R R T FILE COPYS T R I C T E RETURN TO V1 REPORTS DESK Report No T.O122-A WITHIN ONE WEEK This document was prepared for internal use in the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF ENDESA POWER PROJECTS C HIL E October 22, 1956 Department Technical Operations CURRENCY EQUIVALENTS 1 U.S. Dollar a 500 pesos 1 Pesos a $.002 APPRAISAL OF FNDF.SA POSER PROJECIS CH I LE TAMLS OF CONTEY7S Pa ge Ilo. I. SUr'IT4ARY 1 H. INTRODC1ION 3 III . PTFR F MARKEET FOPEC!' S Ts 3 IV. LOAdT 5 CH 7 7V. i1, ETDEBA EXPAINSION PROCPAM 8 VI. PROTEC.TS PROPO-3,D FOR BANK FINA)CING 9 VII. PR)TjUCYJCI10 CP,SI ANT) rA'ES 18 VIII. '1HE PBOPOED EO)hR'DtERS 19 IX. FIPBNCTAL ASPEC'J 21 X. CONMUSIOINS AND RECOMENDATIONS 24 NAP APPENDICES NOS. 1 - 9 APPRAISAL OF END&SA POWTER PROJECTS C H I L E I. SU1A1Y 1. This report covers an appraisal of a power development program proposed by the Empresa Nacional de Electricidad S. A. (Endesa) designed to meet the needs of Chile through 1965. It includes recoziuendations conceming three specific projects within the program which could form the basis for a Bank loan of $15.0 million. 2. The Endesa program will add about 406.,000 kw in generating capacity and will increase production by about 2.1 billion kwn/year, The total estimated cost is equivalent to $113 million of which about 40 million is required as foreign exchange. 3. Miarket forecasts show an average annual increase in demand of 8.7% for the period 1955-1265 with a corresponding increase of 9.0% in energy consumption for the Endesa interconr.ected system. These estimates are reasonable. The Endesa prog-ram2 plus the addition of 120,000 kw by the Cia Chilena, irepresents a co,servative basis for meeting these requirements. 4. Within the Endesa program, there are three projects on which work has advanced sufficiently to permit consideration by the Bank as a basis for a loan as follows: Abanico Expansion 49,000 kw Pullinque System 499,000 kw Cipreses System Expansion and Isla Hydro Plant 68,000 kw Total: 166,000 kw These projects are sound from an engineering standpoint and fit well into the overall program. 5. The total cost of the three projects is equivalent to about $55 million of which about 617 million is required as foreign exchange. The cost is reasonable, considering the high proportion of transmission and distribution facilities involved and the seasonal storage which will be provided. 6. It is proposed that Corporacion de Fomento de la Produccion (Fomento) and Endesa will be co-borrowers as in the case of Loan 5 CH. The present financial position of both is good and prospects for the future are satisfactory. Neither company obtains an adequate return as yet but earnings have shown a steady improvement over the years and future prospects are good, - 2- 7. The proposed projects are suitable for a loan of k15.0 million. Based on the useful life of the equipment and the financial prospects of Endesa, a term of 20 years is appropriate. A grace period of 4 years is indicated by the construction schedule. - 3- II RITROIDUCTION 8. On March 25, 1948, the Bank made a loan of $13e5 million to Corporacion de Fomsento de la Produccion (Fomento) and Empresa 1hacional de Electricidad, S. A. (Endesa) as co-borrowers for a program of power develop- ment to be executed by Endesa. All works included in the projects covered by the loan have been completed except for some small itemrs of mechanical irrigation which are still under construction. 9. A Barlc Minision visited Chile in April, 1956 to reviewi the general economic situation and to examine the prospects cf resunLng operations in Chile. This imission concluded that the Bank could consider additional lending at this time and gave power and coal mining top priority as development categories, 10. This report covers an appraisal of the Endesa program for electric pov-.>r exparsion and rezommends spec-fic projects in tne prograi-a for consider- atioiħ by th-e Banl: as a basis for a loan. The appraisal is based on informa- tion sibmitted by Endesa and field studies inade in July arnd August, III, POWER 1ARKET FOR1CA&TS 11. Chile extend, south from the Peruvian border for a distance of about 4200 k-n, ulth an rverage width of only about 180 kaa6 The eastern boundary is,f4or the most part, the continerital divide of the Andes. The westein part contains thle coasta'l range of mountains and between the two ranges lies a narrow valley in wlhich most of the agricultural production of the country is concantrated. Hydrological and climatic conditions vary great- ly from the hot, arid regions in the north to regions of heavy rainfall and permanent icecaps in the soubh. The present population of the country is about six million, more than 'our million of which are concentrated in the central regions, 12. Endesa has recently completed a detailed stuey of power requirements in Chile for the period 1956 through 1965 and the means by which these requirements should be met. Requirements have been estimated by regions (see map), taking into account historical development of the markets and both assured and probable developments in industry, agriculture and trans- portation. These estimates do not include requirements to be met by industrial and mining companies with captive plants except where such plants are interconnected with the Endesa system. The situations in the various geographical regions can be summarized as follows: Region 1: This region, with a population of about 380,000, is largely desert and has little hydroelectric potential. It contains, however, most of the large copper and nitrate mining operations. The - 4 - mining comipanies have installed about 270,000 kw of which about 260,000 kw is thermal. These plants serve the mining towns so that public service installations amount to only about 12,000 kw. The total installed capacity has increased abou# 30% since 1945 but the total annual generation o° energy has been sulbstantially constant. Ho additions of importance are contemplated in this region. Region 2: This region, with a population of about 260,000, is a developing area in which economic activity is confined largely to smnall mining operations, small industries and modest agricultural activity. Present installed capacity is 29,700 kw o2 which 21,800 kw are owned by Endesa, including the Molles hydro plant of 16,000 kw financed -nder Loan 5 CH During the five years l951-55, demand has developed at a rate of 21% per year and consmrp-ion of energy at about 18%, Average arnnual increases during 1956-64 are estinated at 7.3% and 9.5% based on normal growth of existing markets and development of small mines cind industries. This region has surplus generating capacity at present and it is expeceed that witlh the addition of 66500 kw of hydro capa- city 'ly Endeaa arAd interconnection with Region 3, estimated demand to 1S65 ear. be met., ACn the early years, surplus power wJill be utilized in re?5cS v througl the izterconnection to relieve the shortage in t,hdt area, Region 3: This region has a population of about 3,3 million. It contains the cities of Santiago and Valparaiso and has the greatest concentration of industrial, cornmercial and agricultural activity in the country. The present installed capacity is 375,000 kw of which 14L.000 kw is oaned by Endesa, including the Cipreses plant financed under Loan.5 CH. Of the balance owTned by private companies, Cia Chilena de Electricidad, a subsidiary of Armerican & Foreign Power, has 16h,000 kw and distributes about 75% of the total energy sold in the region. During recent years, power has been rationed in this region with the result that the annual increase in demand during the period 1951-55 was only 2.9%. Demand and production for sale by public ser- vice companies increased at an amnual rate of 4.5% duLring the same period. This overall increase was obtained in spite of a reduction of about 10% in residential consumption in l954 as a result of rationing. It is conservatively est-mated that if restrictions could be lifted, the peak load would be increased by about 50,0o0 kw or 15%. Additions are planned to permit lifting restrictions and on this basis, the demand and energy consumption are estimated to increase at an average annual rate of 7.8% during the period 1956-65. The private comiipanies operating in the region are in substantial agreement with this estimate. - 5 - Region bl: This region, wnith a population of one million, contains the city of Concepcion ard the surroundi.ng industrial area, It has experienced a rapid industrial expansion in the postwar period. The present installed capacity in the region is 106,000 kw of which 86,000 kw is hydro in the Abanico plant of Endesa. Th- balance is thermal power in interconnected industrial plants and the central station of Cia General de Electricidad Industrial. This private company dis- tributes about 25% of the energy sold in the area. During the period 1951-55 derrmand increased at an average annual rate of 10.0% while energy consumption increased at a rate of 10.5% due to the establishment of several power intensive industries in the area. Estimates for the period 1956-64 are 11.3% and 12.6% respectively. This assumas continued industrial development in the area with a high proportion of heavy industry which seems likely, Lia&.on 5: This is a region of limited industrial and agricultural development but is of interest as a location for hydro plants due to the presence of large mountati lakes capable of providing seasonal Storage. It has a population of about 860,000. The present installed capacity is 32^700 kw, of which 24,200 kw are in the Pilmaiquen plant of EaOess which w.s partially financed under Loan 5 CH. DTemand in this region in the period 1951-55 has increased at an annual -ate Or 13,CX and energy ccnstmption at 14%. Esti ates for the pericd 1956-64 are 12.4% and 14.3% resoectively. This se'ems likely in view of the present rate of development in the region and the pro- spects for future industrial expansion, This region wll also furnish increasing quantities to the interconnected system for consumption in Regions 3 and 14 REmions 6 and 7? These southerrmost regions with a population of 180,000 are not Important in the demand for electric power. Require- ments for the oil fields and municipalities are furnished by small diesel plants which will be expanded as required. The present installed capacity is about 7,000 kw. No substantial additions are contemplated in these regions during the period under consideration. 13. The total installod capaity in tho entry U i d frw Aowu 502,000 kw in 1945 to 959,000 hi in 1955, of which 445.,000 kw is thernal and 514,000 kw is hydro (see Appendix 1), Generation increased from 2,610 million kwh in 1945 to 3,772 million kwh in 1955, an increase of about 45% in the ten year period. However, the increase occurred almost entirely through increased sales by the public service companies whose generation increased from 682 million kwh to 1,823 million kwh or about 167% during the same period. 1.111 On the basis of the above estimates, the demand in the four Regions 2 - 5 is estimated to increase from 411,000 kw in 1955 to 1,039,000 kw in 19659 or an average annual increase of 8.7%. The consumption of enera is - 6 - expected to increase from 2,133 million kwh in 1955 to 4,997 million in 1965, or an average annual inerease of 9.0%. Appendices 3 and 4 show the projections of load and energy consumption in graphic form. 15. Estimates of congumption by cateporiez hAve been madIe by Endesa for the year 1962 in Regions 2 - 5 which compare with actual fiF:ures for 1955 as follows: 1955 1962 Residential . . . . . . . 15 15 Commercial ............ 6 6 Irdustrial ............ 42 42 Mining ............. 21 17 Rural . , . . . . . . . . . . . . 2 3 Transport . ........... 7 10 iunicipal ci,, ........ 7 7 100 100 16. The estimated development of demarnd and consuaption of power in Pegions 2 - 5 inclusiie should be achieved if economic activity in Chile r,iairntains its Present rate of growth. The estimates take into account the relative nat.'-;rity of t're markets in the various regions and are conservatu. Ehen ccmrncre' w4h developmcnts in other parts of the world under some-wht coaparabl conorditions. 17. Chile has limited reserves of ccal and oil and is therefore inter- ested in the continued developtient of hydroelectric power. There is no prospect for substantial hydro development in the two northern regions due to lack of rainfall. In the third and fourth regions, economic hydro sites are limited but will probably be adequate to meet requirements for the next 10 - 15 years. The fifth region offers the greatest possibilities for hydro development but the distances from the Santiago area wmill require heavy investments in tranemission facilities. It is hoped that industry will continue to migrate to the south in order to utilize the hydro potential available there, but it is to be expected that heavy investment in high tension transmission systems cannot be entirely avoided in the future. 18. Prior to 1948, electric power for public service was generated largely by private companies. Since that time Endesa has become an in- creasingly important supplier of bulk power to distribution companies and has provided some distribution facilities in sulall towns and rural areas. In 1947, Endesa generated about cO million kwh as compared with about 967 million kwh in 1955. (See Appendix 2). In 1955, it owned about one-third of the generating capacity in the country and produced about 25% of the energy consumed. It is expected that this trend will continue with Endesa providing all of the major hydro plants and transmission facilities but continuing to sell energy in bulk so far as possible. Thus far, there has been no sub- stantial conflict of interests between Endesa and private companies and the latter are in agreement with the proposed position of Endesa with regard to the provision of future facilities. - 7 - IV. LOA, 5 Cli 19. Loan 5 CH for an axr.ount of $l13.5 million was made to Endesa and Fomento as co-borrowers on March 25. 1948, It covered the foreign exchange requirements of an Endesa seven-year development program as conceived at that time, Specifically, it included two new hydro plants, Cipreses and Mclles, having a conbined capacity of 70,000 kw, a small diesel plant of 585 k-w and the addition of one unit of 10,800 kw to the existing PIlmniquen hydro plant. Extensions to the primary and secondary transmission systems and distribution faciliti.es were included. Sone developments of pump irrigation completed the prograrmi. 20. There vere a number of revisions and additions which have expanded the scope of the project, but with no increase in the amount of the Bank loen, These changes were either th-ie result of revisions of demand forecasts -r ai. ges :i desiZrn as additional technical information was dev_lcped. 21. Tha generating facilities were completed slightly behind schedule except for Cipreces which was delayed more than two years due to changes in design, difficulties encountered in the civil engineering works and mechanical difficulties, 22, Thv construction of the secorndary transmission system was slow becanse iv was necessa-y to organize small companies and cooperatives for their operztion. Line3 wore not constructed until the pxroper organizational and financial arrangements had been made. The execution of the irrigation projects -Mas deferred because additional studies were necessary to detiermine the prone: types cf projects to be sponso-:ed, It was originally intended to fcrm irrigation districts but it was eventually decided to finance iso:la1;ed pulmping installations, all to be paid for by the farmers. This part of the project is scheduled for completion before the end of 1956. 23, A comparison of the original and latest cost estimates is as follcws: Original Latest IDRD l,o-n (millions of $) 135 13e5 !coal Ctrre-scy (nillions of pesos) 743 3,879 The reasons fov the increase in local currency costs were the expansion of the programtTh.L was finain,,ed largely tith :'ocal curreney, changes in de- sign, and inc.oaaed wag'Os and costs of materials due to inflation inl Chile. 24, Endeon.as organizat40n and functions have been considerably expandsd since the -b.gn*Žg of the loan. PerformanCe on the projects and the efficiency of the organization has been good. - 8 - V. THE EITDESA EXPANSION PROG-OM p5 Endesa has formulated an expansion program for thie period 1956-62 0 provide the increased generating capacity. transmission and distribution facilities whi.ch with those to be provided by the private companies, are estiniated to meet the projected power requirements of the country through 1.565. It is planned thrat Endesa will provide 406,000 kw of generating capacity which will be all that is required for public service with the exception of 120,000 kw of steam capacity which will be b-uilt by the Cia Chilena near Valparaiso. It will also provide all of the transmission facilities including interconnections between Regions 2 and 3 and also 4 and 5 Some distribution worksin rural areas and improvements and additions to existing plaifts are included. The program, broken down into principal projects, and tne estimated coats are s7wrnrarized below: Installed Total Local C02rrency Foreign Exchnge Project Capacity Investment lnvestient Investment _ _ _w Mill. pesos 14Iill. pesos U.S. oo00o Abanico System Expaasion 49,000 8,933 6,061 5,743 Dhtlin.que -y-e.n !3,g90C 10,521 7,650 5,740 Cipreses System Expansio.i arid IFla Hydro Flant 63,0oo 7,872 5,100 5,547 Rapel 200,000 35,478 26,430 18,096 Small Plants 29,600 5,357 3,198 4,318 Additions and Improvemants 10,800 3,556 3,298 515 Tctal 4i6,300 71,717 51,737 39,959 26. This program plus the commissioning of other capacity already installed rill add about 455,000 kw to the Eiidesa system and will increase the annual generation of energy by about 2.56 billion kwh/year. The relation of the progran, including the addition of 120,000 kw of steam cap- acity by Cia Chilona to demand and energy forecasts is given in Appendices 3 and 4. Sm,all deficits in firm power are indicated in 1958 and 1959 before sufficient new capacity can be brought into producticn. Thereafter, sufficient capacity should be available in the intercomnected system to meet requiirements through 1965gI With respect to generation, sufficient firm energy is estimated to be available to meet requirements until 1964 although the position will be tight in 1956-58 if dry years are encountered. A shortage would exist in 1965 if this were to be a dry year. 27. The Endesa program represents an investment equivalent to about $350 per kw and $.07 per amnual kwh. These costs are reasonable. The - 9 - foreign exchange requirements amount to about 28% of the total cost which is a relatively low proportion. 28. In estimating the capability of its installations, Ende.sa uses the idted capacity of the generating units with all units in cperationl' This is claimed to be justified by the fact that the summer peak load is about 30% less thian the winter peak and normal maintenance can be done during the summer months. The program therefore represents the minimum investment required to meet the estimated demand without providing security against breakdo,vns during the iiinter months, 29. Generation is based on water flows available 95% of the time over the period of record. In this respect, generation estimates from hydro plants are conservative on the average and the meeting of peak load will normallyr be the controlling factor in the operation of the systems. 30. in addition to the program discussed above, Endesa will need to make normal extensions in its secondary transmission and distribution systems and provide for the financing of some new municipal companies and cooperatives. It is astimated that these will amount to about 12.6 billion pesos during the period 1956-1.962. Thus the total investiments to be made by Endesa during this ocriod -ill amount -'o about 81t.3 billion pesos. 31. r"he Papel protJeact iF- the most important undertaking in the Endesa prcEram. This project, located abcut 100 la from Santiago, will add 200,00 krT in Region 3 where the greatest shortage exists at present. The plant wiLL have reservoir capacity sufficient for seasonal regulation. The estimated cost, equivalent to $70 million ($350/kw), is reasonable. Engineering studies and field s-rveys are under way at present and will probably be completed by the fall of 1957. Pesettlement plans for farmers now on about 4,500 hectares in the reservoir site are being formulated. It is contemplated that the Bank will be approached for a loan on this project as soon as the preliminary work is completed. 32. The Endesa program fits well into the existing facilities in Chile and represents a conservative solution to the problem of meetilg estimated demands to 1965. It has been discussed with the Cia Chilena and the Cia General, both of which are large distributors of Endesa power. The program is not in conflict with any plans of these companies and is considered by them to be necessary to meet the anticipated demand over the next ten years. VI. PROJECTS PROPOSED FOR BANK FINANCUJG 33. Within the Endesa program, three projects have been selected for consideration of the Bank as a basis for a loan. The principal features of these projects are given below: - 10 - (1) Expansion of the Abanico System (a) Description of the Project 34 An existing hydro plant having an installed capacity of 86,000 kw is 'located on the Rio Laja about 160 km from Concepcion. It serves an important industrial area and is interconnected with other important plants of Endesa and the private companies. 1< The Rio Laja rises in Lake Laja at an elevation of about 1,360 m JK the Andes. The lake is formed by a natural lava dam and the present flow of the river is dependent on overflow of the dam and leakage. An intake structure will be constructed in the lake which will permit a draw-down of the lake level by 68 meters which is equivalent to 4.3 billion min3 Possible average seasonal storage amounts to about 2.3 billion in3, Operating levels will be determined which give minimum leakage. This intake structure will be connected to the river upstream frcm the existing intake for the Abanico plant by a pressure tunnel 3.2 m in diameter and about 2 km in length. The existing intake canal, about 7 km in length, will be enlarged to handle the additional water made available from the storage to be provided by the lake. 36. T-wo additional generating units, each having a capacity of 243500 kw, w1ll be installed in the present powerhouse along with the necessarv amxiliaries., t3r iThe new units will utilize the present connection into the 154 kv Arnsmission system. As a part of the project, however, this system will be extended 210 km to the south where it will be interconnected with plants in Region 5. Additional 66 kv lines having a total length of about 200 km will be provided to serve new markets, About 500 km of 13.2 kv lines will be provided to serve rural areas and small towns now without service. An add- itional synchronous condenser will be installed at Concepcion and three major substations will be enlarged. 38 With the installation of the pressure3tunnel and seascnal regula- tion of flow from the lake, about 800 million m /year of water will be used for irrigating about 60,000 hectares of land in the provinces of Concepcion and Nuble. For this reason, the cost of the tunnel is being shared by Endesa and the Ministry of Public Works. The irrigation works are not con- sidered to be a part of this project and have not been included for financing. 39. Flow records for the Rio Laja are available from 1917. The river has an unusually steady flow throughout the year due to the leakage from the lake. The present Installation of 86,000 kw with an annual generation of 530 million kwh is firm power. Wi-th the additional regulation to be provided by the lake, the full installation of 135,000 kw will be firm capacity at the system load factor of 55% with an annual generation of about 650 million kwh. Upon completion of the intake works and the installation of the additional generating units, the draw-down of the lake will permit the generation of an additional 1.5 billion kwh over a period of about three years. This - 11 - additional ernergy has been taken into account in the financial projection for the years l959-61. h4. Work on this project is well under way. Engineering is practically complete and expansion of the powerhouse has been star ted, Orders for major equipment items have been placed in Germany, Switzerland and Austria after international competitive bidding, 1/ 41. It is presently estimated that the project will start operation in mid-1958 and will be finally completed by the end of 1950. This is a tight scheduule but can be realized. 42. The intake to be provided in the lake and the pressure tunnel are designed for exploratory as well. as operational purposes. It is not known to what extent leakage from the lake can be reduced by lowering the level and this will be deternined. Reduction in leakage will not influence total gencratior from the plant but will affect the degree of seasonal regulation. The results obtained will influence the design cf a larger future installa- tiori of about 250,000 kw contemplated above the present Abanico plant which, in any case, will utilize the intake works and pressure tunnel provided in this project, l3. Thl.s p.roject has been engineered by the staff of Endesa aLd will be built by its construction department. The designs which have been adopted seem to be tile most eccnor,micaL for the conditions. Past perfori.an6e of the Endesa construction departmernt has been reasonably good and has iaproved with experience. The project is teclmically somid and arrangements for its execution are satisfactory. (b) Estimated Cost 44. The estimated cost of the Abanico project, broken down into principal items and into local currency and foreign exchange requirements, is as follows: g/ It is the policy of Endesa to let contracts on the basis of international bidding so far as practicable, consistent with standardization and technical requirements. - 12 - Expansion of Abanico System Estirmated Cost Tctal Cost Local Currency For. Exchang3 in million in million in Item Yo. Description pesos pesos 01,000 1 Pressure tunnel 1,728 1,400 654 2 Other intake works 498 403 196 3 Powerhouse and ecuipment 883 353 1,058 4 Step-up substation 113 36 154 5 Housing 22 22 - 6 Transmission lines 2,506 2,199 616 7 Substations 1,824 781 2,085 8 Distribution works 78)4 687 194 9 Construction equipinent 575 182 786 Total: 8,933 6,061 5,743 ($17.8 million) ($12.1 million) 45. In the above estimate, no account is taken of the contribution of the Ni.nistzy of Puiblic Works to the cost of the pressure tunnel, on account of the irrigation aspects of the project. This is estimated at about 650 million pesos which would reduce the total ccst to Endesa to about 8.3 billion pesos. The total foreign exchiange requirements will be borne by Endesa. 46. The estimates are based on recent quotations for inmported equipment and materials to which 10% has been added for contingencies. Local currency costs are estimated at about 10% above the levels prevailing as of July 1, 1956. Interest during construction has been included in individual items at the rate of 4.8% per year on the total cost of the item, including local currency expenditures. All items include freight, duties and inspection costs, h7. Taking into account the contribution to the cost of the project by the Ilinistry of Public Works, the cost per kw installed is estimated at the equivalent of about $340, Considering that more than 60% of the investment will be in transmission and distribution facilities, this cost is reasonable. 48. The additional energy to be generated by this project will be about 120 million kwh per years requiring an investment of the equivalent of $.15/annual kwh. This is reasonable considering that the entire production of 650 million kwh per year will be regulated and that a high proportion will be available during the winter months when supplementary steam generation would otlherwise be required. - 13 - 49. The estimated cost of construction equipment amounts to about 20% of the cost of the civil works,in this project. This estimate takes into account the utilization of existing equipment available to Endesa and is reasonable for the proposed constraction schedule, Upon completion of the project, the equipment and spare parts having additional life will be transferred to the Endesa equipment pool at their depreciated value. 50. Orders have been placed for the turbines,. generators, transformers, penstocks and some smaller items in an amount equivalent to $1.89J1 million using suppliers' credits with terms of 4 to 5 years and interest rates of 4 to 5%. Payments equivalent to $440,000 had been made to June 30, 1956. It is proposed to exclude these credits from the proposed Bank loan, leaving a balance equivalent to about $3.85 million to be covered by the loan. (c) Cost of Power 5i. Upon completion of the project, with the fifth and sixth units in operation. the estimated annual costs for the Abanico system are as follows: Millions of Pesos 1. Direct Costs Generation 62.1 Transmission 78.0 Systs,m overhead 19.8 General 195.0 354.9 2. Depreciation 497.0 3. Taxes and contributions 35,0 Total: 886.9 52. The delivered oost of power amounts to 1,48 pesos (3 mills) which provides a margin of about 1.3 pesos with respect to the present -l rage selling price of 3.3 pesos. A53. Rtates would have to be Eet to provide revenues of 2,707 million pesos per year if there were to be an ultimate return of 8% on the investment amounting to 1,820 million pesos. On the basis of generation of 650 million kwh and sales of about 600 million, the average rate would have to be 4.51 pesos/kwh or the equivalent of 9 mills. This rate, for bulk sales to distributors and for general industrial use, is reasonable. It represents very substantial savings to the extent that steam generation will be replaced during the winter months. (2) Pullinque System (a) Description of the Project 54. This project will be located on the Huianehue River near the outlet of Lake Pullinque and will utilize the regulation provided by this lake and - 14 - L_k Calafquen upstream. These lakes provide storage of about 1.5 billion m of which about 400 million m will be useful. << The intake works will consist of a short gravity tunnel connecting tte two lakes and a low concrete barrage across the river. A canal having 3' a length of about 5 km and designed for a capacity of 120 m /sec will carry water to the powerhouse. The effective head on the turbines will be 47 m. 56. Three generating units each having a capacity of 16,300 kw will be installed in the powerhouse. The substation at the plant will consist of three 20,000 kva transformers stepping up to 66 kv. 57. The plant will be connected into the extension of the Endesa 1554 kv transmission system at Temuco in Region 4 through 125 km of double circuit 66 kv line. A single circuit 66 kv loop about 250 km in length will serve areas to the west and south. Six substations having an aggregate capacity of about 46,200 kva will be initially installed and the necessary additions to the Temuco substation will be provided to connect into the 154 kv line. About 600 km of distribution lines will be constructed serving about 20 small towns and villagesc, 58. Flow records for the Huanehue River are available from 1935 and show that, with the ragulaticn provided by the lakes, adequate water will be available to produce an average of 270 million kwh per year, giving a plant factor of about 63%1 About 220 million lkwh will be firm. 59. Engineering work for the project is being done by the staff of Endesa and is well advanced. The designs adopted are satisfactory. Con- struction work has been started. It is planned that all construction will be done by Endesa. It is estimated that the project will be completed by the end of 1960. This schedule is reasonable. (b) Estimated Cost 60. The estimated cost of the project by principal items is as follows: Pullinque System Estimated Cost Total Cost Local Currency For. Exchange in million in million in Item No. Description 'pesos pesos _lO000 1 Waterways 2,,447 2,324 245 2 Powerhouse and equipment 1,743 782 1,922 3 Step-up substation 377 173 407 4 Housing 350 350 - 5 Transmission lines 1,514 1,423 182 6 Substations 1,369 645 1,448 7 Distribution lines 1,626 1,511 230 8 Construction equipment 19095 442 1,306 Total: 10,520 7,65 5740 ($2100 million) ($15.3 million) - 15 - 61. The bases for the estimates are the same as those given above for the Abanico expansion project (see page 12). 62. Investment in transmission and distribution facilities amounts to about 45% of the total cost of the project. Including these items, the cost per installed kw is equivalent to about $,430 which is high but not excessive for a regulated plant. With an annual generation of 270 million kwh, the investment is equivalent to about $.078 per annual kwh which is low for installations providing firm power with seasonal regulation. 63. The estimated cost of construction equipment for this project amounts to about 31% of the cost of the civil works. This is high but is not unreasonable for the proposed construction schedule which requires simultaneous construction of canals, tunnels and other structures. Much of the equipment will have substantial residual value for use on other projects. 64. Foreign exchange expenditures on this project prior to July 1 amounted to $2735000. The amount to be covered by a Bank loan would be about $5.47 million. (c) Cost of Power 65, The estimated annual costs for the Pullinque system are as follows: Millions of Pesos 1. Direct Costs Generation 22.1 Transmission 35.5 System overhead 16.4 General 95.0 169.0 2. Depreciation 231.5 3. Taxes and contributions 25.0 Total: 425.5 66 The delivered cost of power is--1i. pesos per k:h as compared with the current average selling price of 3.3 pesos. 67. Annual revenues would amount to 1,267 million pesos if there were to be an ultimate return of 8% amounting to 841.5 million pesos. Assuming an annual production of 270 million kwh with sales of about 250 million kwh, the average rate would be 5.05 pesos, equivalent to about l˘/kwh. Considering the high proportion of winter power available, this cost is reasonable. (3) Isla Hydroelectric Plant and Expansion of the Cipreses System (a) Description of the Project 68. This project is an extension of the Cipreses system, the first stage of which was financed under Loan 5 CH. It involves the construction of a system of canals, tunnels and siphons having a total length of about 8 kin - 16 - one branch of which will take off of the Cipreses River immediately below the existing plant. The second branch will take off frcm the Maule River about 5 km above the proposed plant. These branches join at the forebay. The penstocks for this plant will be 900 n in length and present some technical problems. The powerhouse will be equipped witli two generating units of 34,000 kw each, operating under a head of about °7 m. Each gen- erator will be connected to a step-up transformer to increase the voltage to 15c kv, 69. A short transmission line will connect the plant into the Endesa 194 kv system at the Cipreses sulbstation. Additions are required in two existing substations consisting largely of transformers and synchronous ccndensers9 70. An imnortant item in this project is the reduction in permeability of the bed of Lake Invernada which provides storage for both the Cipreses and Isla plants. It is planned to place a blanket of clay and sand over those areas showing leakage utsing hydraulic placement after the reduction of the lake level which is now in progress. The equipment and method to be used have not yet been definitely established. 71. V1zw records are available for the Cipreses and Miaule Rivers from 194. With the reg'l1ation which will be provided by Lake Invernada, firm generation of tne Isla plant will be about 400 million kwh/year, which is equivalenit to a plant factor of about 67/O as compared with a load factor of about 50% un the Endesa intercoinected system. It is estimated that if the leakage from Lake Invernada can be reduced by 50P, increased production of 170 million kwh/year will also be obtained from the existing Cipreses plant. 72. All engineering and construction work on the project will be dcne by Endesa, Engineering is well advanced but no orders have been placed and no work has been started. The designs used for this plant are satisfactory and the project is sound from an engineering standpoint, providing satis- factory methods are adopted for sealing the dam and lake bottom. (b) Estimated Cost 73* The estimated cost of this project, broken down by principal items, is as follows: - 17 - Isla System Estimated Cost Total Cost Local Currency For. Exchange in million in million in Item No. Descrlption pesos pesos $1,000 1 Sealing of Lake Tlivernada 521 389 264 2 Waterways 3,807 3,236 1,144 3 Powerhouse and equipment 1,889 731 2,316 4 Step-up substation 82 33 98 5 Housing 49 49 - 6 Transmission lines 68 64 8 7 S'tbstations 087 b-22 930 8 Construction equipmant 569 176 787 Total: 7 ,872 5,100 5,547 (,P5.7 million) ($10.1 million) 71k. The basis for these estimates is the same as given above for the Abanico expsnsior; project with respect to ccntingencies, interest during construetion an7d other factors (see page 12). 75. Bassd on the tctal estimated cost of the project, the investment per installed kwv is equivalent to about Q230 which is very reasonable for a plant having seasonal regulation. Taking into account the generation of the Isla plant alone, the investment per annual kwh is equivalent to about .04 which is unusually low. Taking into account the increased production from the Cipreses plant, this figure reduces to about t.028, which is very attractive. 76. The investment in construction equipment for this project represents about 13% of the cost of the civil works exclusive of the special equipment required for sealing the lake bed. This proportion is reasonable. (c) Cost of Power 77. The estimated annual cost of operation of the Cipreses system after completion of all works as conteimplated in this project, including the Isla plant, is as follows: 1#llions of Pesos 1. Direct Costs Generation 61.5 Transmission 47 .l System overhead 19.1 General 217.0 345.0 2. Depreciation 572.0 3. Taxes and contributions 85.0 Total: 1,002.0 - 18 - 78. The delivered cost of pcwer is estim;!ted at 102 pesos/!-'h as compared with an Dverr4ge selling price cf 3.3 pesos. 79. Annual revenues would amount to 3,082 million pesos if a return of 8% were to be obtained. With a production of 900 iLillion kwh/year with sales of 850 million kwh, the average rate will be about 3.62 pesos/kwh (7.2 mills). This rate is substantiallr less than the prevailing rate of 5.4 pesos/kwh charged to Cia Chilena which will distribute most of the power from this system. VII. P1ODTCTTON COSTS AND RATES Ccsts 80. In 1955, Endesa produced 067 million kwh with net sales of about 895 mill-ion kwh. Production costs, including depreciation and property taxes, amorrited to about 1,224 million pesos giving an average unit cost of 1.4 pesos/kwh (2.8 mlills). The average plant factor was about 42%. About 99% of total producti.on was 'lydro power. The cost equivalent to 2.8 mills/kwh is unusually low taking into account that this figure includes tranisrrission and some distribution. 81. Except for t'he relatively small proportion of power which is dis- tributed by FELdeba, all sales are made in bulk to utility companies and industrial e-nterprises. These are all on a short-term contract basis on terms whih.oh take into account load factor, location, quantities and similar considerations. In 1955, revenues from the sale of power amounted to 1,928 million pesos corresponding to an average rate of 2.15 pesos/kwh (4.3 mills). This is a very low rate for transmitted power. 82. Present legislation in Chile limits the return on the investment of distributing companies to 10 - 15% with provisions for rate adjustments every five years. Bulk sales by Endesa are not subject to these restrictions but rates are limited by the amounts which the distribution companies can pay. A general increase of 45% in rates was allowed early in 1956 and, at present, the average rate applied by Endesa is 3.3 pesos/kwh (6.6 mills). Since the extent to which future rate increases will be allowed is not known, and in view of the present tendency to avoid price increases in Chile, it has been assumed that present rates will be maintained over the next seven years for purposes of the financial forecasts. 83. A new law covering the regulaticn of the electric industry is now under consideration by the legislature and the basic features have been agreed in committee. This law provides for returns of 8 to 12% on the investment of the companies, based on the replacement value of the assets. It provides for annual adjustment of the value of fixed assets and automatic adjustments for changes in labor rates, cost of fuel and cost of purchased - 19 - power. If this lawi becomes effe.ctive, it wiould result in an average rate to be chareed by Endesa in 1957 of at lcaAt 5.5 pesos/kwh (11 mills) / as compared vith 2Al5 Pecos (4.3 mills) in 1955. C)h 4. The rates which would be permitted under the new legislation both for the projects proposed for Bank financing and the average wnich can be obtained by Endesa for all installations compare favorably with the rates which would apply to steamn and diesel power under comparable conditions. These would amount to about 7 pesos (14 mills) and 15 pesos (30 mills) respectively under comparable operating conditions with respect to load factor. VIII. THE PROPOSED BORROWERS (1) Eracion de Foriiento de la Produccion (Fomento) 85. The borrowers would be Forento and Endesa. Fonento is proposed as a co-borrower as in the case of past loans in Chile since under Chilean legislation the govern'ent's guarantee can be granted for loans made to, or obtained through the intermediary of.Fomento. It is also the channel through which local currency derived from golernment appropriations is made available to Endesa, and it holds about 80% of the shares. 86M Apoendix 5 containo a brief description of Fomento and presents the most recent information available concerning its financial position. Its past operations have been reasonably profitable for an agency of this type and its present fi.nancial position is satisfactory. (2) Empresa Naci.onal de Electricidad S,A. (Endesa) 87, Endesa was formed in February 1944 by taking over most of the assets owned by Fomento in the power industry and utillzing the organization of the Fomento Fuel and Energy Department. The principal activities of Endesa are the planning of electric supply for the country and the provision of facilities for rneeting power requirements which cannot be provided by other companies, Endesa may participate in other companies and may provide finan- cing for municipal or cooperative undertakings. It is subject to all taxes and conditions applicable to a private company. Investment priorities are fixed on the basis of financial availabilities. 88* The company has eleven directors on the board which determines general policy matters. The board recommends dividend actions to the share- holders on the basis of recommendations of the management, and must approve the budgets of the company. The board meets twice each month and is unusually active in its participation in the operations of the company. 8.9 M1anagement is in the hands of a director general appointed by the boards The organization is broken down into ten departments along convential lines. The organization seems well adapted to fill the functions of the company. Top management is competent and reasonably conservative. I/ Based on an estimated return of 8%. - 20 - 90. The company has about 1,100 employees of wihilch about 165 are engineers and 350 are classified as technicians. Due to lack of funds 4in recent years, planning and construction activities have been curtailed with the result that the company has lost a number of capable and experienced men. Ihe present staff is generally young and capable but th.ere is some question as to itether the present organization is adequate to carry out the proposed construction program on the established schedule. Ihe Bank will obtain an undertaking that Endesa will obtain outside engineering and con- struction assistance to the extent tlhat lack of personnel is shown to be preven'ting the maintenance of reasonable construction schiedules. 91. A comparative statement of Endesa's balance sheets for the years 1951 to 1955 inclusive is attached as Appendix 6. Fixed assets are carried almost entirely on the basis of historical cost and increased fron 2.6 billion pesos at the end of 1951 to l0.9 billion nesos at the end of 1955. EndeFa has financed this growth to some extent from internal generation of funda, but its main source of funds has been Fom.ento. 02. As of December 31, 19-5 Fomento held 5.1 billion pesos out of the share capital of 6.4 billion pesos and in addition had made advances of 4.8 billion pesos to Endesa. The advances consist of three items: the proceeds of the exieting TBR') loan passed on by Fomento to Endesa (less amortization t3 date), Fomento's accumulated share of dividends declared, and advances from guvernmient anpropriations. 93. Interest and amortization payments on the IBRD debt are met by Fomento. Endesa in its accounts reflects the oayment of debt service by crediting Fomento's account with the peso equivalent of the interest and amortization payments. The bookkeeping produces the same result as would have been arrived at if Endesa had paid IBRD debt service with funds advanced by Fomento. The advances and accumulated divirdends are technically short- term liabilities but in practice Endesa is not repaying these items to Fomento since it is the intention of Fomento and Endesa that the advances including interest and amortization payments on the IBRD loan will be converted to share capital. If this conversion be anticipated, and those amounts treated as eouity, the debt/equity ratio of Endesa at December 31, 1955 was about 18/82. This ratio is good. 94. The ratio of current assets to current liabilities at the end of 1955 is estimated at about 1.6 to 1.0, which is also good. 95. A comparative statement of Endesals profit and loss accounts for the years 1951 to 1955 inclusive is attached as Appendix 7. Revenues from the sale of electricity in 1955 were nearly 8 times the 1951 revenues but its operating costs rose to about 8.5 times those of 1951. Ihese large increases are mainly due to a rising internal price level and only to a much lesser degree result from increases in energy generation which, in 1955, was about double that of 1951. 96. The operating expenses include provisions for depreciation which are consistent with the useful life of the various assets. The only writing- up of assets which has taken place was the addition to assets of an increase - 21 - in the peso equivalent of the liability to IDRD. Endesa has, 'nowever, been enabled by law to set up special depreciation reserves on the besis of replacement value of assets. 97. Net operating revenues increased from 116 million pesos in 1951 to 760 million pesos in 19-55. These revenues, expressed as a percentage of fixed assets, were around 4% in 1951 to 1954 and 7.0% in 1955. Net profits increased from 71 million pesos in 1951 to 552 million pesos in 1955. The profits, e-pressed as a percentage of equTity, were about 2.5% in 1951 and 7.0% in 1955. These percentages do not give a true picture, however, because the revenues and profits, particularly in 195b and 1955, reflect present price levels whereas the assets and equity with which they are eopared have not (except to a small extent in the case of the assets) been. written-up to present day values. Iv is estimated that if assets were revalued on the basis of replacer:nent costs the net operating revenues in 1955 woui.d have been only abcat 1§5% of assets. It is evident that w,hile Endesa has been able to char-e rates sufficiently high to avoid an operating deficit and to charge deprec-ation on the basis of reclacement values, the return it now obtains is inadequate, Pending legislation which permits a reviluation of the assets of Endesa and the distributing companies to replacement values would much improve Endesals financial position and allow internal generation of funds to make an important contribution to the financing of expansion. 98. Enfesu's budget for 1956 shows that, altholgh an operating profit is expected or the primary systems, the estimates of revrenues from the operation of distribution services are only about 1U48 million pesos as compared with orerating costs (before depreciation and property taxes) of abont 640 million nesos. Sound utility practice would require that the primary system operation should not subsidize the distribution operqtion, and Endesa will give an undertaking to take such action as is needed to put the distribution network on a profitable basis. IX. FINANCIAL ASPECTS 99. The financial information supplied by Endesa, modified where necessary to reflect more recent estimrates and recalculations by members of the Bank staff and officials of Endesa, has served as a basis on which to prepare the statement of Endesals estimated financial position from January 1, 1956 to December 31, 1963 which is attached as Appendix 8. (1) Financing During the Construction Period 100. During the construction period of the Bank program (1956 to 1960) Endesa is estimated to recuire for its overall program, exclusive of Rapel, an amount of about b0,887 million pesos (,81.77 million) which it expects to obtain from the following sources: - 22 - Millions of Pesos Internal generation and payments for work done 16,814 Funds receivable under Copper Law 5,073 Advances from Fomento ll*500 IBRD Loan 7 5co 101. Although the financing of the Fapel plant, for wlhich arrangements have not been made, is not being taken into acccount in this report, it may be useful to consider the feasibility of tentative plans. The foreign exchange, amounting to the equivalent of about $18 million, would probably be obtained by loans or suppliers' credits from abroad. The local currency costs amount to about 23,000 million pesos. By the end of 1963 internal generation of funds would provide about 21,000 million pesos, but owing to the amaount of construction expenditure from 1957 to 1961 exceeding the fuids avaiLable frcm that source, about 13,000 million pesos of outside funds would have to be found in those years. In 1962 and 1963 the amounts re- quired for Rapel would be available frora Endesals own resources. (2) Finarcieal Prospects, of Endesa (a) jqt,Em ted Earnins 102. Tle rev_nue from sale of power is based on the assumption of the 1956 averag; price per kwh of 3.3 pesos cbtaining in all years. 103. Operating costs I/per kwh sold would, however, fluctuate according to variations in the relation between the number of kwih sold and the total cost of operation. They are estimated to be: 1956 1957 1958 1959 17960 1961 1962 1963 Pesos per kwh 2.4 2.3 2.4 1.9 2.1 1.8 1.7 1.6 104. Gross income would vary between 6.7% and 12.5% of assets in operation, and net profits between 5.0% and 9.3% of share capital. If, however, the assets nad been revalued on the basis of replacement costs at the end of 1955 and an equivalent write-up of share capital had been made, the percentages would have been considerably lower, ranging from 2.1% to 5.7% for return on investment, and from 1.4% to 5.0% for net profit in relation to share capital. Interest on borrowed funds would be covered by earnings about six times in 1961, when interest on the proposed loan is no longer covered by withdrawals from the loan and this coverage would increase year by year. 1/ Operation, administration, property tax, depreciation and reserve for renewals. - 23 - (b) DeprecIation 105 If the new law were in operation, Fndesa would be able automatically o obtain adequate depreciation on the written-up assets. Hlowever, under the present law it cans after charging normal depreciation on historic costs, transfer to a reserve for renewals an amount which, together with the normal provision, would amount to depreciation on the assets at present day values, provided that the amount transferred to the renewals reserve does not exceed 40% of the net operatiLg revenue. These provisions have been included in the revenue statement. (c) Cash Position 106. According to Appendix 8, in 1956 to 1959 the margins of cash availability are expected to be emall; in two years there are practically no nargins. Tn 1960 a surplus of 700 million pesos is estimated, due to reduced carital expenditures. Thereafter tl.e cash surpluses risc rapidly, and by 1963 Endesa is expected to have generated over 15 billion pesos since the begir-nig of 1956. Howev3rs it must be noted that in Appendix 8, 1BRD debt service has been treated as if it were a cash outgoing, whereas, in fact, Fomrento meets it. There is thus a hidden reserve, and the cash availabilities as shc-.n are really greater by those amounts. The true cash generatnin from the be-innina of 1956 to the end of 1963 wo-ild, in fact, be near'y 22 bllion p-.sc3. it will, however, be necessary to start the constructiLn of additional ganerating capacity and other facilities by 1963 or earlier, but the cost and timing of this construction work cannot at present b3 estimatad and for this reason no consideration has been given to this factor in the projection, which is carried only to the end of 1963. It is not realistic to make forecasts beyond that date but any new inlvest- ment should be solf-liquidating, and it is expected that after 1963 Endesa will conitiriue in a soumd financial position. (d) Dividends 107. Dividends payable to Fomerito and the Banco del Estado de Chile have been considered as paid by the issue of shares, and the amount of share capital outstanding adjusted accordingly. Dividends payable in cash to other shareholders are not expected to amount to more than 3 or 4 mi.llion pesos a year. The Bank will obtain an undertaking limiting cash divi- dends during the life of the loan. (e) Pro Forma Balance Sheet 108. A pro forma balance sheet as at December 31, 1961, the end of the first full year of operation of the Bank-financed plants with, for comparison, the 19~5 figures, is attached as Appendix 9. Tt shows that the rptio of debt to 5quJty would be about 1.8/82. - 24 - 109. If the foreign exchange portion of the Rapel investment to Dlecember 31, 1961 {UM$1665 raillon1, equival6nt to-8,258 million pesos) hnd, as i5 likely, been obtained ty rrmcans. of a loan, 3nd the rem.inder of. the 2'1131 million pesos through advances from Forjento, the debt/ec'iity rntio would be about 24/76. (f) Debt Service 110. As shown in Section V of Appendix 8total debt service should be covered by net cash income over fouir tines after the program is corpħeted. (g) Future Borroings and Debt/Equity_Ratio 111, Under the existing Loan Agreement, Endesa may not incur foreign debt unless, pror to taking actions it has notified the Bank and afforded the Baik a reasonable opportunity to exchange views on the proposal. In view of t,he fact that Endesa does not borrowf locally (except short-term) since it can get funds from Fomento, and since its debt/equity ratio (considering the 19RD loais as debt) is so low, a si:ilar provision in the proposcd 1oan Agreement is ccnsidered to be adequate. (3) Secuz,ity for Barik Loan lt.2 * -Utnder the exist-.ing Loan Agreement neither Fomento, as to foreign debt, nor Eħiifsa, as to all debt, may create any charge on assets or revenues as secturity for debt unless the Bank loan is secured equally and rateably with the cther debt. A similar provision for the proposed Loan is considered uo be adequate, ,.. CONCLUSIONS AND RECOMrfflENDATIONS Endesa has proposed a program of power development which is well a apted to meet the estimated requirements of Chile through L965. The program is realistic with respect to the market projections on which it is based and is conservative in respect to the capacity to be installed. It utilizes hydro sites which can be developed at relatively low cost. The total cost is estimated as equivalent to about $143 million, of which about $40 iaillion will be required as foreign exchange. The need for the program has been adeqaately established and it is suitably coordinated with the invest- ment plans of the private companies. 114a, Endesa has performed reasonably well in the execution of the projects included in Loan 5 CH under adverse conditions and is capable of executing the proposed program although outside assistance may be required. Its present financial position is good and future financial prospects are satisfactory. 11l.. The projects forming the program are in various stages with respect to engineering and construction. Within the group, three projects have been - 25 - selected which are sufficiently advanced to permit their consideration as a basis for a loan at this time. 116. The Endesa program is a suitable basis for a loan of ',J5 millJon to be allocated between three projects as follows: Expanision of Abanico System , 3.9 million Pullinque System 5e5 million Isla Hydro Plant 5.6 million 117. Based on the useful life of the installations and the financial prospects of the company, a term of 20 years is appropriate. A grace period of 4 years is indicated by the construction schedule. 118. The co-borrowers should be Foimento and Endesa as in the previous loan, P E R U ~~~~~~~~~~~~~~~Pto Montt __ ~~~~CD Sr S S W / r _ ' sR Tolt g; ~~~~~~~/ '_ / iquique. , I~ ~ (' L.\-'t. Tocopillo I AntofagasoiU (.5 ˘~~~~~~~~ 0 G ENES AOE INTLAINS /, ltal>o, / O A La Seren z Coquimbo Ovalle *1 _ p jr G^banlC L N PMostazORIto MoS Mlle PACIFIC oCEAN ^ - f Temuco (- Trunsmiss lAso Ilom-nco La CaleCa 1Volpa orzis olparoist ,SANTIAGO z Son Antonio * / CHILE RapeUGSaUzaT ENDESA POWER INSTALLATIONS Taco IN OPERATION ao~~~~~es ~~~LUJ Therma] plontsA Chillan ~~~~~~~~~~~~ ~ ~~~~Hydro plants C neQi&9 'Transmission lines Lae Ab~aruco IN PROGRAM VctoriaTemlpat ______ C~~~~urocoutin THedrma plants Temuco Transmission lines Pullin'que ~~~~~~~~INTERNATIONAL BOUNDARIES in Valdivi' ~yCorral La Union 0 CO 200 300 40C 500 -S W~~~~~~~~~~~~~~~~~~~LOMETERS AUGUST 1956 IBRD-285 INSTALLED CAPACITY AID PTsDDTCTION OF ELECTUC ENERGY IN CHILE APPENDIX 1 1945 1955 LE MINING ENTERPRISF4(1) Industry,Coal MEnes PUBLIC SERVICE GRAND (copper, iror. and nitrate) and small mining Private Enterprises Government Service T 0 T A L TOTAL YEIR enterprises (1) , _ Thermo Hidro Thermo Hidro Thermo Hidro Thermo EHidro Thermo Hidro INSTALLED CAPACITY NW 1945 1845 5792 27.4 443 742 97.0 3*5 13.4 289p6 21199 501.5 1946 1845 59.8 28,1 443 74,5 97.0 3e7 13,4 29C68 2145 5M5O3 194? 192b8 59,8 29.4 4403 75.9 97a0 3.9 13. 3C2.0 2145 516e5 1948 197,8 66.5 39.9 443 75.5 97.0 4 1 1(8o6 317*3 316*4 633o7 1949 197.8 66.5 40%7 4.43 107.7 97.8 4*9 133,2 351,1 341*8 69249 1950 198*1 66.5 43*6 443 123,0 97,8 5,2 176,2 359e9 3848 74*7 1951 198.1 66.5 44o3440 11805 978 %5 188,3 369*4 396*9 766*3 1952 231,1 66*5 5395 443 115,9 97.6 10,3 210,5 41068, 41809 829,7 1953 245,6 66.5 55.6 443 U116 97.6 10.6 210,5 423&4 418,9 84243 1954 261.5 66.5 58.3 443 UOo1 97.6 12,9 210.5 4428 418,9 861,7 1955 261.5 66,5 59*7 443 11065 97,6 1249 3C5*7 4446 5141 958.7 MOM GE1MRATICN 1IICZS of kWh 1945 1,221 353 81 273 224 537 7 14 1,433 1,177 2,610 1946 1,145 265 92 272 175 522 7 24 1,419 13G33 215(2 1947 19205 329 95 306 216 533 8 32 1,524 1,*X0c 2,724 1948 1)217 371 97 321 181 570 8 117 1l,503 1,379 2,82 1949 1,125 342 74 319 115 568 9 314 1,323 19543 2,866 1950 1,cL 361 88 322 180 552 11 400 1,290 1,635 2,92-5 1951 1}142 395 100 297 192 6cB 17 498 19451 1,798 3,249 1952 1,075 398 118 325 265 600 14 582 1p472 1,9C5 3,377 1953 988 372 121 332 257 615 6 676 1,372. 1]995 3,367 1954 1,158 309 125 350 274 643 6 772 1,563 2,074 3,637 1955 1,160(2) 330(2) 129(2) 330(2) 241 6L5 7 960 1,537 2,235 3s772 (1) Several of these companies supply part of their energy for public services, (2) Estimated4 APPENDIX 2 DEVELOPMENT OF INSTALLED CAPACITY AND GENERATION - ENDESA SYSTEM THOUSANDS OF KW MILLIONS OF KWH 1000 900 .800 350 700 300 _ 600 250 7500 GENERATION (RIGHT SCALE-* 200 400 INSTALLED CAPACITY 4-LEFT SCALE) 150 300 100 200 50 ..100 0 0 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 I BRD- Economic Staff I190 N OD 0 N 0 0 0 0 0 0 Ln oo o rn o 0 0 0 0 0 0 I f 1, --n t T )T rTI I LOS MOLLES AND >UN z O _ \ L 1 U 1 _ O I~~~~~~~~~~~~~~~~~z INTERCONNECTION OF 3rd AND 4th REGION CIPRESES Ist AND 2nd UNITS O \n_ ABANICO 4th UNIT CIPRESES 3rd UNIT > r,1 \1 PILMAIQUEN 5th UNIT Z 4 _ \ > INTERCONNECTION OF 2nd AND 3rd REGION 0 _ Jl I+ SAUZALITO 1 s OD L i _ \ INTERCONNECTION OF 4th AND 5th REGION rn1 ABANICO 5th AND 6th > (D _ PULLINOUE| t ISLA - MOSTAZALITO LO o | STEAM PLANT Ist AND 2nd Z ~~~~~~~~~~~~~~~~~~~~~~~~STEAM PLANT 3rd 01-~~~~~~~~~~~~~~~~~~~~- 0) RAPEL 1st AND 2nd rr D o)r RAPEL 3rd , -Ia) RAPEL 4th z 3. I _ o tn - z 7 0X~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ APPENDIX 4 FORECAST OF CONSUMPTION AND AVAILABLE FIRM ENERGY- ENDESA SYSTEM (REGIONS 2-5) (BILLIONS OF KWH) z 0 0 0 0~~~ z o o z _ N < Z}v) N _E<1 _E Z c 5~~~~~~~~~~~' _, z= ,zi laO<. Eo~v Z- N =E O L,_ j........... 4 r_ - -~~~ I-~~~~ L.C~~~L z - i )' ___ Ca ON~~Z z o t 04 I- ..C) U'... ;z - CM z ~~~0 Z ZO OZ0 O~a 3 - -;; _ _ f z a: -J - ,2 _ __0 U -i zn~c u z u a: U4 4 _- O Ow~~~LL M W0 w W< 4.. LI~ LJEC 4 w....j ..........J ... : i o~~~oaw 4 I ...... CONSUMPTION I -.~"~~HYDRAULIC ENERGYT 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 IBRD- Economic Staff 1191 ApDendix No. 5 Corporacion de Fomento de la Produccion (Fomento) Fomento is a government a,ency which is a legal person and which has a considerable degree of autonomy. It was established in 1939 by legislation to be largely responsible for carrying out the governmentts development policies. The law which establislhed Formento required it to establish a general plan for the devrelopment of national productionl, in order to raise the standard of livirg, by means of the exploitation of natursl resources, the reduction of production costs and the improvement of the international balance of payments. In carrying out its task Fomento is to pay due attention to the balanced development of mining, agriculture, industry and conmierce. Fomento is to collaborate with public and private entities in making plans and studies for development and caujse them to be put into execution by suich mesns and. with such assistance as it deems most suitable, and is to assist in the manrf.-acture in the country, or in the importation, of machinery and other factors of production. Fcmento may foster development either by undertaking production itself, by lending to individual enterprises or to development banks, or by piirchasi.ng stock in either existing or specially created companies. Sources of Fu7lds Funds are derived from government appropriations, income on invest- ment, the repayment of advances macFe, the sale of shareholdings and borrowing. Fomento su'nmits its budget annually to Congrecs in order to obtain the government appropriations usually necessary to make up the difference between total cash recuirements and funds available from non-government sources. Organization and tanagement The corporation is managed and directed by a Board of Directors of which the chairman president is the Minister of Economy. Membership on the board is given to representatives of the executive and legislative branches of the government, labor, agr.culture, industry, commerce and banking. The day-by-day operations are controlled by an executive vice- president; under him is a general manager. There are in effect two managers, since there.is an adiministration manager who is in charge of accounting, personnel, internal control, statistics ard, in addition. of two departments wlhose function is to assist in the de- velopment of the provinces of Tarapaca and Antofagasta! Although the adininistration manager is techn:.cally subordinate to the general manager, in practice the general manager concentrates his activities on the supervision of the major operating departments: agriculture, industry, mining, planning and studies, civil works and financial studies. (ii) Appendix No. 5 The organization includes also a fiscal and legal department, an office of the Secretary-General, and a INew York office. This latter office performs the important functions of maintaining business relations with financial organizations outside Chile, of negotiating foreign credits, of placing foreign orders and of supervising the comnstruction and testing of equipment to be imported into Chile. The efficiency of the management may be judged from the large n'Imber of successful eypansions of existing, and creatiors of new enterprises among which may be mentioned Endesa, the steel plant at Huachipato, pe rolewii development, a variety of agricultural projects, and diversified industrial undertakings, which have taken place. Financial In keeping with the above the Balance Sheets of Fomento have reflected the continuing expansion of its activities. A comparative stetement of the Balance Sheets foi the years 1951 to 1955 inclusive is attached as Annex A. It will be seen that the fumds received by Fomnento rose from 5,4bl million pesos at the cnd of 1951 to 20,903 million pesos at the end of 1955, an increase in 4 years of 15,462 inillion pesos. In the same period investments rose by 18,209 i,illion pesos. The activities of Fo.mento have been financed not only by govermnent :ontribut-oas, but also by internal cash generation and borrowings abroad. ht December 1955 the foreign debt amounted to the equivalent of over 11,000 million pesos of which roughly one-tinrd had been provided from each of the following sources: Export-Import Bank I2RD Foreign suppliers' credlts At the end of 1955 the debt equity ratio wes abont 30/7G ?nd in the last 3 years current liabilities were less than cash balances alone (without considering other current assets). A comparative statement of the profit and loss accounts for the years 1951 to 1955 inclusive is attached as Annex B. Fomento has earned net profits as follows: 1951 134.5 million pesos 1952 78.7 million pesos 1953 261.6 million pesos 1954 288.6 million pesos 1955 513.0 million pesos The financial position of Fomento is considered to be satisfactory. ANNUE A CORPORACICN DE FOMENT, DE IA YRODUCCIU: C H X. L E EXP$jSED IN MEIl.lICNS OF PESOS CaOENSD ABD ROUNDE BALANCE MHTS Years ended December 31: 1951 M2 1273 Assets and Debit Balances I;, -buil`dWs-ano or property 166.07 206.97 242.95 309.29 403.90 Investments: Advances to be converted to equity 392.42 1,338.34 2,967.78 3,317.18 6,115.16 Advances and loane 795.71 916.82 1,018.16 1,558.73 2,773.14 Participations in equity 4,378.92 5,394.26 7,274.92 10,079.o6 12,295.00 Other / 1,904.60 1,888.82 1,997.10 1,846.10 4,498.26 Cash in hand and at Bank 303.63 319.13 1,082.90 2,675.28 3,895.81 Other Current Assets 701.43 833.87 1,970.86 2,841.31 7.552.45 2/ Other Debit Balances 51.61 8.03 1,601.49 2,019.41 3,006.98 8 8,694.39 10,906.24 18,156.16 24,646.36 40o,540.70 Liabilities and Credit Balances Capital 5,440.90 7,134.38 9,954.81 14,853.75 20,902.98 Surplus 134.50 78.71 261.65 1,472.13 4 1,985.09 Reserves 989.70 1,090.30 980.67 71.86 5 3,219.97 Foreign Liabilities 5] 1,391.10 1,585.35 5,861.22 6,216.23 11,077.20 Domestic Liabilities 738.19 1,017.50 1,034.14 1,942.02 2,934.88 Other Credit Balances - - 63.67 a-- 9° 37 -420.58 8,694.39 10,906.24 18j,l6_16 24k.f646.36 40.7J 1 Mainly blocked counterpart funds of baltnce of pa-yments credit from Export-Import Bank. WAffected by volume of imports, particularly agricultural machinery. Affected by differences in exchange rates, and in 1955 by Copper Fund balances not yet diutributod. T Transfer from reserves. / Medium and long-term. In general, all short-term. WLJagospeg CORPORATION DE FOMENTO DE LA PRODUCCIGN CHILE 3bressed in Millions of Pesos. COMPARATIVE PgnWiz LNB LOSS ACCOUNTS FOR,THE YFARS 1951 TO 1955 Years ended December 31: 1951 12S2 29 1941 Income Profit on males of investments, importation of merchandise, machinery and other goods, interest, commissions, operation of funds, dividends, recoveries of expenses etc. 1 20 425.41 631.18 1-097,83 ]&Oenditur*n New York Office Sundry expenses (salaries, general expenses, 14.12 15.67 15.20 53.29 81.19 rent, etc) Less Sundry receipts (commissions, recoveries of -11.32 2.80 -13-79 1.88 -10.89 4.31 -31.89 21.40 -63.15 18.04 expense etc.) Administration Expenses Salaries, travelling expenses, director's fees, transport and freight, rents, family allowances, social laws, wages, general expenses, direct charges, etc. 43.17 59.99 96.31 162.06 311.28 Interest on foreign and other credits 29.29 72.46 29.89 89.88 30.06 126.37 92.89 254.95 116.44 4Z7.72 Studies, tests and surveys 9.24 31.34 33.08 66.26 87.13 Department of civil works, coats of studies and sundry 51.98 Total expenditures 84.50 123.10 163.76 342.61 584.87 Net Profit for the year 134.50 78.71 261.65 288.57 512.96 LM'3RESA W\ACIUNAL DE ELuTRICIDAI S.A. Apoendix gTo. 6' Condensed and Rounded Balance Sheets (Mxpressed in Millions of Pezos) Years ended Decenber 31: 1951 2952 1954 1955 Assets and Debit Balances Fixed Assets: Electric inst.dllations in o-oeration (gross) 1,773-36 1,834.34 2,803.48 3,251.84 9,330.35 vWork in progress 796.84 1,804.54 2,050.96 4,231.60 1,449.12 Other (at written-dowm value) _ 32.35 65.02 72.04 118.44 96.80 2,602.55 3,703.90 4,926.48 7,601.88 10,934.27 Investments in and advances to subsidiary and affiliated com-panies 59.80 60.27 66.oo 110.51 185.00 Other investments and long-term advances 12.85 15.21 13.83 26.97 44.27 Inventories - construction 1/ 1,750.02 - operation i/ 552.36 854.57 1,097.02 1,488.16 481.71 Notes and accounts receivable, short-term advances and deposits 90.79 128.84 186.56 360.00 742.71 Cash in hand and at bank 20.11 7.11 44.43 54.88 314.70 Other assets _5 _ -56.10 -6 8.. 3 121.39 26_4 j,402.16 4I,826.00 6,402.82 9,757.79 14,719.02 Liabilities and Credit Balances Capital 2/ 2,700.00 2,706.50 3,510.47 4,810.25 6,384.95 Capital reserve 51.16 71.58 108.25 157.93 309.12 Other reserve 79.95 120.69 198.71 337.03 547.39 Surplus 1.96 1.96 1.96 7.76 12.56 Profit for year _ 71.24 123.72 512. 6 274.26 552.26 2,90 4.31 3,024.45 3,991.95 5,587.23 7,806.28 Funds received under Copper Law 57.57 282.98 Reserve for depreciation 131.91 186.93 267.74 432.50 815.20 Fomento - advances 9/ ( 60.09) 790.16 1,290.97 1,582.46 2,063.93 - advances re IB2lD loan 155-05 276.34 332.56 1,158.33 2,306.62 - dividends payable to Fomento l'-6.76 92.87 162.06 279.13 422.86 Other long-term debt 17.26 18.22 26.22 38.82 82.24 hiotes and accounts payable, short-term debt and other liabilities 180.30 L437.03 331.32 621.75 933.91 3,402.16 4,826.00 6,402.82 9,757?.9 14,719.02 (continued) App.endix NTo. 6 Page 2. Empresa Nacional de Electricidad S.A. - Condensed and Rounded. Balance Sheets / The division of 1955 inventories bct--eer. construction and oper-tion is estimated from a partial breakdown. Insufficient information is available for prior years to enaole a division to br made. / At DecemDer 31, 1955, Thmentots holding amounted to 5.1 billion pesos. a The ad.vances re: IBBD loan reflect the passing on by Foriento to Endesa of the proceeds of the Bank loan. Each time that Fomento makes a repayment of capital to the Bank an equivalent peso a3mount is tr..nsferred from "acIvGnces re: IBPD loan" to "aclvances." It is contemplated that the latter account will be corivertcd to share capital. Sup ement to Appendix No. 6 Remarks on Endesals Accoum,ting and Balance Sheet The Bank's appraisal of the organization and accounting methods of Endesa led to the conclusion that the methods adopted are unduly complicated. In great part this is the result of all administration and accounting being centralized at the Santiago HIead Office. Decentralization would go far to improve accounting efficiency, but in addition a review and reorganization of stores and financial accounting methods would be needed. Tn Appendix 6, Endesats balance sheet has bcen rearranged so far as possible to conform with public utility practice but the original balance sheet nresentation could undoubtedly be improved. For instance, under a heading of "Realizable Assets" are found both current assets ancd long-term advanlcs, and the large item of inventories does not show separately con- struction in-ientories for major projects wlieh are in effect work in progress, and operational inventories which form part of current assets. The liabilitLes aro similarly placed in one section which is divided into Long and shoit-texin itens, but the short-term items include the advances of Fomrarto, and also funds to be invested under the copper law, which are to be transfeired to capital. The balance sheet also carries suspense assets and liabilities of which the nature and degree of nearness of realization or payment are not always apparent. Fortunately, the amounts involved are relatively small. It is understood that Endesa contemplates a reorganization of its accounting system at an early date to the extent possible under Chilean law. It will not be possible to simplify the systen to the extent possible in most other countries, due to legal rastrictions, but it is expected that sub- stantial improvements can be made. IA A -~ a -n rl Tri V 7 ROMRISA NACIONAL.L 1. JL U nIJItiJ S.^. M, L*c.C7 Comnarative Profit and Ia Accounts for the Y-ars 1951 to 1955 (Expressed in Millions of Pesos) Years ended December 31: 1251 1952 125 1954 1955 Electrical operating revenues 247.05 315.96 486.79 858.95 13928,21 Rents and dividends receivedi 3.55 4.28 1.14 1.42 4.45 Profit on sale of materials and e quipment 8.88 10.34 6.94 2o.65 51.25 Writing back of unnecessary provisions 17.00 Sundry receipts. 1 4.11 3. 49 252.77 321.7 _15.98 884L51 1,983.91 Electrical operationg costs 7--29 112-95 1 345.58 760.21 Taxes 13.26 14.19 25.53 35.93 70.76 Amortization and. char-es: Depreciatiori of fixed assets: Normal for year 44.05 46.05 75.83 85.97 173.15 AdJuztment of prior years,1 / 2 ° 199.20 Special reserve 2/ 44.05 6.10 52.15 11.71 87.54 69.86 155.83 1,93.50 382.70 Provision for bad. debts 12.20 13.15 10.00 14'3.80 392.44 .311.822 _37.34 1,_2267 Net operating revenues 115.97 LL%,2 204.09 347.17 760.2 4 Non-operating revenues or ex Unses (net) (- .97) (- 1.45) ,79 9.85 12.75 Losses in subsidiary and associated compani e s 3.28 2.05 Fees paid to directors & committees .14 .14 .12 .13 .19 Bonuses to employees and. workers 12.73 Interez;ts paid 21.12 1.77 5.30 10.82 62.65 Amortization of ex-Denses of and taxes on increase in c2pital 5-18 3.05 4.22 13.22 Provision for participationis .71 1.24 1.73 2.74 28.76 Provision for income tax 5.50 10.00 17.50 45.00 85.00 Adjustment of prior years (net) .32 . 1.09 3.36 44.73 15.22 31.53 72.91 207.98 Ret profit 71.24 123.71 172.56 2711.26 552.26 get profit as percentage of ecquity 2.5Z 4.1> 4.3% 4.97 .0% Appendix No. 7 Page 2. Comnarative Profit and. Loss Accounts for the Years 1951 to 1955 . The Corporacion de Fomento charged Eiadesa \:ith the diffference bet.es.n the rates of ezchange of pesos 110.20 and Pesos 203 per US$ applied to the amounLt of the IBRD loan received by Thdesa u1p to January 1, 1955 - Endesa's fixed assets wee increasedd accordirngly and ad&itional depreciatiorn was cbarged to profit and loss foi this yer: as well as for prior years, the latter amount being shown separately on this table. 2/ Under this item are shown: - in 1952 and 1953 the amounts charged to profits for the constitution, according to govern- ment law No. 10,343, of a fund for the renovation oL the machinery; - in 1954 and 1955, the a7Dunts provided, in accordance with extraordinary de-preciation law Noo. 11,575, for a fixed assets re,laceluent reserve. Thcse amounts are c.lculated so as to take into account the present day replacement values of fixed assets as calculated by the company. Appendix No. 8 Appendix No. 8 EbTRESA I,,CIONAL DE ELPCSICIDAD S. A. S3ATUENT OF 3STIMATED RhNUE SOURCE AND APP.ICCATIOY OF F YTi, AVAILABLE 21U4DS AND REV=UE COVES FOE DE3T 52EVICE (expressed in millions of Pesos exept where otherolee stated) Yeers 7nbdir December 31 193 l;7 1953 19'9 1960 1)61 19c. 196 I. Pevenue Account Millionof kwh Sold 1,127 1,, y9 1,033 1,9c, .,000 2,50 b, -,C, Averae, Price per kwh in Pesos 3., 3. ..3 3.3 3.3 3.3 -., ..venue free l:ale of Paver 3,60 4,587 5,131 6,550 6,60v 5,514 9,_04 lO,O'2 Operatine osd Adi.niatrat4-e Etornee- 1,649 1,799 2,140 2,14. 2,142 2,2c7 2,267 2,_0 Propertl tee 120 201 216 225 22, ;12 41c hormal DEareciation 2b1 30'7 497 741 927 1,21- 1,231 122,4 bET OPERATING PiENL1E 1,630 2,200 2,276 3,642 3,3o6 4,722 9,90 Raserv- for fRnewals | 652 846 848 849 849 647 849 c49 DJl.'SI'D NEi' 00E1AT21N2 9EVE7 E 973 1,352 1,43C 2,793 2,457 3,875 4,74:1 lor-Op-ratiag Income (net) 97 275 297 300 37E 266 264 CROSS INC200 1,075 1,627 1,727 3,093 2,835 4,141 4,105 In.cone D,ducti..:. Income Ta 147 243 262 497 434 615 770 i-urtic:_utliaa in Profit 43 _ 71 77 146 133 126 0 . ' 192 _ir, ;39 843 52X9 791 95 J.ter-st - 32Si:tng I1FD L400 19 183 17C 156 141 126 1ll - erogos^d 1B9D Loan 371 355 30 - Local Loens 20 22 24 26 25 30 32 _ 216 205 194 162 169 527 4 3 4(7 TOTAL 7NC(4OE DED)UOCTIONS 406 '19 533 525 736 1,32' 1,49, 1,' ,, N3T pBO3Io- 669 1,108 1,194 2,26c 2,077 2,c16 3,.12 Gro-s I10-le .s Percentage of Investment j/ 8.4' 9.2% 7.77, 12.5° 6.7f 7-5. £.9, 9.8p g 2.1, 2.99, 2.6-% 4.9% :.3% 4.4n 5-3P 3.7; T1n- Prori- as Percentae of Share Capital 5.0 9 3 .1p 6o.2-; 6.9p b.25, 9-3P 9.2 1. 43 2. Or 2.0C 3.6 3. 27b 4. lp 4. E.05 So-rcE of Funds Net Profi1; 669 1,106 1,194 2,268 2,077 2,816 3,512 3,1'O Add B ck Depreciation Eta. 7/ 933 1,235 1,345 1,39C 2,005 2,060 2,080 2,05 1,6C2 2,343 2,539 3,65e 4,082 4,876 _,592 3,933 iropo:ed IBRD Lea-; 20 yesrs, 4 years grace, 5i 500 2,500 3,650 500 350 Frnds heceivable Under Copper Law, 1,013 1,015 1,015 1,015 1,C15 1,015 1,01' 1,01c Adeonces :'rom Fomento 6/ 3,50C 3,500 3,000 1,500 Penoent for Work Done for Others, Ltc. 993 1,000 1,000 1,000 1,000 1,0CO 1,2OC 1,8C0 Sagel Sebulreaents 118 1,7J3 3,738 4,646 8,620 9,374 2,795 1,C 7,726 12,111 14,942 12,_19 12,67 16,265 10,40o 2,C,L III. o2 f :antica of Ponds Con.truct ion, eta.: Spoaia. Pro3eat: B_nk Finen-ed 2,059 6,440 8,399 5,010 2,772 OP el lie 1,753 3,738 4,846 8,820 9,,74 2,798 1,108 Oth2 r 3,315 1,854 462 566 668 193 15 Tra-m.snlson, Distribution and dork L420n for Others 1,288 1,301 1,317 1,279 1,197 1,20' 1,220 1,22 Imports fTr Operating Depart-ents, Etc. 515 740 515 49C 48L 505 560 7,295 12,06 14,431 12,211 14,137 11,277 4 Bepay-ents of borrowed money: IBBD - Existing Loan 372 3E5 398 412 427 442 4.-l 47. - Proposed Lon 313 3-1- 372 3b5 396 412 427 757 319 COl 7,667 12,473 14,829 12,623 14,564 12,034 5,381 3,643 IV. Available Fends Surplus or Deficit for Year 59 - 362 113 - 104 703 4,231 5,024 5,407 AvilSable at BegirPing of Yeac 315 374 12 125 21 724 4,9j5 9,979 Available at Pod of Yee- 374 12 125 21 724 4,955 9,979 15/,3,6 V. Revenue Cover for Debt Service Net Cash Income (before depreciation) 1,818 2,548 2,733 3,840 4,022 5,403 6,090 6,400 Total Debt Ser,ice 588 590 592 594 96 1,284 1,286 1,288 NRaber of Times Debt Service Covered 3.1 4.3 4.6 6.5 6.7 4.2 4.7 5.0 1/ 1954 av;erage rate 7/ in 1956 the max.mum 40p of net operating revecle; in sub:equent year: the aounst required to bring total prevision to 2.2% of revalued assets '/ inveat.-nt at historic cost up to end 1955, plll write-up of IBPD debt to new excNanEe rate, plus Year 0y yesr additions. I.nvestm-nt made up of alT 1955 a:eet: revalued, plus year by year additions. '/ no write-op of sha- capital share capital written-up as result of revalu-t:on of assets 7/ including proviion for renewals intere:t free; to be conterted to capital Supplement to Appendix No. 8 Considerations Affecting the Preparation of Appendix No. 8 Existing legrislation has exempted from payment of customs duties imports required for the construction of certain comparatively small projects) and therefore in the cost estimates for those projects no provision for duties has been made. Pending legislation would, among other things, exempt from duties all imports for the rest of the program, but in the expenditures shown customs duties have been included. On the assumption that the local costs of Rapel which are not met from internal sources would be raet out of ad-vances from Fomento, the total advances Fomento would have to m.ke for the overall Endesa program wTould be about 2)4 billion pesos if customs duties were payable, and only about 18 billion pesos if the imports were exempt. No arrangements have yet been made for the financing of the Rapel plant, but as the demands of the system require the added c8pacity to be available by the end of 1963, it has been considered to be an essential part of Endecats program. A contra item. has been included in the source of funds section to neutralize the expenditures on Repel; thus the surpluses or deficits, and available funds, of each year reflect the operations of the present system nlus new capacity other than Rapel. The proposed Bank loan has, for purposes of calculation only, been assumed to have a term of 20 years with a period of grace of 4 years, an interest rate of 57 per annum, -nd to carry a commitment charge of 3/b% per annum. A full yearts amortization has been assumed in 1961, and the last amortization payment would accordingly be in 1976. The amount of the loan has been calculated so as to include commitment charges and interest during the construction period. Interest during construction is included in construction expenditures to the extent that it is actually paid; thus interest on thLe Bank loan, which is theoretically paid in cash (but by means of withdrawals from the Bank loan) and interest on supplierst credits are included. Interest during construction on the part of the investment financed from Endesa's internal generation and from interest-free advances from Fomento, which is included in the total costs shown earlier in this report, is not included in Appendix No. 8 since it is not a cash outgoing. Legislation is pending whereby Endesa would be enabled to write up its fixed assets to present day values. This would greatly increase the rate base on which the permitted return is to be calculated, and thus lead to considerable increases in revenues. In the revenue account, however, thie figures are based on a continuance of the existing law and the maintenance throughout of the 1956 tariff rates. Endesa in its accounts reflects the payment of debt service by crediting Fomento's account with the peso equivalent of the interest and amortization payments. The bookkeeping produces the saiiae result as would have been arrived at if Endesa had paid IBRD debt service with funds advanced by Fomento. In order to demonstrate the financial ability of Endesa to meet debt (ii) Supplement to Appendix No. 8 service on IBRD loans incurred for its benefit, were it required to (lo so, IBRD debt service has been shorTn as though it were a cash payment by Endesa, and the ratios of revenue cover have been incLuded in the Appendix. Endesa7s imports, other than Bank financed, are in most cases financed by means of suppliers' credits (which are guaranteed by Fomento) but some direct purchases are made also, Endesa in both cases makes actual pay- ment, rer,mitting thle necessary foreign exchange to Fomiento which acts as paying agent for Endesa. These payments which, in the case of suppliers, credits, normally extend over 4 or 5 years, and inc'ude interest at about 4-1/2%, are included in the construction expenditures in Section III of the Appendix. No nrovision for increases in working capital, nor for temporary cash shortrges arising from variations betuieen the rate of construction expenditures and the rate of cash inflowr from operations, has been made in thne cash flow sections of Appendix No. 8, but an increase in short-term borrowings from banks has been assumed, and appropriate charges for interest have been included in the revenue account. Appendix No. 9 Empresa Nacional de Electricidad S.A. Condensed and Rounded Balance Sheet as at Dec 19$ and Pro Forma Balance Sheet as at December 31, 1961 (Expressed ir, Millions of Pesos) 1955 1961 Assets and Debit Balances Fixed Aseets: Installations in operation 9.485.2 54.979.0 Work in progress 1.hh9. l 30o.40.o 10.93h.3 85.384.0 Livestmnents 229.3 229.3 Corstruction inventories 1 1.750,0 _ N3t current assets 784h3 2.000,0 -13.697:9 67.613.3- LiabiliAiies and Credit Bclances Capit.l1 J 8.871.7 34.165.7 Capital reserve 309.1 4.188.1 Other reserves and surplus 1.112.3 1.544.3 Funds received under Copper Law 283.0 6.371,0 10.576,1 46.269.1 Reserve for Depreciation 815.2 9.783.2 IBRD first loan 2.306.6 3.245.3 IBTiD second loan - 7.185,0 Rapel - 21,130,7 13_.697._9 b7 .63. 3 Debt/Equity Ratio 18/82 18/82 Debt/Equity Ratio including foreign currency cost of Rapel to date _ 24/76 21 Estimated. 2/ In 1961 construction inventories are included in work in progress. 3 Assuming Fomento advances other than re: IBRE to be capitalized. F The balance of financing for Rapel which, after maximum utilization of internally generated funds, would have to be obtained from outside sources, probably a foreign loan and advances from Fomento.