Honduras - El Cajon Power Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P-27 10-HO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE EKPRESA NACIONAL DE ENERGIA ELECTRICA WITH THE GUARANTEE OF THE REPUBLIC OF HONDURAS AND A PROPOSED CREDIT TO THE REPUBLIC OF HONDURAS FOR THE EL CAJON POWER PROJECT February 20, 1980 ThsdocuoMeut ha-a retricted d*grlbution and may be used by recipleus emiy in the pedeimmau of Itir oUiea oo Its cetemis may met odurwise be dsioed withou Wod LbRk aud n ok-.  CURRENCY EQUIVALENTS Currency Unit - Lempira (L) L 1 100 centavos L 1 US$0.50 L 1,000,000 - US$500,000 UNITS AND MEASURES kW = kilowatt MW = megawatt = 1,000 kW kWh = kilowatt-hour GWh = gigawatt-hour - 1,000 000 kWh kV = kilovolt m meter - 3.28 ft km - kilometer - 0.621 mi km2 * square kilometer - 0.386 sq mi m3 cubic meter - 35.3 cu ft ABBREVIATIONS CABEI - Central American Bank for Economic Integration CDC - Commonwealth,Development Corporation (U.K.) CIDA - Canadian International Development Agency COHDEFOR - Corporacion Hondurena de Desarrollo Forestal (Forestry Development Corporation) CONADI - Corporacion Nacional de Inversiones (National Investment Corporation) CONSUPLANE - Consejo Superior de Planificacion Economica (National Planning Council) CORFINO - Corporacion Forestal Industrial de Olancho (Olancho Forest Industry Corporation) ENEE - Empresa Nacional de Energia Electrica (National Electrical Energy Company) FIV - Venezuelan Investment Fund IDB - Inter-American Development Bank INDE - Instituto Nacional de Electrificacion, of Guatemala (Guatemala's National Power Company) INE - Instituto Nacional de Energia, of Nicaragua (Nicaragua's National Power Company) OECF - Overseas Economic Cooperation Fund (Japan) OPEC - Organization of Petroleum Exporting Countries UNDP - United Nations Development Programme USAID - United States Agency for International Development ENEE'S FISCAL YEAR January 1 - December 31  HONDURAS FOR OFFICIAL USE ONLY EL CAJON POWER PROJECT LOAN AND CREDIT PROJECT SUMMARY Borrower: Loan. Empresa Nacional de Energia Electrica (ENEE) Credit: Republic of Honduras Guarantor: Republic of Honduras Amount: Loan: US$105.0 million Credit: US$20.0 million Terms. Loan: Payable in 20 years, including 6 years of grace at 8.25 percent interest per annum. Credit: Standard Project Description: The project comprises the construction of the 292 MW El Cajon hydroelectric plant. The principal objectives of the project are to meet Honduran power load requirements for 1986-90 from national energy sources and to reduce fuel consumption in thermal plants. The project also would (1) help develop ENEE's capacity to manage and operate a major expansion of its interconnected system, and (2) contribute to flood control in the Sula Valley. The project involves the normal risks of large civil -works. Because of the large size of the project in the context of the Honduran economy, special precautions have been taken to reduce the risk of substantial cost overruns and to secure financing on appropriate terms. Estimated Cost: - US$ (millions) ---------- Local Foreign Total Land, roads, relocations 10.6 2.2 12.8 Underground powerhouse and works 15.8 43.1 58.9 Arch dam and works 47.0 129.1 176.1 Steel hydraulic structures 0.4 13.9 14.3 Turbines and accessories -- 12.2 12.2 Generators and accessories -- 15.6 15.6 Power station equipment 0.1 3.5 3.6 Engineering and administration 7.0 11.4 _18.4 Base Cost 80.9 231.0 311.9 Contingencies: Physical 10.3 28.7 39.0 Price 36.4 105.9 142.3 Subtotal 127.6 365.6 493.2 Interest during construction -- 89.5 89.5 Financing Requirements 127.6 455.1 582.7 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.  Financing Plan: --------- US$ (millions) Local Foreign Total Bank Loan 105.0 105.0 IDA Credit 20.0 20.0 IDB 95.0 95.0 Japan 33.0 33.0 CABEI 30.6 30.6 OPEC Special Fund 7.5 7.5 Commonwealth Development Corp. 10.0 10.0 Suppliers' Credits 68.1 68.1 Commercial Banks 15.0 15.0 ENEE's Internal Cash Generation 64.8 -- 64.8 Government Capital Contribution 1/ 42.3 70.9 113.2 Government Loan to ENEE 20.5 20.5 Total 127.6 455.1 582.7 Estimated Disbursements: Bank/IDA FY 1980 1981 1982 1983 1984 1985 1986 Annual 5.3 9.4 13.0 16.2 26.4 32.1 22.6 Cumulative 5.3 14.7 27.7 43.9 70.3 102.4 125.0 Rate of Return: 13.5 percent Appraisal Report: Report No. 2388-HO dated February 15, 1980 1/ Including US$55.0 million proceeds of loans from the Venezuelan Investment Fund, to be passed on to ENEE.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE EMPRESA NACIONAL DE ENERGIA ELECTRICA WITH THE GUARANTEE OF THE REPUBLIC OF HONDURAS AND A PROPOSED CREDIT TO THE REPUBLIC OF HONDURAS FOR THE EL CAJON POWER PROJECT 1. I submit the follow:ing Report and Recommendation on a proposed loan equivalent to US$105.0 million and a proposed development credit equi- valent to US$20.0 million to Honduras for the El Cajon Power Project. The Loan would be made to the Empresa Nacional de Energia Electrica (ENEE), with the guarantee of the Republic of Honduras, for a term of 20 years including 6 years of grace, with interest at 8.25 percent per annum. The development credit would be on standard IDA terms. The Government of Honduras would relend the proceeds of the development credit to ENEE on the same terms as the Bank loan. Co-financing for the project will be provided by the following loans (expressed in US$ equivalent): US$95.0 million from the Inter-American Deve'lopment Bank (IDB) 1/. US$55.0 million from the Venezuelan Investment Fund (FIV) to be passed on to ENEE as a capital contribution by the Government; US$33.0 million from the Overseas Economic Cooperation Fund of Japan (OECF); and US$30.6 million from the Central American Bank for Economic Integration (CABEI). Also, a loan of US$10.0 million is expected from the Commonwealth Development Corporation (CDC), about US$68.1 million is expected from suppliers credits, and about US$15.0 million from commercial banks. The OPEC Special Fund is also considering a loan of US$7.5 million for the project. The grant element provided to Honduras in the Bank Group package, using a 10 percent discount rate, would be 14 percent. PART I - THE ECONOMY 2. A report entitled "Memorandum on Recent Economic Development and Prospects of Honduras" (1956-HO) was distributed to the Executive Directors on January 10, 1978. Bank missions visited Honduras during January and November 1979 to review recent economic performance. The main findings of these missions are summarized below. Country data sheets are attached as Annex I. Long-term Develtoment Trends 3. The long-term growth rate of the Honduran economy has been exceed- ingly low. Between 1950 and 1975, real per capita GNP grew by only one percent a year. Honduras' per capita GNP in 1978, US$480, is one of the lowest in the Western 'Hemisphere. Honduras' poverty is also evident from a variety of indicators. Malntutrition is severe: about three quarters of pre-school children are believed to suffer from protein and caloric defi- ciencies, and infant mortality is estimated at 103 per thousand live births. 1/ Of which US$77.0 milliona from the Fund for SpecialOperations and US$18.0 million from a complementary line of credit from commercial banks.  It is estimated that roughly 54 percent of the population has no access to safe piped water and about 76 percent lives without any form of sanitary waste disposal. Furthermore, these are country averages which conceal substantial regional disparities as living conditions in the rural areas, which account for two thirds of the population, are much worse than in the cities. 4. A major reason for Honduras' poor growth performance during 1950-75 was the continued dependence of the economy on the production and export of a few agricultural commodities, especially bananas and coffee, whose prices depend on a fluctuating world market situation and whose output may be greatly influenced by weather conditions. The latter was dramatically illustrated when extensive destruction of the banana plantations by Hurricane Fifi in 1974 reduced the volume of bananas exported in 1975 to about one half the level of 1973 and contributed to a drop in per capita income of about 3 percent. A serious lack of basic infrastructure, uneven land distribution, and deficient credit, technical services and development programs kept non- banana agricultural growth far below its potential. Furthermore, the country's sizeable forest resources were subject to wasteful exploitation practices, widespread burning, and uncertain ownership. In addition, the mountainous topography of the country has made the expansion of the road network slow and costly. There has been progress, however, since 1960, including the establish- ment of a basic transportation network connecting the main population centers and a considerable expansion of electric power service. Government Development Efforts 5. Since 1972, development efforts have accelerated; several measures have laid the basis for the country's improved longer-term economic prospects. A land reform program, begun in 1972, and strengthened and expanded through comprehensive legislation in 1975, aims at greatly improving land utilization as well as increasing the income and employment of the poorer peasants through the transfer of unutilized or poorly utilized land from large landowners to landless rural families. Another major policy development was the nationaliza- tion of timber rights in 1974. A new forestry law established guidelines for private sector forestry participation and created the state-owned Corporacion Hondurena de Desarrollo Forestal (COHDEFOR). In the same year, the Government established the Corporacion Nacional de Inversiones (CONADI), to promote and finance industrial projects. Furthermore, improvements in Government planning and executing capacity resulted in a substantial increase in public fixed investment from an average 4.9 percent of GDP in 1968-72 to 6.6 percent in 1974, 8.8 percent in 1977, and 10.1 percent in 1978. The Government has also made an effort to increase investment in the social and productive sectors and strengthen public finances through tax reforms and better tax administration. A 1975 tax reform made the tax on coffee exports ad valorem, with marginal rates ranging from 10 percent to 20 percent depending on coffee prices; substituted a 3 percent value added tax for the sales tax; and raised the tax rates on beer, cigarettes and liquor. Partly as a result, current Central Government receipts increased from 13.2 percent of GDP in 1970 to 15.3 percent in 1978.  -3- Recent Developments 6. During 1974-75, the Honduran economy was adversely affected by one of the worst hurricanes in its history, by the oil price rise of 1974, and later on by the OECD recession. GDP remained almost stagne-t, severe balance of payments difficulties arose, and the country's savings capacity was seriously reduced. Honduras, however, recovered during 1976-78. A much higher level of public investment, the gradual recovery of banana production, the extraordinary increase of coffee prices (which doubled in 1976 and again in 1977), and dynamic private fixed investment (7.4 percent real increase yearly) were the major factors responsible. Real GDP grew at about 7.4 percent a year, or almost double the long-term growth rate recorded during 1950-75. The rate of inflation reached 6.4 percent a year, mostly fueled by imported inflation and domestic difficulties with basic grain crops. 7. Although merchandise exports grew 27 percent a year in dollar terms during 1976-78 as a result of higher coffee prices and the partial recovery of banana production, imports grew at a 20 percent rate and the balance of payments continued to show large current account deficits. Expansionary policies which led to the more rapid economic and investment growth had an immediate effect on imports into the small economy. Net foreign exchange reserves, however, increased as a result of greater disbursements of foreign loans, and by the end of 1978 were US$135 million, equivalent to about two months of imports of goods and non-factor services. 8. Central Government finances during 1976-78 reflected the economic performance. Current revenues increased rapidly (21 percent yearly) but current expenditures grew almost equally fast and current savings showed only a modest improvement. As a result, the large increment in capital expendi- tures was largely financed by foreign credits. The increase in Central Government current revenues between 1975 and 1978 resulted from higher income and property tax collections; almost a tripling of export and import tax revenues (including an increase of coffee taxes from US$4 million in 1975 to US$32 million in 1978); and a rapid increase in receipts from domestic taxes. Current expenditures for wages, goods and services, and transfers showed large percentage increases. Higher wage expenditures resulted from expanded employ- ment (7 percent annually) and higher nominal wages (about 9 percent annually). About 57 percent of the new posts created were teaching positions. The Government expanded significantly operating expenditures for education, health, and defense. Budgeted expenditures for education increased by 81 percent from 19751 to 1978; health expenditures doubled; and defense expenditures increased by 80 percent. 9. In 1979, the Honduran economy continued its much improved growth performance. Real GDP growth is estimated at about 6.5 percent owing mainly to larger export volumes than in 1978 and increased public expenditures. GDY, however, increased little because the terms of trade deteriorated by about 14 percent. In spite of larger export volumes of coffee (15 percent) and bananas (26 percent), lower coffee prices slowed export earnings growth and, coupled with rapidly rising import prices, resulted in a sharp decline in the terms of trade. The annual average rate of inflation accelerated to about  - 4 - 8.8 percent, mostly because of imported inflation and higher domestic prices for housing and food products, partly related to the influx of Nicaraguan refugees. Towards the end of the year, however, inflation accelerated to an annual rate of 19 percent. The current account deficit of the balance of payments increased from US$152 million in 1978 to about US$183 million in 1979 as exports of goods grew 20 percent and imports (CIF) 18 percent, fueled by higher import prices and the expansion of economic activity. While Central Government current revenues grew rapidly, they were neverthe- less outpaced by current expenditures; as a result, current savings declined from 1.1 percent of GDP in 1978 to 0.5 percent of GDP in 1979. Public fixed investment is estimated at about 9.9 percent of GDP, a slight decrease with respect to 1978. Future Prospects and Development Programs 10. Real GDP growth, while expected to remain well above historic levels, is likely to be less than in 1977-79, and to average about 5 percent a year during 1980-83. The main reason for the deceleration is the expected lower export growth. Exports (in constant prices) may increase by about 6.7 percent a year, compared to 17.2 percent in 1978-79, since banana production has already recovered significantly and coffee production is completing a cyclical peak in the 1979/80 harvest. Further output expansion will be slower than in the recent past. Export growth would depend mainly on lumber exports (made possible by the current expansion of sawmill capacity) together with increased beef and sugar production, expansion of fruit and vegetable production for export, and pro- motion of tourism. However, the prospects for export expansion within Central Central America have been affected by the political unrest in the region. A slower growth of the quantum of total exports coupled with higher levels of imports, partly fueled by rising public investment, will likely result in continued moderately high deficits in the current account of the balance of payments during 1980-83. Private investment is expected to show less dynamism, as the National Investment Corporation's support for large private projects may have peaked since most of its existing projects are being completed and few significant new projects have been identified. Within certain parameters dictated by the public sector's revenue and indebtedness capability, public expenditures, both current and capital, may be a positive factor for GDP growth. Real current expenditures are expected to increase at rates slightly above those of GDP, although some restraint is needed to insure adequate public savings. Real public investment is expected to average about 10-11 percent of GDP during 1980-83. 11. The public investment program for 1980-83 calls for large invest- ments to alleviate the most significant bottlenecks to the country's develop- ment process. Full implementation of this program is not likely because of limitations in administrative capacity to prepare and implement projects, particularly in the rural and social sectors. Nevertheless, the country's overall administrative capacity has shown a marked improvement in the past few years, and it should be feasible to go forward with the major components of the program, which include large investments for infrastructure, partic- ularly for power and transport; for export diversification, mainly through forestry development; for agricultural development to advance the agrarian reform program and increase rural productivity; and for health, particularly potable water.  -5- 12. Power investments will be the largest, averaging about 40 percent of public fixed investment, mostly because of the large, lumpy investment required for the El Cajon hydroelectric project. This high share is justi- fied in view of the need to provide adequate power supply to industry and other expanding sectors of an economy expected to grow at a higher long term rate than in the past. It should be noted that per capita generation of electricity in Honduras is currently very low (the second lowest in Central America). Moreover, development of the country's hydroelectric resources could make an important contribution to reducing the economy's dependence on imported oil. Expenditures on imported oil and lubricants were US$74 million (10.4 percent of the merchandise import bill) in 1978 and increased dramatically to US$113 million (13.4 percent of merchandise imports) in 1979 compared to only US$14.7 million (6.6 percent of merchandise imports) in 1970. During 1970-79, Honduras' fuel needs for electricity generation grew from about US$1 million to about US$5.8 million. Rising prices and the expanded domestic demand would bring about a much larger bill for imported oil in the future. If thermal plants rather than El Cajon were chosen, oil imports for power genera- tion alone would probably be over US$35 million by 1986 and would grow rapidly thereafter. 13. Transport investments will also be large, and include the roads for the Olancho sawmills, further rural roads, the expansion of the trunk highway system, and a new port for wood product exports. Forestry investments planned by COHDEFOR and the Corporacion Forestal Industrial de Olancho (CORFINO) include five relatively large sawmills. Agricultural investments will be focused on rural development projects for three major valleys: Aguan, Guayape, and Comayagua. Health investments will be concentrated on water supply and medical facilities for Tegucigalpa, San Pedro Sula and provincial towns. These fixed investments will be supplemented by growing credit programs for agriculture and industry. 14. The Government has declared its intention to mobilize additional domestic resources needed to support prudently its ambitious development program. For this purpose, it has already implemented a tax package which will increase revenues of the Central Government by about 1.6 percent of GDP in 1980. Other measures are expected to include a reduction of annual current expenditure growth from 22 percent in 1976-78 to 17 percent in 1979 and 14.5 percent thereafter; higher tariffs for public enterprises, particularly electricity and port tariffs; and, if necessary, further reforms of the tax system. In addition, the Government has established ceilings for total public fixed investment (about 11 percent of GDP). To avoid excessive pressures on the balance of payments and the domestic price level, the Government is also expected to increase credit only slightly faster than nominal GDP. Interest rates were raised to keep them in line with external market conditions and to stimulate savings deposits. Based on the ambitious development program, the Government earlier this year negotiated with the IMF a loan package totalling about US$75 million (of which US$57 million is from the Extended Fund Facility). The three-year EFF arrangement provides Fund resources in support of sound overall economic and financial policies during the implementation of the public investment program; the latter should strengthen substantially the balance of payments in the mid-1980s by reducing significantly the fuel import requirement of the economy and by generating increased exports, particularly lumber and wood products. Nevertheless, the large size of the investment  - 6 - program, the political uncertainty now prevailing in the Central American region, and past volatility in Honduras' export receipts have led the autho- rities to request the Bank's collaboration in annual reviews of the investment program and its financing prospects. We plan to respond positively to this request and will be monitoring closely Honduras' progress. External Financing 15. As the import needs of the economy expand, in particular the imports related to the public investment program, the current account deficit is expected to increase to about US$340 million by 1983 (about 10.8 percent of GDP) and, as a result, large capital inflows will be required. The bulk of the external financing requirements is expected to be met through public borrowing. Honduras will require an estimated gross capital inflow of US$1.1 billion during 1980-83, of which over US$360 million will be disbursed from commitments made through the end of 1979. 16. Honduras' public external debt repayable in-foreign currency amounted to US$591.1 million at the end of 1978, US$917.9 million if undisbursed commitments are included. In the past, Honduras has managed to keep its external debt service ratio fairly low, because foreign loans were almost all on concessionary terms. The debt service ratio at the end of 1978 was 8.6 per- cent. It is important that the country continue to borrow on reasonably soft average terms in view of the country's poverty, the fact that it will continue to depend on exports of a few commodities with volatile price prospects, and because, historically, natural disasters have sharply reduced the volume of exports every few years. Even if Honduras is successful in obtaining about two-thirds of the financing it needs for its investment program on terms similar to those offered by the international lending agencies, the debt service ratio is likely to rise to about 14 percent in 1986 and 17 percent in 1992. Continued maintenance of Honduras' creditworthiness will depend on the efficiency with which it chooses and implements its major public investment projects; careful, continued demand management, including cautious use of non- concessionary borrowing; and on export promotion policies. We believe that the Government's actions so far have been consistent with these constraints, but will continue to monitor carefully Honduras' performance. 17. The Bank Group holds 25.3 percent of the disbursed public debt outstanding and repayable in foreign currency; excluding IDA, the Bank's share is about 18 percent. About half of the IDB's total loans disbursed and outstanding are'repayable in local currency, so that IDB's share of the disbursed public debt repayable in foreign currency is only 10.5 percent. CABEI accounts for 15.0 percent of the total, the US Government for 14.2 percent, Venezuela for 13.2 percent, privately held debt for about 18.9 percent and other debt for 2.9 percent. 18. During 1970-79, the principal external lending agencies active in Honduras have committed some US$1,005 million at FY79 prices, of which the IDB provided 38.3 percent, the Bank Group 30.4 percent, CABEI 22.3 percent and USAID, 9.0 percent. IDB has concentrated on agriculture, manufacturing, water and sewerage, transport, power, education and housing; CABEI on transport,  -7- power and manufacturing, and USAID on agriculture and education (see Annex I, page 6). It is expected that USAID and CABEI will continue lending primarily in the same sectors in the future, while IDB would concentrate on agriculture, forestry, transport, industry and power. PART II - BANK GROUP OPERATIONS IN HONDURAS 19. Beginning with a loan of US$4.2 million for roads in 1955, Honduras has to date received 20 Bank loans totalling US$252.7 million and ten IDA credits totalling US$60.1 million, both net of cancellations. The most recent loan, US$19.5 million for a tourism project, was approved in March 1979. As of December 31, 1979, a total of US$104.2 million remained to be disbursed on 13 operations for ports, electricity, roads, livestock, education, regional development, agricultural and industrial credit and tourism. Execution of projects financed by the Bank Group has, on the whole, been satisfactory. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of December 31, 1979, as well as notes on the execution of on-going projects. 20. In the past, Bank Group lending was heavily concentrated in trans- port and power, where inadequate facilities hampered the development of the country. The First Livestock Development Credit approved in 1970, how- ever, marked a first step towards the diversification of our lending. Since then, this diversification has continued through operations for a Second Livestock project; a First Education Project, which included as major compo- nents primary and secondary teacher training schools, and support for voca- tional training centers and the national agricultural secondary school; a First Agricultural Credit Project to finance livestock and crop development with emphasis on assisting agrarian reform settlements through investment credits and a substantial technical assistance program; a Second Education Project to help finance rural primary schools and agricultural vocational education; a Regional Development Project to assist small farmers and agrarian reform settlements in the Guayape Valley; an Industrial Credit Project to provide funds primarily to small and medium manufacturing firms and for the wood industry; and a Tourism Development Project to contribute to the diversification of the sources of Honduras' foreign exchange earnings. 21. In future lending to Honduras, we plan to support the priorities of the Government's investment program by giving increased emphasis to agri- cultural and rural development in support of agrarian reform efforts. We would also help finance activities to strengthen the balance of payments by reduicing Honduras' reliance on banana production, while continuing to lend for physical infrastructure where there are still deficiencies to be overcome. We hope to present a follow-on to the First Agricultural Credit Project for consideration by the Executive Directors later this year, and additional rural development projects are planned. We also expect to extend further assistance to the expansion of educational opportunities particularly for the rural population. In transport, we plan to place emphasis on the improvement of road maintenance and on assisting the construction of a network of feeder and access roads to support the Government's agricultural program. In addition, we hope to help Honduras attract more private investment in offshore petroleum exploration through a small technical assistance loan.  - 8 - 22. It is expected that the Bank Group share of total external public debt disbursed and outstanding will remain at about one quarter during the 1980's. The IBRD share of the public external debt service has dropped substantially since the early 1970's, is now about 20 percent and is projected to remain at this level through the 1980's. 23 IFC's activities in Honduras include a 1964 loan and equity investment, of US$295,000 and US$55,000 respectively, in a tannery, Empresa de Curtidos Centroamericana, S.A. In 1966 an additional equity investment of US$27,500 was made in this company. In 1969 and 1970 equity investments totalling US$75,000 were made in a pilot company, Compania Pino Celulosa de Centro America, S.A., which was established to develop an industrial project based on timber from the Olancho Forest Reserve. Although this company is no longer involved in this project, IFC continues to assist the Government of Honduras in creating an organizational structure and selecting a technical partner for the project. In 1978 IFC approved a loan of US$9.0 million and an equity investment of US$1.0 million in Textiles Rio Lindo, S.A. de C.V., a locally owned textile company, to help finance an expansion and diversifica- tion project. IFC continues working with CONADI and local private investors in developing other investment opportunities in the country. PART III - THE SECTOR Energy Sector 24. Honduras has the second lowest per capita energy consumption in Central America, although total consumption of primary energy has been in- creasing an average of some 7 percent yearly since 1970. A high proportion of commercial energy requirements (estimated at 78 percent in 1976) is met by imported petroleum. The country's domestic energy resources are not fully known but are currently limited to hydro power, wood, charcoal and bagasse. The existence of domestic fuel resources in commercial quantities has yet to be proven. The Government and private sector have recently been giving increased attention to exploring for coal in central and western Honduras and for petroleum and gas offshore in the Caribbean. For coal, results have not been encouraging, and petroleum exploration has been very limited so far. As mentioned in para. 21 above, the Bank is currently processing a proposed technical assistance loan to help promote petroleum exploration. 25. Several alternative sources of energy are being studied with Bank assistance under the loans for the Fifth and Sixth Power Projects (Nos. 841-HO and 1081-HO). Areas which appear to have potential for geothermal development are being evaluated. The country's forests represent a resource which has not yet been fully tapped. COHDEFOR has proposed the use of waste wood (produced by the country's sawmills) for fuel, and a recent study by its consultants suggests that modern methods of pelletizing woodwaste would make steam power plants economically feasible. These plants would be mainly in rural areas and would help to provide earlier access to electricity in such areas than would otherwise be feasible.  - 9- 26. Honduras has large hydroelectric power resources, with a theoretical annual potential of about 35,000 GWh. The role of hydropower has grown rapidly since 1970. However, only 656 GWh or less than 2 percent of the potential is presently being tapped, and fuel-based electricity generation is expected to grow steadily over the next five years. The best prospect for reducing fuel imports lies in the replacement of this thermal generation by hydroelectricity. About one third of the hydro potential has already been inventoried, and sites aggregating about 2,000 GWh annual production have been studied at feasibility level, including the proposed El Cajon project (about 1,350 GWh per year) on the Humuya river. Further work is planned to update the existing inventory and to prepare a prefeasibility study of the most promising development after El Cajon, with financing under the Nispero Power Project (No. 1629-HO). Possible small hydroelectric projects are being studied to expand the options available for future supply to rural areas. 27. Honduras' Economic Planning Council is responsible for defining broad national energy policy objectives. The other Government agencies with responsibility in the energy sector are the Ministry of Natural Resources, the Ministry of Economy (petroleum product distribution and pricing), the Ministry of Public Works and Communications (transport companies), COHDEFOR (wood and charcoal production) and the Empresa Nacional de Energia Electrica (ENEE), which is responsible for electricity generation and distribution. The Government has been reviewing prospective energy demand and supply patterns and alternative energy sources with UNDP assistance. At the same time, the Government and Bank have been discussing measures designed to improve coordination and policy-making, as well as to meet training needs, in the energy sector. As a first step, the Government has just created a national commission to advise on energy policy. Power Sector 28. ENEE has sole responsibility for management of the power sector in Honduras. There is no regulatory agency. ENEE is a Government-owned, autonomous institute which, since its creation in 1957, has acquired most of the privately-owned and municipal systems, and now provides almost 100 percent of public electricity service in the country. At present, ENEE has an electric power generating capacity of 190.6 MW, including diesel units with 50.6 MW of total capacity and two gas turbines with a capacity of 28 MW. The Nispero Project will enable ENEE to add 30 MW of diesels in 1980 and 22.5 MW of hydro power in 1981. 29. The energy generated by ENEE during 1978, including the supply of 8 GWh to Nicaragua pursuant to the interconnection inaugurated in 1975, amounted to 692 GWh. Sales have grown by an annual average of 15 percent since 1967. The current load forecast projects an annual average increase in total sales during the 1979-1988 period of 11.7 percent, which appears reason- able. This should result in a considerable increase in per capita electricity generation. ENEE currently reaches about 22 percent of the total population mainly via its interconnected system. Overall, ENEE supplies electricity to about 600,000 people or about 75 percent of the inhabitants of the areas served. By the end of the project period, ENEE expects to make electricity  - 10 - available to about 37 percent of the population, as a result of the distribu- tion facilities and rural extensions being built. ENEE has been carrying out a rural electrification program since 1971, and has built about 270 km of 35 kV rural lines with financing by the Bank. ENEE is now undertaking with assistance from USAID the electrification of the Aguan Valley, where the Government is presently implementing an extensive rural development program. This project will benefit 25,000 low-income families. Another 5,500 families in low-income areas near Santa Rosa de Copan will benefit from extensions being undertaken in conjunction with the Nispero Project. Since the bulk of the population not now supplied by ENEE lives in rural areas, many in remote locations, it is difficult and costly to provide them with electricity and, as noted in paragraphs 25 and 26 above, ENEE is studying ways of reducing the costs of supplying these areas. The Borrower 30. ENEE has been directed by a board consisting of the Ministers of Public Works, Natural Resources and Planning, and representatives of the National Development Bank and the Chamber of Industries and Commerce. In preparation for the increased responsibilities and major financial under- takings which the El Cajon project entails, ENEE has expanded its Board to include the Minister of Finance and the President of the Central Bank. ENEE's operations are directed by a General Manager, assisted by four Deputy Man- agers. Its organization is well structured along functional lines. ENEE has been strengthened in recent years with the help of Bank-financed consultants and training programs. However, further efforts in these areas are still required. With the assistance of consultants financed under the Nispero Project, ENEE is expected to complete a Management and Organization study by October 30, 1980. The initial recommendations of the consultants (involving organizational changes in the financial and operational areas) are already being carried out. ENEE has agreed to take further measures by March 31, 1981 to improve its organization and management, based on the full recommendations of the study and the Bank's comments on these. ENEE is also preparing a program for further training of its management and staff, also with the help of the Nispero loan. The project's engineering consultants would conduct extensive training of ENEE's staff during the execution of El Cajon. Further, ENEE has recently had a study prepared which examined the adequacy of its salary structure. This indicated that present professional salary levels are adequate to attract and retain qualified personnel. Nevertheless, an agreement has been reached that ENEE would study further measures, principally dealing with employee benefits, recommended by the study. 31. ENEE has rapidly increased the size of its plant. Over the past ten years, its generation capacity has grown an average 14 percent p.a. This expansion required a substantial investment effort, averaging about US$19 million per year (in constant 1978 prices), which ENEE was able to manage while maintaining a satisfactory financial structure. Until the 1973 increase in world petroleum prices, ENEE's tariffs enabled it to obtain a rate of return in excess of the 10 percent covenanted under the Bank-financed Fifth and Sixth Power Projects. ENEE's financial performance deteriorated after 1973, as its dependence on petroleum fuels increased during the construction  - 11 - period of the Rio Lindo hydro power plant expansion. The tariff actions taken over the period and the start of operations of the expanded plant allowed ENEE gradually to offset the effects of the petroleum price increase. For 1979, its rate of return on annually revalued assets is estimated at about the 8 percent covenanted under the Nispero Project. To achieve thiq target, ENEE increased its tariffs in June 1978 and again in May 1979. Moreover, in connection with the Nispero Project, ENEE agreed to the principle of annual asset revaluation, and to incorporate from 1978 on the results of this revalua- tion in its audited financial statements. For the future, ENEE also has now agreed annually to revalue work in progress on major projects with long construction periods. Further, although most of ENEE's tariffs now fall within Central American averages, tariffs for large industrial and commercial consumers are among the lowest in the Central American region. Consultants have completed a study of ENEE's tariff structure based on long term marginal- cost criteria. Based on this study, ENEE has defined a satisfactory program for tariff structure revisions reducing the relative burden of residential consumers vis-a-vis commercial and industrial enterprises. 32,. ENEE's assets have approximately tripled in real terms over the past ten years, to US$275 million equivalent (adjusted for inflation), while its debt/equity ratio has improved slightly (from 51:49 to 48:52). Since Govern- ment equity contributions in the period were small, this development basically reflects ENEE's capacity to meet a substantial part of its normal investment needs through internal cash generation. ENEE also has tended to operate with a small, occasionally negative working capital which provided little margin for such unforeseen circumstances as foreign exchange fluctuations affecting debt service obligations. For the Nispero Project, the Central Bank of Honduras needed to provide ENEE with "bridge" financing until the Bank loan became effective. It has been agreed that, during the construction of El Cajon, the Central Bank would provide ENEE with a stand-by revolving line of credit initially of US$5.0 million; this amount would be revised from time to time based on ENEE's cash budget. This should provide ENEE with an addi- tional margin of safety while allowing it to maintain fairly low liquidity levels. To enable ENEE to use its funds in an efficient manner, the Government would permit the company to make short term placements of funds, at rates of interest in line with its own cost of funds. Bank Participation in the Sector 33. The Bank Group has made seven loans and two credits to the electric power sector, totalling US$110.5 million, which have financed a substantial part of ENEE's development program to date. The first four projects 1/ have been successfuly 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; (b) transmission expansion (particularly under the Fourth Project); and (c) distribution expansions. The Project Performance Audit Reports for ENEE's Third and Fourth Power 1/ Loan No. 226 of May 19, 1959; Loan No. 261 of June 28, 1960; Loan No. 541/Credit 116 of May 18, 1968 and Loan 692/Credit 201 of June 16, 1970.  - 12 - Projects 1/ indicate that both projects were implemented without noteworthy problems and that the purposes of both projects were fully achieved. The major lessons learned from these projects - the need for training and for improvements in ENEE's management - have been addressed in the Nispero Project. 34. The Fifth Power Project (Loan 841-HO of June 28, 1972) -- which included 26 MW of diesels, an interconnection line to Nicaragua, a load dispatch system, studies and training -- is over 90 percent completed. Its full completion will be delayed by about 3 years because of the slow preparation of the load dispatch and communication system and the addition of a geothermal resource study. Since the load dispatch and communication component would cost substantially more than originally estimated, the Government obtained additional financing of US$1.7 million from the OPEC Special Fund. The 138 kV lines for the Aguan Valley have been deleted from the project in the light of the USAID-financed comprehensive rural electri- fication project for the Valley. The loan for the Sixth Power Project (No. 1081-HO of January 27, 1975) finances the 46 MW extension of the Rio Lindo hydroelectric plant, distribution system improvements, rural electrifi- cation works, studies and training. The plant extension went into operation ahead of schedule. Some US$1.1 million of the savings under the loan, realized from lower than expected steel prices and other cost reductions, are being used, with Bank approval, to finance part of the extension of 35 kV lines to serve rural areas in western Honduras from the Nispero power plant. The Sixth Project is expected to be completed by 1981, two years later than originally estimated. Major equipment components for the Nispero Project (No. 1629-HO of December 15, 1978) have already been ordered. Most of the consultants have already been engaged and the main civil works contractor has begun operations. The Electric Power Program 35. ENEE's objectives in the power sector are: (a) the early optimum use of hydro power resources to substitute for fuel imports; (b) the rehabilitation of systems in areas recently incorporated into ENEE's main interconnected system; and (c) the continued extension of the main system and creation of regional subtransmission systems to expand service in rural areas as soon as is economically feasible. 36. The main element of ENEE's investment program designed to meet these objectives would be the El Cajon hydroelectric project. Before deciding on El Cajon, ENEE evaluated several hydro-thermal alternative programs which could supply the Honduran market after 1982, when the capacity provided by the Nispero Project would be fully used. A study by consultants showed that after installing some additional thermal units, the completion of the El Cajon 1/ Sec M75-411 of May 30, 1975 and Sec M78-489 of June 5, 1978.  - 13 - project as early as 1985 - the earliest possible year - would enable ENEE to meet, at least cost, the growing main system demand for electric energy. The study also determined the most economical pattern of system expansion for development with- and without-pooling of facilities through interconnection with the Nicarqguan Power Company (INE). The result indicated that El Cajon's construction would be the least cost alternative for the interconnected ENEE--INE system expansion, as well as for ENEE alone, and that El Cajon should be built as soon as possible. For these reasons, the Government has assigned highest priority to the project within its energy development program. 37. Because of its large size compared to Honduras' home market, the Government always considered El Cajon to be a project of regional interest. The most obvious market would be Nicaragua; it has a limited number of poten- tial hydro sites and only limited availability of other indigenous energy resources, and it is already interconnected with ENEE's system. Discussions have been underway between ENEE and INE for some time. In 1977, the Government of Guatemala expressed some interest in interconnection and its major power entity (INDE) is now studying this possibility. Eventually, there may also exist the possibility to interchange power with Costa Rica via the Nicaraguan power system. The economic feasibility of an interconnection between Costa Rica and Nicaragua has been established, and financing for the project has been secured. It is noteworthy, though, that export sales are not needed to justify El Cajon's construction. Moreover, based on recent market studies by consultants (adjusted by the Bank in the light of recent sales experience), the supply/demand balance indicates that by the time of completion of El Cajon (now envisaged for 1986), excess hydro energy available for sale to other Central American countries would be minimal. However, these sales could be significant financially if the internal market fails to expand at the rates forecasted. Also, El Cajon would increase the reserve capacity of the Honduras- Nicaragua inter-connected system. 38. Consultants' studies have shown that, prior to the completion of El Cajon, ENEE would have to install about 52.5 MW of generating capacity to meet the growth in demand from 1982 to 1985. The present program assumes the installation of additional diesel units. A 1982-1985 generation addition study is now underway to determine the precise nature of the additional capacity and its timing. The study would be sent to the Bank by July 31, 1980. 39. When the Government decided to undertake El Cajon, it was apparent that there would be a need for substantial external assistance for ENEE's medium-term investment program, now estimated to cost approximately US$865 million over 1979-1986. The Government, therefore, approached the Bank, the OPEC Special Fund, IDB, CABEI,the Commonwealth Development Corporation, and the Venezuelan Investment Fund (FIV) along with the Governments of Japan, Canada, the Federal Republic of Germany, Switzerland and the United Kingdom for support. The Bank has been helping Honduras in its efforts to obtain the concessional financing it requires, and the Government has enlisted widespread support (see para. 43).  - 14 - PART IV - THE PROJECT 40. A Staff Appraisal Report entitled "El Cajon Power Project" (No. 2388-HO dated February 15, 1980) is being distributed separately to the Executive Directors. Supplementary data are contained in Annex III. The project has been studied and prepared over a number of years by ENEE and its consultants. A feasibility study for the project was completed in 1973, but a decision to go forward with the project was deferred as the results of the study indicated that the optimal timing of the project's entry into operation was not before the mid-1980's. In late 1974 the Government decided to proceed with project preparation. A study of the optimal development of the Honduras and of the combined Honduras/Nicaragua power systems and an updated project feasibility study were completed in 1978. The project was appraised in October/November 1978, and the appraisal was updated in October 1979. Negotia- tions were held in Washington from June 26 to June 29, 1979; the delegation from Honduras was led by the Minister of Finance and the General Manager of ENEE. 41. The main objectives of the project are to expand the hydro generat- ing capacity of ENEE, and thereby increase the use of national energy sources to meet Honduras' electricity requirements during 1986-90 and reduce fuel consumption in thermal plants; to strengthen ENEE's capacity to manage and operate a major expansion of its interconnected system; and to provide flood control benefits in the Sula Valley through regulating the river flow down- stream of the dam. The regulation of the river flow would permit the develop- ment of irrigation projects in the future, which could evolve from a planned IDB-financed study. El Cajon may also permit a limited amount of excess energy to be sold to neighboring countries. Project Description 42. The 292 MW El Cajon hydroelectric plant is to be located approxi- mately 80 km southeast of Honduras' major industrial center, San Pedro Sula. The annual production of the plant would be 1,051 GWh of firm energy in a dry year and 1,348 GWh of average annual energy. Thus El Cajon would provide an ample supply of electricity for Honduras' interconnected system beyond 1985. Its construction would take 6-1/3 years. The project's principal works consist of: (a) A concrete arch dam 225 m high, with a crest elevation of 301 m above sea level; 9 3 (b) a reservoir with a volume of 5.65 x 10 m with an associated spillway system; (c) Intake structure and pressure shafts; (d) Underground power house with four 73 MW turbine and generator units and auxiliary equipment; (e) Tailrace structure with four tunnels and outlets; (f) an access tunnel of 700 m and diversion tunnel 500 m long; and (g) about 60 km of access roads.  - 15 - The project does not include the related transmission works since their construction need not begin for several years. However, the optimum trans- mission configuration for El Cajon's output will be defined by the national electrification masterplan, now being prepared by consultants. The study is expected to be completed by mid-1980, in time for the scheduled initia- tion of the transmission works. It has been agreed that ENEE will start these works by September 1, 1982 and bring them into operation by August 31, 1985. The Canadian Government (CIDA) has expressed interest in principle in providing financing for the transmission works. Project Costs and Financing 43. The total project cost is estimated at US$493.2 million of which US$365.6 million represents foreign costs. Interest during construction on foreign loans would add US$89.5 million, bringing total financing require- ments to US$582.7 million. 1/ The proposed Bank Group contribution of US$125 million (a US$105 million IBRD loan and US$20 million IDA Credit) would cover 34 percent of the project's foreign financing requirements and 21 percent of the total. The IDB has already approved loans for the project totalling US$95 million, of which $77 million is from the Fund for Special Operations (FSO) and $18 million is from complementary financing obtained from private commercial banks. A loan of ' 7.8 billion (equivalent to about US$33 million) will be provided by the Overseas Economic Cooperation Fund of Japan (OECF) at 3.5 percent interest, repayable over 30 years, including 10 years grace under joint financing arrangements, with procurement on an untied basis. The Central American Bank for Economic Integration (CABEI) has approved a US$30.6 million loan for the project. The OPEC Special Fund has already signed a loan agreement for US$3.5 million and is considering a Honduran request to increase it to at least US$7.5 million. Processing is well advanced for a loan of 5 million British pounds (equivalent to some US$10 million) from the Commonwealth Development Corporation (repayable over 20 years including 6 years grace with interest at up to 9 percent). Based on the offers received from the Federal Republic of Germany, United Kingdom and a number of other countries, suppliers' credits totaling about US$68 million are expected to be available on favorable terms for the equipment items. As the engineering services are being provided by a Swiss firm, the Government has requested US$15 million from Swiss sources to help finance these services. Prospects for Swiss commercial bank financing or possibly suppliers credits appear good for the amount requested. 44. The Government has also agreed to provide ENEE as a capital contribu- tion US$113.2 million, of which US$55 million will be provided, largely for local costs, from the proceeds of a loan from the FIV. Moreover, the Govern- ment would lend to ENEE US$20.5 million for a term of 20 years, with repayment beginning at the end of construction, at 10 percent interest. ENEE will provide the balance of projects costs, US$64.8 million, from its own resources. As a portion of the Government contribution would be required to cover foreign exchange costs, the Government may elect to obtain all or part of this amount 1/ This total excludes about US$3.8 million estimated to have been expended on the project in 1978.  - 16 - from private commercial banks (in addition to the amount requested from Swiss sources for engineering services). The Government has obtained expressions of interest from a number of private banks for participating in the financing of El Cajon, and the Bank has offered to make available its special cofinancing arrangements to facilitate this effort, if requested by the commercial banks. The Government nas agreed to provide its equity contributions to ENEE each year thru 1985 on an agreed timetable (see Section 2.02(b) of the draft Guarantee Agreement). It also has agreed to take all measures necessary to accomplish this and to provide whatever additional resources are required for the project. A summary of the project financing plan is as follows: ----------------------------US$ million------------------------- IBRD/ OPEC Suppliers Comm. ENEE/ /1 IDA IDB OECF CABEI CDC Fund Credits Banks Govt. Total Power house 29.6 -- -- 30.6 10.0 -- -- -- 26.4 96.6 Arch dam 75.9 94.2 33.0 -- -- 7.5 -- -- 77.7 288.3 Steel structures -- -- -- -- -- -- 20.1 -- 0.5 20.6 Turbines and generators -- -- -- -- -- -- 41.1 -- -- 41.1 Auxiliary equip. -- -- -- -- -- -- 5.1 -- -- 5.1 Land, road, etc. -- -- -- -- -- -- -- -- 15.9 15.9 Engineering 1.2 -- -- -- -- -- -- 15.0 9.3 25.5 Total Costs (incl. conting.) 106.7 94.2 33.0 30.6 10.0 7.5 66.3 15.0 129.9 /2 493.2 /2 Financial charges 18.3 0.8 -- -- -- -- 1.8 -- 68.6 89.5 Total requirements 125.0 95.0 33.0 30.6 10.0 7.5 68.1 15.0 198.5 582.7 /3 /1 Includes proceeds of US$55 million loan from FIV. /2 Sub-totals do not add because of rounding. /3 Excludes about US$3.8 million expended on the project in 1978. Because of the heavy impact which the project will have on ENEE's finances, the proposed loan would finance interest and other charges on the Bank loan through December 31, 1985. On this account also, and bearing in mind the extended (6-1/3 year) construction period, a 6 year grace period is proposed (one year longer than standard terms for Honduras). 45. A summary of project costs is set out in the Project Summary above (see page i). The estimates were based on an analysis by consultants of the bid level designs prepared by ENEE's engineering advisers. They also have been reviewed by an independent consultant to the Bank. Prices reflect third quarter 1979 prices. Bids for the civil works were opened in October 1979; the lower bids are in line with the consultants' estimates. The average expatriate man-month cost for consultants (excluding travel and subsistence) is US$8,500. Given the advanced state of project engineering, allowances for  - 17 - physical contingencies are about 15 percent for major civil works and 5 percent for equipment, engineering during construction and other items. Allowances for price increases are 12 percent for 1980, 10 percent for 1981-82, 8 percent for 1983-84 and 7 percent p.a. thereafter. Co-Financing Arrangements 46. The project financial arrangements entail joint financing by the Bank Group, CABEI and CDC of the underground power house component, and by the Bank Group, IDB, OECF and the OPEC Fund of the arch dam component. Memoranda of understanding have been negotiated with these institutions (discussions are still underway with the OPEC Fund). The memoranda treat procedures for procurement; proportionate financing of the common project components; use of the IDB office in Tegucigalpa for field surveillance of project progress; coordination of supervision of the project (through a consulting board and Bank/IDB/OECF missions); and exchange of information. Further, the conditions of effectiveness of the proposed loan/credit include the fulfillment of conditions to first disbursement of the IDB financing, and satisfactory progress towards obtaining the balance of foreign financing required (see Section 7.01 of the draft Loan Agreement). Project Execution 47. The project schedule calls for the last El Cajon unit to be placed in operation in August 1986. To meet this date, the contracts for construction of the dam (the major critical item) and the powerhouse have already been bid and are scheduled to be awarded in late March 1980. Bidding for items other than the dam and powerhouse are expected to take place over the next three years. 48. ENEE has made special organizational arrangements for the project because of the company's lack of experience with the construction of hydroele- tric projects of the size of El Cajon. It has established a special project unit, with an appropriate combination of local and international experts; appointed its director; and provided a satisfactory timetable for staffing the remaining positions. In addition, ENEE has contracted a consulting board of four high level experts on various aspects of hydroelectric works who meet periodically to review project issues. In view of the very large civil works component, the project director is being assisted by an engineering advisor for advice on bid evaluation and on negotiation of the civil works contracts. Because of the large number of funding sources and contracts, the project director is also being assisted by a financial advisor. A financial administrator is expected to be engaged shortly; his appointment would be a condition of effectiveness (see Section 7.01(e) of the draft Loan Agreement). In addition, ENEE has contracted a consulting firm for project engineering and supervision services. These arrangements would not be altered before consultation with the Bank. The Bank Group would finance the services of the consulting board, the engineering advisor and the financial advisor.  - 18 - Procurement 49. All construction items of the project--except for land, access road to the site, environment and resettlement--would be procured under international competitive bidding. Special arrangements would be established regarding the purchase of cement, the only project goods expecteu to be avail- able in Honduras whose total cost is estimated at about US$29 million. At present, there is only one local supplier of cement, who does not have sufficient capacity to cover the project requirements. A new cement plant is expected to begin production in 1982, and would provide sufficient capacity not only to meet the expected normal growth in demand but also to allow the local producers to fill the project's needs which principally involve deliveries in 1984-85. The bidding documents require the contractor for the dam to place annual contracts for all cement supplies. Procurement of cement will be subject to international competitive bidding consistent with Bank guidelines and subject to Bank review before award. Domestic cement suppliers would be given a margin of preference of 15 percent, or the applicable import duty, whichever is lower. These provisions should ensure reasonable competition for cement supply and relieve the contractor from the uncertainty which might otherwise prevail with respect to future Honduran cement availability while allowing local industry to participate in the bidding. Equipment procurement will be subject to competitive bidding among suppliers. 50. Disbursements from the loan/credit accounts would be made for: (a) 42 percent of the foreign cost of the civil works contract for the underground powerhouse (excluding cement); (b) 36 percent of the foreign cost of the civil works contract for the arch dam and related works (excluding cement); (c) 75 percent of total expenditures for cement supply; (d) 100 percent of expenditures for consultants' services by ENEE's consulting board, financial advisor, and engineering advisor; and (e) interest and other charges on the Bank loan accrued to December 31, 1985. Retroactive financing of up to US$250,000 is recommended for payments for consultants' services provided after November 15, 1978. Financial Analysis 51. Because of the lumpiness of the El Cajon project costs, it is projected that ENEE's financial structure would deteriorate somewhat and debt service coverage would fall during the project period. However, starting in 1986 when the project is expected to come into operation, this trend would reverse and ENEE's financial position would improve substantially.  - 19 - 52. ENEE and the Government have agreed that, starting in 1980, tariffs would be maintained at levels sufficient to achieve at least a 9 percent return on average net revalued assets in operation rather than the 8 percent covenanted under the Nispero loan. ENEE's Board has already approved the tariff increases to achieve the 9 percent return during 1980, anid these will take effect as of March 1, 1980. For future years, achievement of the 9 percent rate of return should allow maintenance of tariffs at levels in line with marginal cost of supply, and would enable ENEE to make a 19 percent contribution to the 1979-1985 investment program. This is reasonable in view of the magnitude of the works involved. When El Cajon comes on stream, ENEE's rate base will increase sharply. Consequently, the application of the 9 percent rate of return objective would then require a large tariff increase, in fact greater than the financial projections and economic analysis show is required. Therefore, it has been agreed that, during the first three years of operation of El Cajon, if it will not adversely affect its operations, ENEE would maintain its average tariffs at least at the same level, in real terms, as that required to produce an annualized rate of return of 9 percent in the twelve months preceding the initial operation of El Cajon. 53. Present financial projections show that ENEE's debt/equity ratio would reach a maximum of 54:46 in 1983 and then fall, which is considered acceptable in view of the lumpiness of the project investment. Debt service coverage is forecast to be tight through project construction and would drop to a low of 1.0 in 1985 when debt amortization builds up. However, the ratio is expected to rise to 1.3 in 1986 and to 1.6 in 1988. The short term financial position is also expected to be somewhat tight until about 1986 but will be alleviated by the use of the proposed Central Bank line of credit (para 32). In addition, it has been agreed to repeat the covenants under previous loans regarding ENEE's retention of earnings, and the Bank's right of approval of any long-term borrowing if ENEE's internal cash generation reaches less than 1.4 times its maximum future debt service requirement. In view of its large expansion program, ENEE would inform the Bank of any proposed major new power investments until completion of the project, and provide to the Bank for its comments reports showing that such investments are economically justified and adequately financed. The draft Guarantee Agreement (Section 3.05) provides that the Government would (1) take all action necessary to coordinate power sector expansion and operations in order to prevent waste of energy, duplica- tion of facilities and unnecessary investment; (2) ensure that such expansion is based on economically justified programs and would be financed on appro- priate terms; and (3) ensure also that this expansion is within ENEE's administrative capacity and will not adversely affect any Bank-supported power project. Environmental Effects 54. The project's impact on the environment has been studied carefully, and a program is being prepared for implementation of the necessary protective measures during construction. Approximately 5,000 families living in the El Cajon basin will have to be relocated, compensated for their property losses, and helped to obtain new employment. As Mayan tombs have been found in the area of the reservoir, their protection and that of the fauna and watershed have to be ensured. Additional measures will be needed to prevent contagion and the introduction of disease during construction and the operation of the  - 20 - project. In May 1978 the Government established an interagency group for the planning and execution of measures in the various areas indicated in studies made by consultants. The General Manager of ENEE is head of the group, coordinates the activities of the various ecological programs and partici- pates in their organization and planning. This planning has begun, as has a census of the El Cajon basin area. ENEE's consultants will exercise continuous supervision of the environmental works and will recommend actions to be taken, as well as provide help where there is a lack of local expertise. Agreement has been reached on the principal measures required, and on a timetable, for land acquisition and environmental and resettlement activities. The Government would make adequate budgetary allocations for these works based on a division of responsibilities for their execution between ENEE and the Government. As a condition of effectiveness, ENEE would furnish the Bank a satisfactory detailed program for the several activities involved (see Section 7.01(f) of the draft Loan Agreement). Economic Analysis 55. Studies by ENEE's consultants have shown that the El Cajon Project would be the least-cost solution for Honduras' expected load requirements during the 1980s compared with the second-best alternative of thermal plants. No program consisting of other hydro plants which have been investigated to feasibility study level, or of such plants in combination with thermal plants, could be built at lower cost. Thus, the second best alternative would consist exclusively of thermal units. At November 1979 prices (assuming these constant thereafter), the equalizing discount rate between the program with the project and the second-best alternative would be 19 percent. With an estimated present opportunity cost of capital in Honduras of about 10 percent, and the likelihood of fuel cost increases in real terms, the project has been selected on an economically sound basis. It has the added advantages of the potential reduction of flood damage in the Sula Valley by storing flood waters in the El Gajon reservoir, as well as the possible availability of excess hydro energy for sale to neighboring countries. 56. The rate of return on the investment program has been estimated as the discount rate which equates the net cost and benefit stream of the program over the useful life of the project. Benefits were measured in terms of revenues at projected 1985 tariffs deflated to 1979 constant prices. The rate of return is estimated at 13.5 percent, taking into account flood control benefits and with unskilled labor shadow priced. Analysis shows that the rate of return is more sensitive to changes in revenues than to changes in transmis- sion and distribution investment or in operating and maintenance costs (includ- ing fuel). The rate of return obtained understates the real economic benefit since revenues from electricity sales do not fully measure the benefits to industry and agriculture and social benefits to users. 57. Based on the above analysis, the Government has assigned highest priority to the El Cajon project within its energy development program. Nevertheless, given the large size of this project in the context of the Honduran economy (project investment is expected to reach 3 percent of GDP in the peak year of construction), the over-all public investment program was carefully reviewed with the Government in order to determine whether inclusion of El Cajon would require elimination or undue postponement of  - 21 - other high priority projects. Based on this review, which took into account the expected continuation of improvements in absorptive capacity in a number of sectors, we are satisfied that the over-all program is well balanced and will address the most important needs of the economy. At the same time, the public investment program will be quite large and will call for careful demand management of the economy over the medium-term. For this reason, the Bank has stressed to the Government the importance of carrying through fiscal and other measures and will closely monitor their implementation (ref. para. 14 above). Project Risks 58. The project involves the normal risks of a large civil works under- taking. To mitigate the uncertainties, consultants of recognized ability examined the topographic, hydrometeorologic, hydraulic, seismic, soil mechanic and other aspects. The experts established that the geological faults at the dam site are inactive and concluded that their reactivation was highly unlikely. They also determined that the project is located on a geologically unfavorable site composed of karstic limestone. The structures have been designed taking these factors into account and suitable safety margins have been provided. At the feasibility stage, various alternatives were examined, applying economic and technical criteria appropriate for these types of works. The studies and designs are regarded as realistic. 59. The project's cost estimates, prepared by specialists using the methods and details of a prospective contractor, were based on bid document levels of engineering and, as noted in para. 45, the lower bids for the major civil works are in line with these estimates. It is, therefore, believed that reasonable precautions have been taken to obtain realistic cost estimates. The special measures taken and planned should assure that ENEE can carry out the project in a satisfactory manner. ENEE's own staff has built up consider- able competence, and this will be supplemented by the project unit, the consulting firm, the board of consultants, engineering and financial advisers. In addition, to guard against conceivable damage and other contingencies, ENEE engaged consultants who have advised it on the handling of insurance questions in ENEE's project contracts. The consultants' recommendations as to the division of responsibilities for risks between ENEE and contractors and as to the scope of the insurance coverage required have been accepted by ENEE. As further safeguards, ENEE would provide the Bank with detailed inspection programs of project works six months before each critical construction stage, and for subsequent maintenance phases. 60. A project of the size of El Cajon involves a major financial under- taking for Honduras. On this account, there have been sustained efforts to mobilize external financing on appropriate terms to cover all project components and the projected transmission requirements. As indicated by the project financing plan (ref. paras. 43-44 above), the Government and ENEE have attracted a substantial amount of external finance for the project at favorable terms. Also, the precautions that have been taken to avoid sizeable cost overruns (discussed in paragraph 59 above) should help assure that the commer- cial borrowing that might be required to finance any overruns that do occur would not be so large as to cause serious debt servicing difficulties. The  - 22 - Government participation, while substantial, will be spread out over a seven- year period and should clearly be manageable, particularly in light of its assistance from FIV and the planned domestic financial measures (ref. para. 14). PART V - LEGAL INSTRUMENTS AND AUTHORITY 61. The draft Loan Agreement between ENEE and the Bank, the draft Guarantee Agreement between the Republic of Honduras and the Bank, the draft Development Credit Agreement between the Association and the Republic of Honduras, and the Recommendations of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement and in Article V, Section Id of the Articles of Agreements of the Association, respectively, are being distributed to the Executive Directors separately. The draft agree- ments conform to the normal pattern of loans for power projects and their more important features have been included in Part IV and are summarized in Section III of Annex III of this report. The effectiveness of the Loan and Credit is conditioned on (a) presentation of a detailed program satisfactory to the Bank for environmental programs; (b) fulfillment of conditions to first disbursement of the IDB loan; (c) satisfactory progress towards obtaining the balance of foreign funding required; and (d) appointment of a financial administrator. 62. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank, and that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 63. I recommend that the Executive Directors approve the proposed loan and credit. Robert S. McNamara President Attachments February 20, 1980  - 23 - Page 1 ASULI 3A inOUDOUY71XCIa INDICATORS DATA SlMIT LSD (TIIOOStD. SQ. sOl.)ua U7UII t CE OtOS (DJUD AACES AGRICULTURAL 28.9 mm UCE CO0CRAFUIC INCOME lgcoig 1"0 Lb 1970 /b UTIMX /b C otoI L own 8 010 /0 ap PM CAPITA (USS) 180.0 260.0 480.0 1124.4 467.5 1097.7 ann CONaSuwSow in CAPiTA (XILOGRAIM OF TO l ) 155.0 247.0 264.0 943.1 262.1 730.7 1011 SD VITAL SSTISC 7QULAT7.00 ~(MILLIONS) 1.9 2.6 3.3 116 PUXlIoITi (num OP TOTAL) 22.7 28.7 32.0. 59.3 24.6 49.0 IVLATEW FCSE= US OP0L9 TION 1161 2000 (CILIOIWS) 7.0 STATIOINA POLATIOM (MIDLIOu) 15.0 fa STA10NAO POPULATION IS 3AC 2090 ?OPVIIATIOW DENSTY i0 SQ. uC. 17.0 23.0 29.0 23.5 45.3 44.6 Pm SQ. Slt. CZICUL?IL LANLD 67.0 91.0 114.0 80.5 149.0 140.7 POflAiom AcE sTrtucTm (nacEs) 0-14 YU. 45.3 46.1 47.0 40.9 45.2 41.3 15-64 Us. 52.0 51.2 50.0 54.4 51.9 55.3 65 Yn. AKD ADM 2.5 2.7 3.0 3.9 2.8 3.5 POPMATION GR I RATE (PERCE1T) TOTAL 3.3 3.1 3.3 2.4 2.7 2.4 u0814 5.3 5.4 5.3 3.7 4.3 6.5 CUM01 ItZM LATZ (PUl TOUSAND) 51.0 49.0 47.0 32.8 39.4 31.1 CR1D1 DOTAY RATE (PU T.DuSAND) 19.0 15.0 12.0 8.5 11.7 9.2 (MOSS RURODUCTION RATE .. 3.4 3.4 2.4 2.7 2.2 FA2LY LAnlINr ACCEPTORS ANUAL (TDUSANDS) .. 12.7 23.0 USERS (PRCzNT or rrD N ) .. .. 9.0 17.7 13.2 34.7 FOOD AD NUDTTION INDEx or FOOD ODOCTION in CAPITA (1969-71-100) 79.4 96.0 86.0 9S.4 99.6 104.4 P:U CAPITA SUPPLY OF CALOUIES (PR7ECZNS O REQDIR'tENTS) 84.0 99.0 90.0 107.0 94.7 105.0 PROTEINS (GRAMS PE DAY) 53.0 58.0 56.0 60.4 54.3 64.4 Of WHICH ANIMAL AND PlLSE 21.0 25.0 20.0 28.3 17.4 23.5 CHILD (AGES 1-4) NDIlTALrTT RATE 30.0 20.0 14.0 6.7 11.4 9.6 UALTl LlFE ICCTANCY AT 8IRSR (TAS) 46.0 53.0 57.0 63.6 54.7 60.2 INFANT hCITALITY uR (nP TROSUS ) 130.0 117.0 103.0 76.1 68.1 46.7 ACCESS T1 SAn VATE (P1R1ET OF POPULATION) TOTAL .. 34.0 46.0 63.4 34.4 60.8 VW .. .. 82.0 79.5 57.9 75.7 RURAL .. .. 27.0 38.6 21.2 40.0 ACCESS T EXCRETA DISSOSAL (PECElr OF POPULATION) TOTAL .. 24.0 .. 58.8 40.8 46.0 URBAN .. 64.0 .. 77.8 71.3 46.0 AL .. 9.0 .. 24.5 27.7 22.5 POPULATION PER PEYSICIAN .. 3710.0/f 3300.0 1841.9 6799.4 2262.4 POPULATION PER NURSING PZ150N .. .. 1420.0 933.7 1522.1 1195.4 POPULATION PER HOSPITAL BZD 7OTAL 590.0 570.0 660.0 563.4 726.5 453.4 URAN .. 150.0 .. 279.4 272.7 253.1 RURAL .. 11810.0 .. 1140.9 1404.4 2732.4 ADtISSIONS PER ROSPITAL 5ED .. .. 24.0 25.7 27.5 22.1 DOUSING AVERAGE SIZE OF HouSErOLD ZOTAL 5.7 .. .. 5.0 5.4 5.3 URBAN 5.5 .. .. 4.8 5.1 5.2 RURAL 5.7 .. .. 5.3 5.S 5.4 ,VERAGE NUMBEi OF PERSONS PER ROOM mTAL 2.4 .. .. 1.3 .. 1.9 URBAN 1.8 .. .. 1.3 .. 1.6 RURAL 2.7 .. .. 1.5 .. 2.5 ACCESS TO ELECTRICIT (PElRETCr Of DWElLINGS) TOTAL 15.0 .. 25.0 * 54.3 28.1 50.0 WAN 56.7 .. 67.1 80.1 45.1 71.7 auRAL 2.0 .. 5.5 14.2 9.9 17.3  -24 ANN= I Page 2 TABLE 3A HONDURAS - SOCIAL INDICATORS DATA SHEET IREERENCE GROUPS (ADJUSTED AyERAGES HONDURAS -- MOST RECENT ESTIMATE) - SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME tNCOME 1960 /b 1970 L/b ESTIMATE /b REGION /c GROUP Id GWOUP /e EDUCATIOP' ADJUSTED ENROLLMENT RATIOS PRIMAY: TOTAL 67.0 93.0 89.0 107.3 82.7 102.5 MALE 68.0 94.0 89.0 109.1 87.3 108.6 FEMALE 67.0 93.0 88.0 107.4 75.8 97.1 SECONDARY: TOTAL 8.0 12.0 13.0 40.5 21.4 33.5 MALE 8.0 13.0 13.0 40.4 33.0 38.4 FEMALE 7.0 12.0 13.0 39.0 *.5 30.7 VOCATIONAL ENROL. (J OF SECONDARY) 24.0 18.0 2 .0 18.5 9.8 11.5 PUPIL-TEACHER IATTO PRIMARY 32.0 35.0 35.0 37.1 34.1 35.8 SECONDARY 10.0 .. 17.0 17.9 23.4 22.9 ADULT LITERACY RATE (PERCENT) 45.0 *- 57.0 77.4 54.0 64.0 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 3.0 5.0 5.0 29.1 9.3 13.5 RADIO RECEIVERS PER THOUSAND POPULATION 68.0 57.0 54.0 172.1 76.9 122.7 TV RECEIVERS PER TIIOUSAND POPULATION 1.0 8.0 16.0 67.9 13.5 38.3 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 21.0 .. 35.0 76.1 18.3 40.0 CINEMA ANNUAL ATIENDANCE PER CAPITA .. .. .. 4.2 2.5 3.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 590.0 780.0 979.8 FEMALE (PERCENT) 12.5 12.8 13.3 21.5 29.2 25.0 AGRICULTURE (PERCENT) 70.2 66.5 63.0 30.2 62.7 43.5 INDUSTRY (PERCENT) 10.6 12.5 14.7 23.8 11.9 21.5 PARTICIPATION RATE (PERCENT) TOTAL 31.5 30.6 29.8 30.9 37.1 33.5 MALE 55.3 53.5 51.8 47.3 48.8 48.0 FEMALE 7.8 7.8 7.9 13.3 20.4 16.8 ECONOMIC DEPENDENCY RATIO 1.5 1.6 1.7 1.5 1.4 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF BOUSEIOLDS .. .. .. 23.7 15.2 20.8 HICHEST 20 PERCENT OF OUSEROLDS .. 67.8/g .. 58.7 48.2 52.1 LOWEST 20 PERCENT OF HOUSEHOLDS .. 2.3Li *- 2.9 6.3 3.9 LOWEST 40 PERCENT OF HOUSEHOLDS .. 7.37i .. 9.9 16.3 12.6 POVERTY TARGET GROUPS ESTIMATED "BSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 240.0 265.6 241.3 270.0 RURAL .. .. 170.0 185.1 136.6 183.3 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USs PER CAPITA) URBAN .. .. 235.0 396.3 179.7 282.5 RURAL .. .. 75.0 308.1 103.7 248.9 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 14.0 35.2 24.8 20.5 RURAL .. .. F4.9 46.6 37.5 35.3 Not available Not applicable. NO_E ia The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and che most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise aoted, data for 1960 refer to any year betveen 1959 and 1961; for 1970, between !969 and 1971; and for Most Recent Estima e, between 1974 and 1977. ic Latin America & Caribbean; /d Lower Middle Income (S281-550 per capita, 1976); /I Intermediate Middle tncome (5551-1135 per capita, 1976); /f Registered, not all practicing in the country; L. 1967. Moat Recenc Estimate of GUNP par capita is for 1978. August. 1979  ANNThDCI - 25 - ~~~~Page 3 BEPINITISBS OF PICIAL INDICATORS Notes, Although the dais are draw fro soreseerally judged the most authoritative ed reliable, it shouldalobnteththymyntbeao,- tionally comparable becaus ofteak ofsadardized definitions end concepts need by dIfferent conresi oletn t thedta they- date bc nontheless useful to deocribe orders of magnitude, indicate trends, andchcateistcrtinmaordIfeeneshou.n outres d.the Inated group avrgsfrec niao r PoPUlaio-weighted geometric nean, ec-lodiog the estreem values of the indIcator and the meet populated ci.s_iry inec ru. D.Lsto lash of data, grouP averages of nit indicators for Capital SurlsOlPpresnd fidctr_fAcsst ae n ert Dispsal,siouing,moon Dsribution and Poverty for other country groups are psplatien-ssighted geomtric means oitht occlusion of the ostreomvus and the most poP.slted country. Slase thMoeae fctnre s mg the indicators depends on, avilability of data and is noI nfr.oobn utb arie in relatin averages of men indictrt aohr These averages are -ssiy useful me aporombetions f'. etd auswe oprn h auso n iniao tatime smg the coutry and rpferenou groups. lIR AREb (thousand eq-k, ) Access tc ort ipsl(ecn fpplain oa,ubn n ua Total - T.tt1 surface area caprising land area and issland eaters. andmer of peolottl,ubnadrua)sre by et rt ipsla ogrioplu tly- foet rpeen estimae.o agrhcuttu`l area used temporarily percentages of their re-pective ppEain . oecta diapos-l nay Include ore pemnnl o r Pe,psue,nre n kitchen gardens or to the collection and disposal, with or without tre-tment, uf kuensrr lie fallow, an~~~~~~~~~~~~d caste-water by titer-hrom eyste-c or the -o of pit privisesad.,lr lisPPEP APIT (10) - ap pr caita stimtes atcret Vabtpices Populatio- pefr paylos -Ppulation divided by nuber of practiciog physici-n c-lculated by sae conversion methodn World Beank Atlu. (1976-7 bai) ulfiedIfo oia col tuiest r 1NER0, 1970,MPTaNd 197R data. Population per.dbsting -Person - PoPulation divided by ounbee of practicing male ARREt Ci5StTeyfIN PE CAPtA.~ t-.Ana1osupino cy ria der and fPomaIic grdaee uss pratical nooes, and assitant urse. T(I ad inie,ptrlem nAtura garn yr- ula n e-pplto e Hospital Bed -total, urban nodrurl P. platios (total, urio, theralsocrviy in hilogras of coa equivalent per -mpita; 1960 and rurl)iie yter-repecti-e number of hospital beds available is 1970, and 1976 data, public and privategeser.1 and op-eiliced hostpital and rehahilittion centes dosytala are establishm tent permanetly staffed by at leas.t on physivla- PiPUIATION ANDl VITAL STATISTICS Botablishmeots providing principal-ly cutodial c-reare noct inclded. Rural Total 'Poplation. Mid-Year m.illions) A.d of July 1; 1960, 1970, and hospitals, however, isobude hoalth and med-1s centers sot pernenetly ataffvd 1977 data, by a phyioian (hut by a medical assistant, suro, eldaife, etc.) shich cff-e Urban Puat- (peroest of total) - Ratio of urban to total popoation; in-patient aCcomdaticn and provide a limited ro-ge of medical facilities. difftret defiatboso o urban reas ma affect ...mparability of data Ad-soo cpita1 Bed -Tota na-be of Adisciont.5 or dic-hargos ro smog coutries; i96i, 1970, and 1975 data. boapitalo divided by the nuber of bedo. Pop!ulation Projention P6pu4ati.n L. y. 2000 - Current PoPUlstic- projections are based on HOUSIBI i117i5tatl population by age and eo and their mortality mod fertility Average line of HS.usohoid (perocos poe hos-held) - tcta1, urban, andrua- rte.Projectica parmeter for mrtality rates comprise of three A bos..ebo1d consisto fagouifi ditbIun sic ethsr living quarters and levels assumi life -opect-y an birth increaing withcountry's their main mo.A boarder or lodger me or se act be licludod in the Per caita incomel leel, and feenlo life nopectany stbiloing at houshold for tatiatical purposes. 75yer.Te paramter for fertility rate also have three level AveragRe onIor of peroOno perrca- tota, urban, and rua- Aeae us nn.igdecline in fertility according to ac-m leve and pant of person per room in all _rSn and -1rn ucopirdosvtinldeig, family plnssing performac. Bach coutry is then assigned on of these respectively. Doellitgs -oolde non-p-nest ot_uturoad iso-opted Pa-t. sine -oeinationo of mortality and fertility teeodo fnr projeotios Access to Fl-olricity (pvo-t of dwellings - tia, urban nd rura - Cc- pusrpose. -tsiccal deelliaga w.tb electricity to living quarters a per-tentg of Statoay outiion- a tationay population there is no growth total, urban, and erorl dedllingo reapetivoly. ain-e the, birth rato is equal to the issth rate, and also the ago structur remains contant. This is achieved honly after fertility rates EDUfATIolN de1lise to the replacement .ovl of unit net reproductico eats, when Ajsedirlm tPt eahgeeatics of so -crplaes tefvnty h ttoaypp- Prsr ool-ttl aendfml - droo totsl, ma, and fetole -orll lntionoiowa-e-tioutcd cc tic batic of the, prcjeotod charmteristi-s mt of all ages at tie prims-y level anp_eretogs of -epecti-e primary of the population in the your 2OO0, and the rate of decline of fertility svhhol-agn popilotions; o--sIly -loldes childre aged h-il yeuro but rate to repaemetlvl ai7.t ed for different 1-gtho of priso-y eduontioc; for coerv ith tear statinary popultics -cenb.od - The year uhe stationa.ry population nirrso education --rolmet may oceed 100 pero et sinc om op nice han bec- roaned. or below cr oboe the cffcal sc,hool ago. ?CES