Haiti - Third Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3592b-HA STAFF APPRAISAL REPORT HAITI THIRD POWER PROJECT June 14, 1982 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 aulthorization.  Currency Equivalents (June 1981) Currency = Gourde (G) GI = 100 centimes (c) G5 = US$1 G1,000 = US$200 G1,000,000 (MG1) = US$200,000 MUS$ = US$1,000,000 (MUS$1) Can$1,000 = US$830 DM1,000 = US$417 Fr. fr. 1,000 = US$187 Weights and Measures 1 meter (m) 3 3.281 feet (ft) 3 1 cubic meter (m ) = 35.32 cubic feet (ft ) = 264.2 gallon (gal) = 6.290 barrels (bbl) 1 kg = 2.206 pounds (lb) 1 ton (t. metric; 1,000 kg) = 1.100 short tons (sh.ton) 1 kilowatt (kW) = 1,000 watts o10 W) 1 megawatt (MW) = 1,000 kW (10 W) 3 1 kilowatt-hour (kWh) = 1,000 watt-hours (10 Wh) 1 gigawatt-hour (GWh) = 1,000 MWh 3 1 kilovolt (kV) = 1,000 volts (10 V) 1 kilovolt.ampere (kVA) = 1,000 volt. agperes (10 VA) 1 megavolt.ampere (MVA) = 1,000 kVA (10 VA) 1 kilocalorie = 3.968 British thermal units (Btu) I hertz (Hz) 1 cycle/second ,..per ..-.. . ... per second; ... per hour =/s. ./h ... per day; ....per year =/d. ./a million cubic meters 3 per year = Mm /a Glossary of Abbreviations EdH = Electricite d' Haiti EEC = Member States of the European Economic Community CIDA Canadian International Development Agency KfW = Kreditanstalt fuer Wiederaufbau (Federal Republic of Germany) UNDP = United Nations Development Programs ONA Office Nationale d'Assurance HQI = Hydro Quebec International SOFRELEC = Societe Francaise d'Etude et de Realisation d'Equipements Electriques Fiscal Year October 1 - September 30  FOR OFFICIAL USE ONLY HAITI ELECTRICITE D'HAITI THIRD POWER PROJECT TABLE OF CONTENTS Page No. 1. THE SECTOR ........... 0,., , ..*.............. 1 Indigenous Sources of Energy ............................. 1 Sector Organlzation and Regulation ..................... 6. 2 IDA's Participation in the Sector ................... 3 Network Standardization ........................ .* .* 5 Power Market ...................... ............... . 6 Captive Plant ................... . 7 Electrification of Provincial Towns and Areas. . 7 Sector Investment Program.... . . 7 Tariffs and Rates .............. . . .... o....... ....*... 8 20 THE BENEFICIARY ..................................... . 9 Institutional Framework . ....................... 9 Organization and Management .............................. 9 Training ........................... 10 Provincial Operations ....................... 11 Management Systems, Accounting and Audit . .11 3. THE POWER MARKET ..................... 12 Historical Data and Existing Power Facilities .12 Forecasts ................. ......... o. ....... 15 4. THE DEVELOPMENT PROGRAM AND THE PROJECT . . .17 Development Program ............................. 17 The Project ........................................ 18 Objectives ........ ................................. 18 Description .................. ................ . ........ 18 Cost Estimate ............................. .. .. . 20 Financing ..................................... .... 21 Retroactive Financing . . ................................. 22 Engineering, Construction, Management . . .22 Implementation .............. .. . 22 Training ................ ................ . .... . 22 Procurement and Disbursement ... . ......... 23 Environment .................. ..... 23 Project Risks.. . .............. 23 Project File ............ ................... 23 This report is based on the findings of an appraisal mission which visited Haiti in July 1981. The mission comprised Messrs. A. Barbu (Financial Analyst), L. Luzuriaga (Power Engineer), and W.F. Kupper (Consultant). 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.  TABLE OF CONTENTS (Continued) - 2 - Page No. 5. FINANCES .................... ... .... ........* * * * 24 Financial History and Current Position 24 Prospects for FY82. ........ ..... .......... 24 Financing Plan ........ , ........... .*** ..................... 25 Future Finances . 26 Performance Indicators and Reporting....................... 27 6. ECONOMIC ANALYSIS ... ...................... . ...... 28 Network Evaluation e ...... .. .......... . .o.# ...... ...... 28 Comparison of Generating Developments ................. 28 Internal Economic Rate of Return on the 1981-86 Investment Program ... so....a. .........ee. 31 7. AGREEMENTS REACHED AND RECOMMENDATION 33 ANNEXES 1.1 Electricity Tariffs as of May 1, 1982 35 2.1 Organization Chart . ... .. ................... 36 3.1 Historical Power Data ....... . .. ..... 37 3.2 Distribution of Electricity Consumption in Port-au-Prince, Estimates for 1981 . .... . 38 3.3 Existing Generating Facilities as of July 1981 39 3.4 Forecast Energy Balances .. 40 4.1 1981-86 Development Program Expenditures Schedule s 41 4.2 Project Cost Estimate . .... ... . ... .... . . ......... 43 4.3 Project Implementation Schedule .....................so. 44 4.4 Credit Disbursement Schedule ........................... 45 4.5 Contents of Project File... .... .......... .. 46 5.1 Actual and Forecast Income Statements 1978-86 47 5.2 Estimated and Forecast Funds Statements 1981-86 48 5.3 Actual and Forecast Balance Sheets 1978-86 . .49 5.4 Estimated Performance and Monitoring Indicators .. 50 5.5 Actual and Forecast Rate Base 1978-86 51 5.6 Statement of Changes in Work-in Progress .. .52 5.7 Terms of Existing and Future Loans . . .53 5.8 Forecast Debt Statements 1981-86 ........ 54 5.9 Fuel Cost Forecasts..... ... 55 6.1 Energy Balance for Planting-up Purposes . .56 6.2 Capacity Balance for Planting-up Purposes. 57 6.3 Comparison of Alternatives . 58 6.4 Rate of Return on the 1981-86 Investment Program .64 MAPS 1 - Third Power Project, General Description 2 - Third Power Project, Port-au-Prince System  1. THE SECTOR Indigenous Sources of Energy 1.01 Haiti's indigenous energy resources are limited to hydro power and some coal (lignite). Four sites suitable for hydro developments have been identified 1/ on the Artibonite river downstream from the existing 47 MW Peligre plant, Electricite d'Haiti's (EdH) only larger hydro station. On the Guayamouc river, a tributary to the Artibonite, additional potential could be developed at two small dams that would be constructed to decrease siltation of the Peligre reservoir 1/. The aggregate installed capacity of these new developments would be about 90 MW, generating about 550 GWh/a. 1.02 Small lignite fields have been identified 1/ at Maissade and Camp Perrin. A preliminary investigation of Maissade initially indicated reserves sufficient for development of a steam power station, but subsequent more detailed surveys financed by the Federal Republic of Germany, have cast some doubts on this conclusion. The lignite deposits now appear smaller and more exploration is needed to reach a final conclusion. 1.03 Charcoal is used extensively for domestic and small industrial purposes; highly valued trees, e.g. mahogany, are still felled for its production. A Bank energy mission which visited the country in 1980 2/ estimates that, in 1979, wood accounted for about 72% of Haiti's gross energy use of some 69 x 1012 Btu, bagasse (sugarcane waste) for 8%, petroleum products for 17%, and hydro power for 3%. Due to the high use of wood, much of the country has been denuded of trees; land erosion is progressing rapidly and considerable areas of once fertile land have been stripped of soil. 1.04 Various public institutions in Haiti are at present engaged in evaluating solar energy technologies, windpower, ethanol production from sweet sorghum, etc. Although some of these technologies have been economi- cally proven in specific instances, they are unlikely to have a substantial impact on the energy supply situation; furthermore, they divert the scarce technical and managerial capability from more urgent development objectives, and in the case of the ethanol project, implies sub-optimal use of already scarce land. 1.05 Haiti's large agricultural sector offers opportunities for con- verting agro-industrial waste products into usable forms of energy. However, further investigation 1s required to determine the volumes and geographic location of potential materials (besides sugar bagasse which is already being used (1.03)), such as those derived from coffee, cotton, vetiver, urban waste, etc., before alternative technologies and demonstration plants can be considered. 1/ See Annex 4.5: Project File information. 2/ Report No. 3672-HA.  - 2 - 1.06 The siltation of the multipurpose Peligr s reservoir has increased markedly from the original estimate of some 3.3 Mm /a in 196 to 6.5 Mmn3/a in 1980 and its useful volume has declined from about 470 Mm 2to 375 Mm Annual silk carried by the river increased from some 280 t/km .a to 1,500 t/km .a; the reservoir may be complet2ly filled around the year 2020. It is estimated that presently about 2.6 km of agricultural and forest lands is los each year of the upstream Thomonde and Samana basins (total area 343 km ). Siltation could be decreased by about 30% by the construction of two small dams on the Guayamouc river. A further decrease of some 40% could be made, should it be feasible to construct a dam in the region of the border with the Dominican Republic. Finally, embankment improvements, reforestation and improvement of land use would allow an extention of the useful life of the reservoir still more. Because the irrigated area fed by the Artibonite river is relatively small (24,000 ha) it would be largely unaffected in the medium term (some 20 years) by the siltation problem. The main beneficiary of any reduction in siltation during this period would be hydro power since any power plant would, to a large extend, be converted from the regulated type of generation to the run of the river type. The design of any new plant, therefore, depends on the timing of upstream actions to be taken to decrease siltation. First priority has been given to plans to close the Guayamouc river, i.e., to impound silt in an additional reservoir. The Government is also planning to create a special agency to follow-up on consultants' recommendations for improved land use and contacts have been made with the Dominican Republic to investigate the feasibility of construct- ing a further dam on either side of the border. The proposed third credit would finance the Guayamouc surveys and detailed study. A dam alignment study and an optimization study of future dams and power facilities in the basin is being financed by the Association's second credit (895-HA). 1.07 Haiti is wholly dependent on imported oil derivates since the country neither has local petroleum sources nor a refinery. The estimated 1979 consumption was 1.79 Mbbl, of which 15% was consumed by the cement factory, 3% by bauxite production, 9% by EdH, 38% by road transport, 10% by aviation, and the remaining 25% by others, including some 2% in gas and 3% in kerosene for household purposes. Although surveys have indicated the possibility of some off-shore oil, exploratory efforts have, so far, been unsuccessful. However, it is possible that oil fields of some significance could be found in the foreseeable future, once more exploration is carried out. Sector Organization and Regulation 1.08 EdH, an autonomous Government agency, is the sole entity responsible for power supply in Haiti. It was established in 1971 to take over the Government-owned Peligre hydro plant and the privately owned Compagnie d'Eclairage Electrique of Port-au-Prince and Cap Haitien, whose concession expired that year. In 1974, it was also entrusted with the operation of various isolated power facilities in the provinces, mostly Government-owned.  - 1.09 The authority to regulate the power sector is vested in the President of the Republic of Haiti and exercised through key officials who also form EdH's Board of Directors (2.03). There is no separate regulatory body as such, and EdH's 1971 decree, as amended in 1977, states that tariffs, as well as investment programs and borrowings, are to be approved by the President of the Republic with the advice of the Board. IDAs Participation in the Sector 1.10 In 1976, the Association made its first credit (645-HA, MUS$16.0) for power development in Haiti, covering investments for 1976-78. The benefi- ciary was EdH. The Association made its second credit (895-HA, MUS$16.5) in 1979 covering 1979-82, complemented by funds from the European Economic Community (EEC, Special Action Credit 4-HA of MUS$6; with IDA acting as Administrator) and by a grant (MCan$17.1) from the Canadian International Development Agency (CIDA). Further assistance, on an annual basis is provided by the Federal Republic of Germany through the Kreditanstalt fuer Wiederaufbau (KfW). These international financing agencies meet annually in Port-au-Prince with EdH to discuss future financing possibilities for the power sector. The most recent meeting, in March 1980, also included the Inter-American Development Bank (IDB) which is now financing the la Chapelle hydro development study (the next largest hydro developent after Peligre) and may assist in financing this plant located downstream from Peligre. At the time of the first credit, the Association recommended carrying out a five-year program (now effectively 7 years) in two stages, in view of financial constraints on both external and counterpart funds and the need to strengthen EdH institutionally before it undertook larger investments. The first and second projects overlapped and in most respects constitute a single program. 111 The main objectives of the IDA-assisted projects were technical and institutional, to provide a sound basis for long-term development. Haiti had a history of power shortages, obsolete facilities and lack of managerial, technical and administrative skills. Technically, the first project addressed the need to promptly install 21 MW additional diesel generating capacity in a new powerstation (Varreux), followed by another 21 MW in the same station under the second project. Institutionally, EdH was to be reorganized and freed from unnecessary government interference while technical assistance was to be provided For engineering, supervision and training. In these respects, the first and second project covered the same objectives and can hardly be distinguished. 1.12 A Project Performance Audit Report on the first power project, 1/ concluded that the project's institutional objectives were largely fulfilled, whereas the technical ones were only partly fulfilled due to substantial contractors' delays in the colmissioning of the Varreux power station. The realization of the second project's associated technical and institutional objectives suffered a setback in early 1979 when, due to internal controversies in EdH concerning the IDA financed contract for the Varreux station, work was delayed for about one year. When a new cabinet was formed at that time, the new minister responsible for the sector dismissed the General Manager, the Technical Director and the consultants whom he deemed responsible for the delays, without prior consultation with IDA. These occurrences caused serious 1/ Sec. M80-948 of December 30, 1980.  - 4 - repercussions in EdH, a delay of about one year in effectiveness of the second credit and delays up to one and a half years in both the institutional and technical aspects. Cost increased commensurately which, in turn, forced a cut in the project, mainly in distribution, in order to remain within the funds available. By allowing overlapping consulting services, the Association has endeavoured to minimize the effect of these occurrencies. The new general consultants (Hydro-Quebec International, Canada), as could be expected, differed in opinion from the previous consultants on how to reach objectives and needed time to adjust to the particular situations in EdH. The consultants for improving EdH's administration (Price Waterhouse of Canada) were engaged with several months delay. Similarly, CIDA's consultants for the second project (BELT of Canada) were engaged 8 months late; in total the CIDA program's main component, transmission, is expected to be about 12 months late. The only component that was not delayed by more than 3 months was the main techni- cal item in the IDA/EEC project: the extension of the Varreux power'.station. The contractor was able to decrease the estimated completion time of 27 months to about 20 months. Renovation of the Port-au-Prince network, however, has not even started due to design changes and because of the mobilization time needed by the new consultants. 1.13 The present situation is as follows: (a) EdH has implemented substantial organizational changes and is in the process of introducing further important steps, particularly in the financial departments, as suggested by Price Waterhouse. Experienced staff is still largely lacking, but on-the-job training has markedly improved administrative capabilities. (b) A number of engineers, accountants and technicians were trained substantially as envisioned under the first project. A training center for lower level technicians, financed by the first credit, was opened in March 1980. A similar center for diesel station operators would be ready in August 1982 under the second project. After a delay of about one year, training of specialists started again and local training by experts from the general consultants is under way. A subsequent program which would be financed by the third project, has been designed to ensure continuity. (c) A new tariff structure and rates were instituted under the first project. This, coupled with improvements in operating efficiency, has resulted in the present satisfactory financial situation of EdH. The latter, however, is also in part the result of lower than anticipated investments, due to the technical delays referred to above (1.12). (d) The first phase (21 MW gross) of the power station at Varreux, financed by the first credit, was completed (15 months late) in June 1978. Due to cooling system deficiencies, the station cannot be operated at more than 90% of capacity and it has suffered many unscheduled outages due to poor contractor performance and lack of experience in maintenance procedures. However, actions to improve the situation have been taken since the new consultants have been appointed. A team of diesel experts have evaluated the technical conditions at Varreux, identifying as the main problems unsatisfactory  erection-workmenship of the auxiliaries and underdimensioning of the lub-oil heat exchangers. This is expected to be corrected after the Varreux extension (see below) is operational, i.e. in 1982. A diesel expert/operator from the consultants was assigned to train personnel at Varreux. A two-year maintenance sub-contract was included in the contract for the Varreux extension, as well as a training component for the initial period of operation. Negotiations are underway with a brewery to allow access to an ample source of cooling water rather than the municipal potable water system. The cooling system for the Varreux extension is of the radiator, air-cooled, type. The 21 MW (net) extension, financed under the second project, was commissioned by the end of 1981, just prior to the beginning of the dry season. (e) The main transmission lines and substations (first project) were completed substantially on schedule. For the second project (CIDA financing) the consultants have redesigned the system, requiring changes in the present layout. Completion (lines will be doubled, some added, together with the extension of some existing substation) is now expected by about September 1983, except for the IDA financed extension of the substation which connected Varreux to the network in September 1981. 1.14 The Bank acted as executing agency for two UNDP-financed studies: a sector study, completed in 1979 and the study of the siltation of the Peligre reservoir 1/. These studies, together with the CIDA-financed study of the country's hydro resources, provided the necessary basic information for the formulation of the development program under the second project and the proposed project; in fact, these studies largely outline required sector development until about 1990, subject to timely adjustments in the light of new and updated information. Network Standardization 1.15 The existing supply system in Haiti is largely based on American standards and practices. The frequency is 60 Hz and the supply voltages are: - High voltage: 115 kV (Peligre - Port-au-Prince); - Medium voltage: 12.47/7.2 kV and 4.16/2.4 kV; - Low voltage: 120/240 V - 3 wire, single phase and some 120/208 - 4 wire, three phase. Under KfW financing, EdH had introduced the European type of network at Cap Haitian and in the Gonaives-St. Marc-Drouet area (medium voltage 23 kV, low voltage 120/208 V - 4 wire; 60 Hz). During the March 1981 Sector Meeting, EdH and the external financing institutions agreed that the further extensions in the country would be based on American standards. The general consultants are presently designing the construction standard for networks, which would apply throughout the country, for submission to a coordinating committee comprising EdH and the consultants financed by the various financing institutions. 1/ See Annex 4.5: Project File information.  -6- Power Market 1.16 Historical consumption and supply data is available only for Port-au-Prince as shown below; data has been collected for the provinces only since 1977 (3.01). 1972 1977 1980 Port-au-Prince 1/ GWh % GWh % GWh Residential 19.9 34.0 ( 57 44.5 69.5 35.2 Commercial 12.9 22.0 ( 5 * 10.7 5.4 Industrial 17.9 30.6 60.0 45.5 100.8 51.1 Public Lighting 2.7 4.6 6.5 4.9 7.1 3.6 Others 5.1 8.8 6.7 5.1 9.2 4.7 Total Sales: 58.5 100.0 131.9 100.0 197.3 100.0 Losses 2/ 32.9 36 41.0 24 74.0 27 Generation (GWh) 91.4 172.9 271.3 Maximum Demand (MW) 21.4 37.2 54.0 1/ Data has been reanalyzed and differ from previous information. 2/ In GWh and % of generation. The notable features of this development are that (a) industry's share in the market increased from about 31% to about 51%; (b) losses declined from 36% in 1972 to 24% in 1977, but again increased to 27% in 1980 in the aftermath of EdH's internal difficulties (1.12). It should be noted that generation in the provinces (3.01), about 27 GWh in 1980, accounts for only about 10% of total generation. 1.17 The proportion of Haiti's population with access to electricity is extremely low. By the end of 1980, EdH had about 69,000 consumers, of whom about 15,000 (18% of total, consuming 9% of total sales) were in the provinces. Assuming five persons per family among the about 800,000 inhabitants of Port-au-Prince, connection density in this city would be about 34%, compared with some 29% in 1977. Access to electricity in the country as a whole (some 5 million inhabitants) is only 7% compared with about 5% in 1977. The distribution of energy consumption is very uneven; in Port-au-Prince nearby half of EdH's residential consumers are presently estimated to account for only 2.5% of total consumption (3.05), whereas industrial and commercial consumers together account for about 60%. The average per capita generation in the city is about 28 kWh/m. The low level of connection density and of consumption may be attributed to the extreme poverty of the population: with a per capita GDP of US$270 in 1980, Haiti is the poorest nation in the Western Hemisphere and one of the 30 poorest in the world.  - 7 - Captive Plant 1.18 Little is known about captive plant capacities and generation. The largest plants are owned by Ciment d'Haiti (6,250 kW, and an additional 4,000 kW planned), the HASCO sugar factory (2,250 kW) and the Minoteric d'Haiti (1,000 kW). Some 6,000 kW in small units were imported during the record dry year 1977 and a large number of small units have been installed all over the country (e.g., many hotels have their emergency units) but no information is available on their locations and capacities. A rough estimate sets captive plant capacity at some 20-25 MW, all thermal type. Electrification of Provincial Towns and Areas 1.19 Because of financial and planning constraints, EdH has not yet been able to define a program for rural and village electrification. A modest program of rehabilitation in the provinces financed by KfW has virtually been completed. A new power station was built at Cap Haitien, Haiti's second largest city. Of the six 850 kW diesel units installed, 4 were financed by the Government and 2 by the Association. CIDA will finance another 2 units under the second project. The networks were completely renovated. Additionally, KfW financed a 3,000 kW hydro plant at Drouet and the renovation of networks in the St. Marc and Gonaives areas. The Government, mostly on an ad-hoc basis, has instructed EdH in the last few years to electrify a number of small villages, for which programs were not included in EdH's annual budgets. Since 1977, this has increased the number of villages with electric service from 12 to 26. A comprehensive village electrification program is desirable and is being developed by CIDA, which is considering the possibility of further assistance in financing socially beneficial projects (e.g., rural electrification). 1.20 Although village electrification should be encouraged, EdH's financial position at present should not be endangered by unscheduled expenditures. Also, early planning is an obvious requirement for sound development. For these reasons, the investment limitation covenant under the second project, stipulating that any single EdH investment in the power sector which exceeds 1% of its net fixed assets requires IDA's agreement, has been expanded to include the requirement that the aggregate annual amount of unbudgeted invest- ments in village and rural electrification should not exceed 0.2% of net fixed assets, unless IDA otherwise agrees. Sector investment Proram 1.21 Power sector development in Haiti and the sector expansion program of which the proposed project is part, are based on an elaborate UNDP-financed "Long-term Pre-investment Study of the Power Sector", executed by the French consulting firms SOFREMINES and SOFRELEC during 1976-78, and supervised by IDA. This study has been updated and complemented under the second IDA power project by a Canadian consortium of consultants led by Hydro-Quebec International (HQI), who since 1980 have been retained as general consultants to the Haitian national power company. The conclusion of both studies is that the economic and social situation of Haiti make it necessary to develop immediately an expansion program and to invest in the power sector without delay, in order to supply the main urban centers with electricity. The 1981-86 development program is described in paras. 4.01-4.02, The immediate needs (up to about 1984) would be met largely by the proposed IDA credit, some continuing KfW contributions and the possible 1DB assistance for EdH's next hydro plant at La Chapelle (about 30 MW).  In essence, possibilities for financial resources for EdH's other future hydro plants and some additional thermal plant have not yet been identified except to the extent of EdH's own internal contribution of about 34% (5.05). EdH investment priorities would be (a) a further increase in generating capacity in Port-au-Prince in 1984, 1985 and 1987; (b) completion of the La Chapelle hydro plant; (c) comple- tion of the Guayamouc I hydro plant (as the first high priority step to decrease siltation); (d) continuation of the renovation of the Port-au-Prince networks; (e) expansion in the provinces; (f) initiation of construction of the remaining hydro plants on the Artibonite river; and (g) preparation for a larger thermal plant addition by the end of this decade or early in the next decade (large capacity diesel or coal fired steam plant). Tariffs and Rates 1.22 In 1976, EdH implemented a new tariff structure in Port-au-Prince, which was later extended to the country as a whole, based on the principle of marginal costing, but modified to allow social pricing below a certain level of consumption for low income families and small artisan workshops. A fuel cost adjustment clause was implemented at the same time to compensate for fuel cost changes as well as an adjustment clause to take account of variations in the cost of salaries and materials. The latter clause, however, was never applied and now appears redundant because the relevant cost increases are adequately covered under the minimum 8% rate of return covenant included in the IDA Credit agreements. The frequency of fuel clause adjustments was changed in late 1979 from a yearly to a quarterly basis, following IDA's suggestions. Current tariff levels (include fuel surcharge) are about in line with EdH's long-run marginal cost. The general consultants, as a routine matter, are reviewing the adequacy of the tariff structure, 5 years after imple- mentation; this study should be completed no later than September 30, 1982. 1.23 The social part of the rates (Annex 1.1) is reflected in the residential charge (including fuel adjustment) of USI10.8/kWh for consumption below 30 kWh/m. The next 170 kWh/m are charged at USJ12.9 and any excess at USJ14.4/kWh. The minimum monthly bill is US$2.97. Because 43% of EdH's consumers have a monthly consumption below 30 kWh, a strong social cross subsidization is apparent (3.05). Cross-subsidization is also strong for the provinces, since v rage revenues do not even cover the cost of fuel (estimated at USll/kWh). Although since 1979 the electricity supply in the provinces rose from about 7% to 10% of the total country supply, the subsidy does not yet pose an undue financial burden of EdH. However, the company will have to monitor carefully the revenues-versus-cost situation in the provinces as compared with that of Port-au-Prince, because of the higher growth in the provinces. A reasonable balance of relative cross subsidization should be maintained; the forthcoming updating tariff study (1.22) would provide information on the current and future level of the cross-subsidy.  2. THE BENEFICIARY Institutional Framework 2.01 The beneficiary of the proposed IDA credit of MUS$26 would be EdH, an autonomous Government-owned agency, established by presidential decree in 1971 (1.08) as a corporate entity whose president is the President of the Republic. The decree specifies that, for ordinary transactions ("travaux ordinaires"), the president delegates his authority to the Minister of Public Wo* ks Communications and Transport who is the chairman of EdH's Board of Directors 2.02 The 1971 decree establishing EdH, and subsequent amendments thereto, state that the generation, transmission and distribution of electricity constitute a State monopoly to be exercised through EdH. Notwithstanding these broad powers, EdH's activities until 1974 were confined to the operation of the Peligre hydroelectric complex and the diesel facilities and networks in Port-au-Prince and Cap Haitien because any additional activity would have overtaxed the company's administrative and technical capacity. Facilities in the provinces continued to be constructed and operated by private entities, municipalities and other government agencies (primarily the Institute for Agricultural and Industrial Development and the Ministry of Public Works5 Communications and Transport). In 1974, EdH began systematically to assume control of all the public service facilities in the country. 2.03 Policy directives at EdH are set by its (ex-officio) President and exercised through EdH's Board, comprising the Minister of Public Works, Communications and Transport (Chairman); the Minister of Finance and Economic Affairs; the Minister of Commerce and Industry and the governor of the Central Bank and EdH's General Manager. No sector regulatory agency exists as such; therefore, as is the case for policy formulation, authority for regulating EdH is vested in the Presidency and exercised through the key officials on its Board of Directors. The strong governmental representation in the regulation and direction of EdH has on the whole, worked reasonably well. The Board has confined itself to approval of EdH's major investment plans, tariffs, borrowings and broad policies, and the General Manager has had, in practice, a reasonable degree of autonomy in directing the company's daily operations. Organization and Management 2.04 EdH has been organized along functional lines (Annex 2.1) since about 1977. The company's chief operating officer is the General Manager, who is appointed by the President of the Republic. He is assisted by three directors for operations, planning end administration, all of whom are appointed by the President on the recommendation of the Board of Directors. EdH has been streamlining its operations and is expected to soon formalize the major changes introduced in the administrative department in recent months. A new Chief Internal Auditor was appointed (2.13). Clear lines of responsibilities have been defined for department heads. Accounting and administrative procedures have been improved markedly and are expected to continue improving gradually while on the job training takes place. To this end, the administrative consulting services would continue to be provided, and financed, under the  - 10 - proposed credit. Courses have been initiated to prepare EdH personnel for the installation of an in house mini-computer, because dependence on outside facilities for billing has been unsatisfactory (many delays have occurred resulting in substantial delays in the preparation of financial statements). Warehouse facilities and administration have been upgraded to adequate levels. A continuing problem is the constraint imposed by the extremely cramped head office, located in two buildings. This would be solved by construction of a new single head office building, to be financed by the proposed credit (4.05). 2.05 Because the present general consultants were contracted only in July 1980, further improvements in EdH's technical departments and sections could not be initiated concurrently with those of its administrative services. With the start of renovations of the Port-au-Prince networks in the near future, chiefs and crews will be trained and procedures clearly defined, in accordance with methods that are now being designed for the distribution system by the general consultants. Operation and maintenance procedures have been improved at Varreux. Similar actions are expected to be introduced gradually in the provinces in the near future. 2.06 EdH, in mid-1981, employed about 1,050 people (about 1 employee per 65 consumers), of which about 230 are in the provinces. In general, it continues to lack sufficient depth in managerial, technical and administrative skills and it is not expected that EdH's onerously high dependency on consul- tants can be diminished significantly during the execution of the proposed third project because of EdH's rapid growth, which outstrips training capabilities. This lack typifies the country's scarcity of personnel with sufficient training and experience in the power sector. EdH's salaries are modest, ranging from US$535/m for a recently graduated engineer to US$950 for a department head or well qualified accountant. At present EdH has 41 graduate engineers (i.e., they constitute about 4% of its work force). Although training programs financed by the IDA credits have provided specific training to engineers, a number still do not fill positions commensurately with their education, partly because they could not - in the past - obtain the necessary experience (under guidance of experts) in EdH. With the changes to be introduced in the near future (2.05) this situation should be rectified. Training 2.07 Under the first project, 20 engineers and technicians were trained abroad; on the job training was provided for administrative personnel and EdH constructed a training center for which the equipment was also financed under the credit. Although training being financed by the second credit suffered delays (only a senior storekeeper was trained abroad and presently a few people are being trained by Hydro Quebec in Canada), the program is now being implemented. Senior staff (e.g., chiefs of the transmission, dispatch, and meters departments, personnel manager, etc.) will be trained abroad for a total of 15 m.m. A training specialist will assist the general training center for about 3 months and other experts will be provided by the consultants as needed. The program was revised in July 1981 with the assistance of an IDA training expert. At the same time a program was defined to be carried out under the third project in order to assure continuity (4.18).  Ii - Provincial Operations 2.08 Until recently the provincial branches largely operated rather independently from the head-office except that billing and accounting was done at Port-au-Prince where requisitions were also processed. Under the second project, a study was financed to modify the system and the consultants' recommendations are now being implemented. The objective is to decentralize activities (except centralized billing and main accounting) as much as possible, while still maintaining close head-office supervision in the application of the common rules and regulations. For this purpose, an assistant director ("coordinateur des provinces") was attached to the office of the technical director, with the responsibilities similar to those of the technical director for Port-au-Prince but restricted to the provinces. He would also report to the financial and planning directors, depending on the nature of the activities. Once enough diesel operator and maintenance people have been trained, a team would be formed to allow for improved maintenance of diesels in the provinces, which is still inadequate (to the extent possible small diesel groups are currently being repaired in Port-au-Prince). Mana ement Systems, Accounting and Audit 2.09 During preparation of the first power project, consultants (Howell & Co., USA) had been engaged to train EdH's accounting staff and help set up a new accounting system (based on the Federal Power Commission Class A system). Further assistance in the financial and administrative areas has been provided by Price Waterhouse (Canada) from November 1979 to August 1981, under the second IDA credit; their program encompassed a wide range of tasks including, inter alia, the setting up of systems for management reporting, inventory control and budgetary control, and the drafting of procedural manuals for the provinces and headquarters. Additional assistance by Price Waterhouse over a 30-month period is included in the proposed project: it provides mainly for the continuation of the on-going assistance for inventory control and personnel management as well as training of financial and administrative staff, assistance in setting up data and filing systems, and services of a data processing expert. 2.10 Upon EdH's request, Price Waterhouse undertook an analysis of the costs and benefits of acquiring an in-house computer. The study recommended in favor of such a computer, mainly in view of the unsatisfactory services currently provided by an external service bureau for EdH's residential billing, and the low cost of currently available hardware (a mini-computer with a memory size of 520 kB, at a cost of US$220,000, is deemed sufficient to cover EdH's needs for the next five years). In addition to billing, priority appli- cations would be for customers' accounts, inventory control, payroll and accounting. EdH has hired a data processing specialist who is supervising the setting up of EdH's data processing systems and ultimately would head a new data processing department. He would be assisted, over an 18-month period, by a Price Waterhouse expert, under financing from the proposed credit. The computer itself is being financed by IDA Credit 895-HA. 2.11 Since 1976, EdH's accounts have been audited by Price Waterhouse & Co. (Puerto Rico), an independent auditing firm acceptable to IDA, albeit with some delays caused primarily by EdH's own delays in the preparation of its internal financial statements. As in previous agreements, EdH should  - 12 - continue to have its accounts audited annually by external auditors acceptable to the Association, and to send their reports within four months of the end of each fiscal year. 2.12 EdH recently reorganized, with the help of Price Waterhouse (Canada), its internal audit department and appointed as its head a well-qualified individual recruited from outside, who reports directly to the General Manager. The new department has already started to perform effectively and its role in gradually rectifying unsatisfactory practices in EdH will be crucial. For this reason, and because of the sensitivity attached to his function, the position of Chief Internal Auditor has been added to those of General Manager and Directors, that are, under the second credit, to be filled at all times with competent and experience persons, whose qualifications shall be satis- factory to IDA. 3. THE POWER MARKET Historical Data and Existing Power Facilities 3.01 Since the Peligre hydro station was completed in 1971, sales in Port-au-Prince have grown at an average of 16.4% per year, from 58.5 GWh in 1972 to 197.3 GWh in 1980 (Annex 3.1). Sales in the provinces are presently about 10% of those in the Port-au-Prince area. Information for the provinces continues to be unreliable, due to the lack of meters, however the situation is improving, particularly because the network renovation at Cap Haitien (which constitutes about one-third of total sales in provinces) has been completed. Approximate data in the provinces for the last 3 fiscal years is as follows: Sales in the Provinces Sales (GWh) 1978 1979 1980 Residential 7.2 9.0 11.2 Commercial 0.3 0.4 1.0 Industrial 3.7 4.0 4.5 Public Lighting 1.4 1.5 1.6 Others 1.0 1.1 1.2 Total 13.6 16.0 19.5 Losses 4.9 6.0 7.8 Generation 18.5 22.0 27.2 Number of consumers (1,000) 10.4 12.4 14.9 (Losses %) (26.2) (27.1) (28.5) 3.02 Because of the lack of reliable data for the provinces and their small share in EdH's sales, the discussion below will concentrate on Port-au-Prince.  - 13 - 3.03 The sales growth figures for the various consumer categories has been very erratic, as shown in the following: Port-au-Prince Growth in Sales (X) 1976 1977 1978 1979 1980 Residential and Commercial 28.3 9.7 10.4 11.1 11.4 Industrial 24.3 6.6 35.0 6.3 22.9 Public Lighting 16.7 -7X1 -3.1 3.0 9.2 Others -1.5 4.7 17.9 -3.8 21.0 Overall Growth 23.8 7.1 21.3 8.1 14.0 The low growth rate in fiscal 1977 was due to the lack of capacity during one of the driest years on record, which caused extremely severe curtailments, especially during the dry season (November to April). In the same year, a sharp increase in rates was implemented, which also may have had some effect on demand. The relatively low growth rate for 1979 has no obvious explanation, except the downturn in Haiti's economy during that year. However, although the economy has not improved, electricity sales increased by 14.0% in 1980. 3.04 System losses and thefts have also been erratic and consistently high, peaking at 33% of generation in 1973 (as an indication of the unreliability of the data, it should be noted that under the second project the estimate for 1973 was 42%, whereas a recent re-analysis decreased this figure to 33%). EdH performance in reducing losses through policing of unregistered connections and checking of meters has been similarly erratic. Under the first project, a target was set of reducing losses to 28%. EdH passed the target easily through vigorous action and reached about 24% in 1976 and 1977. However, the program ran out of steam and losses reached 31% in 1979, compared with the 1981 target of 20% set under the second project. Because of the changes in management and consultants (1.12), policing stagnated and network renovations were not executed as planned. Due to improper conductor size, excessively long lines and continued poor maintenance practices, the network is still in a bad condition. Consequently, the proportion of line losses and thefts is difficult to estimate. During negotiations, EdH agreed to include in its performance indicators for Port-au-Prince a loss target of 27% for fiscal year 1982 and decrease losses by not less than 2% in each subsequent year compared with the results of the previous year, until a more normal level of 15% is reached. 3.05 As an indication of the poverty of the population, it should be noted that about 50% (24,000) of the residential consumers in Port-au-Prince are classified under the so called "social rate" (for consumptions up to 30 kWh per month). They represent 43% of EdH's 55,800 consumers and consume an average of 20 kWh per month, while contributing only 3.5% of total revenue (Annex 3.2). Because the minimum monthly charge is US$2.85 this group barely covers amortization of the capital cost of the house connection and meter (let alone cost of the network, generating plant and operating cost), and a large cross subsidization by the richer part of the population--expressed in terms of electricity consumption--is apparent. 1/ I/ However, because the social group, on average, consumes 20 kWh/m, the consumers, in effect, pay USfl4.2/kWh, i.e. almost as much as the highest block of consumers.  - 14 - 3.06 As of July 1981 EdH had 121 MW of installed capacity. The effective capacity during the wet season is about 101 MW and about 79 MW during the dry season; of this, hydro plant represents 46% during the wet season and only 30% during the dry season. EdH's plants and their capacities (Annex 3.3) are summarized as follows: Installed Effective MW % MW % Port-au-Prince Hydro: Peligre 47.0 1/ 44.0/21.6 (wet/dry Thermal: Old Station (Janvier) 15.2 11.9 season) Delmas 10.0 8.0 Varreux 20.9 18.0 Sub-Total 93.1 (81) 81.9/59.5 (wet/dry) Provinces Hydro: Drouet and Jacmel 3.2 2.2 Thermal: Various plants 19.4 17.1 Sub-Total 22.6 (19) 19.3 Total EdH Hydro 50.2 (46) 46.2/23.8 (46/30) (wet/dry) Thermal 65.5 (54) 55.0/55.0 (54/70) 115.7 (100) 101.2/78.8 (100) (wet/dry) 1/ Derated to 44 MW for technical reasons. 3.07 Comparing EdH's present capacity with its 1979 capacity, as reported under the second project, the following should be noted: (i) No additions have been made in the Port-au-Prince area; in fact generating capacity decreased because three of the 2,000 kW emergency groups in the Janvier station, installed in 1977, have been ruined beyond repair, and two ancient groups have been retired. The cause is partly lack of adequate maintenance and partly inadequacy of the Janvier emergency groups (each unit consists of 2 high speed diesels driving a single generator) for the type of sustained service to which they were subjected. This issue was raised by the Association at the time they were acquired by the Government as emergency groups during the 1977 drought. (ii) The installation of 3 x 7.6 MW (gross) additional units in Varreux financed under the second project was completed in December 1981. (iii) The installed capacity in the provinces doubled in this period from 11.2 MW to 22.6 MW; the main additions were a hydro plant (Drouet, 3.0 MW), diesel plant (6 x 0.825 MW) at Cap Haitien, and several small diesel units installed by EdH in newly electrified villages or as larger replacements in villages with existing service (3.4 MW).  - 15 - 3,08 Supply in the provinces continues to be unreliable, due to lack of trained personnel. Although a training program was started in 1978, it was only partially effective due to EdH's difficulties that developed in 1979-80 (2.08). The training program is being re-initiated and is expected to improve the situation in the near future. Forecasts 3.09 EdH's general consultants have used two models for forecasting future electricity requirements: trend and econometric. The first investigates the historic use of electricity (for categories of consumers and overall) over time and the second assesses the historic relationship between the use of electricity and one or more socio-economic variables such as gross domestic product (GDP), population, commercial or industrial data. For overall requirements, the exponential trend model shows an average annual growth rate of 14.8% for the next 6 years. Only the relation between electricity production and GDP provided a meaningful econometric model with an average growth of 15.0%, i.e., in close parallel with the trend model. The assumption of a GDP growth 4.0%/a for the period 1976-83 and 4.3%/a for 1983-90 appears reasonable for basic forecasts although this is slightly higher than the Government's most recent short-term target of 3.5%. For residential/commercial consumption, GDP was again found to be the most significant variable; for street lighting and Government requirements only the trend model appears appropriate. Due to lack of data no reasonable reliable forecast could be made for the provinces. Demand in the provinces has been rising rapidly (in excess of 20%) due to the fact that in 1977 the Port-au-Prince rates were applied throughout the country, reducing cost of electricity by a factor 2 or more, depending on the area. 3s10 Among the different scenarios indicated above, two have been retained for planning purposes for Port-au-Prince. They correspond to the following economic forecasts: GDP Growth Forecast 1981-83 1983-86 For planting-up 4.0% 4.3% For financial planning 4.0% 3.5% EdHKs available generating capacity has been perennially weak and the assump- tion of a relatively strong economic growth appears appropriate in order to avoid underinvestments in power as an important basis for such growth. A conservative forecast should be retained for financial planning in view of the inherent weaknesses of the Haitian economy. This would also take account of some elasticity with respect to rate levels that may develop in the medium term; thermal generation will continue to increase rapidly in the next few years and rates in current terms are expected to rise commensurately with higher fuel prices. No historic data is available which could serve as a basis to estimate the elasticity of consumption in relation to price. Medium term forecasts will be made annually, to adjust the development program as closely as possible to real growth.  - 16 - 3.11 Annex 3.4 shows the resulting financial planning forecast for sales and gross generation. Because of the delay in network renovations losses have been conservatively assumed to decrease to 27% in 1982 and by 2%/a in the subsequent years. 3.12 Energy and capacity balances for planting-up purposes were prepared, using the higher rate of growth (3.09), both for an average hydrological year and for a dry year, supposed to occur once every 5 years (Chapter 6). The additions planned for the system would adequately cover market requirements through 1990, with a reserve equal to the dry year capacity of one unit at Peligre--which is equal to two larger diesel units out of service--plus 5% of maximum demand. The additions are the following: (a) Varreux diesel plant (3 x 7 MW net) under IDA financing (second power project); commissioning during November/December 1981; (b) Carrefour diesel plant, first stage (2 x 7 MW net) proposed for IDA financing under the third project, for operation in 1983-84, and a second stage of 3 x 7 MW net for 1984-1985. In addition, new thermal generation (diesel units, gas turbines or coal fired plants) would be required as follows: 21 MW in 1987, 7 MW in 1988, 28 MW in 1989 and 14 MW in 1990. (c) Guayamouc I hydroelectric station (3 x 3 MW) for operation in 1986; (d) La Chapelle hydroelectric station (2 x 15 MW) for operation in 1986, with possible IDB financing (subject to the usual caveats of feasibility and approval); (e) Verrettes hydroelectric station (2 x 11 MW); operational in 1988, and hydroelectric station sites code-named A-177 (2 x 8 MW) and A-166 (2 x 6 MW) scheduled for operation in 1990; and (f) new thermal plant (possibly coal-fired), 50-60 MW in the early nineties.  - 17 - 4. THE DEVELOPMENT PROGRAM AND THE PROJECT Development Program 4.01 EdH's 1981-86 development program (Annex 4.1) is expected to cost about MUS$309 in current prices, excluding interest during construction: Local Foreign Total % of Total - MUS$------------------ Generation 35.2 174.7 209.9 68 Transmission 9.4 16.3 25.7 8 Distribution 3.7 13.5 17.2 6 Various 30.0 3.7 33.7 11 Total Construction 78.3 208.2 286.5 93 Consultants, studies and training 1.8 20.2 22.0 7 TOTAL 80.1 228.4 308.5 100 The high cost of the generation component is mainly due to the construction plan for relatively expensive hydro plants, which either would be completed during the period (La Chapelle, Guayamouc I) or of which construction would start (3 plants). Expenditures during 1981-86 for hydro plants amounts to about MUS$137 or about 45% of total cost (66% of the cost of generating plant). The remaining generation component is largely diesel plants required in Port-au-Prince; by 1987 about 60 MW thermal plant would have to be added. The transmission component is substantially the work still to be completed under the CIDA part of the second project in Port-au-Prince (about MUS$11) and the balance consti- tutes the 115-kV facilities which would connect the La Chapelle hydro plant to Peligre and Port-au-Prince by 1985-86. Distribution development would largely comprise rehabilitation and expansion in Port-au-Prince; development in the provinces (probably about MUS$2 in 1981, rising 10%/a in subsequent years, in 1981 prices) and other routine investments such as consumer connections and small extensions have been included under "various" development. 4.02 The inclusion of some 90 MW in 5 future hydro plants, costing about MUS$220 in 1981 prices, or an average of about US$2,500 kW, is defined by the least-cost development program (6.05). In fact, because Peligre, EdH's only hydro station, is already operating at full energy capability and the increment in energy demand would have to be generated thermally, the least cost develop- ment program requires that all hydro plants should be operational as early as 1987/88. In view of expected physical and financing problems it was assumed that the hydro development scheme would be completed by about 1990. Even this may be rather optimistic in view of the large sums to be financed. An all thermal development, however, would require in 1990 some MUS$40 in foreign expenditures for fuel alone at 1981 prices, increasing 15-18% annually, depending on the growth rate.  - 18 - 4.03 The project (4.05) would comprise the next step in generation, a new 14 MW (net) diesel power station at Carrefour in the western part of Port-au-Prince, continuation of renovation and a modest extension of the distribution network, mainly in Port-au-Prince, consulting services and training. Ongoing works comprise largely the second power project; KfW financed works in the provinces has practically been completed. KfW will probably continue to finance two small hydro stations (Saut Mathurine, Caracol) in the provinces, and the renovation of the network of Jacmel, but no loans have yet been made. The IDB final feasibility study, including the preparation of bid documents, for La Chapelle, is expected to be completed by the end of 1982. EdH hopes that IDB also would finance construction and include in its financing the studies required for Verrettes, the next hydro plant in the development program after la Chapelle and Guayamouc I. The geological survey and study of the Guayamouc I hydro plant, considered of the highest priority in view of its role in decreasing siltation in the Peligre reservoir, have been included in the consulting services to be financed by the proposed credit. The Project 4.04 Objectives. During execution of the proposed project, IDA would continue to emphasize the sector and project objectives initiated under the first project. These are: (a) rationalize sector development and promote the use of indigenous resources; (b) provide access to electricity to a greater number of households; (c) accelerate connection of labor-intensive industries; (d) meet electricity demand in Port-au-Prince with adequate and reliable facilities; (e) establish a continuous training program for EdH personnel; (f) determine the nature of the presently high energy losses, and establish a program to reduce them to acceptable levels; (g) achieve EdH's financial independence through emphasizing adequate pricing and reduction in losses and thefts; and (h) increase the institutional and managerial efficiency at EdH. 4.05 Description. The proposed third project would consist of: (a) Installation of two diesel generating units rated 7.0 MW net each, in a new power station to be constructed at Carrefour in Port-au-Prince. The power station would be build to accommodate 5 units (as required by 1985). (b) Rehabilitation of about 10 km2 of the Port-au-Prince distribution network. Normal extensions either in Port-au-Prince and the provinces would be financed with Ed'H own funds.  - 19 - (c) The survey, feasibility study and preparation of bid documents for the Guayamouc I hydro plant (Guayamouc II is a second site, upstream, that could be developed). The study would assess whether it would be economically feasible to construct Guayamouc I in several stages. Its main function would be to impound silt (the power component would be small) and this can be done also with a low dam having a limited life time (say 5-10 years), but which could be raised under a next stage once this is required by the amount of silt impounded. Funds saved could, in the meantime, be applied to other hydro plant with higher energy capabilities. (d) Construction of a new head office. Under the second project a preliminar- -,sign haci alraady been prepared by SOFRELEC, EdH's former consultants; it is now being updated by the general consultant. (e) General and administrative consulting services would continue as in progress under the second project. They cover all managerial operational aspects of EdH and minor studies (e.g. under the second project, a study for dam and power station optimization is underway). (f) Repair of the Peligre hydro facilities. Several hydro mechanical components have to be replaced or repaired and extensive concrete repairs are required particularly in the stilling basin. (g) Training, to continue programs financed by the second project. 4.06 With the completion of the Varreux power station under the second project at the end of 1981, Port-au-Prince has an available thermal capacity of 54 MW of which 42 MW (77%) operates on Bunker C oil. To meet future requirements, another 14 MW net capacity is required in 1983/84 at the beginning of the dry season (November through April of the next year), 21 MW one year later and another 21 MW in 1987. The proposed credit would finance the 14 MW in capacity required in 1983/84. Because the Varreux station cannot be extended beyond 7 units, a new site has been planned in the western part of the city, near Carrefour. In order to avoid controversies as referred to above (1.12), during negotiations it was agreed as a condition of effectiveness that the contract for the supply of the two generating unit for Carrefour would have to be signed. 4.07 The renovation of the Port-au-Prince network, which stagnated for almost 2 years, is urgently required. The urban area of Port-au-Prince and suburbs is about 35 km2 and at least three-fourths of the network is in very poor condition. Many lines have been extended indiscriminately; conductors are undersized and much of the equipment is obsolete. It is hoped that starting with renovations covering about 2 km2 in 1982, an annual objective of 4 to 5 km2 can be reached in 1983, using both EdH's crews and local contractors. This appears the limit, taking into account financial and physical constraints. Credit 895-HA will finance approximately 4 km2 in 1982-83, and the third project would cover 10 km2 overlapping the period 1983-85; therefore, by the end of 1985, about 40% of the network at Port-au-Prince would have been renovated.  - 20 - Normal extensions, of course, would continue, for which material and equipment is being financed under Credit 895-HA. Under the second project, agreement was reached between EdH and the telephone and television companies, that these companies would renovate their networks (poles are used in common) concurrently with EdH. 4.08 The present head office can not adequately house EdH's personnel and serve the public. A new head office, designed to meet EdH's future require- ments is urgently needed; it should be suitable to absorb about 5 years of manpower growth and should be expandable to meet requirements under a next stage. The general consultants are now finalizing the preliminary design, while final design would be executed by a local architect under supervision of the consultants and financed by EdH. The head office is expected to be located on or near the premises of the old power station, near the center of the city. A manpower study, which inter alia, determined the size of the new head office, was completed by the general consultant. 4.09 Since 1971, when the power facilities were completed at the Peligre dam, no inspection took place of the waterworks until recently, under the second project. Deterioration of concrete was observed in many places as well as extensive damage to the floor of the stilling basin. Except for the immediate -- and already completed -- repair of an emergency gate, the safety of the structures is not in immediate danger, but the consultants (TAMS of the USA) proposed a three-year repair program because most of the works can only be carried out during the dry season. A seismic study would also be made to determine whether or not the structures meet present day requirements (which appears likely, but should be confirmed). In view of the importance of facilities, the repair works have been included in the project, provided the Government - which is responsible for irrigation, also regulated at Peligre - finances 50% of foreign costs. The consultant services would be financed by the proposed credit to the extent that they exceed the amount still available (about US$270,000) in the funds allocated to the Government for the Peligre study under Credit 895-HA (US$450,000). During negotiations EdH agreed that starting in 1986, periodic inspections to the dam would be conducted, in order to certify its safety, in accordance with Bank Group regulations. In addition, the Government agreed to finance 50% of the foreign construction cost required for the repair of the dam, and EdH the full local cost. 4.10 The services of the general consultants and the administrative consultants would continue under the third project. Their assistance relates to all of EdH operational, planning and construction aspects, with the objective that the assistance would gradually decrease, commensurately with EdH's growing capabilities. In this respect, EdH created in 1979 a planning section which with the help of 2 or 3 technicians/draughtsmen from the consultant, would form the nucleus of a future proper planning department which would train local staff. 4.11 Cost Estimate. The project cost estimate is shown in Annex 4.2 (which also provides the revised cost estimate for the second project) and is summarized as follows:  - 21 - Local Cost Foreign Cost Total Cost ------- -------US$1000