Haiti - Power Project

Report No. 1052a-HA FILE COPY Appraisal of First Power Project Haiti May 24, 1976 Power and Telecommunications Division Latin America and the Caribbean Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization  Currency Equivalents Currency Unit Ilaitian Gourde US$1 = Gourdes 5 Gourde 1 = US$0.20 Gourdes 1,000 US$200.00 US$1,000 = Gourdes 5,000 Units and Measures GWh = Gigawatt hour = 1 million kWh kWh = kilowatt hour ton imetric ton = 1,000 kg bbl = barrel - 42 US gallons km = kilometer 0.62 mile kW = kilowatt iW = Megawatt 1,000 kW kVA k kilovolt - ampere MVA - Megavolt - ampere = 1,000 kVA kV = kilovolt V = volt fT = meter - 3.28 feet m3 = cubic meter m'/sec = cubic meters per second Abbreviations and Acronyms EdH = Electricite d'Haiti BNLRH = Banque Nationale de Republique d'Haiti CIDA = Canadian International Development Agency CONADEP Conseil National de Developpement et de Planification FAC = Fonds d'Aide et de Cooperation GIE = Gruppo Industrie Elettromeccaniche per Impianti All'Estero ONA = Office Nlationale d'Assurance SOFRELEC = Societe Francaise d'Etude et de Realisation d'Equipements Electriques Fiscal Year October 1 - September 30  FOR OFFICIAL USE ONLY APPRAISAL OF THE FIRST POWER PROJECT - HAITT ELECTRICITE D'HAITI (EdH) Table of Contents Page No. SUMMARY AND CONCLUSIONS i 1. INTRODUCTION 1 2. THE SECTOR 3 The Role of the Sector in the Economy 3 Sector Organization 4 Sector Regulation 1 Electricity Consumption and Rural Electrification 5 Long-Term Sector Development 6 Constraints on Sector Development 6 3. THE PROGRAM AND PROJECT 9 Program through 19dl 9 Description of the Project 1C Estimated Cost 10 Engineering 11 Project Execution 11 Procurement and Disbursement 12 Environment 13 Project Risks 13 . JUSTIFICATION OF THE PRJJECT 114 Sector Objectives 14 Project Objectives 11 Demand and Generation Forecast i5 Least Cost Solution 15 Return on Investment i6 5. THE BENEFICIARY 17 Organization and Management 17 Management Information Systems and Audit 18 Performance Indicators 18 6. FINANCES 19 Summary 19 Earnings History. Present Position and Future Financial 19 Performance Financing Plan 20 7. AGREEMENTS REACHED AND RECOMMENDATIONS 22-23 This report has been prepared by Messrs. Manfredo Linder and Philip Owusu. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   List of Amnexes 1. Existing Generating Facilities in Haiti 2. Description of the Project 3. Demand, Generation and Sales Forecast 4. List of Industries and other loads waiting to be connected 5. Wet and Dry Seasons, Energy and Demand Requirements 6. Least Cost Solution 7. Return on Investment 8. Electricity Tariffs in Haiti 9. Training 10. Disbursement Schedule 11. Performance Indicators 12. Income Statements 13. Sources and Uses of Funds 14. Balance Sheet 15. Debt Service 16. Assumptions made in Financial Projections 17. EdH Organization Chart 18. Project Implementation Schedule Map IBRD 121 5   APPRAISAL OF FIRST POWER PROJECT - HAITI ELECTRICITE D'HAITI (EdH) Summary and Conclusions i. This report appraises IDA's first power project in Haiti, for which a credit of US$16 million is proposed. ii. The beneficiary of the credit would be Electricite d'Haiti (EdH), an autonomous govermnent agency, entrusted with the responsibility for the planning, generation, transmission and distribution of electric energy for public service in Haiti. EdH's principal facilities consist of a 47 MW hydro plant at Peligre and 16.3 MW diesel facilities in the two principal cities of Port-au-Prince and Cap Haitien. It also operates an estimated 744 MW of installed generating capacity in the provinces. EdH lacks depth in managerial, technical and administrative skills. The first power project includes funds for improving the capability of EdH's staff. iii. The principal components of the first power project are the con- struction of a 21 MW medium-speed diesel power station in Port-au-Prince as well as transimiission facilities, expansion and rehabilitation of the distribu- tion network and technical assistance. iv. The first power project forms part of a two-stage short-term (1976-81) power development program for Port-au-Prince. The project (the first stage) is needed to fill the supply gap and to meet the demand forecast in the rapidly growing metropolitan Port-au-Prince area through 1978. It would pave the way for a reduction of Haiti's under-employment through higher industrial capacity utilization and increased agricultural productivity. Other objectives of the project are : (a) to reduce losses in the transmission/ distribution network and to improve tranmission capability and reliability of the existing Peligre hydroelectric system; (b) to strengthen the managerial, technical and administrative capabilities of EdH; (c) to assist in formulating a framework for a systematic long-term power development for the whole country; and d) to make electricity more accessible to the low-income groups. v. Total project cost is estimated at US$18 million. The proposed US$16 million credit would cover all the project's fcreign exchange costs estimated at US$15 million plus about US$1 million of local cost. The remaining US$2 million of additional local cost would be financed from government contributions. Over the 1976-78 construction period of the project, the net flow of resources from the government to the power sector would amount to only US$1.6 million, inasmuch as payments to be made by the government on account of counterpart for the project, settlement of outstanding electricity bills, and debt service for Peligre would be partially offset by EdH's debt service on overdrafts it has received from the National Bank.  - ii - vi. EdH has engaged the services of qualified consultants (SOFRELEC - France) already accepted by IDA - to assist in engineering, preparation of bidding documents, evaluation of bid proposals, inspection of equipment and on-site supervision of construction. SOFRELEC has ample experience with similar works, and with its assistance, EdH should be fully capable of suc- cessful project execution. vii. Procurement of equipment and services for the project would be through international competitive bidding in accordance with IDA guidelines, except for: (a) equipment having an approximate cost of US$200,000 which, because they constitute modifications or extensions of existing equipment, would have to be procured from the original suppliers; (b) training equipment costing about US$100,000, which due to their very specialized nature would be purchased on the basis of price q-u6tations from at least three suppliers, and -(c) minor civil works cobstin'g an aggregate of US$400,000, which would be contracted with Haitian contractors under local procedures acceptable'to IDA. Because of the need to ha've the fIrst ulniit of t1i- power- station operating by March 1977, in order to avoid severe power shortages during the dryjseason, IDA agreed that EdX'co'ud' initiate procurement procedi''d' the station prior to credit signing. Retroactive financing of up to US$1.12 million is recommended for consultant services and for down payment on the station. viii. The first power project is the least-cost solution for meeting the electricity-deffiand forecast in Port-au-Prince through 1978, for all discount rates up to 20%. ' ix. On the basis of the new tariff structure, which,'the Government and EdH have agreed to implement, the rates of return on investment for the project and for the two-stage program would be 16.0% and 16.5% respectively. X. On the basis of the agreements reached on the recommendations set out in chapter 7, the proposed project constitutes a suitable basis for an IDA credit of US$16 million equivalent to the Republic of Haiti. The credit would be'onlent to Electricite d'Haiti for a period of 25 years including 2 years grace at 8.85% annual interest.  APPRAISAL OF FIRST POWER PROJECT - HAITI ELECTRICITE D'HAITI (EdH) 1. Introduction 1.01 This report appraises a power project to be carried out by Electricite d'Haiti (EdH), Haiti's national power utility. 1.02 The proposed credit would be the first financing of Haiti's power sector by the Bank Group. Sales of electric power in Haiti have grown very rapidly in the past decade due primarily to increasing electric power demand from labor-intenslve industries. The proposed credit would be instrumental in ensuring an adequate and reliable supply of electric power essential for Haiti's economic growth and improvement of the standard of living of the population. The beneficiary of the proposed credit - EdH - is a government owned autonomous power company. It is the only institution entrusted with the responsibility for the generation, transmission and distribution of electric power for public consumption in Haiti. It lacks depth in managerial, technical and financial skills. However, EdH has agreed to carry out a training program (partly to be financed by proceeds from the proposed credit) to strengthen its capabilities in these areas. 1.03 The project forms part of a two stage installation program neces- sary to meet electricity demand in the Port-au-Prince metropolitan area through 1981. It would consist of: a) the installation of a 21 MW medium-speed diesel engine power station, b) expansion and rehabilitation of the transmission and distribution network, and c) technical assistance for engineering and supereision and for training EdH personnel. The project is needed to meet demand in Port-au-Prince through 1978. It is estimated to cost about US$18 million with a foreign exchange component of US$15 million, which would be financed by the proposed IDA credit, which would also finance US$1 million of local costs. Tne remaining US$2 million of local costs would be financed by the government. 1.04 The decision to undertake the 1976-81 construction program in two stages results from financial constraints in the availability of both IDA and counterpart funds and the desirability that EdH strengthen its financ- ial, technical and administrative capacity before undertaking a larger investment. 1.05 The Bank is acting as executing agency for a long-term power sector study financed by the UNDP. This study, together with a study of Haiti's hydropower potential which is being financed by the Canadian International Development Agency (CIDA), would identify future high priority projects in the power sector. One possible project could be a thermal plant utilizing lignite deposits that are known to exist in Haiti. It would not, however, be possible to await results of the study before reinforcing the capital's power supply which is already inadequate (approximately 14 MW of  - 2 - existing loads are yet to be connected to the power system). The govern- ment accordingly engaged the French consulting firm, Soci6te Francaise d'Etudes et des Realisations d'Equipements Electriques (SOFRELEC), to pre- pare the project and recommend improvements in EdH's tariffs and accounting systems, under terms of reference agreed with the Association in late 197T. 1.o6 This report is based on the findings of an IDA appraisal mission, consisting of Messrs. Manfredo Linder (Engineer), and Philip Owusu (Financial Analyst), which visited Haiti in November 1975. The report draws on the recommendations of a feasibility study for the project stbmitted by SOFRELEC. The section on training (annex 9) utilizes the findings of an IDA preparation mission,consisting of Messrs. Edward Chittleburgh (Training Adviser) and Manfredo Linder. which visited Haiti in August 1975.  -3- 2. The Sector The role of the sector in the economy 2.01 About 80% of Haiti's L.6 million inhabitants live in rural areas. The principal city, Port-au-Prince, accounts for over half the urban population. Agriculture is the mainstay of the economy, contributing about 50% of GDP and providing employment for nearly 80% of the labor force. Because fertile soil in Haiti is limited, irrigation is very important in increasing agricultural productivity. At the moment only a small amount of electric power is used for irrigation pumping, however, agriculture's share of electric consumption is expected to increase in the future; an estimated 1.8 MW of electric irriga- tion pumps are awaiting connection in the Port-au-Prince area alone (see annex 4). Although the industrial and commercial sectors account for only about 30% of GDP, rapid expansion in these sectors (particularly in light manufacturing, in construction and in tourism) have been instrumental in Haiti's economic growth in the past few years. Rapid growth in the industrial sector was accompa- nied by high growth in electric power consumption. Between 1970 and 19Th when industrial output increased at a rate of about 15% per year, industrial power consumption grew at an average annual rate of about 20%. The growth would probably have been higher had there not been power shortages; an estimated 11.3 M of industrial capacity is idle while'waiting to be connected to the power electric system (annex 4). 2.02 The Government's 5-year development plan for the period 1977-1981 currently in preparation is expected to emphasize (inter alia): - increases in capacity utilization in the manufacturing sector; - reduction in urban underemployment through expansion of labor intensive industries; - expansion of tourism; - increases in agricultural productivity through rehabilitation and expansion of existing irrigation networks; and - achieving a balanced regional development through the establishment of growth centers outside Qf Port-au-Prince. - increase in educational opportunities and health services. Provision of the supporting infrastructure necessary to achieve these objectives, would continue to place a heavy demand on the electric power sector for the rest of this decade. 2.03 Haiti is not particularly well endowed with indigenous sources of energy. Three known deposits of lignite exist in Maissade, Camp Perrin and L'Asile. Little is known about the extent, facility of mining and suitability for electricity generation or other uses of the deposits. The ongoing UNDP. financed preinvestment study of the power sector in Haiti (para.2.15) will determine the feasibility of using these deposits for power generation and/or alternative uses such as domestic heating. Haiti has no other known resources of fossil fuels and the possibilities of geothermal deposits appear remote. 2.0% Haiti's hydroelectric potential has not been quantified but it is known that the resources are limited. The Canadian International Development Agency (CIDA) has engaged consultants to carry out a comprehensive study of the hydraulic resources of Haiti. This study is underway and includes a survey of potential hydroelectric plant sites. The results of this study will be taken into account by the consultants carrying out the long-term preinvest- ment study of the sector mentioned in paragraph 2.15.  - LI- 2.05 CIDA is also assisting the Government in the development of an ins- titutional framework for energy sector planning. Because of Haiti's limited known energy resources it should pay particular attention to the development of sound energy policies, especially with regard to pricing. 2.06 The main source of commercial energy is imported petroleum derivates. The estimated consumption in 1975 is 1,270,000 barrels of which about 32% is consumed by two main industries - bauxite and cement - 27% by EdH and 20% by transport, the remaining 21% by other small industries and commercial aviation. In 194, the government signed a contract with an American petroleum company (Wendell Phillips Petroleum Co.) to carry out oil explorations in Haiti. During the last two years, this company has shown, by using indirect methods (geophysical and seismic surveys),that oil could be found off-shore near Port- au-Prince. The government expect's to sign another contract, possibly with another American company, to carry out the necessary drilling to determine the feasibility of commercial oil production. 2.07 Sugar cane bagasse is used by the sugar factoriesas fuel in their own internal manufacturing processes. Charcoal, produced from high valued trees (e.g. mahogany) which in the past have been felled indiscriminately, is an important source of energy for domestic use. No known statistics exist regarding the quantity of charcoal consumed annually but one disastrous consequence of the felling of trees has already been encountered, i.e., land erosion and the exhaustion of considerable areas of once productive land. The use ofX lignite for domestic fuel could, therefore, have important beneficial implications on agricultural production by reducing or even eliminating this problem of land erosion. A UNDP-financed study underway will recommend a policy of reforestation to the Government. Sector Organization 2.08 Electricite d'Haiti (EdH), an autonomous government agency, is the sole entity entrusted with responsibility for planning, construction, operation and marketing of electric power services in Haiti. EdH was established by pre- sidential decree in 1971 to take over the government owned Peligre hydroelectric plant and the assets of a private company (Compagnie d'Eclairage Electrique) whose concession expired in that year. Its basic law states that the genera- tion, transmission and distribution of electric power are a state monopoly to be exercised through Electricite d'Haiti. However, because EdH had its hands full with day-to-day operations of the Peligre dam and the diesel facili- ties in Port-au-Prince and in Cap Haitien (the second largest city), facilities in the provinces continued to be constructed and operated by other government agencies (e.g. the Insitute for Agricultural and Industrial Development, the Ministry of Public Works) and private entities until 1974. EdH has now formally assumed nominal control of practically all public service electric power facilities in the country. (see Annex 1 for a description of existing facilities in Haiti). Sector Regulation 2.09 The authority to regulate the power sector is vested in the President of the Republic of Haiti and exercised through key Ministers who also form EdHl-'s Board of Directors. The board consists of five ex-officio members: the Minister of Public Works, Transport and Communications who acts as Chairman; the Minister of Finance and Economic Affairs; the Minister of Commerce and Industry, the Pre- sident/General Manager of the National Bank; and the Executive Secretary of the Planning Council. There is no separate regulatory body as such and EdHIs basic law  states that tariffs as well as investment programs and borrowings are to be approved by the President of the Republic (with the advice of the board). Whereas this arrangement is somewhat unusual for a power company, it has worked in a satisfactory manner. Electricity Consumption and Rural Electrification 2.10 As shown in the following table, the industrial sector is presently the largest consumer of electricity in the Port-au-Prince area. The bulk of the growth over the next few years is expected to come from this sector; residential consumption (presently the second largest category) is expected to grow at only 3% p.a. (annex 3): Actual Projected Projected 1974t 1978 1982 GWH % GWH1 % GWH 1 Residential 30 33.5 33.9 16.6 38.1 13.6 Industrial 39.7 44.2 13h-.o 65.8 194.5 69.2 Commercial & Hotels 8.6 9.6 15.2 7.5 23.0 8.2 Public Lighting 5.3 5.8 12.6 6.2 15.i 5.4 Other 6.3 6.9 8.0 3.9 10.2 3.6 Total 89.9 100.0 203.7 100.0 280.9 100.0 2.11 From the information available, in July 1975, about 27,000 households in the whole of Haiti were connected to public service electric energy. About 26,000 of these households are in the Port-au-Prince metropolitan area. Con- sidering 5 persons per family and with a population of 630,000 inhabitants for the metropolitan Port-au-Prince area and 4,600,000 for the country, 21% of the population in Port-au-Prince was served by EdH. For the country as a whole the percentage served was 2.9%. The percentage of the urban population with access to electricity is lh.4%. No exact data are available for the rural population but the percentage of population served is certainly less than 1%. The average annual consumption per capita of electric energy in 197h is only 28kWh,(of whlch about 20 kWh correspond to public services and about 8kWh to captive generation) which is among the lowest in the world. 2.12 The figures given above speak for themselves. Haiti is one of the least developed countries, and the electric energy sector is no exception. The reason for the low level of electricity consumption is the extreme poverty of the popula- tion revealed by the GNP per capita of US$130 in 1973 which makes Haiti the most impoverished nation in the Western Hemisphere-and one of the 25 poorest nations in the world. 2.13 There is no comprehensive rural/low-income electrification policy and EdH has no special programs to encourage connections and increase consumption except that it charges no connection fee for residential consumers. However, a project financed by the Federal Republic of Germany (see para. 3.01) will provide rural electrification for the Gonaives region. Haiti will continue to be characterized by extremely low consumption of electricity. The projected per capita (public service) consumption in 1982 would be 50 kWh (compared to 150 kWh for Honduras and 190 kWh for Ivory Coast in 197h).  -6- Long-Term Sector Development 2.14 To date the Governmient has not developed a formal electrification policy. On several occasions information on purchases of generation facilities for the provinces has been conveyed to EdH after the fact which reflects the lack of national coordination of the sector. 2.15 The Bank is acting as Executing Agency for a Study of the Power Sector financed by the United Nations Development Program (UNDP) which would be the basis of a coordinated development of the sector. The main objectives of the study (which started in January 1976) are; a) Research on lignite deposits to ascertain the possibility of their utilization for electricity generation and/or other uses such as domestic fuel; b) Review of the CIDA reports (para. 2.04) to select the feasible hydroelectric generating projects to be included in the power expansion plan; c) Prepare a power market survey of the whole country; and d) With the information of a), b), and c) above, prepare a least- cost program for power generation and transmission for the entire country for the period 1982-1995. Constraints on Sector Development - 2.16 The- sector development program over the period 1976-1981 is a relatively ambitious one. Inasmuch as EdH is still at the early stages of development there are several potential bottlenecks that may constrain sector development. Notable among these are: a) Lack of sector coordination; b) Skilled manpower constraints; and c) Inadequate finances. 2.17 Notwithstanding the fact that EdH has assumed formal control of electric power installations in the provinces, de facto control is still diffused among several agencies. Installation of equipment in the provinces still continues without the benefit of any centralized master plan or control. Coordination and standardization of the sector would improve when the recommendations of the UNDP long-term study (para. 2.15) are implemented. Meanwhile, efforts must be made to prevent fragmented development of the sector and to facilitate orderly consolidation of EdH's authority. As a first step in this direction, the govern- ment and EdH have agreed to formulate a power sector investment program based on the recommendations of the UNDP study not later than September 30, 1977. To give IDA an opportunity for closer review of power sector construction programs, the Government has agreed that during the project's execution no other construction expenditure exceeding US$1.5 million would be undertaken, in any one year, without prior IDA approval. The Govermnent has also agreed to consult and exchange views with the Association before undertaking or permitting EdH to undertake any  -7- investment in the power sector exceeding the equivalent of US$2 million, after the completion of the project. 2.18 Both the long-term TJNDP study and the project have training compo- nents aimed at improving EdH's managerial, technical and administrative capac- ity. The UNDP study includes provision for training: (a) eight engineers in generation, transmission and distribution operation and maintenance; (b) two engineers in planning; and (c) two qualified accountants in budgeting, cash flow projections, etc. The project includes the training of EdH staff in the implementation of the new accounting system (para. 5.07), and also the creation of a training center for EdH to train electricians and mechanics,(see annex 9). The Goverrnment and EdH confirmed their intention to carry out these train- ing programs and to implement measures (employment contracts and financial incen- tives) to ensure that the engineers and accountants trained under the programs remain with EdH for a reasonable period of time. The problem of skilled manpower shortages will improve with time, but, until a reasonable number of qualified EdT staff is attained, considerable technical assistance will be needed. 2.19 Given Haiti's foreign exchange difficulties and competing claims on government budgetary resources by other sectors, the ability of the power sector to carry out its development program will depend greatly on timely inflows of concessionary external aid as well as EdH's ability to generate counterpart funds from its own resources. The high level of energy losses in EdH's system (33% of net generation in 197T) will have to be reduced and tariffs raised moderately to enable EdH to become independent of government resources. 2.20 Electricity losses are high both in absolute terms for Haiti's com- pact system and in relative terms compared to countries in the region and else- where at similar stages of development! (Honduras 14%, Guyana 18%, Senegal 15%). They are attributable to deficiencies in EdH's facilities which the project will help correct and to a high level of theft. The latter is due to a lack of adequate legislation and inspection procedures (which should be backed by appro- priate legal enforcement) and to deficiencies in EdH's tariff structure. The need for measures to reduce theft was discussed with the government during project preparation and satisfactory legislation has now been implemented. A program which would permit EdH to achieve the targets for reduction of losses set forth in Annex 11 was agreed and will be monitored during project execution. 2.21 EdH's present tariff structure does not reflect the improvements in rate-making which have taken place in other countries in recent years. In the course of project preparation the Association and SOFRELEC have formulated recommendations on restructuring EdH's tariffs which are detailed in annex 8. Implementation of these proposals will: a) Reduce the incentive for theft by low-income consumers; b) Improve the utilization of EdH's installations, thus reducing its investment requirements and improving its economic return; and c) Penalize levels of consumption by residential consumers in excess of a minimum sufficient for household lighting and a few simple appliances.  - 8 - 2.22 During negotiationt the Government and EdH have confirmed their intention to: a) implement,not later than October 1, 1976, the new electricity tariff structure and levels,as shown in attachment 2 of annex 8, for the metropolitan area of Port-au-Prince; b) implement, not later than October 1, 1977, a national tariff structure and levels following the example of the tariff structure mentioned in (a) above; c) seek the concurrence of the Association before implementing any changes in tariffs prior to December 31, 1983.  - 9 - 3. The Program and ProJect Program through 1981 3.01 EdHts power construction progran through 1981 includes: i) For the Port-au-Prince region a) The installation of approximately 42 MW generating capacity (medium-speed diesel); b) The construction of a 69 kV transmission/distribution ring around Port-au-Prince; c) Extension of 115 kV substations and lines; d) Construction of new substations 115/69/12.47 kV and 69/4.16 kV; and e) Rehabilitation and extension of existing distribution networks and substations. ii) For the isolated regions a) A 2.5 MW hydropower plant to supply power to Gonaives and the Artibonite region and associated transmission and distribution; and b) Extensions to meet growing demand on the existing diesel power plants in other isolated districts of the country. iii) For the country as a whole The construction of the works recommended by the long-term UNDP financed power sector study under way (para. 2.15). These works could be either hydro-plants, lignite-fired steam plants, con- ventional oil-fired steam plants or diesel plants plus the as- sociated transmission and distribution works. For financial planning purposes, these works (which are estimated to cost US$65 million) have been grouped into four packages. a) The proposed IDA project, which is detailed in para. 3.02, comprises works for the Port-au-Prince region (included in (i) above) to be initiated prior to 1978. b) The works in Gonaives and the Artibonite region (Gonaives project - (ii)(a) above) which are to be financed by the Government, which will on-lend to EdH a part of the proceeds of a loan from the Federal Republic of Germany to cover the  - 10 - foreign cost (US$3.1 million) and make contributions for the local coat (US$0.8 million). o) The second stage of the program recommended by SOFRELEC for the Port-au-Prince region (para. 1.03 and (i) above) for which financing will have to be secured in 1978, and which is expected to cost IS$18.5 million. d) Other works, described in (ii)(b) and (iii) above, to be financed by EdHts internal cash generation and future financing which will have to be arranged in 1978-79. Description of the ProJect 3.02 The First Power Project consists of the following items. (See annex 2 for a detailed description of the works): a) A medium-speed diesel engine power station with a capacity of 21 NW; b) Transmission, distribution works and other works; i) 21 km of single-circuit 69 kV transmission line; ii) 5.4 km of double-circuit 115 kV transmission line; iii) Upgrading of 4 km of existing 12.47 kV line to 69 kV line; iv) Extension of an existing 115 kV substation and construction of new 115/69/12.47 kV and 69/4.16 kV substations; v) Extension and rehabilitation of existing distribution net- works; vi) Improvements to obtain higher reliability of the transmission system interconnecting the Peligre hydropower station with Pbrt-au-Prince; and vii) Construction and equipping of a training center. c) Technical assistance for engineering and supervision and for training of EdHts personnel. Estimated Cost 3.03 The project's estimated cost is about US$18 million equivalent with a US$15 million foreign component. The estimated cost is based on a firm offer for the diesel power plant (see para. 3.09), and recent quotations from manufacturers, as known to Bank staff and SOFRELEC, for the rest of the equipment. These prices correspond to end-1975 figures. The costs are summarized below:  - 11 - Local ForeiJn Total Local Foreign Total (thousands of Gourdes) (thousandp of U7W? Power station 9,150 41,910 51,060 1,830 8,382 10,212 Transmission, distribution and other works 3,850 19,485 23,335 770 3,897 4X,667 Engineering and supervision - 4,650 4,650 - 930 930 Training _ 215 215 - 43 43 Base cost estimate 13,000 66,260 79,260 2,600 13,252 15,852 Physical contingency 1,115 5,785 6,900 223 1,157 1,380 1h,115 72,0h5 86,160 2,823 1h,h09 17,232 Price contingency 590 3,410 ,000 118 682 800 Total project cost 14,705 75,455 90,160 2,941 15,091 18,032 3.04 Physical contingencies for the power plant were estimated at 8%, which is adequate as this part of the project has been completely defined. No price contingency was considered for the power plant as EdH is planning to sign the contract on a firm-price basis. Physical contingencies for the other project components were estimated at 10% and price contingencies, for both local and foreign expenditures, at 9% for 1976,E% for 1977 and 1978. Engineering 3.05 As noted in para. 1.05, the project was prepared by SOFREIEC, which was also responsible for engineering and procurement of the power station. EdH will continue to employ SOFRELEC for engineering, preparation of bidding documents for international competitive bidding, evaluation of bid proposals, inspection of equipment and on-site supervision of construction. The consultants' services have been estimated at 160 man-month with an average cost of US$5,h50 per man-month which covers base salaries plus overhead. About US$60,000 have been estimated for travel (both to Haiti and to Washington), use of computer time and telephone and telex expenses. The consultant_will also train EdH's accounting personnel in using the new accounting system, budgeting and control procedures, etc. (see annex 9) and in general train EdH's technical staff by on-the-job supervision of the erection of distribution networks (para. 3.06). Project Execution 3.06 The project will be carried out as follows: a) EdH will be responsible for the execution of the project, using SOFRELEC for the engineering and supervision of construction (para. 3.05); b) Local contractors will be employed for minor civil works, such as the command centers for the substations, training center, and foundations of substations, but no local expertise exists for the construction of transmission lines which will be constructed by international firms. The distribution systems will be constructed by EdHIs own forces who will be trained and suTnervised by SOFRELEC!s resident engineers.  - 12 - c) The diesel power plant will be constructed on a supply-and-install basis by the suppliers, under the supervision of SOFRELEC. 3.07 The estimated completion date is December 2977. However, the first of the diesel units should be in service by March 1977. The project implemen- tation schedule was confirmed by EdH during negotiations, and is shown in Annex 18. It will be used to monitor progress during the execution of the oroject. Procurement and Disbursement 3.08 International competitive bidding, in accordance with the Association's Guidelines for Procurement, will be used to procure all goods and services (other than consulting services) for the project except for: (i) US$100,000 of training equipment of a specialized nature which would be purchased on the basis of price quotations from at least three suppliers; (ii) about US$200,000 of special equipment (protection, control, and telecom- nun4cations) which are modifications or extensions of existing equipment, and have to be procured from the original suppliers; and (iii) minor civil works (not exceeding in the aggregate US$hoo,0o0), which would be on the basis of local competitive bidding awarded in accordance with procedures acceptable to the Association. No preferential:margins would be offered to local manufac- turers of contractors since none of project equipment is manufactured in Haiti and local contractors would only qualify for the minor works in (iii) above. 3.09 The estimated cost of engineering services rendered by SOFRELEC from the date it was hired to prepare the project (February 24, 1975) until the date of credit signing is US$500,000. Because their feasibility study demonstrated the need to install the power plant as soon as possible, SOFRELEC recommended and EdH and the Association agreed, that international competitive bidding for the plant be initiated in December 1975. Bids were received in February 1976, and a letter of intent was issued on May 7, 1976, to the lowest evaluated bidder, a consortium headed by 3rown Boveri of Germany. Edi (with the Association's concurrence) intends to sign the contract in early Jure 1976, in order to have the new power plant completed by end-1977 snrd the first units on line by March 1977. EdH will have to make down payments totallinz US$620.000 on this contract. Retroactive financing is therefore recommended up to an amount of US$1.12 million (7 of the proposed credit), for expenditures made after February 1, 1975. 3, 1) Dibsoursement would be made For: a) 100ou of foreign exoendit-u-es or ' of total cost (with the exce-tlion of the nurchase of the necessary- land) of the diese, ower olant-, ;b ) 1Qo, of foreign exnenditures or 85< of totl cost of the transmiss on, distribut :on snd other works;  - 13 - c) 100% of the CIF cost of imported equipment and materials; d) 100% of the foreign exchange cost of conultant services. Estimated credit disbursements are shown in annex 10. &ivironment 3.11 The physical location of the proposed diesel power plant is in the vicinity of the induatrial park and sufficiently far from existing or plamned residential developments. With specifications concerning maximu sulfur dioxide emision, maximum noise level, and thermal pollution as suggested by the Association included in the contract documents the plant is not expected to have adverse consequences for the environment. With regard to the proposed new transmission lines, EdR and SOFRELEC intend to take care in routing these lines in order to minimize the visual impact. ProJect Risks 3.12 EdH is a young institution with very few capable engineers (see para. 5.05) and difficulties could arise during the execution of the project due to EdH's lack of experience in carrying out projects of this type. To minimize these risks, SOFRELEC will permanently supervise the execution of the project and the Association will madntain frequent oontact with EdH and SOFREC.  - 18 - 1. Justification of the Project Sector Objectives 4.01 The Association's objectives in lending for electrical power develop- ment in Haiti are: a) To achieve rational sector development and the possible use of indigenous energy resources on the basis of the recommendation of the long-term preinvestment study, currently being carried out with UNDP financing (para. 2.15); b) To strengthen EdH by: i) helping EdH's management to set up and coordinate necessary and urgent training programs for its personnel; ii) stimulating the Government to allow EdH to become financially independent both by fixing adequate levels of tariffs and by reducing theft of electricity and collecting past government debts; and iii) suggesting necessary changes in the organizational structure to permit more efficient management. c) To improve the standard of living of the urban poor of Port-au-Prince by: i) stimulating the Government to adopt a more socially oriented tariff structure and therefore give safe access to electricity to a greater number of urban poor households; ii) permitting the connection to the Port-au-Prince electric system of labor-intensive industries. 4.02 An adequate and reliable supply of electric power is essential to Port- au-Prince's and Haiti's economic growth and the improvement of the standard of living of the population. As noted in para. 2.10 industry is the largest consumer of electricity and will continue to be so. The availability of electric energy in the Port-au-Prince area will permit the installation of more labor intensive industries which will provide needed employment opportunities for the growing number of unemployed. In addition pump irrigation will permit higher agricultural production and jobs. Project Objectives 1.03 Besides assisting the Government and EdH to achieve the above mentioned goals and serving as a basis for possible further assistance, the project would provide facilities to expand Port-au-1Tince generating, transmission and distribution capacity and thus meet the future demands for electricity in that city (especially during the dry season). The project would also reduce losses and improve the quality of service. Additionally the project would be instrumental in increasing the number of lower income households that have access to electricity (para. 101 c).  -15 _ Demand and Generation Forecast 4.04 Annex 3 gives details for energy generation and maximum demand for the Port-au-Prince area on an annual basis for 1971 through 1990, as prepared by SOFRELEC. This projection is based on a detailed analysis of the historical growth rates of the different consumer categories, on the industries already installed and waiting to be connected (see annex 4), and on information gathered at EdH, and the different Ministries. These demand projections also consider a decrease in losses from the present value (1975) of 32% of total net genera- tion to 16% in 1982, made possible by the program to reduce theft (para. 2.20) and the improvement in the distribution system of Port-au-Prince as a result of the project. The forecast calls for an average annual increase of genera- tion of 9.6% from 1975 through 1990 (12.5% from 1975 through 1982). Maximunj demand is projected to increase with an annual average of 9.17o and 12% for the same periods. The corresponding annual average growth rates of sales are projected to be 11.1% and 15.3% for the same periods. The dif- ferences in the growth rates of sales and generation are due to the projected decreases in losses as described above. Actual,sales in 1975 were substantially the same as the level predicted in the forecast which was prepared during the first half of 1975. However, the forecast, especially on a long-term basis, contains various uncertainties due to: a) The difficulties in forecasting the consequences of the proposed new tariff structure and level on demand. This is especially true when assessing the effect of lower residential tariffs for the low-income groups and higher residential tariffs for high income groups; and b) The impossibility of forecasting precisely the number and type of new industries to be installed in Haiti in the future. EdIH has agreed to revise the forecast every two years through 1983. This would permit EdH to-def-ine- more- precisely th- generat-ion facilities necessary after 1977, i.e., the second stage of EdH's expansion program for the Port-au-Prince area. 1405 Haiti's hydrological conditions show a very clear difference between the rainy season - May through October - and the dry season - November through April. Annex 5 shows the necessity of an additional 20 MW of generating capac- ity to meet maximum demand needs at the end of the dry season of 1978, and also shows the need for 20 MW additional generating capacity to meet both energy demands and peak demands at the end of the dry season of 1982. Annex 5 also shows that there will be a deficit of generating capacity in 1977, which justifies the proposed retroactive financing for earliest contracting of generating equipment (para. 3.09). Least Cost Solution 4.06 In the study prepared by SOFRELEC a comparison was made between medium speed diesel engines burning fuel oil, gas turbines of 7.5 MW and 15MW unit capacity and gas turbines associated with conventional steam plant, using crude oil prices of US$7, 9 and 12/barrel CIF. As shown in annex 6 the medium-speed diesel engines are the least cost solution for discount rates up to 20%.  _ i6 _ 4.07 In analyzing the transmission works included in the project it was found that where alternatives existed those selected were the least cost solution for discount rates up to 35%. Return on Investment 4.o8 Two calculations of the rate of return, defined as the discount rate which equalizes the stream of expected benefits with associated costs were carried out as detailed in annex 7. a) The first calculation refers to the project to be financed by the proposed credit. The rate of return on the project investment is 16.0% which compares favorably with the estimated opportunity cost of capital in Haiti; and b) The second refers to the total investment program as proposed by SOFRELEC necessary for the Port-au-Prince area up to the year 1982 when it is expected that the works to be recommended by the UNDP financed long-term preinvestment study could come on line. The rate of return of the program investment is i6.-5% 4.09 The revenues were calculated using the average revenue per kWh that would result with the implementation of the new tariff structure and levels (see annex 8). 4.10 The economic rate of return is undoubtedly higher to the extent that the revenues do not reflect the full economic benefits resulting from the project (para. 4.02). Because tariffs for low-income consumers will be relatively low, the revenues do not reflect the social benefits resulting from greater access to electric energy for the urban poor. 4.11 The sensitivity analysis in annex 7 shows that the rates of return would be 14.O% and 14.2% respectively if investment and operating costs were assumed to rise by 10%.  - 7- 5. The Beneficiary 5.01 _1he beneficiary of the credit would be Electricite d'Haiti (EdH). EdH is a state-owned autonomous agency entrusted with the sole responsibility for providing electric power for public consumption for the whole country. Organization and management 5.02 As described in paragraph 2 .09, policy directives for EdH are set by the President of the Republic through key Ministers who comprise EdH's board of directors. The general manager, appointed by the President, is responsible for operating and administrative functions. 5.03 EdH is organized on a functional basis (annex 17 shows the organi- zational chart). It has eight main departments each headed by a director. In addition, each of the provincial offices, according to EdH's basic law is headed by a department director. The organization of the provincial offices and their relationships with EdH are, however, not yet clearly established inasmuch as EdH has only recently begun to take over these operations. According to EdH's basic law, the general manager is assisted by an administra- ti,ve manager with responsibility for the financial and administrative departments (i.e., personnel, accounts, legal, controller, commercial); the technical department heads as well as the provincial office heads are to report directly to the general manager. 5.04 This latter arrangement is not suited to efficient operations of a power company. In fact, it has made it necessary for the general manager to devote an extensive part of his time to day-to-day technical operational prob- lems. On the recommendation of the Association, EdH appointed a technical manager (a counterpart of the administrative manager) with line responsibility for EdH's technical operations so that the general manager can devote more time to overall management and coordination of long-range planning. The government agreed to formalize this change in EdH's organizational structure by an appropriate amendment to EdH's basic law not later than December 31, 1976. 5.05 The EdH organization is a relatively small one (about 500 employees). The organization lacks depth in managerial, technical and administrative skills. It has, hitherto, not had the financial independence necessary to plan and execute a rational development of the power sector. There have been changes in the top management of EdH since the time the proposed project was appraised. When the Haitian Cabinet was reorganized in March 1976, EdH's general manager was replaced. The new general manager is EdH's, former technical manager; his replacement as technical manager is an engineer with many years of experience within the organization. Both of these officials have had considerable exposure to EdH's technical operations although their administrative skills are as yet untested. To ensure that the organization is guided by experienced and competent management, it has been agreed that EdH would maintain a general manager, an administrative manager and a technical manager whose qualifications shall be satisfactory to the Association. 5.06 EdH's financial situation and operatingjprocedures would improve with the adoption of the tariff recommendations (paragraph 6.05), accounting systems  - 18 - (paragraph 5.o7), and changes in its organizational structure (paragraph 5.o4. As a first step in improving its technical operations, EdH agreed that a training officer would be appointed a staff assistant to the technical manager with responsibility for the training center to be established by the project (see annex 9). In addition, one of the two engineers to be trained under the UNDP preinvestment study (paragraph 2.18) also would be appointed a staff assistant to the technical manager with responsibility for studies and system planning. To strengthen its financial planning capability EdH agreed that the two accountants to be trained under the UNDP-financed study (annex 9) would be appointed staff assistants to the administrative manager with responsibility for budgeting and financial planning. These appointments would be made by July 31, 1976. Management information systems and audit 5.o7 Up to now EdH's accounting, financial and management reporting procedures have been deficient. There have been no formal financial planning, budgeting or management control systems. In the course of project preparation recommendations for a new accounting system, budgeting and control procedures were submitted by EdH's accounting consultants - Howell and Co. (UQA). Training of EdH staff in using these new procedures has begun and would be closely monitored during project supervision. 5.08 EdH agreed to appoint an external auditor acceptable to the Association and to transmit audited financial statements and auditors reports to the Association within four months after the close of EdH's fiscal year. Performance Indicators 5.09 Annex 11 shows a representative selection of indicators of EdH's markebing, operating and financial performance through 1978. Performance as measured by these indicators would be monitored during project execution.  _ 19 _ 6. Finances Summary 6.0i As a result of a high level of unbilled electricity, non-payment of bills by the public sector and short maturity of existing debts, EdH has so far had unfavorable operating performance. To assure improvement of EdH's financial condition it was agreed that the company would earn adequate rates of return on revalued assets, increasing to 8% by 1981. Assuming that this provision is met and that outstanding and current public sector electric power bills are settled as agreed (paragraph 6.03), EdH's net internal cash generation would be able to cover 22% of its construction expenditures during the project period (1976-1978) and L2% of the short-term (1976-1981) investment program. Annex 11 contains projections of EdHI's key financial indicators which are expected to improve over the forecast period as a result of higher earnings, settlement of public sector bills, reduced dependence on short-term borrowing and improved operating efficien- cies. Earnings history, present position and future financial perfomance 6.02 EdH's financial operating performance has been unsatisfactory through- out its short period of existence. The estimated rate of return on revalued assets in fiscal 1975 was about 4.1%. This resulted from the high level of iosses and theft of electricity (about 32% of net generation) and the low reliability of the Peligre hydro plant. Precise estimates of EdH's profitability prior to 1975 could not be made because the value of its asset base had not been properly recorded. Nevertheless, given the high operating inefficiency, the rates of return for 1971-74 would not be much better than the 4.1% achieved in 1975. 6.03 EdH's finances have also been adversely affected by the fact that electricity sales to the government and other public autonomous agencies (comprising about 1b% of total sales in 197T) have never been paid for since EdH assumed operations of the electric power facilities. As a result of the high level of losses and non-payment of public sector electricity bills as much as 46a of the electricity generated has not been paid for. Thus despite a relatively high average tariff (about US~4.8/KWh in 1975) total receipts from electric power saies have not been adequate to permit EdH to service its debts and make some contribution towards its construction expenditure - as modest as this has been. Consequently, EdH has had to borrow from the Haiti National Bank every year since it started operations, and has been unable to meet approximately US$1 million in service pay-ment on its debt to the Office National d'Assurance (ONA). As shown in the balance sheet (annex l!) the balance of the amount of borrowing from the National Bank was an estimated TrS$3-h million at Septeinbor 30, 1975. As n first step towards improving EdiT's finances assurances have been obtained that the Government shall take all measures necessary that electricity bills owed to EdH are paid in time. The Government also confirmed its intention to liquidate outstanding public sector electricity bills in US$100,000 monthly installments over the period January 1976 through May 1977 and that beginning January 1976 budgetary allocations have been made for the Government and other public sector agencies to pay for current electricity consumption. K.olh The maturity of EdH's existing debts incurred principally for the financing of the Peligre dam is very short and has also been partly responsible for EdH's poor financial condition. As shown in detail in annex 15, all but 23% of the existing debts mature over the next two years. To avoid a recurrence  - 20 - of this heavy debt service burden, EdH agreed that it would not incur any long-term debt without IDA approval unless its most recent 12 months internal cash generation is at least 1.5 times its maximum debt service for any succeeding 12-month period. To prevent undue reliance on short-term financing it was agreed that EdH's short-term borrowing at any time would not exceed one-sixth of its cash operating expenses without IDA's approval. 6.05 Implementation of measures to reduce losses and theft (para. 2.20) and the new tariff structure would lead to an improvement in EdH's rate of return to 7.0% in 1977. Earnings have been projected to improve gradually thereafter through further reduction in losses and moderate tariff increases, permitting EdH to achieve a rate of return of 8% by 1981. To achieve these objectives and offset the price increases projected in annex 16, EdH's basic tariffs would have to be raised an average of 10% at the beginning of each of the fiscal ,,ears 1977, 1979 and 1981. The agreements relating to the proposed credit provide that EdH would apply for and the government will grant tariff increases to enable EdH to earn annual rates of return on its properly revalued rate base of 5% in 1976, 7% in 1977, 1978 and 1979, 7.5% in 1980, and 8% in 1981 and thereafter. Financing plan 6.06 Assum.ing that the provisions above are complied with, EdH's financial plan would be acceptable. As summarized below and shown in more detail, in annex 13, over the 1976-1978 construction period of the project EdH's total funds requirements will be US$39.60 million. Of this, US$18.03 is estimated for the proposed project, US$6.70 million for the first year of the second stage installation of thermal units to meet the demand forecast in 1981; US$6.11 rillion for on-going works and construction in the provinces, UlS$3.9 million for the project being financed by the Federal Republic of Germany in Gonaives (para. 3.01) and US$3.05 million for working capital increases. These requirements for funds would be met 22% from EdH's own internal sourceis (after payment of debt service), .t,45% from proceeds of the IDA credit and capitalization of interest during construction j, 1 7% from as yet undetermined foreign sources, 7% from government contributions, and S% from the proceeds of the Federal Republic of Germany Loan. EdH Financing Plan FY 1976-197B- US$ million _ Requirements of funds First power project 18.03 Gonaives project 3.90 Second power project 6.70 Other projects 6.11 Interest during construction 1.81 Total construction 36-55 92 Working capital 3.05 8 Total requirements 39.60 100 1/ Including the payment in 1976 of the arreas on the ONA debt (para. 6.03). 2/ The Governient has indicated that interest due it on proceeds of thB JDA credit will be capitalized during the 1976-1978 construction period.  - 21 - US$ million % Sources of funds Net operating income 8.L4 21 Depreciation 5.31 13 Total 13.75 3 ;ess: debt service &.71 12 Net internal cash generation 9.04 22 Customers contributions 0.36 1 Proposed IDA credit and capitalized interest 17.80 45 Loan from the Federal Republic of Germany 3.10 8 Government contributions 2.80 7 Future foreign loan 6.50 17 Total sources 39.60 100 6.07 Of the US$2.8 million government contribution, US$2 million will cover part of the local cost of the proposed first power project, and US$0.8 million will be counterpart for the Gonalves project. The government has agreed to provide the needed counterpart for the proposed project from thQ Matching Fund which is a fund made up of 5% of the government's operating budget to be used for various development projects. The government contribution is needed becaluse of EdH's heavy debt service obligations during- the proposed proJect's construction. During this period the net drain on government resources by the power sector would amount to only about US$1.6 mil1ion because pay-ments to be made 1by the government on account of counterpart for the proposed first power and Gonaives projects, debt servlce on Peligre not paid by EdH and liquidation of outstanding electricity bills, will be partly offset by Ed.H's repayments of overdrafts to the iNational Bank. 6.08 The proposed IDA credit amounting to uS$16 million (representing 89% of the project's total cost) wou'd be made to the Government of Haiti for a period of 50 years including 10 years grace at a service charge of 3/41,' per year. The government agreed to on-lend proceeds from the IDA credit to EdE for a period of 25 years including 2 years of grace at 8.85,' anMual interest, together with US$1.8 million to cover interest during construction. 6.09 The government has indicated that it intends to allocate the debt service payments received from EdH to a special fund for financing of government counterpart for external2-r financed development projects. 6.10 The Gonaives project is part of a rural development project being financed by the Federal Republic of Germany. The power portion of the loan amounting to DM7.9 mi1lion (about US$3.1 million) would be made to the Republic of Haiti for a period of 50 years including 10 years grace at 3/h4 interest. On-lendln7 terms for Edh are 30 searF including 7 year;, grace at 5% annulal iterect.  - 22 - 7. Agreements Reached and Recommendations 7.01 During negotiations agreements were reached on the following principal issues: (a) The Government in coordination with EdH would formulate a sector investment program on the basis of the recommendations of the on- going UNDP study not later than September 30, 1977 (para. 2.17); (b) The Government agreed that during the project's execution EdH would not be permitted to undertake any other construction expenditure exceeding US$1.5 million equivalent in any one year without prior IDA approval, and the Government would consult with the Association before permitting EdH to undertake any investment in the power sector exceeding the equivalent of US$2 million in the aggregate after completion of the project (para. 2.17); (c) EdH has agreed to undertake a program to train its staff (para. 2.18); (d) EdH will implement a program to bring down electricity losses to agreed upon levels (para. 2.20); (e) The Government and EdH have confirmed their intention to implement the new tariffs in the Port-au-Prince area by October 1, 1976, implement new tariffs nationally not later than October 1, 1977, and seek the concurrence of the Association before imDlementing any changes in tariffs prior to December 31, 1983 (para. 2.22); (f) EdH agreed to review power and energy demand forecasts in the Port-au-Prince area every two years (para. 4.0h); (g) The Government agreed to amend EdH's basic law to include changes in its organizational structure not later than December 31, 1976 (paras. 5.04 and 5.06, Annex 17); (h) EdH agreed to maintain a General Manager, Technical Manager and Administrative Manager with qualifications acceptable to IDA (para. 5.05); (i) EdH agreed to appoint system planning, financial planning, budgeting and training officers not later than July 31, 1976 (para. 5.06); (j) EdH agreed to appoint external auditors acceptable to IDA and transmit audited financial statements to the Association within four months of the closing of each fiscal year (para. 5.08);  - 23 - (k) The Government Egreed to take all measures necessary to ensure that public sector electricity bills are settled and paid in time (para. 6.03); (1) EdH agreed not to incur any debt without prior IDA agreement unless it imeets the debt Iimitation tests (para. 6.04); (i) I'he Government and EdH agreed to maintain EdH's tariffs at levels sufficient for it to earn rates of return on a revalued rate base of 5b in 1976, 7T in each of 1977 through 1979, 7.5% in 1930 and 8.0; in 1981 and in each year thereafter (para. 6.O5); (in) The Government agreed to provide the necessary counterpart funds for the p:roject (para. 6.07); (o) Trhe Government and EdH ag,reed to the on-lending te :s of tLhe proposed credit (para. 6.08); and (p) EdH agreed to revalue its assets every year in accordance with procedures accentable to IDA (Annex 16, para. 10). 7.02 With the above assurances, the project is suitableb for an TDIA credit -f US416 million equivalent to the Republic of Haiti, to be on-lent to EdH for l period of 25 years including 2 years of grace at 8.85% annual interest.   ANNEX 1 Page 1 of 3 pages APPRAISAL OF FIRST POWER PROJECT - HAITI ELECTRICITE D'HAITI (EdH) Existing Generating Facilities in Haiti A. Public Service 1. The standard distribution voltages and frequency in Haiti are: - Medium tension voltage : 12.47/7.2 and 1.16/244 kV; - Low tension voltage: 120/240 V-3 wire, single phase; 120/208 three phases; - Frequency: 60 c/s. Most of the country's public service generation capacity serves the Port-au-Prince region (86%). The remaining 11% is in the form of isolated plants serving provin- cial towns. 2. Port-au-Prince Region a) The Port-au-Prince metropolitan area with a population of about 500,000 inhabitants covering an area of approximately 50 km2, includes the town of Petion- ville with about 35,000 inhabitants. Besides the metropolitan area of Port-au- Prince, from an electric supply point of view, three other localities with a total population of about 10,000 persons are connected to the Port-au-Prince electric system. These three localities are Kenscoff to the East, Leogane to the Southwest and Croix des Bouquets to the North. In the near future EdH envisages extending service to the north to the town of Duvalierville. The attachment shows historical data on sales and generation for the region. b) Until July 1971 when the first unit of the Peligre hydro power plant (para. 2 (c) below) came on line, the Port-au-Prince system was supplied with electric energy by an obsolete and inefficient diesel power plant. Total nominal capacity of this plant at that time was 17.12 MN. At the present time, the nominal capacity is 14.12 MW, because 4 machines with a total capacity of 3 MW have been taken to outlying districts in other regions of Haiti. However, the total coincident capacity of these machines if they were all in good working condition would be not more than 12.75 MW due to the extremely high temperature conditions that result from simultaneous operation. The 14.12 MW is produced by 12 machines with an average age of 28 years and their present condition only permits the following type of operation: Peaking purpose (2,000-3,000 hours/year) 7.8 MW Base load with 75% availability 5.4 MW Base load with 100% availability 2.5 MW c) Peligre Hydro Power Plant The Peligre dam was built an the mid-1950's) for flood control, irriga- tion and drainage of the Artibonite Valley, and a later utilization for the gene- ration of electric energy. In July 1971 the first turbo-alternator was put into service and two further units were commissioned in April 1972 and January 1971.  ANNEX 1 Page 2 of 3 pages The Peligre dam is located on the Artibonite river in Peligre canyon about 54 km North-East of Port-au-Prince, and the principal data on the dam, reservoir, power plant, and transmission system are given below: Dam characteristics Type of dam concrete arch Drainage area 7,100 km2 Height of dam above foundation 70 m Reservoir area at spillway elevation 2,700 ha Spillway capacity 4OO m3/s Top of dam 174 m a.s.l. Spillway crest 167 m a.s.l. (Gates are installed to bring water level to 170 m). Bottom of dam 116im a.s.l. Minimum water level for turbine operation 153 m a.s.l. Turbine characteristics Number of units 3 Type Francis Rating at different heads 54 m 43 m 34 m 18.7 MW 16.3MW12 MW Alternator characteristics Capacity 15.7 MW Voltage 13.2 KV Transmission system characteristics Voltage 115 KV Number of circuits 2 Length 54 km Under present conditions, the transmission system has some deficiencies such as inadequate earthing of towers and non-selective protection systems which will be corrected as a result of the project. The annual average generation capacity of the Peligre hydropower plant is 172.5 GWh in the wet season (measured at the Delmas substation in Port-au-Prince) and 66 to 72 GWh in the dry season. 3. Rest of the Country Tn the rest of the country isolated diesel plants (burning diesel oil) and one hydro plant exists in different localities as shown below.  ANNEX 1 Page 3 of 3 pages Installed Capacity Annual Generation in KW in MWh Cap Haitien 2,170 5,160 Cayes 1,480 1,100 Jeremie 600 375 Gonaives 2,775 1,000 St. Marc 550 250 Port-de-Paix 500 300 Petit-Goave 340 200 Mirebalais 60 35 Thomonde 30 15 Jacmel 870 + 200 hydro n.a. Total 9,575 8,435 B. Captive Plant Two important privately owned captive power plants exist in the Port-au- Prince region to supply large industries. a) "LE CIMENT D'HAITI1', the cement factory has an installed generation capacity of 11,000 KW (50 Hz); b) The "HASCO" sugar factory has an installed generating capacity of 2,250 KW. Besides these two important installations a number of very much smaller captive plants exist all over the country. No information is available on these plants. Attachment  HISTORICAL DATA OF GENERATION, SALES, LSSES AND NUMBER OF CLIENTS GWH MW Numb,er of To Increase Generation / Sales Losses % Losses / Maximum Demand Load Factor Clients in sales 1960 51,232 28,572 22,660 44 12.2 47.9 21,253 1961 56,308 29,439 26,869 48 12.7 50.8 22,191 3 1962 60,505 30,381 30,124 50 12.7 54.6 23,o44 3 1963 61,489 28,989 32,500 52 12.6 55.6 23,311 -5 1964 63,223 28,400 34,823 55 11,3 63. 7 22,507 -2 1965 61,082 29,194 31,888 52 11.6 60.2 19,989 3 1966 61,902 32,507 29,395 47 13.9 50.7 20,321 11 1967 65,133 36,416 28,717 44 13.8 54.1 20,553 12 1968 67,009 41,220 25,789 38 13.4 57.3 22,069 13 1969 74,360 45,727 28,633 38 13.4 63.3 22,729 11 1970 74,698 47,039 27,659 37 15.0 56.7 23,233 3 1971 86,626 56,526 30,100 35 18.0 54.9 23,979 20 1972 96,228 61,676 34,652 36 21.4 51.3 27,716 9 1973 131,791 75,873 55,918 42 24.9 53.9 30,086 23 1974 134,700 89,910 44,790 33 27.9 55.1 32,552 19 2/ Net Generation C+ra As percentage of generation  ANNEX 2 Page 1 of 3 pages APPRAISAL OF FIRST POWER PROJECT - HAITI ELECTRICITE D'HAITI (EdH) Description of the Project I. Generation Facilities 1. The generation facilities of the project will consist of a medium speed diesel power plant of about 21 MW, composed of two machines of about 2.9 MW each, and two machines of about 7.5 MW each. The fuel used will be basically fuel oil (Bunker C) with a small proportion of diesel oil (for start- up and stopping purposes). It was found that the most economical location for this power plant was adjacent to the HASCO sugar factory. The first units (2.9 MW) are expected to be in serv-ice by March 1977 and EdH plans to complete the plant (21 MW) by December 1977. II. Transmission, Distribution and other works (to be completed by year-end 1977) 2. Transmission lines and distribution lines a) 5.4 km of double circuit 115 kV lines to connect the existing Delmas substation to the proposed new Canape-Vert substation; b) 21 km of single circuit 69 kV lines which will be stage I of a ring around Port-au-Prince; c) Transformation of 4 km of 12.47 kV. lines to 69 kV to interconnect the new diesel power plant and the Delmas substation; d) 20 km of 12.47 kV and 6 km of 2.k kV lines to extend the distribu- tion networks; and e) Extensions of low tension distribution lines where required. 3. Substations a) Extension of the existing Delmas 115/12.47 kV substation necessary to interconnect the new diesel power plant and the new 69 kV ring around Port-au-Prince; b) Construction of the Canape-Vert 115/69/12.47 kV substation necessary to feed both Petionville and the 69 kV ring and existing distribu- tion lines; c) The construction of three 69/12.47 kV substations: Martissant, Carrefour Feuilles, and Croix des Missions to feed energy into the distribution networks;  ANNEX 2 Page 2 of 3 pages d) The construction of the Place Geffrard 12.47/L.i6/2.I kV subfstation to interconnect the 12.L7 kV and 4.16/2.4 kV distribution networks; and e) 7000 kVA of distribution transformers. 4. Miscellaneous works a) Modifications of the relay protection of the Peligre-Delmas transmis- sion system to improve security of service and improvements of the earthing of some the towers; b) The installation of an insulating transformer in the local distribu- tion network of the Peligre power station to insulate the generators from faults in the network; c) Replacement of circuit breakers at the old diesel power plant. The existing breakers have insufficient interrupting capacity; d) Conversion of the Petionville-Kenscoff one phase 12.47 kV line to three phase; and e) Construction and equipping of a training center. 5. Engineering and Supervision The engineering, preparation of bidding documents for international competitive bidding, the evaluation of bid proposals, equipment fabrication inspection. and on-site supervision of construction will be carried out by consultants (SOFRELEC- France) already accepted by the Association. The ccnsultant's services have been estimated at 160 man-month with an average cost ot uS$5 450 per man-month, which covers base salaries plus overhead. About US$60.000 have been estimated for travel (both to Haiti and to Washington), use of computer time and telephone and telex expenses. The consultant will also train EdH's accounting personnel in using the new accounting system, budgeting and control procedures, etc. (see annex Q) and in general train Ed-Nis technical st,ff by on-the-job supervision of..the erection of distribution networks (para. 3.06). 6. Training of EdH's personnel See annex 9 for details of zhe training program envisaged by EdH. III. Cost of Project 7. The estimated cost is shown below. Physical contingencies for the power plant were estimated at 8%. This is conservative as the scope of the project has been completely defined during discussions between EdH, SOFRELEC and the suppliers. No price contingency was considered for the power plant as EdH is planning to sign the contract on a firm-price basis. A letter of intent to this effect has already been sent by EdH. Physical contingencies for the other project components were estimated at 10% and price contingencies were estimated at 9% for 1976, 8% for 1977 and 1978.  ANNID( 2 Page 3 of 3 pages Local Foreign Total Local Foreign Total - thousands Gourdes --- - thousands of US$ ---- Diesel Power Station 9,150 41,910 51,060 1,830 8,382 10,212 High Tension Transmission Lines and Substations 2,815 i1,585 17,400 563 2,917 3,480 5.4km single circuit 115KV line 250 885 1,135 50 177 227 21km single circuit 69KV line 4L5 1,580 2,025 89 316 405 Transformation of 4km of 12.47KV to 69KV (double circuit) 25 75 100 5 i5 20 Extension of Delmas substation 550 3,360 3,910 110 672 782 Substation for new diesel plant 500 2,865 3,365 100 573 673 Canape-Vert substation 430 2,220 3,150 86 444 530 Martissant, Carrefour Feuilles, and Croix des Missions 69KV substations 615 3,600 h.215 123 720 843 Distribution and other works 1,035 4,900 5,935 207 980 1,187 Distribution transformers (7000 KVA) 50 L70 520 10 94 104 Distribution lines (middle tension and low tension - including Place Geffrard substation) 710 1,890 2,600 142 378 520 Modification of Peligre trans- mission system 30 290 320 6 58 68 New switchgear at existing diesel plant 95 1,765 1,860 19 353 372 Construction and equipping of training center 150 485 635 30 97 127 Technical Assistance - 4,650 4,650 - 930 930 Training - 215 215 - 43 43 Subtotal 13,000 66,260 79,260 2,600 13,252 15,852 Physical contingencies i,ii5 5,785 6,900 223 1,157 1,380 14,115 72,045 86,160 2,823 1b,L09 17,232 Price contingencies 590 3,410 4,000 118 682 800 Total Project Cost 14,705 75,455 90,160 2,941 15,09i 18,032 _ :*=  ANNEX 3 Page 1 of 3 pages APPRAISAL OF FIRST POWER PROJECT - HAITI ELECTRICITE D'HAITI (EdH) Demand, Generation and Sales Forecast 1. SOFRELEC prepared a forecast of energy sales, generation and demand for the Port-au-Prince area for the period 1975-1990. This projec- tion is based on a detailed analysis of: i) The historical growth rates of the different consumer categories; ii) The industries already installed and waiting to be connected (see Annex 4); iii) Information gathered at EdH and the different Ministries; and iv) The projected decrease in losses from 33% (1974) of total generation to 16% in 1982, resulting from the anti-theft legisla- tion (para.2.20 of the text) and the improvement in the distribu- tion network of Port-au-Prince. 2. The analysis carried out in preparing the forecast for the different customer categories is as follows: i) Public Lighting a) The historic analysis of Public Lighting consumption shows an average yearly increase of 8% between 1965 and 1974, with an increase of 22.5% in 1972-1973 and 4O.4% in 1973-1974, giving an average of 31% for the period 1972-19Th; b) In accordance with EdH's instructions from the Government con- cerning public lighting in Port-au-Prince, the following yearly growth rate were assumed: 1975-1977 30% 1977-1979 10% 1980 onwards 3% These growth rates would permit EdH to install needed public lighting on about 500 km of streets by 1979. From then on the low growth rate corresponds to the geographic extension of the area serviced by EdH. ii) Industry a) The average yearly growth in industrial consumption between the years 1965 and 194 was 14.7% and between 1972-19Th it was 23%;  ANNEX 3 Page 2 of 3 pages b) The forecast prepared by SOFRELEC is based on the following assumptions of yearly average growth: 1975-1979 30% 1979-198M 13% 1985 onwards 8% The growth figure of 8.0% from 1985 onwards corresponds to the long-term projections made by the Haitian government for industrial growth. The forecast for 1975-1979 takes into account the connection of 14 MW of existing installed capacity waiting to be connected (Annex 4) and planned future industrial installations. iii) Residential Consumers Residential consumption is projected to increase 3% yearly through 1990. This projection is based on a UNDP financed study of population growth in Port-au-Prince which established a demographic average yearly growth of 5.3%, and a corresponding average growth rate of electric consumption of 2.2%. The additional 0.8% corres- ponds to a progressively higher standard of living, and new connections of low-income households. It is expected that the number of households connected to the system will increase by more than 40% in the period 1975 through 1981. iv) Commercial and Hotel Consumers No historical data was available to analyze these categories. Because of the Haitian government's policy of encouraging increased tourism and the continued construction of hotels, a yearly growth rate of 15% until 1979 and 10% after that was adopted. v) Government and Public Consumers The historical average growth rate between 1965 and 1974 of govern- ment electricity consumption was 6.2%. There was no change in the rate of growth in 1973 and 194 when energy became availabe from the Peligre hydroelectric power plant. Therefore, it appears reason- able to maintain this figure for the future. 3. The final results of the forecast prepared under the assumptions explained in para 2 above are shown in attachment 1. These figures incorporate decreasing percentage losses from 33% of net generation (197T) to 16% in 1982. The average yearly percentage growth rates of sales, generation and maximum demand are as follows: 1975-1982 1975-1990 Sales 15.3 11.1 Generation 12.5 9.6 M4aximum demand 12.0 9.1  ANNEX 3 Page 3 of 3 pages These projections are conservative, as the annual average growth rate of consumption during the period 1965-1974 was 13.3%. As is mentioned in para. b.03 of the text, the forecast should be revised within two years so that any significant changes can be taken into account before determining more precisely the necessary additional generating capacity to be included in the second stage of the program. Attachment  ENERGY SALES , LOSSES, GENERATION, MAXIMUM DEMAND AND LOAD FACTOR 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1q83 1?84 1985 1986 1987 1988 1989 1990 ----------- Actual ----------- > &------ -- ------------------------------------------------ Forecast ---------- Sales GWh 56.5 61.7 75.9 89.9 106.3 142.3 185.4 203.7 225.2 241.8 260.3 280,9 304.7 329.8 349.7 371.2 394.14 419.5 446.'5 475.7 Losses GWh 30.1 34.5 37.9 44.8 50.0 61.o 72.1 71.6 71.1 56.7 53.25 53.5 58.0 62.8 66.7 70.7 75.2 79.9 85.1 90.6 Losses % of Generation 35 36 33 33 32 30 28 26 24 19 17 16 16 16 16 16 16 16 16 16 Generation (Net) 86.6 96.2 113.8 134.7 156.3 203.3 257.5 275.3 296.3 298.5 313.5 334.4 362.7 392,6 416.4 441.9 469.6 499.4 531.6 566.3 Load Fac