India

Kothagudem “A” Thermal Power Station Rehabilitation Project

Field Survey: July 2003

1. Project Profile and Japan’s ODA Loan

China

New Delhi Nepal Bhutan

Bangladesh

Calcutta Myanmar
India

Thailand
Project site
Hyderabad

Site Map Overall View of Kothagudem “A” Thermal Power Station

1.1 Background
In its 8th 5-Year Plan (FY 1992-1996), the Indian government set the targets of eliminating power
shortages, enhancing power generating facilities’ capacity utilization ratios, improving power supply
efficiency by reducing power transmission and distribution losses, ensuring fair electricity rates, and
encouraging private sector participation.
As of the end of March 1993, the installed power generation capacity in Andhra Pradesh (AP) State
was 5,080MW, of which 4,228MW was owned by the Andhra Pradesh State Electricity Board
(APSEB). This was the third-largest capacity among state electricity boards in India following
Maharashtra and Uttar Pradesh. However, looking at the supply-demand balance, the total amount of
electricity provided in FY 1993, including the power supply from central organizations such as the
National Thermal Power Corporation, was 3,920 MW, or only 80% of the estimated peak time
demand of 4,908MW. In terms of energy amount, only 26,886GWh of electricity was supplied
against the demand of 28,589GWh, causing a shortfall of 1,703GWh (6.0%). Therefore, power
supply restrictions were imposed intermittently in AP State, which impeded economic development
(especially manufacturing) in the state.
The Kothagudem “A” Thermal Power Station (60MW × 4 units) is located on the outskirts of
Paloncha, which is 230km east of Hyderabad, the capital of AP State. Since it started operations in
1966, it has been playing a central role in thermal power generation by APSEB along with the more
recently constructed Kothagudem “B” (110MW × 2 units) and “C” (110MW × 2 units) Thermal
Power Stations. However, as more than 25 years had passed since the completion, the “A” Power
Station had become so decrepit that the output had declined to 50MW/unit. Therefore, it needed
rehabilitation (modernization).

1.2 Objectives
The objective was to ease power shortages expected to continue in Andhra Pradesh State by

1
rehabilitating the boilers, turbines, and power generators of Kothagudem “A” Power Station, and
thereby contribute to economic development of the state.

1.3 Output
The planned outputs of the project were as follows:
[Thermal power generation equipment]
· Rehabilitation of 4 boilers
· Rehabilitation of 4 turbines
· Rehabilitation of 3 power generators*1

Among the total project cost of 6,262 million yen, 5,092 million yen (81% of the total project cost)
is covered by the ODA loan, consisting of the entire foreign currency portion (4,847 million yen) and
part of the local currency portion (equivalent to 245 million yen). The remaining portion is financed
by the Indian side with the executing agency’s own funds.

1.4 Borrower/Executing Agency

Borrower: The President of India
Executing Agency: Andhra Pradesh State Electricity Board (APSEB) *2

1.5 Outline of Loan Agreement

Loan Amount / Loan Disbursed Amount 5,092 million yen / 5,084 million yen
Exchange of Notes / Loan Agreement December 1994 / February 1995
Terms and Conditions
-Interest Rate 2.6%
-Repayment Period (Grace Period) 30 years (10 years)
-Procurement General untied
Final Disbursement Date April 2002

2. Results and Evaluation

2.1 Relevance
At the time of appraisal, as already stated, AP State was expected to continue to suffer a power
supply shortage, and there was an urgent need to secure new power supply sources. At the same time,
as the target power station (Kothagudem “A” Power Station) was becoming decrepit, rehabilitating it
to recover its functions and have it contribute to correcting the supply and demand imbalance was
consistent with government policy. The national development plan at that time set the goal of
increasing power supply through various measures, such as “improving the capacity utilization ratio
of power generating facilities.” The “B” and “C” Power Stations at the Kothagudem Power Plant
also required rehabilitation. However, the “A” Power Station was given higher priority because it

1 One generator was excluded from the project because APSEB had already arranged to procure materials and machinery at the time
of appraisal.
2
As APSEB was divided into separate sectors due to the unbundling in 1999, the current executing agency (power generation
sector) is Andhra Pradesh Power Generation Corporation Ltd. (APGENCO).

2
was constructed seven to eleven years before the other two power stations and had deteriorated
considerably. *3 Thus, this project was highly necessary and important to fulfill beneficiaries’ needs
and government policy, and therefore the project plan was sufficiently relevant.

In its 9th 5-Year Plan (FY1997-2001), the government stated its commitment to further promoting
proper handling of electricity demand. Also, the project is consistent with the policy of developing
the electricity sector mainly in remote regions under the 10th 5-Year Plan (FY 2002-2006) as well as
the policy of increasing power generation and promoting efficient operation of the electricity system
under the AP State Electric Power Development Plan (2020). Therefore, the project has remained
highly relevant to the present.

2.2 Efficiency

2.2.1 Output
This project was implemented almost as planned.

2.2.2 Project Period

A comparison of the planned and actual schedules is presented below.

Item Planned Completion Actual Completion

Exchange of L/A February 1994 February 1995
Consultant Agreement September 1995 June 1996
Project Agreement June 1997 October 1997
Rehabilitation of No.1-No.4 Units January 2001 October 2000

The rehabilitation was completed earlier than initially scheduled. According to the executing agency,
the main reason for the early completion is improving the efficiency of the procurement procedure.

2.2.3 Project Cost

The project cost was below the initial estimate. By currency, the foreign currency portion was 5,084
million yen against the estimated 4,847 million yen, and the local currency portion was 335 million
Rs against the estimated 421 million Rs. The total cost in yen terms was 6,211 million yen against
the estimated 6,262 million yen.
Both the consultants and contractors are highly evaluated by the executing agency. No problem has
been reported concerning their supervising or constructing ability.

In summary, the project was essentially implemented as planned, and both the project cost and
implementation period were within the initial estimated range. Therefore, the efficiency of the
project implementation was high.

3
The rehabilitation of Kothagudem “B” Power Station was completed in 2001 and that of “C” is scheduled to start in August this
year (as of the time of this survey).

3
 2.3 Effectiveness
2.3.1 Operational Indicators
We obtained data on power generation, thermal efficiency, plant load factor (PLF), capacity
utilization ratio, etc. Every indicator has improved compared to before the project.

Operational Effectiveness Indicators of Kothagudem “A” Thermal Power Station

FY 1996 1997 1998 1999 Target 2000 2001 2002
Indicator
Total Power 1,395 1,222 1,168 1,616 ― 1,698 1,753 1,844
Generation (GWh/y)
In-Plant Power 9.02 9.07 9.07 8.52 8 8.19 8.03 7.70
Consumption (%)
Thermal Efficiency 25.72 25.79 28.29 30.58 32.5 29.22 31.92 30.13
(%)
Plant Load Factor 66.37 58.13 55.58 76.63 65 80.74 83.39 87.71
(PLF) (%)
Availability Factor 93.06 77.39 72.47 93.47 ― 90.00 91.75 95.10
(%)
Forced Outage Rate 2.87 19.38 17.15 2.06 ― 1.31 2.37 1.60
(%)
* Shaded columns indicate the actual period of rehabilitation. Source: APGENCO

Each indicator is analyzed below.

Maximum Output
As a result of rehabilitation, the output of the “A” Power Station’s four turbines had recovered to
around 60MW each, nearly the rated output level, in FY 2002.

Plant Load Factor (PLF)

PLF exceeded 87% in FY 2002. Since efficiency and output have increased since the rehabilitation,
economical and stable operations have been realized. As a result, the need for operations has
exceeded expectations and the PLF has improved.

Thermal Efficiency
Efficiency improved to 30.13% in FY 2002 and is coming close to 32.5%, the target set for this
project.

In-Plant Power Consumption

The ratio had declined to 7.7% in FY 2002, achieving the target of 8% for coal thermal power plants
in general.

Availability Factor
The ratio was 95.10% in FY 2002. As with PLF, since the efficiency and output have increased since
rehabilitation, economical and stable operations have been realized. As a result, a
higher-than-expected availability factor has been achieved.

4
Forced Outage Rate
The forced outage rate dropped to 1.60% in FY 2002, well below the national average of 11.30% in
that year.

2.3.2 Contribution to the Improvement of AP State’s Electricity Situation

As it is difficult to measure the impact of this project separately, we examined the impact of all
electricity projects in AP State as a whole, including this project.

1) Improvement of power supply/demand situation

The power supply/demand situation in AP State for the period between FY 1994 and FY 2002 is
shown below.

Peak Time Electricity Supply/Demand in AP State (Unit: MW)

FY 1994 1995 1996 1997 1998 1999 2000 2001 2002
Demand 5,224 5,576 6,132 6,592 7,280 7,672 8,043 7,929 7,645
Shortage 790 1,000 1,110 850 800 988 900 900 750
Gap (%) 15.1 17.9 18.1 12.9 11.0 12.9 11.2 11.4 9.8
Source: APTRANSCO

Power Supply/Demand in AP State (Unit: GWh)

FY 1994 1995 1996 1997 1998 1999 2000 2001 2002
Demand 31,588 33,133 35,975 39,666 41,172 46,890 48,017 48,176 49,361
Shortage 1,609 2,215 2,318 1,496 560 1,138 1,272 1,225 1,425
Gap (%) 5.1 6.7 6.4 3.8 1.4 2.4 2.6 2.5 2.9
Source: APTRANSCO

Comparing the data for 2002 with that for 1996, the year immediately before the rehabilitation, the
peak time power shortage was reduced from 1,110MW to 750MW and the percentage of shortage to
the peak time demand was halved from 18.1% to 9.8%.
The power surplus (power supply minus demand) improved from -2,318GWh in FY 1996 to
-1,425GWh in FY 2002, and the percentage of shortage in relation to power demand significantly
decreased from 6.4% to 2.9%.
Power generation at the sending end of Kothagudem “A” Thermal Power Station in FY 2002 was
1,702GWh, accounting for 3.6% of the total power generation in AP State.

Power Generation at the Sending End of Kothagudem “A” Thermal Power Station
Fiscal Year 1996 1997 1998 1999 2000 2001 2002
Power Generation
at the Sending End 1,270 1,111 1,062 1,478 1,558 1,613 1,702
(GWh)
Total Power
Supply in AP 33,657 38,170 40,612 45,752 46,745 46,951 47,936
State (GWh)
Percentage to the
Total Power
3.8% 2.9% 2.6% 3.2% 3.3% 3.4% 3.6%
Supply in AP
State
Shaded columns indicate the period when the rehabilitation was performed intensively. Source: APTRANSCO

5
2) Increase in power consumption per person
Power consumption per person increased from 374kWh a year at appraisal (1994) to 510kWh in FY
2001.*4

2.3.3 Internal Rate of Return

APGENCO sets the electricity sales price for APTRANSCO (a transmission company established
due to the unbundling of APSEB) at a level those results in neither profit nor loss (the price is
determined by adding up the costs of power generation subject to government approval). Therefore,
calculating the Financial Internal Rate of Return (FIRR) by the usual method (comparing the cash
flow without the project with the cash flow based on the actual data obtained after project
implementation) would not correctly reflect the profitability of this project. Therefore, we calculated
FIRR by regarding the investment expenses as the cost and saved expenses as the benefit.*5
The recalculated FIRR stood at 12.1%, exceeding the estimate (11.6%) at appraisal. Assumptions for
the recalculation are as follows.

(1) Saved expenses of coal

Benefits 0.18kg of coal was saved per 1kWh. The saved expenses are calculated by
(Saved expenses) multiplying the saved volume by the coal price.
(2) Saved expenses of fuel oil
The executing agency’s records show that 70.3 million Rs was saved in four
years from FY 1999 to 2002. The annual average of saved expenses is assumed
to be 17.5 million Rs, a quarter of the above amount.
(3) Saved expenses of in-plant power consumption
As with the above, 106.4 million Rs was saved in 4 years. The annual saved
expenses are assumed at 26.6 million Rs, a quarter of the above amount.
Cost Actual investment cost: 1,848.2 million Rs
Project Life 15 years
Others Since the project facilities are not new, it is assumed power generation will
decrease gradually from 2003.

2.4 Impact

2.4.1 Impact on Activation of Industries

Generally speaking, improving the electricity infrastructure leads to development of industries. The
average annual growth rate of real GRDP of AP State between FY1998 and FY2001 was
approximately 6.7%, exceeding the national average of 5.7%.
The increase in power supply and the extension of the plant service life brought about by the project
is expected to help activate industries in AP State. This expectation is based on the fact that 25% of
electricity sales in AP State is for industrial use, according to the data on electricity sales to
customers by category, and the fact that electricity demand for industrial use is projected to grow
12.1% a year on average from FY 2000. However, the direct effects on industry are unclear.

4
The Indian national average in 1999－2000 was 354kWh (Source: Annual Report on the Working of State Electricity Boards &
Electricity Departments, Planning Commission). As for the rural electrification rate, which was initially planned to be used as an
indicator, AP State had already achieved 100% by 1990.
5
Saved fuel expenses are not the only benefit of this project. Other expenses, such as operation and maintenance expenses, would
have been higher without the project. Therefore, the FIRR calculated by this method might be a little lower than the actual figure.

6
 Changes in GRDP and Power Consumption in AP State
Fiscal Year 1994 1995 1996 1997 1998 1999 2000 2001
Real GRDP (10
61,114 64,729 68,809 67,866 76,116 79,605 85,522 88,765
million Rs)
Power Supply
29,979 30,918 33,657 38,170 40,612 45,752 46,745 46,951
(GWh)
Source: Statistics by AP State Government, APTRANSCO (GRDP is based on fixed prices of FY 1993)

2.4.2 Other Environmental and Social Impact

1) Environmental impact
According to the interview with the executing agency, no particular problem such as air pollution,
water pollution, noise or vibration has been reported in connection with the project. In the interview
survey of the local residents*6, too, no environmental problem was pointed out.
The following are issues that have been of concern from appraisal and those for which conditions
have substantially changed, as well as the measures taken to address these issues.

Securing an industrial waste disposal site (ash pond)

At the time of appraisal, it was pointed out that “the ash pond would be filled up in two years.” In
order to address this problem, a new ash pond was constructed adjacent to the existing one in 1999.
At the time of this survey, we were told that it would be two years before the new ash pond would be
filled up.
After that, the executing agency is planning to make it possible to dispose of waste for another ten
years by acquiring and utilizing government-owned forest land. In order to enhance the sustainability
and environmental appropriateness of the project, the executing agency is required to start a
procedure to systematically secure additional ash ponds in due time, including site acquisition and
financing as necessary.
The executing agency is currently conducting a study on the reuse of coal ash as fertilizer jointly
with the Ministry of Agriculture and local universities.
JBIC also conducted the “Simhadri Thermal Power Station Project (I)(II)” and interim monitoring
survey in AP State, and is making proposals on effective use of coal ash, including strategies for
developing a potential market and the use of coal ash products in road construction and agriculture.

Emission standard for suspended particulate matter (SPM)

The standard for SPM is becoming stricter every year. The standard set by the Andhra Pradesh
Pollution Control Board was 150mg/Nm3 (for power generation facilities with a rated output of
210MW or more) as of this evaluation, while APGENCO established its own standard of 50mg/Nm3
in May 2003. According to the executing agency, two of four turbines of the target power station
meet APGENCO’s own standard, and the remaining two turbines are expected to satisfy the standard
before long.

2) Impact on local residents

As this project rehabilitated the existing power station, it did not require relocation of the residents.
One of the impacts of the Kothagudem Power Plant project as a whole, including other power
stations that were not covered by the project (“B” and “C”), is employment of local residents at the

6
Targeted about 30 residents in three locations several kilometers north, east and south of the premise of the power station.

7
power plant and related facilities. At present, about 3,000 persons in total are employed by the entire
power plant, including the power stations “A” to “C,” and 70-80% of them are local residents.

2.5 Sustainability

2.5.1 Executing Agency (APGENCO)

(1) Technical capacity and operation and maintenance system
The number of employees of the power plant has decreased from 450 at appraisal to 370 at present.
There are eight departments under the Superintending Engineer, who has control of the whole
organization. Workforce stability has been maintained. The power plant considers its technical staff
to be sufficient in both terms of quality and quantity.

(2) Financial Status

The operation and maintenance expenses over the past three years (FY 1997-1999) were 288.5,
385.7, and 497.87 (million Rs), respectively. The executing agency says these amounts are sufficient
to perform operation and maintenance activities in the present manner and the same level of budget
will be secured for the future. The operation and maintenance expenses in FY 1999 were 497.87
million Rs, accounting for approximately 1.5% of APGENCO’s total expenditure in the same year
and 7.4% of the general administrative expenses.
Among the power generation costs, fuel expenses were kept around 950 - 1,000 Rs per ton in these
years partly because of tariff adjustments by the government*7. There is no problem at this moment
in procuring coal for fuel thanks to a coal mine with a rich reserve of coal in the vicinity. Since the
electricity tariff is determined by adding up the costs required for power generation subject to
approval of the Andhra Pradesh Electricity Regulatory Commission (APERC), APGENCO achieved
a stable balance between income and expenditure. The electricity tariff has been gradually increasing
over the past 3 years. *8

According to the financial statements for FY 1999, sales increased from the previous year while
expenditure increased by a larger margin due to a rise in the depreciation cost associated with
investment, resulting in an increase of the current deficit to approximately 2,040 million Rs.
According to APERC, however, the financial conditions of the executing agency (APGENCO) and
the transmission company (APTRANSCO) have been improving since FY 1999.*9

2.5.2 Operation and Maintenance Status

All facilities and machinery covered by the project are operating in good condition without any
defect or fault. Maintenance activities, mainly daily inspections, are performed on a regular basis
according to a previously determined plan. As evident by the excellent operational performance of
the power station, project facilities are being operated and maintained at a sufficiently high level.
Maintenance activities are outlined below.

7
The Standing Linkage Committee, consisting of representatives of the government, major producers and major consumers, meets
on a quarterly basis to discuss and determine the tariff.
8
The tariff (rupee) per kWh was 1.53 in FY 2000, 1.61 in FY 2001, and 1.83 in FY 2002. These tariffs are below the sales prices by
independent electric utility businesses in the state and electric power companies in neighboring states.
9
The person in charge (of electricity rates) at APERC said, “Subsidies from the government have also been decreasing. For the next
year, the tariff will be determined at a level that will not cause any deficit based on the cost estimates. Subsidies are expected to be
abolished in two to three years, but it will be possible to cover all expenses with sales only.”

8
 Classification of Maintenance Frequency
Activities
Regular Maintenance Performed once a year for boilers, turbines, power generators
and their accessories
Predictive Maintenance Performed when necessary based on the result of daily
inspections
Preventive Maintenance Performed pursuant to instructions (manuals) of the
manufacturers
Capital Overhaul Performed once every 5 years and parts are repaired or
replaced as necessary

In summary, the power station rehabilitated under the project is sufficiently performing its expected
functions and no problem has arisen to date concerning the functioning of the facilities. Also, an
appropriate system and adequate budget are ensured for the operation and maintenance of these
facilities, and operation and maintenance activities are being carried out properly. The financial
status of the executing agency has been improving. Therefore, this project is regarded as sufficiently
sustainable.

3. Feedback

3.1 Lessons Learned

None.

3.2 Recommendations
None.

9
 Comparison of Original and Actual Scope
Item Planned Actual
(1) Output

Thermal power generation Rehabilitation of 4 boilers As planned

facility Rehabilitation of 4 turbines As planned
Rehabilitation of 3 power generators As planned

Consulting Service (1) F/S evaluation (1) Not implemented

(2) Evaluation and assistance for (2) Not implemented
evaluation of bidding (3) Partially implemented
documents
(3) Evaluation of the performance
tests
(2) Project Period
Exchange of L/A Feb. 1994 Feb. 1995
Consultant Agreement Jan. 1995 – Sep. 1995 Aug. 1995 – Jun. 1996
Project Agreement Oct. 1995 – Jun. 1997 Oct. 1995 – Oct. 1997
Rehabilitation of No.1 Unit Jul. 1997 – Mar. 1999 Jun. 2000 – Oct. 2000
Rehabilitation of No.2 Unit Apr. 1998 – Sep. 1999 Aug. 1998 – Oct. 1998
Rehabilitation of No.3 Unit Oct. 1998 – Jun. 2000 Feb. 1998 – Apr.1998
Rehabilitation of No.4 Unit Jul. 1999 – Jan. 2001 Oct. 1998 – Dec. 1998

(3) Project Cost

Foreign Currency 4,847 million yen 5,084 million yen
Local Currency 1,415 million yen 1,127 million yen
(denominated in local (421 million Rs) (335 million Rs)
currency)
Total 6,262 million yen 6,211 million yen
ODA Loan Portion 5,092 million yen 5,084 million yen
Exchange Rate 1 rupee = 3.36 yen 1 rupee = 3.36 yen

10
 Third Party Evaluator’s Opinion on
Kothagudem “A” Thermal Power Station Rehabilitation Project

Mr. S.K.N. Nair

Advisor
National Council of Applied Economic Research

Relevance
Capacity shortages are so acute in India’s power sector that any addition to generating capacity
is beneficial to the system and the economy that it serves. There are two factors that further
enhance the relevance of the project under review. At the time of the rehabilitation, the units
were thirty years old and the plant would have suffered further scaling down of capacity, even
outright scrapping in a few years’ time. By restoring the units to nearly the original designed
capacity and extending their life by 15 years at a cost of Rs. 1.848 billion, the project has
effectively postponed investment in new plant of 240 MW that, on current costs would have
consumed an outlay in excess of Rs. 10 billion. Also, the net addition of 40 MW capacity has
been achieved within an implementation period of 33 months (Feb. 1998 to October 2000),
approximately half the time that a green field project would have entailed, in Indian conditions.

The second factor of relevance relates to the changes that have occurred in India’s, and
specifically Andhra Pradesh State’s, power sector after this project was taken up for
implementation. The State power sector is now overseen by an independent regulator who has
promoted several reforms, one of them the introduction of merit order dispatch of plants, in their
order of variable cost of generation. The plant under review is operating at better than the
planned efficiency levels, which should guarantee a good ranking in this system of dispatch and
hence continued high plant utilisation.

Sustainability
The high operation indicators registered by this plant attest both to the managerial skills of the
executing agency and to the enlightened regulatory practices just referred to. Andhra Pradesh
has consistently achieved the best Plant Load Factors among all public sector thermal plants –
State as well as Central – in India for the last six years.

AP Genco’s operational and implementation strengths could be put to gainful use to the national
power sector, especially in the sector’s newly liberalized structure. The generation segment is
now opened up to free entry; phased introduction of competition is envisaged also for the
distribution segment. As an instance of well-implemented plant rehabilitation, the project under
review could serve as model to several other aging units that are marked out for renovation
across India’s power sector. The current Tenth Five-Year Plan (2002-‘07) identifies 106 thermal
units (total capacity 10,413 MW) for ‘Renovation and Modernization’ (R&M), to be taken up
based on plant-specific ‘residual life assessment studies’. Ambitious targets set for R&M in
recent Five-Year Plans have remained under-fulfilled, chiefly owing to institutional and
financing constraints. With the flexibility allowed by the new dispensation, the rehabilitated
units can now be spun off to operate as Independent Power Projects that could cater to bulk or
retail distributors and compete on cost and reliability parameters. This opens up scope for
public: private partnerships in diverse forms. Under the new law, AP Genco itself could
promote or partner such ventures not only in Andhra Pradesh but also beyond the State
boundaries.