RE5TRICTED Report No. TO-572a RETURN TO REPORTS DESK WI ILN ONE WEEK rL.:. a s prepared for use within the Bank and its affiliated organizations.
Public Disclosure Authorized They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized
APPRAISAL OF EXTRA HIGH VOLTAGE TRANSMISSION PROJECT
C. V. G. ELECTRIFICACION DEL CARONI, C. A.
VENEZUELA Public Disclosure Authorized
December 29, 1966 Public Disclosure Authorized
Projects Department CURRENCY EQUIVALENTS
Us $1. 00 = Bolivares (Bs) 4. 50 Bs 1.00 = US $0. 22 Bs 1 million US $222, 222
WEIGHTS AND MEASURES EQUIVALENTS
1 kilometer (km) 0. 622 statute mile 1 metric ton 2204. 6 pounds VENEZUELA
APPRAISAL OF EXTRA HIGH VOLTAGE TRANSMISSION PROJECT
C.V.G. ELECTRIFICACION DEL CARONI, C.A.
TABLE OF CONTENTS
Page No.
SUMMARY
I. INTRODUCTION 1
II. THE BORROWER 2
III. POWER MARKET 3 The Guayana Market 3 The CADAFE System 5 La Electricidad Market 5 Proposed Pool Arrangements 6 Total Power Sales by EDELCA 1969-1973 7
IV. CONSTRUCTION PROGRAMS 1966-1975 8 Guri Project 9 The Proposed EHV Project 10 Construction of Guri Units 4-9 10 Second EHV Transmission Line 10 Other Transmission Lines 10
V. THE PROJECT 11 Technical and Economic Aspects 11 Status of Procurement 12 Project Cost Estimate 12 Engineering Arrangements 13 Construction Schedule 13
VI. FINANCIAL ASPECTS 14 Past Operations and Earnings 14 Construction Expenditures 16 Financing Plan mid-1966 - 1975 16 Tariffs 18 Estimated Future Financial Performance 19 Accounts and Audits 22 Financial Covenants 22
VII. CONCLUSIONS 22
ANNEXES
MAP
This report is based upon information obtained from comprehensive studie.s made by EDELCA and its consultants; a continuous exchange of views with EDELCA, including visits to the Bank by EDELCA staff; and upon a final appraisal in Venezuela by F.H. Howell in October 1966. LIST OF ANNEXES
ANNEX 1 - Background and Status of Frequency Conversion
ANNEX 2 - Estimated Maximum Demand, Energy Sales, and Revenues
ANNEX 3 - EHV Project Cost Estimates and Construction Expenditures
ANNEX 4 - Actual and Estimated Income Statements, 1964-1975
ANNEX 5 - Estimated Sources and Applications of Funds, 1966-1975
ANNEX 6 - Condensed Actual and Estimated Balance Sheets, 1964-1975
MAP VENEZUELA
APPRAISAL OF EXTRA HIGH VOLTAGE TRANSMISSION PROJECT
C.V.G. ELECTRIFICACION DEL CARONI, C.A.
SUYMARY i. C.V.G, Electrificacion del Caroni CoA. (EDELCA) has requested a Bar:!: loan of US$15.0 million equivalent to assist in financing the foreign exchange costs of a new 570 kam Extra High Voltage (EHV) transmission line from EDELCA's Guri Hydroelectric Plant, now under construction, to Caracas. The total estimated cost of the Project is US$23.4 million equivalent. The Bank made its first loan 353-VE to EDELCA in September 1963 for US$85 million equivalent to finance the foreign exchange costs of the Guri Plant, initial power pro- duction from which is now scheduled for July 1968. The EHV facilities will be required to transmit Guri power to the market not later than the beginnix.g of 1970. ii. The EHV system has been soundly designed and engineered. Procure- ment is well advanced and all major contracts are expected to be signed not later than January 31, 1967. EDELCA has followed international bidding practices in accordance with Bank policy, and all proposed contract awards have been reviewed by the Bank. iii. EDELCA continues to be capably managed by executives known to the Bank, assisted by a competent staff. Projected operating results are satis- factory, and EDELCA should have no difficulty in achieving the financial performance targets established in Loan 353-VE. iv. The Caracas market is very important to the economic utilization of Guri power, and the Government undertook, in connection with Loan 353-VE, to arrange for the conversion of La Electricidad de Caracas' 50 cycle system to 60 cycles, the national frequency standard, by the time Guri would be irn operation. Due to extended afninistrative procedures and technical con- siderations precedent to unde.b::taking the work of conversion, it cannot be completed by 1968 when CGuri slhould be in operation. However, all necessary legal and financial measures have now been taken and the work of conversion is scheduled for completion by June 1970. During 1968-1969, La ElectricidaA will purchase increasirkg amounts of 60 cycle power as the changeover from 50 to 60 cycle operation proceeds. The proposed EHV system will constitute an important step in assuring La Electricidad that it can rely upon EDELCA for a power supply of adequate capacity with a high degree of security. v. Of the total cost of the Project, 64 percent will be financed by the proposed Bank loan, and 36 percent by EDELCA's internal cash generation and planned national budget contributions. vi. The Project is suitable for a Bank loan of US$15.0 million equi- valent for a term of 20 years including a grace period of three and one-ha2f years. VENEZUELA
APPRAISAL OF EXTRA HIGH VOLTAGE TRANSMISSION PROJECT
CeV.G. ELECTRIFICACION DEL CARONI CeA.
I* INTRODUCTION
1. In September 1963, the Bank made its first Loan for power develop- ment in Venezuela (353-VE) of US$85 million equivalent to a newly-created company, C0V,Go Electrificacion del Caroni C.Ao (EDELCA), for the constructio.. of the Guri Hydroelectric Plant. The Plant, which should commence commercial operation in early 19691/ with an initial capacity of 525 MW installed in three units, is designed for an ultimate capacity of 1750 MW in ten units. One of the principal customers for Guri power will be the privately-owned C.A. La Electricidad de Caracas (La Electricidad) whlich serves the capital city of Caracas and certain nearby communities. The other principal custo.-r will be C.A. de Administracion y Fomento Electrico (CADAFE), which operates government-owned systems throughout the country. The Bank made its second power loan in Venezuela to CADAFE (391-VE, September 1964, US$14 million equivalent) to finance the construction of a 230-kv transmission line to integrate several isolated systems, which will constitute an important part of the market for Guri power (see map). W4hen Loan 353-VE was made, it was contemplated that EDELCA would be required to construct extra-high-voltage transmission facilities (EHV) by about the end of 1968, extending from the Guri Project to the Caracas area, to deliver power to La Electricidad, and tc CADAFE's central zone. The Government of Venezuela has now requested the Banr to assist in financing the foreign exchange costs of these proposed EHV facilities, planned for completion and initial operation in coordination wit' the Guri Project. The estimated cost of the EHV facilities is equivalent to about US$23.4 million, including interest and other charges during construction of which the foreign exchange component would be approximately US$16.9 millicn-
2. The EHV Project would consist of a 570 km single-circuit bundle- conductor steel-tower 400-kv transmission line from the Guri Plant to Caracas. three 400-lkv substations, including an intermediate switching station; and engineering and inspection services.
3. Design and planning of the proposed 400-kv Project has been carried out by EDELCA, assisted throughout by consulting engineers. (Engineering arrangements are discussed in paragraphs 30, 31, and 35, and in Annex 1.) EDELCA is currently operating the 375 MW run-of-river Macagua Hydroelectroc Plant and associated transmission facilities, and constructing the Guri Hydroelectric Plant. EDELCA will construct, own, and operate the EHV Pro-ect which, together with the Macagua and Guri Plants will form a coordinated bulk-supply system. EDELCA would be the borrower of the proposed niew Bank loan.
1/ Initial power generation by unit 1 is scheduled for July 1968, with Uist'i9 2 and 3 coming into operation by the end of 1968. - 2 -
4. This report is based upon information obtained from comprehensive studies made by EDELCA and its consultants; a continuous exchange of views with EDELCA, including visits to the Bank by EDELCA staff; and upon a final appraisal in Venezuela by F.H. Howell in October 1966.
II THE BORROWER 5. EDELCA is a subsidiary of Corporacion Venezolana de Guayana (CVG), an autonomous agency responsible for developing the Guayana region near the confluence of the Orinoco and Caroni Rivers. CVG is operating a large steel- works, Planta Siderurgica del Orinoco (SIDOR); constructing, with Reynolds International (USA) an aluminum smelting facility for initial operaticn in 1967; and also developing the major new city of Ciudad Guayana wlhich present1y has a population of some 70,000. CVG is in addition investigating and pro- moting possibilities for additional development of this general area, includilg expansion of the steel and aluminum operations, land reclamation, reforestaticr., pulp and paper operations, etc.
6. EDELCA was created in August 1963 by CVG to take over CVG's electric power activities. The Charter and By-Laws were drafted in close consultation with the Bank and provide a sound basis for its operations. In particular, the Charter (Article 20) requires that EDELCA's President shall at all times be a person of proven experience and executive capacity, competent to direct the operations of the Company. A breach of this Article constitutes an act of default under Loan Agreement 353-VE, and EDELCA agreed in a supplemental letter to consult with the Bank whenever a change in the position of Presidernt is contemplated. The current President has been in charge of EDELCA since its creation, and has also directed all the affairs of CVG, since its creation in 1960, and is well known to the Bank. He is supported by EDELCA's staff whicn is successfully operating the Macagua Plant, and assisted by consultants super- vising construction of the Guri Plant. With training programs now underway and planned, EDELCA staff should be capable of administering the construction of the ERV Project, and later of operating all the power facilities, in addition to providing the coordination necessary to operate with La Electricidaci and CADAFE the Macagua-Guri complex and the EHV Project on an interconnected pool basis.
7. Because the Caracas market is very important to the economic uti ii- zation of EDIALCA's 60 cycle generating plants, the Government and La Electri- cidad have agreed to cor.vert the latter's system from 50 to 60 cycle operatic-. which is necessary before EDELCA can sell power to La Electricidad. (see paragraphs 17 - 19, and Annex 1. CADAFE's systems are all operated at 60 cycles.) CVG will act as the Government's fiscal agent for the conversion. CVG will not only disburse the funds the Government has appropriated to defray certain costs of the conversion, but will also be responsible for auditing the cost of this work. Suitable staff with appropriate background are now discharging this responsibility. - 3 -
III. PWER MARKET
8. EDELCAts market will consist of three components, as shown on the map.
(i) the Guayana region;
(ii) the Central and Eastern Zones of CADAFE, served by major gas-fired steam-electric plants, and smaller isolated diesel and gas-turbine installations (these Zones will be integrated in mid-1967 by CADAFE's double-circuit 230-kv transmission line, financed by Loan 391-VE); and
(iii) the system of La Electricidad which serves the capital city of Caracas, and certain smaller contiguous communities, from modern, gas-fired steam plants located on the Caribbean Coast.
The potential market for Guri power was reviewed in depth in the course of the investigations carried out1 n 1962 and 1963 by the Bank prior to making the loan for the Guri Project.lr At that time it was concluded that immediate construction of Guri would be justified only if EDELCA's market area included Caracas. Incorporation of Caracas in the Guri market necessitated the inter- connection and integrated operation of the electric power facilities of EDELCA, CADAFE, and La Electricidad. It was appreciated that achievement of this objective would be difficult, since it involved not only the close co- operation of the public and private sectors, but the conversion of La Electricidad's system from 50 cycle to 60 cycle operation. The current situation with respect to the three market components and the prospects for the future are presented in the paragraphs immediately following. As is discussed in Section IV, "Construction Programs" initial generation of power' at Guri will be delayed about one year beyond the estimates made when con- struction was started, i.eo from June 1967 until July 1968. This delay has required certain changes in planning for generating facilities by La Electri- cidad and CADAFE.
9. With the completion of Guri, and the proposed EHV facilities, the systems of EDELCA, CADAFE, and La Electricidad will be planned and operated as a coordinated mixed hydro-thermal power pool. This was visualized when the Guri Loan was made, and should be achieved by mid-1970. This is several years later than originally estimated, due to delays in completing CADAFE's 230-kv transmission line; slower progress than scheduled in the construction of Guri; and underestimates of the time required for the Government and La Electricidad to reach agreement on frequency conversion.
The Guayana Market
10. The Guayana load is principally industrial, and is served from EDELCA's 375 I"lW Macagua Plant. The major consumer is CVG's steelworks, ST-CDR,
1/ See Report TO-373b, September 4, 1963. - 4 - which has a maximum demand of 220 MW, from nine 200 metric ton iron-ore- reducing electric furnaces, open-hearth furnaces, and associated finishing facilities. CVG has plans to expand the fabricating and finishing faciliticsp now principally devoted to production of tubes and wire, to produce plate and structural shapes. The planned expansion will increase the power demand, in several steps, to about 275 MW by 1973-1974.
11. CVG and Reynolds International (USA), through a jointly owned sub- sidiary Aluminio Caroni S.A. (ALCASA) are completing an aluminum reduction facility near SIDOR. The first pot-line with 10,000 metric ton annual ingot capacity will begin operation in 1967, with an initial demand of 25 14W. An expansion to 20,000 metric tons and 50 M-W is contemplated for 1968. CVG is currently negotiating with Japanese interests to further expand production to 40,000 metric tons and 100 14W in the early 1970's.
12. Another major industrial customer in the Guayana is Orinoco Mining Company, a wholly-owned subsidiary of United States Steel Company, which has a very large iron ore mining operation inland, a ship-loading facility at the port of Ciudad Guayana, and a captive ore-carrying railroad connecting the mine and port. This company is planning a new iron-ore reducing facility near the port and expansion of its port activities, which will increase its power demand from the current 5 Wiwto 15 MW in 1970. Furthermore, power requiremenlt;s at the iron-ore mine, now supplied by a 3 IMW diesel power plant, could be more economically served by EDELCA. In addition to Orinoco Mining, Bethlehem Steel operates a mine in the region, and Philips Petroleum has a transhipment facility in the port of Ciudad Guayana to load sea-going tankers with crude oil from fields in eastern Venezuela.
13. As part of its regional development activities, CVG is investi- gating the possibility of producing sponge iron, and kraft pulp and paper fromi locally grown timber. The increased pace of activity in the Guayana, to whiCc the construction of the Guri Plant has contributed significantly, has promotee a large increase in small commercial and service establishments. Tlhe populatIc is now, as noted, some 70,000, compared with 2,000 in 1950, and is expected to reach 250,000 by 1975. Continued emphasis on development of the Guayana by CVG will undoubtedly bring about a continuous increase in population and livirxg standards and consequent increase in the use of electric power.
14. The present forecast of aggregate demand in the Guayana is sub- stantially the same as that made by the Bank in 1963, with the exception that the ALCASA development has been delayed about 18 months. The forecast is reasonable, based upon current knowledge of development plans and conservative estimates of power requirements. The Guayana market is of decided financial importance to EDELCA since it should produce 45 percent of all operating revenues during the 10 years 1966-1975. -5- The CADAFE System
15. CADAFE operates a number of systems throughout Venezuela, including. two (Eastern and Central) which are located within EDELCA's market area.l The Eastern Zone includes a number of communities served by small isolated, inefficient powerplants, while the Central Zone includes the industrial centcis of Valencia and MNiaracay and is supplied principally by three major steam electric plants with a capacity of 200 MW. CADAFE's Central Zone also serves the water supply system of Caracas, which is being expanded with the assistarlc. of Bank Loan 444-VE of US$21.3 million equivalent made in April 1966, to Instituto Nacional de Obras Sanitarias (INOS). CADAFE's Central Zone more or less surrounds the service area of La Electricidad.
16. The principal objective for the construction of the 230-kv Macagua- Caracas transmission line has been to integrate CADAFE's Eastern and CentraJ Zones with each other, and with EDELCA's N4acagua Plant. Some of CADAFE's smaller high-cost plants can be retired, and lower-cost hydroelectric energy purchased from EDELCA's Macagua Plant to supply these markets. CADAFE will not have completed the new 230-kv transmission system until mid-1967, about one-and-one-half years later than estimated when Loan 391-VE was made for thie project. Thus, sales of Macagua power to CADAFE by EDELCA did not take place in 1965, as expected when the Guri Loan was made. CADAFE has installed 25 TW in two "paclcage" type gas-turbine units in the Central Zone in 1966, to pro- vide generating reserves in view of the delays in the 230-kv system, and has recently contracted for six additional gas turbine units, with an aggregate capacity of 84 MW, of which 42 MW are scheduled to be installed in the Guri market area by March 1967. CADAFE considers that the gas-turbine capacity is required to serve growing loads in the Central Zone (including INOS), and to provide system reserves in view of the delay in completing the 230-kv facilities, and the delay in Guri (see paragraphs 22 - 24). Because the gas-turbines represent an expensive mode of generation, CADAFE will use them prinarily for supplying short-duration peaking power, and purchase hydro- electric energy from EDELCA in nearly the same amounts originally visualized. In any event, CADAFE's long range planning visualizes relocating these units in communities outside the Guri market area after completion of the proposed EHV ProJect. CADAFE and EDELCA are currently negotiating an interim polwer agreement to provide a basis for sales before Guri Plant is completed in lP)'. These interim arrangements will be superseded by the long-term agreement discussed in paragraph 19.
La Electricidad Market
17. Because of the long-range significance of the Caracas power market to the economic utilization of the energy resources of the Caroni River, the Bank has in the past already taken the position that it was essential for arrangements to be started as soon as possible to convert La Electricidad's 50 cycle system to 60 cycle operation, to permit interconnection with EDELCA
1/ See TO-44Oa, August 11, 1964, for a general description of CADAFE's operations. -6- and purchase of Guri power. In fact, agreement to this concept was an important condition of the Guri Loan. The Bank received assurances from the Government that measures would be taken to unify the frequency of power systems throughout the country, and the Council of Ministers established a Commission for Changing Frequency to carry out studies of frequency unifi- cation, so that interconnection at 60 cycles could be accomplished by the tiiTe Guri came into operation, i.e. by the end of 1967, as then expected. The problem has proven difficult, and the studies protracted; moreover, the question of voluntary cooperation by the privately-owned La Electricidad with government-owned systems has been delicate and negotiations have been time- consuming. La Electricidad signed a contract with the Government in March 1966, providing for conversion and purchase of power from EDELCA, but it is unlikely that actual physical conversion of La Electricidad's system will be started before mid-1967. The estimated completion of conversion is July 1, 1970. During the period of changeover, La Electricidad will rely increasincly upon EDELCA to provide 6 0-cycle power and reserves in case of emergencies. The status of the frequency-changeover is discussed in detail in Annex 1.
18. La Electricidad's load has been increasing at an average compound rate of about 7-1/2 to 8 percent per annum in recent years (1957-1965). While it is reasonable to expect this rate of growth to continue throughout the next decade, the sales of power by EDELCA will be related to both La Electricidad's own load, and its own system generating capacity. La Electri- cidad has recently installed a new 66 MW gas-fired steam unit, and has con- tracted for an aircraft-engine peaking unit of 50-60 14W, which will be in- stalled in mid-1968. La Electricidad has invested in these facilities not only because it has always maintained reserves in accordance with quite severe reliability-of-supply criteria, but also because it is unwilling to rely solely upon CADAFE's 230-kv Macagua-Caracas line to transmit power from EDELCA's Macagua Plant, and later from Guri. La Electricidad's management has continued to insist that additional transmission facilities of high reliability must be constructed from Guri to Caracas before it will be will ng to enter into firm power sales agreements with EDELCA. Because of the in- stallation of the additional generating facilities on La Electricidad's system, and the delays in initiating the frequency conversion, EDELCA's sales to La Electricidad in the near future will be limited principally to provid- ing reserves while the conversion is underway (when La Electricidad will be in effect operating two separated systems).
Proposed Pool Arrangements
19. Longer-range sales will be in accordance with the provisions of the proposed interconnection and sales agreement drafted by International Middle West Service Company (Middle West), who were retained by EDELCA, La Electricidad, and CADAFE for this purpose. 'See Annex 1.) The terms of the proposed agreement have been generally agreed upon by La Electricidad and EDELCA, and CADAFE. It is expected that the agreement will be signed by the three parties by mid-1967. The agreement provides, inter alia, for: -7 -
(i) centralized planning of generating additions and major inter-system transmission lines by a Planning Committee representing the three systems;
(ii) the continued development of Guri as the fundamental source of further generating capacity beyond that in- stalled at the time the agreement is signed;
(iii) the coordination, through a joint Operating Committee, of the operation of the facilities of all three systems to achieve maximum economies consistent with reasonable standards of service reliability, maintenance require- ments, etc;
(iv) a central load-dispatching office to supervise daily operation, under the direction of the Cperating Committee; and
(v) establishment of tariffs for different classes of power and energy sales and interchanges.
Total Power Sales by EDELCA 1969-1973
20. In summary, projected sales to EDELCA's three market areas are shown in the table on the next page for the period after the proposed EHV Project is in service, and the Guri Plant begins commercial operation. EDELCA's estimated sales of firm power to La Electricidad and CADAFE are based upon the Middle West studies, which have been accepted by all parties. The energr associated with the firm power represents 5,300 hours use of demand annually. About 25 percent of all sales will be sales of economy (or fuel replacement) energy during off-peak hours. This will be priced below fuel costs alone on both La Electricidad and CADAFE, and they can be expected therefore to take full advantage of its availability. This estimate of about 29 billion kwh sales over the five-year period is about 11 percent lower than the Bank's 1962-1963 estimate. The effect on revenues during the period is discussed in Section VI, "Financial Aspects". More detailed estimates of firm power and economy energy sales, and revenues therefrom, are presented in Annex 2. - 8 -
Estimated EDELCA Sales Power - W 1969k/ 1970 1971 1972 1973
La Electricidad 50 61 49 93 93 CADAFE 195 287 355 403 460 Guayana 340 350 387 447 452 TOTAL 585 698 791 943 1,005
Energy - Million of kwh Firm La Electricidad - 58 258 489 489 CADAFE 1,025 1,508 1,866 2,118 2,418 Guayana 1,854 1,909 2,094 2,548 2,575 2,879 3,475 4,218 5,155 5,482 Economy La El.ectricidad 535 1,122 1,219 1,253 1,342 CADAFE 690 338 376 383 224 1,225 1,460 1,595 1,636 1,566
TOTAL 4,104 4,935 5,813 6,791 7,048
IV. CONSTRUCTION PROGRAMS 1966-1975
21. The construction activities of EDELCA during the ten-year period reviewed in this report would consist of the following five programs, some of which will be carried on simultaneously:
(i) completion by 1969 of the original Guri Project (including Units 1, 2, and 3) which is being financed by Loan 353-VE; (ii) construction during 1967-1969 of the EHV Transmission Project, for which a second Bank loan is now proposed, (see Section V, "The Project");
(iii) installation at Guri of an additional six generating units (4-9) during 1969-1975;
(iv) construction of a second EHV transmission line, during 1971-1973, to parallel the proposed EHV Project, from Guri to Caracas; and
1/ Estimated 1966-1968 sales, shown in Annex 2 and taken into account in th-ie forecasts of financial performance, are relatively small, and are not related to the proposed EHV Project. - 9 -
(v) construction of certain other transmission lines (230-kv, 115-kv and 33-kv) to serve the growing industries in the Guayana, and Ciudad Guayana itself.
The total estimated cost of all these works during 1966-1975 is the equivaler- of about US$208 million, including interest during construction. This sum is composed of US$139 million equivalent in foreign exchange, and US$69 million in local currency. Of these requirements, approximately US$51 million equi- valent is available from Loan 353-VE. Guri Project
22. EDELCA has retained the services of Harza Eagineering Company (Harza) in connection with the design of Guri Project, and supervision of its con- struction. The general contract for the civil works was signed with Consl-cr.o Guri (managed by Kaiser Engineers & Constructors) in August 1963, and the ecn- tractor moved on-site and mobilized rapidly, and accomplished the initial diversion of the Caroni River in March 1964. The work gradually began to fal). behind the schedule submitted by the contractor in his offer, which called for initial power generation by June 1967. Additional excavation has been required, some of which Kaiser claims was difficult and more costly than expected. Kaiser has stated that these unexpected difficulties constituted a "change of conditions of the contract" and attempted to renegotiate the entire contract with EDELCA. Agreement in principle has been reached between EDELCA and Kaiser to pay for this part of the work at a price still to be negotiated. The pace of activities is increasing, and Kaiser has recently moved additional construction equipment on-site. However, it is clear that the job cannot be completed (unit 1 operation) as scheduled for June 1967. Kaiser has submitted a revised schedule of work, which calls for unit 1 operation in July 1968.
23. All perman'ent equipment contracts have been awarded and manufactrrinh; is progressing satisfactorily. Certain equipment has already arrived at the job-site, including the main powerhouse crane,'turbine embedded parts and runners, main transformers, and switchgear. While the revised estimate of unit 1 operation by mid-1968 seems reasonable at this time, for purposes of projecting EDELCA's sales and financial position only, it has been assumed Guri power will not be commercially available until January 1, 1969.
24. The original estimated cost of the Project -- which included only the first two generating units -- was the equivalent of US$137 million. Following the award of the civil works contract, and several major equipmenu contracts, the Bank agreed to enlarge the scope of the original Project to include the third generating unit. The present (October 1966) estimated cost of the Project (including the third unit) is equivalent to US)145 mialion. As of July 1, 1966, funds required to complete the project are the equivalent of about US$86 million, of which US$52 million is in foreign exchange, and US$34 million in local currency. - 10 -
The Proposed EHV Project
25. This Project is described in detail in Section V, "The Project". The total estimated cost is equivalent to US$23.4 million, of which US$16.9 million is in foreign exchange and US$6.5 million in local currency.
Construction of Guri Units 4-9
26. Based upon recent load and capability forecasts for the inter- connected pool, the installation of units 4-8 at Guri is planned for 1969-1975 (unit 9 would come into service in 1976). This program is essentially as visualized at the time Loan 353-VE was made in 1963. The total estimated cost of these works is equivalent to approximately US$72 million, of which US$51 million would be in foreign exchange, and US$21 million in local currency (About US$1.5 million equivalent would be spent in 19760)
Second EHV Transmission Line
27. A second EHV line is planned for operation in about 1974, when Guri should have six units in service to be followed in 1975 by two more units. Guri's capability would then be 1050 ].M9 in 1974, and 1400 MW in 1975. Trans- mission requirements to Caracas will be about 550 MW in 1973 (firm power con- tract demand), about the combined maximum capability of EDELCA's first EHV line (the presently proposed Project) and CADAFE's 230-kv system. The second EHV line will be required therefore in 1974, to assure continued dependability of supply to CADAFE and La Electricidad. The total estimated cost of the second line is the equivalent of about US$2165 million, of which about US$l6.4 million would be in foreign exchange, and US$5.1 million in local currency. The construction of the second EHV circuit will require less investment thian the first, because certain facilities are required initially for the first line, which do not need to be duplicated in constructing the second line. Moreover, the initial 450 MVA transformer at El Tigre will be relocated at Santa Teresa and El Tigre will become only a switching station.1! Other Transmission Lines 2a. In connection with the development of the Guayana region, EDELCA will be required to construct additional 230-kv, 115-kv, and 33-kv transmission facilities. It is estimated that the total cost of this work during 1966-19(3 will be the equivalent of approximately US$7 million, of which about US$4 million will be in foreign exchange, and US$3 million in local currency. It has been assumed EDELCA will finance all these costs from its own resources,
1/ See Section V, "The Project", and Map. - 11 -
V. THE PROJECT
29. The proposed EHV transmission Project consists of the following principal elements:
(i) a 570 km single-circuit steel-tower 400-kv transmission line, with two conductors per phase, from the Guri Plant to CADAFE's 230-kv substation southeast of Caracas at Santa Teresa;
(ii) three 400-kv substations, including appropriate switching facilities, transformers, and control equipment adjacent to
(a) Guri Plant, with a 300 MVA autotransformer in the substation connecting the 400-kv and 230-kv systems. and a 255 MVA transformer connecting generator unit 4 to the 400-kv system; and a 150 iVIA reactor;
(b) CADAFE's 230-kv El Tigre substation with an in- stalled capacity of 450 MVA, connecting CADAFE's 230-kv system to the 400-kv system (this transformer will later be moved to Santa Teresa when the second 400-kv line is constructed); and
(c) CADAFE's Santa Teresa substation, with an initial in- stalled capacity of 450 MVA, connecting the CADAFE 230-kv system to the 400-kv system; and a 150 MVA reactor;
(iii) Consulting engineering services in cannection with design and inspection; and training of EDELCA staff for 400-kv system operation.
System operating studies show that the EHV system should be in service not later than the beginning of 1970, to augment the much lower transmission capacity of CADAFE's 230-kv sy-jtem. The EHV tra:!.mmission system would assure La Electricidad that Guri power will be available with an adequate degree of reliability. Initiation of the EHV Project promptly is therefore important to assure that La Electricidad will begin conversion to 60 cycle operation as scheduled in mid-1967.
Techn^i.al and Economic Aspects
30. Both Middle West and Harza assisted EDELCA in studies to select the EHV system voltage, the best choice lying between 400-kv and 500-kvl/ considering the distance and amounts of power involved. Economic studies demonstrated that for all realistic patterns of system development over a 20-25 year period, the 400-kv class was to be preferred. EDELCA consulted experts in Sweden, and in particular Gunnar Jancke and the firm Transelectv'c AB, who confirmed the desirability of 400-kv as the preferred voltage class,
1/ These are both generally accepted international standards. - 12 - and made recommendations concerning insulation levels for the facilities visualized. (An ancillary, but very important advantage, of hOO-kv vs 500-kv is that there is a greater background of experience in the manufacture and operation of 400-kv facilities.)
31. Following this basic work, the General Electric Co. (USA) carried out detailed operating studies of the proposed line and interconnected system considering both normal and abnormal conditions. Based upon the results of these studies, equipment ratings and characteristics were determined including switching criteria and control characteristics.
Status of Procurement
32. Specifications for the transmission line were prepared by EDELCA, and reviewed by Transelectric. Specifications for the substations were pre- pared by Harza, and reviewed by EDELCA and Transelectric. Following consul- tations with the Bank, EDELCA solicited bids for the line and substations on an international basis. Bids for the substations have been received and analyzed and awards were made during November 1966. Bids for the line were opened October 7, 1966, and the award was made during December 1966. All principal electrical equipment, tower steel, conductors, insulators, and hardware will be imported, and erected by local labor, under the contractors' direction.
Project Cost Estimate
33. The total estimated cost, including interest and other charges on the proposed Bank loan during the construction period, is equivalent to US$23.4 million, of which US$15.0 million- is the amount proposed for Bank financing.
Condensed Cost Estimate (millionsT)
Local Currency Foreign Exch. Total Bs. US$ US$ Equiv.
Transmission Line 16.4 8.7 12.4 Substations 8.3 5.2 7.0 24.7 13.9 19.4
Contingencies 2.3 o.6 1.1 Ehgineering/Supervision/ Administration 2.3 005 1.0 29.3 15.0 21.5
Interest - 1.9 1.9
TOTAL 29.3 16^9 23.4 - 13 -
The cost estimate includes contingencies of about 6 percent on direct costs, which is considered adequate in view of the fact that bids for the principal items of equipment have already been received. The 5 percent allowance for engineering, factory inspection, field supervision, and EDELCA's overheads is ample. A more detailed estimate is presented in Annex 3.
34. Exclusive of estimated interest during construction, but including contingencies and supervision, etc., the average cost of the transmission line is approximately US$39,000 equivalent per mile. The average cost of the three substations is about US$3.50 equivalent per installed kva of capacity, including reactors and spares. These average costs compare favor- ably with known costs of similar works executed under competent management.
Engineering Arrangements
35. EDELCA has been assisted by Harza in reviewing the offers received for the line and substations. EDELCA staff will receive training by the suppliers of the EHV facilities to enable them to participate in the field inspection, testing, and commissioning. EDELCA is, in addition, arranging to obtain the services of two individual foreign engineers to reside in Venezuela and assist in the administration of the transmission line and sub- station contracts, and help organize and supervise field inspection offices, which will be staffed by experienced EDELCA personnel. EDELCA further will retain consulting engineering firms to carry out factory inspection prior to shipment of the equipment and materials. EDELCA has appointed an experi- enced engineer to take general administrative responsibility for execution of the Project. These arrangements are satisfactory.
Construction Schedule
36. The contracts for the supply and erection of the line and sub- station equipment will require completion within 25 months, with a provision for penalties for failure to comply. Approximately three months will be required for testing and commissioning. Assuming down payments are made not later than March 1, 1967, the EHV system should be in operation August 1969. However, for purposes of system planning, EDELCA has assumed the EHV system will be fully operational only at the end of 1969. This is prudent, and meets the forecast requirements for transmitting Guri power to the Caracas area. - 14 -
VI. FINANCIAL ASPECTS
Past Operations and Earnings
37. As noted in paragraph 6, EDELCA was created in August 1963, so that the first full year of operations was 1964. CVG transferred to EDELCA all its electric power operations and investments -- the principal asset being the Macagua hydroelectric plant constructed earlier by CVG -- and in return received ownership of all EDELCA's capital shares. As of June 30, 1966, EDELCA's gross fixed assets were about Bs 490 million, including Ivacagua and the investment in Guri, which was about Bs 269 million. Paid-in capital, earned surplus, and reserves were Bs 372 million, and long-term debt (solely the drawings against Loan 353-VE) was Bs 153 million. CVG's equity investments in EDELCA for the con- struction of Guri have been made annually in cash, from CVG's own allocations from the Government budget. The contribution for 1966 was Bs 50 million. CVG's investments have always been timely, but because delays in the construction of Guri have resulted in construction expenditures lower than originally estimated, EDELCA presently has an apparently large amount of cash on hand. This will be required for completion of Guri during 1967-1968. (EDELCA also is presently holding some cash for CVG: this is not included in the condensed statement in paragraph 38. See paragraphs 40 and 52).
38. EDELCA's position as of June 30, 1966 is shown below in condensed form.
Condensed EDELCA Balance Sheet June 30, 1966 (Bs millions) ASSETS Fixed Assets Plant in Service 220.3 Depreciation Reserve 21.1 199.2 Work in Progress 269.2 TOTAL NET FIXED ASSETS 468.4 Current Assets Cash 51.7 Other Current Assets 5.3 57.0 Other Assets and Deferred Charges 12.7 538.1 LIABILITIES Capital Paid-in 348.1 Earned Surplus and Reserves 23.9 372.0 Long-Term Debt (Loan 353-VE) 153.4 Current Liabilities 5.7 Other Liabilities 7.0 538.1 - 15 -
39. In the analysis of EDELCA's operations made in conLnection with Loan 353-VE in 1963, it was assumed that substantial power sales would be made to CADAFE, beginning in 1965. Due to delays in completion of CADAFE's 230-kv system, EDELCA's sales to CADAFE will not begin until mid-1967. Also, energy sales to CVG's steelworks (SIDOR) in the Guayana have not developed as rapidly during 1964-1965 as had been expected, due principally to difficulties in achieving scheduled production at SIDOThI EDELCA's operating expenses have proven to be somewhat higher than originally estimated, particularly at the Macagua plant. The combined effect of lower revenues and higher expenses has reduced operating income (before interest charges) for 1964-1965 from Bs35 million forecast, to Bs17 million, as shown below.
Condensed EDELCA Income Statements 1964 and 1965 Combined (Bs Ilillions)
Bank Forecast Actual
Sales - Millions kwh 3456 2179
Operating Revenues 51.0 35.7
Operating Expenses Operation & Maintenance 4h0 5.1 Depreciation 9.7 9.0 General Expenses 2.4 4.2 16.1
Operating Income 34.9 1704
These results would-be a cause foi concem -in a company engaged in full- scale operations. EDELCA, however, is in Qnly the early stages of its development, and substantial revenues (in terms of investment requirements) were not expected to be achieved until Guri was completed. Thus, it was not anticipated that EDELCA would be able to contribute significantly, from operations, to construction. Moreover, progress has not been affected by the failure of sales to develop as initially forecast, because CVG has had adequate cash resources to compensate for the shortfall. In connection with Loan 353-VE, when it was expected Guri would be completed June 1967, EDELCA undertook to maintain tariffs at levels sufficient to finance 15 percent of Guri construction expenditures from internal cash generation. The Bankls original forecasts indicated that for the period June 1963 to June 1966 about 9 percent of the construction expenditures on Guri would be financed by EDELCA, whlereas actual internal cash generation has financed about 7-1/2 percent. This small difference should be more than made up by the time Guri is completed (see paragraph 46). In any event, this measure of past performance is not particularly significant, because Guri has been delayed 13 months, and the rate of construction expenditures has been slower than anticipated. - 16 - 40. Condensed Income Statements for 1964 and 1965, and condensed Balance Sheets for the same years are shown in Annexes 4 and 6, res- pectively. An adjustment in the year 1966 and later estimated Balance Sheets has been made to eliminate the accounts carried by EDELCA relating to the Government's contributions to the cost of converting La Electricidad's system to 60 cycle operation. In the past, these funds, in effect, "flowed through" EDELCA and are not properly related to EDELCA's own electric power operations.
Construction Expenditures
41. The programs described in Sections IV and V will require a total investment in construction activities equivalent to approximately US$208 million in the period from mid-1966 until the end of 1975.
CONSTRUCTION EXPENDITURES July 1966 -- December 1975 (Millions of Bs & USs)
First Full Equiv. Year Operation Bs US$ US$
Guri Dam and Units 1-3 1969 150.5 52.2 85.6 EHV Project 1970 29.3 16.9 23.4
Guri Units 4-9 1971-6 95.2 49.4 70.5 Second EHV Line 1974 22.9 16.4 21.5
Other Transmission 1966-76 12.4 4.4 7.2
Bs310.3 $139.3(l) $208.2
(1) Includes interest of US$19.5 million financed from present and assumed future foreign financings.
Financing Plan Mid-1966-1975
42. The financing plan for the period from July 1, 1966 until December 1975 is based upon the following principal assumptions:
(i) Sales would develop as forecast (See Annex 2) at the tariffs discussed in paragraphs 43 and 4h.
(ii) The Government, through CVG, would continue to contribute to the cost of the construction programs. - 17 -
(iii) A new Bank loan of US$15.0 million equivalent would be made in time to permrt drawings in early 1967. Terms of 20 years, including three and one- half years grace, and an interest rate of 6 percent have been assumed.
(iv) The foreign exchange costs of the completion of Guri units 4-8, (assuming unit 9 will be financed by EDELCA) and the second EHV line would be financed by two additional foreign loans. The amounts required would be about the equivalent of US$19 million in 1969, and US$38 million in 1971. Terms of 25 years, including three and four years grace respectively, and 6 percent interest have been assumed.
(v) EDELCA would maintain a satisfactory current cash position.
(vi) At an appropriate time, EDELCA would begin to pay dividends to CVG. It is assumed this will be possible beginning in 1971, at which time CVG's invest&ent in EDELCA will have reached the equivalent of nearly US$140 million.
EDELCA's depreciation policy is conservative and sound. Depreciation rates for various classes of plant are set forth in a supplemental letter given the Bank in connection with Loan 353-VE. - 18 -
Financial Plan (July 1966 - December 1975) (Bs Millions)
Bs Per Cent
SOURCES Gross Internal Cash Generation 718.9 Debt Service (1) (370.3) Dividends to CVG (115.0) (485,3) Net Internal Cash Generation 233.6 27.1
Decrease in cash-on-hand 2.1 0.2
Foreign Borrowings(1) 529.3 61.2
CVG Contributions 99.2 11.5
Bs 86h42 100.0%
APPLICATIONS 2 Construction Programs(2) 847.9 98.1 Increase in Other Current Assets - Net 16.3 1.9
Bs 864.2 100.0%
(1) Includes interest charged to construction financed by foreign borrowings.
(2) Excludes interest charged to construction
Tariffs.,
43. As discussed in Section II 'Power Market", EDELCA expects to enter into a pool agreement with CADAFE and La Electricidad, which will provide for firm power sales and economy energy (fuel replacement) interchanges. Although final agreement on tariffs has not yet been reached, negotiations have proceeded to the point where agreement does exist concerning the range of tariffs. For purposes of forecasting operating results, the lower figures in the agreed ranges have been taken. These in equivalent US Dollars are as follows:
(i) For sales to CADAFE -- US$24 per kw-year, with 5,300 hours use of demand, for firm power (contract) sales; US 1.1 mills per kwh of economy (fuel replacement) energy.
(ii) For sales to La Electricidad -- US$28 per kw-year, with 5,300 hours use of demand, for firm power (contract) sales; US 1.1 mills per kwh of economy (fuel replacement) energy. - 19 -
The firm power tariffs are related to the estimated costs to CADAFE arnd La Electricidad of providing power by alternate means, i.e., by gas-. fired steam plants, and peaking units. The economy energy tariff is related to the cost of fuel. The difference of US$4 per kw-year between La Electricidad and CADAFE reflects the fact that CADAFE will be buying EDELCA power at Macagua, and will transmit a portion of EDELCA's sales to La Electricidad over its 230-.kv system.
44. Tariffs for sales in the Guayana region have been estimated on the basis of existing arrangements with the CVG steelworks (SIDOR), the contract with ALCASA, and average tariffs for other customers. The preponderance of sales in the Guayana will be to SIDOR and ALCASA, at known tariffs of US 3.2 mills per kwh, and US 2.2 mills per kwh, respectively. The tariff assumed for all other sales in the Guayana is US 8.9 mills, which is consistent with present average tariffs for such sales.
45e EDELCA's ability to achieve the projected operating revenues depends primarily upon conversion of La Electricidadts system. This should be accomplished by mid-1970 as noted. Estimated future revenues from sales to La Electricidad and CADAFE are realistic, since they are based on assumed tariffs lower than those likely to be actually contracted. Both La Electricidad and CADAFE can be expected to buy all the economy energy they can use, since it will be priced about 20 percent below their own fuel costs alone.
Estimated Future Financial Performance
46. In connection with Loan 353-VE, EDELCA undertook, inter alia, to achieve two principal performance targets:
(i) To finance. 15 percent of the investment in Guri from net internal cash generation; and
(ii) To achieve by 1973, and to maintain thereafter, a rate of return on total net fixed assets in operation of not less than 8 percent.
The revised total estimated cost of Guri is equivalent to Bs654e8 millions, including interest charged to construction. (Of this estimated total, Bs 269.2 million equivalent had been spent up to June 30, 1966, including drawings on Loan 353-VE). On the basis of both the latest project cost esuimates and sales/revenue forecasts considered realistic and attainable, it is reasonable to expect the self-contribution target to be achieved. - 20 -
EDELCA Contribution to Guri Project (1963-1969) (UTnits 1-3) Bs Millions
Total Estimated Project Cost(') 654.8
Operating Income 115.8 Depreciation Charges 31.5 147.3
Debt Service lo1.4
less interest charged to construction Bo.8 - 20.6 Mlet Internal Cash Generation 126.7
(1) Includes interest charged to construction Contribution from internal cash generation 126.7/654h8 = 19.3 percent
47. The forecasts indicate that an 8 percent return on net plant in service will be achieved by 1973, and maintained thereafter. These estimated results are essentially the same as those forecast during the Bank's initial appraisal of EDELCA for the Guri Loan in 1963, and are satisfactory. EDELCA's contributions from operations to the con- struction programs other than the Guri project (units 1-3) during 1970-1975 will be proportionately much higher than during the period of operations prior to completion of Guri. This is, of course, to be expected in view of the fact that total construction expendit-res will be lower in the future and the revenues much higher as sales to CADhFE and La Electricidad increase.
EDELCA Contribution to Future Construction (1970-1975, After Guri 1-3 Completion) Bs Millions
Total Estimated Construction Expenditures(') 408.7
Operating Income 483.6 Depreciation Charges 116.9 605.5
Debt Service 282.9 less interest charged to construction 21.2 261~7
Net Internal Cash Generation 343,8
(1) Includes interest charged to construction
Contribution from internal cash generation = 343.8/403.7 = 84.1 percent. - 21 -
48. Loan Agreement 353-VE does not require EDELCA to maintain any particular debt/equity ratio. During the period covered by the pro- jections, a ratio of about 45/55 is reached in the early 1970's, based on the assumptions concerning future foreign borrowings in the estimated financial plan. This ratio, the highest reached during the period of the projections is acceptable.
49. Loan Agreement 353-VE provides for an objective debt-service coverage test which EDELCA must meet before incurring additional long- term debt without the Bank's agreement. The test is stated in terms of historic revenues vs maximum future debt service requirements, which must be covered 1.4 times. On the basis of the assumptions underlying the proposed financial plan, EDELCA must seek the Bank's agreement to all the borrowings assumed. Annual debt service coverage by gross internal cash generation, taken year-by-year, is about 1.7 times before Guri comes into operation and increases thereafter during 1970-1975 to about 2.5 times, The sole exception to this satisfactory performance occurs in the year 1968, when principal repayments begin on Loan 353-VE, a year before completion of Guri. In that year, indicated debt service coverage is only 0.8 times which indicates the original estimate of Guri's completion, upon which the repayment schedule of Loan 353-VE is based, was over-optimistic. The estimated cash-on-hand at the beginning of 1968 is about equal to the debt service payable in cash during 1968, so that the low coverage of 0.8 times from operations is not of particular concern, nor does it reflect inadequate financial management.
50. Under the financial plan, CVG will invest about a further Bs7O million in EDELCA during 1967-1968, to enable EDELCA to carry out the proposed construction programs. Because EDELCA had large cash reserves in mid-1966, the Congress did not appropriate any funds for EDELCA during its recent session. CVG has agreed to make, from its own resources, an equity contribution of BslO million to EDELCA during 1967. The Congress is expected to appropriate not less than Bs7O million to CVG for contribution to EDELCA in 1968. 1/ Thus, CVG's investment during 1967 will in effect anticipate receipt of a small portion of the 1968 appropriation. The Bank's 1963 appraisal of EDELCA assumed dividends would be paid to CVG in nominal amounts, beginning in 1969. 2/ In the present projections, it has been assumed that dividends wili not be paid before 1971. CVG's investment in EDELCA will then have reached about the equivalent of US$140 million. (CVG's initial investment in power operations was made in 1956, when construction of Macagua was started.) The total dividends assumed paid during 1971-1975 represent an average annual return to CVG on its investment in EDELCA of about 3 percent.
1/ On August 15, 1963, the Congress passed a law (Gaceta Oficial No. 27220) budgeting Bs258 million for the five years 1964-1968 for Guri and associated transmission facilities. Bs174.5 million has already been received by CVG, so that the 1968 appropriation should be Bs83.5 million.
2/ The Agreement of Loan 353-VE prevents EDELCA from paying any dividends in cash before 1968. - 22 - Accounts and Audits
51. EDELCA is maintaining separate corporate accounts, in a form com- parable to those prescribed by the U.S. Federal Power Commission. Both the accounting and control functions are capably managed, and information pro- cessed quickly: for example, results for the first six months' operations of 1966 were available in formal form July 15, 1966. Because CVG and EDELCA are state-owned, their accounts are audited by the Government's Controlaria de la Nacion. EDELCA also retains independent auditors (Price Waterhouse) ir compliance with an agreement reached in connection with Loan 353-VE. The Bank is receiving regular, timely reports from EDELCA and the independent auditors.
52. Certain funds appropriated by the Government to CVG to defray the costs of converting La Klectricidad's system to 60 cycle operation have been carried on EDELCA's books, and in its cash accounts. The advisability of separating these funds and accounts from EDELCA has been discussed with management during the course of this appraisal. Inasmuch as these accounts have no relation to EDELCAss electric power operations, and because CVG is supervising the expenditure of the funds and is responsible to the Government for accounting for expenses, they have been transferred from EDELCA to CVG.
Financial Covenants
53. During negotiations it was agreed that the three basic financial covenants incorporated in Loan Agreement 353-VE will be included in the pro- posed loan in the following form:
(i) Section 5.13 -- EDELCA will not pay any dividends in cash to CVG before 1971.
(ii) Section 5.14 -- EDELCA will maintain tariffs at an average level to produce a reasonable rate of return on total net fixed assets in operation. This is defined as 8 percent in 1973 and later years.
(iii) Section 5.16 -- EDELCA will not incur additional debt unless the debt service coverage test of 1 4 times is met.
54. Annexes 4, 5, and 6 present estimated Income Statements, Sources and Applications of Funds, and condensed Balance Sheets, respectively.
VII. CONCLUSIONS
55. The proposed EHV Transmission Project has been soundly planned ard engineered. EDELCA staff are capable of executing the EHV Project, with the assistance of consultants, as planned. The cost estimate is realistic in view of the prices already offered for the principal equipment and materials The contract documents will require completion of all work within 25 months, Initial operation should begin in mid-1969, although it has been assumed ir this appraisal that full commercial operation will not begin until January 1970 (paragraphs 29 through 36). - 23 -
56. The completion of the Guxi Project (Loan 353-VE) by the revised schedule submitted by the general contractor (Kaiser) -- July 1968 for initial power generation -- seems reasonable. Both Kaiser and EDELCA's consultants, Harza, believe this can be achieved. Progress is being gradually accelerated. The revised estimated cost of the Project (units 1-3) including substantial contingency allowances, is not appreciably higher than that originally made in connection with 353-WE in 1963 (paragraphs 22 through 24)o
57. Past operating results have not been as good as anticipated. How- ever, this is not of concern since EDELCA will not achieve full-scale operation until 1969. Moreover, because CVG has had adequate cash resources, EDELCA's construction program has not been affected (paragraph 39).
58. Projected operating results are satisfactory. EDELCA shoild be able to contribute from operations to the investment in the Guri Project somewhat more than had been visualized in the original appraisal (paragraph 46). TheLe should be no difficulty in achieving the rate-of-return of 8 percent requi-c-d in 1973, and thereafter. An adequate cash position can be maintained, while providing for necessary increases in other working capital requirementso EDELCA should be able to begin paying dividends to CVG in 1971 (paragraphs 47 and 50).
59. The EHV Project would provide a suitable basis for a second loan to EDELCA of US$15.0 million, with a term of 20 years, including a grace period of three and one-half years.
December 29, 1966 ANNEIVX 1 Page 1 BACKGROUND AND STATUS OF FREQUENCY CONVERSION
1. The question of frequency unification had been studied at various times, but it was only in 1963, with the decision taken by the national Govern- ment to create a Commission for Changing Frequency, that concrete steps were taken to develop a solution. The Commission is composed of the chief execu- tives of EDELCA, CADAFE, and La Electricidad, and detailed studies and planninig were carried out by staff members of these organizations. The Commission retained consultants, International Middle West Service Company, USA (Middle West) to carry out short and long-range planning and operating studies for the supply of power in the Guri market area. These studies, begun in late 1963, are now completed, and cover the following aspects of the problem:
(i) ways and means of interconnecting the three systems;
(ii) the most economic long-range pattern of expanding generation;
(iii) the optimum system for transmitting Guri power to the Caracas load center, including voltage class and outline design;
(iv) draft interconnection and power sales agreements, and recommendations as to prices for various classes of power and energy;
(v) recommended system operating procedures, and draft manuals of operations.
This assignment will be completed in early 1967 when Middle West is required to recommend prices for power sales and energy interchanges, which have alrcar been agreed upon within narrow ranges by the three systems. Agreement has also been reached among the parties that, taking into account existing and committed generating facilities, the major expansion in generating facilitieo over the next decade will be completion of Guri to 1750 Mlw. 2. The Government, through the Ministry of Development, published Resolution No. 3633 of October 18, 1965, informing the public that the costs of conversion to 60 cycle operation of any consumer's apparatus purchased after July 1, 1966 would not be borne by the Government0 On April 16, 1963, CVG had been authorized by the Council of Ministers to represent the Goven- ment in its dealings with La Electricidad for the conversion of the latter's system, and to act as the Government's fiscal agent in disbursing and account- ing for the funds required to effect conversion. CVG negotiated a contract with La Electricidad in this connection which was approved by the Council of Ministers on March 23, 1965 and signed by La Electricidad March 3, 1966. The ANNEX I Page 2
principal provisions of the contract are:
(i) the costs of converting all apparatus and equipment of La Electricidad's customers will be borne by the national Government;
(ii) La Electricidad will bear the costs of converting its own generating facilities;
(iii) the physical work involved will be carried out by La Electricidad under supervision and audit of CVG;
(iv) La Electricidad will not initiate work on the conversion until assured that the Government will make available funds sufficient to carry the work to conclusion; and
(v) La Electricidad is obligated to purchase from EDELCA, over a period of not more than 20 years, power, at a price to be determined, in such amount that the total purchases will equal the costs incurred by the Government in connection with the frequency conversion. The total value of the power purchased will include interest at 5-1/2 percent per annum on the "unamortized" balance of the Government's costs. These purchases will represent only a part of EDELCA's total sales to La Electricidad.
3. La Electricidad has formed a new subsidiary, Cambio de Frecuencia C.A. (CAFRECA) to carry out the conversion work, and to maintain separate accounts of the costs involved. CVG has retained the services of Bechtel Corporation (Bechtel) to prepare, in cooperation with CAFRECA, detailed plans, work schedules, manuals for converting customers' apparatus, etc. and to render general advisory service during the conversion. CAFRECA now has a staff of about 100 employees including 25 engineers, and is taking a census of customers' apparatus. Supervisory staff will reach about 500 during conversion, in addition to the several thousand electricians, mechanics, etc. required. Several of the key staff of CAFRECA supervised the conversion from 50 to 60 cycles of the CADAFE Central Zone system, which was completed in 1962. CAFRECA's work is proceeding well and it is reasonable to expect that the initial steps for conversion will be taken in mid- 1967 as planned, particularly in view of the financial arrangements discussed below. CAFRECA is already purchasing portable substations required.
4. Following the establishment of the principle of conversion, and during the studies and negotiations with La Electricidad, the Government appropriated a total of Bs 40 million for defraying part of its share of the conversion costs (i.e. the part related to customers' facilities). The present estimated cost of this work (exclusive of the expenses for the account of La Electricidad) is ANE 1 Page 3
about Bs 125 million0-/ The Congress recently authorized-/ CVG to obtain guarantees or credits, national or foreign, up to Bs 100 million to assure the availability of funds sufficient (with the Bs 40 million already appropriated and held by CVG) to complete the converSion of La Electricidad'l system. CVG is arranging for a Letter of Credit of Bs 100 million in favor of La Electricidad with a New York bank. Thus there are reasonable assurancen that all financial impediments to converting the system of La Electricidad have been removed.
1/ This has increased from the Bs 90 million estimated in 1962 by virtue of the expansion of facilities which has taken place since then. 2/ In a law published in the Gaceta Oficial No. 28,125 of September 2, 1966>
December 29, 1966 VENEZUELA
EDELCA
ESTIMATED r:AXIMUN DEMANDAND ENERGY SALES
1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1/ MAXIMUMDEMAND (FIRM POWERSALES) - MW La Electricidad de Caracas - _ 50 50 50 61 h9 CADAFE - 93 93 163 242 Sub-total 3/ 55 195 287 355 403 h60 - - 100 100 245 482 515 34d h404 496 553 645 757 Guayana Area CVG Steelworks (SIDOR) 220 220 220 220 ALCASA 240 2hO 272 272 272 274 - - 25 25 50 292 Other Industrial and Local 5o 5o 100 100 100 14 20 30 ho 50 200 60 65 75 80 90 95 TOTAL DEMAND 234 240 375 385 585 698 791 943 1,005 1,109 1,344
ENERGY SALES - MILLION IWH La Electricidad de Caracas Firm Energy - Economy Energy 58 258 489 489 857 1,272 _ 535 1,122 14179 - - - 15723 1.3h2 1 h0 12653 ~~~~ ~~~~535 - ~~~1331.15 '1927 1,724 1.531 2972.605 CADAFE Firm Energy - - 1,025 1,508 1,866 2,118 Economy Energy - 2,418 2,533 2,707 690 338 376 383 224 438 - - 350 567 1,715 612 1,d46 2,242 2,501 2,6E42 2,971 3,319 Guayana Area CVG Steelworks (SIDOR) 1,084 1,084 1,08h ALCASA 1,084 1,183 1,183 1,341 1,341 1,324 - - 200 200 1,351 1,439 Other Industrial and Local 400 400 400 800 800 76 109 163 217 271 800 1,600 1,160 326 353 2407 2434 1,193 1,447 1,501 1,o574 1.909 2489 516 2.0954 2,5483 2.575 2,6h44 3.555 TCTAL SALES 1,160 1,193 1,797 2,201 4,104 4,935 5,813 6,791 7,048 7,808 9,479 EDELCA INSTALLED CAPACITY - MW 375 375 375 900 900 900 1,075 1,250 1,250 1,425 1,775
1/ It is assumed the CADAFE 230-kv line goes into service July 1967, and Guri 2/ It commercial operation begins January 1969. is assumed conversion of La Electricidad's system will be completed July firm, 1970. Sales prior to that date are not but are related to 60 cycle reserve requirements, and economy energy. 3/ The sub-total represents requirements of transmission from Guri/Macagua to La Electricidad/CADAFE. The is assumed to go into service for EHV Project the first full year in 1970, when firm sales to La Electricidad begin.
December 23, 1966 VENEZUELA
EDEICA
REVENU`ES FROM SALES - MILLIONS OF BOLIVARES
1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 La Electricidad 1975 Firm Power - - - - Economy Energy _ - 1.3 6.1 11.7 11.7 _ _ 1.3 5.4 20.5 30.4 2/ 5.5 6.0 6.2 6.6 - - _ 1.3 5.4 6.6 6.6 6.b 12.1 17.9 18.3 CADAFE 27.1 37.- Firi Power - - 21.0 Economy Energy - 30.9 38.3 43.5 49.6 - 3.4 1.7 52.0 55.6 _- 1.9 1.9 1.1 2.2 - 3.5 5.7 24.4 32.6 3.0 I40.2 45.4 50.7 54.2 Guavana Area 58.6 CVG Steelworke (SIDnR) 15.5 15.5 AICASA 15.5 15.5 16.9 16.9 - - 19.1 19.1 19.1 19.2 2.0 2.0 4.o 4.0 20.5 Other Industrial and Local 3.5 4.4 4.o 8.o 8.0 8.0 6.5 8.7 10.8 13.0 14.1 16.0 19.0 19.9 16.3 17.4 19.6 20.6 24.0 26.2 31.7 33.9 37.2 43.4 44.5 46.8 57.1 TOTAL REVENUES 19.0 19.9 27.5 33.2 61.5 73.3 89.5 106.7 113.5 128.1 152.7
1/ Firm power sales at Bs 126 per kw-year, with 5,256 hours use of demand, beginning Economy energy sales at 1970 with 11 MW. 0.5 centimos per kwh, related to fuel replacement coat. During 1968-1969, before firm power sales begin, energy is masumed to be sold at not less than 1.0 centi3o Firm power sales at Bs 108 per kw-year, with 5,256 per kwh. Economy hours use of demand, beginning 1969 with 195 mw. energy sales at 0.5 centimos per kwh, related to fuel During replacement coat. 1967-1968, before firm power sales begin, energy ia assumed 3/ Sales to be sold at not less than 1.0 centimo per kwh. in Guayana Area at following average tariffs per kwh,
(a) CGV Steelworks (PSO) 1.43 centimos (b) AICASA 1.0 centimo, fixed by contract (c) Other Industrial and Local 4.0 centimos
Decemlb8r 23, 1966 ANNEX 3 Page 1
VENEZUELA
EDELCA
EHV PROJECr COST ESTI4ATE
Equiv. Us$ Bs US$ 1000 1000 1000 Total TRANSMISSION LINE Land Acquisition & Clearing 500 -1 Materials & Equipment Towers 250 1,700 1,756 Wire 1,400 4,750 5,061 Hardware & Insulators 900 1,600 1,800 Erection 13,350 650 3,617
DIRECT COST 16,1400 8,700 12,345
Contingencies 1,600 450 806
Supervision & Inspection 1,400 300 611
19,400 9,450 13,762
SUBSTATIONS Equipment Switchgear & Transformers 5,100 5,100 6,233 Communications & Control 150 100 133 Erection & Civil Works 3,000 - 667
DIRECT COST 8,250 5,200 7,033
Contingencies 850 150 339 Supervision & Inspection 750 200 366
9,850 5,550 7,738
INTEREST & Other Charges During Construction Periodl/ - 1,900 1,900
TOTAL ESTIMATED COST 29,250 16,900 23,400
1/ Not included in proposed loan
December 22, 1966 ANNEX 3 Page 2
VENEZUELA
EDELCA
ESTIMATED PROJECT CONSTRUCTION EXPENDITURES
Equivalent Bs 1000
1967 1968 1969 Total
FOREIGN EXCHANGE Transmission Line 29,800 8,500 4,200 42,500 Substations 15,000 7,500 2,500 25,000
44,800 16,000 6,700 67,500
LOCAL CURRENCY Transmission Line 5,800 9,700 3,900 19,400 Substations 4,900 3,000 2000 9,900
10,700 12,700 5,900 29,300
TOTAL - CONSTRUCTION 55,500 28,700 12,600 96,800
INTERESri 1/ 1,500 3,200 3,900 8,600
TOTAL EXPENDITURES 57,000 31,900 16,500 105,400
1/ Not included in proposed loan.
December 22, 1966 VE2!EZ'JFLA
EDELCA
ESTIL'ZEL 1i:CCME GTAMTE'ETS Bolivares - Millions
(ACTUAL) 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 Energy Sales - Millions kwh 1,019 1,160 1,193 1,797 2,201 4,104 4,935 5,813 6,791 7,048 7,808 9,479 Average Realization - Centimos 1.6 1.6 1.7 1.5 1.5 1.5 1.5 1.5 1.6 1.6 1.6 1.6 Operating Revenues 16.7 19.0 19.9 27.5 33.2 61.5 73.3 89.5 106.7 113.5 128.1 152.7 Operating Expenses operation and Maintenance 2.3 2.8 2.8 2.8 2.9 4.1 5.9 6.3 6.7 Depreciation 6.7 7.5 8.3 4.5 4.5 4.5 4.5 4.7 8.8 16.1 17.3 18.7 18.7 22.0 General Expenses 24.1 2.1 2.1 2.1 2.1 2.1 2.3 2.6 2.7 2.8 2.8 2.9 3.1 8.9 9.4 9.4 9.4 9.7 15.2 24.6 26.3 28.2 28.2 32.4 35.5 Operating Mhcame 7.8 9.6 10.5 18.1 23.5 46.3 48.7 63.2 78.5 85.3 95.7 117.2 Interest 4.6 5.6 8.0 13.5 24.1 25.0 25.7 27.8 28.7 30.7 33.0 33.1 Interest Charged to Construction 4.6 5.6 8.0 13.5 24.1 25.0 2.0 4.7 1.8 4.7 8.0 - Interest Expense ------23.7 23.1 26.9 26.0 25.0 33.1 Net Incace 7.8 9.6 10.5 18.1 23.5 46.3 25.0 40.1 51.6 59.3 70.7 84.1 Average Net Plant in Service 208.3 203.5 199.0 194.0 193.2 516.9 886.5 952.8 999.0 1,016.1 1,058.8 1,151.5 Rate of Return 3.7% 4.7% 5.3% 9.3% 12.1% 9.0% 5.5% 6.6% 7.9% 8.4% 9.0% 10.2%
December 23, 1966 VENEZUEL;;
EDELCA
ESTIMATED SOURCES AND A-PLICATIOIIS OF FUNDS Bolivares - ilillions (1/2 year) 1966 1967 1968 1969 1970 1971 1972 3973 1974 -975 SOUR'.ES
Internal ODerating Income 5.3 18.1 23.5 46.3 48.7 63.2 78.5 85.3 95.7 117.2 Depreciation 2.2 4.5 4.7 S.8 16.1 17.3 18.7 18.7 22.0 24.1
7.5 22.6 28.2 _ 5S1 64.8 80.5 97.2 104.0 117.7 141.3 Loan 353-VE 31.0 84.2 74.3 39.6 - - - - Proposed Bank Loan - 4.- - - - - Future Foreign Loans - - - 12.6 41.2 37.9 32.7 63.9 44.4 -
31.0 129.0 90.3 58.9 41.2 37.9 32.7 63.9 44.4 - CVG Investments 29.2 10.0 60.o ------
60.2 139.0 150.3 58.9 41.2 37.9 32.7 63.9 44.4 - TOTAL SOURCES 67.7 161.6 178.5 114.0 106.0 118.4 129.9 167.9 162.1 141.3
APPLICATiONS
Construction Guri Project (1-3) 49.3 137.5 103.7 37.7 - - - - Guri Units 4-9 - - - 25.4 52.6 38.2 8.9 68.3 74.6 38.2 Proposed EHV Project - 55.5 28.7 12.6 ------Future (2nd) EliV Line - - - - - 19.1 32.6 32.9 - - Other Transmission 2.7 3.4 1.4 2.5 4.2 1.2 1.9 0.9 7.2 6.7
52,0 196.4 133.8 78.2 56.8 58.5 43.4 102.1 81.8 44.9 Debt Service Interest Loan 353-VE 4.2 12.0 20.9 20.3 19.7 19.1 18.4 17.7 17.0 16.2 Proposed EHV Project Loan - 1.5 3.2 3.9 4.0 4.0 3.8 3.7 3.5 3.3 Future Financings - - - 0.8 2.0 4.7 6.5 9.3 12.5 13.6
4.2 13.5 24.1 25.0 25.7 27.8 28.7 30.7 33.0 33.1 Amortization Loan 353-VE - - 10.0 10.6 11.2 11.8 12.5 13.2 13.9 14.7 Pronosed ENV Project Loan _ - - _ 1.1 2.5 2.7 2.8 3.0 3.2 Future Financings - - - - 1.7 1.28 19 5.9 - - 10.0 10. 2.6.9 17. 1. 2 TOTAL DEBT SERVICE 4.2 13.5 34.1 35.6 38.0 42.1 45.6 48.5 51.8 56.9 TOTAL APPLICATIONS 56.2 209.9 167.9 113.8 94.8 100.6 89.0 150.6 133.6 101.8
Increase in Cash - Gross 11.5 (48.3) 10.6 0.2 11.2 17.8 40.9 17.3 28.5 39.5 Increase in Receivables - 0.9 0.7 3.5 1.4 2.0 2.2 0.8 1.8 3.0 Dividends to CVG - - - - - 10.0 15.0 25.0 30.0 35.0 Increase in Cash - Net 11.5 (49.2) 9.9 (3.3) 9.8 5.8 23.7 (8.5) (3.3) 1.5 Cash-on-Hand Beginning Period 51.7 63.2 14.0 23.9 20.6 30.4 36.2 59.9 51.4 48.1 Cash-On-Hand End Period 63.2 14.0 23.9 20.6 30.4 36.2 59.9 51.4 48.1 49.6 Debt Service Coverage By Gross Internal Cash Generation 1.8 1.7 0.8 1.5 1.7 1.9 2.1 2.1 2.3 2.5
December 23, '966 VENEZUELA
EDELCA
C0NDENSED ESTIHATED BALANCE SHEETS - DECEMBER 31 Bolivares - Millims
ACTUAL 1964 196S 1966 1967 1968 1969 1970 ASSETS 1971 1972 1973 1974 j975 Gross Plant in Service 220.5 219.8 220.3 220.3 226.4 881.2 Depreciation Reserve 14.5 990.5 1,047.2 1,118.8 1,118.8 1,245.0 18.8 23.3 27.8 32.5 41.3 1,350.2 Net Plant in Service 206.0 201.0 57.4 74.7 93.4 112.1 134.1 197.0 192.5 193.9 839.9 933.1 158.2 972.5 1,025.4 1,006.7 1,110.9 1,192.0 Work in Progress 146.9 236.2 325.4 535.3 687.1 135.5 85.0 91.5 65.1 171.9 135.5 75.2 Total Net Fixed Assets 352.9 437.2 522.4 727.8 881.0 975.4 1,018.1 1,064.0 1,090.5 1,178.6 1,246.4 1,267.2 Current Assets Cash 23.2 63.3 63.2 14.0 23.9 20.6 30.4 Accounts Receivable 2.1 2.3 36.2 59.9 51.4 48.1 49.6 2.3 3.2 3.9 7.4 8.8 Other Current Assets 2.0 5.0 10.8 13.0 13.8 15.6 18.6 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 27.3 70.6 68.5 20.2 30.8 31.0 42.2 50.0 75.9 68.2 66.7 71.2 Other Assets and Deferred Charges - Net 11.1 4.3 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 TOTAL ASSETS 391.3 512.1 596.6 753.7 917.5 1.012.1 1.066,0 1.119.7 1.172.1 1.252.5 1.318.8 1.344.1 LIABILITIES CVG Investments Capital 296.8 348.1 377.3 387.3 447.3 447.3 447.3 Surplus 9.8 19.9 447.3 447.3 447.3 447.3 447.3 29.2 47.3 70.8 117.1 142.1 172.2 208.8 243.1 283.8 332.9 Total Equity 306.6 368,0 406.5 434.6 518.1 564.4 S89.4 619.5 656.1 690.4 731.1 780.2 Lons-Ter'. Debt Loan 353-VE 79.1 131.2 184.4 268.6 322.9 351.3 Proposed Loan - - 339.5 327.1 313.9 300.0 285.4 - 44.8 60.8 67.5 65.3 269.9 Future Financings - 61.4 58.5 55.6 52.4 49.0 - - - 12.6 53.8 91.7 121.0 183.0 225.4 215.5 79.1 131.2 184.4 313.4 383.7 431.4 458.6 Current Liabilities 480.2 493.4 538.6 563.2 534.4 Current Maturities of Long-Term Debt - - - - 10.0 10.6 12.3 Other Current Liabilities 5.6 12.9 14.3 16.9 17.8 18.8 23.8 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.6 12.9 5.7 5.7 15.7 16.3 18.0 20.0 22.6 23.5 24.5 29.5 I TOTAL LIABIIITIES 391.3 512.1 596.6 753.7 917.5 1.012.1 1,066.o 1.119.7 1,172.1 1,252.5 1.318.8 1,344.1 10 Debt/Equity Ratio 21/79 26/74 31/69 42/58 43/57 44/56 44/56 44/56 44/56 45/55 44/56 42/58
December 23, 1966 VENEZUELA PROPOSED EHV TRANSMISSION SYSTEM IN GURI MARKET AREA
Lo GuloC...... o
96~~ ~ ~~~~%AAA-' 3 VZIE/ o,.+ s BRAO °
VaIepc o'4 SIA TERESA -_ rtX'
CA DAFE'S CERA, ZONE AND LA ELECTRIC/DAD \ o X 9ts t M ' " G
C CADAFE'S CEN --T 9 %CADA C'ACAOAF EASTERN ZONE° 2YOKVIINE
fPROP'O5:ED9,G / NA REIONRE DCMHV P'R6JEC6 -_
0~~ 60 0 50 00 40 TRANSMISSION LINES\,
230 KV (..der construction) 8 o< fiiMACAGUA EHV > ~ _A
0 2 40 60 80O 100 M= - . ', ,' , . G U Ri
G UA YANIA LREG N
DECEMBER1966 IDBD-1859R