Report No 4655-CR Costa Rica: Issues and Options in the Energy SectorF FILE MpY January 1984 Report of the Joint UNDPMorld Bank Energy Sector Assessment Program This docuMent has a restricted distribution Its contents may not be disclsed without ahorizaion from the Coverntyient, the UNEDP or the World Bank JOINT UNDP/WORLD BANK ENERGY SECTOR ASSESSMENT PROGRAM REPORTS ALREADY ISSUED Country Date No. Indonesia November 1981 3543-IND Mauritius December 1981 3510-MAS Kenya May 1982 3800-KE Sri Lanka May 1982 3792-CE Zimbabwe June 1982 3765-ZIM Haiti June 1982 3672-HA Papua New Guinea June 1982 3882-PNG Burundi June 1982 3778-BU Rwanda June 1982 3779-RW Malawi August 1982 3903-MAL Bangladesh October 1982 3873-BD Zambia January 1983 4110-ZA Turkey February 1983 3877-TU Bolivia April 1983 4213-BO Fiji June 1983 4462-FIJ Solomon Islands June 1983 4404-SOL Senegal July 1983 4182-SE Sudan July 1983 4511-SU Uganda July 1983 4453-UG Nigeria August 1983 4440-UNI Nepal August 1983 4474-NEP Gambia November 1983 4743-GM Peru January 1984 4677-PE FOR OFFICIAL USE ONLY Report No. 4655-CR COSTA RICA ISSUES AND OPTIONS IN THE ENERGY SECTOR January 1984 This is one of a series of reports of the Joint UNDP/World Bank Energy Sector Assessment Program. Finance for this work has been provided, in. part, by the UNDP Energy Account, and the work has been carried out by the World Bank. This report has a restricted distribution. Its contents may not be disclosed without the authorization from the Government, the UNDP or the World Bank. ABSTRACT Costa Rica faces a difficult economic and financial situation at present. The major issue in the energy sector is how to adjust the flow of investments devoted to the sector in light of current economic constraints while still meeting the energy requirements of the future. On the demand side, this can be done through policies that promote the rational use of energy, i.e. by encouraging investment and behavioral decisions affecting energy use that are consistent with the real economic cost of energy and the current state of energy use technology. On the supply side, this requires that investments be concentrated on the development, transformation and distribution of those energy resources which demonstrate the greatest potential for meeting the diverse energy needs of the country at lowest cost. On the pricing side, the achievement of these objectives requires that energy prices reflect their economic costs. Finally, the balancing of the diverse interests of the sector requires a strengthening of the planning system to allow it to formulate the sectoral priorities and design the requisite policies and investment programs with those long term objectives in mind. The Government also is preparing a legal framework for attracting private petroleum exploration investments rather than using its own scarce financial resources in such risky ventures. In the fuelwood sector, which still meets the needs of 40% of the population, measures will have to be taken to ensure that supply stays in balance with demand. ACRONYMS AND ABBREVIATIONS Acronymis CACM Central American Common Market CAEI Center for Assistance in Energy to Industry CATIE Centro Agronomico Tropical de Investigacion y Ensenanza CATSA Central Azucarera del Tempisque, S.A. CODESA Corporacion Costarricense de Desarrollo, S.A. DGF Direccion General Forestal, Ministerio de Agricultura y Ganaderia DSE Direccion Sectorial de Energia ICAITI Instituto Centroamericano de Investigacion y Tecnologia Industrial ICE Instituto Costarricense de Electricidad IDB Interamerican Development Bank IICE Instituto de Investigaciones en Ciencias Economicas, Universidad de Costa Rica ITCR Instituto Tecnologico de Costa Rica MIEM Ministerio de Industria, Energia y Minas MIDEPLAN Ministerio de Planificacion Nacional y Politica Economica MOPT Ministerio de Obras Publicas y Transporte PEICA Programa Energetico del Istmo Centroamericano, UNDP RECOPE Refineria Costarricense de Petroleo, S.A. SNE Servicio Nacional de Electricidad Transmesa Transportes Metropolitanos, S.A. USAID United States Agency for International Development Abbreviations Prefixes bbl barrels kilo - 1,000 c.i.f. cost-insurance-freight mega - 1,000,000 f.o.b. free on board giga - 1,000,000,000 Gcal gigacalorie GWh gigawatt hour ha hectare hp horsepower kcl kilocalorie km square kilometer kWh kilowatt hour 1 liter LSG liquefied petroleum gas m cubic meter MW Megawatt ton metric ton toe Metric Ton of Oil Equivalent CURRENCY EQUIVALENTS Currency Unit Colon (4) Exchange Rates 44.004/US$ 1/ FUEL CONVERSIONS FACTORS (Net calorie content expressed in tons-of-oil-equivalent of 10 million kilocalories) Product Conversion Factor Unit Electric power 86 TOE/GWh Crude Oil 0.138 TOE/bbl Liquefied Petroleum Gas 0.097 TOE/bbl Gasoline 0.124 TOE/bbl Kerosene and Jet Fuel 0.131 TOE/bbl Diesel Oil 0.138 TOE/bbl Fuel Oil 0.148 TOE/bbl Non-Energy Pet. Products 0.138 TOE/bbl Coal (imported) 0.730 TOE/ton Coal (Volio 9) 0.530 TOE/Ton Oven Coke 0.640 TOE/Ton Petroleum Coke 0.840 TOE/Ton Charcoal 0.650 TOE/Ton Fuelwood (10% humidity) 0.430 TOE/Ton Bagasse (50% humidity) 0,183 TOE/Ton Coffee Husks 0.425 TOE/Tpn Ethanol (96%) 0.509 TOE/m 1/ This is the exchange rate used in this report. At the time of the mission and the drafting of the report, the interbank exchange rate (applicable to most transactions) was 40.004/US$ and the free market rate was 44.004/US$. As of November, 1983, these rates were unified at 43.65¢/US$. This report is based on the findings of an energy assessment mission which visited Costa Rica in March, 1983. The members were Andres Liebenthal (mission leader), Jorge Larrieu (power engineer), Jakob Diddens (power economist, consultant), William Matthews (petroleum systems engineer, consultani:), Robert Chronowski (renewable energies engineer, consultant), and Christopher Klein (geothermal geologist, consultant). Table of Contents Page No. I. SUMMARY OF FINDINGS AND RECOMMENDATIONS ................ 1 Energy in the Economy ..... ....... .............. . 1 Principal Issues and Recommendations ............... 2 Energy Pricing ............... .......... . 3 Electric Power Investment ................. 3 Development of the Petroleum Industry ........... 4 Coal Exploration .............................. ......... . 4 Fuelwood and Charcoal ..... .................. 5 Energy Use in Industry ...................... 6 Energy Use in Transport..........o.......rot 6 Planning Institutions ..... o. ...... ... 6 II. ENERGY CONSUMPTION: STATUS AND PROSPECTS ........ 7 Trends in Overall Energy Consumption . ....- 7 Energy Use in Industry. ... ........ ...... -........... . 9 Energy Use in Transport......................... o..... 14 Energy Use in the Residential/Commercial Sector.... 18 III. ENERGY RESOURCES AND PRODUCTION .... o ......... 21 Overview ....................................-.............. e-oo.... 21 The Development of Hydroelectric Resources......... 21 The Development of Geothermal Resources ......... o. 25 The Development of the Petroleum Industry .......... 27 The Potential for Coal Resources................... 33 The Potential for Fuelwood and Charcoal Production-o.............................. o .......... ............. 35 Prospects for the New and Renewable Energy Sources .............o...................o....... -oo .... ooo .. 38 IVo ENERGY PRICING ................. .o ........................... 41 Institutional Mechanism .... ......................... 41 Power Tariffs .... oo ..................... ......-...... ............ 41 Petroleum Product Prices ............................ 42 V. INVESTMENT OUTLOOK AND PLANNING NEEDS .........-o-o.. 44 Institutional Framework ..... .. .............. . 44 Investment Trends... . - ......... o.. ...... " .. - 44 Power Investments .... . ...... ....... .... .oo ..... 45 Petroleum Investments. ...... . .... -o........ . o. 47 Forestry Investments.o ..... . .... o .... .......... 48 Institutional Requirements for Energy Planning..... 48 Planning Needs in RECOPE and ICE ..........- .... 51 ANNEXES Page No. I. Bibliography .. 53 II. Energy Balance, 197C ........ 57 III. Energy Balance, 1975 .. 58 IV. Energy Balance, 1980 . ........................... 59 V. Energy Balance, 1981 .. 60 VI. Forecast of Power Demand .. 61 VII. Interconnected System Energy Balance . . 63 VIII. Interconnected System Capacity Balance . . 64 IX. Priority Technical Assistance Projects . . 65 TABLES Page No. 2.1 Structure of Net Energy Consumption, 1970-1982 ...... 8 2.2 Energy Use in Industry, 1970-1981 ................... 9 2.3 Comparative Fuel CosLs at a Cement Plant . . 11 2.4 Comparative Fuel Cosrs at Industrial Boiler . . 12 2.5 Energy Use in Transport, 1970-1981 .. 15 2.6 Energy Use in the Residential/Commercial Sector, 1970-1981 .... 19 3.1 Electric Power Consumnption, Actual and Projected Growth Rates ... 23 3.2 Petroleum Balance, 1982 ............................. 28 3.3 Petroleum Import Cosi:s, 1982 . ....................... 29 3.4 Product Cost Comparison, February 1983 . . 32 4.1 Petroleum Products Price Structure, February 1983... 43 5.1 Energy Sector Investments, 1975-1982 . . 44 5.2 ICE's Investment Program, 1982-1989. 46 5.3 RECOPE's Investment Program, 1982-1986 . . 47 MAPS 1. Physical Characteristics (IBRD #17339) 2. Power Supply System (IBRD #17336) 3. Petroleum Supply System (IBRD #17338) 4. Forest Resources (IBRD #17337) I. SUMMARY OF FINDINGS AND RECOMMENDATIONS Energy in the Economy 1.1 After a period of rapid growth during the sixties and early seventies, the economy of Costa Rica began to deteriorate in 1978 as evidenced by the fall in GDP from US$1,630 per capita in 1979 to US$1,370 in 1983. The deterioration was caused by plummeting coffee prices, weakening demand for manufactured goods in the Central American Common Market (CACM) and a rapid increase in oil prices and interest rates on external debt. Faced with these trends, the Government attempted to compensate through deficit spending and increased borrowing abroad. However, as the terms of trade grew increasingly unfavorable, 1/ the debt burden continued to rise (the debt _ervice ratio jumped from an average of 9% in 1976-77 to 45% in 1981 and 52% in 1982) and net international reserves turned negative, the Government was forced to suspend interest and principal payments on its commercial debt in August 1981. The serious shortage of foreign exchange led to a dramatic adjustment in the economy: the GDP declined by 4.6% in 1981 and a further 9% in 1982; imports fell from $1.5 billion in 1980 to $1.2 billion in 1981 and $0.9 billion in 1982. It is estimated that industry has recently been operating at 40% to 50% of capacity. 1.2 Immediately upon taking office in May 1982, the new Government took emergency measures to stabilize the economy and provide the basis for a sustained recovery. High priority has been given to (i) reducing the public sector deficit, (ii) establishing a realistic exchange rate and pricing policies, and (iii) promoting exports. The Government's stabilization and recovery program has formed the basis for a one-year Standby Arrangement with the IMF, approved in December 1982, under which a series of targets, policies and measures were agreed upon. In parti- cular, under the terms of the IMF Arrangement, the overall deficit of the non-financial public sector is to be reduced to 4.4% of GDP in 1983, com- pared to 14% achieved in 1981 and 9.5% in 1982. The adjustments required for implementing this stabilization and recovery program represent a major challenge for the Government and the economy. 1.3 While the energy sector contributed only about six percent of value added and one percent of total employment, it needs to be carefully reviewed in the light of current resource constraints because of the large share of energy in both the import bill and the investment program. Thus, in balance of payments terms, the value of imports of crude oil and oil products rose from 12.3% of export earnings in 1977 (the last "normal" year) to a high of 22.9% in 1980, gradually decreasing to 19.8% in 1981 and an estimated 14.9% in 1982. The share of national 1/ The cost of a ton of crude (c.i.f.) in terms of kilograms of coffee (f.o.b.) increased from 26 in 1977 to 86 in 1980, 130 in 1981, falling back to 99 in 1982. - 2 - investment devoted to ICE (the major Government-owned power company) has varied between 5% in 1975 and 16% in 1982, or $570 miilion over the 1975- 1982 period. The corresponding share of RECOPE (the Government-owned oil company) rose from 0.5% in 1976 to 13.6% in 1981, totalling about $190 million over the 1975-1982 period (para. 5.2). This rapid relative increase was accelerated by the fact that national investment, after growing by 80% between 1975 and 1980, dropped in 1982 to 37% of its 1980 level. 1.4 Until 1980, the driving force behind the increasing share of investment devoted to the ealergy sector was the rapid increase in the consumption of energy, giver. an expanding economy, growing industriali- zation, low internal energy prices and increased mobility and access to modern services by the population. Thus, the major issue facing the management of the energy sector today is how to adjust the flow of energy sector investments in light of current economic constraints while still meeting the energy requirements of the future. On the demand side, this can be done through policies that promote the rational use of energy, i.e., by encouraging investment and behavioral decisions that affect energy use to be consistent with the real economic cost of energy and the current state of energy use technology. On the supply side, this requires that investments be concentrated on the development, transforma- tion and distribution of those energy resources which demonstrate the greatest potential for meeting the diverse energy needs of the country at lowest cost. On the pricing side, the achievement of these objectives requires that energy prices reflect their economic costs. Finally, the balancing of the diverse interests of the sector requires a strengthening of the planning system to allow it to formulate sectoral priorities and design the requisite policies and investment programs with those long- term objectives in mind. As will be discussed later, the energy sector in Costa Rica already has made some progress towards rationalizing energy use, optimizing investment:s, and strengthening energy management institutions, and is in th2 process of considering further steps to complete the process. The remainder of Chapter I will summarize the major issues and recommendations addressed in the assessment, Chapter II will cover the demand side of the energy problem, Chapter III the supply side, Chapter IV the pricing situation, and Chapter V the investment outlook and planning needs. Principal Issues and Recommendations 1.5 The principal issues and recommendations that emerge from the report are summarized below. Insofar as these recommendations involve the performance of studies, surveys and pilot demonstrations, they also offer an opportunity for technical assistance. Fortunately, many of these technical assistance opportunities already are being discussed with potential donors. Annex IX shows a list of priority technical assistance projects for which funding has not yet been secured. The Directorate of Energy (DSE) serves a central coordinating role in energy planning and technical and financial assistance and, together with other appropriate sectoral institutions, is the main point of contact for specific technical assistance projects. -3- Energy Pricing 1.6 For the immediate future, the main issue in energy pricing relates to the continuing need for power tariff adjustments to safeguard ICE's (and the other power companies') financial viability. ICE's financial condition began to deteriorate in 1980 as a result of the financial upheaval associated with accelerating rates of inflation, de- valuation, reduced electricity sales growth, heavy reliance on short-term foreign commercial debt, and delays in tariff adjustments. To catch up on these developments, the Government granted ICE a 70 percent tariff increase in June 1982, and monthly increases of 10-13 percent between November 1982 and April 1983. These increases would have been sufficient for ICE to earn its target 10 percent rate of return in 1983 and meet its debt service obligations as they had been renegotiated by the Govern- ment. However, in June 1983, in the face of strong popular opposition to the tariff increases, the Government reduced residential tariffs to their December 1982 levels. This loss in revenue forced ICE to stretch out the implementation of its investment program, and to seek further financing to help meet its debt payments. Even if this financing were to become available, additional tariff increases are needed to maintain ICE's rate of return at the convenanted level of nine percent. Both the Government and the ICE understand the need for further tariff increases but are proceeding with circumspection. ICE already has applied for a nine percent increase to be effective January 1984. Further increases will be needed in the following years (1985-87) just to aciieve the convenanted rate of return. Additional increases, related to future wage and salary adjustments, may be expected. To clarify these tariff increase require- ments, it is recommended that ICE work out a long-term financial restructuring plan in view of its current inability to meet its very high debt service requirements through tariffs alone. This would put it in a better position to meet its commitments and proceed with the implemen- tation of its investment program albeit at a slower pace. Once the corresponding revenue requirements have been estimated, it is important for the necessary tariff increases to be implemented in a gradual but continuing manner, not only to avoid the need for drastic catch-up increases in the future, but also to safeguard the orderly development of the power industry (para. 4.2). 1.7 For the longer term, the price of electricity and other forms of energy needs to cover not only the cash flow requirements of the sector's enterprises, but also reflect their true economic costs. To ensure that future price changes reflect economic costs, it is recommended that the Government expedite its plans to formulate (through the DSE) and imple- ment (through the National Electricity Service - SNE) a comprehensive energy pricing policy that would take into account the opportunity cost of energy and the country's long-term development needs (see paras. 4.1 and 5.14). As the first steps in this direction, it is recommended that the Government give the highest priority to ICE's updating of its study on the long run marginal cost of electricity (para. 4.3) and RECOPE's undertaking of a comprehensive study of petroleum product supply options which would result in a detailed evaluation of the cost of petroleum products to the economy (para. 3.20). In addition, SNE needs to consider - 4 - the advantages of setting RECOPE's refinery gate prices on the basis of the relative market value of products from major export refineries in the Caribbean (para. 4.4). Electric Power Investments 1.8 The major question regarding the power investment program is the extent to which major generation projects might have to be deferred because of the recent slowdown in demand growth. In this context, the $112 million Ventanas-Garita project (now about 25% complete) might be two years premature, and its continued implementation would have to be justified on the basis of expected revenues from sales to neighboring countries. Thus, an additional review is needed of this project in the context of the country's overall development priorities, financial con- straints and the Government's policy not to make power generation invest- ments solely justified on ex?ort sales (para. 3.05). The scheduling of subsequent projects (Miravalles, Palomo and Angostura) will have to be carefully reviewed and possibly deferred in late 1984 (when, under the current schedule, a decision to begin implementation will have to be made) depending on the state of electricity demand and ICE's financial situation at the time (para. 5.03). 1.9 The development of geothermal resources deserves high priority because of its attractiveness as a firm source of baseload electricity. To assess this resource on a national scale, it is recommended that ICE carry out the proposed national reconnaissance survey, but the study should be carefully designed so as to lead rapidly and economically to identification of the most promising areas (para. 3.08). To increase the efficiency of implementing the $110 million Miravalles Geothermal Project (Unit 1), it is recommended that ICE develop a written set of plans, options and contingencies fc,r the siting, drilling and testing of new wells (para. 3.10). In ori,er to obtain a good understanding of the economics of various approaches to address the scaling phenomenon (which was discovered in earlier well tests), it is recommended that ICE (and the Government) accept the costs associated with additional testing and drilling in search of better production conditions rather than stay with a more conservative strategy that may reduce risks but could also impose higher costs in the long term (para. 3.11). Development of the Petroleum Industry 1.10 The main issue in petroleum development is the extent to which the Government should be involved in petroleum exploration, given the capital-intensive nature and geological risks associated with such acti- vities. The mission supports the Government's new strategy of trying to attract foreign investors to carry out petroleum exploration activi- ties. Thus, the Government in preparing the new Hydrocarbons Law is taking into account the Bank's recommendations on the factors that need to be considered for the strategy to be successful (para. 3.16). In addition, it is recommended that the highest priority be given to RECOPE's program to evaluate the hydrocarbon potential of the Campo Diablo area where some definite oil shows are present (para. 3.17). 1.11 A second major issue in the petroleum sector is the absence of a corporate development plan in RECOPE, which makes it impossible to eval- uate its investment program. RECOPE is currently responding to this need and has begun to prepare a corporate development plan using appropriate economic and technical criteria so that the Government will be able to place its investments within the framework of the public investment program (paras. 5.05 and 5.15). Also, in view of the economic costs of maintaining the refinery, RECOPE is in the process of broadening its refinery policy to a petroleum product supply policy, under which petro- leum products would be obtained at the lowest cost (para. 3.19). To improve this policy, it is recommended that RECOPE carry out a compre- hensive study of Costa Rica's petroleum product supply alternatives (para. 3.20). 1.12 In relation to the excessive demurrage charges incurred in the importation of crude oil, the mission supports the ongoing effort between the Central Bank and RECOPE to work out an arrangement whereby such un- necessary expenses can be avoided in the future (para. 3.13). Coal Resources 1.13 The justification of Costa Rica's coal resources program should be questioned, given its doubtful economic prospects and the tight finan- cial condition of the Government. As this justification is not apparent, it is recommended that the Government reconsider the priority it has given to the national coal program (para. 3.23). Fuelwood and Charcoal 1.14 The main question regarding the use of fuelwood and charcoal in Costa Rica is the extent to which the existing delicate balance between fuelwood supply and demand may be threatened by the alarming rate of deforestation (which is principally due to the demand for pasture land) and a possible shift by household and industrial users towards increased fuelwood and charcoal use. A survey of energy use in households (para. 2.20) and a study to understand the structure of the fuelwood market, (para. 3.26) should contribute to a better understanding of this prob- lem. In the meantime, to create a buffer against a deterioration of fuelwood supplies it is recommended that the Government encourage the planting of trees on private lands through the provision of technical assistance and the establishment of tree nurseries selling seedlings at cost (para. 3.29). In addition, it is recommended that the Government give adequate financial support to the Forestry Directorate's (DGF) current program to strengthen itself and demonstrate the viability of large-scale production forestry by managing natural tropical forests (para. 5.08). Moreover, to take advantage of the significant amount of forest biomass that is being destroyed through illegal land clearing, it is recommended that the Government assist in establishing an industry to exploit it for charcoal making using portable kilns (para. 3.30). -6- Energy Use in Industry 1.15 From the Government's perspective, the main issue with respect to energy in industry is the extent to which the rationalization of energy use should be encouraged through measures other than pricing. Considering that many of the most obvious and lowest cost energy conser- vation opportunities already are being implemented by the major energy users, it is recommended that the Center for Assistance on Energy to Industry (CAEI) be established at no cost to the Government (para. 2.12). Energy Use in Transport 1.16 The major energy issue in the transport sector is the extent to which it can curb its voracious appetite for petroleum products through substitution and conservation. In the mission's view, the potential for an economic substitution of electricity for diesel in either railways or urban transport is not encouraging, and thus it is recommended that the Government redefine the objective of its transport pre-investment program to that of finding the least-cost solution to any transport need regard- less of its implications for energy substitution (paras. 2.14-2.17). To increase the efficiency of energy use, it is recommended that the Ministry of Transport (MOPT, establish a preventive maintenance program for public (Transmesa) buses, along with the requisite facilities, com- plemented by regular trainiag for mechanics, drivers, and their super- visors (para. 2.18). Planning Institutions 1.17 The main issue facing the recently established Energy Planning System, which has at its center the new Directorate of Energy (DSE), is its ability to prepare a strategy for the sector and coordinate the prep- aration of a balanced sectoral investment program. While this ability has not been put to the test yet, it is recommended that the Government approve the legal frameworlk that would establish the Directorate of Energy (DSE) (which has been functioning under an interim arrangement) (para. 5.11). In view of the importance of energy to the economy, it is recommended that the Energy Planning System be broadened to include the National Electricity Service (SNE) and major user groups, such as industry and transportation, and sectors that are indirectly involved in energy production, such as agriculture and forestry (para. 5.12). To improve the effectiveness of the Directorate of Energy (DSE) it is recom- mended that it focus on its priority activities and transfer the tech- nical assistance projects that fall outside its priority functions to other Costa Rican institutions (para. 5.14). - 7 - II. ENERGY CONSUMPTION: STATUS AND PROSPECTS Energy Consumption Trends 2.1 Costa Rica has a compact landmass of 50,900 km2, with about three-quarters of its 2,3 million inhabitants concentrated in the highly urbanized Central Valley. The valley covers ten percent of the land and has San Jose, the capital, at its center. The economy is largely based on agriculture and agroindustry, with coffee, bananas and beef the leading exports. The development of its manufacturing sector was given a boost with the creation of the Central American Common Market (CACM) in 1960. Since then it has concentrated on the processing of agricultural products, textiles, and substitution of consumer goods imports. Costa Rica also has a highly developed transport system including paved highway, railway and pipeline linkage along the main axis from Pto. Limon on the Caribbean, through the Central Valley to Puntarenas on the Pacific (IBRD map 17339). The country's annual energy consumption of 0.62 toe/capita is considerably higher than the Central American average of about 0.39 toe/capita, a reflection of its relative prosperity and degree of industrialization, but still below the Latin American average of 0.77 TOE/cap, even though Costa Rica's per capita income is higher, largely because of its small number of heavy energy intensive industries. 2.2 During the economic growth period of 1970-78, the growth in total energy consumption averaged about 4.5% a year, roughly 40% lower than the concurrent GDP growth rate of 6.3% a year. All of the increase during this period was due to petroleum products, which grew at 8.8% a year and surpassed fuelwood as the dominant fuel, and power, which grew at 8.3% a year. However, while the share of petroleum and power increased from 43% in 1970 to about 60% in 1978, a close evaluation of the data suggests that only a small fraction of this increase can be attributed to substitution for fuelwood and agricultural waste (bagasse and coffee husks). The rapid growth of petroleum and power during the 1970-78 period may be attributed instead to the expansion of the economy and the changing structure of consumption. Thus, while fuelwood and agricultural wastes have largely retained their traditional markets in the rural residential and agroindustrial sectors, power and petroleum fuels have risen to meet the incremental demands associated with the increased use of private automobiles, a higher standard of living in the residential sector, and a growing value added by industry. 2.3 The deterioration of the financial situation that began in 1978 was accompanied by a deceleration and decline in the growth of energy demand and a slowdown and perhaps reversal of the decline in fuelwood's share of total energy consumption. Thus, while the consumption of fuelwood by the rural sector remained stable and that of agricultural wastes was only affected by the vagaries of the sugarcane and coffee crops, the use of petroleum products largely followed the rise and fall of industrial output and its transportation requirements. The demand for electricity was less affected by the business cycle because only a third of its sales are rmade to the industrial sec.tor. The consumption of - 8 - electricity by the residential and commercial sectors continued to grow through 1982, in part as a result of the growing number of connected customers. The structure of energy consumption in Costa Rica from 1970 to 1981 is shown in the energy balances included in Annex II and summarized in Table 2.1. These energy balances, prepared by the Government with the assistance of the UNDP-PEICA, offer a fairly precise picture of energy consumption trends in the major energy using sectors: industry, transport and residential/commercial. These are discussed below. Table 2.1: Structure of Net Energy Consumption, 1970-1981 Agricultural Electric Petroleum Fuelwood a/ Wastes b/ Power Products Si Total A. CONSUMPTION -------- - ----… 000 toe -- 1970 462 102 76 354 995 1975 462 111 114 523 1210 1976 465 113 123 558 1259 1977 441 121 131 651 1340 1978 443 131 145 698 1417 1979 444 135 154 716 1449 1980 441 126 169 714 1450 1981 441 128 182 681 1433 B. GROWTH RATES ------------------Percent/year -------------------- 1970-1981 -0.4 2.1 8.2 6.1 3.4 1970-1978 -0.5 3.1 8.3 8.8 4.5 1978-1981 -0.2 -0.6 7.9 -0.8 0.4 C. MARKET SHARE -------------------- Percent---------------------- 1970 46.4 10.3 7.7 35.6 100.0 1978 31.3 9.2 10.2 49.3 100.0 1981 30.8 9.0 12.7 47.5 100.0 a/ Including charcoal (about 2% of fuelwood total) and coal and coke (negligible) b/ Mainly bagasse and coffee husks. c/ Including non-energy prc,ducts. Source: Annexes II - V. Energy Use in Industry 2.4 Since the mid 1970s, the industrial sector has generated about 22% of the GDP of Costa Rica, and about 15% of total employment, the highest proportion in Central America. In 1981, the sector accounted for 29% of total energy consumption, including 31% of petroleum products and 36% of electric power. As noted before, the country's manufacturing activities have concentrated on the processing of agricultural comr- modities and the substitution of consumer goods imports, which are not energy intensive industries. As a result, the incidence of commercial energy in gross production cost has remained low by international stand- ards, rising gradually from about 1.6% in 1972 to 2.3% in 1980, evenly divided between electricity and petroleum products. The impact of non- commercial fuels on production costs has not been estimated, but their use is concentrated in a few rural industries. The structure of energy consumption in industry during the 1970-81 period is summarized in Table 2.2. Table 2.2: Energy Use in Industry: 1970-1981 a/ Coal & Fuel- Agric. Elec- Kero- Gas Fuel Coke Wood Wastes tricity LPG sene Diesel Oil Oil Total A. CONSUMPTION -----------------------…- 1-- 000 toe------------------------- 1970 0.2 31 102 23 1 - 15 - 57 230 1975 0.3 34 111 34 3 - 31 - 85 306 1976 0.3 38 113 36 3 - 32 - 86 300 1977 0.3 15 121 43 3 - 54 - 109 345 1978 0.3 18 131 49 3 4 53 - 114 371 1979 0.3 19 135 60 2 5 39 - 124 384 1980 0.3 16 126 60 3 4 39 - 130 379 1981 0.3 16 128 65 4 4 47 0.2 154 420 B. GROWTH RATES ------------------------- Percent/Year --------------------- 1970-81 - -5.8 2.1 10.1 11.0 10.9 - 9.4 5.6 1970-78 - -7.0 3.1 10.2 6.5 - 16.8 - 8.9 6.1 1978-81 - -2.7 -0.6 10.0 16.3 0.0 -3.5 - 10.6 4.2 C. MARKET SHARES --------------------------- Percent…------------------…----- 1970 0.1 13.6 44.4 9.8 0.6 - 6.6 - 24.9 100.0 1978 0.1 4.7 35.2 3.2 0.8 1.2 14.2 - 30.6 100.0 1981 0.1 3.9 30.5 5.5 1.0 1.0 11.3 0.0 36.6 100.0 a/ Also includes agriculture and mining, for which consumption data is not separately available. Source: Annexes II - V. - 10 - 2.5 Industry's consumption of fuelwood currently accounts for only about four percent of total fuelwood use, and three-quarters of it is now concentrated in the coffee dryers, as a supplement to coffee husks. Salt works used to consume over half of industry's fuelwood requirements, but the situation was drastically changed in 1976 when about 95% of the salt industry joined in a cooperat-ve that introduced a solar drying process that has almost completely displaced the use of fuelwood. Other fuelwood users are the smaller brickyards, lime kilns, and sugar mills - whose consumption is erratic and depends on the availability of bagasse. Thus, the relative share of fuelwood consumed by industry dropped by more than half in 1976 as a result of thie switch in the salt works. It had been gradually declining as a result of the increased substitution of diesel in the coffee dryers and fuel oil in the larger brickyards. In 1981, this trend began to reverse as a result of major price increases in diesel, and there is strong evidence that at least the coffee dryers (which accounted for about seven percent of industrial diesel use) are reconverting their furnaces back to fuelwood. 2.6 The major users of petroleum products are the cement plants, which accounted for about 53% of fuel oil consumption, and banana producers, sugar mills and coffee dryers, which accounted for about 24%, 8% and 7% of the sector's diesel oil consumption in 1981. As with other industrial users, the fuel consumption of these major users is directly proportional to their level of output and their efficiency of energy use. While the current level of output is rather depressed because of the economic recession, industrial producers appear to be well aware that the principal energy issue for them is how to reduce the incidence of energy on production costs by improving efficiency and substituting more economic fuels. The mission perceived that this positive attitude was encouraged by the rapid increase in diesel, fuel oil and electricity prices over the last two years and the need to cut costs in a highly competitive environment. From the Government's perspective, the main issue is the extent to which Government assistance is needed to acceler- ate the adoption of energy efficient technology in industry. 2.7 The cement industry offers the greatest potential in this regard, as it consumes about 509,000 bbl of fuel oil (about 75,300 toe) a year at the current depressed production rate (about 50% of capacity). Energy saving measures such as employing high efficiency fans and making modifications to grinding mills have been under study or implemented at the three cement plants (all using the dry process). These measures have reduced overall energy consumption at the largest plant from 154 kWh of power to 128 kWh, and from 0..05 toe of fuel to 0.088 toe respectively, per ton of clinker. The industry also is looking at substitutes for fuel oil. Pilot tests already have proven the feasibility of substituting 20% of the fuel oil by ground coconiut shells, oil palm kernels, and petroleum coke. As the supply of coconut and oil palm kernels is constrained by the production rate of these tree crops, current tests are focusing on increasing the share of petroleum coke to 80% with the remaining 20% fuel oil needed for flame stability and safety. If these trials are suc- cessful, the cement industry pLans to increase its imports of high sulfur petroleum coke from the United States a- about $6,5,'ton, equivalent to - 11 - less than half the current cost of the fuel oil. As indicated in Table 2.3, the cost advantage of petroleum coke is compelling and ensures a payback period of less than a year. 1/ Once the switch to pulverized fuel burners has been made, a future transition to charcoal (or coal) becomes simply a matter of finding a reliable source of supply. Fuelwood is not being considered because, while technically feasible, it presents a significant derating problem. In general, the private cement company appears to be more aggressive in its cost saving activities. The two government owned (CODESA) plants appear to be moving more slowly on implementing cost-cutting measures. Table 2.3: Comparative Fuel Costs at a Cement Plant a/ Petro leum Fuel Oil c/ Coke Charcoal d/ Fuel Consumption (tons/year) b/ 47,500 37,710 48,740 Economic Cost of Fuel ($/ton) 147 65 47-76 Economic Cost of Fuel ($/toe) 146 77 72-117 Fuel Expense ($106/year) 6.98 2.45 2.30-3.70 Savings from Substitution ($106/year)e/ - 3.13 3.28-1.88 a/ Assumes full capacity operation at 450,000 tons of clinker/year. This is the capacity of two plants in Costa Rica. The third plant is half this size. b/ Based on an average consumption of 0.088 toe/ton of clinker, and substitution of 80% of fuel needs by petroleum coke or charcoal. c/ Based on current price of 6.0/liter. d/ High estimate based on current price of 100,/30kg bag. Low estimate based on cost of charcoal made from wood from energy plantation (at $8.00/ton), transported 50 km. e/ Net of $1.4 million cost of using 9500 tons/year of fuel oil (20% of fuel requirements). 2.8 The one hundred or so coffee dryers in Costa Rica also have reacted swiftly to market pressures. Most of these plants use a very old vertical furnace air heater design that they have recently modified to reduce the pressure drop required to achieve the correct air flow and to increase the efficiency of heat transfer. Typically, these modifications 1/ Recent information that the supply of petroleum coke has been inter- rupted suggests that charcoal could become the fuel of choice for the cement plants. - 12 - will improve the efficiency of heat use in the dryers from the 30-40% range to the 50-60% range and reduce fan drive requirements from about 40 tip to about 10 hp. As a result of the recent price increases in diesel, almost all the coffee dryers recently have reconverted their furnaces to fuelwood use and in some cases electric resistance heating. The industry is now studying further modi[fications to eliminate the heat exchanger tubes if they can overcome some problems with the taste and smell of coffee when dried directly with wood. 2.9 The comparison of fuel costs summarized in Table 2.4 suggests that even though fuelwood is the lowest cost fuel, the savings from substituting fuelwood for fuel oil in industrial oil fired boilers would not be sufficient to justify the replacement of an oil-fired boiler with a fuelwood-burning one, witk the associated wood handling and storage system. The 32 or so oil fired boilers consumed about 292,000 bbl/year of fuel oil, equivalent to 21,100 toe. While the specific costs of converting to fuelwood would have to be based on site-specific conditions, a minimum payback period of four to five years would be required, which is not attractive under current economic conditions. Table 2.4: Comparative Fuel Costs at Industrial Boiler a/ luel Oil Charcoal Fuelwood b/ Electricity c/ Fuel Consumption (tons/year) 1,390 1,900 3,300 10.75 (Gwh) Economic Cost of Fuel ($/ton) 147 47-76 17-34 0.042 ($/kWh) Economic Cost of Fuel ($/toe) 146 72-117 40-80 488 Average Boiler Efficiency (%) 80 75 65 98 Cost of End-use Fuel ($/toe) 220 96-156 61-123 498 Fuel Expense ($103/year) 204 89-144 56-113 461 Savings from Substitution ($103/year) - 115-60 148-91 (-257) a/ Assumes 2 x 200 hp boilers, about average size for Costa Rica, with a load factor of 70% (280 hp) and a use factor of 60% (5,256 hours/year), and an end-use requirement of 925 toe/year. b/ Low estimate based on wood from managed natural forests, transported 110 km. High estimate based on wood from energy plantation, transported 50 km. c/ Based on power cost to ICE's large industrial customers, as of mid- 1983. 2.10 Other industries such as dairies and grain drying also are reported to be actively searching for ways to improve energy efficiency and substitute for liquid fuels. The dairies have begun to use biogas digestors, and the grain traders are experimenting with solar and electric dryers. The existing infrastructure of engineers, suppliers and - 13 - teaching institutions appears to be quite capable of providing the necessary expertise and equipment for this purpose. The major impediment to more extensive energy saving activities is the uncertain financial climate, which has forced industry to pursue mostly those opportunities with paybacks of less than a year. 2.11 The cost comparisons in Table 2.4 also suggest that electric power is not competitive with fuel oil in industrial boiler appli- cations. Regarding other substitution possibilities in industry, the information provided by one recent study 1/ suggests that, at the present price relationship between electricity and petroleum products, the economic potential for substitution is largely limited to the substi- tution of diesel generation by grid electricity (e.g. in the banana plantations, where it is the principal use of diesel), a shift that is already in progress. The extent to which further economic substitution may be feasible or desirable will depend on a careful evaluation of the economic cost of electricity and a review of the petroleum product pricing structure. As pointed out in para. 4.6, these pricing studies deserve the highest priority as they would provide the basis for a comprehensive energy pricing policy. 2.12 The Government has placed high priority on a major effort to promote energy efficiency in industry. This effort is embodied in two technical assistance projects which now are part of the public investment program: (i) The Center for Assistance on Energy to Industry (CAEI): Designed to support the creation of an agency (under MIEM or the ITCR) that will assist industry in formulating energy efficiency and substitution measures. (ii) Prefeasibility Studies for Industrial Energy Conservation and Substitution Projects: Designed to provide more specialized technical assistance to prepare major conservation projects that have been identified. Industry does not appear to be in need of Government assistance to implement its energy efficient options, because several of the most obvious and low-cost energy conservation opportunities already have been implemented by the major users and because the existing network of engineers is already familiar with the no-cost and low-cost approaches to saving energy. Thus, in view of the Government's difficult financial situation, it is recommended that the CAEI be established provided it is funded by the private sector. 11 Hydro and Geothermal Electricity as an Alternative for Industrial Petroleum Consumption in Costa Rica (1982). - 14 - Energy Use in Transport 2.13 The transport system of Costa Rica is based on road transportation of freight and passengers, the major exceptions being petroleum products, which are carried by pipeline to the major distribution centers, and bananas, which are carried to port by train. In 1980, the railways accourted for less than 1% of total passenger-miles and 17% of total freight tonnage; the trends suggest -hat these shares will continue to fall as the railways withdraw from passenger service and general freight and focus more and more on hauling bulk cargos such as bananas along specialized routes. Most passengers, about 60%, were carried by bus, and 39% were carried by automobiles. Major fuel price increases that began in 1978 stimulated a trend towards an increase in the share of buses. About 70% of the freight was carried by truck, 17% by rail, 11% (petroleum prcducts) by pipeline and 3% by coastal barge. With the exception of two electrified railway lines, the Costa Rican transport sector depends entirely on petroleum products, and the structure of consumption among diesel oil and gascline is largely determined by the government's pricing policies which, until recently, have stimulated a rapid increase in the share of diesel. The structure of energy consumption in transportation is summarized in Table 2.5. 2.14 The major energy issue in the transport sector is the extent to which its voracious consumption of imported petroleum products (in 1981, 60% of the country's petroleum products use, fully 82% excluding fuel oil) can be reduced through the use of substitute fuels and improved efficiency. The public sector investment program currently includes four sets of preinvestment studies partially aimed at substituting electricity for diesel: (i) La Junta-Alajuela railway rehabilitation and electrification: This is a 124 km trunk line, paralleling a highway that is being paved, which carried 360,000 net tons of freight in 1980. Total costs of the project have been tentatively estimated at US$51.4 million, of which $10.3 million are the costs of electrification. (ii) Pacific Electric Railway modernization, extension and rehabilitation of the electric distribution and generation system (originally installed in 1930): This is a 116 km trunk line, paralleling the Pan-American Highway, which carried up to 380,000 net tons of freight in 1980. The construction of a 61 km extension to a cement plant in Abangares del Colorado with a 450,000 tons/year capacity is also being studied. Total project costs have been tentatively estim,ated at US$43.9 million, of which the branch to Abangares would cost $17.2 million. - 15 - Table 2.5: Energy Use in Transport: 1970-1981 Electricity Gasoline Jet Fuel Diesel Alcohol Total A. CONSUMPTION --------------------'000 toe ------------------------- 1970 1.0 98 7 121 - 227 1975 0.8 134 11 191 - 336 1976 0.9 143 13 213 - 370 1977 0.9 150 17 237 - 405 1978 0.8 164 19 266 - 451 1979 0.9 154 22 286 - 462 1980 0.7 139 22 297 - 459 1981 1.0 121 17 264 0.8 403 B. GROWTH RATES ------------------ Percent/Year ---------------------- 1979-81 0.0 1.9 8.6 7.3 - 5.4 1970-78 -2.8 6.6 14.0 10.4 - 8.9 1978-81 7.7 -9.7 -4.5 -0.3 - -3.6 C. TMARKET SHARES ------------------- Percent ----------------… -------- 1970 0.4 43.3 3.0 53.3 - 100.0 1978 0.2 36.4 4.3 59.1 - 100.0 1981 0.2 30.0 4.2 65.4 0.2 100.0 Source: Annexes II - V. (iii) Improvement and electrification of branch lines of the Atlantic railway: This project would electrify 246 km of lines that branch off the Pto. Limon-Rio Frio line, which itself (100 km) was electrified in 1981, and carried up to 970,000 tons of freight (in 1980), mostly bananas. The tentative cost of this project, if all the branch lines are to be electrified, has been estimated at US$37.9 million, of which US$12.3 million would be the cost of electrification. (iv) Electrification of urban passenger transport in San Jose: This project would include about 40 km of light rail (LRT) lines along those radial routes that are projected to have a peak flow of more than :3000 passengers/hour (in one direction) by 1990. The total cost of the project has been tentatively estimated at US$300 million, of which a first phase of 14 km (Curridabat-Pavas) would amount to $60 million. - 16 - The information available on the potential for economically substituting electricity for diesel in thcse projects is not encouraging because the projected traffic volumes appear to be too low in relation to investment cos ts. 2.15 Projects (i) and (:!i) above are interdependent in that their economic potential largely depends on the prospects for an inter-oceanic container transshipment facility tht would link the recently completed port at Moin (near Pto. Liman) with Pto. Caldera (near Puntarenas), which is still under construction. This 300 km system would compete with the existing 300 km intermodal link across the Isthmus of Tehuantepec (Mexico), the Panama Canal, a possible 80 km rail link across Panama, and the existing highway across CDsta Rica, the paving of which is due to be completed in 1985. The MOPT is reviewing the possibility of using Canadian and Italian technical assistance for a series of technical and economic feasibility studies that would serve as the basis for further decisions. Preliminary traffic projections prepared in 1981 indicate that by the year 2000, even in its highest scenario, the freight traffic along the inter-oceanic route will only reach 1.8 million tons/year (both ways) on the busiest segment:. 1/ Given that railway electrification normally is worthwhile only at traffic densities far above this level, the potential for further electricity use in this route is not economic. Thus, it is recommended that the planned preinvestment studies concentrate on finding the least cost alternative among the remaining two possibilities under review, that is, to rehabilitate the route and use diesel locomotives or to abandon the route and transfer the freight to the road system. 2.16 The improvement and electrification of branch lines serving the banana plantations along the Atlantic coast (project (iii) of para. 2.14) would complement the completed improvement and electrification of the Pto. Limon-Rio Frio trunk line. Under the current setup, the electric locomotives have had to haul the diesel locomotives along the trunk line to the junction with the branch lines, with the consequent duplication and subutilization of locomotive equipment. The cost of improvement has been estimated by MOPT at $104,000/km and that of electrification at $50,000/km. 2/ The MOPT is sl:udying the lowest cost alternative for each of the 11 branch lines, that is abandonment, minimum service, improvement of diesel service or electrification. The economic attractiveness of further substituting electricity for diesel in this part of the system is not obvious, as the current cargo of the entire Atlantic system is about 1.2 million tons/year (of which 63% were bananas) and even the MOPT's highest projection (prepared :in 1981) only shows total traffic increasing to 2.3 million tons in 1995. Thus, it is recommended that MOPT expand the scope of its analysis of individual branch lines into a more general study to identify the least cost transportation system that will meet the needs of the banana industry and the necessary steps to implement it. 1/ Plan Nacional del Transpcrte, 1981. 2/ These cost estimates are much lower than the "typical range" of $120,000 to $240,000 per km estimated in the Bank's recent Energy and Transport in Developing Countries. February 1983. - 17 - This study should not be limited to railways but also should consider intermodal alternatives and focus on minimizing long term economic costs, for which the existing infrastructure should be regarded as a sunk cost. 2.17 The project to electrify the main urban passenger transport lines (para. 2.13) is aimed at reducing urban congestion and the use of imported energy. In general terms, it would add about 80-100 light rail (LRT) vehicles to a fleet of about 900-1000 buses. The MOPT is currently considering a feasibility study, using French technical assistance, that would focus on those routes whose projected peak traffic exceeds 3000 passengers/hour. In general, the threshold chosen for this study is unusually low, as light rail systems are usually designed with a peak capacity of 18,000 to 24,000 passengers/hour, and bus systems (using standard 40-50 seat buses) can generally be expected to carry 10,000 passengers/hour (per lane) in mixed traffic, 15,000 passengers/hour in exclusive street lanes, and up to 40,000 passengers/hour in separated busways with off-line stations (such as could be built out of a typical two-lane, one-way street with the addition of overpasses and pedestrian barriers). Given this potential for expanding the capacity of the existing bus system, it is recommended that the MOPT broaden the scope of the planned studies to include not only electrified modes, but also alternative improvement and expansion strategies using the existing bus system, which would appear to offer greater flexibility to cope with the relatively low population densities of the Central Valley. In accordance with the goals of the MOPT, the prime objective should be to reduce the economic cost of transportation, including both direct costs (such as capital, operation and maintenance, and energy) and indirect costs (such as congestion, pollution, noise, etc.), rather than to try to introduce a specific technology (such as trolley buses or LRT). 2.18 There appears to be several opportunities for improving the efficiency of energy use in the sector. The reported fuel efficiency of San Jose's main bus system, Transmesa, which has 900 buses, is only 2.6 km/liter of diesel, considerably lower than the 4-5 km/liter that could be expected. The reason for this as suggested by the excessive amount of exhaust fumes emitted by the buses appears to be inadequate maintenance, and indeed, Transmesa reports that it does not have funds for preventive maintenance. Assuming that the robust and simple design of the vehicles are the best suited to conditions in Costa Rica, higher standards could be achieved by implementing a regular maintenance program (including the provision of modern "clean room" facilities for diesel pumps and injector servicing), and a few energy conservation measures such as driver training, radial tires, use of additives to gearbox and back axle lubricants, devices to limit engine speed, etc. It is recommended that the MOPT give high priority to establishing a preventive maintenance program for public buses along with the required facilities to be complemented by regular training for mechanics, drivers, and their supervisors. - 18 - Energy Use in the Residential/Commercial Sector 2.19 In 1981, the residential/commercial sector accounted for nearly 40% of total energy consumption, including 4% of liquid fuels, 62% of electricity and almost al]. of the fuelwood and charcoal. The recent structure of consumption is summarized in Table 2.6. The two major issues in this sector arE: the extent to which its continued massive consumption of fuelwood contributes to deforestation with its attendant costs, and the extent to which its use of LPG, kerosene and electricity will increase again after the decline in their use caused by recent price increases. 2.20 The extent and characteristics of fuelwood use in Costa Rica were surveyed in 1979 and have been analyzed in detail as part of the UNDP-PEICA supported energy program. 1/ The survey found that the average daily fuelwood consumption is 3.085 kg/person (equivalent to 0.38 toe/year). Based on this result and on the available (1963 and 1973) census data on the number of people using fuelwood, the report estimated the historical trend of fuelwood consumption. (This accounts for the remarkable smoothness of trend in the reported residential fuelwood consumption figures.) The analysis that followed the survey indicated that, while there had been a gradual substitution of L2G and electricity for fuelwood until about 1980, there was no statistically significant relationship between the choice of fuels and income or relative prices. However, the choice of fuels was related to fuelwood availability, relative, prices, availability of alternative (commercial) fuels, cooking habits, work habits, income, cost of stoves, educational level, etc. In particular, the staggering increases in LPG prices over the last two years have led to a major reduction in consumption which is just beginning to show on Table 2.6. The report concludes from this that fuelwood in Costa Rica is not regarded as a fuel of inferior quality, but that rural inhabitants, depending on their customs and social environ- ment, tended rather to prefer fuelwood because of the smoky barbecue flavor it imparts to the faod. Such findings, combined with the highly variable pricing and income situation that has prevailed since the study was completed, make it impDssible to foresee the likely trend of future substitution in the sector. To provide a better basis for judgment, the DSE, with UNDP and USAID support, has begun a second major survey of energy use patterns in the households, to be followed up by detailed analysis and development of a demand model. To improve the reliability of the survey, it is recommended that actual consumption of a small stratified sample of survey respondents be measured daily (over one-two weeks) to compare actual with stated fuelwood consumption. This survey should be completed rapidly to provide an essential input into the energy planning process. 1/ See "Balance Energetico Nacional, Serie Historica 1965-1979", 1980. - 19 - Table 2.6: Energy Use in the Residential/Commercial Sector, 1970-1981 Fuelwood Charcoal Electricity LPG Kerosene Total A. -CONSUMPTION -------------------- --'000 toe -- 1970 423 7 51 5 20 506 1975 419 8 76 10 19 533 1976 419 8 84 12 21 543 1977 417 8 85 14 21 545 1978 417 8 92 16 22 555 1979 416 9 89 21 20 555 1980 416 9 104 22 17 567 1981 416 9 113 20 9 566 B. GROWTH RATES ------------------ Percent/year ------------------------ 1970-81 -0.2 2.2 7.4 13.2 -7.3 1.0 1970-78 -0.2 2.1 7.5 15.6 1.5 1.2 1978-81 -0.1 2.3 7.2 7.0 -27.2 0.6 C. MARKET SHARES -------------------Percent---------------------------- 1970 83.6 1.4 10.2 0.9 3.9 100.0 1978 75.1 1.5 16.5 2.9 3.9 100.0 1981 73.5 1.6 20.0 3.5 1.5 100.0 Source: Annexes II - V. 2.21 Regarding the source of fuelwood supply, the 1979 study found that about a third of the households purchase it, a third collect it on their own farms, and a third obtain it at no monetary expense from third parties such as coffee plantations and sawmills (as sawmill waste). Thus, except for the small proportion of the total that is obtained from the sawmills, most of the fuelwood appears to originate from prunings of coffee plantation shade trees, live fences, windbreaks, orchards and woodlots, i.e. from managed and sustainable sources in no danger of depletion. A more recent survey i/ has uncovered a few areas where 20- 30% of the fuelwood is obtained directly by cutting down natural forest. These appear to be areas of recent settlement where farms have not yet reached their equilibrium configuration. Thus, the rural fuelwood users appear to be basically self-sustaining in fuelwood and can be expected to remain so unless there is a sudden increase in demand 1/ A. L. Lemckert and J. Campos, 1981. - 20 - (e.g. from industrial users) or a change in agricultural practices (e.g. a shift toward less shade and more fertilizer use in coffee plantations). 2.22 The efficiency of fuelwood use in the households has not been evaluated but can be surmised from studies done in neighboring countries. The relatively high use rate of 0.38 toe/person-year, compared to the minimum requirement of 0.02 toe/person-year of useful energy to meet basic cooking needs, is consistent with the impression that this fuel is not supply constrained. The recent survey indicates that about a third of the households employ a mud-and-brick stove (fogon), 40% an iron stove, 20% an enamelled iron stove, and only 1% cook in an open fire. The iron stoves are generally considered to be more efficient than the mud-and-brick stoves and have an end-use efficiency of 10-20%. ICAITI, with USAID support, has been working on a pilot demonstration program to construct fuel-efficient Lorena (mud-and-sand) stoves in about 75 rural households in Costa Rica. These stoves are reported to use only half as much fuelwood as the iron stoves, but their operation requires minor changes in cooking habits and management skills that appear to have limited t:heir acceptance, particularly among the less educated and poorer segments of the rural population. While the results of a follow-up survey hav2 not yet been evaluated by ICAITI, the preliminary impression is that it will be very expensive (in terms of extensionists' time) to increase the usage of these stoves to the point that it will have a significant impact. Thus, if this program is to be continued, it could increase its effectiveness by concentrating on those areas where the fuelwood shortage is critical (as in parts of Guanacaste Province) and on those sociaL groups that use the less efficient mud-and- brick stoves (fogones) and open fires. - 21 - III. ENERGY RESOURCES AND PRODUCTION Overview 3.1 As with other countries, Costa Rica faces the need to increase its energy supplies to meet the requirements of the economy as it recovers from the current crisis and continues to grow. The capital- intensive nature of the investments required, combined with the financial constraints faced by the Government, make it more imperative than ever that new investments for developing energy resources be prepared and executed with the greatest care and be concentrated on those resources which promise the highest return, taking due consideration of the risks involved. The recent performance of the Costa Rican energy sector in this regard has been encouraging. Since 1973, the preponderance of investments has been devoted to developing the country's rich hydro- electric potential, with the result that reliance on thermal generation has dropped from 10-25% in the seventies to less than 1% in 1983, and the transmission and distribution network has been expanded to reach 89% of the population. In the petroleum sector, which satisfies 47% of total energy consumption using imported crude, most of the investments since the Government's takeover of the refinery in 1973 have been directed at developing an extensive port, storage, pipeline and distribution system that has reduced the costs of the sector. The Government also has expressed its intention to turn over a major share of the rather risky exploration activities begun in 1981 to private investors. The develop- ment of the country's promising geothermal resources is moving ahead. Even in the fuelwood sector, which continues to provide cooking fuel for 40% of the population, there is strong evidence that demands are in balance with supplies and have little impact on the deforestation problem. The Development of Hydroelectric Resources 3.2 Hydroelectric power is Costa Rica's major economically useful domestic energy resource. Starting with a theoretical potential of 25,000 MW, ICE has identified 75 sites with an economically viable potential of about 9,000 MW, prepared prefeasibility and feasibility studies for six schemes with a total capacity of 2,200 MW and scheduled four projects totalling 335 MW for commissioning by 1990 (these figures also include the 50 MW Miravalles I geothermal project discussed in para. 3.10). This schedule would allow installed capacity to increase to 1007 MW (4172 GWh, in a dry year) by 1990, from its current level of 719 MW (2781 GWh in a dry year), of which 100 MW (701 GWR) is thermal. This generating capacity is substantially greater than the current peak demand of about 420 MW and 1982 generation requirements of 2292 GWh, largely because of the recent completion of the 174 MW (784 GWh) Arenal-Corobici scheme and the slowdown in demand since 1981. The most important question facing the electric power investment program (paras. 5.2-5.3) today is the extent to which the current implementation schedule may have to be adjusted to reflect the most recent economic conditions and the resulting changes in the growth of demand. - 22 - Major Hydroelectric Power Projects Tentative Commissioning Capacity Energy (GWh) Estimated Project Date a/ (MW) Firm Average Cost (106$) Ventanas-Garita 19E1 90 234 515 112 Miravalles Geothermal I 1988 50 353 353 110 Palomo 1989 30 82 135 42 Angostura 1990 165 662 1008 247 Boruca Stage I 1993 460 2100 2690 767 a/ ICE is in the process of revising its investment program on the basis of its most recent demand projecticn. 3.3 An important factor in determining the proper schedule of power generation investments is the extent to which Costa Rica needs to take into account the potential f'or power exports to neighboring countries. As suggested in the 1980 Interconnection Study for Central America, 1/ Costa Rica has a comparative advantage in power generation. The study estimated that the commissioning of the most promising hydroelectric sites (Ventanas-Garita, Palomo and Boruca) would come sooner with a regionally integrated least cost power development solution than with a single country solution. As a first step towards realizing this export potential, a 230 kV transmission link with Nicaragua was commissioned in July 1982 (to complement the 138 kV Nicaragua-Honduras link established in 1976), and a 230 kV line to Panama is under construction (financed by IBRD and IDB) and is expected to be commissioned in late 1984 (IBRD map 17336). However, because of' financial constraints the Government has stated that Costa Rica's generation expansion program will be based exclusively on meeting domestic requirements, and that exports will be limited to the surplus hydroelectricity that may be available after domestic requirements have been met. 2/ 3.4 To estimate domestic requirements, ICE faces the predicament that the recent period of rapid economic change has reduced the confidence with which it can employ statistically-based methods on past economic output-electricity demand relationships. It should also be noted that the Government of Costa Rica does not currently prepare projections of gross domestic product and other economic variables that could be used as a guide for preparing electricity demand projections. Faced with these limitations, ICE uses a mixture of econometric pro- jections, extrapolation, diraect information, and judgment to regularly prepare and update its forecasts. ICE's most recent forecast, dated July 1983, (and described in Annex VI) shows electricity demand growth rates 1/ Estudio Regional de Interconnexion Electrica del Istmo Centroamericano, 1980. 2/ Plan Nacional de Desarrollo, 1982-1986, "Volvamos a la Tierra", 1982. - 23 - gradually recovering from 3.1% in 1983 to 6.0% in 1990. This forecast does not directly link the demand by the major user groups to economic and demographic variables, however, in the absence of sufficient data for a confident evaluation of income and price elasticities, ICE's forecast provides a useful initial basis for its ongoing revision of the electric power investment program. Given the importance of power investments in the total public sector investment budget, it is recommended that ICE provide the Government with a better sense of the uncertainties involved in such forecasts by (i) using, whenever possible, two or more independent methods of forecasting and applying sound judgement in the comparison of results; and (ii) preparing at least three alternative forecasts, high, medium and low, to test the implications of important investment decisions against all three. The preparation of alternative forecasts would allow ICE to present to the Government alternative investment programs, each with a different balance of risks. The Government could thus evaluate the selection of the most desirable in- vestment alternative in the light of its overall development priorities and financial constraints. It is also important that the Government strengthen its macroeconomic analysis and projection capacity in order to provide ICE with better guidance on the economic variables to be used in preparing its demand forecasts. Table 3.1: Electric Power Consumption, Actual and Projected Growth Rates (% per year) Public Total Actual Residential Commercial Industrial Lighting Sales Actual 1970-1982 6.3 12.2 8.3 13.0 8.2 1970-1978 5.9 11.2 12.7 12.8 9.0 1978-1982 7.2 14.1 0.1 13.3 6.6 Forecast 1982-1990 3.9 6.9 3.5 1.3 4.5 1982-1986 3.2 5.7 2.5 1.3 3.6 1986-1990 4.7 7.1 4.5 1.3 5.5 Source: Annex VI. 3.5 A specific example of the need to involve the Government in the planning of investment alternatives is given by the $112 million 90 MW Ventanas-Garita hydro project (for which financing is available from the IDB, OPEC, and Commonwealth Development Corp.). This is the largest project currently under construction and is currently about 25 percent complete. It is scheduled for completion in June 1987. Under ICE's demand forecast, its completion could be postponed to March 1989. The continued implementation of the project on the present schedule would have to be justi.Cfed on the b&Kpz : tel rf-c :u - 24 - sales to neighboring countries during the 1987-89 period. These export sales, currently priced at $0.04/kWh, would displace thermally generated electricity with a fuel cost: of at least $0.06/kWh. This export market is large enough to absorb the entire Costa Rican hydroelectric energy surplus that would result from the completion of Ventanas-Garita in 1987 and the realization of the demand forecast. The risks relate to political and economic conditions which could affect the volume of sales or possibly delay payments. 1/ These risks cannot be evaluated in this report, but they need to le reviewed in the context of the country's overall development priorities, financial constraints and the Govern- ment's policy not to make power generation investments solely justified on export sales. If the suggested review indicates that the risks are acceptable, then continuing to implement the project would be economical- ly feasible. 3.6 With regard to the other investments for generation expansion ICE's recent revision of its investment budget has delayed their decision point from late 1983 to lal:e 1984 at the earliest. At that time, ICE intends to update its demand projections on the basis of the latest information and revise its investment budget accordingly. The Boruca project is of particular interest in this regard not only because of its large size (1520 MW, 6036 GWh of firm energy--at $1.2 billion for the "High Boruca" scheme), 2/ but also because it is probably the lowest cost ($750/kW) major hydro site left in Central America. However, it cannot be justified unless it is associated with the development of a major energy-intensive industrial complex which would purchase the dominant share of its output and thus generate sufficient revenue to cover the financial obligations of the project. Several such projects, for example an aluminum smelter and a magnesite nodules processing plant, have been studied, but none are currently planned. The Development of Geothermal Resources 3.7 To complement the development of hydroelectric resources, the availability of which is subject to seasonal and yearly fluctuations, ICE's investment program also includes the development of geothermal resources as a firm source of baseload energy. Geothermal resources have never been thoroughly assessed on a national scale, but a very tentative estimate suggests that the power generation potential amounts to 720 MW (with 68% probability limits of 180 MW and 2760 MW). 3/ There is a clear 1/ Costa Rica exported lC7 GWh of excess power to Nicaragua in 1982, vaiued at US$4.1 million. Nicaragua has agreed to pay for about 30% of this power bill with residual fuel oil which would be delivered to Guanacaste province. The rest is credited to Costa Rica's account in the Central American Compensation Chamber, i.e. is owed to Costa Rica. 2/ Proyecto Hidroelectrico Boruca, Estudio de Factibilidad, 1980. 3/ McNitt, 1978 and Estudio Regional de Interconexion Electrica del Istmo Centroamericano, 1980. - 25 - need to perform a thorough reconnaissance of the geothermal potential, and ICE is considering just such a study, to be followed by a prefeasibi- lity study of one or two selected areas. The proposed budget of $1.2 million (75% provided by the UNDP/Govt. of Italy) appears to be very ample indeed. To ensure that the study leads quickly and efficiently to identifying the most promising areas, it should include the following: (i) uniform tabulation and plotting of available geologic, geochemical and geophysical data; (ii) field reconnaissance of the geology of thermal areas; (iii) photogeological studies of thermal areas; (iv) radiometric dating to establish ages of volcanism where uncertain; (v) geochemistry of water and gases at thermal springs, with wet and dry season sampling; (vi) assembly of the data to rank areas of prospective interest; and (vii) development of geological models for reservoir and cap rock units based on stratigraphy and structure for the more promising sites. The collection of fluid samples and observation of physical conditions at springs during both the wet and dry seasons would be particularly important in young volcanic terrains such as in the Cordillera Central where abundant recharge may be masking significant thermal anomalies. If this is not done during the national reconnaissance, a modest program of monitoring the annual behavior of thermal sites in the Cordillera Central for two years may be considered as a supplement. 3.8 ICE's current geothermal program is focussed on developing the Miravalles field. This project, which is financed by the IDB (with the possibility of additional Japanese financing for the power plant), is now in its eighth year since detailed exploration of the Guanacaste geothermal region was begun in 1975. Three deep wells (1,200-1,300m) were drilled in 1979-80 and extensively tested in 1980-82. From these it was learned that the reservoir fluid tends to deposit a calcium carbonate scale in the well bore, which would restrict production by choking the flow path. The 1983-84 Phase III work-plan concentrates on continuing geotechnical studies to assist the siting of four new deep production- exploration wells, drilling of the four wells, reservoir evaluation to confirm 50 MW of reserves needed for the first generating unit (Unit 1), design and specifications for Unit 1, and tests of approaches to resolve the scaling problem. 3.9 The principal long-term technical ,need of the Miravalles project is to develop a confident prediction of resource potential. This will - 26 - require a well-defined reservDir model and a good understanding of the scaling phenomenon, which should come hand-in-hand with proper siting, drilling and testing of wells during the next two years. For this purpose, it is recommended that ICE develop a written set of plans, options and contingencies for siting, drilling and testing new wells, and for further testing and modeling the economic impact of scaling. To ensure that the tests are appropriately designed and all important data are collected, it is recommended that ICE seek the continuous and intensive guidance of an experienced reservoir engineer, preferably one that could reside in Costa Rica for the duration of the tests. ICE already has contracted Electroconsult as its advisor in this matter. Given ICE's limited experience with geothermal projects and the scarcity of experience worldwide with geothermal exploration, the mission supports ICE's initiative to draw from a broader pool of expertise by requesting occasional reviews of the project by a panel of independent experts. 3.10 A good understanding of the economics of various approaches to preventing or mitigating the scaling problem will require more testing than is normally done. The costs of this testing will have to be accepted, for an overly cautious approach could eventually interfere with a confident understanding of the scaling phenomenon. The existence of scaling will also add to the complexity of siting and designinig the four new wells. There will exist opposing desires to: (a) drill production holes in the better-known part of the reservoir at minimal cost, over (b) stepping out, drilling deeper, directionally, or at a wider diameter in search of fluid with a lower scaling tendency, or in search of better production conditions, at a higher drilling risk and greater expense. These greater risks and expenses also will have to be accepted, because, until the scaling phenomenon is well understood, there can be no authoritative estimate of the commercially exploitable geothermal resource at Miravalles. Nevertheless, the probability of economically mitigating the scaling phenomenon appears to be high enough to warrant the continuation of the 1983-84 work program. 3.11 The available data do not permit an evaluation of the moderate temperature (below 180°C) geothermal resources in the country. Costa Rica has an inventory of 54 geothermal areas and many of these are located in areas where their development for touristic and industrial uses could be of interest. Nevertheless, in view of the limited scale of these uses and the country's financial constraints, the planned national reconnaissance need not divert resources to the search for moderate temperature sites. However, :.f the drilling efforts should unexpectedly tap moderate temperature sources, it is recommended that ICE consider the feasibility of installing binary cycle generating systems that can operate with fluids as cool as 85°C. The Development of the Petroleum Industry 3.12 Petroleum products account for fully 47% of Costa Rica's final energy consumption but are the only fuels that have to be imported. Oil and oil product imports amounted to about $163 million (4512 x 103 bbls) in 1982, down from $180 miliim (4954 x 1i3O bbIs) in 1981 and a peak of - 27 - $207 million (5976 x 103 bbls) in 1980. For 1982, this represented about 15% of total export earnings. Costa Rica imports all its crude oil from the state oil companies of Venezuela and Mexico under the San Jose Accord, 1/ supplemented by shipments of refined products which it normally obtains from Venezuela. Table 3.2 summarizes the current petroleum balance. Table 3.2 Petroleum Balance, 1982 a/ (thousands of barrels) Beginning Refinery Domestic Closing Product Inventory Production Imports Exports Consumption Inventory LPG b/ 2.1 77.2 49.6 - 126.7 2.2 Gasoline 72.4 624.2 303.5 - 905.7 94.4 Kerosene & Jet Fuel 10.2 200.8 21.7 - 218.8 13.9 Diesel Oil 122.9 834.2 1091.2 - 1948.7 99.6 Fuel Oil 18.9 1022.2 - 205.6 705.2 130.3 Other c/ 2.1 64.0 - - 61.7 4.4 Refinery Fuel and Losses - 180.3 - - 180.3 - Total 228.6 3002.9 1466.0 205.6 4147.1 344.8 a/ Preliminary estimate based on RECOPE data. b/ RECOPE only. Does not include amounts marketed by independent importers, which account for about half of the LPG inarket. c/ Asphalt and gasoil. 1/ The San Jose Accord of August 1980 provides that Costa Rica will purchase crude oil from Mexico and Venezuela on a 50/50 basis at a set price. In return, the sellers extend to Costa Rica a credit line equivalent to 30% of the oil bill at 4% a year with a five-year term. If these funds are applied to development projects, particu- larly energy projects, approved by the lenders, the terms are softened to 2% a year with a 20-year term. These terms were changed in June 1983. Currently a credit line of 20% of the oil bill is available at 8% for a five-year term. For approved projects, the interest rate is 6% a year with a 20-year term. To the mission's knowledge, the softer terms for the financing of PEMEX's drilling contract have been requested, but they have not been approved yet by the Mexican Government. -28 - 3.13 A review of RECOPE's import costs (shown in Table 3.3) suggests that the actual f.o.b. costs for all grades of crude oil and petroleum products are in line with prevailing costs in the area, if consideration is given to the freight costs involved. More attention needs to be given to demurrage charges which in 1982 averaged $0.32/bbl for Lago Treco (Venezuelan) crude -- almost all of it occurring on one cargo loaded in September, 1982. This unusually high charge and the other lesser ones apparently stem from a problem with the Central Bank's scheduling of the release of letters of credit to purchase the crude. While this is a direct result of the country's scarcity of foreign exchange, a delay of a few hours in the arrival of a letter of credit can often result in a total delay of several days because the vessel loses its place in the queue. In 1982, the cost of such delays amounted to $673,000, or 0.4% of the oil import bill. The rnission supports the ongoing effort between the Central Bank and RECOPE to work out an arrangement whereby this unnecessary expense can be saved. Table 3.3: Petroleum Import Costs, 1982 Volume FOB Cost Freight Demurrage Insurance CIF Cost ('000 bbls) $/bbl $/bbl $/bbl $/bbl $/bbl Lago Treco Crude 1567 35.14 0.81 0.32 0.02 36.30 Laguna/Tia Juana Crude 177 22.39 0.75 0.02 0.01 23.18 Isthmus Crude 1302 32.49 0.81 0.05 0.02 33.37 Total Crude Oil 3046 33.27 0.81 0.19 0.02 34.28 Diesel 1091 37.79 0.77 0.07 0.02 38.65 Gasoline 303 39.08 0.80 0.00 0.02 39.90 Other Products 72 49.77 3.92 0.13 0.04 53.86 Total Products 1466 38.776 0.97 0.06 0.02 39.80 Total Crude and Products 4616 35.13 0.86 0.14 0.02 36.16 3.14 The prospects for producing crude oil domestically are modest While the country has 37,300 km2 of sedimentary basins (21,500 km onshore and and 15,800 km2 offshore at less than 200 m depth), about 55 wells already have been drilled and commercial exploration was abandoned in 1975 (IBRD map 17338). In 1981, petroleum exploration again was given a boost with the favorable financing available under the San Jose Accord. RECOPE has launched a $28.3 million exploration program for 1982-86 with PEMEX as the main contractor under a $10 million drilling contract. The World Bank is also supporting this exploration program - 29 - under the Petroleum Sector Technical Assistance Project (Ln 2019-CR) budgeted at $3 million. RECOPE's investment program is summarized in Table 5.3. 3.15 The Government's strategy is to put together an information package that will serve as the basis for defining the country's petroleum exploration policy and to strengthen its position in negotiating with foreign exploration firms. As part of this strategy, the Government is preparing a new Hydrocarbons Law that will provide the legal framework for structuring the petroleum industry in Costa Rica and for negotiating contracts with private exploration firms. The Bank has discussed its views with the Government on certain aspects of the draft law that should be reconsidered to facilitate the objective of attracting foreign investment. In general terms, the Bank has recommended that the following points be considered: (i) the need to leave room for flexibility in negotiating the exploration and production contracts; (ii) the need to consider other types of contracts (concession/- participation type) which are simpler than and equally satisfactory from an economic point of view as the production sharing-type agreements contemplated in the draft; (iii) the need to favor the commerciality of smaller and more expensive fields that are likely to be found in Costa Rica; (iv) the adjustment of fiscal regulations to avoid double taxation of foreign exploration firms; (v) the need to increase exploration acreage limitations and exploration and production periods; (vi) the need to give natural gas discoveries the same consideration as oil discoveries. 3.16 The largest component of RECOPE's exploration program was the drilling of the San Jose-i well, in the Talamanca area south of Pto. Limon, which began in July 1982. The well was programmed to reach 6000 meters and test some Eocene and Cretaceous formations. Drilling proceeded very slowly due to logistic problems encountered by PEMEX that led to shortages of drilling materials and spare parts at the site. In August 1983 the hole was 4702 m deep when the drilling tool got stuck. Because of technical difficulties the well is expected to be abandoned after testing, perhaps, some interesting formations between 3600 and 3900 meters. 3.17 The prospects are more encouraging with regard to 33 stratigraphic wells drilled by Union Oil/Gulf Oil in the 1960s in the Limon Sur basin (near the border with Panama) where some definite oil and - 30 - gas shows are present. On I:he basis of work done under the World Bank's Petroleum Project, RECOPE has prepared a two phase program to evaluate the possibilities for developing the hydrocarbon potential of this basin. Phase I contemplates the drilling of about 10 shallow stratigraphic wells in the Camp Diablo area, where there are significant oil seeps. Phase II envisages a 13 to 17-well drilling program in the Uatsi-Cocoles area. Phase I deserves the highest priority because of the possibility of some modest near-term oil production. The technical and economic merits of Phase II should be evaluated after ongoing geological/geophysical and other studies are completed. 3.18 In addition to the petroleum exploration program, about half of RECOPE's investment budget is devoted to expanding and improving its 15,000 bbl/day refinery, port facilities, pipeline network and distribution centers. The refinery was built in 1966 and has been expanded and upgraded since then but remains unintegrated and somewhat inflexible. RECOPE has nearly finished modifying its 5000 bbl/day thermocracker which had been improperly designed and had never operated. This investment wvill increase the flexibility of the refinery by allowing it to eliminate the existing fuel oil surplus while increasing the production of diesel and gasoline. It also would allow the option of running heavier crude oils while still balancing refinery output with the country's requirements, except those for diesel, about 30-40% of which will still naed to be imported. 3.19 The main issue regarding the refinery is that (in common with most simple, and even very large, refineries in the world today) it is not economic when compared to the cost of direct product imports. Table 3.4 provides a comparison or costs of the four principal products based on refinery gate costs (as allocated by RECOPE) and supplies from the Caribbean. The average differential weighted by product demand in Costa Rica would be about US$0.15-16/gal., or some $6.40/bbl. If crude prices drop no further after the recent OPEC reduction ($5.00/bbl in the case of Venezuela, $3.50/bbl for Mexico), Costa Rica's refinery gate cost structure will still be sonLe $2.4/bbl higher than products landed from the Caribbean. This difference, which amounts to $7 million/year, suggests that it might be appropriate for the Government to review RECOPE's current refinery policy of minimizing surplus fuel oil. Even taking into account the completion of the refinery modifications (including a capacity expansion to 17,000 bbl/day) that are currently under way, the refinery is r.ot expected to be economical unless there is a significant increase in the difference between petroleum product prices and crude oil prices. Because of these continuing economic costs of maintaining the refinery, RECOPE has been broadening its refinery policy to that of a petroleum product supply policy, i.e. petroleum products should be obtained at the lowest cost consistent with physical and policy constraints. - 31 - Table 3.4: Product Cost Comparison, February 1983 ($/gallon) Landed from Caribbean RECOPE Refinery a/ % of Posted Spot Gate Cost Border Prices b/ Gasoline 0.85 0.79 1.01 119 Diesel 0.82 0.76 1.03 126 Kerosene 0.92 0.83 1.13 123 Fuel Oil 0.57 0.55 0.70 123 a/ Based on RECOPE allocations of raw rnaterial and refining costs, February 1983. b/ Border prices are landed from Caribbean prices (posted). 3.20 The improvement and refinement of RECOPE's petroleum product supply policy will require a comprehensive study of Costa Rica's petroleum supply alternatives, which may or may not inc'ude the continued operation of the refinery. Thus, the study should focus on the following areas: (i) Alternatives to the Refinery: Options that should be considered are mothballing the refinery until international petroleum product prices permit it to operate economically, and (a) relying entirely on direct product imports pur- chased in the spot market, or (b) possible implementation of a regional petroleum products supply scheme under which Costa Rica could be acquiring petroleum products under the same or similar conditions as it is now importing crude oil under the San Jose Accord. These options should be compared with the continued operation and improvement of the existing refinery. (ii) Crude Oil Selection: comparison of the present slate, 51% Lago Treco, 43% Isthmus, and 6% Laguna/Tia Juana Heavy (which are used exclusively for asphalt production), with alternative, internationally traded crudes which have higher yields of diesel. This analysis would also have to consider the financial benefits of the current supply arrangement under the San Jose Accord. (iii) Refinery Equipment: - a comprehensive test of current equipment capabilities and operating procedures; - identification of inefficiencies and bottlenecks; - 32 - - study of major alternatives for additional low-cost refinery modLfication aimed at increasing the efficiency and reducing the redundancies of existing facilities. (iv) Product Markets: - a review of product specifications to determine whether the current ones really reflect true quality require- ments of end users. Some of the specifications restricting :he flexibility of refinery operations may be unrealistic and unnecessary; - a review of the product pricing structure with a view to encouraging product requirements to shift into closer balance with actual and planned refinery capabilities and/or to minimize direct product import costs. This review should be coordinated with and form a building block for the pricing policy study recommended for DSE (para. 5.13). 3.21 As a final point ir. this review of the petroleum sector, it should be noted that, since the mid-1970s, various promoters have been trying to interest the Government of Costa Rica (and also those of Honduras and Guatemala) in the construction of a transisthmus pipeline to transport Alaskan crude oil from its source to the United States Gulf Coast. RECOPE has reviewed projects like these since 1974 and found them to be unattractive because Panama has a better route and because the need for such a pipeline is based on the United States ban on exporting Alaskan crude which can be revoked at any time. Furthermore, an 800,000 bbl/day pipeline already has been operating in Panama since October 1982 and appears fully capable of neeting the current demand for transisthmic pipeline services. If this demand were to increase, expanding the Panamanian line through extra pumping and looping probably would be much more economic than a grass roots Costa Rican project. The Potential for Coal Resources 3.22 In addition to its petroleum-related activities, RECOPE recently has taken over Costa Rica's coal resources program. This program was launched by ICE in 1981, when an agreement was reached to obtain Japanese technical assistance for a preliminary survey and prefeasibility study in the Baja Talamanca basin souih of Pto. Limon, the most promising coal area in the country. This study indicated a low potential for this geologically complex zone except for one gently dipping seam, the Volio #9, which showed a thickness of 2m over a 1 km outcrop, with an estimated "proven" reserve of about 600,000 tons, of which about half could be recovered. The quality of the coal, at 0.53 toe/ton is sub-bituminous with 12% moisture, 10% ash and 1.2% sulfur contents. Technically, this reserve could be mined on a small scale, but it would be a high-cost operation requiring substantial investments for drainage, ventilation, underground haulage and access roads. As the study suggested that the development of coal resources is unlikely to be economical for either power generation or the export market, both ICE and the Japanese Government lost interest in any further coal exploration in Costa Rica. - 33 - 3.23 RECOPE's interest in this program is based on coal's perceived potential as a substitute for fuel oil, primarily in cement plants, but perhaps also for power generation in the long term. With the assistance of USAID, which is funding $715,000 worth of consulting services, RECOPE has begun a three-year exploration program which includes a wide ranging geological survey, and feasibility, transport and market studies. The first year 1984 budget is set at $740,000. Basically, RECOPE will provide 14 counterpart staff, plus drilling rigs and logistic support. However, the cement industry has been importing petroleum coke at $65/ton (equivalent to about $41/ton of coal at 0.53 toe/ton) delivered at the plant, equivalent to about $26/ton of coal at mouth of mine in the Talamanca area. Moreover, the power sector is currently developing geothermal resources at an estimated cost of $2200/kW installed. For coal to be competitive, it would have to be priced at $17-28/ton, and (for a 100 MW plant) offer a reliable supply of 180-200,000 tons/year, which requires proven reserves of nine to ten million tons. 1/ Thus, coal development from Costa Rica's known coal resources is not likely to be economical in the near term. Furthermore, a coal mining project in the Talamanca area also would have to deal with the possible environ- mental hazards of acid mine drainage into the Sixaola River, which forms the border with Panama, or a series of smaller streams, all of which flow into the Caribbean at or near Cahuita National Park, Costa Rica's only coral reef and a growing tourist attraction. Given the imperative need to channel scarce investment resources to projects with the greatest likelihood of a high economic return, the use of Government funds for the coal exploration program needs to be reconsidered. The Potential for Fuelwood and Charcoal Production 3.24 Between 1970 and 1980, fuelwood and charcoal declined from 46% of total energy consumption to 31%, but this trend apparently has been reversed as a direct result of the sevenfold nominal increase in the retail price of competing petroleum products since 1980. While the price increase amounted to only 60% when expressed in dollars, the mission found widespread evidence of a radical transformation in the market. From being a declining product that met the needs of the rural population and some cottage industries (where they were being replaced by diesel), 1/ Based on ICE's current geothermal cost of $2200/kW installed, including exploration and drilling costs, estimated operation and maintenance (O&M) costs of about 2.5% of capital cost, plant life of 15-25 years, a discount rate of 12%, and a load factor of 80%, which results in an electricity cost of $0.047-0.053/kWh. A comparable 100 MW coal-fired power plant would cost about $1600/kW, have a life of 25 years and O&M costs of about four percent. Assuming the same plant factor and discount rate, this results in a capital and O&M charge of $0.038/kWh, which suggests that coal costs have to be below $0.009-0.015/kWh if it is to be competitive with geothermal energy. Assuming a plant efficiency of 29%, this results in a coal price ceiling of $17-28/ton delivered at the plant. - 34 - fuelwood became the fuel cf choice for the coffee dryers, small sugar mills, other small industries, and charcoal the choice of a number of restaurants and urban users. The recent growth in demand by industrial users has led to a fragile equilibrium between fuelwood consumption requirements and production capabilities and has brought about a significant increase in prizes paid by industrial users and the one-third of residential users that purchase their fuelwood. Minor difficulties in obtaining fuelwood are being experienced in some areas such as San Jose and Guanacaste, and a pricE spread by location is evolving with a range of $6.50/ton to $13.00/ton. The average price of $9.75/ton (equivalent to $23/toe) is still quite inexpensive compared to diesel at $0.43/liter ($497/toe), fuel oil at $0.14/liter ($146/toe) and LPG at $0.37/liter ($612/toe). A comparison of the economic costs of major boiler fuels adjusted for representative end-use ef ficiencies shown in Table 2.4 suggests that the recent increase in fuelwood usage is not a temporary phenomenon. This raises the need to review the extent to which the recent increase in consumption could lead to a major disruption in the existing supply arrangements (discussed in para. 2.20) that meet the needs of 40% of the population and which could also exacerbate the deforestation problem. 3.25 A major consideration for this review is the extent to which charcoal production might increase from its 1981 level of about 9,100 toe, which required 24,100 toe of fuelwood to produce, or about five percent of total fuelwood production. The recent introduction of beehive type kilns designed and improved by the ITCR has stimulated the estab- lishment of a modern charcoal producer in San Vicente de Moravia, with a current production capacity of about 20 tons/month (equivalent to about 150 toe/year), which can ea.sily be expanded. This producer has found a natural market for charcoal among urban households who use it for barbecues and commercial establishments such as restaurants and bakeries. The current sale price of $2.27/bag of 30 kg (about $117/toe) compares favorably with LPG at $0.37/liter (about $612/toe), kerosene at $0.39/liter (about $469/toe) and electricity at S0.058/KWh (about $674/toe). This large difference in price compensates many users for the inconvenience associated with using charcoal and could encourage a growing number of commercial establishments to adopt 't. Most of this growth in charcoal demand would be concentrated in the Central Valley, where the supply of fuelwood (and sawmill wastes) is already constrained. 3.26 The combination of the recent and potential increases in demand by coffee dryers, sugar mills, charcoal producers and others suggests that the supply/demand ec uilibrium for woodfuels may be nearing a critical stage, especially in the Central Valley. The mission's impression of a rapid transformation in the fuelwood and charcoal market needs to be further investigated to define its extent and characteristics and the relationship, if any, between fuelwood use and the deforestation problem. Studies like those planned by DSE and CATIE with technical assistance from USAID should shed some light on the woodfuel economy and the role of private incentives and commercial woodfuel trade on either promoting reforestation or accelerating deforestation. The results of these studies should help define the need for additional policy measures. - 35 - 3.27 Given that the available supply of prunings from the farms and slabs from the sawmills already is being fully utilized, any increase in fuelwood and charcoal use will have to come from the diminishing reserves of natural forest. Only 27% of the land of Costa Rica is now covered by forest (down from about 50% in 1970), 19% of which is located in forest reserves to protect slopes and water courses (IBRD map 17337). The eight percent of the area remaining as exploitable forest land is being deforested at the rate of one percent a year, two-thirds of it by illegal cutting which will deplete it in just a few years. The driving force behind deforestation is the strong demand for land rather than timber or fuelwood, and a complex web of issues involving cattle-raising practices, land tenure rights and settlement policies that are crucial to the resolution of the deforestation problem but beyond the scope of this report. 3.28 The most economical option for reforestation in Costa Rica is likely to be one of natural regeneration and second growth forests. The land and climate are reported to be ideal for natural regeneration. This option will require the development and enforcement of a forest manage- ment program that is linked to an overall land use strategy. As an important step in this direction, the DGF, with technical assistance from the USAID, is currently in the process of starting up a pilot forestry project for large scale production in Sarapiqui which is intended to test and demonstrate techniques for managing heterogeneous tropical forests for timber production. 1/ 3.29 As a complement to an improved management of natural forests, the Government should encourage the planting of trees on private lands as a buffer against the possible deterioration of the current supply equilibrium that may yet result from the increased use of fuelwood that followed the recent petroleum product price increases. As a first step in this direction, the DGF and CATIE, with technical assistance from USAID and the U.S. Peace Corps, have established a series of nurseries, test plantings and demonstration plots to encourage farmers and rural inhabitants to become self-sufficient in fuelwood and possibly develop marketable products (poles, fruits, fuelwood for sale to coffee dryers, sugar mills, charcoal makers, etc.). This activity appears to be going well and deserves the Government's continued support. While this program would not be sufficient to meet the fuelwood requirements necessary to support a massive conversion of industry (e.g. a cement 1/ The pilot forestry production project forms part of the $15.6 million, five-year, Natural Resources Conservation Project, which has received $9.8 million from USAID. In addition to the forestry component, the Project includes components dealing with cattle and range management on small and medium-sized farms, a soil conservation demonstration and fruit tree extension program, a credit program for pasture and cattle improvement and reforestation, the preparation of land use plans for five selected areas, and assorted training and technical assistance activities. - 36 - plant) to fuelwood or charcoal, it should be sufficient to maintain supplies for current users. A shift by major industrial users would require the establishment of large fuelwood plantations, which are currently not being contemplated. 1/ 3.30 Another resource that needs to be utilized is the estimated two million tons of wood (860,000 toe) that are wasted each year by land clearing operations. 2/ This represents a significant supply that should be considered for charcoal making with portable kilns. Its utilization could be tied to the Government's land tenure policies which favor land clearing by squatters in search of pasture and tillable land. The commercial species could be harvested as they are now (legally or illegally), and the residues and non-commercial species used as feedstock for the charcoal kilns. This opportunity could be stimulated through technical assistance, and other measures designed to attract operators into this business. 3.31 A new technology that is being considered in Costa Rica is the application of wood or charcoal gasifiers as gas producers for running internal combustion engine generator sets. The first demonstration project, jointly sponsored by ICE and the DGF and funded by USAID, is planned in Horquetas de Sarapiqui (a district of 1400 inhabitants) and will use the woodwaste produced by the Sarapiqui forest management project to fuel 2 x 60 kW gasifier-cum-generator sets. As a demonstra- tion project, its operations will be carefully controlled and monitored. A one-to-two year period is planned for proper evaluation, after which ICE plans to extend the grid to Horquetas under the Rural Electrification Program. A second project, sponsored by the Instituto Technologico de Costa Rica (ITCR) with assistance from the Citizen's Energy Corp (USA), will demonstrate a different charcoal-based gasifier- generator set. If these two demonstration projects go ahead, they will cover the range of gasifier technologies and provide potential users with an excellent data base on which to evaluate their economics. Given the continued progress of the Rural Electrification Program, there is a question as to the number of potential sites with the suitable concentration of woodfuels and population where the gasifier technology would be applicable and economical. As there appears to be some difficulty in finding a site for the ITCR project, it could be that there 1/ Based on the experiences of DGF and some private firms, the costs for establishing and operating a fuelwood plantation (1600 trees/ha) in Costa Rica are as follows: Cost to establish $310/ha 1st year operating cost $224/ha 2nd year operating cost $167/ha 3rd year operating cost $48/ha Total first three years $749/ha 2/ Alternatives de Desarrollo Energetico, Periodo 1981-2000 - 37 - isn't enough of a market for these technologies in Costa Rica even if the demonstrations are successful. In view of this risk, it is recommended that an inventory of potential sites be prepared and evaluated before any local investment funds are committed to these projects. A more complete study of industrial applications for gasifiers is being contemplated by DSE. Prospects for New and Renewable Energy Sources 3.32 Costa Rica has a very extensive network of vendors and engineers that make available to the marketplace the latest energy options from the larger international markets. In addition, the research and development activities of Costa Rican universities are very much directed to solving the energy needs of industries and households. Overall, Costa Ricans appear to be well-informed about the potential for the new energy technologies and are moving ahead at a prudent pace to implement them. 3.33 Solar energy systems designed and built in Costa Rica are being sold commercially. Water heating systems for homes and industry are available in competing designs as are air heating systems for crop or wood drying. As noted in para. 2.05, the saltworks, which used to account for half of industrial fuelwood use, converted to solar energy in 1976. The solar grain drying systems being developed present an interesting spread in complexity. A simple passive design has been developed with US Peace Corps assistance, which uses a wooden frame and polyethylene sheets that give relatively low efficiency (10-20%) and short lifetimes but are very inexpensive. More elaborate designs with efficiencies of 40% which use fans for air circulation and humidity control already are being demonstrated with technical assistance from the Universidad Nacional. A recent study by ICE, with consultant assistance financed by the Bank, has concluded that the solar generation of electricity is not economic at present and recommends an extension of the solar measurement and data processing network. In sum, the implemen- tation of solar systems is proceeding at a prudent rate in all applications that make economic sense. Accelerated implementation is not necessary at present. 3.34 Wind driven water pumps have long been used in Costa Rica and still constitute the only economic niche for wind energy. Extensive wind measurements have been made, and a few areas of high wind energy 1/ have been identified around some passes in the Cordillera de Guanacaste. Here again, the recent ICE study has concluded that the wind generation of electricity would be premature at this time and recommends implementing an extended wind measurement program to prepare for the time when Costa Rica will run out of low-cost hydroelectric and geothermal sites. 3.35 Biogas production from animal manure and agricultural residues is receiving adequate attention. Demonstration units have been 1/ Areas with mean wind velocities over 7 m/second. - 38 - successful and commercial imp:Lementation is under way, primarily in dairy farms and swineries. The "plastic bag" design is favored, and more than 50 units are reported to be operating. The coffee dryers are also experimenting with the biodigestion of coffee pulp, which has a theoretical potential for meeting up to 80% of the energy needed for coffee drying. The Centro de Investigaciones del Cafe that is running these experiments is aware of past difficulties of digesting the pulp but feels that proper aging of the pulp, the use of internal devices to inhibit stratification and ensure proper flow, plus the use of solar heating can make that program a success. Here again, the right combination of university, Government and industry forces is promoting the technology, and as long as it looks economically attractive, implementation will continue. No additional outside assistance should be required. 3.36 ICE recently has completed a study of the potential for economically developing mini-hydroelectric (below 1 MW) plants, with consultant assistance financed by the Bank. Starting with a list of the 496 settlements that were not to be connected under the second (1981- 1983) phase of the National Rural Electrification Program, the study identified two sites that had sufficient population density and favorable hydrologic conditions to merit a detailed analysis. The first of these sites (already served by a diesel set) had to be discarded because power generation would have conflicted with extensive gold mining activities, and the second, because a closer analysis showed that the least cost solution would be an extension from the power grid. As a result, the study concludes that because of the extensive development of the national grid under the Rural Electrification Program, there are no sites left where the construction of new mini hydro plants (in addition to seven-odd existing ones) would be economical. 3.37 Urban refuse was once considered a possible energy source, especially for power generz.tion. Here again, ICE with consulting assistance financed by the Bank recently studied the quantity and quality of the refuse available in the Central Valley, and concluded that urban waste incineration for elecl:ricity production is not feasible. The estimated heat content of the available refuse, about 0.07 toe/ton, is only about half of what is required for self-contained incineration. Supplementary fuel, such as fuel oil, would be required to sustain combustion. This would not be an economically competitive electricity source in Costa Rica. 3.38 Alcohol production from sugar and molasses also was considered a possible energy source, of interest because it could be used as a substitute or extender (in the form of gasohol) of gasoline. This alternative recently has beea tested in Costa Rica. In 1977 CATSA (a subsidiary of CODESA) built, a 240,000 liter/day alcohol distillery (valued at about $15 million) at its sugar mill near Liberia in Guanacaste. However, the distillery operated at only five percent of capacity in 1980 and 198L (to produce alcohol at an expensive US$0.77/liter, equivalent to $1513/toe) because there has not been sufficient cane grown in the area to meet the needs of both the sugar - 39 - mill and alcohol plant. Problems also arose on the consumption side, particularly from the use of old sludge filled storage tanks which are also subject to water infiltration. Vehicle operators experienced many problems and gasohol acquired a negative image, with the result that only five out of the original 33 stations are still selling gasohol (mostly to Government fleet vehicles). The distillery is now closed and the Govern- ment should evaluate what to do with the plant. This evaluation will have to consider the long term economic cost of ethanol production, which requires a careful consideration of alternative land use patterns in the country, and a detailed analysis of the foreign exchange implications of a large scale switch to gasohol. 1/ As a result of this experience, gasohol is not likely to be making any substantive inroads into gasoline sales in the immediate future. 1/ Recent studies have suggested that the foreign exchange savings may be negative. See Villasuso, I98% and Gelis at al- 1981- - 40 - IV. ENERGY PRICING Institutional Mechanism 4.1 Energy sector prices are regulated by the Servicio Nacional de Electricidad (SNE), an organization founded in 1928 which reports directly to the cabinet. IL has regulated the power industry since 1941 and the petroleum company since 1981. Its main regulatory tool is the control of prices. Basically, whenever ICE and RECOPE need a price increase, they submit a proposal with appropriate justification based on their financial requirements. SNE reviews the proposal, verifies its justification, and sets the price on the basis of the twin objectives of ensuring a reasonable rate of return to the companies (about 10% on revalued assets), and protecting energy consumers from being overcharged or charged for expenses that are not directly related to the supply of energy. Under this system, SNE gives priority attention to the overall level of power and petroleum product prices (i.e. the projected revenues of the companies, while the structure of prices has evolved on the basis of historical precedent and occasional directives from the Cabinet. In view of the desirability of also considering the structure of energy prices in a systematic way, the Government recently has declared its intention to implement a comprehensive energy pricing policy that would take into account the country's long term development needs. The formulation of this pricing policy should be a priority task for the new Directorate of Energy (DSE), as it will provide SNE with the guidance that it needs for setting the relative structure of energy prices. Power Tariffs 4.2 The system for regulating power tariffs entered a period of strain in 1980, when the financial upheaval associated with accelerating rates of inflation and devaluation, heavy reliance on short-term foreign commercial debt, and reduced electricity sales growth made tariff adjustments lag behind ICE's self-financing targets, external debt- service requirements and rate-of-return covenants. Since the new Government took office, SNE authorized a series of tariff increases starting in June 1982 which amounted to 230% in nominal terms (doubling its average revenue from USSO.024/kWh in 1982 to a projected US$0.050/kWh in 1983), which combined with a small increase in sales would have allowed ICE to earn its target 10% rate of return and meet its debt service obligations as they had been renegotiated by the Government. However, in June 1983, in the face of strong popular opposition to the tariff increases, the Government reduced residential tariffs by about 40%, to their December 1982 levels, which lowered its average revenue to US$0.04/kWh. This loss in revenue forced ICE to stretch out the implementation of its investment program, and to seek further financing to help meet its debt payments. Even if this financing were to become available, additional tariff increases are needed to maintain ICE's rate of return at the covenanted level of nine percent. Both the Government and ICE understand the need for further tariff increases but are proceeding w±sth ca'itlcn. ICE already has applied for a nine percent - 41 - increase to be effective January 1984. Further increases will be needed in the following years (1985-87) just to achieve the convenanted rate of return. Additional increases related to future wage and salary adjust- ments may be expected. To clarify these tariff increase requirements, it is recommended that ICE work out a long-term financial restructuring plan in view of its current inability to meet its very high debt service requirements through tariffs alone. This would put it in a better position to meet its commitments and proceed with the implementation of its investment program albeit at a slower pace. Once the corresponding revenue requirements have been estimated, it is important for the necessary tariff increases to be implemented in a gradual but continuing manner, not only to avoid the need for drastic catch-up increases in the future, but also to safeguard the orderly development of the power industry. 4.3 The relationship between the current tariff structure and long run marginal costs of electricity is not known. However, while the direction and extent of cross-subsidization between user groups cannot be determined with accuracy, there exist some distortions that merit correction. Thus, for example, the transmission and distribution costs must be substantially higher for residential consumers than for industrial ones, yet under the tariff prevailing the second half of 1983, ICE's average tariff was US$0.036/kWh for residential users, US$0.042/kWh for large industrial users, and US$0.064/kWh for small industrial users. This particular tariff structure, which resulted from the need to ensure the continued financial viability of ICE in the face of strong popular resistance to residential tariff increases, provides the wrong signals in terms of the country's long term development needs. Thus, in addition to maintaining a sufficient level of revenues, as discussed in the previous paragraph, it is recommended that ICE develop a phased plan to adjust its tariff structure to reflect long run marginal costs, which has the advantage of encouraging the rationalization of energy-related investments as a function of the real cost of electricity to the users. As an important step in this direction, ICE is currently completing a study on load and customer use characteristics. This, combined with an update of the Bank-financed 1977 marginal cost study, should provide a sound basis for reviewing the power tariff structure. Petroleum Product Prices 4.4 The current system for regulating petroleum product prices has resulted in a price structure that covers the economic cost of supplying the products and, with the coming into operation of the refinery's thermocracker, minimizes the amount of cross-haulage (i.e. imports of diesel and gasoline and exports of fuel oil) in the supply system. Table 4.1 provides a breakdown of the price structure for petroleum products as of February, 1983. Item (l) is the refinery gate cost as computed by RECOPE from an allocation of total refinery costs based on the relative market value of products from major export refineries in the Caribbean. Item (3) represents the price that RECOPE actually receives and is based on SNE's cost allocation method which attempts to assign light crude costs and direct imports to light products, and heavy crude costs to fuel oil and asphalts. The difference between (3) and (1) is, therefore, the - 42 - profit or loss which RECOPE realizes on an individual product basis. Given that the current price structure covers the total costs of the imports, refinery and distribution system, the specific method used to allocate refining costs by product line is an arbitrary choice. Nevertheless, the approach used by RECOPE and reflected in item (1) is preferable because it gives the correct economic signals and makes for ease of comparison between the country's refinery gate cost and the level of prices in the regional product market. Items (4) - (6) are part of the cost of supplying petroleum products to the customer, of which RECOPE receives item (5) to cover its sales and administrative expenses. Items (8) - (10) represent revenue items for the Government, of which Item (9) has been allocated to RECOPE to finance its investment program and Item (10) has been allocated for the repayment of foreign debt incurred in financing past crude purchases., Table 4.1: Price Structure for Petroleum Products - February 1983 Gasoline Diesel Kerosene Fuel Oil A. PRICE BUILD-UP -------------- $/Gallon ----------------- (1) Refinery Gate Cost 1.03 1.03 1.13 0.70 (2) Refinery Profit (loss) 0.50 .08 (.03) (0.48) (3) Refinery Gate Realization 1.53 1.11 e.10 0.22 (4) Transport 0.04 0.04 0.04 0.04 (5) Sales and Administration 0.06 0.06 0.06 0.06 (6) Dealer Margin 0.09 0.09 0.09 - (7) Suppliers' Revenue 1.72 1.30 1.29 0.32 (8) Taxes 0.05 0.01 0.02 0.01 (9) RECOPE Investments 0.13 0.13 0.13 0.13 (10) Debt Service 0.34 0.34 0.34 0.34 (11) Retail Price 2.24 1.78 1.78 0.80 B. PERCENT OF BORDER PRICES a/ -------------------- %----------------- (1) Refinery Gate Cost 119 126 123 123 (3) Refinery Gate Realization 180 135 120 39 (7) Suppliers' Revenue 202 159 140 56 (11) Retail Price 264 217 193 140 a/ Border Prices are Caribbean posted prices plus freight to Pto. Limon (Moin). 4.5 As pointed out above, the regulation of RECOPE by SNE only dates from 1981, and there are still some fundamental differences in philo- sophy. The major differences are as follows: - 43 - (i) SNE insists that RECOPE's petroleum and coal exploration investments cannot be included in the rate base because they are not within RECOPE's legal mandate. It is recommended that this legal issue be resolved through an appropriate Government decree. (ii) SNE's legal mandate is to insist that prices be based on RECOPE's recovering a "reasonable return" on its assets. RECOPE's view is that it should receive sufficient cash flow to pay for all of its operations and investments. This difference has been magnified by the current need to reduce the debt burden accumulated by financing past crude purchases. As shown in Table 4.1, this requirement added $0.34 per gallon to the price of petroleum products. (iii) SNE and RECOPE are not in agreement on how to allocate total raw material and refining costs to each individual product. In Table 4.1, RECOPE's method is reflected on line (1) and SNE's method on line (3). Issues (ii) and (iii) will probably be resolved as the two institutions become more familiar with one another. Basically, SNE needs to strengthen its knowledge about the financial and accounting practices of the petroleum industry, and RECOPE needs to learn more about the financial information reporting requirements of a regulatory agency. To strengthen both institutions and accelerate their mutual familiarization process, it is recommended that they jointly organize a series of technical workshops on subjects of mutual interest, such as refinery cost allocation, accounting reporting requirements, etc. International technical assistance could be fruitfully used to bring in some of the necessary expertise. - 44 - V. INVESTMENT OUTLOOK AND PLANNING NEEDS Institutional Framework 5.1 Energy sector investmnents are largely carried out by government- owned companies and are subject to the final approval of the National Budget Authority. Power sector activities are carried out by the Instituto Costarricense de Electricidad (ICE), together with three distribution companies and four rural cooperatives. Refineria Costarricense de Petroleo (RECOPE) handles the importation and refining of crude oil and petroleum products, with the exception of LPG and lubricants, for which there are also independent importers and distributors. 1/ The market for fuelwood and charcoal is highly descentralized, as it is in the hands many farmers, sawmills, charcoal makers, transporters and retailers. Large scale reforestation for timber purposes, to the extent that it occurs, is carried out by the Direccion General Forestal (DGF) of the Ministry of Agriculture. Investment Trends 5.2 Since 1975, investment in ICE has amounted to about $570 million, and has taken up between 6% and 16% of total investments. Over the same period, RECOPE has invested about $190 million; its share of total investments has fluctuated between 0.5% in 1976 and 13% in 1981. As a percentage of GDP, energy sector investments have varied between 1.8% and 7.1% over the period. While these investments have brought about well equipped power and petroleum subsectors with substantial excess capacity in relation to current domestic requirements, there has been minimal investment in the forestry sector, and the rate of reforestation is far below the rate of deforestation. Table 5 summarizes the recent investment history of the sector. Power Investments 5.3 Costa Rica's power generating facilities will be -capable of meeting the country's electriLcity requirements until early 1989 on the basis of ICE's demand projection (shown in Annex VI). ICE's generation expansion program, which is based on an earlier projection, is shown in Table 5.2. 2/ As discussed in paras. 3.5-3.7, the scheduling of the Ventanas-Garita project (and all subsequent generation projects) is two years premature on the basis of the most recent projection of electricity demand, but the continued implementation of the project could be 1/ Imports of LPG soon will be carried out exclusively by RECOPE. 2/ In June 1983, as a result of the Government's 40% rollback in residential power tariff3 (see para. 4.02), ICE has postponed the commissioning of the Ventanas-Garita project to June 1987. Other revisions of ICE's investment program are in progress but the details are not known at the time of this writing. - 45 - justified if Costa Rica could be assured of timely and adequate revenues from export sales to neighboring countries. These markets need to be evaluated in the context of the country's overall development priorities, financial constraints and risks, and the Government's policy not to make power investments solely justified on export sales. The scheduling of the subsequent projects will have to be reviewed and possibly revised in late 1984 in light of the state of electricity demand and ICE's financial constraints at that time, and the progress of the geothermal reservoir evaluation work at Miravalles. The Boruca project is too large to be scheduled on the basis of incremental domestic power requirements and should be deleted from the current investment program unless it can be associated with a firm demand commitment such as from a large energy- intensive industrial project or from the regional export market. Table 5.1: Energy Sector Investments, 1975-82 (current US dollars, million) Total ICE's Power RECOPETs Year CDP Investments Investments Investments 1975 1961 431 24 11 1976 2412 565 46 3 1977 3072 687 72 5 1978 3523 811 72 23 1979 4035 1056 73 19 1980 4500 1075 114 18 1981 2775 656 108 89 1982 2519 465 63 20 Source: Analisis Financiero del Sector Energia, 1982, and Bank staff estimates 5.4 In addition to its generation investments, which add up to $809 million over the 1983-1989 period, ICE is implementing and planning a number of transmission and distribution projects, currently budgeted at $100 million. These include the interconnection with Panama (under construction), the Bank's Sixth Power Project, a further transmission project, and small-scale improvements and expansion of ICE's distribution system. As these projects are necessary to meet the growth in demand and improve the integration and efficiency of the grid, curtailing them is not advisable and also would involve the dismissal of valuable staff. The Second Phase Rural Electrification Program ($30 million) has very limited short-term economic benefits and could be considered for deferral on economic grounds. However, social benefits are significant and they help to justify the project. Financing to the extent of $26.5 million is available from the IDB's special fund under very attractive conditions. The local cost of $7 million over the 1983-86 period consists largely of fixed ICE (staff) costs. Table 5.2: ICE'S Electric Power Investment Program - 1982-1989 a! (US$ Million) 1982 1983 1984 1985 1986 1987 1988 1989 Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Generation Corobici Hydro 12.1 13.0 2.2 0.6 - 0.1 - - - - Ventanas-Garita Hydro 1.4 4.4 5.4 9.2 4.6 37.2 3.8 37.0 0.7 8.0 - - - - - - Miravalles Geothermal 0.6 - 1.2 5.1 0.9 3.7 2.9 8.0 3.6 18.6 10.6 35.5 10.1 5.0 - - Palomo Hydro - - - - - - - - 2.7 3.3 5.9 7.4 6.0 7.4 4.0 4.9 ArEostura Hydro - - - - - - - - 16.8 21.1 30.0 38.0 32.4 40.8 30.0 37.8 Boruca Hydro I - - - - - - - - - 43.8 31.3 57.9 41.4 51.6 36.8 Hydroelectric Studies 1.8 1.0 1.8 1.4 1.9 2.5 1.9 - 1.9 - - - - - - - Geothermal II - - - - - - - - 2.9 7.8 3.5 18.3 Transmission and Distribution Link to Nicaragua 1.2 2.1 - - - - Link to Panama 0.7 1.0 1.9 15.5 0.6 1.9 - - - - - - - - - _ VI Power Project 4.0 10.6 1.7 4.7 1.1 1.3 VII Power Project - - - - - - 1.6 - 2.8 5.9 2.3 13.1 0.4 2.9 Rural Electrification 0.4 0.1 1.9 13.8 3.1 6.8 1.8 0.5 - - - - - - - - Distribution ICE 7.5 0.7 2.8 - 2.7 - 2.7 - 2.7 - - - - - TOTAL ICE 29.7 32.9 18.9 50.3 14.9 53.5 14.7 20.9 31.2 56.9 92.6 125.3 109.7 105.3 89.1 97.8 a/ As of February 1983. - 47 - Petroleum Investments 5.5 Little is known about RECOPE's future investment program, as it was still working on its 1984 investment budget at the time of the mission. The most current information on RECOPEts investment plans is shown in Table 5.3. 1/ The scope and nature of RECOPE's petroleum exploration program, which was budgetted at $14.8 million for 1983, will depend on the final form of the Hydrocarbons Law being prepared by the Government. If the Government carries out its intention to transfer most exploration activities to the private sector, then RECOPE would only have to carry out the geological and geophysical studies necessary to attract foreign firms and strengthen the Government's position in negotiating with the firms. The pursuit of this strategy, which is supported by the Bank, would limit RECOPE's exploration related investments to about $5 million a year for the 1984-86 period. Any additional drilling investment beyond the current contractual commitments with PEMEX would have to be carefully evaluated on its economic merits. Table 5.3: RECOPE'S Investmert Program, 1982-1986 (US$ Million) 1982 1983 Exploration Geologic Studies 0.2 0.7 Geophysical Studies 4.9 4.1 Drilling 4.9 10.0 Infrastructure Refinery Improvements 3.5 3.0 Garita-Aranjuez Pipeline 1.5 1.7 Aranjuez Distribution Center 1.3 2.2 Other Distribution 3.6 3.5 Minor Investments 0.6 1.0 Total 20.5 26.2 a/ As of March 1983. The foreign resources available for this program are a $10 million loan from Mexico for petroleum drilling, and $3 million under the Bank's Petroleum Sector Technical Assistance Project (Loan 2019-CR). 1/ RECOPE is currently working on a detailed, multi-year investment program. - 48 - 5.6 With the completion of the ongoing refinery modifications expected in 1984, RECOPE's refining capacity of 17,000 bbl/day appears to be capable of meeting the country's requirements until the early 1990s. The current excess capacity combined with the uncertain state of the economy makes it impractical to attempt to develop a precise estimate of when additional capacity wilL be required. Moreover, as pointed out in para. 3.19, the Government should consider a policy of minimizing the cost of fuel supply to the economy regardless of what it implies for the continued operation of the refinery. To implement this policy, RECOPE should undertake a comprehensive study of Costa Rica's petroleum product supply alternatives. Such a study is urgently needed and would provide the basis for making decisions on future refinery investments and preparing an appropriate investment plan. Forestry Investments 5.7 The most economical option for reforestation in Costa Rica is likely one of natural regeneration and second growth forests (para. 3.28). Responsibility for this sort of activity rests with the Direccion General Forestal (DGF). The DGF has insufficient human and financial resources to carry out its considerable responsibilities in managing the country's forest reserves, enforcing the permit system for felling trees, and the reforestation program. The magnitude of these limitations is suggested by the fact that the DGF gave permits to deforest 22,355 ha (in 1980) and the actual deforestation is estimated at 70,000 ha. On the supply side, the target rate for reforestation is 15,000 ha/year, whereas the actual rate is about 3000 ha/year. 5.8 As a first step in addressing this problem, in 1981 the DGF, with the assistance of USAID, began a comprehensive five-year Natural Resources Conservation Project that would have dramatically increased its capabilities and slowed down the deforestation process (para. 3.30). However, because of financial constraints on the Government, this project (budgeted at $15.7 million aver five years, of which $9.8 million is financed by USAID) has lagged. behind considerably in implementation. As of end-1982, only about three! percent of the external resources had been disbursed. In view of the po3sible long-term implications of the defore- station problem on the fuelwcod supply/demand balance and the quality of the country's hydroelectric potential, it is recommended that the Govern- ment strengthen the flow of funds to DGF, at least to the extent neces- sary to ensure the smooth implementation of the Natural Resources Conser- vation Project. It is also recommended that DGF strengthen its project preparation capabilities in order to be able to formulate and justify its investment budget on the basis of solid economic criteria, in addition to social ones. Institutional REquirements for Energy Planning 5.9 The capital-intensive nature of the investments required by the energy sector, combined with the financial constraints faced by the Government, make it more imperative than ever that energy-related investments be prepared with the greatest care and concentrate on those - 49 - resources which promise the highest return, taking due consideration of the financial, geological and hydrological risks involved. Thus, the main issue facing the Energy Planning System is its ability to set and enforce uniform project preparation guidelines, prepare a strategy for the sector and coordinate the development of a balanced investment program, with appropriate priorities. 5.10 The Costa Rican Energy Planning System was reorganized in late 1982 to fit within the framework of the National Planning System. Under this framework, MIDEPLAN is charged with preparing the National Development Plan and the public sector investment budget, which it submits to the National Budget Authority for final approval. The sectoral Ministries are charged with preparing the sectoral development plans, and the sectoral institutions are charged with preparing their own investment budgets according to the guidelines of the sectoral plan. Within the Ministry of Industry, Energy and Mines (MIEM), the Energy Sector Directorate (DSE) is charged with preparing the Energy Sector Development Plan, as well as formulating energy strategies and policies, reviewing the preparation of the sectoral investment budget, coordinating international assistance for the sector, performing policy related studies, and maintaining sectoral information and a data base. Thus, the DSE has central responsibility for the Energy Planning System but to perform this function has to depend on the operating institutions in the sector for technical and financial support and on the MIDEPLAN (in its capacity as secretariat of the Budget Authority) for enforcement authority. This arrangement is consistent with Costa Rica's long tradition of extensive consultations and broad distribution of authority. For the DSE to exert its influence on the sector, it cannot depend on its statutory powers, but has to promote itself on the basis of the usefulness, objectivity, timeliness and technical quality of its work. Its ability to balance the interests of the sector and coordinate the preparation of an investment program remains to be tested. 5.11 To meet this test the DSE needs to consolidate its institutional framework. Since November 1982 it has been functioning under an interim arrangement that makes it functionally dependent on the Minister (MIEM), administratively dependent on RECOPE, and financially dependent on both ICE and RECOPE. The Government currently is considering a permanent legal framework that would establish the DSE and allow it to preserve its high technical capabilities, independence and technical objectivity. It is recommended that DSE's legal framework be approved as soon as possible. 5.12 As currently constituted, the Sectoral Planning System consists of a broad network of consultations at the ministerial, management and planning levels, but the sectors meet with each other only at the ministerial level. Thus, within the energy sector, the network of committees only involves the sectoral institutions. In view of the recognized importance of energy for the economy in general and energy users in particular, it is recommended that the commissions within the Energy Planning System be broadened to include the SNE as well as representation of major user groups, such as industry and transportation, and other sectors that are indirectly involved in energy production, such as agriculture and forestry. This representation should involve not only - 50 - government agencies such as MOPT and DGF, but also private sector repre- sentatives such as the Chamber of Industries. 5.13 As pointed out above, the Energy Planning System, specifically the DSE and the MIDEPLAN, have to rely on the operating institutions for technical support in evaluai:ing projects and preparing policies. This is indeed an efficient arrangement as the DSE, with its ten professional staff, cannot and need not maintain specialized technical experts in areas for which it does not have a continuing need. Nevertheless, the current system puts the tezhnical experts of the operating institutions in a position of conflict of interest, as they would be involved in reviewing projects of their own preparation. To minimize this sort of conflict it is recommended that the Government consider creating a mechanism such as a special account through which the Energy Planning System (hence, ultimately, the National Budget Authority) could. under appropriate circumstances, hire independent technical advisers to perform a technical appraisal of investment projects presented for approval. This would help to verify the validity of technical judgments involved in projects about which MIDEPLANI has some doubts, such as Miravalles Geothermal and Petroleum Exploration. 5.14 Regarding the DSE itself, it was started with high expectations, a remarkable level of financial and administrative support, but it has found itself swamped with short term crisis assignments and international technical assistance projects, and has not yet been able to do full Justice to its long term mission. This situation should improve with the recent appointment of two IJNDP-sponsored Energy Advisers, but for those Advisers to be effective and their capabilities to transfer to DSE's own staff, the DSE simply has tD give more attention to establishing its long term role. In the mission's view, the following activities should be given priority at DSE: (i) The formulation of uniform technical and economic criteria for preparing investment projects. Once these criteria which are necessary for justifying and placing the projects within the public investment program have been defined, the DSE could review the projects prepared by the sectors' institutions in the light of these criteria. Assistance of this sort is especially needed in the case of petroleum and fuelwood projects. (ii) The establishment of an energy information system with three components: an energy statistics collection, processing and publication system; a technical library; and a program to promote and inform the public about energy policies. Such an information system already has been launched with the publication of the 1965-1979 Energy Balances, and the 1980 Energy Sector Statistical Yearbook with PEICA assistance; this series needs to be continued. (iii) The development of a system to gather and adjust "bottom- up. forecast information that, in combination with macroeconomic growth parameters to be provided by the MIDEPLAN, would form the basis for preparing regular up-to- - 51 - date forecasts on energy demand to serve as a frame of reference for project preparation and investment planning. (iv) The formulation of an energy pricing policy consistent with the need to encourage the rational use of energy and with the priorities for socio-economic development. This policy should take into account the results of the updated long run marginal cost of electricity study (para. 4.04) and the comprehensive study of petroleum product supply alternatives (para. 3.22). (v) The preparation of a national energy strategy and the energy sector investment program. For these priority activities to receive adequate attention, the DSE needs to free its staff from its national counterpart duties for those international technical assistance projects that fall outside its prior- ity functions. These duties should be transferred to other qualified Costa Rican institutions, with DSE retaining only a coordinating role. Finally, the DSE needs to follow up on its own intentions to organize itself internally in such a way as to be able to respond quickly to short term requests without neglecting long term objectives. Planning Needs in RECOPE and ICE 5.15 RECOPE's planning and development staff are principally devoted to short-term project scheduling and control, and the day-to-day manage- ment of crude and product purchases, bunker sales, shipping arrangements, etc. They do not have enough time for any medium-to long-term planning. As a result, RECOPE has neither a supply plan (one to two years ahead), nor a corporate development plan (seven to ten years ahead) to use as reference guides. To fill this gap, RECOPE recently has intro- duced a new planning and project preparation procedure. The implemen- tation of this procedure, which should be extended to cover exploration activities, will require a substantial amount of training and technical support such as will be provided by the proposed refinery review (para. 3.19). It is recommended that this planning function be developed at RECOPE in addition to and in close coordination with the comprehensive, integrated sort of energy planning that is being contemplated by the DSE. RECOPE's corporate plan (and also ICE's) should be tied to the Energy Sector Development Plan through a pre-defined reporting cycle that should be repeated once a year. 5.16 To spread some of the risks inherent in the preparation of long term investment plans in a period of uncertain economic outlook, it is recommended that ICE present to the National Budget Authority (i.e. the MIDEPLAN) and the DSE the implications of alternative assumptions regarding future growth and specific financial and other risks associated with the adoption of alternative investment plans (see para 3.4). In this manner, ICE would provide them with a more solid technical basis with which to evaluate ICE's budget requests. It could also encourage the MIDEPLAN to improve its own economic forecasts so that they could be used as a frame of reference for preparing and reviewing the Energy Sector Development Program. - 52 - ANNEX I Page 1 of 4 BIBLIOGRAPHY Afonso L., P., Exploracion de Recursos Carboniferos en Costa Rica, Antecedentes y Situacion Ac:ual, 1981, San Jose, Costa Rica, Instituto Costarricense de Electricidad. Alternativas de Desarrollo Energetico, Periodo 1981-2000, 1981, PNUD- Programa Energetico del Ist-mo Centroamericano, San Jose, Costa Rica, Proyecto RLA/76/012. Analisis Financiero del Sector Energia, 1982, Secretaria Ejecutiva de Planificacion Sectorial de Energia (SEPSE), San Jose, Costa Rica, PNUD- DCTD, Proyecto COS/81/001. Anuario Estadistico Sector Fnergia 1980, 1981, Secretaria Ejecutiva de Planificacion Sectorial de Energia (SEPSE), San Jose, Costa Rica, PNUD- DCTD, Proyecto COS/81/001. Balance Energetico Nacional., Serie Historica 1965-1979, 1980, PNUD- Programa Energetico del Is:mo Centroamericano, San Jose, Costa Rica, Proyecto RLA/76/012. Biomass Energy, Final Report, 1983, San Jose, Costa Rica, Instituto Costarricense de Electricidad, Dir. de Planeamiento Electrico, Dep. de Estudios Especiales, Unpublished draft. Calderon C., E., 1983, Estudio Preliminar de Sustitucion de Bunker por Carbon Vegetal en la Industria Cementera. Cartago, Costa Rica. Instituto Tecnologico de Cosl:a Rica, Centro de Investigacion en Energia. Calderon C., E., M. de San Roman, 1982, Produccion de carbon a base de residuos forestales, Cartago, Costa Rica. Instituto Tecnologico de Costa Rica, Centro de Investigacion en Energia. Cantillo, M., E. Sibaja, 1982, Comentarios sobre el documento "Financial and Social Cost-Benefit Analysis of Biogas Production of the Small Dairy Farm in Costa Rica, John V. Dolan". Cartago, Costa Rica. Instituto Tecnologico de Costa Rica. ('entro de Investigacion en Energia. Celis U., R., R. Domingo B., L. F. Herrera, M. Vedova W., J. M. Villasuso, 1982, The Foreign Trade Deficit and the Food Crisis, Anticipated Results of an Aggressive Program of Alcohol Fuel Production in Costa Rica, Washington, D.C., Resources for the Future, Discussion Paper D-73H. Costa Rica: Economic Report, 1982, Inter-American Development Bank, Washington, D.C. - 53 - ANNEX I Page 2 of 4 Cussianovich, P., J. A. Aguirre, 1982, Economia y energia en Costa Rica: bases para el planteamiento de alternativas agroenergeticas, San Jose, Costa Rica. Instituto Interamericano de Ciencias Agricolas, Serie publicaciones miscelaneas no. 313. Dobles Mora, R., 1982, Politica Energetica y Desarrollo del Sector Energia en Costa Rica, San Jose, Costa Rica. Escoto, M., 1982, Informe General Sobre Produccion de Residuos de Madera y Reforestacion en Costa Rica. Cartago, Costa Rica, Instituto Tecnologico de Costa Rica. Centro de Investigacion de Ingenieria en Maderas. Borrador sin publicar. Estudio de Mercado para Utilizar Carbon Vegetal en la Industria, 1982, Cartago, Costa Rica. Instituto Tecnologico de Costa Rica, Centro de Productividad Industrial. Estudio Regional de Interconexion Electrica del Istmo Centroamericano, 1980, Naciones Unidas, Consejo Economico y Social, Comision Economica para America Latina, Comite de Cooperacion Economica del Istmo Centroamericano. Exploracion Petrolera, Antecedentes y Situacion Actual, 1981, San Jose, Costa Rica. RECOPE. Feasibility Study Report on Miravalles Geothermal Power Project, 1982, San Jose, Costa Rica and Fukuoka, Japan. Instituto Costarricense de Electricidad and West Japan Engineering Consultants, Inc. Forests and Forestry Issues in Costa Rica, 1983, San Jose, Costa Rica, Center for Tropical Science. Unpublished draft. Hydro and Geothermal Electricity as an Alternative for Industrial Petroleum Consumption in Costa Rica, 1982, Inter-American Development Bank, Washington, D.C. Inventario Preliminar de Proyectos y Programas en Nuevas Fuentes de Energia Renovable en el Istmo Centroamericano, 1980, Guatemala, Guatemala, Proyecto Energetico del Istmo Centroamericano. Jones, J. L., 1980, Trip Report Concerning a Preliminary Review of Biomass Energy Options in Costa Rica and the National Alcohol Fuel Program. San Jose, Costa Rica. USAID - Unpublished draft. Lemckert, A., 1981, El uso domestico de la lena en Costa Rica, Turrialba, Costa Rica, Centro Agronomico Tropical de Investigacion y Ensenanza, Serie Tecnica, Informe Tecnico No. 9 (Mimeo.) Lemckert, A., J. Campos, 1981, Produccion y consumo de lena en las peguenas fincas de Costa Rica. Turrialba, Costa Rica. Centro Agronomico Tropical de Investigacion y Ensenanza. Serie Tecnica. Informe Tecnico No. 16. (Mimeo.) - 54 4 ANNEX I Page 3 of 4 Matamoros M. F., 1982, Biogas, energia y abono organico a partir de residuos. Diseno y construccion de un biodigestor plastico. Cartago, Costa Rica. Instituto Tecnolcgico de Costa Rica, Centro de Investigacion en Energia. McNitt, J. R., 1978, The United Nations Approach to Geothermal Resource Assessment, Geothermics, Vol. 7, pp. 231-242. Mercado Electrico 1983-1995, 1983, San Jose, Costa Rica, Instituto Costarricense de Electricidad, Dir. de Planificacion Electrica, Oficina de Tarifas y Mercado Electricc. Meta Systems, Inc., 1982, An Examination of the Substitution of Woody Biomass Based Fuels for Oil in the Industrial Sector of Costa Rica. Cartago, Costa Rica. Instituto Tecnologico de Costa Rica. Unpublished draft. Minicentrales Hidroelectricas, Evaluacion Preliminar, 1981, San Jose, Costa Rica, Instituto Costarricense de Electricidad, Dir. de Planificacion Electrica, Dep. de Estudios Especiales. (Mimeo.) Minicentral Hidroelectrica para Providencia, Informe Final, 1982, San Jose, Costa Rica. Instituto Costarricense de Electricidad, Dir. de Planeamiento Electrico, Dep. de Estudios Especiales. Borrador sin publicar. Plan Nacional de Desarrollo 1982-1986 "Volvamos a la Tierra", 1982, Ministerio de Planificacion Nacional y Politica Economica, San Jose, Costa Rica. Plan Nacional del Transporte, 1981, San Jose, Costa Rica. Ministerio de Obras Publicas y Transporte, Direccion General de Planificacion - Systan International, Inc. Prefeasibility Study Report for the Baja Talamanca Coal Development Project. 1983, Tokyo. Japanese International Cooperation Agency. Unpublished draft. Programa Nacional de Planeiamiento y Desarrollo Energetico. 1982, Ministerio de Industria, Energia y Minas. Programa Nacional de Inversiones, Preinversion y Cooperacion Tecnica, Aspectos Globales y Sintesis de Proyedos. 1983, San Jose, Costa Rica, Ministerio de Planeamiento Nacional y Politican Economica. Unpublished draft. Proyecto de secado del cafe en Costa Rica, analisis de ur. sistema, 1982, Cartago, Costa Rica, Instituto Tecnologico de Costa Rica. Proyecto Hidroelectrico Boruca, Estudio de Factibilidad, 1980, San Jose, Costa Rica y Montreal, Canada, Instituto Costarricense de Electricidad y SNC-Acres-Tecsult Consorcio. ANNEX I - 55 - Page 4 of 4 RECOPE, Empresa integrada de investigacion y desarrollo energetico, 1982, San Jose, Costa Rica. RECOPE. Romijn, M., E. Wilderink, 1981, Fuelwood Yields from Coffee Prunings in the Turrialba Valley. Turrialba, Costa Rica. Centro Agronomico Tropical de Investigacion y Ensenanza, Programa de Recursos Naturales Renovables. (Mimeo.) Saenz M., A., 1981, Erosion, Deforestacion y Control de Inundaciones en Costa Rica, San Jose, Costa Rica, Universidad de Costa Rica, Fac. de Agronomia, Esc. de Fitotecnia. Sloop, J. L., 1981, Market Study for Conservat:ion and Renewable Energy Applications in Costa Rica, Dominican Republic, Barbados and Antigua, Upton, New York, Brookhaven National Laboratory, Contract BNL 543415-S. Solar Energy, Final Report, 1983, San Jose, Costa Rica, Instituto Costarricense de Electricidad, Dir. de Planificacion Electrica, Dep. de Estudios Especiales. Unpublished draft. Trindade, S. C., 1983, Alternative Liquid Fuels Utilization in the Central American Isthmus, Washington, D.C. Inter-American Development Bank. Unpublished draft. Valverde, J. E., 1982, Impacto en el S.N.I. del E'osible Cambio de Cocinas de Gas Propano a Electricas. San Jose, Costa Rica, Instituto Costarricence de Electricidad, Dir. de Planificacion Electrica, Dep. de Estudios Especiales. Unpublished draft. Villasuso E., J. M., 1981, La Produccion de Alcohol Carburante en Costa Rica: Evaluacion y Perspectivas, San Jose, Costa Rica. Universidad de Costa Rica. Instituto de Investigaciones en Ciencias Economicas. Serie Divulgacion Economica No. 22. Wind Energy, Final Report, 1983, San Jose, Costa Rica. Instituto Costarricense de Electricidad, Dir. de Planificacion Electrica, Dep. de Estudios Especiales. Unpublished draft. ANNEX II Costa Rica Fnergy Balance of 1970 (Thrusand Txts of Oil piivalekt) Pri-ry Energy Seconary Frgv FPehaaxd Agricltural Cal Hydro Crude Qarcoal Electricity Petroleum Prouchts Wastes & Coke Oil LPG Gisoline Keroene Diesel Fiel Oil Nt-Energy Total Line & Jet Fu1 Prodicts Total - .~.iiy Pro''i /1 C w a _ sa - _ _-_ _ - _ - - - 659.3 Isw~ta - - 0.2 - 308.8 - - 6.6 31.6 11.0 45.5 34.4 9.9 139.0 448.0 StodCAW- - - (2.5) - - - 2.1 (1.1) (5.1) 2.8 - (1.3) (3.8) Clcaire 1/ - -- - - (1.0) - - (0.2) 3.3 (1.9) (2.4) (6.1) - (7.3) (8.3) xe Supply Avaiable 473.5 105.0 0.2 80.8 305.3 - - 6.4 37.0 8.0 38.0 31.1 9.9 130.4 1095.2 E-itrol efni - - - - (294.0) - - - 61.4 18.4 117.7 96.5 - 294.0 0.0 C1rawaal Pro&lction (19.1) - - - - 19.1 - - - - - - - 0.0 E>lectric Piaer Genratin (2.7) _ (80.8) - 103.8 - - - (18.0) (2.3) - (20.3) 0.0 ' erion lss - - - - (11.3) (11.9) (15.4) - - - _ _ _ - (38.6) Tr__tslmDitrihitio losses 2/ - - - - - - (12.0) - - - - - - (12.0) Not Supply Available 454.4 102.3 0.2 _ _ 7.2 76.4 6.4 98.4 26.4 137.7 125.3 9.9 409.1 1044.6 Seonary Es- - - - - - - - - - (49.9) - (49.9) (49.9) Met stic Consuhtion 454.4 102.3 0.2 - - 7.2 76.4 6.4 98.4 26.4 137.7 75.4 9.9 354.2 994.7 twic 1 Ses±r lIdustry & Agriaitre 31.4 102.3 0.2 - - - 22.5 1.4 - - 15.2 57.3 - 73.9 230.3 r t -P- - - - - - 1.0 - 98.4 6.8 121.0 - - 226.2 227.2 iiiseold &&Coerce 423.0 - _ _ _ 7.2 51.4 5.0 - 19.6 - - - 24.6 506.2 Oter 3/ _- - 1.5 - - - 1.5 18.1 9.9 29.5 31.0 1/ IrIdes statistical discrep.xy arid physical lases in transit W storage. 2/ Inbhles pr plas,' sm amtion. 3/ Ichludes public sector institutions and c p q,tion of n-rengy petrolen prodcts. Source: Balace lretico Nhcional (1980) and Bark staff estimstes. ANNEX III Costa Rica FEergy Balance of 1975 (nxusand Ta?B of Oil Equivalent) Primay EnemF Secrrdsr FEwrgy Fuebiood Agriailtal coal Hydro Crude Charcoal Electricity Petrolenu Products wastes & Coke Oil IPG Casoline Xercsere Diesel Fuel Oil Nle-Erirgy Total Lire & Jet Fuel Pro&scta Total Gnuss aUplY Prlmry Producti 474.8 113.6 - 111.7 - - - - - - - - - - 700.1 Imports - - 0.3 - 279.2 - - 9.3 86.1 8.3 230.1 11.1 14.1 359.0 638.5 StodL - - - - (4.1) - - - (11.7) (0.3) (16.3) (1.6) - (29.9) (34.0) Cloure 1/ - - - - 0.1 - - 0.1 (2.7) (0.4) (2.4) 2.5 (1.1) (4.0) (3.9) Gr(.s Supply Avilable 474.8 113.6 0.3 111.7 275.2 - - 9.4 71.7 7.6 211.4 12.0 13.0 325.1 1300.7 conversion Petrolem Refiing - - - - (266.0) - - 3.3 62.3 22.D 63.1 110.8 4.5 266.0 0.0 C1arcl Productio (21.1) - - - - 21.1 - - - -. - - - 0.0 Electric Poer Garatin - (2.6) 0 (111.7) - - 181.9 - - - (50.3) (17.3) - (67.6) 0.0 Goarsin Is - _ - - (9.2) (13.1) (50.3) - - _ _ _ _ _ (72.6) m_ n/ati bution 2/ V - - - - (17.8) - - - - _ _ _ (17.8) Net Suply AaLable 453.7 111.0 0.3 - - 8.0 113.8 12.7 134.0 29.6 224.2 105.5 17.5 523.5 1210.3 Seodary t - - - - - - - - - - - - - Net D1 tic Co( nticn 453.7 110.0 0.3 - - 8.0 113.8 12.7 134.0 29.6 274.2 105.5 17.5 523.5 1210.3 (nmtion by Sector Incitry & Agrilure 34.4 111.0 0.3 - - - 33.8 2.8 - - 32.1 85.6 - 120.5 3)0.0 Tranport - - - - - - 0.8 - 133.9 10.6 190.8 - - 335.3 336.1 oushlds & Comere 419.3 - - - - 8.0 76.4 9.9 - 19.0 - - - 28.9 532.6 Other 3/ - - - - - - 2.8 - 0.1 - 1.3 19.9 17.5 38.8 41.6 1/ TnIlun atntiatical discrepany and physical lenss in transit i storage. 2 n clude powr plants' awn conmption. 3/ Inclh public sector institutions and osumptim of mr-energy petroleun pro&scts. Source: Ra1- Hnermtico Naional (1980) and Bank staff estimates. ANNEX IV Costa Rica egv Balanc of 1980 (Tmusand Tcnm of Oil Equivalent) PrimnrY Erw Sedary lnrgy Me3lod Agriajituwal (al Ibdro Crude CharoDal Electricity Petrolemu Proaucts Wastes & Coke Oil EPG Casolire Keroeene Diesel Fuel Oil Ni-nergy Total Line & Jet Fuel Pr&ijcts Total Prlnry Pro&,tion 455.0 129.8 - 182.9 - - - - - - - 767.7 Imports - - 0.3 - 520.3 - - 18.5 56.6 2.6 212.4 - 290.1 810.7 Stock Oages - - (0.4) - - - (8.2) 3.9 (1.8) (8.9) - (15.0) (15.4) C e 1/ - - - 1.9 - - (1.7) (1.6) (0.5) (2.6) (4.8) 0.3 (10.9) (9.U) Gross supply Available 455.0 129.8 0.3 182.9 521.8 - - 16.8 46.8 6.0 208.0 (13.7) 0.3 264.2 1554.0 Cferaic Petrolen Befinng - - - - (515.0) - - 9.2 92.0 37.3 150.6 212.0 13.9 515.0 0.0 I Charcoal Production (23.2) - - - - 23.2 - - - - - - - - 0.0 L- Electric Puer Gerration - (3.5) - (182.9) - - 211.2 - - - (20.1) (4.7) - (24.8) 0.0 0 Cnversion les - - - - (6.8) (14.3) (19.8) - - - - - - - (40.9) Trasion/Distribution loses 2/ - - - - - - - - - - - - - - (22.5) Net Suly Avaiable 431.8 126.3 0.3 - - 8.9 168.9 26.0 138.8 43.3 338.5 193.6 14.2 754.4 1490.6 Secndary Export - - - - - - - - - - - (40.2) - (40.2) (40.2) Met DThtic Oumuptioa 431.8 126.3 0.3 - - 8.9 168.9 26.0 138.8 43.3 338.5 153.4 14.2 714.2 1450.4 C3vamtion by Sector Imhstry & Agricalture 16.2 126.3 0.3 - - - 60.2 2.5 - 4.2 39.0 129.9 - 175.6 378.6 Transport - - - - 0.7 - 138.8 22.4 297.0 - - 458.2 4U 9 lbjaehkb & cxzmrce 415.6 - - - - 8.9 104.3 21.8 - 16.7 - - - 38.5 567.3 Other 3/ - - 3.7 1.7 - - 2.5 23.5 14.2 41.9 45.6 1/ tIcludes statistical discrepancy and physicsl loses in transit and storage. 2/ Incl-ab pcer plants' own ca etion. 3/ wlude public sector iristitiuons and aniimpticn of n-ergy petroleun prodcts. Sorce: Avario Estadistico Sector EergLa 1980 (1981) and BaEk staff estimates. ANNEX V osta RLica Ecgy Balance of 1981 (1hinand T.s of Oil Equivalent) _ _ _ _ _ _ _ _ _ _ _ _ ~~~~~~~~~~~~~~~~~~~~~~Seuday atergy Futebwod Agriculuwal Coal 1tdro Cnu Alcohol arcal EIectricity Petrole Pro&wts Wastes & Cdoe O1 I1G Gasoline Kerosene Diesel Fuel Oil Gaasoil N1brRy Total Lim & Jet Fbal Pxicts atsal GrowsSpl Primary Proiuction 455.9 131.8 - 199.0 - 1.0 - -- - - - - - - -. 787.7 L,ports - - 0.3 - 481.5 - - - 17.5 25.8 2.5 142.0 - - 4.0 191.8 673.6 Stock (aw - - 2.2 0.2 - - (0.3) 11.2 1.9 21.0 6.4 (1.2) (1.9) 37.1 39.5 CLre 1/ - - - 39.9 (0.4) - - 0.4 (0.8) (2.6) 11.3 12.2 - 2.0 22.5 62.0 Gross &Wply Availble 455.9 131.8 0.3 (191.0) 523.6 0.8 - - 17.6 36.2 1.8 174.3 18.6 (1.2) 4.1 251.4 1562.8 Petrolm Refining - - (491.5) - - - 7.4 88.5 28.0 146.6 2Q8.1 1.4 11.5 491.5 0.0 Charol Promkct (24.1) - - _ _ _ 24.1 - - - - - - - - - 0.0 Plectric Pcier Geeration (3.5) - (199.0) - _ - 210.8 - - - (8.2) (0.1) - - (8.3) 0.0 TransaLssion/Di~st _bi - - (32.1) - (15.0) (8.3) - - - - - - - (55.4) Trzs sicmD1trhtiue ses2/ - - _ - _ (20.3) - - - - _ _ _ _ (20.3) Net Supply Ayatlnsbe 431.8 128.3 0.3 - - 0.8 9.1 182.2 25.0 124.7 29.8 312.7 226.6 0.2 15.6 734.6 1487.1 Seimdary Exqorts - - - - - - - - - (4.0) - - (50.0) - - (54.0) (54.0) Net DImestic Cxopwtion 431.8 128.3 0.3 - - 0.8 9.1 182.2 25.0 120.7 29.8 312.7 176.6 0.2 15.6 680.6 1433.1 Ci ptin by Sector Imimuy & Agcuitulure 16.2 128.3 0.3 - - - - 64.9 4.4 - 4.4 47.5 153.8 0.2 - 210.3 420.0 port - - - - - 0.8 - 1.0 - 120.7 16.9 263.8 - - - 401.4 403.2 Hmiseholds 6 Girce 415.6 - - - - - 9.1 113.0 19.5 - 8.5 - - - - 2B.0 565.7 Oher -3/ - - 3.3 1.1 - - 1.4 22.8 - 15.6 40.9 44.2 1/ Inclus statistical dscrepancy and physical loses in tnnsit ad storw. V 7es pu,er plants' am, cou*stio,. 3/ Incles pblic sector inst-twlu wad awwption of rmo ty pem pmbsct. Source: D6E ard Bark staff estimates. - 60 ANNEX VI Page 1 of 2 Forecasts of Power Demand ICE's most recent (July 1983) power demand forecast is largely based on the assumption of a gradual recovery from 1982 to 1983 levels of consumption, rather than an statistical models derived from 1970-81 demand relationships, as was the case with its previous demand forecast. Specifically, ICE's forecast is based on the following pattern of expectations regarding the major user groups: (i) the residential sector's annual growth rate of consumption has gradually declined from a peak of 8.9% in 1979 to 5.0% in 1982 and 3.6% in 1983 (first half). This declining growth rate was assumed to bottom out at 3% in 1984 and gradually recover again until reaching 5.5% in 1990. (ii) the commercial sector's consumption has been least affected by the economic crisis. Its growth rate has been rather volatile, most recently dropping from 23.1% in 1981 to 5.3% (annual rate) in the first half of 1983. This growth rate is also expected to bottom out at 5% in 1984, gradually recover to 8% by 1987 and remain at that level until 1990. (iii) the industrial sector's demand has been the most affected by the economic crisis. Its growth rate has dropped from 11.8% in 1980 to 0.2% in 1981 and -15.9% in 1982. For the first half of 1983, industry's electricity demand grew at a 2% annual rate, which led to the assumption that it would gradually reccver to reach a 5% annual rate from 1989 onwards. (iv) the use of eleztricity for public lighting has been assumed to remain constant in 1983-84 as a result of the Government's iinancial constraints, and to increase at 3%/year in 1985 and 1986, as a result of the 2nd phase of the Rural Electrification Program. - 61 - ANNEX VI Page 2 of 2 Electric Power Consumption, by Sector (GWh) Commer- Public Total Peak Year Residential cial Industrial Lighting Losses Generation Demand (MW) Actual 1970 453.6 128.0 205.8 17.0 1L37.9 942.3 202 1975 613.1 258.4 342.6 31.3 221.9 1,467.3 289 1976 637.7 289.9 375.9 34.9 242.0 1,580.4 306 1977 661.4 305.4 435.4 38.9 235.8 1,676.9 329 1978 716.5 299.9 536.0 44.6 241.4 1,838.4 358 1979 746.6 320.1 570.7 50.0 222.6 1,910.0 374 1980 843.0 355.2 638.3 57.0 250.0 2,143.9 410 1981 900.9 437.3 639.6 69.1 248.1 2,295.0 424 1982 945.9 507.7 538.1 73.6 226.7 2,292.0 420 Forecast 1/ 1983 974 533 549 74 230 2,360 454 1984 1,003 560 560 74 237 2,434 468 1985 1,035 594 577 76 246 2,528 484 1986 1,071 635 594 78 257 2,635 502 1987 1,114 686 618 79 270 2,767 525 1988 1,164 741 642 80 284 2,911 550 1989 1,222 800 674 81 300 3,077 579 1990 1,289 864 708 82 318 3,261 611 1/ Source: Mercado Electrico 1983-1995, July 1983. - 62 - ANNEX VII Interconnected System Energy Balance - GWh (Dry Year) Availability 1985 1986 1987 1988 1989 1990 Run-of-the-river (hydro) 1/ 1,207 1,253 1,441 3/ 1,500 1,862 4/ 2,538 5/ Regulated (hydro)2/ 1,452 1,467 1,399 1,510 1,474 1,298 Thermal 589 533 484 435 386 336 Total Availability 3,248 3,253 3,324 3,445 3,722 4,172 Domestic Energy Demand 2,528 2,635 2,767 2,911 3,077 3,261 Reserve 137 137 137 137 137 137 Balance 583 481 420 397 508 774 1/ Run-of-the-river Power Plant<, MW Firm GWh/Year Ave. GWh/Year Rio Macho 120 333 578 Cachi 100 468 701 Small 29 252 285 Garita 30 156 190 Ventanas 90 234 515 Palomo 30 82 135 Angostura 165 662 1008 2/ Regulated Power Plants Firm MW Firm GWh/Year Ave. GWh/Year Arenal-Corobici 330 1474 1525 3/ Commissioning of Ventanas. 4/ Commissioning of Palomo and Miravalles Geothermal I (50 MW and 353 GWh/Year). 5/ Commissioning of Angostura. - 63 - ANNEX VIII Interconnected System Capacity Balance-MW (Dry Year) Availability 1985 1986 1987 1988 1989 1990 Run-of the-River (hydro) 289 289 369?/ 369 449A/ 62921 Regulated (hydro) 330 330 330 330 330 330 Thermal 84 75 69 62 55 48 Total Availability 703 695 768 761 834 1,007 Peak Demand (Lcw Case) 484 502 525 550 579 611 Reserve 58 58 58 58 58 58 Balance 161 135 185 153 197 338 I/ Run-of-the-river Power Plants MW Firm GWh/Year Ave. GWh/Year Rio Macho 120 332 578 Cachi 100 468 701 Small 29 251 285 Garita 30 156 190 Ventanas 90 234 515 Palomo 30 82 135 Angostura 165 662 1008 2/ Regulated Power Plants Firm MW Firm GWh/Year Ave. GWh/Year Arenal-Corobici 330 1474 1525 3/ Commissioning of Ventanas. 4/ Commissioning of Palomo and Miravalles Geothermal I (50 MW and 353 GWh/year). 5/ Commissioning of Angostura. - 64 - ANNEX IX Priority Technical Assistance Projects 1/ 1. The demand for electric power: a study of the behavior of major user groups, their relation to economic and demographic variables, and construction of a statistical model for the performance of demand forecasts and simulation. 2. The optimization of power sector investments: design and construction of a generation and transmission expansion planning model that is custom-fitted to the characteristics of the Costa Rican system. 3. A study of fiscal policy in relation to petroleum fuels: an analysis of the demand management and income distribution considerations that need to be taken into account in the design of a taxation package for petroleum fuels, with the objective of maximizing tax revenue and minimizing economic distort:Lons that could jeopardize the economic development process. 4. An economic evaluation of the San Jose Accord: an analysis of the costs and benefits of Costa Rica's current petroleum supply agreement, and comparison with alternative supply arrangements. 5. Energy conservation in the bus company (Transmesa): establishment of a preventive maintenance program for public buses, including training for mechanics, drivers and their supervisors, along with the provision of requisite testing equipment for diesel pumps and injectors. 6. The development of a national strategy for developing the energy potential of the country's forest biomass. 7. The design and implementation of a common planning and operational methodology for the partici ants in the regional interconnected power system. 1/ These projects complement and carry on ongoing projects for which financing already has been secured. IBRD 17339 80 TO GU./ AUGUST 1983 86-° Maau 8,5 84° GUAT. \_ . ~~~~~~~~~~~~NI CA RA G UA rHONDURAS_ /o C,oo ao.%,. SALVADOR -11° '4'0 NtCruz , _ 110- NICARAGUA'! COSTA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~OT RICICA\ . Lib.~~ia 5~OM AJUELA COSA RCA PANAMA PHYSICALCHARACTEISTICS ;Boncos Pa American Highway . b \ \' -8- 82s Santa CEUo in6pi er s cI 100 Hovinchi a a ._ od. Lim6n l ngs~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~O o~ ~ ~ ~ ~~~~~~~* Citiesn~, anaTwn ,, COSTA RICA PHYSICAL CHARACTERISTICS Air Pr~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ovinic ia oBoundres ,,T .°norrC Pan American Highway Selected Roads Elevations in meters: Railroads 50lev0tiontoneters' Rivers - 3000 T 8 National CaPital 2000 PA d N A M @ Provincial Capitals 1000 - sft o Cities and Towns0ToP,r,dCl --- Provincial Boundaries 7 aoCt International Boundaries 0 20 40 60 Miles r0 s0 100 Kil-etcers) This map has been PrePared bY Tho World Peeksa aiaff excrusiVely bor ihe Convenience of L ihe red-r end. esCloSivaJY for lbs ,eniarl use of The World Bank end the Internabional 8 -8. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Financ Corporohon The denflaonations used and the boundaries hOhswn on tibi map do not omply, on the part of The World Bank and ihe internetonal F-aeoce Corporation, any judgment oh Ie legal status of any ierritory or any endorsemeni or acceptanca of such boundaries 86'850 B4° 830 8420 i IBRD 1733 *4 AUGUST 1983 860 850 84e GUAI . NICARAGUA C HONDURAS_.. /| * SALVADOR 7 1o| H - -*li- NICARAGUA \ ^talIes ir*~ t COSTA RICA Liberia \ . ALAJUELA O RICPA NAMA Corobici An PANAM GUA Aea 3 2 ' 5ste iiX' 11,3.~~~~~~~~~~~~~~~~z 82.1 10,~~~*> 1~< iahiLelcs@ H da: Linn6Lin 10°- 10 ~ ~ ~ ~ ~ ~ ~ ~ jˇ ~~~~~~~~~Puntjeas10 / r 5~~~ A N . COSTA RICA J : POWER SUPPLY SYSTEM 0.ar\ UNDERCTO CONSTRUCTION EXISTING Transmission Lines: 9- 220 kv. Single Circuit 95 r~9 ; 220 kv. Double Circuit ----- 138 kv. Single Circuit ARENAS _,-] 138 kv. Double Circuit Power Plants: P A N A M A - - Hydro \ A * Thermal A Geothermal I * * Substations Service Areas ( o) Provincial Capitals 20 4, 60 Miies Provincial Boundaries 50 Kilometer. ; - - International BoundariesI ITnhs msp has been prepared by The World Banks staff exchse for the co-nenlrnce ot o the readers and is esclsiefy for thi internal use of The WMld Bankr and thre lnternatisnal 8°- Finance Corporahon. The denonrinations seed and the boundaries shown on tins map do not nti'ry, so the part or The World Bank and thr nternational Fmance Corporabon. any judgment on tie legal status of any territory or any enodorsemenr or acceptance of such boroerdaies. 8 6t B ,i 8 4 8 j3 8 8 2 ° IBRD 17338 860\ \ 850 , 840 GUAT. L AUGUST 1983 NICARAGUA r HONDURAS . -1lO (g s 4N I C A RA GUA ' HONDURAS,.. :~~~~~ ~ ~~~~~~~~~~ ~ ~~~~~~~~~ A PANAMACAlFS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Al_ >Aaiuel _'3a imon 1>_ -9O 7/// 110tCvr,17 >>g a A7 NainlCaij PUNT S N~~~~~~~~~~~~~~~~~~~~~ COSTA~~L RICOT'CICA Natiovncial Capital AT A N ANMA Provincial Boundaries 1 ,., 'a,,9/, ..1' -*- Interrational Boundaries ) 0) 20 40 60Mle < o0 soo)Y s lo'PL' Kilo'e,s Ths m,ap has been pregpared by Th. World Bank s staff -xcsvefr lor the covmneof 8° th~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~e readers and is excluW1ely for thte rbnal use of The World B.,k snd fhe Intemabonal 8°- Fmhahce Cgorpoafr . The denomhsnbons used and the boundenes shown on fhls map do nof -mplyS on Ihe parE of The Word Bank and the Intemabonal Finance Corporabon, any judgmenf on the.legal *fafu of any lerritory o, any and--hmen or acceptance of such b-ondafies. 86' 81o 8g4' 83 812° L ~ ~ ~ ~ > AT1 I