Honduras - Fourth Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2077 PROJECT PERFORMANCE AUDIT REPORT HONDURAS: FOURTH POWER PROJECT (LOAN 692-HO AND CREDIT 201-HO) June 5, 1978 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT PERFORMANCE AUDIT REPORT FOR OFFICIAL USE ONLY HONDURAS: FOURTH POWER PROJECT (Loan 692-HO and Credit 201-HO) Table of Contents Page No. Preface Project Performance Audit Basic Data Sheet Highlights Project Performance Audit Memorandum 1- 3 Appendix A: Comments from the Utility Attachment: Project Completion Report: 1.- 15. Project Data Al 16. Identification and Preparation of Project A2 17. Project Description A2 18. Objectives of the Project and Justification A5 19. Construction Schedule and Problems Encountered A6 20. Project Costs A7 21. Allocation of the Proceeds of the Loan/Credit A8 22. Procurement A9 23. Expenditures and Financing Plan A10 24. Operating Results A12 25. Insurance Policy A14 26. Performance of Auditors Al5 27. Organization and Management Al5 28. Performance of Consultants A16 29. Covenants A17 30. Lessons Learned A18 Annexes 1. Actual vs. Projected Disbursements 2. Actual vs. Estimated Project Costs 3. Actual Energy Sales by Category 4. Actual vs. Projected Energy Sales by Areas 5. Interconnected System - Actual vs. Projected Demand and Firm Capability 6. Actual and Projected Income Statements 7. Actual and Projected Fund Statements 8. Actual and Projected Balance Sheet 9. Incremental Rate of Return This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT PERFORMANCE AUDIT REPORT HONDURAS: FOURTH POWER PROJECT (Loan 692-HO and Credit 201-HO) Preface This report presents a performance audit of the Honduras Fourth Power Project for which Loan 692-HO and Credit 201-HO of US$5.5 million each were fully disbursed in December 1975. It consists of a brief Memorandum prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) prepared by the Bank's Latin America and the Caribbean Regional Office. OED has reviewed the PCR against the Appraisal and President's Reports and has found that the PCR is internally consistent and covers reasonably well the issues relevant to the implementation of the com- ponents as well as to the justification of the project. On the basis of this limited review process, OED has accepted the analysis and conclusions of the PCR and has summarized its main findings in the Memorandum. Comments received from theutility on the draft audit report have been taken into account in this report. These comments are attached (Appendix A).  PROJECT PERFORMANCE AUDIT BASIC DATA SHEET HONDURAS: FOURTH POWER PROJECT (Loan 692-HO and Credit 201-HO) KEY PROJECT DATA Appraisal Actual or Expectation Re-Estimate Total Project Cost (US$ million) 14.8 16.7 Overrun (%) 13 Loan Amount (US$ million) 5.5 Disbursed ) 5.5 Cancelled ne 1ed ) December 31, 1977 0.8 Outstanding Credit Amount (US$ million) 5.5 Disbursed ) 6.2-- Cancelled Repaid December 31, 1977 Outstanding ) 6.2 Date Physical Components Completed 9/73 7/75 Proportion Completed by Appraisal Target Date (%) - 70 Proportion of Time Overrun (2) - 56 Incremental Financial Rate of Return (%) 10-14 11 Financial Performance - Lower than appraisal estimate Institutional Performance - Satisfactory OTHER PROJECT DATA Original Actual or Item Plan Revisions Re-Estimate First Mention in Files - - 2/69 Negotiations - - 5/70 Board Approval - - 6/70 Loan/Credit Agreement Date - - 6/70 Effectiveness Date 9/70 - 10/70 Closing Date 6/74 12/75 Borrower Government of Honduras Executing Agency Empresa Nacional de Energia Electrica (ENEE) Fiscal Year of Borrower January 1 - December 31 Follow-on Project Name Fifth Power Project Loan Number 841-HO Amount (US$ million) 12.3 Loan Agreement Date June 1972 MISSION DATA Month, No. of No. of Date of Item Year Weeks Persons Manweeks Report Identification - - - - 11/68 Appraisal 2/70 2-1/3 3 7 11/69 Total 7 Supervision I 9/70 1/2 1 1/2 9/70 upervisio 11 12/70 1 1 1 3/71 Supervision IIn 7/71 1/2 1 1/2 8/71 Supervision IV 10/71/3 3 2 6 10/71 Supervision V 8/72 1-1/2 2 3 9/72 Supervision VI -6/73 1-1/2 1 1-1/2 7/73 Supervision VII 12/73 2 1 2 2/74 Supervision VIII 2/75 1 2 2 5/75 Completion 7/76 1-1/2 1 1-1/2 3/77 Total 18 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Lempiras (L) Year: Appraisal Year Average Exchange Rate: US$1 - L2 Intervening Years Average US$1 = L2 Completion Year Average US$1 = L2 /1 Includes exchange adjustment of S$0.6 million. /2 Includes exchange adjustment of US$0.7 million. /3 Including appraisal of Fifth Power Project.  PROJECT PERFORMANCE AUDIT REPORT HONDURAS: FOURTH POWER PROJECT (Loan 692-HO and Credit 201-HO) Highlights This is the fourth Bank operation in the country's power sector. The appraised project was substantially modified and imple- mented about 22 months behind schedule and with a cost overrun of about 13%. The implementation delay did not affect the utility's energy sales, since the growth rate in energy demand was lower than that forecast. Some of the institutional programs were successfully implemented; others are in the process of implementation (para. vii and PCR paras. 27.01, 27.02 and 27.05-27.07). This was the first time the utility's staff was responsible for design and construction of some important parts of the project, and its performance was satisfactory. On the other hand, the utility's financial results between 1970-75 were lower than projected mainly because, throughout this period, tariffs were not increased to meet rising operating costs (para. iv and PCR paras. 23.01-24.06). The re- calculated incremental financial rate of return is 11% compared with the appraisal estimate of 10-14%. The following points may be of particular interest: - reasons for delays and cost overruns (para. ii and PCR paras. 19.01-19.05 and 20.01). - varying degrees of success in the performance of the consultants (para. v and PCR paras. 28.01-28.04) - reasons for actual energy sales being lower than pro- jected (para. iii and PCR paras. 24.02 and 30.02). - application of Bank procurement guidelines led the utility to awarding a relatively large number of small contracts (para. vi and PCR paras. 22.01 and 30.05).  PROJECT PERFORMANCE AUDIT MEMORANDUM HONDURAS: FOURTH POWER PROJECT (Loan 692-HO and Credit 201-HO) i. Loan 692-HO and Credit 201-HO of US$5.5 million each were made to the Government of Honduras in June 1970 for on-lending to Empresa Nacional de Energia Electrica (ENEE), the government-owned and the country's main power enterprise.1/ The loan a7d credit, the fourth Bank operation in the country's power sector,.2 were intended to finance the estimated foreign exchange cost of a US$14.8 million equi- valent power project comprising mainly the extension of ENEE's intercon- nected transmission system, improvements of the existing distribution systems, and the installation of a gas turbine. The loan and credit were also intended to finance the training of some of ENEE's engineers and tech- nicians, and consulting services for feasibility studies of future hydro power projects and for a tariff study. The project, part of ENEE's five-year expansion program estimated to cost a total of US$54 million equivalent, aimed at providing a good foundation for future development, ensuring reliable service at lower cost, extending ENEE's service area, and replacing some of the isolated diesel installations by power from the more economical hydro and thermal plants of ENEE's inter- connected system. ii. With Bank's agreement, the original project was substantially modified to take into account the changes resulting mainly from the interconnection with Nicaragua's power company and the delay of envisaged power supply contracts with fruit companies.3/ These developments, which took place after appraisal of the original project, led to a revision of the long-range program for the power sector (PCR paras. 17.03-17.10). The modified project was completed about 22 months behind the original schedule mainly because of late shipment of transformers and communica- tion equipment (PCR paras. 19.01-19.05). It cost US$16.7 million equivalent which, though not exactly comparable, is about 13% more than the appraisal estimate, mainly because of the subsequent project changes and currency revaluation (PCR paras. 20.01-20.02). iii. Actual energy sales over the five-year period 1970-74 were 1,486 r,., which is about 19% lower than projected at appraisal. This was mainly because of stagnation in the country's economy, devastation from hurricane Fifi, and the problems (seemingly of economic as well as political nature) in reaching an agreement with the fruit companies on 1/ Of the total energy (225-GWH) generated in the country in 1968, ENEE's share was 86%, while that of private companies and of municipalities was 13% and 1%, respectively. 2/ Honduras Third Power Project (Loan 541-HO and Credit 116-HO) was audited in 1975. See Report No. 763, SecM75-411, May 1975. 3/ The interconnection was included in the subsequent Bank assisted Honduras Fifth Power Project (Loan 841-HO) and the Nicaragua Eighth Power Project (Loan 840-NI). - 2 - energy sales (PCR paras. 24.02 and 30.02). Nevertheless, the project was justified since it allowed ENEE to substitute some of the more expensive isolated diesel generation with hydro energy, improved the reliability of service (the gas turbine played an important part during and after the devastation of the hurricane), and increased ENEE's service areas. The recalculated incremental financial rate of return is about 11% compared with the appraisal estimate of 10%-14% (PCR para. 24.07). iv. Mainly because of lower than projected energy sales and higher operating costs not compensated by any interim tariff increase, ENEE's financial performance declined after 1970. The rate of return on histori- cally valued net average operating assets was lower than projected for the period 1971-75 and also a littly,lower than the 10% specified in the loan covenant in 1972, 1974 and 1975-. The five year (1970-74) aggregate net internal contribution (excluding interest during construction) was about half of that estimated, both in absolute terms and as a proportion of construction expenditure. Accounts receivable exceeded the forecasts throughout this period, both in absolute terms and as a proportion of annual sales and, in 1974, the debt service coverage was 1.2 times and interest coverage 1.6 times compared with the corresponding appraisal figures of 2.1 and 3.2, respectively (PCR paras. 23.01-24.06). The finan- cial performance is expected to improve due to a fuel adjustment clause and a 25% tariff increase which came into effect in 1975. v. The performance of the three consulting firms varied from good to acceptable. The on-site supervision of construction by the engineering consultants was good but the back-up service from the consultants' head- quarters and their reporting on project's progress were inadequate. The consultants responsible for the feasibility study had a substantial turn- over and, while the technical work was handled competently, the economic and financial aspects could have been better. The consultants for the tariff study in 1971, and for rate and asset revaluation study in 1974 handled the assignments competently (PCR paras. 24.05 and 24.06). ENEE's management, however, decided not to implement the consultants' recommenda- tions in the tariff study2/. vi. The nature of the project and the application of the prevailing Bank procurement guidelines (these have been made more flexible since 1975) led ENEE to awarding a relatively large number of small contracts. This was the first time ENEE's staff was responsible for design and construction of several substations and rural supply lines. ENEE's performance on both these aspects of the project was more than satis- factory. vii. There were several changes to ENEE's top level management, includ- ing the creation of a new position of Assistant Manager for Power. In the financial and administrative part of ENEE, progress in achieving administra- tive efficiency has been slow, particularly in the areas of customers' 1/ The covenant merely stated that assets were to be valued using methods acceptable to the Bank. 2/ The appraisal report had envisaged a change in the tariff structure (including the introduction of "off-peak" tariffs) and a reduction in average revenue per KWh sold. The tariffs were not changed until February 1975. "Off-peak" tariffs were not adopted after a study indica- ted that there would be little benefit from their implementation. -3- billings and collection of accounts receivables. On the other hand, pro- grams for training at the level of technicians and engineers have achieved good results. Training has been enlarged in the subsequent Bank-assisted projects to include senior management and higher level technicians and engineers. ENEE is presently planning to unuertake an in-depth study on the reorganization of the entity with the help of management consultants in order to prepare itself for implementing a large investment program.  Appendix A COMMENTS FROM THE UTILITY (ENEE) ON DRAFT PROJECT PERFORMANCE AUDIT REPORT: LOAN 692-HO AND CREDIT 201-HO REFERENCE TO PCR PARA.27.02 BECK STUDY WAS IMPLEMENTED WITH SUCCESS STOP PRESENTLY ENEE HAS IMPROVED ITS ORGANIZATION AND HAS RETAINED CONSULTANTS TO ASSIST IT IN THE ORGANIZATION OF THE COMMERCIAL AND PERSONNEL AREAS. PCR PARA. 29.02 THIS DIFFICULTY WILL BE SOLVED THIS YEAR WITH THE MECHANIZATION OF OUR ACCOUNTING ACTIVITIES STOP WITH BECK'S ASSISTANCE WE ARE NOW PRODUCING OUR ACCOUNTING AND BUDGETING REPORTS THRU OUR COMPUTER PCR PARA. 30.02 LOAD FORECASTS HAVE ALWAYS BEEN MADE EMPLOYING SAME METHODOLOGY AS USED BY EBASCO STOP DIFFERENCES WERE A RESULT OF REASONS GIVEN IN PCR PARA. 24.02.  Attachment HONDURAS: Fourth Power Project (Loan 692-HO and Credit 201-HO) Project Completion Report 1. Borrower: Republic of Honduras 2. Beneficiary: Empresa Nacional de Energia Electrica (ENEE) 3. Amount: Loan : US$5.5 million equivalent Credit : US$5.5 million equivalent 4. Date Loan/Credit Signed: June 24, 1970 5. Effective Date: October 30, 1970 6. Closing Date: Original : June 30, 1974 Final : December 31, 1975 7. Grace Periods: Loan : 4 years Credit : 10 years 8. Terms: Loan : 20 years Credit : 50 years 9. Interest Rate: Loan : 7% per annum Credit : None 10. Charges: Loan : Commitment charge: 3/4% per annum Credit : Service charge: 3/4% per annum 11. Repayments: Loan : In 32 semiannual installments, starting December 1, 1974 at USS95,000 and increasing to US$280,000 for the final install- ment on June 1, 1990. Credit : In 80 semiannual installments; first 20 installments (December 1, 1980 to June 1, 1990) at 1/2% of principal amount of credit; next 60 installments (December 1, 1990 to June 1, 2020) at 1-1/2% of principal amount of credit. 12. Relending Agreement: Government relent total Loan/Credit proceeds to ENEE at 7% per annum - with a term of 16.5 years, including 4 years of grace during which ENEE only paid interest and commitment fee charges paid by the Government. A2 13. Fiscal Year: January 1 to December 31 14. Exchange Rate: US$1 = Lempiras (L) 2 15. Appraisal Report: PU-42a of May 28, 1970 16. Identification and Preparation of Project: 16.01 After discussions with a supervision mission for the Third Project in November 1968, ENEE proposed, in February 1969, that the Bank finance a 15 MW thermal unit (gas turbine) on the North coast of Honduras (La Ceiba) to be in operation in late 1969 or early 1970. The proposal also provided for the 138 kV interconnection of La Ceiba to ENEE's main system at Rio Lindo (via San Pedro Sula) together with the bulk of the transmission and distribution works, later made part of the Fourth Project. Because Bank group 'inancing would not be available in time, ENEE financed a 15 MW gas turbine for installation at San Pedro Sula with a loan from the Central American Bank for Economic Integration (CABEI). The detailed content of the Fourth Project was subsequently identified in November 1969; it provided for the extension of ENEE's interconnected transmission system, improvements of existing distribution systems, and rural electrification lines. ENEE engaged R. W. Beck and Associates (USA) for the preparation of the project feasibility study only. Engineering, design and construction implementation was later the responsibility of Electroconsult (Italy). Beck's feasibility study was completed in March.1970 by ENEE and Beck staff jointly. During the February 1970 field appraisal, a 15 MW gas turbine was added as stand-by supply for Tegucigalpa for the reasons given in para. 18.02. The originally proposed distribution improvement works in the major towns (Tegucigalpa, San Pedro Sula, Puerto Cortes) were deleted because ENEE was able to finance these works with a loan from CABEI. It was possible to present the loan in a very short time to the Board within four months of field appraisal because of a lack of major issues in connection with the preparation and processing of the loan and due to the rapid action by the Government and ENEE on re- lending and confirmation of other agreements reached during negotiations. 17. Project Description 17.01 The project has provided--as appraised--for: (1) expansion of ENEE's system and its extension to Tela and La Ceiba; (2) electrification and extension of rural lines in most of ENEE's expanded service area (such as Choluteca, San Lorenzo, Tamara, Comayagua valley, Sula valley, Tela and La Ceiba); (3) a 15 MW gas turbine at Miraflores; (4) communica- tions and maintenance equipment; (5) training of ENEE staff; and (6) feasibi- lity and other studies. 17.02 The appraisal also provided for a 69 kV transmission line to San Lorenzo/Choluteca in Southern Honduras and extension of service into the Aguan valley to supply the irrigation pumping and other loads of the Standard Fruit Company and of nearby population centers in the Coyoles and Isleta areas. For the reasons given in paragraph 17.05 this part of the project was transferred to the Fifth Power Project (Loan 841-HO of June 28, 1972). A3 Original vs Final 17.03 The appraised and actually implemented project components are compared in detail in Annex 2 and are summarized as follows: Scope of Project Appraisal Actual 1. 138 kV transmission lines km 227 262 2. 69 kV transmission lines km 331 70 3. Transmission substation capacity additions MVA 270 238 4. 35/13.8 kV subtrans- mission lines km 184 220 5. Subtransmission sub- station capacity additions MVA 20 83 6. Gas turbine-Tegucigalpa area MW 15 15 7. Communications and maintenance equipment lot lot 8. Engineering and supervision for 1. to for 1. to 7. 7. above above 9. Training local and local and foreign foreign 10. Feasibility and other studies hydro pro- hydro projects jects and and tariffs tariffs Reasons for Change of Project Scope 17.04 At the time of appraisal it was not known when ENEE and the Nicaraguan power company (Empresa Nacional de Luz y Fuerza - ENALUF) might interconnect their systems. It was also reasonable to expect that negotia- tions between ENEE and Standard Fruit Company for the supply of the fruit companies' irrigation load in the Aguan valley would be successfully com- pleted and such supply would provide the economic justification for the construction of a transmission line from La Ceiba to the Aguan valley at 69 kV. 17.05 However, as a result of the preparation and appraisal of ENEE's Fifth Power Project and ENALUF's Eighth Power Project, both companies agreed to interconnect their systems (with financial assistance of the Bank to both projects). Both companies expected to derive mutual benefits from the technically and economically complementary development of low-cost hydro power plants in Honduras (El Cajon) and a large steam electric plant in Nicaragua (Tiscuco 100 MW plant). As the interconnection line would be routed through southern Honduras and the future El Cajon plant would also be connected by future lines to the ENEE system in the San Pedro Sula area,changes in ENEE's system expansion entailed substantial modifications to the transmission component of the Fourth Power Project as described in A4 paragraphs 17.06-08. Also,as ENEE was unable to reach by late 1971 an agreement on power supply contracts with Tela Railroad Co. and Standard Fruit Co. for their loads at Tela, La Ceiba and the Aguan valley, ENEE proposed to defer the construction of related transmission facilities, including of the line from La Ceiba to the Aguan valley, and transfer them to the Fifth Project. The Bank agreed to the changes resulting from the interconnection with Nicaragua and the delay of power supply contracts. 17.06 To improve the reliability of supply in the San Pedro Sula area and the operating stability of the main interconnected system, ENEE's plans had provided -- under the originally appraised project -- that the second 138 kV line would be built from the Rio Lindo hydro plant to the La Puerta substation via El Progreso switching substation and that the San Pedro Sula area would be served by a 138 kV loop with only one substation. However, as a result of its revised long-range planning, taking the future connection of El Cajon to its main system into account, ENEE decided that the loop should have a second substation at 138 kV rather than 69 kV as originally appraised. Accordingly, ENEE advanced the construction of a 138/69/13.8 kV substation at Bermejos (to the northeast of San Pedro Sula, the second largest urban area in Honduras). ENEE intends to complete the loop in the early 1980's. The third substation on the loop, called Centro, is included in ENEE's Sixth Power Project (Loan 1081-HO). The construction of the Bermejos substation improved the operation of a Bermejos-Bijao-Puerto Cortes-Bermejos 69 kV loop and makes the supply of Cementos Bijao and Puerto Cortes more reliable. 17.07 The original plan provided the capital city of Tegucigalpa with only one major 138 kV substation, at Santa Fe which is the terminal of the single and only circuit from the Rio Lindo hydro plant to Tegucigalpa. The revised plan called for the construction of a 138 kV loop and a second substation. This substation was installed in the Suyapa area south of Tegucigalpa, under the project, and was connected (at 138 kV in addition tn 69 kV) to the Santa Fe substation. The Suyapa substation improves the reliability ot supply to the capital city and provides terminal facilities for the interconnection with ENALUF and for future lines from the power plant at El Cajon. The interconnection line is part of the Fifth Power Project and has been in operation at 138 kV since October 12, 1976. 17.08 The original plan also provided for the construction of a transmission line from Tegucigalpa at 69 kV via San Lorenzo to Choluteca. The Bank agreed to substitute for this item the Suyapa-Pavana transmission line (part of the interconnection with ENALUF), which is built for 230 kV but initially operated at 138 kV. In the southern area, only subtransmission facilities in the San Lorenzo-Choluteca area were built under the Fourth Project (see paragraph 17.10); they were not contemplated in the originally appraised project. 17.09 ENEE has not yet been able to extend supply to the Aguan Valley because of continued delay in the contract negotiations with the Standard Fruit Company and more recently, due to the effects of hurricane Fifi on the activities in the valley. ENEE also proposed the installation of a 26 MW diesel plant at La Ceiba. A5 The Government has more recently decided on an expanded supply of electricity in the Aguan area (not only to Standard Fruit but also to a colonization scheme, a wood and paper project and a port at Puerto C-stilla). The Government has signed a loan agreement for US$10 million with US-AID to be relent to ENEE for financing an expanded power supply and distribution project in the Aguan Valley. The Bank has agreed that the released funds in Loan 841-HO be reallocated for urgently needed studies and for equipment for the operation of ENEE's main interconnected system. 17.10 In line with the modifications as a result of the Fifth Project the Bank agreed to increase, under the Fourth Project, the length of rural 35 kV lines from 170 to 220 km. This has allowed extension of electric service to several important villages and the building of lines from Canaveral to Mochito and from San Lorenzo to Choluteca. The first line has improved the reliability of service to the Mochito Mines, ENEE's largest consumer (approximately 6 MW) which was subsequently able to drastically reduce its diesel generation. The second line allowed Choluteca and San Lorenzo, two isolated ENEE systems in southern Honduras, to share diesel generating reserves. 18. Objectives of the Project and Justification 18.01 The purpose of the loan/credit was to finance the foreign exchange cost of a US$16.7 million project, which constituted about 29.5% of ENEE's total application of funds for 1970-1974, estimated at appraisal to amount to about US$56.6 million. The general objective of the project was to pro- vide transmission and distribution facilities to meet the growing demand for electric power in the country's most densely populated and economically important zones, extending from the southern towns Choluteca-San Lorenzo via Tegucigalpa to Puerto Cortes and La Ceiba in the north and including San Pedro Sula the main commercial and industrial center, and to increase ENEE's installed generating capacity by about 10%. 18.02 Specifically, the objectives of the project were to: (i) extend ENEE's area of service to areas previously not served or served by others; (ii) improve power transmission and distribution and its reliability, and to make it more economical for the La Ceiba, Tela, Puerto Cortes, San Pedro Sula, Tegucigalpa, San Lorenzo and Choluteca areas; (iii) substantially improve the reliability of power supply to the Tegucigalpa area by installing a gas turbine there and providing an alternative supply to the one provided by the single line from Rio Lindo hydro plant and inadequate local diesels; (iv) extend substransmission and distribution lines to provide more reliable supply to the Mochito Mines (allowing this client to reduce costly diesel generation) and to several important agricultural and rural areas; (v) pre- pare hydroelectric projects for future system expansion and possibly inter- national electricity export sales (to Nicaragua from the El Cajon project) and a tariff study; and (vi) train ENEE staff. 18.03 Despite the construction cost (para. 20.01) and time (para. 19.01) overruns and somewhat slower load growth (para. 24.02) the objectives of the project have been basically achieved, relatively in line with the applicable revised construction schedules and cost estimates. The investment in the Fourth Project has been justified as it has allowed the country to reduce A6 substantially the diesel generation of ENEE and its major clients (Mochito mine, fruit companies) using costly distillate fuel. The gas turbine has been particularly useful during the problems which arose during and after hurricane Fifi and the maintenance and repairs of the Rio Lindo generator and penstock. In combination with the 26 MW medium-speed diesels, which burn Bunker C fuel oil and have been installed under the Fifth Project, the Tegucigalpa and the San Pedro Sula gas turbines provide for a very economical thermal capacity mix on the ENEE system, (about 150$/kW). ENEE's presently adequate generation reserves (about 30%) are allowing it to sell to ENALUF substantial blocks of emergency energy since October 1976 when the interconnection line between both systems was commissioned. 18.04 At the time of appraisal the major components of the project were found to be justified on the basis of ensuring a more reliable service at lower cost from the main system's low cost hydro generation. This purpose has been accomplished as described above. It is evident that, even though the substitution of electric motors for the small diesel units used to drive irrigation pumps has been delayed by the fruit companies, in part for political reasons, and is now being carried out only partially in the Sula valley, the project has an even greater justification today since: (i) the fuel cost, which would have to be incurred to operate isolated diesels, without the lines and sub- stations of the project, has about quadrupled. (ii) alternative supply of the previously isolated areas by additional small diesels would be substantially more costly than US$150 per kW; and (iii) the cost, in current dollars, of project components which are comparable is not much higher than estimated at the time of appraisal (see paragraph 20.01). 19. Construction Schedule and Problems Encountered 19.01 The project was completed by July 31, 1975 with a delay of about 22 months. This delay was caused mainly by late shipment of.-two stepdown distribution substation transformers from Taiwan and the communication equipment from Italy. The bulk of the works had been installed about seven months before project completion with a delay of about 15 months, in part as a result of strikes in Italy, the source for most supplies. The communication equipment was also delayed because of project changes at the time of the loan for the Fifth Project (para. 17.03). The 15 MW gas turbine was in operation at the Miraflores site by July 1972, essentially as scheduled. A7 19.02 ENEE undertook with its own forces the design and construction of the Bermejo and Miraflores 69 kV substations, the 35 kV substations at West La Ceiba, Mochito mine, Cafiaveral, San Lorenzo, and Choluteca, and the 35 kV rural lines. The completion was delayed primarily because of (i) equipment supply delays and (ii) modifications to the lines as a result of project changes (paras. 17.06-08). 19.03 The delay of the design and construction of the items under ENEE's sole responsibility was mainly due to the need to make substantial improvisations to counterbalance the delay of supply of equipment and materials. ENEE was handicapped by the limited experience of its staff in dealing with the complicated logistics of the modifications at above substations and the problems of planning, scheduling, and cost estimating, plus occasional stock shortages. Maintenance of adequate stocks was made difficult due to lack of adequate warehouse facilities which ENEE has recently been able to ameliorate by the construction of facilities in San Pedro Sula (para. 27.03). 19.04 The project included the preparation of a feasibility study of the El Cajon hydropower project by Motor Columbus (Switzerland). The study was completed in late 1973; it was reviewed by a Consulting Board in 1974 on suggestion of the Bank. The Board found the project to be techni- cally feasible but recommended further geologicalinvestigations which were partly carried out in 1975. During the preparation of a Tariff and Optimization Study (financed by IDB for determining the least cost Honduran generation and transmission system expansion program) the consultant for the study (EBASCO-USA) concluded that further geological studies should be made before a final commitment would be entered into for the construction of El Cajon. 19.05 In ENEE's assessment, all contractors, except Instrumenti di Misuie(Italy) and Shilin Electric (Taiwan) (para. 19.01), performed satisfactorily. Instrumenti di Misure's delivery of telecommunication equipment was one year late and some minor problems have developed in the operation of the equipment. This problem is being taken care of in con- nection with the expansion of the load dispatch and communication system of the ongoing Fifth Power Project. 20. Project Costs Original vs. Final 20.01 At appraisal the project cost was estimated at US$14.8 million equivalent whereas the actual cost was US$16.7 million equivalent as shown in para. 20.02. The cost estimates are only partially comparable due to project scope changes (para. 17.03). The overall cost increase was mainly the result of: (i) changes in project scope; (ii) revaluations of currencies which particularly affected the procurement from Japan and Switzerland of the gas turbine, transformers, line and substation materials, and studies; and(iii) low estimates of the construction costs of the physical components implemented entirely by ENEE (such as the rural lines and 35 kV substations) and of the cost of feasibility studies of the hydroelectric projects (El Cajon and Naranjito). Whereas the total cost overrun was about 13% above the appraisal estimate, ENEE had to increase its contribution by 49% which it was able to do from its internal cash generation. A8 20.02 Summarized below is the actual vs. estimated cost of the project; a more detailed comparison is given in Annex 2. Actual vs. Estimated Project Cost (in US$ equivalent or %) Approx. change ----Estimated--- -----Actual----- cver esti.nated L/C F/C T L/C F/C T % 1. 138 kV and 69 kV transmission lines 1.84 4.22 6.06 1.31 2.56 3.87 -36 2. Trans. substations 0.77 2.78 3.55 1.43 3.65 5.08 +58 3. Subtransmission lines 0.59 0.50 1.09 0.87 0.65 1.52 +55 4. Subtransmission sub- stations 0.06 0.29 0.35 0.86 0.77 1.63 +426 5. 15 MW gas turbine 0.03 1.55 1.58 0.13 1.62 1.76 +22 6. Communications equip- ment - 0.11 0.11 0.01 0.14 0.15 +50 7. Maintenance equipment - 0.22 0.22 0.01 0.13 0.14 -30 Subtotal 1. to 7. 3.29 9.67 12.95 4.61 9.52 14.13 +9 8. Contingencies allocated to 1. to 7. above 9. Engineering and supervision 0.26 0.74 1.00 0.40 0.79 1.19 +19 10. Training 0.05 0.20 0.25 0.01 0.22 0.23 -8 11. Feasibility studies 0.20 0.40 0.60 0.46 0.67 1.13 +88 TOTAL 3.80 11.00 14.80 5.68 11.00 16.68 +13 21. Allocation of the Proceeds of the Loan/Credit 21.01 ---------in equivalent US$----------- Category Original October 19721 Final I, Electrical and mechanical works of transmission lines, substations, and gas turbine plant 8,480,000 9,097,000 9,518,500 II. Communications and maintenance equipment 300,000 188,000 34,000 III. Feasibility and tariff studies 400,000 655,000 669,000 IV. Training 200,000 265,000 14,500 V. Engineering and supervision 740,000 795,000 264,000 VI. Unallocated 880,000 - - TOTAL 11,000,000 11,000,000 11,000,000 1/ Modification as result of the changes in project scope as a consequence of project redesign in connection with the Fifth Power Proiect - Loan 841-HO. A9 22. Procurement 22.01 Except for the delays and occasional lack of stock (paras. 19.01 and 19.03) no notable problems in procurement arose and ENEE staff was able to receive some training in procurement work at the field offices of the consultant for the major works (Electroconsult of Italy). 22.02 The main contracts were awarded to the following companies: Item Company Country Gas turbine supply and Mitsubishi Shoji installation Kaisha, Ltd. Japan Power transformers General Electric USA Shilin Elec. & Eng. Taiwan Sumitomo Shoji Kaisha Japan Distribution transformers General Electric USA Distribution equipment Marubeni-lida Co. Japan Conductors China Wire and Cable Co. Taiwan Mitsubishi Shoji Kaisha Japan Echevarria Hnos. Spain Substation structures and General Electric USA materials Sumitomo Shoji Kaisha Japan Westinghouse Elec. Int'l USA Substation control equipment Sadelmi-Cogepi Italy Circuit breakers Brown Boveri Co. Switzerland Telecommunications equipment Instrumenti di Misure Italy Substation construction Sadelmi-Cogepi Italy Transmission lines SVECA Venezuela/Italy Construction design and supervision Electroconsult Italy El Cajon feasibility study Motor Columbus Switzerland Geological studies Swissboring Switzerland In addition, ENEE awarded a large number of small contracts to many additional suppliers. The procurement was on the basis of international competitive bidding and, because of the multitude of items required by this type of project, it placed an additional burden on ENEE's engineering and administrative staff. Considering the nature and variety of installations, the packaging of procure- ment was adequately planned and the items were procured at reasonable costs. ENEE is to be commended on the overall performance in this difficult phase of the project. A10 23. Expenditures and Financing Plan 23.01 ENEE's total applications of funds of US$53.8 (L107.6) million during the original project period 1970-1974 amounted to US$2.8 (L5.6) million less than the amount forecasted at appraisal, US$56.6 (L113.2) million (see Annex 7 for annual data and the summary table below). They consisted of (1) construction costs, US$51.5 (L103.0) million, including interest charged to construction, and (2) additions to net working capital, US$2.3 (L4.6) million, which exceeded the appraisal estimate by US$0.7 (Ll.4) million,or 45%. Although the reduction of actual 1970-1974 program construction expenditures below the appraisal forecast amounted to only US$3.4 (L6.8) million -- or about 6% of the appraisal forecast of US$54.9 (L109.8) million -- this re- duction reflected substantial changes in the actual timing, amount, and purpose of expenditure from what had been forecasted, as a result of the difference between: (a) greater-than-forecasted expenditures for: (i) the Fourth Power Project, amounting to US$1.2 (L2.4) million; (ii) the Sixth Power Project,J/ amounting to US$1.2 (L2.4) million; (iii) accelerated system expansion, amounting to US$1.0 (L2.0) million; (iv) interest during construction, amounting to US$1.0 (L2.0) million; and (b) less-than-forecasted expenditures for: (v) the Third (Rio Lindo) Project and the gas turbine installed at San Pedro Sula, amounting to US$1.9 (L3.8) million; (vi) the Fifth Power Project, amounting to US$2.7 (L5.4) million; (vii) the initial expenditures for the Seventh Power Project (El Cajon), amounting to US$2.6 (L5.2) million; and (viii) studies and other projects, amounting to US$0.6 (LL.2) million. 23.02 These expenditures were financed by: (1) net internal cash generation plus contributions amounting to US$14.6 (L29.2) million -- abdut 37% or US$8.5 (L17.0) million less than the appraisal forecast of US$23.1 (L46.2) million; and (2) long-term borrowings amounting to US$39.2 (L78.4) million about 17% or US$5.7 (L11.4) million more than the appraisal forecast of US$33.5 (L67.0) million. Of the US$5.7 (L11.4) million in additional long-term borrowings, all but US$0.1 (LO.2) million was provided collectivelly by the Banco Central de Honduras, First National City Bank, and the Standard Fruit Company Z/ to cover the gap in financing ENEE's 1970-1974 investment program and 1/ At the time of appraisal of the Fourth Power Project, expenditure for components of the Sixth Power Project was not contemplated for the period 1970-1974. 2/ A loan furnished in connection with the acquisition of the municipal system of La Ceiba. All working capital needs. The remaining long-term borrowing, US$0.1 (LO.2) million resulted from differences between: (1) actual and forecasted disbursement from loans provided by IBRD and IDA, the Central American Bank for Economic Integration (CABEI), and the Banco Municipal Autonomo; and (2) actual and forecasted bond sales. Because of lower-than-expected financial performance (see paragraph 24.01), ENEE financed only 27.1% of its total applications from net internal cash generation plus contributions and deposits, rather than 40.8% forecasted. Summary Funds Statement 1970 - 1974 (in millions of US$'s) SOURCES OF FUNDS Actual Appraisal Difference from Appraisal Gross Internal Cash Generation 31.124 41.120 (9.996) Less: Debt Service 17.628 18.483 (0.855) Net Internal Cash Generation 13.496 22.637 (9.141) Borrowing Existing and Proposed Loans IBRD Loan 541-HO/IDA Credit 116-HO 8.018 7.380 0.638 IBRD Loan 692-HO/IDA Credit 201-H01/ 10.386 11.000 (0.614) Bonds - Third Project (Rio Lindo) 2.000 1.571 0.429 CABEI 3-238-1 (Gas Turbine) 1.574 1.574 - CABEI 3-238-0 (Distribution) 1.700 1.500 0.200 CABEI 3-182-0 (Diesel Generation) 0.053 - 0.053 Future Loans IBRD 841-HO (5th Project) 6.398 7.628 (1.230) CABEI 3-0066 & 7 - 0 (6th Project) and 3-0051 2.308 - 2.308 IBRD 1081-HO (6th Project) - - - Unspecified International Lending Agency (El Cajon) - 1.820 (1.820) Banco Central de Honduras ) First National City Bank ) 6.381 1.000 5.381 Banco Municipal Autonomo (Overdraft) 0.174 - 2/. 0.174 Standard Fruit - La Ceiba 0.200 - 0.200 Sub-Total 39.192 33.473 5.719 Contributions& DeDosits Central Government 0.410 0.375 0.035 Other 0.730 0.095 0.635 Sub-total 1.140 0.470 0.670 Total Sources 53.828 56.580 (2.752) 1/ Final disbursements of IBRD/IDA financing for Fourth Project, US$0.614 (Ll.229) million, were made in 1975. 2/ The appraisal forecast was based on the expectation of repayments equalling borrowings during the period 1970-1974. A12 APPLICATION OF FUNDS Actual Appraisal Difference Construction from Appraisal Rio Lindo Project 11.111 13.030 (1.919) Gas Turbine - San Pedro Sula 1.332 1.350 (0.018) Fourth Power Project 16.249 15.050 1.199 Fifth Power Project 7.426 10.170 (2.744) Sixth Power Project 1.172 - 1.172 Seventh Power Project (El Cajon) - 2.600 (2.600) System Expansion (including acquisitions) 10.870 9.865 1.005 Studies and Other 1.061 1.675 (0.614) Interest During Construction 2.327 1.251 1.086 Sub-Total 51.548 54.991 (3.443) Net Change in Working Capital 2.280 1.589 0.691 TOTAL APPLICATIONS 53.828 56.580 (2.752) 24. Operating Results 24.01 Using actual and appraisal data, comparisons are shown below of: (a) summary income statements for the 1970-1974 project period; and (b) ratios of annual financial performance. Together, they present a picture of gradual financial deterioration which was substantially reversed in 1975 by the intro- duction of a fuel adjustment clause and a 25% tariff increase. (a) Summary Income Statement, 1970 - 1974 (in millions of US$) Difference Actual Appraisal from Appraisal Sales (GWh) 1,486.3 1,813.8 (327.5) Average Revenue per kr4h (in USi) 3.7 3.3 0.4 Operating Revenues 54.645 59.848 (5.203) Operating Costs Operating Expenses, Excluding Fuel 19.223 16.540 2.683 Fuel , 4.067 2.690 1.377 Depreciationl 8.221 8.545 (0.324) Total Operating Costs 31.511 27.775 3.736 Net Income from Operations 23.134 32.073 (8.939) Miscellaneous Revenue (0.359) 0.501 (0.860) Net Income Before Interest 22.775 32.574 (9.799) Interest Charge 10.616 10.819 (0.203) Less: Interest Capitalized 2.327 1.251 1.076 Interest Expense 8.289 9.568 (1.279) Net Income 14.486 23.006 (8.520) 1/ Net -f a!nortization of acquisition costs of municipal systems. Al3 (b) Ratios of Financial performance Rate of Returma/ 1970 1971 1972 1973 1974 1975 Actual 15.6 10.7 9.8 10.7 8.9 9.2 2/ Appraisal 11.0 12.6 11.6 12.3 13.9 N.A. Interest Covered (times interest covered by net income before interest): Actual 3.0 2.5 2.4 2.0 1.6 2.3 Appraisal 2.8 3.1 2.9 3.0 3.2 N.A. Debt Service Covered (times debt-service covered by internal cash generation): Actual 2.1 2.1 1.6 1.5 1.2 1.5 Appraisal 2.2 2.4 1.9 2.0 2.1 N.A. Debt-Equity Ratio Actual 57/43 57/43 58/42 60/40 61/39 50/50 Appraisal 52/48 55/45 56/44 54/46 52/48 N.A. 24.02 Actual sales (1,486.3 GWh) were 18.1% less than the appraisal estimate (1,813.8 GWh). While sales (630.1 GWh) in the areas of San Pedro Sula, Puerto Cortes and the isolated systems were collectively only 4.8% less than forecasted sales (662.2 GWh), sales in Tegucigalpa area and other central-district areas (462.1 GWh) were 11.1% less than forecasted sales (520.0 GWh); and actual sales to Tela, La Ceiba, the fruit companies, and other areas (394.1 GWh) were 37.6% less than forecasted sales (631.6 GWh). Sales to Tela, La Ceiba, and the fruit companies failed to reach the forecasted levels due to a combination of (1) pro- tracted negitiations over tariffs and the purchase of fruit-company electrical properties; and (2) hurricane-causeddamage to fruit-company concession areas in the Aguan valley. Sales in the remaining areas served by ENEE were adversely affected by: (1) economic stagnation due in part to the lingering impact of the war with El Salvador and Honduran non-participation in the Central American Common Market; (2) hurricane Fifi; and (3) inflation. As noted in para 30.02, an improved methodology for forecasting sales is now being developed. 24.03 Lower-than-forecasted sales led to revenues of US$54.6 (L109.2) million -- only 8.7% less than forecasted because average revenue per KWh sold did not decline as expected (see paragraphs 24.05-06). Operating expenses of US$31.5 (L63.0) million were almost 13.5% higher than expected. Although depreciation charges of US$8.2 (L16.4) million were 4% less than forecasted due to delays in construction, fuel costs of US$4.1 (L8.2) million and other operating expenses of US$19.2 (L38.4) million were, respectively, 51.2% and 16.2% greater than expected. Fuel costs were affected by higher consumption 1/ The covenanted rate of return was 10% on net average operating assets. 2/ Computed on the basis of assets revalued as of December 31, 1973. A14 resulting from delays in the completion of the Third (Rio Lindo) Project and dramatically higher fuel prices after 1973; other operating expenses were affected by inflation in labor and other costs, plus additions to staff. 24.04 Although ENEE borrowed US$5.7 (11.4) million more in long-term borrowing than was forecasted at appraisal to finance its investment pro- gram and working-capital needs, the timing of that borrowing led to lower- than-expected interest charges, US$10.6 (L21.2) million. Net income of US$14.5 (L29.0) million was US$8.5 (L17.0)million less than the amount fore- cast at appraisal -- a difference of 37.0%. 24.05 Through February 1970, ENEE's tariffs had remained practically unchanged since 1964, and average revenue per kWh was about US13.6 (or Lempiras 0.072), reflecting the highest average tariffs in Central America at that time. At appraisal, it was projected that the average revenue per kWh sold would decline to about US3.2 (LO.063) by 1974 and that the tariff structure would provide off-peak tariffs to attract the irrigation loads of the fruit companies. In October 1971, the consulting firm of R.W. Beck & Associates (USA) proposed minor rate reductions for several service customer classifications. But because the suggested changes were small and because of the continuing need to generate ever-increasing amounts of cash for system expansion, ENEE did not change its tariffs . The Bank agreed with this action. Neither did ENEE adopt off-peak tariffs because of difficulties in reaching agreement with the fruit companies; moreover, ENEE management felt that off-peak tariffs would probably not lead to substantial improvements in the already very high load factor (66%) which is in large part the result of the large industrial load (55%) supplied by the ENEE system. 24.06 In 1974, after the large fuel-cost increases, ENEE contracted R.W. Beck & Associates (USA) to perform a rate and asset revaluation study. The study led to: (1) implementation of a fuel-adjustment clause and a general increase of tariffs by 25% in 1975; and (2) revaluation of gross fixed assets in operation as of December 30, 1973. Under the Sixth Project ENEE agreed to carry out a new tariff study which the Bank has proposed to be on the basis of long term marginal costs. Terms of reference are being expected shortly from ENEE. 24.07 The incremental financial rate of return on the project as com- pleted is about 11% (see Annex 9). The incremental return forecasted at appraisal was 10% for the north coast interconnection from El Pro reso to the Aguan Valley, and 14% for the southern zone interconnection.l However, because of the substantial differences between the completed and the appraised project, the original and the ex-post calculated rates of return are not comparable. 25. Insurance Policy 25.01 ENEE purchased insurance for Bank-financed imported goods,as required by section 2.05(b) of the Project Agreement for the Fourth Project, and insured plant and equipment other than transmission and distribution lines and civil works against normal hazards, in accordance with sound public utility practices. ENEE plans to hire an independent outside expert to review its present insurance program. 1/ The appraisal report did not include a numerical table lidicating data used for computation of the incremental financial rate of return. A15 26. Performance of Auditors 26.01 -Except for a disagreement with tie auditor, Price Waterhouse and Company (PW), on the accounting treatment for revaluation of long-term debt denominated-in foreign currencies (which was ultimately settled to the satisfaction of ENEE and the Bank), the performance of the auditor was satisfactory. In the 1972 audited report, PW accounted for increases in outstanding long-term debt resulting from currency revaluations by reducing net income through a special charge. While the action of PW followed accounting practices accepted in the United States, it was not in accord with sound public utility accounting. With Bank support, ENEE persuaded PW to accept accounting policies which recognize the public-utility nature of ENEE. 27. Organization and Management 27.01 No significant changes occurred in ENEE's organization after the loan was signed except for creation of the post of Assistant Manager for Power. There were, however, several 'key personnel changes. The General Manager was replaced in 1971 by a civil engineer who showed himself to be a capable administrator. He was succeeded in February 1976 by the Assistant Manager for Power who has also performed well. New managers were also appointed during 1976 to head up the Central and the North Divisions, the Engineering and Planning Division, and the Engineering Department, and in early 1978 three Deputy Managers were appointed. 27.02 Progress in achieving administrative efficiency has been slow. Accounts receivable and materials and supplies consistently exceeded appraisal forecasts (Annex 7). With funds provided by Loan 1081-HO for the Sixth Project ENEE has contracted R.W. Beck & Associates in 1976 to study ENEE's accounting and budgetary systems with the objective of: generating timely accounting and budgetary reports and improving the collection of accounts receivable. Sub- sequent to implementation of a computerized system of customer billings in 1973, there was some improvement in collections, but minor problems continue with obtaining prompt payments from Government. ENEE has retained consultants to assist in the organization of the commercial and personnel functions. To prepare for new challenges ENEE intends to hire a consulting firm for a management reorganization study and preparing a training program acceptable to the Bank. 27.03 ENEE's rapid growth precipitated the need for additional facilities. For this purpose ENEE has built a new warehouse in San Pedro Sula, to serve, not only as a regional, but also as a national warehouse. ENEE is now building a new distribution center to house the North Division distribution offices, and will continue to add facilities for the North Division until it is housed in modern headquarters adjacent to the La Puerta substation in San Pedro Sula. -ENEE's central headquarters building is becoming increasingly inadequate. ENEE believes that it must take steps shortly to build efficient new central headquarters. Rural Electrification Department 27.04 The relending loan agreement for IBRD/IDA funds between the Government and ENEE obligated ENEE to create a rural electrification depart- ment which would be responsible for the preparation and execution of rural electrification plans and programs. This department's budget was to be A16 provided from two sources: (1) an ENEE contribution of not less than L100,000 annually for 1971 through 1974, followed by annual contributions thereafter amounting to about 10% of the val.a of the programs executed; and (2) a government contribution beginning in 1974, which would be the interest and service-charge differential between what ENEE pays the government under the relending agreement and what the Government repays to IDA. 27.05 ENEE's Board of Directors issued a "Reglamento",as required in the relending agreement ,to set up the rural electrification department, and ENEE prepared a rural electrification program in 1971. ENEE, however, later decided that it would be more economical to carry out rural electrification without instituting a new department and within the existing planning, engineering and construction organization. This was a reasonable decision and has produced good results. ENEE has stated that this arrangement was confirmed verbally in early 1973 between ENEE and the Government. Both reached an understanding that the creation of a rural electrification department would be postponed until at least 1975. As ENEE management is satisfied with the performance of existing departments and rural electrifica- tion has proceeded well, it has no current plans to create a special rural electrification department, at least until ENEE's proposed reorganization study is completed. In view of the satisfactory results and ENEE's shortage of staff, the Bank should not press ENEE to create a rural electrification department. Training 27.06 Under its training program during the execution of the project ENEE has sent, since January 1972, about twenty members of its staff for training in different technical fields to USA, Taiwan, Brazil and Mexico, such as in operation and maintenance of diesel plants, distribution lines, "hot" line repairs, substation construction management and transmission line design. The training program which showed good initial results under the project has been expanded under the Fifth and Sixth Power Projects to include the areas of high level management, administration, maintenance and construction of power plants and substations, metering and interconnected system operation. About 40 people have received training under the Fifth Project and about 15 people under the Sixth Project. Through this training ENEE continues to improve the capabilities of its staff. The level of training will be further raised by arrangements now being made with the Bureau of Reclamation (USA), Comision Federal de Electricidad (Mexico), Autoridad de Fuents Fluviales (Puerto Rico) and Electricidad de Caracas (Venezuela) for the training of higher level technicians and engineers. In addition, ENEE is setting up a training center at the retired diesel Plant in Tegucigalpa (La Leona), to provide local basic and intermediate level training of its employees. 27.07 During the project ENEE also retained the services of five expatriate engineers (from Taiwan, Guatemala, Mexico, Peru and Costa Rica). The engineer from Costa Rica is still with ENEE providing valuable continued assistance in the training activities as part of his assignment. 28. Performance of Consultants 28.01 ENEE engaged Electroconsult of Italy (ELC) for the engineering and construction supervision of the 138 kV transmission lines and substations. A17 Whereas ELC engineers assigned to Honduras have done a good job, ENEE feels that ELC's headquartesoffice did not provide a fully satisfactory support and that project administration showed weaknesses as a result. According to ENEE, ELC also failed to provide a completion report and supplied poor progress reports on those parts of the project for which it was responsible. ELC was, however, very useful in firmly dealing with contractors and provided ENEE with assistance in the design of its portion of the project. ENEE credits ELC also, correctly, with keeping the project cost overrun down. 28.02 In ENEE's opinion Motor Columbus had a substantial turnover during the preparation of the feasibility study for El Cajon. Whereas the technical work was handled competently, the execution of the economic and financial analysis and the integration of the technical and economic/financial parts of the report could have been better. 28.03 The consulting firm R.W. Beck and Associates completed the tariff study based on cost of service competently and made some specific recommenda- tions. But ENEE management decided not to implement the recommendations for rate and rate structure changes (for the reasons shown in para. 24.05). 28.04 Overall the performance of ENEE's consultants has ranged from acceptable (ELC) to good (R.W. Beck). In order to provide a better yardstick for future performance of consultants, ENEE is now (1) preparing (aided by the Bank) terms of reference for consulting services by specifying its requirements in greater detail, and (2) evaluating proposals received by focusing more closely on the qualifications of the consulting firm's individual staff proposed for the services. 29. Covenants 29.01 ENEE has complied with the covenants of the Loan, Credit and Project Agreements, with some deviations noted below. 29.02 Audited Financial Report In Section 4.02 of the Loan Agreement, ENEE agreed to furnish the Bank within four months of the end of each fiscal year financial statements certified by an independent auditor. ENEE usually exceeded the deadline by several weeks. ENEE expects the mechanization of its accounting department to solve the problem in 1978. 29.03 Rate of Return. Sections 4.01 and 4.02, respectively, of the Credit and Loan Agreements required the Government to permit ENEE to set tariffs sufficiently high to cover expenses and produce a 10% return on average net fixed assets, valued in accordance with valuation methods acceptable to the Bank. Except for a slight shortfall in 1972 and a larger one in 1974 when the devastation of hurricane Fifi substantially reduced sales, ENEE was able to comply with this covenant (see para. 24.01). The rate covenant was re- peated in the Loan and Guarantee Agreements for the Fifth and Sixth Projects. 29.04 Tariffs. ENEE has complied with the provision of Sections 4.01, 4.02 and 4.03(c) of, respectively, the Credit, Loan and Project Agreement, in which ENEE and the Government agreed not to adjust tariffs without IBRD/IDA agreement until completion of the Fourth Project. The covenant was extended under the Loan and Guarantee Agreements for the Sixth Project, to apply until the completion of the Sixth Project. Al8 29.05 Retention of Earnings. In Section 4.04(a) of the Project Agree- ment ENEE agreed to reinvest all its earnings until project completion. ENEE has complied with this covenant. 29.06 Debt Limitation. ENEE complied with the provision in Section 4.06 of the Project Agreement not to incur additional long-term debt without IBRD/ IDA Agreement unless internal cash generation is 1.4 times maximum future debt service. The Loan Agreements for Loans 841-HO and 1081-HO repeated this covenant. 29.07 Management. Section 3.01(b) of the Project Agreement required ENEE to conduct its operations under a general manager mutually satisfactory to ENEE and IBRD/IDA. ENEE complied with this provision. The covenant was, however, not repeated in the Loan Agreements for the Fifth and Sixth Projects (Loans 841-HO and 1081-HO). Although there was a requirement for affording the Bank a reasonable opportunity to exchange views on the appointment of a general manager in the Loan Agreement for the Fifth Project, it was agreed not to repeat this covenant in the Loan Agreement for the Sixth Project since Bank experience with ENEE policy on management appointments had been satisfactory and the Agreement includes the standard clause requiring competent management. 29.08 Rural Electrification Department. Under Section 2.07 of the Project Agreement, ENEE agreed to perform all its obligations under the Subsidiary Loan Agreement, except if the Bank should otherwise agree. ENEE's reason for not complying with the covenant on the Rural Electrification Department is discussed in paras. 27.04-05. 30. Lessons Learned 30.01 Project Implementation. All things considered, the project (which was rather complex in its execution) was carried out quite successfully. For ENEE, the Fourth Project is significant because it marks the first time that ENEE managed directly a substantial portion of the design and construction work providing experience in managing modifications of existing facilities and relocations. Valuable coordinating experience was also gained from having to make provisional and new installations at existing facilities and relocations, because practically uninterrupted operations had to be maintained while construction was in progress. Although the changes to the project have, in part, delayed final project completion, the Bank's flexible position in regard to changes of ENEE's system expansion plans has produced positive results. It has allowed ENEE to adjust the project's scope to meet the changed situation resulting from its interconnection agreement with Nicaragua, lack of progress in negotiations with Standard Fruit Co., and.to introduce improvements evolved after appraisal. 30.02 Load Forecasts. During appraisals of the Fourth, Fifth and Sixth Projects, the Bank accepted load forecasts prepared by ENEE as reasonable. However, ENEE's actual sales turned out lower than projected (para.24.02). The Bank should examine in the future the methodology applied and the resulting forecasts more critically. ENEE is expected to prepare forecasts in the future using the expanded criteria and methodology developed by EBASCO in connection with the optimization study (para. 19.04) which should improve the accuracy of future forecasts. A19 30.03 Organizational Improvements. Terms of reference for the proposed organization study (para. 27.02) should provide that recommendations be prepared and implemented to improve organizational and administrative efficiency on the basis of an agreed timetable for joint review and implementation of those recommendations. Concerning collections on accounts receivable from the Central Government and its agencies, the Bank,in future loan agreements, should consider the inclusion of provision for settlement of all debts owed ENEE within 60 days of billing. 30.04 Training Program. The Bank should review and comment on the future terms of reference for the proposed organization study (para. 27.02) to - ensure that they provide for examination of the need for the position of a train- ing director. ENEE feels that in the future preparation of its training plans the Bank should provide more direct assistance. However, the Bank is not equipped to do this on a long-term basis. A training director could help in those areas where ENEE feels the need for assistance: ensuring that (1) all potential training facilities are tapped, and (2) implementing the training program expeditiously. 30.05 Procurement. ENEE feels that the Bank's guidelines for procure- ment and International Competitive Bidding result in.a multitude of different makes for the same equipment categories and require a large stock of spare parts and additional training for maintenance and operations. This is a valid observation. ENEE has been advised that the Bank has recognized this problem and that Part B, 4.2(c and e) of the present IBRD Procurement Guidelines now pr6vides for the needed flexibility in similar cases as confronted by ENEE in.the Fourth Project, Latin America and the Caribbean Regional Office March 1977  ANNEX 1 HONDURAS EMPRESA NACIONAL DE ENERGIA ELECTRICA FOURTH POWER PROJECT ACTUAL VS. PROJECTED DISBURSEMENTS (in US$ million) --------------- Actual------------- Projected Year Cr201-HO Ln692-HO Total Total 1970 0.04 - 0.04 - 1971 0.93 - 0.93 1.30 1972 3.59 - 3.59 7.85 1973 0.94 2.08 3.02 1.65 1974 2.80 2.80 0.20 1975 - 0.62 0.62 - TOTAL 5.50 5.50 11.00 11.00 Source: ENEE January 1977 !&!&!&&’審‘&‘叫吧，;&!!,!!&!& 焜．_．。． !!‘〕’〕’！〕”-!―。 FOURTH POWER PROJECT Actual vs. Estimated Project Costs (Detailed Breakdown) NOTES: I/ The scope of lines and substations was redefined as result of the changes introduced in the transmission development plans in connection with the Fifth Power Project (see Cuarantee Agreement for Loan 841-HO). 2/ Changed to El Progreso-Bermejo (North Sula). 3/ Changed from 69 kV to 138 kV line. 4/ Relocations around Santa F6 substation due to 138 kV at Santa F . 5/ Transferred to Fifth Power Project due to delay in negotiating contract for supply to Standard Fruit Co. in Aguan Valley. 6/ Transferred to Fifth Power Project as Suyapa-Pavana transmission line which is built for 230 kV but initially operated at 138 M 7/ Changed from 69 kV to 35 kV line or primary voltage. 8/ Following transformer is also installed at Bermejos:69/13.8 kV - 15/20//25 MVA. 9/ Relocated from ENEE existing system. IN Following transformers are installed at Santa F6:69/34.5 kV - 7.5/12.5 MVA; 69/13.8 kV 15/20 MVA. Il/ Changed to La Ceiba- San Juan 35 kV. 12/ Additional circuits added in Comayagua Valley. 13/ Changed to Santa F6-Tamara. 14/ 34.5 kV/120-240 V distribution transformers were purchased with ENEE's own funds. Source: ENEE. M I" >4 0 HONDURAS EMPRESA NACIONAL DE ENERGIA ELECTRICA FOURTH POWER PROJECT ACTUAL ENERGY SALES BY CATEGORY (in GWh) 1969 1970 1971 1972 1973 1974 1975 Residential 43.9 49.9 58.5 67.5 77.3 94.3 103.2 Commercial 30.1 38.4 45.2 46.6 50.9 58.2 64.4 Small Industry 21.1 25.6 31.2 37.1 43.8 50.7 47.4 Large Industry 94.0 97.5 100.6 109.7 136.9 165.5 193.5 Government and Municipalities 8.6 11.2 11.7 14.1 12.6 15.1 15.4 Street Lighting 4.4 4.8 5.3 5.8 5.8 11.0 11.5 Internal Consumption .3 .3 .4 .7 .6 .7 .7 Sales to other Systems .1 .1 .1 .2 .2 .2 .2 TOTAL Actual 202.5 227.8 253.0 281.7 328.1 395.7 436.3 Projected 247.0 295.1 334.6 421.1 516.1 579.2 Growth Rate in % Actual 12.5 11.1 11.3 16.5 20.6 10.3 Projected 22.0 19.5 13.4 25.9- 22.6 11.2 Average Compounded Growth Rate 1969-1975: SOURCE: ENEE January 1977 Actual 13.7%; Projected: 19.1% 1ONDURAS EMPRESA NACTONAL DE ENERGIA ELELTRICA FUURTH P(WER PROJECT ACTUAL VS PROJECTED ENERGY SALES - BY AREAS (in Gib) 1969 1970 1971 1972 ly) 19t4 19(5 Actual Projected Actual Project Actual Projected Actual Project Actual Projected Actual Projected Actual Projected Main System Central district Tegucigalpa 64.8 73.2 74.8 80.5 86.1 89.0 99.0 96.5 112.8 108.8 128.6 11.6 1k5.3 Comayagua and Bigustepeque 1.6 1.8 1.7 2.2 1.8 2.6 2.0 2.9 2.2 3.3 2.5 4.2 2.8 In Paz - - - - - - 0.3 - 0.5 - 0.6 - Miscellaneous sales - - - - 1.5 - 2.2 - 2.3 0.5 2.4 0.7 2.5 Subtotal -W. -6 -' -9 1. 17 139133I. 3 Northern district San Pedro Sula 67.1 76.0 76.6 86.1 91.9 97.3 106.5 113.2 122.4 129.9 139.4 141.1 158.7 Puerto Cortes 5.5 6.4 6.3 7.3 7.2 8.0 8.3 8.6 9.4 8.8 10.5 9.8 11.7 Mochito Mines 35.7 35. 46.5 39.6 16.5 40.9 54.9 46.3 54.9 45.5 54.9 54,.6 54.9 Cementos Bijao 18.8 21.6 27.0 20.7 27.0 24.0 27.0 28.5 27.0 31.6 27.0 37.3 27.0 El Progreso - - - - - - 3.8 2.0 4.5 2.3 5.2 2.5 Tela Railroad Co. - - . 19.4 - 20.0 7.4 47.8 21.1 64.8 24.2 82.9 Tel. - - - - - - - 1.4 2.1 1.5 2.4 1.7 LA Ceiba - . - - - - - 13.4 18.8 16.0 18.7 -18.8 Standard Fruit Co. - I Ceiba - - - - - - - - 2.7 - 2.9 - 3.0 la Masica - San Francisco - - - - - - - - 0.5 - 0.5 - 0.5 Olanchito municipality -- - - - - - - - 0.6 - 0.6 Standard Fruit Co.-Coyoles district - - - - - - - - - - 1.2 - 1.2 Standard Fruit Co.-Coyoles tigtiaq - - - - - - - - - - 24.2 - 24.6 Standard Fruit Co.-Isleta district - - - - - . - - - - 0.6 - 0.7 Standart Fruit Co.-Islet& rig@Um - - - - - - - - - 10.2 * - 11.0 Agriculture redevelopment project - - - - - . - - - - 1.3 - 1.4 Santa Barbara - - - - - - - - - 0.5 0.8 o.6 Choluteca - - - - - -- - - - 6.9 San lorenzo - - - - - - - 9. Nacaome - . - - - - - 1.3 Moramulca Mine - - - - - - - - - .3.0 Miscellaneous sales 0.5 1.6 5.4 0.7 1.2 - 0.2 - 0.2 - 0.2 - 0.2 Subtotal 127.9 1141.0 5 . 15V4.-V 170.2 2-9. 20778 MEiT -7 ___ 42. Total main system ih 23 2T3.6 1 32.T0. 99.0 37514 142 iI 72. Isolated Systems Southern district Choluteca 2.5 3.3 2.9 3.8 3.5 4.8 4.2 7.0 5.0 7.7 5.9 8.0 - San Lorenzo 2.0 1.7 2.1 2.1 2.5 3.5 2.9 3.9 7.9 3.2 8.4 4.5 - Naceome 0.4 0.6 0.5 0.6 0.6 0.7 0.8 0.6 0.9 0.7 1.1 0.9 - N ore ulc e M ine - - - _ - - Subtotal 37 5.5 **6._ __T-T 9.0 7.9 15 1r.7 11.6 J:X 3-N - Other Isolated systems 6.2 5.2 9 5.8 106.6 5.14 8.7 5.6 - 6.5 Total Isolated Systems 8.5 11.8 10.7 15.9 12.4 19.9 14.5 20.6 22.1 20.3 24.0 22.1 6.3 TOTAL 2Su.5 227.8 247.0 253.0 29.0 281.7 c4 1 421.1 NE 516.1 4.) 579.1 Source; ENEE HONDURAS EMPRESA NACIONAL DE ENERGIA ELECTRICA FOURTH POWER PROJECT INTERCONNECTED SYSTEM ACTUAL VS. PROJECTED Demand and Firm Capability 1969 1970 1971 1972 1973 1974 1975 Energy Sales G1 ActuDI 193.7 215.7 237.1 262 308 375 414 " c- 23o.0 284.0 322 416 511 573 3,ste Losses . Actual 11 11 13 16 15 14 14 Projected 13 13.5 13.4 13.0 13.2 12.6 12.8 Energy Generation GWH Actual 219 243 273 310 361 434 484 Projected 275 328 370 479 585 657 Annual Load Factor % Actual 58 59 62 62 64 66 66 Projected - 58 58 57.5 55.8 55.2 55.1 M&ximum Demand MW Actual 44.5 47.3 50.3 57.4 64 75 84 Projected - 54.0 64.5 73.5 98.0 121.0 136.0 Installed Capacity MW Actual 54 67 107 119 107 134 134 Projected 105 105 120 120 150 180 Capacity Factor % Actual 46 41.4 29.1 29.7 38.5 37.0 41.2 Projected 26.4 35.7 35.2 45.6 44.5 41.7 Firm Capability MW Actual 39 52 87 99 87 114 114 Projected 90 90 107 107 130 160 Surplus (Defici ency)MW Actua1 (5.5) 4.7 36.7 41.6 23 39 30 Projected 36.0 25.5 33.5 9 9 24 Source: ENEE 1IONAAS EMI(E0A NACIONAL DE ENEGHIA ELECTRICA POuRTR POWEHA W=OJEf ACTUAL AND PROJECTED INCOME STATEMENTS (in thousands of lempiras) -1970------------- ----------------------- -----------1971 -------------- -------------------1972---------------- Actual Projected fitfference Actual Projected Difference Actual Projected Difference Sales increase in percent 12,5 22.0 (9.5) 11.1 19.4 (8.3) 11.3 13.4 (2.1) Sales (Gwh) 227.8 247.0 (19.2) 253.0 295.0 (42.0) 281.7 334.6 (52.9) Average Revenue per KWh (Centavos) 7.3 6.8 0.5 7.5 6.7 0.8 7.5 6.7 0.8 OPERATING REVENUES 16,641 16,859 (218) 18,887 19,820 (933) 21,195 22,533 (1,338) OPERATING COSTS Operating expenses, excluding fuel 5,759 5,200 559 7,317 5,622 1,695 7,529 6,132 1.397 Fuel 1,549 2,177 (628) 1,330 225 1,105 854 250 608 Depreciatiov~ I.19(25) 28612 3,05 30 333 64 172 Total Operating Costs 2260 2.5 6955 3,06530 U.770 3t 61.2 NET INCOME FROM OPRsATIOs 7,360 7,283 77 7,545 11,508 (3,963) 9,425 12.505 (3,080) MISCELLANEOUS REVENUE & EXPENSE 236 159 7 200 24 (129)1 NET INCOME BEFORE INTEREST 7.596 7,442 154 7,715 11,684. (3,939) 9,29L 12,704 (3,108) Interest Charge 2,535 2,653 (118) 3,101 3.795 (69.) 3.933 4,420 (l487) less: Interest Capitalized 9 790 16 247 729 208 770 Interest Expense 1,576 1287) 2,1(25 (1,23 3,725 75 FOREIGN EXCHANE GAIN (LOSS) - - - - - NET INcOME 6,o2o 5.579 441 5,620 8,136 (2,516) 5,571 9,054 (3,483) Capital and Surplus at beginning of year 33,488 33,488 - 39,488 '40,007 (519) 46,048 48,143 (2,095) Contributions - 940 (940) 940 - 940 205 - 205 Transfers of Properties - - - - . - - - Credits (or charges) (20) - (20) - - . - - - Capital and Surplus at end of year 39,41UU 40,007 (519) 46,048 48,143 (2,095) 51,82 57.197 (5,373) Return on net utility plant in operation (3 15.6 11.0 4.6 10.7 12.6 (1.9) 9.8 11.6 (1.8) Times interest covered by net income before interest 3.0 2.8 0.2 2.5 3.1 (0.6) 2.4 2.9 (0.5) Net of amortization of acquisition costs for electric systems ofSan Pedro Sula and Puerto Cortes as follows: 1970: L65; 1971: L2,; 1972: L70; 1973: L69; and 1974: U. P/ For purplses of computing the annual rate of return, deferred foreign exchange losses have been included in the rali base. a WIW'LSA MACIUNAL DE ENIW1A MEKSfIGA FOLIRTH 1x7ER PwJJEf Acrel, ArND LsttreD linME-ATDENTS Sairo__o_y 1nan r,,. as Exp. - - ------ 197 ---- --------- ------- - - - 4--------.-... ....-- ---1.... - --.- - -.. . . ... . . . . . . Actual Pr0j1g lt lercilce A.tuul Pro2ec ted i fferc ALtu.- I',u,_tt' i i _I A j halei'_' 1 _, i _ Saleo loc,ocaoo 1e, la cn,t 16.5 25.9 (9.4) 20.6 e?C r) - - .3 0 B.es (0WI) A.1 '21.1 (93.0) v,.7 516 1 (1e0.4 ) 1,4,k 1 1,01 3.8 (vl., 'v C) 1 ( (.i Average Renueo pro KW (Po-~tav K) 7.j 6.6 0.7 7.' 6.3 0.9 7.4 6.6 0 1 3.o 68 . OMKATIN CL4"f3 OperaI Ing ~p-n, e-cludlng foel 6,671 /,"j 1,160 9, ji9 8,633 . 51 38,447 33,MK0 5, 17 11 ) , /.> 3,161 we .l '98 (47) 3.476 1,753 1,717 13,134 5.3/) 2,755 5,0Y1 .1"1 a n3 /18 2Jl 4 4 b,"16 156 16 1,41 17 OSs (649) 7,26 2 <t1 1 46 TotlI upeating C-.t. 13,12 12,525 5 / c5S 5,0 J 2R 23,02 5,557z) ~¯/Y73 23,i, COA 739 Nr INCOE ROM 01ERuAT10N 10 'U 15,20? (4,212) 10,48 11,649 (6,101) 46,260 64,14,7 (17.879) 15, JU. ,3>0 (A,,2 ) MSCLLLAnE,03 KVLNE .'32 -.3 (0.257) 2 P- £51) (71) 1,/ (1.720) IhS __k_ _19) WET rUNM BK0E Ifft.L6T 11,-M-mL M5,t,r~ '4.203) 9,691 17,94 (20j) 45,550 65,149 (19,599) 1,'hu c0, 10 t,.¯) I.telt Chare. 5 3 6', 5.571 523 21,232 21.638 (406) 6,r> 7,512 1euo lte,est C.PItall-ed 1 . ..712 465 2,5 e 2 151 (( lr7 EpT ~5 ., ,i,7 T91 -.579 19,1 (2 5 ~.212 57 FomtluN EXClAN~E GA( (I"B0) - - '.4 w l INCI 6.,81 10,451 (3,470) " 12.79a (8,014) 2.9i1 ',.1 (17,042) 11,11d 14,68 (1. 54u) Cap0tal and Surpl. at L.41,iDg of year >1,44 57,197 (5,373) ." , . A,2(6) ' ,418 j, ä 4 7P d./ 3 ,?7/ 16,40 C.mtbllUuI jn 60 - 6(» 521 oi 2.? 11 jo 1,341 4611 40co0i Tranoler of Properti.a .- Crepita (or hlr8e a - - ye-0) . (0 ) - Capiltal and1 l,,rplu at end of year 59,414 7I'Af jt0,23 6J1¯J L7171ii (¯,. 'P.,I Bu1-15 15,721 107, 93,935 13,131 Retn, on net utillty plant in operatln (1) 10.7 12.3 (1.6) b.9 13.9 (5.0) - - y 2 13.6 41 TI-. interet cover.d by n-t Inco- b.foar Ilerl,..t 2.0 3.0 (1.0) 1.6 3.2 (1.6) 2..5 3.01 (0.86) 2.3 2.7 (0..) T-kn ,ro ap-prelal of irth Por Project (lon b41-HO) fdetro,tively .ilu-ted Lu, rflect n:~Clumtion ot a@~t an of Deeme,. 31, 1913 Ié § -si 2- . jj 4 gt -1 . '0 **.? 11 s . itii s .ie * w 1. . :-.2. -- <5. at -0 :: -; 5 - >0U a si 8 18282 . - .5a HONDURAS EKPRESA NACIONAL DE ENERGIA ELECTHICA rotRri PNtia PiIJECT ACIUAL AND PRWECTED FUND STATE24ENTS (in thousands of Lempiras) ---------------- 1970----- ----------------1971 ---------------192------------------ Actual Projected Difference Actual Projected Difference Actual projected Difference APPLICATIONS OF FUNDS Rio Lindo Project 16,849 18,180 (1,331) 4,580 7,880 (3,300) 550 - 550 Gas Turbine - San Pedro Bula 2,622 2,700 (78) 41 - 41 - - - IV Pawer Project (including Machito Mines Tranamission Lines) 75 900 (825) 2,953 3,100 (147) 6,281 21,100 (14,819) V Power Project - - - 46 - 46 1,537 1,560 (23) VI Power Project - - VII Power Project Expansion of Existing Systems (including acquisitions) 3,001 3,950 (949) 5,814 3,190 2,624 4,564 3,530 1,034 Studies and Other 1,253 400 853 - 600 (600) 202 850 (648) Interest During Conutruction 9 790 169 976 247 729 208 2 SUB-TOTAL 2,759 (2 ,161) IT1o 15,017 2) 2710 ( Net Change in Working Capital 4 8 18 440 1,975 2 1 973 465 3337 Cash 51 ) T3) (210) fr, M2 _T50) I8W ) 103 __3) 16Z Non-Cash 974 324 650 3,002 542 2,460 3,699 528 3,171 Total Applications 25,217 26,938 (1,721) 16,385 15,019 1.366 17,144 28,275 (11,131) å- -a 4 c 17-2 3 ·· ·1 i I i 2 n. î ses 8 . ..le 5 - A il .. s f • 4 a c j I j s - 1,---- .. . . - låt 1 ý , 1:p n : fl=..- ls IJONIAIkAm EMPfEBA NACIONAL DE ENEUA £LkLLCA FWUNT KMER PRigt~ ACIVAL AND PH(MEDYM fMNS STATLMENT (in t,haosnds of irmpirag> S5u-ay kund. Applications --173-------------- --------------------------1970-194------------- Actu, _ Projetcted pL i re un( e A,t..å 1ýe-oe LI rence A, Propjected II IIIrece A-l rl ee aferewe APPLICATION OF MINDS hl. LIndo Poject 24.C - 244 22,23 70,060 (317) Gas Turbine - San Fdr- Sula - - - - - 2,663 2,70o (37) Iv Power Prject (incladow Maito Mine, Ta-n-m.lon Lines) 12,115 4,500 0,305 10,384 50 9,1084 32,498 3o,100 2,3 1,775 <920) V Po,- P-j.ct 9,532 7,500 2,0312 3,738 11,280 (7,542) 14,852 20,340 (5,4k) ./ 031> 4 ,/7x5 2,759 VI Pow.a Project - - - 2,j44 - 2,344 2,344 - 2,3,1- 9,19 VII P.uer hoje- t - - - - 5,200 (5,2-) - 5,200 (5.2-A G,g, i )9) Syste. E 1,nsin (,c1,,ding aquliltlona) 4,542 4,564 2 3,818 4,800 (982) 21,739 19,730 2,00> 4,51, 1500 1 o69) otdice am otI.r 667 850 (83) - 650 (650) 2,122 3,35o (1,220) 9 In-test Durink. Lo.tructlon 1328 255 _12073 1 182 470 7l 4653 2 ,05 '.1- S306-TOTAL 29,11 1T¯.365 11,753 21 ( 22,900 (1,434) 103,095 109t9'B2 -) ä- 1 8e.t Chang in WnEking C.taI L2 340) ix.. 7 32707) -(" 4559 __{ L1 Ch) 335 3 62k5 (1,31 -1 Non-C(l,,317) 1,032 (3,3) ) 546 966 (420) 5,904 3,392 2,512 2 3641 IlYrAL AFPLICAT10NS 26,7/8 18,732 8,046 22,130 24,226 (2,096) 1nf,654 113,160 (5,506) ..-..-..-- 32,64- 3o.45o (6762) 3/ Retjecta changes in long-term receivmblen. IONIDIAS EMPRESA NACIHEIAL DE ENFIA BLELTRICA FOUM KOWER PROJECT ACTUAL AND PHWE)CTED BALANrE SliEsT (in thousands of Lempirasl -----------------1970---------------- ---- 1971 --- ----------------1972------------------ Actual Projected Difrerence Actual Projected Differene Actual Projected Difference ABSTS Utility Plant at Cost 63,341 104,049 (40,708) 110,380 115,766 (5,386) 118,565 144,616 (26,051) Less: Accumulated Depreciation 15,'P) 15 983 16 19,035 1814148 587 22.503 22,094 0 Net Utility Plant In Service 47,3142 _988ti T'i4i' 9134 7318 T-.73-1 9602 32,:50(2, Work In Progress 31,570 - 37,570 2,954 3,000 (46) 5,749 1,560 14,89 Net Utility Plant 04,912 88,066 (3,154) 91.,299 100,318 (6,019) 101,811 124,082 (22,271) CURRENT ASSETS Cash 1,Rcv4a4 1,620 (176) 417 1,080 (663) 520 1,017 (497) Aacounts Receivabiy 4.386 4,038 .8 5.994 4.710o 1, 28. 814140 5,34.8 Mdaterials and Supp)le 4,2148 3,600 48 5.957 3,800 2,157 8,096 14,050 Prepaid Expensesa and Others 585 320 265 761 3140 141 555 370 5 BUB-TOTAL o0.663 78 13,12 9.930 3,199 17,611 i27 7; long-term Notes Receivable - - - - - - - Deferred Charges - Foreign Exchange losses - - - 1,723 - 1,723 3,316 - 3,316 Preliminary Studies & Investigations 2,242 1,088 1,154 .499 1 3,111 ./850 TOTAL ABSETS 97,817 98,732 (915) 113,650 111,636 2,011 129,615 136,655 (7,00) liUiTY AND LIABILITIES Capital & Retained Earnings 39,488 40,007 (519) 66,048 48,143 (2,095) 51,824 57,197 (5,373) Revaluation Reserve - - - - TOTAL EQUITY 3 4519) TV3 (2,095) -1 X517:P Long Term Debt 52,0o46 55,215 (3,169 60,828 59,633 1,195 70.337 714.208 (3.871) Less Current Liabilities 1.91. 218a2 A214 4.,7O 1.,295 375 6013 4.1h3815 Met 14ng-term Debt 5008 53,033 (295 56"15 55,33 1. 0 U,32 CURRENT LIABILITIES Current Maturities 1,948 2,182 (234) 4,67o 4,295 375 6,013 1.438 1,575 Customer Deposits 951 930 21 1,075 1,020 55 1,18fi 1,120 64 Notes and Accounts Payable 14,263 1,870 2.393 4.,510 2,o60 2,450 4,.71 2,270 2,201 Accrued Expenses 1,069 710 359 1,189 780 .09 1,799 860 939 Overdraft -- - - - - 1 000 (1,000) SUB-TOTAL -,3 39 -ITVq 35_5 3259 1,69. 3,779 TOTAL &81 Vd32 15 113,650 1636 2,011 136,655 Debt-Equity Ratio 57/43 52/48 5/5 57/43 55/45 2/2 58/42 56/44 2/2 Net Working Capital 2,132 3,886 (1,54) 1,685 1,775 (90) 4,143 1,097 3,046 Current Ratio 1.30 1.68 (0.38) 1.15 1.22 (0.07) 1.31 1.11 (o.eo) For the years 1970-1975, accounts receivable from customers amounted to: 1970; 13,740; 1971; IA,549; 1972: L5,9414; 1973: L5,330; 1974: 16,853; and 1975: LB,510. HONDURAS EWKESA NACIONAL DE ENklGIA ELXCfiICA F(AJia'H POWER PROJEUT ACITIAL AND PROJECTED BALANCE SHENT tin thoioanda of Lempirats 1973 1974 1975 Actual Pojected Difference Actual Projected Difference Actual Projected Difference ASSETS Utility Plant at Coat 125,756 154,051 (28,295) 164,638 160,271 4,367 218,F 191,073 27,357 Leas: Accumulated Depreciation 26,503 26,358 145 31,059 30,874 185 47,177 35,732 11,445 Net Utility klant in Service 99,253 127,693 (28,440) 133,579 129.397 4,1132 171,253 155,341 15,912 Work In Progress 27,206 9,060 18,146 9,176 25,540 (16,364) 23,287 41,640 (18,353) Net Utility Plant 126,459 136,753 (10,294) 142,755 154,937 (12,182) 194,540 196,981 (2,441) CURRENf ASSETS Cash 47( 1,352 (855) 615 1,712 (1,073 1,965 2,039 (74) Accounts Receivable 6,555 6,530 25 6,757 7,676 (919) 9,605 6,200 3,405 Materials and Supplies 6,906 4,300 2,606 9,563 4.550 5.013 14,907 8,000 6,907 Prepaid Expenses & Oter3 400 (27 491 440 51 545 800 0552 su-TorAL IV1N31 12,552 .749 3778 368 27,022 17,039 9,9u3 Long-teru Receivables - - - 326 - 326 302 - 302 Deferred Charges - Foreign Exchange Lossee 6,853 - 6,853 6,897 - 6,897 - - - Preliminary Investigations & Studies 7 5.670 9,61 3,650 TOTAL ABSETS 155,203 151,523 3,680 175,462 171,703 3,759 231,480 217,670 13,810 EWUITY AND LIABILITIES Capital & Retained Barnings 59,414 67,648 (8,234) 64,720 80,411 (15,721) 69,3161 93,935 (24,594) Revaluation Reserve 5 - - - 37,725 TOTAL EQUITY 9Til4 6TTiB 6U,_5A 0 BiiTI T5721 107,o69 93.935 13,131 long-Term Debt 89,275 78,695 10,580 101,471 86,112 15.359 115.367 116,935 (1,568) Less Current Liabilities 22tP8 9813 4966 5,146 9 5389 Net Long-Ters, Debt 82.253 73, 541 -tu Bili ~ 10,213 10638 ffw3, (5,15) CURRElT LIABILITIES Current Maturities 7,022 5,083 1,939 9,813 4,667 5,1A6 8,979 5,389 3 590 Customer Deposits 1,308 1,230 78 1,484 1,350 134 1,693 1,800 (107) Notes and Accounts payable 3,2144 2,500 744 5,343 2,750 2,593 4,121 3,500 621 Accrued Expenses 1,962 950 1,012 2,444 1,050 1,394 3,233 1,500 1,733 Overdraft - 500 5) - - - - - - SUB-TOTAL 1356 3.273 oi 9517 9,267 1,026 12,159 5,537 TOTAL 5509 23O1_8L 21Y.6 13A1 Debt-Equity Ratio 60/40 54/46 6/6 61/39 52/48 9/9 50/50 55/45 (5/5) Net Working Capital 795 2,319 (1,524) (1,660) 4.561 (6,221) 8,996 4,850 4,146 on 0 Current Ratio 1.06 1.23 (0.17) 0.91 1.40 (0.55) 1.50 1.4o (0.10) 3/ Reflects assets revalued as of December 31, 1973. HONDURAS EMPRESA NACIONAL DE ENERGIA ELECTRICA FOURTH POWER PROJECT INCREMENTAL RATE OF RETURN BASED ON ACTUAL INVESTMENT 00STS (in thousands of constant 1970 lempiras) 1970 1971 1972 19,73 1974 1m9M619793 Incremental RevenuesV - - - 726 2,618 3,396 4,464 6,460 Incremental Investment Costs 75 2,895 5,837 il,382 8,132 630 - - Incremental Operating Costs 2// - - - 130 139 382 643 930 Incremental Fuel Costs V2/ . - - 14 14 404 987 1,415 Tner-mental Rate of Return - - - - - - 10.95 / Based on actual sales for the areas of El Progreso, Tela Railroad Co., Tela, and La Ceiba (se: Annex 4) and actual average revenue data in constant 1970 centavos, as follow: Marginal Average Revelue Year Sales per kWh Sold (inGWh7 (in constant 1970 centavos) 1973 11.2 6.48 1974 4.5 5.63 1975 51.3 6.62 1576 69.1 6.46 1977-1993 100.0 6.46 2/ Marginal operating costs related to the project for the years 1973-1976 vere estimated by applying to total marginal operating costs the ratio of marginal sales from the project to total marginal sales, as follows: Year Total Marginal Operating Costs Ratio of Marginal Sales from Project to To al Marginal Sales (in thousands of constant 1970 lempiras) 1973 534 .243 1974 34o .408 1975 1,151 .332 176 1,827 .352 / Marginal operating costs related to the project for the years 1977-1993 were computed by applying the average operating cost of marginal project sales (in 1976), to forecasts of marginal project sales (L 930,000 = L 643,000/69.1 GWh x 100 GWh). Marginal fuel costs related to the project for the years 1973-1976 were estimated by applying to total marginal fuel costs the ratio of marginal sales from the project to total marginal sales, as follows: Year Total Marginal Fuel Costs Ratio of Marginal Sales from Project to Total Marginal Sales (in thousands of constant 1970 lempiras) 1973 56 .2Lo 1974 34 .408 1975 1,216 .332 1?76 2,781 .352 / Marginal fuel costs related to the project for the years 1977-1993 were computed by applying the average fuel cost of marginal project sales (in 197!' to forecasts of marginal project sales (L 1,415,000 = L 978,O00/69.1 GWh x 100 GWh).  HONDURAS EMPRESA NACIONAL DE ENERGIA ELECTRICA INTERCONNECTED POWER SYSTEM (Only main facilities are shown.) GULF OF HONDURAS TRUJILLO PUERTO CORTES TELA EL PORVENIR.p LA MASICA-- OG - -~~- ISLETA . SAN PEDRO SULA D COYOLES . OL AÅ MA .. BUFALO EL PROGRESO REMOLINO R0o 0 20 40 60 LINO R/ VER KILOMETERS RIi EL CAJON _CA CANAVERAL ND SANTA BARBAR IL MOCHITO HYDRO POWER STATION ~OJO rHYDRO POWER STATION - UNDER CONSTRUCTION SANTA DIESEL POWER STATIO ROSA 0. G AS TURBINE POWER STATION - UNDER CONSTRUCTION ØGUACAMAYA A SBTTO 138KV TRANSMISSION LINE SIGUATEPEQUE 619KV TRANSMISSION LINE -- 69KV TRANSMISSION LINE - UNDER CONSTRUCTION ··........ 34.5KV SUBTRANSMISSION LINE COMAAGUAPOTENTIAL HYDRO POWER SITE MG PROPOSED GAS TURBINE POWER STATION A PROPOSED SUBSTATION LA ESPERANZA 0 PROPOSED 138KV TRANSMISSION LINE LA PAZ PROPOSED 69KV TRANSMISSION LINE *..".PROPOSED 34.5/13 SKv SUBTRANSMISSION LINE MARCALA O LAMANI ~go TEGUCIGALPA Ø G . DANLI PESPIRE NACAOME ¾SAN LORENZO - CHOLUTECA MEXICO k*¥RA PACFIC PACAOMEOC OCEAN OCEAN MARCH 1970 IBRD 2913