Portugal - Carregado Thermal Power Project

RESTRICTED [ieport No. TO-450a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be pub ished nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOC7ATION CARREGADO THERMAL POWER PROJECT EMPRESA TERMOELECTRICA PORTUGUESA PORTUGAL April 9, 1965 Projects Department  ZUR2REkTNCY 2QUIVP.-- -TS U.5. $1 = EzOuloo ?0. Y5 1sc. 1 - U. . $." 35 Esc. 1 million = U.S. $X; ?7a3  CAiREGADO THE-?1 iAL PC.iER P'LOJGCT ,LiPiPESA TEHvLOEI, CTRICA POiTUGUESA P01 TUGAL TABLE OF CONTENTS Page No. 3W13 1'iAY i I. INTRODUCTION 1 II. THE BORROWER 2 III. POT1TER IA-WKET 2 IV. CUlRi,ET AND FUTUREI PROGRBAi 3 V. THE PROJECT 3 VI. FILNANCIAL ASPECTS 5 Tariffs Audit Present Financial Position Past Earnings Financing Plan Financial Prospects VII CONCLUJSIONS 12 ANNqEXES lo The Portuguese Power Industry 2. Electric Energy Statistics 3. Actual and Forecast Balance Sheets as of December 31, 1960_1970 4. Actual and Forecast Income Statements 1960-1970 5. Forecast Sources & App'lication of Funds 1964-1970 6. Map  CARREGADO THERHADL POWER PROJECT EI4PRESA TERMOELECTRICA PORTUGUESA PORTUGAL SLIM-ItlARY i. Empresa Termoelectrica Portuguesa (ETP), one of four power gene- rating companies in the Portuguese primary power system, has applied for a loan of $15.0 million to finance the first phase of construction of the Carregado thermal plant estimated to cost about $25.0 million, including interest during construction. The balance of about $10.0 million equivalent would be financed from sales of new shares and from ETP's own resources. The proposed loan would be made to the company with the Portuguese Government's guarantee. The first phase includes the installation of one 125 MWJ unit and provision for the subsequent installation of three similar units to enable the plant to operate at its ultimate capacity of 500 10W. The first unit is expected to be completed by mid-1967 and would increase the total generating capacity of the primary system to about 1,475 MfW and of the country (total public supply) to about 1,875 14W. ii. ETP is organized as a private stock company, but the Government's control of its policies, its close supervision of its activities and its considerable share in its financing give it a quasi public character. The company is well managed and organized and, with the help of its consultants, is capable of carrying out and operating the project. iii. Financial forecasts prepared in accordance with the formula set out in a new decree law show that ETP should be able to maintain a sound financial position. iv. The project is needed to meet the expected increase in power demand. The proposed method of carrying out the project is acceptable; the cost estimate and the construction schedule are realistic. The project would be suitable for a loan of $15.0 million, for a 20 year term, including a three and a half year grace period.  CARREGADO THE1dAL POWER PROJECT EMPRESA TER4OELECTRICA PORTUGUESA PORTUGAL I. INTRODUCTION 1. A loan of $15.0 million has been requested by Empresa Termo- electrica Portuguesa (ETP) to cover part of the cost of the first phase of the Carregado thermal plant with an ultimate capacity of 500 MW in four units, including the installation of the first 125 MW unit. The first unit is scheduled to be in operation by mid-1967. The estimated first phase cost is about $25.0 million, including interest during con- struction. The proposed loan would be made to ETP with the Portuguese Government's guarantee and would cover about 60 per cent of this total. It would finance the cost of equipment and its erection, the foreign exchange cost of equipment transport and engineering and about $1.0 mil- lion of interest during construction. The balance of about $10.0 million equivalent would be financed from sales of new shares and from ETP's own resources. 2. The Portuguese power industry was first reviewed by the Bank in 1962. At that time the Government had put forward three projects as a basis for power loans, one of which was a new hydro project. The Portu- guese subsequently withdrew the hydro project and substituted in their planning a 500 MW conventional thermal power source. This was in accord with Bank thinking as it was apparent,at the time,that Portugal's pre- dominantly hydro power system required firming up with thermal power. 3. Two loans totalling $12.5 million were subsequently made (362-PO and 363-PO of November 1963), $7.5 million to Hidro Electrica do Douro (HED) and $5.0 million to ETP. The HED loan financed a part of the completion cost of the Bemposta hydro plant (construction was in the final stages when the loan was made) and the ETR loan financed a part of the cost of an addi- tion to ETPts only generating plant, the Tapada do Outeiro thermal plant. The ETP loan also financed preliminary studies for the new 500 MW thermal plant covered by this report. 4. The Bank had indicated at the time of the first ETP loan that it would be prepared to consider a loan for the new 500 14W plant as soon as its location and technical features were properly defined. ETP engaged SOFRELEC of France as its engineering consultant; their preliminary report was completed in Hay 1964 and a field appraisal was made in July. 5. The organization of the Portuguese power industry was described in detail in the appraisal report for the previous loans (Report TO-374b of October 18, 1963). Some of the descriptive information from that re- port is attached as Annex 1 and some passages of that report have been repeated herein.  -2- II. THE BORROWER 6. ETP is one of five companies forming the Portuguese primary sys- tem. This system includes the facilities of three hydro generating com- panies, one thermal generating company (ETP) and one transmission company. The five companies are organized as private stock companies and are oper- ated as if under a single ownership. But the Government is, in fact, primarily responsible for determining their expansion programs, for planning the means of securing the necessary financing and for allocating the total revenues accruing to the primary system. 7. The organization of the primary system, which is described in more detail in Annex 1, has become complex and cumbersome in recent years. This has resulted in increased involvement by the Government in the coordination of planning, including financial planning, and in the determination of the apportionment of revenues among the generating companies (see paragraphs 23 to 25). During negotiations for the proposed loan, the Portuguese delegation informed the Bank that the Secretary of State for Industry had instructed the Superior Electricity Council to initiate studies to analyse these problems and to make recommendations for their solution. They confirmed that the Bank would be kept informed of the progress of these studies. 8. ETP was formed in 1954 for the purpose of building and operating a small thermal plant (Tapada do Outeiro) which was needed at the time as a safeguard against power shortages in critically dry years. By the end of 1963 it had installed, or planned for construction, a total capacity of 150 MW in three units at this plant. ETP has a five member Board, three members appointed by shareholders and two by the Government, and a three member fiscal committee which approves accounts and major financial deci- sions. Two members are appointed by the shareholders and one by the Government. 9. A 75-year concession was issued in November 1963 to construct and operate the Tapada do Outeiro plant. This concession was amended in 1964 to include the Carregado thermal plant. 10. ETP's organization has been strengthened significantly since the decision was made to include major thermal power sources in the Portuguese power development program. A new chairman wias appointed, wiho acts also as general manager. A chief engineer and additional staff have also been appointed. The new management is competent and capable of carrying out the proposed project with the assistance of their consultants. III. POWER MARKET 11. The bulk of the total public power supply in Portugal is provided by the primary system, at present almost entirely from hydro sources. The market is broadly classified by the Portuguese into "permanent" and "non- permanent" parts. This is equivalent to saying that the market is composed of customers with "firm" power requirements and others who use "seasonal" or non-firm power. The firm part consists of utilities which purchase  -3- power from the system for distribution and sale to utility customers. The seasonal part consists of a special group of power intensive industries which were organized'by the Government to utilize the non-firm power sup- plies generally available during part of each year because of Portugal's predominantly hydro power system. System development planning, however, is based on the firm market requirements. 12. Total load and energy requirements have increased at an average rate of about 12 per cent annually since the early 1950's. This is shown in Annex 2. Annex 2 also shows that the firm power market has grown at a rate averaging 11.3 per cent annually; the extremes being 8.8 per cent in 1955 and 13.4 per cent in 1960. 13. To assure adequate power and energy capability to meet future requirements, the Portuguese planning authorities assume an average annual growth rate of about 10.7 per cent into the early 1970's. On this basis, firm energy (kwh) requirements would increase from 3,324 million kwh in 1963 to 8,320 million kwh in 1972. The corresponding peak demand would increase from 684 MW to 1,710 MW. These assumptions are reviewed periodi- cally and are reasonable for planning purposes. IV. CURRETNT AND FUTURE PROGRAM 14. As a result of the change in planning principles referred to in paragraph 2, the decision was made to add new thermal capacity to the sys- tem, first by installing a third 50 MW unit to complete the Tapada do Outeiro plant, (financed by the previous loan to ETP), and later by the construction of' the first 125 MW unit of the new Carregado thermal plant, for which the proposed loan has been requested. 15. The timing of other system additions has been set out in the Government's Interim Development Plan for 1965-67. The construction of the 180 MWJ Carrapatelo hydro plant and the installation of the second 125 MW unit at the Carregado thermal plant are to be started in 1965. A number of other hydro schemes are also listed from which further expan- sion projects would be chosen. The first 60 MW unit of the Carrapatelo hydro plant is scheduled for completion by mid-1969 with the last two units being added a year later. The second unit of the Carregado thermal plant is scheduled for completion by mid-1968. It is expected that the last two units would be installed at 18-month intervals after the commis- sioning of the second unit. This plant should, therefore, be completed by the end of 1971. V. THE PROJECT 16. The Carregado thermal plant will be near the important consump- tion centers of Lisbon and Setubal. It will be located about 30 kilometers up-stream from Lisbon on the right bank of the Tagus River. This location will reduce the present need for large power transfers from the northern part of the country where most of Portugal's generating sources are con- centrated, with consequent savings in transmission costs. Access to the site by rail, barge or road is good and foundation conditions appear to be  -4- excellent. Furthermore, the plant can be tied into the national trans- mission network at low cost. This will be done by the national transmis- sionqXompany, Companhia Nacional de Electricidade - CNE (see Annex 1). Fuel_" can be delivered to the site by barge or by a 25 kilometer pipe- line from the SACOR Refinery in Lisbon, an alternative which is currently under study. SACOR would build the pipeline if, as is expected, it is the more economical solution. The plant will be set back about 1.4 kilo- meters from the river and although this will require the construction of relatively long intake and outlet canals for cooling water, the alterna- tive of locating closer to the river would involve unacceptable founda- tion problems as well as restrictions on the height of the stack due to the proximity of airports. 17. The plant, of the semi-outdoor type, would be designed for four 125 I. units, of which only one would be installed initially. Economic studies of alternative steam conditions led to the selection of a reheat cycle with steam conditions of 1,800 p.s.i.11Q0000F/l000