Costa Rica - Third Power Project

REPORT NO. 760 CONFIDENTIAL INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT PERFORMANCE AUDIT REPORT on COSTA RICE THIRD POWER PROJECT - LOAN 631-CR May 29, 1975 Operations Evaluation Department PREFACE The Third Power Project in Costa Rica was partially financed by Bank Loan 631-CR which was signed on July 10, 1969 and closed in December 1973. The purpose of this performance audit is to assess the extent to which the original project objectives were met and to analyze the role of IBRD in helping to meet these objectives. To prepare the audit, relevant files were reviewed, and the im- plementation of the project was discussed with IBRD and Instituto Costar- ricense de Electricidad (ICE) staff who had been involved with it. A 6- day mission to Costa Rica was undertaken to update information and to dis- cuss briefly the relevant issues with ICE staff. Note: Currency Equivalent (Colon): US$ 1 = 0 6.65 before April 1974. US$ 1 = 0 8.50 April 1974 - up to now. TABLE OF CONTENTS Page No. Summary I. Background 1 II. The Project 3 III. Project Implementation 4 IV. Economic Justification and System Planning 5 V. Financial Performance 7 VI. Bank's Performance 9 VII. Conclusions 10 List of Tables 1. ICE Power - Operations and Financial Indicators 2. Installed Generating Capacity in Costa Rica 3. ICE Power - Estimated and Final Project Cost (Detailed Breakdown) 4. ICE Power - Actual vs Projected Income Statement 5. ICE Power - Actual vs Projected Sources and Applications of Funds 6. ICE Power - Actual Balance Sheet for Electricity Operation Only 7. ICE Power and Telecommunication - Actual vs Projected Balance Sheet 8. ICE Power - Actual vs Projected Debt Service Requirements 9. ICE Power - Actual vs Projected Sales by ICE 10. CNFL - Actual vs Projected Income Statement Units of Measures kw = kilowatt MW = megawatt = 1,000 kilowatt kwh = kilowatt hour GWh = gigawatt hour = 1,000,000 kwh m = meter = 3.28 feet km 1,000 meters = 3,280 feet  Summary Loan 631-CR of US$ 12 million equivalent to Instituto Costarricense de Electricidad (ICE) was signed on July 10, 1969 and became fully disbursed in December 1973. The purpose of the Loan was to finance the foreign ex- change cost of a US$ 25.7 million project expected to account for about 34% of ICE's 1968-1975 expansion program. The project consisted principally of: a. The installation of two 30 MW generating units in the Rio Macho hydroelectric plant and associated civil works includ- ing construction of a 14.5 km tunnel. The two units would have an output of about 300 GWh annually; b. Raising to full level the reservoir of the Cachi hydroelec- tric scheme, which would enable the plant to generate 32 GWh more annually; and c. The extension of various short transmission and distribution lines and construction of associated substations. The Tapanti scheme (extension of the existing Rio Macho hydroelec- tric plant), which accounted for 79% of expected and 84% of actual project cost (excluding interest during construction), took about 16 months longer than expected to complete and cost about 88% more than originally estimated. The main reason for the cost and time overrun was the adverse geological conditions encountered in some sections of the tunnel, where even detailed and costly sub-surface investigation prior to construction might not have revealed the conditions actually met. With the recent and projected fuel prices, the actual investment in Tapanti, additional to that which would have been required for an equivalent thermal plant, shows a rate of return of 15% as compared to 12% originally estimated. The work at the Cachi Reservoir, which accounted for 14% of ex- pected and 15% of actual project cost (excluding interest during construc- tion), took 11 months longer than expected to complete and cost about 91% more than originally estimated. The delay, as well as the increase in cost, was mainly due to the permeability of the rock on the left abutment which proved to be much higher than expected. However, due to a revision of estimates of mean-year inflows, the effect of the increase in the water level at Cachi is now expected to be about 40 GWh additional annual genera- tion rather than the 32 GWh projected at the time of appraisal. In spite of the almost doubled investment cost, the investment at Cachi yields a rate of return of 20% when comparing it with the cost of the output from an existing gas turbine plant. About 60% of the transmission work was postponed so that funds could be available to cover part of the cost overruns of the Tapanti and Cachi schemes. Most of this work has since been taken care of and the consequences of the delay seem to have been at the time minor voltage regula- tion problems and reduced reliability on part of ICE's transmission system. ICE's financial performance deteriorated due to the high construc- tion expenditures incurred in 1971 and 1972 as well as in 1973. About 43% of the increase in the construction expenditures were directly due to the cost - it overrun on Tapanti and Cachi. The remaining 57% arose from the installation of gas turbines and construction of transmission lines which were not originally planned for this period, but had to be brought forward due to the time overrun on Tapanti and Cachi. In spite of ICE's success in issuing bonds on the local market, the company still had to borrow from external commercial banks at unfavorable terms to finance construction expenditures, and the debt service payment was as much as 78% higher in 1973 than origi- nally estimated. While electricity sales were on the average 3.3% higher than projected, average revenues per unit sold were slightly lower than projected in 1971 and subsequently, because of larger sales to individual customers (through its own distribution system) who were charged a lower rate. The financial covenants were in general adhered to. However, ICE would not have been able to make the required 9% rate of return covenant in 1974 had it revalued its assets. From 1971 and onwards, most other financial indicators were weaker than projected. The major objectives of this project have been met. The Bank proved to be flexible in accepting force account construction (instead of contractors), which in the case of Tapanti seemed to have been the most economical. An important lesson emerging from this project is that higher contingencies should be allowed when estimating the costs of constructing tunnels located several hundred meters underground and where sub-surface investigations become impractical due to the costs involved; the Bank now recognizes this and has produced relevant general instructions. The weaker part of the project was the financial problems it caused. It seems unfor- tunate in this case that the Bank did not depart from its usual policies against financing local currency costs of power projects and against supple- mentary financing, by contributing, under its subsequent fourth loan in 1972, to covering the cost overruns (mainly in local currency) on the Tapanti and Cachi extensions. However, with its tariff increases in 1974, ICE's finan- cial position should improve. I. BACKGROUND Instituto Costarricense de Electricidad (ICE) is a government- owned statutory corporation, which was established in April 1949 to plan and implement a coordinated national program of electrification. The law setting up ICE defines it as an autonomous organization which carries out its activities independent of the Government, except for the approval of tariffs and bond issues. ICE has a Board of Directors consisting of seven members including the corporation's Executive President. The members of the Board are appointed by the President of the Republic for eight-year terms on a staggered basis in such a way that three of its members are changing every fourth year. The Board appoints the General Manager, the Deputy Manager, the Treasurer and the Chief Auditor. The two largest public utilities in Costa Rica are ICE and Com- pania Nacional de Fuerza y Luz (CNFL) which was formerly owned by Electric Bond & Share Company (EBASCO). ICE generates about 77% (Table 1) of all the electricity in Costa Rica and sells most of it in bulk, while CNFL sells all its electricity directly to the consumers and is the main distributor for ICE. In 1968, ICE purchased 92.3% of CNFL's stock (remaining shares are owned by private individuals) but the two utilities have continued to operate as separate entities. At the end of 1974, the total installed public utility generating capacity of Costa Rica was 364 MW (225 MW hydro and 139 MW thermal) of which 91% (332 MW) was in the central zone (Table 2). This zone is served by the Interconnected System which extends from Turrialba on the eastern slopes of the central highlands to Puntarenas on the Pacific coast and the town of Abangares in Guanacaste province. The rest of the country is served by small, isolated diesel and hydro plants with an aggregate capacity of 32 MW. Except for some few outlying systems, all of ICE's facilities are concentrated in the highland region around San Jose and form the major part of the Inter- connected System. In 1973, ICE generated 77% (930 GWh) of the total energy generated for the Interconnected System. The same year, ICE sold 60% (568 GWh) of its total energy to CNFL; 12% (117 GWh) to other utilities, and 28% (255 GWh) to some 36,000 customers through its own distribution systems. System losses, which are generally low because most of the energy is sold in bulk, were 5.5% (55 GWh) for that year (4.2% or 39 GWh for the Interconnected System only). The Bank has been associated with the development of the Costa Rican electric power sector since 1961. The first Bank loan (276-CR) of US$ 8.8 million was for the first stage of Rio Macho hydro-electric development com- prising mainly the construction of the plant with an ultimate capacity of 120 MW, of which 30 MW was installed under this first loan together with a 9 MW diesel facility and associated transmission works. In 1963, Loan 346-CR of US$ 12.5 million helped finance the first stage of the 64 MW hydroelectric plant at Cachi and associated transmission lines. In 1969 Loan 631-CR of US$ 12 million was for the second stage (installation of two 30 MW units) of the Rio Macho-Tapanti development, an increase of the reservoir level 'at Cachi and associated transmission works. A fourth loan (800-CR) was made in 1972 to help finance the installationof two 19 MW thermal units, extension of the distribution system and construction of various transmission lines and -2- sub-stations of the Interconnected System. A further loan is now under con- sideration principally for the third stage of Rio Macho and Cachi, including the installation of the last 30 MW unit at Rio Macho and a 32 MW unit at Cachi, as well as for a new 30 MW diesel plant and transmission works. This yeport represents a performance audit of the third project (Loan 631-CR).1 The project was appraised in November 1968 based on a feasibility report prepared by ICE and sent to the Bank in October 1967. This was accompanied by a separate report by Societe Francaise d'Etudes et de Realization d'Equipments Electriques (SOFRELEC) as power consultants. to ICE. The loan was finally signed in July 1969 and became effective in October 1969 -- some two years after the loan application and the feasibility study had been sent to the Bank. In the latter 1960s, the Bank did restrict its lending to Costa Rica, which needed to improve its fiscal and balance of payments situation. However, ICE was not at the time dependent on the Government -- as it had been in the past -- to help finance part of the project's local costs, but ICE needed the guarantee of the Central Bank for sale of foreign exchange to service its Bank loan. The manageability of the balance of payments and the assurance that sufficient foreign exchange would be available to service all external debt was considered to be crucially dependent on reducing the Central Government's fiscal deficit. Hence the fiscal situation was a key determinant of Costa Rica's creditworthiness both for lending to the Government as well as the rest of the public sector. At the end of 1968, Costa Rica's fiscal situation had improved and the Bank decided to resume its lending to the country. Several protective covenants were agreed upon during negotiations. First, ICE was to employ consultants acceptable to the Bank. ICE had already started construction with its own crews. In the past, it had engaged con- sultants to assist on specific problems only. This arrangement -- force account construction and recourse to consultants for special problems only -- was acceptable for this project also. Second, ICE was to maintain separately administrative, accounting and engineering records for the power section (it is also responsible for domestic telecommunications except public telegraph service) and have its financial statements certified annually by an independent auditor acceptable to the Bank. Third, ICE was not to incur, without the Bank's permission, any long-term debt, unless the net revenues of the preceding 12 months or fiscal year (whichever was the greater) were at least 1.5 times the maximum future debt service requirements for any succeeding fiscal year (including the debt to be incurred). This was also to be applied to CNFL. Fourth, ICE was to restrict the amount of bonds sold with a repurchase agreement to 40% of the bonds outstanding. Fifth, ICE was not permitted to let its short-term debt exceed 10 million Colones. Sixth, the Government was to adjust the power rates to enable ICE to earn a return of not less than 9% on its average net fixed assets in operation, where assets and depreciation allowances were to be determined "in accordance with methods of valuation and revaluation acceptable to the Bank and the 1/ A performance audit report on the earlier projects was prepared in 1972; IBRD Report No. 7, dated October 20, 1972: "Audit of Early Power and Telecommunications Lending to ICE, Costa Rica." Borrower." Electricity tariffs were also to be maintained at a level to enable CNFL to pay the required dividend and interest payments to ICE. Finally, ICE was to inform the Bank of any impending changes in the position of its General Manager and to give the Bank an opportunity to comment. These covenants were complied with except that ICE would not have met the 9% return covenant in 1974 if it had revalued its assets. II. THE PROJECT The objective of the project was to meet the increasing demand for electric service. The project (Table 3), with an estimated cost of US$ 25.7 million equivalent, including a foreign exchange component of US$ 12.5a2 million, was expected to account for 34.3% of the total cost of ICE's 1968- 1975 expansion program. The principal component of the project was the Tapanti scheme, e::- tension of the existing Rio Macho plant, estimated at a total cost of US$ 18.7 million equivalent. An intake on the Reventazon River and a 14.5 km tunnel were to be constructed to deliver additional water to the existing Rio Macho plant, where two 30 MW generating units were to be installed. The powerhouse was to be extended to make room for the two new units,and an extension to the penstock was to be made to serve these units and provide a connection for a further unit of similar size. No other work was envisaged since the existing tailrace was adequate for the total 120 MW final capacity planned for the Rio Macho station. It was projected that the scheme, to be completed at the end of 1972, would add at least 300 GWh annually to the output of the Rio Macho plant. The project also included the installation of spillway gates with associated civil works, to raise the reservoir level at Cachi by 20 meters, thus increasing the available volume of the reservoir by 40 million cubic meters. This work was to enable the existing plant at Cachi to generate at least 32 GWh more annually and was scheduled for completion at the end of 1971. Finally, the construction of various short transmission lines and sub-stations associated with the power plant addition were included. Work on the Tapanti scheme had already started in 1967 with the construction of access roads and tunnel adits, and in 1968 work was stirted on part of the main tunnel. This was necessary in order to meet the construc- tion schedule which was designed to achieve completion of the project by mid- 1972 when it was urgently required to meet projected system demand. 36.6% of the financing of the project was expected to be met by internal cash generation (net of debt service). Borrowings were to provide a/ US$ 0.5 million had been spent on the project prior to January 1, 1969, and the remaining US$ 12 million was to be financed by the Loan 631-CR. -4- for 58.4% and consumers' contribution and other sources were expected to cover the remaining 5% of the project financing. III. PROJECT IMPLEMENTATION With the exception of some transmission lines and sub-stations which were postponed, this project was implemented largely as planned, but with a delay of 16 months and a total project cost increase of 84% (Table 3). ICE has always had difficulties in completing their projects in time and within the cost originally estimated (see IBRD Report No. 7). The Tapanti scheme was completed in March 1974 as compared to November 1972 originally estimated. The cost increase on the Tapanti scheme (excluding interest during construction) accounted for 76% of the total project cost increase. It was due to the severity of unanticipated geological conditions encountered in some sections of the tunnel which delayed the completion of this part of the project by 16 months. The final cost of the 14.5 km long tunnel was almost three times the original estimate and averaged US$ 1,145 per linear meter. Exploratory works had to be per- formed and extensive grouting programs were required to stop the heavy in- flow of water. It was also necessary to line the tunnel with a 20 centimeter thick layer of pumpcrete rather than with 10 centimeters of shotcrete as originally planned, thus reducing the diameter of the tunnel to 3.4 meters. More tunnel drilling equipment had to be bought than envisaged due to the lengthy and difficult construction period, so this project item was also much higher than originally estimated. The engineering and administration cost increased due to the 16 months' delay of the construction of the tunnel. Geological studies based on investigation of the ground surface and aerial photography, had been done by ICE prior to commencement of construction of the first Rio Macho tunnel in the early 1960s (financed by Bank Loan 276-CR). This 1.5 km long tunnel presented no major geological problems anid weekly excavation advances of 25 meters were maintained through- out its entire construction. The geological report covered also the Tapanti (extension of the first tunnel) underground water conduit, and excavation conditions similar to the ones encountered in the first Rio Macho tunnel were expected. With this in view, costs and time schedules obtained from the first Rio Macho tunnel were updated accordingly and used to form the principal base for the Tapanti estimates. This assumption was supported by the construction and cost results obtained while excavating the first 3.4 km of tunnel on the Tapanti project. (Previous Bank financed projects have also started construction before commitment of the loan. See IBRD Report No. 7). Average excavation progress in this section amounted to over 30 meters per week and excavation costs were even lower than costs obtained on the first Rio Macho tunnel. However, the picture drastically changed for the worse once the tunnels reached the igneous rocks and their associated water condi- tions, where average excavation progress reached only 8 meters per week. In early 1971, ICE hired the consultants Geoconseil and Societe de Recherches Geophysiques de Paris (SRG) for advice on geological and geo- technical investigation studies concerning the Tapanti tunnel. Special training was given to ICE's personnel in such areas as surface geology, -5- geophysics and high pressure grouting to overcome the flow of water at high pressure. In early 1972 Jacobs Associates were brought in to assist in the excavation and construction of the tunnel which was finally completed in March 1974. Jacobs Associates wrote in their progress report on Tapanti that "it is in fact a typical case of changed geological conditions. Changed to the extent where their presence could not have been reasonably anticipated without extensive detailed and costly sub-surface investigation. Having the benefit of hindsight coupled with the knowledge of prevailing geological and topographical conditions, the writer finds it quite doubtful that the adoption of such a detailed sub-surface investigation program, carried out prior to actual construction would be sufficiently indicative of the condi- tions actually encountered in the tunnel." Jacobs also found it doubtful whether the cost overruns could have been avoided or lessened to a marked degree if the underground conduit excavation had been carried out by an experienced tunnel contractor under the provisions of a firm-lump-sum bid contract. Quite likely, Jacobs point out, a responsible bidder would not have submitted a lump-sum bid at all due to the nature of the work involved and scarcity of available detailed geological information at the time of the bidding. Possibly, the project might not have been realized at all even with a unit-price contract with escalation clauses, if actual geological conditions had been known in advance. The cost increase on Cachi Reservoir (excluding interest during construction) accounted for 14% of the total project cost increase. This part of the project was completed in October 1972, some eleven months behind schedule. The delay, as well as the increase in cost, was mainly due to the permeability of the rock on the left abutment which proved to be much higher than expected. As a consequence, additional grouting work was required. More land was bought and a new approach road to Cachi was built which was not originally included in the project. In 1971, the French consulting firm, Geoconseil, had to be brought in to plan the construction of the curtain. The French firm Bachy supervised the construction which was done by ICE's crew. About 60% of the transmission lines and sub-stations originally included in this project were postponed so that funds could be available to cover part of the cost overruns of the Tapanti and Cachi projects. The transmission work associated with the Rio Macho plant was included and completed with no delays or cost overruns. Some of the works postponed were included in the following Bank loan (800-CR) and some were financed by IDB. IV. ECONOMIC JUSTIFICATION AND SYSTEM PLANNING Despite the high cost increase and the time overrun, the Tapanti scheme was well justified. The investment cost of about $578 per kw installed (and a capacity factor of about 58%) at the Rio Macho plant -- with the capacity for an additional 30 MW unit -- is, in the light of today's prices, a reasonable investment when compared to other Central American coun- tries. Despite the reduced diameter of the tunnel, the lining also reduced -6- the friction to the movement of water with a consequent increase in its flow. Hence, the scheme would be.able to generate more power than originally estimated. The feasibility report prepared by ICE with the assistance of SOFRELEC compared various alternative programs to meet forecast demand through 1975, and found the one including Tapanti the most economic and estimated the rate of return on the incremental investment in Tapanti over a thermal alternative with equivalent capacity to be about 12% assuming the cost of fuel at USJ 0.5 per kwh. Recalculating this return assuming an investment cost of $220 per kw of a thermal alternative and the current cost of fuel of US 1.2 per kwh (corresponding to US$ 10.00 per barrel including freight) up to 1980 and USJ 1.0 per kwh (corresponding to US$ 8.33 per barrel including freight) thereafter, the current investment in Tapanti shows a rate of return of 15%. It was originally planned that the incremental investment in the Tapanti scheme would enable the Rio Macho plant to generate 300 GWh more annually, but it is actually generating 310 GWh, or 3% more than originally estimated. With the instalment of the last unit, the Rio Macho plant is expected to generate at least an additional 20 GWh annually. The Cachi Reservoir also turned out to be a worthwhile investment. It was originally planned that the incremental investment in Cachi would enable the plant to generate an additional 32 GWh annually, but it is now expected to generate about 40 GWh, or 25% more, due to revised estimates of mean-year inflows to the reservoir. In spite of the almost double investment cost, the Cachi scheme financed under this project yields a rate of return of 20% when comparing it with the cost of the output from an existing gas turbine plantl7 assuming fuel cost of USJ 2.9 per kwh (corresponding to US$ 10.00 per barrel including freight) up to 1980 and USJ 2.4 per kwh (corresponding to US$ 8.27 per barrel including freight) thereafter. ICE did not have much choice but to postpone most of the trans- mission work as it needed to finance the cost overrun on both Tapanti and Cachi projects. Most of this work has since been taken care of and the consequences of the delay seem to have been at the time minor voltage regulation problems and reduced reliability on part of ICE's transmission system without restricting the demand for electricity. Due to the lengthy time overrun of the Tapanti Project, two gas turbines -- of 19 MW -- were installed at San Antonio, on the Interconnected System. These gas turbines were financed by the subsequent Bank loan (800-CR), and scheduled for completion by December 1972 to meet the 1973 dry season (January-May) requirements. The units were not commissioned until April 1973, some four months behind schedule. During the 1973 dry season, which was the first time ICE had to shed any load, the flows in the rivers which supply ICE's run-of-river plants were the lowest in recorded history. Because of this extreme drought and delays in the 1/ Only the fuel cost of generating 40 GWh more annually from an existing gas turbine plant was compared with the investment cost in raising the Cachi Reservoir level. -7 - installation of the gas turbines, ICE had an energy shortage of about 8.5% in January-March 1973 and 20% in April-May dry season which.necessitated severe rationing of energy supply. In the latter part of 1973, ICE borrowed from US Export-Import Bank and CABEI to finance two 20 MW gas turbines at Barranca and the con- struction of a 170 km Cachi-Moin transmission line respectively. The Bank did not find the proposed installation of new gas turbines economically justified on the basis of its findings during the supervision mission of October 1973 which concluded that ICE would require new generating capacity for the 1974 dry season only in the highly improbable case of a simultaneous occurency of a drought of extreme severity and growth in demand for electric energy much higher than normal expectations. As for the construction of the new transmission line to connect the Moin-Limon area with ICE's central system, it was felt in the Bank that this area had such a small market that it would be more economical to generate the electricity there. However, with the assurance from the Government of a tariff increase in March 1974, the Bank finally agreed to the new investments. As it turned out, Barranca was needed during the 1974 dry season only because of temporary shut-down of the San Antonio plant due to operational problems. Had Barranca not been installed, ICE would have had to shed some load which probably would have endan- gered the company's reputation, especially after the experience it had the previous year. Barranca plays a useful reserve role in ICE's planning for the future. With today's fuel prices, the transmission line to connect Moin- Limon area with ICE's central system seems to yield a higher rate of return than the 4% estimated by the Bank (comparing it with a thermal plant at the Moin-Limon area as the alternative) when the decision was being made. V. FINANCIAL PERFORMANCE ICE's financial performance during 1969-1973, was consistent with the Loan Agreement covenants. The return on average net fixed assets was higher than projected during this periodi/ (Table 4); but as the net revenues could not cover the debt service by 1.5 times (Table 5) ICE had to request Bank permission for borrowing. However, it was close to the projected coverage until 1973, when it fell sharply. Although the internal cash generation was always higher than projected, the debt service coverage by internal cash generation followed its projected level until 1973 when it fell drastically (Table 5). The interest coverage by income before interest also followed this pattern (Table 4). The main cause leading to ICE's financial deterioration in 1973 was the high construction expenditures incurred in 1971 and 1972 as well as in 1973. Construction expenditures were higher than the original estimates 1/ ICE did not revalue its assets in light of inflation during the 1969-1974 period. However, one of the covenants of the proposed Bank loan will be for ICE to revalue.its assets as of December 31, 1974 to take into account the inflation as- well as the devaluation of the Colon of April 1974. A rough- analysis indicates that the return on revalued assets falls below the required level only in 1974 but shows a remarkable improvemn.ft in 1975 due to the tariff increases obtained the previous year. -8- by 76% in 1971 and by 142% and 162% in 1972 and 1973 respectively (Table 5). About 43% of the increase in the construction expenditures were directly due to the cost overrun on Tapanti and Cachi. The remaining 57% arose from the installation of a thermal plant at San Antonio with associated transmission work; the procurement of Barranca; the construction of the transmission line to Moin-Limon area; and other transmission work. These works were not originally planned for this period, but some had to be brought forward due to the time overrun on Tapanti and Cachi. ICE's total sales of electricity were on the average 3.3% higher annually (Table 9) than assumed in the financial projections of the appraisal report which assumed a lower growth of sales for financial calculations and a higher growth for system planning. Average revenue per unit sold was slightly higher in 1970 compared to the original estimates as shown in the following table, but decreased thereafter, due to the increase in sales to individual cus omers (through its own distribution system) who were charged a lower rate-V Total operating cost per unit sold was higher in 1971 and 1973 than originally estTiated despite the lower depreciation cost per unit sold. ICE: Actual vs Estimated Operating Costs and Revenues (centimos/kwh) 1969 1970 1971 1972 1973 Act. Est. Act. Est. Act. Est. Act. Est. Act. Est. Operating Revenues 11.9 11.9 12.1 11.9 11.7 11.8 11.5 11.7 11.6 11.6 Operating Costs: Power Purchased .4 .5 .4 .4 .3 .4 .3 .3 .0 .3 Operation and maintenance 2.0 1.9 2.1 2.0 2.5 1.9 2.5 1.9 3.0 1.8 General and ad- ministration 1.2 1.3 .8 1.0 1.0 1.0 .9 1.0 1.1 1.0 Depreciation 2.1 2.2 1.9 2.1 1.7 1.9 1.4 2.1 1.7 2.0 Total Operating Costs 5.7 5.9 5.2 5.5 5.5 5.2 5.1 5.3 5.8 5.1 Gross margin 6.2 6.0 6.9 6.4 6.2 6.6 6.4 6.4 5.8 6.5 Source: Table 2. 1/ The tariffs have some unusual features. Independent consultants, to be financed under the proposed Bank loan, are to make recommendations for im- proving and correcting iniquities in tariffs. -9- ICE planned to finance part of its construction expenditures by ob- taining suppliers' credit. However, they were not successful and since Government's contributions were not available and the local market for ICE bonds was limited, ICE had to turn to external commercial bank borrowing (generally for five-year terms and 1 -2 points above London Inter-Bank Offer) to finance their construction expenditures. Before 1969, ICE had already contracted substantial amount of medium-term debt, and the debt service cover- age was expected to be tight in 1969 and 1970 but to improve thereafter. With the high increase in construction expenditures, ICE's financial improvement did not take place. ICE's actual construction expenditures during the 1969-1973 period was about 86% higher than projected (Table 5). Of this increase, the Rio Macho and Cachi accounted for 0 97 million and ICE's other works accounted for 0 127.8 million. ICE financed only 17.5% of its investment during this period by internal cash generation (net of debt service) as compared to 36.3% originally envisaged. IBRD loans accounted for 23.3% of the financing as compared to the 32.5% estimated. Other borrowings and sources accounted for 53.6% and 5.6%, as compared to the projected 26.3% and 4.9%, respectively. VI. BANK's PERFORMANCE The Bank made positive contributions to the power sector in the course of this project. Despite the delay in making the loan and the approval of the tight schedule for the project's completion, the Bank did help finance the San Antonio gas turbines which had to be installed earlier than expected due to the time overrun on Tapanti and Cachi. The Bank also proved to be flexible in accepting force account construction instead of contractors which in the case of Tapanti seemed to have been the most economical. The concern expressed by the Bank, and the reluctance it displayed, in giving the formal permission for the incurrence of debt for construction of Barranca seem to have contributed positively toward the Government granting ICE tariff increases needed at the time. The Bank also helped ICE avoid being in default of the debt covenant. With the Bank"s assistance in introducing the company to commercial lenders, ICE was in 1974 able to refinance about US$ 30 million of its commercial debt at somewhat better terms. With the tariff increases in the early part of 1974, ICE's financial situation should improve in 1975. In addition to these positive aspects, the Bank's contribution would have improved had it helped finance the cost overruns at TapantL and Cachi and other consequential expenditures (which were quite apparent at the time the Bank extended its fourth power loan in 1972) including, if necessary in order to make an adequate contribution, part of the local currency expenditure. Although the Bank's policy generally excludes local currency financing under power loans and discourages provision of sup le- mentary financing for previously approved projects, there do appear to be grounds for having made an exception in this case -- particularly the fact that the Bank came to recognize that it had provided insufficient contingencies in the original financing plan for such a difficult engineering - 10 - job and the context of reasonably rising domestic savings performance in Costa Rica at this period. As pointed out earlier, ICE appears to have adopted the best approach under the circumstances to construction of these projects and, calling in foreign specialists as and when required, it pursued the effort efficiently and effectively. even when it was very difficult from both engineering and financial points of view. An important lesson emerging from this project is that cost estimates of tunnels located deep underground should reflect the uncertainty of the geological conditions. Certain parts of the Tapanti tunnel were located 600 meters underground where sub-surface investigations, unless they had been highly detailed and extremely costly, might anyway not have revealed the conditions actually encountered. In cases of tunnels involving such depths, it might be more appropriate to allow for a higher contingency. At appraisal time an allowance of 12.8% contingency was included for Tapantti. Today the Bank considers contingencies of 25-50% more appro- priate when estimating the costs of constructing tunnels located 150 meters or more underground and where the examination of geolo ical conditions by borings becomes impractical due to the costs involved.f/ On the other hand, it is doubtful whether Tapanti would have been economically justified at the time of appraisal had a contingency allowance of more than 25% been included. VIII. CONCLUSIONS The major objectives of this Bank-financed project have been achieved. Despite the adverse geological problems which caused high cost overruns and lengthy delays, but which also have served to provide some valuable training for ICE's crews, Tapanti and Cachi proved to be worthwhile investments. Given current trends of fuel prices they were.the most economic system addi- tions that could have been made. The postponements of some of the trans- mission works seem only to have caused minor reliability problems on the system. ICE complied with all the covenants, but the 9% rate of return covenant would not have been met in 1974 had the company revalued its assets. The weaker part of the project was the financial problems it caused. Lending to ICE continued with this project,as was found with the previous projects,. to suffer from inadequate financial contingency planning in the sense that advance consideration has not been given to where additional borrowings might be made in the event of cost overrun on the projects. This seems only to have been considered on an emergency basis. Had more planning taken place at an earlier time, ICE might in some instances have been able to borrow on longer terms. Adequate engineering contingencies have also been lacking, but the Bank is now recognizing this, and allows higher contingencies for projects involving such complex engineering work. What emerges from the current study, however, is that in this particular case it seems unfortunate that the Bank did not help to cover the cost overruns, including those in local currency if necessary. However, with its tariff increases in 1974, ICE's financial position should improve. 1/ Public Utilities Department Guidelines Series (GAS 6): "Guidelines for estimating costs of tunnel construction." 2/ See IBRD Report No. 7, dated October 20, 1972. COSTA RICA INST1TUTO COSTARRICENSE DE ELECTRICIDAD TRIRD POWER PRDJECE TABLE 1: ELECTICITY MDPARDET - dPERATIONS An FINiaCIAL INDICATURS Unt 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1. installed Capacity (nomeplate capacity at end of year) ICE-Central lyste: Hydro MW 1.1 .9 31.2 30.9 30.0 30.0 30.0 61.5 61.5 61.5 92.0 124.0 124.0 124.0 125.5 125.5 185.5 185.5 Diesel KW 13.3 12.9 12.4 12.3 12.3 11.9 19,5 19.5 19.5 27.5 27.5 19.5 19.5 19.5 19.5 19.5 19.5 67.6 Total mW 14.4 13.8 43.6 43.2 42.3 41.9 49.5 81.0 81.0 89.0 119.5 143.5 143.5 143.5 145.0 145.0 205.0 253.1 ICE-I-olaed ystes (Dieosel) KW 4.9 5.2 5.9 6.0 5.9 6.4 7.4 3.8 4.8 4.8 4.8 9.7 10.9 li;8 12.0 12.8 17.0 23.4 Total 1CE KW 14.3 19.0 49.5 49.2 49.2 48.3 56.9 84.8 85.8 93.8 124.3 153.2 154.4 155.3 157.0 157.8 222.0 276.5 Total Interconnected System MW 57.6 59.2 89.1 87.8 87.9 87.3 95.0 126.5 126.5 134.5 164.9 189.5 193.8 193.8 195.9 195.9 255.9 294.0 Total Countryl/ MWna. n.a. n.a. n.a. 113.4 111.2 117,5 152.3 150.9 159.4 196.1 236.0 236.6 237.2 243.7 244.0 320.5 361.3 Total Interctnnected System as % of Country % n..... n.8. 78 78 81 83 84 84 84 80 82 82 80 80 80 81' 2. euk Demand: Interconnected System MW 59.0 70.0 75.0 86.0 93.1 94.1 103.0 113.6 118.4 132.6 135.9 145.5 148.4 168.4 195.0 211.9 226.5 249.3 Load Factor % 49 47 46 42 46 49 48 49 52 49 52 52 56 53 53 55 57 55 3. Gross Ressrves: Interocoeted System2/ KW n... .a. n.. m.. 6.4 6.2 5.4 29.0 24.2 17.8 52.8 75.0 75.6 55.6 30.6 13.7 67.8 89.3 Reserves s % of Pek Desmsnd: Interonnected lystem I s.. n.a. n.. .. 7 7 5 26 20 13 39 52 51 33 16 6 30 36 4. Gross Generation: ICE Central Gwh 29 53 98 176 200 224 248 298 372 345 365 418 474 533 612 725 845 930 Interconnected lyste= Gb 254 286 303 320 375 402 428 484 538 575 615 668 727 787 908 1.027 1,134 1.203 5. Total Sale.: 1CE Central (including purchased enargy) Bulk Sae to Intercennected System G^h 13 37 75 154 162 184 211 228 281 271 280 318 363 416 464 530 615 685 Bulk Salos to Large Industri.s Gwh - - - - - - - 7 30 30 32 35 40 46 58 94 111 114 ICE Discrlbutios lystes Gh 13 15 18 19 26 32 33 51 51 34 39 42 52 56 60 65 78 92 Sub Total . 26 52 93 173 188 216 244 286 362 335 351 395 455 518 582 689 804 891 ICE Islaed Systes Gh 18 19 21 24 24 23 :25 11 12 13 15 17 20 22 25 31 38 49 Total ICE Gh 44 71 114 197 212 109 269 297 374 341 366 412 475 540 607 720 842 940 Total Interconnected System Gh 208 250 266 291 328 356 381 408 464 497 531 578 640 688 774 884 981 1,047 6. Sales by Class of Consmer in Interconnected System: Residetial Gmh 169 182 195 213 235 253 272 ta. n.a. 310 333 358 384 406 443 480 520 547 Industrial Gh 14 17 19 22 31 36 41 o.. n.a. 107 114 129 154 160 199 243 280 305 Comerscl 0mb 35 36 37 40 45 50 54 n.. n.s. 70 73 79 88 99 114 139 156 168 Other G.b 13 15 15 16 17 17 14 n.. .a. 10 11 12 14 15 18 22 25 27 Total . Gub 231 250 266 291 328 356 381 408 464 497 531 578 640 688 774 884 981 1.047 7. Nes.r of Hnglyes Electricity Dept. 01 No. n.a. n.a. n.a. n.a. n.. n.. .a.. n... t. 538 594 587 855 920 1.118 1.185 Electritit Dept. plua share of ICE JoLt Services. No, ta. n... n.5. n.a. n.a. n.a. n.a. 0.a. n.a. . .a. 1,035 1,073 1,074 1,187 1,381 1,490 1,580 8. System Losses 4 - 5 : ICE 4 ' % 10.3 1.9 5.1 1.7 6.0 3.6 1.6 4.0 2.7 2.9 3.8 5.5 4.0 2.8 4.9 5.0 4.9 4.2 Interconnected System % 18.1 12.6 12.2 9.1 12.5 11.4 11.0 15.7 13.8 13.6 13.7 13.6 12.0 12.6 14.8 13.9 13.5 13.0 9. Operating Revenue2l colones min 4.6 7.0 9.7 16.0 17.6 20.7 27.3 29.4 33.8 41.6 42.5 47.6 56.7 64.2 73.3 04.4 97.0 108.6 10. Operating Costa6/ colones mIn 4.7 8.1 9.2 12.3 13.3 15.0 18.3 18.5 20.3 22.3 20.1 28.2 27.8 30.5 31.7 39.6 42.9 54.6 11. Average Sale. Revene/Kwh Sold cntios 10.5 9.9 8.5 8.1 8.3 8.7 10.1 9.9 9.0 12.2' 11.6 11.6 11.9 11.9 12.1 11.7 11.5 11.6 12. Arase Cost/Kxh Bold centimos 10.6 11.4 8.1 6.2 6.3 6.3 6.8 6.2 5.4 6.5 5.5 6.8 5.9 5.7 5.2 5.5 5.1 5.8 13. Exchange Rate: US$ 1 - 6.65 colones 14. Average Sales Revenue/Kh Sold se 1.6 1.5 1.3 1.2 1.2 1.3 1.5 1.5 1.4 1.8 1.7 1.7 1.8 1.8 1.8 1.8 1.7 1.4 15. Average Cost/Kwh Sold US 1.6 1.7 1.2 0.9 0.9 0.9 1.0 0.9 0.8 1.0 0.8 1.0 0.9 0.9 0.8 0.8 0.8 0.7 16. Net Operating Income (9 - 10) colones min ( .1) (1.1) .5 3.7 4.3 5.7 9.0 10.9 13.5 19.3 22.4 19.4 28.9 33.7 41.6 44.8 54.1 54.0 - 17. Gross Fixed Inves ent colones min n.a. n.e. n.a. n.a. .a. n.. .e. 51.3 56.5 92.0 33.4 22.0 24.4 32.1 63.7 100.3 65.8 63.6 18. Net Fied Assets i Operatlxxl/ colones mli. 3.9 31.2 111.2 115.8 114.4 112.3 131.6 229.7 2t.9 234.5 233.3 384.2 383.8 380.2 303.3 381.3 461.0 511.4 19. Average Net Fied Assets in Operation rolones slo 27.3 33.6 71.2 113.5 115.1 113.5 _. 122,1 180.7 226.8 229.2 233.9 308.8 384.0 382.1 381.3 381.8 421.2 486.2 20. Rate of Return (16 19) .% - - .7 3.3 3.7 5.0 7.4 6.0 6.0 8.4 9.6 6.3 7.5 8.8 10.9 11.7 12.8 11.1 1/ Includes captive plants or privately owned gener tion. 2/ Totl Installed Capacity (naneplate capacity + psaking o overload capacity) less peak demad. 3/ Nu-ber sf eplyees rf Electricity Department refers to those exclusively releted to electricity operstions (not including construction 1sbor force). / Thi. figure represeet. an approximation enly, based on the above figure plussa certaIs proportion (bssed on proportion tbat electrIcity net operating inome represents sf total 1CE net operating inome), of those m- ployses in the accounting, finanal nd mngeett divistons which e shared by both the electricity and teleotun ions department. 51 Revenues frm eletritty operetions only (there sr. to indlrect taes on th. sol. sf electricity), 6/ Includlng depreciatiox, but excluding interest (ICE psy. no dirsct taxes). 7/ For the yeara 1963-1967 the breakdo~n of the net fixed asset. in op,eation between the Telecomuntcations nd Eletricty Departments is somewht 1mpreise in that a all portion (5. sf total for 1963 snd 1967 and approxtmtely 10% of total for 1964, 1966) of the total 5.sets sas not clerly seprated in ICE's accounts. COSTA RICA INSTITUTO COSTARRICENSE DE ELECTRICIDAD THIRD POWER PROJECT TABLE 2: INSTALLED GERATING CAPACITY IN COSTA RICA AS OF DECEMBER 31 Installed Capacity (QW) Utility Type and Name of Plant Dec. 31, 1967 Dec. 31, 1974 Intercoanected System ICE Hydro - Nagatac 1.5 - - La Garita 30.0 30.0 - Rio Macho 30.0 90.0 - Cachi 64.0 64.0 - Asuncion 0.7 - Thermal - Colima 20.0 19.5 - San Antonio #1 - 10.0 - San Antonio #2 - 38.0 - Barranca _ 40.0 Sub total 146.2 291.5 CNFL Hydro - Ventanas 10.0 10.0 - Nuestro Amo 7.5 7.5 - Brasil 2.4 2.4 - Belen 4.3 4.3 - Electriona 2.7 2.7 - Rio Segundo 0.2 0.2 - Anonos 0.6 0.6 Thermal - San Antonio 10.0 - Sub total 37.7 27.7 Municipality Heredia (JASEMH) Hydro - Carrillos 2.0 2.0 - La Joya 0.3 0.3 Sub total 2.3 2.3 Municipality Alajuela (JAS24A) Hydro - Cacao 0.7 0.7 Sub total 0.7 0.7 CASSA Hydro - Birris 1 1.5 1.5 - Birris 2 2.4 2.4 - Birris 3 - 4.3 - Birris 4 0.2 Sub total 3.9 8.4 Miller Hydro - Puerto Escondido 0.2 0.2 - Avance 0.2 0.2 - Los Lotes 0.4 0.4 - Barro Morado - 0.9 Sub total 0.8 1.7 Total interconnected system 191.6 332.3 Isolated Systems ICE Hydro - Tilaran - 0.1 Sub total - 0.1 Thermal - Limon 8.0 12.0 - Liberia 2.2 2.2 - Santa Cruz 0.3 2.3 - Siquirres - 1.8 - Guapiles - 0.7 - Quepos - 1.0 - San Isidro - 2.8 Sub total 10.5 22.8 Others 13.6 8.9 Total isolated systen 24.1 31.7 Total installed generating capacity 215.7 36.0 SOURCE: IBRD Appraisal Report of June 1969 and ICE. COSTA RICA INSTITUTO COSTARRICENSE DE ELECTRICIDAD THIRD POWER PROJECT TABLE 3: ELECTRICITY DEPARTMENT - ESTIMATED AND FINAL PROJECT COST (in millions of colones) Appraisal Supervision Mission Supervision Mission Estimate 1969 Estimate 1972 Estimate 1973 Final Cost Tapanti Project Foreign/i Local Total Foreign Local Total Foreign Local Total Foreign Lcw Total Planning - 2.50 2.50 - 2.00 2.00 - 2.00 2.00 - 2.00 2.00 Land and access roads 1.72 9.50 11.22 1.10 12.60 13.70 1.10 13.31 14.41 1.06 12.94 14.00 Diversion works 0.09 0.40 0.49 0.10 0.40 0.50 0.10 0.42 0.52 - - - Dams 2.70 4.50 7.20 1.80 3.40 5.20 1.80 2.65 4.45 3.95 4.20 8.15 Intakes 1.80 2.70 4.50 2.00 4.50 6.50 2.00 6.73 8.73 2.48 4.88 7.36 Tunnel and adits 23.18 18.20 41.38 20.00 82.00 102.00 20.00 106.57 126.57 27.55 83.15 110.70 Penstock 1.80 0.80 2.60 3.00 3.00 6.00 3.00 2.64 5.64 2.76 2.84 5.60 Powerhouse & equipment 9.74 3.25 12.99 12.60 4.90 17.50 12.60 5.39 17.99 10.87 8.75 19.62 Bypass 1.40 1.60 3.00 1.00 2.51 3.51 1.00 2.53 3.53 0.84 2.58 3.42 Surge tank 0.27 0.20 0.47 - - - - - - - - . Construction equipment 5.87 - 5.87 18.50 - 18.50 18.50 - 18.50 21.74 - 21.74 Contingencies 7.98 5.93 13.91 - 3.00 3.00 - 0.93 0.93 - 1.23 1.23 Engineering & administration 1.29 15.00 16.29 1.00 26.10 27.10 1.00 41.91 42.91 4.93 31.92 36.85 Total 57.84 64.58 122.42 61.10 144.41 205.51 61.10 185.08 246.18 76.18 154.49 230.67 Cachi Reservoir Land - 2.60 2.60 - 6.00 6.00 - 6.28 6.28 -- 6.28 6.28 Access roads - 1.35 1.35 0.70 6.30 7.00 ').70 6.16 6.86 0.83 6.07 6.90 Civil works 5.10 4.16 9.26 2.50 16.00 18.50 2.50 16.14 18.64 2.84 16.33 19.17 Gates 1.10 0.50 1.60 0.85 0.54 1.39 0.85 0.67 1.52 0.81 0.61 1.42 Other works 0.30 0.39 0.69 0.40 0.70 1.10 0.40 0.66 1.06 0.15 0.40 0.55 Contingencies 0.96 1.29 2.26 - - - - 0.29 0.29 - 0.23 0.23 Engineering & administration 0.14 3.27 3.41 0.50 4.55 5.05 0.50 5.18 5.68 0.55 5.38 5.93 Total 7.60 13.56 21.17 4.95 34.09 39.04 4.95 35.38 40.33 5.18 35.30 40.48 Transmission Lines & Substations Substations and lines 6.41 3.00 9.41 3.12 1.10 4.22 3.12 1.84 4.96 2.35 1.93 4.28 Contingencies 1.00 0.38 1.38 - - - - - - - . Engineering & administration 0.15 0.96 1.11 - 0.30 0.30 - 0.38 0.38 0.22 0.25 0.47 Total 7.56 4.34 11.90 3.12 1.40 4.52 3.12 2.22 5.34 2.57 2.18 4.75 Total Construction Cost 73.00 82.48 155.49 69.17 179.90 249.07 69.17 222.68 291.85 83.93 191.97 275.90 Interest During Construction 10.40 5.23 15.63 10.00 10.60 20.60 10.00 24.70 34.70 9.97 28.26 38.23 GRAND TOTAL 83.40 &71 171.12 79.17 190.50 269.67 79.17 247.38 326.55 93.90 220.23 314.13 /1 Includes 03.6 million equivalent spent on the project prior to January 1, 1969. Source:: IBRD appraisal report of June 1969, Supervision Report of Setpember 1973 and ICE. COSTA RICA INSTITUTO COSTARRICENSE DE ELECTRICIDAD THIRD POWER PROJECT TABLE 4: ELECTRICITY DEPARTMENT - ACTUAL VS PROJECTED INCOME STATEMENT (in thousands of colones) Year Ending December 31 1969 1970 1971 1972 1973 Actual Projected Actual Projected Actual Projected Actual Projected Actual Projected Sales (Gwh) 539 532 606 573 '720 654 842 724 940 810 Sales Increase in % 12.4 12.0 14.0 7.7 18.8 14.1 16.9 10.7 11.6 11.9 Average Revenue per Kwh (centimos) 11.9 11.9 12.1 11.9 11.7 11.8 11.5 11.7 11.6 11.6 Operating Revenues Sale of energy 64,173 63,200 73,349 68,075 84,427 76,854 96,965 84,781 108,600 94,131 Other 293 200 316 200 339 200 397 200 493 200 Sub total 64,466 63,400 73,665 68,275 84,766 77,054 97,362 84,981 109,093 94,331 Operating Expenses Power purchased 2,623 2,620 2,635 2,620 2,542 2,620 2,424 2,620 24 2,620 Operations and maintenance 10,495 10,320 12,536 11,480 17,899 12,470 20,465 13,730 28,159 14,780 General and administrative 6,291 6,960 4,931 5,800 7,208 6,210 7,903 7,100 10,670 7,700 Depreciation 11,120 1 9 164 111 12,140 14,0 15,744 16,000 Sub total 30,529 31,590 31,743 31,800 39,550 33,800 42,932 38,350 54,597 41,100 Net Income From Operations 33,937 31,810 41,922 36,475 45,216 43,254 54,430 46,631 54,496 53,231 Other Income (net)'/ 5,715 7,000 9,953 7,200 7,691 7,200 7,787 7,000 7,203 6,000 Net Income Before Interest 39,652 38,810 51,875 43,675 52,907 50,454 62,217 53,631 61,699 59,231 Interest Payable 20,813 21,945 22,905 22,869 24,685 23,567 29,113 24,584 45,418 25,511 Less: Interest capatilized 1,333 _2200 4,920 _3400 _6,923 5,300 12,240 7,800 20,498 2,700 Interest tharged to operation T 19,745 17,985 19,469 17,762 18,267 16,873 16,784 24,920 22,811 Net Income 20,172 19 33.890 2 3,45 3 84 6 7, 36..6470 Times Interest Payments Covered by Income Before Interest 1.9 1.8 2.3 1.9 2.1 2.1 2.1 2.2 1.4 2.3 Average Net Fixed Assets in Operation (m1n) 382.1 383.0 381.3 382.7 381.8 399.5 421.2 483.3 486.2 557.9 Return on Average Net Fixed Assets in Operation (%) 8.8 8.3 10.9 9.5 11.7 10.8 12.8 9.6 11.1 9.5 1/ Mainly divided and interest payments from CNFL. SOURCE: IBRD Appraisal Report of June 1969 and ICE. COSTA RIA INSTIt COSTARRICENSE DE ELCTRICIDAD THIRD POWBR PRoJECT TABLE 5: ELECTRICITY DEPARTMENT - ACTUAL VS PROJECTED SOURCES AND APPLICATIONS OF FUNDS (in-thousands of colones) Year Ending December 31 1969 1970 1971 1972 1973 Actual Projecte Actual Projects Actual Projected Actual Projectd Actual Proiecte SOURCES OF FUNDS Net income before interest 39,652 38,810 51,875 43,675 52,907 50,454 62,217 53,631 61,699 59,231 Depreciation charged to operations 11,120 11,690 11,641 11,900 11,901 12,500 12,140 14,900 15,744 16,000 Depreciation capitalized 3.583 2860 3002 2.600 4859 1.900 1300 6631 1,400 Internal cash generation 54,355 53,360 66,518 58,175 69,667 64,854 79,645 69,831 84,074 76,631 Amortizations received from CNFL 1,472 1,326 1,358 1,432 1,549 1,546 1,591 1,670 1,722 1,803 Other 455 1 2 1 10.26 117 2.663 1.170 3.751 1120 Sub total 1,927 2,526 3,479 2,542 11,816 2,716 4,254 2,840 5,473 2,923 Borrowinra 8% Bonds 7,712 15,000 16,659 7,500 22,545 7,500 26,854 2,500 24,927 - IBRD Loan 631 - 10,700 22,730 24,000 37,419 31,00 18,374 10,700 567 2,600 IBRD Loan 800 - - - - - - 20,327 10,000 11,626 30,000 IDB loans 2,284 2,418 - - 1,813 - 587 - 8,532 - Chase Manhattan Bank 7,671 7,500 - - - - 13,300 - 33,400 - First National City Bank Chicago - - - - - - - - 27,524 - United California Bank - - - - - - - - 33,400 - First National City Bank - - 931 - - - 6,650 - - - Chemical Bank - - - - - - 6,650 - - - CNFL - - - - - - - - 11,157 - Others - - 106 - - - - -2.83 Sub total 17,667 35,618 40,426 31,500 61,777 39,300 92,742 23,200 153,964 32,600 TOTAL SOURCES 73.949 iLm 959871 9 720 054 APPLICATION OF FUNDS Construction Expenditures (excluding interest during construction) Financed by IBRD Loan 346 616 1,750 121 - - - - - - - IBRD Loan 631 23,162 26,000 38,368 37,000 69,182 46,000 60,053 17,000 36,149 3,884 PrpdIBRD loan - - 2, IBRD Loan 800 loa - - 520 2,671 24,800 40,047 53,130 Prpoe IBR loan 14,974 IDB loans 3,634 5,670 4,011 1,660 1,170 - 2,862 - 7,854 - Other 4.674 9,96 21L23 7,660 29.876 10.250 50.740 6.17 73.45 8,620 Sub total 32,086 43,380 63,733 46,320 100,228 56,770 116,326 47,970 172,478 65,634 Debt Service Amortization 21,789 19,416 21,452 20,917 21,890 21,115 25,669 20,560 37,251 21,997 Interest 20.813 21.945 2.90 22.869 24.685 23567 29.113 25 45418 25511 Sub total 42,602 41,361 44,357 43,786 46,575 44,682 54,782 45,144 82,669 47,508 Provision for increase in accounts receivable - 600 - 500 - 900 - 800 - 900 Net cash surplus (deficit) (739) 6,163 1,126 1,611 (3,543) 4,518 5,533 1,957 (11,636) (1,888) TOTAL APPLICATIONS 73949 9106870 93_871 Times debt service covered by internal cash generation 1.3 1.3 1.5 1.3 1.5 1.4 1.5 1.5 1.0 1.6 Times debt service covered by net revenues 1.2 1.2 1.4 1.3 1.4 1.4 1.4 1.5 0.9 1.6 SOURCE: IBRD Appraisal Report of June 1969 and ICE. COSTA RICA INSTITUTO COSTARRICENSE DE ELECTRICIDAD THIRD POWER PROJECT 1/ TABLE 6: ELECTRICITY DEPARTMENT - ACTUAL BALANCE SHEET (in millions of colones) Year Ending December 31 1969 1970 1971 1972 1973 ASSETS Fixed Assets in Operation 468.6 485.1 496.7 591.6 662.0 Less: Depreciation 88.3 102.8 115.4 130.6 150.6 Net Fixed Assets in Operation 380.3 382.3 381.3 461.0 511.4 Work in Progress 67.3 109.7 195.8 204.0 283.7 Total Net Fixed Assets 447.6 492.0 577.1 665M0 795.1 Investments in Associated Companies 74.8 73.3 68.7 66.2 64.5 Current Assets 80.0 93.6 83.0 146.1 196.4 Total Assets 602.4 658.9 728.8 877.3 1 056.0 EQUITY AND LIABILITIES Capital 156.3 155.8 156.9 157.8 159.1 Retained Earnings 100.3 134.2 169.4 214.7 251.4 Total Equity 256.6 290.0 326.3 372.5 410.5 Liability Reserves - - - - 3.6 Long-Term Debt Bonds 45.3 57.5 74.8 94,3 109.1 IBRD Loans 120.9 139.6 172.0 202,.8 208.6 Other 130.1 129.9 103.4 135.9 198.5 Total Debt 296.3 327.0 350.2 433.0 516.2 Current Maturities of Long-Term Debt 49.5 41.9 52.3 71..8 125.7 Total Liabilities 602.4 658.9 728.8 877.3 1,056.0 Debt/Equity Ratio 54/46 53/47 52/48 54/46 56/44 1/ Projected balance sheet for the Electricity Operation only was not done at the time of the appraisal of this project. SOURCE: ICE COSTA RICA INSTITUTO COSTARRICENSE DE ELECTRICIDAD THIRD POWER PROJECT TABLE 7 : ACTUAL VS PROJECTED BALANCE SHEET ELECTRICITY AND TELECOMMUNICATION OPERATIONS COMBINED (in millions of colones) Year Ending December 31 1969 1970 1971 1972 1973 Actual Projected Actual Projected Actual Projected Actual Projected Actual Projected ASSETS Fixed Assets in Operation 586.4 595.6 619.5 619.8 647.3 672.8 793.6 835.3 905.7 883.2 Less: Depreciation 104.0 104.8 124.2 123.3 143.5 142.7 167.0 165.0 197.7 189.2 Net Fixed Assets in Operation 482.4 490.8 495.3 496.5 503.8 530.1 626.6 670.3 708.0 694.0 Work in Progress 76.6 82.1 120.5 121.8 226.3 149.4 222.9 62.3 307.5 96.9 Total Net Fixed Assets 559.0 572.9 615.8 618.3 730.1 679.5 849.5 732.6 1015.5 790.9 Investments in Associated Companies 74.3 79.9 74.3 78.4 69.7 76.9 68.1 75.2 66.2 73.4 Current Assets 107.0 61.4 159.6 64.6 156.0 73.7 228.4 81.0 360.3 80.0 Total Assets 736.3 714.2 849.7 761.3 955.8 830.1 1146.0 888.8 1442.0 944.3 EQUITY AND LIABILITIES Capital 169.2 168.5 171.1 169.8 174.3 171.2 178.9 172.7 183.1 174.1 Retained Earnings 114.1 106.0 160.8 136.8 209.2 177.2 270.4 223.9 323.7 269.6 Total Equity 283.3 274.5 331.9 306.6 383.5 348.4 449.3 396.6 506.8 443.7 Liability Reserves 7.7 5.3 7.1 5.3 13.2 5.3 13.5 5.3 21.8 5.3 Long-Term Debt Bonds 72.8 80.1 84.0 82.1 100.1 83.6 119.0 79.6 155.0 73.3 IBRD loans 177.0 191.7 199.4 218.8 248.6 256.7 292.5 269.7 310.8 263.0 Other 151.9 134.5 175.1 120.8 149.2 109.9 183.9 109.2 264.6 129.6 Total Debt 401.7 406.3 458.5 421.7 497.9 450.2 595.4 458.5 730.4 465.9 Current Maturities of Long-Term Debt 43.6 28.1 52.2 27.7 61.2 26.2 87.8 28.4 183.0 29.4 Total Liabilities 736.3 714.2 849.7 761.3 955.8 830.1 1146.0 888.8 1442.0 944.3 Debt/Equity Ratio 59/41 60/40 58/42 58/42 56/44 56/44 57/43 54/46 59/41 51/49 SOURCE: IBRD Appraisal Report of June 1969 and ICE. COSTA hICA INSTITUTO COSTARRlC4NS 1)h ELECTRICIDAD THIRD POWER PROJECT TABLE 8: ELECTRICITY DEPARTMENT - ACTUAL VS PROJECTED DEBT SERVICE REQUIR ENTS (in thousands of colones) Year ending December 31 1969 1970 1971 1972 1973 Actual Projected Actual Projected Actual Projected Actual Projected Actual Projected Amortization bonds W6 3,505 3,714 4,253 4,102 6,971 4,602 5,942 5,090 6,935 5,537 Local Loans 1,835 1,690 2,065 1,809 - 1,936 2,175 2,072 3,198 2,217 IbRD 4,505 4,505 4,762 4,763 5,033 5,033 5,304 5,304 6,571 6,569 lBASCO 1,991 1,990 2,149 2,150 2,319 2,320 2,502 2,500 2,700 2,700 US - Banks 9,953 5,581 7,211 5,249 6,548 4,380 7,371 2,750 15,780 2,130 Other - 1,936 1,012 2 1,019 2,844 2,375 2,844 2,067 2,844 Total Amortization 21.789 19,416 21.452 20.917 2 21,115 25,669 20,560 21.997 Interest bonds 8> 3,937 4,203 5,054 4,752 7,257 5,006 7,774 4,972 9,17V, 4,651 Local Loans 1,620 1,334 1,195 1,216 - 1,089 992 953 1,930 808 IBRD 7,353 7,681 7,699 b,854 10,o5 10,143 12,101 11,023 17,930 11,207 I.BASCo 4,628 4,860 4,701 4,700 4,531 4,530 4,348 4,350 4,151 4,150 US - Banks 2,332 1,358 2,172 960 1,576 600 2,287 390 5,837 190 Other 9 2479 2,085 2,367 1,316 2,199 1,611 2,896 6,400 4 Total Interest 20.813 21,945 22,906 22,869 24,685 2J67 2 2.584 4 2 Total Debt Service 42,602 41,361 446,575 4 54,782 4 82,669 47,508 Source: IBRD appraisal report of June 1969 and ICE. COSTA RICA INSTITUTO COSTARRICENSE DE ELECTRICIDAD THIRD POWER PROJECT TABLE 9: ELECTRICITY DEPARTMENT - ACTUAL VS PROJECTED SALES BY ICE Average Annual In- 1969 1970 1971 1972 1973 crease (%) 1969-1973 Sales in Interconnected System (Gwh) Actual 518 582 689 804 891 Projected 510 548 627 694 778 Increase (%) Actual 11.6 12.4 18.4 16.7 10.8 12.0 Projected 12.1 7.5 14.4 10.7 12.1 11.4 Sales in Isolated System (Gwh) Actual 21 24 31 38 49 Projected 22 25 27 30 32 Increase (%) Actual 5.0 14.3 29.2 22.6 28.9 20.0 Projected 10.0 13.6 8.0 11.1 6.7 9.9 Total Sales (Gwh) Actual 539 606 720 842 940 Projected 532 573 654 724 810 Increase (%) Actual 13.5 12.4 18.8 16.9 11.6 14.6 Projected 12.0 7.7 14.1 10.7 11.9 11.3 SOURCE: IBRD Appraisal Report of June 1969 and ICE. COSTA RICA COMPANIA NATIONAL DE FUERZA Y LUZ S.A. TABLE10: ACTUAL VS PROJECTED INCOME STATEMENT (in thousands of colones) Year Ending December 31 1969 1970 1971 1972 1973 Actual Projected Actual Projected Actual Projected Actual Projected Actual Projected Sales of Energy (million kwh) 481.6 494.2 533.4 536.7 584.4 582.8 634.7 633.0 674.8 687.4 Average price per kwh (centimos) 12.58 12.57 12.61 13.45a/ 13.14 13.45 13.31 13.45 13.38 13.45 Operating Revenues Income from sales 60,589 62,125 67,278 72,186a/ 76,773 78,387 84,457 85,139 90,319 92,455 Other 101 90 136 90 134 90 173 90 177 90 Total 60,690 63,457 67,414 72,276 76,907 78,477 84,630 85,229 90,496 92,545 Operating Expenses Purchase of energy 40,457 41,649 45,608 46,751 50,855 52,391 56,918 58,471 62,352 65,132 Operating cost 9,677 9,304 11,733 9,816 12,874 10,356 14,420 10,926 14,798 11,527 Taxes 938 904 953 937 1,016 961 1,077 996 1,108 1,026 Depreciation 2,780 2 2 2,914 3 Total 53,852 55,915 61,195 60,418 67,873 66,772 75,760 73,607 81,843 81,049 Net Operating Revenues 6,838 7,542 6,219 11,858 9,034 11,705 8,870 11,622 8,653 11,496 Income from Leased Plant 1,591 1,354 1,588 1,354 1,383 1,354 909 1,354 - 1,354 Operating Income 8,429 8,896 7,807 13,212 10,417 13,059 9,779 12,976 8,653 12,850 Interest 4,717 4,806 4,621 4,734 4,817 4,721 4,985 4,672 4,876 4,608 Net Income _2 4 01 8_478 _,_60 81338 48794 8 3777 8 Dividends Common 5,582 4,679 5,313 5,199 5,199 5,199 5,199 5,199 5,199 5,199 Preferred 12 9 9 9 9 9 9 9 9 9 Retained Profit (loss) (1,882) ( 598) (2,136) 3,270 392 3,130 ( 414) 3,096 (1,431) 4,074 Dividend Rate on Common Stock 21% 18% 20% 20% 20% 20% 20% 20% 20% 166% a/ Change in the tariff structurevas assumed which would result in a 7% increase in revenues. SOURCE: IBRD Appraisal Report of June 1969 and CNFL. COSTA RICA COMPAIA NATIONAL DE FUERZA Y LUZ S.A. TABLE ]]: ACTUAL VS PROJECTED SOURCES AND APPLICATIONS OF FUNDS (in thousands of colones) Year Ending December 31 1969 1970 1971 1972 1973 Actual Projected Actual Projected Actual Projected Actual Projected Actual Projected SOURCES OF FUNDS Operating Income 8,429 8,896 7,807 13,212 10,417 13,059 9,779 12,976 8,653 12,850 Depreciation 2,780 2.816 2,901 2.91 3,128 3,06 3 3,585 3,364 Total Internal Cash Generation 11,209 11,712 10,708 16,126 13,545 16,123 13,124 16,190 12,238 16,214 Debt Service Payments Received 1,131 1,200 243 246 - - - - 761 - Consumers' Deposits 253 210 380 220 626 230 809 240 982 250 Consumers' Contributions 1,357 852 1,500 800 1,908 800 2,030 800 3,342 800 Sale of Bonds 1,081 2,805 2,866 1,000 3,202 1,000 3,370 1,000 3,000 1,000 Other Loans - - - - - 1316 - Sub total 3,822 5,067 4,989 2,266 5,736 2,030 6,209 2,040 9,401 2,050 Total Souroqs of Funds 15,031 16.779 15,697 18.392 APPLICATION OF FUNDS Construction Expenditures 4,603 4,778 6,392 5,000 7,154 6,000 8,856 6,500 11,010 7,000 Debt Service 6,559 6,719 6,637 6,789 6,987 6,927 7,342 7,036 7,409 7,136 Dividend Payments 4,495 4 5.323 52 208 5. 208 5 0 5.208 4.168 Sub total 15,657 16,185 18,352 16,997 19,349 18,135 21,406 18,744 23,627 18,304 Cash Surplus (Deficit) ( 616) 594 (2,655) 1,395 ( 68) 18 (2,073) ( 514) (1,988) ( 40) Total Applications of Funds 15,041 16,779 59 8 28 1813 18,264 Return on Average Net Fixed Assets in Operation (%) 6.9 9.0 6.1 13.1 8.7 12.6 8.1 12.2 7.8 11.7 Times Debt Service Covered by Net Revenues 1.7 1.7 1.6 2.4 1.9 2.3 1.8 2.3 1.7 2.3 SOURCE: IBRD Appraisal Report of June 1969 and CNFL.  N cA R A G u A - u u-- SAT x-.IIRO '--- PUN A A HL SAN JSE •TRRIALGA CARrAG -L/ 0 LEGE ND _ NA-- -- - TI.NA C TA -- - . PRVMCA -LNOR COSTA RICA INSTITUTO COSTARIRICENSE DE ELECTRICIDAD (CE) 0 30 46 50 60 KILOMETERS 1111969 rE1M 2509R,  NAGATAC PAL-ES D-SCANSO MARAVILLA /SAN ANTONIO HEREDIA PUFRT CARRIZAL ESPARTA IOWPUNTARENAS ATENAS aiTURAB rvCOLIMA o tcs Rios BIRRIS No.1 COSTA RICA Z2 LA GARITA ENRN)1 %7 ^LNT 37MW 3.k 94SINLES Cartago ETOQUE CHIPAT INSTITUTO COSTARRICENSE RTA64M1W DE ELECTRICIDAD RIO) MACHO (IC E) P LNTy 30. 0 MW INTERCONNECTED SYSTEM PA C/F/C OCEAN/ RIO MACHO EXTENSION PR OJEFCT SHOWN IN COLOR (T PANTI PROJECT) 60MWl W Power plants Substations A Switchyards Transmission lines 0 5 10 15 20 25 138 kv 34.5 kv KIIDMETERS MARCH 1969 IBRD 2510RI