World Bank Document · Document of The World Bank FOR OFFICIAL USE ONLY 1SAAi Report No. 1450-AR STAFF APPRAISAL REPORT ARGENTINA ELECTRIC …

Document of

The World Bank

FOR OFFICIAL USE ONLY

1SAAiReport No. 1450-AR

STAFF APPRAISAL REPORT

ARGENTINA

ELECTRIC POWER SECTOR PROJECT

October 5, 1988

Latin America and Carribean Region Country DepartmentInfrastructure and Energy Division

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents mray not otherwise be disclosed without World Bank authorization.

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CURRENC' EQUIVALENTS

Currency Unit = Austral (A)A1.00 = US$0.26596US$1.00 = A3.76

(exchange rate as of January 1, 1988)

MEASURES

MMTOE : million tons of oil equivalentW t wattWh : watt-hourV : voltVA : volt amperek : 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, nationwideelectric utility and water supply agency)

CFE Consejo Federal de Electricidad (Federal Electricity Council)

CNEA Comision Nacional de Energia Atom:!ca (National Nuclear EnergyCommission)

CTMSG Comision Tecnica Mixta del Salto Grande (Argentinian/Uruguayancommission in charge of the Salto Grande Hydroelectric Plant)

DEP Directorio de Empresas Publicas (Public EnterprisesDirectorate)

DUC Despacho Unificado de Carga (Central Dispatch Center)

EBY Entidad Binacional Yacyreta (Argentinian/Paraguayan entity incharge of the Yacyreta hydroelectric Plant)

HIDRONOR Hidroelectrica Norpatagonica (federally owned, electricitygeneration utility)

ME Ministerio de Economia (Ministry of Economy)

MOSP Ministerio de Obras y Servicios Publicos (Ministry of Pub !cWorks 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 InterconnectedSystem)

UNDP United Nations Development Program

FISCAL YEARJanuary 1 - December 31

FOR OFFICUAL USE ONLYARGENTINA

E!ECTRIC POWER SECTOR PROJECT


Table of Contents

Page No.

1. LOAN AND PROJECT SUHMARY .......................................... 1

2. THE ENERGY AND POWER SECTORS ...................................... 3

A. THE ENERGY SECTOR ............................................... 3Energy Resources .............................................. 3Demand and Supply of Energy ................................... 3National Energy Policy and Sector Objectives .................. 3Institutional Structure ....................................... 4

B. THE ELECTRIC POWER SECTOR ....................................... 4Legal Framework and Regulation ................................ 4Organization .................................................. 4The Electric Power Market and Existing Facilities .............6Planning and Investment ....................................... 7

- Organization .......................... ........... 7- Expansion Plan .......................... 7- The Nucleer Power Program ..........................., 8- Investment .......................... 9

Electricity Pricing .......................................... 10Sector Finances .............................................. 10

- Past Performance ........................................ 10- National Utilities Financial Rehabilitation

Plan (FRP) ............................................ 12- Sector Financing Plan (National Utilities and EBY) ...... 13

Bark Participation ........................................... 14Bank and Country Goals and Sector Lending Strategy ........... 15Rationale for Bank Involvement ............................... 16

3. THE PROJECT ...................................................... 17

Project Origin and Status of Preparation ...................... 17Legal Arrangements ............................................ 17Project Obje"tives ............................................ 18Project Description ........................................... 18Estimated Cost ................................................ 18Financing Plan .. . ............................................ 20

- National Utilities .21- EBY .22- SE .23

Financial Covenants .23Impleme.itation and Monitoring .24Procurement .24Disbursement .25Environmental and Social Aspects .26Dam Safety and Inspection .27Auditing .28Economic Justification .28Risks .29

4. AGREEMENTS REACHED AND RECOMMENDATION .30

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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ANNEXES

2.1 Energy Sector Organization Chart

2.2 Institutioaal Aspects2.2.1 SEGBA2.2.2 AyE2.2.3 HIDRONOR2.2.4 EBY2.2.5 CNEA

2.3 The Electricity Market2.3.1 Demand Projections2.3.2 SIN - Installed Capacity Available by End 19872.3.3 Draft Terms of Reference for the Power Generation Options

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2.4 Expansion Plan and Investment Program2.4.1 STN - Evolution of Completion of Net Available Capacity2.4.2 SIN - Capacity and Energy Balance2.4.3 Economic Evaluation of the Atucha II Project2.4.4 1988-1985 Sector Inrestment Program

2.5 Electricity Pricing2.5.1 Electricity and Energy Funds2.5.1.1 Electricity and Energy Funds Forecast2.5.2 Typical Electricity Prices

2.6 Finances2.6.1 National Utilities2.6.1.1 Income Statements2.6.1.2 Flow of Funds2.6.1.3 Balance Sheets2.6.2 SEGBA2.6.2.1 Income Statements2.6.2.2 Flow of Funds2.6.2.3 Balance Sheets2.6.3 AyE2.6.3.1 Income Stateients2.6.3.2 Flow of Funds2.6.3.3 Balance Sheets2.6.4 HIDRONOR2.6.4.1 Income Statements2.6.4.2 Flow of Funds2.6.4.3 Balance Sheets2.6.5 EBY2.6.5.1 Sources and Uses of Funds2.6.5.2 Financial Plan (1988-1996)

3.1 Project3.1.1 SEGBA's 1988-1995 Investment Program3.1.2 AyE's 1988-1995 Investment Program3.1.3 HIDRONOR's 1988-1995 Investment Program3.1.4 The Yacyreta Project3.1.5 Estimate of the Project Cost3.1.6 EBY's Environmental and Resettlement (E&R) Plan of Action

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3.2 Performance Indicators3.2.1 Sector3.2.2 SEGB3.2.3 AyE3.2.4 HIDRONOR

3.3 Economic Justification3.3.1 Sector3.3.2 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 ofMessrs. Hernan Garcia and Nelson de Franco (Power Engineers) and Jose H.Bakovic (Financial Analyst) who visited Argentina in May-June 1988.

ARGENTINb



1. LOAN AND PROJECT SUMMARY

Borrower: The Argentine Republic

Beneficiary: Entidad Binacional Yacyreta (EBY)

Amount: US$252.0 million equivalent of whichUS$250.0 million for EBY andUS$ 2.0 million for Secretariat of Energy

Terms: Repayment in 13 years including six years of grace, withinterest at the Bank's standard variable rate.

ProjectObjectives: The project is designed to help achieve the following

sector objectives: (a) ensuring optimum resource allocationby requiring adherence of the expansion program to least-cost principles; (b) implementing a FinancialRehabilitation Plan (FRP) of the national power utilities;(c) promoting rational use of electricity through a tariffsystem based on economic costs; (d) improving theefficiency of the power utilities; (e) strengthening thestructure of the sector so as to bring about bettercoordination, planning and regulation; and (f) establishingpolicies and procedures for environmental protection andsocial aspects in power projects.

ProjectDescriptions The proposed operation would help finance the 1988-1989

time slice of the sector investment program. Loanproceeds would fund civil works and engineering of theYacyreta hydroelectric plant construction and technicalassistance to strengthen the Secretariat of Energy.

Project Benefits: The project would enhance the allocation of Argentina'sscarce financial resources through an economic selection ofprojects and setting of electricity prices, which, in turn,would encourage rational use of energs resources. Sectorproductivity would be improved through efficient operationof existing installations and institution building efforts,including better protection of environmental and socialaspects of power projects.

Risks: The major risk facing the project would be a lack of fundsto execute it under the envisioned time schedule. The maincause for such lack of funds would be the inadequateimplementation of measures included in the FRP,particularly the Government's difficulties in keepingtariffs in line with inflation and the complex arrangementsfor resource transfers within the sector.

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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 17SEGBA 178.3 118.9 297.2 13HIDRONOR 240.7 160.5 401.2 17EBY 584.6 279.3 863.9 37SE 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 9Subtotal 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 96Interest 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 42Government contributions 52.2 52.2 2Proposed IBRD loan 252.0 252.0 11Proposed IDB loan 250.0 250.0 11Other borrowing 393.2 413.7 806.9 34Total financing 1,437.0 915.7 2,352.7 100

Estimated Disbursements:

Bank PY 1989 1990Annual 151 101Cumulative 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.

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2. THE EIERGY AND POWER SECTORS

A. THE ENERGY SECTOR

Energy Resources

2.01 Argentina's energy resources are diverse and abundant. Proven andpotential gas reserves are estimated at 880 MMTOE (million tons of oilequivalent) and proven and potential oil reserves at 560 MMTOE. Potentialcoal reserves are also large, estimated at 220 MMTOE, but the low qualityof deposits, as well as their distance from consumption centers, make theircommercial exploitation doubtful. Uranium proven reserves are estimated at400 MMTOE--or the consumption of about 8,000 MW of nuclear installedcapacity 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 47.4MMTOE, 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. Thecountry can be considered self-sufficient, although it imports gas fromBolivia under a 1972 contract--which is scheduled to expire in 1992.

2.03 The pattern of energy consumption has changed significantlylately. As proven gas reserves have increased and gas fields havedeveloped, gas has substituted for oil in industry and electricitygeneration. This trend is expected to continue beyond 1990, with increaseduse of natural gas in power generation (para. 1.16), industry andhouseholds. In anticipation, the Government is expanding the capacity ofits gas pipelines. Substitution of oil would also continue with thecommissioning 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 thecountry's energy resources. Distorted pricing policies are believed to bethe main problem since, for long periods of time, the Government allowedprices of oil derivatives and electricity to decrease in real terms.Additionally, wrong investment decisions have led to the development of anexpensive nuclear power program, while the economic criteria traditionallyadopted for planning the electricity sector have: (a) promoted theinstallation of questionable large hydroplants (para. 2.16); and (b) notprovided for an adequate balance among generation, transmission anddistribution facilities (para. 2.18).

2.05 The Government recently completed an energy plan whose mainobjectives are: (a) to increase the contribution of gas and hydroresources to the country's energy supply; (b) to increase oil explorationefforts in order to improve the reserve/production ratio; and (c) tocorrect pricing distortions and foster conservation and substitution.Specifically, the country is expected to maintain its energy independence

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through the year 2000 bv increasing the shares of gas and hydroelectricityin 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 energyplan is a valuable planning tool which requires systematic updating toensure cost-effective and balanced use of resources.

Institutional Structure

2.06 A chart with the organization of the energy sector is presented inAnnex 2.1. The Ministry of Public Works and Services (MOSP) controls theenergy sector through the Energy Secretariat (SE) and the PublicEnterprises Directorate (DEP). The SE is in charge of defining sectorpolicies. SE is responsible for: (a) overall energy planning;(b) granting of concessions for exploration and exploitation of petroleumand gas fields and for electricity power supply; (c) pricing policies; and(d) policies for energy conservation and development of new sources ofenergy. The SE has limitations for contracting personnel and usuallyresorts to borrowing staff from AyE and SEGBA, but still is weak infulfilling its wide range of responsibilities. The proposed project wouldsupport the strengthening of the SE's technical staff [para. 3.06(b)]. TheDEP is responsible for supervising the operational performance of the majorpublic enterprises, including those of the oil and gas and electricitysectors. In theory the DEP is also responsible for authorizing tariffadjustments; in practice the Ministry of Economy retains the finalauthorization because of the Government's price setting policy (paras. 2.21and 2.22).

B. THE ELECTRIC POWER SECTOR

Legal Framework and Regulation

2.07 The legal framework of the power sector does not facilitate itscomprehensive, coherent regulation. Furthermore, the autonomy provided tothe provinces by the Constitution permits them to set rules which often donot foster economy and efficiency (e.g. establishment of royalties on theuse of hydro resources, setting of tariffs to the final user which have norelationship with costs, application of taxes and other surcharges over andabove electricity rates, etc.). It is expected that a review of the sectororganization, 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 bymaking effective use of the Federal Electricity Council (CFE), acoordinating body with representation of the SE, the national utilities andthe provincial authorities responsible for the power sector (usually theirMinistries of Public Works). Recently, the CFE has played an instrumentalrole in recommending actions to the Government aimed to correct tariffimbalances.

Organization

2.08 The Argentine power sector has a fragmented and complexorganization. Most of the power facilities are owned by the federal andthe provincial governments, although autogeneration, mainly in thehydrocarbon and mining industries, contributes with an important share ofthe total country's production (about 102 in 1987). National utilities arein charge of the development, production, transmission and distribution of

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electricity and of the development of binational hydro resources. Thereare about 20 provincially-owned utilities mainly in charge of distributionof electricity (para. 2.11).

2.09 The country's utilities owned by the Federal Government and theirrole in the power sector are the followir.g:

Servicios ElEctricos del Gran Buenos Aires (SEGBA), in charge ofgeneration, subtransmission, and distribution in the Greater Buenos Airesarea (see Annex 2.2.1).

Agua y Energia Electrica (AyE), in charge of nationwidegeneration, transmission and bulk supply, and also distributes electricityin a few provinces. It has responsibilities in integrated basindevelopment, irrigation, flood control, drainage and land reclamation (seeAnnex 2.2.2).

Hidroel4ctrica Norpatag6nica (HIDRONOR), responsible fordeveloping the hydro resources of the Northern Patagonia region (see Annex2.2.3).

In addition, the Government participates in two binational entities withUruguay and Paraguay, which are, respectively:

Comisi6n Tecnica Mixta del Salto Grande (CTMSG), in charge of theSalto Grande Hydroelectric Plant (1620 MW), operating since 1Q80.

Entidad Binacional Yacyreta (EBY), in charge of the constructionand eventual operation of the Yacyreta Hydroelectric Plant (see Annex2.2.4).

The Federal Government also owns the Comisi6n Nacional de EnergiaAt6mica (CNEA), an agency in charge of nuclear research and applications.Under this role, CNEA builds and operates nuclear power plants whichsupply energy to the sector's interconnected system. The CNEA reportsdirectly to the presidency and, since its creation in 1950, has beenmanaged independently from the energy sector (see Annex 2.2.5).

2.10 The MOSP, through DEP, has direct controi of the three nationalutilities: AyE, SEGBA and HIDRONOR. EBY reports directly to the MOSP, andCTMSG to the Ministry of Foreign Affairs. A national dispatch center (DUC)operated by AyE is in charge of coordinating the operations of the largerelectricity producers (AyE, SEGBA, CTMSG, HIDRONOR and CNEA) to ensurereliability and economic use of generation facilities.

2.11 Some of the provincial utilities own generation facilities, butmost of them distribute electricity purchased from AyE. The most importantare in the provinces of Buenos Aires, C6rdoba, Mendoza and Santa Fe. Mostof the provincial utilities were created in 1979, when the Government madearrangements with provinces to transfer distribution responsibilities fromAyE to them. The arrangements provided for the transfer of the physicalfacilities and assets but did not relieve AyE of the correspondingliabilities. The transfer from AyE resulted in the formation of a numberof 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 andthe provincial utilities is weak. The study of the sector organizationagreed upon under the revised covenants of the Yacyreta Project (para.2.14) and the studies being carried out under the Power EngineeringProject, Loan 2751-AR (paras. 2.15 and 2.18), are expected to provide thebasis for improving coordination between the Federal Government and theprovincial utilities.

The Electric Power Market and Existing Facilities

2.12 The degree of electrification in Argentina is high compared toother Latin American countries. About 792 of Argentina's inhabitants ha,veaccess to electricity. Almoqt all the urban centers and about 50? of therural population have electricity service. Electricity per capitaconsumption was about 1450 kWh in 1987 (compared with 1,100 kWh per yearfor Brazil and 270 kWh per year for Bolivia). Consumption increased at arate of 6.1Z p.a. in the period 1970-1980. It slowed after 1980,reflecting the difficult economic situation, reaching 2.8Z in the period1980-1984 and decreasing by 2.22 in 1985. Consumption growth recovered in1986 and 1987, however, at a high rate (7.4? p.a.). In 1987 industrialconsumption accounted for 48? of total consumption from public serviceutilities and residential and commercial for 40?. Demand projectionsprepared in the past tended te be over-optimistic. The SE corrected thisbias in the recent revision of the demand projection which was used todefine the expansion sector plan (paras. 2.16 and 2.19). The revisedprojections were found satisfactory by the appraisal mission and show aglobal electricity demand increase of about 6.0? in the period 1987-1995which 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 theNational Interconnected Svstem (SIN), which covers about 90? of thenation's electricity market. The total installed capacity of the SIN byend 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 kVtransmission system links the major consumption areas with the productioncenters and is used for the transfer of large blocks of energy. A networkof 230 kV lines completes the grid and permits energy transfers betweenproduction and load centers.

2.14 Performance of the national utilities is uneven and reflects thesector's fragmented organization. The utility most affected by the overallsector problems is AYE, whose performance is weak in all aspects:managerial, staffing, operations and finances. This is the result of manyyears of political interference, high rotation of personnel and financialdifficulties. SEGBA, which has been a traditionally well-run utilitv, haslately also been affected by the sector institutional and financialdeterioration. HIDRONOR is probably the best sector utility oerformer.EBY is currently a well-organized and well-run institution. The Governmentis addressing the utilities' operational problems by carrying out a studyto improve the sector organization and efficiency and accountability of thenational utilities. During appraisal, agreement was reached with theGovernment on terms of reference and specific timetable to complete thisstudy. During negotiations, it was agreed that completion of the study byMarch 31, 1989 would be a covenant of the proposed loan (para. 4.01(a)].

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Planning and Investmznnt

- Organization

2.15 Planning of the generation and transmission systems is under theresponsibility of the SE which updates the planning studies every twoyears. Demand projections are produced by a working group composed ofr-nresentatives of the electricity companies under the supervision of theSE; this arrangement is working satisfactotily since it provides for theGovernment economic policies to be taken into account in the projectionsand permits an adequate exchange of views regarding methods and criteria.Generation expansion is based on the interactive use of two mathematicalmodels: (a) an investment selection model based on linear programmingwhich defines the optimum final configuration of the system for pericds ofthree years; and (b) a simulation model which defines more precisely thedates when additions to generatiorn are required. Transmission expansion isdefined on the basis of state-of-the-art conventional studies withassistance of foreign consultants. Distribution expansion planning isunder the responsibility of each distribution utility. There aredifferences in planning and design and in equipment standards amongutilities which do not permit adequate integration. This problem is beingaddressed under Loan 2751-AR (paras. 2.18 and 3.18).

- Expansion Plan

2.16 Although the sector's methodology in defining the least-costsolution for generation expansion is sound, the Bank has had reservationsregarding the assumptions made and economic parameters selected in thepast. These reservations concerned, in particular, a discount rate of 82p.a., lower than the estimated opportunity cost of capital for Argentina(122) and the reluctance to consider gas-fueled thermal plants foroperation in the base of the load cycle in future power generation studies.In addition, demand projections were consistently over-optimistic. Theseassumptions biased the results of planning exercises towards hydro projectswith high level of investments while they undervalued the potentialcontribution to power generation of the sizeable reserves of natural gasavailable in the country. Demand projections were satisfactorily reviseddownward 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 substantialchanges to the expansion plan; major hydroprojects have been cancelled orpostponed while gas-fueled base thermal plants appear as the best optionfor the future and a sizeable reduction in the investment requirements wasachieved. This agreement constituted the first step in the rationalizationof sector investments and sets the framework for a sounder approach to thedevelopment 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 onthermal generation options: (i) to evaluate the operating conditions ofexisting thermal plants and recommend a rehabilitation program for theunits deemed to have deteriorated; and (ii) in order to further optimizethe thermal-based expansion, examine the merits of introducing the combinedcycle alternative and the possibility of achieving utilization factors forexisting and future thermal plants in line with international standards for

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planning and operation. This study should be completed in time to be usedin 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 attachedas Annex 2.3.3.

2.17 The 1988-1995 sector expansion program, which provides the basisfor the proposed project, was prepared for appraisal under agreedprinciples and methodologies and constitutes the least cost sequence tomeet the demand projections for the period. It includes generation worksto be developed by AyE, HIDRONOR and EBY, transmission works by SEGBA, AyEand HIDRONOR, and distribution works by SEGBA and AyE. The generationprojects included in the program are among those which originated fromexpansion plans prepared in the 1970s on the basis of unduly optimisticdemand growth expectations and the other inappropriate assumptions alreadydescribed. 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 completionof such projects, and their associated transmission systems in a timeschedule compatible with the revised demand projections, was an outcome ofthe least cost planning exercise. The only two new projects in the periodare gas fueled thermal plants with a size module (325 MW) compatible withforecast demand increases. Generation works to be implemented as well asenergy and power balances for the SIN are detailed in Annexes 2.4.1 and2.4.2. Scheduling of ths new projects, especially projects to becommissioned beyond 1995, will be periodically reviewed in the light of (i)updated demand projections; and (ii) results of the studies on generationoptions outlined in para. 2.16 above. To ensure that appropriate measuresto implement the optimum sector expansion program are taken, duringnegotiations it was agreed with the Government that: (i) by April 30, 1989and every April 30 thereafter, the SE will update: (a) the sector expansionplan under methodologies and assumptions mutually agreed upon [para.4.01(c)]; and (b) the financing schemes for major projects to assure thatinter alia commiss_'oning dates required by the expansion plan are feasible(para. 4.01(d)]; and (ii) it will authorize the initiation of constructionof any major public power generation or transmission project only if suchproject is in accordance with the sector expansion plan and has an adequatefinancing plan [para. 4.01(e)].

2.18 Iavestments in distribution expansion have been neglected duringthe last few years because of the difficult financial situation of thesector and the priority given to financing of large hydroprojects underconstruction. The transfer of distribution networks to the provincialutilities (para. 2.11) has resulted in deterioration of distributionnetworks, poor customer service, a decrease of system reliability andsubstantial 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 SEGBAexpansion program (SEGBA V project financed under Loan 2854-AR); and (ii)defining nationwide reliability criteria for distribution expansioncompatible with those used for generation and transmission expansion, as aresult 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 thesector for other-than-economic reasons. CNEA has developed the largest

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nuclear power program in the region, which is much more costly than otherpower sources. Currently, CNEA has two nuclear power plants in operationwith an installed capacity of 1,018 MW (Atucha I, 370 MW and Embalse, 648MW) and a third plant under construction (Atucha II, 745 MW). A fourthnuclear plant has been planned by CNEA for the year 2000 under an initialagreement with a foreign supplier, but the Government is currently delayingany commitment on this matter due to the high investments involved. AtuchaII is a very expensive project whose original high cost has been aggravatedby implementation delays and cost overruns. The original project cost wasestimated at about US$1600 million (1979 price level). Currently, aftercompleting 60X of the project, investments still to be made amount to aboutUS$1470 million (January 1988 price level). This, together withdifficulties to provide further financing, has led the Government toconsider cancelling the project. The Bank analysis of this option(summarized in Annex 2.4.3), was based on an economic comparison with aconventional thermal plant and considered that investments already made aresunk costs. It concluded that even though the project should not have beenstarted, there are not sufficient grounds to recommend its cancellationgiven the advanced status of implementation and the economic costs to beincurred in the cancellation of the contracts for equipment and serviceswith the degree of commitments already made. However, as nuclear powerwill be clearly an uneconomic choice in Argentina in the foreseeablefuture, and as during negotiations agreement was reached on criteria forimplementation of new projects that allows the Bank to require that theexpansion be based upon least cost principles (para. 2.17), the Governmentcould not initiate uneconomic projects, such as a new nuclear power projectwithout Bank's concurrence. Additionally, to ensure that the costs ofinefficiencies resulting from the development of nuclear power do notburden electricity consumers, it was agreed that: (i) CNEA would obtainsector-generated funds only after the financial requirements of othersector utilities have been fully met; and (ii) bulk tariff which CNEAcharges to DUC will not be higher than the maximum bulk sale price of thegenerating utilities supplying to the SIN [para. 4.01(f)].

- Investment

2.20 The 1988-1995 sector investment program has an estimated cost ofUS$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 41SEGBA 900.3 600.2 1,500.5 19HIDRONOR 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=

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Electricity Pricing

2.21 Argentina's electricity pricing system is quite complex. Asubstantial part of the revenues of each sector utility is paid to theFederal Government in the form of a value added tax (VAT) and to earmarkedElectricity Funds in the form of surcharges which, return to the sector asgovernment equity contributions. Also, a portion of taxes on the sale ofpetroleum products flows to the power sector to help fund its investmentrequirements. Annex 2.5.1 gives a description and projection of theelectricity and energy funds. In addition to the above taxes the finaluser also pays provincial and municipal taxes as part of his utility billwhich vary substantially throughout the country.

2.22 Tariff structures, except SEGBA's to a certain extent, have notbeen designed on the basis of economic criteria. While the nationalaverage level of tariffs including taxes and surcharges is in line with theestimated national average economic cost, there are significant differencesamong utilities as similar consumers pay prices which are considerablyhigher or lower without relation to their corresponding estimated economiccosts (see Annex 2.5.2). This has been caused in part by the difficultiesassociated with the management of utility prices in a high inflationenvironment and the autonomy of provinces to set their own rates.

2.23 The Bank and the Government have maintained a continuous dialogueon possible ways and means to improve this complex tariff situation withaims to establish a price system (structure and levels) which would reflectthe economic costs of the service. Under the 1986 amendment to Loan1761-AR, the SE is preparing a tariff study based on LRMC principles whichis expected to provide the basis for restructuring the tariff system.Major results of the study are expected by February 1989. Under theproposed project, during negotiations it was agreed with the Governmentthat the results of the tariff study would be implemented in a mannersatisfactory 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 impactof changing economic policies and the burden of an investment programdecided at a time when demand growth expectations were higher and externalfinancing had been assumed to be easily available. During 1976-1982 thesector incurred a high level of external indebtedness, to a large degreeprompted by the Government which in such manner was financing a substantialportion of its foreign currency needs. The major devaluation of the localcurrency that followed placed a heavy debt service burden on the sector andcaused a major deterioration in its financial structure which hassubsequently been somewhat corrected by the refinancing of the sector'sdebt. However, since 1986, the decline in the value of the U.S. dollar, towhich the Austral is pegged, is again causing problems because of itseffect on the sector's investment and debt service programs which havesignificant components of Japanese and European hard currencies.

2.25 The recent economic difficulties also resulted in a deteriorationof financial discipline among public sector entities. Arrears for the

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purchase of electricity by national, provincial and municipal agencies andby autonomous agencies mounted. As of December 31, 1987, the balance ofaccounts receivable from electricity consumers of the three federally-ownedutilities was as follows (in US$ million):

No. of Of Which: Of Which:Utility Days Balance Overdue Public Sector 1/AyE 167 223.2 184.4 134.4HIDRONOR 96 31.1 12.4 12.0SEGBA 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 accountsof about US$175 million to the power sector. Loan 2854-AR includescommitments to reduce SEGBA's accounts receivable from the public sectorand from all customers. Collection of receivables showing a decreasingtrend is part of the set of performance indicators agreed upon under theproposed operation (para. 3.18).

2.26 Argentina's recent economic difficulties may have been acontributing factor to the increase in electricity theft which accounts toa sizeable degree for the increase in distribution losses that has beentaking place since 1981. The financial problems of the power sectoritself, however, were also an important contributing factor for theincrease in distribution losses as they resulted in curtailment ofexpenditures in network expansion and maintenance. SEGBA, under Loan2854-AR, is to carry out an electricity loss reduction nrogram to addressthis sector issue and the performance indicators agreed upon under theproposed operation also include targets for reduction of electricity losses(para. 3.18).

2.27 In March 1986, the Federal Government prepared a program toaddress the various financial problems faced by the sector and thecovenants under Loan 1761-AR were amended to reflect the agreements thenreached. 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 utilitiesfor the following year.

During 1987, the targets defined for the above objectives were not achievedbasically because of a higher-than-expected inflation which reducedrevenues, in real terms. In compensation the Government has returned tothe sector a larger proportion of taxes collected from it than anticipated.

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- 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 aFinancial Rehabilitation Plan (FRP) which would reverse the dismalfinancial situation of the national utilities which, at present, havenegative rates of return and are significantly dependent on Governmentcontributions (Annex 2.6.1). The FRP relates to the group of nationalutilities (AyE, SEGBA and HIDRONOR) which account for about 60? of sectoroperations. The basic principles agreed upon between the Bank and SE forthe preparation of the FRP were as follows:

(a) each utility and the consolidated group of national utilitieswould show clear improvement trends to be measured particularly bythe cash operating ratio (cash operating expenses as a percentageof 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 phasedmanner consistent with the stabilization program;

(c) to balance the financial situation among utilities;

(d) the investment program for each utility would be strictly in linewith the least-cost expansion of the sector agreed with the Bank;and

(e) the working capital needs would reflect sound practices of powerutility financial management, especially regarding collection andpayment periods.

2.29 The detailed financial projections for each of the individualnational utilities and the consolidated group are included in Annex 2.6. Asummary of the 1988-1995 flow of funds under the FRP is shown in thefollowing table:

National Utilities Financial Rehabilitation Plan (FRP)(1988-1995)

US$ Million 1/ 2Financial RequirementsInvestment Program 5,688.7 96Working Capital Increase 2/ 251.3 4

Total Requirements 5,940.0 100

Financial ResourcesNet Consumer-based Funding 3,996.3 67Government Contributions 30.7 1Net Non-Borrowed Funding 4,027.0 68

Borrowings 1,913.0 32Total Financial Sources 5,940.0 100

1/ In constant January 1988 prices.2/ Includes expected fund surpluses in 1993-1995.

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2.30 The PRP is based on a set of assumptions which take into accountthe limitations imposed by the stabilization program on (i) rate increasesand on the corresponding availability of Electricity and Energy Funds(Annex 2.5.1), (ii) Government contributions, to be used mainly for debtservice payments, and (iii) borrowings, committed for ongoing projects andto be committed to finance the foreign cost component for future projects.Annex 3.2 gives a detail of the above assumptions. The resulting cashoperating ratio (cash operating expenses as a percentage of operatingrevenues) would have a steady and positive trend as shown by the followingtables

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 thenational utilities would increase steadily and with the contribution ofele!tricity and energy funds would show a healthy contribution toinveitment, 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 49.4with elec. funds -30.2 7.4 25.3 38.5 51.4 63.3with 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 projectbelonging to Argentina and Paraguay (Annex 3.1.4), tut considering that thebulk of the funding for the project is channeled through Argentina, aconventional 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 followingfinancial plan:

Sector Financial Plan (National Utilities and EBY)(1988-1995)

US$ Million 1/ 2Financial RequirementsInvestment Program 7,931.2 96Working Capital Increase 295.0 4

Total Requirements 8,226.2 100

Financial ResourcesNet Consumer-based Funding 3,517.4 43Government Contributions 1,222.6 15Net Non-Borrowed Funding 4,740.0 58

Borrowings 3,436.2 42Total Financial Sources 8,226.2 100

1/ In constant January 1988 prices.

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The above financing plan is viable and adequate as the assumption, used forits preparation (see para. 2.28) are reasonably conservative and theresulting funding mix is a sound one. Its feasibility during the projectexecution period (1988-1989) has a high degree of certainty because ofcommitments already made by the Government during negotiations (paras. 3.13and 3.14). These commitments refer basically to the assumption of servicepayments of existing debt and annual increases of tariffs in real terms.Regatding tariffs, during the first eight months of 1988, the Governmenthas given positive evidence of its willingness to increase tariffs in orderto comply with the targets of the FRP. Besides the monthly nominalincreases that have been implemented to keep up with inflation, in July a15? average increase in the tariffs of SEGBA was carried ouit with theintention of reducing significant differences between its tariffs and thoseof the provincial utilities, and in early August a general increase of 30Zwas established for all tariffs in anticipation of the so-called'voluntary' price freeze under the Government's Spring Plan. The followingtable summarizes the present situation as compared with the December 1987average tariff levels:

SEGBA AyE HIDRONOR

December 1987 (A/MWh) 168.0 79.4 66.9August 1988 (A/MWh) 855.1 316.2 248.6Increase (Z) 409.0 298.2 271.5CPI (Z) 1/ 261.1 261.1 261.1Real 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 occurbut that tariff levels will be enough to reach the 1988 targets establishedunder the FRP.

Bank Participation

2.32 Since 1962, the Bank has made eight loans to Argentina's powersector; five of which were to SEGBA to help finance an oil-fired thermalgeneration plant, and transmission, subtransmission and distributionexpansions; one to HIDRONOR for the construction of the 1200 MW El ChoconHydroelectric Plant; and two to the Federal Government, the first one in1979 to help finance the Yacyreta Hydroelectric Project and the second one,in 1987, for a Power Engineering Project which is expected to provide thebasis for improving the efficiency and economy of distribution expansionscountrywide. Project performance audit reports have concluded that, whilethe physical objectives of the first five projects were largely met, theirfinancial objectives were not. The latest of these reports, on SEGBA IVProject (Loan 1330-AR, approved in September 1976 and completed in June1985), indicates that the project was successful in meeting its technicaland physical objectives of providing facilities to meet the growingelectricity demand of the Greater Buenos Aires area, and that SEGBAsucceeded in improving its overall efficiency during the period of projectexecution. However, because of the lower-than-eypected demand and alsobecause of the poor financial situation of SEGBA, the project suffered a

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completion delay of 4.5 years and a 40X increase in total costs. Moreover,the Government's failure to implement adequate tariff increases preventedSEGBA from complying with its financial covenants except for a short periodof time, and its financial performance was poor.

2.33 Initial execution of the Yacyreta project suffered significantimplementation problems (para. 3.01), while the Power Engineering Project(Loan 2751-AR) is progressing satisfactorily. A US$276.0 million loan toSEGBA which will help SEGBA finance its transmission and distributionexpansion 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 theefficiency of national and provincial utilities and restore the financialsoundness of the sector by:

(a) sharpening the delineation of responsibility for planning andimplementing the expansion of electricity services for which:

(i) planning for all new investments in generation andtransmission facilities will be centralized in the SE;

(ii) only the national utilities will implement all newgeneration and high voltage transmission works; and

(iii) coordination between national and provincial utilitieswill be strengthened.

(b) establishing efficiency improvement programs for the nationalutilities;

(c) initiating a medium term program of tariff structure reform andrate increases so as to reflect economic costs over a reasonableperiod of time; and

(d) improving the self-financing capabilities and operating ratios ofthe major power companies.

2.35 The Bank fully agrees with these objectives and, within suchframework, 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 adhereto least-cost principles;

(ii) productivity improvements; and

(iii) a tariff system based on economic principles.

(b) implementing an institution building plan which would streamlineand improve the sector's organization and legal structure;

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(c) promoting the financial soundness of the sector, particularly theimprovement of the sector's contribution to investment; and

(d) helping the Government meet the large financial requirements ofthe sector.

Rationale for Bank Involvement

2.36 The proposed operation would be the first in a planned series ofsector investment loans intended to assist the Government to attain theaforementioned objectives (paras. 2.34 and 2.35). The envisaged loanswould address sector issues in a phased manner: conditionality for a singlesector loan would concentrate on a few key targets in the short-term(during the two to three year disbursement period), within a long-termstrategy. The new approach intends to relate sector and macroeconomicpolicies more realistically within the constraints of existing countryconditions. By improving sector resource allocation, it would also help torationalize power investments and promote the integration of hydrocarbonsand hydropower sectors in investment planning and decisions. Further, inaddition to strengthening its direction of the sector and overcoming someof its most severe problems, the Government would be assisted under theproposed operation to maintain the implementation of the YacyretaHydroelectric Plant Project, whose financial requirements constitute themost important resource need to be resolved in the short term.

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3. THE PROJECT

Proiect Origin and Status of Preparation

3.01 The Yacyreta project, for which the Bank approved in 1979 a US$210million loan (Loan 1?61-AR), has suffered significant implementationproblems which have caused an eight-year delay in the completion scheduleand i sizeable financial gap. The implementation problems began at itsinception, with a protracted dispute between the Government and the Barnkover procurement procedures, and was only resolved by end-1982. Later on,works were stopped because of the South Atlantic War. The country'seconomic recession and high inflationary trend during 1983-1984 worsenedthe sector's--and the project's--financial situation. These problems werefurther compounded by the following events: (a) the Executing Agency, EBY,has been unable to fully secure the financing which had been foreseen atappraisal 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 tobecome due; (ii) increased financial charges; and (iii) foregoing ofinternal cash generation from energy sales (estimated at US$1,884 millionat appraisal).

3.02 For these reasons and in order to seek possible economies, the newauthorities, early in 1984, made a thorough evaluation of possible optionsregarding the fate of the project, including cessation of works. Aftercareful consideration of engineering, economic, internal and internationalfactors, the Government decided to complete the project, and appointed anew management with the mandate to carry out an in-depth revision andoptimization of the project. This resulted in changes in project design,renegotiation of contracts with construction and engineering firms and arescheduling of project execution to adapt the pace of commissioning of theproject's units to updated demand projections. Important reductions ofcost were also obtained. The Government placed great emphasis on seekingadequate financing for project completion and, in 1986, the Governmentrequested additional IBRD/IDB financing to complete it.

3.03 Processing of a possible Bank loan had been delayed because of theuncertainties emerging from country conditions which had hinderedpreparation of a comprehensive and viable sector Financial RehabilitationPlan (FRP). It was subsequently agreed to change the approach to powerlending for Argentina from project specific loans to sector investmentloans so as to link better Bank lending with the investment needs andfinancial conditions of the sector. The project was appraised in June1988. Negotiations were held in Washington from September 26 to 28, 1988.The Argentinian delegation was headed by Mr. Ramon da Bouza, Director forExternal Economic and Financial Policy, Ministry of Economy.

Legal Arrangements

3.04 The Borrower of the proposed US$252.0 million loan would be theGovernment, which would retain US$2.0 million for SE and onlend the

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remaining US$250.0 million under the same terms and conditions to EBY,which would bear the risks related to exchange and interest rates. TheBank would enter into the following legal arrangements: (a) a LoanAgreement with the Government of Argentina; (b) a Project Agreement withEBY for the transferring of US$250.0 million; and (c) a Second OwnersAgreement with the governments of Argentina and Paraguay which wouldsupport obligations contained in the Project Agreement, as EBY is abinational entity. Annex 2.2.4 gives a detailed description of theinstitutional aspects of EBY.

Project Objectives

3.05 The project would initiate a process designed to achieve thefollowing sector objectives: (a) improving resource allocation within thesector through optimization of its expansion program; (b) implementing aFinancial Rehabilitation Plan (FRP) of the national power utilities; (c)improving the efficiency of the power utilities; (d) promoting rational useof electricity through a tariff system based on economic costs;(e) strengthening the structure of the sector so as to bring about bettercoordination, planning and regulation; and (f) establishing policies andprocedures for environmental protection and social aspects in powerprojects.

Project Description

3.06 The proposed project consists of:

(a) Sector Investment Program. This project component is the1988-1989 "time slice" of the sector's investment program, underresponsibility of AyE, SEGBA, HIDRONOR and EBY, defined on thebasis of the sector expansion plan for the period 1988-1995, aspresented under paras. 2.16 to 2.20. This program (Annex 3.1),which adheres to least-cost principles, includes only highpriority works for the period 1988-1989: (i) ongoing generationand transmission works being carried out by AyE, HIDRONOR and EBY;(ii) generation and transmission works to be initiated by AyE inorder to meet dates established in the sector expansion plan;(iii) distribution works--either under execution or to becommitted in the period by AyE and SEGBA; and (iv) the carryingout of studies for futu-e works.

(b) Institutional Strengthening of the SE. This project component istechnical assistance to provide to the SE for a period of twoyears: (i) 240 staff months of specialized consultants; (ii) up toUS$1.0 million equivalent of computer, and office equipment; (iii)a data base/communication link equipment between the SE and themain energy sector institutions; and (iv) miscellaneous equipment.UNDP would help with administrative support for the project. Thecost of this component was estimated during appraisal at US$3.0million of which US$2.0 million would be financed with proceeds ofthe proposed loan.

Estimated Cost

3.07 The 1988-1989 slice of the sector's investment program has anestimated cost of about US$2,350 million (Annex 3.1.5) as shown below:

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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 1976.1Physic. Cont. 74.1 49.4 128.6 66.0 31.0 98.0 139.1 80.6 219.6Sub-total (1) 741.6 494.8 1236.9 649.6 aio.3 969.8 1891.0 804.7 2195.7Price. 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 2269.6Interost (2) 80.1 80.1 80.1 80.1SE 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 wereprepared by SE's planning staff, based on information provided by sectorutilities for individual projects. This information is based on: (a)c.ontracts for projects under construction, which amount to about 902 of theproject cost; and (b) detailed design for those projects to be initiated inthe 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 individualprojects. The breakdown of the project cost into foreign and localcomponents reflects estimates for the major components of the sectorinvestments (Yacyreta, SEGBA V and HIDRONOR's Piedra del Aguila) and Bankstaff estimates for the remaining projects which are based on past sectorexperience. Price contingencies for the period 1988-1989 were calculatedfor both foreign and local costs at 3.0? per year.

3.09 As the Yacyreta project is the largest sector investment, detailedcost estimates were prepared for the entire remainder of its constructionperiod, 1988-1996, and are presented in the following table:

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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 12.9Civil Works 488.8 448.7 653.2 1,446.2 81.6Construction Equipment 228.4 24.0 0.0 247.4 6.4

GOne-ation Equipment 0.0 107.4 402.6 610.0 11.1Electromechanical 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 ofthe engineering and civil works are based on existing contracts; (c) thecost of the electromechanical equipment is based on awarded bids; and (d)costs of the relocation component are based on existing contracts for asubstantial part of the component and final design for works to becontracted. Physical contingencies .yere estimated for every major elementof the project and resulted in an overall rate of 10X. Price contingencieswere estimated on the basis of projected national inflation rates fo.countries of origin of goods and services. They result in the followingoverall figures: 4.42 for 1988, 3.52 for 1989, 4.42 for 1990, 3.52 for1991, 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 andimport duties.

Financing Plan

3.11 Since the project has been defined as the 1988-1989 time slice ofthe sector investment program which, conventionally, comprises: (a) thenational utilities; (b) EBY; and (c) the SE component (para. 3.06(b)] theproject financing plan would also have the same three correspondingcomponents which are summarized in the following table:

Project Financino Plan(in millions of current USS)

NationalUtilities EBY SE Total K

Net Consumer-base funding 719.6 272.0 991.6 42Government contributions 81.2 20.0 1.0 62.2 2Proposed IBRD loan - - 260.0 2.0 262.0 11Proposed 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 == =~ = == _

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- 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 thatthe national utilities wou .d reach the following key financial targets:

1988 1989 1990

Cash Operating Ratio 1/ 91.0 81.0 78.7Contribution 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 apercentage of investment.

The improving trend in the cash operating ratio is particularly relevantfor the Argentinian power sector as it shows that the level of cashoperating costs as compared to revenues which is too high in 1988 willdecrease significantly in the next two years. The operating ratio would beabout 2C percentage points higher with the inclusion of the depreciationcharge. The high operating ratio is the main issue in the finances of thenational utilities and its improvement will be the main measure of theirfinancial rehabilitation process.

3.13 To achieve said targets, it has been assumed that measures wouldbe taken by the Government and the utilities to achieve the followinglevels (in January 1988 US$ million) of key financial variables:

1988 1989 1990

Average sale price (US$/MWh) 33.5 36.7 38.5SEGBA 48.2 52.0 52.5AyE 21.2 23.7 26.8HIDRONOR 15.1 16.4 18.3

Electricity and Energy Funds 462.4 452.8 388.4SEGBA 84.5 44.8 13.3AyE 171.1 252.4 211.3HIDRONOR 206.8 155.6 163.8

Debt Service to be paid by Government 281.9 294.7 290.0SEGBA 52.8 58.2 58.7AyE 214.8 190.8 189.9HIDRONOR 14.3 45.7 41.4

Borrowings 162.0 349.2 352.7SEGBA 0.4 87.3 150.5AyE 117.9 106.5 58.7HIDRONOR 43.7 155.4 143.5

Additionally, under the FRP it has been assumed that efficiency improvementmeasures in financial administration and utility operations would be takenand result in positive trends for a group of selected key performance

. . ._-- t - _- - a _ %__

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- EBY

3.14 The 1988-1989 time slice of EBY's financing plan (Annex 2.6.5) isas 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 debtservice 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 requirementsof the investment program;

(c) through Banco de la Nacion, US$42.8 million of local banksdebt service would be financed;

(d) foreign banks have already committed US$63.0 million torefinance part of debt service obligations owed to them;

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(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) wouldfinance US$500.0 million, which would pay civil works andengineering contracts (US$419.9 million) and interest oncurrent and proposed IBRD/IDB loans (US$80.1 million).

As can be seen, this plan is basically contingent upon the Governmentactions to secure local currency funding and upon the IBRD/IDB proposedfinancing. It is important to note that the degree of financial viabilityis greater when considering only the investment requirements as debtservice needs constitute a significant share (27Z) of total requirementsand they depend fundamentally on fiscal (budgetary) resources. As theconstruction of the project will be completed only in 1996 and the internalfund generation will start only in 1993, it is recommended that interest oncurrent and proposed IBRD and IDB loans (US$80.1 million) be financed so asto avoid additional fiscal contributions or refinancing for such purpose.

- SE

3.15 The financing of the SE's technical assistance program (US$3.0million) would come from proceeds of the proposed loan (US$2.0 million) andthe Government's budgetary resources (US$1.0 million).

Financial Covenants

3.16 To ensure the viability of the project's financial plan, duringnegotiations agreement was reached with the Government and EBY, asappropriate, on the following commitments (para. 4.01(h)]:

(a) to cause the national utilities to meet the main targets of theFRP, i.e., cash operating ratios of 912 in 1988, 812 in 1989, and79Z in 1990; and a contribution to investment which would not belower 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 ofmeasures required to achieve the FRP targets in the current andfollowing years;

(c) to take all the necessary measures (e.g., tariff adjustments,transfers of electricity and energy funds, assumption of debtservice payments and budgetary contributions) to achieve the FRPtargets and viable financial plan for EBY and the SE technicalassistance program; and

(d) to establish necessary measures in order for the nationalutilities to achieve financial management and operationalimproving levels to be measured through key performanceindicators (para. 3.18).

Due to the importance of the parallel IDB loan in the viability of theproject's financial plan, it is a condition for effectiveness of theproposed loan that the IDB loan has been executed (para. 4.02).

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Implementation and Monitoring

3.17 Implementation of the different elements of the proposed projectwould be responsibility of the corresponding utilities which have adequatecapability and resources to carry out these projects. At the sector levelBank supervision would concentrate on: (i) the follow-up of the FRP, duringthe 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 ofthe project, the Bank continues performing detailed supervision, as it hasdone for Loan 1761-AR, including review of institutional, engineering andenvironment/resettlement aspects.

3.18 The monitoring of the sector efficiency improvement would be madein 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. Annex3.2 shows the performance indicators to be used. To improve the sector'sglobal efficiency, the Government has agreed under Loan 2751-AR to carryout studies which would assess the quality of service of the utilities,their use of resources, distribution planning methodologies and increasethe coordination of the national and the provincial utilities regardingdistribution expansion planning and implementation. Under Loan 2854-AR,SEGBA and the Bank have agreed on the carrying out of a comprehensive Planof Action to increase SEGBA's efficiency and reduce losses.

Procurement

3.19 As the number of elements included in the project, defined as thetime-slice of the investment program of the three major national utilitiesand Yacyreta, is very large, a precise computation of the amounts whichwould be procured through the different procurement methods is not feasibleand, thus, the procurement table usually shown in Bank appraisal reports isnot shown for this project. As detailed below the procurement arrangementsare satisfactory.

3.20 Proceeds from the loan would be applied to finance: (a) ongoingcontracts for the execution of the Yacyreta project procured under Loan1761-AR, as follows: (i) the major civil works contract which was awardedthrough ICB procedures in accordance with Bank Procurement Guidelines, and(ii) ';he contract for consulting services which was awarded in accordancewith Bank Guidelines for the Use of Consultants; (b) the SE TechnicalAssistance Program; and (c) interest under loan 1761-AR and the proposedBank loan. Procurement of equipment and contracting of consultants underthe technical assistance program would be carried out in accordance withBank Guidelines for Procurement and Bank Guidelines for Use of Consultants,respectively. Procurement of goods, principally computers, software andoffice technology equipment would be carried out through limitedinternational bidding which is the most suitable type of procurement forthis kind of equipment. Ex ante Bank review of procurement documentation

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on contracts for equipment above US$200,000 would be required. The Bankwould approve terms of reference, selection procedures and fee range forindividual consulting positions.

3.21 Procurement of goods and services not financed with proceeds fromthe loan would be procured through a variety of procurement methods,depending upon the origin of the corresponding financing. Procurement forBank-financed projects (Power Engineering and SEGBA V) would be done inaccordance with Bank guidelines. IDB-financed projects for EBY, AyE andHIDRONOR would be procured in accordance with IDB's procurement methodswhich are generally consistent with the Bank's. Other components of theproject would be procured under the specific arrangement governing theparticular financing available (i.e. bilateral agreements). Finally, itemsfinanced with local funds would be procured through the correspondingutilities' normal practices which are restrictive for they obligeArgentinian goods to be bought when available. As a result of this,acquisition of goods and services for an amount estimated at US$200 millionwhich would be feasible for ICB would constitute reserved procurement.Thus, for the purposes of determining the maximum loan amount, theestimated cost of reserved procurement was excluded from the total projectcosts. This type of procurement is not expected to affect the economy orefficiency 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 twoyears. As such, the disbursement schedule does not follow the Bank'sstandard profiles as it reflects projected billings on the contracts of theYacyreta project. Expenditures would be disbursed against CertifiedStatements of Expenditures for expenditures under US$500,000. The proceedswould be applied to finance up to:

(a) 50Z of expenditures on the major civil works contract for theYacyreta project in the period 1988-1989 (US$182.4 million);

(b) 50Z of expenditures on the engineering contract for theYacyreta project in the period 1988-1989 (US$27.0 million);

(c) interest and other charges on the proposed Bank loan during thedisbursement period (up to US$18.2 million);

(d) interest and other charges on loan 1761-AR accrued during thedisbursemert period of the proposed operations (up to US$22.4million); 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 categoriesof 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 besatisfied with the results of the Hay 1989 review of the FRP [para.3.16(b)]; (ii) satisfactory progress in implementing the recommendations ofthe sector organization study (para. 2.14); and (iii) fulfillment of allconditions of disbursement under the IDB loan.

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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 theBank's, it has been agreed at EBY's request to increase the percentagesindicated in (a) and (b) above up to 1002 during the time elapsed betweenBank loan effectiveness and IDB loan effectiveness. IDB has agreed to havea similar provision which would permit restoring the targeted pari-passu.It was further agreed that such front-end loading of the Bank's loan willbe subject to a limit of 502 of the aggregate amount allocated tocategories (a) and (b) above (US$104.7 million) in order to allow the Bankto review the financing of the project if disbursements under the IDB loando not commence within a reasonable time frame [para. 4.03(b)]. Theclosing date would be June 30, 1990.

3.24 In order to improve the timeliness of disbursements and theavailability of funds for the project, the Bank would make an advancepayment from the loan account into a Special Account, to be opened andmaintained in US dollars in a bank acceptable to the Bank. The funds wouldbe used to reimburse EBY and the SE for the Bank's share of the projectcost, as well as to reflect direct payments in foreign currencies. Thetotal amount in the Special Account (about US$50.0 million equivalent)would not exceed an amount that is about four months of estimated averagedisbursements for the project. Replenishment of the Special Account wouldbe made in accordance with standard Bank procedures.

3.25 Financirg of the major civil works and the engineering contractshas been partially made with proceeds from Bank Loan 1761-AR and a parallelIDB loan. As the proposed Bank and IDB operations would continue thefinancing of these contracts, the Government has requested, and the Bankagreed to accept, that commitments made by EBY for execution of works andservices under the approved contracts for the period of time elapsedbetween completion of disbursements under Loan 1761-AR and effectiveness ofthe proposed loan be eligible for financing with proceeds from the proposedloan provided no payments will have been made in respect to suchcommitments at the time the respective disbursements under the proposedloan are called for.

Environmental and Social Aspects

3.26 Sectoral aspects. The Government is aware that the growth of theenergy sector has the potential to impose long term adverse effects on theenvironment. Accordingly, the SE has already taken initiatives to developan institutional capacity in the power sector to identify and analyze theimpact of its activities, and to structure these so as to mitigate adverseconsequences. It is also the SE's understanding that, in order to ensurelong-term compliance with acceptable environmental standards, it would beimportant to have sector criteria for provisions to meet these standards inthe design of power projects and for their adherence in project execution.Consequently, it was agreed during negotiations that the SE will issueregulations in connection with power sector projects concerning protectionof the environment and mitigation of the economic and social effects ofinvoluntary resettlement [para. 4.1(i)]. The SE has already issuedregulations requiring the national utilities to present for review a reporton all possible effects of the construction of hydroplants on theenvironment and the population, and to demonstrate that the proposed

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remedial actions would be adequate. These regulations, which codify someof the best international practices in this field, have been reviewed bythe Bank and found highly satisfactory. The SE is now preparing comparableregulations for thermal plant construction, which will be sent to the Bankfor comments before May 31, 1990. In addition, it was agreed that theGovernment will present to the Bank, by May 31, 1989, an assessment of theoperational safety of nuclear plants in Argentina prepared under terms ofreference satisfactory to the Bank [para. 4.01(j)].

3.27 Yacyreta project. Potentially adverse effects of the Yacyretaproject on the environment and on the affected population, which the Bankhas been monitoring for several years, are adequately addressed by EBY asdetailed in Annex 3.1.4. To deal with the environmental impact of theproject, EBY has developed a Master Plan for environmental protection,acceptable to the Bank, that adequately addresses matters related to waterquality, aquatic fauna, riverbank species, development of natural reserves,animal rescue, reservoir cleaning and public health. The relocationcomponent, which includes the resettlement of about 40,000 people, is welladvanced, and adequately scheduled for completion by the fourth quarter of1992. The Bank and the EBY have recently exchanged views and reachedagreement on the following relevant social, technical and economic aspectsof the EBY's resettlement and environment program: i) establtshment of apanel of international experts on environment to provide high levelassistance to EBY staff and help monitor its efforts in developing theproject in accordance with the most desirable international standards; ii)installation cf fisheries and fauna sanctuaries; iii) adequate size andcomposition of the resettlement staff and execution of a training program;iv) implementation if an Urban Master Plan for the city of Encarnacion andcompletion of a sanitation plan for the city of Posadas; v) provision foraverting invasion of the areas to be flooded, thus obviating undue increaseof claims for resettlement; vi) mitigation of the economic and socialadverse effects on the owners and workers in the small clay industries inthe areas to be flooded. In view of the importance of a timely executionof both the environmental and the relocation components, duringnegotiations it was agreed with EBY on the carrying out of a Plan ofAction, attached as Annex 3.1.6, with specific schedules and targets tocomplete the environment and relocation components in a manner satisfactoryto the Bank [para.4.01(k)].

Dam Safety and Inspection

3.28 EBY has taken adequate steps to ensure that the dam's safetyaspects are duly considered. It has appointed a panel of experts,satisfactory to the Bank, which has reviewed the design of the dam, withparticular emphasis on safety aspects, and has included enoughinstrumentation to ensure that the dam behavior is properly monitored. Toensure that these considerations continue to be properly taken care of,during negotiations EBY agreed to continue seeking adv'ce of the panel ofexperts and to have the dan inspected regularly by experts during itsuseful life in accordance with a program to be submitted to the Bank byJanuary 1, 1990 [para. 4.01(1)].

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Auditing

3.29 As required by Argentine law for all government-owned companies,EBY has its financial statements audited by the Public EnterprisesComptroller (Sindicatura General de Empresas Publicas/SIGEP) which the Bankhas found to perform effectively. In the case of Paraguay, at present theauditing firm is Auditores y Consultores Asociados (AYCA), an independentaudit firm acceptable to the Bank. During project execution EBY wouldcontinue to engage the services of independent auditors acceptable to theBank and would present, in accordance with terms of reference acceptable tothe Bank, duly audited financial statements and project accounts withinfour months of the close of the fiscal year. The auditors would alsoreview statements of expenditures related to the project. In addition, theproject Special Account (para. 3.24) would be audited in accordance withterms of reference and by an independent auditor, both acceptable to theBank [para. 4.01(m)].

Economic Justification

3.30 The economic analysis is based on the 1988-1995 investment programfor the sector, which includes all the investments in generation,transmission and distribution facilities developed by the nationalutilities and EBY necessary to meet electricity demand. The proposedinvestment program is based on the Energy Plan, a comprehensive energysector study completed in 1986 and revised--in regard to the power sector--for purposes of appraisal of the proposed project. The investment programis considered to be a sound development program for the period 1988-1995 asit contains the least-cost sequence of generation and transmission projectsfor that period. As detailed in para. 2.17 the development program beyond1995 warrants re,iew as it includes projects that have not reached thestage of final design for construction; but such review would not affectsignificantly the conclusions of the economic evaluation.

3.31 The rate of return on the investment program was estimated dsbeing the discount rate which equalizes the present value of the economicnet cost and benefit streams associated with the investment program(Annex 3.3.1). The economic net cost streams include: (i) capitalinvestments on generation, transmission, sub-transmission, distribution andgeneral investments to be made by the sector; (ii) costs of operation andmaintenance related to the capital investments and (iii) energy purchasedfrom CNEA and CTHSG. Since benefits in the power sector arising from theinvestment program cannot be quantified with precision, the use of a proxyis required. Therefore, the economic net benefit streams were measured bythe forecast revenues from the incremental sales of electricity, attributedto the facilities included in the investment program, on the basis ofretail tariffs, including surcharges, required to attain the targetsestablished 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 thisreturn of the possible failure to implement the tariff increases containedin the FRP. It shows that if revenues are valued at tariff levelsprevailing in July 1988, the rate of return is about 1OZ.

3.32 The above results confirm that, if the planned tariff increasesnre adopted on schedule, the rate of return of the 1988-1995 investment

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program would be over the opportunity coet of capital in Argentina(estimated at 12Z). The above rate of return does not fully measure someof the benefits to society such as the social benefits of residential andpublic uses, or the indirect benefit to industry and commerce, whoseproduction and empleyment depend on reliable electricity supply.

3.33 Because of the large amount of investments to be made in theYacyreta project, a separate economic evaluation has been made for thisproject (Annex 3.3.2). It is based on the comparison of completing theproject (excluding sunk costs) with the alternative of implementing a gas-fueled thermal plant which would provide a similar service. Results showthat completion of Yacyreta has an IRR over 18X. A sensitivity analysiscarried out to evaluate the impact of cost overruns shows that an IRR of15? is still attained for a cost overrun of 20?.

Risks

3.34 The major risk facing the project would 1i the pace ofimplementation of the FRP, especially in light of the possible continuedsurges in the inflation rate. Considerable effort will be needed to ensurethat electricity prices reflect inflationary changes so that planned costrecovery targets are met as well as that other supporting financialmeasures are taken in time to avert deterioration in sector finances andexecution of the project. On this account the annual review willconcentrate on the assessment of the degree of compliance of the sectorwith these targets.

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4. AGREEMENTS REACHED AND RECOMMENDATION

4.01 During negotiations, agreement was reached with the Government andEBY, as appropriate, on the followiie conditions:

(a) by March 31, 1989 the Government will complete under terms ofreference acceptable to the Bank, a study on the sectororganization and efficiency of the national utilities provided forin Loan 1761-AR (para. 2.14);

(b) the Government, through the SE, will carry out a study on thermalgeneration options in time to be used in the April 30, 1989 updateof the sector expansion plan (para. 2.16);

(c) by April 30, 1989 and every April 30 thereafter, the Governmentwill carry out, in consultation with the Bank and undermethodologies and assumptions mutually agreed, an update of thesector expansion plan (para. 2.17);

(d) by April 30, 1989 and every April 30 thereafter, the Governmentwill update the financing schemes for major projects to ensurethat commissioning dates required by the expansion plan arefeasible (para. 2.17);

(e) the Government shall authorize the initiation of the constructionof a major public power project only if such project is inaccordance with the Sector Expansion Plan and has adequatefinancing (para. 2.17);

(f) the Government ensures that (para. 2.19):

(i) CNEA would obtain sector-generated funds only after thefinancial requirements of other sector utilities have beenfully met; and

(ii) the bulk tariff of CNEA will not be higher than the maximumbulk sale tariffs of generating utilities supplying to theSIN;

(g) the Government will implement the results of the tariff studybeing carried out under Loan 1761-AR in a manner satisfactory tothe Bank (para. 2.23);

(h) the Government would commit itself (para. 3.16):

(i) to cause the federal utilities to meet the main targets ofthe FRP, i.e., cash operating ratios of 91Z in 1988, 81Zin 1989, and 79Z in 1990; and a contribution to investmentwhich would not be lower than 30Z in any single year;

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(ii) to hold commencing with May 31, 1989 and each May 31thereafter, a review of sector performance during theprevious year and of measures required to achieve the FRPtargets in the current and following years;

(iii) to take all the necessary measures to achieve the FRPtargets and viable financial plan for EBY and the SE;

(iv) to establish the necessary measures in order for thenational utilities to achieve financial management andoperational improving levels to be measured through keyperformance indicators.

(i) in relation to the implementation of power projects, theGovernment would issue regulations to: (i) protect theenvironment; and (ii) mitigate the economic and social effects ofinvoluntary resettlement (para. 3.26);

(j) by May 31, the Government will submit to the Bank an assessment ofthe operating safety of the nuclear plants in Argentina, preparedunder terms of reference satisfactory to the Bank;

(k) EBY will implement an Environment/Resettlement Plan of Action in amanner satisfactory to the Bank (para. 3.27);

(1) by January 1, 1990, EBY will present to the Bank a satisfactoryprogram for dam inspection during the useful life of the Yacyretaproject (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 agreementbetween the Government and EBY, and the IDB loan for financing the Yacyretaproject 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 thePRP; (ii) satisfactory progress of implementing therecommendations of the sector organization study is reached; and(iii) fulfillment of all conditions of disbursement under the IDBloan (para. 3.22);

(b) The percentage of expenditures to be financed under the Yacyretacivil works and engineering contracts may be increased up to 1002of such expendutires until the conditions of disbursement of theIDB are fulfilled, provided that such withdrawals will not exceedthe aggregate amount of US$104.7 million (para. 3.23).

4.04 With the above agreements the project would constitute a suitablebasis for a Bank loan to the Government of Argentina of US$252.0 millionequivalent, under applicable terms and conditions for Argentina.

ARGENTINAELECTRIC POWER SECTOR PROJECT

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ANNEX 2.2.1Page 1 of 4

ARGENTINA


SEGBA: Institutional Aspects

Background and Ownership

1. SEGBA was c'. ,ated in 1958 as a decentralized electric utilityfully owned by the A:gentinian federal government through the SindicaturaGeneral de Empresas Publicas (SIGEP). SEGBA reports to the Ministry ofPublic 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 roleover public enterprises, including SEGBA.

2. SEGBA's Concession Agreement, approved by Decree No. 1247 ofFebruary 8, 1962, gives the company responsibility for electricity supplyin the metropolitan Buenos Aires area on a non-exclusive basis and for anindefinite period. During 1979-198? SEGBA took over the concession held byCIAE (Compania Argentina de Electricidad, formerly Compania Italo-Argentinade Electricidad, S. A./ITALO) which served a large area in downtown BuenosAires. SEGBA's original by-laws were approved in 1961 and have beenamended frequently, most recently in May 1986.

Organization and Management

3. SEGBA has a Board of Directors of six members, appointed by theGovernment. The Board chooses two of its members to serve as President(Chairman of the Board) and Vice President. The Board is assisted byseveral ad-hoc committees, as required. A General Manager, appointed bythe Board is responsible for day-to-day management. He is assisted by a

group of committees (planning, finances, procurement and management) andsupervises four departments (planning, finances, procurement andmanagement) 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 demandprojections as SEGBA's concession area includes the most importantelectricity market in the country. For this SEGBA participates in theworking group which, under the supervision of the SE is in charge of thepreparation of demand projections. SEGBA has good expertise in planningdistribution facilities, which is carried out by well trainedprofessionals.

Financial Planning and Budgeting

5. While short term financial planning through annual budgeting andcontrol is satisfactory, the resources for medium and long range financialplanning have not been developed appropriately. The reason for this

situation stems from the excessive influence that the Government annual


budget process imposes on all public enterprises. As a result, thefinancial projections department of SEGBA is understaffed (in both quantityand quality) and underequipped. SEGBA, aware of this situation, hasalready begun upgrading this function. The Financial Department isresponsible for SEGBA's annual budgeting activities through its FinancialPlanning sub-division. Coordination is achieved through a BudgetingCommittee where the various departments are represented. The process takesabout 6 months, from June to November to enable the tariff department toevaluate rate levels for the forthcoming budget year. The actual vs.budgeted control process is computerized and is carried out monthly. Theprocess is satisfactory, but would require integration in both format andprocedures with the medium and long range financial planning.

Engineering

6. SEGBA's engineering staff is well trained and capable and SEGBAdoes 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 aposition to select the best qualified engineers graduated from localuniversities. However, training programs for engineers and otherprofessionals in the last few years have not allocated slots for trainingabroad in quantities adequate to keep the staff up-to-date with newtechnologies and engineering developments. The SEGBA V project (Loan2854-AR is to support SEGBA's training activities through the financing ofthis kind of activities.

The Market and the Means to Meet Demand

7. By end 1987 SEGBA operated in a concession area of 13,800 squarekilometers, 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 delivered18,600 GWh of which 43? was generated in its own plants and 57? waspurchased from the National Interconnected System (SIN). SEGBA's physicalinstallations by end 1986 included 2,470 MW of installed capacity inthermal plants, 17,700 MVA of transformer capacity in substations, 7,100MVA 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 voltagelines and cables. The composition of energy consumption in 1986 was asfollows: 33Z industrial, 36? residential, 15? commercial, 16? public sectorand others.

Operations

8. SEGBA's overall efficiency indicators are good when compared toother large utilities in Latin America. The number of consumers peremployee increased from 100 in 1975 to 180 in 1987 while the energy soldper employee increased from 380 MWh/year in 1975 to 670 MWh/year in 1987.Although these global indicators remain in the good range, lately theefficiency of SEGBA's operations has deteriorated in some areas.Production has not been affected by this trend because of adequatepreventive maintenance and training programs. The aggregate efficiency ofthermal plants has increased from 31? in 1975 to 34Z in 1987. The averageavailability, however, has decreased in the last few years - from 83? oftotal generating capacity in 1983 to 74Z in 1987 because: (i) some of the


machines are becoming obsolete and (ii) the long time required to importspare parts due to the country's import restrictions.

9. The main efficiency problems remain in the distributionoperntions: First: the status of deterioration of the networks, secondsobsolete technology of part of the networks, third: lack of adequatepreventive maintenance, and fourth: labor problems. As a result,electricity supply in practically all SEGBA's concession area, butespec:.ally the Buenos Aires downtown area, is poor in quality and incustomer's service. The average interruption time is 20 hours/client/year.The average tm-- to replace service in cases of interruption is 200minutes, while the percentage of complaints unattended for more than 90minutes 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 commercialbanks. SEGBA's clients are divided into Private and Official (national,provincial, and municipal). Special clients (about 8.2Z) which are Lilledmonthly are those with an installed capacity greater than 25kW, the rest(about 3.7 million) are billed every two months. Metering and billiagwhile requiring improvements in the shanty towns around Buenos Aires, isgenerally satisfactory.

Staffing and Training

11. SEGBA's global employment level is adequate to the utility'scurrent operations. Actually the number of employees has consistentlydecreased - from 26,000 in 1975 to 21,600 in 1987. However, there are someproblems regarding staff distribution. SEGBA's relations with unions havebeen traditionally a difficult area because of the unusual strength ofSEGBA's labor union. This has resulted in the past in an unreasonableincrease in the number of staff and levels of remuneration. Also verycomplex regulations agreed upon by SEGBA in the framework of collectivecontracts with the unions introduce unreasonable limitations. As a resultof poor drafting of labor legislation enacted in 1983, SEGBA is facing amountain of labor suits which in 1987 involved more than 40,000 persons(active and retired staff and third parties) and resulted in an allocationto settlement expenses reserve of about US$30 million. SEGBA has increasedresources allocated to work safety programs which benefit both the utilityand the workers and have resulted in a substantial decrease in thefrequency of accidents from 20 accidents per million of men-hours wotked in1980 to 9 accidents per million men-hours worked in 1987.

12. SEGBA has designed a job description system and performanceevaluation to replace the current one which is too complex. The new systemis well structured and would favor career development. It is estimatedthat the average wage has been eroded by inflation by about 40Z in theperiod 1980-1987, which might be partially responsible for a notoriousincrease 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 importantloss of capable staff.


13. SEGBA has a comprehensive training program and maintains twocenters to fulfill the majority of its training needs for workers. Otherspecialized training is carried out under agreements with localinstitutions (technical universities and centers). A total of 2,400pereons or 11? of the staff received some kind of training during 1987 anda total of 9,000 is expected to be trained through 815 courses during theperiod 1988-1992 in accordance with a sound master plan. SEGBA has alsotraining arrangements with two well-credited foreign utilities for on-the-job training of professionals on specialized matters and the provision ofexperts.

Auditing

14. Since 1981 SEGBA was required (and the Bank agreed) to use theservices of Sindicatura General de las Empresas Publicas (SIGEP) asexternal 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 hasnot been as originally intended because of repeated poor quality auditsperformed on some of the public sector enterprises. The internal AuditingDepartment of SEGBA reports to the Beard and is divided into two mainareast Control and Operational Auditing sections. The iorner audits theaccounting, the latter monitors the performance for the economic,financial, administrative and operational areas according to budgetedtargets. The monthly reporting from both areas is very comprehensive,their timeliness particularly towards the end of the year could beimproved.

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 personnelof the contractors are insured against all risks. Also, SEGBA's vehiclesare covered with standard insurance policies. Regarding those SEGBA'sassets which because of their large number and geographical dispersion(such as distribution networks) do not require special insurance coverage apolicy of self insurance would seem adequate but would require theestablishment of a special fund as is usual utility practice. No such fundexists.


ARGENTINA


AyE: Institutional Aspects


1. Agua y Energia Electrica, Sociedad del Estado (AyE) is a fullyowned government utility, created in 1947, reporting to the Minist:ry ofPublic Works and Services (MOSP) through the Secretariat of Energy (SE).Its legal structure, organization and dependency have changed several timessince its foundation but its main objecti%as have remained basically thesame. They are: (i) generation, interchange and supply of electricity tothe whole country; and (ii) control and utilization of water resources inactivities such as irrigation, flood control and inventory of hydroresources.

2. In 1980 the government decreed the transfer of electricitydistribution systems to the provinces. Except for four provinces (La Rioja,Santiago del Estero, Formosa y Rio Negro) which do not have the technicaland financial capability, AyE has transferred distribution systems to otherprovinces who have thus become responsible for their operation andexpansion. A similar transfer has been carried out regarding theirrigation systems. Consequently, AyE has been transformed into abasically generation and transmission electric utility, with distributionresponsibilities only on an exception basis.


3. AyE's Board of Directors has six members: a President, a Vicepresident and four directors. They are nominated for three-year terms andare responsible for setting up general company policy. The headquarters ofAyE is located in Buenos Aires and six Regional Administrations (NW, NE,Cuyo, Comahue, Litoral and Patagonia), which report to the OperationsManager, take care of rutinary regional business. The Operations Mariagerand the Engineering and Administration Manager report directly to thePresident. 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 wereunder the Operations Unit. With the transfer of the distribution systemsto the provinces, the number of personnel has been reduced by about 452 andfurther reductions would be advisable as there is still room forimprovement. The company has a training program which is carried out inits own training centers (NE, Cuyo, Centro and Parana) and through externalservices inside and outside the country.


Accounting and Auditing

5. The accounting system of AyE is adequate for the needs of thecompany. Host of it has been computerized. both at headquarters and at theregional offices. The system is basically decentralized for the sourcesand it is centralized for the consolidation of the financial statements ofthe company. The Internal Audit unit reports directly to the President andperforms its work on the basis of an annual program, with rutinary and non-routinary activities. Regional offices have their own audit units whichreport to the central Audit unit.

6. As is the case for other government-owned companies, the externalauditor of AyE is the National Comptroller's Office (Sindicatura General deEmpresas Publicas/SIGEP) which performs its functions through a permanentSupervisory Commission and through its own professional staff.

Financial Planning and Budgeting

7. AyE has only recently begun using computerized models for itsfinancial planning activities. The pressing problems of the short-term andthe complications inherent to running a company which is both an electricutility and an irrigation entity, with national and regionalresponsibilities, have created an environment which has centeredmanagement's attention on solving day to day problems. This has beenfurther compounded by the strict government requirements for the one yearfiscal budget--carried out on a cash basis--on which the financial planningactivities have been centered. Only because of the participation of IDBunder ongoing operations and IBRD under the proposed operations, exercisesin medium-term planning have been carried out with positive results. Thecompany's budget system has been made compatible with its accountingsystem, and budget control is carried at the level of the regional officesand of responsibility centers.

Insurance Policy

8. The insurance practices of the company are weak as most of itsassets are not covered by any policy or by a self-insurance fund. Thisscheme is presently under review of special consultants engaged under anon-going IDB operation. The recommendations of the consultants study wouldbe implemented so as to redress the existing lack of coverage.

Procurement

9. AyE has its own procurement guidelines which differ from thosewhich central government units have to follow. According to their amounts,purchases are classified for public bidding, private bidding, localshopping, and direct acquisitions.


The Market and the Means to Meet its Demand

10. The following table gives a summarized description of theoperational data for AyE for 1987s

Energy Sales (0Wh) Capacity (MW) Transmission (kms)Residential 629.3 Hydro 2,104.8 500 kV 2,878.7Commercial 185.1 Steam 1,548.4 330 kV 1,100.0Industrial 6,221.0 Diesel 125.4 220 kV 944.3Bulk Sales 14,864.0 Gas 848.2 132 kV 5,167.4Other 210.3 Total 4,626.8 Low Voltage 639.3Total 22,109.7 Total 10,729.7


ARGENTINA


HIDRONOR: Institutional Aspects


1. HIDRONOR S.A. (Hidroelectrica Norpatagonica Sociedad Anonima) wascreated on October 17, 1967 under the Corporate Law of Argentina (Law No.19,550). It is responsible for the construction and operation ofhydroelectric plants in the Comahue Region, including transmission lines andcomplementary facilities necessary to transport electricity to the consumersystems. Within this general framework additional individual laws giveHIDRONOR concessionary rights on each plant it constructs. Its by-laws havebeen amended several times, the last in 1986. HIDRONOR is fully owned by theArgentinian government and its stockholder's capital is equivalent to US$80million.


2. The Shareholders Meeting has the highest authority over thecompany's activities which it exercises through functional delegation to theBoard of Directors composed of a minimum of five and a maximum of sevenmembers. Day to day activities are handled by the General Manager who isdesignated by an Executive Committee selected by the Board. Six area managersassist 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 itscenter of operations in Cipolleti, Rio Negro Province. As the geographicallocation of the organizational units is based on different functional criteriaboth have basically separate organizations, in certain cases with duplicationof functions. Such scheme requires the General Manager to move permanentlybetween Buenos Aires and Cipolleti. In spite of this cumbersome scheme, thecompany operates efficiently.

Management Systems

4. The company does not yet have detailed management systems manualsfor all tte organizational units and the activities they perform. Until 1983,HIDRONOR engaged the services of external consultants to design such manualswhich would be divided into 27 groups, to be developed during the 1982-1988period. Unsatisfied with the consultants work, HIDRONOR called off thecontract and decided to go ahead with the project on its own, following thebasic design left by the consultants. However the work has been slower thanscheduled and has not yet covered several areas. Under the AdministrativeManager, the Systems Unit has developed manuals for some areas: HumanResources, Taxes, Budgetting, Work Certification, Inventories, Debt, andMaintenance.


Human Resources

5. HIDRONOR has about 1,700 employees which are professionally capableof performing, in an efficient manner, the activities entrusted to thecompany. The most important groups are Operations, Administratior, and Works,which have the following shares: 44?, 33? and 15Z, the rest belonging to theother units. The small share of Works reflects the company's policy ofcontracting most of its construction and consulting tasks. Productivity duringthe 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 educationalbackground, 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 relationswith international credit institutions are located in Buenos Aires. Theyproduce a financial management report which is issued monthly for highermanagement information. On the basis of a model developed by IDB, the companyprepares financial projections for the medium and long-texm. As for othergovernment-owned entities, the budget system is referred to the fiscal budgetwhich is carried out on the basis of cash disbursements.

Accounting

7. The unit in charge of accounting is located in Cipolletti whichimplies some problems of communication between accounting and the financialplanning and budgetting areas. The accounting system of the company issatisfactory, but it lacks a system to measure operational expenses on areliable basis. All accounting procedures are fully computerized andcentralized. The budgetting system is carried out separately from theaccounting system, because of their different objectives.

Auditing and Internal Control

8. The Internal Auditing Unit reports directly to the Chairman of theBoard and, in spite of increases in personnel during the last few years, itlacks the importance it should have for a company the size and complexity ofHIDRONOR. The unit performs its functions on the basis of an annual plan ofaction but it also performs unscheduled activities required by the Chairman.As established by Argentinian Law the external auditor of all government-ownedentities is the National Comptroller (Sindicatura General de EmpresasPublicas/SIGEP), but it usually delegates its functions to a FiscalizationCommission and to independent external auditors engaged for this purpose. TheFiscalization Commission, composed of three members, is in charge ofsupervising the internal control system of the company and evaluating thefinancial condition of the utility. SIGEP's report has been issued during thelast 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 therisk is minimum. For works in progress, HIDRONOR engages insurance coverageagainst all risks of construction and erection, including civil responsibility


and the transport of materials and equipment. Plant in service in insuredagainst break-down and fire risks, on the basis of a blanket coverage and apro rata coverage, respectively. Other coverage includes vehicles, personneltransport, goods, equipment, life insurance and workmen compensation andgeneral civil responsibility. The insurance system has been well developedthanks to the engaging of insurance consultants who have advised the companysince 1980. This notwithstanding, there is doubt about the valuation of thecompany's assets for insurance purposes. A specialized consultant has beenhired to analyze this matter.

Procurement

10. As for other government-owned entities, the procurement system ofHIDRONOR is under Law No. 5340 and Law No. 18875 which covers procurement ofgoods, contracts for civil and other works, consultant companies andindividuals. When financing from multilateral agencies requires differentprocurement procedures they are usually granted by a law of exception.


ARGENTINA


EBY: Institutional Aspects

Background

1. The Yacyreta Binational Entity (EBY) was constituted onDecember 3, 1973 under a Binational Agreement between Argentina and Paraguay,with the main objective of constructing and eventually operating the YacyretaHydroelectric Plant. EBY was formally established on September 6, 1974 withheadquarters in Buenos Aires and Asuncion and a stockholders capital ofUS$100 million equally shared between AyE of Argentina and ANDE ofParaguay.l/


2. EBY is administered by a Board of Directors (wConsejo deAdministracion") and an Executive Committee ("Comite Ejecutivo'). The Boardof Directors establishes the general policies of the entity and approvesimportant proposals made by the Executive Committee, such as loan contractsand the annual budget. It has eight members--four for each country--who areappointed for periods of four years but can be removed by their governmentsat any time. The Executive Directors (one for each country) participate asnon-voting members in the Board's deliberations, which are held at leastevery other month alternatively in Argentina and Paraguay, and is presidedover, on a rotating basis, by members of each of the two countries.

3. The Executive Committee comprises two Executive Directors (oneArgentinian and one Paraguayan) and five Directors for each of the functionalareas (legal, technical, administrative, finances, and coordination). It isin charge of carrying out all the administrative duties necessary to theexecution of the Project. The tenure of each director is for a five-yearperiod. The ordinary meetings of the Executive Committee take place at leasttwice a month and are chaired alternatively by Argentina and Paraguay.

4. After significant delays due to procurement differences at thebeginning of project execution, during the last three years the executionprocess has improved substantially thanks to a good management team. Suchprocess is expected to continue in the future implementation of the projectand in the eventual operation of the plant, for which the necessary actionsare already envisioned: consultant services would be engaged for the settingup of the operations unit of EBY.

Staffing

5. As of March 31, 1988 the total number of employees of EBY was1,192. The following table gives a summary of personnel for each majororganizational unit and its evolution during the last three years:

1/ A description of the Yacyreta Project is given in Annex 3.1.4.


EBY: Personnel Summary

Year 1986 1/ 1987 1/ 1988 2/ 2

Direction 155 178 184 16Construction 83 77 81 7Administration 284 323 325 27Finance 108 110 114 10Infrastructure and Resettl. 208 230 241 20Security and Other 191 234 247 20Total 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 theutilization of consulting services for project supervision. In future years,when the first units are commissioned the above mix will change significantlyas the operations unit is set up and the construction works wane.

Finances and Accountin9

6. The Financial Directorate is responsible for planning andexecuting financial, operations, and registering the correspondingtransactions under its accounting system. For this purpose, it has fiveoperational divisions: Budget and Financial Planning; Accounting; Funding;Taxes, Insurance and Customs; and Treasury. According to EBY's by-laws itsunit of account is the US dollar. The accounting entries are implementedfollowing the guidelines established in the entit3's Accounting Manual whichis adequate for an institution like EBY. Most of the accounting processesare performed through computerized equipment which allows opportune issuanceof quarterly financial reports. Project-related transactions are adequatelyregistered and can be easily monitored during project execution. Theentity's financial planning system is adequate and has three levels: long-term, annual and quarterly. The last two levels are part of the budgetsystem and their follow-up is carried out directly through the accountingsystem.

Auditing and Internal Control

7. The auditing process at EBY is carried out internally, by itsshareholders and externally. The Internal Auditing unit reports to theExecutive Committee and it has the following personnel: two professionalauditors 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 auditingfunctions through sporadic visits and during the reviews performed for theannual shareholders' meetings. As required by Argentinian Law for allgovernment-owned companies, EBY has its financial statements audited by thePublic Enterprises Comptroller (Sindicatura General de EmpresasPublicas/SIGEP). In the case of Paraguay, the same principle applies and at


present the auditing firm is Auditores y Consultores Asociados (AYCA). Therecounendations of the external auditors to improve the internal controlsystem of EBY are beirg implemented gradually but some areas still needadjustments. EBY has a plan to continue implementing the auditorsrecommendations. This notwithstanding, the internal control system of theentity is adequate.

Tax Scheme

8. Under the Additional Fiscal Protocol of September 15, 1983, signedbetween Argentina and Paraguay, EBY is exempt of any tax, tariff orcontribution of any kind on the materials and equipment to be used in theproject.

Insurance

9. The insurance policy of the entity is based on a study performedby independent consultants engaged under IDB Loan 346/OC-RG. In this respect,EBY has an insurance policy to cover all construction and erection risks forthe main works up to a maximum of US$3 billion. Supplementary works areinsured by the civil works contractors until they are transferred to EBY.After the plant is commissioned, the insurance coverage will be modifiedaccordingly.

Procurement

10. Unless the financing institutions establish different conditions--which would prevail--EBY's norms and procedures establish a preferentialtreatment for Argentinian and Paraguayan goods and services for the project.The Executive Directors are authorized to approve purchases up to US$180,000and civil works contracts up to US$900,000 equivalent. Contracts up toUS$35,000 can be approved by the Financial Director and the head of thedepartment making the request. All procurement above these limits is donethrough public bidding.


ARGENTINA


CNEA: Institutional Aspects

Background

1. The National Atomic Energy Commission (Comision Nacional deEnergia Atomica), CNEA, was created in 1950, and since then it has beenunder the direct supervision of the President of the Republic. CNEA hasbeen traditionally managed by the military, but during the Alfonsinadministratiou its president has been a civilian. CNEA is managed by itspresident who is assisted by four consultative bodies. It has sixdepartments: Nuclear Power Plants, Nuclear Supplies, Isotopes, Research andDevelopment, International Projects, and Planning. CNEA's staff iscurrently 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 applicationsin the nuclear field: construction and operation of reactors, both forpower generation and for research and production of isotopes; explorationand exploitation of uranium (including mining and concentration);manufacturing of nuclear fuel and heavy water; manufacturing of specialalloys; production and marketing of isotopes; and research and developmentin a wide range of subjects. CNEA's mandate includes the development ofnational technology which would permit independence in strategic fields.This has been achieved to a certain extent; e.g. in the area of smallreactors CNEA is supplying a research reactor to the Peruvian Institute ofNuclear Energy which is 80 complete, and has reached agreement withAlgeria for the construction of a similar unit. Both units will have ahigh degree of Argentinian input. CNEA also intends to construct smallpower reactors in Argentina.

CNEA's Budaet

3. The cost of CNEA's activities represent a heavy burden for thegovernment. CNEA's 1988 budget, even under a low scenario for investing inAtucha 1I construction works (para. 8), amounts to about US$781 millionequivalent with 50Z for investments, 17Z for operating expenses, 7Z forsalaries and 26Z for debt service. The government provides a substantialproportion of the funding for the CNEA, as cash generation from CNEA'sactivities 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 nationalprestige, develop national technologies, and possibly military strategic


reasons. The decision to construct nuclear power plants has always beentaken at the Presidency level and communicated to the SE, which considersthe nuclear plants as a given for planning purposes.

Existing facilities

5. CNEA owns and operates two nuclear power plants: Atucha I, a 370MW Pz?ssurized Heavy Water Reactor (PHWR), located in the province ofBuenos Aires, commissioned in 1974, and Embalse, a 648 MW PHWR, located inthe province of Cordoba, commissioned in 1984. Until 1987 both unitsperformed very well, with availability factors of 912 and 94? respectively.Without considering capital costs, the combined generating costs of theseunits, is about US$12 mills per KWh, which is much lower than any otherthermal generation in the country.

Works in Prosress

6. The Atucha II project, a 745 MW Phil, is the only nuclear powerplant under construction. Its works began in 1980 and was planned to be inoperation by 1987. The original estimated cost of this project was aboutUS$1580 million (1979 price level without escalation), or US$2120/kW,which, at the time, was a more expensive option than other available hydroand thermal projects. About US$1330 million have been invested in theperiod 1980-1987. The project has suffered high cost overruns due mainlyto the delays in ezecuting the construction works (the project is nowscheduled 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 currentestimated cost of the project at end 1987 price level, without includingallowances for escalation, amounts to about US$2800 million.

7. The execution of Atucha II is well advanced. The global progressof the project is estimated at 60Z. Foreign supplies and services have beencompleted in more than 80?, while civil works have reached 64Z. Localsupplies is the less advanced item (372), because of the difficulties CNEAhas experienced in obtaining financing for it.

8. Investments required to complete the project amount to aboutUS$1,470 million. CNEA has not yet a financing plan to complete theproject. Until 1987 it had relied on government contributions for financingthe construction works. Since 1988, however, the government hassubstantially reduced its contributions -the 1988 budget includes onlyUS$90 million for Atucha II. The financing gap amounts to about US$1051million, of which US$897 million is local currency. and US$154 million isforeign currency. Of the local currency portion of the gap, about US$224million equivalent are taxes (VAT) for which CNEA is trying to obtainexemption. Because of the inability of the government to provideadditional funds, at appraisal time CNEA was trying to arrange externalfinancing to complete the project. This financing would include the localcurrency portion of the gap.

ANNEX 2.3.1

ARGENTINA


Demand Projections

MethodologY

1. Sector demand projections are prepared in the framework of theoverall energy planning by a working group that includes representatives ofthe SE as well as the major electricity companies, This is an appropriatestructure which allows for an exchange of view points in methodologydevelopments, in the interpretation of data trends and in the addition ofcriteria and parameters, while facilitating dialogue among the concernedparties and the reaching of consensus in the results. Projections areupdated annually during the second quarter of the year on ths asis ofactual consumption of the previous year.

2. The methodology is evolving regularly as experience is gained. Atpresent the group makes use of a model based on econometric method appliedto each sector of consumption; residential, commercial, industrial,government and others. For the residential sector, projections are based onthe population growth (an exogenous data), the electricity populationcoverage and the per-household consumption. The latter is correlated to theGDP per capita. Consumption elasticity to electricity prices is reflectedin the model. For the commercial sector the projections are based on amixed autonomous-value added model. This is adequate for a sector whosegrowth process incorporates features that are similar to the industrybecause of its sensitivity to the economic environment as well as otherfeatures similar to the residential sector. For the industrial sector, theheavy industry is segregated and projections for this sub-sector are basedon their individual expansion plans, while the light and miscellaneousindustries are correlated to the manufacturing GDP. This approach wasrecommended by the Bank in 1984 because of the fast increase observed inthe electricity/value added ratio for industries, especially due to theelectricity intensive character of the aluminum industry. Results of thismodel have been satisfactory. For other sectors (government, agriculture,transport, public lighting) a simple extrapolation method is used. This isacceptable given the small gravitation of these sectors.

Results

3. Results of the current projections, completed for the appraisalmission in June 1988 are shown in Attachment 1. They show a globalelectricity demand increase for the country (including autoproducers) ofabout 6.0Z p.a. in the period 1987-1995 which is consistent with GDP growthrates of 3.5Z for 1989 and 42 for 1990 and beyond as projected by theArgentinian Ministry of Economy.

ARGENTINA


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

--------- - - - -- - --- - - - - - --- - - - --------------- ------- ---- ------ ----- - -- ------------- - -

NOTESPeriod 1970-1987: actual dataPeriod 1988-2000: proj octions

ANNEX 2.3.2

ARGENTINA


National Interconnected SystemInstalled Capacity Available by End t987 (MW)

Hydro Pumping Nuclear Combined Steam O.. Diesel Total X Total % Total X TOTAL XUtility 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 8XHIOROHOR 2777 2777 0OOX 0 OX 0 OX 2777 21XCT: / 141kk 121e : 0 ox 0 ox ilia 11Oth3re 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%…________________________________________________________________________________________._________________________

NOTE1_/ Capacity available to Argentina


ARGENTINA


Draft Terms of Reference for the Power Generation Options Study

Background

1. The 'Secretaria de Energial, (SE) of the Ministry of Public Worksand Services is responsible for the preparation of expansion plans for theNational Interconnected System (SIN). To develop least-costgeneration/transmission development plans, the SE uses a set ofmathematical models, oriented to minimize the total present value of thesystem investments and operations. Results of this exercise depends ofassumptions and parameters used for operating the models. To ensure thatthe sector expansion -and investment needs- reflects economic costs, the Serequires to review -and eventually revise- the following criteria andparameters 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 thermalplants and recommend the corresponding parameters to be usedin 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 forpower generation expansion.

Scope of Work

3. 1. Existing Thermal Plants. To evaluate the operating conditionsof the thermal plants, to project these to the future, and to prepare acost/benefit analysis of rehabilitation, whenever this is deemed possible.

2. Future Thermal Plants. To estimate the costs and operationalcharacteristics and reliability of steam thermal plants of moderntechnology and to recommend operating criteria and parameters for expansionplanning.

S. CC Plants. To gather information on generation characteristicsand costs of existing thermal plants elsewhere in the world -investmentsand operating costs,heat rates, availability, lifetime, and other technical


and economic data-, to examine options for converting ex$sting steam plantsor/and gas turbines to CC,to seek data which would perm't to assess thefuture development of the CC technology and strategy of the mainmanufacturers of CC plants.

4. Cost of Gas. To evaluate the availability of gas for powergeneration and to recommend projected economic costs.

Organization of the Study

4. The study would be carried out by independent consultantssatisfactory to the Bank, under terms of reference agreed upon between theSE and the Bank, with substantive participation of technical staff from theSE and the federal utilities. The consultant should arrange visits forselected personnel to power stations abroad and to manufacturersheadquarters.

ANNEX 2.4.1

ARGENTINA


National Interconnected SystemEvolution 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 11786Pumping station p 846 846 845 846 846 846 846 846 846 846 846 846 845Nuclear N 946 946 946 946 946 946 1226 1640 1640 1640 1640 1640 1640Combined cycle CC 85 85 e6 85 86 06 140 140 140 140 140 140 140Stea. plant S 8980 8980 4550 4670 4670 6195 5196 4916 4915 4775 6100 4790 4880Gas turbine 0 1460 1476 1475 1610 1610 1610 1640 1640 1720 1800 1800 1800 1800Diesl 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 10Hydro Patagonia 1j H 426Bahia Blanco S 670-umee S 120Plodra del Aguila H 700 700Stean Plants S a60Atucha II N 280 41iUrugus I 1j H 65La Tablad. 1J CC 66Vacyrets H 186 676 676 676 640Loe Blanco. I H 826Csrrenloufu H 150 90Litoral S 826C. Plate I H 225 626Q rabi H 600 190Los Blanc.o II H 40Collon Cure H 880Buenos Airee S 826Litoral 3 826El Chlhuldo H 565Salt* Grand. 2J H -110 -110 -110Steam Plants 8/ S -126 -280 -140 -685 -285Gas Turbinoe 4_J 15 15 185 B0 80 80loeel Plants 4_/ Q -20 -16 -10 -20 -10 -86 -6 -10 -5 -10 -20

…--------------------------------------------------------------------__------__------------------------

NOTES1_/ Isolated plants to becom Interconnected2_ Incease of capacity taken by UruguayS_ Decom_issionning of obsoleto plants4_ Bnince of dditions less retirement of miall plants

Isolated 185 MW Gas Turbine becomes interconnected In 1991

ANNEX 2.4.2

ARGENTINA


National Interconnected SystemCapacity 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 4417819890 Capacity 6290 200 6490 6010 5OX 6856 867 946 11 11040 8160 87X

Energy 45610 070 46460 15480 8BX 24510 53x 6540 14X 484801990 Capaclty 6740 200 8940 6020 6OX 6246 7O3 946 113 12210 8270 87X

Energy 46260 550 46610 14180 29x 26280 582 0400 13X 488101981 Capacity 9860 260 9940 6146 62x 8480 865X 94 103 18570 a860 87x

Energy 64870 1160 6U520 28490 42X 25480 46x O6 12% 6U5201992 Capacity 10220 820 10640 6785 64X 6470 61X 946 9X 14150 8610 84X

Energy 67420 1210 66000 24140 41X 27870 46% 6620 11X 566801m 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 26XEnergy 69170 1640 70810 81500 44X 27610 893 11600 163 70810

19n0 Capacity 1al8o 410 18590 65o0 s68 826 50% 1640 12X 16965 8875 25XEnergy 78570 2010 75560 87960 5x 26180 85x 11600 15X 76680

1997 Capecity 14050 460 14610 9826 64X 6766 47X 1640 11X 17720 8210 223Energy 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 22XEnergy 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


ARGENTINA


Economic Evaluation of Completion of the Atucha II Project

1. Completion of Atucha II may or may not be justified on economicgrounds depending on the possible costs associated to the cancellation ofthe ongoing contracts for equipment supply, civil works construction anderection and installation. To analyze whether the project is economicallyviable, the costs of completing the project must be compared with the costof implementing an alternative which would provide equivalent service.Atucha II is expected to provide 745 MW of power and 5150 GWh/year ofenergy at an operating cost of US$ 3.4/MWh (excluding capital costs). Iffinancing were readily available, the plant could be completed by 1992, butbecause of market growth reasons it is only needed in 1994. Investmentsamount to about US$ 1245 million, excluding taxes (Attachment 1). A

aR-fuelpd mltRrnativ= whch u ould -- vide similar service would consist of3x312 MW steam plants with capital investments of about US$ 840 million andwould generate at an operating cost of about US$ 13.0/MWh (excludingcapital costs).

2. The economic evaluation of the two alternatives mentioned aboveprovides an estimate of the order of magnitude of the rate of return ofinvestments to be made in Atucha II (Attachment 2). The results show thatcompletion of Atucha II has a low rate of return (5.9Z) when compared witha conventional plant.

3. The advanced status of implementation of Atucha II (60Z ofphysical implementation, 80? of contracting; Attachment 3) suggests thatcancellation of the contracts would have a high economic cost, estimated tobe in the range of 402 to 602 of the remaining value of the contracts (80Zis CNEA's estimate). To calculate the effect of possible cancellationcosts on the IRR of the project, both alternatives of para. 1 are comparedassuming that cancellation of the contracts would have an economic costequivalent to 50Z of the remaining value of the contracts under executionwhile non-contracted items are totally saved (Attachment 4). The resultsshow that under these assumptions, the IRR of completing the project wouldbe about 16Z. Results of a sensitivity analysis made for the lower boundof cancellation costs show that the IRR of completing the project is stillwell above the estimated opportunity cost of capital (12Z) as shown below:


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 boundZ 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 2.4.3Attachment 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 68.4 828.9 824.01989 176.4 442.0 98.9 167.8 276.8 699.81990 228.4 670.4 161.6 819.0 890.1 989.41991 148.0 818.4 110.8 429.8 265.8 1243.219m 78.9 892.8 74.1 608.9 165.0 1896.21998 86.2 928.6 86.8 540.6 78.0 1409.2

NOTES1_/No allowanco have boen made for escalation

Including taxes for USM 224.0 million


ARGENTINA


Economic Evaluation of Completion of the Atucha II Proiect(in US$ million equivalent; January 1988 price level)

SCENARIO 1: no cancellotion costSteam plant alternative Compl-tion of Atucho II Difference

… 1- 1Year 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 -161.71991 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 68.82001 94.4 94.4 5.6 85.6 We.82002 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 68.82006 94.4 94.4 86.6 86.6 68.8

2007 94.4 94.4 86.6 85.6 58.82008 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 68.82011 94.4 94.4 86.6 86.6 68.82012 94.4 94.4 86.6 85.6 68.82013 94.4 94.4 36.6 86.6 68.82014 94.4 94.4 86.6 86.6 68.8?016 94.4 94.4 86.6 86.8 68.82016 94.4 94.4 86.6 85.6 68.82017 94.4 94.4 86.6 36.6 59.82018 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.


ARGENTINA


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 32.0 886.0 418.0Total not financed 898.6 164.6 1061.1-------------------------------------------------------------

--------------- __--------------------------------------------

TOTAL COST 928.6 640.6 1469.1-------------------------------------------------------------

NOTES1/No allowancos have been made for escalation


ARGENTINA


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 contracts50S 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 -202.61989 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 94.219m 262.8 84.0 286.8 129.7 129.7 156.61998 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 5.6 568.8199 94.4 94.4 85.6 86.6 58.81997 94.4 94.4 86.6 86.6 6e.8

1996 94.4 94.4 85.6 86.6 68.81999 94.4 94.4 86.6 86.6 66.8oEW OA A CA-A 15U6 38.8 56.s

2001 94.4 94.4 85.6 86.6 58.82002 94.4 94.4 85.6 85.6 68.82008 94.4 94.4 85.6 86.6 68.62004 94.4 94.4 85.6 86.6 58.82006 94.4 94.4 85.0 86.6 58.82006 94.4 94.4 86.6 86.6 56.82007 94.4 04.4 85.6 86.6 68.8

2006 94.4 94.4 85.6 86.6 68.82009 94.4 94.4 85.6 6.6 568.82010 94.4 94.4 85.6 36.6 58.8

2011 94.4 94.4 86.6 86.6 56.82012 94.4 94.4 86.6 86.6 68.8

2018 94.4 94.4 85.6 86.6 56.82014 94.4 94.4 86.6 86.6 68.8

2016 94.4 94.4 85.6 86.6 58.82016 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 2247.7INTERNAL 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.


ARGENTINA


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 servicesStem 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 65.82002 94.4 94.4 85.6 35.6 58.8

2008 94.4 94.4 86.6 85.6 58.82004 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 58.82007 94.4 94.4 86.6 85.6 68.82008 94.4 94.4 86.6 85.6 65.82009 94.4 94.4 86.6 86.e 68.8

2010 94.4 94.4 86.6 86.6 58.82011 94.4 94.4 85.6 86.e 68.8

2012 94.4 94.4 86.6 36.6 68.82018 94.4 94.4 86.6 86.e 68.82014 94.4 94.4 86.6 86.6 68.8

2016 94.4 94.4 86.6 36.6 68.82016 94.4 94.4 85.6 86.6 58.8

2017 94.4 94.4 36.6 36.6 65.82018 94.4 94.4 86.6 86.6 68.8

Total 842.2 2860.0 260.2 8462.4 1246.1 890.8 2136.9INTERNAL 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.


ARGENTINA


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


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 programand associated costs is given an Annexes 3.1.1 to 3.1.3.

ANNEX 2.5.1ARGENTINA

ELECTRIC POWER SECTOR PROJECTElectricity and Energy Funds

Introduction

Besides tie internal fund generation resulting from the operatingrevenues of the electric utilities, they also receive electricity andenergy funds earmarked for investment. These funds are generated throughsurcharges on electricity, fuel and gas consumption, and taxes on oilprocessing. They are described below and their forecast, as assumed forthe sector Financial Rehabilitation Plan (FRP), is included in Annex2.5.1.1 showing their composition, sources and uses, and the allocation tothe federal electricity utilities considered under the proposed sectorloan.

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


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 868.4 818.2 820.8 828.9 829.6 389.6 848.1 847.6Natural gas 60.0 67.7 60.6 64.0 68.8 71.6 74.8 79.0

To: FNEE 128.6 111.8 114.8 116.4 119.4 128.8 126.4 127.9FEDEI 42.8 87.1 88.1 as.. 89.6 41.1 41.8 42.7Not. electric utilitlse 189.9 188.6 137.1 189.7 148.2 148.0 160.6 168.6Balance 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 128.6 111.8 114.3 116.4 119.4 128.8 126.4 127.9Electricity 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 97.1Not. *lectric utilities 117.2 127.6 184.6 142.8 158.8 162.9 171.8 160.8Balance 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 92.9 108.4 116.6 127.8 189.0 149.4Oil 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 92.9 108.4 116.6 127.8 189.0 149.4Oil processing 94.0 108.6 108.7 108.9 104.2 105.4 109.0 112.9

To: Fed. electric utilitie, 149.8 168.5 196.6 207.8 220.7 282.7 248.0 262.2Balance 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 42.7FNEE 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 189.9 138.6 187.1 189.7 143.2 148.0 160.6 168.6FNEE 117.2 121.6 184.6 142.8 163.3 162.9 171.8 180.3FCCC 166.6 188.5 196.5 207.3 220.7 282.7 248.0 262.2FNOOE 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 0.0AyE 171.1 262.4 211.8 196.6 204.7 160.6 248.1 842.8HIDRONOR 206.8 156.6 168.8 116.8 42.8 28.8 16.0 11.9EBY 148.9 144.2 177.0 142.2 180.9 16.0 0.0 0.0Balance to be allocated 0.6 41.2 99.8 268.0 800.5 576.9 665.2 503.6

ARGENTINA


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 100DEBA Buenos Aires Prov. 123 169 84 163 201 121 124 117 144 97 89 94EPEC Cordoba Province 107 189 76 188 258 162 180 169 159 108 *la 119EMSE Mendoza Province 76 98 S6 101 193 1le 186 128 109 74 76 80EPSEF Santa Fe Province 99 129 76 188 182 110 189 181 120 81 92 96AYE 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 63SECHEEP Chaco Province 86 112 61 111 180 106 127 120 77 52 64 57EPEER Entre Rios Province 94 122 64 117 176 105 128 116 98 68 62 66EUSA Misiones Province 111 144 76 188 288 140 159 150 1SO Be 83 87EPEN 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


ARGENTINA


National Utilities: Finances

Income Statements (Annex 2.6.1.1)

1. The rate of return of the sector during the last three years hasbeen constantly negative (-7.72, -2.1Z, -4.5Z) due to the low level oftariffs (average of about 31 US mills/kWh). During the projection period(1988-1995) the rate of return is expected to increase steadily until itreaches a level of 4.42 in 1995. This would be done through operationalefficiency measures (labor/gross plant in service would decrease from 2.62to 1.92) and tariff increases (until they reach 47 US mills/kWh in 1995).Under these circumstances, the cash operating ratio (cash operatingexpenses as a percentage of operating revenues) which was 112.72 in 1987 isexpected 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 1993Cash 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 bethe main indicator to monitor the financial rehabilitation of the NationalUtilities. It highlights the main problem cf the sector, i.e. low revenuesto cover cash operating expenses. It is also convenient because its trendis much less erratic than that of the rate of return which is affected bythe incorporation of new plants, and avoids the serious controversyregarding the valuation of the sector fixed assets in service. Suchcontroversy 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 thepresent principles used by the utilities for asset revaluation anddepreciation, the forecast operating ratio (all operating expenses,including depreciation, as a percentage of revenues) is as follows:

1988 1989 1990 1991 1992 1993Operating 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 isabout 402 higher (43 US mills/kWh) because of sales taxes--national andprovincial--and surcharges for energy funds earmarked for investment. Ifthe tariff paid by the consumer would fully remain in the utility to coverits operating expenses, the rate of return would have been slightlypositive in the past and would reach a projected maximum of 11.62 in 1995.


4. The return on equity is significantly affected by the heavyinterest on debt charges which has been negative in the past, it isexpected to remain so for a couple of years and then become slightlypositive 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 groupduring the last three years has been insufficient to cover debt serviceobligations, it is expected to continue so in the next two years and becomeincreasingly positive starting in 1990. However, other consumer-basedcontributions have been enough to offset those negative values and leave apositive balance, which zogether with the government equity contributionshave allowed to diminish substantially reliance on borrowings to fund theinvestment program. In the funding mix, borrowings have been reduced from21.9Z in 1985 to 12.82 in 1987 and are expected to remain at reasonablelevels during the projection period with a maximum of 48.52 in 1989.Therefore, the complement of this percentage, i.e. the non-borrowedfunding, has had and is expected to have strong levels. To ensure thatsound levels are maintained, under the proposed operation a floor of 302for non-borrowed funding would be established.

Balance Sheets

6. The asset composition shows a heavy share of fixed assets (above90!) which is typical of electric utilities. The degree of indebtedness isreasonable as it reached a maximum of 441 in 1986 and during the projectionperiod it shows a decreasing trend until it reaches a minimum of 28.2f in1995 as a result of the improving returns (para. 2) and the low reliance onborrowings for its investment needs (para. 5). The current ratio has beenextremely low in the last three years (0.2, 0.4 and 0.5 times) in spite ofa high and increasing collection period (149, 165 and 190 days). Under theassumptions utilized for the financial projections the collection period isexpected to start decreasing in 1988 (119 days) and continue until itreaches about 80 days in 1991 and thereafter. The current ratio would bemaintained at a level of 0.6-0.7 times which is on the low side of whatwould be reasonable for power sector utilities.


National UtilitiesIncome 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 2337.5Cross electricity sales 1/ 1184.9 1889.1 1824.6 1560.6 1755.4 1979.2 2212.0 2455.9 2072.2 2906.0 3118.9Sales taxe a/ 829.0 870.6 064.3 427.5 491.4 641.1 696.9 667.3 722.9 782.9 837.0Not electricity sales 655.9 968.4 969.6 1128.1 1294.0 1438.1 1613.1 1768.6 1949.3 2123.1 2281.9Trnsmision fees 11.7 18.2 9.0 6.6 8.6 17.4 12.6 13.6 15.5 19.8 26.6Other 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 1836.3Labor 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 189.6 179.8 250.0 132.6 174.7 177.8 186.6 201.1 209.0 219.7 232.4Fuel 212.0 282.3 236.1 817.7 859.7 390.9 382.2 309.6 422.4 382.9 367.9Electricity purchased 2/ 221.8 166.0 168.9 160.6 131.8 179.9 162.7 143.1 121.8 273.4 404.6Transmission fees (net) 0.0 0.0 0.0 2.5 2.8 3.2 2.7 2.6 2.7 3.0 3.5Royalties 13.1 18.6 19.3 18.2 20.4 19.3 36.0 42.6 44.3 46.1 45.5Taxes 49.8 66.6 65.6 75.7 68.8 76.2 35.2 94.8 102.4 110.2 117.0Depreciation 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 306.9 237.1 292.3 269.8 380.7 312.4 323.1 331.8 309.9 264.7 192.0Intereot on debt 381.1 306.4 324.2 827.7 379.6 860.2 383.0 384.9 362.9 375.5 356.3Interest 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.7 171.2 190.0 211.3 228.2 245.3 260.0Provincial 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 UtilitiesFlow 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 S0.1 638.2 760.9 812.0 860.6Incom beforo intorest -883.6 -139.3 -303.4 -168.7 -87.4 8.4 208.6 308.6 415.9 466.8 488.6Depreciation 260.8 266.5 268.5 266.6 285.4 301.4 312.8 336.8 344.0 361.4 361.3Oth.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 B37.6 282.1 806.5 344.4 424.3 462.3 481.2Repymnt 1/ 38.8 146.4 -49.2 267.4 217.7 127.0 148.6 210.0 227.0 269.2 291.4Interest 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 813.8 356.6 386.6 485.9 456.3 891.9 305.1 259.9 188.1 266.7 358.2Aid for construction 2.4 2.7 2.3 3.5 3.6 3.s 3.6 3.5 3.5 3.6 3.5Electricity funds S6.9 82.0 96.7 98.3 141.7 136.6 116.6 96.2 94.7 98.8 109.0Energy 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 7A2.3 907.6Construction 376.6 330.2 384.4 439.1 782.3 777.8 754.7 716.2 566.9 742.3 907.6Other 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^.8 162.0 190.1 261.8 277.0 336.6 367.0Aosumed by Government 10.2 12.1 85.8 24.8 85.1 85.0 41.8 41.8 60.0 87.4 75.6 8Refinanced 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 3S6.3Assumed 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


National UtilitiesBalance Sheets


-. 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 13881.1Plant in service 9763.1 10258.9 11644.6 12238.1 12883.4 13420.1 14270.2 15772.8 16079.6 16326.4 16628.9Accumulated 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 11478.7Work 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 98.7 100.1 101.9 103.8 106.8 184.9 226.6 264.9Securitios 94.7 96.4 96.7 98.7 99.9 101.7 103.6 105.4 107.3 109.2 111.2Funds 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 486.6 624.8 699.2 477.9 427.2 434.7 453.4 496.4 538.1 676.8 612.7Cash and banks 29.2 34.6 20.2 23.6 23.6 22.8 24.6 27.2 28.7 31.9 34.7Accounts receivable 349.3 438.6 500.0 367.5 323.1 339.2 355.3 391.6 424.9 460.6 493.2Inventorios 23.0 22.0 22.3 20.4 21.2 21.4 20.3 22.0 24.7 22.7 20.5Other 85.1 129.6 156.7 66.4 59.3 51.3 53.2 55.6 57.8 80.7 64.2

Other sets 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.9 887.8 908.2Short-term portion of debt 1568.9 506.4 474.8 178.0 138.4 167.8 233.8 275.3 334.9 368.1 349.1Accounts payable S44.3 681.1 573.5 339.4 339.0 297.6 252.6 251.7 242.2 288.6 328.9Other 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 10119.4Capital stock 5394.2 5759.7 5832.6 6S27.4 7171.0 7749.3 8248.1 8700.3 9090.9 9591.0 10195.7 rCapital resrve 106.1 123.4 150.7 150.7 150.7 150.7 151.6 153.3 154.3 157.0 159.9Revaluation reservo 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Rotained oarnings -936.1 -1261.5 -492.5 -870.4 -1001.7 -1100.7 -1092.1 -952.0 -790.3 -556.4 -236.2

…_-------- ------ ---------------------------- …----…------------------------------------------------------------------


ARGENTINA


SEGBA: Finances


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 withrespect to 1976 and substantial increases in its operating expenses,especially labor which was 37.6Z of total operating revenues and 6.42 ofgross plant in service. Inflation was one of the main factors for suchbehavior as tariffs did not keep up with the increasing rate of priceincreases and labor demands grew more rapidly, including retroactivepayments decreed by the government. In 1988, such negative trend isexpected to be reversed: the rate of return would be -2.62 as tariffsincrease 9.2Z in real terms and labor costs are reduced to 24.3Z of totaloperating revenues and 5.02 of gross plant in service. SEGBA is making itsbest efforts to reach such levels in 1988 under an austerity program and aclose follow up on its operational budget, which until in August 1988showed no major deviations. During the 1988-1995 projection period, thepositive trend is expected to continue as the rate of return would reach5.02 in 1995 resulting from an average tariff for the utility that wouldincrease from 48.2 to 'B.5 US mills/kWh; in 1995 labor expenses would be14.4Z of operating revenues and 3.62 of gross plant in service; and theworking margin (percentage of operating revenues left after covering cashoperating expenses) would increase from 6.8Z to a maximum of 25.22 in 1993while 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 thegovernment taking corrective actions to neutralize the negative impact ofthe high inflation rates currently affecting the economy of the country.The weight of SEGBA in sector finances is quite important as it has themajor group of consumers (3.8 million) and is the major generator of fundsin the sector which are in great measure transferred to the other companies(AyE and HIDRONOR), its major suppliers of energy.


3. From a very poor performance in 1987 when all the internal fundgeneration was not sufficient to cover its debt service payments, and thenegative balance could not be covered by the electricity and energy fundsreceived by the utility, during the projection period the funding mix ofSEGBA is expected to move to positive and improving grounds reachingextremely good levels at the end of the period. The net internal fundingwould grow from 11.72 in 1988 to 97.72 in 1995, and its reliance onborrowings would be null in some years (1988, 1994 and 1995) and reach amaximum of 53.82 in 1991. One reason for such funding mix is the patternof investment as the replacement ratio (investment/depreciation charge)


moves from about 1.0 times at the beginning of the projection period, itreaches 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 projectionperiod, but those surpluses will most likely be used in a more ambitiousinvestment program, with a higher replacement ratio and that would somehowslow down the rapid aging of assets (accumulated depreciation/gross plantin service) which would reach 46.22 in 1995.

Balance Sheets (Annex 2.6.2.3)

4. As typical of an electricity distribution utility, the assetcomposition shows a great concentration on fixed assets at the beginning ofthe projection period (about 902) which is somehow reduced at the end ofthe projection period should the cash surpluses materialize and increaseother 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, in1995. Such indebtedness ratio is low and shows the capacity of the entityto get more debt should borrowings be available in view of the expectedinternal fund generation. Under the Financial Rehabilitation Plan (FRP) tobe implemented for the sector, it is expected that the liquidity of thecompany should improve as the current ratio which was about 0.5 timesduring the past three years would move to 0.9 times in 1995 which is agood level for an electric distribution company like SEGBA. Suchimprovement implies a better administration of its working capital aspayment periods for electricity which were 209 days in 1987 would bereduced to 178 in 1988 and 61 in 1990 and thereafter. Collection ofreceivables, which has not been a major problem at SEGBA, is also expectedto continue the improving trend of the past as it would move from 68 daysin 1987, to 62 in 1988 and 51 in 1995.


SEGBAIncome 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 1297.3Gross electricity sales 1/ 854.2 962.8 922.2 1084.2 1226.1 1313.7 1421.9 1557.2 1660.7 1768.0 1849.1Sales 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 1280.0Trans islon Feos 5.5 6.7 1.5 4.0 4.4 4.5 4.5 4.5 4.6 4.6 4.5Other 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 1157.6Labor 161.0 157.5 230.0 187.0 187.0 187.0 187.0 187.0 187.0 187.0 187.0Materials, services and other 141.7 115.2 159.8 102.0 98.0 98.1 97.7 97.3 96.7 9s3.9 96.9Fuel 104.4 143.7 143.1 168.7 183.0 198.7 160.2 184.9 217.1 203.0 201.3Electricity purchasd 2/ 240.6 212.1 192.8 177.5 166.8 184.7 257.0 269.5 262.6 338.0 379.7Transmission foes (net) 28.3 32.9 30.0 36.4 33.2 30.1 36.5 36.6 39.2 46.3 57.7RoyaltiesTaxes 89.9 44.8 45.6 46.9 51.9 55.7 60.2 66.0 70.4 74.9 78.3Depreciation 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 81.6Intorest on debt 61.8 53.1 59.2 60.4 63.2 68.6 75.5 88.8 91.8 87.2 82.2Interest 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 95.1 111.8 126.6 135.5 146.7 160.6 171.3 182.4 190.7Provincial taxes 68.4 77.0 73.8 86.8 98.1 205.1 113.8 124.6 132.9 141.5 148.0 NVAT 106.4 120.0 114.9 135.1 162.8 163.7 177.2 194.0 206.9 220.3 230.4_ -- ______________________ ---__________________________ __________ - ---____________ ___ - -________- - -- __________ ___________________- _ -____

ARGENTINA


SEGBAFlow of Funds


…-------------------------------------------------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 67.6 149.2 166.1 198.0 247.2 296.3 300.3 297.4Income before interest -273.0 -119.4 -208.8 -48.6 29.6 49.2 7S.6 107.8 144.4 142.4 140.1Depreciation 96.0 97.4 107.6 112.7 118.2 123.6 129.6 146.6 149.9 153.1 166.6Other 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 77.0 189.6 145.8 146.2Repayment 1/ 26.4 42.6 82.7 46.6 18.2 16.7 11.7 43.2 47.7 68.6 64.0Interest 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 8.6Aid for construction 2.4 2.7 2.3 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6Electricity funds 0.0 1.2 9.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Energy 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


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 97.0 112.4 112.4Construction 86.0 60.0 84.4 118.6 199.3 281.2 811.4 262.e 112.4 112.4 112.4Other 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 64.0Assumed 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


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 2819.0Plant in service 3171.4 3268.0 3589.7 3726.6 3908.2 4085.2 4283.2 4844.4 49U4.6 560S.0 6178.4Accumulated 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 2783.6Work 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 86.4 133.2 177.3Securities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Funds 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 218.2 222.8 265.1 208.8 220.1 232.8 228.9 249.7 265.6 282.0 294.3Cash and banks 14.6 3.8 13.1 10.8 12.3 13.2 14.3 16.7 16.8 18.0 18.8Accounts receivable 187.3 197.6 171.6 182.9 192.6 204.0 199.1 218.1 232.8 248.0 269.4Inventories 8.3 8.6 7.6 8.2 8.4 8.5 8.8 9.0 9.1 9.2 9.2Other 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 413.5 427.8 517.0 336.7 287.8 269.4 323.2 333.2 342.6 365.2 339.1Short-term portion of debt 111.7 189.0 108.6 20.9 19.2 11.7 46.3 47.7 58.8 64.0 23.7Accounts payable 148.8 148.0 260.3 191.0 142.7 125.3 138.0 138.8 127.1 140.2 160.1Other 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 2096.9Capital stock 1469.3 1633.8 1682.7 1667.1 1711.8 1726.0 1726.0 1734.0 1734.0 1734.0 1734.0 NCapital reserves 89.1 89.1 98.6 98.6 98.6 90.8 99.6 101.2 102.2 104.9 107.8Revaluation reserve 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Retained 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


AyE: Finances


1. AyE's rate of return has been negative during the last threeyears, it is expected to become positive only in 1991 and to reach a levelof 4.12 in 1995. The labor/gross plant in service ratio which was 1.4? in1985 reached a high of 2.12 in 1987 due especially to retroactive paymentsdecreed by the government. Such trend is expected to be reversed in 1988when the ratio would be 1.7Z and go on improving until 1995 when it wouldbe 1.32. As related to operating revenues, the labor expense follows thesame pattern: 27.92 in 1987, 24.9Z in 1988 and 9.8Z in 1995. Consideringthe increases expected under the sector Financial Rehabilitation Plan (FRP)the average tariff for the utility would increase from 21.2 US mills/kWh in1988 to 37.9 in 1995. Under these circumstances, the working margin(percentage of revenues left after covering cash operating expenses) whichhas been declining since 1985 (15.3X to 7.12), is expected to startincreasing in 1989 (10.42) and to reach a maximum of 33.4? in 1995. Thereturn on equity would remain negative until 1993 because of the highinterest charges.


2. The internal fund generation of AyE has not been sufficient tocover its debt service payment in the aggregate of the past three years andit is expected to continue that way during 1988 and 1989. In 1990 the debtservice coverage ratio would become 1.2 times and increase until it reachesa peak of 3.0 times in 1993. With the addition of the electricity andenergy funds to be allocated to the utility for its expansion program thenet consumer-based funding would be positive and steadily increasing duringthe projection period. As a result, its reliance on borrowings woulddiminish 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 replacementratio (investment/depreciation charge) which would move from 0.7 times in1988 to 3.2 in 1995.

Balance Sheets (Annex 2.6.3.3)

3. AyE's indebtedness is reasonable (50.62 in 1987) and is expectedto i.mprove during the projection period until it reaches 32.42 whichdenotes a sound capital structure and reflects the improving returns of thecompany and its low reliance on borrowings. Its current ratio which was0.7 times in 1987 is expected to reach 1.0 times in 1988 reflecting a goodlevel of liquidity. Such ratio depends greatly on a substantialimprovement in the payment period of electricity purchased which would bereduced from 428 days in 1987 to 210 in 1988, 150 in 1989, 110 in 1990 and60 from 1991 onwards. The collection period is expected to be reduced from300 days in 1987 to 146 in 1988 and about 70 from 1989 onwards. All theseratios reflect a sound working capital management which the company willhave to implement during the projection period.


Agua y Eriergia ElectricaIncome Statements


------ -------- - - - --- ----- ----------- -- 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 1080.4GroWs *Iectricity sales 1/ 828.1 876.4 397.8 467.7 681.8 656.2 783.6 886.7 997.0 1122.1 1262.3SlesO taK*s 8/ 66.1 74.8 31.0 98.4 114.0 107.6 165.6 188.0 211.6 238.8 267.9Net electricity sales 262.0 802.1 816.8 864.3 437.8 618.7 618.1 697.7 7n5.2 883.3 984.4Trane_inien Fnee 4/ 84.6 89.4 37.6 8t.0 37.4 43.0 44.S 46.6 S0.2 61.6 79.8Other 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 719.0 748.2 815.3 904.3Labor 76.0 96.1 124.0 106.9 106.2 10.8 107.2 107.0 10.7 106.4 106.4Nbtorial*, services and other 80.7 40.9 52.8 63.7 51.7 S3.1 30. 69.2 76.2 86.2 97.9Fe l 107.6 189.1 142.0 149.0 176.7 192.2 172.0 18A.7 20S 7 179.9 165.6Electricity purchased 2/ 7*.4 78.5 78.8 62.3 78.9 a3.2 129.9 148.3 142.4 218.8 803.7Tranmission fee_ (net) 0.0 0.0 0.0 2.6 2.8 3.2 2.7 2.6 2.7 3.0 3.6Royalties 6.7 6.8 7.0 6.6 6.4 7.2 7.0 8.1 6.6 9.2 9.6Taxes 9.9 11.7 18.7 14.9 16.9 20.6 25.0 2a.6 32.0 3' 3 38.7Depreciation 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 53.8Interest on debt 237.6 200.1 202.7 212.9 232.2 202.8 216.2 209.7 214.0 222.4 217.5Interest 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 69.3Provincial taxes 8.2 8.0 8.6 4.5 5.6 6.9 8.5 9.8 10.9 12.1 13.8VAT 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


Aqua y Energia ElectricaFlow of Funds


- 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 97.9 188.6 201.1 268.3 314.5 356.0Incom before interest -66.8 -8U.1 -114.0 -124.7 -114.6 -72.5 -10.2 21.7 a5.1 127.1 162.2Depreciation 186.9 184.8 188.2 146.9 160.1 170.4 173.8 179.4 183.2 187.4 193.8Other 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 90.4 117.5 138.8Repayment 1/ 6.8 0#.8 -117.2 174.5 148.6 60.4 65.5 65.1 56.0 74.4 95.7Interest 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 219.4 288.8 237.6 171.1 262.4 211.8 186.6 204.6 160.8 248.2 342.8Aid for construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Electricity funds 41.4 46.1 64.8 98.6 108.8 176.1 106.6 69.2 81.7 90.3 102.2Energy 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


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 189.1 125.6 165.2 146.6 811.2 272.6 804.8 424.7 428.2 860.6 755.9Cons;ruction 189.1 125.6 153.2 143.6 311.2 272.6 804.8 424.7 428.2 060.6 755.9Other 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 75.6Refinanced 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


Agua y Energia ElectricaBalance Sheets


--------- - --------------- - -----------------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 7388.6Plant in service 6194.1 6384.7 6789.3 6203.4 6647.8 6904.0 7013.4 7663.5 7675.9 7814.3 7999.4Accumulated depreciation -942.9 -1094.3 -1228.4 -1374.3 -1634.4 -1704.8 -1878.6 -2058.0 -2241.2 -2428.8 -2622.4Net plant in servico 4261.2 4270.4 4560.9 4829.1 5113.4 5199.2 5134.8 6495.5 6434.7 5385.7 5377.0Work 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 99.9 101.7 103.6 105.4 107.3 109.3 111.3Securitie, 94.7 96.4 95.7 98.7 99.9 101.7 103.5 105.4 107.3 109.2 111.2Funds 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 257.6 351.0 411.5 248.6 186.8 180.8 202.9 224.4 247.7 270.4 294.3Cash and banks 7.0 17.1 3.2 11.2 9.7 8.0 8.7 9.9 10.3 12.2 14.2Accounts receivable 181.4 240.8 326.8 182.7 128.7 132.7 163.5 170.3 188.6 208.7 229.5Inventories 16.7 13.4 14.8 12.2 12.8 12.9 11.7 13.0 15.8 13.5 11.3Other 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 1900.1 940.7 625.9 241.1 249.6 244.4 243.7 279.2 329.4 407.3 474.6Short-term portion of debt 1441.1 392.1 311.5 81.6 47.6 59.6 63.4 80.6 130.3 170.4 213.2Accounts payable 400.3 473.8 289.7 127.7 164.4 143.7 138.7 158.2 180.1 193.7 221.9Other 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 5123.3Capital 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 0.1Revalustion reserve 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Retained earnings -835.1 -1027.9 -586.0 -952.1 -1148.1 -1301.3 -1424.2 -1499.7 -1538.2 -1499.4 -1364..

-__ -__ _______________________ ---------- _ ------ -_----_ ---- - -- __----------- ---- - --- - - - ------- ---- ------- -w


ARGENTINA


HIDRONOR: Finances


1. During the last two years HIDRONOR's rate of return has been closeto zero. During the projection period (1988-1995) the rate of return isexpected to have a low of 0.6Z in 1988 and a maximum of 5.82 in 1992, andremain at 5.62 thereafter. Such pattern is common to hydroelectricgenerating utilities due to the incorporation of major assets in its ratebase. In the particular case of HIDRONOR, one of the reasons for the lowrate of return at the beginning of the projection period is the lowgeneration due to major repairs in the El Chocon dam which will reducesales by 15.82 in 1988 and the filling of the Piedra del Aguila reservoirwhich will reduce sales by 22.22 in 1990. Plant turnover, which was 142 in1985 is expected to reach a low of 4.42 in 1988 and increase from thenuntil 1992 when 't would reach a maximum of 9.22. This low- plant turnoverreflects the low tariff levels prevailing in Argentina ard the relativelyyoung age of HIDRONOR's assets (accumulated depreciation/gross plant inservice of 2.52 in 1987 and 3.9? in 1995) resulting from the continuousincorporation of new plants in service.

2. The cost of labor to total operating revenues is high for a hydrogenerating utility 2.6Z in 1987) basically because of the low levels oftariffs (13.9 US mills/kWh in 1987), but at the end of the projectionperiod it is expected to reach a more appropriate level (9.62) when tariffswould be much higher (24.2 US mills/kWh). Depreciation which was 33.72 ofoperating revenues in 1986 would be reduced to 7.22 in 1988 due to a changein the depreciation charge, from straight line to sinking fund, asauthorized under the concession agreement with the government. HIDRONOR'sworking margin (percentage of operating revenues left after covering cashoperating expenses) has been positive in the last three years and isexpected to continue so during the projection period. It would move from ahigh of 56.32 in 1985 to a low of 21.72 in 1988 and increase until itreaches a plateau of about 62% in 1992 and thereafter.


3. The internal funds generated from such operational results was notsufficient to cover the debt service payments in 1986 and 1987 and isexpected to continue eo until 1990. Starting in 1991 it will becomeslightly positive as the debt service coverage ratio becomes 1.1 times in1991. However, due to the significant amounts of electricity and energyfunds that HIDRONOR will receive, the consumer-based net fund generationwill 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 reachesa maximum.


balance Sheets (Annex 2.6.4.3)

4. Such funding mix has allowed the preservation of a reasonabledegree of indebtedness which in 1987 was 38.6Z and will improve in thefuture until it reaches 17.0S in 1995. Under those circumstances, HIDRONORcould be able to face a larger construction program with greater relianceon borrowings than planned. Its current ratio follows an erratic patternbecause of the also erratic patterns of sales and investment: it reached amaximum of 0.7 times in 1986 and is expected to reach a low of 0.2 in 1990at which time the trend will be reversed as it increases steadily until itreaches 0.6 in 1995. This ratio is reasonable as it is the result of acollection period of about 90 days and a payment period for suppliera of 45days, both normal under the present contractual arrangements of HIDRONOR.To achieve such level, however, it has been assumed that the collectionperiod which was 136 days in 1987 would be reduced to 90 days in theprojection period.

ARGENTINA


NIDRONORIncome Statements


-__ _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 97.6 118.6 101.0 234.9 287.6 297.6 299.3 299.3Gross electricity sales 1/ 95.3 100.4 106.9 E.6 118.6 101.0 234.9 287.6 297.6 299.3 299.3Sales taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Net 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 feesether 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 0 112.9Labor 18.0 17.7 24.? 22.9 22.9 23.2 28.6 28.6 28.6 28.6 28.6Materials, *rvice and other 17.2 28.7 9,.3 26.9 25.0 26.6 28.6 34.6 36.1 37.6 37.5Fuel 0.0 0.0 o. c 00 0.0 0.0 0.0 0.0 0.0 0.0 0.0Electricity purchased 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Transmision fees (net) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0Royalties 11.4 12.0 12.8 11.7 14.0 12.1 28.2 34.S 35.7 35.9 35.9Taxes 0.0 0.0 6.8 14.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0Depreciation 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 58.6Interest on vlebt 81.8 63.2 62.3 54.4 84.1 88.7 91.3 86.4 77.1 65.9 66.6Interest 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 0.0Average 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 7.0Operating incom 8.4 11.9 17.2

-__--------------____----__-______--_-------------------------------------------------------------------------------------------------------

ARGENTINA


HIDRONORFlow 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 39.1 149.6 189.9 197.2 197.2 197.3Income before Interest 26.3 1a.2 16.0 14.2 47.6 31.7 140.1 179.0 186.3 188.3 186.4Depreciation 26.4 33.8 10.7 7.0 7.1 7.4 9.4 10.9 10.9 10.9 10.9Other 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 94.8 113.9 119.0 144.5 172.2 186.3 190.9 188.3Repayment 1/ 6.6 16.1 36.3 47.3 60.9 50.9 71.3 101.7 123.3 136.2 131.7Interest 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 12.0Aid for construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Electricity funds 24.6 34.7 82.0 91.0 86.4 102.4 103.4 22.6 13.0 8.4 6.8Energy 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


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 39.3Construction 162.4 144.6 126.8 171.9 271.8 223.6 139.0 38.9 26.3 24.3 39.3Other 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 96.6 124.1 147.0 146.0 131.7Assuesd by Govt. 0.0 0.0 0.0 7.4 24.6 20.8 26.3 22.4 23.7 9.8 0.0Refinanced 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 66.6AssUed by Govt. 0.0 0.0 0.0 6.9 21.1 20.8 18.1 16.9 14.1 11.2 0.0Refinanced 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0- .__ - - - - -_ - ___ ____________________________________

ARGENTINA


HIDRONORBalance Sheets


- ----- ----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 3476.5Plant In service 1897.S 1626.2 2286.8 2309.1 2329.4 2430.9 2978.8 S374.7 3449.1 3461.1 3461.1Accumulated depreciation -34.7 -56.8 -68.4 -65.4 -72.5 -79.9 -S9.3 -. 00.2 -i1. -122.0 -132.9Net plant in service 1382.9 1670.4 2207.2 2243.7 2268.9 2351.0 2384.3 $274.S 3338.0 3329.1 3318.2Work 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 0.0Securities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Funds 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 93.6Cash and banks 7.6 13.7 3.9 1.6 1.6 1.8 1.8 1.6 1.6 1.7 1.7Accounts receivable 21.8 27.8 39.9 24.0 28.8 24.9 67.9 70.9 73.4 73.8 73.8Inventories 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other 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 1N6.6 187.4 204.8 206.4 214.6 205.2 186.2 164.0Short-term portion of debt 16.1 35.3 64.7 76.5 71.7 96.6 124.1 147.0 146.0 131.7 112.2Accounts payable 15.9 38.7 61.7 42.8 58.8 51.0 33.2 26.4 24.8 24.8 26.4Other 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 2924.1Capital stock 1071.9 1148.1 1239.1 1446.9 1601.6 1765.3 1880.8 1923.4 1947.3 1962.3 1974.2Capital reserves 17.2 34.3 52.0 52.0 52.0 62.0 62.0 52.0 62.0 62.0 62.0Revaluation reserve 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Retained earnings 29.3 -67.7 289.6 268.2 281.6 273.6 348.7 479.6 626.5 788.0 897.9

-------------------------------------------------------------------- __-------_----------------------------------------------------------


ARGENTINA


EBY: Finances

Summary

1. The finances of Entidad Binacional Yacyreta (EBY) reflect its soleactivity, the construction of the Yacyreta Hydre,o1Fol-ric Plamt. Thiscondition will continue during the time slice e( , -t,l ior the se( Lorloan (1988-89), and will change only starting' in ^ J3 w-hen thc lrstgenerating unit is commissioned. See Annex 2.6.: ;- t! J(tailed l,is' oricand forecast sources and uses of funds statement x'h- 1 cl i S summarized in thefollowing 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 2.6.5Historic Performance Page 2 of 3

2. Up to 1987, two thirds of the funding requirements of EBY havebecn for direct investment in the project and one third has been used fordebt service payments. Most of the financing has been through borrowings:47? from the Argentinian government and 51? from financing agencies, therest (2X) being equity contributions from the Argentinian and Paraguayangovernments.

3. The above utilization and composition of funds has resulted in abalance sheet with heavy shares of fixed assets (US$3.0 billion or 99% oftotal assets) and debt (US$2.9 billion or 982 of total equity andliabilities). The asset composition is typical of a hydroelectric utilityduring the construction period. The heavy debt would be particularlyworrisome, but since the Argentinian government is the mai'. creditor (53Z)the remaining portion of debt owed to non-shareholders (45%) is reasonablefor a hydroelectric utility.

4. However reasonable this share of debt to non-shareholders may beconsidered, the main problem with the debt of EBY is its profile inrelation to the long project construction period as many repayments becomedue before the project is completed (e.g. IBRD loan 1761-AR will be fullyrepaid by end-1994, two years before project completion).

Forecast

5. Basically because of such debt profile, and the correspondinginterest payments, forecast the funding requirements of EBY will be largerfor debt service (53Z) than for the physical construction of the Yacyretaproject (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 EBYhave taken already some measures such as negotiating the rescheduling ofsignificant portions of the debt and the assumption by the government offuture debt service payments. On the part of government loans, a flexiblearrangement on repayments has been set up as they will be made only whenthe entity has the resources available for this purpose.

7. These measures have signifieantly alleviated the finances of EBYand have allowed it to concentrate on the financing of the physical

ANNEX 2.6.5Pago 3 of 3

construction of the project. Except for a relatively minor non-committedsupplier credit (US$13.0 million), EBY's non-committed requirements for thephysical construction of the project are about US$400.0 million, which EBYplans to finance with two loans it will request in 1990 also from the Bankand IDB (US$200.0 million each). Therefore, the entity relies heavily onthe financing that it can obtain from these two multilateral agencies forthe conclusion of the Yacyreta project. Annex 2.6.5.2 gives a forecast offund requirements and planned sources of funds for the conclusion of theproject, 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 FundsV/ 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 theinternal cash generation becomes significantly important as it has apreponderance in the funding composition (40Z), reducing substantially theweight of the non-government borrowings (from 55Z in the 1988-89 period to24X). The internal cash generation is expected to come from the sales ofelectricity starting in 1993 as the first units become operational. Eventhough the Binational Agreement for Yacyreta es.ablishes a financialtariff, which is supposed to provide all the funds necessary to cover itsoperational cash expenses and its financial obligations, the aboveprojection has been prepared on the basis of a tariff resulting from acapital recuperation factor of 8Z for a sinking fund type of amortization.This system has been officially adopted as more adequate for implementationthan the financial tariff which, if strictly applied, would produce erratictariff levels. Under a broad interpretation of the Agreement, the adoptedtariff system wnuld basically comply with the legal provisions because ofthe flexible repayment conditions of government loans to EBY (para. 6).

ARGENTINA


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 1679Equaity con8ributiaene 67 0 571 20 203I 20 203I 0 40 0 401 57 40 0 97En.rwv funds as6 47 2 904 3 272 272 I 516 516 I 788 0 0 788 3 1644 47 2 16920nvo.n,mit 3am. 269 s0 819 1 270 270 3 1008 10083 1273 0 0 1273 1542 0 50 1592Borrowings: 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 1Working 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 336Yi33ag oe.rators 124 115 0 2423 8 5 1331 03 8 5 0 133 132 123 0 255Civil VD#-** 168 110 159 4383 16O 2.21 167 446 19I" 16 209 566 I 357 279 376 10123 520 389 535 1445Construction equipment Be 6 159 23 4 1 20 25 3 0 3 4 1 20 25 3 62 7 179 2480.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 331Con .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 260Land adqui.ition and indem,ication 41 13 55 3 26 16 483 1 7 28 40 3 42 41 0 831 as8 54 0 138Res.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 67Project 12 S 173 3 031 0 0 0 031 12 S 0 17Administration 119 10s 59 263 3 80 20 14 54 3 49 28 14 9t13 79 48 28 155 I 196 153 67 4388,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 486Materials 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


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


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 882.8TRANSMISSION 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 0.0TRANSMISSION 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


AyEE



1986 199 190 1991 12 1998 1994 1996 1m--sGENERATION

Queme(T) 88.6 19.0 62.6Los 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 96.0Cordon del Plate l(H) 16.8 11.7 46.6 66.6 140.2Garabl(H) 2.9 40.4 46.4 74.8 104.1 268.7Los Bluncos II(H) 2.2 6.7 8.8El Chluldo(H) 6.a 18.4 24.7Oan Turbines 8.2 0.4 17.2 84.7 66.4Comodoro 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 97.6 620.1mi 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

TRANSMISSIONYocireta/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 18.6Son Antonio Owst. 0.6 24.6 8.1 28.4182kV Regional 9.8 28.9 21.9 21.9 28.2 28.2 28.2 28.2 169.7Other 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

OTHERSubtrnnco./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 68.4Studies/Design 16.6 84.2 20.8 6.9 6.4 6.0 6.0 6.0 96.9Capitalized 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


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.4Local Cost 89.2 186.7 168.6 182.6 264.8 268.9 868.4 468.6 1960.7

ANNEX 3.1.3

ARGENTINA


HIDRONOR



1988 1989 1990 1991 1992 lgs8 1994 1996 1908-96OGERATION

AlIcur 6.4 6.4Pledro del Aquila 107.5 109.0 78.8 87.2 24.8 12.8 1.8 420.8ColIon Cure 4.0 18.4 27.8 45.2Total 118.9 109.0 78.8 67.2 24.8 16.7 16.2 27.8 472.4

TRANSMISSION 1/Allcuro Abosto 4.8 4.8Pledre del Agullo 21.8 129.6 116.2 81.2 4.1 0.2 802.6Oth r 0.9 0.9Total 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.7Equlpment 5.8 8.2 a.9 8.9 8.9 8.9 8.9 a.9 82.2Existing Facilities 2/ 8.8 8.aTotal 16.2 6.0 6.7 6.7 6.7 6.7 6.7 8.7 61.2


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 15.7 874.8Local Cost 104.4 168.1 184.1 8b.4 28.8 16.8 14.6 28.6 662.8

AMNEX 3.1.4Page 1 of 5

ARGENTINA


The Yacyreta Project

Background

1. The Yacyreta hydroelectric project has its origin in studiescarried out since the beginning of this Century initially with the mainobjective of improving navigation on the Parana River at the rapids ofApipe. In 1958 the Governments of Argentina and Paraguay formed the"Comision Mixta Tecnica Paraguayo-Argentinal (CMT) for the purpose ofstudying the river's hydroelectric potential at these rapids andimprovements in navigation. A prefeasibility study was completed in 1964,and in 1971 an international consortium of consultants, formed by HarzaEngineering Co. (USA), Lahmeyer International GMBH (Germany), A.D.E., S.A.(Argentina), Yacyreta S.A. (Paraguay) and Cuyum, S.A. (Argentina) was hiredto prepare a feasibility study. This study was completed in December 1973,and its conclusions provide:d the basis for the preparazion of the Treaty ofYacyreta 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 andrelated works;

(b) the co-ownership of the works to be constructed;

(c) the ratification of the principle of free river navigation and theconstruction 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 in1974, when Yacyreta hired the consortium Harza, Lahmeyer and Associates toprepare the final design for the project w.iich was completed during theperiod 1974-1978. On the basis of these studies the Bank appraised (July1978) and approved (October 1979) a US$210 million loan to the Governmentof Argentina for the construction of the project.

Project Description

4. The project is located on the Parana rirer, the internationalboundary between Argentina and Paraguay, about 80 kms downstream from thetowns of Posadas (Argentina) and Encarnacion (Paraguay). The mainobjective of the project is to provide base-load hydroelectric energy forArgentina's power sector. Other objectives are to improve navigation onthe Parana river by eliminating the rapids of Apipe and to provide


irrigation for both Argentina ant Paraguay in the provinces of Misiones tadCorrientes and the Department of Itaipu, respectively, and to augment thefishery 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 abovesea-level of 86 m, and a maximum height of 42 m, creating areservoir with an area c1f about 1,720 km2 and a total storagecapacity 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 of135 MW, operating at 71.4 rpm; 20 generators of 150 MVA, with apower factor of 0.9, operating at 50 HZ, 13.2 kv, which willproduce 20,200 Gwh/year and transformers, control equipment, etc.;

(d) fish passage facilities to preserve the fishery resources of theParana river;

(e) a navigation lock which would allow the passage of ships with amaximum draft of 12 ft.;

Cf) irrigation intakes, one in each country with a maximum intake topermit the development of agriculture in the lands bordering thereservoir;

Cg) the Aguapey, Tacuary, San Martin and Caraguata dikes, with thesame elevation as the main dam, to avoid flooding of potentiallyrich agricultural lands in Paraguay, including either pumpingfacilities or discharge channels to transfer the water to thereservoir;

(h) permanent villages to house supervisory personnel duringconstruction and, afterwards, the personnel in charge of theproject operation;

Mi) about 90 km of access roads which will be incorporated to the roadsystems of both countries;

(j) a bridge, 1,500 m long, over the Ana-Cua branch of the riverneeded for access to the project site;

(k) the relocation of infrastructure works such as railways, ports,highways, sanitation works and electric and telephoneinstallations;

1/ The power house will permit to install intake structures for 10additional units to be installed in the future when the extra peakingcapacity would be justified.


(1) the resettlement of about 40,000 persons on both riverbanks as theresult of the creation of the main reservoir; and

(m) a 500 KV transmission system to transmit the energy produced atthe plant to the consumption centers.

Project Execution

- Engineering

6. EBY retained the services of Harza Eng. Co. (USA) together withLahmeyer International (Germany) and their Argentina and Paraguayanassociates for the technical supervision of the execution of the project.This consortium called "Consultores Internacionales de Yacyreta" (CIDY) hastotal responsibility for supervising the execution of the project. EBYcontrols the activity of its consultant at the project site through asuperintendent of works with a small group of qualified professionals.Given the exceptional size of the project, EBY has retained a panel ofwell-know'- international experts satisfact.ry to the Bank in differentdisciplir.es (geology, hydraulics, etc.), to conduct periodic reviews of thedam and structures during construction. EBY has also agreed to submit tothe Bank for review no later than one year before the expected completionof the dam, a report showing appropriate arrangements to periodicallyinspect the dam and related structures during the operation of the project.

- Construction Works

7. The main civil works are being executed by an internationalconsortium (ERIDAY-UTE) composed of Impregilo S.P.A. (Italy), Dumez S.A.,(France) and several contractors from Germany, Italy, Argentina andParaguay, under a contract signed in October 1983. The bidding process forexecuting the civil works begun in 1979 through a pre-qualification ofconstructors. The proposals presented by the contractors were opened in'June, 1980, but the contract was signed only in October, 1983, due to aprotracted procurement dispute between EBY and the Bank. The works begunin 1984 at a low pace because of the economic problems faced by thecountry, the low rate of collection of the electrical funds and thedifficulties encountered by the Government in securing external financing.By mid 1986 EBY, under a new management, reviewed the design andimplementation schedule of the project, and negotiated with the contractora rescheduling of works which resulted in a two-year delay in relation tothe original schedule. Execution of the work has been, since then,satisfactory. By April, 1988 the global progress of the execution of themain civil works contract was estimated at 40Z. Ine status of thedifferent elements of the plant is as follows: (i) the navigation lockstructure is completed and the navigation channels very advanced; (ii)progress of the dam reaches 26Z, (iii) excavation for the main spillway hasreached 872 and the concrete works have progressed 78Z; (iv) excavationsfor the Ana-Cua spillway have reached 902 (v) excavations for the powerhouse have reached 702, while concrete works have reached 202


- Equipment

8. The electromechanical equipment is being procured through severalbids (turbines, generators, cranes, fish passage.i facilities, gates,transformers, bus bars, SF6 substation equipment, control equipment, andnavigation lock equipment). The acquisition of all this equipment is welladvanced and no one is at this time in the critical path of projectimplementation. Contracts for supplying of the electromechanical equipmentwhich are signed are:

Equipment Contractor Amount (US$ million)

Turbines Voith (USA) 267.2DEW (CA)Metanac (AR)

Generators (10) Japan Consortium 82.0

Gates ATB (IT) 95.4CIE (PR)Metanac (AR)

Navigation lock ATB (IT) 18.5equipment 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 consortiumled by Siemens (Germany) on which the contract has not been negotiated;(ii) cranes and fish passage equipment; and (iii) transformers and otherequipment 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: November1992; installation of first generation unit: February 1993; andinstallation of unit number 20: September 1996.

Project Cost

10. The original project cost, as reflected in the 1979 SAR (ReportNo. 2342-AR) including physical and price contingencies, at December 1977price level, was US$3,706.3 million of which US$2,187.1 million was localcosts and US$1,519.2 million was foreign cost. Investments made in theperiod 1979-1987 amount to about US$2,052 million expressed in currentdollars. Of this, US$1,659 million is local currency and US$393 is foreigncurrency. Investments yet to be made in the period 1988-1996 expressed inJanuary 1988 price level amount to about US$2,290 million of which US$1,482million in local currency and US$808 is foreign currency.


Environmental Aspects

11. The environmental impact that the project will cause is related tothe transformation of the river's natural flow conditions and the floodingof areas in Argentina and Paraguay. Research on the ecological aspects ofthe project began in 1972, and has continued to date. In 1978, EBYapproved a long-range program for the environment coordinated with projectimplementation that includes studies on water quality, fishery resources,river-bank forestry species, development of natural reserves, animalrescue, reservoir cleaning and public health. This program has evolved toa Master Plan for the environmental protection which has been reviewed by,and is acceptable to the Bank and is available in the project file. Asummary of the main EBY activities regarding the protection of theenvironment is attached as Attachment 2.

Relocation Aspects

12. Attachment 3 provides a description of the policies defined andthe actions taken by EBY to implement the vast resettlement program for theabout 40,000 persons affected by the flooding of the reservoir as well asinfrs.' ructure works flooded by the reservoir. During supervision of Loan1761-AR the Bank has closely followed up the design and implementation ofthis program. Progress has been satisfactory and plans for completing thiscomponent on time are also satisfactory.


ARGENTINA


Yacyreta Proiect

Schedule of Execution

Start ConclusionA. 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 InfrastructureWorks * 4th quarter 1992

H. Resettlement of DisplacedPopulation * 4th quarter 1992

* Started prior to 3rd quarter 1988.

ANNEX 3.1.4Attachment 2Page 1 of 3

ARGENTINA


Yacyreta ProiectEnvironmontal Aspects

Fish Hikration Facilities and Fisheries

1. Protection of the ichthyofauna at the Yacyreta project requires isthe construction of up-stream migration and fish passage facilities.Construction of the Yacyreta dam without these facilities would meanclosing off 650 km of the river to fish migration with possible adverseeffects on reproduction of the species and fishing all along the river.The fish passage facilities provide for the passage of species with a broadrange of behavioral patterns such as displacement velocities and normaldepth habitat. Downstream migration of the fish will be allowed throughthe spillways, navigation lock and the turbines themselves. In order todevelop the fishery potential of the Yacyreta reservoir, EBY has set aspecial program to study fishery resources. It includes researeh on thebioecology of major fish species and on inventory of fish industries andfishery conditions in the zone. These studies will serve as the basis forthe formulation and implementation of a program to develop and manage fishproduction.

Water Quality

2. Conversion of the river into a reservoir is expected to produceminor changes in water quality such as turbidity, conduc-ivity, alkalinity(pH factor) and biological productivity of phytoplankton. However, thesechanges will not have damaging effects since the power plant will beoperated 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 mostnegative effects will be felt immediately after the reservoir is filledbecause of the decomposition of organic material in the flooded area. EBYhas plans for clearing the dam area to decrease the negative effects ofdecomposition during the early years of operation of the project.

3. Over the long run water quality can be negatively affected bypollution resulting from population growth and industrial development inthe area. Treatment plants for liquid waste are envisaged in the Posadasand Encarnacion resettlement projects, and since these cities do not havesuch facilities at this moment, river pollution from this source isactually expected to decline. EBY has a hydrobiological laboratory inPosadas to monitor water quality.

4. The experience of other dams in similar climates indicates thatthe Yacyreta reservoir could develop water hyacinths and ferns, althoughbecause the low retention time these plants are not expected to posespecial problems, except in shallow areas. Clearing of the reservoir willhelp to impede development of that vegetation, which needs a suitablebottom in which to anchor. However, control measures may have to be


adopted in the future. Eutrophication, that is, the reduction of oxygenlevels, transformation of organic material into gases such as toxichydrogenated sulphurs, are not expected to be important because Yacyreta isa run-of-the-river plant, but the process will be carefully monitored.

EndanRered Species

5. The flooded areas, mainly on the Island of Yacyreta, containscertain species of animals in danger of extinction. These include swampdeer, maned wolf (aguara-guazu), alligator (vacare) and possibly twospecies of otter. EBY has created a natural reserve park in Paraguayanterritory 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 inriver level downstream of the dam which are not expected to produceerosion. Proposed operation of the plant stipulates that minimum waterdischarge will be very similar to the minimum average river flow and, sincethis is a "run-of-the-river plant, the difference in water level betweendry and rainy seasons will closely follow normal river behavior.

Habitat Downstream the Dam

7. Project construction will not exert negative effects on the lifecycle of fish and other aquatic organisms living downstream from the dam.The variation in oxygen level from water discharge will not be expected tobe significant. A 4.5 Ka section of the Ana-Cua arm would be dried up whenthe spillway located on that arm is not in use (78.5Z of the time), whichwould form shallow pools of water with unfavorable ecological and healtheffects. To avoid this problem the plant will maintain a minimum waterflow in the Ana-Cua arm.

Forestry

8. Conservation of river bank forestry species is an important aspectof ecology in the project zone. EBY is carrying out a program aimed atmaking recommendations on proper use and conservation of the forest andriver-side habitat. This will not only help reduce evaporation but willalso reduce erosion and increase the esthetic value of the project, whichis highly important for tourism.

Water-borne Diseases

9. Since 1975 EBY has conducted studies on health aspects in theproject zone, ascertaining that water-borne diseases such as intestinalparasites are present in the area. There is also the risk of contractingdiseases transmLtted by vectors (malaria, Chagas disease, yellow fever,etc.). The construction contracts contain provisions on health actionsdesigned to control endemic diseases in the area. Moreover, with advicefrom specialists from the Pan American Health Organization, EBY ismonitoring endemic diseases in the area and intend to continue this afterthe reservoir is filled. Special precautions are being taken in theconstruction of dwellings for relocation purposes to control the "kissingreduviid bug, vector of the ^Chagas disease^ (trypanosomiasis).


Archaeologv

10. Archaeological reconnaissance and salvage is being undertaken bythe Universidad Nacional de Misiones in Argentina, and by Paraguayanarchaeologists in Paraguay. without findings of great importance so far.


ARGENTINA

ELECTRIC POWER SEOTOR PROJECT

Yacyreta ProjectRelocation Aspects

Background

1. The construction of Yacyreta requires the carrying out of a vastrelocation program designed following principles established in theYacyreta Treaty which reflects the concerns of the two countries for thewell being of the population displaced and for the replacement ofinstallation flooded by the project execution. The governing principles inthe Treaty are construction and replacement of installations affected andresettlement of groups displaced in equal or upgraded conditions. Thisresponsibility implies that Yacyreta must not only expropriate or purchaseproperty as required for the works, reconstruct infrastructure worksaffected by the flooding, pay indemnity for damages suffered by thirdparties and construct housing and community facilities, but also carry outactivities oriented to adapt the population concerned to its new location,endeavoring insofar as possible to avoid creating social distortions orbreaking ties with work, welfare and cultural centers.

2. Relocatior. plans were prepared by consultants on the basis of asurvey completed in 1980 and have been duly revised on the basis of updatedinformation. Information provided by surveys include cartographic maps,detailed data of the population affected including socioeconomic andcultural profile of inhabitants, population density, possible relocationand expansion areas, housing and population distribution, sanitaryequipment, 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 principlefor roads, railways, port facilities, sanitation and electric andtelephonic facilities. Relocation proposals for urban and rural populationwere then prepared in coordination with national and local authorities.For the urban sector a structural approach to the cities concerned wasadopted, taking into account development possibilities and existingrelationships and interdependencies. For the rural population, relocationsites were discussed with local authorities and integrated to ruraldevelopment plans of both countries.

Description of Flood Zone

3. The Yacyreta reservoir with a normal elevation of 82 m over sealevel, will have an approximate area of 1,720 km2 of which 820 km2 areflooded land in Paraguay and 240 km2 in Argentina, while 660 km2 arecovered 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 subjectto periodic flooding is 210 km2, the swamps are 400 km2, the woods andshrubs account for 196 km2 and the towns and cities cover 7 km2. Theflooding of this area will affect about 9,000 families, economic activities(agriculture, industry and commerce), community facilities (educational,


religious, recreational and government) and infrastructure installations(railways, ports, roads, electricity facilities and government buildings).

4. According to the population census conducted by the binationalentity in 1977 and subsequent updating efforts, the group displaced wouldtotal about 40,000 persons, of whom 25,000 are located in Argentina and15,000 in Paraguay. This represents 5,800 and 3,100 families,respectively. Most of this population (about 30,000 persons) is located inthe urban areas of Posadas in Argentina and Encarnacion and Carmen delParana in Paraguay as shown below:

TABLE 1

Population, dwellings, commercial Installations and agriculturalfields affocted by the flooding

Number of Number of Number of Commercial Agriculturalfamilies persons dwellings Installatlons flolds

A. Argentina

1. Urban 5,101 21,886 4,822 2682. Rural 714 2,980 702 28 408

a) Corrioentes 100 424 94 a 61b) 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 82. 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, 18Zare substandard units built with discarded materials and 82 are slabs withadobe walls, straw roofs and dirt floors. Property tenure indicates that30t of the families are land and housing owners, 72 are land and housingtenants and 63Z are land occupants with no legal title.


6. From the socioeconomic standpoint the population in the zone to beflooded in the city of Posadas can be characterized as belonging primarilyto the most depressed and marginal strata. Activities relating to theprovision of personal services for the Posadas urban center and temporaryjobs predominate. A large group operates on a subsistence level dependingupon the river settJng from which they derive water, firewood, fish andincome 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, byrice fields, which are irrigated by water pumped from the Parana river andadjacent streams. In addition wheat and soybeans with very low yields areproduced. The lack of suitable practices and technologies and poorirrigation and drainage conditions are factors limiting farm output. Thereare some wooded areas, p-rticularly pine forests. With regard to landtenure, the predominant system is large landed estates, especially in theProvince of Corrientes, but there are 120 farms of less than 24 hectaresoperating on a subsistence economy and employing only family labor.

8. The flooding will affect a large number of community services andindustrial and commercial establishments. These include ten primaryschools, two churches, two first aid clinics, police installations and thenaval headquarters, nine lumber industries, one cold storage operation, oneshipbuilding outfit, and 150 olerias. The olerias deserve special mentionsince they use the clay soil on the banks of the Parana River to makebricks and tiles. Their traditional aources of raw material will disappearentirely when the dam is built. The port installations and railroadstation at Posadas will be under water, as will 30 km of main railroadtracks, 10 km of roads, the Empresa Electrica de Misiones (EMSA) thermalpower plant, and the electrical telephone and water supply networks.

- Paraguay

9. The urban population affected in Paraguay numbers 8,153 persons inEncarnacion, (about one third of the city), and 500 persons in Carmen delParana. The rural population totals 6,673 persons. Income data classify692 of the population affected at Encarnacion as belonging to the middleand higher income strata. In contrast, in the rural area 952 are lowincome.

10. The number of housing units affected in the zone is 3,294, ofwhich 1,877 are located in urban areas (1,552 in Encarnacion) and 1,417 inrural areas. Of the urban housing 412 has more than 700 m2 in land and 852more than 360 m2, indicating a pastoral setting that is changing radicallywith the construction of the new international bridge, the influx ofworkers and proposed regional development plans for the area which wouldrender these lot sizes inappropriate.

11. The flooding will have major implications for the urban dynamicsof the Encarnacion city, since it will affect its central area and majorcommercial sector. Seventy percent of the houses are occupied by theirowners who also own the land, 902 have electric lights and 64Z a septictank waste disposal system.


12. In the rural area of Paraguay there are 12 km2 of cultivated landand 119 km2 of natural pastures, 392 km2 of swamps, 132 km2 of woods andbrush and 192 km2 of land subject to flooding. The major crops are riceand cotton. Stock raising is extensively practiced but productivity islow. 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 torelocation of tribal people is satisfactory. In 1987 the Bank learned thata group of indians of the tribe Mbya formerly living in the Yacyreta islandhad left the island by 1974, at the time the Yacyreta international treatywas being prepared. A field investigation conducted by the EpiscopalConference (PEC) concluded that the tribe, composed of 10 families (about40 people) might have left the island to avoid problems with theauthorities and thus the construction of the project would have been thecause of disruption of the tribes norma: way of life. Upon the Bank'srequest, and following meetings between representatives of the PEC, EBY andthe Bank, EBY devised a solution for reuniting the affected tribal peopleby resettling it in a 370 hectare property, bought by EBY. The relocationarea provides adequate agricultural support capability, as well as accessto fishing areas. EBY is also committed to provide social and sanitarysupport 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 industrialenterprises affected is 280. Most of them are involved in processing farmscommodities from the area (mills, tanners, sawmills, grain silos, oilfactories, etc.), with about 100 olerias which, as noted on the Argentineside, will lose their traditional source of raw material. Special programshave been prepared to address these situations.

15. The inirastructure works flooded include the major Paraguayanpublic administration buildings in the Department of Itapua, three schools,two churches, military installations, the launch dock and wharves in thecity of Encarnacion, 106 km of railroad lines, the Encarnacion electricpower plant and 702 of the electricity dist'ibution network, 80% of thetelephone lines, the water supply facility a.i.d much of the water supplydistribution 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 thoseinhabiting urban or semi-urban housing, whether owners, tenants oroccupants, are entitled to have another housing unit built for them by EBY.However, if the person displaced should not wish to relocate, EBY will payproper indemnity.

17. The housing to be delivered to owners will be at least similar inquality and size to that expropriated but should have the improvementsnecessary to meet minimum health and habilitation standards. If the valueof the property affected is less than that to be delivered in exchange, EBY


will absorb a reasonable difference in price; if more, EBY will compensatefor the price difference or have access to housing programs to be run bythe National Housing Ministries.

18. The tenants and occupants of housing and/or lands belonging toothers will be allocated minimum housing as their own property to be paidfor with financing and conditions suited to their payment capacity. Iftheir financial position permits, those beneficiaries could choose betterquality and/or larger housing.

19. The minimal housing program is aimed at relocation of very lowincome family groups, generally with uncertain rights to the land theyoccupy. Minimal housing is the initial stage of a house that canprogressively develop as the economic and labor resources of the familiesincrease. In the urban sector of Paraguay minimum housing lots will haverunning water and sewerage with a connection pipe or septic tank andelectricity installation with connection as the owner wishes, together withpublic lighting and minimum finishing for adequate hygienic and maintenanceconditions.

20. The policy defined for the rural sector stipulates that ownerscould be indemnified but that every farm producer directly working a ruralfield affected by the dam will be entitled to have the entity award himanother plot constituting an "economical farming unit". The award would bebased 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 workedrationally by a family, enables it to meet its needs and ensures favorabledevelopment of the farmizg enterprise. Preferably the plots will beawarded in farm settlements.

21. As defined, the relocation policy for the urban, semi-urban andrural population is adjusted to the socioeconomic position of thoseaffected, with a view to the least possible negative impact of theflooding. This particularly facilitates the improvement of the conditionsof life of very low income groups with a reduced capacity for response tothe impact of the dam and provides them with a benefit in the form ofpossible access to housing with minimum habilitation. The relocationpolicy is adapted to the particular features of property structure in thearea and endeavors to retain the rural population on the farm.

22. Relocation of the urban population is being carried out byunintegrated groups, and EBY undertook the construction necessary tourbanize the area and to provide community services. For relocation of thebusinesses involved, commercial areas will be established in thosecomplexes 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 theproject file. Budgetary provisions have been taken to ensure timelycompletion of the component which is being implemented as follows:


- Infrastructure Works

24. The designs for the infrastructure works were done by consultantsbelonging to the Harza, Lahmeyer and Associates Consortium. These designswere coordinated with concerned public institutions of Argentina andParaguay. A general description of the works to be carried out is asfollows:

(a) Argentine side

(i) Railroad: construction of 31 km of main lines; passenger terminalsfor trains and buses, with a covered surface, including sheds, ofapproximately 14,000 m2; freight station, with an 11,500 m2surface; 4 km of road embarkment protectors; and servicesinfrastructure.

(ii) Port works: construction of freight and passenger docks at Posadasapproximately 300 m in length; buildings for passengers andcustoms administration, with a covered surface of some 700 m2; andservices infrastructure.

(iii) Road projects: construction of 9.5 km of highways and two bridgeswith spans of approximately 200 m each.

(iv) Sanitation works: construction of intakes with a pumping capacityof 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 ofdistribution networks; a purification plant for liquid sewage; 35km of sewer lines; 3 km of outfalls with a pumping station; 12 kmof network storm drains.

(v) Electric and telephone works: installation of a provisional 24 MWturbo-gas plant until the city of Posadas is fed power from theYacyreta plant; a 132/13.2 KV transformer substation; 9 km ofmedium-tension lines; 33 transformer stations and 10 km ofdistribution networks; and relocating 66 km of medium-tensionlines and 80 telephone lines.

(b) Paraguayan side

(i) Railroads: construction of 93.4 km if railroad lines; a passengerand freight station, with 17,000 m2 of covered surface; andservices infrastructure.

(ii) Port facilities: construction at Encarnacion of 320 m of freightand passenger docks; buildings for passengers and customsadministration, with an area of 950 m2; services infrastructure.

(iii) Roads: construction of 8 km of highway sections; 230 m of bridgesand other road structures;

(iv) Sanitation facilities: construction of a pumping plant; a 500 m3


storage tank; 36 km of potable water networks; a sewagepurification plant; and 36 km network of sewers; a pumping stationwith discharge piping; 14 km network of storm drains and 1.5 km ofopen canals.

(v) Electric and telephonet construction of a 66/23 KV step-downsubstation; 17 km of medium-tension lines; 35 km of low-tensionlines; 65 transformers stations; relocation of telephone network.

- Urban Housing

25. Relocation at Posadas is being made in four diversified areasflexible enough to accommodate the different socioeconomic groups of thepopulation involved. A total of 4,250 dwellings with a total of about250,000 square meters of area are being constructed. Dwellings consist ofsingle-family housing compatible with the housing and cultural patterns ofthe population to be relocated. The area for resettlement in Encarnacionwas chosen with a structural approach to the city of the future, takinginto account the forthcoming construction of the Encarnacion-Posadasinternational bridge and the necessary ties between the city and rapidlydeveloping farm settlements in the Department of Itapua. The number ofdwell.'ngs in Encarnacion will be 1,900 with a total area covered of about110,000 square meters. An attempt has been made to avoid socialdistortions or break in ties to job sites.

- Rural Programs

26. On the Paraguayan side the best alternative for most of the 1,230houses affected was be to include them in expandinv existing nationalsettlements. This alternative required the formulation of an integratedrural development project, including technical and credit assistance,social services, road infrastructure, organization of producers formarketing purposes and other activities. On the Argentina side, anagreement was entered into with the Province of Corrientes whereby thelatter identifies alternatives for relocation of its rural population, anda similar agreement is expected to be signed with the Province of Misiones.

-Social Programs

27. The social programs, which will support and expedite relocation ofthe population involved, are also being carried out. Those programs callfor undertaking the following activities, among others:

(i) Information and communication to the population on characteristicsof the Yacyreta project and relocation plans;

(ii) identification and recording of needs and desires of thepopulation group involved and preparation of replies by the entityto their concerns;

(iii) individual and collective advisory services to the population tobe relocated on options offered by Yacyreta;


(iv) implementation of labor training programs to enable the localpopulation to take advantage of job facilities created by theproject; and

(v) implementation programs to familiarize the relocated populationwith their new housing, job and human environment to assist themin solving problems created by adjust-msnts during the initialresettlement 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 controlunit under the Coordination Directorate which is responsible for assessingthe efficiency and effectiveness of social programs, controlling adaptationand transformation of the groups involved and changes in quality of lifeand proposing corrective action required by the relocation plan.

-Monitoring

29. The programming, implementation and evaluation of all programsunder the relocation plan is the responsibility of a specialized unit whichperforms its functions in the work area on the right bank (Paraguay) and inthe left bank (Argentina). Each of these units is be responsible forareas: (a) road, port and railroad works and supplementary jobs; (b)housing, services and community facilities; (c) planning and administrationand relocation program; and (d) studies and projects. Under the planningand administration of the relocation program are the social and ruralprograms and all aspects of the relocation plan not involving physicalconstruction. Appropriate coordination is maintained between the twoimplementation units both in the work sites and in EBY's headquarters.

30. The degree of progress achieved by the relocation program isestimated at 30Z. Schedule for completing the component are in line withplane for filling the reservoir during November 1992.

31. Monitoring of the results of social programs is made by EBY'ssocial workers on a continuous basis. Additionally EBY has designed asurvey to assess results of the efforts made for solving problemsassociated to relocation, mitigating social distress and for evaluating theimprovement in the standards of life expected to be achieved for the majorpart of the displaced population. So far results have been very positive.For the purpose of verifying how the population affected has adapted to itsnew environment and living conditions, ex-post evaluation should be madetwo and five years after the project has been completed.



National Utilities' 1988-1989 Investment ProgramEstimate 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


EBY's Environmental and Resettlement Plan of Action

Item Description Date

1. Resettlement StaffAgreement between the !ank and EBY on number andparticipation schedule of staff hired or to behired and on the budget for every year in theperiod 1989-1992 for the environmental andresettlement component. 10/30/88 C

2. TrainingAgreement between the Bank and EBY on a trainingprogram for the staff, including courses, seminarsand workshops and international on-the-job training. 10/30/88 C

3. Panel of Experts on EnvironmentAgreement between the Bank and EBY on the compositionand schedule of meetings. 10/30/88 C

4. FisheriesCompletion of economic, social and nutritional studies. 5/30/89 CInstallation of fish station, left bank. 5/30/90 C

5. Fauna SanctuaryAgreement between the Bank and EBY on schedule andbudget for completion and operction. 5/30/89 C

6. Urban AreasCompletion of Master Plan for the city of Encarnacion. 11/30/89 CImplementation of Master Plan for Encarnacion. 6/30/90 SCompletion of sanitation lan for the city of Posadas. 6/30/89 C

7. Population not included in Original Survey of thePopulation to be ResettledProvision to the Bank of an evaluation of the extentof 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 DateS - Starting Date

ARGENTINA


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 INDICATORSworking Margin (3) a/ -3.4 8.0 -12.7 9.0 18.9 21.3 31.6 35.8 38.4 37.4 36.6Contribution 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 IIDICATORSAvg. 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 46.7Labor/Gross plant in service CX) 2.6 2.7 3.2 2.6 2.5 2.4 2.3 2.0 ".O 2.0 1.9Labor/Operating revenues () 27.4 25.1 36.7 27.0 23.8 21.4 19.8 17.7 16.2 14.9 13.8Debt service coverage (times) c/ 1.1 0.4 -0. 1 0.3 0.7 1.3 1.7 1.9 3.8 1.8 1.8Indebtedness (X) d/ 48.8 44.1 48.3 41.1 89.8 39.1 27.9 86.9 33.7 30.9 28.2Collection period (days) e/ 149.0 165.8 190.2 119.4 91.1 86.1 80.4 79.9 79.6 79.2 78.9Current 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 IIDICATORSNumber of _mployes (thousand) 34.7 84.1 34.5 36.9 86.9 86.0 38.4 38.4 36.4 36.3 386.3Custoers (thousands) 4048.1 4116.1 4228.8 4306.9 4439.2 4511.2 4687.2 4662.2 4742.2 4824.2 4908.2Custom rs/Employee 117 121 128 120 124 125 126 128 130 133 135Soles (TWh) 26.7 29.1 80.8 33.5 85.3 87.3 89.6 41.6 43.9 48.2 48.9Sales/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 3a3.2 462.4 452.8 888.4 801.6 266.4 184.6 263.2 354.7Debt service assumed by Govt. 208.2 116.4 188.2 281.9 294.7 290.0 266.6 202.3 243.7 257.9 260.0Borrovings 106.8 70.9 71.2 162.0 349.2 352.7 316.9 205.4 165.7 164.6 216.6Other 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 percentageas 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 toto net debt service. current liabilities. N

ARGENTINA


SEGBA


- - - -Historic I -Forcast -- ------Year ending Dec. 81 1965 1986 1967 19 1989 1990 1991 1992 1993 1994 1995Notes- -- --

1. BASIC FiNANCIAL INDICATORSWorking umrgin (.) */ -24.1 -1.6 -80.9 6.9 16.9 18.6 20.3 28.2 25.2 23.8 22.8Contribution 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 lNDICATORSAvg. sales price (USville/kWh) 47.7 49.0 44.1 48.2 52.0 52.5 58.8 56.4 67.4 68.6 68.6Labor/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 3.6Labor/Operating revenues (U) 27.9 22.7 37.6 24.8 21.8 20.2 18.7 17.1 16.0 16.1 14.4Debt service coverage (tines) c/ 0.9 0.4 -0.7 1.2 6.8 5.7 3.2 3.2 2.1 2.1 2.0Indebtedness (N) d/ 32.7 81.9 82.4 29.6 80.4 38.0 36.8 86.4 34.8 82.e 80.4Collection period (days) */ 80.0 74.9 67.9 61.6 57.8 56.7 61.1 51.1 51.2 51.2 51.2Paymnt 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 59.0Current ratio (time) g/ 0.6 0.5 0.5 0.6 0.8 0.9 0.7 0.7 0.8 0.8 0.93. OPERATIONAL INDICATORS

Losses (X) 21.6 21.7 21.9 19.0 16.0 13.0 18.0 13.0 13.0 13.0 13.0Number of employees (thousand) 21.7 21.0 21.6 22.9 22.9 22.9 22.9 22.9 22.9 22.9 22.9Customers (thousand) 13817.6 866.0 3763.6 3886.2 8934.0 3984.0 4034.0 4084.0 4134.0 4184.0 4234.0Custom_rs/Employes 167 175 175 167 172 174 176 178 1SO 183 1ssSales (TWh) 12.4 13.6 14.5 15.6 16.3 17.3 18.3 19.1 20.0 20.9 21.9Sales/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 0.0Debt service assumed by Govt. 0.0 0.0 0.0 52.8 58.2 58.7 28.0 58.1 0.0 0.0 0.0Borrowings 0.0 0.0 2.1 0.4 87.8 150.5 157.8 81.6 41.9 0.0 0.0Other 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 asstesas 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


Agus y Energia Electrica


…- ----------- …- -Historlc----lF--ec-------- - --------------------For-c tYear onding Dec. 31 1986 1988 1987 1988 1989 1990 1991 1992 1993 1994 1995

-- ----- - ------------- --- - --- - ------------ --

1. BASIC FINANCIAL INDICATORSWorking 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 INDICATORSAvg. 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 1.3Labor/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 INDICATORSLosses (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


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 INDICATORSWorking margin (X) 58.8 48.8 24.0 21.7 48.9 88.7 88.6 06.0 66.8 65.9 e6.9Contribution 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 INDICATORSAvg. 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 24.2Labor/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 0.8Labor/Operating revenues (U) 13.6 17.8 22.8 28.5 19.6 28.0 12.2 9.9 9.6 9.6 9.6Debt service coverage (times) 1.4 0.7 0.3 0.2 0.6 0.8 1.0 1.1 1.1 1.0 1.0Indebtedness (X) 34.8 40.3 88.6 35.9 35.8 86.6 32.7 28.8 24.4 20.3 17.0Collection period (days) 61.6 100.8 138.2 89.8 89.7 89.7 89.8 89.8 89.8 89.8 89.8Paym_nt period (days) 46.0 45.0 45.0 45.0 45.0 45.0 46.0 45.0 45.0 45.0 46.0Current 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 INDICATORSLosses (U) 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0Number of employees (thousand) 1.63 1.56 1.68 1.70 1.70 1.72 2.12 2.12 2.12 2.12 2.12Sales (TWh) 7.3 7.0 7.7 6.5 7.1 5.6 11.2 12.3 12.4 12.4 12.4Sales/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 COMMITMENTSEquity contributions 66.8 65.3 9s.9 206.8 155.6 183.8 115.8 42.8 23.8 15.0 12.0Debt assumed by Govt. 0.0 0.0 0.0 14.3 46.7 41.4 48.4 38.3 37.8 21.0 0.0Borrowings 103.1 60.0 84.7 48.7 155.4 143.5 77.7 8.4 2.5 9.3 20.1Othor 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 toas 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.



Economic Evaluation

(Constant January 1988 Prices in US$ Millions)

l"iw is. ox

lnvt.n-t -( …--Opersting Costs - Total Incrementwl Incremntal Incr_ental TotalEnergy 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 1077.11968 917.0 315.8 182.8 317.7 150.6 1663.6 so0.5 46.3 -80s.51969 1278.6 316.0 175.1 362.4 137.4 2269.5 1192.4 2.6 82.0 138.2 -1057.21990 1207.0 316.9 184.0 404.1 166.3 2296.3 1221.2 4.5 86.4 283.6 -967.41991 1055.9 322.7 192.9 332.5 172.5 2076.8 999.4 6.8 58.2 512.2 -487.21992 926.0 322.8 206.8 370.6 158.1 1960.7 903.6 10.6 60.8 651.2 -252.41993 701.9 322.2 215.0 426.7 184.7 1800.5 723.4 13.1 62.4 817.4 94.01904 688.2 321.9 227.4 368.0 291.7 2079.2 1002.1 18.4 64.4 991.8 -10.81998 991.6 321.9 236.2 857.9 426.4 2336.0 1258.9 18.1 85.6 1187.4 -71.81996 321.9 238.2 857.9 426.4 1344.4 267.3 22.0 85.6 1443.2 1178.91997 321.9 230.2 357.9 426.4 1344.4 267.3 22.0 65.6 1443.9 1175.919S9 321.9 238.2 s57.9 426.4 1344.4 217.3 22.0 68.6 1443.2 1175.91999 321.9 238.2 887.9 426.4 1344.4 2317.3 22.0 68.6 1443.2 1178.92000 321.9 236.2 357.9 426.4 1344.4 2117.3 22.0 65.8 1443.2 1178.92001 321.9 238.2 387.9 426.4 1344.4 27.3 22.0 65.6 1443.2 1175.92002 321.9 238.2 387.9 426.4 1344.4 267.8 22.0 68.6 1443.2 1175.92008 321.9 236.2 887.9 426.4 1344.4 267.3 22.0 68.6 1443.2 1175.92004 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1178.92008 321.9 236.2 387.9 426.4 1344.4 267.3 22.0 68.6 1443.2 1175.92006 321.9 238.2 357.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.92007 321.9 238.2 387.9 426.4 1344.4 267.8 22.0 65.6 1443.2 1178.92006 321.9 236.2 887.9 426.A 1344.4 267.3 22.0 65.6 1443.2 1175.92009 321.9 236.2 387.9 42 .4 1344.4 267.3 22.0 68.6 1443.2 1175.92010 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.92011 321.0 2s8.2 387.9 42.4 1344.4 267.8 22.0 65.8 1443.2 1178.92012 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.92013 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.92014 321.9 238.2 887.9 426.4 1344.4 267.3 22.0 6S.6 1443.2 1175.02015 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.92016 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 1175.92018 275.1 321.9 236.2 357.9 426.4 1619.5 542.4 22.0 65.6 1443.2 900.62019 383.6 321.9 238.2 357.9 426.4 1728.0 650.9 22.0 65.6 1443.2 792.32020 362.1 321.9 238.2 387.9 426.4 1706.8 629.4 22.0 65.6 1443.2 813.02021 316.8 321.9 238.2 387.9 426.4 1661.2 584.1 22.0 68.6 1443.2 389.12022 277.8 21.9 238.2 357.9 426.4 1622.2 545.1 22.0 65.6 1443.2 898.12023 210.6 321.9 236.2 887.9 426.4 155.0 477.9 22.0 68.6 1443.2 965.82024 256.0 321.9 238.2 887.9 426.4 1600.4 526.3 22.0 65.6 1443.2 919.92025 297.5 321.9 238.2 357.9 *126.4 1641.9 864.8 22.0 65.6 1443.2 876.42026 321.9 236.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.9207 321.9 238.2 387.9 426.4 1344.4 267.3 22 '1 65.6 1443.2 1175.92026 321.9 238.2 357.9 426.4 1344.4 267.3 22.) 65.6 1443.2 1175.92029 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.92030 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1178.92031 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1178.92032 321.9 238.2 357.9 426.4 1344.4 2M7.3 22.0 65.6 1443.2 1175.920S3 321.9 236.2 387.9 426.4 1344.4 267.3 22.0 6s 6 1443.2 1178.92034 321.9 238.2 357.9 426.4 1344.4 267.3 22.0 68.6 1443.2 1175.92035 321.9 238.2 387.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1178.92036 321.9 238.2 357.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.92037 321.9 238.2 357.9 426.4 1344.4 267.3 22.0 65.6 1443.2 1175.92038 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 44625.8INTS4NAL 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


ARGENTINA


Economic Evaluation of the Yacyreta Project

Background

1. An oconomic study carried out in 1978 under Loan 1330-AR showed thatYacyreta (2,700 MW) was part of the least-cost solutior. for expanding thecapacity of the National Interconnected System (SIN). Commissioning of theproject's 20 generation units was scheduled for the period 1985-1989. On thesebasis the Bank appraised the project in August 1978 and approved a US$210million loan (Loan 1761-AR). The total project cost, including physical andprice contingencies at December 1977 level prices, was estimated at appraisal atUS$3781 million, of which US$1519 million was the foreign component and US$2262million the local component. Generating costs of the project were estimated atUS$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 projecteconomic evaluation are no longer valid: First, demand of the SIN grew at rateswell below than expected; the appraisal estimate for demand growth during1980-1990 was 9.OZ while actual growth in the period 1980-1987 has been only3.31 p.a. and growth from 1987 to 2000 is now estimated to be about 6Z; andsecond: the opportunity cost of natural gas is currently much lower than thecost assumed in 1978; this is due to an important increase in the country'sproven gas reserves. These changes raise the question whether Yacyreta is stillin the least-cost expansion program to supply the demand.

Least-Cost Solution

3. A "with/without the project, approach was used to assess whether theproject is still the least-cost expansion solution by comparing the presentvalue of cash flows for components which would be different in both options.Because of the relatively low cost of gas in Argentina, the alternative optionselected for the case without Yacyreta consists of a group of gas-fired thermalplants which would ensure to the system a security of supply similar toYacyreta. A more comprehensive methodology would have been to produce a long-term optimized master expansion program for the SIN where completion of Yacyretatogether with all other feasible projects available for sector expansion wouldbe compared, and then see whether or not Yacyreta would be chosen. It is feltthat this academically more sound but longer and more complex method would leadto similar results given inevitable uncertainties in the evaluation of the costsassociated 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;


c) Useful life of Yacyreta: 50 years;

d) Useful life of gas-fueled steam thermal plants and combinedcycle 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 thousandcubic 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 associatedtransmission 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 suggeststhat cancelling the works would result in either foregone benefits whichcould be associated to the construction of Yacyreta or economic costs dueto the project cancellation. These cancellation costs are:

a) navigation benefits;

b) economic costs borne by contractors, consultants andsuppliers for cancellation of contracts;

c) maintenance of abandoned works; and

d) compensations to Paraguay for the revocation of theinternational treaty.

Investments

-Yacyreta

8. Investments in Yacyreta includes infrastructure works, civilworks, mechanical and electrical equipment, camps, indemnization andrelocations, and environmental programs to be executed in the period1988-1996. Investments made up to 1987 are considered sunk costs.Investments in transmission were estimated on the basis of results of themaster plan study for developing of the SIN transmission facilities in theperiod 1990-2000, financed by loan 1761-AR.


-Thermal alternative

9. The first stage of Yacyreta will have twenty 135 MW turbines for atotal rated output of 2700 MW. The average generation will be 20,200GWh/year, for a plant factor of 802. Thus, the plant is expected togenerate 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 thenortheast, in the northwest, in the Litoral area and close to Buenos Aires)which, operating 6,730 hours/years, would generate the same amount ofenergy as Yacyreta. However, as the reliability of this type of thermalplant (because of planned plus forced outage) is about 75-802, studiescarried out with the system simulation model show that it would benecessary to add about 270 MW (net) in gas turbines as reserve capacity toprovide, with equivalent reliability, the same total output as Yacyreta.

10. Total average investment costs were estimated at US$850/kW for thesteam thermal plants and at US$350/kW for the gas turbines. These costsrepresent current market values. Annu&l investments of the thermalalternative weriu prepared on the basis of: (i) the commissioning daterequired to match the scheduled commissioning dates of the 20 units ofYacyreta and which is consistent with the system energy requirements due tothe demand growth; and (ii) typical investment profiles for each type ofplant.

Operation and Maintenance (O&M)

11. O&M costs of Yacyreta were estimated by EBY (US$15 million peryear). O&M of the thermal alternative (other than fuel) was estimated asfollows: US$12.5/Kw-year for steam plants and US$9/Kw-year for gasturbines. Fuel consumption was estima:ed as the needed to replaceYacyreta's expected generation. Thermal plants efficiency was estimated as392 for steam plant. Generation in gas turbines was considered negligible.

12. The economic cost of gas adopted in this analysis is based on Bankestimates and is equivalent to about US$1.7/million BTU.

Cancellation

13. Though difficult to estimate, they cannot be ignored and will behandled as a lump sum in this evaluation. These items are:

a) Navigation benefits

Navigation benefits were estimated in the SAR at US$16 million for1985, increasing from US$16 million/year to US$59 million/yearfrom 1986 to 2005 and remaining at that level thereafter (1979price levels). The basis for this estimate was a transport studyfor Argentina and Paraguay, which was part of the projectfeasibility study. Estimates made by EBY on the basis of theoriginal study are that the present value of navigation benefits


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 andsuppliers in case of cancellation of the project.

The cost of the civil works contract, which is likely to originatemost of the potential compensation claims in case of cancellation,amounts to about US$1200 million (1983 dollars). The constructorhas mobilized about 4,500 people to the work site and hisinstalled large facilities including a cement plant, threeconcrete plants, camps, etc. Any cancellation of works wouldimply considerable expenses for the contractor as well as the lossof foregone income. Negotiations for rescheduling the works(stretching out for two years the construction period), forexample, originated a US$120 million claim from the contractor.EBY's estimates amount to US$500 million, which might be on thehigh side. A notional figure of US$120 million was taken as alower boundary for the evaluation.

c) Maintenance of abandoned works.

If the project were cancelled, no cost would be assigned tomaintenance of abandoned works. However, it would not bereasonable to lose the investments already made and leave worksunattended. It was estimated that at least an annual cost ofabout US$5 million would be required for vigilance and maintenanceof the works or US$40 million present value.

d) Compensation to Paraguay.

Any cancellation of the project would certainly originate a claimfrom Paraguay. In addition to the expected benefits fromcompensation for the energy which belongs to, but is not used byParaguay (US$656 million present value at 121 discount rate) thereis a noticeable effect of economic activity originated by theproject. Conditions of the settlement of such a dispute aredifficult to imagine. Again, as a lower bound, an amount ofUS$200 million to be paid as compensation was estimated.

e) Total Cancellation Costs

As a lower bound, the total estimated amount of costs associatedto the project's cancellation would be in the order of US$500million. Although these costs represent the present value of astream, they will be assumed to be made in the first few years ofthe period of analysis. A sensitivity analysis with US$200million cancellation costs was also made. However, the base caseassumes these costs equal to zero.


Results of the Evaluation

14. Attachment 1 presents the results of the economic evaluation forthe base case. It shows that, assuming that investments made until 1987are sunk costs, Yacyreta is the least-cost expansion solution for anydiscount rate lower than 18Z.

15. If cost overruns of 201 are assumed for the construction of theplan. Yacyreta would still be the least-cost solution at 152 discount rate.

16. The following table presents the results of the sensitivityanalysest

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 millioncancellation costs No cost overrun 23.5


: ~ARGENTINA


Economic Evaluation of the Yacyreta Project (USS million)

Versions BaseInternal 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 DifferenceIn 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 3S2.81991 297.1 66.6 36.9 286.9 268.9 77.01992 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 -428.91994 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 -477.11997 15.0 18.0 95.6 39.9 299.6 485.3 -420.3199 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 -324.72001 15.0 18.0 39.9 299.6 339.7 -324.7

2002 15.0 15.0 39.9 299.6 039.7 -324.72003 15.0 15.0 39.9 299.6 389.7 -324.72004 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 -371.92006 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 -324.72000 15.0 15.0 39.9 299.8 839.7 -824.72009 18.0 15.0 39.9 29m.6 389.7 -824.72010 18.0 18.0 89.9 299.8 339.7 -324.7

2011 16.0 18.0 39.9 29.8 6 39.7 -324.72012 15.0 18.0 39.9 29.8 0 39.7 -324.72018 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 -452.22016 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 -739.02016 15.0 15.0 857.3 39.9 299.8 809.9 -681.92019 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.52021 15.0 15.0 223.1 39.9 299.8 562.0 -547.82022 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 -324-72025 15.0 15.0 89.9 299.8 839.7 -324.7

2026 18.0 18.0 39.9 29.0 839.7 -324.72027 15.0 18.0 89.9 299.0 339.7 -324.72028 15.0 15.0 39.9 29.6 339.7 -324.7

202e 15.0 16.0 89.9 29.6 339.7 -324.72030 15.0 18.0 47.3 89.9 29.86 366.9 -871.92031 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 -324.72033 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 -324.72087 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 -16978.7IRR. 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 199SCosts: US1. &5/lW for above polnts; US$ 350/KW foe gee turbinesInveatmnt profile: 251 first year,201 second through fourth year and 15 CMfth y*ar for eta. plants

100I in the coissionning year for gee turbinesUseful 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 negligibleGlobal officiency of eteen plents: 391

Coat of ga: Us1 I 7/el l ion sTu


ARGENTINA

ELECTRIc POWER SECTOR PROJECT

Economic Evaluation of the Yacyreta Project (USS million)

Version: 202 cost overrun on Yacyreta worksInternal Rate of return: 15.04

-------------Ycyreta AlternatIve ----------- [------- Ther_l Alternativ ----- o--------- CcotYVer Inveetent. Investsnta CAN Total Investment. Oa" Fuel Total Difftrence

In In Yscyret A InYacyrets Trn_olo elonTrnsod leson Ther_l

(2) (8) (4) (S) (6)

19 5610.9 8.3 564.2 84.2299 890.9 28.0 614.2 189.4 189.4 484.0

1990 816.0 66.6 5S2.8 127.8 127.8 488.819,91 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 -268.61998 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 -464.81997 18.0 18.0 98.6 39.9 299.8 43. 8 -420.819e 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 -722.82021 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 -824.72027 15.0 18.0 89.9 299.8 889.7 -824.72028 18.0 18.0 89.9 29.6 889.7 -824.7

2029 . 18.0 18.0 89.9 299.8 339.7 -324.72080 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 -824.720o3 15.0 18.0 39.9 299.8 889.7 -324 72034 15.0 18.0 89.9 299.8 889.7 -824.7

20SS 18.0 15.0 89.9 299.8 389.7 -324.720S8 18.0 18.0 89.9 299.5 339.7 -324.72087 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 1995Costa: USI 8S0/RV for steam plants; USI 350/Kw for gas turbinesIn.eatssnt profile: 256 first year,20% scond through fourth year and 15S fifth y9er for stem plants

1OOS in the ceomissionninq year for gas turbinesUseful 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 negligibleGlobal efficiency of stems plants: 39SCost of ga: USW 1. 7/llion iMtu

ANNEX 3.4

ARGENTINA


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 Yz 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-1tf 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<mlo Ross s D //~~~~~~~~~~~~~~~0 f D //hlOt Dl Alo

f 5' ~ ~ ~ ~ 0 /y /' KItoMeTeP.5~~~k~d

< t -J ,? Los Ditisode~~~~~~~~~~~~R../hr.oPbb, 0 20 0

S; \> !, 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


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

_ 5

R 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 ~ ~ ~ ~ ~~~~~jC~~~~~~~~~~~~~~~~~hk

pl-w. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~FTRE EITN rASISO MLES:

8 d7

- ,~~~~~~~~~ ~~~~~1 U~~~ 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

World Bank Document · Document of The World Bank FOR OFFICIAL USE ONLY 1SAAi Report No. 1450-AR STAFF APPRAISAL REPORT ARGENTINA ELECTRIC …

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