Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3137b-BAR STAFF APPRAISAL REPORT BARBADOS POWERPROJECT November 17, 1980 Regional Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. 3137b-BAR
STAFF APPRAISAL REPORT
BARBADOS
POWER PROJECT
November 17, 1980
Regional Projects DepartmentLatin America and the Caribbean Regional Office
This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
Currency Unit Barbados Dollar (BD$)BD$ 1 100 Barbados Cents (BDJ)BD$ 2 US$1BD$ 1 = US$0.50
ACRONYMS
BLPC = The Barbados Light and Power Co. Ltd.CDB = Caribbean Development BankCDC = Commonwealth Development CorporationEIB = European Investment BankLOLP = Loss-of-load probabilityLPG = Liquified Petroleum Gasmcf = million cubic feetNGC = National Gas Corporation, BarbadosOGP = Optimized Generation Planning Computer ProgramPCI = Power Consultants InternationalPUB = Public Utilities BoardRBC = Royal Bank of CanadaUNDP = United Nations Development Programme
UNITS AND MEASURES
Hz = Hertz (cycles per second)kW = kilowattmW = megawatt = 1,000 kWkWh = kilowatt hourGWh = gigawatt hours = 1,000,000 kWhkV kilovoltkVA = kilovolt-amperekVAR = kilovolt-ampere reactiveMVA = megavolt-ampereMVAR = megavolt-ampere reactivem = meter = 3.28 feetkm = kilometer = 0.621 milekcal = kilocalories = 1,000 caloriesBTU = British Thermal Unit = 252 caloriestoe = metric ton of oil equivalent = 107 kcal
FISCAL YEAR
BLPC's fiscal year ends December 31
FOR OFFICIAL USE ONLYBARBADOS
STAFF APPRAISAL REPORT
POWER PROJECT
Table of Contents
Page No.
1. THE ENERGY SECTOR ......... ....*.. .................... ....... 1
Energy Resources and Use ...................................... 1Power Sector Organization 3............................ ...... 3Regulation .......................o.oo*o. ooo o...oo..o .. eoo... ..... 3Tariff Structure ................................................ 5Sector Development ......... ....... .... ......... ............... 5
2. THE BORROWER ................. o. oo..o.o.... oo.. o.. o.o.o.......... 6
This report has been prepared by Messrs. John Callahan and Colin J. Warrenon the basis of an appraisal conducted in Barbados during missions in December1979 and April 1980.
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
Table of Contents (Continued)Page No.
4. THE EXPANSION PROGRAM AND THE PROJECT (Continued)
Annex 1.1 Electricity Tariff Schedules .. 41Annex 3.1 Fuel Cost Calculation ...... 42Annex 5.1 BLPC 1980-85 Investment Program and Financing Plan . 43Annex 5.2 BLPC Loan Positions and Borrowing Terms ....... oo.. 44
Annex 5.3 BLPC Debt Statement: 1980-85 ... .......... 45Annex 5.4 BLPC Performance Indicators ..... o............. 47Annex 7 Documents and Data Available in the Project File 48
MAP: IBRD 15063
BARBADOS
POWER PROJECT
1. THE ENERGY SECTOR
Energy Resources and Use
1.01 The estimated total gross consumption of energy in Barbados in 1977was 2.0 x 1012 kcal (2.0 x 105 toe), while energy consumption per capita wasabout 8.0 x 106 kcal, (1978 estimated population: 252,000). 1/ Imports offuel and lubricants in 1978 amounted to about US$36.4 million, accounting for11.5% of the value of total merchandise imports. About US$20.4 million ofthis amount was for domestic use and US$16.0 million was for re-export.
1.02 Petroleum provided 91% of primary energy in 1977, with natural gas,liquified petroleum gas (LPG) and bagasse making up the balance. About 14% ofthe total energy supply was provided by domestic crude oil, natural gas andbagasse. The major consumer of primary energy was the electric utility, TheBarbados Light and Power Company (BLPC), which used 44% of the total. Supplyand consumption of primary energy in 1977 are estimated as follows: 2/
…------ kcal x 1012 -------. Total Domestic Import
Electricity generation (BLPC) 44 0.86Transport 23 0.45Sugar industry 4 0.08Other industry 15 0.30Residential sector 8 0.15Losses and unaccounted for 6 0.13
Total 100 1.97
1/ Comparative figures for other Caribbean and Central American countries are:
Antigua 5.0 x 106 kcalCosta Rica 7.7 x 106 kcalJamaica 11.8 x 106 kcal
2/ Petroleum products used for re-export, mostly marine bunkering andaircraft refueling, estimated at 1.13 x 1012 kcal, are not included insupply or consumption.
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1.03 Barbados is one of only two energy-importing Caribbean countries(the other being Cuba) having minor production of crude oil and natural gas.After intense exploration during the 1960s and early 1970s, a private oilcompany began commercial-scale production of crude oil in 1973 and outputincreased from 59 thousand barrels in 1974 to 283 thousand barrels in 1979.Concomitantly, gross output of natural gas rose from 68 million cubic feet(mcf) in 1974 to 547 mcf in 1979, largely associated with crude. 1/ Refiningis done by a 3,300 barrel per day refinery owned and operated by Mobil OilCorporation, and marketing companies operating in Barbados are obliged topurchase products from it, except for aviation and marine fuels. The retailprices of oil fuels are based on posted prices in the Caribbean market andlocal refining costs. Import duty is levied on all petroleum productsexcept where domestic output does not fully meet demand, and road tax islevied on gasoline.
1.04 All crude oil and associated natural gas produced in Barbadosis extracted from 11 wells by General Crude Oil Company (Texas), which isowned by Mobil. The Government is in the process of forming the NationalPetroleum Corporation to undertake exploration and production in the northerntwo-thirds of the island, which is not covered by General Crude's concession.The state-owned Natural Gas Corporation (NGC) distributes gas (188 mcf in1979) and owns two gas wells, but it purchases the bulk of its requirementsfrom General Crude, having exclusive rights to all the gas the company produces.At present, General Crude is venting about 1.0 million cubic feet per day(mcf/d) of associated natural gas, while NGC's average daily sales are onlyabout 0.52 mcf/d. However, NGC has entered into an agreement with BLPC tosupply gas to the Spring Garden steam plant whose two steam boilers have beenfitted with gas burners and by late 1980 should be ready to use some 1.0mcf/day of gas, representing about 9.0% of BLPC's fuel requirements.
1.05 Proven reserves of hydrocarbons are relatively small. Those ofcrude oil are estimated at 3.5 million barrels of which about 30% to 35% maybe recoverable, and those of natural gas at about 10,000 mcf. General Crudehas intensified drilling in the Woodbourne area and in 1978 made a heavyoil discovery about 3 km south of the Woodbourne field near Charnocks insouthern Barbados. The Government, with assistance from UNDP, is now formu-lating a strategy to improve hydrocarbon resource development, includingintensified seismic work and drilling of deeper wells, and is seeking externalfinancing for this purpose. It is expected that in the 1974-81 period, some1 million barrels of crude oil and 1,000 mcf of natural gas will be produced.At current consumption rates, this amounts to 10% and 12%, respectively, ofcommercial domestic demand.
1.06 Barbados has no hydroelectric potential, and no geothermal explora-tion has been conducted or is planned. Some locally produced charcoal isused for cooking; firewood consumption is negligible. Bagasse is used by thesugar industry, which is energy self-sufficient and, in addition, producesmore bagasse than it needs. This excess is now either stockpiled or burned.The Canadian International Development Agency and the Commowealth ScienceCouncil are funding a study, to be completed by the end of 1980, to measurethe quantities and qualities of surplus bagasse available and sugar factory
1/ This includes natural gas re-injected, flared and otherwise lost. About34% of gross output is delivered to final consumers.
boiler efficiencies. Also, BLPC and Sugar Factories Ltd. conducted trials in1980 to supply power from Foursquare Factory (which has a 30% bagasse surplus)to the public grid. The results of these trials were positive and the nextstep is to establish a permanent connection to the grid. A price related toBLPC's cost of fuel has been negotiated and other sugar factories may beexpected to follow suit where feasible. The situation will be monitoredduring project supervision. In the field of solar energy, Barbados hassignificant potential. An estimated 100 solar water heaters are alreadyinstalled, mainly in private residences in various parts of the island, savingabout 2,000 barrels of oil equivalent energy per year. The on-going Bank-financed Heywoods Village Tourism Project includes a solar water heatingsystem that will supply about 75% of the hot water needs of a 308-room hotelvillage. There is potential for the further use of solar energy for heatingwater; the rate of penetration of solar heaters will depend on fiscal incen-tives and the economics of converting existing houses and hotels to solarenergy. The Bank carried out a survey of the Barbadian energy sector in 1978as part of a broader Caribbean energy survey.
Power Sector Organization
1.07 The power sector is, for the most part, well organized. Barbados isserved by a single electric utility, BLPC, which generates, distributes, andsells electric energy throughout Barbados. 1/ BLPC has an installed generatingcapacity of 96 MW and transmission and distribution facilities which presentlyserve about 67,000 customers, providing service to roughly 90% of the totalpopulation of Barbados.
1.08 BLPC started a rural electrification program in 1964 and in the13-year period 1964-76 it extended electricity to about 7,000 homes and, inaddition, about 4,700 families received interest-free loans for initial homewiring. BLPC estimates that approximately BDS$ 100,000 per year will beneeded in the future for rural electrification. Service is now provided toabout 80% of rural households in Barbados.
Regulation
1.09 The Public Utilities Board (PUB), established by the Public Uti-lities Act of 1955, has jurisdiction over rate-making, adequacy of service,and the issuance of securities for the telephone and power utilities in thecountry. All decisions or orders of the Board are subject to review on appealon points of law to a judge of the High Court of Barbados. The PUB consistsof five citizens appointed by the Minister of Agriculture, Food and ConsumerAffairs to serve three year terms. In addition, during a particular ratehearing, the Minister may appoint two assessors to the Board, one selected inconsultation with the utility and one to represent the users of the utilityconcerned 2/. The Board may engage technical experts to advise it; all Board
1/ The only other significant electric power supply in Barbados is about13 MW of bagasse-fueled steam capacity in nine sugar factories, whichgenerated about 17 GWh for their own use in 1979.
2/ These two assessors have all the powers and functions of a member of theBoard except that of voting in decisions taken by the Board.
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expenses, including the salaries of its members, are paid by the regulatedutility.
1.10 Electricity rates are proposed by BLPC and approved or modified bythe PUB through a process of public hearings modelled on US rate-makingprocedures. The utility must give the PUB 60 days notice before putting a newrate into effect. During this period, the PUB has the option of suspendingoperation of the proposed rate for a maximum of six months beyond the proposedeffective date, during which time a hearing must be held. The PUB may authorizetemporary rates during suspension, but the utility is entitled to recover anyshortfall that occurs during the period if PUB's final decision authorizeshigher rates. The PUB does not claim to be a policy-setting body but itattempts to arrive at balanced decisions on the basis of information presentedto it by the public and by BLPC. It also takes into consideration policiesadopted by US commissions. In addition to its assessors and advisors describedabove (para 1.09), the PUB also relies on public objectors and the Government,through the Attorney General, to interrogate company staff during rate hearings.
1.11 The last rate application, filed by BLPC in April 1979, was for a3.2 BDV/kWh rate increase to take effect as of July 1979. The rates were sus-pended by PUB and a temporary increase of 1.0 BDJ/kWh was granted while publichearings were held. The Board fixed new rates in December 1979 which effectivelygranted BLPC a further increase of 0.1 BDJ/kWh. BLPC requested a review of thisdecision on the basis that it would put the Company in a critical financial posi-tion and not allow it to obtain financing for its capital expansion program. InMay 1980 the PUB, revising its December decision, awarded BLPC a further tariffincrease of 1.85 BD4/kWh and surcharges totaling 2.66 BD#/kWh to run fromJune 1980-May 1981 to compensate for regulatory lag. One of the objectorsappealed this decision. The Chief Justice presided over the appeal hearingin the Supreme Court and in his judgement dismissed the appeal and confirmedthe rates set by the PUB.
1.12 These recent rate hearings lasted for 37 sitting days and costBD$ 390,000 (0.14 BDJ per kWh of 1979 sales), excluding BLPC staff time and thecost of the subsequent review process. The elapsed time from the filing ofrates until the final decision was one year. Among the reasons for this are:
(i) the failure of the PUB to appoint experts to examine BLPC's opera-tions and finances prior to the hearings (para. 1.09);
(ii) the fact that public objectors at the rate hearings, though requiredto submit written objections to the rates, were allowed to roam atwill over the mass of data provided by BLPC and ask questions un-related to the nature of their objections; and
(iii) the fact that most Board members have full time jobs and boardmeetings have to be scheduled to meet this constraint.
1.13 With the purpose of streamlining subsequent rate reviews, the Govern-ment has hired consultants to undertake a study of the PUB's operatingprocedures. The consultants' report would be submitted to the PUB and theGovernment and discussed with the Bank. The recommendations of the study
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will be used to improve current regulatory procedures. A second study will bemade of criteria for determining power rates in Barbados. The conclusions ofthe report could be used by the PUB to prescribe regulations for determiningtariffs, as provided for in the Public Utilities Act. These studies formpart of the project proposed for Bank financing (para 4.13). The PUB operat-ing procedures study report is expected by April 1981.
Tariff Structure
1.14 The December 1979 PUB rate decision involved a change from thedeclining block structure employed in the past to one in which commercial andindustrial customers pay a flat rate per kWh consumed and a charge related tokW demand or installed transformer capacity. Domestic customers now paymore per kWh the higher their consumption (see Annex 1.1). The proposedproject includes a marginal cost tariff study that will assess the adequacy ofthe current structure and provide a basis for future changes in it, takinginto account BLPC's financial requirements and issues relating to subsidiesthat may be socially desirable (para 4.13).
Sector Development
1.15 Presently 91% of primary energy and 100% of public sector elec-tricity are supplied by petroleum products; consequently, serious constraintscould arise in the future if world-wide oil prices continue to increase.Although the Government is encouraging continued development and utilizationof domestic crude oil and natural gas, as well as use of renewable energyresources, the country must depend on imports for about 80% of its energysupply in the foreseeable future. Consequently, the proposed Bank projectincludes financing for studies to investigate long-range power generation andfuel options, and electricity conservation methods (para 4.13).
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2. THE BORROWER
General
2.01 The borrower would be The Barbados Light and Power Company Limited(BLPC), which was incorporated on May 6th, 1955 to acquire from the BarbadosElectric Supply Corporation Limited, under an agreement dated March 19, 1955,the latter's rights to supply electricity throughout the Island of Barbados.On July 1, 1955, all the assets of the Corporation were transferred to theCompany. The existing non-exclusive franchise is embodied in the ElectricLight and Power Act of Barbados and remains in effect up to and including the1st day of August 1986.
2.02 Prior to June 1977, 66.7% of BLPC's ordinary shares were held byCanadian International Power Co. (C.I. Power), which, in turn, was 50% ownedby the Baldwin-United Corporation (Ohio). In June 1977, C.I. Power was liquid-ated and its assets distributed to the shareholders, with the BLPC shares beingtransferred to a liquidating trust administered by Power Consultants Interna-tional (PCI, Delaware), a wholly owned subsidiary of Baldwin-United. BLPC'sordinary shares are presently (November 10, 1980) held as follows (par valueBD$ 5 each): 1/
Shareholders Shareholding
1,000 %
C.I. Power Liquidating Trust 2,883 66.7Other overseas 100 2.3Government (through the NationalInsurance Corporation) 300 7.0
Other local 1,038 24.0
Total 4,321 100.0
BLPC plans to offer for sale to nationals or residents of Barbados one millionordinary shares in late 1980, in conjunction with the sale, on the localmarket, of half a million shares currently held by C.I. Power. Government hasindicated its willingness to purchase a portion of the combined sale. Localownership of BLPC will increase to 53% from the current 31%. A further offerof one million ordinary shares would be made by December 31, 1983 to nationalsor residents of Barbados, increasing local ownership to 61%. Government hasagreed to purchase any unsold portions of these issues.
Organization, Management and Staff
2.03 BLPC is an efficient and well organized company with competent manage-ment and technical personnel. It is governed by a Board of Directors composedof 12 members, one of whom is the Managing Director. Government, industry,the private sector and the principal shareholder are represented on the board.
1/ Authorized capital is ten million shares, in addition, 600,000 prefer-ence shares have been issued. Preference shareholders have votingrights only when their dividend is withheld.
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The Managing Director has four officers who report directly to him and areresponsible for the four principal activities (commercial, technical, financialand data processing) of the company's operations (see Chart 2.1). BLPC'stotal staff numbers 428 and it has been able to maintain motivated and compe-tent personnel at all levels. The size of the staff is adequate in relationto BLPC's operating requirements. The customers per employee ratio of 154(1979) is second only to Colombia's 160 (sector average) for seventeen coun-tries in the Latin American and Caribbean region for which data is available.The high customer/employee ratio is due, in part, to the fact that BLPC'sprocurement and system planning services are provided by C.I. Power ServicesLtd. In addition, BLPC receives management consulting services from PCI (para2.02). Construction and erection of facilities is normally carried out byBLPC staff, except for major works such as new power plants or transmissionlines, where local or foreign contractors are employed.
Existing Facilities
2.04 The existing (1980) BLPC generation system consists of 16 smalldiesels which total 38 MW, two steam units of 20 MW each and one 18 MW gasturbine for a total capability, based on peak ratings, of about 96 MW. The1980 estimated peak load is 56 MW with a load factor of 69%. The system hasa very high reserve margin of 71%. However, because of the present undesirableunit size mix, firm capacity is only 56 MW. 1/
2.05 The present transmission system includes nine 24 kV/ll kV substationswith a total capacity of 61.8 MVA. The substations are interconnected byapproximately 53 km of 24 kV overhead line and 5 km of 24 kV underground cable.The BLPC distribution system consists of about 1,250 circuit km of overheadand 100 km of underground 11 kV primary distribution feeders, 85,000 kVA ofdistribution transformer capacity and 1,060 circuit km of 230 V secondarylines. Distribution voltage is 115/200 V three phase and 115/230 V singlephase. There are 12.3 MVAR of fixed and switched capacitors connected and thesystem power factor is about 0.91 during the evening peak. The presentnumber of meters is about 60,500 single phase and 6,500 three phase servingapproximately 67,000 customers and a peak substation load of 53,000 kVA.Also, about 9,700 street lights are owned and maintained by the company. Thesystem frequency is 50 Hz.
2.06 The average total system energy loss is about 9% of net generation,consisting of the following: transmission 1.0%, primary distribution 3.2%,secondary distribution 3.9% and unaccounted for 0.9%. Design and construc-tion standards used for transmission and distribution system expansion arein accordance with accepted utility practice, including economic conductorsizing, power factor correction and transformer loading.
1/ Reserve margin is the difference between system capacity and systempeak load. Firm capacity is defined here as system capacity less thetwo largest units.
Training
2.07 BLPC uses on-the-job training supplemented by classroom instructionto develop and maintain a cadre of skilled technicians and managers. Presentlythere are about six apprentices and twelve trainees in the program. This hasproven satisfactory in the past. However, the company is now establishing aformal training program to meet the increasing personnel requirements of theexpanding system. The new training division will consist of a training coordi-nator and two training supervisors who will administer a company-wide trainingand safety program and report to the Personnel Adviser. On-the-job andclassroom training will be supplemented by appropriate overseas programs andcourses, mostly in Canada, the US and the UK for basic professional-level andskilled technicians. Given the size of the company, the number of employeesand past performance, the training program is considered adequate. When newequipment is installed, such as the low speed diesels and the 69 kV transmis-sion line, contractors' training will be included at both the manufacturers'facilities and the construction sites.
Accounting and Audit
2.08 BLPC's accounting and data processing systems are good. Monthlyfinancial and operations reports are produced promptly and are reviewed bymanagement and BLPC's management consultants. In addition, the company has acomprehensive computerized financial forecasting model to assist in analyzingits future resource requirements. The data processing department is progres-sively computerizing various aspects of operations such as maintenance schedules.BLPC's annual statements are audited by an independent firm (Coopers andLybrand) acceptable to the Bank. BLPC has agreed to continue appointingindependent auditors satisfactory to the Bank and to send to the Bank theaudited financial statements together with the auditor's report within fourmonths from the end of each fiscal year.
Insurance
2.09 BLPC is insured against most common risks such as fire, accident,hurricane damage and civil liability, in accordance with public utilitypractice. Major works under construction are insured by contractor's all-risk type policies and the Bank-financed project would have similar coverage.BLPC has agreed to review its insurance coverage and to discuss the results ofthis review with the Bank by December 31, 1981.
Managing Director
rTraining _ -- Personnel Adviser
t-4
Commercial Manager, Secretary/ Manager,Superintendent Engineering Treasurer Data Processing
Production Distribution Accountin Data ProcessingCo.mercial (Generation) Department Department DepartmentDprment Department
Panning
Section
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3. THE MARKET
Load Forecast
3.01 BLPC develops its market forecast on the basis of an analysis ofhistorical trends and knowledge of major projects that will have an impact onelectricity demand over the medium-term future. The market forecast presentedhere is based on BLPC's December 1979 forecast and adjusted to take intoaccount actual results in January-May 1980 and the effects of expected increasesin the price of electricity.
3.02 Historical development of the power market from 1965 to 1979 can be &characterized by four different periods:
(a) 1965-69, when the growth rate in kWh sales averaged 18.8% per year;
(b) 1969-73, when the average growth rate was 13.1% per year;
(c) 1974, when sales declined 5.4% in response to a 33% increase in thereal average price of electricity (85% in current terms); and
(d) 1974-79, when sales grew at an average rate of 9.1% per year.
Growth rates in 1977, 1978 and 1979 have been 11.6%, 9.4% and 11.8%, respec-tively, but growth is expected to slow somewhat to 7.6% in 1980-85 as theaverage real price of electricity rises from 18.6 BD/kWh in 1979 to an esti-mated 27 BDJ/kWh in 1985 (1979 prices) as a result of the estimated 3% p.a. risein the price of oil, upon which all BLPC generation is based (see Table 5.1).This contrasts with the fall in the real price that has occurred since 1974,when it was 23.9 BD4/kWh (1979 prices).
3.03 The projected evolution of sales by tariff category is as follows:
1979 1985 1979/85Actual Sales Estimated Sales Average Annual
Tariff Category 1/ Growth RatesGWh % GWh % x
Domestic 79.3 20.1 112.3 26.5 6.0General service 17.6 6.4 25.1 5.9 6.1Secondary power 67.0 24.5 100.1 23.7 6.9Large power 103.9 38.1 180.1 42.6 9.6Street lighting 4.0 1.5 4.3 1.0 1.2Employee and coin meters 1.0 0.4 1.1 0.3 1.6
Total 272.8 100.0 423.0 100.0 7.6
1/ General service tariff applies to non-domestic customers at low tension.Secondary power is low tension single or three phase supply with a demandmeter. Large power is for supply at 3.3 kV and 11.0 kV. BLPC employeeshave a special low tariff.
Table 3.1 shows actual and forecast sales and peak demand.
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Capacity and Energy Balance
3.04 Table 3.2 gives BLPC's historical and projected energy and capacitybalances for the years 1978-85. Firm capacity has been defined here astotal capacity less the two largest units, which are the 20 MW steam units.This definition is used since the planned annual maintenance outage time foreach steam unit is 5 weeks and forced outages have averaged 2-1/2 weeks peryear. Hence there are significant periods of time during which the systemeffective capacity is reduced by the amount of one steam unit. Under theseconditions the system should be able to cope with the failure of the secondsteam unit since, unlike most mainland systems, there is no adjacent powersystem to provide back-up capacity (see para. 4.07).
3.05 Peak demand is estimated to exceed firm capacity in 1980 and 1981,while commissioning of a first 14 MW low speed diesel unit in late 1982 anda second unit in early 1983, in accordance with the least cost expansionprogram (see para. 6.01) will bring firm capacity back above peak demand.Late 1982 is the earliest date at which the new base load plant can beinstalled; extra capacity could be provided in the interim by high speeddiesel generators, which have a shorter order lead time. However, it isestimated that the cost of this alternative is greater than the benefitof the increased reliability it would provide. BLPC's approch to the situa-tion has been to order a second turbine for the gas turbine generator (thusreducing the forced outage time for that unit), to advise those customersthat need incrased reliability to install standby plant (i.e. to increasereliability selectively) and, when necessary, to shed load selectively.
3.06 The ratio between installed capacity and peak demand is projected tofall from 1.69 in 1980 to 1.62 in 1984, at which time installation of anotherbase load unit will be required to bring firm capacity above peak demand. Theprecise nature and timing of this plant is to be determined during a generationexpansion study to be carried out as part of the proposed project (para 4.13).The rather high level of excess capacity in the system results from the factthat the two 20 MW steam units are large in relation to system peak demand.Annex 3.1 shows BLPC fuel requirements in 1980-86 derived from the salesforecast presented here.
r.
BARBADOS - POWER PROJECT
Table 3.1. Actual and Projected Energy and Power Requirements
Generation by Plant:Garrison & Spring Garden Diesels 51.8 73.6 91.3 12.1 18.8 33.1Gas Turbine 1.4 1.1 0.8 0.9 0.9 1.0Steam Units 1 and 2 290.0 295.0 297.3 222.8 240.3 247.1Low Speed Diesels - - 8.3 192.0 200.0 213.3
Total 343.2 369.7 397.7 427.8 460.0 494.5
1/ Commissioned December 1, 1982.2/ Commissioned February 1, 1983.3/ Installed capacity tentative.
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4. THE EXPANSION PROGRAM AND THE PROJECT
Program Background and Objectives
4.01 The relatively strong economic growth of Barbados during the pastyears has produced proportional rapid increases in the demand for electricity;growth in demand is projected at 7.6% p.a. during 1980-1985 (para. 3.03).
4.02 BLPC's generation, transmission and distribution systems must beexpanded and improved to serve this growing market while improving the presentquality of service. The principal objectives of the 1980-1985 capital invest-ment program are:
(a) Expansion of the existing generation, transmission and distributionsystem to meet projected energy demands of existing and new customersthroughout the period;
(b) improvement of the average system plant heat rate to reduce specificfuel consumption and relative cost per kWh generated;
(c) improvement of the transmission and distribution systems by utili-zation of economic design to keep energy losses at a minimumconsistent with projected demand and fuel prices;
(d) improvement of system operations by developing an energy conser-vation program and developing long range generation and facilitiesplanning; and
(e) maximize the use of indigenous energy resources such as gas andbagasse.
1980-85 Investment Program
4.03 BLPC's 1980-85 Program of capital investments includes:
(a) the generation expansion program comprising the installation oftwo low-speed diesel units of 14 MW each (peaking capacity) in1982/83, a third 14 MW unit in 1985 and commencement of work on afourth 14 MW unit to be completed in 1987 1/;
(b) the construction of 15 km of 69 kV transmission lines;
(c) the construction of two 69/24 kV substations, the acquisitionof one mobile substation, and modifications to existing 24 kVsubstations;
(d) the conversion of about 402 km of 11 kV primary feeders to 24 kV;
1/ Final decisions on the third and fourth low speed diesel units wouldbe dependent on the outcome of the generation expansion study (para.4.13).
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(e) the distribution expansion program including installation of about60 MVA of distribution transformers, 23.8 MVAR of capacitors, 36,400meters, 300 street lights and associated additions to the 240 Vsecondary circuits; and
(f) improvements and additions to general property including transpor-tation equipment, buildings, land and right of way.
The program was designed by BLPC and its consultant C.I. Power Services, basedupon an average annual load growth of 8% and selection of the least-costsolution, considering viable alternatives (para 6.01).
4.04 The detailed investment costs of the 1980-1985 program are shown inTable 4.1 and are summarized below:
1980-1985 Construction Program
--------BD$ million -- ---- US$ million-----Foreign Local Total Foreign Local Total
Base cost (Jan. 1979)including physicalcontingencies:
The above estimates, prepared by BLPC and C.I. Power Services on the basis ofprices prevailing in 1979, include 8% physical contingencies and engineeringand administration costs. Generation and transmission costs are based onthe consultant's estimates. Distribution costs are based primarily on similarwork now in progress. The cost estimates are considered by the Bank to bereasonable and the investment program is well balanced to adequately serveprojected loads to 1985. Allowances for price increases have been madeusing the following annual percentages:
…_------------%---------…---Year Foreign Local 1/
1980 10.5 151981 9.5 141982 8.0 131983-5 7.0 13
1/ Based on BLPC's estimate of local construction and labor cost pricetrends.
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Generation
4.05 Since peak load is estimated to exceed firm capacity in 1980,additional generation must be added as soon as possible (para. 3.04).The criteria for adding generation capacity will be to:
(a) maintain firm capability above peak load;
(b) maintain existing system reliability; and
(c) reduce the reserve margin to about 40%. 1/
The generation expansion program selected (para. 4.03) is considered accept-able by Bank staff. BLPC issued bidding documents to manufacturers and,consequently, received eight competitive bids on July 14, 1980. BLPC hasissued a letter of intent to sign a contract with Gotaverken Motor AB (Sweden)for "turnkey" installation of two base load diesel units of about 14 MW(peaking rating) with an option for two additional units. BLPC has agreed tosign a contract satisfactory to the Bank for delivery and erection of theseunits as a condition of loan effectiveness. This base load plant does notform part of the project proposed for Bank financing (para 4.08). While baseload diesels will serve BLPC's immediate needs, a long-range generation plan(1985-2005) is needed to determine the size and type of plants required tobest satisfy the increasing energy demand. The proposed project includes anengineering study to assist BLPC in development of such plan (para. 4.09).
Transmission and Distribution
4.06 BLPC concluded from system studies conducted as early as 1973 thatits 24 kV transmission line voltage would be unable to cope with long-termfuture requirements beyond 1983. This decision has been confirmed by recentload flow and system stability studies. In 1973/74, a higher transmissionline voltage of 69 kV was selected, thus marking 24 kV to become the primaryfeeder voltage. Consequently, to facilitate conversion to 69 kV, the SpringGarden steam plant (2 x 20 MW), which was completed in 1976, incorporateddual-voltage step-up transfomers, 24 kV or 69 kV, and a 69 kV substationdesign. BLPC presented the Bank with the least-cost program for expansion ofthe existing system to the year 1998. The least-cost solution is to convertthe system to 69 kV transmission and 24 kV primary distribution (paras. 6.02,6.03). Conversion will be scheduled over the years in accordance with economicloading. During the 1980-85 program approximately 17% and 30% of the trans-mission line and primary feeders, respectively, will be converted along withthe construction of two new 69 kV/24 kV substations at major load centers.
Project Origin
4.07 The Government requested Bank participation in financing BLPC'sfuture generating plant in September of 1978. BLPC, with the assistance ofconsultants, had prepared a generation planning report covering the 10-year
1/ Because the two largest units total 40 MW, a 100 MW system peak (1987/88)will be required before the reserve margin can be reduced to 40%.
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period 1978-1987, which recommended commissioning an 18 MW gas turbine in 1980and a 20 MW bunker C steam unit in 1982. The Bank requested BLPC to modifysome of the planning assumptions to include medium speed diesel unitsusing Bunker C fuel, as these units have been shown to be economic in severalother powaer systems of similar size in Central America and the Caribbean.The Bank directed BLPC staff to several Central American and Caribbean countrieswhere the latter studied experience gained with other makes of diesel units and,consequently, BLPC developed representative operating and cost data, for bothlow and medium speed diesels, which was used in subsequent revised generationexpansion studies utilizing the General Electric Optimized Generation Planning(OGP) program. The OGP computerized program combines system reliability,operation, maintenance and investment costs to determine the least-costexpansion program based on a target loss-of-load probability (LOLP). Sensi-tivity studies included variations in fuel costs, load growth, maintenancecosts and unit reliability. The revised generation expansion program 1980-86,which was developed following the August 1979 preappraisal mission based onthe results of the OGP study and considering system firm capacity requirements,consisted of the following additions: 11 MW of high speed diesels (5 units)in 1981, two 14 MW low speed diesels in 1982/83 and a third 14 MW unit in 1985.Subsequent analysis by BLPC of the need for the high speed diesels (peakingplant) resulted in their being eliminated from the program (para. 3.05).
4.08 After the November 1979 appraisal mission BLPC received attractiveoffers for suppliers credit from a number of manufacturers to furnish anderect the proposed low-speed diesel plant. At BLPC's request, the Bankchanged its proposed project content from generation to distribution as thiswill have the greatest impact on easing the company's financial constraints.
The Project
4.09 The project proposed for Bank financing consists of the 1981-84 partof the 1980-85 development program for distribution, excluding ongoing works.The project would also include a generation expansion study, an energy conser-vation study, a study of PUB operating procedures, and studies of criteriafor determining power tariff levels and structure. Bank participationhas had a significant impact on attracting other sources of finance for the1980-85 program. The Bank project would consist of those components of thedistribution sector not readily identifiable as individual projects and forwhich BLPC is unable to obtain a'ternate financing on reasonable terms.These components are, essentially, the 24 kV primary distribution feeders,distribution transformers, capacitors, service connections and studies.The works and studies are described below (detailed costs appear in Table 4.2):
(a) 24 kV Primary Feeders. Conversion of about 312 km of 11 kV primaryfeeders to 24 kV and replacement of about 21,200 kVA of existingindustrial transformers associated with the conversion.
(b) Distribution Transformers. Installation of about 42,300 kVA of24 kV/120-240 V distribution transformers.
(c) Service Drops. Installation of about 16,500 customer service connec-tions consisting of about 450 km of 120-240 V conductors from thesecondary pole line to the customers' meters.
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(d) Capacitors. Installation of about 16.5 MVAR of capacitors to main-tain a system power factor of 0.90.
(e) Studies. Consulting services for generation planning, energyconservation and tariffs (60 staff months), and for PUB operatingprocedures and PUB criteria for setting power rates (15 staffmonths).
Project Cost Estimate
4.10 The proposed project's estimated cost is BD$16.0 million, of whichBD$12.1 million (76%) is expected to be in foreign exchange. The table belowsummarizes the estimated cost of the project and detailed costs appear inTable 4.2.
1981-84 Project Cost
BD$1000 US$1000Foreign Local Total Foreign Local Total
Total project cost 12,079 3,917 15,996 6,039 1,959 7,998
Percentage share 76% 24% 100% 76% 24% 100%
The base costs were estimated by BLPC and its consultant on the basis of pricesprevailing in early 1979 and found to be reasonable by the Bank. Engineeringand administration costs for the project are included in the base estimates.An 8% physical contingency has been added to both foreign and local basecosts, which include installation and erection. The studies to be performedas part of the project would require about 75 staff-months of consultantsservices and have an estimated total cost of BD$1.7 million. The averagestaff-month cost, including salary, costs, fees, international travel andsubsistence, is US$11,500. Allowances for price increases have beenincorporated in the cost estimate using the same annual percentage as forthe investment program (para. 4.04). Imported materials required for theexpansion and operation of the power system, excluding fuel, are exempt fromcustoms duty.
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4.11 The proposed Bank loan of US$6.0 million would finance the costof consultants (which may be local) required for the studies to be carriedout by the Government as part of the project, and the project's foreignexchange costs as follows:
4.12 BLPC's staff will supervise engineering designs and specificationsfor equipment and works which would be prepared by consultants acceptable tothe Bank. BLPC's staff, assisted by the consultant, would prepare biddingdocuments, evaluate bids and award contracts for procurement of project items.Equipment installation would be performed by BLPC's own forces who haveextensive experience in 24 kV wood pole line construction and the installationof distribution transformers, capacitors and customer service connections.Studies will be performed by consultants with qualifications, terms of refer-ence and under contracts satisfactory to the Bank. The project implementationschedule envisages completion by December 31, 1984. The detailed scheduleshown in Table 4.3 would be used to monitor progress during the projectperiod.
Studies
4.13 The proposed project includes the services of consultants, who willbe engaged by BLPC and Government under terms of reference acceptable to theBank to assist in the following studies:
(a) Generation Planning: BLPC, with rapid load growth and increasingenergy costs, needs to develop a long-range generation plan toassure least cost expansion of the system. The consultant willrender advice and recommendations to BLPC concerning the technicaland economic aspects of generation schemes, including utilizationof coal, and develop a generation expansion plan to the year 2005.In addition, the consultant will study the use of system reliabilityas a planning tool and the economic consequences of adoptingdifferent levels of reliability. The consultant will be engaged tocomplete the assignment not later than June 30, 1982.
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(b) Energy Conservation: BLPC, which generates all of its energy byburning oil as a primary fuel, needs to develop an energy conser-vation program to assist the country in its goal to reduce depend-ence on imported petroleum. The consultant will organize a surveyof BLPC's major customers to identify those areas in which efficiencyof energy use may be economically increased by actions taken eitherby the customer or by BLPC. Included in such actions would bechanges in the tariff structure, so this part of the program wouldbe coordinated with the tariff study. In addition, considerationwould be given to the energy efficiency of major customer appliances,such as refrigerators, water heaters and air conditioners, with aview to determining what kind of action, if any, is requiredon the part of BLPC or the Government to induce more economicalforms of electric energy consumption (e.g. appliance labelingprograms, government import restrictions on energy-inefficientappliances, etc.). In designing the conservation program maximumuse will be made of the experiences of other countries in thisfield. The consultant will be engaged to complete the assignmentnot later than March 31, 1982.
(c) Tariff Structure: A consultant will be hired to assist BLPC indeveloping a tariff study based on long run marginal costs. Thestudy will assess the adequacy of the current tariff structuretaking into account practical aspects, such as metering costs,BLPC's financial requirements and issues relating to subsidiesthat may be socially desirable. The study will aim to providea basis for future changes in the tariff structure. The studywill be completed by March 31, 1982 (para. 1.14).
(d) Public Utilities Board operating procedures and criteria fordetermining power rates: Consultants have been hired by Governmentto study the manner in which the PUB currently carries out itsregulatory duties and to recommend ways in which its performancecould be improved, particularly with respect to speeding up thecurrent lengthy decision-making process. Their report will besubmitted to Government and discussed with the Bank. The study willbe completed by April 30, 1981. A second study will address thequestion of what should be the criteria adopted by the PUB indetermining the level and structure of power tariffs in Barbados.This study will be coordinated with the marginal cost tariff studybut will consist of a broader examination of concepts such asrate-of-return on revalued assets, rate-of-return on shareholders'equity and contribution to investment as criteria for determiningpower tariff levels. The study will be completed by June 30, 1982.
Procurement
4.14 Procurement of goods and services, other than consultants' services,to be financed by the Bank would be through international competitive bidding(ICB) in accordance with the Bank's guidelines. Equipment which cannot begrouped into packages of at least US$50,000 equivalent would be procured onthe basis of local competitive bidding acceptable to the Bank. A maximum ofUS$250,000 in the aggregate would be procured in this manner. In the caseof ICB, domestic manufacturers tendering under international procedures would
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receive a margin of preference of 15% of cost or the applicable customs duty,whichever is lower. Regional preferences for other members of the CaribbeanCommon Market (CARICOM) would be limited to 15% of the c.i.f. price of non-regional goods or the difference in the amount of tariffs payable by CARICOMand non-CAPICOM suppliers, whichever is lower.
Disbursement
4.15 Disbursements from the loan account would be made for 100% of foreignexpenditures for imported equipment, materials and consultants' services and100% of expenditures for consultant services required for the studies to becarried out by the Government. The following table shows estimated loandisbursements, assuming loan effectiveness to be March 31, 1981.
Estimated Loan Disbursements
US$ MillionIBRD Semester During
Fiscal Year Ending Semester Cumulative
1981 June 30, 1981 0.4 0.41982 December 31, 1981 1.0 1.4
June 30, 1982 1.0 2.41983 December 31, 1982 1.0 3.4
June 30, 1983 0.7 4.11984 December 31, 1983 0.6 4.7
June 30, 1984 0.7 5.41985 December 31, 1984 0.6 6.0
The closing date would be June 30, 1985, six months after project completionto allow for the payment of retentions.
Environment
4.16 BLPC has carried out previous projects with due regard to environ-mental protection and would do so in this project. Line routes consist ofconversion of existing lines and have been selected to follow existing rights-of-way adjacent to highways and roads so that land clearing and visual impactis kept to a minimum. The new diesel power plant will be constructed adjacentto an existing power generation facility.
Project Risks
4.17 The project faces no special risks. The schedule assumed for theproject is reasonable and takes into consideration normal engineering, admin-istrative and construction procedures. Possible hurricane damage presentsa risk to projects in Barbados. To minimize the associated technical risks,the transmission system will be designed to withstand at least 120 mile perhour winds and its cost has been estimated accordingly. To minimize thefinancial risks, BLPC will be requested to review its insurance coverage(para. 2.09).
1/Distributiss tr-nf-mer; meters; mobile -antr-tios units; otbhr distribati-n sad general1; pr-d-stian and generl property.
2/See Table 4.231 This is the estimated cost as of J-n 1979. Is Nav-bec 1980 BLPC issud a letter of Intent to p-h-as this plant fron Goaceken Motor AB (Sweden) for a flood price of pp-intty BD$62.6 million (par.- 4.05).
D. PUB OperatingProcedures 11/80 12/80 - 1/81 4/81
E. Criteria forRates 5/81 8/81 - 9/81 6/82
- Last day of month for each month.
Ii
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5. FINANCIAL ANALYSIS
Financial History and Present Position
5.01 BLPC's recent financial history is characterized by a period ofheavy investment during 1973-76, during which the 40 MW Spring Garden steamplant was installed and construction expenditures averaged BD$ 14 millionper year, and a period of relatively light investment, averaging BD$ 5 millionper year, during 1977-79. Investment requirements during 1980-86 will againincrease mainly as a result of the need for new base load plant. The financialhealth of the company during the first half of the 1970s was good, with ratesof return on partially revalued assets of between 7% and 8% and earnings pershare of between 80 and 100 BDi (16% to 20% of par value, see Table 5.1). 1/The existence of a fuel clause in the tariff schedule helped insulate thecompany against the effects of the 1973-74 increase in oil prices, which droveaverage fuel costs per kWh sold from 1.7 BDd in 1972 to 6.9 BDd in 1974 andcontributed to a 7% decline in sales in 1974. BLPC has agreed to maintainthis fuel clause in effect. An increase in the basic rates in March 1974contributed 26 percentage points of the 85% increase in average revenue during1973-74 and permitted increased self-financing of the steam plant. During1973-76 BLPC's net internal cash generation averaged 39% of investment. 2/ By1976 the rate of return had declined to 5.6%, mainly as a result of thecapitalization of the steam plant that year, and earnings per share werebeginning to fall.
5.02 As a result of declining real tariffs, the company's financialperformance was poor during the 1977-79 period. The rate-of-return declinedto about 5% while the net internal contribution to investment during 1977-79was negative, at -6%. Revised rates submitted in December 1976 to the PUB forapproval resulted in an August 1977 PUB decision which offset increases in thebasic rate against the fuel cost savings made possible by the new steam plant.Hence, though average fuel costs rose by 0.2 BDJ/kWh in 1977/78, the averagetotal tariff declined by 0.9 BDi/kWh (5%). The net result was that from 1974to 1978, while the average fuel cost rose by a total of 10% and domesticinflation totaled 50%, average BLPC revenue per kWh rose by only 12% and theoperating ratio rose from 84% to 89%.
5.03 The company's investment program was reduced during 1977-78 becauseof the growing scarcity of internal funds and some postponement of distributioninvestment occurred. BD$ 5 million in capital was raised in February 1978through the sale of 500,000 redeemable preference shares and 500,000 ordinaryshares, of which the Government acquired 300,000 ordinary shares through theNational Insurance Board. In addition, BLPC's overdraft with the Royal Bank
1/ The exception being 1973, when the rate of return was 5.2% and earningsper share about 55 BDJ .
2/ See Table 5.3 for a definition of this ratio.
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overdraft with the Royal Bank of Canada (RBC) rose steadily from BD$ 865thousand at the end of 1974 to BD$ 17.3 million at the end of 1979. 1/ Theoverdraft has, thus, functioned as long-term debt without an amortizationschedule.
5.04 By 1979 the Company's earnings and cash flow position had becomecritical. Despite poor earnings the Company continued to pay dividendson common stock at the rate of 8% of par value. During both 1978 and 1979dividends were greater than net income and the company was faced with aBS$ 200 million investment program in the 1980-85 period. In April 1979 BLPCsubmitted for approval a rate increase that would have averaged 3.22 BDi/kWhas of July 1, 1979. After awarding an interim increase of BDd 1.0 effectiveJuly 1979, the PUB subsequently (in December 1979) granted BLPC a total ofBD4 1.09/kWh as of July 1979. 2/ BLPC requested a review of this decisionand on May 16, 1980, the PUB revised its former decision and awarded BLPC afurther 1.85 BDV/kWh effective June 1, 1980, and additional surcharges totall-ing 2.66 BDJ/kWh to be effective for one year from June 1, 1980 to compensateBLPC for the effects of regulatory lag. 3/ The rate-of-return on fully revaluedassets in 1980 is estimated at 7.7%.
Assets and Revaluation
5.05 BLPC's assets were revalued in 1964, 1972 and 1977; the 1977revaluation will be booked only in 1980. In determining what constitutesa fair rate base for regulatory purposes the PUB has, in the past, adopted afigure that lies between the historical and the revalued value of assets.As a condition of the proposed loan BLPC has agreed to revalue its assetsannually, using the 1977 revaluation study as a basis and applying suitablerevaluation indices for subsequent years. The choice of the indices is tobe agreed upon by BLPC and the Bank. This annual revaluation will not bereflected in the Company's financial statements but will be presented assupplementary information to the audited accounts.
1/ The current interest rate is 8-1/2% on the first BS$ 6 million and9-1/2% thereafter.
2/ An improvement was also made in the operation of the fuel clause thatreduced the lag between fuel price rises and cost recovery throughthe fuel clause.
3/ The May 1980 PUB decision also accepted the principles of deferred taxesand investment tax credit deferral. Deferred taxes is a deduction fromoperating income that sets aside funds for the future payment of in-creased tax liabilities arising mainly from the fact that the companyis allowed to use accelerated depreciation for tax purposes, while inits audited statements to the shareholders it uses straight line depre-ciation. The investment tax credit, also a deduction from operatingincome, has the purpose of spreading the benefit of the investment taxcredit over a 20 year period rather than realizing it in the year theinvestment is made. The rate-of-return, being calculated on operatingincome before these two deductions, is not affected by them. Cashflow available for the investment program is increased, however.
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Financing Plan
5.06 BLPC's capital investment requirements and proposed financingplan during the 1980-85 period are shown in detail in Annex 5.1 and sum-marized below:
All figures in thousandsInvestment Requirements 1980-85 BD$ US$ % of total
Construction Requirements 1/ 191,172 95,586 78.5Interest During Construction 2 9,653 4,826 4.0Change in Working Capital
and Cash 2/ 42,618 21,309 17.5
Total 243,443 121,721 100.0
Financing
Proposed IBRD Loan 12,000 6,000 4.9Caribbean Development Bank (CDB) 12,000 6,000 4.9Commonwealth DevelopmentCorporation (CDC) 23,500 11,750 9.7
European Investment Bank (EIB) 14,275 7,137 5.9Suppliers Credits 66,503 33,252 27.3Other Loans 11,800 5,900 4.8Sale of Shares 10,000 5,000 4.1Internal Cash Generation 93,365 46,682 38.4
Total 243,443 121,721 100.0
1/ See Table 4.121/ See Table 5.3
5.07 BLPC agreed to achieve a minimum 6% rate-of-return on fully revaluedaverage net fixed assets in 1981 and 8% thereafter; Government agreed not tointerfere with this commitment. With this level of earnings, the company willbe able to finance 38% of its 1980-85 investment program and working capitalfrom internal sources of funds. In addition, 4% of the resources would comefrom the sale of shares in 1980 and 1983, while 58% of the investment would befinanced by suppliers credits and by loans, including the proposed loan.
5.08 Annex 5.2 gives the terms of BLPC's existing and future loans.Annex 5.3 is BLPC's projected 1980-85 debt statement. BLPC would bear theforeign exchange risk on all loans, including the Bank loan. The statusof the BD$ 140 million in loans required over the six year period is givenbelow:
(a) BD$ 12.0 million (US$6 million): proposed IBRD loan to financedistribution works an studies (see Chapter 4).
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(b) BD$ 12.0 million (US$6 million): CDB loan to finance the 72 kVtransmission line from Spring Garden to Port and Wotton substa-tions. CDB appraised their project jointly with Bank appraisalof BLPC's operations and expect to present it to their Boardof Directors in early 1981.
(c) BD$ 23.5 million (LSTG 5.0 million): CDC loan to finance distribu-tion and other works. Loan approval is expected in early 1981.
(d) BD$ 14.3 million (5.0 million Units of Account): EIB loan to financesubstations and supervisory control equipment. EIB appraised theirproject jointly with the Bank and have already negotiated the loanwith BLPC. Loan presentation and effectiveness are expected in thefourth quarter of 1980.
(e) BD$ 37.0 million: suppliers credits to finance 85% of the foreignexchange cost of low speed diesel generating units I and 2. BLPChas received bids from eight manufacturers for these units, includingfinancing proposals at favorable terms. In order to ensure theirtimely delivery, the signing of a contract for the units has beenmade a condition of effectiveness of the Bank loan. 1/
(f) BD$ 29.5 million: suppliers credits for generation plant subsequentto the first two low speed diesel units. This plant will be requiredonly in 1985 and financing is not currently being arranged (see para.5.06).
(g) BD$ 11.8 million in other local loans: BD$ 7.8 million of this repre-sents part of a BD$ 12.0 million loan from the Royal Bank of Canada(RBC) which will be used to convert a portion of BLPC's overdraftinto long term debt. The remaining BD$ 4.2 million will refinanceRBC's existing outstanding long term loan to BLPC. This loanhas been obtained. The remaining BD$ 4.0 million will be requiredin 1981. This loan has not yet been obtained. BLPC agreed toprovide the Bank with a firm financing plan for 1981 prior toloan effectiveness. 1/
5.09 BLPC is currently arranging the issue of 1,000,000 new shares of parvalue BD$ 5, in late 1980, of which the National Insurance Board is expectedto purchase a portion; the balance would be sold to local investors (para.2.02). The financing plan calls for the sale of a further BD$ 5.0 millionworth of shares in 1983. Given BLPC's consistent history of dividend payment,it is expected that these issues will be fully subscribed.
5.10 Given the substantial amounts of financing required to enable BLPCto carry out its capital program, the company agreed, as a condition ofloan effectiveness, to have completed the sale of BD$ 5 million worth ofshares; in addition, prior to effectiveness of the proposed loan the CDB, CDC,EIB and RBC loans should have been approved by their respective boards ofdirectors, or alternative financing arrangements satisfactory to the Bankshould have been made by BLPC.
1/ In November 1980, BLPC was negotiating a loan of US$26.6 million tofinance low speed diesel units 1 and 2. The local loan was alsounder negotiation.
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Future Financial Performance
5.11 The financial projections (Tables 5.1 to 5.4) indicate that BLPCwill earn a 7% rate-of-return on fully revalued net fixed assets in 1981;achievement of an 8% rate-of-return thereafter, would permit BLPC to financeabout 38% of its investment over the 1980-85 period from internal funds whilemaintaining its dividend pay out rate of 8%. In addition, BLPC's liquiditywould be increased by reducing the overdraft and increasing cash reserves.Cash plus the undrawn portion of the overdraft facility would increase to 5%of fuel and operating expenses in 1981 and to 9% thereafter. BLPC's overdraftwould be reduced from BD$ 17.3 million at the end of 1979 to BD$ 2.7 millionby the end of 1982 both as a result of the conversion of BD$ 7.8 million intolong term debt in 1980 (para. 5.08(g)) and as a result of increased cash flow.The overdraft facility, which will have a limit of BD$ 10 million after the1980 refinancing operation, would then be able to serve its intended functionof providing the company with a cash reserve, rather than, as has been thecase in the recent past, as a substitute for long term debt. The currentratio would rise from 0.7 in 1979 to 2.1 in 1983 (Table 5.1). The debtservice coverage ratio would rise from a low of 1.3 in 1978 and 1979 toan average of 2.0 in 1980-85, while the debt/equity ratio would be 28%/72% in1985, giving the Company a wide margin for future borrowings.
5.12 The 1980 end of year average basic tariff, including the surchargeof 1.88 BDi/kWh currently being applied during June 1, 1980 to May 31, 1981to compensate BLPC for the effects of regulatory lag (para. 5.04), is estimatedat 15.68 BD4/kWh. 1/ It is estimated that no further tariff increase would berequired for BLPC to earn a 7% rate-of-return in 1981. The following increasesin the basic tariff would be required in subsequent years for BLPC to earn an8% rate-of-return (increases effective January 1):
The net effect of the basic tariff increases and the forecast 3% p.a. risein the real price of oil would be to increase average total revenue perkilowatthour, in constant 1979 prices, from 23 BDJ/kWh in 1980 to 27 BDJ/kWhin 1985 (see Table 5.1). 2/
1/ A surcharge of 0.78 BDq/kWh is also being applied to the fuel clausecomponent to compensate BLPC for under-recovery on this component.It is assumed for the financial forecast that the fuel clause willcontinue to recover the full increases in fuel costs.
3/ This excludes the effects on BLPC's fuel costs of any substitution ofoil by natural gas or bagasse (paras. 1.04, 1.06).
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5.13 Other covenants of the proposed loan agreement relating to thefinancial aspects of BLPC's operations are:
(a) BLPC will obtain the Bank's agreement before incurring furtherlong term debt if its projected debt service coverage ratio fallsbelow 1.5;
(b) BLPC will obtain the Bank's agreement before raising its overdraftlimit above BD$ 10 million (para. 5.11);
(c) BLPC will maintain its end-of-year cash reserves, including theundrawn portion of its overdraft facility and any sums reimbursibleby a financial institution, at 5% of fuel and cash operating expensesin 1981, and at 9% thereafter (para. 5.11);
(d) Prior to undertaking any major investment (greater than US$1 million)not included in the investment program agreed upon during appraisal,BLPC will provide the Bank with evidence that such investment istechnically, economically and financially justifiable; justificationfor additional generating plant will be provided by the generationplanning study which is part of the Project (para. 4.13);
(e) BLPC will issue one million ordinary shares by the effective dateof the proposed Loan and a further one million shares by 1983 forpurchase by residents and nationals of Barbados, with the aims ofincreasing local ownership of the Company and of financing itsinvestment program. The Government agreed to purchase anyunsold portions of the issues (para. 2.02); and
(f) BLPC assured the Bank that payment of ordinary dividends willnot affect the execution of the investment program and that theCompany will obtain the Bank's agreement to any proposed altera-tion to this policy. BLPC will review with the Bank, not laterthan two months before the end of each fiscal year, its investmentprogram and proposed financing plan for the following fiscal year;
Performance Indicators and Reporting
5.14 A series of indicators of BLPC's expected operating and financialperformance is shown in Annex 5.4 and would be used to monitor the Company'sperformance during project execution. BLPC will send to the Bank periodicprogress reports, a project completion report and such other reports as theBank may reasonably request.
1/ This excludes the effects on BLPC's fuel costs of any substitution ofoil by natural gas or bagasse (paras. 1.04, 1.06).
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BARBADOS - POWER PROJECT
Table 5.1. BRPC Key Financial Indicators
--------------------- Actual-------_____________ ----------------------- Forecast…----------------_-__-- Total
Average cost of fuel (current BDt/kWh sold) 6.9 7.8 7.6 7.4 7.6 10.3 14.2 16.3 18.3 16.8 18.6 20.9
Increase in consumer price index (7.) 39.0 20.3 5.0 8.3 9.5 13.2 10.5 9.0 8.0 7.0 7.0 7.0 a/
a/ BLlPC's assets were revalued in 1964, 1972 and 1977; the results of the 1977 revaluation will be booked only in 1980. This forecast shows the estimated 1980 assets including the
1977 revaluation, under the heading "partially revalued assets". The estimate of fully revalued assets is based on the 1977 revaluation and, in 1978-85, on revaluation indices.
For full details of these indices, see footnote r/ to Table 5.3.
h/ Using operating income as defined in Table 5.2.
c/ Net income less preference dividends. Par value of shares is BD$5.00.
d/ Operating expenses as a percentage of operating revenue.
e/ Current assets divided by current liabilities ILcluding overdraft.
f/ Using total internal sources as defined in Table 5.3.
g/ Debt excludes overdraft.
h/ This is net internal cash generation less the change"in working capital, excluding overdraft and temporary cash surplus, as a percentage of construction requirements.
i/ In 1974-79 the InF consumer price index for-Barbados is used whlle in 1980-85 the index has been taken as equal to the international inflation index.
i/ Net income less preference dividendc as a percentage of begi-sing of year common eautty, including the revaltuation surplus.
I I
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6ARBADOS - POW1ER PROJECT
table 5.7. BLPC Income Statements 1977,85(All figures in Lh--sands of r.D$ oslcse otherwi-e stated)
.7 Bee Tablo 3.1b/ Acreago tariffs in 15940 asd 1991 bombue iit cffr-t of otro barges 6 g (octal dsrl:bg iunt 1089 to May 31, 1981 to costate BLPC for the effects si osgaleteey leg.
The , aroharges see 1.88 BRtdkWl on the basIc rntc s,:d 0.78 DI/bkWh an rhe fol soocosoge.c/ It is assumed that lbs fool olesse 11 oaotnoe to poerate is sorb a cants aS ntoorenv, on average, sth flll Lt,teases Is tls cast af fool. Fuar prices ore as-ased
to ietros- by 37. per year above the level af inteenatiossl itflati-o fran 1989 os.ards. See A,mes 3.1 foe teloslntiso of fsel casts.
d/ 5'1. p.o. frowth.e/ Projected as folloss -acorstant 1979 BD3Ithousand tostosets far 198D-85: 185, 167, 19(, 135, 180, 175. Those rants sar c- coloted a.nlg RLPC' estimate of labor cost -snalatio- of
fl Projected at Io aver3ago raIn ci 7.171 af pr--r yeat groes flioo sasots. 117 in 1980, 141. is 1981, and 13% p.o. thereaftot.
fil A-ortia-loo of pant strvloo pensess -asts, tnaaelog ehae8es and race -ase ̀ t " -ensesdh/ Ealoslatod as 457. of grets Oect i-OlodiA in-estm-et inco-- sod resliced eathagoa gaios, net of fa-l sad -eerattno esyeoset (eaolodtegexeutiv nero trts), other
t-ess, intorest horlod -yeratiics, d capital allosooco, o,id locee- from prolr yea-s. Losses mey be c-sttLd for.ard .p to five y-ats.
i/ Ltad tan and ilt-mo floo.f LiabliLi_a payable i1. torelga cooceoies are tote ried at the tacos of e,chango prenlliog a hte yar end- Ut-ealisod enchange gains see defe-ed; exch-nge fluctaation
prce--it at the time of disthargi-g the debts arc hapinocttrntoperaion. Es.honge tates assonod f-e the 1980-85 period are as falloas: 4.7 BDjl,Stg; 2.0 1D$/RUB;1.98 BD/ICB$; 2.955 9D$5/nit If At tont (1.I.9.).
hI Retorted t.es art a coo-rash c-ar8e tca crrenot coo aol ate not ppayble seLil seat f[tore date. Their effect -s to inc-aase rash fln- dueleg petiods af e.pa-ssi-. In
thele 1980 rate deoiainn he Pablio Utiliti-c board -ro-,ted the concept of dole,,-d tIens. (Sot pare. 5.04 ad teat).
1/ 1neatssst qleossoes which give rise toas -d-ticttce iL teaxble etccoo are Blized over a 20 yeat petitd. The defetted portIon is c co-cash oharge on -- re-t insane.
Ia theie 198(1 rate dnos ion the Public 51 tll-ees BeArd -creptel . be pori-iplp of i-nettment ton -edit deterrel.
s/ Calscel-td at 9-1/2% at the a bcregc hlasiie.at For otdinary shae, thbe diidoed lio boos 98' of par noise inr-etnt yeats. It ie p-rje-tsd at 85. in 1980-85.o L arveno tot tce rtoleap-teo- ef 500,001 1(11/. cansia eredoeeble poeftcre shares ci 6D95 each isJsed in 1978.
£1 A,tsalt at errors ... b. lliags dot fuel durtnf 91976_7 aed go tie .o,,pletiso of realised oxchangc gaeic ceeditod to bcae as 1975, tho balance of retained earningeat the tad of 1972. previoasly royatted ac BD59799, baa hoes restated as 8D558 tl:csal.fq/ Th- is the tate-ag-rte-tn en anoosge not Iixed acc-to as 5tatnd it BLre's fi.a.eial atetreirces sod it the hal cre shetta of fable 5.4.
of Thi Is hs trate of -retuetn oth -sti-stoeI catee ef felll 0 -evaied ner fined scts. The r.ca.ice t -n -ttloaro nas hbasd on a tons-Iati.o of BLPE's property node by
conosilonva fec- Deemhber 31,977. 1 t7 al_atl:'oi far sabseqent years havt boon csLasated (tern by Oslag atoalia tan ltdeo that ise oIpoolte at Barbades (307.) and onsteot-iritncoarlsocl (70-13 poice ird:crstretatood by the 1114 in 19/8179. Reoclsatleoefel 913-fl8 bant heen cede itetag the esem weights afplled to the Isoeserc and ietsroatiooal
toe covet cd:tot aced ii cl-is rtbofrt. Rsvaluation lodicet arc Hellcat:
a/ Amortized deferred exchange gains (losses) is the difference between total gains (losses) realized in the year, as in the income statement, and additional gains (losses)due toexchange rate fluctuations in the year. Since no fluctuation is exchange rates is assumed in 1980-85, additional gains (losses) are zero and realized and amortized exchangegains are equal.
bl Customer contributions for line exteusions. These contributions arec netted out of the company's capitalized assets.c/ This is the change in other deferred assets, customer contributions tor work not yet commnenced, and past service pension liability.d/ See Annex 5.3.e/ See Table 4.1.f/ This is net internal cash generation less the change in working capital, excluding overdraft arnd temporary cash surplus, as a percentage of construction requirements.
Total internal sources of funds divided by total debt service.h/ This item appears in the balance sheet.
I I I
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BARBADOS POWER PROJECT
Table 5.4. BLPC Balance Sheets 1976-85
(all figures in thousands of BD$ unless oLherwise stated)
Average net fixed assets: unrevalued 94,554 93,614 93,852 112,320 olfully revalued 137,818 151,175 166,734 183,685 221,170 285,372 334,602 379,762 iI
of BLPC's assets were revalued in 1964, 1972 and 1977; the results of the 1977 revaluation will be booked only in 1980. This forecast shows the estimated 1980 assetsincluding the 1977 revaluation, while in 1981-85 assets hove been revalued annually. For a full explanation of the index used see footnote r to Table 5.3. Thememorandum item to this table shows overage unrevalued net fixed assets in 1977-79 as per BLPC's accounts with an estimate for 1980 that includes the 1977 revaluation,as well as an estimate of average fully revulsed set fixed assets in 1978-85.
b/ The operational cash requirnemnt plus the undrass portion of BLPC's BD$10 milliuc overdraft facility have been projected at 5%7 of the Company's fuel and operatiens and maintenanceof Accumulated cash surplus (deficit) from the Sources and U.es of Funds statement (Table 5.3). expenses in 1981 and at 9% thereafter.df Estinated as a percentage of operating revenue as follows: 1980 1981 1982-85
18% 1 6% 14%.ef 3.27% of fully revalued gross fixed assets based en history.f/ Pest service pension costs, financing co-ts aed tote case e-p-,,ceo.g/ Reserve for the redemption of 500,000 10X cululative redeemable prefe-enco shares of BD$5 each issued in 1978.h/ See Annex 5.3.8/ Estimated at 147X of fuel and operations and maintenance expenses based en history.
Current year's corporation tax.kf See foortate- k and 1 to the Income Statement (Table 9.21,1/ See footnote i to the mn-or Statement (Tahle 5.2).
I
- 35 -
6. ECONOMIC ANALYSIS
Least-Cost Solutions
6.01 Generation. In order to verify the least cost solution forgeneration expansion (para. 4.07), a comparison was carried out between:
(a) low-speed diesel units burning heavy oil;i
(b) medium-speed diesel units burning heavy oil;
(c) extension of the existing steam plant burning heavy oil; and
(d) new coal-fired steam plant.
The coal-fired plant, in the required unit size range of 20 MfW or less, wasnot considered economical. The relatively large investment costs for coalunloading and handling facilities, additional transmission lines to a newsite at the north end of the island and cost of interim power supply duringthe long construction period outweigh the lower energy cost of coal comparedto oil. However, coal fired units would be considered as an alternative inthe long-range generation expansion study where larger unit sizes would berequired. It was assumed that the proposed plant would be base loaded, asthe most economical plant in the system. For comparison, each plant wouldhave a firm capacity of 25.6 MW, producing 184 GWh per year starting in 1983.Calculating the present worth of capital, operation and maintenance and fuelcosts, it was determined that the low-speed diesel power plant was the least-cost solution for discount rates up to 14%. Actual BLPC fuel costs as ofJanuary 1980 were used and escalated in real terms at 3% per year. Higherfuel price increases, up to 6% p.a., would not change the above least-costsolution. Diesel operation, maintenance, availability and capital costs werebased on estimates made by BLPC's consultant, who conducted a survey of 13medium-speed and six low-speed diesel generation plants with an aggregatedinstalled capacity of 519 MW and 162 MW, respectively. Similar steam costswere based upon BLPC's experience at its Spring Garden (2x20 MW) plant whichwent into service in 1976. -
6.02 Transmission and Distribution. Alternative considerations forexpansion of the existing 24 kV transmission and 11 kV primary distributionsystems were 138 kV, 69 kV,and 24 kV or 11 kV, respectively. 1/ The economicanalysis considered investment costs and costs of energy loss to determineleast cost solution by present worth. Operation and maintenance costs wereconsidered equal in each case. For the transmission system, 69 kV voltage wasselected as the base since the existing system was designed for conversion to69 kV and the main transformers at the 40 MW Spring Garden power plant have anoutput capability of either 24 kV or 69 kV. The transmission system invest-ment program for both 138 kV and 69 kV was developed to 1998, a load factor
1/ BLPC had first considered 72 kV transmission and changed to the 69 kVstandard voltage during October 1980 as a result of discussions withpotential suppliers.
- 36 -
of 69% was used and costs of losses weje8galculated utilizing a loss factorformula of Loss Factor = (Load Factor) . 1/ Actual BLPC 1980 fuel costswere used and escalated at 3% per year. The study shows that 69 kV is theleast cost solution for discount rates up to 16% for the 1980-85 investmentprogram.
6.03 A detailed construction program to 1986 was developed to arriveat investment costs to compare the 11 kV and 24 kV distribution schemes. Bothschemes incorporate the 69 kV transmission and substation voltage. For the24 kV scheme, it was assumed that no new 11 kV equipment would be purchasedand conversion to 24 kV would be carried out only when the loading of afeeder or substation required it. Economic justification of the 24 kVconversion was based upon reduced fuel costs which result from less primaryfeeder loss (I i) at the higher voltage. In order to determine the differen-tial energy cost for the two schemes, the average energy loss for the last 12months for the existing 11 kV primary feeders was calculated. This loss,3.2%, was then used to derive an estimate of energy savings when a fullyloaded feeder is converted to 24 kV. The cost comparison shows that the 24 kVscheme is the least cost solution for discount rates up to 16%. A sensitivitytest which reduced the estimated energy savings for the 24 kV scheme by 50%did not change the above least cost solution up to discount rates of 14%.
Investment Program Rate-of-Return
6.04 As the project consists of a certain portion of the 1980-85 invest-ment program and its effects cannot be isolated from those of the othercomponents of the program, a rate-of-return was estimated for the program.The cost and benefit streams related to the program are shown in Table 6.1.The investment cost is that given in Table 4.1 with investment costs associatedwith the fourth low speed diesel unit to be commissioned in 1987 excluded,since it serves load growth only in 1987 and later. Fuel cost attributableto the program is the growth in fuel cost in 1981-86, while benefits are takenas the growth in sales during 1981-86, valued at the yearly average tariff asgiven by the financial forecast of Chapter 5 (see Table 5.1). On an approxi-mate basis, the system increase in capacity provided by the 1980-85 investmentprogram would be put to full use during the 1981-86 period.
6.05 The incremental investment program rate-of-return thus calculatedis 13.5%. A sensitivity analysis shows the following: 2/
Rate-of-Return
Base case 13.5%Benefits up by 10% 16.3%Benefits down by 10% 10.4%Investment costs up by 10% 12.2%
1/ Loss factor is the ratio of average power loss to peak load power loss.Cost of losses per kW of peak load loss is calculated as cost of losses=annual hours x fuel cost x loss factor.
2/ Sensitivity analysis of variations in fuel cost was not carried outsince these variations would, in fact, be compensated by variations inthe average tariff. However, such variations could affect sales growth.
- 37 -
The rate of return is very sensitive to small variations in benefits as aresult of the significance of annual fuel costs in relation to investmentcosts. The fact that the rate-of-return is of the same order of magnitudeas the estimated opportunity cost of capital in the Caribbean region (10%)confirms the appropriateness of the tariff levels derived from the financialanalysis.
BARBADOS - POWER PROJECT
Table 6.1. Investment Program Rate of Return Analysis 1/
…--------Memorandum Items------ …(a) (b)
Incremental Sales Attri- Average YearlyTotal Incremental Operations butable to Tariff 7/ (1979 BDefInvestment Fuel Maintenance & Net 1980/85 Invest- kWh)
Year Cost 2/ Cost 3/ Administration 4/ Benefits 5/ Benefits program 6/ (GWh)
1/ No shadow pricing of domestic inputs was deemed necessary, hence foreign and domestic costs are presented as a total.2/ See Table 4.1. Excludes BD$502 thousand in 1984 and BD$7559 thousand in 1985 related to installation of the fourth
low speed diesel unit, to be commissioned in 1987. Inclusion of these costs lowers the rate-of-return to 12.9%.3/ This is the increase in fuel cost above the 1980 level, until 1986 when the capacity provided by the investment pro-
gram is used up. See Annex 3.1.4/ From Table 5.2, in constant 1979 BD$.5/ Product of memorandum items (a) and (b).6/ Sales attributable to the 1980-85 investment program have been taken as the increment in sales occurring in 1981-86
on the basis that further generation plant will be needed in 1987 and, on an approximate basis, the distributionsystem capacity installed during the period would be put to full use.
% , ^ s~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
- 39 -
7. AGREEMENTS REACHED AND RECOMMENDATION
7.01. During negotiations agreement was reached on the following principalpoints:
Conditions of Loan Effectiveness
7.02 (a) BLPC shall have signed a contract satisfactory to the Bankfor delivery of two base load diesel generators of about 14 MWeach (para. 4.05);
(b) BLPC shall have presented to the Bank a satisfactory financingplan for 1981 (para. 5.08(g)); and
(c) BLPC shall have completed the sale of BD$ 5 million worth ofshares; loans from the Caribbean Development Bank, the Common-wealth Development Corporation, the European InvestmentBank and the Royal Bank of Canada shall have been approvedor alternative financing arrangements satisfactory to the Bankhave been made (para. 5.10).
Loan Agreements
7.03 (a) BLPC will review its insurance coverage and discuss the resultsof this review with the Bank by December 31, 1981 (para. 2.09);
(b) BLPC will undertake studies on generation expansion, electricityconservation and tariffs under terms-of-reference acceptable tothe Bank; the studies would be reviewed with the Bank (para. 4.13);
(c) The Government will undertake studies on Public Utilities Boardoperating procedures and criteria for determining power rates anddiscuss the results of these studies with the Bank (para. 4.13);
(d) BLPC will maintain in operation at all times a fuel clause thatallows it to recover through tariffs variations in its fuel costscaused by variations in the price of fuel; in addition, the fuelclause will be adjusted periodically to allow for changes in gener-ating plant mix so that BLPC does not experience any long-termfinancial gain or loss through operation of the fuel clause(para. 5.01);
(e) BLPC will appoint independent auditors satisfactory to the Bankand send to the Bank the audited financial statements, the auditor'sreport and the auditor's review of the asset revaluation exercisewithin four months from the end of each fiscal year (paras. 2.08and 5.05);
- 40 -
(f) BLPC will maintain its earnings at a level sufficient to earna minimum rate-or-return on annually revalued average net fixedassets of 6% in 1981 and 8% in 1982 and thereafter (para. 5.07);
(g) Government will not interfere with BLPC's commitment to earn aminimum rate-of-return on annually revalued average net fixedassets of 6% in 1981 and 8% thereafter (para. 5.07);
(h) BLPC will obtain the Bank's agreement before incurring furtherlong term debt if its projected debt service coverage ratio fallsbelow 1.5 (para. 5.13(a)));
(i) BLPC will obtain the Bank's agreement before raising its over-draft limit above BD$ 10 million (para. 5.13(b));
(j) BLPC will maintain its end of year cash reserves, includingthe undrawn portion of its overdraft facility and any sumsreimbursible by a financial institution, at 5% of annualfuel and cash operating expenses in 1981 and at 9% in 1982and thereafter (para. 5.13(c));
(k) BLPC will not undertake any investment greater than US$1.0 millionand not included in the investment program agreed upon during ap-praisal, without first providing the Bank with evidence that suchinvestment is technically, economically and financially justifiable.Justification for additional generating plant will be providedby the generation planning study which is part of the Project(para. 5.13(d));
(1) BLPC will issue one million ordinary shares by the effective dateof the proposed Loan and a further one million shares by 1983 forpurchase by residents and nationals of Barbados. The Governmentagreed to purchase any unsold portions of the issues (para. 5.13(e));and
(m) BLPC assured the Bank that payment of ordinary dividends willnot affect the execution of the investment program and that theCompany will obtain the Bank's agreement to any proposed alterationto this policy. BLPC will review with the Bank, not later thantwo months before the end of each fiscal year, its investmentprogram and proposed financing plan for the following fiscal year(para. 5.13(f)).
Recommendation
7.04 With the assurances listed above, the project constitutes a suitablebasis for a Bank loan of US$6 million equivalent to the Barbados Light and PowerCompany to be repaid over a period of 15 years including three years of grace.
1/ All tariffs are subject to the fuel clause adjustment, which in 1979 averaged 7.1 BDi/kWh and in 1980 isexpected to average 11.8 BD/kWh.
2/ During July-December 1979 all tariffs were increased by 1.0 BD4/kWh.3/ 10% discount given for prompt payment of bill, not applicable to fuel clause.4/ This represents a 1.85 BD4/kWh increase over the January-May 1980 tariffs. In addition a surcharge of
1.88 BD/kWh on the basic tariff is in effect during June 1980-May 1981.5/ Non residential low tension supply.6/ Low tension supply with demand metering available to all customers.7/ Supply at 3.3 kV or 11.0 kV.
1/ 8ee Tobl 4.1 for irnvetoert p-ogram drtiilo.A/ 0 dfou pn5mert of Ibut 157. of the foreign cost is oooonrd, blaed on offe -s received to dat.
3/ Includer uropec. d ft-uro louts end sale of oharo.0/ Thr coral current toot of this -omponect doriog 1982-87 In -otirated at BD$06,784 thousand, of chith BD$57,934 thousand in thr furorei coot conponeut-
A dour poymnrt of bout 157 of the foreign coot has bero aes..nd.5/ Thin in the ruiioar-d coot ci Joo 1575 On Novembrr 1050 8LFf i:oned a leIttr of ti-t to purchase thin plant from Cot=verbrn tutor AB .oc.dro) for fixed price
of oppronimately 0D062.6 nilil-n (pora. 405) Finentiog o 957. of this tort, or BD$53.2 nillion (US526.6 elill1r) ha. bern rranged through Soecekb Handnlrban-ekTit M fcantin vill -bitlituit cone of the 'Intrnal Ca)h -od Other" fundo ohou herr.
BARBADOS - POWER PROJECT
BLPC Loan Positions and Borrowing Terms(all monetary figures in thousands)
Year Currency Amount 12/31/79 Period (% p.a.) (7. p.a.) Item FinancedExisting Borrowings
9-1/2% Debentures BD$ 4000 4000 1989/93 9.509-1/4% Debentures (Commonwealth Development
Corporation) LStg 600 440 1976/90 9.25 General Expansion8-1/2% Debentures (Commonwealth Development
Corporation) tLStg 900 660 1976190 8.50 Steam Units 1 & 277. Debentures (Lloyds) 1974 LStg 2095 1047 1976/83 7.0 Steam Units I & 267. Debentures (Eximbank) US$ 419.35 250.6 1978/81 6.08-1/2% Debentures (Export Development Corporation) CDN$ 8536.59 5720 1977/85 8.5 Steam Units I & 26%. Bills of Exchange (Manufactures Credit) LStg 256 49 1973/81 6.0Royal Bank of Canada BD$ 6000 4200 1977/80 1% above prime lending rate (9.57. for forecast)
Future Borrowings
Royal Bank of Canada 1980 BD$ 12000 - 1980/89 11.0 Working CapitalSuppliers Credit 1 4J 1980 US$ 1/ 18500 - 1983/90 8.75 Low Speed Diesel Units I 6 2Suppliers Credit II (Tentative) 1983 US$ 1/ 25000 - 1988/95 8.75 Low Speed Diesel Units 3 & 4 (tentative)Carribean Development Bank (CDB) 1980 US$ 1/ 6000 - 1984/95 10.5 0.75 72 kV TransmissionEuropean Investment Bank (EIB) 1980 Units of 5000 _ 1983/95 7.25 Substations & Supervisory Control
Account 2/ equipmentCommonwealth Development Corporation (CDC) 1980 LStg 3/ 5000 - 1983/95 9.5 Distribution I and GeneralWorld Bank Proposed Loan (IBRD) 1980 US$ 1/ 6000 - 1984/96 9.25 0.75 Distribution II and StudiesNew Local Loan I 4/ 1981 BD$ 4000 - 1983/90 11.0 Working Capital
1/ 2.0 BD$/US$2/ 2.855 BD$/Unit of Account3/ 2.7 BD$/LStg
4/ In November 1980 BLPC was negotiating a loan of US$26.6 million equivalent to finance low speed diesel units I and 2.The terms of the loan are expected to be 12 years including 2 years grace period, an effective interest rate of about 10.1%, commitment andguarantee fees totaling 0.85%, and other fees totaling about US$160,000. In addition, the local loan was being negotiating.
45 -
ANNEX 5.3Page 1 of 2
BARBADOS - POWER PROJECT
BLPC Debt Statement 1980-1985(all figures in thousands of BDS$)
11 This is the pre-1980 RBC loan combined with the refinancing arranged in 1980. The refinancing operation isassumed effective October 1, 1980; amortizations are made on December 31 each year.
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