Liberia - Third Power Project

CIRCULATING Capy FILE COPY T AM TOREPORTS DESK DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use CIRCULATING COPY TO BE RETURNED TO REPORTS DESK Report NoP,1668-LBR REPORT AND RECOMMENDATIOI OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE LIBERIA ELECTRICITY CORPORATION WITH THE GUARANTEE OF LIBERIA FOR A THIRD POWER PROJECT June 25, 1975 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. CURRENCY EQUIVALENT The official monetary unit is the Liberian dollar, with a par value equal to the US dollar. The US dollar is legal tender in Liberia. FISCAL YEAR July 1 - June 30 ABBREVIATIONS PUA - Public Utilities Authority LEC - Liberia Electricity Corporation S&P - Messrs. Sanderson and Porter (Consulting firm, USA) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE LIBERIA ELECTRICITY CORPORATION (LEC) FOR A THIRD POWER PROJECT WITH GUARANTEE OF THE REPUBLIC OF LIBERIA 1. I submit the following report and recommendation on a proposed loan to the Liberia Electricity Corporation (LEC), with the guarantee of Liberia, for the equivalent of US$1.8 million to help finance a program of technical assistance. The loan would have a term of 20 years, including a 5-year grace period, with an interest rate of 8-1/2 percent per annum. PART I - THE ECONOMY 2. An economic mission visited Liberia in March 1973, and its report "Liberia: Growth with Development - A Basic Economic Report" (No. 426a-LBR dated March 1, 1975) has been distributed to the Executive Directors. Annex I contains basic country data. 3. During the 1950s and 1960s Liberia experienced an unprecedented rate of economic expansion averaging close to 7 percent and this rapid expan- sion has enabled the Government, for the first time in the country's 150-year history, to undertake significant investments in essential economic and social infrastructure. 4. The economic report concludes that the growth since 1950 has been essentially based on foreign enclaves--iron ore mines, rubber plantations and forestry concessions; that there is very little linkage between the con- cessions and the rest of the economy; and that the benefits of growth have been very unequally distributed. Annual repatriation by foreigners of profits and savings equals about 20 percent of gross domestic product; about 4 percent of the Liberians have per capita income levels above US$3,000 while the vast majority are near subsistence level with incomes below US$100. The Govern- ment proposes to increase its earnings from the enclave type of industries and to use these resources to diversify the productive base of the economy with increased participation of Liberians. 5. To achieve these objectives, the Government is preparing a national development plan for the period 1976-1979. In this exercise, it is assisted by a special planning team financed jointly by the Bank, the UNDP, the USAID and the Government (President's Memorandum R74-61 of March 25, 1974). Further improvement of public administration, the availability of foreign capital and technical assistance will in large part determine the size of the public sector development program. The Government has initiated a major effort to improve its administration and increase its capacity to plan and implement investment programs. The United States, the Federal Republic of Germany, and the Bank Group have been, and are expected to remain, the prin- cipal sources of external capital. A gross inflow of assistance of about US$30 million a year in support of public investment is anticipated. UNDP and USAID are expected to be the main donors of technical assistance grants. -2- Recent Trends (1970-1974) 6. With the transition from the 28-year rule of President Tubman to the new administration of President Tolbert in 1971, the Government initiated a number of necessary fiscal reforms, including tighter expenditure control and renegotiation of concession agreements. This action has resulted in a significant improvement of Government's fiscal performance. Yet, the Liberian economy, particularly in the non-enclave sectors, has been under severe strain since 1970. This was initially caused by uncertainty in the private sector following the change in administration, and was accentuated by the fact that rubber--which, in addition to being an enclave industry, is also the principal export crop of Liberian farmers--experienced a price deterioration during 1970-71 and again in 1974. 7. The economic setback in the non-enclave economy has persisted until the first months of 1975 because of the continued contraction in real terms of the public sector and a significant, almost completely imported, inflation. Three key items illustrate this inflation. First, rice: the domestic retail price for a 100 lb b3g in March 1973 was about US$10; at the end of 1974 it was US$25. Rice is the staple food of Liberians and dominates the cost of living index. Second, the impact on internal transportation of higher petro- leum prices; this has produced an increase of about 40 percent in the price for transporting goods and people. In addition, the cost of power has also gone up. Third, the price of imported machinery and equipment has doubled in the past two years. This, in turn, has seriously affected overall investment costs, particularly in agriculture and road building. 8. On the export side, each of the three major exports--rubber, timber and iron ore--has been affected differently in the past two years. Rubber prices rose during 1973 and peaked in early 1974, dropping sharply thereafter as the recession in industrial countries set in. In the timber industry, demand has continued unabated for choice primary species but has fallen off significantly for secondary ones. In the iron ore sector, the general shortage of raw materials experienced in 1974 and the relative accessibility of Liberian ores have enabled the concessions to negotiate compensation for higher energy costs and a further increase in the contract prices for 1975 (30 percent higher for ore, 50 percent for pellets). At the same time, serious interest is being expressed by foreign groups in the development of three more iron ore deposits in Liberia. In the most optimistic scenario, all three will be in production by the mid-1980s, doubling the national output from the present annual 24 million metric tons to close to 50 million. Concession agreements for two of these new iron ore mines are almost completed. While this would certainly be a welcome development, it should not lead to abandonment of the development strategy of diversification. Opening of new iron ore mines will only delay the inevitable decline of this sector by a decade or so. 9. Owing to a successful program of fiscal reform implemented by the Government, the fiscal picture for Liberia looks reasonably good for the -3- next five or six years. Manpower, rather than capital or budgetary constraints, is likely to be the main development bottleneck in the immediate future. Balance of Payment and Creditworthiness 10. As Liberia is using US dollars as the medium of exchange, balance of payments analyses are at best tenuous. In the period 1964-1972, exports grew at 10 percent and imports by 5.9 percent. Thereafter, from 1972-1974, following international inflation, imports rose by 29 percent annually exceeding the export growth of 22 percent a year. Oil imports increased from US$12 million in 1972 to US$56 million in 1974. Nevertheless, Liberia achieved a trade surplus of US$96 million in 1974 which was more than sufficient to offset a deficit on current invisibles. 11. External public debt outstanding and disbursed in December 1974 was estimated at US$155 million. The debt service ratio was 5.3 percent in 1974, as compared to 7.1 percent in 1972. The ratio is projected to fall further in the next few years as the final portions of the heavy debt incurred in the early 1960s are paid off. The Government has contracted little new debt in recent years and most of it at concessionary terms. The proportion of out- standing debt owed to the Bank/IDA is currently about 15 percent. Even with an expanded public borrowing program and assuming adverse external conditions, Liberia's debt service ratio through the 1980s is estimated to remain below 5 percent of exports. The country should therefore be regarded as creditworthy for some additional Bank lending. PART II - BANK GROUP OPERATIONS IN LIBERIA 12. The Bank has made 7 loans for projects in Liberia totalling US$31 million, and there have been 3 IDA credits totalling US$11 million, as well as one technical assistance grant of US$200,000 for development planning (paragraph 5). IFC has made one equity investment in Liberia: US$250,000 in the share capital of the Liberian Bank for Development and Investment (LBDI). The Bank loans have been for roads, port expansion, power and a development finance company. IDA credits have been for education and agriculture. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as at May 31, 1975, and notes on the execution of ongoing projects. 13. The objectives of Bank Group operations in Liberia are: (a) to increase .the absorptive capacity of the economy and enable the Liberians to take greater initiative in developing their own resources for the benefit of their own people; (b) to support policies and programs leading to a broader sharing of the fruits of economic progress; in the Liberian context this implies carrying the development process to the 70 percent of the population in subsistence agriculture largely by-passed by the recent economic gains; (c) to help the Government in broadening the economic base; and (d) to assist the Government in mobilizing development resources for sound projects from other external agencies. 14. A road project and an integrated agricultural development project for Upper Lofa County have been appraised and are expected to be submitted to the Executive Directors in the next few months. The agricultural project will be co-financed with USAID. In addition, a second education project, a rubber rehabilitation project benefiting small indigenous plantations and a second integrated rural development project are in preparation. Bank Group assistance will essentially improve the productivity of small farmers, improve road transportation, including farm to market roads, and assist Liberia restructure its power sector. PART III - THE POWER SECTOR 15. In 1973, total electricity generating capacity installed in Liberia amounted to about 300 MW and generation reached some 800 Gwh. Captive plant, mainly large diesel units installed in mining complexes, supplies about 60 percent of the power consumed. Liberia Electricity Corporation's (LEC) facilities supply the remaining 40 percent, which represents the public power supply. 16. LEC owns and operates the Monrovia interconnected system which serves an area of about 70 by 125 miles around the capital (see attached map). In the northwest, this system extends to Bomi Hills, thereby interconnecting with two of the four large mining complexes. LEC's installed system capacity of about 150 MW consists of the 70 MW Mt. Coffee hydro plant on the St. Paul river and of 80 MW of thermal plants, 70 MW of which are gas turbine and 10 MW diesel. In addition, LEC operates on behalf of the Government 10 MW ofC small diesel units in seven secondary centers in rural areas. 17. The Bank has made two loans (684-LBR of US$7.4 million In June 1970 and 778-LBR of US$4.7 million in July 1971) to the Liberian public power sector to help finance a 34 MW expansion of the Mt. Coffee hydroelectric plant, two 19 MW gas turbines for the Monrovia system, and associated trans- mission and distribution facilities. To cover project cost increases because of currency fluctuations and an increase in the size of the gas turbines chosen for installation, the Bank made a supplemental loan of US$2.9 million in 1973 which brought total Bank financing in the sector to US$15 million. The projects have been satisfactorily executed and are completed except for the distribution component of the last project which is expected to be opera- tional by the end of 1975. Recently, Kreditanstalt fuer Wiederaufbau (Germany) provided a DM 10 million (about US$4 million) credit to finance further extensions to the Monrovia transmission and distribution system. Organization and Management 18. In 1962, the Government created the Public Utilities Authority (PUA), the Borrower of the two above-mentioned Bank loans, as an autonomous govern- ment agency responsible for public power supply and water supply and sewerage. In 1973, legislation was passed which: (i) increased PUA's responsibility to include radio, TV and telecommunications, ad (ii) transformed PUA into a holding company with four subsidiaries: the Liberia Electricity Corporation; the Liberia Water and Sewer Corporation; the Liberia Broadcasting Corporation; and the Liberia Telecommunications Corporation. 19. According to its statutes, LEG is a largely autonomous government enterprise with the right to borrow money and set electricity rates. It has its own Board of Directors consisting of nine members: the .Chairman of PUA, the Minister of Finance, the Minister of Justice, the Minister of Planning and Economic Affairs, and five representatives of the private sector appointed by the President. The President also appoints the Chairman -5 - 20. In establishing PUA as a holding corporation, the Government's intention was to make PUA essentially responsible for policy-making, leaving the executing functions to the four subsidiaries. However, since the passage of the new legislation, PUA's Directors have also been serving on LEC's Board, and until the fall of 1974 PUA's Chairman kept LEC's day-to-day operations closely under his control. Consequently, the separation of PUA and LEG has been more de jure than de facto. During negotiations of the proposed loan, the Government gave assurances that LEC's management will in future fully exercise its operational authorities and responsibilities as prescribed by LEC's statutes. 21. LEG has a staff of about 800, i.e., 1 employee per 16 consumers, which is very high. LEG is, however, short of qualified and experienced Liberian personnel, and has to rely heavily on expatriate assistance for management and for project preparation and implementation. At present, LEG has three experts from a US consulting firm--Sanderson and Porter (S&P)-- engaged as senior executives and seven directly employed expatriates in medium-echelon positions. 22. In connection with the last Bank loan, the Borrower was expected to assign counterparts to the S&P experts with the objective of the counter- parts gradually taking over the executive functions from the experts, who would then have assumed advisory roles. Unfortunately, little progress was achieved towards this objective, mainly because LEG could not locate suitable counterparts. As a result, LEC's Liberian staff is little, if any, better able to assume senior management positions now than it was in 1971 when the second Bank loan was made. Indeed, the situation has worsened, since in the face of uncompetitive salaries and a deteriorating work environment several qualified senior Liberians have left LEC. 23. Because of its thin Liberian management and the gradual reduction of expatriates, LEC's operations have deteriorated in recent years. The Govern- ment is aware of these deficiencies and, in late 1974, it relieved PUA's Chairman of his functions and appointed a task force headed by the Minister of Finance to recommend remedial measures. These urgently needed measures will require the extensive use of expanded expatriate assistance. However, in the long run the success of LEG will depend on its ability to recruit, train and retain qualified Liberians eventually to fill its key management positions. It is estimated that LEG will be able to recruit the qualified Liberian staff it needs provided its salary structure and other conditions of work are improved (paragraph 36). The technical assistance project proposed in this report will help LEG to obtain internationally-recruited staff to improve its operations. by strengthening its management and to train Liberians to fill key management positions. Power Market 24. Although in the 1960s the power load in the Monrovia system grew at very high annual rates of 15 to 25 percent, in the last four years the load growth has dropped considerably to an average of about 7 percent a year and in 1974, partly due to the sharp tariff increases, reached a low 3 percent. The annual growth rate is expected to increase progressively again to about 7 percent on average over the rest of the decade. - 6 - 25. LEC faces a difficult problem regarding future expansion of genera- ting capacity. The Mt. Coffee hydro plant is a run-of-the-river plant. Therefore, in the dry season demand has to be met mainly from thermal genera- tion in the gas turbines, and since such units have poor fuel efficiency, with the recent drastic fuel cost increases, the energy they generate has become very expensive. These factors contribute to increase the cost of LEC power to such levels that at present it is more economical for the mining complexes to meet their additional power needs by installing their own diesel plants. 26. In future, a larger portion of the iron ore mined in Liberia will be pelletized; this will require substantial quantities of power. In addition, exploitation of the Wologisi, Bie Mountain and Putu iron ore deposits is planned to start in the early 1980s, each of which would also require much power. Thus, there is a substantial potential market for LEC, provided it can supply energy at competitive prices. However, this would be possible only if LEC can produce large blocks of power from hydro power plants, which would make LEC power cheaper than diesel generation at the mining sites. Investiga- tions of hydro resources are therefore urgently needed, and would be carried out under the proposed project. Finances 27. The increased use of thermal generation necessitated by recent droughts and sharp increases in fuel prices have increased LEC's fuel expenses five-fold over the last two years. Fuel costs presently amount to almost one-half.of total operating costs. In 1974, LEC increased its tariffs,twice (a total increase of 40-60 percent, depending on consumer category) to offset the effects of the increased fuel expenses, but its financial position remains weak. In particular, LEC has a serious liquidity problem which is causing it to be several months in arrears in paying the local refinery for the fuel consumed. Its rate of return on net fixed assets in service was 5 percent in 1974 and is estimated at 7 percent for 1975, i.e., substantially below the .10 percent target established under previous Bank loans. Action is therefore needed to resolve LEC's financial problems. 28. A two-step approach is planned to improve LEC's current position and earnings. First, the Government agreed during negotiations to make an equity contribution of US$2.0 million by the end of 1975 and to assist LEC in securing an additional US$1.5 million by June 30, 1976. An increase of US$3.5 mil-lion in LEC's capital will enable LEC to settle its accumulated debt and establish a satisfactory current position. Second, LEC agreed to carry out a tariff study before June 30, 1976, and to take all necessary action to achieve a rate of return of 10 percent in 1977 and thereafter. There is scope for substantial improvement in the structure of LEC's tariffs and the tariff study is likely to result in the introduction of seasonal tariffs and appropriate fuel adjustment charges. The overall tariff increase for the small consumers would, however, be marginal. These measures would restore LEC's financial position and enable LEC to finance a reasonable portion of future investments from internal sources. - 7 - 29. Standard financial covenants agreed in connection with Loans 684/778-LBR, in particular those limiting dividend payments and incur- rence of debt, and prescribing adequate insurance and the continuation of present audit arrangements, would remain in effect. PART IV - THE PROJECT 30. A loan and project summary is included in Annex III and additional information concerning the project is given in Annex IV. The project was appraised in October 1974 and negotiations took place in Washington on May 21-23, 1975, with a Liberian delegation led by the Honorable E. Williams, Minister of Finance. Project History 31. The Bank has been assisting Liberia in the development of the public power sector since 1970, a period in which the sector's installed generating capacity has more than doubled. In 1974, LEC requested a third Bank loan for financing a thermal generating facility recommended by its consultants (Oskar von Miller, Germany). This facility was planned to provide LEC's system with sufficient capacity to meet demand until the early 1980s. While in the field to appraise this project, the Bank mission concluded that because of reduced load growth (paragraph 24) the starting of the installation of a further thermal generating facility could be postponed by about two years. It concluded addi- tionally, however, that LEC urgently needed technical assistance to improve its management. The Government accepted both of these conclusions, and the Bank and the Government have contacted a number of potential bilateral and multilateral sources for financing the technical assistance project. The UNDP responded that their allocation for Liberia was fully committed; and none of the other sources was in a position to provide the funds required. As a consequence, the project is now proposed for financing by the Bank. Project Description 32. The proposed project would strengthen the management of Liberia ,Electricity Corporation and help it to improve its services to its customers, earn a satisfactory return on its investments, assess demand for power over the medium and long-term, prepare a suitable investment plan and improve its capacity to implement the plan efficiently and effectively. 33. The project would consist of: (i) provision of about 18 man-years of planning experts to establish a long-range development plan for LEC involving, inter alia, a demand study, investigation of Liberia's hydro resources, and preparation of a detailed investment program covering the next addition to LEC's generating capacity; and -8- (ii) provision of about 25 man-years of internationally-recruited experts :for strengthening LEC's management and for training LEC's staff. The project would be carried out over a three-year period and be completed by December 31, 1978. Project Costs 34. The total expected cost of the project, excluding taxes, is estimated at US$2.6 million of which the Bank would finance the off-shore component of US$1.8 million (69 percent of total cost) and LEC the remaining US$0.8 million. Off-shore Cost Local Cost Total Cost -------------- Us$ '000 ----------------- Development Plan 1,050 350 1,400 Management and Training 750 450 1,200 Total 1,800 800 2,600 Project Details 35. In view of the present fuel prices, LEC's previous development plan (paragraph 31) calling for additional units at the Mt. Coffee hydro plant supplemented by gas turbines is no longer feasible. As a first step towards preparing a new long-range development plan, LEC will therefore employ engi- neering consultants to investigate Liberia's hydro resources, on which present information is very limited. The studies would be coordinated with those to be undertaken on the border rivers with Ivory Coast and Sierra Leone; assist- ance for the study of the Cavalla River forming the border with Ivory Coast has been requested from the African Development Bank, while assistance for the study of the Mano River on the border with Sierra Leone has been requested from UNDP. These international projects would, however, only materialize in the long-term, and the LEC investment program to be prepared by LEC's planning personnel in cooperation with outside consultants would include a generating facility that could be commissioned in the early 1980s. 36. The Government, unable to locate a power utility to provide management assistance to LEC, appointed an individual consultant to assess LEC's manpower needs and to assist in internationalrecruitment for key positions. Based upon the consultant's recommendations, LEC and the Bank agreed during negotiations that about 10 of the 18 man-years of planning experts and all of the 25 man-years of management and training experts to be financed under the project would be employed to serve on LEC's staff (the balance of 8 man-years would involve consulting services for planning). The positions to be filled initially would include General Manager (to advise the Chief Executive), Controller, Managers for Generation and Distribution, Manager for Long- Range Planning (inter alia to supervise the Engineering Consultants) and Manager for Training. It is anticipated that the most of -9- these posts will be filled before the S&P contract expires in November 1975. Furthermore, during negotiations, assurances were obtained from LEC that it would draw up, discuss with the Bank before June 30, 1976, and then imple- ment: (i) a new organizational set-up with job descriptions for all senior positions; (ii) a manpower plan indicating recruitment needs; (iii) a new salary structure that would be adequate to attract qualified Liberians to seek permanent employment with LEC; and (iv) a work program,with performance targets, to improve the operations of LEC (Section 4.04 of Loan Agreement). LEC has already launched a recruitment program to employ qualified Liberians who will work with the expatriate staff. 37. Liberia has limited vocational training facilities, and LEC has no training program of its own. LEC would, therefore, in addition to on-the-job training for senior staff,-start an in-house training program for its inter- mediate and lower echelon staff. It would be possible to coordinate such a program with that of a vocational training center in Monrovia for which Government is seeking financial assistance under a proposed second education project (paragraph 14), and which is expected to be operational by 1978. During negotiations, LEC agreed to prepare a detailed training program in consultation with the Bank and to start its implementation before June 30, 1976 (Section 3.02 of Loan Agreement). Procurement and Disbursement 38. Consultant services required under the project would be procured according to the Bank's guidelines for the selection of consultants. The selection and appointment of technical assistance personnel would be subject to agreement by the Bank. Disbursement for consultant services would be made to cover the off-shore costs of these services. Sixty percent of LEC's expenditures for gross salaries and benefits of expatriate management, planning and training personnel would also be reimbursed from the loan. Justification 39. The planning personnel and the consultants would prepare an urgently needed power development plan which would identify the least-cost solution for meeting Liberia's future power requirement. The development plan would cover the whole country and address itself to the problems of meeting the power requirements of isolated mining areas. This is likely to lead to an integrated development of the power sector with substantial benefits to Liberia, in the long run, in the form of reduced imports of fuel. These studies would also provide basic data for government decisions concerning cooperation with neighboring countries in the power field. Since part of the planning would be carried out by experts employed directly by LEC, a permanent planning unit would be established within LEC, and LEC's own staff would increase its planning skills to reduce reliance on outside consultants in the future. 40. With the management assistance program and the associated training efforts, the objectives expected to be achieved are: - 10 - (i) over the short-term -- a halt in the deterioration of LEC's services, and the laying of foundations for an improvement in its operations, in particular, equipment utilization and maintenance, personnel productivity, customer service, billing, and collection; (ii) over the longer-term -- the reestablishment of an efficient power utility having satisfactory operational and financial controls in addition to planning which would enable it to offer the most economic electric energy to potential users in the country. PART V - LEGAL INSTRUMENTS AND AUTHORITY 41. The draft Loan Agreement between the Bank and the Liberia Electricity Corporation, the draft Guarantee Agreement between Liberia and the Bank, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and the text of a draft Resolution approving the pro- posed loan are being distributed to the Executive Directors separately. 42. Features of the Loan Agreement of special interest are referred to in paragraphs 20, 28, 29, 36 and 37 of this report. 43. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 44. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments June 25, 1975 ANNEX I age 1 of 3 pages WOM7Y DATA - LIBERIA 39k2 TW Tlion (mid-1972) Per katof arable land SOCIAL INDICATORS neterenoe Countries Lnberia Ghana El Salvador Jamaiuc GNP PER CAPTA US (ATAS BASIS)a. 250 /a 3cc /a 340 /a 810/ DEMOGRAPHIC Crude0nrth rats (per thousand) 50/b 47/d 4./if 35/b Crude death rate (per thousand) 2 *L. 18 8 7 Infant mortality rats (par thousand live births) 159 -)tt 53 26 A Life expectancy at birth (yeare) 37 1 53 47 /dc 55 69 Gross reproduction rate 2 o Id 3.2 3.4 Id e 2 Population growth rate y 2.7 3.1 7; 2.6 /6 3.2 1 /h Population growth rate - urban 5 7T L 7 6 77 Age satruc re (percou) 0-14 46 1 4 65and over 37 Age dependency ratio / 0YA 0.9 1.0 1.0Tn 1.0 Economic dependency ratio /4 1.1 1.2 1.4 1.6 /- ).7- Urban populatiod as percent of total 2 L1,T, 32 /i 39L/b, 37L/ Family planning. N of acceptors cumulative (thous.) No. of ars (% of marriad wcoen)* 2 EMPIDDIENT Tota bor force (thousands) 58o 3,500 / 1,300 In 750 /c Percentage employed in agriculture 81 72 Percentage unemployed 20 /5 10 - 3 7e INCOME DISTRIBUTION Parot of national income received by highest 5% 60 20 Percent of national income received by highest 20% 52 77 Percent of notional income received by lowest 20% 4 T Percent of national income received by lowest 40% 13 13 77 3ISTRIBUTION OF LAND OWIERSHIP % owned by top 10 of owners 7, % Cd by soalulest 10% of owners HEALTH AND NUTRITION Population per physician l2,000/1u 10.450 /e r 12950 /t ,030 2,630 Population per nursing person 4.. ,0 00 / 960 1,720 /o Pepuation per hospital bed 730 530 7 76to 520 Ao0 Per capita calorie supply as a of requiements /5 86 88 92 .2 103 Per capita protein supply, total (grams per dayTL 36 36 46 51 56 f which, animal and pulse .. 1 /c 10 c 18 29 I7 DeathrateI-hyearsy /. 219 .. 72 / EDUCATION Adjusted /8 primary school enrollment ratio 38 - 73 IA 89 90 8( jL Adjusited L9 secondary echool enrollment ratio 2 12 5 18 43 Tears of schooling provided, first and second level 12 12 15 11 12 Vocational enrollment as 2 of sec. school enrollnt 12 5 23 31 /c 9 /k0 Adult literacy rate % 9 /ga 32 2oe 58 7/d 8e . HROSINGI Averge No. of persons per room (urban) 1.7 .. 2. / f Pe rcent of occupied units without piped water . 77 9 Access to electricity (an % of total Population) .17 32 7 . Percent of ural populati connected t electricity . . 7 CONSUNTIO N pltionsivpers per 1000 p/pulatieo 77 99 r 1 L950 /t 376 Passenger care per 10 o population 6 0 4 76 E2 2.0 er ctric power consumption (kwh p.c.) 114 /aper19ay)h368631 1,5 NeOfprint consumption p.c. kg per year .. 10 /v18 9 /. v Det rt 16yer0.2 1 74 3.6 7- /b . Notes. Figu/8 refer either to the latent periodo or to account of enviromental temperature, body weights, and the Iatedt years. Latest periods refer in principle to distribution by age an sax of national Populations. the Years 1956-60 or 1966-70; the latent yearn in prin,- /6 Protein standards (equi-sena) for all countries as eatab- ciple to 1960 and 1970. prved by Si Econonic Reearch Service provide for a mi2n1m2 A The Per Capita OhP eatimate in t f het price for allowance of 60 gram of tctal protein per day, a 9 20 grams of yar t6cr than 1960,calculated by the none converoio animal and pulse protein, of which 10 grams hoald be anial technique oo the 1972 Wcrid Bank Atlas. protein. These standards are somewhot lower than those of 75 2 Average number of daughters per (ouan of reproductive grams of tonal protein and 23 groan of anial protein a. an age. average for the world, proposed by FA in the Third World Food 'a Population growth raten are for the decnden ending in s er 1960 cod 1970. /7 Soe studies bareseuggested that crude death rates of children Ae t Ratio of population under 15 and 65 and cyr to popula- age. I through 4 say he used as a first approximation indec of rtin of agee 15-6p for ag depedendy ratio and to labor alnotrition. force of ages 15- for ecoic dapendency ratio. L Percntage enrolled of 7orr7spoding pepolbti8o of school age L O A refeance etandards represent physiological re- as defined for each country. qairasana for normal activity and halth, taIig c 072; 1971; / Estimate based n the pooslotuon growth o nrvey which conenced in lay a9( /d 1965-70; 7ew intiate7 /f Registered only; co 1960-72; /i Topeo rith pype*aaioo of 5,000 and o.ver; iii tratie e centers of unicipalitis; a Kiogstn metropolitanarea and selected vein tolate /s Data are hoed on the results of the poplation growth survey hich covers five percect of the total popu2ticn; /motio of population under h 5 ca d o5 and or to total labor force; in incalitie havicg rnre than 2,000 ihabitants; I Including w-kers i eto plled from Honduran; 19 7clude forestry; Unemployed and partially eployed; /r 769; Is 1964; I NuTe er on the rogiater, not oal worki g in tha coon; /u Personnel in goverfoert sercic;7 only; /7 1964-66; 7 19co-ti; /x inccluding pro-primary education; a Inclu es overage students; It Ro inldgtehrtrnl; ea 19o8; /abrs years cod over; /an Ac percent of total school age population; 7ad thfinitio onknown; /0 1956, S cIty n of duro g oney; /af oaa reTer to livig quartars; lag Includes police and-other gorernet securit7ehicles; /n190a1970 toanic as 156 h ot aelected us pn objective country nce ito NP per cupito is nearly four tinen that of Liheria; its ecoomic structure depends heavily on the mioing secto:; both countrian are encouroging foreign icounents; and Liberia's mlonymnt policy objectire in to reach the current local of JSvpaicari manpower traiaig. a2 April 9, 1975 ANNEX I ECONOMIC DEVEIOPMENT DATA Page 2 of 3 Pages (Amounts in millions of U.S. dollars) Actual Projected 1965 - 1970 - 197h - 1965 1973 1979 1965 1969 19,D 1974 1997 1979 1970 1975 1979 NATIONAL ACCOUNTS 5-Year Average at 1967- 1969 Prices & Exchange Rates Average Annual Growth Rates As Percent of GGY Gross Domestic Product 295.2 367.6 1126.3 353.2 149.9 516.3 5.5 3.6 3.8 96. 1011.6 97. Gains from Terms of Trade ( ) 1--j - - 19% - L32.2 -i1. - 13.7 - 359 - - _ 6 231 Gross Domestic Income 306.3 358.6 417.2 420.9 480.6 560.0 1.2 2.1 5.9 1oo.o loo.o 100.0 Import (incl. NFS) 123.0 129.0 113.6 135.2 176.7 220.6 2.7 - 0.9 10.3 40.2 31. 39. Exports (import capacity) -jj5, -122 - O 2 - -1 -236.2 6.5 - 3.2 3.9 - 9 -..2 -_2J Resource Cap - 22.5 - 61.11 - 63.11 - 59.5 - 0o.o - 15.7 21.2 - 9.9 -23. - 47.5 - 19.6 - 42.2 Consumption Expenditures 223.2 213.1 288.0 292.6 317.1 313.8 3.0 2.9 3.3 - 7.3 - 15.2 - 2.8 Investment " (incl. stocks) 60.6 51.1 65.8 68.8 113.4 200.6 0.7 7.3 23.9 72.9 69.0 61. Domestic Savings 83.1 115.5 129.2 128.3 163.3 216.3 7.1 0.1 11.0 19.8 15.8 35.8 National Savings 23.1 51.5 68.9 73.0 111.3 156.0 19.0 5.0 16.4 92.7 81.8 97.2 MERCHANDISE TRADE Annual Data at Current Prices As Percent of Total Imports Capital goods 31.9 36.5 68.8 85.11 175. 269.0 33.3 35.6 L0.3 Intermediate goods (EDclfuels) 6.1 7.8 12.8 23.0 25. 31.1 6.0 6.6 5.0 uels and related materials 115.5 of which: Petroleum 8.3 8.6 1L-7 56.1 115.5 129.11 8.0 7.6 19. Consumption goods 55.5 61.5 27.2 1.2 L26 1.2 238J 2.7 50.2 35.3 Total Merch. Imports (cif) 101.3 11l.7 193.5 289.11 511.3 667.8 100.0 100.0 100.0 Exports griculture 33.0 43.9 66.7 93.6 130.1 171.6 21.3 20.6 23.2 Iron Ore 96.2 137.1 196.7 262.3 391.3 198.0 71.1 60.7 67.2 Other 6.2 51.8 60.6 389 .5 1.6 18.7 9.6 Total Merch. Exports (fob) 1 1 3 23, 321.0 391.7 578.7 71.1 T70 TMo0 TO Tourism and Border, Traue Merchandise Trade Indices Average 1967-69 100 Export Price Index 99.9 101.5 1h1.5 180.1 272.5 311.8 Import Price Index 96.3 102.0 1311.1 2112.9 295.11 321.6 Terms of' Trade Index 103.8 99.5 97.83 68.8 85.5 98.5 Exports Volume Index VALUE ADDED BY SECTOR Annual Data at 1971- Prices and Exchange Rates Average Annual Growth Rates As Percent of Total Agriculture 63.6 77.7 105.2 111.3 125.0 132.1 6.7 5.9 3.5 Industry and Mining 99.9 115.3 151.0 153.3 119.3 155.10 39.8 35.2 3.7 Services L02.9 126.8 1.%1 163.3 _12.0 .0 6.9 1.9 5.3 GUP a't factor cost 271.1 3h9.8 411.6. h27.9 166.3 501.5 6-7 3.3 1.3 100.0 100.0 100.0 PUBLIC FINANCE As Percent of GDP (Central Government) 1965 1969 1 ,' Current Receipts 13.7 63.0 89.Q 110.3 161.0 203.8 T t 7 72 Current Expenditures 16.0 56.1 70.1 83-7 99-8 119.5 17.1 15.8 19.7 Budgetary Savings - 2.3 6.9 19.8 26.6 61.2 81.3 - 0.9 1.9 . . Other Public Sector --- Public Sector Investment 22. 11.7 32.5 31.6 10.0 47.5 8.3 33 -3 US $ million BUDGETARY EXPEINDITURE DETATIS Actual Prelim. Est. Proj. DEIAIL ON At end 19.. P and ER As % Total Budgetary Expend.) 1971 1972 197 3 197 h 1975 PUELIC SECTOR First Plan % of Total Education 16.1 16.1 15.1 11.3 16.5 INVESTMENT PROGRAM (19.. 7.. - 19.. /..) Other Social Services 8.3 16.0 16.8 17.6 16.3 Social Sectors Agriculture 3.3 1.3 6.3 7.1 9.7 Agriculture Other Economic Services 12.0 7. 10.0 12.6 9.9 Pncustry and Mining Administration and Defense 17 38.3 36.8 33.2 37.11 Power Other 11.,1 17.6 15.0 11.9 10.2 Transport and communications Total Rudgetary Expenditurus 100.0 100.0 100.0 100.0 100.0 Other Total Expenditures SELECTED INDICATORS 1965- 1970- 197- FINANCING (Calculated from 3-year averaged data) 1970 1975 1979 Elasticit 3.9R 11.71 6.2 Public &-ctor Savings Import Elasticity 0.5 -0.2 3.1 Program aid counterpart M,rginal Domestic Savings Rate 0.5 0.0 0.6 Foreign Project Aid Marginal National Savings Rate 0.5 0.2 0.6 Total Financing (1970 Permanent Mage &Salary Emeloyment - Fr?qm{ IfOLM LABOR FORCE AND agSaF o ce Value Added Per Worker (1971 - Prices & Exc. Rates) OUTPUT PER WORKES In Millions % of Total In U.S.Dollars 1970 1970 1970 1,915.2 Agriculture 46,000 36.8 1,391.2 Industry 34,500 27.6 2,916.2 Service 13 Total 123,000 100.0 not applicable - nil or negligible not available -- less than half the smallest unit shown Page 3 of 3 pages WINCE OF PAMNrTS TERNAL ASSISTANCE AND DEBT (amounts in milli.e of .S. dollars at current pricesT Avg. Annual Actual Eetimated Projected Growth Rate SUMMARY BALANCE OF PAYMENTS Exports (incl. NFS) 199.5 216.9 247.3 332.4 h02.9 598.1 494.7 592.7 667.6 760.7 858.1 15 Imp ncl. NFS) 122.8 159.0 1R, 2 314.2 385.6 547.6 627.1 76.0 7 0 Resource Balance (I-M) 76.7 57.9 63.1 102.9 88.7 73.8 50.5 Interest (net) - 26.7 - 29.0 - 4.5 - 5.3 - 1.7 - 3.9 - 3M5 - 3.1 - 2.9 - 3.1 - 4.6 - Direct Investment income 52.6 - 68.0 - 83.2 -115.5 -125.9 -129.9 -155.0 -172.5 -193.7 -213.4 11.1 Workers' Remittance 7* -18.3 - 20.0 - 20.6 - 20. - 20.8 - 19.6 - 20.2 - 3 20. - 20.5 - Current Transfers (net) 816.1 17. 19.3 23 Balance on Current Accounts - - - -1ti- Private Direct Investment 32.0 28.1 30.6 33.9 32.5 37.5 75.h 118.5 151.5 182.9 235.8 bbO Official Capital Grants i.0 1.6 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 - public M&LT Loans Disbursements 8.3 7.4 10.7 12.6 13.9 21.6 28.9 29.2 30.' 35.6 10.3 13.3 -Repa-vents -8.9 -11.3 - 11.7 -12.8 - 15. -14.4 -15.1 - 31 - 9.3 -7. - 8.7 Net Di6sursemets -0= -. -7- - 1.27. T 15.8 ~~ UC *W1. Short-tern Capital -e sbrs,e -T177 - 38.2 I 7.2- 77- --o --7F-7 - 7 -6 Actual Estimated Capital Transactions n.e.i. - - W, - 1aL M51 1 Change in Net Reserves - 3.0 - 3.2 - 1.6 - 7.1 - 11.1 DEBT AND DEBT SERVICE Public Debt Out. & Disbursed 156.1 155.9 151.8 161.9 GRANT AND LOAN COMMITMENTS Official Grants & Grant-like Interest on Public Debt - L.5 - . - 5.2 - 5.1 Repayments on Public Debt - 11.7 - 12.8 - 15.1 - 1L.J Public M&LT Ioans Total Public Debt Service - 16.2 - 18.2 - 20.3 - 19.5 IBRD 3.6 7.1 1.0 5.9 L.0 Dther Debt Service (net) - - - TDA 0.0 0.0 8.4 2.6 - Total Debt Service (net) - 16.2 - 12.2 - 20.3 - 19.5 Other - - - - - other Multilateral - - 0.5 1.7 2.1 Burden on Export Earnings (8) 3overnments 10.3 1.5 10.1 12.9 11.2 Suppliers Public Debt Service 7.1 5.8 5.3 .1 Finacial Institutions - 0." 1.0 Total Debt Service 7.1 5 5.1 Bonds 20_ 0.1 0.5 TDs+Direct Invet. Ine. 3.0 30.5 33. .7 Public Loans n.e.i. - -- Total PublcM LT Lobns 13.9 12.3 20.0 23.9 7t7 Average Terms of Public Debt Actual Debt Outstanding on Dec. 31.197!! Int. as % Prior Year DO&D 2.9 3.5 3.3 3.3 EXTERNAL DEBT Disbursed Only PeRcent Amort. as % Prior Year IX)&D 7.5 8.2 9.7 9.3 World Bank 20.5 13.3 IDA 7.3 2.1 IBRD Debt Out. & Disbursed 12.5 10.5 20.5 23.5 Other Multilateral 3.) 0.2 as % Public Debt 0&D 8.0 11.9 13.2 11.3 Goverments 112.7 73.0 as Public Debt Service 6.8 9.9 9. 12.3 Suppliers 11.0 '.1 Financial Institutions 3.6 2.3 IDA Debt Out. & Disbursed 0.2 1.5 3.3 Bonds - as % Public Debt O&D 0.1 0.9 2.1 1.3 Public Debts n.e.i as % Public Debt Service - - - 0.1 Total Public M&LT Debt 1 .7 100.0 Other M&LT Debts Short-term Debt (disb. only) - not applicable e staff estimate not available - nil or negligible ... not available separately -- less than half the but included in total smallest unit shown ANNEX II Page 1 of 3 pages THE STATUS OF BANK GROUP OPERATIONS IN LIBERIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as at May 31, 1975) Loan or Amount (US$ million) Credit Number Year Borrower Purpose Bank IDA Undisbursed Four Loans Fully disbursed 16.4 617 1969 Republic of Lib. Ports 3.6 0.2 778 II 1973 Public Utilities Power Authority Supplementary 2.9 0.4 305 1972 Republic of Lib. Education 7.2 6.3 306 1972 Republic of Lib. Agriculture 1.2 0.6 839 1972 Liberian Bank for Development Development & Finance 1.0 0.1 Investment 1055 1974 Liberian Bank for Development Development & Finance 4.0 3.6 Investment 907 1973 Republic of Lib. Roads 3.0 3.0 395 1973 Republic of Lib. Roads 2.6 0.7 Total 30.9 11.0 14.9 of which has been repaid 1.6 - Total now outstanding 29.3 11.0 Amount sold 0.4 of which repaid 0.3 0.1 Total held by Bank and IDA 29.2 11.0 Total undisbursed 7.3 7.6 14.9 ANNEX II Page 2 of 3 pages B. STATEKENT OF IFC INVESTMINTS (as at May 31, 1975) Amount in US1 million Year Obligor Type of Business Loan Equity Total 1966 Liberian Bank for Industrial Development Finance 0.250 0.250 Development and Investment Company Less Sold 0.002 0.002 Now Held 0.24 0.2-8 C. PROJECTS IN EXECUTION Loan No. 617-LIB Port Development Project; US$3.6 million Loan of June 20, 1969; Closing Date: May 31, 1975. This port project involved dredging the approaches and an area within the Monrovia port to accommodate bulk ore carriers and tankers; provision of two tugs and a pilot launch, as well as additional buoying and lighting of the navigable channels; consultants' services for individual advisers and feasibility studies for the development of roads approaches to the port. Project execution has been satisfactory. The Bank has agreed to the Government's request that funds still undisbursed be used to help finance an overall study of port develop- ment needs in Liberia, which was stipulated in the project. Government signed a contract in May 1974 for the port development study. Loan No. 684-LiB Power projects; US$7.7 million Loan of June 1970 (fully disbursed) and UST7.6 Loan No. 778-LIB million Loan of October 26, 1973; Closing date: June 30, 1975. The loans to the Public Utilities Authority (PUA) have helped finance the expansion of the Mount Coffee hydroelectric plant, the installation of two gas turbines at the Bushrod (Monrovia) plant; procurement and erection of 42 miles of overhead lines in Monrovia and 54 miles in outlying areas; establishment of a new substation and related facilities. There have been cost overruns mainly due to international currency fluctuations and the purchase of larger generators than originally anticipated. A supplemental loan of US$ 2.9 million was provided in October, 1973 to cover the cost overruns, and project implementation is pro- ceeding satisfactorily. Credit No. 305-LIB Education project; US$7.2 million Credit of May 17, 1972; Closing date: March 1, 1978 The education credit is helping to finance construction of, and provide equipment for, two new multilateral high schools in the north and the east, each offering a wide curriculum in agriculture, mechanics and academic subjects; con- struction of and equipment for a new college of agriculture and an adjacent ANNEX II Page 3 of 3. pages demonstration school, technical assistance and fellowships for manpower and education planning, technical teacher training, secondary education and project implementation. Some delay was encountered last year in obtaining requisite expatriate staff for the project unit and the original effectiveness date had to be postponed. This problem has been overcome and project implementation is proceeding satisfactorily. Credit No. 306-LIB Agriculture project; US$1.2 million Credit of MaY 17, 1972; Closing date: December 31, 1976. The agriculture credit includes feasibility studies and preparation of detailed investment proposals for integrated rural development project; a physical survey and detailed study of the Liberian-owned rubber industry; a pilot rubber scheme to provide Liberian rubber farmers with credits to rehabi- litate untapped or poorly tapped rubber; improving rice research; reorganization of the Ministry of Agriculture and training for Liberians to prepare investment projects. Effectiveness of this credit had to be postponed because of difficul- ties in obtaining necessary staff for the project unit. A project administrator was designated in January, 1973 but left after a month because of irreconcilable differences with the Ministry of Agriculture. A replacement served from a year and a half but recently was forced to resign because of illness. The Government has decided to carry on the project using staff from the ministry to oversee project operations. Loan No. 839-LIB Development Finance Company; US$1 million Loan of June 26, 1972; Closing date: Loan No. 1055-LIB December 31, 1976 and US$4 million Loan of December 3, 1974; Closing date: June 30, 1979. The first loan contributed to foreign exchange costs of industrial projects financed by LBDI in 1972 and 1973. This loan is fully committed. The second loan would help LBDI meet its financial requirements through calender year 1976. Credit No. 907-LIB Highway Project; US$3.0 million Loan of June 13, 1973; Closing date: December 31,1977; Loan No. 395-LIB and U 2.6 million Credit of June 13, 1973; Closing date: December.31, 1977. Implementation of the maintenance program, which started about six months behind schedule, is progressing slowly. Further delays were caused by a US$4.0 million cost overrun on the US-financed maintenance equipment, and a delay in its delivery. USAID has agreed to provide supplementary financing. Contracts for all engineering studies have been signed, and work progress is satisfactory. The construction contract for the Monrovia Bypass has been awarded and work has begun. ANNEX III Page 1 of 1 page LIBERIA LIBERIA ELECTRICITY CORPORATION (LEC) Loan and Project Summary Borrower: Liberia Electricity Corporation Guarantor: Republic of Liberia Amount: US$1.8 million equivalent Terms: 20 years, including 5 years of grace, with interest rate of 8-1/2 percent per annum. Project The project would be carried out over a three-year Description: period and consists of: (a) about 18 man-years of planning experts for establishing a long-range development plan and a detailed investment program, and (b) about 25 man-years of internationally recruited experts for strengthening LEC's management and for training LEC's staff. Estimated Cost: -------- US$ '000 --------- Local- Off-Shore Total Development Plan 350 1,050 1,400 Management and Training 450 750 1,200 801800 21600 Financing Plan: The Bank would finance the project's off-shore component of US$1.8 million; LEC would finance the remaining US$0.7 million out of its internal sources. Estimated Calendar Years (US$ '000) Disbursement: 1975 1976 1977 1978 Annual 100 700 800 200 Cumulative 100 800 1,600 1,800 Procurement The consultant services under the project would be Arrangements: procured according to the Bank's Guidelines for selection of consultants. Mai): Map No. IBRD-3557R 1/ Liberia uses US currency ANNEX IV Page 1 of 6 pages LIBERIA LIBERIA ELECTRICITY CORPORATION (LEC) Finances Summary 1. Owing to the combined effect of the recent droughts, which have reduced hydro-power generation, and sharply increased fuel prices, LEC has been unable to achieve the 10 percent rate of return covenanted under the Bank loans. Furthermore, following its poor operating results and its failure to collect consumers' accounts, LEC now finds itself in poor liquid position, in spite of two tariff increasesin 1974. In order to assist LEC, the Government as a first step made a contribution of US$1.5 million to LEC in November 1974; however, further financial assistance from the Government is required. During negotiations, the Government agreed (i) to make a further equity contribution of US$2.0 million to LEC by the end of 1975, and (ii) to provide LEC, or assist LEC in obtaining, an additional US$1.5 million by June 30, 1976. LEC undertook to carry out a tariff study before June 30, 1976 and take whatever steps are necessary to assure a 10 percent rate of return on net fixed assets in operation in 1977 and thereafter. Operating Results 2. LEC's operating results for the past three years are shown below: 1972 1973 1974 ------- (US$ '000)------ Operating revenue 8,500 9,000 13,800 Operating expenses (excluding fuel) 4,400 5,000 5,900 Fuel Expenses 1,000 2,100 5,300 Net Income 3,100 1,900 2,600 Rate of Return 8.2% 4.2% 5.1% Operating Ratio 63 79 81 Financial Position 3. LEC's estimated Balance Sheet as of December 31, 1974, given below, indicates both a weak current position and a high debt/equity ratio: ANNEX IV Page 2 of 6 pages US$ Million Percent ASSETS Net Fixed Assets 52.6 96 Net Current Assets Cash 0.4 Accounts Receivable 3.6 Other 1.7 5.7 Less: Current liabilities 3.4 2.3 4 54.9 100 LIABILITIES Equity 14.9 27 Long-term Debt 40.0 73 54.9 100 4. Due to its weak cash position, LEC is unable to meet its payment obligations in respect of the settlement of its fuel bills, most of which become due during the first half of the year. To establish an acceptable financial position, it is estimated that LEC would require an additional US$3.5 million in working capital. Since the Government and LEC do not con- sider it feasible to raise tariffs immediately to the extent required to meet this shortage, the Government agreed during negotiations to further raise its equity capital in LEC by US$2.0 million before the end of 1975 and to provide LEC, or assist LEC in obtaining, an additional amount of US$1.5 million before June 30, 1976. An increase of US$3.5 million in LEC's work- ing capital will enable LEC to pay-off all its accumulated short-term debts and improve its current ratio from 1.7 to 3.7. 5. Even at projected efficiency improvements resulting from the manage- ment assistance, LEC's earnings might not be sufficient to meet the 10 percent rate of return covenant governing the Bank loans. During negotiations, LEC therefore agreed to carry out a tariff study before June 30, 1976 and to take all necessary action to achieve a rate of return of not less than 10 percent in 1977 and thereafter; it is estimated that a tariff increase of about 15 percent would be necessary. ANNEX IV Page 3 of 6 pages Collections 6. Billings and collections have been the source of concern in the past. In this respect, LEG has been writing-off about US$1 million per annum as bad debts, corresponding to a very high 8 percent of its total billings, In addition, unrecorded consumption is believed to be substantial. The Bank has discussed with LEC various means of improving the situation. However, LEC's progress in this field has been poor and, particularly with the new substantially higher tariffs, greater improvements are urgently needed. The task force investigating LEC's operations has identified a number of deficiencies in billing and collection procedures and has recommended a series of measures to improve the situation, the most important of which are: (i) the temporary assignment of an outside expert to assist LEG's own staff, and (ii) the recent additional budget appropriations made to government agencies to enable them to pay their utility bills. Once appointed, the management assistance personnel would place priority on and continue these efforts. Financial Outlook 7. Generation for meeting regular consumption is expected to grow at an average of about 7 percent per year. Sales growth, however, would be slightly higher by the reduction of present high losses and unrecorded con- sumption; sales, as a percentage of generation, would increase from 68 per- cent in 1974 to 73 percent in 1980. In addition, LEG sells substantial amounts of cheap power to one of the mines whenever LEG has spare hydro capacity. It is estimated, however, that by 1980, LEG will no longer have any spare hydro capacity available for the mines. 8. LEC's net income is forecast to be satisfactory and would increase until 1978, after which it would decline slightly. However, since no major addition would be made to the rate base, the rate of return would meet the 10 percent covenant until 1981. LEG would have no difficulty in financing the local costs of its ongoing projects and would in addition substantially improve its cash position. However, since additional cash would be needed for financing future investments, it is recommended that the dividend limit- ation covenant be repeated during the disbursement period of the proposed loan. LEC's borrowing capacity is restricted by the debt limitation covenant from the previous loans; this covenant required lEC to seek Bank approval before incurring additional debt unless the maximum future debt service in any succeeding year is covered at least 1.5 times by its internal cash generation at the time of incurrence of the new debt. ANNEX IV Page 4 of 6 pages LIBERIA LIBERIA ELECTRICITY CORPORATION Incone Statements (Tst I 000) ACTUAL FORECAST YEAR ENDING DEC. 31 1973 1974 1975 1976 1977 1978 1979 1980 ENERGY SALES, GWH 271 276 249 284 294 300 308 318 AVG PRICE PER KWH 0.033 0.050 0.058 0.055 0.060 0.063 0.065 0.067 OPERATING REVENUES COMMERCIAL 2218 3290 3751 4052 5093 5501 5941 6416 INDUSTRIAL 1338 2316 2502 2878 3671 4221 4854 5583 DOMESTIC 3127 3767 4148 4273 4401 4533 4669 4809 GOVERNMENT 737 968 1078 1132 1329 1396 1466 1539 MINING 1528 3402 3046 3295 3248 3218 3142 3067 TOTAL SALES REV 8948 137143 14525 15630 17742 1886 20072 21414 OTHER 53 53 60 6 73 81 89 TOTAL 9001 139 0 1.69 17809 18942 20153 21503 OPERATING EXPENSES FUEL 2134 5329 4444 4778 5178 6023 7162 8331 OPERATIONS 473 826 903 993 1093 1202 1322 1454 MAINTENANCE 1253 961 1245 1369 1506 1657 1823 2005 ADMINISTRATION 576 574 1065 1261 1315 1195 1080 1152 PROV FOR BAD DEBTS 665 1141 830 641 484 363 374 385 DEPRECIATION 2030 2360 2395 249 2652 2802 2847 2899 TOTAL 7131 11191 10882 11542 12228 13242114608 16226 OPERATING INCOME 1870 2605 3697 4148 5581 5700 5545 5277 OTHER INCOME NET 17 14 20 30 30 30 30 30 NET INCOME BEF INT 1887 2619 3718 4178 5611 5730 5575 5307 INT CHARGED OP 1486 1963 2000 1984 1880 1927 1805 1683 NET INCOME 401 66 1718 2194 3731 3803 3770 3624 RATE OF RETURN 4.2 5.1 7.2 8.0 10.4 10.3 10.3 10.0 UPERATING RATIO 2 79 81 75 74 69 70 72 75 REV/GROSS PLANT 0.16 0.21 0.21 0.22 0.23 0.23 0.24 0.26 DEPREC/GROSS PLANT 3.50 3.54 3.45 3.45 3.45 3.45 3.45 3.45 ANNEX IV Page of 6 pages LIBERIA LIBERIA ELECTRICITY CORPORATION Balance Sheets (u6$'000) ACTUAL FORECAST 1973 1974 1975 1976 1977 1978 1979 1980 ASSETS PLANT IN OPERATION 66254 67121 71721 73121 80621 81821 83221 84821 LESS: DEPRECIATION 14390 16746 1 141 21640 24292 27094 29o41 2840 NET PLANT 51864 50375 52580 51481 56329 54727 53280 51981 WORK IN PROGRESS 850 2219 1956 5458 948 4208 10752 17744 CURRENT ASSETS -CASH AND BANKS OPERATIONAL REQU 441 400 2606 2790 2990 3373 3913 4498 TEMPORARY SURP 0 0 0 0 611 1404 565 0 -ACCOUNTS REC 2815 3565 3426 3420 3633 3637 3607 3591 -INV AND OTHER 531 1737 350 00 650 715 786 865 TOTAL 3787 5702 6382 6710 7884 9127 -671 8954 TOTAL 56501 58296 60918 63649 65161 TT5_ 72909 78679 LIABILITIES EQUITY -CAPITAL 750 2250 4250 4250 4250 4250 4250 4250 -RETAINED EARNINGS 12026 12668 14386 16580 20311 24114 2784 31508 TOTAL 12776 1 918 18636 20730 2456 1 -T 32134 3575 LONG TERM DEBT 39834 40031 39881 41013 39782 38768 39696 40575 CUR'NT LIABILITIES -ACCOUNTS PAYABLE 2089 1058 400 60c 300 330 363 399 -REFINERY 645 1000 444 478 518 602 716 833 -GOVERNMENT 1157 1289 0 C 0 0 0 0 -OVERDRAFTS 0 0 1557 728 0 0 0 1114 TOTAL 3891 3347 2401 1806 718 932 1079 2346 TOTAL 56501 58296 60918 63649 65161 6 72909 78679 DEBT/DEBT & EQUITY 76 73 68 66 62 58 55 53 DEBT/EQUITY 3.1 2.7 2.1 2.0 1.6 1.4 1.2 1.1 CURRENT RATIO 1.0 1.7 2.7 3.7 9.6 9.8 8.2 3.8 RECEIVA6LLS/REV 4 31 26 23 22 20 19 18 17 ANNEX IV PTge 7 of 6 pages LIBERIA LIBERIA ELECTRICITY CORPORATION Funds Flow itatements (Us$ 000) ACTUAL FORWAST 1973 1974 1975 1976 1977 1978 1975-78 1979 1980 TOTAL INTERNAL SOURCES -NET INCOME BEF IN 1887 2619 3718 4178 5611 5730 19237 5575 5307 -DEPRECIATION 20 360 2395 2 2 2802 10348 2841 28 TOTAL 391 4979 77 82 3 T 295 822 E6 OPERATIONAL RE- QUIRE1ENTS -WORKING CAPITAL -2470 2459 3183 94 823 338 4438 434 495 -DEBT SERVICE 4312 4095 4988 5001 4447 4401 18837 4147 4374 -ADJ PRIOR YEARS 11 4 0 0 0 0 0 0 0 TOTAL 8 n 171 5095 5270 473 23275 451* 8 NET AVAILABLE FROM OPERATIONS 1948 -1589 -2058 1582 2993 3793 6310 3841 3337 CONSTRUCTION REQUIREMENTS -LEC PROGRAM 1564 525 810 972 1166 1400 4348 1680 201i -KFW PROJECT 0 165 1771 3176 1032 0 5979 0 0 -IBRD 684/77d 8500 1500 1600 0 0 0 1600 0 0 -FUTURE PROJECT 0 0 0 05 00 4300 6000 6000 TOTAL 201_ 00 16221 BALANCE TO FINANCE 8116 3779 6239 3216 -145 607 9917 3839 4679 FINANCED BY: -VARIOUS LOANS 1703 278 0 0 0 0 0 0 0 -KFW 0 156 1482 1845 394 0 3721 0 0 -lBRD 684/778 6413 1845 1100 0 0 0 1100 0 0 -TECH ASS LOAN 0 0 100 700 800 200 1800 0 0 -FUTURE LOAN 0 0 0 0 0 1200 1200 3000 3000 -GOVERNMENT 0 0 0 1500 0 0 1500 0 0 -EQUITY 0 _ 500 2000 0 0 0 2000 0 0 TOTAL TIT 3779 F 4045 1194 1 11321 3000 3000 SURPLUS(DEFICIT) OF FUNDS 0 0 -1557 829 1339 793 1401 -839 -1679 ACCUMULATED 0 0 -1557 -728 611 1404 1404 565 -1114 NET AVAILABLE FROM OPERATIONS/ -CONSTRUCTION REQ% 19 -73 -49 33 105 86 ;9 50 42 -PLANT IN OPER-% 2.9 -2.4 -2.9 2.2 3.7 4.6 2.1 4.6 3.9 DEBT SERVICE COVER 0.9 1.2 1.2 1.3 1.9 1.9 1.6 2.0 1.9 신