Nicaragua - Diesel Power Project

FILE COPY T .O . - l8b HLE COPY ~~RESTRICTED RETURN TO REPORTS DESK WITHIN ONE WEEK This report is restricted to use within the Bank. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TECHNICAL REPORT on the DIESEL POWER PROJECT of the EMPRESA DE LUZ Y FUERZA ELECTRICA in NICARAGUA August 28, 1953 Technical Operations Department  CURRENCY EQUIVALENTS $1.00 a 7.0 Cordobas I Cordoba * $0.14 1 million Cordobas * $142.860  TABLE OF CONTENTS Page No. I. Background 1 II. The Borrower 2 III. Present Capacity and Demand 2 IV. Description of the Project 3 V. Estimated Cost 3 VI, Construction Schedule 4 VII. Sources of Finance 4 VIII. Organization and YManagement 4 IX. Power Market, Rates and Operating Cost 5 X. Financial Position and Estimated Financial Results 6 XI. Conclusions and Recommendations 7 Table I  NICARAGUA DIESZL POWER PROJECT I. Background 1. As a result of studies made in 1951-1952 by a Bank mi4ssion in Nicaragua, the need for additional electric power generating capacity in Managua was established and the mission recommended that consideration be given to the installation of a steam station of adequate capacity. 2. The mission further recommended the separation of the power com- pany from the state railway administration, and the establishment of a new power agency, in order to improve the organization and management. 3. An operational mission visited Nicaragua in February 1953 to make a study of power and highway projects which had been proposed as a basis for loans from the Bank. 4. During discussions with the Government it was established that at that time adequate studies had not been made to permit consideration by the Bank of the proposed steam plant. The mission, therefore, proposed that a qualified consultant be retained to make such studies. The ETarza Engineering Company of Chicago has now been retained by the Government for this purpose. 5. The separation of the power company from the Railroad Administra- tion has been accomplished by Decree No. 16 of April 9, 1953, which trans- ferred the company to the Ministry of Public Works and Development. The Company, which is known as "Empresa de Luz y Puerza Electrica", is entirely Government owned. 6. Pending a final decision on the steam generating plant, the Gov- ernment is at present installing an additional diesel unit of 3,000 kw., estimated to cost the equivalent of US$ 491,000, in order to provide for load growth prior to completion of the steam plant. The Bank has been requested to consider financing the foreign exchange costs of this instal- lation amounting to USI' 450,000. 7. The data available are somewhat incomplete and the following analysis of the Company leaves open, therefore, a number of questions, especially with regard to the long range power market and the forecast of the Company's finances. The information is considered adequate, how- ever, to arrive at definite conclusions about the proposed financing of diesel units presentlv being installed to tide the Company over the emer- gency of the next year or two. A considerably more thorough examination, based especially on the power market study now being prepared by Harza, will be necessary to form a judgment on the contemplated addition of thermo-electric units.  - 2 - II. The Borrower 8. Ihe Borrower would be the Government of Nicaragua. The Govern- ment would rmake available to the S)presa de Luz y Fuerza dectrica the equipment acquired with the proceeds of the loan, and the Comaiany would be responsible for the service of the IBRD debt. 9. The Company was created in 194l as an agency of the state rail- way aclministration (Ferrocaril del Pacifico de Nicarag.ua) to operate the facilities purchased from the Central America Power Corporation (organized under the laws of the State of Delaware, U.S.A.) servinc tho hanagua area. 10. These facilities consisted principally of two diesel units of a rated capacity of 500 kw. each and the corresponding distribution netwtork. For these facilities and all rights and franchises, the Central America Powrer Corporation received US'p 400,000. Between 1941 and 1949 the Company installed 3,250 kw. additional capacity. In order to meet the constantly increasing demand, a Nordberg diesel unit of 3,000 ktr. and complementary distribution equipment were added in early 1953, financed by a loan of US$ 600$000 from the Export-Import Bank to the Government of Nicaragua 1/, with an interest rate of 4lq and repayable in 10 years. III. Present Capacity_and Demand 11. The Company's diesel generating plant consists at present of the following units: Rated Capacity Effective Capacity Manufacturer Kw. Date Installed _I__. Busch Sulzer 500 January 1929 300 Busch Sulzer 500 January 1929 300 Wlorthington 750 April 1941 600 'Worthington 1,000 April 1945 750 Worthington 750 November 19118 600 Worthington 750 January 1949 600 Nordberg 3,000 February 1953 3 000 Total 7,250, 12. The distribution system consists of high tension lines of 7,200 and 2,300 volts and secondary distribution systems of 220 volts - 110 volts. It is divided into four circuits - North, South, Central and Rural. The North, South and Central circuits serve the designated areas of the city of Managua and are of approximately equal size. The Rural circuit, equipped with transformers to increase its potential from 2,3C0 volts to 7,200 volts, provides powzer to coffee ranches, industries and residences in the outlying areas. 13. The Company states that the effective capacity of the present units is only 6,125 kw. as comipared w,ith a total rated capacity of 7j,250 kw. The reason for this difference is not imnovn and the under-rating of the eouipment is open to questionv particularly in the case of units installed since 1945. / Debt service borne by the Company  -3- 14. The firm or dependable capacity of the station would be its ca- pacity with its largest unit (3,000 kw.) out for repairs. The firm capac- ity would therefore be in the order of 3,125 kw. Against this the peak demand in May, 1953, was 4,545 kw. or 1,420 kw. in excess of the firm capacity. IV. Description of the Project 15. The project which the Denk has been requested to finance is a 3,000 kw. diesel generating unit, complete with all auxiliary equipment, which will be installed at the station of the Empresa de Luz y Fuerza in Managua. The unit, together with the others, will become an integral part of the enlarged plant which will include the steam units now under study. V. Estimated Cost 16. The estimated cost of the project is as follows: Foreign Currency Cost (U. S.$) Diesel Generating Set 274,105.00 Generator exciter 80,983.00 Freight 5,800.00 360,888.00 Switchgear, instruments, etc. 12,285.00 Station piping, floor plates, additional heavy fuel equipment and acc3ssories, Cif 23,460.00 Copper bus bars, cables, etc. Cif 4,211.00 Cooling tower, Cif 11,500.00 Foundation reinforcing steel, Cif 3,197.32 Cement for foundation, Cif 3,345.00 Zinc roofing sheets, Cif 1,300.00 Contingencies 29,213.68 Total foreign currency cost US$ 450,000.00 Local Currency Cost (in Cordobas) Labor 165,515.85 Materials 75,330.19 240,846.04 R.R. freight on cement 6,136.13 Misc. 150.52 6,286.65 R.R. freight on machinery 30,809.82 Customs 2,652.30 Misc. _6.470.78 39,932.90 Total local currency cost $ 287,065.59 Total cost of the project (in US$) US$ 491,000.00 (US$ 1 = 7 Cordobas)  -4- 17. The foreign exchange costs involved in this project can be con- sidered reasonably firm since a good portion of the items involved have been ordered. The contract for the unit with the Nordberg Fianufacturing Company wa. signed on March 6, 1953., and about $260,000 have already been paid against It. 18. There was no competition when the order for this equipment was placed. It was purchased as a duplicate of an existing unit in order to simplify stocking of spare parts. The cost is considered to be reasonable. VI. Construction Schedule 19. The unit is expected to be completed and in operation by the end of 1953. VII. Sources of Finance 20. It is proposed that the foreign exchange cost of the project should be met from an IBRD loan. 21. The local currency cost is estimated at about 0$ 290,000. At December, 1952, the Company held funds totalling over f$ 500,000 in cash and special deposits. In view of this, and the fact that the estimated expenditure is only about one-half of average annual profits, it seems that the Company would have no difficulty in finding the necessary money to complete the project. VIII. Organization and Management 22. In the past the Company's organization and management left some- thing to be desired, especially with regard to the operation and maintenance of the plant. MYoreover, the system whereby the operations of the power company and railroad were jointly carried out had evident disadvantages. 23. The transfer of the Company to the Ministry of Public Works and Development under Mr. lacayo Fiallos, who is considered the most able ad- ministrator in the Government, is expected considerably to improve the situation. 24. Furthermore, the President of Nicaragua has recently issued in- structions to the Minister of Public Works about the future organization of the Company, which have been officially communicated to the Benk and may be summarized as follows: (1) The Ministry will enter into a contract with the "tPublic Admin- istration Service" of Chicago, a non-profit institute, for the preparation of a study on the reorganization of the Company and  the establishment of a general ptoer authority. }he study will consider the possiUility of converting this and other companies which it .ni ht accuiru into national CO.iparnie-S of l:uiied type, in which private capital would pairticipate. (2) Within three months after the corapletion of the above stuoy the L-overnment Uill proceed to enact the pertinent legislation. (3) she ne, pot.er authority shall engage a qualified firm to jirepare a revision of the present rate structure. I.- Po,oer Market, iRates and Operating Cost 25. ine sonpany serves at present a total of sOiuje 16,000 custon._rs, of vhich some I0O are industrial users, 250 are cor.nercial establiznirents and the rcst residents and puLlic lighting. 26. i'rori 19t8 to 19,2 the koi%oany's total power beneration rose from 12 to 11.3 million kilouatt hours, JIO the Compa ny's sales from 10 to 1' million kilowatt hours, uhich corresponds to a s.rowth of aLout 7,; per ye r compounded. *he difference tetween generation ana sales is niainly accour.ted for Ly distritution losses. 27. The penakload has increased during the sare period of tlic froitu 2,900 to 4,500 kilovatts. 283. Ihe 'ompeny forecasts X furthbr incre. se of sales over the rext five years to 29 million kilowatt hours, which corres-onds to 2 compound -rovth per year of atout 15$. The 'ompany states that the assumption of this more rapid growth is justified because in the last five years the limiting factor to the sales was not the market, but the inadequate gen- erating capacity, which has created a serious accumulation of new customers, both industrial and residential, waiting to be connected to the network. The satisfaction of this demard is expected to add immediately another third to the present load. 29. Another reason for the more rapid future annual growth is stated to be the likelihond that the installation of more generating capacity would allow the Ciompany to abolish the present limitations on industrial users whereby they can be supplied with power only between 4:00 a.m. and 5:00 p.m.; thus industrial consumption :hould increase very rapidly. 30. The present sales rntes per kwh, vary from ,'t 0.60 (U.S.) 8.5) for residential lighting to P 0.30 (U.S,