The Inter-American Development Bank today approved a $35 million soft loan to Honduras to support the expansion and improvement of rural electrification. The project will also strengthen the national power company ENEE and its Social Electrification Office.

Under the project, ENEE’s subtransmission grid will be reinforced and the national dispatch center will be upgraded. The utility will also launch a plan to reduce energy losses.

Electricity services will be improved for some 27,000 rural families and coverage will expanded to around 8,000 new clients in the departments of Santa Barbara, Cortes, El Paraiso, Lempira, Intibuca and Olancho.

Rural electrification helps families in isolated communities improve their living standards and boost their productivity, offering a substitute for more expensive and less environmentally friendly energy sources.

The project will also create appropriate conditions to continue expanding rural electrification in Honduras. In 2002, only 31 percent of rural households had electricity service. Another goal is to develop a plan for community management of social electrification projects.

The IDB loan is for a 40-year term, with a 10-year grace period, with an annual interest rate of 1 percent during the first decade and 2 percent thereafter. Local counterpart funds will total $4.55 million. The Nordic Development Fund expects to provide a 5 million euro (about $6.4 million) soft loan in cofinancing.

The rural electrification project shares criteria with Plan Puebla Panama, a regional integration and cooperation plan involving Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama.

Among Plan Puebla Panama’s energy projects is the SIEPAC electric interconnection system, which includes a 1,830-km transmission line linking the Central American national power grids. ENEE and utilities from Costa Rica, El Salvador, Guatemala, Nicaragua and Panama are participating in SIEPAC, which will also establish a regional electricity market.

The IDB has granted $170 million in loans for SIEPAC. Bidding for that project is expected to begin in 2005.