Appraisal of Nkula Falls II HPP Malawi WB

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ReportNo. 1149a-MAI
FILE COPY
Malawi: Appraisalof
NkulaFalls11HydroelectricProject
March 11, 1977
Energy& Water Supply Division
EasternAfrica RegionalOffice
FOR OFFICIAL USE ONLY
H
Documentof the World Bank
Irhisdocurnenthasa restric:tedrdisiributionand maybe used by recipients

only in theperformanceof tileir official dulies. Its contents may not
otherwisebe Jdisclosed
wiLhoutWorld 13ank authorization.
MALAWI
APPRAISAL OF NKULA FALLS II
HYDROELECTRICPROJECT
CURRENCY EQUIVALENTS
1 US$ = 97 Tambala
I Malawi Kwacha (MK) = 100 Tambala
1 Malawi Kwacha = US$1.10
WEIGHTS AND MEASURES
1 Meter (m) = 3.28 Feet

1 Kilometer (km) = 0.621 Miles
I Cubic Meter (m ) = 35.3 Cubic Feet
1 Cubic Meter per Second (m Is) = 35.3 Cubic Feet per Second (cfs)
1 Square Kilometer (km ) = 0.386 Square Miles
1 Kilovolt (kV) = 1000 Volts
1 Kilowatt (kW) = 1000 Watts
1 Kilowatt hour (kWh) = 1000 Watt Hours
1 Megawatt (MW) = 1000 Kilowatts
1 Gigawatt hour (GWh) = 1 Million Kilowatt Hours
1 Kilogram - Calorie (kcal) = 3.968 British Thermal Unit (Btu)
ABBREVIATIONS AND ACRONYMS
AfDB = African Development Bank

BWB = Blantyre Water Board
CDC = Commonwealth Development Corporation
ESCOM = Electricity Supply Commission of Malawi
FED = European Development Fund
INDEBANK = Industrial Developmemt Bank of Malawi
KfW = Kreditanstalt fur Wiederaufbau
SUCOMA = Sugar Corporation of Malawi
UK = United Kingdom
rpm = revolutions per minute
ESCOM'S FISCAL YEAR
January - December 31
FOR OFFICIALUSE ONLY
MALAWI
APPRAISAL OF NKULA FALLS II HYDROELECTRIC PROJECT
Table of Contents
Page No.
SUMMARY AND CONCLUSIONS ............................ i - ii
I. INTRODUCTION ..................... 1..................
II. GENERAL ECONOMY AND THE POWER SECTOR .... ........... 2
The Country and the Economy ........................ 2

Energy Resources ................................... 3
The Power Sector ................................... 3
Existing Power Facilities .......................... 5
Power Development Program .......................... 5
Rural Electrification .............................. 5
III. THE PROJECT ........................................ 6
Description ........................................ 6
Estimated Cost ..................................... 6
Basis for Estimates ................................ 8
Financing .......................................... 8
Disbursements ...................................... 8
Detailed Design and Construction Supervision ....... 9
Construction Schedule .............................. 9
Procurement ........................................ 9
Environmental Studies .............................. 9
Effect of Nkula II on Existing Works .... ........... 9
IV. JUSTIFICATION OF THE PROJECT ....................... 10
Market Growth ...................................... 10

Need for Additional Capacity ....................... 10
Comparison of Alternative Development Programs 11
Rates of Return on Investment ...................... 11
Project Monitoring System .......................... 11
V. ELECTRICITY SUPPLY COMMISSION OF MALAWI 12
Institutional Framework ............................ 12

Organization and Management ........................ 12
This document has a rtticted distribution and may be used by recipients only in the perfotmance
of their officialduties.Its contentsmaynot otherwisebe disclosedwithoutWorldBankauthorizAtion.
TABLL OF CONTENTS (Continued)
Training ........................................... 13
Accounting and Auditing ............................ 13
Risks .............................................. 13
VI. FINANCE ............................................ 14
Past Earnings and Financial Position .... ........... 14

Tariffs ..... 14
Proposed Financing Plan ............................ 15
Future Financial Position and Operating Results 18
VII. AGREEMENTS REACHED AND RECOMMENDATION .... .......... 18

TABLE OF CONTENTS (Continued)
List of Annexes
ANNEX
1. Statistical Data on ESCOM's Power System

2. ESCOM's Existing Facilities
3. Description of the Nkula Falls II Hydroelectric Project
4. Project Cost Estimate
5. Estimated Disbursement Schedule for IDA Credit
6. Construction Program (Chart)
7. Actual and Projected Sales and Maximum Demand
8. Interconnected System-Installed and Firm Capacity
and Maximum Demand (Chart)
9. Interconnected System-Installed and Firm Energy
Generation Capacity and System Energy Requirement (Chart)
10. Comparison of Least Cost Program with Alternative Thermal
and Thermal-Hydro Blend Development Programs
11. Return on Investment
12. Organizational Structure
13. Project Monitoring Guidelines
14. Income Statement Projections
15. Cash Flow Projections
16. Balance Sheets
17. Notes and Assumptions to Financial Projections
18. Loans Outstanding at December 31, 1975 and Debt Statement
19. New ESCOM Tariffs
MAP I - Nkula Site (IBRD 12214)
MAP 2 - Proposed Hydroelectric Project (IBRD 2369R4)

MALAWI
SUMMARY AND CONCLUSIONS
i. This report appraises a hydroelectric development which would be

carried out by the Electricity Supply Commission of Malawi (ESCOM), a Govern-
ment owned entity, responsible for public electricity supplies in Malawi.
The project would be the fourth major project in the development of the
hydroelectric potential of the Shire River, which began in 1966.
ii. The project will develop a hydroelectric site at Nkula Falls with
a dam, a headrace tunnel and penstock system and a powerhouse sufficient
for an ultimate plant capacity of 90 MW of which 2 x 18 MW hydro units would
be included in the project with additional units being installed in the
future to meet increasing power demand. The site potential is expected to
be fully utilized by 1989. The estimated project cost is US$66.4 million
equivalent including an estimated foreign exchange cost of US$50.6 million.
Taking into account the estimated interest during construction of US$11.6
million, of which the foreign exchange component would be US$6.1 million,
the project's total financing requirements would be US$78.0 million, includ-
ing US$56.7 million in foreign exchange. Of these requirements up to
US$59.2 million equivalent is expected to be available from various lending
agencies. The Bank would provide US$25 million equivalent by way of a
US$9 million standard Bank Loan, a US$8 million Bank Loan on Third Window
Terms and US$8 million IDA Credit to help finance the foreign exchange
costs of civil works, ESCOM's training program and interest during construc-
tion on the Bank loans. AfDB, CDC, the Federal Republic of Germany and FED
are expected to provide up to about US$34 million. External finance would
cover the full foreign exchange requirements and possibly, a small proportion
of local costs. The remaining finance would be provided from ESCOM's internal
cash generation. Interest on AfDB, Federal Republic of Germany, FED, IDA and
Third Window Funds would be capitalized during construction and treated as
Government's contribution.
iii. The project is essential to meet Malawi's power demand, which is

expected to grow at an average annual rate of 11% between 1977 and 1984.
The project is the least cost solution for meeting the projected level of
demand among all practicable alternative solutions including a number of
thermal/hydro schemes and other schemes for hydro development.
iv. Contracts for civil works, which would be partly financed by the
Bank Group would be awarded on the basis of international competitive bidding
in accordance with the Bank's guidelines for procurement.
v. ESCOM is a well managed organization and this will be the third

project carried out with Bank Group financial assistance. An IDA Credit
(178-MAI) for US$5.25 million made in 1970 helped finance the foreign exchange
costs of the first stage of the Tedzani hydroelectric development. Parallel
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finance of US$3 million equivalent was provided by AfDB for the foreign
exchange costs of 66-kV transmission system and distribution extensions. The
project was completed close to schedule in 1973, at a total cost of US$16.5
million including a 14% cost overrun. To help meet this overrun CDC and the
Industrial Development Bank of Malawi (INDEBANK) made further loans totalling
US$1.8 million. Cost overruns were due to unforeseen rock conditions and an
underestimate of contractors establishment costs.
vi. A second IDA Credit (426-MAI) of US$7.5 million was made in 1973,
to help finance the foreign exchange costs of the second stage of the Tedzani
Hydroelectric Scheme which added 24 MW to generating capacity. The project
also included a 14-MW gas turbine. CDC participated in the project finan-
cing with a loan of US$6 million. The project has essentially been completed
according to the original schedule, but the estimated cost of US$18 million
will be 27% over the appraisal estimate. CDC has provided a further US$2
million to help finance the cost overrun which is attributable to an un-
anticipated acceleration in world inflation.
vii. ESCOM's financial performance, as reflected by earnings from opera-

tions, has been very good since the first IDA Credit was made available to
it in 1970 but earnings have been absorbed by capital expenditures leaving
a tight liquid position. However, as a consequence of tariff increases and
additional finance in 1977, ESCOM's liquid position should improve. ESCOM's
financial objectives will include an annual 12% rate of return on revalued
assets in 1978 and 1979 and 8% thereafter. ESCOM's financial operating
performance is expected to be good during and after project completion.
viii. The project is the first part of the least cost alternative for
adding a further 90 MW of generating capacity to ESCOM's interconnected
system and the internal rate of return for the complete development would
be about 12%.
ix. The project is suitable for Bank Group finance of US$25 million
equivalent.
MALAWI
I. INTRODUCTION
1.01 This report appraises the first phase of the Electricity Supply
Commission or Malawi's (ESCOM) proposed Nkula II Hydroelectric Power Project.
The estimated project cost is MK 60.4 million (US$66.4 million), excluding
interest during construction, with a foreign currency component of MK 46.0
million (US$50.6 million). Estimated interest during construction would add
an estimated MY, 10.6 million (US$11.6 million) to ESCOM's total project
financing requirements. The Government of Malawi has asked the Bank Group
to help finance the foreign exchange costs and will receive further financing
assistance from the Commonwealth Development Corporation (CDC), the African
Development Bank (AfDB), the European Development Fund (FED) and the Federal
Republiz of Germany.
1.02 This will be the third Power Project in Malawi which has been
financed with Bank Group assistance. The main objective of all three pro-
jects is to develop the hydroelectric potential of the Shire River, which
has been the main source of ESCOM's additional generating capacity since
1966.
1.03 In 1966 ESCOM's first significant hydro plant was completed

through the first stage development of Nkula Falls site which added 24 MW
of generating capacity. The project was financed with CDC assistance.
1.04 In 1970 through an IDA Credit (178-MAI) the Bank Group provided
US$5.25 million to help finance the foreign exchange costs of a project
adding a further 16 MW of hydro generating capacity through the first stage
of the Tedzani Falls development. The project also included a 3-MW diesel
generating station and transmission and distribution facilities. Parallel
finance of US$3 million equivalent was provided by the African Development
Bank.
1.05 The project was completed close to schedule in 1973 at a cost of

US$16.5 million including a 14% cost overrun. CDC and INDEBANK provided
a further US$2.1 million to help finance this overrun. The overrun was
attributable to unexpected bad rock conditions and to an underestimate of
contractors establishment costs.
1.06 In 1973 Credit (426-MAI - Second Power Project) of US$7.5 million

was made to help finance the foreign exchange costs of the second stage
of the Tedzani Hydroelectric scheme which added a further 24 MW to generating
capacity. The project also included a 14-MW gas turbine unit to avoid a power
shortage in 1976 and subsequently for operation as a standby and peaking unit.
CDC also participated in the project financing with a loan of US$6 million.
1.07 The Second Power project has substantially been completed according
to original schedule at an estimated cost of US$18 million, 27% above the
appraisal estimate. CDC has provided a further US$2 million to help finance
the estimated cost overrun and additional funds will be provided from a
tariff increase supplemented by a temporary bank overdraft. The cost overrun
is due to an unanticipated acceleration in world inflation after the project
was appraised.
1.08 The proposed project to be constructed between mid-1977 and end-1980

would represent the second stage of development of the Nkula Falls site and
would provide for 90 MW of generating capacity with 2 x 18 MW units being
included in the project and a further 54 MW being added at various stages in
the 1980s.
1.09 All the above developments of the Shire River are based on the
recommendations of two British consulting firms, Kennedy and Donkin, and
Watermeyer, Legge, Piesold and Uhlmann who have been employed by ESCOM for
many years. Another British consulting firm, Coopers and Lybrand Associates
Ltd., also assisted in preparing the report on the proposed development.
1.10 This report is based on the findings of an appraisal by Messrs.

I. Tuncay, E. Greenwood and J. deWeille who visited Malawi in November 1975
and on information provided by Government, ESCOM, Mr. R. Bloor (a Bank
consultant), and the consulting firms mentioned in the preceding paragraph.
Messrs. Tuncay and Greenwood visited Malawi in November 1976 to bring their
previous findings up-to-date.
II. GENERAL ECONOMY AND THE POWER SECTOR
The Country and the Economy
2.01 Malawi is a land-locked country in South East Africa, bordered

by Zambia, Tanzania and Mozambique. About one quarter of the country is
coyered by lakes, the largest being Lake Malawi with an area of some 33,000
km . Mlalawi's total land area is about 93,000 km , which consists largely
of plateau about 1,460 m above sea level; the mountainous north rises to
2,500 m and the extreme south is only 200 m above sea level. With a popula-
tion of about 5 million growing at about 2.6% per year, Malawi is one of the
most densely populated countries in Africa. Th2 population is concentrated
in the Southern Region, with 180 persons per km in 1975, compared with 114
and 60 in the Central and Northern Regions.
2.02 Since independence in 1964, GDP at constant prices has grown at a

comparatively high rate of almost 8% per year; the GNP per capita of about
US$150 is, however, still one of the lowest in the world. The economy
is based primarily on agriculture, in which over 90% of the population is
engaged, much of it at the subsistence level, and it supplies more than
90% of exports (mainly tobacco, tea, sugar and groundnuts). Total GDP in 1975
at current market prices was estimated to be US$755 million, of whichlagricul-
tural output accounted for approximately 45%, and manufacturing 14%. Between
1970-1975, high growth of investments and domestic savings (11% and 15% per
year), played an important role in the favorable development of Malawi's
economy. On the basis of past performance and present potential, an economic
growth of about 6.5% per year might be possible with manufacturing, large
agricultural estates and most services including electricity, growing at a
higher rate than the economy as a whole.
Energy Resources
2.03 The only known fossil fuels in Malawi suitable for thermal genera-
tion are coal deposits at Livingstonia, a remote area of the Northern Region.
The development of these deposits is, at present, uneconomic due to their
distance from the main centers of population. In any case, local coal would
not be cheaper than coal imported from Mozambique and Rhodesia. Fuel oil is
not imported in bulk because there is little demand for it; diesel fuel in
Blantyre now costs about US$15.4 per million keal.
2.04 Geothermal power potential exists in the north of the country but
extensive investigations have still to be carried out before a real estima-
tion of the potential and feasibility of development can be established.
2.05 There is some hydroelectric potential in the north of the country

which has yet to be investigated, but the principal large potential source
of power in Malawi is the Shire River which flows out of Lake Malawi through
the southern part of the country to join the Zambezi in Mozambique (see Map
IBRD 2369R4) Lake Malawi is a large natural reservoir and the Shire River,
which carries the overflow from the Southern end of the lake, falls about 420
m in a distance of 80 km between Kholombidza Falls and Kapachira Falls. The
total power potential of this stretch of river known as the Middle Shire has
been estimated at about 500 MW with a productive capacity of some 3,500 GWh
per annum at 80% load factor and a probability of a water shortfall only once
in 80 years.
The Power Sector
2.06 Because it operates mainly in the regions of Malawi in which

most of the economic development has occurred, the power sector has been
growing much more rapidly than the economy as a whole. Sales by ESCOM,
which is responsible for public supplies throughout the country, rose at an
average rate of 18% per annum between 1965 and 1975. Total investment by
ESCOM during 1965-1969 amounted to MK 3.5 million (US$4.3 million) 1/ or
about 2.5% of the national total of MK 138.7 million (US$169.1 million). 1/
Power investment in the Government's 1970-1974 plan was projected at MK 25.1
million (US$30.6 million) 1/ at constant 1969-1970 prices, which represented
1/ Converted at the then prevailing exchange rate of MK 0.82 = US$1.

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about 6.4X of the total planned national investment of MK 394.1 million

(US$480.6 million) 1/ during the same period.
2.07 The industrial sector accounts for the bulk of electricity con-
sumption. During 1970-1975, industrial users accounted for about 63% of
total energy sales, followed by the commercial sector with about 18% and the
residential sector with about 17%. A statistical summary for 1970 and 1975
together with a forecast for 1980 is given below and Annex I gives fuller
details. Between 1967 and 1975 annual growth of total sales ranged from a
high of 23% in 1975 to a low of 8% in 1974 influenced largely by varying
rainfalls, which affected annual power requirements for irrigation, and by
industrial expansion.
ESCOM's kWh Sales and Related Data
Actual Forecast
1970 1975 1980
Electricity Generated (GWh) 132 258 468

Electricity Sales (GWh) 122 237 430
Electricity Generated per Capita (kWh) 27 52 90
Maximum Demand (MW) 22 48 82
Installed Capacity (MW) 37 71 132 2/
Firm Capacity (MW) 28 56 106
Annual System Load Factor (%) 65 60 60
Proportion of Sales:
Residential (Low Density) (%) (see para. 4.04) 18 14 14

Residential (High Density) (%) (see para. 4.05) 1 2 5
Commercial (%) 17 18 19
Industrial (%) 61 64 61
Other (%) 3 2 1
Annual Growth of Sales (%) 15 23 16

Losses as % of Units Generated 8 9 9
2.08 It is estimated that about 1 million of Malawi's 5 million popula-

tion live in areas with a potential for access to present electricity supply
facilities. Of this number about 100,000 are supplied through existing
connections numbering about 15OOO. Most of the 100,000 are in Blantyre,
Malawi's main industrial and commercial center with an estimated population
of 210,000 and in Lilongwe, the capital city with an estimated population of
87,000.
1/ Converted at the then prevailing exchange rate of MK 0.82 = US$1.
2/ Includes proposed project capacity of 36 MW in 1980.

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2.09 Present consumption per person living in conntected houses is

about 500 kWh per year is high due largely to the air conditioning and water
heating loads of expatriates and high-ranking local officials. Connection
density is about 0.10 per 1,000 population in rural areas and about 60 per
1,000 population in urban areas.
Existing Power Facilities
2.10 ESCOM's principal generating facilities are located in the Southern

Region, which accounts for about 92% of the kWh sold. Apart from a small
diesel station at Mgugu, installed capacity 1.0 MW, there are no public
electricity supplies in the Northern Region. Malawi's current total installed
generating capacity is about 109 MW, consisting of 65 MW of hydro, 30 MW of
thermal, and a 14-MW gas turbine. About 90% of total installed capacity is
owned by ESCOM; the remaining 10% is owned by power users who are either out
of reach of ESCOM's supply lines or find it more economical to use industrial
by-products as fuel for their generating equipment. Plants already under
construction and scheduled for commissioning in the period 1976-1980 will
bring ESCOM's installed capacity to about 130 MW and the country's total to
about 140 MW. ESCOM's existing facilities are described in greater detail in
Annex 2 and are shown on the Map 2 (IBRD 2369R4) attached to this report.
Power Development Program
2.11 Apart from the proposed project, which will meet the growing demand
in the interconnected system, ESCOM's development program in the period 1975-
1980 includes extensions of existing distribution facilities and construction
of a 541-km, 132-kV transmission line from Tedzani and Nkula Falls II to
Chinteche in Northern Malawi, which will supply expected industrial loads
in the Chinteche area. 1/ The first stage of this line, which will be routed
to Salima, with a branch line to Lilongwe, is being constructed with Canadian
finance channelled through AfDB and is expected to be operational by 1978 or
1979. If the second stage of the 132-kV line from Salima to Chinteche were to
be postponed, it would have no significant effect on the timing of the installa-
tion of the additional generators required to bring the project facilities to
maximum use (see para. 4 in Annex 11).
2.12 Long-term planning for projects beyond ESCOM's 1975-1980 development

program has started, including three major hydroelectric projects (Kapachira,
Mpatamanga, and Kholombidza) with a total capacity of about 360 MW on the Middle
Shire River.
Rural Electrification
2.13 Government has yet to determine its goals for rural electrifica-
tion. This type of development electrification would be unprofitable; Gov-
ernment's prior social objective is to extend electric service to the urban
poor. Some electrification of poor urban areas is taken into consideration
in housing development programs; however, comprehensive plans have yet to be
developed for supplying electricity to the bulk of the urban poor.
1/ The Chinteche load is estimated to total 9 MW, consisting of a pulp

mill I MW, a chemical factory 6 MW and mill town 1 MW, district require-
ments I MW.
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III. THE PROJECT
Description
3.01 The project will be the major part of ESCOM's 1975-1980 generating
program. It consists of:
(a) Construction of a rock-fill dam about 7 m in height and

about 700 m in length at Nkula site to form a reservoir
adequate for daily regulation;
(b) Construction of a low pressure cut and cover conduit, a head-

race tunnel, penstock and a tailrace outlet system of about
1,280 m and a powerhouse with two 18-MW hydro units (first
phase of a 90-MW ultimate capacity);
(c) Consulting services; and
(d) Training.
A detailed project description is given in Annex 3.
3.02 The dam is to be constructed about 50 m downstream of the existing

Nkula I Barrage, and 8 km upstream of Tedzani II dam (see Map IBRD 12214).
The selection of the site was based on favorable ground conditions and power
optimization studies.
3.03 The location and dimensions of the dam, waterways, sizes of the
plant and individual generating units, and dimensions of the other major
equipment (such as transformers and switchgear equipment) are acceptable
and have all been determined by ESCOM's consultants, as a result of a series
of cost optimization studies based on the estimated load growth in the power
system, the prevailing local conditions (hydrological, geological and topo-
graphical), and sound engineering principles.
3.04 Although there are no competing claims for the waters of the Shire
River upstream of Nkula II, continued availability of water in sufficient
quantities for the project would be essential. Government will not permit any
abstraction of water from the Shire River or its tributaries upstream of Nkula
that would reduce the potential output of the Nkula II Hydro station (unless
the Bank agrees that such abstraction would be economically justified), and
will permit ESCOM to divert water from3the Shire River in such amounts as may
be necessary (but not less than 170 m Is) for the purpose of power generation
at Nkula Falls II. A similar covenant was included in Credit for the Second
Power Project.
Estimated Cost
3.05 The estimated total cost of the project is MK 60.4 million (US$66.4
million equivalent), of which MK 46.0 million (US$50.6 million), about 76%,
would be foreign exchange. These costs are before interest and commitment
-7-
charges during construction. The cost estimates, which are detailed in

Annex 4, are summarized below:
Summary of Project Cost Estimate

(MK 1.0 = US$1.10)
Millions of M Kwachas Millions of US dollars

% of
Description Local Foreign Total Local Foreign Total Total Cost
Civil works 6.5 15.4 21.9 7.2 16.9 24.1 36.3

Mechanical &
Electrical Works 2.5 15.6 18.1 2.8 17.1 19.9 30.0
Engineering & Admin. /1 1.3 3.7 5.0 1.4 4.1 5.5 8.3
10.3 34.7 45.0 11.4 38.1 49.5 74.6
Contingencies:
Physical 1.6 4.6 6.2 1.7 5.1 6.8 10.2

Expected
Price Increases 2.4 6.5 8.9 2.6 7.2 9.8 14.7
Sub-total 14.3 45.8 60.1 15.7 50.4 66.1 99.5
Training 0.1 0.2 0.3 0.1 0.2 0.3 0.5
Total Project Cost 14.4 46.0 60.4 15.8 50.6 66.4 100.0
Interest during
construction (IDC) /2 5.1 5.5 10.6 5.5 6.1 11.6
Total Financing
Requirements 19.5 51.5 71.0 21.3 56.7 78.0
/1 The average per man-month billing rate (excluding expenses) for

engineering consultants fees is about US$3,800.
/2 Foreign IDC consists of interest on Bank, FED, CDC, AfDB and Federal
Republic of Germany loans.
3.06 As in the case of the Second Power Project, Government confirmed

that it would waive duties on all imported goods and services required
for the project. Preliminary investigation costs amounting to about MK
500,000 (US$575,000) have been covered by ESCOM and have been excluded from
the above costs.
-8-
Basis for Estimates
3.07 The project costs are based on ESCOM's consultants estimates,

as revised by the mission, and base costs are stated as of March 31, 1977.
Physical contingencies of 20% on civil works and equipment have been added.
Following discussions with Government, ESCOM and its consultants, local
costs have been assumed to escalate, 9% annually between 1977 and 1981.
Following the Bank guidelines, annual foreign price escalation for civil works
has been taken at 9% for 1977 through 1979 and 8% thereafter and foreign price
escalation for equipment at 7.5% for 1977 through 1979 and 7% thereafter. On
the basis of these estimates, the project would cost about US$2,000 per kW for
the first phase capacity of 36 MW, and about US$1,200 per kW for the ultimate
capacity of 90 MW.
3.08 Estimates of the foreign exchange costs of civil works at 70%

are justifiably high as local costs would consist only of land and unskilled
manpower, while materials would be imported.
Financing
3.09 The proposed Bank Group contribution of US$25 million equivalent

would be used to finance the foreign exchange cost of the civil works compo-
nent and of ESCOM's training program, as well as interest during construc-
tion on the Bank loans, and would cover about 32% of total financing require-
ments. AfDB finance (up to US$6 million equivalent) will be used to help
finance the foreign exchange costs of gates, screens and penstocks, FED
funds (US$9.5 million equivalent) to help finance the foreign exchange costs
of turbines, generators and cranes, and Federal Republic of Germany funds
(up to US$5 million equivalent) to help finance the foreign exchange costs
of switchgear and transformers. CDC funds (US$13.7 million equivalent) will
be available to the project without any restrictions as to their use. Avail-
able funds are expected to cover the foreign exchange requirements of the pro-
ject and possibly a small portion of local expenditures. The remaining fi-
nancing requirements would be provided by ESCOM's internal cash generation,
and in the case of AfDB, Federal Republic of Germany, FED and Third Window
Funds passed by Government to ESCOM under onlending agreements. Interest dur-
ing construction would be capitalized and treated as Government contribution.
As a condition of effectiveness of Bank Group finance, all conditions of
effectiveness of AfDB, CDC and FED agreements should have been fulfilled.
As financing for the project components expected to be financed by the
Federal Republic of Germany will not be required until 1978 and, since these
items could be obtained through suppliers' credits as a last resort, should
this be necessary, the cross effectiveness arrangements would not be required
in this respect.
Disbursements
3.10 It is proposed to use the Bank/IDA finance to help meet foreign ex-
change costs by disbursing the foreign costs of civil works and ESCOM's train-
ing program, and interest during construction on the Bank Loans.
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3.11 If any of the Bank Group Funds remains undisbursed after completion
of the project, they would be canceled. An estimated disbursement schedule
is given in Annex 5.
Detailed Design and Construction Supervision
3.12 The project is being designed jointly by Messrs. Watermeyer, Legge,

Piesold and Uhlmann (civil consultants) and Kennedy and Donkin (mechanical/
electrical consultants) both of the United Kingdom (UK). These firms are
ESCOM's joint consultants and are acceptable to the Bank Group. They
designed and supervised both the Nkula Falls I and Tedzani Stage I and II
developments and they will be responsible for the preparation of all docu-
ments and evaluation of tenders and will supervise construction of the
project. ESCOM will continue to employ suitably qualified consultants on
terms and conditions satisfactory to the Bank in carrying out the project.
Construction Schedule
3.13 Tender documents have already been prepared and issued for the main
project components. Contractors' offers for the construction of the main
civil works were received in December 1976. Construction is expected to
commence mid-1977, and to be completed in 1980. The project construction
schedule is shown in Annex 6.
Procurement
3.14 Contracts for civil works, to be partially financed from the Bank
Group funds and also gates, penstocks and screens which would be financed by
AfDB, will be awarded shortly on the basis of international competitive
bidding, following the Bank's Guidelines for Procurement. Other contracts
will be awarded in accordance with co-financiers procurement procedures.
Environmental Studies
3.15 A general ecological review of the Tedzani site, 8 km downstream of

Nkula Falls II, was completed in late 1974 during the course of the construc-
tion of Tedzani Barrage. This study and experiences on Tedzani Stage I and
Nkula Falls I, at the same site, indicate that the project should not cause
major ecological problems nor have any negative effects of such magnitude
as to impair the feasibility of the damming. There are no permanent human
habitations and no crops which are likely to be inundated when the dam is
commissioned. ESCOM has arranged a reconnaissance study satisfactory to the
Bank to examine the possible ecological changes arising from the project and
to recommend the steps which should be taken to avoid or mitigate undesirable
side effects. The study is being carried out by the University of Malawi.
Government and ESCOM will review the conclusions and recommendations of the
study with the Bank and take any remedial action as is considered necessary.
Effect of Nkula II on Existing Works
3.16 The proposed Nkula II Dam will raise the natural water level of the
Shire River about 7 m (maximum). Although this change will have an effect on
- 10-
the existing Nkula I hydroelectric facilities and on the water intake facili-
ties of Blantyre Water Board (BWB), only minor inexpensive modifications to
these facilities will be needed for the facilities to function satisfactorily.
IV. JUSTIFICATION OF THE PROJECT
4.01 The proposed project represents the least cost solution for meeting
Malawi's growing power demand until the early 1980's.
Market Growth
4.02 The project would supply additional energy to ESCOM's interconnected

system which supplies, inter alia, Blantyre, Malawi's main industrial and com-
mercial center with a population of 210,000, Lilongwe, the new capital, with
a population of 87,000, Zomba, the old capital, with a population of 19,700 and
also a large sugar estate. The interconnected system accounts for about 98% of
ESCOM's sales. Between 1967 and 1975, ESCOM's annual average sales increased
by 15%, largely due to industrial growth. As industrial growth is not expected
to continue at the earlier rate the annual increase in sales is projected to
gradually decline to 9% by 1984.
4.03 About two-thirds of ESCOM's industrial sales are to four large con-
sumers. By far the largest industrial customers are SUCOMA, a sugar estate
and the Blantyre Water Board, both of whom use electricity primarily for pump-
ing water. Growth in industrial sales between 1967 and 1975 has varied between
30% in 1975 to 4% in 1974 with an average annual growth rate of 16%. After
taking into account the plans of major industrial consumers, the growth rate
from 1977 to 1984 is projected to average 11% per annum. The average annual
growth rate for commercial electricity sales is projected at 10% from 1977 to
1984, as compared to 15% between 1967 and 1976.
4.04 Sales to low density residential consumers, who are mainly higher
ranking government officials and expatriates living in Blantyre, Lilongwe
and Zomba, are projected to increase at an average rate of 9% between 1976
and 1984. As a percentage of total sales, low density sales are expected
to decline from 16% in 1976 to 12% in 1980.
4.05 Sales to ESCOM's high density residential consumers, who live mainly
in the larger towns in Government low rental housing, started from a low base
and had the highest growth between 1967 and 1975, ranging between 18% in
1975 and 50% in 1967 with an average growth rate of 34%. Such high growth
rates are not expected to continue in the future and a gradual fall in demand
growth to about 20% by 1984 is expected. Detailed historical sales figures
from 1967 to 1976 and projected sales figures from 1976 to 1984 are shown
in Annex 7 together with corresponding trends in maximum demand and generation.
Need for Additional Capacity
4.06 In 1976 ESCOM's 71 MW of generating facilities included diesel,

steam and hydro plant with the hydro component representing about 70. of
the total. The hydroelectric power stations are all basically "run-of-river"
- 11-
developments. An assurance of a sufficient flow rate to operate hydro plants

at maximum capacity, even during the driest years, is provided by the Liwonde
Barrage with the almost unlimited reservoir capacity of Lake Malawi. Diesel
sets and steam units are being used to meet peak demand and to cover the
excess energy requirements over existing hydro capacity and for standby pur-
poses.
4.07 The projected maximum demand and energy requirements are shown in
Annexes 8 and 9, which demonstrate that, with the commissioning of the second
stage Tedzani Project, the interconnected system would be capable of meeting
peak demand and energy requirements until 1980 after which the generating
capacity to be provided by the project would be required.
Comparison of Alternative Development Programs
4.08 After extensive studies by the consultants involving the analysis

of 80 different development strategies, the project (Alternative I) has been
demonstrated to be the next step in the least cost solution to ESCOM's capital
development program over the next 25-year period from 1980. Future develop-
ment will be a blend of hydro and thermal generation with hydro predominating.
4.09 In addition to the above development program, other alternatives

considered for meeting long-term demand included: (a) two diesel sets of
10 MW each as the first step followed by the Nkula Falls scheme (Alternative
II); (b) two steam units of 20 MW each followed by hydro projects (Alterna-
tive III); and all hydro units (Alternative IV).
4.10 Analysis of the four development programs indicated that Alterna-

tive I would be preferable to Alternatives II, III and IV at discount rates
up to 24%. A description and analysis of the alternative development programs
are given in Annex 10.
Return on Investment
4.11 The project, which includes the development of a hydroelectric site

sufficient for 90 MW of generating capacity, will include 36 MW of hydro plant
to be followed in the later 1980's by a further 54 MW of hydro plant.
4.12 Measuring the rate of return on the complete development and using
present tariff levels in calculating benefits gives a rate of return of 11.5%.
For the project only the rate of return would be 9%. The method of calcu-
lating the rate of return is described in Annex 11.
Project Monitoring System
4.13 Project monitoring standards were agreed with ESCOM at negotia-

tions. Major project elements to be monitored against target dates would be
the contract award and the construction of coffer dam, main dam, and power
station. Financial monitoring would focus on (a) financtbiiplans under five
yearly forecasts prepared annually; (b) rate of ret;r]; 'f cdllectionof
revenues; and (d) staffing. Guidelines for a project monitoring system are
given in Annex 13.
- 12-
V. ELECTRICITY SUPPLY CO14MISSIONOF MAALAWI
5.Oi The US$9 million standard Bank Loan would be made directly to ESCOM.
The Government of Malawi would be the borrower in the case of the US$8 mil-
lion Bank Loan on Third Window terms and US$8 million IDA Credit. Government
would relend the latter US$16 million finance to ESCOM (the beneficiary)
(para. 6.08).
Institutional Framework
5.02 ESCOM is a body corporate, established by the Electricity Act in

1963, when it took over the assets, liabilities and staff of the Ulyasaland
Electricity Supply Commission.
5.03 Under the Act the Commission consists of a chairman and not less
than three or more than five other members, all of whom are appointed by
the Minister. At the present time, ESCOM reports to the Ministry of Trade,
Industry and Tourism.
5.04 The present board consists of a local businessman, who is chairman,

and five other members, one of whom is a businessman. The four other members
consist of the CDC representative in Blantyre, the Permanent Secretary,
Ministry of Trade, Industry and Tourism, a retired civil servant, and an
official of the M1alawian Congress Party.
5.05 Under its Act ESCOM is at all times subject to the general direc-
tion of the M'inisterand requires ministerial approval of borrowings, capital
and revenue budgets and tariff changes. However, good working relationships
exist between the Minister and ESCOM which is allowed considerable initiative
in day-to-day operations and whose recommendations are usually accepted.
Organization and Management
5.06 ESCOM is a well-managed utility with experienced and competent

staff in its senior management positions. The General Manager has been
employed by ESCOM for many years and there has been little recent turnover
of staff in the senior management positions. Some shortages of supervisory
engineering staff exist, however, and higher salaries may be required to
attract the expatriate staff required. ESCOM's organizational structure is
shown in Annex 12.
5.07 ESCOM's total staff at the end of 1975 was about 1,200. Of about
110 senior positions, 33 were occupied by expatriates including three of
the four top management posts. However, through a well-considered training
program, the number of expatriates has been graduallv reduced and by 1980
ESCOM seeks to localize its entire staff.
5.08 A staff of 1,200 for an electricity supply undertaking of HSCOH's

size is rather high. Efforts have been made to control staff additi,-m9
however, and since the last Credit was made, they have l- -iJes - re-
lation to ESCOMI's growth. The suQcess of these efforts I ;e- -c itored
through the Project monitoring Guideline: -hown in Annex 13I
- 13 -
5.09 ESCOM's staff is competent to carry out the project with engineer-
ing consulting assistance and to carry out other capital works during the
project implementation period. To ensure the continuation of ESCOM's manage-
ment capability, were new appointments to the positions of General Manager,
Chief Engineer, Secretary and Financial Controller will not be made before
taking into account the views expressed by the Bank Group on the proposed
appointments.
Training
5.10 As mentioned in para. 5.07, ESCOM's objective is to be fully staffed

with Malawi nationals by 1980. To achieve this, there has been a continuous
training program in operation since 1963. An expatriate training manager
was replaced by a Malawi national last year. ESCOM has sent the new manager
to the United Kingdom to familiarize himself with training in a British
electricity undertaking.
5.11 At the present time, ESCOM has 13 students studying overseas for
degrees in mechanical and electrical engineering, one in civil engineering,
and a further five students taking technician courses. In 1977 it is expected
that five students will obtain their degrees and will join the Commission to-
gether with a further two students who have had technician training. ESCOM
also has two students studying abroad for professional accounting qualifi-
cations and one returned to Malawi in 1976.
5.12 To assist ESCOM in its training efforts, an amount of US$330,000

has been included in the proposed Credit for training. The amount is intended
to provide short-term management and technical training abroad for about 20
Malawian managers and technicians employed by ESCOM. ESCOM will continue to
finance the remaining parts of its training program from its revenues.
5.13 ESCOM recruits its technicians from the National Apprenticeship

Scheme and trains them by sending them to the local polytechnic for one year
followed by a three year apprenticeship. This program appears to have been
successful. In addition, to improve employee job performance, ESCOM conducts
a number of weekly classes on practical topics and also provides refresher
courses.
Accounting and Auditing
5.14 ESCOM's accounting records are well maintained and financial

reports are prepared promptly. Budgeted performance seems to be ade-
quately monitored and billing and collections are good. Inventory levels
are satisfactory.
5.15 ESCOM's audit is conducted by the international firm, Deloitte

and Company, and the arrangement is satisfactory. ESCOMIwould contnl__e
have its annual accounts audited by independent accountants e
Bank.
Risks
5.16 No major risks to the success of the project are foreseen.

- 14 -
VI. FINANCE
6.01 ESCOM's earnings over the last few years have been good and it is
expected that this will continue during the project construction period and
subsequently. ESCOM's actual and projected financial statements, consisting
of income statements, cash flow projections and balance sheets, are given
in Annexes 14, 15, and 16, respectively. The notes and assumptions for the
financial statements are in Annex 17, and a statement of loans outstanding
at December 31, 1975 and a debt statement are presented in Annex 18.
Past Earnings and Financial Position
6.02 The following 1970-1975 operating summary shows a good financial

performance by ESCOM. During the five-year period, kilowatt hours of elec-
tricity sold increased by 93%, revenues by 114% and net income by 126%.
1970 1971 1972 1973 1974 1975
Sales (millions of kWh) 122 132 158 178 192 236
…(millions of Kwachas) -
Revenues 2.64 2.87 3.48 3.82 4.15 5.66
Operating Expenses 1.38 1.55 1.97 2.19 2.44 2.81
Net Income (after depreciation

but before interest) 1.26 1.32 1.51 1.63 1.71 2.85
6+03 The rate of return ornaverage net fixed assets valued at historical
cost was at a high of 14% in 1972, declining temporarily below the present
covenanted level of 10% to 8% in 1974 when the Tedzani Falls Hydroelectric
scheme was added to the asset base, and then increasing to 13.6% in 1975.
Between 1970 and 1975 net fixed assets in operation, expressed in historic
costs, increased 2.3 times from MK 9.7 million in 1970 to MK 22.0 million in
1975. It is estimated that during the same period, ESCOM financed 23% of
capital expenditures, including interest during construction, from internal
cash generation. Considering the high level of capital expenditures during
this period, this is considered satisfactory.
6.04 ESCOM's debt/equity ratio improved from 85/15 at the end of 1970
to 76/24 at the end of 1975 as a consequence of a good level of net income
during this period. Despite this, however, ESCOM's cash position has been
tight because internal cash generation has been absorbed by increasing levels
of capital expenditure.
Tariffs
6.05 ESCOM introduced a tariff increase on January 1, 1975, which raised

average revenues by 12% and brought the average revenue per kilowatt hour sold
- 15 -
to MK 0.026 (US$0.029) and a further tariff increase on September 1, 1976

which is estimated to increase average revenues by about 20% to MK 0.031
(US$0.034) per kilowatt hour sold. To help improve ESCOM's financial via-
bility (see para. 6.12) ESCOM will make a further 30% tariff increase by
January 1, 1978 which should increase average revenues to MK 0.040 (US$0.044) 1/
per kilowatt hour sold. To provide for ESCOM's estimated cash requirements
during the construction period, ESCOM will adjust its tariff to provide an
annual rate of return on average revalued net fixed assets of not less than
12% during 1978 and 1979; and an 8% rate of return thereafter. In the finan-
cial projections it has been estimated that 10% tariff increase would be
required on January 1, 1979 and a further 10% increase on January 1, 1981.
ESCOM will review its tariff structure and consult with the Bank about struc-
tural changes before introducing any changes in its electricity rates.
6.06 For the purpose of measuring ESCOM's rate of return on net fixed
assets, these assets would be revalued at December 31, 1975 at a gross value
of MK 45.01 million less accumulated depreciation of MK 11.8 million. The
revaluation was estimated using the United Kingdom Manufacturers Export
Index, with some modifications. Although a better method of revaluing assets
should be established in future, the initial revaluation at December 31, 1975
is acceptable as existing assets would be relatively small compared to assets
to be placed in operation between 1976 and 1980. ESCOM will revalue its
fixed assets annually in accordance with methods acceptable to the Bank and,
after consultation with Government is expected to submit a proposal shortly.
In the financial projections an assumed annual 8-1/2% revaluation of fixed
assets has been made between 1976 and 1981, the year after the Nkula Falls II
Hydroelectric Project becomes operational.
Proposed Financing Plan
6.07 The Nkula Falls II Hydroelectric Project, estimated to cost MK 71

million (US$78 million), including interest during construction, would
represent about 66% of ESCOM's estimated total capital expenditure program
of MK 107.1 million (US$117.8 million) between 1976 and 1981. Under the
financing plan for this period summarized below, ESCOM would finance 30%
of capital expenditures and additions to working capital from internal cash
generation with the remaining finance coming substantially from loans.
1/ This would bring ESCOM's tariffs into the middle range for Eastern
African countries.
- 16 -
Millions of Millions of
Kwachas US Dollars %
Requirements
Project Expenditures (including

interest during construction)
Tedzani II /X 9.6 10.5 8

Nkula Falls II Hydroelectric Project 71.0 78.0 60
132-kV line - Stage I 7.8 8.7 7
- Stage II 9.0 9.9 7
Other /2 9.7 10.7 9
107.1 117.8 91
Additions to working capital 12.0 13.2 9
Total Requirements 119.1 131.0 100
Sources
Internal Cash Generation 65.0 71.5 55

Less: Debt Ser-vice/3 29.3 32.2 25
Net internal cash generation 35.7 39.3 30

Consumer Capital Contributions 2.1 2.4 2
Borrowings (including interest

financed through borrowings)
Tedzani II /1 (Second Power Project) 6.9 7.6 6
Nkula II
IBRD-Third Window 7.3 8.0 6

IBRD-Standard Loan 8.2 9.0 7
IDA 7.3 8.0 6
CDC 12.5 13.7 10
AfDB /5 3.6 4.1 3
FED 8.6 9.5 7
Federal Republic of Germany /5 3.8 4.0 3
Government /4 6.8 7.4 6
Other (see para. 6.12) 3.5 3.9 3
132-kV line - Stages I and II 12.8 14.1 11
Total Sources 119.1 131.0 100
/1 This represents estimated expenditures and borrowings to complete the

proiect financed under Credit 426-MAI ("Second Power Project".)
/2 Consists largely of estimated expenditures on distribution system
developments to be financed from internal cash generation.
/3 Excludes interest during construction.
/4 Interest added to advances under on-lending agreements.
/5 See Footnote 1, page 17.
-17 -
6.08 In the financing plan it has been assumed that the proceeds of the
proposed IBRD Loan of MK 8.2 million (US$9 million) would be made to ESCOM
over 20 years, including a 4-1/2-year grace period, at an 8-1/2% interest.
The actual interest rate would be that prevailing at the time the project is
presented to the Board, but an adjustment to this rate will not materially
effect the financing plan. Government intends to make the proceeds of the
Third Window Loans and IDA Credits available to ESCOM at the same interest
rate as the standard Bank Loan, with interest during the construction period
being added to the onlending and, repayments being made to Government over
20 years commencing 1981. It has been assumed in the financial projections
that FED, Federal Republic of Germany and AfDB funds would be made available
to ESCOM on similar terms to IDA and Third Window finance. 1/
6.09 The CDC loan would be for a 20-year term, including a 5-year grace
period, and at an 8-1/2% interest rate.
6.10 During the construction of the Nkula Falls II Hydroelectric Project,

ESCOM is expected to construct between 1978 and 1980 the second stage of a
transmission line from Nkula Falls II to Chinteche at an estimated cost
of MK 9 million (US$9.9 million), including interest during construction
(para. 2.11). It has been assumed that about 80% of this cost would be
provided from a loan, at an 8-1/2% interest rate repayable over 20 years
commencing 1981. The source of finance has yet to be arranged.
6.11 In view of this and other planned capital expenditures occurring

concurrently with the Nkula Falls II Hydroelectric Project, in order to
ensure that adequate finance is available for the proposed expenditures,
ESCOM will not undertake capital expenditures of more than US$1.5 million
(MK 1.36 million), other than the proposed project, until project completion
in any financial year without the Bank's agreement.
6.12 Delays in introducing tariff increases and mobilizing additional

finance for the first part of the Nkula Falls - Chinteche transmission line
(which would extend from Nkula Falls to Lilongwe), which is estimated to
cost MK 7.8 million (US$8.7 million), of which MK 4.9 million (US$5.4 mil-
lion) is being provided by AfDB will leave ESCOM facing an estimated MK 3.6
1/ Since the financial projections were completed it has been learned

that FED funds would be provided directly to ESCOM over 40 years includ-
ing a 10-year grace period, at a 1% interest rate. AfDB funds are to be
provided to Government over 15 years, including a 5-year grace period
at an 8% interest rate. We have just been advised that AfDB is prepared
to make a lona of up to US$6 million equivalent (5 million Units of
Account). Regarding the Federal Republic of Germany finance, we have
just learned that KfW, following a recent appraisal, is expected to
recommend to the Government a loan of up to DM 12 million (US$5 million
equivalent) which would probably be made available to Malawi on soft
terms. The loan would probably be made available by the Malawi Government to
ESCOM at an 8-1/2% interest rate, over 25 years, including a 4-1/2
year grace period.
- 18 -
million (US$3.96 million) cash deficit in 1977 despite good earnings from
operations. As a condition of effectiveness, ESCOM would make arrangements
satisfactory to the Bank to provide such funds. It is expected that part
of the estimated fund requirements would come from the continuance of ESCOM's
present overdraft facilities of MK 1.25 million (US$1.37 million). In the
financial projections it has been assumed that ESCOM would borrow MK 2.4 mil-
lion (US$2.64 million) in 1977 to be repaid in 1978. ESCOM has already
borrowed MK 1 million (US$1.1 million) from Indebank in 1977 to be repaid
in 1978.
Future Operating Results and Financial Position
6.13 The following summary illustrates ESCOM's projected growth and

financial performance between 1977 and 1983 under the financial plan. In
addition to a good financial operating performance ESCOM's liquid position
should improve considerably.
1977 1979 1981 1983

(Million of M Kwachas)
Operating Revenues 8.8 15.4 23.3 27.1

Operating Expenses 4.8 6.6 11.3 12.4
Net Income Before Interest 4.0 8.8 12.0 14.7

Net Internal Cash Generation 2.0 3.8 8.1 10.0
Operating Ratio 55 43 48 46
Debt/Equity Ratio 63 63 53 47
6.14 ESCOM will not incur debt, without prior Bank approval, unless future
debt service is covered at least 1.5 times by internal cash generation.
VII. AGREEMENTS REACHED AND RECOMMENDATION
7.01 During loan negotiations, agreement was reached on the following

principal points:
(a) that ESCOM will consult with the Bank regarding any proposed
appointments to the positions of General Manager, Chief
Engineer, Secretary and Financial Controller (para. 5.09);
(b) that ESCOM will maintain its tariffs at a level which will
yield at least 12% on its average revalued net fixed assets
in 1978 and 1979 and 8% thereafter (para. 6.05); and
(c) that ESCOM will not undertake annual capital expenditures,

other than the proposed projects of more than US$1.5 million
without the Bank agreement (para. 6.11).
- 19 -
7.6,2 Conditions of effectiveness of the proposed Bank Group finance are
(a) all conditions of effectiveness of the AfDB, CDC and FED

financial agreements have been fulfilled (para. 3.09); and
(b) ESCOM has made satisfactory arrangements to provide an

MK 3.6 million (US$4 million) finance for its estimated
1977 requirements (para. 6.12).
7.03 Subject to the foregoing, the project is suitable for Bank Group
finance of US$25 million equivalent.
March 11, 1977

MALAWI
NKULA FALLS II HYDROELECTRIC P'ROJECT
Statistical Data on ESCOM's Power System
1965 1966 1967 1968 1969 1970 19;t 19/2 1973 1974 1975
1. Power Production (GWh)

Diesel Production 5.83 5.74 4.67 5.65 6.76 8.11 10.01 9.36 6.88 3.54 10.00
Hydro Production 4.06 39.89 79.75 96.36 108.53 122.07 [31.85 159.51 184.29 209.37 220.00
Steam Production 42.29 23.09 0.74 0.37 0.82 2.84 3,.06 6.38 4.13 0.43 29.51
Total Genierated 52.18 68.72 85.16 102.38 116.11 133.02 144.92 175.25 195.30 213.34 259.51
2. Power Consumption (GWh)

Industrial Sector 26.53 37.98 46.63 57.81 64.41 74.72 79.74 99.75 112.07 116.57 151.59
Domestic Sector 10.80 12.08 15.33 17.72 19.73 21.85 23.34 25.43 27.29 30.14 32.46
Commercial Sector 7.52 10.10 13.82 16.04 18.09 20.75 23.47 26.92 31.23 37.27 43.55
Street Lighting 0.51 0.57 0.73 0.78 0.85 0.98 1.01 1.25 1.29 1.34 1.42
Others (includes export to P.E.A.) 0.42 0.46 0.95 1.57 2.62 3.60 4.90 5.80 6.16 6.93 8.08
Total Sales 45.78 61.19 77.46 93.92 105.70 121.90 132.46 159.15 178.04 192.25 237.10
3. System Demand (MW) 9.6 13.2 16.5 19.2 21.5 21.9 24.2 28.5 34.3 39.3 48.2
4. Power Generation Capacity

(Name plate Ratings in MW)
Hydro 0.60 24.60 40.60
Diesel 4.64 4.64 9.20
Gas Turbine 14.00
Steam 7.00 7.00 7.00
Total IIVZ4 3FT.2 70.80
5. Transmission System
66 kV lines (miles) 63 102 333
33 kV and lower (miles) 574 906 1,415
Total length of overhead lines (miles) 637 1,008 1,748
33 kV and lower Cables (miles) 12 27 42
66 kV Substation Capacity (MVA) - 59 134
33 kV and lower Substation Capacity (MVA) 53 89 159
Total Substation Capacity (MVA) 53 148 293
6. Average Tariff
In Malawian Tambala/kWh 2.84 2.26 1.90 1.83 2.00 2.00 2.05 2.02 2.09 2.12 2.39
In USG/kWh 3,12 2.49 2.09 .0l 2.20 2.20 2.25 2.22 2.30 2.33 2.63
7. Staff
Total Staff 675 604 728 838 790 853 954 1,103 1,253 1,110 1,206
Number of Expatriates 45 40 38 37 35 33
8. Number of Connections 5,317 6,494 7,042 7,829 8,702 9,709 10,539 11,698 12,814 14,312 15,300
February 1976
ANNEX 2
Page 1
MALAWI
NKULA FALLS II HYDROELECTRIC PROJECT
Existing Power Facilities of ESCOM
1. Most of the electricity generated by ESCOM is supplied to Malawi's

Southern Region, which includes Blantyre, the country's largest city, and
Zomba, the old capital, through the interconnected system. Part of the
Central Region, including Lilongwe, the capital city, is also supplied through
this system. This system accounts for 98% of the company's installed gene-
rating capacity of 95 MW, 97% of Jis about 16,000 electricity consumers, and
about 99% of its total 1975 sales of 237 GWh. These figures reflect the con-
centration of urban population and general economic activity in the Southern
Region. The location of interconnected power system is shown on the map
attached to the report. Other population centers with some economic activity
include Mzuzu and Salima which have installed thermal capacity of 1.1 MW.
2. Hydroelectric power plant owned by ESCOM has a total capacity of

40.6 MW, consisting of 24 MW at Nkula Falls, 16 MW at Tedzani and about 600
kW at Zomba. All these stations are on the Shire River and feed into the
interconnected system. The small Zomba Station was completed in 1954,
Nkula I in 1967 and Tedzani I in 1973, and Tedzani II (24 MW) has recently
been put into service (March 1977).
3. The remaining 30.2 MW capacity owned by ESCOM is provided by steam

units, diesel generating sets and a gas turbine at Blantyre, Lilongwe, Zomba,
Mzuzu and Salima. These units vary in size from 60 kW to 14,000 kW. The
installed plant capacity, at the end March 1977 is shown at the end of this
Annex.
4. Most of the system is interconnected by means of about 520 km of

66-kV primary and about 560 km of 33 kV secondary transmission lines. For
distribution networks 11 kV and 33 kV are used. In spite of long transmission
distances and high incidence of lightning, the reliability of supply is well
maintained through good maintenance practices. Transmission and distribution
losses expressed as a percentage of units generated together total 91 which
is satisfactory.
5. ESCOM's principal transmission system is shown on the map attached

to the report and statistical data on ESCOM's power system is given in
Annex 1.
6. The following is a list at ESCOM's plant and installed c2parity at

the end March 1977.
ANNEX 2
Page 2
Type of Rating of Year of Date Total Installed

Location Plant Units (kW) Manufacture Installed Capacity (kV)
Tedzani Falls I Hydro 2xlO,000 1973 1973 20,000
Tedzani Falls II Hydro 2xlO,000 1976 1977 20,000
Nkula Falls I Hydro 2x8,000 1966 1966 16,000
Nkula Falls I Hydro lx8,000 1967 1967 8,000
Blantyre Steam 2xl,000 1954 1954 2,000
Blantyre Steam 2x2 ,500 1955 1955 5,000
Blantyre Diesel lxl,340 1959 1959 1,340
Blantyre Diesel lxl,100 1956 1961 1,100
Blantyre Gas Turbine lx14,000 1975 1975 14,000
Zomba Hydro lx300 1953 1953 300
Zomba Hydro lx300 1954 1954 300
Zomba Diesel lxl,100 1956 1962 1,100
Lilongwe Diesel lx700 1963 1963 700
Lilongwe Diesel lxl,100 1956 1967 1,100
Lilongwe Diesel lx3,000 1971 1972 3,000
Mzuzu Diesel 1x60 1959 1962 60
Mzuzu Diesel 1x8 5 1947 1971 85
Mzuzu Diesel 1x235 1950 1972 235
Mzuzu Diesel lx240 1950 1973 240
Mzuzu Diesel 1x240 1951 1974 240
Total Installed Capacity (kW) 94,800
Total Installed Hydro Capacity (kW) 64,600
Total Installed Thermal Capacity (kW) 30,200

ANNEX 3
Page 1
MALAWI
Description of the Nkula Falls II Hydroelectric Project
1. That stretch of the Shire River between Kholombidza and Kapachire

Falls some 130 and 210 km, respectively below Lake Malawi, is known as the
Middle Shire. Liwonde Barrage, completed in 1965, lies approximately 80
km below the lake. In the 80 km of the Middle Shire, the river potential
has been estimated at about about 500 MW. The first development provided 24
MW generating capacity at Nkula Falls (Nkula I), and the second development
(Tedzani I) provided a further 16 MW at Tedzani Falls, 8 km downstream of the
Nkula Scheme. Construction of the second stage of the development of Tedzani
Falls (Tedzani II) has essentially been completed. By the construction of
Tedzani II, the installed capacity at Tedzani Falls has effectively been
increased to 40 MW.
Toprhy
2. The topography in the vicinity of the project is rugged with steep

valley side slopes and tributaries and little flood plain area all of which
contribute to sharp rises in the river during thunder storms and heavy silt
loads. General planning was based on several surveys culminating in 1965 in
a 1:20,000 scale aerial survey by Hunting Surveys, Ltd. The same company has
completed maps for Tedzani and Nkula dam sites and reservoir areas to a scale
of 1:1,000 with contour intervals for I m to 3 m depending on steepness of
slopes.
Geology
3. The site geology was explored by 20 borings in 1974-75 and after a

hydraulic model test suggested a relocation of the dam, and at the suggestion
of a Bank appraisal mission, four more borings were made. These explorations
together with those made for Tedzani are adequatie. The rock is a gneiss, i.e.
foliated or laminated, and in various places may be described as granitic,
biotite or hornblende biotite. Cracking or jointing is often encountered at
depth and weathering is often deep.
4. In view of the low height of the dam, there is little question as to

the adequacy of the foundation rock. Drilling tests reveal that foundation
problems are unlikely.
Hydrology
5. The hydrology of Lake Malawi and the estimation of the outflow

from the lake into its single drain, the Shire River, has been thoroughly
investigated in the past and is the subject of a number of studies. These
studies show that the lake can be regulated to provide a continuous minimum
ANNEX 3
Pag^ 2
flow of 170 m Is with a one year in 80 chance of failure. In addition to the

lake outflow, there is significant seasonal augumentation of the Shire River
flows by the tributaries entering below the Liwonde Barrage. The average flow
at Nkula Falls is 255 m Is and the maximum 700 m /s to 850 m /s.
6. The outflow of Lake Malawi which will be the source of most of the
water to be used by hydro plant is partially controlled by the Liwonde
Barrage, comprising a sill at river bed level and 14 tainter gates 9.15 m
long by 6.70 m high with 0.61 m high flash-boards atop each gate. Partial
control only is achieved by the dam because at low lake levels or very large
flows channel control will develop between the dam and the lake. Low lake
levels are possible because the difference in average inflow to the lake
and evaporation is small considering the size of the lake. The converse is
also true if inflows are unusually large. Present Malawi policy is to main-
tain a lake level at elevation 473.5 m and avoid levels higher than 474.8 m,
the highest level reached in 1964 before the dam was in operation. Tanzania
which forms part of the lake shoreline with Malawi and Mozambique is said to
be in agreement with these policies but Malawi has 3conducted studies which
considered minimum lake outflows higher than 170 m Is. 3These considerations
would involve higher lake levels. For instance a 230 m /s minimum flow would
mean lake levels up to 475.9 m. Although no damage estimates have been made
for lake levels above 474.8 m, it is the consultants judgement that Malawi
would suffer as much or more than the other shoreline countries, Mozambique
and Tanzania. Therefore, it is unlikely that Malawi in its own interest would
allow lake levels to go too high.
Silt
7. The Shire carries a silt load which sometimes exceeds 2,000 parts
per million. It is of a nature which is highly erosive to turbine runners
requiring replacement and repair sometimes in less than one year; despite
the most arduous efforts to flush the silt downstream, it will probably
reduce the small volumes of storage available to the Shire projects which
is valuable for daily regulation. Tedzani I Project included a siltation
chamber in the water ways as a solution to this problem, but it proved to be
a dismal failure. A spare turbine runner is included in the cost estimates
to replace damaged runners during maintenance period.
Description of Main Components
1. Dam: The Nkula II development is primarily based on a single

pressure aqueduct from an intake structure at the new dam to a surge chamber
on the hillside immediately behind the new powerhouse. A site for the latter
has been chosen only a short distance upstream from the existing Nkula I
station. Height and length of the earth-rockfill dam will be 7 m and about
700 m, respectively. The dam includes two concrete spillway constructions
containing the steel radial gates and a gated intake between the two
spillways.
ANNEX 3
Page 3
2. Headrace Tunnel: The upstream length, adjoining the intake, con-

sists of a reinforced concrete conduit arranged in two rectangular compart-
ments. The conduit, roughly 5.2 m x 10.4 m in effective cross-section is to
be constructed just below the level of the river bed over a total length of
about 280 m. This section will be followed by a large tunnel of 8.25 m
equivalent diameter, and as the rock through which it passes is of variable
quality, it is to be lined with concrete for its full length. The tunnel
extends over a length of 960 m from the portal to the surge chamber at the
downstream end.
3. Surge Chamber and Shaft: The reinforced concrete surge chamber is

located in high ground at a suitable distance from the powerhouse. It is
approximately 20.6 m in diameter and 32.2 m high from the floor to the top.
A vertical surge shaft, also concrete lined, connects the floor of the surge
chamber to the upstream end of the penstock tunnel situated some 26.0 m
beneath the floor.
4. Penstock: Downstream of the surge shaft, the tunnel section changes

over a short transition to the circular steel lined penstock tunnel of 5.5 m
diameter leading to a manifold behind the powerhouse. Manifold consists of
five valved outlets, one for each hydro unit.
5. Powerhouse and Tailrace Outfall: The building to house the five

turbo generators (ultimate development) consists essentially of a water-tight
substructure up to a level of 326 m, with a reinforced concrete and struc-
tural steel frame building above. All of the substructure wall will be
constructed in the first stage of deveploment, leaving open cells in which
to place successive turbines after the first two (first phase) have been
completed. These cells, left open to the river, can be pumped out when
required by installing the tailrace gate to enable the draft tube, spiral
casing, etc., to be installed and encased in concrete.
6. Mechanical and Electrical Plant: The plant design provides for

the installation of five turbine generator units each of 18 MW output, the
turbines being supplied by a manifold type penstock from a single pressure
tunnel and surge control shaft, described above. Each penstock branch will
be provided with a turbine control valve of the butterfly type. The first
stage of construction would include two machines. The draft tube outlets
of each turbine will be capable of closure, for maintenance access to the
turbines and draft tubes, by twin rectangular leaf gates, each 5.5 m wide
and 3.0 m high. The generating sets will be of the vertical type with
Francis turbines developing 24,100 h.p. at a design net head for rated out-
put of 50.9 m. A suitable synchronous speed would be 250 rpm. At rate head
and full output, the turbine discharge will be 40 m |s. Generators will be
of the vertical semi-umbrella design with a rating of 18 NW or 20 MVA at 0.90
lagging power factor. Stators will be wound for 11 kV, 3-Phase.
ANNEX 4
Page 1
MALAWI
PROJECT COST ESTIMATE

(Exchange Rate K 1.0 = US$1.10)
Millions of MKwachas Millions of US Dollars

Description Local For. Total Local For. Total
Part A
1.00 Civil Works
1.01 Cofferdams 0.14 0.30 0.44 0.15 0.34 0.49
1.02 Dam & Intake 2.44 5.61 8.05 2.68 6.18 8.86
1.03 Conduit, Tunnel, Surge

Chamber & Penstocks 2.48 5.86 8.34 2.73 6.44 9.17
1.04 Powerhouse, Trailrace

& Switchyard 1.34 3.18 4.52 1.47 3.50 4.97
1.05 Roads 0.02 0.08 0.10 0.03 0.08 0.11
1.06 Modifications Nkula I 0.16 0.34 0.50 0.18 0.37 0.55
1.07 Subtotal 1.01-1.06 6.58 15.37 21.95 7.24 16.91 24.15
1.08 Physical Congingency 20% 1.32 3.07 4.39 1.45 3.38 4.83
1.09 Price Contingency /1 1.53 3.58 5.11 1.68 3.94 5.62
1.10 Engineering & Admin. 10% 0.94 2.40 3.34 1.03 2.64 3.67
Subtotal Al 10.37 24.42 34.79 11.40 26.87 38.27
2.00 Gates
2.01 Dam Gates 0.25 1.53 1.78 0.27 1.68 1.95
2.02 Intake Gates 0.04 0.33 0.37 0.05 0.36 0.41
2.03 Penstock Pipes 0.18 1.01 1.19 0.20 1.11 1.31
2.04 Subtotal 2.01-2.03 0.47 2.87 3.34 0.52 3.15 3.67
/1 Price contingencies: 17.3% for local currency of civil works; 17.2% for
foreign currency of civil works; 27.7% for local currency of equipment;
and 16% for foreign currency of equipment have been added (see page 4
of this Annex).
ANNEX 4
Page 2

2.05 Physical Contingency 10% 0.04 0.29 0.33 0.05 0.32 0.37
Subtotal A2 0.70 3.96 4.66 0.77 4.35 5.12
TOTAL A 11.07 28.38 39.45 12.17 31.22 43.39

Part B
1.01 Turbines, Generators

& Crane 1.60 9.50 11.10 1.76 10.45 12.21
Subtotal Bi 2.43 12.99 15.42 2.67 14.29 16.96
2.01 Switchgear, Transformers

& Controls 0.42 2.97 3.39 0.46 3.27 3.73
Subtotal B2 0.67 4.19 4.86 0.73 4.62 5.35
3.01 Cables, Lighting, Power

& Ventilations 0.05 0.20 0.25 0.08 0.20 0.28
/1 Price contingencies: 17.3% for local currency of civil works; 17.2% for
foreign currency of civil works; 27.7% for local currency of equipment;
and 16.0% for foreign currency of equipment have been added (see page 4
of this Annex).
ANNEX 4
Page 3

3.05 Subtotal B3 0.08 0.28 0.36 0.11 0.28 0.39
TOTAL B 3.18 17.46 20.64 3.51 19.19 22.70

Part C
1.1 Training 0.10 0.20 0.30 0.11 0.22 0.33
TOTAL PROJECT COST 14.35 46.04 60.39 15.79 50.63 66.42

ANNEX 4
Page 4
Price Escalation
Assumptions
1. Base cost estimates March 1977

2. Rate of escalation 1/ throughout construction period and disbursements
are:
Civil Works - Equipment 2/ Total

Local Currency For. Exchange Local Currency For. Exchange Escalations
Years % M Km % MKm % M Km % M Km M Km
1977 9 0.104 9 0.243 9 0.000 7.5 0.124 0.471

1978 9 0.442 9 1.043 9 0.083 7.5 0.595 2.163
1979 9 0.556 9 1.309 9 0.312 7.5 0.624 3.801
1980 9 0.219 8 0.506 9 0.211 7 0.269 1.205
1981 9 0.209 8 0.477 9 0.236 7 0.346 1.268
Total 1.530 3.578 0.842 2.958 8.908
3. The above calculations give a price escalation of 17.3% for local currency
of civil works; 17.2% for foreign currency of civil works; 27.7% for local
currency of equipment; 16% for foreign currency of equipment; and 17.4%
on the total Project base cost.
1/ On the basis of Bank Gudelines.

2/ Yearly construction expenditures would be:
…---------------------
Millions of Kwachas ------------------------
Civil Works Equipment
Local Foreign Local Foreign Total
Years Currency Currency Total Currency Currency Total Project
1977 2.30 5.41 7.71 - 3.32 3.32 11.03

1978 3.18 7.50 10.68 0.60 5.16 5.76 16.44
1979 2.30 5.42 7.72 1.34 8.12 9.46 17.18
1980 0.62 1.46 2.08 0.60 0.94 1.54 3.62
1981 0.44 1.05 1.49 0.50 0.92 1.42 2.91
Total
Base 3/ 8.84 20.84 29.68 3.04 18.46 21.50 51.18
3/ Total Base includes engineering and physical contingency but excludes

price contingency and IDC.
ANNEX 5
MALAWI
Estimated Disbursement Schedule for IDA Credit
IDA Fiscal Year Quarterly Cumulative Disbursements Undisbursed at

and Quarter Disbursements at End of Quarter End of Quarter
(Thousands of US Dollars)
1977/78
December 31, 1977 5,610 5,610 2,390

March 31, 1978 1,390 7,000 1,000
June 30, 1978 1,000 8,000
Estimated Disbursement Schedule for the Bank Loan 1/
1978/79
September 30, 1978 3.400 (1,600) 3,400 (1,600) 13,600 (6,400)

December 31, 1978 3,260 (1,530) 6,600 (3,130) 10,340 (4,870)
March 31, 1979 2,400 (1,130) 9,060 (4,260) 7,940 (3,740)
June 30, 1979 2,200 (1,040) 11,260) (5,330) 5,740 (2,700)
1979/80
September 30, 1979 1,100 (520) 12,360 (5,820) 4,640 (2,180)

December 31, 1979 1,040 (490) 13,400 (6,350) 3,600 (1,690)
March 31, 1980 700 (320) 14,100 (6,630) 2,900 (1,370)
June 30, 1980 500 (230) 14,600 (6,860) 2,400 (1,140)
1980/81
September 30, 1980 420 (200) 15,020 (7,060) 1,980 (940)

December 31, 1980 400 (190) 15,420 (7,250) 1,580 (750)
March 31, 1981 400 (190) 15,820 (7,440) 1,180 (560)
June 30, 1981 400 (190) 16,220 (7,630) 780 (370)
1981/82
September 30, 1981 400 (190) 16,620 (7,820) 380 (180)

December 31, 1981 380 (180) 17,000 (8,000) -
1/ Total Bank loans is US$17 million of which US$8 million Third Window. Bank
Loans wil be disbursed pro-rata on the basis of 9:8 ratio. Third Window
Loan disbursements are shown in parenthesis.
ELECTRICITY SUPPLY COMMISSION OF MALAWI
CONSTRUCTION OF STAGE 11NKULA FALLS HYDROELECTRIC PROJECT
CONSTRUCTION PROGRAM
1976 1977 1978 1979 1980 1981 1982
Quartersl 11 .L.jL..l1
CIVIL ENGINEERING PROGRAM
ENGINEERING
DOCUMENTS & CONTRACT AWARD
MAIN CIVIL WORKS s T
S R
PENST'OCKS & MANIFOLD T A
GATES AND SCREENS S R
CONSTRUCTION
MOBILIZATION CLOSORE
BARRAGE STRUCTURES AND INTAKE CD CONSRUCTION MBKMT

-
INTAKE, BARRAGE GATES & SCREENS . __
D
TUNNEL, CONDUIT, SURGE CHAMBER DRIVE
& PENSTOCKS am LINE
PENSTOCK ST'EEL LINING _L A D_
POWER STATION & TAILRACE

EXCAVATION COSRCINFIHE
C_NTRUCT ONr
MODIFICATIONS NKULA I m 1# Is _ a
PLANT PROGRAM
CONTRACT NO. I
WATER AVAIL-ABLE
TURBINES/AL-FERNATORS/CRANE R
DOCUMENTS & CONTRACT AWARD T
MANUFACTURE & DELIVERY
ERECTION & COMMISSIONING
COMMERCIAL SERVICE UNIT I MAINTENANCE
CONTRACT NO. 2
SWITCHGEAR/TRANSFORMERS T
CONTRACT NO. 3
(CABLES, LIGI-I ING, SMALL POWELR, ETC.I EWlf - =F i_
LEGEND. S - SPECIFICATIONS A AWARD U - DELIVERY

T I ENDER PERIOD M - MANUFACTURE E ERECTION
R - REPORT ON TENDERS CD COFFERDAM C COMMISSIONING
World BaeE-1569WiRI
ANNEX 7
Page I
MALAWI
NKULA FALLS II RYDROELECTRIC PROJECT
ACTUAL SALES AND MAXIMUM DEMAND
1967 1968 1969 1970 1971 1972 1973 1974 1975
Industrial Sales (GWh)
Southern Region 1/ 44.84 55.74 62.01 71.93 76.83 95.78 106.97 111.94 146.30
Lilongwe 2/ 1.66 1.89 2.07 2.43 2.94 3.46 4.33 3.80 4.30
Others _/ 0,13 0.18 0.33 0.36 0.42 0.51 _ 0.77 0.85 0.99
Total 46.63 57.81 64.41 74.72 79.74 4/ 99.75 112.07 116.57 151.59
Growth Rate % 24.2 24.0 11.4 16.0 7.1 - 25.0 12.3 4.0 4A 30.0
Domestic Sales (GWh)
Soutbern Region 14.49 16.77 18.54 20.33 21.49 23.06 24.03 25.50 27.10
Lilongwe 0.76 0.87 1.08 1.36 1.72 2.20 2.95 4.24 4.90
Others 0.08 0.08 0.11 0.16 0.13 0.17 0.31 0.40 0.66
Total 15.33 17.72 19.73 21.85 23.34 25.43 27.29 30.14 32.46
Growth Rate %/ 26.8 15.6 11.3 10.7 6.8 8.9 7.3 10.4 7.7
Copmercial Sales (GWh)
Southern Region 12.77 14.56 16.38 18.64 20.99 23.56 26.32 29.43 34.40
Lilongwe 0.85 1.06 1.25 1.44 1.74 2.46 3.69 6.42 7.50
Others 0.20 0.42 0.46 0.67 0.74 0.90 1.22 1.42 1.65
Total 13.82 16.04 18.09 20.75 23.47 26.92 31.23 37.27 43.55
Growth Rate 7 36.8 16.0 12.8 14.7 13.1 14.7 16.0 19.3 16.8
High Density Residential Sales (_GWh)
Southern Region 0.43 0.62 0.88 1.27 1.72 2.37 2.93 3.84 4.50
Lilongwe 0.05 0.07 0.08 0.10 0.13 0.18 0.22 0.39 0.49
Others 0.01 0.01 0.01 0.02 0.03 0.05 0.07 0.09 0.10
Total 0.49 0.70 0.97 1.39 1.87 2.60 3.22 4.32 5.09
Growth Rate 1. 50.8 42.8 38.6 43.3 34.5 39.0 23.8 34.2 17.8
Street Lighting (GWh)
Southern Region 0.59 0.62 0.68 0.81 0.81 1.04 1.08 1.13 1.21
Lilongwe 0.14 0.16 0.17 0.17 0.20 0.21 0.21 0.21 0.21
Others
Total 0.73 0.78 0.85 0.98 1.01 1.25 1.29 1.34 1.42
Growth Rate 2T 27.8 6.8 9.0 15.3 3.1 23.8 3.2 3.9 5.6
General Purpose and Special

Agreements (GWh)
Southern Region 0.34 0.39 0.42 0.46 0.47 0.48 0.48 0.53 0.61
Lil=ngwa 0.11 0.25 0.34 0.46 0.47 0.60 0.04 0.05 0.06
Others 0.01 0.01 0.01 0.01 0.16 0.23 0.23 0.28 0.30
Total 0.46 0.65 0.77 1.08 1.17 1.30 0.80 0.88 0.99
Total Sales (GWh)
Soothern Region 73.46 88.70 98.91 113.44 122.31 146.29 161.81 172.37 214.12
Lilongwe 3.57 4.30 4.99 5.96 7.20 9.11 11.44 15.11 17.46
Others 0.43 0.70 0.92 1.22 1.48 1.85 2.59 3.04 3.50
Rogian's Total 77.46 93.70 104.80 120.62 130.99 157.25 175.84 190.52 235.08
Export to Moaembique - 0.22 0.90 1.28 1.47 1.90 2.20 1.73 2.00
Total Sales 77.46 93.92 105.70 121.90 132.46 159.15 178.04 192.25 237.10
Growth Rate 7. 26.6 21.2 12.5 15.3 8.7 20.1 11.9 8.0 23.3
Units Generated (GWh) 85.16 102.38 116.11 133.02 144.92 175.25 195.30 213.33 259.51
Maxiiun Demand (MW) 1/ 16.5 19.2 21.5 21.9 24.2 28.5 34.3 39.3 48.2
System Load Pactor / 1/ 55.6 57.6 58.0 65.3 63.8 66.5 64.0 61.6 61.3
I/ Blantyre and Southern loads (interconnected system).
2/ Lilongwe was connec ted to the interconnected system in 1973.
3/ Others include Mu-zuz and Chintechi which will be connected to the interconnected system by 1981, and also Dedze, Liwonde and Mengochi which were connected to
the System in 1974.
4/ Low growth rates are due to lower energy consumption by SUCOMA a najor industrial consuner.
IBRD
Jaorary 1976
ANNEX 7
Page 2
MALAWI
NK00LAFALLS II HYDROELECTRIC PROJECT
PROJECTED SALES AND MAX5IMUM

DEA1
1976 1977 1978 1979 1980 1981 1982 1983 1984
,d--rial Sales (GWh)
Sputhern Region 154.27 166.08 184.78 197.99 219.07 232.05 249.67 268.59 290.35
Lilongw~e 5.43 6.38 6.80 8.72 9.92 11.03 12.90 14.91 16.90
Others 1.04 1.15 1.34 1.44 14.09 61.83 61.91 62.04 62.10
Total 160.74 173,61 192.92 208.15 243,08 304.91 324.48 345.54 369.35
Growth Rate % 6.0 8.0 11.1 7.9 16.8 25.4 6.4 6,5 6.9
Domestic So-es (1846)
Southoro Region 29.74 32.12 34.69 37.46 40.46 43.70 47.19 50.97 55.00
flot-gwc 5.69 6.91 8.27 10.05 12.50 14.50 15.10 15.74 16.45
0.52 0.58 0.66 0.72 0.80 0.89 0.97 1.07 1.17
mooDl 35.95 39.61 43.62 48.23 53.76 59.09 63.26 67.78 72.62
Dotth late *, 10.7 10.2 10.1 10.6 11.5 9.9 7,1 7.1 7.1
S'0100th- Rcomai 38.10 42.20 46.75 51.78 57.36 63.54 70.38 77.97 86.40
5al atoazo 9.84 10.93 11.99 13.98 14.68 16.C1 17.01 18.00 19.20
1.97 2.13 2.36 2.60 3.04 3.42 3.83 4.28 5.91
T,t.l 49.91 55.26 61.10 68.36 75.08 82.97 91.22 100.25 111.51
rc-tlth Rato ' 14.6 10.7 10.6 11.9 9.8 10.5 9.9 9.9 11.2
Righ Deosoty Residentir1 Sales (350a)
Solthern Region 6.30 8.18 9.08 12.36 15.99 19.90 24.20 29.00 35.00
Saroco 0.66 0.87 1.32 1.67 2.22 2.95 3.33 3.90 4.60
tOthers 0.13 0.16 0.19 0,21 0.24 0.28 0,31 0.35 0.40
7.09 9.21 11.39 14.24 18.45 23.18 27.84 33.25 40.00

Growet Rt- 2 36.3 29.9 23.7 25.0 29.6 25.6 20.0 19.4 20.3
et-eeL ig [I_go 31S7LI
S;.0.h5rn 04 ax' 1.30 1.35 1.40 1.45 1.50 1.60 1.70 1.80 1.90
0.25 0.30 0.30 0.30 0.35 0.35 0.40 0.40 0.50
le-s
C 0.13 0.25 0.35 0.40 0.50 0.50 0.50 0.56 0.60
1.68 1.90 2.05 2.15 2.35 2.45 2.60 2.76 3.10

Pate
'.ros-thobo 18.3 13.0 7.9 4.9 9.3 4.2 6.1 6.2 12.3
anhd Special ARre-emts (0W'1)
S Rog On 0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40
-. ;-ra,u 9.l0 0.IO 0.10 0.10 0.10 0.10 0.10 0.10 0.10
C l, ers 0.15 0.15 0.15 0.19 0.20 0.20 0.20 0.20 0.20
0.85 0.95 1.05 1.19 1.30 1.40 1.50 1.60 1.70
xor m'.egion
8e^i 230.31 250.63 276.90 301.94 335,38 361.89 394.34 429.63 470.05
21.97 25.67 29.97 34.82 39.84 44.94 48.73 53.05 57.75
Ot-sr. 3.93 4.47 5.00 5.56 20.12 67.07 67.83 68.52 70.38
To.tl 256.21 280.77 311.87 342.32 395.34 473.90 510.90 551.20 598.28
EF0001 to
-- 1otbiq-e 2.29 2.63 3.03 3.48 4.00 4.60 5.20 6.00 6.90
?otsl Sales 258.50 283.40 314.90 345.80 399.74 478.50 516.10 557.20 605.18
leo.l-ex R. lt %. 9.0 9.6 11.1 9.8 15.6 19.7 7.9 8.0 8.6
boL.s booeonerot (G.ih) 283.00 310.27 344.75 378.58 437.63 523.86 565.03 610.02 662.55
Doasad
C-xiort (7'I) 53.3 59.8 66.6 73.1 81.9 95.4 103.4 112.0 121.3
Syst-m Load Faot . 60.1 59.5 59.5 59.1 61.0 62.7 62.0 62.0 62.3
osoary 1776
ANNEX8
MALAWI
NKULA FALLS 11HYDROELECTRIC PROJECT
ESCOM INTERCONNECTED SYSTEM <
INSTALLED AND FIRM CAPACITY AND MAXIMUM DEMAND
0z
220
210 _ Z >, X|
210~~~~~~~~~~~~~~~~~~~~~~~~
o cc
200 2
190
LU Z
180 Z
2 Z
0 H -
170 OM Z.
z
150 _>t B INSTALLED r .. -- H
140 - DNCAPACITY zU
L -
x
130 , HZ H_
10 -C
<
120 - o I
< l0 0
N ,
JJ ~~~~~~~~~~0
LU
H
90 - -(
- ~~~~~~~~0
~ N
80 2 0'uJ
70 Z --
70
50 :E
C)
INSTALLED
~~~~~~~~~~~~~MAXIMUM
DEMAND
co CAPACITY
io ACUA DEMAN V) RJCEDDMN
100~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ol
Han-169
20 * .
FIRM
10 CAPACITY
1965 66 67 68 69 70 71 72 73 74 75176 77 78 79 80 81 82 83 84 85 86 87 88
ACTUAL DEMAND -PROJECTED DEMAND
VVo,idBank-1 5899
ANNEX 9
MALAWI
ESCOM - INTERCONNECTED SYSTEM
INSTALLED AND FIRM ENERGY
GENERATION CAPACITY AND SYSTEM
ENERGY REQUIREMENT
0
1100
m <
1000
z~~~~
800 < IT
I~~
LU x
100 _ j
~ w
LU~~~~~~~~c
~~~~~~~ I
-
LLI
600 N
N
7 I-
I,
z *T INSTALLED
ENERGY
0 GENERATION
500 ui 0~~~~~~~~ CAPACITY
200 - = j-- n CAPAC TY~~~~~>

i 0~~~~~~~~~~~
Z) ~~~~~C)
= -r~~~~~~~~~~~~~~~~~~c
FIR ENERGY ..........
SYSTEM ENERGY
0 ~~~~~~~~~~~~~~~~~~REQUIREME
HYDRO
GENERATION
200 - ~~~~~~~~~~~~~~~CAPACITY
100
FIRM ENERGY GENERATION
CAPACITY
1965 66 67 68 69 70 71 72 73 74 75_1 76 77 78 79 80 81 82 83 84 85 86 87 88
- - ~~~~ACTUAL PROJECTED
WVo,dB..k-15697(R)
ANNEX 10
Page 1
MALAWI
Comparison of the Project with Alternatives
Selected Alternative Development Programs
1. This Annex discusses the four cheapest alternatives among the 80

different possible development strategies that the consultants analyzed be-
fore making their recommendations. Details of these studies are shown in
the consultants project report. 1/
2. Selection of the next step of expanding ESCOM's generating capacity

involved the economic analysis of different possible development strategies
which would satisfy the increasing demand in the interconnected power system
over the planning period. The cost streams of these various strategies have
been compared, and the development program which includes the construction of
Nkula Falls II Hydroelectric Project as the first step proves to be the most
economic alternative. This program provides for the commissioning of Nkula
Dam in 1980, with two hydro units of 18 MW each at the proposed Nkula II Power
Station (Alternative 1). The total cost of the program includes operation
and maintenance. This program is characterized by high expenditures during
the first years of planning period, due to the construction costs of the
Nkula Dam, a power station adequate for 5 units 18 MW each and low expen-
ditures after the construction of the project because of very limited run-
ning costs (no fuel cost). The total cost of the program also includes
the cost of the gas turbines and their related running costs which would be
required to satisfy the system demand over the entire life of the proposed
project.
3. The main alternative program for the development of the inter-

connected system would commence with two diesel sets of 10 MW each, one to
be installed in 1980 and the second 1981 together with Nkula II first and
second units (18 MW each) postponed by about two years until 1981. This
program (Alternative 2) would have low expenditures during the first years of
the planning period, but high expenditures in the running costs to cover the
system energy requirement in 1980 and 1981.
4. A third alternative is for the construction of coal based steam

units to be followed later by hydro developments (Alternative 3) and a fourth
alternative is an exclusively hydro development.
1/ The report, issued in May 1975, is entitled "Project Report for Nkula
Falls Hydroelectric Scheme Stage II" and was prepared by three British
consulting firms: Kennedy and Donkin; Watermeyer, Legge, Piesold &
Uhlmann; Coopers & Lybrand Associates Ltd.
ANNEX 10
Page 2
Other Possible Alternatives
5. Other thermal-hydro blend alternatives (by changing the commission-

ing years of possible thermal and hydro plants and number of units) have also
been considered but that these alternatives are equivalent to Alternatives 2,
3 or 4 and have a higher present value than Alternative 1 for discount rate of
4% to 21%.
Method of Comparison
6. The alternative plans have been extended over the period of 40 years
to attain a common facility point and also to reach a point of insignificance
for the present worth factor.
7. Equalizing Discounted Rates (EDR) among the basic streams of the

selected alternatives (see construction schedule on page 4 of this Annex),
are as follows:
- Alternative I would be cheaper than Alternative 2

at discount rates of less than 24%; and
- Alternative 1 would be cheaper than Alternatives 3

and 4 at discount rates of less than 25%.
8. The sensitivity of the equalizing discount rates to changes in the

major variables (capital costs, operating costs, load growth) was tested as
follows:
Capital Cost
9. It was considered unlikely that the mission's capital cost estimates

for hydro and thermal schemes would be exceeded, since the cost estimates
revised on the bases of contractor's offers for the civil works, and adequate
allowances for possible additional works and contingencies (20% for civil
works and 10% for equipment) have been included in the cost estimates. The
effects of up to 15% increases in electrical/mechanical equipment costs except
for gates and screens) would be as follows:
- Alternative 1 would be cheaper than Alternative 2 at discount

rates lower than 12%; and
- Alternative 1 would be cheaper than Alternatives 3 and 4 at

discount rates lower than 22% and 24%, respectively.
Load Growth
10. The growth of demand has been projected on the basis of a detailed
analysis of future electricity consumption of large industrial consumers and
on the correlation between demand of the remaining consumers and the expected
ANNEX 10
Page 3
development of Malawi's economy. If the expectation of economic growth in

Malawi is too optimistic, then the load growth could be lower than projected.
A lower load growth would lead to a reduction in fuel consumption and conse-
quently in the total present value of Alternatives 2 and 3. A reduction in
load growth by 15% would reduce the EDR's as follows:
- Alternative 1 would be cheaper than Alternative 2

at discount rates lower than 22%; and
- Alternative 1 would be cheaper than Alternatives 3

and 4 at discount rates lower than 21% and 23%,
respectively.
MALAWI
Alternative Development Programs
Commissioning Years of Proposed Plants
Alternative No. 1 Alternative No. 2 Alternative No. 3 Alternative No. 4

1980 Nkula II (2x18 MW) Diesel 2x10 MW Steam 2x19 MW Nkula II 2x18 MW
1981 Nkula II 18 MW
1982 Gas Turbine 14 MW Nkula II 2x18 MW Gas Turbine 14 MW Nkula II 18 MW
1983
1984 Gas Turbine 14 MW Steam 19 MW Nkula II 18 MW
1985 Nkula II 18 MW Nkula II 18 MW Gas Turbine 14 MW
1986 Kapachira 2x20 MW Nkula II 18 MW
1987 Nkula II 18 MW Nkula II 18 MW Kapachira 30 MW
1988 Nkula II 18 MW Nkula II 18 MW
1989 Kapachira 2x30 MW Kapachira 20 MW Kapachira 2x30 MW
1990 Gas T.14MW+Kapachira 2x30MW Kapachira 20 MW
1991
1992 Kapachira 30 MW Kapachira 20.MW Kapachira 30 MW
1993 Kapachira 30 MW Kapachira 20 MW Mpatamanga 30 MW
1994 Kapachira 30 MW Mpatamanga 2x30 MW
1995 Kapachira 30 MW Mpatamanga 2x30 MW Mpatamanga 30 MW
1996 Mpatamanga 2x30 MW Mpatamanga 30 MW X |
1997 Mpatamanga 30 MW Mpatamanga 30 MW Mpatamanga 30 MW 4

1998 Mpatamanga 30 MW Mpatamanga 30 MW Kholombidza 2x30 MW Mpatamanga 30 MW o
1999 Mpatamanga 30 MW Kholombidza 2x30 MW Kholombidza 2x30 MW
2000 Kholombidza 2x30 MW Kholombidza 30 MW Kholombidza 2x30 MW Kholombidza 30 M1W
February 1976
ANNEX 10
Page 4A
MALAWI
Calculation of Equalizing Discount Rate

Cost Stream in MK Million
Alternative #1
Development Strategy: The Project with Gas Turbines
Construction Expenditures Operation Expenditures

Mpata- Kholmo-
Years Nkula II Gas Turb. Kapachira manga bidza Thermal Hydro Total
1977 11.0 11.0

78 16.4 16.4
79 17.2 17.2
80 3.6 1.5 0.5 5.6
81 4.3 1.5 0.5 6.3
82 1.2 3.0 1.0 0.5 5.7
83 1.7 1.5 1.0 0.5 4.7
84 4.2 1.5 1.5 0.5 7.7
85 3.2 1.5 0.5 5.2
86 5.2 9.6 1.5 0.5 16.8
87 4.0 13.7 1.5 0.5 19.1
88 1.2 1.5 18.9 1.5 0.5 23.6
89 1.5 8.9 2.0 0.5 12.9
1990 1.5 4.4 1.0 1.0 7.9
91 4.9 11.3 0.5 1.0 17.7
92 2.8 16.4 0.5 1.0 20.7
93 4.3 24.2 1.0 1.0 30.5
94 1.9 13.1 1.0 1.0 17.0
95 1.7 9.1 1.0 1.0 12.8
96 4.8 11.7 0.5 1.5 18.5
97 2.0 17.4 0.5 1.5 21.4
98 1.8 23.9 0.5 1.5 27.7
99 1.8 10.5 0.5 1.5 14.3
2000 1.5 3.3 0.5 2.0 7.3
01 1.5 0.5 2.0 4.0
02 3.0 0.5 2.0 5.5
03 1.5 0.5 2.0 4.0
04 1.5 0.5 2.0 4.0
05 0.5 2.0 2.5
06 0.5 2.0 2.5
07 0.5 2.0 2.5
08 1.5 0.5 2.0 4.0
09 1.5 0.5 2.0 4.0
2010 1.5 0.5 2.0 4.0
2011-2020 0.5 2.0 2.5
Miarch 1977
ANNEX 10
Page 4B
MALAWI

Alternative #2
Development Strategy: The Project with Diesel Sets

Mpata- Kholmo-
Years Nkula II Diesel Kapachira manga bidza Thermal Hydro Total
1977 0 2.2 2.2

78 11.0 3.7 14.7
79 16.4 3.0 19.4
80 17.2 1.5 3.0 21.7
81 3.6 2.0 0.5 6.1
82 4.3 1.0 0.5 5.8
83 1.2 1.0 0.5 2.7
84 1.7 1.0 0.5 3.2
85 4.2 9.6 0.5 0.5 14.8
86 3.2 13.7 0.5 0.5 17.9
87 5.2 18.9 3.0 0.5 27.6
88 4.0 8.9 0.5 0.5 13.9
89 1.2 4.4 1.5 1.0 8.1
1990 4.9 11.3 1.5 1.0 18.7
91 2.8 16.4 1.0 1.0 21.2
92 4.3 24.2 1.0 1.0 29.5
93 1.9 13.1 1.5 1.0 17.5
94 1.7 9.1 0.5 1.0 12.3
95 4.8 11.7 0.5 1.5 18.5
96 2.0 17.0 0.5 1.5 21.0
97 1.8 23.9 0.5 1.5 27.7
98 1.8 16.6 0.5 1.5 20.4
99 13.8 0.5 2.0 16.3
2000 2.7 0.5 2.0 5.2
01 0.5 2.0 2.5
02 2.2 0.5 2.0 4.7
03 3.7 0.5 2.0 6.2
04 3.0 0.5 2.0 5.5
05 1.5 0.5 2.0 4.0
06 0.5 2.0 2.5
2007-2020 0.5 2.0 2.5
March 1977
ANNEX 10
Page 4C
MALAWI

Alternative #3
Development Strategy: Thermal Plants First

Mpata- Kholmo-
Years Steam Gas Turb. Kapachira manga bidza Thermal Hydro Total
1977 8.2 8.2

78 11.2 11.2
79 11.7 11.7
80 7.8 1.5 2.8 12.1
81 3.9 1.5 2.0 7.4
82 2.8 1.5 8.7 6.0 19.0
83 3.9 1.5 11.0 5.0 21.4
84 1.9 1.5 15.7 6.0 25.1
85 1.5 7.5 5.0 18.0
86 3.5 9.0 0.5 10.0
87 3.7 1.5 0.5 5.7
88 1.8 1.0 0.5 3.3
89 3.0 11.3 1.0 0.5 15.8
1990 1.8 16.4 1.0 0.5 19.7
91 1.3 24.2 1.0 0.5 27.0
92 1.3 13.1 1.0 0.5 15.9
93 9.1 1.0 0.5 10.6
94 4.8 1.0 1.0 6.0
95 2.0 11.7 1.0 1.0 15.7
96 1.8 17.0 1.0 1.0 20.8
97 1.8 23.9 1.0 1.0 27.7
98 11.4 1.0 1.0 13.4
99 3.3 1.0 1.5 5.8
2000 1.5 8.9 1.0 1.5 12.9
01 1.5 5.3 1.0 1.0 8.8
02 1.5 1.4 1.0 1.5 5.4
03 1.5 5.3 1.0 1.5 9.3
04 1.5 2.2 1.0 1.5 6.0
05 1.5 1.5 1.0 1.5 5.5
06 1.3 1.0 1.5 3.8
2007-2020 1.3 1.0 1.5 3.8
December 1976
ANNEX 10
Page 4D
MALAWI

Cost Stream in NK Million
Alternative #4
Development Strategy: All Hydro Units

Mpata- Kholmo-
Years Nkula II Kapachira manga bidza Hydro Total
1977 11.0 11.0

78 16.4 16.4
79 17.2 17.2
80 3.6 0.5 4.1
81 4.3 0.5 4.8
82 1.2 0.5 1.7
83 1.7 9.6 0.5 11.8
84 4.2 13.7 0.5 18.4
85 3.2 18.9 0.5 22.6
86 5.2 8.9 0.5 14.6
87 4.0 4.4 1.0 9.4
88 1.2 4.9 11.3 1.0 18.4
89 2.8 16.4 1.0 20.2
1990 4.3 24.2 1.0 29.5
91 1.9 13.1 1.0 16.0
92 1.7 9.1 1.0 27.8
93 4.8 1.5 6.3
94 2.0 1.5 3.5
95 1.8 11.8 1.5 13.6
96 1.8 17.0 1.5 20.3
97 23.9 1.5 25.4
98 16.5 1.5 18.0
99 13.7 2.0 15.7
2000 2.7 2.0 4.7
01 2.0 2.0
02 2.0 2.0
03 2.0 2.0
04 2.0 2.0
05 2.0 2.0
2006-2020 2.0 2.0
December 1976
ANNEX 11
Page 1
MALAWI
Return on Investment
1. Rate of return on investment is defined as the discount rate at

which the present worth of estimated capital and operating costs equal the
present worth of attributable revenues over the life of the capital expendi-
tures referred to in paragraph 3.
2. The project has a 90-MW plant capacity of which 36 MW will be

included in the project to be followed by a further 54 MW in 1980s. Rate of
return calculations for the complete development and for the project only are
shown in pages 3 and 4 of this Annex.
(a) Rate of Return on 90-MW Development
Using estimated incremental revenues based on revenue per kilowatt

hour yielded by the September 1976 tariff increase as project benefits gives
a rate of return of 11.5%. If the development costs increased by 30%, the
rate of return would be 9.5%.
(b) Rate of Return on Project Alone
The rate of return on the project alone would be 9% using the

average revenue per kilowatt hour yielded by the September 1976 tariff
increase as a measure of benefits.
3. Capital expenditures consist of:
(a) Nkula Falls II Hydroelectric Project expenditures and

specifically the Nkula Falls II Dam, headrace tunnel,
powerhouse, two 18-MW hydro units and associated works;
(b) the addition of 54 MW to generating capacity;
(c) generator renewals (assumed after 30 years of operation);

and
(d) transmission and distribution extensions associated with

the additions to generating capacity.
4. Incremental sales would first start in 1980 and rise to a maximum

of 640 GWh in 1992. It is estimated that sales growth would accelerate from
the previous average growth rate of 16% and 20%, respectively, in 1980 and
ANNEX 11
Page 2
1981 with the commissioning of the Chinteche industrial complex, 1/ after

which annual growth has been assumed to continue at 8%.
5. The rate of return calculations have been taken over a period of

50 years, the estimated life of the civil engineering components of the
project.
1/ If the Chinteche complex was delayed or cancelled, the additional 54

MW would be added at a somewhat later date and used to supply growth in
the South and Central Regions. The project rate of return for the
complete development would be effected by less than 1% if the entire
Chinteche scheme was cancelled.
ANNEX 11
Page 3
MALAWI
Calculation of the Rate of Return on Investment
(First Phase - 2x18 MW)
---------------------------iMillions of Kwachas-----------------------
---------Capital Costs--------
Nkula Dam Transmission Operation & Total Revenues
Years lst&2nd Units & Distribution Maintenance Cost (T 3.10/kWh)
1977 11.0 11.0 0.0
1978 16.4 16.4 0.0
1979 17.2 17.2 0.0
1980 3.6 1.0 0.5 5.1 0.4
1981 2.9 1.5 0.5 4.9 1.9
1982 1.5 0.5 2.0 3.0
1983 1.0 0.5 2.0 4.3
1984 1.0 0.5 2.0 5.7
1985 1.0 0.5 2.0 7.1
1986 1.0 0.5 2.0 7.8
1987 1.0 0.5 2.0 7.8
1988 1.0 0.5 2.0 7.8
1989 0.0 0.5 0.5 7.8
1990-2010 0.0 0.5 0.5 7.8
2011 4.5 0.0 0.5 0.5 7.8
2012-2026 0.0 0.5 0.5 7.8

ANNEX 11
Page 4
MALAWI
Calculation of the Rate of Return on Investment
(5x18 MW Ultimate Capacity)
…----------------------------…Millions
of Kwachas------------------------
-------------Capital Costs------------
Nkula Falls II Dam
1st & 2nd 3rd, 4th & Transmission Operation & Total Revenues
Years Units 5th Units & Distribution Maintenance Cost (T 3.10/kWh)
1977 11.0 0 11.0 0
1978 16.4 0 16.4 0
1979 17.2 0 17.2 0
1980 3.6 1.0 0.5 5.1 0.4
1981 2.9 1.5 0.5 4.9 1.9
1982 1.5 0.5 2.0 3.0
1983 2.2 1.0 0.5 3.7 4.3
1984 3.4 1.0 0.5 4.9 5.7
1985 2.2 1.0 0.7 3.9 7.1
1986 4.5 1.2 0.7 6.4 8.7
1987 6.7 1.2 0.7 8.6 10.6
1988 4.5 1.2 0.7 6.4 12.4
1989 1.4 0.7 2.1 14.5
1990-2010 1.4 0.7 2.1 16.8
2011 4.5 1.4 0.7 6.6 19.8
2012-2015 1.4 0.7 2.1 20.8
2016 2.2 1.0 0.7 3.9 20.8
2017-2018 0.0 0.7 0.7 20.8
2019 4.5 0.0 0.7 5.2 20.8
2020-2026 0.0 0.7 0.7 20.8

MALAWI
ELECTRICITY SUPPLY COMMISSIONOF MALAWI
ORGANIZATIONAL STRUCTURE
|General Manaqler
IChrtie
Engiineer Firiancial Controller A Secretary
l~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
FEngi~~ccunat
temControl hif erone Ofie
TechnicalEngineer
S.rvi_es
Distribuation Stiperintendent. BrnhCnole_AsittSceav Chief Auditor
-L ~~Training
Offlicerl
World Bank-15792
ANNEX 13
Page 1
MALAWI
Project Monitoring Guidelines
There are a number of areas described in this Annex which are key
factors in the efficient operation of the utility and the success of the
project. These have been discussed with the Borrower and the Consultant
and further discussions will be held during negotiations to determine firm
targets for these key factors against which actual progress will be monitored.
Main areas for establishing a monitoring system are described below:
1. Construction of Project
1.1 Actual construction progress should be compared monthly with

planned targets. Some important target dates are shown below:
- Invitation to bid for the main civil

works September 1, 1976
- Tender period September 8 - December 8, 1976
- Report on tenders February 7, 1977
- Contract award April 7, 1977
- Construction of coffer dam June 30, 1977
- Construction of the main dam and

embankment closure August 31, 1980
- Construction of power station and

tailrace outlets June 1, 1980
- Commissioning of units # 1 September 1, 1980 and

# 2 December 1, 1980
2. Staffing
2.1 Existing staffing level of ESCOM is about 1,200. 1/ This seems to

be an unduly high staff level, even bearing in mind the diversification of
generating units, the amount of construction carried out by the Commission's
staff and the distances involved. It is expected that this number should
1/ Nevertheless, ESCOM's ratio of about 12 customers per employee is about

two times lower than the figure for TANESCO (Tanzania).
ANNEX 13
Page 2
not be exceeded during the next five years. Where staffing levels are
excessive, efforts should be made to reduce staff through limitation on
recruitment, early retirement, etc.
3. Training
3.1 Personnel under training in the country and abroad should be moni-
tored on an annual basis against the targets set under the following headings,
to meet normal wastage and turnover requirements:
(a) Graduate Engineers in university (by classification);
(b) Technicians in training (by classification);
(c) Craftsmen in training (by classification); and
(d) Others (by number).
4. System Operations
4.1 Implementation of the new tariff, based on the recommendations of

the tariff study required under the Second Power Project, and the installa-
tion of new meters (peak, off-peak measurements system for large industrial
customers) as compared to an agreed schedule for achieving accurate measure-
ments of "peak" and "off-peak" consumption.
4.2 Records should be maintained, showing against the targets which

have been set:
(a) Hydro production (in kWh);
(b) Diesel production (in kWh);
(c) Steam production (in kWh);
(d) Gas-Turbine production (in kWh);
(e) Power consumptions (by classification);
(f) Consumption of power plants (in kWh);
(g) Average tariff level (in T per kWh);
(h) Number of connections (by classification); and
(i) System losses (by operation voltages).

ANNEX 13
Page 3
Financial Indicators
(1) Contributionto capital expenditurefrom internal cash

generationfrom 1977-1981as measured by historic
performance and ESCOM's five-year forecast;
(2) Rate of return on average net revalued fixed assets

in operation;and
(3) Number of days electricitysales uncollected.

MALAWI
Income Statement Projections

(Thousands of Kwachas)
lHistoricaL-------- --- Forecast--

1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983
ELECTRICITY SALES (GWh) 178 192 237 260 285 317 348 401 479 518 557
AVE. REVENUE PER kWh (TAMBALA) 2.14 2.16 2.42 2.60 3.10 4.03 4.43 4.43 4.87 4.87 4.87
OPERATING REVENUES
ELECTRICITY SALES 3822 .._5

4 4 ....5Z8Z .......
6B83 8835 _ 272Z5 __15416 ..-.
_ZZ64 __23322 __25226 __2Z126
OPERATINGEXPENSES
OPERATIONAND MAINTENANCE 619 605 721 956 1108 1285 1490 1728 2004 2164 2337
FUEL 216 127 306 588 255 300 216 233 251 270 50
ADMINISTRATION - GENERAL 545 698 755 1100 1276 1480 1717 1992 2310 2495 2695
DEPRECIATION .-- 811 ...-- 1-1- 1049 .. 2112 -- _2220___2222 .. 315Q .. 4861 --- 6248 -- Z2254 ___Z341
TOTAL OPERATINGEXPENSES __2121 __"2440 ___2824 .__4356 ____4852 __5Z22 ._._6523 .814 A _11313 __12183 __12423
OPERATINGINCOME 1631 1714 2963 2427 3976 6983 8843 8950 12014 13043 14703
OTHERINCOMENET .__.__44 _ _42 --- 14Q Q _____ _ _6Q ZZ -----
_ __20 -- 1Qo
NET INCOMEBEFOREINTEREST 1675 1756 3103 2504 4016 7033 8903 9020 12094 13133 14803
INTEREST CHARGEDOPERATIONS _ _.1122 __11192 ..._
._Z2....
._82Q 52 ___1608 _1526 --- _23B2 _...2263 ---2650 ---Z42 __---2124
NET INCOME 785 579 1984 1052 2408 5437 6521 6757 4444 5643 7629
RATE OF RETURN 10.1 8.1 13.6 6.8 8.4 12.1 13.5 8.3 7.8 8.2 9.5
OPERATINGRATIO (%) 57 59 49 64 55 45 43 50 48 48 46
AVERAGENET FIXED ASSETS 1/ 16205 21060 27249 35777 47202 57841 65276 108036 153541 159524 154726
ii
1/ On historical basis to 1975, then revalued basis thereafter IlZ
IIMX
March 1977 1
ANNEX 15
NKULA FALLS II HYDROELECTRICPROJECT
ELECTRICITYSUPPLY COMMISSIONOF MALAWI
Cash FLow Projections

(Thousandsof Kwachas)
-----------------------------------------------------------
Forecast __----------------__---
_jeI
q_December31 19 1977 1978 1979 1980 1981 1981 1982 1983
Internal Cash Generation
NET INCOME BEFORE INTEREST 2504 4016 7033 8903 9020 12094 43570 13133 14803
-DEPRECIATION 1212 ___2220 _22Z 3150 _48L .__6248 __21418 .2__z254 --- 2341
TOTAI INTERNALCASH6ENEUATION4216 6236 9760 12053 13881 18842 64988 20387 22144
OPERATIONAL RE-
QUIREMENTS
-WORKING CAPITAL 1022 106 506 375 360 661 3030 375 514
-DEBT SERVICE -222i ___4123 _20D4 _2831 2068 --10O32 -- 42842 _. 112t __11544
TOTAL 3801 --- 4222 --- 2510 ___8206 --- _2428 ._l0628 __45822 __11639 __12058
NET AVAILABLE
F'ROM OPERATIONS 415 2007 250 3847 4453 8144 19116 874B 10086
CONSIRUCTION
REOUITREMENTS
rEDZANI 2 GAS TURBINE 5126 3067 0 0 0 0 8193 0 0
TRANSMISSIONLINE 1 2009 4112 1023 0 0 0 7144 0 0
TRANSMISSIONLINE 2 0 0 401 5218 2626 0 8245 0 0
FRUPOSED PROJECT 432 11088 18675 21050 4895 4250 60390 0 0
GENERAL DEVELOPMENIT 1028 1450 1500 1500 2000 2200 9678 2400 2600
GENE:RATION ---- _0_____o0------_0 ___ 0 ______Q
-…-… _ ------ Q0 ___2000 ___8500
TOTAL CONSTRUCTION .8525 l9Z212 _..21522 __22268 -.._2521 __ 6450 __23650 _.__4400 _11±100
REQUIREMENTS
BALANCE TO FINANCE 8180 17710 21349 23921 5068 -1694 74534 -4348 1014
FINANCED BY:
INDEBANK 0 1000 0 0 0 0 1000 0 0
AF'DB-TRANS LINE I 1472 3021 1037 0 0 0 5530 0 0
UNARANGD-TRANS. LINE 2 0 0 335 4392 2621 0 7348 0 0
IDA-NKULA II 0 5370 2742 700 754 0 9566 0 0
THIRD WINDOW-NKULA II 0 0 3024 3300 1446 670 8440 0 0
IBRD-NKULA II 0 0 3210 3240 970 760 8180 0 0
ADB-NKULA II 0 1073 2216 341 741 230 4601 0 0
GERMANY-NKULA II 0 833 70 2860 538 200 4501 0 0
CDC--NKULA II 0 3000 5000 4500 0 0 12500 0 0
F'ED-ENK\ULAII 0 1824 2875 4955 820 0 10474 0 0
CIC-TEDZANI II 1692 0 0 0 0 0 1692 0 0
IDA-TEDZANI II 4208 541 436 0 0 0 5185 0 0
FINANCING REQUIREMENTS- 1977 0 2400 0 0 0 0 2400 0 0
CAFITAL. CONTRIBUTIONS _.223 -- 25Q 300 ___ __4 5 - 500 __21Z.3 .600
_655
TGOTAL 7645 19312 21245 24688 8340 2360 83590 550 600
SURPLUS(DEFICIT) OF FUNDS -535 1602 -104 767 3272 4054 9056 4898 -414
DEBT SERVICECOVERAGE 1.5 1.5 1.1 1.5 1.5 1.9 1.5 1.9 1.9
March 1J977
ANNEX 16
MALAWI
NKULA_FALLS 1 -HYDROELECTRIC
PROJECT
ELECTRICITYSUPPLYCOMISSION OF MALAWI
BaLance Sheets
(Thousands
of Kwachas)
DECEMBER31 ta----
-------- -- ……---- -------- -------
Forecast …------------
:.1973 1974 1 975 1976 1.977 :1978 1979 1980 19813 1982 1.983i
ASSETS
I-I ANT IN UPLRAl ION 2656~9 27970 45014 53231i4( / 4032 818 2 5 9619 3' 1.795i6 0 206 0.54 208454 25I1 Ob4
)..ESS. UEI'RECIA 'rION .~....5226 ....-- 6622 ...- l293 -150.A260.~22214.22252..442 441013.513L55Z .a86S!b
NE. FI hIANf 20843 21278 33221 38333 56072 "5961 70941. 145131 :1615951 15. /07/
Wt*9K EN PKOR13138, 10311 3896 9226 14321 18652 41510 6 3 665- 53 04 5j2 3 25J23 31.
J
4
1leI N ,1:
OPERATION4ALREQUIREMENTS 73 0 336 25( 290 330 370 410 450, 490 530
TEMPORARY SURPLUS 0 0 1) 0 '543 38:15 '0 67 12767 12353
RECEIVABLES-CON
SUNERS 349 600 664 3:1.4 1060 1!533 11350,, 2132 ~,27~991 30o2/7 .325 f
RECEIVABLES-OTHERS Ii 0 231 753 :3.003 350 400 400 4!50 450 500 500
IWVENTORIES .~51. 61 .. 858..___.1001 .. 1100 ....... 12011.141131 .18011
_.O -.- 2000 _.....2A01
i IA-CURRENT ASSETS I1I.I6
I118 :1441 2611 3506,4 2800 3 463 4563 8407 13368 18784 19036
235040 266:1.5 4 505 5 57:18 77524 '104584 139169 158842 175842 1744 827
i131I
4i I. 3 I
43!, I )I N1:0
I.1 EAk N.I.NLi 426:. 65 08~ 563) 9968 15405 21926 28683 33127 387~70 4639',
CAPITAL CONTRIBSUTION b669 91 9:3
Y9 1.i1g :,.
1442 1742 2142 2592 .3092 3642 4242
REVALUATIONSURPLUS 1.......1...
. ........ 3 1192.2 .. 12235 -- 22001 _._22068 -- 33021 _42435 _45445 _4U4.ALJ
1114I3W EQUITY .43 85- 51 62 18580 22.72Y 28645 39148 51136 64373 81654 87847 96076
3 114i1 I FR SF8 f
UF 1. 1028 1.9668S 23366 2993. 1 4//73 64069 3k6 708 92932 92405 88631 84261
CURRENTLIAXILITIES_
II LI0
114 ,PAY: IL 1: 16:/ 14.3:1. 1.921 1.356, 9336 1143 1225 1537 17835 1926 2080
im At
8 CURRENT :.36271 7115,,. .3112,, .W107 .1:.06 1367 :1325 1537 1783 1926 2080
LIABILITIES .. .... ... .. .. ... . .... . . ... .
213040 26615 4,50,1 578)J.L */5324 104584 139169 158842 175842 178404 182417
DEBT/EQUITY RATIO 80 79 56 57 63 62 63 59 53 50 47
CURRENTRATIO 0.7 0.8 0.8 9.O 2.8 2.5 3.4 5.5 7.5 9.9 9.3
March 1977
ANNEX 17
Page 1
MALAWI
Notes and Assumptions to Financial Projections
1. The financial projections were reviewed in detail with ESCOM during

negotiations and substantially revised taking into account especially the
latest information on estimated capital expenditures and related loans.
Revenues and Expenses
2. Annex 7 gives a detailed breakdown of projected kWh sales. It has

been assumed that a 30% tariff increase will be introduced on January 1, 1978,
a 10% tariff increase on January 1, 1979, and a 10% increase on January
1, 1981.
3. 1976 expenses are based on ESCOM's latest figures of historical

expenses. Operating, maintenance, administration and general expenses have
been projected to increase annually by 8% per annum. To this has been added
a further 8% per annum from 1977 to 1981 to provide for estimated inflation
during the project construction period.
Balance Sheet
4. ESCOM's fixed assets were revalued at December 31, 1975 at a gross

value of MK 45.01 million less accumulated depreciation MK 11X80 million.
Estimated annual asset revaluations have been made thereafter at 8-1/2% per
annum until 1981. Depreciation is at a rate of 3.5% on average gross fixed
assets in operation. The Nkula Falis II Hydroelectric Project is first
taken into gross fixed assets in operation in 1980, the Tedzani Falls II
Project in 1977 and the Nkula Falls-Lilongwe transmission line in 1978.
Receivables - Consumers
5. These are estimated at 12% of annual revenues (about 44 days sales),

Although receivables have recently exceeded this level because of extraor-
dinary billing adjustments, it is expected that they will subsequently drop to
this proportion.
Receivables - Others
6. These include amounts owing for capital works, advance payments and
other miscellaneous items. Increases of MK 50,000 bi-annually have been made
to estimated amount outstanding at December 31, 1977.
ANNEX 17
Page 2
Work in Progress
7. Additions to work in progress are based on estimated total annual

cash disbursements.
Inventories
8. Inventory levels are somewhathigh, but possible delivery delays

have to be provided for. Additions are based on ESCOM's estimated require-
ments.
Payables
9. These have been assumed to increaseby 18% per year from 1976 to
1981 and 8% thereafterin line with operating expenses.
Source and Application of Funds
10. The terms of Nkula II Project loans were reviewedwith Government

and ESCOM during negotiationsand are expected to be as follows:
(a) The MK 8.18 million (US$9 million) IBRD loan would be for
a 20 year term with a 4-1/2 year grace period with the
first principal repaymentbeing on June 1, 1982. The
assumed interest rate is 8-1/2%.
(b) The CDC loan would be in sterling for the equivalentof

MK 12.5 million (US$13.75million with a maximum of E 8.5
million) and would be made directly to ESCOM at an interest rate
of 8-1/2% with semi-annuallevel principal repaymentscommencing
1982.
(c) Other Project loans, as follows, are assumed to be made

available by Governmentto ESCOM at an 8-1/2% interest
rate with interest added to the loans during the construc-
tion period and combined level 20-year principal and
interestpayments commencing 1981.
Millions of Malawi
Kwachas
Third Window 7.3

IDA 7.3
CDC 12.5
AfDB 3.6
FED 8.6
Federal Republic of Germany 3.9
ANNEX 17
Page 3
11. It has been estimated that ESCOM would have a MK 2.4 million financ-
ing gap in 1977 and it has been assumed that this amount would be borrowed at
10% interest and repaid in 1978. ESCOM has already obtained a one year 10%
loan from Indebank, which will be repaid in 1978.
12. ESCOM has overdraft facilities with the National Bank of Malawi up
to MK 1.25 million.
Capital Expenditures
13. In addition to the Nkula II Hydroelectric Project, during the

period covered by the financial projections, ESCOM plans to construct in two
stages a 541-km, 132-kV transmission line between Nkula Falls and Chinteche.
(a) First Stage
Nkula-Salima-Lilongwe Transmission Line
The Nkula-Salima-Lilongwe transmission line has been estimated to

cost MK 7.1 million (US$7.8 million) and to be completed about the end of
1978. Construction started in 1976.
(B) Second Stage
Salima-Chinteche Transmission Line
It has been assumed that the transmission line would be built be-
tween 1978 and 1980 at a cost of MK 8.2 million (US$9.0 million). This is
based on ESCOM's consultants estimates adjusted for price increases. The
justification for the transmission line is related to the proposed pulp mill
and associated township at Chinteche.
General Development Program
14. This represents estimated expenditures to be financed from ESCOM's

internal cash generation and includes generation, transmission and distribu-
tion system developments, transformers, meters, substations, office furniture
and equipment.
MALAWI
NKULA FALLS II HYDROELECTRICPROJECT
Loans at 31st December, 1975
Interes' in? ares Original Repaid ~~~~~ ~

Repaid to ~~~~~~Total
Currcncy
Fluctuations
Amount 1975 31.12.1975 Durplus/Deficit Balance
Original Remaining Rate K
K K K K
Life Years Life Years
STRAIGRTL1NE LOANS
FALAWI GOVTRRNIJIINT
4.5 2,023,640 67,455 1,336,016 687,624
Loan No. 1 Prior to 1954/55 30 10
4.5 146,255 4,875 90,190 56,065
2 1954/55 30 10
4.5 261,969 8,732 152,815 109,154
3 1955/56 30 11
4.5 86,o80 2,869 47,344 38,736
4A 1956/57 30 12
113,608 3,78l 62,486 51,122
4B 195.'./57 30 12 5.5
5A1957/5'83015. 50,000 1,666 25,834 24,166
30 13 6.25 134,367
5A 1957/58
195/059
5 PI 1957/58 ~~30
30
14
14 G
.2 278,000
315,000
9,267
10,500
143,633
152,250 162,750
61
219,200 7,306 98,640 120,560
7A 1959/60 30 15 6 104,940
30 15 6.25 190,800 6,360 85,860
7B13 1959/60 11,667
30 16 6.25 20,000 667 8,333
BA 1960/61
6.5 180,000 6,000 75,000 105,COO
BB 1960/61 30 16 1°4,866
17 6.75 316,000 10,533 121,134
9 1961/62 30
6.75 170,000 5,667 59,500 11C,5C0
10 1962/63 30 18
93,093 3,724 7,447 85,646
30 1973 (Danish Loan on-lent) 25 23 -
4,463,645 149,408 2,466,482 -1,997,163
IIALAWI GOVERRIIENT AlNNUITY LOANS

5.75 80,000 1,849 15,623 64,377
Loan Nc. 11 1963/64 30 19
296,342 7,971 59,361 236,981
12 1964/5/6 27 18
6.5 68,166 2,110 15,749 52,417
13 1965 25 16
6,: 80,000 2,249 15,938 64,062
14 1966 25 16
6.5 12,000 337 2,391 9,609
18 1966 25 16 99,466
6.5 120,000 3,167 20,534
19 1967 25 17
656,508 17,683 129,596 - 526,912
IMALAWI GOVERMIIENT SPECTAL PROJECT LOANS

- 5 153,154 33,690 153,154
Loan No. 15 Sucurm Line 10
16 Nkula Stage II Loan
7 884,274 20,982 120,989 763,285
1st Jaziuary, 1969 25 18
20 lNkula Stage I - Interest Free
Loan repayable only after
"A" '"B" and "C" Debenture 200,000
- 200,000 - -
Stock repaid in full -
116,000 5,800 34,800 81,200
21 11angochi - Interest Free Loan 23 14
1,353,428 60,472 308,943 1,044,485
NEW BUILDING SOCIE1Y

15 7 10 108,152 7,101 46,872 61,280
Loan No. 22
1' 46,800 3,039 19,913 26,889
23 15 7
10 56,250 3,596 24,072 32,178
24 15 7
10 11,100 773 4,707 6,393
25 15 7
10 16, -sfl 1,063 6,175 10,425
26 15 l
15,572 101,737 _ 137,165

238,902
____________________________________~~~~~~~~ m
MALAWI
1-XKM'1rS II HYDROELECTRIC PROJECT
ELECTRICITY SUPPLY COMMISSION OF MAIAWI
Loans at 31st Decenber, 1975
Total Currency
Interest Original ±or,aiai lRepaid to Fluctuations
Original Reuaain~inIg Rate Amo'alt 1975 31.12.1975 Surplus/Deficit Balance
Lif'e Years Life Years K0
TEDZANI EOTBG-PLECTltIC PROJECT STAGE I
Malawi Government on-le-' from 4,934,288 83,475 161,488 4,772,80

International Development Association 29 24 7
Malawi Covo,c.nent on-leinL from _ _ , 2-5,767 2,523,767

African Development rank 20 15
Commonwealth Development Corporationr

Repayments tc comomenice 1976 21 17 8.5 1457,989 _ _ (127,708) 1,330,281
Investment and Dievelopment Bank of 400,000 50,000 100,000 300 000

Malawi Limitod 9 6 8.5 4 5 1
9,316,044 133,475 261,488 (127,708) 8,926,848
TEDZANI IPtORO PROJECT STAGE J1

Malawi Gove2n:nent on-lez.t from
TIte.rnatiocl1 Development Association 3,002,249 - - 3,002,249
Repayment; to colrience 1979 29 27 7-5
Commonwealth Development Corporation 4,562,043 _ _ _ 4,562,043

Repaymients to commence 1977 22 20 7.5
7,564,292 - - _ 7,564.292
Total 23,592,819 376,610 3,268,246 (127,708) 20,196,865
DEBEh-TURE STOCK AT 31ST DEC}OLBER, 1975
MKlJLA P'ALLS HIYDRO-ELECTRIC PROJECT 3,700,000 200,854 1,004,923 (236,067) 2,459,010
Series "A" 1970/64 7.75 200,000 20,288 101,504 (8,627) 89,869

1964/5/6/7 Comimo,-.ea)th Development Corporation.
rarclani Iverceas Development Corporation Limited Seriet ":i' 1970/'79 7-75 200,000 20,288 101,504 (8,627) 89,869
1904/66
Series 'B" 1970/79 7.75 600,000 13,481 68,960 _ 531,040
196 /66 Standard Xk--k Limited
196fij66 K.lawi Governniient Series "C" 1970/94 6.75
4,700,000 254,911 1,276,891 (253,321) 3,169,788
Tol al
28,292,819 631,521 4,545,137 (381,029) 23,366,653
TO'i'AL LOAN PFILllWDS ' _ ' t _
LESS CURRllT PORTION OF LONG TEM4 LOANIS 896,_98_

22,469, 6r0
TOTAI, LONG TILR! .IAPTLITIES 22_469____
the( '0 >oo:ioot:.

The DLbenture It3ock i" nec utdtale hy
.cv-ee 0
ottg 0 g,e of all
1
prope rty, oa'ecOflt .i Sd a , except oe tai, c)o-m -n£ proper tir3 of a bock ol.
of K224,207 (]974. '.231, 545) whiicim ate mor,gm,tctt to a Builling Sociemy to
secoare onat t-,. ar o;
cacunting to KE 3,,] 5
-,l974: i'152,738).
aAi.AI.I ANNEX 18
Page 3
NUIA FALLS II ffYDROELgCTRIC PBOJECT
ESCCt - Debt Statement

(Thousands of Mala i Kwachas)
1976 1977 1978 1979 1980 1981 1982 1983
IDA - Nkula II
Borrowings 5,370 2,?42 700 754
Amortization 94 201 219
Interest 228 573 719 781 809 797 779
Commitment Charges 16 21 8 3
IDC - X 100 100 100 100
DC 244 594 728 784
Third Window - Nkula II

Borrovings 3,024 3,300 1,446 670
Interest 129 397 599 685 702 687
Commitment Charges 20 28 10 3
IDC - X 100 100 100
IDC 149 426 609
IBRD - Nkula II
Borrowings 3,210 3,240 970 760
Amortization 544 544
Interest 136 411 589 663 684 649
Comoitment Charges 19 25 9 3
AfDB - Nkula II
Borrowings 1,073 2,216 341 741 230
Interest 46 185 294 340 378 379 366
Commitment Charges 13 18 9 5 1
IDC - % 100 100 100 100
IDC 59 204 303 345
Germany - Nkula II
Borrowings 833 70 2,860 538 200
Interest 35 74 198 343 372 374 366
IDC - X 100 100 100 100
IDC 35 74 198 343
CDC - Nkula II
Borrowings 3,000 5,000 4,500
Amortization 416 833
Interest 127 467 871 1,062 1,062 1,045 992
FED - hkula II
Borrowings 1,824 2,875 4,955 820
Amtrtization 103 220 239
Interest 78 277 610 855 886 872 853
DC - % 100 100 100 100
IDC 78 277 610 855
AfDB Transmission Line 1

Borrowings 1,472 3,021 1,037
Amortization 184 198 214 231 249
Interest 57 231 388 421 407 391 373 355
IDC - B 100 100 100
IDC 57 231 388
Unarranged Transmission Line 2

Borrowings 335 4,392 2,621
Interest 15 228 543 652 631 609
OTNER LOANS
Borrowings
CDC - Tedzani II 1,692
IDA - Tedzani II 4,208 541 436
Indebank 1,000
Financing Requirements 1977 2,400
5 900 3,941 436
Amortization of loans outstan.1fj
12131/75 and other loans 827 1,200 4,649 1,465 1,468 1,529 1,521 1,589
Interest
Loans outstanding 12/31/75
and other loans 1,895 2,074 1,887 1,962 1,855 1,746 1,633 1,520
Indebank 75 25
Financing Requirements 1977
- 1/2 year 120
DEBT SUMMARY
Total Borrowings 7,372 19,062 20,945 24,288 7,890 1,860

Total Amortization 827 1,200 4,649 1,649 1,666 2,387 3,774 4,370
Total Interest 1,952 2,923 4,355 6,182 7,402 7,650 7,490 7,174
Total Debt Service 2,779 4,123 9,004 7,831 9,068 10,037 11,264 11,544
March 1977 _ . __
ANNEX 19
MALAWI
SUMMARY OF ESCOM TARIFF INTRODUCED
SEPTEMBER 1, 1976
SCALE I: DOMESTIC
1st 40 units 1/ @ K4.25

Next 200 units @ 5t/unit
Balance @ 2.5t/unit
SCALE II: HIGH DENSITY DOMESTIC
Minimum Charge K1.00

1st 20 units for K1.00
Balance @ 3.25t/unit
SCALE III: GENERAL
Minimum Charge K3.50

1st 600 units @ 7t/unit
Balance @ 3.25t/unit
SCALE IV: POWER (MONTHLY)
Demand @ K6-.0/kW/month
Units @ 1.5t/unit
SCALE V: POWER (ANNUAL)
Demand @ K59/kW/annum
Units @ 0.8t/unit
SPECIAL AGREEMENT SUCOMA
On-peak Demand @ K49.44/kW/annum

Excess of off peak over on-peak demand @ K20.6/kW/annum
Units @ 0.2t/unit
Surcharge 60%
I/ kilowatt-hours
IBRD 12214
MAY 1976
MALAWI
NKULAFALLSHYDROELECTRIC
SCHEME
STAGEII
Roads
______
----- Rivers
TgCR,\'. Proposed reservofr - . PUM STATION
INTAKETOWER
7_roxr-Exishng embankments
0 150 3?0 450 600

METERS
0 500 1000 1500 2000
FEET
''HEAD OND
BLANTYRE
WATER
BOARD
PERRY
WALKERS PUMP
STATION
PI
0
SLJRGECHAtOBER
EXISTINEGSTiN NA
~~~~~~~~~~
~E~~~ ~~~~~~~~~~0
0
EXISTNGE
CHAMBER i~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~5
' ZAMBIA
4,'
'0''
1 L SWITCH
YARD, //
FXIS' I\NGO <&
p~~~ ~~~~~~~~~~~~~~~~~~~~~~~~
,A AN N"IA
POWERd, KANTS .- A
.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~mp
e.,dp.
,ldse,,en
,,r locprancc b 5h,
/ ~ ~~~~~~~~ j6, '' iXvv ,,, ,,rC ,,0 '
:~~~~~~~~~~~- 04
IBRD 2369R4
~~~~
ilN et~~~~SeIiego $
>76r/-Z ~AT 9\
O M MB I Q U E
Mcr,~~~~~, MOZAMBIO UB~~~~~Zff
Z A M B I A (_ <eIOG EChip.k0t
\ \ ~ ~ ~ ~ ~ 9 . ' \<,, 7 > , ZaX~~~~~~~~~~~~~~~~~LNe

Ma,/om,be
MALAWI
PROPOSEDHYDROELECTRICPROJECT ) N1,e7
PROPOSEDPROJECT, NKULA FALLS I HYDRO ELECTRIC SNATION f = n LY
FUTURE HYDRO GENERATION STATION | \-,
EX ST ND HYDRO GE\ERATION STATION Iosop
EXISTING THERMAL GENERATION STATION | I <

3
PROPOSED132 KV TRANSMISSON L-RE 1lat PHASEi J -S E
EX ST NG RE KV TRANSMISSION LINES . Chi.o,o\

- - -- EXIST NG 33 KV & 11 KV PR MARY DISTRIBUTION LINES f MBA
RECIONAL BOUNDAR ES NWl IL
-MA N ROADS NW+
I RAI LROADS
NTERNATIONAL 3OUNDAR ES MptoP\ongo
R9V,0DA
F-* S AAA9 BLANTYRE j
ZAIRE A
< -X, ~~T
A N Z A N I A '\ 7 ' /
>., ;1 \ ~~~~~~~~~
~ ~ ~~ ~~ ~ n~~Chikwcc...a
j
ZAMBIA 9 tr~ \z Z
\DOIA LONGWE \ - ,
<opoop OARS flDNO - -7 ,A.i 0 gbu

pLUSOAELAECTBeADPSREJECTYR < -, ;_>
-t \ ><hrm
KROOEA 1_
5
0 X
S[URY
SARO -' 0A
RHODESIA i, EE IOR fg22

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/ t: ICCS 1;i, ,.,,/.

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APPRAISAL OF NKULA FALLS II

WEIGHTS AND MEASURES

1 Meter (m) = 3.28 Feet

ABBREVIATIONS AND ACRONYMS

AfDB = African Development Bank

ESCOM'S FISCAL YEAR

APPRAISAL OF NKULA FALLS II HYDROELECTRIC PROJECT

SUMMARY AND CONCLUSIONS ............................ i - ii

I. INTRODUCTION ..................... 1..................

II. GENERAL ECONOMY AND THE POWER SECTOR .... ........... 2

The Country and the Economy ........................ 2

III. THE PROJECT ........................................ 6

IV. JUSTIFICATION OF THE PROJECT ....................... 10

Market Growth ...................................... 10

V. ELECTRICITY SUPPLY COMMISSION OF MALAWI 12

Institutional Framework ............................ 12

VI. FINANCE ............................................ 14

Past Earnings and Financial Position .... ........... 14

VII. AGREEMENTS REACHED AND RECOMMENDATION .... .......... 18

1. Statistical Data on ESCOM's Power System

MAP I - Nkula Site (IBRD 12214)

MAP 2 - Proposed Hydroelectric Project (IBRD 2369R4)

APPRAISAL OF NKULA FALLS II HYDROELECTRIC PROJECT

SUMMARY AND CONCLUSIONS

i. This report appraises a hydroelectric development which would be

iii. The project is essential to meet Malawi's power demand, which is

v. ESCOM is a well managed organization and this will be the third

vii. ESCOM's financial performance, as reflected by earnings from opera-

APPRAISAL OF NKULA FALLS II HYDROELECTRIC PROJECT

1.03 In 1966 ESCOM's first significant hydro plant was completed

1.05 The project was completed close to schedule in 1973 at a cost of

1.06 In 1973 Credit (426-MAI - Second Power Project) of US$7.5 million

1.08 The proposed project to be constructed between mid-1977 and end-1980

1.10 This report is based on the findings of an appraisal by Messrs.

II. GENERAL ECONOMY AND THE POWER SECTOR

The Country and the Economy

2.01 Malawi is a land-locked country in South East Africa, bordered

2.02 Since independence in 1964, GDP at constant prices has grown at a

2.05 There is some hydroelectric potential in the north of the country

The Power Sector

2.06 Because it operates mainly in the regions of Malawi in which

1/ Converted at the then prevailing exchange rate of MK 0.82 = US$1.

about 6.4X of the total planned national investment of MK 394.1 million

ESCOM's kWh Sales and Related Data

Electricity Generated (GWh) 132 258 468

Residential (Low Density) (%) (see para. 4.04) 18 14 14

Annual Growth of Sales (%) 15 23 16

2.08 It is estimated that about 1 million of Malawi's 5 million popula-

1/ Converted at the then prevailing exchange rate of MK 0.82 = US$1.

2/ Includes proposed project capacity of 36 MW in 1980.

2.09 Present consumption per person living in conntected houses is

Existing Power Facilities

2.10 ESCOM's principal generating facilities are located in the Southern

Power Development Program

2.12 Long-term planning for projects beyond ESCOM's 1975-1980 development

1/ The Chinteche load is estimated to total 9 MW, consisting of a pulp

III. THE PROJECT

(a) Construction of a rock-fill dam about 7 m in height and

(b) Construction of a low pressure cut and cover conduit, a head-

(c) Consulting services; and