Announcement of Loan Granted to Uruguay for Power and Telephone Facilities on August 25, 1950

INTERNATIONAL BANK FOR • RECONSTRUCTION AND DEVEIDPMENT Washington FOR THE PRESS FOR Th'il-iEDIA.TE ImIBASE Press Release No. 207 August ~S 1 1950 The Internatio11al Bank f'or Reconstructic,n and Development today made a loan of $33,000,000 for the expansion of Uruguay's power &nd telephone facilities. The loan, which is guaranteed by the Republic of U1~1gua.y, was made to the General Administration of Electric Plants and State Telephones (U.T.E.), an autonomous government-owned agency charged with providing electrical en~rgy and telephone ser-rice in Uruguay. The loan is for a term of 24 years and carries an interest rate of 3 1/4%, plus commiss:i.on at the rate of 1% which, in accordance. with the Bank's Articles of Agreement, is allocated to its special reserve fwid. Amortisation • payments, calculated to retire the loan 'by maturity, will start on February 15, 1955. There is real nee4 for more electric po~er both in Mont~vid~o, Uruguayts capital and largest industrial center, and in the interior of the co,mtry. Because U.T.E. was unable to expand its fflcilities during the war, a large unsatisfied demand has developed, and post-wa:r expansions have been in- sufficient to handle. this backlog or tc cope ,with the normal annual: increase in power Qonswnption. U.T.E. i$. undertaking a four-to-five-year expansion program. Increasecl,1 availability of eleetric pa..rer which wj,11 result from this program will allow growth 1md modernization of present industries, reduce production costs, encourage new industries, and make possible further x-ural electri-fication. Expansion of Uruguay's telephone se;rvice,- both local and long distance, 1 --• wh1.ch the program envisages; 1.s a.lso necessary to the country's future development. Uruguay has reached the stage of development where improved  .. •• -2- communications are vital to its economic life• The existing systems have been heavily over-loaded and extension of facilities is necessary. The total cost of U.T .E. 's expanaion program. is est.imated at the equivalent of $45,000,000o The Bank's loan of ~i33,00o,ooo will be used to cover the foreign exchange requ.i.red for the purchase and impor·t;ation of equip- ment and materials. The local' currency costs, estimated at 22.,800,ooo' pesos (u.s. $12 million) will be met partly from U.T.E. Js own earnings, but princi- pally by the use or a part qf the p~oceeds of a peso bond issue recently authorized by the Uruguayan Parl~.ainent. Of the total cost of the program, the equivalent of $36,600,000 .will be spe11t on the pow~r expansion project, and ~~8,400,000 for the telephone system. The effective capacity of u.r;r.E. 's power installations in 1949 amounted • tol91,000 kilowatts, consisting of a 116,000 kw hydroelectric plant :~:t Rincon del Boneta on the Rio Negro; 50,000 kw of steam ir~ Montevideo; and 25,000 kw of small Diesel plants located in comm.uni ties in the interior of the country. - The hydroelectric plant at Rincon is interconnect,ed with the transmission, and distribution system served by the 50,000 kw ste~m plant in Montevideo. This interconnected network is known as the Monte~ideo-Rinco11 system. The Diesel plants, located in the Interior, v~ry in size from 40 kw to .3,330 kw and are not interconnected eit_her with e~ch. other or with the main network. U.T.E. 1 s pres~nt program of expans~on and modern~zatlon includes the construction of additional high tension t~ansmi~sion lines which will inter- connect some of the interior connnunities where tle~nd is heavy with the Montevideo-Rincon system, the replacement of direct current equipment in certain iriterior communities with altern~ting current equipment, the installa- tion of new Diesel equipment where necessa1fy, an~ the expans!on of primary and secondary distribution networks, In arl~i tion the plan ptovides f·or the  .., ,} ,, • addition or genera1.ting equipment having an installed capacity of' 50 1 000 kw to the the,rmal plant in Montevicfao. Tho condi tio~. oi t,he telephone service in Uruguay pre sents a p5::c~b1µ-e similar to that of electric power. In 1949 there wa~ a total of' about :...-·-;/-' 65, 000 telephones in the coU9tryr- this leaves an unsatisfied a.emand for a further 18,300 telephones in Montevideo alone. This backlog is due partly to U.T.E. 's inability to expand its facilities during the war, and partly to an increase~ demand during the postwar period, To meet, tho growing need ,_ for telephon~/servi.ce, both national and international, u. T .E. proposes to install abou,t 28.,000 new telephones in Hontevideo and ·t,1)3 interior, to re- place and enlarge thC3 long-dist;ance switchboard at Montevideo, t~'I. inst~ll addit,ional equipment for long distance circuits, construct new pole--lines, • anrl increase the underground Cc\ble capacity in Montevideo. Work is alre?dy underway on both pmrts of the project, &P.d it is estimated that they will be completed by the end of 1953. After having been previously approved by the Executive Directors, the Loan and Guarantee Agreements were signed today by Dr. Alberto Dominguez- Campora, Am~ss~dor of Uruguay, on behalf of U.T.E. and the Governmen't of Uruguay, and by Robert L. Garner, Vice Pres:tdent, on behalf of the Int.er- na-'cional Ba:p.k for Reconstruction and Development. 0 ,,  It •. Supplemental Statement on th~ • Loan to u.T.E •.• Uruguay • ~he; Pro,j ec t Demand for both electric energy and telephone ser,rice in Uruguay has been increasing steadily over the past decade and has now far o-q.tstripped available facilities. The U.T-.E. project has been dra~~m up with a view to supplying the immediate needs in both these fields. A, . Power Uruguay is largely de~endent on outside sources for her fuel req_uirements, However, her potential water power resources are considerable in relation to the size of the country. Both the Rio liegro 1 which flows 500 miles diagonally across Uruguay, and the Rio Urugua.y, which flows between Uruguay and Argentina, as well as aome of the smaller rivers, offe;r possfbilities for the develop.. ment of hydroelectric power. but so far only one installation of any size has yet been constructed. This plant, known as Rincon del Bonete 011 the Rio Megro, 245 miles above its mouth, has a total installed capacity of 116,000 kilowatts and a reservoir larger in surface area than any in the U.S.A. Other hydro- electric projects are at pre~ent under consideration; but although a valuable asset•bJlydroelectric -power can never be entirely dependa.ple in Urug'\lay but must al."teps/supplemented by reserves of thermal nower 'because of recurrent periods of drought. ~or this reason, the present project contemplates the constn1ction of a ne,~r thermal "?lant in Montevideo • •• Per ca.pi tal consu.,mtion of electric power in Uruguay is low compa.red with more de.~1Telopecl. covntries such as the U.s .• U,K. or :Belgium, but it compares favorably with other South. American countries, The percent~ge of consumption by industry is higher than in most South ,American countries. The high demand for powe1r in recent years reflects a steady industri~l growth. The years after the recent war SGtW the establishment in Uruguay of many new industries such as :texU~,~s. glass, steel fabrication,· canning, vegetable oil and sugar refining as well as many s~aller inq~strial anq commercial copcerns. All these indu$tries• be:l.ug nei•rly estt;iblished, ar~ of mod~rn design and if fed with adeq\l,ate power at eco:n.opiical rates may reasonably be expected to gro,•' considerably in the f~t~re. General expansion of power j,s being planned to pl'ovide for a continuous growth in the cou.ntry~s ind'1$trial development, The 'T;)roj~ct at present under conf;truction will provide for the immediate and p:ressing demand and further, as a. result of inerea.sing facili ti~s and lowel,'tng of rates in tbe interior, is expected to foster the growth of indu$t;ry and commerce away from the city of Montevideo, where it is at present. largely localized, towards the interior I) of the count:ry. It shQ\l.l~, in addition~ reduce prod~ction c~sts i~ existing industries, encourage new industries, and make possible mo:·e electrification of rural areas •. The electric pQwer progrfilll i~cludes the increase in the effective therrnal generati~ capacity in Mo~tevtdeo by S0.000 ~,,,; the installation of apnroxi"" • ~ately 18,000 kw of ~d<;l.itional diesel generating ca.p~city in the Interior as well as the conversion of a n'Ulllber of Pit=lllts ip the jnterior fro~ D,c, to A.c. ,\ ~ 2 - • curr·ent. It a.lso inchtdes the construction of 538 miles of high tension tra.nsm.:ission lines; the ex1:)ansion cf the di strib·..ition sysi;ems both in Monteyideo and in the interior; and an increase in. a1..1.tomot5.ve equi -oment in order to oµerate and inaintain the expanded power system. E. Teleuhones. State 01·•nership of the telephone system of Uruguay was authorized "by a.· law passed in 1931 ,,•hich at the same time entrusted its operation to U.T.E" on bel1Rlf of the State. Prior to this date, telephone ser?ice had been provided by 21 privately~owned companies. Aca_U,.isition of these concerns proceeded slowly and, in fact, will not be finally com-r;,leted until the end of 1950. Telenhone facilities have su,ffered. considerably from the lack of integration inevitable in this rnul tiplici ty of -companies and a large m.1mber of operatives were reau,ired. Hevertheless, rates compare favorably w;ith those in the United States, and revenues froJI1 the te:iephone service contr-ibute substantially to U.T.j_;.'s net profits and, moreover, assist in keep~ng dowl). the r~tes for electric power. U.T.E. 1 s program will relieve the current serious con~estion on telephone line~ within the cou,ntry and wUl ~)rovide for a considerEi.'ble expansion of long distance service, thus contributing an es~ential element to the cou;ntry 1 s rapidly growing i?ldu.strial and commercial development • • The- telephone progra.tn provides for an increat?e in the number of telephone exchanges, cables, telephqne set.:; and. accessory a:9ua.ratus, as "ell as for the construction of new toll line$ cross~connecting and $U.nnlementing the ~xistil1g network in the :l.nterior and the' install.at:i.on ot some automatic· offices. Abou.t 28,000 new tele'Ohones, represenUµg a;n increase of around 40% in the number of instr1.unents in u.se, will be installed ,mde;r the program. The Borrower '"- Administracion General de l[l_.s Usinas Electricas y los Telefonos cl.el }"!stad.o of Uruguay (U.T .. E.) ws.s created in 1912 as an electrfo -Gow:oan;:r, and g~ven the telephone monopoly in l931. It is e~empted from the payment of truces both national a,nd municipal, and has partia,l exemption from the Payment of customs a.uties o~ imports of electr:."ica). materials and equipme;i:it. As a governme11t agency, the Sta·te itsel:.C<c:t'i~irumes ult:i.rr.ate responsibility :f"or the payment of U.T.;E. 1,s obligations, On ·the other hand, t:h~ State ~xercises a certain amount 0£ control in. such matters as rates, de'bt contraction., fi:Q.a.."'lcial operations, etc., ~d ;reQ:uires the pa;yment of certain contribi.itions to the eentral government.,, D1,1ring recent years, tne coJDpany hf:LS effected, a n\l,l!lber of improvements and additions, including 1the acauisition Qf 'Private companies, to both its tele:9hone and power systems., whictl have st:rav~ed 1 ts working capital position. As of December 3l, 1949, the capitalization 0£ u.T.E. amounted to 4i.2 million p~s:os of wt.i,ich only 14 • .5 million was represented by funded debt, ·out • the t'inancial S:t;ructu1.. e will be f~ndamep.tally changed. at the conclusion of presep.t ~x:pansion prograw. as a. consequence of fi:ret, the acquisition of RIONE, the governm~nt age:n9y which conetructed the hydroelectric pla.nt at Eincon; second, th~ rec~:p,t a.\ltno;rization of 30 mill;.on reaos of 'bonds by th~ goverument on U.T.t.' s ·pehalf; and third, tl::+e present Bap..u; loan. On  - 3- • • completion of the present program. the capitalization of u.• T .E. will be largely renresented b,:r long-term debt which will th,~n amount to some 74% ( estime,ted) 1 of its total capital, which is a satisfacto ry ratio, It is anticipated that U.T.E. will have no difficulty as regard either its a.bilit:v to repay the Ba.vlk: 1 s loan or to finance the local currency costs of the nrojects. Economic Tr,ends in Urµgu~ Urug~y 1 s economic develonment is well under way; industria15.zation is proc~eding at a fair rate, and the basea for further development in the ~hape of literacy, technical skills, t?'ansport facilities, etc., are alre~dy ·present. Recent economic trends have been satisfactory. The year 1949 saw a -::16 millio~ · surplus on over-all trade account in contra.st to the deficits of the two previous years. Other balancij of payments items, notably a cap:i.tal inflow, increased gold and free foreign exchange holdings by the eoµi v:.1lent of about u.s.$26 million~ Purchase of the British rail'•'ays and the Hontevideo waterworks reduced blocked sterling holdings by the eouivalent of u.s.$51.4 million. Uruguay genera].ly balanced her trade accounts with the U.S.A~ a.rid the rest of the 1'iestern Hemisphere through her suostantial trad.e sur:Oll.lse~ with Europe, but recently has encot1.ntered hard currency difficulties, with Europea:p. currencies inconvertible while she wa.s force<l to rely on the Western Hemisphere for essential im"9orts. Hoivever, the past year has shown an increasing proportion of import$ from Europe • • The UaS.A. takes some 65% of total Uruguayan wooi exports; l'1001 prices have steadily risep from an AUo.oust, 1949, recession point, to a level now 37% above 1948 average prices, a.nd the market :)utlook for meat, sold principally in the Sterlir.g area, is good. Imports into Uruguay are controlled by license, mainly for exchange reasons and partly for the purpose of protectJng home ill.dustries. The external debt of Uruguay is estimated ai'i around the equivalent of $110 milUon, partly in dollars and partly in nounds Sterling. Total external debt service requirements, e~cluding the present Bank loan, reacp a peak of $6.7 million in 1951 and gradually decline to $4,9 millio1+ by 1971. Uruguay has reported budgetary su:rnluses in each year since l 946. However, substantial inc:rea.ses in internal debt have occurred in rece;nt years, the p;roc~ecls of these new issues being used principally for caPi tal expenditures not included in the regular budget. Increase in money supply in Uruguay has b~en re].atively ~mall. Infla- tionary tendencies ha:ve in fact been kept in check with ren:arlrnble success, the Gost of living index having ;rtsen less than 100~ compa.red i••ith prewa;r by the end of April 1950. Maintenance of this degree of stability wi).:l. require conti1+ued vig;ilance on tne part of the Ur-µ.guayan authorities. The financing of continued economic development does not present for • Uruguay doJDestic problems as serious as those often encountered in under- developed countries. Reflecting and sustaining the country's present stage of development, the;re is a good :fl.ow Qf vc;>luntary domestiq savings channeled. througp nublic and. nrivate financial institutions. Service on the new debt incu,rrec;l under the Bank's loat1r is not e~pected to constitute any se;rious burden to the country.