RESTRICTED ReportNo. PU-90a Thisreportis for official use only by theBank Group and specifically authorized orgnizations or persons. It maynot be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsbility forthe accuracy or completeness of the report. INTERNATIONAL BANK POR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF FIFTH POWERPROJECT - HONDURAS (HONDURAS-NICARAGUA INTERCONNECTION) EMPRESANACIONAL DE ENERGIA ELECTRICA (ENEE) June 2, 1972 Public Utilities Projects Department Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
RESTRICTED
Report No. PU-90a
This report is for official use only by the Bank Group and specifically authorized orgnizationsor persons. It may not be published, quoted or cited without Bank Group authorization. TheBank Group does not accept responsbility for the accuracy or completeness of the report.
INTERNATIONAL BANK POR RECONSTRUCTION AND DEVELOPMENT
kW = kilowattMW = megawatt = 1,000 kWkWh = kilowatt hourGW% = gigawatt hour = 1,000,000 kWhkV = kilovoltkVA = kilo volt-ampereMVA = mega volt-amperem = meter = 3.28 ftkm = kilometer - 0.621 mikm2 = square kilometer = 0.386 sq mim3 = cubic meter = 35.3 cu ft
FISCAL YEAR
ENEE's Fiscal Year Ends December 31
ACRONYMS AND ABBREVIATIONS
ENEE - Empresa Nacional de Energia ElectricaENALIUF - Empresa Nacional de Luz y Fuerza (Nicaragua)USAID - United States Agency for International DevelopmentSANAA - Servicio Autonomo Nacional de Acueductos y AlcantarilladosELC - ElectroconsultCACM - Central American Common MarketCABEI - Central American Bank for Economic Integraticn
APPRAISAL OF FIFTH POWER PROJECT-HONDURAS
(HONDURAS-NICARAGUA INTERCONNECTION)
EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE)
TABLE OF CONTENTS
Page No.
SUMMARY AND CONCLUSIONS i
1. INTRODUCTION 1
2. THE POW'ER SECTOR 2
3. INTERNATIONAL INTERCONNECTION 4Legal Aspects and Power Contract 5
4. THE PROGRAM AND PROJECT 6Teven-Year Program 6Description of Project 7Estimated Cost 7Engineering and Construction 8Construction Schedules 8Procurement and Disbursement 3Environment 9Project Supervision 9
5. JUSTIFICATION 10Forecast of Sales and Demand 10Interconnection 10Diesel Units at La Ceiba 11Extension of Power Supply to Aguan Valley 11
6. EMPRESA NACIONAL DE ENERGIA ELECTRICA 12Management and Staff 12Tariffs 13Financial Systems and Auditors 13
7. FINANCE 14Introduction 14Earnings Record 14Capital Structure and Financial Position 14Financing Plan 15Future Earnings 17Future Financial Position 18
8. AGREEMENTS REACHED AND RECOMMENDATIONS 19
This report was prepared by Messrs. Hui Huang (Consultant)and John E. Graves.
LIST OF ANNEXES
1. Installed Capacity of Power Plants
2. Estimated Cost of Project
3. Energy Sales - Actual and Forecast
4. Energy Sales, Energy Generation, Maximum Demand and Firm Capability
5. El Cajon Hydroelectric Development
6. Interconnection with Nicaragua
7. Diesel Sets at La Ceiba - Least Cost Solution
8. Extension to Aguan Valley
9. Estimated Schedule of Loan Disbursements
10. Actual and Forecast Balance Sheets
11. Long-Term Debt
12. Actual and Forecast Income Statements
13. Forecast Sources and Applications of Funds
14. Actual and Forecast Financial Ratios
Map of ENEE's Main Power System
Map of ENALUF's Main Power System
APPRAISAL OF FIFTH POWER PROJECT-HONDURAS
(HONDURAS-NICARAGUA INTERCONNECTION)
EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE)
SUMMARY AND CONCLUSIONS
i. This report covers the appraisal of the Fifth Power Project ofthe Empresa Nacional de Energia Electrica (ENEE) of Honduras which hasrequested a Bank loan of US$12.3 million. Because it involves inter-connection with the Nicaraguan power system, this report is intended tobe considered in conjunction with the appraisal of the Eighth PowerProject of the Empresa Nacional de Luz y Fuerza (ENALUF) of Nicaragua.
ii. Since 1959 the Bank and Association have provided major financ-ial assistance to Honduran power development through four loans and twocredits, totaling US$32.75 million, for four ENEE power projects. Thefirst two projects have been completed successfully, and the third has beensubstantially completed. The fourth project is under construction, withsatisfactory progress, and is expected to be completed by the end of 197h.
iii. ENEE is a government-owned corporation responsible for thedevelopment and operation of power facilities in Honduras. Its totalinstalled capacity - predominantly hydro but also including diesel andgas turbine generating facilities - is now 111 MW. This represents 85%of the country's total capacity available for public power supply. ENEE'smanagement has shown marked improvement during this period; however, itsengineering staff still needs strengthening.
iv. Honduras has an abundance of attractive hydroelectric sites whosepotential capacity far exceeds the nation's current demand for power. Theinterconnection component of the Project would permit transfers of thermalenergy from Nicaragua to Honduras from 1975 through 1977; from 1978 onwardsthe interconnection is expected to provide Nicaragua with large amounts ofHonduran hydro power. ENEE's seven-year program also includes the construc-tion of El Cajon hydroelectric plant, which preliminary studies have shownto be the most economic alternative for electricity generation and whichwould also provide significant flood control benefits. El Cajon will bene-fit not only Honduras but also Nicaragua,which will obtain hydro power atlower cost than it can generate in its own thermal plants. The interconnec-tion provided under the Project would therefore permit the optimal develop-ment of the power systems of the two countries.
v. The Project includes:
a) 24 MW of diesel generating facilities at La Ceiba initially tosupply that city's needs and later to meet the demands of theENEE system prior to completion of the international inter-connection;
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b) a high-voltage (230 kV) interconnection with the ENALUF systemin Nicaragua to provide for the interchange of large blocks ofenergy between the two Empresas;
c) extension of ENEE's transmission system to areas not presentlyserved;
d) studies of future hydroelectric projects; and
e) training of ENEE staff.
vi. Because ENEE will initially be purchasing power from ENALUF inNicaragua, its immediate capital requirements are smaller than they wouldbe without the interconnection. Subsequently, ENEE's requirements willprobably include funds for construction of El Cajon and will thereforeincrease sharply, while ENALUF will rely on El Cajon in lieu of capitalinvestment in its own thermal generating plant.
vii. The total cost of the Project is estimated at US$16.0 millionof which the Bank would finance the US$12.3 million foreign currency com-ponent. The Project is expected to be completed by the end of 1975. TheProject is a small part of ENEE's seven-year (1972-1978) expansion prograjn,which includes completion of El Cajon and calls for a total investment ofUS$138 million.
viii. ENEE personnel would carry out the design and construction super-vision for the components of the Project for which they have experience,namely the diesel generating units and 138 kV and 34.5 kV lines and sub-stations. Consulting engineers would perform these duties for the 230 kVtransmission system and would do the hydro studies.
ix. Procurement would follow the Bank's Guidelines. A small arnountof retroactive financing - less than US$250,000 - would be required tofinance consulting services for the interconnection and El Cajon.
x. The combined programs of ENEE and ENALUF, which include the inter-connection, are the least-cost solution to meeting the electricity require-ments of Honduras and Nicaragua. Installation of the proposed diesel unitsis the least-cost way of providing required expansion of ENEE's generatingcapacity, and the proposed line is the least-cost way for ENEE to extendits service area to the Aguan valley.
xi. ENEE's financial position and earnings are satisfactory and areexpected to remain so.
xii. The Project would form a suitable basis for a Bank loan ofUS$12.3 million equivalent with a term of 24 years including four years ofgrace. The loan would be made to ENEE and would be guaranteed by theRepublic of Honduras.
APPRAISAL OF FIFTH POWER PROJECT - HONDURAS
(HONDURAS-NICARAGUA INTERCONNECTION)
EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE)
1. INTRODUCTION
1.01 This report appraises the Fifth Power Project of the EmpresaNacional de Energia Electrica (ENEE), for uhich Bank assistance ofUS$12.3 million has been requested. The proposed loan would cover theforeign exchange cost of the Project, the total cost of which is aboutUS$16.0 million. ENEE, the government-owned authority responsible forthe development and operation of electric power facilities withinHonduras, will finance the local cost of the Project from internallygenerated funds and local borrowing.
1.02 The main facilities included in the Project are a high-voltageinterconnection with Empresa Nacional de Luz y Fuerza (ENALUF) ofNicaragua and diesel generating capacity required by ENEE prior to thecompletion of the interconnection.
1.03 The Bank and IDA have helped finance four power projects inHonduras, as detailed in Annex 11. The financing, which has aggregatedUS$32.75 million, has assisted in the expansion of ENEE's generatingand transmission facilities. The United States Agency for InternationalDevelopment (USAID), the Central American Bank for Economic Integration(CABEI) and the Central Bank of Honduras have also assisted ENEE in in-creasing its investment in facilities by 150% in the last seven years.
1.0h The Project was appraised simultaneously with the Eighth PowerProject of ENALUF, which provides for the Nicaraguan part of the inter-connection and the thermal generating facilities to meet its own needsand supply power to ENEE prior to completion of the next large hydro-electric plant in Honduras. Because ENALUF will be supplying power toENEE for the first few years after the interconnection has been complet-ed, ENALUF's current capital requirements are larger, and ENEE's smaller,than they would be without the interconnection. In the next phase of theprogram, the situation will be reversed.
1.05 This report is based on a feasibility study prepared by Electro-consult (ELC) of Milan, Italy, consultants to both ENEE and ENALUF, andon the findings of an appraisal mission consisting of Messrs. Hui Huang(Consultant) and John E. Graves which visited Honduras in October 1971.This mission coordinated closely with Messrs. W. F. Kupper and V.Nercissiantz, who appraised the ENALUF project at the same time.
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2. THE POWER SECTOR
2.01 While public electrical service in Honduras has improved in thelast seven years, it is still not available in most parts of the country.Where available, electricity is relatively expensive, and consumption percapita is comparatively low. ENEE, the principal entity of the sector,has expanded its distribution network and improved the reliability of itsservice and is expected to continue to do so.
2.02 ENEE's production of electrical energy has approximately doubled ir,thae five years 1967-1971. Despite this large increase in production,however, the unmet demand for electrical service is large. Existing in-dustrial customers have requested more power from ENEE to replace theirown inefficient captive facilities. New medium-size factories are beingbuilt and more are planned in both the northern and southern zones of thenation. The percentage of potential residential customers actually re-ceiving electrical service is low - less than 15%.
2.03 The per capita generation of electricity for 1970 was the low-est of the Central American republics:
Costa Rica (estimated) 500 kWh/capitaNicaragua 245El Salvador 174Guatemala 124Honduras 116
2.04 Public electrical service in Honduras is provided mainly by ENEE:
The United Fruit and Standard Fruit companies own the largest of theprivately-owned utilities. United Fruit's diesel stations totaling 10 MWat La Lima and Tela, and Standard's 5.5 MW station at La Ceiba, provideenergy to each company's industrial facilities as well as to the respectivemunicipalities.
2.05 In addition to the facilities available for public supply, afew industries in Honduras have their own generating capacity. The mostimportant of these captive facilities are the diesel plants owned by thesilver mines at Mochito (5.6 MW) and the cement plant at Bijao (2 MW). Thetotal capacity of al1 such facilities is about 24 MW and their totalenergy generation in 1970 is estimated at 34 GWh, or about 10% of the totalelectricity generated in the country.
2.06 ENEE's main system serves the most heavily populated and in-dustralized section of the country. This area stretches from the PuertoCortes/San Pedro Sula area in the north to the capital city of Tegucigalpain the central zone. The system presently consists of 214 km of 138 kVtransmission lines and 60 km of 69 kV lines connecting six power plants(2 hydro, 3 diesel and 1 gas turbine) with a total installed capacity ofabout 105 MW, as detailed in Annex 1.
2.07 The Fourth Power Project currently under way will strengthen themain system and extend it to other cities in the northern and central zones.In addition to its main system, ENEE operates 14 isolated diesel plants witha total installed capacity of 6.2 MW. Most of this capacity is located inthe principal southern cities of San Lorenzo and Choluteca, which would beconnected with the main system by means of the 230 kV transmission line in-cluded in the Project. Demand for electricity in the southern zone has al-ready overtaxed the capacity of the Choluteca plant.
2.08 ENEE supplies about 60,000 consumers. Its market is primarilyindustrial; 54% of 1970 sales were to industrial customers:
2.09 Honduras has abundant hydro resources. A preliminary hydro sur-vey for the western and central regions of Honduras was conducted by HarzaEngineering Company International of the United States in 1967. This studyidentified several possibly favorable plant sites on the Jicatuyo andHumuya rivers. Among the sites on the Rio Humuya, also surveyed by Motor-Columbus of Switzerland in 1970, El Cajon is the most attractive and a de-tailed feasibility study is being carried out by the firm as described inAnnex 5, El Remolino, which is a run-of-river site immediately downstreamfrom El Cajon, would not be economic until completion of El Cajon reservoir.loi.or-Columbus has already done some pre-feasibility work, financed underIhe Fourth Power Project, concerning Naranjito on the Jicatuyo River. Furtherstudies, mainly of a geological nature, are needed to establish whetherNaranjiLo could be a feasible smaller alternative, should construction ofEl C.ljon be postponed.
2.10 A similar survey should now be made for the eastern region to enablea hydro inventory of the whole country to be prepared for planning futurepower development. Because United Nations Development Programme funds are notavailable, funds for consultants to carry out this survey are included in theProject. This study would include a reasonable amount of pre-feasibility workon the more promising sites, including the gorge on the Patuca River nearCayetano, about 130 km east of Tegucigalpa (see Map of ENEE system), whichappears to offer good opportunities for power production in the more distantfuture.
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3. INTERNATIONAL INTERCONNECTION
3.01 As noted in paragraph 2.09, the most attractive of Honduras'many undeveloped hydroelectric sites is that at El Cajon. More fullydescribed in Annex 5, a high dam in the El Cajon gorge would have apotential of about 450 MW and would generate in an average year about1,300 Gkh of low-cost energy (about 6.4 U.S. mills per kWh).
3.02 Despite its rapid growth, the market in Honduras is notsufficiently large to absorb El Cajon's potential, nor is it expectedto be so until the mid-1980's. (ENEE's system peak demand is expectedto be only 60 MW in 1972).
3.03 In Nicaragua, the ENALUF system requirements are presentlyalmost double those of ENEE; peak demand in 1972 is expected to be 115MW. Moreover, because of a lack of economic hydro sites, ENALUF willbecome increasingly dependent on thermal generation, principally steam.
3.04 A high-voltage interconnection between the two systems wouldtherefore benefit both. By providing a market for power from El Cajon,it would enable ENEE to develop this site sooner than would otherwise beeconomically feasible. Prior to the completion of El Cajon, the linkwould enable ENEE to obtain power from ENALUF, thereby minimizing ENEE'sneed for new generating facilities. After El Cajon is completed, itwould provide ENALUF with large amounts of low-cost hydro power throughthe mid-1980's, thus reducing that Empresa's generation investment andoperating costs from what they would otherwise be.
3.05 As part of the Fourth Power Project, ENEE intended extendingits existing system by connecting Tegucigalpa to Choluteca in the southwith a 69 kV transmission line. For interconnection with ENALUF the volt-age of this line would have to be raised to 230 kV and the line extendedabout 60 km to the border with Nicaragua (see Map of ENEE system). It isproposed that the Tegucigalpa-Choluteca 69 kV line be deleted from theFourth Power Project and the complete 230 kV line from Tegucigalpa to theborder be included in the proposed Project. Funds thus left availableunder the Fourth Power Project would help ENEE meet the now enlarged scopeof its transmission and subtransmission system expansion and the increasedcosts of the remainder of the project due to the recent monetary revaluation.230 kV has been shown to be the most suitable voltage for the interconnection,considering the distances involved and the amounts of power to be trans-mitted.
3.06 ENALUF's system would be extended from Leon to the border withHonduras by a 230 kV line about 70 km long (see Map of ENALUF system).ENALUF would build a new steam power station at Puerto Somoza with two50 MW units to be commissioned by the end of 1974 and 1975, respectively.These units would enable ENALUF, in addition to meeting its own load growth,to supply ENEE from the end of 1974, when the interconnection would becompleted, until El Cajon is commissioned in 1978, with more economicalenergy than ENEE could provide itself. The supply of power from ENALUFwould be sufficient not only to meet ENEE's incremental requirements butalso to allow ENEE to place its old diesel facilities on standby for mostof this period and thereby reduce fuel costs.
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3.07 Once El Cajon is completed, all of ENEE's thermal facilitieswould be put on standby and ENALUF's thermal generation would be greatlyreduced, thereby permitting further fuel cost savings for each.
3.08 Even if El Cajon were not completed as currently projected,the interconnection would still benefit both utilities by reducing theiroperating costs and investment programs, as detailed in paragraph 5.05.
3.09 As indicated in Annex 6, which describes the feasibility studyof the interconnection as carried out by ELC and modified by the twoutilities, each system's firm capability would be able to meet at least79% of its peak demand in case of interruption of the interconnection.
Legal Aspects and Power Contract
3.10 Both Honduras and Nicaragua have agreed that it is necessaryfor the two countries to conclude a treaty which will allow the inter-connection and the interchange of power and also authorize the two Empresasto negotiate a power contract for the interchange. The treaty has alreadybeen signed but not yet ratified. Both countries' legislative bodies willratify the treaty before disbursements will be made from the loan in re-spect of those parts of the Project directly related to the interconnection,i.e., the 230 kV transmission line, the Pavana substation and the Suyapasubstation extension.
3.11 The two utilities are expected to sign, early in June, a contractsatisfactory to the Bank for the supply of power from Nicaragua to Hondurasduring the first years after interconnection. No disbursement will be madefrom the loan in respect of those parts of the Project directly related tothe interconnection until this contract becomes effective. The supply ofEl Cajon power from Honduras to Nicaragua will be the subject of anothercontract, to be negotiated after the completion of the feasibility study,when the cost of the power plant and of its energy will be better known.
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4. THE PRDGRAM AND PROJECT
Seven-Year Program
4.01 ENIEE's development program for 1972-1978 includes four basicelemer]ts:
a) completion of the Rio Lindo Project (see Appraisal. ReportNo. TO-623a, dated May 13, 1968) and completion of the FourthPower Project (see Appraisal Report No. PU-42a dated May 28,1970;
b) the Fifth Power Project, which includes the interconnectiorwith Nicaragua, described below;
c) El Cajon hydroelectric project, discussed in Annex 5, andrelated transmission system expansion; and
d) improvements to and expansion of the existing distributionsystem, including acquisition of existing systems owned byother companies and municipalities.
The program's total cost of US$138 million is detailed in Annex 13.
Description of the Project
4.02 The Fifth Power Project, which amounts to about 11.5% of ENEE'sseven-year program, would comprise the following:
a) four 6 MW diesel generating units (400-500 rpm) burningbunker C oil to be installed at La Ceiba7
b) a 150 km single-circuit 230 kV transmission line from Suyapa(near Tegucigalpa) to Pavana (near Choluteca) and thence tothe Nicaraguan border, and appropriate substation equipmentat Suyapa and Pavana;
c) a 47 km 138 kV transmission line from La Ceiba to the Aguanvalley, a substation at Coyoles, a terminal at La Ceiba andabout 90 km of 34.5 kV sub-transmission lines and substationsin the Aguan valley;
d) installation of about 150 km of 34.5 kV sub-transmission linesand substations to serve new areas;
e) consulting services to study hydroelectric power projects onthe Rio Jicatuyo and conclude the study of El Cajon hydroelectricproject (Annex 5);
f) consulting services for a preliminary hydro survey in easternHonduras, particularly on the Rio Patuca (paragraph 2.10); and
g) training of ENEE staff.
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4.03 Extension of the transmission line to the Aguan valley wasincluded in the Fourth Power Project, but ENEE agreed not to proceedwith its construction until it produced evidence satisfactory to theBank that there is economic justification for the work. As ENEE hasnot yet completed negotiations with Standard Fruit, the main prospectivecustomer in the area, this line has not been built. It is proposed thatthese works be deleted from the Fourth Project and included in the Fifth.Funds thus left available under the Fourth Power Project would help ENEE,as mentioned in paragraph 3.05, to meet the enlarged scope and the in-crease in costs of the remainder of the Fourth Power Project. The de-cision to proceed with the Aguan valley works is again subject to ENEE'sproviding evidence satisfactory to the Bank that there is sufficienteconomic justification for the works.
Estimated Cost
4.04 The Project is estimated to cost US$16.0 million with a foreigncurrency component of US$12.3 million. The cost estimates for trans-mission lines (for 230 kV lines, at US$18,000 per km) and substations arebased on recent experience with similar works in Honduras and other LatinAmerican countries. The estimates for diesel units are based on actualcosts of recen-t similar installations in other countries adjusted forrecent currency revaluations. To cover cost increases arising from un-foreseen difficulties, a physical contingency allowance of about 7V hasbeen included for all Project costs except training, feasibility study andhydro survey costs. Because most project expenditures will be made againstfirm price contracts which will be signed in 1972 and 1973, price contingencyallowances of 71% and 5% of the foreign exchange and local currency components,respectively, of the Project should be sufficient to allow for price inflationof the type of equipment to be required. Possible effects of future currencyrevaluations are adequately reflected in the estimates. Details of the costestimates are shown in Annex 2. The following is a summary:
-Lempiras (millions)- - -US$ (millions) - -
Local Foreign Total Local Foreign Total
La Ceiba diesel units 1.20 8.oo 9.20 o.60 4.00 4.60Interconnection trans-mission facilities 2.10 7.40 9.50 1.05 3.70 4.75Extension of transmission
system to Aguan valley 1.30 2.42 3.72 0.65 1.21 1.56Extension of supply to newareas 1.00 0.78 1.78 0.50 0.39 0.89
4.05 Engineering design and supervision of construction for the inter-connection would be carried out by ELC, which is ENEE's consultant for theFourth Power Project and which would also be engaged by ENALUF to handlethe Nicaraguan part of the interconnection. In addition, the two Enpresasintend to engage a firm experienced in power system studies to make sta-bility analyses. This firm would establish basic design criteria whichwould be adopted in ELC's design work.
4.06 The two Empresas expect to award separate contracts simultane-ously for the interconnection in order to obtain cost savings in engineer-ing and procurement. Each transmission line would be handled through asingle contract covering the supply of materials and erection work. Forthe substations, separate contracts would be let for the supply of prin-cipal components, miscellaneous equipment, and for erection.
4.07 Specifications for the diesel plant have been prepared by ENEE'sstaff. ENEE's engineer who would be responsible for the operation andmaintenance of the plant has been sent abroad to observe the erection,operation and maintenance of similar units.
4.08 ENEE's staff would design the 47 km 138 kV transmission line tothe Aguan valley and the 138 kV stepdown substation at Coyoles and woulddesign and construct the 34.5 kV subtransmission lines for service extensic.-to new areas. ENEE will have acquired sufficient experience in this regardas a result of the work now being done by its own forces under the FourthPower Project on substations and lines of the same type.
4.09 Motor Columbus would continue with the existing assignment on ElCajon feasibility study and would supervise the geological field work forNaranjito (paragraph 2.09). Contractors acceptable to the Bank would under-take the geological exploration for Naranjito, under the supervision of theconsultants. A consulting firm acceptable to the Bank would be engaged forthe proposed survey of hydro resources in the eastern part of the country.
Construction Schedules
4.10 Construction of the interconnection line (including the associatedsubstations) and the sub-transmission lines would be completed by the end of1974. The first two diesel units would be installed during the first halfof 1973; the other two by the end of 1973. El Cajon feasibility study shouldbe concluded by the end of 1972, and the Naranjito studies during 1973. Theinitiation of construction on the transmission extension to the Aguan valleywould depend on negotiations with the Standard Fruit Company, which havebegun. The line should be completed by the end of 1975.
Procurement and Disbursement
4.11 Procurement of equipment and selection of contractors would followthe Bank's international bidding procedures; none of these contracts would
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be awarded before the signing of the loan. However, to complete the inter-connection by the end of 1974, consultants have been engaged to make stabili-ty analyses of the system and design the interconnection facilities. Thesestudies and the completion of the El Cajon feasibility study (paragraph 2.09)would require a small amount (estimated to be less than US$250,000) of retro-active financing for expenditures incurred since February 1972.
4.12 Disbursements from the loan account would be made for the CIFcost of imported equipment and materials and for the foreign currency costof contractors' erection work, consultants' services, and training. Dis-bursements are expected to be completed by mid-1976. If the Project shouldcost less than estimated, any savings from the loan should be canceled.
Environment
4.13 The La Ceiba diesel units will be located outside the city awayfrom the heavily populated area. Because of the relatively small size ofthe plant and the fact that in the future it will be used mainly in stand-by service, no noise problem or other adverse effects on the environmentare expected.
Project Supervision
4.14 The Project would largely overlap in time the ongoing FourthPower Project. Semi-annual visits by Bank staff should suffice to assureadequate supervision of both projects.
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5. JUSTIFICATION
Forecast of Sales and Demand
5.01 The forecast of energy sales in ENEE's market through 1985 isshown in Annex 3. ENEE's forecasts have been accurate in the past ex-cept for 1971, when the economic slowdown resulting from the CommonMarket crisis led to a slower-than-expected rate of increase in energysales. In making its forecasts, ENEE analyzes economic and demographictrends in each area which it serves or plans to serve. Sales to largeexisting customers are based on estimates provided by those customers.Future sales to the two major fruit companies are based on discussionswith those companies. Only prospective loads of well-advanced large in-dustrial projects are included in the forecast. The forecast of maximumdemand has been derived from the sales forecast by assuming system lossfactors and annual load factors.
5.02 The average growth of required energy in the areas presentlyserved by ENEE's system is forecast at 15% for the years 1972-1976,compared with an average annual rate of 16% for 1967-1971. Because ofthe addition of the new service areas (Tela, La Ceiba, Aguan valley,southern zone, etc.) with new loads to ENEE's system, total sales areexpected to increase at a higher rate - 21% annually - for 1972-1976.Maximum, demand is expected to increase from 51 MW in 1971 to lo MW in1976 as shown in Annex 4. These forecasts are realistic.
Interconnection
5.03 The proposed interconnection, while of itself not contributingto revenues of either Empresa, will enable them to reduce, or postpone,investments which would otherwise be required to meet their respectiveforecast market requirements with the same degree of reliability. At thesame time, economies of operation will be realized in the near term, andeventually economies of scale, which would not be available to eitherEmpresa operating in isolation.
5,04 ELC, in its feasibility study of interconnection, first selectedthe best independent program for each system and then compared the combi-nation of the two selected programs with its proposed program for inter-connection. The interconnection program was shown to be more economic fordiscount rates up to 19%. During the appraisals, in order to cut down theinvestments by both Empresas, it was agreed to modify ELC's proposed pro-gram by installing 36 MW less generating capacity before the commissioningof El Cajon. This modification, which would reduce the reserve capacity,is acceptable to both Empresas. With this reduction in investment theinterconnection project is clearly the least cost solution for discountrates up to 20% (see Annex 6).
5.05 Once the Motor-Columbus feasibility study of El Cajon and agree-ments for the-transfer of electricity to and from ENALUF have been complet-ed, it is expected that ENEE will proceed with the construction of E1 Cajonas currently planned. If, however, for some reason such as financing dif-ficulties, El Cajon should be postponed for a few years, the interconnection
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would still benefit both Empresas because:
a) the interconnection would provide a means for the twoutilities to interchange emergency power, and the combinedreserve requirements of the two systems would be less thanfor independent systems; and
b) until ready to proceed with El Cajon, ENEE could reduceits financing requirements by continuing to purchasethermal energy from ENALUF to meet its demand.
Diesel Units at La Ceiba
5.06 It is shown in Annex 7 that the installation of diesel unitsat La Ceiba would be the least cost solution as compared to installationof gas turbines for discount rates up to 31%. Because the main purpose isto provide reserves, the internal economic rate of return has not beencalculated.
Extension of Power Supply to Aguan Valley
5.07 The proposed extension of power supply to the Aguan valley(paragraph 4.03) is described in detail in Annex 8. It is the least costsolution to meet the needs of the valley; the internal economic rate ofreturn is estimated at about 17%.
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6. EMPRESA NACIONAL DE ENERGIA ELECTRICA
Management and Staff
6.01 The Empresa Nacional de Energia Electrica (ENEE) was establishedin 1957 by law as an autonomous authority wholly owned by the Governmentand responsible for developing and operating power facilities in Honduras.It is a reasonably well-managed utility.
6.02 The composition of ENEE's Board of Directors is described inthe Fourth Power Project Appraisal Report No. PU-42a. As a result of achange in the national government in June 1971 four of the five directorsare new to the ENEE board. The present general manager, a civil engineer,was appointed by the new board in August 1971. Although he is new to thepower sector and in an administrative capacity, the general manager is per-forming his duties capably and energetically. ENEE has agreed to afford theBank a reasonable opportunity to exchange views on any future appointmentto the post of General Manager.
6.03 In 1968 the Bank requested that ENEE's engineering staff bestrengthened. Since few Honduran nationals with power experience werethen available, ENEE agreed to engage four or five experienced and compe-tent expatriates on a contractual basis to assist the existing staff. Onecompetent expatriate engineer has completed two years as technical adviserto the general manager dealing with planning and engineering matters andis expected to continue for at least another year. Three additional engi-neers were hired in 1972. In 1970 ENEE further agreed to send selectedengineers and technicians from its staff to foreign power companies forstudy and on-the-job training. This activity has begun with two engineers.Because of the urgent need to provide training for its engineers and techni-cians, ENEE has prepared a specific training program for its technicalpersonnel through 1975.
6.04 Because of the large amount of work being performed by ENEE inthe Fourth Project, as well as the similar work in the proposed Project,ENEE's management realizes the necessity of providing adequate trainingfor its new construction and maintenance crews. For this training ENEEwill establish a facility at Canaveral and is seeking help in setting upcourses and providing instruction from other Latin American utilities moreexperienced in this regard.
6.05 ENEE employs about 1,100 permanent and 300 temporary employees.During the past few years its permanent staff has grown by less than 6%annually. Its temporary construction force has been expanded because ofrecent rapid expansion of the sub-transmission and distribution systems.With about 60,000 customers at present, ENEE's customer-to-employee ratioof 55:1 (based on permanent employees only) is unfavorable even for asmall utility but is expected to improve as a result of the new management'spolicy of limiting hiring of new employees.
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Tariffs
6.o6 The ENEE law gives the Empresa the authority to establishelectricity tariffs. In the agreements on the previous loans and creditsENEE was required to earn a minimum rate of return of 10% on net utilityplant in operation. This provision is repeated in the agreements relatedto the proposed loan. In recent years ENEE's rate of return has been wellabove this level; the Empresa earned 16% on its net fixed assets in 1970.However, the addition of the Rio Lindo plant to the assets in operation in1971 reduced the rate of return to approxinately 12%, still higher than theminimum specified rate.
6.07 ENEE's tariffs,vhich are higher than other Central Americanutilities', have remained practically unchanged since 1964. The averagerate per kWh sold is about 3.7 U.S. cents. A study completed by R. W. Beckand Associates (USA) in October 1971 suggested some minor rate adjustmentsamong the various service classifications so that each category would coverits allocated portion of ENEE system costs. The net effect of the suggest-ed rate modifications, none of which exceeded 5%, would be negligible uponENEE's gross revenues. Because the suggested tariff revisions were minorand because of the continuing need to generate ever-increasing amounts ofcash for system expansion - particularly for local currency expenditureson El Cajon - ENEE's management feels it inadvisable to effect any ratechanges at this time. This course of action appears reasonable.
6.08 ENEE's management is concerned about the low rate of new servicehookups in certain towns where it has installed distribution lines. Insome cases as few as 25% of thepotential residential customers have actual-ly begun to receive service from the ENEE system. To achieve better utili-zation of its distribution network, ENEE intends to study this problem inorder to determine whether the problem in such poorer areas is due to highrates, lack of capital for house wiring and appliances, or a combination ofthe two. ENEE intends to make the study available for review by the Bank'svillage electrification study group.
Financial Systems and Auditors
6.09 ENEE's accounting system, which is under the direction of aqualified accountant, is well-designed. Operational problems have delayedthe submission of data to the accounting department, however, thereby delay-ing the preparation of financial reports. The new general manager hasagreed to take steps to speed up the flow of data within ENEE.
6.10 The financial statements of ENEE are audited by Price Waterhouseand Company, which is satisfactory. ENEE has agreed that its accounts willcontinue to be audited by a firm of accountants acceptable to the Bank, andthat the auditor's full report will be transmitted to the Bank within fourmonths of the end of each financial year.
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7. FINANCE
Introduction
7.01 ENEE has maintained rel_tively high power rates and annualrates of return - at least 11.5% - during the past five years and is ex-pected to continue to do so. Its profitability will enable ENEE tocontinue to self-finance a large portion - about 34.5% - of its verylarge 1972-78 construction program, which includes El Cajon hydroelectricplant and which will increase plant investment by about 250%. ENEE'sfinancial position is expected to remain strong; its debt service is notunduly burdensome and is not expected to become so.
Earnings Record
7.02 Income statements and financial ratios for the past five yearsare shown in Annexes 12 and 14, respectively. During the period sales ofenergy grew at an average rate of 16.4% and net income grew at 16.7%. Netincome for the last five years totaling L26.7 million (US$13.4 million)was retained by ENEE in its entirety and was used to help finance a 119%increase in gross plant.
Capital Structure and Financial Position
7.03 ENEE's financial position is sound. Although heavy capital ex-penditures have depleted ENEE's cash balannces, it is expected that theutility will improve its liquidity and working capital position in 1972.Despite increased borrowings for the Rio Lindo and Fourth Power Projects,the debt/equity ratio is still a satisfactory 54/46. ENEE's balancesheets for the past five years are shown in Annex 10.
7.04 At the end of 1971, US$19.0 million or 65.5% of the outstandinglong-term debt consisted of financial assistance given by the Bank Group.Details of ENEE's long-term debt, including Bank/IDA financing, are shownin Annex 11.
7.05 Like many other Latin American utilities, ENEE has been plaguedwith disproportionately high accounts receivable in relation to sales.ENEE has been taking the following steps to liquidate some of thesereceivables and to reduce the current level, equal to more than two monthssales, to a more acceptable 1½Q-month level by:
a) installing its own computer to expedite bill processing;
b) establishing working arrangements with major banks enablingcustomers to pay their bills at banks as well as at ENEE'soffices; and
c) establishing procedures whereby the various agencies of thenational government (totaling more than 70) pay ENEE throughthe Ministry of Finance. This has put almost all governmentagencies on a current basis with the exceptions noted in thefollowing paragraphs.
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7.06 A particularly vexing problem has been that of old accountsreceivable owed principally by certain government agencies and to alesser degree by churches and municipalities. These old debts total Ll.lmillion (US$550,000). ENEE's management has agreed with the Bank's re-quest that this issue be soon resolved. Because of the government'scurrent fiscal situation a deferred payment plan for the central govern-ment agencies over five years was suggested by the Bank. The governmenthas agreed to this plan.
7.07 ENEE is continuing to have great difficulty collecting currentpayments from most municipalities and some churches. ENEE is trying tosolve this problem on a case-by-case basis by negotiation with responsibleauthorities of each entity.
7.08 Another long-term problem involves a dispute between ENEE andServicio Autonomo Nacional de Acueductos y Alcantarillados (SANAA), thewater supply agency, concerning ENEE's use of water for two small hydroplants, one of which has been shut down since April 1970. ENEE has de-clined to pay what it considers exorbitant charges for use of water;consequently, SANAA has never paid ENEE for electricity and continues toobtain free service. ENEE has agreed that, within six months from thedate the loan is signed, it will make arrangements with SANAA satisfactoryto the Bank concerning the settlement of their accounts.
Financing Plan
7.09 During the four-year period 1972-1975 net internal cash genera-tion will finance approximately 35% of ENEE's construction and acquisitionprogram plus additions to working capital. This is satisfactory especiallyin view of the fact that this period includes the first two years of ElCajon's five-year construction period. During this period plant investmentwill increase by about 100%. Miscellaneous contributions will amount to 1%of the requirements and borrowings will be required for the remaining 64%.The financing plan is based on the reinvestment of all net income. Conse-quently, ENEE has agreed to retain all its earnings for investment in newfacilities. The following table gives a summary of the financing plan, de-tails of which are shown in the projected funds statement Annex 13.
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Financing Plan for 1972 through 1975
Requirement of Funds Lempiras US$ Perceritages(millions) (millions)
Construction and acquisitionprogram (excluding interest):Completion of Rio Lindo Project 2.) 1.0 1.6Completion of the Fourth Power Project 27.3 13.7 22.4Proposed Fifth Power Project* 31.0 15.5 25.5El Cajon hydroelectric plant 40.0 20.0 32.9Improvement and expansion of distri-bution system 13.4 6.7 11.0
Acquisition of new systems 3.6 1.8 3.0117.3 ;797 9TJT
Additions to working capital (net) 4.4 2.2 3.6
Total Requirements 121.7 60.9 100.0
These requirements would be financed in the following manner:
Sources of Funds Lempiras US$ Percentageis(millions) (millions)
Proposed Loans:IBRD (Fifth Power Project) * 23.9 11.9 19.7Central Bank 565 2.8 4.5
Future Financing: El Cajon hydroelectricproject, including related transmission 27.0 13.5 22.2
Total borrowings 77.7 38.9 63.9
Total Sources 121.7 6o.9 100.0
* Project disbursements of L 1.0 million (US$0.5 million) and loan withdrawals ofL 0.7 million (Us$0.4 million) are expected in early 1976.
7.10 The proposed Bank loan would be made to ENEE for a term of approxi-mately 24 years, including about four years of grace, at the currenct Bankinterest rate.
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7.11 The proposed Central Bank financing estimated at L5.5 million(US$2.75 million) would be required in 1972 through 1974. ENEE has al-ready secured a L2.5 million (US$1.25 million) 10-year loan from theCentral Bank at an annual interest rate of 7%. Assurances have been ob-tained that the Central Bank will agree to meet ENEE's remaining require-ment of L3.0 million (US$1.5 million) either directly or by underwriting,at reasonable terms.
7.12 Arrangements have not yet been made for the future loans whichwill be required to finance El Cajon project. The project, including therelated transmission lines, is estimated to cost approximately L188 million(US$94 million). Of this total, 67% or L126 million (US$63 million) re-presents foreign costs and the remaining 33% or L62 million (US$31 million)represents local currency expenditures.
7.13 Annex 13 also shows ENEE's financing plan for the entire period1972-1978, which covers El Cajon's construction period. During theseseven years, net internal cash generation will finance approximately 34.5%of ENEE's construction and acquisition program plus additions to workingcapital. This is satisfactory in view of the fact that plant investmentwill increase by about 250% during this period. The financing plan callsfor national government contributions of L16 million (US$8 million) for aportion of El Cajon's local currency cost, but ENEE may have to obtain thisamount through local borrowing if the government contribution is not avail-able. Because the estimated cost ofEl Cajon is preliminary, the signifi-cant addition of L19 million (US$9.5 million) to working capital may be re-garded as necessary to provide for possible increases in its cost. Thisincrease in working capital occurs principally during 1978 and could be usedfor other future projects or to permit reduction of tariffs if not requiredfor El Cajon.
Future Earnings
7.14 ENEE's forecast income statements (Annex 12) and financial ratios(Annex 14) indicate that the utility will maintain its high level of profit-ability and self-financing with existing tariffs. During the seven-yearperiod beginning in 1972 ENEE's rate of return is expected to remain in the12.0 - 14.5% range experienced recently, except for 1976 and 1977. Duringthese two years, prior to completion of El Cajon, ENEE's rate base willactually decline slightly; higher earnings will cause the rate of return toincrease to 16-18.5%. After the installation of El Cajon, preliminary figuresindicate a continuation of the 12.5 - 14.5% rate of return. Were it not forthe large cash requirements for El Cajon, the earnings level for 1976-1977would be excessive. However, in view of the need for cash to cover the localcurrency cost of El Cajon, ENEE's management is reluctant to reduce rates anddesires to maintain a reasonably high rate of return. Agreements related tothe Fourth Power Project state that ENEE will not adjust its tariff levelswithout the Bank's approval until completion of that project, which is ex-pected to be in mid-1974.
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7.15 Net income is expected to increase from L6.2 million (US$3.1million) in 1971 to L31.5 million (US$15.75 million) in 1978. Total netincome for the seven-year period is estimated at L119.3 million (US$59.65million).
7.16 ENEE's annual debt service coverage will vary from 1.9 to 2.4times during 1972-1978, which is satisfactory. However, its rapid plantexpansion and consequent increase in borrowings will result in a lessfavorable relation of current cash generation to future debt service. Thedebt service test agreed to by ENEE and the Bank Group in the Fourth PowerProject, whereby ENEE will not incur debt without the Bank Group's approvalunless its most recent 12-month internal cash generation is at least 1.4times the maximum debt service requirement for any succeeding fiscal year,is repeated in the proposed loan agreement.
Future Financial Position
7.17 The balance sheet positions for 1972-1978 shown in Annex 10reflect a continuing sound financial position. The debt/equity ratio,current ratio and debt structure are expected to remain satisfactory.
7.18 ENEE's debt/equity ratio is expected to remain at about its 1971level of 54/46 until 1978, when it will decline to 51/49. The current ratiowill range from 1.25 to 1.6, except for 1978 when the cash increase referredto in paragraph 7.13 will raise this ratio to 2.4.
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8. AGREEMENTS REACHED AND RECOMMWNDATIONR
8.01 During negotiations agreements were reached on the followingpoints:
a) ENEE will not withdraw funds for construction of those partsof the project directly related to the interconnection until(i) the legislative bodies of Honduras and Nicaragua haveratified the interconnection treaty, and (ii) the power supplycontract between ENEE and ENALUF has become effective (paragraphs3.10 and 3.11);
b) ENEE will not proceed with construction of the Aguan valley lineand related substations before providing satisfactory evidencethat they are economically justified (paragraph 4.03);
c) ENEE will retain consultants satisfactory to the Bank to designand supervise construction of the interconnection, conclude theEl Cajon feasibility study, undertake the studies of Naranjitoand survey the hydro resources in eastern Honduras (paragraphs4.05 and 4.09);
d) ENEE will give the Bank a reasonable opportunity to exchangeviews on any future appointments to the post of General Manager(paragraph 6.02);
e) Within six months from the date the loan is signed, ENEE willmake arrangements with SANAA satisfactory to the Bank concerningsettlement of accounts between the two agencies (paragraph 7.08);
f) ENEE will retain, until the Project is completed, all its earningsfor investment in new facilities (paragraph 7.09); and
g) The Central Bank of Honduras will meet ENEE's remaining financ-ing requirements during the Project period at reasonable terms(paragraph 7.11).
NOTES.anComsissioning of El Cajon is shown under two possible conditions: 1978(a) - El Cajon not commissioned in 1978 but in 1979 with four 75 MW units
1978(b) - El Cajon commissioned in 1978 with three 75 MW units. Fourth unit added in ]979.2. Old diesels (15 MW) will be retired when El Cajon is commissioned.
March 1972
ANNEX 5APPRAISAL OF FIFTH POWEA P±IOJECT - HONDUrtAS Page I of 2 pages
(HONDURAS-NICARAGUA INTERCONNECTION)
EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE)
EL CAJON HYDROELECTRIC DEVELOPMENT
1. In northern Honduras there is an excellent site for the construc-tion of a high dam, namely, E[ Cajon gorge on the Humuya River downstreamfrom the confluence of its principal tributary, the Sulaco River. The damnot only would enable a large amount of low-cost electric power, about 45(MW, to be produced but also would create a large reservoir in the Humuyaand Sulaco valleys which could provide storage for effectively controllingfloods in the Sula valley. The valley is the richest and economicallymost promising part of the country but has been plagued with frequentfloods. The power potential is particularly attractive because of proxi-mity to load centers; however, the project is too big for the present ENEEsystem. On the other hand, the neighboring ENALUF system is considerablylarger and in the future would depend mainly on thermal power. Thus,through interconnection, surplus power of El Cajon can be utilized by ENALUFto replace thermal generation, making the development of the projecteconomically feasible and beneficial to both countries.
2. Feasibility studies of the El Cajon project were started in 1970by Motor-Columbus of Switzerland with funds provided under ENEE's Rio LindoProject and Fourth Power Project. These studies would be continued withadditional money to be provided by the proposed Bank loan and would becompleted by the end of 1972.
3. Geological explorations at the dam site and the reservoir areaare near completion. Preliminary findings favor the construction of anarch dam. According to a tentative plan prepared by the consultants, thedam would be about 220 m. high and the total reservoir capacity would beof about 8,000 million cubic meters. The power installation would consistof 450 MW with 6 units of 75 MW each and the average annual energy outputwould be about 1,300 GW.
4. The upper part of the reservoir would be reserved for retainingfloods with a return period of up to 100 years, thereby lowering the floodstage in the valley considerably. A recent preliminary flood control surveyestimated that the average annual flood damages which could be prevented bythe regulation of El Cajon reservoir would amount to us$4.4 million out oftotal damages of US$7.4 million which would occur without the dam.
5. The cost of the project excluding transmission lines and interestduring construction has been estimated at about US$88 million. Part of thecost is properly allocable to flood control and should be borne by thebeneficiaries, including the Honduran Government. Pending a detailed costallocation study, the portion chargeable to flood control is tentativelyassumed to be US$15 million. The net project cost related to the powersector would therefore be about US$73 million.
ANNEX 5Page 2 of 2 pages
6. Based on the above estimates, the investment per kW would beabout US$162 and the average generation cost per kWh would be about 6.4US mills. These costs are considered attractive, and it would thereforebe possible for El Cajon not only to supply Honduras' future needs butalso to replace much of ENALUF's thermal power.
7. It is planned to start construction of the project in the latterpart of 1973 after financing arrangements have been made. Initial powergeneration is expected in early 1978 and the project would be completed inthe latter part of that year.
8. Because of the ready market to absorb El Cajon's power, it wouldbe highly advantageous for ENEE to expedite its completion. Each year ofadvanced completion would contribute some US$7 million to ENEE due torevenues from energy sales to ENALUF and ENEE's own savings in systemoperating costs.
February 1972
ANNEX bAPPRAISAL OF FIFTH POWER PROJECT - HONDURAS Page 1 of 2 pages
(HONDURAS-NICARAGUA INTERCONNECTION)
EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE)
INTERCONNECTION WITH NICARAGUA
Feasibility Study by ELC
1. ENEE and ENALUF jointly engaged Electroconsult (ELC) of Italy tomake a feasibility study on the proposed interconnection of the two systems.The Empresas agreed to use the following as criteria for reserves: forindependent developments, each system should have a reserve capacity equalto that of the largest unit; after the systems are interconnected, eachsystem should have sufficient firm capability, i.e., assuming the largestunit out of service, to meet at least 85% of the peak demand in the eventof interruption of the interconnection.
2. The consultants first studied alternative generation programs foreach system for the period 1972-1985 and selected the most economic one foreach system. Then the proposed interconnection project was compared withthe combination of the two selected programs.
3. For the independent development in Honduras, the most economicprogram, among four alternatives, comprised a 40 MW steam power stationat La Ceiba to be installed in 1975 and a 126 MW El Cajon Chico project 1/to be constructed in 1979.
4. For the independent development in Nicaragua, two alternativeprograms were compared: one with a mixed hydro-steam development; the otherwith an all steam development. The latter,which included the two 60 MW unitsto be installed in 1975 and 1977, was determined to be the more economicsolution.
5. Although El Cajon would be the main source of power for the inter-connected system over a number of years, both ENEE and ENALUF would need othergenerating capacity additions to meet the reserve criteria mentioned inparagraph 1. ELC proposed the following generation program for the nextdecade for the interconnected system:
ENALUF: 60 MW steam unit at Lake Managua in 197560 MW steam unit at Lake Managua in 1977
ENEE: 40 MW steam unit at La Ceiba in 19746 x 63 MW hydro units at El Cajon in 1978
6. ELC showed that the interconnection program would be more economicthan the combination of the best independent developments for discount ratesup to 19%.
1/ This project would have a lower dam 125 meters high compared with220 meters now planned for El Cajon project.
ANNEX 6Page 2 of 2 pages
7. The consultants studied 6 alternative schemes of transmissionsystems covering alternative routes, different transmission voltages (138,230 and 345 kV) and different circuit arrangements (single-circuit ariddouble-circuit). They concluded that a single-circuit 230 kV line linkingLeon in Nicaragua to Tegucigalpa in Honduras, to be operated at 138 kVinitially until El Cajon is commissioned, would be the least cost solution.
Final Modifications
8. During the two appraisals, it was agreed that, in order to reduceinvestments by both Bnpresas, ELC's proposed program for interconnectionwould be modified as follows:
ENALUF: 50 MW steam unit at Puerto Somoza in 197550 MW steam unit at Puerto Somoza in 1976
ENEE: 24 MW diesel units at La Ceiba in 19744 x 75 MW hydro units at E1 Cajon in 1978
9. It was also decided that, due to stability considerations, theinterconnection line would be operated at 230 kV from the start.
10. The above modifications would reduce the reserve capacity of eachsystem, thereby lowering the percentage of firm capability from the original-ly agreed 85% to 80% for ENEE in 1977 and to 79% for ENALUF in 1982 , whichis acceptable to both Empresas. The equalizing discount rate is now expectedto be about 20%.
May 1972
ANNEX 7Page 1 of 2 pages
APPRAISAL OF FIFTH POWER PROJECT - HONDURAS
(HONDURAS-NICARAGUA INTERCONNECTION)
EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE)
DIESEL UNITS AT LA CEIBA
1. The installation of diesel units at La Ceiba has the followingpurpose:
a) to supply the needs of this city, the utility business ofwhich ENEE plans to purchase from Standard Fruit in 1972,before the transmission line is extended to it;
b) to provide the needed additional capacity for ENEE's mainpower system before the completion of the interconnectionwith ENALUF;
c) to enable ENEE to meet, before the commissioning of El Cajon,a substantial part of its demand in the event of an inter-ruption of the interconnection; and
d) to provide a standby reserve for La Ceiba area and the Aguanvalley in the event of an outage of the long transmission line.
2. The proposed capacity of 24 MW is the minimum amount of powerrequired to meet these needs. Installation of steam units is an in-appropriate alternative because of the small size required and the natureof the service. Although the capital cost of gas turbine units would belower, their lower efficiency and the higher price of fuel (light dieseloil) make them non-competitive with the medium-speed diesel units usingBunker C oil. As shown in accompanying table, the diesels would be theleast cost solution for discount rates up to 31%.
May 1972
MEDIUM SPEED DIESEIS GAS TURBINESAnnu- (4 x 6 ) (2 x 12 MW)al Capi- Operating Cost Capi- Operating CostGen- tal Lubri- ital Lubri-era- Cost Fuel cant Cost Fuel canttion $168/ 0.1470 0.0470 Oper. Maint. Sub- $120/ 1.140 0 Oper. Maint. Sub-
GtWh kw per kWh per kIh Exp. Exp. Total TOTAL kw per kwh per kWh Exp. Ecp. Total TOTAL(expressed in US$ '000)
Assmtions:Fuel prices: Bunker "C" for diesels at US$3.40 per barrel
Light diesel oil for gas turbines at US$5.10 per barrel
Cost of lubricant: For diesels 10% of fuel cost CD,
For gas turbines negligible
Fuel consumption: For diesels 215g/kWh N
For gas turbines 355 g/1Wh
(D
May 1972
ANNEX 8Page 1 of 2 pages
APPRAISAL OF FIFTH POWER PROJECT - HONDURAS
(HONDURAS-NICARAGUA INTERCONNECTION)
EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE)
EXTENSIO1N OF POWER SUPPLY TO AGUAN VALLEY
1. The Aguan valley is potentially one of the richest areas ofHonduras. The Standard Fruit Company has large operations in the valley,including large banana plantations at½oyoles and Isleta. The plantationsare irrigated with pumps driven by diesel engines with a total capacity ofabout 11,000 hp. It is expected that the Company will replace the dieselswith electric motors when low cost electrical power is available. TheHonduras Government has plans to develop the valley through the NationalAgrarian Institute; availability of electric power would facilitate theimplementation of the plans.
2. Under the proposed project ENEE would construct a 138 kV trans-mission line about 47 km long from La Ceiba to a substation at Coyolesand from there 34.5 kV subtransmission lines, with a total length of about90 kmi, would radiate to serve the irrigation pumps and other loads.
3. The best alternative method of providing the same services wouldbe the installation of two maedium-speed diesel sets of 6 MW each at Coyoles.The accompanying table shows the proposed supply from ENEE's main system tobe more economic for any discount rate.
4. Assuming that ENEE would charge US1.5¢/kWh for irrigation power,the project's internal financial rate of return would be about 17% over itsestimated economic life of 30 years. The assumed rate would enable StandardFruit to save about 50% of its current pumping costs.
February 1972
Supplied by ENZIEE's I4a½ System Supplied by Isolated Diesel Plant
Energy _lnel'gy Capital Cost Operating Cost TOTAL Capital Cost Operating Cost TOTAI RevenuesSales Requirement Gener- Trans- Gener- Trans- Gener- Trans- Gener- Trans-
The total present value of Stream A is found to be less than that of Stream B for all discount rates within therange of 0 to 100%. This shows that Stream A is the least cost solution.
Internal Financial Rate of Return: 17.04% (Stream A vs. Stream C).
1/ See Annex 2 of report.2/ Assume power to be supplied by ENEE's main system at 7.5 mills per kwh, the rate which ENEE is expected to
charge ENALUF for bulk supply of El Cajon power. This rate is used here because the power supplied to theAguan Valley could otherwise be sold to ENALUF-
3/ Assumed to be 1% of capital cost.7/ 12,000 kw diesel plant at $180 per kw.
See Annex 2 of report with some adjustment. 0 cn'/ Assumed to be 7.22 miLls per kwh.7/ Assumed to be 1 .5 cents per kwh.
CD
February 1972
ANNEX 9
APPRAISAL OF FIFTH POWER PROJECT - HONDURAS
(HONDURAS-NICARAGUA INTERCONNECTION)
EMPRESA NACIONAL DE ENERGIA ELECTRICA (ENEE)
ESTIMATED SCHEDULE OF LOAN DISBURSEMENTS
(in thousands of US dollars)
ASSUMPTIONS
Loan Signing: June 1972
Effective Date: September 30, 1972
Closing Date: June 30, 1976
Disbursements Cumulative DisbursementsIBRD Fiscal Year and Quarter During Quarter at End of Quarter
