Nicaragua - Ninth Power Project

Document of FILt COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-l934a-NI REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO EMPRESA NACIONAL DE LUZ Y FUERZA WITH THE GUARANTEE OF THE REPUBLIC OF NICARAGUA FOR A NINTH POWER PROJECT March 18, 1977 hIxs d1cumed bm a rutiied distribution and may be used by recipients only In the performance of dr offic duti. cel tents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$1.00 = 7 Cordobas (C$) c$l.oo = us$o.1429 Fiscal Year ENALUF keeps its accounts on a calendar year basis.  FOR OFFICIAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO EMPRESA NACIONAL DE LUZ Y FUERZA WITH THE GUARANTEE OF THE REPUBLIC OF NICARAGUA FOR A NINTH POWER PROJECT 1. I submit the following report and recommendation on a proposed loan for the equivalent of US$22.0 million to Empresa Naciona] de Luz y Fuerza (ENALUF), with the guarantee of the Republic of Nicaragua, for a ninth power project. The loan would have a term of 17 years, including 3 1/2 years of grace, with interest at 8.5 percent per annum. PART I - THE ECONOMY 2. A memorandum entitled "Economic Memorandum of Nicaragua" (Report No. 914-NI) was distributed to the Executive Directors in November, 1975. The following paragraphs summarize and update the conclusions cf this report. A country data sheet is attached as Annex I. 3. Nicaragui's major natural resource is its arable land, whichi is suitable for a variety of products. Although the share of agricultural production in total output has declined in recent years, agriculture con- tinues to be the main source of economic expansion, and is responsi.ble for about 50-60 percent of employment and over 70 percent of export earnings. The country is divided into three distinct agricultural zones: The Pacific Zone, where about 60 percent of the nation's 2 million popu]ation lives, is marked by a dual structure of farming -- a large number of small farms grow basic grains with conventional technology, and a few large farms specialize in cotton and sugarcane using modern technology; the mountainous Central District is devoted mainly to coffee and livestcck; and the l;-rge Atlantic Plain holds a largely unutilized potential for forestry anrd live- stock production. 4. Nicaragua's longer-term economic growth prior to the 1972 earthquake was impressive, although it was characterized by sharp cyclical changes. Real income grew at an average annual rate of 6.4 percent (3.5 percent per capita) during the 1946-1972 period. The strong upward trend in inccme resulted from the expansion of production for exports, primarily of cotton, coffee, and beef, but also of simple manufactured goods. The substantial growth of the economy, however, did not mitigate the highly skewed distribution of wealth and income. Moreover, the rural sector is characterized by a dualistic structure of agricultural production and the related, highly concentrated pattern of land ownership. The poorest one-third of the rural population, for example, holds only about 3.5 percent of the country's arable land. This document has a restricted distribution and may be used by recipients only in the performance of their offlicial duties. Its contents may not otherwise be disclosed without World Bank authorization.  - 2 - 5. Plrogress in reducing income disparities has been delayed by the persistently low level of public expenditures. The slow growth of current expenditures -- and a consequent shortage of important public service facilities such as education and health -- largely reflects bud- getary stringency dictated by insufficient revenues. Outside the field of transport and electricity, the process of project identification and preparation has been extremely limited in the past. As discussed below, however, progress has taken place in both fiscal performance and project preparation in the past three years. 6. The earthquake which struck Managua on December 23, 1972 took a toll of about 10,000 lives, destroyed or rendered unusable practically all the central zone of the city, including most government offices, hospitals and schools, the financial and commercial buildings and perhaps 2,500 small shops engaged in small-scale manufacturing and retail trade. About 32,000 housing units, or about 45 percent of the housing in the Managua area, were destroyed. The impact of the earthquake on productive capacity, however, was considerably lower than initially feared, and the economy has recovered at a much faster pace than originally estimated. Growth in GDP was 4.2 percent in real terms in 1973 and reached 13 percent in 1974. The impressive growth of the latter year was mainly attributable to construction activity in Managua. Unemployment, which had increased very steeply in 1973, moved down to pre-earthquake levels of about 6 percent in 1974. However, as a result of slackening reconstruction activity, compounded by a weak external demand for some of Nicaragua's industrial exports, GDP grew by less than 2 percent in 1975. During 1976, improved world market conditions for Nicaraguan exports gave new impetus to economic expansion and GDP is estimated to have grown by over 6 percent during the year. As far as the accomplishment of physical reconstruction is concerned, most public service facilities were back to, or exceeded, pre-earthquake levels by 1975, but much remains to be done to rebuild housing and commercial outlets for the poorer segments of the population. 7. The emergency taxes introduced after the earthquake, and the new taxes approved in late 1974 which succeeded them, reflect a major fiscal effort which has raised taxes as a percent of GDP from 8.9 percent to about 11 percent. However, this increase in domestic resource mobilization still falls short of the domestic financial requirements associated with the completion of reconstruction and projected levels of investment in the Government's develop- ment program, and further efforts for increasing government revenues are called for. 8. The improved fiscal performance has been accompanied by progress in overall planning and project preparation. The public investment plan prepared by the Government for 1975-79 assigns priority to expanding agri- cultural production and improving health, education and housing facilities  - 3 - for the rural poor. While a major effort is still required to improve project preparation in the fields of rural and social development, several projects have been developed recently or are in preparation in these fields; for example, in addition to the recently approved Bank education project (Loan 1244, signed on June 15, 1976), the Inter-American Development Bank (IDB) recently approved a loan for rural electrification, and the Govern- ment has prepared a rural water supply project for the Bank's consideration. Also, the Government is proceeding with the reorganization of the public sector agricultural institutions with financial and technical assistance from USAID; the main focus is on the implementation of a recently created integrated rural development program -- INVIERNO -- which is supplying credit and technical assistance to small producers in the Central Pacific and Central Interior regions and is also coordinating public activities in education, health, housing and infrastructure for the same target groups. 9. With regard to balance-of-payments performance in the years following the earthquake, cotton, coffee and beef have continued to be the leading traditional exports and constituted 29 percent, 13 percent and 9 percent respectively of total merchandise exports on average over the period 1973-75. Relatively simple manufactured exports (e.g. textiles, animal feed, chemical and wood products) have been rising rapidly and already represent over one third of total exports. While imports averaged less than 30 percent of GDP during the latter part of the 1960's and up to 1972, the post-earthquake reconstruction process, rapid credit expansion and higher imports prices drove this figure up to 45 percent in 1974. Imports increased by almost 150 percent from 1972 to 1974 while exports increased by less than 60 percent, and the resource balance changed from plus US$23.0 million to minus US$200.0 million. The deficit was covered by heavy borrowing during the period (much of it on commercial terms) and international reserves remained unchanged. However, the increase in the volume and prices of imports resulted in the reserves relative decline from over three months' imports to about one and a half months' imports. The balance of payments situation improved substantially in 1975, when largely as a result of slackening economic activity, imports declined by 10 percent, while export proceeds remained virtually unchanged. The resource gap declined from 14 percent of GDP in 1974 to 9 percent in 1975.1/ Unusually favorable prices for exports of coffee and cotton in 1975 coupled with the lag effect on imports of the 1975 economic slowdown are estimated to have reduced the resource gap to an insignificant level in 1976. 10. Since the earthquake, Nicaragua's external debt outstanding and disbursed has increased rapidly -- from about one-fourth of GDP in 1972 to over one-third in 1975. The average terms of the debt have hardened considerably because of heavy borrowing from private commercial sources. In the immediate future, because of high coffee prices, this may not result in too high a debt service ratio. (The ratio for 1976 is estimated at 1.3.6 percent.) However, 1/ Derived from data at current prices.  considering that coffee Fnd cotton prices may decline in the next two to three years, a serious effort to expand and diversify exports will have to be made and additional external borrowing on commercial terms will have to be kept to a mimimum. If the country is successful in this endeavour, the debt service ratio should not exceed 17 percent during the remainder of the decade. 11. The overall prospects for the country's future economic expansion will thus depend heavily on movements in international prices of its major exports (cotton, beef and coffee) and imports (especially petroleum and fertilizers), as well as on the success of policies in the following fields: (a) export diversification, which is to be achieved through the promotion of resource-based exports such as wood products, fruits and vegetables; (b) substitution of imports such as corn and some processed food products which could be produced efficiently in the country; (c) holding imports down to a reasonable level through appropriate domestic credit managment; and (d) restraining external borrowing on unfavorable terms. If these policies are implemented, the Nicaraguan economy may be expected to continue to grow at a satisfactory pace. External Finance 12. External official finance is provided principally by the Bank, USAID, the Inter-American Development Bank (IDB), and the Central American Bank for Economic Integration (CABEI). Recently, the Venezuelan Investment Fund (VIF) has begun providing assistance to Nicaragua through a Us$16.1 million equivalent loan for electric power. Since 1973 a substantial portion of the USAID assistance has been channeled to the reconstruction of Managua. USAID has made loans for agriculture, highways, industry, rural electrifica- tion, housing, education and health. In agriculture, it has played an important promotional role in developing the INVIERNO project to assist rural development in some of the more depressed areas of the country. CABEI is financing projects with regional impact, principally in transportation, industry and power. In addition, CABEI has lent for housing and in lesser amounts for education and agriculture. IDB is financing agriculture, water supply and sewerage, industry, housing, transportation and higher education. The lending of the principal external lending agencies from 1950 through 1976 is summarized below: IBRD IDA USAID IDB CABEI TOTAL (In millions of US dollars) Total 126.7 23.0 166.1 181.8 121.1 622.7 Cumulative Lending 1950-65 35.6 3.0 20.7 42.4 13.3 115.0 Cumulative Lending 1966-76 91.1 20.0 145.5 139.4 111.8 507.7 Transport 16.0 - 2.8 3.5 52.3 74.6 Power and Telecommunications 44.3 - 15.0 16.5 19.7 95.5 Education 15.4 - 7.3 9.3 0.7 32.7 Health, water and sewerage 6.9 - 11.2 37.7 - 55.8 Housing - - 3.7 6.o 6.8 16.5 Agriculture 8.5 - 31.4 48.7 0.7 89.3 Industry and commerce - - 5.0 16.7 26.5 48.2 Reconstruction - 20.0 45.0 - - 65.0 Other - - 24.0 1.0 5.1 30.1  - 5 - PART II - BANK GROlUP OPERATIONS 13. To date, Nicaragua has received twenty-one Bank loans and two IDA credits, totalling US$149.9 million. As of January 31, 1977, a total of US$33.3 million remained to be disbursed on six loans for education, water supply, power, agriculture and ports, and on the Earthquake Reconstruction Credit. The last operation was a loan for the equivalent of US$11.0 million for a Second Education Project, signed June 15, 1976. In general, progress on most of these projects has been satisfactory, although cost overruns in the past three years have hampered execution of several projects, particularly in ports, and electric power. With respect to the Earthquake Reconstruction Project, the power and water supply components have been implemented without significant problems. A portion of the education component and the sites and services component was delayed initially, largely because of difficulties in acquiring sites, but is now proceeding satisfactorily. The industrial component suffered initial delays in the submission of acceptable sub-projects, but all of this component has now been disbursed. Annex II contains a summary statement of Bank loans as of January 31, 1977, and IDA credits and IFC investments as of January 31, 1977, as well as notes on the execution of on-going projects. 14i. In the past, Bank Group lending was heavily weighted towards assist- ing Nicaragua develop basic infrastructure, through loans for electric power, ports, and highways. More recently, an increasing share of Bank lending has been directed towards agriculture, water supply and education, and in 1973, IDA made a US$20.0 million credit for earthquake reconstruction. The Bank's current lending program is designed to respond to Nicaragua's development requirements in several different ways. Given the importance of efforts to strengthen the balance of payments, one objective is to support Government programs for export diversification through loans for agricultural and industrial credit. Another objective is to assist further institutional improvement, and help meet the growing resource requirements of the electric power company (ENALUF), and to assist Nicaragua to develop its potentially large geothermal energy resources. In line with the objective of insuring a wide distribution of the benefits of Bank-supported projects, the proposed Ninth Power loan would include funds for extending electric service into low- :ncome locations in the concession areas of ENALUF. The Bank is also planning icc give major emphasis to assisting Government efforts to improve productivity and living conditions in the rural sector. This objective would be supported through the recently approved Second Education Project, through projects for rural roads and for water supply, and through projects designed to strengthen efforts, now beginning under the INVIERNO program, for the development of some of the most depressed areas. The project in the most advanced stage of processing is for water supply and sewerage. This project which has recently been appraised and which is expected to be presented for Board approval in the second quarter of FY78, has two components. The first is to assist the Managua Water Company to improve and expand its service. The second involves an innovative program designed to provide water and sewerage facilities to rural communities of less than 300 inhabitants, and thus to reach persons -in the lowest income groups in Nicaragua.  - 6 - 15. The Bank's share of total external public debt disbursed and outstanding is likely to remain at about 10 percent on the average through 1981. The Bank and IDA's share of debt service in 1974 was about 11 percent; it is projected to decline during the remainder of the decade because of Nicaragua's substantial relatively hard-term commercial borrowing in the past few years. 16. In FY1968, IFC made two loans and an equity investment totalling US$2.1 million equivalent to help establish a new cotton and synthetic fiber textile company (FABRITEX). IFC's equity has since been sold to local investors. FABRITEX was hampered in its early years by marketing problems associated with difficulties in the operation of the Central American Common Market, and aggravated by the 1972 earthquake in Managua. The company is now in the process of reorganizing its operatiohs and financial structure. In June 1976, IFC made a loan of US$6.5 ihillion to Propiedades Azucareras de Nicaragua to help expand their sugar production capacity, and a loan of US$700,000 and an equity investment of US$200,000 to help finance the Camino Real, a first class hotel in Managua. PART III - THE POWER SECTOR Energy Resources and Government Strategy 17. Nicaragua has no proven commercially exploitable fuel deposits; coal and fuels derived from oil are presently imported. Recently, however, exploration for oil and gas by private oil companies has been intensified. There are substantial indications from the country's geological charac- teristics that Nicaragua has a large geothermal potential and an on-going study is evaluating this potential in the area of the Momotombo volcano. In a recent study, the Nicaraguan hydropower potential was estimated at around 1,600MW, of which a large proportion would be from low-head hiydro plants. 18. Traditional sources, such as wood and bagasse, are contr.buting a declining percentage of the primary energy requirements (55% in 1960 and 362o in 1973), and are rapidLy being substituted by commercial, petroleum- based energy sources. (Coal usage is insignificant.) Commercial energy requirements in 1973 were estimated at about 690,000 tons of petroleum equivalent, of which about 590,000 tons were supplied by imported oil and the remainder by hydropower. From 1960 to 1973, commercial energy demand rose at an average annual rate of about 10 percent which was substantially above the real GDP growth rate of about 6.5 percent. 19. Before the oil crisis, Nicaragua's energy sector strategy was based on the lack of low-cost hydropower sites and on low fuel prices. Consequently, Nicaragua's power expansion program has consisted mainly of thermal projects,  - 7 - with local geothermal and large hydro projects being given low priority. Accordingly, ENALUF (the dominant entity in the Nicaraguan power sector) undertook, in 1972, the construction of a 10OMW steam electric station with the intent of selling excess power to Honduras during the construction of the El Cajon hydropower project in that country (planned power output of about 300MW), and to provide protection against dry years. The Bank supported this strategy by financing the construction of the station and the interconnection between Nicaragua and Honduras. 20. Recent changes in relative prices of primary energy have led to a reassessment of the above strategy. The present strategy calls for reducing the dependence on imported oil through a balanced development and use of local geothermal and hydroelectric energy, and through electric system inter- connections with Honduras and Costa Rica, to ensure that sufficient capacity is available to meet the growing demand. Sector Organization and Regulation 21. ENALUF supplies 87 percent of the electricity generated _n the country. ENALUF is also the principal retail distributor of electricity, but its share of retail sales is expected to decrease somewhat in the coming years (from 85 percent in 1974 to about 78 percent in 1990) because of the more rapid growth of other distributors. These distributors include five coopera- tives, thirteen private companies and three municipalities which serve about 37 percent of the country's electricity clients. 22. The Electric Industry Law of April, 1957 regulates production, transmission, distribution and marketing of electricity in Nicaragua. The National Institute for Electric Energy (NIEE) was formed in August, 1969, and assumed all the functions of the former National Energy Conuiission. As the national regulatory agency, it is responsible for the development, coordina- tion, tariff regulation and supervision of the electric power industry. Due to NTIEE's technical andl financial constraints, most of these functions are informally delegated to ENALUr. As far as tariffs are concerned, these are decided at the Presidential level, with informal participation by ENALUF. 23. As a result of majcr tariff actions, consisting of adoption of a fuel adjustment clause in 1974 and a 30 percent general tariff increase in 1975, ENALUF's average tariff levels are presently satisfactory; nevertheless, to assure timely adjustment to future fuel price increases ENALUF has agreed to an automatic application of the fuel adjustment clause (Loan Agreement, Section 5.09). Because of Government policies designed to provide incentives to the productive sectors, tariffs for industry and agriculture are much lower than those for residential and commercial consumers and do not reflect the long-term incremental costs of supply. Also, notable variations in pricing to ultimate consumers exist between ENALUF, electric cooperatives and other retailers. The proposed Bank financing, therefore, includes funds for a study to determine the long-term marginal cost of service. The study would provide a yardstick for determining the adjustments needed in the tariff structure to discourage wasteful use of electricity. The study would be  - 8 - completed in accordance with a timetable acceptable to the Bank. Within six months of the completion of the study, ENALUF would review with the Bank a new rate structure and, if a new rate structure is agreed, a timetable for causing the -new rate structure to become effective (Loan Agreement, Section 3.07(a) and (b), Schedule I(3) (a)). 24. In view of the changes in Nicaragua's energy development strategy, the Government is assessing the future organization of the energy sector. There is need for formulation of: (a) detailed policies for the development of the sector; (b) long-range sector plans; and (c) priorities for expansion. To rationalize the sector organization and future development, the proposed loan provides funds for a sector organization study (Loan Agreement, Section 3.01 (a) and (b), Schedule I(3) (c)). Electricity Supply and Consumption 25. At present, mainly the North, Central and Pacific Coast areas are supplied with electricity. The Pacific Coast area, which includes all the major towns, is the most developed and industrialized part of the country. The industrial sector is the largest consumer of electricity in Nicaragua, accounting for 47 percent of total power sales in 1974. Sales and sales growth by client category have been as follows in recent years: NICARAGUA'S ENERGY CONSUMPTION Average Client Category 1970 Sales 1974 Sales Annual Growth GWh % GWh % % Industrial 188.3 43.9 298.0 46.9 12.2 Irrigation 17.8 4.1 53.0 8.3 31.4 Pumping 15.9 3.7 27.7 4.4 14.9 Sub-total 222.0 51.7 378.7 59.6 14.3 Residential 117.4 27.4 145.8 22.9 5.5 Commercial 57.7 13.4 72.2 11.4 5.8 Government 21.6 5.0 24.2 3.8 2.9 Street Lighting 10.8 2.5 14.7 2.3 8.0 Total 429.5 100.0 635.6 100.0 10.3 Irrigation is the fastest growing category, in part because of its small base. Industrial consumption accounts for more absolute growth by a wide margin than any other category. Growth in the residential, commercial and Government categories was slowed by the effects of the Managua earthquake of December, 1972.  Ruiral Electrification and Service to Low Income Urban Areas 26. ENALUF supplies electricity at wholesale to five cooperatives serving rural areas. The five cooperativ s, through a 2,000km distribution network, supply an area of about 20,000km with a population of about 180,000. This corresponds to about 18 percent of the estimated rural population of the country. 27. In order to serve more rural clients directly, ENALUF has been undertaking, since late 1975, the first stage of the Second National Electrification Plan at a cost of about US$21 million, with IDB financing of US$16.5 million, and a Government contribution of US$4.4 million equiva- lent as equity. This project is expected to provide electricity to about 70,000 people in the tMatagalpa and Rama areas. In addition, the proposed loan includes funds for extending electric service into low-income (mainly urban) locations in the concession areas of ENALUF. Power Sector Development 28. Tn October of last year, the Bank-financed transmission line inter- connecting the electric power systems of Nicaragua and Honduras was inaugurated. Since then ENALUT has supplemented its generation of electricity by purchases from the Honduran power company. Beginning in 1979, Nicaragua intends also to purchase energy from the Costa Rican power company, through the interconnecticn to be financed under the propcsed loan. (CABEI has indicated interest in financing the Costa Rican portion of the line.) Pursuant to an agreement between the two countries, a study of the feasibility of interccnnecticn has been carried cut under the Joint sponsorship 6f ENATXF and the Costa Rican Power Company. The two companies have also begun negotiation of an interconnecticr. contract, to be followed by negotiation of a formal interconnection treaty between Nicaragua and Costa Rica. The most likely next generaticn addition after the Tiscuco plant wculd be a 35MW geotlhermal unit at the foot of the Mosotorl,c volcano. The latter was originally st;udied by the United Nations Development Programme (uPiZP). ETT\ALUF completed the feasibility study for this unit in late 1976, ind expects to complete the installation of the unit by mid-1979. 2'^i. ENALUP's tentative plans, beyond the first unit of Momotcrtc, and the Costa Rican interccnnection, include completion cf two additional 501MW units at Mcmotombo by 1981 and construction of a high dami at the Copalar site in the Matagalpa River. The site would be equipped with six 55MWS units which are expected to go into operation from mid-1985 to mid-1987. In order to assure the optimum timing and sequence of these projects, wl;ich may involve a total invest- ment on the order of US$400 million, the Bank loan would finance a long-term master plan to be developed by a team made up of EMALUF's staff and consultants (Loan Agreement, Schedule I(3) (a)). The master plan study would include a power market survey, an energy resource survey, an evaluation of the optimal combinations for generation, transmission, distribution and regional inter- connection, and a study of alternatives for a national load dispatch center.  - 10 - Previous Projects with ENALUF 30. The Bank has made eight loans for the power sector in Nicaragua. The first four loans, totalling US$9.6 million, were made during 1953-56 to finance thermal generating units, transmission lines and the expansion of distribution facilities in Managua and outlying towns. Implementation of these early loans was satisfactory, although with some cost overruns. A noteworthy institutional improvement during this period was the adoption by the Government of the Bank's recommendation that ENALUF, which had been an agency of the National Railway, be established as an autonomous public corporation. Also, during this period, ENALUF for the first time engaged consultants to prepare a long-term power development program. 31. The program thus developed led to the US$12.5 million fifth Bank loan in 1960, for the construction of Nicaragua's first hydroelectric project, the 50MW Rio Tuma plant. This project, which doubled ENALUF'S generating capacity, represented a fairly ambitious undertaking for a small ccmpany such as ENALUF. Moreover, certain weaknesses in management and financial perform- ance had been noted during appraisal. To help overcome these deficiencies, ENALUF and the Government agreed to engage a number of experts,as well as to convert previous Government advances into equity,and arrange for the provision by the Government of local currency funds required in addition to those generated by ENALUF itself. Although problems were encountered in the physical execution of the project, it was completed as scheduled at appraisal without substantial cost overruns. 32. The US$5.0 million sixth power loan (470-NI) of October 1966 financed a 15MW gas turbine unit, transmission lines, sub-stations, expansion of the distribution system and construction of a headquarters building. The Bank was satisfied at that time that high load growth, adequate rates, Government equity contributions and improved management gave assurances of ENALUF's financial viability. The project was completed on schedule. In June 1968, the US$15.25 million seventh power loan (534-NI) was made to ENALUF to finance an additional 40MW steam unit for the Managua Power Plant, a 50MW hydroelectric plant (Santa Barbara), transmission lines and sub-stations. The project experienced cost overruns of about US$4.5 million above the original cost estimate of US$21.8 million. The additional cost resulted from unfavorable rock structure in a tunnel and relocation of a dam because of unforeseen foundation conditions. However, even at the higher costs, the project remained economically justified. 33. The Bank made its eighth power loan (840-NI) to ENALUF in June 1972, in the amount of US$24.0 million, to finance a 2 x 50MW steam plant at Tiscuco, transmission lines, sub-stations and management studies, as well as US$1.5  million of cost overruns under the seventh project. At the time of the approval of this project, it was recognized that although ENALUF was a reasonably well run company, there was a need for improvement in certain management areas if the company was to continue satisfactory performance in the future. ENALUF therefore agreed to hire management consultants who made a series of recommendations, some of which are inthe process of implementation and others of which are to be implemented with the assistance of a General Coordinator who has recently been hired (see discussion in paragraph 37 below). During the implementation of the eighth project, delays of about 14 months occurred in the construction of the steam power plant and the associated transmission lines. These delays are attributed to the need to make repairs and install emergency facilities for power following the earthquake of December 1972, late deliveries of equipment by suppliers, and late effectiveness because of delays in signing the interconnection contract with Honduras. (The Bank's Earthquake Reconstructioi Credit, made in 1973, included an electric power component which is expected to be completed in early 1977 within appraisal cost estimates.) The eighth project, originally appraised to cost US$34.7 million equivalent, is expected to be completed late this year, with a cost overrun of an estimated US$24.3 million due in part to the delays noted above and to inflation, and in part to ENALUF's decision to increase quantities and construction standards on certain items (operators' housing access road) not to be financed by the Bank. The Venezuelan Investment Fund is assisting ENALUF by lending US$16.1 million equivalent for the cost over- runs. PART IV - THE PROJECT 34. A report entitled "Appraisal of the Ninth Power Project, Nicaragua" dated March 18, 1977, is being distributed separately. The main features of the loan and project are summarized in Annex III. The project was appraised in December 1975 - January 1976. Negotiations were held in Washington from November 29 to December 3, 1976. The ENALUF delegation was headed by Mr. Luis Manuel Debayle, its Executive President. The Government was represented by Messrs. Guillermo Sevilla-Sacasa, Ambassador of Nicaragua in thle United States, and Francisco Zeledon, Minister Counselor of Economic Affairs of the Nicaraguan Embassy in Washington. The Borrower 35. ENALUF grew out of an initial consolidation of several electricity companies that operated in its present concession areas. The effective generating capability of ENALUF's National Interconnected System (NIS) operating with four principal power plants is 193MW; the installed capability is expected to reach 428MW by 1981. 36. An eight-man Board of Directors is responsible for overall policy matters. It includes a chairman who is also the Executive President and two representatives of the Government (one each from the National Economic Council and the National Development Institute); the remaining members represent private  - 12 - trade associations and thc major political parties. All the Directors are appointed by the President of Nicaragua. 37. The top Management of ENALUF is strongly centralized in the Executive President and two Vice-Presidents. The need for improving this and other aspects of the present management structure have become progressively more evident with the increased burdens imposed on ENALUF first by the 1972 earthquake and sub- sequently by the energy crisis, which have placed a major strain on ENALUF's financial situation and led to major changes in the power investment program. To help alleviate this situation, therefore, the Executive President has appointed a General Coordinator, under terms of reference satisfactory to the Bank, who will be delegated authority to supervise day-to-day operations, thus allowing the Executive President to concentrate more on policy issues (Loan Agreement, Section 4.05(a) and (b)). One of the first tasks of the General Coordinator will be to review areas where deficiencies have been noted, e.g., budget preparation and financial controls, procurement procedures, cohstruction management and cost control, staff training, with a view to developing improvement programs and to identifying needs for consultants to assist him in this action. In addition, assurances have been obtained on a number of specific points, i.e. that (1) a training unit will be established under a training director, both under terms of reference acceptable to the Bank, not later than December 31, 1977; (2) a training program satisfactory to the Bank will be developed by June, 1977, and Dut into effect by December 1977 (Loan Agreement, Section 4.06(a) and (b)); (3) procurement and training experts will be appointed prior to loan effectiveness under terms of reference acceptable to the Bank (Loan Agreement, Section 7.01(a)); (4) terms of reference for additional experts proposed by the General Coordinator (and covering, unless the Bank shall otherwise agree, the areas of cost estimating, construction management, financial control and budgeting) will be agreed with the Bank prior to loan effectiveness (Loan Agreement, Section 7.01(a)); and (5) existing insurance coverage is being reviewed as a first step toward providing a program of protection of ENALUF's properties against earthquake damage (Loan Agreement, Section 4.01(a) and (b)). Description of the Project 38. The main physical components of the ninth power project would pro- vide (1) the Nicaraguan portion of an interconnection line to Costa Rica, and (2) transmission and distribution facilities which would complement the facil- ities for generation and transmission supplied under the eighth power project. As such the ninth project would include about 12 percent of the ENALUF investment program for 1976-80 (assuming full implementation of the planned Momotombo geothermal development, which would represent 48 percent of the total investment program for the period). The specific project components are as follows: A. Interconnection Construction of about 145km of a 230kV transmission line for interconnection with Costa Rica.  B. Transmission Construction of about 22km of a 138kV transmissLon line; construction, addition, and/or conversion of substations with about i22MVA; reloca- tion of about 75M1VA transformer capacity, and installation of pro- tective and metering equipment; installation of about eight 69kV circuit breakers. C. Distribution Installation of about 65MVAR capacitors and of distribution lines, transformers, and connections in low income areas. D. Load Dispatch Center Construction of a national load dispatch center and installation of equipment to operate the Honduras-Nicaragua-Costa Rica interconnectior. E. Consultants' Services a. For supervising construction of the physical works of the project. b. For preparation of: a master plan for power system expansion; a nationwide tariff study to determine the marginal cost of providing electrictty to various customer classes and to recommend a tariff structure which would reflect marginal costs; and a study of alternative designs and specifications for the national load dispatch center. c. For assistance in preparation and implementation of a program to improve the Borrower's management and administration, including a personnel traintng program. d. For preparation of a sector organization study. 39. The large increase of transmission and distribution facilities as a result of the project would allow ENALUF, and the retailers which it supplies, to p;roviide electricity to about 4OO,OOC additional people in Nicaragua during t;be project period. The distribution component of the project would provide excluisively for extension of service to low-income users within ENALUF's cor.cession area. Appropriate criteria have been agreed for selecting the areas which would be given priority. Based on ENALUF's initial inventory of villages and urban communities,some 160 potential priority locations (housing some 60,000 people)have been identified for this program. It has been agreed that ENALUF will submit a detailed report showing pertinent details on the areas selected on the basis of the agreed criteria as a condition for disbursement for this component (Loan Agreement, Schedule I, paragraph 4(c)). The project includes a study to help the Government in develcping a program to rationalize power sector organization as well as a national master plan for the sector, which is urgently needed to establish priorities in an expansion program based on the least cost development, and a tariff study based on marginal cost pricing. The consulting services and expert assistance for management and administrative improvements, combined with the engagement of a General Coordinator to  - i4 - assist the Executive Pres-ident, are expected to substantially improve the efficiency of ENALUF. Project Cost 40. The total cost of the project is estimated at US$32.4 million, with a foreign component of US$20.4 million. The proposed Bank loan of US$22.0 million would cover the foreign cost of the project, plus about US$1.8 million out of the US$3.8 million required for interest during construction and other charges on the Bank loan. The financing of a portion of interest during construction is designed to help alleviate the financial burden associated with ENALUF's large investment program. The remaining costs would be covered by ENALUF's internal contribution to expansion. An allowance of 5 percent for physical contingencies was added which is reasonable since no major civil works are included. To provide for expected price increases, a contingency allowance of 13 percent has been provided for local items for 1976, 12 percent for 1977- 79 and 10 percent thereafter; for foreign costs a price contingency of 9 percent has been used for 1976, 8 percent for 1977-79 and 7 percent thereafter. The average cost for consulting services (excluding price contingency, travel and subsistence was estimated to be about US$4,300 per man-month. Details of project costs and of the financing plan are presented in Annex III. Financial Position and Future Earnings of ENALUF 41. In 1973-74, the impact of the earthquake, local and international inflation, and additional investment expenditures from cost overruns resulted in negative cash flows and low returns on net average operating assets for ENALUF. This made it necessary for ENALUF to borrow about US$21.5 million from commercial sources. Subsequently, ENALUF hired a consulting firm to conduct a tariff and revaluation study. The study ultimately led to implementation of a fuel adjustment clause, a general tariff increase, a revaluation of assets as of December 31, 1974 and significant improvement in ENALUF's rate of return (to 8.4 percent in 1974 on revalued assets). 42. ENALLF and the Government have agreed that ENALUF would maintain a rate of return of at least 8.5 percent on annually revalued average net fixed assets in operation (Guarantee Agreement, Section 3.02(b) and Loan Agreement, Sections 5.08 and 5.11). This rate of return would result in the financing of 22 percent of ENALUF's large 1977-79 investment program from internally generated resources. The operating ratio would decline from 67 percent in 1976 to 54 percent in 1980 and the debt-equity ratio would not exceed 47/53. ENALUF has agreed to retain all its earnings for reinvestment in new facilities until the project is completed (Loan Agreement, Section 5.12). 43. Overdue accounts receivable created problems for ENALUF in the past, and ENALUF agreed under previous loans to take all necessary action to main- tain the total amount of its accounts receivables in arrears below 110 percent of the total average monthly billing corresponding to the 90 days immediately preceding the date of calculation. ENALUF's performance under this provision, which is repeated under the proposed loan, has been good (Loan Agreement, Section 5.07). ENALUF has agreed that it will have its accounts audited by independent auditors acceptable to the Bank and that it will send audited financial statements and the auditor's report to the Bank within four months of the end of the fiscal year (Loan Agreement, Section 5.02).  - 15 - 44. ENALUF's future annual debt-service coverage ratios are expected to be between 1.49 and 1.63. It has been agreed, as under previous Loan Agreements, that ENALUF will seek prior Bank agreement to new long-term borrowing whenever net revenues are less than 1.5 times the maximum debt- service requirement for any succeeding fiscal year (Loan Agreement, Section 5.06(a)). As noted in paragraph 33 above, ENALUF's funding problems for the eighth project were partly the result of its decision to increase quantities and construction standards on certain items not be be financed by the Bank. In order to help avoid similar difficulties from arising in the future, ENALUF has agreed that it will undertake expansion, other than the ninth project, costing more than one percent of the value of gross fixed assets in operation, only if the Bank has received satisfactory evidence that such expansion is economically justified and ENALUF has adequate financial resources for carrying out the expansion (Loan Agreement, Section 5.04(a) and (b)). Project Execution and Procurement 45. ENALUF would contract consultants, in accordance with prccedures agreed with the Bank, to assist in design, procurement and construction supervision of project works and in carrying out the project studies, except for the sector organization study (Loan Agreement, Section 3.02). ENALUF would relend the funds for the latter to the National Planning Directorate (NLP), which woulc contract consultants for carrying out the study under terms and conditicns agreed with the Bank (Loan Agreement, Section 3.01(b)). Some construction which would not be Bank-financed (especially of distribution works) is expected to be performed by ENALUF's own forces. 46. All contracts for Bank-financed works would be awarded through international competitive bidding (ICB) in accordance with guidelines for procurement under Bank loans except that: (i) special protective relaying and metering equipment for substations, which is not suitable for ICB because of the need for standardizaticn, would be purchased on a negotiated basis up to an estimated total cost of about US$0.35 million; and (ii) other imported equipment, which would be required in small quantities and for which ICB would be impractical, would also be procured on a negotiated basis at an estimated total cost of US$0.2 million. In accordance with the Central Anierican Commoii Market (CACM) Agreement on Fiscal Incentives for Industrial Development, manufacturers of CACM countries would be granted a preference of 15 percent of the CIF landed price or 50 percent of the tariff payable by non-CACM4 manufacturers, wlhichever is lower. Items which could be competitivc under this arrangement would include conductors for the lines, construction materials (including wood poles), low voltage switchgear and distribution transformers, accounting for up to about US$2.2 million of the amount proposed for financing by the Bank. Assurances have been obtained from the Government and ENALUF that they would continue, under the proposed project, their practice of reducing shipping costs through waivers issued by the Ministry of Economy, of any provisions of the shipping law of Nicaragua which would lead to delays or freight charges above thcse of regular shipping lines and maritime conferences (Loan Agreement, Section 3.08 and Guarantee Agreement, Section 3.05).  - 16 - Disbursements 47. Disbursements would be made for the percentages of costs shown below: (i) 100 percent of the foreign exchange cost of imported equipment, materials and other goods and of installation supervision; (ii) 92 percent of the ex-factory cost of contracts for goods awarded to Nicaraguan manufacturers; (iii) 75 percent of the total cost of locally procured goods for the distribution works; (iv) 100 percent of the foreign exchange cost of training and of the total cost of services of consultants and experts; and (v) 100 percent of the financial charges on the Bank loan thcough June 30, 1979. 48. Retroactive financing of up to US$0.8 million for expenditures after July 1, 1976 is proposed for the costs of studies and engineering required for project preparation. Should ENALUF or the Government obtain a grant from other sources for financing the master plan study, it is proposed that ENALUF use the corresponding Bank funds to increase the low-income area distribution component. It is also proposed that, with the Bank's agreement, undisbursed funds remaining upon completion of the project be applied to other works of similar nature. Environmental Effects 49. The transmission lines and substations included in the project are not expected to have a significant effect upon the environment; substation works would be almost entirely in existing substations. Only two new substations would be built (Matagalpa and Leon II), both in uncongested rural areas. Having recently experimented with esthetic design for 69kV lines while rerouting circuits near Managua, ENALUF is conscious of their visual impact and intends to minimize the impact of the proposed new lines. Return on Investment 50. In view of the difficulty of isolating the benefits provided by the project components, a rate of return has been calculated on ENALUF's entire investment program for the 1976-1980 period, rather than on the project. The project's physical works are the least cost alternative. Using 1976 tariffs as the measure of benefits, the rate of return on the program would be 13.1 percent. A sensitivity analysis shows that this return would be reduced to 10.3 percent if investment cost is assumed to increase by 10 percent and benefits to reduce by 10 percent. If sunk costs incurred prior to 1976 are  - 17 - excluded, the equalizing discount rate would increase to 16.2 percent. These discount rates are in line with the probable opportunity cost of capital in Nicaragua. This suggests that consumers, on the average, are presently paying prices which reflect incremental costs. The actual economic rate of return is higher than the above calculations would indicate, since they do not include indirect benefits to industry, commerce and other large consumers whose contribution to production would likely be lower if they had to finance their own higher cost electricity generation facilities. Project Risks 51. The physical components of the project are relatively simiple and their execution should involve few difficulties. The return on the low- income electrification component could be substantially less than projected if' the rate of new connections is lower than expected. Assurarices have been received frcm ENALUF that it will consult wfith the Banh on measures (such as reduction of connection fees, financing of household wiring and modifications in tariff structure) to improve this rate if actual resuilts are lower thaan those shown in the project performance indicators (Loan Agreement, Section 3.04(d)). Successful implementation of the recommendations bf the stiidies and cf the r-,.management assi4stance component of thte project will require a high degree of comrnitmeint on the part of thle Goveri,ment; andi ENMUl1J. It is possible that negot;i ation of the necessary agreements between Nicaraguia ai)ul Costa RTea tor interconnection of their two power systerts w,ill nIot be successfully concludecn. 'J.'his w-oul. mean that the benefits to Nicaragua from the interconnection component o,f the project, mainly fuel savings from reduced utilization of existing thermal capacity, would not be realized. Hovever, the economic rate of return on the int-ercTnection1 componenlt is approximately the same as that for IENALUF's entire invest';'laent progrtaIs so that elimin-ation of this componentl; would not have a signiaficant effect on the overall rate of return. PAPT V - LEGAL IN STRMEYTIS -IND AU. THORT1:Y e2. The draft Loan Agreement between Empresa Nacic-nal de Luz y Fuerza and nae Bank, the draft Guarantee Agreerment between the Repul:lic of Nicearagua and the Bank., the fleport of the Committee provided for in Article III. Section 4 (iii) of th,e Articles of Agreenient of the Bank, and the text of the Resoluticn approving the proposed loan are being distributed to the Executive Directors separately. 53. Features of special interest in the draft Loan Agreement and in the draft Guarantee Agreement are described in Part IV above. Special conditions of effectiveness are the appointment by ENALUF of experts for procurement and training under terms of reference acceptable to the Bank, and agreement with the Bank on terms of reference for additional experts identified by ENALUF's General Coordinator (Loan Agreement, Section 7.01(a) and (b)). The approval by the Bank of the feasibility study of the load dispatch center, and a detailed report on the areas selected for the distribution comnonent are conditions  - 18 - of disbursement for these project items (Loan Agreement, Schedule 1, paragraph 4(b), (c) and (d)). Conditions of disbursement for the inter- connection component would be: (i) execution of legal arrangements between Nicaragua and Costa Rica authorizing all action necessary to establish and maintain an interconnection line between the power systems of the two countries; (ii) an interconnection contract, satisfactory to the Bank, between ENALUF and ICE, the Costa Rican Power Company; and (iii) adequate assurances of the availability of the financing necessary for the Costa Rican portion of the interconnection. A feature of special interest in the Loan Agreement regarding procurement is that the Borrower agrees not to proceed with the preparation of bid documents for the distribution component of the Project until receiving written notification from the Bank that it finds such part technically and economically acceptable (Loan Agreement, Schedule 4, paragraph A2). 54. I am satisfied that the proposed l6an would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 55. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments March 18, 1977  - 18 - of disbursement for these project items (Loan Agreement, Schedule 1, paragraph 4(b), (c) and (d)). Conditions of disbursement for the inter- connection component would be: (i) execution of legal arrangements between Nicaragua and Costa Rica authorizing all action necessary to establish and maintain an interconnection line between the power systems of the two countries; (ii) an interconnection contract, satisfactory to the Bank, between ENALUF and ICE, the Costa Rican Power Company; and (iii) adequate assurances of the availability of the financing necessary for the Costa Rican portion of the interconnection. A feature of special interest in the Loan Agreement regarding procurement is that the Borrower agrees not to proceed with the preparation of bid documents for the distribution component of the Project until receiving written notification from the Bank that it finds such part technically and economically acceptable (Loan Agreement, Schedule 4, paragraph A2). 54. I am satisfied that the proposed l6an would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 55. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments March 18, 1977  AMNIX I Page ; of 4 pasem Unlass otherwina noted, data for 1960 refer to any y-a between 1959 and 1961, for 1970 beresao 1968 ad 19710, and for Moat Recent Eatisits betweean 1971 -sd 1973. a Differen... between U.N. rate of naturalir1 a and TBRD popuslation grooth rat. have not yet bass rectoncil.. ae Coata fiea ha. been slatted as an objective nountry since, although It ama In the ama.s inn bra..ket seith Nicaragua In 1970, it- per ..pita Ineam was 20-25 percen.t higher, which fare it a reasonable i-ca target in the madin tm-. But more importantly, Coats Rica, which ba. a reource b... very .i.ilar to that of Nicaragua has managed to obtain a much mor equitable distribuation, of imcemee and smtial services at the a- time as it h"n achieved a aignificaotly higher lavel of per capita innone,. NICARAGUiA 1960 / 1950-63, /b 1963; /c 1965: /d Itaide only. 1970 L. 1963-68, lb Monagon only. Ic coral Population only. MOST RECtil ESTIMATE: Ia 1963-72; /b Ratio of population under 15 and 65 and over to total labor for.e*, Ic 1975; /d 1970-75: Ie 1974. GUATEKALA 1970 /a 1964-70, /b 7-12 and 13-17 yeara of age reapectively; /c Including evening aehoola PANAMiA 1970 / Including residents weorking in Canal Zone ; /b In-n recipient, /c Inelds only; /d 10 yearn and ovr. COSTA RICA 1970 /a Ptio of population oder iS and 65 and over to total labor force: b open unanpInymnt; /c 1971; /d 12-16 yearn of age R4, Aog-at 26, 1976 DEFINITO(9S OF SOCIAL INDICATORS Land Area (thou k. Puoulation per nursingt perso - Pepulation divided by sumber of practicing Total -Total sorface cunpria i. land area and inland waters. male and fenale graduate bursae, `trained" or '-dftif led' notar, and Akide. -Moot recant entinat. of agricultural area uwed temporarily or auxliary persbonnel with training or operienea. peroanently for crops, paet.rca, market 6 kitchen gardens or to lie Psoulation per 1,ospital bed - Population divided by onohr of houpita1 beds fallow, ~~~~~~~~~~~~~~~available in public ;and-pt-vtear gen..ral and epecialied hospital and rehabilitation centra exoludee nuring bones and nocabllaltneot for IMP per capita 1015) - GNiP per capita enti.ateo at istrret market pri..n. custodial and preventive care. calculated by earns 00cuonnthd an World Pack Atlan (1073-75 Per capita supply of caoie of -esuireobont.) - Coputad fron energy ba.si), 1960, 1970 nd 1971 data. equivalent of act fond eupplies availablei 1.mc ntry per capita per day, available supplies empries donetic production, imports less euports, Ppuplation a-d vital statintic. and ch-mges in otock, net supplies exclude aninal iced, Deado, qu-nti- Po-ulation (otd-yr. illion) - go ofJuly first: if nor available, ties used in food processing adbos in distribution: requirre.nto averoge of two e.d-year estimates; 1960, 1970 and 1975 data, were estimated bly FAO based on physiolsgieel needs for norml activity and health conuidering enivironnsental tenperature, body ueighto, age and Popula!tion de-it -eear soars Ion - Mid-year population per square kilo- ceo distributions of population, anod all1wieg 10% for .aste .1t boise- moo (10bca ) fcrlaea, bold l..el. Poplaton ensty ne ov-rsIn, of'agric. land - Cmoputed as above for Per caPita auPnl of prtijojr.Z.-Poencneto e agricolturs1 land only. capit arne supply of food per day; net supply of fond Is define as above: requirennts for all omotries established by 015A tEonosic Vital otatintico Research Setrvices provide for a ninimin allowance of 60 gram of total Crude bithb rats p.r thouaand - A--ol live births per thousand of mId- . protein per day, and 20 gram of animal and pulse protein, of which year Ppopultion, ten-year aritbastic averges ending In 1960 and 1970, If grn should he nebmal Protein; these ute4drdo ae lower then these and frn-year average ending in 1975 for noar recent estimate, of 71 geno or total protein and 23 gras of animal protein as a- Crude death rate per thousad - Annul desthe per thousand of mid-year average for the world, prop-aed by tICC in the Third World Feod Survey. population; ten-year aritloetic avrages -nding in 1960 and 1970, and ft. _p__ vq~Aa ar final A.l ole - P-oteg supply of food .five-yerar averge ending is 1971 for most recent estimate, derived fruaiasoad p-ulses In grass per day. Inat enctalt rate f/thou _--Anul deaths of infanta under one year sf Death rate f/thou) ages I-4 - Annul deaths per thousand in age group age per t.housand Ive births. 1-4 y-arn, to children is this age group, suggested as an indicator of Lifesptae at birth (rmS -Averoge nunher of years of life remsaining malnutrition. at birth: ...uelly five-year averages ending in 1960, 1970 and 1975 for devlpn onre.'Education irons "reproducItiontra!t'e'- Average e,nber of live daughtere a wunn will Adi-mtd enrollment ratio - primary school - Enrollncet of all Ages a bear in her on-1 reproductive period if she soperien.... presntm age- percen.tage of primary achosl-age population; includes children aged specIfic fertly rates; -oco11y five:-year averages ending in 1960, 6- 11 yeasr but adjusted for different lengths of prima.ry odu-tiso, 190an 975lfor dveloping coutie.for countries with onivero1 edueatio, enrol1ent may -ased 100X Populationdcr_th rate (7) _ total - imspound annual growth rates of mid- sinc.a-em pupils are balm. or shove the ofca colae yea popultion for~ 1950-hO, 1960-70 and 1970-75. Adjusted enrollmet ratio - s-omudary school - Conputed as above, Populat~ion groth race (7. - urbon - imputed like growth rate of total secondary educa tion requires at least four years of appr-ned pri,osry ppul ation diffe re nt definitions of urban areas may affect cunpara- instruction; pro,vides general, voctional or teacher training bul O aa nso ostio insirction for pupils of 12 to 17 years of .3e; coroe.podnJen Urban population (7 of ~ ttl) -RPtio f urban to total population; cou-re. am gone-Ilby e-nlded. diffe rent definitionn of urban areas may affect emparability of data Years of schooling Drowided (first and secon l-evel) - Total y,srs of onong countries, schooling; at secondary lvl, voainlinotruction may be par- Ave st-uture (percent) - Children (0-14 years), working-age (15-64 years), tially or completely esscludad. an etired (65 years and over) as percentages of mid-year pepula.tior. Vocational enrollment (7 of secondary) - Vocationa institutions Age dependencyrti-Ra tio of population under 11 sod 65 and ever to include techeical, industrial or other progras which operate those of ages 15 through 64. independently or as departbemnt of secondary imatitutims. tEononic dessnd.n.v ratio - Ritlo of population seder 15 and 65 and over Adult literacy rate (7.1-Litarat adIts (able to read and write) aso to the lao :oce in ae group 15-64 years. pereantaga of totl adult population gagd 15 years and ovr. PF l_lann acce"Ptor a(euulative.thoul - Cumulative unher of acceptors of brth-controIdtevicee undet auspicen of b n.tgonal family nJo..A9& pann proga since inception. Prepso pear coon (average) - Average siaber of persons per runs in Ponily PIanine sr (7 . o maried w.nO) - Percentages of married occupied convetional dwelligsinsha areas; dwellings e.clnde ome of child-hearing age (15-44 years) woh us ebirth-control devices mom-per,arnent structores and unoccupied parts. to all married -une in san age group. Occupied dwellings withu pie as.) -(""nPied conventional wellings in urban ad rral ara wihotm inside or outside piped Employmont water facilities as~~~~~.A percentage, of all oncupied dwell11".. otallao force (thm.sd) - EconmicaIly active pereon, including ACccesstoelect1ri1city (7 of all dwellings) - Conventional dwellings aend forces and unnlyd hut exclding housewives, students, etc.; with electricity in liv ing quarters as percent mf total dwellings in deiiis in various countcries are , sc-eparahbe. stban andj, rura areas.. taorfoc inarclue(. gIcutraI abrfrce (in faming, Rurl weli connected to elactri~ty,,CI1 Computed as above for foresry,hosting and fishing) as perc entageuof total1 Iebor force, rural dwelling, only. l2on_Ployd(7 of lbor force) - Ononplyed arewuualy definad a esn who are able and willing to take a Job, our of a Job on a givenday, Conaan-ption remined out of a job, and seeking werb for a apocified ninims- period Wianl rweeiors (per thou pop) - All types of receivers for radio brood- sotfencending one week; may sot be cemparable between coubtries du. to casts to general public per thousand of population; eocludes differentde'finitions of momployed and source of data, e.g., aploy- unlicensed receivers in countries and in, year when registration of set office statisticIs, opie sov"eye, cmpulory unemployment insur~ance, radiosc s i fet date for reat yesn may not be conporable eine motz cosotnrles abotlished licensing. looms diatribution - Percentage of private inco,e (both is caseh and kind) passenger cars (per thou top)- Pasasenger cars conpriae motor ears received by richest 57., richest 207X, poorest 20%, asod poorest 40% of seating loss tha eigtpros excludes enbue1ec., bearaea amd honshnlId.. militar vaeilm Eletrcit (wh/t-per sap)- Annul consoption of iedmtria1, eon- Oiltribution of land ownership - Pere.a.t.ges of land mind by wealthies sersisl, public snd Private electricity inkiloutt hours per capita, IM% sod poorest 10% of land owners. gemarally based mu production data, without allowance for loeses in grids but allowing for imports and esports of electricity. Nes,I th. atd noritionlear (ho/vt per can)I - Per capita annual nonesaption in kilngrs,so Populaion set physician - Population divided by number of practicing estimated fron donstic production plc met imports of aewa pritc. physicians qualified Iron a ndicasIschool at university level.  ANNEX I NICARAGUA Page 3 of 8 ECONOMIC DEVELOPMENT DATA (In million of US dollars) Avelrage Annual Actual Prelimi Projection Growth Rate As percentags of GDY 1970 1973 1975a itio 1970-75 1975-oO 170 7 198 NATIONAL ACCOUNTS Amounts in 1907-69 prices and exchange rate Gross domestic product 812.6 897.1 1,033.6 1,362.9 4.9 5.7 99.4 102.3 102.3 Gains from term of trade 5.0 -38.7 -23.4 -31.2 - - o.6 -2.3 -2.3 Gross domestic income 817.7 858.4 1,010.2 1,331.7 4.3 5.7 100.0 100.0 100.0 Imports 212.3 276.8 289.5 350.7 6.4 3.9 26.o 28.7 26.3 Exports (import capacity) 197.3 245.5 221.1 345.3 2.3 9.4 24.2 21.9 25.9 Resource gap 15.0 17.7 68.4 5.4 - - 1.8 6.8 o.L Consumption 688.2 708.8 870.6 1,040.5 4.8 3.6 84.2 86.2 78.1 Investment 1i4s.3 180.9 208.0 296.5 7.6 7.3 17.6 20.6 22.2 Domestic savings 129.5 149.6 139.6 291.2 1.5 15.8 15.8 13.8 21.8 National savings 108.4 156.9 118.5 253.4 1.8 16.4 13.3 11.7 19.0 MERCHANDISE TRADE Annual data at current prices As percent of total Imports Capital goods 46.0 74.2 100.0 245.4 16.8 19.7 24.1 19.3 27.6 Petroleum, oil, lubricants 11.4 16.9 69.6 134.2 43.5 114.0 6.o 13.4 15.1 Other intermediates 75.4 143.9 215.0 314.1 23.3 7.9 39.5 41.6 35.4 Comsuption goods 57.9 91.2 132.9 194.2 18.1 7.9 30.4 25.7 21.9 Total merchandise imports (cif) 190.7 326.2 517.5 887.9 22.1 11.4 100.0 100.0 100.0 Exports Primary products 135.4 193.4 225.4 551.9 10.7 16.1 76.2 60.1 59.7 Manufactured goods 42.4 84.6 149.6 372.3 28.7 20.0 23.8 39.9 40.3 Total merchandise exports (fob) 177.8 278.0 375.0 924.2 16.1 19.8 100.0 100.0 100.0 Merchandise trade indices 1967-69 - 100 Export price index 112.4 126.5 186.0 281.8 10.6 8.7 - - - Irmport price index 109.0 153.6 209.4 312.5 14.0 8.3 Terms of trade index 103.1 82.4 88.8 90.2 - Export volume index 101.7 141.3 129.7 211.0 5.0 10.2 - VALUE ADDED BY SECTOR Annual data at 1967-69 prices Agriculture 195.8 203.5 246.0 354.4 4.7 7.6 24.1 23.8 26.0 Industry 177.1 202.9 246.0 339.3 6.8 6.6 21.8 23.8 24.9 Service 439.7 490.7 541.6 669.2 4.3 4.3 54.1 52.4 49.1 Total 812.6 897.1 1,033.6 1,362.9 4.9 5.7 100.0 100.0 100.0 PUBLIC FINANCE Annual data at 1967-69 prices As percent of GDP (Central Government) Current receipts 80.5 109.4 126.1 170.4 9.4 6.2 9.9 12.2 12.5 Current expenditure 69.1 77.2 105.4 125.4 8.8 3.5 8.5 10.2 9.2 iadgetary savings 11.4 32.2 20.7 45.0 12.7 16.8 l. 2.0 3.3 Other public sector 11.4 12.6 16.5 24.5 7.7 8.2 1.4 1.6 1.8 :'ublic sector fixed investment 39.0 44.9 47.5 79.0 4.0 10.7 .8 4.6 5.8 DETAIL ON PUBLIC FIXED INVEST. 1967-69;priees LABOR FORCE AND Total labor force Value a worker 1970-71i4 T'i6 tal OUTPUT PERWORIKER 1971 Millions % Total MRM; Social sectors Mr 1 Agriculture 16.2 7.1 Agriculture 0.279 49.6 805 50.9 Power 67.6 29.5 Industry 0.080 14.2 2,158 136.6 Transport and telecommunications 70.1 30.6 Service 0.205 36.2 2,410 152.5 Other 15.4 6.7 Total 0.564 100.0 1,580 100.0 Total fixed investment 229.1 100.0  ANNEX I Page 4 of 4 NICARAGUA BALANCE OF PAYMENTS, EXTERNAL ASSISTANCE AND DEBT (In million of US dollars at current prices) Actual Preliminary Projected 1970 1973 1975 19Bo 10 SU.iNAhY BALANCE OF PAYMENTS Exports (including NFS) 215.2 377.1 460.2 1,067.1 1,958.3 Iots (inludiag NFS) 231.4 425.1 602.4 1,083.8 1,990.7 Resourc baance (,&_^) DZF -00 -4. 1. 3 Interest (net) -6.2 -15.4 -29.5 -91.3 -147.5 Direct investment income -22.9 -30.8 -27.9 -34.0 -54.8 dorkers remittance - - - _ - Current transfers(net 6.1 57.4 13.5 14.3 21.0 Balane on curren account -3. _T67y -lU7B -"7:7 -2MU7 Private direct investment 15.0 13.2 13.0 30.0 46.6 Public medium-and long-term loans Disbursements 43.7 147.0 158.0 299.3 525.0 Repayments -16.1 -49.3 -18.2 -164.0 -288.4 Net disbursements 27.6 9 7. 7 I 77T 173 Capital transactions n.e.i. 7.3 1.6 39.9 - - Change in reserves (-increase) -10.7 -75.7 -6.6 - 37.6 -69.5 Actual7 1973 19 LOAN COMMITMENTS 1/ DEBT AND DEBT SERVICE 2 / Medium and long-term loans Public debt outs. & disb. 145.7 31.7.4 583.9 IBRD - 19.5 5.o (end of year) IDA - 20.0 - Interest on public debt 6.8 1714 34.0 IDB - 24.2 22.5 Repayment on public debt 16.1 49.3 18.2 CASEI 4.4 5.7 12.3 Total public debt service 22.9 66.7 52.2 Governments 3.4 30.8 27.0 Suppliers o.6 1.2 12.2 Burden on exports (%) 2,' Private Banks 12.3 64.8 62.5 Bonds - 10.0 - Public debt service 10.6 ;7.7 11.3 Loans n.e.i. 0.1 40.7 8.5 DS + investment income 21.3 25.9 17.4 Total medium-and long-term loans 20.8 216.9 150.0 Average terms on: 2/ EXTERNAL PUBLIC DEBT \ Actusr debt outst ndirx as of Dec.31,1975 Int. as % prior year DO & D 5-7 8.0 7.6 Disbursed on"y Percent Aimort.as % prior year DO& D 13.7 22.5 4.1 IBRD 52.3 8.9 IDA 13.4 2.3 IBRD debt outs. & disbursed 26.6 34.7 52.3 IDB e4.3 4.2 IBRD as % of public debt outs. 18.3 10.9 8.9 CABEI 32.6 5.6 IBRD as % of public debt serv. 13.1 7.0 10.3 Governments 118.8 20.3 Suppliers 4.6 0.8 IDA debt outs. & disbursed 3.0 4.3 13.4 Private banks 234.6 40.2 IDA as % of public debt outs. 2.1 1.3 2.3 Bonds 10.0 1.7 IDA as % of public debt serv. 0.1 0.1 0.2 Others 93.3 16.0 Total public debt 5 97 1/ Excludes loans repayable in domestic currencies E Amortization payments were atypically high in 1973 and atypically low in 1975. Average annual debt service ratio for 1970-75 was 12.4 percent of exports and average annual amortiiation terms for the same period were 12.5 percent of debt outstanding and disbursed. December 1976  ANNEX II Page 1 of 4 THE STATUS OF BANK GROUP OPERATIONS IN NICARAGUA A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of January 31, 1977) $ Million Amount Loan/Credit (net of cancellations) No. Year Borrower Purpose Total IDA 1/ Undisbulrsed Fifteen loans and credits fully disbursed 55.9 3.6 - 532 1968 Government Education 4.0 - 0.2 808 1972 Emp. Aguadora de Managua Water Supply 6.9 - 0.2 840 1972 Emp. Nacional de Luz y Fuerza Power 24.0 - 3.6 943 1973 Banco Central Agriculture 8.5 - 4.2 389 1973 Government Earthquake Reconstruction - 20.0 4.3 879 1973 Autoridad Portuaria de Corinto Ports 11.0 - 4.8 879* 1975 Autoridad Portuaria de Corinto Ports 5.0 - 5.0 1244 1976 Government Education 11.0 - 11.0 Total 126.3 23.6 of which has been repaid 32.9 0.2 _ Total now outstanding 93.4 23.4 Amounts sold 4.4 of which has been repaid 4.2 0.2 - Total held by Bank and IDA 93.2 23.4 Total undisbursed 33.3 * Supplemental loan. 1/ Includes exchange adjustments.  ANNEX II Page 2 of 4 B. STATEIENT OF IFC INVESTMENTS (As of January 31, 1977) $ Million Amount Year Type of Business Loan Equity Total 1968 Textiles Fabricate de Cotton and Nicaragua, S.A. (FABRITEX) polyester fabrics 1.00 1.07 2.07 1976 Posada del Sol, S.A. Tourism 0.70 0.20 0.90 1976 Propiedades Azucareras de Nicaragua Limitada Sugar 6.50 - 6.50 Total Gross Commitment 8.20 1.27 9.47 Less: repayments, sales and cancellations 0.68 1.07 1.75 Net Investments held by IFC 7.52 0.20 7.72 Undisbursed 2.60 0.12 2.72 C. PROJECTS IN EXECUTION 1/ Ln. 532 Education Project; US$4.0 million of April 10, 1968; Effective Date: June 25, 1968; Closing Date: December 31, 1977. This project is supporting government efforts to improve and expand secondary education in major cities and upgrade primary teacher train- ing. Despite delays in implementation, related primarily to the 1972 earthquake in Managua and some administrative problems, 19 of the 20 project schools are now in operation and the remaining one will be completed by the fall of 1977. Ln. 808 Second Managua Water Supply Project; US$6.9 million of March 17, 1972; Effective Date: April 26, 1972; Closing Date: September 30, 1977. This loan was signed on March 17, 1972 but was amended on June 6, 1973 in order to meet changed conditions in the service area resulting from the 1972 earthquake. Almost all funds have been committed to approved contracts for equipment, materials, and construction, and the project is expected to be completed by June 1977. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of the strengths and weaknesses in project execution.  ANNEX II Page 3 of 4 Ln. 840 Eighth Power Pro',ect; US$24.0 million of June 28, 1972; Effective Date: March 30, 1973; Closing Date: _December :30, 1977. The two main works of the project -- the steam power plant with associated transmission lines, and the interconnection with Honduras-- are delayed about 14 months on average for several reasons: the need to make repairs and install emergency facilities for power after the earthquake, late deliveries of equipment by suppliers, and late loan effectiveness because of delay in signing the inter- connection contract with Honduras. The project originally appraised to cost US$34.7 million equivalent is expected to be completed late this year, with a substantial cost overrun amounting to U';$24.3 million. ENALUF raised tariffs 30 percent on average in February 1975, in addition to a fuel surcharge of about 50 percent which went into effect in late 1974. The Venezuelan Investment Fund has approved US$16.1 million loan to assist ENALUF in covering the financing requirements arising from the cost overrun. Ln. 943 Agricultural Credit Project; US$0.5 million of November 16, 1973; Effective Date: April 10, 1975; Closing Date: _December 31, 1978. After an initial delay in loan effectiveness caused by (1) additional time for the Borrower to sign a subsidiary loan agreement with the first participating bank, and (2) difficulties in hiriiig a project director, the rate of sub-loan approvals by the Project Unit and the participating banks is satisfactory. However, considerable cost increases are expected to reduce the number of sub--loans to be madc under the project below appraisal estimates. Cr. 389 Earthquake Reconstruction Project; US$20.0 million of JlL1e6 1973; Effective Date: August 7, 1973; Closing Date: Decen.ler 31, 19,7. With the help of the US$5.0 million power component, the National Power Company (ENALUF) has completed repairs to their damaged equip- ment and is providing service to people dislccated by the earthquake. The Water Supply Company of M4anagua (AGUADOERA), assisted by the US$2.5 million water supply component, has repaired all its storage reservoirs and all its main distribution system. Production and distribution of water is back to normal. No serious delays in project execution or cost overruns were experienced for the power and water supply components. As for the US$2.0 million education component, the four prefabricated schools built under Part I of this component. are in full operation. The multilateral secondary school and the technical institute to be built under Part II are under construction. Because of difficulties in acquiring sites, the construction of these two  ANNEX II Page 4 of 4 institutions is expected to be completed only by September 1977, one year behind schedule. Project execution on the US$8.0 million sites and services component is proceeding satisfactorily. The Managua I and II, the Masaya, Granada, Leon, and Jinotepe projects have been completed. The remaining project is Managua III where dwelling and sanitary cores are expected to be completed by April 1977. Design standards have been reduced for many of the sites in an effort to offset the cost escalation which has taken place during the last two years; however, the total number of serviced lots still has had to be reduced from the originally planned 5,500, to a total of 4,453 units at present. After some initial delays in the submission of acceptable sub-projects by the imple- menting agency, the industrial financing component is fully disbursed. Ln. 1244 Second Education Project; US$11.0 million of June 15, 1976; Effective Date: August 17, 1976; Closing Date: June 30, 1981. Selection of consultants for the design of all project schools is expected to take place before the end of March 1977. Seventy percent of the sites for the project schools (95 percent of the sites for the first phase of the project) have been acquired. Proposals froir consultants to provide technical assistance for the educational aspects of the project are being reviewed.  ANNEX III Page 1 of 4 NICARAGUA: NIN'IH POWER PROJi,CT (r'F EMP'REISA NACIONAL DE L.UZ Y FUI,R,.A (EINAl.UF) Borrower: ENALUF Guarantor: Republic of Nicaragua Amount: US$22.0 million equivalent Terms: 17 years including 3 1/2 years of grace with interest at 8.5 percent Project Description: The project consist of: A. Interconnection Construction of about 145 km of 230 kV single circuit transmission line on steel towers for interconnectLon with Costa Rica. B. Transmission 1. Construction of about 9 km of double cir- cuit and 8 km of single circuit transmission line of 138 kV to complete the Managua ring, and construction of about 5 km of single circuit transmission line of 138 kV to connect the Sebaco-Santa Rita line to the Matagalpa substation. 2. Construction, addition, and/or conversion of seven substations of 138/13.8 kV or 138/25 kV, by adding about 122 MVA transformer capaclty. 3. Relocation of about 75 MVA transformer capacity of 69/13.8 kV to six existing substations. 4. Installation of eLght 69 kV ci.rcuit breakers and of protective relaying and metering equipment. C. Distribution 1. Installation of about 65 MVAR switched and unswitched capacitors to supply reactive power. 2. Installation of distribution lines, trans- formers, and connections in low income areas. D. Load Dispatch Center Construction of a national load dispatch center and installation of equipment to operate the Honduras-Nicaragua-Costa Rica interconnection.  ANNEX III Page 2 of 4 E. Consultants' Services For: 1. Carrying out the physical works of the project. 2. Preparation of a master plan for power system expansion. 3. Preparation of a study of alternatives and specifications for the national load dis- patch center. 4. Preparation of a nation-wide tariff study based on marginal cost pricing. 5. Preparation and implementation of a pro- gram to improve the Borrower's management and administration, includ.ing a personnel tra.ining program. 6. Preparation of a sector organization study. Project Cost and Financing Requirements: US$ (millions) Local Foreign Total New substations, additions and improvements 1.7 3.9 5.6 Transmission lLnes 0.3 o.6 0.9 Capacitor installations 0.1 0.8 0.9 Distribution in low-income areas 2.6 1.7 4.3 Interconnection with Costa Rica 2.4 4.4 6.8 National load dispatch center 0.5 2.6 3.1 Land and land rights 0 0 Subtotal 8.1 14.0 22.1 Engineering and administration 1.0 1.3 2.3 Training 0.2 0.2 0.4 Studies 0.8 1.7 2.5 Subtotal 2.0 3.2 5.2 Total base line cost 10.1 17.2 27.3 Contingencies - physical o.4 0.5 0.9 - price 1.5 2.7 4.2 Total project cost 12.0 20.4 32.4 Financial charges - 3.8 3.8 Financing required 12.0 24.2 36.2  ANNEX III Page 3 of 4 Financing Plan of the Project US$ (million) Local Foreign Total IBRD proposed loan - 22.0 22.0 Internal cash contribution 12.0 2.2 14.2 Total 12.0 24.2 36.2 Estimated Disbursements (US$ Millions, IBRD Fiscal Years) 1977 1978 1979 1980 1981 Annual 1.5 7.3 8.4 4.1 0.7 Cummulative 1.5 R.8 17.2 21.3 22.0 Financing Plan 1976-1980 Program US$ (m.illions) % Requirements of Funds (excluding changes in working capital) Construction Program: Existing Projects 50.2 17.5 Proposed Ninth Project 32.4 11.3 Future Projects 148.1 51.7 Ongoing and Future Works ("Normal Expansion") 19.1 6.7 Studies and Resource Investigation 9.9 3.4 259.7 90.6 Interest during Construction 27.0 9.4 Total Requirements 286.7 100.0 Sources of Funds (including Changes in working capital) Gross Internal Cash Generation 149.7 52.2 Less: Debt Service (68.6) (23.9) Net Internal Cash Generation 81.1 28.3 Customer Contributtions 7.3 2.5 Less: Increase in Non-Cash Working Capital (21.8) (7.6) Net Internal Contribution to Expansion 66.6 23.2  ANNEX III Page 4 of 4 US$ (millions) % Borrowings: Existing Loans 47.6 Proposed IBRD Loan 22.0 Future Loans 134.1 Total Borrowings 203.7 71.1 Other Sources: Customer Deposits 3.6 1.3 Government Grants 16.3 5.7 Less: Increase in other current assets (3.5) (1.3) Total Sources 286.7 100.0 Procurement Arrangements: International competitive bidding (ICB) for all Bank-financed works and equipment except for (i) special imported protective relaying and metering equipment for substations amount- ing to about US$0.35 million which is not suitable for ICB because of need for standard- ization and (ii) other small imported equip- ment amounting to US$0.2 million required in small quantities. In accordance with the Central American Agreement on Fiscal Incen- tives for Industrial Development, manufacturers from the Central American Common Market, in- cluding Nicaragua, would be allowed a regional preference of 15 percent of the CIF price or the CACM preferential tariff (whLch is 50 percent of the applicable import duty) which- ever is lower. Rate of Return: 13.1 percent (on 1976-1981 Investment program). Appraisal Report: 1254-NI dated March 18, 1977.  ANNEX IV Page 1 of 3 NICARAGUA NINTH POWER PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable and Key Events (a) Project Preparation (i) Feasibility Study - November 1975 (b) Project Preparation Agency Empresa Nacional de Luz Y Fuerza (ENALUF) (c) Preparation - Preappraisal (i) First Formal request for project financing - May 1975 (ii) First Bank Mission to consider project - October 15, 1975 (d) Appraisal Mission Departure - January 14, 1976 (e) Negotiations Completed - December 3, 1976 (f) Loan Effectiveness Planned - June 1977 Section II: Special Bank Implementation Actions None Section III: Special Conditions The Borrower has agreed to: (a) Automatically apply the fuel adjustment clause (paragraph 23). (b) Prepare a study to determine the long-term marginal cost of service (paragraph 23). (c) Prepare a sector organization study (paragraph 24).  ANNEX IV Page 2 of 3 (d) Prepare a long-term master plan for the development of power sector (paragraph 24). (e) Appoint a General 'oordinator to assume principal responsibility for the day-to-day management of technical and financial affairs (paragraph 37). (Fhe General Coordinator was appointed March 7, 1977). (f) Establish a training unit (paragraph 37). (g) Develop by June 1977 and put into effect by December 1977, a training program (paragraph 37). (h) Appoint, before effectiveness, procurement and training experts under terms of reference acceptable to the Bank (paragraph 37). (i) Agree with the Bank on terms of reference for additional experts proposed by the General Coordinator, before effectiveness (-Oaragraph 37). (j) Review its existing insurance coverage as a first step toward providing adequate protecticn of ENALUF's properties against earthquakte damage (paragraph 37). (ENEE has supplied the report of an insurance expert, and it is currently being studied in the Bank.) (k) Submit a detailed report showing pertinent details on the areas selected for the distribution component as a condition of disbursement (par- 53). (1) Maintain a rate of return of at least 8.5 percent on annually revalued average net fixed assets in operation (paragraph 42.) (m) Retain all its earnings for reinvestment in new facilities until the project is completed (paragraph 42). (n) Take all necessary action to maintain the total amount of its accounts receivables in arrears below 110 percent of the total average monthly billing corresponding to the 90 days immediately preceding the date of calculation (paragraph 43). (o) Have its account audited by independent auditors acceptable to the Bank (paragraph 43). (p) Seek prior Bank agreement to new long-term borrowing whenever net revenues are less than 1.5 times the maximum debt-service requirement for any succeeding fiscal year (paragraph 44). (q) Initiate new investments costing more than 1 percent of the value of gross fixed assets in operation only if the Bank has received satisfactory evidence that such expansion is economically justified and ENALIF has adequate financial resources for carrying out the expansion (paragraph 44).  ANNEX IV Page 3 of 3 (r) Contract consultants to assist in design, procurement and construction supervision of project works and in carrying out the project studies (paragraph 45). (s) Relend to the National Planning Directorate (NPD) funds allocated under the loan for a sector organization study (paragraph 45). (t) Consult with the Bank on measures to improve the rate of new connections of the distribution component if this rate is lower than expected (paragraph 51). (u) As conditions of disbursement for the interconnection component, present satisfactory evidence to the Bank that the Republic of Nicaragua and Costa Rica have made legal arrangements for establishing the interconnection and that ENALUF and ICE have an interconnection contract; provide assurances to the Bank of availability of the financing necessary for the Costa Rican portion of the interconnection (paragraph 53). (v) Not to proceed with the preparation of bid documents for the distribution component unitl receiving written notification from the Bank that it finds such part technically and economically acceptable (paragraph 53). (w) Submit the feasibility study of load dispatch center as a condition of disbursement (paragraph 53). The Government has agreed that: (a) It will take the necessary action to enable the Borrower to adjust its tariffs and maintain a rate of return of at least 8.5 percent (paragraph 42). (b) It will issue waivers of any provision of the shipping law which would lead to unnecessary delay or to freight charges that are higher than those regularly charged by shipping lines or maritime conferences (paragraph 46).   IBRD 3697 R 1 .LA . I SESEPrM R 1976 H ON D U R A S 5 NICARAGUA EMPRESA NACIONAL DE LUZ Y FUERZA ( . MAIN POWER SYSTEM c;'t. O M. A R C A |POWER| SUBSTATIONS TRANSMISSION LINES 1 DE V Ca0O 'E E L C A eo PLANTSI S9 1Y 138 kv~ 230 kv 69 kv 138 kv 230 k|1 I _ f A * - R PROJECT :. . . ~ f _ . at -:--J UNDER RCONSTRUCTION | * ltA As - EXISTING / I * A |-| SffEJ IFUTURE ,6 . / , < ~~~~~~~~~~~~~~~ ~~~~~~t t ~~~~~~~~~~CIrEBiAS/ _u. .......... DEPARTMENT BOUNOARIES 2 N U *De eli 5-*-.INTERNATIONAL BOUNDARIES v/ / \, J I N /0 TJ IE G A . I N U E V A* ........ SANTA CLARA OCOTAL S E G O V I A ,OMC O vO JAL JGUNA 1 ' . E l A Y A > <g