mFEjS SDESK DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use FILE COPY Report No. 69a-ES APPRAISAL OF SIXTH POWER PROJECT-EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) April 11, 1973 Regional Projects Department Latin America and the Caribbean Regional Office This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. UNITS AND MEASURES kW = kilowatt MW = megawatt = 1,000 kW kWh = kilowatt hour GWh = gigawatt hour = 1,000,000 kWh kV = kilovolt kVA = kilo volt-ampere MVA = mega volt-ampere m = meter = 3.28 ft km = kilometer = 0.621 mi km2 = square kilometer = 0.386 sq mi m3 = cubic meter = 35.3 cu ft ha = hectare = 10,000 square meters = 2.471 acres kcal = thousand calories kg = kilogram = 2.2046 pounds at.a. = atmospheres absolute = 14.69 lb/sq in MOM = thousand circular mills CURRENCY EQUIVALENTS Currency Unit = Colon (0) 0 = 100 centavos 01 = us$o.40 013000,000 = US$400,000 1 centavo = 0.4 US cents US$1 = 02.50 1 US cent = 2.5 centavos 1 US mill = 0.25 centavos FISCAL YEAR CEL's fiscal year ends December 31 ACRONYMS AND ABBREVIATIONS CEL - Comision Ejecutiva Hidroelectrica del Rio Lempa IB - Inter-American Development Bank UNDP - United Nations Development Programme ELC - Electroconsult IGSE - Inspeccion General de Servicios Electricos CAESS - Compania de Alumbrado Electrico de San Salvador CLESA - Compania de Luz Electrica de Santa Ana COSAESA - Compania Oriental Salvadorena de Alumbrado Electrico, S. A. CACM - Central American Common Market ANDA - Administracion Nacional de Acueductos y Alcantarillados APPRAISAL OF SIXTH POkER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS i 1. INTRODUCTION 1 2. THE POWER SECTOR 3 Energy Resources 3 Organization of the Power Sector 4 Regulation and Tariffs 5 Consumption and Extension of the Electric Power SuppLy 6 3. THE BORROWER 7 Organization and Management 7 Facilities 7 Financial Systems and Auditors 8 4. THE PROGRAM AND PROJECT 10 Program through 1984 10 Description of the Project 10 Estimated Cost and Financing Engineering and Construction Construction Schedules 13 Procurement and Disbursement 13 Project Supervision 14 Environmental Aspects 14 5. JUSTIFICATION CO THE PROJECT 16 Forecast of Sales and _D_e_m_a_nd 16 Least-cost Solution 16 Return on the Program Investment 16 Employment Effect 17 6. FINANCE 18 Introduction 18 Earnings Record 18 Capital Structure and Financial Position. 18 Financing Plan 19 Future Earnings 22 Future Financial Positior - 23 7. RECOMMENDATIONS 24 This report was prepared by Messrs. John E. Graves, R.E. Salazar, and K. Ringskog. LIST OF ANNEXES 1. Electric Utilities Statistics 1971 2. Electricity Rates 3. Installed Generating Capacity of CEL 4. Capacities, Capabilities, Generation, Sales and Demand 5. Ahuachapan Geothermal Power Station 6. Cerron Grande Hydroelectric Development 7. Estimated Disbursement Schedule of Bank Loan. 8. Comparison of Alternative Power Programs 9. Return.on the Investment 10. Estimated Employment Effect 11. Actual Long-term Debt and Forecast Debt Service 12. Actual and Forecast Income Statements 13. Actual and Forecast Balance Sheets 14. Forecast Sources and Applications of Funds 15. Actual and Forecast Key Financial Ratios Map - IBRD-1137R1 APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) SUMMARY AND CONCLUSIONS i. This report covers the appraisal of the Sixth Power Project of the Comision Ejecutiva Hidroel ti-del-eL Rio Lempi&CpQ) of El Salvador which has requ i6ted assistance from the Bank and the Tnterijan Development Bank (IDB) in financing the Project, the estimated total cost of~twhnEis.US~$97TThilhion. ii. Since 1949 the Bank/IDA has provided major financial assistance to El Salvador's power development through four loans and one credit, total- ing US$30.3 million, for five CEL power projects. The first four projects, have been completed successfully; the fifth is under construction, with satisfactory progress, and is expected to be completed by early 1973. CEL's performance under previous lending operations has been satisfactory. iii. CEL is a Dcr ; ment of all means of generating electricity in the country and for distri- bution of electricity to rural zones not served by private companies. CEL's installed capacity of 199 MW, comprising hydro, oil-fired steam and gas- turbine generation, represents about 90 percent of the country's total capacity available for public power supply. CEL's managemebnt is capable, but its recently-formed planning staff needs strengthening. iv. El Salvador has only two indigenous energy sources of any magnitude: the Rio Lempa and geothermal fields. Optimal power development will involve a balanced utilization of geothermal energy to satisfy base- load requirements and hydro energy to meet peak demand. Until now El Salvador has depended on conventional oil-fired units to complement the hydro genera- tion from the Cinco de Noviembre plant located on the Rio L]empa and the smaller Guajoyo plant on a Lempa tributary. v. WEth UNDP assistance in the 1960s, CEL has been studying El Salvadorts geothermal resources since 1953. As a result of these studies, CEL has established the feasibility of building an initial installation of 30 MW at the each g hewe-field; the station is expected to have a final capacity of about 100 MW. Mhe_Project incja .t4t1m_t'hcpan nni, which will be the first such instaJation.nithe _our,try vi. Also included in the Project are: thLhefr1 t_-t.= rMWinitoe e;t Cerro bGr4Udp,,4droelactric development; _g,e.t W _;nter fQcommuni- cation within the CEL system; studies of future projects; and trainl.gOf CEL'6T s ssiona1 staf-. The Cerron Grande plat, Tse 6econd on the Rio Lempa-itself, would have an ultimate capacity of 270 MW. Flooding of land by the Cerron Grande dam will necessitate relocation of a large number of people; this relocation will be carried out by CEL in accordance with a plan acceptable to the Bank. - ii - vii. The proposed IBRD loan of, Jj22-3-million and the IDB loan of US$38.1 million, totaling US$65.4 million, would cover all the Project's foreign exchange cost of US$59.9 million, except a Us$065 million IDB commitment fee, which CEL will finance. The IDB loan would also include US$6 million equivalent of local currency financing. It would be made from IDB's Fund for Special Operations on soft terms to the Salvadoran government, which would re-lend the proceeds to CEL on the same terms during the Project's construction period and on conventional terms thereafter. The IDB loan would finance most civil works, supply of the turbo-generator units and installation of all equipment at Cerron Grande. The proposed IBRD loan would finance: the Ahuachapan geothermal station; engineering, diversion works and the supply of equipment other than turbo-generators at Cerron Grande; transmission lines related to both generating stations; studies of future projects; and training. viii. Conj tjjg_a4 AeeqREsacceptable to the Bank would carry out the design and construction supervision of all physical works and studies included in the Project. ix. Because IDB would finance most of the Cerron Grande hydro project and has or will have supervisory capability both in Wshington and El Salvador, it would have primary responsibility for supervision of construction of that project. The Bank would have primary responsibility for supervising CEL's operations, would supervise procurement of all items which it finances, and would be solely responsible for supervising construction of all project elements which are not directly related to the Cerron Grande hydro plant. x. Procurement of items financed by the Bank would follow the Bank's guidelines. To meet its estimated demands CEL would have to make commitments for engineering and key Project elements prior to loan signing, involving retroactive financing of US$1.2 million for engineering and equipment for the geothermal unit and US$0.6 million for engineering and diversion works for the Cerron Grande hydro plant. xi. CEL's proposed expansion program, which includes completing to their ultimate capacity the two generating stations included in the Project, represents the least-cost solution of meeting El Salvador's electricity needs for discount rates up to 16 percent. The return on the program in- vestment is estimated to be at least 17 percent. xii. CEL's financial position and earnings are satisfactory and are expected to remain so, except for a temporary reduction in rate of return expected directly after commissioning of the Cerron Grande hydro station. xiii. The Project would form a suitable basis for a loan of US$27.3 million equivalent, including US$4.6 million of interest during construc- tion, with a term of 25 years including five years of grace. The loan would be made to CEL and would be guaranteed by the Republic of El Salvador. APPRAISAL OF SIXTIH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMIPA (CEL) 1. INTRODUCTION 1.01 This report appraises the Sixth Power Project of the Comision Ejecutiva Hidroelectrica del Rio Lempa (CEL) for which assistance from the Bank and Inter-American Development Bank (IDB) has been requested. The proposed loans would cover all but us$0.5 million (the IDB commit- ment fee) of the Project's foreign exchange cost of US$59.9 million, which represents about 60% of the Project's total cost of US$97.7mil- lion, including financing costs. In addition, the IDB loan would in- clude US$6 million equivalent of local currency financing, thereby re- ducing CEL's local borrowing requirements. CEL, the government-owned entity responsible for generation and bulk supply of electricity within El Salvador, would finance the Project's remaining local cost of US$32.3 million from internally generated funds and locaL borrowing. 1.02 With the assistance of the United Nations DeveLopment Programme (UNDP), CEL has been studying E1 Salvador's geothermal resources since 1953 to determine their optimum use; it has thereby estalblished the feasibility of building an initial installation of 30 MW at the Ahuachapan geothermal field. The Project would include this initial geothermal installation, the first in El Salvador and in Central America. It would also include a hydroelectric plant at Cerron Grande with initial capacity of two 67.5 MW units and related transmission lines. 1.03 The Bank and IDA have helped finance five power projects in El Salvador. Bank/IDA financing, which has aggregated US$30.3 million, has assisted in the construction of almost all of CEL's generating and trans- mission facilities. CEL's performance under previous lending operations has been satisfactory. 1.04 The Project appraisal was carried out in close cooperation with the staff of IDB, which institution would provide most of the external financing for the Cerron Grande hydroelectric plant. The Bank financing would be applied principally to the Ahuachapan geothermal plant, certain equipment for Cerron Grande, and the transmission lines. 1.05 This report, which was written by John E. Graves, R. E. Salazar and K. Ringskog, is based on: a. A feasibility study of the Ahuachapan geothermal plant prepared by Electroconsult (ELO) of Italy, and a UNDP-financed study of the geothermal field and plant done by Kingston Reynolds Thom & Allerdice of New Zealand and Kennedy & Donkin of the United Kingdom in association with New Zealand government agencies (Kingston et al); -2- b. a feasibility study of the Cerron Grande hydroelectric plant prepared by Harza Engineering Company International (Harza) of the United States and Atilio Garcia Prieto y Cia. (Garcia Prieto) of El Salvador; and c. the findings of an appraisal mission consisting of Messrs. W. F. Ktlpper, John E. Graves, R. E. Salazar and H. Maeda which visited El Salvador in September 1972. -3 2. THE POWR SECTOR Energy Resources 2.01 El Salvador has only two indigenous energy resources of any magnitude: the Rio Lempa and geothermal fields. Since the creation of CEL in the 1940s, Salvadoran power development has been concentrated on the Lempa river system, with oil-fired steam units at Aca;jutla and gas tur- bines added to balance the power system; future development focuses on continued exploitation of the Rio Lempa and geothermal resources. 2.02 The 81 KW Cinco de Noviembre hydro plant at Guayabo, whose first units (Loan 22-ES) were commissioned in 1954, is the principal installation on the Lempa itself. Additional units (Loans 221-ES and 342-ES) were added., to this plant through 1966. The 15 MW Guajoyo plant (Loan 263-ES) is lo- cated on the outlet of Lake Guija, which discharges into a tributary of the Lempa (see map for plant locations). Lake Guija serves as an additional reservoir for the Cinco de Noviembre plant; it is drawn down during the dry season. The Guajoyo plant operates only during this drawdown period, which coincides with the months of peak power demand. 2.03 On the Rio Lempa there are two potential sites downstream from the Cinco de Noviembre plant - El Tigre and La Pintada. Because its reser- voir would inundate Honduran territory as well as Salvadoran, development of the large (approximately 400 MW) El Tigre site would require an agree- ment between the two countries and must therefore await resolution of current political difficulties with Honduras. La Pintada would be a run- of-river installation with a capacity estimated at about 80 mw; it would not be economic without upstream regulation. The proposed Cerron Grande development, located immediately upstream from Cinco de Noviembre, would provide the necessary regulation. Because of low river flows, hydro sites upstream from the proposed Cerron Grande project are uneconomic. The few potential hydro sites on other rivers are small and appear uneconomic. 2.o4 Geothermal studies and explorations have indicated that the Ahuachapan field has a total energy potential of about 24,000 GWi, and that other fields also have some additional potential (see Annex 5). Development of these other geothermal fields will require additional ex- ploration to establish reserves; GEL intends to proceed with this explora- tion program once it has gained operating experience with the initial installation at Ahuachapan. 2.05 Under its present program, which includes the completion of the pro- posed initial unit at Ahuachapan in early 1975 and the first two sets at Cerron Grande in 1976 and 1977, CEL will require additional generating capaci- ty in 1979 and additional energy in 1981. Expansion of the proposed Cerron Grande plant would appear to be the least-cost solution to satisfy the need for additional capacity to meet peak loads. Subject to the experience to be gained from the initial geothermal installation and further studies, CEL -4 - intends to expand the Ahuachapan plant, as outlined in Annex 5, to provide base-load energy. If geothermal expansion is not feasible, CEL will have to add oil-fired steam units in 1981 to provide energy, thus increasing its dependence on imported fuel. Organization of the Power Sector 2.06 Prior to CEL's creation in 1945, El Salvador's electricity needs were served exclusively by private companies. CEL was created by law to study the hydro resources of the Rio Lempa; subsequent amendments to its enabling legislation gave it the responsibility of developing all means of electricity generation for public service. 2.07 kiZth the assistance of the Bank and IDA, CEL has provided practically all generating and transmission facilities in El Salvador since 1954 and has interconnected all the distribution companies serving the country. In addition to the 12,000 retail customers it serves in nine rural zones as a result of its rural electrification program (see paragraph 3.10), CEL sells electricity to two industrial customers, various government agencies and eight private distribution companies. The largest of the distribution companies are: Compania de Alumbrado de San Salvador (CAESS), 88% owned by Canadian International Power of Montreal and 12% by Salvadoran and foreign individuals; and Compania de Luz Electrica de Santa Ana (CLESA), owned locally. Details of 1971 generation and sales of electricity by each utility are shown in Annex 1, and the attached map indicates the zone served by each. 2.08 As detailed in Annex 1 and summarized below, CEL generated about 92% of the electric energy available for public service in 1971: Capacity Generation in MW Gkt Percent CEL 166.1 655.7 92.1 CAESS 11.8 19.8 2.8 Other utilities 7.9 36.3 5.1 185.8 711.8 100.0 _~~ - In addition to the above, eleven thermal plants of 500 to 2,500 kW capacity each and about 25 smaller hydro and thermal plants with total installed capacity of 19.9 MW furnished 30.9 GTh for private use during 1971. The majority of these captive plants supply sugar mills and other installations for processing agricultural products, principally cotton and coffee. 2.09 CAESS, which serves San Salvador and the central part of the country as well as a large zone in eastern El Salvador, is the largest distribution company; it distributes more than three-quarters of the electric energy sold to the public. Retail distribution in 1971 is shown below: Retail Customers Retail Sales (thousands) G_n Percent CAESS 118.0 459.8 77.5 CLESA 22.7 57.3 9.7 CEL 12.3 27.5 4.6 other utilities 24.9 48.6 8.2 177.9 593.2 100.0 = = Regulation and Tariffs 2.10 Regulatory procedures in E Salvador, which are based on the 1936 Electric Service Law and subsequent regulations and modifications, are satis- factory. The Inspeccion General de Servicios Electricos (IGSE), under the Minister of Economy, reviews the financial and technical condition of the distribution companies; and the Minister of Economy decides policy matters concerning the power sector with the advice of the executive director of CEL and the director of IGSE. 2.11 All utilities except CEL are subject to regulation by IGSE. The private companies are permitted an 8% annual return on net assets after all expenses, including taxes imposed on the companies and on dividends and remittances to shareholders. Net assets include 75% of the assessed value of assets in 1952 plus net additions at cost less depreciation since 1952. khile CAESS's return had fallen considerably below 8% in the late 1960s, its rate of return improved to over 7% in 1971, and further improvement is ex- pected. These operating results are satisfactory to CAESS, which has no tariff applications pending. CAESS's cash flow is sufficient for adequate expansion and improvement of its distribution system and for providing an annual expenditure of 0600,000 (US$240,000) annually for village electrifi- cation in its territories beginning in 1972. 2.12 Under its charter CEL is allowed, with the approval of the Minister of Economy, to establish tariffs sufficient to cover its costs and meet its obligations under agreement with creditors. In practice this has enabled CEL to earn a rate of return of at least 9% on average net assets in opera- tion, as defined in existing Loan/Project agreements with the Bank/IDA. 2.13 The principal retail tariffs of CEL and the four largest distri- bution companies are detailed in Annex 2. The retail tariff structure of the various utilities are rational from a cost-of-service view point, with block energy rates and appropriate demand charges. The average retail price per kWh has decreased from 00.084 (us$0.034) in 1961 to 00.068 (US$0.027) in 1971. CEL's bulk rates to the distribution companies include an energy and demand charge; the resultant average charge is about 00.04 (US$0.016) per kWA. Until 1972, the demand charge was based on the annual peak, resulting in retroactive billing, which was unsatisfactory to the distribution companies. Under new contracts, the demand charge will be applied on a monthly basis for the maximum demand in the most recent 12-month period, thereby reducing the -6- average price per kW received by CEL by about 2%. Consumption and Extension of the Electric Power Supply 2.14 During the ten-year period 1962-1971, production of electrical energy in El Salvador increased by 168%, reaching a level of 711.8 GWh in 1971. Generating capacity, which totaled about 186 MW in 1971, has kept pace with the growth in demand; supply has never been rationed. The total number of customers increased by 92% to 178,000 in the ten years through 1971. Of the total, 149,000 were residential customers, representing about 25% of the total households in El Salvador. 2.15 In 1971 El Salvador ranked third among the five Central American republics in terms of per capita generation of electricity for public service: Country kka/capita Costa Rica 577 Nicaragua 273 El Salvador 193 Honduras 127 Guatemala 124 2.16 Industrial customers form the largest market for electrical energy in the country, as indicated below. The four principal categories of consumers have used about the same proportions of energy since 1963. (Prior to 1963, consumer categories were defined differently, making comparison difficult.) Category of Consumer 1963 Retail Sales 1971 Retail Sales GWh Percent Gkh Percent Residential 77.5 26.0 169.8 28.6 Commercial 46.5 15.6 87.2 14.7 Industrial 126.0 42.2 243.8 41.1 Government and municipal 48.4 16.2 92.4 15.6 298.4 100.0 593.2 100.0 2.17 To continue to meet the country's demands for electricity, CEL intends to carry out the generating expansion program described in paragraph 4.01. Although CEL's rural electrification program has extended electric service to most of the country's villages, it has not brought electricity inside the majority of homes; the expanded rural electrification program (paragraph 3.10) is intended to solve this problem. - 7 - 3. THE BORROWER 3.01 CEL, whose responsibilities for developing means of generating electricity are described in paragraph 2.06, is an autonomous government- owned corporation. Since 1959 it has also had responsibility for instal- ling distribution facilities in areas not served by private companies as well as for developing all means of generating electricity in the country. Organization and Management 3.02 CEL's seven-man Board of Directors is comprised of El Salvador's Minister of the Interior, who serves as President, the Ministers of Economy, Agriculture and Public Wbrks, and representatives of CELIs bondholders and of the country's banks and industrial and agricultural associations. The Board, whose president has held office since 1950, establishes policy. It appoints an Executive Director who is responsible for all management func- tions; the present Executive Director, a capable civil engineer, had previous experience with CEL and private industry before assuming his present position in 1971. CEL's engineers and management staff are capable. 3.03 CEL currently employs about 630 operational employees, including 72 who are directly engaged in the operation of its distribution system, and about 470 in its construction forces, mostly in transmission and distri- bution work. Its operations are efficient and its plant, well maintained. 3.04 Until recently CEL has relied on Harza, its principal consultant, for all planning, having no internal planning organization. In 1972 CEL set up a small group to direct and review the consultant's efforts and, eventually, to decrease CEL's reliance on its consultant. To perform this function effectively, however, the planning group needs experience, addition- al training and more personnel. 3.05 Despite the increasing size and complexity of its system, CEL has not undertaken a long-term study of its future transmission requirements, other than those included in the Sixth Power Project. Consequently, CEL needs an overall system study to: provide for expansion of its own trans- mission facilities; and determine the optimum future interconnection points between its system and those of the major distribution companies. CEL has agreed to the performance of this study by consultants acceptable to the Bank. 3.06 CEL has engaged a consultant familiar with public utilities in Latin America to review its management structure and administrative procedures and to propose improvements. Facilities 3.07 As detailed in Annex 3 CEL has about 199 MW of generating capacity located at two hydro stations, one conventional steam station, and a 33 MW gas turbine plant at Soyapango, which was financed by IDA Credit 227-ES and was commissioned in December 1972. -8- 3.08 Extremely low rainfall in the rainy season which ended in November 1972 and the resultant drawdown of Lake Guija would have caused a power shortage by March 1973 unless CEL acquired additional capacity. Consequently, CEL has contracted to purchase a 25 MW gas turbine from Hitachi of Japan, who had a unit of this size available. This unit will be installed at Soyapango by the end of March 1973 and will be paid for by CEL's own funds. This addition is designed for use only when severe drought makes hydro facili- ties inoperative. 3.09 As shown on the attached map, CEL's transmission network connects all densely populated areas of the country. The network currently includes the following lengths of transmission lines. Voltage Length of lines -(kV) (circuit km) 115 284 69 88 44 249 35 62 A 110 km 115 kV line to increase the supply of power to eastern El Salvador, also financed by IDA Credit 227-ES, is scheduled for completion in early 1973. In addition, the various distribution companies own and operate 189 km of 44 kV and 35 kV lines. 3.10 In 1961 CEL began a program of village electrification to provide electricity to rural zones not served by the private companies. Under this program CEL has constructed more than 1,000 km of 13 kV lines to most villages with a population exceeding 100 people in the rural zones it serves. Because the majority of potential rural customers still do not receive electricity, GEL will expand its program to provide more distribution works, will coordinate its promotion efforts under a centralized rural electrification office, and will study a program to assist low-income homeowners in installing basic interior wiring. The expanded program will be funded by an annual contribution of capital of about 01.3 million (US$520,000) from the government. This contribution re- presents the difference between CEL's debt service to the government on IDA Credit 227-ES and the government's debt service to IDA. In addition, CEL will contribute 0500,000 (US$200,000) per year from its own funds to the program. In view of the social benefits to be derived therefrom, expansion of the program in this manner is reasonable. Financial Systems and Auditors 3.11 CEL's accounting system, which is under the direction of a quali- fied accountant, produces prompt and complete monthly financial reports and comparisons of actual and budgeted data. The new planning group is expected to perform the financial planning,vhich the consultant now does. - 9 - 3.12 Under Salvadoran law, independent auditors ap;pointed by the Central Reserve Bank of El Salvador must perform annual audits of govern- ment-owned organizations such as CEL. The present auditor, appointed more than three yars ago, lacks familiarity with public utility concepts and therefore is not acceptable to the Bank. Since the Central Reserve Bank appears reluctant to change auditors, CEL has engaged a second external auditor responsible to its own Board of Directors and acceptable to the Bank. W4hile this is not an ideal solution because of the conflict which could result from two sets of auditors, the prsence of an experienced auditing firm represents an improvement over the previous situation. - 10 - 4. THE PROGRAM AND PROJECT Program through 1984 4.01 CEL's development program needs through 1984 includes: a. completion of Soyapango Gas Turbine (Fifth Power) Project (see Appraisal Report No. PU-55a dated December 1, 1970); b. purchase of additional gas turbine capacity for emergency conditions (paragraph 3.08); c. completion of current program of drilling geothermal wells; d. the Sixth Power Project, which would include Ahuachapan geothermal tlnit 1 and Cerron Grande hydro Units 1 and 2, described below; e. two additional units of 30-40 Md each at Ahuachapan in 1981 (see Annex 5); f. two additional units of 67.5 MW at Cerron Grande, one in 1979 and the other in 1984 (see Annex 6); and g. expansion of distribution facilities, including village electrification (paragraph 3.10). Description of the Project 4.02 The Sixth Power Project will consist of: a. The Ahuachapan geothermal plant, comprising steam separators, silencers, a power house containing one medium-pressure (7 to 9 at. a.) 30 MW turbo-generator unit and appropriate accessory equipment, switchyard and a 60 km canal to discharge the effluent into the Pacific Ocean (see Annex 5); b. The Cerron Grande hydroelectric development, comprising a fill dam across the Rio Lempa, spillway, intakes and pressure tunnels, surface power house containing two 67.5 MW turbo-generator units and appropriate accessory equipment, and switchyard (see Annex 6); c. 115 kV transmission facilities: a single-circuit 20 km line from Cerron Grande to the Cinco de Noviembre plant; a double- circuit 34 km line from Cerron Grande to Nejapa substation; and a single-circuit 22 km line from Ahuachapan to Santa Ana substation; d. A telemetering center located in CEL's San Salvador headquarters; e. Engineering design work on the third unit of Cerron Grande and pre-feasibility or feasibility studies of projects to be agreed between CEL and the Bank; and - 11 - f. Training of CEL's professional staff. The telemetering center will include communications equipment and equipment for supervisory control of Cerron Grande plant and switchyard, the Soyapango gas turbine plant, and certain substations; it would be expanded at a later date to provide economic dispatch, automatic load-frequency control, data logging, supervisory control and communication with the entire CEL system. The training program will supplement CEL's own staff development program and will be directed particularly towards improving the capability of CEL's -recently-formed planning group (see paragraph 3.04) and geothermal engineers. Estimated Cost and Financing 4.03 Detailed cost estimates of the Ahuachapan and Cerron Grande plants are shown in Annexes 5 and 6, respectively; the total Froject cost is summari- zed below: Colones (millions) US$ (millions) Local Foreign Total Local Foreign Total Ahuachapan geothermal plant and related transmission (Annex 5) 14.23 19.76 33.99 5.69 7.90 13.59 Cerron Grande hydro plant and related transmission (Annex 6) 78.57 110.30 188.87 31.43 44.12 75.55 Telemetering center 0.25 1.37 1.62 0.10 0.55 0.65 Studies of future projects 0.25 2.50 2.75 0.10 1.00 1i.10 Training - o.50 o.50 - 0.20 0.20 Sub-total 93.30 134.43 227.73 37.32 53.77 91.09 Financing costs: Interest during construc- tion on local borrowing 1.00 - 1.00 0.40 - 0.40 IBRD interest and commit- ment fee during construc- tion - 11.38 11.38 - 4.56 4.56 IDB interest during con- struction 0.20 1.86 2.06 0.08 0.74 0.82 IDB supervision fee - 0.90 0.90 - 0.36 0.36 IDB commitment fee _ 1.17 1.17 - 0-47 0.47 Total 94.50 149.74 244.24 37.80 59.90 97.70 - 1.2 - The cost estimates are based on Harza and ELC es-timates with minor modifications by the IDB and Bank appraisal teams. The unit cost of the Ahuachapan plant, about US$500/kW of installed capacity, is acceptable for a geothermal plant of this size, consiaering that the initial investment includes the effluent canal and other facilities that will be used in connection with subsequent units as well as the first. It is estimated that the unit cost of the plant, when completed, will be about US$350/kW. While the unit cost of the first two units of the Cerron Grande plant is rather high (about US$5G0/kW), expansion of this plant to its ultimate design capacity of 270 iW will involve a relatively small additional investment (about US$16 million, bringing the plant's total cost to about US$91 million) and reduce tne unit cost to about US$340/kW. As described in the respective annexes, the cost estimates for both generating plants include appropriate allowances for physical contingencies and price inflation, including possible effects of future currency revaluations, as well as a special allowance of US$8.5 million for restricted procurement from IDB member countries of items financed withl the IDB loan. 4.04 As detailed in paragraphs 6.08 and 6.10, the IDB loan will finance the foreign and part of the local cost of civil works, supply of the turbo- generator units and installation of all equipment at Cerron Grande, and financial charges related to its loan. The Bank loan wa)ld finance the foreign cost of the Ahuachapan station, engineaering, diversion works and other equip- ment at Cerron Grande, transmission lines, the telemetering center, studies, training and interest during construction. Enktjneerig and Construction 4 .05 ELC will perform the general engineering for the geothermal plant, and CEL's own staff will assist in this task, particularly in designing the effluent canal. CEL's staff, including geotthermal engineers whose experience includes on-site training at geotnermal sites in Italy, Japan and New Zealand, with the assistance of ELC will supervise construction of the Ahuachapan plant. 4.06 Harza--wno has been CEL's principal consultant since the 1940s and has engineered all of CEL's hydro projects--and Garcia Prieto will carry out engineering design and construction supervision of: a. the Cerron Grande hydro plant; b. the transmission lines (including the Ahuachapan-Santa Ana line); and c. the telemetering center. The Bank has received evidence that an acceptable seismic design expert has approved the design specifications for the Cerron Grande dam and associated structures, which will be located in areas of strong seismic activity. The Bank has also received assurances from CEL that the Ahuachapan geothermal plant will be designed and built to withstand seismic effects, including dynamic seismic forces. 13 - 4.07 In accordance with its practice CEL intends to award one gen-ral contract for construction of civil works and installation of equipment at each of the two generating plants included in the Project. Equipment will be delivered C&F Salvadoran port and transported to the sites by CEL. 4.06 Two supply-and-erect contracts will be awarded for the transmniisioc lines: one for the single-circuit lines, the other for the double-circunit. Construction Schedules 4.09 Provisional acceptance of the Ahuachapan unit is scheduled for March 1975. Consequently, the turbo-generator contract was awarded ir February 1973, ^-nd other works will begin in Spring 1973. 4.10 At Cerron Grande the diversion works were started by Columbus Latinamerica of Panama in October 1972. Construction of the main civil v-mI . is scheduled to begin in November 1973. The first unit would be placed in service by the end of 1976 to meet the year-end peak load, and the second nv-` would be in service by early 1977. Procurement and Disbursement 4.11 Procurement of equipment and selection of contractors for items procured with Bank funds would follow the Bank's Guidelines for Procurem nt; those procured with the proposed IDB loan would comply with IDB's procedures. 4.12 In order to meet the estimated demand, CEL will have had to make commitments for engineering and key elements prior to loan signing. Th s would entail a small amount of retroactive financing For expenditures incur- red since June 1972, the date of the Bank's pre-appraisal mission concernli- the Project. The proposed retroactive financing of US$1.8 million wou- dL as follows: US$ million Ahuachapan geothermal: Turbo-generator 0.8 Other equipment D.1 Engineering 0.3 1.2 Cerron Grande: River diversion work and transmission line for power supply 0.2 Engineering o.4 0.6 Total 1.8 4.13 Disbursements from the loan account would be made for G&F cost of imported equipment and materials,for the foreign-cost component of consultant services, and for the foreign currency cost of contractors, erection work, and training. Of the total amounts of the contracts for engineering services 14 - with ELC for the Ahuachapan geothermal plant and with Harza/Garcia Prieto for the Cerron Grande hydro development, 95% and 924, respectively, would be considered as the foreign component. Annex 7 shows the estimated schedule of loan disbursements; the loan is expected to be fully drawn down by the end of 1977. If the Project should cost less than estimated, any savings from the loan should be canceled. 4.14 No manufacturers in El Salvador or the Central American Common Market produce equipment to be included in the Project. Therefore, neither CEL nor the Government has requested domestic or regional preferences for local or regional manufacturers. Project Supervision 4.15 Because IDB will finance almost all of the civil works for Cerron Grande, the turbo-generator units and installation of all equipment, and because IDB has capability in Washington and will have resident staff in El Salvador to supervise this project, responsibilit~y for supervisiQxn-o qc.nstriction of the hydra project and;.imple- mentation of the _elated resettlement prQgram (see paragraph 4.19). However, the Bank would have the right to=review the qualifications of the field personnel proposed by IDB for this supervision prior to their appointment. IDB would leave to the Bank primary responsibility for supervision of CEL's opera- tions. Moreover, the Bank would supervise procurement of all items which it finances and would be solely responsible for supervising the construction of those portions of the Project which it finances and which are not integral parts of the Cerron Grande hydro plant, namely: (a) Ahuachapan geothermal plant and related transmission line; (b) Tra-rission lines connecting Cerron Grande to CEL's trans- mission network at Nejapa substation and.to CEL's existing Cinco de Noviembre plant; (c) Telemetering center; (d) Studies of future projects; and (e) Training. The two institutions have agreed on the text of a Memorandum of Agreement which will contain, among other things, these provisions on Project supervision. It is expected that the Memorandum would be signed shortly after the Executive Directorshave approved the proposed loan. Environmental Aspects 4.16 As indicated in Annex 5, the gases contained in the geothermal steam and noise resulting from its discharge will not menace the environment signifi- cantly; their diffusion will be accomplished by construction of 15 to 20 m stacks. After studying the method of conveying the effluent from the geothermal wells proposed by CEL, Bank consultants recommended minor modifications to CEL's - 15 - original design, namely, lengthening the canal by 5 km and diffusing the discharge in the ocean by use of a pipe with diffuser ports (see Annex 5). CEL has agreed to these design modifications. 4.17 The Cerron Grande reservoir will flood 13,500 ha of land (see map). According to available information, there are no mineral resources, historic- al sites or rare species of flora or fauna in the area to be inundated. Based on its own ecological survey and the experience obtained from Cinco de Noviembre reservoir, which is located immediately downstream from Cerron Grande and has shown no adverse ecological effects since its creation more than 20 years ago, Harza has found that the hydro development will not produce detrimental effects on the environment. EKcept for the resettlement problem (see paragraph 4.19), the consultant's opinion is reasonable. 4.18 The total 13,500 ha of land to be flooded includes 4,400 ha of fertile farm land under intensive cultivation. Creation of the reservoir will necessi- tate the relocation of a sugar mill and reconstruction of portions of a roadway, including a bridge on the north side of the reservoir, which CEL is prepared to do or have done. The loss of net agricultural return from the loss of crops, principally sugar cane and maize, is estimated at 03 million (US$1.2 Million) annually. The economic implications of these effects are examined in Annex 9. 4.19 However, the principal Jyob1zr t4r4$oa sd servoir involves the reloction aieployment ofWab-out Q,,QQ2 ,eopll jxving-in.thc area t6obe flooded .-Sor the most part, the affected population consists of sraPl-iandholders and landless farm workers and their families. The Bank has received and approved the outline of a program for the resettlement mad employ- ment of the population displaced by the Cerron Grande reservoir. While re- settlement is not a normal function of a power agency, CEL has the financial ancd managerial capability to implement such a program, either directly or in associa- tion with other entities. Accordingly, CEL has agreed to prepare and submit Łor Bank approval by the end of 1973 detailed plans for the resettlement/employment program and to implement those plans satisfactorily, and the Government has agreed to provide all necessary assistance to CEL to assure successful exec-uticn of this program. 4.20 Because of the comparatively large size of the Cerron Grande dam and the large volume of water which its reservoir will hold, CEL has agreed to provide for periodic inspections of the dam and associated structures to ensure that the dam will continue to present no hazard to the environment., - 16 - 5. JUSTIFICATION OF THE PROJECT Forecast of Sales and Demand 5.01 During the last ten years, energy consumption in El Salvador has shown an average annual growth rate of 11.5%; Harza has forecast a rate of growth of 11% per year for energy demand through 1984, slightly lower than the past rate of growth. This growth rate appears reasonable. 5.02 Annex 4 shows actual and forecast capacities, demand, generation (by type of plant) and sales related to CEL's installations, net of the relatively small demand met by the private companies' own generating plants, for the period 1965-1980. It is expected that the private companies will continue to use their generating facilities in the present pattern, namely, optimum use of hydro facilities and use of thermal facilities in periods of peak demand. The GEL system yearly load factor increased from 51.5% in 1965 to 56.3% in 1971; it has been assumed that the load factor for the forecast period will be about 57%. 5.03 According to Annex 4 CEL's present installed generating capacity of 199 MW will be able to meet the demand only through 1973. Even with the addition of the 25 MW gas turbine at Acajutla and the 30 MW Ahuachapan Unit 1 in 1973 and 1975, respectively, CEL will have little or no surplus capacity until the completion of Cerron Grande. 5.04 The size of the Ahuachapan unit was determined principally by the estimated capacity of the geothermal field and the plan of utilizing it; it will meet about 1˝ years' growth in CEL's demand. The 67.5 MW Cerron Grande units will each satisfy about 2˝ years' growth in demand as forecast for the 1976-1978 period. Least-cost Solution 5.05 CELts expansion program, which contemplates carrying the two generating plants included in the Project to their ultimate capacity plus a 99 MW conventional steam plant in 1983, was compared with five alternative programs that would meet El Salvador's incremental electricity needs through 1984. As shown in Annex 8, the selected program represents the least-cost solution for meeting those needs for discount rates up to 16%. Return on the Program Investment 5.o6 As indicated in Annex 9, the benefits to the country have been compared with the costs of the least-cost program, which includes completion of the generating facilities begun in the Project, for meeting the country's electricity demands through 1984. The return on the program, rather than the Project, investment has been determined because the Project's two principal elements involve substantial initial expenditures for works common to generating units included in the Project as well as those to be installed later. In this comparison, which equates the benefits to the country with - 17 - commercial revenues from electricity sales and which does not quantify certain downstream benefits associated with the Cerron Grande hydro project, the return on the program investment over the hydro project's assumed 50-year life is estimated to be at least 17%. Emnloyment Effect 5.07 As shown in Annex 10 the Project's direct employment effect for unskilled labor would be positive during the construction period, providing employment for up to 1,500 people per year. The large requirement for un- skilled labor for the Cerron Grande civil works is the principal reason for this benefit. 5.o8 After completion of the hydro plant the direct effect of the Project would be negative. To offset this negative effect, the resettlement plan (see paragraph 4.19) is expected to provide farm employment for the population displaced by the reservoir. In addition, the Project will produce positive employment effects through the indirect employment resulting from the increas- ed production of electricity. - 18 - 6 FI NANCE Introduction 6.01 Since .1962 CEL has maintained a relatively high rate of return - from 10.5 to 12 percent - and a conservative financial structure with equity approaching 80 percent of total capital in 1971. This will enable it to self-finance a reasonable portion - about 33 percent - of the Project. A decrease in rate of return after project completion is expected to be temporary, and CEL's financial performance would continue to remain highly satisfactory. Earnings Record 6.02 CEL's income statements for the years 1969-71 are showa in Annex 12. During this period revenues from sales of energy increased at an average annual rate of 9 percent, and net income at 11 percent. All earnings were retained by CEL and were used to finance a 24% increase in plant, reduce outstanding indebtedness by 012 million (US$4.8 million), and build up cash reserves of ˘7.5 million (US$3 million). Capital Structure and Financial Position 6.03 CEL's financial position is sound. Because of its relatively light construction program in 1970 and 1971, CEL has accumulated enough cash to neet its immediate needs. Its relatively low current ratio reflects a heavy repayment schedule of short-term loans and suppliers' credits (incurred principally for installation of Unit 2 at the Acajutla station) through 1972, rather than a lack of current assets. Its debt/equity ratio has steadily declined from 60/40 in 1962 to a conservative 22/78 in 1971, providing a solid base for future borrowing. CEL's assets are stated at original cost. Annex 13 shows CEL's balance sheets for the years 1969-71. 6.04 CEL's books of account at December 31, 1971 did not reflect the various 1971 currency revaluations and did not provide for proper disposition of amounts expended on studies, as explained in Annex 13. CEL has agreed to account for these items in a manner acceptable to the Bank. 6.05 The Bank is CEL's principal creditor; of CEL's total 040.1 million (US$16.0 million) debt, almost 82 percent, or 032.7 million (US$13.1 million), is owed to the Bank. As shown on Annex 11 CEL has also issued long-term bonds guaranteed by the Central Reserve Bank of El Salvador and borrowed from IDB, the Central Reserve Bank and suppliers. 6.o6 Two customers - Compania Oriental Salvadorena de Aluinbrado Electrico, S. A. (COSAESA), a small distribution company, and Administracion Nacional de Acueductos y Alcantarillados (ANDA), the government's water supply and sewerage agency - have serious arrearages with CEL, including bills up to two years old. The government intends to appoint an intervenor to settle the financial affairs of COSAESA, and thereby settle its arrearages with CEL, which amount to about 0350,000 (US$140,000). ANDA, which owed CEL about ˘1 million (US$400,000) - 19 - in mid-1972, has serious financial difficulties and has been able to pay CEL only one-months' billing every two months. The Government has agreed that it will keep current the accounts of all government entities, including ANDA, and that it will pay to CEL ANDA's arrearages over a period not longer than three years. Financing Plan 6.07 During the six-year project period 1972-77, net internal cash generation will finance approximately 33 percent of CEL's expansion program, plus additions to working capital. This is satisfactory especially in view of the fact that CEL's net plant investment will increase by about 190 percent during the period. Government contributions for village electrification will provide 2 percent of the requirements, and borrowings will be required for the remaining 65 percent. The financing plan is based on CEL's retention and investment of all net income during the Project period, which CEL has agreed to. The following table gives a summary financial plan, details of which are .shown in the projected funds statement Annex 14. _ 20 _ FINANCING PLAN FOR 1972-1977 - - millions - - Colones US$ Percentages Requirement of Funds Construction and acquisition program (including interest and fees during construction) Fifth Power Project (Soyapango Gas Turbine) 17.5 7.0 5.6 Acajutla gas turbine 6.3 2.5 2.0 Geothermal drilling program 3.0 1.2 1.0 Proposed Sixth Power Project 244.2 97.7 78.2 Village electrification 9.5 3.8 3.0 Future generating expansion 10.5 4.2 3.4 Miscellaneous distribution, general and studies 6.3 2.5 2.0 297.3 118.9 95.2 Additions to working capital, net 15.1 6.1 4.8 Total requirements 312.4 1250 in( . Sources of Funds Internal cash generation 152.2 60.9 '48.7 Less: debt service (excluding interest and fees during construction) 49.3 19.7 15.8 Net internal cash generation 102.9 41.2 329 Contributions for village electrification 6.5 2.6 2.1 Borrowings: Existing financing - IDA Credit 227-ES 14.0 5.6 4.5 Proposed loans: IDB loan 95.3 38.1 30.5 IBRD loan 68.2 27.3 21.9 Local borrowing 16.0 6.4 5.1 179.5 71.8 57.5 Future loans for generating expansion 9.5 3.8 3.0 Total borrowings 203.0 81.2 65.0 Total sources 312.4 125.0 100.0 - 21 - 6.08 The proposed Bank loan would be made to CEL for a term of 25 years, including five years of grace, at the current Bank interest rate. It would be guaranteed by the Republic of El Salvador and would finance the foreign cost of: - - millions - - 0 US$ Ahuachapan Unit 1 and related transmission lines 19.8 7.9 Cerron Grande: engineering, diversion works, supply of equipment other than turbo- generator units, and related transmission lines as detailed in Annex 6. 32.7 13.1 Telemetering center 1.3 0.5 Studies 2.5 1.0 Training 0.5 0.2 Interest and commitment fees during construction 11.4 4.6 Total 68.2 27.3 6.09 The interest during construction to be included in the Bank loan was originally estimated by computing interest on: expenditures for the Ahuachapan geothermal project until its estimated completion; and on other expenditures for the loan's five-year grace period. To facilitate loan administration, however, interest and commitment fees would be lent on all Project expenditures only through April 1977; this procedure would result in the same amount of interest as the estimate previously determined and would concentrate it in the period when CEL would need the cash most. 6.10 IDB would make its 095.3 million (US$38.1 million) loan from its Fund for Special Operations to the Republic of El Salvador, which would re- lend the proceeds to GEL. The IDB loan, which El Salvador would repay to IDB in local currency, would be for forty years including ten years of grace at 2 percent annual interest during the amortization period and one percent during the grace period. As detailed in Annex 6, it would finance at the Cerron Grande hydro plant: the foreign cost and part of the local cost of the general contract for civil works (except diversion works) and installation of equipment; the foreign cost of the turbo-generator units; interest during construction (but not commitment fee); and its supervision and inspection fee. 6.11 The government would relend the proceeds of the IDB loan to CEL by means of a 25-year loan with five years of grace at interest rates of one percent during the grace period and 5-;˝ percent during the 20-year - 22 - amortization period. IDB will require the government to place the difference between the debt service it receives from CEL and that which it repays to IDB in a National Development Fund. 6.12 IDB's directors have approved the IDB loan. Because successful completion of the Project depends on IDB as well as Bank financing, the Bank should receive notification from IDB that it is prepared to make the initial disbursement from its loan before the proposed loan is effective. 6.13 Besides its internal cash generation and the local-currency com- ponent of the 1DB loan, CEL requires 016.0 million (US$6.4 million) of local borrowing to complete the Project. To provide for unforeseen contingenc- ies as well as those foreseen in the financing plan, the Government has agreed to meet CEL's local financing requirements either directly or by underwriting and guaranteeing bond issues up to 025.0 million (US$10.0 million). In the financial projections, the proposed local borrowing is assumed to consist of 5-year bonds at 8% annual interest. These bonds would be issued in 1974-1976 and repaid in five equal annual installments beginning in 1977. 6.14 Before CEL can borrow money or invest its own money in the Project, it must receive approval of its extraordinary budget for the Project from El Salvador's Legislative Assembly, which would follow approval of the pro- posed loan by the Executive Directors. The loan should not become effective until the Legislative Assembly has approved the extraordinary budget. 6.15 Arrangements have not yet been made for the projected future loans (1976-78) for the foreign cost of future projects. 6.16 The 06.5 million (US$2.6 million ) government contribution for village electrification represents the IDA Credit 227-ES debt service differential, as explained in paragraph 3.10. Future Earnings 6.17 CEL's forecast income statement (Annex 12) and key financial ratios (Annex 15) indicate a temporary problem with CEL's rate of return, which will decline from the 10-12% level of 1969-1974 to 6.3% in 1976 and 1977, when the Cerron Grande project will be completed. While this rate of return is below the 9 percent rate of return specified in the current project agreement (IDA Credit 227-ES), it would be acceptable for the few years when Cerron Grande is not operating at full capacity because: (i) inclusion of the Cerron Grande hydroelectric plant will approximately double CEL's rate base in 1976-77; (ii) inclusion of the special contingency related to goods and services financed by the IDB loan (see paragraph 4.03) adds about 021 million (US$8.5 million) to the rate base, increasing it. about 6% from what it other- wise would be; - 23 - (iii) CEL's forecast rate of return increases to 7.6 percent in 1978, after the Project is completed, and indications are that CEL will resume earning about 9 percent by 1980, when Cerron Grande will be operating at full capacity; and (iv) CEL appears to have no need for additional cash in the years when it will earn a lower return. The currently effective Project Agreement (IDA Credit 227-ES) requires CEL to effect tariff adjustments to result in a rate of return of at least 9% but contains no provision allowing IDA to waive this requirement. Depending on conditions actually existing at the time, the EBank would consider waiving the tariff requirement during 1976-78; therefore, the Loan Agreement repeats the provision but allows CEL not to make the required adjustment if the Bank agrees. 6.18 CEL's annual debt service coverage will vary from 2.0 to 2.5 times during 1972-77, which is satisfactory. However, its large increase in borrowings related to the Project will result in a less favorable relation of current cash generation to future debt service. CEL has agreed not to incur any indebtedness without the Bank's approval unless its most recent 12-month internal cash generation is at least 165 times the maximum debt service re- quirement for any succeeding fiscal year. Future Financial Position 6.19 CEL's debt/equity ratio will increase from a low 22/78 in 1971 to about 50/50 at the end of the Project period, which is still quite acceptable. CEL's debt structure, which will continue to consist predomi.natly of long- term debt, will be satisfactory. Its current ratio and working capital will be adequate until 1977, when its cash holdings will increase significantly. Depending on financing requirements for future projects, this cash position may enable CEL to consider tariff reductions after the Project period. Fore- cast balance sheets and key financial ratios are shown as Annexes 13 and 15, respectively. - 24 - 7. AGREEMENTS REACHED AND RECOMMENDATIONS 7.01 During negotiations agreements were reached on the following points: (a) CEL will have studies performed by consultants acceptable to the Bank to provide for future expansion of its own system and future interconnections with major distribution companies (paragraph 3.05); (b) CEL will extend by 5 km and add a diffuser pipe to the canal for effluent of waste water from the Ahuachapan geothermal station into the Pacific Ocean as recommended by the Bank consultant (paragraph 4.16); (c) CEL will arrange for periodic inspections of the Cerron Grande dam and associated structures by experts acceptable to the Bank (paragraph 4.20); (d) CEL will provide accounting treatment acceptable to the Bank concerning revaluation of its external debt and disposition of studies (paragraph 6.04); (e) the Government will pay or cause to be paid on a current basis all amounts owed to CEL by government entities and to pay the arrearages of ANDA to CEL over a period not longer than three years (paragraph 6.06); (f) CEL will retain all its net income during the Project period (paragraph 6.07); (g) the Government will provide, through underwriting or directly, the local financing necessary to complete the Project (paragraph 6.13); (h) CEL will set its electricity rates at a level sufficient to earn at least a 9% return unless the Bank should otherwise agree (paragraph 6.17); and (i) CEL will not incur any indebtedness without the Bank's approval unless its internal cash generation is at least 1.5 times its maximum future debt service (paragraph 6.18). 7.02 Before the proposed loan is made effective, the Bank should receive: (a) notification that ID3 is prepared to make~ the initial disbursement from its loan (paragraph 6.12); and (b) notification that the Legislative Assembly of El Salvador has approved CELts extraordinary budget for the Project (paragraph 6.14). April 11, 1973 APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) EL SALVADOR ELECTRIC UTILITIES STATISTICS 1971 Installed Number of Retail Bulk Purchase Purchase Self - - - Loases Capacity Retail Sales Sales from CEL trr Otters Ceneraticn of Generation kW Coraumers GWh .Wh GWh CWh GWh OWh and Purchase Uitjilit; CEL-coaisio- tie^itiv.tlroslectri2a lel Fie eRmpa 166,075 12,299 21. 5 571.2 - 0.2 655.7 57.2 8.7 CAESS-Campania ue ALSiuctrado Electrico de San Salvador il,804 118,025 45Q.8 - 4f84.5 - 19.8 44.5 8.8 CLESA-Comparisa le Luz Eiectrica ie Sante Ana 3,200 22,682 57.3 0.1 47.4 9.2 9.7 8.9 13.4 CECSA-Corpania Electrica de Cucumacayan S.A. 2,268 2 1.8 14.3 - - 16.7 o.6 3.6 CLES-Compania de Laz Electtica de Soneonate 830 9,241 18.1 - 10.5 6.3 5.0 3.7 17.0 CLEA-Compania de Laz Electrica de Ahuschapan 895 3,582 3.9 - 3.3 0.1 2.2 1.7 30.4 SPRS-Sucesion Pio Romero Bosqvte 416 - - 1.1 - - 1.1 - DEUSEN-Distribuidora Electrica de Usulutan S.E.M. - 5,561 18.5 - 20.3 - - 1.8 8.9 COSAESA-Compania Oriental Salvadorena de ALumbrado Electrico S. A. - 4,519 4.3 - 3.8 1.1 - o.6 12.2 DESSEM-Distribuidora Electrica de Sensuntepeque S,ihM - 1,237 in - i4 - - 0.3 21.4 RMCO-Sociedad Hidroelectrica Roberto de Matheu y Cia 352 733 0.9 0.2 - _ 1.6 0.5 31. Total Public Service 185,840 177,881 593.2 586.9 571.2 I6.9 711.8 119.8 16.8 F Captive Plants 19.864 9 30.9- 1.2 -/ - - 32.1 GRAND TOTAL FOR COUNTRY 205,704 177.890 624.1 588.1 571.2 16.9 743.9 / Consumption by entity which owns the plant. g/ Sales to public utilities. October 1972 ANNEX 2 Page 1 of 2 pages APPRAISAL OF SIXTH POWER PRO JET - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CE_) ELECTRIC POWER TARIFFS IN EL SALVADOR Retail Tariffs 1. Retail tariffs of CEL (for its rural electrification zones) and the four largest distribution companies are detailed in the table on page 2, where they are grouped consistently. Rates of the smaller utilities are similar to those shown. In addition, some utilities have special tariffs for particular customers, e.g., street lighting, water supply, other govern- mental and seasonal service. The special tariffs are basically in accordance with the schedules shown. 2. All retail tariffs have a rational structure with stepped energy rates. The commercial and industrial tariffs (except F5 of (,LES) contain a demand charge; generally, this charge is not metered but is calculated on the basis of connected load. Bulk Tariffs 3. CEL's tariffs to the distribution companies are: a. an energy charge of 0.003/kWn; and b. a demand charge of 045 per kW/year to the larger cDmpanies (CAESS, CLESA, CLES, CLEA, DEUSEM and DESSEM) and ˘50 per kW/year to the smaller companies and the other bulk customers. Until recently, the demand charge was based on the annual peak; the resultant retroactive billing was a point of contention between CEL and the distribution companies. Under a contract signed with CAESS in September 1972, the demand charge is applied on a monthly basis for the maximum demand in the most re- cent 12-month period. It is expected that this pattern will be followed in future agreements with other distributors. EL SALVADOR RBTAIL POWER RATER (in colones per kWh or 1VA, except for minimum bill, which is in colones) UTILITY Tariff CEL CAESS CLESA CLES DEUSEM D3 Residential first 70 kWh 0,12 first 150 kWh 0.08 first 70 kWh 0.12 first 100 kWh 0.11 first 70 kWh 0.12 next 40 kWh 0,10 next 45 kWh 0,07 next 40 kWh 0.10 next 150 kWh 0.09 next 40 kWh 0.10 excess kWh 0.05 excess kWh 0.04 excess kWh 0.05 excess kWh 0.04 excess kWh 0.05 minimum 1.00 minimum (central zone) i,60 minimum l.OO minimum 1.00 minimum (urban) 1.00 minimum (eastern zone) 1.00 minimum (rural) 2.00 G4 Commercial first 50 kWh/kW 0.15 first 100 kWh/kW 0.11 firs' 100 kWh/kW 0.14 first 60 kWh/kW 0.18 first 50 kWh/kW 0.17 next 50 kWh/kW 0.12 next 125 kWh/kW ,.09 next 100 kWh/kW 0.12 next 30 kWh/kW 0.1' next, 50 kWh/kW 0.12 excess kWh 0.05 excess kWh o.o4 next 100 icWh/W 0,07 next 85 kWh/kW 0.11 excess kWh 0.05 minimum 3.00 minimum 5.00 excess kWh o.o6 excess kWh &.-o4 mirimum (urbwn) 3.0C minimum 6.oo minimum 6.00 minimum (rural) 6.00 P5 Industrial (lo. voltage first 50 kWh/kW 0.14 first 50 kWh/kW 0.14 first 60 kWh/kW 0.14 first 50 kWh 0.15 first 50 kWh/kW 0.14 connection) next 50 kWh/kW 0,06 next 50 kWh/kW o.o6 next 40 kWh/kW 0.12 next 80 kWh 0.10 next 50 kWh/kW 0.0, excess kWh o0o4 excess kWh o,o4 next 75 kWh/kW 0.10 next 100 kWh 0.05 excess kwh o.o4 minimum 5.00 no minimum - excess kWh 0.05 excess kWh o.o4 no minimum minimum 6.oo minimum 7.50 F6 Industrial (high voltage first 100 kWh/kW o.o6 first 100 kWh/kW o.o6 first 100 kWh/kW 0.065 first 100 kWh/kW o.o6 first 100 kWh/kW c.06 connection) excess kWh o.o45 excess kWh 0.035 excess. kWh 0.05 excess kWh 0.035 excess kWh'kW 0.045 per kW demand 5.00 per 0-300 kVA 5.25 per kW demand 6.5o per 0-300 -VA 5.25 per kW 5,00 no minimum - excess kVA 4,25 minimum 6.50 excess "VA 4.25 minimum 5.0c minimum 5.25-4.25 no minimum - October 1972 Revised December 1972 ANNEX 3 APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEI) INSTALLED CAPACITY OF GENERATING PLANTS IN NW Year of HYDROELECTRIC Capacity Commissioning 5 de Noviembre Plant at Guayabo: lJnit 1 15.0 1954 UJnit 2 15.( 1954 lJnit 3 15.O 1957 UInit 4 15.0 1961 linit 5 21.4 1966 Total 5 de Noviembre 81.4 Gua.joyo Plant at Lake Guija: [Jnit 1 15.0 1963 Total Hydro Plant 96 .4 STEAM-ELECTRIC Acajutla Plant: Unit 1 30.0 1966 Unit 2 33.0 1969 Total Steam-Electric Plant 63.0 GAS TURBINE PLANT Acajutla free-piston unit 6.6 1965 Soyapango units (2 x 16.5 mw) 33.0 1972 Total Gas Turbine Plant 39.6 TOTAL INSTALLED CAPACITY 199.0 October 1972 APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR COHISION leJECUrIVA HIDROELECTRICA DEL RIO L1KPA (CXL) CAPACITIES, CAPANThITIEB. SAIES AND GXdERATIOl ACTUAL AND FONXCAST Surplus Losee incl. DjReQredSpapeC1tr (W) F-let Cspebilte- (l) Cmpecity SDales Station Supply G ecerntion (SWi) Actual Dimnd iTotke Nydro Stem Gawturbineo oeOthermal Toteal (GWh) ( Ste O.turbinee Qeothermal Tote] 1965 73 21.4 94.4 96.4 6.6 103 8.6 316.2 13.5 299.5 30.2 329.7 1966 86 30 116 96.4 30 6.6 133 17.0 374.0 22.3 354.0 42.3 396.3 1967 95 30 125 96.4 30 6.6 133 8.0 419.0 30.8 379.5 70.3 449.8 1968 105 30 135 96.4 30 6.6 133 - 2.0 465.1 36.1 370.3 124.7 6.2 501.2 1969 109 33 142 96.4 63 6.6 166 24.0 499.0 35.8 431.4 101.5 1.9 534.8 1970 121 33 154 96.4 63 6.6 166 12.0 538.4 49.6 416.1 171.9 - 588.0 1971 133 33 166 96.4 63 6.6 166 - 598.7 57.0 439.3 215.P o.6 655.7 Forecest 1972 148 33 181 96.4 63 39.6! 199 18.0 671 63 433 294 7 734 1973 i64 33 197 96.4 63 64.6 ZI 224 27.0 744 72 398 398 20 816 1974 182 33 215 96.4 63 64.6 224 9.0 827 79 444 422 20 906 1975 202 33 235 96 4 63 64.6 30J 254 19.0 920 94 299 33201 1,014 1976 225 67.5 292.5 163. 1 63 64.6 30 321.5 29.0 1,024 102 498 400 27 201 1.126 1977 250 67.5 317.5 231.4N 63 64.6 30 389 71.5 1,140 99 913 114 11 201 1,239 1978 278 67.5 345.5 231.4 63 64.6 30 389 43.5 1,265 123 1,054 123 10 201 1,388 1979 308 67.5 375.5 298.9 !' 63 64.6 30 456.5 81.0 1,400 137 1,138 188 10 201 1,537 1980 342 67.5 409.5 298.9 63 64.6 30 456.5 47.0 1,560 147 1,150 346 10 201 1,707 tig co mPnies' facilities nd demad et thereby. 2/ Soyepogo 33 MW gee turbine plent (Credit 227-ES) in service December 1972. ]/ Soyepmgo 25 Ml gen turbine plant in serrice March 1973. Abuchpepn irst 30 1W geothermal unit asaumed is service March 1975. CrO rand. hydro srt 67.5 M4 unit assued in *ervice Decesebr 1976. E/ crrn C[cd byro cod 67.5 NV unit ".- d i *-rvice Mar.h 1977. Oerron Cra.e hydro third 67.5 NW unit assumed in Service October 1979. October 1972 Revised Decembr 1972 Revised April 1973 AIFEX 5 Page 1 of 4 pages APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR COMISION EJEUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) AHUACHAPAN GEOTHERMAL POWER STATION Geothermal Field 1. CEL has been studying El Salvador's geothermal resources, includ- ing the Ahuachapan field, since 1953; UNDP has provided technical and financial assistance to these studies since the late 1960s. Surface studies of an area of about 300 km2 in western El Salvador show manifestations of geothermal activity. 2. Within this area, the Ahuachapan geothermal field of about 25 km2 was selected for exploratory drilling and for a UNDP-financed pre-feasibility study, performed by Kingston et al. Most of the drilling has been concen- trated in an area of about 1 km2, 2 Im east of the village of Ahuachapan (see map) and 800 m above sea level. At the time of appraisal, eight wells had been drilled; of these, six were producing steam from a Layer located at an average depth of 480 m under the surface. Characteristics of the Geothermal Fluid 3. At the producing layer, water under a pressure of :L3-14.6 at.a. and a temperature of around 2300C is found. At the surface, approximately 25% of the enthalpy of 230 kcal/kg can be obtained in form of usable steam and 75% in form of hot water at 1000C with a very high content of salts (mainly silicates and chlorides), which precipitate as the water temperature decreases. A 30 MW installation would produce an amount of water of the order of 0.3 m /sec. The high boron content (100 p.p.m.) makes this water unsuitable for agricultural or residential uses and requires its disposal to avoid contamination, 4. In the case of Ahuachapan, steam of 7-9 at.a. is obtained by means of a separator located at each wellhead. Vithin the steam flow, small quantities (0.006% in weight) of noncondensable gases are present of which 94% is CO2 and 6% is H2S. The disposal of these gases presents no problem from an ecological point of view. The noise produced by discharges of steam into the air, which will be necessary occasionally for pressure stablization and well maintenance, is within tolerable limits at 500 m from each wellhead and so it would not affect populated areas. Field Energy Potential and Initial Installation 5. Based on present information an estimated value for the total potential energy from the field is around 24,000 GWTh, of which about one- third can be produced by means of the wells in operation at present. The estimated total energy could be utilized by a generating capacity of around 100 MW operating for 30 years; this figure should be reviewed after a period of operation of the first generating unit and after more wells are drilled in the area. ANNEX 5 Page 2 of 4 pages Initial Installation 6. The initial installation will include: a. At least 4 producing wells (depending on the size of the unit selected, the others will be held in reserve); b. Centrifugal steam separators and silencers at each wellhead; c. Steam piping from each well site to the main header at the power house; d. A power house containing a condensing-type turbo-generator of 30 MW capacity, condensing equipment, and other accessory equipment; e. A 13.8/115 kV transformer of 35 to 45 1MVA capacity; f. Outdoor switchyard; and g. A covered 60 km gravitational canal to convey effluent from the plant to the Pacific Ocean. 7. From the wellhead separators, the steam will be conveyed to the main header, from which it will pass through two secondary separators (to reduce the water content to 0.5% in weight) to the condensing-type turbine. The condensers will be of the "mixed flow" type; the cooling water will circulate in closed circuit through cooling towers. Make-up water for the cooling towers will be obtained from streams in the immediate vicinity. The water from the main separators will be discharged to the ocean via the covered canal. 8. A 22 km single-circuit 115 kV transmission line will be constructed from Ahuachapan to CEL's network at Santa Ana. Galvanized steel single- circuit towers and 477 MCM ACSR conductors will be used. Future Installation 9. Under drilling programs previously completed and presently underway, wells of sufficient capacity to support about 45 MW of generating capacity have been developed. Therefore, CEL expects to cover the requirements of a second medium-pressure (7-9 at.a.) unit of 30-40 MW. At the same time, water from each main separator would then be conveyed to a hot water header in the power house, where a second-stage separator would provide low-pressure (1.5 at.a.) steam for a third generating unit, also of 30-40 MW capacity. Water Disposal 10. As mentioned in paragraph 3, an adequate water disposal system will be necessary to avoid contamination. Three basic systems were considered for this purpose. a. reinjection into the field; ANNEX 5 Page 3 of 4 pages b. storage during the dry season and discharge into the Paz river during the rainy season; and c. continuous discharge into the Pacific Ocean. System (a) presents several unknowns which could require a long period of tests in order to determine the absorption capacity of the ground and possible saturation due to salt precipitation. System (b) would be sufficient for only the initial installed capacity of 30 MW and would introduce contaminants into an international river. System (c), continuous discharge into the ocean by a means of a gravitational canal, is the system that provides the highest degree of reliability. This canal will be lined and covered by removable pre-cast concrete slabs which would, permit in- spection and removal of the salt deposits. It will be designed for 1 m3/sec corresponding to the plant's final generating capacity of around 100 MW. The final survey of the canal route is at present underway, and no major obstacles are foreseen for its construction. 11. Bank consultants (Drs. N. Nemerow and R. Faro of Syracuse University), after studying the method selected by CEL of disposing of the effluent and its effect on the ocean environment, have recommended that: a. the length of the canal be lengthened from 50 km, as originally designed by CEL, to 55 Ikn, so as to terminate at the ocean rather than at an estuary; and b. the effluent be discharged into the ocean by means of a submerged pipeline of about 100 m with diffuser ports. 12. CEL subsequently made further modifications to the canal's route, so that its total length will increase from the 55 km suggested by the consultants to about 60 km. Cost 13. The estimated cost of the initial 30 MW geothermal installation at Ahucahapan is presented below: ANNEX 5 Page 4 of 4 pages - Colones (millions)- - - US$ (millions)- - Local Foreign Total Local Foreign Total Land and roads 0.25 - 0.25 0.10 - 0.10 Effluent canal including right_of-way 4.5o 0.38 4.88 1.80 0.15 1.95 General contract: Civil works 2.10 0.90 3 00 0.84 0.36 1.20 Equipment installation 1.05 1.07 2.12 0.42 0.43 o.85 Turbo-generator unit and accessories - 9.75 9.75 - 3.90 3.90 Piping - 0.80 0.80 - 0.32 0.32 Crane - 0.15 0.15 - o.o6 0.06 Fire protection equipment - 0.25 0.25 - 0.10 0.10 Accessory electric equipment - 1.85 1.85 - 0.74 0.74 Transmission line to Sta. Ana 0.70 0.85 1.55 0.28 0.34 0.62 Engineering - 2.20 2.20 - 0.88 0.88 Administration 1.20 - 1.20 0.48 - o.48 Sub-total 97.5 1o.20 275.0 3-.92 7.28 11.20 Contingency - Physical 3.43 0.93 4.36 1.37 0.37 1.74 - Price 1.00 0.63 1.63 0.40 0.25 0.65 Total 14.23 19.76 33.99 5.69 7.90 13.59 14. The estimated foreign cost of the turbo-generator unit and engineer- ing was based on actual bids or contract prices. Because some design details of the plant, particularly the effluent canal, had not been finalized at the time of appraisal, physical contingency allowances of 35% and 15% were applied to the other local and foreign costs, respectively, of the Project. Because most foreign currency project expenditures will be made against firm-price contracts to be signed in 1973, and because price inflation for Salvadoran labor has been minimal in the recent past and is expected to remain so, a price contingency allowance of about 10 should be sufficient to allow for price in- flation, including that caused by currency revaluations. October 1972 Revised December 1972 Revised March 1973 AiiNEX 6 Page 1 of 5 pages APPRAISAL OF THE SIXTH POWR PROJECT - El SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) CERRON GRANDE HYDROELECTRIC DEVELOPMENT Background 1. El Salvador has only one major source of hydroelectric energy: the Rio Lempa, whose total energy potential is estimated at 3,500 GWh per year. The Cinco de Noviembre hydro plant at Guayabo (Loans 22-ES, 221-ES and 342-ES), with an annual generation of 400 GWh, was the first instal- lation on the Rio Lempa; the Guajoyo plant with annual generation of 70 GW, takes water from Lake Guija and discharges into a tributary of the Lempa (see map for plant locations). 2. Subsequent to the installation of the fifth unit at the Cinco de Noviembre plant in 1963, CEL was ready in 1967 to proceed with the next step in the river's development, the Poza del Silencio plant. How- ever, political circumstances prevented the construct on of the Poza del Silencio project at the time and necessitated the installation of a second steam unit (33 MW) at Acajutla and two 16.5 MW gas turbine units at Soyapango to meet CEL's requirements. In the ensuing four years CEL and its consultants selected another site about 20 km upstream from the Cinco de Noviembre plant near Cerron Grande. 3. On the Rio Lempa, two sites upstream from Cerron Grande, and two downstream from Cinco de Noviembre, have been identified (see map). Because of a lack of water, the upstream sites both appear uneconomic. Downstream, the El Tigre site, although large (about 400 MW) and apparently economic, cannot be developed now because its reservoir would inundate Honduran territory as well as Salvadoran. Dry-season regulation, which Cerron Grande would provide, would be required to justify the low-head rum-of-river La Pintada project; consequently, this smaller (80 MW) project would appear economic only after completion of Cerron Grande. 4. CEL and its consultants have concluded that Cerron Grande should have a final installed capacity of 270 MW with an annual average generation of 584 GWi, based on a computer simulation of the monthly operation of the system's hydro generating stations for hydrological conditions of 17 years of recorded stream-flows and forecasted future demands. The regulating effect of Cerron Grande's reservoir would increase the annual energy genera- tion of Cinco de Noviembre plant by 142 GWh. Description 5. The Project, located 4.D km northeast of San Salvador at the head- waters of the Cinco de Noviembre reservoir (see map), will consist of: ANNEX 6 Page 2 of 5 pages a. An earth-and-rock-fill dam across the Rio Lempa; b. Spillway on the left bank; c. Intakes on the right side of the spillway approach channel connecting to tunnels feeding the turbines; d. A surface powerhouse on the left bank; and e. A switchyard on the right bank connecting to a double-circuit 115 kV line to San Salvador. 6. The dam will have a maximum height of 85 m and crest at 250 m above sea level; it will require about 6,000,000 m3 of fill; and its crest length will be about 600 m. To the maximum possible extent, the dam will utilize material from required excavation; other materials, including impervious core materials, are available within a few kilometers of the dam site. The dam will form a reservoir with the following dimensions at El 243 m, its maximum operating level: a. Surface area - 135 km2; b. Length - 35 km upstream from dam site; c. Storage - 1,430 million m3 between operating limits at El 228 m to El 243 m, plus 750 million m3 below El 228. m. 7. The spillway, which will be founded on rock, will consist of a control structure with four radial gates, each 15 m by 12.2 m, a chute and a flip bucket. With the normal maximum reservoir level at El 243 m, the spillway will have the capacity to discharge about 6,500 m3/sec, equal to inflow which would occur once every 50 years. For larger floods, the reservoir will provide storage up to El 249.4 m, and the spillway will then discharge about 11,000 m3/sec. This is designed for protection against the probable maximum flood. 8. The power facilities will consist of two intakes, two pressure tunnels, and a powerhouse with two 67.5 MW units. Minimum provisions will be made for adding two additional 67.5 MW units in the future. The vertical-shaft Francis-type turbines will each be rated at 94,100 metric horsepower, 144 rpm at 57 m net head. The generators will be rated 75,000 kVA and 0.9 power factor. The generators will be connected to individual step-up transformers, type FOA, rated 86,ooo kVA, 13.8 kV. 9. A transnission line about 34 lom long will be built from the switchyard, located across the river from the powerhouse, to Nejapa sub- station, near San Salvador. The line will be double-circuit, 115 kV, on self-supporting galvanized steel double circuit towers. The conductor will be 477 MCM ACSR. In addition, a single-circuit, three-phase 115 kV line will be built on single-circuit towers from Cerron Grande substation to the Cinco de Noviembre substation about 20 km away. The conductor will also be 477 MCM ACSR. A1uNEX 6 Page 3 of 5 pages Estimated Cost 10. As indicated in the table below, the cost of the plant and related transmission lines was estimated on the basis of international bidding, with appropriate contingencies (see paragraph 11) added. Colones (millions) US$ (millions) Local Foreign Total Local Foreign Total Land 16.20 - 16.20 6.48 - 6.48 Sugar mill relocation 2.50 - 2.50 1.00 _ 1.00 New roads & bridges 5.60 - 5.60 2.24 - 2.24 Housing for population displaced by reservoir 9.00 9.00 3.60 _ 3.60 Total land & relocation 33.30 - 33.30 13.32 _ 13.32 Operators'village 1.10 - 1.10 0.44 - 0.44 Subsoil exploration 0.38 - 0.38 0.15 - 0.15 Access roads 2.37 - 2.37 0.95 - 0.95 Diversion works 1.20 1.10 2.30 o.48 0.44 0.92 General contract 24.67 34.48 59.15 9.87 13.79 23.66 Gates & hoists 0.13 5.65 5.78 0.05 2.26 2.31 Floating bulkhead 0.37 0.38 0.75 0.15 0.15 0.30 Turbines & governors 0.13 6.07 6.20 0.05 2.43 2.48 Generators 0.13 5.32 5.45 D.o5 2.13 2.18 Transformers 0.02 0.98 1.00 0.01 0.39 0.40 Accessory electric equipment 0.25 2.37 2.62 0.10 0.95 1.05 Powerhouse crane 0.03 1.10 1.13 0.01 0.44 0.45 Transmission lines 1.37 1.78 3.15 0.55 0.71 1.26 Engineering 0.88 15.27 16.15 0.35 6.11 6.46 Administration 5.62 - 5.62 2.25 - 2.25 Sub-total 71.95 74.50 1 5 28.7B 29 Contingency-physical 6.62 5.33 11.95 2.65 2.13 4.78 -price - 9.12 9.12 - 3.65 3.6 5 Special contingency for IDB member country procurement - 21.35 21.35 - 8.54 8.54 Total 78.57 110.30 188.87 31.43 44.12 75 .55 11. Allowances for physical contingencies, price escalation and special procurement were computed as follows: a. Physical contingencies of between 5 and 15% have been applied to each cost component except engineering and administration. The resulting overall physical contingency allowance is about 10% for local and 9% for foreign costs. b. Price escalation of foreign costs was computed using a 4% annual escalation rate . An additional price contingency allowance of 10% was included for Project elements subject to worldwide competitive bidding. The resulting overall price contingency is about 12.5% of the estimated foreign cost. ANNEX 6 Page 4 of 5 pages This should be sufficient to allow for price inflation , including that caused by possible currency revaluations. Sufficient allowances have been made in the base cost estimates to provide for escalation of local labor costs, which has been minimal in El Salvador during the past several years. c. Because goods and services financed by IDB must be obtained from its member nations, special allowances have been included for such restricted procurement based on IDB's experience in similar procurements. These special contingencies are 50% of the foreign cost plus normal contingencies for the general contract, or US$7.58 million; and 20% for turbo-generator units, or US$0.96 million. Financing 12. The proposed IDB loan would finance about 71% of the foreign and 19% of the local currency requirements of the Cerron Grande hydro plant, plus interest during construction and supervision fee, as below: - - -millions - - - 0 US$ Direct construction costs Foreign currency: General contract 34.48 13.79 Turbines and governors 6.07 2.43 Generators 5.32 2.13 Special contingency for IDB member-country procurement 21.35 8.54 Other contingencies 10.28 4.11 Total foreign 77.50 31.00 Local currency: General contract 14.80 5.92 Total direct cost 92.30 36.92 Interest and fees during construction Interest during construction - foreign 1.85 0.74 Interest during construction - local 0.20 0.08 Inspection and supervision fee 0.90 0.36 Total financing costs 2.95 1.18 Total 95.25 38.10 13. The proposed Bank loan would finance the balance of Cerron Grande's foreign costs, as below: ANNEX 6 Page 5 of 5 pages - - - millions _ _ _ 0 US$ Diversion works 1.10 0.44 Gates and hoists 5.65 2.26 Floating bulkhead 0.38 0.15 Transformers o.98 0.39 Accessory electric equipment 2.37 0.95 Powerhouse crane 1.1.0 0.44 Transmission lines 1.78 0.71 Engineering 15.27 6.11 Contingencies 4.17 1.67 Total 32.80 13.12 14. CEL would finance the remaining local costs of 063.77 million (US$25.51 million) from its own resources and through local borrowing. Procurement 15. Procurement of those items financed by IDB - the general contract for construction of civil works and installation of equipment, and contracts for turbines and governors and for generators - would be in accordance with IDB's regulations; it would be restricted to firms in IDB member countries. 16. For items financed by the Bank, procurement has been or would be in accordance with Bank guidelines, open to all member countries of the Bank plus Switzerland. Bank-financed procurement would consist of: a. A contract, already let, for construction of diversion works; b. Two supply-and-erect contracts for the transmission lines; and c. Nine contracts for the supply of accessory equipment. November 1972 Revised January 1973 ANNEX 7 APPRAISAL CF SIXTH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) ESTIMATED SCHEDULE OF LOAN DISBURSEMENTS (in thousands of US dollars) ASSUMPTIONS Loan Signing: April 1973 Effective Date: July 1973 Closing Date: March 31, 1978 Cumulative Disbursements Disbursements during at End of IBRD Fiscal Year and Quarter Quarter Quarter Year Ending June 30, 1974: September 30, 1973 2,900 2,900 December 31, 1973 2,100 5,000 March 31, 1974 2,100 7,100 June 30, 1974 2,200 9,300 Year Ending June 30, 1975: September 30, 1974 2,200 11,500 December 31, 1974 2,200 13,700 March 31, 1975 1,900 15,600 June 30, 1975 1,900 17,500 Year Ending June 30, 1976: September 30, 1975 1,900 19,400 December 31, 1975 2,000 21,400 March 31, 1976 1,100 22,500 June 30, 1976 1,200 23,700 Year Ending June 30, 1977: September 30, 1976 1,200 24,900 December 31, 1976 1,200 26,100 March 31, 1977 300 26,400 September 30, 1977 300 26,700 Year Ending June 30, 1978: September 30, 1977 300 27,000 December 31, 1977 300 27,300 March 31, 1978 - 27,300 November 1972 Revised December 1972 Revised March 1973 ANNEX 8 Page 1 of 5 pages APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) COMPARISON OF ALTERNATIVE POWER PROGRAMS 1974-1984 1. From the many possible programs to meet El Salvador's incremental electricity requirements through 1984, the six most practical have been selected for comparison. The six programs, which are shown in the table on page 2 of this annex, are based on different combinations of the following types of generating units: i. 30 MW geothermal units to be installed at Ahuachapan, with a final capacity of 90 MW. ii. 67.5 MW hydroelectric units to be installed at Cerron Grande, with a final capacity of 270 MW. iii. 33, 66 and 99 MW oil-fired steam units to be installed at suitable places on the Pacific coast. The characteristics of the selected units take into account the size of the system to be served and the efficient utilization of available resources. 2. The assumptions concerning capital, fuel and annual operating and maintenance (O&M) costs for each type of unit included in the comparison are shown on page 3. All costs exclude taxes, since CEL pays no taxes. Local unskilled labor, which is underutilized in El Salvador, has been shadow-priced at 50% of its cost. 3. The resulting cost streams for the six programs for the period 1974-2024, which covers the assumed useful life of the hydroelectric plant, are shown on page 4. A useful life of 25 years has been assumed for steam- electric and geothermal plants; each unit of this type has been replaced with like and kind at the end of its assumed useful life in the computations. Residual values of the remaining facilities have been treated as a negative cost at the end of the period. 4. The present worth of each program has been calculated for annual discount rates from 5 to 20%. As shown on the graph (page 5 of this annex), which shows the differences among the programs' net present worths, the recommended Program A is the least-cost solution for discount rates up to about 16%. 5. In a separate calculation, the assumed price of fuel was reduced by 10% for the two least-cost programs (the recommended Program A and the all steam-electric Program F). The results of this comparison were similar to the comparison of the six programs: the recommended program, denoted A' on the graph, is the preferable program for discount rates up to about 14.5% when compared to the next-best alternative, denoted F'. ALTERNATIVE GENERATION EXPANSION PROGRAMS Year Program A Program B Program C Progam D Program E Program F (Basic Program) (Geothermal (Cerron Grande (Geothermal (Geothermal (All Steam) 2nd Stage postponed) postponed) eliminated) postponed) 19?7 30 MW Ahuachapan 30 MW Ahuachapan 30 MW Ahuachapan 33 MW Steam 33 MW Steam 33 MW Steam 1975 1976 135 MW Cerron 135 MW Cerron 66 MW x 2 Steam 30 MW Ahuachapan 135 MW Cerron Grande 66 MW x 2 Steam Grande Grande 1977 135 MW Cerron Grande 1978 1979 67.5 MW Cerron 67.5 MW Cerron 135 MW Cerron 67.5 MW Cerron 66 MW Steam Grande Grande Grande Grande 1980 67.5 MW Cerron Grande 1981 30 NW x 2 Ahuacha- 66 MW Steam 66 MW Steam 66 MW Steam pan 1982 66 MW x 2 Steam 1983 99 MW Steam 99 MW Steam 67.5 MW Cerron Grande 99 MW Steam 66 MW Steam 1984 67.5 MW Cerron 67.5 Cerron 99 MW Steam 67.5 MW Cerron 67.5 MW Cerron 99 MW Steam Grande Grande Grande Grande (f 1985 Future Project Future Project Future Project Future Project Future Project Future Project O '3' (b ANNEX 8 Page 3 of 5 pages COST ASSUMPTIONS Items Values 1. Construction Cost Geothermal No. 1 ˘ 37.5 million (US$500/kW) Nc. 2 & 3 0 48.6 million (US$324/kW) Steam 33 MW US$ 280/kW 66 MW US$ 250/kW 99 NW US$ 200/kW Cerron Grande No. 1 & 2 0 169 million No. 3 0 19.3 million No. 4 0 21.2 million 2. Annual 0 & M Cost Geothermal Construction cost x .03 Steam Construction cost x .015 Cerron Grande 1,2 0 0.99 million +3 0 1.21 million +4 0 1.40 million 3. Fuel Cost Bunker C oil US$ 3.75/barrel Light Diesel oil US$ 4.60/barrel Heat rate 33 MW Steam 12,000 Btu/kWh 66 MW Steam 11,000 Btu/kWh 99 MW Steam 10,200 Btu/kWh Gas turbine 15,000 Btu/kWh Fuel Cost 33 MW Steam 0 1.94 x 10-2/kW 66 MW Steam 0 1.77 x 10-2/kWh 99 MW Steam 0 1.65 x 10-2/kW Gas turbine 0 3.30 x 10-2/kWh ANNEX 8 Page 4 of 5 pages PROJECTED COST STREAM (in millions of colones) Program A Program B Program C Program D Program E Program F 1972 7.85 7.85 5.59 2.41 4.57 2.41 1973 20.83 20.83 8.55 9.16 19.28 7.00 1974 61.13 61.13 27.24 31.69 56.21 22.32 1975 66.66 66.66 38.84 60.97 64.91 34.93 1976 50.46 50.46 70.72 85.68 53.08 61.o6 1977 22.48 22.48 54.46 57.55 25.35 18.82 1978 19.71 12.34 69.34 22.87 15.21 29.41 1979 26.13 19.33 57.93 13.35 22.20 48.47 1980 32.56 20.93 24.99 26.91 23.80 35.95 1981 24.31 42.81 13.86 37.20 45.45 55.86 1982 26.71 32.47 27.41 68.02 35.34 48.55 1983 53.40 58.66 44.03 28.35 61.30 74.70 1984 28.04 33.79 53.46 35.11 36.66 69.27 1985-98 23.03 28.59 28.40 29.91 31.46 44.35 1999 60.53 66.09 65.90 53.04 54.59 67.48 2000 23.03 28.59 28.40 29.91 31.46 44.35 2001 23.03 28.59 111.00 67.41 31.46 126.95 2002-03 23.03 28.59 28.40 29.91 31.46 44.35 2004 23.03 28.59 28.40 29.91 31.46 85.65 2005 23.03 28.59 28.40 29.91 31.46 44.35 2006 71.63 69.89 28.40 29.91 72.76 85.65 2007 23.03 28.59 28.40 112.51 31.46 44.35 2008 72.59 78.15 28.40 29.91 81.02 85.65 2009 23.03 28.59 77.96 29.91 31.46 93.91 2010-24 23.03 28.59 28.40 29.91 31.46 44.35 Residual value -21.33 -13.96 -18.64 -15.85 -10.76 -16.77 ANNE[ 8 Pge 5 of 5 pages APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR ECONOMIC COMPARISON OF PROGRAMS FOR EXPANSION OF ELECTRIC POWER SUPPLY FOR THE PERIOD 1974'1985 IF ____ F' (Fuel Cost -10%1 A: cawmmended Program \: Geothermal S cond StBa Postponed C: Ctrron Grind. Postponed D: Geothermal Pstponwed E: Geothernml Eliminsted F: All Stiem 100_ I~~~~ z c A E ~~~~~A ul Cost \1% F -BC- 5B D _5 20 Annual Discount Rnte %) December 1972 World Bank - 7207 INNEX 9 Plage 1 of 3 pages APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) RETURN ON THE PROGRAM INVESTMENT 1. Both generating facilities included in the Project involve substantial initial expenditures for works common to generating units in- cluded in the Project as well as those to be installed later. To be specific, the geothermal plant includes a canal designed for generating capacity three times the 30 MW to be installed initially; the ultimate capacity of the Cerron Grande hydro plant is double the 135 MW included in the Project. It is for this reason that the return on the program, rather than the Prcject, investment has been determined. In this determina- tion, the benefits to the country have been compared with the costs of the program selected as the least-cost solution of meeting El Salvador's incre- mental electricity needs for the period 1974-84 (see Annex 8). This com- parison has been extended over the assumed useful life (50 years) of the hydroelectric project. Project Benefits 2. To establish the minimum value of the program benefits, revenues have been determined by applying an estimated retail tariff of ˘0007 (US$0.028)/kWh to the generation of the Ahuachapan and Cerron Grande plants' final capacities, plus the additional energy which will be produced at Cinco de Noviemnbre as a result of increased regulation provided by the Cerron Grande dam, less transmission and distribution losses. 3. While Cerron Grande is not a flood control project, its regulating capacity will provide additional downstream benefits, including: a. Reduction of flood losses; b. Possibilities of increased agricultural production in the lower Lempa basin; and c. Increased potential generation of future hydro projects. The computations have not taken these benefits into account. Project Costs 4. The capital costs of the two generating plants and related trans- mission lines used in this determination are those estimated in the appro- priabe feasibility studies at world-market prices and consequently do not reflect minor modifications made by the appraisal team or the special allowance for IDB member-country procurement. In addition, estimated costs of distribution facilities to convey the energy to the retail consumer have been included. Facilities have been replaced with like and kind at the end of their assumed useful lives. ANNEX 9 Page 2 of 3 pages 5. Incremental operating and maintenance costs have been estimated for each plant and for transmission based on the consultants' studies, and for distribution based on the distribution companies' experience. 6. About 4,400 ha of the 13,500 ha to be inundated by the Cerron Grande reservoir is intensively cultivated, principally with sugar cane. The loss in net agricultural return because of Cerron Grande is estimated at 03 million (US$1.2 million) annually; this loss is reflected as a project cost in the estimated price of the land. Also included in the hydro project's capital costs are the value of the houses to be inundated and the cost of relocating the sugar mill. Income Transfers 7. As detailed in paragraph 6.10 of the report, the IDB loan would be on soft terms, which would compensate for the increased investment cost caused by restricted IDB member-country procurement even if that cost were to double. Under the assumption that El Salvador would have obtained this net transfer for another project if the Cerroh Grande project had not been available, the increased investment costs, which represent only income transfers between countries, have not been introduced into the estimated return on program investment. Return on the Investment 8. As shown on the accompanying table, the return on the program's investment is estimated to be at least 17%. R2TU10 00 THE AHUACLlAI AND COMI GRAMM IVEND2IS (In 1972 pWI- - tho.u.. of o010-*.) 1972 193 1974 195 1976 1977 1978 1979 1980 19S1 1982 l93 1984 1L985-95 1996 199 1W8 ^ 200-2002 2003-2D26 A_ nmb- _ _ 201 201 201 2a 201 201 603 603 603 603 603 603 603 603 603 603 603 Carron Gr_nd* 632 644 65 664 674 684 6e r* 69 694 69 69 6 Sjb.total _ Tranedrrion. los8 8 4 6% - - 13 13 35 43 50 51 75 76 77 77 78 _7S _18 78 7S 78 78 heor Sold by C2L to Distributiou C .i.s . . . 188 188 555 680 783 794 1,182 1,191 1,200 1.210 1,219 1.219 1.219 1,219 1,219 1,219 1,219 betrgy Simeneos * Am.g.o Retail Tariff of C.1 70/Wt _ . 13.2 13.2 38.5 47.6 54.6 55.6 82.7 83.4 84.0 84.7 85.3 85.3 85.3 85.3 85.3 85.3 85.3 Distribution tasss * 9% 1.2 1.2 3.4 4.3 4.9 5.0 7.4 7.5 7.6 7.6 7.7 7.7 7.7 7.7 7.7 7.7 7.7 Distributi Coot. C'urrnt e Cal 2/Wb _ _ 0.3 0.3 1.0 1.2 1.4 1.4 2.1 2.1 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 Capitel - 2.8 15.4 12.6 12.6 12.6 . - - - - - 2.8 15.4 12.6 - PIJCT 31TS _ - ( 2.8) 3.7) ( 0.9) 21.5 29.5 48.3 49.2 73.2 73.8 74.2 74.9 75.4 75.4 75.4 72.6 60.0 62.8 75.4 OATION & IAXUtAICR COSTS Tranamnion * Col 2/hb - - - 0.3 0.3 1.0 1.2 1.4 1.4 2.1 2.1 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 O nratiom . Aluahqpwn - _08 0.8 0.8 0.8 o.8 0.8 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 r - 0.8 0 1.1 1.1 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1. 2 1.2 NET O}RATW INC O - ( 2.8) ( 4.8) ( 2.0) 18.9 26.6 45.0 45.9 68.9 69.5 69.8 70.5 71.0 71.0 71.0 68.2 55.6 58.1 - CAPIAL COOTS IEMMincluding tronidosum lima 6.0 8.0 19.0 5.0 - - 7.0 11.0 24.0 6.0 - - - - 10.5 16.5 36.0 9.0 - Oerro aradU includiog tr,odasion nd land 2.0 12.0 40.0 52. 0 3 19.0 2 20.0 - . - - - 11nrB (wIrmj ; awi ) ; 208.0) (20.0) ( o.;) 3.6 14.021.9 62.9 6 9.5, *I.S . n.o 60.5 g . .2 4 .6 58.k 7 n1. M/ Includes additional gerAration at CDco do Irovi,r. attributable to Cereo Grande. Rt o7 Rturn * 16.7S Deee.er 1972 APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA (CEL) NET EMPLOYMENT EFFECT ON UNSKILLED LABOR FROM AHUACHAPAN AND CERRON GRANDE PROJECTS (in man-years) - - - - - - - - - - - - - - - New Jobs - - - - - - - - - - - - - - Approximate Number Ahuachapan Cerron Grande Faroming Total of Dislocated Farmers i Net Effect 1973 500 1,400 1 1,900 400 1,500 1974 500 1,400 - 1,900 400 1,500 1975 1,400 - 1,400 900 500 1976 1,400 - 1,400 1,300 100 1977 onwards 100 400 b/ 500 1,700 - 1,200 / / Assuming every sixth person of the present area population of 10,000 employed. / 250 farmers employed in the project area during reservoir drawdown and 150 farmers employed dovnstream. c/ To be offset by the resettlement program. December 1972 Revised March 1973 APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROEIECTRICA DEL RIO LEMPA (CEL) tLKN-TERB DEBT AT DECEMBER 31, 1971 (in thousands) OUTSTANDING AT DECEMBER 31. 1971 LENDER AND PROJECT LOAN ORIGINAL AMUJNT BEFORE REVALUATION APFRR REVALUATION IBRDjIDA DATE f US$ 1 US$ 1U$ 22-ES Guayabo Hydro 1949 31,362 12,545 7,753 3,101 7,819 3,128 221-ES Gusyabo Expansion 1959 6,757 2,703 4,727 1,891 5,086 2,034 263-ES GuaJoyo Hydro 1960 8,680 3,472 6,580 2,632 6,631 2,652 342-ES System Expansion 1963 14,847 5,939 11,567 4,627 13,194 5,278 Credit 227-ES Soyapango Gas Turbine 1971 14,000 5,600 Total IBRD/IDA 30,627 12,251 32,730 13,092 Bonds Guaranteed by Central Reserve Bank of El Salvador 1950-55 13,100 5,240 3,234 1,294 3,234 1,294 Loans from Central Reserve Bank of El Salvador LP-3 Relending of IDB pilot rural electrification loan 1962-63 457 183 418 167 4i8 167 LP-85 1969-71 5,000 2.000 2,500 l,OOO 2,500 1,000 Total Central Bank Loans 2,918 1,167 2,918 1,167 Suppliers Credits - Mitsubishi 1966-67 2,795 1,118 1,005 402 482 '-j Total Long-term Debt 36 =035 APPRAISAL OF S1XTH POWER PROJECT - EL SALVADOR COMISION EJBCUTIVA HIDB0ET0CRICA DEL RIO LEYPA (CEL) ESTIMATED IEBT SERVICE 1972-1978 (Thousands of Colones) 1972 1973 1974 1975 1976 1977 1978 lNTEREST Existing loans! IBRD loan 22-ES 310 220 125 26 IBRD loan 221-ES 288 272 253 235 215 194 172 IBRD loan 263-ES 377 358 339 317 296 272 248 IBMD loan 342-ES 714 669 623 573 519 465 406 IDA Credit 227-ES 466 1,008 977 944 908 870 829 1975 bonds guaranteed by Central Bank 151 107 60 12 Central Reserve Bonk Ioan LP-3 18 17 16 15 14 13 12 Central Reserve Bank Loan LP-85 128 Mitsubishi credits 55 13 Total existing loans 2,507 2.664 2,393 2,122 52 1814 1,667 Proposed loans! IDB Loan: interest and fees 625 713 815 947 1 028 5240 IBRD loan 685 1,957 3,224 4,173 4,811 4,948 Local borroving 860 1.170 1 152 - Total proposed loans _ 1,310 3,000 4,899 6,290 6,991 11,084 Future loans 72 404 1,031 Total Interest 2974 5,393 7,021 8,314 9,209 13,782 AMDRTIZATION Existing loans: IBRD Loan 22-ES 2,118 2,208 2,303 1,190 IBRD loan 221-ES 288 304 323 341 361 382 404 IBRD Loan 263-ES 319 338 357 379 400 424 448 IBRD Loan 342-ES 802 847 893 943 997 1,051 1,110 IDA Credit 227-ES 413 450 487 513 562 588 1975 bonds 877 915 954 488 Central Reserve Bank Loan LP-3 21 22 23 23 24 25 26 Central Reserve Bank Loan LP-85 2,500 Mitsubishi credits 671 535 Total existing loans 7,596 5,582 5.303 3,851 2,257 Proposed loans: IDB loan 2,6 IBRD loan 1,57 local borrowing 3 200 Total proposed loans ---00 Total Amortization 5.582 30 2,295 ,021 ' November 1972 Revised December 192 Revised March 1973 APPRAISAL OF SIXTH POWER PROJECT - EL SALVADOR COMISION EJECUTIVA HIDROELECTRICA DEL RIO LRMPA (CEL) ACTUAL AND FORECAST INCOME STATEMENTS 1969-1978 (in thousands of colones) Actual Forecast 1969 1970 197 1972 1973 1974 1975 1976 1977 1978 Operating revenues; Sales in GWh 499.0 538.8 598.3 671.0 744.o 827.0 920.0 1,024.0 1,140.0 1,266.0 Average revenue per kWh (in centavos) 4.o4 4.06 4.04 4.oo 3.95 3.94 3.93 3.92 3.91 3.90 Operating revenues from sales 20,172 21,865 24,187 26,840 29,388 32,584 36,156 40,141 44,574 49,374 Other operating revenues . 5 5 8 Total operating revenues 20,177 21.870 24,195 26.84o 29.388 32.584 36.156 40, 141 44,574 49,374 Operating expenses: Depreciation 3,121 3,596 6,176 6,288 3,680 6,13 8,129 8,267 le,2 I?, 125 Fuel 813 1,460 1,765 2,703 3,963 1 6, 8,0 2,3 5183 labor 2,833 2,472 2,629 2,745 2,867 3,350 3,494 46o56 4,231 464i4 Other operating expenses 445 899 1.554 1.200 1,555 1,603 1.894 2,084 16967 1,983 Total operating expenses 7,254 8,368 io,124 10.936 14-o6s 15,242 19,889 22.437 20.853 21,o4o Net income from operations 12,923 13,502 14,071 15,904 15,323 17,342 16,267 17.704 23,721 28,334 Non-operating income 71 416 86 275 300 100 - - 500 1,000 Net income before interest 12,994 13,918 14,157 16,179 15,623 17,44? 16,267 17,704 24,221 29,334 Interest paid 2,857 2,433 2,282 2,507 3,974 5,393 7,021 8,314 9,209 13,782 Leoss interest charged to construction 592 339 338 466 1,310 2,670 4,239 5,992 2,771 1,031 Interest charged to income 2,265 2.094 1.944 2,o41 2,664 2,723 2.782 2,322 6,438 12,751 Set income 10,729 11,824 12,213 14,138 12,959 i4,719 13.485 15,382 17,783 16,583 E_quty: - - --. o... ...... 128 1,45 157,164 171,949 18B,631 207,714 Contributions of capital J - _ _ _ 1,300 1,300 1,300 1,300 1,300 1,300 a Other (charges) or credits 4124 ( 139) ( 4) Equity at end of year 139,26 2 1a1.165 151,4 17 25L597 a ru . 2/ Contributions by government for rural electrification. ANNEX 12 Page 2 of 2 pages ASSUMPTIONS USED IN FORECASTS 1972-1978 Sales and Revenues: GWh sales - Average annual increase - 11% Average revenue per kWh - 1971 - 4.04 centavos 1972 - 4.00) reflecting elimination of 1973 - 3.95) retroactive demand charge beginning 1972 1974 and on-decreasing by 0.01 centavo annrally Depreciation: Tye of Property Annual Straight-line Rate Hydro production 2.07 Geothermal production 4.0 Gas turbine 5.0 Telemetering center equipment 3.5 Village electrification 3.5 Other distribution 3.0 Fuel Price perbarrel Price per million p P BTU - US Bunker C oil: through 1974 4140 17.7 0.32 1975-1978 9.38 375 0.69 Light diesel 11.50 4.60 0.89 Operating personnel: Professional Non-professional Number of personnel - 1972 197 437 Annual increase in personnel (except new generating plants) - percent 1% 1% Number of personnel - Ahuachapan geothermal unit 1 (beginning 1974) 15 38 Number of personnel - Cerron Grande units 1 and 2 (beginning 1976) 31 81 Average 1971 salary - colones 7,512 2,688 Average annual salary increase in forecast period - percent 3% 4% Other operating costs: For maintenance of thermal generating facilities - %0.002/kWh of non-hydro generation For other operating costs - 03,600/MW of installed capacity Non-operating income: Annual interest rate applied to estimated excess cash balances - percent - 5% December 1972 APPRAISAL OF SD17TH P0OIR PRDJECT - EL SALVADOR CONSISON EJECTIYJVA HIDROELECTRICA DEL RIO SIMPA (CLR13 ACTUAL ADD FoREcAsT RALAN!cE RIEmP AT DzC~4ER 31. 1.969 THROUGH 1978 (thousan,dS of coloses) - i2ii __ __m 1973 194197 1276 1m 1978 (See not. A) Utllity plant in service 133,469 156,539 166,753 168,185 197.631 201.7o6 24.352 44 .5w 458,385 460,835 Le.:: wccuasat.d depreciation 9lM. %3 "99 7~0 7. Ie tility p lant in aervice UT,9 2 ~ 13~7 190 152,788 W 729 378,5 6,7 Con,struction wnrk in progress 21.46i1 1 868 23 134 29 855 100 35332.821 12R327 Ret utility plant ~~~~~~~~ ~~~~127,700 13,234 !f337- 250,773 325,590 376,05138,73933 Invest,et in Distribuidor. Electrica. de lU.lutac S.E.N. 100 300 300 300 300 300 300 300 300 300 Cur,rent assets: Cashs and equIvlent 1,722 1,592 7,567 8,389 5,895 359 60 1,597 17,3 31767 Accounts receivable, less reve3,086 3,455 3,579 3,350 3,700 4,100 4,500 5,000 5,600 '6,200 Materials and supplies 960 1,252 1,038 1,700 1,900 1,9C0 2,400 3,800 4,500 4,500 Prepaid expenses 78 166 183 200 200 250 250 . Total current assets _____62.6766 9 337957.210 _____ Deferred charges: Studie, of future projects 5,852 7,309 8,183 8,183 5,969 6,569 2,871 3,500 4,500 5,500 Other deferred charges i.367 _J74 -?78 400 400 450 40500 0 Total deferred charges 7.2197,3l _F5 TOTAL ASSErS .140865 146682 15,7 7.678 201,007 264.701 336.21 39.46431_7 441.-50 I,aRILITIRS AND CAPITAL Equity 89,262 100,947 112,748 126,886 141,145 157,164 171,949 188,631 207,71.4 225,597 Long-tera debt 46,oo2 43,644 4o,o088 45,542 57,362 104,837 161,372 19B,917 21.2,793 213,3303 Less: A-sunt due within one yeaw 458 7 160 7,596 58 5,301 .3,85, 2.295 5,644 10.02 10,913 Net long-tars debt __92_ 5P,059 il0O9 159,007 193,27320722239 Current liabilitites: Debt due within one year 5,558 7,160 7,596 5,582 5,303 3,851 2,295 5,644 10,021 10,913 Payable. 4,057 1,729 1,752 1,850 2,100 2,300 2,700 3,100 2,200 2,200 Decosits _42221 1 200 200 200 200 200 200 200 Total current liabiliti.. 10 9.110 9507,632 7,0 6,5 5,195 1202 13,313 Deferred credits 1.5141 14200 200 200 200 200 200 20 TOTAL LIAIILITIES SlID CAPITAL 1~~~~~~40.865 14t6.682 154.974 174.678 210764013,41391,048 423,107 441,50 Ncte A: Utility plant in service nod long-tern debt have been incresod by %2,304 to reflect currency revaluation. ANNEX 13 Page 2 of 2 pages ACCOUNTING MATTERS AND THEIR SUGGESTED SOLUTION 1. CEL's balance sheet at December 31, 1971, did not reflect the increase in the amount of CEL's external debt caused by the various 1971 currency revasuations. This increase amounted to about $2.3 million (US$920,000), as detailed in Annex 11. During the appraisal mission, it was suggested that CEL should reflect this revaluation as of January 1, 1972 by: a. increasing the book value of its external debt to show the valuation computed by the Central Reserve Bank of El Salvador; b. increasing the value of its fixed assets by a corresponding amount; and c. depreciating the increased asset value over a period of 20 to 25 years, which would represent the remaining life of the assets. 2. As of December 31, 1971 CEL was carrying about 08.2 million (US$3.3 million) of studies as deferred charges on its books. These studies included expenditures associated with future projects and for other purposes as shown below: - - - - thousands - - - - Poza del Silencio 01,071 US$ 428 Geothermal resources 4,898 1,959 Others 2,214 886 Total -08,183 US$3,273 Since CEL had not selected a definite accounting treatment for these studies, the appraisal mission suggested that it establish the following procedure for capitalizing and writing off these studies: a. For any studies directly associated with a future project: capitalization when the project is commissioned and depreciation over its life. b. For all other studies not related to a project planned within the next five years at December 31, 1972 and each succeeding year-end: capitalization on the following January 1 and write-off over five years. December 1972 APPRAISAL OF SIXTH POWER PROJECT - EL SAtVADOR CONISION EJSCUTIVA IIDRO!LECTRICA DEL RIO LEXPA (CEL) SOURCES AND AFPLICATIONS OF FUNDS 1972-78 Tota.l 1972 1973 1974 1i9 1976 1977 1972-1977 1978 SOURCES OF FtIDS Tntornal generation! Net income before interest 16,179 15,623 17,442 16,267 17,704 24,221 107,436 29,334 Depreciation _4,288 5,680 6.123 8.129 8,267 12,272 44,759 12,125 Total internal generation 20,467 21,303 23,565 24.396 25,971 36.493 152,195 41,459 Borrovings: Existing loan - IDA Credit 227-ES 13,050 950 - - - - 14,000 - Proposed loans: I;D loan - 3,860 22,775 36,o63 23,225 9,327 95,250 - IBFD loan - 12,592 21,753 19,323 11,793 2,789 68,250 - Local borrowing - - 8.250 5. 2.750 16,000 - Total proposed loans - 16,452 52,778 60.386 37,768 12,116 179,500 4'uturt loans - foreign cost of Cerron Grande and geotherul extensions - - - _ 2.072 7.4C4 9,476 1053 Total borrowings 13,050 17,402 52,778 60,386 39,840 19,520 202,976 10,531 Governent contributions - village electrification 1 L300 1 1.3001, 300 300 6.500 1300 TOTAL SOURCES OF FUrDS 33,517 40.005 77,643 86.082 67,111 57,313 361,6n 53.290 APPLICATIONS OF FUNDS Construction program (including interest and fees during construction) Existing projects: Fifth project (gas turbine & line) 15,632 1,864 - - 17,496 - AcaJutla gas turbine - 6,250 6,250 Geothermal drilling program 1,625 1,375 - - - - ,G Total existing projects 17,257 9,489 - - _ 26,746 Proposed project: Cerron Grande - Units 1 and 2 800 10,838 49,687 67,348 47,215 12,977 188,865 Ahuachapan geothermal plant - Unit 1 2,691 9,029 18,508 3,761 - - 33,989 Telemtering center _ 687 938 - 1,625 Training and studies _ 100 SSO 1,400 1,200 - Interest and fees during construction - 1,310 2,670 4,239 5,920 2,367 I,0 Total proposed project 3,491 21,964 72,353 76,748 54,335 15,344 244,235 - Other: Future geotheral - - - - - - - 1,000 Cerron Grande Unit 3 - - _ 2,072 8,404 10,476 11.031 Village electrification 500 1,800 1,800 1,80 1,800 1,800 9,500 1,800 Other distribution and general 500 500 500 500 500 500 3,000 500 Other studies 950 200 200 200 650 1,150 3,350 1,4O Total construction program 22,698 33,953 74,853 79,248 59,357 27,198 297,307 15.481 Debt service: Interest charged to income 2,041 2,664 2,723 2,782 2.322 6,438 18,970 12,751 Amortization 7,596 5,582 53303 .851 2,295 5,644 30,271 10,021 Total debt zervice excluding interest and fees during construction 9,637 8,246 8,026 6,633 4,617 12,082 49,241 22,772 Additions to working capital: Other than cash 360 300 300 500 l,600 2,ZoO 5,260 700 Cash 822 (2,494) ( 5,536) ( 1,537 15,833 9,863 14,337 Total additions to working capital 1,182 ( 219) ,26) 201 3,137 18,033 15,123 15,037 TOTAL APPLICATIONS OF FUNDS 33,517 , 40005 77.643 816,02 67_Ill 57,313 -6-, 2 Cash st beginning of year 7,567 8,389 5,895 359 60 1,597 17,430 Cash at end of year 8,389 5,895 359 60 1,597 17,430 31,767 - November 1972 Revised January 1973 Revised March 1973 APPRAISAL OF SIXTH POWER POJECT - EL SALVADOR COMISION EJECllTIVA HIDROELECTRICA DEL RIO IMPA (CEL) ACTUAL AND FORECAST KEY FINANCIAL RATIOS (Amounts erpressed in thousands of colones) - Actual- - - - - - -Forecast - - - - - - - - - - - -- - - 1969 1970 1971 - - -1973 1-74 1975 1976 1978 Return on Net Plant Average net utility plant in operation 107,526 115,986 128,805 130,450 140,905 151,764 170,498 281,743 375,991 373,913 Net operating income 12,923 13,502 14,071 15,904 15,323 17,342 16,267 17,704 23,721 28,334 Percentage return 12.0 11.6 10.9 12.2 10.9 11.4 9.5 6.3 6.3 7.6 Debt TSines debt service covered by internal casb generation. 1.3 2.2 1.9 2.0 2.2 2.2 2.2 2.4 2.5 1.7 labt/eqiity ratio 32/68 27/73 22/78 24/76 27/73 39/61 48/52 51/49 49/51 47/53 W w.)kng Capi t aL Worki} ,L' c4pital at year-ernd 167 - 2,645 2,827 6,0o7 4,092 258 2,015 1,753 - 15,409 29,504 (.Urre3jt IatiO (to 1.0) 1.0 0.7 1.3 1.8 1.5 1.0 1.4 1.2 2.2 3.2 treciation Ab a percent-age of average gross utility plant 2.34 2.48 2.58 2.56 3.11 3.07 3.60 2.40 2.73 2.64 Novenmber 1972 Revised January 1973 Revised February )i9 73 Revised March 1973 SJ t ~~Co rib6 a a I R IHONO SeaLV.-. 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