R E S T R I C T E D Report No. To-298b Public Disclosure Authorized This reportwas prepared for usewithin the Bank. It maynot be published normay it bequoted as representingthe Bank's views. TheBank accepts no responsibilityfor the accuracyor completenessof the contentsof thereport. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized APPRAISAL OF THE ANGAT HYDROELECTRIC PROJECT THE NATIONAL POWER CORPORATION PHILIPPINES Public Disclosure Authorized October 5, 1961 Public Disclosure Authorized Department of Technical Operations ASSUMED CURRENCY EQUIVALENTS 1 Us $ = 3 Pesos (Ps) 1 Peso = 33-1/3 US cents 1 millionPesos = 333,333-1/3US $ APPRAISALOF THEANGAT HYDROELECTRIC PROJECT THE NATIONALPOWER CORPORATION PHILIPPINES TABLEOF CONTENTS Page No. SU4ARY i I. INTRODUCTION 1 II. THE BORROWER 1 Existing Facilities 2 III. THE POWER2MARKET 3 Luzon Grid 3 The EMindanao IslandSystem 4 Other Operations 4 IV. THENPC EXPANSIONPROGRAM 4 Luzon Grid Expansion 5 The MindanaoSystem Expansion 6 V. THESALES FORECAST 7 Luzon Grid 7 TheMindanao Island System 8 VI. THEPROJECT 8 TheAngat Hydroelectric Development 8 CostEstimate 9 Rate of Expenditureand Methodof Finance 10 Engineering and Supervision of Construction 10 Scheduleof Construction 11 VII. JUSTIFICATIONOF THEPROJECT 11 VIII. FINANCIALASPECTS 11 present Finanpial Position 13 Earnings Record 1 Rates 14 Financing Plan 15 Estimated Future Financial Position 16 Debt Limitation Covenant 17 IX. CONCLUSIONS 18 TABLEOF CONTEMTS Page 2 ANNEXES 1. Xeralco Past and Forecast Sales 2. Provincial Past and Forecast Sales 3. Luzon Grid Past and Forecast Sales 4. iIindanao(Agus) Grid Past and Forecast Sales 5. Isolated Operations Past and Forecast Sales 6. Summary - NPC Total Sales 7. Load and Capacity Curves - Luzon Grid 8. Load and Capacity Curves - llindanao(Agus) Grid 9. Details of Expansion Program 10. Detailed Descriptionof Project 11. Angat Cost Estimate 12. Hydro Thermal Comparison 13. Balance Sheets 1957-58 to 1971-72 14. Income Statements1957-58 to 1971-72 15. Net Cash from Operation Contributedtowards Expansion 1957-58 to 1964-65 16. Sources and Applicationsof Funds 1960-61 to 1971-72 aIAP APPRAISAL OF THE ANGATHYDROELECTRIC PROJECT THE NATIONALPOWER CORBORATION PHILIPPITES SUT214ARY i. The National Power Corporation (NPC) asked the Bank to consider a loan to help finance the cost of two power developments,the Angat hydro- electric development (206 NW) on Luzon and the addition of 50 !1Wto the existing Maria Cristina Falls hydro station on Mindanao. Both proposed undertakings were appraised but as there will likely be a delay of six to eight months before the market for the energy from the I4indanao expansion is clearly established it was agreed with NPC that only the Angat project would be submitted as a basis for a loan at this time. The total cost of the Angat project is estimated at about$62.8million equivalent,including interest during construction,of which ji34 million would be in foreign cur- rencies. ii. In 1957 the Bank made a loan of ~j21million to NPC, later reduced to $18.5 million, to assist in financing the Binga hydroelectricproject in Northern Luzon. The project was completed about on schedule and has been in full operation since early 1960. iii. NPC is a Government-ownedCorporation with an authorized capital stock of Ps 250 million. It is responsiblefor planning and providing major power facilities to meet the country's requirements,except in Manila where this responsibilityis exercised by the Manila Electric Corporation(I'leralco) which is also NPC's principal customer. iv. The management and technical staff of NPC are experienced and ca- pable of carrying out the projects under review. v. The project proposed for Bank financing is necessary to meet the forecast demand requirementsof the Luzon grid serving MAanilaand the most populated areas of Luzon. The estimated cost of the project is realistic and reasonable and the investment in the proposed facilities is justified. vi. NPC's financialposition was unsatisfactory. By converting all local bonded indebtednessinto equity at the end of fiscal year 1960-61 and by capitalizinginterest thereon for the next ten years the Government has improved NPC's cash position so that it would be able to finance from re- tained earnings (including depreciation) about 23% of the proposed expansion program 1961-65. The level of earnings would still remain low, however, and NPC and the Government have agreed during negotiations that they would take action to remedy this situation before the end of the current fiscal year. vii. Both satisfactory rate and debt limitation covenants were agreed upon during negotiations. viii. The project would be suitable for a Bank loan of '34 million equiva- lent, including interest during construction of 1j.8 million, for a term of 25 years including a grace period of 3-1/2 years on amortization payments. APPRAISALOF ThE ANQGATHYDROEIECTRIC PROJECT THE NATIONALPATER CORPORATION PHILIPPINES I. INTRODUCTION 1. This report covers the appraisal of the 206 MW Angat hydroelectric project on Luzon. The project would be carried out by the National Power Corporation (NIPC)at a total cost which is estimated to be equivalent to about $62.8 million including interest during construction on proposed foreign and local currency borrowings. 2. NPC has requested a Bank loan of $34 million equivalent to cover the foreign currency cost of the project including interest during construction of ;4.8 million. 3. This report is based on data furnished by NPC to Bank missions which visited the Philippines in July 1960 and April 1961, on various data and re- ports received at the Bank through July 1961 and on discussions with NNPC management during Bank visits in December 1960 and August 1961. 4. The Borrower would be NPC, an autonomous government-owned corporation with headquarters in Manila. NPC is responsible for planning and providing power facilities with which to meet the country t s requirements, except in ijanila where it sells electricity wholesale to the MIanila Electric Company (Meralco) which distribut-es it in the metropolitan and surrounding area. Arrangements for the sale of this company by the General Public Utilities Corporation, a holding company with headquarters in New York and the present owner, to the Meralco Securities Corporation, a Philippine investment group, were announced in Jane 19'11. The sale is subject to approval of the US Securities and Exchange Conmission and to c;-rtainarrangaments being com- pleted by the Philippine group ind is not y:it final. There is no reason to believe that it will not be consummated, however. 5. The Bank has previously made one loan to NPC to assist in financ- ing the Binga hydroelectric project. This loan (183-PH) for $521million was made in November 1957. It was later reduced to $18.5 million. The project consisted of a rockfill dam aridpower plant on the Ango River in northern Luzon with 100 EW instailled capacity plus transrmissfonto Manila. It was completed on schedule and has been in operation since early 1960. II. THE BORROWER 6. NPC is a Government-owned corporation established by Commonwealth Act No. 120 of 1936. Subsequent amen.ments to this Act fixed the corporate life of NPC until December 31, 2000 and converted it into a stock corporation with an authorized stock capital of Ps 250 million. - 2 - 7. NPC is administered by the National Power Board, composed of five members all appointed for a term of three years by the President of the Philippineswith the consent of the Commissionon Appointmentsof the National Assembly. The members of the Board elect a chairman and a vice- chairman from among themselves. 8. NPC is authorizedto borrow up to Ps 500 million, subject to the approval of the President of the Philippinesupon the recommendationof the National Economic Council. Within the limits of this total borrowing power, NPC has been authorized by Republic Act No. 357 as amended by Republic Act No. 813 and Republic Act No. 2055 to borrow up to $100 million equivalent in foreign exchange, to be guaranteed by the President of the Philippines. NPC is exempt from all duties and taxes except real property tax. It has the power to acquire property and to exercise the right of eminent domain. 9. The General Manager of NPC is appointed by the National Power Board subject to the approval of the President of the Philippines. The management is experienced and capable. The operational and technical staff have proven ability and are capable and competent of carrying out the pro- ject under review. Existing Facilities 10. NPC's major power facilities and operations are concentrated in two systems: (a) Luzon Island System (Luzon Grid) The Luzon grid is a system of high and low voltage transmission lines extending from Baguio in the north to below Manila in the south. The main lines, or circuits, originate at NPC hydro sta- tions and terminate in Manila; the lower voltage circuits tap from the main lines at various points and extend into the market area. NPC owns these transmission facilities. Power is supplied to the grid by NPC hydro plants (211 MiW)and Mleralco thermal plants (219 HW). Neralco also owns one small (15 IN) hydro plant which is connected to the grid and has under construction one 60 1NWthermal addition which is scheduled to be connected to the grid in December 1961. The Angat plant would be connected to this grid. (b) The Mindanao Island System (Agus Grid) This system is supplied by the existing 50 NVWMaria Cristina hydroelectric plant owned by NPC. It serves industrial develop- ment primarily and is, of course, physically separate from the Luzon grid. NPC also operates fourteen small hydro plants with a total ca- pacity of about 10 IV! and two diesel powered plants with a capacity of about 1.5 MW.