R E S T R I C T E D

Report No. TO-196-b

This report was prepared for use within the Bank. In making itavailable to others, the Bank assumes no responsibility to them forthe accuracy or completeness of the information contained herein.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

EXPANSION OF THE GUAYABO HYDROELECTRIC PROJECT

EL SALVADOR

February 12, 1959

Department of Technical Operations

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CURRENCY EQUIVALENTS

us $I.00 . 2.50 Colones (;)(t1.00 . US $0.40US $1 Million * I 2.5 Millionj I M£llion * $400,008

EXPANSION OF THE GUAYABO HYDROI-LECTRIC PROJECTi3 SALVADOR

TABLE OF CONTENTS

Page

SUPMARY i

I. INTRODUCTION 1

II. THE BORROWER 1Organization and Management 1Ability to Carry Out the Project 2Facilities of CEL 2Present Financial Position 2

III. THE POWER 1MARKET 4Overall Power Consumption 4Forecast for CEIL System 5

IV. THE PROJECT 5Description 5International Aspects 7Status of Engineering 7Estimated Cost 7Sources of Funds 8

V. FINANCIAL ASPECTS 9Power Rates 9Cost of Operation 10Program of Future Expansion 11Financial Forecast 11Financial Plan 13

VI. ECONOMIC ASPECTS 14

VII. CONCLUSIONS

ANNEX 1 - Utility Systems in El Salvador." 2 - Condensed Income Statements, 1954-57 inclusive.

3 - Condensed Ba.ance Sheets, 1954-57 inclusive.4 - Forecast of Load Growth and Capacitv Reauirements.

5 Map) of Project"I 6 - Rates of Expenditure for the Guayabo Project and for

Future Construction.7 - Forecast of Income Statement.

n 8 - Forecast of Cash Flow.if 9 - Pro-Forma Balance Sheets for the years 1958-65i 10 - Forecast of Earnings and Cash Flow Statement assuming

an increase for CAESS power rates.r' 11 - Return on Additional Capital in Hydro over a Thermal

Alternative.

EXPANSIOM OF THE GUAYABO HYDROELECTRIC PROJECTEL SkLVllDOR

SUYT:ARY

In 1949 the Bank made a loan of $12.5 million to the Comision EjecutivaHidroelectrica del Rio Lempa (CEL) to assist in the construction of theGuayabo hydroelectric plant on the Rio Lempa with an initial installation of30 Nf. The plant began operations in June 1954. In 1957 CEL, without Bankassistance, added a third unit of 15 MN to the plant and built a regulatorydamn at the outflow of Lake Guija on the Rio Desague which flows into theRio Lempa.

ii. CEL originally asked the Bank to make a loan of about $2.9 millionequivalent to assist in financing the addition of the 4th unit in the G-uayaboplant and to extend its transmission system. During negotiations a loan of$3 million equivalent was agreed upon.

iii. CEL is a semi-autonomous Government agency created by law in 1945. Atpresent it owns and operates 45 NJ of generating capacity. This is 70% ofthe total capacity in the country. CEL sells wholesale only and serves sevendistributors. These seven companies serve 945/§ of the consumers in thecolntry and account for 78% of total retail sales.

iv. CEL has operated at a deficit since it started in mid 1954, and theaccumulated deficit at the end of 1957 amounted to ¢ 4.4 million. During theperiod 1954/57 CEL received advances from the Government in the form. of non-interest-bearing loans amounting to ¢ 10.1 million and equity contributionsamounting to 0 1.1 million. As of December 31, 1957, CEL's net fixed assetsand work in progress amounted to ¢ 58.9 million, and its total capitalization,including the deficit, amounted to ¢ 62.3 million. If all of the Governmentnoon-interest-bearing subsidies were treated as equity, long-term debt would be

5 55.5 million and the debt/equity ratio would be 89/11. If the subsidieswere considered deferred long-term debt, which would then amount to ¢ 65.6mi:Llion, the equity would be more than offset by the deficit.

v. CEL's initial power rates, established in 1954, were such that the retailrates of CEL's principal customer, CAESS, the distributing company in SanSalvador, could be reduced by about 20%. As a consequence, as previouslypo-Lnted out, there have been operating deficits since CEL started in business.In 1957 the cost of production, exclusive of interest on Govermnent subsidies,exceeded revenues by 17,/t.

vi. Since 1946 the demand for electricity in El Salvador has increased at anaverage annual rate of 14.7%o. After taking this and the results of otherstudies into consideration, CEL and its consultants forecast a load growth atthe rate of 121 a year. Based on this rate of growth, which is reasonable,the peak demand would increase from 40 M14 in 1958 to 120 MJ in 1968, or about68 INs in excess of CEL's present installed capacity plus the existing thermalstandby. The proposed 4th unit in Guayabo plant would enable CEL to meet theprojected demand only until the first part of 1963.

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vii. The existing Guayabo dam and hydroelectric plant are located on the RioLempa about 80 km downstream from Lake Guija and 125 km above the mouth ofthe river. The Guayabo reservoir provides about 177 million cubic meters ofstorage. Regulated releases from Lake Guija supplement this storage. Theregulating works consist of a concrete dan located at the east end of the3 km outlet channel from Lake Guija and a canal above the dam leading into thelake. The lake level can be raised to elevation 432 meters by the dam and thecanal permits the drawdown of the lake 11 meters to elevation 421. CEL nowproposes to deepen the canal so that the level of the lake can be drawn downanother 4 meters to elevation 417. After this is done, a usable storage of370 million cubic meters will be available from Lake Guija. As there isconsiderable leakage from the lake at present, it will be necessary to sealthe leakage by grouting and a small earth dyke. The deepening of the outletcanal and the sealing of the lake would be necessary to assure that sufficientwater would be available during the dry season for the proposed 15 Nd unit atthe Guayabo plant, and, while a part of the project, would not be financed bythe proposed Bank loan.

viii. The project for which the Bank loan would be used would consist of:

(a) The installation of a fourth turbo-generator unit of 15 frgcapacity in the existing underground powerhouse of the Guayabohydroelectric plant, with the attendant intake, tailracetunnel, surge chamber and substation.

(b) The construction of a new 115 KV transmission line from SanSalvador to Santa Ana (the second largest city in El Salvador),a distance of 60 kilometers. The San Salvador substationwould be enlarged and a new substation erected at Santa Ana.

ix. The engineering on the project has been done by the Harza EngineeringCompany of Chicago and is complete except for the preparation of finaldesigns and specifications.

x. The project, including the work at Lake Guija, is estimated to cost theequivalent of $6.5 million, of which $4.7 million would be in foreign exchange.The cost of the project in excess of the proposed Bank loan ($3 million)would be met from a Government loan equivalent to $2 million and cash avail-able to CEL amounting to $1.6 million equivalent during the three yearconstruction period.

xi. About three-tenths of the surface of Lake Guija is in Guatemala. Priorto the construction of the regulating works, the President of El SalvadorreceDived a letter from the President of Guatemala on June 11, 1952, statingin effect that his Government had' no objection. 'All of the' structureswhich regulate the level of the lake and the proposed grouting work willbe in El Salvador.

xii. In forecasting its future earnings, CEL's management has used an averagerate which is about 10% above the actual rate received in 1957. On this basis

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CEL should show a profit for the first time in 1958. Cash receipts fromoperations, however, would not cover debt service in 1958 or 1959. In thenext three years debt service coverage would increase from 1.16 times in1960 to 1.39 times in 1965. This is not satisfactory. The accumulateddeficit at the end of 1957 would be eliminated by end 1960. If interest onthe Government advances were assumed, or if Government advances were treatedas equity and earned a reasonable return, the financial results would beeven less satisfactory. During negotiations GEL informed the Bank that itagreed to obtain an increase of about 20% in the rates charged its principalconsumer, CAESS. (Other consumers now pay somewhat higher rates than CAESS.)The Government also agreed to convert its non-interest-bearing subsidies toCEL into equity.

xiii. On the basis that Government subsidies would be converted into equity,and that the rate to CA,SS would be increased 20'5, CEL should, by 1962,cover its debt service 1.52 times and earn a return of more than 8;o on netfixed property, 7wThich is reasonable.

xiv. The project is suitable as a basis for a loan to CEL of about $3 millionfor a period of 25 years including a grace period of 3 years.

EXPANSION OF TEE GUAYABO HYDROELECTRIC PROJECTEL SALVADOR

I. INTRODUCTION

1. The Bank made a loan of about $12.5 million (22-ES) in 1949 to theComision Ejecutiva Hidroelectrica del Rio Lempa (CEL) to assist in the construc-tion of the Guayabo hydroelectric plant on the Rio Lempa. This installationcornprised two turbo-generator units of 15 IKUW each. The initial operationbegan in June 1954 and the plant was completed at the end of 1954. In 1957CEL, without Bank assistance, added a third unit of 15 NiW,, and built a regulat-ingr dam at the outflow of Lake Guija on the Rio Desague which is a tributary ofthe Rio Lempa in its upper watershed.

2. CEL has now requested the Bank to make a loan of approximately $2.9limillion to assist in expanding the Guayabo plant by adding a fourth unit of15 MW, and in extending transmission facilities. In addition, CEL will sealthe leakage from Lake Guija and further excavate the outlet channel. Thiswill be necessary to assure sufficient storage capacity in the lake for theoperation of the expanded Guayabo plant.

3. This report covers an appraisal of the project. It is based on informa-tion supplied by CEL, a detailed report by their consulting engineers and onfield studies and discussions by a Bank mission which visited the project atthe end of July 1958.

II. THE BORR01ER

Organization and Vianagement

4. CEL is a semi-autonomous governmental agency created by an Act of theSalvadorian Legislative Assembly in October 1945. Its seven member board ofdirectors includes four appointees of Ministries of the Government. Of theother members one is appointed by the banks, one by the local bondholders ofCEL and one is selected by the Minister of Economy from a commercial organiza-ticn. Terms are for four years and are staggered. The board appoints ageneral manager who is responsible for all administrative functions.

5. The board is composed of men of high standing and integrity. The boardcontrols financial policy. The Chairman has held office during both theconstruction and operating periods. The present General Manager has been inoffice since early 1956, prior to which he was Assistant General Yanager.The management has a full-time experienced foreign adviser on utility opera-tion. CEL has an operating staff of about 170 employees. Actual constructionplanning and engineering is done by consulting engineers retained by CEL. Atthe present time the Hraza Engineering Company of Chicago is handling thehydroelectric work.

6. CEL's accounting staff and system are weak. CEL, however, has agreedupon a reorganization of the accounting department and improvement of its

I/ During negotiations the loan was increased to $3 million.

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accounting system in line with modern utility practice.

Ability to Carry Out The Project

7. On the basis of our past experience, CEL is fully capable of carryingout the construction of the project with the present consulting engineers,or others equally capable, who would continue in the employ of CEL and haveteschnical responsibility for project designs and supervision of construction.

Facilities of CEL

8. At present CEL, which sells electricity wholesale only, owns and operates4'j5 Y which is about 70% of the 65.7 MYiW of utility systems generating capacityin the country. It has been given responsibility for the wholesale supply ofthe electric energy requirements of the country. Distribution is the functionof private utilities and municipalities practically all of whom, except a fewsmall isolated communities, will soon be interconnected by adequate trans-mission systems. A list of the country's utility systems, together with theirgenerating capacities and annual sales, is shown in A,nnex 1. The sevencustomers served by CEL account for 94% of the consumers and 78% of thecountry's total sales.

Present Financial Position

9. In its first four years CEL operated at a deficit which, after deprecia-tion and interest, reached a total of ¢ 4.4 million at the end of 1,957 (thecondensed income statements for this period are shown in Annex 2). Somedeficit was expected to arise in the initial operating period required topermit the load on the system to develop, but because of inadequate wholesalerates, the deficit was both of a greater size and a longer duration than itwould have been had the rates initially been set at a satisfactory level.

10. Condensed balance sheets of GEL as of June 30, 1954 (the start of opera-tions) and as of December 31, 1954-195? inclusive, are given in Annex 3.As of December 31, 1957, fixed assets were as follows:

(in millions of Colones)

Guayabo Hydro Plant 44.2Substations and Transmission Lines 10.4Control Works at Lake Guija 6.5Other Assets *7

61.8Less: Depreciation 3.9Net Fixed Assets 57.9Work in Progress 1.0

Total Net Fixed Assets and WJork in Progress 58.9

11. The capitalization as of December 31, 1957, is summarized below:

( Millions)Long-Term Debt

IBRD Loan 22-ES - 4&Lf due 1975 29.155% Bonds due in 1975 12.15; Bonds due in 1960, 1964 and 1969 11.5Loans from Local Financial Institutions 0.8Government Loan for Guayabo #4 Unit (non-

interest-bearing) 2.0Total 55.5

Government Subsidies (non-interest-bearing)Government Subsidies for Expenses 6.5Government Subsidies to cover debt service

on 3onds due in 1960, 1964 and 1969 3.6Total 10.1

Capital Account 0.2Other Government Capital Contributions 0.9

Total 1.1

Deficit as reported (4-4)

Total Capitalization including deficit 62.3

12. As of December 31, 1957, the principal item of long-term debt is the W4I%IBED loan (22-ES), the balance outstanding being ¢ 29.1 million equivalent.This loan originally totalled $12.5 million or 0 31.4 million equivalent.The final maturity is due in 1975.

13. CEL has four publicly-held bond issues outstanding, each bearing aninterest rate of 5% and having the Government guarantee. The first issue of¢ 13 million (due in 1975) was made in 1950, in connection with the firstIB1D loan, to provide local currency for the initial construction of theGuayabo plant. As of December 31, 1957, the amount outstanding had beenreduced to ¢ 12.1 million. Between 1952 and 1955 CEL made three other bondissues totalling ¢ 11.5 million (due in 1960, 1964 and 1969). These werereqLuired because of increases in cost of material and labor for the oroject,for construction of the control works on Lake Guija and for the installationof a third 15 I.W unit at the Guayabo plant. There has been no amortizationof these three loans to date. A particular feature of them is that theassociated debt service has been assumed by the Government through annualsubsidies to be made to CEL during the 10 year period 1956-67. These sub-sidies amounted to ¢ 3.6 million by the end of 1957.

14. A number of small medium-term loans totalling ¢ 800,000 are outstanding,which were obtained from finance institutions, for financing the constructionof transmission lines. They bear an annual interest of 7T and will beconpletely repaid by 1960.

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15. The Government is making a ¢ 5 million loan for the project under review.¢ 4 million was received in 1957 and 1958, and the balance will bereceived during 1959. This is a non-interest_bearing loan, to berepaid in annual instalments of ¢ 250,000 for 20 years beginning in 1961.

16. Other Government subsidies included ¢ 6.5 million between 1948 and 1955for organizational and administrative expenses and for working capital. Allof' the Government subsidies are now debts, but are interest-free and rankjunior to all other o'oligations of C3L. They are to be repaid, not accordingtc any fixed schedule, but only as and when GEL is able to earn more thanrequired to meet other financial charges, to establish adequate reserves, andtc, provide for necessary expansion. These subsidies, therefore, are virtuallyequivalent to additional Government investment in C L's equity.

17'. Apart from these subsidies, the equity consists of funds invested by theGcvernment in CEL at the time CEL was established to cover preliminary expenses,and certain capital assets consisting principally of transmission lines builtby the Government and transferred to CEL. From time to time the Governmenthas also borne additional costs such as, for example, the cost of a specialinvestigation in the field of geothermal resources.

18. If all Government subsidies were considered as deferred long-term debt,the small equity would be more than offset by the deficit. If all Governmentsubsidies were treated as equity, the equity as of December 31, 1957, wouldhave amounted to 0 11.2 million. If the deficit of ¢ 4.4 million were deducted,the net equity would amount to ¢ 6.8 million. With a long-term debt of 0 55.5million, CEL's debt/equity ratio would then be 89/11.

19. The present unsatisfactory financial situation of CEL will be improvedsomewhat from expanded sales and a higher average rate per kwh (see paragraph45)

III. THE POrER MIARKET

20. El Salvador is the smallest (13,000 sq. miles) but about the most denselypopulated (2.3 million inhabitants) of the Central American republics. It isa mountainous country with a narrow coastal plain. The capital city is SanSalvador, situated near the center of the country at an altitude of 2,200 ft.above sea level. El Salvador is essentially an agricultural country, coffeebeing its principal crop. Other products are cotton, sugar and corn. In 1957it exported over 92,000 tons of coffee at a value of about $110 million.

Overall PoT!vr Consumption

21. Since 1946, the dem3nd for electricit- in El Salvador has increased at anaverage annual rate of l47T%. The average per capita consumption in 1956 was54 kwh. This compares with per capita consumption of 11 kwh in Honduras, 37kwh in Guatemala and Nicaragua, and 235 kwh in Costa Rica.

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22. All new generating capacity will in the future probably be constructed byCEL, and the increasing nation-wide needs for power will be supplied almostentirely through CEL's interconnected transmission system. Only a relativelysmall amount of future energy will be supplied from privately owned plantsoutside the CEL system.

Forecast For CEL System

23. CEL, in collaboration with its consulting engineers, has prepared a fore-cast of load growth. In their studies the following methods of forecastingwere followed:

(1) Comparative Utilization - a method whereby it is assumed that in10 years the per capita rate of consumption in El Salvador willecual half that of the present per capita consumption of herneighboring country Costa Rica. This showed a rate of growth of11.45' per year.

(2) Specific Load Estimates - a method whereby individual distributingagencies loads are forecast. This showed a rate of growth of12.9% per year.

(3) Trend Analysis - a method whereby past increases are assumed tocontinue. This showed that the rate of growth of the consumptionof electricity in El Salvador during the past 10 years, in spiteof periods of suppression due to inadequate capacity, has beenquite uniform and has averaged 14.7o per annum.

24. Taking into consideration these studies a rate of growth of 12%, per yearwas used in forecasting future demands. This rate of growth is reasonable.The forecast is shown graphically in Annex 4, together with the additions ofnewi generating capacity which would meet this demand.l/ It shows that the peakdemand will increase from 40 rN in 1958 to 120 1r. in 1968, or about 68 YSi inexcess of GDL's present inFtalled capacity plus the existing thermal standby.

IV. THE PROJECT

Description

25. The project would consist of:

(a) The installation of a fourth turbo-generator unit of 15 I4Wcapacity in an addition to the existing underground powerhouseof the Guayabo hydroelectric plant, with the attendant intake,tailrace tunnel, surge chamber, and an addition to the existingsubstation facilities.

i/ It should be noted on the chart that no reserve capacity is to beprovided for.

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(b) The construction of a new 115 KV transmission line from SanSalvador to Santa Ana (the second largest city in El Salvador),a distance of 60 kilometers, with an expansion to the sub-station at San Salvador and construction of a new substationat Santa Ana. (See Map - Annex 5.)

As a part of the project but not financed by the Bank, CEL will seal leakagefrom Lake Guija by means of an earth dyke and grout curtain and complete thelake outlet channel to permit greater utilization of the storage within the lakeA rnap showing the project is included at the end of this report.

26.. In June 1957 CEL received legislative authorization to proceed with thesealing of Lake Guija and the construction of the Guajoyo project just belowthe outlet works at Lake Guija. The plans for development have been changed,however, and CEL now will undertake the Guayabo expansion project. TheSa]Lvadorian Congress authorized GEL in November 1958 to obtain a foreign loanfor the project. Ratification of the loan documents by Congress will also berequired.

27. The Guayabo dam and hydroelectric plant (also known locally as the "5 deMoviembre" plant) are located on the Rio Lempa about 80 kilometers east ofLake Guija and about 125 kilometers upstream of the mouth of the river. Thedam is of the concrete gravity type and 65 meters high. The Guayabo reservoirprovides 177 million cubic meters of useful storage, and covers an area ofabout 19 sq. km.

28. Existing storage in the Guayabo reservoir is supplemented by regulatedreleases from Lake Guija which reach the reservoir through some 9 km of theRio Desague and thence through the Rio Lempa for the remaining distance ofapproximately 70 km. Lake Guija has a surface area of about 42 squarekilometers, about three-tenths of which extends into Guatemala. As a partof the original Guayabo development, outside of the Bank project, a regulat-ing concrete dam (Puente Viejo) was constructed at the east end of the 3 kmoutlet channel (Canal Desague) flowing from Lake Guija. About 1 km of thischannel was excavated at that time to an elevation which would permit usingthe lake as a regulating reservoir doln to elevation 421 meters, a drop of11 meters from the maximum elevation of 432 meters to which the lake levelcan be raised by the Puente Viejo dam.

29. As a part of the present project, it is planned to deepen the wholeDesague channel so that the level of the lake can be drawn down another 4meters to 417 meters, thus enabling the utilization of a storage of 370million cubic meters, a little over twice the usable storage of Guayabo damand reservoir. This storage will be sufficient to firm up the 60 IMR ofcapacity which the Guayabo plant will have upon completion of the project.It will also be necessary to seal off the present seepage in the vicinity ofthe Puente Viejo dam by means of grouting and the construction of an earthdyke, all of which is also included in the project. In a normal rainfallyear, the lake now varies between a maximum elevation of 430 and a minimumof 426. In its natural state before the regulating dam was built the lakeis reported to have reached a maximum elevation of 435. Although the regu-lating dam was built so that the maximum storage can be raised to elevation

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432 meters (at which elevation about 1.9 sq. km of land in Guatemala would beflooded in excess of that normally flooded), it is not expected that storageneed exceed elevation 430 until the total system load exceeds 105 FW, whichis not expected to be reached until 1966. After 1967 it may be necessary tooperate the lake to elevation 432. Raising the control works above elevation432 is not envisaged at present.

International Aspects

30. Lake Guija is an international lake, with about three-tenths of itssurface area in Guatemala. Before undertaking the construction of the regu-latory works described in paragraph 28, the Salvadorian Government notifiedthe Government of Guatemala in January 1952 that it proposed to construct"works necessary to regulate the waters of the lake; these works are: a run-off canal having a small dam with flood gates to control the level of thewater" and invited the Guatem.alan Government to send one or more experts toEl Salvador in order "that they may be apprised of the technical details ofthe works planned and may study the effects of the aforementioned regulation".The President of El Salvador received a letter dated June 11, 1952, from thePresident of Guatemala stating that "we shall lend all the cooperation whichmay be needed for the full success of such an important work, and thiat, asregards my Government, we see no reason why the work could not begin'whef youso decide". All of the works are located in El Salvador. There is niophysi-cal work that can be done in Guatemala which could adversely affect the projeci

Status of Engineering

31. Engineering on the project has been done by the Harza Engineering CompanyInternational and is complete except for preparation of final designs andspecifications. The generating equipment will have the same characteristicsas the previous installations. All major equipment will be procured throughinternational bidding where this procedure is applicable.

32. Explorations and studies of the seepage problem at Lake Guija are beingcarried on by CEL under the supervision oL the above consultants. The grout-ing of a curtain at the Lake Guija regulating dam is acknowledged to bedifficult as there are some large caverns. The situation will requireconstant expert advice while grouting is in progress. The consultants havethe experienced expert personnel required for the proper execution of thiswork.

Es-timated Cost

33. The cost estimates below, prepared by the consultants, are reasonable.Contingencies, as explained below, are included in the estimates.

Ioreign LocalCurrency Currency Total CostsCosts Costs expressed in:Dollars Colones Dollars Colones

(in thousands)Civil Work and ConstructionEquipment 530 874 880 2,199

Plant and Equipment 1,252 390 1,306 3,418Lake Guija Control Worksi/ 1,113 2,514 2,120 5,300Transmission System and Sub-stations 1,110 505 1,312 3,279

Engineering, Administration,Consultant's fee 450 358 593 1,482

Interest and other chargesduring construction. 260 - 260 650

Totals $4,715 ¢4,641 $6,531 016,328

Amount of proposed Bank loan $2,9002/ 7,250Costs to be m.et locally $3,631 ¢ 9,078

A rate of exchange of ¢ 2.50 to US$1 has been used.

34. All of the foreign exchange estimates for equipment and materials containprovision for freight, insurance and erection at the site. Contingencies of10''O on foreign exchange and 20% on local currency costs of the project havebeen included. Because of the difficult nature of the work at Lake Guija, thecontingencies for this part of the project are 201 and 300 respectively on theforeign and local costs.

Sources of Funds

35. The above construction costs are expected to be incurred in years up to1961, and include ¢ 400,000 spent in 1957. The expected sources of funds areestimated to be:

Total Costsexpressed in:

Dollars Colones

(in thousands)

IBPED Loan 2,900 7,250

Local CapitalGovernment Loan (non-interest-bearing) 2,000 5,000CEL cash from earnings and Government subsidies 2 1,631 4,078

Total Colones Expenditures 3,631 9,078Grand Total 6,531 16,328

1/ Not to be financed by proposed IBRD loan.U/ During negotiations the loan was increased to v3 million.2/ Subsidies to CEL for meeting debt service requirements on the three bond

issues due in 1960, 1964 and 1969.

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36. As local capital available exceeds actual domestic currency needs,foreign capital to be borrowed need not be as great as actual foreignexpenditures. Consequently, the proposed Bank loan is a balancing figure.In the present circumstances in El Salvador, CEL will have no difficulty inconverting local currency into foreign exchange.

37. For the purpose of calculation, the proposed Bank loan has been assumedto bear interest at 5 1%1p/er annum and to have a term of 25 years, includinga grace period of 3 years. Amortization by equal semi-annual paymerits ofcombined principal and interest is assumed to begin in 1962 and end in 1984.

38. The Government is making a non-interest-bearing loan of ¢ 5 million forthe project. It will be reDaid in annual instalments of ¢ 250,000 for 20years beginning in 1961.

39. The cost per KC installed, including the work at Lake Guija, would be$328. The corresponding cost for the total installed capacity of 60 Mfincluding all the work at Lake Guija would be $421 per K,i.

V. FINAINCIKL ASPE.CTS

Power Rates

40. CEL's initial power rates were established in 1954 in collaboration withthe Yinistry of Economy, which at the same time set the rates for resale ofenergy by CAESS, the distributing company in San Salvador. COL's managementadopted an initial rate that reduced the then retail rates of CDL's principalcustomer - CAESS - by about 20%. As a consequence, and as previously pointedout, there have been operating deficits for the first four years of opera-tions; CEL has had to apply to the Goverrment for relief. Subsidies havebeen obtained in the form of non-interest-bearino subordinated loans.

41. There were seven supply contracts in force in December 1957. The rateconsisted of two parts: a demand charge of 50 colones per K!J per year and anenergy charge of 2.5 centavos per kwh to CAESS and 3 centavos to the remain-irLg six customers. The CAESS contract contains a special provision wherebythe first 7,000 KT of demand is deducted in computing the demand charge.This is in compensation for rent of the thermal plant which CABSS holds inreserve for the exclusive use by CT,L in emergency periods. For the year1957, CAESS purchased 100,966,000 kwh for a total of ¢ 3,335,570 - an averageof 3.30 centavos (1.32 U.S. cents) per kwh. CEL's sales to others totalled13,318,000 kwh for which ¢ 669,593 were received - an average of 5.01centavos (2.00 U.S. cents) per kwh. The average unit price received by CELfor all energy sold in 1957 was 3.50 centavos (1.40 U.S. cents) per kwh.

XJ The actual interest rate might be closer to 6z.

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L2* Accord-ng to Salvadorian law, all power contracts contain a provisionthat net earnings before depreciation of over 12'p on the rate base (deprecia-ted replacement value) should be paid to CEL as an additional payment forpower. Under this provision the 1957 financial results of CAESS, accordingto the CEL management, resulted in an additional payment to CEL of approxi-mately 10% of the total 1957 billings. This payment was received during1958. The CAESS contract was signed in July 1954 and expires in December19'59. It is now being renegotiated. The demand charge will probably not bechanged but it is expected that the energy charge will be increased to 3centavos per kwh. This would result in an overall increase in CAESS'saverage power rate of about 205%. Because of the impact of the 12%o limit onearnings, however, the exact amount of C3L revenues from CAESS cannot bedetermined. The Ministry of Economy has had a rate expert reappraise thevalue of some utilities in the country and if excess earnings are demonstra-ted with respect to CEL's other customers CEL may receive some additionalrevenue from them too.

Cost of O_eration

43. Past annual average power costs per kwh (which do not include intereston governmental advances) are shown below, together with the average revenuereceived by CEL in the corresponding periods.

Costs (U.S.¢) Revenues (U.S.¢)

1954 (last 6 months) 3.47 1.401955 2.47 1.431956 1.88 1.411957 1.64 1.40

44. Costs exceeded revenues in all years and although the excess has beenredluced it still amounted to 17%o in 1957. The position would, of course,have been worse if a proper return had been paid on the Uovernment subsidiesand some measure of this is given in the following table:

Costs assuming Costs assumingreturn on return onGovernment Government ActualAdvances at Advances at Revenues5% (U-S.oji 8 % (US-&) (U.S.¢)

1954 (last 6 months) 3.68 3.81 1.401955 2.65 2.71 1.481956 2.08 2.16 1.411957 1.84 1.97 1.40

45. In the forecasts of future operations (Annex 7) CEL's management has usedan average rate of 3.88 centavos (1.55 U.S. cents), which is lO'% above the

Lj The same rate as for the Bond issues.

- 11 -

1957 average rate. This higher average rate results from expected increaseof the proportion of the sales at higher rates to customers other than CAESS,and not from the contemplated increase in rates to CAESS mentioned inparagraph 42.

Program of Future Expansion

46. The presently planned additions to CEL's generating capacity during thenext seven years in addition to the proposed project consist of: (a) theproposed Guajoyo plant of 15 MW to be completed in 1963 utilizing a drop fromLake Guija to the Rio Lempa, and (b) the first stage of the Zapotillo plantof 30 KW to be completed in 1964 utilizing a drop downstream in the Rio Lempabetween Lake Guija and the Guayabo plant. This program including the projectwould bring the total installed capacity of CEL's system to 105 IN by the endof 1964. The estimated cost of this future program, including interest duringconstruction, is ¢ 70.7 million ($28.3 million) spread over the years 1957through 1964. The approximate rates of expenditures for the Guayabo expansionand for the future construction program are shown in Annex 6.

47. although there are no definite plans for the financing of the futureconstruction program, provision has been made in the forecast for thesecapital expenditures in order to obtain a proper evaluation of CEL's futurefinancial position. The assumption is made that, of the total estimatedexpenditures for the future construction program, about ¢ 13 million ($5.2million) or 18%, would be provided by a Government loan of ¢ 5 million andsubsidies (equity) of ¢ 8 million and about ¢ 10.4 million ($4.2 million) or15%, by retained earnings. For the purpose of the forecast, it has beenfurther assumed that the balance of ¢ 40 million (the estimated amount of theforeign currency requirement in excess of the proposed Bank loan) would beprovided by two foreign currency loans under the same conditions as have beenassumed for the proposed IBRD loan.

48. Expenditures, including interest and other charges during construction,in the years 1958-64 for CEL's future construction program, are estimated tobe:

Estimated Expenditures for 1957-64 Program(in thousands of Colones)

Guayabo Guajoyo Zapotillo Total ConstructionExpansion Project Project Program

Foreign Currency 7,250 11,050 29,000 47,300Local Currency 9,078 3,366 11,000 23,444

Total 16,328 14,416 40,000 70,744

Financial Forecast Based on Existing Rates

49. Statement of earnings, estimated sources and anolication of funds, andrevenue cover for deot service for the years 1958-65 inclusive, are given inAnnexes 7 and 8. For the purpose of the forecast, it has been assumed that

- 12 -

CFEL will complete its proposed construction program by the end of 1964. In1965, it has been assumed that expenditures will be required for the continua-tion of the expansion to meet the demand, and a reasonable amount for thisexpansion has been included in Annex 8.

50. As explained in paragraph 45, revenues from sales of electricity havebeen estimated by CEL on a load growth of 12%d per year and on the basis ofpresent tariff rates. Operating expenses are based on detailed forecasts.CEL will provide depreciation on a straight line basis at the rate of 2% perannum, which is adequate for a hydro system.

51. Net income from operations, after depreciation 'out before financialcharges, should increase from ¢ 3 million in 1958 to ¢ 6.2 million in 1962and to ¢ 9.7 million in 1965, which represents a return on net fixed property(cross property less depreciation) of 5.1% in 1958, 6.6;i in 1962, and 7.-4 in1c65.

52.. On the basis of this forecast CEL would start showing a profit for thefirst time in 1958. The accumulated deficit which had reached ¢ 4.4 millionat the end of 1957 would be eliminated by end 1960. Net cash receipts fromoperations would not cover debt service in 1958 or 1959. In the next threeyears, the debt service coverage would increase from a modest figure of 1.16times in 1960 to 1.39 times in 1965.

53. If interest on Government advances is taken at 54 starting withDecember 31, 1957, 19,58 would still show a deficit which when added to thatexisting on that date - ¢ 4.4 million - would reach 0 4.8 million by the endof 1958. This deficit would not be eliminated until 1962. In this case,cash receipts from operations would not cover debt service in 1958, 1959 and1960. In 1961, coverage would be 1.09 times and in 1962, 1.11 times, and in1965 about 1.2 times.

54. If the present non-interest-bearing Government advances and loan to CELwere treated as equity and a return of &, were assumed, the income statementswould show a deficit reaching ¢ 5.5 million at the end of 1959 and the deficitwould not be eliminated until the end of 1962.

55. Annex 9 shows the projected balance sheets. Total long-term debt wouldexceed depreciated fixed assets in 1958, 1959 and 1960 and would represent98i in 1962. Equity would be non-existent in 1958 and 1959 but by the end of1960 it would be ¢ 484,000 and increase to ¢ 22.8 million at the end of 1965.

56. If 5% interest were payable on Government advances and loans (fromDecember 31, 1957) the deficit would not be eliminated until 1962, at the endof which year a small equity, ¢ 153,COO, would emerge. On the other hand, ifthe Government advances and loans were treated as equity, the debt/equityratio would bc 80/20 as of December 31, 1958, and improve to 64/36 at the endof 1965...

- 13 -

Financial Plan and Forecast Based on Increased Rates

57. As pointed out in this report, due to unsatisfactory earnings during thefirst four years of operation, CEL has accumulated a large deficit. In 1957,the return on net fixed propertyr was only 3.3%'.

58. CEL's future financial position with existing rates, although showing animprovement, cannot be considered fully satisfactory. The return on net fixedproperty would increase from 5.1% in 1958 to 7.45o in 1965. Debt service couldnot be met in 1958 and 1959 and would be covered by only 1.39 times by 1965.Because debt service could not be met without subsidies for two years andbecause the margin of coverage would be so meager thereafter, CE.L would haveto continue to depend on Government subsidies for some time.

59. During negotiations for the proposed Bank loan for the expansion of theGuayabo plant, CEL and the Governmert agreed to the following proposals:

(a) ITet income from operations should yield a return of at least 8%on CLL's net fixed property. In order to make this possible, theCAESS contract, which will exDire in 1959, will be renegotiatedto obtain an increase of about 20% in the CAESS average powerrate (from the present 3.3 centavos per kwh to 4 centavos per kwh).

(b) Past Government subsidies, which totalled 0 10.1 million at theend of 1957, and future Government subsidies totalling ¢ 11 millionfor covering debt service on the 5', bonds due in 1960, 1964 and1969 will be converted into equity.

60. A forecast of income statement and cash flow is given in Annex 10 assum-ing that CAESS power rate will be increased from 3.3 centavos to 4 centavos perkwh starting in 1959 (an increase of 2.8 U.S. mills per kwh), and that CAESSwill purchase about 80% of CEL's total electricity output during the eightyear period 1958-65.

61. On the basis of the above assumption, the average rate per kwh charged byCGL to all of its customers would increase from 3.88 centavos in 1958 to 4.4centavos during the seven year period 1959-65. Net income from operations,after depreciation but before financial charges, should increase from ¢ 4.6million in 1959 to ¢ 7.6 million in 1962 and ¢ 11.7 million in 1965, wihichrepresents a return on net fixed property of 7.4p in 1959, 8.1% in 1962, and9% in 1965. This would be satisfactory and compares with 7.4/" in 1965 withexisting rates.

62. Debt service coverage would increase from a modest figure of 1.08 timesin 1959 to 1.52 times in 1962 and 1.68 times in 1965. This would be reason-able and compares with 1.39 times in 1S65 with existing rates.

63. Of the total estimated expenditures for CEL's future construction pro-gram - 0 70.7 million ($28.3 million) - 23d could be provided from retainedearnings, if no dividend payments were made. This compares with 15jo withexisting rates.

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VI. ECONOCIC a SPECTS

64. The labor force of El Salvador renresents about 35';b of the total popula-tion. Of the total employed, 63j; are engaged in agriculture, 14Wfo in manufac-turing and construction, and the balance in services. There has been a steadygroawth in small industries, and as a result a small percentage of the popula-tion is gradually shifting from agriculture to industry. Since 1952 machineryand capital goods have comprised 66(o of all imports. 'J1hile increase in theproduction of agricultural products has been about 4.5p per annum, manufacturedproducts and construction has increased about 7$ per annum.

65. The growth of industry has been encouraged by the enactment in 1953 of a"Processing and Industrial Development Law" which waived many import duties oncapital goods and reduced taxes. Since the enactment of the law there havebeen about a hundred new industries established and a large amount of expansionhas taken place in old industries. New plants include a soluble coffee plant,an insecticide and fungicide plant, a paint and varnish plant, a textile mill,a shoe factory, and a 45,000 ton cement mill. The capacity of a steel rollingmill has been increased from 27 to 60 tons a month. The increase in industrial-ctivity has resulted in increased employment and irmprovement in generalwelfare.

66. A large part of this industrial development is the direct result ofhaving available a continuous sup'ily of electric energy. Delays in increas-ing power supnly would limit estacblishment of new industries and have aserious impact on the entire country.

67. As all fuel has to be imported, the most logical way of providing thispower is to develop the hydro potentialities of the country, provided theinvestment in hydro power is economical. An analysis of the return on theadditional investment required for hydro compared with a thermal alternativestrongly favors the development of the C-uayabo hydro project. The cost ofdeveloping the proposed 15 Irld of capacity at Guayabo is the equivalent of$5.2 million and the cost of development of an equivalent thermal plant wouldbe about $3.4 million. The return on the additional investment in hydro of$1.8 million represented by the savings in annual operating costs would beabout 25,o annually. This is shovTm in more detail in annex 11. It should benoted that the work included in the project at Lake Guija, costing over$2 million, will contribute greatly to the future development of the Rio Lempapower potentialities.

VII. CON^CLUSIOMS

68. The expansion of the Guayabo plant by 15 12J is the next logical step toprovide the additional supply needed. The sealing of Lake Guija is requiredfor this expansion and must be considered a part of the project.

69. The project is sound and the schedule of construction is realistic. Thecost estimates are reasonable. The additional capacity would be absorbed twoyears after the completion of the project.

- 15 -

70. With the rate increase as agreed upon during negotiations and with theundertakings from the Governnent and CEL that CEL's rates will be maintainedat reasonable levels, CEL's financial position should be satisfactory.

7:L. The project is suitable as a basis for a loan to CEL of about $3 millionfor a period of 25 years including a grace period of 3 years.

U2ILI'rY SYSTEMS IN EL SALVADORtl957 3tatistics)

Generator NameplateCapacity - Kw

Steam or A_nnual Energ<y - Million KwhSystem Hdro Diesel Total QDnUMjM Retail 3ales Purchase from CEL

Compania de Alumbrado Electricode San Salvador (CkESS)* 3,550 7,300 10,850 40,420 101.93 100.97

Comnania de Luz Electrica de

Santa Ana (CLT'S,)Q* 2,480 580 3,060 12,457 13.57 -

Compania Electrica CucumacayanS.A. (CECS 1)* 2,256 0 2,256 10.98 4.50

Compania Electrica del Oriente(CE)'- 490 760 1,250 6,369 7.69 8.10

Compania de Luz t7lectrica deSonsonate (CTIESP 890 0 890 4292 *

Empresa Salvadorena deServicios Electricas (ESSP) 508 200 708 800 1.90 -

Compania Oriental Salvadorenade %Iimabrado Electrico (COSIAE)* 390 0 390 2)000 2.20 0.14

Compania de Luz Electrica deAhuachapan (CLEA)* 175 200 375 2,148 1.86

Matheu 133 0 130 4C0 0.50 _

Manzano 20 30 50 400 0.30

Minor Systems 0 204 204 7 0.70 -

Municipalities 0 478 478 ) 1.00 0.57

Sub-Total 10,889 9,752 20,661 69,456 144.65 114.28CEL 45,000 - 4 -

Total 55,889 9,752 65,661 69,456 145,55

* InCt-connected with CEL by existing transmission lines* h o.sale

"NirkLX 2

COilSION &TECUTIVA HIDrCL.L&TiRICA DEL IO LLi2A

Condensed Inco;le Statexi,ents(in thousands of Colones)

1954* 1955 1956 1957

1. Sales '-n rillions of Lf'=S 26.2 72.0 94.6 114.22. Averag-e rate per K2H including

denmand chlarge (centavos) 3.51 3.70 3.53 3.513. Gross Revenue fro.-n. sales 990 2670 3338 40054 . OtAier Income 171 91 231 1035. Total Revenue M161 2761 3569 4108

Cost of Operations:6. Operating E-penses 767 1194 1018 9987. Depreciation 543 1091 1098 11938. Total 1310 2265 2116 2191

9. Net Income from Operations (-) 149 476 1453 191710. Less: Interest 1139 2154 2301 2_496

11. Net Loss 1288 1678 843 579

12. Cunulative Loss 1288 2966 3814 4393

* Six nonths ended Dezember 31

ANNE! 3

Comision Ejecutiva Hidrol ectrica del Rio LouaCondensed Balance Sheets from beginning

of operations to 1957 inclusive(in thousands of Colones)

June 30, December 31,1954 1954 1955 1956 1957

ASSET

Fixed Assets 46,052 50,311 54,406 59,296 62,864Less: Depreciation - 54 1,634 2,731 3,924

Not Fixed Assets 46,052 49,76b 52,772 56,565 56x940

Current Assets 5,101 3,932 1,384 3,062 3,911Deferred Charges 6,071 3,264 3,645 5,823 1,386

Total Assets 57,224 56,964 57,801 65,450 644,237

LIABILITIES

Long-Term Debt:a) IRKD loan 22-ES -4- 14% 30,886 31,119 30,563 29,875 29,063b) Internal Bonds - 5% 17,200 18,013 17,868 23,977 23,637c) Loanas from local Institutions-7% - - - - 805

d) Governmant subsidies and loans - * *non-interest bearing 5,789 5,789 7,150 8,546 12,065

Total Long-Term Debt 53,875 54,921 55,581 62,398 65,570

Current Liabilities 1,289 1,334 1,023 1o084 1,126Miscellaneous 1,489 1,426 3,591 4,820 873

Capital Account and Other GovernmentCapital Contributions 571 571 571 961 1,061

Surplus (or deficit) - (1,288) (2,965) (3,813) (4,393)

Total Liabilities 57s224 56,964 57,801 65s450 64,237

% 14 41Ilion JAsted as Non-interest bearing "Fondo de Reserva' convertedin 1955 to Government subventions

14gi0,nng of C EL operofo Zopof//o-30,000 coo

2°140 1 I < . ___ ___ __ __ __ __ =___ =___ _____ 1 T, 120~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

,oo- EL SALVADOR _ _ __ __ __ob__ ,_

o0 =CEL INTEGRATED SYSTEM = = b _ ° - ._ __ = = =lso -~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~

70 - FORECAST OF LOAD GROWTH _ _ _ -- -- -_ -60 - AND CAPACITY REQUIREMENT - j I -- ____2_ _ _

50 ~ ~ ~ ~ ~ I ojected load, Frow,t 12 o"ou

102~-~- _____ . __J _L__ _ __ Stag-- _ t t-t - -t -- L____t

{O = ~~~~~~_ _ _ _ -f __ I- i___S p -

Q. Es1m~~~~~~~~~~~~~~~~F F,hg p/on/s 0eleopn~e ?

-30 , -- K_ _

7~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~, a I 4 f i- J I 0 PIrofe h tt/ ,¢l c

6~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~f = =gy = = = '0 =o = 1 { 1l al l ty

1947 1948 1949 19S0 1951 1952 1953 1954 1955 1956 1957 1959 959g 1960 1961 1962 1963 1964 1965 1966 1967 8968

AUGUST 1958 IBRD-498

20

15~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*

0~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 5z

if,

e k 0 , . ;;;/t ! t v S o S z

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L iF \ X Y ra L12S ;3 ffi !0;~~~~~~~~~~~~0*

Qo4ISiON EJECUTIVA .H7ROELECTRICA DL RIO -LM2PA

Esttmated Rptes of Expenditurei for thea P t and Fture _on_trction(in millions of Colones)

1958 1959 1960 261 1.962. 1963 1964 Total 2/

Guayabo Project

Foreign Currency .02 2.74 2.57 1.92 - - 7.25Local Currency 2/ .08 _3.20 p.60 -1.80 - - 8.68

Total 10 5.94 6.17 3.72 - - 15.93

Future Construction

Foreign Currency /- - 2.20 5.40 13.45 9.00 10.00 40.05Local Currency _ _ .68 1.36 2.3N3 '.00 5.00 14.37

Total - 2.88 6.76 15.78 14.00 15.00 54.42

Grand Total .10 5.94 9.05 10.48 15.78 14.00 15.0C 70.35

1/ U.S. $ converted to 0 at 0 2.50 = U.S. $1. The estimated foreign currency expenditures, expressed inmillions of U .S. $, would be:

Guayabo Project .01 1.10 1e02 .77 - 2.90Future Construction - - .88 2.16 5-38 3.60 4.00 16.02

Total .01 1.10 1.90 2.93 5-38 3.60 4.00 18.92

2 0 400,000 have already been spent in 1957, representing preliminary expenses for investigating Lake Guija.

ANNE 7

COMISION EJECUTIVA HIDROELECTRICA DEL RIO LEMPA

Forecast of Ingome Statement for the neriod 1958-1965(in thousands of Colones)

Year. ending December 11 12Q 1 i22 126l

1. Sales in millions of KWE 135 155 185 215 245 285 325 3652. Average rate per KWE including demnd charg.

(centavos) 3.88 3.88 3.88 3.88 3.88 3.88 3.88 3.88

3. Gross Revenue from power sales 5.120 5.930 7.070 8.250 9.420 10.940 12.500 14.1004. Other income 100 100 100 100 100 100 100 1005. Total Revenue 5.220 6.030 7.170 8.350 9.520 11.040 12.600 14.200

Cost of Operations:6. Operating Zxpenses & Maintenance-Hydro 995 1.045 1.095 1.175 1.175 1.575 1.575 1.9757. Operating Ixpenses & Maintenance, & Fuel-Steam 55 55 55 55 630 55 920 558. Depreciation 1.200 1.200 1.200 1S00 1 SOO 1.760 1.760 2.4809. Total Cost of Operations 2.250 2.300 2.350 2.730 3.305 3.390 4.255 4.510

10. Net Income from operations 2.970 3.730 4.820 5.620 6.215 7.650 8.345 9.69011. Less; Interest on IBRD Loan 22-ES 1.225 1.185 1.138 1.085 1.028 969 907 84212. Interest on existing local loans 1.225 1.137 1.044 958 880 801 721 63913. Interest on Proposed IBRD loan, Stage I _ - - 200 399 389 379 36914. Interest on foreign Loan, Stage II _- - 608 593 57815. Interest on 7oreign Loan, Stage III - - - - - - -159S

16. Total Interest 2.450 2.322 2.182 2.243 2.307 2.767 2.600 4.023

17. Net Profit 520 1.408 2.638 3.377 3.908 4.883 5.745 5.66718. Cumulative Profit 520 1.928 4.566 7.943 11.851 16.734 22.479 28.141

COMISOS JLECIIIIVA HIIROELEGTRICA DEL RIO L15)A

Forecast of Cash Plow(in thousands of Colones)

Tears endinag December 31 - l 12§ 1962S11 i Z265

1. Net Income from Operations 2,970 3,730 4,820 5,620 6,215 7,650 8,345 9,690

2. Depreciation 1.200 1 200 1 200 1 S00 1 00 1760 1,760 2 480

3. Cash Receipts from Operations 4,170 4,930 6,020 7,120 7,715 9,410 10,105 12,170

Borrowing:4. Existin g Government Subsidies 1,575 1,525 1,475 1,425 1,375 1,325 1,275 1,225

5. Proposed IBKD Loan - Stage I 18 2,735 2,574 1,923 _ _ _ _

6. Locael Loans - Stage I 2,000 1,000

7. Foreign Currency Loan - Stage II - - 2,200 4,400 4,450 - -

8. Foreign Currency Loan - Stage III _ _ - 1,000 9,000 9,000 10,000 -

9. Foreign 'Currency Loan-Future Construction - - - - _ - - 10.000

10. Total Borrowing 3,593 5,260 6,249 8,748 14,825 10,325 11,275 6,225

11. Total Receipts 7,763 10,190 12,269 15,868 22,540 19,735 21,380 23,395

Constraction: 1/12. a) Proposed IBRD Project - Stage I 96 5,935 6,174 3,723 -

13. b) Construction Stage II - - 2,880 5.760 5,776 - _ _

14. c) Construction Stage III - - - 1,000 10,000 14,000 15,000 -

1i5. d) Putare Construction - - - - 14 000Total Construction 96 5,935 9.054 10,483 15,776 14,0C0 15,000 14,000

Debt Service16. a) Existing Loans - Interest 1,225 1,137 1,044 958 880 801 721 639

17. - Amortization 1,620 1.719 1,785 1,553 1,576 i,601 1,626 1,654

18. b) IBRD Loan 22U - Interest 1,225 1,185 1,138 1,085 1,028 969 907 842

19. Amortization 938 1.062 1,203 1,322 1,380 1,438 1,500 1,565

20. c) Proposed IBRD Loan - Stage I- Interest - - - 200 399 389 379 369

21. - Amortisation - _ - 173 183 193 203

22. d) Local Loan - Stage I- Amortization - - - 250 250 250 250 250

23. e) Foreign Loan - Stage II- Interest - _ _ _ 608 593 578

24. - Amortization - _ _ _ - 264 279 294

25. f) Foreign Loan - Stage III- Interest - 1,595

26. - Amortization - - -751

27. Total Debt Service 5,008 5,103 5,170 5,368 5,686 6,503 6,448 8,740

28. Other Ependitures 250 250 250 250 250 250 250 250

29. Total Expenditures 5,354 11,288 14,474 i6,ioi 21,712 20,753 21,698 22,990

30. Net Annual Cash Accrual 2,409 (-)1,098 (-)2,205 (-) 233 828 (-)1,018 (-)318 405

31. cash Balance - Beginning of year 2,700 5,109 4,011 1,806 1,573 2,401 1,383 1,065

32. Cash Balance - End of year Z/ 5,109 4,011 1,806 1,573 2,401 1,383 1,065 1,470

33. Debt Service Coverage (lines 3:27) .83 .97 1i16 1.33 1.36 1.45 1.57 1.39

34. Debt Service Coverage including Governmentsubsidies for repayment of principal andinterest on 5% bonds due in 1960, 1964 and1969 (3 $ 4:27) 1.15 1.26 1.45 1.59 1.60 1.65 1.77 1.53

1 96 400,000 have already been spent in 1957, representingpreliminary expenses for investigating lake Guija.

/ As in some years the cash position may be somewhat low,it might be necessary for CIL to borrow from local bankson a short-term basis for an amount of not more than 01 million.

CC4ISION EJECUTIVA HIDROLEOCTRICA DEL RIO LELRA

Pro-Forma Balance Sheets for the years 1958-1965(in thousands of Colones)

1958 1959 1960 1961 1962 1963 1964 1965

ASSE1S

Fixed Assets 62,960 68,895 77,949 88,432 104,208 118,208 133,208 147,208

Less: Depreciation 5.124 6.324 7,524 9,024 10,524 12,284 14,044 16,524

Net Fixed Assets 57,836 62,571 70,425 79,408 93,684 105,924 19,164 130,684

Current Assets and Others Net 5.706 4.608 2.403 2.170 2,998 1,980 1.662 2.067

Total Assets 63,542 67,179 72,828 81,578 96,682 107,904 120,826 132,751

LIABILITIES

Long-Term Debt:a) Government Subventions 11,640 13,165 14,640 16,065 17,440 18,765 20,040 21,265

b) Government Loan for Guayabo 4,oDo 5,000 5,000 4,750 4,500 4,250 4,000 3,750

e) 5% Intemal Bonds and 7% Loans frao localInstitutions 22,822 21,103 19,318 17,765 16,189 14,588 12,962 11,308

d) IBRD Loan 22-ES 4k% due 1975 28,124 27,062 25,859 24,537 23,157 21,719 20,219 18,654

e) Proposed IBRD Loan 5*% 18 2,753 5,327 7,250 7,077 6,894 6,701 6,498

f) Proposed Foreign Loans for future construction - - 2,200 7.600 21.050 29.786 39.507 48,462

Total Debt 66,604 69,083 72,344 77,967 89,413 96,082 103,429 109,937

Capital Account 1,061 1,0 61 1,061 1,061 1,061 1,061 1,061 1,061

Surplus or (Deficit) (4.123) (2:965) ( 577) 2,550 6,208 10,841 16.336 21.753

Total Liabilities 63,542 67,179 72,828 81,578 96,682 107,904 120,826 132,751

Debt/Equity Ratio - - 99/1 96/4 93/7 89/11 86/14 63/17

Debt/Equity Ratio if non-interest payingGoverrmnt Advances and Loans are considered

as Equity 80/20 73/27 72/28 70/30 70/30 68/32 66/34 64/36

Return on Net Fixed Assets 5.1 6.o 6.8 7.1 6.6 7.2 7.0 7.4

ANNEX 10

COMISION EJECUTIVA XIDROZELCTRICA DEL RIO LEMPA

Itorecast of Income statement etnd Cpash Pioassumin, thAt CAESS -power rate will be increased ifrom 3.1 centavosa to 4 centavos.

that CASS will purchase about 80 of the total outnut and that 6t interest will be chareed on the Government loan for Guavabo

Income Statement 125 ia 52 2= 521 12ff 5I

1. Sales in millions of XWR 135 155 185 215 245 285 325 365

2. Average rate per [WE including demand charge(centavoe) 3.88 4.40 4.40 4.40 4.40 4.40 4.40 4.40

3. Total Revenue as per Annex 7, Line 5 5,220 6,030 7,170 8,350 9,520 11,040 12,600 14,200

4. Increase to CAESS - 868 1 036 1-204 1.372 1.S96 1.820 2 044

5. Total Income 5,220 6,898 8,206 9,554 10,892 12,636 14,420 16,244

6. Total Cost of Operation. including depreciation 2.2S0 2.300 2.3WQ 2 730 3.30 3.390 4 255 4,S10

7. Net Income from Operatione 2,970 4,598 5,856 6,824 7,587 9,246 10,165 11,734

8. Less; Total Interest 2.6v0 2 S92 2.482 2 543 2.S92 3 007 2.826 3 9S9

9. Net Profit 340 2,006 3,374 4,281 4,995 6,239 7,339 7,775

10. Cumulative Profit 340 2,346 *5,720 10,001 14,996 21.235 28,574 36,349

Cash Flov

Receiots11. Not Income from Operations 2,970 4,598 5,856 6,824 7,587 9,246 10,165 11,734

12. Depreciation 1.200 1.200 1.200 _l00 1SOOO 1.760 1.760 2.480

13. Cash Receipts from Operations 4.170 5,798 7,056 8,324 9,087 11,006 11,925 14,214

14. Government Subsidies 1,575 1,525 1,475 1,425 1,375 1,325 1,275 1,225

15. Borrowing 2.018 3.735 4.074 6,423 11 SO 9.000 8.000 8.000

16. Total Receidts 7,763 11,058 12,605 16.172 21,962 21,331 21,200 23,439

Bnenditures17. Total Construction 96 5,935 9,054 10,483 15,776 14,000 15,O0 14,000*

18. Total Debt Service 5,188 5,373 5,470 5,668 5,971 6,729 6,659 8,484

19. Other Ispenditures 20 - 2SO 2S0 2S0 250 2S0 2S0 2SO

20. Total Uzpenditures 5,534 11,558 14,774 16,401 21,997 20,979 21,909 22,734

21. Net Annual Cash Accrual 2,229 (-)500 () 2,169 (-)229 (-)35 352 (-) 709 705

22. Cash balance at beginning of year 2,700 4,929 4,429 2,260 2,031 1,996 2,348 1,639

23. Cach balance at end of year 4,929 4,429 2,260 2,031 1,996 2,348 1.639 2,344

24. Debt Service Coverage .80 1.08 1.29 1.47 1.52 1.64 1.79 1.68

25. Return on let Fixed Assets 5.1 7.4 8.3 8.6 8.1 8.7 8.5 9.0

7or Comparison:Return on Yet Fixed Assets as per Annex 9 5.1 6.o 6.8 7.1 6.6 7.2 7.0 7.4

This includes progress payments in respect of projectfor commissioning after the 1958-64 program.

ANNEX 11

CQITISION EJECUTIVA hIDROELECTEICA DEL PIO LH11PA

E.eturn on A'dditiona1 Capital in Hydro over Thermal

Installed Capacity - in W 15,000

Net Available - IPTillion kwh.i/ 42

Cost of Hydro - Iillion 5.2

Cost of Thermal a -$227 per KVi installed - Hillion qp 3.4

Additional Investment in Hydro - I/lillion $.8

Thermal

Operation and maintenance and fuel - Mil s/kwh2/ 1.8Depreciation (0.015%) - lills/kwh-4/ 1.4Unit production cost - kills/kwh 12.2Annual production cost - Thousand $ 503

Hydro

Operation and maintenance - Mills/gIwh 0M.Depreciation (0.005%) - Mills/k,wha o.6Unit production cost - Mills/kwh 1.4AnrLual production cost - Thousand 0 59

Annual Savings - Thousand $ 444

Return on additional investment in Hydro over Thermal 25%

2/ Only 42 inillion kwh of therruL energy are necessary to firm up a totalof 60,000 KW at a 50 load. factor.

j Cost of Guayabo addition and wiork at Guija./ Operation and maintenance 4.8 mills, fuel 6 mills = 10.8 mills,/kwh

(fuel $3.00 per bbl. not including duty).4! Depreciation (Sinking Fund) Interest 5%: Hydro 50 years (0.005), Thermal

30 years (0.015).