 1% sulfur content and about 12% ash.

7.07 Recent ocean freight quotes for coal from Australia to Thailandare in the range of US$15-20 per tonne for small spot contracts using smallvessels (30,000 dwt). For the return analysis ocean freight was assumed tobe US$15 per tonne (January 1983 terms) taking into consideration that portfacilities for the coal-fired alternative at Ao Phai could handle vesselsin the range of 50,000-100,000 dwt size. An additional inland freight andhandling charge of US$7.5 per tonne for delivery of coal imports to thepower plant has been assumed; this amount includes the amortization ofcapital expenditures (about US$150 million) for the required portfacilities, including dredging of a channel to accommodate larger vessels.

7.08 The economic rate of return based on substitution outlined underthe assumptions above is 13.7% which is only marginally above the estimatedopportunity cost of capital of 12%. This confirms the results of thelignite pricing study, which show the rent element in the total ligniteopportunity cost to be small, implying that lignite's cost advantage overcoal, the substitute fuel, is also small (para. 2.35). The cost andbenefit streams are shown in Annex 18.

7.09 Sensitivity tests have been carried out on the economic rate ofreturn for the Power Units 5-7 and related mine expansion as compared to acoal-fired power plant, since this return is more indicative than theincremental rate of return of the cost to the economy of developinglignite. The results of the sensitivity tests are shown below:

Sensitivity Test on Economic Rate of Returnfor the Power Units 5-7 and Related Mine xpnsio

Compared with a Coal-Fired Plant

Base case 13.7Capital cost increase - 10% 10.1Operating cost increase - 10% 11.4Coal price increase to US$52 per tonne 16.1Coal price decrease to US$44 per tonne 11.4

The return is particularly sensitive to changes in international coalprices and increases by 2.4 percentage points when coal prices are assumedto increase by US$4 (from US$48 to US$52 per tonne). This is 'Likely sincecoal prices are expected to improve over the remaining 1980s with moderatestrengthening of the international coal market.4! When coal prices areassumed to fall to US$44 per tonne the return decreases to 11.4%.

4/ Recent Bank thermal coal price projections assume a 1 to 2% p.a.increase in real terms, in the later half of the 1980s, with coalprices reaching in range of US$53-55 per tonne in the early 1990s.

-44-

B. Foreign Exchange Savings and Other Benefits

7.10 The average net foreign exchange savings under the proposedProject have been calculated as in the economic rate of return analysis,which assumes that the combined mine and power investment in Units 5-7would substitute for a 450 MW coal-fired plant. The net foreign exchangesavings resulting from reduced coal imports under the coal-firedalternative, over the 30 year life of the Power Units 5-7, are expected toaverage US$42.3 million p.a. in January 1983 terms, taking into account theimpact of debt service (see Annex 19).

7.11 The proposed Project would provide for technology transferthrough technical assistance and training at the mine site and wouldstrengthen the institutional aspects of the power utility through proposedmanagerial changes and related training. Despite its capital-intensivenature, the Project would provide some increase in economic activity in theremote northeastern region of Thailand, through the anticipated increasedstaffing at Mae Moh and the employment of local contractors for overburdenremoval. The resettlement program under the first expansion project isbenefitting the area through establishment of a school, health center,water supply, electricity and other facilities which will be continued andfostered under the present Project.

VIII. AGREEMENTS REACHED AND RECOMMENDATIONS

A. Agreements

8.01 During negotiations, agreements were reached on the following:

(a) With the Government

(i) that the electricity sector should earn a rate of return on

net revalued fixed assets of not less than 8% every year(paras. 3.13 and 6.05).

(il) to make available to EGAT such funds as are needed to carryout the Project (para. 5.05).

(b) With EGAT

(i) to use a price for the lignite produced and transferred toits power plants that is determined taking into account theeconomic costs of substitute fuels and the need to ensurethe Lignite Mine Department's financial viability. Lignitepricing policy reviews are to be carried out by EGAT inFY1985 and at least every three years thereafter and thepricing methodology is to be agreed upon with the Bank. ForFY1984 and FY1985 it has been agreed that EGAT will raisethe transfer price by 2% p.a. in real terms (para. 2.36).

-45-

(ii) to continue to maintain separate accounts for EGAT's miningactivities (para. 3.05).

(iii) to continue having EGAT's accounts (consolidated andunconsolidated for EGAT and its mine operations) audited byindependent auditors (para. 3.16).

(iv) to continue geotechnical work at Mae Moh and furnish to theBank an assessment of the geotechnical aspects of slopestability at Mae Moh, by January 31, 1985 (para. 4.07).

(v) to furnish to the Bank a financial management and analysistraining program by September 30, 1984, to be implementednot later than January 31, 1985, and a mine operationstraining program by March 31, 1985, to be implemented notlater than July 31, 1985 (para. 4.12).

(vi) to execute and operate the Project and associated powerplant in accordance with environmental standardssatisfactory to the Bank and the Government (para. 4.14).

(vii) to apply project management practices and proceduressatisfactory to the Bank during Project execution (para.4.19).

(viii) to re-evaluate the overburden removal contract with theBank, by July 31, 1987 and, with the Bank's concurrence,decide whether to renew it, draw up a new contract orundertake the removal with EGAT's own equipment. In thelatter event, EGAT will provide the Bank with a satisfactoryplan for acquiring the necessary equipment and financingtherefore (para. 4.23).

(ix) to use lignite produced under the Project only for powergeneration purposes by EGAT (para. 5.04).

(x) to achieve a rate of return on EGAT's average revalued netfixed assets of not less than 8% and provide the Bank withquarterly analyses of how this will be achieved in thecurrent and following fiscal years (para. 6.05).

(xi) to maintain a fuel adjustment clause in its tariff, whichwould also reflect the cost of lignite (para. 6.05).

(xii) to maintain a debt/equity ratio of no greater than 60:40 andshort and medium term debt at no more than 15% of all debt(para. 6.05).

-46-

(xiii) to limit borrowing related to lignite mining activities suchthat the Lignite Mine Department's debt/equity ratio is nogreater than 60:40 and its debt service coverage ratio is atleast 1.3 (para. 6.12).

B. Recommendations

8.02 With the agreements reached on the above, the Project forms asuitable basis for a loan to EGAT of US$59.1 million for a period of 20years, including 5 years of grace, with the guarantee of the Kingdom ofThailand.

ANNEX 1-47-

THAILAND-SECOND MAE MOE LIGNITE PROJECT

EGAT Power Development Plan, 1983-1996

Fuel Unit Rating Total CommissioningA. Under Construction: Type Number (MW) (MW) Date

Bhumibol Hydro 7 133 133 May 1983Lan Krabu Gas Turbine 1/ Gas 2 (25) (25) May 1983Lan Krabu Gas Turbine 1/ Gas 3 (15) (15) June 1983Bang Pakong Steam Turbine

(Block II) - 2 120 120 July 1983Bang Pakong Thermal Oil/Gas 1 550 550 September 1983Sirindhorn Hlydro 3 12 12 April 1984Mae Moh Lignite 4 150 150 May 1984

Bang Pakong Thermal Oil/Gas 2 550 550 August 1984Mae Moh Lignite 5 150 150 November 1984Khao Laem Hydra 1-3 100 300 December 1984Mae Moh Lignite 6 150 150 September 1985

Srinagarind 2nd Stage Hlydro 4 180 180 February 1986Mae Moh Lignite 7 150 150 March 1986Mae Ngat Hydro 1-2 4.5 9 May 1986Gas Turbine Retired Oil 3-11 15 -135 June 1986

Chiew Larn Hlydro 1-3 80 240' July 1987

B. New Projects-

Krabi (2) Lignite 1 75 75 February 1988Chao Phraya Hydro 1 16.8 16.8 June 1988

Krabi (2) Lignite 2 75 75 February 1989Mae Moh Lignite 8 300 300 June 1989Nam Chon Hydro 1-2 145 290 April 1990Miscellaneous Hydro Group I Hydro - - 200 May 1990Krabi Lignite Retired Lignite 1-3 20 -60 August 1990Nam Chon Hydro 3-4 145 290 October 1990Mae Moh Lignite 9 300 300 April 1991Krabi (2) Lignite 3 75 75 June 1991Miscellaneous Hydro Group II 'Hydro - - 300 May 1992Ao Phai Thermal Coal 1 600 600 October 1992R 3 Thermal Coal - 150 150 March 1993Mae Moh Lignite 10 300 300 April 1993Ao Phai Therrmal Coal 2 600 600 June 1995Miscellaneous Hydro Group III Hlydro - - 200 October 1995Ao Phai Thermal Coal 3 600 600 September 1996

Total Net Additional Capacity = 6,837.2 MWExisting Generating Capacity = 4,208.0 MW

Grand Total = 11,045.2 MW

Notes: 1/ Being transferred from the existing gas turbines at SouthBangkok and Surat Thani.

Source: EGAT Power System Planning Division.

Industry DepartmnentMarch 1984

-48-

ANNEX 2THAILAND-SECOND MAE MOH LIGNITE PROJECT

EGAT--Status of Bank Group Operations

Loan No. 175-TH Yanhee; $66.0 Million Loan of August 20, 1957. EffectiveDate: February 28, 1958; Closing Date: March 31, 1966.

Loan No. 333-TH Second Yanhee; $6.6 Million Loan of February 28, 1963;Effective Date: April 18, 1963; Closing Date:September 30, 1967.

Loan No. 406-TH Third Yanhee; $6.00 Million Loan of March 9, 1965;Effective Date: April 27, 1965; Closing Date:December 31, 1968.

Loan No. 489-TH Fourth Yanhee; $5.00 Million Loan of February 28, 1967;Effective Date: May 23, 1967; Closing Date: June 30, 1970.

Loan No. 655-TH First EGAT Power; $46.5 Million Loan of January 13, 1970;Effective Date: April 17, 1970; Closing Date: June 30,1975.

Loan No. 790-TH South Bangkok Thermal Unit #4; $27.0 Million Loan ofOctober 26, 1971; Effective Date: January 27, 1972;Closing Date: November 30, 1976.

Loan No. 977-TH Ban Chao Nen Hydroelectric; $75.00 Million Loan of April 2,1974; Effective Date: June 14, 1974; Closing Date:December 31, 1980.

Loan No. 1485-TH Pattani Hydroelectric; $50.0 Million Loan of August 30,1977; Effective Date: December 20, 1977; Closing Date:June 30, 1983.

Loan No. 1690-TH Bang Pakong Thermal Power; $80.00 Million Loan of April 24,1979; Effective Date: May 23, 1980; Closing Date: June30, 1984.

Loan No. 1770-TH Khao Laem Hydroelectric; $80.00 Million Loan of November27, 1979; Effective Date: September 17, 1980; ClosingDate: February 28, 1985.

Loan No. 1852-TH Mae Moh Lignite; $72.00 Million Loan of May 22, 1980;Effective Date: September 17, 1980; Closing Date:December 31, 1984.

Loan No. 2000-TH Power Subsector; $100.00 Million Loan of May 21, 1981;Effective Date: October 26, 1981; Closing Date: June 30,1985.

Industry DepartmentMarch 1984

-49- ANNEX 3

THAILAND-SECOND MAE MOH LIGNITE PROJECT

Thailand Lignite Reserves(million tonnes)

A. Lignite Reserves in Thailand

1980 1982Deposit Measured Indicated Total Measured Indicated Total

Mae Moh 350.00 300.00 650.00 661.00 153.20 814.20Krabi 5.00 95.00 100.00 10.15 10.00 20.15Li 20.00 - - 8.00 2.00 10.00Mae Tip - - - 1.00 10.00 11.00Mae Tuen - - - 1.23 - 1.23

Total 375.00 395.00 750.00 681.38 175.20 856.58

B. EGAT's Geological Reserves by Ash Content Cut-Off a!

ReserveCut-Off Category Average% Ash Measured Indicated Total In-Situ % Ash

65% 802.6 185.1 987.1 26.145% 661.0 153.2 814.2 22.935% 555.3 122.8 678.1 21.7

a/ Optimization of overburden ratio vs. ash contentled to the selection of the 45% ash cut off,which satisfies power plant requirement at anaverage calorific value of 2,700 kcal/kg and22.9% ash.

C. EGAT's Mineable Reserves(million tonnes)

Total Geological Reserves 814.2Less: Reserves Sterilized by Units 1-3 (237.8)

Reserves considered uneconomic (74.6)Geological losses and dilution a/ (50.2)

Total Mineable Reserves 451.6

a/ Allows for 83% recovery of in-situ and 7%dilution.

Source: EGAT and IBRD estimates.

Industry DepartmentMarch 1.984

THAI LANDSECOND MAE MOH LIGNITE PROJECT

Organization Chart of Electricity Generating Authority of ThailandEfficiency Control

| Board of 1 2 Department= |- Directors M -OperatioControlm|

i Office of the | Pomrr Plaf t

L General ManagerMine CmiMaletr u r i t ~ ~ ~ ~ ~ ~~Manager, 1 aV's

{ Off ice T Ltr rment DepettrDteot

| ep. General Mr. | Dp. General Mg,. Dep. General Mgr. Dep. General< Mg Aviation| Am n stato |-|Technical ;L-Construction || -Operation Unit

|Asst. General Mg. ||Assn. Generat Mr||Asst. Greneal Mgr. | sst. Gnea gr A~, G rera Mgr. | sst. General Mgr. | sst. General Mgr.|i-wAcct. &Fnance -Project & Plan. || -Hydro L-Constructior. | -Mitemlnce | L Operation -Th.nmal u

Wo Cnrler' 5 Medial & Health | rjc lnig&|JSupply & Procure- Hydroelectric | l Enginieering | |Powe, Plant & |_ystems Operatio N ago hr | Department Departme ment Dept. Co,str. DePt. Departmen Elec Mint. Dept. Department

| Treasury | General ervices | |System Planning | |r,r Enrg Peh I J hrmlPant I |Mcail ht.| Bubo S. Bangkok Therm.|Department | 1 Department | 1 Departmenert | eatet |1 Cnt.Dept. eeteL a Power Plant |

P. l. C . _m 11 r _ Li_ Sb_ Budget _ Personnel _ Public Comm~~~~~~~~~~~un- Trans Lmne& Su- T~ransmissio-n Pla.nt Siri,ki,t Mee ~Moh Thnetrm,

_ Department Department 0 ~~~~~~~~~~~cations Dept._ station Cornstr. IDep. Me_ Mant.Dept. _ Da_ Pow\er Pln

_{ systems 8 _ rnp & Constr. Off om icetol|,] Siaaid l_ agPkn| Procedure Office | | E~~~~~~~~~~~~~~~~~~~~~~~_ quipment Det| | System'Ofc a | |hl ovr

_t Lignite Mine C| -| Deaintmenta|ce<

| Departen Dop 1 Regon t

I ndustry Department Reio3February 1983

World Bank-2469S

-51-ANNEX 5

THAILAND-SECOND MAE MOH LIGNITE PROJECT

EGAT and Lignite Mine Department Manpower(nerBons)

% p.a.A. EGAT, 1978-82 1978 1979 1980 1981 1982 Increase

University graduates 1,882 2,046 2,372 2,695 3,196 14.2

Diploma and higherprofessional education 1,778 1,938 2,508 2,847 3,369 17.3

Higher vocational education 2,742 2,983 3,71/ 4,472 5,153 17.1

Others 9,528 10,334 11,719 13,219 15,018 12.0

Total 15,930 17,301 20,316 23,233 26,736 13.8

B. Mine Department, 1982

Mae Moh Krabi Head Office Total

Engineer 52 6 29 87

Geologist 4 2 11 17

Administration 185 18 66 269

Technical 637 131 64 832

Skilled labor 401 127 2 530

Semi-skilled labor 201 87 __ 288

1,480 371 172 2,023

Source: EGAT

Industry DepartmentMarch 1984

ANNEX 6-52- Page 1 of 3

THAILAND-SECOND MAE MOH LIGNITE PROJECT

EGAT's Historical Financial StatementsIncome Statements, 1077-83

(Baht million)

Years ended September 30 1977 1978 1979 1980 1981 1982 1983 -

Energy sales (GWE) 10,149 11,516 12,933 13,657 14,545 15,386 17,160Average tariffs (B/KWh) 0.458 0.560 0.553 0.748 1.298 1.435 1.43Energy revenue 4,647 6,447 7,158 10,214 18,877 22,087 24,540

Total Revenue 4,647 6,447 7,158 10,214 18,877 22,087 24,540

Operating Expenses

Fuel and purchased power 2,720 4,197 4,396 8,074 11,780 12,776 13,834Operation and maintenance 684 758 1,011 1,251 1,840 2,424 2,916Total Operating Expenses 3,404 4,955 5,407 9,325 13,620 15,200 16,750

Operating income beforedepreciation 1,243 1,492 1,751 889 5,257 6,887 7,790

Depreciation b/ 828 892 1,088 1,287 2,144 2,068 2,600Net Income Before Interest 415 598 663 (398) 3,113 4,819 5,190

Interest charged to operations 375 429 524 633 1,702 1,937 1,670Net Operating Income 40 169 139 (1,031) 1,411 2,882 3,520Other income 19 63 14 120 35 25 20Net income before appropria-

tion to the Ministry ofFinance 59 232 153 (911) 1,446 2,907 3,540Appropriation - - - - - - 420

Net Income after appropria-tion 59 232 153 (911) 1,446 2,907 3,120

= =~~~~-------- - ~

a/ Preliminary figures based on EGAT non-revalued statements.b/ On revalued fixed assets.

Source:EGAT

Industry DepartmentMarch 1984

-53-

ANNEX 6Page 2 of 3

EGAT's Historical Financial StatementFunds Flow Statements, 1977-83

(Baht million)

a/

Years ended September 30, 1977 1978 1979 1980 1981 1982 1983

SourcesOperating income andnon-cash' b/ 1,289 1,506 1,769 1,210 5,682 7,239 8,765

Total Internal Generation 1,289 1,506 1,769 1,210 5,682 7,239 8,765Equity contribution 182 2,150 462 1,205 431 1,045 2,406Borrowings 1,097 2,599 2,124 6,060 8,225 9,857 10,068Deferred liabilities 97 93 93 94 94 - -Total Sources 2,665 6,348 4,448 8,569 14,432 18,141 21,239

ApplicationsCapital expenditures 2,312 4,859 2,691 7,779 10,133 11,639 14,284Interest during construction 177 266 331 564 664 1,092 1,375

Total investment 2,489 5,125 3,022 8,343 10,797 12,731 15,659Debt ServiceInterest 375 429 524 1,130 2,061 2,924 3,045Amortization 409 623 705 797 867 1,181 1,434

Total Debt Service 784 1,052 1,229 1,927 2,928 4,105 4,479

Staff bonus 62 35 53 53 - - 335Increase (decrease) inworking capital (670) 136 144 (1,754) 707 1,305 766

Total Applications 2,665 6,348 4,448 8,569 14,432 18,141 21,239

a/ Preliminary figures based on EGAT's non-revalued statements.bt Adjusted by foreign exchange profit/loss.

Source:EGAT

Industry DepartmentMarch 1984

-54-

ANNEX 6Page 3 of 3

EGAT's Historical Financial StatementsBalance Sheets 1977-83

(Baht million)

Years ended September 30, 1977 1978 1979 1980 1981 1982 198 3b/

Current AssetsCash 141 553 107 61 77 999 944Receivables-trade 1,323 1,203 1,438 1,905 3,558 3,532 4,674Receivables-others 254 343 984 606 442 326 -Inventories 275 416 450 846 1,296 1,626 1,763Total Current Assets 1,993 2,515 2,979 3,418 5,373 6,483 7,381

AssetsPlant in service 33,377 35,467 39,324 46,651 57,116 63,954 73,567Less: Accumulated

Depreciation 14,632 15,139 15,982 17,185 16,249 19,437 22,067Net Fixed Assets 18,745 20,330 23,342 29,466 40,867 44,517 51,500

Work in progress 5,064 6,891 7,191 10,719 12,164 18,607 26,631Deferred lignite miningexpenditure - 305 400 582 984 1,366 1,600

Insurance fund - - 20 41 197 429 971

Total Assets 25,802 30,041 33,932 44,226 59,585 71,402 88,083

Equity and LiabilitiesCurrent LiabilitiesPayable 1,411 1,798 1,891 4,207 4,904 5,230 4,965Bank overdraft - - 190 706 1,257 - -Current maturities 633 762 828 906 1,198 2,131 2,443Total Current Liabilities 2,044 2,560 2,909 5,819 7,359 7,361 7,408Liabilities:Insurance reserve - - 20 41 197 429 971Long-term debt (net) 8,620 11,348 12,487 17,951 25,415 31,500 39,129Deferred liabilities 393 486 579 672 765 924 882Equity:Paid-in capital 3,702 5,795 6,242 7,423 6,445 8,431 11,233Retained earnings 3,369 3,922 4,447 4,027 4,628 6,309 5,727Revaluation surplus 7,674 5,930 7,248 8,293 14,275 16,448 22,733Total Equity 14,745 15,647 17,937 19,743 25,849 31,188 39,693

Total Equity andLiabilities 25,802 30,041 33,932 44,226 59,585 71,402 88,083

a/ Preliminary figures based on EGAT's non-revalued statements.

Source: EGAT

Industry DepartmentMarch 1984

ANNEX 7Page 1 of 2

TFATLAND-SECOND MAE MOH LIGNITE PROJECT

Lignite Mine Department

Historical Balance Sheet Statements, 1981-83(Bahit million)

1981 1982 1983

Operating Revenue

Lignite sales 496.1 643.3 722.3

Operating Expenses

Operations 66.2 58.2 55.1Overburden removal 299.1 385.5 416.4Preliminary development 0.6 0.8 1.2Reclamation 6.6 6.7 8.0Maintenance 41.2 60.8 35.3Administration 2.1 4.6 5.0Depreciation 11.7 13.6 19.4Interest on long term debt 20.0 19.7 20.3Realised loss on exchange - 0.1 0.3

Sub Total 447.5 550.0 561.0Inventory adjustment (2.9) 0.7 (5.5)

444.6 55(.7 555.5Apportionment of central

administration expenses 51.5 36.7 37.7

496.2 587.4 593.2

Write Off Exploration

Net Profit/('Loss) 55.9 115.4

Source! FGAT

Industry DepartmentMarch 1984

-56- ANNEX 7

Page 2 of 2

Lignite Mine Department

Historical Balance Sheet Statements, 1981-83(Baht million)

A. Working Capital 1981 1982 1983

Current Assets:Materials and supplies including lignite 112.6 135.8 160.6Accounts receivable 0.9 3.8 84.8

Sub-total 113.5 139.6 245.5

Less: Current Liabilities:Accounts payable and accured expenses 28.2 300.4 186.9Accrued interest on long term debts 29.5 45.1 50.9Repayments due before September 30, 1982

in respect of long term debts - 29.5 73.2Sub-total 57.7 375.0 310.9

Total Working Capital: 55.8 (235.4) (65.4)

B. Other Assets

Property, plant and Ecuiiment:In service 708.4 911.2 1,069.3Under construction 32.5 169.6 1,097.6

740.9 1,080.8 2,166.9

Net assets of the Reclamation Sinking Fund - 33.5 41.4

Deferred Assets: Development Expenditures 984.2 1,366.9 1,612.8

Total Other Assets 1,725.1 2,481.2 3,820.9

Total Net Assets 1,780.9 2,245.8 3,755.5

Financed by

Equity 740.9 551.0 1,422.1Deferred Foreign Exchange Adjust. 5.7 82.0 58.6Reclamation Sinking Fund - 33.5 41.4Long Term Debt 1,034.2 1,579.2 2,233.4

Total Financing 1,780.8 2,245.7 3,755.5

Source: EGAT

Industry fepartirentMarch 1984

-57-

ANNEX 8

THAILAND - MAE RH LIGNIlE PRaJECI II

Project Capital Cost Estimate(US$ millions)

FY82 EY83 FY84 FY85 FY86 FY87 Total TotalForeign Local !2eg local Foreign Local Foreign local Foreign Local Foreign Local Foreign Iocal F & L

1. dinrig Equiplnet:Min Equipmnt - - - - 3.32 0.02 4.47 0.27 24.43 0.01 15.16 6.21 47.38 6.51 53.89Imp. Taxes & Duties - - - - .11 - 0.93 - 0.05 - 14.34 - 15.43 15.43

- - - - 3.32 0.13 4.47 1.20 24.43 0.06 15.16 20.55 47.38 21.94 69.322nd Handling System 2.79 - 8.24 0.51 9.34 .24 - - - - - - 20.37 0.77 21.14Inp. Taxes & Duties - - - 3.90 - .68 - - - - - - - 4.58 4.58

2.79 - 8.24 4.41 9.34 .94 - - - - - - 20.37 5.35 25.72Equip. Existing Budget - - - 1.53 - - - - - - - - - 1.53 1.53

Total Equipmeit 2.79 - 8.24 2.04 12.66 0.26 4.47 0.27 24.43 0.01 15.16 6.21 67.75 8.79 76.54Imp. Taxes & Duties - - - 3.90 - 0.79 - 0.93 - 0.05 - 14.34 - 20.01 20.01

Total 2.79 - 8.24 5.94 12.66 1.05 4.47 1.20 24.43 0.06 15.16 20.55 67.75 28.80 96.552. Land - - - .09 - 1.41 - - - - - 1.50 1.50

3. Engineering & Training:Financial - - - - - - 0.05 - 0.05 - - - 0.10 - 0.10Technical - - 0.06 0.41 0.27 0.12 0.60 0.01 .50 .01 .33 .01 1.76 .56 2.32ADAB - - .42 - 2.10 - 1.26 - 0.30 - 0.12 - 4.20 - 4.20

- - 0.48 0.41 2.37 0.12 1.91 0.01 0.85 .01 .45 .01 6.06 .56 6.624. Civil Works - - - 2.61 - 2.8 - 1.56 - 1.04 - - - 8.02 8.025. River Diversion - - - - - - - - 4.40 - 4.40 4.406. Geological Drilling - - - - 1.85 1.82 .55 .52 - - - - 2.40 2.34 4.747. Working Capital - _ _ - - - - - - 0.53 1.17 .53 1.17 1.70

Base Cost ExcludingO/B Removal a/ 2.79 - 8.72 9.05 16.88 7.20 6.93 3.29 25.28 1.11 16.14 26.14 76.74 46.79 123.53

8. Advance Overburden (O/B)ReXmval a/ - - 5.23 5.24 7.31 7.30 13.78 13.77 5.80 5.80 - - 31.12 32.11 64.23Total Base Cost 2.79 - 13.95 14.29 24.19 14.50 20.71 17.06 31.08 6.91 16.14 26.14 108.86 78.90 187.76

9. Physical ContingencyItems 1-10 b/ - - 0.01 0.45 0.52 1.17 0.74 0.56 3.62 0.16 2.34 3.81 7.23 6.15 13.38

10. Price ContingencyItems 1-10 b/ - - - 0.03 u.36 0.48 1.07 0.52 7.64 0.24 6.30 7.70 15.37 8.97 24.34

11. Price Contingency O/BRenval - - .04 .05 .38 .38 1.64 1.64 1.08 1.08 - - 3.14 3.15 6.29fotal Project Cost 2.79 - 14.00 14.82 25.45 16.53 24.16 19.78 43.42 8.39 24.78 37.65 134.60 97.17 231.77

12. Interest D. Construction - - 0.89 - 1.23 - 3.19 - 4.83 - 7.76 - 17.90 - 17.9013. Front-end Fee on Bank Loan - - - - 0.15 - - - - - - - 0.15 - 0.15

Total Financing Required 2.79 - 14.89 14.82 26.83 16.53 27.35 19.78 48.25 8.39 32.54 37.65 152.65 97.17 249.82

a/ Excluding 2nd Handling System, equip-net in existing hidget and Australian assistance.b/ Million bcm; 7.7, 8.8, 14.2, 5.8,; total 36.5 million bam. TFe indirect foreign cost coniponert of overburden renxval is shown here under foreign

cost, though EGAT will pay the contractor in Baht.

Inidustry DepartmentMarch 1984

THAILAN - SEOt MAE MOE LIGNITE PRllJECr

Detailed Breakdown of Financin Plan

Financing Plan(US$ miillion)

EY82 FY83 FY84 FY85 FY86 FY87 Total TotalForeign Local Foreign Lc La Foreign LForeig oreiL I cagn Local Foreign Local Fbeig Local PF & L

Equity:GovernrnEt Tax Rebate - - - 4.17 - 5.65 - 4.61 - - - - - 14.43 14.43EGAT (For Plant & Equip.

aix IDC) 2.74 - 0.92 5.36 5.17 3.20 4.21 0.31 4.78 1.51 9.47 37.65 27.29 148.03 75.32EGAT Overtirden RemDval - - 5.27 5.29 7.69 7.68 15.42 14.86 6.88 6.88 - - 35.26 34.71 69.97Australian Grant (ADAB) - - 0.42 - 2.10 - 1.26 - 0.30 - 0.12 - 4.20 - 4.20

Total Equity 2.74 - 6.61 14.82 14.96 16.53 20.89 19.78 11.96 8.39 9.59 37.65 66.75 97.17 163.92

Loans:IBl IDIan _ - - - 3.40 - 6.46 - 32.80 - 16.44 - 59.10 - 59.10KfW (F.R. Germany) Loan 0.05 - 8.28 - 8.47 - - - - - - - 16.80 - 16.80Other 1oans - - - - - - 3.49 - 6.51 - 10.00 - 10.00 co

Total Borrowing 0.05 _ 8.28 - 11.87 _ 6.46 _ 36.29 - 22.95 _ 85.90 - 85.90

Total Financin 2.79 - 14.89 14.82 26.83 16.53 27.35 19.78 48.25 8.39 32.54 37.65 152.65 97.17 249.82

Irdustry DepartmetMarch 1984

-59-

ANNEX 10

THAILAND - SECOND MAE MOH LIGNITE PROJECT

Detailed Procurement Schedule for Bank Loan(UJS$ million)

2uantity ProcurementProcurement Packages:

1. Waste-Conveyor System1,200 mm Conveyor 2.3 km ICB2,000 mm Conveyor 3.8 km ICB2,500 ton/hour Crusher 2 ICBCrawler Transporter 1 ICBSpreader and Tripper Car ]L ICBPower Supply Equipment -- ICB/LITControl Equipment ICB/LIT

2. Coal Conveyor System:1,200 mm Conveyor 1.6 km ICB1,000 mm Conveyor 0.4 km ICB

3. Power Supply Equipment:115 kV Switchyard - ICB115 kV Overhead Lines 5.0 km ICB

4. Communications Equipment:VHF/FM Radio - LITPABX Telephone - LIT

5. Auxiliary Equipment No. 1(Incl. spare parts):

410 HP Crawler Tractor 2 ICB300 HP Crawler Tractor 4 ICB250 HP Grader 1 ICB200 HP Pipe Layer 1 ICB

6. Auxiliary Equipment No. 250 ton Crane 1 ICB

7. Auxiliary Equipment No. 3(Incl. spare parts):

40 ton Flatbed Trailer 1 LITService Tool Truck 4x4 1 LIT6 ton Truck with Crane 1 LIT10,000 LT, Hot Water Cleaner 1 LITFire Truck 1 LIT6 ton Flatbed Truck 1 LIT4 ton Flatbed Truck 4 LIT6 ton Flatbed Truck 4x4 2 LIT

Industry DepartmentMarch 1984

-60- ANNEX 11

THAILAND-SECOND MAE MOH LIGNITE PROJECT

Estimated Production Costs

Estimated EGAT Operating Costs at Full Production, FY87(US'/bmJ in January 1983 terms

LigniteWaste Removal Production Weighted Average

Labor 0.350 0.350 0.350Materials and Supplies 0.883 0.591 0.773Fuel and Lubricants 0.552 0.364 0.482Royalties a! - 0.368 0.137Power Supply 0.048 0.132 0.080Geological Works and Others 0.031 0.031 0.031Reclamation b/ _ 0.240 0.090

1.864 2.076 1.943

Million bm3 removed 6.26 3.74 10.00

a/ Royalties were calculated at Baht 6.52 per tonne of lignite.b/ Reclamation expenses were calculated at Baht 4.25 per tonne of lignite.

Estimated Contractor Cost a/At Full Production, FY87

(US$/bm3 January 1983 terms)

Waste Removal

Labor 0.34Materials and Supplies 0.88Fuel and Lubricants 0.53Power and Supply 0.05Profit and Taxes 0.20

2.00

Million bm3 Removed 15.00

a/ Contractor cost includes depreciation, financial charges and profit andtaxes. Combined profit and taxes is estimated at 10% of total cost.

Industry flepartmentMarch 1984

-61-Annex 12Page 1 of 5

THAILAND-SECOND MAE MOH LIGNITE PROJECT

EGAT's Financial Projections

Assumptions

Assumptions underlying the EGAT financial projections concerningfuel consumption and costs, operating and maintenance costs, anddepreciation rates, are outlined below. Other main assumptions such asrevenues, tariffs and capital investments are outlined in the main report.The projects assume foreign inflation of 6.5% in 1983, 9.0% in 1984, 7.5%in 1985 and 6.0% thereafter, and -domestic inflation of 3.5% in 1983,6.5% in 1984 and 6.0% thereafter.

EGAT Fuel Consumption Estimates, 1983-92

Natural GasHeavy Oil Diesel PTT Lan Krabu Nam Pong Lignite

Year (ml) (ml) (mcf/d) (mcf/d) (mcf/d) (mt)

1984 1,965 169 129.1 12.9 - 2.01985 1,000 31 214.1 12.9 12 3.31986 541 1 265.1 12.9 12 4.71987 1,406 1 206.1 12.9 12 5.11988 461 1 340.1 12.9 12 5.41989 1,164 1 295.1 12.9 12 6.71990 461 1 351.1 12.9 12 9.41992 449 1 356.1 12.9 12 10.7

The unit fuel costs in January 1983 terms assumed inthe projections are shown below. The fuel cost have been escalated at theassumed rates of 2% p.a. for the period 1983-85, 3% p.a. for 1985-90 and 2%thereafter based on Bank projected oil prices.1 /

EGAT Unit Fuel Cost Estimates

Unit Costs, 1983Fuel Baht US$

Heavy oil, per litre 4.08 0.18Diesel, per litre 6.86 0.30Natural gas, per million BTU:PTT 85.62 3.71Lan Krabu 29.00 1.26Lam Pong 64.22 2.79

Lignite, per tonne 443.00 19.22

l/ Oil prices ia 1981 termat1983 - $30.8/barrel 1990 = $37.0/barrel1985 = $32.0/barrel 1995 = $41.0/barrel

-62- Annex 12

Page 2 of 5

Operating and maintenance costs are based on EGAT experience andestimated as a percentage of the capital cost of the different types ofoperations, as follows:

EGAT Operating and Maintenance Costs

Fixed Assets %

Dam and civil works 1.0Electro-mechanical equipment 2.0Transmission line 1.0Substation 2.0Coal-fired thermal unit 3.0Lignite-fired thermal unit 3.0Oil/gas-fired thermal unit 2.5

Depreciation has been calculated under the standard straight-linemethod at rates approved by the Ministry of Finance and shown below:

EGAT Depreciation Rates

Fixed Assets

Dams 1.2-1.3Power stations and structures 4.0Transmission lines 2.5-4.0Other plant and equipment 5.0-25.0Average a/ 4.4

a/ Reflects the average life of assets of 23 years.

Source: EGAT

Industry DepartmentMarch 1984

-63- ANNEX 12

Page 3 of 5

EGAT FINANCIAL FORECAST 1984-92

INCOME STATEMENT 1984-92(Baht million)

1984 1985 1986 1987 1988 1989 1990 1991 1992

Energy Sales 18,832 20,744 22,681 24,577 26,452 28,253 30,119 32,050 34,042

Average Price B/KwH 1.45 1.45 1.45 1.56 1.64 1.75 1.80 1.91 2.04

Energy Revenue 27,310 30,080 32,880 38,340 43,380 49,440 54,210 61,210 69,440

Other Revenue 20 20 20 20 20 20 20 20 20

Total Revenue 27,330 30,100 32,900 38,360 43,400 49,460 54,230 61,230 69,460

Operating Expenses

Fuel 14,910 14,350 14,950 17,600 19,505 22,150 23,760 26,080 29,270

Operations 4,390 5,080 5,68n 6,260 7,000 7,770 8,730 10,120 11,520

Depreciation 3,080 3,900 4,680 5,320 6,020 6,690 7,440 8,930 10,340

Total Expenses 22,380 23,330 25,310 29,180 32,525 36,610 39,930 45,130 51,130

Operating Income 4,950 6,770 7,590 9,180 10,875 12,850 14,300 16,100 18,330

Interest 2,450 3,520 4,490 5,470 6,140 6,530 7,730 8,930 9,960

Income Tax 130 160 160 190 240 320 330 360 420

Net Income After Tax 2,370 3,090 2,940 3,520 4,495 6,000 6,240 6_810 7,950

Rate Base 58,280 73,150 88,400 101,600 115,110 128,560 141,400 163,130 188,120

Rate of Return, % 8.3 9.0 8.4 8.8 9.2 9.7 9.8 9.6 9.5

Source: EGAT Planning Department and Bank Mission Estimates,

Industry DepartmentMarch 1984

ECAT FINANCIAI FORECAST 1984-92

FUMDS FLOW STATEMENT(Bahit million)

1984 1985 1986 1987 1988 1989 1990 1991 1992

Internal Sources of Funds

Net Income After Tax 2,370 3,090 2,940 3,520 4,495 6,000 6,240 6,810 7,950Depreciation 3,080 3,900 4,680 5,320 6,020 6,690 _7.440 8,930 10,340Total Internal Funds 5,450 6,990 7,620 8,840 10,515 12,690 13,680 15,740 18,290

Operational Reqtuirements

Increase/Decrease Work Capital 163 -181 119 207 -151 15 -408 -666 1,718Debt Repayment 2,920 4,820 5,492 6,340 6,960 6,483 7,781 9,692 10,652Total Operational Requirements 3,083 4,639 5,611 6,547 6,809 6,498 7,373 9,026 12,370

Internal Funds Available for Investment 2,367 2,351 2,009 2,293 3,706 6,192 6,307 6,714 5,920

Capital Investment

Total Construction 11,740 12,290 11,544 13,605 16,314 19,405 21,721 23,349 21,688Interest During Construction 1,483 1,743 2,212 1 831 2,484 2,899 3,984 3,266 2,933Total Capital Investment 13,223 14,033 13,756 15,436 18,798 22,304 25,705 26,615 24,621Balance to be Financed 10,856 11,681 11,747 13,143 15,092 16,112 19,398 19,901 18,701

Financed by

Borrowing 10,240 10,680 10,990 14,850 15,100 16,400 19,500 20.000 19,000Equity 550 280 340 60 0 0 0 0 0Short Term Borrowing 0 760 790 -1,500 -50 0 0 0 0Total Capital Sources 10,790 11,720 12,120 13,410 15,050 16,400 19,500 20,000 19,000Cash, Increase/Decrease -66 38 373 267 -42 288 102 99 299

Cash

At Beginning of Year 418 352 390 763 1,030 988 1,276 1,378 1,477By Year End 352 390 763 1,030 988 1,276 1,378 1,477 1,776

Debt Service Coverage 1.5 1.3 1.2 1.2 1.3 1.4 1.4 1.3 1.4 41

Source: EGAT Planning Department and Bank mfission Estimates,

Industry DepartmentMarch 1984

EGAT FINANCIAL FORECAST 1984-92

BALANCE SEHET(Baht million)

1984 1985 1986 1987 1988 1989 1990 1991 1992

ASSETS

Fixed AssetsPlant in Service 94,216 114,416 137,306 155,319 181,029 201,311 228,340 269,961 307,909

Less: Depreciation 28,225 34,102 40,830 48,597 57,536 67,675 79,176 92,859 108,769

Operating Plant 65,991 80,314 96,476 106,722 123,493 133,636 149,164 177,102 199,140

Work in Progress 27,402 27,830 25,560 31,221 33.635 46,515 57,270 55,967 58,836

Current AssetsCash 352 390 763 1,030 988 1,276 1,378 1,477 1,776

Inventories 1,618 1,549 1,653 1,974 2,200 2,548 2,752 1,996 3,351

Receivables 4'9 4,R2 54 6,322 7J11~ __ 8,4 8, 10A44 11,418

Total Current Assets 6,460 6,761 7,837 9,326 10,298 11,918 13,012 13,517 16,545

Other Assets 429 429 429 429 429 429 429 429 429

Total Assets 100,282 115,334 130,302 147,698 167,855 192,498 219,875 247,015 274,950

EQUITY & LIABILITIES

EquityPaid in Capital 10,051 10,331 10,671 10,731 10,731 10,731 10,731 10,731 10,731

Retained Earnings 11,579 14,669 17,609 21,126 25,624 31,624 37,864 44,674 52,624 l

Revaluation Reserve 23,884 28,504 33,320 39,111 45,515 52,924 60,942 69,892 80,518

Total Equity 45,514 53,504 61,600 70,968 81,870 95,279 109,537 125,297 143,873

Long Term Debt 49,117 54,977 60,475 68,985 77,125 87,042 98,761 109,069 117,417

Current LiabilitiesPayables 5,651 6,093 6,677 7,695 8,860 10,177 11,577 12,649 13,660

Bank Overdraft 0 760 1,550 50 0 0 0 0 0

Total Current Liabilities 5,651 6,853 8,227 7,745 8,860 10,177 11,577 12,649 13,660

Total Equity & Liabilities 100,282 115,334 130,302 147,698 167,855 192,498 219,875 247,015 274,950

Debt:Equity Ratio 52:48 51:49 50:50 49:51 49:51 48:52 47:53 47:53 45:55

Current Ratio 1.2 1.0 1.0 1.2 1.2 1.2 1.1 1.1 1.2

Source: ECAT Planning Department and Bank mission estimates.

Industry Department -|

March 1984

Lin

-66- ANNEX 13

Page 1 of 7

THAILAND - Second Mae Moh Lignite Project

Financial Projections of the Lignite Mine Department

Assumptions

Assumptions underlying the Mine Department financial projectionsconcerning operating costs, depreciation schedule, projected interestcharges, royalties, taxes, an working captial requirements are outlinedbelow. Other main assumptions such as lignite production, lignite pricingand detailed mine operating costs are outlined in the main report.

At full production build-up at Mae Moh in 1987, the estimatedaverage production costs for Mae Moh and Krabi mines is US$17.72 per tonneas detailed below. Lignite production is estimated at 5.1 million tonnesin 1987, of which 4.9 million tonnes would be from Mae Moh and 0.2 milliontonnes would be from Krabi.

EGAT Mine Department

Estimated Total Production Cost, FY87(US$ per tonne)

---- Current Terms-- --- January 1983 Terms-Mae Mae Moh Mae Mae MohMoh Krabi & Krabi Moh Krabi & Krabi %

Operating Cost 12.55 17.82 12.76 9.98 14.98 10.15 57.3Depreciation andAmortization IDC 6.11 1.82 5.93 4.86 1.45 4.70 26.5

Amortization Pre-stripping 0.80 - 0.78 0.64 - 0.62 3.5

Administrative Expenses 0.41 0.55 0.41 0.33 0.44 0.33 1.9Exploration 0.45 2.27 0.53 0.36 1.80 0.42 2.4Reclamation 0.18 0.18 0.18 0.14 0.14 0.14 0.8Financial Charges 1.54 1.46 1.53 1.23 0.16 1.22 6.9Income Tax 0.16 - 0.16 0.12 - 0.12 0.7

Estimated ProductionCost 22.20 24.10 22.28 17.66 19.17 17.72 100.00

-67-ANNEX 13Page 2 of 7

EGAT uses the straight-line method of depreciation which has beencalculated under the following assumptions approved by the Ministry ofFinance:

EGAT Mine Department

Depreciation and Amortization Periods

Equipment Years Equipment Years

Trucks 6 Workshop equipment 13Crushers 25 Power supply equipment 25Conveyor belt systems 25 Civil works and geological drilling 25Spreader and tripper cars 25 Engineering and training 10Heavy duty equipment 10 Interest during construction 7Light vehicles 5

The depreciation calculated for Mae Moh II mine expansion (Units5-7), Mae Moh I installations (Units 1-4), and Krabi mine fixed assets isshown below:

EGAT Mine Department

Depreciation Schedule(US$ million)

FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92

Mae Moh II 0.3 1.4 1.6 12.4 12.7 12.8 12.7 12.8 12.5Mae Moh I 5.1 10.2 10.5 11.5 11.5 11.5 11.5 10.2 8.1Krabi 0.3 0.3 0.3 0.3 0.1 - - - -

Total 5.7 11.9 12.4 24.2 24.3 24.3 24.3 23.0 20.6

EGAT's fixed assets and depreciation are revalued on an annual basis inaccordance with tariff covenants (under Loan 1852-TH) with the Bank. TheMine Department is assumed to follow the same procedure.

The interest chre forecasts for the Mine Department are shownbelow. These include interest on the proposed IBRD, KfW and commercialloans for the Project. The proposed Bank loan is for US$59.1 million atthe standard interest rate and front-end fee with a grace period of 5 yearsand maturity of 15 years. The KfW loan is for DM 47.0 million (US$19.2million) at 9.5% interest and 0.25% commitment fee with a grace period of 2years and maturity of 10.5 years. Part of the KfW loan will be used forMae Moh II (US$16.8 million equivalent). The commercial loan, to beobtained by EGAT in the future, is assumed to total US$10.0 million and tohave terms similar to the IBRD loan.

-68-ANNEX 13Page 3 of 7

EGAT Mine Department

Projected Interest Charges(US$ million)

FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92

Mae Moh II 1.23 3.19 4.83 7.76 8.80 8.51 7.97 7.30 6.61Mae Moh I 8.62 9.26 8.41 7.36 6.30 5.27 4.46 4.01 3.49Krabi Mine 0.64 0.56 0.43 0.31 0.18 0.62 - - -Mine Department 0.25 0.23 0.19 0.14 0.09 0.03 - - -

Total 10.74 13.24 23.86 15.57 15.37 14.43 12.43 11.31 10.10

Of which:Charged to IDC 5.54 3.19 4.83 7.76 8.80 8.51 7.97 7.30 6.61Charged to Operations 5.20 10.05 9.03 7.81 6.57 5.92 4.46 4.01 3.49Total 10.74 13.24 13.86 15.57 15.37 14.43 12.43 11.31 10.10

Royalties are paid to the Government at the rate of Baht 6.52 pertonne (US$0.823) of lignite, and have been included in the forecasts.Import duties and taxes on equipment have been calculated in accordancewith currently applied rates which average about 30% of the cost of miningequipment to be procured under the Mae Moh II Project. Taxes on importedmining equipment associated with the mine expansion for Power Unit 5 arecharged, but assumed to be rebated by the Government in accordance with thepreference granted projects approved under the Fifth Five Year NationalPlan.

The following assumptions were used in calculating requirementsunder the Project:

EGAT Mine Department

Working Capital

Category AssumptionsCash and Banks 15 days of EGAT and Contractor expendituresAccounts Receivable 15 days of total revenuesInventories - Fuel 60 days of fuel consumptions

- Materials 4 months of EGAT operating cost- Lignite 15 days of lignite production

Accounts payable 30 days of EGAT's expenditure

Industry DepartmentMarch 1984

-69-

ANNEX 13Page 4 of 7

Financial Projections, Mine Operations

EGAT Mine DepartmentIncome Statement(US$ million)

1984 1985 1986 1987 1988 1989 1990 1991 1992

Mae Moh, mt (mill) 1.64 3.03 4.43 4.86 4.87 4.91 4.93 4.97 5.01Krabi, mt (mill) .33 .22 .22 .22 .22 .22 .22 - -Total Production 1.97 3.25 4.65 4.08 5.09 5.13 5.15 4.97 5.01

US$ per mt 20.4 22.2 23.7 25.4 27.2 29.2 31.2 33.4 35.7Total Revenues 40.2 72.0 110.3 129.0 138.4 149.2 160.4 166.0 179.1

Mae Moh O/B Contract - 11.8 30.9 36.9 38.7 41.1 43.5 65.6 69.8Mae Moh Expenses O/B 5.7 2.3 6.6 15.4 16.1 17.0 18.0 3.0 3.4Mae Moh Expenses Lignite 2.1 4.9 8.1 8.7 8.9 9.5 10.2 10.9 11.6Krabi Expenses 4.9 3.4 3.6 3.9 4.1 4.3 4.6 - -Total Operating Expenses 12.7 22.4 49.2 64.9 67.8 71.9 76.3 79.5 84.8

Gross Profit 27.5 49.6 61.0 64.2 70.5 77.3 84.1 86.5 94.2

Revalued Depreciation 6.6 14.2 15.3 30.1 30.9 32.3 33.5 33.0 30.7Amortization, Advance O/B 1.2 2.8 3.1 3.9 4.4 5.2 5.8 4.0 4.3Administrative Expenses 1.5 1.7 1.9 2.1 2.2 2.3 2.5 2.6 2.8Exploration 2.2 2.4 2.5 2.7 2.9 3.0 3.2 3.4 3.6Interest 5.2 10.1 9.0 7.8 6.6 5.9 4.5 4.0 3.5Reclamation .4 .6 .9 .9 .9 .9 .9 .9 .9

Income before Taxes 10.4 17.8 28.3 16.7 22.6 27.7 33.7 38.5 48.4Income Tax .5 .9 1.4 .8 1.1 1.4 1.7 1.9 2.4

Income after Tax 9.9 16.9 26.9 15.9 21.5 26.3 32.0 36.6 46.0

Income after Tax/Revenue 24.5 23.4 24.3 12.3 15.5 17.5 20.0 22.1 25.7Return on Assets 12.4 17.7 20.6 11,0 11.7 13.2 14.8 15.8 18.8

O/B M-BCM, Contractor - 5.4 13.0 15.0 15.0 15.0 15.0 21.1 21.2O/B M-BCM, Amortization .7 1.3 1.3 1.6 1.7 1.9 2.0 1.3 1.3O/B M-BCM, EGAT 3.2 1.1 2.8 6.3 6.3 6.2 6.2 1.0 1.0Total O/B Mae Moh 3.9 7.8 17.1 22.9 23.0 23.1 23.2 23.4 23.5

Ratio O/B:TM Lignite 2.4 2.6 3.9 4.7 4.7 4.7 4.7 4.7 4.7

Price $/ton, Jan. 83 terms 19.4 19.8 20.0 20.2 20.4 20.6 20.8 21.0 21.3Cost $/ton, Jan. 83 terms 14.7 15.2 15.2 17.7 17.3 17.0 16.7 16.4 15.8

Contract $/BCM, Jan. 83 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00EGAT $/BCM, Jan. 83 1.60 1.86 2.01 1.85 1.79 1.79 1.79 1.79 1.79Weighted s/BCM, Jan. 83 1.67 1.95 2.00 1.96 1.94 1.94 1.94 1.96 1.96

Note: Revalued Assets and Depreciation discrepancies due to rounding.M-BCM million bank cubic meters.

Industry DepartmentMarch 1984

-70-

ANNEX 13Page 5 of 7

EGAT Mine Department

Change in Working Capital(US$ million)

1984 1985 1986 1987 1988 1989 1990 1991 1992Current Assets

Cash and Banks 1.0 2.1 2.4 2.5 2.6 2.8 2.9 4.4 4.7Accounts Receivable 1.6 3.0 4.5 5.3 5.7 6.1 6.6 6.8 7.3Inventory, Lignite .8 1.5 2.5 2.8 2.9 3.1 3.3 3.4 3.7Inventory, Fuel .7 .7 .7 .7 .8 .8 .9 .9 1.0Inventory, Materials 2.3 2.5 3.0 2.9 3.0 3.2 3.4 3.6 3.8Total Current Assets 6.4 9.8 13.1 14.2 15.0 16.0 17.1 19.1 20.5

Current Liabilities

Accounts Payable 1.8 3.1 5.3 6.5 6.7 7.0 7.3 7.6 8.1

Change in Working Capital

Working Capital 4.6 6.7 7.8 7.7 8.3 9.0 9.7 11.5 12.4Change in Working Capital .9 2.1 1.1 ( .1) .6 .7 .8 1.8 .8

Industry DepartmentMarch 1984

-7 1-

ANNEX 13Page 6 of 7

EGAT Mine Department

Flow of Funds(US$ million)

1984 1985 1986 1987 1988 1989 1990 1991 1992

SOURCESIncome after Tax 9.9 16.9 26.9 15.9 21.5 26.3 32.0 36.6 46.0Revalued Depreciation 6.6 14.2 15.3 30.1 30.9 32.3 33.5 33.0 30.7Amortization Advance O/B 1.2 2.8 3.1 3.9 4.4 5.2 5.8 4.0 4.3Internal Cash Generation 17.7 33.9 45.3 49.9 56.8 63.8 71.3 73.6 81.0

Government Tax Rebate 5.7 4.6 - - - - - - -EGAT Equity Plant, EQP 8.4 4.0 6.3 46.2 - - - - -

EGAT EQ. First Mae Moh 7.2 8.6 - - - - - - -

Australia, ADAB Grant 2.1 1.3 .3 .1 Equity Increase 23.4 18.5 6.6 46.3 - - - - -

IBRD Loan 3.4 6.5 32.8 16.4 - - - - -

Germany, KfW Loans, I, II 9.8 - - - - - - - -

Other Loans - - 3.5 7.5 - - - - -

First Mae Moh Loan 14.6 - - - - - - - -

Total Borrowing 27.8 6.5 36.3 23.9 _ _ _ _ _

Total Sources 68.9 58.9 88.2 120.0 56.8 63.8 71.3 73.6 81.0

APPLICATIONSPlant and Equipment 26.6 13.1 38.1 62.4 10.6 7.2 20.1 18.3 10.7Interest During Construction

and Front End Fee 5.5 3.1 4.8 7.8 8.8 8.5 8.0 7.3 6.6Expenditures First Mae Moh 16.8 _ _ - _ - - _ -

Total Capital Expenditures 48.9 16.2 42.9 70.2 19.4 15.7 28.1 25.6 17.3

Advance O/B Expenditures 15.4 31.0 13.8 - - - - 28.3 29.3

Repayment First Mae Moh (1-4) 3.2 6.5 12.3 12.3 12.4 10.5 5.8 5.9 5.9Repayment Second Mae Moh (5-7) - .9 1.0 1.9 1.9 4.2 6.7 6.7 6.7

Total Repayment 3.2 7.4 13.3 14.2 14.3 14.7 12.5 12.6 12.6

Change in Working Capital .9 2.1 1.1 ( .1) .6 .7 .8 1.8 .8

Total Applications 68.4 56.7 71.1 84.3 34.3 31.1 41.4 68.3 60.0

Cash, Surplus/(Deficit) .5 2.2 17.1 35.7 22.5 32.7 29.9 5.3 21.0Accum. Surplus/(Deficit) 1.0 3.2 20.3 56.0 78.5 111.2 141.1 146.24 167.4

Debt Service Coverage 2.7 2.5 2.4 2.6 3.0 3.4 4.5 4.7 5.2

Industry DepartmentMarch 1984

-72-

ANNEX 13Page 7 of 7

EGAT Mine Department

Balance Sheet(US$ million)

1984 1985 1986 1987 1988 1989 1990 1991 1992ASSETSCash and Banks 1.0 2.1 2.4 2.5 2.6 2.8 2.9 4.4 4.7Accounts Receivable 1.6 3.0 4.5 5.3 5.7 6.1 6.6 6.8 7.3Inventories 3.8 4.7 6.2 6.4 6.7 7.1 7.b 7.9 8.5Total Current Assets 6.4 9.8 13.1 14.2 15.0 16.0 17.1 19.1 20.5

Accum. Surplus/(Deficit) 1.0 3.2 20.3 56.0 78.5 111.2 141.1 146.4 167.4

Revalued Plant and Equipment 197.6 227.7 284.7 372.0 413.7 454.2 509.5 565.7 617.0Accumulated Depreciation 43.9 61.2 80.3 115.3 153.1 194.6 239.7 287.1 335.0Net Fixed Assets 153.7 166.5 204.4 256.7 260.6 259.6 269.8 278.6 282.0

Advanced Overburden 83.0 111.1 121.8 117.8 113.5 108.3 102.5 126.7 151.7Assets of Reclamation Fund 2.9 3.5 4.4 5.3 6.3 7.2 8.2 9.1 10.0

Total Assets 247.0 294.1 364.0 450.0 473.9 502.3 538.7 579.9 631.6= o = , _

LIABILITIES AND EQUITYAccounts Payable 1.8 3.1 5.3 6.5 6.7 7.0 7.3 7.6 8.1Current Maturities 7.4 13.3 14.2 14.3 14.7 12.5 12.6 12.6 12.6Current Liabilities 9.2 16.4 19.5 20.8 21.4 19.5 19.9 20.2 20.7

Long Term Debt Second Mae Moh (5-7) 24.3 30.1 64.8 86.9 82.7 76.0 69.3 62.6 55.9Long Term Debt First Mae Moh (1-4) 96.3 83.6 71.0 58.5 48.0 42.2 .36.3 30.4 24.5Long Term Debt (Net) 120.6 113.7 135.8 145.4 130.7 118.2 105.6 93.0 80.4

Reclamation Fund 2.9 3.5 4.4 5.3 6.2 7.1 8.0 8.9 9.8

Total Liabilities 132.7 133.6 159.7 171.5 158.3 144.8 133.5 122.1 110.9

Equity 77.5 96.0 102.5 148.9 148.9 148.9 148.9 148.9 148.9Operational Surplus 22.9 39.8 66.7 82.6 104.1 130.4 162.4 199.0 245.0Revaluation Surplus 13.9 24.7 35.1 47.0 62.6 78.2 93.9 109.9 126.8Total Equity 114.3 160.5 204.3 278.5 315.6 357.5 405.2 457.8 520.7

Equity and Liabilities 247.0 294.1 364.0 450.0 473.9 502.3 538.7 579.9 631.6

Current Ratio .7 .6 .7 .7 .7 .8 .9 .9 1.0Debt/Equity Ratio 51:49 42:58 40:60 34:66 29:71 25:75 21:79 17:83 13:87

Industry DepartmentMarch 1984

-73-

ANNEX 14Page 1 of 2

THAILAND-SECOND MAE MOE LIGNITE PROJECT

Incremental Financial Rate of ReturnMae Moh Mine Expansion - Case 1

Cash Flow Streams(US$ million, January 1983 terms)

Oper. Oper.Sales Transfer Sales Capital Cost Cost Tax Net Cash

Period Tonnage Price Revenues Costs EGAT Contract Rebate Flow(tons) (US$/ton)

1980 -1981 - -1982 - - - 2.8 - - - (2.8)1983 - 19.0 - 18.2 .2 - 4.1 (14.3)1984 - 19.4 - 25.7 4.1 2.3 5.4 (26.7)1985 .9 19.8 17.2 11.5 9.7 17.6 4.1 (17.4)1986 2.3 19.8 45.0 30.2 14.6 20.0 - (19.8)1987 2.7 19.8 53.6 48.4 12.8 20.0 - (27.6)1988 2.7 19.8 54.3 3.8 12.8 20.1 - 17.61989 2.7 19.8 55.2 2.3 12.2 20.2 - 20.51990 2.7 19.8 56.0 6.3 12.4 20.4 - 16.91991 2.7 19.8 56.4 5.4 12.6 40.7 - (2.3)1992 2.7 19.8 57.0 2.9 13.0 40.7 - .41993 2.8 19.8 57.6 7.6 12.6 40.7 - (3.3)1994 2.8 19.8 59.1 3.4 12.6 40.7 - 2.41995 2.9 19.8 60.1 1.2 13.1 40.7 - 5.21996 3.0 19.8 61.6 1.4 13.1 40.7 - 6.51997 3.0 19.8 61.4 3.4 13.3 19.5 - 25.21998 3.0 19.8 63.3 7.0 13.4 19.5 - 23.41999 3.1 19.8 64.1 8.1 13.6 19.5 - 22.92000 3.0 19.8 62.4 5.0 13.6 19.5 - 24.32001 2.9 19.8 60.8 7.1 13.6 19.5 - 20.62002 2.9 19.8 60.8 4.8 13.6 19.5 - 22.92003 2.9 19.8 60.8 2.1 13.6 19.5 - 25.62004 2.9 19.8 60.4 2.8 13.6 19.5 - 24.52005 2.8 19.8 59.3 7.3 13.6 19.5 - 19.02006 2.8 19.8 59.3 3.5 13.6 19.5 - 22.82007 2.8 19.8 59.3 - 13.6 19.5 - 26.32008 2.8 19.8 58.3 - 13.6 19.5 - 25.22009 2.8 19.8 58.3 (3.0) 13.6 19.5 - 28.2

Financial Rate of Return = 9.2%

Industry DepartmentMarch 1984

-74- ANNEX 14Page 2 of 2

Incremental Financial Rate of ReturnMae Moh Mine Expansion and Power Units (5-7) - Case 2

CASH FLOW STREAMS(US$ million, January 1983 terms)

Capital Capital Oper. Oper. NetPower Power Sales Cost Cost Cost Cost Tax Cash

Period Sales Tariff Revenues Mine Power Mine Power Rebates Flow(GWh) (cents/kWh)

1980 - - - - .8 - - - (.8)1981 - - - - 15.7 - - .9 (14.8)1982 - - - 2.8 71.0 - - 4.1 (69.7)1983 - 6.1 - 18.2 165.1 .2 - 9.5 (174.0)1984 - 6.0 - 25.7 132.2 6.4 - 5.8 (158.6)1985 814.2 5.7 46.4 11.5 74.2 27.3 3.8 4.1 (65.5)1986 2,313.8 5.3 122.6 30.2 30.7 34.6 11.1 - 16.01987 2,718.6 5.3 144.1 48.4 - 32.7 12.9 - 50.01988 2,718.6 5.3 144.1 3.8 - 32.9 12.9 - 94.51989 2,718.6 5.3 144.1 2.3 - 32.4 12.9 - 96.41990 2,718.6 5.3 144.1 6.3 - 32.8 12.9 - 92.11991 2,718.6 5.3 144.1 5.4 - 53.3 12.9 - 72.51992 2,718.6 5.3 144.1 2.9 - 53.7 12.9 - 74.61993 2,718.6 5.3 144.1 7.6 - 53.3 12.9 - 70.21994 2,718.6 5.3 144.1 3.4 - 53.3 12.9 - 74.51995 2,718.6 5.3 144.1 1.2 - 53.7 12.9 - 76.21996 2,718.6 5.3 144.1 1.4 - 53.8 12.9 - 76.01997 2,718.6 5.3 144.1 3.4 - 32.8 12.9 - 94.91998 2,718.6 5.3 144.1 7.0 - 32.8 12.9 - 91.31999 2,718.6 5.3 144.1 8.1 - 33.1 12.9 - 89.92000 2,718.6 5.3 144.1 5.0 - 33.1 12.9 - 93.12001 2,718.6 5.3 144.1 7.1 - 33.1 12.9 - 91.02002 2,718.6 5.3 144.1 4.8 - 33.1 12.9 93.32003 2,718.6 5.3 144.1 2.1 - 33.1 12.9 96.02004 2,718.6 5.3 144.1 2.8 - 33.1 12.9 95.32005 2,718.6 5.3 144.1 7.3 - 33.0 12.9 90.82006 2,718.6 5.3 144.1 3.5 - 33.0 12.9 94.62007 2,718.6 5.3 144.1 - - 33.0 12.9 - 98.12008 2,718.6 5.3 144.1 - - 33.0 12.9 - 98.12009 2,718.6 5.3 144.1 (3.0) (44.7) 33.0 12.9 -- 145.8

Financial Rate of Return = 12.0%

Industry DepartmentMarch 1984

ANNEX 15Page 1 of 2

THAILAND-SECOND MAE MOE LIGNITE PROJECT

Incremental Financial Rate of ReturnMae Moh Mine Expansion - Case 1

Cash Flow Streams(US$ million, January 1983 terms)

Oper. Oper.Sales Transfer Sales Capital Cost Cost Net Cash

Period Tonnage Price Revenues Costs EGAT Contract Flow(t) (US$it)

1980 -1981 - -1982 - - - 2.8 - - (2.8)1983 - 19O0 14.3 .2 - (14.5)1984 - 19.4 - 24.9 3.3 1.9 (30.1)1985 .9 19.8 17.2 10.4 7.8 14.0 (15.0)1986 2.3 19.8 45.0 30.1 11.6 16.0 (12.7)1987 2.7 19,8 53.6 32.0 10.1 16.0 (4.5)1988 2.7 19.8 54.3 3.0 10.1 16.1 25.11989 2.7 19.8 55.2 2.2 9.7 16.2 27.21990 2.7 19.8 56.0 6.0 9.9 16.3 23.81991 2.7 19.8 56.4 3.9 10.0 32.5 9.91992 2.7 19.8 57.0 2.5 10.3 32.5 11.71993 2.8 19.8 57.6 4.9 10.0 32.5 10.21994 2.8 19.8 59.1 2.7 10.0 32.5 13.91995 2.9 19.8 60.1 .9 10.4 32.5 16.31996 3.0 19.8 61.6 1.2 10.4 32.5 17.51997 3.0 19.8 61.4 3.2 10.6 15.6 32.01998 3.0 19.8 63.3 5.7 10.6 15.6 31.41999 3.1 19.8 64.1 5.3 10.8 15.6 32.42000 3.0 19.8 62.4 3.7 10.8 15.6 32.42001 2.9 19.8 60.8 6.3 10.8 15.6 28.12002 2.9 19.8 60.8 3.6 10.8 15.6 30.82003 2.9 19.8 60.8 2.0 10.8 15.6 32.42004 2.9 19.8 60.4 2.2 10.8 15.6 31.82005 2.8 19.8 59.3 4.6 10.8 15.6 28.42006 2.8 19.8 59.3 2.7 10.8 15.6 30.32007 2.8 19.8 59.3 - 10.8 15.6 33.02008 2.8 19.8 58.3 - 10.8 15.6 31.92009 2.8 19.8 58.3 (3.0) 10.8 15.6 34.9

Economic Rate of Return = 17.2%

Industry DepartmentMarch 1984

-76- ANNEX 15Page 2 of 2

Incremental Financial Rate of ReturnMae Moh Mine Expansion and Power Units (5-7) - Case 2

Cash Flow Streams(US$ million, January 1983 terms)

Capital Capital Oper. Oper. NetPower Power Sales Cost Cost Cost Cost Cash

Period Sales Tariff Revenues Mine Power Mine Power Flow(GWh) (cents/kWh)

1980 - - - - .8 - - (.8)1981 - - - - 13.6 - - (13.6)1982 - - - 2.8 64.6 - - (67.4)1983 - 6.1 - 14.3 146.7 .2 - (161.2)1984 - 6.0 - 24.9 121.6 5.2 - (151.7)1985 814.2 5.7 46.4 10.4 69.8 21.8 3.4 (59.0)1986 2,313.8 5.3 122.6 30.1 28.9 27.6 10.1 25.91987 2,718.6 5.3 144.1 32.0 - 26.1 11.7 74.31988 2,718.6 5.3 144.1 3.0 - 26.2 11,7 103.21989 2,718.6 5.3 144.1 2.2 - 25.8 11.7 104.31990 2,718.6 5.3 144.1 6.0 - 26.2 11.7 100.21991 2,718.6 5.3 144.1 3.9 - 42.6 11.7 85.91992 2,718.6 5.3 144.1 2.5 - 42.9 11.7 87.01993 2,718.6 5.3 144.1 4.9 - 42.6 11.7 84.91994 2,718.6 5.3 144.1 2.7 - 42.5 11.7 87.21995 2,718.6 5.3 144.1 .9 - 42.9 11.7 88.61996 2,718.6 5.3 144.1 1.2 - 42.9 11.7 88.31997 2,718.6 5.3 144.1 3.2 - 26.2 11.7 103.01998 2,718.6 5.3 144.1 5.7 - 26.2 11.7 100.51999 2,718.6 5.3 144.1 5.3 - 26.4 11.7 100.72000 2,718.6 5.3 144.1 3.7 - 26.4 11.7 102.32001 2,718.6 5.3 144.1 6.3 - 26.4 11.7 99.72002 2,718.6 5.3 144.1 3.6 - 26.4 11.7 102.42003 2,718.6 5.3 144.1 2.0 - 26.4 11.7 104.02004 2,718.6 5.3 144.1 2.2 - 26.4 11.7 103.82005 2,718.6 5.3 144.1 4.6 - 26.4 11.7 101.42006 2,718.6 5.3 144.1 2.7 - 26.4 11.7 103.32007 2,718.6 5.3 144.1 - - 26.4 11.7 106.02008 2,718.6 5.3 144.1 - - 26.3 11.7 106.02009 2,718.6 5.3 144.1 (3.0) (44.7) 26.3 11.7 153.7

Economic Rate of Return = 14.3%

Industry DepartmentMarch 1984

ANNEX 16

P'age I of 4

THATLAND-SECOND MAE MOHI LIGNITE PROJECT

Capital and Operating Costs Information on Power Plants

A. Criteria and Assumptions for Capital and Operating Cost of Power Plants

Mae Moh Units 5, 6 & 7 Coal-Fired Power Plant

1. Number of Units 3 12. Unit Size (MW) 150 4503. Power Plant Cost

(Baht Million) Unit 5 = 2,621.8Unit 6 = 3,020.4 6,805.8Unit 7 = 2,224.1

4. Dam 112.5 a/ -5. Transmission System Unit 5 = 208.1 b/ 323.0

Unit 7 = 1,991.6 c/6. Plant Heat Rate (kcal/kWh) 2,575 2,2707. Fuel Cost Based on costs US$71s5/tonne

of mining (in Jan. 1983expansion terms) e/

8. Energy Cost (Baht/kWh) 0.58549. Operation and Maintenance

Cost (%) d/Power Plant 3.0 3.0Transmission Line 1.0 1.0Substation 2.0 2.0Dam 1.0 1.0

10. Price Levels f/ 1982 1982Except Fuel Cost

11. Economic Life (Yr)Power Plant 25 25Transmission Line 40 40Substation 25 25

a/ 33% of total project cost is allocated to Mae Moh Units 5-7.b/ 50% of the 230 kV Mae Moh - Phitsanulok 2 transmission system is allocated

to Mae Moh Unit 5.c/ Investment for Mae Moh - Tha Tako 500 kV transmission system which will be

initially operated at 230 kV is allocated to Mae Moh Unit 7.d/ As a percentage of capital investment.e/ Includes: Coal price (US$48/tonne FOB Australia), ocean freight and

insurance ($15.00/tonne), port handling and inland transportation(US$7.5/tonne) and import taxes (US$1.0/tonne).

f/ For return calculations, all costs have been escalated to January 1983.

Source: EGAT's Energy Technology Department.

Industry DepartmentMarch 1984

-78- ANNEX 16Page 2 of 4

B. Detailed Capital Cost Estimate of Mae MohPower Units 5-7

(million)

F.ro e:t Co mpon.ents Baht uS$Local Foreign Total Local Foreign Total

Power UInit 5 666.54 1,955.23 2,621.77 28.9 84.8 113.7Power Unit 6 625.37 2,394.99 3,020.36 27.1 103.9 131.0Power Unit 7 509.45 1,714.65 2,224.10 22.2 74.4 96.6Mae Chang Dam (1/3 of Cost) 66.47 46.00 112.47 2.9 2.0 4e9Transrnission System for

Units 4 & 5 (1/2 of Cost) 62.25 145.50 207.75 2.7 6,3 9.0Transmission System for

Units 6 & 7 847.0 1,145.0 1,992.0 36.7 49.7 86.4

S..b-Total a/ 2,777.08 7,401.37 10,178.45 120.5 321.1 441.6

Import Duties & Taxes 992.16 - 992.16 43.0 - 43.0Project Base Cost 3,769.24 7,401.37 11,170.61 163.5 321.1 484.6

Price Contingencies 709.58 693.81 1,403.39 30.8 30.1 60.9

Project Installed Cost 4,478.82 8,095.18 12,574.00 194.3 351.2 545.5Interest During Construction 3,020.80 3,020.80 131.1 - 131.1

Total Financing Required 7,499.62 8,095.18 15,594.80 325.4 351.2 676.6

a/ Includes physical contingencies.

Source: EGAT's Energy Technology Departmenit

Industry DepartmentMarch 1984

-79- ANNEX 16Pa-ge 3 of 4

C. Detialed Capital Cost Estimate of 450 MW Coal-Fired Power Plant(US$ Million)

Foreign Local Total Local Foreign Total

Turbo-Generator Plant 8.4 33.8 42.2Boiler Plant 1,265.00 414.00 1,679.00 18.0 54.9 72.9Control 115.00 11.50 126.50 0.5 5.0 5.5Electrical Equipment 230.00 55.20 285.20 2.4 10.0 12.4Water Treatment 92.00 11.50 103.50 0.5 4.0 4.5Miscellaneous Equipment 460.00 46.00 506.00 2.0 19.9 21.9

Sub-Total I 2,940.55 733.70 3,674.25 31.8 127.6 159.4

Civil Work - 2,024.00 3,674.25 87.8 - 87.8Land & Land Right - 13.80 13.80 0.6 - 0.6Engineering &Administration 272.78 162.15 434.93 7.0 11Y8 18.8

Contingencies 321.31 337.41 658.72 14.7 13.9 28.6

Sub-Total II 3,534.64 3,271.06 6,805.70 141.9 153.3 295.2

Import Duties & Taxes - 439.30 439.30 19.1 - 19.1

Sub-Total III 3,534.64 3,710.36 7,245.00 161.0 153.3 314.3

Escalation 205.62 291.64 497.26 12.6 8.9 21.5

Sub-Total IV 3,740,26 4,002,00 7,742.26 173.6 162.2 335.8

Interest DuringConstruction - 1,715.11 1,715.11 74.4 - 74.4

Total 3,740.26 5,717.11 9,457.37 248.0 162.2 410.2Financing Required -======= -=====-= =- - - - --=

Source: EGAT Energy Technology Department.

a/ Exchange rate used Baht 23.05 = US$1.0.

Industry DepartmentMarch 1QR4

-80- ANNEX 16

Page 4 of 4

D. Cost Estimate of 230 KV Ao Phai - Min Buri Line and Substations(for co a-fired alternative)

(US$ Million)

Local Foreign a/ Total Local Foreign Total

Transmission Line

1. 230 kV ao Phai - Min Buri Line(1272 MCM ACSR, DC/ST, 97 km) 137.5 63.5 201.0 6.0 2.7 8.7

Sub-Total 137.5 63.5 201.0 6.0 2.7 8.7

Substations

2. 230 kV Ao Phai Switchyard 27.2 22.1 49.3 1.0 10.9 2.13. 230 kV Min Buri Substation

Expansion 15.3 4.6 19.9 0.7 0.2 0.94. Communication System Addition 6.5 1.3 7.8 0.2 0.1 0.3

Sub-Total 49.0 28.0 77.0 2.1 1.2 3.3

Total Direct Cost 186.5 91.5 278.0 8.1 4.0 12.1

Indirect Costs

5. Engineering & Supervision - 16.0 16.0 - 0.6 0.66. Physical Contingencies 18.5 10.5 29.0 0.8 0.5 1.3

Total (w/o Price EscalationDuties & Taxes & IDC) b/ 205.0 118.0 323.0 8.9 5.1 14.0

7. Price Escalation .0 10.0 10.0 _ 0.4 0.4

Total (w/o Duties &Taxes & IDC) 205.0 128.0 333.0 8.9 5.5 14.4

8. Duties & Taxes - 28.0 28.0 - 1.2 1.2

Total (w/o IDC) 205.0 156.0 361.0 8.9 6.7 15.6

9. Interest During Construction - 27.0 27.0 - 1.2 1.2

Total Financing Required 205.0 183.0 388.0 8.9 7.9 16.8

a/ Exchange rate used Baht 23.05 US$1.b| Price Levels 1982.

Source: EGAT Power System Planning Division

Indus try DepartmentMarch 1984

-81- Annex 17Page 1 of 2

THAILAND-SECOND MAE MOH LIGNITE PROJECT

Coal Prices and Fuel Comparison

A. Australia - Monthly Average FOB Export Coal Prices, 1982

Thermal Coal toJapan/Korea ExchangePacific Basin Rate

A$/tonne US$/tonne US$/A$

1982 January 44.10 48.46 1.099February 45.00 48.33 1.074March 46.80 49.14 1.050April 47.20 50.07 1.061May 46.40 48.62 1.048June 49.00 50.07 1.022July 47.20 45.90 0.996August 47.60 45.90 0.964September 52.80 50.10 0.949October 50.40 47.20 0.937November 51.50 49.20 0.955December 49.30 48.30 0.981

1982 Average 48.10 48.53 1.010

Coal Specifications

Thermal Coal - Average price for all thermal coal; the calorific value ofa typical New South Wales thermal coal might be 6,000 to6,700 Kcal/kg.

Source: Australian Coal Report.

Industry DepartmentMarch 1984

-82-Annex 17Page 2 of 2

B. Fuel Comparison

Australia Mae MohBituminous Coal Lignite

1. Quality:

Calorific Value (BTUIlb) 10,500 4,900Heat Rate (BTU/kWh) 9,700 11,000

2. Cost: (January 1983 terms)

Indicative FOB Price (US$/t) 48.0 17.7 a/Ocean Freight (US$/t) 15.0 -

Inland Freight and Handling (US$/t) 7.5 -

Indicative CIF Price (US$/t) 70.5 17.7

Corresponding CIF Priceper million BTU (US$) 3.0 1.6

a/ Mae Moh production cost at full production FY87.

Industry DepartmentMarch 1984

-83-ANNEX 18

THAILAND-SECOND MAE MOE LIGNITE PROJECT

Lignite Project (Mae Moh Mine Expansion and Power Units (5-7))Compared with a Coal Fired Power Plant

Economic Rate of Return on Differential Cash Flow

Cash Flow Streams(US$ million, January 1983 terms)

Capital Capital Oper. Oper.Revenues Revenues Cost Cost Cost Cost Coal Net Cash

Period Lignite Coal Lignite Coal Lignite Coal Cost FlowW g ()5 (-5 + + 2

1980 - - .8 5.9 - - - 5.11981 - - 13.6 38.0 - - - 24.51982 - - 67.4 90.5 - - - 23.11983 - - 161.0 133,6 .2 - (27.6)1984 - - 146.5 46.1 5.2 - - (105.6)1985 46.4 129.0 80.2 1.3 25.2 8.6 77.5 (100.7)1986 122.6 144.1 59.0 6.0 37.7 9.5 72.3 (30.4)1987 144e1 144,1 32.0 2.0 37.8 9.3 71,6 13.11988 144.1 144.1 3.0 - 37.9 9.3 72.3 40.71989 144.1 144,1 2.2 - 37.6 9,3 73.0 42.51990 144.1 144.1 6.0 - 37.9 9.3 73.7 39.11991 144,1 144.1 3.9 - 54.3 9.3 73.7 24.81992 144,1 144.1 2.5 - 54.6 9.3 73.7 25.91993 144,1 144.1 4.9 - 54.2 9.3 73.7 23,81994 144.1 144.1 2.7 - 54.6 9.3 73.7 26.11995 144,1 144.1 .9 - 54.6 9.3 73.7 27.51996 144.1 144.1 1.2 - 54.6 9.3 73.7 27.21997 144,1 144.1 3.2 - 37.9 9.3 73.7 41.91998 144,1 144.1 5.7 - 37.9 9.3 73.7 39.41999 144.1 144.1 5.3 - 37,1 9.3 73.7 39.62000 144.1 144.1 3.7 - 38.1 9.3 73.7 41.22001 144.1 144.1 6.3 - 38.1 9.3 73.7 38.62002 144.1 144.1 3.6 - 38.1 9.3 73.7 41.32003 144,1 144.1 2.0 - 38.1 9.3 73.7 42.92004 144.1 144.1 2.2 - 38.1 9.3 73.7 42.72005 144,1 144.1 4.6 - 38.1 9.3 73.7 40.32006 144.1 144.1 2.7 - 38.1 9.3 73.7 42.22007 144.1 144.1 - - 38.1 9.3 73.7 44.92008 144.1 144.1 - - 38.1 9.3 73.7 44.92009 144.1 144.1 (47.7) (10.6) 38.1 9.3 73.7 82.0

Economic Rate of Return = 13.7%

Industry DepartmentMarch 1984

-84-

ANNEX 19THAILAND-SECOND MAE MOE LIGNITE PROJECT

Net Foreign Exchange SavingsComparison of a Lignite with a Coal Fired Power Plant

(US$ million, January 1983 terms)

PERIOD A B C D E F G H I J K L

1980 -- - .5 - 3.1 - - - 2.51981 - - - 9.9 - 19.7 - - - - - 9.81982 2.8 - - 47.0 - 46.9 - - .0 - - (2.8)1983 8.7 - - 106.7 - 69.2 - - 8.1 .9 - (38.9)1984 15.5 1.2 .7 88.4 - 23.9 - - 10.9 1.3 .1 (72.4)1985 7.1 2.8 5.3 50.7 .7 .7 1.7 78.7 5.5 2.7 .8 16.41986 28.9 4.1 6.0 21.0 2.0 3.1 1.9 73.4 28.6 3.8 1.3 39.81987 18.5 3.5 6.0 - 2.3 1.0 1.9 72.7 17.8 5.8 1.3 55.91988 2.5 3.5 6.0 - 2.3 - 1.9 73.4 - 6.0 1.2 53.61989 1,9 3.4 6.1 - 2.3 - 1.9 73.4 - 5.6 2.7 54.11990 5.1 3.4 6.1 - 2.3 - 1.9 74.8 - 5.0 4.0 50.71991 3.3 3.5 12.2 - 2.3 - 1.9 74.8 - 4.2 3.8 47.31992 2.2 3.6 12.2 - 2.3 - 1.9 74.8 - 5.6 5.3 45.41993 4.2 3.5 12.2 - 2.3 - 1.9 74.8 - 4.8 5.0 44.61994 2.3 3.5 12.2 - 2.3 - 1.9 74.8 - 4.2 4.8 47.51995 .7 3.6 12.2 - 2.3 - 1.9 74.8 - 3.4 3.6 50.91996 1.0 3.6 12.2 - 2.3 - 1.9 74.8 - 2.8 3.1 51.61997 2.7 3.7 5.8 - 2.3 - 1,9 74.8 - 2.4 2.9 56.81998 4,9 3.7 5.8 - 2.3 - 1.9 74.8 - 1.9 2.8 55.21999 4.5 3.8 5.8 - 2.3 - 1.9 74.8 - 1.6 2.6 56.020Q0 3.2 3.8 5.8 - 2.3 - 1.9 74.8 - 1,2 2.5 57.92001 5.4 3.8 5.8 - 2.3 - 1.9 74.8 - .8 2.3 56.22002 3.0 3.8 5.8 - 2.3 - 1.9 74.8 - .6 2.2 59.02003 1.7 3.8 5.8 - 2.3 - 1.9 74.8 - .3 2.1 60.72004 1.9 3.8 5.8 - 2.3 - 1.9 74.8 - .1 .8 62.02005 3.8 3.8 5.8 - 2.3 - 1.9 74.8 - - - 61.02006 2.3 3.8 5.8 - 2,3 - 1.9 74.8 - - - 62.52007 - 3.8 5.8 - 2.3 - 1.9 74.8 - - - 64.82008 - 3.8 5.8 - 2.3 - 1.9 74.8 - - - 64.82009 - 3.8 5.8 (32.5) 2,3 - 1.9 74.8 - - - 97.2

Average Net Foreign Exchange Savings = US$42.3 million per year.

Definition of Foreign Exchange Streams:A = Mine Expansion, Capital CostB = Mine Expansion, EGAT Production CostC = Mine Expansion, Contractor CostD = Lignite Fired Power Plant (5-7), Capital CostE = Lignite Fired Power Plant (5-7), Generation CostF = Coal Fired Power Plant, Capital CostG = Coal Fired Power Plant, Generation CostH = Coal Fired Power Plant, Cost of Imported CoalI = Foreign LoansJ = Interest on Foreign LoansK = Repayment of Foreign LoansL = Net Foreign Exchange Savings

Industry DepartmentMarch 1984

-85- ANNEX 20

THAILAND-SECOND MAE MOH LIGNITE PROJECT

Main Documents Available in the Project File

A. The Mining Sector

1. Assignment of Lignite Reserves in the Mae Moh Basin, Longworth CMPSEngineers (Australia), 1981.

2. Study on Expansion of the Mae Moh Lignite Basin, RheinbraunConsulting (FR Germany) 1982.

3. Mine Reclamation Study, Rheinbraun Consulting (FR Germany), 1982.

B. The Company

1. EGAT1.1 EGAT Annual Exploration Reports (1982-82)1.2 EGAT Project Progress Reports (quarterly, 1981-83)

C. The Project

1. Mae Moh Project1.1 Power1.1.1 EGAT Preliminary Environmental Assessment of Mae Moh Power

Development, 1982.1.1.2 Mae Moh Environmental Study: Mae Moh Project Evaluation

and Stack Design for Units 4-9 Air Quality, SimonsResources (Canada), 1983.

1.2 Mine1.2.1 Report on Phase I Training Program at Mae Moh Mine, Coleman

Associate (Australia), 1982.1.2.2 Mine Accounting Procedures Manual, Coopers and Lybrand

(UK), 1982.1.2.3 Draft Report on Lignite Pricing Study and Appendices by

Meta Systems Incorporated,, (USA), January and April 1983.

C. Economic Analysis

1. EGAT Economic Evaluation of Imported Coal vs. Lignite Power Plant,1983.

D. Miscellaneous

1. Terms of Reference for Technical Assistance Program, AustralianTechnical Assistance Bureau, 1983.

Industry DepartmentMarch 1984

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