Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2074a-HO FILE C0oPY STAFF APPRAISAL REPORT HONDURAS NISPERO POWER PROJECT October 17, 1978 Projects Department Latin America and the Caribbean Regional Office 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 = Lempira (L) L 1 100 centavos L 1 - US$0.50 L 1,000,000 = US$500,000 1 centavo = US4O.5 US$1 = L 2 US4 = 2 centavos US mill 1 0.2 centavos UNITS AND MEASURES kW = kilowatt MW = megawatt = 1,000 kW kWh = kilowatt-hour GWh = gigawatt-hour = 1,000,000 kWh kV = kilovolt kVA = kilovolt-ampere MVA - megavolt-ampere m = meter = 3.28 ft km - kilometer = 0.621 mi km2 = square kilometer = 0.386 sq mi mi- cubic meter = 35.3 cu ft TPE = tons of oil equivalent ACRONYMS AND ABBREVIATIONS CABEI - Central American Bank for Economic Integration CIDA - Canadian International Development Agency COHDEFOR - Corporacion Hondureiia de Desarrollo Forestal CONSUPLANE - Consejo Superior de Planificaci6n Economica EBASCO - EBASCO Services Incorporated ECLA - Economic Commission for Latin America ENALUF - Empresa Nacional de Luz y Fuerza, of Nicaragua ENEE - Empresa Nacional de Energia Electrica IDB - Inter-American Development Bank INFOP - Instituto Nacional de Formacion Profesional, of Honduras OPEC - Organization of Petroleum Exporting Countries SANAA - Servicio Autonomo Nacional de Acueductos y Alcantarillados SOFRELEC - Societe Franqaise d'Etudes et de Realizations d'Equipements Eletriques USAID - United States Agency for International Development FISCAL YEAR ENEE's fiscal year ends December 31 FOR OFFICIAL USE ONLY HONDURAS STAFF APPRAISAL REPORT ON NISPERO POWER PROJECT EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE) TABLE OF CONTENTS Page No. 1. THE SECTOR .............. .......................1 Energy Resources .. . ........ . .................. 1 Energy Use . . 2 Bank Group Involvement with Sector . . 4 Energy Sector Organization . . 6 Electric Power Sector .. 6 Electricity Consumption ..7 Existing Facilities .. 9 Access to Service ..10 Rural Electrification ..12 Power Sector Expansion Program . .12 Tariff Levels and Structure . .13 Constraints on Sector Development . .14 2. THE BORROWER.. 15 Legal Structure. . . 15 Organization and Management ...15 Training ...16 Management Systems. . . 16 Accounting and Audit . . .17 Billing and Collections . ..17 Insurance ...18 3. MARKET AND MEANS TO MEET IT ..19 Market History .19 Forecast of Requirements .19 Power and Energy Balance .21 This report is based on the findings of an appraisal mission which visited Honduras during February 1978. The mission comprised Messrs. Helmut Wieseman and Jose Lorenzo Vietti (consultant). 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. TABLE OF CONTENTS (Continued) Page No. 4. PROGRAM ANT) PROJECT ........................................ 22 Background and Objectives ............. .. .............. 22 Generation ....................... ..................... 22 Transmission and Distribution ........... .. ............ 22 The Project ....... ............. .. ..................... 23 Nispero Hydroelectric Project ........... .. ............ 23 Puerto Cortes Diesel Electric Plant ........ .. ......... 24 Project Cost and Financing ............ .. .............. 24 Implementation .................... .................... 26 Engineering ....... ............. .. ..................... 26 Studies ............................................... 27 Procurement ....... ............. .. ..................... 28 Disbursements ...... ............. .. .................... 28 Environment ....... ............. .. ..................... 30 Project Risks and Uncertainties .......... .. ........... 30 5. FINANCE .................................................... 32 Introduction ....... ............. .. .................... 32 Earnings History ................. .. ................... 32 Financial Structure ................ .. ................. 33 Investment and Financing Plans .......... .. ............ 33 Future Finances ...... ............ .. ................... 36 6. ECONOMIC ANALYSIS .......................................... 38 Least-Cost Solution ................................... 38 Return on Investment .................................. 40 7. SUMMARY OF PROPOSED AGREEMENTS AND RECOMMENDATIONS .... ..... 42 TABLE OF CONTENTS (Continued) LIST OF ANNEXES Annex 1 - Tariffs Table 1-1 - Monthly Electricity Tariffs of the Interconnected System Table 1-2 - Monthly Electricity Tariffs of the Isolated Systems Annex 2 - Organization Figure 2-1 - ENEE's Organization Chart Annex 3 - Market Table 3-1 - Electricity Consumption and Number of Customers - (Historical - to 1977) Table 3-2 - Forecast of Total Energy Sales and Requirements and Peak Demand, 1978-1984 Table 3-3 - Forecast of Peak Demand and Energy Requirements, 1976-1995 Table 3-4 - Load-Resource Balance, 1974-1988 Table 3-5 - Load-Resource Balance Showing Reserve Margins Annex 4 - Project Implementation Schedule and ENEE's Transmission and Distribution Facilities Table 4-1 - Project Implementation Schedule Attachment 4-1 - ENEE's Transmission and Distribution Facilities Annex 5 - Finance Table 5-1 - Financial Indicators, 1975-1983 Table 5-2 - Income Statement, 1975-1983 Table-5-3 - Sources and Applications of Funds, 1978-1983 Table 5-4 - Actual and Forecast Balance Sheets, 1975-1983 Table 5-5 - Attachment to Forecast Balance Sheets, 1978-1983 Table 5-6 - Construction Program Table 5-7 - Schedule of Existing and Proposed Long-Term Debt Table 5-8 - Forecast Long-Term Disbursement Statement, 1978-1983 Table 5-9 - Forecast Interest Charges, 1978-1983 Table 5-10 - Forecast Long-Term Debt Amortization Statements, 1978-1983 Table 5-11 - Performance Indicators Annex 6 - Economic Analysis Figure 6-1 - Choice of Least-Cost Expansion Program Figure 6-2 - Sensitivity Analysis of Least-Cost Program Table 6-1 - Criteria for Economic Comparisons Table 6-2 - Least-Cost Analysis-Program with Puerto Cortes diesel and Nispero hydro Plants Table 6-3 - Least-Cost Analysis-Program with Puerto Cortes and La Ceiba diesels Plants Table 6-4 - Substation Transformer Capacities and Load Requirements Table 6-5 - Return on Investment Annex 7 - Selected Documents and Data Available in the Project File Map - IBRD 3745R3 1. THE SECTOR Energy Resources 1.01 The existence of Honduran fuel resources in commercial quantities has yet to be proven. Government and private efforts have recently focussed on searching for coal in the departments of Francisco Morazan, Yoro, El Paraiso and Ocotepeque 1/ and for petroleum and gas off-shore in the Caribbean. 2/ 1.02 In mid-1977, ENEE retained Geonomics Inc. (USA), under the Fifth Power Project, to evaluate the major geothermal areas of the country near Pavana, San Ignacio, Jutiapa, La Masica, and Valle de Comayagua. The study suffered a setback after Geonomics declared bankruptcy in December 1977. Subsequently, ENEE contracted UN experts to continue the work, and preliminary results are now expected for early 1979. 1.03 The country's forests represent a resource which has not yet been fully tapped. Corporacion Hondurena de Desarrollo Forestal (COHDEFOR) is expected to accelerate its use. This would, of course, increase production of woodwaste, mainly at the scattered sawmills. To find a useful role for the waste ENEE has contracted a comprehensive study by a Honduran and a USA consulting firm (Gabinete Tecnico and Charles T. Main). ENEE expects that modern methods of pelletizing woodwaste would make steam electric power plants economically feasible. These plants would be mainly in rural areas and would help to provide earlier access to electricity in such areas (para. 1.25). The Bank is financing part of the cost of the study under Loan 1081-HO. 1.04 The major source of energy developed commercially from Honduran resources is hydraulic. It has been used since 1909. The theoretical energy potential was estimated by the Economic Comission for Latin America (ECLA) at about 35,000 GWh annually based on total runoff and average head to sea level. Two inventory studies carried out by Harza (USA) with Bank financing, have identified sites with a potential of approximately 10,000 GWh. The first was carried out in western Honduras in 1967. Seven sites warranting further study were found with an average annual energy as follows: Naranjito-465 GWh, Guacamaya-270 GWh, El Cajon-1,300 GWh, Remolino-475 GWh, Cerro Malin-1,350 GWh, Nispero-70 GWh and Cangrejal-1O0 GWh. Of these, Cerro Malin and Cangrejal were the least attractive. The other five sites have been studied at prefeasibility level, with Guacamaya being discarded due to adverse I/ Coal deposits have been identified in Yoro (about one million tons of the sub-bituminous type) and Ocotepeque (about 20 million tons). On the basis of samples, the heat value of the coal is low and the ash content more than 50%, making it unsuitable even for electric power generation. 2/ Petroleum prospecting has recently been resumed by foreign private interests. Earlier investigations have given indications of petroleum and gas deposits in non-commercial quantities in the Mosquitia region. geological conditions. Harza has prepared a feasibility study for Nispero and has undertaken geologic studies for Remolino. Motor Columbus (Switzerland) has completed feasibility studies for Naranjito and El Cajon. The second inven- tory study by Harza, 1974, covered eastern Honduras. Seven attractive sites have been identified as follows: Average Project Annual Energy River Site (GWh) Patuca P - 1 1,110 Patuca P - 2 2,670 Patuca P - 3 810 Wampu W - 1 190 Wampu W - 3 160 Sico s - 1 290 Sico S - 2 360 Total 5,590 ENEE has agreed to update these inventory studies under the proposed project (para. 4.20). The updating would consider the effects of the six-fold increase of fuel oil costs since 1972, the results of flood control and other hydro project studies, and would include the preparation of a priority ranking for the development of identified hydropower sites. 1.05 The Bank is financing, under the Sixth Project, technical assistance by the Taiwan Power Company for a feasibility study of small hydroelectric projects. 1.06 As a consequence of hurricane Fifi (September 1974) a master plan study for providing flood protection for the Sula Valley is currently being completed by Harza. The study is under the overall direction of the Ministry of Public Works, Transportation, and Communication. Several sites for flood control reservoirs have been identified. Use of these sites for hydroelectric generation may also prove feasible. Recommendations are expected in early 1979. Energy Use 1.07 Historically, Honduras has used four primary energy resources: wood/charcoal, bagasse, petroleum and hydro power of which petroleum is imported. Commercial energy, in 1976, was estimated to amount to about 466,000 tons of petroleum equivalent (TPE), of which about 22% was provided by hydro power plants and the balance by petroleum products. The table below shows the historic change in consumption pattern and the substantial relative recent increase in hydro power use. Gross Consumption Thousands of Tons of Petroleum Equivalent (TPE) or % Non-Commercial Commercial Energy-% Primary Energy-TPE Energy-% Wood/ Total Imported Local Petroleum Hydro Charcoal Bagasse 1950 290 34 256 12 77 11 1955 382 97 285 26 .. 65 9 1960 512 186 326 36 1 56 7 1965 632 229 403 37 5 52 6 1970 895 390 505 44 7 43 6 1975 1,066 455 611 43 13 40 4 /1 Although the percentage has decreased, annual quantity has doubled. Less than 1%. Source: ECLA 1.08 Honduras has the lowest primary energy consumption of the five Central American Republics. In thousand TPE, Guatemala used 2,076, El Salvador-1,472, Nicaragua-1,136 and Costa Rica-1,825, during 1975. As shown, the wood/charcoal consumption continues to be high as, according to the 1974 census, about 60% of households used this fuel. The relative use of bagasse, mainly in the sugar mills, has decreased in favor of higher petroleum and hydro power consumption. The higher cost after 1972 has slowed the growth of petroleum's share in the energy supply. 1.09 The consumption pattern of the main commercial secondary energy sources--hydro electricity, fuel oil, diesel oil, gasoline, kerosene and liquefied petroleum gas (LPG)--is shown below: Commercial Secondary Energy Consumption Thousands of Tons Petroleum Equivalent (TPE) or % All Petro- % of Total Total Hydro leum Products Gaso- Kero- Bunker TPE % of Total TPE % line sene Diesel C LPG Losses 1950 35 3 34 97 51 6 40 - 1955 99 2 97 98 35 3 36 23 -1 1960 191 3 186 97 20 6 32 38 ..1 1965 263 13 229 87 19 6 35 26 1970 455 14 390 86 18 8 38 17 5 /1 1975 593 23 455 77 15 7 32 16 1 6 /1 /1 Includes use of Texaco refinery installed in 1968 at Puerto Cortes. Less than 1%. Source: ECLA 1.10 Statistics on energy use by sectors of the economy are not available. This lack of information continues to hamper national energy policy making and planning of energy use. The proposed energy sector organization study (para. 1.18) is expected to help develop the information base required for energy sector planning. Bank Group Involvement with Sector 1.11 The Bank Group has made six loans and two credits to the electric power sector, totalling more than US$80 million, and providing a substantial part of ENEE's financing requirements. Two projects--the fifth and sixth-- are currently in execution. The last loan (1081-HO)--US$35 million--of January 1975, for the Sixth Power Project is financing the 46 MW extension of the Rio Lindo hydroelectric plant, distribution system improvements, rural electrification, studies, and training. The plant extension was placed into full operation in March 1978, about 4 months ahead of appraisal schedule. The rapid plant completion reflects the good cooperation of ENEE, its consultants and the various contractors and is noteworthy considering that the large general contract was awarded about six months later than assumed at appraisal because only one bid was received. The CABEI-financed distribution works have been delayed by about two years and should be completed during 1981. The Bank-financed part of the project, as originally defined, is now estimated to cost US$43.6 million which would be about US$3.9 million less than estimated at appraisal, mainly because the penstock and pipeline were constructed in a period of falling steel prices (resulting in a foreign cost reduction of about US$2.0 million compared with appraisal estimate) and actual price escalation was lower than assumed (6% for equipment and 4% on civil works, vs an average of 9' and 12%, respectively). After retaining funds in the loan for contrac- tors' claims for the Rio Lindo works, there will remain an unassigned balance of about US$2.5 million. The Bank has agreed that this be used by ENEE to finance the extension of 35 kV lines (additional to those already built under the Sixth Project) to serve areas without electricity west of the Mochito mine. Two 35 kV lines would extend (under the Sixth Project) the inter 2onnected system from Mochito to a new 35 kV switchyard, at the Nispero hydro site, to which the future hydroelectric plant would be connected under the proposed Nispero project. Single 35 kV lines would be extended from Nispero to SaLita Rosa de Copan and to several villages withii economic reach of the line f:rom Mochito to Santa Rosa de Copan. With the additioTis to the Bank-financed rural electrificatioTn component of the Project (para. 1.28) to provide electricity to the Santa Rosa de Copan area from ENEE's interconnected system, the Sixth Project is expected to be completed by 1981, two years later than estimated at appraisal. CABEI's parallel financed part of the Sixth Project has been amended to provide for ENEE's transmission system aeeds through 1981. 1.12 About 90% of the Fifth Power Project (Loan 841-HO)--providiag funds for 26 tW of diesels, an interconnection line to Nicaragua, a load dispatch system, studies and training--has been successfully completed. Prolonged discussions with Empresa Nacional de Luz y Fuerza (ENALUF) of Nicaragua did not result, as hoped, in jointly contracting a consulting firm to design the load dispatch systems for the Honduran and Nicaraguan power companies. ENEE has, therefore, contracted independently for the study and design of an expanded load dispatch and communication component to provide for the system control needs through the 1980s. For the expansion, the Organization of Petroleum Exporting Countries (OPEC) Special Fund is providing US$1.7 million of the cost of the component. The 138 kV lines for the supply of the Aguan Valley have been deleted from the Fifth Project, since the United States Agency for InternatioTIal Development (USAID) has signed a loan agreement to finance a comprehensive rural electrification project for the Valley (para. 1.27). 1.13 The four earlier projects have been successfully completed. Together they provided for (a) 94 MW thermal and hydro generation additions, including the first two stages of the Lake Yojoa-Rio Lindo hydroelectric development (30 MW at Canaveral and 46 MW at Rio Lindo); (b) transmission expansion (particu- larly under the Fourth Project); and (c) distribution expansions. The Project Performauce Audit Reports for ENEE's Third and Fourth Power Projects (Sec. M75-411 of May 30, 1975 and Sec. M78-489 of June 5, 1978, respectively) indicate that both projects were implemented without noteworthy problems and that the purposes of both projects were fully achieved. Weaknesses encountered during implementation, such as ENEE's need to improve load forecasting, continue training programs, improve administrative efficiency and reduce accounts receivable are addressed in paragraphs 2.06, 2.08, 2.13 and 3.04 of this report. 1.14 Purther participation by the Bank Group in helping power develop- ment would have the following objectives: (a) improve the organization and planning capability in the energy sector; (b) further strengthen the effi- ciency and programs of ENEE; and relate its investments in power to projects in other sectors (water management, agriculture, industry); (c) promote regional international integration of the power systems; and (d) reduce the dependency of tbe economy on imported fuel, mainly through the construction of the proposed 300 MW El Cajon hydroelectric development. 1.15 Other international and bilateral lenders and technical assistance agencies are cooperating with the Bank in assisting the development of the Honduran power sector. USAID is lending to ENEE for rural electrification; the Central American Bank for Economic Integration (CABEI) is lending for distribution; and the Interamerican Development Bank (IDB), the Canadian International Development Agency (CIDA) and CABEI are expected to co-finance the El Cajon hydro power project. ECLA is preparing a regional interconnec- tion study (para. 1.31) with the assistance of consultants (Montreal Engineering Co. -- MONENCO -- of Canada). Energy Sector Organization 1.16 There is no central decision-making body in Honduras to plan, make, direct and control energy policy. The Government agencies active in the sector are the Ministry of Natural Resources (overseeing the refinery), Ministry of Economy (petroleum product distribution, and pricing), Ministry of Public Works and Communications (transport companies), Corporacion Hondurena de Desarrollo Forestal - COHDEFOR (wood/charcoal producers), and ENEE (electricity supply). 1.17 While ENEE has cooperated well with the ininistries and government agencies and they seem to agree with ENEE's plans and priorities, overall energy and water resource planning and development, handled by several Government entities, is not well organized and coordination on these matters needs to be improved. ENEE has, in the past, viewed water resources mainly from a hydro- electric perspective, while responsibilities for irrigation and flood control are divided among ministries. Also, Government and ENEE staff need to increase their knowledge and expertise in analysis, planning and implementation in order to improve legislation, programming, project preparation, financing, pricing, flood control, irrigation and related areas in the energy and water sector. 1.18 The Government is aware of the need to strengthen the sector and has agreed with the Bank to contract a consulting firm for carrying out a sector organization review and study under agreed draft terms of reference. The study would focus on the above problems and propose structural changes, legislation and steps to modernize the sector and eliminate existing weaknesses, and may lead to recommending the creation of a National Energy Commission which has been contemplated. Electric Power Sector 1.19 The Honduran power sector is the responsibility of Empresa Nacional de Energia Electrica (ENEE) with no other institution either sharing that responsibility or regulating ENEE. ENEE is a Government-owned, autonomous institute and provides almost 100% of all public electricity service in the country. This dominant role has been obtained through continuous acquisition - 7 - of privately-owned and municipal systems. Only a few small rural, municipally- owned installations remain to be absorbed. 1.20 The Bank agrees with ENEE that the following are the priority objec- tives in the power sector: (a) early and optimum use of national hydro power resources to substitute for fuel imports by developing large projects for the interconnected system in Honduras and regionally and installing small hydro stations in isolated areas to reduce or eliminate the use of small, high-cost diesels; (b) rehabilitation of systems in areas recently incorporated into ENEE's main interconnected system; and (c) extension of the main system and creation of regional sub- transmission systems to bring electricity to the countryside as soon as economically feasible. ENEE is preparing to meet these objectives through technical, economic and management studies and training of staff for carrying out the resulting projects. Electricity Consumption 1.21 Past and forecast ENEE electricity generation, gross domestic product (GDP) and population are summarized as follows: -8 - ENEE Electricity Generation ENEE Gener- Genera- GDP/1 Gener- ation tion per Population (US$ ation per GDP 11 capita Year (Thousands) million) (GWh) /2 (kWh/US$) (kWh/person) 1967 2,335 609 153 0.251 66 1969 2,461 659 219 0.332 89 1971 2,593 722 273 0.378 105 1973 2,733 787 361 0.459 132 1975 2,881 792 484 0.611 168 1977 3,043 904 622 0.688 204 1979 3,207 1,026 818 0.797 256 1981 3,380 1,131 1,053 0.931 308 1983 3,563 n.a. 1,289 n.a. 362 a1 In 1967-69 constant prices. /2 Includes losses of 12 to 16% of generation. Source: IMF, IBRD, Empresa Nacional de Energia Electrica, EBASCO, MONENCO. Even though power generation is growing rapidly (it doubled in the past five years) electricity is available only in the more densely populated part of the country to about 21% of the population. Annual net generation of about 168 kWh per capita (in 1975) remained low in comparison with other Central American countries. Honduras ranked slightly above Guatemala (155 kWh per capita) but below the other four countries in the region, where generation per capita ranged from 239 kWh (El Salvador) to 717 kWh (Costa Rica). 1.22 The average number of customers and energy sales for ENEE are shown below. Annex 3, Table 3-1 shows details for ENEE's interconnected system. Industrial sales are expected to remain about 52% of total sales; similarly, no major changes are foreseen for the share of the other categories. ENEE's Electricity Sales and Use in Interconnected and Isolated Systems 1977 Annual Sales Number of 1977 1983 Customer Class Customers GWh X GWh Z Residential 89,670 129 23 283 25 Commercial 10,400 91 16 174 16 Industrial 1,545 70 13 149 13 Large Industrial 51 216 39 430 39 Governmental and Municipal 1,235 21 4 45 4 Street Lighting 68 14 3 28 3 Sales to ENALUF 1 12 2 - - ENEE Use = I - 1 - Total 102,970 554 100 1,110 100 Source: Empresa Nacional de Energia Electrica, and MONENCO. 1.23 Including supply to Nicaragua, the energy generated by ENEE during 1977 amounted to 622 GWh--an increase of 11.3X over the 1976 total. About 70% of ENEE's load is industrial-commercial which contributes to the high system load factor of about 65% annually. Existing Facilities 1.24 In addition to about 191 MW in 2 hydro, 3 diesel and 2 gas turbine power plants in its main system, ENEE has approximately 10 MW installed in isolated diesel stations. ENEE's generating plant is described as follows: - 10 - ENEE Generating Plant Nominal No. Unit Total Annual Energy Installation of Size Capacity Firm Average Date Units MW MW GWh GWh Hydroelectric 122 594/6 656 Canaveral 1963 2 15 30 151/6 166 Rio Lindo 1970 (Nos. 1&2) 2 20 46 /4 284/6 294 1978 (Nos. 3&4) 2 20 46 /4 159/6 196 Diesel-Heavy Fuel /1 La Ceiba 1974 4 6.65 26.6 186 186 Diesel-Light Diesel Oil /2 14 62 62 Santa Fe 1969 4 2 10 44 44 San Lorenzo 1970 2 2 4 18 18 Gas Turbine /3 28 73 73 La Puerta 1970 1 15 15 39 39 Miraflores 1972 1 13 13 34 34 Total Interconnected System 190.6 915 977 Isolated Diesel Stations 10.0 /5 /1 Energy at a plant factor of 80%. /2 Energy at a plant factor of 50%. /3 Energy at a plant factor of 30%. /4 Available capacity 15% higher than nominal capacity. /5 Approximate capacity. /6 Primary energy. The two hydro power plants are downstream from Lake Yojoa which provides annual storage. The main system has 564 km of 138 kV and 200 km of 69 kV lines. The line linking the ENEE and the ENALUF power systems has been built for future 230 kV operation. There are 10 major transmission substations with a total installed capacity of about 562 MVA; 221 MVA to transform to subtransmission level (at 69 kV and 34.5 kV) and 202 MVA to distribution level (34.5, 13.8, 4.16, 2.4 kV). Annex 4, Attachment 4-1 provides further details about the transmission and distribution system. Access to Service 1.25 ENEE presently provides electricity mainly in cities, via its interconnected system. Overall, ENEE is supplying electricity to about 0.6 million people or about 75% of the inhabitants of the areas served. Only 5 out of 26 towns served have a higher percentage of population served: - 11 - San Pedro Sula (96%), Puerto Cortes (85%), Santa Barbara (83%), La Ceiba (77%), and Tegucigalpa (76%). ENEE currently serves about 21% of the total population of the country, a considerable improvement over the 11% it served in 1968. Since most of the population lives in small population centers in remote areas, it will be difficult and costly to serve them with electricity in the near future. Despite this difficulty, ENEE expects to serve about 30% of the total population by 1983. The number of consumers is expected to increase to about 172,000 as a result of the distribution facilities and rural extensions being built and those included in the Project. Average annual kWh sales per retail connection (excluding bulk sales to large customers) are expected to grow from about 4,250 in 1978 to about 5,170 in 1983. Expected annual goals are shown in Annex 5, Table 5-11. Population Served by ENEE Percentage Population Served Total Population of Population Year (Thousands) (Thousands) Served 1968 260 2,397 10.8 1970 321 2,526 12.7 1972 391 2,662 14.7 1974 497 2,806 17.7 1976 574 2,959 19.4 1977 618 3,038 20.3 1978 675 3,118 21.6 1979 740 3,202 23.1 1980 810 3,287 24.6 1981 888 3,375 26.3 1982 972 3,465 28.1 1983 1,065 3,558 30.0 Sources: IBRD, Empresa Nacional de Energia Electrica. 1.26 To increase the number of electricity users ENEE has implemented the following measures: (a) A low monthly minimum bill of US$1.25 has been established, which gives the customer the right to use up to 20 kWh. This price makes electricity competitive with other sources of lighting. (b) A connection policy is being applied under which new customers will not be charged a connection fee whenever the cost of connection is less than US$150. When this amount is exceeded the customer may amortize, without interest, the excess over a 24-month period. - 12 - (c) Based on the policy described in (b) above, new population centers which request a connection are not charged if the cost of the connection averages less than US$150 per consumer connected. Otherwise, the excess may be amortized over a 24-month period. (d) For the areas where potential customers exist, but have not asked for service due to their lack of funds, ENEE has financed the cost of interior wiring, to be recovered without interest over a period of 18 months. Rural Electrification 1.27 ENEE concentrated in its early years on taking over the supply of urban areas in order to obtain the financially sound position necessary for later absorbing the marginal rural areas. Out of 23 areas considered, its 1971 rural electrification program established the six zones with the best potential market and location close to ENEE's interconnected facilities. ENEE has built about 270 km of 35 kV rural lines and has completed distri- bution facilities in the Comayagua, Tamara and Chamelecon Valleys and in and around La Ceiba, Tela, Puerto Cortes, Talanga, San Juan de Flores, Juticalpa, Catacamas and in the southern zone. Most of the rural lines have been financed by the Bank under the Fourth, Fifth and Sixth Projects. Beginning in 1978, ENEE plans to undertake the electrification of the Aguan Valley, where the Government is presently implementing an extensive program for the development of the area. In addition to agro-industry and sawmills, the Aguan Valley Rural Electrification Project will benefit 25,000 low-income families, for which it will be necessary to install about 610 km of primary 35 kV and 550 km of secondary distribution lines, 200 km of 138 kV transmission lines, five 138/35 kv substations totalling about 26 MVA and 20,000 meters. These items will be financed with the help of a US$10 million USAID loan, with ENEE/Govern- ment counterpart funds of US$5.6 million. 1.28 Construction of the Nispero Project will make it possible to extend ENEE's interconnected system under the Sixth Project into western rural areas partly supplied by isolated systems. The largest of these systems is at Santa Rosa de Copan (950 kW capacity, about 650 kW load). Extension of interconnected service to this town would make it possible to serve about 17 small towns and villages en route from Mochito. Some 94 km of three-phase and 38 km of single-phase 35 kV lines would supply about 5,500 households initially (about 25,000 people out of a population of 40,000). Power Sector Expansion Program 1.29 Honduras' large hydro power resources are most economically developed in plants of over 100 MW. The most economical hydro site would be El Cajon with about 300 MW initial (and possibly 600 MW final) capacity. Phased development of the first stage for the Honduran market alone has been found to be uneconomical. ENEE contracted an Optimization and Tariff Study with Ebasco Services Inc. (EBASCO-USA), under a technical assistance loan from IDB. The study recommended the most economical pattern of system - 13 - expansion and determined the costs of producing electricity for development with, and without, pooling of facilities through an interconnection with ENALUF. The study provides a suitable basis for a decision which major hydro power project should follow Rio Lindo and for the prices to be charged for international power and energy interchanges. The study confirmed that El Cajon would be the most economical next project for the interconnected ENEE- ENALUF system expansion and that it should be built as soon as possible. Due to the substantial savings from coordinated system expansion (US$6.2 million annually on a levelized basis) ENEE has been discussing with ENALUF the needed revision of the existing interconnection contract. 1.30 The Optimization and Tariff Study showed that El Cajon would also be the most economical large hydro project for the isolated Honduran market in 1985-1988. With an estimated total cost of about US$490 million, the first stage of El Cajon will have a substantial impact on the public sector invest- ment program. In view of slow progress in making arrangements for sale of initial El Cajon excess capacity and energy, El Cajon appraisal has been postponed to October 1978; this would allow for a start of major civil works in 1979. Appraisal in late 1978 should enable financial arrangements to be completed by the time ENEE would have to undertake substantial commitments for the project. The proposed Nispero project would cover system requirements through 1983; while El Cajon is being built, additional thermal generation will be required to provide for the growth in demand in 1984-1985. 1.31 ECLA is carrying out a Central American regional interconnection study to the year 2000 with the financial assistance of the United Nations, IDB and CABEI. This study would provide a basis for planning the long-term power development of the six republics on the isthmus. The national utilities of the six countries (including ENEE) participated actively in the first stage of the study through full-time secondment of their system planning personnel. Completion of the second stage of the ECLA study is expected in late 1979. The first stage indicated substantial benefits to the region from interconnected system expansion. Tariff Levels and Structure 1.32 The law establishing ENEE gives it the right to set its own tariffs. At the end of 1974, R.W. Beck & Associates (USA) completed a tariff study based on accounting costs which covered ENEE's construction and operations forecasts up to 1978. This study recommended substantial increases in the tariffs for various service categories (particularly the large consumers, at that time with fixed-price contracts) and a general increase in basic tariff levels, averaging 25%. It also recommended the application of a fuel-cost adjustment clause designed to compensate for changes in the cost of fuel. As a condition for Loan 1081-HO the proposed increase was put into effect in February 1975. As discussed in para 5.02, the increase did not produce sufficient revenue to allow ENEE to achieve the 10% rate of return agreed under prior Bank loans. - 14 - Present tariffs (as increased in June 1978) are shown in Annex 1, Tables 1-1 and 1-2. The following figures show ENEE's average revenues (in centavos per kWh sold) over the last five years: 1973 - 7.445; 1974 - 7.179; 1975 - 8.984; 1976 - 9.191; and 1977 - 9.973. 1.33 The price per kWh sold stayed about constant between February 1975 and April 1977 since the fuel-cost adjustment was not applied in the inter- connected system during that period. On balance, the adjustment would not have been significant prior to 1977. In ENEE's interconnected system the fuel-cost adjustment clause was put into effect in May 1977 as a consequence of the sharp increase in fuel prices during the first quarter (Bunker C increased 15.1% and diesel oil 8.3%) and the relative increase of thermal generation expected for the year. The result was to raise overall receipts per kWh sold by 8.5% over 1976 and by 11% over 1975. 1.34 In June 1978, the basic tariffs and fuel cost adjustment clause were modified, resulting in an increase in basic tariffs of 10% and leaving the total price to the consumer unchanged for 1978. Most of ENEE's tariffs fall presently within Central American averages. However, for large industrial consumers (average monthly consumption above 100,000 kWh or 195 kW with a load factor higher than 70%), ENEE's tariffs are about the lowest in the region. 1.35 The Sixth Power Project includes a study of ENEE's tariff structure to identify changes required to promote the most economic pattern of consump- tion. After initial delays, Societe Francaise d'Etudes et de Realizations d'Equipements Electriques (SOFRELEC - France) was engaged early in 1978 and has studied the characteristics of the power market for the next five years. SOFRELEC will base its tariff proposals on the long-term marginal cost criter- ion, on the basis of terms of reference agreed upon with the Bank. The proposed loan includes funds for the purchase of portable metering equipment for sampling load characteristics of consumer categories. SOFRELEC's draft report is expected to be ready for the appraisal of El Cajon. Constraints on Sector Development 1.36 At the energy sector level, the major constraints are the lack of coordination and of expertise in policy making. The Energy Sector Organization Study (para. 1.18) included in the proposed project would identify the actions required to address these problems. 1.37 Within the power sector, ENEE will have to continue its efforts to strengthen its staff in order to undertake its very large expansion program. The management and organization study (para. 4.19) and the training (para. 2.04) components of the proposed project would assist these efforts. - 15 - 2. THE BORROWER Legal Structure 2.01 The borrower would be the Empresa Nacional de Energia Electrica (ENEE), an autonomous public utility owned by the Government of Honduras. ENEE was created by Decree No. 48 in 1957, as a result of the merger of several utilities which operated isolated systems. The substance of the Decree has not been amended in ENEE's over 20 years of existence. A modernization of power sector legislation should be coordinated with any energy sector legislation which may result from the Energy Sector Organiza- tion Study (paras. 1.18 and 4.18). 2.02 ENEE is directed by a five-member board, consisting of the Ministers of Public Works, Communications and Transport, of Natural Resources and of Planning (CONSUPLANE) and representatives of the National Development Bank and of the Chamber of Industries and Commerce (on behalf of the private sector). Organization and Management 2.03 ENEE's management is entrusted to a General Manager, assisted by three Deputy Managers and the heads of seven line divisions which are respon- sible for Engineering, Construction, Operation of the Interconnected Generation System, Central Distribution System, Northern Distribution System, Finances and Accounting, and General Services. The Planning (staff) Division is respon- sible for system expansion plans, financial forecasts, basic studies, tariff studies and project control. 2.04 ENEE's General Manager was appointed in August 1978; he was previously the deputy manager for construction and special projects. Most deputy managers and division chiefs have been with ENEE for ten or more years. Further strengthening of upper ENEE management is needed, and the proposed Organization Study (para 2.08) would define the means and measures required. Until the results of this study become available, ENEE is expected to engage outside experts to provide support, as required, to management. ENEE's organization (Annex 2, Figure 2-1) is well structured and functional; however, to improve the efficiency of its operations and undertake its ambitious construction program, ENEE must devote additional efforts to training of its staff, at all levels. The proposed loan includes funds for training programs for ENEE's middle management and professional staff. 2.05 At the beginning of 1978, ENEE had about 1,500 employees in opera- tions and 350 in implementation of new construction, with a ratio of one operating employee per 67 customers served (which is reasonable considering the extent and nature of the areas served and ENEE's stage of development). ENEE has followed the policy to maintain higher level staff salaries competi- tive with the market. It has been able to monitor this through reports from its external auditors, Price Waterhouse and Co. - 16 - Training 2.06 ENEE has given considerable attention to training its staff. It has sent approximately 100 technical and administrative staff abroad for training and has also received technical assistance from utilities in Europe, Taiwan, and North and South America. The foreign cost of these training programs was and is mainly financed by Loans 841-HO and 1081-HO. Training would be further supported by a US$0.30 million component in the proposed loan (para. 4.19). To establish current training needs, a survey of ENEE's occupational structure and a proposed training program were completed in November 1977 by the Instituto Nacional de Formacion Profesional (INFOP) with assistance from the International Labor Organization. The survey included a job evaluation in all ENEE depart- ments and identified areas where training is required. ENEE is currently implementing the recommendations of the Instituto while setting up a training center in Tegucigalpa and organizing two programs with financial assistance from above loans, to train staff to serve as assistant electricians and to provide literacy training for all ENEE employees who have not completed primary school. 2.07 Several institutions are assisting ENEE's training efforts. ENEE places middle level technical and office staff in special training courses offered by INFOP. ENEE's staff receives training in design and construction of transmission lines, maintenance and operation of hydroelectric plants and hydrological and geotechnical techniques at the United States Bureau of Reclamation. Comision Federal de Electricidad (Mexico) trains ENEE's staff in operations and maintenance techniques, especially hot line maintenance of transmission and distribution lines and safety procedures. The Honduran Government has arranged a technical assistance with Taiwan. The Taiwan Power Company has sent a group of specialists to Honduras for training ENEE staff in the following areas: (a) small hydroelectric and multipurpose projects; (b) power system planning; (c) power system operation; (d) diesel unit main- tenance; (e) gas turbine maintenance; and (f) hydroelectric unit maintenance. Management Systems 2.08 ENEE's management systems have been improved with the assistance of management consultants (R.W. Beck and Associates - USA) financed under prior Bank loans. Computer systems have been developed covering billing, collections, inventory management and payroll. These systems are operating adequately. Since 1975 ENEE has been using a computer model for financial planning; it has been developed with the assistance of Motor Columbus (Switzerland). Starting in 1976, ENEE has introduced Management by Objectives in order to achieve greater operational efficiency. There is, however, need for improvement in the content and timeliness of ENEE's periodic technical and financial reports, and also in procurement, in system expansion planning, and in the organization for project planning, programming, execution and control. In view of the major impact that the El Cajon project will have on the organization, ENEE has agreed to promptly engage management consultants for comprehensive organization studies, to be focused on those areas where further strengthening is required. A draft report of these consultants, which would particularly refer to the - 17 - organization arrangements needed for the execution of the El Cajon project, would be submitted to the Bank by March 31, 1979, while a full report would be presented by June 30, 1979. The recommendations would be reviewed with the Bank and a schedule would be agreed for their implementation, as appropriate. Accounting and Audit 2.09 ENEE's accounts are kept in accordance with generally accepted accounting principles and provide a satisfactory basis for preparing finan- cial statements. Internal control is carried out by an internal audit group which reports directly to the Board of Directors and also provides services to the General Manager. ENEE is restructuring this group with the assistance of its external auditors (Price Waterhouse and Co.) in order to provide for the increasing complexity of operations. An internal auditing manual is being prepared and Price Waterhouse will help oversee the implementation of the new procedures. 2.10 The work of ENEE's external auditors has been satisfactory, and ENEE has agreed to continue presenting financial statements, audited by independ- ent auditors acceptable to the Bank, within four months after the end of each fiscal year. 2.11 The Comptroller General of the Honduran Government carries out an additional audit of ENEE's operations which includes an annual review of administrative management. Billing and Collections 2.12 Implementing Section 3.04 of the Guarantee Agreement for Loan 1081-HO, ENEE has signed an agreement with Servicio Autonomo Nacional de Acueductos y Alcantarillados (SANAA) for the payment of SANAA's overdue accounts. This agreement is being complied with satisfactorily. 2.13 Bills for electricity are distributed by ENEE's employees on a monthly basis. The bills must be paid within 15 days from the date they are issued. Accounts receivable and outstanding for 79 days at the end of 1977 amounted to L 12.0 million (21.7% of 1977 sales revenue). This percentage includes L 8.4 million of overdue accounts, of which Government accounts amount to L 1.6 million. ENEE's information system does not produce adequate and timely data for management of accounts receivable. ENEE is consequently developing improved documentation and is encouraging greater use of commercial banks for payment of bills, in order to speed collections. However, ENEE should further improve the speed and reliability of reporting on billings, collections and accounts receivable by customer category and the length of outstanding accounts, so as to reduce its present collection period by 10 days over a 5-year period as agreed in the proposed Performance Indicators (Annex 5, Table 5-11). To achieve this objective, ENEE has engaged consultants (R.W. Beck - USA) to review its commercial function and during negotiations has further agreed to extend the purpose of the study to cover the handling of overdue accounts. Beck's report would be submitted to the Bank by March 31, 1979. - 18 - Insurance 2.14 ENEE has insured its fixed assets against various risks. However, present coverage is insufficient and amounted, as of the end of 1977, to only L 36.5 million which represents about 11% of the revalued cost of net fixed assets; normally the figure would be between 25% and 40%. ENEE is aware of the need for improved coverage and has agreed on terms of reference and engaging consultants to review its insurance policy. The review will take into account the possible risks ENEE faces and will recommend action needed. The consultants will analyze the type of commercial arrangement and appropriate level of coverage in each case. ENEE has agreed to implement resulting recommendations (to be previously discussed with the Bank) by September 30, 1979. - 19 - 3. MARKET AND MEANS TO MEET IT Market History 3.01 Until 1975, ENEE's sales increased very rapidly, in large part as a result of incorporation of new areas. ENEE's interconnected system sales now represent over 90% of the total electricity consumed in Honduras. ENEE's service area comprises all of Honduras withi a population of about 3 million (growing at about 2.7% annually). Approximately 32% of the population is urban, and this percentage has been increasing in recent years. 3.02 From 1963 to 1973 the Honduran economy expanded by an average of about 4% annually in real terms, followed by no growth in 1974-1975 because of the damage from hurricane Fifi to agricultural production capacity and a drought in mid-1975. The economy rebounded sharply in 1976-1977, when the GDP growth rate was about 7%. During these periods, ENEE electricity sales grew by 23% 1/ (1963-1973), 15% 1/ (1974-1975), and 13% (1976-1977). Annual electricity sales growth by major service area during 1965-1977 is shown in para. 3.05. The trend of sales for the interconnected system by major consumer category is given in Annex 3, Table 3-1. Five-year averages of sales growth have ranged from 13% in 1973 to 15% in 1977 over the previous five years. Over the same period, five-year averages of growth in the numnber of customers have ranged from 10% in 1973 to 12% in 1976. Forecast of Requirements 3.03 The mid- and long-term outlook for economic growth in Honduras is favorable. Basic agricultural and related production capabilities are expanding rapidly and increase in export volume can be expected. Honduras has a relatively low foreign debt ratio compared with other Latin American countries. Continuing heavy inflows of development capital and an improving export trade balance have strengthened the foreign exchar3ge reserve position. A relatively high level of ecoaomic growth is expected during 1978-1982. 3.04 The basis for the load forecast used for the appraisal of the Project was prepared by mtid-1976 by EBASCO (USA) as part of and to provide a basis for the System Optimization and Tariff Study (para. 1.29). The forecast has been revised and updated in July 1978 by MONENCO in connection with the ECLA study (para. 1.15); it is reasonable. EBASCO's and MONENCO's forecast3 included the analysis of economic and social factors which can be expected to influence thae country's electricity requirements. The factors included historical-rates of economnic development, plans for future developm!lent and general economic outlook for Honduras and its iadustries. In particular, EBASCO's sales forecast attempted to take into account (a) the elasticity of 1/ These high growth rates are tie result of ENEE absorbing areas previously served by others. - 20 - the use of electric energy as a function of price, (b) the possible application of incremental (marginal) rates, and (c) the impact of irrigation loads; it analyzed in detail ENEE's sales records for 1966 through early 1976 together withl econornic and demographic data and held discussions kith knowledgeable Government and industry ofEicials, other economic and business inforiaatioti sources and major ENEE customers. In addition, relationships between the growth of the country's economy and ENEE's energy sales were correlated by EBASCO and MONENCO and econometric forecasts made based on available economic data and assumed future economic growth rates. The resulting sales forecast is shown in Annex 3, Table 3-2. 3.05 MONENCO forecasted an average annual increase in total ENEE sales of 11.2% during 1978-1990. Past and predicted ENEE annual sales growth, in percent per annum, by major areas is as follows: Area 1965-1975 1976-1985 Tegucigalpa/Comayaguela 12.9 11.6 San Pedro Sula 19.8 13.5 El Progreso 17.3 /a 10.8 Puerto Cortes 15.5 10.5 Mochito Mine 10.9 5.0 Cementos Bijao 11.5 6.0 La Ceiba n.a. /b 9.6 Tela 14.4 /a 12.7 Choluteca town 14.0 17.6 /c Choluteca district 17.2 /a 10.7 /a 1971 to 1975, full period figures not available. /b Not available as La Ceiba became part of ENEE's system in 1974. /c The expected increase in the growth rate is largely due to accelerating regional agro-industrial actitvity (sugar mills, food processing) and completion of the port at San Lorenzo. - 21 - Power and Energy Balance 3.06 The forecast of power and energy requirements of the ENEE total system from 1976 through 1995 is shown in Annex 3, Table 3-3. ENEE generating facilities supplying the Interconnected System are given above in para. 1.24. A load-resource balance for the period 1974-1988 is shown in Annex 3, Tables 3-4 and 3-5 and indicating that acceptable reserve margins will be achieved during 1979-1983. Though El Cajon full commissioning was assumed by June 30, 1984, the program beyond 1982 will be reviewed in connection with the appraisal of that project (see para. 1.30). - 22 - 4. PROGRAM AND PROJECT Background and Objectives 4.01 ENEE expects a rapid growth in electricity demand in existing service areas and through incorporation of new areas presently without public electricity supply. Its construction program through 1983--of -Which the proposed project is a part and which includes the completion of the expanded Fifth and Sixth Power Projects and the bulk of the construction of the El Cajon Project--would provide the facilities required to supply the expected demand. Failure to construct the facilities would lead to curtail- ments of supply which would be costly to the economy and reduce industrial growth. The program, summarized in Annex 5, Table 5-6 provides for substan- tial construction to make public service electricity available to low-income areas (a) in the western part of Honduras under the Sixth Project Expansion resulting from the Nispero hydro plant which is part of the proposed project, and (b) through the large Aguan Valley project with USAID financing. The program shows the heavy impact on expenditures of El Cajon construction. The program's costs were estimated by ENEE and its consultants on the basis of generally prevailing prices as of mid-1977 and adjusted for projected infla- tion in line with the rates given in para. 4.11. The program's financing is discussed in para. 5.07. 4.02 The proposed loan would be the seventh Bank operation with ENEE. The project as shown in detail in para. 4.06 was prepared by ENEE with the assistance of Harza and R.W. Beck. Harza's draft final report, sub- mitted to the Bank in February 1978, supplied the basis for the field appraisal in February 1978 by Messrs. Helmut Wieseman and Jose Lorenzo Vietti (consultant). After negotiations, costs of the Nispero hydro power plant and the Puerto Cortes diesel plant were updated on the basis of bid level design estimaates. Generation 4.03 ENEE will need further generating capacity by 1980. The addition under the proposed project of 30 MW of diesels by 1980 and 22.5 MU of hydro- power by 1982 would cover requirements economnically. During the period through 1982 ENEE intends to undertake the bulk of El Cajon construction. If the first El Cajon unit is not completed in September 1983 (see para. 1.30) additional capacity would be needed at that time which could be additional diesel units, a gas turbine, or purchases from ENALUF, or a combination of all three alternatives. The amounts would depend on the date of the commissioning of the hydroelectric units at El Cajon. Transmission and Distribution 4.04 Since the early 1970s, ENEE has completed a large transmission and distribution prograra to rehabilitate existing supply systeias. It has extended its main 138 kV system (San Pedro Sula-Rio Lindo/Canaveral- Tegucigalpa) to La Ceiba in the east and the Nicaraguan border ii the south and has substantially improved the primary distribution systems in San Pedro Sula and Tegucigalpa by conversions of existtLa installations to 13.8 kV. - 23 - 4.05 In addition to (a) the USAID financed 138 kV Aguan Valley line and the associated 35 kV rural distribution and subtransmission lines and (b) 35 kV lines west of the Mochito Mine to Nispero and Santa Rosa de Copan areas, comparatively little reinforcements will be needed through 1983. Ttie program provides for the 1980-1981 distribution expansion, included in the project, and further investments in 1982-1983; CABEI is expected to finance this expansion. Also included are the connections to the system of the Puerto Cortes diesel plant and the Nispero hydroelectric station (with Bank financing). ENEE has agreed to revise its substation addition program (Annex 6, Table 6-4) in light of the results of the National Electrification Masterplan (para. 4.20). The Project 4.06 The project would consist of the following items. (a) Nispero 22.5 MW hydroelectric plant and its connection at the substation (which would be built together with 35 kV line extensions frotm Mochito via Nispero to Santa Rosa de Copan area to be financed under the Sixth Power Project). (b) Puerto Cortes 30 MW diesel plant and its 69 kV connection of about 4 km of double circuit at the Puerto Cortes existing 69/13.8 kV substation into the existing 42 km 69 kV line to the Bermejo substation near San Pedro Sula. (c) Extension of ENEE's primary distribution system consisting of about 80 km of 35 kV and 13.8 kV lines and about 50,000 kVA distribution transformers in new areas in Tegucigalpa, San Pedro Sula, La Ceiba, Tela, El Progreso and Puerto Cortes. Installation of about 20 MVAR of capacitors to ceduce transmission and distribution losses. Purchase of portable metering equipment for samqpling load characteristics. (d) Studies of: energy sector organization; ENEE manageieient, organization and training; national electrification master plan; hydropower inventory updating; prefeasibility of Piedras Amarillas (P-3) hydro project in eastern Honduras. (e) Training of ENEE management and staff. 4.07 The main objectives of the project would be to maintain the reliability of power supply and to strengthen ENEE's function as the natiolial electricity supplier through extensions into new service areas and improve- ment of energy sector organization and power sector planning and training. Nispero Hydroelectric Project 4.08 The 22.5 MW Nispero hydroelectric plant would be located on the Palaja River near the town of Nispero, about 25 km southwest of Santa Barbara. It would produce about 40 GWh per year of primary and 31 GWh per year of secondary energy. Nispero would be connected to the national transmission - 24 - network by the two 35 kV circuits from its substation to the Mochito substation, about 40 km northeast of Nispero. The essentially run-of-river Nispero plant will develop about 174 m of head by diverting the river around a fall and a series of rapids using a low earthfill dam, a 300 m canal, shaft, and 2.2 km pressure tuaael to control the hydraulic head. The diversion dam will Porm a small pond, with a depth of about 5.0 m with a surface of about 0.33 km at elevation 599 m 3above sea level. The active storage volume would be small, about 365,000 m , to regulate inflow during the dry season for weekday peaking production. A gated spillway with a stilling basin will be provided at the right end of the diversion data to protect the structures against a 100-year flood. The power waterway would comprise a concrete-lined power canal, a concrete intake, a concrete-lined pressure shaft and tunnel with1 a surge tank near its downstream end, and a steel-lined tunnel and penstock leading to the powerhouse. The overall length of the water conductor from the operating pool to the powerhouse would be about 2.5 km. The powerplant site would be about 1.5 km downstream of the fall on the left bank of the Palaja River. The generating unit installed in the powerhouse would be a vertical shaft type, directly connected to the Francis turbine, and would produce 22.5 MW of power at design discharge. The turbine would produce 30,150 3horsepower under the net head of 152 m and a full gate discharge of 17.0 m /s. Puerto Cortes Diesel Electric Plant 4.09 The 4 x 7.5 MW medium-speed diesels at Puerto Cortes would run on heavy oil (Bunker C) to provide economical energy generation. Operating at 80 percent plant factor, the plant can produce about 210 GWh per year of firm energy. The diesel plant, to be constructed adjacent to the Texaco Refinery, would be connected to the existing Puerto Cortes substation by a 69 kV double circuit transmission line of about 4 km. The generators will be connected to a 13.8 kV bus via individual circuit breakers, and their total output would be stepped up to 69 kV by a 35 MVA transformer. The step-up transformer would be connected to the existing system through 3 x 69 kV circuit breaker ring-bus substation and the above 69 kV line. Project Cost and Financing 4.10 The project cost estimate (excluding interest during construction and based on mid-1978 prices) is stated below. ENEE is not subject to taxes or custom duties, which are consequently excluded. - 25 - 106 Lempiras Equivalent 106 US$ Local Foreign Total Local Foreign Total 1. Nispero hydro power plant 11.00 21.68 32.68 5.50 10.84 16.34 2. Puerto Cortes diesel plant 3.86 26.21 30.07 1.93 13.11 15.04 3. 69 kV line to Puerto Cortes plant 0.11 0.26 0.37 0.06 0.13 0.19 4. Distribution expansion 1980-81 3.77 4.61 8.38 1.89 2.30 4.19 5. Studies 0.84 2.55 3.39 0.42 1.27 1.69 6. Training 0.29 0.60 0.89 0.14 0.30 0.44 7. Engineering and administration 3.32 4.96 8.28 1.66 2.48 4.14 8. Total Direct Costs 23.19 60.87 84.06 11.60 30.43 42.03 9. Contingencies: Physical 2.77 6.52 9.29 1.39 3.26 4.65 10. Price 2.80 6.02 8.82 1.40 3.01 4.41 11. Subtotal 28.76 73.41 102.17 14.39 36.70 51.09 12. Special price contingency 1.10 2.70 3.80 0.55 1.35 1.90 13. GRAND TOTAL 29.86 76.11 105.97 14.94 38.05 52.99 US$1 = FF 4.38. 4.11 These costs were calculated on the same basis as those for the construction program (para. 4.01) by Harza (Item 1 and partly 7), R.W. Beck Associates (Items 2, 3, 5 and partly 7), and ENEE (Item 4) and updated after negotiations. They are reasonable. For reasons given in para. 4.34, a special contingency amounting to US$1.90 million has been included in the project cost estimate. Provisions for Nispero's physical contingencies are 15% for civil works, 25% for water conductor, 3% for electromechanical equip- ment and transmission lines; the physical contingency allowance for the Puerto Cortes plant and transmission is 10% of the base cost (see para. 4.33). The engineering and administrative manpower required to execute the project have been estimated by ENEE's consultants to aggregate 458 staffmonths of expatriate, and 2,010 staffmonths of local engineering and administrative overhead. The average consultant base cost was estimated at US$5,400/staffmonth. The costs shown in above table are based on bids received for the turbine and generator of the Nispero hydro plant and on the actual contract (para. 4.25) for the Puerto Cortes diesel plant; the costs of other items are based on prices of September 1977, which have been adjusted to mid-1978 levels. Price contin- gencies were calculated using the following percentages: - 26 - Annual Inflation Rates in % Equipment Civil Works 1977 7.5 9.0 1978 7.0 8.0 1979 6.5 7.5 1980 and after 6.0 7.0 4.12 The proposed project would be financed by a Bank loan of US$30.5 mil- lion (which includes US$1.35 million as the special foreign cost contingency and US$3.3 million for financial charges on the Bank loan during construction), CABEI loans of US$3.5 million, export credits of US$6.7 million, and internal cash generation by ENEE. Details of project financing are discussed in paragraph 5.10. Implementation 4.13 The project implementation schedule (Annex 4, Table 4-1) envisages that the major project components will be completed by April 1981; this is reasonable. ENEE is currently reviewing the implementation schedule for the studies included in the project; agreement on this schedule is a condition of effectiveness of the proposed loan. The schedule will be used to monitor progress during project execution. 4.14 For the Nispero plant, the manufacture, delivery and installation of the turbine and generator unit are on the critical path of implementation. ENEE has contracted with a local firm the design of the improvement of the access road to Nispero and would contract these works locally. The improvement of the road is also a critical item. The cost of the improvement is included in the project estimate. Maintenance expenses will be small and will be borne by ENEE. The projected rapid construction of the Nispero plant (expected to be commissioned in March 1981) will require the services of an international contractor experienced in large construction projects. Participation of local contractors is expected to be limited to subcontracts. 4.15 The implementation of the diesel plant and switchyard and its con- struction would be under a design, supply, erect and commission contract. The contractor would be expected to subcontract the civil works with a regionally experienced contracting firm. Local contractors would be invited to participate as subcontractors as applicable and after approval of ENEE. Total diesel plant fabrication, erection and testing is estimated to be completed by late 1979. Engineering 4.16 ENEE has engaged Harza for (a) the design, evaluation of bids, engineer- ing and construction supervision of the Nispero plant and its connection to the main system; and (b) is engaging it for the review of design and construction supervision of the Puerto Cortes diesel plant. For the supervision of the - 27 - erection and initial operation of the diesels ENEE will use its staff which gained experience in the installation of similar units at La Ceiba. ENEE is also planning to engage a diesel expert from Taiwan under the technical assistance provided to Honduras. ENEE has confirmed that it will continue to retain satisfactory consultants for (a) and (b) above. 4.17 ENEE's own staff will carry out the engineering and supervision of construction for the transmission and distribution expansion during 1980-1981. This is acceptable because ENEE has proven experience in similar works recently completed or now under construction. As is present practice, ENEE personnel would install the substation and distribution equipment and build the transmission and distribution lines at 69 kV and lower voltages. Studies 4.18 The Government of Honduras has approved the draft terms of reference prepared by the Bank for the Energy Sector Organization Study which would be prepared under the overall direction of CONSUPLANE. A Bank energy sector expert is scheduled to discuss in Honduras the terms of reference and help with arrangements for contracting the respective consulting services, setting up the Honduran working group and selection of experts to be contracted. The study is estimated to require about 12 staffmonths at a cost of about US$75,000. 4.19 Based on terms of reference already agreed with the Bank, ENEE plans to contract a Management and Organization Study to prepare itself for its large expansion program and the construction of the El Cajon project. The study would recommend applicable methods and procedures for organization and management and estimate annual manpower and recruitment requirements for the medium term. The study would also identify staff training needs and include recommendations for a training program and its implementation. Disbursements for training would not be made before the Bank and ENEE have agreed on the detailed training program. The study would also cover the improvement of ENEE's information and control systems, and the organizational arrangements for the execution of El Cajon (para. 2.08). Improvement of ENEE procurement regulations would be a priority item of the study. About 30 staffmonths of consultant tilne would be needed at a cost of study of about US$200,000. 4.20 Realizing the need for the preparation of a comprehensive updating of its transmission and distribution system planning for the mid and long term, ENEE has agreed to prepare, as part of the proposed project, a National Electrification Masterplan. This plan would use as a basis the results of the Optimization and Tariff Study (para. 1.30). Another input would be provided by the review and updating study of the Hydro Power Inventory included in the proposed project. The studies would require 116 and 90 staffmonths at an estimated cost of US$0.51 million and US$0.45 million, respectively. 4.21 The most attractive hydroproject in eastern Honduras has been identified to be near Piedras Amarillas (site P-3) on the Patuca River. Upon ENEE's request to accommodate increased capacity needs after the commissioning of El Cajon, the proposed project includes the financing of foreign consulting - 28 - services for a prefeasibility study of a hydro development at this site, estimated to require about 80 staffmonths and to cost about US$0.4 million. 4.22 The proposed loan would also finance the foreign cost of equipment for load surveys and load management anticipated to be required as a result of the ongoing tariff study based on long-term marginal costs, amounting to about US$50,000 (para. 1.35). Procurement 4.23 Except for consultants, all equipment, materials and services financed by the proposed loan would be procured after international competi- tive bidding, following the Bank's Procurement Guidelines. 4.24 Purchases under the CABEI parallel loan (para. 5.10(c)) would be through competitive bidding in accordance with CABEI regulations. Honduras is presently not a member of the Central American Common Market, therefore, regional preferences will not apply. Locally produced wood poles for trans- mission and distribution lines are expected to be competitive. Consequently, local suppliers would be given a margin of preference of 15%, or the applicable import duty, whichever is lower. The cost of the poles to be financed by the Bank is estimated at about US$50,000. 4.25 To avoid delaying the installation of the Puerto Cortes diesels, the Bank agreed in mid-1977 that ENEE could initiate their procurement. A contract was placed with Alsthom (France) in August 1978 after international competitive bidding. The bid evaluation for the Nispero turbine and generator is in progress and the bids for the Nispero civil works have been invited. Disbursements 4.26 Disbursements from the loan account will finance: (a) 100% of foreign expenditures for imported equipment and materials (including installation and supervision) for Puerto Cortes diesel plant. (b) 100% of foreign expenditures for imported equipment and materials or 85% of the ex-factory cost (i.e., excluding local taxes) of locally manufactured equipment and materials for other project elements. (c) 100% of foreign expenditures for civil works and installation for the Nispero and Puerto Cortes plants and the 69 kV line to the Puerto Cortes Plant. (d) 100% of total expenditures for consultant's services. (e) 100% of foreign expenditures for the training program. (f) Interest and other charges on the Bank loan accrued to September 14, 1981. - 29 - Disbursements would be made against standard documentation. Retroactive financing of US$2.4 million is recommended: (i) for financing of down and progress payments made after August 1, 1978 for equipment purchases for the Puerto Cortes Plant (about US$2.2 million); and (ii) for payments for design and consulting engineering services made after February 15, 1978 (about US$0.2 million). To have the diesel plant in operation as needed, ENEE has awarded the order for the diesel units, using bridge financing for foreign currency costs not provided by suppliers' credit. 4.27 It has been agreed that, prior to disbursements for consultants' services for the Energy Sector Organization Study, ENEE will submit proposals acceptable to the Bank for the disbursement and repayment arrangements with CONSUPLANE. 4.28 The following table shows estimated loan disbursements, assuming loan effectiveness to be January 1, 1979. in 106 US$ IBRD fiscal year During Cumulative at and Semester Semester End of Semester 1979 second 7.73 7.73 1980 first 3.16 10.89 second 7.03 17.92 1981 first 7.40 25.32 second 1.67 26.99 1982 first 1.76 28.75 second 0.89 29.64 1983 first 0.86 30.50 4.29 The closing date for the proposed loan would be September 30, 1982. - 30 - Environment 4.30 There are no major environmental risks resulting from the proposed project. The Nispero reservoir is very small (para. 4.08); only about 10 families will need to be relocated and ENEE has agreed to provide a program satisfactory to the Bank for implementing resettlement and compensation and for preventing new settlements in the area to be flooded. ENEE agreed to carry out the project with due regard to ecological and environmental factors, including implementation of (a) erosion control and watershed protection measures, and (b) the vaccination program required in connection with Nispero access road construction. During negotiations the following agreements for environmental and related actions listed in the consultants' recommendations were reached: Implementation Dates Start Completion (i) sedimentation reduction and control Jan. 1980 Dec. 1981 /1 (ii) construction of personnel housing Jan. 1979 Aug. 1979 (iii) mosquito and snail vector control June 1980 June 1981 /1 (iv) resettlement and adequate compensation for ownership of and income from land to be flooded June 1979 Jan. 1980 (v) study of possible subsistence fishery Jan. 1980 June 1980 /1 This work will need to be periodically repeated during project life. 4.31 The diesel plant will be located next to thie Texaco refinery, remote from the population centers of Puerto Cortes. The diesels will have silencers since there are some houses along the road passing the plant site. Fuel is expected to be piped from the refinery to small, daily storage fuel tanks; this would reduce the fire hazard. Overall air quality should not be notably affected since prevailing northeasterly breezes will carry any plant emission (of the diesel plant) away from the town and out to sea. 4.32 The loan documents provide for appropriate undertakings on popula- tion relocation, and periodic inspection of reservoirs and related works. Project Risks and Uncertainties 4.33 The physical contingencies should be adequate to cover the project risks associated with the proposed project. Harza claims to have sufficient drilling data on the geology of Nispero to reduce to 15% the physical contingency for the 2.5 km power tunnel to the powerhouse; however, the appraisal is based - 31 - on a 25% physical contingency to provide for complex geology and zones of potential natural gas and high water inflows. Nispero dam, dikes, intake canal, and other structures are relatively small and should not give rise to concern about their safety. Any leakage from the small reservoir due to karst should be minor and the physical contingencies of 15% should provide sufficient margin for controlling it. The physical contingencies of 10% for the diesels would provide sufficient funds for piled foundations. 4.34 The major risk for Nispero plant implementation, because of the plant's small size, would be a possibly low interest of international contrac- tors to bid on the civil and erection works. If ICB does not produce acceptable bids, delay of project completion could result as a contractor may have to be engaged by invitation and negotiation of a contract. In view of the upcoming construction of El Cajon (for which international contractors have been prequalified) there may, however, be a greater interest in the contracting community to obtain previous local experience through participation in the Nispero construction. The special contingency allowance in the proposed loan provides US$1.35 million to be used only if ENEE is not able to obtain respon- sive bids within the Nispero cost estimate; it would be cancelled to the extent to which it would not be required to cover this contingency. - 32 - 5. FINANCE Introduction 5.01 ENEE's financial history over the last five years has not been totally satisfactory because tariff action did not keep up with costs which rose rapidly, in large measure as a result of higher fuel costs. However, there are no signs of deterioration in the current financial structure of the enterprise, which was strengthened as a result of a revaluation of assets as of December 31, 1977, carried out in the course of this appraisal. ENEE investments for the period 1978-1981, when the bulk of expenditure on the proposed Nispero project would take place, are forecast at L 627.5 million, with that project accounting for 17% of the total. The principal component (64%) of the ENEE investment program for the period would be El Cajon, assumed to be commissioned in 1983-1984, while the balance is composed of the funds required for completion of the Fifth and Sixth Power Projects and for other investments. Current financial projections -- which will have to be revised after the El Cajon appraisal to reflect the updated increased cost and construction schedule and final decision on the date of commissioning of El Cajon -- are based on tariffs designed to achieve an 8% return on net revalued assets in operation. ENEE's actual and forecast financial statements are shown in Annex 5. (Table references in this chapter relate to that Annex.) Earnings History 5.02 In recent years, ENEE's financial performance has shown a gradual decline. Forecasts made during appraisal of the Sixth Power Project (which covered the period 1974-1977) were not met fully. Energy sales were 6.8% below expectations. Operating revenues were also lower than estimated, although, owing to application of the fuel adjustment clause, the gap was smaller. The greatest difference was in the area of operating income, 38% lower on the average than projected. The reduction in income can be attri- buted to the fact that, in 1972-1977, sales revenue rose by 160%, less than operating costs (excluding depreciation) which increased by 251%. Half the increase in operating costs was the result of a very sharp rise in ENEE's fuel costs, from US$0.4 million in 1972 to US$6.2 million in 1977. A rise in revenue in 1975, following a tariff increase of 25%, was not sufficient to correct the problem. In consequence, ENEE failed to achieve the 10% rate of return agreed upon under previous Bank loans, and its rate of return was 7.7% in 1975, 7.5% in 1976, and 8.9% in 1977 (Tables 5-1 and 5-2). On annually revalued assets, however, the rates of return would have been about 7.2% in 1975, 5.9% in 1976, and 5.5% in 1977. 5.03 As a result of the situation described in the foregoing paragraph, debt service coverage achieved during the period 1974-1977 was less than projected, averaging 1.3 times compared to the 1.8 times expected at appraisal. Lower than expected internal cash generation led to the need for additional borrowing, which increased debt service obligations further. 5.04 After revaluing its assets as of December 31, 1973 in 1975, ENEE failed to do so again until late 1977. For purposes of appraisal, assets have been revalued annually for the period 1974-1976. Estimated data for the - 33 - 1977 revaluation were prepared by the appraisal mission. ENEE has now agreed to the principle of annual asset revaluation, which is incorporated in the proposed loan agreement. ENEE has also agreed to incorporate the results of the revaluation into the accounting records, following approval by its external auditors, starting with the 1978 financial statements. Financial Structure 5.05 The asset revaluation carried out for purposes of appraisal, significantly strengthened ENEE's financial structure by establishing the actual investment in ENEE's facilities on which its future revenues will be based. As of December 31, 1977, the situation was as follows (for details see also Table 5-4): Millions of Lempiras % Equity 197.8 51 Capital 10.7 3 Accumulated surplus 72.8 19 Asset revaluation reserve 114.3 29 Liabilities 190.4 49 Long-term debt (net) 158.0 41 Current liabilities 32.4 8 Total 388.2 100 5.06 ENEE's principal creditor is the Bank; in 1977, the Bank's five loans amounted to L 111.9 million (66% of total gross long-term debt and equivalent to 29% of total assets). The second largest creditor is the Government, with L 17.9 million consisting of relent proceeds of IDA credits (11%) followed by the Central Bank of Honduras with L 15.4 million (9% of total gross long-term debt), and CABEI with L 13.8 million (8%) -- see Table 5-7. Investment and Financing Plans 5.07 Investments making up the program planned for 1978-1981, which include interest during construction and an estimated increase in working capital needs, amount to L 643 million, of which L 107.6 million, or 17%, correspond to the Nispero Power Project. El Cajon is the largest component of the program (based on commissioning in 1983-1984), calling for an invest- ment of L 400.1 million or 62% of the total. The investment program and proposed financing plan for the 1978-1981 period (detailed in Table 5-3) is summarized as follows: - 34 - Financing Plan 1978/1981 ---millions---- Lempiras US$ Percentages Requirements of Funds Construction program (including interest during construction) 627.5 313.8 98 Existing projects: Fifth power project 9.1 4.5 1 Sixth power project 58.4 29.2 9 Nispero power project!/ 107.6 53.8 17 Other investments 52.3 26.2 8 El Cajon 400.1 200.1 62 Increase in working capital 15.5 7.7 3 TOTAL REQUIREMENTS 643.0 321.5 100 Sources of Funds Net operating income 136.8 68.4 Depreciation 71.3 35.7 Total 208.1 104.1 Less: Debt service (excluding IDC) 119.3 59.7 Net internal cash generation 88.8 44.4 14 Equity contributions 99.3 49.7 15 Borrowings 454.9 227.4 71 Existing loans 65.4 32.7 Proposed loans 78.1 39.0 TBRD2/ 57.6 28.8 Suppliers' credits 13.5 6.7 CABEI Studies 1.2 0.6 CABEI Transmission/Distribution 5.8 2.9 Future loans 311.4 155.7 TOTAL SOURCES 643.0 321.5 100 1/ An additional L 8.3 million (US$4.1 million) would be invested in 1982. 2/ L 3.5 million (US$1.7 million) would be disbursed in 1982. - 35 - 5.08 ENEE's net internal cash generation would finance L 89 million or 14% of total requirements. While low, this contribution is acceptable in view of the size of ENEE's investment program during this period (particu- larly the expenditures on El Cajon) which will satisfy capacity requirements through the late 1980s. If ENEE had opted for the second best alternative to El Cajon (construction of diesel plants), it would have been able to finance more than 30% of its investment requirements with net internal cash generation. Government contributions for El Cajon, and to a small extent resources from the Rural Electrification Fund, would amount to L 99 million, or 15% of requirements. 5.09 The remaining 71% of the 1978-1981 program will be covered by loans amounting to L 455 million (US$227 million). Of this figure, US$31 million will come from the undisbursed proceeds of loans for the Fifth and Sixth Power Projects. Loans for the proposed project would total US$41 million, of which US$39 million will be disbursed during the 1978-1981 period. The initial El Cajon works and other investments would require loan disbursements totalling US$156 million. Recent ENEE contacts with various banks, develop- ment agencies, other financial institutions and suppliers show that there is interest in providing financing for El Cajon. 5.10 Total financial requirements for the Nispero Power Project are put at L 115.9 million;l/ L 34.5 million of this will be financed by ENEE from internally generated funds. It is proposed to finance the balance of L 81.4 million (US$40.7 million), which will be 95% of the foreign exchange require- ments, as follows: (a) The proposed US$30.5 million Bank loan, which would would have a maturity of 20 years, including a five-year grace period; these are standard terms for Honduras. For projection purposes, an annual interest rate of 7.35% has been assumed; (b) ENEE has obtained a suppliers' credit from Banque Nationale de Paris (to partially cover the foreign exchange cost of four diesel engines and generators) amounting to US$6.7 million with a maturity of 8 years, including a 2 year grace period, at a fixed annual interest rate of 7.5%; and (c) CABEI would make two loans covering the foreign exchange costs: (1) of engineering and design for the Nispero hydroelectric power station (L 1.2 million); and (2) of works during the period 1980-1981 to expand distribution facilities and continue rural electrification (L 5.8 million). Both loans would be granted on similar terms -- maturity of 20 years, including a 5 year grace period, at an expected 8% interest rate. ENEE has advised the Bank that the first of the loans has been approved, that the second has been declared eligible for financing by CABEI and that the latter is expected to be approved during November 1978. 1/ L 106 million (as shown in para. 4.10, line 12); plus interest during construction on the Bank loan (L 6.6 million) and the CABEI loan and suppliers' credits (L 3.3 million). - 36 - Financing of interest during construction by the proposed Bank loan is justified in view of ENEE's large investment program. As a condition of effectiveness, ENEE should provide the Bank the documentary evidence showing that the first CABEI loan has been approved, and that the second CABEI loan has been declared eligible or, alternatively, that other satisfactory arrange- ments have been made to provide equivalent financing. Documentary evidence for the arrangements for ENEE's additional foreign exchange needs should also be provided prior to loan effectiveness. 5.11 The main unresolved issue in connection with the 1978-1981 program is the timing of El Cajon. Because alternative investments would be less capital intensive, ENEE's financing plan should become more manageable if commissioning of El Cajon is delayed beyond the assumed date of 1983-1984. The assumed timing was used for purposes of appraising the Nispero project; but, as noted in para 1.30, a somewhat later date now appears probable. In view of ENEE's large expansion program, ENEE has agreed that during project execution it will inform the Bank on its proposals for capital expenditures involving aggregate expenditures in excess of 2% of its gross fixed assets and provide the Bank with a report showing that such capital expenditures are economically justified and financially sound; the Government has agreed that it will ensure that the power expansion programs will be economically justified and soundly financed so as not to adversely affect ENEE's operations. 5.12 The US$156 million future borrowings in the financing plan include modest medium-term loans in 1979 of L 3.4 million (US$1.7 million), to cover local currency requirements for completion of the Fifth and Sixth Power Projects, and for the transmission and distribution project in the Aguan Valley. Given the net cash generation projected after 1980, ENEE should have no difficulty in securing these loans, which are expected to be provided by local banks. For 1978, the plan includes a loan of L 8.8 million (US$4.4 million), which has already been granted by the Central Bank of Honduras and which would provide bridge financing for the Puerto Cortes diesel plant until the Bank loan becomes effective. Future Finances 5.13 As agreed during negotiations, present financial projections are based on the assumption that ENEE tariffs will be adjusted to achieve an 8% return on average net revalued assets in operation. This level of tariffs would be reasonably close to the marginal cost of supply (para. 6.11) and would enable ENEE to make an acceptable contribution to the 1978-1981 invest- ment program and to maintain a balanced financial situation as reflected in debt service coverage, debt/equity and current ratios throughout the period. ENEE has also agreed to maintain tariffs sufficient to achieve an 8% return on its average annually revalued net assets in operation starting with 1979. 1/ 1/ This would amend the existing covenant on Loan 1081-HO, which establishes a 10% rate of return on revalued assets without specifying the periodicity of the revaluation. - 37 - Effective June 1, 1978, tariffs were increased 10%, fully offsetting loss of fuel adjustment clause revenues. In 1979, modest tariff increases (averaging about 3%) will be required; and the Government has confirmed that it plans to implement them. 5.14 As under previous loans, ENEE has agreed to retain all earnings for investment in its facilities. ENEE has also agreed to repeat the covenant under previous loans which requires it to obtain the Bank's concurrence before borrowing if its internal cash generation is less than 1.4 times its maximum future debt service requirement. 5.15 The financial position as measured by the debt/equity ratio (46/54 in 1977) is maintained at safe levels throughout the project period (see Table 5-1); despite the heavy borrowing required for construction of El Cajon it would not exceed 55/45. Debt-service coverage would average 1.3 over the period 1978-1983 (see Table 5-3) which, given the size of ENEE's investment efforts, may be considered acceptable. This would imply that the Bank's concurrence will have to be obtained on the financial arrangements for the El Cajon project (para. 5.14). The current position would be tight, but is expected to improve significantly over the projection period. - 38 - 6. ECONOMIC ANALYSIS Least-Cost Solution 6.01 The power and energy balances (para. 3.06) indicate that additional generating capacity is needed to meet the increasing demand for electricity after 1980. Studies by ENEE and its consultants have shown that the expected load growth from 1980 to 1983 would be met at least cost by adding 30 MW of diesel power at Puerto Cortes for operation in early 1980, and 22.5 MW of hydroelectric power at Nispero for operation by mid-1981. As a result of Nispero's favorable location in western Honduras, 35 kV transmission facilities can economically be extended to serve many towns west of Nispero. The recom- mended program also serves the long range objectives of system development, as the diesel plant in Puerto Cortes will provide reserve capacity for the northern area in the future. 6.02 The Optimization and Tariff Study (para. 1.30) for the development of the ENEE main system during 1982-1995, considered some 15 generation installation sequences, to find the optimum hydro-thermal generation mix. These sequences included, in addition to El Cajon--at various dam heights-- the installation of other hydro electric projects in accordance with their then feasible implementation schedule (Naranjito with 168 MW for commissioning not sooner than 1982 and Remolino with 133 MW for 1986). All sequences were found to be more costly than the one based on completion of El Cajon (with 300 MW) by the mid-1980s which would be preceded by the installation of Nispero and diesels. The second best sequence would consist exclusively of thermal plants in the 1978-1988 period. 6.03 The only identified hydroelectric project of significant size in Honduras, other than Nispero, that could be built in time for operation prior to 1982, would be a third unit at the Canaveral hydroelectric power plant. It could add 15 MW of capacity but would not provide any additional energy while construction costs would be similar to those of Nispero. The expansion of the Canaveral powerplant was therefore not deemed as attractive as Nispero. For the Nispero hydroelectric project several layouts were studied and the proposed layout chosen as the least-cost alternative. 6.04 The thermal alternatives considered included a 33 MW oil-fired steam electric unit, which could not be in operation before 1982 and was found to be more costly than 33 MW of diesels while providing less avail- able capacity. The recommended expansion program (diesels/Nispero) would also be lower in cost than alternative programs consisting of a combination of gas turbines or medium-speed diesels for discount rates up to 11.4%. 6.05 Substitution of the proposed ENEE addition of diesels and the Nispero plant by imports of power and energy from ENALUF over the existing interconnection in the required amounts would not be feasible during 1980- 1983, since ENALUF will not have capacity and energy for sale to Honduras on a firm basis. - 39 - 6.06 The basic assumptions for the least-cost analysis are stated in Annex 6, Tables 6-1 to 6-3. An analysis of the sensitivity of the least-cost solution to changes in the major elements of uncertainty affecting the choice of investments (construction and fuel costs) shows that an increase in the construction costs of Nispero of 8% (about equal to the proposed special contingency) would reduce the equalizing discount rate between the proposed program and the next best alternative from 11.4% to 10.0%. A reduction of 2% annually in real terms in the cost of fuel over the life of the project would reduce the equalizing discount rate to 9.7%. The analysis of the sensitivity of the least-cost solution with regard to other changes is summarized in Annex 6, Figures 6-1 and 6-2. 6.07 Analysis of the sensitivity of the equalizing discount rate for the proposed expansion program, compared with the next best alternative, to a long- term increase in fuel costs showed the following results: Annual Relative Rate of Increase of Equalizing Dis- Fuel Costs, % count Rate, % -2 9.7 0 11.4 2 13.3 4 15.4 6 17.6 As real fuel costs are expected to increase over the long term, Nispero-- if appearing marginally economical at present fuel prices--is likely to be the most economical alternative even without considering the reduction in the cost of the electrification of villages in western Honduras, due to Nispero's location. 6.08 No reasonable alternative exists for most of the transmission and distribution lines included in the construction program and the Project. ENEE has or will select the location of substation additions (Annex 6, Table 6-4) and routing of lines on the basis of load requirements and least-cost, consistent with standard transformer sizes and use of released smaller trans- formers to serve smaller loads. 6.09 The opportunity cost of capital for Honduras is estimated to be between 9 and 11%, in real terms. The above sensitivity analysis consequently shows that the project elements are chosen on an economically sound basis. - 40 - Return on Investment 6.10 The rate of return has been calculated as the discount rate which equates the streams of costs and benefits associated with the Project over its useful life. The costs include investment and operating costs of the additional generation facilities (Nispero and diesels), transmission facili- ties to connect this generation to the interconnected system (including Nispero 35 kV connection to be financed under the Sixth Project) and the associated distribution. The benefits were measured in terms of revenues at the average 1982 tariffs (L 0.135/kWh) used in the financial projections (Annex 5, Table 5-2) deflated at the 8% annual inflation rate of local costs (assumed in the projections) to mid-1978 (L 0.0992/kWh). Details are given in Annex 6, Table 6-5. The rate of return would be, on respective generation, transmission and distribution investment in connection with (a) Puerto Cortes diesels 8%; (b) Nispero hydro plant 10%; and (c) both projects combined (the Project equivalent) 9%. If the Nispero investment costs increase by 10% (about the amount of the special contingency) the return on the Nispero plant would decrease to 9% and for both plants combined to 8%. Higher costs would affect the economic viability of the Project much less than a 10% reduction in average tariffs (to L 0.0902/kWh), as shown below: Rates of Return based on Deflated 1982 avg. ENEE Tariffs % Change vs. Base -20 -15 -10 Base +10 +15 +20 Puerto Cortes Diesels (a) Investment Cost 10.2 9.6 9.0 8.0 7.0 6.6 6.2 (b) Revenue 4.9 8.0 10.6 Nispero Hydro Plant (a) Investment Cost 12.5 11.8 11.0 10.0 9.0 8.6 8.2 (b) Revenue 8.8 10.0 11.2 Puerto Cortes Diesels and Nispero Hydro Plant, Combined (a) Investment Cost 11.4 10.7 10.0 9.0 8.0 7.6 7.2 (b) Revenue 6.9 9.0 10.9 6.11 The above confirms that ENEE will need to periodically increase its tariffs to achieve a somewhat higher return on annually revalued assets then 8% in order to cover, on the average, the marginal cost of supply. The size - 41 - of such increases would be based on a longer-term financing plan to be developed in the course of the appraisal of the El Cajon project. It should be noted that the above returns understate to some degree the economic rate of return as revenues from the sales of electricity may not fully measure some of the social benefits to residential and public users or the indirect benefits to the economy through the multiplier effect on industry and commerce, whose production and employment of workers depend on readily available elec- tricity supply. - 42 - 7. SUMMARY OF PROPOSED AGREEMENTS AND RECOMMENDATIONS 7.01 During negotiations agreements were reached with Government and ENEE, as applicable, on the following principal points: (a) The Government, through CONSUPLANE, will carry out an Energy Sector Organization Study and will review with the Bank the resulting recommendations (paras. 1.18 and 4.18). (b) ENEE will engage management consultants for a comprehensive Manage- ment and Organization Study, which will inter alia cover the organi- zational arrangements for the construction of the El Cajon project, as well as procurement, information systems, management staffing and training. A partial draft report, focussing on the organizational arrangements for El Cajon, is to be submitted by March 31, 1979, and a full draft report by June 30, 1979 (paras. 2.08 and 4.19). (c) ENEE will continue to engage independent external auditors and submit to the Bank its audited financial statements within four months after the end of its fiscal year (para. 2.10). (d) ENEE will complete the ongoing study of its billing, collection and related commercial functions and submit the consultant's report on these matters by March 31, 1979 (para. 2.13). (e) ENEE will review--under terms of reference already agreed--its insurance policy and implement the recommendations, to be agreed with the Bank, by September 30, 1979 (para. 2.14). (f) ENEE will continue to engage satisfactory consultants for the design, engineering, evaluation of bids, construction super- vision and carrying out of the major project components (para. 4.16). (g) ENEE will prepare, as part of the proposed project, a National Electrification Masterplan, a study updating the hydropower inventory, and a prefeasibility study of the Piedras Amarillas hydro power development on the Patuca River (paras. 4.20 and 4.21). (h) ENEE and the Government, as applicable, will implement--according to an agreed timetable--the consultant's recommendations contained in the Nispero Project Feasibility Report on environmental and related actions, such as erosion protection, vaccination program, sediment reduction, mosquito and snail vector control, resettle- ment and adequate compensation for families to be relocated, and study of possible subsistence fishery (para. 4.30). (i) ENEE will cause its dams, reservoirs margins, associated structures, earthworks and waterways to be periodically inspected and, by December 31, 1978, will present a program for this undertaking (para. 4.32). - 43 - (j) ENEE will revalue its fixed assets annually, and incorporate the results of said revaluation to its financial statements, starting with those corresponding to 1978 (para. 5.04). (k) ENEE will inform the Bank prior to any major capital expenditure and furnish a report showing that such project is economically justified, and that adequate financing is available (para. 5.11). (1) The Government shall coordinate power expansion in the sector and ensure that it is based on economically justified programs, that financing will be available on terms that will not adversely affect ENEE's financial condition, and that the project is within ENEE's managerial and technical capacity (para. 5.11). (m) Starting in 1979, ENEE and the Government will take all tariff actions necessary to achieve a rate of return of 8% on ENEE's revalued net assets in operation (para. 5.13). (n) ENEE will not incur any long-term debt without consulting the Bank unless the ratio of its gross internal cash generation to maximum debt service (exclusive of interest during construc- tion financed by the proceeds of any loan under which said interest was accrued) exceeds 1.4 (para. 5.14). (o) ENEE will retain all earnings for investment in its facilities (para. 5.14). 7.02 Before declaring the loan effective, the Bank should: (a) reach agreement with ENEE on a timetable for the studies which it is to perform (para. 4.13). (b) receive evidence that the proposed loan for the Nispero engineering consultant services has been approved by CABEI, and also that CABEI has declared eligible the proposed second loan for ENEE's 1980-1981 distribution program or, alternative to the latter, that other satisfactory financing arrangements have been made (para. 5.10). (c) receive evidence that satisfactory arrangements have been made to provide ENEE with other external financing requirements (para. 5.10). 7.03 The following are conditions for disbursement for the respective portions of the loan: (a) in relation to the training program: agreement with the Bank on the program's content based on the results of the Management and Organi- zation Study (para. 4.19). - 44 - (b) in relation to the Sector Organization Study: acceptable contractual arrangements between ENEE and the Government for the transfer of the corresponding loan proceeds and their repayment (para. 4.27). 7.04 Retroactive financing of US$2.4 million is recommended for progress payments made after August 1, 1978 for equipment purchases for the Puerto Cortes plant (about US$2.2 million) and consulting engineering services after February 15, 1978 (about US$0.2 million) (para. 4.26). 7.05 With the above agreements, the project constitutes a suitable basis for a Bank loan of US$30.5 million equivalent. The loan would be repaid over a period of 20 years, including 5 years of grace. October 17, 1978 ejrn7 1 TaFle7-1 Table 1-1 EnhRESA hACIONAL DE VI.tabIA ELECTRICA (ENEE) M.nthly Electricity Tariffs of the Itcerc cceoted System (to effeoit since Sans 5028) Tariff Applicabiltiy Rates Sttins, Chtgrse Power Factor Billies Dfleed Primary Service Diocoutt TARIFF A RESIDENTIAL SERVICE Fer d-eetio ass and for First 20 M,I or les. - L 2.50 L 2.50 per month ple e.t.r Rectal d-nestic sad coseroial see Nest 80 IFv - L 0.165 par KWh svhseoseeercial connected lead Seat 100 RWh - L 0.121 per KWh ta less thae damestic losd Metar Rental - L 0.50 TARIFF B GENERAL SERVICE Foe all electric service First 20 KWh or 1ess - L 3.30 Siegle-phass - L 3.30 per snth The .c.ster shall saie- Nest 80 Wh - LO.143 per KWh Three-phase - L 14.30 per .acth taic a pes fetter of not Neat 4,900 KWh . 1 0.121 per Elba less than NIt, gig Seer 5,000 KWh - L 0.082 per RWh Neter Ranntle: Slglg-phase L L 0.10 Thr..p_aP - L 1 00 TARFF C OPTIONAL GENEBAL SERVICE For elctric serelc under Dfeecd Char g. L 8.25 per fW of The Demand Charg for the mnth Each -sethly measc ed deesed The Billie B DBecad shall FPr cocteners taking ee.- a firm cenirc-t fFe ens ypr billign dmmand bht cot 1ese than L 2,062.5 mill b adjeeted by bcrnas- h thi highest af: vic at the prim-ry oltas at mPes as determtned by ENEE Energy Chaegs - L 0.055 per KWh ig it 1% far each it e 1jr . Tthe emonr deemed for sh. ot and maintain trLes- peeti- rea n85%f issc sher 2 d d de rased al t.h ae-rtgs ehLat by ai ehsth tih hi h, edjatd far litise ey a I sapFlied doting mo. o pbEht RpprnWhd hy EWhE, the oh Id Rqlear i- n pl tha gin g 2. i 85% N f tht highest Bill- ohage At tie she ts te S ed of thp- mill he -d .. fd by th. ceding 11 seethe; er 3. the Cectract Remad, if anY. TARIFF S TRASRIGSSION SERVICE FPr II rc seri ic- l thragh Demand Charge - L 7.15 per KW The Demand Charge bht eltee Each -nthly measacd demand The Billicg DSnsd sha1l be -mphnatiacs di-arly volnet. t f Billing Demand thac L 17,875 mill he adjusted by Itcreas- the highest cf: ad cc rv .. L iE oa lhams f E-ergy Chase - L 0.044 iog it 1% fer ach 1% - 7I . -d d.d fcr the syste defied by EWE) KWh aJt- porthL rhe-f by nihIeh . the neaeord dead Pr under iess than 2,500 hil-n tt the average pooe t fotact tc te mc n adjRted far thtn 5 deoassd. Reqofree a Lien iich i-ergp he lippled dd cg p-wer factor; or cfcdltaot oRqcot-ls ta Pten much .eanyt IRa thani. got got. ci% tie highest Bill- Y-m kilOvatt 1orda Cer n m n enerigg. itg rp tm athe; or 3. tie Contract Sen eod, if TARIFF E AGRIECLTURAL EMPING Far Tseri toagicltral Read Charge L 7.70 rpr KS Tho S d Charge hat et Eab thmly mad d-e d The BiTle8 DiCard sha1 he pamieR at primay -1tage, a I Billicg leased ls than L 19,250 mill he odjanred hy Fainas- the highest aft app--rd hy ENEE, fcr Scads of BEergy Choege LO1.0495 ing it lt far each It er eja 1. The cesrd -drs fee -ti loan than 2,50 0il ho ilo.tts, Kwh portion th-estf hy witch ahs ths menm adjued fa ad fr catesIt, ci eat tesavtf eerLcira itc tem ears-ed bcrtheisl mini- e pergy in d pc fater at aeplid darig5 2. The hiiheet Billias m k ile-eat lead. acncIb is . lossis D Se.ee cIf the p-rcedleg lasgiaR. ~~~~11 maccbs; or 3. Ohs CctraIf fleesd. Dficiti-c f Fel Coat ri-atiac f Ucit of Ghg (at Credir) TARIFF F FOIEL ADJUSTMSENT CLAUSE This F-1i Adja-oet Cicss Is fa-i Coat abell -o thc so-ls cot The Unit (tacos i(at c-dit) applicabl tocrac'oc applicebis cc sii Lhe aboo- t-itfa nO all faci aced in ths pr-d-ci-o abail be dt cteIce tcc the ters 1/100 ceca-) by dieilde ce cd by cplyccg a 0~th Chatam of .se.oeeg by he..lictha d F-l Ccci Ier thc --od maci precdiag the coretma- fer Crd r) em nh tota kilomtt-bo-rs geeaco isoc f OhiE d-cirg aby the ictci kilo-aa-h-c -alas fra fOOt nyaten fIra-a fthfe -rp-s-tvd by the hbil. a-ted peried cIf case O-d-s ic -ach p-dtediw icch acd -oita..tict the b... yotl oset therfro.. Uoithcc 1978 Table 1-2 EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE) Monthly Electricity Tariffs of the Isolated Systems TAriff Applicability Rates A Residential and For domestic use and commercial use, when First 15 KWh (minimum) - 3.50 L Commercial commercial consumption do not exceed 2000 KWh Next 85 KWh - 0.18 L/KWh monthly Next 200 KWh - 0.16 L/KWh Next 200 KWh - 0.15 L/KWh Excess KWh over 500 KWh - 0.14 L/KWh B General For industrial use and commercial use when First250 KWh (minimum) - 35.00 L monthly consumption exceed 2000 KWh. Next750 KWh - 0.12 L/KWh The customer shall maintain a power factor Excess KWh over 10,000 - 0.10 L/KWh of not less than 85% lagging C Optional General For electric service under a firm contract Demand Charge: - 8.25 L/KWh of Billing Service for one year or more as determined by ENEE Demand Fnergy Charge: - 0.055 L/KWh Fuel Adjustment: Billings are adjusted to reflect changes in fuel prices applicable to each isolated system from their level in 1973. Source: ENEE October 1978 Figure 2-1 EMPRESA NACIONAL DE ENERaIA EHECTRICA (ENEE) Organization Chart T~~~~~~~~~~~~~~~AfI giD puty m-.g:r ~~~~~~~~~~~D.p'y-e" ge I~~~ ~ ~~~~ ~~ ~~~~~~~~~~~~ S i In - | Dspub Uamvl fm |~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~E |n'ieeri.g & Op rations |tCrwe I~~~~~~~~~~~~~- - - ---- - II III I iX1 43 L--:'= E 3 < + < 3 :03 i1e~~~~~~~--------- . | De0_Dx l l Dnmmv l ~~~~~~~~~~~~4 1 Dm-il _ {+~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~DD,R, D.p.r,,j-,P{3.t * Creation of Commercial Division is being considered. 'AC ** In the process of being organized. F m SD OD Octohec 1978 Table 3-1 E14PRESA NACIONAL DE ENERCIA ELECTRICA (ENEE) Electricity Consumption and Number of Customers in ENEE's Interconnected System 1965 1970 1971 1972 1973 1974 1975 1976 1977 % Gh GWh 5. 0Wh . GWh 7 W Gh1 77 GWh %. GWh % GWh W% CWh Sales of Electricity Residential 20.7 18.4 21.5 46.3 22.6 53.5 23.4 61.2 23.1 71.2 23.3 87.5 23.2 96.0 23.2 108.7 25.5 134.7 Small Coomercial & Industrial 26.6 23.7 27.5 59.4 28.2 67.0 29.0 75.8 27.8 85.4 26.5 99.5 25.0 103.6 27.6 129.5 27.0 142.6 Large Commercial & Industrial 45.3 40.3 44.6 96.4 43.1 102.2 41.0 107.4 43.8 134.7 43.9 164.8 45.9 190.4 41.4 194.3 40.0 211.4 Others 7.4 6.6 6.4 13.9 6.1 14.4 6.6 17.4 5.3 16.2 6.3 23.6 5.9 24.3 7.8 36.4/1 7.5 39.7/1 TOTAL 100.0 89.0 100.0 216.0 100.0 237.1 100.0 261.8 00.0 307.5 100.0 375.4 100.0 414.3 100.0 468.9 100.0 528.4 Growth over pre-ious year -7% 32.4 11.3 9.8 10.4 17.5 22.1 10.4 13.2 12.7 Average growth - 5 years - 7O -- 10.4 15.9 14.0 13.3 14.1 13.9 14.6 15.1 Average Number of Customers Residential 81.4 21,241 84.1 38,110 84.7 41,530 85.6 45,780 85.9 52,784 86.1 62,126 86.4 66,716 86.5 75,397 86.6 80,932 Small Commercial & Industrial 17.0 4,436 14.5 6,548 13.9 6,826 13.1 7,005 12.8 7,885 12.7 9,145 12.4 9,586 12.2 10,588 11.9 11,090 Large Commercial & Industrial 0.1 26 0.1 28 0.1 29 0.1 32 0.1 37 0.1 47 0.1 49 0.1 46 0.1 49 Others 1.5 391 1.3 600 1.3 623 1.2 658 1.2 734 1.1 844 1.1 908 1.2 1,091 1.4 1,358 TOTAL 100.0 26,094 100.0 45,286 100.0 4s,008 100.0 53,475 100.0 61,440 100. 72,162 100.0 77,259 100.0 87,122 100.0 93,429 Growth over previous year - % 6.2 8.7 8.2 9.1 14.9 17.5 7.1 12.8 7.2 Average growth - 5 years - % -- 11.7 9.8 8.9 10.0 11.6 11.3 12.2 11.8 Average Use (kWh/Customer-Year) Residential 886 1,?15 1,288 1,337 1,349 1,408 1,439 1,442 1,664 Growth over previous year - % -- 4.6 6.0 3.8 0.9 4.4 2.2 0.2 15.4 Average growth - 5 years - % -- 7.0 NA 6.3 4.0 3.9 3.4 2.3 4.5 All -ustomer- 3,411 4,770 4,838 4,896 5,005 5,202 5,362 5,382 5,656 Growth over previous year - % -- 2.4 1.4 1.2 2.2 3.9 4.1 0.4 5.1 Average growth - 5 years - % -- 6.9 5.5 4.7 2.9 2.2 2.4 2.2 2.5 1/ Includes sales to Nicaragua in 1976 and 1977. Source: Empresa Nacional de Rnergia Electrica September 1978 Table 3-2 EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE) Forecast of Total Energy Sales and Requirements and Peak Demand,-/ 1978-1984 % Average Annual Growth Rate 1978 1979 1980 1981 1982 1983 1984 1978-1984 Sales - GWh Residential 147.5 168.7 192.9 219.2 249.1 283.2 321.9 13.9 Small Commercial 101.7 113.9 127.5 141.5 157.1 174.4 193.6 11.3 Small Industrial 79.9 91.5 104.8 117.9 132.6 149.2 167.8 13.2 Subtotal 329.1 374.1 425.2 478.6 538.8 606.8 683.3 12.9 Large Consumers Tegucigalpa Area 27.6 30.5 33.7 37.3 41.2 45.5 50.3 10.5 San Pedro Sula Area 60.2 67.7 76.2 85.7 96.5 108.5 122.1 12.5 Choluteca/San Lorenzo Area 2.0 2.3 2.5 2.8 3.1 3.5 3.9 11.8 La Ceiba (Standard Fruit) 5.8 6.1 6.4 6.7 7.0 7.4 7.8 5.1 Mineral El Mochito 57.7 60.6 63.6 66.8 70.2 73.7 77.3 5.0 Cementos Bijao 42.7 45.3 48.0 50.9 53.9 57.1 60.6 6.0 Tela Railroad Co.- 2/3/ 48.0 64.0 78.0 90.5 92.0 93.9 95.7 12.2 Coyoles (Standari/Fr.it) - __ 1.5 10.0 16.0 21.0 26.0 26.0 -- Isleta (COHBANA)- 3.5 6.0 12.5 13.0 13.5 14.0 14.5 26.7 Subtotal 247.5 284 .0 330.9 369.7 398.4 429.6 458.2 10.8 Government and Municipals 24.4 28.0 32.2 36.1 40.5 45.3 50.8 13.0 Street Lighting 15.9 17.9 20.3 22.5 25.0 27.7 30.8 11.7 TOTAL SALES 616.9 704.0 808.6 906.9 1,002.7 1,109.5 1,223.1 12.1 Losses and Station Use - GWh-/ 99.5 113.6 130.5 146.4 161.9 179.1 197.4 12.1 Total Generation - GWh 716.4 817.6 939.1 1,053.3 1,164.6 1,288.6 1,420.5 12.1 Peak Demand - MW / 130 149 171 192 212 234 258 12.1 1/ Includes ENEE's isolated systems; excludes net interchange with neighboring countries. 2/ Includes conversion of irrigation pumps from diesel to electric drive. 3/ Includes new electric service to presently isolated area of Aguan Valley. 4/ Estimated as 13.9% of total generation. x 5/ Based on an annual load factor of 0.6292. Source: MONENCO September 1978 Table 3-3 EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE) Forecast of Peak Demand and Energy Requirements, 1976-1995 1/ Interconnected System Energy Sales (GWh) - Energy Generation (GWh) Maximum Coincident Year Interconnected Isolated Total Interconnected Isolated Total Demand (MW) 1976 (Actual) 461.9 9.8 471.7 545.9 12.9 558.8 94.8 1977 525.0 9.6 534.6 609.0 12.8 621.8 106.6 1978 606.0 10.9 616.9 701.9 14.5 716.4 123.6 1979 691.7 12.3 704.0 802.2 15.4 817.6 143.2 1980 794.8 13.8 808.6 921.9 17.2 939.1 166.3 1981 891.3 15.6 906.9 1,033.5 19.5 1,053.0 187.2 1982 985.2 17.5 1,002.7 1,142.6 22.0 1,164.6 207.1 1983 1,089.8 19.7 1,109.5 1,263.8 24.8 1,288.6 229.5 1984 1,201.0 22.1 1,223.1 1,392.9 27.6 1,420.5 253.3 1985 1,332.9 24.8 1,357.7 1,531.2 31.0 1,562.2 278.5 1986 1,457.7 27.6 1,485.3 1,698.3 12.4 1,710.7 309.2 1987 1,596.6 30.7 1,627.3 1,861.7 13.8 1,875.5 338.6 1988 1,749.3 34.0 1,783.3 2,042.5 15.4 2,057.9 371.2 1989 1,914.1 37.4 1,951.5 2,237.9 16.9 2,254.8 407.0 1990 2,093.7 41.2 2,134.9 2,450.0 18.5 2,468.5 444.9 1991 2,290.4 45.3 2,336.2 2,683.6 20.4 2,704.0 486.9 1992 2,502.5 49.8 2,552.3 2,934.6 22.5 2,957.1 532.9 1993 2,735.1 54.7 2,789.8 3,210.3 24.6 3,234.9 583.1 1994 2,989.6 60.1 3,049.7 3,512.4 27.0 3,539.4 638.3 1995 3,271.3 65.9 3,337.2 3,846.3 29.6 3,875.9 700.0 1/ Sales to neighboring countries are not included. Source: IBRD based on ENEE for 1976, MONENCO for 1977-1984, EBASCO for 1985-1995. September 1978 w W Table 3-4 EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE) Interconnected System - Load-Resource Balance, 1974-1988 (All Values at Plant) Power Peaking Energy Firm Average Installation Demand Capability Demand Energy Energy Year Schedule MW MW GWh GWh GWh Historic 1974 26.6 MW La Ceiba 74.8 144.6 433.7 756 781 1975 83.7 144.6 483.6 756 781 1976 94.8 144.6 545.9 756 781 1977 106.6 144.6 609.0 756 781 1978 46 MW Rio Lindo 123.6 190.6 701.9 915 977 (Nos. 3 & 4) Interim Program 1979 143.2 190.6 802.2 915 977 1980 30 MW Diesel Plant 166.3 220.6 921.9 1,125 1,187 1981 22.5 MW El Nispero 187.2 243.1 1,033.5 1,165 1,246 1982 207.1 243.1 1,142.6 1,165 1,258 Long Range Program 1983 146 MW El Cajon 229.5 389.1 1,263.8 1,462 1,555 1984 146 MW El Cajon 253.3 535.1 1,392.9 2,178 2,271 1985 278.5 535.1 1,531.2 2,204 2,297 1986 309.2 535.1 1,698.3 2,204 2,441 1987 338.6 535.1 1,861.7 2,204 2,570 1988 371.2 535.1 2,042.5 2,204 2,570 Source: HARZA, MONENCO, IBRD September 1978 Table 3-5 EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE) Interconnected System - Load-Resource Balance Showing Reserve Margins Historical I Forecast 1972 1973 1974 1975 1976-' 1977-' 1978 1979 1980 1981 1982 1983 Maximum Load Carrying Capability - Capacity - MW 118.0 118.0 144.6 144.6 144.6 144.6 190.6 190.6 220.6 243.1 243.1 389.1 - Energy - GWh 570 570 756 756 756 756 915 915 1,125 1,165 1,165 1,462 Maximum Demand-/ - Capacity - MW 57.4 64.0 74.8 83.7 105.8 106.7 123.6 143.2 166.3 187.2 207.1 229.5 - Energy - GWh 309.9 360.8 433.7 483.6 553.0 627.9 701.9 802.2 921.9 1,033.5 1,142.6 1,263.5 Reserve - Capacity - MW 60.4 54.0 69.8 60.9 38.8 37.9 67.0 47.4 54.3 55.9 36.0 159.6 - Energy - GWh 260.1 209.2 322.3 272.4 223.0 128.1 213.1 112.8 203.1 131.5 22.4 198.2 Reserve - as Percentage of Maximum Demand - Capacity 105 84 93 73 37 37 54 33 33 30 17 70 - Energy 84 58 74 56 40 20 30 14 22 13 2 16 1/ Includes sales to Nicaragua. Source: HARZA, IBRD September 1978 &| 01s ANNEX 4 Table 4-1 Table 4-1 EMPRESA XACIODAL DE FJEaGIA ELECT9ICA (ENEE) Project Implementation Schedule START PREPARATION OF ISSUE BIDDING RECEIVE BIDS FOR COMPLETE REVIEW OF PLACE PURCHASE OBTAIN DELIVERY OF START INSTALLATION COMPLETE CONTRACT C SURVEYS AND BIDDING DOCUMENTS FOR PURCHASE OF BIDS AND MAKE AWARD ORDERS OR SIGN MATERIALS OR CONSTRUCTION INSTALLATION FORCE-ACCOUNT F DOCUMENTS PURCHASE OF MATERIALS AND/OR RECOMMENDATION CONTRACT, OR BEGIN OR CONSTRUCTION MATERIALS OR CONSTRUCTION CONSTRUCTION IF TB DESCRIPTION CONSTRUCTION FORCE-ACCOUNT A PUERTO CORTESDISEL PLANT FEBRUARY I. I JE1,In OCYER*.l - July 15, 1978 Aug. 17, 1978 D.c 1, 1978 DeC. 1, 1978 Aug. 30. 1979 CIVIL WORtKS DC 1, 1978 Dec. 1, 1978 Aug. 30, 19 79 C UNITS I AND 2 My 25, 1979 My 25, 1979 July 1, 1979 C UNITS 3ANDA July 30, 1979 July 30, 1979 Aug. 30, 1979 C B EL NISPERO GENERAL CONSTRUCTION NOVEMBER IN. lR7e ULY 10, INN POWER WATERWAY Nov. 16, 1978 Jan. 15, 1979 Feb. 15, 1979 May 31, 1979 . July 31, 1980 EXCAVATION - TUNNEL AND SHAFTS Aug. 31, 1980 Mar. 31, 198u CONCRETE-TUNNEL. SHAFTS AND INTAKE Aug. 31, 1979 Aug. 31, 1980 C CANAL Jure 30, 1979 Mar. 31, 1980 C DIKES Jutl 30, 19.9 May 31, 1980 C SPILLWAY Muy 31, 1979 Mar. 31, 1980 c POWERPLANT STRUCTURE Sept. 1, 1980 Mar. 31, 1981 C GENERATING EOUIPMENT INSTALLATION Pb. 28, 1980 Ma 31, 1981 C POWERPLANT ELECTRICAL EQUIPMENT INSTALLATION Sept. 30, 1979 Fb. 28, 1980 C SWITCHYARD CONSTRUCTION IPHASE I - RECEIVE POWER) Sept. 30, 1980 Dec. 31, 1980 e SWITCHYARD CONSTRUCTION (PHASE II - COMPLETE) C EL NISPERO ACCESS ROAD .EAurY S.I. W INE 3H. I9N JULY 31. IN AUST I.. IINI ACUAU .. .NT USUSY 1I. M n :y3 1G I79 D EL NISPERO TURBINE, GENERATOR AND VALVE NOVEMBER IS, 1071 PE.R.All X0. -un June 30, 1978 Nt7V. 1. 19 78 Nop-- 15, 1978 Sept. 1, 1980 C E ACCESSORY ELECTRICAL EOUIPMENT EQUIPMENT PURCHASE MARCH 1.1II Nov. 15, 1978 Feb. 15, 1979 April 15, 1979 June 30, 1979 9.pt. 30, 1980 POWER TRANSFORMERS Dec. 31 1979 C SWITCHYARD EQUIPMENT (INCLUDING STRUCTUREI Dec. 31, 1979 C CIRCUIT BREAKERS. LIGHTNING ARRESTORS AND POTENTIAL DEVICES Dec. 31. 1980 CONTROL SWITCHBOARD AND SWITCHGEAR F TRANSMISSION LINES EQUIPMENT PURCHASE FEBRUARYSBMIN' Aug. 31, 197c Oct. 5, 1978 Dec. 20, 1978 Jan. 15, 1979 Nay 15, 1979 CONDUCTORS. ACCESSORIES, INSULATORS AND HARDWARE WOO POLES May 15, 1979 STEEL POLES AND INSULATORS FEMRUIRYN.IBN Nay 15, 1978 July 19, 1978 Sept. 5, 1978 Oct. 1, 1978 Jan. 3, 1979 C CONSTRUCTION Jul..Ja. 1, 1979 M-t 1, 1979 PUERTO CORTES May 31, 1979 Feb. 28, 1900 P NISPERO - MOCHITO Dec. 31, 1979 Sept. 30, 1980 P NISPERO - STA ROSA Sept. 31 1980 Mar. 31, 1981 F RURAL DISTRIBUTION G DISTRIBUTION TRANSFORMERS AND ACCESSORIES CONSTRUCTION Nov. 1, 1979 MOCHITO SUBSTATION Jan. 31, 1980 July 1, 1980 F STA ROSA SUBSTATION I _ July 31 1980 D ,_31_ 198 H DISTRIBUTION FACILITIES APRCL 1.NN DECEMBER 1 C INN AROI.1i MAY. INN JLYI. IN Jan. 31, 1982 DISTRIBUTION TRANSFDRMERS -iIRuIRY.1, IWO ;E:IARY A . IW1 C SECONDARY CONDUCTORS Cc/uSER 1. INN FBRUAY I. J 3Rc _ kWh METERS Jan. 31, 1982 October 1978 ANNEX 4 Attachment 4-1 ENEE's Transmission and Distribution Facilities 1. ENEE's transmission system configuration is radial, except for loops in San Pedro Sula and Tegucigalpa areas. The total length of the 138 kV trans- mission system is 564 km including the 60 km interconnection line from Pavana to the Nicaraguan border. There are ten major transmission substations: Pavana in the south; Santa Fe and Suyapa in Tegucigalpa; Canaveral and Rio Lindo at the hydro plants; La Puerta, Progreso and Bermejo in San Pedro Sula area; Tela and La Ceiba in the north-west. Two distribution substations are tap- ped from the 138 kV line between Santa Fe and Canaveral to serve Comayagua and Siguatepeque. Two 69 kV subtransmission systems, in San Pedro Sula area and at Tegucigalpa, have a total length of about 200 km. A new substation will be built in 1978, tapping the 138 kV line Rio Lindo-La Puerta to supply industrial and irrigation load south of San Pedro Sula at 35 kV. 2. ENEE has distribution systems in twelve principal areas of the inter- connected system. Tegucigalpa is served from a 69 kV loop which is fed from Santa Fe and Suyapa transmission substations. The loop provides power to the Miraflores, La Leona and El Centro substations supplying primary 13.8 and 4 kV feeders; El Centro's 4 kV feeders will be changed to 13.8 kV in 1978. Santa Fe substation has three 35 kV feeders to serve rural loads. San Pedro Sula is presently supplied from La Puerta and Bermejo substations. Both substations step down from 138 kV to 69 kV to supply the northern 69 kV system, and from 69 kV to 13.8 kV for primary distribution. In 1978 a new substation will be built to step down from 138 to 13.8 kV to supply central San Pedro Sula. At present La Ceiba has one substation with 4 kV feeders; another similar one to be installed in 1978. Tela is fed by a substation using 35 kV for rural and suburban areas and 4 kV for the town. La Lima and Progreso are fed from a radial 69 kV line from La Puerta. La Lima has a 2.4 kV and Progreso a 13.8 kV system. A 138/69 kV transformer will be added in 1978 at Progreso substation to supply a 69 kV line to connect with the line from La Puerta to form a loop, and another to serve irrigation loads in the area. Puerto Cortes is fed from a 69 kV loop originating at Bermejo and has a 69/13.8 kV transformation. Siguatepegue and Comayagua are both fed from step-down substations tapped from the 138 kV line between Canaveral and Santa Fe. Siguatepeque uses 13.8 kV and Comayagua 35 kV to supply the towns and surrounding rural areas. San Lorenzo and Choluteca are fed from Pavana substation with a 35 kV radial line. Each town will have one 35 kV feeder for rural and suburban areas and two 4 kV feeders for the town. Nacaome is a small town fed by a 4 kV feeder from the San Lorenzo substation. The feeder will be converted to 35 kV to supply nearby small towns also. 3. ENEE isolated systems are generally at 2.4 kV and fed from diesel plants in Danli, El Paraiso, Amapala, Juticalpa, Catacamas, Marcala, La Esperanza, Ocotepeque, Santa Rosa de Copan, Corquin, San Marcos de Colon, and Trujillo. ANNEX 5 EMPRESA NACIONAJL DE ENERGIA ELECTRICA (ENEE) Finance 1. This annex provides details on the recent and prospective financial performance of ENEE, which support the summary analysis presented in chapter 5 of the text. Thie annex includes the following tables. Table 5-1 Financial Indicators (1975/1983) Table 5-2 Income Statement (1975/1983) Table 5-3 Sourcesand Applications of Funds (1978/1983) Table 5-4 Actual and Forecast Balance Sheets (1975/1983) Table 5-5 Attachment to Forecast Balance Sheets (1978/1983) Table 5-6 Construction Program Table 5-7 Schedule of Existing and Proposed Long-Term Debt Table 5-8 Forecast Long-Term Debt Disbursement Statement (1978/1983) Table 5-9 Forecast Interest Charges (1978/1983) Table 5-10 Forecast Long-Term Debt Amortization Statements (1978/1983) Table 5-11 Performance Indicators 2. The 1978/83 financial forecasts included in this annex were prepared by-Bank staff based on forecasts prepared in February 1978 by ENEE and on supplementary information received through September 1978. It should be noted that the El Cajon project is assumed to come into operation in 1983, and that this project's cost and construction schedule are based on Motor Columbus revised feasibility study of December 1977. These assumptions are expected to be revised after the appraisal of the El Cajon project. Table 5-1 EMPRESA NACIONAL DE ENERCTA ELECTRICA (ENEE) Financial Indicators 1975 1976 1977 1978 1979 1980 1981 1982 1983 1978/83 -- Actual
Группа Всемирного банка · Staff Appraisal Report
Honduras - Nispero Power Project
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