Document of The World Bank FOR OFFICIAL USE ONLY 1SAAi Report No. 1450-AR STAFF APPRAISAL REPORT ARGENTINA ELECTRIC POWER SECTOR PROJECT October 5, 1988 Latin America and Carribean Region Country Department Infrastructure and Energy Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents mray not otherwise be disclosed without World Bank authorization. CURRENC' EQUIVALENTS Currency Unit = Austral (A) A1.00 = US$0.26596 US$1.00 = A3.76 (exchange rate as of January 1, 1988) MEASURES MMTOE : million tons of oil equivalent W t watt Wh : watt-hour V : volt VA : volt ampere k : kilo thousand (103) M : mega : million (106) G : giga : hillion (109) T : tera : trillion (1012) ACRONYMS AyE. Agua y Energia Electrica S.E. (faderally-owned, nationwide electric utility and water supply agency) CFE Consejo Federal de Electricidad (Federal Electricity Council) CNEA Comision Nacional de Energia Atom:!ca (National Nuclear Energy Commission) CTMSG Comision Tecnica Mixta del Salto Grande (Argentinian/Uruguayan commission in charge of the Salto Grande Hydroelectric Plant) DEP Directorio de Empresas Publicas (Public Enterprises Directorate) DUC Despacho Unificado de Carga (Central Dispatch Center) EBY Entidad Binacional Yacyreta (Argentinian/Paraguayan entity in charge of the Yacyreta hydroelectric Plant) HIDRONOR Hidroelectrica Norpatagonica (federally owned, electricity generation utility) ME Ministerio de Economia (Ministry of Economy) MOSP Ministerio de Obras y Servicios Publicos (Ministry of Pub !c Works and Services) SE Secretaria de Energia (Secretariat of Energy, under the MOSP) SEGBA Servicios Electricos del Gran Buenos Aires (federally owned, electric utility serving the Buenos Aires metropolitan area) SIN Sistema Interconectado Nacional (National Interconnected System) UNDP United Nations Development Program FISCAL YEAR January 1 - December 31 FOR OFFICUAL USE ONLY ARGENTINA E!ECTRIC POWER SECTOR PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. 1. LOAN AND PROJECT SUHMARY .......................................... 1 2. THE ENERGY AND POWER SECTORS ...................................... 3 A. THE ENERGY SECTOR ............................................... 3 Energy Resources .............................................. 3 Demand and Supply of Energy ................................... 3 National Energy Policy and Sector Objectives .................. 3 Institutional Structure ....................................... 4 B. THE ELECTRIC POWER SECTOR ....................................... 4 Legal Framework and Regulation ................................ 4 Organization .................................................. 4 The Electric Power Market and Existing Facilities .............6 Planning and Investment ....................................... 7 - Organization .......................... ........... 7 - Expansion Plan .......................... 7 - The Nucleer Power Program ..........................., 8 - Investment .......................... 9 Electricity Pricing .......................................... 10 Sector Finances .............................................. 10 - Past Performance ........................................ 10 - National Utilities Financial Rehabilitation Plan (FRP) ............................................ 12 - Sector Financing Plan (National Utilities and EBY) ...... 13 Bark Participation ........................................... 14 Bank and Country Goals and Sector Lending Strategy ........... 15 Rationale for Bank Involvement ............................... 16 3. THE PROJECT ...................................................... 17 Project Origin and Status of Preparation ...................... 17 Legal Arrangements ............................................ 17 Project Obje"tives ............................................ 18 Project Description ........................................... 18 Estimated Cost ................................................ 18 Financing Plan .. . ............................................ 20 - National Utilities .21 - EBY .22 - SE .23 Financial Covenants .23 Impleme.itation and Monitoring .24 Procurement .24 Disbursement .25 Environmental and Social Aspects .26 Dam Safety and Inspection .27 Auditing .28 Economic Justification .28 Risks .29 4. AGREEMENTS REACHED AND RECOMMENDATION .30 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - ANNEXES 2.1 Energy Sector Organization Chart 2.2 Institutioaal Aspects 2.2.1 SEGBA 2.2.2 AyE 2.2.3 HIDRONOR 2.2.4 EBY 2.2.5 CNEA 2.3 The Electricity Market 2.3.1 Demand Projections 2.3.2 SIN - Installed Capacity Available by End 1987 2.3.3 Draft Terms of Reference for the Power Generation Options St-dy 2.4 Expansion Plan and Investment Program 2.4.1 STN - Evolution of Completion of Net Available Capacity 2.4.2 SIN - Capacity and Energy Balance 2.4.3 Economic Evaluation of the Atucha II Project 2.4.4 1988-1985 Sector Inrestment Program 2.5 Electricity Pricing 2.5.1 Electricity and Energy Funds 2.5.1.1 Electricity and Energy Funds Forecast 2.5.2 Typical Electricity Prices 2.6 Finances 2.6.1 National Utilities 2.6.1.1 Income Statements 2.6.1.2 Flow of Funds 2.6.1.3 Balance Sheets 2.6.2 SEGBA 2.6.2.1 Income Statements 2.6.2.2 Flow of Funds 2.6.2.3 Balance Sheets 2.6.3 AyE 2.6.3.1 Income Stateients 2.6.3.2 Flow of Funds 2.6.3.3 Balance Sheets 2.6.4 HIDRONOR 2.6.4.1 Income Statements 2.6.4.2 Flow of Funds 2.6.4.3 Balance Sheets 2.6.5 EBY 2.6.5.1 Sources and Uses of Funds 2.6.5.2 Financial Plan (1988-1996) 3.1 Project 3.1.1 SEGBA's 1988-1995 Investment Program 3.1.2 AyE's 1988-1995 Investment Program 3.1.3 HIDRONOR's 1988-1995 Investment Program 3.1.4 The Yacyreta Project 3.1.5 Estimate of the Project Cost 3.1.6 EBY's Environmental and Resettlement (E&R) Plan of Action - iii - 3.2 Performance Indicators 3.2.1 Sector 3.2.2 SEGB 3.2.3 AyE 3.2.4 HIDRONOR 3.3 Economic Justification 3.3.1 Sector 3.3.2 Economic Evaluation of the Yacyreta Project 3.4 Proiect File HAP: IBRD No. 21188 This report is based on the findings of an appriasal mission consisting of Messrs. Hernan Garcia and Nelson de Franco (Power Engineers) and Jose H. Bakovic (Financial Analyst) who visited Argentina in May-June 1988. ARGENTINb ELECTRIC POWER SECTOR PROJECT STAFF APPRAISAL REPORT 1. LOAN AND PROJECT SUMMARY Borrower: The Argentine Republic Beneficiary: Entidad Binacional Yacyreta (EBY) Amount: US$252.0 million equivalent of which US$250.0 million for EBY and US$ 2.0 million for Secretariat of Energy Terms: Repayment in 13 years including six years of grace, with interest at the Bank's standard variable rate. Project Objectives: The project is designed to help achieve the following sector objectives: (a) ensuring optimum resource allocation by requiring adherence of the expansion program to least- cost principles; (b) implementing a Financial Rehabilitation Plan (FRP) of the national power utilities; (c) promoting rational use of electricity through a tariff system based on economic costs; (d) improving the efficiency of the power utilities; (e) strengthening the structure of the sector so as to bring about better coordination, planning and regulation; and (f) establishing policies and procedures for environmental protection and social aspects in power projects. Project Descriptions The proposed operation would help finance the 1988-1989 time slice of the sector investment program. Loan proceeds would fund civil works and engineering of the Yacyreta hydroelectric plant construction and technical assistance to strengthen the Secretariat of Energy. Project Benefits: The project would enhance the allocation of Argentina's scarce financial resources through an economic selection of projects and setting of electricity prices, which, in turn, would encourage rational use of energs resources. Sector productivity would be improved through efficient operation of existing installations and institution building efforts, including better protection of environmental and social aspects of power projects. Risks: The major risk facing the project would be a lack of funds to execute it under the envisioned time schedule. The main cause for such lack of funds would be the inadequate implementation of measures included in the FRP, particularly the Government's difficulties in keeping tariffs in line with inflation and the complex arrangements for resource transfers within the sector. -2- Estimated Project Costs 1988-1989 Sector Investment (in millions of current US$) Local Cost Foreign Cost Total Cost 1 AyE 248.3 165.5 413.8 17 SEGBA 178.3 118.9 297.2 13 HIDRONOR 240.7 160.5 401.2 17 EBY 584.6 279.3 863.9 37 SE 1.0 2.0 3.0 - Base Cost 1/ 1,252.9 726.2 1,979.1 84 Physical Contingencies 139.1 80.5 219.6 9 Subtotal 1,392.0 806.7 2,198.7 93 Price Contingencies 45.0 28.9 73.9 3 Subtotal 1,437.0 835.6 2,272.6 96 Interest 2/ - 80.1 80.1 4 Total Estimated Costs 1,437.0 915.7 2,352.7 100 Financing Plan: Net consumer-based funding 991.6 991.6 42 Government contributions 52.2 52.2 2 Proposed IBRD loan 252.0 252.0 11 Proposed IDB loan 250.0 250.0 11 Other borrowing 393.2 413.7 806.9 34 Total financing 1,437.0 915.7 2,352.7 100 Estimated Disbursements: Bank PY 1989 1990 Annual 151 101 Cumulative 151 252 Rate of Return: Economic Rate of Return: 151 1/ January 1988 price levels. 2/ Interest during construction on current and proposed IBRD and IDB loans financing the Yacyreta project. - 3 - 2. THE EIERGY AND POWER SECTORS A. THE ENERGY SECTOR Energy Resources 2.01 Argentina's energy resources are diverse and abundant. Proven and potential gas reserves are estimated at 880 MMTOE (million tons of oil equivalent) and proven and potential oil reserves at 560 MMTOE. Potential coal reserves are also large, estimated at 220 MMTOE, but the low quality of deposits, as well as their distance from consumption centers, make their commercial exploitation doubtful. Uranium proven reserves are estimated at 400 MMTOE--or the consumption of about 8,000 MW of nuclear installed capacity for 30 years. Hydropower potential is estimated at 44,000 MW, equivalent to about 44 MMTOE p.a.--or 2,200 MMTOE over 50 years. Demand and Supply of Energy 2.02 The country's energy consumptior in 1987 is estimated at 47.4 MMTOE, resulting in a per capita consumption of 1.5 tons of oil equivalent (TOE) p.a., compared with the Latin American average of 1.0 TOE p.a. The country can be considered self-sufficient, although it imports gas from Bolivia under a 1972 contract--which is scheduled to expire in 1992. 2.03 The pattern of energy consumption has changed significantly lately. As proven gas reserves have increased and gas fields have developed, gas has substituted for oil in industry and electricity generation. This trend is expected to continue beyond 1990, with increased use of natural gas in power generation (para. 1.16), industry and households. In anticipation, the Government is expanding the capacity of its gas pipelines. Substitution of oil would also continue with the commissioning of large hydroprojects currently under corstruction (para. 2.17). National Energy Policy and Sector Objectives 2.04 Argentina's energy policies have not fostered efficient use of the country's energy resources. Distorted pricing policies are believed to be the main problem since, for long periods of time, the Government allowed prices of oil derivatives and electricity to decrease in real terms. Additionally, wrong investment decisions have led to the development of an expensive nuclear power program, while the economic criteria traditionally adopted for planning the electricity sector have: (a) promoted the installation of questionable large hydroplants (para. 2.16); and (b) not provided for an adequate balance among generation, transmission and distribution facilities (para. 2.18). 2.05 The Government recently completed an energy plan whose main objectives are: (a) to increase the contribution of gas and hydro resources to the country's energy supply; (b) to increase oil exploration efforts in order to improve the reserve/production ratio; and (c) to correct pricing distortions and foster conservation and substitution. Specifically, the country is expected to maintain its energy independence -4- through the year 2000 bv increasing the shares of gas and hydroelectricity in the country's energy balance (gas: from 25X in 1986 to 362 in 2000; hydro: from 112 to 15?), reducing oil's share from 47? to 37?. The energy plan is a valuable planning tool which requires systematic updating to ensure cost-effective and balanced use of resources. Institutional Structure 2.06 A chart with the organization of the energy sector is presented in Annex 2.1. The Ministry of Public Works and Services (MOSP) controls the energy sector through the Energy Secretariat (SE) and the Public Enterprises Directorate (DEP). The SE is in charge of defining sector policies. SE is responsible for: (a) overall energy planning; (b) granting of concessions for exploration and exploitation of petroleum and gas fields and for electricity power supply; (c) pricing policies; and (d) policies for energy conservation and development of new sources of energy. The SE has limitations for contracting personnel and usually resorts to borrowing staff from AyE and SEGBA, but still is weak in fulfilling its wide range of responsibilities. The proposed project would support the strengthening of the SE's technical staff [para. 3.06(b)]. The DEP is responsible for supervising the operational performance of the major public enterprises, including those of the oil and gas and electricity sectors. In theory the DEP is also responsible for authorizing tariff adjustments; in practice the Ministry of Economy retains the final authorization because of the Government's price setting policy (paras. 2.21 and 2.22). B. THE ELECTRIC POWER SECTOR Legal Framework and Regulation 2.07 The legal framework of the power sector does not facilitate its comprehensive, coherent regulation. Furthermore, the autonomy provided to the provinces by the Constitution permits them to set rules which often do not foster economy and efficiency (e.g. establishment of royalties on the use of hydro resources, setting of tariffs to the final user which have no relationship with costs, application of taxes and other surcharges over and above electricity rates, etc.). It is expected that a review of the sector organization, currently being carried out by the SE (paras. 2.11 and 2.14), would provide recommendations for addressing the above problems. Additionally, the Government is improving coordination of the sector by making effective use of the Federal Electricity Council (CFE), a coordinating body with representation of the SE, the national utilities and the provincial authorities responsible for the power sector (usually their Ministries of Public Works). Recently, the CFE has played an instrumental role in recommending actions to the Government aimed to correct tariff imbalances. Organization 2.08 The Argentine power sector has a fragmented and complex organization. Most of the power facilities are owned by the federal and the provincial governments, although autogeneration, mainly in the hydrocarbon and mining industries, contributes with an important share of the total country's production (about 102 in 1987). National utilities are in charge of the development, production, transmission and distribution of - 5 - electricity and of the development of binational hydro resources. There are about 20 provincially-owned utilities mainly in charge of distribution of electricity (para. 2.11). 2.09 The country's utilities owned by the Federal Government and their role in the power sector are the followir.g: Servicios ElEctricos del Gran Buenos Aires (SEGBA), in charge of generation, subtransmission, and distribution in the Greater Buenos Aires area (see Annex 2.2.1). Agua y Energia Electrica (AyE), in charge of nationwide generation, transmission and bulk supply, and also distributes electricity in a few provinces. It has responsibilities in integrated basin development, irrigation, flood control, drainage and land reclamation (see Annex 2.2.2). Hidroel4ctrica Norpatag6nica (HIDRONOR), responsible for developing the hydro resources of the Northern Patagonia region (see Annex 2.2.3). In addition, the Government participates in two binational entities with Uruguay and Paraguay, which are, respectively: Comisi6n Tecnica Mixta del Salto Grande (CTMSG), in charge of the Salto Grande Hydroelectric Plant (1620 MW), operating since 1Q80. Entidad Binacional Yacyreta (EBY), in charge of the construction and eventual operation of the Yacyreta Hydroelectric Plant (see Annex 2.2.4). The Federal Government also owns the Comisi6n Nacional de Energia At6mica (CNEA), an agency in charge of nuclear research and applications. Under this role, CNEA builds and operates nuclear power plants which supply energy to the sector's interconnected system. The CNEA reports directly to the presidency and, since its creation in 1950, has been managed independently from the energy sector (see Annex 2.2.5). 2.10 The MOSP, through DEP, has direct controi of the three national utilities: AyE, SEGBA and HIDRONOR. EBY reports directly to the MOSP, and CTMSG to the Ministry of Foreign Affairs. A national dispatch center (DUC) operated by AyE is in charge of coordinating the operations of the larger electricity producers (AyE, SEGBA, CTMSG, HIDRONOR and CNEA) to ensure reliability and economic use of generation facilities. 2.11 Some of the provincial utilities own generation facilities, but most of them distribute electricity purchased from AyE. The most important are in the provinces of Buenos Aires, C6rdoba, Mendoza and Santa Fe. Most of the provincial utilities were created in 1979, when the Government made arrangements with provinces to transfer distribution responsibilities from AyE to them. The arrangements provided for the transfer of the physical facilities and assets but did not relieve AyE of the corresponding liabilities. The transfer from AyE resulted in the formation of a number of provincial utilities with weak managerial and institutional structures. Also, because of the autonomy which the provinces enjoy, coordination of system operations and development D tween SE and the national utilities and the provincial utilities is weak. The study of the sector organization agreed upon under the revised covenants of the Yacyreta Project (para. 2.14) and the studies being carried out under the Power Engineering Project, Loan 2751-AR (paras. 2.15 and 2.18), are expected to provide the basis for improving coordination between the Federal Government and the provincial utilities. The Electric Power Market and Existing Facilities 2.12 The degree of electrification in Argentina is high compared to other Latin American countries. About 792 of Argentina's inhabitants ha,ve access to electricity. Almoqt all the urban centers and about 50? of the rural population have electricity service. Electricity per capita consumption was about 1450 kWh in 1987 (compared with 1,100 kWh per year for Brazil and 270 kWh per year for Bolivia). Consumption increased at a rate of 6.1Z p.a. in the period 1970-1980. It slowed after 1980, reflecting the difficult economic situation, reaching 2.8Z in the period 1980-1984 and decreasing by 2.22 in 1985. Consumption growth recovered in 1986 and 1987, however, at a high rate (7.4? p.a.). In 1987 industrial consumption accounted for 48? of total consumption from public service utilities and residential and commercial for 40?. Demand projections prepared in the past tended te be over-optimistic. The SE corrected this bias in the recent revision of the demand projection which was used to define the expansion sector plan (paras. 2.16 and 2.19). The revised projections were found satisfactory by the appraisal mission and show a global electricity demand increase of about 6.0? in the period 1987-1995 which is consistent with expected GDP growth rates of 3.5? for 1989 and 4? for 1990 and beyond (Annex 2.3.1). 2.13 Most of the country's power facilities are installed in the National Interconnected Svstem (SIN), which covers about 90? of the nation's electricity market. The total installed capacity of the SIN by end 1987 was 12,802 MW of which 5,960 MW (46?) was hydro, 5,824 MW (46?) conventional thermal and 1,018 MW (8?) nuclear (Annex 2.3.2). A 500 kV transmission system links the major consumption areas with the production centers and is used for the transfer of large blocks of energy. A network of 230 kV lines completes the grid and permits energy transfers between production and load centers. 2.14 Performance of the national utilities is uneven and reflects the sector's fragmented organization. The utility most affected by the overall sector problems is AYE, whose performance is weak in all aspects: managerial, staffing, operations and finances. This is the result of many years of political interference, high rotation of personnel and financial difficulties. SEGBA, which has been a traditionally well-run utilitv, has lately also been affected by the sector institutional and financial deterioration. HIDRONOR is probably the best sector utility oerformer. EBY is currently a well-organized and well-run institution. The Government is addressing the utilities' operational problems by carrying out a study to improve the sector organization and efficiency and accountability of the national utilities. During appraisal, agreement was reached with the Government on terms of reference and specific timetable to complete this study. During negotiations, it was agreed that completion of the study by March 31, 1989 would be a covenant of the proposed loan (para. 4.01(a)]. -7- Planning and Investmznnt - Organization 2.15 Planning of the generation and transmission systems is under the responsibility of the SE which updates the planning studies every two years. Demand projections are produced by a working group composed of r-nresentatives of the electricity companies under the supervision of the SE; this arrangement is working satisfactotily since it provides for the Government economic policies to be taken into account in the projections and permits an adequate exchange of views regarding methods and criteria. Generation expansion is based on the interactive use of two mathematical models: (a) an investment selection model based on linear programming which defines the optimum final configuration of the system for pericds of three years; and (b) a simulation model which defines more precisely the dates when additions to generatiorn are required. Transmission expansion is defined on the basis of state-of-the-art conventional studies with assistance of foreign consultants. Distribution expansion planning is under the responsibility of each distribution utility. There are differences in planning and design and in equipment standards among utilities which do not permit adequate integration. This problem is being addressed under Loan 2751-AR (paras. 2.18 and 3.18). - Expansion Plan 2.16 Although the sector's methodology in defining the least-cost solution for generation expansion is sound, the Bank has had reservations regarding the assumptions made and economic parameters selected in the past. These reservations concerned, in particular, a discount rate of 82 p.a., lower than the estimated opportunity cost of capital for Argentina (122) and the reluctance to consider gas-fueled thermal plants for operation in the base of the load cycle in future power generation studies. In addition, demand projections were consistently over-optimistic. These assumptions biased the results of planning exercises towards hydro projects with high level of investments while they undervalued the potential contribution to power generation of the sizeable reserves of natural gas available in the country. Demand projections were satisfactorily revised downward by the SE (para. 2.12). Following long discussions on the matter, during appraisal agreement was reached on the adoption of a 12? p.a. discount rate in the expansion plan. This has resulted in substantial changes to the expansion plan; major hydroprojects have been cancelled or postponed while gas-fueled base thermal plants appear as the best option for the future and a sizeable reduction in the investment requirements was achieved. This agreement constituted the first step in the rationalization of sector investments and sets the framework for a sounder approach to the development of electric power resources and services. Additionally, during negotiations it was agreed that the SE would engage consultants, under terms of reference satisfactory to the Bank, to carry out a study on thermal generation options: (i) to evaluate the operating conditions of existing thermal plants and recommend a rehabilitation program for the units deemed to have deteriorated; and (ii) in order to further optimize the thermal-based expansion, examine the merits of introducing the combined cycle alternative and the possibility of achieving utilization factors for existing and future thermal plants in line with international standards for - 8 - planning and operation. This study should be completed in time to be used in the required April 30, 1989 update of the sector expansion plan [paras. 2.17 and 4.01(b)]. Terms of reference for the proposed study are attached as Annex 2.3.3. 2.17 The 1988-1995 sector expansion program, which provides the basis for the proposed project, was prepared for appraisal under agreed principles and methodologies and constitutes the least cost sequence to meet the demand projections for the period. It includes generation works to be developed by AyE, HIDRONOR and EBY, transmission works by SEGBA, AyE and HIDRONOR, and distribution works by SEGBA and AyE. The generation projects included in the program are among those which originated from expansion plans prepared in the 1970s on the basis of unduly optimistic demand growth expectations and the other inappropriate assumptions already described. This has been corrected subsequently, as noted in para. 2.16, in the course of the Government's recent coming to grips with the macro- economic and fiscal implications of past sector planning. The completion of such projects, and their associated transmission systems in a time schedule compatible with the revised demand projections, was an outcome of the least cost planning exercise. The only two new projects in the period are gas fueled thermal plants with a size module (325 MW) compatible with forecast demand increases. Generation works to be implemented as well as energy and power balances for the SIN are detailed in Annexes 2.4.1 and 2.4.2. Scheduling of ths new projects, especially projects to be commissioned beyond 1995, will be periodically reviewed in the light of (i) updated demand projections; and (ii) results of the studies on generation options outlined in para. 2.16 above. To ensure that appropriate measures to implement the optimum sector expansion program are taken, during negotiations it was agreed with the Government that: (i) by April 30, 1989 and every April 30 thereafter, the SE will update: (a) the sector expansion plan under methodologies and assumptions mutually agreed upon [para. 4.01(c)]; and (b) the financing schemes for major projects to assure that inter alia commiss_'oning dates required by the expansion plan are feasible (para. 4.01(d)]; and (ii) it will authorize the initiation of construction of any major public power generation or transmission project only if such project is in accordance with the sector expansion plan and has an adequate financing plan [para. 4.01(e)]. 2.18 Iavestments in distribution expansion have been neglected during the last few years because of the difficult financial situation of the sector and the priority given to financing of large hydroprojects under construction. The transfer of distribution networks to the provincial utilities (para. 2.11) has resulted in deterioration of distribution networks, poor customer service, a decrease of system reliability and substantial increase in technical losses and energy theft (para. 2.26). The Government is attempting to correct this imbalance through: (i) increasing emphasis on distribution investments, as indicated by the SEGBA expansion program (SEGBA V project financed under Loan 2854-AR); and (ii) defining nationwide reliability criteria for distribution expansion compatible with those used for generation and transmission expansion, as a result of the studies under Loan 2751-AR (paras. 2.15 and 3.18). - The Nuclear Power Program 2.19 Decisions on the nuclear power program have been taken outside the sector for other-than-economic reasons. CNEA has developed the largest - 9 - nuclear power program in the region, which is much more costly than other power sources. Currently, CNEA has two nuclear power plants in operation with an installed capacity of 1,018 MW (Atucha I, 370 MW and Embalse, 648 MW) and a third plant under construction (Atucha II, 745 MW). A fourth nuclear plant has been planned by CNEA for the year 2000 under an initial agreement with a foreign supplier, but the Government is currently delaying any commitment on this matter due to the high investments involved. Atucha II is a very expensive project whose original high cost has been aggravated by implementation delays and cost overruns. The original project cost was estimated at about US$1600 million (1979 price level). Currently, after completing 60X of the project, investments still to be made amount to about US$1470 million (January 1988 price level). This, together with difficulties to provide further financing, has led the Government to consider cancelling the project. The Bank analysis of this option (summarized in Annex 2.4.3), was based on an economic comparison with a conventional thermal plant and considered that investments already made are sunk costs. It concluded that even though the project should not have been started, there are not sufficient grounds to recommend its cancellation given the advanced status of implementation and the economic costs to be incurred in the cancellation of the contracts for equipment and services with the degree of commitments already made. However, as nuclear power will be clearly an uneconomic choice in Argentina in the foreseeable future, and as during negotiations agreement was reached on criteria for implementation of new projects that allows the Bank to require that the expansion be based upon least cost principles (para. 2.17), the Government could not initiate uneconomic projects, such as a new nuclear power project without Bank's concurrence. Additionally, to ensure that the costs of inefficiencies resulting from the development of nuclear power do not burden electricity consumers, it was agreed that: (i) CNEA would obtain sector-generated funds only after the financial requirements of other sector utilities have been fully met; and (ii) bulk tariff which CNEA charges to DUC will not be higher than the maximum bulk sale price of the generating utilities supplying to the SIN [para. 4.01(f)]. - Investment 2.20 The 1988-1995 sector investment program has an estimated cost of US$7,931 million (Annex 2.4.4) as shown below: 1988-1995 Sector Investment (in constant US$ millions at January 1988 prices) LC FC Total Z AyE 1,950.7 1,300.4 3,251.1 41 SEGBA 900.3 600.2 1,500.5 19 HIDRONOR 562.3 374.8 937.1 12 Total National Utilities 3,413.3 2,275.4 5,688.7 72 EBY 1,464.4 778.1 2,242.5 2!t Total Sector 4,877.7 3,053.5 7,931.2 10l ====2== ===========X:== C= - 10 - Electricity Pricing 2.21 Argentina's electricity pricing system is quite complex. A substantial part of the revenues of each sector utility is paid to the Federal Government in the form of a value added tax (VAT) and to earmarked Electricity Funds in the form of surcharges which, return to the sector as government equity contributions. Also, a portion of taxes on the sale of petroleum products flows to the power sector to help fund its investment requirements. Annex 2.5.1 gives a description and projection of the electricity and energy funds. In addition to the above taxes the final user also pays provincial and municipal taxes as part of his utility bill which vary substantially throughout the country. 2.22 Tariff structures, except SEGBA's to a certain extent, have not been designed on the basis of economic criteria. While the national average level of tariffs including taxes and surcharges is in line with the estimated national average economic cost, there are significant differences among utilities as similar consumers pay prices which are considerably higher or lower without relation to their corresponding estimated economic costs (see Annex 2.5.2). This has been caused in part by the difficulties associated with the management of utility prices in a high inflation environment and the autonomy of provinces to set their own rates. 2.23 The Bank and the Government have maintained a continuous dialogue on possible ways and means to improve this complex tariff situation with aims to establish a price system (structure and levels) which would reflect the economic costs of the service. Under the 1986 amendment to Loan 1761-AR, the SE is preparing a tariff study based on LRMC principles which is expected to provide the basis for restructuring the tariff system. Major results of the study are expected by February 1989. Under the proposed project, during negotiations it was agreed with the Government that the results of the tariff study would be implemented in a manner satisfactory to the Bank [para. 4.01(g)]. Sector Finances - Past Performance 2.24 Over the past several years the sector has had to bear the impact of changing economic policies and the burden of an investment program decided at a time when demand growth expectations were higher and external financing had been assumed to be easily available. During 1976-1982 the sector incurred a high level of external indebtedness, to a large degree prompted by the Government which in such manner was financing a substantial portion of its foreign currency needs. The major devaluation of the local currency that followed placed a heavy debt service burden on the sector and caused a major deterioration in its financial structure which has subsequently been somewhat corrected by the refinancing of the sector's debt. However, since 1986, the decline in the value of the U.S. dollar, to which the Austral is pegged, is again causing problems because of its effect on the sector's investment and debt service programs which have significant components of Japanese and European hard currencies. 2.25 The recent economic difficulties also resulted in a deterioration of financial discipline among public sector entities. Arrears for the - 11 - purchase of electricity by national, provincial and municipal agencies and by autonomous agencies mounted. As of December 31, 1987, the balance of accounts receivable from electricity consumers of the three federally-owned utilities was as follows (in US$ million): No. of Of Which: Of Which: Utility Days Balance Overdue Public Sector 1/ AyE 167 223.2 184.4 134.4 HIDRONOR 96 31.1 12.4 12.0 SEGBA 63 107.4 48.7 28.2 1/ Excludes debt from other national utilities As can be seen from the above table, the public sector had overdue accounts of about US$175 million to the power sector. Loan 2854-AR includes commitments to reduce SEGBA's accounts receivable from the public sector and from all customers. Collection of receivables showing a decreasing trend is part of the set of performance indicators agreed upon under the proposed operation (para. 3.18). 2.26 Argentina's recent economic difficulties may have been a contributing factor to the increase in electricity theft which accounts to a sizeable degree for the increase in distribution losses that has been taking place since 1981. The financial problems of the power sector itself, however, were also an important contributing factor for the increase in distribution losses as they resulted in curtailment of expenditures in network expansion and maintenance. SEGBA, under Loan 2854-AR, is to carry out an electricity loss reduction nrogram to address this sector issue and the performance indicators agreed upon under the proposed operation also include targets for reduction of electricity losses (para. 3.18). 2.27 In March 1986, the Federal Government prepared a program to address the various financial problems faced by the sector and the covenants under Loan 1761-AR were amended to reflect the agreements then reached. The key aspects of these agreements are: (a) to increase the internal cash generation of the sector; (b) to reach a prudent mix of self financing and external borrowings; and (c) to review annually the financial targets for the federal utilities for the following year. During 1987, the targets defined for the above objectives were not achieved basically because of a higher-than-expected inflation which reduced revenues, in real terms. In compensation the Government has returned to the sector a larger proportion of taxes collected from it than anticipated. - 12 - - National Utilities Financial Rehabilitation Plan (FRP) 2.28 Based on the policies outlined above and facing the new realities, in late 1987 the Government, with Bank assistance, started preparation of a Financial Rehabilitation Plan (FRP) which would reverse the dismal financial situation of the national utilities which, at present, have negative rates of return and are significantly dependent on Government contributions (Annex 2.6.1). The FRP relates to the group of national utilities (AyE, SEGBA and HIDRONOR) which account for about 60? of sector operations. The basic principles agreed upon between the Bank and SE for the preparation of the FRP were as follows: (a) each utility and the consolidated group of national utilities would show clear improvement trends to be measured particularly by the cash operating ratio (cash operating expenses as a percentage of revenues) and by the contribution to investment from non- borrowed sources, all within a reasonable level of indebtedness; (b) the required overall tariff increases would be made in a phased manner consistent with the stabilization program; (c) to balance the financial situation among utilities; (d) the investment program for each utility would be strictly in line with the least-cost expansion of the sector agreed with the Bank; and (e) the working capital needs would reflect sound practices of power utility financial management, especially regarding collection and payment periods. 2.29 The detailed financial projections for each of the individual national utilities and the consolidated group are included in Annex 2.6. A summary of the 1988-1995 flow of funds under the FRP is shown in the following table: National Utilities Financial Rehabilitation Plan (FRP) (1988-1995) US$ Million 1/ 2 Financial Requirements Investment Program 5,688.7 96 Working Capital Increase 2/ 251.3 4 Total Requirements 5,940.0 100 Financial Resources Net Consumer-based Funding 3,996.3 67 Government Contributions 30.7 1 Net Non-Borrowed Funding 4,027.0 68 Borrowings 1,913.0 32 Total Financial Sources 5,940.0 100 1/ In constant January 1988 prices. 2/ Includes expected fund surpluses in 1993-1995. - 13 - 2.30 The PRP is based on a set of assumptions which take into account the limitations imposed by the stabilization program on (i) rate increases and on the corresponding availability of Electricity and Energy Funds (Annex 2.5.1), (ii) Government contributions, to be used mainly for debt service payments, and (iii) borrowings, committed for ongoing projects and to be committed to finance the foreign cost component for future projects. Annex 3.2 gives a detail of the above assumptions. The resulting cash operating ratio (cash operating expenses as a percentage of operating revenues) would have a steady and positive trend as shown by the following tables 1988 1989 1990 1991 1992 1993 Cash Operating Ratio (Z) 91.0 81.0 78.7 68.4 64.4 61.1 The FRP shows in its funding mix that the internal fund generation of the national utilities would increase steadily and with the contribution of ele!tricity and energy funds would show a healthy contribution to inveitment, as shown in the following table: Contribution to Investment (Z) 1988 1989 1990 1991 1992 1993 w/o elec. & energy funds -53.1 -12.3 8.7 24.3 38.7 49.4 with elec. funds -30.2 7.4 25.3 38.5 51.4 63.3 with elec. & energy funds 54.7 50.7 56.3 61.0 72.5 76.5 -Sector Financing Plan (National Utilities and EBY) 2.31 With due regard to the fact that Yacyreta is a binational project belonging to Argentina and Paraguay (Annex 3.1.4), tut considering that the bulk of the funding for the project is channeled through Argentina, a conventional definition of sector as the consolidation of EBY (Annex 2.6.5) and the national utilities FRP (Annex 2.6.1) would result in the following financial plan: Sector Financial Plan (National Utilities and EBY) (1988-1995) US$ Million 1/ 2 Financial Requirements Investment Program 7,931.2 96 Working Capital Increase 295.0 4 Total Requirements 8,226.2 100 Financial Resources Net Consumer-based Funding 3,517.4 43 Government Contributions 1,222.6 15 Net Non-Borrowed Funding 4,740.0 58 Borrowings 3,436.2 42 Total Financial Sources 8,226.2 100 1/ In constant January 1988 prices. - 14 - The above financing plan is viable and adequate as the assumption, used for its preparation (see para. 2.28) are reasonably conservative and the resulting funding mix is a sound one. Its feasibility during the project execution period (1988-1989) has a high degree of certainty because of commitments already made by the Government during negotiations (paras. 3.13 and 3.14). These commitments refer basically to the assumption of service payments of existing debt and annual increases of tariffs in real terms. Regatding tariffs, during the first eight months of 1988, the Government has given positive evidence of its willingness to increase tariffs in order to comply with the targets of the FRP. Besides the monthly nominal increases that have been implemented to keep up with inflation, in July a 15? average increase in the tariffs of SEGBA was carried ouit with the intention of reducing significant differences between its tariffs and those of the provincial utilities, and in early August a general increase of 30Z was established for all tariffs in anticipation of the so-called 'voluntary' price freeze under the Government's Spring Plan. The following table summarizes the present situation as compared with the December 1987 average tariff levels: SEGBA AyE HIDRONOR December 1987 (A/MWh) 168.0 79.4 66.9 August 1988 (A/MWh) 855.1 316.2 248.6 Increase (Z) 409.0 298.2 271.5 CPI (Z) 1/ 261.1 261.1 261.1 Real Increase (Z) 40.9 10.2 2.9 1/ Including an estimate of 30Z for August It is expected that by year end s.me deterioration ir real terms will occur but that tariff levels will be enough to reach the 1988 targets established under the FRP. Bank Participation 2.32 Since 1962, the Bank has made eight loans to Argentina's power sector; five of which were to SEGBA to help finance an oil-fired thermal generation plant, and transmission, subtransmission and distribution expansions; one to HIDRONOR for the construction of the 1200 MW El Chocon Hydroelectric Plant; and two to the Federal Government, the first one in 1979 to help finance the Yacyreta Hydroelectric Project and the second one, in 1987, for a Power Engineering Project which is expected to provide the basis for improving the efficiency and economy of distribution expansions countrywide. Project performance audit reports have concluded that, while the physical objectives of the first five projects were largely met, their financial objectives were not. The latest of these reports, on SEGBA IV Project (Loan 1330-AR, approved in September 1976 and completed in June 1985), indicates that the project was successful in meeting its technical and physical objectives of providing facilities to meet the growing electricity demand of the Greater Buenos Aires area, and that SEGBA succeeded in improving its overall efficiency during the period of project execution. However, because of the lower-than-eypected demand and also because of the poor financial situation of SEGBA, the project suffered a - 15 - completion delay of 4.5 years and a 40X increase in total costs. Moreover, the Government's failure to implement adequate tariff increases prevented SEGBA from complying with its financial covenants except for a short period of time, and its financial performance was poor. 2.33 Initial execution of the Yacyreta project suffered significant implementation problems (para. 3.01), while the Power Engineering Project (Loan 2751-AR) is progressing satisfactorily. A US$276.0 million loan to SEGBA which will help SEGBA finance its transmission and distribution expansion program, improve its ope; ional performance and reduce losses, was signed in June 1988. Bank and Country Goals and Sector Lending Strategy 2.34 The Government is seeking to improve resource allocation and the efficiency of national and provincial utilities and restore the financial soundness of the sector by: (a) sharpening the delineation of responsibility for planning and implementing the expansion of electricity services for which: (i) planning for all new investments in generation and transmission facilities will be centralized in the SE; (ii) only the national utilities will implement all new generation and high voltage transmission works; and (iii) coordination between national and provincial utilities will be strengthened. (b) establishing efficiency improvement programs for the national utilities; (c) initiating a medium term program of tariff structure reform and rate increases so as to reflect economic costs over a reasonable period of time; and (d) improving the self-financing capabilities and operating ratios of the major power companies. 2.35 The Bank fully agrees with these objectives and, within such framework, its lending strategy in the sector aims at: (a) ensuring optimum allocation of scarce financial resources through: (i) confining the investment programs to projects which adhere to least-cost principles; (ii) productivity improvements; and (iii) a tariff system based on economic principles. (b) implementing an institution building plan which would streamline and improve the sector's organization and legal structure; - 16 - (c) promoting the financial soundness of the sector, particularly the improvement of the sector's contribution to investment; and (d) helping the Government meet the large financial requirements of the sector. Rationale for Bank Involvement 2.36 The proposed operation would be the first in a planned series of sector investment loans intended to assist the Government to attain the aforementioned objectives (paras. 2.34 and 2.35). The envisaged loans would address sector issues in a phased manner: conditionality for a single sector loan would concentrate on a few key targets in the short-term (during the two to three year disbursement period), within a long-term strategy. The new approach intends to relate sector and macroeconomic policies more realistically within the constraints of existing country conditions. By improving sector resource allocation, it would also help to rationalize power investments and promote the integration of hydrocarbons and hydropower sectors in investment planning and decisions. Further, in addition to strengthening its direction of the sector and overcoming some of its most severe problems, the Government would be assisted under the proposed operation to maintain the implementation of the Yacyreta Hydroelectric Plant Project, whose financial requirements constitute the most important resource need to be resolved in the short term. - 17 - 3. THE PROJECT Proiect Origin and Status of Preparation 3.01 The Yacyreta project, for which the Bank approved in 1979 a US$210 million loan (Loan 1?61-AR), has suffered significant implementation problems which have caused an eight-year delay in the completion schedule and i sizeable financial gap. The implementation problems began at its inception, with a protracted dispute between the Government and the Barnk over procurement procedures, and was only resolved by end-1982. Later on, works were stopped because of the South Atlantic War. The country's economic recession and high inflationary trend during 1983-1984 worsened the sector's--and the project's--financial situation. These problems were further compounded by the following events: (a) the Executing Agency, EBY, has been unable to fully secure the financing which had been foreseen at appraisal from foreign commercial banks (US$945 million), suppliers credits (US$830 million) and local banks (US$300 million); (b) the project's seven- year delay caused (i) repayment of principal of most of contracted debt to become due; (ii) increased financial charges; and (iii) foregoing of internal cash generation from energy sales (estimated at US$1,884 million at appraisal). 3.02 For these reasons and in order to seek possible economies, the new authorities, early in 1984, made a thorough evaluation of possible options regarding the fate of the project, including cessation of works. After careful consideration of engineering, economic, internal and international factors, the Government decided to complete the project, and appointed a new management with the mandate to carry out an in-depth revision and optimization of the project. This resulted in changes in project design, renegotiation of contracts with construction and engineering firms and a rescheduling of project execution to adapt the pace of commissioning of the project's units to updated demand projections. Important reductions of cost were also obtained. The Government placed great emphasis on seeking adequate financing for project completion and, in 1986, the Government requested additional IBRD/IDB financing to complete it. 3.03 Processing of a possible Bank loan had been delayed because of the uncertainties emerging from country conditions which had hindered preparation of a comprehensive and viable sector Financial Rehabilitation Plan (FRP). It was subsequently agreed to change the approach to power lending for Argentina from project specific loans to sector investment loans so as to link better Bank lending with the investment needs and financial conditions of the sector. The project was appraised in June 1988. Negotiations were held in Washington from September 26 to 28, 1988. The Argentinian delegation was headed by Mr. Ramon da Bouza, Director for External Economic and Financial Policy, Ministry of Economy. Legal Arrangements 3.04 The Borrower of the proposed US$252.0 million loan would be the Government, which would retain US$2.0 million for SE and onlend the - 18 - remaining US$250.0 million under the same terms and conditions to EBY, which would bear the risks related to exchange and interest rates. The Bank would enter into the following legal arrangements: (a) a Loan Agreement with the Government of Argentina; (b) a Project Agreement with EBY for the transferring of US$250.0 million; and (c) a Second Owners Agreement with the governments of Argentina and Paraguay which would support obligations contained in the Project Agreement, as EBY is a binational entity. Annex 2.2.4 gives a detailed description of the institutional aspects of EBY. Project Objectives 3.05 The project would initiate a process designed to achieve the following sector objectives: (a) improving resource allocation within the sector through optimization of its expansion program; (b) implementing a Financial Rehabilitation Plan (FRP) of the national power utilities; (c) improving the efficiency of the power utilities; (d) promoting rational use of electricity through a tariff system based on economic costs; (e) strengthening the structure of the sector so as to bring about better coordination, planning and regulation; and (f) establishing policies and procedures for environmental protection and social aspects in power projects. Project Description 3.06 The proposed project consists of: (a) Sector Investment Program. This project component is the 1988-1989 "time slice" of the sector's investment program, under responsibility of AyE, SEGBA, HIDRONOR and EBY, defined on the basis of the sector expansion plan for the period 1988-1995, as presented under paras. 2.16 to 2.20. This program (Annex 3.1), which adheres to least-cost principles, includes only high priority works for the period 1988-1989: (i) ongoing generation and transmission works being carried out by AyE, HIDRONOR and EBY; (ii) generation and transmission works to be initiated by AyE in order to meet dates established in the sector expansion plan; (iii) distribution works--either under execution or to be committed in the period by AyE and SEGBA; and (iv) the carrying out of studies for futu-e works. (b) Institutional Strengthening of the SE. This project component is technical assistance to provide to the SE for a period of two years: (i) 240 staff months of specialized consultants; (ii) up to US$1.0 million equivalent of computer, and office equipment; (iii) a data base/communication link equipment between the SE and the main energy sector institutions; and (iv) miscellaneous equipment. UNDP would help with administrative support for the project. The cost of this component was estimated during appraisal at US$3.0 million of which US$2.0 million would be financed with proceeds of the proposed loan. Estimated Cost 3.07 The 1988-1989 slice of the sector's investment program has an estimated cost of about US$2,350 million (Annex 3.1.5) as shown below: - 19 - 1988-1989 Sector Investment (in millions of current US$) National (-------Utilities…------- ----------EBY…------] (… Se--------sector--------] LC FC Total LC FC Total LC FC Total Direct cost e87.4 444.9 1112.3 684.6 279.8 863.8 1251.9 724.2 1976.1 Physic. Cont. 74.1 49.4 128.6 66.0 31.0 98.0 139.1 80.6 219.6 Sub-total (1) 741.6 494.8 1236.9 649.6 aio.3 969.8 1891.0 804.7 2195.7 Price. Cont. 27.4 18.2 46.6 17.6 10.7 28.3 46.0 28.7 78.9 Sub-total 768.9 612.6 1281.5 687.1 821.0 988.1 1436.0 888.6 2269.6 Interost (2) 80.1 80.1 80.1 80.1 SE TA (3) 1.0 2.0 8.0 Total 768.9 512.6 1281.6 667.1 401.1 1088.2 1437.0 915.7 2862.7 (1) At January 1988 constant prices (2) Under curront and proposed Bank and IDB loans to EBY (8) Technical Assistance program for the SE 3.08 The base cost estimates are at January 1988 price levels and were prepared by SE's planning staff, based on information provided by sector utilities for individual projects. This information is based on: (a) c.ontracts for projects under construction, which amount to about 902 of the project cost; and (b) detailed design for those projects to be initiated in the period, which accounts for the remaining 102 of the project cost. Included in the costs is an amount of 10? to cover physical contingencies, which is the resulting average of estimates for the various individual projects. The breakdown of the project cost into foreign and local components reflects estimates for the major components of the sector investments (Yacyreta, SEGBA V and HIDRONOR's Piedra del Aguila) and Bank staff estimates for the remaining projects which are based on past sector experience. Price contingencies for the period 1988-1989 were calculated for both foreign and local costs at 3.0? per year. 3.09 As the Yacyreta project is the largest sector investment, detailed cost estimates were prepared for the entire remainder of its construction period, 1988-1996, and are presented in the following table: - 20 - Yacyret. Project: Cost Estimate (In millions of curront US$) Ue to 1987 1988-1989 1990-1996 Total Preliminary Works 676.4 16.2 0.0 691.6 12.9 Civil Works 488.8 448.7 653.2 1,446.2 81.6 Construction Equipment 228.4 24.0 0.0 247.4 6.4 GOne-ation Equipment 0.0 107.4 402.6 610.0 11.1 Electromechanical Equipment 10.8 87.6 162.6 260.4 6.7 Land and Land Rights 64.6 42.8 40.9 187.8 8.0 Resettlenent A Environment 47.8 185.9 166.8 389.6 7.4 Direct Costs 1,844.8 882.0 1,826.1 8,681.9 76.9 Enginoering A Administration 707.3 128.1 226.9 1.069.8 23 1 TOTAL INVESTUENT 2,062.1 988.1 1,651.0 4,691.2 100.0 -==Mu=_ 2= Z=== 3.10 The above cost estimates have a high degree of certainty because: (a) preliminary works have been basically completed; (b) the direct cost of the engineering and civil works are based on existing contracts; (c) the cost of the electromechanical equipment is based on awarded bids; and (d) costs of the relocation component are based on existing contracts for a substantial part of the component and final design for works to be contracted. Physical contingencies .yere estimated for every major element of the project and resulted in an overall rate of 10X. Price contingencies were estimated on the basis of projected national inflation rates fo. countries of origin of goods and services. They result in the following overall figures: 4.42 for 1988, 3.52 for 1989, 4.42 for 1990, 3.52 for 1991, 4.02 for 1992, 5.02 for 1993 and 3.02 p.a. for 1994 through 1996. Local costs also include approximately US$130 million to cover taxes and import duties. Financing Plan 3.11 Since the project has been defined as the 1988-1989 time slice of the sector investment program which, conventionally, comprises: (a) the national utilities; (b) EBY; and (c) the SE component (para. 3.06(b)] the project financing plan would also have the same three corresponding components which are summarized in the following table: Project Financino Plan (in millions of current USS) National Utilities EBY SE Total K Net Consumer-base funding 719.6 272.0 991.6 42 Government contributions 81.2 20.0 1.0 62.2 2 Proposed IBRD loan - - 260.0 2.0 262.0 11 Proposed IDB loan - - 260.0 -.- 260.0 11 Ot"Ber borrowings 680.7 278.2 - 808.9 84 1,281.6 1,068.2 8.0 2,362.7 100 _ == 3 == =~ = == _ - 21 - - National Utilities 3.12 The national utilities financial plan (PRP) is described in paras. 2.28-2.30 and Annex 2.6.1. During the 1988-1990 period, the FRP shows that the national utilities wou .d reach the following key financial targets: 1988 1989 1990 Cash Operating Ratio 1/ 91.0 81.0 78.7 Contribution to Investment 2/ 54.7 50.7 56.3 l/ Cash operating expenses as a percentage of operating revenues. 2/ Consumer-based funding (including electricity and energy funds) as a percentage of investment. The improving trend in the cash operating ratio is particularly relevant for the Argentinian power sector as it shows that the level of cash operating costs as compared to revenues which is too high in 1988 will decrease significantly in the next two years. The operating ratio would be about 2C percentage points higher with the inclusion of the depreciation charge. The high operating ratio is the main issue in the finances of the national utilities and its improvement will be the main measure of their financial rehabilitation process. 3.13 To achieve said targets, it has been assumed that measures would be taken by the Government and the utilities to achieve the following levels (in January 1988 US$ million) of key financial variables: 1988 1989 1990 Average sale price (US$/MWh) 33.5 36.7 38.5 SEGBA 48.2 52.0 52.5 AyE 21.2 23.7 26.8 HIDRONOR 15.1 16.4 18.3 Electricity and Energy Funds 462.4 452.8 388.4 SEGBA 84.5 44.8 13.3 AyE 171.1 252.4 211.3 HIDRONOR 206.8 155.6 163.8 Debt Service to be paid by Government 281.9 294.7 290.0 SEGBA 52.8 58.2 58.7 AyE 214.8 190.8 189.9 HIDRONOR 14.3 45.7 41.4 Borrowings 162.0 349.2 352.7 SEGBA 0.4 87.3 150.5 AyE 117.9 106.5 58.7 HIDRONOR 43.7 155.4 143.5 Additionally, under the FRP it has been assumed that efficiency improvement measures in financial administration and utility operations would be taken and result in positive trends for a group of selected key performance . . . _-- t - _- - a _ %__ - 22 - - EBY 3.14 The 1988-1989 time slice of EBY's financing plan (Annex 2.6.5) is as follows: 1988-89 EBY Financing Plan (In millions of current US$) 1/ 1988 1989 1988-1989 _ Requirements 610.4 720.6 1,322.1 100 - Investment 467.4 520.7 988.1 75 - Interest 94.8 120.8 215.6 16 - Repayment 59.2 88.0 147.2 11 - Working Capital (11.0) (17.8) (28.8) (2) Funding 610.4 720.6 1,322.1 100 - Energy Funds 128.1 144.2 272.3 21 - Equity Contributions 0.0 20.0 20.0 1 - Government Loans 124.0 146.4 270.4 27 - Other Borrowivgs 358.3 410.0 759.4 57 - IBRD: 1761-AR 2/ 11.9 0.0 11.9 1 - IBRD: proposed 205.8 44.2 250.0 19 - IDB: Propo .'d 0.0 250.0 250.0 19 - Export Agencies 41.0 41.7 82.7 6 - Suppliers 38.7 20.3 59.0 4 - Foreign Banks 29.0 34.0 63.0 5 - Local Banks 31.9 10.9 42.8 3 1/ Based on Version No. 48 of EBY's Projected Flow of Funds. 2/ US$1.5 million of the loan (US$210.0 million) is allocated to sec'.or studies. The viability of this plan is based on the following main assumptions: (a) through loans made to EBY, the Government would honor debt service payments (US$270.4 million); (b) through the transfer of energy funds also as loans to EBY- (US$272.3 million) and equity contributions (US$20.0 million), the Government would provide for local currency requirements of the investment program; (c) through Banco de la Nacion, US$42.8 million of local banks debt service would be financed; (d) foreign banks have already committed US$63.0 million to refinance part of debt service obligations owed to them; - 23 - (e) financing from export agencies (US$82.7 million) and suppliers (US$59.0 million) has already been secured; and (f) the proposed IBRD and IDB loans (US$250.0 million each) would finance US$500.0 million, which would pay civil works and engineering contracts (US$419.9 million) and interest on current and proposed IBRD/IDB loans (US$80.1 million). As can be seen, this plan is basically contingent upon the Government actions to secure local currency funding and upon the IBRD/IDB proposed financing. It is important to note that the degree of financial viability is greater when considering only the investment requirements as debt service needs constitute a significant share (27Z) of total requirements and they depend fundamentally on fiscal (budgetary) resources. As the construction of the project will be completed only in 1996 and the internal fund generation will start only in 1993, it is recommended that interest on current and proposed IBRD and IDB loans (US$80.1 million) be financed so as to avoid additional fiscal contributions or refinancing for such purpose. - SE 3.15 The financing of the SE's technical assistance program (US$3.0 million) would come from proceeds of the proposed loan (US$2.0 million) and the Government's budgetary resources (US$1.0 million). Financial Covenants 3.16 To ensure the viability of the project's financial plan, during negotiations agreement was reached with the Government and EBY, as appropriate, on the following commitments (para. 4.01(h)]: (a) to cause the national utilities to meet the main targets of the FRP, i.e., cash operating ratios of 912 in 1988, 812 in 1989, and 79Z in 1990; and a contribution to investment which would not be lower than 302 in any single year; (b) to hold, commencing with May 31, 1989 and each May 31 thereafter, a review of sector performance during the previous year and of measures required to achieve the FRP targets in the current and following years; (c) to take all the necessary measures (e.g., tariff adjustments, transfers of electricity and energy funds, assumption of debt service payments and budgetary contributions) to achieve the FRP targets and viable financial plan for EBY and the SE technical assistance program; and (d) to establish necessary measures in order for the national utilities to achieve financial management and operational improving levels to be measured through key performance indicators (para. 3.18). Due to the importance of the parallel IDB loan in the viability of the project's financial plan, it is a condition for effectiveness of the proposed loan that the IDB loan has been executed (para. 4.02). - 24 - Implementation and Monitoring 3.17 Implementation of the different elements of the proposed project would be responsibility of the corresponding utilities which have adequate capability and resources to carry out these projects. At the sector level Bank supervision would concentrate on: (i) the follow-up of the FRP, during the annual reviews to be carried out starting on May 31 of each year, (ii) ensuring that SE carries out adequately the Technical Assistance Program, and (iii) ensuring that progress is made in the environmental regulations. At the Yacyreta project level it is proposed that, given the magnitude of the project, the Bank continues performing detailed supervision, as it has done for Loan 1761-AR, including review of institutional, engineering and environment/resettlement aspects. 3.18 The monitoring of the sector efficiency improvement would be made in connection with the follow-up of the FRP under this project (para. 3.16(d)) and actions agreed upon under Loans 2751-AR and 2854-AR. Annex 3.2 shows the performance indicators to be used. To improve the sector's global efficiency, the Government has agreed under Loan 2751-AR to carry out studies which would assess the quality of service of the utilities, their use of resources, distribution planning methodologies and increase the coordination of the national and the provincial utilities regarding distribution expansion planning and implementation. Under Loan 2854-AR, SEGBA and the Bank have agreed on the carrying out of a comprehensive Plan of Action to increase SEGBA's efficiency and reduce losses. Procurement 3.19 As the number of elements included in the project, defined as the time-slice of the investment program of the three major national utilities and Yacyreta, is very large, a precise computation of the amounts which would be procured through the different procurement methods is not feasible and, thus, the procurement table usually shown in Bank appraisal reports is not shown for this project. As detailed below the procurement arrangements are satisfactory. 3.20 Proceeds from the loan would be applied to finance: (a) ongoing contracts for the execution of the Yacyreta project procured under Loan 1761-AR, as follows: (i) the major civil works contract which was awarded through ICB procedures in accordance with Bank Procurement Guidelines, and (ii) ';he contract for consulting services which was awarded in accordance with Bank Guidelines for the Use of Consultants; (b) the SE Technical Assistance Program; and (c) interest under loan 1761-AR and the proposed Bank loan. Procurement of equipment and contracting of consultants under the technical assistance program would be carried out in accordance with Bank Guidelines for Procurement and Bank Guidelines for Use of Consultants, respectively. Procurement of goods, principally computers, software and office technology equipment would be carried out through limited international bidding which is the most suitable type of procurement for this kind of equipment. Ex ante Bank review of procurement documentation - 25 - on contracts for equipment above US$200,000 would be required. The Bank would approve terms of reference, selection procedures and fee range for individual consulting positions. 3.21 Procurement of goods and services not financed with proceeds from the loan would be procured through a variety of procurement methods, depending upon the origin of the corresponding financing. Procurement for Bank-financed projects (Power Engineering and SEGBA V) would be done in accordance with Bank guidelines. IDB-financed projects for EBY, AyE and HIDRONOR would be procured in accordance with IDB's procurement methods which are generally consistent with the Bank's. Other components of the project would be procured under the specific arrangement governing the particular financing available (i.e. bilateral agreements). Finally, items financed with local funds would be procured through the corresponding utilities' normal practices which are restrictive for they oblige Argentinian goods to be bought when available. As a result of this, acquisition of goods and services for an amount estimated at US$200 million which would be feasible for ICB would constitute reserved procurement. Thus, for the purposes of determining the maximum loan amount, the estimated cost of reserved procurement was excluded from the total project costs. This type of procurement is not expected to affect the economy or efficiency of the project as it represents less than 1Z of its cost. Disbursement 3.22 The proposed loan is expected to be disbursed over a period of two years. As such, the disbursement schedule does not follow the Bank's standard profiles as it reflects projected billings on the contracts of the Yacyreta project. Expenditures would be disbursed against Certified Statements of Expenditures for expenditures under US$500,000. The proceeds would be applied to finance up to: (a) 50Z of expenditures on the major civil works contract for the Yacyreta project in the period 1988-1989 (US$182.4 million); (b) 50Z of expenditures on the engineering contract for the Yacyreta project in the period 1988-1989 (US$27.0 million); (c) interest and other charges on the proposed Bank loan during the disbursement period (up to US$18.2 million); (d) interest and other charges on loan 1761-AR accrued during the disbursemert period of the proposed operations (up to US$22.4 million); and (e) 100Z of expenditures under the SE Technical Assistance Program (up to US$2.0 million). Withdrawal of proceeds of the loan to finance the aforementioned categories of expenditures would be subject to an aggregate limit of US$170 million, unless the following conditions are met [para. 4.03(a)]: (i) the Bank be satisfied with the results of the Hay 1989 review of the FRP [para. 3.16(b)]; (ii) satisfactory progress in implementing the recommendations of the sector organization study (para. 2.14); and (iii) fulfillment of all conditions of disbursement under the IDB loan. - 26 - 3.23 The remaining expenditures on the contracts of items (a) and (b) above (502 of the civil works contract and 502 of the engineering contract) would be financed with proceeds of the proposed parallel IDB loan (para. 3.14(f)). As the IDB loan may become effective at a later date than the Bank's, it has been agreed at EBY's request to increase the percentages indicated in (a) and (b) above up to 1002 during the time elapsed between Bank loan effectiveness and IDB loan effectiveness. IDB has agreed to have a similar provision which would permit restoring the targeted pari-passu. It was further agreed that such front-end loading of the Bank's loan will be subject to a limit of 502 of the aggregate amount allocated to categories (a) and (b) above (US$104.7 million) in order to allow the Bank to review the financing of the project if disbursements under the IDB loan do not commence within a reasonable time frame [para. 4.03(b)]. The closing date would be June 30, 1990. 3.24 In order to improve the timeliness of disbursements and the availability of funds for the project, the Bank would make an advance payment from the loan account into a Special Account, to be opened and maintained in US dollars in a bank acceptable to the Bank. The funds would be used to reimburse EBY and the SE for the Bank's share of the project cost, as well as to reflect direct payments in foreign currencies. The total amount in the Special Account (about US$50.0 million equivalent) would not exceed an amount that is about four months of estimated average disbursements for the project. Replenishment of the Special Account would be made in accordance with standard Bank procedures. 3.25 Financirg of the major civil works and the engineering contracts has been partially made with proceeds from Bank Loan 1761-AR and a parallel IDB loan. As the proposed Bank and IDB operations would continue the financing of these contracts, the Government has requested, and the Bank agreed to accept, that commitments made by EBY for execution of works and services under the approved contracts for the period of time elapsed between completion of disbursements under Loan 1761-AR and effectiveness of the proposed loan be eligible for financing with proceeds from the proposed loan provided no payments will have been made in respect to such commitments at the time the respective disbursements under the proposed loan are called for. Environmental and Social Aspects 3.26 Sectoral aspects. The Government is aware that the growth of the energy sector has the potential to impose long term adverse effects on the environment. Accordingly, the SE has already taken initiatives to develop an institutional capacity in the power sector to identify and analyze the impact of its activities, and to structure these so as to mitigate adverse consequences. It is also the SE's understanding that, in order to ensure long-term compliance with acceptable environmental standards, it would be important to have sector criteria for provisions to meet these standards in the design of power projects and for their adherence in project execution. Consequently, it was agreed during negotiations that the SE will issue regulations in connection with power sector projects concerning protection of the environment and mitigation of the economic and social effects of involuntary resettlement [para. 4.1(i)]. The SE has already issued regulations requiring the national utilities to present for review a report on all possible effects of the construction of hydroplants on the environment and the population, and to demonstrate that the proposed - 27 - remedial actions would be adequate. These regulations, which codify some of the best international practices in this field, have been reviewed by the Bank and found highly satisfactory. The SE is now preparing comparable regulations for thermal plant construction, which will be sent to the Bank for comments before May 31, 1990. In addition, it was agreed that the Government will present to the Bank, by May 31, 1989, an assessment of the operational safety of nuclear plants in Argentina prepared under terms of reference satisfactory to the Bank [para. 4.01(j)]. 3.27 Yacyreta project. Potentially adverse effects of the Yacyreta project on the environment and on the affected population, which the Bank has been monitoring for several years, are adequately addressed by EBY as detailed in Annex 3.1.4. To deal with the environmental impact of the project, EBY has developed a Master Plan for environmental protection, acceptable to the Bank, that adequately addresses matters related to water quality, aquatic fauna, riverbank species, development of natural reserves, animal rescue, reservoir cleaning and public health. The relocation component, which includes the resettlement of about 40,000 people, is well advanced, and adequately scheduled for completion by the fourth quarter of 1992. The Bank and the EBY have recently exchanged views and reached agreement on the following relevant social, technical and economic aspects of the EBY's resettlement and environment program: i) establtshment of a panel of international experts on environment to provide high level assistance to EBY staff and help monitor its efforts in developing the project in accordance with the most desirable international standards; ii) installation cf fisheries and fauna sanctuaries; iii) adequate size and composition of the resettlement staff and execution of a training program; iv) implementation if an Urban Master Plan for the city of Encarnacion and completion of a sanitation plan for the city of Posadas; v) provision for averting invasion of the areas to be flooded, thus obviating undue increase of claims for resettlement; vi) mitigation of the economic and social adverse effects on the owners and workers in the small clay industries in the areas to be flooded. In view of the importance of a timely execution of both the environmental and the relocation components, during negotiations it was agreed with EBY on the carrying out of a Plan of Action, attached as Annex 3.1.6, with specific schedules and targets to complete the environment and relocation components in a manner satisfactory to the Bank [para.4.01(k)]. Dam Safety and Inspection 3.28 EBY has taken adequate steps to ensure that the dam's safety aspects are duly considered. It has appointed a panel of experts, satisfactory to the Bank, which has reviewed the design of the dam, with particular emphasis on safety aspects, and has included enough instrumentation to ensure that the dam behavior is properly monitored. To ensure that these considerations continue to be properly taken care of, during negotiations EBY agreed to continue seeking adv'ce of the panel of experts and to have the dan inspected regularly by experts during its useful life in accordance with a program to be submitted to the Bank by January 1, 1990 [para. 4.01(1)]. - 28 - Auditing 3.29 As required by Argentine law for all government-owned companies, EBY has its financial statements audited by the Public Enterprises Comptroller (Sindicatura General de Empresas Publicas/SIGEP) which the Bank has found to perform effectively. In the case of Paraguay, at present the auditing firm is Auditores y Consultores Asociados (AYCA), an independent audit firm acceptable to the Bank. During project execution EBY would continue to engage the services of independent auditors acceptable to the Bank and would present, in accordance with terms of reference acceptable to the Bank, duly audited financial statements and project accounts within four months of the close of the fiscal year. The auditors would also review statements of expenditures related to the project. In addition, the project Special Account (para. 3.24) would be audited in accordance with terms of reference and by an independent auditor, both acceptable to the Bank [para. 4.01(m)]. Economic Justification 3.30 The economic analysis is based on the 1988-1995 investment program for the sector, which includes all the investments in generation, transmission and distribution facilities developed by the national utilities and EBY necessary to meet electricity demand. The proposed investment program is based on the Energy Plan, a comprehensive energy sector study completed in 1986 and revised--in regard to the power sector- -for purposes of appraisal of the proposed project. The investment program is considered to be a sound development program for the period 1988-1995 as it contains the least-cost sequence of generation and transmission projects for that period. As detailed in para. 2.17 the development program beyond 1995 warrants re,iew as it includes projects that have not reached the stage of final design for construction; but such review would not affect significantly the conclusions of the economic evaluation. 3.31 The rate of return on the investment program was estimated ds being the discount rate which equalizes the present value of the economic net cost and benefit streams associated with the investment program (Annex 3.3.1). The economic net cost streams include: (i) capital investments on generation, transmission, sub-transmission, distribution and general investments to be made by the sector; (ii) costs of operation and maintenance related to the capital investments and (iii) energy purchased from CNEA and CTHSG. Since benefits in the power sector arising from the investment program cannot be quantified with precision, the use of a proxy is required. Therefore, the economic net benefit streams were measured by the forecast revenues from the incremental sales of electricity, attributed to the facilities included in the investment program, on the basis of retail tariffs, including surcharges, required to attain the targets established for the FRP. The rate of return of the sector 1988-199! investment program utilizing the above tariffs is estimated at about 152. A sensitivity analysis was carried out to evaluate the impact on this return of the possible failure to implement the tariff increases contained in the FRP. It shows that if revenues are valued at tariff levels prevailing in July 1988, the rate of return is about 1OZ. 3.32 The above results confirm that, if the planned tariff increases nre adopted on schedule, the rate of return of the 1988-1995 investment - 29 - program would be over the opportunity coet of capital in Argentina (estimated at 12Z). The above rate of return does not fully measure some of the benefits to society such as the social benefits of residential and public uses, or the indirect benefit to industry and commerce, whose production and empleyment depend on reliable electricity supply. 3.33 Because of the large amount of investments to be made in the Yacyreta project, a separate economic evaluation has been made for this project (Annex 3.3.2). It is based on the comparison of completing the project (excluding sunk costs) with the alternative of implementing a gas- fueled thermal plant which would provide a similar service. Results show that completion of Yacyreta has an IRR over 18X. A sensitivity analysis carried out to evaluate the impact of cost overruns shows that an IRR of 15? is still attained for a cost overrun of 20?. Risks 3.34 The major risk facing the project would 1i the pace of implementation of the FRP, especially in light of the possible continued surges in the inflation rate. Considerable effort will be needed to ensure that electricity prices reflect inflationary changes so that planned cost recovery targets are met as well as that other supporting financial measures are taken in time to avert deterioration in sector finances and execution of the project. On this account the annual review will concentrate on the assessment of the degree of compliance of the sector with these targets. - 30 - 4. AGREEMENTS REACHED AND RECOMMENDATION 4.01 During negotiations, agreement was reached with the Government and EBY, as appropriate, on the followiie conditions: (a) by March 31, 1989 the Government will complete under terms of reference acceptable to the Bank, a study on the sector organization and efficiency of the national utilities provided for in Loan 1761-AR (para. 2.14); (b) the Government, through the SE, will carry out a study on thermal generation options in time to be used in the April 30, 1989 update of the sector expansion plan (para. 2.16); (c) by April 30, 1989 and every April 30 thereafter, the Government will carry out, in consultation with the Bank and under methodologies and assumptions mutually agreed, an update of the sector expansion plan (para. 2.17); (d) by April 30, 1989 and every April 30 thereafter, the Government will update the financing schemes for major projects to ensure that commissioning dates required by the expansion plan are feasible (para. 2.17); (e) the Government shall authorize the initiation of the construction of a major public power project only if such project is in accordance with the Sector Expansion Plan and has adequate financing (para. 2.17); (f) the Government ensures that (para. 2.19): (i) CNEA would obtain sector-generated funds only after the financial requirements of other sector utilities have been fully met; and (ii) the bulk tariff of CNEA will not be higher than the maximum bulk sale tariffs of generating utilities supplying to the SIN; (g) the Government will implement the results of the tariff study being carried out under Loan 1761-AR in a manner satisfactory to the Bank (para. 2.23); (h) the Government would commit itself (para. 3.16): (i) to cause the federal utilities to meet the main targets of the FRP, i.e., cash operating ratios of 91Z in 1988, 81Z in 1989, and 79Z in 1990; and a contribution to investment which would not be lower than 30Z in any single year; - 31 - (ii) to hold commencing with May 31, 1989 and each May 31 thereafter, a review of sector performance during the previous year and of measures required to achieve the FRP targets in the current and following years; (iii) to take all the necessary measures to achieve the FRP targets and viable financial plan for EBY and the SE; (iv) to establish the necessary measures in order for the national utilities to achieve financial management and operational improving levels to be measured through key performance indicators. (i) in relation to the implementation of power projects, the Government would issue regulations to: (i) protect the environment; and (ii) mitigate the economic and social effects of involuntary resettlement (para. 3.26); (j) by May 31, the Government will submit to the Bank an assessment of the operating safety of the nuclear plants in Argentina, prepared under terms of reference satisfactory to the Bank; (k) EBY will implement an Environment/Resettlement Plan of Action in a manner satisfactory to the Bank (para. 3.27); (1) by January 1, 1990, EBY will present to the Bank a satisfactory program for dam inspection during the useful life of the Yacyreta project (para. 3.28); and (m) EBY will engage independent auditors acceptable to the Bank (para. 3.29); 4.02 As a condition of effectiveness, a subsidiary loan agreement between the Government and EBY, and the IDB loan for financing the Yacyreta project should have been executed (para. 3.16). 4.03 The following conditions of disbursement have been established: (a) Disbursements beyond US$170,000 would not be made unless: (i) satisfactory agreement is reached in the May 1989 review of the PRP; (ii) satisfactory progress of implementing the recommendations of the sector organization study is reached; and (iii) fulfillment of all conditions of disbursement under the IDB loan (para. 3.22); (b) The percentage of expenditures to be financed under the Yacyreta civil works and engineering contracts may be increased up to 1002 of such expendutires until the conditions of disbursement of the IDB are fulfilled, provided that such withdrawals will not exceed the aggregate amount of US$104.7 million (para. 3.23). 4.04 With the above agreements the project would constitute a suitable basis for a Bank loan to the Government of Argentina of US$252.0 million equivalent, under applicable terms and conditions for Argentina. ARGENTINA ELECTRIC POWER SECTOR PROJECT &"V sector Ogonialon Chcat ~~icaSes ~~~~c~es Egech..set o De,er'dei~~~~~~~~~~~co -~~"t PooguaC |( _||aEb G3 1_____ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Wldb*112 1 E Contic o of tn uxnw" de,______,w*St of s~~~~~~~~~ome DO 1rK Lt~~~~~~~~~~~~~~~~~~ ofF1tT c ------------- ---T--~~~~~~~~~~~~~~~~~~ ~ --r- 3s-T ---- ._ ANNEX 2.2.1 Page 1 of 4 ARGENTINA ELECTRIC POWER SECTOR PROJECT SEGBA: Institutional Aspects Background and Ownership 1. SEGBA was c'. ,ated in 1958 as a decentralized electric utility fully owned by the A:gentinian federal government through the Sindicatura General de Empresas Publicas (SIGEP). SEGBA reports to the Ministry of Public Works and Services (MOSP) through the Secretariat of Energy (SE). Recently, the government created the Public Enterprises Directorate (DEP) which is expected to replace SIGEP and play an increasing supervisory role over public enterprises, including SEGBA. 2. SEGBA's Concession Agreement, approved by Decree No. 1247 of February 8, 1962, gives the company responsibility for electricity supply in the metropolitan Buenos Aires area on a non-exclusive basis and for an indefinite period. During 1979-198? SEGBA took over the concession held by CIAE (Compania Argentina de Electricidad, formerly Compania Italo-Argentina de Electricidad, S. A./ITALO) which served a large area in downtown Buenos Aires. SEGBA's original by-laws were approved in 1961 and have been amended frequently, most recently in May 1986. Organization and Management 3. SEGBA has a Board of Directors of six members, appointed by the Government. The Board chooses two of its members to serve as President (Chairman of the Board) and Vice President. The Board is assisted by several ad-hoc committees, as required. A General Manager, appointed by the Board is responsible for day-to-day management. He is assisted by a group of committees (planning, finances, procurement and management) and supervises four departments (planning, finances, procurement and management) and sales, operations and finance and three divisions (engineering, supply, and personnel and industrial relations). Planning 4. SEGBA plays a leading role in the preparation of demand projections as SEGBA's concession area includes the most important electricity market in the country. For this SEGBA participates in the working group which, under the supervision of the SE is in charge of the preparation of demand projections. SEGBA has good expertise in planning distribution facilities, which is carried out by well trained professionals. Financial Planning and Budgeting 5. While short term financial planning through annual budgeting and control is satisfactory, the resources for medium and long range financial planning have not been developed appropriately. The reason for this situation stems from the excessive influence that the Government annual ANNEX 2.2.1 Page 2 of 4 budget process imposes on all public enterprises. As a result, the financial projections department of SEGBA is understaffed (in both quantity and quality) and underequipped. SEGBA, aware of this situation, has already begun upgrading this function. The Financial Department is responsible for SEGBA's annual budgeting activities through its Financial Planning sub-division. Coordination is achieved through a Budgeting Committee where the various departments are represented. The process takes about 6 months, from June to November to enable the tariff department to evaluate rate levels for the forthcoming budget year. The actual vs. budgeted control process is computerized and is carried out monthly. The process is satisfactory, but would require integration in both format and procedures with the medium and long range financial planning. Engineering 6. SEGBA's engineering staff is well trained and capable and SEGBA does not require the use of consultants except for very specialized tasks. As SEGBA is seen as a desirable institution to work with, it is in a position to select the best qualified engineers graduated from local universities. However, training programs for engineers and other professionals in the last few years have not allocated slots for training abroad in quantities adequate to keep the staff up-to-date with new technologies and engineering developments. The SEGBA V project (Loan 2854-AR is to support SEGBA's training activities through the financing of this kind of activities. The Market and the Means to Meet Demand 7. By end 1987 SEGBA operated in a concession area of 13,800 square kilometers, had about 3.8 million clients and about 21,600 employees. During 1987 SEGBA's system had a maximum demand of 3,652 MW and delivered 18,600 GWh of which 43? was generated in its own plants and 57? was purchased from the National Interconnected System (SIN). SEGBA's physical installations by end 1986 included 2,470 MW of installed capacity in thermal plants, 17,700 MVA of transformer capacity in substations, 7,100 MVA in distribution transformers, 2700 km of high voltage lines and cables, 14,500 km of medium voltage lines and cables and 49,900 km of low voltage lines and cables. The composition of energy consumption in 1986 was as follows: 33Z industrial, 36? residential, 15? commercial, 16? public sector and others. Operations 8. SEGBA's overall efficiency indicators are good when compared to other large utilities in Latin America. The number of consumers per employee increased from 100 in 1975 to 180 in 1987 while the energy sold per employee increased from 380 MWh/year in 1975 to 670 MWh/year in 1987. Although these global indicators remain in the good range, lately the efficiency of SEGBA's operations has deteriorated in some areas. Production has not been affected by this trend because of adequate preventive maintenance and training programs. The aggregate efficiency of thermal plants has increased from 31? in 1975 to 34Z in 1987. The average availability, however, has decreased in the last few years - from 83? of total generating capacity in 1983 to 74Z in 1987 because: (i) some of the ANNEX 2.2.1 Page 3 of 4 machines are becoming obsolete and (ii) the long time required to import spare parts due to the country's import restrictions. 9. The main efficiency problems remain in the distribution operntions: First: the status of deterioration of the networks, seconds obsolete technology of part of the networks, third: lack of adequate preventive maintenance, and fourth: labor problems. As a result, electricity supply in practically all SEGBA's concession area, but espec:.ally the Buenos Aires downtown area, is poor in quality and in customer's service. The average interruption time is 20 hours/client/year. The average tm-- to replace service in cases of interruption is 200 minutes, while the percentage of complaints unattended for more than 90 minutes has increased from 35Z in 1983 to 47Z in 1987. Metering, Billing and Collections 10. SEGBA's billing and collection procedures are well developed. They are bighly computerized and make extensive use of the commercial banks. SEGBA's clients are divided into Private and Official (national, provincial, and municipal). Special clients (about 8.2Z) which are Lilled monthly are those with an installed capacity greater than 25kW, the rest (about 3.7 million) are billed every two months. Metering and billiag while requiring improvements in the shanty towns around Buenos Aires, is generally satisfactory. Staffing and Training 11. SEGBA's global employment level is adequate to the utility's current operations. Actually the number of employees has consistently decreased - from 26,000 in 1975 to 21,600 in 1987. However, there are some problems regarding staff distribution. SEGBA's relations with unions have been traditionally a difficult area because of the unusual strength of SEGBA's labor union. This has resulted in the past in an unreasonable increase in the number of staff and levels of remuneration. Also very complex regulations agreed upon by SEGBA in the framework of collective contracts with the unions introduce unreasonable limitations. As a result of poor drafting of labor legislation enacted in 1983, SEGBA is facing a mountain of labor suits which in 1987 involved more than 40,000 persons (active and retired staff and third parties) and resulted in an allocation to settlement expenses reserve of about US$30 million. SEGBA has increased resources allocated to work safety programs which benefit both the utility and the workers and have resulted in a substantial decrease in the frequency of accidents from 20 accidents per million of men-hours wotked in 1980 to 9 accidents per million men-hours worked in 1987. 12. SEGBA has designed a job description system and performance evaluation to replace the current one which is too complex. The new system is well structured and would favor career development. It is estimated that the average wage has been eroded by inflation by about 40Z in the period 1980-1987, which might be partially responsible for a notorious increase in the absenteeism from 5Z to 82 noted in the period 1980-1987. Despite this, the work morale is generally good and there is no important loss of capable staff. ANNEX 2.2.1 Page 4 of 4 13. SEGBA has a comprehensive training program and maintains two centers to fulfill the majority of its training needs for workers. Other specialized training is carried out under agreements with local institutions (technical universities and centers). A total of 2,400 pereons or 11? of the staff received some kind of training during 1987 and a total of 9,000 is expected to be trained through 815 courses during the period 1988-1992 in accordance with a sound master plan. SEGBA has also training arrangements with two well-credited foreign utilities for on-the- job training of professionals on specialized matters and the provision of experts. Auditing 14. Since 1981 SEGBA was required (and the Bank agreed) to use the services of Sindicatura General de las Empresas Publicas (SIGEP) as external auditors. This obligation was imposed to all public enterprises. However, current preliminary reports by the Financial Management Specialist (FMS) of the Bank indicate that nationwide, the performance of SIGEP has not been as originally intended because of repeated poor quality audits performed on some of the public sector enterprises. The internal Auditing Department of SEGBA reports to the Beard and is divided into two main areast Control and Operational Auditing sections. The iorner audits the accounting, the latter monitors the performance for the economic, financial, administrative and operational areas according to budgeted targets. The monthly reporting from both areas is very comprehensive, their timeliness particularly towards the end of the year could be improved. Insurance 15. SEGBA's major installations such as generation plants, substations, distribution centers and buildings are insured against fire, explosion, terrorism, %andalism, etc. Works under execution and personnel of the contractors are insured against all risks. Also, SEGBA's vehicles are covered with standard insurance policies. Regarding those SEGBA's assets which because of their large number and geographical dispersion (such as distribution networks) do not require special insurance coverage a policy of self insurance would seem adequate but would require the establishment of a special fund as is usual utility practice. No such fund exists. ANNEX 2.2.2 Page 1 of 3 ARGENTINA ELECTRIC POWER SECTOR PROJECT AyE: Institutional Aspects Background and Ownership 1. Agua y Energia Electrica, Sociedad del Estado (AyE) is a fully owned government utility, created in 1947, reporting to the Minist:ry of Public Works and Services (MOSP) through the Secretariat of Energy (SE). Its legal structure, organization and dependency have changed several times since its foundation but its main objecti%as have remained basically the same. They are: (i) generation, interchange and supply of electricity to the whole country; and (ii) control and utilization of water resources in activities such as irrigation, flood control and inventory of hydro resources. 2. In 1980 the government decreed the transfer of electricity distribution systems to the provinces. Except for four provinces (La Rioja, Santiago del Estero, Formosa y Rio Negro) which do not have the technical and financial capability, AyE has transferred distribution systems to other provinces who have thus become responsible for their operation and expansion. A similar transfer has been carried out regarding the irrigation systems. Consequently, AyE has been transformed into a basically generation and transmission electric utility, with distribution responsibilities only on an exception basis. Organization and Management 3. AyE's Board of Directors has six members: a President, a Vice president and four directors. They are nominated for three-year terms and are responsible for setting up general company policy. The headquarters of AyE is located in Buenos Aires and six Regional Administrations (NW, NE, Cuyo, Comahue, Litoral and Patagonia), which report to the Operations Manager, take care of rutinary regional business. The Operations Mariager and the Engineering and Administration Manager report directly to the President. Six units report to the latter: Construction, Engineering, Industrial Relations, Planning and Control, Commercial, and IDB Program. Staffing and Training 4. By the end of 1987, AyE had 11,074 employees, of which 642 were under the Operations Unit. With the transfer of the distribution systems to the provinces, the number of personnel has been reduced by about 452 and further reductions would be advisable as there is still room for improvement. The company has a training program which is carried out in its own training centers (NE, Cuyo, Centro and Parana) and through external services inside and outside the country. ANNEX 2.2.2 Page 2 of 3 Accounting and Auditing 5. The accounting system of AyE is adequate for the needs of the company. Host of it has been computerized. both at headquarters and at the regional offices. The system is basically decentralized for the sources and it is centralized for the consolidation of the financial statements of the company. The Internal Audit unit reports directly to the President and performs its work on the basis of an annual program, with rutinary and non- routinary activities. Regional offices have their own audit units which report to the central Audit unit. 6. As is the case for other government-owned companies, the external auditor of AyE is the National Comptroller's Office (Sindicatura General de Empresas Publicas/SIGEP) which performs its functions through a permanent Supervisory Commission and through its own professional staff. Financial Planning and Budgeting 7. AyE has only recently begun using computerized models for its financial planning activities. The pressing problems of the short-term and the complications inherent to running a company which is both an electric utility and an irrigation entity, with national and regional responsibilities, have created an environment which has centered management's attention on solving day to day problems. This has been further compounded by the strict government requirements for the one year fiscal budget--carried out on a cash basis--on which the financial planning activities have been centered. Only because of the participation of IDB under ongoing operations and IBRD under the proposed operations, exercises in medium-term planning have been carried out with positive results. The company's budget system has been made compatible with its accounting system, and budget control is carried at the level of the regional offices and of responsibility centers. Insurance Policy 8. The insurance practices of the company are weak as most of its assets are not covered by any policy or by a self-insurance fund. This scheme is presently under review of special consultants engaged under an on-going IDB operation. The recommendations of the consultants study would be implemented so as to redress the existing lack of coverage. Procurement 9. AyE has its own procurement guidelines which differ from those which central government units have to follow. According to their amounts, purchases are classified for public bidding, private bidding, local shopping, and direct acquisitions. ANNEX 2.2.2 Page 3 of 3 The Market and the Means to Meet its Demand 10. The following table gives a summarized description of the operational data for AyE for 1987s Energy Sales (0Wh) Capacity (MW) Transmission (kms) Residential 629.3 Hydro 2,104.8 500 kV 2,878.7 Commercial 185.1 Steam 1,548.4 330 kV 1,100.0 Industrial 6,221.0 Diesel 125.4 220 kV 944.3 Bulk Sales 14,864.0 Gas 848.2 132 kV 5,167.4 Other 210.3 Total 4,626.8 Low Voltage 639.3 Total 22,109.7 Total 10,729.7 ANNEX 2.2.3 Page 1 of 3 ARGENTINA ELECTRIC POWER SECTOR PROJECT HIDRONOR: Institutional Aspects Background and Ownership 1. HIDRONOR S.A. (Hidroelectrica Norpatagonica Sociedad Anonima) was created on October 17, 1967 under the Corporate Law of Argentina (Law No. 19,550). It is responsible for the construction and operation of hydroelectric plants in the Comahue Region, including transmission lines and complementary facilities necessary to transport electricity to the consumer systems. Within this general framework additional individual laws give HIDRONOR concessionary rights on each plant it constructs. Its by-laws have been amended several times, the last in 1986. HIDRONOR is fully owned by the Argentinian government and its stockholder's capital is equivalent to US$80 million. Organization and Management 2. The Shareholders Meeting has the highest authority over the company's activities which it exercises through functional delegation to the Board of Directors composed of a minimum of five and a maximum of seven members. Day to day activities are handled by the General Manager who is designated by an Executive Committee selected by the Board. Six area managers assist the General Manager in its activities: Operations, Civil Works, Electromechanical Works, Administration, Finance, and Regional Matters. 3. The headquarters of the company is located in Buenos Aires and its center of operations in Cipolleti, Rio Negro Province. As the geographical location of the organizational units is based on different functional criteria both have basically separate organizations, in certain cases with duplication of functions. Such scheme requires the General Manager to move permanently between Buenos Aires and Cipolleti. In spite of this cumbersome scheme, the company operates efficiently. Management Systems 4. The company does not yet have detailed management systems manuals for all tte organizational units and the activities they perform. Until 1983, HIDRONOR engaged the services of external consultants to design such manuals which would be divided into 27 groups, to be developed during the 1982-1988 period. Unsatisfied with the consultants work, HIDRONOR called off the contract and decided to go ahead with the project on its own, following the basic design left by the consultants. However the work has been slower than scheduled and has not yet covered several areas. Under the Administrative Manager, the Systems Unit has developed manuals for some areas: Human Resources, Taxes, Budgetting, Work Certification, Inventories, Debt, and Maintenance. ANNEX 2.2.3 Page 2 of 3 Human Resources 5. HIDRONOR has about 1,700 employees which are professionally capable of performing, in an efficient manner, the activities entrusted to the company. The most important groups are Operations, Administratior, and Works, which have the following shares: 44?, 33? and 15Z, the rest belonging to the other units. The small share of Works reflects the company's policy of contracting most of its construction and consulting tasks. Productivity during the last four years has been as follows (kWh/employee): 1984, 1,374; 1985, 1,507; 1986, 1,490; and 1987, 1,479. With regard to its staff educational background, HIDRONOR shows a composition of 272 professional and 36? technical, the rest being support and non-qualified staff. Financial Planning and Budgetting 6. The units in charge of financial lplanning, budgetting and relations with international credit institutions are located in Buenos Aires. They produce a financial management report which is issued monthly for higher management information. On the basis of a model developed by IDB, the company prepares financial projections for the medium and long-texm. As for other government-owned entities, the budget system is referred to the fiscal budget which is carried out on the basis of cash disbursements. Accounting 7. The unit in charge of accounting is located in Cipolletti which implies some problems of communication between accounting and the financial planning and budgetting areas. The accounting system of the company is satisfactory, but it lacks a system to measure operational expenses on a reliable basis. All accounting procedures are fully computerized and centralized. The budgetting system is carried out separately from the accounting system, because of their different objectives. Auditing and Internal Control 8. The Internal Auditing Unit reports directly to the Chairman of the Board and, in spite of increases in personnel during the last few years, it lacks the importance it should have for a company the size and complexity of HIDRONOR. The unit performs its functions on the basis of an annual plan of action but it also performs unscheduled activities required by the Chairman. As established by Argentinian Law the external auditor of all government-owned entities is the National Comptroller (Sindicatura General de Empresas Publicas/SIGEP), but it usually delegates its functions to a Fiscalization Commission and to independent external auditors engaged for this purpose. The Fiscalization Commission, composed of three members, is in charge of supervising the internal control system of the company and evaluating the financial condition of the utility. SIGEP's report has been issued during the last few years without major observations. Insurance 9. HIDRONOR does not have insurance coverage for dams, spillways, ditches, roads and transmission lines as it considers, as a policy, that the risk is minimum. For works in progress, HIDRONOR engages insurance coverage against all risks of construction and erection, including civil responsibility ANNEX 2.2.3 Page 3 of 3 and the transport of materials and equipment. Plant in service in insured against break-down and fire risks, on the basis of a blanket coverage and a pro rata coverage, respectively. Other coverage includes vehicles, personnel transport, goods, equipment, life insurance and workmen compensation and general civil responsibility. The insurance system has been well developed thanks to the engaging of insurance consultants who have advised the company since 1980. This notwithstanding, there is doubt about the valuation of the company's assets for insurance purposes. A specialized consultant has been hired to analyze this matter. Procurement 10. As for other government-owned entities, the procurement system of HIDRONOR is under Law No. 5340 and Law No. 18875 which covers procurement of goods, contracts for civil and other works, consultant companies and individuals. When financing from multilateral agencies requires different procurement procedures they are usually granted by a law of exception. ANNEX 2.2.4 Page 1 of 3 ARGENTINA ELECTRIC POWER SECTOR PROJECT EBY: Institutional Aspects Background 1. The Yacyreta Binational Entity (EBY) was constituted on December 3, 1973 under a Binational Agreement between Argentina and Paraguay, with the main objective of constructing and eventually operating the Yacyreta Hydroelectric Plant. EBY was formally established on September 6, 1974 with headquarters in Buenos Aires and Asuncion and a stockholders capital of US$100 million equally shared between AyE of Argentina and ANDE of Paraguay.l/ Organization and Management 2. EBY is administered by a Board of Directors (wConsejo de Administracion") and an Executive Committee ("Comite Ejecutivo'). The Board of Directors establishes the general policies of the entity and approves important proposals made by the Executive Committee, such as loan contracts and the annual budget. It has eight members--four for each country--who are appointed for periods of four years but can be removed by their governments at any time. The Executive Directors (one for each country) participate as non-voting members in the Board's deliberations, which are held at least every other month alternatively in Argentina and Paraguay, and is presided over, on a rotating basis, by members of each of the two countries. 3. The Executive Committee comprises two Executive Directors (one Argentinian and one Paraguayan) and five Directors for each of the functional areas (legal, technical, administrative, finances, and coordination). It is in charge of carrying out all the administrative duties necessary to the execution of the Project. The tenure of each director is for a five-year period. The ordinary meetings of the Executive Committee take place at least twice a month and are chaired alternatively by Argentina and Paraguay. 4. After significant delays due to procurement differences at the beginning of project execution, during the last three years the execution process has improved substantially thanks to a good management team. Such process is expected to continue in the future implementation of the project and in the eventual operation of the plant, for which the necessary actions are already envisioned: consultant services would be engaged for the setting up of the operations unit of EBY. Staffing 5. As of March 31, 1988 the total number of employees of EBY was 1,192. The following table gives a summary of personnel for each major organizational unit and its evolution during the last three years: 1/ A description of the Yacyreta Project is given in Annex 3.1.4. ANNEX 2.2.4 Page 2 of 3 EBY: Personnel Summary Year 1986 1/ 1987 1/ 1988 2/ 2 Direction 155 178 184 16 Construction 83 77 81 7 Administration 284 323 325 27 Finance 108 110 114 10 Infrastructure and Resettl. 208 230 241 20 Security and Other 191 234 247 20 Total 1,029 1,151 1,192 100 =mm m 1/ As of December 31. 2/ As of March 31. The small share of Construction employees is justified because of the utilization of consulting services for project supervision. In future years, when the first units are commissioned the above mix will change significantly as the operations unit is set up and the construction works wane. Finances and Accountin9 6. The Financial Directorate is responsible for planning and executing financial, operations, and registering the corresponding transactions under its accounting system. For this purpose, it has five operational divisions: Budget and Financial Planning; Accounting; Funding; Taxes, Insurance and Customs; and Treasury. According to EBY's by-laws its unit of account is the US dollar. The accounting entries are implemented following the guidelines established in the entit3's Accounting Manual which is adequate for an institution like EBY. Most of the accounting processes are performed through computerized equipment which allows opportune issuance of quarterly financial reports. Project-related transactions are adequately registered and can be easily monitored during project execution. The entity's financial planning system is adequate and has three levels: long- term, annual and quarterly. The last two levels are part of the budget system and their follow-up is carried out directly through the accounting system. Auditing and Internal Control 7. The auditing process at EBY is carried out internally, by its shareholders and externally. The Internal Auditing unit reports to the Executive Committee and it has the following personnel: two professional auditors and 11 assistant auditors working in all the organizational regions. It carries out its work under a program approved by the Executive Committee. The two shareholders of EBY, i.e. ANDE and AyE, also perform auditing functions through sporadic visits and during the reviews performed for the annual shareholders' meetings. As required by Argentinian Law for all government-owned companies, EBY has its financial statements audited by the Public Enterprises Comptroller (Sindicatura General de Empresas Publicas/SIGEP). In the case of Paraguay, the same principle applies and at ANNEX 2.2.4 Page 3 of 3 present the auditing firm is Auditores y Consultores Asociados (AYCA). The recounendations of the external auditors to improve the internal control system of EBY are beirg implemented gradually but some areas still need adjustments. EBY has a plan to continue implementing the auditors recommendations. This notwithstanding, the internal control system of the entity is adequate. Tax Scheme 8. Under the Additional Fiscal Protocol of September 15, 1983, signed between Argentina and Paraguay, EBY is exempt of any tax, tariff or contribution of any kind on the materials and equipment to be used in the project. Insurance 9. The insurance policy of the entity is based on a study performed by independent consultants engaged under IDB Loan 346/OC-RG. In this respect, EBY has an insurance policy to cover all construction and erection risks for the main works up to a maximum of US$3 billion. Supplementary works are insured by the civil works contractors until they are transferred to EBY. After the plant is commissioned, the insurance coverage will be modified accordingly. Procurement 10. Unless the financing institutions establish different conditions --which would prevail--EBY's norms and procedures establish a preferential treatment for Argentinian and Paraguayan goods and services for the project. The Executive Directors are authorized to approve purchases up to US$180,000 and civil works contracts up to US$900,000 equivalent. Contracts up to US$35,000 can be approved by the Financial Director and the head of the department making the request. All procurement above these limits is done through public bidding. ANNEX 2.2.5 Page 1 of 2 ARGENTINA ELECTRIC POWER SECTOR PROJECT CNEA: Institutional Aspects Background 1. The National Atomic Energy Commission (Comision Nacional de Energia Atomica), CNEA, was created in 1950, and since then it has been under the direct supervision of the President of the Republic. CNEA has been traditionally managed by the military, but during the Alfonsin administratiou its president has been a civilian. CNEA is managed by its president who is assisted by four consultative bodies. It has six departments: Nuclear Power Plants, Nuclear Supplies, Isotopes, Research and Development, International Projects, and Planning. CNEA's staff is currently 6224, of whom 262 are professionals, 34? technicians and 40? support staff. CNEA's Activities 2. CNEA's activities cover a wide range of research and applications in the nuclear field: construction and operation of reactors, both for power generation and for research and production of isotopes; exploration and exploitation of uranium (including mining and concentration); manufacturing of nuclear fuel and heavy water; manufacturing of special alloys; production and marketing of isotopes; and research and development in a wide range of subjects. CNEA's mandate includes the development of national technology which would permit independence in strategic fields. This has been achieved to a certain extent; e.g. in the area of small reactors CNEA is supplying a research reactor to the Peruvian Institute of Nuclear Energy which is 80 complete, and has reached agreement with Algeria for the construction of a similar unit. Both units will have a high degree of Argentinian input. CNEA also intends to construct small power reactors in Argentina. CNEA's Budaet 3. The cost of CNEA's activities represent a heavy burden for the government. CNEA's 1988 budget, even under a low scenario for investing in Atucha 1I construction works (para. 8), amounts to about US$781 million equivalent with 50Z for investments, 17Z for operating expenses, 7Z for salaries and 26Z for debt service. The government provides a substantial proportion of the funding for the CNEA, as cash generation from CNEA's activities is limited. CNEA intends to finance the 1988 budget as follows: Government contributions -direct plus indirect- US$484 million (62Z), income: US$130 million (17Z) and borrowing: US$167 million (212). CNEA's Role in the Power Sector 4. CNEA's power activities have not originated in economic choices, but in political decisions based on the desire to increase national prestige, develop national technologies, and possibly military strategic ANNEX 2.2.5 Page 2 of 2 reasons. The decision to construct nuclear power plants has always been taken at the Presidency level and communicated to the SE, which considers the nuclear plants as a given for planning purposes. Existing facilities 5. CNEA owns and operates two nuclear power plants: Atucha I, a 370 MW Pz?ssurized Heavy Water Reactor (PHWR), located in the province of Buenos Aires, commissioned in 1974, and Embalse, a 648 MW PHWR, located in the province of Cordoba, commissioned in 1984. Until 1987 both units performed very well, with availability factors of 912 and 94? respectively. Without considering capital costs, the combined generating costs of these units, is about US$12 mills per KWh, which is much lower than any other thermal generation in the country. Works in Prosress 6. The Atucha II project, a 745 MW Phil, is the only nuclear power plant under construction. Its works began in 1980 and was planned to be in operation by 1987. The original estimated cost of this project was about US$1580 million (1979 price level without escalation), or US$2120/kW, which, at the time, was a more expensive option than other available hydro and thermal projects. About US$1330 million have been invested in the period 1980-1987. The project has suffered high cost overruns due mainly to the delays in ezecuting the construction works (the project is now scheduled to be completed in 1993) and to the docline in the US dollar vis- a-via the DH. (Host of the foreign ezchange costs are in DH). The current estimated cost of the project at end 1987 price level, without including allowances for escalation, amounts to about US$2800 million. 7. The execution of Atucha II is well advanced. The global progress of the project is estimated at 60Z. Foreign supplies and services have been completed in more than 80?, while civil works have reached 64Z. Local supplies is the less advanced item (372), because of the difficulties CNEA has experienced in obtaining financing for it. 8. Investments required to complete the project amount to about US$1,470 million. CNEA has not yet a financing plan to complete the project. Until 1987 it had relied on government contributions for financing the construction works. Since 1988, however, the government has substantially reduced its contributions -the 1988 budget includes only US$90 million for Atucha II. The financing gap amounts to about US$1051 million, of which US$897 million is local currency. and US$154 million is foreign currency. Of the local currency portion of the gap, about US$224 million equivalent are taxes (VAT) for which CNEA is trying to obtain exemption. Because of the inability of the government to provide additional funds, at appraisal time CNEA was trying to arrange external financing to complete the project. This financing would include the local currency portion of the gap. ANNEX 2.3.1 ARGENTINA ELECTRIC POWER SECTOR PROJECT Demand Projections MethodologY 1. Sector demand projections are prepared in the framework of the overall energy planning by a working group that includes representatives of the SE as well as the major electricity companies, This is an appropriate structure which allows for an exchange of view points in methodology developments, in the interpretation of data trends and in the addition of criteria and parameters, while facilitating dialogue among the concerned parties and the reaching of consensus in the results. Projections are updated annually during the second quarter of the year on ths asis of actual consumption of the previous year. 2. The methodology is evolving regularly as experience is gained. At present the group makes use of a model based on econometric method applied to each sector of consumption; residential, commercial, industrial, government and others. For the residential sector, projections are based on the population growth (an exogenous data), the electricity population coverage and the per-household consumption. The latter is correlated to the GDP per capita. Consumption elasticity to electricity prices is reflected in the model. For the commercial sector the projections are based on a mixed autonomous-value added model. This is adequate for a sector whose growth process incorporates features that are similar to the industry because of its sensitivity to the economic environment as well as other features similar to the residential sector. For the industrial sector, the heavy industry is segregated and projections for this sub-sector are based on their individual expansion plans, while the light and miscellaneous industries are correlated to the manufacturing GDP. This approach was recommended by the Bank in 1984 because of the fast increase observed in the electricity/value added ratio for industries, especially due to the electricity intensive character of the aluminum industry. Results of this model have been satisfactory. For other sectors (government, agriculture, transport, public lighting) a simple extrapolation method is used. This is acceptable given the small gravitation of these sectors. Results 3. Results of the current projections, completed for the appraisal mission in June 1988 are shown in Attachment 1. They show a global electricity demand increase for the country (including autoproducers) of about 6.0Z p.a. in the period 1987-1995 which is consistent with GDP growth rates of 3.5Z for 1989 and 42 for 1990 and beyond as projected by the Argentinian Ministry of Economy. ARGENTINA ELECTRIC POWER SECTOR PROJECT Demand Proiections Total Country and National Interconnected System (SIN) Trans. Energy t---- - - Consumption From Public Uti I itis---- 1 Auto- Total Country and R-qu; r_ments - -Tot l- -- produ- Consumption Distrib. Total Domestic Come_rcial Industrial 0thers Annual In- cors Annual In- Lots** Country SIN Ysar (OUb) % (GUh) X (Gwh) X (CUb) X (CUb) crease X (MU) CUb crease X (CWh) (GWh) (GWh) 1970 4996 36.2x 1882 18.83X 4988 85.7x 2039 14.8% 13799 4681 18480 1781 20241 n.a 1976 6621 82.41 2282 10.9% 8885 48.65 2680 18.1X 20418 8.1% 4648 24968 6.2% 2379 27346 15260 1980 88a1 ao.1x 3150 10.7X 18858 47.0% 3587 12.2X 29451 7.61 a884 s33335 6.0 3177 38512 23140 1981 8959 80.8% 3242 ll.lX 18276 45.6% 3889 12.5% 29116 -2.21 3479 82596 -2.21 3106 35701 24780 1982 8649 29.2% 3122 10.6% 14034 47.41 3775 12.8% 29580 1.SX a50s 83089 1.S% 3163 36242 23340 1983 9034 28.7% 3826 10.6% 15227 48.81 3933 12.S% 31520 7.2X 3961 85481 7.2X 3381 38s82 27420 1984 9S77 28.9% 3550 10.7% 15904 48.01 4094 12.41 33125 4.9% 4100 3,225 4.9% 3648 40773 28820 1985 9746 29.7% 3563 10.8% 15456 47.11 4070 12.41 32824 -2.2% 3579 36403 -2.2% 3489 39872 32570 1988 10456 29.41 3778 1O.6X 16893 47.81 4378 12.31 35506 8.11 3840 3934s 8.1% 3750 43095 34810 1987 11281 29.6X 4095 10.8% 18071 47.5% 8060 12.11 38052 6.7% 3914 41966 6.7x 4000 45968 41235 1988 11896 29.01 430S 10.S% 20012 48.7% 4845 11.8% 41068 7.5% 4060 45118 7.SX 3246 48384 43608 1989 12511 28.81 4534 10.31 21871 49.6% 5097 ll.6X 43813 6.4X 4179 47992 6.4X 2810 50802 45810 1990 13178 28.31 4798 10.81 23146 49.8% 5682 ll.SX 46484 5.8% 4273 50767 5.8% 2666 53423 48280 1991 13833 27.9% 5112 10.3X 24966 S0.4X 5641 11.4X 49562 6.2X 4376 63928 6.2% 2537 58465 54370 2992 14380 27.41 S450 10.41 26787 51.0% 5934 11.3% 52661 6.7% 4462 67013 5.7X 2682 59695 57420 1993 14947 28.8% 5812 10.41 28767 51.65 6243 11.2X 55769 6.s% 4544 60313 5.8x 3oso 63363 60830 1994 15634 26.31 6200 10.65 30867 52.2X 6568 ll.lX 59169 S.8X 4S26 63794 5.sx 3446 67240 86240 1995 16142 25.7% 6615 10.5X 33142 52.8% 8909 11.01 62808 5.sx 4699 67507 6.8% 3837 71344 89170 1996 16798 26.11 70s9 10.8X 36871 63.4% 7268 10.9X 66798 6.0X 4771 71567 6.0% 4347 75914 73570 1997 17477 24.61 7532 10.61 38490 S4.1X 7647 10.7% 71146 6.2X 4841 75987 6.2% 4874 80861 78320 1998 18181 24.0% 8037 10.61 41460 54.8% 8036 10.61 75714 6.11 4898 80S12 6.11 6467 88069 83320 Dt > 1999 18910 23.SX 8677 lO.6X 44690 55.41 8462 10.6X 80639 6.2X 4946 8s58s 6.2X 6075 91860 88S80 cl z 2000 19864 22.9% 9152 10.6X 48218 68.11 8903 10.4X 85937 6.2% 4983 90920 6.2% 6785 97705 94470 0 x --------- - - - -- - --- - - - - - --- - - - --------------- ------- ---- ------ ----- - -- ------------- - - NOTES Period 1970-1987: actual data Period 1988-2000: proj octions ANNEX 2.3.2 ARGENTINA ELECTRIC POWER SECTOR PROJECT National Interconnected System Installed Capacity Available by End t987 (MW) Hydro Pumping Nuclear Combined Steam O.. Diesel Total X Total % Total X TOTAL X Utility Station Cycle Plant Turbine Hydro Nuclear Thermal SEIOA 2209 262 0 OX 0 OX 2471 100% 2471 19% DEBA 846 182 48 0 ON 0 OX 671 0OOX 671 4% EPEC 179 249 348 24 179 28X 0 OX 61e 77X 796 ox AyEE 844 845 0 85 1488 546 69 1689 44X 0 OX 2182 6%X 8871 8o0 -Comhue 18 so 17 18 28X 0 OX 47 72X 6s ox -Cuyo 660 85 245 66 6 60 62X 0 OX 400 8% 1060 8X -Lltoral 948 17 0 oX 0 oX 986 1001 965 7X -E 60 21a 8s 0 ox 0 0 o 8 o80 308 2% -NOA 166 200 288 29 166 26X 0 OX 402 74X 628 5% -Rio Orande 846 845 100% 0 OX 0 0% 846 6s OEA 1018 0 OX 1018 %OOX 0 0o 1018 8X HIOROHOR 2777 2777 0OOX 0 OX 0 OX 2777 21X CT: / 141kk 121e : 0 ox 0 ox ilia 11 Oth3re 2 128 24 2 1X 0 oX 162 99% 164 1X …----_----------------------------------------------------------------__-----__------------------------------------- TOTAL 6220 846 1018 S6 4287 1460 16o 6086 46X 1018 8X 6992 48X 13076 10OX X 40% 6x x 8% 1X 8% 1X 1X 46% 8X 46X 100% …________________________________________________________________________________________._________________________ NOTE 1_/ Capacity available to Argentina ANNEX 2.3.3 Page 1 of 2 ARGENTINA ELECTRIC POWER SECTOR PROJECT Draft Terms of Reference for the Power Generation Options Study Background 1. The 'Secretaria de Energial, (SE) of the Ministry of Public Works and Services is responsible for the preparation of expansion plans for the National Interconnected System (SIN). To develop least-cost generation/transmission development plans, the SE uses a set of mathematical models, oriented to minimize the total present value of the system investments and operations. Results of this exercise depends of assumptions and parameters used for operating the models. To ensure that the sector expansion -and investment needs- reflects economic costs, the Se requires to review -and eventually revise- the following criteria and parameters currently used: (a) plant factors of the existing and future thermal plants; (b) thermal options to develop the SIN generation plant; and I£! oeo c cosp of oae f i np.er genQeYratien.- %_0 - ~ ~ __ ar--- -- Obiectives 2. The objectives of the study are the following: (a) to define the operating conditions of the existing thermal plants and recommend the corresponding parameters to be used in expansion planning; (b) to recommend the future role of gas-fueled Combined Cycle (CC) thermal plants in the expansion of the SIN; and (c) to recommend a set of values for the economic cost of gas for power generation expansion. Scope of Work 3. 1. Existing Thermal Plants. To evaluate the operating conditions of the thermal plants, to project these to the future, and to prepare a cost/benefit analysis of rehabilitation, whenever this is deemed possible. 2. Future Thermal Plants. To estimate the costs and operational characteristics and reliability of steam thermal plants of modern technology and to recommend operating criteria and parameters for expansion planning. S. CC Plants. To gather information on generation characteristics and costs of existing thermal plants elsewhere in the world -investments and operating costs,heat rates, availability, lifetime, and other technical ANNEX 2.3.3 Page 2 of 2 and economic data-, to examine options for converting ex$sting steam plants or/and gas turbines to CC,to seek data which would perm't to assess the future development of the CC technology and strategy of the main manufacturers of CC plants. 4. Cost of Gas. To evaluate the availability of gas for power generation and to recommend projected economic costs. Organization of the Study 4. The study would be carried out by independent consultants satisfactory to the Bank, under terms of reference agreed upon between the SE and the Bank, with substantive participation of technical staff from the SE and the federal utilities. The consultant should arrange visits for selected personnel to power stations abroad and to manufacturers headquarters. ANNEX 2.4.1 ARGENTINA ELECTRIC POWER SECTOR PROJECT National Interconnected System Evolution of Net Availability Capacity (MW) Tip. of plant 1989 1989 1990 1991 1992 1998 1994 1995 1996 1997 19 199M 2000 Hydro H 4220 4165 4175 5800 6890 6890 6090 668 7655 8480 9246 10890 11786 Pumping station p 846 846 845 846 846 846 846 846 846 846 846 846 845 Nuclear N 946 946 946 946 946 946 1226 1640 1640 1640 1640 1640 1640 Combined cycle CC 85 85 e6 85 86 06 140 140 140 140 140 140 140 Stea. plant S 8980 8980 4550 4670 4670 6195 5196 4916 4915 4775 6100 4790 4880 Gas turbine 0 1460 1476 1475 1610 1610 1610 1640 1640 1720 1800 1800 1800 1800 Diesl 9 160 145 186 116 105 70 66 55 60 40 40 20 20 TOTAL 11695 11640 12210 18670 14160 14640 16200 15890 16966 17720 18810 20126 21060 -----------------------------------------------------------------__----------__------------------------ Additions Type --------------------------------------------------------------__-------------__------------------------ Small hydro H 56 10 Hydro Patagonia 1j H 426 Bahia Blanco S 670 -umee S 120 Plodra del Aguila H 700 700 Stean Plants S a60 Atucha II N 280 41i Urugus I 1j H 65 La Tablad. 1J CC 66 Vacyrets H 186 676 676 676 640 Loe Blanco. I H 826 Csrrenloufu H 150 90 Litoral S 826 C. Plate I H 225 626 Q rabi H 600 190 Los Blanc.o II H 40 Collon Cure H 880 Buenos Airee S 826 Litoral 3 826 El Chlhuldo H 565 Salt* Grand. 2J H -110 -110 -110 Steam Plants 8/ S -126 -280 -140 -685 -285 Gas Turbinoe 4_J 15 15 185 B0 80 80 loeel Plants 4_/ Q -20 -16 -10 -20 -10 -86 -6 -10 -5 -10 -20 …--------------------------------------------------------------------__------__------------------------ NOTES 1_/ Isolated plants to becom Interconnected 2_ Incease of capacity taken by Uruguay S_ Decom_issionning of obsoleto plants 4_ Bnince of dditions less retirement of miall plants Isolated 185 MW Gas Turbine becomes interconnected In 1991 ANNEX 2.4.2 ARGENTINA ELECTRIC POWER SECTOR PROJECT National Interconnected System Capacity and Energy Balance (Capacity in MW; Energy in GWh) Trnam. Total …-------AveIlabilIty/On*ratIon --------- Year Demand Losse Requir. Hydro X Thermal X Nuclear X Total Rooerve X -------------------------------------------------------------------__--------__----------------- 1986 Capacity 7862 200 6082 4826 64X 6886 7O3 946 123 10956 2678 86X Energy 48500 670 44176 16894 85X 22164 503 6620 15X 44178 19890 Capacity 6290 200 6490 6010 5OX 6856 867 946 11 11040 8160 87X Energy 45610 070 46460 15480 8BX 24510 53x 6540 14X 48480 1990 Capaclty 6740 200 8940 6020 6OX 6246 7O3 946 113 12210 8270 87X Energy 46260 550 46610 14180 29x 26280 582 0400 13X 48810 1981 Capacity 9860 260 9940 6146 62x 8480 865X 94 103 18570 a860 87x Energy 64870 1160 6U520 28490 42X 25480 46x O6 12% 6U520 1992 Capacity 10220 820 10640 6785 64X 6470 61X 946 9X 14150 8610 84X Energy 67420 1210 66000 24140 41X 27870 46% 6620 11X 56680 1m Capaclty 10850 820 11170 6785 603 6960 623 946 8X 14640 8470 81X Enero 60060 1210 82090 ?4180 2DS Skl K1lAO A **n lie *9A 1904 Capacity 11860 880 11990 86985 56 7040 659 1226 1OX 16200 8210 27% Energy 65240 1860 660 27060 41X 29610 44X n9o 16X 66600 199 Capacity 12870 870 12740 7500 69x 6760 53X 1640 18X 16690 8160 26X Energy 69170 1640 70810 81500 44X 27610 893 11600 163 70810 19n0 Capacity 1al8o 410 18590 65o0 s68 826 50% 1640 12X 16965 8875 25X Energy 78570 2010 75560 87960 5x 26180 85x 11600 15X 76680 1997 Capecity 14050 460 14610 9826 64X 6766 47X 1640 11X 17720 8210 223 Energy 76820 2170 60490 41180 61X 27680 86x 11600 14X 60490 1996 Capacity 14960 490 15450 10090 a66 7060 46x 1640 11X 16610 8s86 22% Energy 68820 2810 65680 44660 62X 29460 84X 11600 18X 66800 199w Capacity 16940 550 16490 11780 71X 86750 41X 1640 1OX 20120 8680 22X Energy 600 25680 91240 46090 54 8X0750 84X 11500 13X 91240 2000 Capacity 16990 o60 17560 12560 723 6840 89s 1640 9x 21080 8480 20% Energy 94470 2760 97260 64190 6OX 28940 8ox 14120 15X 97250 Note. Therml Genration etimated as balance between Demand and Hydro plus Nuclear availability ANNEX 2.4.3 Page 1 of 2 ARGENTINA ELECTRIC POWER SECTOR PROJECT Economic Evaluation of Completion of the Atucha II Project 1. Completion of Atucha II may or may not be justified on economic grounds depending on the possible costs associated to the cancellation of the ongoing contracts for equipment supply, civil works construction and erection and installation. To analyze whether the project is economically viable, the costs of completing the project must be compared with the cost of implementing an alternative which would provide equivalent service. Atucha II is expected to provide 745 MW of power and 5150 GWh/year of energy at an operating cost of US$ 3.4/MWh (excluding capital costs). If financing were readily available, the plant could be completed by 1992, but because of market growth reasons it is only needed in 1994. Investments amount to about US$ 1245 million, excluding taxes (Attachment 1). A aR-fuelpd mltRrnativ= whch u ould --vide similar service would consist of 3x312 MW steam plants with capital investments of about US$ 840 million and would generate at an operating cost of about US$ 13.0/MWh (excluding capital costs). 2. The economic evaluation of the two alternatives mentioned above provides an estimate of the order of magnitude of the rate of return of investments to be made in Atucha II (Attachment 2). The results show that completion of Atucha II has a low rate of return (5.9Z) when compared with a conventional plant. 3. The advanced status of implementation of Atucha II (60Z of physical implementation, 80? of contracting; Attachment 3) suggests that cancellation of the contracts would have a high economic cost, estimated to be in the range of 402 to 602 of the remaining value of the contracts (80Z is CNEA's estimate). To calculate the effect of possible cancellation costs on the IRR of the project, both alternatives of para. 1 are compared assuming that cancellation of the contracts would have an economic cost equivalent to 50Z of the remaining value of the contracts under execution while non-contracted items are totally saved (Attachment 4). The results show that under these assumptions, the IRR of completing the project would be about 16Z. Results of a sensitivity analysis made for the lower bound of cancellation costs show that the IRR of completing the project is still well above the estimated opportunity cost of capital (12Z) as shown below: ANNEX 2.4.3 Page 2 of 2 Balance of oL.3aing contracts US$ million - Local currency 368.5 --goods 1/ 50.0 --services 318.5 - Foreign currency 291.0 --goods 1/ 200.0 --services 91.0 - Total 652.5 -Goods (local plus foreign) 250.0 -Services (local plus foreign) 409.5 Economic Cost due to Cancellation Lower bound Upper bound Z US$ million Z US$ Million -on contracts for goods 80 200.0 100 250.0 -on contracts for services 15 61.0 30 123.0 Total 40 261.0 57 373.0 IRR 14? 18? 1/ Estimated. ANNEX 2.4.3 Attachment 1 ARGENTINA ELECTRIC PO4ER SECTOR PROJECT Atucha II Project - Schedule of Investments (in US$ million equivalent; January 1988 price level) 1/ Locnl currency Foreign currency Total Year Year Accumulated Year Accumulated Year Accumulated 1988 266.6 265.6 58.4 68.4 828.9 824.0 1989 176.4 442.0 98.9 167.8 276.8 699.8 1990 228.4 670.4 161.6 819.0 890.1 989.4 1991 148.0 818.4 110.8 429.8 265.8 1243.2 19m 78.9 892.8 74.1 608.9 165.0 1896.2 1998 86.2 928.6 86.8 540.6 78.0 1409.2 NOTES 1_/No allowanco have boen made for escalation Including taxes for USM 224.0 million ANNEX 2.4.3 Attachment 2 ARGENTINA ELECTRIC POWER SECTOR PROJECT Economic Evaluation of Completion of the Atucha II Proiect (in US$ million equivalent; January 1988 price level) SCENARIO 1: no cancellotion cost Steam plant alternative Compl-tion of Atucho II Difference … 1- 1 Year Invest. Operat. Total Invest. Operst. Total (1) (2) (8) (4) 1988 0.0 274.6 274.6 -274.6 1989 84.4 84.4 238.8 288.8 -148.9 1990 188.8 168.8 880.5 830.6 -161.7 1991 252.3 262.3 216.1 215.1 87.2 1992 262.3 252.3 129.7 129.7 122.6 1998 84.4 84.4 61.9 61.9 22.6 1994 94.4 94.4 86.6 86.6 68.8 1996 94.4 94.4 86.6 86.6 68.8 19fe 94.4 94.4 86.6 86.6 68.8 1997 94.4 94.4 86.6 86.6 58.8 1998 94.4 94.4 86.6 85.6 68.8 1999 94.4 94.4 86.6 85.6 68.8 2000 94.4 94.4 86.6 86.6 68.8 2001 94.4 94.4 5.6 85.6 We.8 2002 94.4 94.4 86.6 38.6 68.8 2008 94.4 94.4 86.6 36.6 68.8 2004 94.4 94.4 86.6 55.6 68.8 2006 94.4 94.4 86.6 86.6 68.8 2006 94.4 94.4 86.6 86.6 68.8 2007 94.4 94.4 86.6 85.6 58.8 2008 94.4 94.4 86.6 86.6 68.8 2009 94.4 94.4 $6.6 86.6 58.8 2010 94.4 94.4 85.6 36.6 68.8 2011 94.4 94.4 86.6 86.6 68.8 2012 94.4 94.4 86.6 85.6 68.8 2013 94.4 94.4 36.6 86.6 68.8 2014 94.4 94.4 86.6 86.6 68.8 ?016 94.4 94.4 86.6 86.8 68.8 2016 94.4 94.4 86.6 85.6 68.8 2017 94.4 94.4 86.6 36.6 59.8 2018 94.4 94.4 111.8 86.6 147.4 -68.0 ----------------------------------..--------------------------- Total 842.2 2860.0 ?202.2 1866.9 890.8 2247.6 INTERNAL RATE OF RETURN: 8.0X -------------------------------------------------------------- NOTES (1) 3x312 steam plant; US8 900/KW (2) fixed costs: USM 11.6/KW-year; fuel rate: 2400 Kcal/KWh; cost of gas: USS 1.7/million BTU; production: 6160 GWh/year. (8) investments to complete the project, lose taxes. estimated decommissioning costs added in year 2018 (4) fixed costs: US8 24.0/KW-year; fuel rate: 2260 Kcal/KWh; cost of fuel: US 1.58/million Kcal; production: 6160 OWh/year. ANNEX 2.4.3 Attachment 3 ARGENTINA ELECTRIC POWER SECTOR PROJECT Atucha II Proiect - Status of Contracts and Financing (in US$ million equivalent; January 1988 price level) 1/ Local cost Foreign coat Total Contracted 368.5 291.0 669.6 -financed 12.0 291.0 808.0 -not financed 356.6 0.0 366.5 To be contracted 386.0 249.6 686.6 -financed 20.0 95.0 115.0 -not financed 318.0 164.6 470.6 Taxes (VAT) 224.0 0.0 224.0 -not financed 224.0 0.0 224.0 ------------------------------------------------------------- Total financed 32.0 886.0 418.0 Total not financed 898.6 164.6 1061.1 ------------------------------------------------------------- ---------------__-------------------------------------------- TOTAL COST 928.6 640.6 1469.1 ------------------------------------------------------------- NOTES 1/No allowancos have been made for escalation ANNEX 2.4.3 Attachment 4 ARGENTINA ELECTRIC POWER SECTOR PROJECT Economic Evaluation of Completion of the Atucha II Project (in USS million equivalent; January 1988 price level) SCENARIO 2: no cancollation costs for nor-comitted contracts 50S cancellation costs for ongoing contracts Steam plant alternative Completion of Atucha II Difference Yeor Invest. Operat. Concell. Total Invest. Operat. Total (1) (2) Costs (8) (4) 1998 72.0 72.0 274.6 274.6 -202.6 1989 64.4 62.0 146.4 288.8 288.8 -66.0 1000 166.8 87.0 216.8 8o0.5 880.6 -74.7 1991 252.8 67.0 809.8 216.1 216.1 94.2 19m 262.8 84.0 286.8 129.7 129.7 156.6 1998 84.4 17.8 102.2 61.9 61.9 40.8 1994 94.4 94.4 86.6 86.e 65.8 195s 94.4 94.4 86.6 5.6 568.8 199 94.4 94.4 85.6 86.6 58.8 1997 94.4 94.4 86.6 86.6 6e.8 1996 94.4 94.4 85.6 86.6 68.8 1999 94.4 94.4 86.6 86.6 66.8 oEW OA A CA-A 15U6 38.8 56.s 2001 94.4 94.4 85.6 86.6 58.8 2002 94.4 94.4 85.6 85.6 68.8 2008 94.4 94.4 85.6 86.6 68.6 2004 94.4 94.4 85.6 86.6 58.8 2006 94.4 94.4 85.0 86.6 58.8 2006 94.4 94.4 86.6 86.6 56.8 2007 94.4 04.4 85.6 86.6 68.8 2006 94.4 94.4 85.6 86.6 68.8 2009 94.4 94.4 85.6 6.6 568.8 2010 94.4 94.4 85.6 36.6 58.8 2011 94.4 94.4 86.6 86.6 56.8 2012 94.4 94.4 86.6 86.6 68.8 2018 94.4 94.4 85.6 86.6 56.8 2014 94.4 94.4 86.6 86.6 68.8 2016 94.4 94.4 85.6 86.6 58.8 2016 94.4 94.4 86.6 as8. 68.8 2017 94.4 94.4 86.6 86.6 68.8 2016 94.4 94.4 111.8 86.6 147.4 -65.0 Total 642.2 2860.0 829.6 8582.0 1856.9 890.8 2247.7 INTERNAL RATE OF RETURN: 16.1 ----------_----------------------------------------------------__-------- NOTES (1) 8x812 MW *team plant; usa 900/KW (2) fixed costs; US8 11.6/KW-year; fuel rate: 2400 Kcal/KWh; cost of gas: US$ 1.7/miliion BTU; production: 5160 OWh/year. (8) Investawnts to complete the proj ct less taxes. estimated decomissioning costs added in year 2018. (4) fixed costs: US$ 24.0/KW-year; fuel rate: 2250 Kcal/KWh: cost of fuel: USa 0.868/million BTU; production: 5160 OWh/year. ANNEX 2.4.3 Attachment 5 ARGENTINA ELECTRIC POWER SECTOR PROJECT Economic Evaluation of Project Completion (In US$ million equivalent; end-1987 price level) SCENARIO 8: no cancellation costs for non-comitted contracts aox concellation costs on ongoing contracts for goods 16X cancellation costs on ongoing contracts for services Stem plant alternative Completion of Atuchn II Difference Yoer Invest. Operst. Concell. Total Invest. Operat. Total (1) (2) Costs (8) (4) Cancellcost 19m 66.8 56.8 274.6 274.6 -217.8 72.0 1989 04.4 48.9 188.8 238.8 288.8 -100.0 62.0 1990 168.6 68.6 287.4 880.6 880.6 -98.1 87.0 1991 252.8 45.0 297.8 216.1 215.1 82.2 57.0 1992 262.8 26.0 279.1 129.7 129.7 149.4 84.0 1998 84.4 14.0 96.4 61.9 61.9 86.6 17.8 1994 94.4 94.4 86.6 86.6 68.8 1996 94.4 94.4 85.6 85.e 65.8 1996 94.4 94.4 86.6 86.6 56.8 1 97 94.4 94.4 6.6 86.e 658.8 1996 94.4 94.4 85.6 85.6 58.8 1909 94.4 94.4 38.6 56.6 68.8 2000 94.4 94.4 86.6 86.6 68.6 2001 94.4 94.4 86.6 35.6 65.8 2002 94.4 94.4 85.6 35.6 58.8 2008 94.4 94.4 86.6 85.6 58.8 2004 94.4 94.4 85.6 38.6 68.8 2006 94.4 94.4 85.6 5.e 658.8 2006 94.4 94.4 36.6 86.6 58.8 2007 94.4 94.4 86.6 85.6 68.8 2008 94.4 94.4 86.6 85.6 65.8 2009 94.4 94.4 86.6 86.e 68.8 2010 94.4 94.4 86.6 86.6 58.8 2011 94.4 94.4 85.6 86.e 68.8 2012 94.4 94.4 86.6 36.6 68.8 2018 94.4 94.4 86.6 86.e 68.8 2014 94.4 94.4 86.6 86.6 68.8 2016 94.4 94.4 86.6 36.6 68.8 2016 94.4 94.4 85.6 86.6 58.8 2017 94.4 94.4 36.6 36.6 65.8 2018 94.4 94.4 86.6 86.6 68.8 Total 842.2 2860.0 260.2 8462.4 1246.1 890.8 2136.9 INTERNAL RATE OF RETURN: 13.8% NOTES (1) 8x812 *teas plant; USa 900/KW (2) fixed costs: US$ 11.6/KW-year; fuel rate: 2400 Kcal/KWh; cost of gas: USS 1.7/million STU; production: 5150 GWh/year. (8) investments to complete the project lose taxos. (4) fixed costs: US$ 24.0/KW-year; fuel rate: 2260 Kcal/KWh; cost of fuel: USS 1.68/million Kcol; production: 6150 OWh/year. ANNEX 2.4.3 Attachment 6 ARGENTINA ELECTRIC POWER SECTOR PROJECT Economic Evaluation of Completion of the Atucha II Project (In US$ million equivalent; end-1987 price level) SCENARIO 8: no cancellotion costs for non-co itted contracts 100% cancellation costs for ongoing contracts for goods 30X cancellation costs for ongoing contracts for servieo. Steam plant alterrotive Completion of Atucha II Difference Year Invet. Operat. Cancell. Total Invest. Operat. Total (1) (2) Costs (8) (4) Concellcost ---------------------------------------------------.-_-------__---------- 1966 81.4 81.4 274.6 274.6 -198.2 72.0 1969 84.4 70.1 164.6 203.3 288.8 -78.8 62.0 1990 168.8 98.8 267.1 880.6 880.6 -68.4 67.0 1991 262.8 64.4 816.7 216.1 216.1 101.6 67.0 1992 262.8 36.4 290.7 129.7 129.7 161.0 a4.0 1998 84.4 20.1 104.6 61.9 81.9 42.6 17.8 1994 94.4 94.4 86.6 86.6 58.8 1996 94.4 94.4 86.6 36.6 68.8 19"6 94.4 94.4 86.6 86.6 68.8 1997 94.4 94.4 36.6 85.6 68.8 199 94.4 94.4 86.6 86.6 68.8 1999 94.4 94.4 86.6 86.6 68.8 2000 94.4 94.4 36.6 86.6 68.8 2001 94.4 94.4 36.6 86.6 68.8 2002 94.4 94.4 85.6 86.6 68.8 2008 94.4 94.4 86.6 86.6 68.8 2004 94.4 94.4 86.6 86.6 68.8 2005 94.4 94.4 86.6 86.6 68.8 2006 94.4 94.4 85.6 86.6 68.8 2007 94.4 94.4 86.6 86.6 68.8 2008 94.4 94.4 5.6 86.6 658.8 2009 94.4 94.4 36.6 86.6 68.8 2010 9' 4 94.4 35.6 86.6 68.8 2011 94.4 94.4 36.6 36.6 68.8 2012 94.4 94.4 36.6 86.6 68.8 2018 94.4 94.4 36.6 86.6 68.8 2014 94.4 94.4 56.6 36.6 68.8 2016 94.4 94.4 36.6 35.6 68.8 2016 94.4 94.4 56.6 35.6 68.8 2017 94.4 94.4 36.6 36.6 68.8 2018 94.4 94.4 36.6 36.6 68.8 Total 842.2 2360.0 872.7 3674.9 1245.1 890.8 2135.9 INTERNAL RATE OF RETURN: 17.9% --------------------------------------------------------------__--------- NOTES (1) 8x312 *team plant; USS 900/KW (2) fixed coats: US$ 11.6/KW-year; fuel rate: 2400 Kcal/KWh; cost of gas: US9 1.7/million BtU; production: 6160 OWh/year. (3) investments to complete the project lses taxes. (4) fixed costs: US9 24.0/NW-yoer; fuel rate: 2260 Kcal/KWh; cost of fuel: US$ 1.65/million Kcal; production: 6160 OWh/year. ANNEX 2.4.4 ARGENTINA ELECTRIC POWER SECTOR PROJECT 1988-1995 Sector Investment Program A. Constant January 1988 prices ------_- AyMI! ------- t------- SBM -------] ------- H -OO-------I I------- my -------1 t------- sEcTa -------I LC FC Total LC FC Tota I LC FC Tot I LC FC Total LC FC Total 196u 69.2 59.4 148.0 76.2 60.8 127.0 104.4 69.6 174.0 804.6 162.6 467.4 674.6 342.4 917.0 1*9 166.7 124.8 311.2 121.9 81.3 203.2 168.1 10.7 271.6 344.7 147.7 492.4 016.4 462.2 1276.6 o9 16".6 109.0 272.8 168.5 112.4 260.9 134.1 69.4 223.8 3M5.2 104.0 480.0 791.4 413.6 ur.o 199 162.6 121.7 304.3 109.3 126.2 318.5 63.4 5.6 169.0 203.6 98.3 297.1 689.1 39s.6 1083.9 192 254.8 169.9 424.7 181.3 100.6 282.1 23.3 18.6 MA. 12.3 62.0 210.3 687.7 366u. 926.0 199 268.9 171.3 428.2 58.2 36.6 97.0 15.8 10.8 26.8 79.0 71.4 180.4 409.9 292.0 701.9 1994 S63.4 242.2 08.e6 67.4 48.0 112.4 14.6 9.7 24.3 60.7 60.2 110.9 49. 1 387.1 88. 2 1993 481.5 802.4 7u.9 67.4 45.0 112.4 23.6 15.7 39.3 n.9 66.1 64.0 52.5 419.1 991.6 TOTAL 196o.7 1800.4 3251.1 900.3 600.2 1600.8 862.3 374.6 937.1 1464.4 776.1 1542.6 46n7.6 3063.6 713.2 B. Current prices …... .-- -- - - . . . - - -- . - -- . . . - . - -- . -............. ------- A.,eE -------1I t------- S8M ------- I t ------ HMM-------1 It------- B -------] It ------ M- ------- I -C FC Total LC FC Total LC FC Totel LC PC Total LC FC Total 196 90.7 60.8 181.2 77.8 51.7 129.2 106.2 70.6 17.o 804.6 162.6 467.4 879.3 348.6 924.A 1969 193.7 180.8 s26.1 1u.6 68.2 218.0 170.9 113.9 264.6 362.8 158.4 620.7 681.7 480.0 1344.6 1990 176.6 117.7 294.1 181.9 121.2 308.1 144.7 96.6 241.2 382.7 118.9 46.6 685.7 481.3 1807.0 199 203.0 136.7 341.7 212.6 141.7 384.3 98.7 62.4 18.1 27. 1 106.9 834.0 736.4 47. 1166.1 192 297.6 198.4 49.0 176.7 117.8 294.8 27.3 16.2 48.4 148.6 ee.6 24.2 647.2 43.0 1060.1 199 311.9 207.9 819.6 70.7 47.1 117.8 19.2 12.8 81.9 91.1 90.7 161.6 492.6 386.5 681.3 1914 436.9 805.9 764.9 63.2 86.6 142.0 18.4 12.8 30.7 59.7 60.9 140.6 612.2 486.9 1073.1 1998 88.8 397.0 992.8 66.8 89.0 147.6 31.0 20.6 81.6 33.7 79.8 113.8 748.7 s88.5 1808.2 TOTAL 2131.9 14.6 86.6 1020.8 660.5 1701.3 611.8 407.3 1016.6 1677.0 693.6 2470.6 S840.9 336.4 9077.4 Note: A detailed description of the federal utilities expansion program and associated costs is given an Annexes 3.1.1 to 3.1.3. ANNEX 2.5.1 ARGENTINA ELECTRIC POWER SECTOR PROJECT Electricity and Energy Funds Introduction Besides tie internal fund generation resulting from the operating revenues of the electric utilities, they also receive electricity and energy funds earmarked for investment. These funds are generated through surcharges on electricity, fuel and gas consumption, and taxes on oil processing. They are described below and their forecast, as assumed for the sector Financial Rehabilitation Plan (FRP), is included in Annex 2.5.1.1 showing their composition, sources and uses, and the allocation to the federal electricity utilities considered under the proposed sector loan. National Energy Fund (FNE) Components: (a) 352 of the Liquid Fuels Fund (FC) 1/; and (b) 10? on natural gas sales. Allocations (a) 302 to FNEE; (b) 102 to FEDEI; (c) 35? to federal electric utilities; and (d) 25 to other energy utilities (Gas del Estado, YCF). National Electric Energy Fund (FNEE) Componentst (a) 302 of FNIE.&.. (b) 5? surcharge on eiectricity sales. Allocation: (a) 35? to FEDEI; (b) 65Z to federal electric utilities (AyEE). Chocon Cerros Colorados - Alicopa Fund (FCCC) Components: (a) 5 surcharge on electricity sales; and (b) 5? tax on oil processing. Allocation: (a) 100? to federal electric utilities (HIDRONOR). National Fund for Major Electric Works (FNGOE) Components: (a) S surcharge on electricity sales; and (b) 5? tax on oil processing. Allocation: (a) 1002 to federal electric utilities. Special Fund for Electric Development in the Interior (FEDEI) Components: (a) 102 of FNE; and (b) 35? of FNEE. Allocation: (a) 100? to provincial electric utilities. 1/ Composed of the following taxes: gasoline: 50Z; kerosene: 10Z; gas oil.: 302; diesel and fuel oil: 10?. ANNEX 2.5.1;1 ARGENTINA ELECTRIC POWER SECTOR PROJECT Electricity and Energy Funds Forecast (in January 1988 USS million) Yogi 198 1969 1990 1991 1m 1998 1994 1996 FNE 428.4 870.9 880.9 887.9 897.8 411.1 417.9 428.6 From: Liquid fuel 868.4 818.2 820.8 828.9 829.6 389.6 848.1 847.6 Natural gas 60.0 67.7 60.6 64.0 68.8 71.6 74.8 79.0 To: FNEE 128.6 111.8 114.8 116.4 119.4 128.8 126.4 127.9 FEDEI 42.8 87.1 88.1 as.. 89.6 41.1 41.8 42.7 Not. electric utilitlse 189.9 188.6 137.1 189.7 148.2 148.0 160.6 168.6 Balance to bki allocated 67.1 89.0 91.4 98.0 96.6 98.7 100.2 102.5 FNEE 190.1 198.8 207.1 219.8 286.9 250.7 264.4 277.8 From: FNE 128.6 111.8 114.3 116.4 119.4 128.8 126.4 127.9 Electricity sales 61.5 85.1 92.9 108.4 116.6 127.8 189.0 149.4 To: FDEI E66.6 68.7 72.6 76.9 82.6 87.7 92.6 97.1 Not. *lectric utilities 117.2 127.6 184.6 142.8 158.8 162.9 171.8 160.8 Balance to be allocated 6.8 0.0 0.0 0.1 0.0 0.0 0.0 0.0 FCCC 166.5 188.6 196.6 207.8 220.7 282.7 248.0 262.2 Froms Electricity soles 61.6 96.1 92.9 108.4 116.6 127.8 189.0 149.4 Oil processing 94.0 108.6 108.7 108.9 104.2 106.4 109.0 112.9 To: Not. electric utilitle 166.6 188.6 198.6 207.8 220.7 282.7 249.0 262.2 FNP11 166.6 188.6 196.6 207.8 220.7 282.7 249.0 262.2 From: Electricity soloe 61.5 86.1 92.9 108.4 116.6 127.8 189.0 149.4 Oil processing 94.0 108.6 108.7 108.9 104.2 105.4 109.0 112.9 To: Fed. electric utilitie, 149.8 168.5 196.6 207.8 220.7 282.7 248.0 262.2 Balance to be allocated 6.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 FEDEI 10 I 106.8 110.6 116.7 122.8 128.9 184.8 139.7 From: FNE 42.8 87.1 88.1 88.8 39.8 41.1 41.8 42.7 FNEE 6 .6 68.7 72.6 76.9 82.6 87.7 92.6 97.1 To: Prow. electric utllities 109.4 106.6 110.6 116.7 122.4 128.9 184.8 139.7 ALLOCATED TO NAT. UT. A EBY 611.9 688.1 664.7 697.1 737.9 776.3 818.3 868.2 From: FNE 189.9 138.6 187.1 189.7 143.2 148.0 160.6 168.6 FNEE 117.2 121.6 184.6 142.8 163.3 162.9 171.8 180.3 FCCC 166.6 188.5 196.5 207.3 220.7 282.7 248.0 262.2 FNOOE 149.8 188.6 196.5 207.8 220.7 282.7 248.0 262.2 To: SEMA 84.6 44.7 18.8 0.0 9.0 0.0 0.0 0.0 AyE 171.1 262.4 211.8 196.6 204.7 160.6 248.1 842.8 HIDRONOR 206.8 156.6 168.8 116.8 42.8 28.8 16.0 11.9 EBY 148.9 144.2 177.0 142.2 180.9 16.0 0.0 0.0 Balance to be allocated 0.6 41.2 99.8 268.0 800.5 576.9 665.2 503.6 ARGENTINA ELECTRIC POWER SECTOR PROJECT Typical Electricity Prices (per kWh) (1) Res i dent I a l (2) C o m m * r c i a I (3) I n d u a t r i a l (4) Utility Area with taxes W/o taxes with taxes W/o taxes with taxes w/o taxes USmills X USmills X USmills X USmills X USmills X useS;ills X SEGBA Creater Buenos Alr-e 77 100 S6 1oo le 100 106 100 148 100 95 100 DEBA Buenos Aires Prov. 123 169 84 163 201 121 124 117 144 97 89 94 EPEC Cordoba Province 107 189 76 188 258 162 180 169 159 108 *la 119 EMSE Mendoza Province 76 98 S6 101 193 1le 186 128 109 74 76 80 EPSEF Santa Fe Province 99 129 76 188 182 110 189 181 120 81 92 96 AYE Rio Negro Province 67 74 44 79 186 82 104 98 67 45 51 S4 AYE Tucuman Province 69 90 49 89 147 88 104 98 84 67 60 63 SECHEEP Chaco Province 86 112 61 111 180 106 127 120 77 52 64 57 EPEER Entre Rios Province 94 122 64 117 176 105 128 116 98 68 62 66 EUSA Misiones Province 111 144 76 188 288 140 159 150 1SO Be 83 87 EPEN Neuquen Province 58 69 ae 66 136 81 92 87 B8 39 37 39 Notes: (1) As of August 31, 1988. Exchange rate: USS1.00 = A12.00 (2) 150 kWh/month (3) 800 kWh/month X (4) 100 kW bN ANNEX 2.6.1 Page 1 of 2 ARGENTINA ELECTRIC POWER SECTOR PROJECT National Utilities: Finances Income Statements (Annex 2.6.1.1) 1. The rate of return of the sector during the last three years has been constantly negative (-7.72, -2.1Z, -4.5Z) due to the low level of tariffs (average of about 31 US mills/kWh). During the projection period (1988-1995) the rate of return is expected to increase steadily until it reaches a level of 4.42 in 1995. This would be done through operational efficiency measures (labor/gross plant in service would decrease from 2.62 to 1.92) and tariff increases (until they reach 47 US mills/kWh in 1995). Under these circumstances, the cash operating ratio (cash operating expenses as a percentage of operating revenues) which was 112.72 in 1987 is expected to reverse its past deteriorating trend and reach 61.6Z in 1995. The values of the cash operating ratio resulting are the following: 1988 1989 1990 1991 1992 1993 Cash Operating Ratio (2) 91.0 81.1 78.7 68.4 64.4 61.6 2. Under the proposed operation, the cash operating ratio would be the main indicator to monitor the financial rehabilitation of the National Utilities. It highlights the main problem cf the sector, i.e. low revenues to cover cash operating expenses. It is also convenient because its trend is much less erratic than that of the rate of return which is affected by the incorporation of new plants, and avoids the serious controversy regarding the valuation of the sector fixed assets in service. Such controversy stems from the factors used and the need to retire old plants. Regarding the revaluation factors, the sector organization study (see para. 2.14 of main text) would review this matter, and regarding the old plants, studies are being carried out to assess their availability. Under the present principles used by the utilities for asset revaluation and depreciation, the forecast operating ratio (all operating expenses, including depreciation, as a percentage of revenues) is as follows: 1988 1989 1990 1991 1992 1993 Operating Ratio (Z) 113.0 101.9 98.3 86.8 82.4 78.4 3. However, it should be noted that the tariff the consumer pays is about 402 higher (43 US mills/kWh) because of sales taxes--national and provincial--and surcharges for energy funds earmarked for investment. If the tariff paid by the consumer would fully remain in the utility to cover its operating expenses, the rate of return would have been slightly positive in the past and would reach a projected maximum of 11.62 in 1995. ANNEX 2.6.1 Page 2 of 2 4. The return on equity is significantly affected by the heavy interest on debt charges which has been negative in the past, it is expected to remain so for a couple of years and then become slightly positive in the remaining portion of the projection period. Flow of Funds (Annex 2.6.1.2) 5. The gross internal fund generation of the National Utilities group during the last three years has been insufficient to cover debt service obligations, it is expected to continue so in the next two years and become increasingly positive starting in 1990. However, other consumer-based contributions have been enough to offset those negative values and leave a positive balance, which zogether with the government equity contributions have allowed to diminish substantially reliance on borrowings to fund the investment program. In the funding mix, borrowings have been reduced from 21.9Z in 1985 to 12.82 in 1987 and are expected to remain at reasonable levels during the projection period with a maximum of 48.52 in 1989. Therefore, the complement of this percentage, i.e. the non-borrowed funding, has had and is expected to have strong levels. To ensure that sound levels are maintained, under the proposed operation a floor of 302 for non-borrowed funding would be established. Balance Sheets 6. The asset composition shows a heavy share of fixed assets (above 90!) which is typical of electric utilities. The degree of indebtedness is reasonable as it reached a maximum of 441 in 1986 and during the projection period it shows a decreasing trend until it reaches a minimum of 28.2f in 1995 as a result of the improving returns (para. 2) and the low reliance on borrowings for its investment needs (para. 5). The current ratio has been extremely low in the last three years (0.2, 0.4 and 0.5 times) in spite of a high and increasing collection period (149, 165 and 190 days). Under the assumptions utilized for the financial projections the collection period is expected to start decreasing in 1988 (119 days) and continue until it reaches about 80 days in 1991 and thereafter. The current ratio would be maintained at a level of 0.6-0.7 times which is on the low side of what would be reasonable for power sector utilities. ARGENTINA ELECTRIC POWER SECTOR PROJECT National Utilities Income Statements (in millions of January 1988 USS) -_-_-------------------------------------------isetoric-------- I-------…------Forcest---------------------------- Ter ending D e. 81 196S 1966 1967 1966 196n 1990 1991 1992 1993 1994 1995 ----------------------------------- f* ---____________________________ - _______________________________________________________________________ Operating revenues 909.3 1090.9 1081.6 1167.9 1326.6 1478.7 1649.3 1826.2 1999.4 2168.1 2337.5 Cross electricity sales 1/ 1184.9 1889.1 1824.6 1560.6 1755.4 1979.2 2212.0 2455.9 2072.2 2906.0 3118.9 Sales taxe a/ 829.0 870.6 064.3 427.5 491.4 641.1 696.9 667.3 722.9 782.9 837.0 Not electricity sales 655.9 968.4 969.6 1128.1 1294.0 1438.1 1613.1 1768.6 1949.3 2123.1 2281.9 Trnsmision fees 11.7 18.2 9.0 6.6 8.6 17.4 12.6 13.6 15.5 19.8 26.6 Other operating revenues 41.7 109.8 62.9 89.1 22.9 23.2 23.6 24.1 24.6 25.2 29.0 Operating expenses 1196.1 1255.5 1410.8 1319.3 180.9 1456.0 1432.1 1604.1 1669.9 1698.7 1836.3 Labor 249.0 278.8 879.2 815.6 016.1 817.0 822.8 322.6 322.3 322.0 322.0 Material., services and other 189.6 179.8 250.0 132.6 174.7 177.8 186.6 201.1 209.0 219.7 232.4 Fuel 212.0 282.3 236.1 817.7 859.7 390.9 382.2 309.6 422.4 382.9 367.9 Electricity purchased 2/ 221.8 166.0 168.9 160.6 131.8 179.9 162.7 143.1 121.8 273.4 404.6 Transmission fees (net) 0.0 0.0 0.0 2.5 2.8 3.2 2.7 2.6 2.7 3.0 3.5 Royalties 13.1 18.6 19.3 18.2 20.4 19.3 36.0 42.6 44.3 46.1 45.5 Taxes 49.8 66.6 65.6 75.7 68.8 76.2 35.2 94.8 102.4 110.2 117.0 Depreciation 256.8 265.2 248.1 26e.7 276.5 292.5 303.9 827.9 335.1 342.6 352.4 Operating income -235.8 -164.6 -379.0 -161.9 -25.3 22.0 217.1 322.1 429.4 469.4 602.2 Mon-operating income (net) -47.7 -24.8 75.6 -6.8 -12.1 -13.1s -13.6 -13.6 -13.6 -13.6 -13.6 Income before interest -838.5 -189.0 -303.4 -168.7 -37.4 8.41 203.6 s80.5 416.8 455.8 488.6 Interet charged to operations 306.9 237.1 292.3 269.8 380.7 312.4 323.1 331.8 309.9 264.7 192.0 Intereot on debt 381.1 306.4 324.2 827.7 379.6 860.2 383.0 384.9 362.9 375.5 356.3 Interest during construction -24.2 -19.3 -31.9 -57.9 -48.8 -47.1 -64.9 -53.1 -73.0 -110.8 -164.3 Inco_e before monetary correction -640.4 -476.4 -695.7 -428.6 -868.1 -804.0 -124.6 -23.3 106.9 191.1 296.6 Monetary correction 229.5 138.4 222.5 Net incom -410.9 -348.0 -873.2 -420.5 -308.1 -304.0 -124.6 -28.8 105.9 191.1 296.6 1/ Electricity sales (TWh) 26.7 29.1 30.8 38.6 36.8 87.8 s9.6 41.6 43.9 46.2 48.9 (2 growth) 8.8 6.1 8.7 5.2 6.6 6.0 5.2 5.4 5.4 6.8 Average sales price -with taxes (USmilsI/kWh) 44.4 40.1 43.0 46.2 W0.6 58.0 65.9 59.0 80.9 62.9 63.8 -W/O taxes (USMIlls/kwb) 82.1 33.8 31.1 83.5 30.7 39.5 40.8 43.0 44.4 45.9 46.7 (3 growth) 4.0 -6.6 7.6 9.5 5.1 5.8 5.4 3.4 3.4 1.6 2/ Electricity purchased (TWh) 14.9 15.3 15.3 9.4 9.3 10.4 11.5 11.1 10.0 14.8 18.7 (S growth) 2.7 0.0 -88.7 -1.1 11.7 10.8 -3.6 -9.9 48.1 26.6 Aver. purch. price (USmills/kWh) 14.9 12.2 10.7 16.1 14.2 17.3 14.2 12.9 12.2 18.6 21.6 (3 growth) -18.1 -12.0 50.0 -11.6 22.2 -19.3 -8.8 -6.6 51.4 16.9 3/ Electricity funds 103.0 116.2 115.0 185.2 lSS.7 171.2 190.0 211.3 228.2 245.3 260.0 Provincial taxes 71.6 .SO0 77.6 91.6 103.7 112.0 122.1 134.4 143.8 153.6 161.3 VAT 147.3 167.3 165.5 194.2 225.3 250.1 278.9 313.3 341.9 373.0 401.3 - -- - - ----_--- - ------- - --------------------------- - --- _ - __ ----------- - -_- - ---------------- - --_-------------------------------------------- -- - - - - -- - - -- - ARGENTINA El.ECTRIC POWER SECTOR PROJECT National Utilities Flow of Funds (in millions of January 1988 US$) _C --_--- -toc…----- - --- ---------Foroc…nt----------------------- --- Year ndIng Dec. S1 1965 1986 197 196 1969 1990 1991 1992 1993 1994 1996 _ - - _ _____---------Nots------------------ ------------------------ - ------ SOURCES 458.8 368.6 668.2 429.0 719.8 815.6 821.8 759.1 681.4 771.0 943.2 Gross fund genration 184.8 139.1 -10.2 110.4 249.4 803.2 S0.1 638.2 760.9 812.0 860.6 Incom beforo intorest -883.6 -139.3 -303.4 -168.7 -87.4 8.4 208.6 308.6 415.9 466.8 488.6 Depreciation 260.8 266.5 268.5 266.6 285.4 301.4 312.8 336.8 344.0 361.4 361.3 Oth.r 268.0 62.9 86.7 8.6 1.4 -6.7 -10.2 -7.1 1.0 4.8 0.7 Dobt sorvice (net) 171.9 B48.5 122.6 388.0 B37.6 282.1 806.5 344.4 424.3 462.3 481.2 Repymnt 1/ 38.8 146.4 -49.2 267.4 217.7 127.0 148.6 210.0 227.0 269.2 291.4 Interest 2/ 188.1 203.1 171.8 70.6 119.9 106.0 158.0 134.4 197.3 193.1 189.8 Net internal funding 12.9 -209.4 -la2.8 -227.6 -86.2 71.0 199.6 293.8 336.6 349.7 389.4 Other consumer-baosd contributions 813.8 356.6 386.6 485.9 456.3 891.9 305.1 259.9 188.1 266.7 358.2 Aid for construction 2.4 2.7 2.3 3.5 3.6 3.s 3.6 3.5 3.5 3.6 3.5 Electricity funds S6.9 82.0 96.7 98.3 141.7 136.6 116.6 96.2 94.7 98.8 109.0 Energy funds 246.5 270.8 287.6 384.2 311.1 262.7 186.0 160.2 89.9 164.5 246.8 Net consumer-baed funding 328.7 148.1 262.7 238.3 368.1 402.9 504.7 663.7 624.7 816.4 727.6 Equity contributions 56.3 146.5 234.3 28.7 2.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-borrowed funding 382.0 292.6 487.0 267.0 370.1 462.9 604.7 563.7 624.7 618.4 727.6 Borrowings 106.8 70.9 71.2 162.0 349.2 352.7 316.9 205.4 168.7 164.8 216.5 APPLICATIONS 488.8 363.6 668.2 429.0 719.3 816.6 821.6 769.1 681.4 771.0 943.2 Investments 376.5 330.2 367.3 449.6 785.9 777.0 758.8 715.7 661.6 7A2.3 907.6 Construction 376.6 330.2 384.4 439.1 782.3 777.8 754.7 716.2 566.9 742.3 907.6 Other 0.0 0.0 2.9 10.6 3.6 -0.3 4.1 -0.6 -16.4 0.0 0.0 Increase in working capital 112.4 33.3 190.8 -20.6 -66.9 38.5 62.8 43.4 62.5 -10.9 -0.6 Surplus (deficit) of funds -0.1 0.0 0.1 0.0 0.0 0.1 -0.1 0.0 77.3 39.8 38.1 1/ Total repayment 3884.6 1828.0 1811.6 292.2 2i^.8 162.0 190.1 261.8 277.0 336.6 367.0 Aosumed by Government 10.2 12.1 85.8 24.8 85.1 85.0 41.8 41.8 60.0 87.4 75.6 8 Refinanced 8835.6 1670.5 1825.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2/ Total interest 31.1 306.4 324.2 327.7 a79.5 360.1 383.0 384.9 382.9 375.S 3S6.3 Assumed by Government 198.0 108.3 152.4 257.1 269.6 265.1 226.0 2S0.6 193.7 190.6 174.4 N - - - -------------- - ---------------------------------- - ---------- - ----_____-------___------- - - - -----------------------------------_______ ARGENTINA ELECTRIC POWER SECTOR PROJECT National Utilities Balance Sheets (in millions of January 1988 USS) -. 31 -- ---------------- ;Istoric----------------- - ---------Fo ecast-… Year ending Dc. 31 1986 1986 1987 1906 1909 1990 1991 1992 1993 1994 1996 - ---------- --------------------- - ---- ASSETS 9540.0 9010.6 10965.7 10976.6 11510.3 12067.6 12569.2 13048.9 13447.8 14034 4 14825.8 Fixed asoe.t 8734.7 8397.0 9968.8 10198.6 10770.8 11305.8 11764.4 12183.4 12476.8 12974.1 13881.1 Plant in service 9763.1 10258.9 11644.6 12238.1 12883.4 13420.1 14270.2 15772.8 16079.6 16326.4 16628.9 Accumulated depreciation -2105.8 -2345.6 -2611.2 -2871.3 -3154.8 -3454.0 -3764.7 -4099.6 -4441.7 -4790.9 -5150.2 Net plant in servico 7657.3 7913.3 9003.4 936.8 9728.8 996.1 10505.6 11673.0 11637.9 11534.5 11478.7 Work In progres 1077.4 963.7 935.2 831.8 1042.2 1339.7 1248.9 510.4 837.9 1439.6 2202.4 Financial and other inv estmnts 94.7 96.4 95.7 98.7 100.1 101.9 103.8 106.8 184.9 226.6 264.9 Securitios 94.7 96.4 96.7 98.7 99.9 101.7 103.6 105.4 107.3 109.2 111.2 Funds surplus 0.0 0.0 0.0 0.0 0.2 0.2 0.3 0.4 77.6 117.3 153.6 Current asset 486.6 624.8 699.2 477.9 427.2 434.7 453.4 496.4 538.1 676.8 612.7 Cash and banks 29.2 34.6 20.2 23.6 23.6 22.8 24.6 27.2 28.7 31.9 34.7 Accounts receivable 349.3 438.6 500.0 367.5 323.1 339.2 355.3 391.6 424.9 460.6 493.2 Inventorios 23.0 22.0 22.3 20.4 21.2 21.4 20.3 22.0 24.7 22.7 20.5 Other 85.1 129.6 156.7 66.4 59.3 51.3 53.2 55.6 57.8 80.7 64.2 Other se- ts 224.0 192.6 192.2 208.4 212.2 225.3 247.6 261.4 261.1 258.0 267.2 LIABILITIES 4976.8 5189.2 5464.9 6170.9 5190.3 6268.3 5251.6 5145.3 4991.5 4842.8 4706.3 Long-term debt 1981.5 3046.8 3713.1 3879.7 4031.8 4200.3 4233.2 4145.4 3966.5 3757.2 3617.9 Curront liabilities 2365.7 1466.2 1271.6 721.2 697.8 696.1 718.0 769.2 80s.9 887.8 908.2 Short-term portion of debt 1568.9 506.4 474.8 178.0 138.4 167.8 233.8 275.3 334.9 368.1 349.1 Accounts payable S44.3 681.1 573.5 339.4 339.0 297.6 252.6 251.7 242.2 288.6 328.9 Other 252.5 228.7 223.2 203.8 220.4 230.8 231.6 232.2 228.8 233.1 230.2 Other liabilities 628.6 698.2 480.3 570.0 460.7 371.9 300.4 240.7 220.1 202.8 180.3 EQY m 4564.2 4621.6 5490.8 5807.7 6320.0 6799.3 7307.6 7901.6 8456.4 9191.6 10119.4 Capital stock 5394.2 5759.7 5832.6 6S27.4 7171.0 7749.3 8248.1 8700.3 9090.9 9591.0 10195.7 r Capital resrve 106.1 123.4 150.7 150.7 150.7 150.7 151.6 153.3 154.3 157.0 159.9 Revaluation reservo 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Rotained oarnings -936.1 -1261.5 -492.5 -870.4 -1001.7 -1100.7 -1092.1 -952.0 -790.3 -556.4 -236.2 …_-------- ------ ----------------------------…----…------------------------------------------------------------------ ANNEX 2.6.2 Page 1 of 2 ARGENTINA ELECTRIC POWER SECTOR PROJECT SEGBA: Finances Income Statements (Annex 2.6.2.1) 1. SEGBA's rate of return hit its lowest level in 1987 (-13.7) basically because of a decrease of tariffs in real terms of 102 with respect to 1976 and substantial increases in its operating expenses, especially labor which was 37.6Z of total operating revenues and 6.42 of gross plant in service. Inflation was one of the main factors for such behavior as tariffs did not keep up with the increasing rate of price increases and labor demands grew more rapidly, including retroactive payments decreed by the government. In 1988, such negative trend is expected to be reversed: the rate of return would be -2.62 as tariffs increase 9.2Z in real terms and labor costs are reduced to 24.3Z of total operating revenues and 5.02 of gross plant in service. SEGBA is making its best efforts to reach such levels in 1988 under an austerity program and a close follow up on its operational budget, which until in August 1988 showed no major deviations. During the 1988-1995 projection period, the positive trend is expected to continue as the rate of return would reach 5.02 in 1995 resulting from an average tariff for the utility that would increase from 48.2 to 'B.5 US mills/kWh; in 1995 labor expenses would be 14.4Z of operating revenues and 3.62 of gross plant in service; and the working margin (percentage of operating revenues left after covering cash operating expenses) would increase from 6.8Z to a maximum of 25.22 in 1993 while it was -30.92 in 1987. Due to the high interest charges, however, the return on equity would be lower than the rate of return, moving from -6.82 in 1988 to 2.82 in 1995. 2. Of course, all of the above expectations are subject to the government taking corrective actions to neutralize the negative impact of the high inflation rates currently affecting the economy of the country. The weight of SEGBA in sector finances is quite important as it has the major group of consumers (3.8 million) and is the major generator of funds in the sector which are in great measure transferred to the other companies (AyE and HIDRONOR), its major suppliers of energy. Flow of Funds (Annex 2.6.2.2) 3. From a very poor performance in 1987 when all the internal fund generation was not sufficient to cover its debt service payments, and the negative balance could not be covered by the electricity and energy funds received by the utility, during the projection period the funding mix of SEGBA is expected to move to positive and improving grounds reaching extremely good levels at the end of the period. The net internal funding would grow from 11.72 in 1988 to 97.72 in 1995, and its reliance on borrowings would be null in some years (1988, 1994 and 1995) and reach a maximum of 53.82 in 1991. One reason for such funding mix is the pattern of investment as the replacement ratio (investment/depreciation charge) ANNEX 2.6.2 Page 2 of 2 moves from about 1.0 times at the beginning of the projection period, it reaches 2.2 in 1991 and drops to 0.7 in 1995. Under those circumstances, the utility is expected to have cash surpluses at the end of the projection period, but those surpluses will most likely be used in a more ambitious investment program, with a higher replacement ratio and that would somehow slow down the rapid aging of assets (accumulated depreciation/gross plant in service) which would reach 46.22 in 1995. Balance Sheets (Annex 2.6.2.3) 4. As typical of an electricity distribution utility, the asset composition shows a great concentration on fixed assets at the beginning of the projection period (about 902) which is somehow reduced at the end of the projection period should the cash surpluses materialize and increase other type of assets (financial). The indebtedness of the company is 302, expected to reach a maximum of 35.82 in 1991, and drop, again to 302, in 1995. Such indebtedness ratio is low and shows the capacity of the entity to get more debt should borrowings be available in view of the expected internal fund generation. Under the Financial Rehabilitation Plan (FRP) to be implemented for the sector, it is expected that the liquidity of the company should improve as the current ratio which was about 0.5 times during the past three years would move to 0.9 times in 1995 which is a good level for an electric distribution company like SEGBA. Such improvement implies a better administration of its working capital as payment periods for electricity which were 209 days in 1987 would be reduced to 178 in 1988 and 61 in 1990 and thereafter. Collection of receivables, which has not been a major problem at SEGBA, is also expected to continue the improving trend of the past as it would move from 68 days in 1987, to 62 in 1988 and 51 in 1995. ARGENTINA ELECTRIC POWER SECTOR PROJECT SEGBA Income Statements (in millions of January 1988 US$) ……_______ - ---------------------------------------Historic- - I----1---- …Forcaxt…---------------------------- Year nding Dec. S1 1985 1986 1997 1988 1989 1990 1991 1992 1993 1994 199S ___ -__------- --------------- -Notes…----------…-------- - - -- - -- - --- ------------------------------------- Operating rovenues 676.8 695.1 612.2 769.3 865.9 926.7 1001.6 1096.3 1166.9 1241.2 1297.3 Gross electricity sales 1/ 854.2 962.8 922.2 1084.2 1226.1 1313.7 1421.9 1557.2 1660.7 1768.0 1849.1 Sales taxes 3/ 262.9 296.3 288.8 383.7 377.3 404.3 437.6 479.3 511.1 644.1 569.1 Net electricity sales 591.3 666.5 638.4 750.5 848.7 909.4 984.3 1078.0 1149.6 1223.9 1280.0 Trans islon Feos 5.5 6.7 1.5 4.0 4.4 4.5 4.5 4.5 4.6 4.6 4.5 Other operating revenues -20.0 21.9 -27.7 14.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 Operating expenses 810.9 803.6 908.9 829.1 838.2 877.9 928.2 987.8 1022.7 1099.1 1157.6 Labor 161.0 157.5 230.0 187.0 187.0 187.0 187.0 187.0 187.0 187.0 187.0 Materials, services and other 141.7 115.2 159.8 102.0 98.0 98.1 97.7 97.3 96.7 9s3.9 96.9 Fuel 104.4 143.7 143.1 168.7 183.0 198.7 160.2 184.9 217.1 203.0 201.3 Electricity purchasd 2/ 240.6 212.1 192.8 177.5 166.8 184.7 257.0 269.5 262.6 338.0 379.7 Transmission foes (net) 28.3 32.9 30.0 36.4 33.2 30.1 36.5 36.6 39.2 46.3 57.7 Royalties Taxes 89.9 44.8 45.6 46.9 51.9 55.7 60.2 66.0 70.4 74.9 78.3 Depreciation 95.0 97.4 107.6 112.7 118.2 123.6 129.6 146.5 149.9 153.1 16S.6 Oporating income -284.1 -108.5 -296.7 -69.8 27.8 48.9 73.3 107.6 144.1 142.1 139.8 Non-operating income (net) -88.9 -10.9 92.9 11.2 1.8 0.3 0.3 0.3 0.3 0.3 0.3 Income before interest -273.0 -119.4 -203.8 -48.6 29.8 49.2 73.6 107.8 144.4 142.4 140.1 Intorest charged to operations 50.0 45.7 53.2 66.4 56.7 53.9 51.0 87.4 90.6 85.8 81.6 Intorest on debt 61.8 53.1 59.2 60.4 63.2 68.6 75.5 88.8 91.8 87.2 82.2 Interest during construction -11.8 -7.4 -4.0 -6.0 -6.6 -14.7 -24.6 -1.4 -1.2 -1.4 -0.6 Income before monetary correction -323.0 -165.1 -267.0 -104.0 -27.1 -4.7 22.6 20.4 53.8 56.6 68.5 Monetary correction 176.7 119.6 236.6 0.0 Net income -146.3 -46.6 -20.5 -104.0 -27.1 -4.7 22.6 20.4 53.8 66.6 58.5 1/ Electricity sales (TWh) 12.4 13.6 14.5 15.6 16.3 17.3 18.3 19.1 20.0 20.9 21.9 (S growth) -3.4 9.8 6.4 7.6 4.7 6.2 5.6 4.5 4.8 4.5 4.5 Average sales price -with taxes (USmills/kOh) 68.9 70.8 63.7 69.6 75.2 75.8 77.7 81.4 82.9 84.4 84.5 --/0 taxes (USmills/kwh) 47.7 49.0 44.1 48.2 52.0 52.5 53.8 SC.4 57.4 58.6 58.6 (S growth) 2.8 -10.0 9.2 8.0 0.9 2.5 4.8 1.8 1.9 0.1 2/ Electricity purchased (TWh) 10.0 10.1 10.6 9.5 8.8 8.9 11.4 11.0 10.1 12.1 12.9 (X growth) 4.6 1.2 5.0 -'9.4 -7.4 1.1 28.1 -3.5 -8.2 19.8 6.6 z Aver. purch. price (USmills/kWh) 24.1 21.0 18.2 .7 19.0 20.8 22.5 24.5 26.0 27.9 29.4 X (S growth) -12.9 -13.4 2.7 1.5 9.5 8.6 8.7 6.1 7.4 6.4 3/ Electricity funds 88.1 99.3 95.1 111.8 126.6 135.5 146.7 160.6 171.3 182.4 190.7 Provincial taxes 68.4 77.0 73.8 86.8 98.1 205.1 113.8 124.6 132.9 141.5 148.0 N VAT 106.4 120.0 114.9 135.1 162.8 163.7 177.2 194.0 206.9 220.3 230.4 _ --______________________ ---__________________________ __________ - ---____________ ___ - -________- - --__________ ___________________- _ -____ ARGENTINA ELECTRIC POWER SECTOR PROJECT SEGBA Flow of Funds (in millions of January 1988 US$) …-------------------------------------------------Historic----- - - - --Forecast - -----… Year ending Dec. 31 1985 1986 1967 1986 1989 1990 1991 1992 1998 1994 1996 -----------------------------------Notes…----------------------- - - ---------- - - - - SOURCES 76.7 107.4 -22.8 112.6 260.8 804.2 292.6 264.2 201.2 159.0 164.7 Gross fund generation 80.0 40.9 -60.8 67.6 149.2 166.1 198.0 247.2 296.3 300.3 297.4 Income before interest -273.0 -119.4 -208.8 -48.6 29.6 49.2 7S.6 107.8 144.4 142.4 140.1 Depreciation 96.0 97.4 107.6 112.7 118.2 123.6 129.6 146.6 149.9 153.1 166.6 Other 258.0 62.9 86.9 8.6 1.4 -6.7 -10.2 -7.1 1.0 4.8 0.7 Debt service (net) 88.2 96.6 91.9 64.4 25.9 29.1 61.2 77.0 189.6 145.8 146.2 Repayment 1/ 26.4 42.6 82.7 46.6 18.2 16.7 11.7 43.2 47.7 68.6 64.0 Interest 2/ 61.8 53.1 69.2 8.8 7.7 13.3 49.5 33.8 91.8 87.2 82.2 Net internal funding -8.2 -64.7 -152.2 13.2 123.3 137.0 131.8 170.2 156.8 164.6 151.2 Other consum r-based contributions 28.6 66.4 52.0 88.0 48.2 16.7 3.6 12.5 3.6 3.5 8.6 Aid for construction 2.4 2.7 2.3 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 Electricity funds 0.0 1.2 9.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Energy funds 26.2 62.5 40.3 84.5 44.7 13.2 9.0 Net concuxer-based funding 20.4 11.7 -100.2 101.2 171.6 158.7 136.3 182.6 159.3 168.0 164.7 Equity contributions 66.3 96.7 76.3 11.0 2.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-berrowed funding 76.7 107.4 -24.9 112.2 173.6 168.7 136.3 182.6 169.3 168.0 164.7 Borrowings 0.0 0.0 2.1 0.4 87.3 150.6 167.3 81.6 41.9 0.0 0.0 APPLICATIONS 76.7 107.4 -22.8 112.6 260.8 304.2 292.6 264.2 201.2 168.0 164.7 Investments 86.0 60.0 84.4 127.0 203.2 250.9 816.5 262.1 97.0 112.4 112.4 Construction 86.0 60.0 84.4 118.6 199.3 281.2 811.4 262.e 112.4 112.4 112.4 Other 0.0 0.0 0.0 8.4 8.9 -0.3 4.1 -0.5 -16.4 0.0 0.0 Increase in working capital -9.3 47.4 -107.2 -14.4 67.8 28.4 -22.9 12.2 18.9 -2.2 -1.6 Surplus (deficit) of funds 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 85.4 47.8 44.2 1/ Total repayment 26.4 42.6 32.7 46.8 20.9 19.2 11.7 46.3 47.7 65.6 64.0 Assumed by Govern It 0.0 0.0 0.0 1.2 2.7 3.6 0.0 3.1 0.0 0.0 0.0 2/ Total interest 61.8 53.1 69.2 60.4 63.2 68.6 76.6 88.8 91.8 87.2 82.2 . Assumed by Government 0.0 0.0 0.0 61.6 55.6 66.3 26.0 66.0 0.0 0.0 0.0 ------------------------------------------------------------------- -__ ----------- - -------------- - - --_____________________ - -- ARGENTINA ELECTRIC POWER SECTOR PROJECT SEGBA Balance Sheets (in millions of January 1988 US$) …-----…------------------------------------------Historic------- I----- --- -- -------- - ----Forecast------------------------- - Year ending Dec. 31 1986 1986 1987 1988 1989 1990 1991 1902 1993 1994 1996 -----------------------------------Not es-- - - - ----- … -------- ------- - -- - ------------- - --- - - - -------------- -------------- ASSETS 2488.3 2448.8 2875.8 2629.9 2727.6 2916.4 8130.0 3281.3 3305.1 3325.8 3336.2 Flxed assets 2234.1 2202.6 2881.6 2889.0 2473.0 2841.8 2844.7 2948.7 2908.9 2868.2 2819.0 Plant in service 3171.4 3268.0 3589.7 3726.6 3908.2 4085.2 4283.2 4844.4 49U4.6 560S.0 6178.4 Accumulated depreciat;i n -1128.2 -1195.6 -1324.4 -1431.8 -1547.9 -1689.3 -1798.8 -1941.4 -2089.4 -2240.3 -2394.9 Net plant in service 2043.2 2072.6 22S6.3 2294.0 2358.3 2415.9 2486.4 2903.0 2886.2 2819.7 2783.6 Work in progress 190.9 130.0 116.3 96.0 114.7 226.9 368.3 46.7 43.7 46.6 36.6 Financial and other investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 86.4 133.2 177.3 Securities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Funds surplus 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 86.4 133.2 177.3 Current assets 218.2 222.8 265.1 208.8 220.1 232.8 228.9 249.7 265.6 282.0 294.3 Cash and banks 14.6 3.8 13.1 10.8 12.3 13.2 14.3 16.7 16.8 18.0 18.8 Accounts receivable 187.3 197.6 171.6 182.9 192.6 204.0 199.1 218.1 232.8 248.0 269.4 Inventories 8.3 8.6 7.6 8.2 8.4 8.5 8.8 9.0 9.1 9.2 9.2 Other 10.0 12.8 73.0 6.9 6.9 6.9 8.9 6.9 6.9 6.9 6.9 Other assets 36.0 23.6 29.1 32.1 34.6 41.0 6S.4 63.0 45.3 44.4 45.6 LIABILITIES 1060.4 1001.6 1190.6 1040.7 1062.5 1164.8 1322.5 1358.5 1341.9 1296.1 1240.3 Long-tern debt 580.9 510.3 603.6 644.9 713.0 851.8 962.8 996.8 980.1 910.0 892.4 Current liabilities 413.5 427.8 517.0 336.7 287.8 269.4 323.2 333.2 342.6 365.2 339.1 Short-term portion of debt 111.7 189.0 108.6 20.9 19.2 11.7 46.3 47.7 58.8 64.0 23.7 Accounts payable 148.8 148.0 260.3 191.0 142.7 125.3 138.0 138.8 127.1 140.2 160.1 Other 153.0 110.8 148.1 123.8 125.9 132.4 140.9 148.7 166.4 161.0 165.3 Other liabilities 68.0 63.6 70.0 60.1 61.7 43.S 38.6 28.6 19.2 14.9 8.8 EQUITY 1427.9 1447.0 1485.2 1689.2 1676.1 1760.6 1807.5 1902 9 1963.3 2029.7 2096.9 Capital stock 1469.3 1633.8 1682.7 1667.1 1711.8 1726.0 1726.0 1734.0 1734.0 1734.0 1734.0 N Capital reserves 89.1 89.1 98.6 98.6 98.6 90.8 99.6 101.2 102.2 104.9 107.8 Revaluation reserve 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Retained earnings -130.6 -176.9 -196.1 -176.6 -136.3 -73.0 -17.0 87.7 127.1 190.8 264.1 N _______________________________________________ - -------------------_-_-------------------------------------____________ -- - ---- _____ - _ ANNEX 2.6.3 ARGENTINA ELECTRIC POWER SECTOR PROJECT AyE: Finances Income Statements (Annex 2.6.3.1) 1. AyE's rate of return has been negative during the last three years, it is expected to become positive only in 1991 and to reach a level of 4.12 in 1995. The labor/gross plant in service ratio which was 1.4? in 1985 reached a high of 2.12 in 1987 due especially to retroactive payments decreed by the government. Such trend is expected to be reversed in 1988 when the ratio would be 1.7Z and go on improving until 1995 when it would be 1.32. As related to operating revenues, the labor expense follows the same pattern: 27.92 in 1987, 24.9Z in 1988 and 9.8Z in 1995. Considering the increases expected under the sector Financial Rehabilitation Plan (FRP) the average tariff for the utility would increase from 21.2 US mills/kWh in 1988 to 37.9 in 1995. Under these circumstances, the working margin (percentage of revenues left after covering cash operating expenses) which has been declining since 1985 (15.3X to 7.12), is expected to start increasing in 1989 (10.42) and to reach a maximum of 33.4? in 1995. The return on equity would remain negative until 1993 because of the high interest charges. Flow of Funds (Annex 2.6.3.2) 2. The internal fund generation of AyE has not been sufficient to cover its debt service payment in the aggregate of the past three years and it is expected to continue that way during 1988 and 1989. In 1990 the debt service coverage ratio would become 1.2 times and increase until it reaches a peak of 3.0 times in 1993. With the addition of the electricity and energy funds to be allocated to the utility for its expansion program the net consumer-based funding would be positive and steadily increasing during the projection period. As a result, its reliance on borrowings would diminish from 84.82 in 1988 to 25.92 in 1995 showing a sound funding mix. This positive trend would be achieved in spite of a growing replacement ratio (investment/depreciation charge) which would move from 0.7 times in 1988 to 3.2 in 1995. Balance Sheets (Annex 2.6.3.3) 3. AyE's indebtedness is reasonable (50.62 in 1987) and is expected to i.mprove during the projection period until it reaches 32.42 which denotes a sound capital structure and reflects the improving returns of the company and its low reliance on borrowings. Its current ratio which was 0.7 times in 1987 is expected to reach 1.0 times in 1988 reflecting a good level of liquidity. Such ratio depends greatly on a substantial improvement in the payment period of electricity purchased which would be reduced from 428 days in 1987 to 210 in 1988, 150 in 1989, 110 in 1990 and 60 from 1991 onwards. The collection period is expected to be reduced from 300 days in 1987 to 146 in 1988 and about 70 from 1989 onwards. All these ratios reflect a sound working capital management which the company will have to implement during the projection period. ELECTRIC POWER SECTOR PROJECT Agua y Eriergia Electrica Income Statements (in millions of January 1988 US$) ------ -------- - - - --- ----- - ---------- --Hi storic----- -- - - - - ------------ ------Forocst---------------------------- Year ending D.c. S1 196 1966 1987 1980 1989 190 1991 1992 1993 1994 1996 - - - --- - --- 0 ------ ----- - --------ot------------ - ---------------------------------------------- Operating rev nuem 853.2 427.9 444.8 426.6 486.1 G72.1 873.6 764.6 847.2 967.3 1080.4 GroWs *Iectricity sales 1/ 828.1 876.4 397.8 467.7 681.8 656.2 783.6 886.7 997.0 1122.1 1262.3 SlesO taK*s 8/ 66.1 74.8 31.0 98.4 114.0 107.6 165.6 188.0 211.6 238.8 267.9 Net electricity sales 262.0 802.1 816.8 864.3 437.8 618.7 618.1 697.7 7n5.2 883.3 984.4 Trane_inien Fnee 4/ 84.6 89.4 37.6 8t.0 37.4 43.0 44.S 46.6 S0.2 61.6 79.8 Other operating revenues 61.7 87.4 90.6 24.3 10.1 10.4 10.C 11.3 11.8 12.4 18.2 Operating *Ipenn S 486.2 497.1 642.1 632.3 t86.38 S0.7 669.S 719.0 748.2 815.3 904.3 Labor 76.0 96.1 124.0 106.9 106.2 10.8 107.2 107.0 10.7 106.4 106.4 Nbtorial*, services and other 80.7 40.9 52.8 63.7 51.7 S3.1 30. 69.2 76.2 86.2 97.9 Fe l 107.6 189.1 142.0 149.0 176.7 192.2 172.0 18A.7 20S 7 179.9 165.6 Electricity purchased 2/ 7*.4 78.5 78.8 62.3 78.9 a3.2 129.9 148.3 142.4 218.8 803.7 Tranmission fee_ (net) 0.0 0.0 0.0 2.6 2.8 3.2 2.7 2.6 2.7 3.0 3.6 Royalties 6.7 6.8 7.0 6.6 6.4 7.2 7.0 8.1 6.6 9.2 9.6 Taxes 9.9 11.7 18.7 14.9 16.9 20.6 25.0 2a.6 32.0 3' 3 38.7 Depreciation 181.9 127.0 129.1 187.0 151.2 161.5 164.9 170.5 174.3 178.6 184.9 Operating ince -7?.0 -69.2 -07.8 -106.7 -100.7 -58.8 8.7 35.6 99.0 141.0 176.1 Non-oporating income (net) 5/ -3.6 -13.9 -17.3 -18.0 -18.9 -18.9 -18.9 -18.9 -13.9 -13.9 -13.9 Incom before interest -865. -83.1 -114.6 -124.7 -114.6 -72.6 -10.2 21.7 86.1 127.1 162.2 Interest charged to operations 225.1 186.2 176.8 160.0 189.9 169.8 186.8 168.0 142.2 113.0 53.8 Interest on debt 237.6 200.1 202.7 212.9 232.2 202.8 216.2 209.7 214.0 222.4 217.5 Interest during construction -12.4 -11.9 -26.9 -52.9 -42.8 -38.0 -30.4 -51.7 -71.8 -109.4 -163.7 Income before monetary correction -810.9 -271.8 -291.4 -284.7 -804.s -242.3 -196.0 -136.3 -67.1 14.1 108.4 Monetary correction 182.6 76.8 40.8 0.0 Not income -178.4 -194.6 -250.6 -284.7 -804.5 -242.8 -196.0 -186.3 -57.1 14.1 108.4 -- - - - ---- - - - ---- - ------ - --------------------------------------------- - - 1/ Electricity sales (TWh) 13.9 16.0 16.8 17.2 18.4 19.8 20.6 21.7 23.0 24.4 26.0 (s growth) 7.8 5.5 8.9 7.1 4.9 6.2 S.8 6.0 6.1 6.2 Average sales price -With taxes (USmills/kWlh) 28.6 25.1 26.2 26.6 29.9 88.9 38.2 40.8 43.3 46.9 48.8 -W/o taxe_ (US ills/kWh) 18.8 20.1 20.1 21.2 23.7 26.8 80.1 82.1 34.1 36.1 37.9 (U growth) e.e -0.2 5.6 12.1 18.0 12.2 6.7 6.2 6.0 5.0 2/ Electricity purchased (TWh) 4.9 6.2 4.7 4.4 4.9 6.2 7.0 7.4 6.9 9.5 12.2 (S growth) 5.5 -9.1 -6.4 11.4 6.1 34.6 6.7 -4.8 37.7 28.4 Aver. purch. price (USmilll/kWh) 16.0 14.2 15.6 14.3 16.1 16.6 18.6 20.0 20.6 23.0 25.1 (I growth) -6.1 9.7 -8.6 6.7 9.9 11.9 8.0 3.0 11.6 9.2 8/ Electricity funds 16.7 16.9 19.9 28.2 29.2 35.8 44.0 50.7 56.9 62.9 69.3 Provincial taxes 8.2 8.0 8.6 4.5 5.6 6.9 8.5 9.8 10.9 12.1 13.8 VAT 40.9 47.8 60.6 69.0 72.6 87.1 106.0 119.3 136.0 152.7 170.9 4/ VAT 6.3 7.1 6.7 6.7 6.7 7.7 8.0 8.2 9.0 11.1 14.4 6/ Includes -depreciatior, of irrigation assets 6.0 7.8 6.4 8.9 6.9 8.9 6.9 8.9 8.9 8.9 8.9 W L~~~~~~~~ - . _ _ _ _ a _ _ _ _ ___ A_. ARV5UTLRA ELECTRIC POWER SECTOR PROJECT Aqua y Energia Electrica Flow of Funds (in millions of January 1988 US$) - Histor;c-l -------------H I at., Ic - Forecast---- Year seding D.c. 81 1986 !A.J 197 1968 1909 1990 1991 1992 1993 1S94 1995 --- --otes -- - - - -- - - - - -------- --- -~~~~ SOURCES 227.9 129.4 447.9 189.1 206.6 288.9 851.2 427.9 451.0 590.6 766.4 Cross fund generation 51.1 61.2 28.6 21.2 46.5 97.9 188.6 201.1 268.3 314.5 356.0 Incom before interest -66.8 -8U.1 -114.0 -124.7 -114.6 -72.5 -10.2 21.7 a5.1 127.1 162.2 Depreciation 186.9 184.8 188.2 146.9 160.1 170.4 173.8 179.4 183.2 187.4 193.8 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt service (net) 46.8 188.6 -66.9 188.8 197.8 84.0 100.8 95.2 90.4 117.5 138.8 Repayment 1/ 6.8 0#.8 -117.2 174.5 148.6 60.4 65.5 65.1 56.0 74.4 95.7 Interest 2/ 89.6 00.8 60.8 14.8 49.2 28.6 85.8 30.1 34.4 43.1 43.1 Net internal funding 4.0 -182.4 90.6 -167.6 -162.8 13.9 62.8 105.9 177.9 197.0 217.2 Other consumer-based contributions 219.4 288.8 237.6 171.1 262.4 211.8 186.6 204.6 160.8 248.2 342.8 Aid for construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Electricity funds 41.4 46.1 64.8 98.6 108.8 176.1 106.6 69.2 81.7 90.3 102.2 Energy funds 178.0 187.7 183.3 77.6 68.0 86.2 0.0 186.4 79.1 167.9 240.6 Net consumer-based funding 224.2 101.4 828.1 8.6 100.1 225.2 249.4 310.6 33S.7 446.2 560.0 Equity contributions 0.0 17.1 86.4 17.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-borrcoWd fundin 224.2 113.6 418.6 21.2 100.1 225.2 249.4 810.5 388.7 445.2 660.0 Borrowings 8.7 10.9 84.4 117.9 106.5 68.? 81.8 117.4 112.8 145.3 196.4 APPLICATIONS 227.9 129.4 447.9 189.1 206.6 283.9 831.2 427.9 451.0 690.5 755.4 Investeents 189.1 125.6 165.2 146.6 811.2 272.6 804.8 424.7 428.2 860.6 755.9 Cons;ruction 189.1 125.6 153.2 143.6 311.2 272.6 804.8 424.7 428.2 060.6 755.9 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Increase in working capital ss.9 8.8 294.7 -9.1 -104.5 11.8 26.7 3.2 22.8 -15.1 -0.6 Surplus (deficit) of fund -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ----------- 1/ Total repayment 3852.6 1769.4 1743.6 190.7 168.4 71.1 81.8 81.4 82.3 132.0 171.3 Assumd by Treasure 10.2 12.1 35.8 16.2 7.8 10.7 16.3 16.3 26.3 57.6 75.6 Refinanced 3835.6 1670.5 1823.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2/ Total interest 237.5 200.1 202.7 212.9 232.2 202.8 216.2 209.7 214.0 222.4 217. S Assumed by Treasure 198.0 103.1 152.4 198.6 183.0 179.2 180.9 179.6 179.8 179.3 174.4 . Refinanced 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ----------------------------------------------------------------------__-----__ ---------------------------------------_________ ARGENTINA ELECTRIC POWER SECTOR PROJECT Agua y Energia Electrica Balance Sheets (in millions of January 1988 US$) - -------- - --------------- - -----------------Historic---------!----- - - -------- - …-------- -----Forecast---------------------------- Year onding Dec. 31 1986 1986 197 1968 1989 1990 1991 1992 1993 1994 199S - -- -- - -------------Note ----------------------------------- - -------------------------------------------------------------- ASSETS 6300.4 5422.8 5827.1 6638.6 5675.5 5813.3 6005.0 6332.6 6682.0 7242.1 8001.9 Fixed assets 4793.9 4833.9 4974.3 5029.9 6223.3 6568.5 5519.4 5816.4 6133.2 6860.8 7388.6 Plant in service 6194.1 6384.7 6789.3 6203.4 6647.8 6904.0 7013.4 7663.5 7675.9 7814.3 7999.4 Accumulated depreciation -942.9 -1094.3 -1228.4 -1374.3 -1634.4 -1704.8 -1878.6 -2058.0 -2241.2 -2428.8 -2622.4 Net plant in servico 4261.2 4270.4 4560.9 4829.1 5113.4 5199.2 5134.8 6495.5 6434.7 5385.7 5377.0 Work in progress 542.7 568.5 413.4 200.8 109.9 159.3 384.6 320.9 698.5 1275.1 2009.6 Financial and other investments 94.7 96.4 95.7 98.7 99.9 101.7 103.6 105.4 107.3 109.3 111.3 Securitie, 94.7 96.4 95.7 98.7 99.9 101.7 103.5 105.4 107.3 109.2 111.2 Funds surplus 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 Current assets 257.6 351.0 411.5 248.6 186.8 180.8 202.9 224.4 247.7 270.4 294.3 Cash and banks 7.0 17.1 3.2 11.2 9.7 8.0 8.7 9.9 10.3 12.2 14.2 Accounts receivable 181.4 240.8 326.8 182.7 128.7 132.7 163.5 170.3 188.6 208.7 229.5 Inventories 16.7 13.4 14.8 12.2 12.8 12.9 11.7 13.0 15.8 13.5 11.3 Other 72.5 79.7 86.7 42.5 35.4 27.2 29.0 31.2 33.3 36.0 39.3 Other assets 164.2 141.3 145.6 159.3 165.7 172.3 179.2 186.4 193.8 201.8 209.7 LIABILITIES 3282.5 3372.7 3202.2 3074.1 2965.8 2865.6 2788.6 2789.2 2808.4 2846.5 2878.7 Long-term debt 824.1 1811.S 2171.8 2328.9 2313.1 2288.7 2284.8 2303.6 2283.9 2257.1 2238.4 Current liabilities 1900.1 940.7 625.9 241.1 249.6 244.4 243.7 279.2 329.4 407.3 474.6 Short-term portion of debt 1441.1 392.1 311.5 81.6 47.6 59.6 63.4 80.6 130.3 170.4 213.2 Accounts payable 400.3 473.8 289.7 127.7 164.4 143.7 138.7 158.2 180.1 193.7 221.9 Other 68.7 74.8 24.7 31.8 37.6 41.2 41.8 42.4 39.0 43.2 39.5 Other liabilities 658.3 620.2 404.5 504.1 403.2 322.6 268.1 208.4 195.1 182.1 165.7 E*JITY 2017.9 2049.9 2424.9 2482.4 2709.8 2957.6 3218.5 3643.5 3873.7 4396.6 5123.3 Capital stock 2853.0 3077.8 3010.8 3414.4 3857.8 4258.8 4842.6 5043.1 6409.8 5894.9 S487.7 X> Capital reserves 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Revalustion reserve 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Retained earnings -835.1 -1027.9 -586.0 -952.1 -1148.1 -1301.3 -1424.2 -1499.7 -1538.2 -1499.4 -1364.. -__ -__ _______________________ ----------_ ------ -_----_ ---- - --__----------- ---- - --- - - - - ------ ---- ------- -w ANNEX 2.6.4 Page 1 of 2 ARGENTINA ELECTRIC POWER SECTOR PROJECT HIDRONOR: Finances Income Statements (Annex 2.6.4.1) 1. During the last two years HIDRONOR's rate of return has been close to zero. During the projection period (1988-1995) the rate of return is expected to have a low of 0.6Z in 1988 and a maximum of 5.82 in 1992, and remain at 5.62 thereafter. Such pattern is common to hydroelectric generating utilities due to the incorporation of major assets in its rate base. In the particular case of HIDRONOR, one of the reasons for the low rate of return at the beginning of the projection period is the low generation due to major repairs in the El Chocon dam which will reduce sales by 15.82 in 1988 and the filling of the Piedra del Aguila reservoir which will reduce sales by 22.22 in 1990. Plant turnover, which was 142 in 1985 is expected to reach a low of 4.42 in 1988 and increase from then until 1992 when 't would reach a maximum of 9.22. This low- plant turnover reflects the low tariff levels prevailing in Argentina ard the relatively young age of HIDRONOR's assets (accumulated depreciation/gross plant in service of 2.52 in 1987 and 3.9? in 1995) resulting from the continuous incorporation of new plants in service. 2. The cost of labor to total operating revenues is high for a hydro generating utility 2.6Z in 1987) basically because of the low levels of tariffs (13.9 US mills/kWh in 1987), but at the end of the projection period it is expected to reach a more appropriate level (9.62) when tariffs would be much higher (24.2 US mills/kWh). Depreciation which was 33.72 of operating revenues in 1986 would be reduced to 7.22 in 1988 due to a change in the depreciation charge, from straight line to sinking fund, as authorized under the concession agreement with the government. HIDRONOR's working margin (percentage of operating revenues left after covering cash operating expenses) has been positive in the last three years and is expected to continue so during the projection period. It would move from a high of 56.32 in 1985 to a low of 21.72 in 1988 and increase until it reaches a plateau of about 62% in 1992 and thereafter. Flow of Funds (Annex 2.6.4.2) 3. The internal funds generated from such operational results was not sufficient to cover the debt service payments in 1986 and 1987 and is expected to continue eo until 1990. Starting in 1991 it will become slightly positive as the debt service coverage ratio becomes 1.1 times in 1991. However, due to the significant amounts of electricity and energy funds that HIDRONOR will receive, the consumer-based net fund generation will be positive every year. Borrowings will reach a maximum of about -2.0 in 1989-1990 at which time the investment of the company also reaches a maximum. ANNEX 2.6.4 Page 2 of 2 balance Sheets (Annex 2.6.4.3) 4. Such funding mix has allowed the preservation of a reasonable degree of indebtedness which in 1987 was 38.6Z and will improve in the future until it reaches 17.0S in 1995. Under those circumstances, HIDRONOR could be able to face a larger construction program with greater reliance on borrowings than planned. Its current ratio follows an erratic pattern because of the also erratic patterns of sales and investment: it reached a maximum of 0.7 times in 1986 and is expected to reach a low of 0.2 in 1990 at which time the trend will be reversed as it increases steadily until it reaches 0.6 in 1995. This ratio is reasonable as it is the result of a collection period of about 90 days and a payment period for suppliera of 45 days, both normal under the present contractual arrangements of HIDRONOR. To achieve such level, however, it has been assumed that the collection period which was 136 days in 1987 would be reduced to 90 days in the projection period. ARGENTINA ELECTRIC POWER SECTOR PROJECT NIDRONOR Income Statements (in millions of January 1988 USS) -__ _H;_ _toric-__!--__-- - ----- ------ --Forecast---------------- Year ending Dec. 81 1986 1966 1967 96 1969 1990 1991 1992 1993 1994 1996 _______~~~~~~~-_t s -- --No - -------------- - -- ----------------~~~~~~~ ~~~~~~~~~~~ Operating revenues 96.3 100.4 106.9 97.6 118.6 101.0 234.9 287.6 297.6 299.3 299.3 Gross electricity sales 1/ 95.3 100.4 106.9 E.6 118.6 101.0 234.9 287.6 297.6 299.3 299.3 Sales taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net electricity sales 96.8 100.4 106.9 97.6 116.6 101.0 234.9 287.6 297.6 299.3 299.3 Trannmision fees ether operating revenue 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Operating *xpenses 70.0 87.2 i1 9 83.4 69.0 69.3 94.8 103.6 111.3 113 0 112.9 Labor 18.0 17.7 24.? 22.9 22.9 23.2 28.6 28.6 28.6 28.6 28.6 Materials, *rvice and other 17.2 28.7 9,.3 26.9 25.0 26.6 28.6 34.6 36.1 37.6 37.5 Fuel 0.0 0.0 o. c 00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Electricity purchased 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Transmision fees (net) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0 Royalties 11.4 12.0 12.8 11.7 14.0 12.1 28.2 34.S 35.7 35.9 35.9 Taxes 0.0 0.0 6.8 14.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Depreciation 2/ 28.4 88.8 10.7 7.0 7.1 7.4 9.4 10.9 10.9 10.9 10.9 lherst;ng incom 2/ 26.8 18.2 15.0 14.2 47.6 31.7 140.1 179.0 186.3 186.3 186.4 Non-operating incom (rnet) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Income before interest 25.3 13.2 15.0 14.2 47.6 31.7 140.1 179.0 188.3 186.3 186.4 Interest charged to operations a1.8 63.2 62.3 54.4 84.1 88.7 91.3 88.4 77.1 6S.9 58.6 Interest on vlebt 81.8 63.2 62.3 54.4 84.1 88.7 91.3 86.4 77.1 65.9 66.6 Interest during construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Incom before monetary correction -6.5 -40.0 -47.3 -40.2 -36.6 -67.0 48.8 92.6 109.2 120.4 129.8 Monetry correction -79.7 -82.9 -54.8 0.0 Not income -86.2 -102.9 -102.1 -40.2 -36.5 -57.0 48.8 92.6 109.2 120.4 129.8 |- - -________________________ - -------------------------------------------- --------- 1/ Electricity *nIes (TWh) 7.3 7.0 7.7 6.5 7.1 5.5 11.2 12.3 12.4 12.4 12.4 (X growth) -3.6 8.9 -15.8 9.9 -22.2 103.1 10.0 0.2 0.0 0.0 Average sales price -with taxes (USmiIIs/kWh) 13.! 14.3 13.9 15.1 16.4 18.3 21.0 23.3 24.1 24.2 24.2 -w/o taxes (USills/kWh) 13.1 14.3 13.9 15.1 16.4 18.3 21.0 23.3 24.1 24.2 24.2 (7 growth) 9.2 -2.2 8.6 8.7 11.4 14.5 11.3 3.3 0.6 0.0 2/ For tariff purposes: Depreciation 4.6 5.8 7.0 Operating incom 8.4 11.9 17.2 -__--------------____----__-______--_------------------------------------------------------------------------------------------------------- ARGENTINA ELECTRIC POWER SECTOR PROJECT HIDRONOR Flow of Funds (in millions of Jaruary 1988 US$) _____________- _ _________-----Historic------ -… Forecast---------------------------- Year eding Dec. 81 1986 1986 1967 1966 1989 19 1991 1992 1993 1994 199 SOUMCES 186.2 126.7 138.1 176.9 251.8 227.4 198.0 66.9 37.2 30.8 41.1 Gross fund gen.rntion 58.7 47.0 26.6 21.2 54.7 39.1 149.6 189.9 197.2 197.2 197.3 Income before Interest 26.3 1a.2 16.0 14.2 47.6 31.7 140.1 179.0 186.3 188.3 186.4 Depreciation 26.4 33.8 10.7 7.0 7.1 7.4 9.4 10.9 10.9 10.9 10.9 Other 0.0 0.0 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt service (not) 87.4 69.3 97.6 94.8 113.9 119.0 144.5 172.2 186.3 190.9 188.3 Repayment 1/ 6.6 16.1 36.3 47.3 60.9 50.9 71.3 101.7 123.3 136.2 131.7 Interest 2/ 81.8 63.2 62.3 47.5 63.0 68.1 73.2 70.6 63.0 64.7 56.6 Not Internal funding 16.? -22.3 -71.1 -73.6 -69.2 -79.9 6.0 17.7 10.9 6.3 9.0 Other consumer-based contributions 66.8 66.3 96.9 206.8 16S.6 163.3 11.3 *2.8 23.8 16.0 12.0 Aid for construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Electricity funds 24.6 34.7 82.0 91.0 86.4 102.4 103.4 22.6 13.0 8.4 6.8 Energy funds 41.3 20.6 63.9 115.8 69.2 61.4 11.9 20.2 10.8 6.6 5.2 Net consumer-based funding 82.1 88.0 24.8 133.2 96.4 83.9 120.3 S0.6 34.7 21.3 21.0 Equity contributions 0.0 33.7 73.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-borrowed funding 82.1 66.7 98.4 133.2 96.4 83.9 120.3 60.6 34.7 21.3 21.0 Borrowings 103.1 60.0 34.7 43.7 155.4 143.6 77.7 6.4 2.6 9.3 20.1 APPLICATIONS 186.2 128.7 133.1 176.9 261.8 227.4 198.0 S6.9 37.2 30.6 41.1 Investente 162.4 144.6 129.7 174.0 271.8 223.6 139.0 38.9 28.3 24.3 39.3 Construction 162.4 144.6 126.8 171.9 271.8 223.6 139.0 38.9 26.3 24.3 39.3 Other 0.0 0.0 2.9 2.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Increase in working capital 82.8 -17.9 3.3 2.9 -19.9 3.8 69.0 28.0 10.9 6.4 1.9 Surplus (d.flcit) of furJs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ~~~~ ------- ------------------------------------- 1/ Total repayment 5.6 16.1 36.3 54.7 76.6 71.7 96.6 124.1 147.0 146.0 131.7 Assuesd by Govt. 0.0 0.0 0.0 7.4 24.6 20.8 26.3 22.4 23.7 9.8 0.0 Refinanced 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2/ Total ;nterest B1.6 63.2 62.3 54.4 84.1 88.7 91.3 86.4 77.1 66.9 66.6 AssUed by Govt. 0.0 0.0 0.0 6.9 21.1 20.8 18.1 16.9 14.1 11.2 0.0 Refinanced 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - .__ - - - - -_ - ___ ____________________________________ ARGENTINA ELECTRIC POWER SECTOR PROJECT HIDRONOR Balance Sheets (in millions of January 1988 USS) - ----- ----Historic … I…--------- Year ending Doc. 81 1916 198 19S7 1988 19S9 19 $'224 199S ___-----Notes- - ------ -…-----o------…---------- ------- ----…-- --------------------- ASSETS 1772.0 1967.0 2891.0 2834.3 3133.9 3352.2 3Z7$.: :7. .2 3$E 3.2 3552.4 3581.0 Fixed assets 1706.7 1880.6 2612.7 2779.7 3074.5 3305. 33980.3 -P813.3 3233.7 3447.1 3476.5 Plant In service 1897.S 1626.2 2286.8 2309.1 2329.4 2430.9 2978.8 S374.7 3449.1 3461.1 3461.1 Accumulated depreciation -34.7 -56.8 -68.4 -65.4 -72.5 -79.9 -S9.3 -.00.2 -i1. -122.0 -132.9 Net plant in service 1382.9 1670.4 2207.2 2243.7 2268.9 2351.0 2384.3 $274.S 3338.0 3329.1 3318.2 Work in progress 848.8 290.2 406.5 583.0 817.6 954.5 S03.0 143.8 95.7 118.0 167.3 Financial and other investmonts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Securities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Funds surplus 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Current assts 81.5 78.6 60.8 42.6 47.4 43.7 76.8 90.0 32.8 93.3 93.6 Cash and banks 7.6 13.7 3.9 1.6 1.6 1.8 1.8 1.6 1.6 1.7 1.7 Accounts receivable 21.8 27.8 39.9 24.0 28.8 24.9 67.9 70.9 73.4 73.8 73.8 Inventories 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 2.6 87.3 17.0 17.0 17.0 17.2 17.3 17.6 17 6 17.8 18.0 Other assets 33.8 d7.8 17.5 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 LIABILrTIES 863.6 842.3 1110.3 1078.2 1198.9 1270.4 1197.8 1065.3 912.6 770.1 656.8 Long-term debt 676.5 724.7 937.7 905.9 1005.7 1069.8 986.6 845.0 701.5 679.1 487.0 Current liabilities 72.8 116.1 186.8 1N6.6 187.4 204.8 206.4 214.6 205.2 186.2 164.0 Short-term portion of debt 16.1 35.3 64.7 76.5 71.7 96.6 124.1 147.0 146.0 131.7 112.2 Accounts payable 15.9 38.7 61.7 42.8 58.8 51.0 33.2 26.4 24.8 24.8 26.4 Other 0.8 43.1 60.4 48.2 56.9 67.2 49.1 41.1 34.4 28.9 26.4 OV'hr liabilities 4.3 2.6 5.8 S.8 5.8 5.8 6.8 5.8 5.8 6.8 5.8 EQUITY 1118.4 1124.7 1580.7 1756.1 1935.0 2090.8 2281.3 2455.0 2825.8 2782.3 2924.1 Capital stock 1071.9 1148.1 1239.1 1446.9 1601.6 1765.3 1880.8 1923.4 1947.3 1962.3 1974.2 Capital reserves 17.2 34.3 52.0 52.0 52.0 62.0 62.0 52.0 62.0 62.0 62.0 Revaluation reserve 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Retained earnings 29.3 -67.7 289.6 268.2 281.6 273.6 348.7 479.6 626.5 788.0 897.9 --------------------------------------------------------------------__-------_---------------------------------------------------------- ANNEX 2.6.5 Page 1 of 3 ARGENTINA ELECTRIC POWER SECTOR PROJECT EBY: Finances Summary 1. The finances of Entidad Binacional Yacyreta (EBY) reflect its sole activity, the construction of the Yacyreta Hydre,o1Fol-ric Plamt. This condition will continue during the time slice e( , -t,l ior the se( Lor loan (1988-89), and will change only starting' in ^ J3 w-hen thc lrst generating unit is commissioned. See Annex 2.6.: ;- t! J(tailed l,is' oric and forecast sources and uses of funds statement x'h- 1 cl i S summarized in the following table: Yacr.ts Financing Plan (In millions of current USS) 1/ up to 1987 1988-1989 1990-199f Total I Requirementv 2.60.2 1,822.1 4,241.3 8,169.6 100.0 - Investment 2,062.1 988.1 1,661.0 4,691.2 56.2 - Interest 664.8 216.6 1,847.1 2,396.1 29.8 - Repaymnt 291.1 147.2 968.9 1,429.1 17.6 - Working Capital (801.8) (28.8) 84.3 (245.8) (8.0) Fundina 2.e86.2 1.822.1 4.241.3 8,169.8 100.0 - Internal Fund Generation --- --- 1,878.9 1,678.9 20.6 - Energy Funds 908.8 272.8 618.1 1,692.2 20.7 - Equity Contributions 68.7 20.0 20.0 96.7 1.2 - Government Loans 818.8 270.4 1,002.8 1,592.0 19.6 - Other Borrowinog 1,826.9 769.4 1,023.6 8,109.8 88.1 - IBRD: 1781-AR !I 196.6 11.9 --- 208.6 2.6 - lORD: Proposed --- 260.0 --- 260.0 8.0 - ID8 : 848/OC-RO 210.0 --- --- 210.0 2.6 - Multilateral Agencles V --- --- 400.0 400.0 4.9 - IDB : Proposed --- 260.0 --- 260.0 8.1 - Export Agencies 188.4 82.7 389.0 605.1 7.4 - Suppliers 28.8 69.0 1.6 88.4 1.0 - Foreign Banks 718.6 68.0 130.7 918.8 11.2 - Local Banks 89.6 42.8 102.2 184.5 2.8 3/ Based en Version No. 48 of EBY's ProjLcted Cash Flow of Funds. V It Includas the two potential future loans requested from IBRD and IDS (US8200.0 million each). p/ US81.6 million of the loan (USS210.0 million) is allocated to sector studies. ANNEX 2.6.5 Historic Performance Page 2 of 3 2. Up to 1987, two thirds of the funding requirements of EBY have becn for direct investment in the project and one third has been used for debt service payments. Most of the financing has been through borrowings: 47? from the Argentinian government and 51? from financing agencies, the rest (2X) being equity contributions from the Argentinian and Paraguayan governments. 3. The above utilization and composition of funds has resulted in a balance sheet with heavy shares of fixed assets (US$3.0 billion or 99% of total assets) and debt (US$2.9 billion or 982 of total equity and liabilities). The asset composition is typical of a hydroelectric utility during the construction period. The heavy debt would be particularly worrisome, but since the Argentinian government is the mai'. creditor (53Z) the remaining portion of debt owed to non-shareholders (45%) is reasonable for a hydroelectric utility. 4. However reasonable this share of debt to non-shareholders may be considered, the main problem with the debt of EBY is its profile in relation to the long project construction period as many repayments become due before the project is completed (e.g. IBRD loan 1761-AR will be fully repaid by end-1994, two years before project completion). Forecast 5. Basically because of such debt profile, and the corresponding interest payments, forecast the funding requirements of EBY will be larger for debt service (53Z) than for the physical construction of the Yacyreta project (46X), as shown in the following table: Yacyreta: Funding Rquir.ments (1988-1998) (in millions of current US$) 1988-89 X 1990-96 X 1988-96 X Total Requirements 1.B82.1 100 4.241.a 100 6,663.4 100 -Investment M99 1 75 1,561.0 37 2,639.1 48 -Interest 216.6 16 1,647.1 39 1,862.7 a8 -Repayment 147.2 11 968.9 22 1,106.1 20 -Working Capital (28.8) (2) 84.3 2 656. 1 6. To ease the heavy debt service burden, the government and EBY have taken already some measures such as negotiating the rescheduling of significant portions of the debt and the assumption by the government of future debt service payments. On the part of government loans, a flexible arrangement on repayments has been set up as they will be made only when the entity has the resources available for this purpose. 7. These measures have signifieantly alleviated the finances of EBY and have allowed it to concentrate on the financing of the physical ANNEX 2.6.5 Pago 3 of 3 construction of the project. Except for a relatively minor non-committed supplier credit (US$13.0 million), EBY's non-committed requirements for the physical construction of the project are about US$400.0 million, which EBY plans to finance with two loans it will request in 1990 also from the Bank and IDB (US$200.0 million each). Therefore, the entity relies heavily on the financing that it can obtain from these two multilateral agencies for the conclusion of the Yacyreta project. Annex 2.6.5.2 gives a forecast of fund requirements and planned sources of funds for the conclusion of the project, of which the following l-ble is a summary: Yaeyr-ts Financing Plan (1988-1996) 1/ (in million of current US$) 1988-U9 5 1990-98 X 1988-98 X Total Fundins 1,822.1 100 4,241.3 100 6,683.4 100 -Intornal Fund Generation -- 0 1,678.9 40 1,678.9 g0 -Energy Funds 272.3 21 516.1 12 788.4 14 -Equity Contributions 20.0 1 20.0 0 40.0 1 -Government Loans 270.4 21 1,002.8 24 1,273.2 23 -Other Borrowinas 769.4 57 1028.6 24 1 9 82 -IBRO: 1761-AR 11.g 1 -- 0 11.9 0 -IBRO: Proposed 260.0 19 -- 0 260.0 4 -Multilateral Apenci2esJ -- 0 400.0 9 400.0 7 -108: Proposed 250.0 19 -- 0 260.0 4 -Export Agencies 82.7 6 389.0 e 471.7 8 -Suppliers 59.0 4 1.6 0 60.6 1 -Foreign Banks 88.0 6 180.7 a 193.7 8 -Local Banks 42.8 3 102.2 8 146.0 8 I/ Bsed on version No. 48 of EBY's Project Flow of Funds V/ It Includes the two potential future loans from IBRD and IDB (US8200.0 million each) 8. As can be seen from the above table, during the 1990-96 period the internal cash generation becomes significantly important as it has a preponderance in the funding composition (40Z), reducing substantially the weight of the non-government borrowings (from 55Z in the 1988-89 period to 24X). The internal cash generation is expected to come from the sales of electricity starting in 1993 as the first units become operational. Even though the Binational Agreement for Yacyreta es.ablishes a financial tariff, which is supposed to provide all the funds necessary to cover its operational cash expenses and its financial obligations, the above projection has been prepared on the basis of a tariff resulting from a capital recuperation factor of 8Z for a sinking fund type of amortization. This system has been officially adopted as more adequate for implementation than the financial tariff which, if strictly applied, would produce erratic tariff levels. Under a broad interpretation of the Agreement, the adopted tariff system wnuld basically comply with the legal provisions because of the flexible repayment conditions of government loans to EBY (para. 6). ARGENTINA ELECTRIC POWER SECTOR PROJECT EBY: Sources and Uses of Funds (in millions of current US$) ---l4ietoric------3--- - -~~~~~~~-------F`D*caWt --------------------I-- ----TOTAL PFar COST --- Ea.cut. asof Dec.31,1967 3-----1S16--------9019-------98 1996-----I A 0 FC T0rAL3 A C FC TOrALI A a FC TUTALI A C FC TOTALI A C FC TOTAL. SOURCES ~~~~969 LIM16 2907 3890 2a 677 1350 I 1156 401 2103 4160 3 546 684 3280 56210 2515 1439 4463 6.417 - - -~~~~~~~~~~~~~ - - I - - - - Internlfund eeeret a~ 3 1679 167931 1679 0 0 1679! 1679 0 0 1679 Equaity con8ributiaene 67 0 571 20 203I 20 203I 0 40 0 401 57 40 0 97 En.rwv funds as6 47 2 904 3 272 272 I 516 516 I 788 0 0 788 3 1644 47 2 1692 0nvo.n,mit 3am. 269 s0 819 1 270 270 3 1008 10083 1273 0 0 1273 1542 0 50 1592 Borrowings: 031 031 0 0 0 0 0' 0 0 0 0 -we -84/OC-N6 41 169 21031 01 0 1 0 0 0 0! 0 41 169 210 --1M 761-AR 67 180 19731 12 1231 031 0 0 12 12! 67 0 142 209 -Iti3t..lt.ral (not yet committed) 0 3 500 500 400 400 I 0 0 gao 900 3 0 0 900 900 -Export A.enciee 183 233 83 es 81 89 889 3 0 0 472 472 3 0 0 606 606 -SupplierseCredits 29 29 1 59 593I 1 131 0 60 603 0 0 89 89 -LocaI banks 88 1 8931 43 4331 102 10231 145 0 0 1453 183 1 0 184 -Fare i ionbeabs 446 44631 031 03 0 0 0 03 0 0 446 446 -Debt refinancieng (1987) 0 3 63 63 3 131 131 I 0 1 294 194 3 0 0 194 194 -Lugano Bank 031 1 131 031 0 0 1 13 0 0 1 I -O.bt refinancing (1965) 220 223 0 3 031 0 0 0 03 0 0 280 22D efrgun earanty Tr"e'4 4631 03 031 0 0 0 03 0 0 48 48 -DEroaeaniSBanking Co. 4 431 03 031 0 0 0 03 0 0 4 4 -Lyannsie Credit 1 13I 031 0 0 0 0 03 0 0 1 1 Working Capital -317 667 -48 801 3 -195 268 -41 27 3 -2144 861 1602 -61 3 -2389 644 1641 -54 3 -2656 1311 1593 247 USE 969 TM5 1188 2907 3 390 268 677 1.50 I 1156 401 2603 416D I .546 684 3280 5609 3 251' 1439 4463 8417 ~~~~~~~~~~~~- - - - swww, -3 a al - - - - I - - at - - - - DWEVSTIET 904 7TM 393 206 3888 2C2 322 987 3 S86 401 617 1554 3 919 683 939 2541 3 1823 1437 1332 4593 __ -- -----3 I -- --- ---- --I - ----… … …--- I - … … …-- --- --3 -- -- -- -- Direct Project Cost 571 450 324 1346 3 313 283 S0o 854 3 402 320 599 132 1 715 553 907 2175 3 128 1003 2.21 3520 -_ - -- ----I ---……-----3I ---- … …3_ --- … … …3---- -- -- -- -- -- Preliminary works 161 171 1 3833 2 1 331 03 2 1 0 33 163 172 1 336 Yi33ag oe.rators 124 115 0 2423 8 5 1331 03 8 5 0 133 132 123 0 255 Civil VD#-** 168 110 159 4383 16O 2.21 167 446 19I" 16 209 566 I 357 279 376 10123 520 389 535 1445 Construction equipment Be 6 159 23 4 1 20 25 3 0 3 4 1 20 25 3 62 7 179 248 0.n.eatins eqmpmwnt. 031 031 01 0 0 0 03 0 0 0 0 -Turbines 031 12 3 57 7231 37 19 203 25931 49 22 250 3313 49 28 260 331 Con .rutDre 031 1 1 88 8531 6 5 183 14431 7 a 166 1793 7 6 166 179 Electsameci,unical equipment 3 3 4 t 10 3 1 26 31 88 I 60 48 54 162 f 91 74 a5 250 3 94 77 89 260 Land adqui.ition and indem,ication 41 13 55 3 26 16 483 1 7 28 40 3 42 41 0 831 as8 54 0 138 Res.etlement 21 27 4831 72 57 1i9 I 88 67 150 I 15 124 0 279 3 176 151 0 327 Engineering and amdinistration 157 151 64 372 3 4 25 14 71 3 1 33 14 963 as 56 28 169 3 242 207 92 541 Stud ;.e 26 87 4 673 3 031 0 0 0 031 26 37 4 67 Project 12 S 173 3 031 0 0 0 031 12 S 0 17 Administration 119 10s 59 263 3 80 20 14 54 3 49 28 14 9t13 79 48 28 155 I 196 153 67 438 8,v iromwt 0 5 0 5,3 4 8 731 2 5 731 6 a 0 143 6 13 0 19 other COSt 173 153 2 3263 86 26 0 623 8 3 48 4 1.853 119 74 4 1973 292 227 C, 525 -_ -- … …3 -- - - ---- --- I - --- -_ ----- -_ -- --- -… 3 -…- ----- -- Administratioan and General expenses 148 139 2 289 3 86 26 62 3 83 48 4 135; 119 74 4 1973 267 213 6 486 Materials 28 14 3931 0 1 031 0 0 0 031 25 149 0 39 3Wdro3agica3estudies 3 1 3 731 031 03 0 0 0 03 3 1 3 7 FDWCZAL BENSEm es 1 499 564 3 7 0 209 216 3 SW6 1061 .647 3 595 0 1270 138 656 2 1769 2427 AM0IZATION18 291 2913 1 1" 1473 84 925 9593 84 1 1071 11063 34 1 132 139 ARGENTINA ELECTRIC POWER SECTOR PROJECT EBY: Financial Plan (1988-1996) (In millions of current US$) ----------Requironts------------ I- - ------------------------------------------- -Sou rr -c_-n --- _ -- - -. _- _- _- --------------------- ---------Curr*ncyC--------------I--------- - C itt-d---- --^-r td-- -- Equity Debt Re- Local Cown. Eap.Agen. IBD II D ID3 PiRt. lat S.ppl- En-2y Int.C-sh TOTAL. Australe- Cuaranis Foreign Total Contrib. financing Bank Loans A Spp I i 1& 1761-AR Prp,-o.d PrOOODO A -onc .,a F-nda oenerat. 1/ 2/ S/ 4/ S/ 6/ 71 6/ 9/ 10/ hf 12/ 1) Direct Project Cost Engineering and Administration 198.1 11.0 31.9 352.0 29.2 30 7 45 0 182.6 64.5 352.0 Enviromntal & Other Works 213.2 177.9 391.1 40.0 338.0 13.1 391.1 Civil Works 357.1 279.0 375.8 1011.9 11.9 202.6 211.6 341.2 157.5 87.1 1011.9 Equipoent 1bO.7 102.5 530.9 784.1 145.0 517.6 13.7 79.6 28.2 784.1 Sub-Total 919.1 681.4 938.6 2539.1 40.0 0.0 145.0 0.0 517.6 11.9 231.8 242.3 3-36.2 13.7 757.7 192.9 2539.1 2) Debt Service Amortizations 33.6 0.7 1071.8 1106.1 193.7 353.6 1.0 557.8 1106.1 Interest and Fin. Charges 592.9 0.2 1269.8 1862.9 924.1 18.2 7.7 13.8 896.9 1662.7 Sub-Total 626.5 0.9 2341.6 2969.0 0.0 293.7 0.0 1277.7 1.0 0.0 18.2 7.7 13.8 0.0 0.0 1456.7 2968.8 3) Increase in Working Capital 55.5 57.5 -4.5 30.7 29.3 55.5 -------------- --- --- --- --- - - - ----- - ---- --- ---- --- --- ---== -- TOTALA 1546.6 682.3 3S35.7 59iS.6 40.0 193.7 145.0 1273.2 518.6 11.9 25;J.O 250.0 400.0 13.7 788.4 1678.9 S563.4 1/ Equity conk.ributions remining secosding to the binational agreement. 2/ On the basis of agreement rtached between creditors and the Argentinian Governent. 3/ Refinancing lines with the Argentinian Central Bank. 4/ Government commitments given as losa,b to EBY. S/ Financing already committed froe export agenies and suppliers. 6/ First IBM loan for Yacyreta. 7/ IBM loan under this SAR. 8/ Parallel B1- loan. . 9/ Two loans, each of L562tO million, requested froe IrRD and ID8. 10/ Portion of suppliera credit not yet comitad. 11/ Electricity and energy funda allocated to Yacyrta. ANNEX 3.1.1 ARGENTINA ELECTRIC POWER SECTOR PROJECT SEGBA 1988-1995 Investment Program (In constant January 1988 US$ million) 1988 1989 1990 1991 1992 1998 1994 1996 1988-96 CENERATION 7.1 32.0 102.6 114.5 65.4 3.6 8.6 S.L 882.8 TRANSMISSION 20.2 2&.9 32.7 89.8 80.1 17.1 17.1 17.1 195.6 DISTRIBUTION 71.0 87.2 81.6 101.0 104.7 62.7 62.7 52.7 608.7 OTHER 15.9 41.8 86.0 29.1 26.6 18.9 27.8 27.8 218.9 TOTAL DIRECT COST 114.8 182.9 262.8 284.0 226.9 87.8 101.2 101.2 1860.5 PfYS. CONT. 12.7 20.8 28.1 81.6 25.2 9.7 11.2 11.2 150.0 TOTAL 127.0 208.2 280.9 816.5 262.1 97.0 112.4 112.4 1500.5 FOREIGN COST 50.8 81.8 112.4 126.2 100.8 88.6 45.0 46.0 600.2 LOCAL COST 76.2 121.9 168.6 189.8 161.8 68.2 67.4 67.4 900.8 SEGSA V PROJECT GENERATION 0.0 0.0 0.0 0.0 0.0 0.0 TRANSMISSION 0 8.2 82.6 89.0 29.6 17.1 126.7 DISTRIBUTION 87.2 81.6 101.0 104.7 62.7 427.2 OTHER 28.7 27.7 16.7 17.2 18.9 108.2 TOTAL DIRECT COST 124.1 141.8 166.7 161.8 68.6 662.0 PWHS. CONT. 18.8 16.8 17.8 16.6 9.9 78.6 TOTAL 187.9 167.6 178.0 168.6 96.5 785.6 FOREIGN COST 66.2 68.0 69.2 67.4 89.4 294.2 LOCAL COST 82.7 94.6 108.8 101.2 59.1 441.4 ANNEX 3.1.2 ARGENTINA ELECTRIC POWER SECTOR PROJECT AyEE 1988-1995 Investment Program (In constant January 1988 US$ million) 1986 199 190 1991 12 1998 1994 1996 1m--s GENERATION Queme(T) 88.6 19.0 62.6 Los Blancos I(H) 2.8 9.0 19.9 29.9 41.7 48.2 28,1 169.1 Carronl.ufu(H) 0.7 6.6 20.8 81.6 8 .7 96.0 Cordon del Plate l(H) 16.8 11.7 46.6 66.6 140.2 Garabl(H) 2.9 40.4 46.4 74.8 104.1 268.7 Los Bluncos II(H) 2.2 6.7 8.8 El Chluldo(H) 6.a 18.4 24.7 Oan Turbines 8.2 0.4 17.2 84.7 66.4 Comodoro Rivaduvir(T) 1.4 18.6 27.1 18.8 2.6 8.7 9.6 76.6 New Steen Plants 42.6 71.2 86.4 86.4 66.9 61.2 97.6 620.1 mi cwllcn.ous 4.6 9.1 7.1 21.0 Total 42.8 86.9 114.4 122.7 180.2 176.9 811.0 897.2 1482.0 TRANSMISSION Yocireta/0.rebI 8.8 28.8 66.8 104.0 118.9 188.6 180.2 686.1 Intere. Brazil 6.2 12.6 0.6 18.6 Son Antonio Owst. 0.6 24.6 8.1 28.4 182kV Regional 9.8 28.9 21.9 21.9 28.2 28.2 28.2 28.2 169.7 Other 7.8 24.8 6.2 11.4 28.9 10.2 16.1 28.6 122.0 Total 22.2 88.9 64.8 100.1 151.2 162.8 177.9 226.9 978.6 OTHER Subtrnnco./Dictrib. 7.8 12.0 12.6 12.6 12.1 16.0 16.0 16.0 101.6 Reg. DOlpotch Cont ro 20.6 26.5 11.8 68.4 Studies/Design 16.6 84.2 20.8 6.9 6.4 6.0 6.0 6.0 96.9 Capitalized Exp. 25.4 81.7 82.0 82.6 88.4 86.1 86.1 36.2 268.8 Total 68.7 104.8 76.7 61.1 60.9 66.2 65.1 66.2 620.2 TOTAL DIRECT COST 188.8 280.1 246.8 278.9 882.2 886.4 645.0 680.3 2926.0 PHYS. CONTINGENCIES 14.8 81.1 27.8 80.4 42.6 42.8 60.6 76.6 826.1 TOTAL 148.6 811.2 272.6 304.8 424.7 428.2 605.6 755.9 8251.1 Foreign Cost 69.4 124.6 109.0 121.7 169.9 171.8 242.2 802.4 1aoo.4 Local Cost 89.2 186.7 168.6 182.6 264.8 268.9 868.4 468.6 1960.7 ANNEX 3.1.3 ARGENTINA ELECTRIC POWER SECTOR PROJECT HIDRONOR 1988-1995 Investment Program (In constant January 1988 US$ million) 1988 1989 1990 1991 1992 lgs8 1994 1996 1908-96 OGERATION AlIcur 6.4 6.4 Pledro del Aquila 107.5 109.0 78.8 87.2 24.8 12.8 1.8 420.8 ColIon Cure 4.0 18.4 27.8 45.2 Total 118.9 109.0 78.8 67.2 24.8 16.7 16.2 27.8 472.4 TRANSMISSION 1/ Allcuro Abosto 4.8 4.8 Pledre del Agullo 21.8 129.6 116.2 81.2 4.1 0.2 802.6 Oth r 0.9 0.9 Total 25.7 129.6 116.2 81.2 4.1 0.2 0.0 0.9 807.8 Studles 1.2 2.8 2.0 2.8 2.8 2.6 2.8 2.8 2C.7 Equlpment 5.8 8.2 a.9 8.9 8.9 8.9 8.9 a.9 82.2 Existing Facilities 2/ 8.8 8.a Total 16.2 6.0 6.7 6.7 6.7 6.7 6.7 8.7 61.2 TOTAL DIRECT COST 164.7 244.6 201.2 126.1 86.0 28.6 21.9 86.4 841.4 PHYS. CONTINGENCIES 19.8 27.2 22.8 18.9 8.9 2.7 2.4 8.9 96.7 TOTAL 174.0 271.6 228.5 189.0 88.9 26.8 24.8 89.8 987.1 Foreign Cost 69.6 108.7 89.4 66.6 16.8 10.5 9.7 15.7 874.8 Local Cost 104.4 168.1 184.1 8b.4 28.8 16.8 14.6 28.6 662.8 AMNEX 3.1.4 Page 1 of 5 ARGENTINA ELECTRIC POWER SECTOR PROJECT The Yacyreta Project Background 1. The Yacyreta hydroelectric project has its origin in studies carried out since the beginning of this Century initially with the main objective of improving navigation on the Parana River at the rapids of Apipe. In 1958 the Governments of Argentina and Paraguay formed the "Comision Mixta Tecnica Paraguayo-Argentinal (CMT) for the purpose of studying the river's hydroelectric potential at these rapids and improvements in navigation. A prefeasibility study was completed in 1964, and in 1971 an international consortium of consultants, formed by Harza Engineering Co. (USA), Lahmeyer International GMBH (Germany), A.D.E., S.A. (Argentina), Yacyreta S.A. (Paraguay) and Cuyum, S.A. (Argentina) was hired to prepare a feasibility study. This study was completed in December 1973, and its conclusions provide:d the basis for the preparazion of the Treaty of Yacyreta which was ratified in that same month by both Governments. 2. The treaty contains agreements related to: (a) the creation of "Entidad Binacional Yacyretal (EBY) to study, design, build and operate the Yacyreta hydroelectric project and related works; (b) the co-ownership of the works to be constructed; (c) the ratification of the principle of free river navigation and the construction of the necessary facilities to this effect; and (d) the rules on the use of energy produced by the project. 3. A further step in the preparation of the project was taken in 1974, when Yacyreta hired the consortium Harza, Lahmeyer and Associates to prepare the final design for the project w.iich was completed during the period 1974-1978. On the basis of these studies the Bank appraised (July 1978) and approved (October 1979) a US$210 million loan to the Government of Argentina for the construction of the project. Project Description 4. The project is located on the Parana rirer, the international boundary between Argentina and Paraguay, about 80 kms downstream from the towns of Posadas (Argentina) and Encarnacion (Paraguay). The main objective of the project is to provide base-load hydroelectric energy for Argentina's power sector. Other objectives are to improve navigation on the Parana river by eliminating the rapids of Apipe and to provide ANNEX 3.1.4 Page 2 of 5 irrigation for both Argentina ant Paraguay in the provinces of Misiones tad Corrientes and the Department of Itaipu, respectively, and to augment the fishery industry of the region. 5. The project comprises: (a) an earth dam, approximately 65 km long (including power house, spillways and navigation lock), with a uniform elevation above sea-level of 86 m, and a maximum height of 42 m, creating a reservoir with an area c1f about 1,720 km2 and a total storage capacity of 21,000 million cubic meters; (b) two spillways with a total discharge capacity of 95,000 m3/sec; (c) a conventional covered power house with 20 Kaplan turbines 1 of 135 MW, operating at 71.4 rpm; 20 generators of 150 MVA, with a power factor of 0.9, operating at 50 HZ, 13.2 kv, which will produce 20,200 Gwh/year and transformers, control equipment, etc.; (d) fish passage facilities to preserve the fishery resources of the Parana river; (e) a navigation lock which would allow the passage of ships with a maximum draft of 12 ft.; Cf) irrigation intakes, one in each country with a maximum intake to permit the development of agriculture in the lands bordering the reservoir; Cg) the Aguapey, Tacuary, San Martin and Caraguata dikes, with the same elevation as the main dam, to avoid flooding of potentially rich agricultural lands in Paraguay, including either pumping facilities or discharge channels to transfer the water to the reservoir; (h) permanent villages to house supervisory personnel during construction and, afterwards, the personnel in charge of the project operation; Mi) about 90 km of access roads which will be incorporated to the road systems of both countries; (j) a bridge, 1,500 m long, over the Ana-Cua branch of the river needed for access to the project site; (k) the relocation of infrastructure works such as railways, ports, highways, sanitation works and electric and telephone installations; 1/ The power house will permit to install intake structures for 10 additional units to be installed in the future when the extra peaking capacity would be justified. ANNEX 3.1.4 Page 3 of 5 (1) the resettlement of about 40,000 persons on both riverbanks as the result of the creation of the main reservoir; and (m) a 500 KV transmission system to transmit the energy produced at the plant to the consumption centers. Project Execution - Engineering 6. EBY retained the services of Harza Eng. Co. (USA) together with Lahmeyer International (Germany) and their Argentina and Paraguayan associates for the technical supervision of the execution of the project. This consortium called "Consultores Internacionales de Yacyreta" (CIDY) has total responsibility for supervising the execution of the project. EBY controls the activity of its consultant at the project site through a superintendent of works with a small group of qualified professionals. Given the exceptional size of the project, EBY has retained a panel of well-know'- international experts satisfact.ry to the Bank in different disciplir.es (geology, hydraulics, etc.), to conduct periodic reviews of the dam and structures during construction. EBY has also agreed to submit to the Bank for review no later than one year before the expected completion of the dam, a report showing appropriate arrangements to periodically inspect the dam and related structures during the operation of the project. - Construction Works 7. The main civil works are being executed by an international consortium (ERIDAY-UTE) composed of Impregilo S.P.A. (Italy), Dumez S.A., (France) and several contractors from Germany, Italy, Argentina and Paraguay, under a contract signed in October 1983. The bidding process for executing the civil works begun in 1979 through a pre-qualification of constructors. The proposals presented by the contractors were opened in' June, 1980, but the contract was signed only in October, 1983, due to a protracted procurement dispute between EBY and the Bank. The works begun in 1984 at a low pace because of the economic problems faced by the country, the low rate of collection of the electrical funds and the difficulties encountered by the Government in securing external financing. By mid 1986 EBY, under a new management, reviewed the design and implementation schedule of the project, and negotiated with the contractor a rescheduling of works which resulted in a two-year delay in relation to the original schedule. Execution of the work has been, since then, satisfactory. By April, 1988 the global progress of the execution of the main civil works contract was estimated at 40Z. Ine status of the different elements of the plant is as follows: (i) the navigation lock structure is completed and the navigation channels very advanced; (ii) progress of the dam reaches 26Z, (iii) excavation for the main spillway has reached 872 and the concrete works have progressed 78Z; (iv) excavations for the Ana-Cua spillway have reached 902 (v) excavations for the power house have reached 702, while concrete works have reached 202 ANNEX 3.1.4 Page 4 of 5 - Equipment 8. The electromechanical equipment is being procured through several bids (turbines, generators, cranes, fish passage.i facilities, gates, transformers, bus bars, SF6 substation equipment, control equipment, and navigation lock equipment). The acquisition of all this equipment is well advanced and no one is at this time in the critical path of project implementation. Contracts for supplying of the electromechanical equipment which are signed are: Equipment Contractor Amount (US$ million) Turbines Voith (USA) 267.2 DEW (CA) Metanac (AR) Generators (10) Japan Consortium 82.0 Gates ATB (IT) 95.4 CIE (PR) Metanac (AR) Navigation lock ATB (IT) 18.5 equipment Cometarsa (AR) Tecno Elect (PR) CIE (PR) Equipment for about US$158 million in under procurement, including: (i) ten generators, awarded in September 1981 to a consortium led by Siemens (Germany) on which the contract has not been negotiated; (ii) cranes and fish passage equipment; and (iii) transformers and other equipment distributed in several packages. - Implementation Schedule 9. The project implementation schedule is presented in Attachment 1. Milestones are: completion of dams: April 1992; reservoir filling: November 1992; installation of first generation unit: February 1993; and installation of unit number 20: September 1996. Project Cost 10. The original project cost, as reflected in the 1979 SAR (Report No. 2342-AR) including physical and price contingencies, at December 1977 price level, was US$3,706.3 million of which US$2,187.1 million was local costs and US$1,519.2 million was foreign cost. Investments made in the period 1979-1987 amount to about US$2,052 million expressed in current dollars. Of this, US$1,659 million is local currency and US$393 is foreign currency. Investments yet to be made in the period 1988-1996 expressed in January 1988 price level amount to about US$2,290 million of which US$1,482 million in local currency and US$808 is foreign currency. ANNEX 3.1.4 Page 5 of 5 Environmental Aspects 11. The environmental impact that the project will cause is related to the transformation of the river's natural flow conditions and the flooding of areas in Argentina and Paraguay. Research on the ecological aspects of the project began in 1972, and has continued to date. In 1978, EBY approved a long-range program for the environment coordinated with project implementation that includes studies on water quality, fishery resources, river-bank forestry species, development of natural reserves, animal rescue, reservoir cleaning and public health. This program has evolved to a Master Plan for the environmental protection which has been reviewed by, and is acceptable to the Bank and is available in the project file. A summary of the main EBY activities regarding the protection of the environment is attached as Attachment 2. Relocation Aspects 12. Attachment 3 provides a description of the policies defined and the actions taken by EBY to implement the vast resettlement program for the about 40,000 persons affected by the flooding of the reservoir as well as infrs.' ructure works flooded by the reservoir. During supervision of Loan 1761-AR the Bank has closely followed up the design and implementation of this program. Progress has been satisfactory and plans for completing this component on time are also satisfactory. ANNEX 3.1.4 Attachment 1 ARGENTINA ELECTRIC POWER SECTOR PROJECT Yacyreta Proiect Schedule of Execution Start Conclusion A. Civil Works of Dams - Right bank * 2nd quarter 1992 - Yacyreta Island * 1st quarter 1991 - Left Dank * 2nd quarter 1992 B. River Closure - Main Branch 2nd quarter 1989 2nd quarter 1992 - Ana Cua Branch 2nd quarter 1990 2nd quarter 1992 C. Civil Works of Spillways - Matr. Branch * 4th quarter 1992 - Ana Cua Branch * 4th quarter 1992 D. Power House ConstLaction - First Stage * 2nd quarter 1992 - Second Stage 2nd quarter 1990 4th quarter 1994 E. Lrrigation Intakes 2nd quarter 1990 4th quarter 1991 F. Electromechanical Equipment - Navigation Lock * 2nd quarter 1989 - Spillways and Gates 1st quarter 1989 4th quarter 1991 - Turbines and Generators 2nd quarter 1990 3rd quarter 1996 G. Relocation of Infrastructure Works * 4th quarter 1992 H. Resettlement of Displaced Population * 4th quarter 1992 * Started prior to 3rd quarter 1988. ANNEX 3.1.4 Attachment 2 Page 1 of 3 ARGENTINA ELECTRIC POWER SECTOR PROJECT Yacyreta Proiect Environmontal Aspects Fish Hikration Facilities and Fisheries 1. Protection of the ichthyofauna at the Yacyreta project requires is the construction of up-stream migration and fish passage facilities. Construction of the Yacyreta dam without these facilities would mean closing off 650 km of the river to fish migration with possible adverse effects on reproduction of the species and fishing all along the river. The fish passage facilities provide for the passage of species with a broad range of behavioral patterns such as displacement velocities and normal depth habitat. Downstream migration of the fish will be allowed through the spillways, navigation lock and the turbines themselves. In order to develop the fishery potential of the Yacyreta reservoir, EBY has set a special program to study fishery resources. It includes researeh on the bioecology of major fish species and on inventory of fish industries and fishery conditions in the zone. These studies will serve as the basis for the formulation and implementation of a program to develop and manage fish production. Water Quality 2. Conversion of the river into a reservoir is expected to produce minor changes in water quality such as turbidity, conduc-ivity, alkalinity (pH factor) and biological productivity of phytoplankton. However, these changes will not have damaging effects since the power plant will be operated as a run-of-the-river plaut to permit a steady flow of the water (the reservoir average retention time is lower than 15 days). The most negative effects will be felt immediately after the reservoir is filled because of the decomposition of organic material in the flooded area. EBY has plans for clearing the dam area to decrease the negative effects of decomposition during the early years of operation of the project. 3. Over the long run water quality can be negatively affected by pollution resulting from population growth and industrial development in the area. Treatment plants for liquid waste are envisaged in the Posadas and Encarnacion resettlement projects, and since these cities do not have such facilities at this moment, river pollution from this source is actually expected to decline. EBY has a hydrobiological laboratory in Posadas to monitor water quality. 4. The experience of other dams in similar climates indicates that the Yacyreta reservoir could develop water hyacinths and ferns, although because the low retention time these plants are not expected to pose special problems, except in shallow areas. Clearing of the reservoir will help to impede development of that vegetation, which needs a suitable bottom in which to anchor. However, control measures may have to be ANNEX 3.1.4 Attachment 2 Page 2 of 3 adopted in the future. Eutrophication, that is, the reduction of oxygen levels, transformation of organic material into gases such as toxic hydrogenated sulphurs, are not expected to be important because Yacyreta is a run-of-the-river plant, but the process will be carefully monitored. EndanRered Species 5. The flooded areas, mainly on the Island of Yacyreta, contains certain species of animals in danger of extinction. These include swamp deer, maned wolf (aguara-guazu), alligator (vacare) and possibly two species of otter. EBY has created a natural reserve park in Paraguayan territory and has transferred the wild animals to the area. fEosion and Maintenance of Minimum Water Levels 6. Operation of the Yacyreta plant will produce high fluctuations in river level downstream of the dam which are not expected to produce erosion. Proposed operation of the plant stipulates that minimum water discharge will be very similar to the minimum average river flow and, since this is a "run-of-the-river plant, the difference in water level between dry and rainy seasons will closely follow normal river behavior. Habitat Downstream the Dam 7. Project construction will not exert negative effects on the life cycle of fish and other aquatic organisms living downstream from the dam. The variation in oxygen level from water discharge will not be expected to be significant. A 4.5 Ka section of the Ana-Cua arm would be dried up when the spillway located on that arm is not in use (78.5Z of the time), which would form shallow pools of water with unfavorable ecological and health effects. To avoid this problem the plant will maintain a minimum water flow in the Ana-Cua arm. Forestry 8. Conservation of river bank forestry species is an important aspect of ecology in the project zone. EBY is carrying out a program aimed at making recommendations on proper use and conservation of the forest and river-side habitat. This will not only help reduce evaporation but will also reduce erosion and increase the esthetic value of the project, which is highly important for tourism. Water-borne Diseases 9. Since 1975 EBY has conducted studies on health aspects in the project zone, ascertaining that water-borne diseases such as intestinal parasites are present in the area. There is also the risk of contracting diseases transmLtted by vectors (malaria, Chagas disease, yellow fever, etc.). The construction contracts contain provisions on health actions designed to control endemic diseases in the area. Moreover, with advice from specialists from the Pan American Health Organization, EBY is monitoring endemic diseases in the area and intend to continue this after the reservoir is filled. Special precautions are being taken in the construction of dwellings for relocation purposes to control the "kissing reduviid bug, vector of the ^Chagas disease^ (trypanosomiasis). ANNEX 3.1.4 Attachment 2 Page 3 of 3 Archaeologv 10. Archaeological reconnaissance and salvage is being undertaken by the Universidad Nacional de Misiones in Argentina, and by Paraguayan archaeologists in Paraguay. without findings of great importance so far. ANNEX 3.1.4 Attachment 3 Page 1 of 8 ARGENTINA ELECTRIC POWER SEOTOR PROJECT Yacyreta Project Relocation Aspects Background 1. The construction of Yacyreta requires the carrying out of a vast relocation program designed following principles established in the Yacyreta Treaty which reflects the concerns of the two countries for the well being of the population displaced and for the replacement of installation flooded by the project execution. The governing principles in the Treaty are construction and replacement of installations affected and resettlement of groups displaced in equal or upgraded conditions. This responsibility implies that Yacyreta must not only expropriate or purchase property as required for the works, reconstruct infrastructure works affected by the flooding, pay indemnity for damages suffered by third parties and construct housing and community facilities, but also carry out activities oriented to adapt the population concerned to its new location, endeavoring insofar as possible to avoid creating social distortions or breaking ties with work, welfare and cultural centers. 2. Relocatior. plans were prepared by consultants on the basis of a survey completed in 1980 and have been duly revised on the basis of updated information. Information provided by surveys include cartographic maps, detailed data of the population affected including socioeconomic and cultural profile of inhabitants, population density, possible relocation and expansion areas, housing and population distribution, sanitary equipment, soil use, educational facilities and spheres of influence, current status and building affected, road networks and connections, etc. Design of infrastructure works was made following the replacement principle for roads, railways, port facilities, sanitation and electric and telephonic facilities. Relocation proposals for urban and rural population were then prepared in coordination with national and local authorities. For the urban sector a structural approach to the cities concerned was adopted, taking into account development possibilities and existing relationships and interdependencies. For the rural population, relocation sites were discussed with local authorities and integrated to rural development plans of both countries. Description of Flood Zone 3. The Yacyreta reservoir with a normal elevation of 82 m over sea level, will have an approximate area of 1,720 km2 of which 820 km2 are flooded land in Paraguay and 240 km2 in Argentina, while 660 km2 are covered by the river and its adjacent canals. Of this area, only 19 km2 are used for farm crops and 248 km2 for natural pastures. The land subject to periodic flooding is 210 km2, the swamps are 400 km2, the woods and shrubs account for 196 km2 and the towns and cities cover 7 km2. The flooding of this area will affect about 9,000 families, economic activities (agriculture, industry and commerce), community facilities (educational, ANNEX 3.1.4 Attachment 3 Page 2 of 8 religious, recreational and government) and infrastructure installations (railways, ports, roads, electricity facilities and government buildings). 4. According to the population census conducted by the binational entity in 1977 and subsequent updating efforts, the group displaced would total about 40,000 persons, of whom 25,000 are located in Argentina and 15,000 in Paraguay. This represents 5,800 and 3,100 families, respectively. Most of this population (about 30,000 persons) is located in the urban areas of Posadas in Argentina and Encarnacion and Carmen del Parana in Paraguay as shown below: TABLE 1 Population, dwellings, commercial Installations and agricultural fields affocted by the flooding Number of Number of Number of Commercial Agricultural families persons dwellings Installatlons flolds A. Argentina 1. Urban 5,101 21,886 4,822 268 2. Rural 714 2,980 702 28 408 a) Corrioentes 100 424 94 a 61 b) Misiones 614 2,666 608 20 842 S. TOTAL 6,816 24,816 6,624 291 408 8. Paraguay 1. Urban 1,909 08658 1,877 512 8 2. Rural 1,280 6,678 1,417 89 797 8. TOTAL 8,189 16,880 8,294 601 800 GRAND TOTAL 8,964 40,148 6,818 892 1,208 - Argentina 5. Of the houses affected in the Argentine side by the reservoir, 18Z are substandard units built with discarded materials and 82 are slabs with adobe walls, straw roofs and dirt floors. Property tenure indicates that 30t of the families are land and housing owners, 72 are land and housing tenants and 63Z are land occupants with no legal title. ANNEX 3.1.4 Attachment 3 Page 3 of 8 6. From the socioeconomic standpoint the population in the zone to be flooded in the city of Posadas can be characterized as belonging primarily to the most depressed and marginal strata. Activities relating to the provision of personal services for the Posadas urban center and temporary jobs predominate. A large group operates on a subsistence level depending upon the river settJng from which they derive water, firewood, fish and income from smuggling. 7. The rural area flooded on the Argentine side amounts to 225 km2. It is characterized chiefly by natural pasture, and to a lesser extent, by rice fields, which are irrigated by water pumped from the Parana river and adjacent streams. In addition wheat and soybeans with very low yields are produced. The lack of suitable practices and technologies and poor irrigation and drainage conditions are factors limiting farm output. There are some wooded areas, p-rticularly pine forests. With regard to land tenure, the predominant system is large landed estates, especially in the Province of Corrientes, but there are 120 farms of less than 24 hectares operating on a subsistence economy and employing only family labor. 8. The flooding will affect a large number of community services and industrial and commercial establishments. These include ten primary schools, two churches, two first aid clinics, police installations and the naval headquarters, nine lumber industries, one cold storage operation, one shipbuilding outfit, and 150 olerias. The olerias deserve special mention since they use the clay soil on the banks of the Parana River to make bricks and tiles. Their traditional aources of raw material will disappear entirely when the dam is built. The port installations and railroad station at Posadas will be under water, as will 30 km of main railroad tracks, 10 km of roads, the Empresa Electrica de Misiones (EMSA) thermal power plant, and the electrical telephone and water supply networks. - Paraguay 9. The urban population affected in Paraguay numbers 8,153 persons in Encarnacion, (about one third of the city), and 500 persons in Carmen del Parana. The rural population totals 6,673 persons. Income data classify 692 of the population affected at Encarnacion as belonging to the middle and higher income strata. In contrast, in the rural area 952 are low income. 10. The number of housing units affected in the zone is 3,294, of which 1,877 are located in urban areas (1,552 in Encarnacion) and 1,417 in rural areas. Of the urban housing 412 has more than 700 m2 in land and 852 more than 360 m2, indicating a pastoral setting that is changing radically with the construction of the new international bridge, the influx of workers and proposed regional development plans for the area which would render these lot sizes inappropriate. 11. The flooding will have major implications for the urban dynamics of the Encarnacion city, since it will affect its central area and major commercial sector. Seventy percent of the houses are occupied by their owners who also own the land, 902 have electric lights and 64Z a septic tank waste disposal system. ANNEX 3.1.4 Attachment 3 Page 4 of 8 12. In the rural area of Paraguay there are 12 km2 of cultivated land and 119 km2 of natural pastures, 392 km2 of swamps, 132 km2 of woods and brush and 192 km2 of land subject to flooding. The major crops are rice and cotton. Stock raising is extensively practiced but productivity is low. On Yacyreta, Talavera and other islands that would be under water, farming is essentially at the subsistence level. 13. Solutions given by EBY to the only identified problem related to relocation of tribal people is satisfactory. In 1987 the Bank learned that a group of indians of the tribe Mbya formerly living in the Yacyreta island had left the island by 1974, at the time the Yacyreta international treaty was being prepared. A field investigation conducted by the Episcopal Conference (PEC) concluded that the tribe, composed of 10 families (about 40 people) might have left the island to avoid problems with the authorities and thus the construction of the project would have been the cause of disruption of the tribes norma: way of life. Upon the Bank's request, and following meetings between representatives of the PEC, EBY and the Bank, EBY devised a solution for reuniting the affected tribal people by resettling it in a 370 hectare property, bought by EBY. The relocation area provides adequate agricultural support capability, as well as access to fishing areas. EBY is also committed to provide social and sanitary support to the tribe during the adaptation period. 14. The total number of commercial establishments flooded will be 601, of which 500 are located in Encarnacion. The number of industrial enterprises affected is 280. Most of them are involved in processing farms commodities from the area (mills, tanners, sawmills, grain silos, oil factories, etc.), with about 100 olerias which, as noted on the Argentine side, will lose their traditional source of raw material. Special programs have been prepared to address these situations. 15. The inirastructure works flooded include the major Paraguayan public administration buildings in the Department of Itapua, three schools, two churches, military installations, the launch dock and wharves in the city of Encarnacion, 106 km of railroad lines, the Encarnacion electric power plant and 702 of the electricity dist'ibution network, 80% of the telephone lines, the water supply facility a.i.d much of the water supply distribution network. Relocation Policy of EBY 16. The basic standards for the policy on resettlement of the urban, semi-urban and rural population affected by the dam is that all those inhabiting urban or semi-urban housing, whether owners, tenants or occupants, are entitled to have another housing unit built for them by EBY. However, if the person displaced should not wish to relocate, EBY will pay proper indemnity. 17. The housing to be delivered to owners will be at least similar in quality and size to that expropriated but should have the improvements necessary to meet minimum health and habilitation standards. If the value of the property affected is less than that to be delivered in exchange, EBY ANNEX 3.1.4 Attachment 3 Page 5 of 8 will absorb a reasonable difference in price; if more, EBY will compensate for the price difference or have access to housing programs to be run by the National Housing Ministries. 18. The tenants and occupants of housing and/or lands belonging to others will be allocated minimum housing as their own property to be paid for with financing and conditions suited to their payment capacity. If their financial position permits, those beneficiaries could choose better quality and/or larger housing. 19. The minimal housing program is aimed at relocation of very low income family groups, generally with uncertain rights to the land they occupy. Minimal housing is the initial stage of a house that can progressively develop as the economic and labor resources of the families increase. In the urban sector of Paraguay minimum housing lots will have running water and sewerage with a connection pipe or septic tank and electricity installation with connection as the owner wishes, together with public lighting and minimum finishing for adequate hygienic and maintenance conditions. 20. The policy defined for the rural sector stipulates that owners could be indemnified but that every farm producer directly working a rural field affected by the dam will be entitled to have the entity award him another plot constituting an "economical farming unit". The award would be based on a sale at cost to be paid for by a long-term development credit. 'Economical farming unit" is construed to mean a plot which, when worked rationally by a family, enables it to meet its needs and ensures favorable development of the farmizg enterprise. Preferably the plots will be awarded in farm settlements. 21. As defined, the relocation policy for the urban, semi-urban and rural population is adjusted to the socioeconomic position of those affected, with a view to the least possible negative impact of the flooding. This particularly facilitates the improvement of the conditions of life of very low income groups with a reduced capacity for response to the impact of the dam and provides them with a benefit in the form of possible access to housing with minimum habilitation. The relocation policy is adapted to the particular features of property structure in the area and endeavors to retain the rural population on the farm. 22. Relocation of the urban population is being carried out by unintegrated groups, and EBY undertook the construction necessary to urbanize the area and to provide community services. For relocation of the businesses involved, commercial areas will be established in those complexes in which they will be given relocation preference. Development and Implementation of Relocation Plan 23. The implementation of the relocation plan is well advanced. Schedules for completing it are satisfactory and are available in the project file. Budgetary provisions have been taken to ensure timely completion of the component which is being implemented as follows: ANNEX 3.1.4 Attachment 3 Page 6 of 8 - Infrastructure Works 24. The designs for the infrastructure works were done by consultants belonging to the Harza, Lahmeyer and Associates Consortium. These designs were coordinated with concerned public institutions of Argentina and Paraguay. A general description of the works to be carried out is as follows: (a) Argentine side (i) Railroad: construction of 31 km of main lines; passenger terminals for trains and buses, with a covered surface, including sheds, of approximately 14,000 m2; freight station, with an 11,500 m2 surface; 4 km of road embarkment protectors; and services infrastructure. (ii) Port works: construction of freight and passenger docks at Posadas approximately 300 m in length; buildings for passengers and customs administration, with a covered surface of some 700 m2; and services infrastructure. (iii) Road projects: construction of 9.5 km of highways and two bridges with spans of approximately 200 m each. (iv) Sanitation works: construction of intakes with a pumping capacity of 60,000 m3/day, 2 km of dischazge pipes; 1.7 km of feeder pipes; two 750 m3 storage tanks and a 500 m3 regulator tank; 33 km of distribution networks; a purification plant for liquid sewage; 35 km of sewer lines; 3 km of outfalls with a pumping station; 12 km of network storm drains. (v) Electric and telephone works: installation of a provisional 24 MW turbo-gas plant until the city of Posadas is fed power from the Yacyreta plant; a 132/13.2 KV transformer substation; 9 km of medium-tension lines; 33 transformer stations and 10 km of distribution networks; and relocating 66 km of medium-tension lines and 80 telephone lines. (b) Paraguayan side (i) Railroads: construction of 93.4 km if railroad lines; a passenger and freight station, with 17,000 m2 of covered surface; and services infrastructure. (ii) Port facilities: construction at Encarnacion of 320 m of freight and passenger docks; buildings for passengers and customs administration, with an area of 950 m2; services infrastructure. (iii) Roads: construction of 8 km of highway sections; 230 m of bridges and other road structures; (iv) Sanitation facilities: construction of a pumping plant; a 500 m3 ANNEX 3.1.4 Attachment 3 Page 7 of 8 storage tank; 36 km of potable water networks; a sewage purification plant; and 36 km network of sewers; a pumping station with discharge piping; 14 km network of storm drains and 1.5 km of open canals. (v) Electric and telephonet construction of a 66/23 KV step-down substation; 17 km of medium-tension lines; 35 km of low-tension lines; 65 transformers stations; relocation of telephone network. - Urban Housing 25. Relocation at Posadas is being made in four diversified areas flexible enough to accommodate the different socioeconomic groups of the population involved. A total of 4,250 dwellings with a total of about 250,000 square meters of area are being constructed. Dwellings consist of single-family housing compatible with the housing and cultural patterns of the population to be relocated. The area for resettlement in Encarnacion was chosen with a structural approach to the city of the future, taking into account the forthcoming construction of the Encarnacion-Posadas international bridge and the necessary ties between the city and rapidly developing farm settlements in the Department of Itapua. The number of dwell.'ngs in Encarnacion will be 1,900 with a total area covered of about 110,000 square meters. An attempt has been made to avoid social distortions or break in ties to job sites. - Rural Programs 26. On the Paraguayan side the best alternative for most of the 1,230 houses affected was be to include them in expandinv existing national settlements. This alternative required the formulation of an integrated rural development project, including technical and credit assistance, social services, road infrastructure, organization of producers for marketing purposes and other activities. On the Argentina side, an agreement was entered into with the Province of Corrientes whereby the latter identifies alternatives for relocation of its rural population, and a similar agreement is expected to be signed with the Province of Misiones. -Social Programs 27. The social programs, which will support and expedite relocation of the population involved, are also being carried out. Those programs call for undertaking the following activities, among others: (i) Information and communication to the population on characteristics of the Yacyreta project and relocation plans; (ii) identification and recording of needs and desires of the population group involved and preparation of replies by the entity to their concerns; (iii) individual and collective advisory services to the population to be relocated on options offered by Yacyreta; ANNEX 3.1.4 Attachment 3 Page 8 of 8 (iv) implementation of labor training programs to enable the local population to take advantage of job facilities created by the project; and (v) implementation programs to familiarize the relocated population with their new housing, job and human environment to assist them in solving problems created by adjust-msnts during the initial resettlement period. 28. The social programs is being carried out in three phases: before, during and after relocation. EBY has setting up a follow-up and control unit under the Coordination Directorate which is responsible for assessing the efficiency and effectiveness of social programs, controlling adaptation and transformation of the groups involved and changes in quality of life and proposing corrective action required by the relocation plan. -Monitoring 29. The programming, implementation and evaluation of all programs under the relocation plan is the responsibility of a specialized unit which performs its functions in the work area on the right bank (Paraguay) and in the left bank (Argentina). Each of these units is be responsible for areas: (a) road, port and railroad works and supplementary jobs; (b) housing, services and community facilities; (c) planning and administration and relocation program; and (d) studies and projects. Under the planning and administration of the relocation program are the social and rural programs and all aspects of the relocation plan not involving physical construction. Appropriate coordination is maintained between the two implementation units both in the work sites and in EBY's headquarters. 30. The degree of progress achieved by the relocation program is estimated at 30Z. Schedule for completing the component are in line with plane for filling the reservoir during November 1992. 31. Monitoring of the results of social programs is made by EBY's social workers on a continuous basis. Additionally EBY has designed a survey to assess results of the efforts made for solving problems associated to relocation, mitigating social distress and for evaluating the improvement in the standards of life expected to be achieved for the major part of the displaced population. So far results have been very positive. For the purpose of verifying how the population affected has adapted to its new environment and living conditions, ex-post evaluation should be made two and five years after the project has been completed. ANNEX 3.1.5 ARGENTINA ELECTRIC POWER SECTOR PROJECT National Utilities' 1988-1989 Investment Program Estimate of Proiect Cost (in USS million) A.-Coaatat January 1966 prices ----- AyEE ----- ---- sEs -- ----- It -------nMRONR-------1 It------- my-------1 It------- SECTOR -------] LC FC Total LC PC Total LC FC Total LC PC Total LC FC Total ___------------- ---------------- --------------- ---------------- -__-------___-__--_------------ -_---__--------- --------------- 1966 69.2 59.4 146.6 76.2 50.6 127.0 104.4 69.6 174.0 884.6 162.6 467.4 874.6 842.4 917.0 1969 166.7 124.6 311.2 121.9 81.8 206.2 168.1 108.7 271.6 44.7 147.7 492.4 616.4 482.2 1276.0 1990 168.6 109.0 272.6 168.5 112.4 280.9 184.1 89.4 228.5 828.2 104.6 480.0 791.4 416.6 1207.0 1991 162.6 121.7 304.8 169.8 126.2 81.5 68.4 58.6 189.0 206.6 98.8 297.1 689.1 86.6 1055.9 12 254.6 1699. 424.7 151.8 100.8 252.1 28.8 15.6 86.9 126.8 62.0 210.8 567.7 866.8 926.0 1998 256.9 171.s 428.2 50.2 86.6 97.0 18.8 10.5 26.8 79.0 71.4 150.4 409.9 292.0 701.9 1994 868.4 242.2 0s.e6 67.4 48.0 112.4 14.6 9.7 24.8 50.7 60.2 110.9 496.1 857.1 685.2 1995 488.5 802.4 758.9 67.4 48.0 112.4 28.6 16.7 89.8 27.9 66.1 84.0 82.5 419.1 91.6 TorAL 1960.7 1800.4 8251.1 900.8 600.2 1500.5 862.8 874.6 987.1 1484.4 776.1 2242.5 4877.6 8080.6 7981.2 1966-69 275.9 168.9 489.6 198.1 182.1 880.2 267.5 176.8 448.6 649.5 810.8 989.6 1891.0 804.6 2198.6 6.-Current prices ---- AyEE ---- t( ------ S ---- ___ ----_--- FROW-----_ _ I(._____.-EBf -------I t(------- SB:TQ -------I LC FC Total LC FC Totol LC FC Total LC PC Total LC PC Total 1e96 90.7 60.5 151.2 77.5 51.7 129.2 106.2 70.8 177.0 804.6 162.6 487.4 579.8 848.6 924.0 1969 195.7 180.8 826.1 127.6 86.2 218.0 170.9 118.9 264.6 862.8 166.4 520.7 686.7 486.0 1844.6 1990 176.5 117.7 294.1 181.9 121.2 803.1 144.7 96.5 241.2 882.7 118.9 468.6 8S.7 481.8 1807.0 1991 205.0 186.7 341.7 212.6 141.7 884.3 93.7 62.4 186.1 227.1 106.9 684.0 738.4 447.8 1166.1 I12 297.6 196.4 496.0 176.7 117.6 294.5 27.8 16.2 48.4 148.6 96.6 244.2 647.2 438.0 1060.1 1998 811.9 207.9 819.8 70.7 47.1 117.8 19.2 12.6 81.9 91.1 90.7 161.8 492.8 858.5 681.8 1994 486.9 805.9 764.9 68.2 66.6 142.0 18.4 12.8 80.7 89.7 80.9 140.8 622.2 488.9 1078.1 1998 595.5 897.0 992.5 66.5 59.0 147.6 81.0 20.6 51.6 s3.7 79.8 118.5 746.7 s8.s5 1805.2 TOTAL 2881.9 1884.6 8666.5 1020.6 66o0. 1701.8 611.3 407.5 1016.6 1577.0 69a t 2470.8 5840.9 3886.4 9077.4 1966-19 256.4 190.9 477.8 205.8 186.9 842.2 277.1 164.6 481.9 867.1 821.0 901.1 1488.0 63s.6 2269.5 C.-1988-1969 Project Costs ------- Ayi -------1( ------- SEOA ------- [------- H OR-------) I------- EBY -------S C------- SECTOR -------] LC PC Total LC FC Total IC PC Total LC PC Total LC PC Totaf Direct coat 248.8 168.8 413.8 176.3 116.9 247.2 240.7 160.5 401.2 564.6 279.3 866.0 1251.9 724.2 1976.0 Physic. Cont. 27.6 16.4 48.0 19. 18.2 88.0 26.7 17.8 44.6 e5.0 81.0 96.0 139.1 80.5 219.6 Sub-total 275.9 168.9 49.8 198.1 182.1 330.2 267.5 178.8 445.8 649.5 310.3 959.8 1391.0 804 6 2195.6 Price. Cont. 10.5 7.0 17.5 7.2 4.8 12.0 9.7 6.4 16.1 17.6 10.7 28.3 45.0 28.9 13.9 Sub-total 286.4 190.9 477.3 205.3 136.9 342.2 277.1 184.8 461.9 667.1 321.0 988 1 1435 9 S33 6 2269 5 Interest (1) 80.1 0 0.1 80.1 80.1 SE/14P TA(2) 1.0 2 0 3 0 Total 28e.4 190.9 477.3 205.3 186.9 842.2 277.1 184.8 461.9 667.1 401.1 1068.2 1436.9 915.7 2382.5 (1) UIrder current and proposed Bank and 1D0 loans (2) Techniacl Aeietence program for the SE ANNEX 3.1.6 ARGENTINA ELECTRIC POWER SECTOR PROJECT EBY's Environmental and Resettlement Plan of Action Item Description Date 1. Resettlement Staff Agreement between the !ank and EBY on number and participation schedule of staff hired or to be hired and on the budget for every year in the period 1989-1992 for the environmental and resettlement component. 10/30/88 C 2. Training Agreement between the Bank and EBY on a training program for the staff, including courses, seminars and workshops and international on-the-job training. 10/30/88 C 3. Panel of Experts on Environment Agreement between the Bank and EBY on the composition and schedule of meetings. 10/30/88 C 4. Fisheries Completion of economic, social and nutritional studies. 5/30/89 C Installation of fish station, left bank. 5/30/90 C 5. Fauna Sanctuary Agreement between the Bank and EBY on schedule and budget for completion and operction. 5/30/89 C 6. Urban Areas Completion of Master Plan for the city of Encarnacion. 11/30/89 C Implementation of Master Plan for Encarnacion. 6/30/90 S Completion of sanitation lan for the city of Posadas. 6/30/89 C 7. Population not included in Original Survey of the Population to be Resettled Provision to the Bank of an evaluation of the extent of the problems. 5/30/89 C 8. Clay Industries (Olerias) Provision to the Bank of a proposal for solution. 5/30/89 C C - Completion Date S - Starting Date ARGENTINA ELECTRIC POWER SECTOR PROJECT National Utilities Performance Indicators and Financial Commitments --Hi to___ I - - - Forecast ----------- Yer ending Dc. 81 19865 190 107 168 1909 1990 1901 1002 1998 1994 1996 - - - ~~~~~~~Noe- ----e. - -_ - - - -*- _ - _-------------------- _- - 1. BASIC FINANCIAL INDICATORS working Margin (3) a/ -3.4 8.0 -12.7 9.0 18.9 21.3 31.6 35.8 38.4 37.4 36.6 Contribution to Investmont b/ -u/ electA. eergy funds (3) 66.3 39.4 4.9 54.7 60.7 S5.a 61.0 72.6 76.5 79.6 76.8 -w/ elect. funds () 16.1 -36.1 -6.7 -30.2 7.4 25.8 88.5 51.4 68.3 58.2 50.7 -w/o I ect. & enorgy funds (X) 2.6 -67.6 -28.8 -58.1 -12.3 8.7 24.8 38.7 49.4 45.4 39.2 2. OTHER FINANCIAL IIDICATORS Avg. sa'z price (US mills/kWh) 82.1 38.3 81.1 33.5 86.7 38.5 40.8 43.0 4 45.9 46.7 Labor/Gross plant in service CX) 2.6 2.7 3.2 2.6 2.5 2.4 2.3 2.0 ".O 2.0 1.9 Labor/Operating revenues () 27.4 25.1 36.7 27.0 23.8 21.4 19.8 17.7 16.2 14.9 13.8 Debt service coverage (times) c/ 1.1 0.4 -0. 1 0.3 0.7 1.3 1.7 1.9 3.8 1.8 1.8 Indebtedness (X) d/ 48.8 44.1 48.3 41.1 89.8 39.1 27.9 86.9 33.7 30.9 28.2 Collection period (days) e/ 149.0 165.8 190.2 119.4 91.1 86.1 80.4 79.9 79.6 79.2 78.9 Current ratio (ties) 1/ 0.2 0.4 0.6 0.7 0.6 0.6 0.8 0.7 0.7 0.0 0.7 S. OPERATIONAL IIDICATORS Number of _mployes (thousand) 34.7 84.1 34.5 36.9 86.9 86.0 38.4 38.4 36.4 36.3 386.3 Custoers (thousands) 4048.1 4116.1 4228.8 4306.9 4439.2 4511.2 4687.2 4662.2 4742.2 4824.2 4908.2 Custom rs/Employee 117 121 128 120 124 125 126 128 130 133 135 Soles (TWh) 26.7 29.1 80.8 33.5 85.3 87.3 89.6 41.6 43.9 48.2 48.9 Sales/employee (GWh) 0.8 0.9 0.9 0.9 1.0 1.0 1.1 1.1 1.2 1.3 1.3 4. FINANCIAL COMMITMENTS (USI million) Equity contributions 311.4 352.8 3a3.2 462.4 452.8 888.4 801.6 266.4 184.6 263.2 354.7 Debt service assumed by Govt. 208.2 116.4 188.2 281.9 294.7 290.0 266.6 202.3 243.7 257.9 260.0 Borrovings 106.8 70.9 71.2 162.0 349.2 352.7 316.9 205.4 165.7 164.6 216.6 Other contributions 55.8 146.5 234.3 36.7 10.2 8.2 8.1 0.0 0.0 0.0 0.0 a/ Operating income plus depreciation d/ Total long-term debt as a percentage as a percentage of operating revenues. of total capitalization. b/ Internsl funding as a percentage Ratio of accounts receivable (electricity) of total applications. to electricity sales revenues, time 366. c/ Ratio of gross internal funding f/ Ratio of current assets to to net debt service. current liabilities. N ARGENTINA ELECTRIC POWER SECTOR PROJECT SEGBA Performance Indicators and Financial Commitments - - - -Historic I -Forcast -- ------ Year ending Dec. 81 1965 1986 1967 19 1989 1990 1991 1992 1993 1994 1995 Notes- -- -- 1. BASIC FiNANCIAL INDICATORS Working umrgin (.) */ -24.1 -1.6 -80.9 6.9 16.9 18.6 20.3 28.2 25.2 23.8 22.8 Contribution to Investment b/ -wl elect. A nergy funds (X) 28.8 8.4 449.6 86.8 64.4 49.4 45.0 67.8 77.4 97.8 97.7 -w/ elect. funds (U) -10.8 -49.8 626.8 11.7 47.8 46.0 45.0 64.4 77.4 97.8 97.7 -w/o elect. A energy funds (X) -10.8 -50.9 667.5 11.7 47.8 45.0 45.0 64.4 77.4 97.8 97.7 2. OTHER FINANCIAL lNDICATORS Avg. sales price (USville/kWh) 47.7 49.0 44.1 48.2 52.0 52.5 58.8 56.4 67.4 68.6 68.6 Labor/Gross plant in service (X) 5.1 4.8 6.4 5.0 4.8 4.6 4.4 8.9 3.8 3.7 3.6 Labor/Operating revenues (U) 27.9 22.7 37.6 24.8 21.8 20.2 18.7 17.1 16.0 16.1 14.4 Debt service coverage (tines) c/ 0.9 0.4 -0.7 1.2 6.8 5.7 3.2 3.2 2.1 2.1 2.0 Indebtedness (N) d/ 32.7 81.9 82.4 29.6 80.4 38.0 36.8 86.4 34.8 82.e 80.4 Collection period (days) */ 80.0 74.9 67.9 61.6 57.8 56.7 61.1 51.1 51.2 51.2 51.2 Paymnt period -elect. (days) f/ 64.0 80.0 209.0 178.0 91.0 61.0 61.0 61.0 61.0 61.0 61.0 -fuel (days) f/ 121.0 78.0 194.0 92.0 90.0 64.0 e4.0 64.0 64.0 64.0 64.0 -suppliers (days)f/ 29.0 51.0 68.0 60.0 e4.0 67.0 67.0 66.0 60.) 59.0 59.0 Current ratio (time) g/ 0.6 0.5 0.5 0.6 0.8 0.9 0.7 0.7 0.8 0.8 0.9 3. OPERATIONAL INDICATORS Losses (X) 21.6 21.7 21.9 19.0 16.0 13.0 18.0 13.0 13.0 13.0 13.0 Number of employees (thousand) 21.7 21.0 21.6 22.9 22.9 22.9 22.9 22.9 22.9 22.9 22.9 Customers (thousand) 13817.6 866.0 3763.6 3886.2 8934.0 3984.0 4034.0 4084.0 4134.0 4184.0 4234.0 Custom_rs/Employes 167 175 175 167 172 174 176 178 1SO 183 1ss Sales (TWh) 12.4 13.6 14.5 15.6 16.3 17.3 18.3 19.1 20.0 20.9 21.9 Sales/Employee (Mh) 0.6 0.6 0.7 0.7 0.7 0.8 0.8 0.8 0.9 0.9 1.0 4. FINANCIAL COMMITMENTS (USS million) Equity contributions 26.2 68.7 49.7 84.5 44.7 13.2 0.0 9.0 0.0 0.0 0.0 Debt service assumed by Govt. 0.0 0.0 0.0 52.8 58.2 58.7 28.0 58.1 0.0 0.0 0.0 Borrowings 0.0 0.0 2.1 0.4 87.8 150.5 157.8 81.6 41.9 0.0 0.0 Other contributions 56.8 95.7 75.8 11.0 2.0 0.0 0.0 0.0 0.0 0.0 0.0 ___~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- ----_ .----- _-__ __----------------- ?_ */ Operating incom plus depreciation d/ Total long-term dobt as a percentage 9/ Ratio of current asstes as a percentage of operating revenues. of total capitalization. to current liabilities. b/ Internal funding as a percentage / Ratio of accounts receivable (electricity) of total applications. to electricity sales revenues, times 366. c/ Ratio of gross internal funding to f/ Ratio of accounts payable to expenses, net debt service. times a86 _----_ ______ -__--- ----- _ _ _ ------ _ ___ _ -s.- _ _- _ _-- __ _ _--S-__- _ _ --------------- ---- ARGENTINA ELECTRIC POWER SECTOR PROJECT Agus y Energia Electrica Performance Indicators and Financial Commitments …- ----------- …- -Historlc----lF--ec-------- - --------------------For-c t Year onding Dec. 31 1986 1988 1987 1988 1989 1990 1991 1992 1993 1994 1995 -- ----- - ------------- --- - --- - ------------ - - 1. BASIC FINANCIAL INDICATORS Working Margin (X) a/ 15.3 18.6 7.8 7.1 10.4 18.0 25.0 27.3 32.3 33.4 33.4 Contribution to investment: b/ w/Electricity A energy tda. (X) 98.4 78.4 73.8 2.6 48.5 79.3 76.3 72.6 76.1 75.4 74.1 w/Electricity funds (X) 20.8 -66.7 32.3 -63.2 8.0 66.9 76.3 40.9 67.8 48.7 42.3 w/o Electri. A energy fds. (X) 2.1 -102.3 20.2 -120.6 -73.7 4.9 19.0 24.7 39.4 33.4 28.8 2, OTHER FINANCIAL INDICATORS Avg. soles price (US mills/kWh) 18.8 20.1 20.1 21.2 23.7 26.8 30.1 32.1 34.1 36.1 37.9 Labor/Gross plant in serv. (X) 1.4 1.8 2.1 1.7 1.8 1.6 1.6 1.4 1.4 1.4 1.3 Labor/Operating revenues (X) 20.9 22.9 27.9 24.9 21.9 18.7 16.9 14.2 12.6 11.1 9.8 Debt service coverage (times) C/ 1.1 0.3 -0.4 0.1 0.2 1.2 1.6 2.1 3.0 2.7 2.6 Indebtedness (U) d/ 52.9 61.8 60.6 49.6 46.6 44.3 42.2 40.2 38.4 36.8 32.4 Collection period (days) */ 179.6 234.1 299.9 145.7 86.2 73.8 71.5 70.2 89.0 67.9 68.9 Payment poriod-electricity (days f/ 390.0 450.0 428.0 210.0 160.0 110.0 60.0 60.0 60.0 60.0 60.0 -fuel (days) f/ 60.0 83.0 66.0 52.5 84.0 83.8 87.8 70.3 86.4 70.4 76.0 -suppliors (days) f/ 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 80.0 30.0 30.0 Current ratio (times) g/ 0.1 0.4 0.7 1.0 0.7 0.7 0.8 0.8 0.8 0.7 0.6 3. OPERATIONAL INDICATORS Losses (X) 8.6 8.7 7.1 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 Number of employees (thousands) 11.6 11.6 11.3 11.3 11.3 11.4 11.4 11.4 11.4 11.3 11.3 Cust_Aers (thousands) 430.6 460.1 460.3 470.7 606.2 527.2 653.2 578.2 608.2 840.2 674.2 Customers/employee 37 39 41 42 46 46 49 51 53 57 s0 Soles (TUb) 13.9 16.0 16.8 17.2 18.4 19.3 20.5 21.7 23.0 24.4 28.0 Sales (GWh)/employee 1.2 1.3 1.4 1.6 1.6 1.7 1.8 1.9 2.0 2.2 2.3 4. FINANCIAL COMMITMENTS (USS million) Equity contributions 219.4 233.8 237.6 171.1 252.4 211.3 188.6 204.8 160.8 248.24 342.75 Debt service assumed by Govt. 208.2 115.4 188.2 214.8 190.8 189.9 197.2 195.9 206.9 236.9 250 Borrowings 3.7 10.9 34.4 117.9 108.6 58.7 81.8 117.4 112.3 146.3 195.4 Othor contributions 0 17.1 85.4 17.7 0 0 0 0 0 0 0 a/ Operating income plus depreciation d/ Total long-term debt as a percentage g/ Ratio of current assets to curren z as percentage of operating revenuos. of total capitalization. liabilities. b/ Internal funding as a percentage */ Ratio of accounts receivable (eloctricity) of total applications. to electricity sales revenues, times 385. c/ Ratio of gross internal funding f/ Ratio of accounts payable to to net debt service. expenses, times 366. ---------------------------------------------------------------------___------__-----------------------------------------__--------------- ARGENTINA ELECTRIC POWER SECTOR PROJECT HIDRONOR Performance Indicators and Financial Coumitments ------ --------- - - ----Historic --- _ Forecast --…-------------… Year ending Dec. 81 1986 1966 1967 1988 1989 1990 1991 1992 1993 1994 1995 ~~ ~~~ - - - - ------ Ntes- -_ - -- __- _ -- ---- - ----- _--------- 1. BASIC FINANCIAL INDICATORS Working margin (X) 58.8 48.8 24.0 21.7 48.9 88.7 88.6 06.0 66.8 65.9 e6.9 Contribution to investment: -w/ elect. A energy funds (X) 44.a 28.0 18.6 75.3 88.3 88.9 80.8 90.4 98.3 69.8 51.1 -w/ electricity funds ([) 22.0 9.8 -29.4 9.8 10.8 9.9 54.8 60.2 64.3 48.1 38.4 -w/o electr. A energy funds (X) 8.8 -17.6 -6J.6 -41.6 -28.5 -85.1 2.6 26.5 29.3 20.6 21.9 2. OTHER FINANCIAL INDICATORS Avg. sales price (US mills/kWh) 18.1 14.3 18.9 16.1 16.4 18.8 21.0 23.3 24.1 24.2 24.2 Labor/Cross plant in service (X) 0.9 1.1 1.1 1.0 1.0 1.0 1.0 0.8 0.8 0.8 0.8 Labor/Operating revenues (U) 13.6 17.8 22.8 28.5 19.6 28.0 12.2 9.9 9.6 9.6 9.6 Debt service coverage (times) 1.4 0.7 0.3 0.2 0.6 0.8 1.0 1.1 1.1 1.0 1.0 Indebtedness (X) 34.8 40.3 88.6 35.9 35.8 86.6 32.7 28.8 24.4 20.3 17.0 Collection period (days) 61.6 100.8 138.2 89.8 89.7 89.7 89.8 89.8 89.8 89.8 89.8 Paym_nt period (days) 46.0 45.0 45.0 45.0 45.0 45.0 46.0 45.0 45.0 45.0 46.0 Current ratio (timen) 0.4 0.7 0.4 0.8 0.8 0.2 0.4 0.4 0.6 0.5 0.6 3. OPERATIONAL INDICATORS Losses (U) 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 Number of employees (thousand) 1.63 1.56 1.68 1.70 1.70 1.72 2.12 2.12 2.12 2.12 2.12 Sales (TWh) 7.3 7.0 7.7 6.5 7.1 5.6 11.2 12.3 12.4 12.4 12.4 Sales/Employee (OWh) 4.8 4.5 4.6 3.8 4.2 8.2 5.8 5.8 5.8 5.8 5.8 4. FINANCIAL COMMITMENTS Equity contributions 66.8 65.3 9s.9 206.8 155.6 183.8 115.8 42.8 23.8 15.0 12.0 Debt assumed by Govt. 0.0 0.0 0.0 14.3 46.7 41.4 48.4 38.3 37.8 21.0 0.0 Borrowings 103.1 60.0 84.7 48.7 155.4 143.5 77.7 8.4 2.5 9.3 20.1 Othor contributions 0.0 83.7 73.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ----- - - --- - - --------------- - --------- - -- ------ - --- -- ......................................... --- --- --- --- --- --- --- ---- --...........-- --- --- --- --- --- a/ Operating income plus depreciation d/ Total longr-ter debt as a pecontage g/ Ratio of current assets to as a percentage of operating revenues of total capitalization current liabilities b/ Internal funding as a percentage e/ Ratio of accounts receivable (electricity) of total applications to electricity sales revenues, times 386 c/ Ratio of gross internal funding f/ Ratio of accounts payabl- to expense, to net debt service time Us. ANNEX 3.3.1 ARGENTINA ELECTRIC POWER SECTOR PROJECT Economic Evaluation (Constant January 1988 Prices in US$ Millions) l"iw is. ox lnvt.n-t - ( …--Opersting Costs - Total Incrementwl Incremntal Incr_ental Total Energy Comte Coat Energy Sales Allt Price Energy Swis Benefits Labor Materlala Fuels Purchased (T U#h) (S/M) t--(S*S million) --- Yarr (1) (2) (3) (4) (a) (6) (7) (6) (9) (10) (11) … _ _ __ _ ----------------------------------------------------------------------------- _ _______- _,- __-_- _-- _- __--__--__ --__ -____ _ 197 376.2 250.0 265.1 163.8 1077.1 1968 917.0 315.8 182.8 317.7 150.6 1663.6 so0.5 46.3 -80s.5 1969 1278.6 316.0 175.1 362.4 137.4 2269.5 1192.4 2.6 82.0 138.2 -1057.2 1990 1207.0 316.9 184.0 404.1 166.3 2296.3 1221.2 4.5 86.4 283.6 -967.4 1991 1055.9 322.7 192.9 332.5 172.5 2076.8 999.4 6.8 58.2 512.2 -487.2 1992 926.0 322.8 206.8 370.6 158.1 1960.7 903.6 10.6 60.8 651.2 -252.4 1993 701.9 322.2 215.0 426.7 184.7 1800.5 723.4 13.1 62.4 817.4 94.0 1904 688.2 321.9 227.4 368.0 291.7 2079.2 1002.1 18.4 64.4 991.8 -10.8 1998 991.6 321.9 236.2 857.9 426.4 2336.0 1258.9 18.1 85.6 1187.4 -71.8 1996 321.9 238.2 857.9 426.4 1344.4 267.3 22.0 85.6 1443.2 1178.9 1997 321.9 230.2 357.9 426.4 1344.4 267.3 22.0 65.6 1443.9 1175.9 19S9 321.9 238.2 s57.9 426.4 1344.4 217.3 22.0 68.6 1443.2 1175.9 1999 321.9 238.2 887.9 426.4 1344.4 2317.3 22.0 68.6 1443.2 1178.9 2000 321.9 236.2 357.9 426.4 1344.4 2117.3 22.0 65.8 1443.2 1178.9 2001 321.9 238.2 387.9 426.4 1344.4 27.3 22.0 65.6 1443.2 1175.9 2002 321.9 238.2 387.9 426.4 1344.4 267.8 22.0 68.6 1443.2 1175.9 2008 321.9 236.2 887.9 426.4 1344.4 267.3 22.0 68.6 1443.2 1175.9 2004 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1178.9 2008 321.9 236.2 387.9 426.4 1344.4 267.3 22.0 68.6 1443.2 1175.9 2006 321.9 238.2 357.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.9 2007 321.9 238.2 387.9 426.4 1344.4 267.8 22.0 65.6 1443.2 1178.9 2006 321.9 236.2 887.9 426.A 1344.4 267.3 22.0 65.6 1443.2 1175.9 2009 321.9 236.2 387.9 42 .4 1344.4 267.3 22.0 68.6 1443.2 1175.9 2010 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.9 2011 321.0 2s8.2 387.9 42.4 1344.4 267.8 22.0 65.8 1443.2 1178.9 2012 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.9 2013 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.9 2014 321.9 238.2 887.9 426.4 1344.4 267.3 22.0 6S.6 1443.2 1175.0 2015 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.9 2016 321.9 236.2 357.9 426.4 1344.4 267.3 22.0 68.6 1443.2 1178.9 {.17 321.9 238.2 387.9 426.4 1344.4 287.3 22.0 65.6 1443.2 1175.9 2018 275.1 321.9 236.2 357.9 426.4 1619.5 542.4 22.0 65.6 1443.2 900.6 2019 383.6 321.9 238.2 357.9 426.4 1728.0 650.9 22.0 65.6 1443.2 792.3 2020 362.1 321.9 238.2 387.9 426.4 1706.8 629.4 22.0 65.6 1443.2 813.0 2021 316.8 321.9 238.2 387.9 426.4 1661.2 584.1 22.0 68.6 1443.2 389.1 2022 277.8 21.9 238.2 357.9 426.4 1622.2 545.1 22.0 65.6 1443.2 898.1 2023 210.6 321.9 236.2 887.9 426.4 155.0 477.9 22.0 68.6 1443.2 965.8 2024 256.0 321.9 238.2 887.9 426.4 1600.4 526.3 22.0 65.6 1443.2 919.9 2025 297.5 321.9 238.2 357.9 *126.4 1641.9 864.8 22.0 65.6 1443.2 876.4 2026 321.9 236.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.9 207 321.9 238.2 387.9 426.4 1344.4 267.3 22 '1 65.6 1443.2 1175.9 2026 321.9 238.2 357.9 426.4 1344.4 267.3 22.) 65.6 1443.2 1175.9 2029 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.9 2030 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1178.9 2031 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1178.9 2032 321.9 238.2 357.9 426.4 1344.4 2M7.3 22.0 65.6 1443.2 1175.9 20S3 321.9 236.2 387.9 426.4 1344.4 267.3 22.0 6s 6 1443.2 1178.9 2034 321.9 238.2 357.9 426.4 1344.4 267.3 22.0 68.6 1443.2 1175.9 2035 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1178.9 2036 321.9 238.2 357.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.9 2037 321.9 238.2 357.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.9 2038 321.9 238.2 887.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.9 Total 10310.6 16401.6 11864.2 18346.6 19989.4 76912.9 21980.8 1019.3 66606.6 44625.8 INTS4NAL RATE OF RETU14 15.01 Nobt: (1) Federal Utilities plus EBY (5) To OEA and CTPS0 (8) Percantagea of Incraeaea in Sales Attributable to the Project es followsa 1989 509 ; 1990 75ti; 1991-1996 1002; 1997 and beyond at 1996 le,e1 ANNEX 3.3.2 Page 1 of 5 ARGENTINA ELECTRIC POWER SECTOR PROJECT Economic Evaluation of the Yacyreta Project Background 1. An oconomic study carried out in 1978 under Loan 1330-AR showed that Yacyreta (2,700 MW) was part of the least-cost solutior. for expanding the capacity of the National Interconnected System (SIN). Commissioning of the project's 20 generation units was scheduled for the period 1985-1989. On these basis the Bank appraised the project in August 1978 and approved a US$210 million loan (Loan 1761-AR). The total project cost, including physical and price contingencies at December 1977 level prices, was estimated at appraisal at US$3781 million, of which US$1519 million was the foreign component and US$2262 million the local component. Generating costs of the project were estimated at US$18.9/MWh. The project's internal rate of return was estimated at 14Z. 2. Some of the assumptions made at the time of appraisal for the project economic evaluation are no longer valid: First, demand of the SIN grew at rates well below than expected; the appraisal estimate for demand growth during 1980-1990 was 9.OZ while actual growth in the period 1980-1987 has been only 3.31 p.a. and growth from 1987 to 2000 is now estimated to be about 6Z; and second: the opportunity cost of natural gas is currently much lower than the cost assumed in 1978; this is due to an important increase in the country's proven gas reserves. These changes raise the question whether Yacyreta is still in the least-cost expansion program to supply the demand. Least-Cost Solution 3. A "with/without the project, approach was used to assess whether the project is still the least-cost expansion solution by comparing the present value of cash flows for components which would be different in both options. Because of the relatively low cost of gas in Argentina, the alternative option selected for the case without Yacyreta consists of a group of gas-fired thermal plants which would ensure to the system a security of supply similar to Yacyreta. A more comprehensive methodology would have been to produce a long- term optimized master expansion program for the SIN where completion of Yacyreta together with all other feasible projects available for sector expansion would be compared, and then see whether or not Yacyreta would be chosen. It is felt that this academically more sound but longer and more complex method would lead to similar results given inevitable uncertainties in the evaluation of the costs associated with the possible cancellation of the project. 4. The evaluation was made using the following principal assumptions: a) Demand growtht 61 average in the period 1987-2000; b) Cash flow period: 1988-2038; ANNEX 3.3.2 Page 2 of 5 c) Useful life of Yacyreta: 50 years; d) Useful life of gas-fueled steam thermal plants and combined cycle plants: 2% years; e) Useful life of gas turbines: 15 years; f) Constant prices in US$ equivalent of, January 1988; g) Costs of gas: equivalent to US$1.7/million BTU (or per thousand cubic feet). 5. Costs associated to the Yacyreta option include: a) investments in the hydroplant in the period 1988-1996; b) investments in the transmission system associated to Yacyreta; c) operating and maintenance costs of Yacyreta, and the associated transmission system; 6. Cost associated to the gas option include: a) investments in thermal plants; b) operation and maintenance costs of thermal plants. 7. The advanced stage of execution of the Yacyreta project suggests that cancelling the works would result in either foregone benefits which could be associated to the construction of Yacyreta or economic costs due to the project cancellation. These cancellation costs are: a) navigation benefits; b) economic costs borne by contractors, consultants and suppliers for cancellation of contracts; c) maintenance of abandoned works; and d) compensations to Paraguay for the revocation of the international treaty. Investments -Yacyreta 8. Investments in Yacyreta includes infrastructure works, civil works, mechanical and electrical equipment, camps, indemnization and relocations, and environmental programs to be executed in the period 1988-1996. Investments made up to 1987 are considered sunk costs. Investments in transmission were estimated on the basis of results of the master plan study for developing of the SIN transmission facilities in the period 1990-2000, financed by loan 1761-AR. ANNEX 3.3.2 Page 3 of 5 -Thermal alternative 9. The first stage of Yacyreta will have twenty 135 MW turbines for a total rated output of 2700 MW. The average generation will be 20,200 GWh/year, for a plant factor of 802. Thus, the plant is expected to generate at full capacity to provide base load during most of the year. The equivalent group of thermal plants was estimated to be four 750 MW (net) steam plants located in different sites in the system (in the northeast, in the northwest, in the Litoral area and close to Buenos Aires) which, operating 6,730 hours/years, would generate the same amount of energy as Yacyreta. However, as the reliability of this type of thermal plant (because of planned plus forced outage) is about 75-802, studies carried out with the system simulation model show that it would be necessary to add about 270 MW (net) in gas turbines as reserve capacity to provide, with equivalent reliability, the same total output as Yacyreta. 10. Total average investment costs were estimated at US$850/kW for the steam thermal plants and at US$350/kW for the gas turbines. These costs represent current market values. Annu&l investments of the thermal alternative weriu prepared on the basis of: (i) the commissioning date required to match the scheduled commissioning dates of the 20 units of Yacyreta and which is consistent with the system energy requirements due to the demand growth; and (ii) typical investment profiles for each type of plant. Operation and Maintenance (O&M) 11. O&M costs of Yacyreta were estimated by EBY (US$15 million per year). O&M of the thermal alternative (other than fuel) was estimated as follows: US$12.5/Kw-year for steam plants and US$9/Kw-year for gas turbines. Fuel consumption was estima:ed as the needed to replace Yacyreta's expected generation. Thermal plants efficiency was estimated as 392 for steam plant. Generation in gas turbines was considered negligible. 12. The economic cost of gas adopted in this analysis is based on Bank estimates and is equivalent to about US$1.7/million BTU. Cancellation 13. Though difficult to estimate, they cannot be ignored and will be handled as a lump sum in this evaluation. These items are: a) Navigation benefits Navigation benefits were estimated in the SAR at US$16 million for 1985, increasing from US$16 million/year to US$59 million/year from 1986 to 2005 and remaining at that level thereafter (1979 price levels). The basis for this estimate was a transport study for Argentina and Paraguay, which was part of the project feasibility study. Estimates made by EBY on the basis of the original study are that the present value of navigation benefits ANNEX 3.3.2 Page 4 of 5 would be, as a lower bound, about US$220 million, of which half, or US$110 million, would be attributable to Argentina. b) Compensation to contractor, engineering consulting firms and suppliers in case of cancellation of the project. The cost of the civil works contract, which is likely to originate most of the potential compensation claims in case of cancellation, amounts to about US$1200 million (1983 dollars). The constructor has mobilized about 4,500 people to the work site and his installed large facilities including a cement plant, three concrete plants, camps, etc. Any cancellation of works would imply considerable expenses for the contractor as well as the loss of foregone income. Negotiations for rescheduling the works (stretching out for two years the construction period), for example, originated a US$120 million claim from the contractor. EBY's estimates amount to US$500 million, which might be on the high side. A notional figure of US$120 million was taken as a lower boundary for the evaluation. c) Maintenance of abandoned works. If the project were cancelled, no cost would be assigned to maintenance of abandoned works. However, it would not be reasonable to lose the investments already made and leave works unattended. It was estimated that at least an annual cost of about US$5 million would be required for vigilance and maintenance of the works or US$40 million present value. d) Compensation to Paraguay. Any cancellation of the project would certainly originate a claim from Paraguay. In addition to the expected benefits from compensation for the energy which belongs to, but is not used by Paraguay (US$656 million present value at 121 discount rate) there is a noticeable effect of economic activity originated by the project. Conditions of the settlement of such a dispute are difficult to imagine. Again, as a lower bound, an amount of US$200 million to be paid as compensation was estimated. e) Total Cancellation Costs As a lower bound, the total estimated amount of costs associated to the project's cancellation would be in the order of US$500 million. Although these costs represent the present value of a stream, they will be assumed to be made in the first few years of the period of analysis. A sensitivity analysis with US$200 million cancellation costs was also made. However, the base case assumes these costs equal to zero. ANNEX 3.3.2 Page 5 of 5 Results of the Evaluation 14. Attachment 1 presents the results of the economic evaluation for the base case. It shows that, assuming that investments made until 1987 are sunk costs, Yacyreta is the least-cost expansion solution for any discount rate lower than 18Z. 15. If cost overruns of 201 are assumed for the construction of the plan. Yacyreta would still be the least-cost solution at 152 discount rate. 16. The following table presents the results of the sensitivity analysest Case Notes IRR 1. Base Zero cancellation, costs, no cost overruns 18.6 2. 20? cost overrun Zero cancellation costs 15.0 3. US$500 million cancellation costs No cost overrun 23.5 ANNEX 3.3.2 Attachment 1 : ~ARGENTINA ELECTRIC POWER SECTOR PROJECT Economic Evaluation of the Yacyreta Project (USS million) Versions Base Internal Rate of return: 18.6Z I-Y---r----- eyr-ta Alttrnttve… -------…---- t---------- Thermal AlItetive … ------------- Coat Yevr Invatmonts Inevet_nto OGN Totel Inveetaeu OGl4 Fl Total Difference In in Yacyrote a In Yecyrete Treneal eolonTrenealoeion Therm.I (2) (3) (4) (5) (0) 196 487.4 487.4 471.4 189 492.4 3.3 498.? 159.4 189.4 3S8.S 1990 480.0 23.3 458.3 127.5 127.5 3S2.8 1991 297.1 66.6 36.9 286.9 268.9 77.0 1992 210.3 104.0 314.8 414.4 414.4 -100.1 1993 130.4 118.9 2.0 271.3 557.S 9.4 81.6 l86.2 -428.9 1994 110.9 120.0 7.0 2S7.9 382.5 10.t 110.6 508.7 -265.8 1995 84.0 60.0 12.0 176.0 897.9 20.0 205.3 623.2 -447.2 196 48.8 15.0 60.8 223.1 30.5 284.3 837.9 -477.1 1997 15.0 18.0 95.6 39.9 299.6 485.3 -420.3 199 15.0 18.0 39.9 2e9.8 339.7 -324.7 199 18.0 15.0 39.9 299.8 SJ9.7 -324.7 2O0 15.0 15.0 89.9 29.6 889.7 -324.7 2001 15.0 18.0 39.9 299.6 339.7 -324.7 2002 15.0 15.0 39.9 299.6 039.7 -324.7 2003 15.0 15.0 39.9 299.6 389.7 -324.7 2004 18.0 18.0 39.9 299.8 389.7 -324.7 2008 15.0 18.0 47.3 39.9 299.8 386.9 -371.9 2006 18.0 15.0 47.8 39.9 299.6 s33.9 -371.9 2007 15.0 18.0 39.9 29.8 0 39.7 -324.7 2000 15.0 15.0 39.9 299.8 839.7 -824.7 2009 18.0 15.0 39.9 29m.6 389.7 -824.7 2010 18.0 18.0 89.9 299.8 339.7 -324.7 2011 16.0 18.0 39.9 29.8 6 39.7 -324.7 2012 15.0 18.0 39.9 29.8 0 39.7 -324.7 2018 15.0 18.0 39.9 299.8 389.7 -324.7 2014 15.0 15.0 189.4 39.9 29.8 499.0 -484.0 2015 18.0 18.0 127.5 89.9 299.8 467.2 -452.2 2016 15.0 18.0 206.9 89.9 299.8 628.5 -011.8 2017 18.0 18.0 414.4 39.9 29.8 754.0 -739.0 2016 15.0 15.0 857.3 39.9 299.8 809.9 -681.9 2019 15.0 15.0 362.5 39.9 299.8 m.2 -707.2 202 15.0 15.0 897.9 39.9 29.6 787.5 -m.5 2021 15.0 15.0 223.1 39.9 299.8 562.0 -547.8 2022 18.0 18.0 95.L 39.9 299.8 485.3 -420.8 2023 15.0 15.0 39.9 299.8 339.7 -324.7 2024 15.0 15.0 89.9 299.0 839.7 -324-7 2025 15.0 15.0 89.9 299.8 839.7 -324.7 2026 18.0 18.0 39.9 29.0 839.7 -324.7 2027 15.0 18.0 89.9 299.0 339.7 -324.7 2028 15.0 15.0 39.9 29.6 339.7 -324.7 202e 15.0 16.0 89.9 29.6 339.7 -324.7 2030 15.0 18.0 47.3 89.9 29.86 366.9 -871.9 2031 13.0 18.0 47.3 39.9 29.8 0 38.9 -871 9 2082 15.0 18.0 39.9 299.8 389.7 -324.7 2033 15.0 1.0 39.9 299.8 3s9.7 -824.7 2034 15.0 16.0 89.9 299.6 389.7 -a24.7 2088 15.0 18.0 39.9 299.8 389.7 -324-7 2086 15.0 15.0 39.9 299.6 339.7 -324.7 2087 15.0 18.0 39.9 m2. 339.7 -324.7 2038 15.0 18.0 39.9 299.0 389.7 -324.7 …---- Total 2288.3 510.3 660.0 3470.0 5470.0 1746.3 13222.0 20440 3 -16978.7 IRR. 18 61 (1) January 1989 centant prices (2) Incemental investment. due to the addition of acyrteto (3) OM: Operation and maintenance (4) 4,730 NW gee-fueled st.so plants to be co_iusionnen in 1993.1995, 1996 and 1990 Plus 2.135 *l in ea- turbines to be commisionned in 1993 and 199S Costs: US1. &5/lW for above polnts; US$ 350/KW foe gee turbines Inveatmnt profile: 251 first year,201 second through fourth year and 15 CMfth y*ar for eta. plants 100I in the coissionning year for gee turbines Useful life: Yecyreta SO yeaea: Steam plentet 25 years; GCa turbines: 12.5 year. (5) GUI: Ue6 12.5/lW-year for atee. plants; U.S 9.0/lW-yeor foe gee turbines (6) Annual generation of stese plants equi.alent to Yaeyrete's production Aunnul generation of gea turbinee negligible Global officiency of eteen plents: 391 Coat of ga: Us1 I 7/el l ion sTu ANNEX 3.3.2 Attachment 2 ARGENTINA ELECTRIc POWER SECTOR PROJECT Economic Evaluation of the Yacyreta Project (USS million) Version: 202 cost overrun on Yacyreta works Internal Rate of return: 15.04 -------------Ycyreta AlternatIve ----------- [------- Ther_l Alternativ -----o--------- Ccot YVer Inveetent. Investsnta CAN Total Investment. Oa" Fuel Total Difftrence In In Yscyret A In Yacyrets Trn_olo elonTrnsod leson Ther_l (2) (8) (4) (S) (6) 19 5610.9 8.3 564.2 84.2 299 890.9 28.0 614.2 189.4 189.4 484.0 1990 816.0 66.6 5S2.8 127.8 127.8 488.8 19,91 88.8 1U.0 480.8 286.9 266.9 178.6 1992 282.4 116.9 871.8 414.4 414.4 -4ti.1 1998 180.8 120.0 2.0 302.8 887.8 9.4 81.6 598.2 -298.6 1994 188.1 80.0 7.0 220.1 J82.8 10.6 110.6 808.7 -268.6 1998 100.8 12.0 112.8 897.9 20.0 208.8 682.2 -510.4 1996 66.3 15.0 78.8 228.1 30.8 264.3 587.9 -464.8 1997 18.0 18.0 98.6 39.9 299.8 43. 8 -420.8 19e 18.0 18.0 89.9 29 .8 889.7 -824.7 199 15.0 15.0 39.9 29.6 889.7 -824.7 2000 15.0 18.0 89.9 299.6 389.7 -824.7 2001 18.0 1.0 89.9 299.6 889.7 -824.7 2002 18.0 18.0 89.9 299.6 889.7 -824.7 2008 15.0 15.0 89.9 299.6 889.7 -824.7 2004 18.0 18.0 39.9 299.8 889.7 -824.7 2008 15.0 18.0 47.3 39.9 29.8 S86.9 -371.9 2008 18.0 18.0 47.8 89.9 299.8 S86.9 -871.9 2007 15.0 15.0 39.9 299.8 889.7 -824.7 2008 15.0 18.0 89.9 299.8 3S9.7 -824.7 2009 18.0 18.0 89.9 299.8 889.7 -824.7 2010 18.0 18.0 39.9 299.8 889.7 -824.7 2011 18.0 15.0 89.9 299.8 ss9.7 -324.7 2012 18.0 18.0 39.9 299.8 339.7 -324.7 2018 15.0 18.0 89.9 299.8 889.7 -824.7 2014 18.0 18.0 189.4 39.9 299.8 499.0 -484.0 2018 18.0 18.0 127.8 39.9 299.8 467.2 -482.2 2016 18.0 18.0 286.9 39.9 299.8 626.8 -811.8 2017 18.0 18.0 414.4 S9.9 299.8 784.0 -789.0 2016 18.0 18.0 887.3 89.9 299.6 896.9 -681.9 2019 18.0 18.0 882.5 39.9 29.6 722.2 -707.2 2020 18.0 18.0 897.9 89.9 299.6 737.8 -722.8 2021 18.0 15.0 228.1 39.9 299.8 St2.8 -547.8 2022 S1.0 18.0 95.6 89.9 299.8 438.3 -420.3 20M2 18.0 18.0 89.9 299.6 389.7 -324.7 2024 18.0 15.0 89.9 299.8 889.7 -824.7 202 18.0 18.0 89.9 299.6 339.7 -824.7 2026 15.0 18.0 39.9 299.8 339.7 -824.7 2027 15.0 18.0 89.9 299.8 889.7 -824.7 2028 18.0 18.0 89.9 29.6 889.7 -824.7 2029 . 18.0 18.0 89.9 299.8 339.7 -324.7 2080 15.0 15.0 47.8 89.9 299.8 S886.9 -871.9 2061 16.0 15.0 47.3 89.9 299.6 886.9 -871.9 2082 15.0 15.0 89.9 299.8 389.7 -824.7 20o3 15.0 18.0 39.9 299.8 889.7 -324 7 2034 15.0 18.0 89.9 299.8 889.7 -824.7 20SS 18.0 15.0 89.9 299.8 389.7 -324.7 20S8 18.0 18.0 89.9 299.5 339.7 -324.7 2087 15.0 1.0 39 ° 299.8 339.7 -324.7 2086 18.0 15.0 89.9 299.8 839.7 -824.7 Total 2749.3 816.8 686.0 8981.8 8478.0 1740.3 1S222.0 2044t.3 -16514.7 iRR. 15.0S (1) End 1987 constant price (2) Ineresentel invest-nts due to the addition of Yacyreta (3) 014: Operation *nd maintenance (4) 40750 W ges-fueled steam plants to be coe_insionned in 1993.1995,1995 and 1998 plus 2.135 l1 in gas turbines to be comissionned in 1993 and 1995 Costa: USI 8S0/RV for steam plants; USI 350/Kw for gas turbines In.eatssnt profile: 256 first year,20% scond through fourth year and 15S fifth y9er for stem plants 1OOS in the ceomissionninq year for gas turbines Useful life: Yacyrota 50 years; Steam plants: 25 years: Cos turbines: 12.8 years (S) 011W. USt 12.5/KW-year for steas plants; USi 9.0/lW-year for ga% turbines (6) Annual generation of stoa planta equivelent to Yacyretsa' produetion Annual genration of gas turbines negligible Global efficiency of stems plants: 39S Cost of ga: USW 1. 7/llion iMtu ANNEX 3.4 ARGENTINA ELECTRIC POWER SECTOR PROJECT Proiect File (Filed in the Latin America and Caribbean Information Center) 1. MOSP-SE - National Energy Plan 1986-2000 2. CNEA - Annual. Report 1985 3. EBY - Project Description, September 1987 4. EBY - Progress Report, June 1987 5. EBY - Report on the optimum reservoir level 6. EBY - Information Report, November 1985 7. EBY - Status of Contracts, September 1987 8. EBY - Project Cost 9. EBY - Ecology Program, December 1981 10. EBY - Report on Dam Monitoring and Instrumentation 11. EBY - Relocation Procedures and Plan, Hay 1983 12. Legal Filet - Laws 22520, 20646 and 15336 - Decrees 15 and 123 13. SE - Sector Expansion Plan 14. CNEA - Technical and Financial Data, June 1988 15. SE - Organization and Objectives 16. SE - National Utilities Financial Projections L /2 ffi euwos A.AY / ~~~~~~~~~~~~~~~~~~~~S ~ P A R A GVU A Y z iARG;T 0 -JY A Psdo.(' i7 b <, t yJ ri Z t; / olsos *Gueo-\ _ X P Alro =w2m by m]p f y S ~ r dto OCM V 25 >CoroC5TC *Pion * {bIg2 { o f code5 8 t,. -, ° to o wC. t. C-1 tf S ' ...... " .''<,!5 ....... * A'.8 73._~~~~~~~~~~~~~~~~~Cl~.d U.h -8GSb T-1 P.6 0 D..d T U TW96 G t TUCUT 5n n SO2nX Pe; Ob D.1 E- V. A,.I ---"P'42 | Y J P Va w ~ 5 = - ^ - , Powdos -5ot iJ *nIEWlro@ Ci L - _rv_ \ i evubo * Hondo V Angeb |oll _ iYoeyroFd.. _.I_*TB 13/ S! Cohm reo- /3e! 1 1 vf F, \ > - U R U G U A Y \. C. V~d <~~~~~~~~') VJ T.. IetoLs dyERp U2L Gl "U A' Y _35 Ci PVoNos R D - cEl C.- / ,> E !, ElChXE _ _ g HiGH VOLTAGE TRANSMISSIONI SYSY.N--M- -- J D / ~~~~~~~~~~~~~~~~~~~~~~~~~~~~FUTURE EXISTING TRANSMAISSION LINES: d1 0. .AgL.aV .' | ~~~~~~~~~~~~~S- GW g POWER PLANTS. \ ^ \ O \~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 THEPRMAL --) .5 f ~~~~~~~~~HYORO / ; \ C ; =^ RE ^~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUBSTATIONS. r le~~~~~~~~~~~~~~~~~ ~ ~ ~~~~~~~~~~~~~~~~~ NATIONAL CAPITALS O / b F ;~~~~~~~~~~~~A~l - - INTERNATIONAL SOUNDAWCES 5 ? AW Wh f . {Wh avoswhonT < h~~~~~~~~~~~~~~~~~~~~~~~~b. - b. -1 ~ep.lleedt ANNEX 3.4 ARGENTINA ELECTRIC POWER SECTOR PROJECT Proiect File (Filed in the Latin America and Caribbean Information Centers 1. MOSP-SE - National Energy Plan 1986-2000 2. CNEA - Annual Report 1985 3. EBY - Project Description, September 1987 4. EBY - Progress Report, June 1987 5. EBY - Report on the optimum reservoir level 6. EBY - Information Report, November 1985 7. EBY - Status of Contracts, September 1987 8. EBY - Project Cost 9. EBY - Ecology Program, December 1981 10. EBY - Report on Dam Monitoring and Instrumentation 11. EBY - Relocation Procedures and Plan, May 1983 12. Legal File: - Laws 22520, 20646 and 15336 - Decrees 15 and 123 13. SE - Sector Expansion Plan 14. CNEA - Technical and Financial Data, June 1988 15. SE - Organization and Objectives 16. SE - National Utilities Financial Projections _ 5R OLIVIA / C BRA21IL! 655 ! e0o j5 S{'\ORAOJ\A? . BO L I V I A /J AR3e ;_, PGENIA /SnEloo P A R A G U A Y Ar' >~~~~~~~~~.b - fS ._l ;S A A RF'3 't Goloo . Xe ~,, s uLBuc&T__ p P A R A G U AYex > > Ebm woo - - - R e d Pc do wte_ i ) Fnos ~~~~~~~~~AA> Si.bi A S S A S S A B , A / ' . / ~ tR °R A R , *io Co c e oc U- n I~~~~~~~~~~~~~~~~~~~~~~~~~~ U.eAe wd ( Tsee 3- e Son Reown A 4oee E ~~ LB Lq e Mendows3 * ORIo Cwrlo Ve de 9 x ;Kg U ~~R u G u A Y t0 **mn N Jes f-fiL ElUdeoV_T- bAjA ~ ~ ~ ~ ~~~~~j C~~~~~~~~~~~~~~~~~hk pl-w. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~FTRE EITN rASISO MLES: 8 d7 - ,~~~~~~~~~ ~~~~~1U~~~ RUG U A El S I EXISTI Del AN TDOAA 3 ALV TU D5 1 Ag.ede -d-S lv I k*Egnlode -- 223 k2 Sbm7 G qnde ~~~~~~~~~~~~~~~POWER PLANTS: * I ILOMTRTSERAL ) * * Fi~~~~~~~~~~~~~~~~~~~~~~~YDRO *U MILES t ) .~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUbSTATIONS- cl~~~ F-1.0. o ~~~RGNATIONA AP FUTURE EXISTINTERNSAIONA LUNDARIEE CRwee FFWER PLANT- -UL dL 1 97 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~ HRA