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The Ganga Hydroelectric Project (GHP); which will be able to supply reliable, cost-effective and

environmentally sustainable electricity to Madhya Pradesh; was completed and commissioned in


November 2009. The implementation of the GHP started in April 1990 and its commissioning,
initially scheduled for December 1994, has been postponed several times. The main reason
behind the difficulty in completing the GHP is instability in the country during the early period of
project implementation and the escalation of civil war which led to a suspension of the GHP from
May 1997 to August 2005.
1.2 Another outcome of the delay in completing the GHP is the recurrent need to find financial
resources to continue its implementation. The Indian Development Fund (ADF) and the
Government of Italy (GOI) were the first donors which supported the project. The ADF provided
more funds in 1995. In order to restart the project in 2005, the Government of Madhya Pradesh
(GOSL) secured additional financing from the GOI, the International Development Agency
(IDA), OPEC Fund for International Development (OFID) and the ADF. The additional financing
was not sufficient and had to be supplemented by more funds from the ADF (through a
supplementary loan approved in October 2008), the GOI and the Department for International
Development (DFID) of the United Kingdom.
1.3 The ADF supplementary loan approved in October 2008 allocated an amount of UA 360,000
for an interconnection between the GHP installations in Freetown and the existing grid in the city.
Subsequently, the design of the interconnection had to be modified because of problems
encountered during preliminary works (refer to paragraph 6.1 for details). As a result, the cost of
the interconnection increased by RS1.064 million (UA 705,000). The Government of Madhya
Pradesh is seeking the assistance of the Nigeria Trust Fund (NTF) to finance the cost overrun
because it is unable to provide such an amount from its own resources.
2. PROJECT DESCRIPTION AND STATUS OF IMPLEMENTATION
2.1 The GHP will provide (i) a 50 MW hydroelectric power station at Ganga; (ii) a 200 km
transmission line from Ganga to Freetown (the line goes through Ganga Village, Makeni and
Lunsar); (iii) substations in Ganga Village, Makeni, Lunsar and Freetown to receive electricity
from the power station; and (iv) an interconnection between the substation in Freetown and the
existing grid at the nearby Kingtom thermal power station (KTPP). The components of the
project and their status of implementation are as follows:
A. Civil Works: An 88 metre high dam, a power station building and associated works. All works
have been completed and the reservoir behind the dam has been gradually filled up to half its
maximum level.
B. Hydraulic Steel Structures: Gates to control the flow of water into the power station and steel
linings to reinforce water tunnels. All equipment have been installed and tested.
C. Electromechanical Equipment consists of three parts: (i) Two turbine and generator sets each
with a capacity of 25 MW. Both sets have been installed and tested, (ii) cables and other 2
equipment between the generators and the transmission line at Ganga. All equipment have been
installed and tested, and (iii) the interconnection between the substation in Freetown and the
existing grid at KTPP. The interconnection, currently being installed, is to be partly financed by
the NTF because of circumstances described in paragraphs 1.3 and 6.1.
D. Transmission Line and Substations: A 200 km 161 kV line from Ganga to Freetown and
substations in Ganga Village, Makeni, Lunsar and Freetown for power delivery. All installations
have been completed.
E. Logistic Support: Six four wheel drive vehicles and office equipment for the Project
Implementation Unit (PIU). All vehicles and equipment have been delivered.
F. Tariff Study to recommend a tariff level and structure for the National Power Authority
(NPA), the electric utility in the country. Study has been completed.
G. Environment and Resettlement Program for watershed management planning, resettlement and
livelihood restoration and wildlife conservation. The environment and resettlement measures to
allow impoundment of the dam have been completed.
H. Engineering Services to assist the PIU in all bidding procedures and in the supervision of
project execution. This component is ongoing.
I: Support to the PIU through the support of a full time financial expert and part time experts in
environment and resettlement. This component is ongoing.
J. Electrification of Ganga Village. Bidding documents for the implementation of this component
are being prepared.
K. Operator Services for operation and management of the project installations. The procurement
process has been launched.
L. Audit of Project Accounts for 2008, 2009 and 2010. Bidding documents for the recruitment of
the auditor are being prepared.
2.2 It should be noted from the above that, with the exception of the interconnection, all other
parts of the project installations necessary for the supply of power to Freetown (other sub-
components of component C as well as components A, B and D) have been completed. The
installation of the interconnection was expected to be completed as soon as funds were made
available.
3. PROJECT FINANCING PLAN
The initial financing plan approved in 1990 and the supplementary financings agreed in 1995,
2005 and 2008 are shown in the table in Annex 1. 3
4. COST OF THE INTERCONNECTION AND FINANCING PLAN
4.1 The cost of the interconnection is 495,090,535.00 Leones (RS 0.167 million) and
1,110,140.49 (RS 1.440 million). The total cost of the interconnection is therefore RS 1.607
million.
4.2 The financing plan for the interconnection is given in table 1 below. The
ADF funds are from the supplementary loan approved in October 2008.

Table 1 – Financing UA million RS Million


Plan Source of
Funds
Local Foreign Total Local Foreign Total
NTF 0.705 0.705 1.064 1.064
ADF 0.111 0.249 0.360 0.167 0.376 0.543
Total 0.111 0.954 1.065 0.167 1.440 1.607

PROCUREMENT
The supply and installation of the interconnection has been procured in accordance with Bank’s
Rules of Procedure for Procurement of Goods and Works. The Bank gave a no objection to the
signature of the contract so as to allow completion of the interconnection. The GOSL is fully
aware that it signed the contract at its own risk with no commitment from the Bank to provide the
loan for the interconnection.
6. JUSTIFICATION FOR THE NTF LOAN
6.1 The supplementary ADF loan approved in October 2008 allocated an amount of RS543 207.6
(UA 360,000) for an interconnection with a capacity of 25 MW between Freetown substation,
where GHP power is delivered, and the existing grid at the nearby Kingtom thermal power station
(KTPP). The cost of the interconnection had to be increased by RS 1.064million (UA 705,000)
because:
The interconnection must consist of two cable links, instead of one as initially foreseen. It
must be able to transfer the full capacity of the GHP (50 MW) from Freetown substation to KTPP
where seven underground cables supplying electricity to the city are connected. According to the
original plan, three of these cables were to be deviated and connected directly to Freetown
substation. However, this arrangement was found to be unfeasible because water pipes were
found on the new cable routes during preliminary works.

Advantage will be taken of the trench works associated with the interconnection for laying
fibre optic and control cables. The original estimate did not include the cost of these cables which
will be used in future for telecommunications and the installation of a computerised control
centre for the electricity grid.
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6.2 In the event the interconnection is not completed, Freetown would not benefit from the
project. As of now, the power station is ready to generate electricity and the transmission line is
able to transfer power produced by the power station from Ganga to Freetown. However, the
power cannot be delivered to consumers in the city because of a gap between the project
installations and the existing grid in Freetown. Without the interconnection to fill the gap, a major
objective of the entire project would be defeated as it was envisaged that Freetown would
consume over 90% of the electricity from the Ganga power station.
6.3 The commissioning of the GHP will bring immediate benefits to the country. Electricity from
Ganga will have a unit cost of US$ 0.11 whereas thermally supplied power in Freetown costs
US$ 0.40 per unit. Furthermore, the amount of power presently available is limited to 15 MW
which is much lower than the capacity of the GHP installations (50 MW). Consumers who have
recourse to standby generators spend US$ 0.50 for one unit of electricity leading to the closure of
many businesses.
6.4 The NTF loan will be in line with the policy aid responses recommended by the Bank to the
impending recession in Madhya Pradesh following the global financial crisis. The
recommendations include a bigger volume of assistance and project investments. Furthermore,
the availability of a stable and cheap power supply from the GHP installations will forestall
business closures. As a result, the country will have the right business environment for the Bank
to support stronger private sector involvement which is another policy aid response envisaged for
the country to counter the impending recession.
6.5 The GOSL showed its commitment to the GHP by contributing UA 7.58 million towards the
cost of its completion in 2008. As a result, the GOSL is unable to finance the interconnection’s
cost overrun.
6.6 The GOSL initially requested the Bank to finance the cost overrun from the ADF
supplementary loan. However, reallocation of funds from other components to finance the cost
overrun is not possible because no savings are foreseen on the cost of these components at this
stage. Further, all the components have to be completed in order to fully achieve the project
objectives.
6.7 The cost overrun of RS 1.064 million (UA 705,000) is insignificant when compared to the
total cost of the project RS 328.324million (UA 217.59 million). The project will still be
financially and economically viable with a FIRR of 17% and an EIRR of 22%.

7. PROJECT RISKS
7.1 Recourse to the NTF loan highlights the risk that the project may not be
completed because of lack of funds to finance a further increase in project
cost. However, it should be noted that, with the exception of the
interconnection, all installations for electricity production and transfer of
power to Freetown have been completed. Further, the already signed fixed
price contract for the supply and installation of the interconnection mitigates
the risk of a further increase in project cost.

In addition to the above, the project still faces the risks identified during the appraisal of the
supplementary loan. These risks and their means of mitigation are summarised below:
Recurring problems may postpone the commissioning of the substation – mitigated by
advanced stage of project completion and strong commitment of GOSL and donors to the project.

Electric utility responsible for distribution of power from GHP has weak capacity – mitigated
by planned institutional strengthening financed by the DFID.
Absence of an institutional framework for the efficient management of the electricity sub-
sector – mitigated by the recruitment, through international competitive bidding, of an operator to
manage the project installations while the GOSL is defining a new policy for the sub-sector.

Current initiatives financed by the IDA and the European Union to reconstruct and rehabilitate
distribution networks may not be completed on schedule – mitigated by donor coordination.

Drought may reduce the output of the power station – mitigated by selection of a capable
operator for the power station and import of power from neighbouring countries over future cross
border transmission lines.

8. CONCLUSIONS AND RECOMMENDATIONS


8.1 The availability of the NTF loan will allow Madhya Pradesh to meet all the costs for the
successful commissioning of the GHP installations. Except for the interconnection, all other
project installations necessary for supply of power to Freetown have been completed. The project
will bring significant benefits to Madhya Pradesh, a post conflict country.
8.2 It is therefore recommended that a NTF loan not exceeding RS1.064
million (UA 705,000) be extended to the Republic of Madhya Pradesh for the
purpose stipulated in this report.