This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF

THE MATUCANA POWER PROJECT OF

EMPRESAS ELECTRICAS ASOCIADAS

LIMA LIGHT AND POWER COMPANY

PERU

August 25, 1967

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CURRENCY EQUIVALENTS

US$1 = Soles 26. 82S/. 1 (1 Sol) = US$0.0371 Million Soles = US$37, 286

WEIGHTS AND MEASURES

Metric System

One kilometer (km) = 0. 6214 miles

One square kilometer

(km ) = 0. 3861 square miles

FINANCIAL YEAR

Calendar Year

TABLE OF CONTEN1TS

Page No.

SUMMARY i-ii

1. INTRODUCTION 1

2. THE ELECTRIC POWER SECTOR IN PERU 1

3. THE BORROWER 3

Organization and Management 3Associated Companies hExisting Installations 6

4. POWER MARKET 6

5. THE PROJECT 8

Hydrology 8Geology 9Characte.,stics 9Construc t,i on 9Procurement and Disbursement 9Cost Estimate 9Economic Justification 11

6. FINANCIAL ASPECTS 11

Electric Power Legislation 11Present Financial Position 13Insurance 15Auditors 15Financial Services 15Taxes 16Guarantee Commission 16Earnings Record 16Depreciation 16Dividend Record 16Funds for Public Domain Installations 16Financing Plan 17Future-Earnings 20F- turea-Financial Position 20Debt Limitation Tests 20

7. CONCLUSIONS 20

This report is based on the findings of a mission to Peru inMarch-April 1967 composed of Messrs. R.V. Sear and C. de Beaufort andupon subsequent discussions with the negotiating team from Lima Lightwhich visited the Bank in August 1967.

LIST OF ANNEXES

1. The Miantaro Project

2. Load Forecast and System Operation

3. List of Goods and Services to Be Financed fromLoan Funds

4. Balance Sheets 1962-1971

5. Long Term Debt outstanding at December 31, 1966

6. Income Statements 1962-1971

7. Sources and Applications of Funds Statements 1967-1971

8. Financial Ratios 1962-1971

Map 1 - Existing and Proposed Poaer Plants in Central Peru

Map 2 - Proposed Transmission Lines for iviantaro InterconnectedSystem

Nap 3 - Empresas Electricas Asociadas Schematic Plan of Hydro-electric Generating Plants and Water Collection System

APPRAIAL CO THE MATUCANA PWER PROJECT 0,

EM4PESAS ELECTRICAS ASOCIADAS (LIU LIGHT)

PERU

SUMMARY

i. Empresas Electricas Asociadas - Lima Light and Power Company(Lima Light), a privately owned electric utility company serving the greaterLima-Callao area in Peru, has requested a loan of US$17.5 million equivalentto finance part of the total construction cost of US$50.5 million, includinginterest during construction, of the Matucana Power Project comprising the120 T Miatucana hydroelectric plant and related transmission and distribu-tion system expansion. The loan would be guaranteed by the Government ofPeru.

ii. Three previous loans were made by the Bank to the Company viz:Loan 260-PE (1960) for US$24 million for stage one of the Huinco hydroelectricproject, Loan 365-PE (1963) for US$15 million for stage two of the Huincohydro.electric project and Loan 464-FE (1966) for US$10 million for trans-mission and distribution system expansion during 1966-68. The two stagesof the Huinco project were completed satisfactorily in 1966 and work underLoan 464-PE is progressing satisfactorily and on schedule.

iii. The Project is needed to meet forecast increases in power demandon the Company's system during 1971-73. The demand forecast is realistic,it is based upon a long experience of accurate forecasting, and shows thatthe project would be fully utilized by 1973,

iv0 The Government has signed contracts for the construction of theMantaro (684 MW) hydroelectric project which is scheduled for service in1973 at which time Lima Light would meet further increases in system demandby purchasing power produced by this project.

v0 The Company's management and staff are competent and with theassistance of consultants are capable of satisfactorily undertaking construc-tion of the project.

vi, Since 1946 Lima Light has been associated with Energia Hidro-electrica Andina (Hidrandina) S.A., a privately owned generating companywhich sells all its power under contract to Lima Light, At the Bank'ssuggestion Lima Light has re-examined its relationship with Hidrandina and,as a result, plans to acquire from Hidrandina two power plants and otherproperties that are an integral part of Lima Light's system. The transferwould take place in stages during the period 1967 through 1971, The totalpurchase price is estimated at US$14-5 mlllion0

vii. The earnings of the Company have been satisfactory and itsfinancial position is expected to remain sound* Power rates are basedupon the provisions of the Electric Industry Law which permits the Companyto earn a satisfactory return on its equityo

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viii; The financing plan for the construction period of the projectis satisfactory, Nlet earnings would contribute 27$5 percent towardsfinancing the total requirements and sales of shares and customers'contributions would bring the contribution from sources other thanborrowings to 65e,6 percent.

ix. The Matucana project would represent about 49 percent of totalrequirements under the financing plan, The proposed loan would financeimported goods procured through international bidding, consulting servicesand interest during construction for the project and would contribute 37percent towards its total costs.

xO The project would be suitable for a Bank Loan of US$17$5 millionequivalent with a term of 25 years including a grace period of five years.

APPRAISAL CF THE MATUCANA POWER PROJECT CTY

EMIEESAS ELECTRICAS ASOCIADAS (LIMA LIGHT)

PERU

1. INTRODUCTION

1.01 This report appraises the Matucana hydroelectric project ofEmpresas Electricas Asociadas - Lima Light and Power Company (Lima Light),which would consist of the 120 1MW Matucana hydro plant located on theRimac river about 80 kn from Lima (see Map 1), a double circuit 220 KVsteel tower transmission line to convey the power to the city, 220 KVsubstations and associated distribution system expansion.

1.02 The estimated total cost of the project would be about US$50.5million equivalent and the Bank has been requested to finance US$17.5 millionrepresenting the cost of imported goods procured through internationalcompetitive bidding, consulting services and US$1,5 million of interestduring construction.

1.03 The project has been approved by the National Planning Instituteof the Peruvian Government as being acceptable in the national developmentplan. The Government of Peru will guarantee the loan.

L.04 This report is based on the findings of a mission to Peru inMarch-April 1967 composed of Messrs. R,V, Sear and C. de Beaufort and uponsubsequent discussions with the negotiating team from Lima Light whichvisited the Bank in August 1967.

2e THE ELECTRIC POWER SECTOR IN PERU

2.01 The electric power generating plants in Peru may be groupedunder the following four main categories:

Installed Capacityin MW

(a) Private companies serving the public 580

(b) Captive plants in private industry andmining 696

(c) Government owned autonoacus corporations 163

(d) Small goverment owned plants supplyingrural population centers (ServiciosElectricos Nacionales, SEN) Li

Total 1470

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2.02 Lima Light and its associate Energia IHidroel6ctrica Andina S.A.(HIDMIAMNA) combined, is the largest of the private companies and accountsfor 85% or 492 MW of the generating capacity in that category.

2.03 The Government has in the past participated in the electric sectorthrough its autonomous regional development corporations which have con-structed a total of about 163 IMR of plants within their own territories.The Government has also been constructing small plants and systems toprovide some service to the many small rural population centers scatteredthroughout the country. Servicios Electricos Nacionales (SEN), whichobtains its funds from the national budget, was formed in 1966 under theYinistry of Public Works to take over and operate these small plants andsystems. It has also undertaken to continue the construction of such smallrural plants for the Government and to promote a program of rural electri-fication. At present some 200 plants with a total capacity of only 31 MWare operated by SEN.

2.34 In 1961 the Government formed the Mantaro Corporation (C0OM-AdN)for the purpose of developing the N4antaro valley and in particular theelectric power potential of the Mantaro river. A contract was signed witha consortium of European firms to construct and partially finance theMantaro power scheme. However, this contract was cancelled in 1966 and anew contract signed the same year with a group of Italian firms to constructand partially finance the first stop (68 4 .',) M the p. o,jct, at what a:eclaimed to be more advantageous conditions for Peru. See Annex 1.

2.05 This is the Government's fi:st major project in the power fieldand would include about 1,000 km of 220 kv transmission lines to connect thceMIantaro power plant with Cerro de Pasco, Lima, Ica and M,1arcona to form aninterconnected system for Central Peru. See Hap 2.

2.06 The N;antaro project is scheduled for completion in 1973 andalthough it appears technically feasible some final design details stillremain to be clarified. It would therefore be reasonable with a projectof this large size, located in a relatively inaccessible part of the highAndes, for Lima Light to make provision for additional capacity in theevent that the project is delayed, since the power demand forecast for itssystem shows that the Matucana plant would be fully loaded at about thetime I4antaro is presently scheduled to be ready for service.

2.07 Lima Light is therefore making preliminary studies of severalhydroplants which might be built should they be needed. The oil companiesare also actively pursuing the further exploration and proving of naturalgas sources, in the Aguaytia region, which may provide an economical fuelsource for a thermal plant. Thus, in the event of Mantaro being delayedone of these other alternatives could be constructed, although this decisicnneed not be taken until 1968-69 when more will be known of the progress atMMantaro and of the availability of adequate quantities of natural gas.

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3. THE BORROWER

3.01 The Borrower would be Empresas Electricas Asociadas - Lima Lightand Power Company, a privately owned public utility corporation responsiblefor supplying electric service in the Greater Lima area. Its head officeis situated in Lima, The loan would be guaranteed by the Government ofPeru as was the case in previous Bank loans to Lima Light,

3.02 The Company was originally incorporated under Peruvian laws in1910. Lima Light's present concession was granted by the Peruvian Govern-ment in 1956. It is valid for a period of 50 years and gives the Companythe exclusive right to generate and distribute power within the concessionarea. Since 1956 the concession area, principally Greater Lima and the portof Callao, has been increased on five occasions at the Government's requestto bring it from less than 500 kmZ to its present area of 2,850 km2 .

3.03 At the end of 1966 Lima Light had outstanding SI 1 billion ofcommon shares and $10 million of preferred shares, Until recently themajority of the share capital was owned by a Swiss group of public utilityholding compani-es and bauks. The sales of shares in Poru have graduallyincreased Peruvian ownerphip to over 3,000 shareholders who hold about 58%of the stock. However, the Swiss group, holding about 32% of the stock,in effect still controls the Company, The remaining 10% of the stock isheld by other investors outside Peru.

3.04 The Bank has made three previous loans to Lima Light:

(i) Loan 260-FE (1960) for US$24 million for the first stiage of theHuinco (120 Mr3) hydro plant and the Marcapomacocha diversion.The project was completed satisfactorily.

(ii) Loan 365-PE (1963) for US$15 million for the second stage of theHuinco (120 MW) hydro plant and the Marcapomacocha diversion anddistribution system expansion. The project was completed satis-f actorily in 1966.

(iii) Loan 464-FE (1966) for US$10 million for transmission and distri-bution system expansion during 1966-68. Satisfactory progress isbeing made on this project which is on schedule and about 30 per-cent complete.

3.05 Lima Light's performance under the three previous loan agreementshas been satisfactory.

Organization and Mangement

30o6 Lima Light's Board of Directors has 15 members, including theGeneral Manager and three alternate directors, A majority of the directorsreside in Lima,

3.07 The General Manager is the Chief Executive of the Company, He isassisted by an Associate General Manager and four departmental managersin charge of planning and new works, operations, commercial services, andgeneral administration and finance0 The Associate General Maunager is incharge of the department of general relations and the Secretariat. At the

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end of 1966, the Company had 3,176 regular employees serving 293,000customers, giving a satisfactory average of 135 customers per employee

3.08 The Company has a satisfactory organization and its relationshipwith the authorities and public is good. The top management is experienced,and in fulfillment of the conditions agreed to under Loan 464-PE (1966),steps are being taken, with the assistance of consultants, to improve theefficiency of operations involved in the middle level of supervision.

Associated Companies

Hidrandina

3e09 Energia Hidroelectrica Andina (Hidrandina) S.A. with its HeadOffice in Lima was established in 1946 by the Swiss holding group (paragraph3.03) which still owns the majority of its shares, for the purpose offinancing, constructing and operating hydro-power plants, At that timeLima Light had a closed mortgage securing its debt which prevented it fromobtaining loans in the substantial amounts required to finance the expansionof its generating facilities,,

3.10 Hidrandina constructed two hydro plants, Moyopar.pa and Huampaniand all power generated by these plarnts is purchased by Lima Light0

3.11 During negotiations for loan 464-FE the Bank suggested that LimaLight should re-examine its relationship with Hidrandina, in vi..w of thefact that the latter company's power plants and other properties are anintegral part of Lima Light's system, In making this suggestion the Bankalso took into account that Hidrandina, by constructing a plant 1/ inanother concession area, was about to serve other interests in addition tothose of Lima Light, This would require arrangements for the division ofHidrandina's expenses between two separate systems, Moreover, transfer ofthe Moyopampa and Huampani plants to Lima Light, would eventually result inan increase in the latter's net internal cash generation (paragraph 3.15)l

3.12 Towards the end of 1966 the Company submitted the following planto the Bank for the acquisition of Hidrandina properties:

Property to be Proposed Datetransferred of Transfer

Stage 1 Rimac River Derivation June 30, 1967

Stage 2 Huampani Power Plant June 30, 1968

Stage 3 Moyopampa Power Plant 1970 or 1971

1/ Construction started in March 1965 on a hydro plant on the Pativilcariver, about 1l0 miles north of Lima.

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The price to be paid by the Company would be the residual book value ofthe assets at the time of transfer. The total amount involved is esti-mated at $14.5 million. The Company has confirmed that the need for fundsto assure that the Matucana Project will be carried out has priority overits purchase of Hidrandina assets. Until all the properties are acquiredby Lima Light the new contract dated January 4, 1967 regulates Lima Light'spurchases of Hidrandina power.

3.13 The Swiss group that controls Hidrandina takes the attitude thatits properties may only be sold if they can be substituted by other investmentsin electric power 0 The proceeds from the sale of the Rimac River Derivationare being used by Hidrandina to finance construction of the Pativilca plantsA payment of Si 50 million to be made in 1967 on account of the sale of theHuampani plant will be used for the same purpose0 Further payments on accountof the Huampani plant will be made in annual installments and would probablybe invested by Hidrandina in Pativilcals distribution system, Preliminaryconsideration is being given to other investment possibilities which wouldpermit the sale of the Moyopampa plant.

3.14 Depreciation on Hidrandina's properties, which would be acquiredby Lima Light, is now paid for by Lima Light as part of the cost of powerpurchases. From the date of each transfer of properties this depreciationwill become a non-cash cost charge and be an additional source of fundsin Lima Light's cash flow. On the other hand Lima Light will have to bearthe costs of the operation and maintenance of the properties, an increasein its cr-erhead expenditure and of dividends and debt service on new sharesand debentures placed to finance the acquisition. On balance, Lima Light'scash flow should improve as the result of each transfer and assuming that theadditional cash flow during the acquisition period will be used to help payfor the last two stages of the transfer of properties, the acquisitionprogram would be financed as follows:

Sales of preferred shares Si 133.2 million

Sales of common shares 63.5 I

Sales of debentures 50.1 "

Additional cash generated underthe acquisition program duringthe period 1967 through 1971 112.6 "

Limra Light's internal cashgeneration 31.6 "

Total purchase price SZ 391.0 million

3.15 After the completion of the acquisition program, in 1971, theanmual net increase in Lima Light's cash flow is estimated to amount toS/ 63 million (US$203 million).

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3.16 Prior to each transfer of assets, the Borrower will cbtain theBank's agreement with the manner in which such transfer would be financed.The Borrower has also agreed to consult with the Bank should any problemsarise in the execution of the acquisition program. This arrangement issatisfactory to the Bank.

Atelsa

3.17 In 1965 Atencion Electrica S.A. (ATELSA) was founded to operatethe portions of the distribution system owned by Lima Light which arelocated in the more remote and ner parts of its concession area and in thenewly settled low income areas inside Lima. Atelsa has provided a meansof operating these service areas in an economical manner by using the morerudimentary methods and facilities required in the initial development ofnew areas. Lina Light would not be able to do this under its laboragreements and other regulations. Atelsa obtains its revenues from feesand commissions paid it by Lima Light for services rendered. The principalshareholder in Atelsa is Latinalux (paragraph 6.21).

Existing Installations

3.18 The generating capacity of the system was 485 Yd at the end of1966, installed in one thermal plant (68 IV) and six hydro plants (417 W).Of this total only about 115 IjB was installed prior to 1955; since then370 FI has been added including 240 MZI during 1965 and 1966 in the Huincohydroelectric plant. See Maps 1 and 3 for plant locations.

3.19 The transmission and distribution system has been expandedcontinuously to meet increased demand and to transport power from the hydroplants to the load center in the Lima-Callao service area. This system isin good condition and is adequate to meet present system requirements. BankLoan 464-PE (1966) was made to finance the transmission and distributionsystem expansion for 1966-68. This work is progressing satisfactorily.

4. PaIER MARKET

4.01 The population in the Company's concession area (greater Limaand Callao) is about 2,800,000 or 24 percent of the total population ofPeru, The area is the main administrative, commercial and industrialcenter and principal power market of Peru. It contains 85 percent of thepower capacity serving the public and about 20 percent of the captiveplants, or about 42 percent of all the power capacity in the country,

4,02 The following figures for 1966 illustrate the extent of thismarket:

Maximum Demand 291 M

Annual Increase in Maximum Demandwith respect to 1965 11.9%

Annual Average Load Factor 59.3%

Installed Capacity 485 MiWSystem Losses 10.4%

Total Power Generation 1,423.1 GWh

Increase in Generation over 1965 11.8%

Classification and Number of Customers and Energy Sold:

Classification Number of Increase Energy Sold IncreaseCustomers In millions of kwh

1965 1966 % 1965 1966 %

Residential 214,844 229,961 7.0 390 422 7,9

Commercial 53.,448 56,146 5e0 250 279 11.2

Industrial 3,518 3,753 6.7 441 506 14.5

Public Lighting 691 _ 791 14-5 54 62 14.8

Total 272,501 290,651 6.7 1.135 1,269 11.8

4,03 The Mantaro project being built by the Government would startto create a power market for central Peru which would include Lima Light'spresent market. The Government plans to construct the first stage of Mantarc(342 MW) for service in 1973 and, as demand develops, to install threeadditional 114 ItV units to complete the project to its full capacity of684 HW, estimated to meet market requirements for the Central region untilabout 1978-80.

4.04 The immedia-te problem is to satisfy Lima Light's existing powermarket until Mantaro is available. This market had an average annualrate of growth of about 10% during the past 20 years increasing to 12%in 1966 and 14% during the first 6 months of 1967.

4.05 The method of load forecasting used by Lima Light is based upona continuous review of the market trends and provides a satisfactory basi.sto determine the generating capacity needed to meet system demand economi-cally. See Annex 2 for further detail, Resulting from the forecast the

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average rate of growth is about 10 percent per annum and at this rate itis estimated the existing system generating capacity would be fully utilizcdby 1970, A plant of about 100 NW capacity would then be required forservice in 1971, to meet forecast demand until 1973 when it too would befully loaded and the N4antaro project should be in operation to supply furthermarket needs.

h.o6 The Government proposes to complete construction of the Lima - lcasection of its 220 kV transmission system by 1968-69 and has asked Lima Lightto sell power to this transmission system until Mantaro is in service.Initially the power demand will not be very large, about 10-20 MW, but theGovernment's purpose in making power available to the Ica area is to fosterits general development and to permit the conversion of the existingirrigation pumping load, estimated at 40 M., now served by high cost captivediesel plants to purchasing power from the Mantaro system. The Mantaroproject would also be available to serve the demands of mining companies inthe area.

5. THE PROJECT

5.01 The Matucana project would consist of:

(a) an intake and sand trap on the Rimac river at Tamboraque,

(b) a 20 km free flow tunnel 3 meters in diameter from the intaketo the forebay,

(c) a 1,700 meter long steel penstock to convey the water from theforebay to the power station,

(d) a power station in which two 60 M@ turbine-generator unitsoperating under a head of 960 meters would be installed,

(e) an 80 kim, 220 kV double circuit steel tower transmission lineto connect the power plant to Lima,

(f) 220 kV substation expansion in Lima to receive the power fromthe Matucana plant,

(g) Distribution system expansion during 1969-70.

5002 The proposed Matucana power plant and Lima Light's existing plantsare all located on the Santa Eulalia and Rimac rivers. See iHap 3e

Hzdrology

5-03 Since the water of the Rimac river has been used in the Company'splants for over 30 years and continuous detailed records are available, the.expected flowT can be predicted reliably.

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Geology

5.04 The geological formations in which the Hatucana tunnel is to bebuilt are in the same general area as the existing plants. Therefore thegeology is well known and no unexpected problems are anticipated.

Characteristics

5.05 Matucana would be essentially a run of the river plant since nostorage reservoir can be built. However, the forebay is designed to provide30,000m3 of pondage which is sufficient to provide some peaking capacityduring the morning and evening peak hours. The plant would have a maximumcapacity of 120 M1J and a firm generation of 440 Gwh annually.

Construction

5.06 The plant would be constructed, in the same manner as the existingplants, by using local contractors and subcontractors under the supervisionof Lima Light's consultants, Motor. Columbus, who designed the project. Thisarrangement has been satisfactory in the past and is acceptable for theproposed project, particularly since the principal item of civil works istunnelling in which Peruvian contractors have considerable experience. Theconstruction program is reasonable and provided contracts are placed asscheduled the project should be in operation in 1971 as planned.

Procurement and Disbursement

5.07 The proposed loan would be used to finance the foreign exchangecosts of equipment, consulting services and interest during construction.It would not finance the work carried out by local contractors. All goodsto be financed with the loan would be procured in accordance with the Bank'snormnal standards for international competitive bidding. Peruvian suppliersmay compete in that bidding, and would be allowed a 15 percent margin ofpreference over the CIF landed cost (excluding customs duties), but if theywere successful Lima Light lwould use resources other than the Bank loan tofinance purchases from them. If the actual costs of the goods financed bythe loan turned out to be less than estimated, the Bank would be able toexercise its right to cancel the undisbursed balance.

Cost Estimate

5.08 The total cost of the project, including interest during construc-tion is estimated at S/ 1,364.4 million, US$50.5 million equivalent, of whichabout US$16.0 million equivalent would be the cost of imported services andgoods procured through international bidding and US$1.5 million equivalentof interest during construction due to the Bank.

5.09 The estimate prepared by Lima Light with the assistance of theconsultants is based upon known costs of the Hluinco plant, completed in ll9O6adjusted for cost increases anticipated by the time the actual work iscarried out and variations in cost due to the physical differences in thetwo projects. The estimate is realistic and satisfactory. In view of thisup to date knowledge of construction costs, the overall contingency item {fabout 10 percent which has been included in the cost estimate, is conside.Ledadequate.

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5.10 A Sunmary of Project costs follows and a List of Goods and servicesto be financed from the proposed loan is attached as Annex 3e

Local TotalI tem Currency Foreign Exchang Cost

US$S 0SI. Equivalent U

(i n m i 1 1 i o n s)

1. Preliminary Works 44.1 0.3 0.01 44°4

2. Civil Works

Intalce 63.2 5.4 082 6886Tunnel and Forebay 315.4 27.0 10 342.4Valve Chamber 29.8 5.4 02 35.2Penstock 630o 35.0 1.3 98.0

3. Powerhouse

Civil Works 47.e6 5.4 0,2 53.0Electrical andMechanical Equipment 42.6 127.0 4.7 169,6

4. Construction Equipment 5.0 13.5 0.5 18,5

5. 220 KV Transmission Line 48.5 48.5 138 97.0

6, 220 KV Substations 29.7 54.o 2.0 83.7

7. Communication System 10.8 14.8 0.55 25.6

8o Meters 5.4 16.2 o.6 - 21,6

9. Distribution Cables 8.1 9.4 0,35 17.5

10. Consulting Services 39.7 29.7 1.1 69X4

ll Interest and Other Charges 56.5 40.5 1.5 97.0

12. Contingencies 82e4 41 .5 122.9

TOTAL 891.8 472.6 17.50 L364,4

U.S. $ equivalent (33,0) (17,5) (50.5)

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50J1 The cost of the project would be US$317 per kw excluding thetransmission line and distribution works. This cost is reasonable.

Economic Justification

5.12 The possibility of using thermal alternatives, conventionalsteam or gas turbine plants, to the Matucana plant were examined anddiscounted cash flow comparisons of the costs made, The possible availa-bility by 1971 of natural gas for use as the fuel for the thermalalternatives was taken into consideration. These studies showed that theMatucana plant is economically more advantageous than any of the thermalalternatives at discount rates below 12%.

6. FINANCIAtL ASPECTS

Electri6 Power Legislation

6.01 The supply of electric power in Peru is regulated by the ElectricIndustry Law of July 1955, which provides for periodic tariff adjustanentsaimed at producing a profit of 11-jg on the common share capital and freereserves of large electric power companies and, by Special Resolution, of91a on their preferred capital. Of such profit, dividends of 8k9 oncmmaon shares, an equivalent portion credited to free reserves anddividends of 8% on preferred shares are deductible in computing thecompaniesI taxable income.

6.02 Tariffs are subject under the Law to a review every three yearsbut may be revised at shorter intervals at the request of the company orthe State electricity authority. Reviews are made by the National TariffCommission, a body of seven members appointed by the President cf Peru 'unaccordance with regulations to ensure the competence of the members and areasonable degree of independence of the Commission.

6003 The Law provides in the review of tariffs for the revaluation ofinstallations on the basis of current replacement value as determined bytechnical appraisers nominated by the National Tariff Commission and theCompany. The revaluation increment relating to the Company's installationsis applied to an adjustment of the corresponding depreciation reserves inthe same proportion, to the reserve for eventual exchange losses on foreigncurrency obligations, and to increase equity.

6.o4 Since the Law came into force, the Company's assets in operationhave been revalued four times; in 1956 by almost 100%, in 1959 by 27%, in1961 by 14% and in 1965 by 8.5%. In each case the revaluation was followedby a tariff increase; the most recent, of approximately 20%o went into effect.in January 1966. As a result, the average revenue per kwh increased fromSi 0.601 (US mills 22.4) in 1965 to SI 0.723 (US mills 27.0) in 1966,

6.o5 The first ten years of operation within the framework of the Lawhave proved that it has adequately protected the Campany under rapidlychangjng economic conditions. During this period the Company has been

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able to attract all the funds it needed for its rapid expansione Theperiodic revaluations and tariff revisions have enabled it to adjust torising prices and wage levels and to maintain regular dividends on agreatly enlarged share capitalo

6.06 Because of the adequate provisions of the Law under which electricutility tariffs are regulated in Peru, the Bank has not applied its usualrate covenant in its loans to Lima Light. This situation is satisfactorywhile the Law is not repealed, or amended in a manner detrimental to LimaLight. During negotiations for Loan 46h-PE in 1966 and again during thenegotiations for the proposed loan, the Government agreed to inform the Bankof any proposed changes in the Law and to give the Bank an opportunity tocomment. In order to provide additional protection for the Company and theBank in the event that changes are made in the Law, which would adverselyaffect the Company, a provision has been incorporated in the agreement forthe present loan whereby any adverse change would be an e.ent of doi:Lalt.

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Present Financial Position

6.07 The following is a summary of the balance sheet at December 31,1966:

ASSETS (in millions of Soles)

Utility Plant - Gross 4,338

Less: Accumulated depreciation 1,063

Utility Plant - Net 3,275

Investments 8

Current assets 307

Deferred debits and other assets 32

Total Assets 3,622

LIABILITIES AND EQUITY

Share Capital

Common, 10,000,000 shares par S/. 100 1,000

Preferred, 1,000,000 shares par US$10 268

Total share capital 1,268

Exchange Equalization Reserve 211

Other reserves and earned surplus 29

Total Equity 1,508

Long-term debt:

Sinking Fund Debentures 6& and 7%due 1972 to 1979 558

IBRD Loan 260-PE 6% due 1985 600IBRD Loan 365-FE 5½1-f% due 1988 392IBRD Loan 464-PE 6% due 1986 66

Sub-total Secured Debt 1,616

Two-year Dollar Notes 148Suppliers' credits 8Local debt 3

Total Long-Term Debt 1,775

Current liabilities, including currentmaturities of long-term debt 330

Deferred credits 9

Total Liabilities anid Equity 3,622

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6.o8 Utility Plant is stated at replacement values determined in1965 by the National Tariff Commission with subsequent additions addedat cost.

6.09 The common share capital has risen from SI. 617.6 million toS/. 1 billion during the last three years, representing an increase of62%. Of this increase S/. 230.7 million was represented by sales of newshares or conversion of preferred shares, (paragraph 6.10) while bonusshares totalling S/. 74.0 million were issued out of the revaluationincrement for 1965 (see paragraphs 6.03 and 6.04) and S/. 77.7 million outof earned surplus corresponding to distribution of "commercial profit".

6.10 Preferred shares are denominated in US dollars, they areentitled to a fixed cumulative annual dividend of 8% and are convertibleat the option of the holder into common shares. They were first issuedin 1960 for a total amount of US$6 million. Since then additionalpreferred shares were sold in Peru and Switzerland in two issues of$3 million in 1962 and of $1 million in 1963.

6.11 The Exchange Equalization Reserve of S/. 211 million which hasbeen built up from the surplus arising from the periodic revaluations ofthe Company's installations, may be used only to off-set losses from therestatement of foreign currency liabilities at current exchange rates.

612. Long-term debt totalled SI. 1,915 million including currentmaturities of S/. 140 million. Details of the debt are given in Annex 5.All but 11, of the debt was issued under an open-ended indenture createdin 1957 with Schroder Trust Company, New York, as trustee. This part ofthe debt totalled S/. 1,697 million and is secured by a first floatingcharge on all property, present and future. A second floating charge hasbeen granted in favor of the Republic of Peru as security for guaranteeingBank loans. The secured debt included five series of 15 year debenturestotalling S/. 611 million, equivalent, mainly placed with the Swiss holdinggroup and to a lesser extent in Peru, where they are widely distributed,and in the United States. Each series was originally issued for US$6million except one which amounted to Swiss Francs 25 million (US$5.8 millionequivalent). Debt service on each series is paid in equal semi-annualinstalments calculated to retire the series within a period of 15 years.Interest rates are 7% for the Dollar and 6&;: for the Swiss Franc debentures.

6.13 Also issued under the 1957 trust indenture and included in thesecured debt were IBRD loans 260-PE, 365-PE and 464-PE, represented re-spectively by series D, series F and series H debentures, to a totaldisbursed amount of S/. 1,087 million equivalent. Series D and series Fwere for a term of 25 years and series H for 20 years, at interest ratesof 6, 5_ and 6% respectively.

6.14 The issue of additional debentures is limited, under the indenture-)by earnings and assets tests which require that actual net income for arecent 12 month period be at least 1505% of annual interest charges onexisting and proposed debentures and other funded debt, and that nettangible assets at the time of a proposed issue be not less than 150,% ofdebentures and other funded debt, outstanding and proposed.

- 15 -

6.15 A supplemental indenture will be issued for the purpose ofsecuring a new series comprising the proposed Bank loan which would rankequally with the existing debentures as to security.

6.16 Unsecured debt totalled S/. 217 million, its largest componentconsisting of two-year 6% dollar notes outstanding in the amount ofUS$5.5 million. These notes were issued in 1965 and were placed in Peru,Switzerland and the United States. They are convertible at the optionof the holder into long-term debentures to be issued during their term.Trustees for these notes are the Banco de Credito del Peru and thePrivatbank of Zurich.

6.17 The remainder of the unsecured debt included:

(a) three 6% /7% credits from Brown Boveri and Companytotalling Sw.F2.0 million, repayable within three yearsand covering the purchase of equipment,

(b) an 8% loan from the Banco Industrial, Lima, for US$600,000repayable in 1967, and

(c) a non-interest bearing loan from the Junta Nacional de laVivienda. The outstanding balance of S/. 3.5 million isrepayable in instalments prior to 1972.

The two latter loans are financing properties administered by the Fundfor Third Parties Installations (paragraph 6.27).

6.18 Lima Light's negative current position was gradually reducedfrom S/. 94 million at the end of 1963 to S/. 23 million at the end of1966. In view of the availability to the Company of short-termfacilities from local and foreign banks as well as from the Swissholding group, a limited negative current position is not serious.

Insurance

6.19 The Company maintains adequate coverage against losses andliability, as required under the 1957 indenture.

Auditors

6.20 The financia'L statements of Lima Light are audited by PriceWaterhouse, Peat and Co. The Company will continue to have its accountsaudited by a firm of accountants acceptable to the Bank.

Financial Services

6.21 Latinalux, a Peruvian company controlled by the Swiss holdinggroup, maintains a market in Peru for Lima Light's shares. Itsoperations appear to have had a beneficial effect on the volume of salesof new shares by Lima Light. Latinalux is the principal shareho'lder inAtelsa (paragraph 3.17) and also provides advisory services of a financiaLand legal nature to Lima Light and Hidrandina.

- 16 -

Taxes

6.22 The principal taxes affecting the Company were frozen at therates applicable when the Electric Industry Lawi (paragraph 6.01) becameeffective. The profits tax rates, with a maximum of 20%, will remainunchanged during the lifetime of the concession. Legal dividends anddebenture interest are exempt from withholding taxes. Other distributionsof profit are subject to a 15>% withholding tax but in the case of acapitalization of profits the rate is reduced to l0g.

Guarantee Commission

6.23 The Ministry of Finance charges an annual guarantee commissionof L/4% on outstanding balances of Bank loans made to the Company.

Earnings Record

6.24 The framework for tariffs set up in the Electric Industry Law(paragraph 6.01) is intended to produce revenues which will cover allcosts and provide a fixed return on equity. During the five-year periodto December 31, 1966, for which summaries of income statements are givenin Annex 6, Lima Light succeeded in maintaining a reasonable margin ofearnings above those required for dividend payments at the legal rates.During the five-year period interest was covered 1.7 times by gross income.

Depreciation

6.25 Depreciation is calculated on the replacement cost of assets, asdetermined by the latest revaluation, at percentages based on their usefullife. Tne resulting rate of depreciation on average gross plant inoperation during 1966 was 3.6%, which is satisfactory.

Dividend Record

6.26 Dividends on preferred shares (which were issued for the firsttime in 1960) have been maintained at an annual rate of 8%. On commonshares dividends have been paid since 1956 at an annual rate of 8½2%. Inaddition bonus shares are distributed from time to time to incorporateinto share capital increases in surplus resulting from revaluations ofassets and retained earnings.

Funds for Public Domain Installations

6.27 The Electric Industry Law and its corresponding regulationsprovide for the creation of an "Expansion Fund" and a "Third Parties Fund".All installations financed by these funds will not be owned by theconcessionaire but will become part of the public domain.

6.28 The Expansion Fund was set up to finance the high tension distri-bution system outside the initial zone of the concession area. It obtainsfunds from contributions from customers, set by Government, and from con-tributions by the Company. The Company's contributions may not exceed 5%of the annual investment in the high and low-tension distribution system,including installations financed by third parties. They have been pro-visionally agreed with the National Tariff Commission at SI. 13 million andS/. 15 million for the years 1967 and 1968.

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6.29 The Third Parties Fund was created for the purpose of controllingexpenditure on the lo01 tension distribution system throughout the concessionarea and is financed by customers' contributions based on various governmentapproved charges. The balance of funds available in the Third Parties Fundis regulated by revisions in the charges. In addition to installationsfinanced by the Fund all installations handed over to the Company andrecorded by the Fund, become public domain property.

6.30 The Company is required annually to charge income with a per-centage of the total value of public domain installations. This amount,which is denominated depreciation, may be used only for the administration,replacement and expansion of the public domain installations. Until 1965the annual charge was 1% or less, but for 1966 and subsequent years thepercentage was revised to approximately 251 by agreement with the NationalTariff Commission.

Financing Plan

6.31 During the construction period of the proposed project thereservoir below the Huinco plant will be completed, final payments willbe due on the Marcapomacocha project, and the distribution system willcontinue to expand. In addition two stages of the acquisition plan forHidrandina properties would take place during this period and result inpayments totalling S/. 225 million. Provisions for increases in WorkingCapital and in the Fund for Social Law Benefits will add S/. 80 mil'ionto the requirements which may be surimarized as follows:

FINANCING PLAN

Requirements of funds duringthe years 1967 through 1970 (in millions of Soles)

Construction Program (excLuding interest)

Huinco reservoir 80

Marcapomacocha Stage II 5

Matucana project 1,267

Distribution 1,031 2,383

Acquisition of Hidrandina properties

Rimac River Derivation 130

Huampani plant 95 225

Working Capital provision 56

Increase in Fund for SocialLaw Benefits 24

Total requirements 2,688

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The Company plans to finance these requirements in the following mamner:

Sources of funds duringthe years 1967 through 1970 (in millions of Soles)

Internal cash generation 2,337

Less: Debt Service l1Oh4

Dividends and Bonuses 513

Financing expenses 4o 1,597

Net internal cash generation 7h0

Customers' contributions 598

Sales of shares

Common shares 250

Preferred shares 170 420

Sale of investment securities 5

Borrowings

IBRD Loan 464-PE 202

Proposed IBRD Loan 472

Future debentures 317

Two-year notes 117

Future distribution financing lo8

1,216

Less: Repayment of Bankoverdraft and Two-yearnotes 291 925

Total sources 2,688

6.32 The GUW will consult the Bank as to any changes it proposes tomake in the Financing Plan.

6.33 Internal cash generation, net of debt service, cash dividends andfinancing expenses would finance 27.5%' of the requirements. This rate isacceptable in view of the sizable contributions from customers and the salesof shares, iwhich irll enable the Company to finance 6/5.6% of the requirementsfrom sources other than borrowings.

6.3h The Company offered US*6.3 million (S/. 170 million equivalent) ofF3%preferred shares for subscription during April 1967. The issue was success3f^ii.and 94.F8J was placed with existing shareholders who exercised their options.The acquisition of the Rimac River Derivation was paid for from the proceedoof this issue.

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6.35 It is assumed that sales of common shares will total SI. 250million and cover about 9% of the requirements.

6.36 Borrowings net of the repayment of a S/. 40 million bank over-draft and the funding of S/. 251 million of two-year notes, wsould con-tribute S/. 925 million or 34.4% of the financing. Borrowings would consistof:

(a) $7.5 million, the undisbursed balance of Loan 464-PE,

(b) $17.5 million, the proposed Bank loan, assumed to be for aterm of 25 years, including a grace period of 5 years andinterest at 6%. In financing the foreign exchange costs ofthe Matucana project the loan would contribute 37% towardsthe total cost of the project,

(C) Sw F 25 million (us$ 5,8 million) of 7TO 15 year debentures,to be offered to the public during the second half of 1967.The purpose of this issue is in the first place to fund thetwo-year notes outstanding in the amount of $5.5 million.Holders of about $4 million of these notes have alreadycommitted themselves to convert their notes into debentures,

(d) $6 million of debentures, to be offered to the public during1969,

(e) future financing to the extent of S/. 108 million for additic'nsto the distribution system in 1969 and 1970,

(f) $4.3 million of two-year notes to be placed during the secondhalf of 1967. The Swiss group (paragraph 3.03) is takingmore than half of these notes and has undertaken theobligation either to extend $0.5 million of them in 1969 orto convert them to a long-term loan. Peruvian financialinstitutions are taking $2 million of the notes.

6.37 In view of the satisfactory markets existing for the Company'sshares and debentures in Peru and Switzerland and the active participationof the Swiss holding group in financing the Company there is no reason todoubt its ability to place these securities.

6.38 The issue mentioned in 6.36 (c) will have to be sold before theproposed loan becomes effective. In addition the Company has confirmedits intention of arranging the debenture issue mentioned in o.36 (d) andthe financing to the Bank's satisfaction of the 1969 and 1970 distributionsystem requirements. As in the case of previous Bank loans the Companywill also undertake to offer shares for subscription if needed to carryout and complete the project and to provide adequate working capital.

6.39 The Sources and Application of Funds Statement for the years1967 through 1971 is shown in more detail in Akmex 7.

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Future Earnings

6.40 Forecast income statements for the five years through 1971 areshowrm in Annex 6, and a surmmary Of the important financial ratios is givenin Annex 8.

6.41 Operating revenues have been calculated on the estimated increaseof sales at 14% during 1967 and at 10% per year subsequently. It has beenassumed that the tariffs will remain at their present level.

6.42 Operating expenses have been estimated by separate analysis ofthe major items. An annual increase of about 15% in personnel expensesis included, which is in line with the Company's experience in previousyears.

6.43 Although depreciation is projected at an average annual rate ofup to 5c% it is expected that the actual charges to be made would be about4)-, which would be satisfactory. Accordingly, the projected amounts underthis item include a margin.

6.44 Coverage of interest would be about 2.1 times in 1967 through1970 with an improvement to 2.3 times in 1971. The rate of return on netutility plant in operation would average about 8.9%.

Future Financial Position

6.45 The financial position of the Company is expected to remain sound.The ratio of debt to total capitalization is expected to improve from 53%at the end of 1967 to 48' at the end of 1971. Incurrence of excessive debtwould be prevented by the provisions of the indenture (paragraph 6.14).The projected current position is satisfactory.

Debt Limitation Tests

6.46 Annex 8 shows that on the basis of the forecasts which includeall assumed items of new debt, the earnings and assets tests required underthe 1957 indenture will be met with adequate margins.

7. CONCLUSIONS

7.01 The forecast of demand is based upon a detailed examination ofpresent requests for power, known increases in energy demand and completestatistics over the past 20 years. The resulting annual average increaseof 10%dJ is reasonable and should be attained. (Paragraph 4.05).

7.02 The Matucana project would be required in 1971 to meet theforecast increase in demand and to avoid a power shortage. (Paragraphs4.05 and 5.12).

7.03 The cost estimates for the project are satisfactory and contingencyprovisions are adequate. (Paragraph 5.09).

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7.o4 The Company's management and staff are competent and with thehelp of consultants are capable of undertaking the project satisfactorily.(Paragraphs 3.08 and 5.06).

7.05 The financial position of the Company is sound and is expectedto remain so. The Company's perfonrance under previous Bank loans hasbeen satisfactory. (Paragraphs 3.05, 6.45 and 6.h6).

7.06 The financing plan for the Company's acquisition and constructionprogram is sound. The Company should be able to meet about 65 percent ofits cost out of sources other than borrowings (paragraph 6.33).

7.07 The project would be suitable for a Bank loan of US$17.5 millionequivalent including US$l.5 million for interest during construction, for aterm of 25 years including a grace period of 5 years, provided that priorto the effectiveness of the proposed loan:

(a) A supplemental indenture be issued for the purpose ofsecuring a new series of debentures, comprising the proposedloan (paragraph 6.15), and

(b) the Borrower has sold an issue of Debentures in an aggregateprincipal amount of Swiss francs 25 million (paragraph 6.38).

7.08 During the negotiations the following assurances were obtained:

(a) The Guarantor has agreed to give satisfactory assurancesagainst alterations of the Electric Industry Law(paragraph 6.06);

(b) the Borrower will continue to use Consultants for the purposesagreed to in Loan 464-PE (paragraph 3.08);

(c) the Borrower agrees that the need for funds to assure thatthe Matucana project will be carried out has priority overthe purchase of assets from Hidrandina (paragraph 3.12).Prior to carrying out the remaining two stages of theacquisition plan, the Borrower will obtain the Bank'sagreement with the manner in which each transfer of assetswill be financed. He will also consult with the Bank in caseproblems arise in the execution of the plan (paragraph 3.16);

(d) the Borrower's Financing Plan includes the issues mentionedin paragraph 6.36. He will consult the Bank as to any changeshe proposes to make in the Financing Plan (paragraph 6.32).

(e) prior to making additions to its transmission and distributionsystem in 1969 and 1970, the Borrower will submit to theBank for its agreement, proposals for their financing(paragraph 6.38).

(f) the Borro-wer will offer shares for subscription if needed tocarrJ out and complete the project and to provide adequateworking capital (paragraph 6.38).

.Pnnex I.

THE MANTARO PROJECT

Introduction

Since 1945 the Mantaro River, which is located on the easternslope of the Andes and forms part of the head waters of the Amazon River,has been studied as a potential source of hydro electric energy. It wasdescribed in the general plan of electrification for Peru in 1956 byElectricite de France and in 1960 was featured in the Arthur D. Littleplan for national development called "Peruvia".

In 1961, by law 13769, the govecnment formed the Mantaro Corporation(CORMNA) to undertake the development of the Mantaro valley including theiviantaro hydroelectric project.

In 1962 the government signed a contract with a consortium ofEuropean firms (Wimpey, Siemens, and English Electric) to construct andpartially finance the first stage of the NMantaro project. The contractwas cancelled in 1966 after prolonged attempts to renegotiate it and anewcontract was signed the same year with a group of Italian firms (Impresitand GIE) which has undertaken to construct the project and finance asubstantial part of the cost at, what are claimed to be, more advantageousconditions for Peru.

The Project

The complete Mantaro scheme would be located on the double bend ofthe IMiantaro aiver (see attachment 1) and would consist of:

(i) An 80 m., high concrete dam to divert the river above the fiLstbend.

(ii) A 19.3 km long tunnel to convey the waters to a penstock andpowerhouse located above the second bend in the river.

(iii) Future tunnels and powerhouse in the second bend of the river.

(iv) 1,000 km. of 200 kV transmission lines to connect the Mantaroplant with Lima, Ica and eventually Marcona. See lMap 2.

The Project to be constructed by the Italian group of companieswould consist of the civil works for stages I and II, see attachment 1, andthe installation of the first three generating units of 11 14.I each to givean initial capacity of 342 Nl. The second group of three similar generatingunits would be installed after the first three units were loaded and wouldbe timed to meet the demand beyond that point.

Construction of the 220 kV transmission lines between Lima and Icais to be started this year so as to foster the development of the Ica powermarket by supplying it from Lima Light's system until Mantaro is ready. Thetransmission lines from the plant to the cities of Lima and Ica are to beready for service when the plant is completed.

Annex 1

Progress and Construction Schedule

The workers camps, access road and the main tunnel addits havebeen constructed and work started on the diversion tunnel at the damsite. Final designs on the major components of the project are beingprepared.

The critical item is the main tunnel which is scheduled forcompletion in five years. The first 114 MW generating unit is scheduledfor service at the beginning of 1972 with the 2nd and 3rd units cominginto service at about 6 months intervals to complete the first stage ofthe project (342 MW) by early 1973.

The market study made by CORMAN shows that even if thisconstruction schedule is achieved there will be a shortage of generatingcapacity before Mantaro is ready and about a 100 MW plant would have tobe constructed for service by 1971 to meet the forecast demand, princi-pally on the Lima Light system.

The annual increment of demand in the Greater Lima area isforecast to reach 50 to 60 MW by 1972. See Annex 2. It is estimatedthat the intercoraiected system formed by the 220 kV transmission linesconnecting Lima, Ica and Mantaro would have an annual increment ofdermand of about 100 MW which would be supplied by the Mantaro plantbeg ni.ting in 1973 and which would justify the planned addition of one114 MW unit to Mantaro each year.

Attachment One Annex IPERU

MANTARO RIVER HYDROELECTRIC PROJECT

LAKE JUNIN

N~~~~~~~~~,~~~ ~~ LA OROYA SECOND

LOWE R MANTARO RVER

LEGEND

A. - 80 mtr, high concrete dam D. - Future power house

B. - Power house Ist and 2nd stage E. - Future tunnel

C. - 19.3 km. -tunnel

CAPACITY AND ENERGY

FIRST BEND

STAGES STEPS CAPACITY (KW) ENERGY(KWH Mi llons)

Ist step 342,000 1,700

Ist Stage2nd step 342.000 1,350

Total: Ist and 2nd Steps - - - 684,000 3.050

2nd Stage | _ _ 456,000 2,200

Total: Ist. Bend 1,240,000 KW 5.250 GWH

SECOND BEND

STAGES STEPS CAPACITY (KW) ENERGY(KWH Millions)

Ist Stage - - - 750,000 4.800

2nd Stage - - - 800,000 4,900

Total: 2nd. Bend 1,550.000 9.700

Total: Both Bends 2.650.000 KW 14,950 GWH

MAY 1967 I BRD-204'4

R,-nex 2

LOAD FORECAST AND SYSTEM OPERATION

The Company keeps continuous records of the demand and sales foreach category of customer in the various regions of the comrpany's servicearea (see attachment 1). These statistics are reviewed monthly0 Inaddition a special record and analysis is made of large new installationswhich are being planned or constructed in the market area. These dataenable the company to prepare a very accurate and detailed forecast ofgrowLth for the 2 to 3 oncoming years and a reasonable further projectionon which to plan capacity additions to the system.

The long term forecast for the Lima Light System is based uponthe performiance of tlhe past 20 years during which the average annual increasein demand was 10%. The growth during the years prior to the passage of theElectric Industry Law in 1956 was slow but since then the rate has beenaccelerating and reached 12% in 1966. The rate of growth during the firstthree months of 1967 was 14%.

The important consideration in the present case, is to show howthe various plants, both existing and planned, will operate to supply theforecast demand of the Lima Light System. See attachment 2.

Two sets of curves have been supplied to illustrate this,(1) that for 1972 when the Matucana plant would be in service and(2) that for 1974 when the first stage of lIantaro (342 14W) is expectedto be completed. The upper curve in both cases is the forecast of hourlydemand on a typical working day to show the maximum peaks expected duringthe day and in the evening and the lesser hourly demand for the resb ofthe time. The lower curves show how the capacity of the various plantson the system would be utilized to contribute their share towardsmeeting the demand.

It will be noted that each of the plants has been arranged tooperate in a manner most suited to its characteristics in order to obtainfull use of its output and the maximum efficiency from the system. TheHuinco plant has the only important storage reservoir and consequentlyis allocated the function of meeting the system peak. Both IIatucana andMantaro are given some lesser peaking responsibility but are principallybase load plants. The remaining older plants are all sited below Huincoand Matucana and have no individual storage basins, hence they mustoperate as base load, run of the river plants to make full use of thewater wihich otherwise would be spilled and wasted.

It will be noted that in 1972, if I4atucana were not constructedthere would be a power shortage. With Matucana in service there is asmalI reserve of capaci-ty. By 1973 some energy will be needed fromHantaro and by the end of that year Matucana would be fully loaded.Any delay in the completion of l4antaro beyond its scheduled date in1973 would result in a power shortage. In view of the effort to maintaina conservative forecast of demand, it is conceivable that it may beexceeded in which case the need for the completion of the IMantaro asscheduled would become even more important.

i-nnex 2Page 2

The Mantaro Project, as already described in Annex one, wouldprovide for an interconnected system serving all Central Peru and there-fore, the Mantaro plant would supply a greater area than covered by theLima Light market. At present Lima Light supplies about 70% of themarket and the major mines about 29%. The Mantaro Corporation isdiscussing with the mines the possibility of supplying their powerrequirements. The remainder of the present demand is very small, butwith the availability of adequate power supplies in the region betweenIca and Lima, numerous small and existing high cost captive thermalplants used for irrigation and small industry, estimated to total about40 MW, are expected to convert to purchasing power from the Mantarosystems and at the same time the overall demand is expected to increasematerially.

To foster the development of the Mantaro market in the centralregion, Lima Light has been requested by the Mantaro Corporation and theGovernment to cooperate by selling power to these areas through newitransmission lines to be built by the Mantaro Corporation. Theseadditional loadz while initially small, strengthen the need for theconstruction of the Matucana plant and eventually will create a largermarket for Mantaro power.

.N 1'ME X 2Attachment _

LIMA LIGHT SERVICE A:EA

ENERGY SALES EY CUSTONER GATEGORY

(Millions of Krwh)

Category 1962 1963 1964 1965 1966

Residential 320.4 332.5 36383 390.2 h21.7

Indus'trial 352.5 343.1* 376.7 430.8 5o5.6

Conrercial 141.1 204.1* 226.1 248.8 276.6

Public lightingand others 44.4 47 .9 51.9 57.3 65.1

Total 858.4 927.6 1,023.0 1,127.1 1,269.0

t Reclassification of Industrial and Commercial categories.

LB fA LIGHT SYSTLEI

MUTJRP4 DDIA'D

Year

1962 208.51963 221.51964 239.51965 260.01966 291.01967 320.01968 352.01969 387.01970 425.01971 467.01972 513.01973 564.o1974 620.01975 682.0

LIMA LIGHT SYSTEMTYPICAL LOAD DIAGRAMS SHOWING FORECAST SYSTEM DEMANDAND ENERGY TO BE SUPPLIED BY VARIOUS PLANTS

1972 1974650 - 650 1

600 1 600 I550 TOTAL INSTALLED CAPACITY* 50 TOTAL INSTALLED CAPACITY

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ S S E j_ _A_ _

500 _500 -DSEMA

450 SYSTEM l 450DEMAND

U,

40 <@100 0 HUiFm rLF

300 . 400 HUCNCO P LNT

250 \/ 250 - AIJCASED POWER FROM_

Ct200 J= 7 2-00 i

150 ~~~MATUCANA PLAN15 MATUCANA PLANT

100 I I100 I

11 4~~~~~~~

OTHER EXISTING PLANTS OTH ER EXISTING PLANTS50 350

30 HUNC PLN 300 O l l l o 0z z~~~~~~~~~~~~~~~~~~~~~~~~~~~l20 2 25 01 4161 02 40 PUCAE POE FROM 21 l 8 02 2

HOURS HOURS PLA Z> mr) x

I

z*Does not include 68MW of old thermal plants retained for siond-by service only (R) IBRDO-3386 H_

Annex 3Page 1

LIST OF GOODS AND SERVICES TO BE FINANCED

FROM LOAN FUNDS

ITEM US$ Equivalents

1. ELECTRIC AND MECHANICAL EQUIPMENT

Gates, valves, generators, turbines, penstock,auxiliary and control equipment and otherassociated electrical and mechanical equipment $6,500,000

2. CONSTRUCTION MAATERIALS

Structural steel shapes, ducts, and pipes, paints,and other associated materials 1,000,000

3. CONSTRUCTION EQUIPMENT

Pumps, concrete mixer, steel forms, compressors,trucks, tractors and other associated equipment 500,000

4. 220 KV TRANSMISSION SYSTEM

Towers, poles, insulators, fittings, conductors,transformers, breakers, control and protectiondevices, measuring equipment, steel structures andassociated equipment and materials 1,800,000

5. 220 KV SUBSTATIONS

Insulators, fittings, conductors, transformers,breakers, control and protective devices, measuringequipment, steel structures and associated equipmentand materials 2,000,000

6. COMMUNICATION EQUIPMENT

Telephone and radio communication equipment, tele-metering equipment, dispatching center communicationsand control equipment and associated equipment andmaterials 550,000

7. METERS

Single phase, three phase, demand and reactive energymeters and associated equipment and materials 60o,coo

8. DISTRIBUTION CABLES

60 KV plastic insulated and oil filled undergroundcables and associated equipment and materials 350,000

Annex 3Page 2

ITE_ US$ Equivalents

9. CONSULTING SERVICES $1,100,000

10. INTEREST AND OTHER CHARGES DURING CONSTRUCTION 1,500,0O0

11. CONTINGENCIES 1,500,000

TOTAL $17,500,000

ANNEX 4

LIKA LIGHT AND PCWER C(PANT

Balance Sheeta

(expressed in millAms of Solea)

Actual ForecastYeara ending December 31 V62 3 16 lffS 1966 1967 1968 1969 1970 1971

ASSETSf= ITY PLANT

Utility Plant at cost plus revaluation increments 1,736 1,895 3,088 3,562 4,18o 4,365 5,12h 5,245 6,405 6,849Construction work in progress 848 1.118 334 489 158 450 750 1.100 500 300

Utility Plant - Gross 2,5814 3,013 3,22 4,071 4,33° 1,,l5 5,b6t 6,345 6,905 7,149Less: Accumulated depreciation 671 734 791 935 1 A63 1 250 1,605 1.865 2,1140 2 440

Utility Plant - Net 1,913 2 279 2,631 3 5136 3;275 3;565 4 259 4;h80 b 765 4;709

INVESTMENTSSecurities and fixed deposits 2 3 3 3 8 3 3 3 3 3

CURRENT ASSETSCash and banks 17 19 15 15 18 24 54 31 18 20Accounts receivable 100 109 131 143 234 235 250 265 280 300Materials and supplies 43 42 43 45 55 60 65 70 75 80

Total Current Assets i60 170 In9 203 307 319 369 366 373 400

DEFERRED DEBITS AND OTHER ASSETSUnamortized debt discount and expenses 5 15 30 32 21 18 18 8 3 3Receivables due after me year 11Advance against Huamspani purchase - 50

Total Deferred Debits and Other Assets 5 15 30 32 3Z 6b la e 3 3

TOTAL ASSETS 2,080 2,467 2,853 3,374 3,622 3,955 4,649 4,857 5,144 5,115

LIABILITIES AND EQUITYCAPITAL AND RESEV6Commnon shares 561 618 740 860 1,000 1,000 1,229 1,311 1,411 1,411Preferred shares 241 268 268 268 268 438 438 438 b3S 438Provisional certificates for capital

inclease 23Exchange equalisation reserve 65 65 66 211 211 211 444 444 444 444Free reserves and earned surplus 1/ 77 5 26 46 29 56 87 32 69 108

Total Capital and Reserves 9b7 1,0db 1,100 1,355 1,5W 1,705 2,198 2,225 2,362 2,bo01

LONG-TERM DEBT 2/Debenture SerIes A, B, C, E and 0 401 531 652 611 558 501 440 375 305 231Future Debentures 155 155 309 297 281IBRD Loan 260 PE (Series D) 384 508 623 619 600 581 561 539 516 492IBRD Loan 365 PE (Series F) 27 125 324 392 382 372 361 349 336IBRD Loan 464 PE (Series H) 66 173 263 254 244 231Proposed IBRD Loan 34 100 258 b72 466Debenture notes 161 1148 117 14, 14 51F'uture distribution financing 5° 96 1b2Huampani purchase 6t 52Other debt 104 99 55 56 11 6 1

Total Long-Teon Debt 889 1,165 1,455 1,771 1,775 1,949 1,973 2,212 2,279 2,239

CURRENT LIABILITIESCurrent portion of Long-Term Debt 31 65 75 79 140 91 219 134 201 1b9Dividends 35 41 45 51 58 68 82 88 92 95Accounts payable 107 98 87 75 92 91 91 91 91 91Bank overdrafts 19 60 66 8 40

Total Current Liabilitieo 19i 264 273 2 3 330 250 392 313 384 335

DEFERRED CREDITSFm or f Party Installations 21 17 14 (19) (2) 35 71 103 132 150Fund for Social Law Benefits 11 15 4 1 11 16 15 9 )

Total Deferred Credits 32 58 25 t96 107 11 0

TOTAL LIABILITIES AND EQUITY 2,080 2,467 2,853 3,374 3,622 3,955 4,649 4,857 5,144 5,115

V/ Increases due to revaluation of assets in 1965 (8.5%) and in 1968 (assumed at 10) (paragraphs 6.03 and 6.04).

2/ Excluding one-year maturities.

August 14, 1967

LIMA LIGHT AND PCWER COMPANY

Long-Term Debt Outstanding at December 31, 1966

Year Debentures EquivalantIssued or Loans Original Interest Term Foreign in thousands

granted Amounts Rate Years Currency of Soles

I. Issued under Indenture dated July 1, 1957

DebenturesSeries A 1957 us $ 6,00o,ooo 7 15 Us $ 3,197,600 85,760

B 1958 us $ 6,ooo,ooo 7 15 US $ 3,879,300 194,043c 1960 us $ 6,ooo,ooo 7 15 us $ 4,494,200 120,534E 1963 Sw.F. 25,000,000 6-1/2 15 Sw.F.22,369,000 139,359G 1964 us $ 6,000,000 7 15 us $ 6,000,000 160,920

IERD Loans -/260 PE (Series D Debentures) 1960 US $ 24,000,000 6 25 US $ 23,057,000 618,389365 PE (Series F Debentures) 1963 us.$ 15,000,000 5-1/2 25 us $ 14,999,998 402,300464 PE (Series H Debentures) 1966 uS $ 10,000,000 6 20 Us $ 2,462,870 66,054

Sub-Total 1, 97,59II. Other Debt

Debenture Notes - 1965 us $ 6,ooo,ooo 6 2 US $ 5,500,000 147,510Banco Industrial del Peru 1965 us $ 600,000 8 2 us $ 600,000 16,092Cia. Sudamericana de Electricidad, Zurich 1966 Us $ 1,200,000 7 1 US $ 1,200,000 32,184Suppliers' Credits Brown Boveri 1962 641/2 or 7 SW.F. 2,888,673 17,996Junta Nacional de la Vivienda 1965 s/. 4,143,000 - 7 3,506

Sub-Total 217,200

Total 1,914,647

1/ At regular intervals debentures are issued against- disbursements under these loans. At December 31, 1966

the following debentures were outstanding:US$ eguiv.

Series D 23.1 millionSeries F 9.9 millionSeries H none

2/ To be converted during 1967 into long-term debentures.

April 27, 1967

LIMA LIGHT AND POWER COMPANY

Income Statements

(expressed in millions of Soles)

Actual Forecast

Fiscal years ending Decemberl31 1962 1963 19641 1965 1966 1967 19681 1969 1970 1971

Sales increase in percent 10.3 8.9 9.8 9.1 11.8 14.0 10.0 10.0 10.0 10.0Sales (Gwh) 870 947 1,040 1,135 1,269 1,447 1,592 1,750 1,925 2,117Average revenue per kwh (cents of Soles) 55.9 60.0 60.3 6041 72.3 72.0 72.0 72.0 72.0 72.0

OPERATING REVENUES 486.o 567.9 626.7 681.6 917.6 1,043.0 1,146.0 1,260.0 1.386.0 1J524.0

OPERATING COSTSOperating expenses 211.1 250.8 319.2 291.3 390.9 430.0 501.0 5420o 655.0 766.0Cost of purchased power (Hidrandina S.A.) 87.3 89.5 92.7 93.0 105.4 103.0 70.0 2/ 60.0 2/ 50.0 2/ 30.0 2/Depreciation 65.3 70.7 70.9 80.9 141.2 187.0 230.0 260.0 275.0 300.0Depreciation of Public Domain installations - 5.3 5.9 7.0 7.0 20.7 24.0 26.0 28.0 30.0 33.0Contribution to Expansion Fund 6.0 9.0 10.0 1.0 11.0 13.0 15.0 15.0 15.0 15.0

Total Operating Costs 375.0 425.9 499.8 473.2 669.2 757.0 842.0 945.o 1,025.0 1,144.0

NET INCC(E BEFORE TAXES AND INTEREST 111.0 1I2.0 126.9 208.4 248.4 286.0 304.0 315.0 361.0 380.0Taxes 3.6 4.3 2.1 4.8 6.1 7.5 8.0 10.0 11.0 11.0

NET INCOME BEFCRE INTEREST 107.4 137.7 124.8 203.6 242.3 278.5 296.0 305.0 350.0 369.0

Interest payable 57.5 76.3 100.0 117.2 118.4 128.0 145.0 155.0 164.0 163.0Interest charged to construction (credit) (40.1) (14.3) (81.3) (36.9) (31.8) (7.0) (23.0) (49.0) (21.0)Financing expenses 7.6 11.6 12.4 9.8 25.3 13.0 10.0 20.0 15.0 10.0

Total interest and financing expenses 25.0 43.6 31.1 90.1 111.9 134.0 132.0 126.0 158.0 173.0

NET INCOME 82.4 94.1 93.7 113.5 130.4 144.5 164.0 179.0 192.0 196.0

Allocation of Net Income:Dividends 60.6 72.2 83.3 92.3 103.5 116.0 131.0 141.0 153.0 155.0Free Reserves 20.3 20.2 8.7 19.5 25.2 26.8 31.3 36.3 37.3 39.3Directors Bonuses 1.5 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7

Total allocation 82.4 9i.1 93.7 113.5 130.4 144.5 164.0 179.0 192.0 196.0

1/ Represents depreciation charges on distribution works finarced by customers, transferred to thePublic Domain and supervised by Lima Light. The depreciation cash is used, under control of theMinistry of Industry, for meeting Lima Light's costs of supervision, administration and maintenance a'of the works, and for reinvestment in distribution.

2/ The cost of purchased power is being reduced as a result of the acquisition of Hidrandina assets.

August 14, 1967

ANNEX 7

LIMtA LIGHT AND POWER COMPANY

Sources and Applications of Funds

(expressed in millions of Soles)

SOURCES OF FUNDS 1967 1968 1969 1970 1967-1970 1971

Net Inccme before taxes and interest 286.0 304.0 315.0 361.0 1,266.0 380.0Depreciation 187.0 230.0 260.0 275.0 952.0 300.0Depreciation of Public Domain installations 24.0 26.0 28.0 30.0 108.0 33.0Contribution to Extension Fund 13.0 15.0 15.0 15.0 58.0 15.0

Cash Earnings 510.0 575.0 618.0 681.0 2,384.0 728.0

Customers' contributions V 120.0 145.0 159.0 174.0 598.0 190.0Sales of Ordinary Shares 150.0 100.0 250.0Sales of Preferred Shares 169.9 169.9Sale of investment securities 5.0 5.0Borrowings

IBRD Loan 464 PE 107.0 95.0 202.0Proposed IBRD Loan 34.0 66.o 158.0 214.0 .472.0Future debentures 155.0 162.0 317.0Debenture notes 116.6 116.6 54.oFuture distribution financing 54.0 54.0 108.0 54.oBank overdraft (40.0) (40.0)

Total Borrowings 372.6 161.0 374.0 268.0 1,175.6 108.0

TOTAL SOURCES 1,177.5 1,031.0 1.151.0 1,223.0 4,582.5 1,026.0

APPLICATIONS OF FUNDSConstruction Program (excluding interest)Huinco reservoir 30.0 50.0 80.0Marcapomacocha Stage II 5.0 5.0Matucana 150.0 272.0 354.0 491.0 r,267.0Distribution 275.0 270.0 248.0 238.0 1,031.0 350.0

Total Construction Program 460.o 592.0 602.0 729.0 2.383.0 350.0

Acquisition of Hidrandina propertiesRimac River Derivation 130.0 130.0Huampani Plant 500 45.0 15.0 15.0 95.o 52.0Moyopampa Plant 114.0

Total Acquisition 180.0 15.0 15.0 15.0 225.0 166.0

Debt ServiceAmortizationDebentures (Series A, B, C, E and G) 53.4 56.7 60.7 65.0 235.8 69.6Future Debentures 8.0 8.0 12.5IBRD Loan 260 PE (Series D) 18.3 19.3 20.5 21.7 79.8 22.9IBRD Loan 365 PE (Series F) 9.9 10.3 10.8 11.4 42.4 12.0IBRD Loan 464 PE (Series H) 4.5 9.3 13.8 9.9Future distribution financing 3.4 3.4 8.1Debenture notes 148.5 103.1 251.6 13.5Suppliers' credits and other debt 58.1 4.6 4.6 o.6 67.9

Total Amortization 288.2 90.9 204.2 119.4 702.7 148.5

InterestDebentures (Series A, B, C, E and 0) 46.o 42.4 38.4 34.1 160.9 29.5Future Debentures 11.3 17.0 22.5 50.8 22.0IBRD Loan 260 PE (Series D) 36.8 35.7 34.5 33.3 140.3 32.1IBRD Loan 365 PB (Series F) 22.1 21.5 20.9 20.3 84.8 19.7IBRD Loan 464 PE (Series H) 7.4 13.0 16.2 15.9 52.5 15.4Proposed IBRD Loan 0.14 6.2 12.1 22.2 40.9 28.3Debenture notes 9.3 8.2 4.6 0.9 23.0 o.4Acquisition of Hidrandina properties 1.1 5.3 4.2 10.6 3.8Future distribution financing 2.0 5.8 7.8 7.3Suppliers' credits and other debt 6,o 5.6 4.o 4.8 20.4 4.5

Total Interest 128.0 145.0 155.0 164.0 592.0 163.0

Total Debt Service 416.2 235.9 359.2 283.4 1,294.7 311.5

Increase (Decrease) in Working Capital (4.0) 20.0 20.0 20.0 56.0 25.0Decrease (Increase) in Fund for Social Law Benefits (5.0) 1.0 11.0 17.0 24.0 (3.0)Dividends 105.5 117.0 135.0 149.0 506.5 152.0Directors' Bonuses 1.7 1.7 1.7 1.7 6.8 1.7Financing expenses 10.0 10.0 10.0 10.0 40.0 10.0Taxes 7.5 8.0 20.0 1.1.0 46.5 11.0

TOTAL APPLICATIONS 1.171.9 1,000.6 1.173.9 1.236.1 4.582.5 1.024.2

Cash at beginning of year 18.0 23.6 54.0 31.1 18.0 18.0Annual surplua (deficit) 5.6 30.4 (22.9) (13.1) 1.8Cash at end of year 23.6 54.0 31.1 18.0 18.0 19.8

1/ These contributions flow through to the "Third Parties Fund" (paragraph 6.27)

August 14, 1967

LIMA LIGHT AND PR COMPANT

Financial Ratios 1/

Actual Forecast1962 1963 1964 1965 1966 1967 1960 1969 1970 1971

Return on Net PlantAverage net utility plant in operation

(millions of Soles) 885 1,113 1,729 2,472 2,882 3,116 3,312 3,l45 3,823 4,337Net income before interest 107.4 137.7 124.8 203.6 242.3 278.5 296.0 305.0 350.o 369.0Percentage returFn 12.1 12.4 7.2 8.2 8.4 8.9 8.9 8.8 9.2 8.5

Interest CoverageT3imiteresFcovered by netincome before interest 1.9 1.8 1.2 1.7 2.0 2.2 2.0 2.0 2.1 2.3

DebtTimes debt service covered byinternal cash generation 2.1 2.2 1.0 1.5 2.0 1.9 2/ 2.4 2.4 2/ 2.4 2.3Debt/equity ratio 48/52 54/46 5743 56/44 54/46 53/47 47/53 50/50 49/51 48/52

Indenture Tests(1) Net incom beforeincome tax and

interest as a percentage ofinterest on funded debt(150% minimum) (%) 195 187 153 208 228 254 220 226 243 259

(2) Net tangible assets as a percentageof funded debt (150% minimum) (%) 236 202 180 179 183 194 213 195 210 201

1/ The acquisition of Hidrandina assets (see paragraph,3.12) has been included in the projections.7/ Excludes amortization of Debenture notes which are being funded.

August 14, 1967

24MW PAVCARrAMBO /05 MWCERRO DE PASCO

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LXISTING PROJECTS OHUANCAVELICA

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MY 1967 IBDI22052R b

i_torandum orn Econmic Situation in Perul/(Exohange Rate: US,=26.52 s6 s

Recent Economic Developnents

2.. The year 1966 was another good year for Peru. GNP at constantprices is estim?ted to have risen by - percent, and if the gain result-ing from the improvement in the terms of trade is added, the increase inreal income was nearly 0 3ercent. A feature of 1966 was the sharp risein coPper and fihmrneal prices which helped towards an increase of almost15 percent in total export earnings. Taking the period since 1959, Peru'sexternal receipts on current account, net of profit remittances by foreigncompanies, have risen by an average of 12-13 percent a year.

2. The outlook for the immediate future is, however, less encouraging.Copper prices have already fallen sharply, and the fishmeal industry iscaught in a squeeze between rising costs and a recession of prices from theabnormally high levels reached in the early part of 1966. Consequently,although the long-term export outlook looks favorable, particularly withrespect to minerals, the prospect of any significant increase in exportearnings during the next three years is distinctly uncertain.

3. While production and exports have both risen sharply during thepast two years, internal demand - and related demand for imports - has riseneven faster. As a result, the balance of payments on current account hasmoved from approximate balance in 1964 to deficits of $126 million in 1965and $167 million in 1966 (see Table 3). Whereas merchandise export earn-ings increased by about 15 percent between 1964 and 1966, imports rose bynearly 40 percent. These additional imports have been mainly financed bya sharp increase in borrowing abroad in the form of both long-term develop-ment assistance and of medium and long-term credits from foreign banks gi1dsuppliers. Gross disbursements of foreign loans to the public sector alone(including changes in external balances of State development banks and theBank of the Nation) have risen from $103 million in 1964 to $146 million in1965 and $212 million last year. In spite of this increase in foreign bor-rowing, the gold and foreign exchange reserves of the Central Reserve Bankdeclined by $22 million in 1966.

4. The worsening of the external balance of payments has been accom-panied by a fairly sharp increase in domestic prices. The official cost-of-

iJ/ This Memorandum was circulated to the Consultative Group forPeru on July 5, 1967.

- 2--

living index for Lima and Callao rose by 15 percent during 1965 and bynearly 8 percent in the course of 1966. A further increase of 3 percenttook place during the first four months of 1967.

5. Rising public expenditures, imposed on the steady growth ofprivate demand for consumption and investment, have been the principalcause of the inflationary pressures to which the economy has been sub-jected during the past two years. The Government of President Belaunde:has firmly committed itself to improving the condition of the people, toopening up the interior of the country and to making more land availablefor cultivation through massive investments in roads (mainly in the in-terior) and irrigation (on the coast). The costs of these programs havein general been greatly underestimated, and expenditures have been runningwell ahead of the estimates included in the annual budgets. The most pro-nounced increases to date have been in the pay of public employees, espe-cially teachers, and in public works, especially road construction. Con-siderable sums have been invested by public agencies in middle class hous-ing, and there has also been a large expansion of hospital building. Theirrigation progam has not yet got fully under way, but major new commit-ments may be made during the next twelve months. To add to the pressureon resources, military expenditures are being very sharply stepped up thisyear after a period of about ten years during which they have risen rela-tively little.

6. The Peruvian Congress, which is controlled by a coalition ofparties opposed to the Government, has not been prepared to vote the taxesneeded to pay for these expenditures, and the overall fiscal deficit ofthe Central Government that has to be financed from the domestic bankingsystem, foreign bank credits and cash credits from suppliers rose fromSI. 2.7 billion in 1965 to S/. 3.7 billion in 1966 (equivalent to 2.7 per-cent of GNP). Borrowing from the Central Reserve Bank alone amounted infiscal 1966 to over S/. 2 billion and resulted in an excessive monetaryexpansion, with consequent pressures on internal prices and the balanceof payments. Borrowing abroad, which on a gross commitment basis totalledover $300 million in 1966, included general purpose borrowing of $32.5 mil-lion net in New York and cash credcLt of $19 million from suppliers (inaddition to equipment credits).

7. These figures indicate a very sharp deterioration in the savingseffort of the public sector. In 1964 public savings amounted to over S/. 2billion and were sufficient to finance about half of public investment.When the Consultative Group for Peru was convened a year ago, it was onthe understanding that the Peruvian Government would take steps to enewethat over 50 percent of the public investment program was financed out ofpublic savings and non-inflationary domestic sources. In practice, totalpublic savings in 1966 appear to have been negative to the extent of nearly

S/. 0.5 billion leaving half of the public investment program to be

financed out of net external borrowing and the other half from internalborrowing from the banking system.

8. As indicated in the memorandum distributed in February of thisyear (PER 67-1), the fiscal situation, as reflected in the deficit in

1966 and the prospective deficit for 1967, has turned out to be much moreserious than was foreseen a year ago. This is partly because the revenuesestimates in the 1966 Budget proved overly optimistic, and partly because

the increases in expenditure on teachers' salaries greatly exceeded theGovernment's expectations. Last year's experience has highlighted the

need for major improvements in Budget preparation and in control of expen-ditures, and the International Monetary Fund is responding to a requestfrom the Peruvian Government to provide technical assistance in thesefields by sending a fiscal team to Lima for a period of two years fromJuly 1967.

The Budget and the Balance of Payments

9. The Peruvian Government was originally planning to introducelegislation for new taxes in time to make new tax laws effective beforethe end of 1966. The Government did in fact put forward proposals for amodest package of tax reforms last December, and a tax reform commissionwas asked to report on these proposals by the end of February 1967. Theproposals were based on recommendations made by an OAS tax group and in-cluded the introduction of a real estate tax and a tax on the net assetsof incorporated businesses. The tax commission was also asked to considerways of reducing the large number of tax exemptions at present in effect.However, the discussion in the commission was protracted, and the Govern-ment has so far failed to get the support of Congress for a tax reform.

10. Another step taken by the Government last December, and in this

case approved by Congress, was the introduction of a freeze on the basicsalaries, supplementary remunerations and special allowances (except fam-ily allowances) of the civilian personnel of the public administration,including teachers. In spite of this freeze, however, public expenditureshave continued to run way ahead of-revenues, and the Finance Ministerannounced in the middle of May this year that the prospective deficit in the1967 Budget was over V/. 5 billion.

11. Earlier, in January-February of this year, an economic mission

from the Bank visited Peru to review the latest developments and the pros-pects for the 1967 Budget, and to establish with the Peruvian authorities

See Table 2. The current account deficit shown in this table may beslightly over-estimated, since information on the revenues of the irdep-endent public sector is incomplete, and some current revenues may be in-cluded in "capital revenues".

- 4 -

a public investment program and financing plan for 1967 and 1968. Themission concluded that, in the short run, action to deal with the fiscaldeficit of the Central Government was of paramount importance, and thatmeasures were urgently required to mobilise an additional S/. 3½ billionin 1967 and over S/. 51 billion in 1968 from increases in the revenuesand reductions in the expenditures of the Central Government. If suchmeasures were taken, the mission estimated that public savings would besufficient to finance rather over 40 percent of public investment in1967 and close to 50 percent in 1968. Some additional general purposeborrowing abroad might then be justified to help in covering the remain-ing deficit.

12. The situation was brought to a head around the middle of May bysevere pressures on the balance of payments stemming from continued deficitfinancing and growing lack of confidence in the sol. On May 19 Congresspassed an emergency law authorizing the Government, among other things,to reduce the 1967 Budget by S/. 1½ billion, to introduce changes in importduties which were to be subsequently enacted by decree, and to reduce thetax concessions extended under the industrial promotion laws. The law al-so provided .for a change in the dates of the fiscal year, extending thepresent year through March 1968. Decrees specifying the expenditure cutsand a new schedule of import duties were publiched early in June. It istoo early to assess the impact of these measures, but it seems probablethat they will still leave a substantial uncovered deficit in the 1967Budget. The expenditure cuts are not likely to be fully effective and theywill in any case be offset to some extent by additional expenditures onmilitary equipment not included in the 1967 Budget. The changes in importduties, together with the curtailment of tax concessions and exemptions,might produce extra revenues of the order of SI. 2½ billion in a full year,but the full effect will not be felt in 1967.

13. The action taken by Congress in mid-May put a stop to the run onforeign exchange reserves, and in the period up to June 20 no further lossof reserves took place. Peru's external capital position has, however,deteriorated sharply during the past year. Medium and long-term public andpublicly-guaranteed external debt outstanding (including undisbursed commit-ments) has risen from $580 million at the end of 1964 to $675 million atmid-1966 and around $900 million by the end of 1966. In addition, substan-tial short-term borrowing has taken place this year from banks in theUnited States and Canada. The gold and foreign exchange holdings of theCentral Reserve Bank declined by $45 million during the first five and ahalf months of the year and on June 20 stood at $106 million. Against this,must be set substantial short-term liabilities incurred abroad by otherofficial banking institutions.

14. Further measures are going to be required to deal with the under-lying deficits in the Budget and the balance of payments. A draft of the1968 Budget has to be presented to Congress by the end of August this year,

and the Government has confirmed its intention of proposing definiteaction on the OAS tax reform package in time for the new laws to befully operative in fiscal 1968. Other measures which need to be con-sidered in order to achieve a lasting increase in public savings in-clude additional taxes on gasoline and diesel oil, the continued sus-pension of the law relating to increases in teachers' salaries anddeferment of at least part of the projected increase in military out-lays.

15. In view of the very large commitments for external financingalready {entered into, particularly in the transport sector, there islittle scope for achieving budgetary savings from cuts in public invest-ment. Some marginal cuts could nevertheless be made. The Governmentshould meanwhile be very cautious about entering into new project commit-ments until the fiscal situation is greatly improved. In particular, nostart should be made for the time being with any major new highway orirrigation projects, and the hospital building program should in any casebe reduced.

Economic Prospects

16. Economic growth in Peru has been closely associated with theexpansion of exports, and the external balance of payments is likely toremain the key determinant in the development of the economy over thenext 5-10 years. Peru has a considerable long-term growth potential, andas long as the investment climate remains attractive to private capital,there appear to be good prospects for the renewed expansion of exports inthe early 1970s based principally on likely new investments in copper andphosphates, with some possibilities also in petroleum. Tourism is anothersource of export earnings which could well be developed faster if morehotels are built, as presently planned, and if prices can be brought downto more reasonable levels. Export forecasts prepared by the Bank economicmission are set out in Table 4.

17. There are also good possibilities for economically sound importsubstitution in agriculture and in certain branches of manufacturing indus-try (e.g. fertilisers, the further processing of minerals and manufactureof wood). Agricultural production, however, has been lagging, and it is mostimportant that a special effort should be made to increase production offood by offering more attractive price incentives to the farmer, increaseduse of fertiliser and improvements in marketing and credit. This will almostcertainly require a relative increase in food prices. On the industrialside, particular care has to be taken to avoid excessive protection, andit is highly desirable that the numerous tax concessions at present grantedto industry should be greatly reduced.

- 6 -

18. Historically, the performance of the Peruvian economy has beenrather exceptional - a high growth rate supported by high levels of pri-vate savings and investment and a well diversified export trade; lowconsumption on the part of the majority of the population; and less infla-tion than in many other Latin American countries. There are admittedlyfactors which may lead to difficulties in future. For one thing, theforces making for social and economic reform and for the more equal dis-tribution of income are likely to curb somewhat the exuberance of a tra-ditionally private enterprise economy. Moreover, there are serious short-comings in public administration which will take time and experience toremedy. It would be reasonable therefore to expect some slowing down inthe pace of growth; and inflation may well become more of a problem inthe future. Nevertheless, the economy remains basically sound, and althoughexternal public debt has risen sharply during the past two years, thereremains a margin of creditworthiness for additional external borrowing evenif some of the present weaknesses in government policy persist. With bet-ter economic management the margin would be substantial.

19. Projections of external debt are set out in Table 5. Service onexisting external public debt rises from an estimated $89 million in 1966to $110 million in 1968, stays at around this level through 1970 and thendeclines to $54 million in 1975. During the peak years 1968-70 projecteddebt service will absorb close to 13 percent of Peru's current accountearnings net of profit remittances by major foreign mining companies. Ifservice on private debt is added, the debt service ratio would be in therange of 15-20 percent. This is a fairly high figure and suggests thedesirability of extended grace periods for new loans contracted in the nearfuture. Beyond 1970 the picture improves considerably, and given soundeconomic policies and appropriate restraints on the use of suppliers' cre.'dits and medium-term bank loans, the public sector should be able to go onborrowing abroad at a rate of at least $L00-150 million a year without un-duly straining its debt servicing capacity.

20. Peru will not be able to take full advantage of the economic op-portunities that lie ahead without a marked improvement in its recent econ-omic policies, especially in the sphere of fiscal management. The Govern-ment's long-term financial and economic policies should focus on the needfor mobilising larger public savings, on reshaping the tax structure so asto increase taxation of the upper and middle income groups and on improvingthe present very disorganised financial system. At the same time great im-portance should be attached to encouraging agricultural production for thedomestic market, to exploiting all possible opportunities for export promo-tion and to discouraging consumption of imports and the export of capital(without, however, resorting to direct controls which would probably becounter-productive). These are the directions in which government policyhas to move if there is to be justification for continued support by theConsultative Group of Peru's public development program.

W4estern Hemisphere DepartmentJuly 3, 1967

Statistical Appendix

Table No.

1. Selected Economic Indicators

2. Government Finances, 1965-1967

3. Balance of Payments, 1956-1966

4. Exports of Goods and Services by Main Commodities,1960-1966 (Actual), 1967-1970, 1975 (Projection)

5a. External Medium and Long-Term Public Debt Outstanding,June 30, 1966, with Major Reported Changes ThroughJanuary 1967

5b. Estimated Service Payments on Medium and Long-TermPublic Debt

Table 1: SELECTED ECONOMIC INDICATORS

1961 1962 1963 1964 1965 1966(1963=100)

I. Gross National ProductAgriculture 98 102 100 104 105 105Fisheries 90 106 100 129 115 129Mining 97 92 100 103 105 107Manufacturing 85 93 100 110 119 129Construction 106 116 100 116 151 177GNP 88 96 100 108 112 119GNP (incl. terms of trade effects) 86 95 100 111 117 126

II. Savings and Investment Percent of GDPGross domestic investment 22 23 20 19 21 22Gross domestic savings 23 23 21 21 20 21Foreign savings - 1 0 - 1 - 2 1 1

III. Prices, Credit, Nong Annual Rates of ChangesCost of living 4 5 9 11 15 8Export prices - 1 3 4 12 2 18Domestic credit 10 11 12 20 34 18Public sector (net) -19 -9 - 4 38 82 42Private sector 20 16 15 17 26 12

Money supply 17 6 15 21 17 20

IV. Official Foreign Exchange Reserves (net) In million US$ (end of period April 191967

Central Reserve Bank 111 117 135 160 175 1.53 123Bank of the Nation - - - - 38 -20 - 34

Table 2: GOVEIRNMENT FINANCES, 1965-67(in million soles)

1965 (Actual) 1966 (Preliminary) 1967 (Mission Estimate)Central Independent Public Central Independent Public Central Independent Public

Government Public Sectorl" Sector Government Public Sectorly Sector Government Public Sectorl/ Sector(Consolidated) (Consolidated) (Consolidated)

1. Current revenues 15,628 6,103 20,426 18,094 6,979 23,113 20,416 8,121 25,786

2. Current expenditures 15,701 5,250 19,6146 19,837 5,725 23,602 21,960 7,277 26,486

3. Current account savings (1-2)2/ - 73 853 780 -1,743 1,254 - 489 -1,544 844 - 700

4. Capital transfers 1,217 1,154 63 946 855 91 1,414 1,31)4 100to private sector (63) (-) (63) (91) (-) (91) (100) (-) (100)to public sector (1,154) (1,154) (-) (855) (855) (-) (1,314) (1,314) (-)

5. Capital revenues - -228 -228 5 493 498 10 1,122 1,132

6. Funds available for investment -1,290 1,779 489 -2,684 2,602 -82 -2,948 3,280 332

7. Direct investment 2,150 3,300 5,450 2,480 3,965 6,445 3,719 4,145 7,864

8. Financing of investment 2,150 3,3 5,450 2 480 3965 6,445 3,719 4,145 7,864a. Funds available (6) -1,290 1,779 489 -26b4 2,602 -3232b. Domestic borrowing (net) 2,019 195 2,214 3,544 -395 3,149

Banking system (net) (1,775) (195) (1,970) (2,868) (-395) (2,473) (-) (-) (-)Other (net) (244) (-) (244) (676) (-) (676) (-) (-) (-)

c. External borrowing (net) 1,421 1,326 2,747 1,620 1,758 3,378 1,101 865 1,966Disbursements (1,926) (1,581) (3,507) (2,899) (2,282) (5,181) (1,853) (1,810) (3,663)Amortizations (5°5) (255) (760) (1,279) (524) (1,803) (752) (945) (1,697)

9. Gap 5,566 5,566

1/ Includes local governments.2/ Current account savings of the Independent Public Sector may be understated to the extent that "capital revenues" (item 6)

include non-identifiable current income.

Sources: Ministry of Finance, National Planning Institute, Central Reserve Bank and mission estimates.

Table 3: BALANCE OF PAME4NTS, 1956-1966(in million US$)

a/1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966

I. Current Account \ -108 -155 -122 -40 8 -12 -37 -82 14 -126 -167Trade balance - 22 -7T __V I 7U _77 -Ib 44lF __

Ecport (f.o.b.) (320) (331) (292) (323) (444) (510) (556) (555) (685) (687) (796)Import (f.o.b.) (-342) (-402) (345) (-281) (-341) (-429) (-478) (-518) (-513) (-643) (-727)

Services (net) -86 -84 -69 -82 -95 -93 -115 -119 -152 -170 -236Transport and insurance (-44) ( -46) (-42) (-40) (-46) (-53) (-63) (-63) (-75) (-85) (-100)Investment income (-46) ( -46) (-35) (-48) (-66) (-67) (-67) (-73) (-72) (-79) (-125)Transfer payments (11) (18) (15) (10) ( 21) (27) (18) (19) ( 15) ( 15) ( 15)Other services (-7) (-10) (_7) (-5) ( -4) ( -) (-3) (-2) (-21) (-21) (- 27)

II. Capital Account 122 128 110 52 21 47 50 113 21 100 177Public capital 9 5 __U -7 -47 -WO 7- 177

Disbursements (27) (28) (24) (17) (15) (25 (53 (771 (901 (98 212-)Amortization (-18) (-20) (-19) (-21) (-24) (-33 -32 -30 -3 (-23 i-35

Private long-term capital 59 111 88 53 27 8 19 5 13 24 33Direct investment. (50) (63) (29) (22) (22) (18) (17) ( -4) (13) (21) (38)Loans received (10) (48) (61) (35) (17) (21) (27) (33 (24) (25) (26)Repayments (- 1) (-1) (-2) (-4) (-12) (-31) (-25) (-24 (-24) (-21) (-31)

Short-term capital 54 10 17 3 4 47 10 60 -52 1 -33(incl. errors and omissions)

III. Change in Reserves -14 27 12 -12 -29 - 35 -13 -31 -35 26 -10Commercial banks 1 _7 -1 i_4 -1 -1 -23 -7 -35State Development Banks -1 1 - 3 13 10 21Bank of the Nation - - - - - - - 38 -19Central Reserve Bank -15 34 13 -17 - 33 -34 -6 -19 -25 -15 22

Note: Details may not add up to totals due to rounding.8/ Preliminary

Source: Central Reserve Bank and mission estimates (1966 public long-term capital).

Table It EXPORTS OF GOODS AND SERVICES BY MAJOR COMMnDITrES, 1960-1966 (ACTUAL), 1967-1970, 1975 (PRoJECTION)(Volume in 1000 metric tons metal content in the case of minerals , price (f.o.b. ) in USs per metric

ton, value (f.o.b.) in million US$)

Actuals Prolections1960 1561 1962 196 1^64 19oS c96io/ 1967 1960 1969 1970 1975

Sugar and Sugar Productsb/Volume 525.d 556.5 , 78.6 495.8 421.8 401.6 429.9 460 855 450 445 400Price 90.3 114.0 112. ' 127.8 149.4 93.3 107.8 108 105 13s 105 10 9Value 47.5 63.9 53.d 6S,;, 63.5 37.5 46.3 50 8 47 47 42

Cotton b/Volume 99.0 113.0 139.6 12;.6 1?9.1 115.8 114.9 120 115 120 120 122Price 738,1 701.5 695.6 73t.3 792.3 755.6 743.1 725 700 675 680 600Value 73.1 79.3 97.1 93.3 91.2 87.5 85.8 87 81 61 77 73

CoffeeVolume 26.8 38.0 37.8 40.1 42.3 34.6 35.4 36 36 37 L7 i1Price 702.3 669.6 646.2 638.0 875.1 839.5 805.5 700 780 760 780 833Value 18.5 22.8 28.2 25.6 37.0 20.0 28.5 28 28 29 29 38

Fish and Ftsh Productsb/Volume 57594 849.Q 1219.5 11°9.T 1565.5 1583.0 1426.5 1550 1600 1690 1700 19 00Price 86.9 82.1 98.2 100.2 105.8 118.0 14.8 135 135 135 135 180Value 50.0 69.7 119.8 12o.2 165.7 186.7 206.5 209 216 223 230 266

CopperVolume 168.0 198.8 171.9 163.4 179.7 179.8 176.1 185 190 205 225 413PAce 563.6 528.6 537.4 538., 578.5 674.2 1057.3 950 80o 69o 69' bWValue 98.7 105.1 92.4 87.3 103.2 121.2 186.2 176 152 133 1i0 28V

SilverValume- (in 1000 kgs.) 926.5 1035.2 1069.6 983.2 1152.3 1027.4 1100.1 1100 1250 1300 1300 1500Price (US$ per kg.) 26.1 26.6 30.8 36.8 39.3 38.1 37.7 40 80 80 80 o WValue 24.2 27.6 33.0 35.8 45.3 39.1 41.5 44 50 52 52 66

LeadVolume 117.8 142.5 135.2 120.5 166.7 151.0 150.9 150 180 189 190 20')Price 184.0 1 56.5 120.3 136.1 197.8 245.5 229.3 210 195 180 167 167Value 21.7 22.3 16.3 16.8 33.0 37.1 34.6 32 35 33 32 33

ZincVolume 157.8 2 0 6 .c 181.7 186.9 275.0 266.5 282.2 260 3o0 300 300 320Price 106.0 92.3 87.1 84.7 142.2 138.8 120.6 120 12r) 120 119 119Value 16.7 19.1 15.8 15.8 39.1 35.8 34.0 31 36 36 36 38

Iron OreVolume 3128.9 3381.7 3189.0 3579.7 3709.9 4598.2 8856.7 9000 5000 5030o 5503 600.0Price 10.5 10.9 10.4 10.2 10.5 10.2 11.0 11 11 11 11 11Value 32.7 36.8 32.7 36.5 38.9 47.0 53.8 55 55 61 61 66

Total Major Comodities 379.1 886.6 485.1 492.0 616.9 620.9 716.8 712 701 605 7084 39All other 58.0 49.8 58.9 40.2 90.1 86.4 43.0 50 50 52 55 o3

Total 3xports 833.1 896.8 540.0 581.2 667.0 667.3 759.h 762 751 787 7'c 989Adjustment for Balance of

Payments 11.2 13.7 16.0 13.9 17.6 19.5 36.9 19 19 19 19 23

Total Merchandise Exports 444.3 510.1 596.0 551.1 684.6 686.8 796.3 781 770 766 773 197_

Services and Transfers 71 89 859 98 100l .109 116 121 129 136 187 6 2Tourism (18) (21) (21) (25) (26) (28) (31) (33) (35) (37) (39) (60)Investment income ( -) ( 1) (1) ( 2) (3) ( 8) (4) (4) (5) (9) (6) (6)Transport and insurance ( 3) ( 8) () ( 6) ( 9) (10) ( 7) (8) (10) (12) (18) (20^Transfers (21) (27) (18) (19) (16) (16) (16) (16) (17) (18) (1b) (20)All other services (29) (36) (48) (83) (46) (51) (58) (60) (62) (68) (66) (7b8

Total Goods and Services 919 599 681 689 784 796 912 902 899 902 925 1156

accluding Profit remittances byMajor Fcreign Mining Comoanies 500 580 631 632 760 763 853 848 652 860 877 109)

a/ PreliminarTb/ Account is taken of different sub-groups in these commodities.

Source: 1960-1966: Central Reserve Bank1967-1970, 1975: Mission estimates

Table 5a: PERU - EXTERNAL MEDIUM- AND ING-TERM / PUBLIC DEBT OUTSTANDING INCLUDINGUNDISBURSED AS OF JUNE 30, 1966, WIT-MAJOR REPORTED CHANGES

JULY 1, 1966 - JANUARY 31, 1967 /2

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

Debt outstanding Major reportedJune 30, 1966 changes

Item Net of Including July 1, 1966 -undisbursed undisbursed January 31, 1967

TOTAL EXTERNAL PUBLIC DEBT 435,327 666.753 272,930

Publicly-issued bonds 39,623 39,623

Privately-placed debt 222,862 07,856 2419116Suppliers' credits /3 I7,222 255,73 18,25Private bank credits /4 44,440 50,920 46,650Other 1,200 1,200 14,216

IBRD loans 92,385 158,438 10,000

IDB loans 12,649 22,897 -

U.S. Government loans =56335 111,698 13,814Export-Import Bank 27,977 53,1 Other 28,358 58,577 13,814

Loans from other governments 11,473 26s241Argentina L 65,241 62,241Germany 5,232 20,000

/1 Debt with an original or extended maturity of one year or more.7 Does not include foreign exchange denominated loans from local banks, which are

sometimes discounted by foreign banks./3 Amount outstanding on the SOGESA loan of $72,708,000 has been assumed. Also

total interest due ($5,999,460) on a loan of $37,282,886 to Corporacion deFomento y Desarrollo Economico del Departamento de Tacna has been included asprincipal amount outstanding due to the fact that the separation of the twocomponents is not possible.

4 Includes $1,1448,000 for which service payments have been suspended until somelegal matters are settled.

E Service payments on this debt have been suspended until some legal matters aresettled.

'able b: PERU - ESTIMATED CONTRACTUAL SERVICE PATIiNTS ON IET ¶NAt imIUi! Al _.t _0NG TamPUB! 7C DEBT OTJTSTANDING INCLUDING UNDISBURSED AS OF JUNE 30, 1966y, '4j1q MAJCr7 R-?tTED

CHANGES JULY 1, 1966 - JANUARY 31, 1967L

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivaalents)

Page 1

GRAND TOTAL

DEBT OUTST(BEGIN OF PERIOD) PAYMENTS DURING PERIOD

INCLUDINGYEAR UNDISBURSED AMORTIZATION INTEREST TOTAL

1966 642,368/2 68,212 21,132 89,34h1967 867,480 62,892 30,918 93,8101968 808,213 75,968 33,896 109,8631969 730,929 79,946 29,038 108,9831970 649,699 81,427 25,614 107,O10.21971 567,019 77,07h 22,825 99,8991972 488,726 53,812 19,834 73,6461973 433,727 47,585 22,9h8 70,5331974 384,989 4h,665 20,1o4 64,7691975 339,204 37,322 16,911 54,2331976 300,832 34,330 15,464 49,7941977 265,934 30,527 1h,382 44,9091978 235,261 27,579 12,782 h0,3611979 207,541 29,218 11,299 40,5171980 178,185 30,435 9,657 ho,093

PUBIICLY-ISSUED BONDS

DEBT OUTST(BEGIN OF PERIOD) PAYETS DURInG PERIOD

IINtCTUDITGYEAR UNDISBURSED AMORTIZATION INTEREST TOTAL1966 39.,623L2 2,661 1,1983,91967 37,674 2,341 1,096 3,8371968 33,984 2,202 992 3,1941969 30,465 2,228 888 3,1161970 26,953 2,295 782 3:0771971 23,405 2,365 675 3,o4o1972 19,821 2,436 568 3,0041973 16,198 2,510 459 2,9681974 12,535 2,586 348 2,9341975 8,830 2,672 237 2,9091976 5,108 1,485 126 1,6111977 3,055 196 89 2851978 2,713 202 79 2811979 2,369 208 63 2771980 2,023 215 58 27/;

0e7,-too%S-notee aL end o9' >a1 -

Table 5b: PERU - ESTDIATED CONTRACTUAL SERVICE PAYMNTS ON EXTERNAL MEDIM AND lONG TERMPUJBLIC DEBT OUTSTANDDNG INCLUDING UNDISBURSED AS OF JUNE 30, 1966, wITH MAJOR

CHANGES JULY 1, 1966 - JANUARY 31, 1967 k (CONT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

Page 2

PRIVATELY-PLACED DEST -TOTAL

DEBT OUTSTlBEGIN OF PERIOO) PAYMENTS DURING PERIOD

INCLUDING AMORTI-YEAR UNDISBURSED ZATION - INTEREST TOTAL

1966 190,.711 12 57,267 12,557 69,8251967 499,994 49,785 19,403 69,1881968 453,584 61,329 21,233 82,5621969 392,255 63,763 16,197 79,9601970 328,492 62,681 12.908 75,5891971 265,810 58,162 10,628 68,7901972 207,649 35,149 8,514 43,6631973 172,499 29,133 12,589 41,7231974 143,366 25,943 10,665 36,6081975 117,423 17,727 8,257 25,9841976 99,696 16,788 7,61- 24,4031977 82,908 14,538 7,193 21,7311978 68,370 12,170 6,340 18p5101979 56,200 13,100 5,584 18,6841980 43,100 15,100 4,678 19,778

SUPPLIERS CREDITS

DEBT OUTST(BEGIN OF PERIOD) PAYMENTS DURFN6 PERIOD

INCLUDING AMORTI-YEAR UNDISBURSED ZATION INTEREST TOTAL

1966 240,039/2 20,285 9,736 30,0211967 417,964 32,912 13,917 46,8291968 388,427 45,677 16,702 62,3791969 342,750 48,110 12,686 60,7951970 ?94,640 47,010 10,611 57,6211971 247,631 40,382 9,654 50,0361972 207,249 34,749 8,501 43,2501973 172,499 29,133 12,589 41,7231974 143,366 25,943 10,665 36,6081975 117,423 17,727 8,257 25,9841976 99,696 16,788 7,615 24,4031977 82,908 14,538 7,193 21,7311978 68,370 12,170 6,340 18,51C1979 56,200 13,100 5,584 18,6R41980 43,100 15,100 4,678 19,778

See footnotes 't enu d va

Table 5b: PERU - ESTIMATED CONTRACTUAL SERVICE PAy;NTS ON EXTERNAL MEDIUM AND LONG TMPUBLIC DEBT OUTSTANDING ICLUDING UNDISBURSED AS CF JUNE 30, 1966, WIT MAJOR RZPBTED

CHANGES JULY 1, 1966 - JANUARY 31, 1967& (CON?.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

Page 3

PRIVATE BANK CREDITS

DEBT OUTST(BEGIN OF PERIOD) PAYMENTS DURING PERIOD

)NCLUDING AMORTI-YEAR UNDISBURSED ZATION INTEREST TOTAL

1966 49,472/2 36,582 2,714 39,2961967 67,014 16,073 4,981 21,0541968 50,941 13,936 3,775 17,7111969 37,005 11,487 2,623 14,1101970 25,518 11,505 1,732 13,2371971 14,013 13,613 732 14,3451972 400 400 13 413

PRIVATELY-PLACED DEBT--OTHER

DEBT OUTST(BEGIN CF PERIOD) PAYMENTS DURING PERIOD

INCLUDING AMORTI-YEAR UNDISBURSED ZATION INTEREST TOTAL

1966 1,200/2 400 108 5081967 15,016 800 505 1,3051968 14,216 1,716 756 2,4721969 12,500 4,167 888 5,0551970 8,333 4,167 565 4,7321971 4,167 4,167 242 4,409

See footnotes at end of table.

Table 5b: PERU - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM AND LONG TERMPUBlIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF JUNE 30, 1966, WITH MAJOR REPORTED

CHANGES JULY 1, 1966 - JAIUARY 31, 1967/1 (CONT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

Pave I

IBRD LOANS

GEBT OUTST(BEGIN OF PERIOD) PAYMENTS DURING PERIOD

INCLUDING AMORTI-YEAR UNDISBURSED ZATION INTEREST TOTAL

21966 158,438 4,452 4,525 8,9771967 166,132 5,630 6,238 11,8681968 [60,502 5,828 6,869 12,6971969 154,674 6,689 7,008 13,6971970 147,985 7,618 7,081 14,b991971 140,367 7,711 7,093 14,8041972 132,656 7,671. 6,780 14,4511973 124,985 8,105 6,373 14,4781974 116,880 8,563 5,939 14,5021975 108,317 9,037 5,483 14,5201976 99,280 9,216 5,009 14,2251977 90,064 9,398 4,525 13,9231978 80,666 9,916 4,029 13,S451979 70,75C 9,081 3,518 12,5991980 61,669 7,873 3,067 10,940

IOB LOANS

DEST OUTST(BEGIN OF PERIOD) PAYMENTS DURING PERIUD

INCLUDING AMORTI-YEAR UNCISBURSED ZATION INTEREST TOTAL

1966 21,897 /2 943 686 1,6291967 21,370 1,106 924 2,0301968 20,264 1,858 1,061 2,9191969 18,406 2,025 1,033 3,0571970 16,381 2,191 930 3,1211971 14,190 2,191 802 2,9931972 11,999 2,191 674 2,8t61973 9,807 2,191 546 2,7381974 7,616 2,L91. ' 1 2,6101975 5,424 1,827 295 2,1211976 3,598 1,137 198 1,3351971 2,460 1,137 130 1,2!1978 1,323 437 721979 885 385 46 4321980 500 333 25 ie

See footnotes at end of table.

Table 5b: PERU - ESTIMATED CONTRACTUAL SERVICE PAY1ENTS ON EXTERNAL MEDIUM AND LONG TEEPUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF JUNE 30, 1966, WITH MAJOR REPORTED

CHANGES JUIL 1, 1966 - JANUARY 31, 1967/1 (CONT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

Page 5

U. S. GOVER-NENT LOANS - TOTAL2a

DEBT OUTST(BEGIN OF PERIOD) PAYMENTS DURING PERIOD

INCLUDINGYEAR UNDISBURSED AMORTIZATION INTEREST TOTAL

1966 111,6982 2,888 2,007 4,8951967 122,310 4,030 2,989 7,0191968 119,880 4,751 3,325 8,0761969 115,129 4,574 3,349 7,9231970 110,555 5,308 3,343 8,6521971 105,247 5,312 3,096 8,4081972 99,935 5,031 2,808 7,8391973 94,90o4 4,312 2,532 6,8431974 90,592 4,049 2,323 6,3721975 86,543 4,726 2,269 6,9961976 81,817 4,370 2,186 6,5571977 77,446 3,924 2,154 6,0781978 73,523 3,520 2,012 5,5311979 70,003 5,110 1,872 6,9821980 64,893 5,581 1,659 7,240

U.S. GOVERNMENT - EPORT IMPORT BANK

DEBT OUTST(BEGIN OF PERIOD) PAYMENTS DURING PERIOD

INCLUDINGYEAR UNDISBURSED AMORTIZATION INTEREST TOTAL

1960 53,121/2 2,195 1,370 3,5651967 51,933 3,179 2,051 5,2301968 48,754 3,788 2,178 5,9671969 44,965 3,611 2,189 5,8001970 41,354 4,345 2,208 6,5541971 37,009 4,942 1,997 6,9391972 32,067 4,772 1,723 6,4951973 27,295 4,164 1,460 5,6241974 23,131 3,658 1,231 4,8891975 19,473 3,410 1,031 4,4401976 16,063 2,688 850 3,5371977 13,375 1,875 706 2,5811978 11,500 1,533 611 2,1451979 9,967 1,533 527 2,0601980 8,433 1,533 443 1,976

See footnotes at end of table

Table 5b: PERU - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEMIUM AND LONG TERIPUBLIC DEBT OUTSTAFDING INCIUDING UNDISBURSED AS OF JUNE 30, 1966, WITH MAJOR REPORTED

CHANGES JUly 1, 1966 - JANUARY 31, 1967 & (CONT.)

Debt Repayable in Foreign Currency

(In thousands of U,S. dollar equivalents)

_Pae 6

U.S. GOVERNMENT - OTHERLaDEBT OUTST

(BEGIN OF PERIOD) PAYMENTS DURING PERIODINCIUDING

YEAR UNDISBURSED AMORTIZATION INTEREST TOTAL

1966 58,577L2 693 637 1,3301967 70,377 851 938 1,7891968 71,126 962 1,147 2,1091969 70,16-4 963 1,160 2,1231970 69,201 963 1,135 2,0981971 68,238 370 1,099 1,4691972 67,868 259 1,085 1,3441973 67,609 148 1,071 1,2191974 67,461 391 1,092 1,4821975 67,071 1,317 1,239 2,556-1976 65,754 1,683 1,337 3,0201977 64,071 2,048 1,449 3,4971978 62,023 1,986 1,400 3,3871979 60,036 3,577 1,345 4,9211980 56,459 4,o48 1,216 5,264

LOAN FROM GERMAN GOVERNMENT

DEBT OUTST(BEGIN OF PERIOD) PAYMENTS DURING PERIOD

INCLUDINGYEAR UNDISBURSED AMORTIZATION INTEREST TOTAL

1966 20,000&- 160 1601967 20,000 - 268 2681968 20,000 - 415 4151969 20,000 667 563 1,2301970 19,333 1,333 570 1,9031971 18,000 1,333 530 1,8631972 16,667 1,333 490 1,8231973 15,333 1,333 450 1,7831974 14,000 1,333 410 1,7431975 12,667 1,333 370 1,7031976 11,333 1,333 330 1,6631977 10,000 1,333 290 1,6231978 8,667 1,333 250 1,5831979 7,333 1,333 210 1,5431980 6,000 1,333 170 1,503

See footnotes at end of table

Table 5b: PERU - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM AND LONG TERMPUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF JUNE 30, 1966, WITH MAJOR REPORTED

CHANGES JULY 1, 1966 - JANUARY 31, 1967 j (CONT.)

Page 7/1 Includes service on all debt listed on Table 5a except for

the following, for which terms of repayment are not available:Outstanding

including undisbursedas of June 30, 1966

Suppliers' credits $15,697,000 (of which $5,000,000 was cancelledin the second half of 1966)

Private bank credits 1,448,000IDB revolving credit 1,000,000Loan from Argentina 6,241.000

$24,386,0002 Amount outstanding is as of June 30, 1966; payments are for the entire year.

Interest payments include 3/4 of 1% service charge on loans from the SocialProgress Trust Fund of IDB.

Western Hemisphere DepartmentJuly 3, 1967