Nicaragua - Rio Tuma Hydroelectric Project

- ,S q IV I RETURN TD E CIRCULATNG COPY R E S T R I C T E D WITHIN 'TO BE RETURNED TO REPORTS DESK Report No. ONE WEEK IN GENERAL FILES TO 209a This report was prepared for use within the Bank. It must not be published nor may it be quoted as representing the Bank's views. The Bank assumes no responsibility for the accuracy or completeness of the contents of the report. NTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF THE RIO TUMA HYDROELECTRIC PROJECT NICARAGUA June 8, 1960 Department of Technical Operations FILE COPY  Currency Equivalents U.S. $ 1 - 7 Cordobas (C $ 7) C $ 1 - U.S. 14 cents C $ 1 million - U.S. $ 142,857  APPRAISAL OF TM~ jil TUMA. HYDi?.OLECTRIC PROJ.4,CT NICIW.GUA TABL, OF CONTENTS Page No, SUMRY i I. LNTRODUCTION 1 II. THE BORROWER 2 Organization and Iianagement 2 Existing Installations 2 III. THE POChR XihafT 3 Past Sales by Empresa 3 Forecast Sales, Load and Capacity 4 IV. THE PROJECT 5 General 5 Rio Tuma (Centroamerica) Plant 5 Construction 6 Schedule of Construction 6 Other Works 6 Cost Estimates 6 V. ECONOMIC ASPECTS 8 VI. FINkNCIAL ASPECTS 9 Power Rates 9 Past Earnings Record 10 Financial Position -10 Financial Forecasts 11 VII. CONCLUSIONS 13 ANNEX 1 - Estimated Energy Sales 2 - Estimated System Demand and Capacity " 3 - Load and Capacity Development Curve " 4 - Detailed Description of the PFoject tI 5 - Estimated Cost of the Project t 6 - Bar Chart Construction Schedule 7 - Thermal Alternative (Present worth comparison) 7a. - Thermal Alternative (Return on additional investment) " 8 - Tariff Schedule 9 - Condensed Balance Sheets for fiscal year 1954-1959 10 - Condensed Income Statements for fiscal years 1954-1959 " 11 - Forecast of Income Statements 12 - Forecast Sources and Applications of Funds " 13 - Pro Forma Balance Sheets hap  APPRAISAL OF THE RIO TUiMA HYDROEECTRIC ROJhCT - NICARAGUA SUWMARY i. This report covers the appraisal of the Rio Tuma hydroelectric project which has been proposed as the basis for a Bank loan of 012.5 millicn equivalent. ii. The loan would be made to the =mpresa Nacional de Luz y Fuerza, a corporation wholly owned by the Government of Nicaragua. iii. The Empresa has at present a total generating capacity of 38 hwJ and sells energy at retail in rlanagua and the surrounding area through its own distribution system. It also owns and operates the only transmission system in Nicaragua and sells power on a wholesale basis to 14 municipal and private power companies in major urban centers of the country. iv. The Bank has previously made four loans in Nicaragua for the ex- pansion and improvement of power facilities. The first made in 1953 amounted to $450,000 equivalent. The other three made in 1955 and 1956 totalled $9.10 million equivalent. A small amount remains to be disbursed under the last loan. v. A new power source will be necessary by mid-1965 to meet expected increases in power demand within the service area. The proposed hydro development appears to be the most suitable method of providing that source, vi. The proposed project consists of a rock fill dam on the Tuma River some 120 km north-east of Managua, and a power station providing additional 50 NW of generating capacity at a cost of 4~387 per kw (including transmission facilities). The total estimated cost of the project, providing also for a further expansion of Enmpresals distribution system and various minor items, is equivalent to $20.8 million, with interest during construction capitalized. vii. The project has been designed by competent engineering consultants who would be retained to continue detailed design and the engineering super- vision of construction. viii. The construction of the project is scheduled to start in late 1960 and to be completed in 1965. This is realistic. ix. The Empresa operated at a deficit during the fiscal year ending June 30, 1959 after a reduction in electricity rates in October 1958. This situation continued through the first half of fiscal year 1960. In N4ovember 1959 a rate increase was put in effect which despite slight modification in February 1960 should be sufficient to generate out of surpluses approximately 20% of the project cost during the construction period after provision for all operating expenses and adequate depreciation charges.  - ii. x. For the financing of the local currency cost of the Project the Empresa has obtained a 42.5 million loan from DLF and commitments from the Nicaraguan Government amounting to 01.15 million equivalent. The goverrment will also provide additional funds to strengthen the bEipresa's financial position during the construction period. xi. Financial forecasts show that the Empresa would be able in the future to maintain a sound financial position and that debt service would be adequately covered. xii. The project would be suitable for a loan of 412.5 million equivalent for a term of 25 years, including a period of grace of approximately 5 years on amortization payments.  APPRAISAL OF TKL RIU TUIviR HYDdC1,iRIC PRtOJ.CT - 1\jIUtA