a akJAM £ RESTRICrED

Report No. PU- 19a

This report was prepared for use within the Bank and its affiliated organizations.They ud not aLept r fui ior i;s occurucy or completeness. The report maynot be published nor may it be quoted as representing their views.

T1'KT2R1NT A VTCiT A T BA,TNK M-ORD .1('CONSTQR 1TIO ADTTrTT, NDrT AXTLO1' L J.L%L1. II..'.4r. "A"JL.i. I 'A% A iII.L .. I %' -.LL'ILJ LJLJVLQ I N 1~±4

TXTT12DVp A -TFtC'NX A T 1~~ C'-DXA.'CTv A Cf=C-N1T A rTfTI?KT,_tP^AI,, XTA Dk'CXVTLP TASOITO

ARGENTINA

SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES S.A. (SEGBA)

APPRAISAL OF

1970-1972 EXPANSION PROGRAM

September 19, 1969

Public Utilities Projects Department

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Currency Equivalent

durrency Unit Peso (M$N)

US$1 M$N 350.0ITS$1 million n M$N 35O millionM$N1 . US$ 0.002857MIT1 millinn = IIS$ ;857

Measures and Equivalents

kw KilowattMw = Magawattkwh Kilowatt hourOwh 3 Gigawatt hour (million kwh)kv - Kilovoltkvn = Kilovolt-amnareMva - Megavolt-ampereT.m One kilometer (0.6914 milA)1 mile 1.6093 km

ABBREVIATIONS AND ACRONYMS

AyEE Agua y Energia Electrica

CADE Compania Argentina de Electricidad, S.A.

CIAE Compania Italo Argentina de Electricidad, S.A.

HIDRONOR Hidroelectrica Norpatagonica, S.A.

SEEM Secretaria de Estado de Energia y Mineria

SEGBA Servicios Electricos del Gran Buenos Aires, S.A.

SOFRELEC Societe Francaise d'Etudes et de Realisationsd'Equipements Electriques

YCF Yacimientos Carboniferos Fis'ales

ARGENTINA

APPRAISAL OF THE 1970-1972 EXPANSION PROGRAM

SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES S.A.

Table of Contents

Page No.

SUl.YARY AND CONCLUSIONS i - ii

1. INTRODUCTION .. 2......... ..

2. BACKGROUND ............ .. 1.

Performance under Previous Loans . . . . . . . . . . . . . . 2

3. THE BORROWER . . . . . . . . . . . . . . . . . . . . . . . . 3

Power Market .... . . . . . . . . . . . . . .... . . . 4Organization and Management . . . . . 5. . . . . . . . . .The Labor Problem ... . . . . . . . . . . . . . . .... 7Power Rates . . . . . . . . . . . . . . . . . .8

4. FINANCIAL POSITION AND EARNINGS . . 5 . . ... in

Audit . . . . . . . . . . . . . . . . . . inBalance Sheets ... . . . . . . . . . . . . . . . . . . . 10Current Position . . . . . . . . . . . . a . . . 12Past Earnings ... . . . . . . . . . . . . . . . . . . . . 12

5. THE PROJECT ... . . . . . . . . . . . . . . . . . . . . . 13

Description . . . . . . . . . . . . . . . . . . . . . . . . 13Cost Estimate - ..- - -Procurement ........ ............ 16Dishbirs ment. . . . . .. . . . . . . . . . . . . . . 17Consulting Engineers ................. . . 18Construction Schedu-le . .a . .a . . 18

h. JUSTIFICATION ...................... . 19

Demand and Sales . . ... . . . . . . . . . . ..... . . 19F'ltnwre Increases in System Capacity ... ...... ...... 20Assessment of SEGBA's Program . . . . . . . . . . . . . . . 21Incremental Rate of Retun. 21

7. FUTURE FINANCES .. 22

Financing Plan ... 22Future Earnings . . . . . . . . . . . . . . . . . . . . . .Future Financial Position .. . .24

8. AGREUTENTS REACHED DURING NEGOTIATIONS .26

List of Annexes

Annex 1 Installed Capacity, Peak load, Generation and Consumers 1965-1972Annex 2 Energy Sent Out, System Losses and Sales 1967-78Annex 3 Rate StructureAnnex 4 Balance Sheets as of December 31, 1967-72Annex 5 Statement of Debt as of December 31, 1968Annex 6 Income Statements 1967-72Annex 7 Sources and Applications of Funds 1967-72Annex 8 Details of SEGBA's Investment ProgramAnnex 9 Gran Buenos Aires System: Demand. Reserve and Firm Capacity 1966-78Annex 10 Gran Buenos Aires System: Installed and Effective Capacity 1968-78Annex 11 Incremental Rates of Return

Map

ARGENTINA

APPRAISAL OF THE 1970-1972 EXPANSION PROGRAM

SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES S.A.

SUMMARY AND CONCLUSIONS

i. This report covers the appraisal of a pro3ect for the expansion ofpower facilities in Buenos Aires during the three year period 1970-1972. Athird Bank loan to Servicios Electricos del Gran Buenos Aires S.A. (SEGBA)_of US$60 million, is proposed to help finance this project. SEGBA is thelarger of the two utilities supplying the Gran Buenos Aires area. where aboutone-third of the country's population and two-thirds of its industry are lo-cated. It accounts for about 50% of the electricity nroduced by all of theentities supplying the public in Argentina. In 1968, the maximum demand onSEGBA's system was about 11400 MW and sales to its more than 2 million eus-itomers were about 5.4 million GWh.

ii. The Buenos Aires power system has been characterized by shortagesof capacity through 1963/64 and subsequently, by a rela+ively slow row+hthrough mid-1968, reflecting the performance of the economy. The recent ex-pansion of business aci+it+y would in d icate -- r-opee+ for m.ore rapid overal 1economic growth. As a consequence, the demand for power is expected to growa+ rae o9.7% in0 716 4d ino . Al 1070 n A 1971 , as -- -eA with naverae

6% in recent years.

iii. The first Bank loan of US$95 million in January 1962 helped restoreadLe quatL L e po-wer supply- in BunsAires. rTeL secon loan of tc US 115 m'loniGU~U.L.C~J1JW~J 0U9Ly .LII4U~I=1'JD MIL.L =0. .5.110 ZC.WL515A LU00L, VI UJ4) MIU .I±±IUL [II

January 1968, enabled SEGBA, after a slow-down of several years resulting1rIo- a. per' .Lou o1 pUoiltical iLnltelrfere aiLU Weak riUa0gmnul n ILL ±>fU'4-UU, tU

resume the expansion of its generation, transmission and distribution facil-ities 'hrough the end of 1969. Tle proposeu third loun would help SE5BA con-

tinue the expansion of its transmission and distribution facilities through1972. The proposed project incluues only a small amount oI expenditure Iorgeneration, because the additional capacity needed in the mid-1970s would be

'1 . _- 1 n _ Ln_ t_ _ _ ._ _ A _ 1 _ _ ._ x _ _ _ _ _ _ _ . _. _ . _, t _ _ _ _- 1 _ . . ~- - 1 avaiVlablUJ.e Ifrom twU prUjects UCben6 ucnstrucucu by government agencleb, tne

El Chocon Hydroelectric Project, which the Bank is helping to finance (LoanNo. 577-AR), Ian a nuelear power station.

iv. Tne project is estimateud to cost US$247 million equivalent. Itsmain purpose will be to provide facilities to distribute the energy generatedby SEGBA and the two projects referred to above. It would result in an ef-ficient and economic network structure. SEGBA's technical staff is capableof carrying out the project with minimum assistance from consultants.

v. Contracts for equipment, materials and civil works to be financedout of the Bank loan will be awarded after international competitive bidding.Argentine manufacturers will be granted a margin of preference of 15th overthe CIF price of the lowest qualified foreign bidder. In addition, some ofthe equipment and materials needed by SEGBA may be procured locally withoutinternational competitive bidding and with financing from sources other than

the BlaUk. Such prucure,ent , however-, will be liU[LmitL L oU LU i a mUxinux-Wn 0

one-third of SEGBA's needs for each category of equipment and materials, andto (ii) a maximum price oI 38% above the CIF price oI the successfui foreignbidder for the same category of equipment and materials. The proceeds ofthe Bank loan would be applied only to the foreign currency component of theproject and to interest during construction on the loan.

vi. One of the purposes of the Bank loans to SEGBA has been to trans-form it into a modern, efficient and financially viable utility. The neces-sary institutional framework was provided at the time the first loan wasmade, and gradual improvement was expected to follow. This objective, how-ever, suffered a severe setback in 1964-66 as already pointed out in (iii)above, and was made more difficult to achieve by the inflationary conditionswhich prevailed until 1968. The present management, appointed in mid-1966,has begun reducing the number of personnel and eliminating uneconomic pro-visions of the labor contract and has made progress towards improving theorganization of the company and the quality of service to the public. Oppor-tunity was taken of a 6% decrease in power rates at the beginning of 1969,made possible by improved economic circumstances and efficiency of operations,to continue a policy, introduced in 1968, of correcting imbalances in therate structure.

vii. In connection with the financing plan for the project, the Govern-ment and SEGBA have agreed in principle that SEGBA would start to pay cashdividends and borrow small but increasing amounts from the market in orderto prepare itself to finance its expansion after 1972 without, if possible,further assistance from the Government and the Bank.

viii. The project would form a suitable basis for a loan of US$60 mil-lion, with a term of 20 years, including a grace period of 4 years.

ARGENTINA

APPRAISAL OF THE 1970-1972 EXPANSION PROGRAM

SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES S.A.

I. INTRODUCTION

1.01 The Bank has made three loans in the Argentine Power Sector, twoto Servicios Electricos del Gran Buenos Aires (SEGBA) and one to Hidroelec-trica Norpatagonica S.A. (HIDRONOR). The first loan to SEGBA (308-AR) forUS$95 million was made in January 1962 to complete a 600 MW thermal generatingstation and expand the transmission and distribution systems in the BuenosAires metronolitan area. The second loan to SEGBA (525-AR) for US$55 millionwas made in January 1968 to help finance the continuing expansion of its

generation, transmission and distribution facilities. The third loan (577-AR)for US$82 million was made in December 1968 to HIDRONOR, a government-ownedcorporation, to help finance the first stage of the El Chocon hydroelectricproject now being constructed on the Rio Limay about 1,100 km southwest ofBuenos Aires. Energy from this project will be supplied to SEGBA by meansof a 500 kv transmission line. The first stage, expected to be in operationin 1973, is estimated to cost US$317 million and will have 600 MW installed;the complete El Chocon-Cerros Colorados complex will have an ultimate capa-city of 1,650 NW.

1.02 A loan of US$60 million is now proposed to help finance a program

for the expansion of SEGBAts facilities in the three year period 1970-72.The proJect is estimated to cost US$247 million equivalent. It includes (a)a 220 kv transmission line around the metropolitan area which will connectSEGBA's system with transmission lines from El Chocon and from Atucha, thenuclear power station being constructed by the Argentine Atomic Energy Com-mission; and (b) further expansion of SEGBA's generating, transmission anddistribution facilities.

1.03 This report is based on the findings of the Appraisal Mission whichvisited SEGBA in April and May 1969, consisting of Messrs. A.D. Spottswood,Y. Rovani, T. Berrie and E.C. Wessels.

2. BACKGROUND

2.01 Argentina has an area of 2.8 million km , and a population of about23.6 million. In the past 17 years the population has been growing at a rateof 1.7% per year. In 1968, the gross domestic product (GDP) was estimatedby the Bank to be about US$17.3 billion equivalent, or US$732 Der cavita.Industry is the largest sector of the economy and accounts for 31% of the

GDP. After several years of stagnation, a strong expansion of industrialDroduction began in mid-1968. Over the past seventeen years, the GDP hasbeen zrowinz at a real rate of about 2.5%, but on a per capita basis the

growth was only about 1% annually. The relatively slow rate of growth ofelectricity production during the same period, about 6% annually, is in part

- 2 -

a reflection of the performance of the economy. Conversely, the power short-ages which existed from the early 1950s through 1964 undoubtedly had somebearing on the slow economic growth. For the next decade the annual rate ofincrease of electric power production is expected to average about 7% to 9%on the assumption there will be a somewhat more rapid overall economic growththan in the past.

2.02 The electric power sector in Argentina had, in mid-1969, a totalinstalled capacity of about 4,100 MW, not including "captive" industrialplant estimated at 1,670 MW, 600 M4W of which was in the Buenos Aires area.The total generation in 1968 by the entities supplying the public was 13,500GWh of which more than 90% was by thermal plants. All of the principal en-tities in the electric power sector are publicly-owned except Compania Italo-Argentina de Electricidad S.A. (CIAE), a corporation controlled by Swiss in-terests. As a rough approximation, power assets serving the public may beconsidered to have a value of, say, US$2.0 billion. Over the next five yearsthe annual investment in the electric power sector, including El Chocon, isexpected to average about US$280 million equivalent, or about 1.5% of theGDP in 1968.

2.03 The Buenos Aires system is by far the most important in the countrybecause of the large concentration of population and industry in and aroundBuenos Aires. It is supplied jointly by SEGBA and CIAE, which had in mid-1969 a total installed capacity of 2,092 MW. SEGBA is the principal supplier;CIAE serves about one-third of the Federal Capital and four of the 31 sur-rounding municipalities. In addition to its own generation, SEGBA purchasedenergy from Agua y Energia Electrica (AyEE), the federal water and powerauthority which had an installed capacity of 502 MW in the Litoral areacentered on Rosario. Thus, the Buenos Aires-Litoral system had available aninstalled capacity of 2,594 MW, all of which was thermal. The combined salesof SEGBA and CIAE in 1968 were 6,403 GWh, with SEGBA supplying 5,429 GWh andCIAE 974 GWh. The total number of customers connected to the combined systemexceeded 2.3 million at the end of 1968. Since January 1, 1968, all of thegenerating plants in this system have been controlled by a central dispatchoffice guided by a computer. In the Federal Capital and in the four sur-rounding municipalities served by CIAE, there is some duplication of distri-bution facilities but SEGBA and CIAE are now coordinating all phases ofplanning and operation. Such coordination is in accordance with covenants inthe existing Loan Agreements between SEGBA and the Bank which are reneated inthe Agreement for the proposed loan. Eventually, a merger of the two compa-nies may be effected, but in the meantime, the present arranaements are accept-able.

2.04 The 313 MW heavy water moderated, natural uranium power station atAtucha is scheduled to begin supplving 8EaRA in 1072 through an existing trans-mission line. HIDRONOR is scheduled to start selling energy to SEGBA in 1973.

Performance under Previous Loans

2.05 The program financed in part by the Bank's first loan to SEGBA in1962 was earried ont uice-ssfu11u . The first Of the two major ob,ectives,

- 3 -

the relief of the severe power shortage in the Buenos Aires area, was achievedin 1963/64. The second, longer term objective, of building SEGBA into an ef-ficient and financially viable utility suffered a severe setback in 1964 dueto Government interference, which led to the replacement of the board andmanagement. In the ensuing two years personnel increased sharply, the finan-cial position became critical and further expansion was delayed. Significantprogress was achieved, however, before the second loan was made, under the newboard and management appointed in mid-1966. For further details regardingSEGBA's performance through 1967, see Report No. TO-606a, dated January 10,1968, on the appraisal of SEGBA's earlier expansion program.

2.06 The second loan to SEGBA in 1968 helped to finance a part of its1967-70 expansion program which included a 250 MW base load unit for thePuerto Nuevo station, 140 iMW of gas turbine peaking canacity- the expansionof the 132 kv transmission system, the construction of new substations anda general exnansion of the distribution system. The oas turbineR are inoperation; the installation of the 250 MW unit is on schedule (completiondatp in Jine 1070)- The qtart. n-f onsntructinn nf the tfracsmisisn qfhsubfstinn

and distribution work was delayed because orders for equipment could only benlnred after th)e Bnnk loan was signedp As a result, it is expected that thework would now be completed in the first half of 1970 instead of in March 1969

ns originally A estimaed. Tt is also expeeted t'ha+ +'he fr-omreig rt-vpr-xc r-cst

of the project will be lower than originally estimated, due to the high pro-portion Or' eontacts won by Argentne mnuracturers ana to cavrins It

estimated that up to $9 million would remain undisbursed by the closing dateof Decemb.>er 31, 1969. SEGBA plans to request an extension of the closing dateof the loan to April 15, 1970 and cancellation of up to US$4.5 million.

-Z rpw r ncnt.rnWV-J. TEBORROW-

3.01 SEGBA, the proposed borrower, was formed in 1958 to take over mostof t1he assets and. responsibiLlities ofP 4the Com,pania 1-gentina le Electr:c`dad~ ~.11'~ I ~ 1 U W J.~0 ~I UIL ~JI., J 1h± 1I, UI~LL '.L~ i-JL L L UiCWU.

(CADE) a subsidiary of the Belgian Sofina Group, which had been supplyingel ectr i c, i ty in +he G&rea+t.er Buaenos A4 --e --ea s

4re a few years after the

first World War. The purchase price was paid partly in cash, and partly inA-gentine Governmuent bodsisueA at the enA of In'<.1 wben SEGBDA --8 r--

organized in connection with the first Bank loan. Some of CADE's distributionprope rIe:s -were transferred Io IAJ '1 E U niyLQn s:Lnarteu conIstr l-UcU"on o1

new generation and transmission facilities in Buenos Aires. Early in 1962,SEGBA toUU oLver al.l VI A-yE' power f.:lLL,es in uthe DUeosb HAires area, in-

cluding the former CADE distribution properties and the generation and trans-mission facilities lhen under constr-uction. New by-laus were approveu whichnestablished SEGBA as a stock corporation whose shares, wholly owned by theGovernment, were to be sold to private investors as market conditions wouldallow (see para. 4.08). A new concession, for an unlimited time, gave SEGBAthe responsibility for electricity supply to the metropolitan Buenos Airesarea.

-4-

Power Market

3.02 SEGBA's power market consists of the major part of the FederalCapital and 31 of the surrounding municipalities. It extends roughly in a

semi-circle, with a radius of about 65 km and includes the port and all im-portant suburbs. 'The population in this area is estimated at about 7.5 mil-

lion. In 1968, SEGBA supplied about 2 million customers, 85% of which wereresidential. Actual and forecast data on the power market are shown inAnnex 1.

3.03 SEOBA's sales for 1967 and 1968 by classes of consumers are given

1067 1068

Sales in Sales in % of % IncreaseConsum-er Groups GW...h (;wh tntal over 1Q67

Residential 2,123 2,285 421 7.6

Comum,ercial 535 597 11 0 11.6

Tn5Si,,+±i4l 1 IJS 1 637 Th1 i.

Other (pu7blic lighting,traction, pumping,Government, etc., __ oin0 16 19.4

4 AX7 c ,C IL _)C)I(n Cn I1L

3a 117 in SEBA's sales in 1006 11r those in 1967

is a considerable improvement over the corresponding increase of only 7.7%from, 9 iito 419i)<7 and 5:.5<rq r 1965 toA 1066. ITIV- gr-rrae or omer.L L W LU %J L,LJ - CL aI,. 1 ,-T J_ WI %Jr ~7'' '', .7t~-' *% . ' ± o ~cial and industrial sales indicate an increase in economic activity in theBuenJos A-- s area du_ing 1I96. Tn addition the air condltion.ing s-a- are

growing steadily. The sales to large industrial consumers (50 kw or more)increased b,y 15.4t in 16ovrthos 1967. L gohae

and 1968 of large industrial sales was 13-1/2%2 compared with the growth ofall industrial sales in the samle period of 12%. TLis trend is expected tocontinue provided no significant business recession occurs. The growth inresidential sales came more from the addition oI new customers than from anincrease in consumption per customer which has averaged about 1.7% per year,although it was 2.4%- in 1968. in the past two years about 400 new customerswere connected per working day.

3.05 SEC-BA's transmission and distribution losses in 1966 and 1967 wereabout 175 of the energy supplied to the network. in i608, the losses declinedto 15.2%. This decrease reflects the strengthening of SEGBA's network and theelimination of overloading in some parts of the system. Some further declinein losses is exnected as the improvement in the capacity of the network pro-gresses with the continuing of the expansion program, and by 1973 the lossesare estimated to be reduced to about 13.5%. 'This would be a reasonable fig-ure for SEOBA's system (see Annex 2).

-5-

.3. o6 SE nR s S peak ioad in 196o was 1,394 Mw and iz is expecea to reaen1,530 MW in 1969. Since 1964 the increase in SEGBA's maximum demand has aver-aged aDout 6% per year. Tne system load factor in 1968 was about 55> whichis on the low side. This would indicate potential for increased off peaksales for industrial and air conditioning use. if SEGBAMs distribution ex-pansion program had been more nearly complete, the increase in the demandmight have been greater. Tnere are a number of areas which still require re-habilitation or expansion before more load can be accepted. However, theprogressive expansion in the transmission system at 132 kv, in the number andcapacity of substations, and in the distribution network has enabled SEGBA toreduce outages drastically and greatly improve service to customers and volt-age conditions.

3.07 The installed generating capacity in SEGBA's system in mid-1969 was1,573 MW, consisting of 1,433 MW of steam capacity in three stations and 140MW of gas turbine peaking capacity at five locations. With the completion ofthe 250 MSW steam unit at the Puerto Nuevo station in June 1970, SEGBA's totalinstalled capacity will be 1,823 MW.

3.08 With an assured supply of generating capacity in the future andwith the expansion and improvement in its transmission and distribution sys-tems, SEGBA should be able to attract to its system in the next decade partof the industrial and commercial load now served by "captive" plants whichwere installed during the power shortages in the 1950s and early 1960s. Inmid-1969 there was still about 600 MW of this capacity in existence in theBuenos Aires metropolitan area. The amount of this capacity is expected todecline, but the rapiditv and extent of the decline will depend on the confi-dence which industrialists have in SEGBA's ability to supply their energyneeds with good security and on how soon their equipment wears out. Someindustries using process steam may never change to SEGBA because they canproduce their own electricity economically and others may be reluctant tochange because of SEGBA's relatively high industrial and commercial ratesand the sales tax which must be paid on electricity that they purchase (seepara 3.28).

3.09 SEGBA, however, has been successful in the past two years in sign-ing contracts with large industrial clients for substantial amounts of newload. In 1967, such contracts amounted to 140 MW and in 1968 they totalled260 MW. The connections to the system will be made gradually over a periodof years. For example, the demand for a large steel mill now under construc-tion at La Plata will start at 25 MW in 1970 and is planned to increase to75 MW by 1976.

Organization and Management

3.10 SEGBA has a Board of Directors of eight members, including thePresident and the Executive Vice President, appointed by the Government asthe only shareholder. The Executive Committee, consisting of the ExecutiveVice President and four department heads appointed by him is responsible forthe principal functions of the company. The proposed Loan Agreement providesthat any substantial changes in SEGBA's by-laws or concession would be an

- 6 -

even of default and that the Bank will be consulted prior to the appointmentof a new Executive Vice President.

3.11 The Executive Vice President, an engineer with long experience inutility and private business management, is supported by a team of ablemanagers and assistant managers. The organization below them, however, isdeficient. During the long period of stagnation and political interferenceunder the Peron regime, there was a gradual erosion of management authoritywhich led to the breakdown of existing controls. Also, an unfavorable laborcontract resulted in excessive numbers of unqualified personnel. Modern fi-nancial and administrative techniques were not introduced and the middlemanagement personnel which would have been necessary to develop and implementtheir. was not recruited. As a result, SEGBA by 1961 had inherited a highlycentralized, bureaucratic organization, in which standards of efficiency andquality of service had declined to very low levels.

3.12 In 1963, SEGBA engaged the International Middle West Service Com-pany as management consultants. Progress in modernizing SEGBA, however, hasbeen slow, due in part to the setback experienced in 1964-66, and in partto the magnitude of the problems involved. SEGBA's management was forcedto concentrate on the immediate task of planning and carrying out the ex-pansion programs, dealing with the labor situation, and resolving seriousfinancial difficulties.

3.13 liowever, some modernization has recently taken place. Billingshave been computerized, and about 70% of SEGBA's customers are now receivingtheir bills through the mails and paying through banks. This has led to sub-stantial improvements over the previous door-to-door collection system,through better service, speedier collections, and improved control over re-ceivables. The timeliness of financial and operating reports has also im-proved, and interim balance sheets are now available within 30 days from theend of each month.

3.14 Despite the progress noted above, financial controls and managementinformation remain inadequate. SEGBA has set up four working parties to pro-pose and implement improved systems, with the help of the consultants. Also,after some delay, SEGBA has started to decentralize its commercial and techni-cal departments. The responsibility for customer service, meter reading, col-lections not handled by mail, construction of low voltage lines, installationof transformers and connection of new customers will be delegated to the manna-gers of about 14 district offices, each serving 150,000 to 200,000 customers.This would constitute a malor step towards solving the dupliration, delays andlack of responsibility inherent to the present structure, in which all deci-sions must be referred to the higher levels of man_g_e_mnt. Two district of-fices have been set up to date. Progress is likely to continue to be slowuntil SEGBA is able to acquire sufficient additional managerial talent tocarry out these programs. During the next year, SEGBA will concentrate onimnroving its budgetary control systems and in addition, eect to st upfour more district offices. This program is realistic.

-7-

The Labor Problem

3.15 The Bank has; in the nast, called the labor nroblem to the attentionof both the Government and SEGBA, stating in July 1965 that a second loan wouldhe conditional on the initial resiilts of a rnoarm to reduceAlabor costs. Bythe time Loan 525-AR was made in January 1968, significant progress had beenmade to restore management autho +,heen the iO..ar.y,¶r +the nMber of personnel

had been slightly reduced, and initial steps had been taken by SEGBA towardsrevising the existing ,nfavorable labor controt in accordance with a pro-cedure established by a law of October 1967. It was then understood verballythat during 1968 personnel would bDe reduced by about 1,000 and -- a progresswould be made in revising the labor contract. No specific agreements were

in personnel after 1968.

3.16 The labor contract was amended Mlay 6, 1968 by a decision of theSecretaz y a Tb-or as arbDit'rator bDet-ween t1he ULgbht andu P'ower U'nior, and SEIGBA-/CIAE. This amendment removed most of the restrictions affecting SEGBA's andrCT A VIAs power to adjust workIng hoVurs, decide overtime, Lhi 're and promuole, em-ploy contractors and enforce retirement of personnel. In addition, it gavethe companies authority to revise staffing requirements and Job descriptions,the main sources of featherbedding, as necessary to improve efficiency ofservice and achieve full ernulo-yment ol personnel.

3.17 SEGBA has studied new staffing requirements and joD descriptionsfor some sectors of its activities, and some have been implemented with unionagreement, resulting in the cancellation of vacant positions and the transferof redundant personnel to construction or other work. It is only after studiescovering the entire company have been completed that a reasonably accurate es-timate of the number of redundant personnel can be made. It was generallyagreed in the past that the number of excess personnel amounted very roughlyto about 6,000, and that a reasonable ratio of consumers per employee wouldbe in the order of 100.

3.18 Since mid-1966, however, when a maximum personnel of 25,780 wasreached, personnel was reduced by about 1,400 to 24,400 at the end of March1969, including about 1,100 in the period since Loan 525-AR was made. Mostof these reductions have been obtained by enforcing retirement as permittedby the recent revision of the labor contract. SEGBA expects to continue re-ducing personnel, mostly through attrition, by a net percentage of about 1.5%per year. In selected sectors SEGBA further intends, by offering a year'sseverance pay, to encourage excess personnel to leave. Combined with thegrowth of SEGBA's operations, these reductions would result in gradual butsignificant improvements in efficiency. As an example, the number of consu-mers per employee, which was 73 at the end of 1966, would increase to about89 at the end of the current year and would exceed 100 in 1972, at the end ofthe project period.

3.19 In addition, SEGBA intends to transfer to construction work anaverage of about 300 men per year over the next three years as they are madeavailable by the gradual reduction in staffing requirements for operations.

- 8 -

3.20 This progrnm is realistic and the results already obtaineA con.stitute sufficient evidence that it will be carried out, provided that con-tinuitv in management and goverrunent support is maintained.

Power Rates

3.21 The concession of February 1, 1962, provides that SEGBA 's ratesshould generate revenues sufficient to produce a return of 8% on the averagevalue, expressed in dollars, of net plant in serv'ice, plus a notional valueof working capital equal to 5% of the average value of net plant in service.Depreciation charges are computed on the value, also expressed in dollars,of gross plant in service at year-end, at an average rate of 3% on all assets(except furnit ~ LLL ure and flxtures, 10rs;m andu vehicles 2 0S).

3° Fo wer rates are revised a,±nualy, effective -with the first meterreading of January, on the basis of a detailed application submitted by SEGBAto the Secretaria de Estado de Eniergia y Mineria (SEEfi), for approval. Theconcession provides that, if the 8% return to which SE(TBA is entitled hasnot been achieved (or has been exceeded) in any past year, the shortfall (orsurplus) must be compensated for by revenues of the year immediately succeed-ing. Changes arisin7 in labor and fuel costs during the year are to beautomatically compensated for by interim rate adjustments. Furthermore, ifchlages in economic circumstances, such as lower sales, devaluation of thecurrency, etc., could be expected to result in an insufficient net incomefor the current year, SEGBA can adjust its rates proportionally after in-forming the Secretaria.

3.23 The seven year period since the concession was made effective pre-sented particularly difficult challenges. While it may be argued that theGovernment and SEGBA departed in the two instances described below from astrict implementation of the provisions of the concession, there is no doubtthat SEGBA was able to maintain satisfactory levels of earnings and cashgeneration under most unfavorable inflationary conditions.

3.24 In 1964 and 1965, the Government caused SEGBA to reduce its de-preciation charges from 3%/ to 2% and granted lower power rates than requested.However, unlike the change in management, which took place at the same time,this action did not have lasting effects. The most difficult challenge ofthe period, a rapid depreciation of the peso accompanied by devaluations fromMItN83 per US$ in earl1r 1962 to M$N350 per US$ in 1967, was met by frequentrate increases which brought the 1968 rates to 4.7 times the level at theend of 1961.

3.25 At the end of 1967, however, the Government granted SEGBA onlypart of the rate increase required under the concession. Revenues from powersales were calculated to achieve the permitted 8% return in 1968, but not torecover the shortfall at the end of 1967 (see para 3.22). This shortfall wasto be recovered out of appropriations of M$N6.3 billion from the NationalEnergy Fund, to be transferred to SEGBA in the course of 1968 as extraordinaryrevenues. Prior agreement to this exceptional measure, made necessary byeconomic circumstances, was obtained from the Bank. The arrangements described

- 9 -

above were carried out satisfactorily. Actual earnings in 1968 exceeded theamount permitted in the concession, and another surplus is expected for 1969,despite a 6% average reduction in rates made effective in January.

3.26 The existing rate covenants have been repeated in the proposedagreements. They provide that SEGBA should seek. and the Government shouldgrant, the rates to which SEGBA is entitled under the concession. In addi-tion, they confirm that adequate depreciation charges will be maintained, ofnot less than an average 3% of plant in service.

3.27 Severe power shortages from the mid-50s to 1963/64, when the firstBank nrolect was comnleted. virtuallv eliminated incentives to apply com-mercial criteria for rate setting purposes. Power rates were generally un-bha1ranted in f'avnr of residential eonsumers. Average industrial rates weresomewhat above the residential level and commercial rates were significantlyhigher (see Annex 3 for details Of the rate strunture). The ranid denrecia-tion of the peso between 1962 and 1967 was met by frequent rate increases,of the order of 30% to 40% per anniim Any siznifi ent attempnt to rentifvimbalances in the rate structure under those circumstances would have re-quired even higher increases of residentlal rates and this was deemed in-advisable by the Government and SEGBA. The only adjustment in that periodwas a night hour reduction for ind-ustrial consl ly+ -n intr-oduce in 1965

but it was not until 1967 that the average revenue per kwh for industrialand residtl a! consumers becam-e equal.

.28 CS1DA is aware of tbe oanoalies 4n its 4ate structure. It needstime and Government support to rectify them. In 1968, the Government decidedto inres ------ -- es-identisl a rates and a'llowed SC!V-BA to appl - fie charge

for residential consumers. This partially rectified the imbalance betweenreiential ar, Lnutia rates. A thle bkegitnnin- Of 1n6n,ardcinores±ui4L.L Ji OL AU 'Ln'Uulrbl.a ra4. es.A. lL '.4± .LJ CL I. 1UUkA%.L W 4ALI J.L

about 6% in the rate level became necessary under the terms of the conces-s Lon . Th i s re duct'on -w-a s Auistribuuu tled between Ithle ralte c'lasses so as tLobring down the rates paid by large industrial consumers by an amount greaterthan average. MUe average frevenu pr kwh- ---...v ri nc,,maer in 1969

in,a. aw~. a~c * .&L~ l Y FJ. U - , IAIaV~ .5.4.15f. - --...l , a .f0Wa. .4fA

is expected to be M$N12.30 (USd3.5), from commercial and small industrialconsmers 1,l17.T10 (7c4I.. .an.d from. large 4industr.ial. cons-er MN.

(US02.4). The average revenues per kwh from all industrial consumers isex-LL,e LL U~ MdU i, Ji-1W41).L .UV %UQ*1 WJ1) * ILLAALA ±fL,.LM4 UA.LVC 15C0.V' 0%.LJ.. UI .5)1p^ected to be about M$1.0(r30. rdsra aesmysilb ohigh to attract the load of many large users with their own generating plant.CIor,mmercial rates a'lso remuain hi gh' ar,d some commercial "load r-uay similarly fail1to be attracted (see paras 3.o6 and 3.o8). SEGBA has indicated that it willcont.inue tLo stu dy :iLts ratk-e stCruct-ure ardl Ito adjust it. as opportunities arisein connectionL'J with the.LC annual.L rate A reviews.U .LS.. 0.0 'J~.1~JLJ4. LAL

in connection with the annual rate reviews.

- 10 -

4. FINANCIAL POSITION AND EARNINGS

Audit

4.01 Th-e auditing arrangem.ents with the firm Of Henrv Martin/ArthiirYoung are satisfactory. The existing covenant providing for the prompt aud-iti4n- of SEGBA's acrconitsc bhy qu,alif'ipr indepnendeti Annnintar+.Q has bean ra-

peated in the Proposed Loan Agreement.

Balance Sheets

4.02 Condensed balance sheets as of December 31, 1967 and 1968 arel,oso. 4 A-- 4. P lant is recorded in SEC-BA'IB b1,,,.. shee+ at his+ori^

cost although, as provided in the concession, dollar values of gross and netplan ~ are used for co.puting tbe amounns oe depreia+tion +t be charged wand

of net income to be earned. Foreign exchange debt is valued at current ex-chlange ratLes. The- le°feLCt ofP thspata rvlat i hwni he.nI 0,.~0 LL~ ± I.~I. V1-4 ULL.LO J901.± L±a.LC3 .i C VQOJA4.0,L V.LI LO- OLIIJWII .111 VivC LA1

densed balance sheets under "Exchange Difference."

4.03 A more meaningful set of balance sheets, expressed in dollars, ispresented in the last six coln-.s Of page 1 O4e A---- nne-x -4.C ---m 0,e a

(a) for plant in service and depreciation reserve, the dollar values allowedL.) Uy1A L1IconUes.LVLo IrI rLOU L10.A.LU purposeLs;..C, vu, AVI IVIC±L6± CA%.L1d.UJ6C UC.LJL,

the actual values expressed in dollars; (c) for other assets and liabilities,the1 peso -,lues converted ilnto dollars a' Ile exclange rale in ellect 4 stU teuL.J. US0U V0..A.U ~ %.LIC I U L 1-U % .L.LL .1-. UILC C 1-1 L&~~ . L .114 L,U at,06. I.iC

end of the fiscal year; and (d) for equity, the resulting difference betweendollar asse'ts and' dollar liabilities.

4.04 The adjusted capitalization is characterized by a high proportionof equity. A summary as of December 31, 1968 is shown in the following table:

In MillionsM$N US$ Equiv. of Total

Capital and Reserves

5% cumulative preferred shares,MIN 100 nar II,445 327 5

Common shares, M$N 100 par 25,038 71.5 12

Sub-total: Share Capital 36,483 104.2 17

Reserves and Surplus 29,134 83.2 13

Revaluation Reserve 100,905 288.3 46

Total 166,522 475.7 76

Long-Term Debt

IBRD Loan 308-AR 28,316 80.9 13IBRD Loan 525-AR 3,308 9.4 1Bonds and Notes-SODEC 4,356 12.4 2Eximbank and Foreign Suppliers 4,615 13.2 2Local Suppliers, Customers'

Deposits 1,377 4.0 1Caja Nacional de Ahorro 10,6oo 30.3 5

Total 52,572 150.2 24

Total Capitalization 219,094 625.9 100

4.05 Most of the debt, totalling about US$150 million and only 24% ofthe capitalization, is in foreign exchange. The two Bank loans, excludingabout US$45 million still undisbursed at the end of 1068, accounted for 60^,of the debt outstanding (see Annex 5 for details). With final payments beingmade this year on the suppliers' credits which financed the Costanera Stationand 132 kv ring completed in 1964, the only significant shorter term debtsstill outstanding are three loans from the Caja Nacional de Ahorro Postal,aggregating US$30 million equivalent, which will be fully repaid within thenext two years.

4.o6 The existing and proposed Bank Loan Agreements include a negativepledge clause and a debt limitation covenant. The incurrence of long-termdebt is limited by an assets test and an earnings test. Under the assetstest, SEGBA is not permitted to incur new debt if after the incurrence ofsuch debt, its net assets in operation plus work in progress would be lessthan 1-1/2 times total indebtedness. Under the earnings test, SEGBA couldnot incur new debt unless the maximum future interest payments on all indebt-edness, including the proposed new debt, were covered at least 1-3/4 times bynet income for the past twelve-month period or the last fiscal year. SEOBAcould presently meet both tests and incur debts substantiallv in excess ofthe amounts contemplated in the financing plan for the proposed project.

- 12 -

4.07 N.ew sh.ares were issued in _19 62 to +h- Go er.Ia en i4

n a-xchon-g for

its shares in the original SEGBA and its investments in the assets takenover from AyEE (see notes to Annex 4 for details). The equity gew rapidlythrough retained earnings (as only stock dividends were paid due to lack offunds) anid, to a le x through ents. As -h-in the pro forma dollar balance sheets, the par value of share capital has.ecoriUe only- c22%/ I ofte Goverm.ent''s revalued equiLJy in II BA now totalling

about US$476 million.

4.o8 The Guarantee Agreements for the existing and proposed loans recordthe Government,'s policy to encourage the investment of private savin,gs in SEGBAand to sell all of its common shares to private investors. SEGBA undertookunder the previous Loan Agreeents to use its best efforts to sell new shar-esto private investors to finance its expansion, and to follow a dividend policyconsistent with the need to encourage pri-vate investmernt in its electricityservices. No shares have been sold due to adverse market conditions, anddividends were paid exclusively in Stock due to shortage of cash. nl V1ieW oI

SEGB:P's improved financial condition, the company and the Government expectthat an initial cash dividend will be paid in i970 '(para. 7.03)).

4.09 Under the proposed Loan Agreement, SEGBA undertakes to use its bestefforts to borrow from private sources and to sell new shares to private in-vestors, in order to prepare itself to finance the expansion of its serviceswithout, if Dossible, further assistance from the Government and the Bank.

4.10 During negotiations, SEGBA indicated that it would, within the limitsprescribed by Argentine law, revalue its balance sheet on a basis consistentwith the concession, in order to allow a meaningful presentation of its finan-cial condition. (see paras. 4.02 and 4.03).

Current Position

4.11 Working capital is ample. Current assets at the end of 1968 wereM$N38 billion, as compared with current liabilities of M$N22 billion. This isdue partly to excess earnings and partly to the delayed expansion in 1968 (seeparas 4.13 and 2.06). Cash was about M$N6.0 billion, well in excess of SEGBA'sworking needs. The surplus cash would be used in financing the proposed pro-gram (see para 7.05).

4.12 Accounts receivable from Government authorities and agencies amount-ed to about M$N4.5 billion at the end of 1968, equivalent to about 12 months ofbillings to these customers. These accounts have been reduced during 1969 andthe Government has undertaken to ensure prompt payment in the future of amountsdue to SEGBA by its agencies.

Past Earnings

4.13 Income statements for the two years ended December 31, 1968 aregiven in Annex 6. Net income for 1967 was about M$N13 billion, equivalent toa return of 6.8% on the dollar rate base. Due to devaluation of the pesoduring the year, from M$N247 to M$N350 per dollar, the earnings shortfall of

- 13 -

M$N3.2 billion at the end of 1966, which was to be recovered out of 1967 re-venues, increased instead to about M$N5.5 billion at the end of 1967. Basedon an earlier, higher estimate, the Government provided M$N6.3 billion toSEGBA in 1968 as extraordinary revenues to offset this deficiency (see para3.18). In 1968 sales increased more than forecast while, for the first timeon record, operating expenses were within estimates, resulting in a net incomeof M$N25 billion, equivalent to a return of 12.5%, and excess earnings ofM$N3.5 billion. Interest coveraaes continued to be amnle repfelting the satis-factory earnings and the relatively low debt. See Annex 7 for details ofactual sotrees Fnd aplnnieatinn of' ftndq in 1967 nrnd 18Q.R

5. THE PROJECT

ne rint on

5.*01 The proposed pro 4ec+ is +he cont4inuing exp-.sov.4 of4 SEGB's eea

tion, transmission and distribution facilities during the period 1970 through1972. TIhe expendi-ues on +he proJec+ &-e es-la+ed +o +otal -$W-bllo(US$247 million) of which M$N1O billion (US$28 million) would be for the com--pletion of QSEv'MAIB 1967=70 ------- the remalnder, MW$77 bil -lon CT29 tlln -41

lion) would be for SEGBA's new 1970-72 program.

5.02 The balance of expenditures on the 1967-70 program which will bemade in 1970, will cover: (a) the completion Of the 250 t steam. turline baseload unit in the Puerto Nuevo station which is scheduled for commercial oper-ation in T-ne 1970; (b) the conti.nuatlion of 4the --- exasion o., the 'Ion kv sub-~~ ,LAA U IA4t' .L.' I %V I J A I.L4UhAG.±,A '.L 111 IAZJOLPCL.LA.1 IJ V.II .L_J AV Sul-

stations, transmission lines and of the low and medium voltage distribution

Puerto Nuevo station to enable them to burn coal. In 1968, as a result ofthl'e government po'l.cy for incea ng the1 -osrt fAgetn ol n~ov~IJieL. ~J4..±.3( Ur L .LLu w,LL uUL1LLumpt'L±ULAU .rgeu1,.LLIU CUU.±, U

after consultation with the Bank, SEGBA agreed to increase its usage of coal1roM 151,000 ts i tons in 1967 to tons in 1972. Lne coal will be supplied

by Yacimientos Carboniferos Fiscales (YCF) the state coal agency. YCF will_: _fOr' A ._', .U - ---U A U_ 1 L JIJ ,.._S. _ _ _ nrevilmlLurse J11 J. L LiLe osUn Uof 'ILe bUoile moUdUicUations WanU sbrucUtu tU4L

handling equipment; payment for the coal will be based on the cost of fueloil hLaV±Ing ain eqUiV-lenIL hieat, content.

5.03 T-ne expenditures on SEGBA's new 1970-72 program will cover primarilyextensions of its transmission and distribution systems. A relatively smallincrease in generating capacity is contemplated, namely: (a) tne instaiiationof 90 IMW of gas turbines (see para 6.06); and, (b) minor improvements of ex-isting capacity.

5.04 The transmission program includes: (a) a 220 kv overhead doublecircuit transmission line, in an arc about 119 km long around the metropol-itan area, with appropriate step-down connections to the 132 kv network; and,(b) underground and aerial transmission lines from SEGBA's generating plantsto the load centers. Power from Atucha will be fed into the system at theM1oron substation. The 500 kv line from El Chocon will interconnect at HIDRONOR's

El Pino substation which steps the voltage down to 220 kv. At El Pino, SEGBA

will be responsible only for the 220 kv equipment beyond the 220 kv terminals

of the step-down transformer. The rest of SEGBA's transmission program in-cludes: (a) 10 new 132 kv substations; (b) a 220 kv switching station; (c) a

second 220 kv substation; (d) extension of 10 existing 132 kv substations; and,

(e) about 136 route km of 132 kv lines.

5.05 The program for distribution includes: (a) rehabilitation of the

existing network; (b) reinforcement of the distribution system in general;

and, (c) the extension of the network to connect additional consumers. The

latter involves: (a) laying about 850 km of underground cables; (b) 1,200 km

of overhead 13.2 kv lines; (c) over 6,200 km of low voltage lines and cables;

(d) the installation of over 2,500 transformers; (e) 351,000 meters; (f)

about 100,000 new connections per year; and, (g) public lighting. SEGBA has

decided to phase out gradually the old 27.5 kv transmission voltage and the

6.5 kv distribution network both of which have become inadequate for the

present loading conditions. Fortunately it is technically possible to uprate

the existing 6.5 kv circuits to 13.2 kv at relatively little cost. For fur-

ther details of the program see Annex 8.

Cost Estimate

5.o6 The table below gives the estimated cost excluding interest during

construction of the proposed project by major items:

- 15 -

----------In M$NN-------- --------In US$ ---------Local Foreign Total Local Foreign Total

…_____---------------…Millions---------------------

Equipment & Materials

Puerto Nuevo No. 9 190.0 433.5 623.5 o.6 1.2 1.8Gas Turbines 156.0 2,275.0 2,431.0 o.4 6.5 6.9Other Generation 952.3 723.2 1,675.5 2.7 2.1 4.8Transmission & Distri-

bution 12.129.7 14.133.0 26,262.7 34.7 40.3 75.0

Sub-Total 13,428.0 17,564.7 30.992.7 38.4 50.1 88.5

Civil Works

Puerto Nuevo No. Q 475.6 i49.9 625.5 l.3 0.4 1.7Gas Turbines 344.0 60.0 404.0 1.0 0.2 1.2Othpr Ceneration 670.9 67.0 737.5 1=Q 02 P1Transmission & Distri-bution 34,753.1 6,883 7 41,636.8 -AQ3 l. 118 9

Buildings 3,944.0 706.0 4,650.0 11.4 2.0 13.4

Sub-Total 40.187.2 7,866.6 48,053.8 114.9 22.4 137.3

Other

Vehicles, etc. 1,450.0 - 1,450.o 4.2 - 4.2Consultants - 710.0 710.0 - 2.0 2.0Contingencies 3,484.6 1,915.4 5,400.0 9.9 5.5 15.A

ESTIMATED COSTOF PROJECT 58,549.8 28,056.7 86,606.5 167.4 80.0 247.4

5.07 These cost estimates are based on the most recent actual cost ofinstalling similar facilities and include about 7% for contingencies. Thetotal cost and the foreign exchange component of the equipment and materialsfor transmission and distribution will depend in part on how much is procuredlocally and at what level of effective protection. Under the procurementarrangements described in paras 5.09 and 5.10, however, the effects of thesetwo factors on the program's cost and financing plan would be insignificant.The foreign exchange content of equipment and materials would in any case bemore than the loan amount to be allocated for its financing, ensuring thatthe use of the loan will not be affected by the origin, local or foreign, ofsuch procurement.

5.08 The proposed Bank Loan would finance the foreign exchange cost ofthe items shown below:

- 16 -

US$ millionEquipment & Materials

Transmission and Distribution 34.0

Civil Works

Puerto Nuevo No. 9 0.3Gas Turbines 0.2Transmission and Distribution 14.9Buildings 1.0

Other

Consultants 1.7Contingencies 2.9

Construction Costs 55.0

Interest during constructionon the Bank Loan 5.0

Total 60.0

Procurement

5.09 The arrangements under the proposed loan for the procurement of

equipment and materials may be Asmrn.arized as follows

SEGBA w411 invte hbita r'Q.,5,1 fo r rn,ntitipc

equivalent to two-thirds of its needs of each category ofequipment or materials and vill request cz.1nim,i1t tQ_niie1%usseparate bids, from Argentine manufacturers only, for anadditional one-third. In aw tvdingr contracts fo-r the main

quantities bid internationally, a 15% margin of preferencewill. 1be granted too Argentine bidders over +th CIF -rice of

the lowest qualified foreign bidder. Under Argentine law,locall. ranufactr ers will also be exem..pt fro. sals t --ndimport duties on raw materials and component parts.

If an Argentine manufacturer bids successfully under the 15%pref-erence, SEGBAt mLay alsoV invite LAirU toV su4Jppljy thWadiioa

one-third at the same unit price bid for the main quantity.

If a foreign bidder is awarded the contract for the mainquantity, the senarate Argentine bids for the additionalone-third will then be opened. The corresponding secondcontract will be awarded to the lowest Of the Argentinebidders provided that (i) his quoted price is less than38% above the CIF price of the successful foreign bidder

- 17 -

above or, if not that ti4) he is wiling to reduce hisprice to such level. Equipment and materials procuredlocally *.nder th',,ese conditions will no.ot bLe eligbl for'

Bank financing.

- If no Argentine bidder is willing to reduce his price,the successful foreign bidder for the main quantity maybe invited to supply also the additional one-third, atthe same unit pr'ce.

5,. 10 The procurement arrangements described above would thus ensurethat:

(a) the Bank will finance only equipment and materials pro-cured through international competitive bidding, includinga maximum domestic preference of 15%;

(b) local procurement without international competitivebidding, to be financed from sources other than the Bank,would be limited to (i) a maximum quantity of one-thirdof SEGBA's needs for each category of equipment andmaterials, and to (ii) a maximum price of 38% above theCIF price of the successful foreign bidder for the samecategory of equipment and materials. In this case theother two-thirds would be awarded to the successfulforeign bidder. The cost of SEGBA of the combinedforeign and local contracts would average a maximumof about 12.7% above the cost of the foreign bid.

5.11 Civil works contracts would also be awarded after internationalcompetitive bidding but it is doubtful whether foreign contractors would com-pete because of the relatively small size of the individual contracts. SEGBAuses a system of prequalification whereby civil contractors are divided intocategories according to size and ability to carry out jobs of different mag-nitudes. The arrangements for procurement are satisfactory.

Disbursement

5.12 The proceeds of the proposed loan would be disbursed to finance:(a) the CIF cost of imported equipment; (b) the foreign exchange componentof the cost of equipment procured locally as explained in para 5.09 and theforeign exchange component of civil,works, on a percentage basis, (c) con-sultant's services; and (d) up to US$5 million to cover interest and othercharges during construction; all of which is reflected in the allocation ofproceeds schedule. To permit SEGBA to make retention payments after thescheduled completion of the Dro.ect at the end of 1972 (see para 5.18), theclosing date would be June 30, 1973.

- 18 -

Consulting Engineers

5.13 SOFRELEC has been retained as engineering consultant to SEGBAsince October 1965 and has assisted SEGBA in a variety of ways, includingdesign, project preparation, supervision of construction and improvement ofoperations and maintenance. SEGBA now has the necessary skills to plan andoperate its system without full time consultants. Accordingly, it has enteredinto a new contract with SOFRELEC under which, supported by Electricite deFrance, it will assist SEGBA on request in each particular case with: (a)studies of the stability of the transmission system; (b) lay-out of projectsand preparation of specifications; (c) comparison and evaluation of tenders;and, (d) operational problems of power stations and of the transmission anddistribution system.

5.14 SOFRELEC may carry out the work, according to its importance and itscharacter, either in Paris or through long- or short-term missions to BuenosAires or, if so requested by SEGBA, by establishing a permanent mission inBuenos Aires; the type and size of such a mission would be in agreement withSEGBA. These arrangements for consulting engineering services are satisfac-tory. Any changes will be subject to the approval of the Bank.

Construction Schedule

5.15 The construction of the 250 M4W unit in the Puerto Nuevo station ison schedule and no difficulty is expected in having it in operation beforethe winter peak of 1970. SEGBA has accelerated the pace of construction forboth transmission and distribution now that the equipment procured under loan525-AR is being delivered in increasing volume. All orders placed with localmanufacturers under this loan are scheduled to be delivered by the end of1969. These cover a very substantial part of the equipment required for thedistribution network, since under the last Bank loan local manufacturers weresuccessful in winning 87% of the contracts for the supply of such equipmentfor which they competed.

5.16 In order to keep up the momentum on the construction of its trans-mission and distribution systems, SEGBA planned to call for bids in August andSeptember 1969 on about US$8.5 million worth of oil filled cables, breakers,insulators. transformers, switchgear and related equinment scheduled for in-stallation during the period of the project. Orders for this equipment areexnected to be nlaeed late in 1969, after the loan i- made, but no paymentswould be made on the eauipment until deliveries start in 1970.

5.17 The 220 kv transmission line and practically all of the 132 kvlines will be erected by contractors with SEGBA supplying the conductors,insulators and hardware. There will be numerous contracts for laying under-ground cables, construction of substations and erection of tro + n,es ofequipment for the transmission systems. These contracts are generally forperiods of ten to fourteen months. About half of the construction on thedistribution network will be carried out by contract and the remainder bycvEDAt's o.. orces.

- 19 -

5.18 The project is scheduled to be completed by the end of 1972. Toaccomplish this SEGBA will have to sustain a high level of activity both inprocurement and construction. The pace-reached by mid-1969 indicates thatSEGBA could carry out the project as scheduled.

6. JUSTIFICATION

Demand and Sales

o.0l The number of customers awaiting connection at the end of 1968 to-talled 60,000, a rather large waiting list which has not declined since 1967.It amounts to a backlog of about seven months' work to make the required con-nections. Not included in this figure are customers in the 'barrios' I/ orgroups of poorer class housing where it is estimated that a further 100,000customers are awaiting connections.

b.02 SEGBA follows careful nroeedures for estimathin the fuiture demandson its system, on the basis of nine year projections of load growth in eachof the 21 zones in its service area. Tn the past, SEGBA's estimates of loadgrowth have been rather accurate. In 1966 it estimated peak loads of 1,319iW for 1967 and 14i12 MW for 1968. The actual loads were 1,316 MW in 1967and 1,394 in 1968. SEGBA's maximum demand is expected to increase from 1,394'NJ in 1968 to 1,909 in 1972. The growth rates would be 9.7Z in 1969, 8.0% in1570 and 1971 and about 7,% thereafter.

6.03 SEGBA estimates its growth in sales by analyzing the probable growthin each class of conslamer to reach an estimate for over-all sales growth andadjusts its estimates every year. Estimates have been reasonably accurateexcent for a lar-e overestimation for the e-ly 1°60s (when a recession occur-red) and an underestimation for 1968. The large growth in sales of 11.4% in1968 over the preceding year and the forecast growth of 12.4% in 1969 are theresult of an expansion in economic activity which affected industrial andcommercial sales more than expected. A comparison of the sales estimatesmade in 1966 with actual results for 1967 and 1968 and present estimates for1969 and 1970 is shown below:

1967 1968 1969 1970-Sles in (,Wh)

1966 Estimate 4,860 5,230 5,620 6,o40

Actual* and Present Estimate 4,875* 5,429* 6,100 6,620

1/ According to regulations, a barrio is a compact group of at least 20houses 'ha' Jointly reouest to be connected to the system, and in whichthe consumers must contribute to the cost of the distribution network asexDlained in Annex 4, Note 2.

- 20 -

6.o4 SEGBA estimates its sales will grow at a rate of 8.5% in 1970,9.4% in 1971 and then at a declining rate varying from 7.3% in 1972 to 7.0%in 1978. The estimate of about 7.0% inCrease per year after 1971 may beon the conservative side. Under the above assumptions SEGBA estimates thatits sales will increase from 5,429 GWh in 1968 to 7,240 GWh in 1971 and7,770 GWh in 1972. For the growth in energy sent out and sales to 1978 seeAnnex 2.

Future Increases in System Capacity

6.05 As shown in the table below. SEGBA did not have in 1968 nor willit have in the future sufficient capacity, with the largest unit out of ser-vice, to meet the maximum demands of its own consumers and must depend oncapacity from CIAE, AyEE and others for this purpose:

SEGBA Only (NW)

Actual Forecast

1Q68 1969 1970 1971 1972

Plant Capability 1,550 1,550 1,800 1,890 1,8904ayimum Demana i,3Q4 I590 1,62 l784 1,OnQDifference Without Minimum

PpRsrve AllnwaneJAe l56 20 148 106 (19)Deduct largest unit (185) (185) (237) (237) (237)Shortage with largestunit out of service (29) (165) (89) (131) (256)

6.o6 The following additions to the capacity of the Buenos Aires-.Litoralsystem are envi-s-ged through l973:

(a) CIAE's 250 M, unit in Ma,y 1060;(b) SEGBA's 250 MW unit in 1970;(r.' rTAP'. ql MIW n-P - i 4 n,&.4,a 4,- 1071(c) --E' 35 .W' -of -a turbines in 1971;(d) SEGBA's 901MW of gas turbines in 1971;(e / -313 li,.4 nuclear poow0er station at AUtcha in 192;7 and,

(f) 400 MW from El Chocon in 1973

The table below shows the expected capability to supply the maximum demand onI.1~ ~AU±IIU D~LO~ ±Lb.LLUU~. bTb .0Ii ULL, 4. U1UU InOn LL.U5In"^thle combined B-uenos Aires-ULitrl sytr fo h eid199truh17

(see Annex 9 for extensions up to 1978, and Annex 10 for the list of existingaIU future gelneruling stations)Jj.

- 21 -

Buenos Aires-Litoral System (MW)

Actual -------------- Forecast------------1968 1969 1970 1971 1972

Plant capability, gross 2,330 2,530 2,780 2,905 3,105/a

Reserve/ 312 377 389 396 406

Firm capacity 2,018 2,153 2,391 2,509 2,699

Maximum demand 1,883 2,053 2,221 2,405 2,574

Surplus 135 100 170 104 125

-a Although the nuclear power station will have an installed capacity of313 MW, only 200 MW is expected to be available in 1972.

/b T'he reserve includes the largest unit (less auxiliaries) plus 5/O of theeffective thermal capacity. It is intended to meet unanticipated out-ages and allow for possible errors in estimates of future demand.

Assessment of SEGBA's Program

6.07 SEGBA's expansion program has been closely coordinated with that ofCIAE. It is based on the estimates of load growth discussed in paragranh6.02. The sizes for equipment have been well chosen and the program has beenreviewed and anoroved by SEGBA's consultants- SQFRFLRC.

6.08 The facilities in SEGBA's program are urgently npeied to enableSEGBA to keep pace with the increase in demand in its service area as requiredunder its conepssion- Withont thee faeilities, and especially without the220 kv transmission line, SEGBA could not efficiently utilize the energy fromEl Chocon and Atucha. A continuing exnansion of the faeilities necessary tosend electricity to the ultimate consumer is needed to prevent overloading ofthe existing svstem. The nroniet would resuIt in nn pfficiet andenm

network structure.

Incremental Rate of Return

6.og The incremental rates of return quoted in this report are calculatedon the basis of the eash flow with 'rePn t to t eonom asa whole. Ta esare therefore excluded from costs but are included in revenues, since theyform nart of' the gross revenues from n hih t cah flow is derivedl T,he re-

sultant returns are therefore greater than the corresponding financial returnsearned by SRF,A but less than the full economic returns, -hich include bene-

fits normally recognized as being unquantifiable. The incremental rate ofreturn of the nroiect is the discount rate at w-hich the present worth of the

caoital costs of the project equals the present worth of the gross revenues

- 22 -

derived from it, less operating expenses, over its life. The project is madeup of a very large number of different types of equipment; because the util-ization of these within the existing anid likely future system is extremelycomplex. it has not been nossible to senarate the revenueq attrihiifPhIp en

the project and calculate the return for the project as a whole. It has,however, been nossible to estimate returns for parts of the projlect whereattributable costs and revenues can be determined i.e. for extensions ofeleetrieitv upnnlies to the "harrios" or settlemepnts housing lower-income

families. Annex 11 gives details of the calculations. The present value of,gross revenues less oneratina expenses attributable to the extension of sup=olies to the barrios, equals the present value of the attributable capitalcosts at a discount rate of 11% for the smaller (50 house) barrios and 18%for the larger (500 house) barrios, on the basis of the present levels ofcosts, electricn4fit, ra+es and +0>Yes

6.10 The average consumption of electricity in wellestablished barriosis currently only about 70% of the average for all residential consumers.When first co-nnected the barrio revenues to SEGB`rA are as low as -.abou US$1.T86 'Joper customer per month and are likely only to double over the project's life.Due too the co1-Uivl Chigh cos of. extedin supplie -dte-oevlO~~ ~ ~ ~~. V L V 1 w'LV L A J. Dk4PP_L. ~ L±Vb d.lIU W,it! .LUW 1etVt!. CI

expected revenues, barrio electrification is judged likely to be one of themarginal parts of the pro-ect (i.e. likely to earn one of the lowest incre-mental rates of return among the various parts of the project). On thesegrounds the incremental rate of return on the project as a whole is probablyhigher than 18%.

7 L'TTMTMVlt VTTTA1TfTnV

Financing Plan

7.01 A forecast of sources and applications of funds for the four years1969-1972 is attached as HAnex 7 along wi'th comparable actual data for 1967and 1968. SEGBA's construction expenditures for the four year period areestimated at `,N115. 7 billion (US$330.7 miilon equivaient), consisting of (a)the three-year 1970-1972 project totallinsz M$N86.6 billion (US$247.4 millionequivalent), as described in Chapter 5 and (b) estimated expenditures ofT.IN29.1 billion (USZS83.3 million equivalent) in 1969.

7.02 The financing plan for the four years through 1972 is summarizedbelow (in billions of pesos and millions of US$ equivalent):

- 23 -

Total1969 1970 1971 1972 1969-1972 %) (.tN_) TiT$N) T TiN) (TFUN) O (- u-S.T)

Internal Cash Generation 26.0 27.6 32.5 34.7 120.8 345.2 104.3Less: Debt Service 12.7 11.9 14.8 13.2 52.6 150.3 45.4

Dividends - 3.3 3 6 3Q9 lo 30.8 Q93Bonus, etc. 1.4 1.7 1.8 1.8 6.7 19.1 5.8

Net Internal Cash Gen. 11.9 10.7 12.3 15.8 50.7 145.0 43.8Variatirnn in Wnrkina CaPn 0 4 10.1 0.0 (42) 6.3 18.0 5. 4YCF Contributions 0.1 0.2 0.2 0.2 0.7 2.0 o.6

Sub-total: Own Resources 12.4 21.0 12.5 11.8 57.7 165.0 49.9TRDn Tnrn 525-AR 12.8 1 * 5 - 14.3 41.0 12.4Proposed IBRD Loan - 6.7 6.8 7.5 21.0 60.0 18.1Supp1iers' Crdit 3.9 1.1 1.9 Q 6. 19.7 6.0Proposed Market Issues _ 3.5 5.3 7.0 15.8 45.0 13.6

Sub-total: Borrowings 16.7 12.8 14.0 14.5 58.0 165.7 50.1

Total 29.1 33.8 26.5 26.3 115.7 330.7 100.0

7.03 The Government and SEGBA have agreed in principle that SEGBA wouldst-art boro_;win on th-e ca+X ita! ;akti 17A anA wou,)A cotiu :_boo -_e __

_ * L , Iy ( ti %lit.. JtJ tJ.J..LL I.AJJ .L v.LII VVJ .L 13W UW.Lit

through the construction period of the project, in order to prepare itselfto finance its expansion beyond 1r972 wit a JII.iimmI o UfL LrOe hlfotBank and the Government. For the same reason, SEGBA expects, also with theagreement of the Government, to start paying cash dividends in 1970, out OL1969 profits, on preferred and common shares (see para 4.08). These policiesare reflected in the financingL plaur aove id were taken int,o account in de-termining the amount of the proDosed loan. Though no sales of new sharesare contemalated in this financing plan, any cash raised from sale of sharesto the public could replace some of the assumed borrowings, since such saleswould further the same desirable obJectives. Ample worki,ng capital providedthroughout the period would allow (particularly for the first issue) timingOf the issues according to m,arket conditions~ and avoid conflict with theGiovernment's own borrowing plans. It is expected that the first issue willbe Dlaced Drior to July 31 , 1970, market conditions permitting.

7.04 Cash dividends were assumed at 5% of par on preferred and 8% oncommon shares. In addition, a 10% stock dividend would be paid on commonshares. hle cash dividends payments would average US$10 million per year in1970 through 1972 which is quite small; annual dividends would be less thanone-third of net profits and 2,Z of the dollar value of Government equity.Such dividend payments should therefore be increased as availability of cashallows (see also para 7.09 below).

7.05 Internal cash generation, net of debt service and dividends,would amount to US$145 million equivalent, or about 44% of total require-ments. About Us$18 million equivalent would be contributed from excess

- 24 -

working eapital at the beginning of the period (see nara 4.11), Fnd aboutUS$,2.0 million would be paid by YCF as explained in para 5.02 and Annex 4.

7.o6 I'he proposed borrowings would total US$166 million equivalent,cnis+,ng of, (a). s+i - isbursmern+s of US$6T.5 m4 il

1 4ion in 1969 and

US$4.5 million in 1970 under Loan 525-AR, bringing total disbursements toQ505* C ,illion; (b) the proposd- lon f UTjQ40 million , -umed to carry in-

terest at 7% and a term of 20 years, including a 4 year grace period; (c)suppliers' credits aggregating about USZI9'.L7 m I 4 .and (A) borrowings4-

from the market of about IJS$45 million.

7.07 Most of the suppliers' credits have already been obtained fromElmbIHLank, ,oeb supler andL U. LIU, fo a. smale proportion,= local su'CLL0LLp.p_liers

in connection with the 250 11W unit being installed in the Puerto Nuevostation nld thie coaul firing andl coaL handling equiUment referred Lto inpara 5.02. These credits, which are for reasonably long terms, would be-used in 1969 and 19 70. ILt was ass-aeu metat the gas turbines ref-erreu lo

in para 5.03 would be financed by 8 year foreign suppliers' credits to theOrd ~~~~~~~n ~ ~ ~ ~ - -- L -- q,rn ' 1. -i i i ., /.dwrr nextent ol 8%o OI 'hreir foreign exchnIIge cost, or abou UDO,.'. m±±L±iln, ($i.pii±.9

billion).

7.08 Annual borrowings from the market of US$10 million in 1970, US$15million in 1AJ71 and US620 million in 1972 have been ass-ned. Based general-ly on an actual offer received by SEGBA, they were assumed to be in the formof 8O SEGBA foreign currency bonds issued at a 06 discount, including costs,and repayable in ten equal annual installments starting after one year.Local borrowings wouid be equally satisfactory, provided a minimum term of,sav, 10 years can be obtained, but this is not likely at present.

7.09 SEGBA's ability to borrow publicly has not been tested previously.Consequently, despite the large borrowing potential that SECTBA's sound fi-nancial condition and earnings indicate, only relativelv small amounts ofborrowings could be expected at this time. It would be desirable to in-crease them later in the neriod in the light of actual favorable experience,and any cash surplus so generated could be used to increase the cash dividendnow contemplated. On the other hand, should market conditions prove unfavor-able, the risk for the program would be minimal: the net cash to be con-tributed in the four year period from the US$45 million gross issue amountwould only be about US$39 million, after discount and amortization in theperiod are deducted, as compared with cash dividend payments of about US$31million in the last three years of the period, SEGBA would pay dividends instock rather than cash and the net gap of US$8 million could be offset easily,given the conservative working capital position and the availability of short-term local credits.

Future Earnings

7.10 Forecast income statements for the four years 1969-1972 are shownin Annex 6. Sales are forecast as indicated in paras 6.03 and 6.04. Ope-rating expenses are estimated to be at current price levels, except for fuelcosts which would increase by 10% on January 1, 1970. Labor expenses wouldremain at their 1969 level since expected increases in individual wages for

- 25 -

seniority and promotions of about 3%, would be offset by savings in laborexpenses due to labor reductions and transfers to ennstruction. The levelof power rates was calculated to produce a net income equivalent to the 8%return provided in the concession, less, in 1969 and 1970, the amouLnts com-pensating excess earnings at the end of the previous year (see paras 3.22,3.29 and 7-11).

7.11 Net income for 1969 would be about M$N16 billion, equivalent toa return of about 7.7% on the rate base, exceeding the permitted net incomein the concession by some M$N2.8 billion. Sales and revenues in subsequentyears might increase faster than now estimated. Should higher revenues ma-terialize, they would help postpone or limit the t-ariff increases that mightotherwise be needed on account of rising price levels.

7.12 The forecast coverages of interest by net income would be ample.Net profits would increase from M$Nll.8 billion (US$33.6 million) in 1969to M5tN15.2 billion (US$43.4 million) in 1972.

Future Financial Position

7.13 Annex 4 shows forecast balance sheets as at the end of each ofthe years 1969 to 1972. TWh.ile the financing plan provides for new borrow-ings of about US$166 million, the total debt, including current portion andshort-t-e.-. buank" credits, -woulAd on'ly increase by US$81U. million 'to US$'26imillion in the four years through 1972. The composition of the debt, how-ever, would be sounder than a' aiy time in the past. 96% of the debt wouldbe long-term, with outstanding Bank loans of US$174.1 million representingabout 67%c of the 'otal. hne current portion would be 7% of the debt, ascompared with 13% at the end of 1968.

7.14 Debt would be 28% of total canitalization (expressed in dollars -see para 4.03) at the end of 1972, as compared with 24%o at the end of 1968,which is low for a utility with a reasonably assured steady flow of earnings.The increase in the debt component of the capitalization in the period issmall due to the factors pointed out above, and also to the rapid growth ofe'uity reflecting the small proportion of earnings paid out.

7.15 The forecasts provide for ample working capital. This wouldallow the assumed market issues to be delayed by a few months, if necessary,to suit market conditions or the timing of the Government's own issues. Allexisting financial covenants would be met with ample margins throughout theperiod. By the end of 1972, and to the extent now foreseeable, SEGBA shouldbe in an optimum position to continue expanding without major assistance fromthe Government and the Bank.

- 26 -

8. AGREEMENTS REACHED DURING NEGOTIATIONS

8.01 The following are the prinipnal Arements reaehed during negotia-tions:

(a) the following existing agreements will be extended for+h~ 1; 4fc of +1, Fh trnlF R

the planigifeninedoprto h oe

facilities of all utilities operating in BuenosAires will be- coordina+ed (para 2.03);

(ii .. dchl,anges iLn tihlIe b.y-laws andJ concession wiLJl bue even'tLsof default, and there would be prior consultationon thLie appoin.nme'.. of a ne-w ExAecutive Vice ri

(para 3.10);

(iii) power rates will be maintained at the level per-m'tt %eU b-y SF.GBA'61 concession (para 3.24 ;

(iv) he acouns will continue to 'be zudited annually1

5±V/ ILi accoLuntL L W.L.L LI.I.I1 LJ1'A u.J U U .Ij I a.Lu. .LL4.

by independent auditors (para 4.01);

(v) the creation of liens and the incurrence of newdebt will continue to be restricted ( *para ; and

(vi) SEGBA will continue to e-mploy competentil consul'tants(para 5.14);

(b) the government has confirmed its policy regarding the sale ofordinary shares of SEGBA to private investors (para 4.0o8);

(c) SEGBA would pay cash dividends as available cash permits(paras 4.08, 7.03 and 7.04);

(d) SEGBA would borrow on reasonable terms from private sources,or sell new shares to private investors, (paras 4.09, 7.03and 7.08);

(e) SEGBA would continue to study its rate structure and toadjust it as opportunities arise in connection with theannual rate reviews (para 3.28);

(f) The government will ensure prompt payment of amounts dueto SEGBA by its agencies (para 4.12); and

(g) satisfactory arrangements will be made for procurement,(paras 5.09 and 5.10).

September 19, 1969

SERVICIOS ELICTRI'COS DEL GRAN BUENOS AT_.!S (E.)

Installed apacity, Peak Loads, Generaction and Consumers

1965 - 1]972

Actual F Po jc te d)7975- 197' 1967 -1-9-;T- i -9619d 1970 1971 L9 72

Lnstalled Capacity (MW) year en1d l,3 99 1,433 1,433 1,57I 1,73 1,823 1,9 13 1,913Effective Capacity (MW) 1,376 1,4l10 14l1O 1,550 1,550 1,8OO 1,890 1,890Peak, Loads (MW) 1,169 1,235 1,316 .,391 1, 530 1,652 l,78 4 1,909Gross Generation (GWh) 1/ 5,579 5,870 6,253 6,792 7,370 7,955 8,670 9,280Sales (GiWJh) 4,308 L,564 4,875 4,h29 6)100 6,620 7,2140 7,770Consumers (1,000s) 1,779 1,875 1,970 2,068 2 ]60 2, 3 40 2,39! 2,L,20Percentage increase in peak loads - 5.6 6.6 5.59 51.7 8.0 8 .0 7.0Percentage incmase in sales - 5.9 6.8 11. I i2tl (35 9.L 7.3

L,/ IncluJes energy purchased from CIAE aind Ay1EE

ANNEX

Servicios Electricos del Gran Buenos Aires (SEGBA)

Energy Sent Out, System Losses and Sales Through 1978

EnergySent Out Losses Sa'ls

% of IncreaseEnergy over

GWh GTh Sent Out GWh previousyear

Year

1968 6,40o4 975 15.2% 5,429

1969 7,176 1,076 15.0% 6,100 12.&S

1970 7,751 1,131 14.6% 6,620 8.5%

1971 8,438 1,198 14.2% 7,240 9.4%

1972 9,013 1,243 13.8% 7,770 7.3%

1973 9,612 1,298 13.5% 8,314 7.0%

1974 10,260 1,364 13.3% 8,896 7.0%

1975 10,966 1,447 13.2% 9,519 7.0Cy,

1976 11,721 1,535 13.1% 10,186 7.0%

1977 12,528 1,629 13.0% 10,899 7.0%

1978 13,405 1,743 13.0% 11,662 7.0%

AlLrI5

Page 1 of 8 Page

SERVICIOS ELECTTRICOS DEL GRAN BUENOS AIRES S.A. (SEGBA)

RATE STRUCTURE

A. AVERAGE REVENUE PtR KWH

The following tables shav the average revenues per kwh (excluding sales taxes)for the di1fferent- -seer and rate classes for t.he rears 1967 and 1968. A forecastfor the rate classes for 1969 is also included in Table 2.

TABLE 1 -AVERAE REVENUE BY SECTOR(E---lu^,A4-- SM1es Ta3ces 5-=

_~~~~~~~~~~~ _

1967 1968

Sector MN J.A~Sper kwh Increase per kwh Increase

Pesidential 11.60 27.1 13.17 13.5ocmn~erc1in117.65 25;6 17.91 (0.8)Industrial 150 25.7 11.20 (2.6)Pxlbiic -ighting 16,18 28.9 15O (4.2)Authorities 12 40 24.0 11.90 (4.0)Pub24C Pa~; p ~- g 5.°5°-4 5.C8 on 6'Jaction 6.o8 (11.9) 5.64 (7.2)

'jt.hers4.56 let, CO,30 (5.7)

TOTAL 11.82 26.0 12,29 4.0TOTAL (in USO) 3.4 3 .5

P-age 2 c f 8D~m 2 _ AvDnMs R"Tswu BYr naE CLAS

(Exclu_dino Sales Ta-xes)

ACTUAL FORECAST

Rate Class 1967 1968 1969Rate (MnaTn Sector M$N MNc

\[u,dber Use) per kwh Increase per kwh Increase per kwh Increase

1 Residential 11,36 27.1 13.04 14.8 12.31 (5.6)2 .Com.ercial

and SmallT- -J. J -i0 r'.r a ~ ~ .Mr% n r'n MO rlOTL4UU2.Ltria .LUe0 6UV L(4170J (UeJ 17eO8 (4,5)

3 PublicLigh ting lU618 28.9 15.50 (D4.2) 15 19 (2.0)

4 Authoritiesai d nunici-palities 13X05 26e4 12.91 (1.1) 12.33 (4.5)

v LargeIndustrial 9e30 34.7 9.12 (1.9) 8.44 (7,5)

6 PublicTraction 6.36 21.1 6.11 (399) 5.77 (5.6)

7 PublicPumping 5.05 24,4 5.08 0.6 4.68 (7,9)

- Special 5.05 28,5 4,55 (9.9) 4.46 (2.0)

TOTAL 11.82 26.0 12929 14.0 11;942 (7.1)TOTAL (in US¢) 3o14 3.5 3.3

Up to 1967 the rapid depreciation of the peso was met by frequent rate4ncreases of the order of 30% to 40e per annum, which were applied equally to11 classes of consumers. The only change in the rate structure in the period

Twas the introduction of a reduced rate for night hour sales in 1965. As aresult of the change the average revenue per kwh for industrial consumers(excluding sales taxes) became slightly lower than the average revenue perlwh for res-dential consumers (Table 1 above).

In 1968, the Government allowed SEGBA to increase only the residentialrates by way of a new fixed charge (at present M$N95 per month for consumption-up to 50 kwh a month and M$N190 per month for the rest). This produced anincrease in the average revenue per kwh from residential consumers of about 142t- N$N13.17 (Table 1), At the same time the average revenue per kwh from in-dustrial consumers fell by about 3% to M$N11,20. Commercial rates have remainedhijho Rate number 5 caters for large industrial loads and, to a smaller extent,

ANVIEX i

argae eommercial loads. These loads are frequently of the type for whichprivate generation was installed in the years of SEGBA's plant shortage andfnr which nrivati generation mil ht. well bhe inst.-iTld todaV. The averagerevenue per kwh from rate 5 has always been lower than that from residentialand coimerc-ial rat Tahle 2, however_ show,.s that in 1967 rt+.e 5 was in-creased by an amount greater than the average. Table 2 shows no large changecan be expected in. 1969 in. th,e A4.Oerer-ti1 b +he -residr.a+Al rate andthe rate for commercial and small industrial loads insofar as the average,are,er.,a,a nl per aw is na,,a corermed So,e , ir.c.ease , ir., Ahe sfePv.r,+4 ni< 1'fyf¶o 7'

can be expected between the residential/commercial rates and the large in-

for taking supplies off peak and at high voltage. SEGBA should considergreatwer ±IVnVcentivu-S .ve JL s UinLLUIR cUrlU fIore as sho-wn 41 the 41U.,

two sections, considerations of marginal cost pricing and income/cost ratiosby rate classes indicate that there mignT De scope for further n1reasV&±g .tedifferential between residential and industrial rates and for examiningcommercial rates,

Be MARGINAL COST PRICING

A study of marginal cost pricing for the Greater Buenos Airessystem was made in 1967 by Alieto Guadagni of the'Instituto TorcuatoDi Telia", Buenos hires. The material in this section has been puttogether from Mr. Guadagni's report.

Load Patterns

Electric utilities have daily, weelkly and annual peaks in their sales ofelectrical energy. Due to the random manner in which the consumers load canbe switched on, it is not possible to predict exactly when these peaks willoccur, particularly the annual peak,.

Daily load curves kept by SEGBA show the hourly rates of energy con-3umptions for each 24 hour period in the year. From these curves, loadpatterns for the future can be predicted. Analysis shows that, for SEGBA,the peak hour of loading might occur at any time between 5.30 pm and 9.30 pMI

and that the winter week-day load curve can be conveniently broken into threesemi-discrete periods:

peak 5.30 pm to 9.30 pmnight 9.30 to 7.00 amday 7.00 am to 5.30 pm

The summer week-day is undergoing a transition due to the increase inair conditioning load but the summer peak is still lower than the winter peak,Summer weekdays can thus be conveniently divided into two periods:

night 1ll00 nm to 7.00 amday 7.00 am to 11.00 pm

AMNEX 3Page 4 of 8 Pages

The system, peak load mnay occQur any week-day from abDout Mlay 20 to OctWber U&This can be called the Winter season and the rest of the year the Summer season,Corresponding to the levels oI demand there are levels in costs oI electricityproduction,

Short Run Marginal Costs of Energy Production

These are basically the incremental energy costs i.e. the costs ofgenerating an additional increment of electrical energy at each level ofdemand for electrical energy. They are made up of incremental fuel andoperating costs, Incremental fuel costs are continuously calculated in theSEGBA central dispatching center because generating stations are called on togive supplies in the order of increasing incremental energy costs.

Using a simple model developed for calculating the short run marginalcosts of production. the study arrives at the following figures at 1965 irmicelevels:

TABLE 3 - SHORT RUN EARGINAL COSTS OF PRODUCTION

Winter M$N Summer 1$NPeriod per kwh generated per kwh generated

Peak 120 -

Day 0.90 1.08

Night 0,81 0.90

;he incremental energy cost tso be cha-ged for each discrete period weredetermined by taking a weighted average of the incremental costs correspondingto each dilferent hour in that period.

Long Run Marginal Costs of Production Capacitv

At the time of the annual system peak, the marginal cost (i.e. the costof producing another kwh) is not limited to the cost of production of thegenerating plant with the highest incremental energy cost which is brought intooperation last, Additional capacity (kw) to produce this energy is also re-qaired, the fixed charges of which must be added to the incremental energy costat time of system peak. Should the additional capacity be other than peakingtype in nature then an allowance must be made for the savings possible to bemade off peak, in that the older plant on the system will operate less.Spreading the net fixed charges over the hours of the year within which the-:ystem peak might occur gives the following table:

ANNEX 3Page 5 of 8 rages

TABLE 4 - LONIG AND SHORT RUN MAURGINAL COSTS

OF PRODUCTION

Winter iM$N Summer Ni$NPeriod per kwh generated per kwh generated

Peak 11e70 -

Day 0°90 1c08

Night o081 0.90

Network Costs

Incremental load requires incremental network costs as well as incre-mental production costs, Like the incremental production costs these have ashort-run (operating cost) and a long-run (capacity cost) aspect. That partof the network which links together the generating stations by collectivetransmission is best viewed as extending the facilities provided by the generatu-ing stations. Its short-run marginal costs include incremental operatingcosts and the costs of incremental transmission losses at various levels ofsystem demand. Its long-run marginal costs are the fixed, charges of extendingtransmission capacity per kw of incremental demand spread over the peak hoursin a manner similar to those for generating capacity.

The determination of short-run and long-run marginal costs for thedistribution system is not easy in that it depends so much upon the un-certainties of consumption of each customer. The capacity costs to becovered can without much distortion be divided in proportion to thecustomers' maximum demand at time of system peak. In most cases in Argentina

'his can be taken as equal to the contracted demand. The capacitv costs ofextra distribution capacity is estimated at M$N404 per month per kw of con-tracted demand. Adding this, the corresrndinr sho?t.-n (operating andlosses) costs and the incremental transmission costs to Table 4 givesTable 5.

ANXNi 3Page 6 of 8 Pages

TABLE 5

LONG AND SHORT RUN IIARGINAL COSTS OFPRODIUCTION AND NETWORK

Period Winter Charges Summer Charges$N

(a) Enerev charees Der kwh per kwh

Peak 30.00 _

Day 1.08 1.27

Night °Q'5 1h07

(b) Mton.thly Fix^ed Charge N.$hOh,0 per kw

Practical Range

To recast Table 5 into a more practical range requires considerationof^ h'We cadverose e POec4s Ato SEGBA of -1,--nE -e,y high1 ---ak -ate 4.;erbyth~J.L U~k~ ~IIV VA. OV %0J~ A LJJ'VJiJAL VJA. %'...±L 6J. IL VIV.LJ LAA.,1.L IJO.fL. A. I.UQ W±J.L.L-~Lj vl

proportion of private generation would once more increase. Also some drastictilie.L I in UlL" oadu cU.LrVe WoULLU rLes-L'U UUe Uo peaU j.loPP.Upp±ing wicLh WUo-u iL itsel

alter the costs and rates. M4oreover, time of day or seasonal rates requirespecial- technrical andi awraistrative costso

in tne absence Of KnowleCge aooutI elast1icitiles Of 'aemarnac at itne peakand off-peak periods but based on experience elsewher&i.the study spreadsthe capacity charges over part of the day period as well as tne peak insuch e way that the prices of day hours to peak hours are in the ratio ofabout 1:0.23 in winter and 1:0.17 in surner. litnout differentiating betweensummer and winter rates an appropriately weighted all-year round proportion-.PIity between the energy charges oI Lable .5 would then seem to De:

TABiE 6 PROPORTIONALITY BETWEEN

ENEh-RtY CHARGES

Peak 13Day 3Night Base = 1

The likely effect of this proportionality on the different sectors ofconsumption is shown in Table 7.

ANIMEX 3P'age 7 VA 8 P^ages

TrA T 7 _P 'rP.TITNVTATTPV Or r1\TPt-CV

Daily Estimated 1969 Ratio ofS ectUor Loadu Facto aui trAverage Revn pe r nWue

- %~~~~~.esiden.LdL 30 Base BaseCommercial and

m uuSTriaL 40 05 -i.40Large Industries 60 0.70 0.70

Besides indicating the proportionally high commercial rates, Table 7indicates that more incentive should probably be given to off-peak sales forcommerce and small industry.

C. INCOME COST RATIOS

SEGBA has carried out an analysis of its incomes and costs for the year1967 in order to attempt an allocation among rate classes of the total revenuerequirement under the concession.

Costs

The maximum demand on the SEGBA system was 1316 MWJ in 1967. About84 MW was consumed in the generating stations. From its records of systemoperation SEGBA was able to calculate (a) the participation of each rateclass in the system peak demand and (b) the proportional use each rate classmade of the different parts of the network.

Technical costs of operation were apportioned to each rate classaccording to the participation of the rate class in the peak. Depreciationand the 8% financial return on net assets in operation were apportionedaccording to the usage of assets by the rate class. Commercial costsand overheads were apportioned according to the use of personnel.

Income

The total revenues for 1967 in NTS for each rate class were used inthe calculation as income, Table 8 shows the income to cost ratio for eachrate class as calculated by the above method.

MTh]BX 3

TABLE 8 INC0-1E TO COST RATIOS PER RATE CLASS

1967Rate Class Cost Income Income

Ratc (IIain Sector M$N 1$N Income to CostN,umber Ra 'I -ons tio

1 R a-ai4dera,.ti '01 31,93 26,887 o.4Commercial and Small

Inzdhas tXi 12v72 7 064 1 e403 Public Lighting 2,321 1,911 0.824 Authorit-ies and

Municipalities 2,268 2,159 0o955 uge i5du4trial 9,548 10,716 1.12

6 Public Traction 416 475 1.147 rublic Pumping 1,010 1,0,41 1.03- Special 726 892 1.23

The imbalances shown in Table 8 have been rectified to some considerableextent since 1967. For example, the average revenue per kwh from residentialsales increased by 14.8% in 1968 compared with an average increase of only4,0% for all classes of sales. Also in 1968 the average revenue per kwh fromboth commercial and industrial sales decreased. There may, however, be roomfir further adjustment of imbalances.

D GENERAL CORENTS

SEGBA should periodically carry out studies of the type shown in thisPt -iex and also on the detailed structure of its rate classes. It shouldboaisider restructuring rate number 5 to include loads of below 50 kw.Besides a cost and revenue analysis the likely effect of rate changes onconsumers behavior should be studied e.go lowering commercial rates mightl:ad to little redistribution of load,

-SERIC1022 1JCTRI0IGS 281. G188 BUENOS &IRES (326A)

Act-al and F~-onast Balce Sheets as of De-ob~ 31, 1967 through 1El7

1. Historic pesc, values (318N ,d..13oo) 2. Dollar mlu2.en in tbo Cocszon( ,lli.nn)At .237=$

---- ACTUAL.---- ----- OMAST ----------- T - - -- AC7UAL--- ---- --- FP -S ---- ------S1967 1968 19819 2.9 1971 1972 1967 1962~ 1969 19702 1971 1972

ASSETS

Fi. d Ao.. to

Plant in sw~vico 81,472 101,736 118,5939 158,819 :185.996 217,18B 740.1 787.6 835.3 946.6 1,021.4 1,108 .3E':ohange difference 32,65L. 32,017 31,10(9 30,308 29,316 28,2371,eos. Depreciation (28,932) (37,384) (46,672) (57,134 (:68,452) (80,:79 3) (201.6) (220.9) (245.2: (272 .2 ) (321.7) (331.7)

COotozars' nontritAstione 2 (I. 28Z) (I.9861 (2.123)_~E) _ (452 (53~ (7.9) (8..jj (10.3) (14.8 (jI~j (19.6)

Net plant in oer1oe 86,904 91,783 101, ̀53 128,2841 :02,286 159,233 530.6 557.9 579.8 659.6 702.1 754.0W-ok i. p-grares 2.Q"8 2.7582 19.12 12060 .11.9599 7,6 20.5 228 547 X5 3. 21.9

Total. 9274 10.365 120.(L 4~1 11Q, 154.283 16,9 55. 580.ji 6). 69. 3I7 1~-

Coal. handling slant (mt - - 1,063 2, 969 2,882 2,682 3.0 8.5 8.3 7.7

Courrent Aesopta

St,ores 6/ 6,977 7,4661 9,861 7,461 7,463. 7,461Atel amd- other oiaeriA4s 713 690 700O 800 900 g00In,o0snts receivabla 21~ 19,936 23,207 23,000 22,COo 23,000 25,000Laish B,215 6,009 2,617 I1,00 1,00 1,000Pxepaid wp4n0ss888 -6 71( 800 800 800 800o

TotaI 3674 38,07 36.978 1.6 33.161 35.161 igLo 1088 105±7 91±.6 k 100.5

Deferred C2er 1001213 -2-9,.. ~ .

TOW,. ASS= 129.596 14~_f -I,8 120,92o -569 656.4 6V. 743.5 12.1 14- 88680

LIAJOLTIIB

596 cumolalive prefrerred atarea Mg8 100 par 10,900 i 1, 445 12,017 12,017 12,03.7 12,0170Comon a9rnres MM 100 par 20,865 25~,038 33,801 37,181 40,899 44,989Reserves susi aaJpIs 1$.112 29134 30.1.k 1248 38.048 63.822 - -- - -- -

Tat al 46.881 §~,617 jj~'7 8.L ~ 9.6 100.826 42.1 4754 50 - 526.5 Ig85A.

~2~To=m_Debt !1

Proposed KBEID loon - - 6, 652. 13,461 20,630 - - - 19.0 38.5 58.9I08Et lmon 308-AR 29,282 28,316 27,2,96 26,a8 25,075 23,864 83.7 80.9 78.0 74.9 7i.6 .. 68.2ITo 3loan 525-AR - 3,308 16,100 171,045 16,373 15,659 - 9.-4 46.0 6 8.7 66.8 44.7,Proposed poblic issues - - ~ 3,150 7,525 12,950 - - - 9.0 21.5 37.0Bcnds and notes, Sodec 5,264 L.356 3,',30 2,626 2,007 1,601l 19.0 321.4 9.8 7.5 5.7 4.0O

o,-Ibaok 1usd forcdgn epp:LierB' c2edito 6,261 4,615 7,271' 6,891 7,661 5, 961 17.9 13 .2 20.8 19.7 21.2 17.0Lccal suff,lers' 05nditts 1,296 861 770 650 411 311.- 3.7 .2.5 2.2 1.9 1.2 0.9Caje N-olonal de Ahorro Postal ani Beo. Nacion 13.006 ic ,60oo 7, 200 :2,500 - - 37.1 30.3 20.5 7.1 - -Cosfta-s' oontrol.otions 4.J _916 _516 _ 516 516 A6 j-3 1 .5 1.5 I~ j.5 j.

Total 1 L.5Z 522157 62-583 66, 267 72.809 81.272 15 150.2 178.8 159.) 208.0 232.2

Current Liabilitiee

icanot. and note,, payable I2,,128 11,663 13,100 13,300 12,900 13,3CC 10.3 33 .3 37.4 38.0 36.9 38.0Banks 3,873 2,133 - '5,034 6,51.8 3,920 11.1 6. 1 - 16.6 18.6 11.2Corre.t pcti.on 01' long-te,rm debt 8~5 8,243 6j18 1k !,120 7.433 6.076 25. 23.6 19.0 06.0- 21.2 17.6

Total 26,757 22 .039 15,780 2 L)L 26.851 23,22 76.1 63 .2 56.6 78.1 76.1 66.6

Defer~red Income and.?-nli.i,ns 106 326 300 300 301 3C2 1.7 0.9 0.9 2.9. 0.9 0.9

0781, LIA8EITIE:T 125,536 "1o, 55 2~3 17 ,68 197,1-24 j235,69 65. 697.0 313. 793.1 BC 86.8

Debt a of totald -pi~t.lizat1ozi - to 11 45 15 11, L.5 27 31L 26 26 27 28

Current assets Lo -uret. 12.abiinoi 1.3 7 .73 1.8( 1.17 1.71 1.3. .3 1.73 1.- 7 1.77 1.21, 1.91

A.1-i 11LU .A.L

P&ge 2 of 5 Pn3

.~r.av±u~o ii~~ )PId kfA\J.,'J~A± ~ iziA)SER-'VICI-OS ELECM<ICur DEL GRAN BUz-NuS AMELS (E-

Notes on Ba lance Sheets

1. SEGBA's accounts reflect historic costs. Foreign exchangeiiabilities, however, are shown at current exchange rates. The re-sulting, partial, revaluation of assets is shown under "Exchangedifference" in Part 1, Historic peso values, of the tabulation.Part 2 Df this ta',ulation shows SEGBA's balance sheets expressed indollars, on the basis of the dollar values actually used to determinethe level of power rates in accordance with the Concession. The effectof this valuation of assets is reflected in a revaluation of equitywhich is included in the corresponding values shown in Part 2 under"Capital and Reserves, Total".

2. SEGBA collects capital contributions from new customers (exceptfor residential service with an installed power of less than 2. kwrequiring extensions of up to 20 meters for underground cables and 100rneters for overhead lines). The amount of these nontributionn is cal-culated as the difference between the estimated total capital cost ofthe necessary works and twice the estimated annnial revenuie to be deirivefrom the customer. Such contributions are not repayable and are notincluded in the rate baseA

A differsntf trm eof' rc+.a i contr;.butior.is-co 4-l A ecte fo 1-h

connection of barrios (agglomerations of 20 dwellings or more). Customersin hbrrios are requi4eid to irtall the low voltage -etwork; SEGA, ho-wever,provides the conductors, house connections, and meters for the lowvol-tae %netwo-r Th- est4Imate cost of instal ltions put in by customers

in the barrios is recorded by SEGBA as a capital contribution. It isnnor.eIu nd,-lDIL and. iseUxlUUde frUo theo ra Le base .

The capital contributions for normai and barrios extensionshave been estimated as follows for the period 1969-1972:

1969 1970 1971 1972tin millions of pesos)

Barrios extensions 137 1,185 )464 427Normal extensions 400 400 400 400

537 1,585 864 827

When the estimated annual revenue is over 25% of the totalcost of the necessary works, SEGBA must return the part of the con-tribution which exceeds 50% of such cost over a period of up to 4 yearsithout interest. Such amounts are shown in the balance sheet under

Page Pages

'tcsto-.rt o"4tr:bU+io-.s" in long-term. lebt. "lo attempt -was madeo at- fore-casting a variation in these deposits since in practice new deposits areabu Iqa t-o -r;paym,ents ur.der eist 1.1gu %a& -- deposits

3. ifl line with the Governmen"ts policy of increasing the pro'uct,iulof coal by Yacimientos Carboniferos Fiscales (YCF), and after consultationw-ith the Bank, SEUGBA has agreed to increase its usage of coal from 151,000tons in 1967 to about 745,000 tons in 1972. Payment for coal will be on thebasis of tne cost of fuel oil having an equivalent heat content. SEGBA willpurchase the equipment which is necessary to convert two boilers in itsPuerto Nuevo plant to coal firing and associated coal handling equipment,with an estimated total cost of M$N3,382 million. This amount will be ex-cluded from the tariff base, and will be partially financed as follows:

i. A ten year credit from Eximbank for US$3.1 million,at 5-1/2% and foreign suppliers' credits totallingM$N345 million equivalent, at interest rates between6 and 8%, with maturities between five and six years.

ii. Ten year local suppliers' credits totalling M$N540million with 8% interest.

The proposed arrangements for reimbursement of SEGBA by YCF areas follows:

i. YCF will make Davments to SEGBA of M$N150 millionin 1969 and 1970, and M$N200 in 1971 and 1972.

ii. The balance of the cost of the equipment will bereimbursed by making sinkinng fund payments over a30-year period. YCF will pay interest at the rateof R8% on the balance outstanding.

L. Includes parts and mat-eriaQ in ventoris for imi-intenance of ex-isting plant as well as construction inventories.

5. (a) The item "Accounts Receivable" as of December 31, 1968is de-ta ed bel*.S t(in M$N M .l /is

Private Consumers 7,680Government Entities and Agencies:

Currer.t1,5More than Four Months 3,0h1 4,493

.unicip-allties and Pr'ovir.ce 2,1ANotes Receivable 313Accounts in arrears35Power supplied but not invoiced 5,068Other Accounts Receivabl'39604%LIV. tUu1U neu IV U18 I,)O

24,007Less: Provision for doubtful debts 800

2,7n.,,

ANNEXPage 4of 5 Pages

(bJ Government debt has been reduced during 1969, andthe Government has agreed to take all necessaryaction to ensure prompt payment of amounts due toSEGBA;

(c) The item "Power supplied but not invoiced", M$N5billion represents the estimated value of theelectricity consumed between the last meter readingand December 31 (see Note 3 to Income Statements).The amounts will be billed after the next readingin January or February at the rates effective thefollowing year; because of SEGBAts bi-monthly meterreading cycle they represent on the average onemonthts billings; and,

(d) The item "Other Accounts Receivable", includesan interest bearing short-term advance to Gas delEstado of about M$Nleh billion which has been re-paid in the first half of 1969.

6. SEGBAT s share capital history up to December 31, 1966 was detailedin Report No. TO-606a. The oriainnl share canital reoresented the value ofthe investment purchased in 1958/61 by the Government, Y$N8,347 million,which w2S np4-i nnrtl- in cash and partly with 19 vyer dollar bonds. To tliswas added the estimated value (recently confirmed by Decree No. 8516 of .Dece.mb.er 30, 1968) of properties transferred by AyEE in 1961/62, M$N7,035million. This share capital (of M$N15,382 million as of December 31, 1962)wras divifded into * prefverre A 'cnmmonr olinymc in a 40O :60 nrat. As nf

December 31, 1968, the share capital has been increased by stock dividendson preferred, as .UJ, o t.a.1 g LA5 ±m42, . U2.0.2 /lio, and o. emIo at rates II of

up to 20p, totalling M$Nll,3C9 million; and by Government cash contributions.of MeAT7, 500) .,,1li4n

7. See An-r.ex A5,A -d tsnding - De- b-.w 31 196-T con-

nection with the purchase of base load unit No. 9 for the Puerto Nuevo4_ 4 | n - _U I. - eoA p L; :-- _ 2 __ P_:__ (__ -I -I -IAl {A_ -- - - 'JA ̂_Q^ !-s Ud LUn, Qi!AUDa D u tain1d L JL.I1a.LUU DO16 L.Ll-UliL LA LII%L.MI \lCUL '-L'.L./ CL J ¼/^ C *I- U

of US$4h9 million with interest at 6%) and suppliers (US$3.5 million equi7-aler.t, for U 1-± years, sWLI I.LtLAUVIhj itLe (at jJ, 01V SeOUU L4 fLor a

description of the financing of equipment for conversion of boilers in thertILoU N'JuevU sEaLLoUL o COd 1 $ J. JA4 flg, and Chapter- 7 for a description of

SEGBA's planned future long-term borrowings.

8. The item "Accounts and Notes Payable" as of December 1968, isdetailed below (in -Mz$N millions):

ANNEX 4Page v of R

Fuel suppliers 2,6646Power suppliers 252Other suppliers and contractors 4,Ol9Wages and social charges 956Taxes withheld 2,792Accrued interest, etc. 998

11,663

Excluding current portion of long-term debt.

SERVJCIOS ELOCTIICOS VEL GRAN BUEN(S ATUliS (SEGBA,

STAT3MENT OF DEr A'8 OF Vr.OM89T 3I, 1%8

(in millions Of pesos onless otlhero'i-s indicated)

Amount Glross Lon g-(millions of Debt Ootetar.ni-g

e of D.cember 31,Date Interest Abortie.tion origina l6Contracted Source A Period currency) Purponl

1/!/19/62 09HD Loan 308-AR 5.75 1965/1986 uS3 93.35 Costers'o 9tation & 2Q,2791962-64 Distributloc

1/i/D T6IRD inon 525-AR 6.25 1971/1988 US$ 5 1968-69 Prograt 3,308

1/10/i62 Exinibnk ( I 6 1965/1973 USS 3.115) Puerto Nuevo 606Loon 100-X(II -. 5 5.-5 1965/1976 U1$ 9.873) UnVt N,. 8 2,206

1.123158 BIH-TCI-/ 1962/1969 h 36.689 .otono¢ra Statif nsqaitte:.t 2,972

i/2/1i'5 motrnpoiitao Vlok- 1962/1969 r 3.953 132 Km t/s equipment il 7

11/30/1964 Soden Dollar Notes 6 1966/1974 US$ 1N.5 Rescheduling of Debt I l"

lV/30/1?64 Cofipo Notes 6 1967/1974 M$N 9 5o Purohase of ouIdIni 830

4/19/161 Sugbna/Sode- Bondo 6 1961/1970 m$N 55o P.N. Unit No. 7 and 2827/2/1760 ) Distribution

v/L/1961) iegba/Sodeo Bondo 8 1962/1971 '14N 500 P.N. USit No. 7 and 3336/1/1961 7 DistrbuotJ on

1/2/1962 Sogbh/Sodec Bonus 8 1962/1971)938' 503 P.N. Unit No. 6 135

1/10/1962 Segba/Soden Boods 8 1963/1972) 13

11/27/1964 Segba/Soden Bonds 6 1966/1974 MSN 400 Postp.ned Payments Decoeber 6581964, through Dsc-aber 1966of Bonds 1963/1962

11,19/1965 Segba Rosari. Rondo 5.75 1968/1980 M8N 825 1965/1966 Program 1,552

i,1 3/1966 A.E.G. 6 1968/1970 LM 0.283 Peaking unit Equipmsnt 16

2/i5/1967 H. Hering 7.5 1968/1969 DM 0.059 Peaking unit Eqoiprent

1'27/1967 SACE 6 1968/1972 US'S 0.105 Peaking Unit EnuiPsect 3

1/27/1967 SADEM11 6 1968/1972 Us3 0.022 Peaking Soit Equipment 7

3/13/1967 AGiRINI 7 1968/1971 us$ 0.125 Pe&log Unit Fouipemnt 33

6/27/1967 FIAT 7.5 1969/1975 us$ 3.536 Peaking Units 1,238

5/27/1967 Broon 3-oeri 7.5 1969/1975 Dr- 13.373 Peaking Voilts 1,17o

(A) SubtotaL Foreign Currenny li§.2 26,1963/1968 PIrelli! 7.5 1964/1973 H$l,:L73 Cabls 558

1963/1966 CAM1SAa 7.5 1964/1969 MSN 8 Caoles6

1963/1967 G.E. Argentina2/ 7.5 196h/1972 MSN i80 Meters .il

1963/1967 Gsileo_/ 7.5 196h/1972 MSN 116 Meters 16$

1043/1368 ISUIS / 7.5 1961/1972 M$N 285 Cablos

l6!/1966 Standard EIectricn/ 7-5 1961/1970 M3N 7 Csbles i

W'63/1967 CEOELENO/ 7.5 1961/1973 M$N 33 Tra-nsforers 83

1?63/1968 SIAMx/ 7.5 196W/1973 M3N135 TroosFornor/

i9in,nnh' bontrnonr.ant. a Argeotio-Y/ 7.5 1967/1972 M4N 99 Paoolo

;96" Cimet2/ 7.5 1968/1973 M3N 20 Cables

1967 Faraday2/ 1.5 1968/1972 M83 54 Transformers *7

1°S8 Aurt irieb./ 7.5 1968/1972 M$N 4 bobls L

1967 Metali2/ 7.5 1968/1973 MS8 8 Cables 8

1967 Roreela./ 7.5 1968/1973 MSN 8 ?5 Tools 3i968 Miron?' 7.5 1968/1972 M$N 3 Transformers 22

1967 Slemse-s?! 7.5 1968t97ln MSN 4 Panels 3

1967 Tuboo Transeleotrin- 7.5 1968/1973 M*N i66 Tranoformers 137

10/20/1960 D.N.E. 3 1962/1971 H4N 43 Distribation San Fr-ani..o Solerm ll

:2/30/1966) CaJa Nscional( I 8 1969/1971 M14H6,000 6,oo33/13/1967) de Anorro ( 11 15 1970/1972 M N5,005 5,00n

,'13t11/957i Postal (III 15 1968/1971 M$N2,000 1,1:00

Cusrtere' contribuilon gubject to repay- nt 516.itenti oon I

1B) 3obtcoqo bo* C,ir-cnc- 00,326

TOTAL (tl and 1B8 to,9B15Leso Z-rroot Frrtioo] 24

-OTtl. Mn: ',*rig it orWe Q4-'1 3t.s

. lnterest is psid at the *0F of 7.58 on aS- of the aLount auto adlog, und ci a-ate su-al to Mohl B-Rok o. Eoand disoo-nt rate plus 18 on toe hataco.

2/ Inoludsn omer.al n-rdits.

SE5VICIOIS hlCTZCh DE GASD 5L aJK AW SElBL) fPage 1 of 5 Pages

Actual and Fvcast Incons Statemnt 1967-72( In MUN .lo xB 1 9unless otharwise indicated)

--AGTUAL----- - FOR mAAT-----------------Fiscal Year &ding Decembe 31, 1 1968 1970 1971 1972

Sales bilIl, in millions of kwh 4,875 5,1429 6,100 6,620 7,240 7,770Average reven'.r per kwh, includirg taxes (in A2) 12.54 13.11 12.79 12.15 12.15 11.96Average re-vwoe per kwh, excluding taxes (in rap.. 5- 12.2 Al. .42 'o.i4 1 1c.67

Total Revenues 61,125 71,196 78,034 80,407 87,949 92,959Less:~ 0 ±Ssles tss2/ 07 I461 85 a 4 Bn. S 9] n 4R

Operatirg Reverne s 57,608 66,735 69,680 71,753 "8,453 52,521Adi,m-taant fhr unbilled sales 31 872 441 - - -Contribution from F.N.S. 47 - - 6.259 - - -

Total. Operating Revenues 58,480 73,L)5 69,680 71,753 78,1±83 52,921

Operatirg &penses

Salar4es, wages and social benefits Z1 16,275 18,350 19,649 19,649 19,61±9 19,61±?Fusl12/ 7,383 ,38407 9,246 11,84±3 12,913 13,922Purchased paver 7/ 1,793 1,992 2,998 2,230 1,9?9 2,b7aTaxes 8/ 3,504 4,1wXo 4,[,z23 4,51B 4,928 5,199Other expenses 6,140 6,688 7,862 7,1462 7,462 7,462Depreciation 9/ 8.31J 8,841 9453 10.678 1,529 12,505

Total Ope ratirg Expenses 45,1,08 46,378 53,631 56,380 56,1±60 61,51:

Ne T .-.e before i,n:er,et ),072 25, 0O'7 i6,cI, '5n.373 2,3 21,''

interest 4,835 5,066 4,438 5,273 5,612 5,799Lessi Capitalized 10/ (246) (41-.3 (978) (1,277) (991±) (7_b)Other incose deductions 306 574 808 911 1,021 1,142

4.595 5.227 4.268 4 .719 6,225

Net Profit 8,177 19,830 11,781 10,469 14,304 15,185

Disposition of prcfit "-'

Reserves and Eurplus 2,362 9,068 3,646 1,726 4,891 5,035Directors' and RxecyWve Committees' fees 85 97 120 120 120 120Bonus to persnnel - 1,012 1,330 1,330 1,330 1,330 1,330Stock dividends - preferred 13/ 545 572 - - - -

- common 4,173 8,763 3,380 3,718 4,090 9 479Cash dividends - preferred - - 601 601 601 601

- comMon - - 2, 704 2,974 3,272 3.600

Net incone necesssrf under concession 15,388 16,002 16,725 18,220 20,023 1 41CDeficiency or (surplus) for previous year 3.216 5.532 (,3 52) (28847) - _

18,604 21,534 13,202 15,373 20,023 21,L;10Less: Net incose earned 13,072 25.057 1.2_42 15.373 20,023 21,410

larnirgs (surplus) or deficiency carried over 5,532 (3,523) (2,847) -

&xchange rate at yser end M$N per dollar 350 35° 350 350 350 350lio. of employees 25,545 25,220 24,200 214,o0o 23,800 23,500Increase in wage level % 31 - 8 3 3 3No. of consuDers: In '000 1,970 2,068 2,160 2,260 2,340 2,&22

Ratios

fltetin or, avuersa net pinL in serIn ice 6.8 12,5 7.7 6.7 8.0 8.0Times interest covered by net incom3 2.7 4,9 3.6 2.9 3.5 3.7Consu.anrs per employee 77 82 89 94 98 103

Page 2 of 5 Pages

SERVICIOS ELECTRICOS DEL GBAN BUENOS AIRES (SEGBA)

Notes cn Incom.e Statements

1. Between the time of the first Bank loan in 1962 and 1967substantial rate increases took place, primarily to compensate fordevaluations of the peso and cost increases (see Report No. TO-606a, Annex3). The average revenue per kwh, excluding taxes, at the end of 1966 wasM$N 11.01 as compared with M$N 2.70 at the end of 1961. Increases of 7.3%in 1967 and 4.0% in 1968 and a decrease of 6.1% in 1969 have taken placeas a result of the normal year end review of tariffs. The average revenuesper kwh in 1970, 1971 and 1972 were calculated so as to generate revenueswhich would satisfy the requirements of the concession.

2. These taxes, which are collected by SEGBA for the account of theFederal, Provincial and Municipal authorities, consist of the following:

(a) A federal tax of 30 centavos (ctvs) per kwh. is used tofinance the National Fund for Electrical Energy (Law 15336of September l. 1960). An additional federal tax of 5%on all sales to ultimate consumers, to finance the Choconhydroelectric project. was introduced by Law 16882 of May19, 1966. It became effective on January 1, 1969, (Law1757h and Decree 8054 of Dece.mbpr 17- 1O68M

(b) Intil August. 31j 196(7j twjo i -tnypq on saleq in the Prnovinre

of Buenos Aires were used to finance DEBA, the Province's

(i) Provincial LaZ 5880: 5 ctvs-,1-1h on residential and20 ctvs/kwh on commercial, industrial and federal

industrial consumption (thus excluding residential).

Effective September 1, 1967 these two laws have been replacedby IJV L4I'.1 W..L.W f'7'. f of UU.ly 2- I , 1/967, w.LLichL in tar od UL C ed

a unified tax on energy consumption of 15% on commercialandIA. indu S 45. 4.4J. M-L.I c Ions u m p tion, andLL L2) on. resi.LUentJ.a.L CLAndL otILier. S

All national, provincial and municipal authorities are now

(c) A ax on sales Ln tLh Le cty- o Buenos Aires is co5 ecAe forthe Municipal budget. It was raised in 1966 to 1% forresidential, and 1) for commercial and industrial consumption.

3. This adjustment is intended to report the revenues of thefiscal year on the basis of consumption rather than billings. Itrepresents the difference between the estimated value oI energy billed

A MM-ThT.nJM,'i'r ..

Page 3 of 5 Pagcs

dur.ig the last part of the year, and tne correspondazg ,sttxmate at the endof the previous year. The adjustment has not been projected in the fore-cast for 1969 through 1972, since it would not materially affect theforecasts.

4. To compensate for the shortfall in revenues at the end of1967 without a large tariff increase, tte Government providea SEGBA witna contribution of M$N 6,259 million. This was paid through the NationalEnergy Fund during 1968 out of the proceeds of an increased tax ongasoline. The Bank agreed to this exceptional arrangement, which wasconsistent with the stabilization program of the Government.

5. In 1968, the total wage bill was M$N 26,282 million, of whichM$N 20,731 (79%) was charged to operations. M$N 18,350, which representthe labor expenses of generation, distribution, maintenance and adminis-tration, are shown under "Salaries, wages and social benefits". TheM$N 2,381 balance of wages charged to operations (labor expenses fortransportation, stores, etc.) is included in "Other expenses". Awage increase of 8% for SEGBAIs personnel was authorized at the end of1968. For the projections, it was assumed that there would be a transferof personnel from operations to construction, leading to a reduction inwages charged to operation of 1.5% per annum. A further net annual re-duction of 1.5% was assumed to be the result of SEGBA's rationalizationprogram. These reductions would offset the increase in the level ofwages due to seniority and promotion, estimated to be 3% per annum. Noincrease in wage levels due to the cost of living was assumed, and anyincrease would require a compensating rate adjustment.

6. Fuel costs for 1969 are based upon the present average priceof M$N ,93 nper m-illion kiloca1ories, with an average heat rate of 2-800Kcalories per kwh sent out. An expected 10% increase in fuel priceswas assu.m.ed, effecjtive Janru,r 1 1070.

7. Includes the cost of nower and enerszv bought from AvEE. CTAEand others. In 1968, SEGBA and CIAE operated under a central dispatchingarrangement which resulteAd in crpedit of MNN 121 mill in to SEflBA- whichsupplied 88 Owh more than it received from CIAE. In 1969, SEGBA expectst,o purchase 430 r..h from AyEE at a cost of M$N 2 per ma kwh and M$N 729per kw per month; it will pay a charge of M$N 8,000 per kw per yearto rTAR on 19A Il. T. In the years 1070 +4-hv-.iigh 1072, i4t1 haQos a b Qr.smeid

that SEGBA, AyEE and CIAE would operate under a central dispatchingarranm-en.t undlvJeAr wh.ich reserve woulA b-e pooled -A -- lA a-r

charges at a rate of M$N 8,750 per kw per year. The nuclear powert_at i On as+ A*ucl,a is ---- 4--A 4to start4 sup4y owri 1972. 'The'. ~ ~ - £~ A..LA~L= U&d. U%J Q UCL.U QtAkJFJ.J.Y 4.11, FJ%JVIV,1 4IL4 .ZI.. C.. ~ .

projections assume that SEGBA will pay a charge of M$N 8,750 per kw peryear anCAd that 44.i-1t w purc h..as -00 . R a 1 1.0 per kw.U

J~O.. O.J.IJ U11 U . U W L.L.L kJU.LJ. LdAdO U.JV.~ UWL& CLU J,lpil .L .4V IJUL I.WLI.

0 ml.~~~.M - . t.. t 2- I s - X. ---- -… .- ,,-.J-L

8. ILil concessUion0 provldes thlat, Ir,11 LtU 0f L11UU[1c dLIU a td i UUL,oLh

taxes, SEGBA shall pay two taxes on sales, one to the municipalitiesand the other to the rorVLnce of Buenos Aires. The iMunicipal tax, of

Page OI5 P'I a:.

6% on all sales except to railways and for public lighting, is set offquarterly against the power bills of municipalities. The Provincial tax of 6>f.on sales in the Province to the same categories of consumers as the Municipaltax, is set off from time to time, by ad hoc arrangements, against theProvincets power bills.

9. Depreciation of utility plant in service is charged at one singlerate of 3%, applied to the dollar value of the aggregate plant, rather than atdifferent rates applying to the different classes of assets. Depreciation ofassets other than utility plant, which are also valued in dollars, and represee-Atogether a relatively insignificant proportion of the fixed assets, is chargedat 10% for furniture and fixtures and 20% for automobiles, trucks, etc.

10. Until 1968, SEGEA capitalized interest at the rate of 1% over the wor'.in progress outstanding at year end. Starting 1968, this practice was changecand interest is being capitalized at 8% of the average work in progress duringthe year.

11. The statutes of December 29. 1961. call for the following appropria-tions of profits:

a. 2% to the Legal Reserve, until it reaches 10% of theshare canital: the corresnonding apnropriations areincluded in the item "Reserves and surplus" in theattachedstt.en;

b. 0J6nG to n th direfctrs +ahe Onseic" but not ex-ceeding 0.30% of the total wage bill for the year;

c. cumulative dividend of 5% on the par value of pre-ferred s-hares;

d. 'S .- p tJ tLh ,me,,bers of tUhe exe Jc tv - .. rUII.tU tLn

addition to their respective salaries), but not ex->_^v;-.^ n O<< of +ihU 4*-.l 1 *.n2 1,11 T^Ai. 4-ne trn ~~^^6 _ O L..dj V..J U/ J' Ua..l VJVC4

6ti M .lW .LJv .1 'S JLC v J tu '

and,

e. a bonus to personnel, if any, and dividends oncomm,on shliares as ,ay bLIe proposedAIUJ byA1 BUhe Uard Uo

Directors.

These appropriations and the declaration of dividends are made at the Annua2;veting (1Jgenera.lly in ApriUl oL1 the fo'. Owing- yteaer) aUnd for t,is r-easOn are X;

reflected in the Balance Sheet for the year to which they apply.

12. The Government, as shareholder, granted personnel a share in the pruT.:sof fiscal year 1967, which ranged from 17% to 119% of one month's wages (pl s0.2% to 1.4% for each year of seniority) according to the employee's positi.cz -a five point rating scale. The Boord has not yet decLded how the M$$N 1,3,f.million bonus for fiscal year 1968 will be distributed.

13. Dividends have been paid in stock: on preferred shares, ats% 'very year, and on common shares, at 2CZ fcr 1967 and 357 ,r L9k5.

Page 5 of 5Pge

fL has been assumed that stock dividends at 10% on common shares wouldc3 paid in the future, together with cash dividends on preferred shares,.. 5%, and on common shares at 8%.

14. This net income represents the sum of:

(a) the amount of net income necessary to achieve in the currentfiscal year the required return of 8% on the net dollarvalue of utility plant in service, plus notional workingcapital of 5% of such value; and

(b) the amount by which the actual net income of the previousyear exceeded or fell short of the required net income, whichamount should be compensated fully out of the current yeartsrevenues.

15. The return is calculated in accordance with the concession.

SEVIOZD 3.E IOM M MM. AM A 3 MMu1 ABNEx 7

Actual ed lcre..t 3 " O M O o ot 7un.a 1967-1972

--AOTQLL ------ - ----------------- ~~Sub-Total --Total--Fiscal Year Zndi _R~ e!qemb ..j 1261 6 1971 197270-1972 1969-1972

Internal Cash 0eneration

!et inos,u before intemnet 13,072 25,057 16,041 9 15,373 20,023 21,910 56,806 72, 855Dep,o ciation 8,313 8,891 9,953~~~~~~~~~~~~~~~~~~~~Y4> 10,678 11,52 12, 505 34,712 99L,165

Customers' Contribution 371,,,_f -!A 86 827 3.276 3,813

Total 21,862 34,269 26,039 27,636 32,416 34,742 94,799 110,63.i

Borro.ings

Prooosed IERD Loan - - - 6.611 6,810 7,3 2 (ff 21000)Proposed public issues - - - 3,500 5,250 7,000 15,750i 15,750055D L~oon 525-ARl - 3,308 12,792 1,575 - - 1,575 IL.,367Foreig. suppliers3 peaking units - 2,408 - - 1,935 -1,935 1,535

aapplerssbass oaddunit- - '0."932 - -M.Imbank and suppliers: coal conver sion - -594 836 8 36 1,93Other fbreign suppliers 1.19 ------Local Suppliers 854 115 373 222 -- 222 507Caja Nacional do Ahorro Postal 6,606 394 Banco de la Nacion 2 __000___

Total 9.579 6.225 16.691 12,789 13.99q I79.539 .1716 i 09(

TCF contributionm- 150 150 200 200 551~ 70,

mTaTA. SflTRC.e - I.)., inD 101 I30 e., iAce - 1 ,, i-~ -s-,

APPLICATIONS OP FUNIO

A udotin o rl..tn 32,007 16,979 29,i1o 33,806 26,4993 26,308 56,607 115,756

Debt Service

intere StProposed IBRD Loan - -- 378 826 1,170 2,376 L,37L1IERD Loan 308-AR 1,692 1,706 1,653 1,556 1,535 1,471 4,603 6,255IBRD Loan 525-AR - 629 65-1 1,073 1,031 3,I)7 3,3597Pmvpred public issum - - -10 378 795 1,313 1,333Bonds aind notes, Sodec & Ser 432 355 302 243 168 192 573 67521s1,obank and ibreign suppliers' credits 921- 698 534 521 486 599 1,606 2,190

Local 5.11505a credits0 90 122 100n 2 91 20 133 233Caja Nacional de Ahorro Pmtal 816 1,561 1,377 1,134 72 3 266 2,123 3,500Banco dela Nacion 10 187 - - - - -Miscellaneous and abort-twrm (net) 668 *85 (181) 9_3 392 305 790 609

Total 4,835 5,066 4,438 5,270 5,642 5,799 16,711 21,199

AmcortizationPropoeed IBRD Loan - - - - - - - -I55D Loan 308-AR 746 914 963, 1,020 1,078 1,193 3,291 4,201.I2550 Lon 525-AR ---- 630 672 1 , 332 1,3C2P-p-osd p,b1itissues, - - 350 975 1.0 1,236Bonds and notese, Sodec & Ser 696 827 908 926 809 619 2,399 3,257Esinban3k and foreign suppliers' credits 3,713 4,751 4,023 870 1,2.16 1,385 3,4171 7, 991Lsoca3 suppliers' cm dits 360 637 549 46, 392 239 1,095 1,559LC030 Naclonual deAorr . ota. 1- ---,00 9,0 2,0 1002 2,2Banco de la Nacion -20

Total 5,515 9,729 8,243 6,68o 9,120 7,933 23.233 31.i7o

Total Debt Service 10,350 19,795 12,661 1-1,950 16,762 13,232 39,941 52,625

Discount and issue expnees - - - 219 IiC.0 (95

Directors-o and &ecuotive Com,esttee's Feesand Bonus to Personnel 995 1,097 1,427 1,9450 1,450 1,450 4,35C 5,777Cash Dividends- - - 3,305 3,575 3,873 10,753 30-,,7 53

Variati.ns, in WwkixR Capital

Short-term. ban loans (received) repaid (71.5) 1,790 2,133 (5,039) (1,989) 2,598 (3,920) (1,717)Net accwonts receivable/payable, etc 5,097 6,119 882 (3,500) 1,500 1,6o0 (900) 992Ca sh 1i-crease (decrease) L= (2.236 (3,392) (1.617) -(117 09

Net incrsus in kDrkiog capital 8,089 5,623 (377) (10,151) 16 9,198 (5,937) (6,310.

OTAL, A.P?LICATIOIB 31.88,i hOJho1, is5 RRn In~ f- I I e-,, ~ I. 3,62 L5_4

Toes Annual Debt Service covered by IntewnalCash Germration (excluding Cushonors' Corntributionn) 2.1 2.3 2.0 2.2 2.1 2.6 2 .3 2.2

ANTNEX 8A:g,r-,3 Pages

Servicios Electricos del Gran Buenos Aires (SEGBA)

Details of SEGBAVs Investment Program

Transformer Estimated CostCapacity (hVA) WIJN MilliJons

Generation

Gas Turbines 2,835.0Completion of Unit 9 - Puerto Nuevo Station 1,249.0Modification of two Boilers 2,003.0Minor work at existing stations h410.0

Total 6,497.0

New 220 kv Substations

El Pino (220 kv equipment only) 336.0Moron 600 592.7Burzaco II 600 971.3Mariano Moreno (Switching Station) 4 460.9

Total 1,200 2,360.9

New 132 kv Substaticns

Vicente Lopez 80 230.3Casanova 80 217.3Victoria 80 216.7Ciudad Universitaria 80 252.7Indeoendencia 80 351.2Azcuenaga 80 384.8Miguelete 80 252.7Barracas 80 328.8Lugano II 80 216.7Escobar 80 200.0

800 2,651.2

Work in Progress from 1967-70 Program 1,724.0

Total 4,375.2

.1!Jvestm,ent, n------. (Crtf-t ANExtensions to E~~~Lstin~ °ubsdii.rEx

ZlAJ~LU11,LU1. L.U £aAILL I.LL1g JULW LKZwJt'JL1

Estim-ated Cost132 kv Units (M$N Millions)

i32 kv

Malaver 2.0Edis on 5 103.7Puerto Nuevo 1 21.3Tolosa 1 20.5Matanza 2 27

Caseros 21.2Costanera 2 4

Moron (third bar) 2 100.5Colegiales 1 20.4Remote control and measurement equipment - 192.6

630.8Work in Progress from 1967-70 Program I84.5

Total 815.3Other

Minor work on 6.5 kv, 13.2 kv & 27,5 kv substations 750.0

Distance Estimated CostCircuits km (M$N Millions)

220 kv Transmission Line

El Pino-Inmed. Moron 2 45 1,350.0El Pino-Burzaco II 2 24 720.0Burzaco IT-Tolosa 2 50 1,005.0

- 119 3,075.0132 kv Transmission Lines

Nuevo Puerto-Edison 1 19.0 818.4Nuevo Puerto-V_ LopnAz-Fdison 1 19.0 833.6Edison-Malaver 1 11.0 532.8T.- Plat-Tolosa 1 5.0 250.0Edison-Victoria 2 7.0 537.8Matanza==Casanova 2 7.5 6h6.1Pozos-Independencia 2 2.5 192.2Costn.era-Barracas 2 7.0 537.8P. Moreno-Lugano II 2 4.0 307.3Deriv.-Migulee . 2 0 2- 17.LP. Nuevo-Colegiales 1 7.0 371.7Burzaco I-Burzaco II L 4.0 689.0Moron-Caseros (3 de Febero) 1 12.0 581.3M1oron-I'alaver 1 15.5 751.0Benavidez-Escobar 2 15.0 330.0

135.7 7,366.4Work in Prcgress from 1967-70 Program 1,305.1

Total 8,671.5

A!\UEX 8Pag6TafTpages

Invest,ment Program(Contld)

Distribution Sytem

Estimated CostQuantity (M$N Millions)

6.5/13.2 kv cables - CapitaL (tkm) 400 4,356.413.2 kv cables - Province (km') 450 3,579.313.2 kv lines - Province (km) 1,195 5,675.4Transformer vaults - Capital 405 2,039.1Transformer vaults - Province 295 1.020.6Transformer platforms - Province 1,840 1,613.2Tr-ncft,rmArq -_ nnitml (mva) Q90 733.7Transformers - Province (mva) 885 1,664.5Low Voltagea cales - Capital (kin) Lhl8),2Low Voltage cables - Province (km) 190 1,189.0Low Voltage li-uw9 - -ov.-c tk,.) 5,5 1289 9oo

New connections - Capital 9,800 1,544.6N conaections - roviuce 8un 21f.L~~U '~ULU L.LUU j- £iVjLa ,i

Meters - Capital 71, Of 321.3i'= Urs - rrOvULce VW) V7.7

Street light fixtures 24,900 2,304.2Convers-ion of 6.5 kV system to 13.2 kv __750.0

York -tv-Prtgress from 1967-70 Program 94°08

Total 47,851.6

Miscellaneous

Various Buildings

Administration Building 1,230District Offices - Commercial Department 79fExpansion of Existing Buildings 130

2,150Work in Progress from.1967-70 Program 2,500

4,650Other Items

Furnitures, Fixtures, Tools,- Vehicles 1,450Consultants Costs 710Contingencies 5,4°O

75,Y,

INT,rRCCN`.iCTED GRAl 7U&`US AIR;-L LI'TO.AL SYSTEIM

S2Z-'A - Ay CIAS - HIDRCiHOR - AT'CHA

act,al and Pro3ected. _e_and, Reserve ancl Firm Capacity

lears 1966 1967 1)68 1969 1970 1971 1972 1973 19714 1975 1976 1977 1978

New CapaLcityGras Turbines - - 140 - - 125Conventional Steam - - - 250 250 - - - _ _ _ _ _

Nuclear -- - 313I1 - - - - _ _

&1 Chocon, Hydro -- - 400 200 200 400 - -Cerros Colcrados, Hydro - - - - - - - - - - - 300 150

Retirement - - - 9° - - - 5C - - - - -

Installed Capacity 2,302 2,302 2,442 2,594 2,844 2,969 3,282 13, 632 3,832 4,032 4,432 4,732 4,882Effective Capacity 2,190 2,190 2,330 2,530 2,780 2,905 3,105 1 3,'30 3,72:1 3,907 4,268 4,531. 4,658Reserve 30°4 304 312 377 389 396 1406 1472 472 472 472 472 472

Firm Capacity L,886 1,386 2,018 2,153 2,391 2,509 2,699 3,o58 3,249 3,435 3,796 4,0551 4,186Maximuim Demand .1,719 1,311 1,883 2,053 2,221 2,4C5 2,574 2,729 2,9446 3,153 3,374 3,611 3,864Surplus 167 75 135 lCo 170 104 1?5 329 303 282 422 4418 322

1/ Only 200 .2;I of the nuclear capacity is expected to be effective in 19722/ Larget3 unit plus 54 of effective thermal capacity

JRA NT r,T1 A1.T- T A tTM S IT C S T"JIRALN DU.2 IN U LLtJfLZO lill frl Jj O.1 . LDrI

Installed and Effective Clpacity

Installed EffectiveCapacity D4W Capacity MW

Existing Thermal Plants 1968

SEGBA

Puerto Nuevo 654 640Costanera 600 600Dock Sud 179 170Gas Turbines 140 1,573 140 I'l-j50

CIAE

Nuevo Puerto 269 269Pedro de Mendoza 98 367 50 3i3

AyEE

San Nicolas 320 320Sorrento 112 91Calchines 70 502 50 161

TOTAL EXISTING PLANTS 2,442 2,33`0

FUTURE INSTALLATIONS

SEGBAP1 rt N o .r M 0 (1970) 20 250

.Gas Turbines (1971) 90 90

rCIAENuevo Puerto No. 6 (1969) 250 250Gas Turbines (1971) 35 35

ATCMI4C RNERGY COMMISSIONWiJ-1-a (1972O) III 200)

Nuclear (1973) 313

.HIDRONORIVLAdroL.A E,1L1U Chco (1973 I 362

if if 11 (1974) 200 197it TI I -f,I n ''e -I OL

k-L7 (.-~~~~~~ j L~UU

(1976) 400 361!! Plan. nanueriba (1977) 3° 6

I it (1978) 150 127

PET I?ENENT

SEGRA k1 , 3 D JockZ .ucE (1969) PFdro de Mendoza 5G i'J

AONEX 11Page 1 of6 pages

SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES (SEGBA)

Incremental Rate of ieturn Earned by a Barrio

1. The incremental rate of return from extending sunnlies to a barriois the discount rate at which the present worth of the capital costs of provirt-ing service ts the barrin enuals the nrnsent worth nf the gross revenues ob-tained from the barrio, less operating expenses, over the economic life of tK-assets employed (taken ans 2 vPPrR)_

2. The folloeing informat±on and assmpetions were used in cnlculating'the rate of return from the annual cash flows (see chart, page 6 of the Annex)-

(i) Barrios

These are defined in the Argentine Electricity Supply Regu-llat ioWns as concentrated" g.1u-s of resi dential 3 uarter of not

less than 20 houses in number who ask for electricity supplyco.Levl Thsebaros are scatt4-ered3 4houhot hterritory of SEGBA's concession and, in general, house familieci.of low incom,Ze gro-ups Between 1962 s!u 1962 and Q968, SEGBA cornactedto electricity supply about 1,000 barrios. About 600 more ercplanied for connection by 1972 after which date few should r-(--main unelectrified. The barrios vary in size ranging from20 houses to over 500. All barrios must be reasonably compactin area to qualify for connection. The small barrios (50houses and under) tend to be within a defined compact areanormally with little room for expansion. All households tendto become customers immediately in that the unit is compactenough for all to want the same level of facilities. They denot contain apartment houses and little sub-letting takesplace; thus each house has one connection and one meter. Thelarger barrios of 250 houses and over show varying degrees o1dispersion. All households do not become customers immediate!>-Some sub-letting takes place giving rise to multiple-serviceconnections.

(ii) Sales

The average sales per month per residential consumer includirv-those in barrios is just over 100 kwh. Since 1964, the averCtwgrowth per residential consumer has been under 2% per annum,In 1968 the average consumer within established barrios usczabout 70 kwh per month. However, when a barrio is first corn-nected average consumption is normally lower, say 50 kwh permonth and this may double in about 25 years.

(iii) Maximum Demand - Capacity Requirements

Residential sales are about 50c of SEGBA's total sales. Alsothe time of the residential peak is not greatly different fromthe time of the system peak. The maximum demands, for whichsystem capacity has to be provided from generation to the feedpoint on the distribution system, can thus be estimated by us-ing a typical load factor (say 25X) for barrio loads. Thisgives maximum demand figures of about 0.20 kw per consumer attime of first connection to double this in about 25 years.

(iv) Direct Costs of System Extension

The direct capital costs of extending serwrice to a barrioconsist of extending a medium voltage (13.2 kv) distributionline to a step down transformer and erecting low voltage over-head distribution lines within the barrio from which individuaihouse-connection are made. In order to qualify for servicefrom SEGBA a barrio must collectively agree to finance directI.:f.about half of the capital costs of the distribution assets jues,described. In practice, SEGBA provides at its expense the13.2 kv line extension, the step down transformer, the lowvoltage distribution conductors and the house connections.Barrio residents are required to pay directly for the lowvoltage Doles and insulators and the erection of the low volt-age lines. SEGBA has established this requirement primarilyto minimize its own canital investment. One result is thatSEGBA's rate base includes only that part of the capital costwhich is financed by SGBA itself'. This obvious1y resu-lts insavings to barrio customers on their electricity rates (crosssubsidization would oniv transfer the burden to other con-sumers). These savings may be thought of as a 'cash flow"rwhich justifies their nwn private investment . in the proient.The US$ 100 (approx.) per barrio customer of consumer-providedcapital costs is financed in a variety of ways, often byborrowing all or part of the sum. Barrio residents would nothe willin,g to incur such costs if they did not value electrici'rservice sufficiently to make their private investment "pay".The minimulm benefit that ,,ust;4ies the U$ 100 of private in-vestment is the saving (i.e. cash flow) in electricity rates

tw..^een w-hat SEGnBA holl'atve to ch-arge had, SEG-BA pro-d ,de4.thefull investment and the (actual) lower rates that reflectSEEIGBAs -a llowuer capitaV4. rate base. 'lo barrio consa.iiers, thlIepresent value of such savings over whatever time-period anddi sc-iInt rate they,r fLd releveh0t, must be at least J $ 100.Therefore this private investment part of the total capitalCost j es itself ard needU r.otu be taken 'n1o account indetermining the incremental rate of return.

AlUD,; 74 '-IPage 3 of 6 pages

(v) Generation, Transmission and Primary DistributionIncremental Investment Costs

The cost of extending supplies to a barrio must include anappropriate portion of the cost of generation, transmissionand distribution facilities required to supply. transmit anddistribute the power to be utilized during the economic lifeof the works covered by the direct extension costs i.e.325 years. Each incremental kw of demand by the barrios attime of system peak reauires an increment of capacity in gene-ration, transmission and primary distribution. The appropritc.generation capacity cost is that of the m rnginal nlant in anyyear (i.e. the generating plant which would not be installedif the maximum demand Y7rp 1 kw lesst); This r-2npaitv rn.st isthe construction cost less the total present val-ae over theeconomic life Of the, plant of the fuel cost sa-ings (if

made by running the marginal plant instead of any remainingoenerating plants an tha syam ij, h,av a h e cos o

production. An examination of forwTard plans indicates thatno great dHiS+-Itori on will be introdue by taki the '-

plant as gas turbines. Transmission is installed in 'lumpy'pro,,ects. The _appropriate chLarge is 4thusl best 4-enas-h

* *S~O ~ O~9 4.C O ~J~CJ. . LO UL1~LO V UI VCM"I-12 d.O UJ4.O

estimated average trend over a number of future years ofex-encalt5-1e per k-W ofL demand.

4v.Ah respect go he p±dL,ry u1ruiu1 uarge, r ecxiuugnthe residential load is a large proportion of the total load,the total barrio load is only a small percentage of this.Furthermore, although the residential load has been growingat auuut fv per annum, the basic reason is because of newconnections. These facts plus the nature of the networkstructure (a radial network) for future years, indicates thai:only about 10% of the estimated average trend of expenditureover future years per kw of demand should be attributed tothe barrio load.

(vi) Revenues

Barrios are charged by SEGBA according to Rate No. 1. Thelevel of this tariff and its components (fixed and kwh charge),have been taken to be constant throughout the period considet c,.oup to l995 because inflat±6n has been ignored in these cal-culations (they are done at constant value) and the rectific:-tion of any imbalances in the rate structure over future ye,r-will have the tendency (if anything) to increase residential.rates. The latter are therefore unlikely to be lower than at,present. From the point of view of cash flow to the economyas a whole, the annual gross revenue from a barrio is equalto (a) the annual kwh sales multiplied by the rate nlus (b)the sales taxes (see Annex 6, page 2, note 2). Annual net

ATN7X 117 age 4 OI C6 pages

revenue (i.e. cash flow) is equal to the annual gross re-venn.e I onperating ' PY'-nses. For t+he n1rpose of calculat-ing the rate of return, operating expenses exclude any in-nnmn .m ta (o-r ;s.miInar it+,,-msC inV aleu which oli Gov rirrnm.entlevies on SEGBA profits i.e. the only items deducted fromre.ve nue oare the op%erating "nIensisr dascia Jtnr h

providing the exploitation of the resources in question.

(vii) Operating Expenses

Operating expenses include the incremental costs of operationapplcable to supplying the barrios in three broad categories(a) incremental fuel cost for the additional kwh (b) incremenrteloperation and maintenance costs (c) incremental overheads:

ka) The average cost of fuel per kwnh delivered to theconsumer's premises in 1968 was about M$N 1.56. Theaverage marginal cost of production over that part of theload curve occupied by the barrio load, i.e. next to thesystem peak, is about 20%o to 302, higher. Allowing forthis gives a figure of about I$N 1.90 per kwh for theincremental f-uel cost to be charged to the barrio con-sumption. The effect of hydro energy during the peakperiod in the late 1970's can be expected to lower thisfigure to (say) 4s. 1.80 by about 1985.

(b) An examination has been made in some detail of the 1967operating and maintenance costs. Treating them all askwh related costs gives a figure of !$N 2.90 per kwhdelivered to the consumer excluding depreciation. Itseems likely that, at worst, a slow rise will take place,indicating a figure of about M$N 3.30 per kwh deliveredfor operating costs in 1980 and about M$N 3.60 in 1990.It could be argued that this over states the magnitude Wthe operating costs in that it malces no division betweanfixed operating costs (independent of kwh delivered) arO0variable operating costs (proportional to kwh delive-r-!c..)The SEGBA accounts make an accurate division of operat. -ing costs into components difficult. Also a quick chec'kCindicates that no great distortion seems likely to be ir.-troduced bv taking all operating costs as kwh related.

(c) A detailed analysis of overheads for 1967. together witl.an allocation per class of overheads to residentialsupplies. gives a figure of about MAN 3 ner kwh delivere&;at residential consumers' premises. However, at leasthalf of this m-ut hp regardie 2S !tfijYp in the sensethat it is independent of sales. A figure of I$N 1.5nenr "Th deplivePred to thez hnrrjnq has_ t.hus beeon nssuTmr.ee.

A. T-,r-V 11

Page of 6 pages

3. The incremental rate of return of a representative smaii. typeof barrio (50 houses) is calculated to be 11%. The return for a representatixvelarge type of barrio (500 houses) is calculated to be 18%. These figur2sapply to barrios under average conditions e.g. with respect to di.stancefrom the nearest 13.2 kv distribution line, compactness of barrio, complexityof transformer mounting, etc.

4. Because barrio electrification is judged likely to be one of themarginal parts of the project, i.e. likely to earn one of the lowest in-cremental rates of return among the various parts of the project, then therate of return on the whole project is likely to be higher than 185.

ANNEX IIPage 6 of 6 pages

ANNUAL CASH FLOW DIAGRAM FOR EXTENSIONOF SUPPLIES TO BARRIO

IGROSS REVENUE

r Revenue to SEGBA

Sales TaxAIRLET LXTENSiON I Savings* in rates levied

COSTS TO SEGBA - compared with SEGBAI _____________________________________ _ I .providing all capital costs

13.2 KV Extension - -

Transformer I LESS

Low Voltage Conductors r tConnections I Meters I I OPERATING EXPENSES

I l .1 1 l~I PLUS Fuel

I Operation and Maintenan ce

I DIRECT EXTENSION I Incremental Overheads

COSTS TO CONSUMERS _

--------------------- 1I Low Voltage InsulatorsI

Low Voltage Poles TLow Volftage nrsatior

L I

PLUS

I INCREMENTAL INVESTMENT II ~~~~~~~~~I iCOSTS IEQU ALS

I !ncrementa! Generation

| Incremental Transmission I Iincrementai PrimaryI Distribution

EQUALS

I ~~I .1 '

TOTAL ATTRIBUTABLE NET REVENUE%J.41-II AL C 0%i S%I NETREVENU

*The present value of these is taken as equal to the direct extension costs to consumers.

IBRD- 4502

ESCOBAR , l / - -B- . 5 I tERISSOTIGRE - 62 SAN -'. I

0 - - ~~~~~~BUIENOS AIRES -\ ' - '-'- e= 7; ~ - ; * ' NSENADA ,

~-J SIRO -

\_ QAcI QULMES / BERAZATEGUI ,

GRAL SARMIENTO _ / - .

L DE ZAMORA F VARELA

AMORON ALTE BROWN

LA PLATA

LA MATANZA SAN VICENTE

/ / f / MERLO X t ~~~~~~~~~~~~~~E ECHEVERRIA/av./_--. :

LEGEND

EXISTING POWER STATION * '¼

/ GRAL RO DRI G UE Z / Y .. 0 _ _ _ _ ,1 * EAIST:NG -32KV SUBSTATION ,x ~~~~~RLRDILE EXISTING VG32K UNDENRGROND CANLE -

EXISTING _ 32KV OVERHEAR LINE * /*4 - -= / _ _ _ PAETVDG NAVIES ' ' ~>\) (~ A/ /

MARCOS PAZ /'f ;e14 98 t eL PIND r- //i//AZ///g/ LIMIT OF NO-CESSIRA AREA ' / /A R GEN T I N A 0•.fO>p. ~ - EPGS GE RSAESr'- " A RGENTI A * PROPOSED 13EKV SUBSTATION,

S E GBA'S PROGRAM , 19 70-72 ' PIROPOSED 2OGEKV OVERHEAD LINE N i ,

FEDERAL EAPITAL -5

SEPTEMERE 19E9 INRI-O5SNR