Uruguay - Thermal Power Project

I'JLE ~~~ R E STR IC TE D R e Report No. P-99 This document was prepared for internal use in the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS of the PRESIDENT to the EXECUTIVE DIRECTORS on the PROPOSED LOAN to the ADMINISTRACION GENERAL DE LAS USINAS ELECTRICAS y LOS TELEFONOS DEL ESTADO (U.T.E.) FOR A THERMAL POWER PROJECT in URUGUAY August 22, 1955  MIT3ATIOAL BANK FOR RSCONIMUCTION AND DEVEOPNvNT REPORT AND REC0]2ll"BENDATI0,1S OF TEE PRESIDENT TO THE EXECUTIVE DII3CTORS ON A PROPOSED LOAN TO THE ADXINISTRACION GENERAL DE LAS USINAS ELECTRICAS Y LOS TELEFONOS DEL ESTO (U.T.E.), OF URTUtJAY, FOR A THE IL PMER PROJECT 1. I submit herewith the following report and recommendations on a proposed loan of $5.5 million (equivalent) to the Administracion General de las Usinas Electricas y los Telefonos del Estado (U.T.E.) for a thermal power project. PART I - HTSTORICAL 2. On August 25, 1950, the Bank made a loan of $33 million (equivalent) to U.T.E. (30 UR) to cover most of the foreign exchange cost of a 4-year program of reconstructing and expanding the electric power and telephone facilities of U.T.E. The power program included the installation of a 50,000 kw thermal unit in an existing plant in Mlontevideo to increase its effective capacity to 100,000 kw', the installation of approximately 18,000 kw of additional diesel generating capacity in communities outside of illontevideo, and other works such as transmission and distribution lines. The telephone program provided for a general increase in U.T.E. 's tele- phone facilities. The Republic of Uruguay guaranteed the loan. 30 Because of delays in ratification of the Loan and Guarantee Agree- ments andl in the placement of important construction contracts, the project got off to a slow start. However, recent progress has been satisfactory qnd the project is now near com letion. The 50,000 kw thermal unit in Montevideo went into operation last February. Construction of the trans- mission lines and distribution systems will be finished within the next few months. The telephone project was also behind schedule but is now practically completed. 4. As of July 31, 1955, $1,700,000 was still available in the Loan Account. These funds should be disbursed by early next year. Repayment of the loan began in Feoruary 1955, and is scheduled to be completed by August 1974. Principal repayments to date total $1,650,000. 5. To meet the constantly and heavily increasing demand for power in Uruguay, U.T.E. applied for a second loan of about $40 million for the installation of an additional 50,000 kw thenaal unit in M'lontevideo and the construction of a 103,000 kw hydroelectric plant at Rincon ce Bay- gorrias approximately 55 miles downstream from the present 114,000 kw hydroelectric installation at Rincon del Bonete on the Rio Negro. Also included in the project would be construction of additional transmission  - 2 - lines, a "collector ring" and substations at iIontevideo, and the installa- tion of additional diesel generating plants in communities in the interior of the country. 6. At the same time that this loan request was received, the Uruguayan Government also requested Bank loans for the development of the livestock industry and the rehabilitation and expansion of the Uruguayan State Rail- way system. 7. A Bank mission visited Uruguay in April-June 1953 to review these loan requests, and on the basis of the iW.ssion's recommendations, I advised the Uruguayan Government on August 27, 1953, that I would be prepared to recomnend to the Executive Directors that the Bank participate in financing the proposed agro-livestock project as soon as certain administrative and organizational pioblems connected therewith were resolved. The first loan for this purpose would be in the neighborhood of j6-8 million. On December 4, 1953, we also advised the Uruguayan Government that we would be prepared to recommend loans for power expansion and railway rehabilitation in the amount of 540 million (equivalent), of which .30 million might be allocated to the power program (i.e.$lO million less than requested), leaving about $10 million for the raillays. I However, since Uruguay's dollar position appeared to be a point of particular weakness in the country's external balance of payments, loans in the amounts mentioned could be contemplated only if the bulk of the financing could be carried out in non-dollar curren- cies. 8. Preliminary discussions were subsequently conducted on loans in all three fields but these were virtually suspended some weeks prior to the Presic.ential Elections held on Novenber 2S, 1954. In March of this year a new governmenttook office. The directors of U.T.E. and the railways resigned and new directorates did not take office until mid-June. The Special Comnission charged with preparing plans for the proposed livestock project also resigned and Was reconstituted only a few weeks ago. 9. The new directorate of U.T.E.