Bolivia - Second ENDE Power Project

%s \ RESTRICTED Report No. PU-3a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION BOLIVIA APPRAISAL OF THE SANTA ISABEL PROJECT EMPRESA NACIONAL DE ELECTRICIDAD S. A. (ENDE) April 8, 1969 Public Utilities Projects Department  CURRENCY EQUIVALENTS US$1 = 12 pesos Bolivianos ($b 12) $b 1 = US$8 cents $b 1 million = US$83, 333 MEASURES EQUIVALENTS One meter (m) = 3.281 feet One kilometer (km) 2 = 0. 6214 miles One square kilometer (km ) = 2. 59 square miles One cubic meter (m ) = 35. 313 cubic feet One megawatt (MW) = 1, 000 kilowatt One gigawatt hour (GWH) = 1 million kilowatt hours ACRONYMS BPC - Bolivian Power Company Lt. CBF - Corporacion Boliviana de Fomento COMIBOL - Corporacion Minera de Bolivia DINE - Direccion Nacional de Electricidad ELFEC - Empresa de Luz y Fuerza Electrica Cochabamba S.A. ENDE - Empresa Nacional de Electricidad S.A. IDB - Inter-American Development Bank US AID - United States Agency for International Development YPFB - Yacimientos Petroliferos Fiscales Bolivanos ENDE's Fiscal Year ends December 31 (e.g. FY1967: January 1, 1967 to December 31, 1967).  BOLIVIA APPRAISAL OF THE SANTA ISABEL PROJECT EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ENDE) TABLE OF CONTENTS Page No. SUMMARY 1. INTRODUCTION ........................................... . 1 2. THE ELECTRIC POWER SECTOR ............................... 2 Relation to the Economy ............................ 2 Organization of the Sector ......................... 3 3. THE BENEFICIARY ........................... 4 Nature of Entity and Organization ................. . 4 Existing Facilities and Operations ................. 5 Accounts and Audits ... ............................. . 5 Present Financial Position ...6..................... 6 Past Earnings Records ...... ........................ 8 Tariffs ................ ................. 8 Interconnection Agreement ...... ................. 9 4. THE PROJECT ... .......................................... 9 Expansion Program .................................... 9 Description of the Project ..... .............. . 10 Engineering ............................. ............. 10 Estimated Cost of the Project .............. . . ....... 11 Procurement and Disbursement ....................... 11 5. JUSTIFICATION OF THE PROJECT ...... ...................... 11 Power Market ...1.................................... l The Bolivian Power Company Market ...... ............ 12 The Empresa Nacional de Electricidad Market .... .... 12 Least Cost Technical Choice ....................... 14 Internal Rate of Return of the Project .... ......... 14 6. FINANCING PLAN AND FUTURE FINANCIAL POSITION ..... ....... 14 Proposed Financing Plan ...... ...................... 14 Future Earnings .................................... 16 Future Financial Position .......................... 17 7. CONCLUSIONS AND RECOMMENDATIONS ................... ..... 18 This report has been prepared by Messrs. W.F. Kupper and R. Knothe.  LIST OF ANNEXES 1. Balance Sheets 1965-1968 2. Empresa de Luz y Fuerza Electrica Cochabamba (ELFEC) 3. Income Statements 1966-1968 4. Investment Program and Expenditures 1969-1972 5. Description of the Project 6. Construction Cost Estimate 7. Load and Capacity Forecasts, Sales Outlying Systems 8. Internal Rate of Return Calculations 9. Sources and Applications of Funds 1969-1972 10. Forecast Income Statements 1969-1972 11. Power Sales and Revenues 1969-1972 12. Debt Service Requirements 1969-1972 13. Balance Sheets 1968-1972 MAPS 1. Bolivian Power Systems 2. Site Plan of the Corani and Santa Isabel Plants  BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD, S.A. (ENDE) SANTA ISABEL PROJECT SUMMARY i. With a previous Credit (61-BO) the International Development Association (IDA) assisted in financing the Corani plant, the first hydro development of the Empresa Nacional de Electricidad (ENDE), the autonomous national electricity company of Bolivia. Commercial operation of the Corani plant started in early 1967. A second hydroelectric project, the Santa Isabel plant using the tailrace water of Corani, is now under con- sideration, which would allow ENDE to meet the expected demand in the central region of Bolivia. ENDE is also planning to extend its facilities in other regions. ii. The Bolivian Government has applied for an IDA Credit of US$7.4 million equivalent to finance the foreign exchange cost of the Santa Isabel Project. It would relend (a) U.S$7.34 million of the Credit to ENDE to meet the foreign exchange cost of the Santa Isabel hydroelectric plant and associat- ed transmission facilities and (b) the balance of US$60,000 to the Direccion Nacional de Electricidad (DINE), the regulatory agency, to finance the foreign exchange cost of consulting services. The Government has also applied for a loan of US$5.6 million from the Inter-American Development Bank (IDB) for the expansion of ENDE's Southern Systems. iii. The total cost of the Santa Isabel hydroelectric plant and associated transmission facilities, including engineering and contingencies, and consulting services for DINE, would amount to US$10.5 million equivalent. iv. The Santa Isabel hydroelectric plant is needed to meet expected load growth in ENDE's Central System. The plant has been soundly planned by ENDE and its consultants. It is the least cost and the most suitable plant for ENDE's system. Its internal rate of return would be between 15% and 19.5%, valuing output at prevailing tariffs and making allowances for possible variations in such factors as load. v. Procurement would be made after international bidding in accordance with IDA Guidelines. Credit disbursements would be for the foreign exchange cost of materials, equipment, engineering and consultant services and the foreign exchange cost component of civil works construction contracts. vi. ENDE's present and forecast financial position is satisfactory. vii. The Project would be suitable for a credit equivalent to US$7.4 million, of which US$7.34 million would be relent by the Government to ENDE at 6.5% interest for a term of 30 years, including a four-year grace period, and US$60,000 to DINE.  BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD, S.A. (ENDE) SANTA ISABEL PROJECT I. INTRODUCTION 1.01 This report covers the appraisal of a project of Empresa Nacional de Electricidad S.A. (ENDE), consisting of the Santa Isabel hydroelectric plant with a capacity of 34 MW, the construction of associated transmission facilities, and consultants' services to ENDE and Direccion Nacional de Electricidad (DINE), the regulatory agency for the Bolivian power supply industry. 1.02 The estimated cost of the Project is about $b 126.5 million (US$10.5 million). The Government of Bolivia has asked the Association for a credit to meet the foreign exchange costs of the Project which are estimated to amount to $b 88.8 million (US$7.4 million). 1.03 The Borrower would be the Government of Bolivia which would relend US$7.34 million of the Credit to ENDE at commercial rates and the balance of US$60,000 to DINE. 1.04 In 1964, the International Development Association (IDA) made two credits, totaling US$15 million, to the Republic of Bolivia to help finance power projects. The first Credit of US$10 million, 61-BO, is being made available by the Government as an equity contribution to ENDE to help finance the 27 MW Corani hydro plant, transmission lines to Cochabamba and the Oruro tin mining district, and distribution system extensions in Cochabamba. Simultaneously, the Inter-American Development Bank (IDB) made a US$3.5 million loan for the same purpose. The second IDA Credit of US$5 million, 62-BO, was relent by the Government to the Canadian owned Bolivian Power Company (BPC) for the construction of the 11 MW Chururaqui hydroelectric plant and system improvements in La Paz and Oruro. 1.05 The project financed by Credit 61-BO has been substantially com- pleted. The Corani plant has been operating satisfactorily since the be- ginning of 1967. The cost of the plant was below the estimate and it was agreed the savings could be used for additional transmission and distribution work and for consulting services. To allow sufficient time for the addi- tional work to be executed, the closing date was postponed by 1-1/2 years to June 30, 1970. As of December 1968, US$0.9 million was undisbursed. The Chururaqui plant has been operating satisfactorily since early 1966, and credit 62-BO was fully disbursed before the closing date of December 31, 1967. 1.06 The conditions stipulated in the credit documents 61-BO and 62-BO which were interlinked, have been fulfilled with the following exceptions: the rate of return has not yet been reached and the Government has failed in meeting its obligations to BPC. During negotiations for the proposed  - 2 - credit, however, the Government and BPC agreed on a new debt settlement which is satisfactory to IDA. Both these aspects will be discussed later in this report; 1.07 During appraisal of the Corani project it was already apparent that ENDE would need further generating facilities within a few years after completion of the Corani plant. Consequently funds were made available under Credit 61-BO for consultant services to study the market and determine the most economic power developments. The J.G. White Engineer- ing Corporation of New York prepared a study which showed that a plant using the tailrace water of the Corani Plant, designated the Santa Isabel Plant, would be the best development. The study left doubts, however, as to the forecast of demand in the Bolivian power market. The Association therefore requested a further study for which ENDE engaged Motor Columbus of Switzerland. The consultants' report was submitted in February 1968 and found acceptable. An appraisal mission consisting of Messrs. W.F. Kupper and R. Knothe visited Bolivia in July/August 1968. This report has been prepared by the mission and is based on information supplied by ENDE, its consultants, and an IDB mission which appraised ENDE's projects in the southern region of Bolivia in September 1968. 2. THE ELECTRIC POWER SECTOR Relation to the Economy 2.01 Bolivia is a landlocked country of about 1.1 million km2 bordered by Chile, Peru, Brazil, Paraguay and Argentina. The dominant geographical features of the country are two ranges of the Andean mountain system which embrace a high plateau, the "Altiplano", comprising about 40% of the total area of the country. Population is concentrated in (a) La Paz, the capital with about 600,000 inhabitants, (b) Oruro and Cochabamba, the area to be supplied by the project, (c) Potosi and Sucre in south Bolivia and (d) Santa Cruz in the tropical plains in thl east. The population is estimated to be about 4.6 million, about 4 per km , and is increasing at an average rate of about 2.4% per year. About two thirds of the people live in the valleys of the mountains and on the altiplano. 2.02 The economy of Bolivia is based mainly on agriculture which con- tributes about 23% to the GDP. The GDP, at current market prices, increased from US$280 million equivalent in 1958 to an estimated US$790 million in 1968 or about 11% per annum. During the same period annual per capita income rose from US$82 to an estimated US$180 or about 8% per annum. Although mining (mainly: tin, lead, and zinc) accounts for only about 9% of the GDP, the economy depends on it to a large degree, since mining generates about 70% of the country's export earnings. The outlook for tin, which is Bolivia's most important mining product, is uncertain due to low prices and as a result the mining sector's demand for power is not expected to increase by more than the 4% per year experienced in past years. A more significant contribution to load growth is expected from the manufacturing and con- struction industries and from residential consumers.  - 3 - 2.03 From 1960 to 1967 total gross generation of electric power in Bolivia increased from about 447 GWh at a rate of about 4% per annum to 595 GWh. The installed generating capacity during the same period increased by about 50% to 219 MW of which about 85 MW is owned by BPC, 35 MW by ENDE, 78 MW by private industries and 21 MW by isolated public supply systems. Organization of the Sector 2.04 Prior to 1962, when the Government decided to enter into the electric supply industry, BPC had supplied practically all public electric power in the country. Due to the severe inflation in Bolivia and the lack of authorization for tariff adjustments, BPC's financial position had deteriorated to a point where the necessary expansion of facilities could no longer be made. Furthermore the Corporacion Minera de Bolivia (COMIBOL), the government-owned mining company, had accrued a large outstanding debt of US$2.6 million for power purchased from BPC; the government also owed BPC about US$170,000 for the Oruro telephone company it had taken over from BPC in 1956 and about US$200,000 for power purchased. 2.05 These matters were considered by IDA in 1964 and it was agreed that (a) ENDE was to be established as a government-owned autonomous power company to construct, operate and manage power installations where needed except in an area to be served by BPC (see paragraphs 5.02 and 5.03); (b) the Government and COMIBOL would pay their debts to BPC; and (c) Direccion Nacional de Electricidad (DINE) was to be established as an autonomous regulatory agency to formulate policies and regulations governing the power sector and to approve tariffs for all power entities in the country. 2.06 ENDE has been set up satisfactorily and started commercial opera- tions in early 1967. COMIBOL has made all the payments due to BPC, but the Government failed to pay for the Oruro telephone system and for the supply of power. At the end of 1968 the amount owed by the Government had reached about US$0.8 million. Following the credit negotiations, agreement was reached be- tween the Government and BPC that the debt accrued would be repaid over about 7 years and that current electricity bills would be paid promptly. The arrangement is satisfactory to the Association. 2.07 With the assistance of consultants, Motor Columbus of Switzerland, DINE was finally established as a regulatory body by Supreme Decree No. 08283 in February 1968. An Electricity Code to regulate the Bolivian power sector was prepared by DINE and promulgated by Supreme Decree No. 08438 in July 1968. Tariffs aimed to allow a satisfactory return have been approved by DINE for BPC, ENDE, and other power entities in the country. 2.08 Although DINE is now operating fairly satisfactorily, it still suffers from an undue degree of supervision by the Ministry of Economy and has difficulties in recruiting and retaining qualified staff. The con- sultants' contract expired in October 1968. It appears highly doubtful that DINE, without assistance of qualified consultants, could overcome all the difficulties a regulatory agency has to face. As a satisfactory func- tioning of DINE is essential for the development of the Bolivian power indus-  -4- try, an agreement has been reached during negotiations that consultants be employed by DINE for at least another two years to assist it in the prepara- tion of the various regulations pertaining to the Electricity Code and in the administration of the Code. An amount of US$60,000 to meet the foreign exchange part of the cost of the consulting services is included in the proposed credit. 2.09 During negotiations agreement was reached with the Government that (a) the Electricity Code would be presented for enactment by Congress not later than September 30, 1971, and (b) material amendments to the Code would require prior agreement by the Association. 3. THE BENEFICIARY Nature of Entity and Organization 3.01 ENDE was established by the Bolivian Government in February 1965 as a limited liability company to take over the assets and responsibilities of the power division of Corporacion Boliviana de Fomento (CBF), the government-owned development corporation. ENDE's Articles of Incorporation fix its authorized capital at US$40 million, divided into 40,000 shares with a nominal value of US$1,000 each. Of this authorized capital 15,000 shares were subscribed: one share each by Corporacion Minera de Bolivia (COMIBOL) and Yacimientos Petroliferos Fiscales Bolivianos (YPFB) the government-owned mining and oil company, and the remainder by CBF. 3.02 ENDE has a 6-man Board of Directors. The Chairman of the Board is selected by the President of the Republic from candidates proposed by the shareholders. The other five members are elected by the shareholders. All board members serve four years and are eligible for re-election. At present the President of CBF is the Chairman and there are three Directors appointed by CBF and one each appointed by COMIBOL and YPFB. 3.03 The General Manager, the chief executive of the company, is appointed by the Board and can only be removed for cause. The present General Manager is an experienced engineer and competent executive. He is assisted by three department heads in charge of operation, administration and finance, and engineering, respectively. For the last two years, ENDE had contracted the services of two consultants from Harza Engineering (USA) to head the operations department and to run the Corani Plant. After dis- cussions with IDA, ENDE has recently signed a contract with Harza Engineering to provide one consultant for another two years to head the operations depart- ment and to train ENDE's staff. The General Manager and the operations consultants have to be credited with the satisfactory development and operation of ENDE. Its small staff still appears somewhat inexperienced and the middle management especially requires strengthening. The IDB is consider- ing the provision of funds for consultants to train ENDE's staff further.  -5- 3.04 Despite the weaknesses mentioned above, there is no question about ENDE's ability to carry out the proposed project successfully while at the same time continuing to serve its customers satisfactorily, as long as a competent General Manager is in office. To assure this, an undertaking, similar to the one given under Credit 61-BO, has been obtained that during the life of the loan (to be made from the proceeds of the IDA credit by the Government to ENDE) IDA will be consulted before appointments are made to the position of General Manager. Existing Facilities and Operations 3.05 In its Central System (which is connected to BPC's system in the area) ENDE owns and operates the 27 MW Corani hydroelectric plant, 4 MW of diesel plant and about 180 km of transmission lines, to supply power in bulk to Empresa de Luz y Fuerza Electrica Cochabamba S.A. (ELFEC), the Cochabaiba distribution company, and to the COMIBOL mines in the Catavi area. System dispatching is straightforward, the pattern being to use the low cost hydro energy first, the diesel plant which is relatively expensive to operate being reserved for system peaks and standby purposes. The system annual load factor is presently about 45%. This is low, but a gradual improvement is expected (see paragraph 5.09). Maintenance of all plant is satisfactory. 3.06 Apart from the Central System, ENDE owns or controls facilities in three other cities. In Santa Cruz, ENDE owns about 3 MW diesel-electric capacity which is leased to Servicios Electricos de Santa Cruz, a former division of CBF and for the time being administered by ENDE. In Sucre, ENDE owns about 2 MW diesel-electric capacity of which 0.2 MW was leased to a cement factory until the end of August 1968 and 1.8 MW is leased to Cooperativa Electrica de Sucre S.A. In Tarija, ENDE supervises for CBF the Servicio Electrico de Tarija which owns and operates the local dis- tribution system and two generating plants: 0.9 MW diesel and 0.3 MW hydro. In Potosi, ENDE acts as consultant on technical matters to the Comite de Energia Electrica. Accounts and Audit 3.07 ENDE keeps its accounts on a calendar year basis. During 1967 ENDE modified its system of accounts to follow a somewhat simplified version of t4e U.S. Federal Power Commission's Uniform System of Accounts but the implementation has not been fully satisfactory. 3.08 During the appraisal it became apparent that ENDE's external auditors, retained with approval of IDA (under Credit 61-BO) lack the account- ing and public utility experience to give ENDE the guidance it needs and to perform meaningful audits. It has been agreed during negotiations that ENDE would appoint a different firm of independent auditors satisfactory to IDA.  -6- Present Financial Position 3.09 Annex 1 shows summary balance sheets as of April 1, 1965 (opening balance) and as of December 31, 1965 through 1968. The presentation of the external auditors was rearranged to show more accurately ENDE's present financial position but it proved impossible to restate properly ENDE's 1967 profit which appears to have been overstated by about 10 to 15% as ENDE overestimated its 1967 income and underestimated its expenses. The preliminary balance sheet as of December 31, 1968 can be summarized as follows: Millions $b or US$ ASSETS Utility Plant at Cost 157.4 13.1 Less: Depreciation Reserve 9.8 0.8 Net Fixed Assets in Operation 147.6 12.3 Work in progress, etc. 15.8 1.3 Investments 16.2 1.4 Current assets 34.8 2.9 TOTAL ASSETS 214.4 17.9 EQUITY AND LIABILITIES Capital paid in 153.6 12.8 Reserves 10.1 0.8 Total Equity 163.7 13.6 CBF - advances pending capitalization 5.5 0.5 Long-term debt 41.9 3.5 Current Liabilities 2.8 0.2 Reserve for Social Benefits 0.5 0.1 TOTAL EQUITY AND LIABILITIES 214.4 17.9 3.10 The assets are shown at cost and appear in general to be fairly valued. Insurance coverage for the plant is adequate. 3.11 When ENDE was established it took over from CBF a participation in Empresa de Luz y Fuerza Electrica Cochabamba S.A. (ELFEC), the Cocha- bamba distributing company. This participation was increased and supplemented by a loan when ENDE, under the IDA-IDB Corani 1964 agreements provided the funds to ELFEC for distribution system extensions in Cochabamba.  - 7 - As of December 31, 1968 ENDE held nearly 50% or $b 3.87 million of ELFEC's share capital of $b 7.75 million and the loan outstanding was about $b 6 million. (For a short description of ELFEC and summary balance sheets and income statements see Annex 2). ENDE does not intend to increase its share- holdings in ELFEC but will lend the funds still required for distribution system expansion. Investments of ENDE in associated companies totalled $b 16 million at the end of 1968. This included some investments in Tarija and Sucre the form of which, equity or loans, has not yet been decided. 3.12 ENDE's current position was satisfactory at the end of 1968. The ample year-end cash and bank balance of $b 24 million was built up in pre- paration for the large expenditures due under its investment program. 3.13 ENDE's capitalization as of the end of 1968 was $b 206 million of which $b 164 million was equity and $b 42 million was debt, resulting in a debt/equity ratio of 20/80. Equity consists of direct capital contributions by the Bolivian Government and CBF in the form of assets and cash and includes the proceeds of the US$10 million IDA Credit 61-BO (see paragraph 1.04). ENDE also receives, as equity contribution from the Government, all debt service payments made by BPC to the Government under Credit 62-BO. 3.14 The long-term debt (excluding 12 months' maturities) may be summarized as follows: Millions $'b or US$ IDB 41-SF-BO 4%, 1969-1989 33.72 2.81 AID 511-L-031 1%-2.5%, 1972-1997 7.13 0.59 Comite Obras Publicas Santa Cruz 0%, 1966-1986 1.00 0.09 Total Long-Term Debt 41.85 3.49 3.15 Long-term debt comprised three loans, two of which had not been fully drawn down: (i) an IBD loan of US$3.4 million relent by the Government to ENDE and made simultaneously with IDA Credit 61-BO, to help finance the Corani Project;  -8- (ii) a loan of US$6.3 million from the U.S. Agency for International Development (U.S. AID) for the financing of generation and distribution facilities in Santa Cruz (of this, about US$3.2 million will be relent by ENDE to the Santa Cruz distribution company on the same terms and conditions as the U.S. AID loan); and (iii) a loan of US$0.1 million from the Comite de Obras Publicas of Santa Cruz, in lieu of payment for miscellaneous assets transferred to ENDE. 3.16 During 1968 ENDE obtained a loan from IDB of about US$0.3 million at 6% repayable over 7 years for the financing of a survey of water resources for power plants in Bolivia. No withdrawals have yet been made. 3.17 The average weighted interest rate of the loans so far obtained by ENDE is about 3%. Past Earnings Records 3.18 A summary of ENDE's income statements for the years 1966-1968 is given in Annex 3. Sales from the Corani plant which began on January 1, 1967, to ELFEC and on March 5, 1967, to COMIBOL reached 66 GWh in 1967 and 70 GWh in 1968. They were below the estimates given in the appraisal report for Credit 61-BO because the output of the COMIBOL mines and hence their demand for power was considerably below expectations; and, in the case of Cochabamba, past unsatisfied demand, due to insufficient generating capacity, was apparently not as big as estimated and development of small industries not as rapid as expected. Operating revenues were therefore only about $b 13 million in 1967 and 14 million in 1968 compared to $b 34 million forecast for each of these years. ENDE was nevertheless able to earn a return of about 3.7% on net fixed assets in the two first years of full commercial operations which in the circumstances can be considered acceptable. Tariffs 3.19 Under Credit 61-BO the Government agreed that ENDE would obtain tariffs which would enable it to earn a 9% return on the rate base. The Electricity Code of July 1968 now incorporates the stipulation that all power companies shall earn for each of their systems taken separately a return of 9% calculated as an average for a period of three to five years. The rate base is defined as average net fixed assets in operation plus working capital (1/8 of the annual operating revenue) and materials (up to 3% of tangible assets). The adequacy of tariffs is reviewed annually for each system by DINE and if the return expected for the forecast period drops below 8.5% or exceeds 9.5% the tariffs are adjusted. 3.20 ENDE's tariffs for the existing Central System, which are based on a demand charge and an energy charge, were authorized bv DINE in early 1967. They were calculated on the basis of forecasts for which no historical data were available and were expected to give ENDE a 9% return  over the period 1967-1970 assuming that the Corani plant would be nearly fully loaded in 1968. It is now apparent, however, that with the present tariffs ENDE will be able to reach the average of 9% for the Central System only over the 5 years through 1972. There are several reasons for this: - load growth was slower than expected (see paragraph 3.18); - 1968 was an extremely wet year which allowed COMIBOL, ELFEC and BPC to operate all their own hydro plants at capacity which affected ENDE's sales to ELFEC and COMIBOL; - the final tariff, replacing an inadequate provisional one, for ENDE's power supply to COMIBOL was negotiated only in September 1968 and subsequently authorized by DINE (see interconnection agreement paragraph 3.21). Interconnection Agreement 3.21 One of the conditions of Credits 61 and 62-BO was that ENDE and BPC would sign an Interconnection Agreement to ensure efficient operations of the facilities in the Central System and to cover tariffs to be charged to COMIBOL. After unsuccessful negotiations DINE ruled in September 1968 on all matters in dispute and ENDE and BPC agreed to the rulings. This arrangement is satisfactory to the Association. 4. THE PROJECT Expansion Program 4.01 ENDE's four year expansion program 1969-1972 requires about US$31 million for additional generating and transmission facilities in its various systems and for studies to prepare for the next stage of expansion. Annex 4 shows details of ENDE's investment program. 4.02 The program for ENDE's Central System includes the remaining investments under Credit 61-BO, the construction of the Santa Isabel hydro- electric scheme (the proposed IDA Project), and feasibility studies for associated future extensions. ENDE intends to study also the possibility of constructing a 20-30 MW hydro plant to supply power to a zinc smelting plant under consideration by Empresa Nacional de Fundiciones. 4.03 In ENDE's other systems, the generating facilities in Santa Cruz will be extended by a 13.3 MW dual fuel (diesel oil/gas) diesel plant in 1969, financed by U.S. AID. A further unit of 6.6 MW would be added in 1971. In the Southern System, comprising Sucre and Potosi, it is intended to install a 10 MW gas turbine plant in Sucre to be in operation by 1971, and to link Potosi and Sucre by a 115 kV transmission line. IDB is expected to finance the expansion of the Southern System.  - 10 - 4.04 ENDE intends to carry out studies of the most promising hydro resources in the country. It appears that several power plants could be constructed on -the Rio Grande with an aggregate capacity of at least 200 MW. This scheme, appropriately staged, could supply power to ENDE's Central System as well as the Santa Cruz and Southern Systems. Description of the Project 4.05 The proposed Project consists of (a) the 34 MW Santa Isabel hydro- electric plant, (b) a step-up substation and a 6.5 km long 115 kV transmission line to connect the plant to the existing substation at Corani, (c) engineer- ing services for supervision of the Project, (d) studies of future extensions of the Corani and Santa Isabel plants and, (e) consultant services for DINE (see paragraph 2.08). It would amount to some 34% of ENDE's 1969-1972 pro- gram. A more detailed description of the Project is given in Annex 5. The maps attached to this report show the location of the proposed hydroelectric plant. 4.06 The physical features of the Project have been adequately inves- tigated and construction should proceed without undue difficulties. 4.07 The Santa Isabel plant, using tailrace water of the Corani plant, diverts water from the Corani river to the Santa Isabel river. A small reservoir would be provided for the Santa Isabel plant. Engineering 4.08 With IDA's agreement, ENDE engaged Motor Columbus of Switzerland in September 1967 for the preparation of the final feasibility study, the design, preparation of bidding documents and bid evaluation, and related studies for the Project which are all financed under Credit 61-BO. 4.09 During negotiations an understanding has been reached that ENDE will continue to employ consultants satisfactory to IDA for the supervision of the construction of the proposed Project. ENDE's present plan is to continue to employ Motor Columbus for this purpose. This would be satis- factory and the foreign exchange cost would be financed from the proposed credit. 4.10 The schedule for completion is tight. Tunneling would be critical as would be the supply and erection of turbines and generators in view of transportation difficulties from a Pacific port to the site. The invitations to bid for the Santa Isabel civil works and for the electrical and mechanical plant have been issued recently. Contracts are expected to be signed by mid 1969. Commercial operation of Santa Isabel is scheduled for the beginning of 1972.  - 11 - Estimated Cost of the Project 4.11 The project is expected to cost the equivalent of US$10.5 million. A cost summary is shown below and in more detail in Annex 6. Local Foreign Total Local Foreign Total ($b'000) or (US$'000) Civil works 20,400 34,800 55,200 1,700 2,900 4,600 Electromechanical works 6,000 39,600 45,600 500 3,300 3,800 Engineering 7,200 4,080 11,280 600 340 940 Contingencies 3,600 9,600 13,200 300 800 1,100 Consultants for DINE 480 720 1,200 40 60 100 TOTAL PROJECT COST 37,680 88,800 126,480 3,140 7,400 10,540 4.12 The estimated cost for the civil works has been based on actual prices for similar work on the Corani Project, which was completed in early 1967, taking into account the increase of prices and labor costs in Bolivia since then. Nevertheless, in view of the nature of the work, contingencies of 20% have been included for tunneling and of about 10% for other civil works. Prices for electromechanical equipment have been based on recent world market quotations with a contingency allowance of about 8% which is considered satisfactory. Contingencies of 5% for the penstock and tunnel lining, have been included and should be adequate. Procurement and Disbursement 4.13 The proposed credit would finance the foreign exchange cost of the Project. Disbursement would be against the actual cost of goods and services. Contracts financed by the proposed credit, other than consultants' services, would be awarded in accordance with the Bank/IDA Guidelines for international competitive bidding. No expenditures are expected to be made prior to the date of the credit. Should the foreign exchange cost to complete the Project be less than the estimate, any undisbursed amount of the proposed credit would be cancelled unless there were good grounds for applying savings to additional works. 5. JUSTIFICATION OF THE PROJECT Power Market 5.01 As stated in paragraph 2.05, the Bolivian power market has been divided since 1963 into two sections: (a) that served by BPC and (b) that to be served by ENDE. The latter section also includes isolated under- takings in which ENDE has an interest.  - 12 - The Bolivian Power Company Market 5.02 The principal market served by BPC is the La Paz area where it has an installed capacity of 64 MW. Since the inauguration of the Chururaqui hydro plant (Credit 62-BO), power rationing has been eliminated in La Paz. A 27 MW plant is now under construction downstream from the Chururaqui plant to meet future demand. 5.03 In the Oruro area (Central System) BPC owns 21 MW of hydroelectric capacity and serves the town of Oruro and COMIBOL mines. As BPC has agreed with the Government not to expand its facilities in the Oruro area, any future load growth will have to be met by ENDE. The Empresa Nacional de Electricidad Market 5.04 ENDE has the responsibility for power generation and transmission in all areas not served by BPC. ENDE's principal market is the Cochabamba- Oruro area (Central System) where it supplies ELFEC in bulk, the Central Group of COMIBOL mines, and several direct clients located along its trans- mission facilities. As mentioned in paragraph 3.06 ENDE has also several generating plants which it leases to the distribution companies in the cities of Santa Cruz and Sucre which are not connected to ENDE's Central System. 5.05 The characteristics of ENDE's Central System Market for 1968 are shown below: Sales Customer (GWh) % ELFEC Cochabamba 28.2 40.0 COMIBOL 42.0 59.6 Others 0.2 0.4 Total 70.4 100.0 5.06 Information for forecasting the growth of demand for electric power in the Central System, which would be supplied by the Santa Isabel plant, is available from three market forecasts. The first forecast was prepared in 1966 for ENDE by J.G. White Corporation of New York. This forecast was later revised by ENDE showing more conservative estimates. The latest forecast has been made by ENDE's Swiss consultants, Motor Columbus, who prepared two estimates. One, the low forecast, is based on the assumption that COMIBOL postpones indefinitely a major expansion program of its industrial installations. The other, the high forecast, takes into account an accelerated expansion program of COMIBOL in the years 1969 and 1970.  - 13 - 5.07 The forecast adopted for this report follows the basic approach used by Motor Columbus in its low forecast, modified to reflect the actual situation at the beginning of 1969. It was established in discussions with COMIBOL that it does not presently intend to embark on a major expansion program in its central mining area. If, at a later stage, COMIBOL should decide upon its expansion program, there would be sufficient time for ENDE to install a gas turbine to cover the demand adequately since the implementation of COMIBOL's program would require at least 18 months. 5.08 Forecasts of sales, gross generation and peak demand, and required capacity, for the Central System, are shown in Annex 7. The forecasts take into account sales and gross generation of BPC, which company will not extend its facilities (see paragraph 5.03). The average annual increase in sales for the Central System in the period 1968-1974 is expected to be about 11.8%. In evaluating this forecast, it should be noted that ELFEC's very old hydro facilities, capable of supplying up to about 18 GWh per annum, are expected to be taken out of operation after the commissioning of Santa Isabel while several large consumers, such as a tire factory, cement plant, tin smelter and the YPFB refinery, are expected to be connected in the next few years, aggregating about 45 GWh in sales by 1972. 5.09 Since ENDE is to supply the total increase in demand for the Central System, its gross generation is expected to increase by about 28% in 1969 and 1970. The annual rate of increase then drops to about 11% by 1973. BPC's annual load factor would be about 60% and ENDE's load factor is expected to rise gradually from 44% in 1967 to about 50% in 1973. 5.10 The forecast in Annex 7 shows the required capacity to meet system demand as well as the present generation sources and the expected capacity additions. Demand is expected to exceed firm capacity in 1969 and to exceed installed capacity by a small margin in 1971. ENDE has, however, decided not to provide for these forecast deficits for the follow- ing main reasons: (a) to install the necessary reserve capacity would be beyond the financial capacity of ENDE, (b) the rate of load growth for COMIBOL and some other direct consumers of ENDE is uncertain in view of the low prices on the tin market. Plans are being made, however, to allow for the installation of a 15 MW gas turbine on short notice, should the load build up beyond expectations. 5.11 The sales forecasts for the outlying systems are also shown in Annex 7. They are based for the Sucre-Potosi area on the forecasts prepared by Harza Engineering, and for Santa Cruz by Kuljian of Philadelphia. How- ever, forecasts for Santa Cruz have been reduced after discussion with ENDE and those for the Sucre-Potosi system after discussion with the IDB appraisal mission.  - 14 - Least Cost Technical Choice 5.12 The available topographical information and stream gauging records are not yet sufficient to consider other hydro plant as an alter- native for Santa Isabel, although ENDE has started making a systematic study of a number of resources. For this reason only a thermal plant has been considered as an alternative. Although natural gas is produced in Bolivia it is unlikely to be available in the Cochabamba area for some years after 1972 when Santa Isabel is scheduled to be in operation. It has therefore been assumed that a thermal alternative would use oil as fuel. 5.13 It is estimated that the cost of fuel oil is about US$16 per ton at the Pacific Coast. ENDE however has to pay some US$28 per ton to the Yacemientos Petroliferos Fiscales Bolivianos (YPFB) for fuel oil and it appears unlikely that YPFB will sell for less than this. 5.14 A comparison was made, using the discounted cash flow method, between Santa Isabel and the thermal alternative taking into account the alternative investments and operational costs. With a fuel price of US$ 20 per ton, Santa Isabel is the least cost solution for discount rates of up to 15%. With a fuel price of US$25/ton, the equalizing discount rate would be about 17%. Rate of Return of the Project 5.15 An attempt has been made to calculate the rate of return of the proposed Project (for details see Annex 8). It was not possible to evalu- ate all of the possible benefits and therefore the calculation was limited to quantifying the incremental revenues, taking output at current tariffs, which could be attributed to the proposed investment. A probability analy- sis was included, assuming various degrees of uncertainty for all estimates. The calculations show that the revenues from the new investment would yield an expected minimum rate of return of about 15% and a maximum of about 19.5%, which appears satisfactory. 6. FINANCING PLAN AND FUTURE FINANCIAL POSITION Proposed Financing Plan 6.01 Forecast Sources and Applications of Funds 1969-1972 are shown in Annex 9. The forecast covers a period of high capital expenditures for ENDE which during the four years to 1972 would increase its net fixed assets by about 2.6 times over the end 1968 level. Expenditures for major new construction following the proposed and other projects under consideration (see Annex 4) have been provided in the financing plan which can be summariz- ed as follows:  - 15 - 1969-1972 in % ($b'000) or (US$'000) Financial Requirements Construction Expenditures Proposed project 125,280 10,440 33.6 Other expenditures 248,032 20,669 66.4 Total Requirements 373,312 31,109 100.0 Sources of Funds Internal Cash Generation 119,684 9,974 32.1 Less: Debt Service 45,545 3,796 12.2 Subtotal 74,139 6,178 19.9 Borrowings Proposed IDA Credit 88,08 1 7,340 / 23.6 Other loans 165,730 13,811 44.4 Subtotal 253,810 21,151 68.0 Equity Contributions 31,272 2,606 8.4 Other Funds 3,098 258 0.8 Decrease in working capital 10,993 916 2.9 Total Sources 373,312 31,109 100.0 1/ Exclusive of $b 720,000 (US$60,000) for DINE 6.02 ENDE's internal cash generation is estimated on the basis of the forecast income statements (see paragraph 6.05). The forecast long-term debt includes the proposed IDA credit of US$7.34 million to be obtained in 1969 at an assumed annual interest rate of 6.5% for a term of 30 years including a grace period of about four years; an IDB Loan of US$5.6 million for the projects in ENDE's Southern System to be obtained also in 1969 at an annual interest rate of about 6% for a term of 23 years including a grace period of about three years; and the drawing of the existing IDA, IDB and AID loans mentioned in paragraphs 3.15 and 3.16.  - 16 - 6.03 The equity contributions would come from the debt service payments made by BPC under Credit 62-BO (paragraph 3.13) and would include also the receipts from the funds still undisbursed under Credit 61-BO. The decrease in working capital does not endanger ENDE's current position as about US$ 2 million in cash had been accumulated to the end of 1968 in preparation for the expansion program. 6.04 Total financial requirements including payments for studies and surveys would be financed about 20% from internal cash generation (after debt service) during the years 1969 through 1972. Internal cash generation (after debt service) plus equity contributions and cash resources would finance about 31% of financial requirements in the 1969- 1972 period. Although ENDE's contribution from internal cash generation is on the low side due to the fact that ENDE is still a very young company with a sizeable expansion program, the financing plan is accept- able as internal cash generation is supplemented by equity contributions. Future Earnings 6.05 Forecast income statements for the period 1969 through 1972 are shown in Annex 10. For purposes of this forecast it is assumed that ENDE would only be able to achieve the projected lower growth rate in sales mentioned in paragraph 5.07. Tariffs (see Annex 11) have been taken as existing or for future connections on a basis which would allow ENDE to earn an average 9% return as provided by the Electricity Code. Rates in ENDE's Central System are expected to remain on about the present level. In the Santa Cruz and Sucre-Potosi systems tariff reductions were assumted to take place in 1972 when capacity is more fully used. The operating expenses were forecast in detail by consultants for ElNDE's different systems and modified by IDA's staff. As reliable historical cost data do not exist for either ENDE's Central System or the other systems, the operating cost forecast may contain some margin of error. Costs were conservatively calculated. The depreciation rates applied average 3.8% which is adequate for ENDE's assets which in the next few years will include heavy investments in dual fuel and gas engines for which a 15-year life has been estimated. 6.06 Net income from operation would increase from $b 9.2 million in 1969, when operations in the Santa Cruz system are expected to begin, to $b 30.1 million in 1972, the first year of operations of the Santa Isabel plant. The aggregate return on ENDE's average rate base would increase from 5.5% in 1969 to 8.3% in 1972; and it is expected to rise to close to 9% thereafter. 6.07 ENDE's investments in associated companies (see paragraph 3.11) have not been taken into account in calculating either the rate base or the rate of return. The return on ENDE's investments is low since the associated companies are allowed to plow back part of their profits and as they borrow from ENDE at the interest rates ENDE has to pay itself.  - 17 - 6.08 ENDE's income before interest charges would cover interest pay- ments between 4.2 times in 1969 and 2.1 times in 1971, which is satisfactory. The internal cash generation, increasing from $b 15.7 million in 1969 to $b 45.0 million in 1972, covers total debt service on existing and assumed future debts (for debt service requirements see Annex 12) between 4.6 and 2.5 times in the years 1969 through 1971. The debt service coverage then drops to 2.1 times in 1972, reflecting the first repayments under the AID and the proposed IDB loan; but this coverage is still satisfactory. Future Financial Position 6.09 Forecast balance sheets for the period 1969 to 1972 are shown in Annex 13. Total net fixed assets during these four years would in- crease from $b 163 million as of the end of 1968 to $b 453 million at the end of 1972, or by about 175%. ENDE's equity would nearly double during this period reaching $b 260 million and outstanding long-term debt would increase more than 6.5 times to $b 272 million causing a change in the debt/equity ratio from 20/80 to 51/49 which is still satisfactory. 6.10 During negotiations for Credit 61-BO a debt limitation covenant was agreed upon in the form of an earnings test which allows ENDE to incur debt on appropriate terms as long as its earnings for a past 12 month period would cover maximum future debt service 1.5 times. On the basis of this ratio ENDE would presently not be able to incur the debt assumed in the financing plan. Account must be taken, however, of the fact that ENDE has just started operations and therefore has a rather low income but a substantial expansion program. This debt limitation was waived for the proposed IDA Credit and IDB Loan under consideration. It was agreed that the earnings test as described above would be repeated in the proposed Credit Agreement and be applied to any future borrowing by ENDE. Also an undertaking was obtained similar to that under Credit 61-BO that, except as IDA shall otherwise agree, ENDE shall not undertake or execute, for its own account or for the account of any other party or parties, any major power projects or developments other than the Project and the IDB project for the southern zone. 6.11 ENDE's working capital position is expected to be satisfactory. Accounts receivable have been assumed at a level of about two months average sales which should be conservative. 6.12 ENDE's present financial position offers an adequate basis for the proposed project. In order to assure that satisfactory earnings are maintained, IDA has obtained a commitment from ENDE that it will take all steps necessary to obtain tariffs which would allow an average return of 9% as provided for in the Electricity Code. The Government has undertaken to allow ENDE to obtain the return provided in the Electricity Code.  - 18 - 7. CONCLUSIONS AND RECOMMENDATIONS 7.01 The p-roposed Santa Isabel project is needed to meet reasonable load growth projections in ENDE's Central System; it is well planned and consultants acceptable to the Association have been engaged to assist in its execution. The project is the least cost solution to meet demand and its internal rate of return would be between about 15% and 19.5%. 7.02 ENDE should experience no problems in carrying out the project as long as a competent General Manager is in office and experienced con- sultants are retained. 7.03 ENDE's present and forecast financial position is satisfactory. Debt service coverage would range between 4.6 and 2.1 times on existing and assumed future debt and the aggregate return on the rate base would range between 5.5 and 8.3% in the 1969-1972 period and an improvement is expected thereafter. 7.04 During negotiations the following undertakings were obtained: i) Consultants would be employed by DINE for at least another two years (paragraph 2.08); ii) The Electricity Code would not be materially amended without prior approval of IDA and would be presented for enactment by Congress not later than September 30, 1971 (paragraph 2.09); iii) ENDE would consult IDA prior to appointments to the position of General Manager (paragraph 3.04); iv) ENDE would continue to employ experienced consultants satisfactory to IDA to supervise construction of the Project (paragraph 4.09): v) ENDE would only incur long term debt without the approval of IDA, if its maximum future annual debt service is covered at least 1.5 times by past net revenues (paragraph 6.10); vi) ENDE would not undertake or execute any major power projects without approval of IDA (paragraph 6.10); and vii) The Government would cause ENDE to be granted tariffs which would enable it to earn an average rate of return of 9% as provided for in the Electricity Code; ENDE would take all steps to obtain tariffs which would allow this return (paragraph 6.12). 7.05 Following negotiations an agreement was reached between the Government and the Bolivian Power Company Ltd. regarding the debt settlement. This agreement is satisfactory to the Association.  - 19 - 7.06 The project would provide a suitable basis for a Credit of US$7.4 million equivalent of which the Government would relend (a) US$ 7.34 million to ENDE at 6.5X. interest and for a tenm of 30 years including a grace period of about 4 years, and (b) the balance of up to US$ 60,000 to DINE on terms to be agreed upon between the Government and DINE. April 8, 1969  BOLIVIA EMPRESA WACIONAL DE ELECTRICIDAD S.A. (ENDE) Santa Isabel Project Balance Sheets 1965-1968 (in $b t000) 1/ Apr. 1 Dec. 31, Dec. 31, Dec. 31, Dec. 31, 1965 1965 1966 1967 1968 (Opening Balance) Fixed Assets Plant in Service Central Srystem - Hydro - - - 97,072 - Thermal 3,251 3,266 6,020 7,013 - Transmission - - - 31,200 Other Systems 4,518 4,245 4,264 9,167 Land, buildings, equipment, etc. 329 1,101 2 657 1,769 Sub-total 80 6 146,221 157,383 Less: Depreciation Reserve - 517 1,488 5,472 9,803 Total net fixed assets in operation 898,095 11,453 140,147,50 Construction work in progress, studies 109476 47 959 128,858 10,923 10,000 Total net fixed assets 18,574 140,311 151,672 157,580 Investments Investment in shares of associated companies - _ - 3,874 Advances to associated companies - - - 5,080 Pending investments in associated companies 8,559 10,584 13,430 5,234 Other 9 9 23 49 Sub-total ,593 13,453 14,237 16,205- Current Assets Cash and Banks 2,734 3,961 6,542 16,946 24,494 Notes receivable 56 40 66 19 14 Customer accounts receivable - 15 122 968 3,463 Accounts receivable from associated companies 635 1,215 2,854 3,737 3,620 x Materials and supplies 324 398 571 1,929 2,749 to Other current assets 224 300 624 896 443 Sub-total 3'973 5,929 10,779 24,95 34,783 X Deferred Assets Preliminary studies 70 565 551 1,063 3,388 Other 15 - 28 1,395 2,459 Sub-total 8$ 565 579 2,458 5,847 TOTAL ASSETS .31 200 73,141 165,122 192,862 214,415 1) Preliminary and partly estimated  BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ENDE) Santa Isabel Project Balance Sheets 1965-1968 (in $b '000) Apr.l, Dec. 31, Dec. 31, Dec. 31, Dec. 31, 1965 1965 1966 1967 1968 (Opening Balance) _ Capital and Liabilities Capital - authorized 475,000 475,0O0 475,000 475,000 475,000 - subscribed 178,125 178,125 178,125 178,125 178,125 - paid in 19,807 59,117 124,932 143,230 153,686 Reserves (loss carried forward) - - (-20) 4 838 10 060 Total Equity 19,807 59,117 124,912 1480 CBF contribution - pending capitalization 8,207 - 4,168 5,487 5,538 I Long-Term Debt IDB 1,513 9,548 27,785 33,816 33,718 AID - - - 924 7,127 Advances from associated companies 1,203 1,188 1 127 1067 1007 Total Long-Term Debt 2,716 10,736 2Tl2 1 82 Current Liabilities Current maturities of long-term debt - 15 61 60 1,056 Accounts payable - 120 (132 487 525 Accounts payable to associated companies 293 73 1 562 124 Taxes accrued - - 314 260 Interest accrued 191 514 686 726 D Other current liabilities 66 2,711 6 178 808 81 Sub-total 359 3,110 82,917 2,772 Reserve for Social Benefits 111 178 245 583 507 Total Capital and Liabilities 31,200 73,141 165,122 192,862 214,415 Debt/Equity Ratio 12/88 15/85 19/81 19/81 20/80 1) Preliminary February 1969  Annex 2 Page 1lof 3 BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ErDE) Santa Isabel Project Empresa de Luz y Fuerza Electrice Cochabamba S.A. (ELFEC) General Infortnation 1. ELFEC serves the city of Cochabamba, its suburbs and some nearby villages. It owns and operates three small hydroelectric plants with a total capacity of 5.8 MW, about 70 km of 30 kV transmission lines and a 10 kV/220 V distribution network. 2. ELFECts share capital is owned by ENDE (49.99%), the municipality of Cochabamba (33.50%), and private investors (16.51%). 3. ELFEC went through many years of financial difficulties. No dividends were paid from 1954 to 1966 when ELFEC resumed the pay- ments with a 7.3% dividend followed by a 52 dividend in 1967. 4. After a revaluation of assets, ELFEC's balance sheet as of the end of 1967 shows a satisfactory situation: The debt/equity ratio was 32/68 and the current ratio 3.3:1. 5. Since the beginning of 1967, EMDE's Corani plant is providing pcwer to ELFEC, bringing to an end the power rationing in Cochabamba. In June 1967 DINE aDproved ELFECts new tariffs which should yield ELFEC about a 9% returr on the rate base.  Annex 2 Page 2 of 3 BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ENDE) Santa Isabel Project Empresa de Luzy Fuerza Electric Cochabamba S.A. (ELFEC) Balance Sheets 19666 (in $b tOOO) December 31 1966 1967 Assets Fixed Assets Fixed assets 1Or830 14,255 less depreciation 604 1,317 Net fixed assets 10,226 12,938 Work in progress 263 470 Total fixed assets 10,489 13,k08 Investments 15 15 Current Assets Cash and Banks 1,550 555 Accounts receivable 1,930 3,556 Inventories 2,201 3,536 Other - 179 Total current assets 77M 7,86 Total Assets 16,185 21,2h9 Capital and Liabilities Equity Capital, paid-in 5,289 7,7k9 Reserves 1,578 2,545 Profit 988 670 Total equity 7 855 10,96 Long-Term Debt ENDE 4,147 5,080 Reserve for Social Benefits 1,975 2,315 Customer Deposits 15 524 Short-Term Liabilities Accounts payable 1,687 1,617 Other 106 749 Sub-total 1,793 2,366 Total Capital and Liabilities 16,185 21,249 Debt/Equity Ratio 35/65 32/68  Annex 2 Page 3 of 3 BOLIVIA EMPRESA NACIONAL D-Ef-hIrRCIDAD S.A. ENDE Santa Isabel Project Empresa de Luz y Fuerza Electrica Cochabamba S.A. (ELFEC) Income Statements 1966-67 (in $b '000) Year ending December 31 1966 1967 Sales in million kwh 27.28 30.26 Revenues 8,995 9,957 Average price per kwh sold in $b-cents 33.0 32.9 Operating Expense Operation and maintenance 6,056 6,901 General and administration 1,565 1,555 Depreciation 529 721 Sub-total 8,150 9,177 Operating Income 845 780 Other Income (net) 143 (110) Profit 988 670 November 18, 1968  ANNEX 3 BOLIVIA EMPRESA NACIONAL.DE ELECTRICIDAD S.A. (ENDE) Santa Isabel Project Income Statements 1966-68 (in $b '000) Year ending December 31 1966 1967 1968 _ Operating Revenues Sales of Energy 45 12,136 13,106 Income from plant leased to others 1,739 609 748 Total 1,784 12,745 13,854 Operating Expense Operation expense ( 1,666 2,571 Maintenance (1,308 499 ( General and administration ( 1,597 1,665 Depreciation 701 4,052 3,785 Taxes 270 255 Sub-total 2,009 8,o84 U,27Z Operating Income (225) 4,661 5,578 Other Income Interest and dividends - 104 926 Other 205 807 296 Sub-total 205 911 1,222 Income before Interest Charges (20) 5,572 6,800 Interest Total interest payable 452 1,174 1,523 less: Interest capitalized 4 85 Interest charged to operations - 686 Net Profit (loss) ) 2,0 8T 5,362 1) Preliminary February 1969  BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ENDE) Santa Isabel Project Investment Program and Forecast of Expenditures* (in $b '000) 1969 1970 1971 1972 Total Central System IDA - IDB - Corani Project 13,000 4,000 17,000 Santa Isabel Project 12,000 45,000 57,000 11,280 125,280 Other 360 360 600 600 1,920 New Generation Addition 18 000 18,000 Sub-total 25,360 490360 577. 280 162s2W Other Syatems Santa Cruz 13.2 MW gas turbine 37,800 6,000 - - 43,800 6.6,XW n it 1,800 18,000 19,800 Distribution 28 000 9,000 1)500 - 38,500 Sub-total 65 15,00 30 18, 102,10 Sucre-Potosi Sucre - 10 MW gas turbine 4,000 32,000 3,600 39,600 Transmission 2,000 23,000 3,800 28,800 Distribution 3,000 3,000 2,400 8,400 New Generation Addition 7 000 7 000 6,000 58,000 io,ooB3 Studies and Investigations 5,560 5,480 4,800 6,000 21,840o Miscellaneous 600 600 1,200 1,200 3,600 Total Investment Program 103,320 128,440 77,300 64s,480 373,540 less: expenditures charged to operations 1144 84 - 228 103,176 128,356 77,300 373,312 *Excluding interest during construction. February 1969  ANTIEX 5 Page 1 of' 2 BOLIVIA E1I1PRESA NACIONAL DE ELDCTrICIDAD S.A. (i DE) SANTA ISABEL PROJECT DESCRIPTIOiN OF THE PROJECT 1. The Project The project would comprise a 34 HUd hydroulectric plant including substation and a short transmission line to connect the Plant to the existing Corani Substation. 2. General Description The Santa Isabel hydroelectric plant wfill be located about 70 km north-east of Cochabamba. It would utilize the tailrace water of the Corani plant which has an 82 million cubic meter regulating reservoir. At a later stage of development it will also utilize the waters of the tributaries of the Santa Isabel river. 3. Yiain Data and Outline Description (i) Gross/average net head 863/839 m 'iated Discharge 5 m3/s Installed capacity = 2 x 17 NW Energy capability = 139 GIJh/per annum (ii) Compensating reservoir - Between the Corani tailrace and Santa Isabel intake a compensating reser-voir will be constructed wTith a storage volume of 72,000 i3. (iii) Pressure tunnel - Between intake and surge tank, the tunnel will be about 3,500 m long, with a 3 36o grade and a diameter of 2.20 m. (iv) Pressure shaft - the inclined part of the steel lined pressure shaft (at an 80% grade or about 40 degrees to the horizontal) will be about 510 m long, the horizontal part about 300 m long; the diameter will be l.0 m. (v) Penstock - the length of the penstock will be about 2,600 m (at a 20% grade or about 11 degrees to the horizontal), with an inner diameter diminishing from 1.25 m to 1.15 m.  ANNX 5 Page 2 of 2 (vi) Turbines - two horizontal shaft, single wheel, two jets Pelton, at average net head of 855 m, 750 revs per minute. (vii) Generators - Each 21 IMVA at 10 kV and 50 cps with distribution transformer grounded neutral; each unit connected to a 21 MVA 10/115 kV air cooled transformer which will be executed with a tertiary winding for station supply. (viii) House supply - 220/380 V, 50 cps and auxiliary batteries. (ix) Control - the Santa Isabel Plant will mainly be controlled from Corani by means of a tele-metering, tel-prottactidn and tele. control system. (x) Transmission line - double circuit lattice type steel towers on which initially one circuit will be mounted. The line, with a length of 6.5 km will have a nominal rating of 138 kV but be operated at 115 kV. (xi) Connection to the existing system - the Santa Isabel substation will be of consorvative design writh 2 transformer feeders, outgoing feeder to Corani, incoming feeder form future plants and 2 spare bays. At the Corani side, to connect the incoming Santa Isabel line, a circuit breaker only will be needed with associated electrical and metering equipment. November 18, 1968  AI*NE 6 BOLIVIA EKP iESA NACIONTAL DE ELECT 2ICIDAD S.A. (ENDE) SADITA ISAB3L PROJECT CONSTRUCTION COST ESTIMATE $b US$ Local Foreign Total Local Foreign Total - in thousands - Civil Works Access roads 1,440 840 2,280 120 70 190 Auxiliary services 480 720 1,200 40 60 100 Compensating reservoir 2,040 3,360 5,4oo 170 280 45o Pressure tunnel 9,720 18,360 28,080 810 1,530 2,340 Surge tank 1,080 1,920 3,000 90 160 250 Pressure shaft 2,400 5,040 7,440 200 420 620 Penstock line 1,200 1,920 3,120 100 160 260 Power house 1,560 2,280 3,Bh0 130 190 320 Switchyards 240 240 480 20 20 40 Transmission line 240 120 360 20 10 30 Subtotal civil works 20,400 34h800 55,200 1,700 2,900 4,600 Electronkchanical Jorks Gates 180 480 660 15 40 55 Pressure shaft lining 960 4,0o0 5,040 80 340 420 Penstock and manifold 2,700 13,200 15,900 225 1,100 1,325 Turbines and generators 960 10,920 11,880 80 910 990 Electrical equipment 720 9,000 9,720 60 750 810 Switchyards 240 1,200 1,1440 20 100 120 Transmission line 240 720 960 20 60 80 Subtotal electro- mechanical works 6,000 39,600 45,600 500 3,300 3,800 Total direct cost 26,400 74,400 100,800 2,200 6,200 8.,4oo Engineering and administration 7,200 4,080 11,?80 600 340 940 Contingencies 3,600 9,600 13,200 300 800 1,100 Construction cost 37,200 88,080 125,280 3j400 7,340 10,440 Consulting services for DINE 480 720 1,20o 40 60 100 Total Droject cost 37,680 88,800 126,4hp 3,4 0 7,4oo 10, 54 February 7, 1969  ANNEX 7 Page 1 of 3 BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ENDE) SANTA ISAEEL PROJECT ENDE/BPC Central System Load Forecast Calendar Sales Gross Generation Demand Year ENDE BPC ENDE EPC ENDE BPC -----GWh---- GWh ------- ------MW------ 1967 65 100 67 107 17 19 1968 70 100 73 107 20 19 1969 90 100 93 107 24 19 1970 116 100 121 107 28 19 1971 150 100 157 107 36 19 1972 197 100 207 107 45 19 1973 218 100 230 107 49 19 1974 233 100 248 107 53 19 February 1969  ANNEX 7 Page 2 of 3 BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ENDE) SANTA ISABEL PROJECT ENDE Central Wstem Capacity Forecast Calendar Required Capacity (MW) System Capability (MW) Year Market Reserve Total Hydro Diesel Other Total 1967 17 13 30 27 / 6 33 3/ 1968 19 13 32 27 4- 31 1969 24 13 37 27 4 31 14/ 1970 28 13 41 27 6r- 33 1971 36 13 49 27 7- 34 1972 45 17 62 612 4 65 1973 49 17 66 61 4 65 6/ 1974 53 17 70 61 4 15-/ 80 1/ Corani Hydro Ptroject completed January 1967 2/ Santa Isabel Hydro assumed in service 3/ Four diesels removed to s'anta Cruz and Sucre 4/ Six diesels to be removed from Santa Cruz and Sucre to Cochabamba 5/ Old diesels taken out of service 6/ Assumed gas turbine plant in operation February, 1969  ANNEX 7 Page 3 of 3 BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ENDE) SANTA ISAEEL PROJECT ENDE OUTLYING SYSTEMS SALES FORECAST Sucre/Potosi Santa Cruz Calendar Sales Demand Year Distribution Mines Sales Demand - GWh - GWh MW 1967 1968 1969 _ 0.2 8.5 4.O 1970 - 2.1 35.0 8.5 1971 16.2 5.3 6.5 43.0 10.4 1972 20.8 16.4 8.6 51.0 12.1 1973 26.0 20.0 14.1 56.0 13.0 1974 31.0 25.0 17.2 62.0 14.1 February, 1969  AIN1EX 8 Page 1 of 3 BOLIVIA EM4PRESA NACIONAL DE ELECTRICID!-D S.A. (ENDE) Santa Isabel Project Internal Rate of Return 1. The following variables are taken into account to forecast the probability distribution of the internal rate of return. - capital expenditures - operating expenses - energy sales in GWh - sales price per Zilh 2. The table on page 2 presents the average annual values of the four variables, for the assumed life of the project. 3. Making allowance for unbalanced disbursements and the Dossibility that total construction cost could be t10% on either side of the estimate, discrete probabilities wiere assumed for four schedules of disbursements and for three uncorrelated schedules of cost between the +10% and -10% limits of construction cost. 4. Operating expenses are assumed to increase annually by 3%, with a possible error of +0.3% and -0.3%, with a discrete probability of 20% for both the highest and the lowest estimate and 60% for the avera ,e. 5. Since ENDE started operation recently (February 1967), historical data are lacking to forecast correlation between calculated proceeds from tariffs and actual proceeds. For this reason, and because this is a difficult relation to establish, energy sales in GWh (attributable to the project) and the sales price per KW!h were assumed to be uncorrelated. For both a range of four discrete probabilities were assumed on the basis of the missions findings and discussions with ENDE. 6. The table on page 3 shows the distribution of the combined probability P(R) and the expected internal rate of return R(%) of the project. The mean rate of return is expected to be 17.2% and the standard deviation about 1.10%. This would give a range of about 15% to 19.5% in the internal rate of return.  ANNEX 8 Page 2 of 3 BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ENDE) Santa Isabel Project Basic Costs; Sales and Sales Prices Average capital Operating Average sales Average sales Year expenditures 1/ Expenses GWh 3/ price h/ US$ 1,O0C. UJS$ 1,000 US$0/kWh 1 250 2 675 3 4,000 - 4 4,250 40 5 925 45 102 1.598 6 600 50 95 1.590 7 - 54 119 1.567 8 - , 122 1.556 9 127 1.551 10 128 1.548 11 128 1.548 I I I I t 1 * I I * I I I 25 500 128 1.548 26 1,000 128 1.548 27 500 128 1.548 28 1 53 2/ 128 1.548 1/ It is assumed that annual and total capital expenditures may vary between about +10% and -10%. 2/ It is assLzied that from year 8 onward the operating expenses attributable to Santa Isabel may rise by 3 t0.3% annually. 3/ Based on the expteted operating regime under various conditions of demand, it is assumed that these average annual sales, attributable to Santa Isabel, may vary in the fifth year (first year of op.,ration) by about +25% and -25% decreasing to +1% and -1% in the 10th year and onward. 4/ It is assumed that the average annual sales prices may vary between +5% and -5%.  ANNEX 8 Page 3 of 3 BOLIVTIA EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ENDE) Santa Isabel Project Internal Rate of Return Probability Distribution R(%) P (R) R (%) P_(R) 14.22 0.01 17.10 0.44 14.33 0.01 17.22 0.44 14.45 002 17.33 0.53 14.57 0.04 17.45 0.54 14.68 0.04 17.56 0.54 114.80 o.o6 17.68 0.83 14.91 0.07 17.79 0.83 J5.03 0.08 17.91 o.88 15.14 o.o8 18.02 0.88 15.26 o.08 18.114 0.90 15.37 0.10 18.26 0.90 15.49 0.10 18.37 0.90 15.60 0.10 18.49 0.90 15.72 0.11 18.60 0.90 15.83 0.11 18.72 0.93 15.95 0.11 18.83 0.94 16.o6 0.17 18.95 0.94 16.18 0.17 19.06 o.94 16.29 0.19 19.18 0.94 16.41 0.21 19.29 0.98 16.53 0.21 19.41 0.98 16.64 0.21 19.52 0.99 16.76 0.30 19.64 1.00 16,87 0.30 19.75 1.00 16.99 O0.l 19.98 1.00 IIean value of R: 17.24%, at most likely probability. Standard deviation of R: 1.10% November 18, 1968  BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD S,A. (ENDE) Santa Isabel Project Sources and Applications of Funds 1969-1972 (in $b '000)Toa Year ending December 31 1969 1970 1971 1972 1969-1972 Sources of Funds Internal cash generation Income before interest charges 10,034 16,955 21,520 31,442 79,951 Depreciation 5,656 9,408 11,091 13,578 39,733 Total 15,690 26,363 32,611 4k,020 119,684 Equity contributions (CBF-BPC) 4,70 4,700 4,700 ,00 l,800 it it (CBF-IDA Corani) 7,600 2,892 - - 10,492 Repayments on loans granted 363 545 545 1,645 3,098 AID grant 1,000 980 - - 1,980 Borrowings IDB - Corani loan 4,200 1,887 - - 6,087 IDB - loan for studies 1,000 1,500 869 - 3,369 AID - loan - Santa Cruz 55,000 13,474 - - 68,474 Proposed IDA Credit - Santa Isabel 9,000 30,000 41,000 8,080 88,080 Proposed IDB loan - Southern System 5,000 50,000 10,000 2,800 67,800 Future loan - - 5 000 15,000 20,000 Total Borrowings 7720 96,3861 Total Sources of Funds 103,553 132,341 94,725 772h45 407,864 Applications of Funds Capital Expenditures (exoluding interest during construction) (Annex 4) 103,176 128,356 77,300 64,480 373,312 Debt Service (Annex 12) 3,436 8,037 12,807 21,265 45,545 Provision for increase in accounts receivable 1,144 2,201 2,611 1,900 7,856 Total Applications of Funds 107,756 138,594 92,718 87,645 426,713 Net cash accrual (deficit) 6 t,203) 3 2,007 (0,O8,OM Cash at beginning of period 24,494 20,291 14,038 16,o45 24,494 Cash at end of period 20,291 14,038 16,045 5,645 5,645 Times debt service covered by internal cash generation 4.6 3.3 2.5 2.1 2.6  ANNEX 10 BOLIVIA - EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ENDE) Santa Isabel Project Income Statements 1967-1972 (in $b '000) 19671/ 17 192Total Year Ending December 31 1967 1968 - 1969 10 1 1969-1972 Sales in million KWh 65.6 70.4 98.8 151.2 214.9 284.8 749.7 Average Price per KWh sold in $b - cents. 18.5 18.6 20.2 21.9 22.7 21.2 21.6 Operating Revenues Sales of Energy 12,136 13,106 19,968 33,176 48,839 60,250 162,233 Income from plant leased to others 609 748 _60 33 168 _1.15 Total 12,745 13,854 20,618 33,513 149,007 0,2503 Operating Expenses Operaton Expense and Maintenance 2,435 2,826 3,855 6,345 15,492 14,332 40,024 Depreciation 4,052 3,785 5,656 9,408 11,091 13,578 39,733 General and Administration 1.521 1, 65 1.900 2.000 2 100 2.200 8.200 Total 8,084 8127 i74i i7,75 3 28,683 30,110 87,957 Operating Income 4,661 5,578 9,207 15,760 20,324 30,140 75,431 Other Income Interest and Dividends 104 926 727 1,095 1,096 1,202 4,120 Other 807 2% 100 100 100 100 400 Total 911 1,222 -27- 1,195 1,1% 1,302 4,520 Income before Interest Charges 5,572 6,800 10,034 16,955 21,520 31,442 79,951 Interest Total Interest Payable 1,174 1,523 2,380 5,650 10,082 12,841 30,953 Less: Interest Capitalized 488 85 458 3,270 4 613 2.475 10.816 Interest Charged to Operations G86 1,438 1,922 2,380 5 9 10,366 20,137 Net Income 4.886 5.362 8o112 14 5? 16.051 2 6 983 Rate base as stipulated in Electricity Code 112,200 148,800 168,200 219,300 259,700 362,700 Return on Rate Base 3.? 3.7 5.5 7,2 7.8 8,3 Times Interest Payments Covered by Income before Interest Charges 3.7 -/ 4.5 4.2 3.0 2.1 2.4 2.6 _/ Preliminary 2/ Adjusted for nine months operation of Corani 3/ Estimated  BOLIVIA EMPRF.SA NACIONkL DE RELECTRICIDAD, S.A. (ENDE) Santa Isabel Project Power Sales and Revenues 1967-1972 1) Total Year ending December 31 1967 1968 1969 1970 1971 1972 1969-1972 Energr Sales - million kwh Central ,'ystem - Cochabamba 24.6 28.2 38.9 50.5 65.o 80.0 234.4 - COMIBOL 40.4 42.0 50.0 59.0 64.0 86.0 259.0 - Others 0.6 0.2 1.4 6.7 21.4 30.6 60.1 Sub-total 70.14 90.4 303 116.2 150. 1 96 .6 553.5 Sucre-Potosi 8rstem - Sucre-Potosi - - - 16.1 20.8 36.9 - CONIBOL - 5.4 16.4 21.8 Sub-total - - - - 21.5 37.2 Santa Cruz System - - 8.5 35.0 43.0 51.0 137.5 Grand total 9iB 5 1.2 24.8 M749.7 Average revenue b/lkwh Central System - Cochabamba 18.00 18.00 18.00 18.00 18.00 18.00 - COMIBOL 18.70 19.02 20.16 20.16 20.16 20.16 - Others 22.75 20.50 24.00 25.25 24.35 24.00 Sucre-Potosi Systen - Sucre-Potosi - - - - 30.00 24.00 - COMIBOL - - - - 24.00 24.00 Santa Cruz System - - 30.00 30.00 30.00 24.00 Revenues from Sales - '000 $b Central System - Cochabamba 4,436 5,076 7,002 9,090 11,700 14,400 42,192 - COMIBOL 7,554 7,989 10,080 11,894 12,902 17,338 52,214 - Others 146 41 336 1,692 5,211 71344 14 583 Sub-total 12,136 13,106 17,41T 22,676 29.,8013 .39w02 I10*99 Sucre-Potosi System - Sucre-Potosi - - - - 4,830 4,992 9,822 - COMIBOL - - - - 1296 3,936 5 232 Sub-total - - 6 126 8 9281 Santa Cruz System - - 2 550 10 500 12 900 12 240 38 190 Grand total 12,136 13,106 1996 4 1) Preliminary February 1969  BOLIVIA EMPRESA NACIONAL DE ELEiCTRICIDAD S.A. (ENDE) Santa Isabel Project Debt Service Requirements 1969-72 (in $b '000) Total 1969 1970 1971 1972 1969-1972 Interest IDB - Corarni 1,537 1,547 1,473 1,393 5,950 IDB - Studies 30 120 240 220 610 AID - Santa Cruz 475 713 756 1,005 2,949 Comits Obras Publicas - - - - - Proposed IDA Credit 198 1,560 3,868 5,463 11,089 Proposed IDB Loan 140 1s710 3,420 3g785 9,055 Future Loan - - 325 975 1,300 Total Interest 2,3850 10,082 12,B41 30,95- Amortization IDB - Corani 995 1,990 1,990 1,990 6,965 IDB - Studies - 337 674 674 1,685 AID - Santa Cruz - - 2,200 2,200 Comite Obras Publicas 61 60 61 60 242 Proposed IDA Credit - Proposed IDB Loan - - - 3.500 3.500 Total Amortization 1,056 72,725 8,21,9 Total Debt Service 3 436 8,037 12,807 21,265 45L545 February 1969  BOLIVIA EMPRESA NACIONAL DE ELECTRICIDAD S.A. (ENDE) Santa Isabel Project Balance Sheets 1968-1972 (in $b '000) Year ending December 31 1968 1969 1970 1971 1972 Assets Fixed Assets in Operation 157,383 206,883 276,883 278,883 431,883 Less: Depreciation Reserve 9 803 15,104 24 108 34,418 146996 Net Fixed Assets in Operation 147 50 191,779 252,775 244,465 364,657 Work in Progress, preliminary studies, deferred assets (net of depreciation) 15 847 37,626 82,648 157,280 67 835 Total Net Fixed Assets 163,427 229,L405 335,42 401,745 1572M Investments 16,205 47,842 63,497 67,452 68,207 Current and other assets (net) 32,560 29,500 25,449 30,o66 21,567 Total Assets 212,192 306,747 424,369 499,263 542,496 Capital and Liabilities Capital 153,686 172,524 181,096 185,796 190,496 Reserves 10 060 18,172 32 747 48.798 69,874 Total Equity 163,746 1901i696 21.3,43 234,914 260,370 CBF - contribution pending capitalization 5,538 - _ _ Long-term Debt AID 7,127 62,127 75,601 73,401 71,201 IDB - Corani 33,718 35,928 35,825 33,835 31,845 U IDB - Studies - 663 1,489 1,684 1,010 Comite Obras Publicas 1,007 946 886 825 765 . Proposed IDA Credit - 9,000 39,000 80,000 86,580 Proposed IDB Loan - 5,000 55,000 61,500 60,800 Future loan - - - 5 000 20,000 Total 41,o-52 113,664 207,oO 256,245 272,201 Current maturities of Long-term Debt 1,056 2,387 2,725 8,424 9,925 Total Capital and Liabilities 212 192 3067147 1424 369 499.263 542,496 Debt/Equity Ratio 20/50 37/63 49tl 52/48 51/4Y 1) Preliminary February 1969  MAP .1 R A II L ~~BOLIVIAN POWER SYSTEMS -*-/. I --- -