RESTRICTED

Report No. TO-565a

This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report moynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF THE FIRST EXPANSION OF

KARACHI 'C' THERMAL POWER STATION

KARACHI ELECTRIC SUPPLY CORPORATION LIMITED

PAKISTAN

February 21, 1967

Projects Department

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CURRENCY EQUIVALENTS

US $ 1 Rs 4.762US 1 Cent = 4. 762 paisa1 Paisa = US 2. 1 Mills1 Rupee = US 21 CentsRs 1 million = US $210, 000

WEIGHTS AND MEASURES

One meter (m) = 3. 28 feet

One square meter

(m ) 1 1. 196 square yards

One cubic meter3

(m ) = 35. 314 cubic feet

One mile = 1. 609 kilometers

One metric ton = 2, 204. 6 pounds

PAKISTAI

APPRAISAL OF THE FIRST EXPANSION OF

KARACHI IC' THERMAL POWER STATION

KARACHI ELECTRIC SUPPLY CORPORATION LIMITED

TABLE OF CONTENTS

Page No.

SUI14ARY

I. INTRODUCTION 1

II. THE KARACHI ELECTRIC SUPPLY CORPORATION LIMITED 1Organization and Management 2EXisting Installations 2

III. THE POWER WIARKET 3Growth of Demand 4

IV. DEVELOIIENT PLAINING 5

V. THE PROJECT 6Generation 6Transmission and Distribution 7Status of Efngineering 7Procurement Procedures 8Construction Schedules 8Estimated Cost 8Unit Construction and Generating Costs 9

VI. FURTHER EXPANSION PROGRAM 9

VII. FINANCIAL ASPECTS 10Tariffs 10Past Earnings 10Present Financial Position 12Proposed Financing Plan 15Estimated Future Earnings 17Future Financial Position 18

VIII. CONCLUSIONS 18

This report is based on the findings of a mission in June 1966 to Pakistan,composed of Messrs. Gavin W4yatt and John Bruen.

ANNEXES

1. Actual and Estimated Sales of KWH 1961-70.2. Forecast of Maximum Demands - 1966/75.3. System Capacity and Maximum Demand. (Graph)4. System KWH, Plant Statistics and Load Factor 1961-72.5. Estimated Cost of Project.6. Actual and Estimated Income Statements 1960-70.7. Actual and Estimated Balance Sheets 1960-70.8. Estimated Sources and Applications of Funds Statements 1966-70.

MAP

PAKR;TAN

APPRAISAL OF THE F IRST EXPANSION OF

KARACHI 'C' THEFBMAL POWER STATION

SU1M4ARY

This report covers the appraisal of a project consisting of an125 MW extension to the existing Karachi IC' steam station at Norangi,together with associated transmission and distribution facilities for TheKarachi Electric Supply Corporation Limited (KESC). A Bank loan ofUS$2105 million equivalent has been requested to cover the whole of theforeign exchange requirements. The total cost of the project is estimatedto be US$42.5 million equivalent.

ii. The borrower would be The Karachi Electric Supply CorporationLtd.

iii. The project would consist of the installation of 125 MW of addi-tional generating capacity and the extension and reinforcement of existingtransmission and distribution networks. It is technically sound, theestimated cost is reasonable and the construction schedules are realistic.

iv. The Corporation is well managed and its organization is soundand capable of constructing the project with the assistance of consultingengineers.

v, KESC's financial position and capital structure are sound andearnings are satisfactory. It has financed about 35 percent of its pastsix years expansion program from its own resources after meeting debtservice, and cash dividends. It expects to maintain its financialstability and finance about 5J percent of its next 5 year program fromits own resources.

vi. The project is suitable for a Bank loan of US$21.5 millionequivalent for a term of 20 years, including a 3 year grace period.

PAKISTAN

APPRAISILL OF THE FIRST EXPANSION OF

KARACHI 'C' TrIEWMAL POWJER STAT:ION

I, INT1ODTJCT ION

1. This report covers the appraisal of a project of The KarachiElectric Suapply Corporation Ltd., (K3C), consisting of an 1215 IW extensionto the exisi-ltne Kaixachi IC' steJam stat.ion at Korangi, together .withassociated tranorn:lssion a-id d- stributi n facilities. £Ihe estU,;aied costof thna project i.s Rs, ?2023 miliUon (US$4205" million). The projectcomprisas the greater -ar-t of 1ESC's development program during the threeyears 1967 through 1969.

2. The borrower would be The Karachi Electric Supply CorporationLtd.

3. KOSC has asked the Bank to make a loan of US$21.5 millionequivalent to cover the whole of the foreign exchange requirements ofthe project.

4. The Ban1 has made thlree loans to KESC, all of which are fullydisbursed. These are:

(i) 1955 - Loan No. 120-PAX for US$13 0 8 million to cover the£iorsign exchange requirements of the 30 ZD1 Karachi 'B'station, and as3ociated distributubn works, coileted in19560

(ii) 1958 - Loan No. 191-PAK for US$14 million to cover theforeign exchange requirements of a 60 MW extension ofKarachi 'B' station and associated transmission anddistribubion works completed in 1962.

(iii) 1959 - Loan No. 234-PAK for US$2.4 million to cover theforeign exchange requirements of the 16 MW Karachi Dieselstation, completed in 1961, and also engineering studiesfor Karachi IC' steam station.

5. This report is based on a feasibility study carried out byZafar and Associates and Laramore, Douglass and Popham, and on thefindings of a Bank Mission consisting of G,E. Wyatt and J. Bruen, whichvisited Pakistan in June 1966.

II. THE KARACHI ELECTRIC SUPPLY CORPORATION LTD.

6. The Company was formed in 1913 as a privately owned enterpriseand continued as such until 1952 when the Central Government acquired acontrolling interest in the Company. At the same time the governmentacquired full ownership of the Managing Agency, The Pakistan ElectricAgencies Ltd. with whom KESC has a 20 year agreement dating from 31stMarch 1951. The Government holds 54% of KESC's shares and intends to

maintain a controlling interest. Of the balance of share capital,approxinately 19g is held by private individuals and the remainder byBanks and other large institutions. (See paragraph 55)e The authorizedcapital is Rs. 60 million of which Rs. 42.35 million has been issued.

7. The Company's license which was due to expire in 1978 hasbeen extended to 1990 as one of the Bank's requirementsO In 1964, thesupply area covered by the license was extended from 620 square miles to930 square miles. It now includes the city of Karachi and its environs,the town of Dhabeji, and the important industrial center of Gharo,situated approximately 28 miles from Karachi.

8. Although electrical utilities come under the aegis of theProvincial Government the 1962 Constitution enables the Central Governmentto deal directly with any organization, such as KESC, in which it hasa financial interest.

Orgarization and Management

9. The Managing Agency has three Directors of whom two are seniorcivil servants from the Ministries of Finance, and Industry and NaturalResources, and the third who is Chairman and Managing Director is aprominent citizen with an engineering background.

10. The Chairman and Vanaging Director of the Managing Agency isalso Chairman of KESC, and the twio ministries represented on the Boardof the Agency are also represented an the Board of KESC. Nine otherDirectors are appointed to the KESC Board from the shareholding membersof the public.

11. Although the Central Government owns and controls the MIanagingAgency and has effective control of KESC through its majority shareholdingand appointment of the Chairman and Managing Director, the Corporationoperates as an autonomous entity on commercial lines without interferencefrom the Government. The existence of the Managing Agency serves adefinite and useful purpose and KESC finds these arrangements veryadvantageous in its dealings with the Government.

12. The Corporation is well managed by experienced officers allof whom are Pakistani nationals. It employs consultants for the planning,design and supervision of all major worcs, and contractors for construction.The staff as presently constituted is capable of carrying out the projectwith the assistance of suitable consultants.

Existing Installations

13. The generating facilities of KESC consist of 247 MW of steam plantand approximately 25 MW of diesel plant. Some of the diesel plant is thirtyyears old and has been derated so that its total effective capacity is nowonly 20 MW. The effective total generating capacity is therefore 267 SW.The firm capacity, with the largest unit out of commission, is 201 NW.

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14. Steam plant is concentrated in two stations, Karachi 'B' at WestWharf and Karachi 'C, at Korangi. Karachi 'B', in the dock area, with atotal capacity of 115 MT. contains 8 units varying in size from 4 Nd to33 EN installed between 1946 and 1962. This site is now fully developed.Karachi 'C' is a new station on the eastern boundary of the City. Theinitial installation of two 66 MW sets financed by U.S. AID was commissionedin 1965.

15. The Diesel Plant is concentrated in two stat-ons, one at ElanderRoad and the other at the Sind Industrial Trading Estate (SlTE). ElanderRoad Station with an effective capacity of 4 Mw contains a miscellaneouscollection of 7 diesels, varying in size from 370 KW to 2000 KW each,installed between 1936 and 1951. The SITE Station, with an effectivecapacity of 16 MW, contains 12 identical mnachines installed between 1961and 1964.

16. The KESC Transmission system is shown in the plan attachedas an annex to this report. It consists primarily of an inner 132 kvring main, of which only one circuit has so far been erected on doublecircuit steel towers, linking Korangi power station to the principal stepdown sub-stations. A double circuit 132 kv spur line to Dhabeji andGharo now under construction will shortly connect with the West PakistanWater and Power Development Authority (WAHDA) lower Sind 132 kv transmissiongrid line from Hyderabad. A second ring main at 66 kv encompasses thecity boundary and connects the diesel stations and West Wharf with the132 kv ring main. The transmission system is generally well constructedand maintained.

17. High tension distribution is at 11 kv, about three quarters ofthe mains being underground. Over 900 miles of the 1400 volt low tensiondistribution system is of overhead construction and a large part of this,particularly in the center of the city, is substandard and heavily over-loaded. The remaining 100 miles of the low tension system is underground.With the addition of larger generating units and new transmission linesit will be necessary to keep a close check on short circuit conditions inthe distribution system, if serious failures are to be avoided. Forthis purpose consultants will be employed in the planning and design ofreinforcement of the 11 kv primary distribution system. Rehabilitationof the low tension system is included in the project, but strenuous effortswill be required to prevent this program falling behind.

III. THE POWER MARKET

18. Karachi is the only port for West Pakistan and the city isgrowing rapidly. In 19147, the population was about half a million. Twosubsequent census' show that by 1951 it had risen to 1.13 million, by 1961to 2.014 million and is now estimated to be about 2.5 million. In the tenyears 1955 to 1965, the per capita consumption of electricity in the cityhas risen from 72 kwh to 229 kwh. Although there was a reduction in therate of growth during the hostilities in 1965 there has been a rapidrecovery and sales are now rising at their former high rate.

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19Q Sales of electricity by KESC have been increasing at a highaverage annual rate over the last four years, in spite of a reduction toabout 9% in 1965 as a result of the effect on the general economy of the1965 drought and hostilities with India. Prior to the recent hostilitiessales were increasing at an average annual rate of about 24% per annum.The number of meters connected has risen from 122,056 in 1963 to 149,458in 1965, an increase of about 10% per annum.

20. The market for power is expanding rapidly. Annex 1 shows thedevelopment of sales by the different categories of consumers over thepast five years, and the forecast for the next five. It will be noticedthat sales to large industry are increasing more rapidly than sales toother major categories. In fact, the proportion of sales to largeindustry to total sales has risen from 26.4% in 1947 to 64.4% in 1965.This trend is expected to continue due to the attractions of Karachi as

a site for heavy industry and the Government's activity in encouragilngindustrial expansion by tax holidays, tariffs, and participation, etc.In the five years 1966 through 1970 total sales are expected to increaseat an average annual rate of 16% compared with 19.8% per annum over theperiod 1962 through 1965.

Growth of Demand

21. Two market surveys of the Karachi area have been made in thepast eighteen months. The first, a detailed survey, was by KESC's consul-

tants as partof the feasibility report for the present project, and thesecond by the Bank's consultants in connection with the program for thedevelopment of power in West Pakistan. A third more recent forecast of

sales and maximum demand has been compiled by KESC engineers based ontheir consultants'1965 survey. This forecast talces into account theeffects of the recent hostilities and has been used in this appraisal.

It will be seen that the KESC forecast of maximum demand rising from anactual demand of 129 M4W in 1965 to 292 MW in 1970 and 600 MW in 1975(including the demand from the petro-chemical industry) is more conservativethan either of the consultants'forecasts. In view of the firm assuranceof an additional 125 MW of nuclear power from the Pakistan Atomic Energy

Commission, and probable interconnection with WAPDA in the early 1970'sthe differences are not such as would warrant any change in the programon which the present project is based. All three forecasts are shown

in Annex 2* The detailed survey lists 332 potential consumers in the largeindustry category who are expecting to require power supplies in the1965-70 period. The largest group of loads included in this category is17.5 MW for the chemical industry which Government has alreadysanctioned. Other significant demands originate from the rubber, textile,cement and shipbuilding industries.

22. The forecast does not include the load of a proposed majorpetro-chemical complex and a steel complex, nor does it include exportsto the city of Hyderabad. The steel complex, now in the planning stage,is not likely to be in operation before 1970, and is expected to generatethe bulk of its own power requirements. Export of power to Hyderabadis likely to commence at the end of 1967 with the connection of Gharo

and Kotri by a 132 kv line to be constructed by WAPDA. It is antici-pated that negotiations for an exchange of power between lESC and WAPDAwill shortly conmence, but as these supplies are likely to be 'imited tooffpeak sales, or at best surplus power from the KESC system for theperiod 1967 through 1969 only, they have not been taken into account.Their only effect wolSd be to increase the load factor and therefore thenet revenue of IESC.

23. The average annual increase of 16% in kwh sales, and about18% in maximum demand forecast for the five year period 1966 through1970 is reasonable.

2h4 Annex 3 shows graphically the relation between installed and firmcapacity and the system demand. It will be seen that in 1968 the forecastdemand would exceed the present firm capacity and in 1970 it would exceedthe present installed capacity. Actual and forecast kwh generated, maximumdemand, installed and firm capacity and load factor are shoun in Annex 4.

IV. DEVELOPMENT PLANNING

25. The Bank recently commissioned consultants to report on a programfor development of power in West Pakistan as part of the Indus Basin study.The report recommended the development of hydro-electric supplies in theNorth, and the supplementing of these with thermal power based on the Marigas field. There are large reserves of low calorific value gas at Mari,some 350 miles northeast of Karachi, which would not be economicel totransmit over long distances. This gas could be used to produce lowcost power adjacent to the field for transmission to Karachi and thenorthern grid, thereby conserving the more valuable gas from the Suifield for use in the chemical and other industries.

26. In conformity with these general proposals WAPDA have ordered two100 MW generating units for installation at Guddu adjacent to the Mari gasfield. The earliest date at which this power could be available in Karachiis 1971. It is estimated that power from these units even after transmissionto Karachi will be cheaper than power generated in Karachi by gas transmittedfrom the Sui field.

27. KESC has already indicated that it would be willing to purchasesupplies of energy at 3.5 paisas (7.3 US mills) per kwh from the 125 MWnuclear power plant being built for the Pakistan Atomic Energy Commissionat Buleji, about 15 miles west of Karachi. This plant though scheduledfor commissioning in December 1970 is unlikely to be in full power untilthe end of 1971 or mid-1972. As this plant has a heavy water moderatednatural uranium reactor of new design, it is expected that considerableoperating experience will be required before it can be relied upon as asource of base load power. The generating plant will consist of a singleunit of 125 KW, although output is not expected to exceed 25 M4W in thefirst year of operation.

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28. Plant additions provided by the project are designed to fill thegap until 1971 when nuclear power or Mari power becomes available in Karachi.As it will be necessary to maintain for reasons of system stability andeconomy a considerable amount of generating plant in operation in Karachi,even after the transmission line from Mari has been built, the operatingcosts of the additional plant at Karachi are an important factor in theselection of the size of unit to be included in the project. Taking thisfactor into consideration, and also the size of existing units in Karachi,the optimum size recommended by KESCIs Consultants for extension ofKorangi power station is 125 MWD

29. The Bank's study group preparing a comprehensive report on thewater and Power resources of West Pakistan has carried out a detailedcomparison of the alternative methods of meeting the power demand ofWest Pakistan including Karachi. This comparison shows that interconnectionbetween the Karachi and WAPDA systersbecomes economically attractive in theearly 1970's. It also confirms that the 125 MI unit now to be installedwith the proposed Bank loan is the best means of filling the gap untilinterconnection with 'WzAPDA becomes economical, and moreover, that the unitwill fit well into the thermal power requirements of the system thereafter.

V. THE PROJECT

30. The project proposed for Bank financing consists of an extensionof the Korangi Power Station by the addition of a unit of 125 MW of generat-ing plant, the extension of the transmission and distribution systems, thepurchase of certain items of special equipment for their construction andmaintenance, and the provision of accounting machinery necessitated by thegeneral expansion of the Company during the years 1967 through 1969. TheKorangi Power Station extension and route of major transmission lineextensions included in the project are shown in red on the map attached tothis report.

Generation

31. The power station extension would be of the semi-outdoor typesimilar to the existing plant and would be at the northern end of thepresent steel framed masonry power station building. The generating plantwould consist of one 125 MW hydrogen cooled turbo-alternator with reheat.The generating unit will be supplied by one outdoor type boiler designedfor burning natural gas and/or Bunker 'C' fuel oil. An extension of theexisting sea wqater tunnel will provide the necessary circulating waterfor the turbo-alternator's condenser.

32. Natural gas is supplied to the existing station from the KarachiGas Company, on a sliding scale tariff ranging from Rs. 2.25 per thousandcubic feet (MCF) for the first 10,000 MCF per month to Rs. 125 per MCF forquantities in excess of 400,000 IMCF per month. The average price paid by

IESC is now about Rs. 1.7 per MCF (US cents 36 per million BTU). The fallin this average price which might be expected from increased consumptionin the future, may be offset by future increases in the level of gasprices in Karachi. The present price is reasonable and assurances have

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been obtained from the government that supplies of fuel of the kind,and in the quantities required by KESC will be available throughout thelife of the loan. The boiler has been designed for changing over to oilburning at short notice and in the event of surplus Bunker 'C' becomingavailable from the Karachi refinery at lower cost than gas supplies, therewould be no difficulty in effecting a changeover.

33. The new unit would operate as base load plant. Its output wouldbe stepped up to 132 kv in an extension of the existing power stationsub-station on the 132 kv ring main.

Transmission and Distribution

34. The second circuit of the 132 kv ring main comprising 31.3 milesof line would be erected and the capacity of the three existing mainstep-down substations increased from 210 MVA to 420 MVA. An additionalstep-down substation would be constructed at Ghizri. A double circuit66 kv line 5 miles in length would be constructed to Gulsham, and theexisting carrier comirunication and telemetering system extended.

35. New distribution systems are required for the newly licensedsupply areas of Dhabeji and Gharo where a large industrial complex is nowbeing established. Extensions to the distribution systems in the existingindustrial estates at Korangi Town and Valika will be required to completethe planned development of these areas through 1969. Substantial additionsto the distribution system will be required in the rapidly expandingresidential estates on the perimeter of Karachi City as well as inKorangi Town. Reconstruction of substandard and overloaded low tensionmains throughout the system is included in the project. This reconstructionis particularly important in the City Center area where a number ofmulti-storied buildings are under construction. Some minor extensions ofsupplies to rural areas are included in the project. The project alsoincludes provision of a number of special vehicles for construction andmaintenance of the transnission and distribution system, and the provisionof additional accounting machines.

36. The standard of construction work being carried out by KESC onnew transmission and distribution lines is good, but recent costs havebeen relatively high due to the bulk of the material being supplied ontied loans. Previous line construction by KESC with materials obtainedby international bidding under an earlier Bank loan was completed inreasonable time and resulted in well constructed lines at reasonablecost.

Status of Engineering

37. A feasibility report has been prepared by the New York firm ofkIessrs. Laramore, Douglass and Popham and the Pakistani firm of Zafar andAssociates, who have now been appointed by KESC with the Bank's approval,to carry out the design and supervision of the Power Station extension and132 kv step-up substation, and also for certain specialized work inconnection with the transmission and distribution systems. A networkanalysis is now being carried out by KESC with the assistance of their

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consultants, The agreement under which the consultants have been appointedrequires Messrs. Laramore, Douglass and Popham to carry the prime responsi-bility for the consultants services. The design of distribution works wouldbe carried out by KESC's own staff and their construction which is to befinanced by the borrower would be carried out with the assistance ofcontractors.

Procurement Procedures

38. Orders for equipment and services to be financed under the loanwould be awarded on a basis of international competitive bidding inaccordance with the Guidelines relating to Procurement dated January 1967.

Construction Schedules

39. In order to avoid a serious plant shortage and possible rationingof electricity supplies in 1969 and 1970 it has been necessary for KESC toproceed with the project. The program provided for appointment of consul-tants in August of last year, which has been done, the ordering of the mainequipment in April 1967, and its delivery between M4arch and October 1968eThe unit is scheduled for operation on test in July 1969. This is a tightprogram but is feasible. Transmission and distribution works will bespread out over the three years 1967 through 1969.

Estimated Cost

40. The total estimated cost of the project and the estimated costof the principal features are shown in the following table. A more detailedbreakdown of cost is given in Annex 5:

Estimated Cost of the Project (1967-1969)(in millions)

Foreign Exchange Cost Local Total Costin Cost in

US$ Rupees Rupees Rupees US$Generation

Civil Works Oe6 3.0 5,9 8.9 1.9Mechanical Works 8.2 38.9 38.9 8.2Electrical liorks 1.3 6.2 6.2 1.3Miscellar,eous 1.6 7.5 3.3 10.8 2.3

Transmission 3.3 160o 3.2 19.2 4.0Distribution 4c3 20.2 34.5 54.7 11.5Import Duties and Taxes - - 33.6 33.6 7.1Engineering, Training & Overheads o.6 3.0 2.4 5.4 1.1Interest during construction - - 9.5 9.5 2.0Contingencies 16 7.6 7.5 15.1 3.1

Total Construction Costs 21.5 102.4 99,9 202.3 42.

NOTE: 1. Interest during construction is to be borne by KESC.

2. Approximately US$86,000 included in the above figures wasincurred in late 1966 on Consultants' fees in connection withdesign of the project and approximately US$111,000 will becarried over into early 1970 for retention money on contracts.

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J1. The es .-inated cost of the project contains an allowance forContingerncies of about 8.5% on the total cost of the project. Thisshould be adequate as the Generation and Transmission features of theproject consist mostly of imported equipment on which only relativelysmall increases in cost are likely and no large civil works with longperiods of construction are involved. The distribution program isflexible and could be adjusted should any unforeseen difficulties arisewiich would result in increased cost>s of the project. The cost estimatesinclude Rupees 33.6 million (US$7.1 million) for import duties, taxes,and handling charges. The estimates are realistic.

Unit Construction and Generation Costs

42. The total cost of the project is estimated to be US$42.5 millionor Rs.202.3 million. Of this total, US$16.5 million represents the costof the 125 YW extension of Korangi Power Station excluding import duties,taxes, and interest during construction. This is equivalent to a unit costof US$132 per KW installed, which is reasonable.

43e The estimated cost of energy generated by the new nlmit operatingat a load factor of 70% is 2.76 paisas (US5.8 mills) per kwh sent out.

VI. FURTHER EXPANSION PROGRAM

44, KESC's total expansion program including interest during construc-tion for the period 1966 through 1970 is estimated to cost Rupees 342.75million (US$72 million equivalent). Provision has been made in the financialforecast for this program which consists of the following items.

Millions ofRupees US$

(1) Completion of extension to Distribution Systemfinanced by AID loan 291-H-086. 675'7 14.1 l1/

(2) Completion of extensions to Transmission Systemfinanced by PICIC 10-47 2.2 1/(3) 125 MW extension of Korangi Power Station 103.43 21.7 2/

(4) Transmission works associated with extensionof Korangi Power Station 27.93 5.9 2/

(5) Distribution works associated with extensionof Korangi Power Station 70.93 14.9 2/(6) Distribution works financed by KESC other thanthose included above 40.42 8.5(7) Preliminary expenditure on further extension ofgenerating capability or bulk supply from WAPDA 22.00 4.7

Total Rs. 342.75 $72.0

1/ In converting Rupees to US$ for these loans a rate of Rs. 4.8 to thedollar has been used.

2/ These items (3), (4) and (5) comprise the Bank Project.

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VII. FINANCIAL ASPECTS

Tariffs

45. Regulations govening KESC's tariffs are set forth in theElectricity Act of 1910, as amended, and the Karachi Electricity ControlAct of 1952. Although the Provincial Government has the authority offormally approving KESC's tariffs the Central Government is empoweredunder the Constitution of Pakistan to give directives to the Governorof the Province which would be binding on this matter.

46. In 1963 the Division of Power of the Central Government completeda review of KESC's rate structures and as a result of their report KESCengaged Gilbert Associated to review its tariffs and recommended changes.EXisting tariffs which were last approved inl953 are producing adequaterevenues but new or revised rate structures which are being formulatedare being designed to elininate inequities which now exist in relationshipto the various classes of consumers served. There are, at present, thirteenseparate rate schedules, some of which were initially designed to coverdifferent types of electric appliances in service such as fans, motors,lights, etc. For this reason many consumers are billed at various ratesnecessitating separate meters to record the different types of power used.It is planned that the thirteen schedules will be combined into sixschedules with the result that dual metering will be eliminated. In somecases one class of consumers may pay more while others may pay lessdepending upon the classification in which they are to be placed forbilling purposes. It is anticipated that the net result will be an increasein revenues of about 5 percent.

47. In order to ensure the continuation of the favorable financialperformance described in the latter part of this report, KESC and theGovernment have agreed to a rate covenant which will permit KESC at alltimes during the construction period to maintain revenues sufficient toprovide for an annual rate of return of at least 8 percent on its averagenet fixed assets in operation after meeting operating expenses, includingadequate maintenance and normal straight line depreciation of at least4 percent of its average gross fixed assets, and after income taxesactually paid. Taxes actually paid have been and are expected to benegligible during the period under review due to the tax ememptions describedlater in the report. After completion of the project the minimum returnwill be based on an average rate of not less than 8 percent for any twoconsecutive years with the understanding that the rate of return may bereduced by agreement between the Government, the Bank and KESC, ifjustified by changes in circumstances, on such conditions as may be con-sidered appropriate by the Bank.

Past Earnings

48. KESC's accounts have been audited by chartered accountants andsuch arrangements have been satisfactory. The financial and annual reportsare in general well prepared but their presentation of current assets andcurrent liabilities should be improved. Also, the reports are not completed

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until late in the following year. KESC has agreed to make the necessaryiziprovements in its reports and continue suitable auditing arrangements.It has also agreed to complete its annual reports within a reasonable periodand submit certified statements and reports to the Bank no later than 7months after the end of each calendar year. This time period is to bereduced in the future.

49. Audited Income Statements for 1960 through 1965 are shown inAnnex 6. KESC's earning record has been satisfactory in spite of a reduc-tion in the rate of sales increase during 1965, especially in the industrialclass, due to hostilities between Pakistan and India. The average revenueper kwh has ranged between 12.1 to 13.9 paisa (US 2.5 cents to 2.9 cents).

Although gross revenues doubled during this period, operating expensesincreased by only 1.6 times reflecting reductions in the cost of fuel andother operating costs on a per kwh basis.

50. The rate of return calculated in accordance with the provisionsof the rate covenant ranged betwveen 11.8 percent and 14.2 percent duringthe 1960-64 period, falling off in 1965 to 10.3 percent. KESC declared cashdividends of 10 percent through 1962. Because of a large increase in therequired allocations to the Special 15BB Tax Reserve, described in the nextparagraph, and in order for KESC to finance more of its plant expansionwithout impairing its cash position, stock dividends of 10 percent weredeclared in 1963 and 1964 and distributed in the fall of 1964 and 1965respectively. Such stock dividends were charged against Special 15BBReserve as permitted by the income tax regulations. At the Annual Meetingin August, 1966 covering the results of fiscal year 1965, a combination of6 percent cash and 4 percent stock dividends was declared. The cash divi-dend was declared against accumulated earned surplus, and the stock dividendwas charged against the Special 15BB Reserve. Thirty five percent of KESC'sexpansion program for the six years through 1965 during which the grossvalue of plant increased 3.6 times was financed from internal resources due,to a great extent, to the tax concessions.

51. The income tax rate is 50 percent of taxable profits but twotypes of tax concessions are allowed for the purpose of promoting plantexpansion. A tax holiday of four years was permitted on profits derivedfrom new facilities placed in service prior to July 1, 1965 and a two yeartax holiday is permitted for facilities placed in service between July 1,1965 and June 30, 1970. KESC is required to place 60 percent of such pro-fits in a "Special 15 BB" Reserve to be used only for future expans-on andnot for cash dividends. Accelerated depreciation is also allowed as a formof tax deferment. The Income Tax amount which would be due and payable ifaccelerated depreciation of KESC's older facilities were not considered fortax purposes is shown on the Income Statement as a Provision for IncomeTaxes and is set aside in the Balance Sheet as a Reserve for Income Taxes.

52. As a result of the tax concession KESC has experienced operatinglosses for tax purposes almost every year, which were carried forward andapplied against future taxable income. For this reason KESC only incurredtax liabilities in 1962 (Rs 48,000) and in 1965 (Rs 2 million). It isanticipated that KESC will begin incurring tax liabilities in 1971 when

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the tax holiday ends on profits derived from facilities included in theproposed project and the amount of accelerated depreciation permitted onKESCts older facilities will progressively become smaller as plant expansiontapers off.

Present Financial Position

53. Condensed balance sheets as of December 31 for 1960 through 1965are shown in Annex 7. During this period gross value of plant increasedfrom Rs 137 million to RS 425 million, and long-term debt increased fromRs 79 million to Rs 175 million. Equity has increased from about Rs 51million to about Rs 130 million of which capital stock is Rs 42 million,Rs 56 million are reserves and surplus, including the Special 15 BB Reserveand Capital Receipts which are assessments against new consumers to coverthe costs of initial connections total Rs 31 million. Working Capitalhas been adequate with cash on hand equivalent to one month's revenues.KESC also has arrangements with local banks to act as collection centersand to provide for bank overdrafts to augment its Working Capital.

- 13 -

54. KESC's financial position at the end of 1965 was good and isreflected in the summary balance sheet as follows:

Assets Millions of Rupees

Gross Plant in Operation 425.30Less: Depreciation Reserve * 91.12Net Fixed Assets in Operation 334.18Work in Progress 8.35

Total Fixed Assets 342.53

Current Assets 47.72

Total Assets 390.25

Liabilities

Equity:Capital Stock 42.35Reserves and Surplus 56.20Capital Receipts 31.10

Total Equity 129.65

Income Tax Reserve 27.93

Long-term Debt:IBRD Loan No. 120 1955-1970 4-5/8% 29.21IBRD Loan No. 191 1958-1978 51St 58.93IBRD Loan No. 239 1959-1974 6% 8.48AID Loan No. 42 1962-1988 3?uo 75.24AID Loan No. 86 1964-1989 31a 3.13Unclaimed 4% Debentures Recalled in 1963 .04

Total Long-term Debt 175.03Less Current Portion 9.80Net Long-term Debt 165.23

Security and Other Deposits 17.55

Accrued Expenses 3.39

Current Liabilities (includes Current Portion ofLong-term Debt) 46.50

Total Liabilities 390.25

* Depreciation Reserve includes only normal depreciation.

- 14 -

55. KESC's authorized stock is 600,000 coimon shares at a par valueof Rs 100 each. As of July 1, 1966 423,500 shares were issued as follows:

Government of Pakistan 228,770 5140%17 Insurance Companies 48,380 11.4%13 Banks 41,950 9.9%24 Companies 22,660 5.4%1508 Individuals 81,740 19.3%

423,500 100.0%

Stocks have been traded on the open market with high and low quotations anddividends as follows:

June1960 1961 1962 1963 1964 1965 1966

High 119 125 180 195 195 173 145Low 1C6 113 120 155 156 161

Stock Stock 4% StockDividends 10% 10W 10% 10% 10% 6% Cash

Under the Indian Companies Act of 1913, existing stockholders have "pre-emptive rights" for any new shares at par.

56. The three Bank loans are already described in paragraph 4.These loans as well as the proposed loan are secured loans covered by aspecific mortgage and floating charge on KESC's assets. The 4 percentfirst mortgage debentures, created by a Debenture Trust Deed of May 1946,matured and were paid off on August 1, 1963. A smiall unclaimed amount isexpected to be closed out in the near future.

57. Other long-term debt consists of the drawdowns as of December 31,1965 against two AID loans for the construction of the Korangi 132 MWthermal plant and associated transmission and distribution facilities.KESC's obligations under these loans are for a period of about 25 yearsincluding about 3½ years of grace with an interest rate of 3.5 percent.IESC will make its semi-anrnual payments of interest and principal to theGovernment of Pakistan in Ripees.

58. Existing Bank and AID loans contain similar covenants limitinglong-term debt to a maximum of 65 percent of KESC's combined Share Capitaland Surplus and Long-term Debt. The interpretation of these covenants relyon "Sound Accounting Procedures" to define the items that may legitimatelybe treated as Capital and Surplus. In the past, KESC has included twodoubtful items as Surplus for the purpose of the debt limitation test. One,Capital Receipts, can be accepted upon KESC's contention that such receiptsare not refundable, under the terms of the existing tariff regulations.The other, the Reserve for Income Taxes, should not be treated as Surplus,inasmuch as it constitutes a provision for tax liabilities that are deferredthrough the mechanism of the accelerated depreciation. During negotiations,AID, KESC and the Bank agreed on the accounts which would be classified asEquity in calculating the maximum debt limitation permitted under theamended Bank Covenant and the AID covenant.

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59. The existing Bank loans also contain a covenant limiting anyshort-term indebtedness "other than ordinary short-term trade and commerciaalliabilities" to a maximum of Rs 5 million. KESC asked that this covenantbe eliminated because such limitation, agreed to in 1959, has become toosmall in view of KESC's expansion during the past several years. Duringnegotiations it was agreed that this covenant could be eliminated but suchshort-term debt be included in the calculation of the amended debt limi-tation covenant. Under the provisions of such covenant all debt, eitherguaranteed or drawn down, but excluding short term trade and commercialliabilities of less than one year incurred in the ordinary course of business,will be limited to 65 percent of the sum of KESC's Equity and Debt.

60. The AID loans also include a different type of short-term debtlimitation. This covenant limits all of KESC's indebtedness incurred inthe ordinary course of business and maturing within twelve months, togetherwith all other indebtedness to a maximum of 225 percent of capital, surplusand free reserves which is equivalent to a ratio of total debt to equity of69.2:30.8.

Proposed Financing Plan

61. A forecast of Sources and Applications of Funds for the period1966-1970 inclusive is shown in Annex 8. During the five-year period KESCis expected to complete the AID and Pakistan Industrial Credit InvestmentCorporation (PICIC) transmission and distribution projects, complete theproposed Bank project, continue to improve other existing distributionfacilities and begin construction of additional facilities.

62. KESC's estimated requirements for the five year constructionperiod total about Rs 346 million. Capital expenditures are expected to beabout Rs 333 million of which the proposed Bank project would total aboutRs 193 million, AID project about Rs 67 million, PICIC project about Rs 10million, further distribution system expansion about Rs 40 million andRs 22 million for other future works. It is estimated that about Rs 10million will be required for interest during construction and about Rs 4million for additions to working capital.

- 16 -

63. The following is a sumary of these requirements and the sourcesfrom which thley are expected to be met:

Required Funds 1966-1970 Period Percent(Yillions of Rapees)

AID Project 67.20 19.4PICIC Project 10.29 3.0Proposed Korangi Extension Project 192.79 55.7Further Distribution System Expansion 40.42 11.6Other Further Expansion 22.00 6.4

Sub-total 332.70 96.1

Capitalized Interest 10.05 2.9Total Construction Costs 3427 99-0

Additions to Working Capital 3.63 1.0Total Requirements 346.37 100.0

Available Funds

Internal Cash Generation 324.99Less: Debt Service(Less Capitalized Interest) 117.28

Cash Dividends 13.90Taxes and Other Provisions 5.80

Net Internal Cash Generation 158.01 54.3

Capital Receipts 25.90 7.4

Borrowings:Balance of AID Loan No. 42 15.56 4.5Balance of AID Loan No. 86 25.20 7.2PICIC Loan 4.80 1.4Proposed Bank Loan 102.38 29.6

Total Loans 17.94 42.7

Total Funds 361.85 104.5

Cash over and above total requirements 15.47 4.564. During this period the estimated net internal cash generationwould total about Rs 188 million or about 54 percent of requirements afterpayments of debt service, cash dividends, taxes and other provisions.

65. Capital Receipts would total about Rs 26 million or 7.4 percentof the requirements.

66. The proposed Bank Loan of US$ 21.5 million (Rs 102 38 million)equivalent would cover about 30 percent of the total expansion programrequirements and about 51 percent of the proposed Bank project require-ments. It is assumed to have a term of 20 years with 3 years of grace atan interest rate of 6 percent.

- 17 -

67. Other borrowings, which constitute about 13 percent of therequirements, are the balances of the two AID loans described earlier anda new PICIC loan incurred in 1966. The PICIC loan is in the amount ofUS$1 million equivalent, with a term of 14 years including a grace periodof one year and an interest rate of 7.75 percent.

68. The financing plan is sound and can be carried out under existingtariffs and income tax laws which permit and contribute much to KESC'sability to finance a high percentage of the proposed expansion requirementsfrom net internal cash generation. This percentage would be about 45 percentfor the four years through 1969, or 54 percent for the five years through1970. The difference is due to the large increase in net internal cashexpected to be generated in 1970 due to the beginning of the tax holiday onprofits to be derived from the facilities of the proposed project and to adecrease in capital expenditures in 1970.

Estimated Future Earnings

69. Income Statements for the period 1966 through 1970 are shown inAnnex 6. The forecasts are conservative in that they do not include theincrease in revenue which may be derived from the pending revisions ofthe rate sched-iles. The downward trend in the average selling price per kwhas shown in the Annex would be curtailed or eliminated under the proposednew rate schedules. Under existing rate schedules the average revenue perkwh would progressively decrease as industrial loads increase and as otherexisting consumer consumption increases due to the declining charge in theblock rate structure of their respective rate schedules. This trend isreflected in the income statements for the 1960-65 period.

70. Sales have been projected on the basis of 16 percent compoundedannually with some small deviations. Annual increases in normal operatingexpenses have been considered as well as increases due to expanded operationscovering new facilities. Provisions for Income Taxes and Special 15 BBReserve have been computed on the expected savings to be derived from thecontinued application of the tax concessions.

71. Depreciation expense has been projected on the basis of KESC'scurrent depreciation rate of 4.75 percent as it intends, at least duringthe construction period, to use this rate in order to obtain maximum taxconcessions. This rate is 0.75 percent higher than a normal depreciationrate of 4 percent used in the rate covenant which is based on the usefullives of the assets especially the new thermal facilities which have justbeen placed in operation. Although the amount of internal cash generatedwill not be affected, the use of the higher depreciation rate in effectlowers taxable net income and the rate of return.

72. A recent government decree has been issued whereby the ManagingAgents' commission shall be based on the amount of profits distributed tothe shareholders, in order to encourage payment of cash dividends and toencourage investors to participate in the industrial expansion of thecountry. As KESC intends to pursue its present policy of paying a 10percent dividend it is expected that future dividends will be either all

- 18 -

cash or a combination of a cash and stock dividends. The AID loans5however, contain dividend limitation covenants which state that no cashdividend may be declared or paid unless after payment of such dividendKESC's current assets shall equal 110 percent* of its current liabilities.Annex 7 shows that KESC will be unable to comply with the AID covenants ifit intends to pay any cash dividends during the 1966-1969 period. KESCdiscussed these matters with AID representatives during negotiations andreached an agreement to have both AID covenants amended to lower thepercentage to 100.

73. In Annex 6 the rate of return has been calculated on the basisof the rate covenant which is before Provisions for Income Taxes and afteradjusting depreciation expense to a rate of 4 percent of average grossplant. On this basis the rate of return in 1966, which is greatly affectedby the impact of increasing the investment base by 61 percent due to thelarge increase in new plant facilities, will fall to 8.2 percent. Thereturn is expected to increase to 10.6 percent by 1970 as the new facilitiesare more fully utilized except in 1969 when, as in 1966, the new additionalthermal unit is expected to be brought into operation late that year.

74. Future annual debt service is amply covered by internal cashgeneration (see Annex 8).

Future Financial Position

75. Annex 7 shows forecast balance sheets as of December 31, 1966through 1970. During this period total fixed assets will increase fromRs 342 million to 550 million or about 1.6 times. Equity will increasefrom Rs 130 million to Rs 216 million and long-term debt is expected toincrease from Rs 175 million to 252 million or 1.4 times resulting in animprovement in its debt/equity ratio. KESC is expected to keep withinthe modifications of the debt limitation covenant.

VIII. CONCLUSIONS

76. The project is technically sound, the estimated cost is reasonableand the construction schedules are realistic.

77. The project is necessary to meet the expected growth of load inthe Karachi area.

78. KESC is efficiently operated and managed, its organization issound and it is capable of carrying out the project with the assistanceof consulting engineers suitable to the Bank.

* AID Loan No. 42 states 150 percent.

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79. During negotiations agreement was reached to:

(i) extend KESC's license to 1990 (paragraph 7),

(ii) employ consultants acceptable to the Bank (paragraph 37),

(iii) a rate covenant which provides that during the constructionperiod KESC will realize an annual return of not less than8 percent and thereafter an average of not less than 8percent for any two consecutive years with the understandingthat the rate of return may be reduced by mutual agreementif justified by changes in circumstances, on such conditionsas may be considered appropriate by the Bank (paragraph 47),

(iv) the continuation of suitable auditing arrangements withimprovements to be made in the annual audited statementsand reports which are to be forwarded to the Bank withina reasonable period after the close of each calendar year(paragraph 48),

(v) a revised debt limitation covenant which more clearlydefines Equity and Debt (paragraphs 58 & 59) and

(vi) the amendment of AID covenants which restricted the paymentof cash dividends to allow more flexibility. (paragraph 72)

80. The project would be suitable for a Bank loan of UM$ 21.5 millionequivalent to KESC for a term of 20 years including a 3-year grace period.

February 21, 1967

THE KARACHI ELECTRIC SUPPLY CORPORATION

Actual and Estimated Sales 1961-1970

(millions of KWH)

RESIDENTIAL COMMERCIAL SMALL INDUSTRY LARGE INDUSTRY STR. LIGHTS OTHER TOTALPercentage Percentage Percentrcentagcentage Percentage Percentage Increase Over

YEAR KwH of Total KwH of Total KwH of Total KwH of Total KwH of Total KwH of Total KwH Previous Year %

Actual Sales

1961 58.70 20.8 36.39 13.0 20.02 7.2 160.65 57.2 3.72 1.3 1.42 0.5 280.9

1962 68.02 19.9 46.64 13.7 21.53 6.3 199.84 58.5 4.03 1.2 1.54 0.4 341.6 21.6

1963 76.00 18.0 53.53 12.7 23.72 5.6 262.47 62.2 4.49 1.1 1.69 0.4 421.9 23.5

1964 88.58 16.7 65.98 12.4 27.86 5.2 343.79 64.6 4.55 0.8 1.34 0.3 532.1 26.2

1965 97.89 16.9 70.73 12.2 30.85 5.3 372.98 64.4 5.23 0.9 1.40 0.3 579.0 8.8

Estimated Sales

1966 137.09 16.0 81.67 12.2 33.46 5.0 438.39 65.5 6.69 1.0 2.00 0.3 669.3 15.5

1967 116.44 15.0 90.06 11.6 35.71 4.6 524.00 67.5 7.76 1.0 2.33 0.3 776.3 16.0

1968 120.70 13.3 106.19 11.7 38.11 4.2 630.71 69.5 9.07 1.0 2.72 0.3 907.5 17.0

1969 139.67 13.5 110.72 10.7 41.38 4.0 729.39 70.5 10.34 1.0 3.10 0.3 1034.6 14.0

1970 158.73 13.0 126.99 10.4 46.40 3.8 873.01 71.5 12.21 1.0 3.66 0.3 1221.0 18.0

Average PercentageIncrease Per Annar,

1961-65 13.6 18.0 11.5 23.5 9.0 - 19.8

1966-70 10.0 12.4 8.5 18.5 18.5 21.2 16.3

ANINEX 2

Karachi Electric Supply Corporation Ltd.

Forecasts of IMaximum Demand1966'-1-975

Year Laramore, Douglass & Popham Stone & Websterfor KESC for the Bank KESC

v-ithout Petro- with Petro- with Petro- with Petro-Chemical Chemical Chemical ChemicalIndustry Industry Industry Industry

1965 1h9 1h9 133 129*196o 182 195 156 1531967 216 241 180 1861968 253 291 218 2101969 291 342 258 24h1970 333 395 309 292

1971 376 455 358 3421972 h23 516 418 3971973 471 580 487 14571974 526 650 560 5221975 585 72h 642 600

* Actual Maximum Demand

NOTE

1. Laramore, Douglass & Popham's estimates were made early in 1965before the hostilities with India and aro gross station demands.

2. Stone & Webster's estimates were made at the end of 1965 beforethe full effect of the hostilities could be assessed and are netof station losses.

3. 1ESC's estimates were made in June 1966 with actual knowledge ofprojects such as the development of the petro-chemical industry,included in the Government's third plan period 1966-1970. Theyare gross station demands.

ANNEX 3

KARACHI ELECTRIC SUPPLY CORPORATION LIMITEDSYSTEM CAPACITY AND MAXIMUM DEMAND(MEGAWATTS)

600 I I I 600

00

z

500 500

UrZ )z

z0

400 o I I 400

GROSS CAPACITY I

300 _,-300

z~~~~~~~~~~~~~~~~~~~

(0

(0

200 3200

@ _ ~~~~~FIRM 'CAPACITY

I

/ ~~~~MAXIMUM DMND

100 PLANT CAPACITY JUNE 1966 100WEST WHARF STEAM 115 KORANGI STEAM 132

/ ~~~~~~~~~~ ~~SITE DIESEL 16ELANDER ROAD DIESEL 4

INSTALLED TOTAL 267 MWLESS LARGEST UNIT 66

FIRM CAPACITY 201 MW

0 I 0'60 '61 '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 '72

IC -ACTUAL :Nv PROJECTED >

YEAR ENDING DECEMBER 31

(R) IBRD -3092

Karachi Electric Supply Corporation Limited

System KWH, Maximum Demand,Plant Statistics and Load Factor

Gross KWH Systemi/1 Effective 3Gross KWH System-'/ Maximum Installed Firm System Annual-/Generated KWH Sold Losses Demand Capacity Capacity Load FactorYear Millions Millions % M4 MW MW %

Actual

1961 348 281 19.2 61.8 69.0 54.1 64.31962 416 342 17.8 83.1 135.0 102.0 57.11963 513 422 17.7 100.6 134L.02/ 101.0 58.21964 635 527 17.0 117.5 135.0 102.0 61.71965 685 579 15.4 128.5 201.0 135.0 60.8

Estimated

1966 811 669 17.5 153 267 201 60.51967 941 776 17.5 186 267 201 57.81968 1,100 908 17.5 210 267 201 59.81969 1,254 1,035 17.5 244 392 267 58.31970 1,480 1,221 17.5 292 392 267 57.91971 1,740 1,435 17.5 342 417 292 58.11972 2,071 1,709 17.5 397 517 392 59.6

1 System losses include approximately 6% used in power station auxiliaries.

2/ Reduction due to retirement of Diesel Plant.

3/ Load factors are based on gross KWH generated.

NOTE: Maximum Demands and Station Capacities are gross.

February 21, 1967

Estimated Cost of the Project(In thousands of US$ and Pakistan Rupees)

Foreign Exchange Cost Local Cost Total Cost

Item US$ Rupees Rupees Rupees US$

I. Generation

(a) EquipmentCivil Works 642 3,057 5,881 8,938 1,876Turbo Alternator, Boiler

and Accessories 8,177 38,939 38,939 8,177Electrical Equipment 1,306 6,219 6,219 1,306(b) Freight 750 3,572 3,572 750(c) Erection 825 3,929 3,334 7,263 1,525(d) Engineering Services 550 2,619 952 3,571 750(e) Training and Overheads 25 119 952 1,071 225(f) Import Duties and Taxes 20,239 20,239 4,250(g) Contingencies 975 4,643 4,119 8,762 1,840

Sub-Total 63,097 35,477 96,574 20,699II. Transmission

(a) Equipment 3,125 14,881 14,881 3,125(b) Freight 150 714 714 150(c) Erection 75 357 3,214 3,571 750(d) Engineering Services 50 238 238 476 100(e) Overheads 238 238 50(f) Import Duties and Taxes 5,238 5,238 1,100(g) Contingencies 350 1,666 905 2,571 5)40Sub-Total 0 17, d 9,833 27,68 5WIII. Distribution

(a) Equipment 3,950 18,802 13,151 31,953 6,710(b) Freight 275 1,310 1,310 276(c) Erection 21,429 21,429 4,500(d) Import Duties and Taxes etc. 8,143 8,143 1,710(e) Contingencies 275 1,310 2,381 3,691 775Sub-Total 4,500 21,422 45,1104 66,526 13,971

IV. Interest During Construction 9,500 9,500 2,000

Grand Total 21,500 102,375 99.914 202.289 42,485

February 21, 1967

PAKISTAN

Karachi Electric Supply Corp. Ltd.

Income Statement 1960-1970(Millions of Rupees)

Exchange Rate Rs 4.762 to US $1

-- - - -- - - - ctual - - - -- - - - - - - - - - - - - - - - Estimated - - - - - - - - - -Year Ending December 31 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970

Kah sold in millions 257.12 280.92 341.59 421.86 532.08 578.98 669.30 776.33 907.50 1034.55 1221.00Average per Kwh (Paisa) 13.6 13.9 13.3 12.5 12.1 12.2 12.0 11.8 U.6 11.4 11.2Revenues from Sale of Power 35.01 38.96 45.63 52.99 64.40 70.89 80.32 91.61 105.27 117.93 136.75Other Income 1.14 1.09 1.38 2.45 1.62 1.63 1.50 1.50 1.50 1.50 1.50Gross Operating Income 36.15 140.05 47.01 55.44 66.02 72.52 81.o2 93.11 106.77 119.43 136.25

Cost of OperationsOperating and General Expenses 18.55 20.44 21.81 22.96 27.23 30.30 34.20 38.02 43.04 48.17 50.96Depreciation Expense 6.20 7.30 9.43 11.48 11.95 14.38 21.10 23.61 25.50 30.04 34.77Provisions for Income Taxes 5.62 3.51 .56 - 2.10 .06 - .28 2.51 8.80 9.21Other Provisions .11 .33 .55 1.04 1.66 1.17 1.80 1.96 2.12 2.28 2.44

Total Operating Expenses 30.ho 31.58 32.35 35.4b 42.94 45.91 57.10 63.o7 73.17 oi9.29 97.30

Net Operating Income 5.67 8.47 14.66 19.96 23.08 26.61 24.72 29.24 33.60 30.14 40.87

Income DeductionsTotal Interest Paid 3.90 4.47 5.37 5.70 6.76 7.85 8.14 9.76 11.42 13.45 13.17Less Interest Capitalized 1.92 1.65 1.45 .55 1.51 1.85 .37 .98 3.00 5.70 -Interest Expense 1.96 2.o2 3.92 5.15 5.25 6.00 7.77 o.70 o.42 7.75 13.17

Net Profit 3.69 5.65 10.74 14.81 17.83 20.61 16.95 20.46 25.18 22.39 27.70

Allocation to:Cash Dividends 3.49 3.50 3.50 - - 2.37 2.37 2.00 2.00 5.16 5.16Surplus and Reserves .20 .29 (.72) .84 1.78 1.08 (2.32) (1.94) .03 2.12 2.95

* Special 15 BB Reserve - 1.86 7.96 13.97 16.05 17.16 16.90 20.40 23.15 15.11 19.59

Stock Dividends - - - - 3.50 3.85 1.69 2.03 2.61 2.87 -

Rate of Return based on Rate Covenant 12.8% 12.7% 11.8% 12.2% 14.2% 10.3% 8.2% 8.9% 10.3% 9.6% 10.6%

* This Reserve is restricted to reinvestment in plantexpansion but cannot be used for cash dividends

Note: KECS's operating expenses include depreciation computed at a rate of 4.75 percent and provisions forincome taxes which are in excess of income taxes actually paid. Therefore net operating income as apercent of average net fixed assets in operation will be lower than the percentages based on the ratecovenant.

Febrnary 21, 1967

ANIEX 7PAKISTAN

Karachi Ilectric Supply Corp. Ltd.

Balance Sheet 1960-1970(Millions of Rupees)

Exchange Rate Re 4.762 to UB $1

- - Actual - - - - - - - - - - - - - - - - - - Estimated - - - - - - - - - -As of December 31 1960 1961 1962 1963 1964 1965 1966 1S67 1968 1969 1970

ASSETS

Fixed AssetsCro-PsPlant .n Operation 136.64 159.04 228.55 250.99 267.98 425.30 463.24 531.07 542.59 722.03 7L2.27Less: Depreciation Reserve 39.35 416.3 54.81 65.85 76.63 91.12 112.22 135.83 161.33 191.37 226.14Net Fixed Plant in Operation 97.29 12.7 0 173.74 lS.14 1l.1f 334.15 351.02 395.24 3bl.26 530 66 516.13Work in Progress 30.46 50.411 9 63 16.78 108.31 8.35 40O22 25.99 120.35 16.48 3Z413

Total Fixed Assets 127.75 lc3.14 153.37 201.92 29S.46 314Z53 391.24 421.23 501.61 547.14 ,55026

Current Assets 48.32 42.35 52.1.4 54.07 41.49 47.72 46.94 52.44 53.54 56.o8 74.73

Total Assets 176.07 205.49 235.51 255.99 341.95 390.25 438.18 473.67 555.15 603.22 624.99

LIABILITIES

EquityCapital Stock 35.00 35.00 35.00 35.00 38.50 42.35 44.04 46.07 48.68 51.55 51.55Surplus and Reserves 2.99 3.28 2.54 3.54 5.47 6.55 4.23 2.29 2.32 4.44 7.39Special 15 3B Reserve - 1.86 9.81 23.78 36.34 49.65 64.86 83.23 103.77 116.01 135.60Capital Receipts 12.54 14.47 17.21 21.81 t5.86 31.10 35.00 40.00 45.00 51.00 57.00

Total 50.53 54.61 64.56 64.13 186.17 129.65 148.13 171.59 199,77 223.00 215.54

Premium on Debentures .06 .06 .06 - - - - - - - -

Income Tax Reserve 21.65 25.15 25.76 25.76 27.87 27.93 27.93 28.21 30.72 39.52 48.73

Long Term Debt4% Rortgage Debentures 3.17 3.17 3.17 .21e .11) .b _ - - - -IBRD Loan 120-PAK 53.56 49.39 44.71 39*82 34.55 29.1 23.59 17.70 11.54 5.10 -IBP3 Loan 191-PAK 17.19 38.67 50.90 55.02 55e93 58d3 55.58 52.05 48.33 44.39 40.23IBPD Loan 234-PAK 5.57 6.06 6.56 7.46 7.53 8.48 7.69 6.85 5.96 5.01 4.01AID Loan 391 H-042 - - - 8.48 65.48 75.24 90.80 87.91 84.92 81.82 78.61AID Loan 391 H-086 - - - - - 3.13 22.57 28.33 27.88 26.96 26.01PICIC Loan - - - - - - 3.84 4.60 4.38 4.14 3.88Proposed Bank Loan - - - - - _ - 14.52 76.22 102.38 98.84

Total Long Term Debt 79.49 97.29 105.3J4 ll0.Y 163.03 175.23 204.07 211.96 259.23 269.'i0 251.50

Lass Current Portion 4.17 5.60 8.38 S.24 9.78 9.80 13.35 11.43 15.59 18.22 13.61Net Long Tern Debt 75.32 69 96 190.72 197.53 2413.6 251.5h 237.97

Deferred Expenses and Other Provisiona .69 .81 1.06 1.41 2.32 3.39 4.53 5.78 7.14 8.61 10.19

Security and Other Deposits 7.64 8.15 10.40 11.92 14.25 17.55 19.06 20.91 23.14 25.21 28.29

Current Liabilities Including Current

Portion of Long Term Debt 20.18 25.02 36.71 31.02 37.49 46.50 47.81 49.65 50.74 55.30 48.27

Total Liabilities 176.07 205.49 235.51 255.99 341.95 390-25 438.18 473.67 555.15 603.22 624.99

Debt/Equity Ratio 61a39 64136 62t38 57143 61:39 57t43 58142 55:15 56144 55i45 54:46

* These are assessments to new consumers to cover part of thecosts of their initial connections.

Debentures redeemed August 19631 balance represents the outstanding meant unclaimed by holders.

AID and PICIC Loans use a foreign exchange rate of Re 4.80 to US$1

February 21, 1967

ANNEX 8

PAKISTAN

Karachi Electric Supply Corp. Ltd.

Sources and Applications of Funds 1966-1970(Millions of Rupees)

Exchange Rate Re 4.762 to US $1

SOURCES OF FUNDS 1966 1967 1968 1969 1970 Total

Internal Cash GenerationNet Operating Income after Depreciation and Provisions 7.82 8.84 10.45 15.03 21.28 63,12Depreciation 21.10 23.61 25.50 30.04 34.77 135.02Provisions for Special 15 BB Reserve 16.90 20.40 23.15 15.11 19.59 95.15Provisions for Income Taxes - .28 2.51 8.80 9.21 20.80Other Provisions 1.80 1.96 2.12 2.28 2.44 10.60

Total 47.62 55.09 63.73 71.26 87.29 324.99

BorrowingsAID Loan 391 H-042 15.56 - - - - 15.56AID Loan 391 H-086 19.44 5.76 _ _ - 25.20PICIC Loan 3.84 .96 - - - 4.80Proposed Bank Loan - 14.52 61.70 26.16 - 102.38

Total 3°.-4 21.24 61.70 26.16 -TI7719

Capital Receipts 3.90 5.oo 5.00 vi.oo 6.00 25A90

Total Sources of Funds 90.36 -o1.33 130.43' 103.42 93.29 498.83

APPLICATION OF FUNDS

Additions to Plant (Excluding Capitalized Interest)AID Project - Foreign Costs 35.00 5.76 _- -_40.76

- Local Costs 17.80 8.64 - - - 26.44PICIC Project - Foreign Costs 3.84 .96 _- -_4.80

- Local Costs 3.27 2.22 - - - 5.49Proposed Bank Project - Foreign Costs .24 14.28 61.70 26.16 - 102.38

- Local Costs .17 12.60 38.30 38.83 .51 90.41Distribution Construction - Local Costs 9.12 8.16 2.88 2.88 17.38 40.42Future Expansion - - - 2.00 20.00 22.00

Total Construction Expenditures 69.44 52.62 102.88 69.87 37.o9 3370

DEBT SERVICE

Total Interest PaidIBRD Loans (Existing) 4.86 4.36 3.84 2.29 2.71 18.06AID Loans 3.04 4.07 4.04 4.91 3.77 19.83PICIC Loan .09 .36 .34 .32 .30 1.41Security Deposits .15 .17 .20 .23 .25 1.00Proposed Bank Loan - .80 3.00 5.70 6.14 15.64

Total Interest Paid o.14 9.76 11.42 13.45 13.1777

AmortizationDebentures .04 - - .0_4IBRD Loan 120 PAK 5.62 5.89 6.16 6.44 5.10 29.21IBRD Loan 191 PAK 3.35 3.53 3.72 3.94 4.16 18.70IBRD Loan 234 PAK .79 .84 .89 .95 1.00 4.47AID Loan 391 H-042 - 2.89 2.99 3.10 3.21 12.19AID Loan 391 H-086 - - .45 .92 .95 2.32PICIC Loan - .20 .22 .24 .26 .92Proposed Bank Loan - - - - 3.54 3.54

Total Amortization 9.80 13.35 14.43 15.59 1 22 -9

Total Debt Service 17.94 23.11 25.85 29.04 31.39 127.33

Income Taxes Paid 2.00 - - - - 2.00Dividends Paid 2.37 2.37 2.00 2.00 5.16 13.90Other Provisions Paid .66 .71 .76 .81 .86 3.80Increases or Decreases in Working Capital .83 (.46) .78 (.69) 3.17 3.63

Total Expenditures 93.24 78.35 132.2- 101.03 758.47 __3__6

Net Cash Accrual or (Deficit) (2.88) 2.98 (1.84) 2.39 14.82Cash Balance Beginning of Year 5.78 2.90 5.88 4.04 6.43Cash Balance End of Year 2.90 5.88 4.04 6.43 21.25 15.47

Times Annual Debt Service Covered by Internal 2.65 2.38 2.47 2.45 2.78Cash Generation

February 21, 1967

2 271/910

2231/917~~~~~~~~~~~~~~~C3

PROPOSED DEH RON8AR

22 0l 9 66/11KV S EP*DOWN T W

S/S~~~~~~~~~~~~~~~~~~~~~~~~~'0.0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~9

66/11 KV STEP3 DOWNSTP OWN,S 0B

DUALFUELSTA ION ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~NE NUSRALAE

OPOSEOAADTIPDROPOSEO \S - T

KARACHI ELECTRIC SUPPLY CORPORATION LTD \STEA STATION ,_

SITE PLAN SHOWING THE EXISTING GENERATING STATIONS, 2298Ql 260aa a /866

66KV&132KVLTRANSMISSION LINES & STEP-DOWN S/S SE-

LOAD DESPATCH CENTRE - 132 KV TRANSMISSION LINE

L GENERATING STATIONS L 132 KV STEP-DOWN SUB-STATIONS

O 66 KV STEP-DOWN SUB-STATIONS PROPOSED 132 KV ASID 66 KV LINPES

ITC.ING STATION ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 IM..

-- 6 KV O .H. TRANSMI SS ION L INE _ PROPOSED I132 KV tlID El6 KV NUB-STAT IONS °____S____,O_____M.l.,______

-- - 66 KV UNDER-GROUND CA3LE S/S OUR-STATIONS

SEPTEMBER 1966 lORD 1030KR

NE NUTIALBREA83