P. E S T R I C T E D

R e p o r t N o. TO-165b

This report was prepared for use within the Bank. In making itavailable to others, the Bank assumes no responsibility to them forthe accuracy or completeness of the information contained herein.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

KARACHI ELECTRIC SUPPLY CORPORATION

POWER PROJECT

PAKISTAN

April 10, 1958

Department of Technical Operations

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

1 Pakistan Rupee U.S. 0.21

1 U.S. Dollar 4.7619 Pakistan Rupees

CONTENTSPage Number

Summary , . . , . . , . . . . . . . . .a . . . . . i - i

Chapter

I. Introduction , . , , , , . . . , , , . , . , , , , . . 1

II. The Borrower , . . , . , , . . .. . .. , , . , . . . . 1

Corporate History,, .,,. ., .... , 1Organization and Management . . . . . . . . . 2Physical Properties . . . e vvv.e * * .. a 2Project Financed by the First

Bank Loan . . , , , , , * , , , , , . , . , , 2Present Financial Position of theCompany , , , , . . . . . . . . 3

Earnings Record . . . .. ... . . . . . ... 4

III. Power Market . * , * , * * , .. a , , . ., . . . . 4

Energy Sales. , . . . .. . . . a . . . . 6

IV. Description of the Project . . .. , .. . . , , 6

V. Estimated Cost of the Project . . . ..... ..... 7

Schedule of Construction. . . . . . .. .. . 8Yethod of Financing . . . . . . . . . .. . ... 8Estimated Rate of Expenditures. . , , . , . . . . . . 9

VI. Financial Prospects. . . . a. . . , . . . . . . . . . . . 9

Estimated Future Earnings .... . . . . . . . 9Electricity Rates . , , . ... . . . . . 9Cash Position . . . . . . . . . . . . . . . 9Future Financial Position of the

Company . , , , , , , . . , . , , . . . . . .. . 10Debt Limitation . . . . . . .. .. .., .. ... 10Debt Service 9. . . . , . . . . . . , . . . . 11Security. . .9 9 9 * . .. .. . . 11Economic Aspects of the Project . , * , , . , , . . 11

VII. Conclusions and Recorrmendations. . . . . . . . . . . . 12

Annexes 1 through 9 ... .......... End of ReportMap .... .. ... Following Annexes

KARACHI LILECTRIC SUPPLY CORPORATION

P\L|ER P1ROJECT

PAiISTAN

SU1iIiARY

i. The Bank made a loan of $13.8 million to the Karachi ElectricSupply Corporation (KESC) in June, 1955, to finance the foreign exchangecost of a 30 IW steam station and additional transmission and distributionfacilities. The loan became effective in January, 1956. The power plant,transmission lines and a sizeable part of the distribution system have beencompleted and are in use.

ii. The Bank is rnow asked to consider a loan of 14>1.0 million forthe expans;on of the steam station and for additions to the trancr,issionand distribution network. As in the case of the first loan, the bsrrowerwould be the Karachi Electric Supply Corporation. KESC is the orly utilitysupplying power in the Karachi area and is the largest electricity supplycompany in the country.

iiie The Company was formed in 1913 as a privately-owned enterprise.In 1952 the Government acquired a controlling interest in the Comipany andnow owns about 62% of the total paid-up share capital. It is organizedas a public utility corporation with a Board of Directors representing theGovernment and private intercosts. The management of the Company is en-trusted to a Managing Agency which is owned by the Government.

iv. The Company's total assets as of June 30, 1957, amounted to Rs.127.3 million ($26.7 million). Its total long-term debt in the first partof 1958 was about Rs, 67 million and its equity, Rs. 38.5 million, result-ing in a debt/equity ratio of 65/35. The Companyts earning record has beensatisfactory. The electricity rates are reasonable and adequate to providesufficient revenues to cover all operating expenses, a dividend paymentof 72%o, and to leave a surplus for reinvestment.

v. The present organization of the corporation is not consideredsuitable any longer for an enterprise of the present size. At the Banktsinsistence, KLSC has retained consultants who have recommended changes inits organization and in staff and managerial responsibilities. These re-commendations are satisfactory to the Bank and have been accepted by KESC.

vi. The Company now operates two steam plants and a diesel plantwhich have a total effective capacity of about 55 iiW. A 66 kV transmissionline 48 miles in length rings the city of Karachi; four step-down substa-tions supply the distribution system from the ring.

vii. The market for power has grown rapidly since Partition in 1947when Karachi became the capital city and the manufacturing center of a newcountry. Although the entire capacity of the 30 ,1l4 added to the system in

- ii -

1957 (partially financed by the Bank) has not been fully utilized, therewere, in July, 1957, applications on the books totalling over 22 IW. Ifall of these were provided with service, the load on the system would farexceed the existing capacity. It is estimated that the system will befully loaded before the end of 1958, despite the cumbersome procedures re-quired for consumars to obtain a connection. From the end of 1958 untilsome time in 1962, vhen new capacity is scheduled to comre into operation,no aeditional load can be serv3d.

viii. The project proposed for financing by the Bank to meet the demandson KESC's system consists of: a 60 MN addition to the existing "B" steamstation, some minor improvements to the "B" station, the extension of the66 kV transmission system and the expansion of the distribution system inKarachi. The project is estimated to cost the equivalent of I21.5 millionof which 14 million will be in foreign exchange. It is scheduled to becompleted in 3! years. The entire 60 Af of new capacity is estimated tobe absorbed by the end of 1963.

ix. The foreign exchange required for the project would be financedfrom the proposed Bank loan. The local currency costs of Rs. 35.7 millionwould be financed from the sale of Rs. 15 million in shares to the publicand from Rs. 20.7 million obtained from the Company's own resources.

X. The total annual debt service would be covered about 2 times.The loan would be secured by a mortgage and a floating charge.

xi. The project is suitable as a basis for a Bank loan of ;$14 millionequivalent for a term of 20 years including a grace period of 4h years onamortization payments.

KhARACHI ELECTRIC SUPPLY CORPORATION

PONLR PROJECT

PAKISTAN

I. INTRODUCTION

1. In June, 1955, the Bank made a loan of $13.8 million to the Kar-achi Electric Supply Corporation (KESC) to finance the foreign exchangecost of a 30 iqW steam station and additional transmission and distributionfacilities for the expansion of the system. The loan became effective inJanuary, 1956. The power plant, transmission lines, and a sizeable partof the distribution system have been completed and are in commercial use.

2. The project for which the Bank is asked to consider a loan in theamount of $14 million consists of the construction of a 60 i'M power stationadjacent to the existing 30 M1'2 station and of additions to the transmissionand distribution network.

3. This report covers an appraisal of the proposed project, of IUESCIsfinancial position and prospects, its organization, and of the requirementsof the market to be served. It is based on information collected by mem-bers of the Bank staff who reviewed KESCts operations over a period of timeand on a study of the project by consultants. KESC had retained the KuljianCorporation of Philadelphia as Consulting Engineers to make an engineeringand economic study of the project, to prepare designs and supervise theconstruction of the new power plant. The Consultants submitted a reportto KESC on October 21, 1957.

II. THE BOR-OihER

4. As in the case of the first Bank loan, the Borrower would be theKarachi Electric Supply Corporation. KESC is the only utility supplyingpower in the Karachi area and in effect the largest in the country.

Corporate History

5. The Company was formed in 1913 as a privately-owned enterprise.in 1952 the Government acquired a controlling interest in the Company (72%),and full ownership of its Managing Agency (see Paragraph 6). As of Feb-ruary 20, 1958, the Government participation was reduced to about 62% ofthe total paid-up capital. The present authorized capital of Rs. 30 mil-lion is represented by 300,000 shares of Rs. 100 denomination. Up to Feb-ruary 20, 1958, 282,308 shares had been subscribed, with a fully paid-upvalue of Rs. 28,320,800. The license owned by the Company for the supplyof electricity in the Karachi area was extended by the Government until1975. The term of this license will be extended to coincide with the termof the proposed loan before the Bank loan becomes effective.

- 2-

Organization and Management

6. KEEC is organized as a public utility corporation with a Boardof Directors representing Government and private interests. In line withusual practice in Pakistan, the management of the Company is entrusted toa Managing Agency consisting of three Directors, of which one is the Chair-man. The Chairman of the Managing Agency is also the Chairman of the Boiardof Directors of KESC. The Managing Agency i3 responsible for the operationsof the corporation and assumes collectively the position of the top execu-tive. It receives for its services a commission on a declining scale whichis 7.5% for the first Rs. 5,000o,oo of profit before taxes and an office al-lowance of Rs. 42,o0o a year. This commission and the office allrwance serveto pay the salaries of the full-time staff of the Managing Agency, and thesurplus, after meeting provision for taxation, is turned over as a dividendto the Pakistan Government, which owns the Agency. In 1957 the coxmissionof the Managing Agency was Rs. 470,000.

7. The internal organization of the Company consists of a lIanagerdirectly responsible to the Chairman of the Managing Agency, and of a num-ber of departmental heads. This organizatica is not considered suitableany longer for an enterprise of the present s-ze. At the time of the firstloan to KESC the Bank had stressed the need fer certain changes and for ad-ditional staff. At the Bank's insistence KESC has retained Consultants whohave recormended changes in its organization and in staff and managerial re-sponsibilities. These recommendations are satisfactory to the Bank and havebeen accepted by KESC.

Physical Properties

8. The generating facilities of the Company consist of a diesel plantand two steam plants. The formXer is composed largely of old units, thermximum output being only about 6 EW, and the firm capacity 5 MW. The twosteam plants consist of an old station"A" with an installed capacity of23.5 MW (derated to 21 KW) at 250 lbs. steam pressure, and of the newly com-pleted Bank-financed station "B " with two 15 PIAT units at 4Co lbs. steampressure. The three power stations are interconnected and operate in para-llel.

9. The transmission system consists of about 48 miles of 66 kV over-head lines and 4.3 miles of 66 kV underground cable with four stepdown sub-stations, and of about 2CO miles of medium voltage mains. The low voltagedistribution system has a development of some 460 miles with a total trans-former capacity of about 89,000 kVa.

PL.oject Financed by the First Bank Loan

10. Contracts for the 30 MW "B " station were awarded in March, 1952.Consultants for design and supervision of the construction of the stationwere not retained until six months later. The Bank was approached for aloan only in 1955. The power plant should have been completed in early

- 3 -

1956 but several factors such an difficulties in obtaining import licenses,and inadequate supervision of the construction delayed the completion untilthe beginning of 19.57, *ledifications to the intake of cooling water stillremain to be done. Part of the distribution system is not finished as landacquired by KhSC for the construction of two substations was unlawfully oc-cupled by refugaes, Only recently the Government took apgropriate actionto remove the refugees to another area.

Present Financial Position of the Company

11. Condensed balance sheets of the Company as of December 31, 1956,and as of June 30, 1957, are given in Annex 1. As of June 30, 1957, totalassets amounted to Rs. 127.3 million ($26.7 million) of which Rs. 88 mil-lion (18.5 million) represented fixed assets and work in progress afterdeduction of a depreciation reserve of Rs. 19.6 million (;1%.l million).Outstanding long-term debt amounted to Rs, 66.2 million ($13.9 millicw!),and the equity to Rs. 35.5 million ($7.5 million), representing a debt/equityratio of 65/35. Current assets amnounted to Rs. 30 million ($6.3 million),and current liabilities to Rs. 17.1 million ($3.6 million),

12. The long-term indebtedness outstanding as of June 30, 1957, con-sisted of the following loans:

1!% First Mortgage Debentures Rs. 3,184,0COIBRD Loan 120 PAK (1vithdrawals to June

30, 1957) 581262o000Pakistan Industrial Finance Corp. (PIFCO) 1,756,000Government of Pakistan 3,000,000

Rs. 66,202,000

13. The first mortgage debentures mature on August 1, 1963, The to-tal amount withdrawn on the IBRD loan as of January 1, 1958, amounted tothe equivalent of Rs. 63.8 million and the balance still available to Rs.1.9 million. The loan is secured by a second mortgage.

14. As a result of the devaluation of the Rupee in July, 1955, fromRs. 3.31 to Rs. 4,76 to the doliar, the reimbursement under the first IBRDloan of foreign exchange expenditures incurred Prior to the date of the de-valuation, produced about Rs. 10 million ($2.1 million) more in local cur-rency than the amount originally spent by KESC. After prior approval bythe Bank, KESC has used this sirplus to prepay in 1956 Rs. 7 million (01.5million) of the 10 million ($2 .1 million) total of two Government of Paki-stan loans at that time outstanding. The remaining balance of Rs. 3 million(0.6 million) was paid off at the end of 1957.

15. KESC will repay in 1958, ahead of time, the small balance whichis outstanding on the PIFCO lcan.

16. After these repayments, the estimated total 'ong-term debt out-standing will be Rs. 67 million, and the equity, after an estimated in-crease o'L Rs. 5.4 million during 1957, will be Rs. 38.5 million as follows:

4h -

YNllions ofRupees %

Iosng-Term Debts

IBRD Loan 120 PAK 63,84% First Ilortgage Debentures 3 2

Total 67.0 65

Equity (Capital, Reserves,and Surplus) 38,5 35

TotalCapitalization 105,5 100

Earnings Record

17. The Companyts earnings record on the whole has been satisfactory,except in 1951 and 1952. In these years due to sharp increases in the costof fuel without compensating tariff increases, the Companyts net earnings haddropped to such an extent that it had to forego the payment of dividends.The situation was remedied in 1953 when substantial increases in rates wereobtained and the peyrnent of a dividend could be resumed. The dividend foreach of the years 1953 and 1954 was 6%. The dividend was ralsed to 7% in1955 and 71% in 1956. Ccndensed income statemenitsfor the years 1950/1956compiled from the data received from the Company are shcwn in cond3nsed formin Annex 2.

III. FMJER MPARKET

18. According to the last official census of 1951, the population inthe seventy-two square miles of the Karachi area was 1,210,"00 includingan estimated 500,000 refugees still living in nondescript makeshift accom -modations. The population is estimated to have grown to 1.5 million in 1957and to attain 1.65 million in 1960 and 2 million in 1970. There has been anunusually rapid industrial development in this area since Karachi became thecapital city and the manufacturing center of a new country. The need forelectric power has greatly increased.

19. Between Partition in 1947 and the end of 1956, the number of con-sumers more than doubled and sales of residential and industrial consumersincreased 5 and 8 times respectively. In 1957, the 30 }W "B" station cameinto operation and increased the capability of the system to 55 INW of which40.5 IMT is firm power. While the number of consumers in 1957 increased ata rate of about 1,000 consumers per mnmth, these were mainly residentialand small power consumers averaging .5 to 1 ka per connection. The peakload on the system increased from 26 Mw in December, 1956, to 41 NW in De-cember, 1957. This increase was slower than predicted at the time of thefirst -oan and the 30 MA of additional power will be fully utilized by theend of this year, instead of in 1957. The number of consumers and kwh soldfrom 1947 through 1S56 is shown in Annex 3,

-5 -

20. The slow development of the load is attributed to the complexityof present regulations governing power allocations, to the difficulty forconsumers to obtain import licenses for the electrical equipment necessaryto connect the installations and to delays on the part of KESC in makingservice connections.

Z1. A number of cumberscme procedures are involved before a consumercan receive electric service. The applicant must obtain a sanction fromthe Government for pcwer supply, and an import license for the electricequipment needed. Although 3,196 applications totalling 22,053 kt'4 were onthe books in July, 1957, connections were being made at the rate of onlyabout 900 kw per month. (Annex 4) A revision of the system of allocationof power has been agreed to by the Government. In addition, KESC has agreedto revise its rules in order to expedite service connections. Althoughsome unused capacity is still available, the load on the system wo-J1 farexceed the present available capacity if all applications on file were ap-proved and service provided.

22, From the end of 1958, the date at which the present facilitieswill be fully utilized, until the two units of the new 60 nIl plant willbe put in operaticn, no adiitional load can be served. All units that canbe operated will have to be kept in service and the Feak will have to bedepressed by keeping restrictions in effect and by shifting load from onoeak hours to off peak hours.

23. In estimating the future loads on the system, the consultantshave assumed that the first unit of the 60 I"W station would be completedby the end of 1961. This may be optimistic, but it is possible. The tablebelow giving the estimated growth of the demand on the system from the endof 1961 through 1965 is based on the consultants' assumptions. It is shcwngraphically in Annex 5. The estimates in the table also assume that KESCwill carry through its plans for the construction of an additional powerstation with an initial capacity of 60 MW by 1965.

( F i g u r e s i n e g a w a t t s )1961 1962 1963 1964 1965

Estimated load on power plant atthe beginning of the year 55.5* 75.o 91.0 115.0 130.0

GroTwth of industrial and resi-dential demand during the year 16.5 14.5 15.0 15.0 15.0

Station use and night shifting today 3.0 1.5 9.0 - -Total Load End of Year 75.0 91.0 115.0 130.0 145.0

Total Installed Capacity 85.5 115.5 115.5 145.5*s- l75.5---

* equals present maximum capability4'*S figures tasume completion bf an additional pr&wer station

-6-

Energy Sales

24. Estimates of energy sales have been made as follows:

Year 1958 1959 1960 1961 1962 1963 1964 1965

Yillions kwh sold 205 220 220 260 290 405 (443) (475)

The forecast of kilowatt hours of sales was projected not on a basis of astraight ar'nual percentage increrent, but rather on a basis which took intoconsideration a nunmber of practical factors. These included the availabi-lity of generating capacity, the rate at which new consumers could be con-nected, the capability of consumers to use more power and the time lag forcertain consumers to change over from captive plants to public supply.Average peak loads for the year were taken as the average of 12 estinatedmonthly peaks; load factors were expected to increase through 1960 and todecrease thereafter when restrictions on the use of power are removed; trans-mission, distribution, and station losses were estimated at 20%.

EV. DESCRIPTION OF THE PROJECT

25. A map of the Karachi area serviced by KESC is attached. The Proj-ect proposed for financing by the Bank to meet the demands on KESCIs systemthrough 1963 consists of:

(a) New Steam Station

The steam generating plant to be known as "B" station extension(EK) will contain two generating units of 30 FM each, with onefull rated boiler per unit at 900 lbs. pressure and 9100 F. Theboilers will be equipped to burn either oil or gas. The stationwill be designed as a semi-outdcor installation in which the boil-ers will be placed outdoors with only their fronts remaining in-doors for operational purposes. The design of the circulatingwater supply will include the necessary modifications to the pre-sent water intake to assure an adequate supply of cooling waterto all units at the three steam stations. A detailed descriptionof the station is included as Annex 6.

(b) Improvements to "B" Station

The improvements will consist of the installation of protectiveequipment to prevent corrosion in the circulating water system,of equipment to prevent flashing over at the outdoor switchingstation, and of the acquisition of spare parts for plant equip-ment.

(c) Extension of 66 kV Trarsmission

The single circuit transmission line between West Wharf and SindIndustrial Trading Estate will be daplicated oy stringing a sec-ond circuit on the double circuit towers; 66 kV underground cab-les will be laid between the steam staticn and the first tower,between the steam station and the diesel station, and between thediesel station and Queens Road tower; additional switch gear andtransformers will be installed at the stepdcwn substations and anew 66 YW substation will be erected at the diesel station.

(d) Expansion of the Distribution System

The distribution system will be extended and new areas incl-lded.The pcwer factor of the system will be improved by the addition ofstatic capacitors.

(e) Business Machines

M4odern billing and bookkeeping machines will be acquired andinstalled.

V. ESTIMATED COST OF THE PROJECT

26. The Project described above is estimated to cost the equivalentof $21,51 million. The local currency and foreign exchange costs of thevarious items included in the project are given below.

Local Currency Foreign Exchange Total CostsCosts Costs Expressed in

Item Description Rupees Dollars Rupees Dollars

( f i g u r e s i n m i 1 1 i o n s)

I'X" Steam Station * 16.86 7.90 54.46 i1.43

Improvement to "EB Station ,03 .13 .65 .14

Transmission xtension .81 .55 3.43 .72

Distribution Extension 10,61 134 16.99 3.58

Office Equipment .30 .16 1.06 .22

Consultants & TechnicalServices - .70 3.33 .70

Contingencies 7.15 1.05 12.15 2.55

Interest During Construction - 2.17 1C.33 2.17

35.76 14.00 102.40 21,51

* The per unit cost of the steam station, including contingencies, ccnsultants--fee, and interest during construction is about $240 per kw of installed ca-pacity. The cost is reasonable for Pakistan.

- g -

27. The foreign exchange estimated for the steam station and the trans-mission extension contain 10% for escalation. The provision for contingen-cies includes l105 on the foreign exchange and 25% on the local currencycosts of the project. The usual contingency in local currency for thisproject would have been 15%, but an additional 10,l' was added to take intoaccount the possible inflationary trend in rupee costs during the construc-tion period. Because of delays and difficulties involved in using the ser-vices of the Director General of Supply and Development in the past,, hESChas obtained exemption from the obligation of purchasing its equipment andsupplies through this office. All items rill be procured on the basis ofinternational competiotion.

28. The amount of distribution equipment that KLSC proposes to pur-chase would increase considerably the present transformer capacity. Thereis no evidence at this time that all of this capacity is needed and thatit would not be possible to make better use of the available equipment.Consultants have been retained to make a study of the distribution system.Purchases of additional distribution equipment wrill be approved by the Bankonly upon recommendations of consultants that KESC has employed for thispurpose.

29. Some improvements to the old steam station "All and to the dieselstation should be carried out concurrently -with the construction of theproject in order to bring the equipment into satisfactory operating condi-tion. These improvements were not included in the cost of the project butwill be carried out by KFEC under its maintenance program.Schedule of Construction30. The consultants have estimated that the new steam station andthe extension of the transmission and distribution system can be completedin 36 months after the award of major items of equipment. If the contractsfor the .major items of equipment are placed before the end of 1958, thiswould mean that the station would be completed by the end of 1961. Whilethis is possible, it is a rather tight schedule. In this report it isassumed that the steam station will be completed in mid 1962. The transmis-sion and distribution system will keep pace with the construction of thesteam station.

Method of Financing

31. As shown above in Paragraph 26, total expenditures on the proj-ect during the period 1958-1962 are estimated at the equivalent of $21.5million, of which the equivalent of 614 million will be in foreign exchangeand $7.5 million (Rs. 35.7 million) in local currency.

32. It is proposed that the foreign exchange expenditures 3quiva-lent to CJ44 million be financed with a loan from the IBRD. The local cur-rency requirements of Rs. 35.7 million would be financed by the sale ofshares to the public to the extent of Rs. 15 million and Rs. 20.7 millionwould come from the Company's own resources. The Company should be ableto raise the amount of new share capital required. However, the Governmenthas agreed to take up any shares which KSC could not place wzith the public.

_ 9._

Estimated Rate of Expenditures

33. Expenditures on the project are estimated as follows:

1958 1959 1960 1961 1962 Total(Expenditures in millions of Rupees)

Foreign CurrencyExpenditures 1/ 14.92 13.49 14.14 16.85 7.24 66.64

Local CurrencyExpenditures l.CO 9,00 11.00 ll.CO 3.76 35.76

Total 15.92 22.49 25.14 27.85 11.C0 102.40

1/ Equivalent in U.S.Dollars (millicns) (3.13) (2.83) (2.97) (3.54) (1.53) (14.CO)

VI. FITTANCIAL FPOSPECTS

Estimated Future Earnings

34. A forecast of the annual income of the Company for the period1957 to 1965 is given in Annex 7. Revenues from sales of electricity havebeen estimated on the basis of present tariff rates.

ReWtricity Rates

35. The electricity rates of KESC are regulated by the Government.A revision of rates was approved by the Goverrment in June, 1953, and theserates are still in effect. The average selling price per kilowatt hour isapproximately 3.5 annas (4.6 US¢) for residential use, and 1.8 annas (2.4 US¢)for industrial use. On the whole these rates are reasonable and adequate toprovide sufficient revenue to cover all operating expenses, depreciation,interest and a dividend payment of 7}1%, and to leave a surplus for reinvest-ment after completion of the project.

Cash Position

36. fijforecast of the Company's receipts and expenditures for theperiod 1957 to 1965 is given in Annex 8. As recommended by the Company'sconsultants KESC should by about 1960 start with the construction of a new60 Mi I prwer station (the so-called "CM station) so as to be able to meetthe expected loads after 1963. On the basis of preliminary estimates thecost of this new expansion including related transmission and distributionfacilities would be of the order of Rs. 90 million. Although no definiteplans for the construction of this new station have as yet been made, nor

- 10 -

for its financing, provision has been made in the f orecast fo-r these capitalexpenditures in order to obtain a proper evaluation of the Companyts futurecash positicr, The figures indicate that about Rs. 30 million of the fundsrequired could be provided from the Companyts own resources (depreciationallowances, retained earnings, provisions for future taxation - see nextparagraph). For the purpose of the forecast only it has been further as-sumed that the balance of Rs. 60 million required - considered to be theaLi:unt of the foreign currency component - would be provided by new borrow-ing.

37. No taxes will be paid during the period 1957-1965 because ofspecial depreciation allowances permitted by the taxation law coveringnew capital investrents. The company, however, is making annual alloca-tions to a reserve for future taxation. These allocations total aboutRs. 37.5 million ($7.9 million) during the period 1957-1965. Since notaxes are actually paid, amounts equivalent to the annual allocations tothe tax reserve are shown as available cash in the cash flow statement.

Future Financial Position of the Company

38. The estimated financial position of the Company at the end of 1962,upon completion of the project, is shown in the pro forma balance sheet inAnnex 9. By that time, total assets of the Company are estimated to amountto Rs. 231 million ($48.5 million). This figure includes Rs. 183 million($38.4 million) for net fixed assets after deducting a reserve for deprecia-tion of Rs. 55 million ($11.6 million) and Rs. 40 million ($8.4 million) ofconstruction in progress. Total capitalization will have increased to Rs.205.5 million ($43.2 million) of which long-term debt will amount to about69% as follows:

Estimated Capitalization at the end of 1962

(in millions of Rupees) _

Share Capital 43.23Surplus and Reserves 19.95 63.18 31

Long-Term Debts:1st IERD Loan (120 PAK) 42.49Proposed IBERD Loan 66.644% First Mortgage Debentures 3.19Other 30.00 142.32 69

205.50 100

39. This position is based on the assumption that during the years1960, 1961, and 1962 Es. 30 million in loans will have been raised as ini-tial financing for the construction of the 'ICl station,

Debt Limitation

40. The Loan Agreement for the first loan to KESC includes a covenentby which the company has agreed not to incur without the prior approval of

- 11 -

the Bank any indebtedness if by doing so the Ccmpany's total indebtednesswould exceed 65% of its capitalization (sum total of capital, surplus andlong-term debts), Projections shcw that by incurring the second loan nowproposed this ratio during the years 1959 to 1963 will be exceeded oy asmall margin on the assumption that no additional borrowing is taken up,and that all the additional funds required for the present project whichcannot ba provided from the Ccmpanyts own resources will be raised byselling new share capital. The actual capitalization ratios which willprevail during the construction period of the project will depend on therate at which the proposed loan will be withdrawn and new share capitalwill be sold as determined by construction needs and market conditions.These, of course, can only be estimated in a rough way. The fact that thetotal debt outstanding is likely to exceed somewhat the limit as set inthe first loan agreement should not be a reason of concern, In the -irstplace total debt service is estimated to be adequately covered by receiptsfrom operations. In the second place it should be pointed out that tae bzokvalue of the equity is certainly undervalued owing to the fact that no writeup of the assets constructed prior to the devaluation of the rupee has tak<enplace. The first loan agreement also includes a limitation on short termdebt, Such a limitation will also be included in the loan agreement for theproposed loan.

Debt Service

41. Based on the type of project, its construction period and theprospective financial condition of the Company, it has been assumed thatthe proposed loan would be for a term of 20 years including a grace periodof 41h years. On this basis and on the assumption that the interest ratewould be 51,% per annum, annual debt service, including amortization, onthe loan would be$L,355,000.

b2. Total annual debt service would be covered by cash receipts fromoperations after completion of the project not less than 1.8 times.

Security

43. The proposed IERD loan will be secured by a mortgage and a float-ing charge which will rank pari passu with the mortgage and floating chargesecuring the first IBRD loan to KESC.

Economic Aspects of the Project

44. The main industrial and corrmercial center in Pakistan is Karachi.The population of the city has been growing at an average rate of 60,000per annum during the last few years, and is estimated to reach 2 million by1970. While industrial development in Karachi and Pakistan as a whole isstill in its infancy, there has been a dramatic increase in industrial con-sumption of electricity since 1948. In 1948 industries on the KESC systemconsumed approximately 6 million kwh. In 1957 their consumption was over50 million kwh. The number of consumers on the KESC system in 1957 was about

- 12 -

68,50o. In 1965 it is estimated that the number of consumers will have in-creased to 136,COO, double the 1957 figure. The 60 NW capacity of the newsteam station will be absorbed in two years after its completion, and itwill be necessary for KESC to start construction of additional capacity evenbefore completion of the proposed project. As power is now allocated inKarachi because of shortage of capacity, it is evident that the project un-der consideration will have a substantial impact on the economic developmentof Karachi and the surrounding area.

VII. CONCLUSIONS AND RECOMENDATIONS

45. This project is sound and is a suitable next step to expand thesystem of the Karachi Electric Supply Corporation. The market for powerin the Karachi area justifies the installation of the proposed facilitieswhich are expected to be fully utilized within a short time after the com-pletion of the project. The project, therefore, is an interim solution tothe continuing power shortage in the Karachi area and KESC would be well ad-vised to proceed immediately with the help of suitable consultants to studya further expansion in generating capacity.

46. The estimates of the cost of the project are reasonable.

47. The Borrower would be the Karachi Electric Supply Corporation.Financial forecasts show that upon completion of the project, the Borrowerwould be in a reasonably satisfactory financial condition. The debt ser-vice on the proposed loan would be adequately covered.

48. The project is suitable as a basis for a Bank loan of $14 mil-lion equivalent for a period of 20 years including a grace period of 41-years on amortization payments.

MIR= 1

The Karachi Electric Supply Corparation Ltd.

Balance Sheet

Dec. 31, 1956 June 30, 1957ASSETS Rupees (000)

Fixed Assets (incl. works in orogress) 102,233 107,565Less: Peserve for Depreciation 17,342 84,891 19,592 87,973Current Assets:Account Receivables (less reserve) 5,404 7,429Stores (less reserve) 19,437 17,327Cash 5,634 30,525 5,269 30,025

Miscellaneous (advances, depositsand repayrents) 1___6 9?,2

Total 117,2102 127 !9

CAPIT AL, _ESERES A:J IIAEILITIES

Share Capital:Authorized 30,000 30,000Paid in 24,472 24,703

General Feserve 1,088 1,088Surplus and Other Reserves 7,524 9.671

Eauity 33,O84 35,862Long Term Debt:4% First Mortgage Debentures 3,184 3,184IBRD First Loan 12C PAK 53,209 58,262Pakistan Industrial Finance Corp. 1,756 1,756Government cf Pakistan 3,300 61,149 3,000 66,202

PReserve for Future additional taxation 6,950 8,149Reserve for EmDiloryees Welfare, etc. 421 460Due to Suppliers, Contractors, Managing Agents, etc. ,035 6,660Other Accounts Payable, etc. 10,463 10,363

Total 117,102 12Z7296

AI\TiJLX - 2

THE KARAC'`;I LIJECTMIC SUF7LY CORP. LTD.

Condensed Income Statements(in millions of Rupees)

1950 1951 1952 1953 1954 1955 1956

1. L'Vi sold (in millions) 40.2 48.0 50 67.9 86.1 106.3 125.6

2. Gross Revenues 5.70 6.54 7.80 10.24 12.84 1.7L 19.30

3. Operating Expenses a/ 4.12 5.18 6.22 6.57 6.79 8.35 10.634. Depreciation .70 .82 1.17 1.46 2.29 2.76 3.225. Provisions for Taxes .o6 .o6 .06 .61 1.64 L.74 2.346. Total Operating

Expenses 4.88 6.06 7.45 8.64 10.72 12.85 16.19

7. Net Cperating Income .82 .48 .35 1.60 2.12 2.86 3.11

g. Interest charges .19 .19 .28 .27 .27 .37 .44

9. Net Profit .63 .29 .07 1.33 1.85 2.49 2.67

a/ Includes hanaging Agent's Commission and General and AdministrativeExpenses.

ANNEX - 3:EPNRGY SALES

A. ACTIUAL

KILOWATT HOURS SOLD (000)

-- , K.JH , J j 1 .Public J .Year Generation Losses Residential Commercial Industrial Lamps Others t Total

1947 32,390 21.4 5,508 6,852 6,722 1,072 5,296 25,14501948 35,485 20.8 7,399 7,991 5,997 1,101 5,982 28,4701949 41,207 21.1 8,638 7,076 7,042 1,100 8,652 32,5081950 50,804 20.9 10,510 8,628 10,095 1,102 9,830 40,1651951 60,582 20.1 12,280 9,810 13,894 1,119 10,881 47,9841952 71,585 20.3 4o0014 11,619 16,1431 1,224 13,717 56,9951953 84,658 19.8 16,264 12,483 21,367 1,553 16,242 67,9091954 106,844 20.5 18,936 13,269 33,505 1,758 18,589 86,0571955 135,051 21.3 22,362 16,7741 44,286 1,888 21,018 106,2951956 160,170 21.5 28,936 13,168 50,873 1,939 30,666 125,582

lNUW3BER OF CONTS1,JALRS

_ _ ___ -. I

Year Residential Commercia1 Industrial Others |Tota2

1947 23,885 8,056 250 598 32,7891948 23,984 8,326 289 619 32,7181949 p3,712 8s517 297 656 33,1821950 Z>,770 9f,246 344 619 34,9791951 25,508 9,8844 389 665 36,4061952 26,739 10,488 405 815 38,4471953 30A141 11,544 531 869 43,0851954 33,L82 13,067 582 854 48,1851955 38,7b5 1.4,642 629 930 54,9601956 44,540 15,844 654 929 61,967

B. ESTIMATED

Wf . Average t Ii'umberYi Generated E?eak Load % Load Sold of!Year Millions MW Losses Factor Millions Consumers

1957 203 38.5 20 60 162 68,5001958 257 48.0 20 60 2051959 275 48.0 20 65 2201960 275 48.0 20 65 220 75,0001961 325 60.0 20 62 2601962 410 78.0 20 60 3271963 508 100.0 20 58 4051964 555 115.0 20 55 4431965 595 130.0 20 52 475 136,000

ANNLX - 4WEEKLY PROGRESS OF LOAD DEVELOPAENT

i'0IR THE WtH '1G VUIA 21, 1957

l ~~~~~~~A P P L I C A T T 4S

Balance Pend- ie6eiVed, Total (less Estimates Oonnectionsup to the end during estimates prepared madeof previous the prepared.) iuring the during theweek. t week. week. week.

Load Load Load Load, Loa,No. (K4) NIo. (Iw) •io. (fJ) iko. (Krq) No. (K.v

1. Lighting 3066 1533 200 100 3176 1588 90 45 201 101

12. Power (Day) 111 10864 7 80 113 10372 5 572 104 117

:3. Power (Night only) 19 9656 9 535 23 9461 5 730 1 7

T 0 T A L 3196 22053 216 715 3312 21421 100 1347 306 22"

STAT-L -.NT SH' D SL'VJCi, CONNECTION tSTL'i-ATESNMOT PREPARED BY T-E I 5SRIBUTiE0, >xGILJLhR FO 'THR, FOLL014ING REASuiJS

Number Reasons

1463 No Mains.

227 Wooden Cabins or una:uthorized plots.

469 Customers have not contacted KESC.

229 Extension of metering facilities.

51 Bracket or crossing not permissible.

306 Duplicate applications by customers.

89 Unconnected services on premises.

7 Applications cancelled.

1335 Applications pending with DE for Action.

TOTAL 3176

160 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ A N N EX 5

ESTIMATED PEAK LOADS140 AND -_

INSTALLED CAPACITY Estimated Peok Load

KARACHI ELECTRIC SUPPLY CORPORATION on System

120 5//5 tW < _ _ _

Proposed New Capac'30 >71100 --

80

60 < _ 1 . _ _ MExisti Installed Capacity 55.5MW I

40 ________

20

1956 1957 1958 1959 1960 1961 1962 1963 1964 1965YEARS

FEBRUARY 1958 IBRD-433

Aili r - d

;'ZRAL DESCRJP11Ci EU)POSP D "EY" ST TOiT

The power plant will consist of twTo standard turbo-generator units,wTith one full rated boiler per unit. The building will be an extension tothe "B" station maintainirn existing crane height. The station will beaesigned to operate with natural gas as fuel rith provision for usin- furnaceoil for errer_ency purposes.

This station w-ll be designed on the unit saystem, employing oneboiler and one turbine per unit. There will be no cross-over lines on eitherthe main steam header Gr the feedwater system.

The steam generating units will have a press-ure of 900 psi- andgenerate steam at a temperature at 9l00.°. The conditions at the turbinethrottle wrill be 8`0 psig and 900 0F. The selection of these steara condi-tions over 450 psig and 8003F. was based on the fact that the higher pressureard higher temperature result in an improverent of heat rate of approximately

1,~.

The station will se designed as a seri-outdoor installation, thatis, the steal generating units will be placed outdoors with only the boilerfronts remaining indoors for operational purposes. It will have modernconventional alxiliaries.

Steam Generating, Units

Th-e boilers w-Till be designed strictly in accordance with thelatest A.S.7i.E. code for power boilers, and will be of the multi-drum, orsingle-drum, bent-tube type. Iihen operating at full load, the boilers villhave an efficiency of at least 82.5% with natural gas.

The steam g;enerating units will be provided wlith air heaters ofthe tubular or re ,eierative type, and/or economizers to improve the overalltnermal efficiernc-r of the station.

Turbo-Generating Units

'gach steam turbo-generating unit, consisting of a standard impulse,multi-bleeder type condensing turbine, will be directly coupled to anddriving an electric generator with direct connected main and pilot exciters.

A fabricated steel lube oil tank will be-provided for locationon the basement fioor. In this tank- will be located the hydraulic gear,main and auxiliary oil pumps, Gil coolers, and inter-connecting piping.

A2PLX - 6, -Page 2

A motor driven tunilng device will be provided to rotate theunit at approximately 2 to 3 rpmn during shut-down periods. The turninggear motor will be electrIcally inter-locked wyith turning gear oil punpso that the motor cannot be started uiitil the oil pump is delivering oilunder pressure.

Condensing T quiprient

-ach unit will be provided with a surface condenser, capable ofmaintaining two inches Hg. back pressure while condensing steapi and passingcondensing circulating water.

The three circulating water p-uips, each being of the submergedvertical type, will be located at the existing intake well. The condensercooling water will be used after passing through the travelling water screens.

Electrical Equipment

The major part of the power generated at the station will be fedinto the primary transriission network. The units will be paralleled at thehigh voltage side only.

Bach of thle two generators will have an outnut of 37,5UO hKVA ata power factor of u.8. The generator will be direct cornriected, ll,4JO volts,3000 rpm, 3 phase, 50 cycles. -t will be excited by a direct connected e.citer.250 volt D.X., which in tarn will be excited by a direct connected pilot exciter-

Each of the two generator units will be directly connected to a11.h to 66 KV step-up transfonrer. The 66 1X' side of the transforrmier willbe connected to the existing 66 EV substation bus through a powTer circuitbreaker.

There will be two auxiliary buses per unit in this station:(a) the high voltage station auxiliary bus at 3300 volts, (b) the low vol-tage station auxiliary bus at 230/400 volts. In addition, the two 3300volt buses will be tied together through a clrcuit breaker and connectedto the existing 3300 volt station bus.

The main transformers will be 3 nhase, ll.L KV delta/66 Ky wyeforced oil air do6lea transformers -Tith standard no-load tap changing,The main auxiliary transfoi-.ers will be 3 nhlse, 11.4 delta/3.3 KV wyeforced air cooled transformers. The low voltage station auxiliary trans-formers will be 3 phase, 3300 volt delta/230/4uO volt wye self-cooled.

Building

The buildin- extension will match the existing building archi-tecturally; however, the steam generating units and the main transformers

ANNEX - 6, Page 3

will not be covered, The building will be designed to use concrete con-struction up to the operating floor and structural steel for the remainder.The crane rails will line up with the existing so as to utilize the presentcrane. Proper provisions will be made for lavatories, showers, storage,shops, and office space.

ANNEX 7

THE KAROCHI ELECTRIC SUPPLY CORPCRATION LTD.Forecast of Operating Results

in illio f Rupees)

1957 1958 1959 1960 1961 1962 1963 1964 1965

1 KWHT sold (in millions) 1.60 205 220 220 260 290 405 443 475

2 Revenues from sales ofEnergy 23.27 28.68 30.63 30.63 314.45 38.10 52.62 57.10 61.20

3 Other Income .25 .25 .25 .26 .26 .26 .26 .26 .264 Total Pevenues 23,52 28.93 30.88 30.89 34.71 38.36 52.88 57.36 TW46

5 Operating Expenses (incl,fuel, maintenance, general& administrative overhead) 12.12 14.52 15.45 15.56 17.70 18.30 22.49 24.55 26.17

6 Management Conmission ,47 .41 .44 .44 .55 .85 .89 1.03 1.037 Depreciation 4.50 5.73 6.25 6.25 6.50 8.00 11.06 12.41 13.76,8 Provision for future

taxation 2,77 2.36 2,61 2.61 3.50 4.50 6.35 6.39 6.399 Other provisions _07 .08 .08 .08 ..08 08 .08 .08 .0 W

10 Total Costc peations 19.93 23.10 24.83 24.94 28.33 31.73 40.87 44446 47.43

11 Net Incorm from Operations 3.59 5.83 6.05 5.95 6.38 6.63 12.01 12.90 14.0312 Less: Interest .59 3.20 3.17 3.00 2.77 2.56 5.96 5.52 813 Net Profit 3.00 2.63 2.88 2.95 3.61 4.07 0 7.38 5.62

Distribution of Profits

14 Dividends 1.95 2.14 2.28 2.50 2.84 3.14 3.26 3.26 3.2615 Bonus to Staff .30 .30 .30 .35 .35 .35 .40 .40 .4016 Accrual to Surplus .75 .19 .30 .10 .42 .58 239 3.72.96

32.-00 2,,63 2.88 2.95 3.61 4.07 6.05 7.38 5.6 2

ANNEX 8

THE KARACHI ELECTRIC SUPPLY CORP. LTD.

Forecast of Cash Flow(in millions of Rapees)

1957 1958 1292 1960 1961 1962 1963 126 1965

RECEIPTS

1 Net Income from Operations 3.59 5.83 6.05 5.95 6.38 6.63 12.01 12.90 14.032 Depreciation allowances 4.50 5.73 6.25 6.25 6.50 8.00 11.06 12.41 13.763 Provisions for future Taxation 2.77 2.36 2.61 2.61 3.50 6.35 6.39 6.394 Cash Receipts from Operations 10.86 13.92 14.91 14.81 1 19.13 29.42 31.70 34.18

Borrowing5 a) Withdrawals IBRD-loan (120-PAK) 11.46 1.17 - - - - -6 b) Proposed IBRD-loan - 14.92 13.49 14.14 16.85 7.24 - _ _7 Proposed Sale of Capital stock 3.16 1.60 2.00 4.00 5.00 3.00 - - -8 Other Receipts (Service Connections) 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.509 Total Receipts 26.98 33.11 31.90 34245 2 30.87 30.92 33.20 35.68

EXPENDITURES

Construction10 a) Existing IBRD-Project 19.74 2.62 - - - - - - -11 b) Proposed IBRD-Project - 15.92 22.49 25.14 27.85 11.00 - - -

12 c) Other construction .20 .30 .30 - _ _ _ _13 Total Corstruction 19.74 18.74 22.79 25.44 27.85 11.00 - - -

Debt service (Amortization and Interest)

14 a) Existing IBRD-loan (120-PAK) 2.12 6.91 7.05 7.06 7.01 7.01 6.98 6.97 6.9415 b) Proposed IBRD-loan - - - - - - 6.45 6.45 6.4516 c) Other 3.70 1.60 .21 .23 .24 2 3.39 .18 6.1317 Total Debt Service 5.82 8.51 7.26 7.29 7.25 7.26 16.82 13.60 19.5218 Dividend payments 1.95 2.14 2.28 2.50 2.84 3.14 3.26 3.26 3.2619 Bonus to Staff .30 .30 .30 . .35 *35 .40 -. 40 .4020 Total Expenditures 27.81 29.69 32.63 35.58 38.29 21.75 20.48 17.26 23.18

21 Net Annual Cash Accruals (-) .83 3.42 (-) .73 (-) 1.13 1.44 9.12 10.44 15.94 12.5022 Less: To be made available for tC"

Station Construction (see below line 27) - - - 1.00 3.00 6.00 10.00 10.00 -23 Remaining Net Cash Accruals (annual) (-) .83 3.42 (-) .73 (-) 2.13 (-) 1.56 3.12 .44 5.94 12.5024 Cash on hand - Beginning of year 5.68 4.85 8.27 7-54 5.41 3.85 6.97 7.41 13.3525 Cash on hand - End of year 4.85 8.27 7.54 5.41 -3.8 6.97 7.41 13.35 2.-85

"C" STATION CONSTRUCTION Total

26 Construction Expenditures 5.00 15.00 20.00 30.00 20.00 (90.00)

Financing Assumed27 a) Available from Revenues (see line 22) 1.00 3.00 6.00 10.00 10.00 (30-00)28 b) Borrowing 4.00 12.00 14.00 20.00 10.00 (60.00)

__ 5.00 20.00 30.00 20.00 (05200)

29 Debt Service Coverage. Number of Times (4:17) 1.87 1.64 2.05 2.03 2.26 2.63 1.75 2.33 1.75

A.H711D:X 9

The Karachi Electric Supp1vy Ccrporation Ltd.Pro-Forma Palarne S'heet

(as cf Deca,ber 31, 1962)

ASSETS Runees(millio ns)

Fixed Assets 237.79Less: Rcserve for Depreciation 54,57

Net Book Value 1g3.22Construction in Progress 40.00Net Current Assets 6.32Yisce'llaneous l, 6

231.22

C A'ITAL, ERTSVES 'AND LIABILITIES

Share Capital 43.23Surplus & Reserves 19.95

Equity 63.18Long Term Debts

a) 1st IBBD Loan (120 PAK) 42.49b) Proposed IBRD Loan 66.64c) 4% First Mortgage Debentures 3.19d) Other 30.00 142.32

Reserve for future taxation 25.30Reserve for Employee's iWelfare, etc. .42

231.22

PROPOSED IMPROVEMENTS INSERVICE AREA OF

KARACHI ELECTRIC SUPPLY CORPORATION

NPIR MANGHO

MAURIPUR :: MAL.

Existing 66KV Transmission Lines

* * Existing Power Plants

o Existing Substations

Approximate area serviced by KESC

Future development of area serviced by KESC

- - - --- Proposed 66KV Transmission Lines

* Proposed expansion of Steam Plant 2 Miles

FEBRUARY 1958 IBRD-436