Barbados - Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 8621 PROJECT COMPLETION REPORT BARBADOS POWER PROJECT (LOAN 1940-BAR) p APRIL 30, 1990 Infrastructure and Energy Operations Division Country Department III Latin America and the Caribbean Regional Office This document has a resticted ditibudon and may be used by redpient ony in the pedoname of their offkid dutie Its contents may not othewie be dsdosed witoWoWdd Bank autborzaitlm.  TOR OFFCIAL USE ONLY THM WORLD SANK Wash,wton. DC 2043) U.S A OUv ad 0w.tmG.ua 0lo w onm-oto April 30, 1990 MENORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Barbados Power Project (Loan 1940-BAR) A.ttached, for information, is a copy of a report entitled "Project Completion Report on Barbados - Pover Project (Loan 1940-BAR)" prepared by the Latin America and the Caribbean Regional Office with Part II of the report contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. A '' a. Attachment Tb documnt ha a etricted dibuton and may be use by recimns on te peoance ofthw offcbW duds ItS cooteom may not oherw be dacblosd withot Wowld Bank authoi,tbn.  FOR OMIAL USE ONLY PROJECT COMPLETION REPORT BARBADOS POWER PROJECT (LOAN 1940-BAR) TABLE OF CONTENTS pale Preface .............................................. 1 Evaluation Summary ................................... ii I. PART I Background ........................................... 1 Project Objectives and Description ................... 1 Project Design and Organization ...................... 3 Project Implementation ............................... 3 Project Results ...................................... 3 Project Sustainability ............................... 4 Bank Performance ..................................... 4 Borrower Performance ................................. 5 Project Relationships ................................ 5 Consulting Services .................................. 5 Project Documentation and Data ....................... 6 II. PART II Borrower's Report .................................... t Introduction ......................................... 11 Project Preparation and Analysis ..................... 15 Project Implementation, Operation and Costs .......... 30 Operating Performance ................................ 44 Financial Performance ................................ SO Institutional Performance ............................ 58 Conclusions .......................................... 61 Attachments III PART III Related Bank Loans ................................... 88 Project Timetable .................................... 89 Loan Disbursements ................................... 90 Project Implementation ............................... 91 Project Cost and Financing ........................... 92 Investment Program ................................... 93 Project Results . . 94 A. Direct Benefits ................................. 94 B. Economic Impact ................................. 94 C. Financial Impact ................................ 95 D. Studies ......................................... 96 Status of Covenants . . 97 A. Staff Inputs .................................... 98 B. Missions ........................................ 99 ANNEXES Annex 1. Calculation of IER ....................... 100 Annex 2. Financial Tables .......................... 101-104 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.  PROJECT COMPLETION REPORT BARBADOS POWER PROJECT (LOAN 1940-BAR) PREFAC? This is the Project Completion Report (PCR) for the Power Project in Barbados for which Loan 1940-BAR in the amount of US$6.0 million was approved on June 1, 1981. The Loan was closed on June 30, 1987. The Loan was not totally disbursed and the last disbursement was on November 4, 1987. The PCR was jointly prepared by the Infrastructure and Energy Division, Country Department III of the Latin America and the Caribbean Regional Office (Preface, Evaluation Summary, Parts I and III) and the Borrower, (Part II). Preparation of this PCR is based, inter alia, on a mission to the field; the Staff Appraisal Report; the Loan, Guarantee, and Project Agreements; supervision reports; correspondence between the Bank and the Borrower; and internal Bank memoranda.  - ii - PROJECT COMPLETION REPORT BARBADOS POWER PROJECT (LOAN 1940-BAR) EV'ALUATION SUMMARY Introduction 1. In the late 1970's the Government of Barbados requested Bank assistance in financing part of the capital investment of Barbados Light and Power Company Ltd (BLPC), in view of BLPC's weak financial position and difficulty In attracting sufficient capital from traditional commercial sources. The Bank participated in financing distribution works and a number of studies totalling an estimated US$6.0 million at the time of project appraisal. Multilateral, bi-lateral and suppliers' credit offers were used by BLPC in financing the generation and transmission additions included in BLPC's 1980-85 investment program (Part I, para. 1 and 2). These credit offers materialized after the Bank made a favorable appraisal of BLPC's investment program. Objectives 2. The project was part of BLPC's 1980-85 BLPC investment program, the principal obiectives of which were (Part I, para. 3)s (a) to expand the existing generation, transmission and distribution system to meet projected electricity demand growth; (b) to reduce fuel consumption by improving the average system plant heat rate; (c) to improve transmission and distribution system by utilitsiag economically designed power lines; (d) to improve system operation; and (e) to maximize use of indigenous energy resources. Implementation Experience 3. The 1980-85 investment program was well designed by BIPC on a moderate extrapolation (7.6Z) of the annual load growth achieved ptlor to 1980 (11%), but it was necessary for BLPC to quickly adjust the investment program to the sharp decrease of load growth (average 3.4X) in the period 1980-85 by delaying part of the power generation additions and some transmission and distribution facilities beyond 1985, (Part I para. 5.01 and 5.02). This also led BLDC to cancel US$2 million from the US$6 mdlllon Bank loan in 1986, and part of other bilateral and multilateral loos (Part 1, para. 5.03).  - iii - 4. BLPC's performance was good during project implementation and the investment program was effectively completed at its revised level (Part I para. 9). The project financed by the Bank was completed with 2 years delay at a cost of US$2.78 million below the US$7.99 million estimated at appraisal (Part III, para. 5). Consulting firms performed well in carrying out the studies. As it turned out, the Government did not have occasion to avail itself of the recommendations made in the studies aimed at improving the Operations of the Public Utility Board and the criteria for fixing electricity tariffs (Part I, para. 6.04). This was because no Board hearings on the power sector have been held since 1982. Following the sharp increase of electricity rates approved by those hearings, BLPC's financial position remained good due to lower fuel prices and a reduced investment program compared to that expected at project appraisal. Therefore, no further increases were needed. However, BLPC implemented successfully most of the recommendations of the studies on energy conservation, tariff analysis, and power system planning (Part I, para. 6.03, 6.05 and 5.02). Results 5. BLPC's investment program achieved its principal objectives. The program helped to modernize BLPC's power facilities to efficiently meet the consumer demand for electricity with high service reliability. Demand for electricity grew at an annual average of 5.42, the plant average heat rate decreased by 71 and total electricity losses were kept below 91 (Part I, para. 6.01 and 6.02). Various measures were implemented by the Government and BLPC to improve energy efficiency (Part I, para 6.03). The financial position of BLPC was substantially improved as a result of the 451 step increase of average basic electricity rates in 1982, the steady decrease in oil prices after 1984, and the outstanding decrease of accounts receivable to a low 31 days in 1987 (Part III, para. 6.5). Since BLPC tariffs reflect the cost of service, the gains in efficient use of fuel and lower fuel prices have been passed through to the customers by decreasing electricity rates in real terms (Part III, para 6.5). 6. The financial rate of return of BLPC in the range 5-71, although below the 81 covenanted value was considered satisfactory by the Bank in view of the good financial position of BLPC. The internal financial rate of return achieved by the project was 221,which is substantially higher than the 13.2 estimated at appraisal. This is attributable to the lower fuel costs, the use of high-efficiency equipment and the reduced investment program (Part III, para. 6.4). Sustainabilitv 7. It is expected that the benefits of the 1980-87 power investment program will be maintained throughout the economic life of the facilities constructed under the program, because BLPC's very high standards of operation and maintenance practices have contributed to develop a highly reliable power supply system (Part I, para. 7.01).  - iv - Findinzs and Lessons 8. The main lesson learnt is that a well managed power utility, by quickly adjusting the investment program and financial plan to meet slower demand growth than expected, can avoid overinvestment in its generation, transmission and distribution facilities (Part I, para. 5.02). This was made possible by the natur, of the BLPC investment program; the civil works were small and needed only shnrt lead times, readily allowing a flexible response.  PART I PROJECT COZLETION REPORT BARBADOS POWER PROJECT (LOAN 1940-BAR)  BARBADOS BARBADOS LIGHT AND POWER COMPANY LTD. (BLPC) LOAN 1940-BAR PROJECT COMPLETION REPORT POWER PROJECT PART I 1. Project Identity Project Name: Power Project Loan No. 1940 BAR Rvp Unit: LAC Country: Barbados Sector: Energy Subsector: Power 2. Background 2.01 In 1978, BLPC (an investor-owned company in which 60Z of the shares are held in Barbados) with the assistance of its consultants - Canadian International Power Services, Inc., prepared a generation, transmission and distribution program for the ten year period 1978 to 1987. At the time of the preparation of the program, BLPC's :inances were weak. Recognizing the difficulty of attracting sufficient capital from traditional commercial sources, Government requested Bank assistance in finauoing BLPC's capital investment program. 2.02 As a consequence, the Bank agreed to finance a part of BLPC's six year 1980-85 investment program. The largest part of the program consisted of generating units. BLPC received attractive supplier credit offers for the installation of low speed diesel units, and it was decided that, instead of participating in the financing of such units. Bank finance could best be used for distribution works in addition to a number of studies. 3. Proiect Objectives and Description 3.01 The project was part of the 80-85 investment program the principal objectives of which were: (a) Expansion of the existing generation, transmission and distribution system to meet projected energy demands of existing and new customers throughout the period; (b) improvement of the average system plant heat rate to reduce specific fuel consumption and relative cost per kWh generated;  (c) improvement of the transmission and distribution systems by utilization of economic design to keep energy losses at a minimum consistent with projected demand and fuel prices; (d) improvement of system operations by developing an energy conservation program and developing long range generation and facilities planning; and Ce) maximization of the use of indigenous energy resources such as gas and bagasse. BLPC's 1980-85 capital investment program was planned to includes (a) the generation expansion program comprising the installation of two low-speed diesel units of 14 MW each (peaking capacity) in 1982/83, a third 14 MW unit in 1985 and commencement of work on a fourth 14 MW unit to be completed in 1987; Cb) the construction of 15 km of 59 kV transmission lines; (e) the construction of two 69124 kV substations, the acquisition of one mobile substation, and modifications to existing 24 kV substations; Id) the conversion of about 402 km of 11 kV primary feeders to 24 kV; Ce) the distribution expansion program including installation of about 60 MVA of distribution transformers, 23.8 MVAR of capacitors, 36,400 meters, 300 street lights and associated additions to the 240 V secondary circuits; and (f) improvements and additions to general property including transportation equipment, bulldings, land and right of ".y. The Bank-financed portion of the investment program was planned to include the following: (a) 24 kV Primary Feeders. Conversion of about 312 km of 11 kV primary feeders to 24 kV and replacement of about 21,200 kVA of existing industrial transformers associated with the conversion. (b) Distribution Transformers. Installation of about 42,300 kVA of 24 kV/120-240 V distribution transformers. (c) Service Drops. Installation of about 16,500 customer service connections consisting of about 450 km of 120-240 V conductors from the secondary pole line to the customers' meters. (d) Capacitors. Installation of about 16.5 MVAR of capacitors to maintain a system power factor of 0.90. (e) Studies. Consulting services for generation planning, energy conservation and tariffs, and for PUB operating procedures and PUB criteria for setting power rates.  -3- 4. Project Design and Organization 4.01 Project design was well conceived. The 80-85 investment program was designed by BLPC and its consultants, CI Power Services, and was based on the least-cost solution after considering generation expansion alternatives based on low and medium speed diesel units, extension of the existing cteam plant and a new coal-fired steam plants. Following Bank recoumendations and, after further study, BLPC modified its proposed generation program to include three 12.5 KW low speed diesel units. These units operate at lower fuel costs than the higher speed units as they use low grade residual fuel. Suitable alternatives were also considered before determining the least-cost transmission and distribution program. 4.02 BLPC staff supervised the engineering design for the project equipment and works which was prepared by consultants. BLPC's staff was assisted by consultants in the preparation of bidding documents, bid evaluation and contract awards. BLPC staff performed the installation of equipment. These arrangements worked well. 5. Project Implementation 5.01 In the three years prior to project appraisal, the Barbados economy performed strongly, especially in tourism and manufacturing, and load growth averaged 112 per annum. The 1980-1985 investment program was based on a projected slower demand growth of 7.62 per annum. However, in 1980 there was a sharp decline in demand growth to 3.82 per annum and the average 1980 to 1985 load growth was only 3.4Z. The reduced demand growth was due to a worldwide recession mainly attributed to oil price increases. Between 1981 end 1985 industrial production and tourism in Barbados declined to levels below that of 1980. 5.02 The declining trend in demand was quickly responded to by BLPC and the nature of the program made it readily adjustable to incremental implementation. BLPC revised the 80-85 Investment program to the reduced load growth and in effect extended the implementation period by two years to 1987. The installation of a third 12.5 MW unit was deferred to 1987 and some transmission and substation components were deferred indefinitely. The completion period for the installation of primary feeders, and capacitors and service drops financed under the Bank loan was extended by periods of up to three and half years ending in December, 1987, and the length of the primary feeders was reduced. 5.03 Responding to the reduced funding needs, BLPC cancelled a Caribbean Development Bank loan intended to finance 69 KV transmission lines. Construction of the lines was postponed indefinitely. Also, part of the European Investment Bank loan was cancelled. US$2 million was cancelled from US$6 million Bank loan in November, 1986. 6. Project Results 6.01 BLPC's 1980-1987 investment program, of which the project was a part, achieved its principal objectives (para. 3.01). The program helped to modernize BLPC's electric system and improved its generation and  - 4 - distribution operations and also helped to reduce electricity rates. The program fully met consumer demand for electricity during the period. Energy sales grew from 282.1 GWh in 1980 to 388 GbWh in 1987, an average annual growth of 5.42. The number of customers grew from 67,662 to 79,312 during the same period. 6.02 There was an improvement in the average system plant heat rate of about 72 between 1980 and 1987. This was brought about by the installation of low speed generating units and the modification of some other units to operate on low cost residual fuel oil instead of distillate. The transmission and distribution 3ystem was expanded and line losses were kept below 92. These factors, combinied with sharply reduced oil prices, substantially contributed to a 302 reduction in real electricity rates between 80 and 87. 6.03 As a consequence of the recommendations of the energy conservation financed under t}.e Project study, various measures to improve energy efficiency such as a consumer education program, the use of electricity produced from bagasse and surplus natural gas and exhaust gas were implemented by Government and BLPC. Several hotels have changed their lighting fixtures and installed high efficiency lamps, while others have introduced devices to control airconditioners by disconnecting these when guests are not in their rooms. 6.04 Two studies relating to the Public Utilities Board (PUB) were completed under the project, the first to recommend ways to improve PUB's operating procedures and reduce decision-taking time, and the second to recommend criteria to be used by PUB for setting power rates. Although the studies were apparently discussed by various units of Government, no consensus could be reached as to their recommendations. This issue was raised regularly by Bank supervision missions. At the time of appraisal, there was some concern about delays experienced in obtaining PUB's approval for rate increases. It was expected that further tariff increases would be needed during project implementation. However, no PUB hearings relating to, the power sector have been held since those relating to the last rate increase in 1982 and it is not expected that any further hearings will be held in the near future. 6.05 The marginal cost tariff study of BLPC's tariff structure was completed in 1982. This study provided a useful basis when considering changes in BLPC's tariff structure. However, Government and BLPC have not considered it timely to implement any tariff structure changes up to now. 7. Project Sustainability 7.01 BLPC's operation and maintenance practices are of a very high standard. Plant outages are minimal. Consequently, it is expected that the benefits of the 1980-1987 investment program will be maintained throughout the economic life of the facilities constructed under the program. 8. Bank Performance 8.01 Although the US$6 million Bank loan represented only 42 of the finance required for BLPC's 1980-1987 investment program, it would have  been difficult to attract adequate financing for the program without the Bank' s participation. As a result of the Bank's participation, other financial institutions such as the European Investment Bank, the Caribbean Development Bank and the Commonwealth Development Corporation were attracted to the financing of the investment program. 8.02 The Bank made some useful suggestions to BLPC, which assisted in the determination of the least-cost generation program and led eventually to the inclusion of low speed diesel units, using lower priced residual fuel oil, as part of the program. 8.03 There were six supervision missions during the 80-87 project implementation period. This number was adequate as there were no major imple=e-atation problems. 9. Borrower Performance 9.01 BLPC is a well organized company with a competent and effective management and well trained technical personnel. Much emphasis has been placed on employee training. 9.02 As expected, BLPC's performance was good during project implementation and the investment program was effectively completed. As noted in para. 5.02, BLPC promptly revised its investment program when it became clear that demand growth would be less than the appraisal forecast, and project construction as completed in accordance with the new implementation schedule. 10. Project Relationships 10.01 This was the first Bank loan in the Barbados Power Sector. Good working relationships were established between BLPC, the Government and the Bank in the early stages of Bank involvement. There was an atmosphere of mutual confidence and understanding between the Bank and BLPC which continued through project appraisal and implementation, and this was helpful in resolving the issues arising during this period. 10.02 Good relationships were also maintained between the Bank missions and Government officials. 11. Consulting Services 11.01 The five studies required under the Project were all satisfactorily carried out by consulting firms. Stone and Webster (USA) (a) Generating Planning; (b) Electric Energy Conservation; (c) Tariff Structure.  -6- Peat, Harwick, Mitchell and Co. (Canada) (a) Operations of the Public Utility Board; (b) PUB criteria for Tariffs. 12. Project Documentation and Data 12.01 The project's legal agreements were adequate in reflecting the Bank's interest in achieving satisfactory project execution. The SAR was comprehensive and well prepared and was a useful reference document for the Bank and BLPC during project implementation. 12.02 BLPC prepared a Project Completion Report using the former Bank guidelines. This proved to be an extremely useful background document for the preparation of the PCR. BLPC promptly provided other more recent information required for the PCR.  PART II BORROWER'S REPORT BARBAOS PROJECT COMPLETION REPORT POWER PROJECT (LOAN 1940-BAR)  - 8 - THE BARBADOS LIGHT & POWE CO., LTD. SYSTEM EXPANSION PROGRAMME 1980-85 PROJECT COMPLETION REPRT I  -9- THE BARBADOS LIGHT AND POWER COMPANY LI[ITRD PROJECT COMPLETION REPORT I. INTRODUCTION 1. General 2. History II. PROJECT PREPARATION AND ANALYSIS 1. Origin 2. Preparation and Justification 3. Loan Covenants 4. Rate Adjustment 5. Project Description III. PROJECT IMPLEMENTATION.-OPERATION AND COSTS 1. Project Start-up 2. Revision 3. Implementation Schedule 4. Procurement 5. Costs and Disbursements 6. Operations 7. Performance of Consultants, Contractors and Suppliers. TrV. OPERATITNG PERFORMANCE 1. Market 2. Project's Role 3. Other Factors V. FINANCIAL PERFORMANCE 1. Tariffs. 2. Sales Volume 3. Revenues and Operating Expenses 4. Net Fixed Assets Service 5. Revaluation of Assets 6. Depreciation Rates 7. Liquidity Problems 8. Debt Equity Ratios 9. Rate of Return 10. Construction Expenditure  - 10 - 11. Debt Service Coverage 12. Extent of Financing of Construction Expenditure through Internal Cash Generation and Equity Contribution 13. Inflation and Exchange Rates 14. Exchange Rates 15. Tariff Structure VI. INSTITUTIONAL PERFORMANCE 1. Management and Organisational Effectiveness 2. Growth 3. Staff Recruitment, Training and Development VII. CONCLUSIONS ATTACHMENTS TABLE 1 - Project Implementation Schedule TABLE 2 - Expansion Programme Suamary Report TABLE 3 - Capacity and Energy Balance TABLE 4 - Actual and Projected Energy and Power Requirements. TABLE 5.1 - BLPC Key Financial Indicators TABLE 5.2 - BLPC Income Statements TABLE 5.3 - BLPC Sources and Uses of Funds TABLE 5.4 - BLPC Balance Sheets FIG: 1 - Projected System Development FIG: 2 - Actual System Development  - 11 - THE BARBADOS LIGHT AND POWER COMPANY LIMITED SYSTEM EXPANSION PROGRAMME 1980 - 85 PROJECT COMPLETION REPORT INTRODUCTION 1 . General The Barbados Light and Power Company is an investor owned electric utility with 60 %-of its shares being held by more than 2800 Barbadian investors. The Company generates and distributes electricity and provides ancillary services to some 78,000 domestic, industrial and commercial users, and operates a non- exclusive franchise which is embodied in the Electric Light and Power Act of the Laws of Barbados. The non- exclusive franchise, which was extended for a period of 42 years from 1986, gives the Company the right to distribute and sell electric energy throughout the is- land of Barbados. Electricity rates are set by a  - 12 - Public Utilities Board in accordance with the Public Utilities Act. As at December 31, 1986, the Company had total assets valued in excess of $307 million, with $69 million of interest bearing long-term debt outstanding. Total operating revenue for the 12 month period ended Decem- ber 31, 1986 was $99 million resulting in a net income after taxes of $5.1 million. 2. HistorY The Barbados Light and Pover Company Limited was incor- porated in the Islaud of Barbados on May 6, 1955, to acquire by an agreement dated March 19, 1955, from the Barbados Electric Supply Corporation Limited, the latter's rights to the business of supplying electricity in the Island of Barbados. On July 1, 1955, all the assets of the Barbados Electric Supply Corporation Limited were transferred to the Company. In 1963 Canadian International Power Company purchased a majority share interest in The Barbados Light and Power Company. At that time power was generated by diesel engines and two small steam turbines with com-  .- 13 - bined installed generating capacity of 13,581 kilowatts. There were 26,400 customers using 45 mil- lion kWh per annum with a combined peak demand of 10,850 kilowatts. Many improvements were introduced to increase the ef- ficiency of the Company's operations. Line construc-. tion and reinforcement work was carried out and gener- ating plant additions were made as needed to cater to growth in the use of electricity averaging 15 percent per annum. While the decade of the 60's was very good for the Com- pany, the 1970's were difficult years highlighted by continuously rising costs and a series of unusual en- gineering problems. The October 1973 World Fuel Crisis, subsequent temporary fuel shortage and high es- calating fuel prices had a great impact on the Company's operations. In 1974 the reduced availability of fuel for power generation and the reduction in demand of electrical power through public appeal resulted in a negative growth rate for sale of electri- cal energy from the Company's system. In 1976 a new 40,000 kW steam plant at Spring Garden  -14- went into operation. Before the start up of the new steam plant, the Company experienced a series of mechanical failures on its diesel generators as well as on a gas turbine generator. This reduced the Company's available generating capacity from 60,600 kilowatts to 30,000 kilowatts which was 4,500 kilowatts short of the island's peak demand. As a result, the Company was forced to institute a power rationing programme. Ea- gineering difficulties in the initial operations of the new generating plant caused a series of service inter- ruptions of recurring annoyance to customers. The year 1977 was an unusually difficult one. New rates, determined by the Public Utilities Board, proved insufficient to provide the necessary cash flows for capital expenditures. The Public Utilities Board accepted the Company's proposed reduction in fuel charges made possible by the new steam plant, but granted less than the applied-for increases in basic rates. The Company's requested in- crease was cut from 3 cents to 1 cent for Domestic and from 5 cents to 3- cents for Industrial and Commercial users.  - 15 - The rate increase granted by the Public Utilities Board in 1977 failed to give the Company the relief which was urgently needed at that time. The financial position deteriorated and by 1979 a critical state had been reached where the Company could not meet the mini- mum earnings coverage terms of its Debenture Trust Deed. Accordingly, the Company was unable to raise loans for urgently needed expansion, and essential equipment could not be purchased. Further, the rate problems during 1977 - 1979 resulted in postponement of essential construction work. This loss of valuable construction time affectAd. the Company's ability to provide its normal high quality service. In November of 1979, the Company was required to enforce a period of power rationing due to major generating problems. II PROJECT PREPARATION AND ANALYSIS 1. 2gOr.in In 1978 the Company with the assistance of its consult- ants, C.I. Power Services Ltd., prepared a generation  - 16 - planning report covering the ten year period 1978 to 1987, but in view of the poor financial position in 1978, due to the inadequate rates, it was not possible to obtain financing from traditional commercial sources for any expansion work. Following discussions with the government concerning the Company's financial and engineering difficulties, the International Bank for Reconstruction and Develop- ment hereinafter called the World Bank was approached for a loan. 2. Preparation and Justification The World Bank indicated that due to sectoral and country priority considerations, any involvement on their part would be limited. As discussions proceeded it became apparent to Company management that if the World Bank, as a development financing institution, ap- proved a loan to the Company it could be expected that their involvement would go well beyond commercial financing matters. Moreover , the benefit of World Bank appraisal of the project and committment to its financ- ing, even with a relatively small amount, together with  - 17 - certain country guarantees and covenants in accordance with its charter, would reassure other lenders who would then be attracted to the project. Other development financing institutions - the European Investment Bank, the Caribbean Development Bank, and the Commonwealth Development Corporation - were ap- proached and they all indicated interest in World Bank participation and in providing financing assistance for an expansion programme. The Company obtained commitments for loans to help finance an expansion programme on a project basis sub- ject to eligibility, having regard to the different charters, restrictions and policies of the banks, and on condition that loans be arranged for all projects included in the programme with approximately 70 percent of the cost being funded by external loans and ap- proximately 30 percent with counterpart financing from local sources. The banks indicated that commitments would also be expressly conditional .pon confirmation that all  - l8 - parties to the agreements including the guarantors would fulfil their obligations, and that the Company would seek rate relief in accordance with financial covenants to be negotiated. a In February 1980 the Company sought a further rate review. Due to inadequate earning., the Company was unable to meet certain coverage tests for new equipment loans. In its decision of May 1980, the Public Utilities Board ordered an increase in customer basic rates. An appeal to the Supreme Court-against tha May 1980 decision was made by an objector to the rate changes. Following a hearing in July 1980, this appeal. was disallowed by the Court. Meanwhile the Company discussed its plans for gener- ation and distribution expansion with the World Bank and also held discussions with suppliers of equipment. A generation expansion study was performed utilizing General Electric's Optimized Generation Planning (O0P) programme on their large computers in Schenectady, New York. This programme combines system reliability cal- culatious, and operating, maintenance and investment costs to determine the least cost expansion programme  -19 - for a target loss-of-load probability (LOUP). Sen- sitivity studies were performed for variations in fuel costs, load growth, investment costs and systen reliability. A revised generation expansion plan, based on a projected load growth of about 8S per year, recommended the installation of two 14 MW low speed diesels in 1982/83, and a third in 1985. A study was also carried out of the transmission and distribution system with the assistance of the consult- ants, C.I. Power Services, and an expansion plan developed for the period 1980-8.5. The overall system expansion proposals were designed to meet the following principle objectives: (a) Expansion of the existing generation, transmission and distribution system to meet projected energy demands of existing and new customers throughout the period; (b) Improvement of the average system plant heat rate to reduce specific fuel consumption and relative  - 20 - cost per kWh generated; (c) Improvement of the transmission and distribution system by utilization of economic design to keep energy losses at a minimum consistent with proJected demand and fuel prices; (d) Improvement of system operations by developing an energy conservation programme and developing long range generation facilities planning; and (e) Maximize the use of indigenous energy resources such as gas and bagasse. The capital investment programme which was developed for the period 1980 - 1985 included the following: (i) The generation expansion programme comprising the installation of two low-speed diesel units of 14 MW each (peaking capacity) in 1982/83, a third 14 MW unit in 1985 and commencement of work on a fourth 14 MW unit to be completed in 198?; (ii) The construction of 15 km of 69 kV transmission lines;  - 21 - (iii) The construction of two 69/24 kV substations, the acquisition of one mobile substations and modifications to existing 24 kV substations; (iv) The conversion of about 402 km of 11 kV primary feeders to 24 kV; (v) The distribution expansion programme including in- stallation of about 60 MVA of distribution trans- formers, 23.8 MYAR of capacitors, 36,400 meters, 300 street lights and associated additions to the 115/230 V secondary circuits; and (vi) Improvements and additions to general property in- cluding transportation equipment, buildings, land and rights-of-way. The estimated cost of the overall expansion programme was almost US$ 100 million (BdsS 200 million). With the participation of the World BDank in the Company's financing plan and the support of the Govern- ment of Barbados, a series of loan agreements were con-  - 22 - cluded. The World Bank reviewed the Company's expansion programme and agreed that it met all aspects of the Bank's "Lowest Cost Alternative" criterion (tbat is, the most economical plan consistent with the purchase of appropriate equipment). The Bank invited repre- sentatives of the Company and the Barbados Government to meet in Washington to negotiate terms of a loan con- tract, the Government of Barbados acting as guarantor of the loan. Following the necessary approvals of the Public Utilities Board, and the Exchange Control Authority, the World Bank loan agreement for US$6 mil- lion was approved in 1980 and signed in Washington D.C. on February 19, 1981. Also in 1980, agreement was reached with the European Investment Bank for a loan of five million units of ac- count, approximately equal to BDS$1l million. Under this terms of this agreement the European Investment Bank provided an interest subsidy to be used to assist with- rural electrification according to certain criteria agreed between the Bank and the Company. In 1081, an agreement was signed with Svenska Rand-  - 23 - elabanken of Sweden for a 12-year loan of U.S.S26.6 million, approximately equal to BDSS53.2 million at 9.1 percent interest to finance 85 percent of the cost of generating plant. . It was a condition of the availability of the funds that guarantees be provided to Svenska Handelsbanken as a continuing security for the Company's oDligations in respect to the first 16 repayment installments together with interest. The Royal Bank of Canada (London) Limited agreed to act as agent for a number of prime commercial banks who provided these guarantees. The Commonwealth Development Corporation gave approval in 1981 to a loan of five million pounds sterling to assist with the financing of the distribution expansion programme and for general corporate purposes. To con- clude the financing package, an agreement was entered into in 1985 with Sparbankernas/Swedbank of Sweden for a loan of US$8.5 million for 70% of the cost of ex- tending generating plant as planned for in the expan- sion programme.  - 24 - 3. Loan Covenants The loan which has been agreed between the Company and IBRD (World Bank) carries the unconditional guarantee of the Government of Barbados, and in addition to its obligations as primary obligor under the guarantee, the Government has covenanted that it will not take any ac- tion which would prevent or interfere with the perfor- mance of the Company's obligations under the loan agreement (some of which are.summarised in (a) through (d) below) and will take or cause to be taken all reasonable action necessary or appropriate to enable BLPC to perform its obligations under the loan. (a) The Company covenanted to take all necessary actions, including implementation of tariff adjustments to produce revenue sufficient to yield an annual rate of return on the net value of fixed assets in operation which is satisfactory to the World Bank. Cb) The Company covenanted to continue to main- tain the fuel adjustment cost component of its tariffs, which enables it to recover  - 25 - through tariff variations any costs resulting from fuel price increases. (c) The Company covenanted to offer shares for sale to nationals or residents of Barbados, or to the Government of Barbados. Addi- tionally, under the guarantee instrument, the Government of Barbados agreed to take up al- lotments of shares not subscribed for through the public offering for the new share issues. (d) It will be an event of default under the loan agreement, should any change be made in the Electric Light and Power Act which would materially affect the business of the Com- pany, its management, operations, etc. 4. Rate AdJustment A further application for increased rates was filed with the Public Utilities Board on January 29, 1982, to cover rising operating costs and to generate internally sufficient funds to contribute to the expansion programme. In August 1982 this application was turned down, on the grounds that  - 26 - the Company had not proved its case. The Company filed a now application on September 10, 1982. In May 1983 the Public Utilities Board ordered an increase of 7.5 cents per kWh on Basic electricity rates, effective November 15, 1982. The effect on consumer bills was moderated by increasing use of residual fuel to generate electricity with a con- sequential reduction in fuel charges on electricity bills. At the time of preparing this report these rates were still effective. 5. ProJect Description The programme was separated into various project packages suitable for the financing available from various agencies: (a) Generatint Plant - Sunnliers Credit through Svenska Handelabanken of Sweden. Two 14 MW Low Speed Diesel Generating Units in 1982/83, a third in 1985 and a fourth in 1987.  - 27 - The first 2 units were to be proceeded with, for commissioning in 1982/83. Final deci- sions on subsequent units would be made later depending on load growth during the period. (b) 69 kV Transmission Lines - Caribbean Development Bank 15 km of 69 kV transmission lines from Spring Garden Generating Station to two new 69/24 kV Substations near the Port in Bridgetown, and at Wotton, Christ Church. (c) Substations and SCADA Equipment - Euronean lavestment Bank. Construction of two 69/24 substations at Port and Votton and development of a 69 kV substa- tion at Spring Garden Generating Plant. Ex- pansion and modification of existing 24 kV substations. Acquisition of a 69/24/11 kV mobile transformer to back-up the power transformers at the main substations. In- stallation of a Supervisory Control and Data Acquisition system (SCADA) to provide control  - 28 - and monitoring, from a central Control Room at Garrison, of feeder Circuit Breakers and equipment at distribution substations throughout the island. (d) Distribution and General - Commonwealth Development Bank Routine distribution work not specifically defined but including purchase of meters, construction of primary and secondary dis- tribution lines, strengthening of existing lines, and acquisition of transport and con- struction equipment. Miscellaneous generation and general property. (e) Distribution and Studies - World Bank The World Bank agreed to fund a project comprising distribution conversion and expan- sion, together with certain studies as described herebelow.  - 29 - (i) 24 RV Primary Feeders. Conversion of about 312 km of 11 kV primary feeders to 24 kV and replacement of about 21,200 kVA of existing industrial transformers associated with the conversion. (ii) Distribution Transformers. Installation of about 42,300 kVA of 24 kV/120-240 V distribu- tion transformers. *iii) Service Drops. Installation of about 16,500 customer service connections Consisting of ab6ut 450 km of 115-230 V conductors from the secondary pole line to the customers' meters. (iv) Capacitors Installation of about 16.5 MVAR of capacitors to maintain a system power factor of 0.90. (v) Studies Consulting services for generation planning. energy conservation and tariffs (60 staff months), and for PUB operating proce- dures and PUB criteria for setting power rates (15 staff months).  - 30 - III PROJECT IMPLEMENTATION4 OPERATION ANn COSTS 1. Pro3iect Start-Un The World Bank loan agreement was signed on February 19, 1981. The project had been clearly identified during the appraisal process and work was already in progress on the preparation of the specifications and tender documents. for procurement of materials. One of the conditions for effectiveness of the loan agreement was that the Company had signed a contract satisfactory to the Bank for two base load low speed diesel units. Tenders had been invited in June 1980 and after careful evaluation a letter of tntent had been issued on October 28, 1980, to Gotaverken Motor AB of Sweden for the turnkey supply of a 25 MW low speed diesel power plant. The formal contract was signed on February 27, 1981.  - 31-w 2. Revision The expansion programme had been prepared in 1979 based on a projected load growth of ap- proximately 8% per year. Almost imediately there was a steep increase in the world oil prices by the OPEC cartel and economic condi- tions worldwide went through a depressed period during the early 1980'.. Barbados did not escape this situation and as the economy suffered so did the sales of electricity. Average growth between 1979 and 1985 was 3.5*. This trend was quickly identified, the programme reviewed and projects rescheduled. The 69 kV transmission lines and associated substations were deferred and have not been necessary to date. Additional low speed diesel generating units had been projected for 1986 and 1987. These were reviewed and the third 12.5 MV unit was deferred to early 1987. A new expansion  - 32 - study will identify the need for future gen- erating plant. Distribution line conversions under the World Bank project were also rescheduled. The Wil- dey, Banks, and Salter/Dukes feeders whicb had been planned for early in the programme were completed but others have been deferred. The remaining Bank items proceeded basically as scheduled with the routine distribution transformers, capacitors and service drops being extended with the Bank's approval beyond 1985 to include 1986 and 1987. 3. Implementation Schedule The implementation schedule for the World Bank financed projects was as shown in Table I. 4. Procurement Materials for World Bank and BIB financed projects were purchased according to the pro- cedures set out in the banks' Guidelines for  - 33 - Procurement. The Company's previous purchas- ing procedures were generally to request com- petitive bids from 3 - 5 selected suppliers with whose products the Company was familiar. This method only required specifying techni- cal details and other basic information and has been found quick and efficient. The Bank's procedures requiring international competitive bidding mean that a lot more ef- fort is needed in the procurement process. Detailed specifications and bidding documents have to be prepared. Notification and adver- tisement of up-coming contracts have to be made to the international community involving all member countries of the Bank (or EITD. The need for the Bank's procedures is ap- preciated since they ensure competitive bid- ding and equal opportunity to tender by sup- pliers from all member countries. For this project however, the Bank financed items generally were relatively small quantities of routine distributioL material. Prices ob-  - 34 - tained were not generally better than under the Company's previous purchasing arrange- ments and the process was more involved ard time consuming. The procurement of the Low Speed Diesel Plant was by competitive tenders from selected bid- ders. There are few low speed diesel licen- sors. These firms were -issued a briet guideline specification giving the general design parameters, output requirements, site details and fuel specification and requested to submit tenders for turnkey contracts, in- cluding a five year maintenance agreement for the equipment. The Bank recommended the turnkey approach and the Company has been very pleased with the results of this form of contract. 5. Costs and Disbursements A summary of projects, and their costs, during ,the period of the expansion programme is given in Table 2.  - 35 - Drawdown of the World Bank loan was as shown below: LOAN DISBURSEMENT SCHEDULE EQUIV DATE $US $CDN SBDS 1982-12 639,594.67 663,511.06 2,182,244.00 1984-05 641,468.25 858,125.22 2,597*561.00 1984-10 267,763.45 168,344.95 786,963.00 1986-02 291,666.20 11,517.40 597,982.00 1986-11 0.00 415,861.00 596,858.00 TOTALS 1,840,482.57 2,017,362.63 6,761,608.00 6. Operations Performance of all items in the expansion programme have been very satisfactory.  - 36 - The Company has a mix of different types of generating plant. Steam turbines, a gas tur- bine, low speed diesels, medium speed diesels, and high speed diesels take care of the various loads and coDditions that will occur. Generally speaking the steam plant, and the low speed diesel plant which burn low grade residual fuel are used to supply base load. These base load units ar. high capital cost units with the lowest fuel and maintenance c-osts. They can operate continuously for long periods. These units are run 24 hours a day to supply the base load requirements of the system. The intermediate load plant are the older and less efficient base load plant which have- been superceded by more efficient plant and are now used on a daily basis for say 8 - 14 hours a day when the system load exceeds the base load capacity.  - 37 - Peaking plant, such as the gas turbine, have high fuel cost but low capital cost and are normally on stand-by but can be started rapidly in an emergency if needed. The Company is noW in a position to produce almost ail of the electricity consumed in Barbados from residual fuel burning gener- ating plant, and Barbadian consumers are now enjoying electricity at prices which are among the lowest in the Caribbean. The low speed dienel generating units have operated reliably and efficiently. They are the most fuel efficient units on our system, using the same low grade residual fuel oil as burnt in the steam plant boilers but at about two thirds the specific fuel consumption. Over the first four years of operation these units have achieved an 87 percent availability record with a forced outage rate of less than 2 percent. Operations of these units have significantly reduced the Company's fuel costs.  - 38 - In March 1985 an 1100 KW Waste Neat Turbo- Alternator Generating Unit was added to the Low Speed Diesel Plant to utilise steam produced by the exhaust gases from the diesel engines. This increased the electricity gen- erated by this plant by about 4X at no addi- tional fuel cost. The SCADA equipment has been of tremendous benefit in the operations of the Distribution Department. It has improved response to problems on the system, reduced outage times following feeder trips, and by providing in- formation on feeder loading and voltage levels has led to more efficient operations. A new substation at Wotton, in Christ Church, and the expansion of other substations have improved the capacity of the system and, with the conversion of some distribution feeders from 11,000 volt to 24,000 volt operation, losses have been reduced from 9.7% of net generation in 1980 to 8.8% in 1986. Procurement of the mobile substation trans-  _ 39 - former has provided a back-up unit for all the major power transformers on the system. It is a stand-by unit and to date there has not been a failure of a substation trans- former requiring it to be employed. However it has proved very useful during planned maintenance of substation transformers and substation expansion work. During the appraisal stage the Bank team had queried the possibility of the sugar industry producing electricity from excess bagasse. This was discussed with Barbados Sugar In- dustries Ltd. and a pilot scheme initiated at Foursquare Factory in St. Philip. Three sugar factories are now feeding electricity into the grid. They are paid the equivalent of the Company's fuel adjustment charge for electricity supplied. In 1986 almost 2.5 million kwh produced by the sugar industry from excess bagasse were purchased by the Company. In 1980 the Company completed modifications to the Steam Plant boilers to enable up to  - 40 - approximately 1.5 million cubic feet of natural gas per day to be burnt in the boilers. The National Petroleum Corporation's supply of natural gas at times exceeds the demaud of their regular cus- tomers. BLPC's use of this gas reduces vent- ing of the excess gas and lowers fuel oil im- ports. The World Bank project included a number of studies. The generatioi expansion study com- pleted in 1982 by S',ne and Webster Manage- ment Consultants Inc. confirmed the 1979 recommendations by C.I. Power Services regarding the types of plant but with a- revised implementation schedule based on a lower load forecast. Additional base load low speed diesels were recommended in 1986 and 1987 with coal-fired steam units in the 1990's. A study on energy conservation assessed the potential for the conservation of electrical energy in Barbados, and made recommendations for the implementation of a conservation  - 41 - programme in the island . The Company developed brochures and handouts for con- sumers, with the theme "Use Energy Wisely", as part of a customer education and public awareness programme. The Government set up an Energy Conservation Unit with assistance from overseas consultants and this unit was also active in the public awareness campaign. It carried out energy surveys of industries and gave specific advice on energy conserva- tion measures recommended. Courses were given for maintenance and operating personnel from industry in energy management. The Marginal Cost Tariff Study was completed in late 1982 and provided an indication of tariff levels based on Long Range Marginal Cost Analysis. Two studies, on the Public Utility Board's Procedures and the Criteria for Setting Electricity Rates, were performed for the Government. The Government was responsible for these studies, engaged the consultant and managed the projects. The Company re-  - 42 - imbursed the Government for the cost of the studies. 7. Performance of Consultants. Contractors.and SugDliers . The consultants, C.I. Power Services Ltd. (CIPS), assisted with the development of the expansion programme and continued to provide services during the project period. They helped with the prepara- tion of specifications and tender documents for materials procurement, evaluation of tenders, and monitoring and expediting purchase orders. CIPS provided design and project management services for the SCADA system and were appointed Rngineer to monitor the contractor's performance on the turnkey contract for the Low Speed Diesel PIlant. Distribution line conversions and construction, and the erection and expansion of substations were supervised and managed by BLPC engineers and tech- nical staff. Other consultants carried out the studies which were completed during the project. Stone and Webster did the System Expansion Study, Energy  - 43 - Conservation Study, and the Marginal Cost Tariff Study, while Peat Marwick performed the studies on Criteria for Setting Power Rates, and the Operat- ing Procedures of the Public Utilities Board for the Government, funded by BLPC. The performance of the contractor for the Low Speed Diesel Plant Project was very impressive. Relations with the engineer, client and sub- contractors were co-c irative and the project was completed on schedule and within budget. Suppliers generally performed satisfactorily, delivering materials in accordance with the specifications at the times promised. The con- tract for one year's supply of distribution trans- formers was supplied by a manufacturer in Taiwan and an order for overhead line conductor was from Thailand. Delivery of these shipments took con- siderably longer than normally expected from North American or European suppliers. In view of the distances involved this was understandable.  - 44 - IV. OPRRATING PERFORMANCE 1. Market At the time of project appraisal, load growth over the three years 1977, 1978 and 1979 had averaged 11 percent per year. The forecast for the period 1980 - 1985 was for an average load growth of 7.8 percent per year and the expansion programme was developed to satisfy this projected demand. In late 1979 the large increase in oil prices triggered a recessionary reaction on the world economic scene. Tourism and industrial production suffered and over the 1980 - 1985 period actual electricity load growth averaged only 3.4 percent per year. However in 1986 there was an increase of 6.5 percent in electricity sales and this rate of growth may be exceeded in 1987. Figures prepared by the Barbados Statistical Serv- ice for tourist arrivals and the index of in- dustrial production for the period 1976 - 1986 are  - 45 - as follows: YEAR TOURIST ARRIVALS AVERAGE LENGTH INDEX OF OF STAY(NIGHTS) INDUSTRIAL PRODUCTION 1976 224,314 8.5 140.7 1977 269,314 9.0 144.8 1978 316,883 8.7 150.9 1979 370,916 9.6 151.7 1980 369,915 9.8 167.2  - 46 - YEAR TOURIST ARRIVALS AVERAGE LENGTH INDEX OF OF STAY(NIGHTS) INDUSTRIAL PRODUCTION