Nicaragua - Ninth Power Project

Documen of The World Bank FOR OFFICIAL USE ONLY Report No. 6322 PROJECT COMPLETION REPORT NICARAGUA INSTITUTO NICARAGUENSE DE ENERGIA (INE) NINTH POWER PROJECT (LOAN 1402-NI) June 30, 1986 Latin America and 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.  THE WORLD BANK F01 OFCIL US ONLY Washs"ton. D.C. 20433 U.S.A. Office o D twcew,ai OpreUa Ilvutkm June 30, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBTECT: Project Completion Report on Nicaragua - Ninth Power Project (Loan 1402-NI) Attached, for information, is a copy of a report entitled "Project Completion Repo-t on Nicaragua - Ninth Power Project (Loan 1402-NI)" prepared by t1ae Latin America and Caribbean Regional Office. Further evaluation of this project by the Operations Evaluation Department has aot been made. Attachment 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 disctosed without World Bank authorization.  FOl OFFICIAL USE ONLY NIICAR&GUA PROJECT COMPLETION REPORT INSTITUTO NICARAGUENSE DE ENERGIA (INE) NINTH POWER PROJECT (LOAN 1402-NI) TABLE OF CONTENTS Page No. Key Project Data (i) Other Project Data see ................ , (ii) (iv) CHAPTER I BACKGROUND 1.1 Bank Participation in Sector Financing.....*.**...... 1 1*2 Sector Organizationr.g ..a noisation. .... ............. 1 1.3 Investment Iln CHAPTER II PROJECT PREPARATION AND APPRAISAL 2.1 Project Origin and Preparationpsrati..o.........on... 2 2.2 INE's 1976-1980 Expansion P rogra m am..#........ 2 2.3 Project Description.e s cripti...o .oo .....oon. ...... 3 2.4 Major Covenants in the Loan and Guarantee Agreement. 4 CHAPTER III PROJECT IMPLEMENTATION AND COST 3.1 Negotiations, Effectiveness, and Project Start-up ... 4 3.2 Changes and Timetable ....0000...................... 4 3.3 Project Costs 5 3.4 Performance of Construction Contractors, Consultants, and Supplies 6 3.5 Management and Organization 7 3.6 Institution Building 8 3. Staffing 8 CHAPTER IV PROJECT JUSTIFICATION 4.1 Least Cost Solution so.... 9 4.2 Actual and Forecast Sales 1976-1983 9..o9 4.3 Internal Rate of Return ....iO........................ 10 CHAPTER V FINANCIAL PERFORMANCE 5.1 Actual and Forecast Financial Data, 1996-1981 and Actual Financial Data 1982-1983 .................... 10 5.2 Sales, Tariff Levels, and Finances, 1976-1980 ........ 10 5.3 Compliance with Financial Covenants, 1977-1980 ....... 11 5.4 Compliance with Financial Covenants, 1981-1983 ...... 12 This document has a restricted distibution and may be used by recipients only in the perfomance of their oMcil duties. Its contents may not otherwis be disclosed without Wodd Blank authorldon.  Page No. CHAPTER VI INSTITUTIONAL PERFORMANCE 6.1 Performance of the Borrower ......................... 13 6.2 Performance of Bank Staff... ....................... 13 6.3 Performance of the Government .................. 13 CHAPTER VII LESSONS TO BE LEARNED 7.1 Management ..***..........***o**..**...***.*O4.. 14 7.2 Project Implementation .............................. 14 ANNEXES Annex 1 Summary of Bank Lending for Power ................... 15 Annex 2 Major Covenants of the Loan and Guarantee Agreements. 16 Annex 3 Actual and Forecast Allocation of Loan Pre^eeds ..... 18 Annex 4 Actual and Forecast Project Timetable ................ 19 Annex 5 Price Deflator Indices for Project Costs ............ 20 Annex 6 Appraisal and Actual Project Cost in Constant Prices. 21 Annex 7 Appraisal and Actual Project Cost in Current Prices . 22 Annex 8 Actual and Forecast Cumulative Disbursements ........ 23 Annex 9 Actual and Forecast Sales by Client Category - 1976-1981 .................... ... ...... .............. 24 Annex 10 Actual Internal Rate of Return ...................... 25 Annex 11 Actual and Forecast Performance Indicators .......o... 26 Annex 12 Actual and Forecast Key Financial Ratios ............ 27 Annex 13 Actual and Forecast Income Statements ............... 28 Annex 14 Actual and Forecast Sources and Application of Funds. 29 Annex 15 Actual and Forecast Balance Sheets .................. 30 Annex 16 Summary Sales, Operating Results, Sources and Applications of Funds 1976 - 1980 31  (i) NICARAGUA PROJECT COMPLETION REPORT INSTITUTO NICARAGUENSE DE ENERGIA (INE) NINTH POWER PROJECT (LOAN 1402-NI) PREFACE 1. This is the Project Completion Report (PCR) for the Ninth Power Project in Nicaragua, a transmission-distribution project, which the Bank helped to finance with Loan 1402-NI ($22.0 million). The borrower was the national power company, Instituto Nicaraguense de Energia (INK); the guarantor was the Government. 2. INE successfully completed the project, notwithst- Iing changes, cost increases, and time overruns. Civil strife was the major cause of the changes to the project, cost increases, and time overruns. 3. Approval and signing of the loan documents occurred on April 12 and April 22, 1977, respectively. The loan agreement became effective on October 27, 1977, three months after the original deadline for effectiveness (July 26, 1977). The final closing date was June 30, 1983, as compared with the original closing date of December 31, 1980. 4. The Energy Division of the Latin America and Caribbean Regional Office prepared this report on the basis of information contained in Bank files, information supplied by INE, and information gathered as a result o, discussions with staff of the Bank. In accordance with the revised procedures for project performance audit reporting, this PCR was read by the Operations Evaluation Department (OE D but the project was not audited by OED staff. Following standard procedures, OED sent copies of the draft report to the Borrower and the Government for comments. However, none were received.  (11) NICARAGUA INSTITUTO NICARAGUgNSE DE ENERGIA (INE) 1/ NINTH POWER PROJECT (LOAN 1402-NI) KEY PROJECT DATA Item Appraisal Actual Total Project Cost by Sources of Financiag (US$ million equivalent): -IBRD (Loan 1402-NI) 22.0 21.7 2/ -INE 10.1 17.6 / -CABEI 4.1 1.5 TOTAL 36.2 40.8 Cost Overrun (or Underrun) X - 12.7 Loan Amount (US$ million equivalent): Disbursed 22.0 21.7 Cancelled none 0.3 Repaid as of Nov. 30, 1985 8.1 5.7 4/ Outstanding as of Nov. 30, 1985 13.8 16.0 Date Physical Components Copleted: Transmission, Distribution and Substation August 1980 October 1983 National Load Dispatch Center, Engineering July 1979 December 1983 Services Time Overrun (or Underrun) (X): None 97.6 Economic Rate of Return (X): 13.1 -3.4 5/ Financial Performance: In compliance with re- Borrower failed venue covenant, which to comply with stipulated an 8.51 rate revenue covenant of return on assets in years 1977- annually revalued. 1980. Institutional Performance: Deteriorated; with Improving in expected Improvement sone areas but still facing Im- portant problem 1/ Prior to the civil war which ended in 1979, INS was called Empresa Nacional de Luz y Fuerza (ENALUF). Throughout the report, the Borrower is referred to as INE. 2/ Includes US$1.3 million for reconstruction of damages caused by the civil strife. 3/ Includes USS0.16 million for reconstruction damages caused by the civil strife. / Lower than forecast because Government stopped debt payments. 51 Lower-than-expected return reflects stagnation of demand for electric power due to political and economic events in Nicaragua, and low tariff levels.  (iii) OTHER PROJECT DATA Item Original Plan Revision Actual First Mention in Files - 3/19/75 INE's Loan Application 5/10/75 Negotiations 11/17/76 11/29/76 Board Approval 04/12/77 4/12/77 Loan Agreement Date 04/22/77 4/22/77 Effectiveness Date 07/26/77 10/27/77 10/27/77 Closing Date 12/31/80 06/30/83 Borrower ENALUF - INE Executing Agency ENALUF - INE Fiscal Year of Borrower - - Calendar Day Follow-on Project Name _ Tenth Power Project MISSION DATA No. of No. of Staff Date of ype of Mission Month Year Weeks Persons Weeks Report Project Identification 04/75 0.5 1 0.5 05/19/75 Preparation 09/75 1 2 2 09/11/75 Preappraisal 9-10/75 2 2 4 llj03/75 Appraisal I (lst Stage) 12/75 2 2 4 01/09/76 Appraisal II 01/76 1 2 2 02/25/76 Total 12.5 Supervision II/ 06/77 1 2 2 07/07/77 Supervision IT 01/78 0.5 1 0.5 02/08/78 Supervision III/ 04/78 1 2 2 05/09/78 Supervision IV17 09/79 2 3 6 11/26/79 Supervision v17 02/80 2 2 4 03/07/80 Supervision VYTI 05/80 0.5 1 0.5 05/09/80 Supervision VII1/ 03/81 2 2 4 04/24/si Supervision VIIT 11/81 1 2 2 11/23/81 Supervision IX 04/82 1 2 2 05/17/82 Supervision X 12/82 1 2 2 12/23/82 Total 25.0 1/ Supervision missions were also supervising the 8th Power Loan. COUNTRY EXCHANGE RATE Name of Currency Cordoba Official Exchange Rate At Appraisal US$1.00 - C$7.00 Intervening Years Average US$1.00 m C$7.00 Completion Date US$1.00 - C$10.05  (iv) NICARAGUA PROJECT COMPLETION REPORT INSTITUTO NICARAGUENSE DE ENWRGIA (INE) NINTH POWER PROJECT (LOAN 1402-NI) HIGHLIGHTS 1. INK completed the project (except for the national load dispatch center) with changes, with a delay (more than 36 months), and with a cost overrun (12.71). Completion was effected under highly adverse circumstances not contemplated at appraisal -- civil strife, regional political confrontation, and stagnating electricity sales. Due to these adverse circumstauces, the rate of return on the investment program, of which the project was a part, turned out to be negative. 2. Because of political changes consequent to the overthrow of the Somosa regime, the institution-building objectives of the project became irrelevant. At appraisal, the inefficient management style of the former Executive President constituted a major issue. To assist the Executive President, who was elderly, with the performance of his duties, the Bank conditioned its loan to the snpointment of a General Coordinator under satisfactory terms of reference. This condition strained relations with the Borrower without Improving the performance of the Executive President. Eventually, this source of strain disappeared following the retirement of the Executive President and the appointment of a more competent successor. 3. Taking into consideration the difficult financial circumstances consequent to the civil strife, the Bank waived the revenue covenant (which called for a return of 8.51) for operations in 1979 and established a 5% rate of return for 1980. INE narrowly missed the rate of return established for 1980 but complied with the revenue covenant in 1981 and 1982. Lack of adequate finance contributed to delayed project completion.  NICARAGUA INSTITUTO NICARAGUENSE DE ENERGIA (INK) NINTH POWER PROJECT (LOAN 1402-NI) I. BACKGROUND 1.1 Bank Participation in Sector Financing 1.1.1 Since 1953 the Bank has made nine loans and one credit to the power sector in Nicaragua (Annex 1). After the 1972 earthquake, IDA also made a US dollar 52.0 million credit to the country, for reconstruction purposes, of which US dollar 5.0 million went to the power sector. The first seven loans helped to finance the expansion and improvement of the existing generation, transmission and distribution facllties in the country. The eighth loan, 840-NI (1972; US$24.0 million equivalent), and part of the credit, 389-NI (1973, US$5.0 million), helped to inance a steam generating plant ane :he transmission line interconnecting the power system of Nicaragua and Honduras and the repair and rehabilitation of existing electrical installation damaged with the earthquakes. All the projects mentioned above have been completed successfully, although with some delays and cost overruns. Loan 1402-NI, helped to finance the Ninth Power Project (primarily transmission and distribution works), which is the subject of this report. 1.2 Sector Organization 1.2.1 After the change in Government In 1979, the power sector was reorganized. All municipal power companies and the rural electric cooperatives were absorbed by INE, which now also regulates the sector and is responsible for energy planning in the country. INS absorbed also the National Petroleum Company (PETRONIC) assuming full responsibility for the hydrocarbons sub-sector, as well as continued with its basic role of supplying electricity to the public. 1.3 Investment Plans 1.3.1 As a consequence of the civil strife in late 1978-1979, annual energy demand in the National Interconnected System decreased significantly. Consumption fell from 882 GWh in 1977 to 728 GWh in 1979. Since then, it increased to 989 GWh in 1985. Present consumption represent a five-year lag in demand relative to the 1979 expectation. 1.3.2 The Master Plan Study financed under Loan 1402-NI, included an energy demand forecast. Consumption was expected to grow from 880 GWh in 1982 to 2406 GWh in 1991. Based on this demand forecast the short-term (1982-1987) expansion program called for development of the geothermal field at Momotombo, hydroplant studies, expansion of the 230 kV, 138 kV, and 69 kV transmission system, and expansion of the distribution facilities.  - 2 - II. PROJECT PREPARATION AND APPRAISAL 2.1 Project Origin and Preparation 2.1.1 While supereising the execution of the Eighth Power and Earthquake Reconstruction Projects (Loan 840-NI and Credit 389-NI), Bank staff learned of the interest of INE in interconnecting its system with that of Costa Rica and in expanding its transmission (138 kV) and distribution systems, which would complement the facilities for generation and transmission built under the Eighth Power Project. INE presented the Bank with a formal request in May 1975. In August 1975, a foreign consulting firm provided the economic justification for the interconnection to Costa Rica and also confirmed that the Managua ring at 138 kV could be operated satisfactorily after the 230 kV interconnection line to Costa Rica became connected to INE's system. A preappraisal mission visited Nicaragua in October 1975 to prepare the project. 1 2.1.2 During project preparation it was agreed with INE that the project would include a pilot program for extending the supply of electricity to low incone areas, providing service to about 12,000 households distributed in six major cities. 2.1.3 On December 9, 1975, a Bank appraisal mission visited Managua. Because of unresolved financial, organizational and project issues, the mission did not complete the appraisal. On January 14, 1976, a second mission visited Managua to complete the appraisal. During appraisal, the scope of the project was revised substantially from that originally submitted by INE. The revised project excluded transmission and distribution items (originally part of the Eighth Power Project) that it had become possible to finance with a loan provided by the Venezuelan Investment Fund. 2.2 INE's 1976-1980 Expansion Program 2.2.1 The appraisal report (dated March 30, 1977) set forth the followitg expansion program: (i) Completion of the Tiscuco 100 MW steam electric plant at Punta Tiscuco and conIstruction of the 135 MW geothermal plant at Momotombo  - 3 - and of the initial works of the 330 MW Copalar hydroelec? ic development; 1/ (ii) Transmission, sub-transmission and distribution facilities not included in the project; and 2/ (iii) the Project. 2.3 Project Description 2.3.1 The appraisal report defined the project as consisting of: (a) the Nicaraguan portion of an interconnection line to Costa Rica and transmission and distribution works (which would complement the facilities for generption and transmission built under the Eighth Power Project). Specifically, the interconnec 'uri line and transmission, and distribution works would consist of: (i) about 145 km of single circuit at 230 kV on steel towers for interconnection with Costa Rica; (ii) about 9 km of double circuit and 8 km of single circuit transmission lines at 138 kV to complete the Managua Ring; and about 5 km of single circuit transmission line at 138 kV to connect the Sebaco-Santa Rita line to the Matagalpa substation; (iii) construction, addition, and/or conversion of ab3ut seven substations of 138/13.8 kV or 138/25 kV, by adding about 122 MVA transformer capacity; (iv) relocation of about 75 MVA transformer capacity of 69/13.8 kV to six existing substations; (v) installation of about eight 69 kV circuit breakers and of protective relaying and metering equipment; (vi) installation of about 65 MVAR switched and unswitched capacitors to supply reactive power; and (vii) installation of distribution lines, transformers, and connections in low income areas. (b) National load dispatch center and equipment for operating the Honduras-Nicaragua-Costa Rica interconnection and the national system; (c) Services of engineering, planning, tariff consultants and of expert advisors to assist in: 1/ The Tiscuco power plant financed by Loan 840-NI was completed. The first unit started operations in December 1976; the second, in April 1977. The first unit at Momotombo was comissioned in 1983 and the second unit postponed until 1986. Copalar feasibility studies were updated by German consultants in 1982, but due to the low growth of energy requirements, and unavailability of financing, INE's generation development plan postponed the scart of construction of the Copalar power plant to 1990. 2/ Transmission and subtransmission lines related to the above projects were completed including about 60% of distribution facilities.  -4- Estimated staff-month (i) carrying out the physical works of the project; 180 (ii) preparing a master plan of power system expansion; 144 (iii) preparing a study of alternatives and specifications 20 for the national load dispatch center; (iv) preparing a nationwide tariff study based on marginal 10 cost pricing; (v) preparing and carrying out a program for improving 96 INE's management, administration, and training; and (vi) preparing a sector organization study for the National 18 Planning Directorate. 2.4 MaJor Covenants in the Loan and Guarantee Areements 2.4.1 Annex 2 describes the major covenants of the Loan and Guarantee Agreements. As set forth in chapters 3 and 5, compliance by INE and the Government with respect to operational and financial covenants was less than satisfactory. III. PROJECT IMPLEMENTATION AND COST 3.1 Negotiations, Effectiveness, and Project Start-up 3.1.1 On December 3, 1976, representatives of the Bank, INE, and the Government completed negotiations. The Executive Directors of the Bank approved a loan of US$22.0 million equivalent on April 12, 1977, in support of the project (term: 17 years, including three-and-a-half years of grace; interest: 8%). The Bank conditioned effectiveness of the loan egreement on: (i) the appointment of experts for procurement and training under terms of reference acceptable to the Bank; and (ii) establishment of acceptable terms of reference in areas identified by the General Coordinator as needing improvement. 3.1.2 The Bank Loan Agreement did not become effective on July 26, 1977, as expected at the time of loan signing. Effectiveness was delayed until October 27, 1977, about 3 months late because of slow action on the part of INE in appointing consultants. 3.2 Changes and Timetable 3.2.1 During the civil strife which ended in 1979, INE's electrical system suffered physical damages. In order to help INE to finance part of the reconstruction cost, the Bank agreed to restructure the Ninth Power Project in November 1979. A new allocation of funds was made, which included two new categories (reconstruction of civil strife damages and replenishment of distribution inventories). Annex 3 compares actual and forecast data on allocation of loan proceeds including the new categories.  - 5 - 3,2.2 The national load dispatch center component of the project was dropped. This component received secondary priority after the civil strife and only US$0.17 million were left to finance the interface equipment, required to provide the necessary link between the load dispatch center and the operational devices in the substations and power plants. In 1981, INE obtained the agreement of CABEI for financing the dispatch center. At the time of the last supervision mission (Dec. 1982), construction was expected to be completed by the end of 1984. 3.2.3 The implementation of the low-income distribution program started with a delay of almost one year, because of slow action by INK in defining the list of low Income areas to be served by the project. Despite financial difficulties, INE and the government assigned primary priority to this component because of the social impact and importance for the country. The Bank financed US$1.36 million in foreign exchange component and agreed to finance up to US$0.63 million for local expenditure. Due to disruptions of the civil strife and manufacturer delay in shipping the last portion of equipment and materials, at the time of the last supervision mission (December 1982), only 50X of this component was completed (290 kms of lines, 2,500 kVA in distribution transformers, and 4,900 now consumers connected to the grid). The expected time for project completion was October, 1983. 3.2.4 Annex 4 sets forth the actual and forecast key dates concerning the implementation of the Project. The project was completed in December 1983, about 36 months later than expected at appraisal, The main cause of the delay was the civil strife, which slowed procurement activities and consultant's works on ongoing studies and which adversely affected project implementation. Despite the delay in project implementation, power supply was not seriously affected as the power market did not expand as rapidly as forecast. 3.2.5 Annexes 3 and 8 compare actual and forecast data on allocation of loan proceeds and cumulative disbursements, respectively. 3.3 Project Costs 3.3.1 Annex 5 shows tie price deflators used to deflate the current cost of the project to constant 1976 prices. Annexes 6 and 7 compare the actual and appraisal forecast costs of the Project in constant 1976 and current prices respectively. 3.3.2 In current prices, the Project cost was about US$40.8 million including reconstruction Items, etc., and about US$39.4 million excluding reconstruction items, etc. In current prices, the forecast cost of the project was US$36.2 million; and US$32.49 million excluding the load dispatch center, which was not built (Para. 3.2.2.). The total cost overrun of the project amounts to 21.31 of the original cost. This cost increase is mainly due to: (i) increases of staff-months for consulting services related to the Master Plan due to unfavorable local working conditions during the civil strife and an increase in the scope of work of the studies; (ii) longer-than- expected implementation period of the project; (Iii) higher-than-expected cost of consultant services; and (iv) higher-than-expected costs for the construction of the transmission lines.  - 6 - 3.4 Performance of Construction Contractors, Consultant and Suppliers 3.4.1 INE found the performance of most of its construction contractors to be satisfactory. The same was true of the performance of the suppliers with a lesser exception for two companies that failed to deliver some substation materials as scheduled. 3.4.2 The performance of the consultants was considered satisfactory in general, with the exception of one consultant whose performance in the preparation of the tariff and sector studies was considered by both INE and the Bank to be unsatisfactory. The draft report on the sector study failed to make fundamental recommendations for avoiding overlapping responsibilities between INE and other planning and regulatory agencies of the Government, lacked appropriate analysis of existing INE-Government legislation, and no fundamental recommendations were made to improve present legislation. The study was not completed because INE felt the study was no longer needed as the sector organizational issues, which the study was to address, were already substantially resolved by the measures taken by the Governmeut. The Bank agreed with this recommendation. 3.4.3 With regard to the tariff study (first version), the consultant departed significantly from the terms of reference, particularly ignoring the concepts of tariffs based on future long-term marginal costs. Upon receiving the comments of INX and the Bank, in 1981, the consultant agreed to revise the draft version and to prepare a new report based on long-term marginal costs. A report was finally completed in September 1985 and submitted to INE for their comments. The Bank only received a copy of the report from the consultants on April 18, 1986 but has not yet received INE's comments. 3.4.4 The consultant was given the opportunity to comment on the assessment given in paras. 3.4.2 and 3.4.3 above. The following is a transcription of the consultants' comments: "With regard to the sector study, please recall the circumstances during the period 1977 through 1980 in Nicaragua. The radical changes in socio-economic-political outlooks from the Somoza regime to the present Sandinista government and the sweeping changes put in place following the revolution undermined the need for continuing the sector study. You will also recall that the new Government was then looking for economy measures and for this reason we concurred with INE and the Bank that further work be stopped. Our firm left an outstanding receivable with the Ministry of Planning of about US$50,000 for services performed in providing the draft study and was willing to respond to reflect comments submitted by INE and the Bank had the job not been terminated. Our firm was never paid the outstanding receivable for the sector study. "The history of the tariff study from 1981 to the present has been one of exasperating delays caused largely by turnover of personnel within INE. These delays were ultimately reflected in our report which reflects data supplied by INE staff over the period 1981 through 1985. Our solution to this problem was to give INE the microcomputer rate model developed for the study, thereby allowing INE the capability of updating all tables, without exception, with the most recent data available.  - 7 - "We trust the Bank concurs that our solution of providing INE with the rate model, thereby making the Institute self-sufficient in adapting to changes, was the most efficacious solution possible under the circumstances. We understand many of the marginal cost rate concepts included in our report were reflected in INE's most recent rate study." 3.5 Maaement and Organization 3.5.1 During project preparation and appraisal, Bank staff noted that the chief executive of the power company strongly centralized decision making in his office3/. This resulted in management inefficiencies and delays often hampereT the operations of the company. Bank staff initially identified these problems in the appraisal of the Eighth Power Project (Loan 840-NI), at which time the Bank requested an organization and management study. The results of this study were used by INE to further centralize decision-making in the office of the Chief Executive. This only proved to be adequate after the Chief Executive retired (para. 3.5.5). 3.5.2 To address these problems as well as other operating deficiencies of the company (in such areas as training, procurement, construction management, and financial control and budgeting), INE agreed to: (i) appoint a General Coordinator (under terms of reference satisfactory to the Bank) to assist and relieve the Executive President of a part of the burden of supervising day-to-day operations and to assist him in the management of technical and financial affairs; (ii) prepare and implement under the direction of the General Coordinator programs to improve financial controls, planning, construction management, and procurement; and (iii) prepare and implement a training program on an agreed timetable. The General Coordinator would also identify other areas of INE's operations which required study and examination by consultants (para. 3.1.1). 3.5.3 The appointment of the General Coordinator was a major issue of contention during negotiations as INE's President resented the criticism to his performance implied by the Bank's requirement; and disagreement as to the suitability of the candidates proposed by INE delayed effectiveness of the loan agreement and strained relations with the Bank. The General Coordinator was not given sufficient authority to carry out his terms of reference, thus, the appraisal expectations of the Bank for strengthening management through his action were not fulfilled. 3.5.4 To the extent that the Bank strongly believed that many of management problems of INE could be traced to the inefficient style of the chief executive, and that these managewent problems constituted a major issue, it probably would have been better to seek the replacement of the chief executive as a condition of the loan, aware that this could well jeopardize the viability of the loan; or to accept the fact that Bank loans are not suitable vehicles for solving all of the borrower's problems and do 3/ The complaints of the new Government concerning the chief executive (who was closely connected to the previous regime) extended beyond inefficiency (see OED Report No. 5144, dated June 19, 1984, p. 16, para. 9).  - 8 - away with the concept of a general coordinator intending to address the management problems through future loans at a more suitable time. 3.5.5 As a postscript, it should be noted that the chief executive retired after effectiveness; and under his successor, management improved considerably. 3.5.6 As a result of the appointment of the advisors in training, procurement, finance, construction, and cost evaluation, INE's engineering, planning and operational capabilities improved during the project implementation stage. However, these improvements were obscured by the advent of the civil strife in 1978 and by the significant changes that took place in the years following the installation of the new Government. At the time of the last supervision mission in November 1982, there were still several unresolved issues such as excess personnel, low management salaries, maintenance problems, and poor coordination with Government in the formulation of INE's financial plans. 3.5.7 After the new Government took office in July 1979, the laws and organizational structure of INE were changed. Before July 1979, the national power company was reasonsible for the generation, transmission, and distribution of electricity except where several private and municipal utilities and cooperatives were involved in distribution. After 1979, the new Government created the Instituto Nicaraguense de Energia (INE), and all private utilities were nationalized, including the municipal and cooperatives, and were incorporated into INE. Private utilities which were not related to the previous regime, were adequately compensated. In addition, INE was assigned the responsibility of planning for the energy sector. The last supervision mission (December 1982) reported that INK.'s activities in other energy fields outside the power sector were increasing. INE's Financial Manager was involved in the negotiation for oil exploration with Brazil and INE's Planning Manager was looking at coal gasification projects. 3.6 Institution Building 3.6.1 Because of the very serious difficulties experienced by Nicaragua during the implementation period of the project, and because of subsequent political changes, the institution-building objectives of the project became irrelevant. Though it could be argued that progress was achieved in the first few years of project implementation, new problems arose after 1979 which had not been completely solved at the time of project completion, including excess personnel, low workers productivity, politization within the company, and low salaries incentive to management. 3.7 Staffing 3.7.1 As shown in Annex 11 between 1980 and 1981, INE's staff increased from 3,571 to 4,338, despite reduced investment activity and stagnant sales. This followed significant staff increases in 1979 and 1980. The Bank expressed serious concern in relation to this matter, and in 1982, both INE and the Government became concerned about this trend and started to reduce the number of personnel. The data available shows that from 1981 to 1982 the  - 9 - number of staff dropped to 4,065, i.e., 7%. However, this did not allow the company to achieve the efficiency standards which it had had a few years ago. 3.8 Salaries 3.8.1 Towards the end of 1979, a ceiling of C10,000 (equivalent to US$1,000 at the official exchange rate, but significantly less at the black market rate) per month on public sector salaries was established, while inflation was proceeding at a rate of about 35% per year. Despite this, INE did not adjust the ceiling until 1982, which affected staff morale, and some senior staff left the company. The Bank strongly pressed on this issue. In 1982, INE reacted and increased the salaries of 32 key statf. This was a favorable development, and the Bank recommended that this be followed by further increases, in line with company possibilities and country standards. IV. PROJECT JUSTIFICATION 4.1 Least Cost Solution 4.1.1 The project's main components were part of INE's least-cost expansion program to meet thle expected load growth. This includes (i) the construction of a 230 kV interconnection transmission line to Costa Rica; (ii) completion of the 138 kV Managua ring; (iii) construction and improvements of the 138 kV substations. Additionally, the project included (i) the connection of about 30,000 consumers in low income areas; (ii) the construction of a load dispatch center, and (iii) consulting services. The interconnection with Costa Rica was expected to provide INK with an additional source of non-fuel-based energy, allowing Nicaragua to reduce its oil imports. The appraisal verified that the standards and designs used by IN8 were adequate and were the least cost alternative. 4.1.2 At the time of appraisal the project was expected to help the Government in developing a program to rationalize the power sector organization help to improve INE's management, administrative, and operational capabilities through consulting services and expert assistance. The project also included the preparation of a national master plan for the sector. 4.1.3 The late commissioning of the facilities described in para. 4.1.1 did not adversely affect INE's service to its customers as the total energy consumption by existing consumers dropped substantially during 1979-1981. However, the late commissioning of the Nicaragua portion of the interconnection transmission line with Costa Rica caused an estimated net revenue loss of about US$2.5 million to both systems. In 1983, purchases of electricity from Costa Rica amounted to about 300 GWh and in 1984 to 36 GWh. 4.2 Actual and Forecast Sales, 1976-1981 4.2.1 Annex 9 compares actual and appraisal forecast energy sales in Nicaragua. Actual summary sales in 1976-1981 (4,901 GWh) were 22.3% below  - 10 - the expected level (6,309 GWh) and in 1981 sales were 40% lower than forecast, primarily because of the adverse economic conditions caused by the civil strife. 4.3 Rate of Return 4.3.1 The appraisal report indicated a rate of return on the overall investment of 13.1%. Based on actual investment costs, actual and expected tariff levels, and actual and expected revenues and operating costs (in constant 1976 prices), a similar analysis shows a return of -2.1 (Annex 10). This reflects: (i) the lower than expected load growth; (ii) higher than expected operating and fuel cost; and (iii) the lower than expected tariff levels* A sensitivity analysis was carried out, assuming that annual purchases of electricity from Costa Rica will increase to 315 GWh in 1988, 500 GWh in 1995, and 650 GWh in 2000 and thereafter. The analysis shows that the rate of return would increase to 1.7%. 4.3.2 It is important to point out that the project was carried out under very difficult circumstances, which did not resemble those expected at appraisal. These changed circumstances adversely affected the rate of return of the investment. 4.3.3 Because of the lack of information, it was not possible to make an evaluation of the socio-economic impact of the electrification of low-income communities. It is estimated that approximately 30,000 people would benefit from public lighting; and small and commercial enterprises would be able to expand their activities, producing benefits such as improved access to employment opportunities within the community, better education, and communications and security. V. FINANCIAL PERFORMANCE 5.1 Actual and Forecast Financial Data, 1976-1981; and Actual Financial Data, 1982- 1983 Annexes 12 to 15 compare for the years 1976-1981 actual and forecast key financial indicators, income statements, sources and applications of funds, and balance sheets. This period corresponds to the period covered by the financial forecasts set forth in the staff appraisal report; and extends one year past the expected project implementation period, 1976-1980. The annexes also include actual data for 1982 and 1983. The following paragraphs discuss the information set forth in the above annexes. 5.2 Sales, Tariff Levels, and Finances, 1976-1980 5.2.1 In 1976, operating results and conditions resembled-those expected at appraisal. Thereafter, operating conditions and results increasingly departed from apvraisal expectation. In 1977, due to poor hydrological conditions, INE imposed rationing and relied on a greater-than-expected proportion of expensive thermal generation to meet demand. At the same time, because the Government did not authorize tariff increases, including a fuel  - 11 - adjustment clause adequate to cover the increased cost of production, net operating income and net internal cash generation were at levels much lower than those expected at appraisal. Subsequently, operating results were adversely affected by deteriorating economic conditions, including a massive (43X) devaluation of the cordoba in 1978, and the gathering momentum of civil strife in 1979. The following year, 1980, was a period of consolidation, including the nationalization and integration of small rural and municipal distribution systems. Actual sales, operating results, and investment expenditures were at very low levels in 1980 as compared with what had been expected at appraisal. 5.2.2 Annex 16 compares on a summary basis the actual and forecast levels of sales, average revenue per kWh sold, operating results, and sources and applications of funds during the years 1976-1980. Because of the economic and political factors mentioned above, actual and forecast financial data are not fully comparable. 5.2.3 A succession of tariff increases in 1978-1980 helped INE to generate actual summary revenues at a level (C$2,038.8 million) modestly higher than that expected at appraisal (C$2,002.9 million), despite a 20% reduction in actual total sales (4,080.7 GWh) as compared with forecast summary sales (5,103 GWh). The reduction of sales reflected the adverse economic and political conditions. An increase (20.7%) in actual total operating expenses (C$1,494.8 million) over the level expected at appraisal (C$1,238.0 million) led to a 28.9% reduction in net operating expenses (C$544.0 million as compared with C$764.9 million) and 48.3% reduction in the level of net internal cash generation (CS$258.4 million as compared with C$534.7 million). INE restricted the level of actual total expenditures for construction and studies to C$808 million, 59.7% below the level expected at appraisal (C$2003.9 million); and financed total applications, C$888.8 million with long-term borrowing (C$562.9 million), net internal contribution to expansion (C$247.4 million), and other sources (C$78.5 million). All of these aggregates were substantially lower than the levels expected at appraisal (respectively C$1,418.1 million, C$443.0 million, and C$142.8 million). 5.3 Compliance with Financial Covenants, 1977- 1980 5.3.1 The Loan Agreement sets forth four major financial covenants (see Annex 2)- namely that, INE should: (i) undertake no major expansion project without having first furnished the Bank with satisfactory evidence with respect to economic justification and financial resources (Section 5.04); (ii) seek prior Bank agreement for any borrowing unless INE's gross internal cash generation should exceed maximum future debt service by a factor of 1.5 times (Section 5.06); (iii) maintain accounts receivable in arrears below 1102 of the preceeding three months' average of overdue accounts receivable (Section 5.07); and (iv) raise tariffs sufficiently to earn 8.5% annually on average net fixed assets revalued annually (Section 5.08). The Guarantee Agreement contsined a companion covenant (Section 3.02b) to the revenue covenant of the Loan Agreement (Section 5.08).  - 12 - 5.3.2 INE complied with the project-limitation and debt-limitation covenants (Section 5.04 and 5.06 of the Loan Agreement); but the Government did not permit INE to meet the revenue test in 1978. In July 1979, the Bank suspended disbursements on all loans to Nicaragua when meaningful project activity and supervision became impossible; and in November 1979, when the Bank resumed disbursements, it agreed to waive the arrearage-limitation and revenue covenants in 1979 and to establish lower targets for 1980. Full compliance was expected in subsequent years. For 1980, the revised arrearage-limitation ratio was 150% and the lowered rate or return was 5 on revalued assets. At the end of 1980, the actual arrearage ratio was 3801 and the actual rate of return was 3.32. Nevertheless, because INE was making its best effort to reduce its overdue receivables and because the Government permitted INE to implement a substantial tariff increase in February 1981, the Bank did not take remedial actions. 5.3.3 INKE did not revalue its assets in 1978 and 1979; but did revalue its assets in 1980 and subsequently. The delay reflected misunderstanding on the part of INE with respect to methodology; but the final result of the revaluation excercise was accelptable to the Bank. Rowever, INE's auditors did not agree to render an opinion on the revalued assets because revaluation was not a generally accepted principle of accounting in Nicaragua. The Bank accepted this. 5.3.4 For the years 1978-1982, INE did not comply with the covenant requiring submission of an audited report by April following the end of the preceding year (Section 5.02). Between 1976 and 1982, INE changed auditors four times. The first time was 1978; but the newly selected auditor proved to be incompetent and was replaced in 1980 after the Bank complained about late completion of the report and deficient treatment of fixed-asset revaluation, bad-debt expenses and reserves, amortization of deferred charges, and other matters. The next three auditors failed to meet the deadline for producing audited reports (April following the end of the preceding year); and it emerged that the accounting department of INK had developed serious personnel shortcomings. The audited reports for 1980 and 1981 complained about the failure of INE to carry out a physical inventory of the assets of incorporated rural cooperatives or its accounts for materials, supplies, fuel, and lubricants. Most of these problems were eliminated by 1982; but Bank staff continued to fael that the accounting department of INS needed improvement. 5.4 Compliance with Financial Covenants, 1981-1983 5.4.1 INE complied with the revenue covenant in 1981-1982; but not in 1983. The receivables ratio was 339% at the end of 1981 and the Bank agreed to a revised ratio of 158% for 1982, as INE was making every possible effort to effect collections in the private sector. The Government was the major slow payer. The receivables ratio was 214% in 1982. 5.4.2 As compared with its financial situation in 1982, INK's financial situation at the end of project implementation (1983) had deteriorated substantially. Its rate of return was 6.0%, its contribution ratio was only 15%, and its operating ratio was 83.8%. The one area of major improvement was the receivables ratio, which stood at 124%.  - 13 - VI. INSTITUTIONAL PERFORMANCE 6.1 Performance of the Borrower 6.1.X INE management and operational staff performed their duties well, considering the very difficult conditions prevailing in the country during the project implementation stage. Following the appointment of a successor to the Executive President (early 1978), Bank staff judged the performance of the new management to be very satisfactory and that the new President was making serious efforts to address INE's management, operational, and financial problems (paras. 3.5, 3.6, and 3.7). The new Government appointed a new chief executive officer in 1979. Due to the difficult conditions that followed the civil strife, at the time of the last supervision mission (December 1982) there were still important unresolved issues (exceas personnel, low management salaries, etc.; see para 3.54). 6.2 Performance of Bank Staff 6.2.1 The evidence clearly supports the conclusion that at appraisal Bank staff proposed a solution (a general coordinator) which did not relieve a difficult problem (executive inefficiency). Given the strong political support enjoyed by the sxecutive President, the problem did not lend itself to solution. The Bank should have either conditioned the loan to the replacement of the chief executive or made the loan without requiring the hiring of the general coordinator 6.2.2 Bank staff performed wel during the execution of the project. Bank staff successfully assisted the b wer in restructuring the Ninth Power Project to meet INS's reconstructiou oviorities as a result of the damages suffered during the civil strife, awi to provide emergency financing of local costs for some project components. 6.2.3 INS's extremely precarious financial situation was the subject of intensive examination by Bank staff; however, their efforts were not too successful because of slow Government action in authorizing needed tariff increases, reducing accounts receivables from public sector entities, and reaching agreements to pay overdue public sector amounts. However, the economic difficulties then faced by the country should be taken into account when assessing the Government performance on these atters. 6.3 Performance of the Government 6.3.1 The Government did not fulfill its covenanted obligations to: (i) pay its bills promptly; and (ii) provide full and timely tariff increases. These measures contributed to INE's cash-flow problems and project delays. 6.3.2 Government delayed the drafting and signing of the subsidiary loan agreement with INe for the execution of the sector study, and therefore the completion of the study. This study was never completed satisfactorily and was rendered worthless after the civil strife, at which time the new Government implemented a new sector organization.  - 14 - VII. LESSONS TO BE LEARNED 7.1 Management 7.1.1 This report shares the conclusion set forth in the Project Completion Report of the Eighth Power Project (para. 7.2.1), regarding management. This project illustrates that, with respect to management objectives, when faced with lack of shared interest in Improving efficiency (para 3.5.1), the Bank should be very cautious in making new loans until there is a more receptive attitude on the part of the borrower's management. 7.2 Project Implementation 7.2.1 At the time of appraisal, based on optimistic assumptions, the project was expected to be completed in 3.5 years. The project was completed in 6.5 years, 36 months later than expected during appraisal. Taking into account the experience of the Bank in similar projects in our region (average completion period of 6 years) as well as the very difficult conditions prevailing in Nicaragua during the project implementation stage, it m be judged that INE implemented the project in a reasonable period of time. The Bank should take past experience into account in estimating the project implementation period.  15 - ANNEX 1 NINTH POWER PROJECTs 1402-NI oof ~ ~ ~ ~ ~ ~ ~ IUII if SANK 133313 301Z Ptt0W a*xl X1 det*t Loam t2t 9,6/fl 0.tOoSE35et t:/tn 22 aSagga *otegl S W dioo eZae ML --tootauou LCas 122 7I/6S1 0.40 t&6t,.ios.Wa./?aeI I?t poero st :tsti Ptetbstaets Is 14 dstbebttess butos * sempenate Lose 114 U111534, 1.60 Ut/itst tv Il*moul wose, SuesLenses leas- t aomine voteewe fiemeod by t21*13 toes 2S9 6/23160 12.50 Itt V fto Tewo Its"s SO N l idvo lasti (Plants c"ess 13 kV usrensteoten Aeates) Its" (120 Ise) nd MA-atettoas. team 410 1013156 5.00 Ut/Ut3 ftso powg 15 N s" tusblsa saLe 136 kV Soe,*- *t.to'lo lIne. (100 he) end gub-statiLe* - Seoea. of 13.2 kV dLsugLbutL.u off- Lon4 //1.2Sve, Mo* 40 plN ete VW 3,4; (lIens. Pose Pllasti SO Ota. Oseee Uwdeslast (Seat Sossie) lathova) oa ViaSj tPiver 136 kV (124 to) ttiamentoata Stage end esetatiuse. Lees 540 6/25/72 24.00 MI/U It f Risks%t loeve 2 I is MV ineam plans (pesemoesag atj Yioeuae 230 hiv ftoent end (145 be) end 125 kV tireftsestes, (165 us) eisentesteat Its"e inot- lItms sd ash-statose tesamotiog tthe 2 oese * nolated 94e10y ovecos of and 04sp lenestvi Wieoapner ad fimsatsoe for VII UOsdsdb) Pe itiet. Cyodlt #09 6/6/7 5.00 es,evseum/RUI ta"uthse Re- PapaL t ed Isaabbtt- tCtstl"e n settee of tiatist essel)latteois W"aset 6ate (move, gift s. sub-etattoo end dietu4betios o 4 Of ttibutie set- weeht end 1975-74 sovusl weft *iesogge teo" 1402 4/22/?? 22.00 Ut/ltt Uitegh P,*v 230 hiv (145 kg) end ttZesuoo 138 hI (31 he) ease- lines I *tas- U * *soes us rlue TOT eCoeosleu tho ethel subo,*astlos, I Cyedit l pave teson voiC Coot. visa plua *their troeeni- s~o os/difes 1, buttes vosho) *fted.aesseo to Uto Wo Repteec National do UN 7 fts cUt"?) * *uieh waseostabliahed to 1954. MtUp beenmeM Illa 1979 (fellesiag the eeeabliohnsee of tbo seseloesienay bo'evsoeu). Aln "trefvosoo to t33 should be USadeva4to as iSNAj1  - 16- ANNEX 2 Page 1 of 2 NICARAGUA INSTITUTO NICARAGUENSE DE ENERGIA (INE) NINTH POWER PROJECT - LOAN 1402-NI Major Covenants of the Loan and Guarantee Agreements 1. The Loan Agreement 1402-NI required INE to: (i) Carry out a rate study in accordance with a timetable acceptable to the Bank, and shall, within 6 months of the completion of such study, review its results with the Bank. In the event the Borrower shall agree to introduce a new rate structure, the Borrower shall review and agree with the Bank a timetable to put such new rate structures into effect [Section 3.07(a) and 3.07(b)]; (ii) Manage its affairs, carry on its operations, and maintain its financial position in accordance with sound business and public utility practices and operate and maintain its plant in accordance with sound engineering practices (Section 4.03 and 4.04); (iii) Appoint a General Coordinator under terms of reference satisfactory to the Bank, to assist the Executive President in the management of the Borrower's technical and financial affairs (Section 4.05); INE complied with this covenant, but in 1978 the Project Coordinator resigned at INE's request, and the Bank did not insist on his replacement because the coordinator was not thought to be needed under the existing Organization. (iv) Furnish to the Bank, not later than June 30, 1977, a detailed plan, acceptable to the Bank, for establishing the personnel training program under the project, and establish, not later than December 31, 1977, a Training Unit (Section 4.06); (v) Undertake any major expansion project without having first furnished to the Bank with satisfactory evidence with respect to economic justification and financial resources (Section 5.04). (vi) Obtain prior Bank Agreement to incur in any debt when revenues were less than 1.5 times future debt service (Section 5.06); (vii) Maintain the amount of receivables in arrears below 110X of the total average monthly billing corresponding to the 90 days immediately preceeding (Section 5.07). INE has not complied with this covenant, and for 1981 the ratio was 339X. In view of the big efforts and progress being made by INE, the Bank accepted the 182% prepared by the Borrower; (viii) Make adjustments in the rates for the sales of electricity as shall be necessary to provide sufficient revenues to cover all operating and administrative expenses, and yield a rate of return on the annually revalued net operating assets of at least 8.5X per annum (Section 5.08).  -17 - ANNEX 2 Page 2 of 2 (ix) Take all such actions naceseiry to adjust automatically electricity to cover additional operating expenses resulting from variations in fuel prices and Interconnection rates (Section 5.09). 2. The Guarantee Agreement 1402-NI required the Government of Nicaragua to: (x) Cause the Direcion Nacional de Planificacion (DPN) to carry out a sector organization study in accordance with the Subsidiary Loan Agreement (section 3.02); (xi) Cause the Institute to enable the Borrower to adjust automatically its electricity rates to cover additional operating expenses resulting from variations in fuel prices and interconnection rates (Section 3.03). (xii) Take all such action as shall be necessary to enable the Borrower to make such adjustments in its rates for sale of electricity, to meet the obligations described in para 1 (vii) above. 3. INE's performance under the covenants (i), (iii), (iv), and (v) described above was generally satisfactory. Performance of INS under covenants (ii), (vi), (vii), and (viii) has not been satisfactory.  - 18- ANNEX 3 NICARAGUA INSTITUTO NICARAGUENSE DE ENERGIA (INE) (LOAN 1402-NI) ACTUAL ALD FORECAST ALLOCATION OF LOAN PROCEEDS (in thousands of US$) Appraisal Category Forecast Actual 1. Equipment and Materials (a) 230 kV interconnection with 4,400 3,132 Costa Rice (b) 138 kV transmission lines and 4,500 4,892 substations (c) Capacitors 800 1,686 (d) Distribution lines for low income 19500 2,646 consumers (e) Load Dispatch Center 2,800 289 2. Materials and equipments for l(d) above 200 - 3. Consultant Services 3,500 5,667 4. Interest during construction 1,800 1,600 5. Reconstruction of civil war damages - 798 6. Inventories replenishment 150 7. Unallocated 2S500 - Total 22,000 22,000  ANE 4 - 19 - NICAA M A (PN), NINDI Ea P1MJECY - *WAN 1402-NI ACM~fL AND vmCFsr RO TDffrAIBL Forecast A:tual Difference PerQnt DIfference Oxq1e- No.of C0q4e- Noof Nod frau Start tie mnths Start tion tl mw expected 1. Cawzioa an )b M---- dificatln of 138 kV 6/77 8/80 38 6/78 10/83 64 34 68 and 69 kV bstations 2. Intlla rtionad 3/77 8/80 41 5/98 5/83 60 19 46 Ombmion of 13.8 kV 121stiution tystan 3. Intllation of 138 kV 9/77 8/80 35 9/78 10/83 61 26 74 Traomaion lnes 4. 230 k bnteroxze- 8/78 7/80 23 8/80 4/83 32 9 39 tion Une to Costa Rica (llnes and sub- stations) 5. ILtallatic of 13.8 W 8/77 1/80 29 6/78 10/83 64 35 120 DistribLtion I4ries 6. National Load Dlspatch 10/77 7/79 21 - I/ - - - Cnter 7. Oonsutants for Pro- 3/77 9/80 42 2/78 3/83 61 19 45 ject Fnent 8. ster Plan and Po- 3/77 8/79 29 3/78 4/82 49 20 69 wr Sector Otganza- tion Study 9. law booe Distriba- - - - - - - - - turn Study 104Argnal Oost Tariff 3/77 3/78 12 2/80 8/83 31 43 258 Study i/ 1hi c 6illy firmnced br the Bark loan, recwived second priority after the civil war. Studies were couwletd but the center mm not bilt.  -20 ANNE% 5 NICARAGUA INSTITUTO NICARAGUENSE DE INERGIA (INE) NINTH POWER PROJECT - LOAN 1402-NI PRICE DEFLATOR INDICES FOR PROJECT COSTS Getaral Price Index Deflator (Anuaul Average)2, (Annual Arerage)3/ 1976 201.4 1.106 1977 229.7 1.261 1978 236.8 1.300 1979 318.5 1.749 1980 436.9 2.399 1981 488.5 2.683 1982 569.6 3.128 1983 652.8 3.585 1/ Source: Central Bank of Nicaragua. Indicadores Economioos, Dec. 1979, p.20 and Country Programs Dept. 2/ 100 - 1958 3 100 - February 1976 International Prioe Index Deflator (Annual Averaae)l/2/ (Annual Arerage)3/ 1976 69.4 1.013 1977 75.9 1.108 1978 86.6 1.264 1979 97.3 1.420 1980 106.3 1.552 1981 106.8 1.559 1982 103.6 1.512 1983 102M3 1.493 1/ Source: IBRD, "Unit Value of Nanufactured Exports - NUV index 8.15.85" f/ 100 - 1985 3/ 100 - February 1976  RICARAGUk INSTI?UTO IICARAJUJNSR Dl ENERGIA (Ml)? APPRAISAL AND ACTUAL PROJBCT COST (in sIllons of constant 1976 u) A raised Proieet Cost Actual P Oost __iff_o__n_ vore,J;80s cvoxoe,4;nai Cos-crt TotaI Torordgsa coUt Lclcs from Appraissl 1. Interconnection with Costa Rica 4.35 2.41 6.76 3.72 1.79 5.51 (t8.5) 2. Transmission ULnes and Substations 4.46 2.01 6.47 4.17 2.50 6.67 15.9 3. Capacitors 0.81 0.09 0.90 0.25 0.04 0.29 00.67) 4. Distribution in Low Income Areas 1.70 2.60 4.30 1.00 0-57 1.57 (63.5) 5. Load Dispatch Center 2.62 0.54 3.16 0.12 - 0.12 (96.2) 6. Land and Right of Way - 0.50 0.50 - 0.21 0.21 ((0.58) 7. Ingineering and Supervision 1.26 1.05 2.31 0.87 2.04 2.91 26.0 S. Training 0.25 0.15 0.40 0.17 0.77 0.94 135 9. Studies 9.1 aster Plan 1.20 0.60 1.80 2.47 0.44 2.91 61.7 9.2 Tariffs 0.06 0.02 0.08 0.10 - 0.10 25.0 9.3 isnagement Improvement 0.29 0.13 0.42 0.10 0.04 0.14 (66.7) 9.4 Sector Organisation 0.13 0.07 0.20 0.03 - 0.03 (0.85) Original Direct Project Cost 17.13 10.17 27-30 13.00 8.40 21.40 I21.6) 10. fbysical Contingenices 0.48 0.37 0.85 0.20 2.14 2.34 175.3 1l. Price Contingencies 2.66 1.53 4.19 5.80 3.96 9.76 132.9 Sub-total Coantingencies 3.14 1.90 5.04 6.00 6.10 12.1 140.1 Total Original Project Cost 20.27 12.07 32.34 19.00 14.5 33.50 3.6 12. Interest During Construction 3.89 - 3.89 5.90 - 5.90 51.7 Total Original Cost 24.16 12.07 36.23 24.90 14.5 39.40 8.7 ADDITIONS ON NOVWElUR 1979 13. Reconstruction'/ - - - - 0.46 0.46 14. Distribution ruipjent1/ - - O.9 - 0.99 Total Original Cost plus Additions 24.16 12.07 6. 14 t4.96 40.85 12.8 17 Component adde4 to the project after the civil war. These costs do not include physical and price contingencies as these components consisted of purchase of equipoent. The installation costs were charged to Irl's normal operational and maintenance costs. I!  NICARAGUA INSTITtUTO NICARAGUENSE DE ENBRGIA (INM) APPRAISAL AND ACTUAL PROJECT COST (in millions of constant 197T US) Apralsed Pro3ect Cost Aetual Project Cost % Difference Foreign Cost La.l. Cost Total Forelgn Cost Local Cost Total from Appraisal 1. Interconnection with Costa Rica 5.14 2.86 8.00 5.44 3.09 8.53 6.6 2. Transmission Lines and Substations 5.28 2.39 7.67 6.10 4.34 10.44 36.1 3. Capacltors 0.96 0.11 1.07 0.36 0.05 0.41 (61.7) 4. Distributlon In Low lucoae Areas 2.01 3.09 5.10 1-47 0.99 2.46 (51-8) 5. Load Dispatch Center 3.10 0.64 3.74 0.17 - 0.17 (95-5) 6. Land and Right of Way - 0.59 0.59 _ 0.36 0.36 (39.0) 7. Engineering and Supervislon 1.49 1.25 2.74 1.28 3.52 4.80 75.2 8. Tralning 0.29 0.18 0.41 0.25 1.29 1.54 227.7 9. Studies 9.1 Waster Plan 1.42 0.71 2.13 3.61 0.78 4.39 106.1 9.2 Tariffs 0.09 0.02 0.11 0.15 0.02 0.17 54-5 9.3 Management Improvement 0.34 0.15 0.49 0.16 0.05 0.21 (57-1) 9.4 Sector Organization 0.15 0.08 0.23 0.03 - 0.03 - Original Direct Project Cost 20.27 12.07 32.34 19.01 14.49 33.50 22.7 10. Physical Contingenie82/ - - - - _ - _ 11. Price Contingencles! / - _ _ _ _ _ Sub-total Contingencies - - - - - Total Original Project Cost 20.27 12.07 32.34 19.01 14.49 33.50 3.6 12. Interest During Construction 3.89 - 3.89 5.90 - 5.90 51.7 Total Original Cost 24.16 12.07 36.23 24.91 14.49 39.40 8.7 ADDITIONS OR NOYEMBIR 1979 13. Reconstruction1J - - - - 0.46 0.46 - 14. Dlstribution luipmenet1/ - - - 0-99 - 0.99 - Total Original Cost plus Addltions 24.16 12.07 36.25 2V.89 14.96 40.85 12.8 t/ Component added to the project after the clvil var. These costs do not include physical and price contingeacies as these components consisted of purchase of equipment. The installation costs were charged to INS's normal operational and maintenance costs. Physical and price contingencies from appraisal were prorated proportlonally In Items 1-9, for comparison purposes with actual costs.  - 23 - ANNEX 8 NICARAGUA INSTITUTO NICARAGUENSE DE ENERGIA (INE) NINTH POWER PROJECT - LOAN 1402-NI Actual and Forecast Cumulative Disbursements (in Idail1ionS of US$) IBRD Fiscal Year Appraisal Actual as a percentage and Semester Forecast Actual of Forecast 1977 June 30, 1977 1.5 0.0 0 1978 December 31, 1977 4.4 0.0 0 June 30, 1978 8.8 1.1 12.5 1979 December 31, 1978 13.2 2.4 18.2 June 30, 1979 17.2 4.0 23.3 1980 December 31, 1979 19.7 6.1 31.0 June 30, 1980 21.3 7.5 35.2 1981 December 31, 19801/ 22.0 9.1 41.4 June 30, 1981 22.0 13.5 61.4 1982 December 31, 1981 22.0 17.1 77.7 June 30, 1982 22.0 17.9 81.4 1983 December 31, 1982 22.0 19.5 88.6 June 30, 19832/ 22.0 21.8 99.1 I/ Original closing date was March 31, 1981 2/ Actual closing date.  - 24 - NICARAGUA AN=E 9 INSTITUTE NICARAGUENSE DE ENERGIA (INE) NINTH POWER PROJECT - LOAN 1402-NI ACTUAL AND FORECAST SALES BY CLIENT CATEGORY -1976-1981 (GWh) Residential 1976 1977 1978 1979 1980 1981 1976-81 1982 1983 Actual 143.3 163.0 169.0 145.0 201.2 239.0 1,060.5 250.8 270.6 Forecast 144.2 156.4 171.3 187.3 204.7 222.1 1,086.0 - - 2 Difference (0.6) 4.2 (1.3) (22.6) (1.7) (7.6) (2.4) - - Co_mercial Actual 69.8 74.5 76.0 55.9 66.4 66.9 409.5 68.3 72.8 Forecast 69.1 76.6 84.5 93.2 102.7 113.0 539.1 - - X Difference 1.0 (2.7) (10.1) (40) (35) (41) (24) - - Industrial Actual 289.9 308.8 307.8 226.2 241.3 285.5 1,659.5 275.3 311.3 Forecast 295.0 331.0 370.9 415.6 465.7 517.2 2,395.4 - - b Difference (1.7) (6.7) (17) (46) (48.2) (45) (30.7) - - Governmental Actual 36.0 46.9 50.8 46.8 70.2 94.4 345.1 109.3 119.9 Forecast 37.4 41.1 45.4 50.0 55.0 60.3 289.2 - - X Difference (3.7) 14.1 11.9 (6.4) (27.6) 57.0 19.3 - - Street Lighting Actual 15.0 15.3 17.7 14.2 19.5 24.8 106.5 24.5 26.1 Forecast 15.3 17.5 19.6 22.0 24.7 27.7 126.8 - - X Difference (2.0) (12.6) (9.7) (35.5) (21.1) (10.5) (16) - - Irrigation Actual 53.7 57.8 48.4 33.3 43.7 68.3 305.2 92.4 107.5 Forecast 47.9 55.1 63.4 73.0 84.0 96.6 420.0 - - Z Difference 12.1 4.9 (23.7) (54) (48) (29) (27.3) - - Pumping Actual 35.6 41.1 45.3 45.3 50.8 55.7 273.8 60.0 62.5 Forecast 36.6 41.1 47.3 54.4 62.6 72.0 314.0 - - Z Difference (2.7) - (4.2) (17) (19) (22.6) (12.8) - - Wholesale Actual 152.5 175.0 170.6 161.0 81.61/ - 740.7 - - Forecast 142.5 159.4 178.6 198.4 218.9- 241.3 1,139.1 - - 2 Difference 7.0 10.0 (4.5) (19) - - (35.0) - - Total Actual 795.8 882.4 885.6 728.0 774.7 835.1 4,901 880.6 970.7 Forecast 788 878 981 1,093 1,218 1,350 6,309 - - X Difference 1.0 0.5 (9.7) (33) (36.4) (38.1) (22.3) _ 17 Includes only the first veIght months of the year. After August 1980, all the electric cooperatives and wholesale companies became INE's direct clients.  IMAAWA M MUA -LI" IW!ltW 114u & i h EJAL IIM L 131 E (in t