A Critical Review of the Mollejon Hydro Project

Chandrabhan Sharma

Introduction

Prior to October 1992, electric energy in Belize was handled by the Belize Electricity Board (BEB). The BEB Ordinance was enacted in 1950 to regulate the electrical power sector in Belize. The BEB was initially responsible for supplying electricity to Belize City only, but this was later amended in the bye-laws to cover the whole country.

As a precursor to the divestment of the electricity sector, Belize Electricity Limited (BEL) was incorporated in October 5 1992. The Electricity Act of 1992 provided for

1. the transfer of the assets of BEB to the successor company BEL;
2. the regulation and provision of electricity services;
3. the issuing of licences for generation, transmission an distribution of electricity;
4. provision of an exclusive 15 years, renewable licence to BEL for the areas BEB served, and
5. an environment for competition under a licensing system.

Description of the system circa 1992

The Belize Electricity Limited had 12 operational Diesel systems of various capacities distributed over 9 individual unconnected electrical systems. The nine systems with their installed capacities were:

1. Belize/Ladyville (26.45 MW)
2. Belmopan/San Ignacio (6.87 MW)
3. Dangriga (1.53 MW)
4. Corozal/Orange Walk (3.6 MW)
5. San Pedro (3.2 MW)
6. Punta Gorda (1.97 MW)
7. Caye Caulker (0.575 MW)
8. Independence (1.14 MW)
9. Sarteneja (0.25 MW)

This gave a total installed capacity of 45.6 MW. The system's maximum demand was 29.4 MW. The country also projected two additional power sources:

1. Mollejon Hydro Plant with a projected installed capacity of 25 MW supplying Belmopan, San Ignacio and Belize City load centres and
2. A power purchase contract with Comision Federal de Electricidad (CFE) of Mexico. This 34.5 kV 'tie' line would supply the load centres of Corozal and Orange Walk with a capability of 5 MW.

There were approximately 8 MW of privately owned generation. The net generation in 1994 from BEL's system was 139.8 GWh whilst the total sales were 148.2 GWh. The number of customers connected is 39,396. BEL's distribution system utilised, at that time, a number of different voltages namely 6.6 kV, 22 kV and 11 kV. The transmission voltages were 34.5 kV and 115 kV. The 34.5 kV is the link from CFE while the 115 kV is the voltage tie between the Mollejon Project and the Belize Cty/Ladyville grid. The 11 kV system is only found in Belmopan. The losses on the system have been high (see Figure 1).

When BEB first introduced loss reduction measures in 1984, losses were 26.5%. With the implementation of an IBRD-funded project in 1990 (Power I) the loss was brought down to 14% in 1990. This was further supplemented by another programme in 1992 which reduced the loss to 8.98%.

BEL has undertaken a further pilot energy management project. This is with the aid of the Institute of National Energy Use of the University of Stuttgart in Germany. This project is being funded by UNIDO and BEL. This focusses on loss reduction utilising demand side management techniques. BEL had 39,396 customers connected to its nine systems. Customers are broken up into four categories, viz. Residential, Commercial, Industrial and Street lighting. Of the total number of customers, 37.9% were residential, 29.7% commercial, 24.9% industrial, and 7.5% street lighting (Figure 2).

In spite of the categorisation, all customers were being billed on the same three tier tariff scale which averaged US19.1 ¢/kWh. This was a flat rate with no demand charge clause. The revenue from tariffs can be broken up as 33.3% residential, 29.8% commercial, 28.6% industrial and 8.3% street lighting (see Figure 3).

Figure 4 shows that whilst the revenue/kWh in 1994 was US19.1¢ the cost of supplying a kWh of energy was 18.3¢. This trend had been consistent over the previous 5 years. This yielded a rate of return of 7.57%.

The Electricity Sector

BEL had an authorised share capital of US$50m composed of 38,000,000 ordinary shares of US$1 per share, 12,000,000 Preference shares of US$1 each and one Special share (Golden share) of US$0.5c.

In October 1992, the Government offered 49% of the ordinary shares and convertible debentures for sale to the public. 37.5% of the ordinary shares were bought by private interests while the remaining 11.5% were taken by the state Social Security Board. The Government retained 51% of the ordinary shares, the convertible Preference Shares and the Special Rights Preference Shares.

Under BEL's Articles of Association, the Board of Directors shall be made up of no less than 3 members and not more than 12. Of the seven members on the board at that time five were nominated by the government and two represented private shareholding.

BEL is controlled by the Electricity Act 1992. However there are no specific provisions for price regulation. The licence only sets out general provisions for tariff determination, i.e. cost, rate of return and customer's interest. Tariff changes are approved by the Minister in charge of BEL.

Financial elements

BEL's financial year ends in March annually. Revenues from the sale of electricity amounted to US$26.4 m with total income being US$28.4m. Expenses account for US$25m. Long term debts totalling US$12.4m are owed to IBRD, CDB, CDC, Export/Import Bank of China and several vendor credit arrangements.

Consumers are read and billed monthly. Due to an aggressive collection programme, the average collection period is 58 days. Under Loan 2749-BEC (IDB), government has also kept its overdue bills to within 60 days.

All customers were billed using a three tier tariff system, i.e.

1. first 70 kWh - US15¢
2. next 80 kWh - US 17.5¢
3. over 150 kWh - US 20.5¢

The last tariff change was given in 1990. Staff of BEL got a reduced flat rate of US12¢/kWh.

Unlike its predecessor BEB, which was exempt from income taxes, BEL had to pay income taxes. The Government agreed that BEL would only be liable for taxes at a 10% rate from April 1993 which increases by 5% annually thereafter up to a maximum of 35% in April 2000. BEL will also be allowed to offset the accumulated losses of BEB against income taxes.

BEL carried insurance for all aspects of its operation. However there was increasing difficulty in securing adequate coverage due to the frequency at which hurricanes visited the country. BEL was studying the option of establishing a reserve fund to deal with this.

Demand analysis

Figures 5, 6 and 7 illustrate the growth in energy sales, peak demand and number of customers. There is also a suppressed demand of about 5 MW which, once BEL's power becomes available, would be added to the maximum demand. It was projected that the demand would grow to 42 MW by the year 2004.

However, a decision was taken by BEL not to invest in any Diesel plant. BEL has decided that increase in energy would be supplied from the Mollejon Hydro project and with purchases from Mexico (Power II Project). Because of the variability of the Mollejon Hydro Project, a long-term electricity supply contract with CFE of Mexico was being pursued. At that time CFE supplied the Corrozal and Orange walk area with a maximum of 5 MW of power. BEL had requested CFE to increase the capability of the output to 25 MW at 115 kV. This was recommended as the least cost expansion plan for the development of BEL's capability. The US$33m project would include:

1. a 136 kM, 115 kV interconnection with Mexico
2. interconnection of Ambergris Cay via submarine cable
3. A SCADA system
4. Training and Technical Services
5. Two 115 kV substations
6. Cost of Service Survey

The charges to be paid to CFE would be:

1. Max demand charge of US$8.83/kW
2. US 5.8c./kWh at peak hours (6pm to 10pm Monday to Saturday)
3. US 3.2c./kWh for all other time

The project had an estimated IRR of 22%. The estimated project completion date was mid 1997.

The Mollejon Hydro Project

The lack of reliable electrical energy has always been a deterrent for industrial development in Belize. While Diesel generators formed the backbone of the generation system, the fuel (Diesel) was a source of constant headache due to the price fluctuations on the international market. After several studies commissioned by the Government, BEB, CIDA, USAID and the World Bank, hydro-energy was identified as the only viable indigenous source for electrical power.

Mollejon on the Macal River (a tributary of the Belize River) was identified as the most suitable site for a hydro installation. However the preliminary estimated cost of US$60m was too large for the economy to bear. The Government took a decision to seek an investor for a Build-Operate-Transfer (BOT) project. Eight of the original twenty-one interested parties submitted proposals. In April 1991, the government granted a franchise to Dominion Energy Inc. of Virginia USA and International Energy Equities Inc. of Denver, Colorado USA for the 25 MW run of the river hydro BOT scheme. This included the installation of 3 Francis 8.4 MW, 6.9 kV units and 139 kM of 115 kV transmission lines to Belize City. The identified developers formed a company, Belize Electricity Company Limited (BECOL) that then awarded the contract to China International Water and Electric Corporation for the design, construction and supply for the hydro scheme.

However in exchange for this BOT project, the BEB agreed on a very onerous power purchase agreement with BECOL, the salient clauses being:

1. The Government has granted exclusive upstream non-consumptive water rights to BECOL on the Macal river and its tributaries (Recital).
2. BEL agrees not to purchase electric energy from any other source unless BEL has purchased all available energy from BECOL (Clause 2.4).
3. BEL indemnifies BECOL for any damages which may be due to 'dirty' power (Clause 2.5) or any other causes (Clause 18.2).
4. BEL will pay for 120 GWh of energy for 40 years at a rate of US 8c./kWh. This must be paid for irrespective of delivery or capacity to deliver (Clause 3.1).
5. Excess energy would be paid for at a rate of US 7c./kWh (Clause 3.2).
6. BEL will pay BECOL 5% of its gross electrical revenues from the sale of the energy purchased as an O&M charge (Clause 3.5).
7. BECOL is to be exempted from payment of all taxes for life (Clause 3.6).
8. Not even force-majeure can be an excuse for BEL to refuse payment of fixed energy charges (Clause 13.1).
9. Although an availability of 85% has been agreed upon, failure to meet this figure only causes a reduction of the fixed energy charges by 1% for each year the availability is not met (Clause 14.1, 14.2 & 14.3).

As can be seen by the abridged listing, 'onerous' is a mild term to use for what the PPA agreed to. The agreement provided for the conveyance of the entire hydro scheme to BEL after its 40th year of operation.

In July 1993 BEL negotiated a new fixed payment term such that the fixed energy value escalates from a low of 110 GWh in 1996 to 115 GWh in 1997 and 1998 and 120 GWh thereafter. Under the Guarantee Agreement, the Government guarantees the timely delivery of BEL's obligations.

Recommendations

BEL had taken a decision that the least cost alternative for future supply is via the Mollejon project and the Power II project (Intertie with Mexico, CFE). Once these projects came on stream, the existing Diesel plants would be used primarily for peaking duty. However in order to streamline the system operation the following should have been actively pursued.

(1) The tariff structure and charges should be changed so as to take into account the peculiar characteristics of the industrial and commercial consumers. This is also necessary so as to give the required industrialization the fillip it needs.

(2) An independent, transparent regulatory body should be established which can police as well as approve tariffs for the electric utility.

(3) The nine individual systems should be interconnected so that the advantages of economies of scale can be obtained.

(4) As can be seen, the least cost alternative was the interconnection with Mexico. Security of supply was not an issue as there were Diesel sets in Belize.

(5) The PPA was very onerous and should have been renegotiated so as to obtain a just cost structure.

© Chandrabhan Sharma, 2002.

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