Honduras - Canaveral Hydroelectric Project

R E S T R I C T E D R.TU,N To Report No. TO-246a | ETURN To REPORTS DESK WIT I1N re was prepared for use within the Bank. It must not be published nor quoted as representing the Bank's views. The Bank assumes no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT HONDURAS APPRAISAL OF THE CANAVERAL HYDROELECTRIC PROJECT (FIRST STAGE OF THE LAKE YOJOA - RIO LINDO HYDROELECTRIC DEVELOPMENT) ,June 10, 1960 Department of Technical Operations FILE COPY  CURRENCY EQUIVALENTS U.S. $1.00 2 Lempiras. 1 Lempira U.S. $0.50 1 million Lempiras - U.S. $500,000  HONDURAS APPRAISAL OF THE CA AVERAL HYDROELECTRIC PROJECT (FIRST STAGE OF THE LAKE YOJOA - RIO LINDO HYDROELECTRIC DEVELOPMENT) TABLE OF CONTENTS Page SUIvtARY i I. INTRODUCTION 1 II. THE BORROWER 1-2 III. THE POWvER MARKET 2-4 IV. THE PROJECT 4-8 Program of Construction and Power Supply 4-6 Estimated Cost of the Project 6 Construction Cost per Kilowatt 7 Production Cost 7 Schedule of Construction and Expenditures 7 Present Status of the Project 8 Arrangements for Engineering and Construction 8 V. ECONOMIC JUSTIFICATION 8-10 VI. FINANCIAL ASPECTS 11-14 Financial Structure of ENEE 11 Rates 11 Past Earnings 11 Construction Expenditures and Sources of Funds 12-13 Estimated Future Earnings 13-14 Auditing Procedure 14 VII. CONCLUSIONS 14 Annex 1 - Power Market Survey - Urban and Rural Towns 2 - Power Market Survey - Industrial Loads 3 - Comparison of Energy Consumptions per Capita per Year " 4 - Power and Energy Demand and Supply 5 - Forecast of the Generating Capacity in 1963 " 6 - Description of the Caaaveral Project 7 - Cafnaveral Project - Construction Costs Estimate 8 - Comparison of Hydro and Thermal Alternatives " 8a - Thermal Alternative - Return on Additional Investment 9 - EIWEE - Actual and Estimated Balance Sheets 10 - E!;FE - Electricity Rates I 11 - ENEE - Income Statement 12 - ENEE - Forecast of Sources and Application of Funds " 13 - Lake Yojoa-Rio Lindo Hydroelectric Development - Production Costs Map: Location of Canaveral Power Project and Transmission Lines  SUM1iARY i. The Bank has been asked to consider a loan to cover the foreign exchange cost of the first stage of the Lake Yojoa-Rio Lindo hydroelectric development program. The first stage of construction, known as the Cana- veral Project, would consist of the installation of 27MW of generating capacity and of about 280 km of transmission lines to supply power to Tegucigalpa and to the Northwest Region. ii. The Cafnaveral Project is estimated to cost the equivalent of US$14.75 million of which US$9.0 million would be in foreign currencies including $200,000 for engineering expenses coveredl in the preceding loan 226-HO. The loan request is for the balance of US$8.8 million. iii. The Borrower would be the Empresa Nacional de Energfa Electrica (ENEE), an autonomous public entity which operates the electric system in Tegucigalpa. The general organization of the Company is adequate to carry out the project with the assistance of engineering consultants who will be employed for the engineering of the project and for the supervision of its construction. The 3ank will review the qualifications of the contractors. iv. The Project is needed to meet the growing demand for power in the market area. It will provide for an interconnected system of power supply and for an economical expansion of generating capacity as the need arises. The cost of power will be reduced and. the present high electrici- ty rates will gradually be lowered. Initially thermal support will be re- quired from existing power stations to meet peak loads. After completion of the second stage of the program, the requirements of the system will be met entirely with hydro power. v. The estimates of the cost of the Project are reasonable. A com- narison of construction and operating costs of the project with possible thermal alternatives indicates that the present worth of total cash out- lays over a period of fifteen years is about the same. On technical grounds the Project is preferable to other alternatives. vi. The present financial position of EMEE is sound. Earnings are expected to remain adequate. The return on EINE's net fixed assets in operation will average about 10% a year from the time the Canaveral Pro- ject comes into operation in 1964. Interest and debt service coverages will be satisfactory. vii. The Project is economically justified and suitable for a Bank loan of US$8.8 million equivalent to ENEE for a term of 25 years including a grace period of 4 years.  HONTDURAS APPRAISAI OP TIE CANAVERAL HYDROELECMTRIC PROJECT (FIRST STAGE OF TEE LAKE YOJOA - RIO LINDO HYDROELECTRIC DVELCPMENT) I. INTRODUCTION 1. This report covers an appraisal of the first stage of the Lake Yojoa-Rio Lindo hydroelectric development using Lake Yojoa as a natural reservoir. The proposed project would consist of the installation of 27 M0W of generating capacity and of about 280 km of main transmission lines to supply power to Tegucigalpa in the Central District and to San Pedro Sula and Puerto Cortes in the Northwest Region (a map is attached). Successive stages would provide a total potential of up to 160 MW. 2. The first stage of construction, known as the Canaveral Project, including its transmission system is estimated to cost the equivalent of $14.75 million including interest during construction. The foreign cur- rency reqcuirements (excluding interest during construction) would be the equivalent of US$8.8 million. The Bank has been asked to make a loan for this amount. The Borrower would be the Empresa Nacional de Energi a Elec- trica (ENER). 3. In May 1959 the Bank made a loan of US$1.45 million to ENEE for the expansion of diesel capacity and of distribution facilities at Tegu- cigalpa, including preconstruction engineering of the present project. This expansion was needed to meet the growing demand for energy in the Tegucigalpa metropolitan area until the initial stage of the Lake Yojoa- Rio Lindo hydroelectric development could be constructed. The loan doc- uments were ratified by Congress in February 1960 and became effective on April 21, 1960. II. THE BORROWER 4. The Empresa Nacional de Energfa Electrica (ENEE) is an auton- omous agency of the Government of Honduras, established in 1957 for the nurpose of the development and operation of generating and distribution fa.cilities in the country. At present its operations are confined to Tegucigalpa. Its assets consist of the properties and rights formerly belonging to the Empresa de Agua y Luz, which was also owned by the Gov- ernment as a branch of what is now the Ministry of Communications and Public Wlorks. The ENEE had also been responsible on an interim basis for the operation of the Tegucigalpa water distribution system, but has been divested of these obligations as of November 1, 1959. 5. Manpgement and the administration of ENEE are vested in a 3oard of five directors with the Minister of Communications and Public Works as President of the Board. The Board has broad powers and full independence in the management of the Company's affairs including the establishment of  -2- rates. The Board appoints a General Manager who holds office at the pleas- ure of that 3oard, and is responsible for all management and administra- tive functions. The general organization of the Company as set forth in its charter is satisfactory for an undertaking of this kind and size. 6. EJEE's generating capacity is located at two interconnected power stations: (i) La Leona power plant at Tegucigalpa with an installed capacity of 5,800 kw (1,600 kw hydro and 4,200 kw diesel), and (ii) Rosa- rio hydroelectric power plant with a generating capacity of 1,400 kw, located 21 km from the city. Two additional diesel units of 1,250 kw each financed by the first Bank loan are scheduled to be in operation at La Leona station by August 1, 1960. III. THE POWER MARKET 7. The area to be served by the Canaveral Project comprises the Central District, including Tegucigalpa; the Mochito Mines and the neigh- boring villages; San Pedro Sula and Chamelecon; Puerto Cortes; the Tela Railroad Company and through that company the towns of La Lima and Pro- greso; and the new cement factory at El Bijao. All of these consuming centers, with the exception of the Central District, would be wholesale customers of ENEE, as it is not the present intention of ENEE to acquire or operate distribution systems outside of the Central District. Retail sales of ENEE in 1959 totalled 14.7 million kwh, about 145 kwh per capita in the present service area, which has a population of about 100,000. In the absence of major industries in this area the supply was mainly for residential and commercial use. 8. The city of San Pedro Sula, with a population of 36,000 is served by a private company whose principal generation is with diesel engines. About 10.9 million kwh were generated in 1959. The present installed capacity is about 3,000 kw and an additional 1,800 kw are on order. Consumption per capita is much higher than in Tegucigalpa (245 kwh per capita) because of a better history of power service and some use of air conditioning. Puerto Cortes, with a population of 20,000, is served by the Tela Railroad Company from a 1,000 kw diesel plant. Energy generation in 1959 amounted to only 3.7 million lkwh; the present per capita consumntion is rather less than in Tegucigalpa. The Tela Railroad Company operates also a 3,000 kw steam plant at La Lima mainly for its own requirements (about 14 million kwh per annum). 9. In addition to the generating capacity operated by ENEE and by the private utilities, there are several larger industrial undertakings and a number of small industries that operate their own generating plants. The total installed capacity in the service area of the Canfaveral Project, including utilities and captive plants is at present of the order of 25 MW. 10. Forecasts of the future market for electric power were prepared by the Harza Engineering Company (EMEE consulting engineers) on the basis of projections of past trends of load growth, guided by comparison of per capita consumption and growth rates with other areas of similar economic  -3.- characteristics and on the basis of estimates of new individual loads to be connected to the system. The latter are either new industries that would be established in the service area, or larger consumers presently generating their own power. Power market estimates and growth rates are shown in Annex 1 for urban and rural towns, and in Annex 2 for industrial loads. The predicted increases in energy demands for principal urban load centers are compared graphically with other Central American capi- tals in Annex 3. The per capita demand in the Central District is well below the demands for the other four cities that have been chosen for comparison and is expected to approach the present demands in these cities only shortly after completion of the Canaveral Project. In 1964 the per capita demand in the Central District is expected to reach 300 kwh, which would include the suppressed demand. 11. In the period 1955-1960, the average annual rate of load growth in the Central District was 19.2%. In 1960 new capacity and distribution facilities will be added which will result in a sizably larger percentage increase of energy supply over the preceding year. From 1961 through 1964 the forecasted increase in energy demand is estimated at an average annual rate of 18%. Beyond 1964, the growth rate of the urban and semi-rural de- mand in the expanded service area of ENEE has been taken at 12% per year, while the load of the major industrial undertakings has been assumed to remain unchanged. The resulting average rate of growth in the service area of the project between 1964 and 1970 is 9.1%. These forecasts are conservative. 12. All the important industrial unctertakings that have their own generating facilities as well as the public utility in San Pedro Sula, have indicated in writing their willingness to purchase energy from the project provided that the price is less than their own cost of thermal generation. ENEE will be able to meet this condition since hydro power will prove con- siderably less costly than thermal power. The principal industrial consum- ers include the Tela Railroad Company at La Lima, which will also supply the city of Progreso and will have a total energy demand of about 16 mil- lion kwh in 1964; the new cement plant at El Bijao with a demand of about 7 million kwh per year; the Mochito Mines of the New York and Honduras Rosario Mining Company 18 km from Canaveral with a demand estimated at 11 million kwh per year in 1964, of which 9 million kwh would be supplied from Canaveral (the balance would be produced at the company's own hydro station); isolated industries, such as a large brewery and a dairy within the San Pedro Sula utility service area, and other undertakings in the Central District and Northwest Area that have now their own generating facilities. 13. ENEE will supply power only to the Central District, as long as Cainaveral power is not available. The Caniaveral Project is scheduled for- completion during the second half of 1963, but for the purpose of load and revenue projections it has been conservatively assumed that commercial operations will start on January 1, 1964. The ENEE will then be supplying an urban and semi-rural population of about 208,000 as well as a sizable industrial load. The following table summarizes the future market esti- mates and indicates for comparison the energy supplies since 1955.  - 4 - Energy Sales (1,000 kwh) (1) (2) (3) (4) (5) (6) Year Central Towns and Major Total Energy District 11ural Dis- Industries (2)(3)(4) over a/ tricts in b/ preceding Service year -_______ Area b/ _ % 1955 7,200 10,050 17,250 1956 8,600 11,100 19,700 13.5 1957 10,100 12,400 22,500 14.5 1958 12,100 13,200 25,300 13.0 1959 14,700 14,550 29,250 15.5 1960 18,900 16,500 35,400-/ 21.0 1961 22,700 18,100 4o,800 15-5 1962 26,800 19,950 46,750 14.5 1963 31,600 22,250 / 53,850 15.0 1964 37,400 25,800 40,500!1 103,700 (93.0) 1965 41,900 28,900 40,900 111,700 8.0 1966 47,000 32,300 41,300 120,600 8.0 1967 52,500 41,600 41,700 135,800C' 12.5 1968 59,000 46,700 42,100 147,800 8.5 1969 66,ooo 52,300 42,500 160,800 9.0 1970 74,000 58,800 43,000 175,800 9.0 a/ retail sales; b/ wholesale customers; c/ reflects the Bank financed expansion of facilities in Tegucigalpa; j assuming industrial load connected by the end of 1963; e/ in 1967, rural towms in the Comayagua Valley will receive power from the Lake Yojoa-Rio Lindo development. IV. TE3 PROJECT Program of Construction and Power Suvply 14. The Lake Yojoa-Rio Lindo hydroelectric development program planned by ENEE consists of several stages of construction to be carried out as power demand grows. The first stage of the program will be the Cainaveral Project with a generating capacity of 27 MTW and a maximum annual energy output of 100 million kwh. Provisions will be made to permit the installation of an additional 13.5 14W unit at some later date. Within four years after completion of the Cafnaveral Project a second stage of the hydroelectric development would be required to meet the power market de- mand. This would consist of a 20 M4W unit at another site,called San Buena- ventura,followed later by a second unit of the same capacity. A third power plant, called the Rio Lindo Plant, of a maximum 80 MVW capacity can be built downstream of San Buenaventura. The ultimate potential would therefore be of the order of 160 MW. The order of development is flexible and is subject to later review. These plans have been developed by con- sultants (Earza) satisfactory to the Bank.  -5- 15. Operation of the E17-7 system after completion of the Canaveral Project will require thermal supnort until the completion of the second stage of the program. The reason for additional thermal generation to meet the power market requirements is that the energy supply from Canave- ral is limited to a maximum of 100 million kwh per year according to the permissible draw-down of the reservoir. When the second stage of the program has been carried out it will be possible to meet the energy re- quirements of the system entirely with Yojoa-Rio Lindo power. The exist- ing hydro and thermal generating capacity would be retained until comple- tion of the Canaveral Project, after which a usable reserve capacity of about 20 MW would be kel?t for standby purposes and the balance would be retired. Details of yearly generation are shown in Annex 4 and the gen- erating capacity expected to be available within the service area when the CanIaveral Project is completed is showm in Annex 5. i6. The Canfaveral Project is the first stage of development of the hydroelectric potential of Lake Yojoa-Rio Lindo which involves use of the lake as a storage reservoir. Development of hydroelectric power from these resources has been under consideration since the 1940ts. Records of rainfall, lake levels and surface stream flow have been kept for some 16 years. The streams in the Lake Yojoa basin are small, numerous and often flow intermittently. Their characteristics confirm the existence of considerable ground water storege and movement in the basin. When the Bank was first annroached for a possible loan to assist in financing a hydroelectric project, it recommended that a complete feasibility study be carried out by a competent firm of consultants to determine the amount of useful storage, usable flow, the location of the principal sink holes and the loss of water through them. This feasibility study was carried out in 1956-57 by Harza. Its principal conclusion was that by closing the major outflows from the lake it would be possible to extract contin- uous regulated flow of 14 cubic meters per second which can ultimately be utilized over a fall of 540 meters. This regulated flow from the lake will be sup'3lemented in the lower sites to be developed in later stages by the flow of the Rio Lindo proper. The hydrologic features of the basin are such that there would be no problem of spilling water from the lake nor of possible floods requiring spillway arrangements. The program as it is now planned is ba,sed on the minimum known useful capacity of the reser- voir. The initial years of operation may well show that the assumptions made were conservative and that the regulated flow could be greater than assumed. 17. The lake will have a capacity of approximately 1.5 million acre feet, of which 0.5 million acre feet will be usable storage. Two earth dikes will be constructed at the south end of the lake to prevent loss of lake water to the Rio Pescadero and the Rio Enea. Water from the lake will be diverted through a canal about 5 km in length, which will extend from the north end of Lake Yojoa to an intake structure from which steel penstocks will bring the water to the Cafaveral power house. The generat- ing equipment will consist of two units of 13.5 MW each. Each turbine of the Francis type will have a maximum rating of 21,000 hp and will operate at an effective head of about 145 meters. A tailrace channel will be ex- cavated from the power house to Canlaveral Creek, a tributary of the Rio Lindo. A detailed description of the project is given in Annex 6.  -6- 18. The project will include single circuit 138 kv transmission lines from Caffaveral to Tegucigalpa (161 km) and San Pedro Sula (68 km) and a single circuit 69 kv line from San Pedro Sula to Puerto Cortes (50 km). Receiving substations will be built at Tegucigalpa, Bufalo, San Pedro Sula, El Bijao and Puerto Cortes. A subtransmission line and re- ceiving substation will be built to serve the Mochito Mines. 19. The transmission system for the Cagfaveral Project will be suf- ficient for the additional capacity to be installed at San Buenaventura. Estimated Cost of the Project 20. Construction costs have been estimated for each stage of the Lake Yojoa-Rio Lindo Development proposed during the next ten years. Detailed quantity estimates were made of all project features for the Cafaveral Project. To these quantities were applied unit prices based on the experience of recent construction costs in Central America. Unit prices were adjusted to price levels of January 1960. Prices of generat- ing equipment were based on preliminary quotation of European and. Japan- ese manufacturers. 21. Different contingency allowances were applied to the various components of the project. These allowances are intended to cover pos- sible omissions from estimates, unforeseen expenses, inaccuracies in unit prices and cost escalation during construction. The average contingency allowance on the estimated direct cost of the project is about 12.5% on foreign currency costs and 20.5% on local currency costs. Details of construction costs for the Ceffaveral Project are given in Annex 7 and are summarized as follows: Construction Costs (in $1,000) Foreign Exchange Local Total Civil works 3,420 2,050 5,470 Power house equipment and switchyard 1,350 190 1,540 Transmission lines and substations 2,620 1,150 3,770 Contingencies 925 700 1,625 Engineering anl overhead 485 410 895 Sub-total 8,800 4,500 13,300 Interest during construction 1,015 235 1,250 Engineering from loan 226-HO 200 - 200 Total project cost 10,015 4,735 14,750 The above estimates are reasonable and the contingencies should be adequate for the construction of the project.  -7- Construction Cost Per Kilowatt 22. The construction cost per kilowatt of installed capacity is as follows: Cost per kilowatt in US dollars Transmission Transmission Excluded Included Stage I - Canaveral Project 355 546 Stage II - Buenaventura No. 1 220 - Stage III - Buenaventura No. 2 133 - Stages I, II and III 250 327 Production Cost 23. From 1964 through 1966, the kilowatt hour cost for the system comorising generation from Canaveral supplemented by the existing thermal and hydro stations would be about US