Projects

	Table of Contents
Theun-Hinboun Hydropower Project Currency Equivalents Basic Data Maps I. Project Description II. Evaluation of Implementation III. Evaluation of Initial Performance and Benefits IV. Conclusions and Recommendations Appendixes: [PDF] 1. Ownership Structure of Theun-Hinboun Power Company 2. Public Access Roads 3. Civil Works, Including Hydraulic Steelworks 4. 230 kV Transmission Line 5. Theun-Hinboun Power Company Organization Chart 6. Final Implementation Costs 7. Final Structure of Theun-Hinboun Power Company 8. Currency Exchange Rates, 1994-2000 9. Chronology of Major Events 10. Implementation of Schedule 11. Compliance with Major Loan Covenants 12. Appraised and Actual Disbursements 13. Financial Internal Rate of Return 14. Economic Internal Rate of Return 15. Assumptions in FIRR and EIRR Analyses 16. Project Financial Statements

Project Completion Report on
Theun-Hinboun Hydropower Project

III.  EVALUATION OF INITIAL PERFORMANCE AND BENEFITS

61. In evaluating initial performance and benefits, the financial internal rate of return (FIRR) and the economic internal rate of return (EIRR) determined for the Project considered an implementation period of five years and a project life of 25 years, as stipulated during project appraisal. All benefits and costs are expressed in constant terms. A standard conversion factor (SCF) of 0.90 was used to convert financial costs of non-tradable items into economic terms.^17/ Appendixes 13 and 14 provide the FIRR and EIRR calculations, respectively, and the underlying assumptions are in Appendix 15. The actual and projected financial statements are in Appendix 16.

A.  Financial Performance of Theun-Hinboun Power Company

  1. Demand Forecast

62. The demand forecast assumed export sales at start of operation in March 1998. The projected sales of electricity to EGAT are based on 95 percent of the net electrical output at the delivery point and the applicable tariff. Maximum electricity generation was based on the estimated water flows after a minimum release of 5 m³/s to Nam Kading. Tariffs were in accord with the PPA between EGAT and EdL. Financial benefits were measured at the tariff in effect in 1998 for sales in the country and at the export price to Thailand of $0.043 negotiated in 1994, escalated by 3 percent until January 1998 and by 1 percent annually thereafter. In accordance with the PPA, 50 percent electricity sales were in dollars and 50 percent in baht.

  2. Capital Costs

63. Capital costs are incurred net of interest during construction, and taxes and duties for this Project have been waived. In the cost estimates, 100 percent of the investment was denominated in foreign currency.

  3. Operation and Maintenance

64. The hydropower station is operated by NH under a five-year operation and maintenance agreement, and financial management is carried out by MDX. The Project incurred maintenance costs of about $3.7 million in 1998, which corresponded to about 1.5 percent of the $240.2 million capital costs of the Project. During appraisal, the maintenance cost was assumed to be about 2 percent of the appraised capital cost of $270.0 million.

  4. Results of Financial Performance

65. THPC's key financial indicators since the start of operations to date are summarized in Table 1. They show that THPC is profitable and maintains a comfortable debt servicing capacity. The analyses show that the company will earn an average return on equity of about 32.8 percent^18/ during the projection years. However, the projected debt-service ratio of 46.5 percent in 2006 is higher than the appraisal ratio of 7.4 during the same year. This was a result of the longer term commercial borrowings that THPC had to resort to during the economic crisis.^19/

66. The projected financial statements with prior three-year actual statements (Appendix 16) indicate that THPC's financial performance is exceptional. The Project is highly profitable, as net profits are expected to accumulate substantially during the operating years. From 1998 to 2009, total revenues and net income will reach $736.6 million and $407.6 million, respectively. Cost of sales and overhead relative to revenues are considered low. After paying shareholders $393.9 million in dividends over 12 years, THPC will still retain $13.8 million^20/ in unappropriated earnings. Shareholders are projected to recover their investment through dividend payments as early as the sixth year of commercial operations. At the end of 12 years,^21/ virtually all debt will have been paid and profitability will depend on tariff negotiations with EGAT and whether EGAT moves to a pooling system.

67. The FIRR analysis (Appendix 13) compared the capital, operation and maintenance costs, and taxes, with the revenues from energy sales. The devaluation of the baht, however, and the impacts of the 1997 Asian economic crisis - resulting in a decrease in energy sales to Thailand - adversely affected export revenues. Despite these circumstances, THPC's financial performance was favorable. THPC's recalculated FIRR is 19.5 percent, compared with 18.7 percent at appraisal. EdL will earn about $46.4 million (Appendix 14, Income from Investment) between the start of its operations in 1998 until 2000, and is projected to reach about $28.6 million annually over the projection period ending 2022.

68. The Project's positive performance relative to expectations at appraisal is due to the following: (i) cost underrun of about $29.8 million^22/ associated with the capital costs of the Project, (ii) timely commissioning of the Project, and (iii) higher than expected cost savings. The positive project implementation performance has offset the effects of decreased electricity sales resulting from (i) low generation due to low water flows, and (ii) below 95 percent dispatches to EGAT.

B. Economic Performance

69. The economic evaluation was made from the perspective of the Lao PDR economy. Since the Project assumes exporting almost all of its output to Thailand, the economic analysis measures as benefits all revenue expected to be received by the country in the form of net profits, royalties, and taxes. The Project's EIRR (Appendix 14) was calculated at 30.8 percent, compared with the 23.6 percent at appraisal. In 1999, the first year of full operations, Government earnings from the Project were $20.4 million (Table 2), contributing about 1.5 percent of the gross domestic product (GDP) and 6.8 percent of Government expenditure during that year. THPC is expected to contribute to the Lao PDR economy about $21.2 million (Table 2) in year 2000, increasing to about $40.9 million in year 2022.^23/

C. Attainment of Benefits

70. The Project has had a favorable impact on the Lao PDR economy through export of electricity to Thailand and through rural electrification (RE) in the surrounding areas. During the construction period, substantial employment opportunities were available and well used by the population. Some personnel reached a semiskilled level, which improved their opportunities for obtaining work in general. Some permanent jobs for local people in operating and maintaining the plant and other facilities were also created. Lao PDR technical staff received theoretical and practical training within the country and in Sweden, and on-the-job training during implementation and commissioning of the Project. The establishment of a modern school and medical service greatly improved the living conditions in the area. RE, improved access roads, and the possibility to develop irrigation schemes will further improve the livelihood of a larger population.

71. With the substantial funds earned from THPC, EdL subsidizes electricity tariffs for the poor population on a country wide basis and supports its various power generation and distribution projects. Through these subsidies, the Project also enables EdL to ensure equitable distribution of power nationwide. At the end of the project life after 25 years, THPC will transfer the project facilities to EdL.

72. It appears, that the one overarching benefit expected by the impacted villagers is electricity. Upon a request by EdL, provided EdL treats this as an advance against dividends THPC is prepared to provide the required electricity for this purpose. The required RE is to be implemented by EdL, which has included some project impacted areas under a RE project financed by a loan from the World Bank. However, regions outside the World Bank-financed RE project still require about $0.5 million in additional funds, and THPC is considering advancing these funds from future dividends due to EdL.