Uruguay - Baygorria Hydroelectric Power Project

R E S T R I C T E D R e p o r t N o. T.o. 120a 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 APPRAISAL OF BAYGORRIA HYDROELECTRIC PROJECT URUGUAY October 2, 1956 Department Technical Operations  CURRENCY EQUIVALENTS 1 U.S. Dollar . 2.1 pesos 1 peso a $.48 1,000,000 pesos a $476,190  C 0 N T E N T S Page I Introduction. . . . . e v * * * , e * * e e e e e , * * 1 II II Existing Bank Loan to UTE . . . . . . . . . . . . III Present< Capacity and. Age of Generating Facilities . .. . X . . gt . . . . . . . a.. .. . 2 IV Maret for ElectriityO................... 3 V UUET's Current Expansion Program . . . . . . . . . . . . . 4 VI The Project . . . . . . . . . . . . . . . . . . . . . . 5 VII Organization ana Management of '. . . . . . .. . . . . 8 VIII Financial Aspects . . . . . . . . . . . . . . . . . . . . . 9 IX Econofao JustificationO . . . . . . . . . . . . . . . . . 14 X Conclusions and Recozmendations . . . . . . . . . . . . . . 15  APPRAISAL OF THE BAYGOPPIA HYDROEIECTRIC PROJECT URUGUAY SUMARY This report covers the appraisal of a project for the further expansion of the power facilities of UTE, an autonomous Government agency, to which the Bank has previously made two loans totaling the equivalent of $38.5 million. UTE, which was establiEhed in 1912, now supplies all power consumed by the public and practically all teie;.ehone service in Uruguay. In July, 1956, UTJY owned and operated power facilities with an installed capacity of 285,o00 kw and had 50,000 kw under construction. It supplies energy to the most populous part of the country through a rather extensive trans- mission system and to the remainder of the country by diesel generation. The principal market for electricity ie in Montevideo, the capital and largest city in the country, which in 1955 consumed 79% of UTE's total sales of 776 million kilowatt hours. Since 1947 UTETs sales have increased at an average rate of 9.7% a year. For the period 1956-1963 UTE estimates that its sales will increase at least 9% a year and reach 1,590 million kwh by 1963. To meet the increas ing demand for power UTE has formulated an expansion program which includes the construction of a 103,000 kw hydroelectric station, known as Riocon de Baygorria, on the Rio Negro, a high-tension transmission line 340 kilometers long and a collector system in Montevideo to provide better interconnection between the existing thermal plants in Montevideo and the existing and pro- posed hydro plants and the various high-tension lines radiating from the city. This project is estimated to cost the equivalent of $52 million ex- clusive of interest during construction. The Bank has been requested to fi- nance the foreign exchange cost of the project, estimated at $25.5 million. About 7% of the drainage area of the Rio Negro lies in Brazil and, therefore, the average flow of the river at the Brazilian border is very small. Consequently, the diversion of all or a part of the flow within the borders of Brazil would have only a negligible effect on the operation of the Baygorria project. As the project will be downstream from an existing hydro station in Uruguay, it cannot affect Brazil. Construction of the project started in August and is scheduled to be completed in the first quarter of 1961. Enerey from a thermal plant of similar firm capacity, located in Montevideo, woulc cost approximately 25 to 30% more than energy from the Bay- gorria project. The project has been thoroughly studied and the estimated costs ap- pear reasonable. JTEVs plans for financing the project are satisfactory,  - ii - and its technical staff, supplemented by consultants who have already been retained, will be capable of supervising the construction of the project. UTE should be the borrower. Its present financial position is sound and its present rate structure should produce revenues sufficient to provide an adequate return on its investment in the foreseeable future. The project is suitable as a basis for a loan of the equivalent of $25.5 million. A term of 25 years, including a grace period of about 5 years on amortization pa:ments. is appropriate for the proposed loan.  APPRAISAL OF THE BAY1GORTIA HYDROELFECMTRTC PROJECT URUGUAY I. ITNTRO3DWCTION This report covers the appraisal of a project consisting of a 103,000 kw hydroelectric plent on the Rio Nregro, a high-tension trans- mission line about 340 kilometers long and the improvement of the primary distribution system in Montevideo. The project is est'imated to cost the equivalent of $52 million exclusive of interest during construction. The Bank has been requested to finance the foreign exchange cost of the proj- ect, estimated at $25.5 millLon. The Aacilities included in the project would be owned and operated by UTE 1/, an autonomous Government agency. II. E3.STT.- BANK IOANS TO UTE 2. UTE, to whluh"the Bank has )reviously made two loans totaling the equivalent of $38.5 million, was established In 1912. It now supplies all elec- triz power. consumed by the public and almost all telephone service in Uruguay. 3. The first loan (Loan 30 UR), made in August, 1950, was for the equivalent of $33 million. It was to provide for the foreign exchange costd of a prcgram for the expansion of UTE's power and telephone systems, the totel cost cf which was estimated at the equivalent of $46 million. The loan las now been completely disbursed and the project is complete except for a few mi!nor items. The power part of the project included the expansion of UTETs thermal capacity in Montevideo by 50,000 kw, the addition of 18,000 kw of diesel capacity in the interior, the construction of 1,000 kilometers of high-tension transmission line, and the expansion of the primary and second- ary transmission systems in NMontevideo and the interior. The telephone program included the general expansion and improvement of the telephone system in Montevideo and the interior. Of the $33 million Bank loan, $26.8 million was expended for power and $6.2 million for the telephones. 4. Both the power and telephone programs were completed about 20 months b.hind their original schedules. A part of this time was attributable to the 9 month delay in the ratification of the loan agreement and a part to the lone delays in placing the original orders for many items. As a result, the program did not gein much momentum until 1952, but once under way the work proceeded at a reasonably satisfactory pace. 5. Partially because of the long delays described above, during which equipment prices and labor costs increased as a result of the Korean war and partially owing to the under-estimation of the local currency costs of the program, the final cost of the project exceeded the original estimates by the equivalent of $2.6 million in foreign exchange and about $17 million in local currency. These excess costs were met from UTE's own resources. 6. The second loan (Loan 132 tR), made in August, 1955, was for the equivalent of $5.5 million to meet the foreign exchange cost of the 1/ T7 'ni3tracion Gereral cLe las Usinas Electricas y Los Telefono3 d.el Evta&o.  - 2 - further expansion of UTE's thermal power plant capacity in Montevideo by 50,000 kw. The total cost of the project is estimated to be the equivalent of $6.3 -million. Ac at the end of July, 1956, the project was about 55% completed and. $2.36 million had been withdrawn from the loan. The project is scheduled to be completed in Septerber, 1957. 7. Conistzuction work under the second loan is progressing according to its original schedule. As such a large percentage of the work is covered by firm contracts, it is likely that the final cost of the project will be reasonably close to the original estimate. III. CAPACITY AND CONDITION OF UTE's GEENEATIN.G FACIITITIES Capacity 8. In July, 1956, UTJE owned and operated power facilities with a total installed capacity of 285,500 kw and had 50,000 kw undorc construc- tion, of which 20,000 kw was in partial operation. Of the capacity in operation, 145,000 kv is installed in two steam stations in Montevideo, 114,000 kw is in the Pincon del Bonete hydro station on the Rio Negro aind 26,500 kw is in the 43 diesel plants in various parts of the country. Thle two steam stations in Montevideo (Batlle of 120,000 kw and Calcagno of 25,000 kw) and the Rincon del Bonete hydro plant, about 225 kilometers north of Montevideo, are connected by a high-tension transmission line. These interconrnacted stations are known as the Montevideo-Pinoon System. This system serves Montevideo and also serves most of the other large and important communities in the courntry through an extensive transmission system, a large part of which was financed by the first Bank loan to Uru- guay. (See map) This system in 1955 supplied about 91% of the electric energy consumed in Uruguay. The remainirng 9% was supplied by the 43 diesel stations. Most of the diesel stations serve only one community, but a few serve nearby towns over relatively short transmission lines. Because of the expansion in UTE!s transmission system, the amount of diesel generation is expected to decrease in the future to about 5 to 6% of the total and re- main at about this level. 9. Under normal rainfaLl conditions the capacity of the Montevideo- Rincon system is 259,000 kw, but under drought conditions its capacity is only 223,000 kw. In 1955 the peak load on the system was 209,000 kw. Gen- eration by the facilities in the Montevideo-Rinco,a system in 1955 amounted to 927.7 million kilowatt-hours, 678.4 million kwh of which was by the hycrLo plant and 249.3 million was by the thermal plants in Montevideo. Die- sel plants in the interior generated 91.0 million kwh, bringing the total generation in 1955 by UTE's plants to 1,0187 million kwh. Station use and transmission and distribution losses amounted to 23.8% of generation. Th6se are within reasonable limits. (For details see Annex A) Condition of Generating Facilities 10. The Rincon del Bonete hydro plant was completed in 1948 and is in good condition. Of the 100,000 kw in the Batlle steam plant, 50,000 kw, inl two units, was completed in 1932 and is in reasonably good condition;  - 3 - the other 50,00() kw, a single unit (partlally financed by the first Bank loan), went into operation in February, 1955, and is in excellent condi- tion. The 25,000 kw l.n the Calcagno steam plant, which consists of four generating units and 14 boilers installed at various times between 1906 and. 1955, is obsolete and should be abandoned, but, because the demand for power has becn so acute, it has been kept in usable condition as a reserve plant and is used from time to time. Although some of the old boilers have recently been replaced the -plant uses 50% more fuel per kilowatt-hour and re4ui:es 4 to 5 times as much operating and maintenance labor as a modern plar.t. Most of tle diesel plants w1hich will remain in operation in the areas not served by transmission lines are fairly new and on the whole are in reasonably good condition. IV. MAREIT FOR ELECTRICITY 11. The principal market for electricity in Uruguay is in Montevideo, where about 1 million of the 2.52 million population live. It also contains most of the industry in Uruguay. In 1955 sales of electricity in Montevideo accounted for about 79% of the total sales in the country. The sales to various classes of consumers in Montevideo and in the Interior are shown in the following table. CLASS OF CONSUMER MLONTE- VIDEO INTERIOR % TOTAL % ( t h o u s a n d s o f k i 1 o w a t t - h o u Residential 211,255 34.5 61,787 37.8 273,042 35.2 Commercial 44,899 7.4 13,916 8.5 58,815 7.5 Industrial a/ 316,793 51.8 58,103 35.7 374,896 48.4 Government 16,284 2.6 6,166 3.7 22,450 2.9 Municipal b/ 19,630 3.2 7,765 4.7 27,395 3.5 Waterworks 3,383 0.5 15,684 9.6 19,067 2.5 TOTAL 612,244 100.0 163,421 100.0 775,665 100.0 a/Includes tramways in Montevideo. g/Mostly street lighting. 12. Prior to the last world war sales of electricity in Uruguay had been increasing for several decades at about 8.4% a year. During the war there was a decrease in consumption because of rationing of power. After the war there was a considerable amount of expansion of existing industry and development of now industries, especially in the Interior. This, to- gether with a steady increase in demand for residential and other uses, re- sulted in an increase in the postwar demand for electricity throughout the country, which exceeded the past annual rates of increase. From 1947 throuh. 1955 UTEts total sales increased at an average rate of 9.7% a year. The in- zrease in Montevideo averaged about 8.5% a year, but the increase in the interior was 16.2% per year. This reflects the increasing growth of industry in the interior where industrial power sales have more than doubled during the past six years. A still further development of induszry in the interSo2  - 4 - may be expected in the future as about 20 communities in the more populous and well-developed part of the country were connected in 1955 'nto the Montevideo-Rineon system by 110 kV transmission lines, known as the Eastern and Western circuits (partially financed by the Bank) with the res'alt that these cormunlties will now have an adequate and dependable power supply in place of the former inadequate supply from over-loaded diesel plants and can plan further industrial development writh confidence. 13. TE3E estimates that 'ts sales atring the period i956-l962 will increase at a rate of 9.0% per a3num. Tbis is somewhat less then the aver- age rate of increase in salos of 9.7% a year from 1947 to 1955 and- is rea- sonable. On this basis, total sales are expected to increase from 773 mil- lion kwh in 1955 to 1,590 million kwh in 1963. For details see Annex A. For the first sEX months of 1956, sales have been 8.6% above a similar per- od in 1955. A serious strike reduced sales in April considerably. With normal sales in April, the increase over.1955 would have been &bove 9%. i4.. The peak load on the Montevideo-Rincon system increased from 89,600 kw in 1947 to 209,000 kw in 1955, or at an average rate of about 11.4% oer year. The peak load on the system (which will include some new com- manities) for 1956 is estimated at 230,000 kw, about 10% above 1955. UTE estimates that the peak load on the system after 1956 will increase at a rate of about 8.0% per year at least until 1962. By comparison with the 1l.4% increase annually since 1947, this is conservative. At an average increase of 3.0% per year, the load on the system will reach about 364,000 kw in 1962 or abouat 74cp above the 1955 load. For details see Annex B. V. UTT'S CURRENT EXPAUTSI0N PROGRAM 15. To meet the increasing demands for power, UTE formulated in 1953 an expansion.program whichvas approved by the Parliament. A part of this program, thie ins allation of an additional 50,000 kw unit in the BatlJe steam plant in Montevideo to bring its total caoacity to 150,000 kw, is alroady under construction and is being partially financed by the Bank. The remainder of the program includes: construction of a 103,000 Irv hydro plant on the Rio Negro at Baygorria, 88 kilometers downstream from the Rin- con del Bonete hydro plant; additional high-tension transmission lines to interconnect the proposed Baygorria plant with Rincon del Bonete and Monte- video; the construction of a collector ring and substations in Montevideo to improve the connections between the various hydro and steam stations and the transmission lines radiating from Montevideo; construction of about 425 kilometers of new transmission lines of varying voltages to serve additional towns in the interior; the increase in the capacity of the Eastern and West- ern circuits, and the installation of additional diesel generating units in the Interior. In 1953 the program was estimated to cost the equivalent of $79 million. The Bank was requested to finance the foreign exchange cost of the entire program, estimated at the equivalent of $40 million. 16. The Bank management advised the Minister of Finance in December, 1953, that it was prepared in priniciple to recommend to the Executive Dir- ectors that the Bank participate in financing about 630 million of the for- ei,gi 3xci1ane Qo vot of the h-ICi rt_Icrity items In the p-wear expanefioa prfcgrem  - 5 - after the currencies required became known. The letter to the Minister of Finance eu6gested proceeding with loans to UTE in two or more tranches, the first to cover foreign exchange costs of expans.on of the thermal plant in Montevileo for which the foreign currencies were partially known, and at a later date to undertake negotiations of additional loans when the curren- cles involved could be more acc-urately determined for the other high prio- rity items. Accordingly, a loan to cover foreign exchange costs of the further expansion of lthe Batile the-mal plant in Montevideo was made in August, 1955, andi construction is now .m-n progress. VI. THE PROJECT Description 17. The prolect now proposed for Bank financing includes three of the higher prlority items in UTE's expansion program and some bvsiness machines for its accounting departments. The items consist of: A. The 103,000 ki; hydro station 1/ on the Rio Negro at Rinoon de Baygorria which will utilize the regulated flow from the largse reservoir of the Rincon del Bonete hydro station 88 kilometers upstream. Storage in the Baygorria reservoir will be relatively small. The powerhouse, in which three generating unita will be installed, will be an integral part of the dan. The aver,age head on the turbines will be about 14.7 meters (48 feet). Provision will be made for the construction of a navigation lock at a future date. A road six meters wide will be constructed over the dam and power house. (For further details see Annex C.) B. The necessary high-tension transmission lines and substations to connect the Baygorria station with Rincon del Bonete and with Montevideo consisting of about 39 kilometers of single-circuit 161 kV lines to Bonete and 270 kilometers of double-circuit 161 kV lines to Montevideo, the expan- sion of the substation at Bonete and the construction of a new substation at Montevideo. (For further details see Annex D.) C. The "Collector Ping" in Montevideo, consisting of about five kilojeters of double-circuit rnderground cable, 28 kilometers of double- circuit 150 'V transmission lines and three substations. (For further details see Annex E.) D. Business machines to modernize UTE's accounting department. International Character- of the Rio Egro 18. The drainage area of the Rio Negro above the site of the proposed Baygorria Hydro plant is 37,725 square kilometers. Of this about 7% (2,680 square kilometers) lies in Brazil. The proposed Baygorria hydroelectric plant will be about 544 kilometers by river downstream from the Brazilian border and 88 kilometers below the existing Rincon del Bonete dam and reser- voir which was completed in 191i5. The Baygorrla project, therefore, calmot affect any portion of the river which lies in Brazil. Any diversion of the 1/ 9uriTg drougats the capaci.ty is es,imated to be 83,000 k,i.  - 6 - relatively small flow of the Rio Negro in Brazil for irrigation or other purposes would have only a negligible effect on the operation of the Bay- borria plent. Tlere will be, therefore, no problems arising out of the international character of the Rio Negro involved in the construction of the Baygorria hyixo station. Cost of the Project 19. The cost of the project outlined above is estimated at the equi- valent of a-bout $52 million, excluding interest during construction. The foreign exchange cost is estimated at the equivalent of $25.5 million, ex- cluding interest during construction which is estimated at the equivalent of about $4.41 million. The foreign exchange and local currency cost of the three items is given below. Foreign Local Total Item 'xchange Currency Cost ( t h o.u s a n d s U S d o 1 1 a r s) Baygorria Hydro rroject 17,920 23,120 41,040 1.61 kV Transmission Lines 4,720 2,550 7,270 Collector Ring, Montevideo 2,560 890 3,450 BusIness Machines 300 - 300 Sub-total 25,500 26,560 52,060 Interest During Conatruction 4,41o 1,800 1/ 6,210 TOTAL 29,910 28,360 58,270 20. After extensive international bidding, a contract for the con- struction of the Bargorria hydro project was awarded on May 29, 1956, to a consortium of European contractors and equipment suppliers. Contracts for the construction of the transmission lines and the collector ring have not yet been awarded,2/ but bids have been received for the underground ccnductors and for the construction of overhead part of the collector ring. The estima- ted costs of the project include freight, maximum escalation, insurance and contingencies. Contingencies of about 10% are included in the estimate of the foreign exchange costs and about 14o% in the local currency costs. In view of the fact that a contract has been awarded for the largest of the three Items and the cost of a part of the other items are known, the amounts in- cluded for contingencies should be sufficient, especially since the con- tracts contain a ceiling (lOLl) on the escalation on equipment items. The cost per kilowatt installed is estimated to be the equivalent of about $ +6 including interest during construction. This is on the high side, 1/ Does not include interest on funds from own resources. 2/ UTE is required by law to obtain competitive bids on all major purchasea or contracts. It is the policy of UTE to obtain international bids in such cases.  - 7 - but it is an acceptable figure for a low head. plant. The estimates on the transmission lines and the collector ring are also reasonable. 21. Supervision of the construction of the project will be undertaken by UTE's engineering staff assisted by a well-qualified firm of Swiss con- sulting engineers, Gruner Brothers and Associates. 22. Other items in UTE's expansion program, estimated to cost the equivalent of about $9.6 million will be financed from UTE's own resources. (See paragraph 15.). Howe-ver, it is probable that some of these itc-ms will be postponed. until after the completion of the Baygorria project. Concur- rently with the construction of the project, UTE will continue to expond. its distribution facilities in Montevideo and in the interior from its own resources. As will be seen in Paragraph 37 and in Annex J, UT1E will have ample funds for this purpose. Schedule of Construction 23. Contractors started the construction of the Baygorria hydro Plant diuring August, 1956. UTE had previously completed the construction of a paved access road about 40 'kilometers long from the railroad to the cam site, and a water supply and. sewerage system, a small power plant, and a coisid.erable amount of housing at the dam site. The following table gives dates for starting construction and the estimated dates for final accept- ance or completion of each item included in the project. Item Starting Date Final Accentance Date Baygorria H dro Plant A. First Unit August 1956 June, 1960 B. Second Unit August, 1956 October, 1960 C. Third Unit August, 1956 March, 1961 Completion Date Transmission Lines A. Bonete-Baygorria January, 1957 May, 1959 B. BEaygorria-Montevideo September,1957 September,1960 Collector Ring June, 1956 December, 1958 24. The above schedules are reasonable. It is possible that the B1r,ygorria hydro plant can be completed somewhat under the time estimates, provided no unusua1 floods occur on the Rio Negro, particularly in view of the fact that the specifications provide for a premium to be paid to tie contractors for completion of the first unit ahead of the allotted time and. also penaltios for delays in the completion of all three units. The con- tractor's plan for the construction has been reviewed by three independent consultants 1/ and deemed satisfactory. 1/ Dr. A. LaO-in of Gei-any, M4r. ALdro Pfaff C' Electricite de France, aid 'r, Grant ]Elooa,'ood, U. 6. Bureau of RcolamaJtion.  -8- fngineeri Aspects 25e Tho ori-.nel desglu, tho prelimtnary plans and spocifications were preparcd undor tho direction of Dr. Adolph Ludln, an independent con- sultant from Germany, who designed the Rincon del Bonate hydro plant. The preliminary plans were reviewed by lr. W. L. Newmeyer, an engineer of the U. S. Bureau of Reclamation who concl!ed that the plans were sound. The contractors will prepare the detailed working drawirngs which will be checked and approved by UTE and its consultants. The contractors will supply all necesEary construction equipment. 26. The geological conditions at the dam site at Rincon de Baygorria are satisfactory. The spillway capacity of the dam is adequate. The com- putations of the flow available at Baygorria are based on 40 years of hydro- logical records. 7 In general, the design and layout of the plant are engineeringly sound and the plant should have a reasonably high operating efficiency. Under average rainf'all conditions (1,115 mm or 43.5 inches annually) the plant is estimatcr to produce about 450 million kilowatt- houro annually. This is based on a 51% load factor and is a reasonable assumption. 27. The design of the transmission lines is similar to that of the existing line from Rincon del Bonete to Montevideo. They will be adequate for the estimated loads which they are expected to carry. 28, The design of the collector ring is technically sound. It should increeae the efficiency of the distribution of energy in Montevideo and to the Eastern and Western circuits out of Montevideo. Rate of Foreign Exchange Expenditures 29. The estimated rate of foreign expenditures on the project is shown in the following table expressed in millions of U. S. Dollars. Item 1956 1957 1958 1959 1960 1961 Total Baygorria 2.08 4.31 6.31 3.73 1.29 .20 17.92 Transmission .11 2.01 1.92 .49 .19 4.72 Collector Ring - 1.29 1.17 .10 - - 2.56 Business Machines - .30 - - - .30 TOTAL 2.08 6.01 9.49 5.75 1.78 .39 25.50 VII. ORGANIZATION AND MANAGCEMIT OF UTE 30. UTE is administered by a Board of five directoro. Three members of the Board, including the President, are appointed from the majority party in the Parliament and two are appointed from the minority party. Under the President there are managers of power, telephones, admini- stration, and finance. UTE's staff numbers about 11,OO. Of the total, about 5,400 are in the powrer division, 3,000 in the telephone division, and 2,600 in the admizistrative and financial divisions. This staff is too large T/ Ybe everage arnual f low at laEgoirTa, 14.65 million acre feet, is eboiut .Jhe -z_ae as the nr.nal or tlaJ` floi( on the lo',mur Colorado River in v;he '.x<d States at the hoover Dafl.  - 9 - by normal standards, but as UTE's office employees, as well as all Govern- ment office employees in Uruguay, wobAk only five hours a day, the excess staff is required to carry on operations at a reasonable pace, although non- office workers have a seven-hour day. UTE's administrative procedures are rather cumbersome, but this is largely because of necessity for compliance with Government regulations. The Board of Directors generally changes after each national election. In spite of this rather frequent turnover (every four years) UTE is reasonably well managed. as the senior permanent offi- cialT are concient'ious and hard-working and supply the ccntinuity required. for the day to day operations. 31. UTE's engineering staff for planning and supervision of construc- tion is relatively small and it is fairly well cocupied with construction work in progress. Eowever, it will be supplemented. by the staff of experi- enced consulting engincers during the construction of the project. The con- tractors will therefore be adequately supervised. VIII. FIAITCIAL ASPECTS Rate Structure and Farnings 32. Although the cost of production of electric energy in Diesel sta- tions in the interior is about twice the average cost of energy produced in the large thermal and hydro stations in the Montevideo-Rincon system, TM's charges for energy apply uniformly throughoult the country regardless of the source of the energy sold. In the past, this practice has resulted in net losses in the interior owing to the large proportion of generation by diesel plants in the interior prior to the completion of the Eastern ard. Western circuits. However, as revenues from sales in Montevideo have more than offset the losses in the interior, UTE has shown a net profit every year in the past ten years, except in 1951 when a small deficit (500,000 pesos) was recorded. (For details see Annexes F and G.) At the end of that year UQE increased its industrial tariffs about 40% and its residential tariffs about 32% and in the following year the small deficit changed to a substantial net profit and since then profits have been very satisfactory. The 1951 tariffs remained in effect until September, 1955, when UTE again was authorized to increase its power and telephone rates.l/ These increases averaged about 14% for industrial consumers, about 5.5' for commercial customers, about 10'%' for residential consumers, 25% for tramways, and aver- agad overall about 13%. Increases in the telephone tariffs averaged about 25%. Now that the high-tension transmission lines comprising the Eastern and Western circuits have been completed, the amount of energy to be gernera- ted by the diesel plants in the future is estimated to be only 5 to 6% of the total generation. Since the interior, which is estimated to consume from 24 to 28% of UTE's total production, will be supplied largely from the Montevideo-Rincon system, the revenues from sales in the interior under the unihorm tariff policy should in the futulre cover UTE's average cost of pro- duction. 33. It is estimated that in 1956, the first full year the new tariffs will have been in effect, UTE's return on its investment wIll be about 1.0% I'TElIs tai rf2