for official use only - world bankdocuments.worldbank.org/curated/en/681651468273612665/... ·...

Document o f The World Bank and MIGA

FOR OFFICIAL USE ONLY

Report No: 37098-50

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED IBRD PARTIAL RISK GUARANTEE IN THE AMOUNT OF USD 45 MILLION

FOR JORDAN

AND

PROPOSED MIGA GUARANTEES IN THE AMOUNT OF USD 69.75 MILLION

FOR SPONSORS EQUITY AND LOANS

AMMAN EAST POWER PLANT PROJECT

February 14,2007

Energy Team Sustainable Development Department M idd le East and N o r t h A f r i ca Region

Finance, Economics, and Urban Department Sustainable Development Vice-presidency

Infrastructure Sector Team MIGA

This documcnt has a restricted distribution and may bc uscd by recipients only in the pcrfoi-rnancc o f their official duties. Its contents may not othcrwisc be discloscd without World Bank authorization.

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CURRENCY EQUIVALENTS (Exchange Rate Effective = January 1,2007)

AES Jordan Holdco Ltd AES Jordan PSC BOO CAS CEGCO CF

DFO D O A EDCO EMF E M P EPC EPC Contractor ERC ESIA Fajr GDP GEF GJ GoJ GWh HRSG IA IDECO IMF IPP JBIC JD JEPCO kV kW kWh MEMR

mG mgmrn3 MIGA

dB(A)

Pdm3

Currency Unit = U S D

1000 Fils = 1 JD 1 U S D = 0.71 JD

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

Special purpose Cayman Islands company owned by the Sponsors Special purpose Jordanian company owned by AES Jordan Holdco Ltd Build, own, and operate Country Assistance Strategy Central Electricity Generation Company Capacity factor Decibel using A-weighted fi l ter Distillate fuel o i l (No. 4 Fuel Oil) Public Antiquities Department o f the Ministry o f Tourism and Antiquities Electricity Distribution Company Electro-magnetic f ield Environmental Management Plan Engineering, procurement, and construction Doosan Heavy Industries & Construction Co. Ltd Electricity Regulatory Commission Environmental and Social Impact Assessment Jordanian Egyptian Fajr for Natural Gas Transmission & Supply Company Gross domestic product Global Environment Facil ity Gigajoule Government o f Jordan Gigawatt-hour H.eat recovery steam generator Implementation Agreement Irbid District Electricity Company International Monetary Fund Independent power producer Japan Bank for International Cooperation Jordanian Dinar Jordan Electric Power Company Ki lovol t Kilowatt Kilowatt-hour Ministry o f Energy and Mineral Resources Micrograms per cubic meter Milligauss Mill igrams per normal cubic meter Multilateral Investment Guarantee Agency

FOR OFFICIAL USE ONLY

MMBtu MoE MoF M W M W h NEPCO NERC NRC O&M OPIC PPA PRG RE RFP ROW RPF RSCN Samra SMBC Sponsors Technical Services Provider Technical Services Guarantor TSA USD or US$ WAJ WSA

Mi l l ion British thermal units Ministry o f Environment Ministry o f Finance Megawatt Megawatt-hour National Electric Power Company National Energy Research Center National Regulatory Commission Operation and maintenance Overseas Private Investment Corporation Power Purchase Agreement Partial risk guarantee Renewable energy Request for Proposals Right-of-way Resettlement Policy Framework Royal Society for the Conservation o f Nature Samra Electric Power Generating Company Sumitomo Mitsui Banking Corporation AES Oasis Ltd and Mitsui & Co. L td AES Oasis Ltd AES Corporation Technical Services Agreement U S Dollar Water Authority o f Jordan Water Supply Agreement

For IBRD: Vice President: Daniela Gressani

Sector Manager: Jonathan Walters Task Team Leader: Reynold Duncan

Country Director: Joseph Saba

For MIGA: Executive Vice President: Yuk iko Omura

Director, Operations Department: Phil ippe Valahu Director, Economics and Policy: Frank J. Lysy

Senior Underwriter: Zhengrong Lu

- This clocunicnt has a restricted distribution and may be used by recipicnts only in the performance o f their off icial duties. I t s contents may not otherwise be disclosed without Wor ld Bank authorization.

Jordan AMMAN EAST POWER PLANT PROJECT

CONTENTS

Pape

A . STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 Country and sector issues .................................................................................................... 1

Rationale for Bank involvement ......................................................................................... 3 Higher level objectives to wh ich the project contributes .................................................... 3

1 . 2 . 3 .

B . PROJECT DESCRIPTION ................................................................................................. 4

1 . 2 . 3 . 4 . 5 .

Lending instrument-IBRD and MIGA guarantees ........................................................... 4

Project development objective and key indicators .............................................................. 7

Project components ............................................................................................................. 7

Lessons learned and reflected in the project design ............................................................ 7

Alternatives considered and reasons for rejection .............................................................. 8

C . IMPLEMENTATION .......................................................................................................... 8 1 . 2 . 3 .

Partnership arrangements .................................................................................................... 8

Moni tor ing and evaluation o f outcomes/results .................................................................. 9 4 . Sustainability ....................................................................................................................... 9

Critical risks and possible controversial aspects ................................................................. 9 Guarantee conditions and covenants ................................................................................. 12

Institutional and implementation arrangements .................................................................. 9

5 . 6 .

D . APPRAISAL SUMMARY ................................................................................................. 12 1 . Economic and financial analyses ...................................................................................... 12

2 . Technical ........................................................................................................................... 16

3 . Fiduciary ........................................................................................................................... 17

4 . Social ................................................................................................................................. 17

5 . Environment ...................................................................................................................... 17

6 . 7 .

Safeguard policies ........................................................................................ r .................... 21

Policy exceptions and readiness ........................................................................................ 21

Annex 1: Country and Sector or Program Background ...................................................... 23

Annex 2:

Annex 3:

Annex 4:

Annex 5:

Annex 6:

Annex 7:

Annex 8: Procurement Arrangements .................................................................................. 41

Annex 9: Economic and Financial Analysis .......................................................................... 45

Annex 10: IBRD Guarantee ................................................................................................. 61

Annex 11: MIGA Guarantees .............................................................................................. 70

Annex 12: Safeguard Policy Issues ...................................................................................... 73

Annex 13: Project Preparation and Supervision ................................................................ 91

Annex 14: Documents in the Project F i l e ............................................................................ 93

Annex 15: Statement o f Loans and Credits ........................................................................ 95

Annex 16: Country at a Glance ............................................................................................ 97

Annex 17: Map ..................................................................................................................... 100

Major Related Projects Financed by the Bank and/or other Agencies .............. 26

Results Framework and Monitoring ..................................................................... 27

Detailed Project Description .................................................................................. 29

Estimated Project Costs ......................................................................................... 35

Implementation Arrangements .............................................................................. 36

Financial Management and Disbursement Arrangements ................................. 40

JORDAN Amman East Power Plant Project

Date: February 14,2006 Country Director: Joseph Saba Sector Manager: Jonathan Walters Project ID: PO94306 Lending instrument: IBRD Guarantee, MIGA Guarantees

PROJECT APPRAISAL DOCUMENT

Team Leader: Reynold Duncan Sectors: Power (100%) Themes: Infrastructure services for private sector development Environmental screening category: A Safeguard screening category: S 1

Middle East and North Africa Region MNSIF

Source Japan Bank for International Cooperation Overseas Private Investment Corporation Sumitomo Mitsui Banking Corporation (covered by

AES Oasis Ltd (up to 95% covered by MIGA Guarantee) Mitsui & Co. Ltd (up to 95% covered by MIGA Guarantee) Total

IBRD Guarantee)

Local Foreign Total 0.00 1 10.00 1 10.00 0.00 70.00 70.00 0.00 45 .OO 45.00

0.00 45.00 45.00 0.00 30.00 30.00 0.00 300.00 300.00

Does the project depart f rom the CAS in content or other significant respects? Ref: PAD A.3 Does the project require any exceptions f rom Bank policies? Ref: PAD D. 7 Have these been approved by Bank management? I

N o

N o _ _

I s approval for any policy exception sought f rom the Board? Does the project include any critical r i s k s rated “substantial” or “high”? Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Ref: PAD D. 7

The project’s main objective is to meet the electricity needs o f the country in an economically and environmentally sustainable manner to contribute to economic growth and well-being o f the population o f Jordan. The project would add about 370 MW o f additional power to the system, help to ensure the reliability o f power supply and help maintain a margin between available capacity and demand o f at least 10%. The purpose o f the IBRD Guarantee i s to enhance competition and therefore help reduce the project’s financing costs. Project description [one-sentence summary of each component] Ref: PAD B.3.a, Technical Annex 4

Yes

Yes

The proposed project consists o f a 370 MW gas-fired combined-cycle power station to be developed, owned, and operated by a private-sector project company. The U S $ 300 mi l l ion power station wil l be constructed on a site located at Almanakher, east o f Amman Jordan and about 1 km from the Arab Gas Pipeline. The primary fue l supply wil l be natural gas from Egypt. Which safeguard policies are triggered, if any? Ref: PAD D. 6, Technical Annex 10 OP 4.01 Environmental Assessment; OP 4.12 Involuntary Resettlement Significant, non-standard conditions, if any, for: Ref: PAD C. 6 Board presentation: None Loadcredi t effectiveness: None Covenants applicable to project implementation: None

Jordan - 1 - Project Appraisal Document Amman East Power Plant Project February 2007

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

Despite continuing regional instability and a major terms-of-trade shock, Jordan’s stabilization efforts have gained traction in recent years with the assistance o f strong donor support and, more recently, an unprecedented level of capital inflows. Overall macroeconomic performance has improved, reflected in strong growth, narrowing o f the fiscal deficit after grants, and a decline in public and external debt ratios, although further effort i s needed to reduce them to sustainable levels. The current account deficit has begun to narrow after a significant deterioration and, according to the IMF, i s being financed mainly by long-term capital inflows. Currently, reforms are progressing well, particularly in the areas o f privatization, expenditurehudget management, and education. In addition, the Government o f Jordan (the Government or GoJ) has been considering tax system and social protection -system reforms, legislating a new public debt ceiling o f 60 percent (down from the current ceiling o f 80 percent) as the new fiscal anchor, and improving the conditions for greater public private partnership in infrastructure. These favorable outcomes have enabled Jordan to exceed the base-case triggers for 2006 in the Country Assistance Strategy (CAS). Performance in 2007 i s also expected to be strong, in the absence o f additional shocks.

Nevertheless, as highlighted in the CAS, Jordan faces significant challenges ahead, including the need to sustain competitiveness, given limited exchange rate flexibility and heavy dependence on international and regional capital markets. The burden o f adjustment for maintaining macroeconomic stability and reducing the external deficit falls on fiscal policy. Failure to sustain appropriate fiscal and structural reforms and to attract significant non-debt creating capital inflows could put pressure on the exchange rate, leading to a loss o f stabilization gains and the re-emergence o f adverse debt dynamics. These concerns contribute to Jordan’s perceived sovereign risk and the rationale for the proposed Partial Risk Guarantee (PRG) (see Section A.2 below).

As part o f the decade-long structural reform o f i t s economy, Jordan has sought to diversify the fue l m i x and supply sources in order to reduce dependence on imports and use o f oil, the consequent adverse balance of payments situation, and negative environmental impacts. Increasing the share o f natural gas significantly, promoting renewable energy sources (wind, solar, biogas, and geothermal), and promoting energy use efficiency are the three principal means through which the Government seeks to achieve a more sustainable energy balance in the future.

The Government has been actively looking at ways to promote exploration and development o f energy resources in Jordan, particularly oil, natural gas, and o i l shale. I t has adopted a new Electricity Law and the unbundling o f the power sector has been completed. The regulatory authority for the power sector, the Electricity Regulatory Commission (ERC), has been set up. A good start has been made with the gradual price adjustment o f petroleum product prices to bring them in l ine with international market prices. Extended to natural gas when required, this price


adjustment wi l l help mitigate the major risk o n the project’s sustainability, o f tariffs that are not cost-reflective. ’ The power sector i s f inancially viable. I t does not receive explicit financial subsidies f rom the Government budget, but has benefited f rom the use o f natural gas f rom Egypt at relatively favorable prices and some subsidies o n petroleum products. The structure o f retai l tariffs has s t i l l some elements o f cross subsidy and could be improved. ERC has init iated a comprehensive tariff review.

Most o f the distribution sector i s already owned by the private sector and the Government plans to further divest i t s shares in the Electricity Distr ibution Company (EDCO) and the Irbid Distr ict Electricity Company (IDECO). I t i s expected that the privatization o f Central Electricity Generation Company (CEGCO) wil l be successfully completed in the months to come. The Government i s also considering privatizing the Samra Electric Power Generating Company (Samra) through a public offering. The proposed project wou ld be the first fully privately owned power generation station.

The Bank has n o lending activities in the energy sector but it has been supporting GoJ in energy sector reform through analytical work, including preparation o f the Energy Sector Strategy in 2004. The Bank i s the implementing agency o f the ongoing U S A I D grant-funded support for privatization o f power sector entities and for a PPIAF-funded study to prepare a strategy for transition f rom a single buyer towards increased competition. (See “Annex 2-Major Related Projects Financed by the Bank andor other Agencies.”) The Government has sought, through the Bank, the assistance o f the Global Environment Faci l i ty (GEF) to reduce barriers to adopting renewable energy, and GEF has responded favorably to the preparation o f a promotional wind power project o f about 60 megawatts (MW). The Government has also requested Wor ld Bank assistance for establishing an energy efficiency fund.

Jordan began import ing natural gas f rom Egypt in 2003 and most o f i ts generation plant i s n o w operating on this fuel. Future thermal generation, including the proposed project, wil l predominantly use natural gas, and wil l be complemented by renewable sources such as wind. The Jordanian power system i s also interconnected with Egypt and Syria, and it uses these sources in case o f shortfalls from internal supply since the costs are higher. I t i s also planning to reinforce i t s transmission system to increase i t s capacity to wheel pqwer between i ts southern and northern borders.

The current peak demand for electricity on the interconnected system in Jordan i s about 1,500 MW. The installed capacity today i s about 1,800 MW, a reserve margin o f about 20%. However, the growth rate in electricity consumption i s forecast t o be about 3.5% per annum (mid-case), which indicates that the reserve margin wil l evaporate by 2010-which i s very soon in investment planning and implementation terms. Therefore, to maintain a prudent reserve margin, the Government has initiated work o n the proposed project, which i s intended to bring additional capacity o f 370 M W when fully commissioned.

’ I t should be noted, however, that the long-term natural gas supply agreement with Egypt wil l supply sufficient quantities o f natural gas for a l l existing generation units and this project.


2. Rationale for Bank involvement

PRGs and MIGA insurance are suited to helping governments transition from public to private finance through political risk mitigation and effective risk sharing with project sponsors and lenders. The Request for Proposals (RFP) for the proposed project therefore included a jo int Bank Group statement o f in-principle support for the project. This, as well as the transparent bidding process that satisfied the Bank’s requirement for economy and efficiency, have helped the Government attract competitive proposals for the project.

The project would not be bankable for private lenders without the support o f international financial institutions, bilateral donors, andor export credit agencies, given the large amount o f private capital required, perceived sovereign risks, and Jordan’s unproven track record in attracting large-scale investments. Support from multilateral institutions-the World Bank Group (International Bank for Reconstruction and Development (IBRD) and the Multilateral Guarantee Investment Agency (MIGA)) and bilateral donors (Japan Bank for International Cooperation (JBIC) and Overseas Private Investment Corporation (OPIC) o f the United States)-in the form o f direct loans and guarantees i s critical to bringing the project to fruition. The commercial lenders see World Bank Group involvement as essential, not only because o f i t s ability to provide comfort to various private participants in the project through guarantees, but also to ensure that the potential adverse environmental impacts o f the project are fidly addressed.

The proposed PRG, in a limited but significant way, has contributed to the sector reform dialogue by helping to establish an enabling and sustainable framework for private power projects and by raising the awareness o f the stakeholders in the Government toward the need for sector reform.

MIGA has previously undertaken projects in the water treatment and manufacturing sectors in Jordan. This project i s consistent wi th MIGA’s strategic focus on infrastructure as well as MIGA’s objective o f increasing its exposure in the Middle East and North Africa region. These proposed MIGA guarantees to foreign investors (the Sponsors) wi l l be MIGA’s f i rs t project in the energy sector in Jordan and should have a demonstration effect for private investments into the more regulated sectors o f Jordan when structured as BOO or other public-private partnerships.

3. Higher level objectives to which the project contributes

The Government sought the proposed PRG to reduce the perceived riskiness o f the investment environment in Jordan, subsequent to failure o f several private sector projects to materialize. This has resulted in competitive bids for the project, leading to selection o f AES Jordan PSC as the successful bidder, and i s expected to pave the way for further foreign investment in infrastructure. The ongoing reforms should lower perceived country risks by foreign investors, thereby lowering the requirements for PRGs and MIGA guarantees in the future.


Phase I

B. PROJECT DESCRIPTION

Risks/Obligation

1. Lending instrument-IBRD and MIGA guarantees

Construction I Operation

I

The Government has requested consideration o f a PRG and AES Oasis Ltd and Mitsui & Co. Ltd (the Sponsors) have filed a Definitive Application wi th MIGA. As confirmed by the Sponsors, the project i s unlikely to go ahead without Bank Group participation because o f the private sector’s perceptions o f political r isks involved in the project, especially payment risk by the National Electric Power Company (NEPCO) for purchases committed under the Power Purchase Agreement (PPA). Table 1 shows the allocation o f risks.

Cost overruns Construction delays

Implementation of Environmental Management Plan (EMP) and Resettlement Policy Framework (RPF)

Operation and maintenance , Output quality specijications

Implementation of EMP

Targs

Supply of natural gas and water Pavments under the IA and PPA

Table 1: Allocation of Key R i s k s

I

Pre-Construction I Project design 1 Financing

Concession Term ~ Currency devaluation ~

i Currency convertibility and i 1 transferability

1 Political,force majeure’

Sponsors and

Lenders2 w w

Government3 Risk

Mitigation Package4

Including private sector insurers and the EPC Contractor. Including electricity consumers. IBRD and MIGA are backstopping r isks associated with breach o f contract by the Government. Although not the

only triggers of the IBRD and MIGA guarantees, the following principal underlying risks to be borne by the Government under the Government Guarantee are worth highlighting: (a) failure by NEPCO to pay for energy and capacity under the PPA, (b) lack of U S Dollars to pay contractual amounts, and (c) prolonged and catastrophic events o f force majeure. As guarantor o f the Government’s performance, IBRD’s underlying project r isks (shown with 0 ) would be a subset of the Government’s, although ultimately IBRD’s reimbursement risk i s the same as for any IBRD Loan to Jordan.


Phase Sponsors Risk

RiskslObligation and Government3 Mitigation Lenders2 Package4

Changes in law

Expropriation j

~

Natural force majeure6 relating to the project I

Proposed ZBRD Guarantee

The proposed IBRD guarantee i s limited in coverage. IBRD wil l guarantee a portion o f the termination payment due by the Government to AES Jordan PSC in the event that AES Jordan PSC terminates the Indemnity Agreement as a result o f (i) failure by NEPCO to pay AES Jordan PSC under the PPA, or failure by the Water Authority o f Jordan (WAJ) to pay AES Jordan under the PSC, and failure by the Government to pay under the Government Guarantee, or (ii) failure by the Government to comply with i t s obligations under the Implementation Agreement. A termination o f the Indemnity Agreement wi l l result in the Government owing a “termination payment” to AES Jordan PSC, the latter being designed as damages to investors in AES Jordan PSC from the loss o f revenue. IBRD’s guarantee only covers this termination payment risk and wil l not directly cover breach o f other obligations undertaken by NEPCO or W A J under the project agreements, although indirectly there could be any number o f underlying causes for NEPCO payment default and termination o f the PPA, or for breach o f the Government o f i t s obligations under the Implementation Agreement. These potential causes include NEPCO or WAJ insolvency, prolonged and catastrophic events offorce majeure, and political violence.

As in other Bank guarantee operations, the arrangements wi l l be set forth in the following principal documents: Guarantee Agreement between IBRD and Sumitomo Mitsui Banking Corporation (SMBC); Proiect Agreement between IBRD and AES Jordan PSC; and Indemnity Agreement between IBRD and Jordan.

Guarantee Agreement. In addition to standard guarantee provisions, the obligation o f IBRD to make a payment under the PRG only arises where the following has occurred:

the PPA has been terminated by AES Jordan PSC due to a payment default by NEPCO or the Water Supply Agreement has been terminated by AES Jordan PSC, and a breach by the Government o f its obligations under the Government Guarantee;

the Government has failed to make the relevant termination payments to AES Jordan PSC that are required under the Implementation Agreement (IA);

AES Jordan PSC has presented either:

0

0

o an affidavit o f the Minister o f Finance o f Jordan that the Government owes AES Jordan PSC the relevant termination payment;

Polit ical force majeure: polit ical violence, war (declared or undeclared), national and regional strikes, coups d’dut,

Natural force majeure: acts o f God, earthquakes, fires, typhoons, etc. etc.


o a binding settlement agreement; or

o a duly authenticated arbitral award in favor o f AES Jordan PSC for such termination payment.

Proiect Agreement. The Project Agreement w i l l contain standard covenants, representations, and warranties, including that AES Jordan PSC has acted and wil l continue to act in compliance with applicable World Bank-approved EMPs and anti-conuption policies.

Indemnity Agreement. Jordan wil l (i) indemnify IBRD for claims paid under the IBRD Guarantee and related expenses, (ii) implement EMPs and the resettlement policy framework for the associated infrastructure, and (iii) ensure that the project’s and the associated infrastructure’s EMPs and resettlement pol icy framework are implemented in a coordinated manner.

Proposed M I G A Guarantees

Although the IBRD and MIGA guarantees are ultimately targeted at supporting the payment obligations o f the Government, the MIGA contracts o f guarantee will be offered directly to the Sponsors to cover their equity investments. The Sponsors wish to enhance credit support for termination payment obligations guaranteed by the Government. Therefore, they have requested MIGA Breach o f Contract cover o f GoJ’s termination payment obligations.

MIGA proposes to offer AES Oasis Ltd, a Cayman Islands incorporated company, and Mitsui & Co. Ltd, a Japanese company (the Guarantee Holders), guarantees covering their equity investment o f US$ 75 mil l ion into AES Jordan PSC, U S $ 4 5 mi l l ion o f which wil l be in the form o f shareholder loans. The coverage would be offered for a period o f up to 20 years against the risk o f Breach o f Contract only. MIGA will guarantee 90 percent o f the equity investment o f U S $ 30 mi l l ion and 95 percent o f the U S $ 45 mil l ion shareholder loans, which wil l translate into MIGA’s gross exposure o f US$ 69.75 million. MIGA’s net exposure under this project would be US$34.88 mil l ion after treaty reinsurance. See Annex 11 for MIGA’s Breach o f Contract Risk Assessment.

1 Term of Contracts Breach of Contract !

I (in years) (in US$ millions) Equity (90% covered by MIGA) Up to 20 years 30.00 Shareholder Loans (95% covered by Up to 20 years 45.00 MIGA) Total Guarantees Issued 69.75

I Less CUP I 0.00 Total MIGA (Gross) 69.75 Facultative Reinsurance 0.00 Treaty Reinsurance (50%) 34.88 Total MIGA (Net) 34.88


The proposed IBRD Guarantee structure i s set forth in more detail in Annex 10, the MIGA Guarantee in Annex 11, and the project’s commercial agreements and implementation arrangements in Annex 6.

2. Project development objective and key indicators

The project’s ma in objective i s t o meet the electricity needs o f the country in an economically and environmentally sustainable manner to contribute to economic growth and well-being o f the population o f Jordan. The project would add about 370 MW o f additional power to the system, help to ensure the reliabil i ty o f power supply and help maintain a margin between available capacity and demand o f at least 10% in an environmentally sustainable manner. The purpose o f the PRG i s to enhance competit ion and therefore help reduce the project’s financing costs.

Output Indicators:

0 Financial close date 0 Implementation progress

Commissioning test and tr ial run results

Outcome Indicators

Cost o f energy supplied 0

0 Uti l izat ion factor Reserve margin

Emission levels, mit igation o f other environmental impacts

3. Project components

The proposed project consists o f a 370-MW gas-fired combined-cycle power station to be developed, owned, and operated by a private-sector project company. The US$ 300 m i l l i on power station wil l be constructed o n a site located at Almanakher, east o f Amman Jordan and about 1 km f rom the Arab Gas Pipeline. The fuel supply wil l be natural gas f rom Egypt; distillate fuel o i l (DFO) wil l serve as backup fuel for emergency operations only. The first phase o f the power station wil l comprise two simple-cycle gas turbines. The second phase wil l add a heat recovery steam generator (HSRG) and thus increase the capacity by 50%. The water for steam generation wi l l be provided by WAJ.

The proposed contractual structure o f the transaction i s consistent with industry standards with respect t o the allocation o f commercial, technical, and pol i t ical r i sks among the parties in a limited-recourse project financing structure.

4. Lessons learned and reflected in the project design

Several private sector projects have failed to materialize in Jordan. In the power sector, the Samra Power Project did not proceed as a private sector project, in part because o f uncertainty o n the source o f fuel for the power plant, and the fact that the selected private promoter withdrew i t s support for reasons unrelated to that project. The Disi-Mudawwarrah to Amman Water


Conveyance System project also failed, in this case because the bid tar i f f was much higher than anticipated. Such lessons are being applied to this project by, for instance, ensuring that the fuel swpply arrangements and a minimum regulatory framework to give comfort t o the bidders were in place prior to bid issuance. Also, ensuring there i s commitment to the project in Jordan and a l l stakeholders are on the same page. A challenge for both the Bank and the Government i s t o ensure that this project i s a catalyst for wider private sector participation in infrastructure.

Lessons f rom outside Jordan incorporated in the project design include the Bank’s worldwide experience with IPP projects, in particular the Pakistan IPP p r ~ g r a m . ~ These include the need: (i) for sector reform to precede private participation and not be its substitute (implementation of sector reforms i s more advanced in Jordan than it was in Pakistan in the mid-1990s); (ii) to ensure that IPP development i s consistent with the least-cost expansion program; (iii) for transparent IPP solicitation and tar i f f setting; (iii) for the off-taker and overall electricity market to be commercially viable; and (iv) for an efficient and secure fuel source.

5. Alternatives considered and reasons for rejection

In the reformed power sector, the Government has adopted the Build-Own-Operate (BOO) model for a l l future power plants fo l lowing a competitive bidding process. Various models were considered before adopting this model. Therefore, the alternatives considered for the project were with regard to the source o f supply (including cross-border interconnection), type and location o f the power plant, and not the development model. Moreover, with the availabil ity o f Egyptian natural gas in Jordan and conversion o f almost a l l power plants that formerly used residual fuel o i l or diesel to using natural gas, there were not alternative fuels considered for thermal power plants. Wind and solar-thermal options are currently under consideration but they could not provide the required capacity and reliabil i ty at this stage. The cost o f imported power, f rom either Egypt or Syria, i s higher than that f rom local generation and would be higher than the ta r i f f offered by the project. Moreover, neither o f the two countries has much surplus capacity.

C. IMPLEMENTATION

1. Partnership arrangements

The power plant wil l be financed, built, owned, and operated by the private sector, except that the cost o f fue l wi l l be borne directly by the off-taker, NEPCO, the state-owned transmission company. In addition, NEPCO will finance the facilities for fuel supply as we l l as the transmission facilities required to evacuate the power. The W A J wil l supply the water to the power plant under a long-term agreement, and wil l build the required water pipeline spur. The Government, acting through the Ministry o f Finance/Department o f Lands and Survey, i s leasing the si te under a 25-year land lease agreement. The successful bidder, AES Jordan PSC, i s a consortium between (a) AES Oasis L t d (Cayman Islands), 60% owner, and (b) Mitsui & Co. Ltd (Japan), 40% owner.

Including the Hub and Uch power projects for which the Bank provided partial risk guarantees and other support. 7

(Also see Leysons from the Independent Private Power Experience in Pakistnn by Julia M. Fraser, May 2005.)

Jordan Amman East Power Plant Project

- 9 - Project Appraisal Document Februarv 2007

Financing for the power plant i s being arranged by the Sponsors and w i l l include direct lending to AES Jordan PSC by JBIC, OPIC, and SMBC, the latter o f whom wil l lend based on a partial risk guarantee from IBRD. MIGA w i l l complement the arrangements with political risk insurance covering the investment o f the Sponsors.

2. Institutional and implementation arrangements

AES Jordan PSC has established a project office in Amman, headed by a project director. After financial close, the composition o f the team wil l change with the inclusion o f staff responsible for the construction and later the operational phase. AES Jordan PSC has appointed a consultant to carry out the Environmental and Social Impact Assessment (ESIA) and an engineering, procurement, and construction (EPC) contractor for the power station works.

The off-taker, NEPCO, has established a project management team for the transmission line, substation, and gas pipeline spur. The latter wi l l be constructed by the Jordanian Egyptian Fajr for Natural Gas Transmission & Supply Company (Fajr). The water supplier, WAJ, wi l l build a water pipeline spur to the site. The Government, acting through the Ministry of Finance/Department o f Lands and Survey, has leased the site under a 25-year land lease agreement.

A Joint Coordinating Committee, comprising AES Jordan PSC and NEPCO staff, wil l be responsible for overall project coordination during the construction and operational phases. I t s responsibilities wil l include ensuring that the EMPs and RPF for the proposed project and the associated infrastructure are implemented in a coordinated manner.

3. Monitoring and evaluation o f outcomedresults

The key indicators to be monitored and used in the evaluation o f outcomes are presented in Section B.2 above. One o f the key outcomes o f the PRG, competitive bids for the project, has already been achieved.

4. Sustainability

The sustainability o f the project i s to a large extent dependent on the financial health o f the overall power sector, comprising the distribution companies, the soon-to-be-privatized generation companies-CEGCO and Samra-and the off-taker, NEPCO, so that NEPCO i s able to meet i t s capacity payment obligations. The financial analysis shows that the overall sector i s healthy, although NEPCO’s operating margin has been under pressure. I t needs to better-control i t s overheads to maintain i t s profitability. ERC has already initiated a full scale tari f f review, including a detailed retail tar i f f study, to assess the need for future tari f f adjustments, taking into account the structural changes in the industry, the power sector entities revenue requirements at agreed supply efficiency levels, and the need to promote energy conservation.

5. Critical risks and possible controversial aspects

The project entails several commercial and political risks, including construction and operational risks related to the power station and the r isks related to payment for capacity and energy

Jordan - 10- Project Appraisal Document Amman East Power Plant Project February 2007

delivered to NEPCO. In addition, there may be some sharing o f risks related to fuel and water supply, and operation o f the electrical connection to the national grid. The critical r isks and mitigation measures are summarized in the following matrix.

Table 2: Critical risks and possible controversial aspects (M: modest; S: substantial; H: high)

Electricity retail tariffs may not be able to cover the cost o f supply due to the effects o f gas price fluctuations and currency devaluation.

Sector reform i s not far enough advanced to create an enabling environment for private sector participation.

N o alternative market due to reliance on a single customer, NEPCO. NEPCO not wi l l ing to purchase from the project because o f higher tariff.

Delays in associated infrastructure (transmission line, substation, water and gas pipeline) wil l delay the project and cause the Government to pay liquidated damages to the power plant developer.

Delays would cause power I shortages.

Potentially unaffordable contingent liabilities in the pension system and l imited transparency o f independent institutions that carry our expenditures in lieu o f the Government’s budget programs.

Overall Risk Rating

- Risk

Rating S

M

M

M

M

M

M

Risk Mitigation Measure

The primary fuel for generation i s natural gas for which Jordan continues to benefit f rom a long-term supply agreement with Egypt, at a below market rate. ERC became operational in 2005 and is currently reviewing the level and structure o f the retail and bulk supply tariffs including the introduction o f a fuel adjustment clause to ensure gradual adjustments in l ine with changes in market prices. Gradual increases are already being applied to other petroleum products. New structure o f the electricity sector in accordance with the new Electricity L a w has already been implemented. Other critical aspects such as the bulk tar i f f are dealt with in advance and form part o f the contractual agreements. The relatively favorable cost o f generation obtained under a competitive and transparent bidding process and the two part availability tar i f f (capacity charge for f ixed generation cost) has ensured that the levelized cost o f this project compares favorably with the generation cost o f alternative resources and imports f rom Egypt and Syria. Moreover, demand has been growing consistently at relatively high rates.

Measures are being taken to ensure completion o f associated infrastructure before the power plant. The transmission l ine and substation should be completed 120 days earlier. The off-taker, NEPCO, i s responsible for ensuring t imely completion o f this infrastructure.

Construction by the pnvate sector under an EPC contract should minimize construction delays The delays would therefore be associated with reaching financial close. The RFP ensured that significant progress i s achieved in sourcing financing pnor to submitting the bid. The target date for financial close is end o f March, 2007 Ongoing Wor ld Bank and IMF support to reform the pension system and improve public expenditure management and ongoing modernization o f budget/financial management systems, with assistance from donors.

The principal risk scenario for the Bank guarantee i s where the project fails due to (a) nonpayment by NEPCO and the Government or (b) a significant event o f political force majeure, resulting in termination o f the PPA by AES Jordan PSC and significant early


terminat ion damages under the IA. There cou ld b e several under ly ing causes fo r such a scenario, inc lud ing currency devaluation. The World B a n k and IMF assess this risk to be m i n i m a l in the short term. Beyond this per iod and over the l i f e o f the PPA, solid fiscal and monetary pol ic ies and sustained progress with structural re fo rm to facil i tate continued improvement in competitiveness wil l be k e y to maintaining the exchange rate peg. In the event o f devaluation the risk o f terminat ion w o u l d b e restricted to NEPCO’s abi l i ty to make the US$-indexed capacity payments to A E S Jordan PSC since the responsibil i ty for fuel supply i s d i rect ly with NEPCO (due t o the tolling arrangement).

Similarly, an event offorce majeure resul t ing in an interrupt ion in gas supply from Egypt should not result in early termination o f the PPA since, in addi t ion to the to l l ing arrangement, the proposed power plant wil l be able t o run on either natural gas or disti l late and disti l late wil l always be available as a standby fue l o n site. The Government i s also in the process o f ident i fy ing alternative sources o f natural gas to better-mitigate the single-supplier risk.

In this project, the foreign exchange r i sk i s borne by NEPCO, a Government-owned company, w h i c h can be expected to pass through this r i s k to the distr ibut ion companies and ul t imate consumers. Under the reformed sector, ERC i s mandated to rev iew t a r i f f adjustment requests from the s ix electricity companies and ensure that consumer tar i f fs reflect the cost o f supply.

I t should also be noted that Jordan has long experience in pr ivate participation in power supply. The largest distribution company, the Jordanian Electr ic Power Company (JEPCO), has been in. existence since 1938 and 57% o f i ts shares are current ly h e l d by pr ivate individuals. I t i s current ly responsible fo r supplying electricity to 64% o f the total electricity consumers and i s the most v iable o f the three distr ibut ion companies. JEPCO’s concession was renewed in 1962 for fifty years.

The risk o f NEPCO default due t o an increase in fuel pr ice i s low due to the fact that the pr ic ing o f the gas has been agreed for a sufficient quant i ty with a f loor and ce i l ing amount. NEPCO’s current f inancial performance is satisfactory (see Section D.l below) and the utility i s tak ing necessary measures to increase i ts efficiency, inc lud ing reduct ion o f losses, from 4.5% to 3%, over the past f e w years. Furthermore, ERC has put in place procedures t o adjust the bulk t a r i f f and ensure that i t i s sufficient for NEPCO not to subsidize end-consumers, since the largest distr ibut ion company, JEPCO, operates on a f i x e d return o n assets and this i s planned to extend to the other two. In this respect, with the planned pr ivat izat ion o f CEGCO and Samra, P P A s are being designed for these t w o generating companies.

In conclusion, GoJ i s taking the required actions to mit igate the potential risks. The actions include re fo rm o f the energy sector w h i c h i s near ing complet ion and ongoing Bank- and IMF- supported fiscal reforms t o w h i c h GoJ i s showing strong commitment. In accordance with lessons learned from B a n k involvement in IPP programs, the project has been preceded by the necessary energy sector reforms rather than b e a substitute fo r such reforms. The r isk p ro f i le o f the project i s therefore considered appropriate f o r the guarantees the B a n k Group plans to provide.


N o controversial aspects o f the project have been identified. See Section D.4 below for a description o f the social po l icy issues.

6. Guarantee conditions and covenants

Guarantee Agreement: The effectiveness o f the IBRD Guarantee wil l be subject to usual and customary conditions for financing o f this type. During the availability period, the Bank m a y suspend coverage o f future disbursements if there i s a default under the Bank-guaranteed loan, a material default o f AES Jordan PSC under the Project Agreement, a suspension by the Bank of loans to or guaranteed by Jordan, a breach by Jordan o f i ts obligations under the Indemnity Agreement, or a suspension or lapse o f Jordan f rom membership in IBRD, IDA, or the International Monetary Fund. The Bank can terminate the IBRD Guarantee in the event that any changes are made without the Bank’s pr ior consent in certain key provisions o f the project agreements, or if there i s substantial evidence that AES Jordan PSC, the Sponsors, the EPC Contractor, or the Bank-guaranteed lenders have engaged or engage in prohibited activities (coercion, collusion, corrupt or fraudulent practices, harmful ch i ld labor, or forced labor) in connection with the project. The Bank wi l l have subrogation rights if it makes any payment under the Guarantee Agreement and Jordan does not reimburse it under the Indemnity Agreement.

Project Agreement: A E S Jordan PSC wil l covenant, among other things, that i t wil l use the proceeds o f the Bank-guaranteed loan for eligible expenses, provide the Bank access to the project site, keep adequate insurance in place, obtain the Bank’s consent before making material changes to certain key provisions o f the project agreements and documentation, not engage in prohibited activities (coercion, collusion, corrupt practices, fraudulent practices, harmful ch i ld labor, and forced labor), not hire Wor ld Bank Group-debarred f irms, and comply with applicable laws o f Jordan and Wor ld Bank safeguards policies (including the Wor ld Bank-approved EMPs).

Indemnity Agreement: Jordan wil l indemnify the Bank in the event i t makes payments under the IBRD Guarantee, and against any other expenses or liabilities incurred by the Wor ld Bank. Jordan wil l covenant, among other things, that i t wi l l (i) cause the appropriate government entity to ensure that the project’s and the associated infrastructure’s EMPs and resettlement po l icy framework are implemented in a coordinated manner, (ii) report regularly on the coordination and implementation o f such EMPs and resettlement po l icy framework, and (iii) deliver o r cause NEPCO to deliver annually a copy o f NEPCO’s annual audited financial statements.

D. APPRAISAL SUMMARY

1. Economic and financial analyses

Electricity demand and supply. Jordan’s GDP grew at an average o f 7.2% over the past five years while domestic electricity demand grew o n average 7.3% for the same period. Approximately 90% o f domestic consumption has been met by domestic generation with the residual demand met by import f rom neighboring Egypt and Syria.

Jordan - 1 3 - Project Appraisal Document Amman East Power Plant Project February 2007

GDP Growth

Table 3: Growth Rates

2000 2001 1 2002 2003 2004 2005 4.3% 5.3% i 5.7% 4.1% 7.7% 7.2%

! ~ 63133 Domestic Electricity

Consumption (GWh) I Growth % I

6,392 6,906 7,330 8,089 ~ , 8,712 4.2% 8.0% 6.1% 10.4% ~ 7.7%

I Interconnected System ~ 1,206 ~ 1,225 ~ 1,370

Growth % 1.6% , 11.8% Peak Load (MW) I

I , , Source: WDI and NEPCO

I 1,387 1,515 1,710 1.2% 9.2% 12.9%

The sector i s made up o f non-integrated generation, transmission, and distribution companies. At the generation level, CEGCO i s the largest generating entity with an installed capacity o f 1,755 MW in 2005. In addition, Samra, a single-purpose electric generating company owned by the Government, commenced operation in 2005 and i s expected to reach full generation capacity o f 500 M W in 2008. The proposed 370-MW East Amman Power Plant wil l be the third generating company. NEPCO i s the single buyer company responsible for country-wide transmission to regional distribution companies and large industrial customers.

2003 2004 2005 GWh YQ GWh % I GWh %

Table 4: Main Transmission Customers

! IDECO ~ 1,156 , 15 1 1,264 Large industries I 747 ~ 10 i 79 1

15 9 804 9

! 15 i 1,355 I

EDCO ~ 1,283 , 17 I 1,490 1 18 1 1,633 I 18

Total ~ 7,664 ~ 100% ~ 8,447 1 100% i 9,219 ~ 100% Source: NEPCO

Three regional distribution companies serve the whole country. JEPCO serves the most urban greater Amman area. E D C O covers the largest geographic area to the south o f Amman. IDECO serves the northern part o f the country.

Forecast o f electricity demand and supply. Demand for electricity i s expected to grow annuallv at an average rate of about 8%. T o meet the increased demand, the additional generating capacity i s expected to be provided by the Sainra and the proposed East Amman projects and new IPPs. Electricity generation f rom CEGCO i s expected to decline, from 99% (2005) o f total domestic production to 43% (201 I), but CEGCO wou ld be able to participate in future IPP development.

Jordan - 14- Project Appraisal Document Amman East Power Plant Project February 2007

Chart 1: Electricity Demand and Supply Forecast (GWh)

I Electricity Demand and Supply Forecast (GWh)

16,000 14,000 12,000 10,000 8,000 6,000

2006 2007 2008 2009 2010 201 1 JEPCO - EDCO

Total demand - .x- . Large industries Generation & Import

IDECO --__... - .e . - - .. -.

- -_____- _ _ ~ _ _ __ ~ - ~ L- -

Economic Analysis

The project i s part o f the least-cost expansion plan for the power sector and i s crit ical in meeting Jordan’s power and energy demand. I t offers electricity at U S $ 3.8 per kWh (levelized), which i s a competitive price for an IPP in a country with practically n o indigenous fuel supplies. This favorable outcome for Jordan i s attributable to an efficient and transparent competitive bid process.

NEPCO’s net present value has been estimated at US$ 62 mi l l i on at 10 percent discount rate and the economic rate o f re turn i s 14%. The ma in underlying assumptions are shown in Annex 9. The capital costs include the costs o f the transmission l ine and those o f the water and gas pipelines to the power plant. The current average ta r i f f has been taken as a p roxy for economic benefits. These are the minimum economic benefits o f the project compared to those that would prevail if one were to take into consideration the willingness to pay for electricity o f different consumer categories. Data for the latter are unfortunately not available.

The switching values for which the net present values o f the project wou ld be reduced to zero are the following: 26% increase in capital costs, 13% increase in natural gas prices), or a 6% reduction in total revenues, which could be a combination o f a reduction o f either or both o f sales quantities and tariffs. The results show a significant sensitivity to revenues. Overall, however, the economic viabi l i ty o f the project i s established.

Financial Analysis

The electricitv sector has remained financially viable for many years and operated without explicit cash subsidies f rom the Government budget, despite the recent increases in international f u e l prices. The import o f natural gas f rom Egypt, at relatively favorable prices, which started in 2003, reduced generation cost and now a l l major power stations are pre-dominantly fueled by

Jordan Amman East Power Plant Proiect

- 1 5 - Project Appraisal Document February 2007

natural gas. Helped by a modest retail tar i f f increase in July 2005, the electricity sector was able to largely absorb the fuel price increases in the international markets whi le domestic fuel price subsidies are being phased out.

Other measures which have helped the financial position o f the electricity sector entities include: (i) the introduction in June 2005 o f differential tariffs between NEPCO and the distribution companies through formal bulk supply agreements to reflect the less favorable consumer mix o f EDCO and IDECO compared to JEPCO; (ii) the partial use o f the funds collected through Rural Fils (a fund that collects 2 Fils per kWh o f electricity consumed to support rural electrification and other expenses by the sector-the amount collected in 2006 i s estimated at JD 18 mill ion). For example, to defray the additional generation cost o f CEGCO fo l lowing an unscheduled outage in 2006 o f the Aqaba Power Station as a result o f a manufacturing defect in one o f the main transformers and as a non-tari f f compensation to distribution companies; and (iii) the year- end adjustment o f the tar i f f between CEGCO and NEPCO to ensure that bo th companies remained profitable.

For 2006, preliminary data indicate that most electricity sector companies were profitable, without any adjustment to the bulk supply tariffs or the retail tariffs during the year.

For 2007 and the medium-term, the financial performance o f the sector entities i s expected to further improve based on the fo l lowing key variables:

For CEGCO, the new power purchase agreement (PPA) which wi l l be put in place as part o f the upcoming privatization wi l l ensure that CEGCO will remain viable. CEGCO will also be allowed to participate in future bidding for additional generating capacity that could enhance i t s overall financial performance;

The continuation o f relatively l o w priced natural gas supply f rom Egypt helps to keep down the cost o f generation. Under the current contract, the price o f Egyptian gas wil l not change until the beginning o f 2009. Beyond 2009, the price o f natural gas i s expected to increase f rom i t s current level and be linked to international o i l prices, but the contract includes a f loor and a ceil ing price for up to about 2.65 bi l l ion cubic meters o f natural gas annually;

Opportunities may emerge for the generating companies to supply electricity to neighboring countries as the regional grid i s being reinforced;

For NEPCO, further refinement o f the differential bulk supply tariffs for the three distribution companies wil l help to improve i t s profitabil ity. Moreover, NEPCO’s non- tar i f f revenues are expected to increase;

For the distribution companies, the further change in differential bulk supply tariffs will improve the profi tabi l i ty o f I D E C O and EDCO;

For both NEPCO and the distribution companies, these new arrangements together w i th the existing concession agreements for JEPCO and IDECO and the license agreements o f E D C O and NEPCO wil l ensure that they wil l remain profitabil ity;

Continued improvements in operational efficiencies (in particular reduction o f distribution losses and generation efficiency).


The main risk t o the financial health o f the electricity sector i s the uncertainty regarding future fuel prices, in particular natural gas. With the soon to be completed privatization o f CEGCO and conclusion o f the PPAs for Samra and East Amman, the purchase o f power wi l l be governed by these agreements starting f rom early 2007. For the generating companies, fuel price fluctuations can be passed through the energy charges, but the current bulk supply contracts and retail tariffs have n o clear mechanisms to pass o n increased fuel costs. NEPCO presently carries most o f the fuel price risk. Jordan i s drawing slightly higher quantities o f natural gas f rom Egypt than originally anticipated and it pays a premium o n these additional quantities. By 2009, the pricing formula for the f i rst 2.65 b i l l i on cubic meters o f gas wi l l be adjusted, but the cei l ing price agreed under the contract i s protecting the cost o f electricity production.

This risk i s fully recognized by the Government and ERC. As part o f the ongoing tar i f f review, ERC i s reviewing the bulk supply contracts with a v iew o f introducing automatic fuel adjustment clauses or other suitable mechanisms. The soon to be started full retai l ta r i f f study has the objective to rationalize the ta r i f f structure and to provide better incentives for conserving electricity. At the same time, the adequacy o f NEPCO’s transmission tariffs i s also being reviewed. The tar i f f study i s expected to be completed late in 2007 with a possible introduction o f new tariffs by 2008 or 2009, if necessary. This would coincide with the expected revision in natural gas prices. The financial projections, however, indicate that the required tar i f f adjustments are manageable.

2. Technical

AES Jordan PSC has proposed a combined-cycle facil i ty with contracted capacity o f 370 MW, based on V94.2 gas turbines manufactured by Ansaldo Energia S.p.A. under a license f rom Siemens AG, and a steam turbine manufactured by Fuji Electric System Co. The H R S G wil l be supplied by Doosan Heavy Industries & Construction Co. Ltd, wh ich wi l l also be the EPC Contractor for AES Jordan PSC. The equipment i s standard and o f proven technology, and meets the proven technology criteria specified in the RFP.

Each turbine generator unit wi l l be connected to i t s respective generator step-up transformer v ia an isolated phase bus duct; the step-up transformers wil l then be connected to NEPCO’s 400-kV switchyard. Each generator wil l be equipped with a generator breaker and wil l be provided with one unit auxil iary transformer. One 4,700-kW black-start diesel-generator set wil l be provided for black-start and safe shutdown o f the plant in case o f system blackout. This too i s standard design and in accordance with the RFP.

The 400-kV transmission grid wil l be looped into the substation, which wi l l be adjacent t o the power plant v ia an incoming 6.5-km and outgoing 6.5-km double-circuit line. Standard double- circuit steel towers and twin steel-cored aluminum conductors per phase wil l be used.

The primary fuel for the power plant wi l l be natural gas. The natural gas pipeline wil l be a tee- o f f o f between 1 and 3 km from the main pipeline, the Arab Gas Pipeline. One o f the key criteria for sight selection was proximity to the fuel source. To mitigate the risk o f lack o f this primary fuel, the units are being designed to run also on DFO. I t i s expected that the plant wi l l run on DFO for less than 5% o f the time, and a supply o f DFO for emergency use wil l be stored on site.


Due to the lack o f a suitable cooling water source at Amman East, only air-cooled condensers can provide a practical cooling system for the combined cycle plant. The use o f air-cooled condensers wil l help avoid consumption o f large qualities o f water that i s at a premium in Jordan as a whole. The condenser units w i l l be positioned above the fan units and about 30.5m above ground. The water wi l l be supplied by W A J via an 18-km pipeline which wil l follow the roadway.

3. Fiduciary

The Bank team reviewed the procurement process and the evaluation report and established that the process was in accordance with the provisions o f paragraph 3.16 o f the Procurement Guidelines, on which basis the Bank could guarantee loans for the project made by other lenders.

There are no fiduciary issues as there will be no procurement or procurement-related disbursements under the project. Should the Bank guarantee be called, the Bank would disburse to the beneficiary and the Government would then be obligated to repay the Bank in accordance with the terms o f the Indemnity Agreement between Jordan and the Bank.

4. Social

The project’s main social impacts consist o f continued good quality o f electricity supply through the provision o f adequate generation capacity from an efficient source, and provision o f employment opportunities to communities around the project area as well as skilled staff in other parts o f the country, both during the construction period and during operation. At the peak o f the construction phase the proposed project w i l l employ staff o f the order o f 1,000 construction workers with an average o f between 600 and 700. The power plant wi l l be designed to operate with a significant amount o f automatic control but wil l require up to 40 to 50 staff. These jobs w i l l be permanent and non-seasonal, lasting the l i fet ime o f the power plant. Furthermore, development o f the site i s predicted to increase money f low to the area, which wil l increase local merchant revenues through the provision o f services to the construction and operational staff, and to the plant i t se l f though service contracts such as vehicle maintenance.

The project wi l l not involve the displacement o f local people, but the transmission l ine may involve acquisition o f small sections o f farmland for the tower bases and the damage o f crops during construction, for which compensation wil l be made by NEPCO. For this, the RPF has been prepared.

The project i s therefore expected to have a positive socio-economic impact on the area through the provision o f jobs and investment throughout i t s predicted 28-year lifetime.

5. Environment

The project falls under environmental category “A” per the Bank’s policy on Environmental Assessment (OP 4.01). The developer was required to complete an ESIA prior to project appraisal. A draft ESIA was disclosed in-country and in the InfoShopPublic Information Centers on November 10, 2006 and the final documentation was disclosed on December 21, 2006. The documentation consists o f the ESIA for the power plant and associated infrastructure (gas


pipeline and water pipeline), the ESIA for the transmission l ine and substation, and the RE’F. The environmental assessment included a dispersion and noise modeling exercise to predict the impacts o f the proposed power plant’s operation. The findings o f the analyses are summarized below and detailed in Annex 12.

Air Quality: The proposed plant wil l operate for the majority o f i t s operational l i fet ime on natural gas supplied from the national gas transmission system. Natural gas i s an inherently clean-burning f u e l that does not give rise to significant quantities o f sulphur dioxide (S02) or particulate matter during combustion.

At times, when natural gas i s unavailable, the plant wi l l operate on DFO. Combustion of D F O gives r ise to atmospheric emissions o f SO2 and very low levels o f particulate matter, in addition to atmospheric emissions o f oxides o f nitrogen (NOx). As currently designed, the proposed plant will store sufficient quantities o f DFO to allow for 14 days operation in the event of an interruption to the natural gas supply. I t i s not proposed that the plant i s designed to allow for water injection as the turbines selected w i l l be able to meet the relevant Jordanian and World Bank emissions limits for N O x using dry low N O x burners.

The main gaseous pollutant emitted from the proposed plant wi l l therefore be N O x o f which 95 per cent i s nitric oxide (NO) and 5 per cent nitrogen dioxide (NOZ). N O oxidizes to NO2 in the presence o f ozone. The plant wil l therefore contribute to background concentrations o f N02. To assess this contribution, a dispersion modeling exercise has been carried out. Detailed information i s provided in the ESIA sections on plant emissions (and their control), the analysis o f N O oxidation rates, and the dispersion modeling. The emissions o f SO2 during DFO firing have also been assessed using dispersion modeling.

The gas turbines chosen for the proposed plant wil l be equipped with the proven pollution control technology, which wil l limit the production o f N O x to a maximum o f 125 mg/Nm3 during gas firing and a maximum o f 165 mg/Nm3 during o i l firing at full loads. The technology known as the dry low N O x system limits emissions o f N O x to the atmosphere. This technique represents the Best Available Technique (BAT) for limiting emissions o f N O x to the atmosphere from a gas turbine.

A dispersion modeling exercise has been undertaken to predict the impacts o f the proposed plant’s operation, quantifying the contributions the proposed plant w i l l make to the existing background concentrations o f NO2 and SO2 in order to determine the overall effect on a number o f receptors in the area. The assessment o f the impact on air quality due to emissions from the proposed plant i s based on the predicted changes o f the ground level concentrations o f pollutants in accordance with the relevant Jordanian and World Bank limits, which have set standards and objectives for these ambient concentrations.

A conservative view o f the operation o f both types o f plants has been adopted in the modeling so that a “worst case” i s presented under specific scenarios. The model assumes base-load operation o f both types o f plants, thereby assuming that the maximum emissions from the overall site coincide with the meteorological conditions leading to the highest impact. In reality, the


operation o f the proposed plant with maximum output may not coincide with worst-case meteorological conditions as the operation o f the proposed plant on DFO i s limited.

Consideration has also been given to significance o f any cumulative impact between the proposed Amman East plant and the plant recently constructed at Samra. The result o f using this conservative approach i s to ensure that the maximum predicted impact within the potential operating regime of the proposed plant is considered. This ensures that there is a “factor o f safety” built into al l o f the air quality assessment, giving a high degree o f confidence that the actual impacts wi l l be less than those presented in this assessment. The results o f the modeling have been compared to relevant air quality limits and standards.

The results o f the modeling have been compared to appropriate objectives. Key findings from the analysis are:

The maximum predicted annual average NO2 concentration for firing on natural gas i s 0.8 micrograms per cubic meter (pg/m3) at a point 1.1 km south-east o f the proposed site, to the east o f the village o f Al-Manakher. This figure represents just 0.8 per cent o f the Jordanian limit and World Bank standards. This assumes the plant operates for 14 days per year on DFO.

The maximum predicted 3rd highest hourly NO2 concentration during gas firing i s 55.9 pg/m3, which represents 13.9 per cent o f the Jordanian limit and occurs 3 km south- east o f the site. During DFO firing, the maximum predicted 3rd highest hourly average i s 51.6 pg/m3, which represents 12.8 per cent o f the Jordanian limit.

0 The highest 24-hour NO2 concentration during gas firing i s 5.8 pg/m3, which represents 3.9 per cent o f the World Bank limit and occurs just under 1 km to the north east o f the site. During DFO firing, the maximum predicted 3rd highest hourly average i s 5.4 pg/m3 which represents 3.6 per cent o f the World Bank limit.

The maximum predicted 3rd highest hourly SO2 concentration during DFO firing i s 743.9 pg/m3, which represents 95 per cent o f the Jordanian limit and occurs 3 km to the south-east o f the site. Due to the limited nature o f DFO firing, it i s not appropriate to predict the impact for daily averages for comparison with World Bank standard.

0 The maximum predicted 3rd highest 24-hour particulate concentration during D F O firing i s 17.7 pg/m3, which represents 15.5 per cent o f the Jordanian limit. The maximum occurs at a point 568 m to the east o f the proposed plant. The maximum 24-hour particulate concentration during DFO firing represents 25.3 per cent o f the World Bank limit o f 70 pg/m3.

The maximum predicted 3rd highest hourly CO concentration during DFO firing i s 117.8 pg/m3, which represents 0.4 per cent o f the Jordanian limit and occurs 3 km to the south-east o f the site. The maximum predicted 3rd highest 8 hour CO concentration during DFO firing i s 63.9 pg/m3, which represents 0.6 per cent o f the Jordanian limit and occurs 568 m to the south-east o f the site.


In al l cases, the max imum ground level concentrations associated with operation of the plant in simple cycle are significantly less that those for combined cycle operation. In a l l but the hourly averaging periods, the peak ground level concentrations observed are located within 1 km o f the proposed site.

0 The cumulative impact assessment o f the Amman East and Samra plant does not show a significant cumulative impact associated with the t w o plants despite the modeling assuming a worst case.

In conclusion, the impact o f the atmospheric emissions f rom the proposed plant wil l be we l l within the Jordanian limits and Wor ld Bank guidelines.

Water Quality: The impact with regard to water quality i s not considered to be significant. The developer wi l l ensure that the EPC Contractor disposes o f any construction effluents in a responsible manner. During operation, water wi l l only be required o n a day-to-day basis for make-up to the boiler water system and for service water (drinking water, etc). On a day-to-day basis, the only effluent produced by the plant wil l be that f rom the water treatment plant. This effluent wil l be discharged to an evaporation pond fo l lowing treatment in pH adjustment, coagulation, and clarifier tanks. There wil l be n o discharges o f process water to any local water course. Small quantities o f boiler water (boiler blow-down) wil l be discharged in order to avoid the build-up o f impurities in the boiler water. This discharge wi l l be virtual ly pure water, containing very small quantities o f various chemicals that are used to prevent corrosion and scaling in the boiler. Sewage wil l be treated o n site with the treated water discharged to the evaporation pond. Sludge generated f rom the sewage wil l be removed f rom site by tanker and discharged to either a local sewer or appropriate land fill site. Any areas o f the site that are l ikely to be contaminated with o i l will drain to o i l interceptor(s) t o limit visible o i l in the water.

Geology, Soils, and Wastes: Investigation o f the site has not identif ied the potential for any contamination to be present at the proposed site. The site has not been used in the past for any industrial purpose that could have led to i t s contamination. The proposed plant wil l be operated in such a manner as to minimize the generation o f solid wastes. Where necessary, wastes wil l be recycled or reused. Those that cannot be disposed o f wi l l be handled by a licensed contractor who wil l dispose them at an appropriate disposal site.

Noise: Residents in the area may experience an increase in noise levels above the daytime project l im i t o f 50 dB(A) during construction. The noise model predicted the potential for a 1 dB exceedance to the night-time project l imi t o f 40 dB(A) at the closest noise sensitive receptor to the site boundary. This i s a worst-case noise level assuming that the plant wil l operate at full capacity during the night, which i s not usually the case since the electricity demand i s l o w at night. Even then, the predicted noise level increase o f 1 dB i s not considered to be significant. The noise impact associated with the construction and operation o f the proposed plant i s therefore considered to be acceptable.

Visual Impact: The substantial buildings envisaged on site are the turbine hall, two HRSGs, air cooled condensers, a control room, and storage tanks (see below for Associated Infrastructure). Al l reasonable measures shall be taken to minimize visual impact. Structures and buildings shall


meet the standards generally accepted for a facility o f this type and shall be in accordance with al l applicable local and national consents relating to appearance. Final architectural arrangements shall be submitted for approval by the Project Manager.

Traffic and Infrastructure: The additional traffic during construction i s estimated to be 50 vehicles per day on average, which wil l not represent a significant increment to the existing traffic movements on the Zarqa-to-Sahab road, o f about 1900 per day. The number o f abnormal loads i s l ikely to be o f the order o f 15 to 20 over the 28-month construction period. The transportation o f abnormal loads could lead to delays and cause inconvenience to other road users. I t would therefore be timed following consultation with the relevant authorities to minimize disruption to the other road users. Normal operation o f the plant wi l l give r ise to traffic movements associated with the 50 personnel working at the site.

Associated Infrastructure: The installation and operation o f the support infrastructure comprising the transmission line, substation, and water and gas pipelines i s not expected to give r ise to significant environmental impacts. The proposed transmission l ine would cause an increase in electromagnetic field strength at the edge o f the 30-meter right-of-way. Along the closest residential areas, 165-500 meters to the east o f the line, between Al-Baidaa and Al- Madoon, the maximum field strength i s estimated to be 5.5 milligauss (mG), which i s well below the allowed 830 mG.

6. Safeguard policies

Table 5: Safeguard Policies

Safeguard Policies Triggered by the Project Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Cultural Property (OPN 1 1.03, being revised as OP 4.1 1) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36) Safety o f Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60) Projects on International Waterways (OP/BP 7.50)

7. Policy exceptions and readiness

No exceptions to Bank policies are sought.

Yes No

[I [XI [XI [XI [XI [XI

The project i s expected to be ready for Board presentation on March 13, 2007. At that time, the draft ESIA wil l have been publicly available for more than 120 days, and the final ESIA more than 60 days, in-country and at the InfoShop/Public Information Centers. The structure o f the


guarantee has been defined, and by the date o f the Board presentation, the Guarantee Agreement, the Indemnity Agreement, and the Project Agreement will have been negotiated.


Annex 1

Annex 1: Country and Sector or Program Background

JORDAN: AMMAN EAST POWER PLANT

1. A country o f about five mi l l ion people in the Middle East, Jordan has a steadily growing economy. Despite continuing regional instability and a major terms-of-trade shock, Jordan’s stabilization efforts have gained traction in recent years with the assistance o f strong donor support and, more recently, an unprecedented level o f capital inflows. Overall macroeconomic performance has improved, reflected in strong growth, narrowing o f the fiscal deficit after grants, and a decline in public and external debt ratios, although further effort i s needed to reduce them to sustainable levels. The current account deficit has begun to narrow after a significant deterioration and, according to the IMF, i s being financed mainly by long-term capital inflows. Currently, reforms are progressing well particularly in the areas o f privatization, expenditurebudget management, and education. In addition, GoJ has been considering tax system and social protection system reforms, legislating a new public debt ceiling o f 60 percent (down from the current ceiling o f 80 percent) as the new fiscal anchor, and improving the conditions for greater public private partnership in infrastructure. These favorable outcomes have enabled Jordan to exceed the CAS base-case triggers for 2006. Performance in 2007 i s also expected to be strong, in the absence o f additional shocks.

2. Nevertheless, as highlighted in the CAS, Jordan faces significant challenges and risks ahead, including the need to sustain competitiveness, given limited exchange rate flexibility and heavy dependence on international and regional capital markets. The burden o f adjustment for maintaining macroeconomic stability and reducing the external deficit falls on fiscal policy. Failure to sustain appropriate fiscal and structural reforms and to attract significant non-debt creating capital inflows could put pressure on the exchange rate, leading to a loss o f stabilization gains and the re-emergence o f adverse debt dynamics.

3. The IMF’s recent analysis o f the exchange rate policy concluded that there were currently no concerns with the exchange rate because the impact o f declining grants and te rms o f trade which would have depreciated the equilibrium real exchange rate was offset by higher capital inflows. 8 Nonetheless, to remain competitive with a fixed exchange rate, GoJ needs to maintain inflation in l i ne with i t s trade partners and improve productivity to preserve competitiveness.

4. The Bank’s assessment projects the macro-fiscal performance in 2006 to exceed the CAS base triggers, and the performance in the coming year to be equally strong. However, the outlook over the medium-term i s exposed to external shocks, such as regional politics, and i s therefore uncertain. To help ensure sustainability, the Bank w i l l support GoJ through the Phase I1 PER TA in areas including integration o f the planning and budgeting function, coordination o f donor programs in budget management, and in development o f the MTEF.

Jordan-Concluding Statement for the 2006 Article I V Consultation and Fourth Post-Program Monitoring Discussions, IMF, November 28,2006.


- 24 - Project Appraisal Document February 2007

Annex 1

5. Jordan i s almost entirely dependent o n f u e l imports to meet i t s energy requirements (94% dependence). The expenditure on energy was about 10% o f GDP in 2004. The country i s therefore vulnerable to o i l price shocks and is implementing a strategy to mitigate this (see paragraphs 9 and 10 below).

6. The electricity sector in Jordan i s governed by the General Electr ici ty Law, which empowers the Ministry o f Energy and Minera l Resources (MEMR) to establish policies and general rules for the power sector. This L a w creates an independent regulatory commission to protect the interest o f consumers and investors, approve tariffs and grant licenses for generation and distribution o f electricity, including tariffs for independent power producers.

7. Jordan has about 1,800 MW o f installed power generation capacity, o f wh ich just 14 M W i s contributed by renewable energy, with the rest coming f rom fuel oil, gas oil, and natural gas. Currently, over 1,100 MW o f power capacity comes f rom just two power plants, Zarqa and Aqaba. The electricity demand i s expected to grow at an average annual rate o f around 6.5%, until 2006, then at 8% to reach nearly 14,000 GWh by 2015 f rom the current 9,000 GWh.

8. voltage, l o w voltage, households differentiated by levels o f consumption, etc).

Electricity tariffs vary across different economic sectors and types o f consumers (high

9. As part o f a decade-long structural re form o f i t s economy, Jordan has sought to diversify i t s fuel mix and supply sources in order to reduce dependence on imports and the use o f oil, as we l l as the consequent adverse balance o f payments situation and negative environmental impacts. Achieving energy security to meet the needs in an economical and environmentally sustainable manner i s another key challenge. T o reduce the impact o f the increasing cost o f o i l o n the Government budget, a good start has been made o n gradual increase o f petroleum product prices to bring them in l i ne with international market prices. Extended to natural gas when required, this wil l help mitigate the major risk o f an unsustainable sub-sector caused by tariffs that are not cost-reflective.

10. Increasing the share o f natural gas significantly, promoting renewable energy sources (wind, solar, biogas, and geothermal), and promoting energy use efficiency are the three principal means through which the Government seeks to achieve a more sustainable energy balance in the future. In addition, the Government has been actively looking at ways to promote exploration and development o f energy resources in Jordan, particularly oil, gas, and o i l shale. For renewable energy and energy efficiency, the Bank i s supporting GoJ in establishing a combined (renewable energy and energy efficiency) fund, which wil l help improve coordination o f current and future renewable energy and energy efficiency initiatives and leverage commercial financing for the associated projects.

11. Jordan began importing natural gas f rom Egypt in 2003 and most o f i t s generation plant i s now operating on this fuel. Future thermal generation, including the current project, will predominantly use natural gas. In addition to natural gas import, and to ensure security o f power supply, Jordan also imports power f rom Egypt as well as Syria. The cost o f supply f rom these sources i s currently higher than f rom internal generation and neither country has a substantial


25 - Project Appraisal Document February 2007

Annex 1

reserve margin. However, they provide relatively lower-cost emergency supply and reserve capacity than other alternatives, such as auto-generation. Recently, the country avoided black- outs when supply from Aqaba was lost due to a faulty generator transformer.

12. In addition to the fue l m ix issue, the Government has also made significant efforts in institutional reform in the power sector by moving towards privatization and promoting public- private partnerships in generation, transmission, and distribution areas. Under the General Electric Law, the Jordan Electricity Authority was converted into a public shareholding company, NEPCO, which i s responsible for most o f the electricity generation. In 1999, NEPCO was divided into three companies for generation, transmission, and distribution. N o w there are three distribution companies, all of which are partly government-owned and are at various stages o f privatization.

13. In the reformed power sector, the Government adopted the BOO model for al l future power plants following a competitive bidding process. However, several private sector projects have not materialized in Jordan. In the power sector, the Samra Power Project did not proceed as a private sector project, in part because o f uncertainty on the source o f fue l for the power plant, and the fact that the selected private promoter withdrew i t s support for reasons unrelated to the project. Such lessons have been applied to this project by, for instance, ensuring that the fue l supply arrangements and a minimum regulatory framework to give comfort to the bidders were in place prior to bid issuance.

14. The project i s the least-cost option o f meeting the country’s electricity demand and maintaining a prudent reserve margin, o f at least 1 O%, supplemented by cross-border supplies. Private sector financing and development w i l l help alleviate the debt burden on Government, and assist in further improving efficiency o f the sector.



Annex 2

Annex 2: Ma jor Related Projects Financed by the Bank and/or other Agencies


The Bank’s support for the energy sector in the past few years has been through various grants, mostly for analytical work. The Bank i s the implementing agency o f a USAID grant for privatization o f the unbundled power sector entities. Other donordlenders to the power sector are the European Union, USAID, and various Arab financial institutions. The most recent activities sponsored by the Bank are shown below:

Table 6: Major Related Projects

Agency

PPIAF

PHRD Climate Change

Danish Trust FundGovernment o f Jordan

PPIAF

USAID

Activity

Tari f f setting for ERC

Enabling activities

Energy strategy

Design o f a transition strategy for NEPCO

Privatization o f the power sector enti t ies

Target Issue(s)

Support the regulatory agency in tari f f setting.

Promote the growth of renewable energy in Jordan.

Identify critical issues and options in Jordan’s energy sector.

Prepare NEPCO to effect the transition from single buyer towards increased competition.

Facilitate the privatization o f electricity companies through assistance in the design and implementation o f transactions.

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Annex 4

Annex 4: Detailed Project Description


Introduction

1. The Amman East Power Plant project (also known as the Almanakher Power Plant) consists o f a 370-MW gas-fired combined-cycle electric power station to be developed, owned, and operated by AES Jordan PSC, a joint venture between AES Oasis Ltd and Mitsui & Co. Ltd. The power station w i l l be constructed on a site located at Almanakher which i s approximately 14 kilometers east o f Amman, Jordan.

2. The combined cycle power station will include two gas turbines, two steam boilers and one steam turbine generator, and al l necessary auxiliary facilities, including administrative offices, plant control room, warehousing facilities, and workshops. Natural gas wil l be supplied to the project by NEPCO with the pipeline operated by Fajr. The gas is being supplied by Egypt through the Arab Gas Pipeline. Cooling water wil l be supplied to the power station by WAJ. The project wi l l treat the water before use and discharge the water into an evaporation pond.

3. The Sponsors were selected pursuant to an international competitive bidding process that was conducted by the Government. (See “Annex 8-Procurement Arrangements.”)

4. The project has been identified as part o f the least-cost Chart 2: AES Jordan PSC tariff bid

rf 0.040 $ 0.030

&

\

= 0 020

expansion plan for the power sector and i s deemed to be critical in meeting Jordan’s power demand. I t offers electricity at U S # 3.8 per kWh (levelized), which i s a competitive price for an IPP in a country with inadequate indigenous fue l supplies. This favorable outcome for Jordan i s attributable to an efficient and transparent competitive bid process. See Chart 2.

The Sponsors

Cayman Islands, i s owned by 5. AES Oasis Ltd, a holding company incorporated in the two shareholders: AES Corporation (61.1%) and IDB Infrastructure Fund L.P. (38.9%). AES Corporation i s a publicly traded company (NYSE: AES). IDB Infrastructure Fund L.P. i s sponsored by institutional investors including the Islamic Development Bank, Dar Al-Maal A l - Islami Trust, an investor from Malaysia, and the governments o f Brunei, Saudi Arabia, and Bahrain; Emerging Markets Partnership i s the principal advisor to the IDB Infrastructure Fund.



Annex 4

6. The business o f the company i s the identification, development, financing, construction, management, operation, maintenance, leasing, and ownership o f electricity generating stations and water desalination plants, and related facilities, together with such other activities as are necessary to carry out the foregoing. AES Oasis Ltd currently has ownership interests in the following power projects: AES La1 Pir and AES Pak Gen in Pakistan, and AES Barka in Oman.

7. Prior to December 23, 2003, AES Oasis Ltd was a whol ly owned subsidiary o f AES Corporation. On December 23,2003, AES Corporation through various subsidiaries, sold 38.9% ownership interest in the Company to IDB Infrastructure Fund L.P., resulting in AES’s subsidiaries retaining only a 61.1% ownership interest in the Company. Table 9 shows summary results for AES Oasis Ltd.

Table 9: Financial Performance of AES Oasis Ltd (US$ million)

Fiscal year ending December 31 :

Non-current assets Current assets

Total assets

Current l iabil i t ies Non-current l iabil i t ies Minor i ty interests Shareholders’ equity

Total debt and equity

Revenue Net before tax

Net profit (AES Oasis Ltd)

Debtltotal capitalization ratio

2001 2002 2003 2004 1 2005

87 1 224

1,095 122 500 50

42 3

1,095 243

88

78

56%

81 1 207

1,018 123 426

65 404

1,018 319

82

65

53%

754 I 8 6

940 110 336

74 420

940 330

97

79

47%

8. Mitsui & Co. Ltd i s one o f Japan’s leading general trading companies. From i t s founding in 1876, Mitsui has made investments in various fields such as coal mining, i ron ore mining, o i l & gas development, chemicals, foodstuffs, transportation, etc., both in Japan and overseas. Such investments include resource exploration and infrastructure-type investments such as the Sakhalin-11 Oil & Gas Project, the Australian Northwest Shelf LNG Project, the Qatar LNG Project, the Abu Dhabi LNG Project, and several independent power projects. Mitsui & Co. Ltd i s l isted on the Tokyo, Osaka, Nagoya, Sapporo, and Fukuoka stock exchanges.


Annex 4

9.

Table 10: Financial Performance o f Mitsui & Co. Ltd (US$ million)

Table 10 shows summary results for Mitsui & Co. Ltd.

Fiscal year ending March 31:

Current assets Non-current assets

Total assets

Current liabilities Non-current liabilities Minority interests Shareholders’ equity

Total debt and equity

Turnover Net result (including minority interests) ,

2002

32,340 24,655

56,995

25,527 23,151

497 7,820

56,995

2 1,293 44 8 473 Net result

I DebtiTotal shareholders equity ratio ~ 295%

2003 I 2004

32,750 23,152

55,902

25,858 22,094

58 1 7,369

55,902

23,800 304 266

308%

33,628 23,774

57,402

25,930 22,572

667 8,233

57,402

25,389 648 585

275%

2005

37,784 27,117

64,901

28,050 26,392

862 9,597

64,901

29,869 1,186 1,035

242%

2006

40,571 32,707

73,278

30,008 27,9 19

1,010 14,341

73,278

35,175 1,914 1,730

169% ~~

Public sector involvement in the project

10. The contractual structure o f the transaction i s consistent with industry standards with respect to the allocation o f commercial, technical, and pol i t ical risks among the parties in a l imi ted recourse project financing structure. The contractual structure includes the fo l lowing principal agreements with the Government or state-owned or -controlled entities, al l o f wh ich are co-terminus with the IA: 1 1. Implementation Agreement (IA) between the Government and AES Jordan PSC. The IA defines the rights and obligations o f the parties and lays out the legal and tax regime. Under the IA, the Government grants AES Jordan PSC the right to construct and operate the power station o n the site. I t assures AES Jordan PSC o f a l l fiscal incentives and other benefits provided in the Electricity A c t 1999 o f Jordan and the free convertibil i ty and transferability o f foreign exchange through the Central Bank o f Jordan to meet the company’s foreign currency remittances.

12. In addition, the IA specifies the compensation to be paid in the event o f early termination o f the project.

13. The IA wil l terminate 25 years after the phase 1 commissioning date unless previously terminated in the event o f default or force majeure.

14. A 400-kV electrical transmission system wil l be constructed to connect the power station’s switchyard to the newly constructed substation adjacent t o the power station site. The transmission system f rom the interface at the switchyard to the substation wi l l be owned and operated by NEPCO. The new substation wil l be constructed by Control y Montajes Industriales



Annex 4

S.A. (CYMI), a subsidiary o f ACS Actividades de Construccion y Servicios S.A. (Spain), under a turnkey contract for € 6.6 mi l l ion plus J D 4.8 mil l ion. The transmission l ine wi l l be constructed and the towers fabricated and erected by Energomontaj S.A. (SAEM) o f Romania using some components purchased directly f rom vendors in China, for an aggregate cost o f € 2.6 m i l l i on plus U S D 1.4 mi l l ion plus JD 0.7 mil l ion.

15. A 18-km water pipeline wil l be constructed f rom the water ma in l ine to the project site. W A J wil l contract with a Jordanian construction company at a cost o f about JD 2 mill ion, half of which wil l be borne by AES Jordan PSC and the other ha l f financed by GoJ.

16. A 2-km natural gas pipeline wi l l be constructed by Fajr f rom the Arab Gas Pipeline to the project site. Fajr wil l finance the cost o f this spur.

17. Government Guarantee between the Government and AES Jordan PSC. The Government Guarantee guarantees the payment obligations o f NEPCO under the PPA and the Connection Agreement, and o f W A J under the WSA.

18. Power Purchase Agreement (PPA) between NEPCO and AES Jordan PSC. The PPA provides for the sale o f electricity to NEPCO on the basis o f a two-part tar i f f consisting of: (i) a capacity payment, with non-escalable component to cover debt service, and an escalable component to cover return o n equity, f ixed operation and maintenance costs, insurance and other f ixed costs; and (ii) an energy payment composed of a variable operation and maintenance payment. The escalable capacity payment has a foreign component denominated in U S D and a JD component. There i s no fuel component, this PPA being what i s referred to in the industry as an energy conversion agreement.

19. NEPCO wil l purchase the entire output o f the project under the PPA.

20. The project i s expected to have a 95 percent plant availability factor.

21. Fuel Supply Agreement (FSA). All o f the DFO and natural gas requirements o f the project wi l l be supplied by NEPCO. MEMR will determine the price for the DFO.

22. The project i s expected to consume approximately 22 mi l l ion GJ (21 m i l l i on MMBtu) o f natural gas per year.

23. AES Jordan PSC wil l construct a 14-day DFO back-up storage faci l i ty at the site. NEPCO i s responsible to deliver DFO by truck to the fuel storage faci l i ty at the site, but may opt at i t s expense to construct, own, and operate a pipeline connecting the fuel storage facil i ty.

24. Water Supply Agreement (WSA) between W A J and AES Jordan PSC. Water for the power station wil l be purchased f rom W A J under the WSA. The raw water will come f rom approximately 18 km away. W A J wil l construct, own, and operate the pipeline f rom the municipal system to the delivery point at the project site.

25. AES Jordan PSC wil l construct, own, and operate a water treatment faci l i ty o n the project site to treat the water for use as make-up cooling water in the power station. Used water wil l be discharged in the evaporation pond.

26. Land Lease Agreement between GoJ, acting through the Ministry o f Finance/Department o f Lands and Survey, and AES Jordan PSC. The Government acquired the site specifically for the project and wil l lease i t to AES Jordan PSC under the Land Lease



Annex 4

Agreement. The Government paid compensation to the former landowners as required by Jordanian law at the time o f acquisition.

27. The lease cost i s JD 40,000 per annum.

28. The site is located approximately 14 kilometers east o f Amman (the capital city of Jordan). The project location consists o f approximately 205,000 square meters o f land immediately adjacent to the highway.

29. The project i s located in a rural area. The plant site i s near the village o f Almanakher, 14 km east o f Amman on the proposed Amman Ring Road.

Private sector contracts

30. AES Jordan PSC w i l l contract for other services, primarily engineering, procurement, and construction with the EPC Contractor, and technical services with AES Oasis Ltd. The Government i s not a party to the following agreements:

3 1. Engineering, Procurement, and Construction Contract (EPC Contract) between Doosan Heavy Industries & Construction Co. Ltd and AES Jordan PSC. The EPC Contract i s a fixed-price date-certain contract under which the EPC Contractor wi l l procure all work and services necessary in connection with the design, engineering, procurement, site clearance, construction, start-up, and testing o f the power station. The EPC Contractor has an established track record in turnkey construction work.

32. The lump sum turnkey contract with the EPC Contractor i s intended to be complete for al l works associated with the project including site preparation, access road, obtaining any additional lay down space for construction materials, and provision o f housing for the construction workforce. N o colony i s included for the project. AES Jordan PSC does not plan any other contracts to be awarded except for professional support services.

33. Construction wil l last approximately 16 months for the f i rs t 247.3 MW and 12 additional months for the next 122.4 MW. AES Jordan PSC w i l l initiate the construction o f the project in April 2007.

34. The combined cycle power station wil l include two gas turbines, two steam boilers and one steam turbine generator. The power station wil l have air cooling using a closed water cycle.

35. AES Jordan PSC has selected Ansaldo to provide the gas and Fuji/Siemens for the steam turbines. The gas turbines w i l l be fired primarily on natural gas, with DFO as backup fuel, and are capable o f meeting the PPA requirements.

36. Technical Services Agreement (TSA) between AES Oasis Ltd (the Technical Services Provider) and AES Jordan PSC. The Technical Services Provider wil l render services so as to optimize the ability o f the project to meet the contractual requirements o f output and heat rate and provide inputs and advice to the project to keep the project in good order.

37. AES Corporation (Technical Services Guarantor) has an extensive track record globally in the operation o f power stations and AES Oasis Ltd has a track record o f operations in Pakistan, Oman, and Qatar.



Annex 4

38. During operation o f power station, a crew of approximately 40 persons wil l be required for operations.

39. Financing agreements between various financiers (OPIC, JBIC, and SMBC) and AES Jordan PSC. The Sponsors wil l contribute equity to AES Jordan PSC according to the Equity Contributions Agreement. Debt financing wil l be arranged through a series o f loan agreements, direct agreements, the proposed IBRD, and other related agreements.

40. Insurance. AES Jordan PSC wil l purchase commercial policies o f insurance as is customary for private power projects. These include contractors all risk, general liability, employer liability, workers compensation, automobile, and business interruption insurance. IBRD wil l be an additional insured on the general liability policy.


% US$ millions Project Cost

- 35 -

% US$ Financing Plan mil,ions

Project Appraisal Document February 2007

Annex 5

Total 300 100.0%

Annex 5: Estimated Project Costs


Mitsui & Co. L td 30 10.0

Total 300 100.0%

Table 11: Estimated Project Costs and Financing Plan

Capital costs 246 82.0 Initial reserves 30 10.0 Financing costs/development 24 8.0

- 36 - Jordan Amman East Power Plant Project

Annex 6


Annex 6: Implementation Arrangements


1. The power plant w i l l be financed, built, owned, and operated by the private sector, except that the cost o f fuel wil l be borne directly by the off-taker, the National Electric Power Company (NEPCO), the state-owned transmission company. In addition, NEPCO wil l finance the facilities for fuel supply as well as the transmission facilities required to evacuate the power. The successful bidder, AES Jordan PSC, i s a consortium between (a) AES Oasis Ltd (Cayman Islands), 60% owner, and (b) Mitsui & Co. Ltd (Japan), 40% owner.

2. Financing for the power plant i s being arranged by the Sponsors and w i l l include direct lending to AES Jordan PSC by JBIC, OPIC, and SMBC, the latter o f whom will lend based on a partial risk guarantee from IBRD. MIGA wil l complement the arrangements with political risk insurance covering the investment o f the Sponsors. Only IBRD wil l have an indemnity from Jordan, as required by the IBRD Articles o f Agreement.

3. AES Jordan PSC has established a project office in Amman, headed by a project director. After financial close, the composition o f the team wil l change with the inclusion o f staff responsible for the construction and later the operational phase. AES Jordan PSC has appointed a consultant to carry out the ESIA and an engineering, procurement, and construction (EPC) contractor for the power station works.

4. The off-taker, NEPCO, has established a project management team for the transmission line, substation, and gas pipeline spur. The latter wil l be constructed by Fajr. The water supplier, WAJ, wi l l build a water pipeline spur to the site.

5. A Joint Coordinating Committee, comprising AES Jordan PSC and NEPCO staff, wi l l be responsible for overall project coordination during the construction and operational phases. I t s responsibilities wil l include ensuring that the EMPs and RPF for the proposed project and the associated infrastructure are implemented in a coordinated manner.

6. The major project agreements are as follows:

Table 12: Major Project Agreements

Contract Short Description

Commercial Bank Facility Agreement between AES Jordan PSC and the commercial lenders

Common Terms Agreement among AES Jordan PSC, JBIC, OPIC, and the commercial lenders

Provides for the commercial lenders to lend up to US$45 million to AES Jordan PSC.

Provides the common basis on which the lenders (JBIC, OPIC, and the commercial lenders) are prepared to advance funds to AES Jordan PSC under their respective facility agreements.



Annex 6

I Contract

Connection Agreement between AES Jordan PSC and NEPCO

Direct Agreements

EPC Contract between AES Jordan PSC and Doosan Heavy Industries & Construction Co. Ltd

Eauitv Contributions Agreement among the Sponsors and JBIC, OPIC, and the commercial lenders

Government Guarantee between GoJ and AES Jordan PSC

Guarantee Agreement between IBRD and SMBC, as agent for the commercial lenders

Indemnitv Agreement between Jordan and IBRD

Insurance Policies between AES Jordan PSC and various insurance providers

Intercreditor Agreement among JBIC, OPIC, the commercial lenders, and the Intercreditor Agent

JBIC Facility Agreement between AES Jordan PSC and JBIC

Short Description

Provides for technical matters relating to electrical interconnection.

Among other things, provides for direct NEPCO payments to the lenders in the event o f default under the PPA and grants cure rights to lenders.

Provides for the design, engineering, procurement, construction, and start-up o f the power station.

Provides for the timely contributions o f funds by the Sponsors to AES Jordan PSC.

GoJ guarantees performance (including payment) o f a l l NEPCO’s obligations under the PPA and the Connection Agreement, and o f a l l o f WAJ’s obligations under the Water Supply Agreement.

Guarantees payment to the commercial lenders o f their share o f the NEPCO termination payment, up to US$45 mi l l ion o f principal and scheduled interest.

GoJ grants AES Jordan PSC the right to construct and operate the power station o n the site. I t assures AES Jordan PSC o f al l fiscal incentives and other benefits provided in the Electricity Ac t 1999 o f Jordan and the free convertibility and transferability o f foreign exchange through the Central Bank o f Jordan to meet the company’s foreign currency remittances. I t provides the basis for early termination payments.

Requires Jordan to reimburse IBRD for claims paid under the IBRD Guarantee and related expenses.

Liability, casualty, automobile, etc policies as required by law, lenders, and industry.

Establishes rights and coordination arrangements among the various lenders.

Provides for JBIC to lend up to US$ 110 mi l l ion to AES Jordan PSC.

Land Lease Agreement between GoJ and AES Leases the real property at Almanakher to AES I Jordan PSC ~ Jordan PSC for the l i f e o f the project.



Annex 6

Contract

MIGA Contracts o f Guarantee (i) between MIGA and AES Oasis Ltd and (ii) between MIGA and Mitsui & Co. Ltd

OPIC Facility Agreement between AES Jordan PSC and OPIC

Power Purchase Ameement between NEPCO and AES Jordan PSC

Proiect Agreement between IBRD and AES Jordan PSC

Shareholder Agreement among AES Oasis Ltd, Mitsui & Co. Ltd, AES Jordan Holdco Ltd, and AES Jordan PSC

Technical Services Agreement between AES Jordan PSC and AES Oasis L td

Transfer Restrictions Agreement among AES Corporation, AES Oasis Ltd, Mitsui & Co. Ltd, AES Jordan Holdco Ltd, AES Jordan PSC, and lenders

Water Suuulv Agreement between WAJ and AES Jordan PSC

Short Descrbtion

Provides breach o f contract cover for the Sponsors.

Provides for OPIC to lend up to U S $ 70 mill ion to AES Jordan PSC.

Provides for the sale o f reliable capacity and energy to NEPCO.

Provides representations, warranties, and covenants by AES Jordan PSC.

Defines the rights and responsibilities o f the shareholders o f AES Jordan PSC.

Provides for the technical services for the facility during construction and operation.

Limits transfers o f ownership in the project during different phases o f construction and operations, subject to certain lender consents.

Provides for cooling water make-up water for the facility.

Risk Allocation

7. The primary risks undertaken by the private sector participants in the project are:

(a) construction-related r isks (design, engineering, installation, procurement, natural force majeure delays, labor, environmental, resettlement, etc.);

(b) operations and maintenance risks; and

(c) GoJ credit risk.

These risks have been allocated in the project agreements among the participants, including the EPC Contractor. (See Table 1 for a risk allocation matrix.) Furthermore, the Sponsors wi l l mitigate their r i sks through the MIGA guarantee and l imi ted recourse project financing.

8. The public sector i s assuming principally the take-or-pay obligations in NEPCO, as guaranteed by GoJ. The tar i f f i s payable in Jordanian Dinars, but as i s customary in international



Annex 6

independent power projects, i t i s indexed to the U S Dollar. The government guarantees would be most likely triggered if NEPCO becomes insolvent.

9. Natural events o f force majeure are risks taken by AES Jordan PSC while the all political r isks are the Government’s risks. Any business interruption payments under the events o f natural force majeure are covered under insurance while NEPCO will continue to make capacity payments during political force majeure events. O n the other hand, if AES Jordan PSC defaults in i t s performance, then it wil l owe liquidated damages to NEPCO.



Annex 7

Annex 7: Financial Management and Disbursement Arrangements


Not Applicable



Annex 8

Annex 8: Procurement Arrangements


1. The Bank’s procurement guidelines for IBRD guarantees require that goods and services must be procured with due regard to economy and efficiency (paragraphs 1.5 and 3.16 o f the guidelines). MEMR, as the project implementing agency, i s responsible for selecting the bidder for building, owning, and operating the power station. MEMR, with the services o f international consultant^,^ conducted international competitive bidding for the project.

Background

2. The Amman East Power Plant i s planned to be developed in two continuous phases. The f i rs t phase will comprise two simple cycle gas turbines and the second phase wil l comprise incorporation o f HRSGs and a steam turbine. The total capacity was defined to be between 280 and 400 MW. The project concession wi l l be for 25 years, and the cost o f gas wil l be borne directly by the off-taker. The Bank’s involvement in the project wi l l be through the provision o f an IBRD Guarantee to the commercial lender to the project. The Bank’s client i s MEMR.

Prequalifica tion

3. qualified:

Out o f 2 1 firmskonsortia that applied for pre-qualification the fo l lowing nine were pre-

AES Oasis L imi ted International Power and Saudi Oger Ltd consortium Malakof f Berhad Marubeni Corporation Mitsui & Co. Ltd Siemens Project Ventures GmbH Tractebel EGI Unit International Xenel Industries & Gama Energy consortium

4. objection on April 12,2005.

The Bank received the pre-qualification report on March 31, 2005 and provided no-

Request for Proposals

5. The Bank reviewed the RFP and provided no-objection on M a y 9, 2005. The RFP used a two-envelope bidding process. The f i rs t Envelope (Envelope I) was required to contain the technical, commercial, and financial terms (except for the tariff). Envelope I1 was required to contain the levelized tar i f f proposal. Only Envelopes I1 o f those bidders who passed the

K&M Engineering & Consulting Corporation (US).



Annex 8

Envelope I evaluation would be opened for evaluation o f the tariff. The remainder would be returned unopened.

Bidding

6. The RFP was issued to the pre-qualified bidders on June 7, 2005, with an original closing date o f October 7, 2005. A pre-bid meeting was held on July 20, 2005. After two extensions, the proposals were received and Envelope I proposals were opened, on December 21, 2005. Envelope I1 proposals were not opened at this time and were kept by MEMR.

7. The RFP was issued to seven o f the pre-qualified f irms, after Marubeni Corporation of Japan and Malakoff o f Malaysia notified the client, MEMR, prior to issuance o f the RFP, that they would not bid. After issuance o f the RFP, Tractabel and International Power also withdrew. However, the original partner o f International Power, Saudi Oger, subsequently added the National Thermal Power Corporation o f India and Sojitz Corporation o f Japan to replace International Power, after MEMR’s approval, but the new consortium also withdrew. Four of the remaining consortia combined to bid as two separate consortia, bringing the number o f bidders to the following three:

Consortium o f Unit International SA (Belgium), Siemens Project Ventures GmBH, and Consolidated Contractors International Co S.A.L. (Greece) (“USC Consortium”) Consortium o f AES Oasis Ltd (Cayman Islands) and Mitsui & Co. Ltd (Japan) (“AES Consortium”) Consortium o f Xenel Industries Ltd (Saudi Arabia) and Gama Energy A.S. (Turkey) (“Xenel Consortium”)

0

0

Envelope I Evaluation

8. The evaluation comprised: (i) review o f completeness o f each submittal, (ii) responsiveness test and (iii) financial, technical, and commercial evaluation.

9. The Bank reviewed the evaluation report and found the overall process to have been transparent and fair to all three bidders. I t finds the following to be the main issues that needed resolution before completing the evaluation, and considers the resolution satisfactory:

AES Consortium needed to confirm that the terms and conditions o f their prospective financing would not lead to an adjustment o f the proposed tariff before financial close, as per the RFP. After several exchanges, they agreed to assume responsibility for fluctuations in interest rates after the bid date, as per the RFP requirement. Xenel Consortium’s offer allowed for a NO, level o f 400 mg/Nm3 compared to the RFP limit o f 165 mg/Nm3. Following several exchanges, the higher level was accepted on the basis that it i s within the Bank acceptable limit for power plants built in areas with limited water supply for injection and that the RFP limit would be exceeded only when using fuel o i l for a limited number o f hours during the year. Furthermore, Xenel Consortium proposed to carry out an air modeling study to determine the overall impact


1 Submitted Weighted Sponsor i I Levelized Tariff

, , (US$/kWh) AES Consortium 0.04093361 Xenel Consortium 0.04485 000 USC Consortium 0.04600000

- 43 -

Ranking

1 2 3


Annex 8

1 Submitted Weighted 1 Sponsor Levelized Tariff

(US$/kWh) AES Consortium 0.0382 19 14

o f N O x emissions and take the necessary measures to reduce the emissions to the required levels, at no cost to the client.

Ranking

1

Envelope I1 Evaluation

10. As all bidders were deemed to be responsive to the RFP, al l three Envelope I1 proposals were opened, on February 27, 2006, in the presence o f representatives o f all three consortia. The following Table 13 shows the levelized tariff as presented by the bidders.

Table 13: Levelized tar i f f as presented by bidders (US$/kWh)

1 1. were as follows:

The instructions for completing the Envelope I1 proposal inclusive o f the proposed tari f f

All tariff components were converted to US$ at US$ 1 .OO = JD 0.70845. N o adjustments for fixed and variable O & M costs. 8% discount rate for calculation o f levelized tariff. Fuel price: U S $ 2.94/MMBtu for natural gas. The bidders were informed that the evaluation would not include use o f fue l o i l since the plant would normally operate on natural gas. This was also shown in the levelized tari f f model (spreadsheet) provided to the bidders (see paragraph 12 below). Water price: JD 1 .O/ cubic meter. Heat Rate: N o changes over the operational period. Different load profiles were used for years 1 to 15 and 16 to 25 as per the RFP.

To ensure common understanding and consistent tari f f proposals, the levelized tari f f model was provided to al l the bidders. The evaluators computed the tari f f using the data provided by the bidders and compared the results wi th those in the above table. The computed results are shown in Table 14.

Table 14: Levelized tar i f f as evaluated (US$/kWh)


Annex 8

~ Submitted Weighted

I (US$/kWh) USC Consortium 0.04697626

Levelired Tariff Sponsor i I

Ranking

3

13. The ranking remains the same but the computed figures for AES Consortium and USC Consortium differ from those presented by these bidders. The reason for AES Consortium was established as wrong conversion o f the natural gas price f rom US$/MMBtu to US$/GJ. For USC Consortium, it was established as changing annual tari f f while the capacity charge i s unchanged when the capacity charge i s the only variable for tari f f change.

Conclusion

14. The Bank reviewed the evaluation report and found the evaluation to be in accordance with the RFP and supported the recommendation o f AES Consortium as the first-ranked sponsor for the Amman East Power Plant. Furthermore, the Bank found that the procurement process followed the provisions o f paragraph 3.16 o f the Procurement Guidelines, on which basis the Bank could guarantee loans for the project made by other lenders.

Jordan -45 - Project Appraisal Document Amman East Power Plant Project February 2007

Annex 9

Annex 9: Economic and Financial Analysis


Economic Analysis

1. The project i s part o f the least-cost expansion p lan for the power sector and i s crit ical in meeting Jordan's power and energy demand. I t offers electricity at US# 3.8 per kWh (levelized), which i s a competitive price for an IPP in a country with practically n o indigenous fuel supplies. This favorable outcome for Jordan is attributable to an efficient and transparent competitive bid process.

2. The net present value to NEPCO has been estimated at US$ 62 mi l l ion at 10 percent discount rate and the economic rate o f re turn i s 14%. The main underlying assumptions are shown in Annex 9. They are based o n the feasibility study o f the project as we l l as on the ta r i f f bid by the Sponsors. The capital costs include the cost o f the transmission line, water and gas pipelines to the power plant. The current average ta r i f f has been taken a proxy for economic benefits. These are the minimum economic benefits o f the project compared to those that wou ld prevail if one were considering willingness to pay. Data for the latter are unfortunately not available.

3. The switching values for which the net present values o f the project wou ld be reduced to zero are the following: 26% increase in capital costs, 13% increase in natural gas prices, or a 6% reduction in total revenues which could be a combination o f a reduction o f either o r both o f sales quantities and tariffs. The results show a significant sensitivity to revenues. Overall, however, the economic viabi l i ty o f the project i s established.



Annex 9

JORDAN AMMAN EAST POWER STATION ECONOMIC ANALYSIS

Operating costs Trans. and Dis.Costs Fuel Cost Average Revenue Average T and D losses Life of the Plant Discount rate

2007 2008 2009 2010 201 1 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Invest cost

(US$ mi.)

107 109 49

Operating cost

(US$ mil.)

3 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 8 8 8

3.3 US$/MWh 15 US$/MWh

3.102 US$/GJ 1 Gigajoule = 0.948213 MMBTU 60 USS/MWh (at the consumer level)

20 years 8 %

12%

rans. And ist. Costs (US$ mil.)

16 39 39 39 39 39 39 39 39 39 39 39 39 39 39 39 39 34 35 34

Fuel Quantities 0

13.45 22 22 22 22 22 22 22 22 22 22 22 22 22 22 20 20 20 20 20

Fuel Cost

LUSS mil.)

42 69 69 69 69 69 69 68 69 69 69 69 69 69 69 63 63 63 63 63

Total costs

(US$ mil.)

107 170 166 117 117 117 117 117 116 117 117 117 117 117 117 117 110 110 105 105 105

Energy Sales (MWh)

1,039,356 2,618,493 2,603,210 2,607,805 2,608,284 2,608,284 2,608,284 2,600,680 2,598,155 2,605,273 2,610,829 2,600,680 2,598,155 2,602,746 2,605,744 2,598,155 2,595,635 2,296,544 2,301,430 2,294,720

Total Revenues (US$ mil.)

57 145 144 144 144 144 144 144 143 144 144 144 143 144 144 143 143 127 127 127

NPV (US$ Million)

IRR

Net Revenues (US$ mil.)

-50 -25 -22 27 27 27 27 26 28 27 27 27 26 27 27 27 33 17 23 22

55

20.62%



Annex 9

JORDAN AMMAN EAST POWER STATION ECONOMIC ANALYSIS

Operating costs 3.3 US$/MWh Trans. and Dis.Costs 10 US$/MWh Fuel Cost 3 US$/GJ 1 Gigajoule = 0.948213 M M B T U Average Tariff 60 US$/MWh (at the consumer level) Average T and D losses 8 YO Life of the Plant Discount rate

US$ M i l l i o n Invest cost

2007 110 2008 110 2009 56 201 0 201 1 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

20 years 10%

Operating Trans. Anc Fuel Fuel Cost Total Energy Total Net cost

0 3 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 8 8 8

Dist. Cost! Quantities GJ

0 0 10 13.45 26 22 26 22 26 22 26 22 26 22 26 22 26 22 26 22 26 22 26 22 26 22 26 22 26 22 26 22 26 20 26 20 23 20 23 20 23 20

0 40 67 67 67 67 67 67 66 67 67 67 67 67 67 67 61 60 60 60 61

Costs Sales Revenues Revenues (MWh)

110 164 158 101 102 102 102 102 101 101 101 102 102 101 102 102 95 95 91 91 91

0 1,039,356 2,618,493 2,603,210 2,607,805 2,608,284 2,608,284 2,608,284 2,600,680 2,598,155 2,605,273 2,610,829 2,600,680 2,598,155 2,602,746 2,605,744 2,598,155 2,595,635 2,296,544 2,301,430 2,294,720

0 57 145 144 144 144 144 144 144 143 144 144 144 143 144 144 143 143 127 127 127

-1 10 -107 -13 42 42 42 42 42 43 42 42 43 42 42 42 42 48 48 36 36 36

NPV (US$ Million) 62

I RR 13.75%



Annex 9

Financial Analysis

A. Past Performance

0

CEGCO, currently 100% owned by the Government, has until 20051° been the sole grid- connected generating entity in Jordan, with an installed capacity o f 1,755 MW.

Central Electricity Generating Company (CEGCO)

In 2005, CEGCO’s assets amounted to JD 537.4 million, comprising net fixed assets o f JD 442.8 mi l l ion (82% o f total assets) and net receivables and inventoriedparts o f JD 89 mi l l ion (17%). The net fixed assets comprise mostly o f electricity generation and related assets (power plants), consolidated at CEGCO. CEGCO’s capital structure comprises total liabilities o f JD 332.9 mil l ion (long-term loans o f JD 256.5 million) and total shareholders’ equity o f JD 204.6 mi l l ion (paid-up capital o f JD 30 million). CEGCO’s assets-liabilities management i s sound with fixed assets being adequately financed by equity and long-term loans. Working capital management has improved in recent years with an average receivables collection and payment period of approximately two months. Inventory turnover comprises 2/3 parts and 1/3 fuel, averaging 2.6 months. With the pending privatization o f CEGCO, the company has recently made limited investment on i t s generation assets. Although fuel-switching o f major power plants (to using import natural gas from Egypt) are ongoing.

Revenue i s derived from electricity sales (JD 246 million) and comprises the regulated capacity charges and energy charges for each generating unit. The current capacity charges are mostly fixed at JD 28.2 per kW per year. The energy charges-currently a blended rate across fuel types-are also mostly fixed at JD 0.0235 per kWh for non-retired units and JD 0.05783 for retired units. The corresponding operating expenses comprise, inter alia, the capital cost o f power plant, cost o f fuels, maintenance, administrative, financing, and taxes. CEGCO’s gross operating margin” has deteriorated in the past three fiscal years and contribution towards net losses totaled JD 10.3 mi l l ion (2003) and JD 2.2 mi l l ion (2004). However, CEGCO has turned around and generated a net profit o f JD 10.6 mi l l ion in 2005, supported in part by the use o f funds collected through the Rural Fils Fund (a fund that collects 2 Fils per kWh o f electricity consumed to support rural electrification and other expenses by the sector) to defray the additional generation cost following an unscheduled outage o f the Aqaba Power Station and foreign exchange gain. Although total liabilities to total equity i s below 2x, the ratio o f long-term debt to net operating income before depreciation and financial costs i s on the high-side, at 5 . 9 ~ (2005), 6 . 4 ~ (2004), and 4 . 6 ~ (2003), respectively. Debt service ability has declined as reflected in the historical debt service coverage ratio (DSCR)I2 o f 1.1 (2005), 1.5 (2004), and 1.5 (2003).

lo Samra commenced operation in 2005. I ’ N e t operating income before depreciation and financial costs declines f rom 25% (2003) to 20% (2005) o f revenue.

Historical DSCR i s computed for the relevant year by dividing net operating income before depreciation and financial costs with current portion o f long-term debt and financial costs for that year.

I 2



Annex 9

0 National Electric Power Company (NEPCO)

NEPCO is 100% owned by the Government and i s responsible for electricity transmission within Jordan, the import and export o f electricity f r o d t o neighboring countries, and the purchasing and selling o f natural gas (pass-through basis) to generating companies.

In 2005, NEPCO’s assets amounted to JD 506 million, comprising net fixed assets o f JD 386 mi l l ion (76% o f total assets) and net receivables and materialdparts o f JD 84 mi l l ion (16%). Fixed assets are mostly transmission-related, inclusive o f JD 29 mi l l ion assets financed by interest-free funds from a special purpose Consumers’ Contribution Fund. NEPCO records such Consumers’ Contribution as a liabilities line-item. NEPCO takes annual depreciation charge on all fixed assets, and takes a corresponding amortization o f the Consumers’ Contribution liabilities. The capital structure comprises total liabilities o f JD 284 mi l l ion (long-term loans o f JD 138 mi l l ion and Consumers’ Contribution o f JD 29 million) and total shareholders’ equity o f JD 222 mi l l ion (paid-up capital o f JD 230 million). NEPCO’s assets-liabilities management i s sound with fixed assets being adequately financed by equity, Consumers’ Contribution and long- term loans. Working capital management has improved with an average receivables collection and payment period o f approximately two months. NEPCO maintains a small quantity o f parts and supplies and no inventory.

Revenue i s derived from electricity sales (JD 327 million) to the three regional distribution companies (JEPCO, EDCO, and IDECO), large consumers and export^.'^ The bulk supply tariffs-including capacity charge, day-time and night-time tariff-are regulated by the Government. Starting in July 2005, the bulk supply tariffs for each distribution companies have been differentiated to better reflect the regional consumption behavior and supply constraint. NEPCO also records the purchases o f natural gas, but this i s immediately pass-through as natural gas sold to generating companies. The corresponding operating expenses comprise, inter alia, the capital cost o f the transmission system, pass-through cost o f natural gas, maintenance, administrative, financing, and taxes. NEPCO’s gross operating margin has deteriorated from 8.5% to 4.7% in the past three fiscal years. I t contributed towards a small net loss o f JD 2.9 mi l l ion (-0.7% o f revenue) in 2005. Although total liabilities to total equity i s below 1 . 5 ~ ~ the ratio o f long-term debt to net operating income before depreciation and financial costs i s on the high-side, at 7 . 8 ~ (2005), 4 . 9 ~ (2004), and 4 . 9 ~ (2003), respectively. Debt service ability has declined as reflected in the historical DSCR o f 1 .O (2005), 1.4 (2004), and 1.3 (2003).

0 Distribution Entities-comprised o f 3 regional companies, namely:

JEPCO - The Jordanian Electric Power Company

EDCO - Electricity Distribution Company

IDECO - Irbid District Electricity Company

l3 In 2005, electrical energy sales (in GWh) went to JEPCO 58%, EDCO 18%, IDECO 15%, large consumers 8%, and less than 1% export to Egypt.


Annex 9

JEPCO

In 2005, JEPCO was the largest distribution company with total assets o f JD 297 million, followed by EDCO at JD 112 mi l l ion and IDECO at JD 61 million. For each company, distribution-related fixed assets are the largest asset category (66%-77% o f total assets), followed by net receivables and material/parts. A significant proportion o f the companies’ fixed assets are financed by interest-free funds from the special purpose Consumers’ Contribution Fund and Rural Fils Fund. This funding arrangement has reduced the companies’ self-finance requirements and financing costs.

Consumers’ Rural Fils Fixed Net Fixed Contribu Assets (JD Assets Total

Self-finance Fixed Assets Fixed As

million - %) (JD - %) (JD million %)

1 17 (60%) 52 (27%) 27 (13%) 196

Table 15: Net Fixed Assets as at December 31,2005

EDCO IDECO

46 (42%) 63 (58%) 0.2 (0%) 109.2 27 (45%’) 19 (32%) 14 (23%) 60

B Rural Fils Liabilities

A Consumers’ Contribution

Liabilities

In terms o f assets-liabilities management, Table 16 indicates a mismatch o f assets-liabilities for JEPCO and IDECO whereby fixed assets are not fully financed by equity, Consumers’ Contribution Fund, Rural Fils Fund, and long-term loans. However, the mismatch i s relatively small and could be sufficiently addressed by the companies by, among other things, replacing short-term debt with longer-term debt.

C D Net Fixed Assets Long-term Shareholders’ +D

Equity Total Loans

Table 16: Assets and Liabilities as at December 31,2005 (JD million)

JEPCO EDCO

52 27 14 82 175 196 63 0.2 0.2 51 114.4 109.2

IDECO I 19 14- I 3 1 6 I 42 I 60

Electricity bill collection performance varies across the three companies. In 2005, JEPCO’s average collection i s two months, EDCO’s five months, and IDECO’s three months. Two distinct customer groups make up the receivables: non-governmental (household, commercial, and industry) and governmental (governmental departments, municipalities, governmental projects, etc). Table 17 provides a breakdown o f receivables. EDCO experiences the longest collection time, although this has considerably improved from 2004 where non-governmental collection was approximately four months and governmental collection was three months, respectively. IDECO governmental collection has also improved from 2.8 months to 1.8 months year-on-year.


JEPCO EDCO

- 5 1 -

2005 Electricity Non-governmental Governmental Total Sales Receivables Receivables Receivables 232.3 33.3 (1.7 months) 1.6 (0.08 mo.) 39.7 (2 mo.)

62.3 18.9 (3.6 mo.) 10.3 (2 mo.) 28.9 (5.6 mo.)


Annex 9

Table 17: Receivables Composition as at December 31,2005 (JD million)

I IDECO I 51.7 I 4.9 (1.2 mo.) I 7.7 (1.8 mo.) I 12.6 (3 mo.) I

Payment performances (to NEPCO) also vary with JEPCO’s averaging 2.3 months, EDCO’s averaging 4.4 months, and IDECO’s averaging 3.5 months. Payment period to NEPCO i s generally in l ine with each company’s collection time.

For al l companies, revenue i s derived from electricity sales to consumers in their respective geographic areas. The uniformed retail tar i f f structure i s regulated by GoJ and certain tariffs have been gradually raised in recent years to capture the rising costs o f generation, transmission and distribution. However, the first block o f household tari f f (1-160 kWh per month) has been fixed at JD 0.03 1 per kWh since June 2002. This block o f consumption represents approximately 18% o f Jordan’s total consumption-the largest customer group. Gross operating margins in 2005 for each company were JEPCO 9.8%, IDECO 5.5%, and EDCO 2.2% (the only company with declining margin, -3.2% in 2004). With improved operating margins in 2005, JEPCO achieved a net profit o f JD 10.9 mi l l ion (4.6% o f revenue) while IDECO turned a profi t o f JD 0.6 mi l l ion (1.2% o f revenue). For EDCO, the declining operating margin pushed i t s net profit to JD 0.02 mi l l ion (0.02% o f revenue). The companies have l i t t le debts as indicated by the low ratios o f long-term debt to net operating income before depreciation and financial costs (JEPCO 0 . 6 ~ ~ EDCO 0 . 1 ~ ~ IDECO l.Ox), which i s partly due to funding available from the Customers’ Contribution Fund, Rural Fils Fund, and favorable concessionary terms.

B. Proiected Financial Performance

The projections cover the years 2007-201 1. For electricity generation, i t i s assumed that power purchase agreements will govern electricity purchasehale between NEPCO and CEGCO, Samra, the Amman East project, and future IPPs. The projection assumes an average electricity demand growth o f 8% per annum. The generation electricity tariffs comprise (i) capacity charge, (ii) energy charge, and (iii) ancillary service charge. Capacity charge i s different for each power station. Energy charge i s different for each generating unit and based on generation efficiency, f ie1 price, and O & M cost assumptions. Natural gas i s the main fue l type and for the base-case the prevailing contractual prices for import o f gas from Egypt have been used. After 2009, US$4.00 per MMBtu has been assumed.

For transmission and distribution, the projections are based on the bulk supply arrangements between NEPCO and the distribution companies and take into account the current terms o f the concession agreement for JEPCO, and the licensing agreements for EDCO and IDECO, which are the basis for the revenue requirements calculation.



Annex 9

Key Assumptions for financial projections

Installed capacity

Electricity production

Electricity losses

Inflation

Revenue Requirements

NEPCO Revenue Requirement

JEPCO Revenue Requirement

EDCO & IDECO Revenue Requirement

Income Statement

Revenues

assumed to increase with the gradual additional o f Samra and Amman East. Total installed capacity would reach 2,000 MW in 2009 and remains around that level onwards.

assumed to be a function o f installed capacity, with plant efficiency factor varies across generating units.

in the base case, transmission loss is assumed to be 4.0%, distribution losses range between 10-1 1% (excluding o w n consumption and non-payment losses).

domestic inflation is assumed to be 6% per year.

Revenue Requirement i s calculated for each fiscal year. The main components are: (i) power purchase costs (from generating companies, inclusive o f assumed transmission loss), depreciation o f f ixed assets, direct operating costs, administrative costs, financing costs and corporate taxes; (ii) return on investment; and (iii) non-tariff revenues f rom core activities such as fees and penalties paid by customers. Each year’s Revenue Requirement i s used in projecting NEPCO’s revenue.

Revenue Requirement i s calculated for each fiscal year. The main components are: (i) power purchase costs (from NEPCO, inclusive o f distribution loss and own-consumption), depreciation o f f ixed assets, direct operating costs, administrative costs, and financing costs; (ii) return on investment-up to 2011 JEPCO i s permitted a 16% annual return on paid-up capital. JEPCO’s corporate tax is captured through this return on investment; and (iii) non-tariff revenues from core activities such as fees f rom meter rentals. Each year’s Revenue Requirement i s used in projecting JEPCO’s revenue.

Revenue Requirement i s calculated for each fiscal year. The main components are: (i) power purchase costs (from NEPCO, inclusive o f distribution losses and own-consumption), depreciation o f f ixed assets, direct operating costs, and administrative costs; (ii) return on investment-up to 201 1 EDCO & IDECO are permitted a 10% annual return on regulatory assets, net o f depreciation. Financing costs and corporate taxes are captured through this return on investment. The Revenue Requirement Drovides E D C O & I D E C O with the f lexibi l i tv to choose the appropriate capital structures; and (iii) non-tariff revenues from core activities such as fees from meter rentals. Each year’s Revenue Requirement is used in projecting EDCO and IDECO’s revenue.

derived from electricity sales (i) CEGCO to NEPCO; (ii) NEPCO to the distribution companies; (iii) distribution companies to end-users. Electricity sales are based on revenue requirement estimates for NEPCO and the distribution companies. Sales are based on load forecast and the corresponding capacity and energy payments for CEGCO. NEPCO’s natural gas sale revenue



Annex 9

Operating expenses

i s net-off w i th cost o f natural gas purchase in any given year.

estimated based on revenue requirement component estimates for NEPCO and the distribution companies. Fo r CEGCO, are based on % o f revenue in 2005 for each line-item.

Depreciation based on a 3-5% straight-line depreciation per year.

Interest interest payments o n borrowings.

Profi t tax 30% per year

Sources and Applications o f Funds

Internal sources net operating income before financial charges with the depreciation charge added back.

External sources grants (e.g., Customers’ Contribution and Fi ls Fund) and borrowings.

Capital investments total o f capital investments undertaken by the companies.

Debt service interest charges and repayments on borrowings.

Work ing capital annual changes in currents assets (less cash) and current liabilities.

Balance Sheet

Gross f ixed assets the previous year’s gross f ixed assets plus the work in progress as i t i s completed.

Work in progress the ongoing investments as they are implemented starting in 2006.

Net Account receivables previous year’s receivables and the portion o f current years bil l ings not collected.

Inventory, parts, materials, supplies Account Payables

estimated as a percentage o f sales for the base year 2005 for each company.

previous year’s payables for suppliers (e.g., fuel and material) and other operating expenses.

Retained earningsilosses accumulated earningsilosses incurred by the company.

Long-term debt current and future loans taken by each company to finance its capital investment program. Interest rates are assumed to be 5-8% for a l l existing loan and 6-8% for new loans.



Annex 9

Summary of Financial Projections (2007-2011)

CEGCO

The projection assumes a finalization o f a power purchase agreement in 2007 with certain revisions to capacity and energy charges. N o major capital expenditure i s included in the projection.

Gross operating margin i s forecast to remain stable at 19% o f sales whi le net operating margin wi l l depend significantly o n the assumed average cost o f financing, which averaged only 4.2% in 2005. In addition, as CEGCO’s power plants are gradually being converted to natural gas, fuel inventory holding cost should decline and further improve margin.

Fo r a generation company, CEGCO i s well-capitalized with total liabilities to total shareholders’ equity o f 1 . 6 ~ in 2005. This leverage ratio i s projected to remain stable over the forecast period. Debt to internally-generated cash i s forecast to average 5.1x, an improvement over 5 . 9 ~ in 2005.

Post-privatization, CEGCO may participate in IPP bidding and enlarge i t s balance sheet (either as a “on balance sheet” increment o r as equity-investment in a separate project company), thus ensuring business continuation.

NEPCO

0 The generation forecast i s projected to grow f rom 9,550 GWh in 2005 to exceed 14,900 GWh in 201 1, an 8% annual average increase. The forecast assumes a 4% transmission loss rate.

NEPCO i s projected to grow 17% by assets over the forecast period with annual sales growth averaging 14% (conservative Egyptian gas price i s assumed). The projection assumes n o additional equity injection, therefore, projected expansion wil l be financed by internally- generated cash, borrowed funds, and if available, the Consumers’ Contribution Fund.

A base-case projection assumes that NEPCO wil l maintain the level o f administrative and maintenance expenses relative to revenue in l ine with historical level and that the interest- free Consumers’ Contribution Fund remains available. The projected gross operating margins increase f rom 4.7% in 2005 to an average o f 4.9% over the forecast period. In the near-term (2006-2007), NEPCO i s to remain profitable without the need to adjust electricity tariffs. For the medium-term, NEPCO profi tabi l i ty can be improved by spreading-out capital expenditures (NEPCO’s current estimate requires significant investment averaging almost 20% o f current fixed assets in the next four years) and by a slight adjustment to the bulk supply tariffs (e.g., a 1% average increase). These measures wil l a l low NEPCO to have a sound capital structure, sustain borrowing capacity, and attain sustainable business growth.

0

0

JEPCO / EDCO / IDECO

0 JEPCO i s projected to grow 24% by assets over the forecast period and annual sales growth averaging 13% (conservative Egypt gas price i s assumed). The projection assumes n o



Annex 9

additional equity injection, therefore, projected expansion wil l be financed by internally- generated cash. Due to Revenue Requirement, JEPCO may sustain projected capital expenditures without additional borrowed funds.

EDCO i s projected to grow 23% by assets over the forecast period and annual sales growth averaging 12.6%. The projection assumes no additional equity injection, therefore, projected expansion wil l be financed by internally-generated cash and borrowed funds.

IDECO i s projected to grow 33% by assets over the forecast period and annual sales growth averaging 12.7%. The projection assumes no change in capitalization, therefore, projected expansion will be financed by internally-generated cash and borrowed funds.

In terms o f gross operating margin, the projection suggests declining margin for JEPCO from 9.8% (2005) to 5.4% (forecast average) and a significant improvement for EDCO (2.2% vs 4.4%) and IDECO (6% vs 7%).

All companies are projected to be profitable initially, although net profit margins are forecast to decline over the forecast period. A combination o f higher financing costs and depreciation charges are the main drivers for declining net profits and a potential loss in 201 1 for EDCO. In practice, however, the differential bulk supply tariffs could be further adjusted to ensure continued profitability for al l distribution companies.

JEPCO and EDCO are well-capitalized, with total liabilities to total shareholders’ equity averaging 2x over the forecast period. Both companies’ internally generated cash flows are large relative to their outstanding debts with JEPCO’s debt to internally-generated cash i s below l x while that o f EDCO i s projected to rise, averaging 2.6x, throughout the forecast period.

IDECO i s the least capitalized distribution company, with total liabilities to total shareholders’ equity o f 1 l x in 2005.14 This ratio i s projected to decline, averaging 9x over the forecast period. Despite the high leverage, IDECO’s debt to internally-generated cash i s generally reasonable, averaging 2 . 9 ~ over the forecast period.

The following pages contain financial indicators output for the base-case financial projections. The projected financial statements for each company are available under the project files.

Total liabilities include Consumers’ Contribution and Rural Fi ls liabilities. These items can also be viewed as equity. However, this accounting classification i s consistent for a l l distribution companies and IDECO’s leverage ratio (1 l x in 2005) is considerably higher than those o f JEPCO ( 2 . 6 ~ ) and EDCO (2.2~).

14


-61 - Project Appraisal Document February 2007

Annex 10

Annex 10: IBRD Guarantee


IBRD PARTIAL RISK GUARANTEE

1. The Government has requested the IBRD to consider providing a partial risk guarantee (the “IBRD Guarantee”) in respect o f a portion o f the Government’s contractual payment obligations to the proposed project. I t i s proposed that the ZBRD Guarantee would support commercial lenders to AES Jordan PSC by protecting them against debt service default resulting from the Government not fulfilling i t s final payment obligation under the project documentation.

2. NEPCO and AES Jordan PSC w i l l enter into the PPA, which provides for, among other things, payments by NEPCO to AES Jordan PSC for performance. NEPCO’s payment obligations wil l by guaranteed by the Government under the Government Guarantee. The Government and AES Jordan PSC will enter into the ZA, which provides for, among other things, payment by the Government o f certain amounts upon early termination o f the PPA and ZA by AES Jordan PSC for payment default by the Government (such amount being referred to herein as the “Termination Payment”). The Government proposes to enhance i t s obligation to make the Termination Payment by arranging for the proposed ZBRD Guarantee.

Guarantee Trigger and Risk Coverage

3. The ZBRD Guarantee would only be triggered to the extent that nonpayment o f debt service i s the resul t o f the failure by the Government to pay an amount due to AES Jordan PSC for a specified non-commercial event in accordance with dispute resolution procedures included under the terms o f the ZA.

- 62 - Jordan Project Appraisal Document Amman East Power Plant Project February 2007

Annex 10

Chart 3: Proposed IBRD Guarantee Structure

Proposed I B R b Guarantee Structure

1 Implementation v H a s h e m i t e / Agreement

commercial

(Guarantor) L - - - - - - - - - - - - - - - (Beneficiaries) payment o f IBRD's share lenders

I of 'Termination Payment' I


Annex 10

4. proposes to guarantee the following:

Based on a review o f the agreements previously delivered to the World Bank, the Bank

0 the failure by the Government to make a required Termination Payment under 5517.5.1.4; 17.5.1.5; 17.5.1.6; or 19.4.2, as the case may be, o f the IA .

Approval Process and Required Documentation

5. The World Bank procedures require approval o f the IBRD Guarantee by management and IBRD’s Board o f Executive Directors. Before Board approval can be sought, the project must be determined to meet World Bank technical, environmental, social, economic, financial, and information disclosure policies and requirements, in some cases through assessments prepared by independent experts engaged by the World Bank, investors, or lenders. The World Bank wil l also review the ownership and management structure o f AES Jordan PSC. In addition, project documentation and agreements relating to the IBRD Guarantee, including the Implementation Agreement, the Power Purchase Agreement, the Water Supply Agreement, the Fuel Supply Agreement (if any), the financing agreements, any direct agreements, the Guarantee Agreement, the Project Agreement, and the Indemnity Agreement, must be substantially negotiated in forms acceptable to the World Bank. At that point, the proposed transaction wil l be presented to IBRD’s Board o f Executive Directors for approval o f the IBRD Guarantee; this approval will be given in the sole discretion o f the Executive Directors.

6.

(a)

Required documentation includes the following:

Guarantee Agreement: The terms and conditions o f the IBRD Guarantee wil l be embodied in a Guarantee Agreement between the Beneficiary (or an agent acting on itdtheir behalf) and the World Bank.

Project Agreement: AES Jordan PSC w i l l execute a Project Agreement with IBRD in order to create a direct contractual relationship with IBRD. It wil l contain undertakings to the Wor ld Bank with respect to matters o f particular concern, such as the use o f proceeds o f IBRD-guaranteed debt, consent requirements for changes to project agreements and documentation, the ineligibility o f debarred f i r m s , and compliance with World Bank safeguards policies, assignment o f rights, and good governance.

Indemnity Agreement: Jordan wil l indemnify IBRD in the event i t makes payments under the IBRD Guarantee, and against any other expenses or liabilities incurred by the World Bank.

7. An indicative term sheet for the proposed IBRD Guarantee i s attached and should be read in conjunction with the statements contained herein. The te rm sheet i s prepared on the basis o f draft project agreements and documentation previously delivered to the World Bank. The World Bank reserves the right to modify or withdraw i t s consideration o f the proposed IBRD Guarantee at any time, upon written notice, for any reason, including based on changes to these drafts. The Bank reserves the right in any event to determine the final terms and conditions o f the IBRD Guarantee. The World Bank i s not under any obligation to issue an IBRD Guarantee and shall have no l iabi l i ty to any party in the event i t does not do so for whatever reason.

(b)

(c)



Annex 10

SUMMARY OF INDICATIVE TERMS AND CONDITIONS OF THE PROPOSED IBRD GUARANTEE

IBRD-Guaranteed Facilitv Aareement

Borrower: AES Jordan PSC.

Guaranteed Lenders: Loan Amount: US$45 mill ion.

Term: Repayment of Loan: Loan Interest Rate:

Currency : U S Dollars.

Use of proceeds:

SMBC and syndicated lenders.

17 years from signing date.

28 semiannual installments.

6-month L IBOR plus 0.9 to 1.3% p.a. (depending on year), to be swapped to fixed rate.

Proceeds to be used only for design, engineering, procurement, construction, and financing costs o f the project. Proceeds may not be used for developer fees, taxes, duties, luxury items, goods or services f rom territories that are not a member o f the World Bank, etc.

Pro rata wi th the other loans o f the project. Drawdown:

IBRD Guarantee Aareement

Guarantor: Beneficiaries:

Guarantee:

International Bank for Reconstruction and Development (IBRD).

Lenders, or the Facility Agent on their behalf, in the IBRD-Guaranteed Loan Agreement.

IBRD w i l l guarantee to the Beneficiaries amounts o f principal and scheduled interest (up to the Maximum IBRD Liabil ity) it would have otherwise received from the Borrower, but for the payment default o f the Government o f the Termination Payment owing under $9 17.5.1.4; 17.5.1.5; 17.5.1.6; or 19.4.2, as the case may be, o f the Implementation Agreement .



Annex 10

Maximum IBRD Liability: The Maximum Guaranteed Principal Amount plus scheduled interest

thereon, as follows: [not final]

For the Guaranteed Loan (and for purposes of calculation of the Guarantee Fee) during the

following period: Effective Date to [Jun 301, 2010 [Jul 11,2010 to [Dec 311,2010 [Jan 11,201 1 to [Jun 301,201 1 [Jul 11,201 1 to [Dec 311,201 1 [Jan 11,2012 to [Jun 301,2012 [Jul 11,2012 to [Dec 311,2012 [Jan 11,2013 to [Jun 301,2013 [Jul 11,2013 to [Dec 311,2013 [Jan 11,2014 to [Jun 301,2014 [Jul 11,2014 to [Dec 311,2014 [Jan 11, 2015 to [Jun 301,2015 [Jul 11,2015 to [Dec 311,2015 [Jan 11,2016 to [Jun 301,2016 [Jul 11,2016 to [Dec 311,2016 [Jan 11,2017 to [Jun 301,2017 [Jul 13, 2017 to [Dec 311,2017 [Jan 11,2018 to [Jun 301,2018 [Jul 13,2018 to [Dec 311,2018 [Jan 13, 2019 to [Jun 301,2019 [Jul 11,2019 to [Dec 311,2019 [Jan 11,2020 to [Jun 301,2020 [Jul 11,2020 to [Dec 311,2020 [Jan 11,202 1 to [Jun 301,202 1 [Jul 11,2021 to [Dec 311,2021 [Jan 11, 2022 to [Jun 301,2022 [Jul 11,2022 to [Dec 311, 2022 [Jan 11,2023 to [Jun 301, 2023 [Jul 11,2023 to [Dec 311, 2023

Thereafter

The Maximum Guaranteed Principal is:

USD 45,000,000.00 44,294,022.16 43,548,862.55 42,762,346.58 41,932,178.97 41,055,937.06 40,13 1,063.72 39,154,859.92 38,124,476.80 37,036,907.42 35,888,977.94 34,677,338.38 33,398,452.81 32,048,589.10 30,623,807.96 29,119,95 1.46 27,532,630.92 25,857,214.09 24,088,811.64 22,222,262.84 20,252,120.58 18,172,635.44 15,977,738.86 13,661,025.52 11,215,734.60 8,634,730.03 5,910,479.70 3,035,033.48

0.00

Standby Fee:

Guarantee Fee:

Prior to the end o f the availability period, 25 basis points per annum on any guaranteed but undisbursed amounts under the IBRD-Guaranteed Loan Agreement. Standby Fees are the obligation o f the Beneficiaries and must be paid in advance on regular payment dates.

55 basis points per annum (a) prior to end o f the availability period, on any guaranteed and disbursed amounts under the IBRD-Guaranteed Loan Agreement and (b) after the end o f the availability period, on the Maximum Guaranteed Principal Amount. Guarantee Fees are the obligation o f the Beneficiaries and must be paid in advance on regular payment dates. The IBRD Guarantee would lapse in the event o f nonpayment o f any installment o f the Guarantee Fee.

Jordan - 66 - Project Appraisal Document February 2007 Amman East Power Plant Project

Annex 10

U p -f ro n t Fees: See Project Agreement below.

Conditions precedent to the IBRD Guarantee: Usual and customary conditions for financing o f this type including the

following: (a) firm commitment for sufficient financing to complete

construction o f the project, including satisfactory contribution o f equity by the Sponsor;

execution and delivery o f a l l project and financing agreements, satisfactory to IBRD, including execution and delivery o f the Indemnity Agreement and the IBRD Project Agreement;

delivery o f an Environmental and Social Assessment that i s satisfactory to IBRD;

effectiveness o f a l l required insurance (to include IBRD as an additional insured on third-party l iabil i ty insurance);

satisfaction o f all conditions precedent under the Financing Documents;

provision o f satisfactory legal opinions; and

payment in full o f the Initiation Fee and Processing Fee, and the first installment o f the Guarantee Fee and Standby Fee.

(b)

(c)

(d)

(e)

(0 (g)

Suspension of additional coverage: If any o f the following events occurs and i s continuing, IBRD may by

written notice to Lenders deny guarantee coverage to any subsequent drawdowns:

any event (potential event o f default) which, wi th the passing o f time or giving o f notice or both, may lead to a claim on the IBRD Guarantee;

material default by the Borrower under the IBRD Project Agreement;

suspension by IBRD o f loans to or guaranteed by Jordan or breach by Jordan o f i t s obligations under the Indemnity Agreement; or

suspension or lapse o f Jordan from membership in IBRD, the International Development Association, or the International Monetary Fund.

Exclusions: IBRD i s not liable for losses directly resulting from (i) acts or omissions o f the Borrower, the Sponsors, the EPC Contractor, or the Beneficiaries, (ii) Jordanian laws in effect on, or events occurring before, the date o f the Guarantee Agreement, or (iii) prohibited activities in connection wi th the project attributable to (A) the Beneficiaries, or (B) the Borrower, the Sponsors, or the EPC Contractor, which could be expected to be discovered b y the Beneficiaries by exercising due diligence.



Annex 10

Term in at ion by I BRD : Except in respect o f demand notices already delivered to IBRD, default in payment o f Standby Fees or Guarantee Fees w i l l automatically terminate the IBRD Guarantee. The IBRD Guarantee wil l also terminate in the event that any changes are made without IBRD’s consent in those provisions o f the project agreements (including any financing agreements) in respect o f which IBRD’s consent is required, or if it is determined that any o f the project agreements i s invalid, illegal, or unenforceable. In addition, the IBRD wil l terminate if there i s substantial evidence that the Borrower, the Sponsors, EPC Contractor, or the Beneficiaries have engaged or engage in prohibited activities (coercion, collusion, corrupt or fraudulent practices, harmful child labor, or forced labor) in connection with the project.

Subrogation: If and to the extent IBRD makes any payment under the IBRD Guarantee and Jordan has failed to reimburse IBRD for the amount so paid in accordance wi th the terms o f the Indemnity Agreement and such failure has continued for at least 60 days after notice f rom IBRD, IBRD w i l l be subrogated immediately to the lenders’ rights, except that IBRD shall not have any voting rights or any rights to seek enforcement o f security prior to payment by IBRD to the IBRD-Guaranteed Lenders o f the lesser of (i) the Maximum IBRD Liabi l i ty or (ii) the IBRD-Guaranteed Loan and accrued interest. IBRD may elect to waive i t s subrogation rights.

Claims and disputes: Claims by IBRD-Guaranteed Lenders must be made within 90 days o f nonpayment with IBRD paying within 60 days thereafter. If there i s a dispute between the Government and the Borrower as to the Government’s obligation to pay or the amount o f i t s liability, the IBRD Guarantee would be callable only in respect o f amounts that the Government i s obligated to pay, and fails to pay, in accordance wi th the dispute resolution procedures contained in the Implementation Agreement or other project agreements.

Upon (i) the failure o f the Borrower to pay any amount due under the IBRD-Guaranteed Loan Agreement, (ii) payment by IBRD o f such amount under the IBRD Guarantee pursuant to a demand thereunder, and (iii) failure by Jordan to reimburse IBRD under the Indemnity Agreement in respect o f such payment, IBRD may, if such failure has continued for at Ieast 60 days, offer to purchase at par plus accrued interest f rom all (but not less than all) o f the IBRD-Guaranteed Lenders al l their rights, title, and interest in the IBRD-Guaranteed Loan Agreement in respect o f the IBRD-Guaranteed Loan outstanding o n the purchase date (less any amount paid pursuant to the IBRD Guarantee).

IBRD Optional Offer to Purchase:

Choice of law: New York.



Annex 10

Indemnity Agreement

Parties: IBRD and the Hashemite Kingdom o f Jordan.

lndemn ity:

Covenants:

Remedies:

Choice of law:

Jordan w i l l reimburse and indemnify IBRD o n demand, or as IBRD may otherwise direct, for a l l payments under the IBRD Guarantee and al l losses, damages, costs, and expenses incurred by IBRD relating to or arising f rom the IBRD Guarantee.

Jordan wil l covenant, among other things, that it w i l l (i) cause the appropriate government enti ty to ensure that the project’s and the associated infrastructure’s EMPs and resettlement policy framework are implemented in a coordinated manner, (ii) report regularly on the coordination and implementation o f such EMP’s and resettlement policy framework, and (iii) deliver or cause NEPCO to deliver annually a copy o f NEPCO’s annual audited financial statements.

If Jordan breaches any o f i t s obligations under the Indemnity Agreement, IBRD may suspend or cancel, in whole or in part, the rights o f Jordan to make withdrawals under any other loan or credit agreement wi th IBRD, or any IBRD loan to a third party guaranteed by the Jordan or the Government, and may declare the outstanding principal and interest o f any such loan or credit to be due and payable immediately. A breach by Jordan under the Indemnity Agreement w i l l not, however, forgive any existing guarantee obligations o f the Wor ld Bank under the IBRD Guarantee.

The Indemnity Agreement w i l l follow the usual legal regime and include dispute settlement provisions customary for agreements between member countries and IBRD.



Annex 10

Proiect Anreement

Covenants :

Parties: Representations and warranties:

IBRD and AES Jordan PSC.

AES Jordan PSC wil l represent, among other standard provisions, as o f the effective date, that (i) it i s in compliance wi th applicable environmental laws and other applicable Wor ld Bank guidelines, safeguard policies, and other applicable requirements and (ii) neither it, the Sponsors, the EPC contractor, nor the any o f i t s affiliates has engaged in any prohibited activity in connection wi th the project.

AES Jordan PSC wi l l covenant, among other things, that it wi l l (i) use the proceeds o f the disbursements under the IBRD-Guaranteed Loan Facility exclusively for the project and in accordance with the terms and conditions o f the IBRD-Guaranteed Loan Agreement, (ii) comply wi th applicable laws, including environmental laws, and the Environmental Management Plan, (iii) provide annual audited financial statements and other reports, (iv) provide access to the project, (v) not be a party to any corrupt or fraudulent practice in relation to the project, and (vi) comply wi th Wor ld Bank sanctions procedures and guidelines regarding individuals or f i r m s included in the Wor ld Bank Group l i s t o f f i r m s debarred from Wor ld Bank Group-financed contracts.

U p-f ron t Fees: IBRD w i l l charge AES Jordan PSC a one-time Init iation Fee o f U S D

100,000 for internal project preparation and development costs, payable upon Board o f Executive Directors approval o f the ZBRD Guarantee. IBRD w i l l also charge AES Jordan PSC a Processing Fee o f up to USD250,OOO to cover the cost o f out-of-pocket expenses, payable as incurred.

AES Jordan PSC w i l l indemnify and reimburse the Wor ld Bank for reasonable out-of-pocket expenses incurred in connection wi th the consideration o f any requests for IBRD’s consent, any amendments to documentation, or the preparation for and actual enforcement or protection o f rights under the ZBRD Guarantee and other documentation.

AES Jordan PSC wil l assign to IBRD (and possibly other claimants, e.g., MIGA) appropriate allocations o f i t s right, title, and interest in and to any affidavit or arbitral award, as described above, and any claims or causes o f action available to AES Jordan PSC against Jordan, the Government, or NEPCO, as a precondition to making any draw under the IBRD Guarantee.

Choice of law: New York.

Costs and expenses:

Assignment of rights:



Annex 11

Annex 11: MIGA Guarantees


MIGA’s Standard Description o f Risks

1. TRANSFER RESTRICTION (not applicable)

Transfer Restriction Coverage protects against (i) the inabi l i ty t o convert, f rom local currency in to guarantee currency, loan payments, dividends, profits, and proceeds f rom the disposal of the guaranteed investment, and (ii) host government actions that prevent the transfer o f the guarantee currency outside the host country, including the failure o f the government to grant an authorization for the conversion or the transfer o f such currency. Compensation i s based o n the guaranteed percentage o f any payments that cannot be converted or transferred.

2. EXPROPRIATION (not applicable)

Expropriation Coverage protects against losses attributable to measures taken or approved by the host government that deprive the guarantee holder o f i t s ownership or control over i t s investment, or in the case o f debt, results in the project enterprise being unable to meet i t s obligations to the lender. Bo th direct and indirect (creeping) expropriation are covered. Compensation for equity i s based o n the guaranteed percentage o f the net book value o f the guaranteed investment in the project enterprise. For debt, compensation i s based o n the guaranteed percentage o f the principal and interest that i s in default as a result o f expropriation.

3. WAR AND CIVIL DISTURBANCE (not applicable)

War and Civil Disturbance Coverage protects against losses arising as a result o f mil i tary action or c i v i l disturbance in the host country, including sabotage and terrorism, that destroys or damages tangible assets o f the project enterprise or interferes with i t s operations (business interruption), or, in the case o f debt, results in the project enterprise being unable to meet i t s Obligations to the lender. Compensation i s based on the guaranteed percentage o f the value o f the assets destroyed or damaged or, in the case o f business interruption, the net book value o f the guaranteed equity investment. For debt, compensation i s based o n the guaranteed percentage o f the principal and interest that i s in default as a result o f war and c i v i l disturbance.

4. BREACH OF CONTRACT (applicable to this project)

Breach o f Contract Coverage protects against losses arising f rom a repudiation or breach by the host government o f a contract entered with the guarantee holder, provided that a final and binding arbitration award or judicial decision has been rendered in favor o f the guarantee holder and cannot be enforced against the host government. Compensation i s based on the amount that


Annex 11

the guarantee holder i s entitled to recover from the host government in accordance with the terms o f the arbitration award or judicial decision. l5

MIGA Breach of Contract Risk Assessment

Breach o f Contract

Breach o f Contract cover i s requested by the Sponsors for their equity investment (including shareholder loans) for the same risks as are being covered by the IBRD Guarantee, namely payment default by GoJ o f the Termination Payment owing under the Implementation Agreement.

MIGA’s liability to pay a claim wil l be triggered if:

a.

b.

C.

an Arbitration Award (the “Award”) i s rendered for a breach by GoJ o f such Termination Payment obligations due under the IA and covered by MIGA;

the Award i s in favor o f AES Jordan PSC, recognizes GoJ’s liability for the Termination Payment and i s final and binding; and

AES Jordan PSC has made all reasonable efforts to exhaust al l remedies to enforce the Award against GoJ during the waiting period.

Disputes under the Implementation Agreement are to be resolved by arbitration under the ICC Rules (Rules o f the Arbitration o f the International Chamber o f Commerce) in Cairo, Egypt until termination o f the Lender’s Direct Agreements and Amman, Jordan thereafter.

The legal environment in Jordan provides fair and equitable treatment for foreign investments. The laws treat local and foreign investors equally (with only a few exceptions in particular sectors o f the economy, other than the power sector as in this project, in which the percentage o f ownership by foreign investors i s limited). Property and contractual rights are recognized and respected in Jordan and the judicial process allows for investment disputes and provides adequate safeguards for the enforcement o f these rights. Under Jordanian law, foreign investors may seek third party arbitration or an internationally recognized forum for the settlement o f disputes. Jordan i s a member o f ICSIDI6 and a signatory to the New York Convention on the Recognition and Enforcement o f Foreign Arbitral Awards. I t has also signed several Bilateral Investment Treaties (BITS).

’’ M I G A ’ s Convention provides for coverage under Breach o f Contract in three different scenarios: (i) when the Guarantee Holder does not have recourse to a judicial or arbitral forum to determine the claim; (ii) a decision by such forum is not rendered wi th in a reasonable period o f time; or (iii) such a decision cannot be enforced.

Salini Costruttori S.p.A., and Italstrade S.p.A. v. The Hashemite Kingdom o f Jordan (Case No.AFU3/02/13), i s the only case pending before ICSID. The case relates to the construction o f the Karameh D a m in the Jordan Valley. Upon the finalization o f the construction o f the Karameh D a m Project by the investors, experts o f both parties reassessed the contract and arrived at widely different additional values for the completed work. Attempts at amicable settlement failed, so the investor brought the case before ICSID. The arbitration i s proceeding smoothly.

16



Annex 11

Main Risks:

The ability o f NEPCO to meet i ts payment obligations under the PPA following a NEPCO or GoJ default or political force majeure event;

The ability and willingness o f GoJ to honor the unpaid payment obligations o f NEPCO as specified under the PPA that are guaranteed by GoJ as a Termination Payment according to the IA, and to pay the Termination Payment following a termination o f the PPA and IA; or

GoJ does not recognize a final decision rendered by the ICC arbitral tribunal and fails to pay the Award.

0

Risk Mitigants:

Although NEPCO remains relatively vulnerable financially compared to other companies internationally in the power sector, i t i s well capitalized with a leverage ratio of below 1.50~. I t s current financial performance i s satisfactory and the utility i s taking necessary measures to increase i t s efficiency, including reduction o f losses over the past few years. The risk o f NEPCO default due to potential fue l price increase i s low due to the fact that the pricing o f the gas has been agreed for sufficient quantity with a floor and ceiling amount.

The country has a financially viable power sector. I t does not receive direct financial subsidies from the Government budget. The country has adopted a new Electricity Law and the unbundling o f the power sector has been completed. The regulatory authority for the power sector, the Electricity Regulatory Commission (ERC), has been set up.

The proposed project wi l l be the f i rst fully privately-owned power generation project. I t i s part o f the least cost expansion plan offering a competitive electricity price for the power sector and i s critical in meeting Jordan’s power and energy demand and to maintain a prudent reserve margin. Demand for electricity i s expected to grow annually at an average rate o f about 6%.

Jordan currently imports power from Egypt and Syria which i s at a cost higher than internal generation in Jordan. Meanwhile neither Egypt nor Syria has a substantial reserve margin. This project wil l assist GoJ to achieve i t s objective o f sustainable energy balance in the future by increasing the share o f natural gas in power generation.

The Sponsors were selected pursuant to an international competitive bidding process that was conducted by the Government, thus helping to ensure competitive pricing and tariffs.

MIGA i s further protected by a waiting period from the date the Award becomes final, during which Sponsors are obligated to take actions to enforce the Award.



Annex 12

Annex 12: Safeguard Policy Issues


Environmental

1. As the project falls under environmental category “A” per the Bank’s policy on Environmental Assessment (OP 4.01), the developer was required to prepare a full ESIA prior to project appraisal. A draft ESIA was disclosed in-country and in the InfoShop/Public Information Centers on November 10, 2006. The final documentation, consisting o f the ESIA for the power plant and associated infrastructure (gas and water pipelines), the ESIA for the transmission l ine and substation, and the RPF, were disclosed on December 21, 2006. The environmental assessment included a dispersion and noise modeling exercise to predict the impacts o f the proposed power plant’s operation as well as the cumulative impact o f the Amman East and nearby Samra power stations.

2. The environmental impacts fall under the following categories: (i) air quality, (ii) water quality and soils, (iii) noise, (iv) terrestrial ecology, (v) landscape and visual, (vi) traffic and infrastructure, (vii) archaeology, (viii) socio-economic, (ix) on-site health and safety, and (x) community health and safety.

3. Public consultation was conducted for the project both prior to and after the assessments referred to above, separately for the power plant and substation, and for the transmission line. The following are among the key concerns o f the consultation process included in the ESIA: (i) the transmission l ine wil l be routed to avoid as much as possible o f the small area with human settlement; (ii) compensation wil l be paid for loss o f land use at market rates; (iii) employment wil l be offered to local residents; (iv) emission level wi l l be monitored and managed to meet Jordanian and World Bank standards; and (v) in the event that archaeological findings are made, the relevant authorities wi l l be consulted for their removal.

4. The installation o f the support infrastructure comprising the transmission line, substation, and water and gas pipelines i s not expected to give r ise to significant environmental impacts. The proposed transmission line would cause an increase in electromagnetic field strength at the edge o f the 30-meter right-of-way. Along the closest residential areas, 165-500 meters to the east o f the line, between Al-Baidaa and Al-Madoon, the maximum field strength i s estimated to be 5.5 mG, which i s well below the allowed 830 mG.

5. Overall, the assessment found none o f the potential impacts to be major. The following tables present the potential environmental and social impacts during construction and operation, and the corresponding mitigation measures.

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Annex 12

6. Institutional Set Up: The responsibility for implementing the mitigation measures for the power plant will be with AES Jordan PSC, while NEPCO will be responsible for the transmission line, substation, and gas pipeline aspects. NEPCO has experience in implementing EMPs for transmission lines and substation-its core l ine o f business-and has staff employed for this purpose, including those responsible for assessment compensation for land acquisition, property damage and reduced land use. They wil l work under NEPCO’s Project Manager responsible for the transmission l ine and substation l ine during preparation, construction, and decommissioning, and thereafter under the transmission department head. AES Jordan PSC , represented by i ts Project Manager, wil l be responsible for implementation o f EMP aspects through i t s contractors, consultants, and other specialists, during construction, operation, and decommissioning. The Plant Manager wil l take over from the Project Manager during operation and wil l delegate monitoring responsibilities to specific staff. AES Jordan PSC and NEPCO will coordinate with other entities within Jordan, including MoE, WAJ, Fajr, and RSCN.

7. Overall coordination o f project activities over the l i fe o f the project wil l be the responsibility o f the Joint Coordinating Committee, comprising AES Jordan PSC and NEPCO staff, as provided for in the Power Purchase Agreement. The committee’s responsibilities wil l include ensuring that the EMPs and RPF for the proposed project and the associated infrastructure are implemented in a coordinated manner.

Resettlement

8. The project wil l not involve resettlement. However, OP4.12 i s triggered due to the likelihood o f compensation for land used for the transmission line towers and for reduced land use to ensure safety the safety that use the land. Because o f this, the RPF has been prepared and disclosed in the in-country and in the InfoShop/Public Information Centers.

9. About 95% o f the land that the transmission land w i l l traverse i s unoccupied. The other 5%, although classified as agricultural, i s desert with no agricultural use. Land acquisition compensation will be required for a maximum o f about 30 tower bases, covering between 2400 and 7500 square meters. The maximum land area whose use could be reduced due to the l ine in order to ensure safety o f communities i s approximately 0.4 square kilometers. For this, compensation wil l be paid as necessary for such reduced land use, based on the RPF and as determined by the detailed survey and l ine routing.

10. NEPCO has been afforded by Jordanian law the authority to confiscate land for public benefit according to articles 44 and 45 while providing fair and just compensation. In doing so, NEPCO must ensure that any land acquisition is undertaken under in accordance with Decree (12) o f 1987, commonly referred to as the Land Acquisition Law (LAL) and i t s amendments. The LAL applies in all cases o f land acquisition and to all concerned institutions.

11. Land confiscation i s dependent on the approval o f the Cabinet which requires public benefits and fair compensation for the works to be undertaken, as well as requiring evidence that NEPCO has the capability to pay any compensation. To this end, NEPCO has to provide any required documents and maps describing any public projects required to fulfill i t s duties and


Annex 12

responsibilities. Cabinet approval is not provided until agreement with land owners upon proper compensation i s made. According to Article 9 o f the law, direct negotiation between NEPCO and land owners shall be conducted until agreement i s arrived. In the event that agreement cannot be reached, cases are referred to the Primary Court that has jurisdiction in this area and to higher courts if necessary.

12. The survey revealed that an approximate land value o f JD 20,000 per thousand square meters was considered appropriate by the project affected peoples. This has been accepted by NEPCO as a fair compensation. The total compensation for al l the towers installed wil l be between JD 48,000 to JD 150,000, subject to further investigation o f the land values along the transmission l ine route.

13. Internal monitoring wil l be conducted through qualified persons within NEPCO. NEPCO has a division who deal with the acquisitiodconfiscation o f land associated with NEPCO projects and who’s responsibility it i s to negotiate appropriate payment for parties effected by NEPCO projects.

14. External monitoring wil l be conducted through World Bank supervision missions. Both monitoring levels should assure that fair and just compensation was delivered to the right individuals.

15. In the event that there are grievances with regard to the level o f compensation provided to land owners or the provision o f money promised, then the case can be referred to the Primary Court o f jurisdiction for arbitration and to higher courts as necessary.

MIGA

16. MIGA’s environmental and social specialists have reviewed the ESIA and FWF. MIGA policies that apply to th is project include MIGA’s Environmental Assessment Policy and Involuntary Resettlement Policy, since a number o f households’ livelihood would be affected by the land acquisition for the power l i ne right-of-way and transmission towers. None o f the other MIGA issue-specific Safeguard Policies i s triggered. The project i s in conformity with MIGA Safeguard Policies and associated procedures for public consultation and disclosure. The project i s also required to comply with MIGA’s Environmental Guidelines for New Thermal Power Plants.

17. MIGA has the right to terminate the contract, and shall not be liable for any Loss which i s due the Guarantee Holders or AES Jordan PSC’s failure to comply with environmental and social requirements specified in MIGA’s Contract. MIGA may grant, at i t s sole discretion, a reasonable period o f time to cure any failures. In the case o f the project, the Government retains responsibility for environmental and social aspects o f the transmission line, the substation, and the gas and water supply pipelines.


Appraisal Negotiations Board approval Planned date o f effectiveness Planned date o f mid-term review Planned closing date

91 -

~ I 1/23/07 , 1/24/07 I

1 311 3/07 312 1/07 I 9/30/09 6/1/1 1 ~


Annex 13

Annex 13: Project Preparation and Supervision


~ Planned ~ Actual I ~

Key institutions responsible for preparation of the project:

AES Jordan PSC Ministry o f Energy and Mineral Resources (MEMR)

National Electric Power Company (NEPCO)

Bank staff and consultants who worked on the project included:

Name

Reynold Duncan Scott Sinclair Ximena Talero Amr Abbas Noureddine Bouzaher Rome Chavapricha Tjaarda Storm Van Leeuwen Dominique Dietrich Hocine Chalal Jaafar Sadok Friaa Meskerem Brhane

Title ~ Unit

Lead Power Eng.1 Team leader 1 M N S S D Lead Financial Officer I FEU Sr Counsel I LEGCF Counsel LEGCF Sr Energy Economist MNSSD Young Professional MNSSD Lead Financial Analyst MNSSD

MNSSD

Sr Technical Specialist I MNSSD Sr Social Development Specialist M N S S D

I

I

Language Program Assistant I Sr Environmental Specialist I MNSSD


Title

- 92 -

Unit


Annex 13

MIGA staff and consultants who worked on the project included:

Name

Philippe Valahu Zhengrong Lu Alwaleed Alatabani Michael Silverman Shamali D e Silva Harvey van Veldhuizen Deniz Baharoglu Lorie Henson

Peer Reviewers for the project were:

Peer Reviewers

Carlos Algandona Joel Maweni Amarquaye Armar Philippe Charles Benoit Colin Scott

Dahlia Lotayef

, I Title Unit

Principal Power Engineer C IN IN Lead Operations Advisor i LCSQE Lead Energy Specialist i EWDEN Lead Energy Specialist ~ AFTEG Lead Social Dev. Specialist/ M N S S D Social Reviewer I

M N S S D I Sr. Environmental Eng./ Env.

I I

, ,

Reviewer ~

Bank funds expended to date on project preparation: 1. Bank resources: US$213,000 2. Trust funds: .............................................................................. 0 3. Total: US$213,000

.......................................................................

.......................................................................................

Estimated Approval and Supervision costs: I . Remaining costs to approval: .................................................. US$30,000 2. Estimated annual supervision cost: ......................................... US$80,000



Annex 14

Annex 14: Documents in the Project File


Subject to confidentiality: Amman East IPP Lenders Engineer Initial Technical Report by Mott MacDonald, November 2006

Commercial Bank Facility Agreement between AES Jordan PSC and the commercial lenders (draft)

Common Terms Agreement among AES Jordan PSC, JBIC, OPIC, and the commercial lenders (draft)

Connection Agreement between AES Jordan PSC and NEPCO (draft)

Direct Apreements between GoJ and lenders (draft)

EPC Contract between AES Jordan PSC and Doosan Heavy Industries & Construction Co. L td (draft)

Eauitv Contributions Agreement among the Sponsors and JBIC, OPIC, and the commercial lenders (draft)

Financial Model for commercial lenders

Government Guarantee between AES Jordan PSC and GoJ (draft)

Implementation Agreement between AES Jordan PSC and GoJ (draft)

Intercreditor Agreement among JBIC, OPIC, the commercial lenders, and the Intercreditor Agent (to

JBIC Facility Agreement between AES Jordan PSC and JBIC (to follow)

Land Lease Agreement between AES Jordan PSC and GoJ (draft)

OPIC Facility Agreement between AES Jordan PSC and OPIC (to follow)

Power Purchase Agreement between AES Jordan PSC and NEPCO (draft)

Request for Proposals for the Development o f a 280 MW to 400 MW Combined Cycle Power Project at Almanakher. Jordan on a Build, Own, and Operate (BOO) Basis, in three volumes, June 2005

Shareholder Agreement among AES Oasis Ltd, Mitsui & Co. Ltd, AES Jordan Holdco Ltd, and AES Jordan PSC (to follow)

Technical Services Agreement between AES Jordan PSC and AES Oasis L td (draft)

Transfer Restrictions Agreement among AES Corporation, AES Oasis Ltd, Mitsui & Co. Ltd, AES Jordan Holdco Ltd, AES Jordan PSC, and lenders (draft)

Water Supply Agreement between AES Jordan PSC and GoJ (draft)

follow)

Not subject to confidentiality: Environmental Impact Assessment for Amman East 400 kV Transmission Line by Arab Centre for Engineering Studies, December 2006



Annex 14

Not subject to confidentiality:

Environmental Statement by PB Power in association with Arab Centre for Engineering Studies, November 2006

Guarantee Agreement between SMBC, as Agent, and IBRD (draft)

Indemnity Agreement between IBRD and Jordan (draft)

Integrated Safeguards Data Sheet

Proiect Agreement between AES Jordan PSC and IBRD (draft)

Project Conceut Note

Project Information Document

Resettlement Policv Framework by Arab Centre for Engineering Studies, October 2006

Technical Report by NEPCO, November 1 1,2006


8.40

17.64

1.92

30.49

2.76

9.04

2.23

- 9 5 -

0.00

0.00

0.00

0.00

0.00 3.13

2.23


Annex 15

Committed

Annex 15: Statement of Loans and Credits JORDAN: AMMAN EAST POWER PLANT

Disbursed

-

Undisb.

FY Approval

Purpose

Approvals Pending Commitment

Company Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00

Difference between expected and actual

disbursements

Orig. 1 Frm. Rev’d

Original Amount in US$ Millions

GEF/ Cancel. Project ID FY IBRD

15.00

38.00

0.00

120.00

5.00

34.70

55.00

IDA SF

PO91787

PO81 505

PO69847 PO75829

PO76961

PO69326

PO4852 1

2005 2004

2003 2003

2002

2000

1999

-

JO: Public Sector Reform Capacity Bldg.

CORRIDOR

JO-Conservation of Medicinalrnerbal PI JO-Education Reform for Knowledge Econ.1

Hort. Exports Promotion & Tech. Transfer

DEVELOPMENT

JO-AMMAN DEVELOPMENT

JO-HIGHER EDUCATION

JO-AMMAN WATER & SANITATION

Total:

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00 0.00

0.00

0.00

0.00

0.00

0.00

14.43

35.91

3.85 75.69

2.76 9.04

2.23

143.91 -

5.00

0.00

0.00 0.00

0.00 - 72.48 1 5.36 267.70 I 0.00

JORDAN STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f U S Dollars

IFC +I Equity Quasi Partic. FY Approval Loan 1 Equity I Quasi Partic. Company

2003 1997

2001

1997

1999

2002

2000 1996

AI-Hikma

BTC

Boscan Jordan

El-Zay

Hikma UK

MAICO

MEREN

SGBJ

Zara

Total portfolio:

10.14 1.56

7.20

0.36

0.00

0.00 0.00

0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.00

0.00

0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.00

0.00

0.00

10.14

1.56 7.20

0.36

0.00

0.00 4.40

0.00

0.00

0.00

0.00

0.00

0.00

0.85

0.00 0.60

1.06 2.97

0.00 0.00

0.00

0.00 0.00

0.00

0.00

0.00 0.00

0.00

0.00

0.00

0.00 0.00

0.00

0.00

0.00

0.00

0.00 1 0.85

0.00

4.40

0.00 0.00

0.25

0.60

2.09 2.97

23.66 1 6.76 0.00 0.00 23.66 I 5.48 1 0.00 0.00



Annex 15

Statement of MIGA'S Exposure including this and other projects approved by the Board

in Jordan as o f December 31,2006 1. MIGA'S EXPOSURE (CONTINGENT LIABILITY)

US$ million Restriction Expropriation Disturbance Contract Maximum Gross Exposure 0.0 0.0 0.0 73.8 73.8

% o f total portfolio 0.0 0.0 0.0 5.1 1.5 Net Exposure 0.0 0.0 0.0 38.6 38.6

YO o f total portfolio 0.0 0.0 0.0 4.1 1.3 CUP 0.0 0.0 0.0 0.0 0.0 Current Amount* 0.0 0.0 0.0 4.1 4.1

Transfer War & Civi l Breach of

* O n a gross basis 2. NET EXPOSURE BY SECTOR

Jordan MIGA Worldwide US$ million % US$ million %

Agribusiness Construction Financial

General Banking Investment Fund Leasing Mortgage

Infrastructure Electric, Gas & Sanitary Services Power Telecommunication Transportation Water Supply Water Transportation

Manufacturing Mining O i l and Gas Services Tourism

Total

0.0 0.0 0.0 0.0 0.0 0.0 0.0

38.6 3.7

34.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

38.6

0.0 0.0 0.0 0.0 0.0 0.0 0.0

100.0 9.6

90.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

100.0

70.1 17.9

856.7 805.6

0.0 47.4

3.7 1,289.9

40.0 615.0 381.6 120.2 132.9

0.3 235.6 121.0 227.0 160.1 95.5

3,073.8

2.3 0.6

27.9 26.2 0.0 1.5 0.1

42.0 1.3

20.0 12.4 3.9 4.3 0.0 7.7 3.9 7.4 5.2 3.1

100.0 3. LIST OF ACTIVE PROJECTS IN JORDAN Project Name Investor Name Investor Country Business Sector As Samra Inf i lco Degremeont, Inc. United States Infrastructure

Suez Environment S.A. France Infrastructure

- 97 -

l e v e l o p m e n t d iamond'

Life epectancy

Jordan Project Appraisal Document Amman East Power Plant Project February 2007

Annex 16

I Annex 16: Country at a Glance


Access to improvedwatersource

POVERTY and SOCIAL

2004 Population. mid-par (millions) GNI per capita (Atlas method, US$) GNI(At1as method, US$ billions)

I

Jordan

5.4 2.#0

116

--Jordan

Lo war-middle-inco m a group

Average annual growth, 1998-04

Population (Yd Laborforce (%)

M o s t recent es t ima te ( la test year avai lable, 1998-04)

P overt y (%of populatio n below natlo nal po verty line) Urban population (%of totalpopulation) Life epectancyat birth (pars) Infant morlality(per 7,OOOlive births) Child malnutrition (%of chlldren undar5) Access to an improved water source (%ofpopulation) Literacy (%ofpopulation age 59 Gross primary enrollment (%of schoolage population)

Male Female

I

2.8 3.8

79 72 23 4

91 90 99 99 99

K E Y ECONOMIC RATIOS and LONG-TERM TRENDS

1984 1994

GDP (US$ billions) 5.2 6.2

Exports of goods and sewices1GDP 37.7 48.0

Gross national savings1GDP 214 26.2

Gross capital formation1GDP 2.3.8 33.3

Gross domestic savingsiGDP -a.2 a.0

Current account balanceiGDP Interest paymentslGDP Total debt/GDP Total debt sewiceleports Present value of debt1GDP Present value of debtlexports

-5.3 -6.4 2.5 3.3

63.8 a l l a.5 0.8

1984-94 1994.04 2003 (average annual grovrlh) GDP 17 4.0 4.0 GDP percapita -3.1 1.0 13 Exports o f goods and sewices 5.0 3.1 4.1

M . Eas t Lower - & N o r t h middle.

A f r i ca Income

294 2.000

589

18 -13

56 68 45

88 69 a0 %I 94

2003

9.9 22.5 44.2 -2.8 27.1

4.3 16

83.8 8.8 78.6 10.4

2,430 1580 3,847

10 0.7

49 70 33 11 81 90 M t15 It?

2004

n 2 212 42.2 -0.9 22.9

16 13

74.3 9.1

2004 2004-08

7.5 4.1 4.9 18 6.7 7.0

l e v e l o p m e n t d iamond'

Life epectancy

GNI Gross per - L_( pnmary capita enrollment

I Access to improvedwatersource

--Jordan

Lo war-middle-inco m a group

GNI Gross per - L_( pnmary capita enrollment

i c o n o m l c rat ios.

Trade

Indebtedness

Jordan

Lower-middle-income group



Annex 16

STRUCTURE o f the ECONOMY 1984 1994

(%of GDP) Agnculture 5.5 5.2 hdustry 29.9 29.1

Services 64.6 65.6

Household final consumption expenditure 83.2 67.4 General gov’t final consumption expenditure 27.0 22.6 Imports of goods and services 76.7 713

Manufacturing 14.0 15.9

(average annuaigroMh) Agnculture Industry

Services Manufacturing

1984-94 1994-04

8.9 -0.9 14 4.1 3.5 5.4 0.3 4.2

Household final consumption expenditure -12 5.9 General gov’t final consumption expenditure -13 2.5 Gross capital formation 5.4 4 . 8 Imports of goods and sewices 10 2.9

2003

2.2 26.0 5 . 8 718

79.8 23.0 69.4

2003

10 5.0 3.5 2.5

7 .O 3.0 18 6.6

2004

2.1 25.3 15.2 72.6

80.9 20.0 64.3

2004

2.0 5.0 3.5 5.6

0.5 -17 5.6 6.8

20

nor,rnGCF -GDP

~ - -~ ____ - -

I Growth o f exports and i m p o r t s ( % -

120,

.,I 99 00 01 02 03 Cd

~ 1 -E*ports -Imports 7

Note:2004 data are preliminaryestimates. This tablewas producedfrom the Development Economics LDB database. ‘Thediamonds showfourkeyindicators in thecountry(in bold)comparedMh its income-groupaverage. tfdata aremlssing,the diamond wil

be incomplete.

Jordan

PRICES and GOVERNMENT F INANCE

D o m e s t i c p r i ces (%change) Consumer prices Implicit GDP deflatoi

Government Flnance (%of GDP, includes current grants) Current revenue Current budget balance Overall surplusldeficit

T R A D E

(US$ rnilhons) Total exports (fob)

Food and live animals Phosphates Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export pnce index (ZOOO=WO) Import price index (200O=WO) Terms of trade (2000=WO)

1984

3.8 -0.3

317 7.0 -18

1984

756

181 330

2,786 479 533 444

90 I33 87

n 9

I994

3.5 6.9

34.0 6.2 -12

1994

1424 0 1 144 6Q

3,361 586 414 758

95 84 ID

2003

2.5 I 2

33.6 2.1

-4.9

2003

2,772 141 143

1660 5,480

745 815

1328

97 to 88

2004

18 4.8

28.5 15

-4.0

2004

2,966 156 159

1707 5.699

822 753 147

98

92 n 7

i n f l a t i on (%) 7 99 00 01 02 03 0.

GDPdeflator -CPI

I 1E;p;rand impor t l i i e i s CUSS mill.)

I 98 99 00 01 02 03 04



Annex 16

B A L A N C E o f P A Y M E N T S

(US$ millions) W o r t s of goods and services Imports of goods and services Resource balance

Net income Net current transfers

1984

1935 3,852 -197

-6 1 1707

Current account balance -271

Financing items (net) Changes in net reserves

-66 337

M e m o : Reserves including gold (US$ millions) 687 Conversion rate (DEC, /ocal/US$J 0.4

EXTERNAL D E B T and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

1984

3286 IB RD 86 IDA 83

Total debt service IBRD IDA

409 0

1

Compositionof net resourceflows Official grants 586 Official creditors 0 7 Pnvate creditors 150 Foreign direct investment (net inflows) 78 Portfolio equity(net inflows) 0

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

730 26 3

22 8 1

1994

2,985 4,395 -140

-315 1326

-400

554 -154

1891 0 7

1994

7,553 635

71

572 0 2

2

306 1%

-84 3 0

0 7 58 58 0

46 -46

2003

4,393 6,908 -2.515

99 2.845

429

u1 -561

3,940 0.7

2003

8,337 1.ol7

50

1.158 96

3

114 -226 -479 376 -58

PO 35 67

-33 32

-65

2004

4,721 7,203

-2,482

6 8 2.496

8 2

-P7 -55

3,906 0.7

2004

8.36 971 47

676

3 ni

-193 -6

38 29 88

-59 26

-85

~~

p r r e n t account balance to GDP ( O h )

98 99 00 01 02 03 04 1

C o m p o s l t l o n o f 2004 debt (US$ mill.)

I G 743 A 97’

A - IBRD E - Bilateral B - IDA D . hhw mltilated F - PTivate C - I M F G . Short-terr

Note:This tablewas producedfrom theDeveiopment Economics LDB database 8/25/05


- 100- Project Appraisal Document February 2007

Annex 17

Annex17: Map


MAP SECTION

Jabal RamJabal Ram(1,734 m) (1,734 m)

AA rr dd aa ss SS aa ww aa aa nn

A Q A B AA Q A B A

TAFILAHTAFILAH

K A R A KK A R A K

A M M A NA M M A N

IRBIDIRBID

ZARKAZARKA

MADABAMADABA

BALQABALQA

M A F R A KM A F R A K

M A ' A NM A ' A NAsh ShawbakAsh Shawbak

Al Al RashadiyahRashadiyah--

As SafiAs Safi-- --

Al Mazra’ahAl Mazra’ah

Al QatranahAl Qatranah--

Mahattat al HalifMahattat al Halif

Ar RuwayshidAr Ruwayshid

Azraq ashAzraq ashShishanShishan-- --

Ba’irBa’ir--

Al JafrAl Jafr

ArdaArda

Um QaisUm Qais

Al MudawwarahAl Mudawwarah

Ra’s an NaqbRa’s an Naqb

PetraPetra

Ad DisiAd Disi

IrbidIrbid

AjlunAjlun

JarashJarashAl MafrakAl Mafrak

Az ZarkaAz Zarka

Al KarakAl Karak

At TafilahAt Tafilah

Ma'anMa'an

AqabaAqaba

MadabaMadaba

As SaltAs Salt AMMANAMMAN

DeadDeadSeaSea

A Q A B A

TAFILAH

K A R A K

A M M A N

IRBIDAJLUN

JARASH

ZARKA

MADABA

BALQA

M A F R A K

M A ' A NAsh Shawbak

Al Rashadiyah-

As Safi- -

Al Mazra’ah

Al Qatranah-

Mahattat al Halif

Ar Ruwayshid

Azraq ashShishan- -

Ba’ir-

Al Jafr

Arda

Um Qais

Al Mudawwarah

Ra’s an Naqb

Petra

Ad Disi

Irbid

Ajlun

JarashAl Mafrak

Az Zarka

Al Karak

At Tafilah

Ma'an

Aqaba

Madaba

As Salt AMMAN

Jord

an

Riv

er

Med

i terr

anea

nSe

a

LakeTiberias

Gul

f of A

qaba

DeadSea

To Zefat

To Al Jawf

To Al B'ir

To Al B'ir

To Nuweiba

To Damascus

To Baghdad

To Jerusalem

To Beersheba

A r d a s S a w a a n

Jabal Ram(1,734 m)

34°N

33°N

32°N

31°N

30°N

29°N

34°N

33°N

32°N

31°N

30°N

35°E 36°E 37°E 38°E 39°E

35°E 36°E 37°E

38°E 39°E

Amman EastPower Project

JORDAN

0 0

0 25 50 Miles

50 Kilometers

IBRD 35271

FEBRUARY 2007

JORDANAMMAN EAST

POWER PROJECTPROJECT SITE

SELECTED CITIES AND TOWNSGOVERNORATE CAPITALSNATIONAL CAPITALRIVERSMAIN ROADSRAILROADSGOVERNORATE BOUNDARIESINTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.