Document of The World Bank FOR OFFICIAL USE ONLY E AF Report No. 1857-FIJ FIJI STAFF APPRAISAL REPORT OF THE MONASAVU-WAILOA HYDROELECTRIC PROJECT (POWER 1) May 22, 1978 Projects Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS US$1.00 = F$0.91 F$1.00 = US$1.10 UNITS AND EQUIVALENTS I cubic meter (cu m) = 35.31 cubic feet (cu ft) I hectare (ha) = 2.47 acres (a) 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles (mi) 1 square kilometer (sq km) = 0.386 square miles (sq mi) 1 kilogram (kg) = 2.205 pounds (lb) I metric ton = 1,000 kilograms (kg) 1 litre (1) = 1.057 US quarts (qt) 1 kilovolt (kV) = 1,000 volts (v) I megavolt-ampere (MVA) = 1,000 kilovolt-ampere (kVA) 1 kilovolt-ampere (kVA) = 1,000 volt-amperes (VA) 1 megawatt (MW) = 1,000 kilowatts (kW) 1 gigawatt hour (GWh) = 1 million kilowatt hours (kWh) ABBREVIATIONS AND ACRONYMS AC - Alternating Current ADAB - Australian Development Assistance Bureau ADB - Asian Development Bank CDC - Commonwealth Development Corporation DC - Direct Current DTI - Derek Technical Institute EGM - Emperor Gold Mine EIB - European Investment Bank ENEX - ENEX of New Zealand Incorporated; Engineering Export Association of New Zealand (erstwhile) FEA - Fiji Electricity Authority FNPF - Fiji National Provident Fund FSC - Fiji Sugar Corporation GIBB - Sir Alexander Gibb and Partners IGB - International Competitive Bidding IERR - Internal Economic Rate of Return M/M - Merz and McLellan PWD - Public Works Department RE - Rural Electrification SBC - Special Board of Consultants SCC - Suva City Council SCCE]) - Suva City Council Electricity Department SPD - Special Project Division (of FEA) FEA's Fiscal Year (FY) August 1 - July 31 FOR OFFICIAL USE ONLY FIJI MONASAVU-WAILOA HYDROELECTRIC PROJECT (POWER-I) Staff Appraisal Report TABLE OF CONTENTS Page No. 1. THE ENERGY SECTOR . . . . . . . . . . . . . . 1 Setting . . . . .... ... .... ... ...... . .... .... ....... .... 1 Energy Resources and Government Policy . . . . . . . . . . 1 Hydroelectric Resources ... .. . . . . . . . . . . . . . 2 The Electricity Sector ... . . . . . . . . . . . . .. 2 Structure of the Electricity Supply Industry and Existing Facilities . . . . . . . . . . . . . . . . 2 Suva City Council System . . . . . . . . . . . .2 Fiji Electricty Authority System . . . . . . . . . . . . 3 Privately Owned Systems . . . . . . . . . . . . . . . . . 3 Status of Supply and Access to Service. . . . . . . . 3 Rural Electrification . . . . . . . . . . . . . . . . . . 4 Sector Problems . . . . . . . . . . . . . . . .... . . 4 Table 1.1 -- Potential Hydroelectric Sites on Viti Levu Table 1.2 - Diesel Generating Plant at Existing Power Stations on Viti Levu 2. THE BORROWER . . . . . . . . . . . . . . . . . . . . . . . . 7 Legislative Background ... . . . . . . . . . . . . ... 7 The Authority .... . . . ..... . . . . . . . . . . 7 Organization and Management . . . . . . . . . . . . . . . . 8 Training .... . . . . . . . . . . . . . . . . . ... 9 Chart 2.1 -- FEA's Organizational Structure after SCCED Takeover 3. THE MARKET AND GROWTH OF SUPPLY . . . . . . . . . . . . . . . 10 Consumption Trends. . . . . . . .. . 0 Forecast of Energy and Demand . . . . . . . . . . . 11 Growth of Supply. . . . . . . . . . . . . . . . . . . . . . 11 Table 3.1 -- Consumption Trends and Short Term Forecast by Consumer Category Table 3.2 -- Long Term Energy Forecast for Viti Levu Table 3.3 -- Long Term Demand Forecast for Viti Levu This report was prepared by Messrs. C.K. Chandran and K. Stichenwirth and is based on information obtained during missions to Fiji in September 1977 and February 1978. The mission in February 1978 consisted of Messrs. C.K. Chandran and R. Bloor (consultant). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Page No. 4. THE PROGRAM AND THE PROJECT . . . . . . . . . . . . . . . . 13 The Program .... . . . . . . ..... . . . . . . . . 13 FEA's Development Program . . . . . . . . . . . . . . . 13 Generation .... . . . . . ..... . . . . . . . . 13 Transmission . . . . . . . . . . . . . . . . . . . . . 13 Subtransmission and Distribution . . . . . . . . . . . 14 Cost of the Program ... . . . . ..... . . . . . . 14 The Project . . . . . . . . . . . . . . . . . . . . . . . 14 Description . . . . . . . . . . . . . . . . . . . . . . 14 Investigations and Status of Engineering . . . . . . . 16 Project Cost Estimate . . . . . . . . . . . . . . . . . 17 Unit Costs .... . . . . . ..... . . . . . . . . 18 Project Consultants . . . . . . . . . . . . . . . . . . 18 Special Board of Consultants . . . . . . . . . . . . . 19 Metho,l of Construction and Special Project Division .... . . . . . . . . . . . . . . . . . . 19 Progriam of Construction ... . . . ..... . . . . . 21 Land Acquisition .... . . . ...... . . . . . . 21 Procurement . . . . . . . . . . . . . . . . . . . . . . 22 Project Financing and Loan Disbursements . . . . . . . 22 Environment . . . . . . . . . . . . . . . . . . . . . . 23 Risks ..24 Table 4.1 -- Forecast Investments Tab:Le 4.2 -- Project Cost Estimate Table 4.3 -- Schedule of Disbursements Chart 4.4 -- Construction Program Chart 4.5 -- Special Project Division (Organization Chart) 5. FINANCIAL ASPECTS .25 General ..... . 25 Past Performance . . . . . . . . . . . . . . . . . . . . 25 Financial Covenants ... . . . . ...... . . . . . . 26 Financing Plan . . . . . . . . . . . . . . . . . . . . . 27 Accounting, Billing and Collection . . . . . . . . 29 Audit . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Tariffs . . . . . . . . . . . . . . . . . . . . . . . . . 29 Table 5.1 -- FEA's Actual and Forecast Income Statements Table 5.2 -- FEA's Forecast Sources and Applications of Funds Statements Table 5.3 -- FEA's Actual and Forecast Balance Sheets 6. JUSTIFICATION . . . . . . . . . . . . . . . . . . . . . . . 31 Least-Cost Solution . . . . . . . . . . . . . . . . . . . 31 Internal Economic Rate of Return . . . . . . . . . . . . 32 Table 6.1 -- Costs of Important Hydroelectric Sites Table 6.2 -- Calculations for Internal Economic Rate of Return Page No. 7. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . . 33 Conditions of Effectiveness . . . . . . . . . . . . . . . 33 Other Aggrements ... . . . . . ..... . . . . . . . 33 Recommendation. . . . . . . . . . . . . . . . . . . . . . 34 Annex - List of Documents Available in Project File Map No. IBRD 13266 1. THE ENERGY SECTOR Setting 1.01 Fiji is a small, sparsely populated country comprising about 300 islands in the South Pacific. Most of the islands are uninhabited and 90% of its population of 580,000 resides in the two main islands -- Viti Levu and Vanua Levu. Fiji's economic development during the last decade has been impres- sive with a real GNP growth rate of about 7% per year, reaching a per capita GNP level of about US$1,150 in 1976. Sugar and tourism are the mainstays of its economy. The country has a good natural and human resource base, political stability and capacity to mobilize additional resources needed for sustained growth. The electricity sector is fairly developed, per capita consumption being about 500 kWh. It relies on a number of isolated diesel power stations. There are no major interconnections between them yet. The main power market is on Viti Levu island with only tiny facilities on Vanua Levu. The electri- city sector serves predominantly commercial, small industrial (tourism) and domestic customers with some limited supplies into rural areas branching out from main generation centers. Energy Resources and Government Policy 1.02 Fiji has no known indigenous sources of commercial energy other than its hydroelectric potential. It is almost entirely dependent on imported petroleum for its needs. At present, the largest single category of petroleum fuel is industrial diesel oil used to generate electricity. Electricity gen- eration in 1976 accounted for 28% of total net imports at an annual cost to Fiji of about F$10 million. 1.03 In 1973 the Fiji Government set up an Alternative Fuels Technical Committee to deal with the situation caused by rapid escalation in oil prices. The Committee advised adoption of a strategy involving: (a) utilization of domestic rather than imported energy resources; (b) ensuring availability of cheap power to industry; and (c) rationalization of energy consumption. It also advocated extension of rural electrification. 1.04 These principles have been incorporated in the Government's energy policy. Government has resolved as a matter of high priority to commence development of Fiji's hydroelectric potential by the 1980's and to achieve a higher degree of integration of its presently isolated power systems. 1.05 Government's objective is to ensure efficient use of the water resources of Fiji for multiple uses of domestic water supply, irrigation, electricity generation, flood control, fish production and recreation. Investigations were therefore directed to take into account such joint uses. Studies carried out at the potential sites have, however, indicated priority - 2 - of development for primarily electricity generation projects. Those which involve multiple purpose development are too large for implementation in the near future. Hydroelectric Resources 1.06 It has long been recognized that substantial water power potential exists in the tNandrau plateau of Fiji's Viti Levu Island, an area of about 600 sq km lying at an average altitude of 1,000 m and subject to annual rcinfall varyirng from 2,700 mm to 4,000 mm. It is a virtually uninhabited area with rain forests forming a dense ground cover. Investigations were limited to hydrological observations and regional geological mapping until 1972 when it waLs established that practical schemes for hydroelectric genera- tion could be developed. ENEX of New Zealand was appointed as consulting engineer to investigate these sites in detail, carry out a long-term power system study and recommend a development program. A New Zealand Government grant assisted in financing the study from 1972-75. Topographical maps of catchment areas, dam sites, and reservoirs were prepared; river flows were estimated and geological explorations carried out at the most promising sites to determine their engineering characteristics and priorities for development. 1.07 These studies of hydroelectric resources are now being continued by FEA's new consultants, Sir Alexander Gibb and Partners (Gibb) of Australia. The schemes available for immediate development and other promising future sites revealed through the studies of hydroelectric potential are listed in Table 1.1. The total water power potential is estimated at about 2,000 GWh annually/i. Of this, Gibb considers that about 80% could be economically developed by the end of the century making it unnecessary for Fiji to resort to any further increase in its diesel generating capacity in Viti Levu until then. Diesel generation would remain the main source of electricity supply on the other islands and remote areas of Viti Levu which are beyond economical reach of grid supplies. The Electricity Sector 1.08 Struciture of the electricity supply industry and existing facilities. At present, electricity is produced and distributed by two public undertakings, the Suva City Council's (SCC's) Electricity Department (SCCED) and the Fiji Electricity Authority (FEA). There are also a small number of privately owned generating plants. 1.(9 Suva City Council system. Electricity supply was introduced in Fi'ji by SCCED at the city power station in 1920 with DC supply from a 63 kW generating set. The first AC generating set was installed in 1939. The capacity of the station now is about 13.5 MW. 1.10 In 1969, SCCED commenced construction of a new power station at Kinoya, on the outskirts of Suva. Kinoya now has a total generating capacity of 39.1 MW. Details of SCCED's generating capacity are given in Table 1.2. /1 In comparison, the total electricity production in Viti Levu in 1976 was 250 GWh. - 3 - 1.11 SCCED supplies a concentrated urban market with about 22,300 customers and presently accounts for about two-thirds of the island's public power supply. 1.12 Fiji Electricity Authority system. FEA was established in 1966 by an Act, which gives it the authority and power to be the sole electricity supply entity in Fiji (paras 2.01 and 2.02). It has made remarkable progress since then in acquiring Government and privately owned generating plants as necessary and extending electricity supply into hitherto undeveloped and rural areas. These extensions in turn have contributed substantially to the subsequent rapid expansion of the tourist industry, now a mainstay of Fiji's economy. 1.13 FEA commenced operation with a nucleus of staff transferred from the Public Works Department. FEA's installations in 1966 comprised only the Lautoka power station, with an area of supply covering Lautoka and Ba. The Authority then took over and expanded three privately owned power stations in Singatoka, Nandi and Lambasa (Vanua Levu island), and established some new stations. Distribution and transmission systems were expanded in all areas. A major centralized power station was commissioned at Vunda in 1977. The Asian Development Bank (ADB) assisted in its financing. 1.14 At this time, FEA has about 12,800 consumers and seven power stations. Details of the stations are given in Table 1.2. FEA now provides one-third of the total public supply, distributing electricity at 33 kV, 11 kV and 440/230 V. Most FEA stations are being interconnected at 33 kV to supply an area about 100 km long stretching from Nandi to Tavua and from the sea to the foothills of the mountains. By 1980, the entire western area of Viti Levu is expected to be interconnected. 1.15 Privately owned systems. Two major consumers of electricity which are not dependent on public supply are the Emperor Gold Mines (EGM) and the Fiji Sugar Corporation (FSC). EGM draws its supply from its subsidiary electric supply company, Tavua Power Limited, which also supplies limited surpluses to FEA for distribution to its consumers in Tavua/Vatukoula District. 1.16 The Tavua Power Company operates an old 10.5 MW diesel power station at Vatukoula which supplies the gold mine, company houses and a sawmill. Half of the generating capacity has already operated over 100,000 hours, some even longer. It generates about 40 GWh annually. 1.17 FSC has plant installations aggregating 11.8 MW at four separate mills located at Lautoka, Ba, Rakiraki, and Lambassa. They are operated mainly on cane waste (bagasse) with back-pressure steam turbines and some diesel generation to meet out of season requirements. The total annual generation is about 30 GWh. 1.18 Status of supply and access to service. In most areas of the country which have been electrified, supply is presently adequate. Except in the SCCED area, reliability of supply is satisfactory and losses are reason- able (about 9%). About 50% of the population has access to electricity. The cost of electricity is high, reflecting the high cost of imported fuel (para 5.02). The impact of the high cost of electricity is discernible everywhere. Demand growth is suppressed and there is little waste. - 4 - 1.19 Rural electrification. Rural electrification (RE) is being undertaken by FEA and by the Public Works Department (PWD) of the Ministry of Communications, Works and Tourism. SCCED's involvement in RE is negligible because its supply is basically confined to the area of Suva City and environs. 1.20 FEA defines RE as providing electricity to customers outside its established area of supply, normally through extensions from its grid. The prospective community or customer has to deposit initially 40% of the esti- mated capital cost of the connection which FEA retains for five years. At the same time the customer has to guarantee that he will use during the first five years at least 50% of the deposit in electricity consumption charged at FEA's tariffs, in which case he gets his deposit refunded. If he uses less, his deposit is forfeited. In the past FEA's average annual connection rate of rural customers has been about 350. 1.21 In its RE program, PWD tries to electrify rural dwellings in very remote areas where connections would be entirely unprofitable for FEA. Supply is provided through isolated diesel generating sets. Prospective customers have to provide one-sixth of the estimated capital cost on a nonrefundable basis whereas the Government contributes the balance as a grant. The operating charge to the customer consists of an annual fee of F$100 per dwelling for maintenance plus the actual cost of fuel. After a slow start in 1974/75, PWD's program has recently gained some momentum and so far about 500 dwellings have been electrified. Surveys are continuously being undertaken to determine additional rural electrification requirements. 1.22 Sector problems. Lack of skilled personnel to construct and operate the power supply systems efficiently is a constraint well recognized by the authorities. Expatriates are required and are employed at all key levtels. FEA has recently evolved a comprehensive training program of Fijian technicians to meset the country's requirements on a long-term basis (paras. 2.09-2.12). Despite its much longer history, the SCCED has not developed any training program of its own and now has a serious problem in maintenance and operation of its power stations. This has, inter alia, led to a deterioration in ithe reliability of power supply in Suva. Generating capacity installed is adequate to easi:Ly meet the maximum demand of 23 MW, but power cuts have already become a persistent feature and led to strong public complaints. 1.23 Managemaent of SCCED has been in a poor state for some time. A Government-appointed inquiry committee recently reported serious irregular- ities in SCCED's management and evidence of unwarranted interference by its councillors in the working of SCCED. The Suva City Council was dissolved by the Government in October 1977. Its functions have been transferred temporarily to a council of Administrators with the Chief Administrtor exercising the functions of Mayor. Fiji cannot afford to continue any longer with a fragmented and poorly managed power sector. It urgently needs a single institutional framework through which it can implement a rational and effi- cient power supply operation. Divided, the operations will be too small to attract the finance needed to develop the Monasava-Wailoa project which is too large for FEA and SCCED markets in isolation but is appropriate when they are combined and an integrated system is created. Continued fragmented - 5 - operation will also not attract the experienced management urgently needed both to implement sound schemes of expansion of supply and to rapidly train Fijian personnel to reduce costs of operation. FEA was in fact set up to discharge this national objective. It has made several efforts in the past to take over SCCED but these were thwarted mainly by differences on the level of compensation demanded by SCC. SCC has also been diverting funds from its relatively more lucrative electricity operations to finance other activities (para. 5.03). These funds should properly be utilized to build up a finan- cially viable national public electricity supply entity for the whole of Fiji. 1.24 Both in the context of the deterioration in the standard of manage- ment of SCCED and the fact that Fiji is now embarking on a long-term program of expansion of hydroelectric generation, which needs a national perspective, the Bank and Fiji Authorities agreed that takeover of SCCED by FEA was essen- tial. As the Project is intended primarily to replace imported fuel as early as possible, the operation of all diesel stations (mostly operated by SCCED) would have to be fully integrated with the operation of the new hydroelectric source. Further, associated transmission is being designed on the assumption that the diesel power stations will be operated to provide emergency coordi- nation in actual system operation. It would not be possible to provide for these in any reliable manner if SCCED continued to operate the eastern power system. 1.25 Before negotiations of the proposed Loan, FEA took the following steps to bring SCCED under its control (Letters of April 7, 1978 from the Chief Administrator, Suva, to the General Manager FEA, and of April 14, 1978 from the General Manager FEA to the Chief Administrator, Suva): (a) in accordance with the requirements of the FEA Act, a six months notice of intention to take over assets operated by SCCED was issued on January 25, 1978 with the approval of the Cabinet; and (b) to facilitate the final takeover after the expiry of the period of notice (July 25, 1978), FEA assumed limited responsibility for management of SCCED with effect from April 17, 1978 through exchange of letters between FEA and the Chief Administrator of SCC. Under this arrangement, SCCED's accounts have been separated from the general accounts of SCC. The revenues from sales of electricity accruing after January 25, 1978 (date of takeover notice) will be used only for purposes of the power sector. The above-mentioned letter of April 7, 1978 assured satisfactory financial management of SCCED operations. 1.26 Completion of the acquisition process requires the approval of the Supreme Court under the constitutional provisions applicable to compulsory acquisition of property. FEA has moved the Supreme Court for such an approval. In order to make sure that this process is completed without complications later on, formal acquisition (through approval by a court order) has been made a condition of effectiveness of the Loan. -6- 1.27 The question of compensation payable by FEA to the SCC continues to be a serious issue, though it does not restrain legal arrangements for merger of FEA and SCCEI). -Under the applicable legislation, compensation has to be agreed by the parties concerned within thirty days of the Court order approving the takeover (para. 1.26), otherwise the Court will determine the amount of compensation. The problem has been complicated by the fact that SCC does not yet: have title to some land compulsorily acquired in 1964 and on which litigation now rests in the Privy Council. The question has been under active discussion between the Chief Administrator, Suva, and FEA. FEA expects to reach an agreement shortly on terms acceptable to it. To avoid endlangering FEA's financial viability, the Government has agreed during negotiations to ensure, in particular by arranging for FEA's tariffs to be set at a sufficient level, that FEA has available at all times sufficient funds for proper functioning of its business and for fulfilling all its financial obligations when they become due. 1.28 Unification of prevailing electricity tariffs is another important sector problem. In the past SCCED, with the advantage of a limited supply area and with a larger scale of operations has been able to maintain tariff levels substantially (about 30%) below those of FEA. Even if it remained independent, SCCED would not be able to do so in the future particularly if it expands its supply based on its own diesel/thermal generation. In fact, a public notice of a 20% tariff increase effective May 1, 1978 has been issued by the Chief Administrator. 1.29 Government and FEA have been advised by the Bank that the SCCED tariff should be brought to the level of FEA's tariffs which approximate the long-run marginal cost of supply for the whole island. This would provide the unified power sector, under FEA management, with funds urgently needed to build a viable national power system whose future costs of supply would benefit from the stabilizing effect of a hydro system. The Government and FEA have accepted this point of view and FEA has announced on April 12, 1978 that a unified tariff resulting in average revenues not less than FEA's present tariff would yield will be introduced nationwide as of August 1, 1978. TABLE 1 - 1 POTENTIAL HYDROELECTRIC SITES ON VITI LEVU Catchment Average Average Average Top Water Tail Water Gross Average Long-Term Stage of Area Rainfall Loss Runoff Level or Head Net Average Investiga- (m) Runner Head Energy tion ]/ above Level REWA RIV~ER (km sq) (mm) (mm) (mm) sea level (m) (m) (m) GWh) Waimanu 117 4,300 1,350 2,950 76 14 62 57 45 B Sovi 149 4,100 1,300 2,800 165 12 143 133 128 B Waiqa 47 3,800 1,300 2,500 180 30 150 140 38 D Wainimala Lower Wainimala 726 3,500 1,150 2,350 115 36 79 74 292 B Upper Wainimala 64 3,500 1,150 2,350 340 160 180 170 59 D Naboubuco 40 3,500 1,150 2,350 425 180 245 235 51 D Naqelewai 158 3,500 1,150 2,350 180 115 65 60 52 C Nanuku (Monasavu) 62 3,300 1,000 2,300 730 122 608 597 203 A Monasava Catchment Diversion 9 3,900 900 3,000 730 122 608 597 38 D Wainisavulevu 1 30 4,000 900 3,100 950 381 566 534 118 B Wainisavulevu 2 53 4,0oo 900 3,100 380 162 218 205 80 B NAVUA RIVER Upper Navua 570 3,600 1,200 2,400 145 10 135 125 396 B Weinuqa 64 3,800 1,150 2,650 330 160 170 160 63 D Wainikoroiluva 157 3,800 1,150 2,650 150 15 135 120 115 C SINGATOKA RIVER Lewa 1 74 3,000 1,100 1,900 595 200 395 378 123 B Lewa 2 73 3,000 1,100 1,900 200 60 140 128 97 B NANDI RIVER Magondro 36 2,700 1,050 1,650 550 150 400 390 54 B 1/ A. Total investigations to establish feasibility complete. B. Geological reconnaisance, large scale aerial mapping. C. Site inspection. D. Site not inspected. TABLE 1-2 DIESEL GENERATING PLANT AT EXISTING POWER STATIONS ON VITI LEVU Present Site Total Speed Year First Age of Operating Station and Rating Capacity RPM Commissioned Units Years Hours Comments Machine No. Machine Make Type (kW) (kW) SUVA CITY COUNCIL STATIONS Suva: No.3 English Electric 5L 410 375 1946 31 ) Retired Out of service, 14 Ruston Hornsby 6VLBX 740 375 1953 24 ) crankshaft damaged. 5 Ruston Hornsby 6VLBX 740 375 1953 24 81,524 6 English Electric 6SRL 735 375 1956 21 110,469 7 English Electric 6SRL 735 375 1955 22 114,337 8 Ruston Hornsby 8VLBX 1,060 375 1958 17 108,819 9 Ruston Hornsby 8VLBX 1,o60 375 1958 17 111,732 "10 Ruston Hornsby 8VLBX 1,060 375 1961 16 87,985 "11 Ruston Hornsby 8VLBX 1,060 375 1961 16 96,o64 "12 Ruston Hornsby 9VOC 1,900 428 1962 15 76,064 ,,13 Ruston Hornsby 9VOC 1,900 428 1964 13 81,711 "14 Mirrlees KV3S16 2,842 13,502 428 1966 11 48,338 (excl. No.4) Kinoya No.1 Mirrlees AVSS16 5,000 375 1970 7 23,696 I 2 Mirrlees AV'SS16 5,000 375 1971 6 7,310- reduced ratfng 4 Mirrlees kV16 Major 5,070 500 1972 5 28,009 3,500 kW 5 Mirrlees kV16 Major 5,070 500 1972 5 27,604 6 Crossley Pielstick 14PC3V 9,500 428 1977 - - 7 Crossley Pislstick " " 9,500 39,140 428 1977 - 222 FEA STATION', Vunda: No.1 Mirrlees kV16 Major 5,700 500 1977 - 263 " 2 Mirrlees kVl6 Major 5,700 11,400 500 1977 - 1,411 Nandi: " 5 Blackstone 3VS8 365 600 1959 18 60,356 6 Blackstone ]VS8 365 600 1963 14 44,214 7 Mirrlees K6 MaJor 1,620 500 1969 8 32,288 8 Mirrlees K6 Major 1,620 500 1969 8 29,591 9 Mirrlees K7 Major 2,200 500 1971 6 20,523 "10 Mirrlees K7 MaJor 2,200 8,370 500 1973 5 18,233 Lautoka: No.1 English Electric 5SRL 533 375 1951 26 64,887) 2 English Electric 5SRL 533 375 1951 26 62,650) Spares difficult to 3 English Electric 5SRL 533 375 1951 26 58,934) obtain. 4 Ruston 6ATC 1,144 600 1972 5 19,715 5 Ruston 6ATC 1,144 600 1973 4 13,511 6 Ruston 6ATC 1,144 600 1974 3 15,421 7 Ruston 6ATC 1,144 6,175 600 1974 3 13,142 Singatoka: No.1 English Electric 5SEL 535 375 1951 26 57,908) Spares difficult to "2 English Electric 5SRL 535 375 1951 26 62,254) obtain. 3 Ruston 6ATC 1,144 375 1973 4 15,303 4 Ruston 6ATC 1,144 600 1974 3 8,366 5 Ruston 6ATC 1,144 4,498 600 1972 5 14,671 Deumba: No.1 Ruston 7VEB 248 500 1955 22 83,465 --Foundation bolt 2 Ruston 7VEB 248 500 1954 23 85,102 broken,Bedplate 3 Ruston 7VEB 248 500 1961 16 65,551 cracked. 4 Ruston 6VEBC 508 600 1964 13 73,583 5 Ruston 6VEBCf 508 1,760 600 1966 11 38,937 Rakiraki: Ncs. lZ 2 Caterpiller 3406 155 310 1,500 1977 - - - 7 - 2. THE BORROWER Legislative Background 2.01 The Borrower, FEA, was established as a statutory body operating under the Electricity Act, Chapter 157, and reports to the Ministry for Communications, Works and Tourism. It was incorporated in 1966 as a corporate body with sole responsibility for electricity supply in Fiji, which it can discharge either by setting up and operating its own installations or through licenses issued by it. Its main functions are to promote and encourage generations of electricity with a view to assist economic development of Fiji and secure supply of electricity at reasonable prices. 2.02 The Act ensures FEA's autonomy in all matters, including determination of its tariffs, raising financial resources for its development, and employment of staff. FEA has the power to acquire licensee's installa- tions under procedures laid down in the Act. Licensees' tariffs require FEA's approval. FEA initially had almost unlimited powers to acquire any property thought necessary for its purposes but this power has been limited after the 1970 Constitution. While this has not affected FEA's operations adversely so far (mainly because of FEA's reasonable approach to the question of compensation which is normally the main problem), it is important to note this potential impediment to speedy implementation of FEA's development program particularly in regard to acquisition of lands for construction of a reservoir for the Project and establishing rights of way for its main trans- mission lines (para. 4.35). The Authority 2.03 The Authority consists of a Chairman, a Deputy Chairman, and five members (of whom not more than three can be public officers) all of whom are appointed by the Minister of Communications, Works and Tourism (the Ministry). The Minister for Agriculture presently functions as the Chairman. The Permanent Secretary of the Ministry and a Deputy Secretary of the Ministry of Finance are the official members. All others are drawn from the private sector. The Chairman and members of the Authority work on a part-time basis. This structure is appropriate in the Fiji situation. The Authority meets regularly and functions satisfactorily. The Chairman provides the necessary leadership and takes an active interest in the affairs of FEA. 2.04 The day-to-day management and the administrative and financial duties of FEA are actually performed by staff appointed by the FEA and headed by a general manager. The present incumbent is an experienced manager, moti- vated in the objectives of institutional development, and dynamic. He has been appointed for three years, commencing 1976. FEA's efficiency, drive and the respect it now commands in the country are due in large part to his abilities. However, at the time of appraisal there have been a few basic weaknesses in the administrative arrangements. The most important was that the general manager had no statutory or executive basis for the extensive authority he actually wields. The other weakness, which is only a potential source of difficulty was that the Chairman could designate any person (including one outside FEA) to exercise his powers which presently include administrative control of all staff (including the general manager). It was agreed by FEA and the Government, that this power of dele- gation should be restricted to another member of the Authority. 2.05 In discussions the Government has indicated its willingness to accord statutory recognition to the position of the general manager and also to define his functions. This is expected to be done within about one year in the context of a planned comprehensive amendment of FEA's Act which would also include other items such as specific proposals for strengthening FEA's financial basis and improvements in the principles of tariff setting. It was important, however, that, as a first priority, the general manager's position as top executing official of FEA should be clarified and as an interim arrange- ment the Chairman delegated in writing the administrative powers he has to the general manager. Organization and Management 2.06 FEA at present has a staff of about 500 divided into 4 main depart- menits headed by the chief engineer., the training director, the financial controller and the secretary. The organization is rather large for its present functions but nevertheless it is well administered. This is due to tsfforts of a small number of dedicated professional engineers and adminis- traltors at or near the top level rather than because of an appropriately trained and adequate, broad-based, supporting organization. 2.07 The professional engineers and administrators are mostly expatriates or itormer expatriates turned Fiji citizens. Subprofessional staff, who operate, maintain and administer the electricity system under the close direction of profEessional staff are all Fijians whose recruitment, training and advancement have until recently been somewhat haphazard. There were no qua;Lifications for recruitment of apprentices, on-the-job training or academic improvement. A1L this is now changing rapidly as FEA has accorded high priority to training (paras. 2.09-2.12). 2.08 Both FEA's organizational structure and its training program have been planned in anticipation of immediate takeover of SCCED (paras. 1.24 and 1.25). The eventual organizational structure, after takeover, is shown in Chart 2.1. The takeover will be implemented in stages. In the first phase the Suva system will be placed under a manager, reporting to the general manager while an FEA office is established in Suva and the systems, methods and work programs of SCCED are reorganized to ensure conversion to an integrated branch operation of FEA. It will be followed by a period of consolidation, when Kinoya station will be made the center for all operations until final -9- integration in 1981 by the time hydropower is introduced. By this time training and staff recruitment would have been completed to cover all aspects of management, administration, generation and distribution. Training 2.09 The present team of professional staff which manages the operation of FEA has handled the ongoing programs of operation and expansion well, while preparing to meet future requirements. They will form the nucleus of the top levels of FEA's reorganized setup. FEA's training program concen- trates on the requirements at the subprofessional level up to that of Assistant Engineer. It aims at ensuring that by about 1986 there would be about 130 trained technicians and 25 assistant engineers in the country. 2.10 In accordance with this program a training school has been estab- lished in FEA at Lautoka. A Director (Training) has been appointed and the first course is in progress. It was necessary to do this within FEA because the only other institution capable of handling this requirement, which is the Derek Technical Institute (DTI) in Suva, has limited facilities and staffing and financing constraints, as a result of which it could try to meet the FEA requirement only by depriving other industries/institutions of their needs. The uncertainty was unacceptable to FEA, but it has offered full collaboration to DTI, while implementing its scheme. 2.11 Initial recruitment would be at high school level, at about 20 per year. They would be subject to a five-year sandwich program of periods of school work (three months) alternating with programmed on-the-job training. Academic training follows the London City and Guilds Technicians course adapted to meet FEA's requirements. The technicians will be given training in workshop practice, electrical and mechanical fitting and mechanical training in installation, operation and maintenance of generating stations and transmission lines. In the final year the technicians who qualify would be graded, those with potential being groomed in the sixth year to eventually enter the Assistant Engineer grade, with training in management techniques included. Technicians already with FEA would also be upgraded under this course of training. 2.12 The Post and Telecommunication Department has offered FEA training facilities in specialized areas, for instance carrier systems. The Papua New Guinea Electricity Commission has also offered similar on-the-job and training school facilities for FEA trainees, particularly on power system operation. The Australian Development Assistance Bureau (ADAB) has indicated that it could assist FEA's training program by financing any equipment or services needed from Australia. In view of this, no provision will be made under the Bank loan for training. Chart 2.1 FEA's ORGANIZATIONAL STRUCTURE AFTER SCCED TAKEOVER General Manager Ma ge Chief Engineer's| Financial | ecretary's | Training | Suva _ Department l_Controller's _Department Director's l _ z ~~~Department l Department Mechanical Elec trical Distribution Chief Personnel Engineer's Engineer's Engineer's Accountant's Division Division Division Division Division Planning Kinoya I Assistant I Engineer's Power Engineer I Division Station L______4 Chief Inspector Clerk Generation Suva Store Engineer's Power Line/Cable Division Station Staff L _ -Workshop Installation Garage Engineer's Division - 10 - 3. THE MARKET AND GROWTH OF SUPPLY Consumption Trends 3.01 A detailed survey /1 of the power market was first carried out during 1972-73 by ENEX to provide forecasts of future electricity consumption for long-term planning. After extensive analysis of past and current consumption in different categories and by separate geographical localities, ENEX made forecasts which were detailed up to 1980; the trends were then extended up to 1990. These forecasts were reviewed during 1974-76 to take into account the effect of extraordinary oil price increases during 1973 which temporarily set back demand growth. Consumption level forecasts for 1980 and 1985 were reduced in these later ENEX estimates /2 by about 35%. The power market was reviewed again and confirmed by Gibb during 1976 /3. Detailed projections have now been made up to 1983, with trends extended to the end of the century. These constitute the basis for studies of justification of the project and FEA's development program. 3.02 Table 3.1 summarizes the historical consumption trends by major consumer categories. The category "large consumers" covers medium-size industries, and large establishments, for instance airports and hotels. As pointed out earlier (paras. 1.15-1.17) existing large industries in Fiji are not covered by public supply nor are they likely to be in the near future. The largest potential industrial consumer on the island -- the copper mining industry at Namosi -- is still largely speculative; its demand is not expected to materialize within the period of short-term forecasts. For this reason, large industries have not been separately categorized. 3.03 During the five-year period 1967-72 public consumption as a whole increased at an annual growth rate of 15% in the SCC area, and 23.5% in the FEA area; the average for Viti Levu being about 18%. There was virtually no increase in consumption during 1974 when steep electricity tariff increases followed quadrupling in the cost of fuel. The average growth rate in Viti Levu has been generally declining in recent years; during 1970-75 it was just under 12%, the growth rates in the FEA and SCCED areas of supply being 16.8% and 9.2% respectively. /1 The results are covered in Fiji Electric Power Study - Market Survey Vol. III, September 1973 by ENEX. /2 Fiji Electric Power Study - Supplementary Report Vol. III. (May 1976) by ENEX. /3 FEA Power Development Program (1977-2001) Chapter 3, Vol. I. and Appendix A Vol. II September 1977 by Gibb. - 11 - Forecast of Energy and Demand 3.04 The short-term energy forecast for the period up to 1983 has been prepared by analysis of trends of sales to different consumer groups - residential, commercial and industrial (small), and large consumeLs - during the past six years in various existing geographical areas of supply and through market surveys and discussions with individual large consumers and government departments. The growth rates vary in each category and location. The results are given in Table 3.1. On aggregate, the anticipation is that demand growth in the short term would grow at an average rate of about 8.5% until 1983 (Table 3.3). There would be no major change in shares of the various categories of consumption; residential consumers would continue to account for about 23%, whereas commercial consumers would slightly increase their share at the expense of the large consumers. 3.05 Long-term forecasts up to the end of the century have been made by: (a) projecting the analysis of historical trends and short-term forecasts; and (b) macro studies based on a regression analysis with economic growth of Fiji and comparisons of trends in similarly situated countries of the region and elsewhere. They indicate average growth rates varying from 7% to 7.5% per year. Gibb has recommended and FEA has adopted a median growth rate of about 7% from 1984 up to the end of the century - corresponding roughly to a 4.5% real rate of growth of Fiji's economy. These are given in Table 3.3. High and low rates of growth around the median rate have also been indicated to test alternative programs of development within this possible range. Maximum demands (Table 3.3) have been worked out from forecasts of energy after a study of the load factors of the individual isolated areas of supply and the likely changes after more effective system integration. 3.06 The market surveys carried out are adequate. It is felt that in the short term the forecast may prove slightly pessimistic as it does not make adequate allowances for unforeseen demands. Growth of Supply 3.07 The growth of demand and of firm capacity of existing public electricity supply systems is given below. The firm capacity has been assessed on the basis of retirement of diesel generating sets after 20 years of operation and assuming that the reserve capacity of the diesel system will not be less than the capacity of the two largest generating sets - viz, that one set would suffer a breakdown when the other is on planned maintenance. A reliability level of about 98% is aimed at, with load shedding implied for about seven days every year. - 12 - Year 1977 1978 1979 1980 1981 1982 1983 Eastern Area (Suva) I'irm capacity (MW) 31.0 28.9 28.9 28.9 26.8 24.9 24.9 System demand (MW) 22.5 24.7 26.8 29.4 32.6 34.5 37.0 Western Area F'irm capacity (MW) 12.9 12.9 12.6 12.6 12.6 12.6 12.6 System demand (MW) 9.0 9.5 10.2 10.9 12.0 13.1 14.0 3.08 The above data show that additional generating capacity would be necessary by 1980 in the SCCED and by 1981 in the FEA areas of supply. Interconnection of the SCCED and FEA systems could reduce the provision for system reserve and postpone the need for augmentation of capacity in the SCCED area by about one year. This is FEA's intention. A 132 kV system is needed for the distances involved (about 140 km). It can be economically justified, however, only in the context of development of a major hydro- electric source located in the Nandrau plateau. This sets out the main imperatives of the situation which are: (a) commissioning of the first hydroelectric station on Viti Levu island by 1981; and (b) interconnection of the eastern (SCCED) and western (FEA) power systems by 1980, to avoid increasing costly diesel generating capacity. Table 3.1 CONSUMPTION TRENDS AND SHORT TERM FORECAST By Consumer Category - Summary (in GWh) A C T U A_L F O R E C A S T Fiscal year ending July 31 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Domestic consumers 20.1 23.8 28.1 32.13 32.1 35.3 38.5 41.8 44.1 47.5 52.7 59.9 64.0 68.4 Commercial and industrial (small) 43.0 47.2 54.0 56.6 56.7 65.2 72.9 81.2 86.7 93.5 104.1 119.8 128.3 137.8 Large consumers 18.6 22.7 26.3 33.1 36.0 38.5 43.7 44.4 50.1 53.5 55.9 59.6 59.6 63.4 Street lighting and distribution losses 7.1 8.1 9.2 10.45 10.8 12.0 13.8 14.9 16.1 17.5 19.3 17.7 23.1 24.4 Total 88.8 101.8 117.6 132.28 135.6 151.0 168.9 182.3 197.0 212.0 232.0 257.0 275.0 294.0 Table 3.2 LONG-TERM ENERGY FORECAST FOR VITI LEVU (in GWh) Western Area Tavua/ Navua Suva Viti Nandi Lautoka Ba Vatukoula Total Rakiraki Singatoka (Deumba) District Levu Growth Rate % Average to 1983 2.8 11.0 14.5 14.4 7.3 82.0 6.8 9.0 8.6 8.3 Beyond 1983 6.2 6.8 7.3 7.3 6.5 7.3 7.8 7.8 7.7 7.4 Fiscal Years Ending July 31 1977 27.0 18.6 2.3 1.3 49.2 - 8.4 4.5 120.2 182.3 1978 27.2 20.2 2.7 1.6 51.7 0.1 8.5 4.7 132.0 197.0 1979 27.5 22.0 3.2 1.8 54.5 0.3 8.9 5.3 143.0 212.0 1980 27.9 25.0 3.8 2.1 58.8 0.5 9.7 6.0 157.0 232.0 1981 29.8 27.6 4.4 2.5 64.3 1.1 10.8 6.8 174.0 257.0 1982 31.3 30.1 5.0 2.8 69.2 1.5 11.9 7.4 185.0 275.0 1983 31.7 35.2 5.2 2.9 75.0 2.0 12.4 7.6 197.0 294.0 1984 33.6 37.9 5.6 3.1 80.2 2.2 13.4 8.2 212.0 316.0 1985 35.8 40.8 6.1 3.3 86.0 2.4 14.7 8.9 229.0 341.0 1986 38.5 44.1 6.5 3.7 92.8 2.6 15.9 9.7 246.0 367.0 1987 41.8 47.4 7.0 3.9 100.1 2.8 17.3 10.5 264.7 395.4 1988 44.7 51.2 7.6 4.2 107.7 3.0 18.7 11.3 284.8 425.5 1989 47.5 55.0 8.2 4.5 115.2 3.2 20.2 12.2 306.5 457.3 1990 50.8 59.0 8.7 4.9 123.4 3.6 21.8 13.2 330.0 492.0 1991 54.1 63.7 9.4 5.3 132.5 3.8 23.5 14.3 354.9 529.0 1992 57.1 68.6 10.4 5.8 141.9 4.1 25.5 15.4 382.0 568.9 1993 60.2 72.8 11.1 6.2 150.3 4.3 28.0 16.9 411.0 610.5 1994 63.5 77.3 11.8 6.6 159.2 4.6 30.0 18.1 442.3 654.2 1995 67.0 82.1 12.5 7.0 168.6 4.9 32.1 19.4 476.0 701.0 1996 70.8 87.1 13.3 7.5 178.7 5.2 34.4 20.7 512.2 751.2 1997 74.7 92.5 14.2 7.9 189.3 5.6 36.9 22.2 551.2 805.2 1998 78.9 98.2 15.1 8.5 200.7 5.9 39.5 23.7 593.1 862.9 1999 83.4 104.3 16.1 9.0 212.8 6.3 42.3 25.4 638.2 925.0 2000 88.2 110.7 17.1 9.6 225.6 6.7 45.3 27.2 686.8 991.6 2001 93.2 117.5 18.3 10.2 239.2 7.2 48.5 29.0 739.1 1,063.0 Table 3.3 LONG-TERM DEMAND FORECAST FOR VITI LEVU (in MW) Western Area Tavua/ Navua Suva Viti Nandi Lautoka Ba Vatukoula Total /a Rakiraki Singatoka (Deumba) District Levu /a Growth Rate % Average to 1983 2.8 11.1 13.0 14.5 7.6 80.0 7.6 8.0 8.6 8.5 Beyond 1983 6.4 6.9 7.4 7.4 6.8 7.5 8.0 7.7 7.6 7.4 Fiscal Years Ending July 31 1977 4.7 3.8 0.6 0.3 9.0 - 1.7 1.1 22.5 33.3 1978 4.7 4.1 0.7 0.4 9.5 0.03 1.9 1.1 24.7 36.1 1979 4.8 4.5 0.8 0.5 10.2 0.1 2.0 1.3 26.8 39.2 1980 4.9 5.1 0.9 0.5 10.9 0.2 2.1 1.4 29.4 42.7 1981 5.1 5.7 1.1 0.6 12.0 0.3 2.4 1.6 32.6 47.4 1982 5.5 6.2 1.2 0.7 13.1 0.4 2.5 1.7 34.5 50.6 1983 5.5 7.2 1.2 0.7 14.0 0.5 2.6 1.8 37.0 54.2 1984 5.9 7.8 1.3 0.8 15.2 0.5 2.8 1.9 39.8 58.4 1985 6.3 8.3 1.5 0.8 16.2 0.6 3.1 2.1 42.8 65.5 1986 6.8 9.0 1.6 0.8 17.5 0.7 3.4 2.3 46.1 67.9 1987 7.4 9.7 1.7 0.8 18.8 0.7 3.6 2.4 49.6 72.9 1988 7.9 10.5 1.8 1.0 20.4 0.8 3.9 2.6 53.4 78.6 1989 8.4 11.2 1.9 1.1 21.7 0.8 4.3 2.8 57.5 84.5 1990 9.0 12.1 2.1 1.2 23.4 0.9 4.7 3.1 61.8 91.1 1991 9.6 13.0 2.2 1.3 25.1 1.0 5.0 3.3 66.5 97.8 1992 10.2 14.1 2.5 1.4 27.1 1.0 5.5 3.6 71.6 105.5 1993 10.7 14.9 2.6 1.5 28.5 1.1 6.0 3.9 77.0 113.0 1994 11.3 15.8 2.8 1.6 30.2 1.2 6.4 4.2 82.9 121.1 1995 12.0 16.8 3.0 1.7 32.2 1.2 6.8 4.5 89.2 129.8 1996 12.7 17.9 3.2 1.8 34.2 1.3 7.3 4.8 96.0 139.2 1997 13.4 19.0 3.4 1.9 36.2 1.4 7.8 5.2 103.3 149.2 1998 14.5 20.1 3.6 2.1 38.7 1.5 8.4 5.5 111.2 160.2 1999 15.0 21.4 3.8 2.2 40.7 1.6 9.0 5.9 119.6 171.4 2000 15.8 22.7 4.1 2.3 43.1 1.7 9.6 6.3 128.7 183.5 2001 16.8 24.1 4.3 2.5 45.8 1.8 10.3 6.8 138.5 196.9 /a Diversity factor of 0.96 applied. - 13 - 4. THE PROGRAM AND THE PROJECT The Program 4.01 FEA's Development Program. FEA has drawn up a long-term (20 year) development program which is based on the least cost sequence of expansion of generating capacity and associated transmission in Viti Levu. It assumes that FEA will in the future discharge its statutory responsibility of being the entity solely responsible for the entire public supply in Fiji. 4.02 Generation. In regard to expansion of generating capacity, the program involves construction of the following projects during 1977-1986. Name ot project Installed capacity Completion date (a) Monasavu - Wailoa (Stage 1) 40 MW July 1981 /a (b) Monasavu - Wailoa (Stage 2) -- July 1982 (c) Wainisavulevu 1 30 MW July 1984 (d) Wainisavulevu 2 15 MW July 1986 /a To allow for unforeseen occurrences, the Loan Agreement provides for a project completion date of December 1981. 4.03 Detailed field investigations have been completed for the first stage of the Monasavu - Wailoa hydroelectric project. Selection of the other projects in the program are based on preliminary investigations. The program accords high priority to the completion of their detailed field investigations during the next two years. On the basis of the intrinsic features of these projects, namely the high heads available, rainfall patterns, and other available data, the schemes clearly represent the best choice for convenient expansion of generating capacity in stages. The program will be reviewed in 1979 on completion of the ongoing field investigations. Agreement has been reached during negotiations that, prior to commissioning of the Project, no expansion of diesel/thermal generating capacity will be undertaken in Viti Levu without prior consultation with the Bank as this would not be consistent with the economic basis of the program. 4.04 Transmission. Interconnection of the existing eastern and western power systems of Viti Levu and development of the hydroelectric potential of Nandrau plateau - where it is expected that about 200 MW of generating capacity can be built up by the end of the century - requires a higher transmission voltage than 33 kV which is presently in use. After considering the available choices, both ENEX and Gibb have concluded that 132 kV repre- sents the correct solution. Gibb has recommended construction of single- circuit lines for the most part and tested the recommended transmission program as the most appropriate even if the scope of hydroelectric development during the next two decades is limited to about half of the scope envisaged. - 14 - 4-05 The transmission program for 1977-1986 includes construction of about 280 km of 132 kV transmission lines and three main substations at Suva, Wailoa and Vunda. The first stage envisages construction of 140 km of single circuit 132 kV lines to interconnect Suva and Vunda by mid-1980 (para. 3.08). The main transmission route has been chosen. Detailed trans- mission line surveys were completed in December 1977. Bid documents for supply of equipment and materials for its construction have been issued. 4.06 FEA has requested assistance from the Asian Development Bank (ADB) of about F$16.0 million to cover the foreign currency cost of the first stage of the transmission program. ADB has appraised the project. It was then determined that FEA's plan to construct the 132 kV transmission lines a year ahead (in 1980) of the Monasavu-Wailoa hydroelectic station to derive some benefits of integrated operations earlier (para. 3.08), was justified. 4.07 Until about 1985, available diesel generating capacity in Viti Levu will be adequate to serve as emergency reserve to meet the demand in case of breakdown of the single-circuit 132 kV transmission lines thus providing adec[uate security of supply. Reinforcement of the 132 kV system will be required by 1986 and will be provided through a second 132 kV circuit from Vunda to Suva. 4.08 Construction of the 132 kV Wailoa substation by end 1981 is essen- tial for the commissioning of the Monasavu-Wailoa project. Conclusion of satisfactory financing arrangements for construction of 132 kV transmission system (first stage), including the Wailoa substation, is a condition of effectiveness of the proposed loan. 4.051 Subtransmission and Distribution. The program provides for exten- siorn of 33 kV subtransmission lines to distribute hydroelectric power to various load centers. FEA's program also provides for extensions of its medium (11 kV) and low voltage lines in its present areas of supply for extensions in the SCCED areas and for rural electrification. The program in the SCCED area is' based on information furnished by SCCED to FEA. 4.10 Cost of the Program. The cost of the program is detailed in Table 4.1. It involves a total outlay of F$220 million during the period 1978-86 of which F$102.4 million will be required during the construction period 1978-81 of the project. The project, detailed in the following paragraphs, represents about 50% of the cost of the program during this period. The Project 4.11 Description. The project is the first stage of the Monasavu - Wailoa hydroelectric scheme and involves construction of the following works: (a) a 60 m high, zoned embankment dam across the Nanuku stream in the upper reaches of the Wainivondi River (Rewa basin) upstream of Monasavu Falls. The dam will be about 200 m long at its crest with an impervious core of locally available clayey soil surrounded by - 15 - filters and rock fill shells. The total volume of fill (rock and earth fill) is about 750,000 cu m. A 5 m diameter concrete-lined diversion tunnel, 325 m long, on the left bank will deal with river flows during construction, and an ungated, reinforced co'-rete chute spillway (50 m wide at the top narrowing down to 30 m) on the right bank will deal with overflows after construction of the dam; (b) a water conductor system comprising: (i) a concrete-lined, 2.5 m diameter, low pressure tunnel, 2,400 m long; (ii) a vertical, concrete-lined surge shaft 6.5 m in diameter and 75 m high; and (iii) a steel lined pressure shaft, 1.8 m in diameter with a sloping (40 degrees) section 850 m long, and a horizontal length of 2,000 m. The steel lining will vary between 20 mm and 35 mm in thickness; and (c) an overground power station on the right bank of the Wailoa River designed for an ultimate installation of four 20 MW generating sets of which two sets will be installed initially. 4.12 The basic data concerning the river and reservoir to be formed are as follows: River Catchment area at Monasavu dam 62.0 sq km Average annual rainfall 3,280 mm 6 Average annual flow 143.70 x 10 cu m Maximum flood (10,000/yr.) 732 cu m per second Reservoir Reservoir flood level +735 m Normal top reservoir level +730 m Minimum draw down level +710 m Effective storage volume (between +730 m and +710 m) 40.0 x 10 cu m Power House: Tail water level +120 m Average net head 595 m Energy Generation On the average, 200 Gwh per year; about 180 Gwh in dry years. - 16 - 4.13 The construction of Stage I of the project would be followed around 1932 by diversion of river flows of two adjoining streams of the Wainivondi river into the Monasavu reservoir. This second stage of the project is currently under detailed investigation and the work is included in FEA's development program. The works envisaged are construction of low diversion structures acroiss the two streams and about 5.0 km of 2.0 m diameter tunnels; they will increase average annual energy generation at Wailoa power station to 240 GlWh. 4.L4 Invesitigations and Status of Engineering. Hydrological observations at Monasavu were initiated in 1967 by the Ministry of Communications, Works and Tourism and these are continuing. Although the record has not been maintained continuously, adequate data were available to: (a) correlate runoffs and rainfall data and establish a long-term (67 years) runoff series for reservoir capacity and power potential studies; and (b) carry out analysis of storms to estimate the intensities and duration of floods. 4.15 The technical feasibility of constructing a dam at Monasavu was first established by ENEX in 1975 *on the basis of general geological maps and limited drilling. Gibb used data from about 16 drill holes at the dam site (which were fulLy tested for water losses) and a number of trial pits to arrive at the same conclusion in 1977. Both ENEX and Gibb recommended construction of a rock fill dam of about the same height (60 m) at this non-hazardous location. Feasibility stage investigations, completed in August 1977, did not reveal any adverse feature of significance. Foundation conditions were, in fact, regarded as good for the type of dam proposed. No significant hazards were anticipated with regard to either leakage from the reservoir or major instability of reservoir margins. 4.;L6 An extensive program of design stage investigations, including driLlling of 42 holes and some deep trench excavations at Monasavu dam site were completed iin January 1978. It has revealed that Monasavu will be a simple rockfill dam with all materials for the core, filters and rockfill available close at hand. The site permits a simple, safe, and readily designed spillway arrangement. Dam construction is simplified by the fact that the foundation level for the earth core is readily defined by the abrupt change (in less than a foot) from mud to acceptable hard rock. Grouting of the rock will be' reqjuired, but the cores indicate that the quantity of grout will be moderate. The bottom elevation of the grout curtain can be predicted with unusual accuracy since practically all the grout will go into the sandstone rock forming the abutments, but none will be needed in a watertight igneous layer underlying the sandstone at about stream bed level. On the basis of these results, optimization and detailed designs of the Monasavu dam are in progress. 4.JL7 An impediment to fast construction of the core is rainfall which averages 3,300 mm per year and which occurs on the average of 200 days per year. This means that core construction will be impossible on many days and slow on others. For instance, if a compacted core layer six inches thick is - 17 - achieved in one day and rained upon, the top two inches may have to be scalped off because it is too wet for another layer of core to be constructed. This does not mean that rain makes the construction impractical since similar work has ben done under these conditions in Fiji and at many tropical locations. The high degree o' stoppages would increase construction costs and this has been allowed for in the cost estimates. 4.18 Instability of the steep slopes in the Wailoa basin rules out construction of surface penstocks which would otherwise have been more economic for the small quantities of water involved. Underground pressure shafts and tunnels are therefore proposed. From the results of about eight drill holes along the route of the tunnels, it is expected that rock condi- tions would be generally good for the proposed tunnels and surge shaft. Nevertheless, designs have been based on concrete lining throughout. This is acceptable. The pressure shaft has been conservatively designed, assuming, due to lack of data on rock properties, e.g. deformability, that no pressures will be transferred to the surrounding rock. However, a 300 m section of the high pressure tunnel is currently being driven to its full diameter to carry oit jacking tests which will determine structural properties of the rock. The design of steel lining will be reviewed at this stage (July 1978) as there is a possibility of substantial economies if the rock conditions permit reduction in the thickness of lining. 4.19 Investigations and studies carried out have satisfactorily estab- lished technical feasibility of the project and provided a sound basis for preparing a basic project design, an appropriate construction program and realistic estimates of its cost. 4.20 Project Cost Estimate. The estimated cost of the project is summarized in the table below, and is detailed in Table 4.2. Foreign Local Total Foreign Local Total -----F$ million ------ ------US$ million---- 1. Preliminaries 1.07 0.47 1.54 1.18 0.51 1.69 2. Reservoir 0.01 0.55 0.56 0.01 0.60 0.61 3. Monasavu Dam and Ancillary Works 5.80 3.06 8.86 6.37 3.36 9.73 4. Water conductor system 10.91 3.38 14.29 11.99 3.71 15.70 5. Power station civil works 0.77 0.63 1.40 0.85 0.69 1.54 6. Generating plant and other electrical/ mechanical equipment 6.00 0.49 6.49 6.60 0.54 7.14 7. Engineering 3.23 0.77 4.00 3.55 0.85 4.40 Total base cost 27.79 9.35 37.14 30.55 10.26 40.81 8. Contingencies (a) Physical 3.18 1.33 4.51 3.49 1.46 4.95 (b) Price 5.73 1.78 7.51 6.30 1.95 8.25 Total project cost 36.70 12.46 49.16 40.34 13.67 54.01 - 18 - 4.21 The cost of the dam has been estimated on the basis of feasibility stage designs, expected quantities of work and unit rates with adequate (20%) physical contingencies. The quantities have been worked out on the basis of preliminary designs which allow for high earthquake intensities. Core material has been assumed to be drawn from upstream borrow pits though spillway excavation might actually be used to economize. Such work not having been done so far in Fiji, unit rates have been built up on the basis of rates actually obtained for a similar size rock fill dam recently constructed in Australia by contract. The rates were suitably adjusted taking into account the differences in rates of labor, construction materials and equipment costs, and inflation. An allowance was also made for possible difficulties in compaction of soils under conditions of high moisture content (para. 4.17). 4.22 Quantities for tunnelling were based on limited overbreak (10-15%). Rock conditions are expected to be generally good for tunnelling. However, to be on the safe side, supports have been assumed for 60% of the length. Additionally, a 20% provision has been made for contingencies. Tunnelling costs are based on recent construction costs in Australia adjusted upwards for conditions in Fiji. The excavation costs were then checked with actual experience of EGM in its mining operations in Fiji which is both extensive and relevant being very near the project area. 4.23 Steel lining inside the pressure shaft is a highly specialized item of work for which Gibb has used an adjusted budget estimate of an experienced contractor. Prevailing costs of steel in Australia (which are high) were used and due allowances made for supply, erection and grouting. 4.24 In general, rates assumed are reasonable and designs are conservative on presently available information. All factors which could have an impact on construction costs have been considered and reasonable physical contingen- cies have been provided. They vary from 5% on steel lining to 20% for the main civil works. Price contingencies have been provided for the foreign component of costs at 9% during FYs78 and 79, and 8% during FYs 80 and 81, and on the local costs at 7.5% during FYs78 and 79, and 7% during FYs 80 and 81. Foreign costs have been worked out taking into account the extent of use of local labor and materials. 4.25 Unit Costs. The cost of the project works out to about US$1,350 per kW installed in the first stage. It is representative of prevailing investment costs for relatively small hydroelectric projects where extensive underground construction is involved. 4.26 Project Consultants. FEA appointed Gibb as the main consulting engineer for engineering and construction supervision after inviting proposals from interested firms. The Bank agreed as Gibb, associated with Merz and McLellan (M/M) for engineering of electrical and mechanical works, has the necessary expertise. Its performance on this project so far has been satisfac- tory. Gibb and M/M should be able to competently handle all the functions expected of them on this project. ADAB has agreed to finance the entire cost of the engineering services. Continued employment of consultants for the project under terms and conditions satisfactory to the Bank is a condition of the proposed loan. - 19 - 4.27 Special Board of Consultants. FEA has appointed a Special Board of Consultants (SBC) to review the project designs in detail as they evolve throughout the construction stage primarily from the standpoint of ensuring safety. SBC consists of a team of three experts comprising an expert in soils, an expert in design/construction of embankment dams, and an expert in rock mechanics. At FEA's request the Bank and EIB jointly suggested suitable names and they have been agreed to. One of the experts chosen has consider- able experience in force account construction also. It is expected that his advice will be fully utilized by FEA on inspection of construction to doubly ensure that specifications laid down for the civil works are being adhered to (para. 4.31). FEA has proposed the first meeting of the SBC in July 1978. The cost of the SBC will be financed jointly by IBRD/EIB (para. 4.38). Since signing of the proposed loan may be delayed until after the SBC meeting, we recommend that the Bank-financed portion of the estimated cost of the first meeting (US$11,000) be considered for retroactive financing. 4.28 FEA has agreed to prepare and implement a program of inspection and maintenance of the works which is satisfactory to the Bank throughout the operational period of the project. 4.29 Method of Construction and Special Project Division. Considerable thought has been given by FEA, Gibb and the Government to decide on the best method of constructing the Project taking into account: (a) the remoteness of the small country from the main industrial economies; (b) the need to complete dam construction by 1981 (para. 3.08); (c) the need to strengthen Fiji's civil construction industry in the context of FEA's and the country's development programs; and (d) problems of cost overruns and delays which have been experienced in Fiji when relying solely on foreign contractors. Their decision, with which the Bank has agreed, is that: (a) the construction of the main embankment dam, spillway, intake, and powerhouse civil works (accounting for about 25% of the project cost) would be carried out by force-account through a Special Project Division (SPD) to be established within FEA with complete autonomy (para. 4.30); (b) work such as tunnelling, steel lining, and supply and erection of generating plant and ancillary equipment will be carried out by contractors, selected after international competitive bidding (ICB); and (c) access and project roads, construction camps and a permanent colony will be executed, as at present, by the Public Works Department (PWD) and FEA's own organization. - 20 - 4.30 The SPD will be a construction division under the umbrella of FEA, organized as a separate and autonomous unit and equipped mainly through an Australian Development Aid Bureau (ADAB) grant directed towards consultants services and the. portion of the project to be constructed by SPD. It will be directed and controlled by a superintending engineer who will be respon- sible to the general manager of FEA. He is an Australian, selected by FEA in consultation with the Bank and EIB, who took over his duties in February 1978. The next tier of key specialists have been recruited. Lower level skilled and semi-skilled personnel are available in Fiji and will be recruited as necessary. 4.31 The organizational structure of SPD is shown in Chart 4.5 and will function in accordance with procedures set out in FEA's "Establishment, Conditions of Operation and Standing Instructions" (see Project File). This code sets out the powers and duties of the SPD, its conditions of operation and procurement procedures. Gibb will assist FEA in preparing job specifica- tions, advertising and in selection of personnel for the SPD. The engineer will also perform a vital role in supervising the works, examining and testing materials to be used or workmanship employed, and advising SPD on procurement. This will not, however, relieve SPD of its duties and obligations set out in the code. Gibb will discharge this role of supervision of construc- tion by SPD through an experienced Resident Representative who has already been appointed. The Bank felt that some independent inspection should be injected into the system. FEA and Gibb agreed. It is therefore proposed that SBC would also be required to review construction methods, particularly those being used on force-account work and to suggest any improvements, if called for. 4.32 During negotiations FEA agreed to the following conditions under which the Bank would have no objection to FEA setting up SPD for force-account construction of the Monasavu dam, spillway, intake structure and powerhouse civil works: (a) continue employment of SBC to review project designs before and during construction and to review construction (see para. 4.27 and 4.31); (b) preparation of plans, construction drawings, specifications and detailed cost estimates before undertaking any construction (for proper control); (c) maintenance of separate accounts by SPD; (d) consulitation with the Bank on the organizational structure of SPD and on the appointment of key personnel; and (e) consulitation with the Bank before SPD undertakes any additional work oither than that specifically agreed (to ensure that SPD moves on rapidly to the status of an independent contractor). 4.33 The construction arrangements proposed by FEA would enable completion of construction by the target date (1981). Local expertise would be developed - 21 - to assist FEA in implementing its long-term development program, and the SPD would meet the country's need for developing a competent local construction organization. 4.34 Program of Construction. Gibb has prepared a detailed construction program based on the method of construction explained in para. 4.29. It is set out in Chart 4.4. Substantial completion of the Monasavu dam and commis- sioning of the power station is scheduled for July 1981./1 The program is tight, but workable. A detailed list of construction equipment required has been drawn up; its timely procurement is crucial to successful implementation of the program. With the appointment of the head of SPD, procurement action on equipment for construction has been speeded up. The stone crusher, and concrete batching and mixing plant have been ordered. By mid 1978 purchase of equipment costing about F$5.5 million, would have been committed. Equally important is completion of the program of testing of construction materials and rock in the horizontal reach of the pressure tunnel (para. 4.18) - a necessary prelude to invitation of bids for tunnelling and its steel lining. Gibb and FEA are conscious of the constraints to the program and are making every effort to overcome potential problems in time. 4.35 Land Acquisition. The Project, being located in a remote area of the island, requires a considerable amount of preparatory work such as access roads, construction camps, and a permanent colony. Land has to be acquired for these purposes as well as for the reservoir to be formed covering about 400 ha. It is proposed to be cleared of forest. The land for the Project is owned partly by Government (crown lands) and partly by native Fijians and is administered by the Native Land Trust Board. The land for the associated transmission system includes some freeholds. Acquisition has to be done by FEA through Government channels. There has not been any undue delay so far in regard to land acquisition for construction of access roads. However, as these activities are on the critical path of the construction program, EIB included in its loan documents, which were negotiated in November 1977, a covenant requiring the Government to guarantee that FEA will have available by July 1, 1978, all land necessary for implementation of the Project including associated transmission. In conformity with the EIB covenant, a similar condition requiring FEA to take all action necessary to acquire by July 1, 1978, the right to use all land required for the construction of the project including associated transmission was incorporated in the documents of the proposed loan. Failure to comply with this condition means that the loan cannot be declared effective (Section 12.03(b) of the General Conditions Applicable to Loan and Guarantee Agreements). However, FEA has now acquired most of the rights to use the land necessary for the project, and no difficul- ties are expected in completing land use acquisition. No resettlement is involved as the area is largely uninhabited. /1 To allow for unforseen occurrences, the Loan Agreement provides for a project completion date of December 1981. - 22 - 4.36 Procurement. Procurement of the goods and services will be handled separately for those sections of the Project to be constructed by force account and through contract. Procurement of the former will be the respon- sibility of SPD and will be carried out, in consultation with Gibb and in accordance with the code drawn up (para. 4.31). Bank guidelines will be followed for all other work to be procured by contract, through International Competitive Bidding (ICB). There are no regional preferences. No local preference for equipment will apply since Fiji does not manufacture the equipment required for the project. Fiji, by virtue of its high per capita income, is ineligible for any local preferences for its civil works contracts. The proceeds of the proposed Bank loan, together with contributions of EIB, would finance the estimated direct foreign cost of construction contracts for all the tunnels (including steel lining), the supply and erection contracts for generating equipment (and auxiliaries) in the Wailoa power station, and the cost of SBC. Contractors for Bank financed civil works will be prequali- fied in consultation with the Bank. FEA's intention is to indicate in the bid documents that it would supply concrete from its central batching plant to be set up by SPD to the successful civil works bidder for reasons of overall economy and speed of construction. The prices, arrangements for testing, etc. will be set out in the bid documents. 4.37 Project Financing and Loan Disbursements. The funds necessary to implement the project will be raised through co-financing arrangements involving the Bank, EIB, the Commonwealth Development Corporation (CDC), ADAB, the Fiji National Provident Fund (FNPF) and other local financing institutions, and the Government of Fiji. There are certain constraints in drafting the financing plan due to the following preferences of the various financing agencies: (a) EIB prefers to enter into a joint financing rather than a parallel financing arrangement with the Bank; (b) ADAB provides grant funds to the Government for financing mainly the cost of consultants, experts and equipment needed for construc- tion of the project, which are procured in Australia. However, to some extent excess funds available can be used in an untied fashion for financing other items; and (c) CDC, FNPF and other local banks provide general purpose financing./l 4.38 Considering the above co-financing possibilities and constraints, the following financing plan is envisaged for the Project: /1 Financing not tied to specific projects or project items. - 23 - Financial Requirement IBRD EIB Total (US$ million) --- A. Bank/EIB Financing 1. Civil works contracts (diversion tunnel, low pressure tunnel, surge shaft, high pressure shaft, steel lining). 10.7 10.2 20.9 2. Major equipment (power plant and crane, station auxiliaries, station transformers) 4.2 4.0 8.2 3. Special Board of Consultants 0.1 0.1 0.2 Subtotal 15.0 14.3 29.3 B. Other Financing All other items without specific allocation CDC - - 9.1 FNPF and other local banks - - 4.9 ADAB 11.5 Government - - 7.3 Internal cash generation 1.3 C. Total Financial Requirement 63.4/a /a The financial requirement comprises the total project cost of US$54.0 mil- lion, estimated interest during constuction of US$5.3 million, and that portion of the plant and establishment cots of SPD (US$4.1 million) which is not included in the cost of the proposed project and will be charged to other projects. 4.39 The proposed Bank loan will represent 24% of the total financial requirement. Disbursements will be made for 44% of the total cost of the eligible items up to US$15 million on the basis of certified invoices. EIB will disburse jointly with the Bank at the rate of 42% of the total cost. This is appropriate in the context of the co-financing arrangements. Signing of the EIB and CDC loan documents is a condition of effectiveness of the proposed loan. 4.40 Environment. Surveys carried out by Gibb in consultation with the Environmental Adviser to the Fiji Government have revealed no significant disbenefit as a result of the project which involves creation of a relatively small reservoir in the remote forests of the Nandrau plateau. There is no habitation in the waterspread of the proposed reservoir, or fish in the - 24 - Nanuku river, nor are there any artifacts of any significance which will be affected. The Department of Health has opined that there are no diseases existing in the rest of Fiji which do not exist in the area adjacent to the darm site. The environmental effects of the project are therefore likely to be minimal and within the capacity of the Fiji authorities to cope through consultants, who have coordinated the collection of basic data with the help of all concerned agencies. Although the scheme has some potential for develop- ment of fisheries and recreational facilities, the benefit of electricity generation is by far the most significant. Regulation of river flow afforded by the reservoir would no doubt constitute some irrigation potential downstream or conceivably help increase river flows for other downstream uses. Gibb's studies however show that these are not of any great economic significance. A minor identified disbenefit is that the diversion of Nanuko stream flows to the Wailoa river which might affect fishing in the short 6 km stretch of the Wainivondi river up to its confluence with the Wainisavulevu. Should this occur, inhabitants of two small villages would have to traverse slightly longer distances for their catch - a problem which FEA and Government believe can be easily handled. Risks 4.41 The risks associated with the proposed project are the uncertainties inherent in all hydroelectric projects, such as possible geological problems, hyrological complexities, and similar matters. However, the competent prepara- tory work undertaken by FEA and the consultants as well as the precautions taken in organizing and supervising the construction work (such as the estab- lishment of the Special Board of Consultants) are expected to keep the risks to a minimum. Table 4.1 Fiji Electri ici4y uthoritvjfijlA) Forecast Investments (Cash Flow) US$1 = F$0.91 (in F$ thousand) Total Project Coos true - tion Period Total Fiscal Years Ending Jolb 31: 1977/78 1978/79 1979/80 1980/81 1977178-1980/81 1981/82 1982/83 1983/84 1984/PS 1985/86 1977/78-1985/86 A. GENERATION 1. Monasavu-Wailoa Foreign 3,735 11,797 11,579 12,305 39,416 - - - - - 39,416 (including plant and Local 1,810 4,718 3.384 2,817 12_729 _ 12 729 establishment cost for SPD) Total 5,545 16,515 14,963 15,122 52,145 - - - - - 52,145 2. Monasavu-Wailoa Foreign - - 2,596 2,791 5,387 3,008 - - - - 8,395 Additional Catch-ents Local - - 775 834 1,609 899 2,508 Total - - 3,371 3.625 6,996 3,907 - - - - 10,903 3. Wainisav-levu I Foreign - - 472 3,117 3,589 9,971 16,010 10,334 - - 39,904 Local - - 141 930 1,071 2.978 4.887 3.086 -12022 Total - - 613 4,047 4,660 12,949 20,897 13,420 - - 51,926 4. Wainisavulev- 2 Foreign - - - - . - - - 5,212 7,102 9,255 21,569 Local - --- 1.557 2,121 2.765 6. 443 Total - - - - - - - 6,769 9,223 12,020 28,012 5. Investigations Foreign 141 296 294 205 936 - - - 936 Local 54 77 88 61 280 - - - - - 280 Total 195 373 382 266 1,216 - - - - - 1,216 TOTAL GENERATION Foreign 3,876 12,093 14,941 18,418 49,328 12,979 16,010 15,546 7,102 9,255 110,220 Local 1.864 4,795 4.388 4_642 15_689 3.877 4.887 4,643 2,121 2,765 33.982 Total 5,740 16,888 19,329 23,060 65,017 16,856 20,897 20,189 9,223 12,020 144,202 B. TRANSMISSION. DISTRIBUTION AND OTHER INVESTMENTS 1. 132 kV Transmission System Foreign 435 10,214 4,169 - 14,818 - - - - - 14,818 First Phase (inel. Local 116 2L452 2,168 -- _ 4.736 System Control) Total 552 12,666 6,337 - 19,554 -- - - - 19,554 2. 132 kV Transmission System Foreign - - - - - - 1,656 7,033 3,133 176 11,998 Second Phase Local _ 2.239 1.761 23 4 023 Total - - - - - - 1,656 9,272 4,894 199 16,021 3. 33 kV Ssbtrarsmission Foreign 722 1,254 58 309 2,343 316 731 771 - - 4,161 Local 253 338 17 93 701 95 218 231 - 1.245 Total 975 1,592 75 402 3,044 411 949 1,002 - - 5,406 4. Distribstion and Other Foreign 1,173 2,384 1,886 1,811 7,254 1,942 2,014 2,116 2,199 2,106 17,631 Investmaets Local 1,172 2_6 8 1,88 1,812 7 553 1,943 P4 2,115 22200 2j10 17.931 Total 2,345 5,068 3,771 3,623 14,807 3,885 4,029 4,231 4,399 4,212 35,562 TOTAL TRANSMISSION Foreign 2,330 13,852 6,113 2,120 24,415 2,258 4,401 9,920 5,332 2,282 48,608 DISTRIBUTION AND Local 1 541 5,474 4_07O 1.905 12.990 2.038 2.232 4.585 3,961 2_129 27.935 OTHER INVESTMENTS Total 3.871 192 10.183 4,025 37_405 4_296 6.=3 14.505 9.293 4_411 76.543 TOTAL INVESTMENTS Foreign 6,206 25,945 21,054 20,538 73,743 15,237 20,411 25,466 12,434 11,537 158,828 Local 3,405 10,269 _8 458 6547 28 679 5,915 7_119 9_228 6_082 4_894 61.917 Total 9611 36,214 512 85 4 2 21.152 27530 46_94 8516 E 431 220 745 Table 4.2 PROJECT COST ESTIMATE Foreign Local Total Foreign Local Total -- F$ million --------- -----------US$ million------- 1. Preliminaries 1.07 0.47 1.54 1.18 0.51 1.69 2. Reservoir 0.01 0.55 0.56 0.01 0.60 0.61 3. Monasavu Dam and Ancillary Works (i) 11am 5.34 2.69 8.03 5.87 2.96 8.83 (ii) Spillway 0.97 0.56 1.53 1.07 0.61 1.68 (iii) Diversion Tunnel 1.33 0.72 2.05 1.46 0.79 2.25 (iv) intake Structure 0.33 0.32 0.65 0.36 0.35 0.71 Total Monasavu Dam and Ancillary Works 7.97 4.29 12.26 8.76 4.71 13.47 4. Water Conductor System (i) Low Pressure Tunnel 3.26 1.75 5.01 3.58 1.92 5.50 (ii) Surge Shaft 0.82 0.44 1.26 0.90 0.48 1.38 (iii) Ehigh Pressure ShaiEt 3.13 1.68 4.81 3.44 1.84 5.28 (iv) Steel Lining 8.13 0.91 9.04 8.94 1.00 9.94 Total Water Conductor System 15.34 4.78 20.12 16.86 5.24 22.10 5. Power Station Civil Works 1.09 0.90 1.99 1.20 0.99 2.19 6. Electrical and Mechanical Equipment (i) Power Station Plant: and Crane 6.67 0.14 6.81 7.3:3 0.15 7.48 (ii) Power Station Auxiliaries 1.32 0.56 1.88 1.45 0.62 2.07 Total Electrical and Mechanical Equipment 7.99 0.70 8.69 8.78 0.77 9.55 7. Engineering 3.23 0.77 4.00 3.55 0.85 4.40 8. Contingencies /a (i) Physical - - - - - - (ii) Price - - - - - - TOTAL PROJECT COST 36.70 12.46 49.16 40.34 13.67 54.01 /a Physical and price contingencies have been included in the various items. Table 4.3 ESTIMATED SCHEDULE OF DISBURSEMENTS IBRD Fiscal Year Cumulative Disbursement and Quarter at End of Quarter (US$) 1978/79 September 30, 1978 11,000 December 31, 1978 500,000 March 31, 1979 1,000,000 June 30, 1979 1,250,000 1979/80 September 30, 1979 2,500,000 December 31, 1979 3,750,000 March 31, 1980 5,000,000 June 30, 1980 7,000,000 1980/81 September 30, 1980 9,000,000 December 31, 1980 11,000,000 March 31, 1981 13,000,000 June 30, 1981 14,000,000 1981/82 September 30, 1981 /a 14,500,000 December 31, 1981 /a 15,000,000 /a Above schedule allows for a delay in project completion due to unforseen occurrences from July 1981 to December 1981. Disbursements shown in Table 5.2 assumes project completion as planned in July 1981. Chart 4.4 Construction Program ~~~1j~~' p ~~ p ~~LA.D .I4 ( ods~~~ mobgv pria r t @~~~~~~~~~~~~CLAc.rc ffioiOtc Q3,~o m i QED (D (ED_ (i- me~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~E E.i / \ (~~~~~~~~~~~~~~~~~~~~~~~~~~_ )Ea-C4 nm)@8 se@8tsa/ wd. Q _~~~~~~~~tI~6 A CCO. Q_ - \i rfian 0~~~~~~~~~0 4~ ~ ~ ~ ~ ~~~~~~~~~~~4- lo:~~~~~~~~~'o s s @ e s | @ 8,I / e @ 8 @ e 18O(D \ ,,1d em M X\sde cm okn ttnIdtimotsm 05 SRWl- UllQ wd--r.5ds<et / X&- iLd) dt / Z~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~CE&-Cllndiaf werddlllvm Ot \m \ 8,-f / 2S1~~~~~~~~~~~~~Wat Chart 4. 5 SPECLAL PROJECTS DIVISION ORGANIZATIONCHART SUPERINTT.NDTNG NIER ASRINS ISSION LPETNE .IHN/N BUSIRESS MANAGER E. I ENGINEER L NIER E . RASiSii[7 LINH f ROJECH NIER:jCASING/STORES MIN,IICM I NEER E L S NTENDEWT E 1OICER LJ S TRANSMISS ION LINE I. I - IFOUNDATIONS L. F URDATIONS L PROJECT ASSISTANT ENGINEER ASSISTANT ENGINNER L. PURCASING STORES EMPLOYMINT EAMP MAINTENANCE SLRVEYOR NE[,A_ L. _ L. SUPERVISOR L. OFERRL _ _ - SRBSTAT1IS CAMP ELECTRICIAII ISLEVE PARTY COST CONTROL SITE DESIGN PAYROLL 13_DETIIAN NT L. EXPEDITOR L, STOREN L BI(S) HEALTH CARE SIFIITCHYRD ~L ____BUSDGETING DRAFTING7 I SURVEY PARTY I i I~A CANTEEN I GONCRETE L,l ESTIMATING _ LABORATORY UEKS SURVEY PARTY _ PROGRESS CLAIMS PROGRESS REPORTS COST CLERRS I IROADIIORRS Ll 1 PLANT CLER L. TIRdREERER(S) L. QOA 1RYEARTH-RI�.1 CONCRETE NSUPERINTENDENT L I SPILLWAY (L) QIQUARRY & BATCH AREARES INTAXE (L) .PLANT SUPERVISOR . SUPERVISOR I POWER /I USE (L) QUARRY (L) - ROADWORKS (L) CRUSHING PLANE (L) - EMBANKMENT (L) RATCE PLANT (L) BORROW PIT (L) f7AITN FIU RINING PITTE] L WORKSOP (L) PFLD SERVICE (L) E FiRjCPStrite L - FIjI Citizen - 25 - 5. FINANCIAL ASPECTS General 5.01 The Government's decision to embark, in the national interest, on a comparatively large hydroelectric development program will have far reaching implications on FEA's finances. During the next several years FEA's financial situation will be characterized by the fact that large investments will be superimposed on a comparatively narrow financial base./l Consequently, for some time, FEA will have to maintain tariff levels above the long-run marginal cost of supply, the rates of return on average net fixed assets in operation will have to be high, the internal contribution to investments, as well as the debt service coverages will be low, and large amounts of capital contribu- tions will be required to keep the debt/equity ratio within reasonable levels and the debt service requirements in manageable bounds. In this context it should be noted that none of the expected lending agencies for the Project are prepared to finance interest during construction which further aggravates FEA's finances. However, FEA's competent management is expected to exert the financial discipline necessary to implement the Project and the hydro program under difficult circumstances and also to be capable of raising additional funds if necessary. Past Performance 5.02 FEA's cost of providing electricity is high. In FY77 it amounted to FU 7.6 per kWh generated (USd7.8 equivalent) and it is expected to increase to Fd 8.0 per kWh (USM8.8) in FY78. The main reasons for this are: (a) the high cost of diesel fuel which presently accounts for 40% of the annual cost of electricity supply (in FY74, before the full impact of the large fuel price increase was felt, it accounted for only about 30%); and (b) FEA's operations which involve small and fragmented subsystems which are not fully interconnected and expensive to operate. Nevertheless, during FY76 and FY77 FEA has been able to set its tariffs at levels which resulted in rates of return on average net fixed assets in operation of about 12% in FY76 and 8% in FY77, whereas before, in FY74 and FY75 it had achieved returns of about minus 8% and plus 1% only. The improvement was made possible through two tariff increases in FY76 totalling about 36%. /1 Even after takeover of SCCED, which will considerably broaden FEA's operations, FEA's fixed assets are expected to increase about 2.5 times over the present level of SCCED's and FEA's combined fixed assets. - 26 - 5.03 No recent financial information on SCCED's operations is available and data covering earlier fiscal years must be considered unreliable. The most striking feature, however, of SCCED's past operations is that it has paiid comparatively large annual amounts (between F$190,000 and F$300,000) to the general funcl of the city which were used for meeting general expenses. SCCED, therefore, has not been in a position to maintain its plant properly and the inadequate physical state of its installations is largely a consequence of this drain of funds (para 1.22). Despite a recent increase of about 20% (para. 1.28) SCCED's level of tariffs is lower than that in FEA (Ff9.00 = US.9.9) with average revenues per kWh sold at FJ8.0 (USd8.8). The tariffs will be brought to FEA's level on August 1, 1978 (para 1.29). Financial Covenants 5.04 After the tariff adjustment in the SCCED supply area on August 1, 1978, FEA plans to raise tariffs in step with the increases which would have been required if, instead of the hydro development, the equivalent thermal (diesel) development had been undertaken. This to avoid placing a heavier financial burden on its customers than the alternative thermal development would have required. Present projections indicate (see Table 5.1) that these increases will be necessary only until FY83/84; after that date the stabilizing effe,ct of the hydro development is expected to occur with no need for additional increases, and tariff levels are expected then to remain substantially beLow those of the equivalent thermal expansion. 5.05 At present, FEA and SCCED are recording their assets at historic cosl-. A part of the assets is outdated and, in the case of SCCED, their remaining useful lives may be shorter than the date of purchase suggests due to inadequate maintenance in the past. Furthermore, Fiji does not compile indices monitoring price trends in the construction industry on whi(h a reasonable asset revaluation could be based. However, in discussions, FEA officials agreed to undertake a proper asset valuation after physical takeover of the SCCED assets and to design a practicable revaluation mechanism to be applied later. This initial valuation will probably be made on the basis of engineering appraisals and with the assistance of experts. Conse- quently, the following tariff covenant is proposed: (a) revaluation of assets, based on a method acceptable to the Bank, as of the end of FEA's FY79 and continuously at the end of any fiscal year thereafter; and (b) in agreement with the Bank, establishment of an appropriate rate of return on currently valued average net fixed assets in operation as shall be sufficinet to cover FEA's operating expenses, interest and repayment of debt and annual compensation payments to the Suva City Council for the assets of SCCED, and to finance a reasonable portion of FEA's investment program. - 27 - The above covenant indicates a tariff level at least equivalent to the long-run marginal cost of electricity supply, probably somewhat higher. 5.06 The financial projections show that, despite the high level of tariff, between rL78 and FY81 (project construction period) FEA will go through a period of extremely tight financial conditions (Table 5.2). For instance, FEA is expected to be able to contribute from net internal sources, before allowing for compensation to SCC, only about F$ 1.2 million to its investments (about 1%) during the project constuction period FY78-8l./1 It was therefore essential that a firm commitment be obtained from the Government requiring it to provide in any given year the funds which are necessary for the execution of FEA's invesLment pogram and which cannot be raised through borrowing on reasonable terms from abroad or in the domestic capital market. Consequently, agreement was reached during negotiations that the Government will contribute to FEA in the form of equity not less than F$ 23.76 million (this includes the ADAB grant of F$ 10.50 million) in accordance with a timetable to be agreed upon. 5.07 For the reasons outlined in paragraph 5.06, FEA has agreed to consult with the Bank prior to finalizing its annual financing plans during execution of the project. Furthermore, to ensure that FEA maintains a reasonable capitalization, its debt/ equity ratio should remain at a maximum level of 70/30, unless the Bank otherwise agrees. Financing Plan 5.08 FEA's financing plan for the construction period of the Project is characterized by a joint effort on the part of the Government and several financing institutions to overcome FEA's financial difficulties. The Bank and EIB will enter into a joint financing arrangement to finance major equipment and civil works awarded to contractors selected through interna- tional competitive bidding, ADAB is expected to bolster the Government funds through grants, and CDC and local financing institutions (including FNPF) plan to provide general purpose financing. In addition, ADB is considering financing the foreign exchange component of the transmission project which is required to market the output of the Project. At present, the proposed financing plan is as follows: /1 This is not in contradiction to the tariff covenant explained in paragraph 5.05, which requires financing of a reasonable portion of FEA's investment program through internal cash generation. The low level of about 1% during FY78-81 is reasonable in the context of extremely heavy invest- ments in this period and tariff levels above the long-run marginal costs of supply. With the tariff level as envisaged, FEA is expected to finance about 26% through internal cash generation during the period FY82-86. - 28 - FINANCING PLAN Project construction Forecast period (FY78-81) Period (FY78-86) F$ US$ F$ US$ Sources of funds million million % million million X Internal sources Net operating income 10.3 11.3 10.1 95.5 104.9 43.3 Depreciation 5.7 6.2 5.6 25.5 28.0 11.5 Consumers' contributions 1.0 1.1 1.0 3.3 3.6 1.5 Other income (net) 0.8 0.9 0.8 2.0 2.2 0.9 Less: Debt ServiLce -16.6 -18.2 -16.2 -94.0 -103.3 -42.6 SCC compensation -0.6 -0.7 -0.6 -1.6 -1.7 -0.7 Net variations inl working capital. -0.2 -0.4 -0.3 -0.7 -0.7 -0.3 Net Internal Sources 0.4 0.4 0.4 30.0 33.0 13.6 External Sources Government Capital C:ontributions /a 23.8 26.2 23.2 29.8 32.7 13.5 Borrowings IBRD 13.7 15.0 13.4 13.7 15.0 6.2 EIB 13.0 14.3 12.7 13.0 14.3 5.9 A.DB 14.8 16.3 14.4 14.8 16.3 6.7 CDC 8.3 9.1 8.1 8.3 9.1 3.8 Undefined foreign loans /b 14.0 15.4 13.7 86.1 94.6 39.0 Local loans (including 14.4 15.8 14.1 25.0 27.5 11.3 FNPF) Total borrowings 78.2 85.9 76.4 160.9 176.8 72.9 Total Sources of Funds 102.4 112.5 100.0 220.7 242.5 100.0 Application of Funds Investments Project 52.1 57.2 50.9 52.1 57.2 23.6 Other investments 50.3 55.3 49.1 168.6 185.3 76.4 Total investments 102.4 112.5 100.0 220.7 242.5 100.0 Total Applications of Funds 102.4 112.5 100.0 220.7 242.5 100.0 /a Includes granits from ADAB of US$11.5 million (about US$200,000 already 4disbursed). /b Loans to be secured for future projects. - 29, - 5.09 FEA will have to make compensation payments to SCC for the elec- tricity assets taken over. The amount to be paid is not known at present and will either be fixed in negotiations on the basis of a fair market value or, if no negotiated agreement can be reached by the Supreme Court (para. 1.27). For the purpose of the attached financial projections it has been assumed that FEA will take over the responsibility of servicing SCCED's debt and, in addition, will have to make annual compensation payments of F$200,000. 5.10 Above financing plan clearly shows the large financial efforts FEA and the Government will have to make in carrying out the Project and the hydroelectric program. Government contributions are expected to reach a level of about 23% of the required funds during the Project construction period. This is a very heavy burden on the Government budget and shows the Government's firm commitment to the Project and the program. However, these efforts are worthwhile undertaking because of the large financial and foreign exchange benefits accruing to the Fiji economy. During the life of the Project the foreign exchange savings for the country at present day prices are expected to reach about F$160 million. Besides, electricity tariffs would be stable after 1983-84, even lower in real terms. Accounting, Billing and Collection 5.11 FEA's accounting department is well staffed and fully capable of handling FEA's accounting now and after SCCED's takeover. Until recently, the average arrears from sales of power were about three months, a not better than average performance. However, the present management has introduced efficient meter reading/billing/disconnection policies which considerably shortened the collection time to about 1-1/2 months. In view of this excellent performance no particular covenant on arrears is proposed. Audit 5.12 The Fiji office of Peat, Marwick, Mitchell and Company has audited FEA's accounts in the past and has provided satisfactory service. FEA plans to continue to use this firm which would be acceptable to the Bank. During negotiations FEA will be asked to send the audit report annually to the Bank not later than four months after the close of the fiscal year. Tariffs 5.13 FEA's present average tariff of F� 9 per kWh (US�9.9 equivalent) is high, about 10% above the long-run marginal cost of energy consumed 11 (based on FEA's nine-year investment program). The charges for the various consumer classes, in force since February 1, 1976, are as follows: /1 Calculated at a discount rate of 12%. - 30 - (a) Domestic Tariff First 25 units - 12.5 cents per unit Next 375 units - 9.3 cents per unit Remainder - 8.3 cents per unit Minimum charge $1.90 (b) Commercial and Industrial Tariff First 50 units - 15.0 cents per unit Next 250 units - 12.5 cents per unit Next 2,700 units - 9.9 cents per unit Remainder - 8.8 cents per unit Minimum charge $3.80 (c) Maximum Demand Tariff /1 $8.00 per kilowatt 6.22 cents per unit (d) Off-peak tariff /2 5.7 cents per unit (e) Reactive kVAh tariff 5.7 cents per unit Although FEA uses a declining block rate structure, the tariff in all categories is nearly the same or higher than the long run marginal cost of about: Fi9.0 per uniit. This rate structure needs to be eventually changed and FEA agrees. A representative of FEA has recently been nominated to attend a Bank-sponsored seminar on tariffs, after which necessary steps would be taken, and the changes incorporated in the tariff to be effective August 1, 1978. /1 Available on application to all commercial and industrial consumers with a maximum demand in excess of 75 kW. /2 Available on application to commercial and industrial consumers with a maximum demand in excess of 25 kW for appliances in use between 9:30 p.m. and 6:00 a.m. controlled by a time switch. Table 5. 1 FIJI ELECTRICITY AUTHORITY (FEA) Actual and Forecast Income Statements (in F$'000 unless otherwise indicated) US$1 = F$0.91 A C T U A L F 0 R E C A S T Fiscal years ending July 31 1974/75 1975/76 1976/77 1977/78 1978/79/a 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 Sales of power (Gwh) /b 49 59 63 67 199 217 239 255 274 293 317 341 Increase of sales over previous year (X) 14.5 20.4 6.8 6.3 7.0 9.0 10.1 6.7 7.5 6.9 8.2 7.8 Average revenues per kWh sold (Fi) Ic 6.79 8.12 8.94 9.00 8.94 8.94 9.39 9.86 10.35 11.13 11.13 11.13 Operating Income Revenues from sales of power 3,327 4,793 5,634 6,030 17,791 19,400 22,442 25,143 28,359 32,611 35,282 37,953 Other operating income 2 4 4 4 195 228 243 259 277 296 317 339 Total Operating Income 3,329 4,797 5,638 6.034 17,986 19,628 22,685 25,402 28,636 32,907 35,599 38,292 Operating Expenses Purchased power Id 112 171 140 6D 65 35 - - - - - - Fuel /e 1,253 1,719 2,115 2,486 8,168 9,643 11,548 4,753 4,792 6,343 2,592 4,354 Personnel /f 666 891 970 1,050 2,050 2,214 2,390 2,580 2,790 3,010 3,250 3,500 Operation, maintenance, administration /g 758 936 1,104 846 3,662 2,956 3,105 2,790 3,375 3,598 3,959 4,171 Depreciation /h 454 471 639 784 1,230 1,452 2,272 3,136 3,443 3,628 4,685 4,878 Total Operating Expenses 3,243 4,188 4,968 5.226 15,175 16,300 19.315 13,259 14,400 16.579 14,486 16,903 Net Operating Income 86 609 670 808 2,811 3,328 3,370 12,143 14,236 16,328 21,113 21,389 Other income (net) 431 551 195 200 205 210 215 220 225 230 235 240 Interest 279 211 384 680 2,648 4,665 6,099 7,070 8,038 9,168 9,492 8,925 Profit/Loss 238 949 481 328 368 -1,127 -2,5L4 5.293 6,423 7,390 11,856 12,704 /a Takeover of SCCED assumed as of August 1, 1978. /b See Chapter 3 for basic assumptions. /c In accordance with FEA's notice of April 12, 197B, a unified tariff has been assumed for the whole of Fiji starting FY78/79. Upon its introduction, this tariff will result in average revenues per kWh sold of not less than PEA's present tariff. Future tariff adjustments in step with the increases which would have been required if, instead of the hydro development, the equivalent thermal (diesel) develop- ment would be undertaken, have been assumed until FY83/84. After FY83/84 no further increases appear to be required indicating the stabilining effect the hydro development has on the tariff levels. /d FPA purchases small amounts of electricity, predominantly from the Emperor Gold Mine. These purchases are expected to discontinue after 1978/79. /e At present, FEA pays about F$136 per ton for diesel oil, the only kind of fuel it uses. For the financial projections, annual price increases of about 8% have been assumed. /f Although FEA expects to be able to reduce the number of operatiosal personnel somewhat through transfer of excess personnel to the special projects division, no reduction has been assumed in the financial projections. Consequently, this item may include a reserve. /g Generally, the cost of operation, maintenance and administration is based on historic development and takes into account FEA's maintenance plans. Allowance has been made for extraordinary maintenance of SCCED facilities (F$930,000 in FY78/79 and F$130,000 in FY79/80). With the introduction of hydro generation in 1981/82 and retirement of outdated diesel plant, a noticeable reduction in the cost of maintenance can be expected. /h FEA uses straight line depreciation in accordance with the expected useful lives of its plant. Some typical depreciation rates are: diesel generation plant 5%, lines and cables 5%, buildings 1.25%, tools 10%, cars and trucks 20%. Table 5. 2 FIJI ELECTRICITY AUTHORITY (FERA) Forecast Sources and ApPlications of Funds Itateneots (in F5 '00) 111$l - FO0.91 Total pr-j-ct constr. period Total Fiscal yeare ending July 31 1977/78 1978/79/a 1979/80 1980/81 1977/78-1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1977/78-1985/86 SOUREES Internal Net opecatiog income 808 2,811 3,328 3,370 10,317 L2,143 14,236 16,328 21,113 21,389 95,526 Oepreciation 784 1,230 1,452 2,272 5,738 3,136 3,443 3,628 4,685 4,878 25,508 Consumers' costributi.on 95 254 308 363 1,020 393 423 454 486 518 3,294 Other i-come (net) 200 205 210 215 830 220 225 230 235 240 1,980 1,887 4,500 5,298 6.220 17.905 15,892 18,327 20,640 26_519 27,025 126_308 Less: Debt Service /b (a) A-trti-atlon 364 681 688 723 2,456 2,762 5,091 7,412 9,344 10,121 37,186 (b) Interest 680 2,648 4,665 6,099 14,092 7,070 8,038 9,168 9,492 8,925 56,785 Total debt service 1.044 3,329 5.353 6,822 16,548 9,832 13,129 16.580 18,836 19,046 93,971 Net variations in socking capital 50 57 50 50 212 187 134 -05 202 48 728 No-t internal soucces (a) Allocated to the project 500 700 - - 1,200 - - - - - 1,200 (b) Allocated to iovest.eeto ocher than the project 293 414 -105 -657 -55 5,873 3,064 4,115 7,481 7,931 30,409 Total vet ieernal so.cec 793 1_114 -105 -657 1_140 5.873 5,064 4115 7.481 7,931 31_609 Entornal /c F,or the P-oject Grants Governnent contributLo- 1,581 1,280 1,863 1,460 6,184 - - - - - 6,184 ADAB 200 3,400 3,300 3,300 10,200 - - - - - 10,200 Total granse for the pro-ect 1,781 4,680 5. 163 4760 16,384 - _ - _ _ L6,384 Loans IBRi8 - 3,600 4,600 5,450 13,650 - - - - - 13,650 EIB - 3,500 4 300 5 200 13,000 - - - - - 13,000 CDC - 3,790 2,488 2,022 8,300 - - - - - 8,300 FNPF (1977/78) and ocher local/- rorign loans 3,300 1,141 - - 4,441 - - - - - 4,441 TotaL loans .f the project 3,300 12_031 11,388 12,672 39,391 39_39L Tocal external coerces for the project 5,081 16,711 16,551 17,432 55775 - - - - 55775 For Othec i-vestment Government cotributions 3,737 581 1,514 1,544 7,376 - 2,000 4,000 - - 13,376 Lc,ans AB - 10, 649 4, 184 - 14, 833 - - - 14,833 Futare foreigo Ioans - 5,000 3,068 0,908 13,976 12,979 17,666 22,579 10,235 8,700 86,135 Foture local lass - 2,359 4,500 3,058 9,917 2,500 3,000 4,200 1,000 - 20,617 Total -ass for other inv-st=ents - 18,008 11,752 8,966 38,726 15,479 20,666 26.779 L1,235 8,700 121,585 Total External Soorces for Other Investmets 3.737 18,589 13.266 10,510 46_102 15,479 22,666 30.779 11,235 8,700 134,961 Total Enteroal Sources 8,818 35,371 29,817 27,942 101,877 15,479 22,666 30,779 11,235 8,700 190,736 TOTAL SOURCES 9,611 36,414 29,712 27,285 103,022 21,352 27.730 34.894 18,716 16,631 222,345 APPLI ATIONS Investments Project Foroign expeoses ,3735 11,797 11,579 12,305 39,416 - - - - - 39,41L Local aspenses 1,810 4,719 3,384 2,817 12,729 - - - - - 12,729 Total cxpenses for the prelect 5.545 16,545 14,963 15,122 52145 - - - 52,145 Oser Investments Foreign enpennes 2,471 14,148 9,475 8,233 34,327 15,237 20,411 25,466 12,434 11,537 119,412 Local enpenses 1,595 5,551 5,074 3,730 15,950 5,915 7,119 9,228 6,082 4,894 49,1B8 Tonal expenses for other investments 4.066 19,699 14,549 11,963 500277 21,152 27,530 34,694 18,516 16,431 168,600 T-:al Investcents -oreige .epenses 6,206 25,945 21,054 20,538 73,743 15,237 20,411 25,466 12,434 11,537 158,828 1.ocal expenes 3,405 10,269 8,458 6,547 28,679 5,915 7,119 9,228 6,082 4,894 61,917 Total 9,611 36_214 29,512 27,085 102,422 21,152 27,530 34,694 18,516 16.431 220.745 SCC -- Compensation - 200 200 200 600 200 200 200 200 200 1,600 TOTAL FPPLICATIONS 9.611 36.414 29,712 27,285 103_022 21,352 27,730 34,894 18,716 16,631 222,345 Debt service coverage 1.8 1.4 1.0 0.9 - 1.6 1.4 1.3 1.4 1.4 - Net -ternal sources an percent of investments (T) 8.3 3.1 - - 1.1 27.8 18.4 11.9 40.4 48.3 14.3 /a Takeover of SCCED assened as of August 1, 1978. /b In the past, FEA'n and SCC's hbrrnwings have been oo ceasonably faoorahbl terns. On an average, the loans were for a tern of abcut 18 years, at interest eaten of between 4.5% end 8.52 per year. /c FEA's external n lurcen will consist of grants from the Gocernnent and AUAR, and loans fron various coerces. The sea borrowings cocsist of co-financing oass for the project and assi tt loansmssion (IBRD, EIB, CDC, FNPF and ADB), the teens and cooditiocs of ebich hare already bees negotiated, and futre. leans necessary to ficance FEA's investment progra-. Following arc the -acio.s borrowing teens (negotiated end assueed): (i) 18R1: 7.5% interest, 0.75% comnitment fee, 15 years including 3 yearn of grace. First repayment an January 1, 1982. (ii) EIB: 5.4% interest, 1% censitment fee, 15 yearn including abot 4.5 years of grace. First repayment September 30, 1982. (iii) CDC 8.75% interent, IT commeit-et fee, 20 yearn including 4 yearn of grace. Firt repayment Octobec 31, 1982. (En) FNFF: 7.125% interest, 20 yeacr including 4 years of grace. (v) AUB : 7.5% interest, 0.75X corritment fee, 20 yearn including 4 years of grace. (vi) Fut-re foreign lans.: 8% interent, average 16 yearn including 3.5 years nf grace. (vii) Future local lea.s 7.125% interest, 20 years including 4 years of grace. Table 5.3 FIJI ELECTRICITY AUTHORITY (FEA) Actual and Forecast Balance Sheets (in F$'000) A C T U A L F 0 R E C A S T FYs ending July 31, 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 ASSETS Fixed Assets Fixed assets in operation 8,447 8,738 16,083 19,403 35,426 42,221 66,066 122,826 137,757 138,944 200,675 204,887 Accumulated depreciation -1,837 -2,299 -2,902 -3,686 -6,074 -7,526 -9,798 -12,934 -16,377 -20,005 -24,690 -29,568 Accumulated consumers' contributions -1,295 -1.468 -981 -1,076 -1,330 -1,638 -2,001 -2,394 -2,817 -3,271 -3,757 -4,275 Net fixed assets in operation 5,315 4,971 12,200 14,641 28,022 33,057 54,267 107,498 118,563 115,668 172,228 171,044 Work in progress 2,213 5,143 1,794 8,085 38,574 61,291 64,531 28,923 41,522 75,029 31,814 44,033 - Total Fixed Assets 7,528 10,114 13,994 22,726 66,596 94,348 118,798 136,421 160,085 190,697 204,042 215,077 Current Assets 2,007 2.669 2,853 2,953 6,190 6,540 6,895 7,095 7,245 7,345 7,645 7,745 TOTAL ASSETS 9,535 12.783 16,847 25,679 72,786 100,888 125,693 143,516 167,330 198,042 211,687 222,822 LIABILITIES Equity Capital 2,069 2,869 3,667 9,185 19,788 26,465 32,769 32,769 34,769 38,769 38,769 38,769 Retained profits and reserves 1,176 2,331 3,540 3,868 4,236 3,109 595 5,888 12,311 19,701 31,557 44,261 Total Equitv 3,245 5,200 7,207 13,053 24,024 29,574 33,364 38,657 47,080 58,470 70,326 83,030 Long-term Loans 5,450 6,738 7,642 10,578 45,842 68,094 88,809 101,326 116,701 135,868 137,559 135,938 Current Liabilities 840 845 1,998 2,048 2,920 3,220 3,520 3.533 3,549 3,704 3,802 3,854 TOTAL LIABILITIES 9,535 12,783 16,847 25,679 72,786 100.888 125,693 143,516 167,330 198,042 211,687 222,822 Debt/equity ratio 63/37 56/44 51/49 45/55 66/34 70/30 72/28 72/28 71/29 70/30 66/34 62/38 - 31 - 6. JUSTIFICATION Least Cost Soli-ion 6.01 It has been explained earlier (para. 3.08) that additional generating capacity would be needed in Viti Levu by 1981 as the growth of demand would exceed the firm capacity of the existing power systems. Studies have been carried out to establish that the Monasavu - Wailoa hydroelectric project represents the next step in the least cost sequence of expansion of generating capacity on the island. These are described in the following paragraphs. 6.02 The most economic sequence of thermal/diesel expansion schemes until the end of the century was first established. This involves isolated development of the various subsystems of Viti Levu as their interconnection would not be economically justified during the study period. The program comprises addition of a series of diesel generating sets, the maximum unit size of 20 MW being required only towards the end of the century. 6.03 Available hydroelectric sites were costed and ranked in order of their economic importance on the basis of their estimated capital costs, their utilizable energy potential assessed through reservoir and system operation studies, and energy costs calculated on an annual cost equivalent of 11%. The results are summarized in Table 6.1. The Monasavu-Wailoa hydroelectric project has the lowest cost of energy generation. The next lowest cost is that of the Nanuku-Singatoka-Koro scheme, which is a mutually exclusive alternative to the Monasavu-Wailoa project. The latter scheme was investigated, first by ENEX and then by Gibb. Apart from higher costs of development, which could well increase after further detailed investigations of the Nanuku dam site (these are considered necessary to fully establish technical feasibility), the Nanuku-Singatoka-Koro scheme has the disadvantage that it would limit ultimate development of the energy potential of the Singatoka valley schemes. Further consideration of this scheme was therefore given up. 6.04 A number of hydroelectric development programs were compared on a present worth basis taking into account both construction and operating costs. Computerized system operation studies were used to optimize dam heights and installed generating capacities, and also to assess their utilizable hydroelectric potential and consequent thermal generation requirements of the system. It was established that within the range of the discount rates chosen (9-13%) the sequence of schemes outlined in para. 4.02, with Monasavu-Wailoa as the initial project, provides the lowest costs. 6.05 The least cost hydroelectric program (including the necessary trans- mission system and all associated costs) was then compared with the least cost thermal alternative. The discount rate at which the present worth of the cost of the hydroelectric development program described above equals that of the - 32 - thermal alternative is 13%. The results were tested for demand growth rates higher and lower than the median forecast adopted for the program. With the low rate (which is less than half the recent historic growth rate), the equalizing discount rate falls to about 11%. The higher rate of growth would call for acceleration in the sequence of construction of hydroelectric projects (which is considered feasible) and additions to thermal capacity at the end of the period. 6.06 For economic comparison, shadow prices were used for foreign costs. Project costs were broken down into components of skilled, semi- skilled and unskilled labor to which factors of 1.5, 1.0 and 0.5 respectively were applied. The results of the economic analysis carried out are detailed in Tables 8.13 to 8.18 of the Project Report Volume I (see Project File). They are acceptable. Internal Economic Rate of Return 6.07 The internal economic rate of return of the Project (IERR) is the discount rate which equalizes the economic costs and benefits attributable to the project. The project costs and benefit streams are shown in Table 6.2. The costs are net of taxes and include those associated directly with the Prcoject, the entire costs of the first stage of FEA's 132 kV transmission project and an allowance for distribution. Ideally the benefits should be measured in terms of the consumers' willingness to pay, but since this is practically impossible to evaluate, the incremental revenue of the Project was used as a proxy for total benefits. This is a minimum measure of the Project benefits as consumers surpluses are ignored in the analysis. On this basis, the IERR is at least 18%. The high return reflects the average tariff level which is higher than the long run marginal costs. Table 6.1 COSTS /a OF IMPORTANT HYDROELECTRIC SITES Long-Term Average Utilizable Cost per Energy Energy Unit Scheme F$ million (GWh) (GWh) (F�) Monasavu (Stage 1) 41,849 203 176 2.61 Monasavu including Additional Catchment 50,456 241 205 2.70 Nanuku-Singatoka-Koro (Stage 1) 52,260 201 135 4.25 Nanuku-Singatoka-Koro (Stage 2) 74,840 300 247 3.33 Lewa Stage 1 39,240 86 86 5.00 Lewa Stages 1 and 2 75,578 194 132 6.29 Wainisavulevu Stage 1 32,344 118 104 3.42 Wainisavulevu Stages 1 and 2 55,901 208 182 3.37 Wainimala plus Additional Set for Wailoa 99,975 310 252 4.36 Navua plus Additional Set for Wailoa 108,350 400 336 3.55 /a Includes base costs, physical contingencies and enginering. TABLE 6.2 COST AND BENEFIT STREAMS FOR INTERNAL ECONOMIC RATE OF RETURN CALCULATION (in F$ million) Operation Construction costs /a and main- Benefits Net Year Foreign /b Domestic /c tenance/d (Incremental revenues) benefits 1977 1.33 0.20 - - - 1.53 1978 5.54 1.68 - - - 7.22 1979 15.82 3.45 - - -19.27 1980 14.17 4.24 - - -18.41 19tt1 13.39 2.72 - - -16.11 1982 - - 0.45 +13.00 +12.55 1983 - - 0.45 +15.00 +14.55 1984 - - +16.00 +15.55 1985 - - +16.50 +16.05 1986 - l 1987 - l 1988 - - l 1989-2021 - - v /a Includes all costs of Monasavu-Wailoa hydroelectric project (stage I), first phase of 132kV system and a portion of distribution costs. /b Shadow exchange rate of 1.20 applied. /c Shadow rates of 1.5 for skilled, 1.0 for semi-skilled and 0.5 for unskilled labor applied, resulting in an average rate of 0.9. Id Includes cost of operation of Wailoa power station and transmission lines. /e Based on average FEA tariff of F$9.0 per kWh and 180 GWh of energy from 1985 onwards; estimates of revenue for 1982-85 are based on partial fuel savings. - 33 - 7. AGREEMENTS REACHED AND RECOMMENDATION Conditions of Eff'ctiveness 7.01 Before declaring the proposed loan effective, the following conditions should be met: (a) acquisition of SCCED's assets (para. 1.26); (b) conclusion of satisfactory financing arrangements for construction of the 132 kV transmission system (first stage), including the Wailoa substation (para. 4.08); and (c) signing of the EIB and CDC loan documents (para. 4.39). Other Agreements 7.02 During negotiations agreement was reached on the following: (a) the Governmet guarantees FEA's financial viability (para. 1.27); (b) FEA will consult with the Bank on expansion of diesel/thermal capacity in Viti Levu, if any, prior to commissioning of the Project (para. 4.03); (c) continued employment of consultants satisfactory to the Bank (para. 4.26); (d) preparation and implementation of a satisfactory program of periodical inspection and maintenace of the dam and associated civil works of the Project (para. 4.28); (e) preparation of plans, construction drawings, specifications and detailed cost estimates for work to be undertaken by SPD, maintenance of separate accounts by SPD, and consultation with the Bank on SPD's organizational structure, on appointment of SPD's key personnel, and before SPD undertakes any additional work (para. 4.32); (f) FEA acquires before July 1, 1978 the right to use all land required for the construction of the project including associated transmission (para. 4.35); - 34 - (g) establishment of an appropriate rate of return on currently valued average net fixed assets in operation (para. 5.05); (i) Government equity contributions of not less than F$ 23.76 million (para. 5.06); (J) annual consultation with the Bank on FEA's financing plan during the project construction period (para. 5.07); and (k) maintenance of a debt/equity ratio of 70/30 (para. 5.07). Recommendation 7.03 The proposed project constitutes a suitable basis for a Bank loan of US$15 million on country specific terms. ANNEX DOCUMENTS AVAILABLE IN PROJECT FILE I. FEA ACT (Ordinance 20 of 1966) II. FIJI ELECTRIC POWER STUDY - a Report by ENEX of New Zealand Vol. I Phase 1, Engineering Investigations Nov. 1972 Vol. II Organization, Administration and Management Aug. 1973 Vol. III Market Survey Sep. 1973 Vol. IV Staff Training Development Dec. 1973 Vol. V Power System Survey, Engineering and Technical Investigations Mar. 1975 Vol. V (a) Power System Survey, Engineering and Technical Investigations -- Appendices, Financial and Economic Evaluation Mar. 1975 Vol. VII Supplementary Report - Power System Development Plans - Alternative Proposals - World Bank May 1976 III. POWER DEVELOPMENT PROGRAM - INCEPTION REPORT by Gibb of Australia Dec. 1976 IV. PROJECT REPORT - POWER DEVELOPMENT PROGRAM by Gibb of Australia Sep. 1977 Vol. I Main Report Vol. II Appendices Vol. III Geological Appendix V. MONTHLY PROGRESS REPORTS IN INVESTIGATIONS AND STUDIES - by Gibb of Australia Jan. 1977 (from January 1977 onward) VI. SUPPLEMENTARY REPORT ON FURTHER ECONOMIC STUDIES --- 1977 VII. SPECIAL PROJECT DIVISION - by FEA/Gibb --- 1977 Establishment, Conditions of Operation and Standing Instructions VIII. CONSULTING ENGINEERING AGREEMENT Oct. 1976 sevo!I uolsv!wsuQJI Al ZEi " O �f __ _: 51W :NtaMB4 D61h nFX -,Qt.S~sosu!I uQ!ss!wsvOJi A!�._.1_ ,O lOLS0 :1f CE SU014D49 JlMOd ojp*AH > i 00 vwSt Q^- >s2 ...,>R I *nA3 117. 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