RESTRICTED Report No. PU-88a This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF 400 kV AND 230 kV TRANSMISSION PROJECT IRANIAN ELECTRIC POWER GENERATION AND TRANSMISSION COMPANY (TAVANIR) IRAN May 25, 1972 Public Utilities Projects Department CURRENCY EQUIVALENTS US$1 = Rials (Rls) 76.5 l/ Ris 1 = US 1.307 cents Rls 1 million - US$13,072 Rls 1 billion = US$13,071,895 UNITS AND EQUIVALENTS kW - Kilowatt MW = Megawatt kWh = Kilowatt hour GWh = Gigawatt hour kV = Kilovolt MVA = Megavolt-ampere One kilometer (km) - 0.6214 miles One square kilometer (km2) 0.386 square miles LIST OF ABBREVIATIONS TAVANIR Iranian Electric Power Generation and Transmission Company TREC Tehran Regional Electricity Company KWPA Khuzestan Water and Power Authority REC Regional Electricity Company WPA Water and Power Authority The Third Development Plan -- 1963-1967 The Fourth Development Plan -- 1968-1972 The Fifth Development Plan -- 1973-1977 The Sixth Development Plan -- 1978-1982 TAVANIR's fiscal year coincides with the Iranian calendar year, which ends on March 20; throughout this report, unless otherwise indicated, the Gregorian calendar year has been used to indicate the Iranian year starting March 21 of that year, e.g., 1971 refers to the Iranian year 1350, starting March 21, 1971, and ending March 20, 1972. 1/ The rate of 76.5 rials per US$ used in the financial projections of the borrower and in this report is the price TAVANIR would pay to the Central Bank for dollars. It is slightly higher than the official rate of 75.75 rials per dollar published by the IMF. APPRAISAL OF 400 kV AND 230 kV TRANSMISSION PROJECT IRANIAN ELECTRIC PoWER GENERATION AND TRANSMISSION COMPANY (TAVANIR) IRAN TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS i-ii 1. INTRODUCTION 1 2. THE POWER SECTOR 2 General 2 Sector Organization 2 Sector Facilities 4 Sector Finances 5 Sector Training 7 Sector Development Studies 7 3. THE BORROWER 8 Organization 8 Power Development Program 9 4. THE PROJECT 11 400 kV Transmission 11 230 kV Transmission 11 Training 12 Cost Estimates 12 Amount of Proposed Loan 13 Procurement 13 Disbursements 1 4 Engineering Arrangements 14 Ecological Considerations 15 5. PROJECT JUSTIFICATION 16 Load Forecast 16 Minimum Cost Alternatives 17 Internal Financial Rate of Return 18 6. FINANCIAL ASPECTS 19 Tariffs for the Purchase and Sale of Electricity by TAVANIR 19 Financial Position, Current and Forecast 20 Current and Projected Operations 21 Financing Plan 23 Audit 23 7. AGREEMENTS REACHED AND RECOMMENDATIONS 25 This report is based on the findings of a mission composed of Messrs. E.A. Moore and 0. Prenoveoau which visited Iran in September/October 1971. lI LIST OF AMNNEES 1. Ministry of Water and Power, Organisation of Power Division 2. History and Organization of the PFver Sector 3. Installed Generating Capacity in December 1971 4. Planned Generating Capacity 5. Installed Capacity on the Interconnected System 6. Loads on the Interconnected System 7. Load and Capacity on the Interconnected System 8. Suummary of Consumer Tariffs 9. Tariffs for the Purchase and Sale of Electricity by TAVANIR 10. RECs, Balance Sheets and Income Statements 11. TAVANIR Organization 12. The Karun Project 13. Training Requirement at TAVANIR 14. Cost Estimates for 400 kV and 230 kV Transmission 15. Estimated Schedule of Disbursements 16. Energy and Load Forecast 17. Project Internal Financial Rate of Return 18. Actual and Forecast Balance Sheets, TAVANIR 19. Actual and Forecast Income Statements., TAVANIR 20. Sources and Applications of Funds, TAVANIR 21. TAVANIR Sales Forecast and Fuel Prices MAP -- IRAN, National Transmission System APPRAISAL OF 40o kV AND 230 kV TRANSMISSION PROJECT IRANIAN ELECTRIC POWER GENERATION AND TRANSMISSION COMPANr (TAVANIR) IRAN SUWMARY AND CONCLUSIONS i. This report appraises a project consisting of 400 kT and 230 kV transmission facilities in Iran for which a Bank loan of US$51 million equivalent is proposed, to cover the estimated foreign exchange cost of materials, equipment and services for a project estimated to cost US$75 million equivalent. This would be the second power loan to Iran; the first loan was mads in 1971 for distrib,tion facilities in the city of Tehran and is proceeding satisfactorily. ii. The proposed loan would be made to Iran, the Plan Organization acting as the Government agency for this purpose. The execution of the Project would be the responsibility of the Government-owned Iranian Electric Power Generation and Transmission Company (TAVANIR), which would receive the proceeds of the loan from the Government on the same terms as the Bank loan. TAVANIR is responsible for power generation and transmission in the public power sector, except for hydroelectric power generation of the Regional Water Authorities which it purchases, currently accounting for about 30% of national electricity production. TAVANIR sells its entire power production to the nine Regional Electricity Companies for distribu- tion and to bulk power customers. TAVANIR has the responsibility for system planning of power transmission and thermal power generation. iii. TAVANIR, formed in 1969 as a result of aoquiring generating and transmission facilities from the Regional Electricity Companies, is a new organization with few experienced managerial and technical personnel. In order to implement its large expansion program, it is using foreign con- sultants to support its staff and plans an extensive training program based on expatriate technical assistance. In addition the Ministry of Water and Power will initiate a training center in 1972 for the power sector which will become a source of operation and maintenance personnel for TAVANIR. iv. Eleetricity generation in the public sector grew at an average of 31% annually during the period 1967-70, this rapid growth being partly due to transfers from the private sector. About 2000 MW of generation is under construction and the national transissdion system is to be expanded to all Provinces by 1976 to meet the publio sector load growth through 1977, forecast at an average rate of 18% annually. v. As part of this expansion program, the Khuzestan Water and Power Authority is constructing the 1000 MW Reza Shah Kabir (Iarun) hydroelectric plant on the Karen River, the output of which is to be sold to TAVANIR. The proposed loan would finance the transmission for - ii - this plant, consisting of a total of 845 km of single-circuit 400 kV transmission lines from Karun to the cities of Arak, Esfahan, Ahwaz, and Omidieh, and associated substation facilities. The proposed loan would also finance 206 km of double-circuit and 77 km of single-circuit 230 kV transmission lines to connect the systems near Shiraz in Fars Province to the interconnected system. Substantial training would be included in the loan. vi. Foreign and local engineering consultants have been engaged for the Project and detailed design is in progress. Construction is scheduled for the period 1972 to 1975. Procurement would be on the basis of international competitive bidding. Iranian suppliers would be permitted to compete on the basis of a preference of 15% or customs duties, ihichever is the lower. The Project has no adverse environ- mental aspects. vii. Diring the construction period of the Project (1972-1975) TAVAMIR's financing requirements of some R1s 29.2 billion (US$382 amifion equivalent) would be provided 33% from internal cash generation, 54% from Plan Organization, the instrument through which Govern ent funds and foreign assistance are disbursed, and 13% from the proposed Bank loan. This is a satisfactory plan. viii. The internal financial rate of return for the Project is approximately 21%. ix. The proposed loan would support the sound development of TAVANR and, together with Loan 716-IIIN, continue Bank support of sound organizational and financial evolution of th power sector. x. The proposed Project would be suitable for a Bank loan of US$51 million equivalent for a term of 20 years including a grace period of 4 ;years. APPRAISAL OF 40o kV AND 230 kV TRNSMISSION PROJECT IRANIAN ELECTRIC POWER GENERATION AND TRANSMISSION COMPANY (TAVANIR) IRAN 1. INTRODUCTION 1.01 The Ministry of Water and Power, which is responsible for the public power sector in Iran, has asked the Bank for a loan of US$51 million equivalent to cover the foreign exchange requirement for a pro- ject estimated to cost US$75 million equivalent. The Project would form a part of the power development program of the Iranian Electric Power Generation and Transmission Compary (TAVANIR), estimated to cost US$382 million equivalent in the period 1972-75, the construction period for the proposed Project. 1.02 The proposed loan would help finance the first extra-high- voltage transmission in Iran, a 400 kV system transmitting to four load centers the output from the Ehuzestan Water and Power Authority's 1000 MW Reza Shah Kabir (Karun) hydroelectric plant which is under construc- tion on the Karun River in Ehuzestan Province with French financing and first power production scheduled for 1974. This plant and the associated transmission system are essential to supply the rapidly-growing load on the interconnected power system. The loan would also finance 230 kV transmission facilities connecting the existing facilities in the Shiraz area of Fars Province to the main power systez. The Project would include personnel training. 1.03 In view of the absence of the necessary legislative authority for the Government to guarantee loans to an agency such as TAVANIR, the proposed loan would be made to Iran, the Plan Organization acting as the Government's agent for this purpose. The Plan Organization, which is Iran's national planning agency, has responsibility for programming, allocating and channeling funds for the public sector. The Government would, in turn, relend the total prooeeds of the loan to TAVANIR on the same terms. 1.0h This would be the second loan for electric power facilities in Iran. In June 1971 Loan 716-IRN for US$60 lillion equivalent was made to the Tehran Regional Electricity Compary (TREC) for expansion of the Tehran distribution system. The project is proceeding satisfactorily; considerable equipment has been ordered and the construction phase has commenced. In 1960 Loan 247-IRN for US$42 million equivalent was made to the lhuzestan Water and Power Authority (WPA) to assist the financing of the multipurpose Mohammed Resa Shah (Dez) dan, which included power development. 1.05 This report was prepared by E.A. Hoore and G. Prenoveau on the basis of a mission to Iran in Septembor/October 1971. - 2 - 2. THE POWER SECTOR General 2.01 Iran has a population of about 30 million, of which one quarter live in cities of 100,000 or more inhabitants and most of the remainder wherever cultivable land and water are found. The Iranian economy has been growing rapidly, at an average annual rate of slightly more than 10% since 1964. Per capita incomes are now at the US$350 level. This growth has been based on rapid development of Iran's principal natural resources -- oil and gas -- and on increasing industrialization of the economy. Manu- facturing activity has been increasing since 1964 at about 1% per annum. Present expectations are that the economy will continue its recent pace of expansion. Demand for electricity should thus also continue to grow about as rapidly as in the past. Sector Organization 2.02 The present sector organization has evolved over the last decade. The electric power industry, which originated as small municipally or privately owned power companies and generating plants associated with industries, has only been consolidated since the mid-1960's. In 1963, the Iranian Electricity Authority was created under the supervision of the Plan Organization; in 1964, the Ministry of Water and Power (the Ministry) was formed to consolidate the activities of existing water and power authorities; and in 1965, the electric power industry was nationalized. By 1967, the end of the Third Plan, most of the country's installed generating capacity, except for captive industrial plant, was under the jurisdiction of the Ministry. 2.03 Annex 1 shows in outline the organization of the Ministry and its Power Division; it also shows the companies within the power sector which come under the authority of the Ministry, including: (a) TAVANIR, the generation and transmission company; (b) nine regional electricity companies (RECs) engaged mainly in power distribution; (c) three water and power authorities (WPAs) which have a primary function of river management but which also generate hydroelectric power for resale to TAVANIR; one of these, Khuzestan Water and Power Authority (KWPA), also distributes power within the province of Khuzestan; (d) three Water Boards which have a primary function of municipal water supply but which may also generate hydro- electric power for resale to TAVANIR; I (e) SATC.AB, which acts as the purchasing agent for -the 4 other Ministry companies; (f) an auditing and inspection company; and (g) an engineering company which has been established recently to provide consulting services to the operating companies. 2.o4 These comDanies fc^io, largely as operating divisions of the Ministry which contrn.z t,ce by holding their entire share capital, and appointing their hcards o~f Directors and Managing Directors. The Ministry currently sets the aarif>et which the operating companies purchase and sell power, allocates finarn:ial resources, and coordinates t-he planning and design of the new sy*tpm facilities. 2.05 Overall financial alanning of the sector, which is done at the Ministry, has not been satAisfactory. Until recently there was no uniform system of accounts and it was extremely difficult to consolidate in a meaningful fashion the financial and operating statements and forecasts which originated in the sector companies. A uniform system has now been introduced, but its implementation in some of the companies has been slow and the full benefit, of the new system will not be realized for some time. Another difficulty has been the slowness with which financial statements have been produced in the majority of sector companies. Moreover, the sector companies have had difficulty in determining the value of their fixed assets, these being often considerably understated because of inadequate accounting procedures. Corrective steps are being taken, however, mostly in connection with Loan 716-IP.N, and reasonable progress is being made in the implementation of proper procedures. 2.06 The present sector organization is an outgrowth of the history of the power sector, which is summarized in Annex 2. The Ministry has decentralized the sector by establishing separate companies to handle appropriate functional and regional matters but to date has not delegated the full responsibilities for these matters to the companies. This situa- tion and the relations between the Ministry and the sector companies were a matter of central concern when Loan 716-IRN was negotiated in September 1970. The Ministry agreed to review the power sector organization and to discuss it with the Bank by December 1971. 2.07 Since the last loan, the Bank has followed closely the develop- ment of Iranian thinking on these problems, particularly in its dealings with TAVANIR, the beneficiary of the proposed loan, and TREC, the company responsible for distribution in Tehran which was the object of Loan 716-IRN. These two companies, which are by far the largest sector companies 1/and account for the bulk of the construction, revenues and expenses, reflect the problems of the sector companies. Broad discussions of sector organiza- tion were also held with the Ministry of Water and Power in July 1971, during which Bank staff emphasized the necessity of strengthening the regional 1/ Excluding KWPA, the multipurpose company operating in the province of Khuzestan. companies, in particular TAVANIR, which to some degree was being relegated to a solely operational role instead of being given responsibility for the broad function of system planning as well as operations, normally carried out by national generation and transmission companies. 2.08 The Minietry' s positln was that the soctor should continue to be decentralized, Z*ctioniag under the general direction of the Ministry. But within this framework, it endorsed the necessity of inproving certain Ministry operations and of increasing the role and responsibility of sector companies. The Ministry policy emerged as follows. 2.09 Since KWPA and other regional multipurpose companies have the responsibility of exploiting Iran's water resources in the interest primarily of irrigation and area development, power generation being sub- sidiary, these companies would continue to construct and operate multi- purpose projects independently of TAVANIR but would sell most of their power output to TAVANIR, which would transmit and market it. The Multi- purpose Karun hydroelectric project would accordingly belong to KWPA, which is constructing it, and the 400 kV transmission from Karun would be the property and responsibility of TAVANIR. 2.10 Comprehonsive planning of thermal power generation and system transmission, formerly a function of the Ministry, would be transferred to TAVANIR. During loan negotiations, it was confirmed that this transfer had been accomplished. The Ministry will continue to be responsible for broad energy policy, particularly matters relating to the natural gas industry such as the routing of pipelines and relationships with private gas enterprises, which could affect power planning, for example, the location of thermal stations and the development of multipurpose hydroelectric projects. 2.11 The impact of TAVANIRts operations on the tariff structure and revenues of the entire power sector was recognized, with TAVANIR generating power, purchasing it from the multipurpose regional companies, and selling it to all nine sector distribution companieo. The Ministry is accordingly addressing itself to the rationalization of sector tariffs and sector finances. As noted in paragraph 6.03, in 1970 the Ministry initiated changes in these tariffs. 2.12 The proposed loan would support improvements in sector organiza- tion within the framework of the existing decentralized system, and also improvement in TAVANIR's organization and operation. Sector Facilities 2.13 Twenty years ago, the generating facilities in Iran consisted of small steam, diesel and hydre units supplying wany separate distribu- tion systems throuighout the country. In 1971, the installed major gene- rating capacity on the public systems, now largely interconnected, was 1648 Mw comprising 723 MW thermal, 131 MW of gas turbines and 794 MW hydroelectric generation (Annex 3). All hydroelectric facilities belong to the Regional Water AuthJ dt&*. -5- a 2.14 The 3063 MW of additional generating capacity planned by the Ministry for the public sector through the Fifth Plan (1973-77) is shown in Annex 4. The most notable projects are the 1000 MW Karun plant and the 292 MW Ahwaz gas-fired thermal plant located in the petroleum fields of Khuzestan Province, both scheduled for first power production in 1974. The Ministry has indicated that all these projects have been initiated except the gas turbines scheduled for 1972-73 and the 400 MW Second Karun hydroelectric project scheduled for 1977. A further study which the Ministry is undertaking may indicate a need for additional thermal generating capacity by 1977, instead of the Second Karun hydroelectric project, to ensure an adequate energy supply. 2.15 Transmission will be added through the Fifth Plan to extend the interconnected system as shown on the Map. Through the Fifth Plan period the main load centers will be interconnected in accordance with the follow- ing schedule. Year of Interconnection Main Load Centers Added to the Interconnected System 1971 - Tehran., Arak, Ahwas, Omidieh (existing interconnection) 1973 - Tabriz 1974 - Esfahan and Shiraz 1975 - Kerman 1976 - Mashhad Annexes 5 and 6 give the capacities and loads, respectively, on the inter- connected system as it is extended year by year. 2.16 All new transmission, including the various system interconnec- tions will be owned and operated by TAVANIR. However KWPA now owns the 230 kV transmission associated with the Dez project (para. 1.C4). Since in future KWPA will be dependent on TAVANIR to transmit some of the Karun power through the TAVANIR 400 kV system to supply KWPA loads, problems would arlse from having two bulk-supply utility transmission systems in the same area. During negotiations, the Iranians agreed that the ownership of 230 kV transmission forming part of the interconrected system would be transferred to TAVANIR by May 319 1974 with KWPA retaining ownership of the hydroelectric plants and the subtransmimsion/distribu- tion facilities (para. 2.09). Sector Finances 2.17 The investment program for the sector and its funding are formulated by the Ministry and Plan Organization. The funds are provided by the Plan Organization and from the sector companies' cash generation and are administered by the Ministry. - 6 - 2.18 Plan Organization financing has been predominantly for foreign exchange expenditures and the funds have traditionally been made avail- able as equity, although to a considerable extent they originate from suppliersl credits and other foreign financing. At the end of 1969 the debt/equity ratio for the sector ao a whole was only 22/78, reflecting the fact that the Government has been incurring debt on behalf of the sector companies but that the debts and the related interest coats have not been passed on to the utilities. The Plan organization proposes to pass on these funds as debt at a minilmu of 6% interest beginning in 1973 with the Fifth Plan, but with a five-year grace period for principal and interest so that the debt service on such loans would begin only in the Sixth Plan period. During negotiations the Bank was advised that a proposal to this effect is currently being considered by the Iranian Government in the context of the legislation to be enacted for the Fifth Plan (1973-1977). The Bank has written to the Iranian Government endorsing the general principle of Plan contributions to the sector being made in the form of debt. 2.19 The sector tariffs for the sale of electricity to consumers have been in force since Deceeb r 1969 (Annex 8). They appear to be well structured., with minium demand charges and special peak hour energy charges for large consumers. According to existing data, which are not entirely reliable (para. 2.05), the sector as a whole registered rates of return of 11% and 13% on investment 1/ during 1968 and 1969, respectively. 2.20 The latest eastiate of investments in the power sector during the Fourth Plan, 1968-72, shows that the sector companies will provide from internal cash generation about 30% and the Plan Organization about 70C, of a total of Rls67 billion (US$876 million equivalent) planned investments. 2.21 The power sector investment program has not yet been finalized for the Fifth Plan, 1973-77 (para. 2.14). However, construction expendi- tures alone are ourrently estimated at about US$1.3 billion equivalent. Of this total, the sector companies are expected to generate about 5O%, but this estimate is very preliminary. 1/ The rate of retmrn on investment is equal to net operating income after taxes as a percentage of average net fixed assets in opera- tion plus a working capital allowance consisting of 2% of average net fixed assets in operation and 124% of annual cash operating expenses. - 7 - 2.22 The annual budgets of the sector companies have on the whole been quite inadequate for planning and control purposes, those for 1971 consisting in some cases of two figures, namely total revenues and total expenses. As a consequence no meaningful consolidated budget is yet available to the Ministry for the sector. It would be unrealistic to expect proper budgets until the uniform system of accountz is implemented in all sector companies (para. 2.05). 2.23 In view of the Government's complete control over the finances of TREC and TAVANIR and in view of the interrelationship of TAVANIR, the power supply company, with the rest of the sector, the Bank has a direct interest in sector finances. During negotiations, the Iranians signified their intention to supply the Bank regularly information relative to the financial conditions and projections of the Regional Electricity Companies. Sector Training 2.24 A much-needed vocational training center for the power sector is to be inaugurated in 1972 in Tehran. The curriculum, textbooks, teaching- aid material and the initial training staff are being provided by Philco- Ford, under a US$1.5 million contract with the Ministry, which expires at the end of 1972. Thereafter the Ministry plans to maintain a group of expatriate utility advisers at the center until at least the end of 1975. The center will be permanently manned by Iranians and will prepare technicians for operating and maintenance positions in TAVANIR and the Regional companies. In addition, a Ministry survey is now underway to establish the training requirements for all sector companies for a five-year period in the areas of generation, transmission, distribution and communication. Sector Development Studies 2.25 During negotiations, the Iranians indicated that the Ministry plans to undertake, from its own financial resources, two sector develop- ment studies recommended by the Bank on the occasion of a comprehensive preinvestment survey mission conducted in May 1971 in conjunction with the UNDP. The first study is for the preparation of a power system development program for the Sixth Plan and the second is for further standardization of operations and engineering practices. -8 8 3. THE BOR)OWER 3.01 TAVANIR was established in 1969 as the national power generating and transmission agency. Because of the considerable growth projected in power demand, TAVANIR will expand very rapidly during the next few years. By 1977, within which time the Project will have been completed, its assets will have increased to 6 times and its sales to 7 times their 1970 level. Because existing hydroelectric plants are part of multipurpose facilities, with first priority given to irrigation, the policy of the Ministry is to have such facilities owned, constructed and operated by the various regional water and power authorities (para. 2.09). TAVANIR's generating capacity is thus now entirely thermal, and will remain so. Organization 3.02 The Ministry controls TAVANIR, as all other sector companies, very closely; TAVANIR functions autonomously only in its day-to-day operations. Control is exercised through the General Assembly of share- holders which elects the Board of Directors, the Managing Director and the Accounts Inspector. The Ministry holds all the outstanding shares of the company. 3.03 The General Assembly is cosposed of three persons, namely: the Minister of Water and Power or his delegate with two Deputy Ministers of the same Ministry selected by the Minister. It approves the budgets and the financial statements of the company; it decides upon policy with respect to disposal of earnings; it formulates the company's policy and operating program; it sets the remuneration for the Board of Directors, the Managing Director and the Accounts Inspector; and it approves the company's organization as well as the financial and employment regulations. 3.04 The Board of Directors consists of three regular members and one substitute, elected for a term of three years with no restriction on members being re-elected. The present Board consists of the Managing Director and his two Deputy Managing Directors. It functions as a manage- ment committee, directing and supervising the day-to-day operations. 3.05 The Managing Director is responsible for the financial, technical and administrative functions of the company, including implementation of employment regulations and preparation of the annual budget, balance sheet and operational plans. 3.06 TAVANIR is organized along conventional lines with planning, construction, operation, financial, and administrative functions head- quartered in Tehran, and with five operating divisions located in Tabriz, Ahwaz, Keriman, Mashhad and Tehran (Annex 11). TAVANIR has a total of about 1,300 employees, a reasonable size of staff. _ 9 _ 3.07 The present Managing Director assumed office at the inception of TAVANIR in 1969; previously he was Mmaaging Director of the Tehran Regional Electricity Company (TREC). His two deputies also came from TREC at that time. TAVANIR's management, which is acceptable, is actively tackling the problems associated with building a satisfactory organiza- tion. The higher management positions are currently filled except for that of Director of Finance which became vacant in April 1971; in view of the difficulties encountered in finding a suitable Iranian candidate for this position, TAVANIR has hired two financial advisers for a period of two or more years, during which time a national will be trained for the job. Submission of Terms of Reference for the duties of the financial advisers compatible with the needs of the situation would be a condition of signing of the proposed loan. 3.08 Given its recent formation, TAVANIR is still evolving func- tionally and continuing effort in necessary to improve the quality of existing staff and to engage suitable new staff. Based on the projected growth -- gross fixed assets will increase sixfold between 1970 and 1977 (para. 6.08) -- over the next five years TAVANIR plans to add some 2,000 employees, a reasonable staff expansion. 3.09 The training center established by the Ministry (para. 2.24) is intended to provide operating and maintenance employees for the sector companies. There is also a critical need for upgrading exist- ing operating and maintenance personnel to a level commensurate with the technological requirements and, on the financial side, to train accounting and administrative personnel in modern management techniques. TAVANIR has taken action to obtain initial support: personnel from an Indian consulting engineering company are advising on the operation of the new Shahriar thermal plant and engineers from Ontario Hydro have been engaged as advisers on maintenance of thermal plant, transmission lines, and system control equipment. An expatriate with wide utility experience has been engaged to advise on training matters. 3.10 In the short time since its inception TAVANIR has formed a basis for the development of its organization and procedures. However, in view of the existing weaknesses and the system growth envisaged, there is neod for further improvement in development. TAVANIR is therofore planning a program over the next six years to improve opera- tions, to develop appropriate management systems and to train personnel in these areas (para. 4.07 and Annex 13). Power Development Progam 3.11 The existing TAVANIR generating facilities are given in Annex 3. TAVANIR also purchases the output from hydroelectric plants owned by various water authorities. The main TAVANIR 230 kV system has a load of 800 MW, including 500 Ai in the Tehran area. A double-circuit 230 kV line interconnects this system with the KWPA system, which supplies a 300 MW load in Khuzestan Province (see Map). TAVANIR also supplies isolated systems in Xhorassan, Esfahan and Azarbeijan. _ 10 - 3.12 TAVANIR has in the design or construction stages the following thermal plantst Zarand 60 MW, Shahriar Extenaion 313 NW, Manjil 360 MW, Esfahan 120 MW, Mashlad 120 MW and Ahwaz 292 MW, aggregating 1, 265 MW, in addition to planned gas turbine installations. As outlined in paragraph 2.15, planming/construction of transmission lines is underway to extend and substantially complete the interconnected system by the end of the Fifth Plan, when it is indicated that TAVANIR will have to supply a total requirement of about 3000 MW. Annex 7 showa the power balance for the interconnected system for the period 1971-77, based on the new capacity planned and the interconneoted systes loads (Annexes 5 and 6). Annex 7 indicates that a substantial capacity shortage will occur in 1972 and that this shortage could extend through 1973 if gas turbines are not installed (para. 2.14). The major portion of the development program was established when the Fourth Plan was prepared, largely on the basis of the studies of a USAID-sponsored group of utility experts. In general, it appears to have been a well based plan. 4. THE PROJECT 4.01 The proposed Project would consist of the construction of 400 kV transmission facilitiea to transmit power from the Karun hydroelectric plant and 230 kV transmission to extend the interconnected syst>m to the Shiraz area, as well as staff training. The Project would be carried out in the period 1972 to 19W:. 4.02 In 1969, construction started on the multipurpose Karun project which will provide for irrigation, navigation and flood control, in addi- tion to its 1,000 MW power capacity. A description of the Karun facility is given in Annex 12. During loan negotiations the Government indicated that it expects to have the Karun hydroelectric plant in operatlon by May 31, 1974 and the schedule for the Project transmission facilities has been coordinated with this plan. 4.03 The ultimate power potential of the Karun River has been estimated at over 6,000 MW, some of which may not, however, be possible to develop on an economtic basis. Any future Karun River projects could be connected to the proposed 400 kV transmission system. The proposed 400 kV transmission forms part of a system development program that was jointly prepared in 1968 by the Ministry and Harza Engineering Company International (USA) to provide for interconnecting the power systems in Iran, thus permitting the developmeiit of major hydro sites and the installation of large thermal units. This 1968 study updated the earlier USAID-sponsored study (para. 3.12). 1400 kV Transmission 4.04 The 400 kV transmission portion of the Project would comprise 8h5 km of single circuit, steel tower, transmission lines extending in four directions from the Karun substation to Arak (280 km), Esfahan (255 km), Omidieh (165 km) and Ahwaz (145 km), with associated substations at these centers, each with 400 MVA of 400/230 kV transformer capacity, and engineer- ing services. The Ahwaz line would be scheduled for service in 1974 and the Esfahan, Arak and Omidieh lines for 1975. 230 kV Transmission h.o5 The 230 kV portion of the Project constitutes one stage in the program aimed at expanding the national system to connect all RECs. It consists of extending the existing 230 IV transmission facilities in southern Iran to Shiraz and Borazjan, thereby connecting to the inter- connected system the isolated Fare REC systems at Shiraz, Kazerun and Borazjan, now supplied by diesels and gas turbines. _ 12 2 4.06 The 230 kV transmission would oomprise double circuit, stsel tower, 230 kV lines from Gachaaran to Kazerun (113 km) and from Kazerun to Shiraz (93 ku); a single circuit, steel tower, 230 kV line from Kazerun to BorazJan (77 k1m) associated substations and engineering services. As the 230 kV transmission is an extension of a long 230 kV system, voltage control facilities would be provided and detailed studies are in progress to determine the requirements. The 230 kV transmission is scheduled for completion in 1974. Training 4.07 The Project includes training TAVANIR staff in the period 1972-1975 in keeping with its technological and financial requirements and the need to effect system and organizational improvements within TAVANIR. The plans for staff training at TAVANIR are described in Annex 13. During loan negotiations TAVANIR agreed to retain training consultants acceptable to the Bank to devise, implenent,and coordinate the training program, under conditions and terms of reference accept- able to the Bank. The proposed loan would include US$3 million to finance the foreign exchange cost of this training. Cost Estimates 4.08 The total cost of the Project is estimated at US$75 million equivalent. Details of the cost estimates for the 400 kV transmission and the 230 kV transmission are shown in Annex 14. They were prepared by the respective engineering consultants for the two transmission systems (para. 4.14). The original estimates were adjusted to reflect current price levels and a 5.5% Central Bank dharge on all imported material; foreign costs were increased by 15% to reflect the devalua- tion of the US dollar since the original estimate was prepared. To allow for design and construction uncertainties, a physical contingency of 10% for both local and foreign costs was allowed. Price contin- gencies of 16% for local costs and 8% for foreign costs were included in anticipation of expected annual price increases of 8% and 5%, respectively, in the cost of material, supplies and labor. The cost estimates are reasonable. - 13 - 4.09 The Project cost estimate is sumiarized as .'ollow8: Rls Millionts Ulqt Millions L LoTtal ' Total 400 kV Transmission Lines 841 1568 2409 11.0 20.5 31.5 Substations 108 604 712 4.h 7.9 9.3 Physical contingencies 92 214 306 1.2 2.8 4.0 Price contingencies 153 176 329 2.0 2.3 4.3 Engineering 99 100 199 1.3 1.3 2.6 Sub-Total 1293 2662 3955 16.9 34-8 51.7 230 kV Transmission Lines 245 382 627 3.2 5.0 8.2 Substations 137 437 574 1.8 5,? 7.5 Rhysical contingencies 38 84 122 a.5 1.i 1.6 Price contingencies 61 69 130 0.8 0.9 1.7 Engineering 31 38 69 0.L 0.5 0.9 Sub-Total 512 1010 1522 6.7 13.2 19.9 Training Program 31 229 260 0.4 3.0 3.4 Total Project Cost 1836 3901 5737 21±. C 51,0 75,0 Amount of Proposed Loan 4.10 The proposed loan amount of US$51 million equivalent is estimated to cover the full foreign exchange cost of the Project. The loan would represent 68% of the estimated total cost of the Project. Procurement 4.11 Procurement of goods financed by the loan would be on the basis of international competitive bidding, except for components which may be required to be compatible with existing equipment and minor items for which such bid- ding would be impractical; these exceptions should not aggregate more than US$1 miUion or 2% of the loan amount. Iranian manufacturers would be allowed to compete on the basis of a 15% margin of preference or the prevailing level 1/ If equipment or material manufactured in Iran is financed under the loan the estimated "foreign" cost would include Bome local expenditures. 14 of custom duties, whichever is lower. The matter of preferential customs tariffs does not arise because Iran is not a member of any trading bloc granting preference. 4.12 The sector purchasing company is responsible for most of the power sector purchases. However, since the Bank financed equipment is to be procured under international competitive bidding procedures, and since orders for other sector companies will not be combined with those of the Project, during loan negotiations agreement was reached that procurement for the Project would be carried out by TAVANIR. Disburselents 4.13 Disbursements would be made against the CIF cost of imported materials and equipment; the "ex-factory" cost, net of identifiable taxes, of orders placed in Iran; the foreign exchange cost of training services; and the foreign exchange cost of engineering services. No disbursements would be nade for expenditures made prior to the signing of the proposed loan. Any funds remaining in the loan on completion of the Project would be cancelled. Annex 15 shows the estimated schedule of disbursements by quarter. En§ineering Arranemnts 4.14 Engineering consultants have already been engaged by the Iranian for the two transmission projects. The engineering/construction super- vision contract signed in 1965 between KWPA and Harza Engineering Company International for the Karun hydroelectric project included the 400 kV transmission; the Ministry has assigned to TAVANIR KWPA's owner responsi- bilities under this contract for the 400 kV transmission. In 1969, the Ministry signed a contract with Commonwealth Associates Inc. (USA), for the engineering and construction supervision of the Shiraz 230 kV trans- mission system; TAVANIR is acting in the owner capacity. Both Harza and Commonwealth are associated with the same local engineering firm, F. & H.F. Farmanfarmaian, a well-established firm, which is also associated with Harza in the construction of the Karun hydro project. For both the 400 kV and the 230 kV transmission, the feasibility studies have been completed, design is in progress and specification preparation will commence soon. During loan negotiations TAVANIR agreed to retain engineering consultants satisfactory to the Bank throughout the construction period. 4.15 During loan negotiations it was agreed that administration of procurement for the Project, including bid document preparation and bid evaluation, would be under the supervision of the engineering consultants and that the contracts for the transmission lines would be let on a "supply and erect" basis with construction/installation supervised by the engineering consultants. - 15 - a Ecological Considerations 4.16 The 400 kV and 230 kV transmission lines will be constructed through mountainous, largely unpopulated areas in southwestern Iran and will not adversely affect the environment. _ 16 - 5. PROJECT JUSTIFICATION Load Forecast 5.01 over the four years, 1967-70, the average annual rate of national electricity production (public plus captive industrial) was over 17% while the public sector grew at 31% annually. It is estimated that the average national growth rate in energy sales for the period 1971-77 will be about 16% and that of the public sector 18%, in view of the following. 5.02 During 1971 an extensive survey of the electricity demands was made throughout the country. In all regiona except Tehran, Ministry personnel collected and reviewed historical load statistics, contacted samples of residential and coimercial customers to establish trends, ex- amined the potential requirements of all power customers and prepared a separate report on the historical and forecast loads for each region. For the Tehran region the load data compiled for the ongoing distribution project was used (Loan 716-flN). Annex 16 shows the forecast energy sales and peak loads for the public power systems. 5.03 One of the main reasons for the decline in the rate of growth of the public sector from 31% to 18% annually i8 that the transfer of the many small private electricity companies to the public sector is substantially completed. The following table shows the breakdown of the 1969 electricity sales of the public sector companies. Residenttial 642 OWl ( 24.8%) Commercial 493 GWh ( 19.1%) Industrial 914 0W ( 35.4%) Street-lighting 219 GWh ( 8.5%) Miscellaneous 316 (Mi ( 12.2%) Total Sales 2,584 GWh (100.0%) 5.04 Only 25% of the population of Iran now has electric service and, as the population is growing at 3% annually, there is a large potential residential market for electricity. The rate of development of this market is dependent on the extension of the transmission and distribution systems to the populated areas, the future average domestic income levels and the connection charge that is levied on new customers by the RECs. This charge, US$45 to US$75 equivalent, is high relative to the average per capita GNP of US$350 and tends to limit residential growth. This growth is estimated at 17% annually throughout the period (1971-1977). 5.05 The rate of growth for the commercial component is estimated at 13% annually throughout the period, reflecting the trend in Iran towards urbanization, with many office buildings, stores, hotels and wholesale outlets being built in the major cities. - i7 - 5.06 The forecast for the industrial component includes the impact in the period 1971 to 1977 of known major industrial loads, such as: Tabriz Tractor Company,, Tabriz Machinery Tool Company, Arak Aluminum Mill, Arak Machinery Company, Esfahan Steel Mill and four petrochemical plants. In this period growth in the industrial component is predicted to average 20% annually. The forecast growth rate for the street-light- ing component is 10% annually throughout the period. 5.07 Past rates of growth for national generation were 1.8 times the GDP growth. At the forecast average annual rate of growth of 16% for national electricity generation the oorresponding growth rate for GDP would be 9%, that is, slightly lower than the targeted future GDP growth rate of about 10% (para. 2.01). This suggests that the fo>re- cast growth of 16% annually for national demand (or 18% annually for the public sector demand) used for planning purposes, although clightly conservative, is reasonable. Minimum Cost Alternatives 5.08 In 1968, Harza Engineering Company International completed a study of the Karun River development, sponsored by the Ministry; in addition to examining the total Karun River power and irrigation pot eatial, a detailed feasibility study was made of the Karun (Reza Shah Kabir) project, including an economic comparison of altemative power sources. This study concluded that the 1000 MW Karen hydroelectric facility, including transmission, when combined with a complementary 300 MW thermal plant at Ahwaz (schedaled for 19741, Annex 4), would be more economic than developing 1300 MW of thermal capacity installed at Tehran and Ahwaz. 5.09 Subsequently, Harza Engineering Company International reviewed the comparative costs of voltages of 400 kV, 500 kV, 765 kV, and ± 375 kV D.C. for the Karun transmission system; 400 kV was found to be the most economic transmission voltage at discount rates above 5%. This analysis took into consideration the transmission necessary for full development of the Karon River power potential. The major advantage of 400 kV was found to be the gradual buildup of transmission capital investment as the hydroelectric projects are developed, oompared to 500 kV, 765 kV, or D.C., for which a much higher investment in under-utilized lines would be necessary initially, because transmission lines in four different directions are required at the onset of the Project to supply the varioas load centers. 5.10 During the planning of the future generation and the system interconnections (para. 4.03), the comparative costs of supplying the preaently isolated REC systems from local generation versus importing power from the main interconnected system were analyzed. In the case 18 of distant regions with indigenous fuel sources, such as Kerman Province (coal) and Khorassan Province (oil and gas), the minimum cost alternative 1/ was determined by the Ministry and its consult- ant to be the insEallation of local thermal generation in relatively small unit sizes combined with a single interconnection to the main system for reserve and operating advantages. In the case of the Shiraz system which will be supplied by the 230 kV transmission portion of the proposed Project, the most economic area supply was established by the Ministry and its consultant to be the installa- tion of local gas turbines until 1972 after which the production savings through imported supply from lower cost generation sources on the main system would support the transmission investment for the interconnection. In 1974, the available power supply at Shiraz will be only 68 Mw (Annexes 3 and 4), compared to a potential load estima- by the Ministry to be 81 MW (Annex 6), clearly indicating the need for additional supply in the area. The double-circuit 230 kV Shiraz transmission included in the proposed Project would solve the supply problem. Internal Financial Rate of Return 5.11 The internal financial rate of return for the proposed transmission Project is the discount rate at which the present worth of the associated 400 kV transmission, 230 kV transmission and train- ing costs, including capital and operating costs, is equal to the present worth of the revenues to be obtained from the sale to the RECs of Karan power transported over the Project facilities. Included in the transmission costs is a 230 kV line now under construction between Esfahan and Tehran which will transmit to other load areas the Karun power not required in southwestern Iran and is therefore related to the Project. The internal financial rate of return on this basis is approximately 21% (Annex 17). 1/ At test rates of discount which extend beyond the range of costs of capital in Iran. - 19 - 6. FINANCLAL ASPECTS 6.01 TAVANTRTs financial position and prospects must be considered in the context of its newness as a compan'r, the inexperience of its staff and the fact that in reality it operates as one of a number of financial units administered and coordinated by the Ministry. Thus, not only does it not have a record of financial operations to help plan for the future, but its future financial operations/position are to a considerable extent beyond its control, resting as they do on decisions made within the Ministry. For example, the Ministry controls the availability of developmeint funds and the level of tariffs for the purchase and sale of bulk power. It is largely within this framework, therefore, that TAVANIR's institution building objectives must be defined. 6.02 TAVANIR's accounting records were not satisfactory at the tine of the appraisal. Two reasons account for this situation. The first one is external and comes from the fact that the bulk of TAVANIR's assets were acquired from other sector companies which had not proper'y accounted for the value of these assets. The second one is internal anu stems from inad- equate procedures and lack of competent personnel at TAVANIR. Steps have been taken by the Ministry as well as by TAVANIR to improve the overall quality of record keeping. Some of the measures underway include a con- certed effort to identify and classify fixed assets, a sector-wide effort to institute materials and inventory management procedures, the adoption of a uniform manual of accounts and, in addition to the training program included in this loan, the hiring of consultants to act in the financial area for two or more years (para. 3.07). Progress is expected to be slow because of the shortage of competent personnel in Iran. During negotiations TAVANIR agreed to complete the evaluation of its assets and to bring its fixed assets records up to date within one year of the effective date of the proposed Loan. Tariffs for the Purchase and Sale of Electricity by TAVANIR 6.03 When TAVANIR began operation in 1969, a tariff of 0.70 rials per kWh was established for the sale of electricity to the RECs (as a "reason- able" price) pending a full study. In 1970, the Ministry initiated a number of studies of the tariffs at which TAVANIR purchases electricity from the WPAs and those at which it sells to the RECs. 6.04 These studies were carried out by the Harza Utility Management Company team.l/ The Ministry ruled that at the current stage of develop- 1/ In 1967, the Power Division of the Ministry under a grant from USAID contracted the Harza Engineering Company International (USA) to recruit a team of management specialists from US utilities to work as advisers under the direction of the Ministry. The role of this team (originally about 20 individuals, recently increased to 35) has been important in carrying out some of the recammendations of another AID-sponsored manage- ment consulting group. The Ministry has recently extended Harza's con- tract from the end of 1971 to the end of 1972. This extension will also be financed by USAID. _ 20 - ment of the electric industry the return to be employed in setting tariffs should be limited to a weighted average return alightly over 6% on a rate base made up of average net fixed assets in operation and a working capital allowance. This was, and continmes to be, recognized as being out-of-line with the present-day cost of money. Nevertheless it is felt that this objective would suffice for the present. As the many factors influencing reductions in operating costs and increases in operating efficiencies are realized,.the matter of return would again be studied with a view to establishing tariffs which more closely reflect the real cost of money. Tariffs covering the bulk of existing loads were thus approved and put in force on March 21, 1971 (Annex 9); studies are in progress for the remainder of the system. The revised tariffs were developed from data which in some instances had to be estimated because of incomplete company records (para. 6.02); nevertheless, they represent a substantial improve- ment over the old tariffs, Whereas under the old tariffs all sales were on a kWh basis, the revised tariffs included a dual charge for demand and energy, an arrangement which will promote more efficient use of resources by the RECs. They are about 10% higher than the old ones and are providing a much needed increase in TAVANIR revenues (para. 6.13) without, however, affecting seriously the financial position of the RECs, which, in the aggregate, will still obtain a higher return than TAVANIIR. 6.05 After 19741, TAVANIR will be buying substantial amounts of power from KWPA's Karun hydroelectric plant. However, because costs for this power have yet to be determined, as mentioned in para. 6.12 the projec- tions included in this appraisal are based on the existing tariff for sales of power from the Dez hydroelectric plant. During negotiations the Borrower agreed to set rates aatisfactory to the Bank for the sale of electricity by KWPA to TAVANIR not later than May 31, 1974, the scheduled in-service date for the Karun hydroelectric plant. 6.06 In addition to its purchase (para. 6.05) TAVANIR will be trans- porting energy for the account of KWPA from the Karun hydroelectric plant to the transmission network of KWPA, a service for which TAVANIR should be compensated. Because this is a new feature in Iran and no relevant tariff for this service exists, the revenue which will eventually accrue to TAVANIR was not included in the projections of this appraisal (para. 6.12). During negotiations the Borrower agreed to ensure that compensa- tion arrangements satisfactory to the Bank will be established not later than May 31, 1974. Financial Position, Current and Forecast 6.07 At the time of the appraisal, TAVANIR had not issued financial statements for 1970, and indeed audited statements are not yet available (para. 6.18). Preparation of these statements had been delayed because of difficulties in determining the value of the company's fixed assets, particularly those acquired from other sector companies (para. 6.02). However, with the help of the Ministry's consultants, appropriate estimates were prepared for incorporation in the 1970 statements included in Annex 18. - 21 - 6.o8 TAVANIR's gross fixed assets in operation, which at the end of 1970 are estimated at Rls9.1 billion (US$118.7 million equivalent) (para. 6.07), are forecast to reach Rls50.8 billion (US$664.7 million equivalent), by the end of 1977. 6.09 The ratio of current assets to current liabilities, which was 1.5 at the end of 1970, is expected to average 1.8 in the period 1971-1977. Trade receivables, which represented the equivalent of one month sale at the end of 1970, are projected to remain at the same level in the period 1971-1977. The inventory of materials and supplies, which represented 2.1% of gross fixed assets in operations at the end of 1970, is projected at 2% on the same basis in the period 1971-1977. 6.10 The following table summarizes the year end capital structure for 1970, 1971, 1974 and 1977: Millions of Rials Fiscal Year 1970 1971 1974 1977 Government Bquity 12,330 19,352 24,689 24,689 Surplus & Reserves 225 727 4,612 11,990 Sub-total 12,555 20,079 29,301 36,679 Long-Term Debt Proposed IBRD Loan - - 3,339 3,463 Proposed Plan Organi- zation Loans - - 8,655 12,359 TREC Loans 148 323 290 290 Sub-total 148 323 12 284 16 112 Total 12,703 20,402 ____ 9 6.11 The table shows that TAVANIR's capital structure would shift from virtually 100% equity in 1970 to a mix of 30% debt and 70% equity sometime in 1974 and would remain at that level to the end of 1977. This change would occur mainly because of the proposal of Plan Organization to switch from equity to loan contributions to sector companies effective 1973 (para. 2.18). Retained earnings would represent about 23% of the total capital structure in 1977. Current and Projected Operations 6.12 TAVANIK has been in operation for less than two years and its recorded experience is not a significant guide for future planning. The Income Statements presented in Annex 19 for 1970 through 1977 are based largely on Iranian experience in other parts of the sector. For this reason, as well as because TAVANIR was without a Director of Finance at the time of the appraisal (para. 3.07), these projections were coordinated by the Ministry. Sales are the product of load forecasts 1/ at existing 1/ Annex 21 reviews the sector and TAVANIR load forecasts and fuel prices. - 22 - tariffs; expenses are the result of manpower analyses, expected trends in levels of remuneration, planned upgrading of personnel, stepped-up main- tenance of transmission equipment, and the anticipation of lower unit cost of fuel due to the use of larger, more efficient generating units. Depre- ciation has been calculated on a straight-line basis at rates commensurate with the estimated lives of the assets and conforms to utility practices. TAVANIR agreed during negotiations that existing depreciation rates would be maintained. Purchased power, which after 1974 will include substantial amounts from KWPA's Karun hydroelectric plant, has been calculated at exist- ing tariffs without taking into consideration the eventual cost and charac- teristics of the Karun hydroelectric plant output (parm. 6.05). Similarly the current forecast does not include the revenues to which TAVANIR will be entitled for transporting energy for the account of KWPA from the Karun hydroelectric plant to the transmission network of KWPA (para. 6.06). Correction for these last two factors would improve TAVANIR's estimated performance slightly in the period 1974 to 1977. 6.13 TAVANIR's rate of return on its average net plant in operation plus a working capital allowance was 1% in 1970. 1/ However, with the tariff increase which became effective at the beginning of 1971 (pars. 6.03 and 6.04) this return is expected to reach about 5% in 1971 and 6% or more in the remainder of the forecast period, except in 1974, when it would be between 5% and 6%, because the timing with which the new fixed assets are put in operation in that year does not permit a proportionate annual growth in the sales of energy. In the period 1972-77 internal cash generation is expected to provide over 46% of TAVANIR's total financing requirement. In view of the large amount of development funds which would be internally generated, a 6% rate of return is considered satisfactory for that period. During negotiations, TAVANIR agreed to maintain tariffs sufficient to provide an annual rate of return of not less than 6% until March 1978, and to review with the Bank the need for a higher return at the latest by March 31, 1978. 6.14 At present, because TAVANIR receives only equity financing from the Government, its debt service is minimal. With the proposed switch by Plan Organization from equity to loan financing (para. 2.18), and the beginning of the amortization of the proposed Bank Loan, TAVANIR's debt service would be covered approximately 3 times by its net income after tax but before depreciation and interest in the period 1978-1983. The debt service coverage may go down as TAVANIR becomes dependent on loan financing to carry out future expansions, and could be further reduced by a change in policy which now permits the reinvestment of income in the business or by a change in the present import duty exemption (para. 2.19). During negotiations, TAVANIR agreed, that during the life of the proposed loan, it would not incuw any debt other than to carry out the Project, 1/ See note 1, page 6. - 23 - unless its income after tax but before depreciation and interest of the previous year covers its maximum future debt service at least 1.5 times. 6.15 The ability of TAVANIR to carry out the proposed construction program depends to a great extent on Government financing and on condi- tions such as income tax and import duty exemptions and interest-free loans, which are under the control of the Government rather than TAVANIR. During negotiations, the Borrower agreed to provide TAVANIR with funds which may prove necessary to owoplete the project. Financing Plan 6.16 The TAVANIR financing plan for the Project's construction period (1972-1975) is summarized in the following table: 1972-1975 Financing Millions of Rls Sources of Funds Internal Cash Generation (net) 9,546 33 Plan Organization - Equity 5,021 17 Loans 10,779 37 Proposed IBRD Loan 3,901 13 Total ,47 Application of Funds Construction - IBRD Project 5,477 19 - Other Projects 22,929 78 Net Increase in Working Capital 841 3 Total 29,247 IOO 6.17 Annex 20 shows the financing plan for the forecast period 1972- 1977. In that period, Internal Cash Generation, Plan Organization Contri- butions and the Proposed Bank Loan contribute respectively, 46%, 44% and 10% of total cash requirements. Bearing in mind the comments which appear in paras. 6.13 to 6.15, this plan is satisfactory. Audit 6.18 TAVANIR's operation covered only 7 months in 1969 and as a result it was exempted by the Ministry from submitting financial statements at the end of that year. For 1970, difficulties were encountered in accounting for fixed assets (para. 6.02) and the annual statutory audit which must be performed each year by the Government's auditing company has not been com- pleted. It has therefore been impossible to obtain any form of certified financial statements in conjunction with the analysis of TAVANIR's financial operations. However, TAVANIR has recently appointed independent auditors 24 - satisfactory to the Bank and has agreed to confirm in writing before signing the proposed Loan that the audit of its financial statements for the year ended March 20, 1972 is underway and that audited statements will be sub- mitted to the Bank promptly. TAVANIR also agreed during negotiations to retain independent auditors satisfactory to the Bank and to submit audited accounts to the Bank each year during the life of the proposed Loan. - 25 - 7. AGREEMENTS REACHED AND RECOMENDATIONS 7.01 During negotiations the following agreements were reached: a) the Borrower will relend the proceeds of the Loan to TAVANIR on the same terms (para. 1.03) b) the 230 kV transmission presently owned by KWPA will be transferred to TAVANIR by May 31, 1974 (para. 2.16) c) the Borrower will supply the Bank with financial information on other sector companies (para. 2.23) d) TAVANIR will employ consultants satisfactory to the Bank to prepare, coordinate and implement its training program (para. 4.07) e) TAVANIR will administer procurement for the Project and contracts for the transmission lines will be let on a "supply and erect" basis (para. 4.12 and para. 4.15) f) TAVANIR will employ engineering consultants satis- factory to the Bank for the engineering, procurement and construction supervision of the Project (para. 4.14 and para. 4.15) g) TAVANIR will update its fixed assets records within one year of Loan effectiveness (para. 6.02) h) the Borrower will, by May 31, 1974, set rates for the sale of Karan power to TAVANIR and establish compensation arrangements for the transport of Karun power for KWPA (paras. 6.05 and 6.o6) i) TAVANIR will maintain existing depreciation rates (para. 6.12) J) TAVANIR will maintain tariffs to provide a rate of return of at least 6% until March 1978, and before that date will review the need for a higher return (para. 6.13) k) TAVANIR will not incur debt unless its income after tax but before depreciation and interest covers its maximum debt service at least 1.5 times (para. 6.14) - 26 - 1) the Borrower will provide funds if necessary to complete the Project (para. 6.15) u) TAVANIR will retain independent auditors and will subuit audited accounts comencing with the year ended March 20, 1972 (para. 6.18). 7.02 In addition, during negotiations, TAVANIR agreed to provide the Bank as a condition of signing the proposed loan: a) terms of reference for financial advisers, acceptable to the Bank (para. 3.07) b) confirmation that the audit of its financial statements for the year ended March 20, 1972 is underway and that audited statements for that year will be submitted promptly (para. 6.18). 7.03 The Project forms a suitable basis for a Bank loan of US$51 million, for a term of 20 years including a 4-year grace period. May 25, 1972 0 z~~~~~L I U 0 z l -z - --------------------------------------------H I .3NN- ANNEX 2 Page 1 of 2 IRAN HISTORY AND ORGANIZATION OF_THE POWER SECTORI' 1. Since 196% the Ministry of Water and PowerA has been responsible for the public power sector. Historically, electricity facilities whether owned by municipalities or in private hands were small in scale. One reason for the late start in the organization of larger power systems was that the distribution of oil at low price was well organized throughout the country, Making it rela- tively simple and cheap for industrial enterprises to provide their own diesel- electric generating capacity. In the late 1950's the PLAN Organization initiated a power development program which included three large hydroelectric facilities but it was only in the Third Plan period, 1963-67, that there was a systematic attempt to organize the industry. 2. Tn 1963 the Iranian Electricity Authority was created as the first autonomous organization responsible for the electric power sector. Subsequently, it was decided that an organization at the ministerial level with wider authority and broader functions was needed to develop and administer the electric power industry and the Ministry of Water and Power was created in 1964 to super- vise electric power operations and direct the basic activities of the industry. 3. In 1965 legislation was enacted to nationalize the electric power industry, it being deemed impractical to develop and expand facilities according to a national plan if they remained largely in the hands of municipalities and private interests. By 1967, the end of the Third Plan period, most of the country's installed generating capacity was already under the jurisdiction of the Ministry, Concurrently, expansion of generation and transmission facilities was initiated on a large scale. During the Third Plan generating capacity was increased from 400 MW to 1,300 MW; the generation of electric energy increased from 1.9 billion kWh to 4.3 billion kWh annually, and transmission facilities were provided to make a start on establishing an interconnected power system. 4. Appropriate credit must be given the Iranian authorities for the initiatives taken and for large-scale expansion of the sector on a planned basis. In the process, a number of companies were established, under the authority of the Ministry, each responsible for power operations in the region or province in which it was located. Eleven such companies were created between 1965 and 1967. In turn associated service companies were formed. These include a pur- chasing company which acts as purchasing agent for the operating companies, Qoarticularly in the making of bulk common purchases, and an auditing company to perform an auditing and inspection role on behalf of the Ministry. A generation and transmission company (TAVANIR) was established in 1969, responsible for all generation and transmission in the public sector. The regional companies are now iZ-ced to distribution only. Tn 1971 the Minister established a company to provide consulting/engineering services for the operating companies. 1/ From PUPD Report "Appraisal of Tehran Power Distribution Project"l of October, 1970. 2/ The Ministry of Water and Power is responsible not only for power but for water resources including irrigation. ANNEX 2 Page 2 of 2 5. The Ministry has built up its own forces in the administrative, engineering, financial and regulatory fields (Annex 1). The Power Division of the Ministry with some 200 emPloyees, administers the power sector under the direction of a Deputy Minister. The comDanies under its jurisdiction employ about 12,500 persons. 6. The power sector is becoming more complex because of the proliferation of companies within it and their increasing size, and serious difficulties are apparent in its administration. The individual companies have limited autonomy in many important phases of their operations, and in fact function to a con- siderable extent as operating divisions of the Ministry. The planning and engineering of new facilities, the allocation of financial resources to specific projects, the setting of the tariffs at which the distribution companies pur- chase and sell power, are all functions of the Ministry. The Ministry's staff cannot prooerly fill this managerial role, but functions largely in an advisory capacity with respect to the operating companies, a situation which results in duplication of staff and unclear division of responsibilities. In any case it would be difficult for a Ministerial organization, lacking a legal corporate status, to function as a management entity in the sense required. 7. Tn the planning and design of new installatJ ons the problems des- cribed are compounded by the manner in which consultants are used. They are usually hired by, and made responsible to, the Ministry. In the last few years this has been on the basis., to a considerable extent, of individuals being made available by the consulting firm to assist and advise the Ministry, rather than of engaging the consulting firm per se for an assignment under specific terms of reference and defined responsibility. As a result, consultants' work has frequently lacked a comprehensive approach to the problems under study. 8. The Iraniaas have sometimes not given appropriate weight to consul- tants' recommendations concerning sector organization. It was planned in 1963/64 to organize the sector on the basis of a regulatory authority and autonomous regional operating companies; the Bank sponsored a study by consul- tants to implement such a program. The concept of a regulatory authority was subsequently abandoned by the Iranians, the autonomy of the regional companies became only nominal, and the sector was organized by the newly-created Ministry (resulting in the Bank discontinuing the consultant's assignment half way through its course). In 1966/67 an AID-sponsored management-consulting group of U.S. utility executives reviewed sector organization and prepared a develop- ment program for the Fourth Plan. The most important recommendations on organ- ization were that the decentralized character of the sector should be discon- tinued, operations should be consolidated under a single autonomous company and a regulatory authority for supervision of tariffs and other industry matters should be established. While this recommendation was not accepted, some of the recommendations concerning the financial operations were. March 15, 1972 ANNEX :3 IRAN -NX PUBLIC POIER SECTOR INSTAIJI) GMEI¶ATING CAPACITY TN DECDKBER, 1971. Region Location Type Installed Ni Tehran * Shahriar Steam/residual oil 2 x 156.5 = 313 Tehran * Farahabad Steam/fuel oil or gas 3 x 82.5 = 247.5 Tehran * Tarasht Steam/fuel oil 4 x 12.5 = 50 Tehran * Tarasht Gas turbine/fuel oil 2 x 12.5 = 25 Tehran Amir Kabir Hydro 2 x h5.5= 91 Tehran Farahnaz Hydro 1 x 22.5 = 22.5 749 Gilan Shahbanou Farah Hydro 5 x 17.5 = 87.5 Azarbaijan * Tabriz Gas turbine/fuel oil 2 x 15 30 Azarbaijan * Tabriz Steam/fuel oil 2 x 6 = 12 Azarbaijan Aras Hydro 2 x 10.5 = 21 _C3- Ehuzestan Shah Pahlavi Hydro 8 x 65 = 520 Fars Shiraz Gas turbine/gas 3 x 14.5 + 1 x 10 - 53.5 Esfahan * Esfahan ateam/fuel oil 2 x 37.5 = 75 Esfahan * Esfahan Portable GT 1 x 7.5 = 7.5 Esfahan Shah Abbas Hydro 3 x 17.5 = 52.5 'Khorassan * Mashhad Steam/fuel oil 2 x 12.5 = 25 Khorassan * Mashhad Portable GT 1 x 7.5 = 7.5 Portable GT 1 x 7.5 = 7.5 * TAVANIR - owned capacity totals 800 MW thermal. Total hydro = 794.5 Mv Total steam = 722.5 MW Total gas turbimsi- 131 NW Total major generating capacity = 1648 NW Small diesel sets - 310 MW Total capacity = I r956M March 15, 1972 ANNEx 4 IRAN PUBLIC POWER SEOTOR PLANNED GENERATING CAPACITY In-Service Year Region Location Type Installed MW 1972 Kerman Zarand Steam/fuel oil 2 x 30 = 60 1972 Khorassan Mashhad GT/fuel oil 2 x 16 32 1972 Fars Shiraz GT/gas 1 x 14.5 = 14.5 1972 /1 Several locations GT/gas 4 x 25 = 100 Subtotal 206.153- *1972 Total generating capacity 1854.5 1973 /1 Several locations GT/gas 4 x 25 = 100 1973 Tehran Shahriar 3, 4 Steam residual/oil 2 x 156.5 = 313 1973 Gilan Manjil 1, 2 Steam/gas 2 x 120 = 240 1973 Esfahan Esfahan Steam/fuel oil 1 x 120 = 120 1973 Kbrassan Mashhad Steam/fuel oil 2 x 60 = 120 1973 Azarbaijan Korosh Kabir Hydro 1 x 10 = 10 1973 Azarbaijan Shahpur Aval Hydro 1 x 6 = 6 Subtotal 9-O- *1973 Total generating capacity 2763.5 1974 Khuzestan Reza Shah Kabir 1, 2 Hydro 2 x 250 = 500 1974 Khuzestan Ahwaz 1 Steam/gas 1 x 146 = 146 1974 Kerman Zarand Steam/fuel oil 1 x 60 = 60 Subtotal 70; *1974 Total generating capacity 3469.5 1975 Khuzestan Reza Shah Kabir 3 Hydro 1 x 250 = 250 *1975 Total generating capacity 3719.5 1976 Khuzestan Reza Shah Kabir 4 Hydro 1 x 250 = 250 1976 Khuzestan Ahwaz 2 Steam/gas 1 x 146 = 146 1976 Tehran Amir Kabir Hydro 1 x 45.5 = 45.5 1976 Kerman Jiroft Hydro 1 x 30 = 30 Subtotal ---471-.5 *1976 Total generating capacity 4191 1977 Gilan Manjil 3 Steam/gas 1 x 120 = 120 1977 /2 Khuzestan Karan (Second Project) Hydro 2 x 200 = 400 Subtotal 520 *1977 Total generating capacity 4711 /1 Although shown in Ministry Plans and budgets, these units had not been ordered by December, 1971. /2 Shown for capacity purposes only, further studies must clarify this last generation project in the Fifth Plan. * The small diesel sets on isolated distribution systems are not included. March 15, 1972 ANNEX 5 IRAN PUBLIC PONER SECTOR INISTALLED CAPACITY CN THE T1 TSRCCNTNCTMD SYST2I,- Year Location Type Installed IsT 1971 Shahriar Steam 313 Farahabad Steam 247.5 Tarasht Steam/GT 75 Arnir Kabir Hydro 91 Farahnaz Hydro 22.5 Shahbanou Farah Hydro 87.5 Shah Pahlavi Hydro 520 Portable GT 7.5 1971 Total 1364 1972 Various GT 100 1972 Total 1464 1973 Tabriz Steam/GT 42 Aras, FHydro 21 Korosh Kabir Hydro 10 Shahpur Aval Hydro 6 Shahriar 3 & 4 Steam 313 ManJ il 1 & 2 Steam 240 Various GT 100_ 1973 Total 2196 197L4 Esfahan Steam/GT 202.5 Shah Abbas Hydro 52.5 Reza Shah Kabir Hydro 500 Shiraz GT 68 Ahw1az 1 Steam 146 1974 Total 3165 1975 Reza Shah Kabir Hydro 250 Zarand Steam 120 1975 Total 3535 1976 Reza Shah Kabir Hydro 250 Ahi,az 2 Steam 146 NXashhad Steam/GT 184.5 Jiroft Hydro 30 Amir Kabir Hydro 45.5 1976 Total 4191 1977 Manjil 3 Steam 120 Second Karun Hydro 400 1977 Total 4711 1/ Based on Annexes 3 and 4 and the interconnection schedule (para. 2.16). March i5, 1972 IRAN ANNEX 6 LOADS ON THE INTERCONNECTED SIBTEJ (L) Load Center 1971 1972 1973 1974 1975 1976 1977 Tehran Region Tehran 520 645 800 960 1120 1280 11l4o Mazandaran 58 73 85 95 106 118 130 Zenjan - - 5 6 7 8 9 Gilan 38 46 52 59 66 7h 81 Gazvin 20 34 46 59 67 75 84 Gumn - - - 15 16 18 20 Shahroud - - - - 6 7 8 Subtotal - i77B -. 1 80 1772 Arak Region Arak + Aluminum Smelter 112 122 125 127 128 129 130 Hamadan + Kermanshah 26 33 36 4o 45 50 55 Khoramabad 4 5 5 6 7 7 8 Borujerd + Malayer 6 9 10 12 14 15 18 Durud Cement Plant 8 8 8 8 8 8 8 Azna Pumping Station - - 17 30 30 30 30 Sanandaj - - _ 7 8 Subtotal 246 17 257- Khuzestan Region North 45 53 67 72 77 83 89 Center + South 2_42 307 371 _432 _463 _494 528 Subtotal 287 360 ¸1 540 577 617 Azarbaijan Region Region system - - 125 155 17 192 212 Ardebil - - - - 10 11 12 Subtotal - - 125 15 --- i18 23 22TC E;sCahan Region E.sfahan Re n- - - 207 232 260 287 Kashan - 15 16 17 18 Subtotal 2 - 2 777 -30 Shiraz Region Shiraz - - - 81 89 99 109 Kazerun + Bushehr + Borazjan - - 6 7 7 8 Jahrom + Fassa + Darab - - - - - - 9 Estehpanat Subtotal - - - 8T 9 106 126 - Kerman Region Region System - - - - 111 131 15 Yazd 18 19 21 Subtotal - - _ 1 1575 Mashhad Region Tashhad + BuJnurd + - - - - 115 128 Ghuchan + Torbat + Neishabur TOTAL INTERCONNECTED SYSTEM 1079 1335 1752 2385 2817 3254 3604 IRAN LOAD AND CAPACITY ON THE INTERCONNECTED SYSTEM (KW) Year Interconnected System System Reserve Generating Scheduled Surplus System Loss Requirement AllowanceY Requirement Generating (Deficit) Load 2! Allowance2/ Capacity _ 1971 1079 86 1165 175 1340 1364 24 1972 1335 107 1442 216 1658 1464 (194) 1973 1752 140 1892 284 2176 2196 20 1974 2385 191 2576 386 2962 3165 203 1975 2817 225 3042 456 3498 3535 37 1976 3254 260 3514 527 4041 4191 150 1977 3604 288 3892 584 4476 4711 235 1/ From Annex 6. 2/ 8% Allowance to cover station auxiliary requirements and transmission losses. 3/ 15% Reserve; the largest steam unit is 156 MW; the largest hydro unit 1971-73 is 60 MW, 1974-77 is 250 MW. 4/ Based on the capacity shown in Annex 5, including 100 MW gas turbines added in each of 1972 and 1973. March 15, 1972 ANNEX 8 IRAN MINISTRY OF WATER AND POWER SUMMARY OF CONESUMER TARIFFS TAPXPF I - Residential Energy charges - for the first increment of consumptior2/ Rls 50 - for additional kilowatthours from Rls 3.75 to 1.30 per kIdTh_ Minimum monthly bill: Rls 50 TARIFF II - Commercial (General Service at Secondary Voltage) Energy charges - for the first block of consumption-V Rls 80 - for additional kilowatthours from Rls 3.50 to 1.50 per kWh_ Minimum monthly bill: Rls 80 5/ TARIFF III - Small Industry (General Service at Primary V.ta) 6age Demand charges - for the first 50 kW Rls 5,000 - for additional kilowatts from Rls lOO to 65 per kW7 Energy charges - peak hours7/ from Els 3.50 to 2.00 per klwh-/ off-peak hours from Els 1.75 to .70 per k¶4hr Minimum monthly bill: Rls 100 oer kTJ of demand but not less than Rls 5,000 TARIFF TV _Large Industry (Primary Voltage)- Demand charges - fcr the first 300 k'N Fls 37,500 8/ - for additional kilowatts from Rls 90 to 70 per kW- 8/ E;nergy charges - pea's hours 7/ from His 2.2$ to 2.00 per kd1h- - off-peak hours from f;ls .95 to .65 per kWh-/ Minimum monthly bill: Rls 300 per kY of demand but not less than Rls 120,000 (in most iegioru) TARIFF ' - Irrigation Pumping Energy charges - peak hours 7/ from Rls 4.00 to 3.00 per 61h/ - offpeak hours from Rls 3.00 to .45 per k6h_/ Minimum monthly bill: 7Rls 100 subject to certain conditions. 1/ Excluding KXTPA's tariffs which are slightly different although similarly structured. 2/ 10 to 16 kW4h deDending on the 17egion or Division 3/ Depending both on ?,egion or Division and on magnitude of consumntion V/ Generally 20 k'Wh 5/ Except in Tehran and Gilan and Esfahan's Main division where it is Rls 50 6/ If service is provided at secondary voltage (400/200 V), charges are increased _ by 5% 7/ Peak hours are designated from time to time by the Reaional Electricity Companies and do not exceed 4 hours in any 24 hours period 8/ Depending on Region or Division only (not on magnitude of consumPtion) March 15, 1972 ANNEX 9 Page 1 of 3 IPAN TAP2!]F SR KILl PTIiCTHAST>: A11D SAIE OF PELCT1RCI'W*TY ?,Y TAJANTI (Extracts from Service Agreements for Purchase and Sales of Power and Energy Monthly Charges Unless otherwise Specified)- AGREEMENTS FOR PURCHASE Charge in Rials Charge in U.S. $ Per kW Per kWh ter kW Per kWh T. Khuzestan TWater and Power Authority (IdPA) Sales of Power and Energy to TAVANTR from EEAmad-Rezfah Pahlavi Dam Demand Charge Each KW of Billing Demand 67.5o .885 Energy Charge Each kWh Delivered 0.17 .0022 Effective Date: March 1971 II. Esfahan Regional Water Authority - Sales of Power and Energy to TAVANIR from Shah-bass Kabir Dam Demand Charge Each kW_of Billing Demand 65.oo .852 Energy Charge Each kWh Delivered 0.30 .0039 Wffective Date: Ilarch 1971 ITI. Tehran Regional Water Authority - Sales of Power and Energy to TAVANT}R oFarnazr LnDaz n a Latian) Demand Charge Each kW of Billing Demand 70.00 .918 Energy Charge Each kWh Delivered 0.32 .0042 Effective Date: August 1971 IV. Tehran Regional Water Authority - Sales of Power-i ndEner to TAVA NIR from Amir Kabir Dam (Karadj) Demand Charge None None Energy Charge Each of the first 40,000,000 kWh/year 1.10 .0144, Each of the additional kWh 0.20 .0026 (Note: This agreement is presently under study). ANNEX 9 Page 2 of 3 Charge in Rials Cherge in U.S. $ Per kW PerkWSh Per kW Fer kWh V. Tehran Regional Water Authprity - Sales of Power and Energy to TAVANIR from Shah Banou Dam (Sef Id RudJu Demand Charge None None Energy Charge Each of the first 30,000,000 kWh/year 0.90 .0118 Each of the next 20,000,000 kWh/year 0.30 0039 Each of the additional kWh 0.25 .0033 (Note: This agreement is presently under study). VI. Azarbaijan Water and Power Authority - Sales of Power and Energy to TAVANIR from Aras Dam (Presently under study) * * * * * * *F * * * * AGREEKENTS FOR SALES FOR RESALE (Billing Demands are Max. coincident for each electriccompanu I. TAVANIR Sales to Regional Electric Companies on the National Tnterconnected System (i.e. Tehran. M,G Garb Regional Electric Companies) Demand Charge Each kW of Billing Demand 70.00 .918 Energy Charge Each of the first 250 Hours use of Billing Demand 0.65 .0085 Each of the additional kWh 0.50 .oo66 Effective Date: March 1971 II. TAVANIR Sales to Esfahan Regional Electric Company Demand Charge Each kT of Billing Demand 70.00 .918 Energy Charge Each of the first 250 Hours use of Billing Demand o.65 .oo85 Each of the additional kWh o.5o .0066 Effective Date: March 1971 ANNEX 9 Page 3 of 3 Charge in Rials Charge in U.S. $ PerkWPerkWh Per kW Per kWh IIT. TAVANIR Sales to Khorassan Regional Electric Compfz Demand Charge Each kW of Billing Demand 70.00 .918 Energy Charge Each of the first 250 Hours use of Billing Demand 0.70. .0092 Each of the additional kWh o.6o .0079 Effective Date: March 1971 TV. TANANLR Sales to Khauzestan TYTater and Power Authority Off-Peak Periods: Demand Charge None None Energy Charge Each kWh Delivered 0.34 .oo45 7ffective Date: August 1971 V. TVAVM.IR Sales to Azarbaijan Regional Electric Company (Presently under study) AGREEMENTS FOR DIRECT INDUSTRIAL SALES (single delivery point) L. TAVANIR Sales to IRALCO (Iranian Aluminium Company) ,ner-y Cherge First 5-year term of agreement 0.23625 .0031 Einsuing years of agreement 0.24375 .0032 T4llings shall be for not less than the maximum 30 minute demand multi- plied by 90% of the hours in the billing period. A year-end adjustment is provided for i,,hich assures anuial billings at not less than 90H0 load factor; Billing Demand has 98% demand ratchet; and in addition there are certain provisions for automatic adjustment in event of changes in TAVANIR's costs. Contract Signed: 1969 II. TAVANIR Sales to Iran National Steel Mill (Esfahan) Demand Charge For the first 40,000 kW or less 2,816,500 R2s $36,938 Each of the additional kh 70.00 .918/kw Znergr Charge Each of the first 200 hours use of Billing Demand 0.70 .0092' Each of the additional kWh .55 .0072 (Tote: This is an initial proTosal negotiations for this service have not yet been completed5. March 15, 1972 I RAN REGICOAL E9LECTRICITY COMPANIES, BALANCE SHE,ETS 1968-69 (in millions of R'a ls Azarbaijan Esfahan Tehran Khorassan Ehuzestan Fars Kerman Garb Gilan Mazarandan TAVANIR Total End of Fiscal Year 1968 ASSETS Fixed Assets in Operation 257 556 7272 950 4034 571 351 182 501 587 _ 15261 Depreciation (66) (95) (1364) (58) (762) (228) (25) (10) (42) (51) (2701) Net Fixed Assets in Operation 191 461 5900 o92 3272 343 32_ 172 459 536 - 12560 Work in Progress 5 - 1655 2 100 - 67 23 2 39 - 1893 Other Assets - 75 869 - 33 - - - - - - 977 Current Assets 169 159 2664 447 717 245 280 124 49 220 - 5074 Deferred Debits - - 167 6 - - 6 - 2 3 - 184 Total Assets 365 695 11263 1347 4122 566 679 319 512 798 - 20688 LIABILITIES Equity 233 665 7525 817 3918 275 191 86 451 693 - 14854 Long Term Debt 44 - 2575 190 - 185 32 - - - - 3026 Current Liabilities 88 30 606 340 179 127 421 233 58 103 - 2185 Deferred Credits - - 557 - 25 1 35 - 3 2 - 623 Total Liabilities 365 695 11263 1347 4122 588 679 319 512 798 - 2068& End of Fiscal Year 1969 ASSETS FT7-xd Assets in Operation 634 800 5445 1142 4121 1108 439 616 508 986 3837 19636 Depreciation (118) (130) (1216) (127) (894) (281) (53) (33) (61) (88) (92) (3093) Net Fixed Assets in Operation 516 670 4229 1015 3227 827 386 583 447 898 3745 16543 Work in Progress 50 465 424 178 535 - 171 185 150 223 346 2727 Other Assets - - 2057 - 8 - - 1 - - 4 2070 Current Assets 361 1331 4291 394 743 159 372 495 168 891 1961 11166 Deferred Debits - 11 93 11 1 131 18 - 13 - - 278 Total Assets 927 2477 11094 1598 4514 1117 947 1264 778 2012 6056 32784 LIABILITIES Equity 567 2082 6743 834 4196 801 372 937 463 1576 4031 22602 Long Term Debt 178 331 2816 228 - 197 232 190 189 - 1914 6275 Current Liabilities 182 64 973 534 309 118 174 118 102 432 111 3117 Deferred Credits - - 562 2 9 1 169 19 24 4 - 790 Total Liabilities 927 2477 11094 1598 4514 1117 947 1264 778 2012 6056 32784 March 15, 1972 IRAN REGIONAL ELECTRICITY COMPANIES, INCOME SaA1EMENTS 1968-1969 (in millions of Rls. unless otherwise indicated) 21g y ~ _ Azarbaijan Esfahan Tehran Khorassan hhuzestan Fars Kermarn Carb Ailarn Mazarandan TAVANIR Total E.E.C. R.E.C. E.E.C. R.E.U. W.P.A. R.E.C. E.E.C. R.E.C. E.E.C. R,E..C. Fiscal Year 1968 Sales of Electricity, Gh 55 112 1048 94 376 63 22 37 i2 68 - 1917 Average Revenue per Kwh, Rls. 3.36 2.11 2.49 2.o8 1.33 2.68 3.45 3.57 2.71 2.60 - 2.29 Operating Revenues Sales of Electricity 185 236 2608 196 501 169 76 132 114 177 - 4394 Other 30 53 323 39 4 14 7 23 14 29 - 536 Total 215 289 2931 ?35 505 183 83 155 128 206 - 4930 Operating Expenses Operation and Maintenance 157 192 1668 173 349 154 76 107 127 142 3145 Depreciation 15 22 293 28 131 26 13 10 19 24 581 Total 172 214 1961 201 480 180 89 117 146 166 - 3726 Net Income (Loss) 43 75 970 34 25 3 (6) 38 (18) 40 _ 1204 Return on Average Net Fixed , Assets in Operation, % 21 15 20 6 1 1 (3) 36 (4) 8 _ 11 Fiscal Year 1969 Sales of Electricity, GWh 67 142 1321 129 580 80 35 52 52 104 - 2562 Average Revenue per Kwh, Els. 3.12 2.23 2.39 2.05 1.10 2.60 2.91 3.29 2.67 2.13 - 2.12-' Operating Revenues Sales of Electricity, GWh 209 316 3156 265 639 208 102 171 139 221 642 6068 Other 65 68 388 26 - 33 12 31 12 34 - 669 Total 274 384 3544 291 639 241 114 202 151 255 642 6737 Operating Expenses Operation and Maintenance 179 259 1768 205 321 175 81 119 123 176 397 3803 Depreciation 26 36 347 60 162 51 24 26 19 42 92 885 Total 205 295 2115 265 483 226 105 145 142 218 489 46 S8 Net Income (Loss) 69 89 1429 26 156 15 9 57 9 37 153 2049 Return on Average Net Fixed Assets in Operation, j, L 18 15 26 3 5 2 2 14 2 5 8 13 March 15, 1972 I ANNEX 10 Page 3 of 3 i'i-TES 1/ For simplicity of comparison Non-Operating Income is grouoed with Other Operating J.Iovenues; likewise Interest is grouped with Depreciation. However, these are taken into consideration in determining the rate of return. 2/ Preliminary results for fiscal 1969. 3/ TAVANIR was formed in 1969. Figures given here are TAVANIRTs estimates for the first seven months of operation. 4/ This is the arithmetic total for all operating companies. A consolidated sector Income Statement cannot be produced because of insufficient information about intra-sector transactions. 5/ The rate of return on remunerable investment is equal to net operating income after taxes as a percentage of average net fixed assets in operation plus a working capital allowance consisting of 2% of gross fixed assets at year end and 12 8 of annual cash operating expenses. 6/ Sales of TAYANIR, which are made mostly to the Regional Companies, were not included in the calculation of the total sector average revenues per kWh. March 15, 1972 IRAN TAVANIR ORGANIZATION"' GENERAL ASSEMBLY ROARD OF DIRECTORS CONSULTANTS MANAGING DIRECTOR DEPUTY MANAGING DIRECTOR DEPUJTY MAMANAGIN DIRECTOR CON STRLICTI ON OPERATIONS | PERSONNEL |__ _______ G GENERATION TRANSMISSION N RGI NA N SUPERINTEND CHIEF OERATORS(ADMINISTERE Eli 1- ~ ~ ~RoM ",AQUARTERS) - - ~~~~~~~~~~~~~~~~~~(FUNCTIONALI RESIPONSIBILITY) PERSONNEL GENERATN O OTRANSMISSION PROJECT MANAGERS PROJECT MANAGERS 2 PLANT SHE-STATION SUPERINTENDENTS CHIEF OPERATORS T. T be Ppp-Rd in the fu.on W,Ad Bn.-k 6252(4R) ANNEX 12 iRAN THE KARUN PROJECT In 1969, the Khuzestan Water and Power Authority started construction of the Reza Shah KAbir (Karun) Project, located in Khuzestan Province on the Karun River about 100 km above its mouth in the Persian Gulf. The project consists of the fo'lowing: - a 200 meter high, 380 meter crest length, double curvature, concrete arch dam; - a powerhouse with four 250 MW units; - a 400 kw switchyard located about one kilometer downstream of the dam; - a 2.9 billion cubic meter (total volume) reservoir. This first stage in the development of the Karun River is a mlti- purpose project which will provide the following benefits: - average energy production of 4,120 owh and peaking capacity of 1000 MW; - irrigation for 41, 000 hectares near Gotvand and improved water supply for industries along the river; - improved navigation. Contracts for the civil works and most of the equipment have been signed. The bulk of the foreign financing is being provided by a French consortium. The unit schedule is - No. 1 and No. 2 in 1974, No. 3 in 1975, No. 4 in 1976. Due to the favorable natural location of the dam at the exit of a deep gorge in the Zagros Mountains, the estimated cost of the project, including dam, powerhouse and evitchyard, is only US$135 per kilowatt. March 15, 1972 ANNEX 13 IRAN TRAINING REQUIREMENT AT TAVANIR The challenge facing TAVANIR in training an adequate staff can be seen from the rate of expansion of the power system. In 1966, the only major steam plant in Iran was the 50 MW Tarasht plant. By the end of 1971, steam capacity was 723 MW and by 1977, will be about 2050 MW in 28 units at 10 plants. In addition to the number of staff required, they must have better technical knowledge - Tarasht was a low- pressure plant, but the 2400 psi reheat units now in service in Iran demand a higher caliber of operating and maintenance personnel. In 1966, the system load was about 400 MW and 230 kv transmission totalled about 900 circuit-kms. Since then Tehran and Khuzestan have been interconnected and many 230 kv system extensions have been built. By 1977, the interconnected system load will total 3600 MW and TAVAiIR's transmission will include 845 circuit-kms of 400 kv lines and about 4500 circuit-kms of 230 kv lines. Together with the increasing numbers of linesmen and sub- station personnel required, new techniques such as "hot-line maintenance" will be required in future. In the two years since its inception TAVANIR has found it necessary to utilize expatriate specialists to support and train the Iranian staff in the transition from isolated small system operation to the present inter- connected pool basis with several large plants. Thermal plant specialists are advising on safe and efficient plant operation, preventive maintenance and emergency repair procedures. Line maintenance specialists are organizing line crews and establishing maintenance procedures. System control advisers are assisting in establishing system load/frequency control equipment and control procedures. Over the next five years TAiVIAR will add some 2000 employees to its staff; most of them will be from the Ministry training center, academically qualified but with little job experience. In future, therefore, today's staff will be spread fairly thin through the system and T&VMntR realizes that continued expatriate training support will be necessary for some time -- possibly one or two expatriates at each thermal station, in addition to headquarters training by expatriates in specialized fields, such as line maintenance, system control, data processing and accounting. With the approval of the Ministry, TAVAMrR has budgetted us$5.9 million equivalent over six years as the foreign exchange cost of this training program. The budget is based on about 25 expatriate consulting personnel assisting TAW.MiR at an average annual foreign exchange cost per man of us$35,000 and about 30 T&Vt(R personnel per year going abroad for a four-month training period at an estimated foreign exchange cost per man of US$4,000. The cost of this training program is only 1% of the cost of system expansion in the same period and is a wise investment which should build a competent staff to operate and maintain the rapidly expanding system. The TAVANIR training provided under the Bank loan would be supplied over three years (mid-1972 to mid-1975) and the foreign exchange cost would total US$3.0 million equivalent. May 15, 1972 ANNEX 14 Page 1 of 2 IRAN TAVANIR COST ESTThATE FOR 400 kV TRANSMISSION In Millions Rials In Millions US$ Local Foreign Total Local Foreign Total Transmission lines Foundations and towers 405 589 994 5.3 7.7 13.0 Shield wires and assem- blies 69 53 122 0.9 0.7 1.6 Conductors, insulators and hardware 367 926 1293 4.8 12.1 16.9 Sub-Total 841 1568 2409 11.0 20.5 31.5 Substations Site improvements and buildings 23 - 23 0.3 - 0.3 Transformers and reactors 31 275 306 0.4 3.6 4.0 Breakers, switches, buses and misc. equipment 46 306 352 o.6 4.0 4.6 Control equipment 8 23 31 0.1 0.3 0.4 Sub-Total 108 604 712 1.4 7.9 9.3 Contingencies Physical 92 214 306 1.2 2.8 4.0 Price 153 176 329 2.0 2.3 4.3 Engineering services 99 100 199 1.3 1.3 2.6 TOTAL 1293 2662 3955 16.9 34.8 51.7 May 17, 1972 ANNEX 14 Page 2 of 2 IRAN TAVANIR COST ESTIM(ATE FOR 230 kV TRANSMISSION In Millions Rials In MillionJ US$ Local Foreign Total Local Foreign Total Transmission lines Foundations and towers 161 206 367 2.1 2.7 4.8 Shield wires and assem- blies 15 8 23 0.2 0.1 0.3 Conductors, insulators and hardware 69 168 237 0.9 2.2 3.1 Sub-Total 245 382 627 3.2 5.0 8.2 Substations Site improvements, buildings and misc. equipment 61 61 122 0.8 o.8 1.6 Transformers 8 100 108 0.1 1.3 1.4 Breakers, switches, buses, reactors and capacitors 15 199 214 0.2 2.6 2.8 Control equipment 53 77 130 0.7 1.0 1.7 Sub-Total 137 437 574 1.8 5.7 7.5 Contingencies Physical 38 84 122 0.5 1.1 1.6 Price 61 69 130 0.8 0.9 1.7 Engineering services 31 38 69 0.4 0.5 0.9 TOTAL 512 1010 1522 6.7 13.2 19.9 May 17, 1972 ANJNEX 15 IRAN 400 kV AND 230 kV TRANSMISSION PROJECT ESTIK&TED SCHEDULE OF DISBURSEMENTS IBRD Fiscal Year Cumulative Disbursement and Quarter at end of Quarter (Millions of US$) FY 73 September 30 December 31 2.5 March 31 12.4 June 30 16.4 FY 74 September 30 23.4 December 31 28.1 March 31 33.3 June 30 36.8 FY 75 September 30 39.3 December 31 41.8 March 31 43.6 June 30 45.1 FY 76 September 30 46.6 December 31 48.1 March 31 49.6 June 30 51.0 May 17, 1972 I IAN PUI3LIC kVWER SECTOR ENERGY AND 3iOADI/ FORECAST A.CTTAL 1970 1971 1972 1973 1974 1975 1976 1977 TtEGIO- d I C fN0hG h l. d o R b 0Th p G ',rn 6 _b _ G',Jh 9IW G R b 35f 1-Azarbaijan 117.9 38.3 338.4 76.9 436.8 100.5 566.9 132.3 594.1 163.0 775.7 183.5 858.6 203.1 945-5 223.8 2-.sf?han 235.2 56.7 698.5 135.6 911.9 169.9 1165.6 210.3 1320.7 238.0 1477-. 266.6 1611.9 297.5 1747.1 328.0 3-K0horassan 193.2 41.4 262.7 68.4 325.6 81.2 373.1 91.7 423.5 101.1 476.1 113.0 532.1 126.1 594.2 140.5 4-Thuzestan 950.2 149.1 1358.4 287.0 1945.3 360.2 2419.6 438.1 2830.5 504.3 3062.9 540.2 3310.3 577.4 3571.8 616.6 5-Garb 119.0 36.0 1109.6 163.8 1202.8 182.6 1333-1 209.4 1436.3 230.9 1476.8 238.8 1522.8 249.0 1572.2 259.4 6-Fars 132.6 32.L; 278.1 62.0 354.7 76.0 394.3 85.3 436.8 95.2 478.1 105.0 528.3 115.9 580.4 128.1 7-Keranv- 66.0 15.0 159.4 33-., 209.1 4.56 523.8 93-8 624.7 11L.1 717-5 134.2 830.3 157.0 962.2 183.6 3-Gilan 98.9 20.2 154.7 38.5 182.7 4 .9 208.8 51.2 236.3 58.1 260.5 65.3 289.4 72.5 315.4 80.1 2-3N3rzandaran 141.1 29.3 197.8 57.4 269.7 72.8 320.3 84.9 362.3 95.2 406.1 106.5 448.7 117.7 493.8 130.9 10-Tehran, 18'l94.2 436.0 2652.6 559.9 3401.6 702.5 4405.1 375.4 5467.0 1051.9 6541.7 1223.9 7560.o 1395-8 8603.Li 1569.5 Total 39'34.3 854.9 7210.2 14,8''.2 9240.2 1365.' 11710.' 2272.4 13831.7 2651.8 15672.7 2977-0 17488.4 3312.0 19391.0 3660.5 Annual Growth in Einer-y 81.0-2/ 28.1% 26.74 18.1% 13.3d 11.6$, 10.91 I/ TIon-coincident neak loads 2/ I,arre increase due to new metalluirgical loads March 15, 1972 ANNEX 17 Page 1 of 2 TAVANIR PROJECT INTERNAL FINANCIAL RATE OF RETURN The internal financial rate of return for the Project was obtained by discounting the net cost/benefit stream attributable to the Project to find the rate at which the present value of this stream becomes zero. The following elements were used in this calculation: COSTS a) the capital investment for the Karun 400 kV transmission, the Shiraz 230 kIV transmission and a 230 kV line between Esfahan and Tehran which TAVANIR has under construction and which will transmit Karun power not required for loads in southwestern Iran to other load areas on the inter- connected system; b) the cost of the Project training program; c) the operating and maintenance costs associated with the Project facilities and the additional 230 kV facilities, based on 1.5% annually of the capital investment; d) the cost to TAVANIR for the Karun power purchased from DWPA at the existing purchased power tariff of 0.32 Rials/kwh for transmission over the Project and additional facilities to the REC delivery points. BENEFITS a) TAVANIR revenues from bulk power sales to the RECs at the current tariff of 0.77 Rials/kwh. NOTE: a) The cost/benefit streams are shown on page 2 of the Annex. The discount rate at wn .cn the present value of the net cost/benefit stream oecomes zero is approximately 21%. b) The Project ha.s beern trqditcd 4ilUh the benefit of trans- ferring some :Cir o sower for :h?. at an assumed "wheeling"l rate of 0.45 RiasAcwh. c) In future, additional benefit* not presently credited would result from the ?ro.tect. inclTading the transmission of pouer from other ydrccS_ee-ric p-.-ojects on the Karun River and the transmiss cn o7. power from thermal plants located in the petroleum fieldE. IRAN (Cost)/Benefit Streams for TAVANIR Transmission and Training Project (in Millions of Rials)- 1971 1972 1973 1974 1975 1976 1977 to 2014 (COSTS) a) 400 kV and 230 kV Project transmission (103) (1114) (2369) (1224) (770) - b) 230 kV transmission, Esfahan to Tehran (6) (262) (470) (403) (201) c) Training program in the Project - (46) (90) (90) (34) - - d) Operating and maintenance costs for the Project and related facilities - - (65) (89) (1014) (104) e) Cost of power purchased from KWPA - - - (953) (1217) (1294) (1318) BENEFITS a) Sale of Karmpower to REC8 - - - 2155 2752 2927 2982 Net (Cost)/Beiefit (109) (1422) (2929) (580) 441 1529 1560 May 18, 1972 al TAVANIPR Actual and Forecast. Balarnce Sheets 1970 Through 1977 (in millions of Rls.) ---------ACTUAL------- ----------------------------------__-----O R E C A C T------------------ _____________ End ot Fiscal Year 1970 1971 197L2 1973 1974 1975 1976 1977 ASSETS Fixed Assets in Operation 9077 115310 18940 28032 36257 39808 483;. 5j4/ Depreciation (880) (1315) (1940) (2839) (4254) (5769) (-7287) V210,7) Net Fixed Assets in Operatiorn 197 12995 17000 25193 32003 34139 41 o02 41760 Work in Progress 4234 6821 9636 10280 8229 l0683 6619 9286 Total Net Fixed Assets 12431 19olo 26636 35473 40232 44822 47640 51046 Other Assets Other Investments & Deposits 8 20 38 66 104 146 191 -4: Total 20 38 - 7104 19i Current Assets Cash 93 143 262 376 434 448 495 556 Accounts Receivable/Cisstomers 129 242 395 545 661 782 890 1000 Accounts Receivable/Others 245 245 245 272 330 391 445 500 Materials & Operating Supplies 52 286 379 561 723 '796 963 1o09 Other Current Assets 299 253 335 496 642 705 853 893 Total 11n9 2250 2790 3122 3958 Deferred Debits - - 31 8S 122 109 132 127 TOTAL ASSETS 13257 21005 28321 37874 43248 48199 51609 55374 LIABILITIES Eqluity Government Capital S Investments 12330 19352 04373 24373 24669 24689 24689 24689 Surplus & Beserves 225 727 1685 3035 461R 6601 9002 11990 Total 12555 20079 26058 27408 29301 31290 33691 36679 Long Term Debt Proposed IBR oan 1os - 950 255S 3339 3766 60 346439 Oilier Long Ters Debt 163 323 290 655) 8965 11069 11976 69 Total T48 3230 9107 12284 14835 15596 16112 Current Liabilities Accounts Payable 161 2F4 423 491 580 656 711 769 Other Current Liabilities 226 350 558 757 905 1030 1129 1228 Current Portion of LTD 159 - - - - 135 146 157 Total 57- 5 74 961 1245 1821 1986 2154 operating Rleserves. 9 4 TEhsployees Pension Reserves 8 20 38 66 104 146 191 243 Other Operating Reserves - 9 s4 45 74 107 i45 186 Total -79 21 7O 253 33 9 x TOTAI LIABILITTES 13257 21005 28321 37874 43248 48199 51609 55374 ° May 17, 1972 TAVANIR Actual and Forecast Ircome Statements 1970 through 1977 (in millions of Els. unless otherwise indicated) - ACTUAL- ------ ------ --------------F 0 P E C A S T--------------- Fiscal Year 1970 1971 1972 1973 1974 1975 1976 1977 Sales of Electricity, GWh 2308 3774 6503 8866 10389 12261 13855 15521 Average Revenue, Rials per kWh 0.701 0.767 0.729 0.737 0.762 0.766 0.770 0.771 operat!r3g Revenues Zsles of Electricity 1617 2896 4742 6532 7918 9396 0o666 11976 Total 4742 6532 791 10666 11976 Operating Expenses Operation 913 1280 2426 3486 3952 4006 4377 4893 purchased Power 253 517 480 444 693 1242 1317 1265 Trs.nsmission 34 67 84 102 148 210 286 343 Administrative 4e teneral 51 78 112 172 237 266 291 322 Sub-Total 1251 1942 3102 4204 5030 572 6271 6F 2- Depreciatiorn 302 428 625 899 1210 1415 1618 1900 Provision for Property Losses - 9 15 21 29 33 38 41 Amortization of Training Costs - - 15 36 53 47 57 54 Total 1553 2379 3757 5160 6322 7219 7984 8713 Operating Tncome 64 511 985 1372 1596 2177 2682 ,32 Non-Operating Income 7 - - - - - - - Interest T,otai Interest - 15 60 1.43 221 265 28] 270 interest Charged to Construction - _ (33) (121) (202) (77) - Total ITaterest Charged to operations - 15 27 22 19 231 270 Net lncome 71 50' 958 1350 1577 1969 2401 2936 X Operating Ratio % 96 82 79 79 80 77 75 73 Rate of Return 8 1.0 4.7/ 6.3 6.2 5.4 6.3 6.9 7.0 May 17, 1972 TAVANIR Forecast of Sources and Applications of Funds, 1971 through 1977 (in millions of Rls.) ACTUAL F o r e c a s t Subtotal Total Fiscal Year 1971 1972 1973 1974 1975 1976 1977 1972-1975 1972-1977 SOURCES OF FUNDS Internal Cash Ceneration Operating Income 517 985 1372 1596 2177 2682 3258 6130 12070 Depreciation 428 625 899 1210 1415 1618 1800 4149 7567 Provision for Property Losses 9 15 21 29 33 38 41 98 177 Amortization of Training Costs - 15 36 53 47 57 54 151 262 Total 154 1640 2732 228 395 5153 10528 20076 Capital Investment (Government) 6434 5021 - - - - _ 5021 5021 Proposed IBRD Loan - 950 1602 78'7 562 - - 3901 3901 Proposed Plan Crganizationi Loan - - 6265 2390 2124 907 673 10779 12359 TREC Loan 175 ( 33) - - - - - (33) (33) Total Sources 7578 10195 6065 6358 5302 5826 30196 41324 APPLICATION OF FUNDS Training Costs Proposed IBRD Loan - 40 80 80 29 - - 229 229 Local & Foreign Cuirrency (TAVAN1R) _ 6 10 10 5 80 59 31 170 Total o 90 90 80 59 260 399 Construction Program Proposed IBSD Project - Foreign Fxchange (TBRD) - 910 1522 707 533 - - 3672 3672 - Local & Foreign Currency (TAVANIR) 103 204 847 517 237 - 1805 1805 Sub-Total 103 1114 -2 124 770 - - 5477 547 Other Power Constructioni '(122 6298 7246 4227 5i58 4436 5206 22929 32571 'I'otal Construction 7225 79412 57451 5928 3526 28406 380148 Debt Service Interest - Proposed TBRD Loan _ 60 143 221 265 281 270 689 1240 - Other Short Term Loans 15 - - - - - - _ Total Interest 15 -_~_o 143 221 265 281 270 689 1240 Amortization - Proposed IBRD Loan _ - - - - 135 146 - 281 Total Debt Service 15 60 14 221 265 416 416 680 1521 Net Variation in Working Capital and Other Acct. 323 60 3147 303 131 370 145 841 1356 Total Applications 7563 7578 10195 6065 6358 5302 5826 30196 41324 May 17, 1972 ANNEX 21 Page 1 of 3 IRAN PUBLIC POWER SECTOR TAVANIR SALES FORECAST AND FUEL PRICES MARKET A brief explanation of the load statistics in Iran is desirable as a background to the TAVANIR electricity sales projections (Annex 19). In 1970 the electricity generation in Iran was as follows: Public power sector 4,242 GWh 60% Private utilities 150 GWh 2% Industrial (captive) plant 2,689 GWh 38% Total 7,08l GWh 100C The public power sector loads include the customers of the nine RECs, KWPA and the TAVANIR direct industrial customers. Almost anl generation growth is in this public sector; the private generating capacity is relatively constant and the industries are relying on the public companies to install new capacity to supply the increasing industrial loads. In Annex 16 the total public sector energy requirement for 1970 is shown as 3984 GWh1, of which about 50% was in the Tehran area, about 25% was in the Province of Ehuzestan and the remainder was scattered throughout the country. The total public sector generation was 4,242 GWh (as shown above), the 6% difference between generation and supply requirement being due to transiission losses. Annex 19 shows the TAVANIR 1970 actual sales and the sales projections to 1977, as forecast by TAVANIR. In 1970, TAVANIR was responsible for bulk supply to the following areaa.from the sources as shown: 1) The RECs of Tehran, Mazandaran and Gilan, which are connected to the TAVANIR-KWPA interconnected system, with TAVANIR energy being supplied from the following stations: - the TAVANIR 247 MW Farahabad and 75 MW Tarasht thermal planitz at iebhran - the 22 MW Farahnez and 91 MW Amir Kabir hydro plants of the Tehran water Board - the 88 1W Shahbanc- -arah hydro plant of the North Water and Power t.1thority - part of the output of the KWPA Dez hydro plant; 2) As an isolatec 4.stem, the Esfahan REC from the TAVANIR 83 MW thermal - lart. and the 52 MW hydro plant of the Esfahan Water 3oard; 3) As an isolated system, the Khorassan REC from the TAVANIR 32 MW Mashhad Laermal plant. ANNEX 21 Page 2 of 3 From Annex 16 the 1970 energy requirement of these areas, supplied mainly from TAVANIR sources, was 2562 GWh. The difference between this amount and the TAVANIR sales of 2308 GWh (Annex 19) is due to the output of small diesel sets throughout the areas. The expansion of the interconnected system to connect all REcs (Annex 6) will result in the public sector supply being almost entirely from TAVAKIR sources by 1977 (including purchased power), except for KWPA. The 1977 public sector energy requirement will be 19391 GWh and 15819 GWh without the IKiuzestan area (Annex 16). From Annex 19 the TAVANIR forecast sales for 1977 are 15521 GWh, the small difference (compared to 15819) again being due to the small diesels. Thus the TAVANIR actual 1970 and forecast 1977 sales can be co-related with the overall public sector load forecast. Similarly, the forecast sales for the intervening years reflect the gradual consolidation of the public sector supply from TAVANIR sources as the interconnected system is extended. Over the seven-year period, 1970-77, the TAVANIR sales will increase almost seven-fold, again highlighting the growth of the TAVANIR organization. FUEL PRICES Fuel prices are set by the Government-owned National Iranian Oil Comparn (NIOC) and each form of energy is almost uniformly priced throughout Iran (where available). The prices for the principal fuels used in the public powver sector are as follows: Fuel Type Fuel Price Rials U. Residual oil .56 Rls/liter 15 v/million BTU Natural gas .55 to .65 Rls/m3 20 to 23 ¢/million BTU Fuel oil 1.0 Rls/liter 31 ¢/million BTU Fuel oil is used at the diesel stations and those steam plants distant from the gas pipeline route (Ahwaz to the Russian border on the west side of the Caspian Sea). Gas is used at the Farahabad (Tehran) and Shiraz plants and will be burned at the future Manjil and Ahwaz plants. Residual oil from the Tehran refinery is piped to the Shahriah plant west of Tehran. Consultants have estimated the true cost of gas at Tehran at 14 ¢/ million BTU, indicating that the oil sector may have a considerable profit margin at the prices paid by the electric sector. The residual oil price har been set below the natural gas price to ensure a market for the refinery by- product, which otherwise must be blended, downgrading other products such as fuel oil and gasoline. In 1974 the Ahwaz thermal plant will commence operation burning well- head gas, which is presently flared in vast quantities. To date TAVAIR- has no agreement with NIOC on the Ahwaz fuel price. It could range from the true ANNEX 21 Page 3 of 3 field cost (only the cost of a gathering system) to the nominal 20 4/million BTU price for gas throughout the country. In the TAVANIR financial pro- jections a dowrward trend in the average per kWh cost of fuel has been included, in consideration of reduced operation of fuel oil burning diesels and small steam units as the interconnection is extended and operation shifts to large gas/residual oil burning units on the main system. A further reduction in the future average fuel cost would result if a low gas price is establiShed for Ahwaz, because thermal units in the gas field could be base- loaded, heavily-weighting the average fuel cost for the system. March 15, 1972 44' + ,, U . S 0 6' I R A N 6 2DAM NATIONAL TRANSMISSION SYSTEM J x Juc f U . S . S . R E XISTIN G U N DER COUS ,U CS RO N KhoyS§ 8' .< RWE EXSTN6 ER CO NSTUCIO Kh ., _ tlorrynd I Wr sttra TRANSMISSION LINES ( '~~~~~~~~~~~~~ _ _ _ _ _ _ - ~~~~~~~~~~~~~~~~~~~~~~~~~~~40 0 KYV O t u >)bss . ~~~~~~~~~~~~C a s p i n S eO 2 --30 KV 6. I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~32 KV 1Mianoa S Pahlavib Bunurd POWER PLANTS SHAHPUR q r,MHBAaGnd uhab.s Ghuchan p Hydro | 1-97 H * Gas Turbine X . -36; 1 <) Ai2Ortwiy ['t C¢_ '-6w¢;v;:,1k>-- eFARAHN Neishhabur ' ~@ ) \ ImANJIL >3MWfSSS DAM22Mt /,} X/ - _,j ~* *25MWCVt3XD50 ) Roads [VW ~~ ~ ~~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~---i--.Railways - -- under conistruction 2 ) 1 S W$> ,) 50MWEHRANg X } --Internationail boundarIes _5 RSanondod; X ~~~~~TARAS 24em na Tru J ( \ HHamadon /;/ G r e a t Sacl I t D e s e r t Ig0 290 390 400 Kermansho h Nhvn j r . t (<a n M0aes MO~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~rO I R AQtX8:G r e a t S a n dD e s e r ttS 9 ^ i ) S gi4t M 25< i 250 M W ' 48OBafgh ,, oKuolmineh \ Y? AFGHAN IS TAN 0 ~~~~~~~~~~~~~~~~.chsorn )t asanj470 A~~~~~~~~~~~~~~~~~~~~~~~~~h gzJ.h Kz amshid c.PperminedXi\- C< |; s zoS Att 0 : (5p <_t\ zh~~~~~~~~~~~~~~~~~~~~~~~~~~~edon< SAUDI ARABtA .\ < \?30fVW(1976) or-A 1 T N 2 L>w- 87ftS/(>>1~~~~~~I- < _ 1 C5 i/ a5 I3D 3538R