Argentina - Fourth Buenos Aires Power Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-1911-AR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES, S.A. WITH THE GUARANTEE OF THE ARGENTINE REPUBLIC FOR AN ELECTRIC TRANSMISSION AND DISTRIBUTION PROGRAM September 8, 1976 l Ths docement has a restricted distribution and may be used by recipients only In the performane of (14o1 offielia duties. Its contents may not otherwise be disclosed without World Bank authorizem.  CURRENCY AND EQUIVALENT (As of July 31, 1976) Currency Unit Argentine Peso ($a) US$1 _ $a140.17 (Official Rate) US$1 = $a250.00 (Free Market Rate) $al Million US$7,134 (Official Rate) $al Million US$4,000 (Free Market Rate) ABBREVIATIONS AND ACRONYMS CEN Corporacion de Empresas Nacionales CIAE Compania Italo Argentina de Electricidad S.A. CNEA Comision Nacional de Energia Atomica CONCAP Comision Nacional de la Cuenca del Plata DEBA Direccion de Energia Electrica de la Provincia de Buenos Aires EPEC Empresa Provincial de Energia de Cordoba HIDRONOR Hidronor S.A. Hidroelectrica Norpatagonica, Sociedad Anonima SEGBA Servicios Electricos del Gran Buenos Airqs, S.A. MEASURES AND EQUIVALENTS kW kilowatt MW = megawatt (1,000 kW) kWh kilowatt hour GWh gigawatt hour (m.llion kWh) kV C: kilovolt (1,000 volts) FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO SERVICIOS ELECTRICOS DEL GRAN BUENOS AIRES S.A. WITH THE GUARANTEE OF THE ARGENTINE REPUBLIC FOR AN ELECTRIC TRANSMISSION AND DISTRIBUTION PROGRAM 1. I submit the following report and recommendation on a proposed loan to Servicios Electricos del Gran Buenos Aires S.A. (SEGBA) with the Guarantee of the Argentine Republic for the equivalent of US$115 million to help finance an electric transmission and distribution program in the Greater Buenos Aires area. The loan would have a term of 15 years, including 3 vears of grace. with interest at 8.9% per annum. PART I - THE ECONOMY Introduction 2. An economic report entitled "Current Economic Position and Prospects of Argentina" (540b-AR) dated February 20, 1975, was distributed to the Execu- tive Directors. An updating economic memorandum has been completed recently and is being distributed separately to the Executive Directors. Country data sheets are attached as Annex I. Background 3. Argentina is endowed with a favorable human and natural resource base and enjoys a relatively high GDP per capita, which reached almost US$1,600 in 1975. However, it is by no means fully developed and its income level masks deep-seated structural imbalances in the economy, manifested in its in- ability to attain stable growth. Argentina has so far failed to develop a sufficiently productive and internationally competitive industrial structure. It has attempted to maintain, however, comparatively high levels of income and consumption in the urban sector. This has been done in part by price, income and subsidy policies which, in effect, transferred income from the agricul- tural to the urban sector. Lacking adequate incentives, the agricultural sector has produced and exported less than would be expected. In addition to the urban-rural conflict, there has been a clash of interests between the industrial and agricultural entrepreneurs on the one hand and the demands of a large mass of well organized employees and workers on the other. These social and economic tensions have made it difficult to pursue rational economic policies for any considerable period of time. Unsatisfactory economic results have, in turn, led to frustrated expectations and thus exacerbated the social tensions. The present government is attempting to break this "vicious circle." 4. Although Argentina's economic development in recent decades has been characterized by a "stop-go" syndrome, the economic and financial chaos of This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - 2 - 1975/76 was virtually without precedent in the country's history. The annual rate of inflation which reached 355% in 1975, accelerated to an annual rate of about 1,000% during the first quarter of 1976. The last few months of the previous administration saw a total breakdown of economic management which propelled the nation toward hyperinflation and created a serious danger of default on its external obligations. The military forces which had been hesitant to displace the elected authorities finally took the reins of govern- ment on March 24, 1976. The Government's Short-Term Program 5. The economic and financial chaos inherited by the military government when it came to power in March 1976 dictated in large measure the priorities of its actions. The most urgent tasks before the authorities were to halt hyperinflation and to preclude default on its international financial obliga- tions. Since inflationary expectations manifested themselves in a flight from the peso and the consequent skyrocketing of the free market exchange rate, the authorities took prompt action to alter this pernicious situation. To contain the growth of the money supply and reduce the velocity of circulation, the authorities raised interest rates and intensified the use of indexed government bonds. With a view to further strengthening the peso, the author- ities have permitted an ever increasing proportion of export transactions to be made at the free foreign exchange market rate and a US$300 million short- term credit from U.S. and European banks was arranged. In addition, the authorities successfully rolled over about US$350 million of payments due on public sector obligations from the second to the last quarter of 1976. These measures resulted in a sharp drop in the free exchange rate from 380 pesos per dollar to 240-250 pesos within one month, indicating initial success in lowering inflationary expectations and halting capital flight. 6. In pursuit of further deceleration of inflation, the authorities undertook the twin task of breaking the wage-price spiral and eliminating price controls which had led to a distortion of relative prices and para- doxically fueled inflation by generating widespread scarcities. To break the wage-price spiral, the authorities instituted on a temporary basis a procedure whereby they preempted the sole right to grant wage increases. Wages may not be increased except as decreed by the government. Adoption of such a strong incomes policy led to a continuation of the downward trend in real wages which ensued in the latter part of 1975 and early 1976, as nominal wage increases failed to keep pace with price rises and mounting scarcities of goods. A 15% wage increase was authorized in June and another of 12% for September. By May 1976, when real wages reached their lowest level, it is estimated that they were approximately 80% of the average for 1971-75. Indications are that since June real wages have improved somewhat. The combined effect of the decline in the free exchange rate and the change in incomes policy produced the intended deceleration of inflation. The first major slowdown occurred in May, when the cost-of-living index increased by 13% as compared with 38% in March, and it further dropped to 2.9% in June. In spite of additional increases in prices of public sector services insti- tuted in July, the rate of inflation was only 4.2% that month, which was  - 3 - well within the limits to maintain overall price increases of around 5% monthly by year-end. 7. The present authorities have recognized that sound management of public finances is the cornerstone of any successful campaign against hyper- inflation. In large measure the debilitating events in the economy were brought about by a rapid deterioration in public sector finances culminating in March 1976 with four-fifths of the budget being financed by the Central Bank. Rehabilitation of public finances will require three basic elements: (i) restoration of the real value of tax revenues; (ii) adjustment in prices of public sector enterprises; and (iii) reduction in public expenditures. To achieve the first objective the Government has indexed many tax liabilities and thereby removed any incentive to postpone payments. Moreover, a decelera- tion in inflation should by itself remove the advantage associated with deferred tax payments. In addition to relying on these fundamental factors, the authorities have raised the most important value-added tax from 13 to 16%, have reinstated the high-yielding provincial turnover tax at 1.6% and increased the provincial property tax with a view to reducing budgetary transfers to the provinces, have undertaken a reassessment of urban and rural property, have reinstated the levy on capital of enterprises as well as enacted a number of other minor tax measures. With respect to state economic enterprises, the Government has adopted a program of phased increases in prices of publicly produced goods and services. As a first step, transportation and electricity rates were raised. Further substantial price adjustments were made in almost all other public enterprises with an effective weighted average increase of 70% between March and September. On the expenditure side, savings are being achieved in the largest expenditure category of salaries by both reducing the payrolls padded in recent years and through an emergency reduction of, real wages of public sector employees. Provided the badly debilitated tax adminis- tration structure is promptly rehabilitated, the Treasury deficit should be reduced to 7% of GDP in 1976, compared to over 12% in 1975. Recent Economic Developments and Prospects 8. The recessionary trend, which began in the second half of 1975 and continued into the first quarter of 1976, does not appear to have been seriously exacerbated by the Government's stabilization program. GDP which had fallen in the last quarter of 1975 to a level almost 7% below that of the previous year is now estimated to decline by 4% this year. It appears that during the second quarter of this year the economy has been experiencing a large-scale inventory liquidation phase. Producers, wholesalers, retailers and even households which previously had hoarded goods in preference to money were finding the practice too expensive with the cost of money greatly Pxceed- ing its depreciation and were rapidly dishoarding. This explains in part the tenfold drop in the rate of inflation between March and June. It appears reasonable to expect that the stabilization measures, which are introducing a semblance of order to the economy and have provided a strong impetus to exports, will also serve as a basis for revival of GDP growth in 1977.  - 4 - 9. Argentina's balance of payments is beginnning to show signs of improvement after a disastrous year in 1975, when recorded export earnings fell by over 20%. The drop was due to not only the closing of the EEC market for meat, but also to export taxes and to smuggling stimulated by the large spread between the official and the free market exchange rate. Whereas the volume of wheat exports is expected to nearly double this year, little imme- diate improvement is expected in total foreign exchange earnings from grain exports because of generally lower prices than last year and a poor corn crop. Most other export categories, however, are already showing signs of recovery. Beef export volume is about double the level of 1975, although still substan- tially below the 1972 peak. The EEC is now permitting beef imports pari passu with its own sales from stock. The volume of manufactured exports has also increased noticeably, surpassing the 1974 level. Overall, the Government is projecting an increase in export earnings of about 20% this year over 1975, to US$3.6 billion, which should stimulate the economy. Imports are expected to decline from US$4 billion in 1975 to US$3.3 billion this year, reflecting depressed economic activity in industry, drawdowns of stocks accumulated in 1975 and removal of incentives to overinvoice imports by a realistic exchange rate. The increase in export earnings and reduction of import payments should produce a swing of over US$1,370 million in the resource balance, from a deficit of US$900 million in 1975 to a surplus of US$470 million in 1976. Factor payments are, however, expected to increase because of high interest payments and a current account deficit of about US$100 million is forecast for the year. In addition, because of large payments due on capital account, a substantial overall balance-of-payments deficit is projected for 1976. 10. The prospects are favorable for Argentina's attaining and sustaining considerably higher growth rates than in the past if the economic authorities can persist in their program of economic reform and reconstruction. The first phase of the program has necessarily stressed stabilization measures with an immediate impact. During the next two or three years, growth rates are likely to be modest as the authorities must emphasize a rebuilding of depleted inter- national reserves and reduction in the presently excessive level of short-term debt so economic policies will not be so vulnerable to even comparatively minor fluctuations in external circumstances. These measures must be accompa- nied by a strengthening of public sector finances and corrections in the struc- ture of costs and prices which are needed to stimulate economic efficiency and growth. After the end of the first phase of the program the major tasks for the economic management include the adjustment of both industry and agricul- ture to the new conditions and opportunities, as well as putting in place the infrastructure needed to support expanded output. The levels of international trade--which have been low for an economy of Argentina's resource endowment and economic size--are expected to expand significantly as the economy adjusts to the more open economic policies. It will take a number of years and conti- nuing large capital inflows to carry out these tasks, partly because of their inherent complexity and partly because public support needed to maintain the effort can be sustained only if social costs of the adjustment process are minimized. The inflows of medium and long-term capital from both private and official sources will play essential supporting roles in this process.  - 5- Debt Service and Creditworthiness 11. The spectre of default on external debt, which seemed imminent at the beginnning of the year, has been dispelled by a mammoth funding operation. The Government upon taking office secured a US$300 million 180-day loan from commercial banks and had rolled over about US$350 million of payments due on public sector debts from the second to the fourth quarter of this year. It has obtained a standby credit from the IMF of SDR260 million (about US$300 million). This includes the first credit tranche of about US$180 million to be used this year, and about US$120 million or two-thirds of the second credit tranche for next year's availability. On the basis of the stand-by, the Government is currently negotiating with commercial banks in the U.S., Canada, Europe and Japan for a medium-term loan and expects to conclude shortly an agreement for US$870 million with a four-year maturity. These loans and credits, although needed to make payments on the previously short-term bank borrowing and the rollovers, should nevertheless strengthen Argentina's foreign exchange position and further improve confidence in the peso. More- over, since the loans and credits from the banks are of a medium-term character, they represent a step toward an improvement in the external debt structure. 12. Argentina's debt management problems result from the maturity structure more than from the level of its external debt. The latter is not excessively high. It is estimated that public and publicly guaranteed debt outstanding and disbursed was US$3.2 billion at the end of 1975. Private external debt amounted to roughly US$3.8 billion, of which "swaps" with a maturity of six months constituted US$1.3 billion, and short-term import financing, also with a six-month maturity, US$1.5 billion. The latter in large measure is revolving in character and normally excluded from medium- and long-term debt figures. However, almost one-third of the outstanding public debt and almost one-half of the private debt outstanding at the end of 1975 falls due during 1976. Over 70% of the total falls due within four years. This maturity structure constitutes a serious challenge to sound monetary and foreign exchange reserve management and will require realignment. The external public debt service ratio during the current year is estimated to reach 24%. Despite expected net borrowing averaging $250 million annually in 1976-79, the public debt service ratio should decline to about 19% in 1979 and 16% in 1980 because of the improvement in the terms structure and the expected increases in exports. Provided the authorities successfully imple- ment their policies of reconstructing the economy and manage the external indebtedness along the above indicated lines, debt service should not prove unduly burdensome. Under the circumstances, Argentina should be able to service the external borrowing required for economic rehabilitation.  - 6 - PART II - BANK GROUP OPERATIONS IN ARGENTINA Bank Operations 13. As a result of concerns about creditworthiness, along with delays and difficulties in arriving at agreements on specific projects, past Bank lending to Argentina has been sporadic. Since 1961, Argentina has received nine loans from the Bank amounting to US$532.3 million, of which four have not been fully disbursed. After the first two loans were made in 1961/62 no loans were made until 1967. In the 1967 to 1969 period, five loans were made totalling US$233.3 million. The last two Bank loans to Argentina were made in 1971. The proposed loan would mark a resumption of lending to Argentina after a hiatus of over five years. The Bank has made four loans for the power sector, four loans for the transportation sector and one loan for livestock development. Annex II contains a summary statement of Bank loans as of July 31, 1976 and notes on the execution of ongoing projects. 14. The Bank held 11% of Argentina's total medium- and long-term external debt at the end of 1975 (excluding financial credits). Service on Bank debt is approximately 3% of Argentina's total public debt service and Bank loans to Argentina constitute about 3% of the Bank portfolio. 15. In its past and projected lending to Argentina, the Bank has sup- ported and hopes to continue to support several important development object- ives. The first is institutional development and policy reform which will ensure that public savings are used economically. This has been an important objective in the power sector where the Bank has supported management reforms and a tariff structure which, while socially acceptable, furnishes adequate rates of return on invested capital. The proposed project supports the government's efforts to achieve these objectives. In lending for livestock development our loan has served to introduce modern methods of ranch manage- ment, within the framework of a supervised agricultural credit program. 16. A second lending objective is to support projects designed to increase Argentina's export capacity. Argentina's past economic policies have produced a low level of participation in the international economy relative to the country's economic resources. While policy changes, such as agricultural sector pricing, will provide much of the initial stimulus to increasing exports, sustained growth will also require an expansion of productive facilities and infrastructure, in order to eliminate the main development constraint, i.e., the frequently recurring balance-of-payments crisis. The ongoing livestock develop- ment and the proposed grain storage projects support this objective. Proposed future lending in the transport sector aims at eliminating bottlenecks for the export of agricultural commodities. The proposed loan to SEGBA would help facilitate the expansion of industrial capacity in the greater Buenos Aires area where most of Argentina's export industries are located.  - 7 - 17. Finally Bank lending to Argentina has helped provide necessary long-term external capital during times when these could be absorbed effec- tively within the framework of a sound overall financial plan. Investment requirements have grown steeply as a result of the neglect of the past. Even with a major effort, public sector savings will fall short of the necessary levels. This creates a substantial gap in the Government's financial program which can only be filled by external borrowing. Private sources, however, are not now prepared to offer Argentina financing in sufficient amount appropriate terms. It will take some years of successful economic management for Argentina to establish its position as a substantial borrower of long-term capital in private markets. During this process the Bank hopes to serve as a catalyst to stimulate lending from other sources as well as to directly provide a part of the needed inflow. 18. We are working with the Argentines on the preparation of further projects. A project for improvement and development of highways, which are important for agricultural exports, has been appraised. The Government has under preparation a project for grain storage and related facilities. Pros- pects for increased grain exports are favorable and such a project should help remove existing bottlenecks constraining the Government's efforts to increase exports. The Government is also preparing an industrial credit project to support the modernization and expansion of industry in general and particularly of export-oriented industries. IFC Operations 19. IFC has made ten loans to borrowers in Argentina totalling US$51.2 million, and one equity investment of US$2.0 million, of which US$28.6 million has been repaid, cancelled or sold. A summary of IFC's investments up to July 31, 1976, is given in Annex II. PART III - THE POWER SECTOR Bank Financing in the Sector 20. The Bank has made four previous loans to the power sector in Argentina totalling US$292 million. The first loan to SEGBA in the amount of US$95 million was made in January 1962 to complete a 600 MW thermal gene- rating station and expand the transmission and distribution systems in Buenos Aires metropolitan area. The second loan to SEGBA of US$55 million in January 1968 enabled it to continue the expansion of its generation, trans- mission and distribution facilities. A third loan of US$82 million was made to HIDRONOR, a Government-owned corporation, in December 1968 for hydroelectric power generation. In January 1973, the agreement for this loan was amended to expand the project to include additional generating facilities. The fourth Bank loan to the power sector and the third to SEGBA for US$60 million was made in November 1969 to help SEGBA continue the expansion of its transmission and distribution facilities through 1972. The physical execution of the proj- ects financed by the Bank has been satisfactory.  -8- General Energy Policy 21. In 1975, petroleum and natural gas accounted for 85% of total primary energy consumption in Argentina. The Government plans to reduce this propor- tion by expanding the production of hydroelectricity, nuclear energy and possibly coal. The electric power sector could make an important contribution to this objective, since the possibilities of substitution of petroleum in other major energy-consuming sectors are limited. Argentina's hydroelectric potential at 45,000 MW is sizeable but only some 4% of this resource has been developed. Projects totalling an additional 8% are under construction. Coal could also become an important source of energy, especially for power generation. The Government intends to decide shortly on the investment program necessary to increase production so as to permit the switching of some existing and future thermal plants from oil to coal. At present Argentina imports about 11% of its petroleum and 15% of its natural gas requirements at a cost of about US$450 million in 1976. The Government intends to try to make the country self-sufficient by intensifying the exploration and production of oil and natural gas through the award of exploration contracts to international firms. Power Market 22. At present 80% of the Argentine population have access to electric service. In 1975, the per capita consumption was 991 kWh compared with 740 kWh for Brazil in 1975 and 1,140 kWh for Venezuela in 1974. The Greater Buenos Aires region is 90% electrified with a per capita consumption of 1,170 kWh (1975). The main consumer categories are industrial and residential, account- ing for 43% and 32% respectively of total consumption. In 1975, public service generation was 24,554 GWh compared with 16,800 GWh in 1970. Captive generation was 4,900 GWh, practically unchanged since 1970. Total installed capacity in Argentina in 1975 was 9,280 MW of which about 2,000 MW correspond to captive plants. 23. The projection adopted by the previous authorities of an annual growth of 11.5% for the period 1976-86 proved to be unrealistic. The maximum growth rate now suggested by the Government are 0% growth in 1976, 5% in 1977, 8% in 1978 and 10% annually thereafter. Sector Organization 24. The power sector is, in theory, regulated by the Secretaria de Energia, which is responsible for planning, granting concessions to public utilities and self-suppliers and approving tariffs. However, many agencies participate in major investment decisions in the sector. The Comision Nacional de la Cuenca del Plata, CONCAP, a body which coordinates Argentina's participa- tion in international projects with Bolivia, Brazil, Uruguay and Paraguay, plays a major role in the construction of the Salto Grande hydroelectric project with Uruguay and the preparation of the Yacyreta-Apipe hydroelectric project on the Parana river with Paraguay. The national nuclear energy commission (CNEA) is in charge of building and operating nuclear power plants  - 9 - and reports directly to the President of Argentina. The two major provincial electric companies controlled by the provincial Governments of Buenos Aires and Cordoba, DEBA and EPEC, as well as other smaller provincial utilities, also make investment decisions and set tariffs independently of the Secretaria de Energia. Future Sector Investments 25. In the absence of a proper long term sales forecast, the major power generation projects already under construction are likely to provide, well into the 1980's, the central interconnected system with substantial surplus capacity at considerable cost to the economy. In view of this, the Government has reviewed all outstanding commitments for major generation and transmission projects to determine the possibility of delaying or cancelling them, and decided to defer for the present the Alicura hydroelectric project recently initiated by HIDRONOR. 26. The Government is aware of the need for improvement in the sector's structure and, under the project, will carry out a national power sector organization study and also prepare a national power expansion plan based on the least-cost program for expanding generation and transmission. During negotiations, agreement was reached on the draft terms of reference for the plan and the study. The Government will retain individual international experts (to be financed under the proposed loan) to assist in certain specific aspects where national expertise is lacking (Section 2.03 (c) of the draft Guarantee Agreement) and will discuss the results of the study and the plan with the Bank (Section 2.04 of the draft Guarantee Agreement). Furthermore, the Government has agreed not to approve any major new investment in genera- tion and transmission until the national power expansion plan is prepared (Section 3.07 of the draft Guarantee Agreement). Tariffs and Asset Revaluation 27. In order to reduce operational deficits of public service enter- prises, the new Government took action shortly after coming to power in March 1976, to raise their tariffs. SEGBA was authorized to raise its tariffs 10% monthly from April 1976 (a 20% additional increase was authorized in July) and the Government intends to continue this policy through 1976. SEGBA and the Government have agreed to maintain tariffs at the level necessary to obtain beginning in 1977 an 8% rate of return on its net fixed assets in operation, valued at acquisition cost in US dollars, as provided by its Concession Agreement (Section 5.05 of the draft Loan Agreement and Section 3.03 of the draft Guarantee Agreement). The Government has assured the Bank that it intends to raise the tariffs for bulk supply by HIDRONOR and CNEA's Atucha nuclear power plant to provide an 8% rate of return on investment by end-1977. In addition, the Government plans to gradually increase prices for fuel used in electricity generation (at present only 25% of international levels) to reach 75-80% of international prices by end-1978. These goals are reasonable and would lead to a substantial improvement in energy sector finances.  - 10 - 28. There is no consistent approach to revaluation of power sector assets. As stated above, SEGBA's concession stipulates the use of historic US dollar values and other entities use other methods. As part of the sector organization study, the government intends to carry out a study to develop proposals for a uniform methodology to enable all the power utilities to revalue their assets uniformly and realistically. Greater Buenos Aires Subregion 29. Argentina's principal power market is located in a region covering the city of Buenos Aires and parts of the provinces of Buenos Aires, Entre Rios and Santa Fe. This area, referred to as the Buenos Aires-Litoral region, includes 57% of the country's population and accounts for 70% of total electric power consumption. Within the Buenos Aires-Litoral Region, the city of Buenos Aires and 31 surrounding municipalities of the province of Buenos Aires contain 70% of the population and account for 71% of the consumption of electric power. This power is distributed by SEGBA and Compania Italo Argentina de Electricidad S.A. (CIAE), which in 1976 had a combined installed generating capacity of 2,971 MW, all thermal. SEGBA is the principal supplier and its concession covers the whole subregion while CIAE's concession area (which overlaps with that of SEGBA) includes one third of the city of Buenos Aires and four of the remaining municipalities. The Government agreed to ensure that the two utilities will continue to coordinate their investment programs to avoid duplication of facilities which might otherwise result from their overlapping concession areas (Section 3.05 of the draft Guarantee Agreement). 30. SEGBA and CIAE served 3.1 million consumers in 1975 (of which 2.7 million were served by SEGBA) and sold 10,300 GWh, of which 8,800 GWh were sold by SEGBA. Captive plants in the subregion generated 1,400 GWh in 1975. These plants were installed by many industrial and commercial consumers as a result of the power shortages of the 1950s and early 1960s, but as a result of SEGBA's ability to provide more reliable and economic service, their output has stagnated since 1970. PART IV - THE PROJECT 31. The project was appraised by a Bank mission which visited Argentina in June/ July 1976. A report, entitled "Appraisal of the Fourth Buenos Aires Power Project Servicios Electricos del Gran Buenos Aires (SEGBA)," No. 675b-AR dated September 7, 1976 is being circulated separately to the Executive Directors. A loan and project summary is presented in Annex III. Negotia- tions were held in Washington from August 16 to 20. The Government delegation was headed by Mr. Bernardo Bronstein, Subsecretary of Electrical Energy, Ministry of Economy, and the SEGBA delegation was headed by Mr. Oscar Briozzo, Executive Vice President.  The Borrower 32. SEGBA, the proposed borrower, is a corporation formed in 1958 to take over most of the assets and responsibilities of the Compania Argentina de Eletricidad (CADE). Its shares are wholly owned by the Argentine Government through the Corporacion de Empresas Nacionales (CEN), a holding company for most government-owned enterprises. Although CEN has legal powers governing the general policies of its subsidiaries, the latter have retained their autonomy in carrying out their day-to-day business. SEGBA's Bylaws, as approved in 1961 in connection with Loan 308-AR, were intended to ensure that the company become an independent, well managed and financially viable utility. However, the Bylaws were amended in 1972 to reflect the Government's intention to exert a greater degree of control over the company. This action was reversed with the approval of the new Bylaws in July 1976, which are basically the same as those of 1961 and are satisfactory. 33. SEGBA has a Board of Directors of eight members, appointed by the Government through CEN. The Board chooses two of its members to serve as President (Chairman of the Board) and Executive Vice President (General Manager). The Executive Vice President is responsible for day-to-day manage- ment. He is assisted by a committee of six department heads (Administration and Finance, Planning, Personnel, Procurement, Commercial and Technical). In July 1976 a new Board of Directors took charge of SEGBA's management. The new Executive Vice President is a capable engineer with more than 30 years' ser- vice with SEGBA and its predecessor utility. Before resigning in 1972, he held the post of technical manager. The newly appointed managers and assist- ant managers are experienced SEGBA staff members and constitute a competent team. 34. SEGBA's accounting, internal audit and 'data processing are satis- factory. Nearly all commercial and accounting processes as well as.personnel records, stores, inventories and procurement are computerized. The monthly financial statements and the budgetary report have been delayed in recent months. The necessary steps are being taken to speed up their preparation and ensure their timely availability. 35. The deterioration of SEGBA's efficiency and the effects of low tariffs were such that since 1970, SEGBA has been earning less than the 8% rate of return on its rate base guaranteed by its Concession Agreement and reflected in its agreements with the Bank; and in 1974 and 1975, its earnings became negative. This performance was particularly poor since SEGBA paid very low prices for its purchases of fuel and bulk electricity from other public enterprises. Although SEGBA's financial situation has improved considerably in 1976 owing to recent tariff increases, earnings and 'the contribution of internal cash generation to the expansion program this year are still expected to be very low. By December 31, 1976, SEGBA's total accumulated shortfall in earnings in comparison to its authorized 8% rate of return is expected to reach US$123.4 million. To offset this shortfall, the Government agreed to make available US$86.8 million through budgetary funds by June'30, 1977 (Section 2.02 (c) of the draft Guarantee Agreement) and intends to allow  - 12 - SEGBA to charge tariffs sufficient to enable it to recover the remaining US$36.6 million in the years 1977-79. After 1979, SEGBA would maintain a rate of return of 8%, while paying substantially higher prices for fuel and purchased power. The projected earnings would enable SEGBA to finance a significant portion (51%) of its 1977-80 expansion program from internal cash generation. 36. SEGBA's debt/equity ratio was 34/66 in 1975 and is expected to become 31/69 by 1981. SEGBA would not contract any long-term loans without the Bank's concurrence if its internal cash generation were less than 1.5 times debt-service obligations (Section 5.04 of the draft Loan Agreement). 37. The Government and SEGBA are fully aware of the problem of SEGBA maintaining employment levels far in excess of those usual for the sector. They intend to reduce substantially the number of employees from the present figure of 26,300 to 22,800 in 1978, and thus increase the number of customers per employee from 102 in 1975 to 126 in 1978. 38. SEGBA has a comprehensive training program and maintains two centers to fulfill the majority of its training needs. Other specialized training is carried out at other local institutions (technical universities, etc.) and for very specialized subjects (for graduate engineers) use is made of the training facilities of Electricite de France and of suppliers of sophisticated equipment. SEGBA intends to train 2,000 persons during the years 1977-78 in subjects varying from low-tension networks maintenance to load dispatching. Project Description 39. The project proposed for Bank financing consists of the main ele- ments of SEGBA's transmission and distribution expansion requirements for 1977-81. These include the addition of about 374 circuit km of transmission lines, 7,100 MVA of transformer capacity and associated switchgear, 8,240 km of distribution lines and 884 MVA of transformer capacity in 4,600 low-tension substations, meters and equipment for 180,000 service connections, and studies to be carried out by the Government with the assistance of consultants. Service to Low-Income Groups 40. The low-income population of the Greater Buenos Aires area has grown very rapidly due to immigration from rural areas and neighboring countries and large shanty towns have developed. Many of these dwellings in these shanty towns are connected to the nearest power line through illegal hook- ups which present serious problems of safety, in addition to financial losses to SEGBA. SEGBA has estimated that about 250,000 persons live in 70,000 dwellings in 110 different shanty towns. SEGBA intends to reach agreement with the municipalities, where these shanty towns are located, on a plan to sell energy to the municipality in bulk for distribution within each shanty town.  - 13 - 41. There are also about 25,000 dwellings in new low-cost housing developments without electric service. SEGBA intends to connect these during the next three years with an investment of about US$6 million as part of the project. Cost Estimates and Financing Plan 42. The estimated cost of the project is US$495.3 million equivalent, including a foreign currency component of US$152.6 million. These cost esti- mates were prepared by SEGBA and are based on mid-1976 prices as quoted by different manufacturers. Physical contingencies were estimated at 2% for all project components except for the 500 kV installations for which a 10% physical contingency allocation has been provided. Price contingencies for both local and foreign costs were based on the following percentages: 4.5% in 1976 (half-year), 8% per annum in 1977 through 1979, and 7% per annum thereafter. The estimated cost for engineering, supervision and administration was based on SEGBA's experience with ongoing works. Consultant services have been estimated on the basis of an average cost of US$4,870 per man-month (excluding travel and subsistence). 43. The proposed US$115 million Bank loan to SEGBA would cover 75% of the foreign exchange cost of the Project. The Bank loan would have an interest rate of 8.9% and a term of 15 years including three years of grace. The proposed loan includes US$500,000 for 60 man-months of consultant services to assist the Government to carry out the organization study and the expansion plan (para 26). The Government would assume the responsibility for the repay- ment of these funds to SEGBA (Section 3.02 of the draft Loan Agreement). The balance of SEGBA's financial requirements for the period 1977-80 is expected to be met by the Government's 1977 contribution of US$36.5 million, loans from foreign and local banks of US$206.0 million, and the drawdown of US$39.8 million of existing loans. The Government agreed that it will provide funds sufficient to protect SEGBA against any failure to secure financing from foreign and local banks during 1977-80 on terms and conditions satisfactory to the Bank (Section 2.02 (c) of the draft Guarantee Agreement). 44. SEGBA's capital investment and financing plan during the period of loan disbursement can be summarized as follows:  - 14 - 1977 - 1980 US$ million equivalent % CAPITAL INVESTMENT PROGRAM Construction Expenditures: IBRD Project 425.4 /1 51.3 Ongoing works 223.3 27.0 Future works 2.8 0.3 Other 55.2 6.7 Interest capitalized 66.7 8.0 Total construction expenditure 773.4 93.3 Increase in working capital 55.2 6.7 Total capital investment 828.6 100.0 FINANCING PLAN Net internal cash generation 424.9 51.3 Government grants 36.5 4.4 Other sources 0.4 0.0 Borrowings: Proposed IBRD Loan 115.0 13.9 Other Loans 251.8 30.4 Total borrowings 366.8 44.3 Total financing 828.6 100.0 /1 An additional US$69.8 million (after the proposed loan is fully dis- bursed) would be expended in 1981 to complete the project. 45. While in Washington for negotiations, the representatives of Government and SEGBA held discussions with a US investment bank of inter- national standing, regarding the possibility of a loan of about US$50 mil- lion at medium term to supplement the proposed Bank loan. Such financing would be in addition to the Bank loan and in substitution for some of the borrowings which SEGBA would otherwise undertake within Argentina. We have informed the prospective lender, as well as SEGBA, that we would be prepared to recommend to the Executive Directors our association with them or other co-lenders, if this were to result in better terms for the Borrower than it could otherwise obtain in international markets. It seems likely that the arrangements for the private co-financing would be concluded within six  - 15 - months after the approval of the Bank's loan. The form that this associa- tion might take is described in my memorandum to the Executive Directors of May 29, 1975 relating to a loan in Brazil to CSN (R75-103/1). If and when such a co-financing operation materializes we would return to the Executive Directors with full details regarding the proposed private loan and appro- priate recommendations for amendments to the Bank Loan Agreement. Tariff Structure 46. SEGBA's tariff schedule for residential consumers is based on a low "social" rate for small consumers (up to 60 kWh/month), with progressively higher charges to larger residential users. Tariffs for large industrial consumers incorporate a peak and off-peak variation in charges. SEGBA should consider a more elaborate tariff structure for medium-sized commercial and industrial consumers with a maximum demand of less than 50 kWh. Such consumers are presently included in a "general service" category which does not provide any incentive for high voltage supply or off-peak consumption. The Government. and SEGBA have agreed to carry out a study of SEGBA's tariff structure with a view to identifying areas for improvement and to discuss its conclusions with the Bank (Section 4.02 of the draft Loan Agreement and Section 3.06 of the draft Guarantee Agreement). Engineering and Construction 47. The basic design of the distribution expansion program as well as the studies for the high tension transmission system were developed by SEGBA with the assistance of consultants. SEGBA employs contractors for the con- struction of high and mid-tension overhead and underground transmission lines, for a part of the low-tension distribution lines and substations and for the new high-tension substations. Expansions of existing substations, part of the low-tension distribution lines and substations and service connections will be undertaken by SEGBA's own forces. With the exception of the lines and sub- stations involved in the completion of the 500/220 kV ring, the above described works are part of a continuous expansion of the subtransmission and distribu- tion system. The project corresponds to works to be initiated in mid-1977 and to be completed by mid-1981. Procurement and Disbursement 48. Procurement procedures substantially the same as those agreed for the previous loan to SEGBA (Loan 644-AR) will be used for the proposed loan (Schedule 4 of the draft Loan Agreement). They provide that bids for two thirds of the equipment and materials of each lot to be procured would be invited on an international basis, with Argentine bidders receiving a 15% margin of preference of the cif price of the lowest qualified foreign bidder or the applicable custom duties, whichever is lower. If an Argentine bidder were successful for this two thirds, he will be invited to supply the other one third at the same price. If a foreign bidder were awarded the contract for the two thirds, separate bids from Argentine suppliers would be opened and a contract would be awarded to the lowest bidder if his price were below  - 16 - 138% of the cif price of the successful foreign bidder for the two thirds. However, any domestic procurement undertaken on this basis would not be eligible for financing out of the loan. If all Argentine suppliers' prices were above 138% and they were not willing to reduce their prices to that level, the successful foreign bidder for the two thirds would be invited also to supply the one third at the same unit price. This rather complex procure- ment procedure was adopted to give Argentine industry an expanded opportunity to supply some equipment under the project, without excessively increasing total project cost. Were foreign suppliers to be awarded two thirds of the contract under international competitive bidding and Argentine suppliers to win the remaining one third of the contracts at the 38% differential, the combined cost of the foreign and local supplier contracts would be less than 15% above the international competitive bid price. 49. Disbursement from the Bank loan would be made against appropriate documentation for 100% of foreign expenditures on imported goods and 60% (estimated foreign exchange component) of equipment procured in Argentina for contracts awarded through international competitive bidding and 100% of the cost of consultant services. Based on the experience of the previous SEGBA loans, it is estimated that about US$40 million of the Bank loan will be disbursed against imported equipment and US$75 million against domestic equipment. Project Benefits and Risks 50. The proposed loan would make a significant contribution both to the Argentine power sector and to SEGBA. In terms of the sector we would assist the Government (a) to streamline sector organization, regulation, planning, financing and operation; and (b) to formulate a national power expansion plan based on the least cost program for expanding generation and transmission facilities which would incorporate reasonable criteria for establishing system reserves and the most rational use of indigenous energy resources, including coal, uranium, and hydroelectricity. 51. With regard to SEGBA, the project would provide the transmission facilities necessary to permit utilization of the energy produced at the hydro- power plants of El Chocon, Planicie Banderita and Salto Grande and at the nuclear power plant at Atucha. The availability of this energy will allow SEGBA to meet the increasing demand for power due to the expected revitaliza- tion of industrial activities in Argentina as a result of the economic policy applied by the present Government. The growth in the industrial sector has been the main factor in the increase of electricity consumption (56% of the total over the last five years) and the project would provide the facilities required to support a continuation of this growth. The project would also provide the distribution facilities necessary to bring this energy to the final consumers (65,000 new consumers are expected to be connected annually), reduce losses and improve the efficiency of SEGBA's operation and the reliab- ility of service due to the incorporation of urgently needed communications, telecontrol, telemetering and load dispatching equipment. The project is not expected to have any adverse impact on the environment.  - 17 - 52. SEGBA is well qualified to implement the project and the risks of the project from the technical point of view are no greater than those normal for projects of this type. It is recognized, however, that in the past, Government intervention and an adverse general economic environment resulted in a deterioration of SEGBA's efficiency and a severe reduction in its earn- ings. The policies of the present Government and the measures agreed in con- junction with the proposed loan are designed to enable SEGBA to improve its efficiency and financial position in the future. 53. The benefits of the project, as a proxy, are assumed to be the price of electricity paid by the ultimate consumer. The project costs consist of investment and operating costs and the costs of bulk power and fuel (realistic- ally priced as noted in paragraph 27) purchased by SEGBA. Based on these assumptions, the economic rate of return on the project investment is estimated to be about 21%. The sensitivity analysis shows that the rate of return would exceed 18% even if costs are assumed to rise by 10%. PART V - LEGAL INSTRUMENTS AND AUTHORITY 54. The draft Loan Agreement between the Bank and Servicios Electricos del Gran Buenos Aires S.A., the draft Guarantee Agreement between The Argentine Republic and the Bank and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and the text of a draft resolution approving the proposed loan are being distributed to the Executive Directors separately. Features of the draft Loan and Guarantee Agreements of special interest are referred to in paragraphs 26, 27, 29, 35, 36, 43, 46 and 48. 55. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 56. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments September 8, 1976   TABLE 3A ANNEX ARGEAtINA- SOCIAL INDICATORS OATA SMEET Pa- Io LAND AREA (THOU KRZ)------------------------- ----AL- 776.-- AR OSTIN REFERENCE COUNTRIES (1970) AGRIC. . 196 0 1970o ESTIHATE VENEZUELA SPAIN AUSTRALIA"a GNP PER CAPtTA (U51) 770.0 13 30. 0 1590.3 l14'r.0 1560.0 36L1j0. POPULATION AN) VITAL STATISTICS P3PULATION (RID-YR. HILLION) 1 9 .9 213.2 25.0 10.3 33. 6 12. 5 POPULATION DENSITY P~R SQUARE RH. 7.0 8.0 9.0 11.0 67.0 2. 0 PER SO. KM. AGRICULTURAL LAND . 13.0... 97.0 3.0 VITAL STATISTICS CRUDE BIRTH RATE PER THOUSAND 2I4.9 22.5 21.8 42 .1 21. 0 20.9 CRUDE OrAPS RATE PER THOUSAND 9.0 8.6 8.8 8.7 8. 9 8.8 INFANT RORTALIPY RATE (/THOU) 59.1k 58.9. 4 9 .0 2 7. 9 1 7. 9 LIFE EX0ECTANCY AT BIRTH (YRS) 614.7 67.14 68.2 6 3.0 70.8 71.9 GROSS REP4JOUCTION RATE 1 .5 1. 5 1.5 2. 9 l.A4 1. 4 POPULATION GROWTH RATE CZ) T`OTAL 1 .5 1. 5 1.5 3.4~ 1. 1 2.0 URBAN 2.6 2.14 2.3 I4.5 2.0 2.8 'JRBAN POPULAT ION (0 OF TOTAL) 71 .2 77.L4 80.0 76.0 5 9.1 59. 5 AGE STRUCTUROE (0ERCE4T) 0 TO 1A YEARS 30.7 29.3 2Z9.0 47T.1 2 7.8 28. /p 15 T0 64 YEARS 63.4~ 63.7 6 3.0 5 0. 5 6 2. 5 63.3 Z 65 YEARS AND 'DVER 5.9 7.0 8.0 ?.4 9. 7 8.6 AGE OEP-N)ENCY RATIO 0 .6 0. 6 0.6 1.0 0. 6 0.6L ECONOMIC OEPENDENCY RATIO 1.0 1.0 t. .6/a 1.1I .9 FAHILT PLANNING AZCE-rO9S (CUMULATIVE, THOU) . .. 67.0 JSERS (X OF MRARIED WOMEN) .. .. TOTL LA:d)R FORCE (rHOUSANOI 7 501. a 000 3200.0/b 119 00.0 5300.0 L LAB'IR FORCE IN A.RICULTURE (2) II.0 "'I) 5.00. 22.0 24. 8 7.0 a~ JNERPLOYED 10 OF LAAIR FORCE) 9.0 5.0 3-~ 8.0 2.0/. 1.4 INCORE DISTR1IJTION 0 O PRVAT INOMEREC-D VT- HIGHEST St OF HOUSEHOLDS 27.5 21.14 /, . . 143 HIGHEST 200 OF HOUSEHOLDS 50.9 47. ... 38.7 L7IdEST 200 OF HOUSEHOLDS 6.9 567 .. LOWEST aDO IOF HOUSEHOLDS 16.6 16. j ... 20.i OElirti3UT1D OF LAND OWNERSHIP 0 ONE By TOP toD OF OWNES . 04 D.'C 3F SHtALLEST 10% OWNERS ... . HEALTA AND NUTRITION P)PULAT194 PER PHYSICIAN 6 70.0 Lsd 53. b1 80.3 / 1100.0 750.0/b 700~ PIPJLATION PEA IURSING PERSON 300 1OOa0 16-.1 3. 043.0 100.0a P3P'ILATION PER HUSPIrAL NED 170.0 c0 180. 0 320.0 220. 0 30.0 "R CAPITA SUPPLY OF CALOTRIES CZ OF REQUIREMENTS) 115.0 119.0 115.0 100.0 107.0 115.0 PROTEIN (GRAHS PER DATA 98. 0 99. 0 1100.r0 6 2.0 81.0 101.00 -or WHICH ANIHNAL AND PULSE 5 4. 0 64. 0 .3 2.0 40.0a lEAr H RATE (/TH3U) AaES 14 14.14 3.2 . 5.0 0. 9 0.9 EDU CATION %DIUSTED ENROLL4ENT RATIO PRIMARY SCHOOL 07.0 e 104.0c 104.0/a.c 100.0 131.0 106.0 SECONDARY SCHOOL 31. c 70170/. 10f 70 ~ 8. YEARS IF SCHOOLING PROVIDED 3. 70 L. !c4 70c 8: (FIRST ANO SECOND LEVEL) 1Z.0 1 2. 0 12.0 1 1. 0 1 3. 0 1 3. 0 V3CATIONAL ENROLLMENT (0 OF SrECoONARY) 50. 0 59.0 62.0 33.0/d 20.0 16.0 ADULT LITERACY PATE (2) 01I. 0 9 3. 0 82.C. 94. 0 99.0 H)JSI4G PERSONS PER ROOM (AVERAGE) 1. 3 1 .4 /d .... 0.7?1 3CCUPIED DWELLINGS WITHOUT PtPED WATER (0) 50.0 .. . ACCESS TO ELECTRICITT (Z OF ALL DWELLINGS) 69.0 ... .. 98a. 0 b RURAL SWELLINGS CONNECTED TO ELECTRICITY (11 18.6 . .. 9 5. 0 CONSUMPTI ON RADO EC~EIVERS (PER YHatU Pop) 167r.0 3 70. 0 166.0 21 4. 0 21I1. 0 PASSENGER CARS (PER THOU POP) 214.0 62. 72.0/ 55.0 70.0D 314. 0 ELECTRICITY (KWH/TO PER CAP) 513.0 915.0' 1117.0 1229. 0 162 7.0 41489.0 4EWSPRINT (Go/YR PER CAP)- 8.2 11 .4 7.3 7.8 5.8a 35.8 SEE NOTES AND DEFINITIONS O REVERS  ANNEX I Page 2 of 4 HarES unls Otews noted, date for 1960 refer to sany yea betwee 199ad16,fr17Iouo 90ad190 n o a eetfont ewe 1973 95end96 1975.br.. 98 d17, dfrM-tR.. tE~-t .. -0 Solo-tion Of Atetraia as oobjectiv coun..try In base.d on tosparahin resource endos,enta and economic etructore. AR-GENTINA 1960 / Persona 14 yeara of age sod over; /b Persono 15 yeuro of age and over; Ic 1962, Md Registered, not all practicing in the country, In 6-12 and 13-17 years Of age res pectively. 1970 /a Iot-t recipients, Stones Aires - urban; /b Hospital personnel only; t, i er fae dNseod,ttl orban and total. ' -1yaso . dHa.od,ttl MOST RECENT ESTIM4ATE: /a 1972; /b 1969-71 averge; /- 5-il and 12-16 years of age reepectively. VENEZGUELA 1970 Is Ratio of PoPulation coder 15 and 65 and Over to totel labor forc.e; lb tuonnicel1y action population; Is 7-12 and 13-17 years of age respectivelY; /d Including evening cohoolo. SPAIN 1970 /a Registered snenployd; lb Registered, nout all practicing in the ce...try; Ic 6-10 and 11-16 years of age respectively. AUSTRALIA 1970 /5 1971; /b 5-11 years of age; /0 Total, orbsn and rural. R3, Joly 19, 1976 SEPSHITIONS OP SOCIAL INDICATORS LendAre (othou so2r).r..pis odae Population Per oursife person - Populations divided by ntsber of practicing Total. -MTota srfcace aes cooriin ladae nd inland waters. =I.a end fenale graduate nuse, trained" or "nertified"' nurnes, ond Pgc -aMostlfr rCents Patbete Of agricultural area used teaporarily or euxiliarY Personnel with training or seperience. pf. aotl o roo aores, narket & kitchen gardens or to lie Population pet haspita bed - population divded by nunber Of hoopita1 beds fallow, ~~~~~~~~~~~~~~~available in public and private general and oPecialieed bonpita1 ad ISP per capita (U1$) - GNP Per capita esti-atno at torrent naka pics, cutbodialsotmd prevent.iv;e.car.ds.r gh ade.t.l.-t a calculated by the noo conversion netbhd as World Rank Atlan (1973-75 Peesiaaelofcorsftfreiesnt)-Cniedrmeer ieas);I1960, 1970 end 1975 data, equivalent of net fond supplies available in country per capita per day, ovileble supplies conprise donentic produotion, imports less esports, Population and vital statistics end changes in stmck; net supplias exolade aninal feed, sends, quanti- Population (old-yt. nillion) - As of July first: if not avilable, ties used in food proeas.ing and Inase. in distribution;_teqairentnr avragee of two end-year estimates; 1960, 1970 ad 1975 data. were eatiasted by PAO ba...d on physlologica1 needs for n..-I activity sod health cassidering envirosnaeotal teoperatorn, body weights, age and Ppeclation density - per anuare o Mid-ynar population per square kilo- sex diatributions of population, sod allowing lOt for was.te or houe- me-ter (1010 hecterna ) of totalar,bodlv. Ponuatin dnsiy -per ksar I of antric, land - Computed as shove for Per capita spply of protein (grans per day Protein content of Per agricultoral lend only. capti.a net supply of fond per day; net supply of fond is defined as above; requirnoenta for allcontries eatablished by USDA Econoic Vital statistics Research Services provide11facr a inionos allowance Of 60 gross of total Crude birth rateper thousand - Annual live birth. per tha,ssad of mid- protein Per day, ad 20 gram of aniial and pulse protein, of which y-a population;te-year arithmetic avergage ending in 1960 and 1970, 10 gross should he animal protein: these standarda are lowr than thoe. and five-year aver ag eding in 1975 for nest recent estimate, of 75 grns of total protein and 23 grame of a.nial protein as an Crude death rate no r thousand - Annual deaths per thousand of old-year average for the world, proposed by FAO in the Third Werld.Foad Scr-y. population, ten-yea arithsoetit averages ending in 1960 and 1970, and Per capita protein soenly fro animalad pulse - Protein supply of fond five-year average edin n17 o utrcn siae derivd from animals and pub.es ins gra per day. Infant sorti ratle f/thou) - Inna deaths of inf-ete under ova yasr of herbt rate f/thou) ones 1-4 - Annual deaths pee thousand is age group ago per thousnd u births. -4 yearsa, to children in th~in age group; suggested as an indicator of Life eopectancy at birth (yr.)- Average ossber of yearn of life remaining malntrition. at birth; usualy fivo-year averages ending Is 1960, 1970 sod 1975 for develo pindg.countries. Eduation Groan reerodcion rate - Average nunhr of live daughters a woman, will Adjuted enrollment ratio - primary scohol - Enrollmet of all oges as hear in her norMal re productive period if she enperienc... present age- percentage of primary school-age pepultion; includes childrsn aged nyacific fertility ra tes; ussolly five-year aveargee ending in 1960, 6-11 years but adjus ted for different lengths of primary education; 1970 sand 1975 Ear developing c oun tries, for couotries with universal education, enroiloont nay eceed lOot Peculation growth rote (t) - tota-1 7Compound son-Ia growth rates of nid- since eon pupils are below or shoe the official school age. Year population for 1950-60, 1960-70,ad 1970-75. Wadjsted enoletratio - secondary school - Computed an above; PopulatIon growth rat t ra Computed like growth rate of total secodary education requires at least tour years of approvd primary population: different definitions of urban areas nay affect coopara- instruction; provides general, vocational. or fescher training bility of do te anong countries, instructions for pupils of 12 to 17 years of age; correepoodence Ulrban population it of 'totl) - Rtoof urban to total population; courses are generally exclded. different definitionstf urbanareaso nay affect conperability of data Year of ncboling proided (first andisecon level) - Total years of cvu conre. schooing; at asecodary'level, vctionalinstruction nay be par- Ago: struture (Pcoet - Children (S-li years), working-age (15-4 years) tially or completely excluded. ad retired(h yenar and over) as percentages of mid-year population. Vocational enrollment it of secondary) - Vocational institutions Ago dependency'r5 rtio -_Rat io of Population under 15 and 65 and -vr to include technical, industrial or otber progrm which operate thoso of ages 15 throngh 64. independently or as depertrnets of secondary institutions . Etonoic dependency ratio - Ratio of population under 15 and 65 and over Adult literacy ra te it) - Literate adults (able to read and wits) an to the lbor force In age group of 15-64 years. percontage Of total adult population aged 15 years ad over. fonily plassna.. -. acPtors ic,onultivs. thou) - Cunulative somber of acceptors of birth-control devices unddr auspices of national Emnily Hosn Ploansing progron losic inception. Perso pear rom (average) - Average nunhr of persons per room in Panily Pdoming - us,ers t of(married woons) - Percentageso ef married occupied conventions) dwellings in urban areas; dwellings exclude ome of child-hearing age(15-44 years) who use birth-control devices non-pernaanet structures and unocupied parts.. to all marriedwoe is s,ane age group. Occupied duellinge without niond water (1 - Occupied conventional dwellings in urban end rural areas without inside or outside piped iff M r for.t water facilities as percentage ofal oncupind dwellings. Tota labr foce thousand) -bEconomically active persona, Including Assess to electricity it of all dwe1llngs) Conventional dwellings somd foroces and unePloed bt sec luding housewives, students, etc.; with electricity In living quarters as percent of total dwellings In definitions is various coutries are not cooparabla. urban and rural areas. Labor farce is agr icoIture Ct) -AgriculItural labor force (in Earning, Rurol dwellings consented to electricity it - Computed en above for foreatry, hunting and fishing) as peroeotage of total labor farce, rural dwellings only. Une,pl:ynd it of lohbr force) - Unemployed ar usually defined as persons who reable and w illing to taks a Jab, ou t of a job on a given day, Cninto remined out of a ob, end seeking work for a specified minions period Reisreeier (pear thou pop) - All types of receivers for radio broad-, sot eoceeding one we.ek; nay not be cooParable between countries due to casts to general public per thousand of populotion; excludes difforent definitions of aneploynd ad soure- of data, e.g., employ- unlicnemed receivers in countries end in years when registration of omnt Office statistics, eanple ..rvays, compulsory uneployment inurasaca. radio sets van Is effect; data for recent years may nout be comparable sinms mOt countries abolished licensing. inc-n distribution - Percentage of private incom (both in cash end kind) Pmassnger cars (Par thou pop) - P....enger cars comprian nato er.f rocelved by richest It, richeast 2ot, poorest 201, sod pooret 40t of seting less. tl9aon eight persons; seclundes anbula..... hearses and householda. military vehIcls Electricity (kwh/yr pet cap) - Annual cansooptimn of Industrial, to- Diatribution of land owoer.bip - Percentageo of land owned by wealthiest merel1, public and private electricity in kilowatt hours per caita lot and poorest lot of lend owners, generally hosed on production data, without allowanc Ear lessen in grids hut alowing for imports and aeporte of elestricity. Health end Nutrition Newsprn (k/nr cap) - Per capita .mu.al con,sooption in kilograna Poltionorpohysician - Population divided by nsmser of practicing estimated iron d,oetic production plus net imports of newsprint. physician qlifed frn a medical school at university level.  ANNEX I Page 3 of 4 pages COUNTRY DATA GROSS NATIONAL PRODUCT IN 1974 ANNUAL RATE OF GROWTH (%, constant prices) US$ Mln. % 1965-70 1970-73 1973-76 GNP at Market Prices 41,074 100.0 4.1 4.1 1.6 Gross Domestic Investment 7,845 19.1 6.6 5.0 -5.3 Gross National Saving 6,942 16.9 4.2 7.0 -4.5 Current Account Balance 1,027 -2.5 - - - Exports of Goods, NFS 2,875 7.0 2.6 7.0 1.9 Imports of Goods, NFS 3,573 8.7 4.2 -1.4 -1.8 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1973 Value Added Labor Force-/ V. A. Per Worker US$ Miln. % Mill. % US$ % Agriculture 4,888 12.3 1.1 15.5 4,444 79.4 Industry 17,286 43.5 2.7 38.0 6,402 114.4 Services 17,564 44.2 3.3 46.5 5,322 95.1 Total/Average 39,758 100.0 7.1 100.0 2951.0 100.0 GOVERNMENT FINANCE 2/ 3/ General Government- Treasury- (a$ Mln.) % of GDP (a$ Milr.) % of GDP 1975 1970 1975 1975 1970 1975 Current Receipts 3,216 29.1 25.6 50.2 5.6 3.7 Current Expenditure 3,929 23.3 32.2 184.8 8.0 , 15.3 Current Surplus -713 5.8 6.6 134.6 -2.4 -11.6 Capital Expenditures 7,170 7.3 9.4 6.7 0.7 0.5 External Assistance (net) 538 0.8 0.4 - - MONEY, CREDIT and PRICES 1970 1971 1972 1973 1974 1975 (a$ billion outstanding end period) Money and Quasi Money 25.9 36.7 54.5 103.8 161.7 397.2 Bank credit to Public Sector; 6.0 9.0 14.8 30.0 44.1 155.6 Bank Credit to Private Sector 21.3 32.1 42.6 78.7 122.1 317.2 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 27.3 27.7 24.8 28.5 33.1 29.5 General Price Index (1970 = 100) 100.0 148.2 260.8 341.2 464.3 2,083.4 Annual percentage charges in: General Price Index (wholesale) 16.2 48.2 76.0 30.8 36.1 348.7 Bank credit to Public Sector - 50.0 64.4 102.7 47.0 252.8 Bank credit to Private Sector - 50.7 48.2 65.3 55.1 160.8 NOTE: Conversion of GDP figures to dollars are at the average exchange rate of 1973 and 1975. Output and Productivity figures are converted at 1972 exchange rate. 1/ Total labor force; unemployed are allocated to sector of their normal occupation. 2/ consolidated public sector. / Current expenditure of treasury includes transfers.  ANNEX I Page 4 of 4 pages COUNTRY DATA BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1973-75) US$ Mln % 1973 1974 1975 Cereals 1,090 32.1 (in million US $) Oils & Fats 235 6.9 Exports of Goods, NFS 2,197 4,791 3,749 Meats 498 14.7 Imports of Goods, NFS 2,131 4,331 4647 Wool 130 3.8 Resource Gap (deficit = -) 66 460 -898 Hides & Skins 96 2.8 Other Agriculture 575 17.1 Interest Payments (net) -222 -332 -457 Exports Other Factor Payments (net) -70 -35 -16 Industrial Exports 758 22.3 Net Transfers -3 - 6 Fuels & Lubricants 10 0.3 Balance on Current Account -159 128 -1,349 Total 3,392 100.0 Direct Foreign Investment 11 10 0 Net MLT Borrowing 189 412 376 EXTERNAL DEBT, DECEMBER 31, 1975 Disbursements 576 1,262 1,330 Amortization -387 -850 -955 US$ Bil Basic Balance 41 550 -974 Public Debt, incl. guaranteed 3.2 Capital Grants - - - Non-Guaranteed Private Debt 3.8 Other Capital (net) 89 -504 193 Total outstanding & Disb. 7.0 Other Items n.e.i. 1/ Increase in Reserves DEBT SERVICE RATIO for 1975- = increase) -130 -46 781 % Public Debt, incl. guaranteed 20.9 Non-Guaranteed Private Debt 16.1 Total outstanding & Disb. 37.0 l IBRD/IDA LENDING (12/31/1975 (Million US $): 2/ IBRD IDA RATE OF EXCHANGE- Outstanding & Disbursed 341 - December 31, 1975 June 30, 1976 Undisbursed 60 - US$ 1.00 = a$60.89 US$ 1.00 = a$140.17 Outstanding incl. Undisbursed - a$ 1.00 = US$0.016 a$ 1.00 = US$0.007 1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services plus workers' remittances. 2/ Official Exchange Rate. Country Programs II tatin America and the Caribbean Regional Office August 23, 1976  ANNEX II Page 1 of 4 THE STATUS OF BANK GROUP OPERATIONS IN ARGENTINA A. STATEMENT OF BANK LOANS (as of July 31, 1976) Loan Amount Less No. Year Borrower Purpose Cancellations Undisbursed - - ~~~~~~~~~~~~~~~~~T-7-~m