El Salvador - Sixth Power Project

mFEjS SDESK DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use FILE COPY Report No. 69a-ES APPRAISAL OF SIXTH POWER PROJECT-EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) April 11, 1973 Regional Projects Department Latin America and the Caribbean Regional Office This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  UNITS AND MEASURES kW = kilowatt MW = megawatt = 1,000 kW kWh = kilowatt hour GWh = gigawatt hour = 1,000,000 kWh kV = kilovolt kVA = kilo volt-ampere MVA = mega volt-ampere m = meter = 3.28 ft km = kilometer = 0.621 mi km2 = square kilometer = 0.386 sq mi m3 = cubic meter = 35.3 cu ft ha = hectare = 10,000 square meters = 2.471 acres kcal = thousand calories kg = kilogram = 2.2046 pounds at.a. = atmospheres absolute = 14.69 lb/sq in MOM = thousand circular mills CURRENCY EQUIVALENTS Currency Unit = Colon (0) 0 = 100 centavos 01 = us$o.40 013000,000 = US$400,000 1 centavo = 0.4 US cents US$1 = 02.50 1 US cent = 2.5 centavos 1 US mill = 0.25 centavos FISCAL YEAR CEL's fiscal year ends December 31 ACRONYMS AND ABBREVIATIONS CEL - Comision Ejecutiva Hidroelectrica del Rio Lempa IB - Inter-American Development Bank UNDP - United Nations Development Programme ELC - Electroconsult IGSE - Inspeccion General de Servicios Electricos CAESS - Compania de Alumbrado Electrico de San Salvador CLESA - Compania de Luz Electrica de Santa Ana COSAESA - Compania Oriental Salvadorena de Alumbrado Electrico, S. A. CACM - Central American Common Market ANDA - Administracion Nacional de Acueductos y Alcantarillados  APPRAISAL OF SIXTH POkER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS i 1. INTRODUCTION 1 2. THE POWER SECTOR 3 Energy Resources 3 Organization of the Power Sector 4 Regulation and Tariffs 5 Consumption and Extension of the Electric Power SuppLy 6 3. THE BORROWER 7 Organization and Management 7 Facilities 7 Financial Systems and Auditors 8 4. THE PROGRAM AND PROJECT 10 Program through 1984 10 Description of the Project 10 Estimated Cost and Financing Engineering and Construction Construction Schedules 13 Procurement and Disbursement 13 Project Supervision 14 Environmental Aspects 14 5. JUSTIFICATION CO THE PROJECT 16 Forecast of Sales and _D_e_m_a_nd 16 Least-cost Solution 16 Return on the Program Investment 16 Employment Effect 17 6. FINANCE 18 Introduction 18 Earnings Record 18 Capital Structure and Financial Position. 18 Financing Plan 19 Future Earnings 22 Future Financial Positior - 23 7. RECOMMENDATIONS 24 This report was prepared by Messrs. John E. Graves, R.E. Salazar, and K. Ringskog.   LIST OF ANNEXES 1. Electric Utilities Statistics 1971 2. Electricity Rates 3. Installed Generating Capacity of CEL 4. Capacities, Capabilities, Generation, Sales and Demand 5. Ahuachapan Geothermal Power Station 6. Cerron Grande Hydroelectric Development 7. Estimated Disbursement Schedule of Bank Loan. 8. Comparison of Alternative Power Programs 9. Return.on the Investment 10. Estimated Employment Effect 11. Actual Long-term Debt and Forecast Debt Service 12. Actual and Forecast Income Statements 13. Actual and Forecast Balance Sheets 14. Forecast Sources and Applications of Funds 15. Actual and Forecast Key Financial Ratios Map - IBRD-1137R1   APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) SUMMARY AND CONCLUSIONS i. This report covers the appraisal of the Sixth Power Project of the Comision Ejecutiva Hidroel ti-del-eL Rio Lempi&CpQ) of El Salvador which has requ i6ted assistance from the Bank and the Tnterijan Development Bank (IDB) in financing the Project, the estimated total cost of~twhnEis.US~$97TThilhion. ii. Since 1949 the Bank/IDA has provided major financial assistance to El Salvador's power development through four loans and one credit, total- ing US$30.3 million, for five CEL power projects. The first four projects, have been completed successfully; the fifth is under construction, with satisfactory progress, and is expected to be completed by early 1973. CEL's performance under previous lending operations has been satisfactory. iii. CEL is a Dcr ; ment of all means of generating electricity in the country and for distri- bution of electricity to rural zones not served by private companies. CEL's installed capacity of 199 MW, comprising hydro, oil-fired steam and gas- turbine generation, represents about 90 percent of the country's total capacity available for public power supply. CEL's managemebnt is capable, but its recently-formed planning staff needs strengthening. iv. El Salvador has only two indigenous energy sources of any magnitude: the Rio Lempa and geothermal fields. Optimal power development will involve a balanced utilization of geothermal energy to satisfy base- load requirements and hydro energy to meet peak demand. Until now El Salvador has depended on conventional oil-fired units to complement the hydro genera- tion from the Cinco de Noviembre plant located on the Rio L]empa and the smaller Guajoyo plant on a Lempa tributary. v. WEth UNDP assistance in the 1960s, CEL has been studying El Salvadorts geothermal resources since 1953. As a result of these studies, CEL has established the feasibility of building an initial installation of 30 MW at the each g hewe-field; the station is expected to have a final capacity of about 100 MW. Mhe_Project incja .t4t1m_t'hcpan nni, which will be the first such instaJation.nithe _our,try vi. Also included in the Project are: thLhefr1 t_-t.= rMWinitoe e;t Cerro bGr4Udp,,4droelactric development; _g,e.t W _;nter fQcommuni- cation within the CEL system; studies of future projects; and trainl.gOf CEL'6T s ssiona1 staf-. The Cerron Grande plat, Tse 6econd on the Rio Lempa-itself, would have an ultimate capacity of 270 MW. Flooding of land by the Cerron Grande dam will necessitate relocation of a large number of people; this relocation will be carried out by CEL in accordance with a plan acceptable to the Bank.  - ii - vii. The proposed IBRD loan of, Jj22-3-million and the IDB loan of US$38.1 million, totaling US$65.4 million, would cover all the Project's foreign exchange cost of US$59.9 million, except a Us$065 million IDB commitment fee, which CEL will finance. The IDB loan would also include US$6 million equivalent of local currency financing. It would be made from IDB's Fund for Special Operations on soft terms to the Salvadoran government, which would re-lend the proceeds to CEL on the same terms during the Project's construction period and on conventional terms thereafter. The IDB loan would finance most civil works, supply of the turbo-generator units and installation of all equipment at Cerron Grande. The proposed IBRD loan would finance: the Ahuachapan geothermal station; engineering, diversion works and the supply of equipment other than turbo-generators at Cerron Grande; transmission lines related to both generating stations; studies of future projects; and training. viii. Conj tjjg_a4 AeeqREsacceptable to the Bank would carry out the design and construction supervision of all physical works and studies included in the Project. ix. Because IDB would finance most of the Cerron Grande hydro project and has or will have supervisory capability both in Wshington and El Salvador, it would have primary responsibility for supervision of construction of that project. The Bank would have primary responsibility for supervising CEL's operations, would supervise procurement of all items which it finances, and would be solely responsible for supervising construction of all project elements which are not directly related to the Cerron Grande hydro plant. x. Procurement of items financed by the Bank would follow the Bank's guidelines. To meet its estimated demands CEL would have to make commitments for engineering and key Project elements prior to loan signing, involving retroactive financing of US$1.2 million for engineering and equipment for the geothermal unit and US$0.6 million for engineering and diversion works for the Cerron Grande hydro plant. xi. CEL's proposed expansion program, which includes completing to their ultimate capacity the two generating stations included in the Project, represents the least-cost solution of meeting El Salvador's electricity needs for discount rates up to 16 percent. The return on the program in- vestment is estimated to be at least 17 percent. xii. CEL's financial position and earnings are satisfactory and are expected to remain so, except for a temporary reduction in rate of return expected directly after commissioning of the Cerron Grande hydro station. xiii. The Project would form a suitable basis for a loan of US$27.3 million equivalent, including US$4.6 million of interest during construc- tion, with a term of 25 years including five years of grace. The loan would be made to CEL and would be guaranteed by the Republic of El Salvador.  APPRAISAL OF SIXTIH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMIPA (CEL) 1. INTRODUCTION 1.01 This report appraises the Sixth Power Project of the Comision Ejecutiva Hidroelectrica del Rio Lempa (CEL) for which assistance from the Bank and Inter-American Development Bank (IDB) has been requested. The proposed loans would cover all but us$0.5 million (the IDB commit- ment fee) of the Project's foreign exchange cost of US$59.9 million, which represents about 60% of the Project's total cost of US$97.7mil- lion, including financing costs. In addition, the IDB loan would in- clude US$6 million equivalent of local currency financing, thereby re- ducing CEL's local borrowing requirements. CEL, the government-owned entity responsible for generation and bulk supply of electricity within El Salvador, would finance the Project's remaining local cost of US$32.3 million from internally generated funds and locaL borrowing. 1.02 With the assistance of the United Nations DeveLopment Programme (UNDP), CEL has been studying E1 Salvador's geothermal resources since 1953 to determine their optimum use; it has thereby estalblished the feasibility of building an initial installation of 30 MW at the Ahuachapan geothermal field. The Project would include this initial geothermal installation, the first in El Salvador and in Central America. It would also include a hydroelectric plant at Cerron Grande with initial capacity of two 67.5 MW units and related transmission lines. 1.03 The Bank and IDA have helped finance five power projects in El Salvador. Bank/IDA financing, which has aggregated US$30.3 million, has assisted in the construction of almost all of CEL's generating and trans- mission facilities. CEL's performance under previous lending operations has been satisfactory. 1.04 The Project appraisal was carried out in close cooperation with the staff of IDB, which institution would provide most of the external financing for the Cerron Grande hydroelectric plant. The Bank financing would be applied principally to the Ahuachapan geothermal plant, certain equipment for Cerron Grande, and the transmission lines. 1.05 This report, which was written by John E. Graves, R. E. Salazar and K. Ringskog, is based on: a. A feasibility study of the Ahuachapan geothermal plant prepared by Electroconsult (ELO) of Italy, and a UNDP-financed study of the geothermal field and plant done by Kingston Reynolds Thom & Allerdice of New Zealand and Kennedy & Donkin of the United Kingdom in association with New Zealand government agencies (Kingston et al);  -2- b. a feasibility study of the Cerron Grande hydroelectric plant prepared by Harza Engineering Company International (Harza) of the United States and Atilio Garcia Prieto y Cia. (Garcia Prieto) of El Salvador; and c. the findings of an appraisal mission consisting of Messrs. W. F. Ktlpper, John E. Graves, R. E. Salazar and H. Maeda which visited El Salvador in September 1972.  -3 2. THE POWR SECTOR Energy Resources 2.01 El Salvador has only two indigenous energy resources of any magnitude: the Rio Lempa and geothermal fields. Since the creation of CEL in the 1940s, Salvadoran power development has been concentrated on the Lempa river system, with oil-fired steam units at Aca;jutla and gas tur- bines added to balance the power system; future development focuses on continued exploitation of the Rio Lempa and geothermal resources. 2.02 The 81 KW Cinco de Noviembre hydro plant at Guayabo, whose first units (Loan 22-ES) were commissioned in 1954, is the principal installation on the Lempa itself. Additional units (Loans 221-ES and 342-ES) were added., to this plant through 1966. The 15 MW Guajoyo plant (Loan 263-ES) is lo- cated on the outlet of Lake Guija, which discharges into a tributary of the Lempa (see map for plant locations). Lake Guija serves as an additional reservoir for the Cinco de Noviembre plant; it is drawn down during the dry season. The Guajoyo plant operates only during this drawdown period, which coincides with the months of peak power demand. 2.03 On the Rio Lempa there are two potential sites downstream from the Cinco de Noviembre plant - El Tigre and La Pintada. Because its reser- voir would inundate Honduran territory as well as Salvadoran, development of the large (approximately 400 MW) El Tigre site would require an agree- ment between the two countries and must therefore await resolution of current political difficulties with Honduras. La Pintada would be a run- of-river installation with a capacity estimated at about 80 mw; it would not be economic without upstream regulation. The proposed Cerron Grande development, located immediately upstream from Cinco de Noviembre, would provide the necessary regulation. Because of low river flows, hydro sites upstream from the proposed Cerron Grande project are uneconomic. The few potential hydro sites on other rivers are small and appear uneconomic. 2.o4 Geothermal studies and explorations have indicated that the Ahuachapan field has a total energy potential of about 24,000 GWi, and that other fields also have some additional potential (see Annex 5). Development of these other geothermal fields will require additional ex- ploration to establish reserves; GEL intends to proceed with this explora- tion program once it has gained operating experience with the initial installation at Ahuachapan. 2.05 Under its present program, which includes the completion of the pro- posed initial unit at Ahuachapan in early 1975 and the first two sets at Cerron Grande in 1976 and 1977, CEL will require additional generating capaci- ty in 1979 and additional energy in 1981. Expansion of the proposed Cerron Grande plant would appear to be the least-cost solution to satisfy the need for additional capacity to meet peak loads. Subject to the experience to be gained from the initial geothermal installation and further studies, CEL  -4 - intends to expand the Ahuachapan plant, as outlined in Annex 5, to provide base-load energy. If geothermal expansion is not feasible, CEL will have to add oil-fired steam units in 1981 to provide energy, thus increasing its dependence on imported fuel. Organization of the Power Sector 2.06 Prior to CEL's creation in 1945, El Salvador's electricity needs were served exclusively by private companies. CEL was created by law to study the hydro resources of the Rio Lempa; subsequent amendments to its enabling legislation gave it the responsibility of developing all means of electricity generation for public service. 2.07 kiZth the assistance of the Bank and IDA, CEL has provided practically all generating and transmission facilities in El Salvador since 1954 and has interconnected all the distribution companies serving the country. In addition to the 12,000 retail customers it serves in nine rural zones as a result of its rural electrification program (see paragraph 3.10), CEL sells electricity to two industrial customers, various government agencies and eight private distribution companies. The largest of the distribution companies are: Compania de Alumbrado de San Salvador (CAESS), 88% owned by Canadian International Power of Montreal and 12% by Salvadoran and foreign individuals; and Compania de Luz Electrica de Santa Ana (CLESA), owned locally. Details of 1971 generation and sales of electricity by each utility are shown in Annex 1, and the attached map indicates the zone served by each. 2.08 As detailed in Annex 1 and summarized below, CEL generated about 92% of the electric energy available for public service in 1971: Capacity Generation in MW Gkt Percent CEL 166.1 655.7 92.1 CAESS 11.8 19.8 2.8 Other utilities 7.9 36.3 5.1 185.8 711.8 100.0 _~~ - In addition to the above, eleven thermal plants of 500 to 2,500 kW capacity each and about 25 smaller hydro and thermal plants with total installed capacity of 19.9 MW furnished 30.9 GTh for private use during 1971. The majority of these captive plants supply sugar mills and other installations for processing agricultural products, principally cotton and coffee. 2.09 CAESS, which serves San Salvador and the central part of the country as well as a large zone in eastern El Salvador, is the largest distribution company; it distributes more than three-quarters of the electric energy sold to the public. Retail distribution in 1971 is shown below:  Retail Customers Retail Sales (thousands) G_n Percent CAESS 118.0 459.8 77.5 CLESA 22.7 57.3 9.7 CEL 12.3 27.5 4.6 other utilities 24.9 48.6 8.2 177.9 593.2 100.0 = = Regulation and Tariffs 2.10 Regulatory procedures in E Salvador, which are based on the 1936 Electric Service Law and subsequent regulations and modifications, are satis- factory. The Inspeccion General de Servicios Electricos (IGSE), under the Minister of Economy, reviews the financial and technical condition of the distribution companies; and the Minister of Economy decides policy matters concerning the power sector with the advice of the executive director of CEL and the director of IGSE. 2.11 All utilities except CEL are subject to regulation by IGSE. The private companies are permitted an 8% annual return on net assets after all expenses, including taxes imposed on the companies and on dividends and remittances to shareholders. Net assets include 75% of the assessed value of assets in 1952 plus net additions at cost less depreciation since 1952. khile CAESS's return had fallen considerably below 8% in the late 1960s, its rate of return improved to over 7% in 1971, and further improvement is ex- pected. These operating results are satisfactory to CAESS, which has no tariff applications pending. CAESS's cash flow is sufficient for adequate expansion and improvement of its distribution system and for providing an annual expenditure of 0600,000 (US$240,000) annually for village electrifi- cation in its territories beginning in 1972. 2.12 Under its charter CEL is allowed, with the approval of the Minister of Economy, to establish tariffs sufficient to cover its costs and meet its obligations under agreement with creditors. In practice this has enabled CEL to earn a rate of return of at least 9% on average net assets in opera- tion, as defined in existing Loan/Project agreements with the Bank/IDA. 2.13 The principal retail tariffs of CEL and the four largest distri- bution companies are detailed in Annex 2. The retail tariff structure of the various utilities are rational from a cost-of-service view point, with block energy rates and appropriate demand charges. The average retail price per kWh has decreased from 00.084 (us$0.034) in 1961 to 00.068 (US$0.027) in 1971. CEL's bulk rates to the distribution companies include an energy and demand charge; the resultant average charge is about 00.04 (US$0.016) per kWA. Until 1972, the demand charge was based on the annual peak, resulting in retroactive billing, which was unsatisfactory to the distribution companies. Under new contracts, the demand charge will be applied on a monthly basis for the maximum demand in the most recent 12-month period, thereby reducing the  -6- average price per kW received by CEL by about 2%. Consumption and Extension of the Electric Power Supply 2.14 During the ten-year period 1962-1971, production of electrical energy in El Salvador increased by 168%, reaching a level of 711.8 GWh in 1971. Generating capacity, which totaled about 186 MW in 1971, has kept pace with the growth in demand; supply has never been rationed. The total number of customers increased by 92% to 178,000 in the ten years through 1971. Of the total, 149,000 were residential customers, representing about 25% of the total households in El Salvador. 2.15 In 1971 El Salvador ranked third among the five Central American republics in terms of per capita generation of electricity for public service: Country kka/capita Costa Rica 577 Nicaragua 273 El Salvador 193 Honduras 127 Guatemala 124 2.16 Industrial customers form the largest market for electrical energy in the country, as indicated below. The four principal categories of consumers have used about the same proportions of energy since 1963. (Prior to 1963, consumer categories were defined differently, making comparison difficult.) Category of Consumer 1963 Retail Sales 1971 Retail Sales GWh Percent Gkh Percent Residential 77.5 26.0 169.8 28.6 Commercial 46.5 15.6 87.2 14.7 Industrial 126.0 42.2 243.8 41.1 Government and municipal 48.4 16.2 92.4 15.6 298.4 100.0 593.2 100.0 2.17 To continue to meet the country's demands for electricity, CEL intends to carry out the generating expansion program described in paragraph 4.01. Although CEL's rural electrification program has extended electric service to most of the country's villages, it has not brought electricity inside the majority of homes; the expanded rural electrification program (paragraph 3.10) is intended to solve this problem.  - 7 - 3. THE BORROWER 3.01 CEL, whose responsibilities for developing means of generating electricity are described in paragraph 2.06, is an autonomous government- owned corporation. Since 1959 it has also had responsibility for instal- ling distribution facilities in areas not served by private companies as well as for developing all means of generating electricity in the country. Organization and Management 3.02 CEL's seven-man Board of Directors is comprised of El Salvador's Minister of the Interior, who serves as President, the Ministers of Economy, Agriculture and Public Wbrks, and representatives of CELIs bondholders and of the country's banks and industrial and agricultural associations. The Board, whose president has held office since 1950, establishes policy. It appoints an Executive Director who is responsible for all management func- tions; the present Executive Director, a capable civil engineer, had previous experience with CEL and private industry before assuming his present position in 1971. CEL's engineers and management staff are capable. 3.03 CEL currently employs about 630 operational employees, including 72 who are directly engaged in the operation of its distribution system, and about 470 in its construction forces, mostly in transmission and distri- bution work. Its operations are efficient and its plant, well maintained. 3.04 Until recently CEL has relied on Harza, its principal consultant, for all planning, having no internal planning organization. In 1972 CEL set up a small group to direct and review the consultant's efforts and, eventually, to decrease CEL's reliance on its consultant. To perform this function effectively, however, the planning group needs experience, addition- al training and more personnel. 3.05 Despite the increasing size and complexity of its system, CEL has not undertaken a long-term study of its future transmission requirements, other than those included in the Sixth Power Project. Consequently, CEL needs an overall system study to: provide for expansion of its own trans- mission facilities; and determine the optimum future interconnection points between its system and those of the major distribution companies. CEL has agreed to the performance of this study by consultants acceptable to the Bank. 3.06 CEL has engaged a consultant familiar with public utilities in Latin America to review its management structure and administrative procedures and to propose improvements. Facilities 3.07 As detailed in Annex 3 CEL has about 199 MW of generating capacity located at two hydro stations, one conventional steam station, and a 33 MW gas turbine plant at Soyapango, which was financed by IDA Credit 227-ES and was commissioned in December 1972.  -8- 3.08 Extremely low rainfall in the rainy season which ended in November 1972 and the resultant drawdown of Lake Guija would have caused a power shortage by March 1973 unless CEL acquired additional capacity. Consequently, CEL has contracted to purchase a 25 MW gas turbine from Hitachi of Japan, who had a unit of this size available. This unit will be installed at Soyapango by the end of March 1973 and will be paid for by CEL's own funds. This addition is designed for use only when severe drought makes hydro facili- ties inoperative. 3.09 As shown on the attached map, CEL's transmission network connects all densely populated areas of the country. The network currently includes the following lengths of transmission lines. Voltage Length of lines -(kV) (circuit km) 115 284 69 88 44 249 35 62 A 110 km 115 kV line to increase the supply of power to eastern El Salvador, also financed by IDA Credit 227-ES, is scheduled for completion in early 1973. In addition, the various distribution companies own and operate 189 km of 44 kV and 35 kV lines. 3.10 In 1961 CEL began a program of village electrification to provide electricity to rural zones not served by the private companies. Under this program CEL has constructed more than 1,000 km of 13 kV lines to most villages with a population exceeding 100 people in the rural zones it serves. Because the majority of potential rural customers still do not receive electricity, GEL will expand its program to provide more distribution works, will coordinate its promotion efforts under a centralized rural electrification office, and will study a program to assist low-income homeowners in installing basic interior wiring. The expanded program will be funded by an annual contribution of capital of about 01.3 million (US$520,000) from the government. This contribution re- presents the difference between CEL's debt service to the government on IDA Credit 227-ES and the government's debt service to IDA. In addition, CEL will contribute 0500,000 (US$200,000) per year from its own funds to the program. In view of the social benefits to be derived therefrom, expansion of the program in this manner is reasonable. Financial Systems and Auditors 3.11 CEL's accounting system, which is under the direction of a quali- fied accountant, produces prompt and complete monthly financial reports and comparisons of actual and budgeted data. The new planning group is expected to perform the financial planning,vhich the consultant now does.  - 9 - 3.12 Under Salvadoran law, independent auditors ap;pointed by the Central Reserve Bank of El Salvador must perform annual audits of govern- ment-owned organizations such as CEL. The present auditor, appointed more than three yars ago, lacks familiarity with public utility concepts and therefore is not acceptable to the Bank. Since the Central Reserve Bank appears reluctant to change auditors, CEL has engaged a second external auditor responsible to its own Board of Directors and acceptable to the Bank. W4hile this is not an ideal solution because of the conflict which could result from two sets of auditors, the prsence of an experienced auditing firm represents an improvement over the previous situation.  - 10 - 4. THE PROGRAM AND PROJECT Program through 1984 4.01 CEL's development program needs through 1984 includes: a. completion of Soyapango Gas Turbine (Fifth Power) Project (see Appraisal Report No. PU-55a dated December 1, 1970); b. purchase of additional gas turbine capacity for emergency conditions (paragraph 3.08); c. completion of current program of drilling geothermal wells; d. the Sixth Power Project, which would include Ahuachapan geothermal tlnit 1 and Cerron Grande hydro Units 1 and 2, described below; e. two additional units of 30-40 Md each at Ahuachapan in 1981 (see Annex 5); f. two additional units of 67.5 MW at Cerron Grande, one in 1979 and the other in 1984 (see Annex 6); and g. expansion of distribution facilities, including village electrification (paragraph 3.10). Description of the Project 4.02 The Sixth Power Project will consist of: a. The Ahuachapan geothermal plant, comprising steam separators, silencers, a power house containing one medium-pressure (7 to 9 at. a.) 30 MW turbo-generator unit and appropriate accessory equipment, switchyard and a 60 km canal to discharge the effluent into the Pacific Ocean (see Annex 5); b. The Cerron Grande hydroelectric development, comprising a fill dam across the Rio Lempa, spillway, intakes and pressure tunnels, surface power house containing two 67.5 MW turbo-generator units and appropriate accessory equipment, and switchyard (see Annex 6); c. 115 kV transmission facilities: a single-circuit 20 km line from Cerron Grande to the Cinco de Noviembre plant; a double- circuit 34 km line from Cerron Grande to Nejapa substation; and a single-circuit 22 km line from Ahuachapan to Santa Ana substation; d. A telemetering center located in CEL's San Salvador headquarters; e. Engineering design work on the third unit of Cerron Grande and pre-feasibility or feasibility studies of projects to be agreed between CEL and the Bank; and  - 11 - f. Training of CEL's professional staff. The telemetering center will include communications equipment and equipment for supervisory control of Cerron Grande plant and switchyard, the Soyapango gas turbine plant, and certain substations; it would be expanded at a later date to provide economic dispatch, automatic load-frequency control, data logging, supervisory control and communication with the entire CEL system. The training program will supplement CEL's own staff development program and will be directed particularly towards improving the capability of CEL's -recently-formed planning group (see paragraph 3.04) and geothermal engineers. Estimated Cost and Financing 4.03 Detailed cost estimates of the Ahuachapan and Cerron Grande plants are shown in Annexes 5 and 6, respectively; the total Froject cost is summari- zed below: Colones (millions) US$ (millions) Local Foreign Total Local Foreign Total Ahuachapan geothermal plant and related transmission (Annex 5) 14.23 19.76 33.99 5.69 7.90 13.59 Cerron Grande hydro plant and related transmission (Annex 6) 78.57 110.30 188.87 31.43 44.12 75.55 Telemetering center 0.25 1.37 1.62 0.10 0.55 0.65 Studies of future projects 0.25 2.50 2.75 0.10 1.00 1i.10 Training - o.50 o.50 - 0.20 0.20 Sub-total 93.30 134.43 227.73 37.32 53.77 91.09 Financing costs: Interest during construc- tion on local borrowing 1.00 - 1.00 0.40 - 0.40 IBRD interest and commit- ment fee during construc- tion - 11.38 11.38 - 4.56 4.56 IDB interest during con- struction 0.20 1.86 2.06 0.08 0.74 0.82 IDB supervision fee - 0.90 0.90 - 0.36 0.36 IDB commitment fee _ 1.17 1.17 - 0-47 0.47 Total 94.50 149.74 244.24 37.80 59.90 97.70  - 1.2 - The cost estimates are based on Harza and ELC es-timates with minor modifications by the IDB and Bank appraisal teams. The unit cost of the Ahuachapan plant, about US$500/kW of installed capacity, is acceptable for a geothermal plant of this size, consiaering that the initial investment includes the effluent canal and other facilities that will be used in connection with subsequent units as well as the first. It is estimated that the unit cost of the plant, when completed, will be about US$350/kW. While the unit cost of the first two units of the Cerron Grande plant is rather high (about US$5G