Peru - Sixth Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report NO. 13571 PROJECT COMPLETION REPORT PERU SIXTH POWER PROJECT (LOAN 2179-PE) SEPTEMBER 29, 1994 Energy and Industry Division Country Department I Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalent Currency Unit= Sol= 100 cents Average Exchange Rates 1982 US$1 0.69 intis 1983 US$1 1.63 1984 US$1 3.47 1985 USS1 11.70 1986 US$1 15.46 1987 US$1 26.98 1988 US$1 252.23 1989 US$1 4,024.56 1990 US$1 206,662.94 1991 US$1 0.77 new soles 1992 US$1 1.26 FCAL YEAR January 1 - December 31 On Febniary 1, 1915 the i-ti-100 solm s induoed. On July 1, 191 the Nuevo So- one Million mtix wu inhoduced. Mme ao-alled Inti Millio -equivalt to one millioa Intio (I/.1,000,000)-wu intoducd on December 16, 1990 to aumplify acounting an an a mce= of tranction bentwe the Ind and the Nuevo Sol  FOR OFFICIAL USE ONLY WEIGHT AND MEASURES Metric ton - 1,000 kilograms (kg) Metric ton =2,200 pounds Metnc ton of oil =7.19 Bbls Kilometer (kin) =0.6215 miles (m) KW =Ikilowatt Megawatt (MW) =1,000 kws Gigawatt (GW) =1,000,000 kws KWh =kilowatt hours GWh =gigawatt hours KV = kilovolt KVA =Ikilovolt ampere Megavolt-ampere (MVA) = 1,000 kilovolt-amperes (KVA) Gigawatt hour (GHh) -1,000,000 KWh ABBREVIATIONS AND ACRONYMS USED CEFOCAP -Centro de Formacion y Capacitacion ELECTROPERU CENTROMIN -Compafa Minera del Peru CNE -Comisi6n Nacional de Energia CNTE -Comisi6n Nacional de Tarifas Electricas COFIDE -Corporaci6n Financiera de Desarrollo CONADE -Corporaci6n Nacional de Desarrollo COPRI -Commission for Promotion of Private Investment CTE -Comisi6n de Tarifas Eldctricas ELECTROLIMA -Electricidad de Lima ELECTROPERU -Electricidad del Peru GOP -Government of Peru EDDRANDINA -Compafi EHidroel6ctrica Andina MDB -Interamerican Development Bank MEF -M-inisterio de Economia y Finanzas MEM -Ministerio de Energia y Minas MIS -Management Information System RULCOP -Reglamento Unico de Licitaciones y Contratos Obras Publicas 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 THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation September 29, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Peru Sixth Power Project (Loan 2179-PE) Attached is the "Project Completion Report on Peru - Sixth Power Project (Loan 2179-PE)" prepared by the Latin America and the Caribbean Regional Office. The Borrower contributed Part II of the PCR. The project objectives of strengthening the major institutions in the power sector, assisting in the financing of the expansion of electricity production and distribution, and in preparing priority studies for the sector were partially met. The poor financial performance of Electrolima, the Borrower and principal beneficiary, and of Electroperu and Hidrandina, borrowers of Electrolima, reflects the Government's failure to increase power tariffs in line with inflation, and an accelerated growth in operating expenses. Poor finances, in turn, led to delays in counterpart funds and loan disbursement and impaired project funding. A plan to redress non-compliance with loan covenants by the Borrower was not implemented because of the debt service moratorium by the Peruvian Administration which triggered suspension of disbursement on all Bank loans in May 1987. Tight financing conditions allowed Electrolima to complete only about 72% of its distribution network expansion with a delay of three years, part of a major dam and most of the proposed studies, but only a minor part of the training program. Electroperu discontinued the preparation of an important hydro scheme, did not show interest in improving its financing planning, and delivered limited training to the regional companies. Hidrandina completed the study of a major hydroelectric development. The project cost was US$164.1 million or 64% of the original cost estimate and US$56.3 million of the US$81.2 million Bank loan was canceled. The negative value of the re-calculated project's rate of return reflects the very low electricity price taken as a proxy for the project's benefits. The PCR did not quantify those benefits. The outcome of the project is rated as unsatisfactory. Despite the crisis faced by the country, a significant part of the physical objectives were achieved but the project impact on institutional development was negligible. The sustainability of the project is rated as likely because the reform initiated in 1992 (inter alia triggered by the crisis) is now nearly complete and the ongoing privatization of the power sector is likely to remove the uncertainty which surrounded the future performance of the power sector. The PCR presents a good account on project implementation and results. No audit is planned. Robert Picciotto by H. Eberhard Kopp Attachment 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 disctosed without WorLd Bank authorization.   PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (Loan 2179 - PE) Table of Contents Preface Evaluation Summary ii-vii PART I PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. Project Identity .......................... 1 2. Background .......................... 1 3. Preparation and Appraisal .......................... 8 4. Project Objectives ......................... 9 5. Project Cost and Financing ......... ................. 11 6. Project Design and Organization . .......................... 12 7. Project Implementation ......................... 16 8. Project Results ......................... 19 9. Financial Performance ......................... 20 10. Bank Performance ....................................... 22 11. Borrower and Beneficiaries Performances ......... ................ 24 12. Project Relationship ...................................... 25 13. Consultant Services ....................................... 26 14. Project Documentation and Data ............................... 26 15. Lessons Learned . ................................. 27 PART II PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE 1. Features of the Loan ................................... 30 2. Project Cost . .................................. 30 3. Project Execution ................................... 30 4. Project Achievements ................................... 32 5. Project Supervision and Monitoring ..... ........................ 33 6. Financial Aspects ................. 33 7. Lessons Learned ................. 34 PART III STATISTICAL UIFORMATION Annexes 1. Related Bank Loans 36 2. Project Timetable 37 3. Cumulative Estimated and Actual Loan Disbursements 38 4. Project Cost and Financing 39 5. Status of Covenants 40  Table of Contents (Cont'd.) 6. Use of Bank Resources 41 7. Project Results 42 8A. ELECTROLIMA: Actual Income Statements 1982-1991 43 8B. ELECTROLIMA: Actual Sources and Applications of Funds 1982-1991 44 8C. ELECTROLIMA: Actual Balance Sheets 1982-1991 46 8D. ELECTROLIMA: Financial-Economic Indicators 1982-1991 48 8E. ELECTROLIMA: Tasa Interna de Retorno 49 8F. ELECTROLIMA: Forecast Sources and Applications of Funds 1981-1987 50 8G. ELECTROLIMA: Forecast Income Statements 1980-1987 51 8H. ELECTROLIMA: Forecast Balance Sheets 1980-1987 52 8I. ELECTROLIMA: Average Tariffs by Sector 1982-1991 53 9A. ELECTROPERU: Actual Income Statements 1982-1991 54 9B. ELECTROPERU: Actual Sources and Applications of Funds 1982-1991 55 9C. ELECTROPERU: Actual Balance Sheets 1982-1991 56 9D. ELECTROPERU: Financial-Economic Indicators 1982-1991 57 9E. ELECTROPERU: Forecast Sources and Applications of Funds 1981-1987 58 9F. ELECTROPERU: Forecast Income Statements 1981-1987 59 9G. ELECTROPERU: Forecast Balance Sheets 1980-1987 60 IOA. HIDRANDINA: Actual Income Statements 1982-1991 61 lOB. HIDRANDINA: Actual Balance Sheets 1982-1991 62 lOC. HIDRANDINA: Forecast Sources and Applications of Funds 1982-1987 63 lOD. FHIDRANDINA: Forecast Income Statements 1980-1987 64 IOE. HIDRANDINA: Forecast Balance Sheets 1980-1987 65 11. Power Subsector: Investment Program 199 1-1995 66 12. Rehabilitation Investment Program 1991-1995 67 13. Electricity Consumption Forecast 1990-2000 68 14. National Plan for Expansion of the Electricity Service 1991-1995 69 15. ELECTROLIMA: Power and Energy Balance 1981-1991 70 Graphic 1. Financial Execution 71  PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (Loan 2179 - PE) PREFACE This is the Project Completion Report (PCR) for the Sixth Power Project, for which Loan 2179-PE in the amount of US$81.2 million was made to Electricidad de Lima (ELECTROLIMA) with the guarantee of the Republic of Peru. The project was designed to strengthen the major institutions in the power sector by supporting management and financial reforms, and to assist in the financing of investment needed to expand production and distribution of electricity. The project also included preparation of priority engineering studies for the sector. Although the loan was approved on June 15, 1982 and signed on September 17, 1982, the Bank did not declare its effectiveness until May 12, 1983, due to the slow authorization of the Loan Agreement by the Government of Peru and delays in the signature of the subsidiary agreement between the Borrower, ELECTROLIMA, and the other two agencies, ELECTROPERU and HIDRANDINA, which had responsibility under the project. Because Peru discontinued payment of debt service, the Bank suspended disbursements on all loans to Peru in May 1987. The loan was closed on June 30, 1988. The last disbursement was on August 17, 1987. The Bank canceled the undisbursed balance of US$55.3 million(68% of the loan amount) on October 12, 1989. The PCR was prepared by the Energy and Industry Division of Iatin America and the Caribbean Regional Office (Preface, Evaluation Summary, Parts I and M). A draft of this report (Part I and Im) was sent to the Borrower and beneficiaries. Their comments were incorporated into the PCR Part II. Preparation of the PCR started in October 1992 and is based inter alia, on the data obtained during a mission to Peru in November 1992, and on the Staff Appraisal Report, the Credit and Guarantee Agreements for the loan, Project Supervision Reports, correspondence between the Bank and the Borrower, interviews of Bank staff involved in the implementation of the project, and internal Bank memoranda.   PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (Loan 2179 - PE) EVALUATION SUMMARY Objectives The principal objectives of the project were to: (i) strengthen the major institutions in the power sector by supporting management and financial reforms; (ii) assist in the financing of priority investments needed to expand production and distribution of electricity; and (iii) support the preparation of priority engineering studies for the sector, particularly the Mantaro Transfer project. The project included three main components that were to be executed by ELECTROLIMA, ELECIROPERU AND HIDRANDINA, respectively and were the following: (a) construction of ELECTROI.MA's 1982-1986 electricity distribution program and of the Yuracmayo dam, final design and preparation of bidding documents for expanding the Transandean tunnel, needed in order to carry out the Mantaro Transfer project, feasibility studies of two hydroelectric projects and carrying out ELECTROLMA's 1982-1986 staff training program; (b) preparation of the final design and bidding documents for the Mantaro Transfer project, technical assistance to improve ELECTROPERU's financial management and carrying out ELECTROPERU's 1982-1986 staff training program; and (c) preparation of the final design and bidding documents for the Hidrandina's Mayush hydro project. Implementation Experience The project was identified in January 1981. The Government of Peru requested Bank assistance in financing the development of the hydroelectric resources in the vicinity of Lima and to accelerate the preparation of several studies of other hydroelectric projects, in order to minimize the need for new thermal capacity. The project was prepared by ELECTROLIMA and the engineering components were prepared in connection with the Power Engineering Project (Loan 1215-PE) and the Water Supply and Power Engineering Project (Loan S-l1 of 1978) (paras. 7.05-7.06). The loan was approved on June 15, 1982, and signed on September 17, 1982 but did not become effective until May 5, 1983, eight months later than expected during appraisal. This delay was due to slow authorization of the Loan Agreement by the Government and additional time needed to allow for the signature of subsidiary agreements between the Borrower ELECTROLIMA and the other agencies, ELECTROPERU and HDRANDINA, which also had responsibility under the project. During the project implementation, as a result of non-compliance  with the financial covenants, and pursuant to Section 6.02 of the General Conditions applicable to the Loan and Guarantee Agreements, the Bank suspended disbursements in November 1986. The Bank lifted the suspension on disbursements on April 1987, when the Government presented to the Bank a satisfactory Plan of Action for improvements of the financial situation of the power sector. The Closing Date was originally scheduled for June 30, 1987, however as a result of discontinued payments of debt service by the Peruvian Government, the Bank suspended disbursements on all loans to Peru in May 1987, and the loan was closed on June 30, 1988. The Bank approved two extensions of the Closing Date before the cancellation, from June 30, 1985 to June 30, 1987, and finally to June 30, 1988 (para. 7.08). ELECTROLIMA, ELECTROPERU, and HIDRANDINA were responsible for the overall execution of their respective components of the project. From the US$81.2 million loan, ELECTROLIMA would retain US$65.3 million and would relent US$12.3 million to ELECTROPERU and US$3.6 million to HDRANDINA under the same terms as those of the Bank loan. ELECTROLIMA entered into subsidiary loan agreements, satisfactory to the Bank, with ELECTROPERU and HIDRANDINA (Section 3.01 (b) and (c) of the Loan Agreement). The loan was made on standard Bank terms, with 17 years maturity, four years grace period and the interest rate prevailing at the time of loan approval (assumed to be 11.6% for financial forecast purposes). The project began very slowly due to unavailability of local funds. However, this situation slowly improved until 1984, when some of the studies under the project were contracted and some of them initiated their execution. Implementation continued slowly during the following years as result of an unusual number of bureaucratic and legal obstacles to the contract for most of the studies and for the bidding documents for the acquisition of training equipment. The project included about US$6.7 million for financing consulting services for the execution of the final design and for the supervision during the construction of the Mantaro Transfer Scheme. Due to postponement of the project component (para. 7.03), it was decided that the contract with the respective consultants be cancelled, after the completion of the first stage of the study, and the balance of about US$2.0 million available were used for technical assistance supporting the regionalization process of ELECTROPERU, after the appropriate changes were made to the Loan Agreement. ELECTROLIMA's Component. The implementation of its distribution program was delayed by more than three years due to lack of local funding and to the much lower-than- expected growth of energy sales. The construction of the Yuracmayo dam was divided in two lots and a local contractor started construction of Lot I in January 1984. The preselection process for the construction of Lot II was completed in December 1986. Bidding documents were prepared with the assistance of consultants and construction was expected to start in September 1987 and to be completed by March 1990. The expansion of the Huinco power plant, which was dependent on the implementation of the Mantaro Transfer Scheme, was postponed. The implementation of the training component was very slow and was estimated to be completed by 1989. The fellowship training program started in 1984; however, due to strict Government control for all trips abroad,  - iv - no foreign training was provided during 1985-1986. All the equipment and materials for adapting the existing installation in ELECTROLIMA's headquarters for a provisional trining center were not purchased. ELECTROPERU's Component. The final design and bidding documents for the Mantaro Transfer Scheme were completed in 1984. However, the Government decided to postpone its implementation and based upon Bank advice, ELECTROPERU discontinued the engineering studies under contract with the foreign consultants. The implementation of the staff training component was slow and only limited training activities were carried out for the regional companies, due to budget limitation; in ELECTROPERU and the lack of professionals and technicians to fulfill their responsibilities. Despite the constant efforts by the Bank, there was no interest by ELECTROPERU in using the technical assistance funds assigned for the financial planning component. HIDRANDINA's Component. Studies for the Mayush hydroproject progressed satisfactorily and its final design was completed in 1984. During implementation of the Mayush study, which included the evaluation of the Pativilca River hydro potential, it was revealed that a large hydro potential of five plants with a total installed capacity of about 600MW could be developed in the basin. The Bank assigned great importance to these findings, due to the scarcity of hydro resources in the Pacific watershed and to the lack of projects with studies sufficiently advanced to be considered as options for the Central-North System development programs. Project Cost. The total project cost was estimated at US$255.3 million, of which US$91.4 million was the direct and indirect foreign exchange component (plus the US$1.2 million front-end fee). The Bank loan, amounting to US$81.2 million, would cover about one third of the total estimated project costs, and about 89 % of the project foreign exchange costs. The local costs about US$163.9 million, would be financed from intemnal cash generation of ELECUROLIMA (IJS$151.9million); ELECItOPERU (US$10.5 million); and HIDRANDINA (US$1.5 million). The local cost included taxes and duties on imported goods, estimated at 10% of the total project cost. The actual total cost of the project reached US$164.1 million (see annex 4), of which US$25.9 million equivalent (16%) was financed by the Bank, including US$1.2 million of front- end-fee, and the remainder by ELECrROLIMA, ELECTROPERU and HIDRANDINA. This represents a US$101.1 million lower cost than the appraisal estimate, which was mainly due to the indefinite postponement of the Mantaro Transfer Studies and to the loan cancellation by the Bank of the underdisbursed balance of the loan, as already explained above. Procurement. The heavy administrative and procurement constraints imposed by the Contralorfa General de la Republica, were among the general factors for the slow project implementation. The low quality of ELECIROLIMA's bidding documents was common at the initial stage of project implementation, with a small improvement during the following years. Bidding documents were issued by several departments within ELECTROLIMA. To assure standardization of the general conditions and compliafice with the Bank's procurement guidelines, a single unit (Division de Compras within SubGerencia de Abastecimiento) was created by  v ELECTROLIMA, which was in charge of preparing the general conditions and the draft contracts for all procurement. However, the technical areas (Gerencia Tecnica and Gerencia de Distribuci6n) continued to be responsible for the technical specifications. Another procurement related problem was the dividing of some procurement by ELECIROLIMA, as a result of yearly budget restrictions imposed by CONADE, which forced ELECTROLIMA to purchase smaller quantities than technically desirable. This problem was eliminated when CONADE excluded from budget limitations all the items that were totally financed by Bank loans (paras. 7.09-7.10). Project Results ELECTROLIMA's Distribution Program. A total of 12 substations of 60/10 Kv were constructed, seven fewer substations than estimated at appraisal, due to reduced demand. Construction of 49km of 60 Kv lines, 579km of 10Kv transmission lines and cables, and acquisition and installation of 1450 transformers of 220V were successfully carried out. Additionally, approximately 94,000 new clients were connected with electricity, compared with the projected 130,000. ELECTrOLIMA has continued the expansion of it's distribution program during the last few years, adding more than 700km of 60Kv and 10Kv lines to the network and connecting about 28,000 new clients with electricity service (see annex 7). Studies. Under ELECTROLM's component the following studies were prepared: (i) Salto Bajo Scheme, of which the most promising development would be Jicamarca with installed capacity of 104 MW and expected generation of 270 GWh during an average year; (ii) Transandean Tunnel Expansion, which included modifications of the Marcapomacocha canal; (iii) Yuracmayo Dam, whose construction was divided in two lots, but only construction of Lot 1 was initiated; the dam study concluded that no major negative environmental effects were expected from the dam construction. HIDRANDINA carried out the Mayush Hydro Project Study successfully. Two alternatives (ow and high pressure) were considered for the design of the main tunnel, however, the general conclusion was oriented toward the low pressure alternative due to smaller technical risk in the construction. The study found a large hydropotential of five plants with a total installed capacity of about 600 MW could be developed on this basis. This project component achieved its objectives partially. Training Components. Only four professionals from ELECTROLIMA received training abroad. ELECTROLIMA with its own funding, has continued staff training and initiated the installation of a new staff training center at the ELECTROLIMA's headquarters. Approximately 4,000 workers received training annually in several fields of electricity maintenance, distribution, etc. ELECTROPERU's training program did not progress as scheduled (para. 7.03). A fellowship program was prepared but not implemented. Only small training courses and teaching materials were provided to the staff from regional companies. This project component achieved its objectives partially. Financial Aspects. The financial performance of ELECTROLIMA, ELECTROPERU and RIDRANDINA reflect the deteriorated financial situation of the power sector during the project implementation  -vi - period (annexes 7-9). The Government's country failure to increase tariff levels in line with inflation, lower than expected sales growth and higher than expected operating expenses were the main problems. The inadequate tariff increases reflected the effect of populist political pressures on the Government. Tariffs fell in real terms, e.g., during 1983 cumulative tariff increases amounted only 79% while the cost-of-living index rose 135%. The power utilities reduced their capital-expenditures programs period to minimal levels and they did not have enough cash generation to cover their debt service. Also adversely affecting the financial performance of the power utilities was the inordinate growth in operating expenses as a result of overall real increase in employment costs, caused pardally by staff increases. During 1985, the rate of return of the three public utilities was less than 1.5%, compared with the covenanted rate of 10 %. The Bank reminded the Government of these non-ompliances, but did not threaten suspension of disbursements in 1984-1986, due to the project situation and the country's economic considerations. It was not until May 1986, that the Bank alerted ELECTROLIMA of the possibility of suspending loan disbursements, and finally the lack of action by the Government in tariff matters caused the Bank to suspended disbursements in November 1986. After a satisfactory Plan of Action submitted to the Bank, whereby the Government and the power sector established a comprehensive set of actions (para. 8.04) to improve the financial situation of the sector, the Bank lifted suspension in April 1987. But due to the deteriorating economic conditions of the country and the discontinuing payments of its debt service, the Bank suspend all loans to Peru in May 1987 (paras. 9.01-9.05). Based on actual investment costs, and operating costs, and net marginal revenues, the internal rate of return on the main (LCTROLIMA) component of the project was -6 % (Annex 8E). This negative level when compared to the appraisal's rate (16.6%) reflects the low level of actual tariffs and the high labor and operating costs of the project. However, it does not measure the economic impact of the project. Lessons Learned The principal lessons learned from this project experience can be summarized as follows: (a) The implementation schedules for complex projects in difficult conditions should not be faster than available implementation profiles (genera4. *0. (b) Fundamental reforms within the power companies, as well as and in the policy and regulatory framework, were needed to improve the decision- making process and accountability and make the power sector agencies more autonomous. More recent far-reaching power sector reforms, should make a more lasting contribution to sustainable power sector development (para. 2.17). *0. (c) During project preparation, the different steps needed to obtain legal clearance for subsidiary contracts and agreements should be clearly  -vii - established in order to avoid implementation problems. If necessary, clear exceptions to local laws should be discussed during loan negotiations and have them incorporated into the Guarantee Agreement (para. 6.02). (d) Sector training needs are usually very large; and therefore, sector agencies should encourage the creation of adequate staff training units, with broad mandates, not only to assess needs, but also to define and fund long term plans to properly address them. The Bank should use the existing institutional training infrastructure, and should ask for advice from an outside independent consultant. In no case should the Bank finance a training component without the wholehearted concurrence of the Borrower (paras. 6.11 and 7.02). (e) Even under difficult macroeconomic conditions, the Bank should enforce compliance with financial covenants and suspend loans when non- compliance persists. Otherwise the credibility of the Bank is subject to doubt (paras. 7.05; 7.06; 9.01 and 9.02) (f) The Bank should insist on better and more comprehensive preparation of institution building components, mainly those related with management and financial issues, especially for institutions such as ELECTROLIMA and ELECIROPERU, which do not have proper financial discipline or independence from political influence (para. 9.01). (g) For countries like Peru, which have weak macroeconomic conditions, a firm commitment of local funding should be a condition for proceeding with the loan negotiation, to assure viability and successful implementation of the project. Realistic evaluation of the possible local contribution, which can be obtained from the beneficiaries, should be determined during project preparation and appraisal, as well as their legal implications and the procedures for their collection. Only a fraction of the potential contribution should be considered realistically for project funding evaluation (paras. 7.03; 7.07). (h) Special attention and continuous efforts should be devoted to assist the borrowers in using the Bank's procurement guidelines. A close review of country laws, regulations and practices should be made before project appraisal to identify any problem areas and to seek before hand their solution during loan negotiations. In the event of conflict between local laws and Bank procurement guidelines, Government agreement to obtain a waiver of such local laws with respect to Bank-financed project should be. a requirement for proceeding with the project (para. 7. 09).  PERU PROJECT COMPLETION REPORT SIXTH POWVR PROJECT (Loan 2179- PE) PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1.- Project Identity Project Name: Sixth Power Project Loan Number: 2179 - PE Amount: US$81.2 million equivalent Year of Approval: 1982 Borrower: ELECTROLIMA RVP Unit: LAlEI Country: Peru Sector: Energy Subsector: Power 2.- Background 2.01.- Economic Overview.- The 1980's turned out to be a lost decade for Peru. Growth during 1983-1988 was largely based on stimulus to consumption expenditure in the context of stagnation in domestic investment. The discouraging performance was attributed to inconsistent macroeconomic policies within a strategy that was inward looking and heavily interventionist. The Government applied no effective remedy beyond reducing public investment to historically low levels, real GDP and fixed investment both fell by 16% in 1989-1990, per capita incomes in 1990 were 23% lower than in 1985, declining to the levels of 30 years earlier. On taking office in August 1990, the new government inherited an economy destroyed by inflation and falling output and real wages. On taking office, the new authorities launched a major stabilization and structural reform program involving trade, price and exchange rate liberalization, together with fiscal and monetary measures to reduce the deficit and inflation. The Government quickly implemented an emergency stabilization package, designed to open up the economy and increase competition, including a sharp reduction in tariffs. Such measures have already given encouraging results: inflation has been diminished to one digit, the exchange rate has stabilized, albeit with Centrl Bank intervention, net foreign reserves have increased and there is the beginning of relative confidence in economic policy. Real GDP grew by nearly 3% in 1991, on the strength of a moderate recovery in manufacturing. Peru has made substantial progress in reestablishing relations with its external creditors. A debt workout prograrn was also initiated in 1991. Arrears with the IDB were eliminated and the Bank approved the application to Peru of its policy for  -2- lending to countries with protracted arrars. Under this policy, Peru has been required to agree with the Bank and the IMF on an eternal financing plan, adopt a Fund stabilization program and a Bank-supported adjustment program, and to continue making current debt service payments to the Bank. At the same time, the Paris Club creditors have provided substantial debt relief to Peru and currently business contacts with commercial banks have been resumed. While positive growth could be taken as a sign that the process of economic recovery has started, such a conclusion is premature since the war on inflation is not over yet. The program for 1992 has been designed to assure a continued reduction of inflation and to advance the structural transformation of the Peruvian economy. 2.02 Over 100 governmental decrees were passed in mid-November 1991, under congressional mandate that authorized the executive branch to legislate on private investment. Decree 757 sets the framework rules for local and foreign private investors. It allows prices to be determined strictly by market forces, with the exception of those regulated by public agencies. Decree 693 promotes private investments in the electricity sector and allows private companies to invest in all kinds of electric projects including generation, transmission, distribution and marketing of electricity. Concessions will be granted by the Ministry of Energy and Mines and will guarantee national and foreign investors profitable import duties, tax stability, rights to market electricity freely and no cxchange rate discrimination. 2.04.- Bank Lending to the Sector.- Since 1960, the Bank has provided eight power development loans to Peru toalling US$222.2 million; and since 1980, the Bank has made three petroleum loans amounting to US$119.0 million. The first five power loans were to ELECTROLIMA, the utility serving metropolitan Lima. The loans helped financed 220 MW of hydropower, as well as expansion of the transmission and distribution systems. The sixth loan was for the Fifth Power Project (Loan 1215-PE), which helped to finance ELECTROLIMA's 1976- 1979 distribution program. The loan also helped to finance a much smaller but important part of the project: technical assistance and staff training components to assist the Govemment entities in strengthening the sector's organization and planning. The seventh loan (2018-PE), amounting to US$25 million, was made in 1981 mainly to finance prefeasibility and feasibility studies for 12 hydroelectric plants. The beneficiaries were ELECTROPERU, ELECTROLIMA, HDRANDINA and CENTROMIN, a stated-owned mining company, which has developed its own electric power generation system. The eight loan (2179-PE), which is the subject of this PCR, amounting to US$81.2 million, was made in 1982 to help finance: ELECTROLIMA's 1982-1986 distribution program, construction of the Yuracmayo dam and expansion of the Huinco plant; ELECTROPERU's final design for the Mantaro transfer scheme, which would increase its hydro electric production; and BIDRANDINA's final design for the Mayush hydro project. 2.05.- Execution of the first five power projects was generally satisfactory. Most of the projects were completed about a year late and with small cost overruns. The Fifth Power Project (1215-PE) was completed by the end of 1982, approximately three and half years later than the targeted completion date, due to the lower-than-expected demand increase, and also to inexperience in procurement matters and in consultant selection procedures. The cost of the project was lower by 21% than the original estimate, but the original cost had been understated, because of the method of inventory valuation used by ELECTROLIMA. However, the project succeeded in meeting its objectives of providing facilities to meet increased system demand, and also succeeded in connecting about 90% of the low-income consumers estimated at appraisal.  -3- 2.06 Sector Overview.- Peru has a diverse and as yet largely untapped energy resource base, consisting of hydroelectric power, crude oil, natural gas, coal, some geothermal power, and renewable resources, such as firewood and bagasse. Commercial sources include petroleum, hydroelectric power, natural gas, and coal. The major resource identified is hydropower, whose potential is only beginning to be exploited by 4% (2,378 MW of an estimated potential of 58,000 MW). There is also potential for electric power generation on the basis of biomass, geothermal energy and solar power. Most of the hydro resources are located on the Atlantic watershed far from consumption centers. The Government has concentrated its efforts on developing the electric power and petroleum subsectors. Peru's public electric power service is currently suffering its severest crisis in the last three or four decades. The rationing of capacity and power, as well as a very poor supply reliability, is common in almost the entire country. This situation is reflected in the low quality of service, the poor efficiency of the public utilities, and the sector's financial problems. The quality of the public electricity service has heavily deteriorated during the last years, with frequent and lengthy service supply interruptions, low reliability and high level of losses (13 % in Lima and 22 % elsewhere). Power restrictions in 1990 reached up to 20-25 percent of demand. The existing installed capacity is not sufficient to cover adequately the current demand, due to lack of investments in the recent past; since new generation added to the public systems in the period 1980-1992 was only 330 MW compared with 630 MW of increase in demand. Transmission and distribution networks are generally in bad shape. However, considerable portion of the power installations are underutilized due to inadequate maintenance and lack of properly trained staff. Additionally, a severe drought reduced energy available to the system in 1989-1991. Terrorism has compounded the problem. Public utilities reported that in 1980-1992, about 1,900 high voltage power towers were damaged, to such extent that public agencies abandoned one major transmission line (Mantaro-Pisco). The 1985-1992 losses due to terrorist attacks on transmission lines are estimated at US$615-1,168 million, when the cost to society of the energy not supplied due to these acts is considered. The overall efficiency of the utilities is poor. 2.07 The characteristics of the present critical situation of the Peruvian power sector are similar to those of most LAC countries: after a period of assets nationalization and availability of abundant capital in the 1970s, during which facilities and service coverage grew significantly, the sector underwent a serious institutional and financial crisis during the 1980s, because of inadequate macroeconomic and sector policies being applied while capital became scarce. As in all LAC countries, where electricity demand grows at a faster rate than the economy, the power sector in Peru will face during the 1990's a major need for new investrnents. This situation has been further compounded by the poor maintenance practices, delays in investments because of the severe institutional and financial crisis, and terrorist attacks to the sector installations. There is a clear danger of further shortages, if electricity demand growth continues as high as in 1991 (8 %) and could be higher in the future if the economic growth resumes as formally expected. The sector could then become a major constraint to development, if radical reform of sector policies and institutions is not implemented in line with the reform of macroeconomic policies especially those regarding decentralization, deregulation and private sector participation. 2.08 The present administration found the power sector of Peru in deep crisis at the end of the 1980s, mainly because of the total macroeconomic mismanagement of the previous administration. The legal and regulatory framework of the sector was not only outdated, but did not favor economy and efficiency. Lack of autonomy had greatly inhibited corporate dynamics,  -4- thus reducing the utilities efficiency. Government intervention, political interference and financial constraints had resulted in non-competitive employment conditions, reflected in a total lack of capacity for attracting and retaining highly qualified and motivated staff. Still, the monolithic structure of the sector continues to be represented by ELECTROPERU, the largest government owned utility, which governs most sector activities. The present Government is thoroughly committed to the privatization of all state concerns, and Decree 674 authorizes private investment in state firms, allowing them to: (i) sell their shares through the stock market, by public bidding or direct transactions; (ii) issue new shares using the same mechanisms; (iii) form joint ventures with private capital; and (iv) sell assets through public offering or direct transactions. This decree also has established a Commission to Promote Private Investment (COPRI), which is responsible for the implementation of the privatization program, and the creation of a private investment fund (FOPRI). The decentralization effort conducted by the Government has resulted first, in the creation of several regional utilities, and secondly, in a transfer of a portion of their shares to the local governments. 2.09 Existing Facilities.- The total electric public service installed capacity in the country amounts to 3,352 MW, of which 2,316 MW is hydro based and 1,036 MW is thermal. About 91 % of this capacity is instaUlled in interconnected systems, and the remainder resides in isolated centers. The most important interconnected system is the Central-North System, which covers from Marcona to Piura (2,515 MW). The other interconnected systems are the South-East System, which covers Cusco-Tincaya-Puno-Juliaca (163 MW); and the South System, which covers Arequipa-Tacna (410 MW). Additionally, several mining and industrial companies own a capacity of about 1,290 MW, of which 290 MW is hydro and 1,000 MW is thermal. Public service is supplied by a national utility, ELECTROPERU, and eleven regional utilities which are: ELECTROLIMA, HIDRANDINA, and eight ELECTROS (Norte, Nor-Oeste, Norte Medio, Centro, Sur Medio, Sur-Este, Oriente, Sur plus Sociedad Electrica del Sur-Oeste). 2.10 Supply & Demand Facilities .- Though access to electricity in Peru increased from 34% in 1980 to 42% in 1991, it is still low when compared with other Latin American countries'/. Per capita electricity consumption at 522 KWh/year in 1991, is also low compared with the South America average of 1,200 KWh/year. As a result of the lack of response from the public supply system to increases in demand, many industries, commercial enterprises and even domestic consumers have been investing in a large number of small back up thermal generating plants operated with diesel oil or gasoline. Despite the severe recession that the country is currently experiencing, there is in many areas considerable electricity demand not yet supplied by the public service utilities. During the last few years, electric power generation has not particularly grown. Total generation in the country apparently declined only from 13,785 GWh in 1987 to 13,736 GWh in 1989, that is by 1.75%, with a slow recovery since 1989. The aforementioned recovery was mainly due to autogeneration by the private sector, while public utilities reduced generation by 5% during the last few years. This reduction is as much a reflection of the fall in demand in certain areas, but mainly due to the technical and financial deterioration of the public enterprises. Future supply and demand for the three public generation systems is summarized as follow: 1. For example, access to electricity is estimated to be 72% in Brazil, 85% in Argentina, 90% in Costa Rica, 70% in Mexico and 75% in Colombia.  -5- a) Central North System.- The installed capacity through 1991 was 2,515 MW, which includes the Mantaro hydro system with 798 MW ; Electrolima hydro plants with 650 MW (Huinco, Matucana, Callahuanca, Huampani, Moyopampa and the thermal plant of Santa Rosa); Hidrandina hydro system with 190 MW (Cahua and Cafion del Pato). Actual maximum demand is only 1600 MW. Projected demand for 1995 is expected to be 1859 MW. The supply situation for 1995 is expected to increase an additional 200 MW (100 MW from Electrolima plant and 100 MW from a Thermal plant to be installed by ELECTROPERU). b) South East System.- The installed capacity through 1991 was 163 MW, which is divided between a 110 MW hydro plant and 53MW thermal plant. Actual maximum demand is only 70 MW. Demand is expected to increase to 163 MW by 1995. The supply situation for the same year is expected to increase with an additional plants of 110 MW. c) South System.- The installed capacity through 1991 was 466 MW. The system includes a 344 MW hydro plant and an 122 MW thermal plant. Demand for 1995 is expected to be around 451 MW, while supply will be increased by 81 MW. Most of the additional capacity is expected to be installed during 1997-2000, with the Quishuarani Plant (81 MW). d) Other Systems.- The installed capacity through 1991 was 119 MW, which includes isolated systems (diesel generators, and small hydro plants). Most of these systems provide services for only a few hours during the day. An additional 40 MW are expected to increase the capacity of the system. 2.11 Sector Organization and Legal Aspects.- The Ministry of Energy and Mines (ME is responsible for formulating subsector policy and supervising the activities of the state electric utilities. During the last three decades, the electric power sector has been regulated by three different laws: the Electric Power Industry Law of 1955 (No.12378), the Electric Power Subsector Standard-setting Law of 1972 (No.19521), and the General Electricity Law of 1982 (No.23406). Recently, a new Law of Concessions for Electricity Operations was approved in November 1992, which will result in free contracting between autonomous producers and distributors, creation of a supply pool (Comite de Operaci6n Econ6mica del Sistema Interconectado) and guidepost regulations of electricity pricing. 2.12 The first Law regulating the Electric Power Industry established a system of private concessions, which were responsible for all the technical phases of the electric power service and its commercialization. The Standard-setting Law of the Electric Power nationalized all the electric power services and created ELECTROPERU as a stated-owned company in charge of all the public service activities in the areas not served by the main existing private companies (ELECTROLIMA, SEAL, and others), with exclusive rights on national generation expansion. Thus, ELECTROPERU assumed total responsibility for activities as diverse as implementation and operation of large power stations, planning of national power systems and the electric power service in hundreds of small localities. The law of 1982 had the main objective of establishing a decentralized structure. Although essendally maintaining a state owned system, the law of 1982  -6 - established a decentralized systems with several regional companies and ELECTROPERU acting as the main governing power. The process of decentalization received a significant political support during the last govemment. 2.13 Institutional Aspects.- Since the public administration of the electric power subsector was established in 1972, its organization has been modified several times. None of these reorganizations, however, has had any success in improving the subsector's technical, administrative and financial returns. ELECTROPERU, a company formed on the basis of four nationalized public utilities, could never manage to satisfy its managerial objectives and with a few ecceptions (ELECTROLJLMA and SEAL) all the subsector's public utilities are very weak. The centrl government's view of the electric power subsector has been to consider it as a strategic public operation, frequently used as an economic policy instrument to implement subsidies and/or control inflation, instead of managing it as a commercial operation. Broadly, current subsector problems are tied to its organization and legal framework as described above. Such a notably state controlled structure presents severe limitations, which impact on its efficiency and effective administration, as well as, the need to decentralize the system. Among these limitations the following should be mentioned: emonopolization of electric power development by only one state company (ELECTROPERU). *lack of clear, stable and economically effective tariff setting procedures. Although the Tariff Commission is an institutionally adequate organization, its little autonomy and political leverage, have made it inoperative. sirrational tariff setting and excessive government intervention in the utilities, make it impossible to value them objectively, that is, by their performance. This has enabled a variety of administrative inefficiencies to remain in the utilities, such as excess personnel, a poorly used technical capacity, bureaucratization and dilution of relevant decisions. 2.14 Financial Aspects.- The General Electricity Law (1982) requires an overal rate of return of 12 % from state electric power utilities on their net investments. This aim, however, was never achieved. During 1984-1985 the rates of return were 4.0% and 5.0%, respectively; and from 1986 onward they have been negative, reaching to a minimum of -13.9% in 1989. The main reason for this financial deterioration has been the decline in electricity tariffs. In real terms, tariffs in 1989 were only 20% of their 1985 levels, and in current values they have decreased from an average of US$0.042 per KWh in 1985 to US$0.014 per KWh in 1988. Beginning in 1986, the electricity services have depended on capital contributions from the Public Treasury to finance operating deficits and capital investments. One modality to provide this kind of support has been debt service relief. The most significant initiative was the 1987 Economic-Financial Recovery Program for the Electric Power Subsector, a prerequisite for obtaining the MDB sector credit. The long period of deficit shown in the table below, has exerted a negative impact on the economical, financial and technical returns of the utilities as shown by:(i) earnings, which cover only personnel expenditures; (ii) rationing of fuel consumption at the cost of a decline in quality  -7- of electric service; (iii) declining maintenance and repair programs during the last five years, thus reducing the availability and reliability of the electric power supply installations; and (iv) lack of funds to implement, and in some cases to complete essential rehabilitation projects of immediate benefit to the system. Electric Power Subsector: Profit and Loss Account (US$mitllon) :1985 ~1388 1987 ~.1988 ~:19.90'0 Total Income 319.0 329.5 315.7 141.0 164.6 Electric Power Sales 317.7 326.5 314.1 140.4 164.0 Others Products 1.3 3.0 1.6 0.6 0.6 Average Price 0.05 0.04 0.04 0.17 0.02 Total Cost of Services 291.1 397.8 361.8 211.8 382.7 *personnel (thousand) 115.2 145.0 169.6 94.0 202.4 *fuel & lubricants 67.3 70.1 45.6 13.0 20.6 *misc. supplies 49.8 56.2 71.2 35.3 54.4 *depreciation 57.7 124.3 74.9 71.0 938.0 *invest. exp. contrib. -4.1 -5.2 -2.5 8.4 *other administ. exp. 5.2 2.2 5.9 1.0 3.1 Development Result 27.9 -68.2 -46.1 -70.8 -218.1 Total Other Income -66.7 -24.0 -33.1 -62.7 6.7 *fin. inc. D.S. 21.0 46.6 75.0 *financial income 15.9 21.3 11.6 *financial expenses -86.0 -26.3 -70.5 -118.2 -68.3 *misc. income 15.9 21.3 11.6 Year Financial Result -38.9 -92.2 -79.2 -113.5 -211.4 Average Cost 0.04 0.05 0.04 0.03 0.05 Average Cost+ Fin.Exp. 0.05 0.06 0.05 0.03 0.06 *Forecast Data 2.15 It should be noted that the serious problem originating from current tariff setting policy does not only refer to the level of tariffs but also to their structure. The stucture does not coincide with the supply costs but rather opposes them. Thus domestic tariffs, whose supply cost is about 25% higher than the cost of commercial supply, and almost 100 % higher than the cost of industrial supply, remained at an average of US$0.003 per KWh during 1989-1990, while the average tariffs for commercial and industrial consumers were US$0.046 per KWh and US$0.024 per KWh, respectively. This marked distortion has without doubt been the cause of the excessive and inefficient level of electricity consumption by the household consumers. By continuing the current tariff setting policy, the deterioration of the utilities will continue to be aggravated, and clearly reveals the need to adopt a rational power tariff-setting policy, which would allow to increase tariffs to a level that would bring reasonable economic efficiency in electricity consumption and supply decisions. Electric power tariffs should be established approximately at  -8- their Long-Run Marginal Cost (LRMC), that is, US$0.8 average, with some tax to be applied to the high residential consumers, while exonerating the smallest consumers from that tax.2/ 2.16 Sector Strategy .- The severity of the above problems and the urgent need to resolve them has justified an strategy with short and medium term actions. The objectives of this strategy are geared to obtain the following: *resolving the sector's urgent problems, that is, the financial crisis of the electric power utilities and the service technical constraints. *proposing conditions that promote economically efficient electric power sector operation and development in the future. 2.17 The Government has designed a rehabilitation program, which includes a series of low-cost priority measures. These measures includes, besides the generation and distribution rehabilitation projects, maintenance improvement and a load management program in the metropolitan Lima area. In view of the emergency situation, it is essential to implement the rehabilitation program in the most efficient way possible, without long delays or excessive costs. Tlhe Government and the Bank have negotiated a privatization adjustment loan of US$250 million equivalent, which will support the privatization program and related sectoral policy, as well as the legal and regulatory reforms being implemented by the Government of Peru. Basically the program is designed to promote competition and private investment, and improve economic effliciency and fiscal performance. Privatizaton and related sectoral reforms are expected to have major benefits by restoring private sector confidence in the economy and in the Government's commitment and ability to reduce the public sector size. 3. Preparation and Appraisal 3.01 The Peruvian authorities had been studying the Mantaro Transfer scheme for 17 years, mainly as a solution to the water supply problem affecting Lima. A foreign consultancy firm prepared the feasibility study under the supervision of a small commission. They estimated the cost of improving the Mantaro River water quality to the point at which it could be used as drinking water. 3.02 The project was prepared in line with the Government of Peru main objectives for expanding the power subsector and in line with the Bank's strategy of supporting Government efforts to strengthen the power sector in Peru to make-up for years of underinvestment. The conceptual foundation for the project was clear and consistent with the Bank objectives of supporting the power subsector policies of the Government. The timing of the project was also appropriate because of the urgent need to improve the power subsector by strengthening its major institutions. 2. PERU: Guideline Study for a Short and Medium-Term Strategy for the Energy Sector.- UNDP/Worid Bank (ESMAP). Washington D.C. December 1890.  -9- 3.03 A Bank mission identified the project in January 1981, and its principal components were prepared by ELECTROLIMA during the first half of 1981. The engineering components had been prepared in connection with the previous Power Engineering loan (1215-PE), and the Water Supply and Power Engineering Project (Loan S-1l of 1978). Relying on the draft of the consultant's feasibility study, the Bank carried-out preparation work in June 1981. The project was appraised during the period of August/ September 1981, identifying a number of difficult issues (paras. 6.07-6.12) requiring resolution prior to loan negotiations and board approval. Legal opinions on behalf of the Guarantor and the Borrower were provided to the Bank after several delays, but these were not satisfactory to the Bank, which resulted in three postponements of the loan effective date from the original date of December 20, 1982, first to February 21, 1983, then to March 22, 1983, and finally to May 12, 1983 4. Project Objectives.- 4.01 The primary objective of the project was to support the Government's decision to give high priority to improving the power sector by: (i) assisting in strengthening the major institutions in the sector, particularly ELECTROPERU; (ii) assisting in the financing of priority investments in the distribution of electricity, so that unsatisfied demand would be met; and (iii) supporting the preparation of priority projects for the sector, particularly the Mantaro Transfer project. 4.02 The project included three components to be carried out by ELECTROLIMA, ELEFCTROPERU, and HIRANDINA. These were: ELECTROLIMA's Component.- * xELECTOLIMA 's 1982-1986 dismbunion progrwn, which consisted of expanding the Lima distribution network to meet expected demand increases for the period. Main works were: (i) construction or expansion of 19 substations of 60/10 Kv with a total of about 390 MVA of additional tansformer capacity; (ii) construction of about 700 km circuit lines of 60 and 10 Kv cables and lines; (iii) acquisition and installation of about 1700 additional 10,000/220 V transformers, and the corresponding control and protection equipment; (iv) installation of 400 circuit-km of urban lines for 220 V, and the corresponding street lighting connection to 130,000 clients. I * Yuracmayo Dan, a hydroproject located in the upper Rimac basin, which would regulate and upgrade the water volume used by the Matucana hydro plant, and the existing 120 MV plant, thus increasing its production by 88 GWh/year of dry-season energy. The dam, an earth dam, would be 44 m high and would form a 40 million cubic meter lake. As the project's engineering work was still underway, there was not a definitive design nor a final cost estimate for this component, although the feasibility studies showed that no major technical problems existed and preliminary cost estimates showed that it would be economically attractive, and still would leave enough room for a cost increase without jeopardizing the economic feasibility of the project.  - 10- * Huinco Hydro Plant Erpansion, which consisted of the addition of a fifth 60 MW unit that would be located in a cavern adjacent to the existing underground powerhouse. The expansion would permit better use of the water diverted from the Mantaro Transfer Scheme, by increasing energy production through greater availability, and also gaining some 35 MV of power output. * Salto Bajo Scheme, which was a generic name for the utilization of the hydro potential still existing downstream from Huinco. Increased water flow from the Mantaro river diversion scheme would make this project economically viable. Alternatives that would be considered were: (i) expanding certain plants (Callahuanca, Moyopampa, and Huampani), and (ii) developing one or more new plants. The proposed feasibility study would select the most economic development alternative and produce a feasibility study to be included in the central-north system generation expansion studies. 3 The Transandean Tunnel Expansion Study, which also included modifications of the Marcapomacocha canal, which was part of the Mantaro Transfer Scheme. The studies carried out under this project indicated that the tunnel expansion would be done at the same time, and following the same scheme, as the Mantaro Transfer Scheme, that is, final design and bidding documents preparation and construction design. Stff Training Progrwm, which was defined with the Bank assistance, and would contribute to improve and complete SLECTROLIMA's training center facilities, through equipment acquisition and technical assistance. The program included new equipment for the training center, upgrading of instructors, technical assistance and a fellowship program. Consultant sevices would be sought for the implementation of procedures to improve ELECTROLIMA's procurement and inventory control procedures. ELECTROPERU's Component.- * Mantaro Transfer Scheme, which showed to be the optimal combination of a least-cost solution for the supply of electric power to the central-north grid and for increasing the supply of water for the city of Lima, which included several civil and electromechanical works, whose objectives were to increase the water discharge of the Rimac basin by diverting water from the Mantaro basin. The work included the construction of a hydraulic circuit with two pumping stations, two dams, a diversion dam, a new canal, the raising of the level of an existing lake, and the enlargement of the eisting canals and tunnel. The water thus diverted would be used to increase energy production in the existing hydro plants, to develop a new 300 MW hydro plant (Sheque) in the Pacific watershed, and to supply additional water to Lima. * Staff Taining Program, which was defined with the Bank's assistance, and would contribute to improve ELECTROPERU's training capability. It  - 11 - included the acquisition of training equipment for the training center (CEFOCAP); technical assistance for improving manpower planning, defining training needs, instructor training, the preparation of programs and teaching aids and evaluation systems; and a fellowship program for professionals and managers at various levels. Financing assistance, which consisted of services of investment bankers and other financial advisers to provide advice to ELECTROPERU management on devising a financing plan, including restructuring of existing debt, and assistance in obtaining additional financing. HDRANDINA's Component.- * Mayush Hydro Project Study, with an installed capacity of up to 130 MW and 930 GWh of mean annual production, would complement the existing 40 MW plant at Cahua on the Pativilca River. The feasibility study was financed under the Loan 2018-PE. The proposed loan would finance preparation of the final design and bidding documents for the Mayush project, provided the feasibility study would show its technical and economical feasibility within the framework of the Central-North system expansion study. 5. Project Cost and F-nancing.- 5.01 The total project cost was estimated at US$255.3 million, of which US$91.4 million represented the direct and indirect foreign exchange component. Including the US$1.2 million of a front-end fee, total financing would amount to US$256.5 million. The Bank loan, amounting to US$81.2 million, would cover about one third of the total estimated project costs, including the front-end fee, and about 89% of the project foreign exchange costs. The local cost of the project, about US$163.9 million, would be financed from each of the involved institutions' internal cash generation. US$151.9 million would come from ELECTROLIMA, US$10.5 million from ELECTROPERU, and US$1.5 million from HIDRANDINA. The local cost included taxes and duties over imported goods, and were estimated at 10% of the total project cost. The Government agreed to provide any additional funds necessary to carry out the project. 5.02 Costs were estimated as follows: (i) the cost of ELECTROLIMA's distribution program was based on prices of materials and equipment estimated at that time; (li) the cost for the construction of the Yuracmayo dam was based on the consultant's progress report; (iii) the cost of consultant services for ELECTROLIMA's studies (Huinco, Salto Bajo, and Transandean Tunnel expansion and for the financial assistance to ELECTROPERU) were based on actual prices charged by consultants for similar works, of about US$11,000 per staff-month; (iv) the cost of ELECTROLIMA training, was based on a study made by ELFECTROLIMA in consultation with the Bank; (v) the cost of engineering services for the Mantaro Transfer Scheme were based on a negotiated contract with foreign consultants for about US$9,600 per staff-month; (vi) the cost of ELECTROPERU training were based on an study prepared by ELECTROPERU in consultation with the Bank; and (vii) the cost of the IIDRANDINA component was estimated by BIDRANDINA's staff in consultation with the Bank. Physical contingencies were calculated  - 12 - by the Bank at a rate of 10% for ELECTROLIMA's distrbution program and 15% for the other components, which had a higher uncertainty. The use of the international inflation rate for the local costs reflected the assumption that Peruvian exchange policy would recognize the difference between local and worldwide inflation. 5.03 The US$81.2 million loan would be used to finance the following: the direct and indirect cost components of the ELECTROLIMA Distribution Program for 1982-1986; the estimated direct and indirect foreign cost component of the civil works, as well as consultant services, for the Yuracmayo Dam; consultants services for: (i) the Huinco Expansion Study, and for the Salto Bajo Study, and for the Transandean Tunnel Expansion Study under ELECTROLIA's part of the project; (ii) the Mantaro Transfer Project Studies for the Technical Assistance Program under ELECTROPERU's part; and (iii) the Mayush Hydro Project Study under HIDRANDINA's part of the project; the foreign cost component of teaching materials, technical assistance and fellowships for both ELECIROL]MA and ELECTROPERU Staff Training Programs; the front end fee of US$1.2 million. 5.04 From the US$81.2 million loan, ELECTROLIMA would retain US$65.3 million, and would relent US$12.3 million to ELECTROPERU and US$3.6 million to BIDRANDINA, under the same terms as those of the Bank loan. The Bank loan was made on standard Bank terms, with 17 years maturity, four years grace period and the interest rate prevailing at the time of loan approval (assumed to be 11.6% for financial forecast purposes). 6. Project Design and Organization. 6.01 The project was designed in line with the Government of Peru policies for the power plants and its objectives for the power subsector. It was aimed at strengthening the management and organization of the key sector institutions, particularly lCI ROPERU, so that the Government's policy of promoting decentralization and increasing institutional autonomy could be implemented effectively. Also, the project was aimed at supporting and assisting in the preparation of complex hydroelectric studies, which were needed to expand power generation, without recourse to thermal schemes that required burning costly petroleum, and promoting the introduction of rational tariff policies so that the sector's large investment needs could be financed without dependence on the national budget. This project would reinforce these objectives through its support for institutional improvements, including more rational tariff levels and for preinvestment studies. The project would provide access to electricity to about 130,000 families. ELECTROLIMA took adequate care of environmental effects in the design of the distribution network. The engineering studies to be included in the project included environmental impact assessments. With respect to the. engineering studies for the Mantaro Transfer project, two particular environmental issues would be addressed, so that the final design would be able to deal with them: (i) control of the pollution, which entered the Mantaro River; and (ii) the potential ecological effect of raising the water level in Lake Junfn.  - 13 - 6.02 The project was identified in January 1981. The Government of Peru requested Bank assistance in financing the development of hydraulic resources in the vicinity of Lima and accelerate the preparation of several studies of hydroelectric projects needed to expand power generation, in order to minimize the need for the installation of new thermal capacity. Since the preparation and execution of hydro projects were seriously delayed, as a result of lack of planning, the Master Plan for electricity prepared in 1982 would demand an increased participation of hydroelectric potential in power production, and increase the amount of electricity availability to the population, particularly in rural areas. The project was appraised in August 1981 and negotiated in April 1982. The loan was approved on June 1982, and signed on September 1982, but did not become effective until May 1983, eight months later than expected during appraisal, because of the delays to allow for the signature of subsidiary agreements between the Borrower ELECTROLIMA and the other agencies, i.e. ELECITROPERU and HlDRANDINA, which also had responsibilities under the project. The delays were caused by the need to clear with the Government the legal constraints for the approval of the contracts and subsidiary agreements between ELECTROLIMA and the other agencies. To avoid these problems it would have been appropriate to discuss these matters and clearly establish exceptions to local laws during loan negotiations. 6.03 ELECTTROLIMA, ELECTROPERU, and IEDRANDINA would be responsible for the overall execution of their respective components of the project. ELECTROLIMA would enter into subsidiary loan agreements, satisfactory to the Bank and on the same terms as the Bank loan, for onlending US$12.3 million to ELECTROPERU and US$3.6 million to HIDRANDINA (Section 3.01 (b) and (c) of the Loan Agreement). Signing of these agreements were conditions of disbursement of their corresponding components of the project. ELECTROLIMA would execute the physical works included in the project, and its engineering staff would carry out the planning of these works, supervise engineering designs, and prepare specifications for equipment, materials and works. 6.04 Procurement.- The procurement requirements of the Bank were discussed during appraisal and agreed upon with ELECTROLIMA. Civil works, materials and equipment to be financed with funds from the loan would be procured through international competitive bidding procedures. Local suppliers and those purchased from Cartagena Agreement member countries (or any other regional trade agreement acceptable to the Bank of which Peru was member) would be accorded a preference representing the difference between the prevailing duty actually applicable and the duty applicable to goods imported from non-member countries, or 15 % on the C.I.F. price, whichever was lower. The regional preference would not be applicable, however, if a domestic manufacturer was determined to be the lower bidder after application of domestic preference. An additional US$11.3 million in minor civil works, which were not suitable for packaging, and which were too small to be of interest to international tendering, would be procured through local competitive bidding in accordance with procedures agreed with the Bank. Limited international tendering would be used for a few items, which had to be compatible with existing equipment, each not exceeding US$150,000 and estimated not to cxceed US$1.5 million in total. Consultant's services financed under the loan would amount to about US$19.5 million, the consultants would have qualifications acceptable to the Bank, and would be hired under terms and conditions acceptable to the Bank (Section 3.02 (a) of Loan Agreement and 2.02 (a) of both Project Agreements).  - 14 - 6.05 Disbursements.- The loan would be disbursed over a six-year period -from mid- 1982 to mid-1988- in accordance with the following eligible expenditures: 100% of foreign expenditures for goods procured abroad, and 100% of the ex-factory cost for any locally mnanufactured items, which would be acquired through ICB; 100% of foreign expenditures for consultants from abroad and 90 % of local expenditures for local consultants; 30 % of expenditures for civil works; 100% of foreign expenditures for training fellowships; and 100% of the front- end-fee. Retroactive financing for up to US$1.0 million was proposed for payments of consultants' fees incurred after September 30, 1981, to cover advanced expenditures related to the Mantaro Transfer Project studies and the Transandean Tunnel Expansion study. 6.06 During preparation and appraisal of the project, several important issues arose such as: (a) organization of the executing agency (b) cost sharing of consumer electricity and water quality of the Mantaro Transfer Scheme; (c) electricity tariff levels; (f) ELECTROPERU management; (g) staff training component; and (h) external audit of the project and of the executing agencies operations. 6.07 Organization of the Executing Agency.- During project appraisal the Government created by Decree the Mantaro Project Commission (MTC) and gave it responsibility for the preparation of the study, and for contracting and supervising the works. However, the commission did not have the necessary staff for overseeing the latter two phases -contracting and work supervision. Furthermore, ELECTROPERU issued a mandate entrusting ELECTROLIMA with part of the project's final design for the Transandean Tunnel and Marcapomacocha Canal, which was contradictory to the MTC's legal responsibilities. To avoid future implementation delays, the Bank proposed to solve the organizational problems by creating within ELECTROPERU an executive unit, which would be based on the MTC technical staff. This solution would fit better within the newly created power organization agency. The implementation of a suitable institutional structure for the management, construction and operation of the Mantaro Transfer Project was presented and accepted by the Bank during negotiations. The Mantaro Transfer Unit was created as a legal part of ELECTROPERU, but also reported to a committee consisting of representatives of the three public utilities 6.08 Mantaro Transfer Scheme: Cost Sharing of Common Elements and Water Quality.- During project preparation, it was cause of discussion among the beneficiaries the cost sharing of common elements of the scheme for water supply and electricity. Also, the feasibility study of the Mantaro Transfer Scheme contained an estimate of the cost of improving the Mantaro River water quality. However, neither the implementation of the water treatment program, nor the monitoring of water quality was planned. The Government proposed that the electric sector should assume about 50% of the costs, and this would be reflected in the financial forecast of the corresponding institutions. To avoid delays, the Bank suggested that the project could be appraised with alternative financial forecasts, but loan negotiations should be contingent upon a definition of cost sharing arrangements for the construction of the Mantaro Transfer Scheme. An acceptable plan for pollution control and monitoring was presented before negotiations, as well as, the cost sharing arrangements for the construction of the Mantaro Transfer Scheme (50% for the power sector and 50% for the water supply sector).  - 15 - 6.09 Electricity Tariff Levels.-During the years previous to the project appraisal, the power sector earnings were lower than needed to finance its investment program. Even though the electricity law permitted an 11% return on utilities' equity, during 198-8 1 the net income of ELECTROPERU and ELECTROLIMA was about zero. An agreement was reached during appraisal with the Government to improve this situation. It was agreed that: (i) tariff levels would be raised about 8% monthly from September to December 1981; (ii) tariff levels during 1982 would be set to produce a 6% return on the basic rate; (iii) from 1983 tariff levels would permit a 12% return on the basic rate. Combined with the recently imposed increases on the taxes for electricity sales (from 5% to 25%) to the final consumer, the level of earnings of the utilities would provide an acceptable self-financing capability to the power sector. During loan negotiations, the Government presented to the Bank the 1981 proposed increases, and in the Loan and Guarantee Agreements adequate covenants included the annual rate of return of 12 % and the incremental 20% tax dedicated to new developments in the electric-power sector. Also, it was agreed that since MEM had the responsibility for setting rates and tariffs, the commitments should have dealt with the draft Guarantee Agreement, and additional time was provided for the agencies to achieve the targeted 12 % rate of return. 6.10 ELECTROPERU Management.-During project appraisal, the weak organization and poor management of ELECTROPERU was the main Bank's concern . ELECTROPERU's organization was inefficient, having twelve working groups under the General Manager's direct supervision. More importantly, with few exceptions, its management staff (executive president, general manager, and departmental managers) were not capable of running a large public utility. Based upon Bank recommendations, the Government agreed during appraisal that a functional re- organization of ELECTROPERU was needed, and it had to be done under a more effective top management. Fundamental changes were required, and the Bank suggested the replacement of two top management positions with other staff acceptable to the Bank, prior to negotiations, to make sure that ELECTROPERU would become a well run utility. The Ministry of Energy and Mines (MEM) agreed to the above recommendations. During negotiations,it was agreed to include in the ELECTROPERU Project Agreement, additional improvements in its accounting procedures, satisfactory to the Bank, by the end of 1982. 6.11 Staff Training Component.- ELECTROPERU had a very poor track record for staff training, mainly because of the absence of clear policies, lack of interest shown by the managers, and lack of efficiency of CEFOCAP-the training unit within ELECTROPERU. On the contrary, ELECTROLIMA had developed through the years a very good organization for training its staff which included: open support from management, yearly programs for in-house training and courses and fellowships in Peru and abroad, plus an efficient Training Department. HIDRANDINA had a good level of staff training and a well organized training school for hydromechanic, which was attached to the maintenance workshop in Chosica. The Bank's main concern was ELCFTROPERU, which resulted in the inclusion of a training component that would require close supervision, in view of ELECTROPERU's weakness in this field. During appraisal, the Bank suggested to ELECTROLIMA additional training in the areas of manpower and planning and also suggested to modernize, replace and complete the equipment of the Technical Training School (EFET). Additionally, the Bank recommended a better coordination between ELECTROLIMA and ELECTROPERU for planning staff training needs and any training  - 16 - expansion programs. The above recommendations and components were later included as part of the project. 6.12 External Audit.- Peru's Contraloria General nominates external auditors forpublic sector enterprises. However, during project appraisal, the Bank was concerned that the nominated firm would not have sufficient experience in dealing with public utilities to do a satisfactory audit of ELECTROLIMA. Based on the Bank's recommendations, it was agreed that the Contraloria General and ELECTROLIMA would accept terms of reference drafted by ELECTROLIMA and reviewed by the Bank for the selection of external auditors. This Bank recommendation was ratified during loan negotiations and served as the basis for identical procedures to be followed by ELECTROPERU and HDRANDINA. 7. Project Implementation. 7.01 The project was scheduled to be completed by December 31, 1986. ELECTROLIMA, ELECTROPERU and HIDRANDINA were in charge of carrying out the respective project components. The project begun very slowly due to unavailability of local funds, however, this situation started to improve after 1984, when some of the studies under the project were contracted and some initiated their execution. Implementation continued slowly during the following years, as a result of the unusual number of bureaucratic and legal obstacles for contracting most of the studies and for the acquisition of training equipment. The project included about US$6.7 million to finance consulting services for the execution of the final design and for the supervision during the construction of the Mantaro Transfer Scheme. Due to the postponement of this project component (para. 7.03), it was decided that the contract with the respective consultants be canceled after the completion of the first stage of the study. The balance of about US$2.0 million was used for technical assistance supporting the regionalization process of ELECTROPERU, after the corresponding changes were made to the Loan Agreement. 7.02 ELECTROLIMA's Component. The implementation of its distribution program was delayed by more than three years with regard to the appraisal, due to a lack of local funding and to the much lower-than-expected growth of energy sales. Consumption growth rate was about 5.5% yearly, as compared to the appraisal estimate of 9.4% for 1981-90. ELECTROLIMA presented to the Bank a new program schedule later-on in 1984, but the Bank discovered that the new program mainly reflected the expansion needed for the entire electric system in Lirna. The construction of the Yuracmayo dam was divided in two lots and a local contractor started construction of Lot I by January 1984. The preselection process for the construction of Lot II was completed in December 1986. Bidding documents were prepared with the assistance of specialized consultants, and construction was expected to start in September 1987 and to be completed by March 1990. The expansion of the Huinco power plant, which was dependent on the implementation of the Mantaro Transfer Scheme, was postponed. The implementation of the training component was very slow and was estimated to be completed by 1989. This delay was due to a lack of proper evaluation of the training facilities and capabilities of ELECTROLIMA. The fellowship program did not start until 1984, with the travel of four engineers to Switzerland. However, due to strict Government control for all trips abroad, no foreign training was provided during 1985-1986. All the equipment and materials for adapting the existing installations of ELECTROLIMA's headquarters for the construction of a provisional training center were not purchased.  - 17 - 7.03 ELECTROPERU's Component. The final design and bidding documents for the Mantaro Transfer Scheme were completed in 1984. However, the Government decided to postpone its implementation. Based upon Bank advice, ELECTROPERU discontinued the engineering studies already under contract with foreign consultants. The implementation of the staff training component was very slow and only lirnited training activities were carried out for the regional companies. This was due to budget limitations experienced in ELECTROPERU, and the lack of professionals and technicians to fulfill their responsibilities. Despite the constant pressure exerted by the Bank on ELECTROPERU's management to use the Banks's available financial assistance, there was no interest shown by ELECTROPERU in using the technical assistance funds assigned to the financial planning component. 7.04 HIDRANDINA's Component. Studies for the Mayush hydroproject progressed satisfactorily and its final design was completed in 1984. During implementation of the Mayush study, which included the evaluation of the Pativilca River hydro potential, it was revealed that a large hydro potential of five plants with a total installed capacity of about 600MW could be developed in this basin. The Bank assigned great importance to these findings, due to the scarcity of hydro resources on the Pacific watershed, and the lack of projects with studies sufficiently advanced to be considered as options for the North-Central System development programs. 7.05 During the project implementation around November 1986, and as a result of non- compliance with the financial covenants, pursuant to Section 6.02 of the General Conditions applicable to the Loan and Guarantee Agreements, the Bank suspended the remaining disbursements of the loan'/. However, the Bank notified the Borrower that the cancellation of the loan would not be effective until January 1987, in order to give additional time to the MEM, ELECTROLIMA and ELECTROPERU to prepare a satisfactory Plan of Action to improve the power sector finances, so as to avoid the final cancellation of the loan. The above plan would include: (i) details regarding Government assumption of the power sector debt; (ii) draft agreement on cost reduction to be agreed between CONADE, the Ministry of Economy and Finance (MEF), ELECTROPERU, and the Electric Utilities; (iii) rationale for reducing the sector's fixed assets by 35%; (iv) rationale for reducing the sector's rate of return to a minimum of 4 %; (v) rationale for the creation of a proposed maintenance fund; and (vi) updated and consistent financial projections for 1986-1996 -in 1987 value- for the power sector, reflecting the changes proposed in the draft Decreto Supremo and the 1986 actual results. 7.06 In view of the Borrower's efforts in preparing the above mentioned Plan of Action for the sector, during a Bank mission that took place in March 1987, the Bank provided to ELECTROLJMA an extension of three months of the deadline for the submission of a satisfactory Plan of Action. With the enactment on March 31, 1987 of Decreto Supremo No. 065-87-EF and the signing of the Acaa de Acuerdo between the MEF and the Power Sector, in which the Government demonstrated its commitments towards the institutional and financial improvement of the power sector, the Bank lifted the suspension of disbursements of the loan effective April 17, 1987. In addition, pursuant to the ELECTROLIMA's request, the Bank extended the Closing Date of the loan to June 30, 1988. However, due to arrears in Peru's servicing of its foreign debt 3. In May 1986, the Bank had alerted ELECTROCIMA that corrective actions had to be taken, otherwise the Bank would suspend disbursements under the loan.  - 18 - and the lack of progress in normalization of relations between Peru and the Bank, and pursuant to Section 6.03 (c) of the General Conditions, the Bank canceled the undisbursed balance of the loan (US$55.3 million) on October 12, 1989. 7.07 Disbursements. Disbursements were made against 100% of foreign expenditures for the engineering and consultant services related to (i) hydroelectric studies, (ii) foreign costs of the component for teaching material and equipment, and (iii) the staff fellowship programs for ELECTROPERU and ELECTROLIMA. However, disbursements were made against normal documentation. Disbursements of the loan did not take place for almost a year (July 15, 1983) after project approval, mainly due to the slow authorization of the Loan Agreement by the Government and the additional delays needed to allow for the signature of subsidiary agreements between the Borrower and the other agencies. To encourage and to accelerate the use of the loan, the Bank established an Special Account for several ongoing operations in Peru, which enabled the use of revolving funds and provided faster access to immediately available funds in those accounts. In July 1985, as a result of the severe shortage of funds and the slow pace in the execution of the distribution program- disbursements under the loan lagged well behind the appraisal estimates, and amounted to only US$14.7 million or 39.4% of the SAR estimate. Meanwhile, ELECTROLIMA requested the Bank for an increasing participation in the financing of one of the Project's component: the Yuracmayo Dam. The construction of the dam was very delayed and the efforts made by the Borrower for obtaining financing from other sources were unsuccessful, because of the reluctancy of commercial banks to lend to a country with a very poor economic situation. Based upon these facts, plus the need to produce additional energy by the construction of the dam during the dry season, the Bank accepted the request and the financing was increased from 30% to 90%, from the unallocated category of the loan, to permit a faster loan disbursement. The increase was achieved by transferring US$10 million from the unallocated category to the civil works category. The funds transferred from the unallocated category did not result in the Bank's financing of local costs of the project as a whole, because the Bank's loan originally covered only 88 % of the foreign cost. The final disbursement was made on August 17, 1987 (see annex 3). 7.08 Project Cost. Comparing actual costs and those estimates at appraisal is not fully useful since the loan was canceled and some project components were postponed or not carried out. Based on data supplied in November 1992 by ELFECTROLIMA, the total actual cost of the project reached US$164.1 million (see annex 4), of which US$25.9 million equivalent (16%) was financed by the Bank, including US$1.2 million of front-end-fees, and the remainder US$138.2 million equivalent (84%) was financed by ELECTROLIMA, ELECTROPERU and HIDRANDINA. This represents a US$101.1 million lower cost than the appraisal estimate, which was mainly due to the indefinite postponement of the Mantaro Transfer Studies and to the cancellation by the Bank of the undisbursed balance of the loan, as already explained above. 7.09 Procurement. Procurement-related problems also slowed down the project implementation. The heavy administrative and procurement constraints, imposed by the Contraloria General de la Republica, were among the general factors for the slow project implementation. It was agreed during appraisal, that materials which were not suitable for ICB- such as concrete poles-and which were not financed by the Bank, could be locally procured without significant effect on the project costs. It is noteworthy, that the project was the first project processed after the creation of the Reglamento Unico de Licitaciones y Contratos de Obras  - 19 - Publicas (RULCOP), whose procedures and guidelines were not satisfactory to the Bank. However, assurances were given to the Bank that procurement of goods and services financed with counterpart funds were to be exempted of any RULCOP regulations. ELECTROLIMA had only limited success in having its interpretation prevailing over those of the Decree 22740, against the Contralorfa's interpretation, which assumed exemption from RULCOP only for the Bank- fnanced portion of the contracts for which the Bank was financing the projects. This situation later deteriorated with the Ley de Presupuesto enacted on December 30, 1983, which confirmed that all works not directly financed by international organizations should be procured under RULCOP regulations. Additionally, the Decree 612-83-ESC Medidas de Austendad enacted on January 8, 1984 established that any investment work should had a prior approval of the MEF and from CONADE. These approval processes could take as long as three months. The Bank pursued the solution of the above problems and recommended that the most efficient and economic way of procuring a large number of small contracts, which were not financed by the Bank, was LCB. 7.10 The low quality of ELECTROLIMA's bidding documents was common at the initial stages of project implementation, with a smaller improvement during the following years. Most bidding documents were issued by several departments within ELECTROLIMA. To assure standardization of the general conditions and compliance with the Bank's procurement guidelines, a single unit (Division de Compras within the SubGerencia de Abastecimiento) was created within ELECTROLIMA for preparing the general conditions and the draft contracts for all procurement. However, the technical areas (Gerencia T&nica and Gerencia de Distribuci6n) continued to be responsible for the technical specifications. Another procurement related problem was the sub- division of some of the procurement by ELECTROLIMA, as a result of yearly budget restrictions imposed by CONADE, which forced ELECTROLIMA to purchase smaller quantities than technically desirable. This problem was eliminated when CONADE excluded from budget limitations all items that were totally financed by Bank loans. 8 Project Results 8.01 ELECTROLIMA's Distribution Program. A total of 12 substations of 60/10 Kv were constructed, which represented seven substations less than the number estimated at apprisal, due to reductions with respect to market requirements for extending the 10kv/220 grid throughout metropolitan Lima. Construction of 49kn of 60 Kv lines, 579km of 10Kv transmission lines and cables, and the acquisition and installation of 1450 transformers of 220V were successfully carried out. Additionally, approximately 94,000 new clients were connected with electricity, compared to the projected 136,000. ELECTROLJMA has continued the expansion of it's distribution program during the last few years, adding more than 700km of 60Kv and 10Kv lines to the network and connecting about 28,000 new clients with electricity service (see annex 7). 8.02 Studies. The project included adequate financing to prepare several studies to increase the electricity supply in the power sector. Under ELECTROLIMA's component the following studies were prepared: (i) Salto Bajo Scheme, whose most promising development would be the Jicamarca plant with a proposed installed capacity of 104 MW and expected generation of 270 GWh during an average year; (ii) Transandean Tunnel Expansion, which included modifications of the Marcapomacocha canal; (iii) Yuracmayo Dam, whose construction was divided in two lots, although only the construction of Lot 1 was initiated. The dam study  - 20 - concluded that no major negative environmental effects were expected from the dam construction. HDRANDINA carried out the Mayush Hydro Project Study successfuUy. Two alternatives (low and high pressure) were considered for the design of the main tunnel, however, the general conclusion was oriented toward the low pressure alternative, due to smaUer technical risks during the construction. The study found that a large hydropotential of five plants existed, with a total installed capacity of about 600 MW, which could be developed in this basin. This project component achieved its objectives partially. 8.03 Training Components. Only four professionals from ELECTROLJMA received training abroad and the new staff training plan was revised for 1988-90. ELECIROLIMA with its own funding, has continued staff training and initiated the installation of a new staff training center at the ELECTROLIMA headquarters. Approximately 4,000 workers received training annually in several fields of electricity maintenance, distribution, etc. ELECTROPERU's training program did not progress as scheduled (para. 7.03). A fellowship program was prepared but not implemented. Only small training courses and teaching materials were provided to the staff of the regional companies. This project component achieved its objectives pardally. 8.04 Other Results. During project implementation, the Bank pursued with the Government a policy for the achievement of a better and healthy financial situation of the power utilities. As a result, several actions were agreed by MEM and the Power sector, as follow: (i) the Government assumed the total existing debt (local and foreign) of the power sector, in the amount of about US$1,360 million, and refinanced it to the sector over 20 years; (ii) ELECTROPERU and CONADE would enter into an agreement to reduce the sector's operating costs, personnel costs, and energy losses; (iii) the sector's annual investment program would be analyzed by CONADE to be consistent with the countries possibilities; (iv) from 1988 on, the sector's rate of return would be no less than 4%; (v) MEM, CONADE, and ELECTROPERU would jointly prepare a plan for optimizing crude oil and power consumption, aiming at energy conservation and diversification; (vi) CONADE and the power utilities would enter into an agreement to improve the sector's management procedures and efficiency; (vii) ELECTROPERU and its subsidiaries would have their fixed assets revaluated by consultants as of December 31, 1986, and would make the necessary adjustments in their respective accounting books; (viii) the Tariff Commission together with ELECTROPERU would start to implement in 1987 a tarff rate structure based in Long Term Marginal Costs (LTMC); (ix) a fixed percentage of the power companies income would be allocated for equipment and maintenance, such percentage to be annually establish by MEM. Nevertheless, due to the deteriorating economic conditions of Peru, it became almost impossible to implement all the above agreements. 8.05 Rate of Return on the Project. Based on actual investment and operating costs, and net marginal revenues, the internal rte of return on the main (ELECTROLIMA) component of the project was -6% (Annex 8E). This negative rate when compared to the appraisal rate (16.6%) reflects the low level of actual tariffs and the high labor and operating costs of the project. However, it does not measure the economic impact of the project. 9 Flnancial Performance  - 21 - 9.01 The financial performance of ELECTROLIMA, ELECTROPERU and HIDRANDINA reflect not only the deteriorating financial situation of the power sector during the period of project implementation (annexes 7-9), but also the Government's failure to increase tariff levels in line with inflation. Besides, during this period the power sector experimented lower than expected sales growth and higher than expected operating expenses, which were the main financial problems faced by the sector. The inadequate tariff increases reflected the effect of populist political pressures on the Government. Tariffs fell in real terms, e.g., during 1983 cumulative tariff increases amounted to only 79 %, while the cost-of-living index rose 135 %. The power utilities reduced their capital-expenditures programs during the period to minimal levels and they did not have enough cash generation to cover their debt service. Also adversely affecting the financial performance of the power utilities was the inordinate growth in operating expenses, as a result of overall real increases in employment costs, caused partially by large staff increases. During project preparation, the Bank should have investigated more toughly the financial situation of the power sector vis a vis the country's economic situation, and consequently it would have been necessary to have an agreement with the Government, reflected in the Loan Agreement, whereby the financial problems of the power institutions could have been resolved or avoided. 9.02 During 1985, the rate of return of the three public utilities was less than 1.5%, much lower than the covenanted rate of return of 10%. Despite the Bank's request for the preparation of new yearly financial projections, the sector's return were below appraisal. The Bank reminded the Government of these non-compliances, but did not threaten suspension of disbursements in 1984-1986 due to the project's situation and the country economic considerations. It was not until May 1986, that the Bank alerted ELECTROLIMA of the possibility of suspending loan disbursements, and the lack of action by the Government in tariff matters caused the Bank to finally suspended disbursements in November 1986. After a satisfactory Plan of Action submitted to the Bank, whereby the Government and the power sector established a comprehensive set of actions (para. 8.04) to improve the financial situation of the sector, the Bank lifted disbursements suspension in April 1987. But due to the continued deteriorating economic conditions of the country and the discontinuing payments of its debt service, the Bank suspended all loans to Peru in May 1987. 9.03 ELECTRO LI MA. The 1982-1991 financial situation of EILCTROLIMA is shown in Annex 8. During 1982, ELECTROLIMA's performance was slightly better than expected in the appraisal. Net profits amounted to US$4.3 million compared to US$0.1 million at appraisal. Higher than expected tariffs more than compensated for lower sales and higher operating expenses, much of which was accounted for by exchange rate adjustments. Lower than expected level of sales continued during 1983-84, including lower industrial sales due to the depressed state of the Peruvian economy, which resulted in net losses of US$22.1 million and US$24.3 million, respectively. During 1985, GWh sold were 14% less than the appraisal forecast, while purchase of energy was 12% higher than in previous years, resulting in a net loss of US$23.2 million. Despite increases in electricity tariffs, ECTROLIMA's financial situation worsened the following years, as a result of higher operating expenses, higher purchases of energy (petroleum) due to the severe dry season, and a new tax Impuesto de Solaridad introduced by the Government in 1988 to help financing the public deficit. Net losses amounted to US$107 million in 1988. ELECTROLIMA's financial situation, however, has started to improve in 1991 because of higher tariff levels and a reduction in the administrative expenses, as a result of a reduction of its staff. Net profits reached US$5.4 million.  - 22 - 9.04 ELECTROPERU. The 1982-1991 financial situation of ELECTROPERU is shown in Annex 9. During 1982, FLECTROPERU's financial performance was poor, sales were 5 % less than at appraisal. Operating expenses exceeded the appraisal estimates by 23 %. The net result of the foregoing was that its net income was only US$5.8 million, 21 % of the appraisal's forecast. As it was the case of ELECTROLIMA, ELECTROPERU's financial performance deteriorated sharply during the following years. Net losses were US$49.0 million and US$40.3 million in 1983 and 1984 respectively. Total sales decreased more than 60% compared to the appraisal's estimate of US$146.9 million (4,013.0 GWh) in 1982, and of US$57.0 million (3,135.8 GWh) in 1985, as a result of decreases in the tariff levels in real terms, when ELECTROPERU started the regionalization process and became only a generation-transmission institution. Current assets covered about 80% of current liabilities. Another contributing factor of ELECTROPERU's poor performance was its overstaffing and higher than anticipated expenses because of the reconstruction costs needed to repair the damage caused by terrorist activities. By 1986, due to low tariff levels its base rate was -1.6%. Its poor financial situation continued to deteriorated during 1989-1990 and losses reached US$103.9 million. ELECTROPERU has experienced an improvement in its finances during 1991, its net profits amounted to US$10.9 million as a result of a 30% increase in electricity sales, higher level of tariffs, and a 29% reduction of the total staff. 9.05 HIDRANDINA. The 1982-1991 financial situation of BIDRANDINA is shown in Annex 10. Beginning in 1982, HIRANDINA was a low-cost producer, its rates were set not by its own revenue requirements, but by the first application of Peru's uniform tariffs. HiDRANDINA's construction program was lower than expected at appraisal, principally because of the deferrals of works on its upstream Pativilca regulation project and on the Mayush Hydro Project Study. Because its debt service was very low, it had been able to finance its investments with its scarce cash flow, the Bank loan and other small borrowing. During 1984, HIDRANDINA was transformed under the new electricity law (Decreto 23406 of May 28, 1982) into a regional subsidiary of ELECTROPERU, and as such received a transfer of assets and personnel from ELECTROPERU. HIDRANDINA's financial situation greatly deteriorated with the transformation, and although its sales were more than 50% than at appraisal, the operating expenses were 97% higher, resulting in a net loss of US$0.4 million. The high operating expenses can be explained because HIRANDINA changed its scope from a bulk supplier to a regional generation, transmission and distribution company. The negative financial performance continued towards 1986-89, and total net losses reached US$14.2 million, as a result of lack of adequate rates and higher than expected operating expenses. 10. Bank Performance 10.01 Taking into consideration that this was the sixth Bank project to the Peruvian power sector, the overall performance of the Bank was mixed, strong on some issues and weak on others. At the time of preparation and appraisal of the project, the Bank correctly highlighted the following issues: (a) poor organization and weak execution capacity of ELECT ROPERU; (b) need to increase electricity tariff levels to improve the financial situation of the power utilities; (c) lack of experience of the nominated audit firm in dealing with public utilities to do a satisfactory audit of ELECT ROLIMA. The Bank's efforts were useless and not convincing regarding the use of funds assigned for strengthening ELECTROPERU's financial planning, despite the fact that the regionalization process conferred a function of holding company to ELECrROPERU.  - 23 - 10.02 The objectives set in the SAR concerning the institutional and financial strengthening of ELECTROLIMA, ELECTROPERU and HIDRANDINA were rather optimistic. The covenants related to improving the financial conditions of the Borrower and the other beneficiaries, as well as those needed for improving project execution through the establishment of an executive unit were appropriate. Nevertheless, the Bank staff pursued with tenacity the goals of maintenance of an adequate level of tariffs and to push for adjustments in the institutional aspects of the power sector agencies. The Bank relied upon the Government to implement an adequate tariff policy, which would assure the financial performance of ELECTROLIMA, ELECTROPERU and IDRANDINA. During the project implementation, particularly in 1985, the Bank called the attention of the Govemment to the financial losses of the three institutions by the application of a negative pricing policy. As the financial situation worsened for the Borrower, ELECTROPERU and BIDRANDINA, the Bank suspended disbursements in November 1986 for non-compliance of the financial covenants. The suspension was lifted in April 1987 upon the presentation of a satisfactory Plan of Action to the Bank for improving the power sector utilities finances. Unfortunately, failure in achieving the project's financial and institutional objectives were in large measure due to the Government's inability or unwillingness to support the required adjustment, because of political and economic considerations (paras. 6.07; 7.04) 10.03 Regarding procurement procedures, the Bank was persistent with the Government to allow ELECTROLIMA, HIDRANDINA and ELECTROPERU, to approve contracts for Bank- financed projects against the Contralorfa's interpretation of Decree 22740. Additionally, to avoid delays in project implementation, the Bank was helpful in providing support and advice to the Borrower in convincing CONADE for the elimination of the budget's yearly restriction to ELECTROLIMA, therefore avoiding subdividing the procurement of some goods and works (para. 7.08). 10.04 The Bank was strongly committed to assist Peru in developing the electric power sector and strengthening the management and organization of its key power sector institutions. The Bank, ELECTROLIMA, ELECTROPERU, HIDRANDINA, and the Government maintained a good relationship and understanding concerning some of the constraints affecting the project. The Bank was very helpful in providing technical assistance to resolve the economic problems of the country (mainly high inflation and severe balance of payment problems). To sustain project momentum, the Bank continued to finance most of project components through December 1987, almost seven months after the general suspension of all loan disbursements to Peru, but without having received any payment on the rapidly accumulating arrears. 10.05 The number of Bank staff supervision mission appears to have been adequate for the size and complexity of the project (see annex 6). Supervision efforts were sustained through full or partal missions from Project Effectiveness to Closing Date. There was an average of 2.5 missions per year. Bank supervision of the project started even before the loan became effective (May 1983). This was possible because the Bank was already carrying out supervision on other operations. Four of the project supervision missions were combined with supervision for other Bank projects. The major supervision weakness was the lack of more positive actions on the financial aspects of ELECTROPERU, ELECTROLIMA, and in some respects to procurement, as well as to monitoring and supervision procedures, in spite of the more than adequate attention paid in the field to technical matters. Supervision mission reports made no reference to the  - 24 - worsening macroeconomic situation, insofar as it affected the project objectives. Comments on the economy were only made in relation to loan disbursement flows. The Bank only tried to speed-up the project implementation, rather than to asses properly ELECTROLIMA, ELECTROPERU and HIDRANDINA's reasons for the delays, and make the procurement process more efficient. The Bank insisted several times that the review of bidding documents should be done in one unit within ELECTROLIMA to assure standardization of general conditions and compliance with basic principles of the Bank's procurement Guidelines. In the case of ELECTROLIMA, the Bank also requested its management to avoid dividing equipment procurement into small packages to speed up the procurement process and project implementation. 10.06 The legal agreements and the SAR were adequately prepared and generally of a comprehensive nature. Supervision reports provided a good and complete picture of the technical issues concerning the project, but not enough information in relation to the financial and institutional aspects of the Borrower and the beneficiaries. 10.07 During the supervision phase, the Bank appears to have been too lenient in accepting delays in the submission of inadequate audit reports, late progress reports, inadequate subproject indicators, and inappropriate information on procurement and approval procedures from ELECIrROLIMA, HIRANDINA and ELECIROPERU. However, the Bank supervision missions provided a good opportunity to supply specalized technical assistance to the Borrower's staff, as well as to ELECI1ROPERU and HDRANDINA's staff, which was helpful during project implementation. 10.08 Finally, the very large overrun of time employed to start the project implementation, compared to the appraisal estimate, is difficult to explain; since there was considerable experience at the Bank on actual implementation time-spans for a project such as the Sixth Power Project. Fortunately, the Bank exhibited flexibility in extending the Effective Date of the loan from the original date of September 20, 1982 to May 12, 1983. Nevertheless, US$55.3 million of the loan funds were canceled on October 12, 1989. 11. Borrower and Beneficiaries Performances 11.01 The project was properly identified and prepared. Project preparation and design were satisfactorily carried out by ELECTROLIMA's staff, with adequate assistance from the Bank. The performance of ELECrROPERU, 1IDRANDINA and ELECTROLIMA were financially and technically weak, although strictly in relation with the project there were some positive achievements (paras. 11.03-11.04) 11.02 ELECTROPERU and ELECTROLIMA's financial performance were discouragingly poor due mainly to the pricing policy imposed by the Government. The lack of sufficient available financial resources led to serious delays in the project implementation and to the deterioration of ELECTROPERU and ELECTROLIMA's operating capabilities. This poor financial performance of the two agencies, and their low efficiency, were tied to issues related to the dual role of the Government as policy maker, and sector regulator, and at the same time owner/operator of ELECTROPERU and ELECTROLIMA. Also, ELECIROLIMA was slow in complying with the main conditions of effectiveness and also its complex and time consuming procurement procedures delayed project implementation. The low quality of the bidding  - 25 - documents provided by several departments within ELECTROLIMA, and the unfamiliarity of its staff with Bank's Guidelines, aggravated project implementation. The creation of the Purchasing Division improved its procurement process (paras. 6.02; 7.08; 7.09; 9.0). 11.03 Throughout the project implementation period, ELECTROLIMA developed satisfactory appraisal procedures and capabilities for this kind of project. ELECTROLIMA's management information system was greatly improved and presently is capable of processing data from its different operational areas. ELECTROLIMA performed an important restructuring of its accounting, budgeting and information systems, introducing a new accounting and budget planning, which facilitates the preparation of forecast of revenues and cost information for each of ELECTROLIMA's network and activities, and complies with the standard industry practices. ELECTROLIMA has become a well managed electricity company with highly trained and experienced professionals. ELECTROPERU's accounting system and financial planning capability improved, but additional strengthening is needed. ELECTROPERU's organization underwent major modifications to improve its technical, administrative and finance areas, however, to some extent, the shortcomings of its higher managerial staff still persist. Its Board of Directors intervenes often in operational aspects of the institution. There were some improvement in the administration and control of the subsidiary companies and more administrative autonomy was extended to these companies. 11.04 ELECTROLIMA and ELECTROPERU have improved their procurement procedures and knowledge of the Bank Guidelines. After its initial delays in procurement, because of the unfamiliarity of their staff with Bank's procurement procedures, notable progress took place during 1986-1987. Consultants were selected on the basis of short lists approved by the Bank and the evaluation of the technical proposals received from those invited to participate. The Borrower progress and audit reports were not received on time and did not reflect its true financial situation. ELECTROLIMA complied with its obligations under the loan agreement, except for the financial covenants (see annex 5) 11.05 HIDRANDINA managed its operations with satisfactory results. Particular mention deserves the agile reaction of its management for the execution of the Mayush study, which was supervised directly by HfDRANDINA's management with the help of a small group of part-time professionals. During project implementation, the company underwent major changes, caused by the regionalization of the sector. Under the influence of CONADE, its headquarters were centralized in Trujillo. The operating division was split in to one division responsible for generation and transmission, and the other division for distribution and sales. However, given the future role of BIDRANDINA as a regional utility, the company has to develop and expand its managerial capability. 12. Project Relationship 12.01 Over the full period of project implementation, ELECTROLIMA, ELECTROPERU, HIDRANDINA and the Bank maintained a close relationship and a good understanding concerning the main constraints of project implementation. Bottlenecks and constraints were removed efficiently and expeditiously without negative impacts on the Bank- Borrower relationship. However, this relationship was characterized by the lack of continuity of staff and managers working on the project both in Peru and at the Bank. However, the open  - 26 - working relationship was beneficial to the partial achievement of the Project's objectives, where the Bank responded in a flexible way to the Borrower's requests. 12.02 The Bank's relationship with other national agencies and participating institutions was also very cordial. The Bank had no problem gaining access to the highest level of Government for sector policy dialogue and for rendering professional advice. 13. Consultant's Services 13.01 Contractors, consultants and suppliers both local and foreign, generally performed rather well. The consultants contracted to conduct the Mayush study, did high quality work and proved to be efficient in assisting HIDRANDINA'S Project Unit. Their performance, both in terms of technical quality and compliance with schedules was very satisfactory. Consultants hired by ELECTROPERU were useful and on the basis of their studies an active geological fault was found crossing the head trace of the tunnel of the proposed conceptual design for the proposed El Chorro hydroplant. Consultants contracted for the Yuracmayo studies were less than satisfactory at the initial stages of the studies. During the preparation of the feasibility studies, they used an inadequate approach for the estimates of flood and spillway design, costs estimation and economic evaluation. However, with the advice of the Bank, the consultants adequately revised their work and later on produced tender documents, which correctly followed the Bank's Guidelines. In the case of the Salto Bajo studies, rearrangements of the work and extension of the implementation schedule were needed due to the indefinite postponement of the Mantaro Transfer Scheme. 14. Project Documentation and Data 14.01 Project documentation and data included legal documents, the staff appraisal report (SAR), the mission back-to-office reports, supervision reports, and progress reports provided by the Borrower. 14.02 The Legal Agreements and the SAR were adequately prepared, generally very comprehensive and served satisfactorily during project implementation. They adequately reflected the Bank's interest for the satisfactory execution of the project. However, the Borrower progress reports were submitted with some delays and did not reflect a complete picture of the financial situation of the Borrower, neither of the other executing agencies. Supervision reports provided a good comprehensive picture of the technical matters of the project , but rarely of the institutional-financial aspects of the Borrower. The analysis of such aspects improved in later supervision reports. There is lack of continuity between several supervision reports, and it is sometimes difficult to get a clear idea of the evolution of the situation between supervision missions. 14.03 ELECTROLIMA and ELECTROPERU are currently organizing a management information system, where the data for project costs and accounting matters will be integrated to serve as a useful tool for project management and monitoring in the future. 13.04 The data required for the preparation of the PCR were not always readily available because of incomplete correspondence files, missing back-to-office and supervision reports, as  - 27 - well as Borrower progress reports and other project data. Some of this shortcomings are due to poor filing practice in the Bank. 15. Lessons Learned 15.01 The principal lessons learned from this project experience can be summarized as follows: * (a) The implementation schedules for complex projects under difficult conditions should not be faster than available implementation profiles (general). *. (b) Fundamental reforms within the power companies, as well as in the policy and regulatory framework, were needed to improve decision-making process and accountability and make the power sector agencies more autonomous. More recent far-reaching power sector reforms, should make a more lasting contribution to sustainable power sector development (para. 2.17). (c) During project preparation the different steps needed to obtain legal clearance for subsidiary contracts and agreements should be clearly established in order to avoid implementation problems. If necessary, clear exceptions to local laws should be discussed during loan negotiations and incorporated into the Guarantee Agreement (para. 6.02). (d) Sector training needs are usually very large; and therefore, sector agencies should encourage the creation of adequate staff training units, with broad mandates, not only to assess needs, but also to define and fund long term plans to properly address them. The Bank should use the existing institutional training infrastructure, and should ask for advice from an outside independent consultant. In no case should the Bank finance a taining component without the wholehearted concurrence of the Borrower (paras. 6.11 and 7.02). (e) Even under difficult macroeconomic conditions, the Bank should enforce compliance with financial covenants and suspend loans when non- compliance persists. Otherwise the credibility of the Bank is subject to doubt (paras. 7.05, 7.06; 9.01 and 9.02) (f) The Bank should insist on better and more comprehensive preparation of institution building components mainly those related with management and financial issues, especially for institutions such as ELFECTROLIMA and ELECTROPERU, which do not have proper financial discipline or independence from political influence (para. 9. 01).  - 28 - (g) For countries like Peru, which have weak macroeconomic conditions, a firm commitment of local funding should be a condition for proceeding with loan negotiation, to assure viability and successful implementation of the project. Realistic evaluation of the possible local contribution, which can be obtained from the beneficiaries should be determined during project preparation and appraisal, as well as their legal implications and the procedures for their collection. Only a fraction of the potential contribution should be considered realistically for project funding evaluation (paras. 7.03; 7.07). (h) Special attention and continuous efforts should be devoted to assist the borrowers in using the Bank's procurement guidelines. A close review of country laws, regulations and practices should be made before project appraisal to identify any problem areas and to seek before hand their solution during loan negotiations. In the event of conflict between local laws and Bank procurement guidelines, Government agreement to obtain a waiver of such local laws with respect to Bank-financed project should be a requirement for proceeding with the project (para. 7. 09).  - 29 - PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (Loan 2179 - PE) PART 11 PROJECT REVIEW FROM BORROWER'S PERSPECTIVE The Borrower's contribution to the PCR was prepared by ELECTROLIMA (Technical Advisory Unit from the Technical Department). The text below is as received from the Borrower and its contents are not attributable to the Bank. The original report was in Spanish and has been translated to English and edited to achieve stylistic consistency with Part I.  - 30 - 1. Features of the Loan 1.01 Execution of the Sixth Power Project began in 1982 and lasted until 1988. The total cost of the project was estimated at US$256.5 million. Total foreign cost was estimated at USS92.6 million. Electrolima became the beneficiary of World Bank Loan 2179-PE. 1.02 The total loan amount was US$81.2 million, from which funds were to be onlent to Electroperu and Hidrandina for subsidiary projects. The subsidiary loan amounts were as follows: Loan Amount (US$ million) ELECTROLIMA 46.7 ELECTROPERU 9.0 HIDRANDINA 2.5 Front-End Fee 1.2 Contingencies 21.8 TOTAL 81.2 1.03 The loan was signed on September 17, 1982, and became effective on May 12, 1983, after signature of the respective contracts with the subsidiary companies. The Closing Date took place on June 30, 1987, and all Bank disbursements were definitively suspended on June 30, 1988. 2.- Project Cost 2.01 The main components of the Sixth Energy Project, most of whose foreign exchange costs were to be covered by the loan, were as follow (see Annex 4 of Bank Report) 3.- Project Execution Background. 3.01 At the time the loan was obtained, it was ELECIROLIMA's traditional practice to conduct its studies and works programs with financial assistance from the World Bank, which was chiefly used to finance purchases of materials and electrical equipment from abroad. The Sixth Energy Project included expansions of the various  31 - transmission, distribution and support systems and execution of the Yuracmayo dam project, which had been studied under the previous loan, 2018-PE. 3.02 All the works to be executed, except for the Yuracmayo dam, were incorporated in the programmed activities that ELECTROLIMA executes each year as part of its investment program. The Yuracmayo dam was subject to other restrictions of a political/economic nature which led to its postponement, despite the fact the Bank had agreed to introduce certain changes in the use of the loan proceeds that would have financed up to 90% of its cost. Consequently, ELECTROLIMA made maximum use of the loan by acquiring imported electrical equipment and carrying out studies with foreign consultants, using funds released prior to the suspension of loan disbursements. 3.03 The current review of the general management of ELECTROLIMA between 1985-90 indicates that this was a period of serious loss of autonomy, reflected also in a loss of the ability to secure Bank disbursements at a time when these resources were available. In the second half of the period in question ELECTROLIMA significantly reduced its execution of investments. 3.04 We are in agreement with the assessments in Part I of the Bank's report regarding Electrolima's limitations and shortcomings deriving from Electroperu's monopoly, the inappropriate tariff policies of the Tariff Commission, and the excessive State intervention in the electricity sector. Changes to the Project. 3.05 Demand. The Sixth Energy Project was prepared to handle an average annual increase in demand of some 8 % forecasted for the period 1982-86. However, demand actually declined by some 3 % in 1983, which led to postponement for one to two years of the works planned for 1984, principally distribution works. There was another decline in demand in 1988, which also caused some rescheduling of works and extended the project until 1991. 3.06 Execution of Works. The works lagged behind the original estimates not only because demand was lower than expected, but also because of delays in execution, which postponed completion of the works for two to three years. There were no significant changes in the original plans and consequently it can be said that the original targets were not obtained on time. Execution Capacity. 3.07 Annual execution of works during the period of loan availability was slow, and so was utilization of the loan proceeds. There were a number of reasons for this, but  - 32 _ most of them involved administrative delays and alterations in legal requirements, both within and outside the company. 3.08 The decision of the previous government to discontinue debt service payments sharply curtailed progress on works execution. This situation was aggravated by political interference in the electricity sector, which resulted in the company's taking on responsibilities that did not corresponded to its objectives. This interference took the form of pressure on the company to perform tasks involving the creation of jobs to eliminate unemployment and to provide general tariff subsidies. From 1987 onwards, after Bank disbursements had ceased, only strictly essential works were executed and efforts were focused principally on the 1OKv and 60Kv distribution systems. 3.09 Things changed with the arrival of the new government in the second half of 1990, and the company was then able to exercise its management autonomy. 4. Project Achievements Results Obtained 4.01 From Electrolima's point of view, project preparation and the approval of the loan can be regarded as a success. Although project execution was affected by the economic crisis of the 1980's, leading to delays in the execution of all works, the following achievements can be recorded: (1) Transmission and Distribution Program. The distribution system was expanded throughout the metropolitan region of Lima: consisting of 60/10Kv substations, lOKv primary distribution and 220v secondary distribution networks. The transmission system was also significantly expanded, involving installation of the 100 MVAR reactive energy compensation system, expansion and renovation of 60/1OKv substations, 60Kv lines and cables, implementation of the 22OKv, 60Kv and 1OKv line protection systems, and introduction of remote control of the 1OKv feeders. (ii) Program of Studies. The studies for the Yuracmayo dam were considerably delayed. Nevertheless, the retention of the project in the program enabled a fairly flexible relationship to be maintained with the hired consultants, which permitted completion of the feasibility studies for the Salto Bajo scheme and the expansion of the Huinco hydro station. (iii) Yuracmayo Dam Project. This project was also considerably delayed. Work was only begun on Lot 1 of the works, including the drainage gallery, access gallery and encampments.  3 3 - (iv) Training. This program was not fully implemented and the number of professionals that received any training was relatively limited. Financial Results 4.02 The progress pertaining to the financial execution is shown in Graph No. 1. The financial results are the following: (i) Part A (Transmission and Distribuaion Programs andAuriliary or Support Services). Execution of the subprojects, for this part of the loan agreement accounted for some US$19 million, as compared to the US$41 million initially planned. This amount was the largest single item among those of the loan proceeds. (ii) Part B (Yuracmayo Darn). Construction of the dam did not begin during the period of loan effectiveness, therefore the loan agreement was not complied with. (iii) Parts C, D, E and F (Consultants, Training). Some 45 % of the specified loan amount was applied to these items, or approximately USS2 million. Physical Results 4.03 The physical results are described in considerable detail in Parts I and m of the Bank's report. They were smaller than anticipated, and progress came to a halt in 1988. This outcome is attributable to local currency financing difficulties and the economic crisis in Peru, reflected in lower than expected demand, especially in the years i!M, and 1988. 5. Project Supervision and Monitoring 5.01 Project achievements, both physical and in terms of disbursements, were described in the semestral reports prepared by Electrolima. A total of 10 such reports were submitted during the period of loan effectiveness. As regards supervision, all the project works formed part of ELFECrROLIMA's annual budgets and operating plans. Loan execution was therefore subject to the same degree of supervision as all other company investments. 6. Finanncia Aspects 6.01 As already noted, Loan 2179-PE was to finance the greater part of the foreign currency costs of the works included in Electrolima's Sixth Energy Project. The local currency costs of these works and studies were to be financed almost entirely from  - 34 - ELECTROLIMA's own resources. The Government's recourse to subsidies for its economic programs meant that tariffs could not be used to maintain the company's financial equilibrium, with the result that in general terms its local currency resources were too small to permit the loan proceeds to be used at the rate or in the amounts originally planned. 7. Lessons Learned 7.01 We would like to add the following comments to the conclusions reached by the Bank: (a) We agree that the conditions that prevailed during execution of the project financed by the Bank's loan were difficult, but we do not regard the Sixth Energy Project as a complex one. Decision making was complicated by excessive interference by the State, which resulted in corporate objectives being ignored. A point was even reached where different approaches were adopted to similar problems, while execution of the project was marked by constant and exaggerated requests for information, from different institutions, for unclear reasons and without any apparent results. (b) We agree that reform of the policy and regulatory framework for the electricity sector is necessary; these measures have already been taken by the present Governrnent. (c) As regards the need for clarification of the legal aspects of contracts, we believe that this requirement will be better defined as a result of the measures referred to in (b) above. (d) The training of professionals was not fully effective because of the lack of proper plans. More training is needed both in technical and administrative areas. (e) As regards the conditions for loan negotiations in the context of a weak economy: this matter is being addressed in Peru's current economic policy vis-a-vis the international lending organizations. (f) We agree with the Bank's views regarding the lack of financial discipline and the need for freedom from political interference. (g) We agree with Bank's view regarding the need for firm commitments in relation to local funding if beneficiaries are to gain from Bank  - 35 - lending. The recently established regulatory framework may be able to mobilize private local capital for electricity sector projects. (h) We agree with the Bank's view regarding the efforts that are needed to reconcile the Bank's requirements and Peru's legislation so that solutions can be identified beforehand for purposes of future loan negotiations.  - 36 - Annex 1 PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (Loan 2179 - PE) PART III BASIC DATA RELATED BANK LOANS Title Purpose Year of Status ApprovaI 260-PE. Empresas El6ctricas Construction of the Huinco hydro 1960 Completed Asocizdas Huinco (USS24.0 station. June 30, 1965. rrillion). 365-PE. Empresas El6ctricas Expansion of the Huinco station to 1963 Completed Asociadas Huinco II install two additional units. January 1, 1967. (USS15.0 million). 464-PE. Empresas El6cticas Fxpansion of the transmission and 1966 Completed Asociadas Power Distribution distribution systems 1966-68. December 31, (USS10.0 million). 1969. 51 1-PE Empresas El6ctricas Construction of the Matucana hydro 1967 Completed Asociadas Matucana Power station with two units. November 1, 1973. (US$17.5 million). 1215-PE. Fifth Power Project ELECTROLIMA's 1975-78 1976 Completed (US$36.0 million). transmission and distribution December 31, expansion program. 1982. 2018-PE. Power Engineering Engineering studies for 1981 Completed Project (UJS$25.0 million). ELECTROPERU, June 30, 1987. ELECTROLIMA, HIDRANDINA, and CENTROMIN.  3 7 Annex 2 PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (Loan 2179 - PE) PROJECr TIMETABLE Item Dat Planned Dal Identification January 10, 1981 January 10, 1981 Preparation June 30, 1981 June 30, 1981 Appraisal August 21, 1981 August 21, 1981 Negotiation March 1, 1982 April 29, 1982 May 7, 1982 Board Approval April 10, 1982 June 15, 1982 Loan Signatue August 23, 1982 September 17,1982 Loan Effectiveness September 20, 1982 March 22, 1983 May 12, 1983 Loan Closing June 30, 1987 Dec 31, 1987 June 30, 1988 Last Disbursement December 31,1986 August 17, 1987 Cancellation October 12, 1989  - 38 - Annex 3 PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (2179 - PE) CUMULATIVE ESTIMATED AND ACTUAL DISBURSEM{ENTS (US$ million) FY82 FY83 FY84 FY85 FY86 FY87 ApprtaWisa i . .... :. ; 0 ;;7.2 19.6 37.3 55.5 69.4 81.2 .Actual 1.{-6.. 9.7 14.7 20.7 25.9 25.9 Aclasct1i %:bf Esnmate 22.2 49.5 39.4 37.3 37.4 31.9 ate of SFir.stD Date of Last Dibreent ~ 'August 17, 1987,  - 39 - Annex 4 PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (Loan 2179 - PE) PROJECT COST AND FINANCING (US$ million) Appraisal Actual Components Local Foreign Total Local Foreign Total Variation ELECTROLIMA *Distribution Program and Consultant Services 89.3 40.0 129.3 105.3 13.8 119.1 -10.2 *Yuracmayo Dam Construction 16.1 7.4 23.5 30.0 2.7 32.8 9.3 *Huinco Expansion Study 1.2 1.0 2.2 - - - - *Salto Bajo Study 1.0 2.0 3.0 1.0 2.0 3.0 0.0 *Transandean Tunnel Expansion 0.3 1.1 1.4 - 0.3 0.3 -1.1 *Training Prograrn 2.1 3.6 5.7 1.0 0.1 1.1 -4.6 Sub-total 110.0 55.1 165.1 137.3 18.9 156.2 -8.9 ELECTROPERU *Mantaro Transfer Studies 4.4 5.0 9.4 0.1 4.2 4.3 -5.1 *Training Program 3.0 3.0 6.0 0.6 0.1 0.7 -5.3 *Technical Assistance - 1.0 1.0 0.5 0.1 0.6 -0.4 Sub-total 7.4 9.0 16.4 1.2 4.4 5.6 -10.8 HIDRANDINA *Mayush Hydro Project Study 1.0 2.5 3.5 - 2.3 2.3 -1.2 eSub-total 1.0 2.5 3.5 2.3 2.3 -1.2 Price & Physical Contingency 45.5 24.8 70.3 TOTAL PROJECT COST 163.9 92.6* 256.5* 138.5 25.6 164.1 -101.4 TOTAL FINANCING 163.9 92.6 256.5 138.5 25.6 164.1 -101.4 *Includes US$1.2 million of front-end fee  - 40 - Annex 5 PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (Loan 2179 - PE) Status of Covenants Agreenet Sectioun Desciption of Condition Compliance and R8nrc LA 3.02 (a) Employment of qualified consultants Complied under contract satisfactory to the Bank LA 3.03 (i-iii) Creation of planning unit in Complied ELECTROPERU; trnsfer of planning authority, planing staff and equipment from Direcci6n General de Electricidad to ELECTROPERU; purchase of required equipment for the planning unit LA 4.05 Updating Master Plan Complied LA 3.0; PA 2.0 Execution of project components with Complied due diligence and efficiency LA 3.0; PA 2 or 4 Employment of satisfactory consultants Complied to assist in carrying out the project LA 3.04 Appointment of a satisfactory boadr of Complied consultants for review of safety of desip of Yuracmayo dam LA 4.0; PA 3.0 Maagement of affairs, etc. in Complied except for accordance with appropriate overtffing and poor administrative and other practices financial performance LA 4.07 Improvement of demand forecasting Complied LA 5.02; PA 4.02 Audit and auditor's report Complied but not timely LA 5.04; PA 4.03; GA 3.05 a Rate of return No compliance LA 5.05 (a) and (b); PA 4.01 Limitation of long and short-term Complied borrowing PA 3.05 ELECTROPERU Improvements in accounting and No compliance auditing by 12131/85 PA 4.05 ELECTROPERU Presentation of capital expenditure Complied progrm GA 3.02 Definition of regionalization Complied GA 3.05 (b) Reporting on rmtes of return No compliance LA- Loa Agreement; PA- Project Agreement; and GA- Guarantee Agreement  - 41 - Annex 6 PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (Loan 2179 - PE) USE OF BANK RESOURCES Staff Inputs Stage of Project Cycle Staff Weeks Staff Weeks (planned) (actual) Through Appraisal n.a. 66.3 Board Approval through Effectiveness n.a. 11.8 Supervision n.a. 124.4 TOTAL n.a. 202.5 Missions Activity Month/Year No.Persons No.Weeks Specialization Rating Type of Status Problem Identification 01/81 3 3 ECN,FNA,ENG Pre-Appraisal 03/81 3 2 ECN,FNA,ENG Pre-Appraisal 06/81 2 2 FNA,ECN Appraisal 08/81 3 3 FNA,ECN,ENG Post-appraisal 11/81 3 2 FNA,ECN,ENG Supervision 4/82 1 2 TRG 2 F,I Supervision 09/82 1 2 TRG 2 F,l Supervision 05/83 1 1 ECN 2 1 Supervision 07/83 1 2 TRG 2 Fl Supervision * 08/83 3 2 FNA,ECN,ENG 2 F Supervision * 01/84 4 2 FNA,ECN,ENG,OTH 3 F Supervision * 11/84 3 2 FNA,ECN,ENG 3 F Supervision * 05/84 3 2 FNA,ECN,ENG 3 F Supervision 02/85 1 1 TRG n.a. Supervision 01/86 1 1 TRG n.a. Supervision * 02/86 3 2 FNA,ECN,ENG 3 Supervision * 03/86 3 2 FNA,ECN,ENG 3 Supervision * 05/86 1 1 OTH Supervision 09/86 1 1 FNA n.a. Supervision * 03/87 1 1 FNA n.a. Specialties: FNA=Financial Analyst; ECN=Economist: ENG=Engineer; TRG=Training Spc; 0TH=Other * Include supervision for other projects  - 42 - Annex 7 PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (Loan 2179 - PE) PROJECT RESULTS Components - Appraisal Actual ELECTROLIMA Distribution Program *construction-expansion substations 19 12 60/10 Kv elines and cables 60Kv 43km 49 *capacitors 75 MVAR 1 1 *adquisition-installation transformers 1700 1450 "lines and cables 10Kv 657 579 elines and urban cables 220v 400km 409km *new clients 130,000 93,728 Studies *Yuracmayo yes partial *Huinco yes postponed eSalto Bajo yes yes *Transandean Tunnel yes yes Trainning Program yes 4 staff ELECTROPERU Manataro Transfer Scheme yes postponed Training Program yes partial Financial Asisstance yes no B[IDRANDINA Mayush Hydro Project Study yes yes  AnniX OA PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT ELoon 2179-PE) ELECTROUMA ActuWi Inconm Stotements (US$ Thousands) . ..... ....... 65 S~ ' ' 918" '1981 WM56" 6 II0'~'9 Vento de Enorgia (GWh) 4047.9 3,901.9 3,992.8 4.228.7 4,676.0 5,032.0 5098.1 4,692.3 4,502.9 5022.9 Ingresoc por Vents Enfrgla 204.290 163.387 170,583 169,662 158,608 118,737 76,204 87.585 204,380 225.729 Ingresoc por Otros Productoc 446 396 862 639 893 406 341 357 707 1,604 Translerencla D.5. 327-90-EF 0 0 0 0 0 0 0 0 0 5,301 Ingresoc por Vents Serviclos 204,736 153,783 171,446 160,300 159.501 119.143 76,545 87.943 205.087 232,634 1 Otros Ingresos 1.000 1.471 2.850 1.509 1,412 937 894 1.234 1,348 2,104 TOTAL INGRESOS 205.736 155.254 174,294 161,809 160,912 120.080 77.239 89,177 206.433 234,738 Gestos Propioc de Operccion 67,531 69.227 065802 65.632 65.970 66,100 35,240 75,437 65,961 93,140 Deprocieciones 23.972 20,741 24,016 16.796 26,354 12,066 15,598 21,454 24.273 23,817 Compre Enorg.,F.C.G VFotur 103,968 78,322 76,036 83,122 76,285 49,656 37,876 40,241 110,807 105,571 Tributoc V Contribucions () 1,585 1.221 1.426 722 1,535 1,235 1,238 6,660 48,088 9.773 Costos de Opefocion a Inptoc. 195,471 168,290 165,854 154,550 167,609 117.822 88,714 137,133 201,041 222,528 Rmntabilided despuds de Inptoo. 8,690 114,257) 7,014 6.538 18,2321 1,023 112.7141 164.6181 142.6971 2,437 -/-Gastos Financbrsas (3,989) 12,309) 19,358\ 17.686) (7.0321 12.2271 l6.1391 120,824) (56,8891 19.5421 Transf.rencies Cornbntoc D0S.0685-7-EF 0 0 0 0 0 2.819 3,354 2,862 4,753 2.886 Devaluccion Monetaris 14031 15,552) 121,9791 (22.056) 44 11.1721 31 492 14291 1.244 Utilided (Pordids) 4,288 122.1181 124.323) (23.204) 115,220) 443 (15.468) (72,0861 (95.2621 (2.9761 Ingrecos (Egross) Extroordintdoc 0 0 0 0 6,976 1257) 146) 12,2411 (112i 8,400 Utildad (Pordidil del Ejercddo 4,288 122.1181 124,323) 123,204) 19,2441 186 (15.514) (74,3271 195,374) 5.424  Page 1 Annex 8B PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT ILoan 2179-PE) ELECTROLIMA Actual Sourcoa snd Applications of Funds IUS; Thousandcd FUENTES DE FONDOS aanertacon Intama de Efactivo: Ingraso Nato antes Into. Imptoo. 8,680 (14.257) 7,014 6,538 18,232) 1,023 112,714) 164,6161 (42.697) 2,437 Depraciccion Anual 23,972 20,741 24.016 15.796 25,354 12,068 15,598 21,454 24.273 23,817 Gonerac.Intcrna Efoctivo loin conoxlon.s) 32,652 6.484 31.030 22,334 17,122 13,089 2,885 133,162) 118,424) 26,254 Contribuci6nUsuariom 10,114 7,683 716 4,893 7,669 5,805 2,521 5,984 7,609 12,154 Gonaracion Intarna da Efactivo 42,765 14,167 31.746 27,226 24,791 18,894 5,405 (27.178) (10,815) 38,407 Nuavo Endaudcmibnto: Prostcmo BIRF 1215-PE 4,053 1.682 0 0 0 0 0 0 0 0 Prostamo BIRF 2018-PE 614 517 63 102 136 0 0 0 0 0 Paestamo BIRF 2179-PE 0 1.672 6.501 3,076 3.040 2.137 0 0 0 0 Banco de la Nacion 0 0 0 0 0 1.742 0 0 0 0 Financiers de Crddito 0 0 0 0 0 1,778 0 0 0 0 Bono D.L. 22741 0 0 0 0 0 0 0 0 0 0 Douda Ralinanc. IDcutachal 0 0 0 0 0 0 0 0 0 0 Central Tdrmica 17,806 11,056 0 0 0 0 0 0 0 0 Otro. 0 0 33,494 0 0 135 75 6 0 0 Bco. Noci6n V Cotida (Yuracmayo) 0 0 0 0 0 0 0 0 0 8,791 22,373 14,927 40.058 3.178 3,175 5,792 75 5 0 8,791 Contribuciones de Capital Aponos Estado (Amort.Proot.Cofidal 85 40 20 0 0 0 0 0 0 0 Elactrop.ru lAmontPract.FNCBI 3,059 3,060 3.467 0 0 0 0 0 0 0 Capitalizacion Darachos do Aduono 8.257 1,793 3,533 1,976 1,627 2,384 464 1,924 1.417 40 Aportto D.S.065-87-EF 0 0 0 0 0 312 261 183 0 0 Aportos D.S.213-89-EF 0 0 0 0 0 0 0 12,417 1,617 205 Apontte Pasivo por Capitalizet 0 0 9,399 1.383 81 0 0 0 0 0 Otroa Aportas 0 0 6,405 0 0 0 0 0 0 0 11.401 4.893 22,825 3.359 1,707 2.706 715 14,624 3,034 246 TOTAL FUENTES DE FONDOS 76,638 33.988 94.629 33,764 29,074 27.393 6,196 (12.6501 (7,7811 47.444  Page 2 Annex *8 APLICACION DE FONDOS Serviclo do b Deude Servicio do Intereses (Netol (3.5651 3,243 12,821 14.369 17.076) (1.056) 16.1701 121,3161 (56.460) (10,787) Acuncl6n Doudo D.S.06S-7-EF 0 0 0 0 0 12,819) 13.3654) 2,862) 14.7531 12.886) Sorviclo do Amortizacion 9.675 7,572 8,857 14,610 3,697 2,631 100 311 0 1.005 Colido fConcel.Prest.Pucnts) 0 10,409 0 0 0 0 0 0 0 0 Amortizacl6n Bco.Crddito (Tabeohachl 0 0 0 0 0 3,479 0 0 0 0 6.090 21,225 21.478 28,979 13,479) 2.136 (9.423) 123,8671 (61.213) 112.6671 Doeombsot an Conctrucbon Quinto Proyocto do Energba 35,338 0 0 0 0 0 0 0 0 0 Sexto Proyacto do Ensrgia 0 23,129 17,766 11.076 20.486 19,659 12,430 11,732 13,884 19.122 Prse Yuracmayo 0 1,121 149 86 0 0 0 0 0 11,630 Contral Tdrmice Santa Rose 39,354 790 0 0 0 0 0 0 0 0 Vorlbcl6n Stocks Almocones 11,408 10,009 7,660 5,897 2,610 2,620 4,628 10,239 13,029 9,855 86,100 35,050 25.575 17,059 23,098 22,279 17.057 21,971 26.912 40,607 Otros Us. Verbaclon Capital de Trabajo 112.9121 (2.754) 66.710 (6.882) 12.441) (5,9041 12.808) 19.4181 19.192 27,608 Supetrvit (Deficit) de Efectivo 12,7391 119,533) 18,134) 15,3921 12.499 8,882 1,369 11,336) 7,328 18,103) 115.6511 122.286) 47,575 112.2741 10,057 2.978 (1,4391 (10,754) 26,519 19,505 TOTAL USOS DE FONDOS 76.538 33,988 94,629 33,764 29,674 27.393 6,196 112.6501 17,781) 47.444  PERU Annex SC PROJECT COMPLETION REPORT SIXTH POWER PROJECT ILoan 2179-PE) ELECTROUMA Actual Balance Sheets IUS$ Thousandsl .i.. ........... ACTIVO CORRIENTE Caja y Bancos 5,923 3,278 6,810 6,640 12,132 4,825 1,749 1,828 4,244 8,053 Valores Negociables 114 72 51 17 0 0 0 0 0 0 Cuentas por Cob. Comerc. INetol 27,540 36,439 33,393 32,291 25,175 22,800 22,008 17,948 87,754 50,993 Otras cuentas por Cobrar 0 0 0 0 0 0 0 0 0 0 Adel. y Prest. al Personal 4,348 4,655 4,557 3,122 4,651 3,580 1.603 1,094 2,038 4,012 Fdo. de Dominio Publico 977 856 384 200 0 0 0 0 0 0 Filiales y Afiliadas 0 0 0 0 2,647 765 1,656 1,943 2,990 1,270 Varios 13,439 19,740 21,578 4,755 5,613 4,535 2,625 3,411 3,325 10,530 18,764 25,251 26,518 8,077 12,912 8,880 5,884 6,448 8,353 15,812 Inventarios Mater. de Ampliac. y Conserv. 12,407 12,880 10,551 7,332 9,101 3,129 1,026 3,612 4,998 10,647 Mater. en Trans. y Adelant. 5,131 1,679 158 486 0 0 0 0 0 0 > 17,538 14,559 10,709 7,817 9,101 3,129 1,026 3,612 4,998 10,647 Gastos pagados por Adelantado y Otros Activos Corrientes 736 773 1,818 940 787 262 143 397 742 577 TOTAL ACTIVO CORRIENTE 70,614 79,372 79,299 55,683 60,107 39,896 30,810 30,234 106,092 86,082 CUENTAS POR COBRAR LARGO PLAZO 1,522 656 231 444 405 203 3 4 0 0 CTAS.COBRAR FILIALES Y AFILIADAS L.PZO. 0 0 0 0 166 3 0 0 0 0 INVERSIONES EN VALORES 37 68 47 12 29 6 0 2 1 65 CAJA BENEFICIOS SOCIALES 0 0 0 0 0 0 0 0 0 1,404 ACTIVO FIJO Activo Fijo Bruto en Servicia 457,469 769,386 726,777 612,379 662,894 242,524 260,452 534,862 794,107 957,264 Depreciacidn Acumulada (201.2411 (356,9741 1343.6261 1300,5451 1329,8761 1121,2141 1136,6511 1282,461) (421.037 11511,7381 Obras en Curso 45,314 36,111 19,668 15,437 16,401 6,911 4,722 11,364 8,180 13,463 CARGOS DIFERIDOS Y OTROS ACTIVOS 67 410 1,467 39 0 0 0 0 112 27 TOTAL ACTIVO 373,783 529,018 483,863 383,449 410,128 168,329 159,336 294,004 487,454 546,566  page2 Annex SC PASIVO CORRIENTE Prdstamos V Sobregiros Bancarlos 11,683 19,576 18,520 14.331 7,791 1 1.234 2,214 1,491 12.972 Proveodores 10,113 9,291 1,039 1.812 1,321 736 623 1,748 1,049 2,011 Otros Proveedores 5,134 0 0 0 0 0 0 0 0 0 Porcion Cortiento Deuda L.Plazo 15,618 26,908 30,621 21,886 19,241 5.143 4,206 4,320 13,536 18,350 Inpuestos y Contribuclones 3,435 2.265 3,099 3,477 3,942 1,740 778 3,887 28,909 18,881 Intereses V Comisiones por Pagar 3,896 3,591 4,414 6,743 9,494 182 0 0 0 0 Compensacion Tarifaria po pagwr 6,231 16,440 8.131 10,903 0 0 0 0 0 0 Remuneraciones por Pagar 0 0 0 0 242 386 70 4,427 4.084 526 Dividendos y Ot(as Cuentas por Pagr 5,938 3,819 3,309 3,330 14,671 2,173 1,290 7,750 6,406 13,132 Ctas.Pagar Filiales y Afiliadas 0 0 0 0 11,123 3,971 3,712 9,824 32,083 22,489 TOTAL PASIVO CORRIENTE 62,048 81.891 69,033 62.480 67,825 14,330 11.912 34.169 87.557 88,360 DEUDAS LARGO PLAZO 92,155 70,992 77,388 65,635 40,215 39,659 29,318 41.200 98,469 105,320 CAJA Y PROV. BENEFICIOS SOCIALES 13,224 12,181 13,680 10,656 10,917 3,983 619 436 2,089 0 FONDO DE AMPLIACIONES 6,689 2.529 3,255 3,165 7,238 4.727 456 1,670 2,438 7,685 - CTAS.PAGAR FILIALES Y AFIUADAS 0 0 0 0 13,972 7,256 19,904 16,935 14,938 13,325 PASIVO POR CAPITAUZAR 0 0 5,927 992 0 0 0 0 0 0 PATRIMONIO Capital Social 196.624 147,278 63.887 95,697 85,342 54,774 4,421 581 4.235 123,681 Excedente de Revaluachon 138 201,302 235,752 141,365 184,094 19,368 72.481 202,244 251,522 186,004 Aportes por Capitalizar 42 9.478 13,794 8.786 18,893 6,393 370 6,278 2,303 3,922 Reservas 42 95 47 30 38 14 1 2 1 96 Resultados Acunxudados 0 4.249 (20,4211 19,2701 (16,2731 0 0 11,1111 (95,3841 5.424 Utilidad IP&rdidal 4,288 U22.118) (24,1081 (23,2161 19,2441 186 116,514) (74,3261 0 0 Cuenta de Ajuste (1,4671 21,140 45,632 27,238 7,113 17,739 35,368 65.927 119,287 12,749 TOTAL PATRIMONIO 199,668 361,424 314,583 240.630 269,962 98.474 97.127 199,594 281.965 331.876 TOTAL PASIVO Y PATRWAONIO 373,783 529,018 483.863 383.449 410,128 168,329 159,336 294,004 487.454 546,566  Annex 8D PERU PROJECT COMPLETION REPORT SIXTH POWER PROJECT (Loan 2179-PE) ELECTROUMA Financial-Economic Indicators ~~~~~~~~~~~~~6~~~~~~ELECTR O I M Flhi n a', n~5 c''5 i'. a 1IS - con mkI n* dW~U 15