Philippines - Binga Hydroelectric Project

RETURN TO REPORTS E R E S T R I C T E D NEeEReport No. TO-156a This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy of completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF THE BINGA HYDROELECTRIC PROJECT LUZON, PHILIPPINES November 5, 1957 Department of Technical Operations  CURRENCY EQUIVALENTS $1.00 = 2 pesos 1 peso = U.S. $ .50 I million pesos = U.S. $500,000  CONTENTS PAGE SUMEARY I. INTRODUCTION 1 II. THE POWER IviARKET 3 Area to be served by Binga 3 The Manila System 3 The Provincial System 4 Luzon Grid System 6 Mindanao 6 III. DEVELOPIEEIT OF GENERATION RESOURCES 7 Existing plant on Luzon 7 Program of new plant on Luzon 8 Mindanao 9 IV. THF, BINGA PROJECT 9 Descriptiorn of project 9 Cons-truct,o n Grganization 10 Progress to date on Project 11 Schedule cf Construction 11 Operation of the Project 12 Cost of the Project 12 Financing the Project 13 Comparison of Binga with thermal alternatives 13 Estimated costs of production and revenues 14 V. FINANCIAL ASPECTS 16 Present Capitalization and earnings record 16 Forecast of future earnings and cash flow 17 Suggested alternative 17 Rates 18 VI. CONCLUSIONS 18  ATTACPMENTS Map of Luzon Island and Luzon Grid System . . . . Frontispiece ANNEX 1 Manila - data on past electricity supplies AMIEX 2 Luzon Provinces - data on past electricity supplies AFINEX 3 Construction Expenditure Schedule ATNMEX 4 Comparison of Binga with thermal i ternative ANNEX 5 Estimated costs of production at Asmbuklao and Binga ANNEx 6 Income stataments for past six years ATlh\EX 7 Balance sheets for past six years AItJLX 8 List of loans outstanding APTIEX 9 Forecast of income and cash flow statements, 1958/1967 ANNMBEXK 10 Estimated Balance Sheets, 1958/1967 ANN3X 11 F'orecast of income and cash flow statements - power operations only MNTEX 12 Revised condensed cash flow forecast - power operations only DIAGR.AM 1 Demand forecasts - MENALCO and Luzon Grid DIACGRM 2 Demand forecasts - Provincial utilities DIAGblAI 3 Demand and plant forecasts - Mindanao DIAGRPLM 4 Plant requirements - Luzon Grid  PHILIPPINES LUZON GRID SYSTEM CEPOC EXISTING 230 KV TRANSMISSION LINE PROPOSED 230 KV TRANSMISSION LINE -_____ SAN FERNANDO | OTHER EXISTING TRANSMISSION LINES OTHER PROPOSED TRANSMISSION LINES --------- 69 K n AG(OSINGA AUKLAO URDANETA R. v X Wt LUZON TARLAC, AREA* STA. ROSAI BYMA MAGALAN X OCTOBEAR 157A I G MR\N0A NASSC M N / C~~~~~~~ALIRAY 0 20 40 60 80 MILES ^ OCTOBER 1957 IBRD-390  i S UL JA RY Power development in the Philippines, with the exception of the Manila metropolitan area, is the responsibility of the National Dower Corporation (N;IPC). In ilanila the responsibility for electricity supply rests with the 1.anila Electric Uompany (;I.RALCO), a subsidiary of the General Public Utilities Corporation of ETew York. The Government of the Philippines, on behalf of NBJC, has asked the Bank for a loan to finance the foreign exchange requirements for the construct- ion of the Binga hydroelectric project on Luzon Island. Tne estimated total cost of the project is equivalent to $52.8 rmillion of which $21 million is required in foreign exclhange. The local currency expenditures rrill be financed by 30 year iP1C bonds issued through the Central Bank. 'The project will have a capacity of 100 1.1i and is already under con- struction. It should come into service in the spring of 1960 and is the second of wix projects contenpla-ted for the development of the hydro-power potential of the Agno and Toboy rivers, 110 to 135 miles north cf imanila. The first project of the scheme, Ambulclao (75 i.0W) was brought into service in Decenber 1956. The estimated ultimate capacityr of the scheme is 420 11V. The scheime incluides 230 1GV transmission lines, for delivery of power to l.'L.LC0 at .aniila, together witlh lower voltage transmission to supply some of the Provincial towns and iAnes. Part of this transmission system was pro- vided wimth Ambuklao and further major transmission work is included in the estimated costs of Binga. The project is being constructed entirely by contract and most of the orders have been placed, folloxing satisfactory procedure. Ihe construction is being supervised and coordirated by JPC which has retained as consultants Tippetts-hbbott-i.fcCarthy-Strat-ton (Ti SlO) of New York in association with the Engineering Development Corporation of the Philippines. This arrangement is considered satisfactory subject to si.mall augmentation of the TilS resident staff. From the engineering point of view the project is sourcd. It is ex- pensive, costing $528 per kilowratt of nameplate rating, including transmaission. Compared with an alternative oil fired steam station, however, the saving in annual operating costs would represent a return of 8.9% on the additional cap- ital investrmaent. This is considered adequate to justify the project in pref- erence to the thermal alternative. The power market study for the area covered by the Luzon grid system, to which Binga will contribute, indicates that the prospects of load growth are good. The demand and energy estimiates adopted .would require the installa- tion of some 300 i,;W of new plant in addition to Binga over the next ten years 1957/8 to 1966/67. These estim.iates may well prove to be conservative.  ii The development of the provincial supplies to be connected to the system wvill depend to a large extent on the availability of foreign currency for distribu- tion expansion. Arrangements have been made that this aspect, together iw'ith the provision of technical advice and some central coordination of development will be given special attention. In addition to the power development on Luzon, NPC has plans for de- veloping the 4gus river hydro schemze on Llindanao. The first station in this scheme, Miaria Cristina, at present has an installed capacity of 50 113V which supplies a steelworks, a carbide plant and a fertilizer plant, the last owned and operated by IPC. Farther industrial development, including major ex_. tensions to the steelworks and additional fertilizer plants, is contemplated which wrould require the installation of 250 idllV of additional hydroelectric plant on the Agus river by 1962. M'1PC also has constructed a number of small isolated hydro stations on the various islands to mieet local demands and has plans for extending this development. A program of power development and financial forecasts has been pre- pared covering all the projected operations of UPC over the next ten years 1957/58 to 1966/67, including the existing and projected fertilizer plants on lMTindanao. Tne financial forecasts in.dicate that the net receipts fromn IPC's o-oerations will little more than cover debt service. The Goverrnment has in- dicated its readiness to seek legislation transferring the fertilizer plants to a separate Government Agency but apart froam this the electricity supply operations of 1hiPC should be run on sound financial lines. Some substantial increase in revenues from the sale of electricity would be necessary to ensure this. A study has been prepared on this subject, making certain reasonable assumptions regarding NPC's future development program. This study has slhown that an increase of 25%, in the revenues of sales from. electricity would in- crease the debt service coverage on the powrer business to 1.5 from 1959/60 to 1963/64, rising to more than 1.8 by 1966/67. This would also enable NqPC to meet out of its own resources about 30% of the capital required for its power expansion program between 1959/60, wvhen Binga should be commissioned, and 1966/67. This would be considered a satisfactory position and NPC has under- taken to adjust its tariffs to secure an increase in its electricity revenues of this magnitude.  1 I. INTRODUCTION 1. With the exception of the Mlanila Netropolitan Area, power development in the Philippines is the responsibility of the National Power Corporation (NEC). Electricity supplies in Manila are the responsibility of the Mianila Electric Company (EIERALCO) which is a subsidiary of the General Public Utili- ties Corporation, a holding Company with headquarters in New York. 2. NPC was constituted by Act of Congress in 1937. It is governed by a Board of Directors composed of a chairman, vice-chairman and three other members, all appointed by the President of the Philippines with the consent of the Conmission on Appoi