Report No. 1234b-YAR FILE COPY Memorandum on Power and Energy Sector Yemen Arab Republic April 22, 1977 Projects Department Europe, Middle East and North Africa Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Yemen Rial (YR) YR 1 = 100 fils US$1 = YR 4.50 1/ YR 1 = US$0.22 YR 1,000 = US$222 YR 1,000,000 = US$222,222 GLOSSARY OF ABBREVIATIONS CPO - Central Planning Organization YPC - Yemen Petroleum Company YBRD - Yemen Bank for Reconstruction and Development MPRA - Minerals and Petroleum Resources Authority YGEC - Yemen General Electricity Corporation Fiscal Year July 1 to June 30 1/ No par value for the Yemen Rial has yet been declared to the IMF. All exchange transactions are effected at the Central Bank rate which has been pegged to the US dollar since February 1973. FOR OFFICIAL USE ONLY MEMORANDUM ON POWER AND ENERGY SECTOR YEMEN ARAB REPUBLIC Table of Contents Page No. I. INTRODUCTION ....................................... 1 II. TRADITIONAL FUELS .................................. 1 III. THE OIL SUBSECTOR .............. .................... 2 Organization ....... ................................ 2 Demand and Supply ....... ........................... 3 Prices and Costs ...... ............................. 4 Financial Aspects ...... ............................ 4 Development Strategy ..... .......................... 5 Exploration ........................................ 6 Market Growth .......................................... . 6 Investment Requirements ..... ....................... 6 Oil Subsector Problems ..... ..................... . 7 IV. THE ELECTRIC POWER SUBSECTOR ....................... 8 Organization ....................................... 8 Trend in Public Supply ..... ........................ 9 Investment ......................................... 10 Public Power Facilities .... ........................ 10 Autoproducers ........................................ 11 Access to Public Supply ............................ 11 Electricity Tariffs ..... ........................... 11 Development Strategy ....... ... ... . ........ ......... 12 Future Load Growth ................. .. .............. 13 Expansion Program .................................. 13 Investment Requirements and Sources . ............... 13 Power Subsector Problems .............. .. ........... 15 The Role of the Bank ............................... 16 This memorandum was prepared by A. Roa (Engineer) and T.B. Russell (Economist) from information obtained on a sector mission to Yemen Arab Republic in April 1976. This document ha a restricted distribution and may be ued by recipients only in the perfotmance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (Continued) ANNEXES 1. Imports, Sales and Consumption of Petroleum Products, 1970-1975 2. Imports and Sales of Petroleum Products by Value, 1970-1975 3. Costs and Selling Prices of Petroleum Products at 1/1/1976 4. Yemen Petroleum Company Balance Sheets, 1973 and 1974 5. Exploration for Hydrocarbons 6. Forecast Sales of Petroleum Products, 1976-1985 7. Yemen General Electricity Corporation Organization Chart 8. Generation, Sales and Peak Demand of Public Power Sector, 1971-1975 9. Electricity Usage by Consumer Classes, 1973-1975 10. Yemen General Electricity Corporation Generating Plant at April 1976 11. Installed Capacity and Peak Demand of Major Autoproducers at April 1976 12. Electricity Tariffs, 1971-1976 13. Forecast of Peak Demand and Energy Consumption, 1976-1980 14. Major Generating Plant Additions in Progress and Under Consideration, 1976-1980 15. Forecast of Available Generating Capacity at end 1977 16. Yemen General Electricity Corporation Cash Flow and Financing, 1976-1980 MAP IBRD 12297 MEMORANDUM ON POWER AND ENERGY SECTOR YEMEN ARAB REPUBLIC I. INTRODUCTION 1. There has been no Bank Group lending so far to the power and energy sector. A reconnaissance of the power subsector in 1972 indicated that the subsector was too fragmented at that time to identify a suitable Bank project and emphasized the need for closer integration, preferably under a single na- tional power undertaking. Consultants subsequently engaged by the Central Planning Organization (CPO) recommended in their report (1975) the establish- ment of a national power corporation, for which they submitted to the Govern- ment a proposed corporate plan covering the period 1976-80. The time seemed opportune, therefore, to undertake a review of the subsector, with particular reference to the progress made in implementing the consultants' recommenda- tions for its future organization and development and the possible identifi- cation of a first power project suitable for IDA financing. The review was extended to cover the situation and prospects of the energy sector in general in the aftermath of the 1973/74 increases in world oil prices. 2. This memorandum is based on the findings of the resulting review mission which visited YAR from April 12 - 25, 1976. Its purpose is to review the present situation, problems and prospects of the sector and the scope for possible Bank assistance in its future development. For this purpose, it is convenient to divide the sector into three subsectors viz. the tradi- tional fuels subsector, the oil subsector and the electric power subsector. These are examined in turn below. II. TRADITIONAL FUELS 3. Coal has been found at various locations in YAR but has not been sur- veyed or exploited, so that neither the extent of reserves nor the feasibility of commercial exploitation is known. There appears to be a good probability of geothermal energy in the area southeast of Damar (southern YAR), but this remains to be confirmed. So far no uranium deposits have been found and hydro- power potential is non-existent. Climatic conditions make solar energy the biggest potential energy resource but its practical application will depend on success elsewhere in developing feasible solar energy devices suitable for YAR conditions, and there are no signs of these on the horizon. For all practical purposes, at the moment the only indigenous energy resources are the tradi- tional fuels common to most agriculturally-based developing countries viz. firewood and vegetable and animal wastes. Firewood is widely used in urban and rural areas for cooking; in rural areas the stalks and roots of the major cereal crops are another important fuel, often supplemented by dried animal dung. 4. Unfortunately no hard data are available on the total amounts of these fuels which are consumed. Some indication of their importance is given by the 1972 survey of household expenditure in the capital, Sana'a. According to this, the average household (5.8 persons) spent some YR 135 (7.3% of total household expenditure) on all forms of fuel in 1972, made up as follows: -2- YR _ Firewood 71.6 53.0 Charcoal 6.0 4.5 Other material 6.5 4.8 Total traditional 84.1 62.3 Kerosene 15.7 11.6 Liquid Petroleum Gas (LPG) 10.6 7.9 Electricity 24.6 18.2 Total non-traditional 50.9 37.7 Thus, even in the capital city firewood alone accounted for more than the total expenditure on "modern" fuels, while the traditional fuels together absorbed 62% of household expenditure on fuel and power. 1/ In the rural areas dependence on traditional fuels must be even greater, so that for the country as a whole it is probable that traditional fuels are a more important part of total energy consumption than oil and electricity. 5. This relatively high consumption of traditional fuels may have un- desirable consequences (e.g. deforestation, loss of soil fertility through increased use of animal dung as fuel rather than as natural fertilizer). It would be advisable, therefore, for the Government to investigate current trends in the usage of these fuels and the resulting costs and benefits tQ the economy. III. THE OIL SUBSECTOR Organization 6. The Yemen Petroleum Company (YPC), established in 1962, has a mono- poly in the importation and distribution of petroleum products but is not authorized to undertake exploration (see para 19). Up to 1969 it was partly Egyptian-owned (49%) but is now owned by the Government (51%), which appoints the chairman and two of the three (part-time) board members, and by another public sector organization, the Yemen Bank for Reconstruction and Development (YBRD - 49%), which appoints the general manager and the third board member. It is a relatively small undertaking (about 660 staff) and appears to be well-run, with no staffing problems apart from some difficulty in recruiting trained accountants. Petroleum products are imported (by small tankers of around 2,000 tons' capacity) through the main port of Hodeida, where YPC 1/ At the end of 1976 the use of LPG in Sana'a suddenly increased from 200 bottles (15 kg) to 700 bottles per day, reflecting partly the current upsurge in economic activity but partly also the much higher price of firewood. - 3 - maintains storage facilities with a maximum capacity of about 40,000 tons. Distribution to the main consumption centers is by a fleet of about 100 road tankers, of which YPC owns one third and hires the rest. YPC also operates a number of service stations and a tin-plate container factory. 7. The Minerals and Petroleum Resources Authority (MPRA), created by Government decree in 1973, has the general responsibility, under the jurisdic- tion of the Minister of Economy, for developing the country's mineral resources, including petroleum. Demand and Supply 8. Sales of petroleum products have grown rapidly (19% p.a.), rising from 82,000 tons in 1970 to nearly 200,000 tons in 1975 (Annex 1). The growth rate fell sharply in 1974 (to 3.4%) , following the sharp increase in world oil prices, but in 1975 it was back to 18%. In terms of value, the growth of sales was much more dramatic (43% p.a.), reflecting mainly the 1973/74 upsurge in world prices (Annex 2). 9. Since all petroleum products are imported, imports have closely paralleled sales in volume and value. Annex 2 shows the impact of the higher world prices after 1973, the average c.i.f. cost per ton rising to YR 472 in 1974, after remaining about the YR 200 level during the previous four years, and to YR 611 in 1975. However, YAR was cushioned to some extent from the full impact of the rise in world petroleum prices as a result of special price and supply arrangements conceded by the Arab oil-producing countries, including gifts by Saudi Arabia of 50,000 tons of petroleum products in 1974 and 1975. Consequently, there was no necessity to make use of the IMF Oil Facility allocation of SDR 2.5 million, although YAR did draw on a US$11 mil- lion interest-free credit provided by the Organization of the Arab Petroleum Exporting Countries (OAPEC). 10. Despite the rapid growth of demand for petroleum products, per capita consumption of commercial energy in 1974 was only 30 kilograms standard coal equivalent 1/ (kgce). This puts YAR amongst the lowest ten countries in the world and compares with an average of 394 kgce for all developing countries, 388 kgce for Jordan, 360 kgce for People's Democratic Republic of Yemen, 250 kgce for Oman and a world range for all countries of 12-19,500 kgce. 11. YPC obtains its purchased supplies in accordance with contracts normally negotiated for a three-year period. Until recently these were placed with Shell but the current contract, covering the period 1976-78, is with the Kuwait National Petroleum Company, which won the order in interna- tional competition. The contract is for up to 468,000 tons p.a. of products at specified prices, which are subject to escalation on the basis of average posted prices at Arabian Gulf ports. 1/ 1 kg standard coal equivalent = 7,000 kilocalories. -4- Prices and Costs 12. The trend of selling prices for the various petroleum products in the period 1973-75 is shown in Annex 3, which also shows the make-up of YPC's costs (including customs duties and taxes) for each product at January 1, 1976. As a result of the big differences in the price increases for different pro- ducts over the period (from 12% for diesel oil to 104% for residual fuel oil), present prices in YAR are far from reflecting world market relationships. Moreover, the prices of the different products, which are controlled by the Government, are not necessarily related to YPC's costs, as shown below (figures are fils per liter, except for LPG, at January 1, 1976): Cost Cost c.i.f. (excl. taxes (incl. taxes Selling Value and duties) and duties) /1 Price Motor gasoline 53.39 64.67 96.5 93.0 Aviation gasoline 73.60 84.94 117.5 122.5 Kerosene 53.48 64.04 74.5 61.5 Jet fuel 54.48 63.69 78.0 89.5 Diesel oil 51.75 61.65 78.5 47.5 Residual fuel oil 39.06 44.56 52.5 56.0 Liquid petroleum gas (LPG) 22.95-29.58 23.3 (Rials/15 kg. cylinder) /1 Customs duties on petroleum products are calculated on the basis of the c.i.f. prices ruling at October 15, 1973 (i.e. before the big jump in world oil prices). 13. As the table shows, prices are below YPC's costs (including taxes and duties) for motor gasoline, kerosene and diesel oil, which between them accounted for nearly 92% of 1975 sales by volume. Even if taxes and duties are excluded, the prices of kerosene and diesel oil, accounting for over two thirds of 1975 sales, are below the costs of supply. In the case of diesel oil, which alone represented nearly half of 1975 sales, the selling price is actually below the c.i.f. cost. The differences between the prices at which it is required to sell and its costs (including taxes and duties) re- sult in a loss to YPC. For 1976, assuming sales are in accordance with the forecast (see Annex 6), this would amount to about YR 43 million, for which the Government has to reimburse YPC. This Government subsidy would absorb nearly the whole yield of the taxes and duties on petroleum products, esti- mated at about YR 44 million. Financial Aspects 14. The latest available financial statements for YPC are for 1974 and show a financially sound position in that year, when the company earned a 50% return on its capital of YR 10 millioA, although this was after taking into account a Government subsidy of YR 6.3 million and also a grant of YR 3.5 million provided as part of Saudi Arabian assistance. 1975 figures are not available but the financial position appears to be deteriorating, partly because YPC's profit margin is limited by the Government to 10% of the c.i.f. value at October 15, 1973 (i.e. before the big rise in world prices) of the petroleum products it sells. YPC's 1976 budget estimate anti- cipates a net profit (after allowing for the Government subsidy and foreign assistance) of only YR 1.5 million, compared with YR 5 million in 1974. 15. YPC's latest audited balance sheet is for 1974 (see Annex 4) and shows fixed assets valued at about YR 23 million. This figure has since risen to YR 28 million (end 1975), which compares with YR 2 million in 1969. The additional investment of YR 26 million (US$5.8 million) in the period 1970-75 includes stocks of petroleum products equivalent to about one month's supply. Development Strategy 16. The Government's strategy for the future development of the oil sub- sector is not spelt out in any formal policy statement but its main features appear to be: (a) to ensure adequate and reliable supplies of petroleum products to meet future needs; (b) to restrain the inflationary impact on the economy of high world prices through control of the prices at which petroleum products are sold in YAR; and (c) to intensify the search for indigenous oil in the hope of reducing, if not eliminating, the present total dependence on imports. 17. In accordance with objective (a), contracts are negotiated for the supply of petroleum products covering a three-year period, as already mentioned (para 11). As an insurance against interruption of supplies, YPC at present maintains stocks of petroleum products equivalent to about one month's con- sumption. However, the Government has recently instructed YPC to increase storage capacity sufficiently to maintain three months' supply. This will be very expensive (see para 21) and seems over-cautious in view of the acces- sibility of sources of supply and the favorable relations which YAR enjoys with neighboring oil-producing countries. 18. In pursuit of objective (b), as already explained (para 13), the. selling prices of most petroleum products are kept by the Government below YPC's costs (including taxes and duties) and even, in the case of kerosene and diesel, below the real costs of supply (i.e. excluding the taxes and duties payable by YPC). -6- Exploration 19. To further the achievement of objective (c), the Minerals and Petro- leum Resources Authority (MPRA) was set up in 1973 (para 7) to promote, inter alia, exploration for hydrocarbons. Exploration activities since the early 1950's (see Annex 5) had suggested the possible existence of oil onshore in the Tihama area (western YAR) but the prospects of offshore deposits appeared much better. Exploration interest has intensified following the 1973 world oil price increases. A Japanese company carried out a survey offshore in 1974 and geophysical surveys of the Tihama area in 1975. A subsidiary of Deutsche Shell (Federal Republic of Germany) has a 10-year offshore concession covering over 7,000 sq. miles offshore, with an option to extend to 30 years if oil or gas is found; it is expected to spend US$14 million in 1976-77, including drilling of a first well. Other applications for exploration concessions have been received but action on them is in abeyance pending issue of a new Petro- leum Ordinance which is now being prepared with the assistance of an Iraqi expert. Negotiations are also under way with the Arab Fund to obtain finance for a full geological and geophysical survey of the country, including in- vestigation of energy resources, especially coal and geothermal occurrences. Market Growth 20. YPC's current sales forecast (Annex 6), covering the period 1976-85, implies that sales will more than double between 1976 and 1980 and again by 1985, resulting in total sales of 840,000 tons in 1985 compared with 196,000 tons in 1975. Assuming present prices and no concessionary terms, this would mean a quadrupling of the import bill over this period, if no oil is found in YAR and brought into production. Although the average growth rate over the period appears high (15.6% p.a.), it would still leave YAR at very low levels of per capita energy consumption (78 kgce in 1980, 140 kgce in 1985). However, the forecast appears to be the result of purely arbitrary assumptions about the future growth of demand for individual products (see Annex 6). The pro- jection for diesel oil would eventually be affected by the proposed installa- tion of steam stations for power generation using heavy residual fuel oil and the construction of a transmission system to carry power across the country, replacing individual diesel plants (see para 41). However, diesel oil consump- tion can be expected to increase rapidly during the forecast period. Investment Requirements 21. YPC's 1976 budget envisages capital expenditure of some YR 13 mil- lion. About half of this will be financed from the company's own resources, but the remainiyg finance has not been identified. The main item (YR 9 mil- lion) relates to LPG storage tanks at Hodeida, Sana'a, Taiz and Mocha. YPC has not formulated its investment program beyond-1976 but the main additional items in the next few years are expected to relate to the Government's new requirement (para 17) that YPC should maintain stocks of petroleum products - 7 - equivalent to three months' consumption. YPC estimates that the cost of the extra oil needed to meet this requirement in the 1976-80 period will be about US$17 million (all foreign exchange), to which must be added the cost of the extra storage capacity that will be needed, estimated at about US$25 million (70% foreign exchange, 30% local currency). YPC is currently discussing with the Government how this large program will be financed. 22. The need for further major capital expenditure is likely to arise in connection with the growing inadequacy of the facilities for oil discharge at Hodeida port, as a result of the expected rise in imports. The maximum draft at the port itself is only 23 feet, which means the largest tanker ac- ceptable is 6,000 tons. The alternatives being studied, therefore, are of an oil buoy in deep water outside Hodeida harbor or the construction of an oil- handling facility at Salif, with an oil pipeline to Hodeida. The investment requirements of the alternatives will not be known until these studies are completed. 23. Various proposals have been mooted for the construction of an oil refinery. Saudi Arabia has expressed interest in the possibility of estab- lishing an oil refinery at Salif. Iraq has made a preliminary survey for a possible 5 million ton export refinery at Khawkhah, south of Hodeida. How- ever, the only detailed feasibility study so far was carried out by Romanian consultants for YPC in 1975. This concluded that a 1.5 million ton refinery at Baijil (inland from Hodeida), for which the estimated cost (at September 1975 prices) was US$215 million (including handling and storage facilities, pipelines and a 22-MW power station to serve the refinery), would be econo- mically justified, since the estimated annual cost of the refinery products, using imported crude oil, would be less than the cost of importing the same quantities of products. However, the margin of advantage appears relatively small (refinery annual costs US$153 million, imported product costs US$155 million) in view of the risks and uncertainties and any proposal to proceed with such a project would need to be looked at very critically. Oil Subsector Problems 24. The main subsector problems are as follows: (a) The present prices of petroleum products do not reflect their costs of supply. In particular, kerosene and diesel oil, accounting for over two thirds of total consumption, are sold below cost and, in the case of diesel oil, even below the c.i.f. value. This distorts the demand for the various products and encourages waste. It also requires a heavy, and growing, Government subsidy to YPC to cover its losses. This pricing policy should be critically reviewed with the object of phasing out the present sub- sidies except where they can be specifically justified (e.g. on equity grounds, or as discouraging excessive con- sumption of traditional fuels, such as firewood or animal dung, at greater cost to the economy). - 8 - (b) YPC faces financial problems in meeting the growing demands placed on it, partly because its capitalization has not kept pace with its growth and partly because its profit margin is limited by the Government to 10% of the c.i.f. value at October 15, 1973 (i.e. before the big rise in prices) of the petroleum products it sells. (c) YPC's planning and forecasting procedures are inadequate and should be improved. (d) The proposed new level of oil stocks (three months' supply) seems unduly high in YAR's circumstances and will be very costly to implement. Half this level of stocks should be sufficient. (e) Petroleum exploration needs to be pushed more vigorously, concentrating on the areas which offer the best prospects of success. Since suitable legislation is important if exploration is to be encouraged, the petroleum ordinance now being drafted should be given high priority. (f) Some of the expansion proposals for the oil subsector (e.g. the various refinery ideas now in the air) seem over-ambitious in relation to YAR's needs and resources and should be evaluated very critically before any final decisions are taken. IV. THE ELECTRIC POWER SUBSECTOR Organization 25. Public electricity supply is the responsibility of the Yemen General Electricity Corporation (YGEC), a Government-owned but financially and adminis- tratively autonomous enterprise established on July 1, 1975 to develop an ef- ficient and economical system of electricity supply in the YAR. YGEC took over the assets of the main existing electricity utilities, the most important of which were three joint-stock companies which had been operating in the main towns (Sana'a, Hodeida, and Taiz) since around 1959. The ownership of their assets at the time of take-over was as follows: Sana'a Hodeida Taiz Government 73 - 17 YBRD 15 100 58 Private Investors 12 - 25 100 100 100 - 9 - 26. The creation of YGEC was recommended by consultants appointed by the Government to review the organization of the power subsector, and its management structure (see Annex 7) is broadly in line with their recommenda- tions. It is run by a General Manager under a seven-man board, comprising a full-time Chairman and Deputy Chairman and five part-time members (the Deputy Minister of Finance, the Deputy Chairman of the Central Planning Organization, the Deputy Minister of Economy, the Deputy Minister of Munic- ipalities and the General Manager of the Central Bank). The corporation is organized into three separate regions, each run by a senior manager who is responsible to the General Manager for all activities in the region. The General Manager is supported at the head office by a small staff of ex- perts with functional control -- but no line-management control -- over all corporation activities. The General Manager and 26 other key staff members are expatriates. To assure itself of a strong, experienced management in its early critical years, the corporation is expected to continue to employ expatriates in senior positions at least throughout the implementation of the present five-year plan ending in 1980. However, it should be possible to reduce the relatively large number of senior staff required by the present decentralized system as system integration progresses. Trend in Public Supply 27. Statistics of public supply in the three main towns for the period 1971-75 (Annex 8) show a high growth rate of total sales (25%) but marked differences between the towns (which are not interconnected), as noted below: (a) In Sana'a, sales grew at nearly 26% p.a., from 7.2 GWh to 18.1 GWh, and peak demand at 23% (2.6 MW to 6.0 MW), re- flecting increased economic activity combined with rapid population growth. The particularly large increase in demand between 1973 and 1974 (from 3.5 to 5.7 MW) reflected the pick-up of a backlog of demand following the installa- tion of new capacity. System load factor improved somewhat over the period, from 31.8% to 34.4%. (b) Hodeida, the main port of YAR, experienced the most rapid growth of all as a result of greatly increased economic activity, sales rising over 32% p.a. (3.4 GWh to 9.2 GWh). Peak demand rose much less rapidly at under 22% p.a. (1.2 MW to 2.65 MW), reflecting supply restrictions imposed during the evening peak (which actually declined in 1974 and 1975 compared with 1973). Unlike Sana'a and Taiz, Hodeida has two daily peaks, one in the morning and one in the evening, the morning peak being caused by light industrial load and residential/commercial air conditioning. System load factor rose from 32.3% to 44.7%. - 10 - (c) Taiz is a rapidly developing industrial and commercial center as a result of high population growth (13% p.a.), partly attributable to heavy immigration of businessmen and skilled workers from Aden. However, electricity supply restrictions have been more severe than in Sana'a or Hodeida, particularly in the last three years of the period, since plant expansion was severely restricted at the first indication of a possible Government take-over. As a result, industrial and commercial development has been seriously handicapped. Sales grew at only 12 % p.a. in 1971-75 (about half the rate in Sana'a and one third the rate in Hodeida), rising from 3.3 GWh to 5.2 GWh. Peak demand rose only marginally, from 1.8 MW to 2.0 MW. System load factor rose from 20.7% to 29.8%. Because of the failure of supply to keep pace with demand, the backlog of consumers await- ing connection has risen from nearly 2000 in 1972 to an estimated current level of 4000. 28. Comparison of the available statistics of sales by consumer cate- gories (see Annex 9) brings out clearly the predominance of private (mostly residential) consumption, which accounts for about 50% of total sales in Sana'a and in the region of 80% in Hodeida and Taiz. This can be explained in part by the serious inadequacy of public supply during the period, forcing most major industries to install their own generating capacity (see para 33). Investment 29. The valuation at the time of take-over was set at YR 30.3 million for the combined assets of all three companies. Additional investments made by YGEC during the second half of 1975 brought the net value of fixed assets in operation to YR 31.3 million at the end of the year. This amount represents practically the total investment in generation and distribution facilities for public electricity supply. Because considerable time elapsed between the first indications of the Government's intent and the final take-over, there was little or no investment in the public power subsector in recent years. Public Power Facilities 30. YGEC's total installed generating capacity as of April, 1976 was 17,466 kW in diesel-engine sets burning light distillate fuel oil (see Annex 10 for details). Most units require extensive repairs because of inadequate maintenance and operating practices. 31. Total installed distribution transformer capacity in the three main towns is about 15,125 kVA. In Sana'a the high voltage distribution system is operated at 15 kV and consists essentially of one underground looped feeder and two overhead radial feeders. Low voltage distribution is standard 400/230 V, 3 phase 50 Hz. High voltage distribution in Hodeida consists of 10-kV radial feeders coming out of the power station. The main part is underground. Other circuits are overhead construction. Taiz has - 11 - the worst distribution system of the three main towns, distribution losses being 30-35% because of the poor condition of facilities. Design and con- struction in all three towns are not up to acceptable modern standards of safety and performance. The whole distribution system is in urgent need of rehabilitation and modernization. 32. Distribution has been patterned after traditional European con- cepts. Substations appear excessively large and unnecessarily costly for the prevailing conditions. The low density of the load served would seem to advise against the 500 kVA distribution transformer ratings commonly found. Underground construction seems also an unnecessarily costly solution. Autoproducers 33. Because of the inadequate public supply most industries are forced to generate their own needs, using diesel engine sets. The total installed capacity of the major autoproducers is about 10,585 kW (see Annex 11) or some 58% of public supply capacity. One of the autoproducers (Hodeida Port Authority) sells power to YGEC. Access to Public Supply 34. There are no comprehensive national figures of the numbers and proportions of the population in rural and urban areas having access to public electricity service, information being available only for the towns of Sana'a, Hodeida and Taiz, where the situation in 1975 was as follows: 1975 Households Town Total Served Served Sana'a 25,292 19,784 78 Hodeida 14,539 8,000 55 Taiz 12,712 8,071 63 52,543 35,855 68 These towns represent only 6% of the total number of households in the country. Although limited electricity supply by small locally-owned generating plants is available in some smaller population centers, it seems unlikely that, overall, the percentage of the total population served could be as much as 10%, the proportion of the rural population (about 90% of total population) with access to electricity supply being negligible. Electricity Tariffs 35. The tariff structures in all three companies taken over by YGEC were very simple, being based on a flat rate per kWh, subject to a minimum monthly charge of about YR 10 on average. In earlier years (see Annex 12) - 12 - there had been some differentiation of tariffs according to consumer cate- gory but a uniform rate for all consumers was introduced by each company in 1975. At the time of the YGEC takeover the rate was 50 fils/kWh in Sana'a and Hodeida and 55 fils/kWh in Taiz. YGEC has retained the single-rate tariff but raised the level to 60 fils/kWh (US cents 13.3 equivalent) for all three towns in October 1975. This compares with a range in 1971 of 35- 40 fils/kWh in Sana'a and Taiz and 15-35 fils/kWh in Hodeida. 36. The present flat-rate tariff is open to the obvious objection that it bears no necessary relationship to the costs of supplying electricty to different categories of consumer and at different times (of the day, week or season). It will be desirable to introduce a tariff structure which correctly reflects long-run incremental costs of supply as soon as prac- ticable. YGEC has expressed its intention of carring out a thorough tariff study for this purpose once the future subsector development program has been decided (see para 41), since this will determine the pattern of future costs which the tariffs are to reflect. Development Strategy 37. Improvement of existing services to earn the confidence of all classes of consumer and establish itself as an efficient electric utility in the eyes of the population at large is the first immediate objective of YGEC. Early consolidation of the newly created corporation is needed for this purpose, which the competent senior management team now in place should be capable of achieving. Intensive training of local personnel to take up key staff positions in time is another important element in the development strategy for the subsector. The major objective in the longer term is the development of a reliable power system using up-to-date practices to supply electricity to the expanding economy at the lowest possible cost, charging rates which correctly reflect long-term incremental costs of supply. 38. Hitherto public electricity supply has been confined to a handful of urban centers. The five-year plan (1976-80) now being considered by the Government includes some provision for rural electrification but this must be regarded as a minimal program, since the relative ease of access to rural population centers from the existing load centers of Sana'a, Hodeida and Taiz, especially along the axis Sana'a-Taiz, would favor a more ambitious program based on expansion from these centers into the surrounding rural areas. 39. In the longer run geography strongly suggests that an international transmission link between Taiz and Aden (PDRY) would be part of the least- cost development strategy for both regions. Both YGEC and its PDRY counter- part (the Public Corporation for Electric Power) recognize the desirability of joint studies, but political obstacles may be a delaying factor. - 13 - Future Load Growth 40. A load forecast by consultants to 1980 (see Annex 13) implies aver- age annual growth rates in consumption of 19% for Sana'a, 22% for Hodeida, 29% for Taiz and 22% overall, which compare with the 1971-75 actual rates of 26%, 32%, 12% and 25% (para 27). The projections assume that national population grows at 2.5% p.a. but that of the three main towns grows at 10% p.a., taking into account expected migration from the rural areas. GDP is assumed to grow at 6% p.a. YGEC's management thinks the consultants' forecast is on the con- servative side and expects to pick up additional load provided sufficient capacity can be installed to allow removal of existing restrictions on operat- ing hours and new connections. Expansion Program' 41. To meet the projected load growth YGEC's consultants have proposed the expansion program to 1980 shown in Annex 14. The first half of the pro- gram, the short-term plan, which has been accepted by YGEC, will bring the total available generating capacity to 37,980 kW at the end of 1977 (see Annex 15). The second half of the program, covering the period 1978-80, is still tentative, since it has not yet been accepted by YGEC. It envisions continuing installation of diesel-engine sets at Sana'a, Hodeida and Taiz to meet individual regional requirements with local generation at least until 1985. Only after that year, according to the consultants' conception, would be there be integration of the three separate regional systems into a national network. However, YGEC's view, with which the Bank mission concurs, is that an earlier start in interconnecting the present separate systems may be economically justified. A thorough review of the tentative program, which includes also the construction of 132-kV transmission and modernization and rehabilitation of distribution with 11-kV primary and 400/230 V, 3-phase secondary throughout, is being carried out by YGEC; this review, scheduled for completion by October 1976, will take into account revised load forecasting figures in line with the latest available informa- tion. It will also include a broader range of alternatives in order to determine the least-cost expansion program beyond 1977 for meeting future requirements. The Bank mission recommended that these alternatives should include staged interconnection of the existing load centers, with central steam-turbine generation at Hodeida. 1/ Investment Requirements and Sources 42. The proposed corporate five-year plan (1976-1980), assuming the expansion program recommended by the consultants, calls for additional in- vestments of approximately YR 286 million. This represents approximately ten times the value of assets taken over by YGEC. A breakdown of the proposed investment follows: 1/ YGEC subsequently decided in favor of central steam-turbine generation with staged interconnection, following completion of the review of alter- natives. - 14 - YR '000 of total Generation Crash program and short-term plan (1976-77) 70,000 Long-term plan (1978-80) 105,900 Subtotal 175,900 61 Transmission, Distribution and Miscellaneous Crash program and short-term plan (1976-77) 22,200 Long-term plan (1978-80) 88,200 Subtotal 110,400 39 TOTAL 286,300 100 Considering that one of the main objectives of the present program is to retire obsolete generating plant and eliminate permanently the chronic short- ages of generating capacity, the high percentage of investment in generating plants appears justified. 43. Financing of the proposed additional investment is tentatively covered as follows: Rials % Millions of total Existing Loans: Arab Fund 63.0 22 Saudi Fund 22.5 /1 8 Additional loans 94.6 33 Government contributions 73.0 25 Internal cash generation 33.2 12 Total 286.3 100 /1 This represents the amount (US$5 million) which has been com- mitted out of the total Saudi Fund loan of US$30 million. - 15 - The amount shown as "additional loans" is expected to come from the uncommitted portion of the Saudi Fund loan (US$25 million). Internal cash generation is expected to come from rate increases planned for the period 1976-80. 44. The five-year plan proposed by the consultants is adequately covered by the estimated cash flow shown in Annex 16. The financing plan takes into account the requirements under the Arab Fund loan for the corporation to main- tain a debt to equity ratio of not more than 1:1, and to earn a return on net fixed assets of not less than 12% by 1980. The level of Government contribu- tion and yield of proposed tariff increases should be reviewed together in order to comply with the Arab Fund loan covenants and meet the financial re- quirements. Financial management and budgetary control are in the hands of competent personnel. Internal systems and procedures being set up appear adequate. Power Subsector Problems 45. The main subsector problems are as follows: (a) Organization: If the new corporation is to solve the problems inherited from its predecessor, notably the severe supply curtailments now being experienced because of inadequate investment in new facilities, a strong organization structure and effective management are essential. The organization structure adopted appears to be generally satisfactory, and expatriate management staff are of high caliber. However, there is a need to define the responsibilities of the senior management team, viz. the Chairman, Deputy Chairman and General Manager, more specifically in order to avoid overlapping, of functions. 1/ (b) System Planning: One immediate problem facing YGEC is the determination of the expansion program for 1978-80. As pointed out above, YGEC management does not agree with the plan proposed by the consultants (para 41). Further studies, as proposed, are urgently required to determine the least- cost development program, taking into account all relevant factors, including the real cost to the economy of alter- native fuels (not their subsidized prices to YGEC), and considerinig all realistic alternatives of generation and transmission. Distribution planning, which the consultants' studies largely glossed over, must also be included in future system planning. Traditional practices brought over from other systems with completely different conditions should be looked at critically before adopting them (e.g. underground distribu- tion, small number of relatively large stepdown transformers with long secondaries). Concepts of system security and reliability and design standards should be carefully estab- lished for the particular set of conditions existing in the YAR. 1/ Steps have subsequently been taken to correct this problem. - 16 - (c) Tariffs: The debt to equity ratio and the rate of return covenants of the Arab Fund loan agreement make steep in- creases in the average tariff rate mandatory in the next few years. However, the present flat-rate tariff is un- satisfactory and should be replaced by a tariff structure reflecting long-run incremental costs as soon as the future expansion program has been decided. Consultants should be engaged to undertake a study for this purpose. (d) Financing: The financing picture will have to be re-examined on the basis of the result of the pending review of the five- year expansion program. Additional financing may be necessary if, as seems likely, the least-cost program should prove to require central generation at Hodeida and staged interconnec- tion of the main load centers, since this would involve heavier capital investment in the 1976-80 period (which would be off- set by system cost savings in the longer term). (e) Training: Local personnel is lacking in experience in all areas of utility management and operation. A strong training program and concerted institution-building efforts are required if YGEC is to discharge its responsibilities efficiently and local staff are to be adequately prepared to assume management responsibilities from the existing expatriate staff in due course. A study should be carried out as a matter of high priority to establish staffing and training needs and formulate a program for meeting them. The Role of the Bank 46. The power development program to 1980 proposed by the consultants is based on the isolated development of three regions (Sana'a, Hodeida and Taiz), and closely fitted to the available loan financing from the Arab Fund (US$14 million) and the Saudi Fund (US$30 million). However, the review of the program (para 41) will probably reveal that an integrated system with central generation would be the least-cost means for meeting future require- ments. If this is confirmed and the Government decides to advance the date for interconnection of the three regional systems accordingly, there would be additional investment requirements, offering scope for Bank Group financing to complement the Arab and Saudi Fund loans. 47. Lending for power would also open the way for Bank Group assistance in finding satisfactory solutions of the subsector problems described above, with particular reference to: (a) identification of staffing and training needs and establishment of a specialized manpower training and development center to meet those needs; - 17 - (b) preparation by consultants of a master plan for least-cost distribution system development specifically suited to YAR conditions; and (c) a tariff study, to be carried out by consultants, to design a structure of tariff rates which correctly reflect long-run incremental costs of supply. 48. Apart from these specific areas of assistance, lending for power would enable the Bank Group to influence the institutional development of the subsector from an early stage in accordance with proven electric utility procedures and practices, and thereby provide a solid framework for the young YGEC to grow into a strong and effective public service organization. April 22, 1977 YEMEN ARAB REPUBLIC YEMEN PETROLEUM COMPANY Imports, Sales and Consumption of Petroleum Products 1970-1975 -------------------- Long Tons -----------------… 1970 1971 1972 1973 1974 1975 IMPORTS Motor gasoline 23,373 30,073 32,496 38,147 40,066 Aviation gasoline 987 1,677 2,222 934 1,103 Kerosene 19,646 24,481 26,229 29,988 31,069 Jet fuel 845 1,421 3,463 1,254 3,685 Diesel oil 36,807 49,630 62,007 79,529 80,151 Residual fuel oil - - - 8,448 9,234 Other 1,316 3,391 522 5,888 4,906 .. Total 82,974 110,673 126,939 164,188 170,214 200,000 (est.) Average Growth 1971-75 % p.a. SALES Motor gasoline 22,651 29,993 34,046 37,729 39,323 47,863 16.1 Aviation gasoline 877 1,683 1,842 1,021 1,219 1,082 4.3 Kerosene 18,948 23,953 27,581 29,090 29,709 38,535 15.2 Jet fuel 1,311 1,554 1,621 1,393 3,587 5,268 32.1 Diesel oil 36,824 49,130 63,586 77,939 78,616 93,135 20.4 Residuel fuel oil - - - 7,815 9,167 10,228 Other 1/ 1,316 3,391 522 5,888 4,906 .. Total 81,927 109,704 129,198 160,875 166,527 196,111 19.1 Increase % p.a. 33.9 17.8 24.5 3.5 17.8 ENERGY CONSUMPTION PER CAPITA kg coal equivalent 2/ 17 19 21 31 30 Source: Yemen Petroleum Company, except where otherwise noted. not available _ e nil 1/ Sales figures for "other" (lubricants, greases etc.) not available - sales assumed to equal imports. 2/ Data from '"orld Energy Supplies 1950-1974", United Nations. Commercial energy only (i.e. excluding consumption of traditional fuels). April 1977 YEMEN ARAB REPUBLIC YEMEN PETROLEUM COMPANY Imports and Sales of Petroleum Products by Value 1970-1975 ('000 RialRs) 1970 1971 1972 1973 1974 1975 IMPORTS (c.i.f. value) Motor gasoline 4325 5257 5448 8017 20378 31278 Aviation gasoline 411 657 809 336 715 884 Kerosene 4744 5949 5448 8226 15719 21241 Jet fuel 181 300 483 273 1787 3072 Diesel oil 5844 7340 8733 14237 33071 47147 Residual fuel oil - - - 1085 2898 3753 Other 1699 2407 6748 7488 5791 14858 TOTAL 17204 21910 27669 39662 80359 122233 TOTAL YAR imports 178448 184840 376245 564248 868074 1270700 Fuel imports as % total imports 9.6 11.9 7.4 7.0 9.3 9.6 SALES Motor gasoline 8555 11750 13615 16047. 28699 55319 Aviation gasoline 478 1066 1298 732 1345 1765 Kerosene 7594 10599 11769 14256 18847 30775 Jet fuel 343 440 483 449 3067 5797 Diesel oil 8461 12324 17123 24434 36340 53801 Residual fuel oil - - - 1575 3903 5950 Other 3426 5057 6412 8738 11308 18891 TOTAL 28857 41236 50700 66231 103509 172298 Source: Yemen Petroleum Company April 1977 YEMEN ARAB REPUBLIC YEMEN PETROLEUM C(NPANY Costs and Selling Prices of Petroleum Products At 1/1/1976 c.i.f. Bank / Customs- Average Evaporation Agent's Users Total 3/ Selling Profit/loss- value charges Profit Administration duties transport losses commission tax cost Cost/liter- price/liter per liter ---------------------------------------------- Rials/long ton ------------------ Fils/liter -------------- Motor gasoline 744.2 14.9 26.2 26.2 91.1 40.0 15.2 34.85 348.45 1341.1 96.5 93.0 - 3.5 Aviation gasoline 1042.3 20.85 39.23 39.23 176.73 40.0 21.36 - 283.23 1662.83 117.5 122.5 + 5.0 Kerosene 696.48 13.93 26.70 26.70 37.0 40.0 10.66 19.53 97.68 968.68 74.5 61.5 -13.0 Jet fuel 709.96 14.20 26.75 26.75 118.20 40.0 10.86 - 65.05 1011.77 78.0 89.5 +11.5 Diesel oil 632.17 12.64 23-33 23.33 40.23 40.0 6.45 15.28 91.63 885.o6 72.5 47.5 -25.0 Residual fuel oil 427.06 8.54 16.13 16.13 29.28 15.0 4.36 - 54.68 571.18 52.5 5' 56.0 5' + 3.5 Liquid petroleum gas - - - - _ - 22.95-29.58 - 23.30 +0.35 to -6.28 Based on 10% of c.i.f. price at 10/15/73 - equivalent to approximately 4% of 1976 c.i.f. price j Based on c.i.f. value at 10/15/73 3/ Motor gasoline 1394 liters/ton, aviation gasoline 1221.7 liters/ton, kerosene 1302.4 liters/ton, jet fuel 1300.8 liters/ton, diesel oil 1221.7 liters/ton and residual fuel oil 1092.2 liters/ton | minus sign = loss, plus sign = profit 2/ Costs and prices quoted are Rials per 15 kg cylinder of LPG. Cost is YR 22.95 from Eritrea, 24.79 from Aden and 29.58 from Saudi Arabia. NOTE: Comparative selling prices (fils/liter) for earlier years were as follows: % increase 1973 1974 1975 1973-1976 Motor gasoline 62.5 80.0 93.0 48.8 Aviation gasoline 74.41 115.0 120.5 64.6 Kerosene 37.5 57.5 63.5 614.o Jet fuel 67.5 82.5 89.5 32.6 Diesel oil 42.5 47.5 47.5 11.8 Residual fuel oil 27.5 52.5 56.o 103.6 Liquid petroleum gas (Rials/15 kg cylinder) 14.0 16.0 19.0 66.4 Source: Yemen Petroleum Company. April 1977 ANNEX 4 YEMEN ARAB REPUBLIC YEMEN PETROLEUM COMPANY Balance Sheets for Year Ending December 31, 1973 & 1974 (In Thousands of Rials) Assets 1973 1974 Fixed Assets Gross Fixed Assets - 1/ 15,158 Less: Depreciation - 1/ 6,758 Net Fixed Assets 7,495 8,400 Work in Progress 450 15,044 Total Fixed Assets 7,945 23,444 Current Assets Cash 16,426 17,071 Accounts Receivable/Inventory 19,145 27,404 Investments 150 225 35,721 44,700 Total Assets 43,666 68,144 Liabilities Capital and Reserves Equity Capital 10,000 10,000 Net Profits for Distribution 3,596 4,936 Reserves 11,307 12,473 Total Capital and Reserves 24,903 27,409 Long-Term Debt Saudi Loan 314 6,962 Current Liabilities Accounts Payable/Letters of Credit 16,907 26,162 Other Current Liabilities 1,542 7,611 Total Current Liabilities 18,449 33,773 Total Liabilities 43,666 68,144 1/ Figures not shown in Balance Sheet. Source: Extracted from Yemen Petroleum Company financial statements. April 1977 ANNEX 5 Page 1 of 3 YEMEN ARAB REPUBLIC Exploration for Hydrocarbons Main Geological Zones 1. Geologically, YAR can be divided into three zones: (a) The Central Highlands, with mountains rising to over 12,000 feet, interspersed by high plains; (b) the western zone sloping down towards the Red Sea graben, including the tropical semi-arid lowlands of the Tihama and the offshore areas of the Red Sea; and (c) the eastern zone, which subsided less than the west and passes gradually into the great Arabian Desert. Exploration Work 2. As a result of geological work carried out in the earlier years of this century the geological structure of the country was known in a general way but not in any detail. Interest in exploration for hydrocarbons began to quicken from 1950; the main exploration activities since then have been as follows: 1952 : After a reconnaissance of various parts of the country, a German expert recommended oil exploration around the salt domes of the Salif-Luhaiya area. An American expert commented on the minor oil showings in some water wells in Salif. 1953-54 : A German group studied oil shale occurrences in the Sana'a basin (Central Highlands). 1953-56 : The Yemen Deilmann Petrol Company was granted a concession covering the salt dome area in the northern Tihama from Salif to Luhaiya and carried out a geographical survey, recording gravity and magnetic data and doing geological field work. 1961-62 : The American firm J.W. Mecom, which had taken over the Deilmann Petrol Company's concession in 1956, carried out a gravity survey in the Hodeida area and drilled five deep exploration wells near Salif, Zaidiya and Hodeida, none of which had any oil shows of economic sig- nificance. ANNEX 5 Page 2 of 3 1966 : A Romanian exploration team proposed a prospecting program in the Tihama plain. 1970-71 Following the establishment of a joint venture company (YOMICO) by YAR (51%) and Algeria (49%), which was given exclusive hydrocarbon exploitation rights, the company made a seismic survey in the Tihama coastal area. 1972 : Deutsche Shell carried out a preliminary seismic survey offshore YAR. 1974 : Yemen Shell Explorations G.m.b.H., a subsidiary of Deutsche Shell (Hamburg), having been granted an offshore concession of about 7,330 sq. miles from the Saudi border in the north to Ras Zabid in the south, carried out an extensive geo- physical survey of the area in 1974-75, including gravimetric and aeromagnetic surveys. In the same year, Toyo Menka Kaisha Ltd. (Tokyo), in conjunction with Sante Fe Minerals Inc. (California), carried out a seismic survey of a 1,000 sq. mile offshore area south of the Shell concession at a cost of US$500,000. 1975 The Toyo Menka/Santa Fe consortium carried out a geophysical survey of the whole Tihama. Conclusions The conclusions of the German Geological Advisory Group from the exploration work carried out to date are as follows: (a) In the Central Highlands the only indications of hydrocarbons are in the oil shales but future exploration is not recommended, since there is no possibility of economic oil production. However, it is possible that better oil shales may be found in the course of eventual geological mapping of the country. (b) In the Red Sea graben the chances of discovering hydrocarbons are much better, especially in the tertiary sediments. (c) The existence of crude oil in the Tihama seems quite possible, especially below the salt-bearing Miocene strata, though perhaps not in large quantities. The continuation of exploration is recommended. ANNEX 5 Page 3 of 3 (d) The beat chances of finding hydrocarbons of economic value are offshore, as the thickness of sediments increases. The results of the surveys carried out so far are being evaluated and exploratory drilling is expected to start in 1976. (e) Geological information on the eastern part of the country is scarce. East and southeast of the Jawf salt plugs are known, with some oil shales, and oil seepage has been observed. In spite of the nearness of young volcanic rocks, there seems to be some possibility of finding hydrocarbons in the area. However, extensive exploration would be necessary, and this may prove diffi- cult because national boundaries in the area have not been defined. Source: "Report on the Exploration Work for Hydrocarbons in the Yemen Arab Republic", by E. von Prosch, Head of German Geological Advisory Group. June, 1975. Anril 1977 YEMEN ARAB REPUBLIC YEMEN PETROLEUM COMPANY Forecast Sales of Petroleum Products 1976-1985 (Long Tons) Average Growth 1976-85 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 % p.a. Motor gasoline 48296 53125 58437 64280 73922 85010 97761 112425 123667 136034 11.0 % increase 0.1 10 10 10 15 15 15 15 10 10 Aviation gasoline 1350 1400 1450 1500 1550 1565 1581 1596 1612 1628 4.2 % increase 24.8 3.7 3.6 3.4 3.3 1 1 1 1 1 Kerosene 37815 41596 47835 52618 60510 69586 80023 92026 101228 111350 11.2 % increase -1.8 10 15 10 15 15 15 15 10 10 Jet fuel 4623 5085 5848 6725 8070 9684 11620 13363 15367 17672 12.9 % increase -12.2 10 15 15 20 20 20 15 15 15 Diesel oil 115679 133030 166287 199544 239452 299315 359178 413054 475012 546263 19.4 Z increase 24.2 15 25 20 20 25 20 15 15 15 Residual fuel oil 10600 11130 11686 14607 16798 18477 20324 22356 24591 27050 10.2 % increase 3.6 5 5 25 15 10 10 10 10 10 TOTAL 218363 245366 291543 339274 400302 483637 570487 654820 741477 839997 15.6 % increase 11.3 12.4 18.8 16.4 18.0 20.8 18.0 14.8 13.2 13.3 Source: Yemen Petroleum Company April 1977 ANNEX 7 YEMEN ARAB REPUBLIC YEMEN GENERAL ELECTRICITY CORPORATION Organization Chart (Basic Overall Management Structure) Board of Management Chairman Deputy Chairman General Manager Corporate Staff Managers Planning Manager Chief Engineer Financial Controller Administration Manager Controller of Stores Reg lManae Reional Mana ger Regional Manager Hodeida Sana'a Taiz April 1977 ANNEX 8 YEMEN ARAB REPUBLIC YEMEN GENERAL ELECTRICITY CORPORATION Generation, Sales and Peak Demand of Public Power Sector-/1971-75 1971 1972 1973 1974 1975 Gross Generation,-/ '000 kWh 17,832 23,212 30,087 35,710 42,751 of which: Sana'a 9,630 10,755 14,385 18,486 24,203 Hodeida 4,044 6,991 9,427 10,478 11,234 Taiz 4,158 5,466 6,275 6,747 7,314 Total Sales, '000 kWh 13,898 17,488 22,802 27,882 33,673 of which: Sana'a 7,235 7,966 10,593 13,827 18,067 Hodeida 3,392 5,619 7,727 9,239 10,381 Taiz 3,271 3,903 4,482 4,816 5,225 Total Power Station use, distribution losses and unaccounted for 3,934 5,784 7,285 7,828 9,078 In percent of gross generation 22% 24% 24% 21% 21% Peak Demand, MW Sana'a 2.60 3.00 3.50 5.70 6.00 Load factor, % 31.8 30.3 34.6 27.7 34.4 Hodeida 1.20 1.70 2.68 2.66 2.65 Load factor, % 32.3 37.7 32.9 39.6 44.7 Taiz 1.80 1.80 2.00 2.00 2.00 Load factor, % 20.7 24.8 25.6 27.5 29.8 Source: YGEC 1/ Includes only main towns served by YGEC, i.e. Sana'a, Hodeida and Taiz 2/ All generation is by diesel-engine sets. April 1977 ANNEX 9 YEMEN ARAB REPUBLIC YEMEN GENERAL ELECTRICITY CORPORATION Usage of Electricity by Consumer Classes, 1973-1975 Revenue Consumer Number of '000 kWh ('000 Year Class Customers % Sold % Rials) % SANA'A 1973 Private 15,870 93.1 5,244 49.5 2,119 51.8 Government 544 3.2 3,195 30.2 1,117 27.3 Embassies 293 1.7 1,269 12.0 521 12.7 Light industries 335 2.0 885 8.3 337 8.2 TOTAL 17,042 100.0 10,593 100.0 4,09 100.0 1974 Private 17,562 93.1 6,482 46.9 3,307 49.0 Government 573 3.0 4,135 29.9 1,785 26.4 Embassies 288 1.5 1,874 13.6 1,036 15.3 Light industries 433 2.4 1,336 9.6 624 9.3 TOTAL 18,856 100.0 13,827 100.0 6,752 100.0 1975 Private 18,145 n.a. n.a. n.a. n.a. n.a. Government 558 Embassies 300 Light industries 781 TOTAL 19,784 HODEIDA 1973 Private 6,231 95.5 5,497 71.2 1,957 78.0 Government 121 1.9 893 11.6 159 6.3 Street lighting 29 0.4 378 4.8 74 2.9 Light industries 130 2.0 577 7.5 195 7.8 General Cotton Co. 8 0.2 382 4.9 125 5.0 TOTAL 6,519 100.0 7,727 100.0 2,510 100.0 1974 Private 6,959 96.2 7,137 77.7 2,846 81.7 Government 110 1.5 874 9.5 221 6.3 Street lighting 31 0.4 369 4.0 63 1.8 Light industries 133 1.8 292 3.2 124 3.6 General Cotton Co. 10 0.1 567 6.1 231 6.6 TOTAL 7,243 100.0 9,239 100.0 3,485 100.0 TAIZ 1973 Private n.a. n.a. 3,114 69.5 1,371 74.1 Government n.a. n.a. 1,368 30.5 480 25.9 TOTAL 7,716 100.0 4,482 100.0 1,851 100.0 1974 Private n,a. n.a. 3,952 82.1 1,672 76.6 Government n.a. n.a. 864 17.9 511 23.4 TOTAL 8,071 100.0 4,816 100.0 2,183 100.0 Source: Peat, Marwick, Mitchell & Co., December 1975 Report on YGEC Corporate Plan. April 1977 YEMEN ARAB REPUBLIC YEMEN GENERAL ELECTRICITY CORPORATION YGEC Generating Plant as of April 1976 Year Rated Available Economic Location Make installed Output EW Output, KW Life,Years Remarks Sana'a Deutz 1973 2 x 2,500 2 x 2,400 10 Too complex for semi-skilled operators, units are plagued with minor faults largely due to maloperation. S.K.L. 1970 6 x 480 6 x 380 6 All units require a complete overhaul and foundation blocks renewed. Yugoslavia 1964 2 x 500 2 x 480 2 Run on a day to day basis, a very major overhaul is required. Pranco Tossi 1959 3 x 350 1 x 200 nil Beyond economic repair, one unit can run on a day to day basis. Deutz Mobile 1972 1 x 300 1 x 200 5 Routine overhaul now due. Subtotal 10,330 S,440 Hodeida S.K.L. 1971 4 x 480 A x 450 8 All units require complete overhaul and foundation blocks renewed. S.K.L. 1970 2 x 480 2 x 350 6 All units require complete overhaul and foundation blocks renewed. Deutz 1964 1 x 400 1 x 200 2 A major overhaul is required. Franco Toast 1959 2 x 100 nil nil Beyond economic repair. Subtotal 3,030 2,700 Taiz S.K.L. 1965 2 x 480 2 x 420 6 Both units require a major overhaul. S.K.L. 1970 2 x 668 2 x 500 8 Both units require incidental replacements and improved cooling. SPoda 1073 2 x RRO 1 x 500 10 One unit not installed has been partly dismantled to provide spares for the running Subtotal 4,056 2,340 unit, improved cooling required. TOTAL 17,466 13480 An effort has been made to locate anid purchase essential parts for all but the Franco Tossi engines, even they might possibly be renovated, but new crankshafts would be required, and for their very limited output it is hardly worthwhile. The Franco Tossi units are again too complex to be operated individually in any rural development. The relatively simple S.K.L. and Skoda units are most suited to local requirements at this stage. Source: YGEC April 1977 YEMEN ARAB REPUBLIC YEMEN GENERAL ELECTRICITY CORPORATION Maior Autoproducers Installed Capacity -/and Peak Demand, as or April iY/b Installed Capacity Peak Demand Station KW KW Cement Plant, Baijil 2,880 1,400 Textile Company, Sana'a 2,200 1,000 Port Authority, Hodeida 2,160 1,200 Yemen Co. for Industry and Commerce, Taiz 940 400 Cigarette factory, Hodeida 980 300 Textile factory, Baijil 480 400 Aluminum plant, Taiz 380 200 Bottling plant, Hodeida 365 300 Bottling plant, Taiz 200 150 TOTAL 10,585 5,350 1/ All generators are diesel-engine sets. Source: Feasibility report, Engineering & Power Development Consultants Ltd., Dec. 1975. YGEC. April 1977 ANNEX 12 YEMEN ARAB REPUBLIC YEMEN GENERAL ELECTRICITY CORPORATION Electricity Tariffs 1971-1976 ---------------fils per kWh------------------------ Present 1971 1972 1973 1974 1975 -Rate SANA'A Private 40 40 45 50 50 60 Embassies 35 35 45 50 50 60 Government 35 35 40 45 50 60 Light Industries 35 35 45 50 50 60 HODEIDA Private 35 35 35 40 50 60 Cold Storage Co.'s 30 35 35 40 50 60 Mosques 25 25 25 40 50 60 Quarry 30 35 35 40 50 60 General Cotton Co. 35 35 35 40 50 60 Government 15 15 15 15 50 60 Municipality 20 20 20 15 50 60 TAIZ Private 40 40 45 50 55 60 Government 35 35 40 45 55 60 1/ Since October 1975. Source: YGEC April 1977 ANNEX 13 YEMEN ARAB REPUBLIC YEMEN GENERAL ELECTRICITY CORPORATION Forecast of Peak Demand and Energy Consumption 1976-1980 Peak Demand Consumption Load Factor Region MW '000 kWh _ SANA'A 1976 8.30 21,800 30 1977 8.30 24,000 33 1978 10.80 30,300 32 1979 13.00 36,500 32 1980 15.60 43,700 32 HODEIDA 1976 3.80 12,700 38 1977 4.00 14,000 40 1978 5.40 18,500 39 1979 6.80 23,300 39 1980 8.10 28,400 40 TAIZ 1976 3.55 9,300 30 1977 4.14 10,200 28 1978 4.84 12,700 30 1979 5.80 16,300 32 1980 6.80 19,000 32 Source: YGEC April 1977 ANNEX 14 YEMEN ARAB REPUBLIC YEMEN GENERAL ELECTRICITY CORPORATION Major Generating Plant Additions in Progress and Under Consideration 1976 - 1980 Start-up No. of Installed Capacity kW Station Date Units Unit Total 1. In Progress Sana'a July 1976 2 500 1,000 Hodeida July 1976 2 500 1,000 Sana'a July 1977 2 5,000 10,000 Hodeida July 1977 3 2,500 7,500 Taiz July 1977 2 2,500 5,000 2. Under Consideration Sana'a July 1979 2 5,000 10,000 Hodeida July 1979 2 5,000 10,000 Taiz July 1979 2 2,500 5,000 Source: YGEC April 1977 ANNEX 15 YEMEN ARAB REPUBLIC YEMEN GENERAL ELECTRICITY CORPORATION Forecast of Availabe Generating Capacity YGEC at Year-end 1977 (KW) Description Sana'a Hodeida Taiz Total Available capacity in 1975 8,440 2,700 2,340 13,480 Crash program sets installed in 1976 1,000 1,000 - 2,000 Short term plan to be completed during 1977 10,000 7,500 5,000 22,500 Available capacity at year-end 1977 19,440 11,200 7,340 37,980 Source: YGEC April 1977 ANNEX 16 YEMEN ARAB REPUBLIC YEMEN GENERAL ELECTRICITY CORPORATION Estimated Cash Flow and Proposed Financing (in Millions of Rials) Item 1975/76 1976/77 1977/78 1978/79 1979/80 Forecast Cash Flow - expenditure on fixed assets 17.0 92.5 27.8 149.0 - - increase in net current assets 1.5 2.1 1.5 2.9 17.3 - loan repayments - - - - 3.0 - loss (or profit) at current tariffs before depreciation and pro- vision for retirement benefits (1.6) (0.1) 3.4 2.4 2.1 Deficit Cash Flow in the Period 16.9 94.5 32.7 154.3 22.4 Proposed Financing (a) Loan finance: - drawings from existing Arab Fund and Saudi Fund loans 16.9 64.7 2.8 1.1 - drawings against proposed new loans - 14.5 9.3 70.8 (b) Capital and internal financing: - capital injection from Yemen Government 7.0 6.0 60.0 - - increase in tariffs - 8.3 14.6 22.4 22.4 Total Additional Finance 16.9 94.5 32.7 154.3 22.4 Source: YGEC April 1977 j REAENw _ I . >>o L g 44 .IBRD-12297 SAUDI ARABIA ~~~YEMEN ARAB REPUBLIC L -'* T U A U D I A R A B I AYEMENARABREPUBLIC L1,tu\ISAUDFRRAB^ \ PUBLIC POWER STATIONS AND OIL STORAGE AA E A NEWSSTATIONSUNERCONS TRUCTONE c - >- \SAT"OIRL DOA SC POW E R STATI ONS a < AIOIV~~~~~~~~~~~~~~~~~~~~~~~~~~~~O MI OLSOA - - n ' IT R A 4PAVED IRIVIEP EIM ARYR ROADS O ; TI-IER RROADS TH I PR FAC I NITIE S (j) NA20T0IONAL CAPITAAPIT ! 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