Document of The World Bank

Report No: 29339-PL

IMPLEMENTATION COMPLETION REPORT(SCL-3959A SCPM-3959S CPL-39590)

ON A

LOAN

IN THE AMOUNT OF US$108.5 MILLION

TO

POLAND

FOR A

POWER TRANSMISSION PROJECT

December 28, 2004

Infrastructure and Energy DepartmentEurope and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective as of December 20, 2004)

Currency Unit = New Polish Zloty (PLN) Zl 1.0 = US$ 0.326

US$ 1.0 = Zl 3.07

FISCAL YEARJanuary 1 December 31

ABBREVIATIONS AND ACRONYMS

AC Alternating CurrentCHP Combined Heat and Power PlantDC Direct CurrentEdF Electricite de FranceECA Europe and Central Asia RegionERR Economic Rate of ReturnEU European UnionMTTF Mean time to failure of a componentMTTR Mean time to repair a failed componentPPGB Polish Power Grid CompanyPPA Power Purchase AgreementPSE Polskie Sieci Elektonenergetyczne TSO Transmission System OperatorUCTE Union for the Co-ordination of Transmission of Electricity

WEIGHTS AND MEASURES(Metric and International Systems)

Gcal Cigacalorie (one million kilocalories)GJ Cigajoule (0.034 tons of coal equivalent or 109 joule)kcal Kilocalorie (4187 joule)kV KilovoltkWh KilowatthourMt Million tonsMVA Megavolt AmpereMWe Megawatt electric (1,000 kilowatts)MWt Megawatt thermal (0.86 Gcal/h)TOE Ton of oil equivalent (42.7 GJ)TWh Terawatthour (1012 Wh)

Vice President: Shigeo KatsuCountry Director Roger W. GraweSector Manager Henk Busz

Task Team Leader/Task Manager: Peter Johansen

POLANDPOWER TRANSMISSION PROJECT

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 14. Achievement of Objective and Outputs 45. Major Factors Affecting Implementation and Outcome 96. Sustainability 127. Bank and Borrower Performance 128. Lessons Learned 149. Partner Comments 1410. Additional Information 14Annex 1. Key Performance Indicators/Log Frame Matrix 16Annex 2. Project Costs and Financing 17Annex 3. Economic Costs and Benefits 20Annex 4. Bank Inputs 21Annex 5. Ratings for Achievement of Objectives/Outputs of Components 22Annex 6. Ratings of Bank and Borrower Performance 23Annex 7. List of Supporting Documents 24Annex 8. Borrower’s Evaluation Report 25

Project ID: P008604 Project Name: POWER TRANSMISSIONTeam Leader: Peter Johansen TL Unit: ECSIEICR Type: Core ICR Report Date: December 30, 2004

1. Project DataName: POWER TRANSMISSION L/C/TF Number: SCL-3959A;

SCPM-3959S; CPL-39590Country/Department: POLAND Region: Europe and Central Asia

Region

Sector/subsector: Power (100%)Theme: Infrastructure services for private sector development (P); Pollution

management and environmental health (S)

KEY DATES Original Revised/ActualPCD: 02/28/1992 Effective: 01/25/1996 01/25/1996

Appraisal: 05/28/1993 MTR: 05/28/2001 05/28/2001Approval: 11/28/1995 Closing: 12/31/2001 06/30/2004

Borrower/Implementing Agency: POLISH POWER GRID COOther Partners:

STAFF Current At AppraisalVice President: Shigeo Katsu W. ThalwitzCountry Director: Roger W. Grawe K. DervisSector Manager: Henk Busz H. ApitzTeam Leader at ICR: Peter Johansen R. BenmessaoudICR Primary Author: Peter Johansen; Sati Achath

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: HL

Institutional Development Impact: SU

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: Yes

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:

The original objectives of the US$275.7 million project (Loan: US$160 million) were to: (a) improve the

reliability of the existing high voltage grid through rehabilitation and reinforcement; (b) enhance security of power supply in Poland by interconnecting the Polish power grid with that of Western Europe, thus improving Poland's power trade and wheeling capability; (c) improve the network's operational performance and control through transmission loss reduction and improved dispatching, thereby enhancing energy conservation and efficiency; (d) reduce environmental pollution; and (e) enhance the Polish Power Grid Company’s (PPGC)

1

institutional capabilities.

The objectives were clearly stated, important to the country’s economic and social development, and realistic in scale and scope. They were also timely and appropriate to the needs of the Borrower, especially in terms of improving the reliability of the power grid and reducing transmission losses, as well as in sector investment planning and in issues related to the proper functioning of PSE in a restructured power sector. The project was consistent with the Country Assistance Strategy (CAS) for Poland, as discussed by the Board of Directors during the presentation of the Katowice Heat Supply and Conservation Project on November 17, 1994. The CAS aimed at: (i) assisting the Government in addressing the most critical structural issues (public finance reform, downsizing of large loss-making sectors and financial sector reform); (ii) supporting private sector development and catalyzing private sector financing or participation; and (iii) financing medium-sized projects in social and economic infrastructure with increased emphasis on projects at the local government level. The Bank's strategy in the energy sector envisaged projects that would support priority rehabilitation and modernization investments in the power, district heating and gas sub-sectors to enhance energy conservation and efficiency and reduce environmental pollution.

The project design reflected lessons learned from past power projects in Europe and Central Asia (ECA) and other Regions. Special emphasis was placed on ensuring that all preparatory work necessary for project implementation was done prior to loan effectiveness. Furthermore, the project was prepared within the framework of the continuing policy dialogue with the Government regarding the energy sector restructuring program, particularly related to achieving further improvement in energy pricing policies, introduction of a sound regulatory framework and integrated resource planning. This was consistent with the principal recommendations of the Bank's 1992 Energy Sector Policy Paper.

1/The company now uses its Polish acronym PSE (Polskie Sieci Elektonenergetyczne)

3.2 Revised Objective:

The Objectives were not revised.

3.3 Original Components:

The project consisted of four components, all related to achieving the project’s objectives.

Component 1: Ostrow Transmission Development. This component comprised development of the national 400 kV bulk power transmission network in the Ostrow area to complete the national grid 400 kV ring and thereby enhance the power export/import capability, while strengthening the transmission capability in the southern and western regions. It would also ensure that the (n-l) UCTE reliability criterion

2 would be met.

Component 2: Substation Modernization Program.

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This component included: (i) the modernization of 22 strategic substations in the western and central-western regions of Poland (including the virtually complete rebuilding, upgrading and modernization of the major 400/220/110 kV Mikulowa substation) to meet the design performance levels required for system reliability and international interconnections; and (ii) installation of shunt reactive compensation at specific 400kV substations, to permit steady voltage control on the 400kV system complete daily load cycle and thereby avoid switching of 400 kV lines under light load conditions, considerably reducing the security of the network.

Component 3: 220 kV line Modernization Program.

This program consisted of urgently needed rehabilitation and upgrading of eighteen 220 kV lines to achieve satisfactory overall system performance levels. The program included replacement of the overhead ground wire as required to provide lightning protection with a new design which incorporated fiber optics within the conductor.

Component 4: Technical Assistance.

This component included technical assistance in selected areas of project and financial management, integrated resource planning and training, as required.

2/ The (n-1) criterion is that a power system must be able to maintain its supply and demand balance even in case of an outage of a major network operating element (the largest generation plant, or one transmission line, or one transformer, or in some instances one busbar).

3.4 Revised Components:

The objectives of the project were maintained throughout the loan period although some components needed to be changed during the development of the network and operating problems encountered. The following changes were agreed with PSE:

Ostrow Transmission Development. The scope of this component was reduced by an omission of the overhead line portion comprising the 400 kV transmission line Rogowiec-Ostrow-Plewiska. The substation components at Ostrow and Plewiska were retained together with the completion of the 400kV transmission line Pasikurowice-Ostrow. This revision to scope of work was introduced because of PSE's need to resolve problems of the land acquisition, right of way, public hearings and environmental impact aspects, associated with the 400 kV transmission lines. A significant replacement component comprised the international interconnection with Slovakia at the Krosno 400kVsubstation.

Substation Modernization Program. The original project focus was on the western portion of the PSE network to reinforce interconnections to the networks of CENTREL3

and UCTE. As the requirements of the network were defined, the scope was further expanded. Subsequent to the occurrence of a major incident resulting in failure of a large portion of the network, PSE conducted an inquiry into the reason for the problem. It was concluded that an emergency program was required to replace equipment which had reached its life expectancy limit.The program was completed through funding obtained from the Bank loan.

3/ CENTREL consists of the TSOs of Hungary, Czech and Slovak Republic, besides PSE.

3.5 Quality at Entry:

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Satisfactory. The project design predates the inception of the Quality Assurance Group (QAG). Hence, there was no official assessment of its quality at entry. The ICR deems the quality at entry to be satisfactory and the project as well conceived.

As mentioned in the earlier section, the project objectives were consistent with the country assistance strategy and Government priorities, and met the critical needs of Poland’s energy sector. During preparation of the project, lessons learned from other earlier energy sector projects in ECA and other regions were considered and incorporated into the project design.

The project recognized and took into account the following risk factors which could affect project implementation, viz:

The possibility of delayed increases in electricity prices. Such a delay could negatively affect PSE's linternal cash flow needed for further system improvements. However, this risk was expected to be manageable, given the Government's commitment to energy price reform as demonstrated by energy pricing adjustments undertaken since 1990, and its efforts to introduce an energy regulatory framework, combined with favorable changes in asset revaluation and depreciation policy. Furthermore, the project's cash flow was based on the conservative assumption of zero price increases in real terms over the medium term.

Procurement and implementation delays. This risk was expected to be manageable because: (a) PSE lhad set up a procurement unit that had received training from specialized Bank staff; (b) adequate staff were allocated to the different project management activities. These staff were to be assisted by consultants who would provide both functional support as well as training under the project's technical assistance component; and (c) tight reporting schedules on procurement and implementation progress during supervision.

Extensive stakeholder consultations and the participatory process in project preparation substantially contributed to the quality and readiness at entry. The quality of project design is assessed to have been adequate to meet the project’s objectives. Procurement and implementation delays that were actually experienced related to attitudes and internal policy in PSE which could not have been foreseen nor mitigated at project entry.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:

Overall, the outcome of the project objectives was satisfactory. The major outcomes and achievements of the project are as follows:

(a) Improving the reliability of the existing high voltage grid through rehabilitation and reinforcementThe performance of a power transmission system is measured in terms of the availability of power to the consumers, as governed by the reliability of the supply system. Outages within a network comprise planned outages under the control of system operation or forced outages which may be due to equipment failure or naturally occurring events. The performance may be measured by two parameters, namely the mean time to failure of a component (MTTF) and the mean time to repair the failed component (MTTR).

The PSE rehabilitation program has improved the network performance by increasing the MTTF and

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decreasing the MTTR. The work program undertaken by PSE replaced obsolete equipment that was vulnerable to catastrophic failure or exhibiting an increased failure rate. Performance improvement would not therefore be achieved for naturally occurring events, but only those resulting from equipment problems. However, a forced outage event should be limited to the component which has failed, rather than cascade into a system-wide fault.

Transmission lines and switchgear equipment are typified by a short time to repair but also with a relatively short time to failure. In comparison, power transformers may have a longer time to failure but equally a longer time for repair. The occurrence of a forced outage cannot be prevented but early prediction through condition monitoring, and self-testing has proven a valuable tool to limit the impact of a forced outage. PSE adopted such tools in the redesign of their network. When transformers were replaced as part of this program, condition monitoring schemes were installed to provide early warning of possible failure conditions thereby minimizing the risk of the prolonged forced outage. Protective relaying was installed through a program which replaced electro-mechanical relays with computer-based relays. These relays have the facilities for self checking and identifying immediately the occurrence of a problem rather than requiring an annual check by operating staff, with the associated risk of human error resulting in false tripping.

Replacement of circuit breakers, current transformers, voltage transformers, disconnect switches and surge arresters all served to improve the security of PSE’s system by reducing the forced outage rate of the line or transformer which they control. The improved system performance anticipated cannot be measured in the short term, but at a later stage PSE’s experience can be compared with that of other users as a guide to the improvement that maybe anticipated.

Transmission line performance. A best practice forced outage rate for a high-voltage transmission line is 1.0 per 100 km of line per year. PSE data indicates a forced outage rate approaching 1.5 per 100 km line per year. This is a significant improvement as a result of the upgrades so far and it is realistic that PSE will achieve a rate close to 1.0 when they have completed their upgrade program around 2009.

Power transformers: Service experience indicating an increase in the forced outage rate of power transformers resulted in PSE initiating a study of the condition of key transformers within their power system. The study indicated that the failure rate was almost 10 times higher that the benchmark i.e. 0.05/yr. The upgrading of key transformers following the recommendations of this study is still ongoing. A significant improvement in the PSE outage rate is anticipated.

Network Security has been further improved by the installation of shunt reactors, which serve to control voltage across the system without the need to switch lines in and out of service as has been the old operating practice on the Polish grid. This equipment was a key component providing maximum benefit for minimum cost within the scope of the loan.

Provision of high-speed fault detection and fault clearing equipment has enhanced the power transfer capability of the network by increasing stability margins, i.e. a greater power level can be transmitted across the same line without jeopardizing stability of the power system. This was a critical item justifying the development of the Ostrow project.

(b) Enhancing security of power supply in Poland by interconnecting the Polish power grid with that of Western Europe, thus improving Poland's power trade and wheeling capability.

During the period of loan preparation and implementation, the network development has changed

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significantly - particularly significant being the international interconnections. In the initial stage of the project, network improvements were facilitated that has permitted interconnection with Austria, Hungary and the Czech Republic as part of the CENTREL power system.

Reinforcement of the interconnections to the eastern German system was achieved by rebuilding the Mikulova 400/220/110 kV substation, together with rehabilitation at Krajnik, the latter utilizing PSE funding. These interconnections, together with the CENTREL development facilitated a synchronous Interconnection with the UCTE network.

The DC transmission link via submarine cable between Poland and Sweden facilitated interconnection with NORDEL.

Further interconnections have been developed with the Slovak and Czech Republics that provide full access to a market pool for import/export of electrical power. This has facilitated economic use of installed capacity within Poland, improved the load factor within the transmission system, reduced spinning reserve margins, and provided emergency source of power for forced outage conditions.

(c) Improving the network's operational performance and control through transmission loss reduction and improved dispatching, thereby enhancing energy conservation and efficiency.

The design objective identified at the beginning of the loan was to fully utilize the capacity of the 400 kV bulk power transmission system and offload the low-voltage systems 220 kV and 110 kV. This would result in a reduction of power losses in the lower voltage systems. While this has been achieved in part, total benefits will not be obtained until the Ostrow-Plewiska transmission line is completed (probably not before 2009).

PSE staged a quantum leap in development of the communications system for their network by adoption of a fiber optic grid utilizing fibers in the overhead ground wire of the various transmission lines that were being modernized. The communications system has permitted complete SCADA control and monitoring of both the generation and transmission systems together with interfacing of the various regional control centers and the distribution companies. The communications link permitted remote control of the various transmission substations thereby eliminating the need for permanent operating staff at each location.

(d) Reducing environmental pollution.

The reduction of system losses has resulted in lower annual emissions of SO2, NOx, CO2 and Suspended Particulate Matter. Besides this direct effect, a more important indirect effect has been achieved by the fuel switches and efficiency improvements on the generation side which have been brought about by the ability of PSE to enter into long-term PPAs (see below). However, the exact effects can not be measured without system simulations.

Each power transformer replacement was accompanied by redevelopment of the oil retention facilities so as to avoid pollution of the surrounding area in the event of a major oil leak. The electrical effects of transmission lines comprising electrical and magnetic fields, limits at the edge of right of way, were assessed and incorporated in design of the new 400 kV transmission lines.

(e) Enhancing PSE’s institutional capabilities.

The project was much more than just transmission network rehabilitation. In the preparatory phases it

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included assistance to sector restructuring (including advice on the application of a Single-Buyer model), a Least-Cost Power Generation Program, a tariff study, planning of Combined Heat and Power plant development, environmental dispatch and a master plan for telecommunication in the power sector. This, and the ambitious transmission system rehabilitation program, made PSE a credible partner for independent power producers who, based on long-term PPAs, would eventually come in and invest more than US$3 billion in the upgrading of Poland’s generating capacity.

For details on the project’s institutional development impact see Section 4.5.

4.2 Outputs by components:

Component 1: Ostrów Transmission Development:

The project included financing of the first phase of the Ostrów 400/110 kV substation and construction of the 400 kV high voltage line Ostrów–Plewiska. Achievement of this component is satisfactory.

Component 2: Substation Modernization Program:

Modernization and extension was carried out at 28 substations while intensive reconstruction was conducted in the case of five strategic coupling stations with upper voltage of 400 kV (Mikulowa, Plewiska, Pasikurowice, Wielopole, Joachimów) and four large 220 kV coupling stations (Polkowice, Gorzów, Mory, Adamów). Three 220/110 kV substations (Polaniec, Chmielów and Zamosc) were also modernized but with a more limited scope, which generally included replacement of measuring transformers, disconnecting switches and installation of surge arresters.

Achievement of this component is satisfactory.

Component 3: 220 kV line Modernization Program:

The thermal transmission capabilities of the 400 kV and 220 kV lines have increased through the following project outputs:

Five lines were modernized by replacing working conductors which resulted in increase of transmission lcapabilities by 5%; After the extension of interconnections, transmission capability on the southern and western border lincreased by 60% compared to 1995; In total, 18% of existing 220 kV line circuits (1500 km) and 9% of 400 kV line circuits (420 km) were lreplaced;Replacement of conductors AFL-4 350 mm2, 375 mm2 and AFL-8 402 mm2 with modular conductors lof 525 mm2 on 40-years old 220 kV lines;Replacement of insulators; andlInstallation of fiber optic waveguide.l

Telecommunication system: Fiber optic links were installed in 400 and 220 kV transmission lines. The result is that a fiber optic base network system covers the entire area of Poland providing the backbone of the communications system required by PSE in order to achieve a remote control of each substation from the central control point in Warsaw and the regional control centers at strategic locations within the country.

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Achievement of this component is satisfactory.

Component 4: Technical Assistance:

The original amount allocated for this component was reallocated to ‘Goods and Services’ during the implementation period, and as a result, no activities were implemented.

4.3 Net Present Value/Economic rate of return:

Considering that the rehabilitated facilities have been in operation only for a short time, the economic rate of return is still based on a number of assumptions, e.g. about the finalization of the Ostrow transmission development project.

The updated economic cost-benefit analysis shows that the latest estimate yields an IRR of 24% which is slightly higher than the 21% estimated in the SAR. This is the net result of the following causes:

The Ostrow transmission development has been delayed and the 400 kV line from Ostrow to Plewiska i.is not likely to be finalized before 2009 due to rigorous environmental requirements (these works are ongoing and are financed 100% by PSE);The whole project implementation was delayed by around three years; andii.On the plus-side, the power exports to Austria, Czech Republic, Hungary and Slovakia on long-term iii.contracts have been higher than predicted mainly facilitated by the upgrading of the strategic substations in the southern and southwestern part of the Polish grid.

4.4 Financial rate of return:

The financial rate of return was not calculated in the SAR (at that time this was not required)

4.5 Institutional development impact:

The project resulted in a substantial institutional development impact both in terms of commercial and technical aspects:

At the beginning of the project, PSE lacked the capacity for project implementation, but subsequently, lit has developed in-house capacity for construction, power engineering, telecommunication, and procurement. PSE developed an organisation capable of defining network development, definition of projects, implementation, construction, commissioning, operation and maintenance of transmission system facilities. Policies were defined with respect to Asset Management, e.g. outsourcing of engineering services to the Energoproject, which in turn facilitated privatization of that organization. The expertise developed has resulted in PSE being represented at international committees as technical experts, based upon the experience they have gained since the inception of the Bank loan. The vast scope of work carried out since 1996 and the necessity to conduct it concurrently in many locations required high commitment of PSE’s engineering staff in organizing and supervising and special mobilization of the dispatch and service personnel. As a result of these activities, there is a significant growth in the level of technology, functionality and safety of service of the transmission system. At the same time, the standing of PSE as a credible partner on the European electricity market has improved.

The new fiber optic access lines are jointly used by PSE and by other telecommunication system l

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operators. For example, they are used for cross-linking of telephone exchanges and for making data communication connections for bank networks and other all-Polish companies. Due to very large system reserves and network universal structure, the network can be successfully used in commercial applications for tele-internet connections, by cable TV operators, private telecommunication and data communication system operators.

PSE carried out two tenders for Gdansk I and Losnice substations and in second half of 2003 signed l‘turnkey’ contracts for the modernization of these two substations (not financed over the Bank loan). This is a significant development since it shows that PSE now has realized that turn-key contracts provide better and quicker results for large and complicated projects.

By March 2002, PSE had established a new division in its financial department to continuously lmonitor and manage accounts receivables. In addition, PSE had established a number of new practices including double registering of all the debt and receivable trading agreements, regular notification to its debtors on their current status of due and overdue liabilities, regular invoicing of interests accrued on overdue debtor liabilities, regular credit risk assessments of its debtors and new debt trading partners. In addition, there are also limits and thresholds on amounts by which designated staff may represent the Borrower in the above transactions. All the above implemented actions resulted in significant improvement in turnover of accounts receivable which went from above 70 days in 2001 to about 50 days in 2002, and 30 days in 2003.

The project was also instrumental in introducing bidding procedures for deliveries of equipment and lswitchgear. It allowed PSE to optimize the costs of deliveries and freely choose from state-of-the art technologies.

PSE staff’s direct experience in dealing with the Bank’s procurement procedures, would make it easier lfor PSE to apply for EU funds, since EU’s procurement procedures are very similar to those of the Bank.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:

Frequent change of administrations. The national government changed five times during the eight year implementation period, and often significant changes in the senior management in PSE were the result, which had a negative impact on the pace of implementation.

5.2 Factors generally subject to government control:

None

5.3 Factors generally subject to implementing agency control:

(i) Insufficient use of Bank loan funds. The disbursement was slow even when implementation speed picked up because PSE was using the Bank’s loan as, essentially, a credit line to draw on as and when it wished. Due to its substantial liquidity in recent years PSE had adopted the objective of limiting the incurrence of debt and had limited disbursements from the Bank loan by using its own resources for as much of 75% of expenditures eligible for Bank financing.

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(ii) Financial Irregularities. There were serious irregularities in the internal control procedures of PSE, which were revealed in the audit report for the 2001 Financial Accounts of PSE. As a result of these irregularities PSE incurred significant unexpected losses of PLN 560 million (approx. US$135 million). The main reason for such a deterioration of the financial results and departure from the planned PLN 26 million profit was the creation of provisions for doubtful and non-confirmed debts amounting to PLN 583 million. Included in this amount was PLN 360 million related only to one entity - a power distributor which did not confirm its debts due to PSE on the basis of an alleged tripartite agreement with a debt trading company. As a result, the power distributor paid approximately PLN 300 million directly to the debt trading company and offset its debt due to PSE. However, PSE registers and account did not show such transactions.

The Bank was not satisfied with PSE’s explanation to these irregularities and was contemplating to proceed with suspension of the loan if PSE did not submit a satisfactory response. The suspension would have been warranted on the ground that the Borrower had not demonstrated that it was: (i) carrying out its operations in accordance with sound financial practices (Section 4.01 of the Loan Agreement); and (ii) maintaining records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition (Section 5.01(a) of the Loan Agreement).

Subsequently, in August 2002, the Bank received from PSE the Revised Auditor's Management Letter and the PSE Management's Response Letter. The letters showed that PSE's management had taken action and introduced the following improvements: (i) complex control of compensation and debt transfer agreements, (ii) organizational changes including staff changes, creating separate receivable management unit within Financial and Accounting Department; (iii) introducing procedures ensuring the legal and financial security of transactions. Commitments to future actions included implementation of a Complex Risk Management Policy and of a 2-3 year audit plan of priority processes linked with risk areas as recommended by the Auditor.

Based on the information submitted in the revised letters, the project team's view was that that PSE's management was addressing the deficiencies in PSE's internal control system that resulted in the significant financial losses and was working to improve the situation. In light of this, the project team recommended not to suspend the loan. However, the team did propose that the Bank should work closely with PSE's management to monitor the implementation of further improvement in the internal control system. Specifically, the team proposed that, as soon as PSE appointed a new Auditor, his first task would be to conduct a comprehensive review of PSE's current internal control system. By early 2003, the Borrower had provided the Bank team with written documentation and gave explanations demonstrating that (i) the financial situation of the Borrower improved well over the past year; (ii) the Borrower had adequate procedures on internal control and accounts receivable and debt transaction management; (iii) the Borrower submitted to the Bank all the documentation that was asked for including financial statements, consolidated and entity's audit reports, a management letter, a project audit, and a revised project procurement plan. The audit reports of financial statements for 2002 demonstrated that indeed the Borrower's financial situation improved and the audit report was unqualified. In the remaining project implementation period, the Bank’s supervision deemed the financial management of PSE as satisfactory.

(iii) Implementation delays. In the early part of the project implementation was slower than originally anticipated. The main reason was that PSE wanted to stay in full control of the construction process and therefore rejected a turnkey approach but at the same time was struggling to implement the Bank’s procurement procedures. In addition, because of PSE's internal restructuring and changes in investment policy and priorities, project implementation was further delayed by about one year during 1998-1999 period. For example, PSE's Board of Management decided to delay a number of investment tasks such as

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re-construction and modernization of Mory, Gdansk and Plewiska substations and to defer related capital expenditures to 1999-2001.

(iv) Misprocurement. The Bank had to declare misprocurement in the case of procurement of control equipment for four substations. This was because the Borrower awarded the contract against the Bank's advice and without the Bank's no-objection. For each substation bid package, the Borrower had received three bids. The Borrower decided to award contracts to the lowest price bidder on all four packages. The Bank did not agree with the Borrower's recommendation because: (i) lowest price bidder was substantially not responsive at the time of bid submission and (ii) the bidder's reservations to the contracts were substantial, even though the bidder withdrew them during the clarification stage.

(v) Lack of cooperation of the various distribution companies. PSE’s top management had provided the intellectual leadership to the Government of Poland in the field of unbundling, especially during 1992-1996. However, during this transition period there was a lack of interaction of PSE with other constituent parts of the electric power system. Being very young unbundled companies, PSE and the distribution companies were still trying to define their respective roles in a new contractual environment, and they were suspicious of each other’s motives and unsure how actions taken by one would affect the other.

For example, PSE was not able to comply with the covenant regarding the preparation of a comprehensive program for the rehabilitation of the 110 kV network in conjunction with the rehabilitation of the 400 and 220 kV networks, because of lack of cooperation of the various distribution companies. Even though it was originally envisaged that a country-wide program could be initiated under the leadership of PSE, because of the large number of power companies in Poland, it became difficult for PSE to produce an overall plan of action in view of the differing development plans and the independence of the distribution companies.

(vi) Lack of knowledge on prices of equipment. Because of PSE’s lack of knowledge on prices of equipment such as transformers in other countries from where these equipment were to be purchased, it was difficult for PSE to make an appropriate cost estimate for the procurement of these equipment, and as a result, there was either an overestimation or underestimation of project cost.

(vii) Difficulty in coordinating the network outages for installation of equipment while maintaining the security of electricity supply also made the implementation slower than expected.

5.4 Costs and financing:

The total cost of the project was about US$368.5 million compared with the SAR estimate of US$275.7 million. The increase was due to the fact that the Bank and PSE agreed that more substations and lines would be co-financed than foreseen in the SAR. This included substations Ostrow, Pasikurowice and Plewiska for which total investment amounted to more than US$40 million, substation Mory with an investment of around US$20 million, construction of the Dobrzeñ-Wielopole line costing around US$8 million as well as a number of smaller substations and line investments. The reason for this expansion of scope was partly a wish from PSE to cooperate with the World Bank experts on a broader scale than originally anticipated realizing the added value of interaction with outside experts and partly a wish to stretch out the financial assistance over a longer period of time using less Bank co-financing for each individual sub-project.

The Bank financed US$108.5 million (29.4%), and the PSE contributed about US$260.0 million equivalent in local costs (70.6%).

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6. Sustainability

6.1 Rationale for sustainability rating:

Highly Likely. PSE has come out of the project as a much strengthened organization. This provides very good sustainability at exit since PSE is both financially and institutionally able to continue implementing their long-term rolling investment plan. The sustainability of the project is therefore rated as highly likely in both financial and institutional terms.

6.2 Transition arrangement to regular operations:

See Section. 6.1

7. Bank and Borrower Performance

Bank7.1 Lending:

Satisfactory. The Bank's performance in the identification, preparation, and appraisal of the project was satisfactory. The identification process focused on critical gaps and opportunities for interventions in Poland’s energy sector. The project’s consistency with the Government’s development priorities and the Bank’s country assistance strategy was assured. With a harmonious team with a good skill mix, it brought in state-of-the-art expertise into project design, providing for flexibility and responsiveness to local needs.

During preparation and appraisal, the Bank took into account the adequacy of project design and all major relevant aspects, such as technical, financial, economic, and institutional, including procurement and financial management. In addition, during the appraisal, the Bank assessed the project's risks and benefits. The Bank had a consistently good working relationship with the Borrower during preparation and appraisal.

7.2 Supervision:

Satisfactory. The Bank's performance during the implementation of the project was satisfactory. Sufficient budget and staff resources were allocated, and the project was adequately supervised and closely monitored. The Bank’s client relationship was very cordial and productive. Supervision teams included specialists in power engineering, energy economics, environmental economics, financial analysis, financial management, operations, disbursement, and procurement. External consultants were used for specific aspects of project components.

Aide-Memoires were regularly prepared and transmitted, flagging outstanding issues and underscoring benchmarks for actions. These alerted the Government and the implementing agencies to problems with project execution and facilitated remedies in a timely manner, in conformity with Bank procedures. The Project Status Reports (PSRs) realistically rated the performance of the project both in terms of achievement of development objectives and project implementation. Whenever delays in implementation occurred, the Bank’s task team was able to define concrete steps and timetable for putting the project back on track. The Bank paid sufficient attention to the project’s likely development impact. The quality of advice, and the follow-up on agreed actions were adequate. Loan covenants and remedies were enforced effectively.

With the decentralization of some Bank functions to the Country Office in Poland, the Bank could provide

- 12 -

quick response and follow-up. The staff also showed flexibility in suggesting needed modifications in implementation. They worked closely with the Government and the implementing agency, and provided them with extensive assistance including technical advice. The Bank conducted workshops for the PSE staff in the early stages of implementation on specific subjects, such as procurement and disbursement.

7.3 Overall Bank performance:

Satisfactory. Overall, the Bank performance was satisfactory during project preparation, appraisal and implementation.

Borrower7.4 Preparation:

Satisfactory. PSE's performance in the preparation of the project was satisfactory. They displayed the required level of commitment to the objectives of the project and covered the adequacy of design and all major aspects, such as, technical, financial, economic, institutional, environmental and sociological factors. The Government officials and PSE staff worked closely with the Bank's project team on a continual basis, with full cooperation and enthusiasm.

7.5 Government implementation performance:

Satisfactory. The Government's implementation performance was satisfactory. The Ministry of Finance (MOF) which was the guarantor performed satisfactorily. However, since PSE was the direct Borrower, the Government did not have any significant role to play in the implementation of the project.

7.6 Implementing Agency:

Satisfactory. The performance of PSE was generally satisfactory during most of the implementation period. They provided proactive follow-up to mitigate implementation bottlenecks. After the initial stage where their wish to control the procurement process combined with the lack of familiarity with the Bank’s procurement procedures produced delays, PSE became very well organized and effective in dealing with procurement, disbursement, progress reports, and in maintaining proper records of the project. They were receptive to Bank advice, and highly collaborative with respect to meeting demanding benchmarks and deadlines. They were very responsive to take corrective implementation measures, and were effective in dealing with outstanding operational issues. Appropriate levels of review and approval were usually in place; expenditures were duly authorized before they were incurred; and documentation was maintained properly for periodic review.

The audit reports from participating entities were generally available on or just after the due date. However, in 2001, as mentioned in Section 5.3, there were some major financial accountability issues. PSE was not able to maintain the financial ratios at the required level because of the break-down of internal financial control. With the Bank’s continual engagement, it made significant improvements in its internal control system, and the performance became satisfactory in 2003.

7.7 Overall Borrower performance:

Satisfactory. The overall performance of the Borrower was satisfactory.

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8. Lessons Learned

The total PSE rehabilitation program of which this project was an important part, was very ambitious lwith a large amount of substations and lines that needed to be rehabilitated more or less at the same time. In order to avoid supply disruptions, very close co-ordination with the dispatch function was needed. Even though PSE was successful in avoiding serious disruptions they did suffer from the lack of a strong Project Manager (PM) responsible for all sub-projects and with good links to dispatch and operation. In similar projects in the future, the Bank should insist on the appointment of such a strong, cross-cutting PM from the outset.

The serious financial irregularities in the internal control procedures of PSE which were revealed in lthe audit report for the 2001 Financial Accounts of PSE, demonstrated that state-owned companies such as PSE need to be alert and ready to take appropriate measures to prevent such irregularities.

Initially, PSE insisted on keeping control of both the procurement and construction processes and lrejected a turn-key model, but they were not always able to sufficiently coordinate the timing of delivery of goods with the timing of works, as a result of which, there some delays or advanced procurement in goods were experienced. PSE now has experience with different methods of implementation including turn-key and should be able to select whatever method is appropriate for the particular location.

The Bank’s involvement in the project increased competitiveness in bidding process, in the sense that lmany suppliers became interested in participating in bidding, after coming to know that the project was being financed by the Bank, which seemed to ensure financial guarantee for the process.

9. Partner Comments

(a) Borrower/implementing agency:

See Annex 8

(b) Cofinanciers:

N/A

(c) Other partners (NGOs/private sector):

N/A

10. Additional Information

Peter Johansen (Task Team Leader)Sati Achath (Consultant)Roman Palac (Consultant)Brent Hancock (Consultant)Rozena Serrano (Program Assistant)

B. List of Task Team Leaders of the project in chronological order:

(i) Henk Busz

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(ii) Rachid Benmassoud(iii) Pawel Kaminski(iv) Peter Johansen

- 15 -

Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome/Impact Indicators:

Indicator Projected in SAR/PAD End of Project

Actual/Latest Estimate

(a) Improve the reliability of the existing high voltage grid through rehabilitation and reinforcement

Note: Indicators were not projected in the SAR.

Increased short-circuit protection

Installation of 220 and 110 kV switchgear and equipment for substations and adapting the overhead ground wires (OPGW conductors) to the required short-circuit limits not only increased short-circuit protection of the system, but also improved the safety of operation and third parties.

Reduction in failure frequency. See Section 4.1 (a)

(b) Enhance security of power supply in Poland by interconnecting the Polish power grid with that of Western Europe, thus improving Poland's power trade and wheeling capability

Over the last five years the 400 kV network was considerably extended and Poland’s trading options improved.

For details, See Section 4.1 (b)

(c) Improve the network's operational performance and control through transmission loss reduction and improved dispatching, thereby enhancing energy conservation and efficiency

The system losses were reduced equivalent to 30 MW when prepared to the situation in 1995/96. This means a reduction of transmitted energy of around 135 GWh per year.

(d) Reduce environmental pollution

Reduction of emission of SO2. NOx, SPM and CO2 as well as reduced risks of oil spills.

(e) Enhance PSE's institutional capabilities See Section 4.5

Output Indicators:

Indicator Projected in SAR/PAD Actual/Latest Estimate

Note: Indicators were not projected in the SAR.

See Section 4.2

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Annex 2. Project Costs and Financing

Project Costs by Components (in US$ million equivalent)

Project Component Appraisal Estimate Actual/Latest Estimate Percentage of Appraisal

A. System Rehabilitation and Modernization Substations 126.1 266.7 211%

Lines 41.5 91.1 220%B. Technical Assistance 3.3 0 0

Project Base Costs 170.9 357.8 209%C. Contingencies Price Contingencies 26.9 0 Physical Contingencies 16.8 0D. Import Duties and Taxes 29.3 (0*) 0E. Interest During Construction 31.8 10.7 34%Total Project Cost 275.7 368.5 134%

*) Lack of data (included in other components)

It was agreed between the Bank and PSE that more substations and lines would be co-financed than foreseen in the SAR. This included substations Ostrow, Pasikurowice and Plewiska for which total investment amounted to more than US$40 million, substation Mory with an investment of around US$20 million, construction of the Dobrzeñ-Wielopole line costing around US$8 million as well as a number of smaller substations and line investments. The result was that the total project cost was US$368.5 million, i.e. an increase of 34% on the original projection of US$275.7 million.

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Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

2. Goods 213.20 9.10 17.40 0.00 239.70(118.90) (5.10) (0.90) (0.00) (124.90)

3. Services 0.00 0.00 4.20 0.00 4.20(0.00) (0.00) (3.30) (0.00) (3.30)

4. Miscellaneous 0.00 0.00 31.80 0.00 31.80(0.00) (0.00) (31.80) (0.00) (31.80)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 213.20 9.10 53.40 0.00 275.70(118.90) (5.10) (36.00) (0.00) (160.00)

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

2. Goods 337.80 0.00 20.00 0.00 357.80(97.20) (0.00) (0.60) (0.00) (97.80)

3. Services 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

10.70(10.70)

0.00(0.00)

10.70(10.70)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 337.80 0.00 30.70 0.00 368.50(97.20) (0.00) (11.30) (0.00) (108.50)

1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff

of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

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Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest Estimate Percentage of Appraisal

Bank Governm. Bank Governm. Bank GovernmA. System Rehabilitation and Modernization            

  Substations                                     

74.2 51.9

73.4 193.3

99% 372%

        Lines 28.3 13.2 24.4 66.7 86% 505% B. Technical Assistance                                

2.5 0.8 0 0 0% 0%

Project Base Costs 105.0 65.9 97.8 260.0 93% 395% C. Contingencies      Price Conting. 20.4 6.5 *) *)      Physical Conting. 10.6 6.2 *) *) D. Import Duties and Taxes 29.3 *) *) E. Interest During Construction 24.0 7.8 10.7 45% 0%

*) Included in other components

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Annex 3. Economic Costs and Benefits

Cost Benefit Analysis(1995 level US$ million)

Present Value of Flows Economic Analysis Financial Analysis

Appraisal Latest Estimates Appraisal Latest EstimatesBenefits N/A 625 N/A N/ACosts N/A 353 N/A N/ANet Benefits N/A 272 N/A N/A IRR/NPV 21% 24% N/A N/A

The economic cost-benefit analysis shows that the latest estimate yields a slightly higher IRR than the estimate of the SAR. This is the net result of the following causes:

The Ostrow transmission development has been delayed and the 400 kV line from Ostrow to Plewiska i.is not likely to be finalized before 2009 due to rigorous environmental requirements (these works are ongoing and are financed 100% by PSE);The whole project implementation was delayed by around three years; ii.On the plus-side, the power exports to Austria, Czeck republic, Hungary and Slovakia on long-term iii.contracts has been higher than predicted mainly facilitated by the upgrading of the strategic substations in the southern and southwestern part of the Polish grid

The main assumptions used in the IRR analysis are similar to those used in the SAR and the same method of estimating the benefits was employed. Apart from the differences due to the circumstances described above, the new analysis differed from the one in the SAR as follows:

The Program Implementation period was extended to 2009 (the time when the Ostrow transmission 1.development is expected to be finalized);No benefits were calculated for incremental domestic sales since sales have been flat since the 2.mid-1990es.Benefits from maintaining exports to Germany have been deferred to after 2009, since they will depend 3.on the finalization of the Ostrow 400 kV line.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Supervision07/05/1996 3 MISSION LEADER (1);

FINANCIAL ANALYST (1); ENGINEER (1)

HS HS

07/10/1997 3 MISSION LEADER (1); FINANCIAL ANALYST (1); ENGINEER (1)

HS HS

04/21/1998 4 MISSION LEADER (1); PRIV. SECT. SPECIALIST (1); FINANCIAL ANALYST (1); TRANSMISSION ENGINEER (1)

S HS

12/01/1998 2 TEAM LEADER (1); TRANSMISSION ENGINEER (1)

S S

6/16/2000 3 MISSION LEADER (1); SEN. FIN. ANALSYST (1); ENGINEER (CONSULTANT) (1)

S S

06/05/2001 3 TASK TEAM LEADER (1); FINANCIAL ANALYST (1); PROCUREMENT SPECIALIST (1)

U S

06/04/2003 4 TASK LEADER (1); PROCUREMENT SPECIALIST (1); FIN MANAG. SPECIALIST (1); PROCUREMENT ANALYST (1)

S S

7/4/04 2 ENERGY SPECIALIST (1); CONSULTANT (1)

S S

ICR7/4/04 2 ENERGY SPECIALIST (1);

CONSULTANT (1)

(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Supervision 117.24 469.83ICR 9.0 38.0Total 126.24 507.83

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

1. Aide Memoires, Back-to-Office Reports, and Project Status Reports.

2. Project Progress Reports.

3. Consultant Study Reports financed under the Project.

4. Borrower's Evaluation Report dated November 2004; and

5. Staff Appraisal Report for Poland: Power Transmission Project dated November 3, 1995 (Report No. 15068-POL)

- 24 -

Additional Annex 8. [Borrower’s Evaluation Report]

1. Introduction

The beginning of development of the Polish Transmission System dates back to the 50-ies of the past century. Extension of the National Super Grid was financed from budgetary funds and was limited to the most immediate needs. Configuration and equipment of the network were designed for cooperation with the systems of the former USSR and European countries - members of the former group of the Council for Mutual Economic Aid. The power system was developed with permanent capital deficiency, the solutions cheaper as an investment but more expensive in operation were preferred, while old equipment was kept in service. After declaration of the martial law in 1981, access to new technologies became restricted, which made implementation of advanced techniques and equipment for modernization of the system and its extension impossible.

The Polish Power Grid Company SA (PSE SA) was established in 1990. In 1993 the PSE SA took over all 750, 400 and 220 kV lines and substations and some parts of the equipment operating at 110 kV. The scope of necessary modernization work exceeded the average quantity survey of such work performed in the stabilized period of network development. In 1992 PSE SA started negotiations with the World Bank in order to contract a credit for co-financing of the program of modernization and extension of the National Super Grid. The loan contract was signed on 25 January, 1996.

This report presents the effects and benefits gained by PSE SA as the result of modernization and extension of the transmission network performed during the period of 1996-2004 co-financed by the World Bank credit. It specifies a complete scope of modernization and extension of the Polish Power System taking into account both the tasks co-financed by the World Bank credit as well as the tasks entirely financed from PSE SA own funds.

2. Characteristics of the National Power Grid as of 1995.

220 kV network

The age structure of 220 kV line is varied; over 75% out of the total 220 kV line length was built before 1975, of which 40% before 1965, in other words these are almost 40-year old lines. 220 kV network share in the system is considerable. Most power plants (over 60%) are connected to 220 kV distribution substations. Similar large number of consumers is fed from this network. The total capacity of 220/110 kV transformers is 18850 MVA compared to total capacity of 76630 MVA 400/110 kV transformers.

Many lines have two or three types of working conductors, and sometimes it happens that the short line section with low size limits the load-carrying capacity of the whole line. The size of the phase conductors in certain lines is not sufficient for the rated currents of the system. In some cases the working conductors are corroded. Commonly used steel earthing conductors are corroded and not capable to withstand fault currents. Many lines are equipped with insulators from different vendors; a considerable amount of insulators made in the former GDR was purchased in the period of 1965-80. These insulators turned out to be unreliable due to high failure frequency, increased after 10-15 years of operation. The line modernization was already started in the years 1993-95 with use of PSE SA own funds - at that time as much as 21 (220 kV) line runs were modernized, which made up 23% of the total 220 kV line length. At 220 and 110 kV substations most problems are of mechanical nature resulting from the use of blow-out type equipment. For the primary switchgear there are no spare parts available since particular models of

- 25 -

the equipment and switchgear are no longer manufactured, and there are problems with the replacing parts and compatibility with the newer equipment. There is considerable intensification of equipment failures. The switchgear is not adapted for short-circuit capacities and short-circuit protection of the system is not sufficient.

The worst situation is at the 110 kV level, where most primary switchgear is completely obsolete. These are at least 40-year old structures and the blow-out and oil circuit breakers practically do not keep the ratings.

The secondary equipment including protection, control and telecommunication systems does not ensure sufficiently good performance characteristics and the fault clearing times are too long. In numerous cases the bus bar zone lacks protection, which can lead to extensive shutdowns of 220 kV network in case of faults in bus bars.

As a result of the detailed technical and economical analyses a NPG development strategy has been adopted according to which the 220 kV network shall be developed only to the necessary extent. This network shall be modernized to such extent to ensure its reliable operation for the next 30-35 years.

400 kV network

400kV network was put into service in 1964 and its intensive development dates back to 1970-1990. Within 30 years more than 4,500 km of 400 kV line circuits and 26 substations with high voltage of 400 kV were constructed. In 1995, 400 kV network operated partially still in open configuration (see fig. 1). On 400 kV level the switchgear of the lines and substations is relatively new and the performance of the equipment and switchgear is much better than at 220 kV or 110 kV. Voltage control in 400 kV network is not available; to maintain the required voltage ranges certain 400 kV lines are shut down.

International cooperation

Before 1990 PSE SA was interconnected with the systems of the neighboring countries via 1 x 750 kV line circuit, 8 x 220 kV and 3 x 400 kV line circuits.In 1991 synchronous cooperation with the systems of the countries of the former USSR was stopped. Concurrently, Poland began endeavor to become a member of UCPTE group (at present UCTE), and it finally became its member in 1995. In the international connections 220 kV still prevails. At 400 kV level the Polish power transmission system is interconnected with Czech Republic (400 kV two-circuit line Wielopole-Albrechtice/Nosovice) and with Germany (400 kV single-circuit line Miku·owa-Hagenwerder)The quantitative state as at 1995 is characterized by the following quantities:

Length of transmission lines [km]:750 kV- 114400 kV- 4552220 kV- 8176

Number and total capacity of the installed transformers:

pcs. MVA750/400 kV- 2 2 500400/220 kV- 15 6 320400/110 kV- 30 7 660

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220/110 kV- 120 18 850Number of substations [pcs.]:

with high voltage of 750 kV- 1with high voltage of 400 kV- 26with high voltage of 220 kV- 75

3. General information on the World Bank credit

In the period of 1992-95 PSE SA negotiated with the World Bank in order to contract a credit for co-financing of the program of modernization and extension of the National Super Grid. The negotiations resulted in signing loan contract with the World Bank, and PSE SA gained additional source for financing the project. The contract (no 3959-POL), guaranteed by the Polish Government (resolution no 124/95 of the Council of Ministers, dated 10th October, 1995), was signed on 25th January, 1996. The subject of the contract is credit in an amount of 160.0 million USD, and the contract specifies the following expenditure categories:

- products and services 115.0 million USD

- Consulting Services and Training 3.0 million USD

- non-allocated 12.0 million USD

- interest and other fees related to loan 30.0 million USD

The hitherto arrangements specify the funds allotted for direct financing of the PSE SA project amounting to maximum 130.0 million USD (except for interest funds and other fees related to loan).The loan contract specifies the scope of allocation of the financial funds contracted from credit, the use of which will help among others in:

improving performance reliability of the existing high voltage network,lensuring safety of energy supply by interconnecting the Polish Power Grid with the West-European lsystem,improving network performance and controlling the system by limiting energy transmission losses.l

The World Bank specified the amount of the offered credit based on the studies and reports on the condition of the transmission network, subjective assessment of the National Power Grid requirements and on the results of the analysis of financial standing of both PSE SA and the entire electric power sector in Poland.

In accordance with the arrangements made with the Bank, the credit can be used for partial financing of important for PSE SA projects, by purchasing and implementing services connected with:

modernization of substations of strategic meaning, located in the western and central parts of the lcountry in order to improve performance reliability of the transmission system,installation of shunt reactors at selected substations,limprovement and modernization of 220 kV line in order to improve network performance lcharacteristics and interconnection of system substations for power distribution purposes,

- 27 -

installation of fiber optic runs.lExtremely important for PSE SA was activation of, not planned before, operative credit line, which lallowed to benefit from emergency credit support. The scope of the fund allowed to finance the following:purchase of 330 MVA autotransformer for substation Grudzi¹dz,lextension of 400/110 kV substation Krosno and construction of 220 kV line Krosno- Lemešany,lpurchase of 2x 500 MVA autotransformer for substation Miku³owa,lpurchase of the equipment and switchgear for the danger elimination program.l

4. Financing from PSE SA own funds.

Not being able to precisely determine the technical, economical and financial effects of the investments financed by the World Bank, the experts found it well-grounded, to assess effectiveness of the whole program of modernization and development of the National Power Grid rather than just the part co-financed by the Bank.

This analysis presents substantial and qualitative effects of the whole NPG modernization and development program for 1996 – 2004. For the detailed summary of the investment tasks completed in the discussed period, broken down to tasks co-financed by the World Bank credit and from PSE SA own funds refer to the enclosures provided at end of the paper.

5. The scope of modernization and extension of the National Power Grid financed from the World

Bank credit and own funds.

5.1 Substation facilities.

In the last 9 years 3 new 400/110 kV substations S³upsk (SLK), Moœciska (MSK) and Ostrów (OSR) and 2 substations with high voltage 220 kV in Zgierz (ZGI) and Czêstochowa (HCZ) were built. At the same time 220/110 kV substation Jaworzno II was disassembled.

WB credit and own funds were used to purchase:

– 5 shunt reactors,– 6 x 400/110 kV autotransformers,– 8 x 220/110 kV autotransformers,– 3 x 400/220 kV autotransformers– SDH teletransmission devices– switchgear and equipment for 37 substations covered by the Danger Elimination Program.

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The prepared summarized material data are presented below.

Table 1. The summarized material list for the purchased switchgear and equipment [pcs.] co-financed by the World Bank

VoltageNo. Specification110 kV 220 kV 400 kV Total:

1. Reactors with switchboards - - 5 52. Stand-off insulators 2222 948 244 34143. Disconnectors 528 430 162 11204. Surge arresters 362 427 81 8705. Combined measuring transformers 414 66 - 4806. Voltage transformers 150 531 117 7987. Current transformers 105 360 111 5768. Earthing switches 12 12 4 289. Circuit breakers 107 97 16 22010. Autotransformers:

400/220 kV

400/110 kV

220/110 kV

3

6

811. Other:

- SDH teletransmission devices

- supplies of tools for 220 kV circuit breakers

- service personnel training

- complex technical prevention and fire protection systems,

- ecological substation protection

The above specification does not include the list of equipment purchased exclusively from PSE SA own funds. The own funds were used exclusively for the purchase of switchgear, modernization and extension of 8 substations with 400 kV high voltage and 16 substations with 220 kV high voltage.

The switchgear and equipment purchased for substations can be divided into 3 characteristic material groups:

1. Shunt reactors for 400/110 kV substations P³ock, Moœciska, Mi³osna, Ostrów, Plewiska.

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2. EHV/110 kV and 400/220 kV transformers including:400/110 kV autotransformers. In this facility group 6 x 330 MVA units were purchased, of which 1 to lreplace the existing transformer in Pasikurowice (PAS) and 5 for new substations (S³upsk, Moœciska, Ostrów) or under development (Plewiska Grudzi¹dz).220/110 kV autotransformers. 8 x 160 MVA units were purchased, of which 2 for new 220/110 kV lsubstation Zgierz and 6 for replacement. The decision was made to replace transformers remaining in service for more than 30 years and not qualifying for being repaired any more (due to revealed among others decomposition of insulation, leaky oil tanks, low transient withstand of compensating winding, high idle running losses). The transformers were replaced at substations Miku³owa, Mory, Abramowice, Po³aniec i ¯ydowo. 400/220 kV autotransformers. 3 x 400/220 kV, 500 MVA autotransformers were purchased of which 2 with quadrature voltage control to replace the used up autotransformers at substation Miku³owa. The third autotransformer was intended for substation Kielce.

The increase in total installed capacity [MVA] of the transformers is as follows:

Voltage ratio Status as at 1995 Status as at 2004 increase in the period of

1996-2004220/110 kV 18 880 18960 160400/110 kV 7660 9060 1400400/220 kV 6320 7160 840

18880

160

7660

1400

6320

840

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

220/110 kV 400/110 kV 400/220 kV

2004

1995

Fig. 4 The increase in total installed capacity [MVA] of 220/110 kV, 400/110 kV and 400/220

kV transformers.There is considerable increase in the installed capacity for 400/110 kV transformer group and amounts 18% in relation to 1995.

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3. Modernization and extension of substations.

74 substations were modernized and extended, of which 52 with high voltage 220 kV and 22 substations with high voltage 400 kV (see fig.3).

26

76

22

52

0

10

20

30

40

50

60

70

80

nu

mb

er o

f su

bst

atio

nsi

state 1995 26 76

modernization 22 52

400 kV substation 220 kV substation

Fig. 5. Number of EHV substations modernized in the period of 1995-2004.

Intensive reconstructing modernization was conducted for 6 strategic coupling stations with high voltage of 400 kV (Miku·owa, Plewiska, Pasikurowice, Wielopole, Po·aniec, Joachim¾w). Three 400/110 kV substations were considerably extended for connecting new lines or transformers (Dobrze·, Krosno and Grudzi·dz). The substation Krosno is a system coupling station located on the international exchange route, while substation Ostr¾w will make inherent part of "Ostr¾w Transmission System". In the group of 52 x 220/110 kV substations five were modernized to a great extent. These are substation Mory, Sochaczew, Chmiel¾w, Gorz¾w and Byczyna. As a result of performed modernizations the substations have been adapted for current applicable technical standards, with additional reduction of operating costs.

5.2 Line Structures.

In the period of 1996-2004, 348 km of new 400 kV line circuits (see fig. 2) were put into service, including:

– two-circuit line Dobrzeñ-Wielopole, 2x 125 km,– two-circuit line Krosno-Lemesany, 2x 42,5 km,– line Miku³owa-Hagerwerder 1x13 km.

The quantitative status of 220 kV line was decreased to a minor extent – 220 kV line Miku³owa-Hagenwerder was disassembled along with the line sections in the area of liquidated substation Jaworzno 2.

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-1000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

linie 220 kV linie 400 kV

stan na 1995

przyrost do 2004

In total, 2835 km of line (35% of existing 220 kV line circuits) and 832 km (18%) of 400 kV line circuits were modernized.

0

2000

4000

6000

8000

10000

state1995 8176 4552

lines modernized 2835 832

220 kV line 400 kV line

Line structure financing was oriented first of all on:replacement in the first (over 40-years old) 220 kV lines working conductors AFL-4 350 not used any lmore and 375 mm2 and AFL-8 402 mm2 with modular conductors of 525 mm2,replacement of insulators,lfiber optic line installation.l

Quantitative Indicators depicting the scale of the investment in transmission lines existing in 1995 are as follows:

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400 kV lines 220 kV lines Length of modernized line circuits including: 832 2835 km

- length of line circuits with replaced working conductors - 664 km- length of installed fiber optic cables 832 km 2595 km

The fiber optic cables were installed for all new lines, more than 30 % of existing 220 kV line circuits and 10 % of existing 400 kV line circuits.

5.3 Quantitative Status as at 2004.

After modernization and extension of the transmission system the quantitative indices for 2004 are as follows:

Transmission line length [km]

1995 2004 750 kV- 114 114 400 kV- 4552 4900 220 kV- 8176 8127 Length of line circuits with fiber optics [km] 220 kV 1137 3732 400 kV 375 1207 Shunt reactors operating in 400 kV network

- 3x 50 Mvar number [pcs] and total transformer capacity [MVA]

750/400 kV- 2/ 2 500 2/ 2 500 400/220 kV- 15/ 6 320 15/ 7 160 400/110 kV- 30/ 7 660 34/ 9 060 220/110 kV- 120/ 18 850 121/ 18 960

number of substations [pcs] with high voltage of 750 kV- 1 1 with high voltage of 400 kV- 26 29 with high voltage of 220 kV- 75 76

5.4 Started investments.

Modernized and extended 400/110 kV substations Plewiska and 400/220/110 kV Pasikurowice and new 400/110 kV substation Ostrów are ready to connect 400 kV line Ostrów - Plewiska and Ostrów - Rogowiec (see fig. 2). The specified lines are now under construction and together with the substations will make up the so called "Ostrów Transmission System", enabling transfer of energy from the South to the North of Poland and will significantly improve operational reliability of the National Power Grid.400 kV line Tarnów-Krosno is also under construction. The need to construct this line results from international obligations between PSE SA and Slovenske Elektrarne AS.

Another started project is a construction of 400/220 kV coupling at substation Olsztyn M·tki, which will link 220 kV network in the north-east of NPG with 400 kV network.

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6. Achieved technical and qualitative effects

6.1 Development of interstate connections

As regard to interstate connections the following facilities were modernized and constructed: connection with NORDEL system via DC submarine cable and DC/AC converter station in S³upsk,ltwo-circuit 400 kV line Krosno - Lemesany –this is the first PSE SA interconnection with the lSlovakian system. 400/110 kV substation Krosno was extended and adopted to accept another 400 kV line Krosno-Tarnów in the nearest years.second circuit of 400 kV line Miku³owa - Hagenwerder in place of two-circuit 220 kV line. At the lsame time the near-border, strategic 400/220/110 kV substation Miku³owa (built 40 years ago) was put to reconstruction modernization. All transformers, busing and switchgear were replaced. two-circuit 400 kV line Dobrzeñ - Wielopole - interconnection with the Czech system was modified - lthe existing line Wielopole - Albrechtice was replaced with Dobrzeñ –Albrechtice route. The near-border, strategic 400/220/110 kV substation Wielopole was extensively modernized – switchgear was replaced and protection and control system was implemented. 400kV line to Czechs was equipped with fiber optic links.modernization of 220 kV line Kopanina/Bujaków - Liskovec. On 15 km two-circuit line section, ldated back to the 40-ies of the past century working conductors were replaced, and fiber optics were installed on the entire length. This line is heavily loaded and has substantial share in power interchange with the Czech system.

Thanks to the modernization of existing and construction of new interstate connections (see fig. 2) the existing transmission capacities at the southern and western borders, related to thermal load-carrying capacity of the conductors, increased by 60% and raised by 5000 MW (from 7600 to 12600 MW) with additional increase in safety and performance reliability of the interconnected systems of Poland and Western Europe.

6.2 Growth of capabilities of the National Transmission Lines.

Thermal transmission capabilities of 400 and 220 kV lines (without interstate lines) increased in total by 5350 MW of which:

280 MW at 7 modernized 220 kV line circuits as the result of working conductor replacement. lWorking conductors were replaced on highly loaded lines evacuating power from the power plant Turów, Patnów, Kozienice and Be³chatów (see fig. 8),1690 MW thanks to changing over to 400 kV line Pasikurowice-Ostrów,l3380 MW after putting into service 400 kV two-circuit line Dobrzeñ-Wielopole. This line was lconstructed to evacuate power from the power plant Opole.

6.3 Reduction of transmission losses

At the transmission network level the loss factor for 220 kV network was lowered (from 1.88% to 1.87%) and for 400 kV network increased (from 0.8% to 1.01 %). Lower power loss in 220 kV network is the effect replacement of working conductors on highly loaded lines. However increase in power transmission tasks of 400 kV network (which has not been upgraded) generates respective increase in transmission losses.

The completed projects and first of all installation of new 400/110 kV transformers (at substations Mo·ciska, S·upsk, Grudzi·dz, Ostr¾w, Plewiska) clearly reduced power losses in 110 kV network.

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Reduction of transmission losses at the distribution network level is 0.12%, which in relation to power imported at this voltage level yields approx. 20 MW a year.

For comparison, some selected factors characterizing network load and power losses [MW] for normal operation systems for winter peak loads 1995/6 and 2003/04 are presented below

Winter peak

period 1995/96 winter peak period

2003/04 1 Power losses in 400 kV lines 42.5 49.5 2 Power losses in 220 kV lines 140.3 130.6 3 Power losses in EHV grid including losses in

transformers 205.1 198.8

4 Power imported to 400 and 220 kV networks 12 812 11591 5 Power loss factor in 400 and 220 kV networks:

power losses related to power imported to the network

1.6% 1.7%

6 Power losses in 110 kV network 275.1 252.1 7 Power imported to 110 kV network 15 371 17 863 8 Power loss factor in 110 kV network 1.55% 1.43%

9 National power demand (without power losses) 22 730 23 000 10 Balance -660 -1060 11 Total losses (in 400, 220 and 110 kV

networks) 480.2 450.9

6.4 Benefits from installation of shunt reactors

The need for installation of shunt reactors results from the necessity of limiting excessive voltage levels in 400 kV network in the case of low power demand (days-off in summer seasons). Up to now, after exhausting the system adjusting possibilities, some 400 kV lines were shut down. The problem was encountered for approx. 1250 h a year. However, shutting down the lines leads to considerable decrease of system performance dependability resulting not only from weakening the network structure but also due to multiplication of the risk of damaging circuit breakers, being exposed to frequent tripping conducted for increased voltage level. 3 x 50 Mvar reactors were put into operation at substations Mi³osna, P³ock and Moœciska, which allowed to reduce the number and time of shutdowns of 400 kV line Mi³osna-Narew and P³ock-Moœciska by more than 400 h a year.

Installation of reactors will reduce the need to purchase compensation control services rendered by the system power plants. Two more reactors were also purchased for substation Plewiska and Ostrów, to be used in compensation of charging power of 400 kV line run Plewiska-Ostrów-Rogowiec. The specified line run is under construction.

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6.5 Increase of system short-circuit protection

Due to obsolescence of the current designs the network equipment used at 220 and 110 kV voltage levels has not ensured sufficient short-circuit protection for the system any more. This led to intensification of equipment failures posing danger of explosion of some of the equipment. The completed deliveries of 220 and 110 kV switchgear and equipment for substations and adapting the overhead ground wires (OPGW conductors) to the required short-circuit limits not only increased short-circuit protection of the system but also improved the safety of operation and third parties.

Replacing the switchgear at 220 kV distribution substations at coupling stations Mi·osna, P·tn¾w, Konin, Joachim¾w and Byczyna enabled non-sectionalized operation of these substations. Before 1995 these substations operated being permanently split into two sections. This impeded maintenance and operation of the system.

6.6 Danger elimination.

The scope of the Danger Elimination Program covered 37 substations based on prior measurements and diagnostics of the equipment with regard to safety of people and environment. The list included equipment, which was technically used up and/or did not keep the ratings. They chose to replace circuit breakers, which did not keep the tripping times and had worn drives and lightning arresters in porcelain insulation, exposed to risk of explosion. The porcelain stand-off insulators were replaced with composite ones. Hazards concerned the switchgear installed at 220 and 110 kV substations. Below is the summary of the equipment covered by the danger elimination program (figures in brackets are the percentage share of purchases for the danger elimination program related to all purchased substation elements specified in table 1 in Chap. 5.1):

110 kV 220 kVDisconnectors 41 (8 %) 113 (26 %)

surge arresters 110 (30 %) 153 (36 %)combined measuring transformers 84 (20%) 3 (4 %)voltage transformers - 165 (32 %)current transformers 54 (50 %) 114 (53 %)circuit breakers 10 (9 %) 30 (53 %)

6.7 Telecommunication systems.

Fiber optic links installed in 400 and 220 kV transmission lines replaced ETN carrier telephony links and dialing interfaces and copper cable connections used so far in power generation industry. At present power system fiber optic base network covers the entire area of Poland and uses mainly OPGW, ADSS, LASH fiber optic connections and duct cables as transmission media.

Thanks to duplication of equipment on individual sections of the transmission system and thanks to over 50% redundancy in using equipment even in the case of failure the whole transmission is maintained. Applied solutions allow to:

fully reserve transmission paths (i.e. uninterrupted operation of the network even in the case of failure) lensure high data transmission rates regardless of the network load,l

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Basic fiber optic network covers all PSE branches, 400/220 kV substations as well as most electric companies. At present this network fully satisfies transmission requirements of individual PSE divisions and enables:

data transmission and teleprotection signals lcommunication of central management systems,lteletransmission access to neighboring transmission systems. l

6.8 Failure frequency indices

Comparison of failure frequency indices for transmission network for the period before 1995 and after releasing World Bank credit will be only possible after implementation of scheduled investment tasks. Frequent shutdowns of lines and elements of substations included in the scope of modernization tasks are unpropitious to obtain authoritative statistical data. Nevertheless, comparison of average annual number of shutdowns (for various reasons) of transformers and transmission lines for the periods of 1988-1995 and 1996-1999 reveals apparent downward trend for this index. The use of shunt reactors apparently decreased the number of line and transformer shutdowns for voltage reduction. The corresponding data are summarized in tables and on diagrams.

Summary of average shutdown indices for 220, 400, 750 kV lines in the period of 1990-2003.Average number of line shutdowns per 100 km.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

total 14.81 16.36 16.04 16.99 19.17 17.68 16.56 14.86 14.20 14.27 13.2 15.18 14.96 12.01

scheduled 10.84 11.73 10.31 11.62 13.61 12.52 11.80 10.78 9.88 9.95 9.35 10.46 10.13 9.24

emergency 1.81 1.41 1.69 1.33 1.58 1.58 2.17 1.77 1.54 1.66 1.57 1.82 2.03 1.3

for voltage reduction

1.62 2.72 2.77 3.23 3.26 2.96 1.80 1.54 1.97 2.00 1.51 2.02 1.77 0.82

operative 0.54 0.50 1.27 0.81 0.72 0.62 0.79 0.77 0.81 0.64 0.77 0.87 1.03 0.64

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0

0,5

1

1,5

2

2,5

3

3,5

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

emergency

U reduction

Fig. 10 Average number of emergency shutdowns and for voltage reduction for each 100 km of transmission lines.

Summary of average shutdown indices for EHV transformers in the period of 1990-2003.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

total 3.58 4.88 4.68 5.76 6.48 6.09 5.64 4.75 6.48 5.94 5.65 5.38 4.37 4.65

scheduled 3.14 3.96 2.91 4.62 5.55 5.04 4.85 3.69 5.42 4.77 4.55 4.44 3.68 4.02

emergency 0.3 0.3 0.66 0.51 0.28 0.58 0.45 0.56 0.48 0.63 0.54 0.46 0.48 0.44

for voltage reduction

2.17 0.18 0.02 0.36 0.49 0.38 0.02 0.09 0.02 0.01 0.00 0.00 0.00 0.00

operative 0.12 0.26 0.62 0.25 0.23 0.09 0.32 0.41 0.56 0.54 0.56 0.48 0.21 0.18

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0

0,5

1

1,5

2

2,519

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

emergency

U reduction

Fig. 10. Shutdown indices for EHV transformers (in emergency states and for voltage reduction)

7. Environmental protection aspects

The political and economic changes gave the beginning of a pro-ecological policy, which is reflected in the Act from 27th of April, 2001, Environmental Protection Law. Before the criteria for protection from radiation harmful to human health and admissible noise limits were specified by applicable ordinances of the Minister of Environmental Protection, Natural Resources and Forestry.

Environment impact assessments and reports were included in the documentation for the project performed by PSE SA for modernization, construction and reconstruction of 400, 220 and 110 kV lines and substations. The reports specified among others emission of noise and electromagnetic fields, waste and water discharge to the ground, waste generation.

Until 30th June, 2004 the noise levels generated by electric power lines were specified by Appendix to the Ordinance of the Minister Of Environmental Protection, Natural Resources and Forestry from 13th May, 1998. According to this Ordinance, admissible noise levels for lines were, depending on the installation character, 45-50 dB during the day and 40-45 dB at night. After 30th June, 2004, the Energy Law allows noise emissions higher by 5 dB during the day (at night - unchanged).

The 400 kV lines existing in 1995 had working conductors of 2 x 525 mm2. After 1995, 400 kV lines with bundle conductor of 3x350 mm2, characterized by lower noise level, were designed and implemented. All new 400 kV lines are equipped with three-wire bundle.

According to the tests performed, the noise generated by the newly erected 400 kV lines should be lower by 1,7-8 dB, depending on weather conditions. Exemplary comparison of noise emission [dB] for 400 kV line is presented below:

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2 x 525 mm2 3 x 350 mm2good weather conditions 38 dB 36,3

rain 53,7 45,5

The newly erected 400 kV lines are equipped with elements, which improve wire visibility and silhouettes of birds of pray in areas indicated by ornithologists. Such accessories are installed on 400 kV lines Dobrze·-Wielopole and Krosno-Lemesany.

Admissible electric field strength level emitted by lines and substations is specified by the Ordinances of the Minister of Environmental Protection, Natural Resources and Forestry from 11th August, 1998. The results of electric field strength measurements performed for various national 400, 220 and 110 kV substations indicate that in their surrounding the electric field strength does not exceed 1 kV/m (admissible limit for residential development areas specified in the above mentioned decree).Reduction of power losses in 110 kV network resulted in noticeable reduction of pollution emitted to the atmosphere, which translates into reduction of generated electric power and energy by 20 MW and 92 TWh, a year, respectively.

The power transmission system is ready to implement power dispatching based on environmental protection aspects. The telecommunication and control systems installed in the period of 1996-2004 allow to feed the network from the most efficient units, which would allow to reduce pollution emitted to the natural environment without reducing amount of generated energy. This effect has not been fully achieved, being hampered by high prices for energy from pro-ecologically modernized power plants, which is beyond PSE SA control. Costs of energy from units of increased efficiency, equipped with waste gas treatment facilities are burdened with costs of repayments of modernization credits and quite often are not competitive for old less efficient coal power plants. However, on the other hand, modernization of numerous substations and lines evacuating power from the power plant and greater operational availability of the whole system and its particular elements allows shutting down generators requiring overhauls and modernization with respect to environmental protection.

8 Direct benefits for PSE SA

Implementation of bidding procedures

After releasing the World Bank credit PSE SA for the first time introduced bidding procedures for deliveries of equipment and switchgear. It allowed to optimize the costs of deliveries and freely choose from state-of-the art technologies.

Possibilities of commercial use of data communication resources

Transmission media (fiber optic access lines in particular) are jointly owned by PSE SA and other telecommunication system operators (TPSA, Exatel, Polish State Railways and others). Due to its coverage it is also used by other telecommunication system operators for instance for crosslinking of telephone exchanges and for making data communication connections for bank networks and other all-Polish companies.

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Due to very large system reserves and universal network structure the network can be successfully used in commercial applications for teleinternet connections, by cable TV operators, private telecommunication and data communication system operators.

Reduction of network maintenance and operation costsNetwork modernization and introduction of data communication systems allowed to reduce network maintenance costs connected so far with frequent repairs of worn substation equipment and damages of transmission lines. Modernization of many substations enabled to introduce maintenance-free system.

9. Summary.

After 1990 PSE SA stood face to face with the necessity of implementing extensive program of modernization and extension of transmission network. It resulted from previous, several years' delays in modernization of the National Super Grid and expected step increase of technical requirements resulting from expected undertaking of collateral cooperation with UCTE system.

According to plans, a major part of PSE SA own funds and those gained from the World Bank was allocated on reconstructing modernization of 220 kV network. This network, erected based on the supplies of equipment and switchgear from the countries - members of the former group of the Council for Mutual Economic Aid was (and still is in some parts) technologically obsolete. Operating some 220 kV substations and lines induced high maintenance and repair costs and in many cases constituted danger for safety of people and environment. 220 kV network will not be further deployed, however its significant contribution in the transmission system, importance for evacuation of power from the power plant and electricity distribution gives reasons for the necessity to ensure its continued, reliable and safe operation for the nearest 20 years.

Another extremely important aspect of the project was connected with modernization of near-border substations and extension of interstate connections. In the past 9 years PSE SA was interconnected with NORDEL and SE systems. Transmission capabilities of the international exchange line on the southern and western border increased over two times. Poland has got a chance to actively engage in the trade of electricity in the European area.

Vast scope of work carried out since 1996 and necessity to conduct it concurrently in many facilities locations required high commitment of PSE SA engineering staff in organization and supervision processes and special mobilization of the dispatch and service personnel. The effects achieved at that time resulted in the increase of technology, functionality and safety of the transmission system. At the same time the standing of PSE SA as a credible partner on the European electricity market was consolidated. The following references have been used in the paper:

Analysis of benefits gained by PSE SA as the result of modernization and extension of the transmission 1.network co-financed by the World Bank credit. PSE SA, Warsaw, May 2001.Program of modernization and extension of the National Power Grid financed from the World Bank 2.credit. Synthesis of the feasibilitystudy. PSE SA, Warsaw, March 1995.Working report on the operation of the Polish Power System (technical information) in 2003. PSE SA, 3.Warsaw, March 2004.Modernization of the Polish Transmission System. Preliminary study. Main report. Energoprojekt 4.Krakow SA, Krakow, September 1993.Evaluation of the operation of 400-220 kV national network (including 110 kV network) during winter 5.period 2003/2004. PSE SA, Warsaw, November 2003.

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Evaluation of the operation of 400-220 kV national network (including 110 kV network) during winter 6.period 1995/96. PSE SA, Warsaw, November 1995.

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