Embed Size (px)
Citation preview
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. 7054-AL
STAFF APPRAISAL REPORT
ALGERIA
THIRD POWER PROJECT
June 9, 1988
Industry & Energy Operations DivisionCountry Department IIEurope, Middle East and North Africa Regiunal Office
This document has a restricted distribution and may be used by recipients only in the perfonnance of
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
CURRENCY EQUIVALENTS
Currency Unit - Algerian Dinar (AD)AD 4.96 (October 1987) = US$1.00AD 1.00 = US$0.20
WEIGHTS, MEASURES AND ENERGY CONIERSION FACTORS
1 kilogram (kg) = 2.2046 pounds (lbs)1 metric ton (ton) = 1000 kg
= 2204.6226 pounds (lbs)= 1.1023 short tons= 0.9842 long tons
1 meter (m) = 3.2808 feet (ft)1 kilometer (km) = 1000 m
= 0.6214 milesI cubic meter (m3) = 35.3147 cubic feet (cu ft)1 barrel = 42 US gallons
= 159 liters1 kilocalorie (kcal) = 3.9683 British thermal units (Btu)1 British Thermal Unit (Btu) = 0.2520 kcal1 thermie (th) = 1,000 kilocalories1 kilowatt-hour (kWh) = 1,000 watt-hours1 Gigawatt-hour (GWh) = 1,000,000 kWh1 Megawatt (MW) = 1,000 kilowatts (kW)1 kilovolt-ampere (kVA) = 1,000 volt amperes (VA)1 megavolt-ampere (MVA) = 1,000 kVA1 ton of oil equivalent (toe) = 10,000 th
= 0.9091 tons of crude oil= 0.9091 tons of refin':d petroleum
products3
= 1068.4 m of natural gas= 1.3333 tons of coal= 6.6667 tons of fuelwood
FISCAL YEAR
January 1 to December 31
- - FOR OFFICIAL USE ONLY
PRINCIPAL ABBREVIATIONS AND ACRONYMS USED
APRUE Agence pour la promotion, rationalisation etutilisation de l'energie
BAD - Banque Algerienne de DeveloppementCAAR - Compagnie Algerienne d'Assurance et de ReassuranceCCP - Comptes Cheques PostauxCIF - Cost-Insurance freightEDF - Electricite de FranceLNG - Liquefied natural gasLRMC - Long-run marginal costMEICP - Ministry of Energy and Chemical and Petrochemical
IndustriesMIS - Management information systemO+M - Operation and maintenanceOPEC - Organisation of Petroleum Exporting CountriesPCR - Project Completion ReportPE - Public EnterpriseSONELGAZ - Societe nationale de l'6lectricite et du gazSNC - Societe nationale de comptabiliteSOE - Statement of ExpendituresSONATRACH - Societe nationale pour la recherche, la production,
le transport, la transformation et lacommercialisation des hydrocarbures.
TPR - Travaux et prestations remboursablesTUGP - Taxe unique globale a la productionVAT - Value-Added Tax
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
- ii -
DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA
THIRD POWER PROJECT
LOAN AND PROJECT SUMMARY
Borrower: Societ6 Nationale de l'ElectriciL6 et du Gaz(SONELGAZ)
Guarantor: Democratic and Popular Republic of Algeria
Loan Amount: US$ 160 million equivalent
Terms: Fifteen years, including five years of grace, atthe standard variable interest rate. SONELGAZwould assume the foreign exchange and the variableinterest rate risks.
Project Description The project supports a financial restructuringdesigned to ensure a satisfactory financialautonomy and performance of SONELGAZ. It wouldstrengthen the eListing power system by (a' theconstruction of about 475 km of 220-kV transmissionlines to interconnect the power station underconstruction at Jijel to SONELGAZ's bulk supplysystems; (b) the ccrstruction and/or extension ofseven 220-kV transformer substations with totalinstalled capacity of about 2180 MVA; and (c) thesupply of specialized equipment and vehicles toassist SONELGAZ in improving its operationalefficiency. The project would support studies for:power system loss reduction; manpower cevelopment;financial management systems; and the definition ofoptimal power generation options including thecombined-cycle alternative in SONELGAZ's powergeneration system. It would also support asubstantial training program for SONELGAZ staffthrough the provision of improved technical andtraining materials.
Benefits and Risks: In addition to improved institutional performaalce,benetits are also expected from expandedelectricity sales and reduced losses. No specialtechnical risks are foreseen. The main risk duringproject implementation is that the financialrestructuring program for SONELGAZ may not beimplemented as envisaged; this risk is addressedthrough the financial and other covenants whichform part of the legal agreements.
Maps: No. IBRD !9926R
-iii -
ALGERIATHIRO POWER PROJECT
Suemry of Project Cost Estimate 1/
______-AD 1militon --------- --------USS Mmllin -------Local Foreign Total Local Foreign TotalCost Cost Cost Cost Cost Cost
A. 220-kV Transmission Lines
Subtotal base cost A (January 1988) 191.65 367.16 SS8.81 38.64 74.03 112.67.Physical Contingencies 19.17 36.72 55.89 3.87 7.40 11.27.Price Contingencles 112.78 216.07 328.85 7.12 13.64 20.76
Subtotal Cost A 323.60 619.95 943.SS *9.63 95.07 144.70
S. Substations
Subtotal base cosc 8 ( January 1988) 241.33 565.98 807.31 48.66 114.12 162.78.Physical Contingencies 17.38 36.13 S3.51 3.0 7.28 10.73.Ppice Contingencies 138.40 322.12 460.S2 8.73 20.33 29.06
Subtotal Cost S 397.1i 924.23 1321.34 60.89 141.73 202.62
C. Other:
Vehi:les & Specialized Equipment 93.80 62.50 156.30 18.91 12.60 31.51Ca"uter Software & Hardware 0.00 1.98 1.98 0.00 0.40 0.40Technical Assistance 4.50 13.89 18.39 0.91 2.80 3.71Training 2.00 7.60 9.60 0.40 1.53 1.93
Subtotal base cost C (January 1988) 100.30 85.97 186.27 20.22 17.33 37.55Physical Contingencies 3.01 2.58 S.S9 0.61 0.S2 1.13Price Contingencies 46.48 39.84 86.32 2.80 2.40 5.20
Subtotal Cost C 149.79 128.39 278.18 23.63 20.25 43.88
0. TOTAL COST (A+B+C)
Total base cost (January 1988) S33.28 1019.11 1552.39 107.52 20S.48 313.00.Physical Contingencies 39.56 75.43 114.99 7.98 15.20 23.18.Price Contingencies 297.66 578.03 875.69 18.65 36.37 S5.02
Total Project Cost 870.50 1672.57 2543.07 134.1S 257.05 391.20Interest Our ng Reconstruction
On Bank loan - 133.S0 133.50 19.00 19.00On other financint3 sources 32.50 58.93 91.43 4.8S 8.95 13.80
TOTAL FINANCING REQUIRED 903.00 1865.00 2768.00 139.00 28S.00 424.00
1/ Including custom duties and taxes.
- iv -
ALGERIATHIRD POWER PROJECT
FINANCING PLAN - SUMMAIY(In US$ Million)
Local Currency Foreign Currency Total
IBRD Loan - 160.0 160.0
Government 109.0 38.5 147.5
SONELGAZ's cash generation 30.0 - 30.0
Other Sources - 86.5 86.5
Total 139.0 285.0 424.0
- v -
ALGERIATHIRD POWER PROJECT
DISBURSEMENTS(US$ miilion)
Category Amount % 1/
- Works 48.2 36% of expenditures
- Goods 94.2 65% of foreign expen-ditures and 65% oflocal expenditures(ex-factory costs)
- Technical Assistance 8.6 52% of expenditures
- Training 1.0 65% of foreign expen-ditures
- Unallocated 8.0160.0
Estimated IBRD Disbursements IBRD Fiscal Year
1989 1990 1991 1992 1993 1994 1995
Annual - 24.0 35.2 35.2 28.8 19.2 14.4Cumulative 3.2 27.2 62.4 97.6 126.4 145.6 160.0
1/ These percentages have been computed on the basis ofjoint-financing with Eximbank. (Table 3.3 in the main text).
- vi -
ALGERIA
THIRD POWER PROJECT
STAFF APPRAISAL REPORT
Table of Contents
Page No.
I. THE ENERC-Y SECTOR
The Resource Base ....................................... 1Institutions in the Energy Sector . 2Energy Demand and Supply ................................. 3Forecast Energy Demand and Supply. 4Energy Strategy ......................................... 5Energy Pricing .......................................... 6Bank Strategy ........................................... 8
II. THE POWER SUBSECTOR
Subsector Organization and the Beneficiary .10Manpower development and training ....................... 10Electricity Tariffs ..................................... 11Comparison with Economic Costs .11Demand Management ................. ....... .... 12Electricity Consumption .13Present Consumption Patterns ............................ 13Load Forecasts . .................................. 14The Supply Sys.em ....................................... 14The Investment Program .................................. 15Bank Involvement in the Sector .15
III. THE PROJECT
Project Objectives ...................................... 17Project Description ..................................... 17Project Cost. ........ .................................... 17Project Financing Plan .............. .................... 20Status of Engineering ................................... 21Project Implenientation .................................. 21Land Acquisition ........................................ 21Vehicles and Specialized Equipment ...................... 22Consulting Services ..................................... 22Procurement ............................................. 22Disbursements ........................................... 26Retroactive Financing and Advanced Contracting .26Environmental Impact .................................... 26Project Risks ...................................... 26
Following a mission to Algeria in October 1987, this report was preparedby: Z. Ladhibi-Belk (Sr. Power Engineer), R. Ha;milton (Economist), S.Kebet-Koulibaly (Financial Analyst), and J. Baig (Staff Assistant).
- vii -
Table of Contents (contd.)
Page No.
IV. FINANCIAL ASPECTS
Past Financial Performance and Present Position ......... 27Public Sector Arrears .................................. 28Loans to Former Operational Units .................... ... 30Future Financial Performance ...... ...................... 30Financial Restructuring Plan ...... ...................... 30Tariffs ........... 32Net Internal Cash Generation ...... ...................... 35Income Taxes ........... .......................... 35Debt Management ......................................... 35Accounting and Financial Reporting Standards ............ 36Internal Auditing ........ ............................... 37External Auditing ........ ............................... 37Billing and Collection ....... ........................... 37Management and Accounting Systems .................... ... 38Finance Staff and Training ...... ........................ 38Insurance ............................................... 39
V. PROJECT JUSTIFICATION
Demand Justification .................................... 40Least Cost Investment Program ...... ..................... 40Return on Investment ..................................... 42
VI. AGREEMENTS TO BE RE..CHED AND RECOMMENDATION ...... 43
ANNEXES
1.1 1985 National Energy Balance ...... ....................... 452.1 Manpower Development Study TORs ..... ..................... 462.2 Tariff Structure for High and Medium Voltage Customers .. 48
Tariff Structure for Low Voltage Customersu2.3 Long-Run Marginal Cost of Electricity (LRMC) ............ 502.4 Electricity Consumption 1976-1986 .............. . ......... 542.5 Demand Forecast 1986-1996 ................................ 552.6 SONELGAZ: Capacity and Energy Balances, Interconnected
System ................................................ 562.7 Projected Capacity Balances, Interconnected System ..... 572.8 TORs Power System Loss Reduction Study .... ............... 582.9 SONELGAZ: Projected Investment Expenditures (1987-1995) . 623.1 Detailed Project Description ............... . ............. 633.2 Yearly Breakdown of Total Project Costs ................ . 643.3 Project Cost Estimate Rearranged by Nature of Goods
and Services ....................... 653.4 Cost Estimate Rearranged by Contract Packages .... ....... 66
- viii -
3.5 Implementation Schedule . ............................. . 683.6 Estimated Procurement Schedule ...................... 693.7 Estimated Disbursement Scheduie .. . 703.8 Comparison of Disbursement Profiles ................... . 714.1 Income Statements ....................................... 72
Statement of Sources and Applications of FundsBalance Sheets 1984-1995 (Base Case) . ....
4.2 Income Statements ...................................... 76Statement of Sources and Applications of FundsBalance Sheets 1984-1995 (Sensitivity Case)
4.3 SONELGAZ Notes and Assumptions on the Financial .Statements. ....................... ................... 82
4.4 TORs MIS and Accounting System Study ................... 855.1 TORs Study for the Definition of Optimal Power .
Generation Options ....... ............................. 885.2 Rate of Return Analysis ...... .......................... 90
ALGERIA
THIRD POWER PROJECT
1. THE ENERGY SECTOR
1.01 This chapter presents a brief overview of the energy sector, theGovernment's energy strategy, and the objectives of the Bank's assistance toAlgeria.
The Resource Base
1.02 Algeria's substantial energy resources are dominated by gas, gasliquids and crude oil. There are also minor coal deposits and limitedpotential for the generation of hydroelectricity.
1.03 Proven natural gas resources in Algeria amount to about 3,200billion cubic meters or 2.9 billion tons of oil equivalent (toe). They arethe fifth largest in the world and account for nearly 42 of proven worldreserves. In addition, probable and possible reserves amount to about 580and 470 billion cubic meters, respectively. The bulk of the reserv.s are inthe form of non-associated, wet gas, i.e. in reservoirs not associated withcrude oil, but rich in gas liquids such as condensates and liquid petroleumgases (LPGs). Non-associated gas output rose to 86% of total gas outout in1985; 77% of total gas output was from Algeria's largest gas field, at HassiR'Mel. Total national reserves of condensates are estimated at 0.45billion tons and there is a very large potential for additionalgas-condensate discoveries.
1.04 At the end of 1985 Algeria's remaining ultimately recoverablereserves of crude oil were estimated at about 1.49 billion tons (95%probability) and 3.66 billion tons (5% probability). Nearly 70% of totaloutput in 1985 was from the five largest fields. Four of these werediscovered before 1962 and are now substantially depleted. Recentdiscoveries of crude oil have been small and have not added significantly toproven reserves. Crude oil production has been allowed to decline duringthe 1980s because of the declining discovery rate and the adoption by theGovernment of a conservative oil production rate policy.
1.05 Algeria's coal reserves - about 40 million tons (30 million toe) -are mainly in the Abadla basin in the southwest. About half of this coal isof coking quality; the remainder is suitable for steam production, e.g.electricity generation. Currently there is no domestic production of coal.Algeria imported 812 thousand tons of coking coal in 1985.
-2-
1.06 Most of Algeria's limited hydro potential is already beingexploited. Average annual generation from controlled storage is about320 GWh. This is supplemented by an ave:age of 70 GWh/y from smallrun-of-river Llants and 50 GWh/y from plants associated with irrigationschemes. Installed capacity is 285 MW, of which 194 MW could be consideredfirm power, and there are plans to install another 5 MW by the early 1990s.While there is some potential for new capacity as part of future irrigationschemes, in general the pumping requirements of such schemes make them heavynet consumers of electrical energy.
1.07 Uranium reserves in the extreme south of the country are estimatedat 25,000 tons of uranium metal. Preliminary geophysical andhydrogeochemical studies indicate the presence of substantial geothermalresources in northern Algeria. Solar radiation is particularly intense inthe south and there are many locations with wind energy at speeds of morethan 3 meters/second.
Institutions in the Enerpy Sector
1.08 Production, processing and distribution of energy are theresponsibility of a number of state-owned enterprises, most of which fallunder the supervision of the Ministry of Energy and Chemical andPetrochemical Industries (MEICP). Exploration and development of uraniumand coal are now the responsibility of enterprises which report to theMinistry of Heavy Industry. Decisions on energy investments and energyprices also require approvals, principally from the National Commission ofPlanning and the Ministries of Finance, and Commerce. A series of farreaching institutional reforms is in progress in the energy sector. Theprocess began with organizational reforms in the early 1980s and is nowentering a phase of financial restructuring. The objective is to set upunits with greater autonomy and more directly responsible for the variousactivities covered by the sector.
1.09 Until the early 1980s, virtually all oil, gas and electricity-related activities were centralized in two public enterprises - SONATRACH(Societe nationale pour la recherche, la production, le transport, latransformation et la commercialisation des hydrocarbures) and SONELGAZ(Soci6t6 nationale de l'electricit6 et du gaz). In 1981, SONATRACH wasreorganized with a focus on upstream oil and gas activities and exports. Anew enterprise, NAFTAL, was created to manage oil refining and domesticdistribution of petroleum products, including LPGs. Petroleum serviceactivities - geophysical work, drilling, petroleum engineering,pipelineconstruction, etc. - were handed over to eight smallerspecial-purpose companies.
1.10 SONATRACH holds a monopoly on the exploration, production andexport of oil and gas. Foreign participation in exploration and productionhas declined to very low levels since independence; however, new legislationwas passed in 1986 to make conditions more attractive and has already led tothe signing of three new exploration contracts. On the domestic market,SONATRACH sells crude oil to NAFTAL, and natural gas to ex-affiliates of theSONATRACH group (e.g. in the petrochemical sector) and to SONELGAZ.SONELGAZ is the sole distributor of natural gas to all other non-exportcustomers. It also has a national monopoly on electricity sales.
1.11 The reorganization of SONATRACH was followed in 1984 by thereorganization of SONE'GAZ. A number of units with responsibility foractivities such as civil works, construction of electricity and gasdistribution systems, and manufacturing of poles and meters were divested toform six small independent enterprises. Other enterprises, including somethat are owned by the wilayas (regional administrations), now participate inconstruction programs such as the rural electrification components of theNational Electrification Program (PNE). The Government recently approvedthe financial restructuring of SONELGAZ (para 4.11-4.13), which is the firstof the large public enterprises to enter the second stage of reform. Tosome extent, this exercise will be a prototype for the other publicenterprises in the energy sector and country-wide.
1.12 Within defined limits, industries are permitted to generateelectricity - or to cogenerate heat and electricity - for their ownconsumption, providing this is the least-cost option. Autogenerationaccounted for 8.5% of total national generation of electricity in 1985.Responsibility for approval of autogeneration has recently been transferredfrom SONELGAZ to APRUE (l'Agence pour la promotion, rationalisation etutilisation de l'energie), a newly created energy management agency underthe supervision of MEICP.
Energy Demand and Supply
1.13 Key indicators of the Algerian energy sector and their evolutionsince 1965 are summarized below (Table 1.1). A full national energy balancefor 1985 is given in Annex 1.1.
Table 1.1
Energy Production, Exports & Consumption, 1965-1985(million tons of oil equivalent: Mtoe)
Average AverageAnnual Annual
1965 Growth 1975 Growth 1985
Primary Energy Production 31.4 6.6% 59.3 4.0% 88.2
Gross Energy Exports 28.6 6.42 53.3 2 5% 68.5- X of Primary Production 91.1Z 89.9% 77.7%
Final Energy Consumption 1.6 11.8% 4.9 10.4% 13.2- Z of Primary Production 5.1% 8.3% 15.0Z
Final Consumption/Structure 100% 100% 100%- Industry & Construction 17Z 25% 32%- Transport 37% 38% 28%- Households & Services 46% 37% 402
Source: MEICP and Bank estimates
1.14 Energy demand by final domestic consumers has consistentlyincreased by 10-12% p.a., far outstripping the growth of primary energyproduction. Final consumption absorbed 15% of primary production in 1985.The structure of final energy consumption reflects Algeria's very rapidindustrialization since inc'pendence, with industry and construction's sharecoughly doubling in 20 y .Ls. This has been accompanied by increasingpenetration of natural Fas and LPGs at the expense of other fuels - up from16% of final consumption in 1965 to 27% in 1985. Natural gas also fuelsabout 90% of total electricity generation, thereby indirectly supplying afurther 21% of final demand. At the end of 1985, energy consumption percapita was about 1.0 toe. Energy exports, while remaining the driving forceof the Algerian economy, have fallen from 90% of primary energy productionto 78% over the last decade.
Forecast Energy Demand and Supply
1.15 Total final eneigy demand is forecast to grow by 8.8% per yearbetween 1985 and 1990 and by 6.9% per year between 1990 and 2000 (Table 1.2)which is significantly less than the annual average of 10.4% experiencedbetween 1975 and 1985. This decline is due to the slowdown in economicgrowth attributable mainly to the decline in international oil prices in1986. The share of petroleum products is projected to fall from 45% in 1985to 33% in the year 2000 while the shares of gas and LPGs, electricity(mostly produced by natural gas), solid fuels (nearly all coal), and solarare all projected to increase to make up the difference.
Table 1.2
Forecast Final Domestic Energy Consumption(Mtoe)
Average AverageActual Annual Forecast Annual Forecast
Growth(%) Growth(%)
1985 1990 2000
Petroleum Products 5.98 5.8 7.91 5.1 13.00Gas and LPGs 3.57 13.5 6.72 5.8 11.80Electricity 2.99 9.1 4.63 8.2 10.21Solid Fuels 0.70 6.7 0.97 15.2 4.00Solar - 0.50
Total 13.24 8.8 20.23 6.9 39.51
Sources: SONELGAZ and Bank estimates for the electricity forecasts for 1990and 2000, MEICP for all the other estimates.
1.16 Energy exports are forecast to increase until 1990, but by the year2000 they may be below the 1985 level (Table 1.3) mainly because of asubstantial decline in oil exports due to rising domestic demand and decliningoil production as reserves are depleted (unless s.gnificant i;ew discoveriesare made). By the year 2000 energy exports are projected to fall to about 56%of primary energy production.
Table 1.3
Net Oil and Gas Exports(Mtoe'
Actual Forecast
1985 1990 2000Crude Oil and Products 30.9 24.8 4.8Condensates 13.9 18.0 13.8LPGs 2.5 3.0 4.8LNG 12.3 )
)29.2 36.6Natural Gas (piped) 8.5 )
Total 68.1 75.0 60.0
Source: MEICP
Energy Strategy
1.17 Algeria's natural gas resources are very large in relation topotential domestic consumption. This is less true of crude oil, where theratio of remaining recoverable reserves to annual production has generallybeen in the range of 30 to 40 years during the last decade. For thisreason, Algeria has progressively shifted the emphasis from oil to gas, bothin the export sector and as the main fuel for the domestic economy. In themid 1970s, gas utilization was concentrated on exports of liquefied naturalgas (LNG) and on domestic consumption for electricity generation and forindustry. Since that time, the commissioning of the Transmediterraneanpipeline (through Tunisia to Italy) has opened up a second means ofexporting natural gas. Flaring has been greatly reduced and a largeproportion of gas production is now reinjected to optimize output of crudeoil and condensates; LPGs are now extracted from all possible sources - rawgas, condensates, natural gas liquids and refinery process streams. Duringthe 1980s, this strategy has enabled Algeria to keep oil production withinits OPEC quota, which applies to crude oil but not to condensates, whilesignificantly diversifying its energy exports.
1.18 In recent years an increasingly competitive market for natural gashas developed in North America and in Western Europe. On both continentsthere are now multiple suppliers with large reserves serving a nearly fullyintegrated gas distribution network. Under these market conditions,Algeria's reluctance to follow downward movements in international gasprices has led to a loss of markets and significant under-utilization of itsLNG export capacity. In 1987, Algeria finally responded by arranging spotcargoes of LNG to former customers at times when market conditionsfacilitated agreements on price for spot sales. The main challenge facingAlgeria's energy planners in the export sector is to develop a strategy forwinning a larger share of the North American and Western European gas
I * ,- F- - - ; - ,-
1.19 In the domestic energy sector, natural gas is the dominant sourceof primary energy for all economic sectors other than transport - eitherdirectly, or indirectly via electricity generation. A May 1985 policystatement listed the following objectives of Government domestic energypolicy:
- to ensure that electricity, natural gas and petroleum products arereliably available wherever they are needed;
- to replace domestic consumption of petroleum products with naturalgas or LPGs wherever possible, in order to maximize the exportablesurplus of petroleum (crude and products);
- to encourage direct use of natural gas by limiting electricityconsumption to non-substitutable uses and off-peak thermalapplications that improve the economics of electricity generation;and
- to conserve national oil and gas resources by promoting efficientuse of energy.
1.20 The main instrument for achieving these goals has been increasedpublic investment in energy supply. During the early 1980s, the mostvisible target was to connect 100% of "electrifiable households" by the endof the decade. In addition, there has been an increase in investment ininfrastructure for transmission and distribution of natural gas, and to alesser extent for distribution of LPGs for households and vehicles. On thedemand side, the Government's stated strategy until 1985 was to promote thedesired pattern of energy consumption by gradual adjustment of relativeenergy prices and by direct regulatorr intervention. After the collapse inoil prices in early 1986, mobilization of investment resources became anadditional concern in the domestic energ'y supply subsectors.
Enerag Pricir.
1.21 In the past, prices in the Algerian economy were mostly used asaccounting indicators rather than signals for economic efficiency. As aresult, there is currently no explicit linkage, in the energy sector,between domestic and international oil and LPG prices. Until 1986, thedomestic prices of many petroleum products were below their export value onthe world market. The combination of the international oil price collapsein 1986 and recent increases in domestic prices has eliminated this gap forall products other than kerosene (Table 1.4). If an allowance is made forthe cost of distributing petroleum products from the refinery to theconsumer, gas oil and LPGs may also be subsidized in some inland locations.In the transport market, relative prices reflect the Government's policy ofpromoting LPGs as an alternative to gasoline. The possibility of uneconomicsubstitution from gasoline to gas oil is limited by strict controls onimports of diesel vehicles.
- 7 -
Table 1.4Domestic Oil and LPG Prices Compared t, Export Prices
Domestic Price/Domestic a/ Export b/ Export Price
Petroleum Products cAD/lter US$/toe US$/toe (M)Premium gasoline 320 865 237 365Regular gasoline 260 716 217 330Gas-oil 80 192 188 102Kerosene 60 148 207 71
Petroleum Products cAD/thermie US$/toe US$/toe (X)Light fuel oil 5.5 122 110 111Heavy fuel oil 5.2 115 91 126
LPGs(non-transport) cAD/thermie US$/toe US$/toe (X)Propane (bulk) 6.49 154 135 114Propane (35 kg) 10.84 258 135 191Butane (13 kg) 12.32 293 135 217
cAD/liter US$/toe US$/toe (%)LPGs (transport) 110 422 135 313
a/ Effective since July 1, 1986b/ Average, first quarter 1988, CIF Mediterranean less freight -
$50/ton LPGs, $8/ton white products, $5/ton fuel oil. Excludescost of distribution in Algeria.
1.22 While Algeria's limited oil reserves provide a justification forfixing petroleum product prices close to the international level, the muchlarger reserves of natural gas (relative to current and prospective demand)and the expectation that exports could not be greatly increased withoutlarge price adjustments in international markets provide a justification forsetting prices for domestic gas sales below the export price. However, eachprice should cover the corresponding long-run marginal cost (LRMC) ofproduction, transmission and distribution of proven recoverable reservesplus a "depletion premium" which reflects the opportunity cost of using theresource today rather than saving it for the future. The depletion premiumis measured by the present value in a given year of a unit of gas sold atthe time of last production from the reserves less the LRMC. Adoption ofthis pricing policy would help to ensure an optimal use of depletablereserves of natural gas over time.
1.23 Publicly available data do not permit precise estimation of theLRMC. The Government has indicated that gas development, production andtransmission costs wculd amount to about $1.00 per million Btus, based onpast expenditures. This figure may be used as an approximation of the LRMCassuming constant costs of supply. Estimation of the depletion premium issubject to much uncertainty since it depends on uncertain forecasts of thegrowth of demand over several decades and of the value of substitute formsof energy at the end of the useful life of the gas reserves. Examination of
- 8 -
a number of plausible scenarios suggests that the depletion premium would benegligible at the present time, but would rise rapidly over time if demandgrows quickly and new reserves are not found. These considerations of theLRMC and the depletion premium suggest that the economic cost of natural gas(before distribution) is currently about $1.00 per million Btus (cAD1.87/thermie). This value is below the export price but above domesticprices at the bulk supply and high pressure levels as shown in Table 1.5below.
Table 1.5Comparisons of the Economic Cost of Gas with Export
and Domestic Prices
(cAD/thermie) (US$/toe)
Economic cost (beforedistribution 1.87 37.7
Export price 5.05a/ 101.8Domestic pricesbulk supply 0.44 8.9high pressure 1.07 21.6medium pressure 2.85 57.5low pressure 2.87 57.9
a/ The price in 1986 at the Algerian border for export by pipeline to Italy.
As indicated in para. 1.21, the domestic prices do not give the rightsignals to the consumer. The Government is aware of this problem and iscurrently changing its policy to move toward the general application ofprices which reflect economic costs.
Bank Stratery
1.24 Since the early 1980s, the Government has been cautiouslyimplementing a series of economic reforms. Key Government objectivesinclude relaxation of central planning, development of a more autonomousfinancial system, promotion of the private sector, and improved mobilizationand allocation of resources via pricing reforms. In the longer term, thereforms are expected to tackle the problems of export diversification andthe efficiency of the import-substitution industries. The Bank's presentprogram is designed to support the implementation of the Government's reformprograms in key sectors and public enterprises, and to assist in thepreparation of later stages of the reform.
1.25 In the energy sector and until recently, the Bank's participationhas been confined to the power subsector, where there have been two loanssince independence (para. 2.19). Preparations for a third loan weresuspended in 1982 when the Government failed to take action to addressSONELGAZ's deteriorating financial situation, and there was then a lull incontacts until early 1985, wlien preparation of the proposed project began,followed in June 1986 by a Bank review of the 1985-89 National Plan. The
1985-1989 Plan Review 1/ included a preliminary survey of thc hydrocarbons
subsector as well as suggestions for future Bank participation in the energy
sector in general. This dialogue needs to be pursued and consolidated
before Bank lending can address sectorwide issues. Therefore, in the energy
sector, Bank support is focusing currently on the domestic power and gasutility (SONELGAZ) and, in particular: successful implementation of the
approved financial restructuring program (paras. 4.11-4.13); optimization of
electricity use at power stations and in the transmission and distribution
networks (para. 2.15); optimization of investment programs (para. 5.04); and
strengthening of SONELGAZ's management and accounting systems (para. 4.30).
At a subsequent stage attention would be extended to additional objectivesincluding: moving domestic natural gas prices towards economic cost (paras.
1.23 and 1.24); moving electricity prices towards economic cost (para. 2.08)
ensuring that the structure of electricity tariffs reflects economic costs
as closely as possible, (para. 2.08); and making further progress in
defining a new framework for the relationship between Government and
SONELGAZ (para. 4.11).
1/ See "Algeria: The 1985-1989 Development Plan and the Medium and
Long-term Projects", World Bank Report No. 6607-AL, September 30, 1987
- 10 -
II. THE POWER SUBSECTOR
Subsector Organization and the Beneficiarv
2.01 The development and operation of Algeria's power subsector is theresponsibility of MEICP and SONELGAZ. As stated in para. 1.09, MEICP isresponsible for coordinating the economic and social aspects of the powersubsector activities. SONELGAZ, a government-owned enterprise, is thebeneficiary of the proposed loan, and was created under Presidential decreeNo. 69-59 of July 28, 1969 when all the obligations and assets ofElectricite et Gaz d'Algerie (EGA) were transferred to it. SONELGAZ isresponsible for the development and operation of the power system. It hasthe exclusive right to transmit ar.d distribute electric power throughout thecountry. Its right to generate power is not exclusive. Factories requiringmore than 1,000 kilovolt-amperes (kVA) may be auto-producers, and anyfactory requiring process heat may generate its own electricity for maximumeconomy. However, any excess production of electricity must be sold by theauto-producers to SONELGAZ. The company is also the sole distributor ofnatural gas, which is purchased in bulk from SONATRACH.
2.02 SONELGAZ is managed by a board of directors headed by the GeneralManager who is appointed by the President and is accountable to MEICP. Theboard currently includes three deputy general directors, five otherdirectors with functional responsibility respectively for: (i) planning;(ii) finance; (iii) engineering, generation and transmission; (iv)distribution; and (v) administrative services; and two representatives ofSONELGAZ's workers' association. Operational responsibility is assigned tofour regions for the transmission network and nine zones for thedistribution system. Also reporting to the board are six main Committeesresponsible respectively for human resources, research, investments,consumers co.nections, education and training, and hot line works. Thecurrent organization is satisfactory and SONELGAZ's management is strong,knowledgeable and competent.
Manpower Development and Training
2.03 The labor force employed by SONELGAZ has grown mainly in thetechnical area to meet the needs of the rapidly expanding power subsector.The total labor force has grown from about 7000 employees in 1975 to about18,800 in 1986. Labor productivity has also grown from about 330 MWh peremployee in 1975 to about 600 MWh in 1986. This is a relatively highproductivity rate compared to those of other countries in the region, andSONELGAZ's operation and maintenance performance remains satisfactory.However, recognizing the need for a continuous improvement in its staffperformance and in order to achieve this objective, SONELGAZ is planning toundertake, with Bank assistance, a manpower development study. Theobjective of the study is to define the requirements for improving staffperformance and motivation, the sharing of responsibilities at all levels,planning, budgeting and control of works to be executed, operational andmaintenance services. Draft terms of reference for this study are attachedin Annex 2.1.
- 11 -
2.04 Furthermore, to strengthen manpower development at SONELGAZ theproposed project would also include a training component which aims atimproving SONELGAZ's capabilities in financial planning and networkengineering, design, operation and maintenance. This training would beprovided to specialized and experienced personnel in certain specificareas. The proposed project would provide training for about 440 traineesfor the whole period of project implementation. During negotiationsSONELGAZ agreed to submit to the Bank not later than December 31, 1988 adetailed staff training program and its implementation schedule (para. 6.04).
Electicity Tariffs
2.05 Electricity pricing has been subject to the same set of issues thatlhave affected pricing policy in the economy as a whole. Nevertheless, in1980, a new tariff structure was proposed based on a comprehensive study ofthe projected long-run marginal costs of generation, transmission anddistribution and the financial implications of alternative rate structures.The proposed tariff structure, which is an unusually pure application of theprinciples of marginal cost pricing, was implemented through 1982 andfinally adopted only for SONELGAZ's electricity sales at high andmedium-voltage levels, which account for approximately two-thirds of totalelectricity sales. At these voltage levels, consumers are allowed to choosebetween different combinations of demand and energy charges, includingtime-of-day rates. The introduction of the propozed marginal cost tarifffor low-voltage consumers resulted in average rate increases in the order of33X but the tariff was withdrawn shortly after its introduction. Theprevious tariff structure system remains in force for low voltageconsumers. There have been no rate increases since 1980 and the real valueof the tariff has been eroded by inflation since then. This is the maincause of SONELGAZ's deteriorating financial performance over the same period(para. 4.04). The present tariff structure is summarized in Annex 2.2.
2.06 Comparison With Economic Costs. Table 2.1 compares the currenttariff rates to economic costs, the latter measured by long-run marginalcosts (Annex 2.3). Marginal energy costs were calculated using the economiccost of natural gas (para 1.23). Generation capacity costs are based onborder prices for equipment converted at the October 1987 exchange rate ofUS$1.00 = AD4.96; transmission and distribution capacity costs are based onthe average incremental costs of SONELGAZ's current investment program. Thecosts at medium and low-voltage levels are unusually high and areexacerbated by high distribution losses. The very high costs partly reflectthe high capital cost of completing the last part of the NationalElectrification Program. This comparison indicates that electricity tariffrates are now approximately two-thirds of economic costs.
- 12 -
Table 2.1
Average Electricity Prices Compared to Economic Cost
Price/Average Price Economic Cost Economic Cost
(cAD/kWh) (UScents/kWh) (cAD/kWh) UScents/kWh _
High Voltage 16.1 3.2 21.1 4.3 76Medium Voltage 23.3 4.7 )Low Voltage 39.6 8.0 ) 44.8 9.0Weighted Average 26.1 5.3 37.2 7.5 70___________
Source: Bank estimates
2.07 An updating of energy tariffs (electricity and gas) in line withchanges in economic and financial costs is urgently required. The immediatebenefits of this updating would be: (a) to restrain the growth of domesticenergy demand and the need to divert scarce investment resources to meet thatdemand; (b) to mobilize additional investment resources directly fromconsumers; and (c) to ensure more efficient use of Algeria's principal energyresource - natural gas.
2.08 For these reasons, the Bank supports the Government's strategy forthe financial restructuring of SONELGAZ, designed to allow the power publicutility to reach a greater autonomy by the turn of the decade. However, thecombination of financial actions should be adjusted towards larger tariffincreases in order to reduce the gap between electricity prices and economiccost. As a second priority - and in support of the same objective - some formof marginal cost-based tariff should be introduced for low voltageconsumption. In line with the Government's social objectives, low incomeconsumers may be protected by a "lifeline block" at the existing tarifflevel. Finally, before the end of the decade, the current marginal costestimates should be reviewed and updated, and the changes reflected in thelevels and structure of the electricity tariff. Two revisions should beincorporated: (a) the use of a shadow exchange rate for the border-priceevaluation of investment costs, and (b) fuel costs based on the economic costof natural gas. Since capital costs account for more than three-quarters ofeconomic supply costs, the revised marginal costs will be particularlysensitive to the first of these parameters (Annex 2.3).
2.09 Demand Management. Since the introduction of the new tariff,SONELGAZ has worked closely with major consumers to assist them to plan demand
- 13 -
management programs that will take maximum advantage of the cost-cuttingpossibilities offered by the new tariff. Many of the tariffs offered providevery strong incentives to electricity consumers to shift their consumptionfrom peak to off-peak periods (examples in Table 2.2). Despite the erosion ofthe real value of the tariffs by inflation, this structure continues toprovide a satisfactory framework for major consumers to design programs ofenergy demand management. In general, the results have been disappointing.For example, the proportion of energy consumed during the peak has not fallennoticeably. In many instances the measures proposed by SONELGAZ have not beenadopted because the industry's management is absorbed by more pressingproblems, such as recovering from low levels of capacity utilization.However, the poor response to the demand ma.agement incentives embodied in theelectricity tariff appears to be part of a wider problem, that is, the lack ofincentives to managers to cut costs as a way of improving industrialperformance. This lack of incentives results from the limited financialautonomy of public enterprises. Progress towards more efficient use ofinvestment resources in the energy producing and consuming industries inAlgeria will now depend on the implementation of the reform of the publicenterprise system which will provide managers with incentives to reduce costs,and on the efforts of the newly created energy management agency (,PRUE) toaddress these difficult institutional issues.
Table 2.2
Electricity Rates: Examples of Time-of-Day Differentials (cAD/kWh)
Voltage Level Peak (P) Shoulder (S) Night (N) Ratio P/N
High 36.6 7.6 3.3 11.1Medium 47.4 10.5 5.6 8.5
Source: SONELGAZ
Electricity Consumption
2.10 During the period 1976-1986, total consumption of electricityincreased at an average rate of 12% p.a, with sales at each voltage levelgrowing at approximately the same rate. Annex 2.4 gives the breakdown ofelectricity sales by voltage level for the period 1976-1986.
2.11 Present Consumption Patterns. Public electricity consumption isconcentrated in the northern interconnected system (87% of total SONELGAZelectricity sales of 10,223 GWh in 1986), and is evenly distributed amongthe three major voltage levels (Annex 2.4). As a result of Algeria'semphasis on development of heavy industry, the proportion of consumption athigh voltage is unusually high in relation to other countries at similarincome levels. More than 80% of high-voltage consumption occurs in threeeconomic sectors - petroleum operations, steel and related industries, andconstruction materials (mainly cement and bricks). In 1984, the six largestcustomers accounted for 45% of total high-voltage consumption. Medium-voltage consumption is more evenly spread over a wide range of light
- 14 -
industries and services. The typical low-voltage consumer is a household(using electricity for lights, a refrigerator and a television) cr agovernment office, the government accounting for about 14% of totallow-voltage (LV) consumption. The number of consumers in the "ordinary LV"category is growing at about 200,000 per year as a result of a vigorousnational electrification program (PNE: Programme national d'electrification)and a program of new connections in existing distribution areas (RCN:raccordement de la clientele nouvelle). At the end of 1986, the totalnumber of LV consumers was 2.4 million and the rate of electrification ofthe population was 73%.
2.12 Load Forecasts. Load forecasts were prepared by the appraisalmission in consultation with SONELGAZ (para. 5.02 and Annex 2.5). They wereprepared using SONELGAZ methodology except for medium-voltage consumption,where the estimates are linked to projections of sectoral value added. Onthe basis of these forecasts, total electricity sales will grow at around8.7% annually and sales at the three voltage levels will retain roughlyequal shares through the period. SONELGAZ methodology (which the Bank foundsatisfactory) was used to convert the sales forecast to generation andmaximum demand forecasts for the interconnected system (Annexes 2.5 and2.7). Key parameters are transmission and distribution loss rates,thesystem load factor, and the timing of the planned interconnection betweenthe main system and the last of the larger isolated networks (1988/89).Under these assumptions generation on the interconnected system will grow atan average annual rate of approximately 9.2% through the decade to 1996.Starting from 1919 MW in 1986, maximum demand will grow by 9.9% per year toreach 4942 MW ten years later.
The Supply System
2.13 SONELGAZ's electricity generation system is dominated by gas-firedplants - steam turbines on the coast and combustion turbines at inland sites(Annex 2.6). In 1986 total installed capacity was 3,385 MW and totalgeneration amounted to 11,980 Gwh. Steam turbines accounted for 51% oftotal installed capacity and 55% of generation, while combustion turbinesaccounted for 38% of installed capacity and 41% of generation. Hydro energymakes a small contribution to the main interconnected system and dieselplant is used for small loads in isolated locations. A significantproportion of total national generation (7.6% in 1986) is directly generatedand consumed by industry. The bulk of the primary energy for industrialautogeneration is supplied by natural gas.
2.14 The SONELGAZ electricity transmission system consists of (a) a220-kV interconnected network, with three active links with Tunisia (at90 kV and 150 kV) and an inactive 220-kV link with Morocco, and (b) twoisolated grids in the south centered on the two main oil and gas producingareas - Hassi Messaoud and Hassi R'Mel. Electricity trade with Tunisiaappears to have been ccnfined to mutual support during capacity shortfalls.In 1984 net electricity imports reached their highest ever level, amountingto 7% of energy delivered to SONELGAZ networks. At the end of 1986, thetransmission network comprised: (a) 4076 km of 220-kV, 46 km of 150-kV,415 km of 90-kV and 4521 km of 60-kV lines; and (b) 3900 MVA and 8390 MVA oftransformer capacity at power stations and in the network, respectively.The distribution network at the end of 1986 consisted of 44,244 km ofmedium-voltage lines, 40,181 km of low voltage lines, and 29,388 medium tolow-voltage transformers.
- 15 -
2.15 Total power system losses, excluding auxiliary consumption ofgenerating stations, were 14.62 of net generation in 1986. Losses in thedistribution system are about 13.82 of the total energy delivered to thedistribution system, which is higher than economically achievable levels ofabout 8S; transmission losses are about 51 of the net sent out energy 1/,compared with achievable levels of about 31. In order to assist SONELGAZ toreduce the level of losses in a more comprehenslve manner, the proposedProject would include a Power Loss Reduction Stidy to determine measures toreduce the level of losses and the corresponding investment program. Draftterms of reference (TORs) "or this study (Anne2 2.8) have been discussedwith SONELGAZ. During negotiations, SONELGAZ i.greed to appoint by June 30,1989 consultants to undertake the above-mentioned study, to review with theBank before June 30, 1991 the recommended action plan to reduce the level oflosses and to implement the agreed recommendations (para. 6.04).
The Investment Program
2.16 The Bank has reviewed the methods used by SONELGAZ to plan the sizeand timing of new capacity - details in paras. 5.03-5.08 (the Least-CostInvestment Program). The methods used for generation and transmission aresatisfactory; regional master plans are now being developed for distributionsystems. With the assistance of SONELGAZ, the Bank revised SONELGAZ'scurrent investment program downwards to conform to the demand forecast shownin Annex 2.5. The main changes consisted of delaying new generating unitswhich are planned but not yet under construction (Annex 2.7). Annex 2.9gives estimated investment expenditures by SONELGAZ 1987 and projectedexpenditures for the period 1988-1995.
2.17 The early years of the investment program are dominated by thecommissioning in 1988 of 1000 MW of combustion turbines in four locations.This is followed by 936 MW of steam turbines at Marsat and Jijel in 1991 and1992. In 1994 the first of the new 300 MW series of steam turbines will becommissioned at Skikda, and this will be followed by a second 300 MW unit atSkikda and by similar units at Alger Ouest and Marsat El Hadjadj before theend of the 1990s.
2.18 The cost of SONELGAZ's total investment program (including gasinvestments) over the period 1987-95 is AD 72,900 million (current dinars),of which AD 22,579 million (311) is for electricity generation, AD 12,619million (171) for electricity transmission, and AD 18,022 million (251) forelectricity distribution. The investmenlt program is likely to change overtime as a result of changes in demand forecasts and other factors. Duringnegotiations SONELGAZ agreed to excharge views with the Bank on itsinvestment program as part of its annual review of load forecasts andinvestment program (para. 6.04).
Bank Involvement in the Sector
2.19 In 1955, prior to Algeria's independence, a loan of US$10 million(131-FR) was made to Electricite et Gaz d'Algerie (EGA) to help finance partof its 1955-1958 development program. Two more loans to SONELGAZ, the
1/ In 1986 transmission losses were unusually high at 6.51 because ofabnormal long distance transfer of energy due to forced outages in thenetwork (para. 5.07).
- 16 -
successor of EGA, iollowed. A loan of of US$38.5 million (997-AL) was madein 1974 for a combustion turbine station, several substations, a loaddispatch system, and consulting services'to improve SON'ELGAZ'sorganization. A second loan (Loan 1293-AL) was made to SONELGAZ in 1976 inthe amount of US$57.5 million to help fina;ce SONELGAZ's 1976-1980develop,nent program. Both Drojects formed gart'of SONELGAZ's investmentprogram for 1973-1980, and a combined Project Completion Report was issuedin June 1982. From a technical point of view the Projects were a success.The institution-building objectives were also substantiall- achieved.However, the Project's objectives were not achieved in the area ofSONELGAZ's financial goals, where fundamental differences remained betweenthe viewpoints of the Government and the Bank regarding SONELGAZ'sdeteriorating financial situation. These differences diminishedconsiderably during the economic reforms of the mid 1980s, leading to aconsensus on SONELGAZ's financial restructuring as the focus of the proposedProject which would, in addition, assist SONELGAZ in implementing its1988-1995 investment program.
- 17 -
III. THE PROJECT
Project Objectives
3.01 The recent decline in hydrocarbon revenues in the Algerian economyunderlines the need to offset these falling revenues by increasingefficiency in the energy sector. The main objectives of the proposedproject are to: (i) restore and strengthen SONELGAZ's financial positionwith a gradual shift to greater autonomy and by ensuring continued attentionto measures necessary to achieve this objective; (ii) continue theimplementation of some major investments that would contribute to theimprovement of Algeria's power system by optimizing the productivity ofongoing investments in power generation; and (iii) improve the quality ofpower supply. The project's further objectives are to: (i) continue todevelop the exchange of energy between Aigg-)a and its neighboring countryTunisia; and (ii) assist SONELC-AZ in its. institution building efforts forimproving its management, planning and engii-.ering capabilities.
Project Description
3.02 The proposed project is part of SONELGAZ's least-cost developmentprogram for the period 1988-1995, and would involve:
(a) the construction of about 475 km of 220-kV transmission lines tointerconnect the power station under construction at Jijel toSONELGAZ's bulk supply system;
(b) the construction and/or exteasion of six 220/60-kV and one220/90/30-kV transformer substations with total installed capacityof about 2180 MVA;
(c) the supply of specialized equipment and vehicles;
(d) training and supply of devices such as computer software andhardware to strengthen SONELGAZ's capabilities in networkengineering, planning and financial management; and
(e) consulting services to assist SONELGAZ in carrying out variousstudies for power system loss reduction, manpower development andfinancial management systems, and a study to determine theopportunity for introducing the combined-cycle alternative inSONELGAZ's future power generation system.
Annex 3.1 gives a detailed description of the proposed project and IBRD MapNo. 19926R indicates the location of the main project components(transmission lines and substations).
Project Cost
3.03 The estimated cost of the proposed project including physical andprice contingencies is about AD 2,543.0 million (US$391.2 million). Thetotal financing required, inclusive of interest during construction (US$32.8 million), is about AD 2,768.0 million (US$424.0 million) of whichAD 1,865.0 million (US$285.0 million) would be in foreign exchange. The
- 18 -
cost estimates include custom duties and taxes estimated at about AD 280.8million (US$43.70 million). Details of the cost estimates are given inAnnexes 3.2, 3.3 and 3.4 and summarized in Table 3.1 below. These estimatesare based on estimated January 1988 prices derived from quotations receivedrecently by the Borrower for similar works. Given the advanced stage ofproject design, and the repetitive and routine nature of the work for thesubstations, physical contingencies are assumed at: (a) lOZ for the lines,the civil works and installation and erection of the substations, and (b) 5%for substations equipment and material. Price contingencies have beencomputed assuming an implementation period consistent with the relevant Bankstandard profile and specific annual increases for domestic andinternational prices as follows:
1988 1989 1990 1991 1992 1993 1994 1995
Local () 11 10 10 10 8 6 6 6International (2) 1 3 3 4 4 4 4 4
- 19 -
Table 3.1
ALGERIATHIRD POWER PROJECT
Sumary of Project Cost Estimate 1/
- _ _ A-O million …--------- USS million -------Local Foreign Total Local Foreign TotalCost Cost Cost Cost Cost Cost
A. 220-kV Transmission Lines
subtotal base CoSt A (January 1988) 191.6S 367.16 SS8.81 38.64 74.03 112.67.Physical Contingencies 19-17 36.72 55.89 3.87 7.40 11.27.Price Contingencies 112.78 216.07 328.8S 7.12 13.64 20.76
Subtotal Cost A 323.60 619.95 943.55 49.63 9S.07 144.70
B. Substations----- _ _ _
Subtotal base cost B ( January 1988) 241.33 S65.98 807.31 48.66 114.12 162.78.Physical Contingencies 17.38 36.13 53.S1 3.50 7.28 10.78.Price Contingencies 138.40 322.12 460.52 8.73 20.33 29.06
Subtotal Cost 8 397.11 924.23 1321.34 60.89 141.73 202.62
C. Others
Vehicles & Specialized Equipment 93.80 62.50 156.30 18.91 12.60 31.51Computer Software & Hardware 0.00 1.98 1.98 0.00 0.40 0.40Technical Assistance 4.50 13.89 18.39 0.91 2.80 3.71
. Training 2.00 7.60 9.60 0.40 1.53 1.93
Subtotal base cost C (January 1988) 100.30 85.97 186.27 20.22 17.33 37.55Physical Contingencies 3.01 2.58 S.S9 0.61 0.52 1.13Price Contingencies 46.48 39.84 86.32 2.80 2.40 5.20
Subtotal Cost C 149.79 128.39 278.18 23.63 20.25 43.88
0. TOTAL COST (A+8S+C)
Total base cost (January 1988) 533.28 1019.11 1552.39 107.52 205.48 313.00.Physical Contingencies 39.56 75.43 114.99 7.98 15.20 23.18-Price Contingencies 297.66 578.03 875.69 18.65 36.37 55.02
Total Project Cost 870.50 1672.57 2543.07 134.15 257.05 391.20Interest Ouring Reconstruction
On Sank loan - 133.50 133.50 19.00 19.00On other financing sources 32.50 58.93 91.43 4.85 8.95 13.80
TOTAL FINANCING REQUIRED 903.00 1865.00 2768.00 139.00 285.00 424.00
I/ Including custom duties and taxes.
- 20 -
Project Financing Plan
3.04 The proposed Bank loan of US$160.0 million would finance about 38%of the total financing required for the proposed project and about 56% ofthe foreign cost. The remaining US$264.0 million would be covered by:(i) internal credits from the Government through the Banque Algerienne deDeveloppement (BAD) for an estimated amount of US$147.5 million; (ii)other sources of cofinancing being currently explored by the Bank and theBorrower /a and for an estimated amount of US$ 86.5 million; and(iii) SONELGAZ's cash generation for an estimated amount of US$30.0million. A summary of the project financing plan is given in Table 3.2below.
Table 3.2
Project Financing Plan(US$ million)
Local Currency Foreign Currency Total
IBRD Loan - 160.0 160.0Government 109.0 /b 38.5 /c 147.5SONELGAZ's cash generation 30.0 - 30.0Other Sources /a -_86.5 86.5
Total 139.0 285.0 424.0
/a The Borrower and the Bank are currently discussing with Eximbank ofJapan the possibility of joint-financing the proposed project and thereare good prospects that this could be firmed up by September 1988.
/b Of which US$4.9 million represent interest during construction.
/c Of which US$28.0 million represent interest during construction andUS$10.5 million represent the foreign exchange content of locallysupplied equipment and material and installation and erection.
- 21 -
3.05 The proposed Bank loan would be made to SONELGAZ. No retroactivefinancing is proposed and the foreign exchange risk would be borne bySONELGAZ.
Status of Engineering
3.06 Expansion of SONELGAZ's transmission network has been planned anddesigned by using state of the art computer models and on the basis of:
(a) traditional contingency criteria according to which the systemshould ride through disturbances at peak load without incurringinstability cascading or loss of load;
(b) studies carried out to ensure adequate operation and correct designof the projected system. These studies involve more specificallyload flows, short-circuit study, transient and steady statestability, switching surges and dynamic overvoltages; and
(c) mechanical and electrical design and specifications of equipmentand materials standardized in accordance with criteria establishedduring previous construction and operation of SONELGAZ'stransmission system.
The adequacy of these criteria and the results of the studies carried out bySONELGAZ for its 1988-1995 transmission development program which includesthe proposed Project, have been reviewed by the Bank and found satisfactory.
3.07 Engineering of the proposed project will be carried out jointly bySONELGAZ's own staff and the contractors for the installation of the linesand substations with the exception of the type of towers to be used for thetransmission line Khemis-Oued Sly, which has been determined with theassistance of Electricit6 de France (EDF) at the end of 1986. The projectdesign has been reviewed by the Bank and found satisfactory.
Project Implementation
3.08 The proposed project, which will be implemented by SONELGAZ, is inan advanced stage of preparation and SONELGAZ's Engineering Department hascompleted most of the preliminary survey and design work for thetransmission and substation components. The related specifications andprocurement documents are being prepared and bidding documents are expectedto be issued starting June 1988. Conr-act awards for supply of equipmentwill start early 1989 and installation and erection works of the facilitieswill start in September 1989. The proposed project is expected to becompleted by June 30, 1994. Annex 3.5 gives the detailed projectimplementation schedule for the two major components which are thetransmission lines and the substations. SONELGAZ's Engineering Departmentwill provide overall coordination vis-a-vis the Bank. This department iswell staffed and its performance is satisfactory.
Land Acquisition
3.09 In order to avoid delay in project implementation, SONELGAZ hasalready initiated the administrative procedure for the acquisition of theland requirea for the substations. Out of the seven substations to beconstructed in the proposed project, land is already available for three
- 22 -
substations; for the remaining four substations, sites have been selectedand administrative procedure for purchasing the related land initiated.During negotiations, SONELGAZ confirmed that the required land for the foursubstations would be acquired no later than December 31, 1988 (para. 6.04).
Vehicles and Specialized Equipment
3.10 In 1982, a ministerial decree restricted import of vehicles andspecialized equipment for all public enterprises in Algeria. Thesecontinuous restrictions led to a situation where SONELGAZ's vehicles keptdeteriorating gradually. At the end of 1986, over 80% of SONELGAZ'svehicles were more than 5 years old and the ratio of their utilization wentup to about 6.5 employees/vehicle which is about twice the acceptable levelof 3 employees/vehicle. The situation was becoming critical and SONELGAZmanagement commissioned a study which defined the priority needs of itsoperation and maintenance departments to perform their tasks adequately andmore efficientlv. The acquisition of vehicles and specialized equipmentincluded in the proposed project will assist SONELGAZ in achieving thisobjective and SONELGAZ will be responsible for obtaining the requiredexemption to import these vehicles.
Consulting Services
3.11 Implementation of the technical assistance component of theproposed project will require about:
(a) 50 man-months of consulting services to assist SONELGAZ in theimplementation of the loss reduction study at an estimated totalcost of about US$0.70 million of which about US$0.50 million wouldbe in foreign exchange;
(b) 130 man-months of consulting services to assist SONELGAZ in theimplementation of the Management Informatiui. Svstem Study(para. 4.28) at an estimated total cost of about US$2.0 million, ofwhich US$1.40 million would be in foreign exchange;
(c) 20 man-months of consulting services to assist SONELGAZ in theCombined-Cycle Study at an estimated total cost of aboutUS$0.25 million, of wh.'ch US$0.15 million would be in foreignexchange; and
(d) 30 man-months of consulting services to assist SONELGAZ in theManpower Development Study at an estimated total cost of aboutUS$0.50 million, of which US$0.35 million would be in foreignexchange.
Procurement
3.12 SONELGAZ has grouped the goods and services to be procured for theproposed project into 15 packages. Annex 3.6 gives the details of thepackages related to the transmission lines and substations components andtheir estimated procurement schedule. The packages proposed for Bankfinancing are listed in Table 3.3 below which has been established with theassumption that joint-financing with Eximbank of Japan would materialize.
- 23 -
TABLE 3.3
f1TI*LT PACKiAGQS WITH 1110 FINANCING(in US S Million)
Joint - FinancingLLLn5 Cost Forsain Cost I FoD l U Jana(LC) (FC) (65Z of FC) (35Z of FC)
A. 220-ky transmission lines:
(1) Conductors for all the lines 0.00 18.90 12.30 6.60except the small connexions
(2) Insulators for all the lines 0.00 3.30 2.20 1.10
(3) Hardware for all the lines 0.00 1.40 0.90 0.50
(4) Installation of the line khemis- 5.40 6.60 4.30 2.30Oued-Sly
(S) Engineering services, poles. installation 13.80 31.90 20.70 11.20of the lines Skikda-Bellara & Jijel-Ain-Mlilaand engineering services & poles of the lineMansouriah-El-Kseur
(6) Engineering services, poles and 13.10 25.40 16.50 6.90installation of the line mansouriah-Jijel-Bellara & installation I erection of theline Mansouriah-El-Kseur
Sub-total A 32.30 87.50 56.90 30.60
S. Substatlons:
(7) Power transformers 1.20 16.00 10.40 5.60
(8) Circuit breakers 0.00 7.20 4.70 2.50
(9) Substations east regionDesign. other equipment & supervision 1.10 26.00 16.90 9.10Civil works & housing 14.30 15.80 10.30 5.50Installation & Commissioning 2.60 3.20 2.10 1.10
(10) Substations Central Region (1)Design, other equipment & supervision 2.70 33.30 21.60 11.70Civil works and housing 14.20 16.10 11.10 6.00Installation & Commissioning 3.10 3.60 2.40 1.20
(11) Substation Ouled-Fayat __2J2Q 17.60 11.40 6.20Sub-total a 41.40 138.80 S0.20 48.60
C. Others
(121 Specialized equipment & vehicles 22.10 14.70 9.50 5.20
(13) Computer software & hardware 0.00 0.50 0.30 0.20
(141 Technical Ass%tance 1.00 3.30 2.10 1.20
(15) Training 0.5JL 1.70 .lO 0.70Sub-total C 23.60 20.20 12.90 7.30
GRAND TOTAL 97.30 246.50 160.00 86.50
(1) Excluding the civil works and installation of the 7 feeders for the linesincluded in the project
2661L/23
24 -
All items to be financed by the Bank will be procured in accordance with theBank's procurement guidelines. Items (1) through (12) will be procuredthrough international competitive bidding (ICB) in accordance with Bankprocurement guidelines. For procurement of goods through ICB, localsuppliers will be allowea a margin of preference equal to the existing rateof custom duty applicable to non-exempt importers or 15% of thecost-insurance-freight (CIF) price, whichever is lower. Training manualsand other training aids and computer software/hardware packages will beprocured through international shopping; for such items the Borrower willobtain written price quotations from at least three qualified suppliers.About 230 man-months for consulting services will be procured in accordancewith the provision of the Bank's guidelines for Use of Consultants. Allcontracts for works, equipment and materials to be financed by the Bank andcosting over US$500,000 each will be subject to prior Bank review. OtherBank-financed contracts will be subject to post-award review. To completethe proposed project SONELGAZ will reserve the procurement for the followingitems; which will noL be financed under Lhe prupubed Bank loan for localsuppliers and contractors, (i) the towers for the line Khemis-Oued-Sly; and(ii) and the conductors, civil works and installation and erection for therequired connections to the main network of the lines and substationsincluded in the proposed project (about 25 km of lines and seven feeders indifferent existing substations). This reserved procurement will not affectthe satisfactory execution of the project and remains compatible with theBank's objectives of ensuring economy, efficiency and overall projectsoundness. Table 3.4 below summarizes the procurement arrangements for theproposed project.
- 25 -
TABLE 3.4
Procurement Arrangements(US$ million) /a
Procurement ArrangementsProject Elements ICB Other Total Cost
A. 220-kV Transmission Lines
- Equipment 55.94 10.00 /b 65.94(31.25) (31.25)
- Installation & Erection 67.00 2.91 /b 69.91- Engineering (24.00) (24.00)
Services & SONELGAZAdmin. of the Project - 5.93 /c 5.93
(1.65) (1.65)- Rights of Way 2.92 2.92
B. Substations
- Civil Works & Housing 62.11 3.65 /b 65.76(21.40) (21.40)
- Equipment 105.72 - 105.72(58.10) (58.10)
- Installation & Erection 15.07 0.90 /b 15.97(5.35) (5.35)
- EngineeringServices & SONELGAZ Admin.of the Project - 10.75 /c 10.75
(5.35) (5.35)- Land Acquisition - 4.42 4.42
C. Others
- Specialized Equipment 36.82 - 36.82& Vehicles (9.50) (9.50)
- Computer Software & - 0.47 /d 0.47Hardware (0.30) (0.30)
- Technical Assistance - 4.34 /e 4.34(2.10) (2.10)
- Training - 2.25 2.25(1.00) (1.00)
TOTAL 342.66 48.54 3912.Q
(149.60) (10.40) (160.00)
/a Figures in parenthesis indicate the amount to be financed by the Bank.(See Table 3.3)
/b Reserved procurement, not to be financed under the Bank loan./c Force account and according to Bank's procurement guidelines fol the use
of Consultants./d International shopping./e According to Bank's procurement guidelines for the Use of Consultants.
- 26 -
Disbursements
3.13 The disbursements from the proceeds of the proposed Bank loan willbe made for:
(a) 65% of the foreign expenditures for directly imported equipment andmaterials and 65% of local ex-factory prices of equipment andmaterials manufactured in Algeria;
(b) 36% of total cost of contracts for civil works and installation anderection;
(c) 52% of total expenditures for services of consultants; and
(d) 65% of foreign expenditures for training.
These percentages have been computed on the basis of joint-financingwith Eximbank detailed in Table 3.3.
3.14 The estimated disbursement schedule for the proposed Bank loan isshown in Annex 3.7 and has been computed on the basis of the EMENA Regionstandard profile for similar power project. Annex 3.8 gives a comparisoonwith the actual disbursement of the Algeria First and Second Power Projects(Loans 997-AL and 1293-AL).
3.15 Disbursement requests will be fully documented except for claimsfor expenditures under contracts whose value is less than US$500,000equivalent. These claims will be subject to presentation of a Statement o.Expenditures (SOE) for which the supporting documents will be retained bySONELGPZ and reviewed periodically by the Bank. Also, during negotiations,SONELGAZ agreed to open and maintain in US Dollars a special account ofUS$8.0 million in a major Commercial Bank or in its Central Bank on termsand conditions satisfactory to the Bank (para. 6.04).
Retroactive- Financing and Advanced Contracting
3.16 No retroactive financing or advanced contracting is involved in theproposed project.
Environmental Impact
3.17 The proposed project has no major adverse effects on theenvironment. Aesthetic impacts on the landscape and, to a lesser extent,noise are the principal adverse effects. Also SONELGAZ will coordinate therouting of the lines and the land acquisition with local authorities toreduce their adverse impact. No environmental hazards are foreseen.
Project Risks
3.18 Two lines, namely El-Mansouriah-Jijel-Bellara and Bellara-Skikda,are in mountainous areas difficult to reach. However, adequate technologywill be made available to cope with the expected terrain conditions. Themain risk during project implementation is that the financial restructuringprogram for SONELGAZ may not be implemented as envisaged; this risk isaddressed through the financial and other covenants which form part of thelegal agreements.
- 27 -
IV. FINANCIAL ASPECTS
Past Financial Performance and Present Position
4.01 SONELGAZ's consolidated financial performance and position steadilydeteriorated during the last decade. The utility's history has been markedby periodic financial crises followed by financial rehabilitation schemes oflimited scope and effect. Between 1976 and 1980, SONELGAZ went through twofinancial restructurings which failed to restore and maintain long-termfinancial equilibrium. Negative net internal cash generatIon, highdebt/equity and low debt service coverage ratios, remained constant featuresof SONELGAZ's financial performance. The utility, nonetheless, continued toincur ever increasing amounts of debts to carry out its ambitiousconstruction program.
4.02 Despite partial restructuring measures in 1980, that included theconversion of short and medium-term debt into long-term debt, cancellationof interest payments on Government loans, and reduction of deferred interestcharges in the balance sheet, SONELGAZ was still in no position to meet allits debt service obligations. As a result, loan repayments to BanqueAlgerienne de Developpement (BAD), SONELGAZ's main sponsor, were suspendedunilateraly. At the end of 1986 outstanding principal and interest arrearsamounted to about AD 2 billion. Net internal cash generation was negativeduring 1985 - 1986 and the debt service coverage ratio below 1.0.
4.03 SONELGAZ's consolidated financial statements for the last threefiscal years (1984-1986) are shown in Annex 4.1. Key indicators of itsfinancial performance during those years are summarized below:
Table 4.1
SONELGAZ: Key Financial Indicators 1984-1986 /a
1984 1985 1986
Sales revenues - Electricity (AD million) 2,234 2.498 2,687- Gas (AD million) 378 404 435 /b
Income before tax (in AD million) 406 362 (198)/bNet income after tax (AD million) 99 137 (305)Net internal cash generation (AD million) 52 (29) (149)Annual investment program (AD million) 3,856 4,597 4,663
Net internal cash generation ratio 1.3% -1% -5%Debt service coverage ratio 1.06 0.97 0.89Debt/Equity ratio 62:38 61:39 61:39
/a Since SONELGAZ does not have an accounting system producing separatefinancial statements for electricity and gas (para 4.23) this entiresection deals with SONELGAZ's finances on a consolidated basis.
/b Including adjustment for exchange losses on long- and medium-term debtwhich are normally not recorded by SONELGAZ.
- 28 -
4.04 SONELGAZ's poor financial condition is due to a variety of factors,notably its inability to raise tarifts (paras. 4.05 and 4.14); a policy offinancing capital investment to a large extent through loans rather thanthrough Government equity capital contributions (para. 4.14), and theintroduction starting in 1980 of a new income tax system that resulted forthe utility in effective taxation rates between 62% and 80% (para. 4.20).Combined with serious public sector arrears problems (para. 4.06) thisculminated in the present financial crisis.
4.05 The Bank has, under previous loans, tried to tackle the task ofimproving SONELGAZ'S financial situation. Under the first power project(Loan 997-AL, 1974), Government agreed to take all steps necessary toachieve a sound financial position. Such steps included among others,tariff adjustments for SONELGAZ to attain. for it,. electri'e 4 tv ytfiArttieXC _
cash generation ratio of 15% until 1977 and a financial rate of return onaverage net fixed assets in operation of 7% thereafter. Government agreedto extend these covenants mnder the second power project (Loan 1293-AL,1976). To achieve the covenanted financial targets, it was agreed thattariff increases estimated at that time by the Bank at an average o0 43%over the period 1977-1.980, would be implemented. SONELGAZ could not complywith these covenants because Government deferred adjusting the tariffs untiL1980, when it decreed an average 60% increase in both electricity and gasrates to be implemented in three stages through January 1, 1982. Someimprovements were noted at the end of 1980 as a result of these first lateincreases and the restructuring of the balance sheet (para. 4.03). Therate of return and cash generation ratio became positive (3.9% and 3.9%respectively) and the debt service coverage ratio rose above 1.0. However,these results were only temporary. The rate increase for low voltage (LV)consumers was withdrawn shortly after its implementation as the resultingtariffs were, in Government's view, socially unacceptable (para 2.05); thisnotwithstanding the fact that these tariffs were still only at their 1964level in nominal terms. There have been no tariff increases since then(para. 4.14).
Public Sector Arrears
4.06 A most persistent problem for SONELGAZ has been that of arrearsfrom central and local Government and large public sector enterprises. Asummary is given below:
- 29 -
Table 4.2
SONELGAZ: Public Sector Receivables
1984 1985 1986----- (AD million)…
Electricity and Gas ConsumptionCurrent billings 216 254 275Arrears 323 402 469
539 656 744
Works and other ServicesCurrent billings 0 0 0/aArrears 598 625 664
Total 1,137 1,281 1,408
Number of Days Billing (electricity & Gas) 135 150 1632 of total receivables 71% 7,% 742
/a Total receivables balances at year end on account of works and servicesare in fact arrears since all works and services should, according toSONELGAZ's policy, be paid for in full by the time the work iscommissioned or the service rendered.
4.07 At the end of 1986, arrears for electricity and gas consumptionamounted to over five months of annual billings to Government, and arrearsfor works and services were equivalent to over 60% of annual biilings.Repeated efforts by SONELGAZ to collect from the Government were-noteffective. To ensure expeditious settlement of public enterprise arrears, anation-wide problem in Algeria, the Ministry of Finance *ssued a decree in1982-83, allowing all public enterprises to have their banks collectreceivables on their behalf from their debtors' accounts with other banks,or from their central budget allocations. However, the decree was abrogatedin 1985 due to numerous abuses. SONELGAZ was in fact worse off, since itsbank accounts were incorrectly debited by other public enterprises. As ofDecember 31, 1986, about AD 400 million worth of such debits were stillunder litigation.
4.08 Aware that the timely collection of receivables is a key factor toSONELGAZ's financial recovery, Government has addressed the issue as part ofSONELGAZ's financial restructuring p'lan. One clause of the restructuringagreement states that SONELGAZ shall not maintain receivable balances atyear-end in excess of an amount equivalent to two months of its annualsales. However, the clause does not indicate how this should be achieved and
- 30 -
contains specifically no Government commitments to reduce its own arrears.During negotiations, Government indicated that a new legal framework wasbeing developed as an integral part of the ongoing economic reforms (para.1.24). Implementation of the new 'code de commerce' would lead to theestablishment of normal commercial relations between all public enterprises(Societ6s Nationales). It is expected that SONELGAZ will be allowed todisconnect services to any other public entity in case of non-paymentwithout government interference. SONELGAZ agreed during negotiations toadopt a more aggressive collection policy to ensure timnely payment by allits customers, and specifically, to reduce its customers' receivables levelsto 2 mor,ths of billings by 1991 according to an agreed action plan (paras.4.13-6.04). In addition, and because all government bodies largelycontributed to the arrears and, in view of their magnitude, agreement wasobtained from government that it would assist SONELGAZ with all measuresnecessary to (i) settle, by December 31, 1990, all overdue receivables dueto SONELGAZ as of December 31, 1987; (ii) establish, starting in 1988,procedures such that amounts due to SONELGAZ by its administrativesubdivisions on accou;nt of sales of electricity and gas should not exceed,at year end, two months of the total of such sales during the year(para. 6.02); and (iii) cause all public bodies to pay their bills toSONELGAZ for works and services within 30 days ot their due date (para.6.02).
Loans to Former Operational Units
4.09 As of January 1, 1984 six of SONELGAZ's former operational unitswere set up as independent public enterprises (para. 1.11). Agreement wasreached between SONELGAZ and the newly established companies that theirliabilities vis-a-vis SONELGAZ relating to: (i) their respective shares ofexternal debt would continue to be centrally ,nanaged by SONELGAZ, to whomthey would repay interest and principal payments made on their behalf, whilelocal debt would immediately be transferred to the companies' own books; and(ii) goods and services delivered prior to the restructuring would be fullyrepaid to SONELGAZ by June 1986.
4.10 Because most of the newly established entities are in extremelypoor financial shape, ani although transfer of the debt portion of theoutstanding claims was made during 1987 SONELGAZ's balance sheet at the endof 1987, still shows claims amounting to about AD 350 million against thesecompanies. SONELGAZ continues to have business dealings with the companiesand is, in some cases, their only custorer. Therefore, agreement wasreached during negotiations that SONELGAZ will take all measures necessaryto collect the remaining balances from the concerned entities by December31, 1989 (para. 6.04).
Future Financial Performance
Financial Restructuring Plan
4.11 To tackle SONELGAZ's immediate problems, Government has approved afinancial restructuring of the entity, within the context of the general andextensive economic reforms that are being implemented. The restructuring
- 31 -
plan would, under certain conditions which ara further discussed inparagraph 4.14 below, provide SONELGAZ with adequate means of achieving longterm financial equilibrium. Although it fails to define a new framework forthe relationship between Government and SONELGAZ, which is presently markedby a total lack of autonomy for the utility, the plan does provide the basisfor a possible future contract-program, a possibility which is reportedlybeing envisaged under the new public enterprises law, and would be aprerequisite to any future Bank operation in the power subsector.
4.12 The plan was developed by SONELGAZ's management together with theNational Commission for Financial Restructuring. The ensuing recommendationswere approved by the Council of Ministers in early November 1987, and werepartially implemented during 1988.
4.13 The approved measures indicate that Government will:
(a) beginning in 1987, increase energy tariffs by at least 5% each yearuntil 1992. A 10% increase which is to be implemented during 1988to make up for 1987 (para. 4.14) has been made a condition ofeffectiveness (para. 6.01). During negotiations, Governmentindicated that the approved 5% tariff increase constitutes aguaranteed minimum above which, further increases could beenvisaged should SONELGAZ's financial situation warrant it andprovided prevailing conditions allow such increases (para. 4.15);
(b) grant a restructuring loan of AD 1.5 billion to SONELGAZ to pay offits most urgent debt obligations. This loan bears interest at 2.5%per annum over a period of 15 years with a 2-year grace period;
(c) convert outstanding AD 1.321 billion in BAD loans into equitycontribution; and
(d) extend up to a maximum of 25 years, the maturities of all loansgranted to SONELGAZ by BAD between 1980 and 1985.
Concurrently, SONELGAZ is to achieve greater operational efficiency through:
(a) reducing the level of its inventories to six months annualconsumption in 1988, down from 14 months in 1986. This is anoverly ambitious objective given all the practical problemsinvolved. A more realistic set of targets was agreed with SONELGAZ,which includes achievement of a 6 months inventory level by 1992and specific intermediate targets to monitor progress. To complywith the agreed action plan, SONELGAZ is currently developing amore efficient inventory management system which would, among otherthings, tackle the existing inventory recording problem by allowingproper initial classification of each item either as investment orinventory;
- 32 -
(b) reducing its customer receivables from five months of annualbillings in 1986 to two months in 1988; again this is an objectivewhich the utility cannot realistically achieve. It was agreedinstead, during negotiations, that SONELGAZ will achieve thistarget by 1991, a date by which all Government arrears would havebeen settled (para. 4.08) and SONELGAZ's new collection policyfully operational;
(c) cutting back on all operating expenditures. Specific targets areset for each category of expenses; and
(d) depreciating fixed assets over a shorter period of time (25 yearsinstead of 30 years on average). This would reduce taxable income(para. 4.18) and hence improve cash generation.
Tariffs
4.14 SONELCAZ's electricity tariffs have remained unchanged since 1964for the low-voltage category (para. 4.05) and since 1982 for the medium andhigh-voltage categories (the same applies to the gas tariffs). The tariffswere designed to be sufficient only to finance replacement and routinedevelopment; all major works were being financed either by grants (RuralElectrification program and public distribution of gas up to 1984) or,mostly, by loans through state banks. This policy can no longer besustained if SONELGAZ is to become financially viable, a view that is nowgenerally accepted in Algeria as evidenced by the ongoing reform process.During negotiations, Government stated its commitment to a public enterprisereform which would create the basic conditions for fostering increasedfinancial as well as managerial autonomy for all public enterprises (PE's).The specific measures such reforms would entail are still being worked outand could include partial or full transfer to Government of existing publicenterprise debt, new capital injections, periodic tariff adjustments overand above those already approved in the course of individual restructuringschemes, and operating as well as investment subsidies. At this stage itwould be hazardous, at best, to try to anticipate the specific set ofmeasures that will be taken for any particular PE, since the scope andschedule of implementation of the intended reforms will heavily depend,among other things, upon the availability of budgetary resources allocatedto all PE's most of which are in as poor a financial shape as SONELGAZ.
4.15 In view of these uncertainties, the Bank's strategy concerningSONELGAZ, has been to agree on general financial principles and on shortterm financial objectives which are easily monitorable, realistic and likelyto be met within the project's timeframe. The financial restructuringmeasures, once fully implemented, should promote greater financialdiscipline in the conduct of SONELGAZ's future financing strategy.Government's endorsement, through its approval of these measures, of apolicy designed to achieve a more systematic match between the utility'slocal financing terms and the life of its assets, is in that respect, veryencouraging and an indication of a notable shift from past policies as wellas a willingness to restore and maintain the utility's financial equilibriumthrough sound financial management.
- 33 -
4.16 During negotiations, Government further indicated that SONELGAZ would,in the future, be duly compensated for shortfalls in revenues resulting frominadequate tariffs. In other words, should implementation of tariffincreases over and above the guaranteed minimum prove, in Government's view,unfeasible, SONELGAZ would receive compensation adequate to fulfill itsobligations. Strict observance of this principle should provide the minimumconditions for ensuring improved financial performance for SONELGAZ in thefuture as evidenced by the positive reversal in the trend of its financialindicators; a positive net cash generation, and a debt service coverageratio consistently above 1.1 (paras. 4.19 and 4.22).
4.17 The forecasts assume (i) that the required cash generation levels(para. 4.19) would be achieved solely by means of tariff adjustmentsestimated to amount to a total of 60% in nominal terms for the 1988-1995period and (ii) that tariff increases will take place on January 1 of eachyear. The resulting financial performance indicators are summarized inTable 4.4. In addition, a sensitivity analysis was carried out to determinethe financial implications of tariff adjustments limited to the annual 5%already secured through the financial restructuring and which would amountto 35% in nominal terms over the same period. The related financial tablesand results are shown in Annex 4.2, and indicate that Government would insuch event have to provide SONELGAZ with additional financial assistance(debt service transfer) totalling AD 7.8 billion.
4.18 SONELGAZ's forecast financial statements for 1988-1995 are shown inAnnex 4.1. Its financing plan for that period is summarized below:
- 34 -
Table 4.3
SONELGAZ: Financing Plan 1988-1995
SOURCES OF FUNDSAD Million US$ Million %
Cash Generation
Gross Internal Cash Generation 26,158 4,048 32.9Less Debt Servie (20,989) (3,309) (26.9)
Net Internal Cash Generation 5,169 739 6
Government Contributions- Rural Electrification 4,430 769 6.2- Restrtucturing Grant 1,321 256 2.1
5,751 1,025 8.3Consumers Contributions 7,348 1,146 9.3
Total Contributions 13,099 2,171 17.6
Borrowings
- Local Banks 43,409 6,836 55.5- Suppliers Credits 12,093 1,944 15.8- Proposed IBRD 1,019 160 1.3- Proposed Exim-Bank 551 86 0.7- Government Restructuring Loan 1,500 291 2.4
Total Borrowing 58,572 9,317 75.7
Other Sources 524 91 0.7
TOTAL SOURCES OF FUNDS 77,365 12,321 100
APPLICATIONS OF FUNDS
Construction & Expansion Program 67,407 10,687 86.7Proposed Project 2,545 392 3.2Changes in Working Capital 7,413 1,242 10.1
TOTAL APPLICATIONS OF FUNDS 77,365 12,321 100
- 35 -
Net Internal Cash Generation
4.19 During the project implementation period, SONELGAZ should achievenet internal cash generation levels sufficient to finance 7% of itsinvestment program, excluding consumers contributions A', and Governmentcontributions for the national electrification program; a significantimprovement over past performance. During negotiations, agreement wasreached that Government and SONELGAZ will take all necessary actions,including but not limited to tariff adjustments, to enable SONELGAZ toachieve a net internal cash generation ratio equivalent to at least, 3% in1990, 7% in 1991, 132 in 1992, and 15% in 1993 and thereafter, on itsconsolidated investment program (gas and electricity) on a moving three yearaverage basis (para. 6.03). Government and SONELGAZ also agreed to: (a)review at least three months before the end of each fiscal year the adequacyof the utility's estimated revenues to achieve the agreed net internal cashgeneration ratio for the following year; and (b) determine on the basis ofthe above review, the measures required to achieve the agreed ratio andconsult with the Bank on these measures and their implementation schedulebefore the beginning of that fiscal year (para. 6.03).
Income Taxes
4.20 Since 1980, SONELGAZ is required to file a separate income taxreturn for each of its thirteen operational units, separately rather than ona consolidated basis. The new procedure has prevented SONELGAZ fromoffsetting surpluses and deficits generated by its different operationalunits. This has resulted for the utility in taxation rates between 622 and80% which far exceed the official 55% income tax rate, thereby significantlyreducing cash generation. During negotiations, Covernment indicated thatfiscal reform was one of the main components of the new public enterprises'law and that provisions likely to significantly reduce the burden of directtaxation on PEs were being envisaged.
Debt Management
4.21 SONELGAZ's financial performance should be such as to allowSONELGAZ to service its debt adequately without impairing its self-financingability. During negotiations, agreement was reached that SONELGAZ wouldgenerate net resources for each year starting in 1990 consistent with thecovenanted cash generation ratios, and adequate to service all its debtincurred or to be incurred (para. 6.04). SONELGAZ's debt service coverageratio is expected to rise from 0.9 in 1986 to 1.4 in 1993 and wouldthereafter remain satistactory.
1/ Consumers generally contribute between 60 and 90% toward the cost ofconnections.
- 36 -
4.22 Key indicators of SONELGAZ's future financial performance aresummarized below:
Table 4.4
SONELGAZ: Key Financial Indicators 1988-1995 (Base Case)
1988 1989 1990 1991 1992 1993 1994 1995
Tariff increase (%) 10 10 14 10 8 0 5 3(in nominal terms)
Net internal cashgen. ratio (%) (10) (2) 3 7 13 15 15 16
Debt service transferredto Government 0 0 0 0 0 0 0(AD million)
Bank Overdraft(AD million) 2,500 1,500 1,000 500 0 0 0 0
Debt service coverageratio 0.74 0.94 1.08 1.17 1.33 1.41 1.45 1.44
Accounting and Financial Reporting Standards
4.23 SONELGAZ is organized into thirteen operational units, nine ofwhich are regional offices located in the main urban centers. Each unit hasits own Accounting Department which reports directly to a central accountingdivision within the Finance Department at Headquarters. Although partialcost accounting for some activities has been introduced, its generalaccounts are kept on a consolidated basis, in accordance with therequirements of the national accounting system (Plan Comptable Algerien).
4.24 'SONELGAZ's accounting practices and procedures are notsatisfactory. The utility has experienced difficulties in trying to justifythe outstanding balance of some major accounts, such as accountsreceivable. Customer accounts are managed by the Customers Department,which keeps a parallel record of billings and collections. As there was noattempt, until recently, to reconcile its manual records with the accountingbalances, major discrepancies exist. The internal control unit is currentlyimolementing an exhaustive work program to investigate discrepancies andLlean up all accounts by 1989 (para. 4.24).
4.25 Under loans 997-AL and 1293-AL, the Bank was unable to obtainfinancial statements showing the annual results for electricity, gas andother miscellaneous operations separately. These difficulties stemmed fromthe fact that the Bank's reporting requirements were not geared to
- 37 -
SONELGAZ's financial information system which reports only on itsconsolidated operations (para. 4.21). To avoid such problems fromrecurring, it is proposed that SONELGAZ's consolidated financial resultsserve as the basis for monitoring its financial performance until separationof electricity and gas accounts is implemented after completion of theproposed accounting system study (para. 4.28).
Internal Auditing
4.26 Although SONELGAZ does not have an internal auditing unit as such,it operates under a fairly stringent system of internal controls. The"Division d'Inspection Comptable", within the Finance Department prepareseach year a confidential inspection plan that determines which units'accounts and procedures are to be reviewed. The inspection covers suchareas as contracting, procurement procedures, customer credit policies, etc.Each year individual accounts are selected for review in order to obtainreconciliation between physical inventory and accounting balances. Aprogram to clean up the accounts is underway for the period 1985-1989.
External Audjitig
4.27 Until 1978, SONELGAZ's accounts were audited by a statutory auditor(commisse.ire aux comptes) designated by the Ministry of Finance. Thisarrangement was found acceptable under the two previous Bank loans althoughthe audit reports were invariably issued with considerable delays. Sincethat date, however, all audit responsibilities were transferred to the Courdes Comptes. Because of staff shortage, the "our des Comptes has so farnever issued an annual report on SONELGAZ. As a result, the Bank's auditrequirements have not since then been complied with. To avoid therecurrence of such problems, alternative audit arrangements were discussedwith SONELGAZ. The Societe Nationale de Comptabilite (SNC), aGovernment-owned auditing firm, is presently the only Accounting andAuditing firm of importance operating in Algeria. SNC has already beenselected as auditor under a number of Bank projects. It has a staff of 280,and branches in eighteen cities throughout Algeria. During negotiations,agreement was reached that SONELGAZ's accounts will be audited, from fiscalyear 1987 onwards, by auditors acceptable to the Bank and that its financialstatements and audit reports be furnished to the Bank no later than ninemonths after year end (para. 6.04).
Billing and Collection
4.28 Meter reading and billing for low voltage and low pressurecustomers are done on a quarterly rotating basis for electricity and gassimultaneously. Industrial customers are billed monthly. Bills a.-e issuedabout two weeks after meter reading and show separate amounts forelectricity and gas. Private customers are normally disconnected if paymentis not made within 15 days of billing (i.e. about 1 month after meterreading). Payment can be made to the meter readers who present the bill,via banks, at SONELGAZ's offices and, since recently, via electronic fundstransfers with the Comptes de Cheques Postaux (CCP). Past collection
- 38 -
performance has been quite satisfactory for private customers, but seriousproblems exist with respect to the public sector (para. 4.06).
Management and Accounting Systems
4.29 SONELGAZ's Management and accounting systems have in recent yearsproven to be inadequate in view of the utility's formidable expansion overthe last decade (para. 1.13) and after the major reorganizations itunderwent (para. 1.11). The geographical dispersion of the offices, thelack of uniform standards of reporting among the different operationalunits, and the need for accurate and readily available debt service data,have exacerbated the deficiencies of the present system. Many financial andoperational reports are being issued on a monthly or annual basis but arenot always geared to existing needs. Aware of these shortcomings, and inorder to begin to correct them (para. 4.28), management recently acquiredfour microcomputers for the Finance Department to help prepare a reli&bledata base. High on the priority list are the computerization of the debtservice and the development of a financial forecasting model and acomputerized cash management system. However, these tasks have so farlagged behind due to the insufficient number of computers. Therefore, theproposed project would finance the acquisition of microcomputers andappropriate software packages for the Finance Department to improveSONELGAZ's day to day management and accelerate the computerizationprocess. (para 3.02)
4.30 In addition, and to help SONELGAZ introduce a comprehensive andefficient management system and a new accounting framework, a study will becarried out under the proposed project. The study will (i) review presentand future information needs and assess the strengths and weaknesses of thecurrent accounting system; (ii) design an integrated and computerizedManagement information system (MIS), and (iii) explore and recommend analternative accounting system better suited to the utility's ueeds. Duringnegotiations agreement was reached that SONELGAZ take all steps necessary toappoint by June 30, 1989 qualified consultants satisfactory to the Bank, tocarry out the study (Terms of reference in annex 4.4). The study will becarried out in two phases according to the following action plan:
(i) the first phase will assess the strengths and weaknesses of theexisting accounting and Management information systems and theiradequacy to future needs, and should be completed not later thanJune 30, 1990; and
(ii) the second phase, will make recommendations for more appropriatesystems and related implementation schedule and should be completednot later than June 30, 1991. Implementation of theserecommendations by SONELGAZ would start thereafter (para. 6.04).
Finance Staff and Training
4.31 SONELGAZ's Finance Department is headed by a competent andexperienced management team. Staffing at the intermediate and lower levelsis however, inadequate. The utility has been experiencing some difficulties
- 39 -
in attracting and retaining suitable candidates because of: (i) a limitedsupply of people educated in accounting and finance in Algeria; and(ii) high turnover of existing staff because of less stringent gradingsystems and better promotion opportunities offered by other publicenterprises. Government has recently taken steps to introduce a uniformgrading system in the public sector; it is expected that SONELGAZ willbenefit from this through reduced staff turnover. In addition, SONELGAZ isplanning to undertake, under the proposed project, a manpower developmentstudy which would aim, among other things, at reducing staff turn-over(para. 2.03)
4.32 SONELGAZ has an excellent training program for financial andaccounting staff. In fact, the high quality of accounting staff training atSONELGAZ is reportedly the main reason why there is such a high staffturnover upon completion of the training program. The training center,located at Ben Aknoun, offers a wide range of courses including seminars onspecific subjects of topical interest, refresher courses, as well as a fulltime two-year program leading to a nationally recognized degree inAccounting or Finance. However, because of staff turnover problems theFinance Department presently does niot wish to meet the training needs of allstaff, especially newly recruited employees; traini:.g of the latter istherefore, usually performed on the job. There is, however, a need to: (i)strengthen the skills of intermediate level staff in the areas of financialmanagement and planning and in auditing; and (ii) train selected staff inmicrocomputer programming - a field which is presently not included in theBen Aknoun Curriculum. Adequate funding has been provided under theproposed project for staff training in selected areas including finance,auditing and programming (para 2.04).
Insurance
4.33 SONELGAZ carries insurance adequately covering the risks of publicutility enterprises. Assets are insured against the risks of fire,explosion and other electrical incidents. The policies are with astate-owned company - Compagnie Alg6rienne d'Assurance (CAAR), and alsoinclude workman's compensation and third party liability of the utility'soperations.
- 40 -
V. PROJECT JUSTIFICATION
5.01 The primary justification for the project lies in the support itbrings to the financial restructuring of SONELGAZ. Under the restructuringSONELGAZ will move from a position of negative net internal cash generationto achieving increasingly positive levels. The economic justification forthe project rests on two analyses. The first demonstrates that thetransmission component is an integral part of the least-cost investment planfor meeting the projected growth in electricity demand. The second analysisconcludes that there would be an adequate economic rate of return on thetime slice of electricity investment of which the proposed project is a part.
Demand Justification
5.02 The load forecasts used in this evaluation were prepared with theassistance of SONELGAZ (Annex 2.5). The high voltage forecast is based o.? adetailed survey by SONELGAZ of existing and proposed new customers. Thelow-voltage forecast was derived using SONELGAZ methods from forecasts ofpopulation, number of households (based on a projected decline in the numberof persons per household from 7.7 in 1987 to 7.4 in 1996), the rate ofelectrification (rising from 73% of households in 1986 to about 902 in 1996)and an average consumption per customer (rising from 1260 kWh per year in1986 to 1684 kWh in 1996). The medium-voltage forecast was prepared byapplying elasticities (calculated from historical data) of electricityconsumption to value added in four economic sectors to economic growth ratesprojected by Bank staff. Upward adjustments were made for the early yearsin the forecast period to reflect the effects of a campaign to reducenon-technical losses. The forecasts take into account, on the one hand, theimpact on industrial electricity demand of the slowdown in economic growthcaused by the fall in international oil prices in 1986, and, on the otherhand, the continued rapid growth of low-voltage demand resulting from a highrate of new connections, which is expected to continue for some time becauseof a backlog of unsatisfied requests. However, no adjustments were made totake account of the impact of changing electricity prices on demand sinceconsumers have shown little response up to now to demand managementincentives embodied in the tariff structure (para 2.09). Within areasonable range of variation of demand about the forecast, the optimaltiming of the proposed project would be unaffected.
Least Cost Investment Program
5.03 Generation. SONELGAZ generation and transmission investment plansare based on parameters established in a long term master plan issued inMarch 1983. The study used state of the art optimization techniques tochoose a range of reliability criteria for system expansion anddemand-related thresholds for the transition to larger unit sizes for newplant on the generation system. In the medium to long term, the presentgeneration investment plan conforms well with the optimal parametersdetermined by the study.
- 41 -
5.04 One option not considered in the master plan study was thepossibility of introducing gas-fired combined-cycle plant, either todisplace some of the conventional steam plant scheduled for commissioning inthe mid 1990s, or by retrofitting existing steam plant as part of arehabilitation program. Over the last few years, both capital and operatingcosts for combined-cycle plant have fallen relative to conventional steamturbines. In order to evaluate the combined-cycle alternative, SONELGAZ hasstarted a detailed investigation to determine the assumptions to be used forevaluating the possible introduction of combined-cycle plant in its futureinvestment program. This will now be developed into a comprehensive studyas part of the technical assistance component of the Project (para. 3.02)Draft TORs for the proposed study are attached in Annex 5.1.
5.05 Transmission. Developirent of a 220-kV grid started in 1977. The1983 master plan compared a number of strategies for the location and sizeof future generation and transmission plant. Generation plant locationswere chosen to achieve regional balance between supply and demand - tominimize the transit requirement on the transmission system - except incase- where a deviation could be justified by lower generation costs.With this framework, the main transmission options considered were:
(a) a 220-kV system designed to minimize transmission capital costs;(b) a 220-kV system with a "backbone" through the Hauts Plateaux; and(c) transition to a 400-kV system.
5.06 The total capital and operating costs (including losses and costsof non-supply) of all options were compared; system performance under arange of fault conditions was also verified. The first option was found tobe the least-cost solution and was adopted as the basis for transmissionplanning until the year 2000. Within this framework, SONELGAZ has drawn upa detailed medium-term development plan which is divided into four regions.The plan is revised over a four-year cycle - one region per year. In 1986,SONELGAZ revised the long term transmission master plan to accommodate theloadflows foreseen in the first half of the 1990s. The Bank has reviewedthe studies and found them to be satisfactory. The proposed project is anintegral part of the revised master plan, which would not be affected by theoutcome of the study indicated in para. 5.04 and would therefore remain theleast-cost solution.
5.07 Over the past several years, the transmission system has beensubject to unusually high interregional power transits - and correspondinglosses - mainly as a result of delays in commissioning new generating plantand unplanned outages at existing stations. Timely completion of thetransmission reinforcement will provide improved security and lower lossesduring any such future incidents.
5.08 Distribution. The distribution directorates have recently beenshort staffed and generally overwhelmed by short-term imperatives such asreducing a very large backlog of requests for new connections in urbanareas, and meeting the targets of the rural electrification program. In1985, SONELGAZ started upgrading its distribution planning capability. Thisbegan with a program of load and loss measurement throughout the system, toprovide a basis for leveloping regional distribution master plans. The mainobjective is to improve the quality of electricity supply to finalconsumers. The completion of the regional distribution master plans shouldprovide a good framework within which to design least-cost investmentprograms for future distribution infrastructure.
- 42 -
Return on Investment
5.09 Since the project forms an integral part of SONELGAZ's investmentprogram, the economic rate of return was calculated for a timeslice ofSONELGAZ's overall electricity investment program corresponding to theforecast additional demand for electricity over the period of the Projectimplementation (1989-95) (details in Annex 5.2).
5.10 The measurable costs comprise: (a) the capital costs ofgeneration, transmission and distribution needed to meet additionalelectricity demand over the period 1989-95; (b) non-fuel operating andmaintenance (0.& M.) costs; and (c) the fuel cost of incremental thermalgeneration. O.& M. and fuel costs are taken into account during theconstruction period and for the assumed 30-year life of the assets(1990-2020). Fuel costs are based on the economic cost of natural gas(para. 1.24) and on the international price of gas oil.
5.11 Measurable benefits are limited to the incremental electricitysales revenues during the project construction period, and are constantthereafter during the life of the assets. Tariff adjustments were projectedin line with the financial restructuring measures approved by theGovernment. Given the uncertainties surrounding the effects of the economicreforms ncw under way (in particular, the pace at which the existingextensive price controls in the rest of the economy will be lifted and theanticipated movements in overall wage and price levels), the Governmentdecided on only those actions needed to meet initial financial objectivesfor SONELGAZ. The corresponding tariff increases will still leaveelectricity prices below economic cost. The Government recognizes that itmay be necessary to raise electricity prices further, but these possibleincreases were not taken into account in the economic analysis.
5.12 Under the above assumptions, the economic rate of return on theinvestment program is about 6.3X, which is below the estimated opportunitycost of capital in Algeria of 102. This result reflects the valuation ofbenefits using tariff rates which are below LRMC. However, inclusion of thefull consumers' surplus in the economic benefit calculations would yield aconsiderably higher rate of return of about 202 (Annex 5.2).
- 43 -
VI. AGREEMENTS TO BE REACHED AND RECOMMENDATION
6.01 Implementation of a tariff increase of l0% will be a condition ofeffectiveness (para. 4.13).
6.02 During negotiations, the Government agreed to assist SONELGAZ withall measures necessary to settle, by December 31, 1990, all overduereceivables due to SONELGAZ as of December 31, 1987; establish proceduressuch that amounts due to SONELGAZ by its administrative subdivisions onaccount of sales of electricity and gas should not exceea, at year end, twomonths of the total such sales during the year; and ensure that governmentand public sector enterprises would pay their bills to SONELGAZ for worksand services within 30 days of their due date (para. 4.08).
6.03 During negotiations, the Government and SONELGAZ agreed to:
(a) take all necessary actions, including but t.At limited to tariffadjustments, to enable SONELGAZ to achieve a net internal cashgeneration ratio equivalent to at least 32 in 1990, 7% in 1991, 13%in 1992 and 152 in 1993 and thereafter, on its consolidatedinvestment program (gas and electricity) a;-d on a moving three-yearaverage basis (para. 4.19); and
(b) review at least three months before the end of each fiscal year theadequacy of the utility's revenues to achieve the agreed netinternal cash generation ratio for the following year and determineon the basis of the above review, the mea.ures required to achievethe agreed ratio and consult with the Bank on these measures and ontheir implementation schedule before the beginning of that fiscalyear (para. 4.19).
6.04 During negotiations, SONELGAZ:
(a) agreed to submit to the Bank not later than December 31, 1988 adetailed staff training program and its implementation schedule(para. 2.04);
(b) agreed to appoint by June 30, 1989 consultants to undertake a lossreduction study and to review with Lhe Bank before June 30, 1991the recommended action plan to reduce the level of losses and toimplement the agreed recommendations. (para. 2.15);
(c) agreed to exchange views with the Bank on its investment program aspart of its annual review of load forecasts and investment program(para. 2.18);
(d) confirmed that the required land for the four substations would beacquired not later than December 31, 1988 (para. 3.09);
- 44 -
(e) agreed to open and maintain in US Dollars a special account ofUS$8.0 million in a major commercial bank or in the Central Bank ofAlgeria on terms and conditions satisfactory to the Bank(para. 3.15);
(f) agreed to adopt a more aggressive collection policy to ensuretimely payment by all its customers and to reduce its customers'receivables levels to two months of billing by 1991 (para. 4.08);
(g) agreed to ensure settlement of the unpaid balances due by itsformer operational units on account of goods and services deliveredto those entities by December 31, 1989 (para. 4.10);
(h) agreed to generate net resources for each year starting in 1990consistent with the covenanted cash generation ratios, and adequateto service all its debt incurred or to be incurred. (para 4.21);
(i) agreed to have its accounts audited from fiscal year 1987 onwardsby auditors acceptable to the Bank and to have its financialstatements and Audit Reports furnished to the Bank no later thannine months after the year's end (para. 4.27); and
(j) agreed to take all steps necessary to employ qualified consultantsby June 30, 1989 upon terms and conditions satisfactory to theBank, to carry out a management and accounting systems study. Thefirst phase of the study will assess the existing systems andshould be completed by June 30, 1990. The second phase, will makerecommendations for more appropriate systems and relatedimplementation schedule and should be completed not later than June30, 1991. Implementation of these recommendations by SONELGAZshould start thereafter.
6.05 With the above agreements the proposed project would be suitablefor a Bank loan of US$160.0 million for a term of 15 years at the standardvariable interest rate including a five-year grace period, to the BorrowerSONELGAZ with a guarantee of the Government of Algeria.
ALGERIA
TIrMR POWE ~.3C1985 NATIONAL EERGY BALANCE
(thousand tons oil equivalent)
CM1 SQQ -Refined Products- LiG Furnte Gas
Lieht Heavy Hydrg and L
etall, Coke Crude a GL Hat Gas Coke Gas LFG Ulezt1icit TU)TOL
Productionq 2 14 53.009 32.105 225 2.621 217 88.191Imports 812 364 1.176Exports 30.932 8.476 39.408Increase in Stocks 5a 2 60
Gross Energy Supply 754 12 22.441 23.629 225 2.621 217 49.89
Coke Production (754) 601 27 (126)Gas Liquefaction (16.514) 12.336 136 (4.042)Oil Refining (22.267) 6.544 14.013 1.025 1685)Electricity Generation (152) (3.376) (1) (72) 3.906 305
Secondary Energy Avai1able 0 601 12 174 6.544 13.861 3.739 12.336 26 153 3.782 4.123 45.351 1
Secondary Exports 16 4.115 10.115 12.303 2.499 12 29.060 'Son-Energy Consu ption 611 769 1.3U0Consumption by Energy 792 33 529 1.354
IndustryTransmission IL Dist'n. 182 83 13 153 596 1.027
LossesIiicrease in Stocks (106)Statistical Differences (1) 1 (47) (263 (3 . (1991 (1) 26 1 (601)
Satl. Final Consumption 0 692 11 39 2,455 3.490 2.294 0 14 0 1.257 2.985 13,237Ox 5 OS Ox 19 26S 17Z OS OS Ox 9n 23Z lofs
Industry 688 39 454 1.342 14 47 1.680 4.264 32n--iron a steel 688 7 333 14 47 S1s 1.607 12n--chemical 54 IaO 234 2n-- other 39 447 9SS 982 2.423 lotTransport 2,419 1.210 59 3.688 2SZHouseholds & Services 4 11 36 1,826 952 1.210 1.246 S.28S 40%
MEHO: Total Exports 0 16. 0 30.932 4.115 10.115 8.476 12.303 0 0 2.499 12 68.468(Z of total output) 3S SS% 63S 72a 26S 100l 66S OS 7f3
SQurLc: HEICP. sission estimates
1/ At thermal-equivalent of 336 toe/GAh2/ Met of reinjection. flaring and field use of natural gas2/ Total exports as S of total primary productlon
2669L/I
- 46 -
ANNEX 2.1Page 1 of 2
ALGERIAPOWER III
Manpower Development Study
Draft Terms of Reference
1. The study shall be executed in 2 stages, the first the "diagnostic"stage, the second the "implementation" stage.
Phase 1
2. SONELGAZ's present organization, its institution practices, its workmethods and procedures shall be studied and reviewed with particular attentionto: manpower availability and use, division of responsibilities, recruitment,employment and remuneration practices, flow of information and documentsrelated to this, work hours practices (theoretical and effective), expertiseof higher and middle echelon personnel and training. The objective of thestudy is to define the requirements for improving: staff morale anddedication, the sharing of responsibilities at all levels (with specificguidelines for the decisions to be assigned to staff at such levels),planning, budgeting and control of works to be executed, operational andmaintenance services and to develop an organization to achieve this objective.
3. Recommendations shall be prepared on the basis of the consultants'findings for:
(i) The improvements in SONELGAZ organization and its practices andpolicies in all respects in accordance with sound utilitybusiness practizes.
(ii) Adequate and centralized planning and supervision of executionof principal works.
(iii) Improvement in the personnel policies in all its aspects:recruitment, employment conditions, remuneration (at such levelsthat recruitment of new staff and maintenance of expertise withrespect to quality and number of staff would be assured), annualperformance reviews, and promotions tied to merit, terminationand dismissals, social and direct benefits.
(iv) A revised training system which would cover all levels andinclude scholarships if deemed possible and necessary, togetherwith the measures to promote training (advancement in thecompany, rise of salary, gain of merit, etc.).
- 47 -
ANNEX 2.1Page 2 of 2
(v) Improvement in administration in all respects to assure aconsistent set of rules and regulations, a minimum number ofstandardized forms, a sound filling system (or systems),interoffice communication syst*m (paper and otherwise) and rapidflow of documents.
(vi) Job description and qualification requirements for all posts ofreasonable importance within SONELGAZ's organizational structureas to be decided upon.
(vii) Terms of reference, schedule for actions, manpower requirementfor implementation of the recommendations. After SONELGAZ's hasreached agreement with the Bank on the measures to be taken forimplementing recommendations the consultant shall prepare, inconsultation with SONELGAZ's the final terms of reference, etc.for stage 2.
It is noted that in parallel with this study, SONELGAZ is also planning toundertake another study in order to set up a comprehensive managementinformation system based on proper and prompt financial planning and control,an adequate cost accounting system, adequate decision making machinery(decision responsibilities), sound commercial practices and pragmatic use ofcomputer facilities.
Phase 2
SONELGAZ will institute, with the assistance of its consultants, theagreed changes in its organization, policies and procedures as laid down inthe final terms of reference for stage 2. The consultant shall study thedetails of the requirements for these changes and prepare comprehensivereports and/or guidelines for each specific item for which work rules areessential. These are to serve as reference guidelines to be used in actualoperations (care shall be taken to nullify and remove obsolete rules,regulations, guidelines, etc.). The consultants shall assist SONELGAZ in theimplementatiGn of the changes, providing on-the-job and other training toSONELGAZ personnel and, if necessary, provide staff for interim heading of adepartment while the designated chief is being trained.
ALGERITIt[RD f0R MPRQflCT
liriff -StE3 urCL rjEfQLxn!hnLAnflituu VYQLa9C CUAQMr
Charge for ReactiveFixed CharLe Capacity Char Ener C g __ e_ _ _Ene_r ---(AD/monthb (ADkW/month) (cAD/kWh) (cAD/kVar
Tartff a/ Subscribed Maximum SltxgltOkLLn Demand emn d/ Peak C Shoulder f/ Night q/ OffQ Peak Th 1 iff
yV Dl 31 28000 2.1 10.5 36.61 7.55 3.285 1.7332 28000 5.6 28 - - 7.b2 1.73
NV L/ 41 2100 1.4 6.3 47.35 10.54 5.56 2 4842 28 2.1 9.8 47.35 - 9.81 2.4843 28 2.1 8.4 - - 5.56 23.27 2.4844 28 2.1 9.8 - 20.41
4-iOD
d/ At the choice of the customerb/ 220.90 and 60 kVL/ 30i22, 10 and 5.5 kVd/ Haximium demand recorded durlng the month by the customer. It must be less than the subscribed denuasid.e/ From 5:00 to 9:00 PHf/ From 6:00 AM to 5:00 PH and from 9:00 PM to 10:30 PMq/ From 10:30 PH to 6:00 AM
Source: SOHELGAZ2669L/2
0*
.,9
ALGERIATHIRD POWER PROJECT
Tariff Structure for Low Voltage Custome
Demand Charae Enerov Charoe
Subscribed DemandikVAl (AD/Monthb) icAOlkh)
General Tariff 0.5 4 1.62 37.6
6-8 6.46 37.610 20 10.76 37.6
Tariff Al 1 2 6.46 32.3
3-4 8.61 32.3
6 12.91 32.3
Tariff AZ 2 25.47 26.9
3 31.75 26.94 38.03 26.9
6 50.59 26.9
a 63.15 26.910 75.71 26.9
12 88.27 26.9
16 113.39 26.9
20 138.39 26.9
Tariff A3 Possible for customers with subscribed demand of at least 10 kVA and obligatory for custumers with 20 kVA or more.
10 52.7112 58.09 Peak 64.6
16 68.85 Shoulder 17.220 79.61 Night 9.6
25 93.0630 106.5135 119.9640 133.4145 146.8650 160.31
Tariffs Al and A2 exst also with an option for off-peak periods involving:
an increase of AD 4.48 per month in Lhe demand charge; and
an energy charge during off-peak periods of cA0 9.7/kWh.
'Dim
Source: SONELGAZ r
2669L/4
. 50 - ANNEX 2.3Page 1 of 4
ALGERIA
THIRD POWER PROJECT
Long-Run Marginal Cost of Electricity (LRMC)
1. For the purpose of comparing tariffs to the economic cost ofelectricity, estimates were made of the long-run marginal cost (LRMC) ofelectricity supplied by SONELGAZ. These are preliminary calculationsintended to determine only whether the LRMC is significantly greater orless than average revenue at the low, medium and high voltage levels. 1/The assumptions used in the analysis are set out here.
Marginal Capacity Cost of Generation
2. The marginal cost of power supply is the change in total cost ofservice resulting from a small change in demand. In the short run, theinstalled capacities of the system are given and an increase in demandwould lead to increased fuel or voltage costs. In the long run,investments can be made to satisfy the increased demand. In Algeria, anincreased demand on the interconnected network during peak periods wouldnormally require additional combustion turbine capacity. The marginalcapacity cost at generation was calculated using the following assumptionsto be AD 475 /kW/year:
Investment cost: AD 2500/kWDiscount rate: 10%Interest during construction: 21%Equipment life: 20 yearsReserve margin: 2510 & M: 1.52 of investment cost.
Marginal Energy Cost
3. Combustion turbines are the marginal generating units during peakand shoulder periods, while steam turbines are often the marginal units atnight. The average incremental heat rate for all marginal plant on theinterconnected system is approximately 2200 kcal/kWh. Assuming that theeconomic cost of natural gas is $1.00/million Btu's (para. 1.24), themarginal energy cost at all times of the day and year would be AD 0.043/kWh.
1/ Detailed estimates of LRMC at the generation level will be prepared bySONELGAZ in the context of the UNDP-World Bank Energy Planning Project.
- 51 -
ANNEX 2.3Page 2 of 4
Energy Losses
4. Transmission Losses are assumed to decline from levels of about6.5% of net generation since 1985 to 5%. The high recent loss rates aredue to abnormal transfers of energy caused by a temporary geographicalmismatch of available capacity and demand. Distribution losses areassumed to be 10% of energy delivered to the distribution network afterdeducting 3 percentage points for ion-technical losses.
Marginal Capacity Cost of Transmission
5. Transmission investments in 1987 prices and incremental Loads areprojected as follows for the years 1987 through 1990 (Annexes 2.7 and 2.4):
Transmission IncrementalInvestment Demand(AD Million) (MW)
1987 460 1731988 826 1031989 942 5841990 1024 200
6. The marginal capacity cost of transmission wascalculated using these data and the average incremental costmethod according to which the marginal cost per kW was calculatedas the ratio of the present value of transmission investments (AD2760 million) divided by the present value of incremental demand(900 MW). Assuming a 30 year life for transmission facilitiesand an annual 0 + M cost equal to 1% of the investment cost,marginal transmission capacity cost is estimated to be AD356/kW/year.
Marginal Capacity Cost of Distribution
7. Distribution investments in 1987 prices andincremental loads are projected as follows for the year 1987through 1990 (Annexes 2.7 and 2.4).
Distribution IncrementalInvestment Demand(AD Million) (MW)
1987 1671 1351988 1487 1371989 1197 1581990 793 170
- 52 - ANNEX 2.3Page 3 of 4
8. The investment estimates exclude connection costs to the extentthaE these are financed by separate contributions from customers. Becauseof complications caused by the connection of some isolated networks to theinterconnected grid during the forecast period, incremental demand wascalculated from aggregate sales projections in GWh for LV and MV customersadjusted by adding distribution losses and converting to megawatt demandassuming (in the absence of better data) that the load factor for LV andMV customers is the same as the average for the interconnected system(60%). For lack of data, separate estimates were not made for LV and MVcustomers. Assuming a 30 year life for distribution facilities and anannual 0 + M cost equal to 1t of the investment cost, marginaldistribution capacity cost for MV and LV customers is estimated using theaverage incremental cost method to be AD 1031/kW/year.
LRMC Summary
9. LRPMC estimates per kWh averaged over peak, shoulder and off-peakperiods are summarized as follows, assuming a load factor of 602 for allcustomers (all costs are marginal):
(AD/kWh, 1987 prices)
Generation capacity and 0 + M costs 0.090Energy cost 0.043Generation cost 0.133
Transmission capacity and 0 + M cost 0.068Total adjusted for 5% transmission loss 0.211
Distribution capacity and 0 + M cost 0.196Total adjusted for 10% distribution loss 0.448
Assuming 322 of sales by SONELGAZ at HV (estimate for 1987) and the restat MV and LV, the weighted average LRMC is AD 0.372 /kWh.
LRMC Compared to Price
10. The LRMC estimates are compared to average revenue per kWh as follows:
(1) (2) 2/1(AD, 1987 prices)
LRMC Revenue/kWh a/ (2)
High voltage 0.211 0.161 76Medium voltage 0.448) 0.233Low voltage ) 0.396Weighted average 0.372 0.261 70
a/ SONELGAZ estimates for 1986. These estimates are approximately valid for1987 since no change in tariff rates occurred in that year.
- 53 - ANNEX 2.3Page 4 of 4
Adjustment for Temporary Excess Capacity
11. Additions of generating capacity in 1988, 1990, 1991 and 1992 arelikely to result in some excess capacity until 1994. Thus a smalladditional demand would not require further new generating capacity until1994. An adjustment may be made to the LRMC estimates to reflect thetemporary excess. The present value in 1987 of the investment in newgenerating capacity would be approximately half the 1994 cost, and theannuitized cost would be only AD 0.050/kWh compared to the originalestimate of AD 0.090. The following estimates of LRMC incorporate thisadjustment:
Adjusted LRMC(AD/kWh, 1987 prices)
Generating capacity and 0 + M cost 0.050Energy cost 0.043
Generation cost 0.093
Transmission capacity and 0 + M cost 0.068Total adjusted for 52 transmission loss 0.161
Distribution capacity and 0 + M cost 0.196Total adjusted for 10X distribution loss 0.357
Weighted average LRMC 0.295Ratio of revenue/kWh to adjusted LRMC 88%
12. The adjusted LRMC is a kind of hybrid between LRMC and short-runmarginal cost. It is a long-run measure since it takes account of costsof new capacity including ge.,erating capacity, and the present value ofthe annuities for the new capacity is fully equal to the present value ofthe cost of that capacity. However, by adjusting for a temporary surplus,this measure approaches the short run marginal cost concept, which wouldassign a zero value to marginal generating cate ity. It serves a usefulrole in the current Algerian context, as would the short-run concept, byproviding an economic justification for electricity prices set temporarilybelow the unadjusted LRMC level. The adjusted measure has a disadvantage,however, in that the estimated marginal cost would change with everychange between the date when the marginal cost is estimated and the datewhen the excess capacity is expected to disappear. For this reason, theunadjusted estimate is used in the main text of the present report.
Adjustment for Alternative Rate of Foreign Exchange
13. A sensitivity test was carried out using an exchange rate of US$1.00 = AD 9.92 (instead of the 1987 rate of US $1.00 = AD 4.96). Underthis assumption the weighted average LRMC becomes AD 0.557/kWh.SONELGAZ's 1987 revenue of AD 0.261 /kWh is only 472 of this LRMC.
2669L/4-7
IItRD POWER PROJECT
Electricitv Consumption 1976-1986
1297 ,19 1978h 1979 1980 12t 1982 1983 12m _ U.L 121hSales (GWh) 3249 3604 4365 4918 5392 6285 7052 7697 8434 9410 10224
High voltage 1025 1159 1425 1723 1909 2278 2535 2737 2985 3234 3302Medium voltage 1286 1436 1764 1899 2068 2316 2486 2716 2940 3199 3696Low voltage 938 1009 1176 1296 1415 1691 2031 2244 2509 2977 3226
Of which (GWh)Isolated systems 365 406 593 676 700 816 957 933 1049 1072 1238Interconnected system 2884 3198 3772 4242 4692 5469 6095 6764 7385 8338 8986
Interconnected systemTotal losses (GWh)La 418 470 411 546 763 771 929 1194 1503 1640 1591Net generation (GWh) 3302 3668 4182 4794 5452 6240 7051 7975 8816 10011 10586Net imports (GWh) 1 (6) 3 (27) (17) 72 (37) (17) Maxinum demand (lM) 682 726 805 902 1088 1172 1306 1526 1677 1867 1919Load factor (%J 55.2 57.7 59.4 60.6 57.2 60.8 61.4 59.5 60.5 61.2 63.0
Of which net gen'n.(GWh)Steam turbines 2632 3023 2990 2945 3621 3891 3905 4894 5476 5871 6638Combustion turbines 291 383 948 1565 1580 1983 2667 2846 2820 3494 3698Hydro plant 379 262 244 284 251 366 479 235 520 646 250
Isolated systems (GWh)Total losses 57 66 20 10 70 91 135 198 152 136 157Met generation 422 472 613 686 770 907 1092 1l31 1201 1208 1395
Source: SONELGAZ
2669L/8 I>4
THIRD P)WiR PROJECT
emandn Foracast 1986-1996
Actual Forecast
Sales (GWh) 10.224 11.075 11.947 12.957 14,040 15.111 16,399 18.126 19,890 21.695 23.606High voltage 3.302 3,530 3.770 4.124 4.553 4,950 5.230 S.858 6,415 6.896 7.351Medium voltage 3.696 4.000 4,228 4,46B 4,724 5.004 5.610 6,291 7,057 7.917 8.885Low voltage 3.226 3,545 3,949 4.365 4,763 5,157 5.559 5.977 6.418 6.882 7.370
Of which (Awh)Isolated systems 1.238 1,338 1581 369 423 495 571 657 747 864 981Interconnected system 8.986 9.737 10.366 12.588 13.617 14,616 15.828 17.469 19,143 20.831 22.625
Interconnected systemDist'n. losses (GWh) 898 963 1.004 1.230 1,295 1.345 1,448 1.542 1,660 1.765 1.877Transm n. losses (GWh) 693 700 600 712 768 805 871 939 1,026 1.090 1.181Net generation (BIh) 10,586 11.400 11,970 14,530 15.680 16.766 18.147 19.950 21,829 23.686 25.683Maximum demand 1.919 2.092 2,195 2,779 2.979 3.186 3,422 3.837 4.187 4.550 4.942Load factor (S) 63 62 62 60 60 60 60 59 60 59 59
Isolated systems (GWh)Total losses 157 169 180 41 47 55 64 73 83 96 109 tnNet generation 1.395 1.507 1.761 410 470 550 635 730 830 960 1.090 Ln
Source: Bank estimates.
2669L/9
UI
THIRDOP0WER PRQJECT
SONELGAZ: Capacity and Eneray Balances. Interconnected Svstem (1976-1986)
1976 197Z 1978 1979 1980 1911 1921 191 1984 121i 1211
TotalInstalled Capacity(MW) 112 1138 147Q 1463 1523 1B4 2056 2.23 Z392 2222 2943Steam turbines 763 767 767 767 735 735 903 1239 1239 1239 1743Combustion turbines 84 84 416 408 500 826 868 868 868 868 914Nydro 285 287 287 288 288 285 285 285 285 286 286
Maximum Demand 682 726 805 902 1088 1172 1306 1526 1677 1845 1919Reserve Margin (X) 66 57 83 62 40 57 57 57 43 40 53
Total Gross Gen'n. (Gwh) 3302 3668 4LS2 65 k24Q M01 7975 6M 1911 10510Steam turbines 2632 3023 2990 2945 3621 3891 3905 4894 5476 5871 6638Combustion turbines 291 383 948 1565 1581 1983 2667 2846 2820 3494 3698Hydro 379 262 244 284 250 366 479 235 521 646 520
System load factor (%) 55 55 59 61 57 61 62 60 60 62 63
SONELGAZ; Capacity and Energy Balances, Isolated Systems (1976- 1986)
1976 1977 1228 1222 1280 121f1 1212 1 21fi 1214 L198 1211
TotalInstalled Capacity (MW) 169 18Q 3S7 1 LCombustion turbines 124 132 302 302 344 375 375 375 375 376 376Diesel 45 56 56 56 63 61 69 69 69 66 66
TotalGross Generation (GWh) z 42 1 670 201 1092 in2i 12Q1 12Q 11Combustion turbines 359 399 523 579 645 781 971 993 1031 1014 1186Diesel 63 73 90 108 125 127 121 138 170 194 209
Source: SONELGAZ
2669L/10
>4
ALGERIA
THuRD POWER PROJECT
SONELGAZ INTERCONNECTED NETWORK
Projected Capacity Balances Interconnected System
(M)
1987 19i8 1989 1990 121 1J22 13 1994 1995 1996 J2 1998 122a
Maxinxn demand 2092 2195 2779 2979 3185 3422 3837 4187 4550 4942 5280 5650 6045 646S
Existing Capacity 2586 2586 2586 2586 2586 2586 2586 2586 2586 2586 2586 2586 2586 2586
Cumu. Retirement -10 -10 -10 -10 -10 -130 -203 -203 -303 -303 -327 -835 -835 -835
Capacity from Prev.Isolated Networks 341 341 341 341 341 341 341 341 341 341 341 341
Wx168 1x5 2x100Annual Additions 2x168 lOxO00 lx168 2x200 1x200 Ix300 2x300 1x300 2x300 2x300 2x300 2x300
Cumul. Additions 336 1336 1336 1504 2072 2277 2277 2577 3177 3477 4077 4877 5477 6077
Installed Capacity 2912 3912 4253 4421 4989 5074 5001 5301 5801 6101 6677 6969 7569 8169
Reserve OverMaximum Demand(%) 39 78 53 48 57 48 30 27 27 23 26 23 25 26
Source: Bank estimates
2669L/I l ZX_1
- 58 -
ANNEX 2.8Page 1 of 4
ALGERIA
THIRD POWER PROJECT
Power system loss reduction study
Terms of Reference
General Objective of the study
1. The objective of the study is to define measures to be taken toimplement cost effective modifications to system facilities, operation andconstruction standards to improve the technical efficiency of the power systembv reducing the level of losses and by reviewing existing or starting a new,organized, continuing loss reduction program, which will keep future losses atacceptable levels. These Terms of Reference outline the purpose and scope ofthe study to be undertaken by Sonelgaz with the assistance of consultants.
The Electricity Supply Sector in Algeria
2. The Societ6 Nationale d'Electricite et du Gaz (SONELGAZ) is apublicly owned utility responsible for the overall development and operationof the power subsector throughout the country and under the supervision of theMinistry of Energy and Chemical and Petrochemical Industries (MECPT).
3. The consumption of electricity increased at an overall annual rateof about 13 between 1975 and 1986. In 1986 the peak demand on theinterconnected system was 2060MW compared to total available capacity of 2930MW. Electricity consumption is concentrated in the Northern interconnectedsystem (about 872 of total Sonelgaz electricity sales in 1986) and is evenlydistributed among the three major voltage levels (HV, MV and LV). Sonelgazelectricity generation system is dominated by gaz-fired plant - steam turbineson the coast and combustion turbines at inland sites.
4. The SONELGAZ electricity transmission system consists of:(a) a220-kV interconnected network, with three active links with Tunisia (at 90 kVand 150 kV), an inactive 220-kV link with Morocco, and (b) two isolated gridsin the south centered on the two main oil and gas producing areas of HassiMessaoud and Hassi R'Mel. At the end of 1985, the transmission networkcomprised: (a) 3810 km of 220-kV, 46 km of 150-kV, 397 km of 90-kV and 4425 kmof 60-kV lines; and (b) 3230 MVA and 7148 MVA of substation capacity at powerstations and in the network, respectively. The distribution networks at theend of 1984 consisted of 40,426 km of medium voltage lines, 34,393 km of lowvoltage lines, and 23,353 medium to low voltage transformers.
5. During the next decade, total electricity sales is forecast toincrease from 10.260 GWh in 1986 to 26.390 GWh in 1996, representing an
- 59 -
ANNEX 2.8Page 2 of 4
overall average annual growth of about 10% by 1996. Maximum system demand isforecast to increase from 2060 MW in 1986 to about 5485 MW in 1996.
Scope of the study
6. The study will, include a plant by plant survey of generatingfacilities, sampling diagnostic studies of transmission and distributioncircuits, a critical analysis of transmission and distribution systemstandards and practices and a review of customs service activities includingmetering and billing.
Procedures
7. A series of short interviews would be held with members of seniormanagement. This would show management's policy towards, and goals for, lossreduction. The information obtained on the principal problems beingencountered would indicate where losses were occurring and what steps weretaken or were contemplated to reduce losses.
8. The transmission and distribution systems would be examined throughdiscussions with appropriate staff and site visits to substations, workshopsand other facilities. Available statistics on system performance would beanalyzed.
9. An assessment of the operating efficiency of thermal generatingplants would be made by site visits and inspection of the equipment andthrough discussions and examination of plant and other records.
10. The information obtained from the above would be analyzed to identifyareas where losses could be reduced; or where more detailed study would bejustified; and changes or additions should be recommended to design criteriaand operating and maintenance procedures. The course of action to implementthese recommendations would be outlined.
Reporting
11. The results of the study will be presented in a concise report. Therecommendations will be presented in two phases:
12. The first phase would be in the form of a short-term Preliminary LossReduction Project which would outline immediate steps to be taken to improvethe most urgent loss problems in the Transmission, Distribution and GenerationSystems. It would cover a three year period. The project would be describedand given a justification and approximate cost estimate. When required, aScope of Work or Terms of Reference would be provided to facilitate thecontracting of consulting, engineering or other activities recommended underthe project. This phase would include the following items where appropriate:
- 60 -
ANNEX 2.8Page 3 of 4
Transmission and Distribution
- Design criteria and construction standards.- System planning methods and procedures.-- System operations and maintenance.- Service outages and their causes.- Voltage control and monitoring procedures.- Economic system load control and management methods.- Transmission and distribution circuit analysis using computer-based
programs and the data base for this analysis.- Transformer specifications and load management.- Metering systems, operation, maintenance, testing, installations and
service standards.- Meter reading, billing and monitoring procedures.- System and circuit power factor measurement and cor-ective measures.- System technical loss assessment, value of losses and estimate of
loss reduction potential.- Review of non-technical losses and measures to control them.- Construction methods, standards, equip'ient and procedures.
Generation
The boilers, turbogenerators and auxiliaries would be examined indetail to identify areas of losses or where rehabilitation was neededor where improvements in efficiency could be achieved. The followingitems would be included where appropriate:
(a) The scope for taking advantage of advanced technology byretrofitting more efficient parts in boilers, turbines andauxiliaries such as turbine blades and seals, boiler burners andexcess air control.
(b) The adequacy and condition of manual and automatic controls.(c) Maintenance progams, procedures and effectiveness and spare
parts stocks.(d) Plant operations efficiency.(e) Fuel quality control.
Traning- The needs for training programs will be assessed for Transmission,
Distribution and Generating Systems in as far as this is related toimproving efficiency.
13. The second phase would be in the form of a Long-term Power SystemBetterment and Expansion Program covering a period of about five years afterthe Preliminary Project. This would have a general description, an order ofmagnitude cost estimate and be defined objectively to specify desired results,criteria and approach.
Criteria
14. System long-run marginal cost (LRMC) shall be used for valuingefficiency-improvement benefits. These costs shall be expressed in terms of
- 61 -
ANNEX 2.8Page 4 of 4
capacity benefits ($/kW) and energy benefits ($/kW) at each principal voltagelevel. Present-value or life-cycle costing shall be used for all analysesusing appropriate opportunity costs (107 for capital unless otherwisespecified). Transmission and distribution facilities shall be studied byappropriate sanpling techniques using micro-processor computer programs orequivalent methodologies (programmable calculators).
- 62 -ANhEX 2.9
ALGERZA
tHIRD POWER PROJECT
SONELGAZ: Protected Investment Expenditures (1987-1995)(t.IlAon Dinars, Current Prices)
Power Generation
Steam turbines 485 1000 1647 1744 1795 1858 2623 3517 4169Combustion turbines 643 604 437 437 - - - 58 300Kydro 4 4 14 13 10 1Diesel 16 40 80 _80 2_0 200 200 20 _20Total Generation 1148 1648 2178 2274 2005 2059 2823 3775 4669
Elec. transmission 460 922 1169 1393 1533 1641 1717 1824 1960Elec. distribution 1992 1970 1968 1618 1875 2052 2090 2105 2352of which ruralelectrification 1350 1350 1000 540 552 333 331 324 -
Gas transmission 870 910 1082 1082 1065 598 616 648 686
Gas distribution 224 270 294 312 351 390 429 500 548
Other Ai __M .5!6 __2! 930 I02 1i25 151! 1600!
Total 5156 6270 7351 7479 7759 7760 8925 10382 11815
2669L/12
- 63 -
ALUMITHIRD POUtR PRIINCT
p&tailed Proiart eascrintianTransmission 1inas and substat rns ed bC th nrnoosod oroiact
A. Transmission lines
ae DeOescription Route km
Elkh _is-Oued Sly 220 kV - single circuit 110 kmtwin bundle (2x411002ACSR)
Skikda/Sellara 220 kV - single circuit 65 km4 tt3n bundle (2x41IPZACSR)
Jijel-Ain HiM1a 220 kV - single circuit 120 kmtwin bundle (2x411nu2ACSR)
EL Mansouriah - EL Ksour 220 kV - single circuit 60 kmtwin bundle (2x4I1w2ACSR)
El mansouriah-Jijel-Bellara 220kV - double circuit twin 95 kmbundle (2x4lIM 2ACSR)
Miscellaneous and connection 220 kV - single circuit 25 kmof the substations includedin the project
B. Substato0ns
Location Voltage Transformer Number of bavs Remarkscapacity (MVA) Transformer Lines
----------------------------------------------------------- __----------------__----------------------------------------
FAST REGSOK:Ramdane-Jael 220/60kV 3x120 3 9x12OkV outdoor; newAin-Beida 220/60kV 2x120 2 Gx22OkV outdoor; *xtension of
existing substationsTebessa 220/9OkV lx120 + 3 lOx9OkV new; outdoor
90/30kV 2x40 +14x3OkV
CENTRAL REGIONBeni-Mered 220kV 3x120 3 4x22OkV outdoor; extension of
4x6OkV existing SubstationsKherba 220kV 2x120 4 7x22OkV outdoor; new
60/3OkV 2x30 +7x6OkVChelghoLm Laid 220/60kV 3x120 3 6xI2OkV outdoor, new
i4x60kVOuled Fayet 220/60kV lx120 6x220kV metalclad; extension of an
existing substation.
2669L/ 19
AL6ERIATHIRD PIIER P1OJECT
Yearly breakdoon of total project costlon AD million)
---------------- Local Currency Cost --------------------------- ------------ Foreign Currentq Cost ----------------------- ----- lotal Cost-------
199 1990 1991 1992 1993 1994 1995 1989 1990 1991 1992 1993 1994 1995 L/C FiC SUR
A. 220-bV transaissi,n tines
Subtotal base cost lJanuary 198B9 3.93 28.75 42.16 42.16 34.50 23.00 17.25 7.34 55.07 8o.78 80.71 66.09 44.06 33.04 191.65 367.16 558.91.Pfyszcal Contingencies 0.39 2.87 4.22 4.22 3.45 2.30 1.73 0.73 5.51 8.08 9.09 6.61 4.41 3.30 19.17 36.72 55.89.Price Contingencies 0.70 9.92 19.03 24.B9 24.42 18.77 16.06 1.34 17.09 36.46 47.67 46.79 35.96 30.77 112.79 216.07 328.95
Subtotal Cost A 4.91 40.54 65.41 71.26 62.37 44.07 35.04 9.41 77.67 125.32 136.53 119.9B 94.43 67.11 323.60 619.95 943.55
8. Substations
Subtotal base cost 8 IJanuadry 1988) 4.9! 36.20 5;.09 57.n9 43.44 28.96 21.72 11.32 94.90 124.52 124.52 101.98 67.92 50.94 241.33 565.98 807.31 1.Physical Contingencies 0.5 2.6I 1.92 3.92 3.13 2.09 1.56 0.72 5.42 7.95 7.95 6.50 4.14 3.25 17.39 36.13 53.51 C\.Price Contingencies 0.86 10.95 23.35 30.54 29.97 23.04 19.71 1.99 25.49 54.35 71.07 69.74 53.61 45.98 138.40 322.12 460.52 P
Subtotal Cost 8 6.04 49.76 90.26 97.45 76.54 54.09 42.99 14.03 115.80 196.92 203.54 179.12 125.97 100.07 397.11 924.23 1321.34
C. Others
Subtotal base cost C (January 198E) 5.02 75.09 30.09 19.05 12.04 10.03 4.30 23.13 25.79 15.47 10.52 8.60 100.30 85.97 186.27.Physical Contingencies 0.15 0.?5 0.90 0.54 0.36 0.30 0.13 0.64 0.77 0.46 0.31 0.26 3.01 2.58 5.59.Price Contingencies 0.85 7.29 12.72 9.98 7.98 7.67 0.78 6.66 10.90 8.55 6.84 6.57 46.49 39.94 86.52
Subtotal rost C 6.02 33.12 43.71 28.57 20.38 19.00 5.21 30.43 37.46 24.49 17.47 15.43 149.79 129.39 278.19
0. tOTAL COST IABeCIZ
Total base cost iJanuary 19881 13.68 90.03 125.3-4 II 3n 89.99 61.99 38.97 22.96 163.10 231.09 220.77 178.29 120.59 83.99 533.28 1619.11 1552.39.Physical Contingencies 0.89 6.2s S.94 8.59 6.94 4.69 .29 1.59 11.57 16.90 16.49 13.42 9.01 6.55 39.56 75.43 114.99 Lo.Price Contingencies 2.41 27.16 55.10 65.40 2.37 49.49 35.77 4.11 49.23 101.71 127.29 123.36 96.14 76.65 297.66 579.03 975.69 t,
IDIOL PROJECI COST 16.97 123.42 189.39 187.28 1I5.29 116.16 78.03 28.65 223.90 349.60 364.55 315.07 225.73 167.19 970.50 1672.57 2543.07
- 65 - ANNEX 3.3
4LBERIATHIRD POhEW ROWEC'
Pro,ect 205t Estisite Rearranged by witure ni Gooos inc Serv::esitn US4 sillion)
eatl Base Cost hyi:a11 Contl gencles 0,ice Contiqenc:es 'Lr rc ' LC Tt 'C 'C *
A. 220-kt Tans.ission Lines
Rili't c4 way 2.7 .0 O . ,2 .0 )2 ),4' MO2 (.4.
Equ. peentPoles '. '.' .' ''0 ).29 2.32 q') ^.'! 4.2e 4 ' '.56 '* c :*C3rductors 1!. 4t l54 03 :.5 .!.S J.a 2.2q In 4' 0elni,ldt3rI '.!0 2. 2.! 0 ) 00 ) 26 0.00 3.48 .48 .^ 34 * 4Hardmare '. 1.09 :1. 3.0' 1:1 0.11 C.I00 0.2 %) . .00 :.. :. :8
Installat:on A Erection 24.42 30,)2 '4.44 2.44 ".) !44 4.50 5.53 1Ž43 !.7 29.55 Engintering Services 2.08 1.04 f.s2 A.2' ,.: o .t4 0.49 0.36 ' c5 3.44 2.4Q 5.7
Custot Outies and 'axes o .20 0.20 on2 0.31 'O 3.02 _14 C .00 1.4 '.QS - 0 . ',
Total base :ost A (January 1988 3'8.4 74.03 i:2.' ':.9' . 40 1.2' '.:2 1:.54 .0.'6 4q.03 45.0' '44.'0Physical Contingencies (A) ;.87 '7t4 :.2'Price Conti-igencies IA) '.12 ''-24 :0.76
Total Cost A 49.62 95.07 *1447
8. Substations
Land Aquisition 3.79 o.20 -.7q !.00 0.00 .63 '3.00 .63 4.42 O.Q0 4.42EquipmentPower Tansforters :.01 13.256 4.0' ).0)5 ).65 O.- 0.18 2.;0 2.48 .24 !6.0! 17.:5Circuit Breakers 0.00 !.88 s.ae 3.00 0.29 0.29 0.00 r .M3 1.03 M.00 7.20 .2,
Other equipsent 1.21 53.Qa 5'.: e .s j '?.0 2.76 0.21 9q49 9.'0 .48 b6.17 7'.S5
Ciiil worrs & 4ousirg 24.09 27't5 51.'4 2.19 2.60 4.70 4.40 5.03 90.4 30.68 35.8 b5.'6Installation & conissioning 5.40 7.C' 12.43 0.54 02-0 1.24 1.00 1.30 '. 30 .9' 9.02 :5.0'Engineering services 2.0' 6 8.72 9 7 1 0.1 O . Dt4 0.44 O.6 1.1f !.54 2.51 .24 10.'5Custom Duties L Taxes 11.11 0.00 11.!: 0.6 t.00 0.56 1.95 0.00 1.95 !'.62 0.20 :M .:
Total baSe cost 8 'January 198 1 48.66 114.12 1n2.78 2.'0 7.28 10.78 8.73 20.23 29.b6 60.aQ :4:.7 2'02.:2Physical Contingencies (81 3.50 7.8 :0.78Price Contingencies (81 8.73 20.3 29.1O6
Total Cost 8 60.89 141.?' 202.62
C. 3thers
Specilized Equipsent t Vehicles 0.00 12.60 :2.60 0.00 0.38 0E38 0.00 .75 !.'5 0.00 !4.73 :4.77Cotputer Software & Hardtare 0.00 0.40 0.40 0.00 0.01 0.01 0.00 I.Ob6 0.06 0.00 0.47 0.47Technical Assistarce 0.91 2.80 3.71 0.?3 0.08 0.11 0.13 0.39 0.52 1.07 7.27 4.34Training 0.40 1.53 1.83 0.01 0.05 0.06 0.06 0.20 0.26 0.47 1.78 2.25Custog Duties L Taxes 19.91 0.00 18.91 0.57 0.00 0.57 2.61 0.00 2.61 22.09 0.00 22.09
Total bast cost C (January 19181 20.22 17.33 37.55 0.61 0.52 1.13 2.80 2.40 5.20 23.63 20.25 43.88Physical Contingencies (Cl 0.61 0.52 1.13Price Contingencies (C) 2.80 2.40 5.20
Total Cost C 23.63 20.25 43.88
D. Total Project Cost IA*9+C)
Total base cost (January 19981 107.52 205.48 3t1.00Physical Contingencies 7.91 MN 2d.18Price Contingencies 19.65 36.37 55.'2
TOTAL COST 134.15 257.05 39l.20
ANNEX 3.4- 66 - Page 1 of 2
ALGERIATHIRD P0M P9JECT
A. LIn" Cowosent - Cost estiute rr'a-nqed bv c:vtact :acta;es(In U S oillfon)
A: 220 kV Tranmission linesUNs Cost P'NVICAIc ;nttngencies Dr::, Centt1;Inctes Total 'ost
_- -- -_ __ ..... _ _--__.___- --- - ------------------- --- - -- - - - - - - - - - - -- --- - - - - - - -. --- _--__--------... _ _ ......__ ___* _ ___,____
LC rc TC c cc 'C LC rc TC LC Fc TC
1. R-ghts of 2.wa?.. . 0.00 0.42 2.q2 0.00 2.922. Poles for t .r lint KheseiiOued-Sly (Al)
ind 25 ke of sull connotions (Abi 2.77 4.17 6.94 0.28 0.42 0.70 0 .51 0!.. ' .29 3.56 5 .;t 0.97
3. Engineing scrvice for Al I 46 0.91, 0.00 0.91 CO )9 0^ 0.09 . ,7 M.O0 0.:? 1.1I 'd.00 1.17
4. Conductors for all lion eucet for thesu1l conneniass Ai6 oQo *14.70 1420 * .4' 1,47 ).00 :.: .'1! 0.00 18.88 l.Un
5. Coductors for 46 0.30 0.46 .'6 C.1, 0.05 0.0o 3.06 C0.9 0.15 0.39 0.60 0.96. Inisulatorl for all line 0.00 2.60 '.60 3.00 ').26 O.'i 0.10 0.48 0.48 0.00 1.34 3.347. Hardware 4or &1 lines 0.00 1.08 .O9 O.:o 01. 0.1l 0.0 0.o.0 .O ).0Q 1.9 1.391. Engineering service , poles installat:on
e rection of the linen Skitda-Bellara (A21
S i:j,l-Ain-Plila iA3),& engineering services
poles of the !ine Ransouriah-EI-Kseur (441 10.70 .'.87 3'.57 1.O .47 -. 55 1.97 4.39 6.55 13.75 31.92 45.67
9. Enginering services poln & installation
of the lno Elln n ourndJijel-Rlara (AS) I
installation & erKtiof of the line M4 10.23 19.78 30.01 1.02 1.99 3.00 1.68 3.64 5.2 13.13 25.40 38.5310. Installation I erection of 41 4.21 5.10 9.31 0.42 0.51 0.93 0.78 0.94 1.72 5.41 6.55 11.9I11. Installation S eroction of 46 1.05 1.2? 2.32 0.10 0.13 0.23 0.19 0.23 0.42 1.34 1.63 2.9712. Custes dutlel taxes 6.20 0.0o 6.20 .i62 0.00 0.62 1.14 0.00 1.14 '96 0.00 7.96
Total base east (January 19e8) 39.64 74.03 112.67 '.97 7.40 11.27 7.12 13.64 20.76 49.63 T.07 144.70Physical conting acis 3.97 7.40 11.2'
Price contingentie 7.12 13.64 20.76
Total Cost for A 49.63 95.07 144.70
B: Substations
I .Land acquisition 3.70 0.00 :,0 0.00 0.00 0.00 0.6j 0-.0 i.,- .42 '. 30 4.42
2. Transforsers n.01 13.06 14.07 0.05 0.65 0.70 0.18 2.30 2.48 1.24 16.01 12.5
3. Circeut breakers 0.00 5.89 5.88 0.00 0.29 0.29 0.00 1.03 1.03 0.00 7.20 7.204. Substation East Region %11
4.1 Dsign, other equipWnt I supervision 0.92 21.22 22.14 0.05 1.06 1.11 0.16 3.73 3.89 1.I3 2*.01 2.14
4.2 Civil worts 8.77 10.71 19.50 o.9o 1.07 1.95 11.62 1.98 .60 11.27 :3.79 2.05i.3 Installation t eobxshioning 2.01 2.45 4.46 0.20 0.25 0.45 0.37 0.45 J.82 2.59 '.15 5.73
5. Substation Central Region (21
5.1 Dsign, other equipeant & supervision 2.20 27.19 29.39 0.11 1.36 1.47 0.39 4.'9 5.17 2.?0 33.33 36.03
5.2 Civil works 10.40 13.06 23.46 1.02 1.32 2.34 1.92 2.41 4.33 13.34 16.79 30.13
5.3 Installation 6 coessioning 2.45 3.41 5.86 0.25 0.34 0.59 0.45 0.63 1.08 3.15 4.38 7.53
6. Substation Ouled-F4aat: Design, Civil works,
other esipent, Installation 6 coussion 1.11 14.23 15.94 0.17 0.80 0.97 0.31 2.'2 2.92 2.19 17.55 19.74
7. Housing 4.29 2.89 7.L1 0.21 0.14 0.35 0.75 0.50 1.25 5.25 3.53 9.7r
9. Custos dutie & tax" 11.11 0.00 It.11 0.56 0.00 0.54 1.95 0.00 1.Q5 13.62 0.00 13.62
Total las Cost (January 19) 48.66 114.12 162.78 3.50 7.2. 10,78 8.73 20.33 29.06 60.8" 141.73 202.62
Phystcal Contingencies 3.50 7.21 10.78
Price ContiangenLes 9.73 20.33 29.06
Total Cost for 9 60.89 141.71 202.62
(1) Substatioss ofI Tebeesa; Iteedane-Jamel and Ain-BoRds.
(2) S9astati5Os of, Chelghou-Said; Kherba, eni-ered and 7 feeders
fer the C etti0 of the lInesn inCIlud in the project.
ALERIAPOUER ltl
C - OTHERS - Cost Estieate reirranged by contract packageslin tlS a oillion)
Base Cost Physical Contingencies Price Contingencies Total CostLC FC TC LC FC TC LC FC TC LC FC TC
C. Others
1. Specialized Equipment L Vehicles 0.00 t2.60 12.60 0.00 0.38 0.38 0.00 1.75 1.75 0.00 14.73 14.732. Computer Software & Hardware 0.00 0.40 0.40 0.60 0.01 0.01 0.00 0.06 0.06 0.00 0.47 0.473. Technical Assistance 0.91 2.80 3.71 0.03 0.08 0.J1 0.13 0.39 0.52 1.07 3.27 4.344. Training 0.40 1.53 1.93 0.01 0.05 0.06 0.06 0.20 0.26 0.47 1.78 2.255. Custom Duties I Taaes 19.91 0.00 18.91 0.57 0.00 0.57 2.61 0.00 2.61 22.09 0.00 22.09
Total base cost C(anuary 1988) 20.22 17.33 37.55 0.61 0.52 1.13 2.80 2.40 5.20 23.63 20.25 43.88Physical Contingencies 0.61 0.52 1.13Price Contingencies 2.80 2.40 5.20
Total Cost C 23.63 20.25 43.88
OQ z
0.t1>
ALGERIAThird Power Project
Implementation Schedule
1987 1988 1989 1990 1991 1992 1993 1994
123 4 123 2 42 3 4124 12134124 3 24 1 2 3 4
A THANWM1SS1(N LINES
I Suivey - Delailed Design Right of Way _ _ _ _ + _ _ _ - -
2 PiLupaiaboji ot Bidding Documents
- iblds L viiuaitiwu anid Conitract Award
', Muntila(.lusiri & Delivery of Equpment - - -_ _ - -x
t, ('is*lruul.luiu tlou Linus 0 -_ _ _ _ - T - - I11 l306 JATIONS I 4
I Lamud A.qkuisiioi -- u--
L., l 1111 ,~idljy Du ,ign --
3 I'ieupdidt,Vil of BidLlntJg Documents
4 bid(ss rvaltuation and Contract Award - - _ _ _ _
!, M.aitialctulitij arid Delivery - - - -_ _ _ _ _ - - - -
Iti owluchuhoid Commissioning I I I I I I I I I I I II
cahWmO9S?
ALGERIA
THIRD POWER PROJECT
Estimated Procurement Schedule 1J/
A. Lines Comonent
Bid Submission Release Bid Approval Award ContractOocuments of Bid Approval of Bid Bids Evaluation by of Signing by Contract
Contract Description Coileted Docusrents BvBank Docauents OQenina to Bank Bank Contra=L _SE.LLGUz Gletio
1. Conductors & Fittings 12/87 03/88 04/88 06/88 09/88 12/88 01/89 02/89 04/89 12/902. Insulators 01/88 03/88 04/88 06/88 09/88 12/88 01/89 02/89 04/89 09/903. Hardware 01/88 03/88 05/88 06/88 09/88 12/88 02/89 03/89 05/89 09/904. Installation and Erection 04/87 07/88 08/88 09/88 12/88 04/89 06/89 07/89 09/89 09/91
of the line Khemis - Oued Sly5. Engineer. Services, poles.
installations of the lines 06/88 Od/88 08/88 09/88 01/89 oS/89 06/89 07/89 09/90 06/92Skikda-Bellara & Jijel - AinM1tla and engineering services& poles of the line Mansouriah-El -Kseur
6. Engineering services, poles and 12/88 02/89 03/89 05/89 10/89 02/90 03/90 04/90 07/90 12/93installation of the lineMKnsouriah-Jijel-Bellara ainstallation a erection ofthe line Hansouriah-El-Kseur
S. Substations Component.
7. Power Transformers 03/88 04/88 05/88 06/88 10/88 02/89 03/89 04/89 09/89 12/928. Circuit Breakers 03/88 04/88 05/88 08/o 8 11/88 02/89 03/89 05/89 11/ 9 057929. Supply of Other Equipment.
Civil Works & Installationfor Substations of EastRegion LZ 04/88 05/88 07/88 08/88 12/88 04/89 05/89 06/89 01/89 09/92
10. Supply of Other Equipment.Civil Works & Installationfor Substations CentralRegion L 04/88 05/88 07/88 08/88 12/88 04/89 06/89 07/89 11/89 06/94
11. Supply of Other equipment.Civil works, and installationfor the substation Oueld Fayet 06/88 07/88 08/88 09/88 02/89 06/89 07/89 08/89 12/89 06/93
LI General procurement notice issued in December 1987. Z2 Substattons: Ramdane - Jan,el - Tebessa and Ain-8e1da XL Substations: Beni-Mered, Chelghoumn-aid, Kherba
- 70 -
ANNEX 3.7
ALGERIA
THIRD POWER PROJECT
Estimated Disbursement Schedule
Bank Fiscal Year Cumulative Disbursement Cumulative Disbursementand Semester at end of Semester Profile
(US$ million) (2)
1989
June 30, 1989 3.2 2
1990
Dec. 31, 1989 12.8 8June 30, 1990 27.2 17
1991
Dec. 31, 1990 44.8 28June 30, 1991 62.4 39
1992
Dec. 31, 1991 80.0 50June 30, 1992 97.6 61
1993
Dec. 31, 1992 112.0 70June 30, 1993 126.4 79
1994
Dec. 31, 1993 136.0 85June 30, 1994 145.6 91
1995
Dec. 31, 1994 152.0 95June 30, 1995 160.0 100
2669L/14
- 71 - ANNEX 3.8
ALGERIA
THIRD POWER PROJECT
Comparison of Disbursement Profiles
Year from Date of Approval1 2 3 4 5 6 7
Proposed Loan 2 17 39 61 79 91 100
Actual Algeria First PowerProject (Loan 997-AL) /a 3 20 46 65 80 94 100
Actual Algeria Second PowerProject (Loan 1293-AL) /a 2 19 54 81 94 97 /b -
Typical Power Project inEMENA Region 2 17 39 61 79 91 100
/a Source : Related PCR./b About US$1.5 million of Loan 1293-AL was cancelled.
2669L/13
- 72 -
SOCIIYK EhYIOIh iL I ,4CYIIC I?I PR Dil 151Li A.';NE:(X.................................. Page lot
iNcoGE SUTAtlIll 1114-1995
(Ill IILLIONS Of DI)
Base case
Ftoc,1 year hdia g Iaiur 31 1344 3141 2364 34,1 9346 ;963 334 Al3 Ml5 M33 314 A)s
Wei Of ZIIWICLI 1614 P II 234 3.234 3.366 3.533 3."0 424 4.553 493 1: 530 03lt4 425 336.65 ~~~2. 46 32394 31SU 4 i6 4 6 4466 4 '4 i 064 510 421 .3 I ' it
6.437 A-39 0. 13 1 13 5 1241 32 157 14046 iS5: 1 1 :8.3935 1 2616 2510 235 U
iii, of 'Val Ill I3 I? 3.50 SU 24.20 14 '31 17 313 ', 310 :! 290 2434 :$.Ill 36185$ 33.205 36004# 39 jie* 6, 365~Jo 334 1 .21 1XI7 I il3 1441 I.54 2.354 2.300 231 2.30 :Al :se* .1 ~~~6.752 7.A93 I 614 9.231 la13? 11.14S 12.376 13.746 31.468 37.274 13,405 1,763f
21.163 '22.46 24.521 27,333 31.316 34.106 36.571 42.610 47.711 53,246 56.303 64.425
tienag Sale Price lIkctricLit 04/64d 5265 0 263 02'62 262 3:'H 3 317 03631 2337 0 425 3 423 0451 0 464lim est al .W hirc# ;u Oil 0 0 026 01 31 0 324 00a22 I ;21 002 0023az ai 0 oi3l03 0032l
S 1ts of llectrocity-Ut.net at 1.247 1.353 1.446 1.542 1.'47 2.204 2.611 3,131 3,743 4A.14 4,747 1,357Sail of Il.truuLty-otier 907 1.145 1.247 1.351 1.513 1.322 2.3TI 2.111 3.215 611i 4,1IN 4.T14
foual bmw.28 IOctrocuti 2.234 21.411 3.617 2.314 3.261 4.116 5,473 6.065 7,034 -.791 6.363 11.611
Wul of Gu*oav.r,ot Ill 13 2106 236 273 34? 444 544 "82 734 647 3644Sol" o 6as e-0ib. Ill 26II 227 261 364 365 417 4ts 716 Its 942 1,61?
foullium Gas. E 376 444 431 437 si7 732 345 1,141 1.316 1.014 3,76 2,W
O46cr kim.. 27! 272 247 313 344 334 436 123 514 656 722 I11
totul 0p.ratiag hium" 2.114 3.114 3,344 3.711 4.212 5,234 6,474 7,67 3.636 16.043 11.474 12, IN
Parch.. of GU for tietrzhetLoa 14 36 42 117 142 161 1ll 26 221 240 74 342Parebua of GUs for proe4.tio. 24 48 57 154 377 Il7 214 246 341 363 443 494fml 34 34 36 146 266 248 311 366 461 366 764 654Eataroala 425 625 414 609 636 366 1.334 1.331 1.326 1,567 1.724 1.331Salaries I Imes 641 1.026 3,417 1.146 1.267 1.411 1.512 1,657 3,767 1.947 2.124 2366l?&Ai liadirnct 353 366 467 360 441 546 661 77 434 366 1.122 1,255Depuecuatifa 461 141 6S 1.369 1,423 3.610 2,024 2,411 2.114 3.221 3.5161 3.6116.1st a lapair 133 131 166 1416 271 312 434 14 743 323 3,062 1.233
cuthe lip.. 335 2177 76 435 410 134 144 176 603 l12 Ill 931
2.136 3,136 3,148 4.26 1.246 6,117 7,6I 6,154 3.326 16,416 11.426 13.2114u.,ce"ital prig bk kpg o1.6717 37113 16663 37223 (1711 31L626 31.6471 31,6863 31.6143 33,2543 (1,413) i1.622)
7TUP1 Ogeraswtiugkuui.Ir. 2.113 .413 3.273 3.543 4.371 S.686 6,144 7,664 6,246 ,1221 36_273 1I.6"
op.ratl [in amw (km)3 ni u 116 147 31614 - 146 430 6No 7" 177 1.10 1.23TIn OpnrtioImig a iul,m 46 35 154 6 I I4 4 I 6 6 6op.rtlaglsheadp I a I 11 6 * I 6 * * .
[Wm. hfae a iun9 3 M6 147 33433 144 434 64 736 Ill 1,161 1,237
[gem If tat lao 441 116 INI 147 11603 144 486 661 71 771 1,161 1,237
samtr ast Al bit 31336 33733 (4643 34140 31173 37233 3132) 11,3433 31.1213 31.4311 (1,4363 12.6111)latari es riag cm misoow . 6 4 6 14 so 136 164 257 344 471 473 466
Laua:IiterW Charge to o3etiats 33141 (3733 (464 34713 345116 31133 03734 (111.66 3,1ST3 11.3163 31.3333 (1.6653
ho lao.. 31..3 91 131 33653 33313 16263 34473 1364 14773 33673 33793 .231) .3113
tariff lauruea in16 I61 141 161 6t 44 5s 31
- 73 -
wX;ttI aA?:o"ihPg J LbicThIlC!T 5! Jl t*Z .SONELGiZ! ,, ,,,,,......,,,,,,... ,, ,,.... ,..Page 2 of 4
STATUINt 01 SOPICIS I PULICHT01S 01 1F1DS 1984-19S......................................................
(is NILLIONS o0 1)...................
Base case
lical 1 l Sl b _ 1ISil 14iS itll 1;l7 iill Hl ,N SSi1 9S2 .03 i Ai 5 i .............
;'iteyd b set e Itsi~ Aerusboc 31 3384 3345 IS66 1)87 (386 30 :8 :113 10 .83 1.10 : 119 4I , *-
~ua3gtnoiftt.t7 440 530 351 :47 31403 436 64ill77 131 ::i Z ? u pr.cltalv 463 i41 ill 1.863 i.423 11ll 2.324 2.455 :1U4 3.I21 3 S1l I iS 35i:' I 4
F~qwtejog for ottO lose 0 131..... ... ...... ..... ...... . .. ..... .... ......... ............ ..................
;reu let Cadl I.i Gsnu.1e 16 1 1.21 J.I54 I41 24 5 3t 04 3,44 3.1 16 4.647 1 ' 242 :l .i 4 :41
aoss kit k"otci
interest Ch 4 fitso O.retiue 3563 .373531 4641 .47ns 4511 I SIS) .U13U 16 J 3il 73 Is '1.1561 1.333 .1.6653 *8.7 12 ;,.i".ne. reibdll Istot 8 I Fi 3 3 14
..... ....... ..... .... . ..... .... . .. ..... ..... . ..... ...... ..... ............... .. ............ ......................
ltatert 3533 33734 1 (M) 1411) (451) 5133 17331 113,88) 31.1173 31.136 111 3.3 " " .6" 5' i.:: .; .2 1 .i fn*uroIsatcu 5883i '7473 1433 11 114 .2433 I 31.7) l11535 1. 524U lI. 6 113 1.6163 11.613 32.113 I 12. If: Fi ; 2 346
... ... ....... .. ....... .. .. .. .. .. ....... ..... ........ ..... ..... ..... ..... ...... ... ..... ..... ......
teul Debt Shtfle 63IS 1 11 1113 1.361 31.1723 i1.76 321 il.1N6 (32.2731 46163 3.2IUI 12.1323 13,225) I3.1143 321.13 -63 1 3 1 s,
et (stand Cad Smntl.a 52 I291 3143i 451 i 444 1 26 (12 11 l 6! 54 IU 3.168 .442 I.54I 51161 6I I S44
Sittin Capital rneu,asl hemt IJJ33 1.121 l553 3328 3243 33.7263 11.341 O.14 11 13173 I141 '345 i3411 31. 431 11 .U.21Oun Coitriotlon 163 147 531 I33 441 431 II5 937 I.0S5 1.6H4 1.141 1,45I 1J,34 I611 1434boonmt Catriutiou-lorel lloeetiflcatie1 1.U IS 1,3S6 11.463 3.350 1,352 3.46 M4 552 333 331 324 6 1 4,Fi I U 6Ihbic liesrt ueof ts i oer I :3 a 1 1321 1 O I I I i I LilT 0i.2 ad
Sor 4 a bdl tori ebrrutngloistlig LI Loukr.aoest i usieui bake Wm 1,43U 512 2.631 6f 436 2? 437 111 Sl I A 1 1.542 1612 214111-13*113/1?-JII 4 I I 3 I 5 3 I 4 8 3 6 3 066 J
;.",ia eoo ts I t1r Credits 448 467 626 5o6 523 3 1 i I I I 1. t26 082 384
hntt*useei lostr i rtri a L 0 11.5 I I8 I I I 1 1 1.521 302 2llPom t lfLea 6e/t I OI I 6F t 11 I2 3 I3 I 5t 1.S1 4II 166Propi sula hla Uu 0 6 6 1 3 16 126 114 61 t6 3S SSI td31 N6Otkr-khiattid I I O 0 14 6,465 6.158 7.511 1.133 6.531 S ,3? 1.1 U S2.334 I5s 3.212
epIta llnroI K B I I II I I I I I IJUtbo S o 6 56 :43I 112 151 112 36 31 IS 35 3S 3i $24 301 31
............... .... ... ... ... ... ... .... .... ... ... .. ... .... ...
7471 8 4o lof Sm 3.15 4.517 4.6 S I3 s 1 l .32l 1 .21 41 7J673 6,616 1.126 9.48i 36.655 12.171 ' 8211 1 11 I6 U
0111171014T
Ceout sietog A hiuin t. Pog 3,8158 4,56?f 4,663 S 515 6.270 7,365 1,131 1,221 7.268 1.411 16. 048 11.348 64.166 3) H 13313Fnrset Is46lun I I I I 6 4U 1347 SI 552 474 342 241 2.45 6 14 112atervat bring Couttitto I I 6 16 56 3:0 114 251 308 415 473 46 2I.4f3 153 374
............ .... _.... ...... ......... ......... ......... ......... ......... ......... ......... ......... ......... ........... ......tOtU imV3tUo a t 3.6 I I6 4,1? .63 5.112 6321 6 U411 7.673 6.011 6.121 1.418 36155 I 11.71 W1152 I I3I 610
Cstribtle- tu- nvua.Uu htUill 31.. 755 -1.60I 1 It -in -43 66 -35 ss 11u M -22.11 34 I 1 5.1n i2.61 114 8
(ouclifI -3.861 *SH1 M *15 11 f461 M 26 I l1l t 6 13 6n ISf S 56Is 1i 6 6hi DeIe Coverage htS.io I8 *6 673 0 74 6 14 1.4 1.11 1 33 1341 1.43 3 44
*osul Coot to C nn_suua
il s 1 I t la1s tt1 it thib Sol Is Itt'IS u It tus ttr It anl'tt Its'll uISSY ¶lJ... ............. ...... .................... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
W g IS ' l Slt Ic Nlt no, t lt C ti I t ti s I clOt j'it llst t llt m m IcIsta...... ..... ....... ...... ...... ...... ...... ...... ..... ...... ...... .
6 til itl m all its si t1 stt lot tot Sit 'af l3101 Ito 116 015 ," Hi tot IIi i i ts f No 1 11 U J29 ~n:1 Sil LSt ti .et' hi 111 ill ssi It Hl @ Sel tlll*C '- 15ILII151L -1Ha' l 616 Uo Ito tot oI el oil too tli Ite'l tlS g;w*" @^|
SSt Stl I s1til t15 I SSt I Ut1 1 111 1 i t' ! Itol I H-I ISl-I 1it'1 111ll!tl.18 lILIsS tl nsI it *si snf Its tt lit Ott Ut SIS Uti.......... ...... ...... ... ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
I I It IS I S I S t ISI iz
nlI IN lI Ui: It is n;5 it tot n No:S ot S9.IJSt~
to: HI 53! IL, "Ii Wi Ii II: tot its IZI 861... ........................................ ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
* I I I I I 1. tS SU 6S? S Sll It ll i9 v iSIll 61 Al hi Ill tS let tf. jS Set Olt ttt 989';1S.80Ito' Ml6 111 Itt lit M3 IL; Ih ol lit ISI CC uIig h.6 1 2l I I I I I Ill sil * ti ti, bs Ut Iti
i ai g1 DUt Sit ci; No. it Zs: S.t sz si; a1.I3 zN.JJo:
tit ItS It in St at ltl ISt *it tli l lot 1: w" t9 t8
SwSii -
it a 01 O ti 11 it i I, * lit I tI1l hSW )" JeItQ "I _ lwoIllS' NU UI'S USlItttlUl mn 1n tll it l1,111 Ott t It 161Z Ot t5 *: WISP Ul twi ¶DI... .......... ............. .... .... .... ...... ...... ...... ...... ...... ...... ...... ...... ...... .....
£U1tt tl U l Sit l 3U t1- 1 W6111 IttIl 1 i SI I tIC ntl :1 ,i 991; it ,, i
OUll us-n" lul ls s11" s Stu I ll II 11U Silt ttl S; I Sil 5 sS il Ui us wnit% *' *'Issi 1PA: 9... ........................................ ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
ISPc.Zik otzlI ItI Oll 1s 01 1 tt ( 5 II ( 1 ti 1 6 110,1 1 , .it t t. 190 0' t1O il lIltI t t.. Io,t fawwu.eIM 9 $ISo'" H WU t 531Cc U ILt t M iiS is il 1l-t .iI11 t t, t Sli I ll Ltl El CIStlIJa 3 sju1 jl aswD
SUISS1 ON1!
~~~~~~... ..... . ..... ...... .... ... .. .... ...... ...... ........ ....
S.: tiI. tU' 3661 141 4H' 65: tti L6it til 56 i toI It J 4 aq ' II J,5 C19*- --- ----... ... ... ... ....... --- ;e- o ... ... ..... .... ... .. ..... . llw -.--.--.-..
asea esig
(la 10 sluoniai *T)
5661-tS61 SilliS 1q,111S......... .... .... .... I.. . ... ......
ltDlAllQS) 1wo la 11 IlIDll;Olil.0 ll'J"OI;II l1lI30S
;… … …a…T- -I 't l_
- 75 -
................................................. ge 4 Of 4BAL&ICK SuI1TS 1984-1995
...... ...................
- (in HILLIONS Of Di).................. .-Base case
...... ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~.. ... .. ... . ...
'".'.t.sssbrit St 5 734 4 74? 4 t lit 21 ' 1 9: 4 Iit s. -3 :; .4 73@"*.e4 tteg 0sr,,. 34lt ¶4 .41 | 's1 47 *47 14 J4? C '4? p.
Peiulitte. to !ug ust 1I 4? S S 4
Ncm 'Loss, ttf ti le eia I I: 1 1 ;i1 1 : 1;1 1 ;ti I 1:i1 131 !1
.... ....... ......... ...... .... i. ...... .. . ..... . ..... ...... ...... ...... .......... ........ 4t* jId iatihr,g.q. Whis nar 111 :'1 3'S St ,'S. *003' ,I56)I 1.65 .I12ISI 1 f3 111 1343t4.LeFt,bz;) '4 $q**!4g4 il.dt 1 4 144l|ee.. 'L>' tet eb. se 41 917 365 324' 624 4471 384) 477) 4347) '31'§ s;iZ 344i
...... ......... ...... ...... ...... ...... ..... . ..... ...... ...... ...... ...... .. ...... .......... ......
4,i1.4l aftr iel,non 41 ilf'3 115 54 3'5i .50) 11 S 't iIii 2131) 5 , 2411 ZItti '3113'114I1,,I
'4L; e4PT?4L 44314115 43 761 4744 I 1 '1S 11 "8 I 1233) It4 S 1 2.4, I t It60 42.51 llS4 s 4 2 I,1.C.itt.t '?erihII?4e 3 :: 3 '54 4 344 441 '62 S s l * , St 3 6.0 1.57 Iit *St Io.'is :i:
*nt4L £604?? ttt5 114 47 13 IlI 14 S52 171411 I1 I4 1ISI5 t 4 20,3 t o 2t t2.134 ZI .NJ t4.445
L11 A 654l6 tUE mu?.. . .. . . . . . .
;fttaro.tt & SatIe, 1g1 12 51' 12 I S 15. 1 1 111 11l671 13.17 12.41 ?.42 I ,11 3 tl IS,1 A .1l 6 I.1? ji3
?Toul ULutIal ai.te i 4. 12.517 I.92 15.260 13.671 iU.416 12.66 12.612 44.U23 40.30t 3.2 1 0.25 173
11011 u43 214 244 240 ttt 4It 123 1C tl a I I ItIer I[Gm a Iwlie Ctidt l.631 1.5 2.331 2.64 : 3. 34 3.531 310 :.1I$ 2. It 2.141 1. 6 1.S12
...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ... . ..,. ...... ...._... . ......
Totaul liustie l6t.rul dbt 1.916 1.25 2.581 2.455 3.45S 3.654 3.443 2.15 .i 1 .t15 I'. 6.513
trp_r Crt_t Intetc I t 6 I 4 S 4 .36? II1 1.103 t.103 4.0U1 4ItP p e ins Leas ' 4 6 1 74 ? 414 43 63 pNese I zastile.L,, 1 W as I i f IN N 313 M1 314 3nltr Whe n de.tlf7 I qt 1.484 1.44 , S44 n5t 2210 1.26t 24 tt 4343 t 1 406
TitUi h ten W.as a 1 I 1 2l414 I .505 16.1 S4ll4 3.410 3I.1( 44.6tS 53 3S 3
?418L i13g 13510 193 ttU ? 444 Ul 11. Ul 1 711 il.S!I 11.tl1 t5 154 11 120 11,130 43.2l3 4*'t 54,1tt 6. 243
n I. a.ewt L"biuteI 131 47 162 19 '41 :;6 244 283 2s 363 335 304
; ..... , ?iiiIIq 1.5 431 9%3 1i.5l 1.51S 1444 2.025 Z. 2.8t0 ; 2. 250 2.tIN 2.424 t 21 .tlt6tr tr.te 454 645 1.62 I'? 2.4IA$ 454 14 1' 131 404 41 465 51 $54Tel"3 4w0l4 144 4t4 134 144 151 I64 tt4 244 21s 341 334 in'4s*i4 All I 0 .514 I.I S l.it A4 I44 JtS .n a I 4 4loea I.t?47ff 1.441 3340 3.616 2. 500 :ss 1.5144 400 So6 I 0 I
--41M LUm UUXl14 HI4 7.321 7.31 6.455 'I g i 4n34 '310 3.14 2.3i 3.436 3.62 3,.12
tb'L LAMMIt4j5 tl.l75 33.114 3t.183 0.731 44 It7 51 433 4'.IIS 42.44 61.644 14.271 12.131 1 425
4to of 6w te I. fins 061_ eI Ii64 611 I in 4Iffi 40 '3 6 I" I in I on on I14 7: 1~~~~~~~tb,1Witl 14tio lSIS @ I 6 1 I it I 1 1 51 A SO 0 40 1 13 4 0 1 47 AT is I if I ?I
- 76 -SOCIlIt 64710611 I81T12T 1? DI 44 30611... .... ........ ........... ....... -NE .2
IM STinM 11,14-1915,ANNEX 4.2..tO...................... Page I of6
(as IILLIS of Ml...................
Sensitivity Case
fliscal Year ladiagl ec" r 31 1144 18 1 I N? In, 1911 IM Im l1l1 loll 11)3 114 I SIS.... ..... ..... ..... ..... ....... .... ..... .... ..... .... ...... .... ..... .... ..... ....
Sale of Ilectricit? (5I1I 17 915 3.23S 3.311 3.531 3.71 4,324 4,155 4.16 5.231 S IN 4 4t1 4.I14- 17 2.94t 3.214 3.)1 6 4.l0 4.21 C.S 4,1124 5.t04 5,1 1,:11 7657 1 11- Li 2.512 2.11? 3.211 3.545 3.141 4 365 8,763 5.15? 1.55 Sf91 1.411 6.112
... ........................................ ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
8.43? 1,5N 16.251 11.175 11.91? 1215? 14.64l 1,111 16,391 WIN 1U1,U I 21,615
1. of aoi 1ic 6 TI) 7 if 13,S1 14.211 14,71 17.365 16.310 21,219 24.35Z 26,611 31,16S 33,265 3H.116 33.1It 985 114 I.IIS 1.370 I.SI3 1665 1.641 2,054 2,362 2.511 2.366 3.25tLI 6.752 71611 I.614 C .231 10.12? 11.145 12.376 13,74U 15.46 11.274 11.41t 21,711
...... ......... ...... ...... ...... ...... ...... ------ ------ ...... ...... ...... .. ...... ..... ...... ...... ...
21,163 22.165 24.526 21,35 31,616 34,118 31,575 420.11 47,175 53,6 N 58.385 64,42S
Iverge Sale Price Ilectricity Di/id 0 15 16263 1212 1 6262 9 2 1.33 1.311 1.134 6.354 1311 .38U 84U5Averaga Sale Price 4.S Mh/e 1 6I o1 1.016 1.o11u 826 u 121 8 022 O.e23 0.024 8 25 8124 0 I2
Sals of l1.ctricity-4ovenruet 1,24U 1.353 1.44 1.542 1.74n 2.U15 2.371 2.482 3.315 .S55S 4.645 4,676SU1n of llectricity Otjer 117 1.145 1.24 1,351 1,531 1,134 2.11 2,35$1 2.6tC 3.127 3.5S5 4.117
total tewwee Ilectricot? 2.234 2.411 2,t6? 2.966 3.281 3,191 4.43S 5041 513 4 ,# 7.U111 6.795
Sales of iu-Co ne est IIJ 1N 266 236 273 331 312 4IS 531 626 721 635sai of Gas-Otker 169 208 227 261 384 36 431 56? St l IN 6l 3It
Total l6.e.n. Gau 311 464 431 417 5T1 se1 128 IN3 1.136 1.322 1.22 1.744
Otler fteowoew 272 272 247 313 340 34 456 123 1si4 H6 722 7)0... ..................................... ..... ----- ----- ----- ..... ..... ----- ----- ..... .....
Total Opereti g levone, 2.184 3,174 3,380 3,711 41212 5.14 5,743 4.I27 7,473 I.658 1.124 11,351
111R 11_
Porctuia of GaO for distribtio. 18 30 42 117 142 11 112 288 225 241 2174 32Poroiau of Gas for pro4acliot 24 40 57 154 17 217 251 26) 141 315 443 494Feel 36 34 s1 146 260 241 311 361 411 So 704 658Uatorials 625 t21 614 681 131 N! 1.134 1.231 1.321 1.517 1.724 1t35Salarles a 5ags 041 1.021 1,837 1.141 1.21? 1.401 1 521 1.657 1,717 1.047 2.121 2,366hitas liodirecti 351 316 467 311 446 527 51 I 714 64s5 183 1.115Depreciatioa 461 541 4U 1,41 1,423 1.611 2.0124 2.455 2.11' 3.225 3 570 3,049ault 8 teopir 131 135 101 S1 271 352 454 si8 'i 123 1.813 1,253
Itkur pon 33"5 3?' 761 431 416 534 546 578 663 6"2 611 131........................................ ..... ..... ..... ..... ..... ..... ----- ----- ..... .....
2.86 3,106 3.141 4,2165 5.241 4.118 7.025 6,058 9.111 16.351 11,613 13.1SLess Capitl pro klar Works (1517 (7111 4409 u7t221 (6181 (1.1211 (1.647?) 1.164 (1.0611 112511 (1,4531 (1.122)
..... ---- ..... ..... ..... ..... ..... ..... ..... ..... ..... ...................................
lotal Operatig lipeaditeret 2,173 2,471 !,2?1 3,563 4.371 5.64) 5.171 6I1H4 6.112 t.10 16.241 11.533
operatig Iuo. (Loss) tII 611 111 1147 1639 I55I (235, (4371 (62JI (451) (3141 (1759U OnperItiaI lecote (1.oo 45 39 116 I I I I a 0 0 0 0Operatisig hu41 a 4 I 0 9 0 6 I 188 0 0 20o
ltem Bfort I"o 7ui 735 266 147 1;6)9 (519 92351 (4379 152tl (4S5I (3149 25Lnse lco.Yto1u (37) t2251 (107 1 0 0 0 8 8 1 0 t 0
Iscose After Tu 443 116 ISt 147 (1619 95s5 (2351 (4379 (521) 94S1I (3161 25
laterest oa l14t Debt (3501 (3731 (4441 14149 (5171 (3711 (6389 (1.6239 91,1167 (1.3111 11.5231 11.130)lateru t diriag coutroctioa 0 0 0 16 5 131 113 219 375 483 4I 4tl
.eaa lstertst C;irged to Operatiomo (358( (3731 (4441 i476) 1451) (24)9 (44I5 (764) (8129 (1369 (1.1429 (1.3511
let Ieota Lose) is .3 (3151 ;33;1 (6211 M3O 6801 110 i2411 (.34k) 91.2171 (1.3;11 (1.3261
ialo of Tariff lcrteaoe lpleaetatios ' 7 1 1 1 1Tafriff lcrein Is li 5 51 It 51 is 5t iS
6- Z..
c- ---- - -Z
-- -~~~~ ~~ - g~~ - I-- :r-r
N -------- --- ~~~U - -
N N~~~~~~~~~~~~~~~~~~~~~~~~~2
- 78 -ANNEX 4.2
SOCilt lltlOIAUI D LLIVC?ICI3 It Dl Gil IElluAA) Page 3 of 6...................................................
BALAIC SlMTS 1914-1995.........................
'i I9ILLIOIS Of 01)...................
Sensitivity Case
- ACtOAL.P -- ---..---.-.---.-.-... FORICASt. . --------. --. ----.-----.-.-------.-'.scal Year [Idiot Decomber 31 1964 1915 1916 1967 M966 1919 1990 1991 1992 1993 ! 994 1395
.... ...... ----. .... ..... .... .... ---- .... .... ..... .... .... .... .. ....
*--------^ssns-...........T
ID WITSStS
irosm filed I slets is O"ratiom 13.672 17,17 21,051 32,211 38,117 44,151 52.761 64,675 12,31 719,151 87,922 99,065.ess Accmlated Depreciatiom (3,771) (4,314) (4,979) (6.041) (7,471) (9,171) (11,114) (13,641) (16,535) (11,161) (23,331) (2t,300)
...... ....... ...... ....... ...... ....... ...... ....... ...... ....... ...... ............... ................................ ...
get flied Assets is Operatiom 9,115 12,653 16,071 26,232 30,701 35,611 41,575 51,221 55,645 51,391 64,591 71.765work is Progress 14,145 15,344 16,262 10,214 11.135 11,442 11,191 7,101 7,731 16,375 12,467 13,397
...... ....... ...... ....... ...... ....... ...... ....... ...... ....... ...... -----....-... ... .... ... .... ........... ........
TOTAL 11131 ASSltS 24,04 26,197 32,333 36,436 41,341 47,123 52,771 51,334 63,513 69,7U6 71,051 8i,162.tber the Crest Assets 1,413 1,316 1,176 365 242 9? 6s 73 6f 49 39 30
COlalt lssm..............,asbk I bak 72? 761 1,12? 941 251 287 327 359 396 441 511 S2lccouts Recejiables
Gowenunt-Illet 16uCurreut illillg 216 254 275 292 332 397 454 5I6 591 617 790 906Prior to 12-31 323 402 461 412 306 154 0 0 0 0 0 0
...... ...... ...... ...... ...... ...... ...... ............. ...... ...... ......531 656 744 754 641 551 454 516 591 667 190 906
Govennnot-llorkCorrst lillimgm 333 401 435 155 163 106 122 144 171 187 199 241Prior to 12-31 265 225 221 221 153 76 0 0 0 0 0 0
...... ....... .......... ...... ........ ...... ....... ...... ....... ...... ....... ...... ... ............................... ...
SN1 65 664 364 316 164 122 144 171 167 191 241Donmetic I ldletriol coumme
Curreut lilli40s 44 410 417 3016 345 416 476 545 631 724 621 353Prior to 12-31 25 21 32 32 16 0 0 0 0 0 0 0
...... ....... ...... ........ ...... ........ ...... ....... ...... ....... ...... ....................... ....... ....... ....... ...
474 511 411 331 361 416 476 545 631 724 821 953tOtAL 61C1t1aaL 1.611 1,616 1,91? 1,476 1,31? 1,153 1,054 1,205 1,396 1,5S1 1,615 2,106
'thef Debtors 572 1,031 913 64? 634 61I 790 764 631 90? 971 1,052Otbor Debtor"oVermumt 217 421 564 316 377 443 456 46? 467 537 625 69?Inveutoriee 215 263 341 335 415 05 567 616 66 754 662 966
......... ....... ................ ....... ....... ...... ....... ...... ........ ...... ........ ...... ....... ...... ....... ......
TotAL ColiT ASsm 3,422 4,311 4,872 3,117 3,194 3,171 3,166 3,411 3,751 4,245 4.792 5,369...... ......A ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
TtOtL ISSMt 21,175 33,114 31,313 41,131 44,IIt 51,31t 51,O4I 61,111 67,394 74,060 811819 90,Sil
-79 -ANNEX 4.2Page 4 of 6
SOCith lIAlOIAL6 D8LIC?IICItI n D1 Gil (SOILCIA)...................................................
BALAKI SUITS 1964-.199........................
i tO IILLUO05 Of Dll...................
.-- ---- LIAIL?I1S*-------- Sensitivity Case
Capital it7 97 97 97 9? 97 97 97 97 37 37 3foverunt Crusts 5,734 6,747 1,219 9.560 10,910 11.910 12.451 13,002 13,335 13.666 11.990 13.996
jevluatioa hoeron 347 347 347 347 347 341 347 347 3J7 347 !7l 347Proviaio for list A epuir 22 47 6 6 6 6 6 6 6 6 6 6Gov.rmenut Coutribttior-debt Trasfer I 0 0 1,321 1671 2.035 2,754 3.731 4.696 5.130 6.639
... ... ........ ...... .. ..... ........ .......... ... .... ........ ........ . ...... .......... ........
6,201 7,23 8,1668 10.010 12,681 14,031 14,935 16.201 11.521 18.812 20.170 21.319
?usllocated laruiags begis. year 139 231 315 56 i275) (903) (1,207) (1.887) (3,088) (4,429) (5,711) (7,074)Costributiom to Govoresat Budget 0 0 (14): c Loos) for tke year 99 137 (305) 1331) (628) (304) (681) (1.201) (1,341) (1,217) (1,351) (1,321)
... ...... ...... ....... ---- . .. ........ --- ....... ... ...... ------. ----- ..... . .. ..... .... ...
isallocated laniuge eui year 238 375 56 (275) (903) (1,207) (1,8167 (3,011) (4,421) (5,716) (7,074) (1,406)
TOTIL CAPITAL 4 ItSIIYS 6,431 7.613 8,716 9,135 11,771 12,824 13,048 13,111 13,012 13,09 13,091 12.611Customers Coatribitious 3,227 3,194 4,384 4,817 5,262 5,893 6,5818 7,425 8,486 9,574 10,715 12,165
......... .. . ........ .... ... ----- ...... ....... .......... ------ ...... ........ ------ ..........
TOTAL IQ01tt 9,665 11,407 13,100 14,552 17,141 18,717 19,631 20,543 21,572 22,670 23,611 24,844
LOU A 1I0I1 liii DM............. ..................
Goveoroset I ltiosal Wus 12,577 12,920 15,209 13,678 13,171 12,119 11,131 10,180 9,191 8,187 7,153 1,244
Total lxistiug lsttral debt 12,577 12,920 15,209 13,678 13,178 12,179 11,138 10,186 9,198 1,117 7,153 6,244
lBID-LI 1293 271 244 246 207 167 123 78 43 26 9 0 0other louso I Suppliers Credits 1,638 1.685 2.339 2,641 3,281 3,531 3,366 2,911 2,505 2,141 1,825 1,512
... .. .... ... ----- . ..... ....... .. ....... ....... .......... ...... ....... .... ..... ... .... ......... ..
Total lxistiag hteral debt 1,909 1,929 2,585 2,855 3,455 3,654 3,442 2,862 2,531 2,150 1,825 1,512
Proposed G-verumt leostctr. Lou 2 0 0 0 1,506 1.451 1.367 1,281 1,193 1,103 1,011 9(6Proposed (ID8 Lou 0 0 0 0 0 71 260 481 626 690 613 632Proposed Isio hsk Lou 0 0 0 0 0 38 140 260 335 372 374 341Other Louus-Omideutified 0 0 0 0 1,484 7.861 14,881 22,575 28,697 35,166 43.042 51,982
... ...... .......... ...... ....... ...... ....... ...... ........ ...... .... .... .... ...... .. ......... ..
total Future Lous 6 0 0 0 2,984 9,411 16,648 24,597 30,845 37,331 45,120 53,871
TOtAL LOS I WIN TMI I 14,411 14,841 17,714 16,533 19,6117 25,254 31.228 37,731 42,514 47,668 54,011 61,827
3tkor los CUrret Liabllitle 133 16T 182 195 201 221 244 263 285 301 335 314
C0I11T LIIILITIIS
Cccouts Paables 1,611 1,353 1,551 1,515 1,884 2,025 2,230 2,016 2.251 2,650 2,821 2,656Other Creditors 654 885 1,072 2,105 1,494 1,178 831 464 456 485 515 547Tule payables 164 149 134 142 158 186 200 222 246 27t 307 3413upaid Debt Service 611 1,056 1,534 3,116 1,875 1,325 615 0 0 0 I 0b Overdraft 1,446 3,341 3,011 2,506 2,500 1,501 1,001 500 0 0 0 0
......... ....... ...... ... ........ ...... ...... ...... . ...... ........ ....... . ... ...
TOTIL C01Ut LIAILITIIS 4,511 7,331 7,307 9,415 7,911 6,201 4,936 3,272 2,962 3,411 3,643 3,144
TOTAL LilILITIIS 21,175 33.814 38,383 40,131 44,777 50,317 56,044 61,811 67,394 74,066 81,85 90,511
late of rettn os lized Asets( urevulued) 1.002 0.002 0.001 0.061 0.001 0. on 0.001 0.001 0.00o 0.00o 0 hasDibt:lqity Ratio (urnvloedl 0.62 0.11 0.61 0.57 0.56 0.51 0.12 0.65 0.61 0 6i 0 0.71
ANNEX 4.2
- 80 - Page 5 of 6
SO8ELGAZ Key Financial Indicators 1988-1995
Sensitivity Case
1988 1989 1990 1991 1992 1993 1994 1995
7aif torae~ 05 5 5 5 5 5Lariff 'ncrease XSi iOSSSSSSj(i3 nominal terms)
liet nternal Cash Genilatio;Si 101 7 3 7 13 15 15 I5
Debt Service Transferred toGovernment:AD 4illion) 0 691 669 1 048 1,332 1,286 1,331 1,175
Bank Overdraft 'AD Mii'ioni 2,500 1l500 lI00 500 0 0 0 0
Debt Service Coverage Ratio 0.74 l .29 1.11 1.29 1.64 1.79 1.71 1.62
- 81 - ANINEX 4.2
SOIILGAZ: Financing Plar 1988-1995 Page 6 of 6
Sensitivity Case
AD Million US$ Billion S
SOURCIS Of FONDS
Cash Generation
Gross Internal Cash Generation 19,085 2,974 24.2Less: Debt Service (13.510) (2,58) (17.6
Net Internal Cash Generation 5,575 816 7
Government Contributions
-Rural Electrification 4,430 769 6.3-Restructuring Grant 1,321 256 2.1
5,751 1,025 8.4Consumers Contributions 7,348 1,146 9.3
Total Contributions 13,099 2,171 17.7
Borrowings
-local banks 42,702 6,710 54.6-Suppliers Credits 12,192 1,960 16.0-Proposed IBID 1,019 160 1.3-Proposed him-Bank 551 86 0.7-Government Restructuring Loan 1,500 291 2.4
Total Borrowing 57,964 9.207 75.0
Other Sources 525 91 0.7
TOTAL SOURCIS O1 10111 77,164 12,288 100
APPLICATIONS O FONDS
Construction I Expansion Program 67,433 10,690 87.0Proposed Project 2,545 393 3.2Changes in Qorking Capital 7,186 1,205 9.8
TOTAL APPLICATIONS OF FOODS 77,164 12,288 100
- 82 -
ANNEX 4.3Page 1 of 3
ALGERIA
THIRD POWER PROJECTSONELGAZ
Notes and Assumptions on the Financial Statements
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995Inflationrates (in %)Local 8 12 11 10 10 10 8 6 6 6International 12 10.7 3 3 3 4 4 4 4 4
Income Statement
Sales: tariff increases are assumed to take place on January 1 of eachyear except the first one (1988) which is expected to be implemented onJuly 1.
Other Revenues: Connection fees, sales of by-products and scrap, meterrentals, investment income.
Purchase of Gas: constant 1987 price.
Fuel oil and gas oil: Constant 1987 prices
Materials: in line with number of connections, inflation and in proportionto chargeable works.
Salaries: indexed on number of employees and assume 52 annual increase inwage levels.
Depreciation: average rate of 4% applied to Asset base. Studies andinterest during construction are expensed after 3 years.
Taxes: mostly VAT on sales (7X) and investment expenditure (12 %),patente, taxes on salaries.
Other Operating Expenses: indexed partly on annual investment, and partlyon works performed for customers tTravaux et prestations remboursables(TPR)).Also includes: (a) exchange Losses incurred on Long and medium-term debtas of December 31, 1986; (b) interest expenses on Bank Overdraft andother minor finanice charges.
Maintenance and repair: 0.75X of Gross Fixed Assets in operation at thebeginning of the year.
Income tax: 55% of consolidated Net income before tax excludingexchange losses.
2669L/26
- 83 -
ANNEX 4.3Page 2 of 3
Other income (Loss): includes exchange gains (losses) on Long-term debt.
B. Sources and Application of Funds
Consumers Contributions: 502 of investment expenditures on Ra_cordementpour la clientele Nouvelle (RCN) for electricity and Gas.
Government Contributions: (a) 1002 of ex-oenditures for _ne National ruralelectrification program; (b) a restructuriag gr=nt amounting to AD 1,321Million in 1988; (c) compensatory contributions to SONELGAZ for
inadequate tariffs.
Borrowing:
- proposed Bank loan: 7.7%, 15 years including 5 years of grace.- possible EXIM Bank loan: 5%, 15 years including 5 years of grace- suppliers credits: 102, 10 years including 4 years of grace.- loans from BAD: 2.5%, 25 years including 5 years of grace.Annual financing gaps are assumed to be financed through BAD loans (80%)
and suppliers credits (20%).C. Balance Sheet
Gross fixed assets in service: unrevalued.
Work in progress: transferred after completion according to SONELAZ'sinvestment program.
Other non Current assets:
Loans to former operational Units: fully repaid by December 31, 1989.
Inventories: Six months Consumption by 1992 with intermediate targetlevels as follows: 1989: 12 months; 1990: 10 months; 1991: 8 months; 1992:6 months.
Receivables:(a) Government
(i) Energy: - current billings - 2 months of sales by 1991.- arrears: total arrears at the end of 1987 fully settled
over a 3 year period ending December 31, 1990.
- 84 -
ANNEX 4.3Page 3 of 3
(ii) Works - current billings: 60 days credit from billing date- arrears: total arrears at the end of 1987 fully settled
over a 3 year period ending December 31, 1990.
(b) Others: 2 months of sales of gas and electricity.- 30 days credit from billing date.
Other Debtors: advance payments made to suppliers.
Other Debtors - Governmentmainly income-tax and VAT prepayments.
Other non current Liabilities: customers deposits-evolve in line withinflation and the number of new industrial customers.
Accounts payable: partly indexed on investment expenditures and purchasesof materials for inventory - (9 months of billing starting in 1987deminishing to 6 months by 1994).
Other Creditors
- accrued interest on BAD loan projected to be fully settled by 1991.- miscellaneous creditors: 30 days of purchases.
Taxes payable
accrued TUGPS (Algerian VAT), income-taxes, Cotisations Sociales.Calculated by substracting total taxes due during the year, fromprepayments made.
Unpaid Loans from BAD: unpaid balances at the end of 1987 were calculatedunder the assumption that the new method of computing grace period isapplicable on a retroactive basis. Outstanding amount at the end of 1988will be repaid in full by 1991.
- 85 -ANNEX 4.4Page 1 of 3
SONELGAZ
THIRD POWER PROJECT
STUDY ON MIS AND ACCOUNTING SYSTEMS
TERMS OF REFERENCE
I. Introduction
1. The "Societe Nationale de 1'Electricite et du Gaz", (SONELGAZ) hasthe monopoly of electricity production and distribution and oftransportation of natural gas through secondary pipelines throughoutthe country. It is also responsible for marketing variouselectrical appliances.
2. During the last fifteen years, SONELGAZ has experienced anunprecedented expansion of its activities, as a result of thestrategic role of the energy sector in the country's development.Furthermore, this growth has been characterized by an average growthrate of electricity and gas sales during the period of 14% anti 34%,respectively.In view of this exceptional development of its activities, which hasresulted at the same to time in an increasing complexity of itsmanagement and operations, SONELGAZ has adopted a highlydecentralized organizational structure : 13 operational unitscovering some 110 agencies scattered throughout the country.
3. If decentralization has enabled to improve managerial efficiency, bybringing decision-making centers closer to activity sources, it has,on the other hand, raised another issue which has still not beenresolved to date. Indeed, a discrepancy currently exists betweenthe enterprise's internal management systems (MIS) and itsaccounting framework (methods and procedures) which have not beendeveloping at the same pace. As a result, the present situation ischaracterized by the fact that the current accounting system isinadequate and clearly fails to meet the various needs of theenterprise's management and organizational structure.
II. Objectives of the study
1. The objective of this study is to provide SONELGAZ, on the one handwith a new, more flexible accounting system, better suited tointernal management requirements and, on the other hand, with anefficient MIS system, capable of facilitating the enterprise's
- 86 -ANNEX 4.4Page 2 of 3
management, improving the efficienicy of decision-makings and the fluidity ofits information flow.
III. Implementation of the study
The study will be implemented in two stages each covering a one yearperiod.
The first stage will consist of an assessment of the strengths andweaknesses of the current accounting and MIS systems, with a particularemphasis on the following points :
(i) review of accounting and cost accounting systems;
(ii) assessment of the accounting MIS system in terms of relevance, speedand accuracy;
(iii) study of the macro aspects of the enterprises accounting andfinancial functions (interface of accounting and financial systemsbetween the regional centers and the head office) and of its microaspects (methods and procedures used by the various units).
(iv) compatibility of accounting and MIS systems;
(v) use of computers/micro-computers
The review of the various points mentioned above will be done in parallel tothat cf the following subsystems :
- monitoring of the cost of investment projects;
- monitoring of inventories and equipment management
- loan management systems
- billing system for customers (energy and works);.
- management system for customer accounts (aging balance of accountreceivables, analysis of customers' balance by sector).
Special emphasis will be granted to the distribution ofadministrative tasks and investment expenditures shared by the enterprise'svarious activities (mainly electricity and gas). To this effect, the studywil have to provide specific proposals regarding allocation criteria for thesecharges and expenditures.
The second phase of the study will attempt, in light of the resultsof previous activities, to formulate the necessary modifications on currentsystems or relatirng to the conception and development of new systems,including the development of the necessary computer modules.
A detailed implementation schedule of recommended actions will also have to beset up as well as the training and familiarization of the agents concerned to
- 87 -ANNEX 4.4Page 3 of 3
approved and reccomended systems. The implementation of approvedrecommendations will begin in 1991.
IV. Reports
a. An appraisal report summarizing the present status of currentsystems as well as the implementation plan for measures envisaged inthe short-term to correct the noted weaknesses will be issued at theend of the first phase.
b. A second report will be issued at the end of the second phase of thestudy, which will present the recommendations and the alternativesdeveloped for the complete reorganization of the systems as well asthe implementation schedule of the recommended actions.
- 88 -
ANNEX 5.1Page 1 of 2
ALGERIA
THIRD POWER PROJECT
Study for the Definition of Optimal (economic, energy and industrial)Power Generation Options
Draft Terms of Reference
Introduction
1. SONELGAZ generates electrici-y mainly from steam turbines andcombustion turbines which use natural gas as fuel. Since Algeria's gasresources are among the largest in the world, it is expected that natural gaswill continue to be the main fuel used by SONELGAZ for a long time to come.The question arises whether combined-cycle power stations fueled by naturalgas would have a role in SONELGAZ's least-cost power generation investmentprogram.
Objectives
2. The objectives of the study are the following:
(i) to provide information on existing and planned combined-cycle powerstations in other countries;
(ii) to provide information on: technical characteristics, availability,lifetime, heat rates, investment and operating costs of newcombined-cycle units and of conversions of existing steam orcombustion turbines to combined-cycle operation, all based onconditions in Algeria.
(iii) to determine the optimal combination of steam and combustion turbinesin combined-cycle units under Algerian conditions and the optimalsize of combined-cycle units;
(iv) to determine the optimal role of combined-cycle generacing units inSONELGAZ's power generation system; and
(v) to make a comparative analysis of the possibilities for localmanufacture of equipment for the options of 300 MW combined-cycleunits and 300 MW conventional steam turbine units.
Specific Tasks
The specific tasks of the study are as follows:
(i) prepare a list of existing and planned combined-cycle generatingunits (new and converted plants) elsewhere in the world accompaniedby information on investment and operating costs, heat rates, numberof hours available during the year, lifetime, and other technical andeconomic data (such is the diminution of power during summer);
- 89 -
ANNEX 5.1Page 2 of 2
(ii) examine options for converting existing steam or combustion turbinesin Algeria to combined-cycle;
(iii) identify options for new combined-cycle power stations, and determinethe optimal combination of combustion turbines and steam tutbines incomnbined-cycle units, the optimal size of new units, and suitablesites.
(iv) determine the technical and operating characteristics ofcombined-cycle units under Algerian conditions;
(v) make preliminary estimates of local and foreign capital costs;
(vi) carry out economic analyses to determine the optimal amount andtiming of combined-cycle units, using SONELGAZ's optimal planningmodels (e.g. WASP III); these analysis should take account of theeventual exhaustion of natural gas in Algeria and the possible needto replace gas power stations by power stations using coal or othersources of energy;
(vii) make a comparative analysis of the possibilities for localmanufacture of equipment for the options of 300 MW cGmbined-cycleunits and 300 MW conventional steam turbine units;
(viii) seek information on the strategies of large world manufacturers ofcombustion turbines and steam turbines in the context of rapidtechnological advance of combustion turbines. This information willpermit Algeria to prepare its own approach to the domesticmanufacture of these means of generation of electricity;
(ix) carry out a detailed feasibility study of the option of converting anexisting power station to combined-cycle operation in the event thatthe economic analysis undertaken in (ii) above indicates that aconverted unit would enter the least-cost power generation investmentprogram.
At the start of the study the consultant should arrange a seminar forinterested persons in A.geria on the experience with combined-cycle powerstations in other countties.
The consultant should also arrange visits for selected SONELGAZpersonnel to several combined-cycle power stations abroad.
- 90 -
ANNEX 5.2Page 1 of 2
ALGERIA
THIRD POWER PROJECT
RATE OF RETURN ANALYSIS
1. The economic analysis of the project is set out in theAttachment of this Annex and was carried out on the basis that theproject forms an integral part of the investment program for SONELGAZover the period 1988 - 1994. The program is estimated to have aninternal economic rate of return of 6.3%. The main assumptions used tomake the analysis are set out here.
2. Benefits The benefits include the incremental electricity revenuesfor the period 1989 - 1995. The annual benefits were kept constant atthe 1995 level from 1996 through 2020. The year 2020 marks the expectedend of the useful life of steam turbine, transmission and distributionfacilities brought into service during the period 1989 - 1994. Therevenue estimates were made in mid - 1987 prices by multiplying thedeflated tariff rates projected in the financial analysis to be necessaryto ensure an adequate level of self-financing for the power subsector(Chapter IV) by the projected incremental sales quantities (Annex 2.4)
3. Costs The costs include: incremental fuel costs; incrementaloperating and maintenance costs; and investments in generation,transmission and distribution planned to meet the additional demandforecast to occur from 1989 through 1995.
4. Incremental natural gas fuel costs were calculated using theestimated economic cost of US $..00 per million Btus. Incrementalgas-oil costs were calculated using an international gas-oil priceprojected to increase from AD 752 per ton in 1989 to AD 913 per ton in1995 in 1987 prices. The average heat rate for natural gas generationwas assumed to fall from 3.10 thermies per kWh in 1989 to 2.75 thermiesin 1995 as the proportion of relatively high efficiency generating unitsincreases. The heat rate for diesel generation was assumed to remainconstant at 250 grams per kWh.
5 Incremental 0 & M costs were calculated on the basis of 1.5% ofcapital assets per year for generation and 1% per year for transmissionand distribution.
6. The investment expenditures cover units which enter servicebetween 1988 and 1995 and are used to supply incremental demand between1989 and 1995. They exclude, however, investments made before 1996 on
-91 - ANNEX 5.2Page 2 of 2
generating units which would enter service after 1995. Adjustmentswere made for the projected retirement of 180 M4 of steam turbinecapacity and 113 MW of combustion turbine capacity by subtractinginvestment costs corresponding to the same capacities from investmentsin new capacity on the assumption that the corresponding part of thenew capacity would be needed to serve existing demands rather than meetnew demands after 1988. The lCxlOO MW combustion turbine units whichenter service in 1988/89 are assumed to be replaced in 2010. Sinct chereplacement units would continre in service beyond 2020 a benefit wasestimated by calculating the present value in 2020 of the stream ofannuities in the period from 2020 until the end of the useful lives ofthe units, where the annuity was chosen so as to yield an internal rateof return on the original investment equal to 10% The investmentexpenditures include all transmission and distribution expendituresprojected to be made from 1989 through 1995.
7. Sensitivity Tests The internal rate of return was recalculatedassuming that the average price of electricity is set equal to thelorg-run marginal cost. The result is a rate of 132. A furthercalculation was made where benefits were adjusted to include theconsumers' surplus on the incremental sales. The consumers' surplus ineach year was estimated on the assumption of a constant elasticity ofdemand equal to - 0.3. The surplus was assumed to remain constantafter 1995 at the 1995 level. The result is an internal rate of returnof 202.
2669L/16-18
- 92 -
ANNEX 5.2Attachment
Lai:klati:n of the Internal Pate of Return on SONELGAZ'SElectricity Investeent Prograe
iAD Million, July 1987 prices)
Costs Benefits Net Benefits IRR
Incr. Incr. Incr.Invest. Fuel Cost C & M Rev.
1988 2117 -2117 0.0627721989 210 103 87 514 -2946199( .271 234 125 821 -2251199l 2655 299 165 1118 -20051992 .170 38' 198 1468 -1283l99q ^23B 489 232 1835 -11241994 1441 598 261 2238 -621995 1347 718 276 2620 2791996 718 276 2296 13021997 718 27 2296 13021998 718 z76 2296 13021999 718 276 2296 13022000 18 276 2296 13022)01 718 276 2296 13022002 718 276 2296 13022003 718 276 2296 13022,004 718 276 2296 130220'5 718 276 2296 13022006 718 276 2296 13022007 718 276 2296 13022008 718 276 2296 13022009 718 276 2296 13022010 2144 718 276 2296 -8422011 718 276 2296 13022012 718 276 L296 13022013 718 276 2296 13022014 718 276 2296 13022015 718 276 2296 13022016 718 276 2296 13022017 718 276 2296 13022018 71M 276 2296 13022019 718 276 2296 13022020 -1548 718 276 2296 2850
ALGERIA
THIRD POWER PROJECT
Documents in Project File
1. SONELGAZ - Direction de la Planification, Plan d'Equipement ElectriciteProduction-Transport Algerie - 1986-1992 - august 1986.
2. SONELGAZ - Schema Directeur a Moy2n Terme Production-Transport 1984-1994,Rapport de Synthese - fevrier 1985.
3. SONELGAZ - Direction de la Planification, PrevisionG de Consommationsd'electricite et de gaz a moyen terme. Objectifs retenus pour la periode1986-1996 - octobre 1986.
4. Electricite de France - Service Etudes de Reseaux Exemple d'utilisationdu Modele Mexico sur le reseau 225 kV Algerien - novembre 1985.
5. Systeme de Tarification, Abonn6s Haute et Moyenne Tension
6. Tarification Basse Tension, Abonnes Ordinaires Annee 1981.
7. El6ment de coats pour le projet
8. Ministere de la Planification - Dossier de Restructuration financiere deSONELGAZ - mai 1987
9. Bulletins Statistiques 1985, 1986.
10. Plan Comptable National. Liste num6rique de comptes et des indices.
11. MEICP: SONELGAZ - Plan de production 1988 - juillet 1987.
12. Structure de SONELGAZ
13. Extrait Journal Officiel: Ordonnance No. 69-59 por'ant creation deSONELGAZ.
14. MEICP. Decret 85-207 portant organisation du MEICP.
IBRD 19926RAL GE R IA
Am A g o HC,wOSONELGAZ - POWER III |x6OMAIN GENERATION AND TRANSMISSION SYSTEM S > v - EaI
TRANSMISSION LINES 1220 kV
TRANSFORMER SUBSTATIONS lloFor -- Ar-o
UNDER CONSTRUCTION A 4so24 ALGIERS AREAlN QPERATION AND FUTURE
ALG- rEA.fif POWER PLANTSTRANSMISSION LINES;
l,,bo- 220 kV An1b3 b WSeyhOSO0 kV
1O.73 doSISO kV ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~ ~ ~~~~~~~~~~~~~~~~~~Sk,kd. VilbQ0 ._OSk,kd.: \\Oh_90 kV
- Bouno., H IHdia R60 kV ~~~~~~~~~~~~ ~~~~~~~~~A',~ of M.W A D,o~enn60 iV A=er of fqr o 4 _, - -- 4X 168 Tl Ouzou ei Kseuf Monsbownoh - - - 2 -i R D<r4168nTel -uzo- El Kr Rl Di-e
TRANSFORMER Si.BSTATIONS AA,er AOFours Ao 7.-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~c Olne c Onco, Go.Io A So., At,,.,<ut;/G a /
o A 0 Domo~~~20
Vbof,, ,t l .0 fgsM)s-
C> - 2'- .O,'A3E CONSUMERS
E o98O l Aoo,nes
_._~~ ~~~ 'R 1 '~Od'.O K)MS0tO^ o_' A<.
-b 05"@^
\'e iA ' -P
( 10 ~35 v
A' oK /|. our- Cc N o n cce \ / Toz u/
O Z:h,:Je w_ j Tscrt O:~~~~~~~~~~~ . KAc. El Bo.khorrtBuSod 22
F ° ° / ° 2' O HoUho^t; O Tlaree V,lbgJ J O KhnchXlo t~~~~~~~~~~~~~~~~~~~~~~T M- ~d Sok Alo
To,,, .E4A/- - mte s"
' e- sj> 0 K) / A D fvi g 0L -o-. eA
Ar
I
c, , 01AO
MOn Meos
20,'AGE CONSUMERS AQ5
A ' ,
Q A SRho oo
LIR 1% 3 a/ /\ i\ Ozo El Boyodr Loghowo' s \ EA
CEI Ro,adhHo,;uR Logheuc| OWof91
cQ RI 5OO~N~ \ . A L G E R I A !"
CT>A'1A *ON GoS, Ro
) iAch a r O 2xd 5 2 ̂ 1 o \ A.(
,>,'., , .'**~*~' C> B.,-. .7 /
( K)~~~~~~~~~~~~~
. . .. .. _ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~MAY 1 988
