$150 million loan will improve service quality by reducing power outages

The approved lending operation will strengthen Honduras’s National Transmission System (NTS) by financing priority works under the National Electricity Energy Company’s (ENEE, after its Spanish initials) investment program. The loan will also boost ENEE’s interconnectivity with the Regional Electricity Market (MER) to foster the use of the Electricity System of the Central American Countries (SIEPAC); improve ENEE’s financial sustainability and institutional capability; expand transmission quality by raising service reliability; and increase transmission to the NTS of energy generated from renewable sources.

The program is in line with the Honduras Country Strategy for the years 2015-2018 aimed at improving service quality and efficiency as well as diversifying the generation matrix and enhancing users’ access to the energy system.

The program will also boost service quality by reducing power outages, expanding the transmission system at national level, increasing the volume of transactions at the regional electricity market, and raising power service coverage at national level. In addition, it will include gender equality, development with identity, climate change, and disaster risk management components.

In 2014 the Honduran Government launched a reform process, establishing an institutional structure that includes an Energy Secretariat in charge of strategic planning and energy policy formulation. This reform process has made it possible to restructure and upgrade ENEE, dividing it in separate business units through the establishment of the ENEE Group comprising the ENEE Holding as well as generation, transmission and distribution companies.

The reform also contributed to the sector’s financial recovery; enhanced private participation in energy distribution, reducing losses, which was one of the sector’s main challenges; raised Honduras ability to become actively involved in the MER, increasing energy purchases from 1.4% in 2013 to 3.7% in 2017, which has in turn cut generation costs; and helped launch international public tenders to purchase energy and thermal power.

The program’s total cost is $164.15 million, including a $150 million IDB loan, of which a $90 million component is from the Bank’s regular ordinary capital for a 25-year term, with a 5.5-year grace period and a LIBOR-based interest rate, and a $60 million tranche from its concessional ordinary capital, for a 40-year term, with a 40-year grace period and 0.25% interest. An additional $5 million will come from the Scaling Up Renewable Energy Program in Low Income Countries (SREP), which is managed by the IDB. The lending program includes two components for financing and evaluation, follow-up and project audits expenses—one will fund transmission infrastructure expansion plans and the other will support ENEE’s institutional strengthening efforts.