Argentina - Third Buenos Aires Power Project

FOR OFFICIAL USE ONLY CIRCULATIG COPY TO BE RETURNED TO REPORTS DES Report No.1055 PROJECT PERFORMANCE AUDIT REPORT on ARGENTINA THIRD SEGBA POWER PROJECT (Loan 644-AR) February 27, 1976 Operations Evaluation Department 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.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT ARGENTINA THIRD SEGBA POWER PROJECT (Loan 644-AR) PREFACE This report presents the results of a performance audit of the power project supported by Loan 644-AR to Servicios Electricos del Gran Buenos Aires (SEGBA) and of the Bank's involvement in the project. Loan 644-AR was signed in November 1969 and closed in October 1973. The performance audit included review of loan documents and support- ing papers sent to the Executive Directors, the Bank files, Project Completion Report prepared by the Latin America and Caribbean Regional Office in May 1974 and brief discussions with SEGBA in Buenos Aires. The assistance provided by the officers and staff of SEGBA is gratefully acknowledged. NOTE: Currency Equivalents (Peso) and Inflation Index Approx. Ave. Official Exchange Rate Buenos Aires Cost-of-Living Index (Year-to-year average 1968 = 100) 1966 M$N 207.00 = US$ 1.00 66.59 1967 332.00 86.05 1968 350.00 100.00 1969 350.00 107.58 1970 378.00 122.20 1971 a$ 4.20 164.61 1972 9.98 260.84 1973 9.98 418.16 1974 9.98 507.00 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.  PROJECT PERFORMANCE AUDIT REPORT ARGENTINA THIRD SEGBA POWER PROJECT (Loan 644-AR) TABLE OF CONTENTS Page No. Summary i - in I Introduction 1 II Procurement 2 III Physical Implementation and Project Costs 5 IV System Development and Service Quality 6 V Financial Problems and Tariffs 8 VI Institutional Covenants 11 VII Conclusion 14 Annex Tables I Gran Buenos Aires - Litoral Interconnected System: Installed Capacity and Peak Demand, Forecast and Actual, 1967-74 II SEGBA System: Power and Energy Balance, Forecast and Actual, 1968-74 III SEGBA: Summary Income Statements, 1967-73 IV SEGBA: Sources and Applications of Funds, Forecast and Actual, 1970-73 V SEGBA: Customer Accounts Receivable, 1969-73 VI SEGBA: Salaries and Wages, 1966-73  PROJECT PERFORMANCE AUDIT REPORT ARGENTINA THIRD SEGBA POWER PROJECT (Loan 644-AR) SUMMARY Loan 644-AR, in the amount of US$ 60 million, was the Bank's third loan to SEGBA (Servicios Electricos del Gran Buenos Aires), the principal entity responsible for power supply to Buenos Aires, associated since shortly after its foundation in 1958 with the World Bank. The loan was signed in November 1969, became effective in February 1970 and was closed in October 1973, very close to original schedule, with all funds disbursed. No further loan to SEGBA has yet been made. The major direct purpose of Loan 644-AR was to support SEGBA's over- all US$ 247 million 1970-72 expansion program, presented to the Bank in February 1969 and found satisfactory in a field appraisal in April/May, and consisting principally of transmission and distribution works. With many changes in detail because of the nature of the works involved, this program was efficiently executed largely within the original budget (in US dollar terms) and with a time overrun of about 6 months. It greatly strengthened SEGBA's transmission/distribution system, enabling key targets with regard to numbers of new connections and reduction of transmission/distribution losses to be largely met and the SEGBA system to absorb bulk supplies from new large gener- ating plants outside the metropolitan area. Delays in the effective comple- tion of these plants, together with higher than forecast load growth, caused steady deterioration of the quality of Buenos Aires' electricity supply from 1968 to 1973 - when some 6-12% of SEGBA's load had to be shed about every other day on average - but gas turbines added to the program after Bank appraisal (and not financed by the Bank) helped greatly to reduce the problem below what it would otherwise have been and by February 1974 SEGBA was able to provide its customers a more reliable supply than had been possible since the middle 1960s - although delays in connection of new customers were beginning to mount again, due to shortage of funds. Economic benefits of the program appear reasonable and in line with what could have been expected in 1969. More than 90% of contracts (by value) for the Bank-supported por- tions of the program, including about 85% of the equipment contracts, went to local Argentine suppliers and contractors. The vast majority of these con- tracts were won according to the Bank's normal procurement rules, without recourse to the formula which had been the focus of negotiations whereby one- third of requirements of any particular item could be purchased from a local supplier even though his price was in excess of 115% of the lowest foreign bidder's delivered price, provided that it was not more than 138% of this price and that the other two-thirds were awarded to the lowest foreign bidder. These arrangements, considered by the Argentine industry as essential if it were to compete for its home market with foreign producers that enjoyed semi-captive home markets, helped to avoid the necessity, which would other- wise probably have been inevitable under the circumstances, for reservation of some procurement to local producers, and they helped to reduce equipment prices to SEGBA substantially. Although it was not part of the explicit - ii - purpose of the loan, the special arrangements also contributed to some ex- tent to greater competition in the Argentine power equipment industry and fuller use of capacity, but the industry continued to enjoy high effective protection under them and it has not been a significant participant in the major expansion of Argentine manufactured exports over the last years. Despite substantial indirect subsidies provided to SEGBA, SEGBA's financial situation has deteriorated seriously over the last five years and the protective covenants included in the loan documents proved ineffective. As a result SEGBA was able to finance internally less than 20% of its 1970- 72 investment program, compared with 45% projected and 63% achieved in 1968-70, and by 1973 internally generated funds were insufficient to cover even debt service and the financial rate of return on average net fixed assets fell below 1%. Market borrowings, which were ontended to be en- couraged by a special formula conceived by the Bank with a view to the future,have not been possible at all, and most of the additional resources required have had to be provided by Government. The accounts receivable problem steadily deteriorated through 1973. Tariff structure improvements made between 1968 and 1971 appear to have been lost again. However, at no point does SEGBA's investment program appear to have suffered more than marginally (most seriously in early 1972) from shortage of cash during the project execution period. Despite the serious consequences of the Government's policy for SEGBA's financial condition and the structure of prices and subsidies in the country, it is not likely that the Bank could have done more to avoid these problems. Changes over the last years in such key parameters as inter- national fuel prices, the procurement value of the US dollar and the scarcity value of foreig exchange in Argentina all point to the need for substantially higher tariffs,which SEGBA does hope to be permitted gradually to attain with- out having to have recourse to operating subsidies. While the Bank, in continuation of its earlier institutional work with SEGBA, gave useful emphasis to points such as the need to reduce staff, to further decentralization and to strengthen information systems - on all of which important progress was made - key institutional loan covenants, implying limitations on Governmentpowers of appointment to key positions and of deciding high principles of organization, were largely ineffective and gave rise to much dispute. Similar clauses had been enthusiastically supported by the principal parties in Argentina involved in the arrangements for the Bank's earlier loans, as a means to try to protect the company from the intru- sion of undue political influence, and they appear to have been retained in Loan 644-AR for the same purpose. In the event substantial changes in top appointments and management structure were introduced, mainly in 1971, with- out much reference to the Bank, and, despite its initial sharp reaction, the Bank has not found the ultimate effects of the changes unsatisfactory. It is quite possible (leaving aside the question of political feasibility which is impossible to judge) that continuation of the older arrangements would have had even better results; there has been some renewed increase in _recent years in SEGBA's still quite high ratio of employees to customers and SEGBA wage in- creases have been exceptionally large. But however understandable and - iii - reasonable they were perceived by the Bank to be at the time in view of the objectives jointly pursued by SEGBA and the Bank over so many years, the fact is that the major institutional covenants were all broken, and that the disputes about them were costly in terms of the misunderstanding they generated and the staff-time they took. This particular case suggests that, in circumstances such as those that have prevailed in the Argentine power sector, the Bank may be able to help most in areas where it can bring acknowledged authority to bear; assistance to SEGBA's envisaged initia- tives to help Government address the problem of low-productivity power equipment manufacturing industry is one additional such area that the Bank might usefully have explored, although provision of technical assistance here would of course have represented a new departure for the Bank, and some Bank staff members doubt whether, in this particular case, the Government would have been in a position to take the necessary supportive measures favoring a stronger competition in the industry. In the institutional area, this experience shows the practical limitations and dangers of the Bank's trying to incorporate in its Loan Agreements particular solutions to fast-changing, essentially political conundrums.  PROJECT PERFORMANCE AUDIT REPORT ARGENTINA THIRD SEGBA POWER PROJECT (Loan 644-AR) I. Introduction 1.01 SEGBA (Servicios Electricos del Gran Buenos Aires), a wholly Government-owned corporation, is the entity principally responsible for elec- tric power supply to the nearly 10 million people of Buenos Aires and areas immediately surrounding the city. It was created in 1958, as the successor to CADE (Compania Argentina de Electricidad), a subsidiary of the Belgian SOFINA Group which had been responsible for power supply to most of Buenos Aires since buying out the original German interests in 1918 in connection with reparation payments due after World War I from the latter. The Bank was heavily involved in SEGBA's early years - first, as Executing Agent for a power sector survey financed by the U. N. Special Fund and carried out in 1959-60 and then through Loan 308-AR, of January 1962, for US$ 95 million. A second loan to SEGBA, 525-AR in the amount of US$ 55 million, was made in January 1968. Accomplishments under these loans, and the controversies which arose in connection with them, are reviewed in the "Operations Evalua- tion Report: Electric Power" (IBRD Report No. Z-17 of March 1972) and its supplement on SEGBA (IBRD Report No. Z-17/1). 1.02 Loan 644-AR, in the amount of US$ 60 million, was signed in Novem- ber 1969, became effective in February 1970 and was closed in October 1973, very close to original schedule, with all funds disbursed. The loan was made on the basis and in support of SEGBA's comprehensive three-year develop- ment plan for 1970-72, as submitted to the Bank in February 1969 and consist- ing principally of sub-transmission and distribution expansion and construc- tion of the initial portions of a 220 kv transmission ring to receive and dis- tribute power to be imported from El Chocon hydroplant and Atucha nuclear plant, both in the early stages of construction at the time, under separate entities, El Chocon with the aid of an US$ 82 million IBRD loan (Loan 577-AR) to Hidronor in December 1968. The SEGBA project was appraised in April/May 1969. Loan negotiations took place in Washington in August, but a number of further issues had to be settled with the Government by correspondence; in October the loan was approved by the Executive Directors, who were also informed in November of certain minor last-minute changes in the draft loan documents which the Bank had tentatively agreed to make at the Government's request. Negotiations dealt with a number of institutional points, but their principal focus was a special procurement formula worked out by SEGBA's Executive Vice-President as a means for reconciling the Bank's international competitive bidding requirements with the urgent insistence of the Argentine electrical equipment industry, which depended heavily on orders from SEGBA, that the 15% domestic preference acceptable to the Bank for bid comparisons was too low, given the advantages that suppliers from more developed coun- tries had, particularly in the form of large semi-captive home markets, for bidding on foreign orders at marginal-cost prices. This issue was crucial since, although it appreciated advice and support on institutional and finan- cial matters, SEGBA was principally interested in the lpan as a means to avoid the relatively high prices that it would otherwise be obliged to pay for locally produced equipment; the Bank, in recognition of this, made substantial - 2 - concessions from its normal procurement rules, but it saw the loan principally as the crowning effort to ten years' successful institution building, in difficult political conditions. 1.03 The Bank has not made any further loans to SEGBA since 1969, although one was brought to an advanced stage of consideration in the first half of 1975. II. Procurement 2.01 Aware that the strength of the Argentine electric equipment manufac- turers was such that it would probably not be allowed by the Government to borrow again from the Bank unless some arrangements were made to protect their interests - SEGBA typically represented 50% of the industry's market - SEGBA, management had given considerable thought to possible formulae for bid compari- son which would permit some purchases at prices giving more than the 15% domestic preference normally accepted by the Bank but still result in average prices, over all procurement, not more than 15% above c.i.f. levels. This line of thought eventually led to SEGBA's concrete proposition in mid-1969 that bids be called in the first instance only for two-thirds of requirements for each type of equipment, awards being made according to normal Bank rules, with up to 15% margin of preference for domestic suppliers; contracts for the remaining one-third would then be awarded automatically to the local supplier, at the same price, if he won the basic bid, on a second-envelope basis to the local supplier if he quoted a price within 38% of the lowest foreign bidder or accepted to lower his second-envelope price to this level, or, finally, to the lowest foreign bidder. After careful consideration the Bank accepted these arrangements except for the 38% preference in the second round, for which it suggested 25%. However, when it became clear that de 38% had been very delicately negotiated between the various interested parties in Argentina and that, without it, the Argentine Government would probably insist on some procurement being taken out of the international bidding and reserved to local suppliers, the Bank conceded. The Bank undertook to disburse from its loan 100% of the cost of equipment contracts won by foreign suppliers and 60% (the estimated foreign exchange component) of contracts won by local suppliers within the 15% preference margin; SEGBA would meet from its own resources the costs of any contracts won under the 38% rule. 2.02 SEGBA appears to have stuck very closely to these slightly complex procurement rules and to have awarded virtually all significant equipment and materials contracts let during the period of the project's execution in accordance with them. Less than 10% of contracts (by value) were eventually split between foreign and local suppliers. As the following table shows, the large majority (80% by value), were won directly by local suppliers with only a 15% margin of preference, and the Bank disbursed nearly half its total loan in their favor(and a further one-quarter on civil works won in interna- tional bidding by local contractors or carried out by SEGBA itself). 2.03 The agreed procurement formula, and related arrangements in Argen- tina, seem to have served their main purpose of reducing the prices that SEGBA had to pay for its equipment below what they would otherwise have been. Table 1 LOAN 644-AR: ACTUAL ALLOCATION OF CONTRACT AWARDS AND LOAN DISBURSEMENTS (in US millions eqtL) Award to local suppliers under 38% Award to foreign suppliers under 15% ruleA/ rule b/ Total Contract IBRD Contract IBRD Contract Contract IBRD Values Disbursemenus Values Disbursements Values Values Disbursements Equipment and Materials Cables and Conductors 1.1 1.1 29.4 15.7d/ 0.1 30.6 16.8 Switchgear 2.0 2.2- 4.6 2.1 0.5 7.1 4.3 Transformers 3.8 3.9c/ 7.7 3.8!1 2.6 14.1 7.7 Miscellaneous 2.9 3. 11.7 6.7 0.2 14.8 9.9 Sub-total 9.8t/ 10.4 53.4 28.3 3.4 66.6 38.7 Civil Works - - 79.5 13.5 - 79.5 13.5 Consultants 1.5 1.5 - - - 1.5 1.5 Interest during Construction - 6.3 - - - - 6.3 Total 11.3 18.2 132.9 41.8 3.4 147.6 60.0 a/ i.e. 3/3,of bid. b/ i.e. 1/3 of bid. c/ IBRD disbursements also covered freight and insurance on imported items, so they are slightly larTer than contract values. d/ These figures less than 60% of corresponding contract values because IBRD loan amount was insufficient to con- tribute to all contract purchases. e/ of which US$ 7.2 million represent contracts awarded entirely to foreign suppliers and US$ 2.6 million con- tracts awarded only one-third to foreign suppliers. Some of the manufacturers complained about the formula being too harsh, even after it had been agreed, the results of the bidding suggest fairly strong competition, and they apparently partly compensated themselves by charging higher prices to other domestic enterprises. Much of the reduction in prices to SEGBA was made possible by the remission of certain taxes to domes- tic winners of bids financed under the Bank loan, as part of the Government's general policy (as in many other countries) of giving preferential treatment to suppliers fM1ing orders for payment in foreign exchange, whether exports or purchases financed by international loans. Producers did not have to pay import duty on imported inputs and also received other advantages aggregating about 40% of the amounts billed to SEGBA - principally an 18% non-traditional export subsidy and elimination on these sales of the 10-12% sales tax that would otherwise have had to be paid by the producer. The Bank's financing facility may have had some positive effect on the productivity of the Argen- tine manufacturing industry in the degree that there was competitive procure- ment .instead of reservation of large quantities of procurement for local supply financed out of local resources. But the industry has apparently remained some distance from being more broadly internationally competitive under recent exchange rate regimes. While the non-traditional exports on which Argentina has been focussing attention (mainly manufactures) have grown more than 20% annually in the past decade to reach US$ 544 million in 1973, electrical equip- ment does not seem to have been important among them.L/ 1/ The 15% margin of preference under which almost all of the domestic orders were won, permits effective protection of some 50-100%, as shown in the following table: Hypothetical Calculation of Effective Protection Permitted by 15% Preference Margin (following bid comparison formulae and factors under Loan 644-AR) 1) lowest foreign bidder, fob 100 2) freight and insurance 5 - 10 105 - 110 3) 15% preference margin added 121 - 127 4) local port charges, etc. 3 5) local bidder's maximum price to SEGBA 124 - 130 6) of which Value Added (40% of (5)) 50 52 7) Protection margin ((5) - 100) 24 30 8) Export subsidy (net effect, 20% of (5)) 25 26 9) Subtotal 49 56 10) Effective Protection ((7) or (9) as % of 6) 48 - 98% 58 - 108% - 5 - III Physical Implementation and Project Costs 3.01 Many small changes were made in SEGBA's 1970-72 expansion program during the course of its execution - largely because of its nature, emphasiz- ing transmission and distribution which have to be adapted to year-to-year load growth prospects - and because substantial additions (not financed by the Bank) were made to the generation component shortly after the loan was made, in light of prospective delays on other plants, higher load growth forecasts and expected more rapid integration with other systems. Nonethe- less the main lines of the program reviewed at appraisal were followed, and implemented with only about six months' cumulative delay - mainly the result of a slower than expected start due to delays in loan signature related to the extended discussions with Government and a shortage of funds for investment in 1972. 3.02 Although total program costs increased, mainly because of the in- creased generation component, cost overruns, in the strict sense, were very small in US dollar terms despite contingencies of only 7% having-been provided in the appraisal estimates. Table 2 compares expected and actual costs. Table 2 SEGBA EXPANSION PROGRAM SUPPORTED BY LOAN 644-AR Million a$ Million US $ Expected Actual Expected Actual Generation 65.0 473.1 18.6 76.4 Transmission 200.5 442.1 57.3 68.2 Distribution 478.5 817.2 136.7 138.6 Buildings & Miscellaneous 68.0 109.5 19.5 17.1 Contingencies 54.0 - 15.4 - 866.0 1,842.5 247.5 300.4 3.03 Roughly the same amount of work as originally expected,for approxi- mately the same cost, was done in Distribution, the largest part of the program, but there were changes in composition; more medium and low voltage lines were built, but there were reductions in physical targets in other smaller components such as transformers and meters. 3.04 The transmission program (220 and 132 kv) was carried through largely as planned, with some individual items dropped and others added, at a total cost about US$ 11 million over original estimates; the Bank estimates that about US$ 7.3 million of this increase represents physical modifications and US$ 3.7 million cost overruns, well within the 7% contingency provision. The most serious delay, of about 4-5 months, was on the 220 kv line to connect the SEGBA system with the lines coming from El Chocon at Ezeiza, due to the contractor's difficulties in securing an import permit for the structural steel. 3.05 On the generation side the Bank estimates that of the total cost in- creade of US$ 57.8 million about US$ 56.5 million relates to the post-appraisal - 6 - expansions in the program - from 90 MW of gas turbines to about 380 MW and start on the construction of the 350 MW steam unit Costanera 6. The genera- tion expansion was accomplished largely on time, the 250 MW steam unit at Puerto Nuevo being completed in 1970, the first 90 MW of gas turbines in 1971 and the remainder mainly over 1972 and 1973 (see Annex Table I). Costanera 6 was expected to be completed early in 1975. A series of delays have affected the planned conversion of two boilers at Puerto Nuevo to coal-firing - shortage of capacity preventing their being taken out of service, delays on securing the requisite coal barges due to withdrawal of the contractors and, most recently, unavailability of coal from Rio Turbio - but it was expected that coal burning would begin early in 1975. 3.06 The only other major change in te program was postponement of construction of SEGBA's badly needed new centralized Administration Building due to legal problems in site acquisition. It was hoped to start construction in December 1975 and to have the building ready in 1979. IV. System Development and Service Quality 4.01 The portions of the program supported by the Bank loan helped to improve SEGBA's transmission and distribution system substantially and met their principal direct objectives. The 220 kv system enabled satisfactory reception of imported power from El Chocon and Atucha. After a somewhat slower build-up than expected, the number of new connections provided reached the target established for the end of 1972 and the size of the waiting list for new connections, at the end of each year, was gradually brought down, as shown in Table 3 (page 7). TransEormer capacity was greatly strengthened, and the rate of loss in the transmission/distribution system came down by about 10 percent, close to the target set in the appraisal report. 4.02 SEGBA's labor, administration and maintenance costs per unit (kwh) sold also fell substantially in real terms (using the Buenos Aires cost-of- living index as the deflator) from about 1.53 US (of 1968) equivalent in 1967/68 to about 1.24 in 1972/73. The number of customers per employee reached, by staff attrition and transfers of staff to operations and by sys- tem growth, the targets established in the appraisal report for 1972, even though at the cost of a sharp increase in overtimel and some neglect of main- tenance which caused some change in policy thereafter and a slight deteriora- tion in this indicator in 1973 and 1974. SEGBA's wages and salaries increased, however, in real terms very substantially, by about 50% from an overall average of US$ 3,120 equivalent per annum in 1967/68 to about US$ 4,660 in 1972/73 (all in 1968 US dollars).2/ This was the main factor causing SEGBA's unit operating costs to fall slightly less than projected in the Bank's appraisal report, which had foreseen a much smaller increase in real wages. 1/ Overtime accounted for 10% of the wage bill in 1971, compared with 5% in 1967-68 (see Annex Table VI). 2/ For purposes of comparison it is noteworthy that Ministry of Economy data show no increase in real wages between 1968 and 1973 for the two main classes of workers in manufacturing (married unskilled and married office workers). /TabIe 3 SEGBA: Selected Iidic+.ors of Service Quality 1968-74 (end of year or over year as a whole, as appropriate) 1968 1969 1970 1971 1972 1973 197b Number of Customers Connected (Cumulative) Forecast (000) 2,068 2,160 2,3h0 2,394 2,h20 Actual (000) 2,068 2,149 2,236 2,325 2,b20 2,h97 2,600 Unmet Demand for Connections (000) Registered 60 50 ho 37 35 33 30 Unregistered (est.) 100 100 85 88 90 95 115 -16 =o12. 12 125 12T -1 Customers per Employee Forecast 82 89 94 98 103 Actual 82 89 94 99 102 101 96 Transformer Capacity Installed (Cumulative) kva/customer n.a. 1.2 1.6 1.7 1.8 2.1 2.3 kva/kw system load n.a. 1.7 2.1 2.2 2.3 2.8 3.1 Transmission/Distribution Losses (% of Sug1ies) Forecast 15.2 15.0 14.6 1b.2 13.8 13.5 13.3 Actual 15.2 15.4 14.2 14.6 13.6 13.9 13.7 Load Shedding No. of days n.a. n.a. 43 55 77 196 22 Amount (MW) n.a. n.a. 50-200 90-240 90-225 155-hoo 50-90 Annual System Load Factor Actual 55.6 53.7 53.8 55.2 56.7 57.7 57.0 Sources: Annex Table II and SEGBA - 8 - 4.03 Despite these accomplishments, the overall quality of service pro- vided SEGBA's customers deteriorated considerably from 1967 to 1973, as demonstrated for the last few years (for which comparable data are available) by the figures on major load shedding given towards the bottom of Table 3. The principal causes of this load sheddingl/ were greater than expected load growth and serious delays in bringing El Chocon and Atucha into normal opera- tion, the result of which was to lower reserve capacity on the Buenos Aires - Litoral system (see Annex Table 1) below the planned level and below the level necessary to allow for maintenance outage. The Atucha station began commercial operation in March 1974, one and a half years behind original schedule. The first unit at Hidronor's El Chocon plant was completed close to schedule in December 1972 but regular supply to SEGBA began only in Novem- ber 1973 - due to delays in completion of the Hidronor and SEGBA transmission lines and, more importantly, 7-month outage of the unit for repair of a tech- nical design defect - and was again briefly, but expensively, interrupted in January 1974 due to the collapse of 16 Hidronor transmission towers as a result of floods and high winds: full deliveries from El Chocon (450-500 MW) began only in June 1974. Much the most serious period of load shedding was from March 1973 to January 1974 (inclusive),when loads averaging between 100 and 250 MW (about 6-12% of SEGBA's total) had to be shed an average of 17 days per month. 4.04 SEGBA's post-appraisal increases in its own generation expansion plans - particularly addition of the extra 260 MW of gas turbines eventually completed in 1972 and 1973 - were particularly useful then in view of the shortfalls in the plans of the other suppliers involved, but they could not of course fully make up for the very sizeable amounts of capacity delayed - about 300 MW at Atucha and the first 400 MW at El Chocon. V. Financial Problems and Tariffs 5.01 If the physical objectives of the project were very largely achieved, quite the opposite is true of the financial objectives - and this principally because, as inflation built up again in Argentina fromtheend of 1970, and despite extremely serious effects in subsidization of electri- city consumers and in gravely damaging SEGBA's financial viability, the Government did not keep to the 1962 Concession Agreement under which SEGBA was entitled to earn an 8% return on its assets denominated in US dollars (adjusted for any change of more than 5% in the dollar price of gold, if requested), with shortfalls (or excesses) in one year compensated in follow- ing years. Substantial tariff increases were granted - 23% in January 1971, 54% in January 1972, a bi-mont y 6-12% between mid-1972 and mid-1973, 32% in June 1973 and 25% in April 1974_ - but they were always considerably too small or too late to keep up with the pace of general inflation, and SEGBA in this period was almost never permitted to follow the article in its Concession assuring automatic corresponding tariff adjustments whenever wages and fuel prices increased. As a result, while costs of production fell in real terms 1/ i.e. electricity demand that was not met, for lack of bulk supply capacity; feeders were typically cut off, on a rotating basis, for a few hours at time of system peak. 2/ and further increases in 1975, outside the period under review here. S 9 nearly 20% between 1967/68 and 1972/73, prices fell nearly 40% on average. Coverage of SEGBA's fixed investment out of internally generated funds, which rose from an actually achieved 28% during the first Bank-supported project (1962-64) to 63% under the second project (1968-70)1/, fell to only 19% over 1970-72 and 9% over 1970-73, compared with 45% projected in the appraisal of Loan 644-AR. In 1973 and 1974 SEGBA's service burden on short-term debt contracted in the previous years and its low earnings were such that internal cash generation failed even to cover all debt service, as the following table shows. Some of the debts were essentially rolled over by loans from local banks and official entities. Table 4 SEGBA: Annual Rate of Return under Concession, and Self-Financing 1970-74 1970 1971 1972 1973 1974 Rate of Return on Assetsa/ 5.4% 1.8% 1.3% 0.6% Internal Self-Financing 43% 8% 12% -11% -17% a/ before adjustment for changes in the US dollar price of gold. 5.02 Other subsidiary financial objectives of the project, expressed in the loan documents, were also not achieved. Since 1966, in view of the needs of other sectors and Argentina's relatively high per capita income, this had been envisaged as the last Bank commitment to SEGBA, and the Bank had developed in the course of project appraisal, and apparently generated some Government support for, an imaginative scheme intended to prepare the way for SEGBA to meet its borrowing requirements from other non-Governmental sources and to help establish its credit: provisions regarding the desirability of its paying cash dividends and related matters which had been in the earlier Loan Agree- ments (though not fulfilled up to that time) were to be retained in the new loan documents, not so much to meet the original purely Argentine objective, dating from the early 1960s, of reprivatization of SEGBA, or even to compensate the Government for the payments it was still making to SOFINA, but rather to create, on a controllable basis, a small gap in the otherwise firm 1969-72 financing plan which would be filled with initial small market borrowings, or possibly sales of new shares. Although it preferred the Bank loans, with the substantial procurement advantages they brought, SEGBA itself was persuaded to go along with the idea. After the loan documents had been negotiated, and approved by the Executive Directors, principal references to the sale of stock to private investors were eliminated, at the instance of the Government, which declared that this was still its objective but it did not wish to see it referred to in public documents. But a clause regarding the objective of borrowing 1/ See IBRD Report No. Z-17/1 of March 1972, already cited. - 10 - from private sources was retained in the Loan Agreement, and related supple- mentary letters, from SEGBA and from the Government, set specific short-term targets for sale of bonds in the private market and corresponding payment of dividends - indicating that, if market conditions were unfavorable for a bond issue, then they would haxe to continue to be in the form of stock. In the event SEGBA's shareholders (i.e. various Government agencies) did approve a 5% cash dividend, less than the Bank felt desirable, early in 1970 on 1969 profits, but the Government refused to allow SEGBA to go ahead with arrange- ments it had made to float a 10-year public bond issue at 9/. in London; to meet its cash requirements it had in the end to take up a 5-year loan for US$ 10 million at substantially higher interest rate from a U.S. Bank. Pay- ment of cash dividends was not seriously considered again,but the Government did once more turn down in 1971 arrangements which SEGBA had started for a foreign bond issue of $15-18 million and it was obliged to take another medium- term bank loan. Since then SEGBA has been very heavily dependent on Government for outside financing. 5.03 Another financial matter discussed at loan negotiations was the problem of overdue bills, particularly of Government agencies, ani the Government undertook, in the Guarantee Agreement on the loan, "to take all reasonable action in respect of the timely settlement of debt for electri- city supplied" to its agencies and political subdivisions (including local governing authorities) by SEGBA; Annex Table V shows a general deteriora- tion of the accounts receivable situation from 1969 to 1973, with 27% of annual billings outstanding as of the end of 1973 and the Government account- ing for more than 40% of this. 5.04 Another point stressed in the discussions leading up to the loan was the need for SEGBA to study and revise its rate structure to bring it more into line with costs to supply the different categories and types of demand. An economic analysis included in the appraisal re- port concluded that the ratio between the average prices to residential and large industrial consumers (by far the largest two classes of consumption) should be about 1.63, whereas it had been only about 1.20 in 1966 and 1967. By concentrating rate reductions in 1968-70 on industrial consumers with some special incentives for off-peak consumption, and by introducing and increasing fixed charges for residential consumers, the range between the prices for resi- dential and industrial consumption was gradually widened, so that average revenues on residential sales were as much as 1.66 times average revenues on the much faster growing industrial sales by 1971. Since then, however, in the effort to increase revenues in a politically feasible way in the face of very rapid inflation, the trend appears to have reversed itself, such that prelim- inary figures for 1974 indicate a ratio of only 1.15 between average unit revenues on residential and large industrial sales. Finally it should be noted that SEGBA has been repeatedly obliged to borrow in recent years without meeting the interest-coverage test specified in the Loan Agreement; nor does it appear that any specific waiver was obtained from the Bank. 5.05 The Bank kept very actively abreast of the generally difficult tariff situation between mid-1971 and mid-1973. It made frequent representa- tions to the Government about the need to approve tariff increases, repre- sentations that were appreciated by SEGBA and appear to have been recognized as entirely valid by Government officials, and it is doubtful whether the - 11 - Bank could have done any more than it did to assist progress on the matter. It refrained from adopting an unduly rigid official position, accepting for instance that it might not be possible to adhere fully to the Concession Agreement and adopting SEGBA's actual cash requirements for its investment program as the imme- diate determinant of its tariff needs. The Bank may have played a minor part in assisting firm Government decision late in 1971 for the 54% increase intro- duced in January 1972 and it does seem to have been a factor in the Governuent's determination to adopt the system of small bi-monthly adjustments in the middle of 1972. Consideration was frequently given in the Bank to the question whether the objectives of the project and the Bank's loan might best be served by.a tem- porary suspension of loan disbursements. Processing of loan disbursements was held up for forty days in June/July 1971, but no formal suspension of dis- bursements was ever declared for this loan. 5.06 In the context of its overall energy policies the Government has in fact been providing very substantial indirect operating subsidies to SEGBA - in the form of fuel oil prices that have merely kept up with the general level of inflation in the country and reached only about US$ 24 per tonl/ in 1974 even at the official exchange rate widely considered significantly over- valued, in the form of the special procurement facilities described at the out- set of this paper and in the form of low (probably negative) real interest long-term Peso loans. The changes of the last years with regard to key elements such as world fuel prices, the procurement value of the US dollar and the scarcity value of foreign exchange in Argentina make it clear that SEGBA tariffs should be substantially higher than those levied in recent years. It appears to be SEGBA's hope to be permitted by the Government gradually to return to more reasonable price levels, without having to have recourse to direct operating subsidies. VI. Institutional Covenants 6.01 Quite apart from the financial covenants discussed above, the agree- ments for Loan 644-AR contained certain institutional covenants to which the Office of the President of Argentina raised objections after the conclusion of negotiations notwithstanding that these provisions repeated covenants in the second SEGBA loan, signed in the previous year by the same Government. After considerable discussion, it was agreed to change the original versions of two items in the Loan Agreement to read as follows: Section 5.03 (e) "Whenever the Borrower, in accordance with its Es- tatutos, shall propose to appoint or change its Vice-Presidente Eje- cutivo or its Gerente General, the Borrower shall, prior to any such appointment or change, notify the Bank of the proposal and give the Bank a reasonable opportunity to exchange views on such proposal." and Sections 6.01/6.02 (a) ..."the Bank, at its option, may declare the principal of the Loan and of_all the Bonds then outstanding to be due and payable immediately .../if/ ... a substantial change in the Esta- tutos or in the Concession shall have been made." Despite two separate requests from the Office of the President the Bank refused to introduce any alteration in the following article: 1/ 1974 price to private industry in Argentina was about double this level. - 12 - Section 5.03 (d) "The Borrower shall at all times be managed by a qualified, experienced and competent Comite Ejecutivo entrusted with such executive functions and duties as are established in the Estatutos." The only reference in the Loan Agreement to possible change of the Estatutos was the above-quoted sentence making such a change sufficient grounds for the Bank to premature the loan, and there was no provision regarding the possibility of such a change becoming desirable and the way in which the borrower might then take the matter up with the Bank. 6.02 These clauses had a considerable history. To help protect the newly reorganized SEGBA (reintegrating certain former CADE facilities previously allocated to a Government power enterprise) and to try to prevent the intru- sion of undue political influence into the management of the new company, the Argentine Government and the Bank had agreed to incorporate in the original Loan Agreement (Loan 308-AR of January 1962) strong provisions calling for Bank prior approval of any appointments to the top two posts or any changes in the company's Estatutos. Two years later, in February 1964, another Argentine Government registered forceful protests against these clauses and, when a new loan came into prospect in 1965, the Bank reached the tentative con- clusion that replacement of 'prior approval' with the weaker 'prior consulta- tion', at least for the management appointments, in any new loan agreement with SEGBA1/ would probably suffice to support, as best could be done, the key elements in the strategy for minimizing political interference - a strong, non- political Vice-Presidente Ejecutivo with a Comite Ejecutivo appointed by him, together aaking a strongly centralized management with full responsibility for day-to-day operations, the Board being confined to broad policies. In June 1966, during further preliminary negotiations for the proposed new loan, dis- cussion of the idea of even a 'prior consultation' clause for management appointments drew the most negative reaction from the Government representative. But very shortly thereafter the Government fell, and the new Secretary of State for Power and Fuels (who had been SEGBA's Vice President at de time of the original loan negotiations) urged in the strongest terms that there should be no weakening of the relevant covenants from the strong form in which they were included in the Loan Agreement for Loan 308-AR. Nonetheless the Bank did decide to replace the approval clause for management appointments with one requiring only prior consultation in the second SEGBA Loan Agreement (Loan 525-AR of January 1968). 6.03 Acute difficulty with the above-cited institutional clauses of Loan 644-AR arose in mid-1971 when the then Government, as sole owner of SEGBA, decided that it wanted to clarify this fact (abandoning the possibility for- merly envisaged of eventual sale to the private sector) and, more particularly, following a recent specially large wage increase for SEGBA employees, to try the approach of giving them a larger say in management to increase their allegiance. Given the fundamental nature of the changes in the Estatutos it sought and the fact that they ran contrary to the international agreement that 1/ These events were also, apparently, a major factor in the more general move- ment in the Bank at the time to use normally 'prior consultation' rather than 'prior approval' clauses. - 13 - the loan documents constituted, the Government decided to use the constitu- tional technique of Intervencion, suspended the President and Board in July 1971 and appointed as Interventor, to run the company in the interim, the man who had just been appointed (without prior notice to the Bank) Vice-Presidente Ejecutivo and who had been on the Board for some time prior to that. Drafts of the new Estatutos which were reviewed in the Bank in November and December 1971 gave rise to concern in the Bank that they might limit SEGBA's ability to pay enough to recruit and retain good top management and that the Board was being assigned too large a role in management. At the Bank's request the Government agreed at the last minute to defer the final Shareholders' meeting at which the new Estatutos would be approved and to receive a Bank delegation. The delegation was informed that adjustments had been made to loosen constraints on management salaries but that the Board, containing representatives of the employees as well as the Government, was indeed to play a much more active part than its predecessor. Although the Bank delega- tion concluded from its conversations that the changes being made "will intro- duce very serious doubts regarding the continuity and efficiency of SEGBA's management and organization," the changes were introduced. 6.04 Subsequent supervision missions reported that the management reor- ganization had apparently not provoked the problems that had been feared. Relations between SEGBA's Board and department managers were smooth and satis- factory. To date no Bank mission has reached a different conclusion. Consistent with one of the emphases of the reform, on promotion from within, a man with long experience with SEGBA was for the first time appointed Vice-Presidente Ejecutivo in July 1973. The Bank does not appear to have been given an "opportunity to exchange views on" the proposal to appoint him. The Comite Ejecutivo, consisting of four department heads, to which the Bank attributed such overriding importance (apparently mainly as means to secure compensation competitive within the private sector because membership entailed participation in profits), has been replaced by a more open Comite Asesor including all (six) department heads, which appears to operate equally effectively, with the full- time Board Members (8 including the Chairman and the Vice-President Ejecutivo) playing a more positive role, particularly through committee work. 6.05 There is appreciation in Argentina for the institutional support provided by the Bank for the changes initiated at a more operational level by Middle West Services Co. during their work with SEGBA from 1962 to 1971. It has not been possible to make a full assessment of these efforts, spanning so long a period of time, for the purposes of this audit, but SEGBA staff acknowledge the value of Middle West's contribution, particularly in regard to decentrali- zation of responsibility into 14 Field Offices with closer touch with the customers and creation of information systems to enable appropriate centralized budget and performance control, all points consistent with the modern thrust in SEGBA's development. The supplementary letter to Loan 644-AR referring to this matter gave useful Bank emphasis to the importance of progress in these important areas, where major steps were indeed taken while the project was under execution. 6.06 From a retrospective point of view one might question whether the Bank was right, in the volatile political situation that has characterized Argentina over the last quarter-century, to accept the profferred responsibility of including in its Loan Agreements institutional covenants of the specific and apparently limiting nature that subsequently generated such problems in - 14 - Argentina. This is not because the approaches supported were not the best; they may well have been, and recent trends, particularly in regard to renewed increase-of employees per customer((from a level which is already quite high compared with many other power utilities, despite the gains made through 1972) and very rapid increase in real wages, could be construed in such a way as to support an interpretation of reduced discipline since the changes opposed by the Bank were made. It is because the fundamental problems of SEGBA, particularly those posed by its extremely strong labor union, are so intensely political that one could reasonably doubt whether rigid organiza- tional covenants that would limit the possibilities of solutions could be helpful. The institutional covenants of Loan 644-AR not only proved to be largely ineffective; they also brought sharp attacks on the Bank and, to some extent, on SEGBA management, from which the latter feels that it still suffers, according to statements made to the audit mission; they also had far from insignificant administrative costs to the Bank. One could thus, in retrospect, suggest that covenants requiring simply that the borrowing orga- nization be properly managed to fill its responsibilities and that the Bank be given the opportunity to comment on any significant changes planned in the Estatutos (together of course with the useful supplementary letters on more detailed topics like the decentralization) might have been no less adequate and considerably less costly in delay and misunderstanding. The Bank stresses that its concern in 1971 about the changes in the Estatutos and in management were understandable and not unreasonable since it felt that the resignation of the entity's highly respected Vice President in mid-1971 stemmed mainly from increasing Government interference,and this coincided wich the Govern- ment's refusal to grant the tariffs required under the Concession. What had long been regarded by SEGBA and the Bank as basic objectives of the Bank's support for SEGBA appeared to be at stake. VII. Conclusion 7.01 While none of the financial objectives of Loan 644-AR has been accomplished and SEGBA's financial position has very seriously deteriorated over the last five years, the loan funds have been efficiently disbursed for a program of high-priority works which were expeditiously executed, largely within budget, and have substantially strengthened the Buenos Aires power supply system. Overall economic benefits from the works appear reasonable and probably about the same as could have been expected in 1969 - with the economic effects of the partial delay in their full fruition, owing to delay on other companies' generating investments, being compensated by increase in the value of incremental capacity due to more rapid than expected growth of demand for public utility electricity supplies, particularly from manufacturing industry. In continuation of its earlier technical work with SEGBA - when it played a part, for instance, in setting up much improved coordination with the other electricity agencies concerned with Buenos Aires, particularly Italo (CIAE) - the Bank gave some useful emphases in this period, especially on reduction of personnel to a more efficient level, furtherance of the decentralization of responsibility within the company, and improvement of information, budget-control and payroll systems. SEGBA appears to have appreciated the Bank's technical questions. - 15 - 7.02 The Bank's flexibility with regard to procurement, making possible the virtual elimination of reserved procurement on which the Argentine authorities would probably otherwise have insisted, almost certainly resulted in SEGBA obtaining equipment substantially cheaper than it otherwise would have been able to do. Given the large amount of financing it was effectively channelling to the local electrical equipment industry, an opportunity might have been missed in not seeking at the same time to help the Government address the serious problems of low productivity which are generally believed to characterize the industry, to help it become more internationally compe- titive. But this would obviously have taken more, and more specialized staff time and was not explored; some Bank staff members consider that, in the situation prevailing at the time, the Government would not in fact have been able to take the measures favoring a greater competition in the industry that would have been necessary to make such technical assistance interesting to the companies involved. The Bank was also appropriately flexible with regard to the problems of SEGBA's financial performamce, although without ultimate success; the changes in many of the key parameters have been so great in the last few years that appropriate pricing and financing policies for SEGBA must be determined in a broader context, which it has not been possible properly to examine in this brief audit report. As regards the institutional covenants, this particular case history does show the practical limitations and dangers of the Bank's trying to incorporate in its Loan Agree- ments particular solutions to fast-changing, essentially political conundrums.  Annex Table I GRAN BUENOS AIRES - LITORAL INTERCON1ECTED SYSTEM INSTALLED CAPACITY AND PEAK DEMAND, FORECAST AND ACTUAL 1967-7L (in MW as of end of year) 196L 1968 1969 1970 1971 1972 123 1974 APPRAISAL FORECAST Gross Capacity SEGBA 1,550 new steam -98 +250 -50 new G.T. +140 +90 Subtotal 1,3 0 1,"W 1, 1,80 1,932 1,932 1,882 ,882m CIAE 250 new steam +250 new G.T. +35 AyEE 502 Hidronor (Chocon) - +4oo +200 CNEA (Atucha) - +200 +113 DEBA Total Installed 2,302 I 2 2,,-9 =, 9 3,169 3,632 3,832 Effective 2,190 2,330 2,530 2,780 2,905 3,105 3,530 3,721 Peak Demand 1,811 1,883 2,053 2,221 2,05 2,574 2,729 2,946 Gross Reserve (MW) 379 447 477 559 500 531 801 775 as % 21 24 23 25 21 21 29 26 ACTUAL DEVELOPMNT Gross Capacitj SEGBA 1,550 new steam -98 +250 new G.T. +1tl4_ +87 +14 +36 Subtotal 1 3T 1,690 1,792 1,842 1,929 2,04 2,17 2,22V- CIAE 250 new steam +250 new G.T. +15 +20 AyEE 502 +7 Hidronor (Chocon) - +600 CNEA (Atucha) - +320 DEBA +56 Total Installed 2,302 21,77 27 2,8W 2,987 3,102 3,-261 4,2 Effective 2,190 2,330 2,530 2,780 2,923 3,038 3,160 L,173 Peak Demand 1,811 1,883 2,053 2,221 2,490 2,607 2,831 2,970 Gross Reserve (MW) 379 447 477 559 433 431 329 1,203 (% ) 21 24 23 25 17 17 12 41 af of which 230 MJ gas turBines b/ of which 522 MW gas turbines Annex Table II SEGBA SYSTEM POWER AND ENERGY BALANCE, FORECAST AND ACTUAL 1968-74 1968 1969 lo 2 1972 1973 19714' APPRAISAL FORECAST Sales (Gwh) 5,429 6,100 6,620 7,240 7,770 8,314 8,896 Losses (Gwh) 975 1,076 1,131 1,198 1,243 1,298 1,364 Delivered to SysteLn,(Gwh) 6,404 7,176 7,751 8,38 9,013 9,612 10,260 SEGBA PlantS P(Gwh) Purchased (Gwh) Load Factor (%) 55.6 55.0 55.0 55.5 55.5 Peak at Feeding Points-1(MW) 1,315 1,489 1,609 1,736 1,854 SEGBA Plants (MW) Purchased (MW) Transmission/Distribution Losses % of Sales 18.0 17.6 17.1 16.5 16.0 15.6 15.3 % of Delivered to System 15.2 15.0 14.6 14.2 13.8 13.5 13.3 No. of Consumers (000) 2,068 2,160 2,340 2,394 2,420 Sales increase on preceding year (%) 12.4 8.5 9.4 7.3 7.0 7.0 ACTUAL DEVELOPMENT Sales (Gwh) 5,29 6,160 6,861 7,461 8,165 8,270 8,480 Losses (Gwh) 975 1,123 1,133 1,277 1,287 1,335 1,345 Delivered to System (Gwh) 6,404 7,283 7,99L 8,738 9,452 9,605 9,825 SEGBA PlantsY. (Gwh) 6,314 6,539 7,384 7,630 7,979 6,430 Purchased (Gwh) 969 1,455 1,354 1,822 1,626 3,395 Load Factor (%) 55.6 53.7 53.8 55.2 56.7 57.7 57.0 Peak at Feeding Points-/ (MW) 1,315 1,547 1,697 1,808 1,902 1,899 1,968 SEGBA Plants (MW) 1,244 1,423 1,531 1,637 1,659 1,582 Purchased (MW) 303 274 277 265 240 386 Transmission/Distribution Losses % of Sales 18.0 18.2 16.5 17.1 15.8 16.1 15.9 % of Delivered to System 15.2 15.4 14.2 14.6 13.6 13.9 13.7 No. of Consumers (000) 2,068 2,149 2,236 2,325 2,420 2,517 2,600 Sales increase on preceding year (%) 13.5 11.4 8.8 9.4 1.3 2.5 a/ preliminary figures, of December 1974. b/ net of generating station use. / sent out from SEGRA generating stations and, for imported energy, amounts received at the 220 kV side of receiving substations. SEGBA: Summary Income Statement 1967-73 (in M$N million) 1967 1968 1969 1970 1971 1972 1973 Sales billed, in Gwh 4,875 5,429 6,160 6,861 7,461 8,165 8,270 Ave. rev. per kwh incl. taxes 1,253 1,310 2,411 3,983 Ave. rev. per kwh excl. taxes 1,180 1,228 1,132 1,101 1,330 2,091 3,41h Total Revenues 61,058 71,119 196,858 329,400 Less: Sales Taxes 3,5117 ,461 26,128 47,100 Operating Revenues 57,541 66,658 69,741 75,540 99,231 170,730 282,300 Adjustment for unbilled sales 873 h42 880 5,000 6,900 Government operating subsidy - 6,259 - Total Operating Revenue 58,414 73,359 70,621 175,730 289,200 Operating Expenses Salaries, wages, social benefits 19,795 20,389 22,165 71,000 147,000 Fuel 7,383 8,407 8,700 24,900 49,500 Purchased power 1,793 2,113 2,988 14,500 17,900 Taxes 3,504 4,loo 4,ho4 10,200 16,800 Other expenses 4,968 5,419 7,350 13,200 17,500 Depreciation 8,35} 8 882 9,435 32.900 35.500 Total 45,796 h9,310 55,022 166,700 284,200 Net income before interest 12,618 24,049 15,599 13,700 6,300 9,030 5,000 Interest (net) 4,835 5,072 4,281 19,200 29,100 Less: capitalized interest -246 -bl3 -934 -4,400 -4,700 Other expenses/income (net) -148 -40 -620 200 300 7,'T7 T,219 2,727 15,000 2),700 Net profit 8,177 19,830 12,872 (6,030) (19,700) Return on ave. net plant in service 6.7% 12.4% 8.2% 5.4% 1.8% 1.3% 0.6% Rate base (by concession) 192,349 200,021 SEBA: SOURCES AND APPLICATIONS OF FUNDS, FORECAST AND ACTUAL, 1970-73 Forecast 1970-72 Actual 1970-72 Actual 1970-73 a$ mln US$ mln % a$ mln US$ mln % a$ mln US$ mln % Internal Cash Generation Net income before interest 568 162 4o 291 61 18 341 67 13 Depreciation 347 99 24 601 103 30 95b 145 28 Customer's Contribution 33 9 2 28 6 2 38 7 1 95E 270C E 20 170 70- 1,333 =9 U Borrowings IBRD Loan 525-AR 16 5 1 39 10 3 39 10 2 IBRD Loan 6h-AR 210 60 15 262 L5 13 391 60 12 Public Bond Issues 157 45 11 - - - - - - Foreign Suppliers (& EXIM Bk) 28 7 2 137 26 7 196 33 6 Local Suppliers 2 1 " 58 8 2 134 17 3 Fbreign Banks - - - 81 20 6 310 h7 9 Local Banks - - - 163 24 7 512 65 12 7-3 -11 29 70 133 ~3 1,-q YCF Contribution 5 2 1 6 1 a 7 1 Reduction in Working Capital 59 17 b 254 43 12 515 75 l TOTAL SOURCES 1,425 407 100 1,920 37 100 3,37 527 100 Applications: Additions to Plant 866 27 61 1,207 219 63 2,201 336 64 Interest IBRD 102 29 7 171 29 8 296 hh 8 Public Bond Issues 23 7 1 - - - - - - Other 52 15 4 165 28 8 326 47 9 177 51 -17 3337 1 M2 71 17 Amortization IBRD L5 13 3 75 13 4 138 20 4 Public Bond Issues 12 3 1 - - - - - Other 175 50 12 215 hO 12 390 61 11 1 9-0 3~ 7 277 17 Cash Dividends 107 31 8 20 5 1 20 5 1 Personnel Bonus and Fees 43 12 3 36 9 3 36 9 2 Other Applications - - - 31 4 1 31 5 1 TOTAL APPLICATIONS 1 625 407 100 1,920 347 100 437 527 100 NOTE: Exchange Rates used as implied by Segba accounts for IBRD transactions, i.e. 1970 Arg. Pesos 3.8 per US dollar 1971 Arg. Pesos 4.6 " " 1972 Arg. Pesos 8.3 " " " 1973 Arg. Pesos 8. 5 I I Annex Table V SEGBA: Customer Accounts Receivable 1269-73 (as of December 31) 1969 1970 1971 1972 1973 (1) Billings in the year (a$ million) 697.41 755.61 992.00 1,708.08 2,823.10 (2) Accounts Receivable (a$ million) as of December 31 147.43 166.61 225.56 432.93 771.20 (3) Receivables as % Billed 21.1 22.0 23.0 25.0 27.0 (4) Average Period Outstanding (days) Average 77 81 84 23 98 Residential 145 7 47 59 59 Large Consumers (Industry) 58 57 105 89 78 National Government 399 499 380 1415 450 Provincial Government 740 680 643 554 554 Municipalities 116 112 88 141 96 (5) Percent Distribution of Outstandings Residential 42.4 4o.3 39.5 41.8 37.8 Large Consumers (Industry) 13.4 13.9 26.6 23.0 19.6 National Government 30.6 33.0 23.6 24.0 25.9 Provincial Government 7.2 6.8 5.9 4.6 4.6 Municipalities 6.4 6.0 4.5 6.6 12.1 100.0 100.0 100.0 100.0 100.0 SEGBA: SALARIES AND WAGES 1966-73. (in a$ millions) 1967 1968 1969 =1971 2 1Z3 Salaries, Wages, Other and Social Charges 169.07 224.77 232.59 249.64 288.28 470.14 782.26 1,657.29 Family Allowances 12.16 15.51 15.63 19.66 21-30 24.07 4o.82 51.54 Overtime 10.70 11.78 13.41 18.42 31.7 ..70 82.47 16.142 Total Current Personnel 191.93 252.06 261.63 287.72 341.32 5h9.91 905.55 1,865.25 Retirement Benefits 0.06 0.41 1.19 6.73 2.16 2.02 3.5k 2.66 191.99 252.47 262.82 294.45 343.48 551.93 909.10 1,874.91 Total Current Perponnel, in 1968 PesosVl 288.23 292.92 261.63 267.45 279.31 334.07 347.17 446.06 No. of Employees, end of year 25,795 25,545 25,220 24,135 23,671 23,596 23,674 24,818 Average remuneration ('000 1968 Ps) 11.17 11.47 10.37 11.08 11.80 14.16 14.66 17.97 a/ deflated by Buenos Aires Cost-of-living index. Cr