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 The report may not be published nor may it be quoted as representing their views.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.